22august2011 india daily - kotak securities...for private circulation only. for important...

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

INDIA DAILYAugust 22, 2011 India 19-Aug 1-day1-mo 3-mo

Sensex 16,142 (2.0) (13.8) (11.9)

Nifty 4,846 (2.0) (14.0) (11.7)

Global/Regional indices

Dow Jones 10,818 (1.6) (14.7) (13.5)

Nasdaq Composite 2,342 (1.6) (18.1) (16.5)

FTSE 5,041 (1.0) (15.1) (15.3)

Nikkie 8,736 0.2 (13.8) (9.1)

Hang Seng 19,649 1.3 (12.5) (15.3)

KOSPI 1,745 (0.0) (19.6) (17.4)

Value traded – India

Cash (NSE+BSE) 154 144 136

Derivatives (NSE) 1,907 1,183 921

Deri. open interest 1,467 1,408 1,530

Forex/money market

Change, basis points

19-Aug 1-day 1-mo 3-mo

Rs/US$ 45.8 1 141 52

10yr govt bond, % 8.3 (1) (3) (10)

Net investment (US$mn)

17-Aug MTD CYTD

FIIs (90) (1,386) 775

MFs (7) 352 (282)

Top movers -3mo basis

Change, %

Best performers 19-Aug 1-day 1-mo 3-mo

IDEA IN Equity 94.0 (1.1) 10.1 39.4

APNT IN Equity 3175.4 (1.3) 2.1 9.1

GNP IN Equity 317.8 (1.2) 1.5 9.1

BPCL IN Equity 681.8 0.4 1.9 9.0

ITC IN Equity 199.2 (2.3) (4.0) 7.7

Worst performers

IVRC IN Equity 35.3 (4.2) (48.0) (49.1)

EDSL IN Equity 220.0 (6.3) (41.4) (47.2)

CRG IN Equity 136.5 (1.8) (25.3) (45.0)

TTMT IN Equity 712.4 (5.3) (28.5) (39.0)

HDIL IN Equity 100.7 1.4 (35.7) (33.4)

Contents

Daily Alerts

Change in Reco

Container Corporation: Upgrade on attractive valuations as headwinds seem priced-in

Federal Bank: Valuations attractive. Upgrade to BUY

Sector

Industrials: Evaluating opportunity in mid-cap industrials; upgrade Voltas to BUY

Technology: Question marks on earnings power unwarranted

Strategy

Strategy: Takeaways from KIEs Consumer Forum 2011 on August 19

News Round-up

Sensex may dive another 13% in choppy D-Street, ET poll of fund managers & brokers predict rough ride for stock investors in the coming weeks. (ECNT)

Finance minister said the govt. will not go ahead with the disinvestment programme in the PSUs until market conditions are favourable. (ECNT-Sat)

Pakistani companies may soon be able to invest in India, with the govt. planning to remove the country from a negative list that debars investments from across the border. (ECNT)

Range of back-end infra FDI to widen in multi-brand retail. New policy to give greater flexibility to foreign players. New areas to be included are improvement of design, quality control and packaging. Earlier, the scope mainly included investment in logistics and processing of agricultural goods. (BSTD-Mon)

Reliance Industries Ltd (RIL IN) is likely to close its USD 7.2 bn deal to sell stake sale in 21 oil and gas blocks to UK's BP Plc in the next 7-10 days. (BSTD-Mon)

Competition watchdog CCI has cleared Coal India Ltd (COAL IN) of charges of anti-competitive practices while placing orders for supply of mining explosives. (BSTD-Mon)

PM calls for 9% growth in 12th plan. Says second generation reforms are difficult and require broad-based national consensus. (BSTD-Sun)

The proposed rights issue of SBI (SBIN IN) may hit the market by the end of this financial year. The finance ministry is planning to provide funds to the country's largest lender by the third quarter end. (BSTD-Mon)

Reliance Power Transmission's arm North Karanpura Transmission Company, have moved the apex power regulator seeking cumulative "relief" of over USD 156 mn for going ahead with the execution of two key transmission projects. (THBL SUN)

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

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

Upgrade on recent correction as stock seems reasonable on P/E and P/B relative to cash and RoE

Concor has underperformed 8% over the last month and now trades at 2.1 FY12E P/B, reasonable in context of 18% RoE (29% adjusted for cash). Concor has bottomed at 2.0 P/B in earlier instance as well. P/E of 12X FY2013E is reasonable in context of (1) strong operational cash flows before capex and (2) average historical P/E of 16.3 and 14% premium over Sensex versus parity currently.

Exim growth remains buoyant though opportunity set, competition and exim imbalance limit gains

Exim traffic has shown traction in the past few quarters (exports grew 45.7%, imports 36.2% in 1QFY12). Concor stands to benefit though gains get constrained due to (1) its limited opportunity set (containerized goods through rail), (2) competition within rail and (3) loss of business to road operators (exim imbalance led de-stuffing). Concor continues to lose market share over the past 5 years (22% in FY2011 versus 31% in FY2006) as its exim volumes grow (17%) slower than market (49%) over FY2007-11. We build in 7% exim volume growth for Concor (with about 10-12% sectoral growth) versus 2.5% in 1Q as equipment issues at JNPT resolve. Concor may gain market share at ports like Mundra (FY2011 - gained market in Mundra assuming constant rail:road mix) and benefit from volumes growth at Pipavav etc. (seemingly almost 100% market share).

Policy change-led drop in domestic volumes to last two more quarters; partial resolution possible

Concor has taken the brunt of change in domestic freight policy nullifying incentive to transport some bulk goods in containerized form. For Jan-June 2011 (post policy change in Dec 2010), its domestic volumes have fallen by 11% and per TEU margin has declined 18% yoy. The company is pursuing to get partial relief from this policy change for genuine bulk traffic that can be carried in containers. We build 5% yoy drop in domestic volumes for FY2012E and 7% growth thereafter.

Revise estimates to factor in lower business growth; upgrade to ADD on attractive valuations

We revise our estimates to Rs70, Rs78 from Rs72.3, Rs82.4 for FY2012E, 2013E, respectively to factor in lower growth in domestic and exim volumes. We upgrade stock to ADD (TP of Rs1,150 at 14X FY2013E plus Rs50 investments from Rs1,275 at 15X earlier) on (1) favorable risk reward tradeoff, (2) rub-off from exim growth and (3) possible domestic regulatory review.

Container Corporation

Infrastructure

Upgrade on attractive valuations as headwinds seem priced-in. Upgrade on (1) recent underperformance, (2) attractive valuation (2.1 P/B with 18% RoE and 29% adjusted for cash) and 12.6 P/E on reasonable estimates, (3) strong B/S and cash flows, (4) exim growth on buoyant trade data so far, resolution of one-off 1Q issues and (5) potential upside from lower tax and domestic tariff review. Global trade weakness and sharper-than-expected market share loss to competition are key risks. TP Rs1,150 (Rs1,275 earlier).

Container CorporationStock data Forecasts/Valuations 2011 2012E 2013E

52-week range (Rs) (high,low) EPS (Rs) 63.5 70.0 77.9Market Cap. (Rs bn) 124.6 EPS growth (%) 4.9 10.3 11.2

Shareholding pattern (%) P/E (X) 15.1 13.7 12.3Promoters 63.1 Sales (Rs bn) 38.3 41.3 45.7FIIs 26.5 Net profits (Rs bn) 8.3 9.1 10.1MFs 1.4 EBITDA (Rs bn) 10.4 11.2 12.2

Price performance (%) 1M 3M 12M EV/EBITDA (X) 9.7 8.5 7.4Absolute (16.4) (13.3) (28.7) ROE (%) 17.6 16.9 16.6Rel. to BSE-30 (8.2) (6.9) (22.7) Div. Yield (%) 1.5 1.7 1.9

Company data and valuation summary

1,395-950

ADD

AUGUST 22, 2011

CHANGE IN RECO.

Coverage view: Cautious

Price (Rs): 926

Target price (Rs): 1,150

BSE-30: 16,142

Container Corporation Infrastructure

KOTAK INSTITUTIONAL EQUITIES RESEARCH 3

Healthy RoE (adjusted for cash) and strong cash flow characteristics comfort

We highlight that Concor operates at high return levels leading to strong cash flows after accounting for capex investments. Though the company has historically operated at around 40% RoE levels (stripping off effect of high levels of cash), the present RoE (29%) still should command a higher P/B multiple (2.1X currently).

The company also displays strong quality of earnings. It has consistently generated more than Rs4 bn of free cash flows over FY2007-11. This further comforts us on the relatively inexpensive valuations at which the stock currently trades.

Healthy RoE/ROCE adjusted for cash supported by strong free cash flows Trends in RoE/RoCE and cash flows of Concor over 2005-11, March fiscal year-ends (Rs mn)

2005 2006 2007 2008 2009 2010 2011RoE/ROCE analysisSales 19,951 24,263 30,573 33,473 34,172 37,057 38,266Interest income 376 427 597 1,279 1,701 1,481 1,472PAT 4,289 5,237 6,961 7,505 7,915 7,867 8,301Average asset 15,493 19,003 23,605 29,069 34,731 40,493 46,946Average cash 5,499 6,131 8,695 12,920 16,425 18,765 21,765Average equity 15,380 18,950 23,605 29,069 34,731 40,493 46,946RoE/RoCE (%) 27.9 27.6 29.5 25.8 22.8 19.4 17.7RoE/RoCE (adj. for cash) (%) 40.4 38.5 44.0 41.2 37.0 31.6 29.0Cash flow analysisCash flow from operations 5,224 5,689 7,990 8,558 9,562 7,622 8,912Cash flow from investing activities (4,604) (3,105) (2,713) (2,118) (5,180) (3,387) (2,752)

Free cashflow 620 2,583 5,277 6,440 4,382 4,234 6,160

Note(a) Interest income estimated for FY2011

Source: Company, Kotak Institutional Equities

Attractive valuations lead to favorable risk-reward tradeoff

We highlight that Concor has traded at par or premium to Sensex on forward P/E basis for the past 3 years. It has averaged price-earnings multiple of 16.3 over past 5 years versus 14.2 multiple for Sensex. It is currently trading at a forward P/E multiple of 12.6X. The stock is currently trading at a price to book multiple of 2.1 at the low end of its P/B range and has earlier rebounded from similar levels.

Concor has traded at an average one-year rolling forward P/E of 16.3X Comparison on Concor's P/E versus Sensex over the past five years

Concor SENSEXP/E comparisonPeak P/E (X) 20.9 21.8Bottom P/E (X) 3.9 3.5P/E correction from peak (%) 37.3 40.9

Average 5-year P/E (X) 16.3 14.2Current P/E (X) 13.1 12.9P/E premium over Sensex comparisonP/E premium at peak (%) 11.1 NAAverage 5-year premium over sensex P/E (%) 14.5 NACurrent P/E premium (%) 1.3 NAUpside if P/E premium shrinks to historical average (%) 12.9 NA

Source: Company, Kotak Institutional Equities estimates

Infrastructure Container Corporation

4 KOTAK INSTITUTIONAL EQUITIES RESEARCH

Concor has traded at pa/premium to Sensex for past three years, currently at parity PE Chart of Sensex and Concor based on 12-month rolling forward EPS, FY2006-July 2011

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Concor SENSEX


Trading below average P/B at 5-year lows PB Chart of Sensex and Concor based historical book value, FY2006-Aug 2011

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Concor P/B 5-yr avg P/B




Exim growth buoyant; opportunity set, competition and exim gap limit gains

We highlight the strong exim growth over the past couple of quarters. For the quarter ending June 2011, India’s exports at US$79 bn marked an increase of 45.7% on a yoy basis. India’s imports during the quarter also rose by 36.2% to US$110.6 bn. In specific, container volumes (major ports plus Mundra and Pipapvav) increased by 7.5% in the quarter on a yoy basis to 2.4 mn TEUs (14% increase in FY2011) versus 2.4% growth in Concor’s exim volumes. The management cited that Concor’s volumes from JNPT declined 5.5% due to equipment overhaul and other operational issues in hinterland leading to lower 1Q growth.

Historically, Concor has been able to capture part of the total exim growth. Total containizerable exports and imports in value terms (US$) have almost doubled over FY2007-11. Over the same period, container volumes (major ports plus Mundra and Pipavav ports) have grown by about 50%. Concor volumes have grown at an even slower pace (17% increase over the five-year period).

Containerizable exim growth has been double in value terms versus Exim trends (US$ mn, ‘000 TEUs) over FY2007-11, March fiscal year-ends

Note(a) All parameters are indexed to 100 on FY2007 values

Containerizable goods (US$ bn), 421 Containerizable

goods (US$ bn), 216 Port volumes ('000

TEUs), 9,263 Port volumes ('000 TEUs), 6,197

Concor's volumes ('000 TEUs), 2,019Concor's volumes

('000 TEUs), 1,716

60

80

100

120

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200

2007 2008 2009 2010 2011

Containerizable goods

Port volumes

Concor's volumes


Concor would continue to benefit from the exim growth. However, such gain is constrained by the company’s opportunity set (containerized portion of exim traffic transported by rail). The company also continues to fight against market share loss on account of (1) increasing competition and (2) exim imbalance (de-stuffing) led loss of traffic to roads. We build in 7% exim volume growth for Concor (with about 10-12% exim growth) versus 2.5% in 1Q as equipment issues at JNPT resolve.

Appears to have increased share in Mundra; almost 100% share at Pipavav

We highlight the increasing contribution of Mundra and Pipavav in Concor’s product mix at the cost of JNPT. The two non-major ports accounted for 21% of Concor’s exim volumes in FY2011 from 14% in FY2010. We also cite Concor’s increasing market share at Mundra (53% in FY2011 from 47% in FY2010 based on 30% of port volumes handled through rail). Concor also appears to have close to 100% share of Pipavav’s rail volumes. Even a 50% share of rail in exim traffic at Pipavav port implies a 93% market share for Concor in FY2011.



Concor appears to have increased its share at Mundra and has almost 100% share of Pipavav rail volumes Market share of Concor at ports for FY2010-11, March fiscal year-ends

2010 2011Total volumes ('000 TEUs)JNPT 4,061 4,271 Pipavav 321 497 Mundra 924 1,228 Chennai 1,225 1,523 Rail volumes ('000 TEUs) JNPT(@ 30% share) 2,031 2,136 Pipavav (@ 50% share) 161 249 Mundra (@ 30% share) 277 368 Chennai (@ 30% share) 368 457 Concor volumes ('000 TEUs)JNPT 1,383 1,296Pipavav 137 230Mundra 130 194Chennai 143 198Concor volume share (%)JNPT 68 61 Pipavav 86 93 Mundra 47 53

Chennai 39 43

Note(a) The rail share of business at Mundra and Pipavav are estimates

Even 50% rail share implies more than 90% share of Concor

Concor appears to have increased share at Mundra

FY2011Chennai

9.8%

Other ports5.0%

JN64

Pipavav11.4%

Mundra9.6%

FY2010

Pipavav7.3%

Chennai7.6%

Other ports4.8%

Mundra6.9%

JNPT73%


Increasing competition poses key risk for the incumbent market leader

Concor currently competes with 15 rail operators for transporting containerized goods, reflecting high competitive intensity. The company did highlight in its 1Q call of difficulty in capturing spillover traffic from JNPT to Mundra due to strong competition from entities associated with shipping lines such as APL and MSC involved in rail-based container transportation business on the Mundra port. Concor is the market leader in rail transportation for containerized goods (75% share) and thus would get significantly impacted by an increase in competitive intensity.



Brief profile of the 15 rail operators apart from Concor

Company Year Category Parent Company Other activitiesAdani Logistics Ltd 2006 I Adani Group Ports, container terminal, railways, CFSContainer Rail Road Services 2006 I DP World Ports, container terminalCWC 2006 I CWC Warehousing, CFSFreightstar 2006 I ETA Star Group Shipping and port servicesGateway Rail Freight 2006 I Gateway Distriparks CFS

Hind Terminals 2006 ISharaf Group (UAE) and MSC Agency (Geneva)

Shipping, freightforwarding

India Infrastructure and Logistics 2006 IAPL India (76%), and Hindustan Infra. Project and Engg (24%) Container shipping, infra entrepreneur

Reliance Infrastructure 2006 I Relaince ADAG Industry in generalSMART 2006 I SICAL Logistics CFS, container terminalBoxtrans (India) Logistics Services 2006 III JM Baxi & Co Container terminal, CFS, stevedoring

Pipavav Railway Corp. Ltd (PRCL) 2006 IIIIndian Railways - PipavavPoer Limited JV Ports, railways

TransRail Logistics Ltd 2006 IV Delhi Assam Roadways Trucking

Innovative B2B Logistics Solutions 2006 IVBagadiya Shipping, and Bothra Brothers (P) Ltd Agency and entrepreneur

KRIBHCO Infrastructure Ltd 2007 I KRIBHCO (PSU) Fertilizer industryArshiya Rail Infrastructure 2008 I Arshiya International Logistics, entrepreneur

Source: Research paper on Container Train Operators in India by Rachna Gangwar, G. Raghuram (Sep 2010)

We highlight that of the total exim traffic, about 30% gets transported by rail (the rest by roads). As proportion of total traffic, Concor had a market share of 22% in FY2011 and has declined from 31% share it had in FY2006.

Continuous loss in Concor’s share in exim volume Trends in market share of Concor in exim volumes, March fiscal year-ends

Note: (a) Estimates taken for Mundra and Pipavav volumes in 1QFY12

Quarterly trend

23.823.5

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Yearly trend

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Source: IPA, Company, Kotak Institutional Equities estimates

Domestic freight policy issues may possibly get resolved

The company has taken the brunt of change in domestic freight policy nullifying incentive to transport exim goods in containerized form. It has asked the railway board to reconsider its decision of increasing rail tariffs to parity for container traffic on which railway board has promised Concor of a regulatory review. We highlight that the freight policy change has significantly impacted Concor’s operations. For the period Jan-June 2011 (post policy change in Dec 2010), Concor’s domestic volumes have fallen by 11% on a yoy basis. The segment’s per TEU margin for the same period at Rs1,716 has declined also 18% on a yoy basis.



Impact of change in domestic freight policy change in Dec 2010 Trend in domestic volumes of Concor for Jan to June period ('000 TEUs)

2006 2007 2008 2009 2010 2011Domestic volumes (TEUs) 199,451 236,857 233,565 251,851 279,818 139,430yoy growth 18.8 (1.4) 7.8 11.1 (50.2)Per TEU margin 1,540 1,637 1,775 1,938 2,103 #DIV/0!yoy growth 6.3 8.5 9.2 8.5 #DIV/0!


Revise estimates on lower business growth; upgrade on attractive valuations

We revise our estimates to Rs70, Rs78 from Rs72.3, Rs82.4 for FY2012E, 2013E, respectively to factor in lower growth in domestic and exim volumes. We now expect 7.5% growth in exim volumes for FY2012-13E. We expect the domestic volumes to decline by 5% in the current fiscal and grow by 8% in FY2013E.

Revised estimates for Container Corporation, March fiscal year-ends, 2012E-13E (Rs mn)

2012E 2013E 2012E 2013E 2012E 2013EKey numbers (Rs mn)Revenues 41,483 46,049 42,686 48,445 (2.8) (4.9) EBITDA 11,022 12,108 11,422 12,881 (3.5) (6.0) EBITDA margin (%) 26.6 26.3 26.8 26.6 PAT 9,131 10,193 9,398 10,709 (2.8) (4.8) EPS (Rs) 70.3 78.4 72.3 82.4 (2.8) (4.8) Volumes ('000 TEUs)Exim 2,170 2,333 2,220 2,443 (2.3) (4.5) Domestic 517 558 544 544 (5.0) 2.6 Growth (%)Revenues 8.4 11.0 11.6 13.5 EBITDA 7.8 9.8 11.7 12.8 EPS 10.0 11.6 13.2 14.0

Exim volumes 7.5 7.5 10.0 10.0 Domestic volumes (5.0) 8.0 - 10.0

% changeOld estimatesNew estimates


We upgrade the stock to ADD (TP of Rs1,150 at 14X FY2013E plus Rs50 investments from Rs1,275 at 15X earlier) on (1) favorable risk reward tradeoff, (2) rub-off from exim growth and (3) possible restoration of domestic freight policy change.



Key financials of Container Corporation, March fiscal year-ends, 2007-13E (Rs mn)

2007 2008 2009 2010 2011 2012E 2013EIncome statementNet revenues 30,573 33,473 34,172 37,057 38,266 41,328 45,706 Total operating cost (21,661) (24,569) (24,861) (27,440) (28,040) (30,354) (33,703) EBIDTA 8,912 8,904 9,311 9,616 10,226 10,974 12,003 Other income 846 1,645 2,111 1,801 1,734 2,015 2,385 PBDIT 9,758 10,548 11,422 11,417 11,961 12,989 14,388 Depreciation (936) (1,063) (1,159) (1,351) (1,437) (1,635) (1,797) Pre tax profits 8,823 9,485 10,262 10,066 10,524 11,354 12,591 Tax (1,862) (1,980) (2,347) (2,199) (2,223) (2,255) (2,468) PAT 6,961 7,505 7,915 7,867 8,301 9,099 10,123 EPS (Rs) 54 58 61 61 64 70 78 One time items 77.4 16.9 (3.1) — — — —PAT (reported) 7,038 7,522 7,912 7,867 8,301 9,099 10,123 Volume handled ('000 TEUs)Exim 1,716 1,977 1,855 1,882 2,019 2,160 2,311 Domestic 390 470 453 539 544 517 558 Balance sheetNetworth 26,298 31,839 37,622 43,364 50,528 57,170 64,558

Share capital 650 650 1,300 1,300 1,300 1,300 1,300 Reserves & surplus 25,648 31,189 36,322 42,064 49,229 55,870 63,258

Total sources of funds 26,298 31,839 37,622 43,364 50,528 57,170 64,558 Net fixed assets 17,544 18,372 21,947 23,629 26,341 28,269 31,633 Investments 1,317 1,554 2,031 2,405 2,448 3,448 3,448 Net current assets (1,575) (1,565) (2,053) (457) 369 (1,903) (1,951) Net deferred tax asset (1,613) (1,737) (1,938) (2,109) (2,266) (2,266) (2,266) Total application of funds 26,298 31,839 37,622 43,364 50,528 57,170 64,558



Valuations look good; attractive entry point for long-term investors

We believe that recent correction provides an attractive entry point for long-term investors. Weaker-than-expected performance during 1QFY12 and general selloff in equities have likely driven a sharp correction in the stock price. We would, however, like to reiterate strong financial metrics: (1) NIMs to remain healthy at over 3.5% levels while loan growth to remain above industry average, (2) coverage ratios (excluding write-off) to remain strong at 80% levels giving comfort on higher slippages (currently being addressed), (3) well-capitalized balance sheet with tier-1 ratio at 15.6%, (4) cost-income ratios at about 40% levels and (5) recent changes on business delivery that will enable better risk-adjusted returns (lower provisions) and healthy fee income growth.

Strong provisioning policy gives comfort despite overhang of high slippages in last quarter

We note that 1QFY12 saw higher slippages at 4% levels, reversing the trend shown over previous few quarters. In this backdrop, we derive comfort from a few factors: (1) Coverage ratios have been maintained at over 80% levels, (2) recoveries and upgradation have been consistently improving over the past three years, (3) selective outsourcing (third party independent call centers) and renewed focus by senior managers to monitor loan performance will deliver results, albeit slower than our previous expectations. We expect loan-loss provisions to decline to 1.1% levels in FY2012E from current 1.7% levels.

Expect roadblocks in the path of change; focus on the ability to deliver results in the medium term

The HR issue in the previous quarter does show that transition for an old private sector bank is likely to have roadblocks resulting in disappointments in a few quarters. Some of the steps which are positive to build a scalable business include: (1) Credit delivery changes: Hub and spoke model is fully functional as against a decentralized model earlier. Branches will act as originating agents for nearly all products. (2) Training has been completed on credit appraisal in these centers. (3) Branch managers are being trained on fee income products. Hiring has been completed at the senior level. (3) Medium-term projects have been given to consultants to improve scoring models on loan appraisal and streamline process delivery.

Federal Bank (FB)

Banks/Financial Institutions

Valuations attractive. Upgrade to BUY. We believe that structural changes, viz. focus on improving fee business, process re-engineering to strengthening delivery platform and stronger provisioning policy, will cushion strong earnings momentum in the medium term while a well-capitalized tier-1 ratio is positive. After 21% correction in the last one month, the stock is trading at attractive levels - 1.1X book and 8X FY2012E EPS delivering 28% EPS growth in FY2011-13E and RoEs in the range of 15-17%. We upgrade our rating to BUY; maintain estimates and TP of `500.

Federal BankStock data Forecasts/Valuations 2011 2012E 2013E

52-week range (Rs) (high,low) EPS (Rs) 34.3 44.5 56.2Market Cap. (Rs bn) 62.4 EPS growth (%) 26.3 29.8 26.1

Shareholding pattern (%) P/E (X) 10.6 8.2 6.5Promoters 0.0 NII (Rs bn) 17.5 19.1 22.3FIIs 42.0 Net profits (Rs bn) 5.9 7.6 9.6MFs 13.9 BVPS 291.4 321.5 362.3

Price performance (%) 1M 3M 12M P/B (X) 1.3 1.1 1.0Absolute (21.1) (16.3) 5.1 ROE (%) 12.0 14.2 16.0Rel. to BSE-30 (13.3) (10.1) 14.0 Div. Yield (%) 2.3 3.0 3.8

Company data and valuation summary

501-326

BUY

AUGUST 19, 2011

CHANGE IN RECO.

Coverage view: Attractive

Price (Rs): 358

Target price (Rs): 500

BSE-30: 16,142

Federal Bank Banks/Financial Institutions


NIMs to remain at 3.5% levels; loan growth to remain above average

We expect Federal Bank to report margins at over 3.5% levels (1QFY12 was at 3.9% levels compared to 4% levels in 4QFY11). NIMs (KS calc.) would decline by 30 bps yoy in FY2012E as the focus shifts towards better risk-adjusted returns. It is important to note that Federal Bank has a strong NRI franchise which gives access to low-cost deposits apart from the CASA ratio of 27% (as of 1QFY12). We expect loans to grow marginally higher than industry average but focus would shift towards more secure form of lending.

Fee income contribution to rise

We expect overall contribution of fee income to grow faster (35% CAGR on a low base, 1% of assets) than balance sheet growth as the new initiatives taken should steadily reflect in earnings. The bank has (1) made a lateral hire to strengthen its corporate banking business, especially on forex and other loan-related fee business, (2) ability to improve share of business from NRI flows to other fee income like wealth management products. Significant training is being imparted to managers/staff to move from their current roles to more fee/service oriented ones.

Cost structures to remain at closer to 40% levels

Despite pressure on margins, we expect overall cost-income ratio to remain below 40% levels in FY2012-13E as the current management is unlikely to make significant changes to its

current employee base. We believe that a few product specialists, similar to the recent hire at corporate level, could happen to strengthen delivery, manage risk and complete the basket of products that can be offered to clients. FY2012E would also see higher operating leverage as there would be no one-off provisions for retired employees.

Gross NPL to decline on the back of lower slippages Gross NPL and slippages ratio, March fiscal year-ends, 2007-14E (%)

-

1.0

2.0

3.0

4.0

2007

2008

2009

2010

2011

2012

E

2013

E

2014

E

Gross NPL (LHS) Slippages (RHS)


Provisions to decline sharply in FY2012E Loan-loss provisions, March fiscal year-ends, 2007-14E (%)

-

0.4

0.8

1.2

1.6

2.0

2007

2008

2009

2010

2011

2012

E

2013

E

2014

E


Banks/Financial Institutions Federal Bank


Loan growth to improve but NIMs to decline in FY2012E Loan growth and NIMs, March fiscal year-ends, 2007-14E (%)

3.0

3.3

3.6

3.9

4.2

4.5

2007 2008 2009 2010 2011 2012E 2013E

10.0

14.0

18.0

22.0

26.0

30.0Loan growth (RHS) NIM (LHS)


RoA and RoE to improve on the back of lower provisions RoE and RoA, March fiscal year-ends, 2007-14E (%)

1.0

1.1

1.2

1.3

1.4

1.5

2007

2008

2009

2010

2011

2012

E

2013

E

2014

E

-

5.0

10.0

15.0

20.0

25.0RoA (RHS) RoE (LHS)


Federal Bank: Rolling PER and PBR (X) February 2004-August 2011 (X)

0

3

6

8

11

14

Feb-

05

Aug

-05

Feb-

06

Aug

-06

Feb-

07

Aug

-07

Feb-

08

Aug

-08

Feb-

09

Aug

-09

Feb-

10

Aug

-10

Feb-

11

Aug

-11

0.0

0.3

0.6

1.0

1.3

1.6

Rolling PER (X) (LHS) Rolling PBR (X) (RHS)

Source: Kotak Institutional Equities

Federal Bank Banks/Financial Institutions


Federal Bank growth rates and key ratios March fiscal year-ends, 2009-2014E (%)

2009 2010 2011 2012E 2013E 2014EGrowth rates (%)Net loan 18.4 20.4 18.6 20.4 22.7 22.0 Customer assets 19.8 19.9 18.0 19.8 22.3 21.6 Investments excld. CPs and debentures 5.9 11.7 8.0 34.5 24.0 22.7 Net fixed and leased assets 20.6 3.2 0.0 25.3 0.8 (0.5) Cash and bank balance 25.2 (20.8) 37.6 16.9 17.1 17.3 Total Asset 19.5 12.4 17.8 20.8 20.6 20.2 Deposits 24.3 12.0 19.3 23.6 22.7 22.0

Current (1.5) 26.9 31.4 23.6 22.7 22.0 Savings 28.0 18.1 20.2 23.6 21.3 20.5 Fixed 25.2 9.5 18.2 23.6 23.1 22.4

Net interest income 48.9 7.3 23.8 9.4 16.6 21.8 Loan loss provisions 65.3 16.6 24.5 (24.7) 5.1 22.3 Total other income 30.4 3.0 (2.7) 25.7 23.0 (2.7)

Net fee income 11.9 3.9 8.7 35.0 35.0 35.0 Net capital gains 10.6 29.8 (57.5) 74.8 - 12.5 Net exchange gains 51.0 (12.5) 28.3 35.0 25.0 25.0

Operating expenses 22.3 7.0 23.5 12.7 15.0 15.3 Employee expenses 19.5 (4.1) 31.2 12.3 8.3 8.3

Key ratios (%)Yield on average earning assets 9.6 9.2 8.8 9.7 9.9 10.1 Yield on average loans 12.4 11.6 10.8 11.8 12.0 12.2 Yield on average investments 6.5 6.4 6.5 7.1 7.2 7.3 Average cost of funds 6.6 6.4 5.6 6.9 7.1 7.3 Interest on deposits 6.4 6.4 5.5 6.8 7.1 7.3 Difference 3.0 2.8 3.2 2.8 2.7 2.8 Net interest income/earning assets 3.8 3.5 3.8 3.5 3.3 3.4 New provisions/average net loans 1.7 1.7 1.7 1.1 1.0 1.0 Interest income/total income 71.9 72.7 77.2 74.6 73.6 77.7 Fee income to total income 5.5 5.4 5.1 6.0 6.9 8.1 Fees income to PBT 12.8 12.2 12.7 13.2 14.1 16.7 Net trading income to PBT 7.5 23.9 3.8 6.8 5.4 5.3 Exchange income to PBT 6.4 5.2 6.3 6.6 6.5 7.2 Operating expenses/total income 34.5 34.9 36.9 36.8 35.8 35.8 Operating expenses/assets 1.8 1.6 1.8 1.7 1.6 1.5 Operating profit /AWF 2.1 1.9 1.9 2.0 2.1 2.0 Tax rate 36.9 45.9 34.9 34.9 34.9 34.9 Dividend payout ratio 17.1 18.4 24.8 24.8 24.8 24.8 Share of deposits

Current 4.5 5.1 5.6 5.6 5.6 5.6 Fixed 75.5 73.8 73.1 73.1 73.4 73.6 Savings 20.0 21.1 21.3 21.3 21.0 20.8

Loans-to-deposit ratio 69.5 74.7 74.3 72.3 72.3 72.3 Equity/assets (EoY) 11.1 10.7 9.9 9.1 8.5 7.9 Asset quality trends (%)Gross NPL 2.6 3.0 3.5 3.0 2.4 2.2 Net NPL 0.3 0.5 0.6 0.6 0.5 0.4 Slippages 3.0 3.3 3.2 2.6 2.0 2.0 Provision coverage 88.4 84.3 83.4 79.4 79.5 82.4 Dupont analysis (%)Net interest income 3.7 3.4 3.7 3.4 3.2 3.3 Loan loss provisions 1.0 1.0 1.1 0.7 0.6 0.6 Net other income 1.4 1.3 1.1 1.1 1.2 0.9 Operating expenses 1.9 1.9 1.8 1.7 1.6 1.5 Invt. depreciation 0.1 (0.2) 0.0 - - - (1- tax rate) 63.1 54.1 65.1 65.1 65.1 65.1 ROA 1.4 1.1 1.2 1.3 1.4 1.3 Average assets/average equity 8.6 9.2 9.7 10.6 11.4 12.2 ROE 12.1 10.3 12.0 14.2 16.0 16.2

Source: Kotak Institutional Equities, Company

Banks/Financial Institutions Federal Bank


Federal Bank income statement and balance sheet March fiscal year-ends, 2009-2014E (` mn)

2009 2010 2011 2012E 2013E 2014EIncome statementTotal interest income 33,154 36,732 40,520 53,399 65,915 81,312

Loans 25,642 28,497 31,688 41,694 51,586 64,148 Investments 7,003 7,834 8,680 11,323 13,882 16,640 Cash and deposits 509 401 152 382 447 523

Total interest expense 19,999 22,624 23,054 34,299 43,642 54,173 Deposits from customers 18,732 21,683 21,620 32,729 42,072 52,603

Net interest income 13,155 14,109 17,466 19,100 22,273 27,139 Loan loss provisions 3,542 4,131 5,143 3,873 4,069 4,976 Net interest income (after prov.) 9,613 9,978 12,323 15,227 18,204 22,162 Other income 5,152 5,309 5,168 6,499 7,992 7,773

Net fee income 1,013 1,053 1,144 1,545 2,086 2,816 Net capital gains 830 1,077 458 800 800 900 Net exchange gains 510 446 572 773 966 1,207

Operating expenses 6,325 6,769 8,361 9,423 10,837 12,498 Employee expenses 3,817 3,661 4,804 5,397 5,844 6,327

Depreciation on investments 235 (977) 111 450 450 450 Other Provisions 280 897 - 150 150 150 Pretax income 7,930 8,598 9,018 11,703 14,759 16,837 Tax provisions 2,925 3,950 3,147 4,084 5,151 5,876 Net Profit 5,005 4,648 5,871 7,619 9,608 10,961 % growth 36.0 (7.1) 26.3 29.8 26.1 14.1 PBT - Treasury + Provisions 11,158 11,572 13,815 15,376 18,628 21,513 % growth 66.2 3.8 19.4 8.0 21.8 15.9

Balance sheet Cash and bank balance 34,371 27,234 37,483 43,803 51,291 60,146

Cash 2,205 2,769 3,327 3,493 3,668 3,851 Balance with RBI 19,939 20,420 26,024 32,177 39,491 48,163 Balance with banks 5,961 1,321 3,138 3,138 3,138 3,138

Net value of investments 121,190 130,546 145,377 180,466 213,350 252,107 Govt. and other securities 82,948 92,775 99,645 135,343 168,772 208,020 Shares 1,538 1,796 1,681 1,681 1,681 1,681 Debentures and bonds 6,202 6,498 6,053 5,448 4,903 4,413

Net loans and advances 223,919 269,501 319,532 384,600 472,017 575,663

Fixed assets 2,808 2,898 2,898 3,631 3,661 3,641 Other assets 6,221 6,577 9,273 9,273 9,273 9,273 Total assets 388,509 436,756 514,564 621,773 749,593 900,831

Deposits 321,982 360,580 430,148 531,861 652,749 796,081 Borrowings and bills payable 12,509 15,830 19,127 19,127 19,127 19,127 Other liabilities 10,759 13,442 14,203 14,203 14,203 14,203 Total liabilities 345,250 389,852 463,477 565,190 686,079 829,410 Paid-up capital 1,710 1,710 1,710 1,710 1,710 1,710 Reserves & surplus 41,548 45,194 49,376 54,872 61,804 69,711 Total shareholders' equity 43,259 46,904 51,087 56,583 63,514 71,421

Source: Kotak Institutional Equities, Company


Evaluate opportunity in mid-cap industrials on attractive valuations, strong B/S, corporate governance

We evaluate opportunity in mid-cap industrial companies (Voltas and Crompton) as (1) companies are trading at relatively attractive valuations even on stress-case assumptions, (2) strong balance sheet, low working capital requirements and cash flow generation characteristics, (3) strong track record of managing business in terms of growth and margins and (4) no dilution.

We have conducted a stress-case analysis on Voltas and Crompton building in lower order inflow, revenue and margin assumptions across most of the key segments of the companies.

Voltas: Upgrade to BUY (from ADD), TP unchanged (Rs150) as 2X P/B and 11XFY13E are attractive

We upgrade our rating on the company to BUY (from ADD) based on (1) attractive valuations - trading at 11X FY2013E EPS, 2.1X FY2013E book value (20% RoE with no leverage) despite building in relatively low expectations. Even in further stress case of (1) 25% order inflow decline in FY2012E, 7% EBIT margin in EMP, (2) 8% margin in UCP, 10% CAGR during FY2012-13E, stock still trades at only 13X FY2013E (Rs9 EPS in stress case). We believe geographical diversification in EMP (India, Middle-East, S.E. Asia), low penetration in UCP would help in mitigating risks.

Crompton: Reiterate BUY with a target price of Rs210/share (no change in estimates)

We reiterate BUY rating on Crompton as the stock traded at 10X FY2013E (on FY2013E EPS of Rs13.5) post steep correction subsequent to the 1QFY12 results. Even in stress case of (1) 12.25% standalone margins and 6% CAGR growth and (2) 5-7% growth in overseas with about 7-8% margins, stock trades at 12XFY13E P/E only. Our positive stance is also based on (1) diversified business profile in terms of geographies as well as business segments, (2) capability expansion in drives (Emotron acquisition), generators, substation automation (QEI acquisition), motors, consumer appliances, (3) strong balance sheet and cash flow generation characteristics.

Thermax: Marginally change estimates, retain REDUCE (TP Rs550); look for more valuation comfort

We have marginally changed estimates to earnings of Rs33 and Rs35 from Rs33.5 and Rs37 earlier based on assumption of flattish order inflows versus 10% growth earlier. Stock trades at 14X FY2013E (versus target multiple of 16X) and 3.7X FY2012E P/B. There has been evidence of stronger competition in (1) small IPPs (Cethar Vessels winning large orders in that category), (2) other components such as waste heat recovery boilers etc. (Tecpro Systems won orders from large cement companies), (3) supercritical opportunity where even L&T has not won any incremental third party order in the last one year and (4) early signs of weakness in margins that is not fully priced-in (we build in only 50 bps decline). We revise our target price on the company to Rs550 (from Rs650/share) based on revision in estimates and change in valuation to 16X FY2013E EPS (previously 17.5X FY2013E EPS). We would look for more valuation or business comfort before turning positive.

Industrials

Evaluating opportunity in mid-cap industrials; upgrade Voltas to BUY. We evaluate opportunity in mid-cap industrials based on recent correction and characteristics such as strong balance sheet, low working capital, cash flow generation and absence of corporate governance issues. We upgrade Voltas to BUY and reiterate BUY on CRG as these companies are trading at low valuations even in stress-case earnings assumptions. Retain REDUCE on Thermax for now.

CAUTIOUS

AUGUST 19, 2011

UPDATE

BSE-30: 16,142

India Industrials


Voltas: Upgrade to BUY with an unchanged target price of Rs150/share

We retain our earnings estimates of Rs9.6 and Rs10.5 for FY2012E and FY2013E, respectively and retain our target price of Rs150/share based on 14X FY2013E EPS.

We upgrade our rating on the company to BUY (from ADD) based on (1) attractive valuations - trading at 11X FY2013E EPS despite building in very low expectations in our estimates (stock trades at 2.1X FY2013E book value, less than 1X sales), (2) no corporate governance issues, (3) strong balance sheet in terms of no debt and low working capital, (4) maintains strong focus on working capital, cash generation giving further comfort on valuation, and (5) long-term track record of the company in managing its business through cycles.

Our estimates are building relatively conservative assumptions of a 10% de-growth in EMP segment order inflows, 15% de-growth in Engg products segment revenues and margin contraction across most of the segments. We also note that penetration of AC market is relatively low which could provide a potential for strong growth in the UCP segment.

Consolidated balance sheet, profit model and cash flow statement of Voltas, March fiscal year-ends, 2007-13E (Rs mn)

2007 2008 2009 2010 2011 2012E 2013EBalance sheetShareholders funds 4,237 5,772 7,897 10,852 13,617 15,593 19,023Minority Interest 4 5 159 139 218 218 218Loan funds 1,116 737 1,814 352 1,381 1,381 1,381Total source of funds 5,358 6,515 9,871 11,342 15,216 17,192 20,622Net block 1,473 1,701 2,148 2,069 2,422 2,686 2,922CWIP 128 197 132 193 36 36 36Net fixed assets 1,601 1,898 2,280 2,262 2,458 2,722 2,957Investments & Goodwill 1,248 2,585 2,238 3,103 3,529 3,529 3,529 Cash balances 1,677 3,002 4,571 4,689 4,980 6,927 9,958Net current assets excluding cash 553 (1,160) 558 1,085 4,097 3,863 4,040Total application of funds 5,358 6,515 9,871 11,342 15,216 17,192 20,622Profit ModelTotal operating income 25,267 32,029 43,617 48,236 51,768 52,018 54,411Total operating costs (23,988) (29,499) (40,428) (43,467) (47,360) (47,376) (49,393)EBITDA 1,280 2,531 3,189 4,769 4,408 4,298 4,655Other income 703 483 604 789 810 884 971PBDIT 1,982 3,013 3,793 5,557 5,218 5,182 5,626Financial charges (99) (90) (128) (98) (165) (165) (165)Depreciation (156) (167) (210) (214) (210) (276) (304)Pre-tax profit 1,728 2,757 3,456 5,245 4,843 4,740 5,156Taxation (407) (997) (1,172) (1,472) (1,608) (1,541) (1,676)Adjusted PAT 1,321 1,760 2,284 3,773 3,235 3,200 3,480Minority interest & Associate Profits (1) 1 (31) (36) 57 — —PAT for equity holders 1,319 1,761 2,253 3,737 3,291 3,200 3,480Extraordinary items, net of tax 696 316 261 250 281 (62) (62)Reported PAT 2,017 2,076 2,545 4,023 3,572 3,138 3,418Cash flow statementOperating profit before WCap changes 1,593 2,099 2,589 4,085 3,610 3,641 3,950Change in working capital / other adjustments (586) 1,713 (1,718) (527) (3,012) 235 (178)Net cashflow from operating activites 1,007 3,812 871 3,558 598 3,876 3,773Fixed Assets (122) (464) (591) (196) (406) (540) (540)Investments (786) (1,337) 347 (865) (426) — —Cash (used) / realised in investing activities (908) (1,802) (244) (1,062) (832) (540) (540)Borrowings 215 (378) 1,077 (1,463) 1,030 (1) 1Dividend paid (410) (523) (619) (772) (769) (1,161) 12Interest charges (99) (90) (128) (98) (165) (165) (165)Cash (used) /realised in financing activities (375) (1,008) 683 (2,650) 137 (1,327) (153)Cash generated /utilised 379 1,325 1,569 97 240 1,947 3,031Cash at beginning of year 1,298 1,677 3,002 4,571 4,689 4,980 6,927Cash at end of year 1,677 3,002 4,571 4,667 4,929 6,927 9,958Key ratios (%)EBITDA margin 5.1 7.9 7.3 9.9 8.5 8.3 8.6 PAT margin 5.2 5.5 5.2 7.8 6.2 6.2 6.4 RoE 38.0 35.2 33.0 39.9 26.9 21.9 20.1RoCE 31.1 30.6 28.5 35.9 25.6 20.4 19.0EPS (Rs) 4.0 5.3 6.9 11.4 9.8 9.7 10.5


Industrials India


Stress-case analysis

Our stress-case analysis (builds in fairly high stress in the business) results in EPS of Rs9 for FY2012E and FY2013E. Even on this EPS, the stock trades at a reasonable valuation of 13X FY2013E EPS. The key changes in assumptions in our stress-case scenario include:

Electromechanical projects segment (EMP). Build in sharp de-growth of 25% in FY2012E order inflows and flat yoy inflows in FY2013E versus our base-case assumption of 10% de-growth in FY2012E and 5% growth in FY2013E. Also build in slight contraction in EBIT margins for FY2013E.

Engg products and services segment. Build in 250 bps lower EBIT margin for FY2012E and FY2013E at 15% (base-case assumption of 17.5%). This is versus 18.3% EBIT margin recorded in FY2011

Unitary cooling products segment (UCP). Build lower EBIT margin assumption for FY2013E at 8%, 150 bps lower than base-case assumption of 9% (recorded 10.2% EBIT margin in FY2011).

Stress-case assumptions, implied valuation for Voltas, March fiscal year-ends, 2012-13E (Rs mn)

2012E 2013E 2012E 2013E 2012E 2013EValuation EPS 9.7 10.5 9.3 9.0 (3.9) (14.6) P/E 12.1 11.1 12.6 13.0 P/B 2.5 2.0 2.5 2.1 FinancialsRevenue 51,628 54,003 50,503 50,831 (2.2) (5.9)

yoy growth (%) (0.3) 4.6 (2.4) 0.6 EBITDA margin (%) 8.3 8.6 8.1 7.7 PAT 3,200 3,480 3,075 2,971 (3.9) (14.6) SegmentalElectromechanical projectsOrder inflow 28,258 29,671 23,548 23,548 (16.7) (20.6)

yoy growth (%) (10.0) 5.0 (25.0) —

Order backlog 46,893 46,934 43,314 40,420 (7.6) (13.9) yoy growth (%) (4.1) 0.1 (11.4) (6.7)

Revenue 30,244 29,630 29,114 26,442 (3.7) (10.8) yoy growth (%) (0.5) (2.0) (4.3) (9.2)

EBITmargin (%) 7.0 7.5 7.0 7.0

Engineering products and servicesRevenue 4,785 5,426 4,785 5,426 — —

yoy growth (%) (15.1) 13.4 (15.1) 13.4 EBITmargin (%) 17.5 17.5 15.0 15.0

Unitary cooling productsRevenue 16,726 19,081 16,726 19,081 — —

yoy growth (%) 7.2 14.1 7.2 14.1 EBITmargin (%) 10.0 9.5 10.0 8.0

OthersRevenue 132 139 132 139 — —

yoy growth (%) 5.0 5.0 5.0 5.0 EBITmargin (%) 12.7 12.7 12.7 12.7 Total standaloneOrder inflow 28,258 29,671 23,548 23,548 (16.7) (20.6)

yoy growth (%) (10.0) 5.0 (25.0) - Revenue 51,888 54,275 50,758 51,088 (2.2) (5.9)

yoy growth (%) 0.2 4.6 (2.0) 0.6 EBIT margin (%) 8.9 9.2 8.8 8.2

% change vs base case

Source: Kotak Institutional Equities estimates

India Industrials


1QFY12 results: Revenue disappoints/declines across segments; margins also dip across segments apart from UCP

Voltas reported 1QFY12 net revenues of Rs13.5 bn, 11.7% below our estimate and down 4.4% yoy. The revenues disappointed across segments led by the EMP segment. EBITDA margin of 7.9% was down 120 bps yoy (from 9.1% in 1QFY11) versus our expectations of flat margins. The decline was primarily on sharp fall in margins of the EMP segment (partly offset by margin expansion in the UCP segment). Sedate revenues and margin decline led to a net PAT of Rs728 mn, down 23% yoy and about 25% below our estimate. Voltas reported an exceptional income of Rs815 mn (post-tax income of about Rs595 mn) on transfer of materials handling business.

Revenue and margin disappointment leads to a net PAT decline of 20% yoy Voltas (consolidated) - 1QFY12 results - key numbers (Rs mn)

% change1QFY12 1QFY12E 1QFY11 4QFY11 vs est. yoy qoq FY2012E FY2011 % change

Sales 13,458 15,244 14,083 16,657 (11.7) (4.4) (19.2) 51,628 51,769 (0.3)Expenses (12,395) (13,905) (12,807) (15,348) (3.2) (19.2) (47,363) (47,360) 0.0 Stock 376 403 (106) (6.7) — 1,237 (100.0) Raw material (10,063) (10,509) (12,264) (4.2) (17.9) (36,109) (38,045) (5.1) Employee costs (1,467) (1,347) (1,504) 8.9 (2.4) (5,227) (5,563) (6.0) Other expenses (1,240) (1,354) (1,474) (8.4) (15.9) (6,027) (4,990) 20.8EBITDA 1,062 1,338 1,276 1,309 (20.6) (16.8) (18.9) 4,264 4,409 (3.3)Other income 215 210 200 240 2.5 7.3 (10.6) 838 810 3.5Interest (85) (41) (53) (41) 104.6 60.5 104.3 (165) (165) —Depreciation (103) (54) (50) (53) 91.0 105.8 95.3 (243) (210) 15.6Profit before tax 1,089 1,452 1,374 1,455 (25.0) (20.7) (25.1) 4,694 4,843 (3.1)Tax (362) (482) (430) (553) (25.0) (16.0) (34.5) (1,526) (1,648) (7.4)Profit after tax 728 970 943 903 (25.0) (22.9) (19.4) 3,168 3,195 (0.8)Extraordinary items 595 — (6) 86 — 322Reported PAT 1,323 970 937 988 36.3 41.1 33.8 3,168 3,516

Key ratios (%)RM cost/sales 72.0 71.8 74.3 69.9 71.1Employee cost/sales 10.9 9.6 9.0 10.1 10.7Other exp./sales 9.2 9.6 8.8 11.7 9.6EBITDA margin 7.9 8.8 9.1 7.9 8.3 8.5Effective tax rate 33.2 33.2 31.3 38.0 32.5 34.0PAT margin 5.4 6.4 6.7 5.4 6.1 6.2EPS (Rs) 2.2 2.9 2.9 2.7 9.6 9.7

Order detailsOrder booking 3,419 9,986 11,404 (65.8) (70.0) 28,258 33,145 (14.7)Order backlog 45,530 50,060 48,880 (9.0) (6.9) 46,893 48,880 (4.1)


EMP leads revenue as well as margin disappointment; other segments also disappointing

Electro-Mechanical Projects (EMP) revenues (2.5%) and margins (400 bps, broadly half of last year) decline. The EMP segment led the revenue as well as margin disappointment for the quarter. Revenues declined by 2.3% yoy, about 15% below estimates and EBIT margin recorded a steep contraction to 4.6% in 1QFY12 versus about 8.3% a year ago.

Unitary Cooling Products (UCP) (revenues down 5%, though margins expand 200 bps). This segment reported a revenue decline of about 4.1% yoy versus our expectation of flat yoy revenues. The margins, however, recorded a 200 bps yoy expansion to 11.3% for the quarter.

Industrials India


Engg products and services. This segment also reported disappointing revenues (down 19% yoy) as well as profitability (EBIT margin down 540 bps yoy). However, the yoy numbers are not comparable as the company sold its materials handling business during the quarter.

Disappointment across all segments Voltas - segmental numbers on consolidated basis, 1QFY12 (Rs mn)

1QFY12 1QFY12E 1QFY11 4QFY11 vs est. yoy qoq FY2012E FY2011 % changeRevenuesElectromechanical Projects 6,769 7,965 6,926 9,494 (15.0) (2.3) (28.7) 30,244 30,411 (0.5)Engg products and services 973 1,384 1,203 1,740 (29.7) (19.2) (44.1) 4,785 5,638 (15.1)Unitary cooling products 5,625 5,868 5,868 5,490 (4.1) (4.1) 2.5 16,726 15,608 7.2Total 13,458 15,244 14,031 16,709 (11.7) (4.1) (19.5) 51,628 51,768 (0.3)EBITElectromechanical Projects 310 637 586 788 (51.4) (47.1) (60.7) 2,117 2,393 (11.5)Engg products and services 170 277 276 242 (38.5) (38.3) (29.7) 837 1,031 (18.8)Unitary Cooling Products 636 543 547 581 17.2 16.3 9.5 1,673 1,599 4.6Total Profit before tax 1,116 1,457 1,366 1,210 (23.4) (18.3) (7.8) 4,694 4,923 (4.6)EBIT margin (%)Electromechanical Projects 4.6 8.0 8.5 8.3 7.0 7.9Engg products and services 17.5 20.0 22.9 13.9 17.5 18.3Unitary Cooling Products 11.3 9.3 9.3 10.6 10.0 10.2Total 8.3 9.6 9.7 7.2 9.1 9.5

% change


Crompton: Reiterate BUY with a target price of Rs210 (no change in estimates)

Key opportunities

We retain our earnings estimate of Rs10.6 and Rs13.5 for FY2012E and FY2013E, respectively and our target price of Rs210/share (based on 16X FY2013E EPS).

We reiterate our BUY rating on Crompton as the stock is currently trading at reasonable valuations post steep correction subsequent to the 1QFY12 results. Crompton is currently trading at relatively attractive valuation of about 10X FY2013E earnings. Our positive stance on the stock is based on (1) diversified business profile in terms of geographies as well as business segments, (2) capability expansion in drives, generators, substation automation, motors, consumer appliances, (3) strong balance sheet and cash flow generation characteristics.

Stress-case analysis

The stock is trading cheaper than the implied valuation in our stress-case scenario. We arrive at a stress-case EPS of Rs9.9 and Rs11.8 for FY2012E and FY2013E - implies a target price of about Rs180/share (on 15X FY2013E EPS). The stock is currently trading at Rs137/share - 11.5X of FY2013E stress-case EPS.

The key changes in assumptions in our stress case scenario include:

Standalone power. Flat yoy standalone power segment growth in FY2013E versus a growth of 15% in our base case and about 150 bps lower EBIT margin for FY2012E and FY2013E (to 12.5% from 14%) in standalone power segment margins to about 14% versus 18% reported in FY2011 (our present assumption of 16.5%) with 5% and 15% growth FY2012E and FY2013E,

Industrial segment. Lower industrial segment revenue growth assumption of 7.5% and 5% for FY2012E and FY2013E (from 12.5% and 15%, respectively) as well as 100 bps lower EBIT margin at 14% from base-case assumption of 15%.

India Industrials


Overseas subsidiaries. Slightly lower revenue growth estimate of 11% and 9% in FY2012E and FY2013E (from 13.5% and 13%, respectively).

Stress-case assumptions, implied valuation for Crompton, March fiscal year-ends, 2012-13E (Rs mn)

2012E 2013E 2012E 2013E 2012E 2013EValuation EPS 10.6 13.5 9.9 11.8 (7.3) (12.4) BVPS 59.8 71.1 59.1 69.1 (1.0) (2.8) P/E 12.9 10.2 13.9 11.6 P/B 2.3 1.9 2.3 2.0 FinancialsRevenue 108,835 123,688 107,309 114,715 (1.4) (7.3) yoy growth 8.8 13.6 7.3 6.9 EBITDA margin (%) 10.2 11.2 9.7 10.7 PAT 6,820 8,640 6,321 7,572 (7.3) (12.4) SegmentalStandalonePower systems

Revenue 27,458 31,577 27,458 27,458 — (13.0) yoy growth 7.5 15.0 7.5 —EBITmargin (%) 14.0 14.0 12.5 12.5

Consumer productsRevenue 21,728 24,444 21,728 24,444 — —yoy growth 7.5 12.5 7.5 12.5 EBITmargin (%) 13.5 13.5 13.5 13.5

Industrial systemsRevenue 15,825 18,198 15,121 15,877 (4.4) (12.8) yoy growth 12.5 15.0 7.5 5.0 EBITmargin (%) 15.0 15.0 14.0 14.0

OthersTotal standalone

Revenue 65,181 74,390 64,478 67,950 (1.1) (8.7) yoy growth 8.7 14.1 7.5 5.4 EBIT margin (%) 14.1 14.1 13.2 13.2

Overseas subsidiariesRevenue 45,941 51,901 45,088 49,171 (1.9) (5.3) yoy growth 13.5 13.0 11.3 9.1

EBITDA margin (%) 5.7 8.0 5.7 8.1

% change vs base case


Key risks

Key risks to earnings relate to (1) aggressive competition and large capacity additions in the domestic power T&D segment may pressure revenue growth and margins, (2) slower-than-expected pick-up in international demand, (3) Euro area business (17% of business) and Euro currency (translation), and (4) slower-than-expected growth and lower-than-expected margins in the consumer and industrial business.

Industrials India


Consolidated financials of Crompton Greaves, March fiscal year-ends, 2007-13E (Rs mn)

2007 2008 2009 2010 2011 2012E 2013EIncome statementOperating income 56,396 68,323 87,373 91,409 100,051 108,835 123,688 Total operating expenses (51,567) (60,884) (77,417) (78,639) (86,613) (97,731) (109,859) EBITDA 4,828 7,439 9,956 12,770 13,438 11,104 13,829 Other income 1,068 757 587 937 999 667 768 Interest expense (583) (781) (655) (265) (209) (277) (235) Depreciation (954) (1,263) (1,216) (1,551) (1,936) (2,040) (2,146) Pre-tax profit 4,360 6,152 8,672 11,891 12,291 9,454 12,216 Tax (1,495) (2,054) (3,047) (3,650) (3,100) (2,634) (3,576) Net profits 2,865 4,098 5,625 8,241 9,191 6,820 8,640 EPS (Rs) 7.8 11.2 15.3 12.8 14.3 10.6 13.5

Balance sheetShareholders funds 9,688 13,018 18,310 25,043 32,747 38,337 45,610

Equity share capital 733 733 733 1,283 1,283 1,283 1,283 Reserves and surplus 8,955 12,285 17,577 23,760 31,464 37,054 44,327

Minority interest 284 123 139 43 157 157 157 Loan funds 9,045 8,420 7,182 5,010 4,703 3,703 2,703

Secured 8,726 8,120 6,923 4,766 4,554 3,554 2,554 Unsecured 319 300 260 244 149 149 149

Total sources of funds 19,017 21,560 25,631 30,095 37,607 42,198 48,471 Net block 9,852 11,968 13,248 12,623 18,314 19,899 20,500 Capital work in progress 1,021 476 537 1,137 1,102 1,102 1,102

Net fixed assets 10,873 12,444 13,785 13,760 19,417 21,001 21,602 Investments 645 934 1,672 5,536 6,747 6,747 6,747 Net current assets (excl. cash) 4,667 5,149 4,035 4,161 8,619 8,114 9,219 Cash 2,415 2,445 5,656 6,688 2,984 6,495 11,063 Net deferred tax asset 418 588 482 (49) (160) (160) (160) Total application of funds 19,017 21,560 25,631 30,095 37,607 42,198 48,471

Free cash flowNet profit before tax and extraordinary items 4,360 6,152 8,672 11,891 12,291 9,454 12,216 Add: Depreciation / amortisation / non-cash prov 954 1,263 1,216 1,551 1,936 2,040 2,146 Add: Financial Charges 583 781 655 265 209 277 235 Tax paid (1,486) (2,224) (2,941) (3,119) (2,989) (2,634) (3,576) Operating profit before wcap. changes 4,410 5,972 7,602 10,588 11,448 9,137 11,020 Change in working capital / other adjustments (1,028) (481) 1,113 (125) (4,459) 505 (1,104) Net cashflow from operating activites 3,382 5,491 8,716 10,462 6,989 9,643 9,916 Fixed Assets (6,424) (2,834) (2,557) (1,526) (7,593) (3,625) (2,747) Investments 6 (290) (738) (3,864) (1,211—) — —Cash (used) / realised in investing activities (6,418) (3,124) (3,295) (5,389) (8,804) (3,625) (2,747) Free cash flow (3,036) 2,367 5,421 5,073 (1,815) 6,018 7,169

RatiosEBITDA margin (%) 8.6 10.9 11.4 14.0 13.4 10.2 11.2 Debt/equity 0.9 0.6 0.4 0.2 0.1 0.1 0.1 Net debt/equity 0.7 0.5 0.1 (0.1) 0.1 (0.1) (0.2) RoAE (%) 32.7 35.7 35.7 39.6 30.8 19.2 20.6 RoACE (%) 21.1 22.8 25.7 31.6 26.8 17.7 19.5


1Q performance: Revenue disappointment exacerbated by margin contraction

Crompton reported consolidated revenues of Rs24.4 bn in 1QFY12 recording a yoy growth of about 6%, about 7% below our estimates. The revenue disappointment was further exacerbated by sharp margins contraction - EBITDA margin recorded a sharp decline of 550 bps yoy in 1QFY12 to 7.5% versus our estimate of 15% (down 540 bps on sequential basis as well). The sharp decline in margin was led by higher raw material costs as a percentage of sales. Higher tax rate for the quarter (of 38%) led to a net PAT of Rs778 mn, down 58% yoy (from Rs1.9 bn in 1QFY11), versus our estimate of Rs2.1 bn.

India Industrials


Crompton Greaves - 4QFY11 consolidated revenue model (Rs mn)

1QFY12 1QFY12E 1QFY11 4QFY11 vs est. yoy qoq FY2012E FY2011 % changeSales 24,377 26,181 23,022 29,080 (6.9) 5.9 (16.2) 108,835 100,051 8.8 Expenses (22,559) (22,843) (20,049) (25,350) (1.2) 12.5 (11.0) (97,731) (86,613) 12.8

Stock 2,721 891 (148) 205.5 (1,935.8) 956 Raw material (19,000) (15,074) (18,824) 26.0 0.9 (67,695) (63,644) 6.4 Employee (3,221) (2,994) (2,719) 7.6 18.4 (16,975) (11,811) 43.7 Other expenses (3,059) (2,871) (3,658) 6.5 (16.4) (13,060) (12,113) 7.8

EBITDA 1,819 3,338 2,973 3,731 (45.5) (38.8) (51.3) 11,104 13,438 (17.4) Other income 151 167 183 468 (9.5) (17.3) (67.7) 667 999 (33.2) Interest (110) (70) (50) (72) 56.4 118.6 51.7 (277) (209) 32.4 Depreciation (608) (511) (415) (597) 19.0 46.4 1.8 (2,040) (1,936) 5.4 PBT 1,253 2,924 2,691 3,530 (57.2) (53.5) (64.5) 9,454 12,291 (23.1) Tax (475) (848) (794) (683) (44.0) (40.1) (30.5) (2,634) (3,100) (15.0) Net profit 778 2,076 1,897 2,847 (62.6) (59.0) (72.7) 6,820 9,191 (25.8) Extraordinary items 17 — — (381) — (381) RPAT 795 2,076 1,897 2,466 (61.7) (58.1) (67.8) 6,820 8,810 (22.6)

Key ratios (%)Raw material/Sales 66.8 61.6 65.2 62.2 62.7 Employee exp./Sales 13.2 13.0 9.4 15.6 11.8 Other exp./Sales 12.5 12.5 12.6 12.0 12.1 EBITDA margin 7.5 12.8 12.9 12.8 10.2 13.4 PBT Margin 5.1 11.2 11.7 12.1 8.7 12.3 Tax rate 37.9 29.0 29.5 19.4 27.9 25.2 PAT margin 3.2 7.9 8.2 9.8 6.3 9.2

% change


Standalone: Revenues miss on weak consumer sales; power, industrial segments drag margin down

Crompton reported 1QFY12 standalone revenues of Rs14.7 bn, up 9.4% yoy and about 3% lower than our expectation of Rs15 bn. EBITDA margin declined by about 230 bps yoy to 12.7% on account of higher raw material cost as percentage of sales, versus out estimate of 15%. Sharp margin contraction led to an 11% yoy decline in standalone EBITDA. Crompton reported standalone net PAT of Rs1.3 bn in 1QFY12, down 9% yoy and about 15% below our estimates. Standalone revenue disappointment was led by consumer segment sales while power and industrial segments led the margin contraction.

Industrials India


Net profit contracts by 9% on the back of revenue de-growth and power profitability Crompton Greaves - 1QFY12 standalone revenue model, March fiscal year-ends (Rs mn)

1QFY12 1QFY12E 1QFY11 4QFY11 vs est. yoy qoq FY2012E FY2011 % changeSales 14,688 15,089 13,429 17,652 (2.7) 9.4 (16.8) 64,663 59,515 8.7 Expenses (12,822) (12,825) (11,335) (15,010) (0.0) 13.1 (14.6) (56,182) (50,190) 11.9 Stock 794 1,067 (421) (25.5) (288.8) 568 Raw material (11,206) (10,171) (11,854) 10.2 (5.5) (38,798) (41,224) (5.9) Employee (918) (726) (861) 26.4 6.6 (3,064) (3,102) (1.2) Other Exp (1,492) (1,505) (1,875) (0.9) (20.4) (14,321) (6,433) 122.6 EBITDA 1,867 2,264 2,094 2,642 (17.5) (10.8) (29.3) 8,481 9,325 (9.1) Other income 157 175 148 232 (10.5) 6.0 (32.4) 625 794 (21.2) PBDIT 2,023 2,439 2,242 2,873 (17.0) (9.7) (29.6) 9,106 10,119 (10.0) Interest (14) (30) 6 (30) (52.2) (327.0) (52.2) (71) (40) 78.3 Depreciation (286) (231) (172) (230) 23.6 65.8 24.1 (925) (809) 14.4 PBT 1,723 2,177 2,075 2,613 (20.9) (17.0) (34.1) 8,110 9,270 (12.5) Tax (433) (653) (654) (437) (33.7) (33.8) (0.9) (2,271) (2,327) (2.4) Net profit 1,290 1,524 1,422 2,176 (15.4) (9.2) (40.7) 5,839 6,943 (15.9)

Key ratios (%)Raw material/Sales 70.9 67.8 69.5 60.0 68.3 Employee exp./Sales 6.3 5.4 4.9 4.7 5.2 Other exp./Sales 10.2 11.2 10.6 22.1 10.8 EBITDA margin 12.7 15.0 15.6 15.0 13.1 15.7 PBT Margin 11.7 14.4 15.5 14.8 12.5 15.6 Tax rate 25.1 30.0 31.5 16.7 28.0 25.1 PAT margin 8.8 10.1 10.6 12.3 9.0 11.7

% change


Thermax: Retain REDUCE, TP of Rs550 with marginal change in estimates

We have marginally changed estimates to earnings of Rs33 and Rs35 from Rs33.5 and Rs37 earlier based on assumption of flattish order inflows versus 10% growth earlier. Stock trades at 14X FY2013E (versus target multiple of 16X) and 3.7X FY2012E P/B. There has been evidence of stronger competition in (1) small IPPs (Cethar Vessels winning large orders in that category), (2) other components such as waste heat recovery boilers etc. (Tecpro Systems won orders from large cement companies), (3) supercritical opportunity where even L&T has not won any incremental third party order in last one year and (4) early signs of weakness in margins that is not fully priced-in (we build in only 50 bps decline). We revise our target price on the company to Rs550 (from Rs650/share) based on revision in estimates and change in valuation to 16X FY2013E EPS (previously 17.5X FY2013E EPS). We would look for more valuation or business comfort before turning positive.

India Industrials


Revision in assumptions, implied valuation for Thermax, March fiscal year-ends, 2012-13E (Rs mn)

2012E 2013E 2012E 2013E 2012E 2013EValuation EPS 33.0 35.1 33.7 37.2 (2.1) (5.7) P/E 14.8 14.0 14.5 13.2 P/B 3.7 3.1 3.7 3.2 FinancialsRevenue 58,570 61,347 59,803 65,022 (2.1) (5.7)

yoy growth (%) 9.7 4.7 12.1 8.7 EBITDA margin (%) 10.2 10.3 10.2 10.3 PAT 3,935 4,183 4,020 4,436 (2.1) (5.7) SegmentalStandaloneEnergyOrder inflow 41,013 43,064 45,114 49,626 (9.1) (13.2)

yoy growth (%) - 5.0 10.0 10.0

Order backlog 46,054 47,214 48,884 52,818 (5.8) (10.6) yoy growth (%) (1.4) 2.5 4.6 8.0

Revenue 41,683 41,903 42,954 45,692 (3.0) (8.3) yoy growth (%) 6.7 0.5 9.9 6.4

EBITmargin (%) 10.0 10.0 10.0 10.0 EnvironmentOrder inflow 13,373 15,378 13,373 15,378 - -

yoy growth (%) 10.0 15.0 10.0 15.0 Order backlog 9,363 10,673 9,363 10,673 - -

yoy growth (%) 8.8 14.0 8.8 14.0 Revenue 12,616 14,068 12,616 14,068 - -

yoy growth (%) 10.0 11.5 10.0 11.5 EBITmargin (%) 13.0 13.0 13.0 13.0 Total standaloneOrder inflow 54,386 58,442 58,487 65,004 (7.0) (10.1)

yoy growth (%) 2.3 7.5 10.0 11.1 Revenue 54,299 55,971 55,571 59,760 (2.3) (6.3)

yoy growth (%) 7.4 3.1 9.9 7.5 EBIT margin (%) 10.7 10.8 10.7 10.7 SubsidiariesRevenue 5,076 6,121 5,076 6,121 - -

yoy growth (%) 10.5 20.6 10.5 20.6 PBT margin (%) 1.4 3.0 1.4 3.0

% revisionNew estimates Old estimates


Industrials India


Consolidated balance sheet, profit model and cash flow statement of Thermax, March fiscal year-ends, 2007-13E (Rs mn)

2007 2008 2009 2010 2011E 2012E 2013EBalance sheetShareholders funds 5,899 7,595 9,924 10,782 13,149 15,783 18,617Loan funds 22 — 41 80 1,479 1,479 1,479Total sources of funds 6,122 7,908 10,331 11,396 15,736 18,370 21,203Net block 1,671 2,878 4,911 5,369 7,853 7,854 7,875CWIP 118 607 177 115 354 452 464Net fixed assets 1,789 3,485 5,088 5,484 8,208 8,306 8,339Investments 5,741 5,601 1,443 3,703 2,415 3,665 4,915 Cash balances 972 580 3,696 6,702 7,496 8,223 8,442Net current assets excluding cash (2,515) (1,977) (103) (4,790) (2,672) (2,113) (782)Total application of funds 6,122 7,908 10,331 11,396 15,736 18,370 21,203Profit modelTotal operating income 23,267 34,815 34,603 33,703 53,371 58,570 61,347Total operating costs (20,433) (30,528) (30,371) (29,731) (47,632) (52,591) (55,027)EBITDA 2,834 4,288 4,232 3,972 5,739 5,979 6,320Other income 360 439 404 519 579 549 574PBDIT 3,194 4,727 4,636 4,491 6,318 6,528 6,894Financial charges (15) (17) (38) (21) (41) (41) (41)Depreciation (195) (232) (351) (434) (540) (566) (603)Pre-tax profit 2,984 4,478 4,247 4,036 5,737 5,920 6,250Taxation (1,046) (1,571) (1,357) (1,423) (1,967) (1,985) (2,067)Adjusted PAT 1,937 2,907 2,889 2,612 3,770 3,935 4,183Cash flow statementCashflow from operating activitiesOperating profit before working capital changes 2,131 3,061 3,210 2,959 4,285 4,324 4,501Change in working capital / other adjustments 1,119 (498) (1,796) 4,428 (2,040) (704) (1,466)Net cashflow from operating activites 3,250 2,563 1,414 7,387 2,246 3,620 3,035Fixed Assets (506) (1,783) (1,635) (879) (545) (665) (636)Investments (1,601) (21) 4,033 (2,017) (262) (1,250) (1,250)Cash (used) / realised in investing activities (2,107) (1,805) 2,398 (2,896) (807) (1,915) (1,886)Dividend paid (824) (1,115) (697) (695) (1,246) (1,348) (1,397)Cash (used) /realised in financing activities (824) (1,115) (697) (695) (766) (1,348) (1,397)Cash generated /utilised 264 (346) 3,129 2,648 510 357 (247)Net cash at begn of year 361 625 279 3,408 6,056 6,566 6,923Net cash at end of year 625 279 3,408 6,056 6,566 6,923 6,676Margins for standalone business (%)Raw material / sales 62.5 63.8 60.1 60.1 67.9 63.6 62.8Other expenses / sales 16.1 16.2 19.3 18.3 12.7 18.0 18.6Employee expense / sales 9.2 7.7 8.3 9.8 8.6 8.2 8.3EBITDA magin 12.2 12.3 12.2 11.8 10.8 10.2 10.3PAT margin 8.3 8.4 8.4 7.8 7.1 6.7 6.8RoE 36.9 43.1 33.0 25.2 31.9 27.2 24.3RoCE 36.8 43.2 33.2 25.2 30.2 24.8 22.5EPS (consol) (Rs) 16.3 24.4 24.3 21.9 32.0 33.0 35.1


Key risks

Key risks to our estimates include—(1) lower-than-expected order inflows in a weak capex investment cycle, (2) slower-than-expected execution of large orders, (3) margin and working capital pressure as execution of large-sized orders ramp-up, and (4) delay in setting up supercritical JV facility and winning large utility orders.

1QFY12 Results: Revenues outperform though sedate ordering, declining margins worry

India Industrials


Thermax reported strong standalone sales of Rs10.4 bn in 1QFY12 recording a strong growth of 32% yoy, about 11% higher than our estimate of Rs9.4 bn. Revenue growth was led by strong energy segment performance which grew by 32% yoy to Rs8 bn. Environment segment also recorded a strong revenue growth of 19% yoy to Rs2.6 bn in 1QFY12.

Segmental revenues and margins of Thermax for 1QFY12 (Rs mn)

1QFY12 1QFY11 4QFY11 yoy qoq FY2012E FY2011 % changeRevenuesEnergy 8,024 6,066 14,299 32.3 (43.9) 42,404 39,072 8.5Environment 2,647 2,221 3,826 19.2 (30.8) 12,234 11,472 6.6Less Intersegment (227) (388) (412) (41.6) (44.9) (815) (1,711) (52.4)Total 10,444 7,898 17,713 32.2 (41.0) 53,823 48,832 10.2PBITEnergy 810 680 1,494 19.0 (45.8) 4,779 4,160 14.9Environment 313 269 499 16.3 (37.3) 1,590 1,476 7.8Net unallocable income 51 45 (25) (137) 116 (217.9)Total PBIT 1,170 988 1,959 18.4 (40.3) 6,211 5,730 8.4Revenue mix (%)Energy 75.2 73.2 78.9 77.6 77.3Environment 24.8 26.8 21.1 22.4 22.7EBIT margin (%)Energy 10.1 11.2 10.4 11.3 10.6Environment 11.8 12.1 13.0 13.0 12.9Total PBIT 11.2 12.5 11.1 11.5 11.7

% change


Margin contracts higher share of EPC business; operating leverage cushions loss

The company reported EBITDA margin of 10.9% in 1QFY12, a yoy contraction of 130 bps and about 60 bps below our estimate. The decline in margins may have been led by higher share of EPC business in the product mix (Rs3,160 mn versus Rs1,800 mn last year). Contribution margin recorded a 320 bps yoy decline to 30.3%. This was partially cushioned by operating leverage gains for Thermax (90 bps lower employee cost and 110 bps lower other operating expenses as percentage of sales). Energy segment led the margin contraction (90 bps decline to 10.1% EBIT margin) versus environment segment (30 bps decline to 11.8% EBIT margin).

The stronger-than-expected revenue growth led to a net PAT growth of 20.7% yoy to Rs799 mn (from Rs662 mn in 1QFY11), about 9.6% higher than our estimate of Rs729 mn.

Industrials India


Revenue outperformance tampered by lower margins Thermax (standalone) - 1QFY12 - key numbers (Rs mn)

% change % change1QFY12 1QFY12E 1QFY11 4QFY11 vs est. yoy qoq FY2012E FY2011 yoy

Sales & services 10,329 7,788 17,455 32.6 (40.8) 47,882Other operational income 115 110 258 4.7 (55.3) 951Total income 10,444 9,419 7,898 17,713 10.9 32.2 (41.0) 53,823 48,832 10.2Expenses (9,307) (8,333) (6,938) (15,762) 11.7 34.1 (41.0) (47,618) (43,171) 10.3 Raw material (7,347) (5,276) (12,824) 39.3 (42.7) (36,621) (34,221) 7.0 Employee (905) (753) (969) 20.2 (6.7) (3,839) (3,686) 4.1 Other expenses (1,121) (936) (1,962) 19.8 (42.9) (7,158) (5,327) 34.4EBITDA 1,137 1,086 960 1,951 4.7 18.5 (41.7) 6,205 5,661 9.6Other income 147 122 140 133 21.2 5.4 11.2 486 523 (6.9)PBDIT 1,284 1,207 1,100 2,084 6.4 16.8 (38.4) 6,691 6,183 8.2Interest (4) (5) (6) (10) (30.8) (32.6) (61.0) (22) (22) —Depreciation (111) (115) (106) (116) (3.2) 4.8 (4.0) (458) (432) 6.1PBT 1,170 1,087 988 1,959 7.6 18.4 (40.3) 6,211 5,730 8.4Tax (371) (359) (326) (694) 3.3 13.6 (46.5) (2,062) (1,906) 8.2Net profit 799 729 662 1,265 9.6 20.7 (36.9) 4,149 3,824 8.5

Order detailsOrder booking 14,440 17,310 12,730 (16.6) 13.4 59,149 53,180 11.2Order backlog 58,890 63,300 56,060 (7.0) 5.0 58,626 56,060 4.6

Key ratios (%)Raw material /sales 69.7 66.5 72.4 68.0 70.0Contribution margin 30.3 33.5 27.6 32.0 30.0Employee exp./sales 8.7 9.5 5.5 (0.9) 7.1 7.5Other expenses/sales 10.7 11.9 11.1 (1.1) 13.3 10.9EBITDA margin 10.9 11.5 12.2 11.0 11.5 11.6PBT margin 11.2 11.5 12.5 11.1 11.5 11.7Tax rate 31.7 33.0 33.0 35.4 33.2 33.3PAT margin 7.6 7.7 8.4 7.1 7.7 7.8EPS (Rs) 6.7 6.1 5.6 10.6 34.8 32.1



An uncertain FY2013E, but earnings growth power of Tier-I names intact, in our view

Borrowing from Mohnish Pabrai’s Dhandho Investor—‘Risk means the chance of a loss of capital. Uncertainty is the range of different outcomes. So a stock may have high uncertainty but may not be risky, if no one knows what will happen but the worst case scenario would not result in a huge loss. These investments provide the greatest opportunities for investors.’

We believe the Tier-I Indian IT names are approaching levels (we are possibly 10-15% away) where an uncertain macro environment is being extrapolated into a severe, sharp, and permanent loss of earnings growth power of these companies. Business model, and consequently, earnings power of these companies based upon market share gains for IT offshoring remains intact, in our view. Post recent macro developments, we are headed into an uncertain environment and we do not know how FY2013E would pan out—our estimates depict our current view on a highly uncertain 2HFY12E/ FY2013E; there could be downside risks—we present scenarios. Nonetheless, the key is to appreciate the risk/reward at current levels—this appears favorable to us. We see the recent correction as an opportunity to BUY into the long-term secular market share gain story for IT offshoring through high-quality names. TCS and Infosys are our top picks.

A closer look at the potential worst-case, trading multiples, and risk-reward

We present FY2013E earnings scenarios for the Tier-I names in Exhibits 1-6. These stocks have now corrected to 13-17X FY2013E worst-case EPS—not necessarily cheap but presenting a good risk-reward ratio, in our view. We note that our worst-case EPS scenarios build in the possibility of a Lehman repeat in terms of severe volume slowdown (though we still build in some growth) and pricing correction. However, we do not factor in any of the upside risks in the form of (1) counter-cyclical accelerated push for offshoring, (2) rupee depreciation, and (3) margin kicker from enhanced ability to control wage costs in a low-growth environment. We note that all these upside risks played out in the FY2009-10 timeframe—counter-cyclical benefits admittedly came with a lag, but the rebound was sharp and substantial.

On trading multiples, we believe Infosys and TCS should bottom at normalized PE range of 12-14X FY2013E—comprising an ex-growth multiple of 8X and assuming earnings grow at par with global IT services spend growth to perpetuity beyond FY2013E. This bottom is still 10-15% away, but we note that such fall would factor in a no market share gain scenario beyond a worst-case FY2013E—as low as expectations should (not can) get. From an FCF perspective, to take Infosys as an example, we estimate FY2013E FCF of Rs61 bn for the company in the worst case (see Exhibit 7)—implying an FCF yield (FCF/EV) of 5.9%, fairly attractive, in our view. A 10% correction in the stock from current levels would take this yield to 6.9%.

Protectionist measures the key risk to our call

IT budget cuts for a year or two leading to volume slowdown and/or pricing pressure are likely but would not impact our long-term positive view on revenue growth for the sector. However, protectionism-related shocks are also a possibility and remain the key risk to our constructive thesis.

Technology India

Question marks on earnings power unwarranted. Even as uncertainty on FY2013E remains high and there could be potential downgrades ahead, we believe the Tier-I stocks are reaching close to levels that would reflect pessimism on longer-term earnings growth potential of these companies. We view such pessimism unwarranted. Growth cyclicality in the secular market share gain story for the IT offshore names is not new. Risk/reward is favorable even at current levels. TCS and Infosys are our top picks.

ATTRACTIVE

AUGUST 19, 2011

UPDATE

BSE-30: 16,142

Technology India


How similar is Aug 2011 to Sep 2008?

Memories of the 2008 GFC and its delayed impact on offshore IT revenues are still fresh and hence, the strong current micro indicators may not lend much confidence to the Street. Macro uncertainty-wise, Aug 2011 has several similarities to Sep 2008—(1) serious question marks on GDP growth in developed economies, the key client geographies for Indian IT companies, (2) job cut scenario across industries, primarily BFSI, (3) strong likelihood of IT budget cuts and severe slowdown in discretionary IT spends, and (4) increased volatility in the currency markets. Worries of an impact on offshore IT services revenue growth hence are not unwarranted.

Nonetheless, there is one key aspect that lends us confidence—Sep 2008 events came in as a shock and led to a complete freeze in decision-making across corporate houses. Companies, in general, are better prepared for a downturn today as macro environment has remained uncertain since the last downturn. This has a major implication on offshore IT services growth—decision-making is unlikely to come to a complete halt and hence, market share gains for offshore players are likely to continue. Strong revenue growth for the sector in FY2011/FY2012E has not come on the back of a sharp rebound in IT spends; it has been driven by normalization of decision-making cycles leading to counter-cyclical market share benefits for offshore names. Hence, even as IT budgets can possibly decline in CY2012E depending on how macro pans out, FY2013E should see reasonable growth for Indian IT services players as long as decision making cycles don’t get impacted substantially. Growth could turn out to be lower than the 15-20% yoy that the market has been factoring in before the recent fall; however, recent correction builds in revised lower growth expectations and we see little risk of disappointment on the same.

Among other learnings from the post-Lehman shock phase and subsequent turnaround was the ability of Tier-I Indian IT companies to protect (and even grow, currency supporting) their operating margins in a low-growth environment. Even as most companies are running at higher margins and higher utilization levels as compared to pre-Lehman days and may not have similar margin protection ability, potential to control costs (especially wages) in a low-growth, low-attrition environment can be substantial.

Where did the multiples bottom out in the last correction?

Tier-I stocks are trading at 2-4.4X post-Lehman lows—TCS at 4.2X, Infosys at 2X, Wipro at 2.7X, and HCLT at 4.4X, despite the recent correction. From an earnings perspective, TCS’ FY2013E worst-case EPS is 2.2X lowest FY2010 estimate post-Lehman, while Infosys is at 1.5X.

From a multiple perspective, TCS bottomed out at ~8X forward expectations (not actuals) while Infosys bottomed out at ~12X—these stocks are currently at 15-17X worst-case EPS scenario.

Exhibit 1 - Summary of EPS sensitivity of Indian IT companies to volume and pricing changes

CompanyVolume

growth (%)Pricing

change (%)EPS

(Rs/share) P/EVolumes lower by

Pricing lower by

Infosys Technologies 20.1 0.3 168.9 13.2 2.5 - 5% 1 - 3% 145.3 159.0 14.0 15.3 TCS 23.6 (0.5) 64.4 14.4 2.5 - 5% 1 - 3% 54.9 60.4 15.4 16.9 Wipro 19.9 (1.6) 26.3 12.2 2.5 - 5% 1 - 3% 22.5 24.7 13.0 14.2 HCL Technologies 16.1 2.3 36.5 10.7 2.5 - 5% 1 - 3% 28.6 33.2 11.8 13.7

EPS Range (Rs/share) Current P/E range

Base case for FY2013E Sensitivity scenarios


India Technology


Exhibit 2 - Examining upside/downside scenarios to Tier-I Indian IT stocks

CompanyFY2013E EPS range

(Rs/share)Multiple range (X)

TP range (Rs)

Upside/ (downside)

Multiple range (X)

TP range (Rs)

Upside/ (downside)

Multiple range (X)

TP range (Rs)

Upside/ (downside)

Infosys 145-169 12-14 1740-2366 (22)/ 6 14-18 2030-3042 (9)/ 37 18-22 2610-3718 17/ 67TCS 55-64 12-14 660-896 (29)/ (4) 14-18 770-1152 (17)/ 24 18-22 990-1408 7/ 52Wipro 22.5-26.3 10-12 225-316 (30)/ (1) 12-15 270-395 (16)/ 23 15-18 338-473 6/ 48HCLT 28.6-36.5 9-11 257-402 (34)/ 3 11-13.5 315-493 (20)/ 26 13.5-15 386-548 (2)/ 40

Normalized growth Mid-cycle High-growth


Exhibit 3 - Infosys - FY2013E EPS under various scenarios

168.9 (4.0) (3.0) (2.0) (1.0) - (10.0) 131.3 135.1 138.9 142.8 146.8 (7.5) 136.3 140.2 144.1 148.1 152.2 (5.0) 141.3 145.3 149.4 153.5 157.7 (2.5) 146.4 150.5 154.7 159.0 163.3 - 151.5 155.8 160.1 164.5 168.9

Volumes (versus base

case) (%)

Pricing (versus base case) (%)


Exhibit 4 - TCS - FY2013E EPS under various scenarios

64.4 (4.0) (3.0) (2.0) (1.0) - (10.0) 49.1 50.6 52.0 53.5 55.0 (7.5) 51.2 52.7 54.2 55.8 57.3 (5.0) 53.4 54.9 56.5 58.1 59.7 (2.5) 55.5 57.1 58.7 60.4 62.0 - 57.7 59.4 61.0 62.7 64.4


case) (%)



Exhibit 5 - Wipro - FY2013E EPS under various scenarios

26.3 (4.0) (3.0) (2.0) (1.0) - (10.0) 20.2 20.8 21.4 22.0 22.6 (7.5) 21.0 21.6 22.3 22.9 23.5 (5.0) 21.9 22.5 23.1 23.8 24.4 (2.5) 22.8 23.4 24.0 24.7 25.4 - 23.6 24.3 25.0 25.6 26.3


case) (%)



Technology India


Exhibit 6 - HCLT - FY2013E EPS under various scenarios

36.5 (4.0) (3.0) (2.0) (1.0) - (10.0) 24.1 25.4 26.7 28.1 29.5 (7.5) 25.6 27.0 28.3 29.8 31.2 (5.0) 27.2 28.6 30.0 31.5 32.9 (2.5) 28.8 30.2 31.7 33.2 34.7 - 30.4 31.9 33.4 35.0 36.5


case) (%)



Exhibit 7 - Infosys' current FY2013E FCF yield is 5.9% in the worst-case scenario

FY2012EBase case Scenario

Revenues (Rs bn) 329 390 329 Revenue growth (%) 18 - EBITDA margin (%) 31.6 31.0 EBITDA (Rs mn) 123 102 Capex (Rs bn) (19) (13) Capex as % of sales 5.0 4.0 Tax payout (Rs bn) (27) (22) Change in NWC (Rs bn) (7) (6) FCF (Rs bn) 70 61

Market cap (Rs bn) 1,277 1,277 Net debt (cash) - end-FY2013E (257) (241) EV (Rs bn) 1,020 1,036 FCF yield (%) 6.9 5.9 FCF yield if stock corrects another 10% (%) 7.9 6.7

FY2013E


India Technology


Exhibit 8: Post-Lehman crash P/E of Tier-1 stocks

0

5

10

15

20

25

30

4/1/

2008

5/1/

2008

6/1/

2008

7/1/

2008

8/1/

2008

9/1/

2008

10/1

/200

8

11/1

/200

8

12/1

/200

8

1/1/

2009

2/1/

2009

3/1/

2009

4/1/

2009

5/1/

2009

6/1/

2009

7/1/

2009

8/1/

2009

9/1/

2009

10/1

/200

9

11/1

/200

9

12/1

/200

9

1/1/

2010

2/1/

2010

3/1/

2010

INFO PE +1 INFO PE +2 TCS PE +1 TCS PE +2

Source: Bloomberg, Kotak Institutional Equities estimates

Exhibit 9: US$ revenue growth of Infosys and TCS, 3QFY08-1QFY12

-8

-4

0

4

8

12

3QFY

08

4QFY

08

1QFY

09

2QFY

09

3QFY

09

4QFY

09

1QFY

10

2QFY

10

3QFY

10

4QFY

10

1QFY

11

2QFY

11

3QFY

11

4QFY

11

1QFY

12

Infosys TCS

Source: Companies, Kotak Institutional Equities

Technology India


Exhibit 10: Gross profit margin of Infosys and TCS, 3QFY08-1QFY12

40

42

44

46

48

50

3QFY

08

4QFY

08

1QFY

09

2QFY

09

3QFY

09

4QFY

09

1QFY

10

2QFY

10

3QFY

10

4QFY

10

1QFY

11

2QFY

11

3QFY

11

4QFY

11

1QFY

12

Infosys TCS


Exhibit 11: EBITDA margin of Infosys and TCS, 3QFY08-1QFY12

20

24

28

32

36

40

3QFY

08

4QFY

08

1QFY

09

2QFY

09

3QFY

09

4QFY

09

1QFY

10

2QFY

10

3QFY

10

4QFY

10

1QFY

11

2QFY

11

3QFY

11

4QFY

11

1QFY

12

Infosys TCS


India Technology


Exhibit 12: Attrition rates for Infosys and TCS, 3QFY08-1QFY12

10

12

14

16

18

20

3QFY

08

4QFY

08

1QFY

09

2QFY

09

3QFY

09

4QFY

09

1QFY

10

2QFY

10

3QFY

10

4QFY

10

1QFY

11

2QFY

11

3QFY

11

4QFY

11

1QFY

12

Infosys TCS



Speakers, companies, experts

Keynote speakers

Hormazd Sorabjee—Editor, Autocar India; “India’s Automotive Industry: The shape of things to come”

Kiran Mani, Head of Industry Sales, Google India; “How the internet is transforming consumer acquisition for businesses”

Companies / strategists

1. Amararaja Batteries 10. Hindustan Unilever

2. Asian Paints Distributor 11. HT Media

3. Bajaj Corp 12. ITC

4. Bajaj Electricals 13. Jagran Prakashan

5. Bennett & Coleman 14. Kotak Mahindra Prime (Auto Finance);

Kotak Mahindra Bank

6. DB Corp 15. Marico

7. Eros International 16. Maruti Suzuki

8. Escorts 17. Motherson Sumi Systems

9. Godrej Consumer 18. Radio City

Strategy.dot

Strategy Consumer Forum

Takeaways from KIE’s Consumer Forum 2011 on August 19. KIE’s latest corporate access event focused on demographic drivers, corporate roadmaps and sectoral dynamics for three sectors: Consumer, Auto and Media. The forum saw domestic and overseas institutional investors meet 18 companies and experts in over 400 interactions. Our keynote speakers were (1) Hormazd Sorabjee, Editor, Autocar India and (2) Kiran Mani, Head of Industry Sales, Google India. We summarize key takeaways.

INDIA

AUGUST 22, 2011

UPDATE

BSE-30: 16,841

India Strategy


KEYNOTE SPEAKER, HORMADZ SORABJEE, EDITOR AUTOCAR INDIA: AUGUST 19, 2011

Key takeaways

Mr. Sorabjee highlighted intriguing facts about changing customer preferences, emphasizing the need for manufacturers to focus on value rather than price alone. Consumer buying characteristics seem to differ in different car segments—while lower end of the consumer segment is more price-conscious, the upper-end customer is more focused on the features and performance of the car.

Price-to-size ratio is the most important consideration for consumers, which poses a threat for new entrants. Consumers are willing to pay a premium for a three-box sedan in India while in foreign markets both hatchbacks and three-box saloons could be sold at the same price. However, styling is becoming extremely important for consumers.

Styling, fuel economy, interiors and performance are very high priority for car buyers while safety and ride handling are the least important for a consumer while buying the car.

According to him, word of mouth is the biggest influencer of sales and media has started becoming an important influencer in customers’ buying decisions. Hence, manufacturers’ advertising budgets are increasing as competitive intensity increases.

The entry segment is most challenging segment for the new players because of low margins and large volumes required to justify investments. So entry barriers are very high and incumbents like Maruti Suzuki will continue to dominate this segment. Hyundai is likely to launch its 800cc car to challenge Maruti Suzuki and could escalate competition in this space. Volkswagen and Skoda are also likely to enter this segment by 2013.

The premium compact segment is relatively easy to enter and global models help in providing scale for new players. Maximum competition is seen in this segment but this is likely to be the fastest-growing segment in future. Popularity of diesel cars in this segment is growing rapidly due to wide differential between petrol and diesel fuel prices.

The mid-size segment is also growing at a rapid pace driven by new launches. Diesel vehicles are in strong demand in this segment and this segment is cannibalizing sales of upper C segment cars.

Mr. Sorabjee believes that manufacturers have an opportunity to fill in product gaps like mini SUVs and mini MPVs. Seven-seater options are most preferable in the MPV segment and sub-4-metre length mini SUVs could give cost advantage to the manufacturers due to lower excise duty.

He believes the Indian passenger car market is well-poised to grow at a rapid pace due to low penetration, increasing income levels and reduction in cost of ownership of vehicles (due to more fuel-efficient vehicles and use of alternate cheaper fuels like diesel, LPG and CNG vehicles).

Strategy India


KIRAN MANI, HEAD OF INDUSTRY SALES, GOOGLE INDIA: AUGUST 19, 2011

India is already the 3rd-largest internet market in the world—about 100 mn audience today (India’s urban population is ~240 mn). India is just behind US and China in terms of absolute numbers of internet users. There is potential for growth in internet users to ~ 250 mn by 2015.

India is a highly inquisitive market—it produces ~4 bn search queries every month—in those terms it is the 2nd-largest market in the world. The number of queries has doubled over the last year.

Indian e-commerce follows a search-online-purchase-offline model. In most developed markets, the searches can potentially be converted into business immediately. Considering the low penetration of credit cards in India, the ‘Cash-On-Delivery’ model is key for ramping up of e-commerce business models.

Internet is an important influencer of consumers’ purchase decisions, particularly for large-ticket purchases like automobiles—makes it imperative for manufacturers to have a strong presence on the web.

In terms of pure-play e-commerce, matrimony is the largest e-commerce segment in India. Travel is big; however, it is still playing catch-up.

About 30% of all air ticketing is online in India. Online travel is almost synonymous with air travel, but it is only one-third of queries around travel. The remaining two-thirds is around holiday packages.

The telecom industry in India is trying to make a business model out of internet research. ~70% of mobile handset purchase is influenced by internet research. ~10% of the home loan business of a leading bank is through the online medium.

An internet presence is important even for typical consumer staple products like hair care. For example, there are ~4,00,000 queries on hair care every week in India.

~20% of search queries are net new queries every month. The biggest contributor of queries now comes from mobile phones.

The key priority of most telecom players in India is data. Hence, telecom players are very focused in driving this to improve ARPU. Internet usage on cell phone has the potential to be higher than desktop usage.

The internet is redefining entertainment. Every Friday, youtube plans to release a movie on the internet.

India Strategy


AMARA RAJA BATTERIES

Key takeaways

The company has a 45% market share in the telecom segment, 32% market share in the commercial UPS segment, 28% market share in the organized replacement 4-wheeler segment, 25% market share in the organized replacement 2-wheeler segment. 40% of company’s revenues come from the industrial segment and rest 60% come from the automotive segment.

The company indicated that it supplies to all 4-wheeler OEMs and has a 25% market share in the 4-wheeler OEM segment. However, it does not supply to any 2-wheeler OEM currently. The company expects to start supplying to the 2-wheeler OEMs over the next 8-10 months. Despite no tie-ups with 2-wheeler OEMs, the company has been able to increase its market share in the organized 2-wheeler replacement battery segment from 5% to 25% over the past 3 years.

The company expects the automotive replacement segment to grow at 12-15% CAGR over the next 5 years and it has not seen any slowdown in replacement battery volumes. The company has increased its market share in the 4 wheeler replacement battery segment by 5% over the last 2-3 years partly at the expense of Exide and partly of other players.

The company expects the 2-wheeler organized replacement market to grow at a rapid pace due to the shift towards self-start which requires powerful and reliable batteries.

In the industrial segment, telecom battery contributes 50% of industrial revenues while commercial UPS forms 35% of industrial revenues. Rest 15% of industrial revenues comprise exports, railways and power distribution/transmission sector. The company is not present in the inverter battery segment.

In the telecom battery segment, the company indicated demand is subdued due to no new tower additions and delay in replacement of telecom batteries. However, the company expects demand to grow at 7-8% yoy in FY2012E in the telecom segment driven by replacement of telecom batteries. The company expects telecom battery prices to also start rising as 3G penetration increases over the next 5 years as 3G network would require more powerful batteries.

In the UPS segment, Exide, Amara Raja and Chinese imports are the 3 major players having almost equal market share of 32%. While Amara Raja has a dominant market share in the commercial UPS segment, Exide dominates in the home UPS segment. Operating margins in this segment are lower than automotive replacement due to significant competition by imported batteries. The company expects this segment to grow at 12-14% CAGR over the next few years.

The company’s capacity will increase to 5.6 mn in 4-wheeler batteries and to 5 mn in the 2-wheeler battery segment by end of CY2011. It has a capacity of 900 mn ampere hours in the industrial segment.

Strategy India


ASIAN PAINTS DEALER

Key takeaways

Asian Paints gives dealers a margin of ~7% on mass and mid-end products and 8%-12% on premium products. New players such as Nippon, Jotun and Sherwin Williams are offering higher margins. However, volumes for the newer players are low and supply-chain efficiency is one of the biggest challenges faced by them.

APNT has ~20,000 dealers and clubs them in various buckets—(1) ordinary dealers, (2) critical retailers (gives training and updates on features of the company’s products), (3) privilege members (given some information on the company’s prospects), (4) privilege premium members (two staff members from the dealer’s shop are taken to the company site and training/relevant information is shared with them), (5) super privilege members (form inner coterie of the company). There are ~40 super privilege members and ~400 privilege premium members and privilege members each.

To increase loyalty of painters towards APNT’s brands, the company has introduced a ‘Masterstokes’ card which is a reward point system.

~15% of paint demand is for new construction and the balance for repainting, repainting cycle has reduced to ~4 years now.

Strong infrastructure and dealer network is the biggest strength of APNT.

Supply-chain efficiency is APNT’s strength—it services the key dealers twice/thrice a day (competition’s service efficiency is ~3 days) which results in lower inventory carrying cost for the dealer and hence, higher ROI for them.

BAJAJ CORP

Key takeaways

Demand conditions are robust; the company expects double-digit volume growth in FY2012E. It has taken 8.5% price hike in Almond Drops in April 2011. If LLPO continues to remain inflationary, the company would consider further price hikes. Any correction in input costs has the potential for margin expansion as in its history, it has never taken a price cut (as the product has a premium positioning).

Kailash Parbat cooling oil launched four months back is available in 0.2 mn outlets against Emami’s Navratna (market leader) which is available in 2.7 mn outlets. In few states such as Rajasthan and Madhya Pradesh, Kailash Parbat is more widely distributed than Navratna. Kailash Parbat has market share of 7.6% and 2.4%, respectively in these states.

Kailash Parbat will break even on reaching sales of Rs360 mn (6% market share). In FY2011, Emami spent ~Rs200 mn on Navratna, and Bajaj Corp would spend at least half of that to take competition head on.

The company is pursuing M&A opportunities in India and overseas. It has hired Mr. Jimmy Anklesaria (earlier with Godrej Consumer) to oversee the process.

India Strategy


BAJAJ ELECTRICALS

Key takeaways

The company does not yet see any slowdown in sales of consumer appliances. The sales growth in the segment is continuing at the same rate as was reported in the first quarter.

The company is not seeing any pricing pressure in the consumer appliances segment on account of new launches by various companies entering the segment. On the contrary, it is hopeful of margins increasing in the segment as raw material prices have started correcting.

In the EPC business, results for 2QFY12E would be subdued as the company would try to reduce the number of active sites by completing the fringe works (2-3% of the total project). This would allow the company to improve its project management in the future as the number of sites would go down which would make the management easier. Also, it would release the retention money (5-10% of the project cost), which is currently blocked by the clients as the projects are only 95-97% complete.

The company wants to bid carefully for EPC projects in the future. It would avoid rural electrification projects where the competition is high. It would bid selectively for projects of NTPC, NHPC etc. where the payments terms are better and the competition is a little lower.

The company aims to maintain the current proportion of EPC revenues as a percentage of the total revenues.

BENNETT & COLEMAN

Key takeaways

The future of English news. BCCL today has done enough work to consider itself platform-agnostic and thus, it is not just an English print company but an English news company. The future of English news has never looked better; English has always been the aspiration of the population even in regional markets but today the means to achieve the shift are also becoming more accessible with the education revolution.

Regional print strategy. BCCL does not really see the need for organic growth in the regional print segment since it is a heavy cash-burn strategy; the shift to English in some of the mini-metros (Pune) is already underway so BCCL will continue to focus on the future (English). The language market will always be there but will be a play on large volumes (population); the group will look at inorganic (acquisition/collaboration) opportunities in this segment, if available at the right valuation.

Content focus. BCCL has been looked out as a marketing and distribution focus group (of course) but the company has also invested in content. The focus within the group has shifted considerably to the consumer: more important, not just in updating/informing the consumer but also upgrading them. This has allowed brands like ET to remain relevant despite many other players in the market. This will be the focus on Tier-II/III markets as well: capture and upgrade the aspirational consumer.

New media business. The group has been one of the first in India to start investing in the new/emerging media and BCCL remains committed to the same now that it has achieved the pole position in some segments (digital). Arguably, the monetization has not been very great so far but it is difficult to believe the situation will remain stagnant; improved monetization models need to evolve. The group has 70% of its revenue coming from legacy businesses and remaining 30% coming from emerging/embryonic businesses; this is the mix the group is very comfortable with currently.

Strategy India


DB CORP

Key takeaways

Advertising revenues. The national advertising market is under pressure driven by an uncertain economic growth and inflation environment. However, the >3L local advertisers cultivated by DB Corp has helped with robust local advertising growth continuing. DB Corp is confident of maintaining mid double-digit advertising growth (like-to-like basis on core markets) in FY2012E in an uncertain environment.

Advertising volumes. Advertising growth in the uncertain environment is being driven largely by volumes and moderately by yields. The advertising environment is not conducive to rate hikes; DB Corp continues to push for higher rates but effective pass-through is likely to be in mid single-digits in FY2012E.

Newsprint prices. Domestic newsprint prices had gone to high levels (the gap between domestic and international newsprint has become zero) in the past few months. DB Corp has seen a modest (3-5%) correction in August. The impact will be felt in 2HFY12E when the existing inventory gets consumed and DB Corp expects further correction in pricing given demand-supply conditions will also improve.

New markets/expansion. Maharashtra has been the best launch for the company in a decade with Divya Marathi becoming the dominant print brand in Aurangabad and Nashik. The response from local advertising market has also been better than the expectation of the company in Aurangabad. The next edition is slated to be launched from Jalgaon in September 2011.

EROS INTERNATIONAL

Key takeaways

Content models. Eros continues to focus on scaling up its co-production model of content creation, which offers the best of both worlds to the producer and the studio. The producer does not need to run around for financing and can focus on creating the good product. The distributor (Eros) then can focus on marketing and monetizing the content made available. In effect, co-production model ensures specialization in the value chain and everyone is doing the job best suited for him.

Acquisition model of content. The company will also continue to focus on opportunistic buys such as Ready and Murder 2 since the model is quite working capital efficient and the company anyway de-risks itself by pre-selling parts of the movie (C&S TV, ancillary rights as well as some bits of domestic theatrical rights). The company will not do many own productions since this is not its USP.

C&S rights revenues. The pressure on advertising revenues of C&S players is visible but subscription revenues continue to grow. The company has not seen any decline in appetite of C&S players for film content. Nonetheless, Eros has pre-sold C&S telecast rights of >50% of its movie in FY2012E already (notably high-budget projects such as RA.One) and thus, the impact is contained.

Growth drivers. The company is in the process of finalizing its FY2013E slate (>50% is already done) and will be releasing the details in some time. Besides increasing in scale (number of movies), the mix of movies also continues to shift towards more high-budget movies. Finally, the monetization opportunity in Tier-II/III towns in increasing with proliferation of multiplexes in these markets (higher ticket prices); the distribution costs continue to reduce due to digital distribution.

India Strategy


ESCORTS

Key takeaways

Escorts indicated that they expect tractor industry volumes to increase by 11-12% yoy in FY2012. Escorts tractor volumes declined by 21% yoy in 1QFY12. The company’s market share has declined to 11.2% from 13% in FY2010.

The company highlighted that the past few years have seen double-digit tractor volumes growth which is primarily led by non-agricultural usage (pipeline, buildings, flyover, earth moving jobs). Unlike agricultural usage where the farmer uses a tractor for about 5 months per annum, tractors get used throughout the year in such infrastructure jobs leading to shorter life (3-4 years) and replacement cycle.

The company has a capacity of 75,000 units of tractors and is currently producing 60,000 units from its plant.

The company has taken two sets of price increases of 0.5% on February 1 and 3.5% on March 1, 2011. EBIT margins declined by 1.4% qoq in 1QFY12 due to significant rise in raw material costs.

Auto suspension division continues to make losses and the company’s expectations of achieving a breakeven in FY2012E could be under threat.

Railways division sales are also under pressure due to lower offtake by Railways. The company plans to boost export revenues and also launch two new products – balance draft gear and bogie mounted braking systems to boost revenues. Operating margins have also declined by 5% sequentially due to lower sales and higher fixed costs.

Construction equipment business revenues have been growing at a robust pace driven by strong demand of pick and carry cranes and backhoe loader revenues. Pick and carry cranes form 63% of construction equipment revenues while backhoe loaders now form 14% of construction equipment revenues.

Operating margins in the construction equipment business is also under pressure. The company plans to spend Rs405 mn over the next two years increasing paint shop capacity, fabrication and assembly capacity of backhoe loaders, pick and carry cranes and creating in-house manufacture of F 15s, TRX and slew cranes.

Total net debt is about Rs1.8 bn and working capital of Rs1.8-1.9 bn. The company plans to spend Rs1.45 bn of capex of which Rs600 mn has already been spent on modernization of the plant.

Strategy India


GODREJ CONSUMER PRODUCTS

Key takeaways

In hair color, the image of the company has been a hindrance; hence it has not gained a foothold in the premium market. It now aims to establish itself in the mass premium segment and has no immediate plans to enter the super premium segment.

US$350 mn of offshore debt is un-hedged in the medium term. In the short term, the company hedges it to avoid impact of fluctuations in currency. Average interest cost is 175 bps over LIBOR.

In household insecticides, the company has been at the forefront in terms of innovations such as 12-hour jumbo coil, dual dispensation vaporizer, low smoke coil etc. The paper-based household insecticide launched by the company in Indonesia is priced at half of coils (~45% of Indonesia market is coils and Megasari is not present in this segment) and gross margin in the segment is higher than coils. Launch of the product in India is underway. This product has already achieved an 8% penetration in the Indonesia market.

HT MEDIA

Key takeaways

HT Delhi. The pressure on advertising revenues has increased with weak spends by real estate and BFSI categories but the company remained confident of achieving double-digit advertising growth for FY2012E assuming the economic and consumption growth do not worsen from current levels. The increase in HT Delhi circulation would be 2-3% in line with the growth in population.

HT Mumbai. The company believes it has turned a page in Mumbai achieving the number two position in the morning daily segment. The circulation of HT Mumbai has increased to 0.4 mn copies daily from 0.28 mn copies previously, which should be good for HT to achieve readership of 0.8 mn; the company is committed to further investments in the Mumbai market. The advertising growth in HT Mumbai has sustained at 30-40% from a low base as HT Mumbai did not receive much advertising from segments such as real estate and BFSI to begin with (incremental gains).

Hindustan. Advertising growth has been weak due to education and DAVP/government segments but DAVP advertising has come back in Bihar. The company is committed to increasing its yields in the Bihar and UP markets, where it feels that monetization levels are quite low. Hindustan will launch two new editions in Aligarh and Moradabad in 2HFY12 to complete its expansion in the UP market.

Ancillary businesses. Mint continues to perform very well with sustained 30-40% growth even in a difficult environment for business publications. Mint is not as dependent on BFSI advertising and is able to generate a lot of high-end advertising. Additionally, the focus will be on expanding the Fever FM franchise, which has done well, in Phase-III but in baby steps since this strategy has worked for the company.

India Strategy


HINDUSTAN UNILEVER

Key takeaways

If input cost inflation stays at present levels, the company will be required to take price hikes in the soap and detergent category

A repeat of price war in the detergent category between P&G and HUL (as witnessed in 2004 and in 2010) is unlikely

Industry is rationalizing ad and promo spends due to gross margin pressure. HUL’s share of voice is competitive in all the categories. HUL continues to invest in new launches in personal products and foods

HUL, as an organization, is better-prepared than ever before to handle commodity price changes. It is well prepared to handle pricing and pack changes as well. The awareness and consciousness of the organization to tackle volatile business conditions is likely at an all-time high.

ITC

Key takeaways

Cigarette volume growth in 1QFY12 was good and the trajectory is continuing.

Snacks business volumes have been good in FY2011; it has achieved breakeven recently. Biscuits are growing in high teens. Noodles industry is growing at ~20-25%, ITC was the last to enter the category. Market share in biscuits is in early teens. Premiumisation of products is a focus area and it has helped protect margins. Cost pressure continues to be a constant challenge.

Historically, the industry-wide problem in biscuits has been inability to move away from Rs5 price point. So, in a way the industry has tackled this through grammage correction. Most companies have taken some margin hit as well due to commodity inflation.

Full-year breakeven in FMCG will likely be in FY2014E; however, it may happen towards 4QFY13E.

Strategy India


JAGRAN PRAKASHAN

Key takeaways

Advertising revenues. Regional print media receives around 55-60% of its advertising from local/regional advertisers and 40-45% from national advertisers. The uncertainty in national advertising market continues to be accentuated by the 50 bps rate hike by the RBI recently, resulting in likely weak advertising spends in FY2012E.

Advertising rates. Jagran has stood firm as regards the advertising rate hikes in its markets, which have been driven by robust consumer response in the market. It has fine-tuned its strategy in the past few months given the uncertainty in the national advertising market. However, Jagran will not go after volumes at the cost of yields though niche brands such as I-Next can follow a differentiated strategy.

Mid-Day strategy. The first focus of the company would be to strengthen the Mid-Day brand in the Mumbai market. FY2012E would be a year of investment in Mid-Day English and Gujarati; however, financial performance would yet improve since 80% of the cost synergies envisaged (newsprint, content) have already been achieved. However, FY2013E would be the turnaround year for Mid-Day when revenue synergies would come through and cost structure would have stabilized.

KOTAK CAR FINANCE

Key takeaways

Kotak Car Finance is the fourth largest passenger vehicle financier in India. HDFC Bank, State Bank of India and Mahindra Finance occupy the top-3 positions.

They indicated that passenger car volume growth is likely to remain challenging this year and they do not expect more than a single-digit growth in FY2012E. They expect a pick-up in volumes in festive season and cautioned if retail sales do not pick up in festive season, a flat growth in passenger car segment could be seen in FY2012E.

Inventory levels of manufacturers have increased from 35 days to 40-45 days and manufacturers have cut production in August to align their production with retail demand.

They indicated that passenger car demand has picked up in August but we believe this could be due to increase in demand from new Swift and we should wait for few months to see passenger car demand could again start growing at a robust pace.

Diesel engine capacity is in short supply which is depressing overall car demand.

Competitive intensity is increasing as Honda has cut prices of Jazz quite sharply which could lead to rise in Jazz volumes.

Discounts on cars have increased sharply in July-August from 1QFY12 levels which could pressure car manufacturers’ operating margins.

Current interest rates are ~12.25-12.75% which have risen by 175 bps since December 2010. Borrowing costs has come down by 25-30 bps since June 2011 and has been passed on to the customer. They don’t expect any more rate hikes in the passenger car space due to increase in competitive intensity in the passenger car finance space.

68% of total cars are being financed currently which has come down from 74% in FY2011. Second car buyer is deferring his purchase decision due to economic uncertainty while first-time car buyer proportion in overall volumes has increased.

Asset quality is surprising, the best they have seen historically due to better customer profiling by the financiers. They do not expect much deterioration in asset quality over the coming months.

India Strategy


MARICO

Key takeaways

The company guides for medium-term volume growth rate in value-added hair oil at ~17%, coconut oil at ~7% and Saffola at ~15%.

It aims to make profit in Kaya on an overall basis this year though maybe not in India. In FY2013E, India business will likely turn profitable.

If the copra price falls, the company will pass on the benefit entirely in recruiter packs and a substantial part (~70% - 80% in our view) in bigger SKUs.

The company is increasing the focus on the functional foods segment and in about 10 years, aims to cover food requirements throughout the day.

MOTHERSON SUMI

Key takeaways

The company indicated that Peguform was acquired by the company as it provided high-end interiors and plastic technology which has helped Motherson become one of the top suppliers of passenger car OEMs globally.

Peguform is the second-largest supplier of door panels and third-largest supplier of instrument panels in Germany. It also holds the leadership position in cockpit assemblies in Spain. Peguform has 2,000-4,000 ton plastic moulding machines while Motherson Sumi has 20-2,000 ton plastic moulding machines. Hence, this acquisition gives Motherson technology to produce heavier and higher-end plastic components in the car.

Volkswagen contributes 75% of Peguform revenues. Peguform revenues in 2010 were ~Euro1.36 bn, EBITDA of Euro67 mn and net profit of Euro6.8 mn. Motherson has paid Euro141.5 mn for 80% stake in Peguform. Motherson Sumi holds 51% stake in Peguform while Motherson Finance would hold the rest 49% stake. Peguform was thus valued at ~5.1X EV/EBITDA on CY2010 financials.

The company indicated that they expect Peguform to transition by September 2011. The company’s focus would be to improve ROCEs of the Peguform business. Operating margins are likely to be lower as Peguform buys a lot of bought-out parts but return ratios will be higher.

The company also indicated that SMR’s new plants will start contributing to revenues from 2HFY12E. The company had received Euro700 mn order from European OEMs of the new model launches over the next the next 5-7 years. SMR has 22% market share in the global rear-view mirror passenger car market. The company has been able to increase its market share to 53% from 48% in the rear-view mirror market in India.

The company expects content per car to increase further both in India and abroad due to increasing higher price rear-view mirrors in passenger cars in India, becoming a full system supplier after acquisition of Peguform and increase in requirement of wiring harnesses due to rising features in a car. The company has also started to supply HVAC systems to Maruti Ritz and plans to increase that business with Maruti and other passenger car customers.

The company maintained its target of achieving US$5 bn in revenues and ROCE of 40% by 2015. After the acquisition of Peguform, Motherson Sumi has already achieved a turnover of US$3.7 bn.

Strategy India


MARUTI SUZUKI

Key takeaways

The company expects domestic volume growth to improve due to strong order book of new Swift. New Swift has received 50,000 orders. Capacity of Swift has been increased from 12,000 units to 18,000 units/month. Diesel engine capacity is also being increased from 240,000 currently to 290,000 units by September 2011.

Current installed capacity is around 1.2 mn units which will be increased to 1.5 mn units by September and then to 1.8 mn by September 2012. The company indicated they could produce 10% higher than the installed capacity if demand is higher than supply. Hence, the company does not face any supply constraints as of now except for diesel engine capacity which is being increased in a phased manner.

The company indicated that export volume growth is likely to decline by 10% yoy in FY2012E from earlier expectations of flat growth due to decline in European volumes. The company has hedged Euro and Dollar exports at very favorable rates for FY2012E which could aid export realizations.

The company expects raw material costs to decline from 2HFY12E due to a decline in aluminium and rubber prices. However, a strong Yen could have an impact on gross margins. The company has hedged the Yen till October 2011 and has a net exposure of 27% of sales in Yen. 8% of sales are direct imports in Yen, 5% of sales are royalty expense and rest 14% of sales are indirect imports.

Discounts have increased from 1QFY12 levels in 2QFY12 and could impact margins, in our view. Discounts averaged Rs9,300/vehicle in 1QFY12 much lower than Rs10,500/vehicle in 4QFY11 as the company had cut discounts by 30% in April 2011.

The company plans to aggressive pursue its localization strategy to reduce costs and reduce impact of Yen. The company plans to reduce imported content by 3% of sales every year and is also looking at options of sourcing from Japanese vendors in South East Asian countries to reduce costs.

R&D expenses as a percentage of sales are also likely to increase to 1.4% of sales in FY2012E versus 1.1% of sales in FY2011. Tax rate is likely to end at 22-23% for FY2012E due to increase in R&D expenses and capitalization of capex done at the Manesar plant.

The company has set a target of improving EBITDA margins to 12% (by 2% from current levels) over the next 3 years through cost reduction initiatives.

The company has already spent ~Rs1.4 bn in capex in the first 5 months of FY2012 versus Rs4 bn target capex spend for FY2012E.

We maintain our BUY rating on the stock due to attractive valuations (trades at 10.8X multiple on our FY2013E EPS). Our target price of Rs1,515 is based on 14X PE on our FY2013E consolidated EPS estimate.

India Strategy


RADIO CITY

Key takeaways

Advertising revenues. The total FM radio advertising market in India is ~Rs10 bn, with ~Rs8 bn with private FM radio operators and rest with AIR FM radio, the national broadcaster. The share of FM Radio pie will likely increase to 7-8% of the advertising pie from 3-4% currently if FM radio Phase-III goes as planned. The top-10 markets currently constitute ~50% of the advertising pie; the top-30 markets will yet constitute ~60% of the advertising pie even after Phase-III licensing.

Advertising revenues. Advertising growth in the top-4 cities is largely being driven by increase in ER (effective rates) since inventory utilization is ~100%. In smaller towns, stations still have considerable inventory left and thus, the focus currently is on increasing the inventory utilization and rate hikes will follow.

Royalty costs. The issue of royalty cost has more or less been settled. The royalty to PPL has been decided at 2% of the revenue of the FM radio station by the copyright board. The royalty payable to IPRS has been declared null and void in a case filed by Radio City. IPL and IPRS have the option of challenging the said rulings but any significant change in the status quo is quite unlikely.

Phase-III FM radio licensing. The process for Phase-II FM radio licensing will likely begin by end-CY2011. The government will also like to finish the process by end-FY2012E given the fiscal deficit situation. The two key benefits of Phase-III would be current affairs and news (will bring more listeners and allow FM radio to emerge as a serious medium) and networking (cost rationalization, though hard to achieve).

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Kotak Institutional Equities: Valuation summary of key Indian companies

19-Aug-11 Mkt cap.O/S

shares EPS (Rs) EPS growth (%) PER (X) EV/EBITDA (X) RoE (%)Target price Upside ADVT-3mo

Company Price (Rs) Rating (Rs mn) (US$ mn) (mn) 2011E 2012E 2013E 2011E 2012E 2013E 2011E 2012E 2013E 2011E 2012E 2013E 2011E 2012E 2013E 2011E 2012E 2013E 2011E 2012E 2013E (Rs) (%) (US$ mn)

Automobiles

Ashok Leyland 26 SELL 67,847 1,483 2,661 2.4 2.1 2.4 68.1 (11.9) 12.8 10.7 12.2 10.8 7.5 7.9 7.1 1.5 1.4 1.4 3.9 3.9 3.9 21.8 17.4 18.2 26 2.0 5.6

Bajaj Auto 1,427 ADD 413,017 9,027 289 90.4 99.8 109.6 43.9 10.4 9.9 15.8 14.3 13.0 12.0 11.1 10.4 8.4 6.5 5.1 2.8 2.8 2.8 84.9 50.6 43.0 1,550 8.6 12.2

Bharat Forge 278 ADD 65,969 1,442 237 12.5 16.4 20.3 1,402.1 30.8 23.5 22.2 16.9 13.7 10.4 8.4 7.1 2.9 2.5 2.1 1.2 — — 8.2 14.1 15.2 320 15.1 3.4

Exide Industries 150 REDUCE 127,755 2,792 850 7.5 8.1 10.0 18.0 9.2 22.9 20.2 18.5 15.0 14.5 13.4 11.0 4.7 3.9 3.2 1.0 0.8 0.8 25.5 22.9 23.2 160 6.5 5.6

Hero Honda 1,994 REDUCE 398,142 8,702 200 99.3 111.3 127.9 (11.1) 12.1 14.9 20.1 17.9 15.6 14.2 13.2 10.8 8.5 8.8 8.4 5.3 3.5 3.5 56.5 63.6 60.1 1,730 (13.2) 17.6

Mahindra & Mahindra 719 BUY 441,159 9,642 614 41.7 44.7 49.0 22.7 7.1 9.6 17.2 16.1 14.7 13.2 11.8 10.5 4.1 3.5 2.9 1.6 1.3 1.3 27.3 23.4 21.6 780 8.6 27.8

Maruti Suzuki 1,159 BUY 334,850 7,318 289 79.2 88.2 103.3 (8.4) 11.3 17.2 14.6 13.1 11.2 9.2 8.5 6.8 2.4 2.0 1.7 0.5 0.5 0.6 17.6 16.7 16.8 1,515 30.7 10.6

Tata Motors 712 REDUCE 473,713 10,353 665 136.0 119.6 126.0 737.9 (12.0) 5.3 5.2 6.0 5.7 4.1 4.6 4.3 2.4 1.8 1.4 2.7 2.0 2.0 66.1 35.2 28.3 930 30.6 61.3

Automobiles Cautious 2,322,452 50,758 88.4 (0.3) 10.3 11.6 11.6 10.5 7.8 7.8 7.0 3.7 3.0 2.5 2.5 2.0 2.0 31.7 26.0 23.8

Banks/Financial Institutions

Andhra Bank 121 BUY 67,933 1,485 560 22.6 24.2 27.5 5.0 6.9 13.5 5.4 5.0 4.4 — — — 1.0 0.9 0.8 4.5 4.8 5.5 23.2 19.4 19.2 190 56.5 1.9

Axis Bank 1,070 BUY 439,120 9,597 411 82.5 98.9 119.7 33.0 19.8 21.1 13.0 10.8 8.9 — — — 2.3 2.0 1.7 1.3 1.6 1.9 19.3 19.7 20.3 1,700 58.9 44.4

Bank of Baroda 744 BUY 292,425 6,391 393 108.0 109.5 129.1 29.1 1.4 17.9 6.9 6.8 5.8 — — — 1.5 1.3 1.1 2.6 2.6 3.1 25.9 20.4 20.5 1,250 67.9 7.3

Bank of India 314 ADD 171,854 3,756 547 45.5 54.0 70.7 37.4 18.7 30.9 6.9 5.8 4.4 — — — 1.1 0.9 0.8 2.6 3.1 4.0 17.3 17.2 19.5 470 49.7 8.8

Canara Bank 427 ADD 189,050 4,132 443 90.9 86.3 108.7 23.3 (5.0) 25.9 4.7 4.9 3.9 — — — 1.1 0.9 0.7 2.6 2.8 2.8 23.2 17.7 19.0 600 40.6 9.3

Corporation Bank 421 ADD 62,363 1,363 148 95.4 93.4 114.1 16.3 (2.1) 22.2 4.4 4.5 3.7 — — — 0.9 0.8 0.7 4.8 4.7 5.7 21.9 18.1 19.2 630 49.6 0.9

Federal Bank 358 BUY 61,149 1,336 171 34.3 44.5 56.2 26.3 29.8 26.1 10.4 8.0 6.4 — — — 1.2 1.1 1.0 2.4 3.1 3.9 12.0 14.2 16.0 500 39.9 5.1

HDFC 639 REDUCE 937,642 20,493 1,467 24.1 27.8 31.9 22.4 15.6 14.6 26.5 23.0 20.0 — — — 5.4 4.8 3.7 1.4 1.6 1.9 21.7 22.1 21.5 730 14.2 38.5

HDFC Bank 461 REDUCE 1,071,996 23,429 2,326 16.9 22.0 28.0 31.0 30.2 27.5 27.3 21.0 16.4 — — — 4.2 3.7 3.1 0.7 0.9 1.2 16.7 18.7 20.5 560 21.5 36.6

ICICI Bank 832 ADD 958,487 20,948 1,152 44.7 57.2 67.9 23.9 27.9 18.6 18.6 14.5 12.3 — — — 1.7 1.6 1.5 1.7 2.1 2.4 9.7 11.5 12.6 1,270 52.6 79.5

IDFC 107 ADD 161,277 3,525 1,509 8.8 10.1 12.4 4.6 14.7 23.5 12.2 10.6 8.6 — — — 1.5 1.3 1.2 2.0 1.9 2.3 14.7 13.3 14.3 150 40.3 26.1

India Infoline 70 SELL 22,801 498 327 7.4 4.8 6.5 (9.3) (34.5) 33.8 9.5 14.4 10.8 — — — 1.4 1.2 1.1 4.4 1.4 2.0 12.9 8.7 10.3 70 0.4 1.6

Indian Bank 193 BUY 82,924 1,812 430 38.8 42.0 50.9 10.5 8.2 21.2 5.0 4.6 3.8 — — — 1.0 0.9 0.8 3.9 4.1 5.0 22.3 20.4 21.0 300 55.5 1.8

Indian Overseas Bank 112 BUY 69,021 1,509 619 17.3 21.1 30.8 33.6 22.0 45.4 6.4 5.3 3.6 — — — 0.8 0.7 0.6 4.5 3.8 4.2 12.7 13.3 17.0 190 70.3 1.7

IndusInd Bank 236 BUY 110,154 2,407 466 12.4 15.2 18.2 45.2 22.6 19.9 19.1 15.6 13.0 — — — 3.0 2.6 2.3 0.8 1.0 1.2 20.8 17.7 17.9 325 37.5 3.7

J&K Bank 788 ADD 38,234 836 48 126.9 141.8 152.8 20.1 11.8 7.7 6.2 5.6 5.2 — — — 1.1 1.0 0.8 3.3 3.7 4.0 19.0 18.4 17.3 950 20.5 0.7

LIC Housing Finance 207 ADD 98,386 2,150 475 20.5 22.9 27.5 47.2 11.4 20.4 10.1 9.1 7.5 — — — 2.5 2.1 1.7 2.1 2.4 2.9 25.8 23.7 23.9 260 25.5 24.0

Mahindra & Mahindra Financial 634 BUY 64,919 1,419 102 45.2 56.4 69.2 26.1 24.8 22.7 14.0 11.2 9.2 — — — 2.6 2.3 2.0 1.6 2.0 2.4 22.0 21.4 22.3 825 30.2 1.4

Muthoot Finance 177 BUY 65,573 1,433 371 15.7 19.0 24.5 108.4 20.5 29.0 11.2 9.3 7.2 — — — 4.9 2.2 1.7 — — — 51.5 33.0 26.8 220 24.6 —

Oriental Bank of Commerce 299 BUY 87,295 1,908 292 51.5 55.6 65.4 13.7 8.0 17.6 5.8 5.4 4.6 — — — 0.9 0.8 0.7 3.5 3.8 4.4 15.5 13.9 14.7 430 43.7 3.9

PFC 146 ADD 192,381 4,205 1,320 22.8 23.7 28.5 11.1 3.8 20.4 6.4 6.2 5.1 — — — 1.3 1.0 0.8 2.7 3.2 3.9 18.4 17.2 16.8 235 61.2 23.5

Punjab National Bank 992 BUY 314,151 6,866 317 140.0 163.0 201.5 13.0 16.5 23.6 7.1 6.1 4.9 — — — 1.6 1.3 1.1 2.2 3.4 4.1 24.4 23.5 24.2 1,500 51.3 6.1

Reliance Capital 387 REDUCE 95,375 2,084 246 9.3 16.5 24.8 (25.3) 77.0 50.4 41.6 23.5 15.6 — — — 1.4 1.3 1.3 1.0 1.7 2.6 3.3 5.7 8.3 470 21.3 17.8

Rural Electrification Corp. 172 ADD 169,732 3,710 987 26.0 28.9 32.4 28.1 11.4 11.9 6.6 5.9 5.3 — — — 1.3 1.2 1.0 4.4 5.6 6.3 21.5 20.9 20.6 240 39.6 13.7

Shriram Transport 611 REDUCE 136,394 2,981 223 55.1 65.6 75.3 40.8 19.0 14.8 11.1 9.3 8.1 — — — 2.8 2.4 2.0 1.1 2.1 2.5 28.1 26.8 25.2 700 14.5 13.7

SKS Microfinance 273 SELL 20,071 439 74 15.7 (39.1) 3.9 (41.8) (349.4) (109.9) 17.4 (7.0) 70.3 — — — 1.1 1.3 1.3 — — — 8.3 (17.4) 1.9 350 28.4 9.4

State Bank of India 2,038 BUY 1,293,810 28,277 635 130.2 195.6 256.1 (9.9) 50.3 30.9 15.7 10.4 8.0 — — — 2.0 1.7 1.5 1.7 1.8 1.9 12.6 17.8 20.0 2,750 35.0 111.8

Union Bank 256 BUY 134,046 2,930 524 39.5 50.2 60.4 (3.9) 27.1 20.5 6.5 5.1 4.2 — — — 1.2 1.0 0.9 3.6 4.6 5.5 20.9 21.9 22.5 425 66.2 4.5

Yes Bank 263 BUY 91,282 1,995 347 21.5 26.2 32.3 43.2 22.1 23.3 12.2 10.0 8.1 — — — 2.4 2.0 1.6 1.0 1.2 1.4 21.7 21.7 22.2 420 59.7 16.3

Banks/Financial Institutions Attractive 7,499,848 163,913 20.1 19.8 24.0 12.3 10.2 8.2 — — — 2.0 1.7 1.5 1.8 2.1 2.5 16.0 16.6 17.7

Cement

ACC 999 REDUCE 187,683 4,102 188 55.6 60.1 72.7 (33.2) 8.2 20.9 18.0 16.6 13.7 10.9 9.2 7.2 2.7 2.5 2.2 3.6 2.3 2.3 17.5 17.3 18.1 980 (1.9) 5.2

Ambuja Cements 132 SELL 201,106 4,395 1,522 7.9 7.8 9.8 (1.5) (0.5) 25.5 16.8 16.8 13.4 10.1 9.2 7.1 2.6 2.3 2.1 1.6 1.7 1.8 16.6 14.8 16.9 135 2.2 5.3

Grasim Industries 2,082 BUY 190,892 4,172 92 233.3 259.5 289.3 (22.5) 11.2 11.5 8.9 8.0 7.2 5.8 4.9 4.1 1.3 1.2 1.0 1.6 1.6 1.6 15.8 15.3 15.0 2,900 39.3 3.4

India Cements 68 REDUCE 20,796 455 307 1.9 8.3 9.2 (81.2) 339.0 10.4 35.8 8.2 7.4 13.8 5.5 5.0 0.5 0.5 0.4 2.3 4.7 4.7 1.4 6.2 6.5 82 21.1 1.3

Shree Cement 1,654 REDUCE 57,629 1,260 35 57.2 83.1 132.9 (72.5) 45.5 59.8 28.9 19.9 12.4 6.5 6.1 4.2 3.0 2.8 2.4 0.6 0.6 0.6 10.7 14.5 20.7 1,730 4.6 1.0

UltraTech Cement 988 BUY 270,738 5,917 274 44.9 74.0 85.7 (49.2) 64.9 15.9 22.0 13.4 11.5 10.8 7.2 5.8 2.2 1.9 1.6 0.6 0.6 0.6 16.7 17.5 17.2 1,220 23.5 3.0

Cement Neutral 928,844 20,300 (23.5) 24.0 18.3 15.8 12.8 10.8 8.5 6.7 5.4 1.9 1.7 1.5 1.7 1.5 1.5 12.3 13.6 14.2

Price/BV (X) Dividend yield (%)

Source: Company, Bloomberg, Kotak Institutional Equities estimates

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Consumer products

Asian Paints 3,175 REDUCE 304,579 6,657 96 80.8 94.6 111.4 13.0 17.1 17.7 39.3 33.6 28.5 26.2 21.4 17.5 14.9 11.5 9.2 1.0 0.9 1.1 43.9 40.0 36.8 2,900 (8.7) 9.8

Colgate-Palmolive (India) 919 SELL 124,964 2,731 136 29.6 34.1 38.8 (4.9) 15.0 14.1 31.0 27.0 23.7 27.0 23.5 19.6 32.5 33.1 26.4 2.4 3.2 3.0 113.4 121.6 124.2 900 (2.1) 2.1

Dabur India 104 REDUCE 180,912 3,954 1,740 3.3 3.7 4.4 12.8 14.1 18.8 31.8 27.9 23.5 25.7 21.1 17.8 13.8 10.7 8.4 1.1 1.3 1.5 51.2 43.8 40.6 110 5.8 4.8

GlaxoSmithkline Consumer (a) 2,313 ADD 97,281 2,126 42 71.3 82.6 101.9 28.8 15.8 23.4 32.4 28.0 22.7 23.2 19.9 16.6 10.4 8.5 6.9 2.2 1.2 1.4 32.2 32.5 32.8 2,700 16.7 0.7

Godrej Consumer Products 424 BUY 137,235 2,999 324 14.9 18.4 22.7 31.3 23.4 23.8 28.5 23.1 18.6 24.2 17.0 13.0 7.9 5.6 4.5 1.2 0.8 0.8 35.9 28.7 27.0 510 20.3 2.9

Hindustan Unilever 316 ADD 681,734 14,900 2,159 9.9 11.3 13.3 4.8 14.1 17.7 32.0 28.0 23.8 27.1 23.6 19.3 25.9 22.4 19.4 2.4 3.0 3.5 66.3 85.9 87.5 340 7.7 16.7

ITC 199 ADD 1,529,990 33,439 7,681 6.4 8.0 8.9 20.7 24.9 11.6 31.1 24.9 22.3 20.6 16.8 14.6 9.1 7.8 6.8 2.3 1.9 2.3 33.2 35.5 34.4 230 15.5 35.4

Jubilant Foodworks 931 SELL 60,918 1,331 65 11.2 16.5 22.2 99.6 47.0 34.8 83.1 56.6 42.0 50.7 31.4 23.5 31.8 20.3 13.7 — — — 46.6 43.9 39.0 650 (30.2) 32.5

Jyothy Laboratories 174 REDUCE 14,066 307 81 10.5 11.7 13.3 (5.0) 11.4 14.2 16.6 14.9 13.1 14.0 10.3 8.3 2.1 1.9 1.8 3.4 2.7 3.4 12.3 13.3 14.0 240 37.6 0.5

Marico 154 ADD 94,272 2,060 612 4.2 5.4 7.1 10.9 27.3 32.6 36.5 28.7 21.6 24.3 19.6 14.9 10.1 7.9 6.1 0.5 0.6 0.8 32.8 31.3 32.2 185 20.0 1.2

Nestle India (a) 4,186 REDUCE 403,601 8,821 96 86.8 103.6 123.2 16.7 19.3 18.9 48.2 40.4 34.0 32.1 26.3 21.7 47.2 34.3 25.9 1.2 1.4 1.7 116.5 98.3 86.8 3,500 (16.4) 2.3

Tata Global Beverages 88 ADD 54,172 1,184 618 4.0 6.0 6.8 (34.6) 52.6 13.0 22.1 14.5 12.8 8.6 7.2 6.3 1.1 1.0 1.0 2.3 3.5 3.9 6.5 9.6 10.4 110 25.6 4.9

Titan Industries 197 REDUCE 174,805 3,820 888 4.9 7.4 8.8 71.7 51.5 17.8 40.0 26.4 22.4 29.2 18.3 15.0 16.1 11.4 8.7 0.6 1.1 1.5 47.8 50.5 44.0 240 21.9 34.4

United Spirits 938 ADD 117,763 2,574 126 29.5 39.2 50.6 8.3 32.8 29.0 31.7 23.9 18.5 16.2 12.4 10.7 2.7 2.4 2.2 0.3 0.3 0.4 9.1 10.7 12.5 1,300 38.6 5.7

Consumer products Cautious 3,976,292 86,904 16.3 22.0 16.9 33.2 27.2 23.3 23.2 18.8 15.8 10.2 8.7 7.4 1.8 1.8 2.1 30.8 31.9 31.9

Constructions

IVRCL 35 BUY 9,425 206 267 5.9 5.7 6.6 (25.2) (4.1) 15.6 6.0 6.2 5.4 5.6 5.4 5.3 0.5 0.4 0.4 1.1 1.1 1.1 8.2 7.3 7.9 75 112.5 4.9

Nagarjuna Construction Co. 56 BUY 14,382 314 257 6.4 5.9 7.7 (29.7) (7.8) 30.8 8.8 9.5 7.3 7.8 7.3 6.8 0.6 0.6 0.6 3.6 3.6 3.6 7.1 6.3 7.8 100 78.4 1.2

Punj Lloyd 54 REDUCE 18,490 404 340 (1.5) 5.5 7.4 (56.6) (467.8) 34.9 (36.7) 10.0 7.4 12.6 5.6 4.9 0.6 0.6 0.5 (0.1) 0.9 1.2 (1.7) 6.1 7.7 65 19.4 12.0

Sadbhav Engineering 138 BUY 20,730 453 150 8.0 9.8 10.9 55.1 23.5 10.4 17.3 14.0 12.7 10.6 8.7 7.8 3.2 2.7 2.2 0.4 0.4 0.4 18.6 19.0 17.5 180 30.2 0.3

Construction Attractive 63,027 1,377 (0.3) 62.7 23.6 16.1 9.9 8.0 8.7 6.4 5.8 0.8 0.7 0.7 1.1 1.4 1.5 4.9 7.5 8.6

Energy

Aban Offshore 344 BUY 14,946 327 44 116.2 95.3 107.2 9.0 (18.0) 12.4 3.0 3.6 3.2 6.6 6.6 6.3 0.7 0.6 0.6 1.0 1.2 1.3 29.2 19.4 18.0 700 103.8 10.1

Bharat Petroleum 682 ADD 246,480 5,387 362 45.7 58.9 58.9 (20.7) 28.9 0.1 14.9 11.6 11.6 10.3 7.0 6.9 1.6 1.5 1.4 2.1 2.8 2.8 10.8 12.8 11.8 800 17.3 8.5

Cairn india 270 REDUCE 512,662 11,204 1,902 33.3 45.8 49.7 501.1 37.4 8.6 8.1 5.9 5.4 5.9 4.2 3.3 1.3 1.1 1.0 — 1.9 5.6 16.9 19.8 19.2 295 9.4 15.1

Castrol India (a) 508 SELL 125,631 2,746 247 19.8 21.9 22.3 28.5 10.8 1.6 25.7 23.2 22.8 16.5 15.5 15.0 24.3 22.2 21.0 3.0 3.3 3.5 100.2 100.2 94.7 425 (16.3) 2.0

GAIL (India) 430 ADD 545,066 11,913 1,268 28.1 36.6 39.2 13.4 30.3 7.1 15.3 11.7 11.0 9.4 8.6 7.6 2.6 2.2 1.9 1.7 2.3 2.6 17.4 19.6 17.9 560 30.3 9.9

GSPL 96 REDUCE 53,839 1,177 563 9.0 8.5 8.4 23.1 (6.1) (0.1) 10.6 11.3 11.3 6.8 6.7 6.4 2.4 2.0 1.7 1.0 1.8 2.6 25.5 19.1 16.4 92 (3.9) 5.0

Hindustan Petroleum 385 ADD 130,519 2,853 339 45.7 26.3 39.3 (11.4) (42.4) 49.5 8.4 14.6 9.8 3.3 4.0 3.3 0.8 0.8 0.7 3.6 2.1 3.2 10.1 5.3 7.4 460 19.5 8.4

Indian Oil Corporation 315 ADD 765,411 16,728 2,428 31.8 33.1 35.7 (35.4) 4.4 7.6 9.9 9.5 8.8 7.9 7.0 5.8 1.3 1.2 1.1 3.0 3.2 3.5 12.9 12.5 12.4 420 33.2 5.0

Oil India 1,311 BUY 315,176 6,888 240 120.1 178.3 196.4 4.3 48.4 10.2 10.9 7.4 6.7 4.6 2.9 2.3 1.9 1.6 1.4 2.9 4.2 4.6 16.2 20.7 19.8 1,800 37.3 1.9

Oil & Natural Gas Corporation 276 BUY 2,361,331 51,608 8,556 25.2 37.6 41.5 9.9 49.2 10.2 10.9 7.3 6.7 4.1 3.2 2.6 1.6 1.4 1.2 3.2 4.3 5.1 14.7 19.5 18.8 385 39.5 27.5

Petronet LNG 170 SELL 127,800 2,793 750 8.1 11.5 11.4 50.3 41.3 (0.7) 21.0 14.9 15.0 12.1 9.7 9.9 4.2 3.5 2.9 1.2 1.8 1.8 20.9 24.6 20.2 125 (26.6) 9.6

Reliance Industries 733 ADD 2,183,732 47,727 2,981 62.0 67.4 74.9 24.8 8.8 11.0 11.8 10.9 9.8 6.5 5.8 4.9 1.3 1.2 1.1 1.1 1.2 1.4 13.0 12.7 12.6 1,045 42.7 85.0

Energy Neutral 7,382,591 161,350 12.6 26.0 9.8 10.9 8.7 7.9 5.9 4.8 4.0 1.5 1.3 1.2 2.1 2.8 3.4 14.0 15.6 15.3

Industrials

ABB 773 SELL 163,784 3,580 212 3.0 21.1 27.3 (82.2) 606.1 29.6 259.0 36.7 28.3 188.3 24.7 18.5 6.8 5.9 5.0 0.3 0.4 0.4 2.6 17.1 19.1 700 (9.4) 1.6

BGR Energy Systems 303 REDUCE 21,834 477 72 44.8 41.1 41.7 60.0 (8.3) 1.5 6.8 7.4 7.3 4.5 4.8 4.1 2.3 1.9 1.5 3.0 2.7 2.8 39.0 27.8 23.2 410 35.5 4.5

Bharat Electronics 1,574 ADD 125,924 2,752 80 102.9 120.8 133.9 7.0 17.4 10.8 15.3 13.0 11.8 9.1 6.7 5.7 2.5 2.2 1.9 1.6 1.6 1.6 17.2 17.7 17.2 1,850 17.5 1.5

Bharat Heavy Electricals 1,682 REDUCE 823,348 17,995 490 122.8 134.8 145.4 39.7 9.8 7.9 13.7 12.5 11.6 9.0 8.2 7.2 4.1 3.3 2.7 1.6 1.7 1.8 33.3 29.2 25.6 2,000 18.9 34.7

Crompton Greaves 136 BUY 87,533 1,913 642 14.3 10.6 13.5 11.5 (25.8) 26.7 9.5 12.8 10.1 6.1 7.0 5.2 2.7 2.3 1.9 1.8 1.2 1.3 31.7 19.1 20.5 210 53.9 17.4

Larsen & Toubro 1,546 REDUCE 941,008 20,566 609 67.7 79.6 98.2 18.1 17.5 23.4 22.8 19.4 15.7 16.0 12.1 10.4 3.6 2.9 2.5 0.9 0.9 0.9 17.0 16.6 17.2 1,800 16.5 66.7

Maharashtra Seamless 352 BUY 24,827 543 71 46.1 41.6 46.7 19.3 (9.7) 12.3 7.6 8.5 7.5 4.0 4.1 3.3 1.0 0.9 0.8 2.4 2.4 2.7 13.3 11.1 11.5 460 30.7 0.1

Siemens 867 SELL 292,318 6,389 337 22.4 28.9 32.5 39.5 28.8 12.3 38.6 30.0 26.7 22.9 19.2 16.7 9.0 7.3 6.1 0.6 0.7 0.8 25.2 26.9 24.8 830 (4.3) 3.5

Suzlon Energy 37 REDUCE 59,047 1,291 1,594 (6.0) 0.6 4.0 (2.8) (109.7) 597.4 (6.2) 63.9 9.2 26.3 8.1 5.9 0.9 0.9 0.9 1— 1— 0.5 (14.4) 1.4 9.7 60 61.9 20.2

Tecpro Systems 257 ADD 12,947 283 50 27.0 29.4 32.7 24.2 8.9 11.4 9.5 8.7 7.8 5.9 5.9 5.2 1.9 1.7 1.4 — — — 26.8 20.5 19.6 300 17.0 0.3

Thermax 490 REDUCE 58,413 1,277 119 31.6 33.7 37.2 44.3 6.6 10.4 15.5 14.5 13.2 10.3 9.1 8.0 4.4 3.7 3.1 1.8 2.0 2.2 31.5 27.7 25.6 650 32.6 1.8

Voltas 117 ADD 38,647 845 331 10.1 9.6 10.5 (11.5) (5.1) 9.8 11.6 12.2 11.1 6.1 6.1 4.9 2.9 2.5 2.0 2.7 2.6 (0.0) 27.3 21.8 20.2 150 28.4 3.9

Industrials Cautious 2,649,629 57,909 26.2 21.4 17.9 20.0 16.5 14.0 12.9 10.3 8.8 3.6 3.0 2.6 1.2 1.2 1.2 17.9 18.3 18.4

Infrastructure

Container Corporation 926 REDUCE 120,296 2,629 130 63.5 71.5 81.7 4.9 12.6 14.2 14.6 12.9 11.3 9.5 8.2 6.9 2.4 2.1 1.8 1.6 1.8 2.0 17.6 17.2 17.3 1,275 37.8 0.7

GMR Infrastructure 27 ADD 99,937 2,184 3,667 (0.0) (0.4) 0.5 (102.0) 3,980.8 (243.5) (3,143.8) (77.0) 53.7 12.7 11.0 8.8 0.9 0.9 0.9 — — — (0.0) (2.0) 2.8 42 54.1 2.3

Gujarat Pipavav Port 65 ADD 27,404 599 424 (1.2) 1.2 2.6 (65.8) (201.6) 115.2 (53.9) 53.0 24.6 27.8 16.4 11.0 3.7 3.5 3.0 — — — (9.1) 9.4 13.6 78 20.6 0.7

GVK Power & Infrastructure 17 BUY 27,004 590 1,579 1.0 1.1 0.4 (0.6) 7.4 (59.9) 17.4 16.2 40.5 18.1 20.5 24.6 0.8 0.8 0.8 - 1.8 2.0 4.7 4.8 1.9 35 104.7 3.4

IRB Infrastructure 148 ADD 49,123 1,074 332 13.1 11.7 13.4 12.9 (10.4) 14.0 11.3 12.6 11.1 7.4 7.1 6.2 1.8 1.4 1.2 — — — 17.6 12.4 11.5 220 48.8 6.8

Mundra Port and SEZ 136 BUY 274,978 6,010 2,017 4.6 6.8 10.5 36.3 50.3 53.2 29.9 19.9 13.0 24.5 16.3 11.6 6.3 5.0 3.9 — — — 23.2 28.0 33.5 175 28.4 7.6

Infrastructure Cautious 598,744 13,086 11.2 22.3 42.9 26.3 21.5 15.0 14.5 12.1 9.9 2.2 2.0 1.8 0.3 0.4 0.5 8.4 9.3 12.0

Dividend yield (%)


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Media

DB Corp 233 BUY 42,658 932 183 14.1 14.2 17.1 32.7 0.6 20.3 16.5 16.4 13.6 10.7 9.7 8.1 5.1 4.4 4.0 1.7 2.6 4.3 35.0 29.1 31.0 350 50.4 0.9

DishTV 82 ADD 86,720 1,895 1,062 (1.8) 0.0 1.3 (27.5) (101.9) 3,944.0 (45.6) 2,465.1 61.0 40.2 18.5 12.4 41.3 40.6 24.4 — — — (62.3) 1.7 49.9 100 22.5 8.4

Eros International 195 BUY 18,056 395 93 12.7 16.1 21.0 31.4 27.1 30.4 15.4 12.1 9.3 11.3 9.0 6.4 2.6 2.1 1.7 — — — 25.0 19.2 20.4 250 28.4 1.9

Hindustan Media Ventures 134 BUY 9,855 215 73 7.3 9.0 12.1 198.7 22.8 35.0 18.3 14.9 11.1 8.8 7.7 5.6 2.4 2.1 1.8 — — 2.2 22.3 15.1 17.7 220 63.8 0.2

HT Media 147 ADD 34,486 754 235 7.7 8.9 11.0 26.3 15.3 23.6 19.0 16.5 13.4 9.0 7.6 5.8 2.5 2.3 2.2 1.4 2.7 4.1 15.0 14.4 16.6 190 29.5 0.5

Jagran Prakashan 105 BUY 33,243 727 316 6.8 7.0 8.4 17.2 2.0 20.4 15.4 15.1 12.5 9.2 8.5 7.1 4.8 4.3 3.9 3.2 3.8 4.8 31.5 30.1 32.7 160 52.2 0.4

Sun TV Network 300 ADD 118,362 2,587 394 19.6 21.6 25.4 48.6 10.0 17.9 15.3 13.9 11.8 9.1 8.2 6.9 4.9 4.4 4.0 2.9 4.0 5.3 36.6 34.7 36.6 440 46.5 26.7

Zee Entertainment Enterprises 122 BUY 119,556 2,613 978 5.8 6.7 8.2 9.1 15.6 22.6 21.1 18.2 14.9 14.2 12.0 9.6 2.8 2.8 2.7 1.1 1.2 1.4 14.0 15.6 18.6 180 47.3 7.1

Media Neutral 462,938 10,118 50.6 22.7 27.1 23.5 19.2 15.1 12.6 10.4 8.3 4.3 3.9 3.6 1.5 2.0 2.8 18.1 20.4 23.8

Metals & Mining

Coal India 393 BUY 2,485,174 54,315 6,316 17.3 25.5 29.4 13.6 47.6 15.1 22.7 15.4 13.4 13.7 9.7 8.2 7.1 5.5 4.4 1.3 1.9 2.2 35.1 40.3 36.4 470 19.5 36.6

Hindalco Industries 140 ADD 267,099 5,838 1,914 12.8 18.5 18.6 (36.0) 44.6 0.5 10.9 7.6 7.5 6.0 5.6 5.9 0.9 0.8 0.8 1.1 1.1 1.1 9.7 11.5 10.5 200 43.3 29.0

Hindustan Zinc 125 BUY 526,013 11,496 4,225 11.6 13.8 15.9 21.8 18.8 14.9 10.7 9.0 7.8 6.8 4.8 3.4 2.3 1.9 1.5 0.8 0.8 0.8 24.3 23.2 21.7 170 36.5 3.1

Jindal Steel and Power 485 REDUCE 452,855 9,897 934 40.2 45.2 55.2 5.1 12.4 22.2 12.1 10.7 8.8 9.2 8.7 7.4 3.2 2.5 2.0 0.4 0.4 0.4 30.8 26.3 25.0 650 34.1 16.0

JSW Steel 666 REDUCE 150,505 3,289 226 78.6 75.6 111.7 (2.2) (3.9) 47.9 8.5 8.8 6.0 5.9 5.5 4.8 0.9 0.8 0.8 1.8 1.8 1.8 13.6 9.9 13.3 740 11.1 29.6

National Aluminium Co. 60 SELL 153,603 3,357 2,577 4.1 5.0 5.3 36.3 20.5 6.0 14.4 11.9 11.3 6.5 5.1 4.4 1.4 1.3 1.2 2.5 2.5 2.5 9.9 11.1 11.0 70 17.4 0.5

Sesa Goa 223 REDUCE 199,294 4,356 895 47.0 43.2 41.7 59.8 (8.0) (3.4) 4.7 5.2 5.3 3.9 3.8 3.2 1.6 1.2 1.0 1.8 1.8 1.8 36.8 23.9 17.7 295 32.4 14.6

Sterlite Industries 125 BUY 421,663 9,216 3,361 15.2 18.0 20.7 26.2 18.8 15.1 8.3 7.0 6.0 5.2 3.6 3.0 1.0 0.9 0.8 0.9 0.9 0.9 13.0 13.7 13.9 205 63.4 16.4

Tata Steel 459 BUY 446,266 9,753 971 75.3 68.7 76.9 (2,258.1) (8.8) 12.0 6.1 6.7 6.0 5.9 6.1 5.2 1.3 1.0 0.9 2.6 2— 2— 24.7 15.5 15.7 625 36.0 49.0

Metals & Mining Attractive 5,102,470 111,517 39.1 19.1 13.7 12.3 10.3 9.1 7.7 6.5 5.5 2.3 2.0 1.7 1.3 1.5 1.7 19.0 18.9 18.2

Pharmaceutical

Apollo Hospitals 518 BUY 71,989 1,573 139 13.2 17.8 21.4 21.0 34.5 19.9 39.1 29.1 24.3 17.9 13.5 11.2 3.7 2.8 2.5 — — — 9.8 10.7 10.5 565 9.0 1.1

Biocon 323 BUY 64,560 1,411 200 18.4 19.4 21.4 23.9 5.6 10.3 17.6 16.6 15.1 10.0 9.6 8.7 3.1 2.8 2.5 — — — 19.4 17.9 17.4 445 37.9 3.7

Cipla 285 REDUCE 228,873 5,002 803 12.3 14.5 16.5 (10.0) 17.5 13.7 23.1 19.7 17.3 20.0 14.3 11.8 3.4 3.0 2.7 1.0 1.1 1.2 15.4 16.0 — 325 14.0 8.9

Cadila Healthcare 807 ADD 165,222 3,611 205 34.7 39.6 48.4 40.6 14.0 22.3 23.2 20.4 16.7 20.1 16.7 12.8 7.6 5.9 4.7 0.8 1.0 1.2 37.5 32.7 31.3 1,065 32.0 2.6

Dishman Pharma & chemicals 68 SELL 5,535 121 81 9.8 8.0 9.4 (31.8) (18.7) 17.2 6.9 8.5 7.3 8.5 6.5 5.7 0.6 0.6 0.6 — — — 9.6 7.2 7.9 95 39.6 0.3

Divi's Laboratories 717 BUY 95,116 2,079 133 32.4 36.7 45.0 25.7 13.5 22.4 22.2 19.5 15.9 18.3 14.0 11.4 5.3 4.5 3.9 — — — 25.9 25.0 26.2 880 22.8 5.2

GlaxoSmithkline Pharmaceuticals (a) 2,146 REDUCE 181,811 3,974 85 68.3 78.2 88.6 15.5 14.6 13.3 31.4 27.4 24.2 21.0 18.6 16.0 9.3 8.6 7.9 1.9 2.3 2.7 30.9 32.6 33.9 2,220 3.4 1.3

Glenmark Pharmaceuticals 318 ADD 85,952 1,879 270 17.0 26.2 23.5 33.6 54.5 (10.3) 18.7 12.1 13.5 20.8 13.9 11.9 4.2 3.2 2.6 — — — 20.6 29.8 21.2 395 24.3 4.8

Jubilant Life Sciences 182 REDUCE 29,001 634 159 14.4 16.5 22.7 (45.6) 14.5 37.6 12.6 11.0 8.0 10.5 8.5 7.1 1.3 1.2 1.1 1.1 1.1 1.6 12.3 11.7 14.2 225 23.6 1.0

Lupin 436 ADD 195,501 4,273 448 19.2 20.1 24.6 25.6 4.4 22.5 22.7 21.7 17.7 19.0 16.8 12.9 5.9 4.8 3.9 0.7 0.8 1.0 29.5 24.7 24.9 500 14.6 9.9

Ranbaxy Laboratories 477 SELL 201,951 4,414 423 40.6 16.9 20.8 475.0 (58.3) 22.7 11.8 28.2 23.0 14.4 24.4 19.0 3.6 3.1 2.7 — — — 34.5 11.9 12.8 435 (8.9) 8.5

Sun Pharmaceuticals 467 ADD 483,522 10,568 1,036 17.5 20.4 24.4 34.4 16.3 19.6 26.6 22.9 19.1 22.5 18.2 14.5 4.7 4.0 3.3 0.7 0.9 1.1 21.0 20.4 20.7 560 19.9 10.3

Pharmaceuticals Cautious 2,123,010 46,400 26.0 7.1 2.8 22.9 21.3 20.8 17.3 14.3 13.6 3.6 3.0 2.9 0.7 0.8 0.9 15.5 14.3 13.9

Property

DLF 187 ADD 320,453 7,004 1,715 9.1 11.9 15.7 (14.5) 31.3 31.8 20.6 15.7 11.9 14.6 11.5 8.7 1.2 1.1 1.1 1.1 1.3 1.6 5.4 7.5 9.2 270 44.5 37.4

Housing Development & Infrastructure 101 ADD 44,790 979 445 19.8 28.7 34.3 24.0 44.8 19.7 5.1 3.5 2.9 5.2 3.6 3.1 0.5 0.4 0.4 — 1.0 1.5 10.0 12.3 12.7 150 49.0 20.2

Indiabulls Real Estate 79 RS 31,898 697 402 4.0 8.5 15.4 (1,095.5) 114.1 81.5 20.0 9.3 5.1 13.9 11.2 4.9 0.3 0.3 0.2 — 1— 0.9 1.4 2.9 5.0 — — 8.2

Mahindra Life Space Developer 329 ADD 13,443 294 41 24.9 30.8 37.5 30.2 23.7 21.6 13.2 10.7 8.8 10.1 7.3 5.4 1.3 1.2 1.1 1.5 1.4 1.5 10.4 11.6 12.7 470 42.7 0.3

Oberoi Realty 217 BUY 71,655 1,566 330 15.7 20.0 28.0 14.8 27.6 39.7 13.8 10.9 7.8 10.0 6.9 4.3 2.1 1.8 1.5 0.5 0.7 1.1 19.9 18.2 21.3 315 44.9 0.3

Phoenix Mills 205 BUY 29,686 649 145 6.3 7.5 10.7 52.5 18.4 43.8 32.5 27.4 19.1 23.7 19.6 14.5 1.8 1.8 1.6 0.7 1.0 1.0 5.8 6.6 8.9 300 46.4 0.3

Puravankara Projects 64 REDUCE 13,627 298 213 5.5 9.0 10.9 (18.9) 62.8 21.5 11.6 7.1 5.8 16.7 9.2 7.7 0.9 0.8 0.7 1.6 2.3 3.1 8.0 12.0 13.1 80 25.3 0.1

Sobha Developers 220 BUY 21,540 471 98 18.8 20.6 27.2 33.8 9.2 32.2 11.7 10.7 8.1 10.7 9.6 6.8 1.1 1.1 0.9 1.4 1.6 2— 10.2 10.3 12.4 470 114.0 1.0

Unitech 27 RS 69,594 1,521 2,616 2.3 2.6 2.7 (23.4) 12.8 4.9 11.5 10.2 9.7 13.4 10.9 8.9 0.6 0.6 0.5 — 1— 1— 5.4 5.7 5.4 — — 17.9

Property Cautious 648,413 14,171 5.3 44.3 29.6 15.1 10.5 8.1 12.5 8.9 6.7 0.9 0.8 0.8 0.8 1.2 1.5 6.1 8.1 9.5

Dividend yield (%)


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Sugar

Bajaj Hindustan 51 REDUCE 11,648 255 228 1.9 3.7 1.6 (28.7) 90.5 (57.3) 26.4 13.9 32.5 17.5 5.9 5.7 0.4 0.4 0.4 1.1 1.1 1.1 1.7 2.7 1.1 65 27.5 1.5

Balrampur Chini Mills 53 BUY 12,977 284 247 6.7 4.0 7.7 111.0 (40.5) 94.0 7.9 13.2 6.8 11.0 8.8 5.9 0.9 0.9 0.8 1.5 1.4 1.4 11.6 6.5 11.9 80 52.2 1.6

Shree Renuka Sugars 53 BUY 35,228 770 670 10.5 6.4 5.0 214.7 (39.4) (21.0) 5.0 8.3 10.5 8.0 6.3 5.2 1.4 1.2 1.1 1.9 1.9 1.9 34.4 16.1 11.4 75 42.7 9.4

Sugar Cautious 59,854 1,308 122.4 (24.7) (7.4) 7.4 9.8 10.6 10.6 6.5 5.4 0.9 0.8 0.7 1.7 1.7 1.7 11.6 8.1 7.0

Technology

HCL Technologies 392 REDUCE 276,360 6,040 705 22.9 30.1 36.5 30.4 31.9 21.2 17.2 13.0 10.7 10.4 7.9 6.4 3.3 2.8 2.3 1.9 2.0 2.1 21.0 23.1 23.8 490 25.0 8.7

Hexaware Technologies 71 ADD 20,735 453 290 3.0 7.5 8.0 (36.8) 154.8 6.1 24.2 9.5 8.9 17.6 8.0 6.0 2.1 1.9 1.7 2.1 4.2 4.6 9.3 21.3 20.3 90 26.1 2.8

Infosys Technologies 2,225 BUY 1,276,978 27,909 574 119.7 140.2 168.9 10.5 17.1 20.5 18.6 15.9 13.2 12.3 10.4 8.3 4.9 4.1 3.4 2.7 2.0 2.4 28.0 28.2 28.4 3,400 52.8 73.0

Mahindra Satyam 67 REDUCE 78,498 1,716 1,176 4.2 6.7 7.3 68.9 59.1 8.8 15.9 10.0 9.2 11.3 5.7 4.2 4.6 3.1 2.3 — — — 27.6 37.2 29.2 80 19.9 14.8

Mindtree 348 ADD 14,304 313 41 24.7 36.4 42.6 (52.7) 47.6 16.9 14.1 9.5 8.2 7.8 5.9 4.5 1.8 1.6 1.4 0.7 1.0 3.7 14.4 17.8 18.2 430 23.7 2.2

Mphasis BFL 352 SELL 74,122 1,620 211 51.8 36.6 36.0 18.8 (29.2) (1.7) 6.8 9.6 9.8 5.8 7.1 6.1 2.2 1.9 1.6 1.1 1.3 1.4 38.6 21.3 17.7 360 2.3 3.0

Patni Computer Systems 256 ADD 34,033 744 133 42.6 26.0 30.8 16.5 (38.9) 18.2 6.0 9.8 8.3 2.9 2.9 1.7 1.1 1.0 0.9 25.8 2.0 2.4 18.4 8.2 11.5 370 44.8 3.3

Polaris Software Lab 125 SELL 12,472 273 100 19.3 19.5 22.3 25.7 0.9 14.2 6.5 6.4 5.6 3.5 2.5 1.9 1.2 1.0 0.9 3.0 3.1 3.3 20.2 17.3 17.1 175 39.9 2.2

TCS 929 BUY 1,818,141 39,736 1,957 44.5 54.5 64.4 26.8 22.5 18.1 20.9 17.0 14.4 15.7 12.4 10.1 7.2 5.9 4.8 1.9 2.3 2.8 37.8 38.0 36.8 1,350 45.3 41.5

Tech Mahindra 638 REDUCE 80,388 1,757 126 48.8 72.2 78.0 (25.2) 48.1 8.0 13.1 8.8 8.2 9.0 9.0 7.8 2.4 2.1 1.8 0.6 0.6 1.6 20.5 26.1 24.6 665 4.2 4.1

Wipro 320 ADD 786,139 17,181 2,454 21.6 22.9 26.3 14.5 5.9 15.1 14.8 14.0 12.2 10.8 9.4 7.9 3.3 2.8 2.4 1.3 1.5 1.8 24.3 21.4 20.9 450 40.5 11.0

Technology Attractive 4,472,169 97,742 17.1 16.3 17.2 17.4 15.0 12.8 12.4 10.3 8.4 4.6 3.8 3.2 2.1 2.0 2.4 26.2 25.5 25.1

Telecom

Bharti Airtel 384 REDUCE 1,456,949 31,842 3,798 15.9 17.9 27.1 (32.6) 12.7 50.8 24.1 21.4 14.2 10.3 8.1 6.2 3.0 2.6 2.2 — — — 13.3 13.1 16.9 390 1.7 47.2

IDEA 94 REDUCE 310,510 6,786 3,303 2.7 2.7 4.8 (0.5) (1.4) 78.0 34.5 35.0 19.7 11.1 8.4 6.5 2.5 2.4 2.1 — — — 7.6 7.0 11.3 95 1.1 16.3

MTNL 35 SELL 22,019 481 630 (10.4) (9.1) (8.4) (33.7) (11.9) (8.1) (3.4) (3.8) (4.2) 0.6 0.8 1.0 0.2 0.2 0.2 — — — (6.1) (5.7) (5.5) 35 0.1 0.8

Reliance Communications 74 SELL 157,700 3,447 2,133 6.3 3.3 6.4 (71.1) (46.9) 90.6 11.7 22.1 11.6 5.3 6.0 5.0 0.4 0.4 0.4 — — — 3.4 2.0 3.7 95 28.5 18.0

Tata Communications 190 REDUCE 54,008 1,180 285 15.2 15.7 15.9 8.2 3.5 1.5 12.5 12.1 11.9 5.8 5.5 5.2 0.7 0.7 0.7 4.0 4.5 4.7 5.5 5.5 5.4 205 8.2 1.5

Telecom Cautious 2,001,185 43,737 (42.4) 2.8 58.6 24.8 24.2 15.2 9.1 7.7 6.0 1.7 1.6 1.5 0.1 0.1 0.1 7.0 6.8 9.7

Utilities

Adani Power 85 REDUCE 202,345 4,422 2,393 2.4 11.0 15.0 200.7 368.5 35.8 35.9 7.7 5.6 36.1 7.5 4.9 3.2 2.1 1.5 — — — 8.5 33.5 31.8 100 18.3 3.6

CESC 290 BUY 36,194 791 125 37.7 42.5 51.3 9.1 12.7 20.8 7.7 6.8 5.6 5.5 5.9 5.6 0.8 0.7 0.6 1.7 1.8 2.1 10.5 10.7 11.5 440 51.9 2.0

JSW Energy 53 SELL 87,166 1,905 1,640 5.1 6.1 5.1 12.9 19.8 (17.3) 10.4 8.6 10.5 11.6 6.6 5.5 1.5 1.3 1.2 (1.9) — — 16.1 16.3 11.7 70 31.7 2.4

Lanco Infratech 16 BUY 35,346 772 2,223 2.0 3.0 3.4 (5.8) 47.2 16.6 7.9 5.4 4.6 8.4 7.8 7.4 0.9 0.7 0.6 — — — 12.2 15.0 14.6 45 183.0 9.3

NHPC 23 BUY 285,377 6,237 12,301 1.3 1.8 2.1 (27.2) 36.0 16.3 17.2 12.6 10.9 12.8 9.7 7.8 1.0 1.0 0.9 1.8 2.1 2.5 6.3 8.0 8.8 30 29.3 2.4

NTPC 174 REDUCE 1,435,535 31,374 8,245 11.0 11.9 12.7 5.3 7.4 6.8 15.8 14.7 13.7 13.0 12.0 11.2 2.1 1.9 1.7 2.2 2.0 2.2 13.7 13.5 13.3 200 14.9 11.1

Reliance Infrastructure 426 BUY 113,063 2,471 265 58.0 64.1 76.3 (6.5) 10.5 19.0 7.3 6.6 5.6 7.2 3.8 2.7 0.5 0.5 0.4 2.2 2.4 2.7 6.4 11.2 12.2 920 115.8 16.6

Reliance Power 83 SELL 232,541 5,082 2,805 2.7 2.9 2.9 (5.0) 7.6 (0.5) 30.6 28.4 28.6 163.8 70.0 14.7 1.4 1.4 1.3 — — — 4.9 4.9 4.7 88 6.2 6.2

Tata Power 1,054 ADD 260,077 5,684 247 76.4 89.7 110.9 20.2 17.4 23.6 13.8 11.7 9.5 11.3 9.2 7.3 1.8 1.6 1.4 1.3 1.4 1.6 13.9 14.5 15.8 1,490 41.4 7.1

Utilities Cautious 2,687,644 58,740 5.0 25.3 13.3 15.6 12.4 11.0 14.2 10.3 8.4 1.6 1.4 1.3 1.5 1.6 1.7 10.1 11.5 11.8

Others

Carborundum Universal 287 BUY 26,751 585 93 17.8 18.0 22.1 62.9 1.3 23.1 16.1 15.9 12.9 10.2 9.2 7.6 3.3 2.8 2.4 1.3 1.3 1.6 21.4 20.0 20.9 300 4.7 0.2

Havells India 326 REDUCE 40,689 889 125 24.5 25.8 28.8 334.1 5.1 11.5 13.3 12.6 11.3 9.0 8.3 7.2 5.7 4.1 3.1 0.8 0.8 0.9 53.9 37.6 30.9 370 13.5 4.5

Jaiprakash Associates 59 BUY 126,417 2,763 2,126 6.0 6.3 7.2 230.2 3.9 15.6 9.9 9.5 8.2 11.2 9.7 9.3 1.2 1.1 1.0 — — — 13.3 11.7 12.3 115 93.4 18.9

Jet Airways 296 BUY 25,588 559 86 (10.1) (43.4) 16.9 (91.0) 331 (139.0) (29.5) (6.8) 17.5 9.6 10.1 7.1 1.6 2.0 1.8 — — — (5.0) (11.7) 10.9 650 119.3 11.3

SpiceJet 22 BUY 8,906 195 403 2.2 2.1 4.3 (12.4) (4.3) 101.0 9.9 10.4 5.2 8.4 12.8 7.4 2.9 2.3 1.6 — — — (466) 24.8 36.2 65 194.1 3.2

Tata Chemicals 351 REDUCE 89,470 1,955 255 26.2 32.9 38.8 (0.7) 25.4 17.9 13.4 10.7 9.1 7.9 5.6 4.7 1.6 1.4 1.3 2.8 3.4 4.3 16.9 18.6 19.5 385 9.6 3.2

United Phosphorus 141 BUY 64,884 1,418 462 12.3 15.9 19.8 3.9 28.8 24.3 11.4 8.8 7.1 7.0 4.8 4.0 1.7 1.5 1.3 1.4 2.1 2.5 18.0 18.5 19.8 220 56.6 3.7

Others 382,706 8,364 231.9 10.0 39.3 13.6 12.3 8.9 9.8 8.4 7.4 1.6 1.5 1.3 1.1 1.3 1.6 12.0 12.0 14.6

KS universe (b) 43,361,816 947,696 18.3 19.4 16.9 14.7 12.3 10.6 9.5 7.9 6.7 2.3 2.0 1.7 1.6 1.8 2.1 15.5 16.2 16.6

KS universe (b) ex-Energy 35,979,225 786,345 20.1 17.4 19.2 15.9 13.5 11.3 11.2 9.3 7.8 2.5 2.2 1.9 1.5 1.6 1.8 16.0 16.4 17.0

KS universe (d) ex-Energy & ex-Commodities 29,947,911 654,528 18.6 16.8 20.6 16.7 14.3 11.9 12.5 10.3 8.6 2.6 2.3 2.0 1.6 1.6 1.9 15.6 16.0 16.9

Notes:

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

(b) 2010 means calendar year 2009, similarly for 2011 and 2012 for these particular companies.

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

(d) Rupee-US Dollar exchange rate (Rs/US$)= 45.76

Dividend yield (%)



Disclosures

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

Source: Kotak Institutional Equities As of June 30, 2011

* The above categories are defined as follows: 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 then 10% over the next 12 months. These ratings are used illustratively to comply with applicable regulations. As of 30/06/2011 Kotak Institutional Equities Investment Research had investment ratings on 166 equity securities.

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

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

11.4%

34.3%

27.1% 27.1%

4.8%1.8%

3.6%0.0%

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

Other ratings/identifiers

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

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

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

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

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

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

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