india daily, february 14, 2012 - kotak securities · improved realizations, lower employee costs...

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

INDIA DAILYFebruary 14, 2012 India 13-Feb 1-day1-mo 3-mo

Sensex 17,773 0.1 10.0 3.4

Nifty 5,390 0.2 10.8 4.3

Global/Regional indices

Dow Jones 12,874 0.6 3.6 5.9

Nasdaq Composite 2,931 0.9 8.1 9.4

FTSE 5,906 0.9 4.8 6.5

Nikkie 8,975 (0.3) 5.6 4.3

Hang Seng 20,853 (0.2) 8.6 6.9

KOSPI 1,996 (0.5) 6.4 4.9

Value traded – India

Cash (NSE+BSE) 159 168 73

Derivatives (NSE) 1,136 1,149 1,181

Deri. open interest 1,389 1,207 1,271

Forex/money market

Change, basis points

13-Feb 1-day 1-mo 3-mo

Rs/US$ 49.1 (4) (234) (127)

10yr govt bond, % 8.3 - (7) (64)

Net investment (US$mn)

10-Feb MTD CYTD

FIIs 69 1,880 4,063

MFs (9) (180) (282)

Top movers -3mo basis

Change, %

Best performers 13-Feb 1-day 1-mo 3-mo

IVRC IN Equity 58.0 2.2 51.3 52.9

WLCO IN Equity 136.7 2.3 23.4 51.2

IBULL IN Equity 205.8 14.7 29.5 47.8

TTMT IN Equity 258.3 0.4 23.7 45.3

RELI IN Equity 601.7 5.1 46.5 42.7

Worst performers

UNSP IN Equity 650.0 (3.0) 8.4 (24.9)

ADE IN Equity 372.8 (5.3) 15.5 (18.3)

ESOIL IN Equity 64.4 (2.4) 4.0 (18.1)

BHEL IN Equity 261.6 0.4 (2.0) (17.5)

BHARTI IN Equity 347.7 (0.6) 3.9 (14.2)

Contents

Special Reports

Initiating Coverage

Cummins India: Very strong business positioning but valuations cap incremental upside

Daily Alerts

Results

Coal India: E-auctions continue to drive realizations, costs contained

State Bank of India: Margin improvement yet to boost earnings

Sun Pharmaceuticals: Higher margin leads to higher PAT; remains our top pick

Reliance Power: Extant operations stable, fuel woes continue for future capacities

Cipla: Poor results on all counts

Suzlon Energy: Tardy execution reflects risk, FY2013E holds hope; balance sheet stretched

CESC: Pending tariff finalization dents earnings

Results, Change in Reco

Castrol India: Volumes continue to disappoint

Company

IDFC: Retain positive stance on the back of superior performance

Sector

Energy: Mayday, Mayday, Mayday

Industrials: Cycle may have bottomed out; improvement would be gradual

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

Very strong business positioning in engine manufacturing

Cummins makes diesel engines for back-up power and industrial equipment. The company’s (1) exports (25% of sales) and (2) stable service income (25% of sales) reduce dependence on the domestic capex cycle. Cummins competes with domestic engine manufacturers (Kirloskar, Mahindra and Greaves Cotton) and global majors (Caterpillar, Mitsubishi and Perkins). Product leadership, brand and service are the key differentiators. It has potential to gain market share (already doing in LHP segment) based on strong market positioning and expanding capacities.

Growing exports, stable service and margin recovery-led growth post sedate FY2012E

We expect revenue CAGR of 17% over FY2012-14E on (1) strong export growth (30% in FY2014E on the start of its SEZ-based genset facility), (2) stable service revenue and (3) recovery in the Indian power genset and industrial markets. Margins may recover partially (110 bps) as demand and the mix improve and commodity prices ease. FY2012E may be sedate with flat revenues and a 160 bps decline in margins. We highlight long-term drivers of (1) revenue (growth in connected load, exports, market-share gain and emission standards) and (2) margin (cost efficiencies, pricing power and stability in commodities). Rupee depreciation may boost exports competitiveness.

Initiate with REDUCE (TP of `475) as valuations cap incremental upside

Initiate coverage with a target price of `475 (18X FY2013E P/E) and a REDUCE rating as high valuations (18X FY2013E EPS and 6X FY2013E book value for a 29% RoE) cap upside, even as our estimates build in strong 17% sales growth and 100 bps margin recovery in FY2013E. Cummins trades at significant premium to its peers, capturing the strong business positioning.

Risks: Persistence in slowdown, fluid boundary with parent, grid reliability and high base

Key risks include (1) persistent slowdown in capex cycle, (2) global slowdown affecting exports, (3) fluid boundaries with parent, (4) improving grid reliability reducing service income and demand for prime power, (5) commodity inflation and (6) high base (10 GW sold p.a.). Upside risks include (1) stronger-than-expected recovery, (2) market share and margins gain and (3) exports opportunities.

Cummins India (KKC)

Industrials

Very strong business positioning but valuations cap incremental upside. We rate Cummins India as possibly the strongest franchise in capital goods based on (1) market positioning (product, range, brand, service), (2) stability, led by growing exports and stable service income, (3) likely benefit of expanded capacities and (4) strong RoEs, cash flow and dividends. However, we are constrained by limited incremental upside on (1) already high valuations (18X P/E and 13X EV/EBITDA for FY2013E) and (2) estimates of 17% growth and margin recovery. Initiate with REDUCE and TP of `475.

Cummins IndiaStock data Forecasts/Valuations 2012 2013E 2014E

52-week range (Rs) (high,low) EPS (Rs) 21.6 25.9 29.8Market Cap. (Rs bn) 129.5 EPS growth (%) (2.9) 19.8 15.3

Shareholding pattern (%) P/E (X) 21.6 18.1 15.7Promoters 51.0 Sales (Rs bn) 42.1 49.2 57.6FIIs 11.2 Net profits (Rs bn) 5.7 6.9 7.9MFs 14.7 EBITDA (Rs bn) 7.6 9.4 11.0

Price performance (%) 1M 3M 12M EV/EBITDA (X) 16.4 13.3 11.3Absolute 19.3 31.9 5.5 ROE (%) 29.7 31.2 31.5Rel. to BSE-30 8.4 27.6 5.3 Div. Yield (%) 2.2 2.7 3.1

Company data and valuation summary

557-322

REDUCE

FEBRUARY 10, 2012

INITIATING COVERAGE

Coverage view: Cautious

Price (`): 467

Target price (`): 475

BSE-30: 17,773

QUICK NUMBERS

• Initiate coverage with REDUCE rating and Mar 2013 target price of `475

• 18X FY2013E EPS, 13X FY2013E EV/ EBITDA and 6X FY2013E book value cap upside

• 30% growth in exports in FY2014E on contribution from SEZ-genset facility

Cummins India Industrials

KOTAK INSTITUTIONAL EQUITIES RESEARCH 3

Forecasts and valuations for Cummins India, March fiscal year-ends, 2008-14E

Year end Revenues EBITDA Net Profit EPS P/E EV/EBITDA P/BMarch (` mn) (` mn) (` mn) (`) (X) (X) (X)2008 24,183 3,745 2,807 10.4 44.9 33.9 11.72009 34,156 5,886 4,337 16.1 28.9 21.5 9.32010 29,027 5,852 4,437 16.2 28.8 21.0 8.32011 40,650 7,831 5,910 22.2 21.0 15.9 7.22012E 43,273 7,594 5,738 21.6 21.6 16.4 6.32013E 50,456 9,405 6,870 25.9 18.1 13.3 5.52014E 58,924 11,038 7,906 29.8 15.7 11.3 4.9

Source: Company, Kotak Institutional Equities estimates

P&L, balance sheet and cash flow statement of Cummins India (standalone), March fiscal year-ends, 2007-14E (` mn)

2007 2008 2009 2010 2011 2012E 2013E 2014EIncome statementTotal operating income 19,067 24,183 34,156 29,027 40,650 43,273 50,456 58,924 Operating expenses (15,655) (20,438) (28,270) (23,175) (32,819) (35,678) (41,051) (47,886) Raw materials consumed (12,072) (16,217) (22,338) (18,023) (25,803) (27,859) (32,194) (37,572) Operating and other expenses (2,382) (2,836) (3,803) (3,200) (4,470) (4,763) (5,185) (6,089) Employee expenses (1,200) (1,384) (2,130) (1,953) (2,546) (3,056) (3,672) (4,226) EBITDA 3,412 3,745 5,886 5,852 7,831 7,594 9,405 11,038 Other income 388 551 394 638 579 754 678 658 Interest expense (14) (7) (26) (21) (19) (35) (35) (41) Depreciation (326) (330) (456) (361) (366) (453) (637) (826) Pre-tax profit 3,460 3,960 5,798 6,108 8,024 7,860 9,411 10,830 Taxation (1,040) (1,153) (1,654) (1,670) (2,114) (2,122) (2,541) (2,924) PAT 2,420 2,807 4,145 4,437 5,910 5,738 6,870 7,906 Subsidiary/JV income ex income from non-trade investments 9 76 136 59 254 247 299 361 Adjusted PAT 2,429 2,883 4,473 4,497 6,165 5,985 7,169 8,267 Balance sheetEquity share capital 396 396 396 396 396 554 554 554 Reserves & surplus 8,900 10,641 13,551 15,214 17,667 20,031 22,862 26,120 Shareholders funds 9,296 11,037 13,947 15,610 18,063 20,585 23,416 26,674 Loan funds 25 288 212 86 183 — — —Total source of funds 9,380 11,362 14,176 15,696 18,245 20,585 23,416 26,674 Net fixed assets 1,817 2,549 3,090 3,337 4,411 6,458 8,821 10,995 Investments 2,826 4,321 3,993 7,329 7,255 6,234 6,234 5,734 Cash balances 389 123 323 559 1,037 905 254 502 Net current assets excluding cash 4,251 4,235 6,539 4,301 5,356 6,801 7,920 9,255 Total application of funds 9,380 11,362 14,176 15,696 18,245 20,585 23,416 26,674 Cash flow statementOperating profit before working capital changes 2,761 3,143 4,626 4,819 6,296 6,226 7,542 8,772 Change in working capital/other adjustments (468) 15 (2,304) 2,238 (1,054) (1,445) (1,119) (1,335) Cashflow from operating activites 2,293 3,158 2,323 7,056 5,241 4,781 6,423 7,437 Fixed assets (522) (1,062) (997) (607) (1,440) (2,500) (3,000) (3,000) Investments (337) (1,496) 329 (3,337) 75 1,021 — 500 Cash (used)/realised in investing activities (859) (2,557) (668) (3,944) (1,366) (1,479) (3,000) (2,500) Free cash flow 1,434 601 1,654 3,113 3,876 3,301 3,423 4,937 Cashflow from financing activities (1,102) (867) (1,646) (2,876) (3,398) (3,433) (4,074) (4,689) Cash generated/utilised 332 (265) 200 236 478 (132) (652) 248 Cash at end of year 389 123 323 559 1,037 905 254 502



Improved realizations, lower employee costs and overheads drive operational outperformance

CIL reported net sales of Rs153.5 bn (21% yoy, 17% qoq), operating profit of Rs45.5 bn (35% yoy, 83% qoq) and net income of Rs40.3 bn (53% yoy, 57% qoq) against our estimate of Rs151.6 bn, Rs39.5 bn and Rs35.8 bn respectively. Operating profits were 15% ahead of our estimates primarily on account of (1) higher-than-estimated realizations of Rs1,392/ton (against estimated Rs1,366/ton), (2) lower production costs (Rs108 bn against estimated Rs112 bn ). We discuss the performance in detail in a subsequent section.

E-auction hold guard, movement to GCV-based pricing beneficial—rollback notwithstanding

CIL’s e-auction realizations continue to remain firm—Rs2,852/ton in 3QFY12 fuelling the 21% yoy increase in blended realizations. CIL will likely benefit further from the switch to the GCV-based pricing mechanism (see Exhibit 3), the revision in originally notified prices notwithstanding. Our assumptions factor a more modest 4% improvement in average realizations in FY2013E –contributed by a mix of benefits from the revised notified prices and maintained premium for e-auction sales.

Wage negotiations finalized, 3QFY12 still on provisional basis

We note that CIL continues to provide for employee expenses on a provisional basis, though we note that the final settlement has been reached in January 2011 and will be reflective in the earnings of 4QFY12E. The revised wage structure implies an effective revision of 25% and additional perquisites— implying a total revision of 30-32% for the non-executive category. We factor an average wage inflation of 29%/12% in FY2012E/13E and see limited risks to our estimates.

Maintain ADD with a target price of Rs380/share

We maintain our ADD rating with a target price of Rs380/share. Our target price is based on 11X FY2013E EPS adjusted for overburden removal and interest income and implies an EV/EBITDA of 7.7X on FY2013E EBITDA (adjusted for overburden removal). CIL is currently trading at 9.5X FY2013E EPS and 6.5X FY2013E EBITDA adjusted for overburden removal.

Coal India (COAL)

Metals & Mining

E-auctions continue to drive realizations, costs contained. Coal India continues to report strong realization growth (21% yoy)—led by improved e-auction realizations at Rs2,852/ton in 3QFY12. Contained production costs with impact of wage settlement restricted to provisioning, further helped the company report an impressive growth (35% yoy) in operating profits. We maintain our ADD rating with a target price of Rs380/share.

Coal IndiaStock data Forecasts/Valuations 2012 2013E 2014E

52-week range (Rs) (high,low) EPS (Rs) 23.4 26.9 32.2Market Cap. (Rs bn) 2,126.1 EPS growth (%) 35.1 14.9 19.9


Price performance (%) 1M 3M 12M EV/EBITDA (X) 8.1 7.0 5.4Absolute (2.1) 3.2 10.5 ROE (%) 37.3 34.1 33.0Rel. to BSE-30 (11.0) (0.1) 10.2 Div. Yield (%) 2.1 2.4 2.9


422-289

ADD

FEBRUARY 13, 2012

RESULT


Price (Rs): 337

Target price (Rs): 380

BSE-30: 17,773

Coal India Metals & Mining


Exhibit 1: Improved realizations, lower employee costs and overheads drive operational outperformance Interim results for CIL, March fiscal year-ends (Rs bn)

3QFY12 3QFY12E 3QFY11 2QFY12 3QFY12E 3QFY11 2QFY12 FY2011 FY2012EProfit&LossSales 153,493 151,618 126,919 131,481 1 21 17 502,336 604,484Accretion in Stock 513 162 1,521 (5,579) 12,533 (3,701)Net revenues 154,006 151,780 128,440 125,902 1 20 22 514,869 600,783Employee expense (56,221) (57,931) (45,001) (56,907) (182,110) (223,799)Social Overhead (3,466) (4,502) (5,626) (3,368) (22,701) (16,734)Power & Fuel (4,963) (6,272) (4,643) (5,248) (17,546) (21,645)Contractual expense (12,484) (12,545) (11,473) (9,645) (45,800) (49,110)OBR Adjustment (7,609) (7,950) (6,939) (4,363) (26,185) (29,432)Consumption of stores and spares (14,064) (14,050) (13,535) (12,332) (52,314) (54,199)Other (9,726) (9,073) (7,419) (9,221) (33,421) (40,264)EBITDA 45,474 39,456 33,804 24,819 15 35 83 134,791 165,600Depreciation (5,257) (5,766) (4,136) (5,734) (16,729) (20,490)Interest (129) (127) (329) (128) (791) (546)Other Income 18,559 17,943 12,876 17,942 47,963 67,228PBT 58,647 51,505 42,214 36,898 14 39 59 165,234 211,792Total Tax (18,322) (15,709) (15,796) (11,132) 17 16 65 (55,959) (64,127)PAT 40,325 35,796 26,419 25,766 13 53 57 109,275 147,665Extraordinary 52 0 (158) 165 (602) 0Reported PAT 40,378 35,796 26,261 25,931 13 54 56 108,674 147,665Ratios (%)EBITDA margins (%) 29.6 26.0 26.6 18.9 26.8 27.4Effective tax rate (%) 31.2 30.5 37.4 30.2 33.9 30.3Operational dataProduction (mn tons) 114.6 111.4 113.9 80.3 2.9 0.7 42.7 431.3 426.4Sale (mn tons) 110.3 111.0 110.5 93.7 (0.6) (0.2) 17.6 424.5 432.7Average realization (Rs/ton) 1,392 1,366 1,148 1,403 1.9 21.2 (0.8) 1,183.4 1,396.9

Growth (%)


Exhibit 2: Our target price is based on 11X FY2012E adjusted EPS Target price calculation of CIL

EBITDA (Rs bn) 191OBR (Rs bn) 32Adjusted EBITDA (Rs bn) 223Interest income (Rs bn) 59PAT (Rs bn) 170Adjusted PAT (Rs bn) 151EPS (Rs/share) 27Adjusted EPS (Rs/share) 24P/E on FY2013E adjusted PAT (X) 11 Value of coal business (Rs bn) 1,721Cash (Rs bn) 681Market Cap (Rs bn) 2,402Target price 380

Notes.(1) Adjusted EBITDA is calculated after removing the effect OBR adjustment.(2) Adjusted PAT is calculating after removing the effect ofOBR adjustment and interest income net of taxes.

Source: Kotak Institutional Equities estimates

Metals & Mining Coal India

6 KOTAK INSTITUTIONAL EQUITIES RESEARCH

Exhibit 3: We expect ~5% inflation in notified prices as per the new pricing structure Comparison of old and new system of pricing of non-coking coal

Grade UHV (kcal/kg) Corresponding GCV band Power/Defence Others GCV band(kcal/kg) Power/Defence Others Power/Defence OthersA Exceeding 6,200 Exceeding 6,401 3690 - 4,100 3690 - 4,100 Exceeding 7,000 4,900 4,900

Exceeding 6,700 and not exceeding 7,000 4,690 4,690 4,870 4,870Exceeding 6,401 and not exceeding 6,700 4,460 4,460 4,420 4,420

B Exceeding 5,600 but not exceeding 6,200 Exceeding 5,800 but not exceeding 6,401 3590 - 3,990 3590 - 3,990 Exceeding 6,100 but not exceeding 6,400 4,130 4,130 3,970 3,970Exceeding 5,800 but not exceeding 6,100 3,990 3,990 2,800 2,800

C Exceeding 4,940 but not exceeding 5,600 Exceeding 5,400 but not exceeding 5,801 1,050 - 1,860 1,370 - 2,420 Exceeding 5,500 but not exceeding 5,800 2,940 3,430 1,450 1,960

D Exceeding 4,200 but not exceeding 4,940 Exceeding 4,800 but not Exceeding 5,401 880 -1,610 1,140 - 2,090 Exceeding 5,200 but not Exceeding 5,400 2,060 2,520 1,270 1,715Exceeding 4,900 but not Exceeding 5,200 1,890 2,230 1,140 1,539

E Exceeding 3,360 but not exceeding 4,200 Exceeding 4,200 but not exceeding 4,801 730 - 1,090 950 - 1,420 Exceeding 4,600 but not exceeding 4,900 1,680 2,230 880 1,188Exceeding 4,300 but not exceeding 4,600 970 1,460 780 1,053

F Exceeding 2,400 but not exceeding 3,360 Exceeding 3,600 but not exceeding 4,201 570 - 870 740 - 1,130 Exceeding 4,000 but not exceeding 4,300 880 1,320 640 864Exceeding 3,700 but not exceeding 4,000 630 1,010 600 810

G Exceeding 1,300 but not exceeding 2,400 Exceeding 3,200 but not exceeding 3,601 430 - 700 560 - 910 Exceeding 3,400 but not exceeding 3,700 630 1,000 550 743Exceeding 3,100 but not exceeding 3,400 620 990 500 675Exceeding 2,800 but not exceeding 3,100 620 870 460 621Exceeding 2,500 but not exceeding 2,800 550 780 410 554Exceeding 2,200 but not exceeding 2,500 480 680 360 486

Note:GCV mapping for old system has been calculated at 5% moisture level

Old Sytem (UHV based) New System (GCV based)Price (Rs/ton) Price-initial (Rs/ton) Price-revised (Rs/ton)

Source: Company, Kotak Institutional Equities

Exhibit 4: Wage negotiations finalized, impact in line with our estimates Wage revision detail for minimum wage category, NCWA VIII & IX

Pre-revised Revised Pre-revised Revised Pre-revised Revised Pre-revised Revised

Basic wage 213 322 5,550 8,360 322 604 8,360 15,713 Attendance bonus (10% of basic) 21 32 555 836 32 60 836 1,571 Special DA (1.795% of basic) 4 6 100 150 6 11 150 282 Variable DA 51 — 1,332 — 181 — 4,707 — Total 290 359 7,537 9,346 540 676 14,053 17,566 Minumum guranteed benefit 70 — 1,809 — 135 — 3,513Total 359 359 9,345 9,346 676 676 17,566 17,566 Effective revision (%) 24 24 25 25

Note: Further, a special allowance amounting to 4% of basic will be paid

NCWA IX (Wage revision of 2011)Daily (Rs/day) Monthly (Rs/month)

NCWA VIII (Wage revision of 2006)Daily (Rs/day) Monthly (Rs/month)


Analysis of 3QFY12 results

We analyze below key highlights of 3QFY12 results:

Volumes – CIL’s volumes increased to 110.3 mn tons (1% yoy, 43% qoq). Sequential increase in volumes is on account of seasonality factor, though overall volume growth continues to lag targets.

Realization – CIL’s average blended realization jumped to Rs1,392/ton (21% yoy, -1% qoq). Realizations were driven by higher realization of e-auction sales. CIL sold 11.5 mn tons (10.5% of total volumes) at Rs2,852/ton (145% premium over FSA realization). Refer Exhibit 5 for details of CIL’s sales mix and corresponding realizations.

Employee cost – employee cost for 3QFY12 remained stable sequentially at Rs56.2 bn (25% yoy). We note that CIL continued to provide for wage negotiations in 3QFY12 since the final settlement was reached in Jan 2011. Impact of the final settlement will reflect in 4QFY12E numbers.

Coal India Metals & Mining


Welfare expense – we highlight that welfare expense (earlier classified as social overheads) has been significantly reduced to Rs3.5 bn (-38% yoy, 3% qoq). For 9MFY12, CIL has incurred Rs9.8 bn as welfare expense as against social overhead expenses of Rs15.3 bn in 9MFY11. We seek clarity from the management on whether there has been a reclassification of expenses or the quantum of social overheads has decreased.

Other costs – estimated power and fuel cost increased to Rs20/ton (6% yoy, -33% qoq). Stores and spares consumption increased to Rs55/ton (3.2% yoy, -19% qoq). We note that sequential decline is likely a seasonal impact.

Exhibit 5: E-auction premium continues to remain robust Production and volume details of CIL, 3QFY12 (mn tons)

3QFY12 3QFY11 2QFY12 (yoy) (qoq)Volumes (mn tons)Production 114.6 113.9 80.3 0.7 42.7Sales 110.3 110.5 93.7 (0.2) 17.6Inventory liquidation/(accretion) (4.3) (3.3) 13.4 30.6Sale mixRaw coalVolumes (mn tons) 93.8 0.0 78.5 #DIV/0! 19.4Realization (Rs/ton) 1,163 0 1,225 #DIV/0! (5.1)Revenue (Rs mn) 109,030 0 96,217 #DIV/0! 13.3E-auctionVolumes (mn tons) 11 0 11 #DIV/0! 3.0Realization (Rs/ton) 2,852 0 2,435 #DIV/0! 17.1Revenue (Rs mn) 32,740 0 27,154 #DIV/0! 20.6BeneficiatedVolumes (mn tons) 3 0 3 #DIV/0! 1.8Realization (Rs/ton) 2,088 0 2,262 #DIV/0! (7.7)Revenue (Rs mn) 7,080 0 7,533 #DIV/0! (6.0)Other productsVolumes (mn tons) 1 0 0 #DIV/0! 538.1Realization (Rs/ton) 3,455 0 2,745 #DIV/0! 25.9Revenue (Rs mn) 4,630 0 576 #DIV/0! 703.3Total revenue 153,480 0 131,481 #DIV/0! 16.7

Growth (%)


Metals & Mining Coal India


Exhibit 6: Profit model, balance sheet, cash model of CIL, March fiscal year-ends, 2009-15E (Rs mn)

2009 2010 2011 2012E 2013E 2014E 2015EProfit modelNet sales 387,888 446,153 502,336 604,484 651,482 710,550 767,446 Coal issued for other purpose 20,220 20,690 23,826 29,464 32,880 35,656 38,507 Transport and loading recovery 14,698 12,260 12,182 12,380 12,838 13,473 14,038 Total income 424,142 485,774 550,877 642,627 698,746 761,294 820,934 EBITDA 39,309 114,735 146,973 177,979 190,935 221,061 247,193 Interest income 28,447 26,940 29,660 39,074 59,108 75,730 96,277 Other Income (ex transport, interest) 8,051 13,209 6,121 15,775 15,775 15,775 15,775 Interest expense (1,789) (1,560) (791) (546) (434) (377) (360) Depreciation (16,909) (13,138) (16,729) (20,490) (22,422) (23,927) (25,131) Pretax profits 57,110 140,186 165,234 211,792 242,961 288,263 333,753 Tax (36,336) (43,996) (55,959) (64,127) (73,354) (84,838) (103,855) Net income 20,774 96,190 109,275 147,665 169,607 203,425 229,897 Extraordinary items 13 35 (602) — — — — Reported profit 20,787 96,224 108,674 147,665 169,607 203,425 229,897 Earnings per share (Rs) 3 15 17 23 27 32 36 Balance sheetPaid-up common stock 63,164 63,164 63,164 63,164 63,164 63,164 63,164Total shareholders' equity 191,651 257,952 333,172 423,248 526,708 650,797 791,035Minority interest 19 236 326 326 326 326 326Total borrowings 21,485 20,869 15,536 13,536 11,615 11,007 10,607Shifting and rehab fund 12,238 14,774 16,214 19,967 24,472 29,645 35,849Total liabilities and equity 225,393 293,831 365,247 457,076 563,121 691,775 837,816Net fixed assets 110,212 120,354 128,429 153,721 168,722 173,721 167,664Capital work-in progress 19,195 22,107 22,181 26,716 27,592 24,073 20,546Investments 15,052 12,823 10,637 10,637 10,637 10,637 10,637Cash 296,950 390,778 458,623 557,008 680,806 844,623 1,040,312Current assets (excl. cash) 174,009 152,466 185,337 213,514 228,127 247,423 265,589Current liabilities and provisions 399,293 414,316 448,725 513,558 562,292 618,517 677,071Deferred tax asset 9,268 9,604 8,732 9,038 9,529 9,813 10,139Misc. expenditure — 15 34 — — — — Total assets 225,393 293,831 365,248 457,076 563,121 691,775 837,816Free cash flowOperating cash flow, excl. working capital 39,616 106,073 125,299 167,849 191,539 227,067 254,703Working capital changes 77,708 22,856 1,538 36,656 34,122 36,928 40,388Capital expenditure (18,758) (19,804) (17,832) (50,317) (38,299) (25,408) (15,547)Free cash flow 98,567 109,125 109,005 154,188 187,362 238,588 279,544Ratios Net debt/equity (%) (143.7) (143.4) (133.0) (128.4) (127.1) (128.1) (130.2) Return on equity (%) 11 43 37 39 36 35 32 Book value per share (Rs) 30 41 53 67 83 103 125ROCE (%) 11 43 36 40 37 36 33



Another quarter of mixed performance; maintain BUY

SBI reported another quarter of mixed performance. Earnings growth of 15% yoy was supported by 27% growth in NII and write-back in investment provisions but weak performance on non-interest income (core fee and losses in treasury business) and higher loan-loss provisions dragged overall performance.

High slippages (stable qoq) and lower write-offs (almost nil) during the quarter have driven 18% qoq increase in gross NPLs. Two positives trends—(1) recovery and upgradation were better than the previous quarter, (2) slippages from the agriculture and retail portfolio were better than expected. Nearly 15% of the fresh slippage was from one exposure in the aviation sector.

We are raising our estimates by 7-10% for FY2012-14E to factor better-than-expected performance on NIMs and lower provision for investments. However, we are factoring higher credit costs for the next two years as we expect slippages to remain high. We maintain BUY rating (TP raised to `2,450 from `2,300) primarily to factor better-than-expected earnings and proposed capital infusion of `79 bn which would improve tier-1 ratio to above 9% levels.

NIMs expand 26 bps qoq to 4.1% as NII is the only source of earnings

SBI continues to push through interest rate hikes in the lending portfolio while consciously staying away from bulk deposits. NII, the only source of earnings for the bank, grew 27% yoy on the back of 18% loan growth and 45 bps NIM expansion (26 bps qoq). NIM expansion is primarily from the domestic business which improved by about 30 bps qoq to 4.4% while NIMs in the international business was flat qoq at 1.7%. Lending yields at 10.9% is still lower than BoB, BoI, Union Bank and most other public sector banks. We believe that the focus of the management on NIMs to continue as there are limited opportunities for the bank to earn profits currently as fee income growth or treasury income contribution continues to remain subdued. However, we remain conservative and expect NIMs to decline 20 bps by FY2014E.

State Bank of India (SBIN)

Banks/Financial Institutions

Margin improvement yet to boost earnings. SBI reported another quarter of NIM improvement (25 bps qoq) though the benefits of margin expansion is offset by higher loan-loss provisions and yet to reflect into improved earnings. Slippages remain high but select segments like agriculture and retail have shown improvement. Improving tier-1 ratio (capital infusion) and strong NIMs provide comfort for higher-than-expected slippages. Maintain BUY with TP of `2,450 (from `2,300 earlier).

State Bank of IndiaStock data Forecasts/Valuations 2012 2013E 2014E

52-week range (Rs) (high,low) EPS (Rs) 179.2 219.6 255.4Market Cap. (Rs bn) 1,352.1 EPS growth (%) 37.7 22.6 16.3

Shareholding pattern (%) P/E (X) 11.9 9.7 8.3Promoters 59.4 NII (Rs bn) 436.2 478.5 553.2FIIs 11.5 Net profits (Rs bn) 120.5 147.7 171.8MFs 5.1 BVPS 1,220.8 1,396.1 1,604.8

Price performance (%) 1M 3M 12M P/B (X) 1.7 1.5 1.3Absolute 19.9 18.4 (17.9) ROE (%) 16.4 16.8 17.0Rel. to BSE-30 9.0 14.5 (18.1) Div. Yield (%) 1.7 1.8 1.9


2,960-1,571

BUY

FEBRUARY 13, 2012

RESULT

Coverage view: Attractive

Price (Rs): 2,129

Target price (Rs): 2,450

BSE-30: 17,773

QUICK NUMBERS

• NII grew 27% yoy; NIMs improve 26 bps qoq

• Slippages high at 4.1%; slippages in retail and agri loans improve qoq

• Maintain BUY with TP of `2,450 (from `2,300 earlier)

Banks/Financial Institutions State Bank of India


Credit /deposit ratio increased during the quarter March fiscal year-ends, 3QFY09-3QFY12 (%)

72.773.1

71.1

77.7

80.179.6

82.784.5

74.078.6

82.681.2

81.1

65.0

69.0

73.0

77.0

81.0

85.0

3QFY

09

4QFY

09

1QFY

10

2QFY

10

3QFY

10

4QFY

10

1QFY

11

2QFY

11

3QFY

11

4QFY

11

1QFY

12

2QFY

12

3QFY

12

Source: Kotak Institutional Equities, Company

Better re-pricing of lending book resulted in NIM expansion March fiscal year-ends, 3QFY09-3QFY12 (%)

3.03.1

3.6

3.8

4.1

3.6

3.4

3.2

2.5 2.52.7

2.9

3.2

2.2

2.6

3.0

3.4

3.8

4.2

3QFY

09

4QFY

09

1QFY

10

2QFY

10

3QFY

10

4QFY

10

1QFY

11

2QFY

11

3QFY

11

4QFY

11

1QFY

12

2QFY

12

3QFY

12


Lending yields for SBI are comparatively lower as compared to peers Performance on yields for domestic business, March fiscal year-ends, 3QFY12 (%)

Yield on advances Cost of deposits Net interest margin

SBI 10.9 5.9 4.4

BOB 12.0 6.9 3.5

PNB 12.0 6.7 3.9

BOI 11.9 7.1 2.9

Union 11.3 7.0 3.3 Notes: (1) Yields for BoB and BoI are for domestic business only


Improvement in NIMs driven by sharp loan re-pricing Change in base rate and PLR (%)

Date PLR Base rate21-Oct-10 12.50 7.60 3-Jan-11 12.75 8.00 14-Feb-11 13.00 8.25 25-Apr-11 13.25 8.50 12-May-11 14.00 9.25 7-Jul-11 14.25 9.50 13-Aug-11 14.75 10.00


Term deposit rates have seen sharp increase at the shorter end Retail term deposit rates (%)

Jan-11 Feb-11 May-11 Jul-11 Aug-11 Dec-117-14 days 4.0 4.0 6.3 7.0 7.0 7.0 15-30days 5.0 5.0 6.3 7.0 7.0 7.0 31-45days 5.0 5.0 6.3 7.0 7.0 7.0 46 -90 days 5.5 5.5 6.3 7.0 7.0 7.0 91-120days 6.0 6.0 7.0 7.3 7.3 7.3 120-180 days 6.0 6.0 7.0 7.3 7.3 7.3 181-270 days 7.8 7.8 7.8 6.5-7.75 7-7.75 7-7.75271 days-1year 7.8 7.8 7.8 7.8 7.8 7.8 1 year-2year 8.25-9 8.25-9.25 8.25-9.25 9.3 9.3 9.3 2 year-3year 8.75-9 8.75-9.25 8.75-9.25 9.3 9.3 9.3 3 years-5 years 8.3 8.3 8.3 9.3 9.3 9.3 5 years-8 years 8.5 8.5 8.5 9.3 9.3 9.3 8years-10 years 8.8 8.8 8.8 9.3 9.3 9.3

Notes: December and February hikes has not been provided


State Bank of India Banks/Financial Institutions


Sharp increase in NPL partly due to lower write-off; corporate slippages remain high while other segments improve

Gross NPLs increased by 18% qoq to `401 bn (4.6% of loans) compared to `339 bn (4.2% of loans in September 2011) on the back of lower write-offs and higher slippages (similar to the previous quarter). We note that write-offs were lowest in 3QFY12 as compared to the past few years. Recovery/upgradation trends were improved qoq. Net NPLs increased 17% qoq at `188 bn (2.2% of loans) but the overall coverage ratio has broadly unchanged qoq at 53% (63% including provision coverage).

Slippage for the quarter remains high at 4.1% levels primarily due to higher slippages from the corporate portfolio. Nearly 50% of the overall slippages of `82 bn have come from the corporate portfolio with one large exposure from the aviation segment (nearly 15% of the overall slippage for the quarter). The management indicated that stress is primarily arising from the iron and steel sector and ancillaries to the power sector (distribution end).

Agriculture and retail slippages showed a reversal in trends for the quarter with both showing a sharp decline qoq. Performance in the agriculture portfolio (slippages declined 45% qoq) is broadly on expected lines as the third quarter is relatively strong for repayments. However, the performance on the retail portfolio (slippages declined 65% qoq) is a pleasant surprise as the risk of slippages from upward re-pricing of housing loans is still not reflecting in higher slippages.

SME and retail have seen lower slippage in the current quarter Slippages from various sectors, March fiscal year-ends, 2QFY11-3QFY12 (%)

Corporate International SME Agri Retail Total

2QFY11 19 5 12 10 7 53

3QFY11 16 2 2 5 6 32

4QFY11 19 5 14 13 6 56

1QFY12 17 1 20 14 9 62

2QFY12 25 1 22 20 12 80

3QFY12 39 6 21 11 4 82

Loans - 4QFY2011 2,793 1,107 1,203 955 1,651 7,709

Slippages (%, annualised) 5.7 2.2 6.9 4.7 1.0 4.2

Source: Kotak Institutional Equities

Gross NPLs increased 18% qoq due to higher slippages and lower write-off Movement of NPLs, March fiscal year-ends, 3QFY11-3QFY12 (` bn)

1QFY11 2QFY11 3QFY11 4QFY11 1QFY12 2QFY12 3QFY12

Opening 195.3 208.3 232.0 234.4 253.3 277.7 339.5

Addition 40.8 44.1 39.2 56.5 61.2 82.7 81.6

Cash recoveries 21.6 12.3 14.3 26.6 12.0 7.4 10.3

Upgradation 7.7 0.1 18.8 10.4 9.4

Write-off 6.3 8.0 14.9 10.9 6.0 3.2 0.4

Closing Gross NPL 208.3 232.0 234.4 253.3 277.7 339.5 401.0




Restructured loans (net) at 3.7% of loans; overall slippages at 26%

Outstanding restructured loans for the quarter was at 3.7% of loans at `313 bn while gross restructured loans increased 6% for the quarter to `376 bn (4.4% of loans). Outstanding slippages from the quarter are currently at 26%. The management indicated the fresh applications for restructuring at the CDR forum is fairly negligible and proposals for bilateral restructuring at corporate level are extremely low currently. Restructuring for the quarter was primarily in the sectors of iron and steel, chemicals, telecom and textiles. Nearly 50% of the fresh slippages from the restructured loans were from the aviation segment.

Slippages as a percentage of restructured book increased significantly Restructured loans and slippages, March fiscal year-ends, 3QFY11-3QFY12 (` bn)

3QFY11 4QFY11 1QFY12 2QFY12 3QFY12

Accounts restructured (gross) 328 343 349 354 376

% of loans 4.4 4.5 4.4 4.4 4.3

Slippages 44 51 60 78 97

% Slippages 13.5 15.0 17.2 21.9 25.7

Accounts restructured (net) 313

% of loans 3.7


Overall provisions decline further though provision for NPLs remains flat qoq

Overall provisions declined for the second quarter consecutively primarily on the back of reversals in the investment portfolio—mainly in equity book. Reversal from the bond portfolio was negligible for the quarter—a trend which is expected by us to gather strength in the current quarter.

Loan-loss provisions remained at similar levels (1.5% of loans) of 2QFY12 despite the quarter not requiring any provisions for improvement of provision coverage. Provision coverage ratio was flat at 53% qoq (63% including technically written off portfolio). We are building loan-loss provisions at 1.4% of loans as we expect slippages to remain high at 3% of loans for FY2013-14E.

Loan growth stable at 18% yoy

Overall loans grew by 18% yoy and 7% qoq to `8.7 tn as of December 2011 driven by strong growth in most segments. Agriculture loans grew by 17% yoy, SME grew by 21% yoy, mid-corporate segment by 12% yoy and retail loans grew by 12% yoy. International loans grew by 21% yoy with a positive impact on currency translation. Housing loans grew by 16% yoy. We are building loan growth at 14% CAGR for FY2013-14E as we see higher focus to improve margins, maintain asset quality and conserve capital.

CASA ratio stable qoq at 47%; savings deposits grew 15% yoy

CASA ratio was stable qoq at 47.5% levels on the overall domestic deposits. However, growth in current account deposits was weak (-1% yoy) while savings deposits grew 15% yoy. The pace of growth in savings account has weakened in recent quarters from over 30% levels while growth in current account has been volatile which we believe is due to one-off balances from various government flows. We note that retail deposits as compared to overall term deposits are fairly high at 79% levels.

However, it is important that the combination of low-cost deposit profile and strong pricing environment is enabling the bank to deliver strong margins.



Other key financial highlights for the quarter

Cost-income ratio was at 42% as the bank made normalized costs during the quarter. Overall provisions for retirement benefits declined marginally qoq. Recent decline in lending yields is positive as the provisions would be lower than expected initially.

Non-interest income declined 35% yoy on the back of weak core fee income growth and losses in the treasury business. Treasury reported a loss of `10.9 bn (loss in equity portfolio of `10.6 bn). Fee income grew 7% yoy to `26 bn (2% qoq). We are building fee income growth to decline 6% in FY2012E and building 10% CAGR in FY2013-14E.

Consolidated earnings (before minority interest) increased 16% yoy to `44 bn. Consolidated NII grew 24% yoy to `152 bn. SBI Life reported a profit of `0.7 bn while SBI Capital Markets posted a profit of `430 mn.

Tier-1 capital is at 7.6% with overall CAR at 11.6%—qoq improvement in tier-1 despite 7% growth in overall loans. The improvement is largely driven by insuring the loan portfolio through various agencies. We have incorporated the dilution of `79 bn (at current market price – 6% dilution) in our estimates currently as the capital infusion is expected to be completed in the next couple of weeks. This would help boost tier-1 ratio to 9% levels (including profits for FY2012).

Cost-income ratio was stable qoq, made normalized provisions Operating costs and cost-income ratio, March fiscal year-ends, 3QFY09-3QFY12

0

15

30

45

60

75

3QFY

09

4QFY

09

1QFY

10

2QFY

10

3QFY

10

4QFY

10

1QFY

11

2QFY

11

3QFY

11

4QFY

11

1QFY

12

2QFY

12

3QFY

12

30

38

46

54

62

70Operating costs (LHS)Cost-income (RHS)

(Rs bn) (%)


Higher slippages result in increase in gross NPLs Gross NPL for SBI and associates, March fiscal year-ends, 3QFY09-3QFY12 (` mn)

-

72

144

216

288

360

432

3QFY

09

4QFY

09

1QFY

10

2QFY

10

3QFY

10

4QFY

10

1QFY

11

2QFY

11

3QFY

11

4QFY

11

1QFY

12

2QFY

12

3QFY

12

SBI SBI Associates




Consolidated net profit improves on the back of strong performance by the parent Net profit of subsidiaries, March fiscal year-ends, 3QFY10-3QFY12 (` mn)

3QFY10 4QFY10 1QFY11 2QFY11 3QFY11 4QFY11 1QFY12 2QFY12 3QFY12Growth YoY

(%)

Subsidiary banks

Standalone 24,791 18,668 29,142 25,014 28,281 209 15,836 28,104 32,630 15.4

State Bank of Bikaner and Jaipur 513 1,665 1,031 1,275 1,325 1,878 1,280 1,122 1,639 23.7

State Bank of Hyderabad 2,210 3,168 2,012 2,645 2,502 4,503 2,839 2,321 3,013 20.4

State Bank of Mysore 1,413 1,236 1,111 934 1,320 1,638 643 778 1,110 (16.0)

State Bank of Tranvancore 1,650 2,172 1,498 1,636 1,758 2,383 1,392 1,169 1,012 (42.4)

State Bank of Patiala 1,696 1,750 993 1,561 1,731 2,244 1,203 1,554 2,442 41.0

State Bank of Indore 378 1,139 181 (9,500) - - - - -

Total 32,651 29,799 35,969 23,565 36,917 12,855 23,193 35,048 41,845 13.4

SBI Life 833 767 1,140 1,028 842 650 1,440 560 650 (22.8)

Others 66 6,599 (2,438) (221) 306 1,187 (219) (200) 1,784

Consolidated net profit 33,549 37,164 34,671 24,371 38,065 14,692 24,414 35,408 44,279 45.3


Key changes to our estimates for FY2012-14E Old and new estimates, March fiscal year-ends, 2012-14E (` mn)

New estimates Old estimates % change2012E 2013E 2014E 2012E 2013E 2014E 2012E 2013E 2014E

Net interest income 436,250 478,543 553,250 409,637 450,268 520,092 6.5 6.3 6.4 Loan growth 15.6 14.2 14.2 13.5 14.2 15.3 NIM (%) 3.5 3.3 3.2 3.3 3.0 2.9

Loan loss provisions 126,419 126,462 144,470 117,110 110,366 126,683 7.9 14.6 14.0 Other income 133,787 166,884 189,093 151,270 169,033 191,099 (11.6) (1.3) (1.0)

Fee income 108,695 117,390 131,477 108,695 117,390 131,477 - - - Treasury income (5,000) 15,000 18,000 9,500 15,000 18,000 (152.6) - -

Operating expenses 253,516 298,251 348,672 255,246 300,288 351,012 (0.7) (0.7) (0.7) Employee expenses 156,588 184,035 210,553 158,065 185,771 212,540 (0.9) (0.9) (0.9)

Investment depreciation 7,000 2,000 2,000 22,000 5,000 2,000 (68.2) (60.0) - PBT 182,601 217,214 245,401 166,051 202,146 229,696 10.0 7.5 6.8 Tax 62,084 69,509 73,620 56,457 64,687 68,909 10.0 7.5 6.8 Net profit 120,517 147,706 171,781 109,594 137,459 160,787 10.0 7.5 6.8 PBT - treasury+loan loss provisions 321,020 330,676 373,871 295,661 302,513 340,379 8.6 9.3 9.8




SBI forecasts and valuation March fiscal year-ends, 2009-14E

Net int. income

PAT EPS P/E BVPS P/B BVPS incl banking

subs.

P/B Cons banking

book

RoE

(Rs bn) (Rs bn) (Rs) (X) (Rs) (X) (Rs) (X) (%)2009 209 91 144 14.8 913 2.3 1,088 1.8 17.12010 237 92 144 14.7 1,039 2.0 1,295 1.5 14.82011 325 83 130 16.4 1,023 2.1 1,301 1.5 12.62012E 436 121 179 11.9 1,221 1.7 1,488 1.3 16.42013E 479 148 220 9.7 1,396 1.5 1,723 1.1 16.82014E 553 172 255 8.3 1,605 1.3 1,947 1.0 17.0


State Bank of India: Rolling PER and PBR (X) February 1997-February 2012

0.0

5.0

10.0

15.0

20.0

25.0

Feb-

97

Feb-

98

Feb-

99

Feb-

00

Feb-

01

Feb-

02

Feb-

03

Feb-

04

Feb-

05

Feb-

06

Feb-

07

Feb-

08

Feb-

09

Feb-

10

Feb-

11

Feb-

12

0.0

0.7

1.4

2.2

2.9

3.6Rolling PER (X) (LHS) Rolling PBR (X) (RHS)




SBI quarterly results March fiscal year-ends, 3QFY11 - 3QFY12 (` mn)

3QFY11 4QFY11 1QFY12 2QFY12 3QFY12 % chg 3QFY12 Actual Vs KS

Income earned 214,128 217,214 241,974 259,671 276,614 29 272,212 2 Income on advances 157,166 162,566 182,564 197,889 208,914 33 204,965 2 Income on investments 51,569 52,179 54,138 58,534 64,131 24 63,673 1 Interest on balance with RBI 5,394 2,469 5,273 3,249 3,570 (34) 3,573 (0)Interest expense 123,630 136,633 144,979 155,452 161,956 31 167,059 (3)NII adjt for invest. amortization 90,498 80,581 96,995 104,219 114,659 27 105,153 9 Other income 33,139 48,155 35,342 34,272 21,260 (36) 36,521 (42)

Fees, commission 24,774 37,312 26,329 26,003 26,415 7 Invt. income 2,202 3,347 1,689 281 (10,904) (595) 3,500 (412)Forex income 4,083 2,446 3,312 4,806 2,855 (30)Dividend - 1,628 2,278 840 529 Other income excl. treasury 30,937 44,808 33,654 33,992 32,163 4 33,021 (3)

Total income 123,637 128,735 132,338 138,492 135,918 10 141,674 (4)Operating expenses 55,992 67,938 59,913 63,749 63,318 13 64,698 (2)

Staff expenses 28,261 33,183 29,641 30,548 31,066 10 31,465 (1)Other retirement contributions 6,856 9,005 7,532 8,595 8,048 17 8,600 (6)Other operating expenses 20,876 25,750 22,740 24,605 24,205 16 24,633 (2)

Pre-provision operating profit 67,645 60,797 72,424 74,743 72,600 7 76,976 (6)Provisions and extraordinaries 20,515 41,570 41,569 33,855 24,074 17 32,030 (25)

Loan loss provisions 16,323 32,639 27,817 29,212 30,061 84 26,291 14 Standard assets 2,250 6,310 2,883 1,209 1,948 (13)Investment depreciation 2,088 3,040 10,479 4,583 (8,699) (517)Other provisions (146) (419) 390 (1,149) 764 (624) 500 53

PBT 47,130 19,227 30,855 40,888 48,526 3 44,946 8 Less tax 18,849 19,019 15,020 12,784 15,895 (16) 15,282 4 Profit after tax 28,281 209 15,836 28,104 32,630 15 29,664 10 Fees to PBT (%) 52.6 194.1 85.3 63.6 54.4 Treasury income/PBT (%) 0.2 1.6 (28.5) (10.5) (4.5)Cost income ratio (%) 45.3 52.8 45.3 46.0 46.6 Tax rate (%) 40.0 98.9 48.7 31.3 32.8 Key balance sheet data (Rs bn)Advances gross 7,400 7,718 7,882 8,106 8,694 17 Advances net 7,266 7,718 7,709 7,906 8,463 16 Deposits 8,790 9,339 9,501 9,732 10,010 14

Low cost deposits (%) 48.2 48.7 47.9 48.0 47.5 Investments 3,148 2,956 3,000 3,128 2,987 (5)Yield management ratios (%)Cost of deposits 5.2 5.3 5.7 5.8 5.9 Yield on advances 9.6 9.6 10.4 10.8 10.9 Yield on resources 7.0 7.0 7.2 7.3 7.5 Net interest margin (YTD) 3.4 3.3 3.6 3.7 3.8 Net interest margin (Reported, Qtly) 3.6 3.1 3.6 3.8 4.1 Asset quality detailsGross NPLs (Rs bn) 234 253 278 339 401 71 Gross NPLs (%) 3.2 3.3 3.5 4.2 4.6 Net NPLs (Rs bn) 117 123 124 161 188 61 Net NPLs (%) 1.6 1.6 1.6 2.0 2.2 Slippages 39.2 56.5 61.2 82.7 81.6

Provision Coverage (%) 50.1 51.2 55.2 52.5 53.1 Provision coverage (inc tech w/o, %) 64.1 65.0 67.3 63.5 62.5 Restructured loans (gross) 328 343 349 354 376% of loans 4.5 4.5 4.5 4.5 4.4 Slippage-restructured (%) 15.7 15.0 17.2 21.9 25.7 Capital adequacy details (%)CAR 13.2 12.0 11.6 11.4 11.60 Tier I 9.6 7.8 7.6 7.5 7.59




SBI—SOTP valuation based on FY2013E

SBI holding NW FY2013E

Multiple assumed

Value FY2013

Value per share

FY2013

Methodology adopted

(%) (Rs mn) (X) (Rs mn) (Rs)SBI standalone 1,829 Residual income modelNon banking subsidiaries and investmentsSBI Life 85,195 127 Based on appraisal valueSBI MF 63% 12,807 20 4% of AUM of Rs50 tn (10% CAGR -

AUM) NSE 8% 14,976 24 NSE value at Rs130 bn (last transaction)

UTI MF 17% 4,937 8 4% of Rs730 bn AUM (10% CAGR - AUM)

SBI Caps 86% 18,731 30 10X 2013 PATSBI DFHI 72% 8,659 14 1X FY2013 networthValue of all non-bank subsidiaries 222

SBI Associate banksState Bank of Bikaner and Jaipur 75% 34,704 1.2 41,645 BV multiple based on RoEState Bank of Hyderabad 100% 70,039 1.2 84,047 BV multiple based on RoEState Bank of Mysore 92% 40,689 1.2 48,827 BV multiple based on RoEState Bank of Patiala 100% 49,339 1.2 59,207 BV multiple based on RoEState Bank of Travancore 75% 35,553 1.2 42,663 BV multiple based on RoEBanking subsidiaries and associates 230,324 276,388

post discount of 10% 207,291 248,750 392 Value of all subsidiaries 614

Total value of the bank 2,443




SBI—growth rates and key ratios March fiscal year-ends, 2009-14E (%)

2009 2010 2011 2012E 2013E 2014EGrowth rates (%)Net loan 30.2 16.5 19.8 15.6 14.2 14.2 Total Asset 33.7 9.2 16.2 14.5 18.9 18.1 Deposits 38.1 8.4 16.1 13.5 19.3 17.3

Current 12.9 10.7 7.0 13.5 20.2 18.1 Savings 28.5 29.9 28.3 8.7 17.6 15.5 Fixed 51.9 (2.1) 11.4 16.8 20.3 18.2

Net interest income 22.6 13.4 37.4 34.1 9.7 15.6 Loan loss provisions 5.5 92.9 86.9 29.4 0.0 14.2 Total other income 46.1 17.9 5.7 (15.5) 24.7 13.3

Net fee income 28.8 26.6 19.9 (6.0) 8.0 12.0 Net capital gains 171.2 (17.5) (56.5) (154—) (400—) 20—Net exchange gains 70.2 34.6 (7.8) 10.0 10.0 10.0

Operating expenses 24.1 29.8 13.3 10.2 17.6 16.9 Employee expenses 25.2 30.9 13.5 8.1 17.5 14.4

Key ratios (%)Yield on average earning assets 8.1 7.4 7.5 8.6 8.1 7.9

Yield on average loans 9.7 8.6 8.6 9.9 9.4 9.2 Yield on average investments 7.0 6.5 7.0 8.1 7.4 7.1

Average cost of funds 5.8 5.3 4.9 5.6 5.5 5.5 Interest on deposits 5.9 5.6 5.0 5.8 5.7 5.7

Difference 2.3 2.1 2.7 3.0 2.6 2.4 Net interest income/earning assets 2.6 2.5 3.0 3.5 3.3 3.2 New provisions/average net loans 0.6 0.9 1.4 1.6 1.4 1.4 Interest income/total income 62.2 61.3 67.3 76.5 74.1 74.5 Fee income to total income 22.7 25.0 23.9 19.1 18.2 17.7 Operating expenses/total income 46.6 52.6 47.6 44.5 46.2 47.0 Tax rate 35.7 34.2 44.7 34.0 32.0 30.0 Dividend payout ratio 20.2 23.4 26.0 20.0 17.2 15.6 Share of deposits

Current 14.9 15.2 14.0 14.0 14.1 14.2 Fixed 58.4 52.7 50.6 52.1 52.5 52.9 Savings 26.7 32.0 35.4 33.9 33.4 32.9

Loans-to-deposit ratio 73.1 78.6 81.0 82.5 79.0 76.9 Equity/assets (EoY) 6.0 6.3 5.3 5.9 5.6 5.5 Asset quality trends (%)Gross NPL (%) 2.9 3.0 3.3 4.6 4.5 4.0 Net NPL (%) 1.8 1.4 1.6 2.3 2.2 2.0 Slippages (%) 2.7 2.2 2.9 3.9 3.0 3.0 Provision coverage (%, ex write-off) 39.2 55.6 51.2 51.9 52.0 51.2 Dupont analysis (%)Net interest income 2.5 2.3 2.9 3.3 3.1 3.0 Loan loss provisions 0.3 0.5 0.9 1.0 0.8 0.8 Net other income 1.5 1.5 1.4 1.0 1.1 1.0 Operating expenses 1.9 2.0 2.0 1.9 2.0 1.9 Invt. depreciation 0.1 (0.1) — — — —(1- tax rate) 64.3 65.8 55.3 66.0 68.0 70.0 ROA 1.1 0.9 0.7 0.9 1.0 0.9 Average assets/average equity 15.8 16.3 17.4 17.8 17.4 18.0 ROE 17.1 14.8 12.6 16.4 16.8 17.0




SBI—P&L and balance sheet March fiscal year-ends, 2009-14E (Rs mn)

2009 2010 2011 2012E 2013E 2014EIncome statementTotal interest income 637,884 709,939 813,944 1,071,434 1,193,518 1,390,468

Loans 464,047 506,326 599,760 806,686 878,489 989,259 Investments 155,741 177,363 196,514 245,440 286,206 368,444

Total interest expense 429,153 473,225 488,680 635,184 714,975 837,219 Net interest income 208,731 236,714 325,264 436,250 478,543 553,250 Loan loss provisions 27,098 52,279 97,687 126,419 126,462 144,470 Net interest income (after prov.) 181,634 184,435 227,577 309,831 352,081 408,780 Other income 126,908 149,682 158,246 133,787 166,884 189,093

Net fee income 76,172 96,409 115,633 108,695 117,390 131,477 Net capital gains 25,667 21,168 9,210 (5,000) 15,000 18,000 Net exchange gains 11,792 15,871 14,640 16,105 17,715 19,486

Operating expenses 156,487 203,187 230,154 253,516 298,251 348,672 Employee expenses 97,473 127,546 144,802 156,588 184,035 210,553

Depreciation on investments 7,072 (9,880) 6,468— 7,000— 2,000— 2,000—Other Provisions 3,176 1,549 (341) 500 1,500 1,800 Pretax income 141,806 139,261 149,542 182,601 217,214 245,401 Tax provisions 50,594 47,600 66,897 62,084 69,509 73,620 Net Profit 91,212 91,661 82,645 120,517 147,706 171,781 % growth 35.5 0.5 (9.8) 45.8 22.6 16.3 PBT - Treasury + Provisions 153,485 162,041 244,145 321,520 332,176 375,671 % growth 26.21 5.57 50.67 31.69 3.31 13.09

Balance sheetCash and bank balance 1,044,038 861,887 1,228,741 1,345,751 1,536,482 1,740,091

Cash 42,955 68,410 74,766 74,766 74,766 74,766 Balance with RBI 512,507 544,499 869,189 986,199 1,176,930 1,380,539 Balance with banks 116,152 21,559 39,806 39,806 39,806 39,806

Net value of investments 2,759,540 2,957,852 2,956,006 3,419,050 4,643,099 6,036,430 Govt. and other securities 2,262,175 2,267,060 2,307,414 2,774,696 3,998,745 5,392,076 Shares 45,904 71,994 88,646 88,646 88,646 88,646 Debentures and bonds 148,890 161,274 151,341 151,341 151,341 151,341

Net loans and advances 5,425,032 6,319,142 7,567,194 8,744,886 9,990,157 11,412,756 Fixed assets 38,378 44,129 47,642 61,222 51,984 42,561 Other assets 377,333 351,128 437,778 437,778 437,778 437,778 Total assets 9,644,321 10,534,137 12,237,362 14,008,688 16,659,501 19,669,617

Deposits 7,420,731 8,041,162 9,339,328 10,596,585 12,645,965 14,833,717 Current 1,107,536 1,225,794 1,311,953 1,488,568 1,789,103 2,113,451 Fixed 4,330,953 4,240,765 4,724,114 5,519,022 6,636,985 7,844,518 Savings 1,982,243 2,574,603 3,303,261 3,588,996 4,219,878 4,875,748

Borrowings and bills payable 1,029,880 1,241,122 1,412,725 1,412,725 1,412,725 1,412,725 Other liabilities 614,233 592,361 835,449 1,178,292 1,661,828 2,343,793 Total liabilities 9,064,844 9,874,645 11,587,502 13,187,602 15,720,518 18,590,234 Total shareholders' equity 579,477 659,492 649,860 821,086 938,983 1,079,382



3QFY12 sales at Rs21 bn, 4% higher than our estimate, up 36% yoy ex-Taro

Sales were up 37% yoy on a reported basis, 4% higher than our estimate driven primarily by higher US sales at SUN and Taro at US$208 mn versus our estimate of US$173 mn. (1) Higher sales at Taro was one of the primary reasons for outperformance—up 45% yoy versus our estimate of sales growth of 25% with strong sales growth continuing for the second quarter in a row boosted by higher selling prices in US in certain products. (2) US sales ex-Taro also beat our estimate at US$92.5 mn versus our estimate of US$73 mn and up from US$66 mn in 2QFY12. (3) India grew 14% on a reported basis while at 17% excluding discontinued business, lower than our estimate of 20%. (3) ROW sales were up 27% yoy, 13% lower than our estimate due to lower non-Taro ROW sales which were down marginally qoq according to our estimates.

PAT at Rs6.68 bn, 13% higher than our estimate

While sales were marginally higher than our estimate, the beat at PAT was due to higher EBITDA margin at 45%, up 350 bps qoq and higher than our estimate of 37% due to higher EBITDA margin at Taro and even at SUN base business, ex-Taro. EBITDA margin at Taro continued to remain strong for the second quarter in a row at 53%, up 5% qoq and higher than our estimate of 36%. Even Sun (ex-Taro) reported sequentially better EBITDA margin at 40%, up from 38% in 2QFY12 and higher than our estimate of 37% aided by benefits from Rupee depreciation. This led to gross margin expanding 160 bps qoq to 82% in 3QFY12 from 81% on account of inventory closing stock valuation at higher closing Rupee rate as of end Dec 2011. Tax rate at 7% was lower qoq due to lower tax rate at Taro while SUN ex-Taro tax rate was between 8% and 9%, in line with our estimate.

We increase our FY2012E PAT by 7%, leave our FY2013E largely unchanged

We estimate sales growth at 34% in FY2012E and expect sales growth to remain strong in FY2013E based on clear visibility over products slated for launch in US. However, we expect Taro to revert to normalized margin of 36% versus 45% seen in 9MFY12 as the effect from opportunistic sales in FY2012E wanes off combined with a pick-up in R&D expenses.

Sun Pharmaceuticals (SUNP)

Pharmaceuticals

Higher margin leads to higher PAT; remains our top pick. PAT was 13% higher than our expectations boosted by higher margin at 45% and continuation of opportunistic sales at Taro. Though we do not estimate current levels of profitability to be maintained in FY2013E, the strong sequential pick-up of over 50% in US sales at SUN (ex-Taro) in 3QFY12 is inspiring and sustainable. We think FY2013E will be another strong year driven by few limited competition launches in US. We maintain ADD, TP at Rs625 (unchanged)—24X core EPS of Rs23.5 and Rs60/share of cash. Successful site switch of Caraco filings, resumption of Caraco plant and continuation of Taro opportunistic sales will result in material upsides to our FY2013E EPS of Rs28.

Sun PharmaceuticalsStock data Forecasts/Valuations 2012 2013E 2014E

52-week range (Rs) (high,low) EPS (Rs) 23.4 28.1 31.3Market Cap. (Rs bn) 572.8 EPS growth (%) 33.4 20.1 11.5


Price performance (%) 1M 3M 12M EV/EBITDA (X) 16.5 13.7 11.8Absolute 7.7 9.7 32.3 ROE (%) 23.1 22.9 21.3Rel. to BSE-30 (2.1) 6.1 31.9 Div. Yield (%) 0.7 0.9 1.1


603-404

ADD

FEBRUARY 13, 2012

RESULT

Coverage view: Neutral

Price (Rs): 553


BSE-30: 17,773

QUICK NUMBERS

• 3QFY12 sales at Rs21 bn, 4% higher than our estimate

• PAT at Rs6.68 bn, 13% higher than our estimate

Sun Pharmaceuticals Pharmaceuticals


Interim results- Sun, March fiscal year-ends (Rs mn)

3QFY12 3QFY12E 3QFY11 2QFY12 3QFY12E 3QFY11 2QFY12Net Sales 21,451 20,533 15,617 18,946 4 37 13Material cost 5,167 4,928 4,243 4,802 5 22 8Stock changes (1,386) — 81 (1,163) NM NM NMStaff costs 2,885 3,000 2,754 2,727 (4) 5 6Others 4,079 3,800 3,238 3,849 7 26 6R&D 1,069 1,232 896 891 (13) 19 20Operating costs 11,814 12,960 11,212 11,106 (9) 5 6EBITDA 9,638 7,573 4,405 7,840 27 119 23EBITDA ,% 44.9 36.9 28.2 41.4 8.0 16.7 3.5Depreciation 774 680 805 668 14 (4) 16Other income (272) 400 580 1,183 NM NM NMPBT 8,591 7,293 4,180 8,355 18 106 3Tax 634 802 545 1,281 (21) 16 (50)PAT before MI 7,957 6,491 3,636 7,074 23 119 12MI 1,274 560 134 1,097 127 848 16PAT 6,683 5,931 3,501 5,977 13 91 12

API 1,536 1,593 1,136 1,603 (4) 35 (4)Finished dosage India 6,956 7,163 6,102 7,046 (3) 14 (1) ROW (incl Taro non US) 2,810 3,212 2,213 2,567 (13) 27 9 Taro (US only) 5,776 5,072 4,584 4,944 14 26 17 US ex Taro 4,624 3,716 1,792 3,047 24 158 52Others 17 0 4 4 NM 346 324Total 21,720 20,756 15,831 19,211 5 37 13Total ex Taro 14,315 14,254 10,549 12,872 0 36 11

% change

Source: Kotak Institutional Equities estimates, Company

Interim results- Taro (US$ mn)

Dec-11 Dec 11 E Dec-10 Sep-11 Dec 11 E Dec-10 Sep-11Net Sales 148 128 102 138 16 45 7Material cost 42 51 41 45 (18) 2 (6)SG&A 22 25 28 24 (12) (22) (10)R&D 9 10 9 7 (11) (0) 28Impairment 1 0 3 0 NM (71) NMOperating costs 74 86 81 76 (14) (9) (4)EBITDA 74 42 21 62 79 252 20EBITDA , % 50.3 32.6 23.3 44.8 18 27 5Interest 0 1 2 2 (69) (81) (79)Other income (1) 0 1 0 NM NM NMForex loss/(gain) 6 0 4 (16) NM 70 NMPBT 67 41 16 77 66 311 (12)Tax 5 8 5 18 (44) (16) (75)PAT before minority 63 33 11 58 93 476 7Minority interests (0) 0 0 (0) NM NM NMLoss from discontinued op 0 0 (5) (0) 155 NM NMPAT before minority 62 32 16 59 94 289 6

% change


Pharmaceuticals Sun Pharmaceuticals


Change in estimates

FY2012E FY2013E FY2012E FY2013E FY2012E FY2013ENet sales 76,652 93,270 76,481 96,537 0 (3)EBITDA 30,532 35,487 28,238 34,749 8 2EBITDA, % 39.8 38.0 36.9 36.0 2.9 2.1Depreciation (2,869) (3,200) (2,680) (2,900) 7 10EBIT 27,663 32,287 25,558 31,849 8 1Other income 3,179 3,800 3,000 4,000 6 (5)PBT 30,841 36,087 28,558 35,849 8 1Current tax (3,039) (3,248) (3,023) (3,226) 1 1PAT 27,803 32,839 25,535 32,622 9 1Minority Interest 3,579 3,758 2,856 3,284 25 14PAT 24,223 29,081 22,679 29,338 7 (1)

Old estimatesCurrent estimates % change


Break-up of profit

FY2010 FY2011 9MFY12 FY2012E FY2013E FY2014ERevenuesBase 31,954 38,511 42,145 57,213 66,123 79,294Exclusive 6,132 11,012 — 3,510 —Taro (ex ROW) — 7,692 14,609 19,438 23,638 26,376Total net 38,086 57,214 56,754 76,652 93,270 105,670EBITDABase 7,733 10,226 16,308 22,061 24,345 29,979Exclusive 4,599 8,259 — 2,632 —Taro (ex ROW) — 2,332 6,644 8,470 8,510 9,495Total 12,332 20,818 22,952 30,531 35,487 39,474EBITDA, %Base 24.2 26.6 38.7 38.6 36.8 37.8Exclusive 75.0 75.0 75.0Taro (ex ROW) 30.3 45.5 43.6 36.0 36.0Total 32.4 36.4 40.4 39.8 38.0 37.4PAT Base 11,625 10,878 22,259 24,395 29,324Exclusive 4,104 7,075 — 2,137 —Interest income 1,084 1,257 1,964 2,548 3,094Total 16,813 19,210 24,223 29,081 32,418EPS RsBase 8.0 10.5 21.5 23.6 28.3Exclusive 4.0 6.8 — 2.1 —Interest income 1.0 1.2 1.9 2.5 3.0Total 13.0 18.5 23.4 28.1 31.3


Sun Pharmaceuticals Pharmaceuticals


US sales estimates (US$ mn)

289 7 4 12

60 372

0

50

100

150

200

250

300

350

400

US

base

Elo

xatin

(2H

FY13

)

Bon

iva

(2H

FY13

)

Sta

levo

Pla

vix

Tota

l

FY2013E


US sales estimates (US$ mn)

357

4606 11 15 457 15 1415 13

0

100

200

300

400

500

US

base

Elo

xatin

(Aug

201

2)

Sta

levo

(Apr

/Oct

201

2)

Com

tan

(Apr

il 20

13)

Cym

balta

(Jun

e 20

13)

Tem

odar

(Feb

201

4)

Rilu

tek

(Jun

e 20

13)

Zom

eta

(Sep

201

3)

Pla

vix

(May

201

2)

Lyr

ica

(Oct

201

3)

Lun

esta

(Feb

201

4)

Tota

l

FY2014E


Profit and loss statement, March fiscal year-ends, 2008-14E

2008 2009 2010 2011 2012E 2013E 2014ENet sales 33,565 42,723 38,086 57,214 76,652 93,270 105,670Materials (7,222) (8,556) (10,978) (14,607) (15,485) (21,325) (23,247)Selling and administration (3,759) (5,543) (5,497) (11,864) (15,069) (18,083) (21,700)Employee cost (2,331) (3,401) (4,822) (7,996) (11,274) (12,965) (14,910)R& D (2,725) (3,099) (2,472) (3,076) (4,292) (5,410) (6,340)Others (2,017) (3,484) (2,676) — — — —Total expenditure (18,054) (24,084) (26,446) (37,543) (46,120) (57,783) (66,196)EBITDA 15,511 18,640 11,640 19,672 30,532 35,487 39,474Depreciation and amortisation (969) (1,233) (1,533) (2,041) (2,869) (3,200) (3,500)EBIT 14,543 17,407 10,107 17,631 27,663 32,287 35,974Net finance cost (88) — — — — — —Other income 1,539 2,085 4,042 2,727 3,179 3,800 4,400Pretax profits before extra-ordinaries 15,994 19,492 14,148 20,358 30,841 36,087 40,374Current tax (1,288) (1,192) (679) (1,284) (3,039) (3,248) (3,634)Deferred tax 804 481 — — — — —Reported net profit 15,509 18,780 13,470 19,074 27,803 32,839 36,740Minority Interests 640 603 (41) 913 3,579 3,758 4,322Reported net profit after minority interests 14,869 18,177 13,511 18,161 24,223 29,081 32,418


Pharmaceuticals Sun Pharmaceuticals


Balance sheet, cash model, March fiscal year-ends, 2008-14E

2008 2009 2010 2011 2012E 2013E 2014EBalance sheetTotal equity 49,915 70,449 78,289 94,834 114,915 138,818 165,023Total debt 1,436 1,789 1,712 4,256 4,256 4,256 4,256Current liabilities 6,373 7,198 7,579 14,234 15,840 17,048 18,255Minority Interests 1,886 1,970 1,932 8,472 12,051 15,809 20,131Deferred tax liabilities 92 (679) (890) (3,652) (3,652) (3,652) (3,652)Total equity and liabilities 59,701 80,728 88,621 118,142 143,409 172,278 204,013Cash and cash equivalents 12,389 16,690 6,073 21,936 32,639 53,068 78,564Current assets 26,983 25,993 31,048 38,236 47,183 54,823 60,562Net fixed assets 10,354 14,625 15,328 25,234 28,865 29,665 30,165Intangible assets 1,729 3,253 4,060 7,720 9,275 9,275 9,275Capital -WIP 686 1,571 1,448 2,706 2,706 2,706 2,706Investments 7,560 18,595 30,664 22,310 22,741 22,741 22,741Total assets 59,701 80,728 88,621 118,142 143,409 172,278 204,013

Free cash flow Operating cash flow, excl. working capital 15,198 18,841 13,919 19,857 28,708 33,491 37,146Working capital (7,183) 1,113 (4,702) 5,115 (4,379) (3,881) (1,417)Capital expenditure (1,787) (6,401) (1,742) (17,938) (6,500) (4,000) (4,000)Investments (5,017) (11,035) (12,069) 8,354 (431) — —Free cash flow 1,210 2,519 (4,594) 15,389 17,397 25,610 31,730


SUN/Taro – ANDA approvals sheet

Drug Brand Innovator Size (US$ mn) CompetitionSUNTaro Imiquimod Aldara Graceway 340 5 generics

Sumatriptan injection Immitrex injection Glaxo 190 Only generic in stat dose system which is 90% of US$190 mn

Docetaxel Docefrez Sanofi 1,200 2nd generic behind Hospira+AG, intas +Sandoz have got approvals as of June 2011

Donepezil Aricept Eisai 2,000 Crowded , post 180 day of RanbaxyLetrozole Femara Novartis 682 Crowded , post 180 day of Mylan

Taro Risperidone solution CrowdedTaro Ondansetron CrowdedTaro Ranitidine syrup CrowdedTaro Meprobamate 4 generics

Anastrazole Arimidex Astrazeneca 495 Crowded

Alfuzosin Uroxatral ER Sanofi Aventis 250180 day exclusivity, crowded post exclusivity, shared FTF, Mylan, teva, Apotex, Torrent got approvals

Chlorothiazide SodiumTaro Cetrizine oral solution

Gemcitabine Gemzar Eli Lilly 780 CrowdedRanitidine syrup Crowded

Epinastine Elestat Allergan4 comps apart from SUN - Sandoz, Inc., PharmaForce, Inc. and Apotex, Cypress

Diltiazem CD Cardizem Valeant 300

7 incl innovator- Mylan, Watson, KV, Apotex, Actavis. SUN has exclusivity till Aug 2012 before Actavis enters in 360 mg version. SUN has settled with Valeant to launch upon FDA approval and has to pay royalty on sales till Aug 2012 on all strenghts

Tiagabine Gabitril Cephalon 40 First patent expired Sep 2011, SUN has not launched

Tramadol ER Ultram ER Valeant 132Par launched in Nov 2009, Par does not have 300 mg, Lupin first entrant in 300 mg, 3 other filers

VerapamilFexofenadine Allegra Sanofi OTC, crowded



Operational performance meets estimates, higher other income drives net income beat

RPWR reported revenues of Rs4.6 bn (-6% qoq, 82% yoy), operating profit of Rs1.4 bn (17% qoq, 127% yoy) and net income of Rs2 bn (-13% qoq, 42% yoy) against our estimates of Rs4.9 bn, Rs1.3bn and Rs1.7 bn respectively. Operating results were broadly in line with lower-than-estimated fuel cost of Rs2.6/kwh (against estimated Rs2.85/kwh) reflected in lower realizations of Rs4.75/kwh (against estimated Rs4.9/kwh). Net income beat was primarily on account of higher other income of Rs2.2 bn against our estimate of Rs1.7 bn. We discuss the key operational and financial highlight of 3QFY12 results in a subsequent section.

Diversion of captive coal for Chitrangi under scanner

Diversion of surplus coal from Sasan coal blocks for Chitrangi project has come under the scanner with a recent report by Comptroller and Auditor General of India (CAG) questioning such diversion. The Empowered Group of Ministers (EGoM) has now referred the case to the Attorney General of India. We currently assume that 60% of Chitrangi’s fuel requirements will be met from captive coal and any unfavorable judgment could significantly erode the profitability and valuations of Chitrangi (currently contributing 50% of our SOTP-based valuation). Further, falling output of KG D6 gas production adds to the fuel woes for the 2,262 MW Samalkot project which is nearing completion. This continues to make us skeptical of the prospects of that project.

Retain SELL with target price of Rs76/share

We reiterate our SELL with a revised target price of Rs76/share. We maintain our cautious stance on RPWR given the limited visibility on near-term earnings growth and high degree of execution and fuel risks embedded in the portfolio. We have revised our EPS estimates for FY2012E to Rs2.6/share (previously Rs2.7/share) to account for lower-than-estimated PLF at Rosa I in 9MFY12.

Reliance Power (RPWR)

Utilities

Extant operations stable, fuel woes continue for future capacities. Reliance Power (RPWR) reported stable operational performance though PLF at Rosa I declined to 75% during 3QFY12 due to maintenance shutdown. We maintain our cautious stance noting uncertainty over (1) diversion of captive coal for Chitrangi project and (2) availability of gas for near-complete Samalkot coupled with overall fuel and execution risks in the portfolio. We maintain our SELL rating and target price of Rs76/share.

Reliance PowerStock data Forecasts/Valuations 2012 2013E 2014E

52-week range (Rs) (high,low) EPS (Rs) 2.6 2.9 2.4Market Cap. (Rs bn) 299.6 EPS growth (%) (5.3) 13.5 (17.2)


Price performance (%) 1M 3M 12M EV/EBITDA (X) 58.0 25.2 18.6Absolute 19.5 5.3 (7.0) ROE (%) 4.2 4.5 3.6Rel. to BSE-30 8.6 1.8 (7.3) Div. Yield (%) 0.0 0.0 0.0


137-69

SELL

FEBRUARY 13, 2012

RESULT


Price (Rs): 107


BSE-30: 17,773

Utilities Reliance Power


Exhibit 1: Operational performance meets estimates, higher other income drives net income beat Interim results for RPWR, March fiscal year-ends (Rs mn)

(% Chg.)

3QFY12 3QFY12E 3QFY11 2QFY12 3QFY12E 3QFY11 2QFY12 FY2011 FY2012E (% Chg.)Net sales 4,573 4,857 2,513 4,875 (6) 82 (6) 10,548 19,822 88 Operating costsCost of fuel (2,564) (2,995) (1,242) (2,894) (5,596) (11,341) 103 Cost of goods sold (19) (16) — (16) (788) - Personnel costs (148) (200) (196) (224) (1,200) (730) (39) Other expenses (440) (326) (458) (541) (417) (1,784) 328 EBITDA 1,401 1,321 617 1,200 6 127 17 2,547 5,968 134 EBITDA margin (%) 31 27 25 25 24 30 Other income 2,168 1,696 1,038 2,631 8,377 7,238 Interest & finance charges (720) (753) (685) (753) (2,195) (3,007) Depreciation (323) (293) (77) (293) (1,009) (1,212) PBT 2,526 1,971 892 2,786 28 183 (9) 7,720 8,986 16 Provision for tax (net) (488) (315) 544 (431) (116) (1,788) Minority Interest — — (0) — — —Net profit 2,039 1,656 1,436 2,355 23 42 (13) 7,604 7,198 (5) Extraordinary — — — — — —EBITDA margin (%) 31 27 25 25 24 30 Tax rate (%) 19 16 (61) 15 1 20 Key operating parametersUnits generated (MU) 987 1,051 719 1,030 2,878 4,310 PLF (%) 75 82 55 77 56 83 Average realization (Rs/kwh) 4.8 4.9 3.7 4.9 3.7 4.8 Cost of fuel (Rs/unit) 2.6 2.9 1.7 2.8 1.9 2.6 O&M (Rs/unit) 0.6 0.5 0.9 0.7 0.6 0.6


Exhibit 2: SOTP-based value of RPWR

Capacity Cost Equity Implied P/B Value CoEProject Type (MW) (Rs bn) (Rs mn / MW) (%) Invested Requirement (X) (Rs bn) (%)Rosa I Thermal 600 30 50 20 6 — 2.2 13 12 Rosa II Thermal 600 30 51 20 4 2 2.2 12 12 Butibori Thermal 600 36 61 20 2 6 1.8 8 12 Sasan Thermal 3,960 185 47 25 9 37 0.9 6 12 Chitrangi Thermal 3,960 175 44 30 4 48 2.9 102 15 Total 11,982 556 46 21 25 93 2.0 141 Cash 69 Post money value 209 No. of Shares 2.8 Value per share 75


Operational and financial highlights of 3QFY12

We discuss below some key operational and financial highlights

Generation – RPWR’s gross generation registered a decline of 4% sequentially at 987 MU implying a PLF of 75% in 3QFY12.

Fuel cost – average fuel cost declined to Rs2.6/kwh (50% yoy, -8% qoq) indicating the benefit of moderation in imported coal prices. Correspondingly, estimated average realizations declined to Rs4.75/kwh.

O&M cost – average O&M cost declined to Rs0.6/kwh (-35% yoy, -20% qoq).

Tax – effective tax rate was 19% during the quarter.

Reliance Power Utilities


Status of power projects and associated captive coal blocks

Rosa II (600 MW) – RPWR has commissioned the first unit of 300 MW. We note that the PPA for the unit commences from March 2012. The project has linkage from CCL (E grade coal). Management has guided for full commissioning by March 2012. The plant will sell entire 600 MW to UPPCL at regulated rates.

Butibori (600 MW) - the project has achieved all necessary milestone and construction is in progress. Management has indicated that pre-commissioning activities has commenced from the first unit. The project has linkage from WCL (D grade coal). Management has guided for commissioning by July 2012.

Sasan UMPP (3,960 MW) – all necessary clearances and approvals in place and construction have commenced. Management has indicated that production from Sasan coal block is likely to commence by 2QFY13E. Peak production is likely to be 25 mtpa. A part of the coal will be used for Chitrangi project. Management has guided for commissioning of first unit by December 2012 and commissioning of entire project by June 2014.

Krishnapatnam UMPP (3,960 MW) – all necessary clearances and approvals in place. RPWR has acquired 3 coal mines in Indonesia for the project. Management has indicated that production from Indonesian mines will commence by mid-2013. Management has indicated that they are currently in process of evaluating the development with regards to Indonesian regulation and are not committing any capex until further clarity emerges on the same.

Tilaiya UMPP (3,960 MW) – the project is yet to achieve financial closure. Management has indicated that production from Tilaiya coal block will likely commence by 2013. Peak production from the project will be 40 mtpa, part of which will be used to fuel expansion at Tilaiya. Mining plan for the coal block has been approved.

Chitrangi (3,960 MW) – project is yet to achieve financial closure and acquire the entire land for the plant. Project will use excess coal from captive coal blocks allocated for Sasan UMPP. Management has guided for commissioning of first unit by June 2014 and full commissioning by September 2015. The project remains slow on execution with construction activity at plant site yet to commence. We note that RPWR had incurred only 5% of the total project cost as of March 2011.

Exhibit 3: Progress on UMPPs have been sedate with both Sasan and Krishnapatnam missing original commissioning guidance Execution status of near-term projects of RPWR

Capacity CostProject (MW) (Rs bn) (Rs bn) (%) COD guidance

Rosa II 600 30 21 70.0 Mar-12

Butibori 600 36 7 19.0 Jul-12

Sasan 3,960 185 WIP 36 19.3 Jan 2013 - June 2014

Krishnapatnam 4,000 213 WIP 24 11.2 June 2013 - Feb 2015

Samalkot 2,262 100 8 8.4 March 2012- Dec 2012

Chitrangi 3,960 175 WIP WIP 13 7.5 June 2014 - Sep 2015

Tilaya 4,000 273 WIP 12 4.4 May 2015 - May 2017

Total 19,382 1,013 121 12.0

Capex as of March 2011EPC awardLand Fuel

Enviroment clearance

Financial Closure


Utilities Reliance Power


Exhibit 4: Profit model, balance sheet, cash model of RPWR, March fiscal year ends, 2009-14E (Rs mn) 2009 2010 2011 2012E 2013E 2014E

Profit modelNet revenues — 207 10,548 19,822 43,439 62,024EBITDA (1,031) (1,073) 2,291 5,968 16,989 27,367Other income 3,604 8,227 8,633 7,238 6,336 5,067Interest (expense)/income — (70) (2,195) (3,007) (6,726) (13,531)Depreciation (2) (57) (1,009) (1,212) (3,162) (5,815)Pretax profits 2,570 7,026 7,720 8,986 13,437 13,088Tax (125) (187) (347) (1,318) (2,797) (2,734) Deferred taxation — (327) 231 (470) (2,473) (3,590)Minority interest — — — — — —Net income 2,445 6,512 7,604 7,198 8,167 6,764 Extraordinary items — — — — — —Reported profit 2,445 6,512 7,604 7,198 8,167 6,764 Earnings per share (Rs) 1.1 2.7 2.9 2.6 2.9 2.4

Balance sheetPaid-up common stock 23,968 23,968 28,051 28,051 28,051 28,051 Total shareholders' equity 137,791 144,630 168,334 175,533 183,699 190,463 Deferred taxation liability — — — 470 2,943 6,533 Minority interest — — — — — —Total borrowings 13,325 22,406 73,348 115,525 180,284 247,419 Total liabilities and equity 151,116 167,037 241,683 291,528 366,926 444,415Net fixed assets 2,879 23,408 36,368 34,191 97,699 184,384 Capital work-in progress 46,780 68,029 126,227 186,379 210,347 213,158 Investments 103,172 79,152 56,790 — — —Cash 216 1,338 19,161 68,772 51,929 37,333Net current assets (excl. cash) (1,931) (4,890) 3,136 2,187 6,951 9,540Total assets 151,116 167,037 241,683 291,528 366,926 444,415Free cash flowOperating cash flow, excl. working capital 2,447 6,896 8,382 8,881 13,801 16,169Working capital changes (4,065) 2,959 (8,026) 949 (4,765) (2,588)Capital expenditure (38,602) (44,820) (73,281) (59,187) (90,637) (95,312)Free cash flow (40,220) (34,965) (72,925) (49,357) (81,601) (81,731)Ratios Net debt/equity (%) 10 15 32 27 70 110 Return on equity (%) 1.8 4.6 4.9 4.2 4.5 3.6 Book value per share (Rs) 57.5 60.3 60.0 62.7 66.5 70.2 ROCE (%) 1.8 4.2 3.9 3.2 3.3 2.3



Revenues at Rs17.3 bn, 6% lower than our estimate, up 14% yoy

Sales were up 14% yoy, 6% lower than our estimate with (1) India up 18% yoy boosted by higher growth in generics segment (15-20% of domestic sales) at 36% versus 15% in 2QFY12, implying growth in branded segment remained below-market at 13.5% versus 11.5% in 2QFY12, (2) API sales at US$32 mn, flat yoy in Dollar terms, in line with our estimates, (3) export formulations at US$138 mn, shockingly down yoy and qoq, much below our estimates as ARV exports were pushed out due to lack of NGO funding and company’s efforts towards rationalization in products and markets. Cipla reported sales of Rs1.3 bn from Indore SEZ in 3QFY12 versus Rs1.5 bn in 2QFY12 implying export formulations excluding Indore SEZ continues to drop in Rupee terms at 10% yoy in 3QFY12, as seen in 1HFY12.

EBITDA margin at 20%, down 240 bps qoq and lower than our estimate

Reported EBITDA excluding other operating income was 18% lower than our estimate due to lower sales and lower margin which plummeted qoq despite (1) benefits of higher Rupee rate this quarter and (2) higher proportion of sales from India in 3QFY12 at 50% versus 48% last quarter. While gross margin expansion witnessed last quarter remained largely intact at 58%, down by 100 bps qoq, increase in staff costs and other expenses combined with lower sales qoq resulted in lower margin at 20% versus 22.6% in 2QFY12.

We reduce our FY2012-13E PAT by 10-6%

We lower our FY2013E EPS to Rs17.7 from Rs18.4 earlier due to lower sales growth in export formulations and lower Rupee assumption. However, we factor in significant recovery in FY2013E with India sales growth at 15% in FY2013 versus 13% YTD, export formulations Dollar growth at 16% versus 6% seen in 9MFY12 as we expect product rationalization efforts to reduce going forward. At the current quarterly rate reported in 9MFY12, we factor asset turnover of around 0.6X at Indore SEZ in FY2012E and expect it to improve to 1X in FY2013E, aiding export formulations growth.

Cipla (CIPLA)

Pharmaceuticals

Poor results on all counts. Apart from higher sales growth in India this quarter, we find the results disappointing on all counts with overall export sales and margin dipping qoq resulting in reported PAT being 20% below our estimate. We remain concerned in light of (1) domestic sales growth remaining poor as it was boosted by higher growth in generics in 3QFY12, (2) export formulation sales excluding Indore SEZ declining 11% in 3QFY12 and (3) heavy capex underway in FY2012-13E. Despite heavy capex cycle in the past three years, sales growth at 11% in 9MFY12 remains anemic in domestic and exports, latter partly on account of focus on profitable growth. Maintain SELL with TP of Rs320 (was Rs330), 18X FY2013E EPS.

CiplaStock data Forecasts/Valuations 2012 2013E 2014E



Price performance (%) 1M 3M 12M EV/EBITDA (X) 15.9 12.9 11.5Absolute 1.1 19.2 9.9 ROE (%) 15.6 17.3 17.2Rel. to BSE-30 (8.1) 15.3 9.7 Div. Yield (%) 0.9 1.0 1.2


360-273

SELL

FEBRUARY 13, 2012

RESULT

Coverage view: Neutral

Price (Rs): 342


BSE-30: 17,773

QUICK NUMBERS

• Revenues at Rs17.3 bn, 6% lower than our estimate

• EBITDA margin at 20%, down 240 bps qoq and lower than our estimate

Pharmaceuticals Cipla


Interim results - Cipla, March fiscal year-ends (Rs mn)

3QFY12 3QFY12E 3QFY11 2QFY12 3QFY12E 3QFY11 2QFY12Sales 17,345 18,525 15,158 17,581 (6) 14 (1)Excise duty 230 247 144 263 (7) 60 (12)Net sales 17,115 18,278 15,014 17,318 (6) 14 (1)Stock changes (313) — (664) 189 NM NM NMRaw Materials 7,465 8,042 7,622 6,928 (7) (2) 8Staff costs 1,875 1,650 1,351 1,875 14 39 (0)Others 4,638 4,400 4,080 4,413 5 14 5Op. costs 13,666 14,092 12,389 13,404 (3) 10 2EBITDA 3,449 4,186 2,625 3,914 (18) 31 (12)Interest 32 25 29 24 30 11 36Depreciation 757 700 653 656 8 16 15Other income 347 400 291 383 (13) 19 (10)Other operating income 420 340 523 322 24 (20) 31 Technology fees 78 90 151 78 (13) (48) 1 Others 342 250 372 244 37 (8) 40PBT 3,426 4,201 2,757 3,939 (18) 24 (13)Tax - current 727 840 430 850 (13) 69 (14)PAT 2,699 3,361 2,327 3,090 (20) 16 (13)Extraordinary item — — — — NM NM NMPAT 2,699 3,361 2,327 3,090 (20) 16 (13)

International 8,658 10,304 7,818 9,111 (16) 11 (5) API 1,637 1,651 1,386 1,595 (1) 18 3 Finished dosage 7,022 8,653 6,432 7,516 (19) 9 (7)India 8,687 8,220 7,340 8,470 6 18 3Total 17,345 18,525 15,158 17,581 (6) 14 (1)

% change


Profit and loss statement, March fiscal year-ends, 2008-14E

2008 2009 2010 2011 2012E 2013E 2014ENet sales 40,104 49,606 53,595 61,303 67,400 80,601 88,321Operating expensesMaterials (21,130) (23,474) (24,530) (27,471) (28,268) (34,498) (37,939)Selling and administration (6,135) (8,835) (9,010) (11,808) (11,509) (12,232) (12,899)Employee cost (2,555) (2,714) (3,191) (4,895) (7,362) (8,319) (9,400)R&D (2,029) (2,355) (2,507) (2,598) (2,696) (3,224) (3,533)Others (1,845) (2,747) (3,077) (3,156) (3,370) (4,030) (4,416)Total expenditure (33,693) (40,125) (42,315) (49,927) (53,205) (62,302) (68,187)EBITDA 6,410 9,481 11,280 11,376 14,195 18,298 20,134Depreciation and amortisation (1,307) (1,518) (1,671) (2,542) (2,876) (3,200) (3,500)EBIT 5,104 7,963 9,609 8,835 11,319 15,098 16,634Net finance cost (117) (329) (230) (173) (124) — —Other income 3,393 1,335 3,881 2,963 2,809 2,500 2,500Pretax profits before extra-ordina 8,379 8,968 13,261 11,625 14,004 17,598 19,134Current tax (940) (1,010) (2,285) (1,620) (2,955) (3,696) (3,444)Deferred tax (365) (150) (150) (332) — — —Fringe benefit tax (64) (98) — — — — —PAT 7,010 7,710 10,826 9,673 11,049 13,903 15,690Share of profit from associates 224 247 272 299Reported PAT 7,010 7,710 10,826 9,897 11,296 14,174 15,988


Cipla Pharmaceuticals


Balance sheet statement, March fiscal year-ends, 2008-14E

2008 2009 2010 2011 2012E 2013E 2014EBalance sheetNet worth 37,552 43,478 59,106 66,661 74,892 85,507 97,439Debt 5,805 9,402 51 5,719 — — —Current liabilities 12,477 12,096 12,143 11,791 13,759 16,048 17,695Deferred tax liabilities 1,492 1,642 1,792 2,131 2,131 2,131 2,131Total equity and liabilities 57,326 66,618 73,091 86,302 90,782 103,686 117,265Cash and cash equivalents 797 534 621 1,010 800 500 500Current assets 36,649 41,695 43,053 45,589 49,890 57,370 61,780Net fixed assets incl CWIP 18,945 23,588 26,954 33,799 36,923 39,723 41,223Investments 935 801 2,464 5,904 3,169 6,094 13,763Total uses of funds 57,326 66,618 73,091 86,302 90,782 103,686 117,265

Free cash flow Operating cash flow, excl. working ca 8,351 9,387 12,534 12,299 14,023 17,103 19,190Working capital (6,553) (5,428) (1,363) (2,883) (3,285) (5,660) (3,233)Capital expenditure (5,620) (6,247) (5,219) (9,449) (6,000) (6,000) (5,000)InvestmentsFree cash flow (3,822) (2,287) 5,951 (33) 4,738 5,443 10,957


Change in estimates

2012E 2013E 2012E 2013E 2012E 2013ENet sales 67,400 80,601 69,850 84,210 (4) (4)EBITDA 14,195 18,298 15,570 19,030 (9) (4)Depreciation and amortisation (2,876) (3,200) (2,809) (3,500) 2 (9)EBIT 11,319 15,098 12,761 15,530 (11) (3)Net finance cost 124 0 116 0 6Other income 2,809 2,500 2,844 2,900 (1) (14)Pretax profits before extra-ordinaries 14,004 17,598 15,489 18,430 (10) (5)Current tax (2,955) (3,696) (3,215) (3,686) (8) 0Reported net profit 11,049 13,903 12,275 14,744 (10) (6)Share of profit from associates 247 272 247 272 0 0Reported PAT 11,296 14,174 12,522 15,016 (10) (6)

New estimates Old estimates % change



Reiterate REDUCE as valuations not cheap for weak business and stretched balance sheet

We reiterate REDUCE on (1) tardy execution in 3QFY12, (2) trading at 6X FY2013E EV/EBITDA on relatively strong estimates; estimates builds in recovery in sales to 2,362 MW and EBITDA margin of 10% (EBITDA of Rs28 bn), (3) stretched balance sheet with increase in debt and working capital — consolidated net debt to equity of 2.1X at end-9MFY12, (4) potential replacement of FCCBs with normal debt may increase interest costs in FY2013E and (5) receivable from Edison Mission (of US$200 mn) are still uncertain in the near term (though partially built into our estimates).

We revise our estimates to a loss of Rs0.9 in FY2012E and a profit of Rs3.8 in FY2013E from a profit of Rs1.9 and Rs3.8 for FY2012E and FY2013E, respectively. We correspondingly revise our target price to Rs32/share (from Rs40/share).

Cuts FY2012E guidance; inflows and slippages provide basis for strong FY2013E guidance

Suzlon cut its FY2012E consolidated revenue guidance to Rs210-220 bn from Rs240-260 bn on the back of weak 3Q performance. We build execution of 1.8 GW in FY2012E for Suzlon’s wind business which implies about 655 MW of sales in 4QFY12. We expect some recovery in business in FY2013E and build in execution of 2.36 GW in FY2013E on strong inflows (of 1.3 GW in 9MFY12) and some spillover of sales from FY2012E.

Balance sheet remains stretched; cites several sources for funding of US$500 mn of FCCB payment

Suzlon’s balance sheet remains stretched as wind business net debt rose by Rs5 bn sequentially to Rs120.7 bn at end-9MFY12. FCCBs of US$500-550 mn are due to mature in CY2012 (Jun and Oct 2012); cited several avenues to fund this (including operational cash generation, receivables from Edison Mission, selling of assets, existing cash balance) although each one has roadblocks.

Weak results on lower-than-expected MW sales; net loss of Rs4.1 bn in 3QFY12

Suzlon reported disappointing wind revenues of Rs19.6 bn, down 22% yoy on weak sales of 307 MW versus our estimate of 525 MW. Low sales were attributed to (1) slow grid infrastructure ramp-up in China, (2) extended monsoons in India and (3) procedural delays in incremental WCap facilities. Almost nil EBITDA and high interest cost (Rs2.9 bn) led to a loss of Rs4.1 bn in 3QFY12.

Suzlon Energy (SUEL)

Industrials

Tardy execution reflects risk, FY2013E holds hope; balance sheet stretched. Retain REDUCE (revised TP Rs32) on Suzlon on (1) tardy 3QFY12 execution (307 MW and net loss of Rs4.1 bn), (2) stretched balance sheet, (3) partial uncertainty around FCCBs and Edison payment, (4) hope of strong growth shifting to FY2013E (30% growth in our estimate, company guidance of 40%) and (5) valuation not necessarily cheap at about 6XFY2013E EV/EBITDA for a high working capital company on relatively strong FY2013E estimates.

Suzlon EnergyStock data Forecasts/Valuations 2011 2012E 2013E

52-week range (Rs) (high,low) EPS (Rs) (6.0) (0.9) 3.8Market Cap. (Rs bn) 50.6 EPS growth (%) (4.6) (85.7) (539.2)

Shareholding pattern (%) P/E (X) (4.7) (33.1) 7.5Promoters 54.8 Sales (Rs bn) 178.8 216.6 282.3FIIs 12.4 Net profits (Rs bn) (10.7) (1.5) 6.6MFs 2.9 EBITDA (Rs bn) 11.1 20.5 30.2

Price performance (%) 1M 3M 12M EV/EBITDA (X) 12.8 7.6 5.2Absolute 26.7 (17.8) (37.8) ROE (%) (15.8) (2.2) 9.7Rel. to BSE-30 15.2 (20.5) (38.0) Div. Yield (%) 0.0 0.7 0.7


58-17

REDUCE

FEBRUARY 13, 2012

RESULT


Price (Rs): 28


BSE-30: 17,773

Suzlon Energy Industrials


Revenues disappoint with lower-than-expected MW sales (down qoq as well)

Suzlon reported disappointing wind business revenues of Rs19.6 bn, down 22% yoy and about 38% below our estimate. The disappointment was on the back of lower-than-expected MW sales of 307 MW in 3QFY12 versus our expectation of about 525 MW and 461 MW in 3QFY11; sales were down sequentially as well from 421 MW in 2QFY12. Lower sales were attributed to (1) slow grid infrastructure ramp up in China, (2) extended monsoons in India and (3) procedural delays in enhancement of working capital facilities due to volatility in financial markets. However, the company has recently raised Rs11 bn of incremental working capital facilitates which would aid incremental sales; hence management expects sales to pick up in 4QFY12E.

Negligible EBITDA and high interest cost lead to a wind business net loss of Rs4.1 bn in 3QFY12

Weak sales led to almost nil EBITDA in 3QFY12 versus about 5% EBITDA margins last year (reported EBITDA of only Rs60 mn, 0.3%, in 3QFY12). High interest cost levels of 2QFY12 continued in this quarter as well; reported high interest cost of Rs2.9 bn. Low sales, negligible margins and high interest cost led to a net loss of Rs4.1 bn in 3QFY12.

For the nine months ending December 31, 2011, Suzlon reported revenues of Rs72 bn on sales of 1,189 MW, up 15% yoy. Suzlon reported 9MFY12 EBITDA margin of 6.2% versus a negative margin of 2.6% in 9MFY11. High interest cost led to a net loss of Rs6.3 bn in 9MFY12 versus a loss of Rs10 bn in 9MFY11.

Suzlon Energy - 3QFY12 wind business results (Rs mn)

3QFY12 3QFY12E 3QFY11 2QFY12 vs est. yoy qoq 9MFY12 9MFY11 %changeMW sales 307 525 461 421 (41.5) (33.4) (27.1) 1,189 1,029 15.5 Income from operations 19,550 31,500 25,090 26,760 (37.9) (22.1) (26.9) 72,210 61,380 17.6 Expenditure (19,490) (28,845) (23,830) (25,400) (32.4) (18.2) (23.3) (67,720) (62,990) 7.5 EBITDA 60 2,655 1,260 1,360 (97.7) (95.2) (95.6) 4,490 (1,610) NAOther income 220 200 240 270 10.0 (8.3) (18.5) 770 780 (1.3) Interest & finance charges (2,910) (2,960) (2,120) (2,960) (1.7) 37.3 (1.7) (8,240) (6,310) 30.6 Depreciation (980) (880) (880) (880) 11.4 11.4 11.4 (2,650) (2,530) 4.7 PBT (3,610) (985) (1,500) (2,210) NA NA NA (5,630) (9,670) NATax (550) — 140 (150) (492.9) 266.7 (640) (330) 93.9 PAT (4,160) (985) (1,360) (2,360) NA NA NA (6,270) (10,000) NAOne-time items 80 — — 2,190 2,270 (1,850) Associates/Minority interest 70 — (10) (220) (160) - Adjusted PAT (4,010) (985) (1,370) (390) NA NA NA (4,160) (11,850) NA

Key ratios (%)EBITDA margin 0.3 8.4 5.0 5.1 6.2 (2.6) Tax rate (15.2) — 9.3 (6.8) (11.4) (3.4) PAT margin (21.3) (3.1) (5.4) (8.8) (8.7) (16.3)

% change


Consolidated results: 3Q net loss of Rs3 bn and 9MFY12 net loss of Rs4 bn

At the consolidated level, Suzlon reported 3QFY12 revenues of Rs50.3 bn, up 12% yoy from Rs45 bn in 3QFY11. EBITDA margin was at 6.4%, a significant expansion over 4% margins in 3QFY11. Suzlon reported a consolidated net loss (excluding exceptional items) of Rs3.1 bn (on high interest costs and tax expenses, international deferred tax liability of Rs1.21 bn) versus a loss of Rs3.7 bn in 2QFY11. For 9MFY12, net loss stands at Rs4 bn with revenues of Rs145 bn and EBITDA of Rs12 bn.

Industrials Suzlon Energy


Suzlon Energy - 3QFY12 consolidated results (Rs mn)

3QFY12 3QFY11 2QFY12 yoy qoq 9MFY12 9MFY11 % changeIncome from operations 50,335 44,944 51,309 12.0 (1.9) 145,441 107,181 35.7 Expenditure (47,110) (43,124) (47,438) 9.2 (0.7) (133,441) (107,876) 23.7

(Incr.)/Decr. in stock in trade (780) 175 (852) (4,057) 3,401 (219.3) Raw material consumption (32,567) (30,481) (32,188) 6.8 1.2 (90,459) (76,845) 17.7 Staff cost (5,277) (4,146) (4,845) 27.3 8.9 (14,786) (12,202) 21.2 Other expenditure (8,486) (8,672) (9,553) (2.1) (11.2) (24,139) (22,230) 8.6

EBITDA 3,225 1,820 3,871 77.2 (16.7) 11,999 (695) (1,826.5) Other income 300 339 236 (11.6) 27.2 857 771 11.1 Interest & finance charges (3,576) (2,949) (3,576) 21.2 0.0 (10,130) (8,231) 23.1 Depreciation (1,704) (1,425) (1,479) 19.6 15.2 (4,594) (4,062) 13.1 PBT (1,755) (2,215) (948) (20.8) NA (1,868) (12,217) (84.7) Tax (1,342) (308) (658) (2,141) (1,394) 53.5 PAT (3,097) (2,523) (1,606) NA NA (4,008) (13,612) (70.6) One-time items included in PAT 80 - 2,192 2,272 (1,836) (223.8) Associates/Minority interest 153 (13) - 59 97 (39.2) Adjusted PAT (2,865) (2,536) 586 NA NA (1,677) (15,350) (89.1) Key ratios (%)Material cost 66.3 67.4 64.4 65.0 68.5 Staff cost 10.5 9.2 9.4 10.2 11.4 Other expenditure 16.9 19.3 18.6 16.6 20.7 EBITDA margin 6.4 4.0 7.5 8.3 (0.6) Tax rate (76.5) (13.9) (69.4) (114.6) (11.4) PAT margin (6.2) (5.6) (3.1) (2.8) (12.7)

%change


Cuts consolidated FY2012 revenue and margin guidance; hopes to recover missed execution in FY2013E (guides for 40% growth in FY2013E)

Suzlon has cut its consolidated revenue guidance to Rs210-220 bn for FY2012E from Rs240-260 bn earlier on the back of weaker-than-expected 3Q performance. EBITDA margin guidance for FY2012E has been revised by about 200 bps to 5-6% from 7-8% earlier.

Suzlon wind expects to record sales of about 700 MW in 4QFY12E of which about 550 MW would be in the domestic market (driven by Caparo order delivery — remaining component of about 250 MW) and 150 MW would be in international markets. We build execution of 1,844 MW in FY2012E for Suzlon’s wind business led by 1,512 MW of execution in the domestic market and 332 MW for the international market.

Order backlog, inflows and sales of Suzlon’s wind business, March fiscal year-ends, 2008-13E (MW)

2008 2009 2010 2011 2012E 2013EOrder backlogDomestic 160 75 230 1,353 1,141 643 Internaional 3,294 1,388 896 878 996 1,012 Total backlog 3,454 1,463 1,126 2,231 2,137 1,655 Order inflowsDomestic 870 664 843 2,292 1,300 1,430 Internaional 2,937 135 280 334 450 450 Total inflows 3,807 799 1,123 2,626 1,750 1,880 ExecutionDomestic 976 749 688 1,169 1,512 1,928 Internaional 1,335 2,041 772 352 332 434 Total execution 2,311 2,790 1,460 1,521 1,844 2,362




We expect some recovery in sales in FY2013E to 2,360 MW on strong order inflows (of 1.35 GW recorded in 9MFY12) and some spill over of sales from FY2012E. Suzlon expects to make up some of the missed execution in FY2013E and has guided for a strong 40% revenue growth driven by both Suzlon wind as well as REpower.

Strong inflows is a positive; boosts backlog, builds visibility for future revenues

Suzlon reported very strong order inflows to the tune of 1.49 GW (at the group level including REpower) versus 1.35 GW inflows cumulatively over the past 2 quarters. Suzlon wind business reported inflows of about 675 MW in 3QFY12 (note 3QFY11 inflows were boosted by a single large 1 GW order). The inflows were geographically well-diversified with strong contribution from Indian as well as overseas markets.

Order inflow announcements made by Suzlon in FY2012E so far

Product Config. Capacity

Product Config. Capacity

MW MW MW MW31-Jan CLP, India India 2.1 100 13-Jan Bradwell wind farm UK 2.05 20.511-Jan Servtec Group Brazil 2 24 12-Jan USA 2.05 1503-Jan USA 2.1 120 6-Jan Portugal 2.05 2223-Dec Malpani Group, Sterling Agro, Others India 140 20-Dec Your Energy, subs of AES Wind Gen UK 2.05 2123-Dec Rajasthan Gums India 16 12-Dec Renerco UK 2.05 3523-Dec GPCL India 11 23-Nov EverPower USA 2.05 13921-Nov GAIL India 2.1 23 12-Nov Epuron, France France 2 1217-Aug Indian Oil Corporation Ltd India 2.1 48 8-Nov EDF EN Canada Inc Canada 2 15011-Aug Malpani Group India 30 24-Oct Golden Valley Electric Association (GVEA) USA 2.05 2510-Aug Various customers including GAIL India 2.1 85 11-Oct La Compagnie du Vent, GDF SUEZ Group France 2.05 4715-Jul Orient Green Power (Shriram EPC) India 2.1 100 4-Oct Zuidlob Wind B.V Sweden 3.4 12216-Jun National Aluminium Company Ltd India 2.1 50 8-Sep 7 communities in Northern Friesland Germany 2.0/ 3.4 11414-Jun Sprott Power Corp Canada 2.1 32 25-Aug WindWorks Power Corp Canada 2.05 51

778 3-May Canada 2 303-May EDF Energies Nouvelles Canada Inc. Canada 2 807-Apr juwi Group 3 720

1,062

Customer Country

Total inflows in FY2012 so far

REpower Systems

Total large order booking since FY2011

Suzlon wind business

DateDate Customer Country

Source: Company

The strong order inflows boosted Suzlon’s order backlog to over 5.7 GW at end-Feb 2012. This helps provide some visibility to FY2013E revenues/ sales for Suzlon.

Break-up of Suzlon's consolidated order backlog, at end-9MFY12

Geographical backlog break-up (5,755 MW)

India24%

Canada11%

Belgium5%

France4%

China4%

UK3%

Germany17%

Others10%

USA17%

Brazil5%

Suzlon-REpower break-up (5,755 MW)

REpower58%

Suzlon India24%

Suzlon International

18%

Client-wise break-up (5,755 MW)

Financial investors

53%

Private investors

10%

rge utilities37%




Debt increases further despite Hansen stake sale; ~US$550 mn of FCCBs up for maturity

Suzlon wind business net debt rose by about Rs5 bn sequentially from Rs115.6 bn at end-1HFY12 to Rs120.7 bn at end-9MFY12. This is despite cash inflow from Hansen stake sale completed in 1HFY12. While part of the debt increase may be translation related (on recent Rupee depreciation) we also note an increase in working capital loans of Rs3.5 bn.

About US$500-550 mn of FCCBs (including redemption premium) are due to mature in CY2012 (June and October 2012). The company cited several avenues to fund this repayment including (1) US$200-250 mn of operational cash generation over the next 9-12 months, (2) realization of US$200 mn of receivables from Edison Mission by end-FY2012 (though may not be in Suzlon’s control), (3) selling of assets to the tune of US$100 mn (including wind farms of US$60 mn), (4) existing cash balance of US$100 mn in Suzlon wind business and about US$175-200 mn in REpower.

Details of debt of Suzlon's wind business (Rs mn)

FY2009 FY2010 1QFY11 2QFY11 3QFY11 FY2011 1QFY12 2QFY12 3QFY12Acquisition loans 34,020 20,830 21,550 20,850 20,730 20,740 20,790 22,770 20,040 FCCBs 25,360 21,510 22,250 21,530 21,410 21,360 29,240 32,030 34,730 WCap, Capex, others 65,140 62,840 64,730 68,320 68,980 70,230 68,330 69,250 72,730 Gross external debt 124,520 105,180 108,530 110,700 111,120 112,330 118,360 124,050 127,500 Loans from promoters — 11,750 11,750 — — — — — —Total gross debt 124,520 116,930 120,280 110,700 111,120 112,330 118,360 124,050 127,500 Cash 1,359 15,410 12,580 12,600 9,450 10,230 9,550 8,460 6,780 Net debt 123,161 101,520 107,700 98,100 101,670 102,100 108,810 115,590 120,720

FY2011 FY2012


During 3QFY12, net working capital has risen by Rs5 bn during the quarter, consolidated basis cash loss of Rs1.2 bn (Loss of Rs2.86 bn and depreciation of Rs1.7 bn). In terms of cash sources, consolidated net debt has gone up by Rs7 bn apart from receipt of cash from Hansen sale of Rs7-8 bn. Consolidated debt may have gone up largely led by exchange variation (both acquisition loans – adjusted for partial payment post Hansen sale and FCCBs) have gone up during 3QFY12. Thus Hansen stake sale cash flows may have got consumed in working capital and interest cost servicing. Suzlon is not accounting for interest cost on this FCCB loan that is coming up from maturity in June and October 2012, and when this loan is replaced by a normal loan, interest cost may go up by another Rs3 bn on an annual basis.

Working capital details of Suzlon (consolidated), March fiscal year-ends, 2010-3QFY12 (Rs mn)

2010 1QFY11 2QFY11 3QFY11 FY2011 1QFY12 2QFY12 3QFY12Inventories 59,940 58,900 63,210 69,070 53,520 57,550 59,070 61,520 Sundry debtors 61,920 44,280 42,830 50,100 59,150 61,310 63,320 73,230 Loans and advances 21,080 20,860 25,790 22,850 23,490 25,540 27,040 30,120 Current assets 142,940 124,040 131,830 142,020 136,160 144,400 149,430 164,870 Prepayment from customers 32,190 35,080 39,320 43,520 27,280 26,560 27,760 34,730 Trade payables 39,420 28,330 29,130 33,120 45,370 37,970 42,450 46,410 Other current liabilities 12,650 9,310 9,870 9,270 12,300 15,290 14,970 15,330 Provisions 9,950 12,010 12,670 11,630 13,330 13,250 13,830 13,380 Current liabilities 94,210 84,730 90,990 97,540 98,280 93,070 99,010 109,850 Net working capital 48,730 39,310 40,840 44,480 37,880 51,330 50,420 55,020

FY2011 FY2012




REpower delivers strong results; on track to deliver our estimates of Euro1,538 mn revenues

REpower deliver strong results; we estimate revenues of Euro450 mn in 3QFY12 and 9MFY12 revenues of Euro1,075 mn; on track to deliver our estimate of Euro1.5 bn revenues for FY2012E. The management has guided for revenues of about Euro1.5-1.6 bn for REpower in FY2012E. REpower now seems to have cash balance of Rs12 bn, as per difference between wind business cash and consolidated cash balance versus Rs21 bn of cash at end of FY2011.

Peers also record strong inflow momentum; though sector commentary remains weak

Both Vestas and Siemens recorded strong growth in order inflows in the December quarter. However commentary on sector outlook remains weak in terms of demand outlook, increased competitive intensity leading to pricing pressure etc.

Vestas: Retains order inflow guidance though cuts revenue and margin guidance; cancels ’Triple 15‘ goal

Vestas recorded strong order inflows of 7.4 GW in CY2011 (3.2 GW in 4QCY11). We note that order inflow momentum has witnessed a strong pick-up for the last 6-8 quarters from lows of CY2009.

Quarterly order inflow announcements of Vestas, 1QCY07 - 4QCY11 so far (MW)

-

400

800

1,200

1,600

2,000

2,400

2,800

Mar

-07

Jun-

07

Sep-

07

Dec

-07

Mar

-08

Jun-

08

Sep-

08

Dec

-08

Mar

-09

Jun-

09

Sep-

09

Dec

-09

Mar

-10

Jun-

10

Sep-

10

Dec

-10

Mar

-11

Jun-

11

Sep-

11

Dec

-11

(MW)


However, the company has cut its revenue and margin guidance for CY2012E citing weak market outlook on the back of (1) slowdown in global economies, (2) rise in competitive intensity leading to pricing pressures, and (3) political uncertainties for renewable market in USA and southern EU. Vestas has reduced its CY2012E revenue guidance by about 8-8.5% to Euro5.5 bn from Euro6 bn earlier. EBIT margin guidance has also been cut sharply by 300 bps to 4% for CY2012E. Part of Vestas problems may be originating from slow ramp-up of a generator plant in Germany.



Revised guidance by Vestas for CY2012E

Original Revised % revisionOrer inflows (MW) 7,000-8,000 7,000-8,000 - Production & shipments (MW) 6,000 5,500 (8.3) Revenues (EUR mn) 7,000 6,400 (8.6) EBIT margin (%) 7.0 4.0 EBIT (EUR mn) 490 256 (47.8)

Source: Company

Siemens: Inflows up 65% yoy; but increased pricing pressure leads to net loss

Revenue from Renewable Energy segment for Siemens increased by 9% yoy for the Dec-11 quarter, with nearly all growth coming from the Americas region. New orders climbed 65% yoy, which included a low volume from large orders. However, higher R&D expenses, marketing and selling associated with expansion in a highly competitive market, a less favorable revenue mix and increased pricing pressure resulted in a loss for wind power business. Renewable Energy segment posted a loss of EUR48 mn in 1QFY12 (Sept-ending).

Key operational figures of Siemens AG's renewable business in 1QFY12, September fiscal year-ends (EUR mn)

1QFY11 1QFY12 % changeRevenues 868 943 8.6 Net profit 36 (48) (233.3) Profit margin 4.1 (5.1) Order inflows 945 1,560 65.1

Source: Company

Revise earnings estimates and target price to Rs32; reiterate REDUCE

We have revised our earnings estimates to a loss of Rs0.9 in FY2012E and a profit of Rs3.8 in FY2013E from a profit of Rs1.9 and Rs3.8 for FY2012E and FY2013E, respectively. Our estimates build in recovery in sales to 2,362 MW and EBITDA margin of 10% (EBITDA of Rs28 bn).

We correspondingly revise our target price to Rs32/share from Rs40/share based on 6X FY2013E EV/EBITDA valuation. We believe that a 6X EV/EBITDA multiple appears reasonable for relatively strong estimates on a stretched balance sheet with high working capital levels.



Target price of Rs32/share Estimation of target price of Suzlon Energy

FY2013E - using 6X

REpowerEV/EBITDA multiple 6FY2013E EBITDA (Euro mn) 177 EV (Euro mn) 1,063 Net debt (Euro mn) (64)Market capitalisation (Euro mn) 1,127 Repower per share price (Euro) 122 Suzlon's stake in REpower (%) 100Contr to Suzlon MCap (Rs mn) 77,313 Suzlon wind business (Rs mn)MW sales 2,362EV/EBITDA multiple (X) 6FY2013E EBITDA 16,644 EV of wind business 99,867 Net debt as on Mar' 2013E 120,647 Mcap. of Suzlon wind business (20,780) Mcap. contr of Hansen & Repower 77,313 Mcap. Incl. Hansen and Repower 56,533 No. of shares (mn) 1,746 Suzlon target price (Rs) 32


Key valuation comparables of Suzlon with global wind turbine manufacturers, March fiscal year-ends, 2011-13E (X)

2011 2012E 2013E 2011 2012E 2013E 2011 2012E 2013E 2011 2012E 2013EVestas 3.0 7.2 3.4 9.9 (10.8) 10.3 0.3 0.4 0.3 0.6 0.6 0.5 Gamesa 1.7 4.5 4.1 15.0 13.1 11.8 0.2 0.5 0.4 0.5 0.5 0.4 Nordex SE 5.9 20.8 6.7 16.1 (18.9) 27.7 0.4 0.4 0.4 0.9 0.9 0.8 Suzlon 17.8 8.1 5.5 (3.8) (33.1) 7.5 0.8 0.7 0.6 0.8 0.8 0.8

EV/EBITDA P/E EV/Sales P/B

Source: Company, Bloomberg, Kotak Institutional Equities estimates

We retain our REDUCE rating on the company based on (1) low traction in international markets related to sales as well as margin pressure, (2) high working capital and debt levels, (3) strained cash flows, (4) headwinds in India business originating from difficult y in scaling up annual execution (land acquisition, transmission etc.), lack of full regulatory support (non implementation of RPO mandate by some states), potential withdrawal of accelerated depreciation etc., (5) increasing competition and (6) tardy execution.

Key risks originate from continued negative execution surprises related to sectoral and company specific problems; we highlight that Suzlon did not have a strong execution track record when the sector scenario was buoyant. Furthermore, over the long term, the competitive intensity of the sector would increase, with new players from China and other industrial companies joining the renewable energy bandwagon.



Wind business financials of Suzlon Energy, March fiscal year-ends, 2008-13E (Rs mn)

2008 2009 2010 2011 2012E 2013EIncome statementTotal MW sales 2,311 2,790 1,460 1,521 1,844 2,362 Sales 114,665 159,120 96,350 91,750 111,101 145,845 Total Expenditure (97,529) (143,240) (96,930) (90,780) (101,364) (129,201)

Raw Material cost (78,130) (104,810) (63,910) (60,610) (72,215) (94,800) Manpower (5,179) (8,970) (9,110) (9,410) (10,539) (11,066) Other op exp (14,220) (29,460) (23,910) (20,760) (18,609) (23,335)

EBITDA 17,136 15,880 (580) 970 9,737 16,644 Other income 1,968 2,460 820 1,240 850 832 Financial charges (4,603) (7,780) (9,720) (9,930) (12,329) (13,475) Depreciation (1,703) (2,600) (3,120) (3,590) (3,602) (3,707) Profit before tax 12,798 7,960 (12,600) (11,310) (5,344) 295 Tax (1,493) (30) (2,360) 270 (600) (65) One-off costs — (8,963) — — 7,680 —Profit after tax 11,305 (1,030) (14,960) (11,040) 2,336 230 Balance sheetShare capital 2,994 2,997 3,114 3,491 3,491 3,491 Reserves and surplus 62,990 62,450 53,480 53,947 56,283 56,513 Total loan funds 86,430 124,520 116,940 112,330 122,500 122,500 Total sources of funds 153,284 192,227 176,264 173,400 185,044 185,274 Net fixed assets 17,320 25,710 25,050 23,910 21,308 18,602 Investments 57,560 98,620 92,860 99,470 104,470 104,470 Cash and bank balance 48,870 13,590 16,374 9,730 13,252 10,853 Net current assets (excl. cash) 29,200 47,150 38,580 36,890 42,614 47,949 Total application of funds 153,284 192,227 176,264 173,400 185,044 185,274


REpower Systems financials, March fiscal year-ends, 2008-13E (EUR mn)

2008 2009 2010 2011 2012E 2013EIncome statementIncome from operations 153 1,241 1,344 1,314 1,538 1,990 Expenditure (148) (1,149) (1,225) (1,201) (1,401) (1,812)

Raw material costs (120) (981) (1,001) (950) (1,130) (1,462) Staff cost (14) (81) (97) (118) (112) (139) Sales and distribution costs (13) (87) (127) (133) (159) (211)

EBITDA 5 91 119 113 137 177 EBITDA margin (%) 3.3 7.4 8.9 8.6 8.9 8.9 Other income 2 6 5 6 7 8 Interest & finance charges (2) (6) (20) (11) (7) (7) Depreciation (2) (15) (21) (27) (33) (36) PBT 3 77 84 81 105 143 Tax (2) (25) (26) (23) (34) (46) PAT 1 52 58 58 71 96 Balance SheetShare holder's Funds 329 408 483 519 590 686 Capital 9 9 9 9 9 9 Reserves and Surplus 320 399 474 510 580 677 Loan Funds 18 41 76 102 102 102 Total sources of funds 347 449 559 621 692 788 Net Block 110 148 200 270 300 320 Cash & Bank Balances 178 101 216 320 158 166 Investments 5 7 6 2 2 2 Net Current Assets 55 193 130 3 232 300 Total application of funds 347 449 552 621 692 788




Consolidated financials of Suzlon Energy, March fiscal year-ends, 2008-13E (Rs mn)

2008 2009 2010 2011 2012E 2013EIncome statementSales 136,794 260,817 206,197 178,791 216,607 282,334 Total Expenditure (116,901) (232,902) (195,732) (170,847) (197,453) (253,536) Raw Material cost (88,702) (168,568) (136,282) (124,540) (149,762) (195,119) Manpower (17,753) (42,675) (37,996) (29,542) (29,502) (37,797) Other op exp (10,446) (21,658) (21,454) (16,764) (18,188) (20,620) EBITDA 19,894 27,915 10,465 7,945 19,154 28,798 Other income 2,646 4,488 2,290 3,177 1,330 1,361 Financial charges (5,969) (10,539) (14,580) (13,331) (12,783) (13,929) Depreciation (2,894) (5,731) (6,630) (6,574) (5,850) (6,152) Profit before tax 13,676 16,133 (8,455) (8,783) 1,851 10,078 Tax (1,993) (2,881) (3,561) (1,853) (2,938) (3,244) One-off costs (1,512) (8,963) 2,119 (2,533) — —Profit after tax 10,301 2,365 (9,826) (13,240) (1,503) 6,599 EPS (Rs) 6.6 1.6 (6.3) (7.4) (0.9) 3.8 Balance sheetShare capital 2,994 2,997 3,114 3,555 3,491 3,491 Reserves and surplus 78,019 79,291 60,362 61,701 58,397 63,193 Total shareholders funds 81,013 82,287 63,476 65,256 61,888 66,685 Minority interest 10,244 23,135 3,285 3,067 3,534 4,167 Total loan funds 99,346 148,696 126,679 122,637 129,487 129,487 Total sources of funds 190,628 254,143 193,465 190,985 194,938 200,369 Net fixed assets 42,954 80,884 44,695 47,221 41,888 40,554 Goodwill 13,923 71,770 61,047 66,163 66,163 66,163 Investments 31,418 51 10,923 9,669 14,669 14,669 Cash and bank balance 69,602 30,698 29,043 31,213 24,066 22,230 Net current assets (excl. cash) 32,949 72,607 48,723 38,058 58,512 68,516 Total application of funds 190,628 254,143 193,465 190,985 194,938 200,369



Lower realizations and other income dent reported PAT

CESC reported revenues of Rs10.2 bn (-17% qoq, 11% yoy), operating profits of Rs2 bn (-17% qoq, -15% yoy) and net income of Rs740 mn (-35% qoq, -33% yoy) against our estimate of Rs10.8 bn, Rs2.4 bn and Rs1.1 bn respectively. Operating profit miss was primarily on account of revenue miss as average realizations declined by 0.2/kwh despite an increase in fuel cost by Rs0.12/kwh sequentially. Management has attributed the decline in average realization to (1) shift in sales mix for sales in Kolkata (between domestic and commercial users) and (2) higher proportion of export sale (at lower realizations).

Stable extant operations drive our fair value estimate, retail losses factored in

We continue to remain optimistic on CESC’s core power business and note that it accounts for 86% of our fair value estimate of Rs400/share. CESC’s near-term earnings are relatively immune to concerns over financial health of state electricity boards (SEBs), while its dependence on coal through linkages is also minimized on account of an operational captive block (extant production of 3 mtpa) operated by the promoter group. We do not ascribe any value to the growth portfolio apart from the under-construction Dhariwal project (Rs38/share). Further, we estimate a cash outflow of Rs5.6 bn (Rs45/share) to fund retail losses.

Reiterate BUY with a target price of Rs400/share

We reiterate our BUY rating on CESC with a target price of Rs400/share. Our target price comprises (1) Rs347/share for Kolkata business, (2) Rs38/share for 100% ownership in DIPL for capacity of 600 MW and (3) Rs18/share for cash and investible surplus on books. We estimate an outflow of Rs5.6 bn to fund the losses in retail business. We have revised our EPS estimate downwards by 15% in FY2012E to adjust delay in finalization of tariffs (reflecting the increase in fuel costs), though remain optimistic about recoverability of costs incurred towards high fuel cost incidence upon finalization of tariffs.

CESC (CESC)

Utilities

Pending tariff finalization dents earnings. CESC reported a 33% decline in 3QFY12 earnings due to delay in finalization of tariff orders, pending which the higher cost incidence for fuel remains to be compensated. We view the earnings for the quarter as an aberration, and remain confident of a timely and favorable tariff order that would allow CESC to accrue reasonable returns—16-18% under the tariff regime. Maintain BUY with target price of Rs400/share.

CESCStock data Forecasts/Valuations 2012 2013E 2014E



Price performance (%) 1M 3M 12M EV/EBITDA (X) 6.2 5.8 3.2Absolute 18.7 1.5 (8.9) ROE (%) 8.2 9.4 11.7Rel. to BSE-30 7.9 (1.8) (9.1) Div. Yield (%) 1.5 1.8 1.9


365-186

BUY

FEBRUARY 13, 2012

RESULT


Price (Rs): 270


BSE-30: 17,773

CESC Utilities


Exhibit 1: Lower realizations and other income mar reported PAT Quarterly results for CESC, March fiscal year-ends (Rs mn)

(% chg.)3QFY12 3QFY12E 3QFY11 2QFY12 3QFY12E 3QFY11 2QFY12 FY2011 FY2012E (% chg.)

Net sales 10,190 10,814 9,210 12,230 (6) 11 (17) 39,399 44,680 13 Operating costsCost of electrical energy purchased (1,100) (1,456) (980) (2,180) (6,654) (7,280) Cost of fuel (4,410) (4,155) (3,530) (4,460) (14,283) (17,293) Personnel costs (1,060) (1,154) (950) (1,220) (4,818) (4,490) Other expenses and provisions (1,620) (1,654) (1,400) (1,950) (3,013) (6,550) Total operating expense (8,190) (8,420) (6,860) (9,810) (28,768) (35,614) EBITDA 2,000 2,394 2,350 2,420 (16) (15) (17) 10,630 9,067 (15) EBITDA margin (%) 19.6 22.1 25.5 19.8 27.0 20.3 Depreciation (750) (725) (690) (720) (2,674) (2,937) EBIT 1,250 1,669 1,660 1,700 (25) (25) (26) 7,957 6,129 (23) Other income 330 480 400 470 1,524 1,666 Interest (660) (750) (690) (750) (3,338) (2,785) PBT 920 1,399 1,370 1,420 (34) (33) (35) 6,143 5,010 (18) Tax (180) (274) (270) (280) (1,259) (999) Net profit 740 1,125 1,100 1,140 (34) (33) (35) 4,884 4,011 (18) Extraordinary income/ (expenses) — — — 376— — —

Key operating parametersUnits sold (MU) 2,005 2,040 1,941 2,324 3 (14) 8,243 8,629 5 Units generated - gross (MU) 2,197 2,187 2,147 2,356 2 (7) 8,756 9,078 (4) Units purchased (MU) 253 324 229 501 10 (50) 1,469 1,654 13

Fuel cost per unit generated (Rs/unit) 2.01 1.90 1.64 1.89 22 6 1.79 2.09 17 Cost of power purchased (Rs/unit) 4.35 4.50 4.28 4.35 2 (0) 4.53 4.40 3


Exhibit 2: Realizations came down by Rs0.2/kwh despite increase in fuel cost Operational highlights of CESC, 3QFY10-3QFY12

Dec-09 Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 Jun-11 Sep-11 Dec-11Units sold 1,768 1,668 2,321 2,224 1,941 1,757 2,232 2,324 2,005 Net revenue 7,790 7,540 10,820 10,900 9,210 8,440 11,690 12,230 10,190 (Rs/kwh) 4.41 4.52 4.66 4.90 4.74 4.80 5.24 5.26 5.08 Units generated (MU) 1,872 1,949 2,443 2,344 2,147 1,826 2,395 2,356 2,197 Fuel cost (Rs mn) 2,710 2,650 3,760 4,110 3,530 2,860 4,590 4,460 4,410 Fue cost (Rs/kwh) 1.45 1.36 1.54 1.75 1.64 1.57 1.92 1.89 2.01 Units purchased (MU) 401 169 447 505 229 288 422 501 253 Purchase (Rs mn) 1,320 880 1,840 2,430 980 1,400 1,910 2,180 1,100 Purchase (Rs/kwh) 3.3 5.2 4.1 4.8 4.3 4.9 4.5 4.4 4.3 O&M 2,060 2,170 2,800 1,330 2,350 2,030 2,660 3,170 2,680 (Rs/kwh) 1.10 1.11 1.15 0.57 1.09 1.11 1.11 1.35 1.22 PAT 1,020 1,000 1,100 1,550 1,100 1,120 1,110 1,140 740 Regulated equity 19,003 19,003 22,172 22,172 22,172 22,172 22,172 22,172 22,172 RoE (%) 21 21 20 28 20 20 20 21 13


Utilities CESC


Power portfolio – secure on the fuel front, expansion project could drive growth

CESC uses a mix of imported, linkage and captive coal for its extant generation portfolio of 1,225 MW. Coal supplies from ICML contribute roughly 45-50% of total coal consumption making CESC relatively less dependent on CIL or imports. We note that captive block of ICML (a group company of RPG Enterprises) is one of the 20 captive blocks that are currently under production and has an extant production of ~3 mtpa.

CESC plans to add another 4,400 MW by end-FY2016E which includes 600 MW at Dhariwal, 600 MW at Haldia and 1,320 MW at Orissa. We highlight that out of 4,400 MW, 1,200 MW at Haldia and Dhariwal have tied up all the necessary inputs and have commenced construction. We highlight that our SOTP-based valuation does not ascribe any value to either Haldia or any of the development projects. We discuss below the status of each of the projects:

Dhariwal (600 MW) – construction is in progress and management has indicated likely commissioning by FY2013E. Dhariwal has already tied up 220 MW at a levelized tariff of Rs3.3/kwh and plans to tie up another 220 MW. Depending on the status of merchant tariffs, CESC will sell the balance 220 MW on merchant basis.

Haldia (600 MW) – equipment ordering has been completed for the project. Haldia will sell 450 MW to CESC’s Kolkata distribution arm while balance will be free for merchant sale.

Orissa (1,320 MW) – project has entire land in possession and environmental TOR has been approved. Project is awaiting long term coal linkage from Coal India. Management expects commissioning by FY2015E.

Balagarh (1,320 MW) – project has entire land in possession and environmental TOR has been approved. Project is awaiting long term coal linkage from Coal India. Management expects commissioning by FY2016E.

Jharkhand (600 MW) – the project has been awarded a captive mine. Management expects commissioning by FY2016E.

Exhibit 3: 4,440 MW of capacity to drive future earnings of CESC Status of pipeline projects of CESC

Capacity

Project (MW) Fuel Land (Rs bn) (%)

Haldia I 600 Thermal 1 4.8 FY2014

Chandrapur 600 Thermal 6 22.8 FY2013

Orissa 1,320 Thermal WIP r r FY2015

Balagarh 1,320 Thermal WIP r r FY2016

Jharkhand 600 Thermal r WIP r r FY2016

Total 4,440

Expected CoDEnvironmental clearance

Fuel arrangement Financial closure

Capex


CESC Utilities


Exhibit 4: CESC sum-of-the-parts valuation

Methodology

DCF to equity198 347

Marketable securities & cash on books (Rs bn): 18.6 Regulatory liability/unallocable debt (Rs bn) (10.8)

Cash infusion required in retail (Rs bn) (5.6) Total 2.2

DIPL DCF to equity 38

600 MW Disc. rate: 12.5%

SOTP value 253 403

18

FY2013E Book value per share

(Rs)

Per share value (Rs)

Key assumptions

Kolkata generation, transmission &

distribution

The business enjoys very high predictability of cash flows, regular reinvestments and high profitability (>20% RoE) from operational efficiencies and incentives.

Disc. rate: 12% Terminal year growth: 2%

50% of the capacity available for merchant sale at a sustainable tariff of Rs3.5/kwh

Cash and investible surplus on books

Market value


Exhibit 5: Profit model, balance sheet, cash model of CESC, March fiscal year-ends, 2009-14E (Rs mn)

2009 2010E 2011 2012E 2013E 2014EProfit model (Rs mn)Net sales 30,313 32,928 39,399 44,680 51,138 71,878EBITDA 6,885 8,216 10,630 9,773 11,301 18,980 Other income 1,568 1,548 1,524 1,666 1,967 2,520Interest (2,170) (2,500) (3,338) (3,491) (3,855) (7,488)Depreciation (1,749) (2,056) (2,674) (2,937) (3,198) (4,339)Pretax profits 4,534 5,207 6,143 5,010 6,215 9,673Tax (552) (888) (1,259) (999) (1,225) (2,803)Net profits 3,982 4,319 4,884 4,011 4,990 6,870 Extraordinary items 115 15 — — — —Earnings per share (Rs) 31.9 34.6 39.1 32.1 39.9 55.0

Balance sheet (Rs mn)Total equity 37,300 42,647 47,626 49,950 56,341 61,585Total borrowings 24,694 28,457 34,670 50,866 58,423 57,257Currrent liabilities 24,152 25,124 27,383 29,546 31,959 39,378Total liabilities and equity 86,146 96,229 109,679 130,362 146,724 158,220 Cash 18,936 17,548 16,319 16,786 17,687 24,493Current assets 9,868 10,285 11,368 12,271 13,470 18,868Total fixed assets 54,159 61,538 71,084 90,405 104,674 103,973Investments 3,104 6,786 10,843 10,843 10,843 10,843Deferred Expenditure 79 72 65 57 50 43Total assets 86,146 96,229 109,679 130,362 146,724 158,220

Free cash flow (Rs mn)Operating cash flow, excl. working capital 7,174 8,080 9,859 9,022 10,631 15,567Working capital 4,478 554 1,176 1,261 1,213 2,020Capital expenditure (14,932) (10,430) (13,136) (22,259) (17,327) (2,171)Investments (82) (3,482) (4,257) 0 — —Free cash flow (3,362) (5,277) (6,359) (11,976) (5,483) 15,416



Lower net realizations and volumes; operating profits benefit from lower costs

Castrol reported 4QCY11 net income at `1.07 bn (+0.8% yoy, +12.3% qoq), 2% below our expected `1.09 bn. The modest yoy decline in EBITDA to `1.56 bn (-0.4% yoy), despite (1) 4.6% lower implied net realizations at `59.3/liter and (2) 3.7% decline in volumes to 51.8 mn liters, reflects lower operating costs—(1) 8% decline in advertisement costs and (2) 28% decline in other expenditure. We note that Castrol has reported sharp 8.6% yoy decline in EBITDA in CY2011 led by (1) 5.1% decline in volumes and (2) lower EBITDA margins at 22.4% versus 26.7% in CY2010.

Volumes have been sluggish and will likely remain so

We highlight that Castrol has reported weak sales volumes for the past six quarters (see Exhibit 2). This reflects (1) structural slowdown in the industry and (2) loss of market share due to significant pricing premium for Castrol products. We have long-highlighted that volumes growth will be modest given (1) increase in oil-drain intervals and (2) lower lubricants consumption at the time of oil-drain. The recent slowdown in the economy will further accentuate the problem given (1) slowdown in sales of passenger cars and commercial vehicles and (2) slower industrial activity.

Downgrade to SELL; valuations remain expensive despite assuming expansion in margins

We revise our rating on Castrol stock to SELL from REDUCE previously given 16% potential downside to our revised target price of `400 (`410 previously) based on 19X CY2012E EPS of `21. The stock is currently trading at 22.6X CY2012E EPS which is well above its historical P/E band of 14-18X (see Exhibit 3). We have already assumed EBITDA margins to increase to 23% in CY2012E and 24.1% in CY2013E from 22.4% in CY2011 led by increase in net realization (gross realization less raw material cost) to `65.7/liter for CY2012E and `68.5/liter for CY2013E versus `62.5 in CY2011 given lower LOBS prices.

Revise earnings

We have revised our CY2012-13E EPS estimates to `21 and `22.3 from `21.6 and `22.7 to reflect (1) weaker Rupee assumptions, (2) lower volumes, (3) CY2011 results and (4) other minor changes.

Castrol India (CSTRL)

Energy

Volumes continue to disappoint. Castrol reported 4QCY11 EBITDA at `1.56 bn (-0.4% yoy), 3.5% below our estimate of `1.62 bn. The negative variance reflects lower-than-expected volumes at 51.8 mn liters (-3.7% yoy) versus our estimate of 54.4 mn liters. We revise our rating on the Castrol stock to SELL from REDUCE previously noting (1) expensive valuations at 22.6X CY2012E EPS, especially in light of 8.6% yoy decline in operating profits, and (2) potential downside of 16% to our revised target price of `400 (`410 previously).

Castrol India (a)Stock data Forecasts/Valuations 2012 2013E 2014E



Price performance (%) 1M 3M 12M EV/EBITDA (X) 15.0 14.0 13.2Absolute 11.5 2.5 17.7 ROE (%) 90.4 91.4 90.5Rel. to BSE-30 1.3 (0.8) 17.4 Div. Yield (%) 3.2 3.5 3.7


588-379

SELL

FEBRUARY 13, 2012

RESULT, CHANGE IN RECO.


Price (Rs): 474


BSE-30: 17,773

QUICK NUMBERS

• 5.1% yoy decline in volumes to 208 mn liters in CY2011

• CY2011 EBITDA margin at 22.4% versus 26.7% in CY2010

• 16% downside from current levels

Castrol India Energy


Interim results of Castrol, calendar year-ends (` mn)

(% chg.) yoy4QCY11 4QCY11E 4QCY10 3QCY11 4QCY11E 4QCY10 3QCY11 CY2011 CY2010 (% chg.) 2012E

Net sales 7,727 7,973 6,981 6,741 (3.1) 10.7 14.6 29,932 27,429 9.1 31,710 Raw materials 4,654 4,803 3,634 3,948 (3.1) 28.1 17.9 16,945 13,846 22.4 17,624 Employees 285 279 306 318 2.2 (6.9) (10.4) 1,159 1,035 12.0 1,275 Others 1,225 1,272 1,471 1,147 (3.7) (16.7) 6.8 5,130 5,216 (1.6) 5,507 Advertisement 469 475 509 433 (1.3) (7.9) 8.3 2,154 1,624 32.6 2,326 CIF costs 191 209 178 193 (8.5) 7.3 (1.0) 820 809 1.4 869 Other exp 565 589 784 521 (4.0) (27.9) 8.4 2,156 2,783 (22.5) 2,311 Total expenditure 6,164 6,354 5,411 5,413 (3.0) 13.9 13.9 23,234 20,097 15.6 24,405 EBITDA 1,563 1,620 1,570 1,328 (3.5) (0.4) 17.7 6,698 7,332 (8.6) 7,305 EBITDA margin (%) 20.2 20.3 22.5 19.7 22.4 26.7 23.0 Other income 114 108 87 145 5.6 31.0 (21.4) 731 313 133.5 650 Interest 4 7 7 9 (42.9) (42.9) (55.6) 19 24 (20.8) 20 Depreciation 63 62 62 62 1.1 1.6 1.6 251 243 3.3 260 Pre-tax profits 1,610 1,658 1,588 1,402 (2.9) 1.4 14.8 7,159 7,378 (3.0) 7,675 Tax 542 568 529 451 (4.6) 2.5 20.2 2,349 2,475 (5.1) 2,530 Deferred tax — — — — — — (39) Adjusted net income 1,068 1,090 1,059 951 (2.0) 0.8 12.3 4,810 4,903 (1.9) 5,185 Effective tax rate (%) 33.7 34.2 33.3 32.2 32.8 33.5 32.4 EPS (Rs) 4.3 4.4 4.3 3.8 (2.0) 0.8 12.3 19.5 19.8 (1.9) 21.0

`Other detailsSales volumes (mn lt) 51.8 54.4 53.8 46.0 (4.7) (3.7) 12.6 207.8 219.0 (5.1) 214.4 Gross realization (Rs/lt) 149.2 146.6 129.8 146.5 1.7 15.0 1.8 144.0 125.2 15.0 147.9 Raw material (Rs/lt) 89.8 88.3 67.5 85.8 1.7 33.0 4.7 81.5 63.2 29.0 82.2 Net realization (Rs/lt) 59.3 58.3 62.2 60.7 1.7 (4.6) (2.3) 62.5 62.0 0.8 65.7 Segment detailsRevenuesAutomotive 6,653 5,993 5,652 11.0 17.7 25,541 23,648 8.0 Non-automotive 1,041 965 1,064 7.9 (2.2) 4,276 3,699 15.6 Total 7,694 6,958 6,716 10.6 14.6 29,817 27,347 9.0 EBITAutomotive 1,283 1,264 1,042 1.5 23.1 5,616 6,109 (8.1) Non-automotive 233 246 257 (5.3) (9.3) 1,048 1,034 1.4 Total 1,516 1,510 1,299 0.4 16.7 6,664 7,143 (6.7) EBIT margin (%)Automotive 19.3 21.1 18.4 22.0 25.8 Non-automotive 22.4 25.5 24.2 24.5 28.0 Total 19.7 21.7 19.3 22.3 26.1 Sales volume (mn lt)Automotive 44.3 45.6 38.3 (2.9) 15.7 175.8 190.1 (7.5) 181.2 Non-automotive 7.4 8.2 7.7 (9.8) (3.9) 31.9 28.9 10.4 33.2 Sales realization (Rs/lt)Automotive 150.2 131.4 147.6 14.3 1.8 145.3 124.4 16.8 Non-automotive 140.7 117.7 138.2 19.5 1.8 134.0 128.0 4.7 Capital employedAutomotive 1,277 628 2,445 103.3 (47.8) 1,277 628 103.3 Non-automotive 1,020 848 1,174 20.3 (13.1) 1,020 848 20.3 Unallocable assets less liabilities 3,745 4,059 3,653 (7.7) 2.5 3,745 4,059 (7.7) Total 6,042 5,535 7,272 9.2 (16.9) 6,042 5,535 9.2


Energy Castrol India


Castrol has reported weak volumes over the past six quarters Quarterly volumes, calendar year-ends, 2007-11 (mn liters)

1Q 2Q 3Q 4QSales volumes (mn liters)2007 51.4 62.2 50.0 55.6 2008 54.3 63.9 50.6 46.0 2009 45.2 56.0 50.7 53.7 2010 54.6 60.2 50.4 53.8 2011 55.9 54.1 46.0 51.8 Growth (% yoy)2008 6% 3% 1% -17%2009 -17% -12% 0% 17%2010 21% 8% -1% 0%2011 2% -10% -9% -4%


Castrol stock has historically traded at 14-18X forward earnings 12-month forward P/E for Castrol India

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CSTRL stock price [LHS] CSTRL 12-month forward P/E [RHS]

(Rs) (X)

Source: Bloomberg, Company, Kotak Institutional Equities estimates

Key details of 4QCY11 results

Moderate decline in volumes yoy. Castrol’s volumes declined 3.7% yoy to 51.8 mn liters versus 53.8 mn liters in 4QCY10. The decline in volumes in the recent quarters reflects loss of market share led by sharp increase in price premium for Castrol’s products due to delays in price hikes affected by the competition.

The management highlighted that price premium of Castrol’s products has declined to long-term levels of 20-25% in the recent months led by (1) prices hikes affected by the competition from August 2011, (2) clearance of old low-priced inventory and (3) reduction of rebates offered by the competitors. The management has guided that the situation has improved in the recent months and it expects to achieve flat yoy volumes in 1QCY12E.



Increase in realization. Castrol’s 4QCY11 gross realization increased to `149.2/liter versus `146.5/liter in 3QCY11 and `129.8/liter in 4QCY10. The sequential improvement in gross realization reflects a presumably better product mix.

Increase in raw material cost. Castrol reported 4.7% qoq increase in unit raw material cost to `89.8/liter versus `85.8/liter in 3QCY11. The qoq increase in raw material cost despite 6-7% decline in global LOBS prices reflects a weaker Rupee.

Advertisement costs and other expenditure. Castrol reported advertisement costs at `469 mn (+8.3% qoq, -7.9% yoy) and other expenditure at `565 mn (+8.4% qoq, -27.9% yoy).

Other income. Castrol reported other income at `114 mn (+31% yoy, -21.4% qoq). The yoy increase in other income reflects higher cash balance and higher interest rates.

Automotive segment reports revenue growth but margins contract yoy

Castrol’s 4QCY11 automotive lubes segment’s revenues increased 11% yoy to `6.65 bn reflecting 14.3% increase in gross realization. EBIT increased modestly by 1.5% yoy to `1.28 bn. The automotive segment’s EBIT margin was at 19.3% in 4QCY11 compared to 21.1% in 4QCY10 and 18.4% in 3QCY11. The automotive sales volume declined 2.9% yoy to 44.3 mn liters.

Industrial segment reports lower EBIT led by sharp decline in volumes yoy

Castrol’s industrial lubes segment reported 7.9% yoy growth in revenues to `1.04 bn. EBIT declined 5.3% yoy to `233 mn. Industrial segment’s EBIT margin was lower at 22.4% in 4QCY11 compared to 25.5% in 4QCY10 and 24.2% in 3QCY11. The non-automotive sales volume declined 9.8% yoy to 7.8 mn liters.

Key assumptions

Exhibit 4 gives key assumptions for our earnings. We discuss the same in detail below.

Castrol: Key assumptions, calendar year-ends, 2007-13E

2007 2008 2009 2010 2011E 2012E 2013EVolume (Kilo litres)Industrial grades 43,773 31,928 27,394 28,870 31,902 33,178 33,841 Automotive grades 175,093 180,927 175,528 188,201 173,709 178,920 182,499 Traded items 1,114 1,723 1,614 2,063 2,166 2,274 2,388 Total 219,980 214,578 204,536 219,134 207,777 214,373 218,728 Growth (%) (2.6) (2.5) (4.7) 7.1 (5.2) 3.2 2.0 Raw material prices (US$/ton)LOBS prices 786 1,041 721 920 1,240 1,195 1,135 Macro assumptionsINR/US$ 41.3 43.6 48.4 45.7 46.7 50.5 50.0 Realization (Rs/lt)Gross realization 85.8 102.8 113.3 124.8 144.1 147.9 147.3 Raw material cost 48.5 63.2 53.6 64.1 81.6 82.2 78.8 Net realization 37.3 39.6 59.8 60.7 62.5 65.7 68.5 EBITDA margin (%) 17.5 18.1 24.8 26.5 22.4 23.0 24.1


Volumes. We model 3.2% yoy increase in sales volumes for CY2012E and 2% yoy increase in CY2013E versus decline of 5.2% yoy in CY2011. The decline in sales volume in CY2011 reflects loss of market share due to delay in price hikes taken by the competition. However, we expect the volumes to recover in CY2012-13E given the narrowing of price premium of Castrol’s products to its long-term levels.

Energy Castrol India


Lubes prices. We model lube realization to increase by 2.7% in CY2012E and remain flat in CY2013E. The company has reported ~15% increase in gross realizations in CY2011 led by price hikes of 6-7% effected in mid-December 2010 and 10% in end-March 2011. We expect prices to remain at the same levels for the next two years.

LOBS prices. We assume yoy decline of US$45/ton in LOBS prices for CY2012E and US$60/ton for CY2013E to reflect our assumption of lower crude oil prices.

Net realization. We estimate Castrol’s net realization to increase to `65.7/liter in CY2012E and `68.5/liter in CY2013E versus `62.5/liter in CY2011. The increase in net realization reflects expansion in margins from potential yoy decline in LOBS prices.

Exchange rate assumption. We have revised our exchange rate assumptions for CY2012E and CY2013E to `50.5/US$ and `50/US$ from `49.5/US$ and `48.5/US$ previously.

Castrol has high leverage to exchange rate and raw material prices Sensitivity of Castrol's earnings to key variables

CY2012E CY2013EDownside Base case Upside Downside Base case Upside

Exchange rateRupee dollar 51.5 50.5 49.5 51.0 50.0 49.0Net profits (Rs mn) 5,029 5,185 5,340 5,368 5,519 5,669EPS (Rs) 20.3 21.0 21.6 21.7 22.3 22.9% upside/(downside) (3.0) 3.0 (2.7) 2.7

Raw material priceRaw material price (US$/ton) 1,220 1,195 1,170 1,160 1,135 1,110Net profits (Rs mn) 5,021 5,185 5,349 5,353 5,519 5,685EPS (Rs) 20.3 21.0 21.6 21.6 22.3 23.0% upside/(downside) (3.2) 3.2 (3.0) 3.0




Castrol: Profit model, balance sheet, cash model, calendar year-ends, 2007-13E (` mn)

2007 2008 2009 2010 2011E 2012E 2013EProfit model (Rs mn)Net sales 18,883 22,057 23,182 27,348 29,932 31,710 32,214EBITDA 3,296 3,997 5,754 7,251 6,698 7,305 7,773Other income 348 418 361 395 731 650 680Interest (38) (37) (35) (24) (19) (20) (20)Depreciation (208) (257) (272) (243) (251) (260) (264)Pretax profits 3,398 4,122 5,808 7,378 7,159 7,675 8,169Tax (1,455) (1,568) (2,075) (2,511) (2,540) (2,530) (2,695)Deferred taxation 236 86 78 25 191 39 44Net profits 2,184 2,624 3,811 4,903 4,810 5,185 5,519Earnings per share (Rs) 8.8 10.7 15.4 19.8 19.5 21.0 22.3

Balance sheet (Rs mn)Total equity 4,302 4,756 4,950 5,535 6,034 6,477 6,966Deferred taxation liability (182) (268) (346) (371) (562) (601) (646)Total borrowings 28 28 — — — — —Currrent liabilities 5,116 4,690 6,812 7,692 7,992 7,648 7,539Total liabilities and equity 9,264 9,205 11,416 12,856 13,464 13,523 13,859Cash 3,179 2,556 5,258 6,193 5,482 5,560 5,966Current assets 4,546 5,199 4,778 5,294 6,546 6,637 6,681Total fixed assets 1,333 1,445 1,375 1,369 1,436 1,326 1,213Investments 206 5 5 — — — —Total assets 9,264 9,205 11,416 12,856 13,464 13,523 13,859

Free cash flow (Rs mn)Operating cash flow, excl. working capital 2,046 2,772 3,834 4,988 4,139 4,755 5,058Working capital 1,484 (1,193) 1,792 135 (952) (435) (153)Capital expenditure (243) (371) (344) (257) (318) (150) (150)Free cash flow 3,287 1,208 5,281 4,867 2,869 4,170 4,755Investments 224 201 — 5 — — —Other income 151 210 188 244 731 650 680

Ratios (%)Debt/equity 0.7 0.6 — — — — —Net debt/equity 0.7 0.6 — — — — —RoAE 52.3 61.0 83.8 100.4 90.4 91.4 90.5 RoACE 52.4 61.4 84.1 100.6 90.7 91.6 90.7

AssumptionsVolume (mn litres) 220.0 214.6 204.5 219.1 207.8 214.4 218.7Gross realization (Rs/lt) 85.8 102.8 113.3 124.8 144.1 147.9 147.3Net realization (Rs/lt) 37.3 39.6 59.8 60.7 62.5 65.7 68.5



Business strategy has driven superior performance

We believe that IDFC is well-placed to deliver 24% and 18% loan growth in FY2012E and FY2013E thereby driving 25% and 21% earnings growth. Key positive drivers at IDFC include:

Loan refinance underpins disbursements. In December 2011, IDFC reported 25% yoy and 12% qoq loan growth. This was driven by superior new business and lower repayments. Gross disbursements increased by 16% yoy and 60% qoq to Rs58 bn. In the earnings conference call, the management highlighted that most of the business was on account of refinance of loans in telecom and transportation sectors; loans to telecom companies have a shorter duration (2-3 years) while those to road projects are much longer. We note that IDFC’s lending rate is currently lower than most public banks (primarily SBI).

Lower repayment rate in 3Q. Repayment rate (repayments/opening loan book) declined to 3% for the quarter from 5% in 2QFY12 and 13% in 3QFY11. Notably, repayment rate in 3QFY12 was the lowest in the past four years likely due to its better competitive position.

New avenues for borrowings improve financial flexibility. During the quarter, IDFC raised Rs30 bn (7% of outstanding borrowings) of domestic loans from FIIs at 25-50 bps lower than other market borrowings. The management has guided that (hedged) foreign current loans/ Rupee loans from FIIs would contribute to about 20% of its incremental borrowings though the benefit (of lower rate) may depend on market conditions.

Proposed real estate fund indicates management focus on mezzanine. IDFC’s management has proposed to raise a real estate fund in their alternatives vertical in FY2012E. The company has not shared more details on this. Notably, IDFC has stayed away from a real estate sector fund in the past. While the business plan for this fund is nascent and this fund may not materially add to IDFC fees, the proposal highlights the management’s increasing focus on mezzanine debt business, a strategy envisaged at the beginning of the year.

IDFC (IDFC)


Retain positive stance on the back of superior performance. We continue to believe that IDFC remains one of the best plays on infrastructure finance. We retain positive stance on IDFC given higher-than-expected growth trajectory and NIM besides superior asset quality performance (as compared to peers) even as the operating environment for infrastructure companies remains challenging. Retain ADD with target price of Rs155 (Rs150 earlier).

IDFCStock data Forecasts/Valuations 2012 2013E 2014E


Shareholding pattern (%) P/E (X) 12.7 10.5 9.1Promoters 0.0 NII (Rs bn) 21.5 26.7 30.7FIIs 47.2 Net profits (Rs bn) 16.0 19.3 22.1MFs 4.1 BVPS 82.7 92.5 103.7

Price performance (%) 1M 3M 12M P/B (X) 1.6 1.4 1.3Absolute 23.4 12.7 (1.1) ROE (%) 13.9 14.6 14.9Rel. to BSE-30 12.2 9.0 (1.3) Div. Yield (%) 1.5 1.9 2.2


167-90

ADD

FEBRUARY 13, 2012

UPDATE


Price (Rs): 134


BSE-30: 17,773

IDFC Banks/Financial Institutions


Operating environment remains challenging

While IDFC has raised its loan growth estimate to 20% for FY2012E and FY2013E (from 15% earlier), the operating environment remains challenging. The management highlighted that they remain cautious towards power sector and will not approve loans to thermal power plants in the near term. Notably, 15% of its total exposure is towards plants under construction (as of September 2012). While hike in power tariff at select SEBs is positive, resolution of other issues in the sector (lack of sufficient fuel supply and fixed tariff contracts of IPPs) are anxiously awaited.

NPL: Well-covered for now

IDFC reported a slippage of Rs700 mn during the quarter. The management highlighted that this was on account of a loan to a tourism company. As of December 2011, IDFC has gross NPLs of 0.3%; the management has guided for up to 1% gross NPLs over the medium term. IDFC has not restructured any loans in past nine months. It has excess provisions of Rs7 bn (1.5% of loan book). The company made provisions for equity investments of Rs470 mn; these will likely be reversed in 4QFY12E.

Revise estimates, retain ADD

We are raising our estimates for IDFC by 3% and 5% for FY2012E and FY2013E. We now model loan growth of 24% and 18% in FY2012E and FY2013E as compared to our earlier estimate of 17% and 21% respectively. We are also tweaking our NIM estimates on the back of higher-than-expected NIM during the quarter, a decline in interest rates in FY2012E will likely provide a further boost.

We retain ADD rating on IDFC with price target of Rs155. We value IDFC’s core business at 1.9X PBR FY2013E for core RoEs of 17%. Core business adds 78% value to our SOTP, the balance being largely from the asset management business.

IDFC—1-year forward rolling PER and PBR (X) August 2005-February 2012

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Banks/Financial Institutions IDFC


IDFC: Sum-of-the-parts based valuation March fiscal year-end, 2013E

Valuation Value per share (Rs mn) (Rs) Comments

IDFC (core) 179,129 119Based on residual growth model- implies 1.9X core PBR for medium term RoE of 16-17%

IDFC (Private equity) 6,862 5 10% of FY2013E AUM - US$1.8 bnIDFC (Project equity) 7,500 5 10% of FY2013E AUM - US$1.4 bnIDFC MF 8,348 6 3.5% of FY2013E AUMsIDFC Capital 4,456 3 10X FY2013E PATIDFC's investment in NSE 10,200 7 12X FY2013E PERValue of market investments 14,437 10 At book valueTotal 217,207 154


IDFC—old and new estimates March fiscal year-ends, 2012-13E (Rs mn)

Old estimates New estimates Old vs New (%)2012E 2013E 2012E 2013E 2012E 2013E

Net interest income 21,025 24,878 21,529 26,658 2 7 NIM (%) 4.0 4.1 4.0 4.2 — —Treasury and bank bal. 82,811 90,117 82,902 90,208 0 0

Cash and bank 28,174 30,964 28,265 31,055 0 0 Treasury book 54,637 59,153 54,637 59,153 — —

Infrastructure loans 441,141 534,309 465,236 547,336 5 2 Loan loss provisions 2,453 2,439 2,525 2,531 3 4 Other income 8,117 9,695 7,889 9,461 (3) (2)

Fee income 5,433 6,692 4,937 6,458 (9) (3)Capital gains 2,684 3,003 2,952 3,003 10 —

Operating expenses 6,000 7,557 5,322 7,356 (11) (3)Employee expenses 3,418 4,458 3,041 4,258 (11) (4)

PBT 21,104 24,992 21,985 26,645 4 7 Tax 5,607 6,672 6,029 7,350 8 10 Net profit 15,497 18,320 15,956 19,295 3 5 PBT-treasury 18,420 21,989 19,033 23,642 3 8


IDFC Banks/Financial Institutions


IDFC (consolidated), key ratios March fiscal year-ends, 2009-14E (%)

2009 2010 2011 2012E 2013E 2014EIncome Statement growth rate (%)Operating income 38 4 31 33 22 19 Net fund based income 35 26 45 27 24 15 Fee income 8 16 31 (24) 31 20

On AUM 287 (8) 25 0 16 21 Other operating income (15) 81 (30) 26 2 10 Operating expenses 55 9 46 (11) 38 19 Net profit 1 44 17 25 21 15 Core operating profit (PBT-treasury+provisions) 16 26 36 24 22 16 Balance Sheet growth rate (%)AssetsInvestments 40 (24) 40 (1) 8 7 Infrastructure loans 3 22 50 24 18 23 Total assets 7 13 42 20 16 20 LiabilitiesLoan funds 7 13 41 21 17 23 Total liabilities 6 12 41 20 17 22 Shareholders equity 10 14 48 20 12 12 Key ratios (%)Yield on

Earning assets exld treasury assets 11.3 10.7 10.7 10.8 11.1 11.1 Earning assets incl treasury income and assets 11.1 10.9 10.6 10.8 11.1 11.2 Infrastructure loans 11.8 11.3 11.0 11.3 11.5 11.5

Interest on bank deposits 10.0 15.4 19.9 14.7 16.5 15.0 Average cost of funds 9.1 7.8 7.5 8.0 8.1 8.2 Capital gains to eqty investments 10.1 14.1 9.1 11.4 11.5 12.0 NIM (excl capital gains) 3.2 3.6 4.1 4.0 4.2 4.1 Employee .exp to income 1.3 1.3 1.4 10.3 11.8 12.4 Operating expnses/ income 24.8 20.7 23.3 18.1 20.4 20.9 Du Pont (%age of average assets)Net interest income 3.1 3.6 4.0 4.0 4.2 4.1 Loan loss provisions 0.5 0.4 0.6 0.5 0.4 0.4 Other operating income 2.1 2.6 2.2 1.5 1.6 1.5 Operating expenses 1.3 1.3 1.4 1.0 1.2 1.2 ROA 2.6 3.4 3.1 3.0 3.0 3.0 Average assets/average equity 5.0 4.9 4.8 4.7 4.8 5.0 ROE 12.9 16.6 14.7 13.9 14.6 14.9


Banks/Financial Institutions IDFC


IDFC (consolidated): Income statement and balance sheet March fiscal year-ends, 2009-14E (Rs mn)

2009 2010 2011 2012E 2013E 2014ETotal income 36,338 39,446 50,015 62,328 75,881 89,926

Operating income 30,032 31,132 40,762 54,024 66,005 78,434 Dividend 542 1,321 819 818 817 858

Other charges — 15 15 15 15 15 Net fund based income 9,237 11,630 16,897 21,529 26,658 30,740 Less: provisions for NPLs 1,495 1,304 2,349 2,525 2,531 3,047 Net fund based income post provisions 7,742 10,326 14,548 19,003 24,126 27,694

Fee income 4,253 4,951 6,498 4,937 6,458 7,776 SSKI 1,070 1,793 1,818 989 1,299 1,556 On guarantees/commissions- standalone 1,032 1,184 2,212 1,473 2,278 2,742 Fees on AMC 2,150 1,975 2,468 2,476 2,881 3,478

Net operating income 13,835 18,608 23,386 26,893 33,587 38,770 Operating expenses 3,795 4,121 5,997 5,322 7,356 8,724 Profit before tax 10,254 14,519 17,804 21,985 26,645 30,460 Tax 2,697 3,611 4,991 6,029 7,350 8,360 Net profit 7,557 10,908 12,813 15,956 19,295 22,100 % growth 1 44 17 25 21 15 Net profit post minority interest 7,495 10,908 12,813 15,956 19,272 22,072 PBT - treasury 8,200 11,157 15,049 18,618 23,228 26,745 % chg 7 36 35 24 25 15 PBT - treasury + provisions 9,695 12,190 16,598 20,644 25,260 29,292 No. of shares 1,295 1,301 1,461 1,509 1,509 1,509 Balance SheetAssets

Mutual Funds 100 1,378 23 14 14 14 Equity Shares 19,652 20,910 21,973 20,875 21,918 23,014 Venture Capital Units 2,983 3,784 4,541 4,531 5,061 5,100 Infrastructure loans 205,918 250,270 376,523 465,236 547,336 671,308 Current assets 17,950 30,358 26,556 35,366 39,094 43,516 Fixed assets 4,438 4,131 3,907 4,038 4,222 4,431 Other assets 1,393 1,743 2,449 2,571 2,700 2,835

Total assets 305,583 344,291 490,519 587,253 679,485 814,376 LiabilitiesSubordinated debt (unsecured) 6,500 6,500 6,500 6,500 6,500 6,500 Loan funds 228,791 257,401 363,640 438,800 515,433 632,470 Current liabilities and provisions 8,622 10,290 16,295 17,138 18,029 18,968 Total liabilities 243,913 274,191 386,435 462,438 539,962 657,939 Paid-up capital 12,953 13,006 14,609 15,087 15,087 15,087 Reserves and surplus 48,717 57,094 89,474 109,728 124,437 141,351 Shareholders equity 61,670 70,100 104,084 124,815 139,523 156,437



The Government’s compensation for FY2012E in May 2012 will determine FY2012 numbers

We see little merit in analyzing the quarterly results of the downstream oil companies as their FY2012 results will depend on the final quantum of compensation from the Government and the upstream oil companies. The Government will decide the same at the time of the full-year results in May 2012. Despite stellar results in 3QFY12, we note that the downstream oil companies have reported large losses for 9MFY12 and will require considerably higher compensation than the quarterly run-rate of `150 bn to report profits in FY2012. We assume the Government will give the downstream oil companies sufficient compensation for HPCL to report nominal profits; we assume nil under-recoveries for the downstream oil companies in FY2012E.

Refining margins were subdued in 3QFY12, domestic sales volumes strong

All the three downstream companies reported stronger refining margins qoq despite weaker qoq benchmark margins. (1) Adventitious gains and (2) high proportion of diesel in product slate may have contributed to their better performance versus benchmark margins and our expectations. Domestic sales continue to be robust with the combined 3QFY12 and 9MFY12 sales of the downstream oil companies growing 7.7% and 6.4% yoy. We suspect the Government’s generous pricing of regulated fuels and continued shortage of gas may be driving the strong consumption.

Fine-tuned earnings estimates but difficult to estimate given large uncertainties

We model downstream companies to receive compensation of `292 bn from the Government and `238 bn from the upstream companies in 4QFY12E. We assume nil net under-recoveries for the downstream oil companies in FY2012E. Our assumptions translate into modest profits for the three companies. For FY2013E, we assume `75 bn of under-recoveries, moderate increases in domestic retail prices of diesel, kerosene and LPG and recovery in refining margins. We fine-tune FY2013 EPS estimates for BPCL, HPCL and IOCL to `53, `29 and `30 respectively from `46, `24 and `32 previously.

Inexpensive valuations but uncertainty about earnings rules out investment view

Exhibit 1 shows that the downstream companies are trading near the bottom end of their historical P/B trading ranges. However, our inability to estimate earnings properly due to the lack of transparent pricing or subsidy-sharing systems precludes a decisive investment view on the stocks. Deregulation of the oil sector is not imminent though we expect the Government to raise prices in FY2013 due to fiscal compulsions.

Energy India

Mayday, Mayday, Mayday. The downstream oil companies reported stellar 3QFY12 results due to payment of `300 bn by the Government. However, analysis of quarterly results is quite meaningless other than for keeping track of operating parameters since they give no indication of the companies’ full-year performance. The downstream oil companies will need strong support from the Government and upstream companies in 4QFY12 to report decent FY2012 results. We do not rate these downstream stocks currently.

RS

FEBRUARY 13, 2012

QUARTERLY UPDATE

BSE-30: 17,773

QUICK NUMBERS

• Refining margins up at US$3.5/bbl for BPCL, US$4.6/bbl for HPCL and S$4.3/bbl for IOCL in 3QFY12

• Net under-recovery of `154 bn for OMCs in 9MFY12

India Energy


Downstream companies are trading near the lower end of their historical P/B multiples Price/book (price to current year-end book) ratio for BPCL, HPCL and IOCL

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BPCL HPCL IOCL

Source: Bloomberg, Company, Kotak Institutional Equities estimates

Key highlights of BPCL’s 3QFY12 results

BPCL reported net income of `31.4 bn in 3QFY12 versus net loss of –`32.3 bn in 2QFY12 and net income of `1.9 bn in 3QFY11; our estimate was –`11.8 bn. The large variance from our estimate reflects (1) higher compensation from the Government given additional contribution of `150 bn to the downstream companies for 3QFY12 and (2) higher-than-expected refining margins.

The company reported EBITDA of `37.1 bn versus –`27 bn in 2QFY12 and `7.5 bn in 3QFY11. BPCL reported net over-recovery of `30.7 bn in 3QFY12 versus net under-recovery of `32.2 bn in 2QFY12 and `5.3 bn in 3QFY11. BPCL reported 9MFY12 EBITDA of –`11.5 bn, which includes net under-recovery of `33.8 bn. Exhibit 2 gives key highlights of BPCL’s 3QFY12 results and compares them on a yoy and qoq basis.

Energy India


Interim results of BPCL, March fiscal year-ends, (` mn)

(% chg.) yoy3QFY12 3QFY12E 3QFY11 2QFY12 3QFY12E 3QFY11 2QFY12 9MFY12 9MFY11 (% chg.) 2012E

Net sales 588,468 512,420 366,859 423,019 14.8 60.4 39.1 1,472,883 1,063,532 38.5 2,053,225 Increase/(decrease) in stock (2,164) (8,362) 5,367 9,521 16,056Raw material (224,132) (261,885) (147,450) (204,005) (14.4) 52.0 9.9 (620,581) (457,391) 35.7 (955,259)Trading purchase (288,574) (234,210) (178,431) (219,959) 23.2 61.7 31.2 (784,867) (524,750) 49.6 (983,575)Staff cost (4,892) (5,383) (5,696) (4,381) (9.1) (14.1) 11.7 (15,847) (15,634) 1.4 (21,250)Other expenses (31,610) (17,036) (19,433) (26,990) 85.5 62.7 17.1 (72,602) (63,518) 14.3 (50,062)Total expenditure (551,371) (518,514) (359,371) (449,967) 6.3 53.4 22.5 (1,484,376) (1,045,238) 42.0 (2,010,146)EBITDA 37,097 (6,093) 7,488 (26,948) (708.8) 395.4 (237.7) (11,493) 18,294 (162.8) 43,079Other income 4,166 4,151 3,103 3,787 0.4 34.3 10.0 12,227 11,648 5.0 16,685Interest (5,174) (5,095) (2,747) (4,532) 1.6 88.3 14.2 (13,055) (7,851) 66.3 (18,054)Depreciation (4,667) (4,745) (3,700) (4,600) (1.6) 26.1 1.4 (14,168) (11,726) 20.8 (19,056)Pretax profits 31,422 (11,782) 4,144 (32,293) (366.7) 658.3 (197.3) (26,489) 10,365 (355.6) 22,655Extraordinary item — — (1,050) — — (1,050) — Tax (26) — (1,220) — (26) (3,200) (7,564)Deferred tax — — — — — — 214Net income 31,396 (11,782) 1,874 (32,293) (366.5) 1,575.5 (197.2) (26,516) 6,115 (533.6) 15,304Adjusted net income 31,396 (11,782) 2,924 (32,293) (366.5) 973.8 (197.2) (26,516) 7,165 (470.1) 15,304EPS (Rs) 86.8 (32.6) 8.1 (89.3) (73.3) 19.8 42.3Tax rate (%) 0.1 — 29.4 — (0.1) 30.9 32.4

Volume dataCrude throughput (mn tons) 6.1 6.0 5.0 5.6 21.9 9.9 16.9 16.2 4.4 23.0 Domestic sales volume (mn tons) 8.0 7.8 7.4 7.0 8.6 14.2 22.9 21.5 6.5 31.1 Exports sales volume (mn tons) 1.0 0.6 0.9 50.8 1.1 2.6 1.9 34.9 3.4 Refining margin (US$/bbl) 3.5 2.0 4.6 1.6 (24.5) 111.1 2.8 3.6 (23.4) 3.1Inventory gain/(loss) 3,000 (2,350) 3,190 (240) 14,880 7,120 14,880Gross subsidy gain/(loss) (76,325) (74,269) (35,120) (48,650) (227,870) (106,250) (321,774)Receipt from upstream companies 35,727 35,096 11,706 16,418 86,236 35,415 144,798Receipt of oil bonds/cash from govt 69,937 34,800 18,099 — 105,182 47,577 176,976Net over-recovery/(under-recovery) 29,339 (4,373) (5,316) (32,232) (36,453) (23,258) — Exchange gain/(loss) (12,673) (7,943) (181) (8,011) (21,744) (575) (18,492)


Compensation (cash) from the Government, discounts from upstream companies. BPCL received `69.9 bn in compensation from the Government in 3QFY12 versus nil in 2QFY12 and `18.1 bn in 3QFY11. BPCL received `35.7 bn in discounts from upstream oil companies in 3QFY12 against `16.4 bn in 2QFY12 and `11.7 bn in 3QFY11. BPCL posted net over-recovery of `30.7 bn in 3QFY12 versus net under-recovery of `32.2 bn in 2QFY12 and `5.3 bn in 3QFY11.

Refining margin increases qoq. BPCL’s 3QFY12 refining margin was US$3.6/bbl versus US$1.6/bbl in 2QFY12 and US$4.6/bbl in 3QFY11. The company reported refining margins of US$2.8/bbl in 9MFY12 versus US$3.6/bbl in 9MFY11.

Refining throughput and sales volumes increases. BPCL’s two refineries processed 6.1 mn tons of crude in 3QFY12 against 5.6 mn tons in 2QFY12 and 5 mn tons in 3QFY11. BPCL’s sales volume (domestic) was 8 mn tons for 3QFY12 (+8.6% yoy and +14.2% qoq). The company reported crude throughput of 16.9 mn tons (+4.4% yoy) and domestic sales volume of 22.9 mn tons (+6.5% yoy) in 9MFY12.

Other expenditure increases sharply qoq led by higher foreign-exchange loss. BPCL’s other expenditure in 3QFY12 increased to `31.6 bn (+17.1% qoq) led by higher foreign exchange loss of `12.7 bn versus `8 bn in 2QFY12.

Key highlights of HPCL’s 3QFY12 results

HPCL reported net income of `27.3 bn in 3QFY12 versus net loss of –`33.6 bn in 2QFY12 and net income of `2.1 bn in 3QFY11; our estimate was –`14 bn. The large variance from our estimate reflects (1) higher compensation from the Government given additional contribution of `150 bn to the downstream companies in 3QFY12 and (2) higher-than-expected refining margins.

India Energy


The company reported EBITDA of `37 bn versus –`24.6 bn in 2QFY12 and `7.8 bn in 3QFY11. HPCL reported net over-recovery of `28.1 bn in 3QFY12 versus net under-recovery of `31.2 bn in 2QFY12 and `5.4 bn in 3QFY11. HPCL reported 9MFY12 EBITDA of –`12.9 bn, which includes net under-recovery of `33.8 bn. Exhibit 3 gives key highlights of HPCL’s 3QFY12 results and compares them on a yoy and qoq basis.

Interim results of HPCL, March fiscal year-ends, (` mn)


Net sales 480,475 467,505 340,560 371,042 2.8 41.1 29.5 1,260,686 942,277 33.8 1,886,070 Increase/(decrease) in stock (6,662) 16,877 9,720 (4,357) 16,551Raw materials (140,901) (178,529) (112,704) (146,259) (21.1) 25.0 (3.7) (426,803) (275,938) 54.7 (673,497)Staff cost (5,189) (4,593) (4,244) (4,512) 13.0 22.3 15.0 (15,096) (12,312) 22.6 (20,373)Product purchase (263,621) (275,149) (216,319) (229,967) (4.2) 21.9 14.6 (764,738) (612,759) 24.8 (1,116,969)Others (27,074) (18,897) (16,368) (24,624) 43.3 65.4 10.0 (62,632) (40,527) 54.5 (39,549)Total expenditure (443,449) (477,169) (332,758) (395,642) (7.1) 33.3 12.1 (1,273,626) (924,985) 37.7 (1,850,388)EBITDA 37,026 (9,664) 7,802 (24,600) (483.1) 374.6 (250.5) (12,940) 17,293 (174.8) 35,681Other income 1,575 3,045 1,449 2,231 (48.3) 8.7 (29.4) 5,203 5,315 (2.1) 7,253Interest (6,982) (3,468) (2,417) (7,126) 101.3 188.9 (2.0) (17,067) (6,585) 159.2 (20,650)Depreciation (4,368) (3,877) (3,647) (4,150) 12.7 19.8 5.3 (12,403) (10,054) 23.4 (16,785)Pretax profits 27,252 (13,964) 3,188 (33,644) (295.2) 754.9 (181.0) (37,207) 5,968 (723.4) 5,500Extraordinaries — — — 12 185 —Tax — — (1,078) (1) (1) (1,552) (1,100)Deferred tax — — — — — (434) (684)Net income 27,252 (13,964) 2,110 (33,645) (295.2) 1,191.4 (181.0) (37,196) 4,167 (992.6) 3,716Adjusted net income 27,252 (13,964) 2,110 (33,645) (295.2) 1,191.4 (181.0) (37,208) 3,982 (1,034.4) 3,716EPS (Rs) 80.4 (41.2) 6.2 (99.2) (109.8) 11.7 11.0Tax rate (%) — — 33.8 (0.0) (0.0) 32.3 32.4

Volume dataCrude throughput (mn tons) 4.1 4.2 4.1 4.2 (0.7) (2.9) 12.2 10.4 17.3 16.5Domestic sales volume (mn tons) 7.2 6.8 6.5 6.3 10.3 13.3 20.4 18.9 8.2 27.8Pipeline throughput (mn tons) 3.5 3.2 3.3 7.7 5.4 10.2 9.7 5.6Refining margin (US$/bbl) 4.6 2.3 5.2 1.9 2.6 4.0 3.3Inventory gain/(loss) 2,510 (2,375) 4,820 8,670 13,360 11,000 13,360Gross subsidy gain/(loss) (71,280) (69,614) (34,270) (46,860) (213,160) (102,600) (295,748)Receipt from upstream companies 33,514 32,888 11,419 15,615 80,796 34,199 133,086 Receipt of oil bonds/cash from government 65,824 32,830 17,479 — 98,571 45,799 162,661 Net over-recovery/(under-recovery) 28,057 (3,896) (5,373) (31,245) (33,793) (22,603) —


Compensation (cash) from the Government, discounts from upstream companies. HPCL received `65.8 bn in compensation from the Government in 3QFY12 versus nil in 2QFY12 and `17.5 bn in 3QFY11. HPCL received `33.5 bn in discounts from the upstream oil companies in 3QFY12 against `15.6 bn in 2QFY12 and `11.4 bn in 3QFY11. HPCL reported net over-recovery of `28.1 bn in 3QFY12 versus net under-recovery of `31.2 bn in 2QFY12 and `5.4 bn in 3QFY11.

Refining margins increase qoq. HPCL’s 3QFY12 refining margin was US$4.6/bbl versus US$1.9/bbl in 2QFY12 and US$5.2/bbl in 3QFY11. The company reported refining margins of US$2.6/bbl in 9MFY12 versus US$4/bbl in 9MFY11.

Refining throughput remains stable; sales volumes increase. HPCL’s two refineries processed 4.1 mn tons of crude in 3QFY12 against 4.2 mn tons in 2QFY12 and 4.1 mn tons in 3QFY11. HPCL’s sales volume (domestic) was 7.2 mn tons in 3QFY12 (+10.3% yoy and +13.3% qoq). The company reported crude throughput of 12.2 mn tons (+17.3% yoy) and domestic sales volume of 20.4 mn tons (+8.2% yoy) in 9MFY12.

Interest cost increases sharply yoy. The company reported interest cost of `7 bn in 3QFY12 versus `7.1 bn in 2QFY12 and `2.4 bn in 3QFY11. We note that the company accounted foreign-exchange loss on foreign-currency borrowings and interests in interest costs.

Energy India


Key highlights of IOCL’s 3QFY12 results

IOCL reported net income of `24.9 bn in 3QFY12 versus net loss of –`74.9 bn in 2QFY12 and net income of `16.3 bn in 3QFY11; our estimate was –`29 bn. The large variance from our estimate reflects (1) higher compensation from the Government given an additional contribution of `150 bn to downstream companies in 3QFY12 and (2) higher-than-expected refining margins.

The company reported EBITDA of `111.6 bn versus –`53.2 bn in 2QFY12 and `32.9 bn in 3QFY11. IOCL reported net over-recovery of `70 bn in 3QFY12 versus net under-recovery of `78.4 bn in 2QFY12 and `13.3 bn in 3QFY11. IOCL reported 9MFY12 EBITDA of `39.7 bn, which includes net under-recovery of `85.1 bn. Exhibit 4 gives key highlights of IOCL’s 3QFY12 results and compares them on a yoy and qoq basis.

Interim results of IOCL, March fiscal year-ends, (` mn)


Net sales (a) 1,156,419 1,409,497 808,973 891,851 (18.0) 42.9 29.7 3,061,115 2,301,576 33.0 5,451,892Total expenditure (1,044,836) (1,417,188) (776,056) (945,073) (26.3) 34.6 10.6 (3,021,373) (2,226,414) 35.7 (5,283,190) Increase/(Decrease) in stocks (16,624) 3,006 2,769 9,846 29,159 Purchase of products/crude for resale (451,758) (708,824) (368,002) (403,738) (36.3) 22.8 11.9 (1,346,139) (1,093,342) 23.1 (2,732,833) Consumption of raw materials (498,055) (635,422) (363,405) (463,449) (21.6) 37.1 7.5 (1,474,409) (1,024,990) 43.8 (2,388,066) Staff cost (11,705) (13,750) (14,092) (11,800) (14.9) (16.9) (0.8) (35,155) (39,927) (12.0) (50,135) Other expenditure (a) (66,694) (59,192) (33,563) (68,855) 12.7 98.7 (3.1) (175,516) (97,314) 80.4 (112,155)EBITDA 111,583 (7,691) 32,917 (53,222) (1,550.9) 239.0 (309.7) 39,742 75,161 (47.1) 168,702Other income 3,475 6,750 7,886 5,845 (48.5) (55.9) (40.5) 13,362 25,335 (47.3) 19,190Interest (15,652) (15,094) (7,233) (14,840) 3.7 116.4 5.5 (40,868) (18,024) 126.7 (55,771)Depreciation (12,839) (12,984) (11,778) (12,638) (1.1) 9.0 1.6 (37,712) (33,302) 13.2 (50,381)Pretax profits 86,566 (29,019) 21,793 (74,856) (398.3) 297.2 (215.6) (25,476) 49,171 (151.8) 81,740Previous years arrears/extraordinary income (61,682) — — — (61,682) — (61,682)Tax — — (5,445) — — (5,445) 815Deferred tax — — — — — (8,323) (7,323)Net income 24,884 (29,019) 16,348 (74,856) (185.8) 52.2 (133.2) (87,158) 35,403 (346.2) 13,551EPS (Rs) 10.2 (12.0) 6.7 (30.8) (35.9) 14.6 5.6Tax rate (%) 0.0 — 25.0 — — 28.0 32.4

Volume dataCrude throughput (mn tons) 14.2 14.0 13.3 13.0 6.4 8.6 41.5 38.7 7.2 55.7Domestic sales (mn tons) 18.4 18.0 17.3 16.4 6.3 11.7 53.0 50.2 5.6 71.7Export sales (mn tons) 0.9 1.2 1.3 (19.6) (26.3) 3.2 3.5 (6.7)Pipelines throughput (mn tons) 18.2 17.1 17.8 6.3 2.3 55.2 49.1 12.4Refining margin (US$/bbl) 4.3 0.8 6.3 (0.0) 3.4 5.3 (35.2) 5.2Inventory gain/(loss)-products (Rs mn) 10,320 (9,725) 3,260 9,930 34,300 8,080Gross subsidy gain/(loss) (Rs mn) (177,577) (176,830) (86,577) (117,576) (533,210) (260,782) (742,357)Receipt from upstream companies (Rs mn) 83,359 83,324 28,861 39,209 201,892 86,929 334,060Oil bonds/cash from government (Rs mn) 164,239 82,370 44,425 — 246,248 116,624 408,296Net over-recovery/(under-recovery) 70,021 (11,136) (13,291) (78,367) (85,071) (57,229) —Exchange gain/(loss) (Rs mn) (20,056) (25,661) 3,020 (23,346) (43,152) 4,780 (35,884)


Compensation (cash) from the Government, discounts from upstream companies. IOCL received `164.2 bn in compensation from the Government in 3QFY12 versus nil in 2QFY12 and `44.4 bn in 3QFY11. IOCL received `83.4 bn in discounts from the upstream oil companies in 3QFY12 against `39.2 bn in 2QFY12 and `28.9 bn in 3QFY11. IOCL reported net over-recovery of `70 bn in 3QFY12 versus net under-recovery of `78.4 bn in 2QFY12 and `13.3 bn in 3QFY11.

Refining margins increase qoq. IOCL’s 3QFY12 refining margin was US$4.3/bbl versus –US$0.03/bbl in 2QFY12 and US$6.3/bbl in 3QFY11. The company reported refining margins of US$3.4/bbl in 9MFY12 versus US$5.3/bbl in 9MFY11.

Refining throughput and sales volumes increase. IOCL’s refineries processed 14.2 mn tons of crude in 3QFY12 against 13 mn tons in 2QFY12 and 13.3 mn tons in 3QFY11. IOCL’s sales volume (domestic) was 18.4 mn tons in 3QFY12 (+6.3% yoy and +11.7% qoq). The company reported crude throughput of 41.5 mn tons (+7.2% yoy) and domestic sales volume of 53 mn tons (+5.6% yoy) in 9MFY12.

India Energy


Lower other expenditure qoq. IOCL’s other expenditure in 3QFY12 declined to `66.7 bn (-3.1% qoq) led by a lower foreign-exchange loss of `20.1 bn versus `23.3 bn in 2QFY12.

Interest expenses increase qoq. IOCL’s interest expense increased to `15.7 bn (+5.5% qoq and +116% yoy), led by higher debt and increase in interest rates.

Petchem EBIT. IOCL reported EBIT of –`1.7 bn from the sale of petrochemical products versus `634.5 mn in 2QFY12 and –`5.5 bn in 3QFY11. Petrochemical sales volumes were at 0.349 mn tons versus 0.417 mn tons in 2QFY12 and 0.186 mn tons in 3QFY11.

Adventitious gain. IOCL reported an adventitious gain of `10.3 bn versus `9.9 bn in 2QFY12 and `3.3 bn in 3QFY11. We highlight that this reflects adventitious gains on the marketing side of the business.

Earnings revisions and key assumptions behind earnings model of BPCL

We have revised our FY2012, FY2013 and FY2014 EPS estimates to `42, `53 and `59 respectively from `31, `46 and `49. We discuss the key assumptions (see Exhibit 5) behind our earnings model below.

BPCL earnings model assumptions, March fiscal year-ends, 2007-2014E

2007 2008 2009 2010 2011 2012E 2013E 2014E Rs/US$ 45.3 40.3 45.8 47.4 45.6 48.0 50.5 50.0 Weighted average duty on products (%) 6.7 6.6 3.3 2.6 5.8 3.0 2.2 2.2 Import tariff on crude (%) 5.1 5.2 0.9 0.4 5.2 1.2 — —Import 'tariff' on domestic crude (%) 2.6 2.6 0.5 0.2 2.6 0.6 — —Effective duty protection (%) 1.6 1.4 2.4 2.2 0.7 1.8 2.2 2.2 Refinery yield (US$/bbl) 71.5 89.6 97.5 73.2 93.9 118.9 110.2 105.6 Cost of crude (US$/bbl) -Imported 64.0 78.8 90.0 69.8 84.7 113.7 105.7 100.7 -Domestic 68.7 84.1 94.9 70.8 88.0 117.0 109.0 104.0 Landed cost of crude (US$/bbl) 68.3 84.0 92.4 70.3 89.4 115.8 106.7 101.7 Net refining margin (US$/bbl) 3.2 5.6 5.2 2.9 4.5 3.1 3.5 3.9 Crude throughput (mn tons) 19.8 20.9 20.0 20.4 21.8 23.0 23.0 23.0 -Imported 13.5 13.9 13.1 14.1 14.8 16.0 16.0 16.0 -Domestic 6.3 7.0 6.8 6.3 7.0 7.0 7.0 7.0 Production of main products 17.9 19.0 18.1 18.6 19.9 20.9 20.9 20.8 Production of other products 0.6 0.6 0.6 0.6 0.7 0.8 0.8 0.9 Fuel and loss 1.3 1.4 1.3 1.2 1.2 1.3 1.3 1.3 Fuel and loss (%) 6.6 6.6 6.6 5.9 5.7 5.7 5.7 5.7 Sales volume (mn tons) 24.5 26.7 27.8 29.5 31.3 34.4 35.9 37.6 Marketing margins (Rs/ton) (1,140) (3,010) (5,944) 573 (1,933) (6,944) (2,174) 124


Compensation from Government and discount from upstream companies. We model BPCL to receive compensation of `177 bn, `86 bn and `47 bn from the Government in FY2012, FY2013 and FY2014 respectively. We assume BPCL will receive a discount of `145 bn in FY2012, `104 bn for FY2013 and `64 bn for FY2014 from the upstream companies. We assume nil subsidy losses in FY2012 and net under-recoveries of `17.5 bn and `17 bn for FY2013 and FY2014 respectively against `15.8 bn in FY2011.

Refining margins. We model BPCL’s refining margin at US$3.1/bbl in FY2012, US$3.5/bbl in FY2013 and US$3.9/bbl in FY2014 compared with US$2.8/bbl in 9MFY12 and US$4.5/bbl in FY2011. We have accounted for 9MFY12 adventitious gains of `14.9 bn in FY2012E earnings. We assume no gains or losses in FY2013-15 versus adventitious gains of `10 bn (US$1.4/bbl) in FY2011.

Energy India


Crude throughput. We model crude throughput of 23 mn tons over FY2012-14 versus 21.8 mn tons in FY2011.

Marketing margins. We model marketing margin on gasoline and diesel of –`2,025/ton and –`11,168/ton in FY2012 and `1,350/ton and –`4,259/ton in FY2013 compared with –`2,984/ton and –`3,243/ton in FY2011.

Crude oil price assumption. We have assumed higher crude oil (Dated Brent) prices for FY2012, FY2013 and FY2014 at US$113/bbl, US$105/bbl and US$100/bbl respectively versus US$110/bbl, US$100/bbl and US$95/bbl previously.

INR-USD exchange rate. We have revised our exchange rate assumption for FY2012, FY2013 and FY2014 to `48/US$, `50.5/US$ and `50/US$ respectively versus `48.7/US$, `52.5/US$ and `51/US$ previously.

Earnings revisions and key assumptions behind HPCL’s earnings model

We have revised our FY2012, FY2013 and FY2014 EPS estimates to `11, `29 and `31 respectively from `14, `24 and `24. We discuss the key assumptions (see Exhibit 6) behind our earnings model.

HPCL earnings model assumptions, March fiscal year-ends, 2007-2014E

2007 2008 2009 2010 2011 2012E 2013E 2014E Rs/US$ 45.3 40.3 45.8 47.4 45.6 48.0 50.5 50.0 Weighted average duty on products (%) 6.6 6.5 3.3 2.9 6.7 3.6 2.6 2.6 Import duty on crude 5.1 5.2 0.9 0.4 5.2 1.2 — —Import ’tariff’ on domestic crude (%) 2.6 2.6 0.5 0.2 2.6 0.6 — —Effective duty protection (%) 1.4 1.3 2.4 2.5 1.6 2.4 2.6 2.6Refinery yield (US$/bbl) 73.1 89.8 96.0 73.3 94.7 119.0 110.1 105.4 Cost of crude (US$/bbl) -Imported 64.8 78.1 89.9 70.1 84.6 113.6 105.6 100.6 -Domestic 69.3 84.5 95.2 71.0 88.1 117.1 109.1 104.1 Landed cost of crude 68.8 83.2 92.0 70.6 89.4 115.7 106.5 101.4 Net refining margin (US$/bbl) 4.3 6.6 4.0 2.7 5.3 3.3 3.7 4.0 Crude throughput (mn tons) 16.7 16.8 15.8 15.8 14.8 16.5 17.7 18.0 -Imported 12.9 12.6 11.7 11.3 10.6 12.3 13.5 13.8 -Domestic 3.8 4.2 4.2 4.5 4.2 4.2 4.2 4.2 Production of main products 15.2 15.2 14.4 14.1 13.1 14.7 15.8 16.1 Production of other products 0.4 0.6 0.4 0.6 0.5 0.5 0.5 0.5 Fuel and loss 1.0 1.0 1.0 1.1 1.1 1.2 1.3 1.3 Fuel and loss (%) 6.0 6.0 6.1 7.2 7.5 7.5 7.5 7.5 Sales volume (mn tons) 23.4 26.2 27.0 27.7 27.7 29.4 30.7 32.1Marketing margin (Rs/ton) (710) (2,345) (5,021) 698 (1,885) (6,610) (2,007) 181


Compensation from Government and discount from upstream companies. We model HPCL to receive compensation of `163 bn, `82 bn and `46 bn from the Government in FY2012, FY2013 and FY2014 respectively. We assume HPCL will receive a discount of `133 bn for FY2012, `99 bn for FY2013 and `63 bn for FY2014 from the upstream oil companies. We assume nil subsidy losses in FY2012 and net under-recoveries of `16.6 bn and `16.7 bn for FY2013 and FY2014 respectively against `15 bn in FY2011.

Refining margins. We model refining margin for HPCL of US$3.3/bbl in FY2012, US$3.7/bbl in FY2013 and US$4/bbl in FY2014 against US$2.6/bbl in 9MFY12 and US$5.3/bbl in FY2011. We have accounted for 9MFY12 adventitious gains of `13.4 bn in the FY2012 earnings. We assume no gains or losses over FY2013-15 versus adventitious gains of `5.5 bn in FY2011.

India Energy


Crude throughput. We model crude throughput of 16.5 mn tons, 17.7 mn tons and 18 mn tons in FY2012, FY2013 and FY2014 respectively versus 14.8 mn tons in FY2011.

Marketing margins. We model marketing margins on gasoline and diesel of –`2,025/ton and –`11,168/ton respectively in FY2012 and `1,350/ton and –`4,259/ton respectively in FY2013 against –`2,984/ton and –`3,243/ton in FY2011.



Earnings revisions and key assumptions behind the earnings model of IOCL

We have revised our FY2012, FY2013 and FY2014 EPS estimates to `23, `30 and `34 respectively from `16, `32 and `35. We discuss key assumptions (see Exhibit 7) behind our earnings model below.

IOCL earnings model assumptions, March fiscal year-ends, 2007-2014E

2007 2008 2009 2010 2011 2012E 2013E 2014ERs/US$ 45.3 40.3 45.8 47.4 45.6 48.0 50.5 50.0 Weighted average duty on products (%) 6.7 6.5 3.7 2.6 5.9 3.1 2.3 2.3 Import duty on crude (%) 5.1 5.2 0.9 0.4 5.2 1.2 — —Effective 'import duty' on domestic crude (%) 2.6 2.6 0.5 0.2 2.6 0.6 — —Effective duty protection (%) 1.6 1.3 2.8 2.2 0.8 1.9 2.3 2.3 Refinery yield (US$/bbl) 71.1 91.0 94.9 73.7 94.3 120.1 111.6 107.0 Cost of crude (US$/bbl)Domestic - Northeast 61.8 74.8 87.3 67.6 82.4 111.4 103.4 98.4 - Gujarat 58.4 73.8 84.1 64.4 80.0 109.0 101.0 96.0 - Rest of India 67.2 82.2 92.9 69.2 85.9 114.9 106.9 101.9 Imported 65.2 80.3 91.3 69.7 85.5 114.5 106.5 101.5 Landed cost of crude (US$/bbl) 66.9 82.8 91.1 69.2 88.3 114.9 105.8 100.8 Net refining margin (US$/bbl) 4.2 8.2 3.7 4.5 6.0 5.2 5.8 6.2 Crude throughput (mn tons) 44.0 47.4 51.3 50.7 53.0 55.7 56.5 56.5 Domestic - Northeast 1.5 1.5 2.1 2.1 2.2 2.2 2.2 2.2 - Gujarat 5.9 5.9 6.0 5.8 5.9 6.2 6.2 6.2 - Rest of India 2.7 2.7 4.9 4.8 4.8 5.0 5.1 5.1 Imported 33.9 37.3 38.3 38.0 40.0 42.3 43.0 43.0 Other products 1.1 1.1 1.4 1.4 1.5 1.4 1.4 1.4 Fuel and loss 3.9 4.2 4.2 4.5 4.7 4.9 5.0 5.0 Production of main products 38.9 42.1 45.7 44.8 46.8 49.4 50.1 50.1 Fuel and loss (%) 8.9 8.8 8.2 8.8 8.8 8.8 8.8 8.8 Sales volume (mn tons) 53.4 57.4 61.0 64.0 67.1 71.7 74.9 78.5 Marketing margin (Rs/ton) (633) (2,203) (5,266) 955 (1,338) (6,107) (1,711) 351


Compensation from Government and discount from upstream companies. We model IOCL to receive compensation of `408 bn, `204 bn and `115 bn from the Government in FY2012, FY2013 and FY2014. We assume IOCL will receive a discount of `334 bn in FY2012, `245 bn in FY2013 and `157 bn in FY2014 from the upstream oil companies. We assume nil subsidy losses in FY2012 and net under-recoveries of `41.1 bn and `41.5 bn in FY2013 and FY2014 respectively versus `38 bn in FY2011.

Energy India


Refining margins. We model refining margin (standalone) for IOCL at US$5.2/bbl in FY2012, US$5.8/bbl in FY2013 and US$6.2/bbl in FY2014 compared with US$6/bbl in FY2011. We note that reported refining margins of US$3.4/bbl in 9MFY12 include (1) an adventitious/inventory loss of US$0.7/bbl and (2) exchange fluctuation loss of `22 bn (US$1.5/bbl equivalent). We have accounted for net adventitious gains of `34.3 bn in FY2012 earnings. We assume no gains or losses over FY2013-14 versus adventitious gains of `5.5 bn (US$0.3/bbl) in FY2011.

Crude throughput. We model crude throughput at 55.7 mn tons in FY2012, 56.5 mn tons in FY2013 and 56.5 mn tons in FY2014 versus 53 mn tons in FY2011.

Marketing margins. We model marketing margins on gasoline and diesel of –`2,025/ton and –`11,168/ton respectively in FY2012 and `1,350/ton and –`4,259/ton respectively in FY2013 against –`2,984/ton and –`3,243/ton in FY2011.



India Energy


Consolidated profit model, balance sheet, cash model of BPCL, March fiscal year-ends, 2007-2014E (` mn)

2007 2008 2009 2010 2011 2012E 2013E 2014EProfit model (Rs mn)Net sales 965,569 1,102,081 1,340,734 1,202,170 1,508,382 2,053,225 2,039,943 2,024,093EBITDA 35,362 28,472 27,507 32,635 32,737 43,079 44,404 47,371Other income 7,332 13,954 15,087 22,402 17,550 16,685 17,728 14,845Interest (4,774) (6,725) (22,699) (10,110) (11,008) (18,054) (14,089) (10,267)Depreciation (9,041) (10,982) (10,755) (12,423) (16,554) (19,056) (19,421) (20,469)Pretax profits 28,879 24,719 9,141 32,505 22,724 22,655 28,622 31,480Extraordinary items (68) — — (8,290) 1,503 — — —Tax (9,286) (9,059) (5,103) (11,317) (7,177) (7,564) (8,865) (9,444)Deferred taxation (268) (1,108) 2,421 3,033 (1,482) 214 (422) (770)Adjusted net profits 18,100 15,806 6,324 20,830 14,602 15,304 19,336 21,266Earnings per share (Rs) 50.1 43.7 17.5 57.6 40.4 42.3 53.5 58.8

Balance sheet (Rs mn)Total equity 102,735 116,768 121,281 130,867 140,576 150,060 162,041 175,219Deferred taxation liability 13,826 14,814 12,392 8,593 10,075 9,861 10,283 11,053Total borrowings 108,292 150,224 211,714 221,952 189,719 185,219 155,219 122,388Currrent liabilities 112,767 145,803 128,313 171,312 219,583 257,998 259,398 256,836Total liabilities and equity 337,620 427,608 473,701 532,724 559,954 603,138 586,941 565,495Cash 8,640 9,616 4,416 3,424 3,800 3,267 3,507 3,368Current assets 127,698 187,457 148,469 232,416 272,259 321,916 319,373 314,859Goodwill — — — — — — — —Total fixed assets 118,334 127,354 140,033 161,871 170,116 179,175 185,281 188,489Investments 82,949 103,182 180,784 135,013 113,780 98,780 78,780 58,780Total assets 337,621 427,608 473,701 532,724 559,954 603,138 586,941 565,495

Free cash flow (Rs mn)Operating cash flow, excl. working capital 29,920 22,988 19,717 22,972 16,688 16,511 20,709 27,119Working capital 11,451 (25,161) 20,585 (48,542) 14,758 (11,243) 3,943 1,952Capital expenditure (17,908) (20,665) (23,323) (33,698) (24,813) (27,165) (24,787) (23,136)Investments (45,481) (21,684) (82,456) 35,270 20,872 15,000 20,000 20,000Other income 4,337 6,434 6,655 13,694 10,146 16,685 17,728 14,845Free cash flow (17,682) (38,088) (58,822) (10,304) 37,651 9,789 37,594 40,780

Ratios (%)Debt/equity 105.4 128.7 174.6 169.6 135.0 123.4 95.8 69.8Net debt/equity 97.0 120.4 170.9 167.0 132.3 121.3 93.6 67.9RoAE 16.3 12.7 4.8 11.3 10.7 9.9 11.6 11.9RoACE 10.9 7.3 7.2 7.9 6.2 8.0 8.6 8.9

Key assumptions (standalone until FY2005)Crude throughput (mn tons) 19.8 20.9 20.0 20.4 21.8 23.0 23.0 23.0Effective tariff protection (%) 1.6 1.4 2.4 2.2 0.7 1.8 2.2 2.2Net refining margin (US$/bbl) 3.2 5.6 5.2 2.9 4.5 3.1 3.5 3.9Sales volume (mn tons) 24.5 26.7 27.8 29.5 31.3 34.4 35.9 37.6Marketing margin (Rs/ton) (1,140) (3,010) (5,944) 573 (1,933) (6,944) (2,174) 124Subsidy under-recoveries (Rs mn) (10,400) (33,354) 2,728 (12,375) (15,841) — (17,450) (17,033)


Energy India


Profit model, balance sheet, cash model of HPCL, March fiscal year-ends, 2007-2014E (` mn)

2007 2008 2009 2010 2011 2012E 2013E 2014EProfit model (Rs mn)Net sales 889,959 1,043,130 1,249,348 1,073,004 1,332,138 1,886,070 1,864,781 1,844,724EBITDA 24,036 15,757 28,707 32,469 30,705 35,681 30,587 33,602Other income 6,845 11,980 9,057 16,462 13,435 7,253 13,994 10,524Interest (4,230) (7,925) (20,828) (9,038) (8,840) (20,650) (12,218) (9,436)Depreciation (7,040) (8,508) (9,813) (11,644) (14,070) (16,785) (17,904) (19,075)Pretax profits 19,611 11,303 7,122 28,249 21,230 5,500 14,458 15,615Extraordinary items 3,030 — — (6,999) 2,231 — — — Tax (6,625) (1,799) (2,416) (5,616) (3,340) (1,100) (4,121) (3,124)Deferred taxation (365) (2,025) (343) (2,046) (3,910) (684) (570) (1,942)Prior period adjustment 61 3,870 1,387 (575) (822) — — — Adjusted net profits 13,617 11,349 5,750 17,489 13,848 3,716 9,767 10,549Earnings per share (Rs) 40.2 33.5 17.0 51.6 40.8 11.0 28.8 31.1

Balance sheet (Rs mn)Total equity 95,987 105,633 107,306 115,580 125,458 127,842 134,108 140,876Deferred tax liability 14,209 15,960 16,034 18,080 31,956 32,640 33,210 35,152Total borrowings 105,175 167,867 227,552 213,024 250,212 274,712 238,135 213,135Currrent liabilities 101,195 124,337 117,558 165,551 196,066 242,888 252,300 251,178Total liabilities and equity 316,566 413,797 468,450 512,234 603,692 678,082 657,753 640,341Cash 868 2,940 6,083 2,432 800 1,714 2,598 2,912Current assets 113,779 190,034 153,844 203,988 265,110 343,445 344,263 338,789Total fixed assets 130,644 152,452 166,558 191,943 224,432 239,572 252,649 260,398Investments 71,275 68,371 141,965 113,872 113,350 93,350 58,243 38,243Total assets 316,566 413,796 468,450 512,234 603,692 678,082 657,753 640,341

Free cash flow (Rs mn)Operating cash flow, excl. working capital 23,966 (18,679) (12,139) 28,120 26,967 8,805 8,741 15,757Working capital changes 8,936 (6,504) 48,461 (6,530) (25,876) (31,514) 8,594 4,352Capital expenditure (38,510) (31,638) (19,275) (36,180) (46,101) (26,798) (25,475) (21,538)Investments (31,704) (1,851) (70,386) 16,521 4,365 20,000 35,107 20,000Other income 2,067 4,692 3,187 8,037 6,919 7,253 13,994 10,524Free cash flow (35,246) (53,980) (50,151) 9,968 (33,724) (22,254) 40,961 29,095

Ratios (%)Debt/equity 95.4 138.1 184.5 159.4 159.0 171.2 142.3 121.1Net debt/equity 94.7 135.6 179.6 157.6 158.4 170.1 140.8 119.4RoAE 14.9 9.8 4.7 10.1 10.6 2.3 6.0 6.1RoACE 8.6 5.0 5.3 6.8 5.5 4.2 4.3 4.3

Key assumptionsCrude throughput (mn tons) 16.7 16.8 15.8 15.8 14.8 16.5 17.7 18.0 Effective tariff protection (%) 1.4 1.3 2.4 2.5 1.6 2.4 2.6 2.6 Net refining margin (US$/bbl) 4.3 6.6 4.0 2.7 5.3 3.3 3.7 4.0 Sales volume (mn tons) 23.4 26.2 27.0 27.7 27.7 29.4 30.7 32.1 Marketing margin (Rs/ton) (710) (2,345) (5,021) 698 (1,885) (6,610) (2,007) 181Subsidy under-recoveries (Rs mn) (7,685) (31,191) 5,587 (12,297) (15,042) — (16,572) (16,721)


India Energy


Consolidated profit model, balance sheet, cash model of IOCL, March fiscal year-ends, 2007-2014E (` mn)

2007 2008 2009 2010 2011 2012E 2013E 2014EProfit model (Rs mn)Net sales 2,149,428 2,444,378 3,041,265 2,660,338 3,268,847 5,451,892 5,530,403 5,519,041EBITDA 110,451 120,872 61,445 146,723 130,233 172,925 174,944 187,160Other income 27,451 43,748 45,155 68,588 47,740 20,040 42,189 35,655Interest (17,058) (17,556) (41,758) (16,638) (29,243) (58,792) (49,917) (38,941)Depreciation (28,686) (29,918) (31,389) (34,943) (48,611) (54,034) (56,472) (58,421)Pretax profits 92,157 117,145 33,453 163,729 100,119 80,139 110,744 125,453Extraordinary items 24,757 5,374 — (14,995) (787) (61,682) — —Tax (25,834) (38,293) (13,316) (47,193) (2,843) 815 (30,915) (38,324)Deferred taxation (8,040) (473) 1,435 5,556 (16,090) (6,803) (5,016) (2,380)Net profits 82,729 83,430 25,523 108,238 79,570 15,824 74,813 84,750Net profits after minority interests 62,702 74,517 27,437 116,128 77,742 56,398 72,390 82,330Earnings per share (Rs) 26.3 31.2 11.5 47.9 32.0 23.2 29.8 33.9

Balance sheet (Rs mn)Total equity 378,117 450,449 470,654 547,804 585,889 595,911 643,555 697,559Deferred tax liability 59,859 60,331 58,876 54,072 69,411 76,214 81,229 83,609Total borrowings 290,215 382,818 465,250 497,522 569,564 729,191 641,500 539,853Currrent liabilities 330,791 386,724 376,107 472,991 629,775 770,041 777,265 767,377Total liabilities and equity 1,058,981 1,280,322 1,370,888 1,572,389 1,854,638 2,171,357 2,143,550 2,088,398Cash 9,385 8,413 8,076 13,501 13,068 6,996 7,641 7,198Current assets 437,178 599,256 473,965 648,895 896,572 1,246,602 1,246,849 1,229,058Total fixed assets 415,014 460,307 565,545 690,165 754,268 750,442 751,742 744,824Investments 197,403 212,345 323,301 219,828 190,731 167,318 137,318 107,318Total assets 1,058,981 1,280,322 1,370,888 1,572,389 1,854,638 2,171,357 2,143,550 2,088,398

Free cash flow (Rs mn)Operating cash flow, excl. working capital (37,508) (97,660) (355,838) 137,666 87,149 54,067 91,417 108,013Working capital changes 3,022 (13,588) 96,862 (180,915) (52,481) (209,763) 6,977 7,902Capital expenditure (48,752) (72,423) (131,274) (136,063) (133,765) (47,654) (55,078) (49,621)Investments 99,909 92,679 300,134 147,314 27,599 23,413 30,000 30,000Other Income 13,372 18,048 16,423 24,514 24,042 47,998 37,135 33,250Free cash flow 30,042 (72,944) (73,692) (7,484) (47,456) (131,939) 110,451 129,544

Ratios (%)Debt/equity 66.3 74.9 87.9 82.7 86.9 108.5 88.5 69.1 Net debt/equity 64.1 73.3 86.3 80.4 84.9 107.4 87.5 68.2 RoAE 16.1 16.3 5.5 21.2 12.8 8.7 10.7 11.2 RoACE 11.2 11.4 5.1 12.4 9.0 7.1 7.8 8.3

Key assumptions (IOC standalone)Crude throughput (mn tons) 44.0 47.4 51.3 50.7 53.0 55.7 56.5 56.5 Effective tariff protection (%) 1.6 1.3 2.8 2.2 0.8 1.9 2.3 2.3 Net refining margin (US$/bbl) 4.2 8.2 3.7 4.5 6.0 5.2 5.8 6.2 Sales volume (mn tons) 53.4 57.4 61.0 64.0 67.1 71.7 74.9 78.5 Marketing margin (Rs/ton) (633) (2,203) (5,266) 955 (1,338) (6,107) (1,711) 351Subsidy under-recoveries (Rs mn) (21,900) (97,738) — (31,588) (38,032) — (41,100) (41,483)



Some improvement in cycle visible now

We note some improvement in the physical indicators reflecting a potential upturn in the capex cycle. These data points are still only a quarter old and we would wait for these data points to strengthen. However, these data points corroborate the feedback from companies that post a weak Aug-Nov 2011, there has been some stability and pick-up from December. Cement dispatches grew 13% in 3QFY12 post low single-digit growth in the past four quarters with steel production growing by 6-7% in the past two quarters after a flattish 1QFY12. Growth in commercial vehicles is also stabilizing at decent 13-14% levels post a period of sharp volatility. Credit growth however has fallen in the last quarter (13% yoy growth).

Project investments still declining but it can follow based on observation from last cycle

Projects investments declined for the third consecutive quarter (down 44% in 9MFY12). Our analysis of the previous cycle suggests recovery being led by cement dispatches bottoming out in June 2001, with project investments following in June 2002. A similar pick-up in cement dispatches has been observed in Nov-Dec 2011.

Interest rates still firming up despite softening policy stance

Interest rates have increased by about 30-100 bps across maturities in Jan 2012 despite RBI softening policy stance by reducing CRR by 50 bps. Higher interest rates are negative for overall growth (reduces liquidity, delays capacity expansion) and specifically for firms with higher leverage.

Strength of cycle is key to watch for; maybe nowhere close to the strength of FY2003-10 cycle

We believe that investment cycle remains weak even though it may be bottoming out. Improvement would be gradual versus market expectations of a sharp recovery. The investment cycle in industrials may not be as strong as seen in CY2003-10 which was supported by several catalysts including (1) positive framework across sectors (power, telecom, roads, finance), (2) negative real interest rates for an extended period of time, (3) low base (2-3 GW p.a. run rate versus about 12-15 GW now) and (4) easier competitive scenario. Several companies such as Thermax and Crompton shared similar sentiment in our recent meetings.

Global capital goods business seems stable; activity of global majors touches historic CY2008 highs

Activity for key global companies (Siemens, Caterpillar, Cummins, Komatsu) grew by 5% in 4QCY11, post growing 24% in 9MCY11. Activity for key global majors for CY2011 grew 14% on a yoy basis equaling the historic highs achieved in CY2008. This suggests that global capex scenario is stable and can provide growth opportunities for overseas businesses of Indian companies such as Crompton.

Industrials India

Cycle may have bottomed out; improvement would be gradual. We highlight some improvement in physical indicators (cement, steel and commercial vehicles) in 3Q. This substantiates earlier feedback from companies that post sharp weakness in Aug-Nov 2011, there has been some stability and pick-up. Strength of recovery would be the key to watch for; our belief is that the investment cycle may be more subdued than the one seen in FY2003-10 (catalyzed by reforms across sectors, negative real interest rates, lower base and lower competitive intensity). We note domestic interest rates firming up in January despite RBI softening its stance. The global capex scenario seems stable even though the breakneck growth post crisis of 2009 is now moderating.

CAUTIOUS

FEBRUARY 13, 2012

UPDATE

BSE-30: 17,773

India Industrials


Some improvement in cycle visible now

Our tracking of key physical indicators suggests some improvement/stability in trends of these variables potentially indicating bottoming out of cycle. These data points are still only a quarter old and we would want wait before confirming the same.

Strong growth in cement dispatches in 3QFY12. Cement dispatches grew 13% in 3QFY12 post low single-digit growth in the past 4 quarters. Its four quarter moving average at 6.7% is still below the average growth rate of about 9% over FY2005-09.

Crude steel production improves post flattish 1QFY12. Crude steel production grew by 6-7% for the second consecutive quarter after a flattish growth recorded in 1QFY12.

Growth in commercial vehicles stabilizing. Growth in commercial vehicles is also stabilizing at decent 13-14% levels post period of sharp volatility.

Credit growth falls though still strong at current levels. Credit grew at a slower rate of about 13% in 3QFY12 although growth rate of 18-19% averaged over past four quarters is still comforting.

Growth in steel and cement appears to be stabilizing while SCB credit growth falling marginally Growth trends of leading indicators, 1997-3QFY12, March fiscal year-ends

(2,000)

5,000

12,000

19,000

26,000

33,000

40,000

4Q91

4Q92

4Q93

4Q94

4Q95

4Q96

4Q97

4Q98

4Q99

4Q00

4Q01

4Q02

4Q03

4Q04

4Q05

4Q06

4Q07

4Q08

4Q09

4Q10

4Q11

(Rs bn)

-

8

16

24

32

40(%)SCBs non-food credit (Rs crore)

4-qtrs moving avg. (RHS)

FY2005-09 average growth (RHS)

-

20,000

40,000

60,000

80,000

100,000

1Q03

3Q03

1Q04

3Q04

1Q05

3Q05

1Q06

3Q06

1Q07

3Q07

1Q08

3Q08

1Q09

3Q09

1Q10

3Q10

1Q11

3Q11

1Q12

3Q12

-60

-40

-20

0

20

40

60

80

100

120

(%)Commercial vehicles (LHS)



-

10,000

20,000

30,000

40,000

50,000

60,000

70,000

1Q96

1Q97

1Q98

1Q99

1Q00

1Q01

1Q02

1Q03

1Q04

1Q05

1Q06

1Q07

1Q08

1Q09

1Q10

1Q11

1Q12

('000 tons)

(5)

-

5

10

15

20(%)Cement consumption (LHS)



3Q12

-

4,000

8,000

12,000

16,000

20,000

4Q91

4Q92

4Q93

4Q94

4Q95

4Q96

4Q97

4Q98

4Q99

4Q00

4Q01

4Q02

4Q03

4Q04

4Q05

4Q06

4Q07

4Q08

4Q09

4Q10

4Q11

('000 tons)

(10)

(5)

-

5

10

15

20

25

(%)Crude Steel production (LHS)4-qtrs moving avg. (RHS)


Source: Bloomberg, Company, Kotak Institutional Equities

Recovery in last cycle led by cement with project investments following later

Cement led the reversal in capex with projects investments following later. In the last cycle, cement dispatches bottomed out in Jun ‘01. Projects investments bottomed out later in Jun ‘02. Similar uptick has been observed in cement dispatches in Nov-Dec 2011 as project investments continue on a declining trend (third consecutive quarter of decline).

Last bull cycle catalyzed by several positives. The 11-12X growth seen in project investments and inflows for infrastructure companies over FY2003-10 was catalyzed by several factors including (1) positive framework across sectors (power, telecom, roads, finance), (2) negative real interest rates for an extended period of time, (3) low base (2-3 GW p.a. run rate versus about 12-15 GW now and (4) easier competitive scenario.

Industrials India


Cement leading the reversal in cycle in Jun 2001 Trends in macro-variables, physical indicators and inflows, 1997-2011

Note: P/E represent average of month-end P/Es for consol. business over fiscal year FY2011followed by Apr-2011-Nov-2011

Cement dispatches

0

2

4

6

8

10

12

14

16

18

20

22

Apr

-97

Apr

-98

Apr

-99

Apr

-00

Apr

-01

Apr

-02

Apr

-03

Apr

-04

Apr

-05

Apr

-06

Apr

-07

Apr

-08

Apr

-09

Apr

-10

Apr

-11

(mn tonnes)

-4

0

4

8

12

16

20

(%)

Cement dispatches [LHS]

4qtr moving average [RHS]

2005-2009 average growth

Recovery in cement (moving average rising) occurs in June-01 One year later in June-02, project

investments start picking up

Interest rate movement

3

5

7

9

11

13

15

Apr

-97

Apr

-98

Apr

-99

Apr

-00

Apr

-01

Apr

-02

Apr

-03

Apr

-04

Apr

-05

Apr

-06

Apr

-07

Apr

-08

Apr

-09

Apr

-10

Apr

-11

(%)

10 yr gsec Repo rate

`

Low interest rate aiding industrials to grow buisness at low cost

Project investments

-500

2,000

4,500

7,000

9,500

12,000

Apr

-97

Apr

-98

Apr

-99

Apr

-00

Apr

-01

Apr

-02

Apr

-03

Apr

-04

Apr

-05

Apr

-06

Apr

-07

Apr

-08

Apr

-09

Apr

-10

Apr

-11

(Rs bn)

-100

-50

0

50

100

150

200

250

300(%)

Project Investments [LHS] 4-qyr moving average growth [RHS]

P/E premium versus BSE-30

-75

-50

-25

0

25

50

75

100

Apr

-97

Apr

-98

Apr

-99

Apr

-00

Apr

-01

Apr

-02

Apr

-03

Apr

-04

Apr

-05

Apr

-06

Apr

-07

Apr

-08

Apr

-09

Apr

-10

Apr

-11

Jan-

12

(PE premium to Sensex, %)

L&T BHEL Industrial stocks trading at premium to Sensex over FY2003-10

Source: Company, Bloomberg, Kotak Institutional Equities

Interest rates still firming up despite softening policy stance

Interest rates have increased by about 30-100 bps across maturities since start of new calendar year despite RBI softening policy stance by reducing CRR by 50 bps in January. Higher interest rates are negative for overall growth (reduces liquidity, delays capacity expansion) and specific for firms with higher leverage/working capital.

Interest rates firming up again in Jan 2012 Movement of interest rates across maturities (%)

8.1

4

6

8

10

12

Aug

-09

Oct

-09

Dec

-09

Feb-

10

Apr

-10

Jun-

10

Aug

-10

Oct

-10

Dec

-10

Feb-

11

Apr

-11

Jun-

11

Aug

-11

Oct

-11

Dec

-11

Feb-

12

3 month CP rate Average in FY11(%)

0

2

4

6

8

10

12

Aug

-06

Nov

-06

Feb-

07

May

-07

Aug

-07

Nov

-07

Feb-

08

May

-08

Aug

-08

Nov

-08

Feb-

09

May

-09

Aug

-09

Nov

-09

Feb-

10

May

-10

Aug

-10

Nov

-10

Feb-

11

May

-11

Aug

-11

Nov

-11

Feb-

12

6 month MIFOR rate

(%)

0

2

4

6

8

10

Jan-

04

Jul-0

4

Jan-

05

Jul-0

5

Jan-

06

Jul-0

6

Jan-

07

Jul-0

7

Jan-

08

Jul-0

8

Jan-

09

Jul-0

9

Jan-

10

Jul-1

0

Jan-

11

Jul-1

1

Jan-

12(%)

10 yr Gsec 1 yr Gsec FY2011average 10 yr gsec rate

(%)(%)

3

4

5

6

7

8

9

10

Jan-

04

Jul-0

4

Jan-

05

Jul-0

5

Jan-

06

Jul-0

6

Jan-

07

Jul-0

7

Jan-

08

Jul-0

8

Jan-

09

Jul-0

9

Jan-

10

Jul-1

0

Jan-

11

Jul-1

1

Jan-

12

Reverse repo rate 10 yr Gsec CRR

`

Source: Bloomberg, Kotak Institutional Equities

India Industrials


Cycle may have bottomed out although improvement would be gradual

We believe that investment cycle remains weak even though it may be bottoming out. Improvement would be gradual versus market expectations of a sharp recovery. Several companies such as Thermax, Crompton shared similar sentiment in our recent meetings.

Global capital goods business seems stable; 2011 activity touches 2008 highs

Activity for key global companies grew by 5% in 4QCY11, post growing 24% in 9MCY11.

Growth in business activity moderating post very strong 9MCY11 Revenues/orders for global companies, December calendar-year ends, June-07-Dec-11 (US$ bn)

Notes:(1) Activity includes revenues of Caterpillar, Cummins, Komatsu and Honeywell and order inflows of Siemens

15

25

35

45

55

65

75

Jun-

07

Sep-

07

Dec

-07

Mar

-08

Jun-

08

Sep-

08

Dec

-08

Mar

-09

Jun-

09

Sep-

09

Dec

09

Mar

-10

Jun-

10

Sep-

10

Dec

-10

Mar

-11

Jun-

11

Sep-

11

Dec

-11

(US$ bn)

(40.0)(30.0)(20.0)(10.0)0.010.020.030.040.0

(%)Activity (Revenues/Orders) in $ mn Yoy Growth


Activity for key global majors for CY2011 grew 14% on a yoy basis equaling the historic highs achieved in CY2008.

CY2011 activity equals highs recorded in CY2008 Revenues/orders for global companies, March fiscal year-ends, 2007-11 (US$ mn)

Notes(1) Data above includes revenues of Caterpillar, Honeywell, Komatsu and Cummins and order inflows of Siemens

249218198248226

9.7

(20.4)

10.514.0

150

170

190

210

230

250

270

CY07 CY08 CY09 CY10 CY11

(30.0)

(20.0)

(10.0)

-

10.0

20.0

($bn) Activity (Revenues/Orders) Growth


Global macro is also showing signs of improvement in terms of (1) falling US unemployment rate (8.3% in January is lowest since Feb 2009) and (2) declining bond yields (Italian and Spanish 10-year bond yields falling about 120-150 bps from highs in Nov 2011).

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December 2011: Results calendar

Mon Tue Wed Thu Fri Sat13-Feb 14-Feb 15-FebAurobindo Pharma Alok IndustriesCastrol India Amtek AutoCESC Educomp SolutionsCipla Essar OilCoal India Great OffshoreEngineers India GVKPILGujarat NRE Coke HDILIOCL IVRCLLanco Infratech Jain IrrigationMotherson Sumi Jaiprakash AssociatesPunj Llyod Max IndiaReliance Power Nestle IndiaSAIL REI AgroShree Renuka Sugar Reliance InfrastructureState Bank of India Shipping Corp of IndiaSun Pharma Tata MotorsSunteck Realty Tecpro Systems

UnitechVishal RetailVoltas

Source: BSE, NSE, Kotak Institutional Equities

KO

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Kotak Institutional Equities: Valuation summary of KIE Universe stocks

13-Feb-12 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) 2011 2012E 2013E 2011 2012E 2013E 2011 2012E 2013E 2011 2012E 2013E 2011 2012E 2013E 2011 2012E 2013E 2011 2012E 2013E (Rs) (%) (US$ mn)

Automobiles

Apollo Tyres 78 BUY 39,395 802 504 8.7 7.4 10.0 (26.1) (15.4) 34.6 8.9 10.6 7.8 6.4 5.7 4.5 1.4 1.3 1.1 0.6 0.5 0.7 20.1 14.4 16.8 90 15.2 3.4

Ashok Leyland 27 ADD 72,105 1,468 2,661 2.4 1.9 2.3 68.1 (19.7) 22.5 11.4 14.2 11.6 7.8 8.6 7.5 1.6 1.5 1.5 3.7 3.7 3.7 21.8 15.9 18.2 26 (4.1) 3.0

Bajaj Auto 1,748 ADD 505,915 10,302 289 90.4 106.8 122.3 43.9 18.1 14.6 19.3 16.4 14.3 14.7 12.3 11.0 10.2 7.4 5.6 2.3 2.3 2.3 84.9 52.5 44.7 1,715 (1.9) 21.0

Bharat Forge 305 ADD 72,353 1,473 237 12.5 17.5 20.0 1,402.1 39.2 14.6 24.3 17.5 15.2 11.2 8.9 7.8 3.2 2.8 2.4 1.1 — — 8.2 14.6 15.6 315 3.3 2.2

Exide Industries 136 SELL 115,600 2,354 850 7.5 5.1 6.5 18.0 (32.1) 28.4 18.2 26.9 20.9 13.1 17.4 13.9 4.2 3.8 3.3 1.1 0.9 0.9 25.5 14.9 17.0 105 (22.8) 3.9

Hero Motocorp 2,013 SELL 401,946 8,185 200 99.3 118.0 129.5 (11.1) 18.8 9.7 20.3 17.1 15.5 13.4 12.3 10.7 8.6 7.5 6.3 5.2 3.5 3.5 56.5 66.1 58.8 1,815 (9.8) 25.8

Mahindra & Mahindra 705 BUY 432,993 8,817 614 41.7 42.8 46.5 22.7 2.5 8.6 16.9 16.5 15.2 13.0 12.5 11.1 4.1 3.4 2.9 1.6 1.3 1.3 27.3 22.5 20.8 835 18.4 38.0

Maruti Suzuki 1,225 ADD 353,917 7,207 289 79.2 52.3 90.0 (8.4) (33.9) 72.0 15.5 23.4 13.6 9.7 15.9 8.3 2.5 2.3 2.0 0.6 0.6 0.6 17.6 10.3 15.8 1,250 2.0 18.5

Tata Motors 258 SELL 858,848 17,489 3,325 27.2 27.8 32.5 737.9 2.1 17.2 9.5 9.3 7.9 6.4 5.9 5.1 4.4 3.2 2.3 1.5 1.1 1.1 66.1 39.5 34.3 225 (12.9) 70.8

Automobiles Cautious 2,853,070 58,098 82.8 0.4 19.4 13.9 13.9 11.6 9.1 8.7 7.3 4.3 3.5 2.9 2.1 1.7 1.7 31.1 25.6 24.7


Andhra Bank 121 BUY 67,541 1,375 560 22.6 23.6 23.0 5.0 4.4 (2.8) 5.3 5.1 5.3 — — — 1.0 0.9 0.8 4.6 4.8 4.6 23.2 19.0 16.3 150 24.3 1.3

Axis Bank 1,116 BUY 473,699 9,646 424 82.5 95.5 102.8 33.0 15.7 7.6 13.5 11.7 10.9 — — — 2.5 2.1 1.8 1.2 1.5 1.6 19.3 19.6 18.2 1,350 20.9 56.4

Bajaj Finserv 509 ADD 73,584 1,498 145 78.2 63.2 62.9 102.3 (19.2) (0.4) 6.5 8.0 8.1 — — — 2.1 1.5 1.2 2.5 2.5 2.5 37.2 21.9 16.8 650 27.8 1.0

Bank of Baroda 821 BUY 322,377 6,565 393 108.0 115.6 121.2 29.1 7.1 4.9 7.6 7.1 6.8 — — — 1.7 1.4 1.2 2.3 2.5 2.6 25.9 21.5 19.2 1,050 27.9 9.1

Bank of India 368 BUY 201,486 4,103 547 45.5 46.7 62.0 37.4 2.7 32.8 8.1 7.9 5.9 — — — 1.3 1.1 1.0 2.2 2.3 3.0 17.3 15.1 17.6 450 22.2 5.4

Canara Bank 529 BUY 234,214 4,769 443 90.9 74.8 93.2 23.3 (17.7) 24.6 5.8 7.1 5.7 — — — 1.3 1.1 1.0 2.1 2.3 2.3 23.2 15.5 16.9 550 4.0 7.6

Corporation Bank 480 BUY 71,103 1,448 148 95.4 107.5 107.5 16.3 12.7 (0.0) 5.0 4.5 4.5 — — — #REF! #REF! #REF! 4.2 4.7 4.7 21.9 20.6 17.8 600 25.0 0.8

Federal Bank 407 BUY 69,642 1,418 171 34.3 42.4 49.7 26.3 23.5 17.3 11.9 9.6 8.2 — — — 1.4 1.3 1.2 2.1 2.6 3.0 12.0 13.5 14.3 500 22.8 4.2

HDFC 695 REDUCE 1,019,716 20,765 1,467 24.1 27.7 31.8 22.4 14.9 14.7 28.8 25.1 21.9 — — — 5.9 5.2 4.0 1.3 1.5 1.8 21.7 22.0 21.4 725 4.3 35.7

HDFC Bank 522 ADD 1,214,123 24,724 2,326 16.9 22.1 28.1 31.0 30.9 27.2 30.9 23.6 18.6 — — — 4.8 4.1 3.5 0.6 0.8 1.1 16.7 18.8 20.5 560 7.3 33.2

ICICI Bank 935 BUY 1,076,549 21,922 1,152 44.7 53.2 56.7 23.9 19.0 6.5 20.9 17.6 16.5 — — — 2.0 1.8 1.7 1.5 1.7 1.8 9.7 10.7 10.7 1,100 17.7 110.6

IDFC 134 ADD 201,936 4,112 1,509 8.8 10.6 12.8 4.6 20.6 20.8 15.3 12.7 10.5 — — — 1.9 1.6 1.4 1.6 1.5 1.9 14.7 13.9 14.6 155 15.8 22.1

India Infoline 68 SELL 19,490 397 286 7.4 4.0 4.3 (9.3) (45.5) 5.7 9.2 16.9 16.0 — — — 1.2 1.1 1.0 5.2 1.2 1.2 12.9 6.7 7.3 70 2.9 1.0

Indian Bank 241 BUY 103,768 2,113 430 38.8 41.9 46.6 10.5 8.0 11.2 6.2 5.8 5.2 — — — 1.3 1.1 1.0 3.1 3.3 3.6 22.3 20.4 19.4 300 24.2 1.9

Indian Overseas Bank 98 BUY 60,452 1,231 619 17.3 14.4 27.8 33.6 (17.2) 93.6 5.6 6.8 3.5 — — — 0.7 0.7 0.6 5.1 2.0 3.9 12.7 9.1 15.9 140 43.3 1.5

IndusInd Bank 327 ADD 152,511 3,106 466 12.4 16.8 17.9 45.2 35.2 7.1 26.4 19.5 18.2 — — — 3.8 3.3 2.8 0.6 0.8 0.9 20.8 19.3 17.4 330 0.8 3.7

J&K Bank 814 ADD 39,473 804 48 126.9 155.4 160.6 20.1 22.5 3.4 6.4 5.2 5.1 — — — 1.1 1.0 0.9 3.2 3.9 4.0 19.0 20.0 17.9 950 16.7 0.4

LIC Housing Finance 273 ADD 129,448 2,636 475 20.5 19.3 29.5 47.2 (5.8) 52.7 13.3 14.1 9.2 — — — 3.3 2.8 2.4 1.6 1.5 2.3 25.8 20.3 26.0 270 (0.9) 13.4

Mahindra & Mahindra Financial 703 BUY 71,973 1,466 102 45.2 55.6 71.9 26.1 23.0 29.3 15.5 12.6 9.8 — — — 2.9 2.6 2.2 1.4 1.7 2.3 22.0 21.1 23.1 825 17.4 1.6

Muthoot Finance 163 BUY 60,559 1,233 371 15.7 23.1 27.5 108.4 46.4 19.3 10.4 7.1 5.9 — — — 4.5 2.0 1.5 — — — 51.5 38.7 28.4 240 47.2 —

Oriental Bank of Commerce 294 BUY 85,647 1,744 292 51.5 43.0 57.9 13.7 (16.5) 34.7 5.7 6.8 5.1 — — — 0.8 0.8 0.7 3.5 3.0 4.0 15.5 10.9 13.4 370 26.0 2.9

PFC 198 BUY 261,222 5,319 1,320 22.8 22.7 29.3 11.1 (0.5) 29.0 8.7 8.7 6.8 — — — 1.7 1.3 1.2 2.0 2.3 3.0 18.4 16.7 17.4 225 13.7 14.1

Punjab National Bank 995 BUY 315,149 6,418 317 140.0 152.0 166.5 13.0 8.6 9.5 7.1 6.5 6.0 — — — 1.6 1.3 1.1 2.2 3.1 3.4 24.4 22.0 20.5 1,270 27.7 8.5

Reliance Capital 420 ADD 103,412 2,106 246 9.3 8.4 22.6 (25.3) (10.2) 170.0 45.1 50.3 18.6 — — — 1.5 1.5 1.4 0.9 0.8 2.1 3.3 2.9 7.6 470 11.9 26.8

Rural Electrification Corp. 230 BUY 226,655 4,615 987 26.0 28.7 33.7 28.1 10.5 17.2 8.8 8.0 6.8 — — — 1.8 1.5 1.3 3.3 3.6 4.2 21.5 20.7 21.1 230 0.2 10.6

SKS Microfinance 126 RS 9,314 190 74 15.7 (89.1) (27.5) (41.8) (667.7) (69.1) 8.1 (1.4) (4.6) — — — 0.5 0.8 0.9 — — — 8.3 (44.7) (19.3) — — 1.8

State Bank of India 2,129 BUY 1,432,114 29,163 673 130.2 179.2 219.6 (9.9) 37.7 22.6 16.4 11.9 9.7 — — — 2.2 1.7 1.5 1.5 1.7 1.8 12.6 16.4 16.8 2,450 15.1 136.4

Union Bank 252 BUY 135,071 2,751 536 39.5 31.6 44.0 (3.9) (19.8) 39.0 6.4 8.0 5.7 — — — 1.2 1.1 0.9 3.1 2.5 3.5 20.9 14.4 17.5 340 34.9 5.5

Yes Bank 349 ADD 121,241 2,469 347 20.9 27.1 31.8 39.6 29.3 17.3 16.7 12.9 11.0 — — — 3.2 2.6 2.2 0.7 0.9 1.1 21.1 22.4 21.7 375 7.4 18.2

Banks/Financial Institutions Attractive 8,477,119 172,624 20.0 13.1 20.1 13.9 12.2 10.2 — — — #REF! #REF! #REF! 1.6 1.8 2.0 #REF! #REF! #REF!

Cement

ACC 1,355 SELL 254,643 5,185 188 53.0 57.1 69.9 (36.3) 7.8 22.4 25.6 23.7 19.4 15.3 14.4 10.4 3.7 3.3 3.0 2.6 1.7 1.7 17.5 16.1 17.6 1,030 (24.0) 8.1

Ambuja Cements 170 SELL 258,652 5,267 1,522 7.9 7.8 10.0 (1.5) (1.2) 28.6 21.6 21.8 17.0 13.3 12.5 9.3 3.3 3.0 2.7 1.2 1.3 1.4 16.6 14.6 17.1 145 (14.7) 8.5

Grasim Industries 2,848 BUY 261,251 5,320 92 232.0 275.8 281.7 (22.9) 18.9 2.2 12.3 10.3 10.1 7.2 5.9 5.3 1.8 1.6 1.4 0.7 1.2 1.2 15.7 16.2 14.5 2,900 1.8 4.2

India Cements 96 ADD 29,397 599 307 1.9 11.6 12.2 (81.2) 511.9 5.9 50.6 8.3 7.8 16.3 5.5 4.7 0.7 0.6 0.6 1.7 3.3 3.3 1.4 8.5 8.4 110 14.9 1.9

Shree Cement 2,395 REDUCE 83,437 1,699 35 57.2 80.2 119.4 (72.5) 40.3 48.9 41.9 29.9 20.1 9.8 7.4 6.5 4.4 4.0 3.5 0.6 0.7 0.8 10.7 13.9 18.4 2,085 (12.9) 0.5

UltraTech Cement 1,397 REDUCE 382,697 7,793 274 44.9 79.7 89.4 (49.2) 77.7 12.2 31.1 17.5 15.6 15.2 9.9 8.6 3.1 2.6 2.3 0.4 0.4 0.6 16.7 18.7 17.7 1,220 (12.6) 4.4

Cement Neutral 1,270,076 25,863 (24.3) 30.9 13.9 21.9 16.7 14.7 11.4 8.8 7.4 2.7 2.3 2.1 1.1 1.1 1.2 12.1 14.0 14.1

Price/BV (X) Dividend yield (%)


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


Consumer products

Asian Paints 3,054 SELL 292,982 5,966 96 80.8 94.4 106.9 13.0 16.8 13.3 37.8 32.4 28.6 25.2 22.0 17.8 14.3 11.0 9.0 1.0 0.9 1.1 43.9 39.9 35.6 2,500 (18.2) 5.1

Colgate-Palmolive (India) 1,004 SELL 136,516 2,780 136 29.6 32.5 39.1 (4.9) 9.9 20.3 33.9 30.9 25.7 29.5 26.5 21.3 35.5 36.1 28.8 2.2 2.8 2.7 113.4 116.1 124.9 900 (10.3) 1.9

Dabur India 101 ADD 175,691 3,578 1,740 3.3 3.7 4.4 12.8 12.1 19.2 30.9 27.6 23.1 24.9 21.1 18.0 13.4 10.4 8.2 1.1 1.3 1.5 51.2 43.2 40.2 115 13.9 3.2

GlaxoSmithkline Consumer (a) 2,637 ADD 110,909 2,258 42 71.3 84.5 105.4 28.8 18.5 24.8 37.0 31.2 25.0 26.8 23.6 19.3 11.9 10.0 8.3 1.9 1.3 1.7 32.2 33.8 35.2 3,000 13.8 1.0

Godrej Consumer Products 443 ADD 143,415 2,920 324 14.9 16.8 21.8 31.3 13.1 29.8 29.8 26.3 20.3 25.2 20.1 15.0 8.3 6.2 5.0 1.1 0.7 0.7 35.9 27.6 28.9 500 12.8 1.8

Hindustan Unilever 392 REDUCE 845,959 17,227 2,159 9.9 11.8 14.2 4.8 19.7 19.7 39.7 33.1 27.7 34.0 27.2 21.7 32.1 27.6 23.7 1.9 2.5 3.0 66.3 89.8 92.4 420 7.2 22.5

ITC 203 ADD 1,557,641 31,719 7,681 6.4 7.9 9.0 20.7 22.5 14.1 31.6 25.8 22.6 21.0 17.6 15.2 9.3 8.0 7.0 2.2 1.8 2.2 33.2 34.9 34.3 230 13.4 29.6

Jubilant Foodworks 1,000 SELL 65,584 1,336 66 11.2 16.3 24.0 99.6 45.4 47.3 89.2 61.4 41.7 54.6 34.0 23.4 34.2 22.0 14.4 — — — 46.6 43.6 41.7 800 (20.0) 22.8

Jyothy Laboratories 173 ADD 13,391 273 78 10.3 8.4 10.8 (6.2) (18.8) 28.0 16.7 20.5 16.1 13.1 31.5 23.5 2.0 1.9 1.8 3.5 2.7 3.4 12.3 9.7 11.7 190 10.1 0.2

Marico 162 BUY 99,726 2,031 615 3.9 5.2 6.8 (12.8) 33.5 31.7 41.8 31.3 23.8 25.6 22.1 16.8 10.6 8.3 6.4 0.4 0.5 0.6 30.3 30.3 30.8 190 17.2 0.8

Nestle India (a) 4,322 SELL 416,718 8,486 96 86.8 106.6 125.0 16.7 22.8 17.3 49.8 40.5 34.6 33.1 26.8 22.4 48.7 34.5 25.8 1.1 1.4 1.6 116.5 99.7 85.4 3,600 (16.7) 2.8

Tata Global Beverages 121 BUY 75,105 1,529 618 4.0 5.3 6.6 (34.6) 35.1 23.0 30.7 22.7 18.5 12.7 12.4 10.1 1.5 1.4 1.3 1.6 1.5 1.8 6.4 8.2 9.5 110 (9.4) 5.8

Titan Industries 209 ADD 185,414 3,776 888 4.9 6.5 7.9 71.7 32.5 20.7 42.5 32.1 26.6 29.7 22.5 18.1 17.9 13.5 10.5 0.6 1.1 1.4 49.2 48.0 44.4 230 10.1 18.2

United Spirits 650 BUY 81,630 1,662 126 35.3 36.6 42.7 29.5 3.5 16.9 18.4 17.8 15.2 13.4 11.3 10.3 2.0 1.8 1.6 0.4 0.4 0.5 11.2 10.5 11.1 900 38.5 17.0

Consumer products Attractive 4,200,680 85,541 16.3 19.5 18.0 34.9 29.2 24.8 24.5 20.5 17.0 10.8 9.3 8.0 1.7 1.7 2.0 31.0 31.7 32.1

Constructions

IVRCL 58 ADD 15,473 315 267 5.9 4.2 5.0 (25.2) (28.5) 18.5 9.8 13.7 11.6 6.8 7.9 7.0 0.8 0.7 0.7 1.1 0.7 0.7 8.2 5.5 6.2 59 1.8 7.8

Nagarjuna Construction Co. 57 BUY 14,741 300 257 6.4 1.8 3.7 (29.7) (71.1) 100.8 9.0 31.1 15.5 7.8 9.6 8.1 0.6 0.6 0.6 1.8 3.5 3.5 7.1 2.0 4.0 65 13.1 1.2

Punj Lloyd 60 REDUCE 20,273 413 340 (1.5) 3.4 6.5 (56.6) (328.7) 90.7 (40.2) 17.6 9.2 13.0 7.1 6.1 0.7 0.7 0.6 (0.1) 0.5 1.0 (1.7) 3.8 6.9 60 0.5 4.5

Sadbhav Engineering 139 BUY 20,893 425 150 7.8 10.0 10.0 51.0 28.5 0.5 18.0 14.0 13.9 10.6 8.6 8.3 3.3 2.7 2.3 0.4 0.4 0.4 18.1 19.2 16.3 180 29.1 0.4

Construction Attractive 71,380 1,454 (1.1) 9.7 40.9 18.4 16.8 11.9 9.2 8.0 6.9 0.9 0.9 0.8 0.7 1.1 1.3 4.8 5.1 6.8

Energy

Aban Offshore 519 BUY 22,601 460 44 134.2 71.5 92.4 25.9 (46.7) 29.1 3.9 7.3 5.6 6.7 7.8 6.9 1.0 1.4 1.1 0.7 0.8 0.9 33.3 20.8 21.4 615 18.4 10.6

Bharat Petroleum 590 RS 213,200 4,341 362 38.9 42.3 53.5 (32.5) 8.8 26.3 15.2 13.9 11.0 10.0 7.9 7.4 1.4 1.3 1.2 2.4 2.3 3.0 9.2 9.3 11.0 — — 6.9

Cairn india 372 REDUCE 707,810 14,413 1,903 33.3 45.7 62.7 501.1 37.2 37.1 11.2 8.1 5.9 8.2 6.4 4.1 1.7 1.5 1.3 — - 4.0 16.9 19.7 23.5 355 (4.6) 18.6

Castrol India (a) 474 SELL 117,273 2,388 247 19.8 19.5 21.0 28.5 (1.8) 7.8 24.0 24.4 22.6 15.3 16.7 15.3 22.7 21.4 20.0 3.2 3.2 3.5 100.2 90.4 91.4 400 (15.7) 0.8

GAIL (India) 388 BUY 492,297 10,025 1,268 28.2 30.1 31.0 13.8 6.8 3.2 13.8 12.9 12.5 8.7 9.1 8.6 2.4 2.1 1.8 1.9 2.1 2.2 17.5 16.3 14.7 485 25.0 11.4

GSPL 85 REDUCE 47,904 975 563 8.9 9.2 8.5 21.7 3.4 (7.1) 9.6 9.3 10.0 6.3 5.7 5.8 2.1 1.7 1.5 1.2 1.6 2.5 25.2 20.5 16.2 87 2.2 2.2

Hindustan Petroleum 284 RS 96,414 1,963 339 40.8 11.0 28.8 (20.8) (73.2) 162.9 7.0 25.9 9.9 3.1 2.7 3.2 0.6 0.6 0.6 4.9 1.2 3.1 9.0 2.2 5.7 — — 4.4

Indian Oil Corporation 276 RS 669,507 13,634 2,428 32.4 30.1 29.8 (34.0) (7.2) (0.9) 8.5 9.2 9.2 8.3 7.2 6.6 1.1 1.1 1.0 3.4 0.6 3.2 13.3 12.2 11.1 — — 2.7

Oil India 1,311 BUY 315,230 6,419 240 120.0 146.1 189.9 4.2 21.8 30.0 10.9 9.0 6.9 5.5 3.6 2.6 1.9 1.7 1.5 2.9 4.2 5.7 16.2 17.5 20.1 1,750 33.5 2.6

Oil & Natural Gas Corporation 281 BUY 2,402,817 48,930 8,556 24.7 31.2 37.5 7.4 26.6 20.2 11.4 9.0 7.5 4.3 3.7 2.9 1.6 1.4 1.3 3.1 3.6 4.3 14.3 16.1 17.1 350 24.6 15.6

Petronet LNG 166 SELL 124,238 2,530 750 8.1 14.9 13.6 50.3 83.4 (8.2) 20.4 11.1 12.1 11.8 7.9 8.5 4.1 3.2 2.6 1.2 1.8 1.8 20.9 31.1 22.5 140 (15.5) 6.3

Reliance Industries 849 ADD 2,531,614 51,552 2,981 62.0 62.8 63.5 24.8 1.4 1.0 13.7 13.5 13.4 7.5 6.8 6.6 1.6 1.4 1.3 0.9 0.9 0.9 13.0 11.9 10.9 915 7.7 85.9

Energy Attractive 7,740,905 157,632 11.6 11.8 14.5 11.5 10.3 9.0 6.4 5.6 4.7 1.6 1.4 1.3 2.0 1.9 2.9 13.8 13.9 14.3

Industrials

ABB 850 SELL 180,080 3,667 212 3.0 11.7 22.7 (82.2) 291.5 94.5 284.8 72.7 37.4 207.8 48.3 24.3 7.4 7.0 6.0 0.2 0.4 0.4 2.6 9.9 17.3 515 (39.4) 1.5

BGR Energy Systems 264 REDUCE 19,073 388 72 44.8 29.4 27.2 60.0 (34.4) (7.4) 5.9 9.0 9.7 4.1 4.9 3.9 2.0 1.7 1.5 3.8 2.2 2.1 39.0 20.5 16.5 260 (1.6) 4.3

Bharat Electronics 1,537 ADD 122,956 2,504 80 107.3 115.8 132.8 11.6 8.0 14.7 14.3 13.3 11.6 6.4 7.1 4.8 2.4 2.1 1.8 1.4 1.6 1.6 18.2 16.8 16.9 1,650 7.4 1.3

Bharat Heavy Electricals 262 REDUCE 640,170 13,036 2,448 24.6 27.5 23.3 39.7 12.0 (15.4) 10.6 9.5 11.2 6.8 6.8 7.4 3.2 2.5 2.2 2.4 2.2 1.9 33.3 29.7 20.9 230 (12.1) 28.0

Crompton Greaves 158 ADD 101,453 2,066 642 14.3 6.4 10.3 11.5 (55.2) 60.0 11.0 24.6 15.4 7.2 12.1 8.5 3.1 2.8 2.5 1.5 0.9 1.0 31.7 12.0 17.0 155 (2.0) 6.9

KEC International 60 BUY 15,502 316 257 8.0 6.7 8.1 4.1 (16.5) 21.6 7.5 9.0 7.4 6.1 6.5 5.6 1.6 1.4 1.2 2.0 2.2 2.0 22.5 16.2 17.2 65 7.8 0.4

Larsen & Toubro 1,328 REDUCE 808,705 16,468 609 67.7 80.7 87.0 18.1 19.2 7.8 19.6 16.5 15.3 14.3 11.2 10.2 3.1 2.5 2.2 1.1 1.1 1.1 17.0 16.8 15.4 1,325 (0.2) 75.0

Maharashtra Seamless 340 BUY 24,008 489 71 48.2 42.1 46.8 24.8 (12.6) 11.0 7.1 8.1 7.3 4.5 4.4 3.7 0.9 0.9 0.8 2.4 2.5 2.7 13.8 11.1 11.5 460 35.1 0.2

Siemens 806 SELL 274,159 5,583 340 25.5 22.3 27.9 13.6 (12.7) 25.5 31.6 36.2 28.8 21.9 23.0 18.3 7.1 6.2 5.3 0.7 0.6 0.7 24.4 18.2 19.7 550 (31.7) 3.6

Suzlon Energy 28 REDUCE 49,660 1,011 1,746 (6.0) (0.9) 3.8 (4.6) (85.7) (539.2) (4.7) (33.1) 7.5 17.8 8.1 5.4 0.7 0.8 0.7 — 0.7 0.7 (15.8) (2.2) 9.7 32 12.5 16.3

Tecpro Systems 192 BUY 9,686 197 50 27.0 28.8 24.8 24.2 6.9 (14.1) 7.1 6.7 7.7 4.8 5.2 5.2 1.5 1.2 1.1 — — — 26.8 20.2 15.2 200 4.2 0.1

Thermax 466 REDUCE 55,494 1,130 119 31.6 32.8 31.4 44.3 3.7 (4.3) 14.7 14.2 14.8 9.7 9.4 9.4 4.2 3.5 3.0 1.9 2.0 1.9 31.5 27.0 21.9 440 (5.5) 1.1

Voltas 98 REDUCE 32,297 658 331 9.8 6.4 7.6 (14.3) (34.4) 17.6 10.0 15.2 12.9 5.7 10.1 7.9 2.3 2.2 2.0 2.0 2.0 2.4 26.1 14.8 15.9 90 (7.8) 3.3

Industrials Cautious 2,462,711 50,149 24.3 12.5 7.2 17.5 15.5 14.5 11.4 10.2 9.3 3.2 2.7 2.4 1.5 1.4 1.4 18.1 17.4 16.2

Infrastructure

Adani Port and SEZ 143 ADD 288,596 5,877 2,017 4.6 5.6 7.3 36.3 22.1 31.3 31.4 25.7 19.6 25.4 18.6 13.8 6.7 5.6 4.6 0.6 0.7 1.0 23.4 23.8 25.8 160 11.8 4.5

Container Corporation 940 ADD 122,175 2,488 130 67.6 71.0 77.5 11.7 5.0 9.2 13.9 13.2 12.1 9.9 8.8 7.6 2.5 2.2 1.9 1.6 1.7 1.9 18.9 17.4 16.7 1,100 17.0 1.2

GMR Infrastructure 30 RS 115,410 2,350 3,892 (0.3) (0.8) (0.2) (178.0) 131.2 (77.8) (88.1) (38.1) (171.4) 18.9 13.7 11.4 1.2 1.0 1.0 — — — (1.8) (4.0) (0.9) — — 3.8

Gujarat Pipavav Port 60 ADD 25,456 518 424 (1.2) 1.2 2.3 (65.8) (195.8) 100.8 (50.0) 52.2 26.0 26.1 17.4 13.4 3.5 3.2 2.9 — — — (9.1) 8.9 12.1 63 4.8 0.3

GVK Power & Infrastructure 17 RS 26,136 532 1,579 1.0 1.0 0.3 (0.6) 1.6 (73.4) 16.9 16.6 62.4 17.9 16.5 19.4 0.8 0.7 0.8 — 1.8 2.1 4.7 4.6 1.2 — — 4.4

IRB Infrastructure 169 ADD 56,103 1,142 332 13.6 11.9 15.2 30.4 (12.9) 27.9 12.4 14.2 11.1 8.2 8.6 7.2 2.2 1.6 1.3 0.9 — — 19.3 13.1 13.0 190 12.6 4.8

Infrastructure Cautious 633,875 12,908 10.5 5.3 30.5 28.5 27.1 20.7 16.8 14.0 11.4 2.5 2.1 1.9 0.7 0.7 0.9 8.7 7.9 9.3

Dividend yield (%)


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Media

DB Corp 202 BUY 36,931 752 183 14.1 11.2 13.5 32.7 (20.7) 20.6 14.3 18.0 14.9 9.3 10.5 8.7 4.5 3.9 3.5 2.0 2.0 3.0 35.0 23.0 24.5 300 48.9 0.1

DishTV 66 BUY 70,105 1,428 1,063 (1.8) (0.7) 0.6 (27.7) (62.1) (192.8) (37.0) (97.6) 105.1 32.5 15.2 11.3 111.7 (768.5) 121.8 — — — (81.9) (268.1) 275.3 80 21.3 6.6

Eros International 211 BUY 20,483 417 97 11.8 15.6 19.6 19.0 32.7 25.6 17.9 13.5 10.8 12.4 9.5 6.8 3.0 2.5 2.0 — — — 24.9 20.1 20.4 270 27.8 1.5

Hindustan Media Ventures 125 BUY 9,170 187 73 7.3 9.0 10.6 198.0 23.3 17.8 17.1 13.9 11.8 8.0 7.7 5.8 2.4 2.1 1.8 0.8 0.8 1.6 23.3 16.1 16.5 190 52.1 0.1

HT Media 145 ADD 34,104 694 235 7.7 7.5 9.2 31.0 (3.1) 23.3 18.9 19.5 15.8 9.0 9.8 7.3 2.4 2.2 2.0 0.2 1.4 2.8 14.9 11.8 13.4 160 10.3 0.1

Jagran Prakashan 107 BUY 33,760 687 316 6.8 6.5 7.8 16.7 (5.3) 21.6 15.7 16.5 13.6 9.3 9.0 7.8 4.8 4.3 3.8 3.3 3.3 3.7 32.8 27.6 30.0 150 40.5 0.2

Sun TV Network 319 ADD 125,869 2,563 394 19.5 18.5 21.4 48.1 (5.4) 15.9 16.4 17.3 14.9 9.9 10.2 9.0 5.2 4.8 4.4 2.7 3.4 4.4 36.5 30.2 32.2 390 22.1 6.6

Zee Entertainment Enterprises 132 BUY 128,704 2,621 978 5.8 6.2 7.7 10.0 6.4 23.3 22.5 21.2 17.2 15.2 14.0 11.1 3.0 2.9 2.8 1.0 1.0 1.2 14.2 14.3 16.9 160 21.6 3.4

Media Neutral 459,126 9,349 51.6 4.7 27.8 23.3 22.2 17.4 12.4 11.5 9.3 4.3 4.0 3.6 1.5 1.7 2.3 18.4 17.8 20.9

Metals & Mining

Coal India 337 ADD 2,126,088 43,295 6,316 17.3 23.4 26.9 13.6 35.1 14.9 19.5 14.4 12.5 11.4 8.8 7.6 6.1 4.8 3.9 1.2 2.1 2.4 35.1 37.3 34.1 380 12.9 28.2

Hindalco Industries 156 REDUCE 298,437 6,077 1,915 12.8 17.2 16.1 (36.0) 34.3 (6.0) 12.2 9.1 9.7 6.4 7.2 6.9 1.0 0.9 0.9 1.0 1.0 1.0 9.7 10.8 9.2 160 2.7 29.9

Hindustan Zinc 143 ADD 604,386 12,307 4,225 11.6 12.7 14.7 21.8 8.8 16.0 12.3 11.3 9.7 8.3 7.2 5.2 2.7 2.3 1.9 0.7 1.7 1.7 24.3 21.8 21.4 150 4.9 2.0

Jindal Steel and Power 606 REDUCE 565,999 11,526 934 40.2 40.9 46.1 5.1 1.7 12.7 15.1 14.8 13.2 11.0 10.5 9.7 4.0 3.2 2.6 0.2 0.3 0.3 30.9 24.1 21.8 530 (12.5) 21.8

JSW Steel 814 SELL 184,009 3,747 226 78.6 32.4 77.8 (2.2) (58.7) 139.8 10.4 25.1 10.5 7.1 6.0 6.4 1.1 1.1 1.0 1.5 1.2 1.2 13.6 14.1 9.9 680 (16.5) 41.6

National Aluminium Co. 63 SELL 163,526 3,330 2,577 4.2 3.2 3.7 36.4 (23.9) 15.8 15.3 20.1 17.3 7.1 9.9 7.9 1.5 1.4 1.4 2.4 2.4 2.4 9.9 7.2 8.0 53 (16.5) 0.7

Sesa Goa 246 REDUCE 220,006 4,480 895 48.6 32.7 46.8 65.3 (32.7) 43.1 5.1 7.5 5.3 4.3 6.4 7.0 1.7 1.4 1.1 1.6 1.6 1.6 36.8 17.2 22.1 190 (22.7) 15.2

Sterlite Industries 130 BUY 435,275 8,864 3,361 15.2 13.5 15.2 26.2 (11.0) 12.4 8.5 9.6 8.5 5.3 4.6 3.7 1.1 1.0 0.9 0.9 1.5 1.5 13.0 10.5 10.8 150 15.8 17.5

Tata Steel 485 ADD 471,328 9,598 971 75.3 36.2 58.4 (2,258.1) (51.9) 61.2 6.4 13.4 8.3 6.0 8.0 6.1 1.3 1.2 1.1 2.4 2.4 2.4 24.7 7.1 13.4 525 8.2 62.7

Metals & Mining Cautious 5,069,055 103,224 39.1 0.1 16.0 12.2 12.2 10.5 7.7 7.6 6.5 2.3 2.0 1.8 1.2 1.7 1.9 19.0 16.6 16.7

Pharmaceutical

Apollo Hospitals 633 BUY 87,873 1,789 139 13.2 17.1 21.2 21.0 29.3 24.0 47.8 37.0 29.8 21.6 16.2 13.9 4.6 3.5 3.1 — — — 9.8 10.3 10.5 650 2.8 5.4

Biocon 291 BUY 58,140 1,184 200 18.4 16.8 20.7 23.9 (8.7) 23.2 15.8 17.3 14.1 8.9 9.7 7.7 2.8 2.6 2.3 — — — 19.4 15.7 17.2 380 30.7 3.6

Cipla 342 SELL 274,679 5,593 803 12.3 14.1 17.7 (10.0) 14.1 25.5 27.8 24.3 19.4 24.0 19.1 14.7 4.1 3.7 3.2 0.8 0.9 1.0 15.4 15.6 17.3 320 (6.5) 9.9

Cadila Healthcare 707 REDUCE 144,737 2,947 205 34.7 31.1 40.9 40.6 (10.5) 31.4 20.4 22.7 17.3 17.7 17.8 13.4 6.7 5.4 4.4 0.9 0.9 1.2 37.5 26.4 28.1 700 (1.0) 1.9

Dishman Pharma & chemicals 59 REDUCE 4,831 98 81 9.8 5.1 8.3 (31.8) (48.6) 64.7 6.0 11.7 7.1 8.1 7.7 5.8 0.5 0.5 0.5 — — — 9.6 4.6 7.2 60 1.0 0.3

Divi's Laboratories 747 ADD 99,109 2,018 133 32.4 37.4 46.4 25.7 15.6 24.1 23.1 20.0 16.1 19.1 15.5 11.3 5.5 4.7 4.0 — — — 25.9 25.4 26.8 935 25.2 2.4

Dr Reddy's Laboratories 1,627 REDUCE 276,474 5,630 170 64.9 90.7 106.9 932.5 39.7 17.8 25.0 17.9 15.2 17.6 11.7 9.7 6.0 4.7 3.7 0.7 0.8 0.9 24.8 29.3 27.1 1,740 7.0 13.6

GlaxoSmithkline Pharmaceuticals (a) 2,035 SELL 172,375 3,510 85 68.3 75.5 83.3 15.5 10.6 10.3 29.8 27.0 24.4 19.7 18.9 16.4 8.8 9.0 8.4 2.0 2.5 2.8 30.9 33.2 35.7 1,930 (5.2) 0.9

Glenmark Pharmaceuticals 300 REDUCE 81,124 1,652 270 17.0 19.9 22.4 33.6 17.6 12.2 17.7 15.0 13.4 19.9 18.5 11.0 4.0 3.2 2.6 — — — 20.6 23.6 21.5 340 13.4 3.7

Jubilant Life Sciences 202 REDUCE 32,107 654 159 14.4 16.9 29.5 (45.6) 17.3 74.1 14.0 11.9 6.8 11.1 8.3 6.6 1.5 1.3 1.1 1.0 1.0 1.5 12.3 16.3 18.0 180 (10.7) 0.5

Lupin 464 ADD 207,849 4,233 448 19.2 21.1 26.5 25.6 9.7 25.3 24.1 22.0 17.5 20.2 17.4 12.9 6.2 5.1 4.1 0.6 0.8 1.0 29.5 25.8 26.2 520 12.1 7.4

Ranbaxy Laboratories 439 SELL 185,640 3,780 423 40.6 19.0 42.8 474.9 (53.3) 125.7 10.8 23.1 10.2 13.3 13.8 8.3 3.3 3.1 2.4 — — — 34.5 14.0 26.4 400 (8.8) 10.6

Sun Pharmaceuticals 553 ADD 572,842 11,665 1,036 17.5 23.4 28.1 34.4 33.4 20.1 31.5 23.6 19.7 27.1 17.1 14.1 5.5 4.5 3.7 0.6 0.7 0.9 21.0 23.1 22.9 625 13.0 10.0

Pharmaceuticals Neutral 2,197,781 44,754 43.1 8.2 29.7 23.0 21.3 16.4 18.6 14.6 11.1 3.7 3.2 2.7 0.7 0.8 0.9 16.0 14.9 16.3

Property

DLF 230 ADD 394,952 8,043 1,715 9.1 9.7 12.7 (14.5) 6.5 31.5 25.4 23.8 18.1 16.6 15.2 12.3 1.5 1.4 1.4 0.9 1.1 1.3 5.4 6.1 7.6 260 12.9 39.5

Housing Development & Infrastructure 98 BUY 43,020 876 441 19.8 24.8 32.7 24.2 25.0 32.1 4.9 3.9 3.0 5.1 6.3 4.2 0.5 0.4 0.3 — 1.0 1.5 10.0 10.7 12.4 150 53.8 21.3

Indiabulls Real Estate 74 RS 29,665 604 402 4.0 8.5 15.4 (1,095.5) 114.1 81.5 18.6 8.7 4.8 13.2 10.6 4.6 0.3 0.2 0.2 0.4 0.7 0.9 1.4 2.9 5.0 — — 10.3

Mahindra Life Space Developer 324 BUY 13,216 269 41 24.9 26.7 32.2 30.2 6.9 20.8 13.0 12.2 10.1 9.9 8.2 6.4 1.3 1.2 1.1 1.5 1.4 1.5 10.4 10.2 11.2 405 25.1 0.3

Oberoi Realty 270 BUY 88,848 1,809 330 15.7 14.9 26.4 14.8 (5.0) 77.3 17.2 18.1 10.2 13.0 13.2 6.3 2.7 2.4 2.0 0.4 0.6 0.9 19.9 13.9 21.1 300 11.3 0.2

Phoenix Mills 198 BUY 28,672 584 145 6.3 7.4 10.7 53.0 17.2 44.1 31.3 26.7 18.5 23.1 19.3 14.5 1.8 1.7 1.6 0.9 1.0 1.0 5.8 6.6 8.9 300 51.6 0.2

Puravankara Projects 76 REDUCE 16,220 330 213 5.5 7.4 9.5 (18.9) 33.2 29.4 13.8 10.3 8.0 18.5 13.4 11.0 1.1 1.0 0.9 1.3 2.0 2.6 8.0 9.9 11.8 80 5.3 0.1

Sobha Developers 270 BUY 26,477 539 98 18.8 15.6 25.7 33.8 (17.2) 65.3 14.3 17.3 10.5 12.2 13.2 8.3 1.4 1.3 1.2 1.1 1.3 1.5 10.2 7.9 12.0 340 25.9 0.8

Unitech 30 RS 77,312 1,574 2,616 2.3 2.3 2.3 (23.4) 0.2 (3.0) 12.7 12.7 13.1 14.2 12.1 10.1 0.7 0.6 0.6 0.3 0.7 1.0 5.4 5.0 4.4 — — 12.4

Property Cautious 754,514 15,365 5.3 23.0 36.2 17.6 14.3 10.5 13.8 12.0 8.8 1.1 1.0 0.9 0.7 1.0 1.3 6.1 7.0 8.7

Dividend yield (%)


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Technology

HCL Technologies 468 REDUCE 330,152 6,723 705 22.9 33.8 39.9 30.4 47.9 18.0 20.5 13.9 11.7 12.4 8.2 7.0 3.9 2.9 2.4 1.6 1.7 1.7 21.0 22.8 22.3 460 (1.8) 10.8

Hexaware Technologies 111 ADD 32,623 664 294 3.0 9.1 10.7 (36.8) 207.9 17.3 37.6 12.2 10.4 30.2 10.7 7.2 3.4 3.2 2.7 1.3 2.7 2.9 9.3 26.9 28.0 110 (1.0) 3.1

Infosys 2,788 ADD 1,600,542 32,593 574 119.7 146.1 173.7 10.5 22.0 18.9 23.3 19.1 16.0 15.9 12.8 10.2 6.2 5.1 4.3 2.1 1.7 1.9 28.0 29.3 28.9 3,100 11.2 73.3

Mahindra Satyam 73 REDUCE 85,730 1,746 1,176 4.2 8.7 8.1 68.9 106.3 (6.5) 17.4 8.4 9.0 12.9 5.8 4.5 5.0 3.1 2.3 — — — 27.6 45.7 29.7 80 9.7 6.5

Mindtree 450 ADD 18,516 377 41 24.7 50.5 53.9 (52.7) 104.5 6.8 18.2 8.9 8.3 10.2 6.0 4.6 2.4 1.9 1.7 0.5 1.1 3.6 14.4 23.9 21.5 540 20.0 0.6

Mphasis 380 SELL 80,127 1,632 211 51.8 39.0 34.6 18.8 (24.6) (11.4) 7.3 9.7 11.0 6.2 8.1 7.3 2.4 2.1 1.8 1.1 1.2 1.3 38.6 22.8 17.3 310 (18.5) 2.3

Polaris Financial Technology 162 REDUCE 16,141 329 100 19.3 21.7 24.0 25.7 12.5 10.4 8.4 7.5 6.8 5.2 3.2 2.4 1.6 1.3 1.1 2.3 2.4 2.5 20.2 19.2 18.2 145 (10.4) 1.3

TCS 1,226 REDUCE 2,398,940 48,851 1,957 44.5 54.6 66.4 26.8 22.6 21.6 27.5 22.5 18.5 20.6 15.7 12.9 9.5 7.6 6.1 1.1 1.6 1.9 37.8 37.6 36.6 1,250 2.0 38.4

Tech Mahindra 652 SELL 82,209 1,674 126 48.0 74.7 80.7 (26.3) 55.5 8.0 13.6 8.7 8.1 9.1 9.8 8.0 2.5 2.1 1.9 0.6 0.6 1.5 20.2 27.0 25.5 600 (8.0) 2.1

Wipro 437 ADD 1,071,416 21,818 2,454 21.6 23.2 28.2 14.5 7.4 21.7 20.2 18.8 15.5 15.0 12.9 10.2 4.5 3.8 3.2 1.0 1.1 1.4 24.3 21.7 22.2 460 5.4 14.9

Technology Attractive 5,778,980 117,680 17.0 20.9 18.1 22.5 18.6 15.8 16.2 12.8 10.4 5.9 4.8 4.0 1.5 1.5 1.8 26.2 25.9 25.3

Telecom

Bharti Airtel 348 ADD 1,320,426 26,888 3,798 15.9 12.8 20.8 (32.6) (19.9) 62.9 21.8 27.2 16.7 9.7 8.1 6.3 2.7 2.7 2.3 — — — 13.3 9.9 14.7 390 12.2 56.8

IDEA 91 ADD 301,922 6,148 3,303 2.7 2.1 4.6 (0.5) (22.2) 118.5 33.6 43.2 19.8 10.8 8.5 6.4 2.5 2.4 2.2 — — — 7.6 5.7 11.6 100 9.4 14.3

MTNL 29 RS 18,302 373 630 (10.4) (9.1) (8.4) (33.7) (11.9) (8.1) (2.8) (3.2) (3.5) 1.1 1.5 1.9 0.2 0.2 0.2 — — — (6.1) (5.7) (5.5) — — 0.6

Reliance Communications 94 SELL 193,913 3,949 2,064 6.5 3.9 1.0 (71.1) (39.7) (73.5) 14.4 23.9 90.0 6.3 8.1 6.9 0.5 0.5 0.5 — — — 3.2 2.0 0.6 60 (36.1) 20.6

Tata Communications 222 REDUCE 63,227 1,288 285 (24.9) (27.0) (26.6) (13.0) 8.4 (1.4) (8.9) (8.2) (8.3) 11.4 8.6 7.7 1.8 2.5 4.1 — — — (17.5) (25.1) (37.0) 215 (3.1) 0.9

Telecom Cautious 1,897,789 38,646 (45.8) (27.5) 66.7 27.4 37.9 22.7 9.2 8.3 6.5 1.6 1.7 1.6 — — — 6.0 4.4 6.9

Utilities

Adani Power 69 SELL 166,208 3,385 2,393 2.4 2.3 8.1 200.7 (4.3) 259.1 29.5 30.8 8.6 33.1 22.5 6.4 2.6 2.2 1.8 — — — 8.5 7.9 23.2 60 (13.6) 3.4

CESC 270 BUY 33,739 687 125 39.1 32.1 39.9 13.1 (17.9) 24.4 6.9 8.4 6.8 4.7 6.7 6.4 0.7 0.7 0.6 1.5 1.5 1.8 10.8 8.2 9.4 400 48.1 1.5

JSW Energy 62 REDUCE 101,844 2,074 1,640 5.1 1.6 2.3 12.9 (69.5) 44.8 12.1 39.7 27.4 12.6 18.8 8.7 1.8 1.8 1.7 (1.6) — — 16.1 4.5 6.3 43 (30.8) 2.0

Lanco Infratech 16 BUY 35,901 731 2,223 1.6 1.9 2.6 (22.6) 14.7 36.9 9.8 8.5 6.2 10.3 10.5 7.4 0.8 0.7 0.6 — — — 9.2 8.4 10.3 39 141.5 4.8

NHPC 22 BUY 264,466 5,385 12,301 1.3 2.0 2.2 (27.2) 49.2 7.2 15.9 10.7 10.0 11.6 10.8 7.8 1.0 0.9 0.9 2.8 2.6 2.7 6.4 9.0 9.1 29 34.9 2.8

NTPC 181 REDUCE 1,492,429 30,391 8,245 10.9 11.4 12.2 4.2 4.1 7.6 16.6 15.9 14.8 12.5 13.9 11.9 2.2 2.0 1.8 2.2 1.9 2.0 13.6 13.0 12.9 175 (3.3) 9.3

Reliance Infrastructure 602 BUY 159,570 3,249 265 58.0 57.2 75.6 (6.5) (1.4) 32.2 10.4 10.5 8.0 13.3 8.5 8.3 0.7 0.6 0.6 1.2 1.7 1.9 6.8 10.3 9.0 890 47.9 22.2

Reliance Power 107 SELL 299,588 6,101 2,805 2.7 2.6 2.9 (0.2) (5.3) 13.5 39.4 41.6 36.7 154.4 58.0 25.2 1.8 1.7 1.6 — — — 4.9 4.2 4.5 76 (28.8) 9.3

Tata Power 108 BUY 266,581 5,429 2,468 7.6 4.9 8.7 21.5 (36.3) 77.6 14.1 22.2 12.5 10.9 9.4 8.1 1.8 1.9 1.7 1.3 1.4 1.6 13.8 8.4 14.5 125 15.7 7.8

Utilities Cautious 2,820,325 57,432 4.3 (1.0) 24.7 16.5 16.7 13.4 13.8 13.4 9.8 1.6 1.5 1.4 1.6 1.5 1.6 9.9 9.3 10.6

Others

Carborundum Universal 170 REDUCE 31,780 647 187 9.1 11.6 11.7 67.7 26.6 1.0 18.6 14.7 14.6 11.4 8.3 8.0 3.7 3.1 2.6 1.1 1.4 1.4 25.2 25.9 22.0 150 (11.8) 0.2

Havells India 486 ADD 60,666 1,235 125 24.5 29.7 33.0 334.1 21.1 11.0 19.8 16.4 14.7 12.6 10.5 9.1 8.5 6.1 4.4 0.5 0.6 0.6 53.9 43.3 34.7 500 2.8 3.2

Jaiprakash Associates 78 BUY 165,331 3,367 2,126 6.0 6.4 6.9 230.2 5.9 7.6 12.9 12.2 11.3 12.0 9.0 7.9 1.5 1.4 1.3 — — — 13.3 12.0 11.7 105 35.0 26.0

Jet Airways 333 ADD 28,765 586 86 (10.1) (233.8) (24.3) (91.0) 2,225 (89.6) (33.1) (1.4) (13.7) 10.1 (165.1) 10.0 1.8 (6.8) (4.6) — — — (5.0) — — 380 14.0 14.7

SpiceJet 25 BUY 10,990 224 441 2.5 (8.7) 1.9 (1.8) (450.3) (122.1) 10.0 (2.8) 12.9 14.8 (7.9) 11.4 3.4 17.9 7.5 — — — (961) (201.8) 82.1 45 80.7 1.8

Tata Chemicals 363 REDUCE 92,591 1,885 255 26.2 32.9 38.8 (0.7) 25.4 17.9 13.8 11.0 9.4 8.1 5.7 4.9 1.7 1.5 1.3 2.8 3.3 4.1 16.9 18.6 19.5 365 0.4 2.3

United Phosphorus 154 ADD 70,910 1,444 462 12.3 14.4 21.0 3.9 16.7 45.6 12.4 10.7 7.3 7.6 5.1 4.3 1.9 1.7 1.4 1.3 2.0 2.3 18.0 17.3 21.3 170 10.7 3.1

Others 461,033 9,388 233.8 (63.3) 276.0 16.2 44.2 11.8 10.7 10.1 7.3 2.0 1.9 1.7 0.9 1.1 1.4 12.1 4.4 14.4

KS universe (b) 47,173,325 960,613 18.4 8.3 19.8 16.1 14.8 12.4 10.3 9.2 7.6 #REF! #REF! #REF! 1.5 1.5 1.8 #REF! #REF! #REF!

KS universe (b) ex-Energy 39,432,420 802,982 20.6 7.3 21.4 17.4 16.2 13.4 12.0 10.8 8.8 #REF! #REF! #REF! 1.4 1.5 1.6 #REF! #REF! #REF!

KS universe (d) ex-Energy & ex-Commodities 33,093,288 673,895 19.3 8.2 22.9 18.4 17.0 13.9 13.4 11.8 9.5 #REF! #REF! #REF! 1.4 1.4 1.6 #REF! #REF! #REF!

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$)= 0.00

Dividend yield (%)



Disclosures

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

Source: Kotak Institutional Equities As of December 31, 2011

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.

* The above categories are defined as follows: Buy = We expect this stock to deliver more than 17.5% returns over the next 12 months; Add = We expect this stock to deliver 7.5-17.5% returns over the next 12 months; Reduce = We expect this stock to deliver 0-7.5% returns over the next 12 months; Sell = We expect this stock to deliver less than 0% returns over the next 12 months. Our target prices are also on a 12-month horizon basis. These ratings are used illustratively to comply with applicable regulations. As of 31/12/2011 Kotak Institutional Equities Investment Research had investment ratings on 167 equity securities.

13.2%

42.5%

26.9%

17.4%

6.6%4.2%

2.4% 3.0%

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 deliver more than 17.5% returns over the next 12 months.

ADD. We expect this stock to deliver 7.5-17.5% returns over the next 12 months.

REDUCE. We expect this stock to deliver 0-7.5% returns over the next 12 months.

SELL. We expect this stock to deliver less than 0% returns over the next 12 months.

Our target prices are also on a 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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