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Himani Singh [email protected]

HOLD

Current priceRs 142

Target priceRs 145

Potential upside2.4%

Time Frame12 monthsEast India Hotels (EIH)

Initiating Coverage

December 3, 2007 Hospitality

Extend your stay

Sales & EPS trend

0200400600800

10001200

FY05 FY06 FY07 FY08E FY09E

R s

C r o r e

4.24.44.64.85.05.25.45.65.8

R s

Sales (LHS) EPS (RHS) Stock metrics

Promoters holding 46.33%Market Cap Rs 5,580 crore52 Week H/L 154 / 85

Sensex 19,200Average volume 9,5723

Comparative return metricsStock return 3 M 6M 12MEIH 32.2 46.5 44.8IHCL 11.0 -3.8 -8.5Hotel Leela 57.6 6.8 -3.15Asian Hotel -12.3 -16.7 -10.6

East India Hotels' (EIH) Rs 850-crore capex plan would lead to jump in itshotel revenues by 21.6% once the Trident Hotel at Bandra-Kurla Complex(BKC) in Mumbai gets commissioned. In the near term, we expect thecapex to pose pressure on returns. The BKC property and Rajgarh Resortswould increase its owned-room base by 27% to 2,336 from current countof 1,836, bringing an impetus to revenues in FY09-10. EIH would increaseits managed rooms by 72% to 1842 by FY10.

New room additions in January 2009EIH plans to enhance its presence in Mumbai, which currently contributesmore than 40% to its top line. The company has undertaken an Rs 800-crore

capex to construct a 437-room five-star hotel (Trident Hotel) in the Bandra-Kurla complex in Mumbai. This project is expected to be very positive forthe companys long-term outlook, although benefits would not accruebefore January 2009.

Increased focus on management contractThe company currently has 1,067 rooms under management contracts,which contribute 10.5% to profits before tax. It plans to add 775 roomsthrough management contracts of EIH Associate-owned Trident Hotels inBangalore, Hyderabad, Manesar and Gurgaon (NCR). This expansion wouldincrease the total managed room base by 72% to 1,842 by FY10. We expectrevenue from management contracts to grow by 35% over FY08-10.

Diversified business presenceEIH has a diversified portfolio that includes airport & flight services, printingpress and car rentals. F&B (food and beverage) income from airport & flightservices, a high-margin business, accounts for nearly 40% of its total F&Brevenue. The printing press and car rentals are relatively smaller businessverticals, although the company plans to expand them significantly in next4-5 years.

ValuationsWe initiate coverage with a hold rating and target price of Rs 145. Our targetprice includes the value EIH International, which adds 4.76% to the price

derived from discounting FY09 EPS of Rs 5.55 by 25x industry average. Webelieve that the standalone business seems fairly valued. Upsides on thestock could be expected once the BKC project nears completion. We arriveat a DCF valuation of Rs 148.5 on a base case scenario.

Exhibit 1: Key Financials Year to March 31 FY07 FY08E FY09E FY10ENet Profit (Rs crore) 200.51 210.96 218.16 287.36Shares in issue (crore) 39.30 39.30 39.30 39.30Diluted EPS (Rs) 5.10 5.37 5.55 7.31% Growth 2.70% 5.21% 3.41% 31.72%P/E (x) 18.42 26.45 25.58 19.42Price/Book (x) 3.30 4.41 3.94 3.43EV/EBIDTA 19.97 19.55 19.12 15.36RoNW (%) 17.90% 16.68% 15.39% 17.69%RoCE (%) 13.40% 12.20% 11.51% 14.40%

Source: ICICIdirect Research

Analyst Name

ICICIdirect | Equity Research

Price Trend

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Absolute Buy

Target Price

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Exhibit 2: Business Chart

Source: Company, ICICIdirect Research; Revenue contribution as of FY07

Share holding patternShareholder Percentage holding (%)Promoters 46.33Institutional investors 21.19Other investors 18.43General public 14.05

Promoter & Institutional holding trend (%)

46.33 46.33 46.33 46.33

21.59 21.18 21.01 21.19

0

1020

30

40

50

Q3FY07 Q4FY07 Q1FY08 Q2FY08

Promoter Institutional

East India Hotel

Oberoi Hotels(5 Star Hotels) 1832 Rooms

9 owned hotels

Constitutes 68% ofnet revenue

Trident Hotels(4 Star Hotels)1069 Rooms

11 Managed hotelsOwned by

subsidiary

Constitutes 7.5% ofnet revenue

Airport & FlightServices


Printing Press


Car Rental


Company Background

East India Hotels (EIH) was incorporated in 1949 by the Oberoigroup of companies. The Oberoi Group, founded in 1934, owns

and manages thirty hotels and five luxury cruisers across sixcountries under the 'Oberoi' & 'Trident' brands. EIH, manages thesehotels and luxury cruisers.

The company under Trident brand has opened hotels in India atAgra, Udaipur, Cochin, Jaipur, Bhubaneshwar, Chennai andrecently in Gurgaon. The company also operates luxury resortssuch as The Oberoi Rajvilas in Jaipur, The Oberoi Amarvilas inAgra, Wildflower Hall in Mashobra, in the Himalayas, The OberoiVanyavilas in Ranthambhore, The Oberoi Cecil in Shimla and TheOberoi Udaivilas in Udaipur. Overseas, the new hotels include TheOberoi in Mauritius and The Oberoi, Sahl Hasheesh in Egypt and inSaudi Arabia. The company has a variety of room types to cater todifferent types of customers like Deluxe Rooms, Executive Suites,Deluxe Suites, Presidential Suites, Curzon Suite etc. The hotels atNew Delhi, Mumbai, Bangalore and Kolkata have 300, 333, 160 and190 rooms res ectivel .

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We expect The Oberoi to command ARRs in the range of Rs 12,600-11,000 for the period FY08-09, with occupancies of 67%-70%. Weexpect Hilton Towers to improve its ARRs, backed by strongdemand to Rs 8,500 and Rs 8,200 in FY08 and FY09, with higheroccupancy rates of 72% and 74% for the same period.

New Delhi: Maiden Hotel, EIHs flagship hotel has 56 rooms, andenjoys occupancy levels in excess of 80%. However, ARRs arelower and not comparable to other Oberoi properties. Going

forward, we expect the hotel to maintain high occupancy rates(80%-82%), while ARRs would improve to Rs 5,500 and Rs 5,200 inFY08 and FY09 on the back of increased demand. Maiden Hotelcontributes around 2% to EIHs standalone revenues.

EIH has places itself strongly in the capital city through The Oberoi,New Delhi, a 283-room five-star hotel. The government hasannounced tax incentives to accommodate visitors for theCommonwealth Games scheduled to be held in Delhi in Oct 2010.Many hotel chains have announced their entry/expansion plans.However, we believe the demand-supply mismatch would favourhoteliers. The Oberoi, New Delhi, would benefit from thedevelopment and maintain its high occupancy levels (80%-81%).ARRs would also remain firm at Rs 13,000 and Rs 12,500 for FY08and FY09 respectively.

Bangalore: The Oberoi, Bangalore, is a 160-room five-star property,which has been in the thick of all the excitement that the hospitalitysector in the city has been witnessing. The IT and outsourcing hubattracts a major inflow of visitors. In the past, this has lead toabnormally high ARRs, attracting investment plans from several

hotel chains. The room base has more than doubled in one year,and this expansion has lead to a cooling in ARRs and occupancylevels. We expect this trend to continue as new hotels are set up.We expect increased competition in the three- and four-starcategories, but the five-star deluxe category would not experience aheavy drop in ARRs. We believe The Oberoi would maintain itsARRs in the range for Rs 15,500 to Rs 14,000 for FY08 and FY09.Occupancies are expected to dip slightly to 78%-75% due to theincreased room base of the city.

Luxury Destinations: EIH specialises in luxury destinations with five-star deluxe category Hotels & Resorts across Udaipur,Ranthambore, and Cochin (luxury cruiser). By November 2009, theRajgarh palace would be an addition to the portfolio with 60-rooms,which has an existing room base of 120. These propertiescommand ARRs in the range of Rs 15,000 to Rs 22,000, andcontribute around 8% to standalone revenues. Going forward, weexpect EIH to maintain high ARRs across these properties, whichare expected to contribute around 8.4% to standalone top line.

Trident Gurgaon, a 136-room managed property increases EIHs presence in the NCR

EIH has a large base of luxurydestinations in its portfolio

spread across owned and managed hotels

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Increased focus on management contractEIH has a current inventory of 1,067 rooms from management contracts,which contribute 10.5% to its profits before tax. Going forward, thecompany plans to add around 775 rooms by management contracts of EIHAssociate-owned Trident Hotels in Bangalore, Hyderabad, Manesar and

Gurgaon (NCR). This expansion would increase the total managed roombase by 72% to 1,842 by FY10. We expect revenue from managementcontracts to grow by 35% over FY08-10.

Trident Bangalore, a four-star 320-room property, is expected tocommission by January 2009. EIH plans to include Hyderabad in its foldthrough Trident Hotel with 250 rooms by January 2010. Around the sametime, the Manesar and Gurgaon properties would together add around 200rooms to the managed category.

Exhibit 4: Increased number of rooms under management contract

Owned

Managed

0

500

1000

1500

2000

2500

3000

3500

4000

4500

FY06 FY07 FY08E FY09E FY10E

Number of Rooms

Source: Company, ICICIdirect Research

The company plans to expand its chain, though without burdening itsbooks with the investment. It plans to foray in potential growth locationsthrough management contracts, which going forward would contributearound 10.5% -10.9% of the before tax profit.

Diversified business presenceEIH has a diversified portfolio of airport & flight services, printing press andcar rentals. F&B income from airport & flight services, a high-marginbusiness, accounts for nearly 40% of the total F&B revenue. Printing pressand car rentals are relatively smaller business verticals, although EIH hasplans to expand them significantly in next 4-5 years.

Airport & flight services: Revenue from F&B revenue account for asignificant 36%-38% of EIHs top line. The company has a diversifiedportfolio of F&B income from hotels and airport & flight services. F&Bincome from airport & flight services, a high-margin business, accounts for

nearly 40% of the total F&B revenue. It is expected to increase further asEIH plans to introduce a service kitchen in Mauritius through a 100%

Contributes 10.5% to profit before tax on a base of 1067 rooms spread across 11destinations

Currently runs airport services across 4 major metros and Cochin

Flight services spread across Mumbai, Delhi and Bangalore

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subsidiary along with introduction of Qatar Airways to the 5 to 6 airlines towhich it provides catering services.

Printing: Printing is currently a Rs 36-40 crore turnover business with profitmargins in the range of 12%-15%. EIHs printing press is engaged insecurity printing, with 15%-17% of its operations used for in-housepurposes. The company plans to develop this vertical into an Rs 100 crorebusiness in coming four years. Revenue from the printing businesscontributes 4.5% to consolidated revenues. We expect this figure to rise toa 6% share of the top line by FY09.

EIH hold a 67% stake in Mercury Car Rentals, which is currently an Rs 50crore business. Car rentals contributed 5.8% to top line in FY07. EIH seesthe car rental as a business that would boost revenue in future with new

focus areas in business and leisure travel, in-bound handling, foreignexchange, travel insurance, passports, visas, car rental and cargo. Weexpect it to maintain the revenue share of 5.8% in future to theconsolidated top line.

International properties go unaccountedEIH has a presence in four locations outside India, and plans to increase itsoverseas room base through a wholly-owned subsidiary, EIH International.Currently, EIH operates a 74-room hotel at Bali and 50-room hotel atLambok, both in Indonesia under The Oberoi brand. EIH International holdsstake of 42.17% and 40.86% respectively in these properties. EIHInternational also operates a 72-room hotel in Mauritius where it holds a38.93% stake. It has a minority stake in a 102-room hotel in Egypt. EIHInternational plans to expand its overseas base from the current 298 roomsto 796 through planned projects in Bhutan, UAE, Cambodia, Maldives and

Egypt.

EIH International does not contribute to the consolidated accounts in a bigway due to the regulations of British Virgin Islands, where it is registered.EIH does not consolidate the accounts of its associates in its bookstherefore its accounts derive only dividend income through theinternational ventures, although the inherent value of the stake standsmuch higher. The true value of EIH International does not get reflected inthe consolidated books due to this factor.

By taking the current room base of 298 into account, we estimate EIHInternational to post a top line of Rs 46.71 crore in FY09, and a net profit ofRs 8.66 crore in FY09.

Value unlocking through the REIT wayHospitality is a capital-intensive business where huge sums of money arerequired for buying land and building a hotel. Huge capex lead to a burdenon books of hotel chains in the form of reduced free cash flows.

Recently, Indian companies have started to look towards REIT (real estateinvestment trust) as a product to unlock their asset value. Till nowregulations in India did not permit the formation and listing of REIT, whichlead to companies seeking out the Singapore route for the purpose. Of

late, market regulator, Sebi, has shown interest in this product offering. Ifthe regulation is amended in support of REITs, sectors that have heavy realestate asset value to be unlocked would benefit the most, hospitality being

International properties at Bali, Lambok, Mauritius & Egypt with a total room base of 298

Possibility of huge valueunlocking

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one of them. This would result in asset being hived off to a REIT, whichwould subsequently get listed. This REIT would have a steady income fromrentals of the assets. Companies would benefit, as the load of depreciation,loan, and interest would substantially reduce leading to a jump in marginsand returns.

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RISKS & CONCERNS

Execution risksAny delays in upcoming properties would impact revenue estimates,thereby affecting profitability negatively.

Tourist inflows to IndiaTourist inflows into India have been growing at a robust rate of 18% from2003 to 2006. In 2006, tourist arrivals touched record levels of 4.4 million.For the seven months in 2007, tourist arrivals have shown a healthygrowth of 12.6% over corresponding period in 2006. Although we expecttourist inflows to grow, any slowdown would bring a deceleration to theIndian hospitality dream run.

Competition from South Asian countriesOther South Asian countries have also been focusing on tourism, and areattracting visitors from India and other parts of the world. Many corporategroups have been booking group package s . These destinations posecompetition for leisure hotels. We dont think that EIH faces suchcompetition, as its revenue drivers are properties located in areas where it

focuses on the business travellers.

Terrorist activitiesTravel and tourism industry is highly sensitive to risks arising fromterrorist activities. In case a destination country being prone to terroriststrikes, the originator countries may pass a word of caution or on theextreme not allow their citizens to visit such countries, thereby impactingthe hospitality business adversely for such period.

Employee crunchThe demand-supply mismatch of quality rooms has increased in favour ofthe hospitality sector, so has the imbalance in availability of trained staff.The employee cost has increased to as much as 21%-24% in thehospitality sector. This is the single largest component of expenditure anda further crunch in workforce could drive costs even higher thus hittingthe margins and bottom line.

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FINANCIALS

Continuous growth focusEIHs top line and bottom line have been consistently growing. DuringFY05-07, top line grew at an impressive 25.4% CAGR from Rs 633 crore to

Rs 1,004 crore. Bottom line swelled 184% from Rs 24.8 crore to Rs 200.5crore. Going forward, the situation is expected to remain in the favour ofhoteliers. We believe EIH would be able to improve its bottom line despitethe strain due to the ongoing Rs 800 crore capex. The company isexpected to witness a 2.7% growth in top line (Rs 1,030 crore in FY08 andRs 1,058 crore in FY09) and 5.2% and 3.4% growth in bottom line (Rs 211crore and Rs 218 crore). Post the commissioning of the hotel at BKC andRajgarh Resorts, we believe EIH would witness a momentous growth intop line at 16.2% from the FY09 levels to Rs 1,230 crore in FY10E, whilebottom line is expected to jump by huge 31.7% to Rs 287 crore in FY10,

justifying companys capex outlook.

Exhibit 5: Major growth in top line and bottom line in FY10 (Rs crore)

0

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600

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1200

1400

FY05 FY06 FY07 FY08E FY09E FY10ERevenue Net Profi t


Margins maintained in short run, impressive growth likely post FY09EIHs operating margins have been steady at 32%-33% in FY06 and FY07.

We expect the company to maintain margins around 32.6%-32.4% inFY08-09 in the wake of growing tourist arrivals, demand-supply mismatchand expectation of ARRs remaining firm at the levels of Rs 11,352-Rs10,666 for the year FY08-09 on a standalone basis. Net profit marginshave also been at 20% in FY07. We expect an improvement in net profitmargins in FY08 to 20.5% and 20.6% in FY09 due to debt restructuring.We expect net profit margin to bounce even higher to 23.4% in FY10Ewhen its planned expansion becomes operational.

Top line to grow 16.2% in FY10,while bottom line to surge by

31.7% over FY09

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Exhibit 6: Margins steady during capex, up-tick in FY10

Operating Margin

Net Profit Margin

18%

20%

22%

24%

26%

28%30%

32%

34%



Handsome returns post expansionAddition of rooms in the hospitality sector is a capital-intensive activity,which causes a constraint on the free cash flows of companies andthereby impacts return ratios negatively in the short run. We expect EIH torun through this cycle in its expansion period. In FY08 and FY09, we haveestimated a dip in return on net worth to 16.7% and 15.4% as against17.9% in FY07. However, we expect the return to rebound in FY10 to17.7% once the new hotels get commissioned. With EIHs ARRs firm atmore than Rs 10,000 on standalone basis, increased room base andbusiness outlook to be robust in medium term, we foresee the return oncapital employed to head northwards post FY09 to 14.4% in FY10 from13.4% in FY07 post sliding to 12.2% in FY08 and 11.5% in FY09.

Exhibit 7: Returns ratios to improve

RONW

ROCE

10%

12%

14%

16%

18%

20%

22%



Margins to improve postcommissioning of BKC project

Returns bounce back to FY07

levels post FY09

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Revenue Model Number of Owned Rooms FY06 FY07 FY08E FY09E FY10E

The Oberoi Mumbai 327 327 327 327 327The Oberoi New Delhi 279 279 283 283 283The Oberoi Bangalore 160 160 160 160 160

The Oberoi Grand Kolkata 213 213 213 213 213The Oberoi Udaivilas Udaipur 87 87 87 87 87The Oberoi Vanyavilas Ranthambore 25 25 25 25 25Hilton Towers Mumbai 541 541 541 541 541The Oberoi Cecil Shimla # 79Trident Hilton Bhubaneswar # 62Maidens Hotel New Delhi 56 56 56 56 56Motor Vessel Vrinda Cochin (Luxury Cruiser) 8 8 8 8 8Trident Hilton Gurgaon (managed only) 136 136 136 136 136Trident Hilton BKC* 220 440Rajgarh Palace & Resorts~ 60

Total Owned Rooms 1973 1832 1836 2056 2336

ARRThe Oberoi Mumbai 9879 12504 12600 11000 11500The Oberoi New Delhi 9892 12240 13000 12500 13000The Oberoi Bangalore 12804 15316 15500 14000 13000The Oberoi Grand Kolkata 4833 6240 7000 6000 5200The Oberoi Udaivilas Udaipur 17513 20321 20500 21000 21000The Oberoi Vanyavilas Ranthambore 18510 21028 22500 22000 22000Hilton Towers Mumbai 6043 8307 8500 8200 8000The Oberoi Cecil Shimla # 5772Trident Hilton Bhubaneswar # 3251

Maidens Hotel New Delhi 3784 5118 5500 5200 5500Motor Vessel Vrinda Cochin (Luxury Cruiser) 13770 15557 15000 15000 15000Trident Hilton Gurgaon (managed only) 10923 12000 12500 12000 11800Trident Hilton BKC* 11000 11000Rajgarh Palace & Resorts~ 12000

OccupancyThe Oberoi Mumbai 53.8% 66.1% 67.0% 70.0% 75.0%The Oberoi New Delhi 80.7% 85.1% 80.0% 81.0% 79.0%The Oberoi Bangalore 79.6% 81.3% 78.0% 75.0% 68.0%The Oberoi Grand Kolkata 67.0% 64.6% 64.0% 68.0% 62.0%The Oberoi Udaivilas Udaipur 41.7% 45.8% 46.0% 48.0% 50.0%

The Oberoi Vanyavilas Ranthambore 65.7% 57.6% 60.0% 62.0% 64.0%Hilton Towers Mumbai 76.0% 70.3% 72.0% 74.0% 78.0%The Oberoi Cecil Shimla # 34.9%Trident Hilton Bhubaneswar # 59.5%Maidens Hotel New Delhi 80.9% 84.7% 80.0% 82.0% 78.0%Motor Vessel Vrinda Cochin (Luxury Cruiser) 34.1% 32.3% 34.0% 35.0% 34.0%Trident Hilton Gurgaon (managed only) 89.0% 90.0% 90.0% 90.0% 80.0%Trident Hilton BKC* 60.0% 70.0%Rajgarh Palace & Resorts~ 50%

* FY09 Estimates for Trident BKC are for Q4FY09E

~FY10 Estimares for Rajgarh Palace & Resorts are for Q3FY10E & Q4FY10E

# The Oberoi Cecil Shimla and Trident Bhubaneswar were transferred to EIH Associates w.e.f. April 1, 2006


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VALUATIONS

Given the robust growth in the tourist inflows to India, strong ARRs and firmoccupancies, along with significant expansion plans, we expect EIH tomaintain its margins and return ratios in the medium-term followed by a

strong growth in FY10. We believe the current business seems fairly valued.Upsides could be expected once its BKC project nears completion. At thecurrent price of Rs 142, the stock trades at 26.45x FY08E EPS of Rs5.37 and25.58x FY09E EPS of Rs 5.55. We arrive at a DCF valuation of Rs 148.5 on abase case scenario. We rate the stock a HOLD with the target price of Rs 145,through a sum-of-the-parts (SOTP) valuation of EIH consolidated and EIHInternational taken on its current room base of 298.

Exhibit 8: Valuations attractive

PE (x)

EPS (Rs)

EV/EBIDTA (x)

0

5

10

15

20

25

30

FY06 FY07 FY08 FY09 FY10


The valuation of EIH International adds 4.76%, Rs 6.61, to the price derived from discounting FY09 EPS of 5.55 by 25x the industry average. EIHInternational has been valued at its current room base of 298. Plans to take itsroom base to 796 would increase its valuation manifold. We would includethe addition in valuations once we get clarity on the execution schedule ofexpansion.

EIH looks attractive at FY10valuations

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Exhibit 9: One-year forward rolling P/E Band

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On an EV/EBIDTA valuation, the stock is valued at 19.97x in FY07. Going forward, on an EV/EBIDTA of 19.1x in FY09, the stock looks fairly priced atcurrent levels.

Our discounted cash flow (DCF) valuation gives a value of Rs 148.50 to thestock. We have assumed a terminal growth rate at 2.5%, risk-free rate ofreturn is 7.87%, and market rate of return at 15%. WACC works out to be9.71%.

Exhibit 10: Discounted Cash Flow

Year Ending 31 March 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

EBIDTA 336.33 342.36 404.65 461.38 468.89 472.36 510.92 524.25 557.83 565.01Interest 107.33 27.97 21.07 17.75 18.16 14.89 15.14 11.88 11.93 11.97Depreciation 61.60 64.57 70.60 75.79 65.09 63.14 61.24 59.40 57.62 55.89PBT 36.95 36.95 36.95 36.95 36.95 36.95 36.95 36.95 36.95 36.95Tax 100.41 94.08 123.47 148.90 165.54 172.57 189.20 197.35 212.16 217.83PAT 210.96 227.57 299.71 362.96 403.26 422.66 464.47 485.49 523.05 540.28FCF 451.36 437.89 834.05 949.58 465.79 480.99 515.42 538.90 571.93 590.17NPV 6933.59

Equity Share Value 148.47

Source: ICICIdirect Research

28x

24x

20x16x

12x

8x

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FINANCIAL SUMMARY

Profit & LossRs Crore FY06 FY07 FY08E FY09E FY10E

Net Sales 756.39 938.97 1030.33 1058.16 1230.09Other Income 46.80 57.75 86.86 94.18 102.88Total Expenditure 510.86 605.59 694.00 715.80 825.44Operating Profit 245.53 333.38 336.33 342.36 404.65Interest 86.76 98.08 107.33 108.38 75.34Depreciation 52.46 42.69 61.60 64.57 70.60Profit Befor Tax 249.37 296.06 304.26 313.59 411.58Tax 71.74 95.61 100.41 103.48 135.82Net Profit 195.24 200.51 210.96 218.16 287.36Operating Margin 32.5% 35.5% 32.6% 32.4% 32.9%Profit Margin 23.5% 21.3% 20.5% 20.6% 23.4%Outstanding Shares 5.24 39.30 39.30 39.30 39.30Diluted EPS (Rs) 6.78 5.10 5.37 5.55 7.31

Balance SheetRs Crore FY06 FY07 FY08E FY09E FY10EEquity Share Capital 52.39 78.59 78.59 78.59 78.59Reserves & Surplus 992.87 1095.57 1186.41 1338.77 1546.15Secured Loans 611.39 693.82 975.70 985.30 684.90Unsecured Loans 100.36 97.81 107.60 107.60 107.60

Deferred Tax Liability 114.42 104.14 106.00 115.41 127.75Total Liabilities 1871.44 2069.93 2454.31 2625.67 2545.00

Net Block 1309.35 1128.53 1344.12 1785.55 1875.80Capital Work in Progress 241.79 375.83 520.20 220.20 5.20Investments 304.37 411.81 316.45 316.45 316.45Net Current Assets 186.90 145.21 264.98 294.92 339.00Misc. Expense w/o 14.95 8.55 8.55 8.55 8.55Total Assets 2057.36 2069.93 2454.30 2625.67 2545.00

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Cash Flow

Ratio AnalysisFY06 FY07 FY08E FY09E FY10E

Diluted EPS (Rs.) 4.97 5.10 5.37 5.55 7.31Cash EPS (Rs.) 6.23 6.63 6.94 7.20 9.11Book Value (Rs.) 25.24 28.51 32.19 36.07 41.35Operating Margin(%) 33.0% 32.2% 32.6% 32.4% 32.9%Net Profit Margin(%) 24.0% 20.0% 20.5% 20.6% 23.4%RoNW(%) 19.7% 17.9% 16.7% 15.4% 17.7%

RoCE(%) 12.6% 13.4% 12.2% 11.5% 14.4%Debt / Equity 0.85 0.83 0.85 0.76 0.48Fixed Asset Turnover Ratio 0.52 0.59 0.55 0.53 0.65Enterprise Value (Rs. Cr.) 4460.73 6452.24 6575.82 6546.23 6213.81EV/EBIDTA 16.61 19.97 19.55 19.12 15.36Sales to Equity 15.53 12.78 13.11 13.46 15.65Market Capitalisation (Rs. Cr.) 3692.98 5579.96 5579.96 5579.96 5579.96Market Cap to Sales 4.54 5.56 5.42 5.27 4.54Price to Book Value 3.77 3.30 4.41 3.94 3.43

Rs Crore FY06 FY07 FY08E FY09E FY10EOpening Cash 87.98 82.27 68.54 87.44 126.63Profit After Tax 169.03 259.90 210.96 218.16 287.36

Depreciation 49.45 60.16 61.60 64.57 70.60Dividend Paid & Others 100.62 109.41 -57.08 -56.40 -67.62Cash Profit 319.09 429.48 215.48 226.33 290.34Changes in WCNet Increase in CL 24.70 1.24 -118.20 7.55 76.57Net increase in CA 80.25 216.38 9.81 -1.70 88.62Cash Flow after change in working capital 263.54 214.33 87.47 235.58 278.28Cash Flow from investing activity -104.14 -262.12 -211.05 -206.00 54.14Cash Flow from financing activity -165.11 34.06 142.48 9.60 -300.40Net Cash inflow -5.71 -13.73 18.91 39.19 32.02Closing Cash 82.27 68.54 87.44 126.63 158.65

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RATING RATIONALE

ICICIdirect endeavours to provide objective opinions and recommendations. ICICIdirect assigns ratings to itsstocks according to their notional target price vs current market price and then categorises them as

Outperformer, Performer, Hold, and Underperformer. The performance horizon is 2 years unless specified andthe notional target price is defined as the analysts' valuation for a stock.

Outperformer: 20% or morePerformer: Between 10% and 20%Hold: + 10% returnUnderperformer: -10% or more

DisclaimerThe report and information contained herein is strictly confidential and meant solely for the selected recipient and may not be alteredin any way, transmitted to, copied or distributed, in part or in whole, to any other person or to the media or reproduced in any form,without prior written consent of ICICI Securities Ltd (I-Sec). The author of the report does not hold any investment in any of thecompanies mentioned in this report. I-Sec may be holding a small number of shares/position in the above-referred companies as ondate of release of this report. This report is based on information obtained from public sources and sources believed to be reliable, but

no independent verification has been made nor is its accuracy or completeness guaranteed. This report and information herein issolely for informational purpose and may not be used or considered as an offer document or solicitation of offer to buy or sell orsubscribe for securities or other financial instruments. Nothing in this report constitutes investment, legal, accounting and tax adviceor a representation that any investment or strategy is suitable or appropriate to your specific circumstances. The securities discussedand opinions expressed in this report may not be suitable for all investors, who must make their own investment decisions, based ontheir own investment objectives, financial positions and needs of specific recipient. This report may not be taken in substitution for theexercise of independent judgement by any recipient. The recipient should independently evaluate the investment risks. I-Sec andaffiliates accept no liabilities for any loss or damage of any kind arising out of the use of this report. Past performance is notnecessarily a guide to future performance. Actual results may differ materially from those set forth in projections. I-Sec may haveissued other reports that are inconsistent with and reach different conclusion from the information presented in this report. This reportis not directed or intended for distribution to, or use by, any person or entity who is a citizen or resident of or located in any locality,state, country or other jurisdiction, where such distribution, publication, availability or use would be contrary to law, regulation orwhich would subject I-Sec and affiliates to any registration or licensing requirement within such jurisdiction. The securities describedherein may or may not be eligible for sale in all jurisdictions or to certain category of investors. Persons in whose possession thisdocument may come are required to inform themselves of and to observe such restriction.

Harendra Kumar Head - Research & Advisory [email protected]

ICICIdirect Research Desk,ICICI Securities Limited,2nd Floor, Stanrose House,Appasaheb Marathe Marg,Prabhadevi, Mumbai 400 025

[email protected]

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