india daily, january 31, 2012for private circulation only. for important information about kotak...

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

INDIA DAILYJanuary 31, 2012 India 30-Jan 1-day1-mo 3-mo

Sensex 16,863 (2.2) 9.1 (5.3)

Nifty 5,087 (2.3) 10.0 (5.1)

Global/Regional indices

Dow Jones 12,654 (0.1) 3.6 3.5

Nasdaq Composite 2,812 (0.2) 7.9 2.7

FTSE 5,671 (1.1) 1.8 (0.5)

Nikkie 8,818 0.3 4.3 (1.9)

Hang Seng 20,371 1.0 10.5 2.5

KOSPI 1,958 0.9 7.3 2.6

Value traded – India

Cash (NSE+BSE) 142 124 43

Derivatives (NSE) 770 650 949

Deri. open interest 1,004 833 1,094

Forex/money market

Change, basis points

30-Jan 1-day 1-mo 3-mo

Rs/US$ 49.8 1 (351) 110

10yr govt bond, % 8.4 - (16) (44)

Net investment (US$mn)

27-Jan MTD CYTD

FIIs 275 2,070 2,070

MFs (57) (258) (282)

Top movers -3mo basis

Change, %

Best performers 30-Jan 1-day 1-mo 3-mo

MMTC IN Equity 871.0 4.6 61.5 29.8

IBULL IN Equity 181.4 (1.0) 31.6 18.5

TCOM IN Equity 222.9 (3.9) 4.9 17.9

TTMT IN Equity 233.9 (2.5) 30.9 17.9

RCOM IN Equity 93.0 (3.5) 32.8 16.5

Worst performers

SUEL IN Equity 26.4 (7.9) 46.4 (31.6)

ESOIL IN Equity 62.7 0.4 24.7 (27.9)

NMDC IN Equity 173.0 (4.9) 7.5 (27.0)

UNSP IN Equity 650.8 (1.2) 32.3 (25.9)

HDIL IN Equity 75.6 (5.3) 41.6 (24.3)

Contents

Special Reports

Strategy

Strategy: Bharat - all is well

Daily Alerts

Results

LIC Housing Finance: Core below estimates, buffers on balance sheet to underpin business strategy

Indian Bank: Relatively better

Oriental Bank of Commerce: High provisions cushioned by lower taxes and NIM expansion

Havells India: Outperforms on all counts

J&K Bank: Low provisions driving earnings

Sadbhav Engineering: Strong execution and sequential decline in interest costs are key positives

Mahindra Life Space Developer: Strong sales led by new launches

Results, Change in Reco

Glenmark Pharmaceuticals: Lower margin leads to PAT miss

United Phosphorus: In-line quarter

Change in Reco

Tata Motors: Downgrade to SELL

Adani Port and SEZ: Downgrade to ADD due to sustained outperformance

Titan Industries: Downgrading a notch after steep run-up in stock price

Company

Tata Global Beverages: Aroma is good; taste unknown

Sector

Technology: 3QFY12 review: guidance overshadows good quarter

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

The continued rise of the rural consumer

The consumer sector received strong tailwinds from rural markets in recent years. Government intervention was crucial, in our view; the quantum of handouts now is so large that on a per capita basis it adds 12% to the average income of Bharat’s residents. It will be difficult for the Government to close the tap, in our view. The creation of infrastructure led to an improved rural lifestyle. From a consumer behavior point-of-view, some of these habit changes set in a virtuous cycle of volume, value and profit growth (relevant example of conditioners). Significant increases in land prices have created a wealth effect – we believe the recent Land Acquisition Bill will help keep land prices high.

Consumer: Possible short-term pain offset by long-term gain

We remain selective in the consumer sector. The Government’s spending spree aiding rural consumption is a multi-year story to play; CY2012 will likely be a case of demand deceleration. In a macro-economic environment, impacted by volatile input costs, we prefer companies with pricing power and/or turnaround stories. Companies could still moderate adspends (selectively though) to manage input cost inflation. Distribution expansion of Dabur, GCPL, HUL and MRCO (in rural India) could help them to outperform consumer sector growth.

Automobiles: Rural penetration to drive future volume growth

We believe growth in rural volumes will be crucial to an increase in vehicle penetration in India. Over the past few years, rural volumes outpaced urban volumes and we expect the trend to continue over the next decade as automobile companies expand their distribution networks to capitalize on rising rural prosperity. In the near term, we believe rural volume growth could moderate driven by rising agriculture NPLs and moderation in agricultural credit growth.

Banking: Rise in agricultural NPLs a concern but not at tipping point

The rise in gross NPLs in agriculture and priority sector loans is a concerning trend though the buoyancy in rural income provides comfort. We believe deterioration of the credit culture after the farm loan waiver in 2008 and inadequate recovery channels have largely driven the rise in NPLs for public banks. We recommend investors play the rural theme through non-banks, which have better credit delivery platforms and have demonstrated strong growth and collection trends over the past few years.

Strategy.dot

Strategy Rural India

Bharat – all is well. Rural demand is on the upswing, which augurs well for various sectors. We identify five drivers of buoyancy in rural demand: (1) significant diversification of income, (2) land price rise leading to a wealth effect, (3) Government transfer of resources to rural India, (4) development schemes lending a hand and (5) expectations of more income-transfer schemes. Our worry about the long-term impact of fiscal transfers cannot discount its ability to offer a significant near-term consumption boost. Across the automobile, banking and consumer sectors we see significant long-term potential for growth with manageable risks on the credit side. We reiterate our positive view on ITC, GSK, GCPL, MRCO, M&M and MMFS.

INDIA

JANUARY 30, 2012

NEW RELEASE

BSE-30: 16,863


Valuations remain high, business outlook positive

LICHF trades at 8.3X PER and 2.2X PBR FY2013E for 23% CAGR in PBT before provisions between FY2012E and FY2014E and over 20% medium-term RoE. We expect LICHF’s earnings buoyancy to remain strong primarily due to better visibility in NIM and credit cost. The likely slowdown in the sector raises concerns on LICHF’s ability to maintain high disbursements growth though we find near-term momentum in loan growth close to 20%+ levels. LICHF’s ability to deliver profitable growth in business, effectively optimizing its existing buffers (resetting of fixed rate loans to floating rate loans), will be crucial. Aggressive pricing of new home loan products to boost loan growth would concern us.

After the revision in earnings (reported earnings up 9% yoy, core earnings down 3% yoy for FY2013E), we expect LICHF to report 52% PAT growth in FY2013E. This is driven by (1) moderate (21%) loan growth, (2) higher NIM (buoyed by re-pricing of fixed rate loans of Rs90 bn and declining borrowings cost) and (3) reversal of standard asset provisions (Rs1.5 bn—this is 1.6% of loans to be re-priced). Core earnings (PBT before provisions) will increase by 29% yoy. Debt equity ratio is currently at about 12X and we believe that LICHF will need to raise capital to support business growth over the medium term.

Loan growth moderates in 3QFY12

LICHF reported loan growth of 27% in 3QFY12 as compared to 32% in 1QFY12 and 29% in 2QFY12. Disbursements growth (in retail business) was weaker at 8% as compared 24% yoy growth in 2QFY12. While the LICHF’s management has highlighted that they propose to scale up the developer loan book, the traction in this segment continues to remain weak. We model developer loans at about 6% of total loans; increase in the share of developer loans will boost margins even as it increases fears of asset quality disappointments. We continue to expect overall loan growth of 20-21% for the next two years to factor lower demand.

LIC Housing Finance (LICHF)

Banks/Financial Institutions

Core below estimates, buffers on balance sheet to underpin business strategy. LICHF reported 8% yoy decline in PBT before provisions due to lower NIM and moderating loan growth. NPLs were stable; reversal of excess provisions boosted PAT. We believe that current margins are at nadir even as housing demand will likely remain weak in the near term. In this backdrop, the management’s growth strategy remains crucial. While earnings traction is strong, we find moderate upside from current levels. We tweak estimates; retain ADD with a target price of Rs270.

LIC Housing FinanceStock data Forecasts/Valuations 2012 2013E 2014E

52-week range (Rs) (high,low) EPS (Rs) 19.3 29.5 32.4Market Cap. (Rs bn) 116.7 EPS growth (%) (5.8) 52.7 9.7

Shareholding pattern (%) P/E (X) 12.7 8.3 7.6Promoters 36.5 NII (Rs bn) 15.3 19.8 23.3FIIs 37.8 Net profits (Rs bn) 9.2 14.0 15.4MFs 5.5 BVPS 97.7 113.1 138.1

Price performance (%) 1M 3M 12M P/B (X) 2.5 2.2 1.8Absolute 11.0 7.2 39.6 ROE (%) 20.3 26.0 23.7Rel. to BSE-30 1.8 13.2 52.3 Div. Yield (%) 1.7 2.6 2.8

Company data and valuation summary

264-163

ADD

JANUARY 30, 2012

RESULT

Coverage view: Attractive

Price (Rs): 246

Target price (Rs): 270

BSE-30: 16,863

QUICK NUMBERS

• PAT up 43% yoy

• PBT before provision down 8% yoy

• Loan growth of 27%; retail disbursements up 8%

Banks/Financial Institutions LIC Housing Finance

4 KOTAK INSTITUTIONAL EQUITIES RESEARCH

Margins decline further, expect improvement from here

LICHF reported NIM of 2.27% in 3QFY12 as compared to 2.46% in 2QFY12 and 3.14% in 3QFY11. Rise in borrowings cost and resetting of bank loans (to a higher base rates) has put pressure on NIM. The average borrowings cost was 9.4% as compared to incremental borrowings cost of 9.9% (almost stable for past nine months). We believe that NIMs are at nadir; improvement in collections in 4QFY12 (seasonal trend) will likely boost NIM for the quarter. LICHF has Rs90 bn (14% of loan book) of dual rate home loans which will be re-priced in FY2013E; based on current interest rates, the loans will be re-priced up by about 2%; this can provide boost to NIM. We are modeling NIM of 2.7% for FY2013E as compared to 2.3% in 3QFY12 and 2.5% in FY2012E.

NPLs stable, reversal of standard asset provisions boosted earnings

LICHF reported gross NPLs of 0.63%—stable qoq. The net NPL ratio in 2QFY12 of 0.1% included standard asset provision of Rs1.06 bn; since the company reversed these provisions, the ratio increased to 0.3%.

In 2QFY12, NHB imposed standard asset provision of 0.4% on retail loans. Consequently, LICHF made standard asset provisions of Rs2.05 bn in 2QFY12. The company had then not utilized excess provisions on its balance sheet (Rs1.05 bn). Since these provisions were no longer required, the company reversed the same in 3QFY12. Consequently, reported PAT was up 43% yoy and 32% above estimates.

The transition of dual rate home loans from fixed to floating rate loans (by 2% higher rate) raises concerns of increase in slippages. The management has highlighted that its loan appraisal has been robust (factors higher rates) and hence they don’t expect any significant impact on asset quality performance. We are modeling somewhat higher NPLs—gross NPLs of 0.9% in March 2013E as compared to 0.5% in March 2011 and 0.63% in December 2011.

LIC Housing Finance Banks/Financial Institutions

KOTAK INSTITUTIONAL EQUITIES RESEARCH 5

LIC Housing Finance Quarterly data, 3QFY11- 3QFY12 (Rs mn)

3Q11 4Q11 1Q12 2Q12 3Q12 YoY(%) 3Q12EActual vs KS

(%)Operating income 13,544 13,919 14,182 15,153 15,924 18 15,599 2

Interest on loans 11,615 12,937 13,585 14,583 15,386 32 14,983 3Fees and other charges 397 381 300 442 332 (16) 416 (20)Other income 1,533 601 297 128 207 (86) 200 4

Interest expenses 8,093 8,733 9,971 11,238 12,129 50 11,573 5Net operating income 5,451 5,186 4,211 3,915 3,796 (30) 4,026 (6)Total Fund based income 13,148 13,538 13,882 14,711 15,593 19 15,183 3Net interest income 3,522 4,203 3,614 3,345 3,257 (8) 3,410 (4)Other exp. 2,873 874 739 2,588 (281) (110) 842 (133)

Establishment exp. 348 517 245 367 335 (4) 365 (8)Staff expenses 198 169 160 175 180 (9) 227 (21)Provisions 2,328 189 334 2,046 (796) (134) 250 (418)

PBDT 2,578 4,312 3,471 1,327 4,077 58 3,184 28Depreciation 15 17 17 18 19 28 15 28PBT 2,563 4,295 3,455 1,308 4,058 58 3,169 28Tax 428 1,147 889 323 1,003 134 856 17PAT 2,135 3,148 2,565 985 3,050 43 2,313 32Tax rate (%) 17 27 26 25 25 27PBT excl. extraordinary item+provisions 3,531 3,883 3,789 3,354 3,262 (8) 3,419 (5)

Other business highlights Business growthDisbursements (Rs bn) 46 68 35 51 47 2

Individual (Rs bn) 42 65 35 47 46 8Others (Rs bn) 4 3 1 4 2 (62)

Outstanding portfolio (Rs bn) 464 510 529 561 587 27 600 (2)

Individual (Rs bn) 415 467 489 521 551 33

Spreads/ margins (%)NIM(reported -%) 3.14 3.45 2.78 2.45 2.27NIMs (KS estimate- %) 3.14 3.45 2.78 2.46 2.27 2.35

NPLsGross NPLs (Rs mn) 3,127 2,420 4,440 3,590 3,670Gross NPL ratio (%) 0.7 0.5 0.9 0.6 0.6Net NPLs (Rs mn) 840 150 1,840 660 1,800Net NPL ratio (%) 0.2 0.0 0.4 0.1 0.3

Source: Company, Kotak Institutional Equities estimates



Valuations moving up again… LICHF: Rolling PER and PBR, April 2004-January 2012 (X)

-

4

8

12

16

Apr

-06

Oct

-06

Apr

-07

Oct

-07

Apr

-08

Oct

-08

Apr

-09

Oct

-09

Apr

-10

Oct

-10

Apr

-11

Oct

-11

-

0.8

1.6

2.4

3.2

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

Source: Bloomberg, Company, Kotak Institutional Equities estimates

… as performance remains strong Growth in disbursements (LHS) and gross NPL ratio (RHS), March fiscal year-ends, 2004-12E (%)

29

13

38

72

15

2334

6 4

4.44

1.7

0.6

3.83.4

1.1 0.7

0.4

(10)

10

30

50

70

90

2004

2005

2006

2007

2008

2009

2010

2011

2012

E

0

2

4

6Drisbursements (LHS-%)

Gross NPL (RHS-%)


LIC Housing Finance- Old and new estimates March fiscal year-ends, 2012-14E (Rs mn)

Old estimates New estimates Old vs New (%)2012E 2013E 2014E 2012E 2013E 2014E 2012E 2013E 2014E

NIMs(%) 2.8 2.8 2.8 2.6 2.7 2.7 Loan growth (%) 24.8 21.3 20.2 24.8 21.3 20.2 Net interest income 15,899 19,684 24,128 14,311 19,060 22,549 (10) (3) (7) Other income 2,606 2,452 2,690 2,471 2,307 2,531 (5) (6) (6)

Fee income 1,606 1,718 1,890 1,471 1,574 1,731 (8) (8) (8) Other income 1,000 733 800 1,000 733 800 — (0) (0)

Total income 18,505 22,136 26,818 16,782 21,367 25,080 (9) (3) (6) Loan loss provisions 1,321 1,623 1,703 1,723 — 1,022 30 (100) (40) Operating expenses 2,450 2,934 3,513 2,339 2,800 3,352 (5) (5) (5)

Employee expenses 817 980 1,176 783 940 1,127 (4) (4) (4) Other expenses 1,633 1,953 2,336 1,556 1,860 2,225 (5) (5) (5)

PBT 14,733 17,579 21,602 12,720 18,568 20,707 (14) 6 (4) Tax 3,933 4,705 5,710 3,539 4,549 5,323 (10) (3) (7) PAT 10,800 12,875 15,892 9,182 14,019 15,383 (15) 9 (3) PBT bef. Prov, extraordinaries 16,054 19,202 23,305 14,443 18,568 21,728 (10) (3) (7) EPS (Rs per share) 23 27 33 19 30 32

Source: Kotak Institutional Equities estimates

LIC Housing Finance Banks/Financial Institutions


LICHF: Key ratios, March fiscal year-ends, 2009-14E (%)

2009 2010 2011 2012E 2013E 2014EGrowth (%)Total assets 24 37 33 24 20 20Housing loans 26 38 34 25 21 20Total borrowings 26 36 30 27 22 21Net Income before provision 27 19 53 5 29 18Fee income 55 56 18 (2) 7 10Total expenses 16 24 12 8 20 20PBT 37 25 42 (2) 46 12PAT 37 25 47 (6) 53 10Spread calculation (%) Average cost of funds 8.8 8.0 7.8 9.0 8.6 8.5Average yield on assets 10.7 9.6 9.7 10.2 10.1 10.1Spreads 1.9 1.6 1.9 1.2 1.6 1.6 Difference on housing loan 2.3 2.0 2.3 1.5 1.8 1.8NIM 3.0 2.7 3.1 2.6 2.7 2.7Other ratios (%)Tax rate 27 27 25 28 25 26Debt/equity (X) 12 10 11 12 12 12Total expenses/assets 0.5 0.5 0.4 0.4 0.4 0.4Total expenses/total income 18 18 13 14 13 13Divd payout ratio 22 22 22 22 22 22Du Pont analysis (% of average assets)Net interest income 3.0 2.7 3.1 2.6 2.7 2.7Loan loss provisions and Inv pro — (0.1) 0.6 0.3 0.0 0.1Net other income 0.3 0.4 0.7 0.2 0.2 0.2Operating expenses 0.6 0.6 0.5 0.4 0.4 0.4(1- tax rate) 73.2 72.7 75.3 72.2 75.5 74.3ROA 2.0 1.9 2.1 1.5 1.9 1.8Average assets/average equity (X) 13.0 12.4 12.4 13.3 13.6 13.5ROE (%) 26.2 23.6 25.8 20.3 26.0 23.7




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

2009 2010 2011 2012E 2013E 2014EIncome statementTotal income excluding fee income 27,476 32,827 44,697 60,130 73,383 87,699Other operating income 634 597 802 1,000 733 800Interest payable 20,155 23,957 30,977 45,819 54,323 65,150Provision 53 -283 2,609 1,723 — 1,022Net total income 8,716 11,023 13,413 15,059 21,367 24,059Total expenses 1,552 1,920 2,160 2,339 2,800 3,352Staff expenses 447 485 681 783 940 1,127Establishment expenses 166 131 134 141 169 203Other expenses 890 1,241 1,282 1,346 1,616 1,939Depreciation 49 64 62 69 76 83Other income 100 10 1,688Profit before tax 7,264 9,112 12,942 12,720 18,568 20,707Tax 1,948 2,490 3,197 3,539 4,549 5,323Net profit 5,316 6,622 9,745 9,182 14,019 15,383EPS (Rs) 13 14 21 19 30 32BVPS (Rs) 53 71 88 102 124 149ABVPS (Rs) 233 68 83 98 113 138Balance sheetDisbursements 86,800 149,000 199,123 228,991 263,340 302,841YoY growth (%) 23 72 34 15 15 15Net loans 276,793 380,814 510,898 637,710 773,508 929,383Total Investments 11,293 13,886 14,032 14,032 14,032 14,032Cash & deposits 1,353 2,669 4,352 4,352 4,352 4,352Loans and advances and other assets 3,093 3,803 4,845 4,845 4,845 4,845Deferred tax assets 948 890 1,698 1,698 1,698 1,698Fixed assets owned 324 356 474 408 410 410Total assets 293,804 402,418 536,299 663,045 798,845 954,720Total liabilities 271,483 368,540 494,604 614,463 739,740 884,068Share capital 850 950 950 950 950 950Reserves 21,491 32,927 40,741 47,632 58,154 69,700Shareholders fund 22,341 33,877 41,691 48,582 59,105 70,652



Another stable quarter; maintain BUY

Indian Bank reported another stable quarter with earnings growth (7% yoy) supported by 13% revenue growth. Higher provisions were primarily for restructured loans and write-off. There has been no sharp increase in slippages (flat qoq at 1.8% levels – better than some of the larger PSU banks). Slippages over the past few quarters have been normalizing at 1.5-1.8% levels, especially with no manual intervention firmly in practice. Restructured loans are high (mainly in textiles and infrastructure) but the slippages, when compared to peers, are very low. Also, restructured loans have grown only by 9% yoy (7% YTD) which is giving some comfort on the underlying portfolio.

We expect Indian Bank to deliver RoEs in the range of 19-20% for FY2012-14E and earnings growth of 11% CAGR (factoring reasonably higher provisions). We believe that the bank is inexpensive at 1X FY2012E book and 5X EPS. We maintain our BUY rating with TP of `300.

Loan growth at 19% yoy; CASA ratio stable at 30%

Loans for the quarter grew 19% yoy to `880 bn as growth in the large corporate segment (50% of the overall loan book grew 20% yoy as compared to 30% levels in the previous few quarters) is rapidly slowing down. Agriculture loans grew 26% yoy. The bank continues to grow the retail and SME portfolio cautiously (8% yoy). Deposits grew by 18% yoy (2% qoq) with CASA ratio stable qoq at 30% levels.

Slippages at 1.8% levels; gross NPLs increase 14% qoq

Slippages were broadly in line with the previous quarter at 1.8% levels. Overall gross NPLs increased 14% qoq as fresh upgradation for the quarter was lower as compared to the previous few quarters. The management highlighted that slippages were primarily from the SME segment. We note that the bank has written off nearly 0.5% loans during the quarter. Gross NPLs increased 14% qoq to `11.9 bn (1.4% of loans) while net NPL increased 17% qoq to `7 bn (0.8% of loans). Provision coverage (ex write-off) declined marginally by 300 bps to 77%.

Indian Bank (INBK)


Relatively better. Indian Bank delivered another stable quarter with slippages at 1.8% and outstanding restructured loans increasing 9% qoq (7% YTD). Earnings growth (7% yoy) was supported by tax reversals and lower non-staff expenses. Strong capital (tier-1 ratio of 11%), healthy NIMs (3.5% levels) and cost structures (<40% levels) provide cushion to core earnings even if slippages/restructuring surprise negatively. We like the bank at 1X book and 5X FY2012E EPS for RoEs in the range of 19-20% levels. BUY.

Indian BankStock data Forecasts/Valuations 2012 2013E 2014E

52-week range (Rs) (high,low) EPS (Rs) 41.9 46.6 51.3Market Cap. (Rs bn) 91.9 EPS growth (%) 8.0 11.2 10.2


Price performance (%) 1M 3M 12M P/B (X) 1.0 0.8 0.7Absolute 15.7 4.4 1.3 ROE (%) 20.4 19.4 18.5Rel. to BSE-30 6.0 10.3 10.5 Div. Yield (%) 3.7 4.1 4.5


254-166

BUY

JANUARY 30, 2012

RESULT


Price (Rs): 214


BSE-30: 16,863

QUICK NUMBERS

• NII grew 13% yoy; NIM declines 22 bps qoq

• Slippages at 1.8%; restructured loans at 6% of loans

• Maintain BUY with a TP of `300 (unchanged)

Banks/Financial Institutions Indian Bank


Restructured loans are about 6% of overall loans

Restructured loans increased 9% qoq to `56 bn (6.3% of loans) primarily due to restructuring in the telecom vertical. NPLs from the restructured loans are fairly low at 3% of loans. We note that restructuring is primarily in the textiles and infrastructure vertical. We are building slippages at 1.5% levels for FY2012-14E and loan-loss provisions to increase to 1% levels.

NIMs improve 22 bps; lending yields decline 40 bps qoq

Indian Bank reported a net interest income (NII) of `11.7 bn (up 13% yoy, 3% qoq increase). The weak NII growth as compared to loan growth is primarily due to decline in lending yields (40 bps qoq decline) which we believe could be due to de-recognition of interest income. NIMs declined 22 bps qoq to 3.5%. Cost of deposits increased by 26 bps qoq. Investment yields improved 60 bps qoq.

We broadly expect NIMs to decline by 11-15 bps qoq for FY2013-14E as the scope to improve loan re-pricing has greatly reduced while cost of funds has not yet declined. Risks on NIMs would remain high, especially if savings rate would see steep hikes over the next few quarters.

Other operational highlights of the quarter

Non-interest income increased 13% yoy to `2.8 bn on the back of strong income from recovery. Treasury gains for the quarter were at `160 mn (decline of 41% yoy).

The bank has reversed `523 mn during the quarter pertaining to deferred tax benefits. We are not clear on the nature of these reversals but the management indicated that these provisions were created in earlier years and reversed in the current quarter.

Cost-income ratio for the quarter was at 37% (flat qoq) primarily due to decline in non-staff expenses qoq.

Tier-1 capital stands comfortable at 9.6% (including profits at 11.2%) with overall capital adequacy ratio at 11.8%. We note that the bank has received permission to dilute 10% stake in the bank and has requested the government to convert preference shares (effective conversion of about 4.5%) subscribed by the government into equity.

Indian Bank Banks/Financial Institutions


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 45,328 50,732 57,805 43,365 49,299 58,235 4.5 2.9 (0.7) Loan growth 17.7 15.6 15.3 16.5 16.7 17.4 Spread 3.0 2.9 2.9 2.9 2.8 2.9 NIM 3.6 3.5 3.4 3.4 3.4 3.4

Loan loss provisions 6,142 10,498 13,223 5,701 8,069 10,002 7.7 30.1 32.2 Other income 12,569 15,315 17,207 13,335 15,166 16,877 (5.7) 1.0 2.0

Fee income 3,523 3,664 3,774 3,859 4,399 4,971 (8.7) (16.7) (24.1) Treasury income 1,600 3,000 3,500 1,800 2,000 2,000 (11.1) 50.0 75.0

Operating expenses 22,325 24,952 28,001 22,190 24,800 27,830 0.6 0.6 0.6 Employee expenses 15,120 16,999 19,108 14,985 16,847 18,937 0.9 0.9 0.9

PBT 27,031 29,996 32,988 26,410 31,097 36,480 2.4 (3.5) (9.6) Tax 8,650 9,599 10,556 8,451 9,951 11,674 2.4 (3.5) (9.6) Net profit 18,381 20,397 22,432 17,958 21,146 24,806 2.4 (3.5) (9.6) PBT before treasury and invest. depn 27,731 27,396 29,988 26,910 29,397 34,980 3.1 (6.8) (14.3) PBT - treasury + invest. deprn + LLP 33,872 37,894 43,211 32,610 37,465 44,982 3.9 1.1 (3.9)


Rolling PBR and PER for Indian Bank March fiscal year-ends, 2008-12E

-

2

4

5

7

9

Jan-

08

Apr

-08

Jul-0

8

Oct

-08

Jan-

09

Apr

-09

Jul-0

9

Oct

-09

Jan-

10

Apr

-10

Jul-1

0

Oct

-10

Jan-

11

Apr

-11

Jul-1

1

Oct

-11

Jan-

12

-

0.4

0.7

1.1

1.4

1.8Rolling PER (X) (LHS) Rolling PBR (X) (RHS)

Source: Company, Kotak Institutional Equities



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

3QFY11 4QFY11 1QFY12 2QFY12 3QFY12 % change 3QFY12E Actual Vs KS Interest Earned 23,919 25,942 27,814 30,348 32,240 35 30,131 7

Interest/Discount on Advances/Bills 18,029 19,843 21,600 23,562 24,942 38 23,311 7 Interest on Investment 5,825 6,052 6,171 6,752 7,253 25 6,709 8 Interest on bal. with RBI & other inter bank funds 65 48 43 34 45 (30) 111 (59)

Interest expense 13,542 14,832 17,514 18,994 20,540 52 19,068 8 Net interest income 10,377 11,110 10,300 11,354 11,700 13 11,063 6 Other Income 2,487 2,716 2,493 3,423 2,812 13 3,112 (10)

Other Income exld treasury 2,217 2,662 2,043 3,213 2,652 20 2,662 (0) Treasury 270 54 450 210 160 (41) 450 (64) Recovery 230 890 190 400 1,030 348 700 47

Total Income 12,864 13,826 12,793 14,777 14,513 13 14,175 2 Operating Expenses 4,745 4,796 4,982 5,568 5,397 14 5,777 (7)

Payments to / Provisions for employees 3,328 3,092 3,588 3,667 3,721 12 3,794 (2) Other operating expenses 1,417 1,704 1,394 1,901 1,677 18 1,984 (15)

Operating Profit Before Prov. & Cont. 8,119 9,030 7,811 9,209 9,116 12 8,397 9 Provisions & Contingencies 536 1,268 1,770 2,203 2,361 341 2,377 (1)

Loan loss provisions 280 1,845 1,250 1,170 1,720 514 1,521 13 Investment depreciation 210 150 670 960 520 - 768 -

Profit before tax 7,583 7,762 6,042 7,005 6,754 (11) 6,020 12 Provision for Taxes 2,671 3,374 1,972 2,318 1,495 (44) 1,926 (22) Net Profit 4,913 4,389 4,069 4,687 5,259 7 4,094 28 Tax rate 35 43 33 33 22 Key balance sheet items (Rs bn)Deposits 1,010 1,058 1,104 1,162 1,190 18

CASA 323 326 337 352 359 CASA (%) 32.0 30.8 30.5 30.3 30.2

Advances 739 757 825 858 880 19 Others (export) 32 31 34 39 51 Agriculture 108 110 116 127 136

Investments 324 348 330 358 394 22 Yield management measures (%)Yield on advances 10.4 10.3 11.1 12.1 11.7 Cost of deposits 5.4 5.4 6.4 6.6 6.9 NIM 3.8 3.9 3.4 3.8 3.5 Asset quality measures Gross NPL (Rs bn) 7.5 7.4 8.1 10.5 11.9 Gross NPL (%) 1.0 1.0 1.0 1.2 1.4 Net NPL (Rs bn) 4.2 3.9 4.2 6.0 7.0 Net NPL (%) 0.6 0.5 0.5 0.7 0.8 Provision coverage ratio (%) 44.4 47.3 47.9 43.1 41.6 Provision coverage ratio (w/o) (%) 83.0 84.3 84.1 79.4 76.5 Slippages (Rs bn) 2.5 2.8 1.7 3.8 3.9 Slippages ratio (%) 1.4 1.5 0.9 1.8 1.8

Restructured loans (Rs bn) 58.0 52.0 52.5 51.3 55.7 Restructured loans (%) 7.8 6.9 6.4 6.0 6.3 Capital adequacy detailsCAR (%) 12.4 13.6 13.0 12.2 11.8

Tier I (%) 9.7 11.0 10.5 9.6 9.6 Tier II (%) 2.7 2.5 2.5 2.6 2.3


Indian Bank Banks/Financial Institutions


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

2009 2010 2011 2012E 2013E 2014EGrowth rates (%)Net loan 29.2 20.8 21.1 17.7 15.6 15.3 Total Asset 19.3 20.5 20.1 15.3 14.7 15.5 Deposits 18.9 21.6 19.9 15.9 15.6 16.4

Current 11.8 25.2 (2.8) 15.9 15.6 16.4 Savings 17.7 23.3 20.6 11.3 13.2 16.4 Fixed 20.2 20.5 22.2 17.6 16.4 16.4

Net interest income 26.1 26.7 22.2 12.3 11.9 13.9 Loan loss provisions (81.7) 478.7 54.7 (15.9) 70.9 26.0 Total other income (3.1) 13.4 0.7 6.3 21.8 12.4

Net fee income 29.5 (3.8) 50.1 5.0 4.0 3.0 Net capital gains (19.3) 11.7 (31.8) 7.8 87.5 16.7 Net exchange gains 20.0 20.0 20.0 20.0 20.0 20.0

Operating expenses 13.4 8.9 11.3 15.9 11.8 12.2 Employee expenses 19.2 5.2 9.9 13.5 12.4 12.4

Key ratios (%)Yield on average earning assets 9.2 8.8 8.7 9.7 9.4 9.3

Yield on average loans 11.1 10.2 10.3 11.6 11.0 10.7 Yield on average investments 7.7 8.0 7.2 7.4 7.6 7.6

Average cost of funds 6.2 5.6 5.4 6.7 6.5 6.4 Interest on deposits 6.1 5.6 5.3 6.7 6.5 6.4

Difference 3.0 3.2 3.3 3.0 2.9 2.9 Net interest income/earning assets 3.5 3.7 3.7 3.6 3.5 3.4 New provisions/average net loans 0.2 0.8 1.1 0.8 1.1 1.2 Interest income/total income 71.6 73.8 77.3 78.3 76.8 77.1 Fee income to total income 6.4 5.0 6.4 6.1 5.5 5.0 Operating expenses/total income 43.6 38.6 36.9 38.6 37.8 37.3 Tax rate 30.3 33.9 34.9 32.0 32.0 32.0 Dividend payout ratio 17.3 18.0 18.8 18.8 18.8 18.8 Share of deposits

Current 24.3 24.7 24.8 23.8 23.3 23.3 Fixed 68.4 67.8 69.1 70.1 70.6 70.6 Savings 24.3 24.7 24.8 23.8 23.3 23.3

Loans-to-deposit ratio 70.9 70.4 71.1 72.2 72.2 71.5 Equity/assets (EoY) 8.0 7.8 7.5 7.5 7.5 7.4 Asset quality trends (%)Gross NPL 0.9 0.8 1.0 1.3 1.5 1.5 Net NPL 0.2 0.2 0.5 0.8 0.9 0.9 Slippage 0.6 1.1 1.5 1.8 1.8 2.0 Provision coverage (ex write-off) 79.6 71.6 46.4 41.3 41.8 44.7 Dupont analysis (%)Net interest income 3.4 3.6 3.6 3.5 3.4 3.3 Loan loss provisions 0.1 0.5 0.7 0.5 0.7 0.8 Net other income 1.3 1.3 1.1 1.0 1.0 1.0 Operating expenses 2.0 1.9 1.6 1.7 1.7 1.6 Invt. depreciation — (—) — — — —(1- tax rate) 69.7 66.1 65.1 68.0 68.0 68.0 ROA 1.6 1.7 1.5 1.4 1.4 1.3 Average assets/average equity 14.2 14.4 14.5 14.5 14.3 14.3 ROE (incl. preference capital) 22.9 24.1 22.3 20.4 19.4 18.5 ROE (ex- preference capital) 23.9 24.9 22.9 20.9 19.8 18.8




Indian Bank P&L and balance sheet March fiscal year-ends, 2009-14E (` mn)

2009 2010 2011 2012E 2013E 2014EIncome statementTotal interest income 68,303 78,571 93,610 123,332 138,379 157,196

Loans 50,867 57,998 70,976 95,116 104,509 117,930 Investments 16,873 19,974 22,303 27,825 33,340 38,673 Cash and deposits 563 599 332 392 530 594

Total interest expense 42,218 45,532 53,249 78,005 87,647 99,391 Deposits from customers 40,614 44,742 51,332 76,318 85,960 97,704

Net interest income 26,085 33,039 40,361 45,328 50,732 57,805 Loan loss provisions 816 4,722 7,305 6,142 10,498 13,223 Net interest income (after prov.) 25,269 28,317 33,056 39,186 40,233 44,582 Other income 10,354 11,737 11,819 12,569 15,315 17,207

Net fee income 2,322 2,235 3,355 3,523 3,664 3,774 Net capital gains 1,948 2,176 1,484 1,600 3,000 3,500 Net exchange gains 1,052 1,148 1,472 1,767 2,120 2,544

Operating expenses 15,881 17,302 19,263 22,325 24,952 28,001 Employee expenses 11,528 12,124 13,327 15,120 16,999 19,108

Depreciation on investments 2,027 (960) 557 2,300 400 500 Other Provisions (145) 195 (1,290) 100 200 300 Pretax income 17,853 23,516 26,345 27,031 29,996 32,988 Tax provisions 5,408 7,966 9,204 8,650 9,599 10,556 Net Profit 12,453 15,550 17,141 18,381 20,397 22,432 % growth 23.4 24.9 10.2 7.2 11.0 10.0 PBT - Treasury + Provisions 18,603 25,297 31,433 33,972 38,094 43,511 % growth 31.2 35.9 24.3 8.1 12.1 14.2 Preference Dividend 375 400 400 320 320 320 Balance sheetCash and bank balance 66,838 81,132 85,623 71,780 80,074 90,118

Cash 2,480 3,038 2,497 2,622 2,753 2,891 Balance with RBI 59,635 67,569 66,282 52,314 60,477 70,383 Balance with banks 1,590 593 563 563 563 563

Net value of investments 228,006 282,682 347,838 414,480 474,582 556,686 Govt. and other securities 188,226 230,861 263,198 332,255 393,578 476,781 Shares 3,069 5,203 5,460 5,460 5,460 5,460 Debentures and bonds 18,295 11,890 13,561 12,204 10,984 9,886

Net loans and advances 514,653 621,461 752,499 885,330 1,023,474 1,180,393 Fixed assets 15,942 15,796 16,060 16,894 17,147 17,348

Net leased assets — — — — — —Net Owned assets 15,942 15,796 16,060 16,894 17,147 17,348

Other assets 15,779 12,811 15,163 15,163 15,163 15,163 Total assets 841,217 1,013,882 1,217,183 1,403,646 1,610,440 1,859,709 Deposits 725,818 882,277 1,058,042 1,226,699 1,418,108 1,650,402 Borrowings and bills payable 9,960 16,861 28,116 28,116 28,116 28,116 Other liabilities 38,080 36,023 39,814 43,814 43,814 43,814 Total liabilities 773,858 935,161 1,125,972 1,298,629 1,490,039 1,722,332 Preference capital 4,000 4,000 4,000 4,000 4,000 4,000 Paid-up capital 4,298 4,298 4,298 4,298 4,298 4,298 Reserves & surplus 63,061 74,423 86,913 100,719 116,103 133,079 Total shareholders' equity 67,359 78,721 91,211 105,017 120,401 137,377



Heading for another mixed quarter; ability to manage NPLs critical

We believe that OBC would see another mixed performance next quarter. NIMs at 2.9% levels and AFS portfolio (32% of book) with duration of 3.6 years should provide strong revenue growth. Asset quality performance has not been strong, especially with slippages persisting at >2% levels though recovery/upgradation trends are very encouraging. The bank would need to restructure `30 bn (3% of loans) in the next quarter taking the total restructured loans to 9% of loans.

Expected decline in wholesale rates and inexpensive valuation are our primary source of comfort. We expect earnings to grow by 17% CAGR in FY2012-14E (lower base in FY2012E) and deliver RoEs in the range of 13-14% levels. We maintain our BUY recommendation as we find valuations inexpensive for the bank at 0.7X book value and 6X FY2012E EPS.

Slippages at 2.6% levels; outstanding restructured loans at 5.5%

OBC reported a fairly weak quarter on asset quality. Slippages remained high at 2.6% levels with nearly 50% of the slippages from agriculture. The management indicated that recovery has already improved in recent weeks but we believe the slippage for the quarter could be partly due to elections. Slippages are high but the quarter has also witnessed strong recovery/ upgradation indicating that loss given default is probably low though a clear trend is not yet visible.

Gross NPLs of OBC were `32.3 bn (2.9% of loans) as of December 2011, 4% qoq growth over September 2011 levels while net NPLs increased 4% qoq to `20.6 bn (1.9% of loans). Loan-loss provisions (annualized) were at 0.9% (versus 1.4% in 2QFY12). Provision coverage ratio was stable qoq at 63%. We are building slippages at 2.6% levels and LLP at 1.2% levels for FY2012-14E.

Restructured loans increased to 5.5% of loans from 4% of loans (September 2011). Nearly 75% of the fresh restructuring (`22bn for the quarter) was from power and telecom. The bank indicated that it has received proposals of another 3% (power and aviation) of loans, which is expected to be completed in 4QFY12E. However, while we remain conservative on our credit costs, the management is targeting to restructure these loans with limited NPV impact as compared to the current quarter (7% NPV impact).

Oriental Bank of Commerce (OBC)


High provisions cushioned by lower taxes and NIM expansion. OBC reported a mixed quarter with high provisions (doubled yoy) but was cushioned by lower tax rate (21%) and NIM expansion (26 bps qoq). Restructured loans increased to 5.5% of loans (from 4%)—power and telecom were the main contributors. We revise earnings downwards by 4-10% to factor higher credit costs. Inexpensive valuations, reversal in interest rates are key drivers of comfort. Maintain BUY.

Oriental Bank of CommerceStock data Forecasts/Valuations 2012 2013E 2014E

52-week range (Rs) (high,low) EPS (Rs) 43.0 57.9 59.3Market Cap. (Rs bn) 73.3 EPS growth (%) (16.5) 34.7 2.4


Price performance (%) 1M 3M 12M P/B (X) 0.7 0.6 0.5Absolute 28.1 (17.6) (21.8) ROE (%) 10.9 13.4 12.5Rel. to BSE-30 17.4 (13.0) (14.6) Div. Yield (%) 3.5 4.7 4.8


406-190

BUY

JANUARY 30, 2012

RESULT


Price (Rs): 251


BSE-30: 16,863

QUICK NUMBERS

• NII grew 15% qoq; NIM improves 26 bps qoq

• Slippages at 2.6% of loans; restructured loans at 5.5%

• Maintain BUY with TP of `370 (from `430)

Banks/Financial Institutions Oriental Bank of Commerce


NIMs improve 26 bps; limited impact of income de-recognition qoq

NIM for the quarter improved 26 bps to 2.9% in 3QFY12 from 2.6% in 2QFY12 due to limited impact of income de-recognition as compared to the previous quarter. Yield on advances increased by 58 bps qoq to 12.2% while yield on investments improved by 11 bps qoq. Cost of deposits increased 26 bps qoq. We believe that OBC is well-positioned from a margin perspective as interest rates starts to soften from current levels. We are currently building a marginal improvement in NIMs by about 10 bps yoy.

Loan growth healthy at 22%; deposits grow by 21% yoy

Loan growth for the quarter was at 22% yoy (5% qoq) to `1107 bn. Loans to agriculture sector grew 26% yoy, retail was flat yoy while loans to large corporates grew 27% yoy. Exposure to infrastructure is about 21% of loans, of which power is 12%, telecom is 2% and roads/port is 4%. Within power, exposure is mainly towards state governments (7.6% of loans mainly to distribution companies – 4% of loans).

Deposits grew by 21% yoy (4% qoq) to `1562 bn. CASA ratio for the quarter declined marginally to 22% mainly due to weak growth in current account balances. We are building loan growth at 15% CAGR for FY2012-14E.

Other highlights for the quarter

Tax rate for the quarter was lower at 21% as compared to 39% in September 2011 and 27% in June 2011. The management indicated that it has taken NPV provision (restructured loans) as a deductible expense resulting in lower tax rate for the quarter.

OBC’s non-interest income grew by 28% yoy mainly due to better exchange income and recovery. Treasury income increased 16% yoy while core fee income grew 12% yoy.

Cost-income ratio was at 42% for the quarter. Staff expenses increased sharply qoq primarily due to provisions for retirement benefits.

We revise our earnings for FY2012E on the back of higher provisions 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 43,259 50,558 57,031 40,876 47,832 54,295 5.8 5.7 5.0 Advances (Rs bn) 1,125 1,293 1,493 1,114 1,293 1,507 0.9 (0.0) (0.9) NIM (%) 2.6 2.7 2.7 2.5 2.5 2.5

Loan loss provisions 12,502 14,504 17,409 9,330 10,230 11,898 34.0 41.8 46.3 Other income 12,360 14,049 15,580 12,060 13,339 15,031 2.5 5.3 3.7

Fee income 7,301 8,032 8,835 7,301 8,397 9,656 - (4.3) (8.5) Treasury income 2,000 2,500 2,700 1,700 1,500 1,500 17.6 66.7 80.0

Operating expenses 22,329 25,995 30,534 21,601 24,818 28,754 3.4 4.7 6.2 Employee expenses 12,600 14,782 17,640 11,741 13,306 15,346 7.3 11.1 15.0

Investment dep/amortization 3,000 250 250 1,800 1,200 1,200 PBT 17,489 23,559 24,118 19,705 24,423 26,975 (11.2) (3.5) (10.6) Net profit 12,543 16,896 17,298 13,995 17,345 19,157 (10.4) (2.6) (9.7)


Oriental Bank of Commerce Banks/Financial Institutions


Oriental Bank of Commerce - Rolling PBR and PER January 2004-January 2012 (X)

-

2.4

4.8

7.2

9.6

12.0

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

-

0.4

0.8

1.2

1.6



NIM has improved qoq on the back of better lending yields NIM and cost of deposits, March fiscal year-ends, 3QFY09-3QFY12 (%)

-

1.8

3.6

5.4

7.2

9.0

1QFY

09

2QFY

09

3QFY

09

4QFY

09

1QFY

10

2QFY

10

3QFY

10

4QFY

10

1QFY

11

2QFY

11

3QFY

11

4QFY

11

1QFY

12

2QFY

12

3QFY

12

-

0.8

1.6

2.4

3.2

4.0Cost of deposits (LHS) NIM (RHS)

Source: Kotak Institutional Equities



OBC, quarterly results March fiscal year-ends, 3QFY10-3QFY12 (` mn)

3QFY11 4QFY11 1QFY12 2QFY12 3QFY12 % chg 3QFY12E Actual Vs KS

Interest income 30,328 32,323 35,965 38,009 41,965 38 39,147 7 Loans 22,447 24,158 26,837 28,731 32,377 44 30,385 7 Investments 7,011 6,999 7,686 8,291 8,539 22 8,459 1 Balance with RBI & banks 870 923 1,101 980 1,039 19 300 246 Others 0 243 342 7 11 3,467 4 193 Interest expense 20,029 22,190 25,782 28,116 30,566 53 28,887 6 Net interest income 10,299 10,134 10,183 9,893 11,399 11 10,261 11 Non-int.income 2,314 2,998 3,238 2,774 2,953 28 2,657 11

Other income ex treasury 2,000 2,737 2,522 2,591 2,588 29 2,357 10 Sale of invts. 314 262 717 183 365 16 300 22

Total income 12,613 13,132 13,421 12,667 14,352 14 12,918 11 Op. expenses 4,873 4,702 5,408 5,087 6,081 25 5,286 15 Employee cost 2,771 2,418 3,196 2,783 3,632 31 2,826 29 Other cost 2,103 2,284 2,212 2,304 2,449 16 2,460 (0)Operating profit 7,739 8,430 8,014 7,581 8,271 7 7,631 8 Provisions and cont. 1,918 5,605 3,143 4,853 3,809 99 2,964 28

Investment depreciation 1 780 1,336 801 903 150,400 400 126 NPLs 1,781 3,930 1,354 3,422 2,440 37 2,400 2

PBT 5,822 2,825 4,871 2,727 4,462 (23) 4,667 (4)Tax 1,739 (512) 1,324 1,051 920 (47) 1,353 (32)Net profit 4,083 3,337 3,547 1,676 3,542 (13) 3,315 7 Tax rate (%) 29.9 (18.1) 27.2 38.5 20.6 (31.0) 29.0 (28.9)

Key balance sheet items (Rs bn)Deposits 1,293 1,391 1,446 1,496 1,562 20.8

CASA 326 341 338 342 348 6.8 CASA ratio (%) 25.4 24.6 23.4 22.9 22.3

Advances 908 968 982 1,056 1,107 21.9 Total retail loans 112 - 118 115 113

Investments 390 421 450 443 457 17.2

Other details Asset quality details Gross NPLs (Rs bn) 17.6 19.2 20.3 31.1 32.3 83.2 Gross NPLs (%) 1.9 2.0 2.1 3.0 2.9 Net NPLs (Rs bn) 8.2 9.4 10.6 19.8 20.6 152.6 Net NPLs (%) 0.9 1.0 1.1 1.9 1.9 Provision coverage (%) 53.7 51.2 47.9 36.4 36.2 Provision coverage (%, w/o) 77.4 76.8 75.1 63.8 63.3

Restructured loans (Rs bn) 51.3 52.7 36.6 41.2 60.9 % of loan book 5.7 5.4 3.7 3.9 5.5 Slippages 6.9 7.3 5.0 10.2 10.3 % of slippages 13.4 13.8 13.7 24.9 16.9

Yield management measures (%)Yield on advances 10.3 10.6 11.4 11.7 12.2 Yield on investments 7.3 7.1 7.4 7.5 7.6 Cost of deposits 6.1 6.5 7.2 7.6 7.9 Net interest margin 3.1 3.0 2.9 2.6 2.9

Notes: (1) Outstanding restructured loans represent loans only for those which are less than 2 years and are standard. Revise d from 1QFY12.


Oriental Bank of Commerce Banks/Financial Institutions


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

2009 2010 2011 2012E 2013E 2014EGrowth rates (%)Net loan 25.5 21.9 14.9 17.3 14.9 15.5 Customer assets 24.7 20.5 14.4 16.9 14.7 15.3 Investments excld. CPs and debentures growth 20.4 29.8 18.9 7.9 13.4 13.5 Net fixed assets 257.2 0.7 0.3 11.6 10.5 9.5 Cash and bank balance 19.7 19.4 30.7 2.6 2.3 2.2 Total Asset 24.1 22.1 17.4 12.6 12.8 13.3 Deposits 26.3 22.3 15.6 14.0 13.9 14.4 Current (0.7) 32.5 (8.0) 14.0 22.3 22.3 Savings 12.1 26.6 25.0 7.6 17.3 17.7 Fixed 33.6 20.3 16.3 15.5 12.4 12.9 Net interest income 18.7 45.6 43.7 3.6 16.9 12.8 Loan loss provisions (274.7) 159.0 72.0 29.0 16.0 20.0 Total other income 71.4 12.0 (20.0) 28.7 13.7 10.9 Net fee income 22.5 42.5 11.0 15.0 10.0 10.0 Net capital gains 213.3 (12—) (82.2) 165.3 25.0 8.0 Net exchange gains 55.8 (29.2) 62.4 25.0 15.0 15.0 Operating expenses 28.1 21.9 12.2 18.0 16.4 17.5 Employee expenses 37.6 28.5 7.9 20.2 17.3 19.3 Key ratios (%)Yield on average earning assets 9.0 8.5 8.3 9.5 9.3 9.1 Yield on average loans 10.6 10.0 10.0 11.6 11.4 11.0 Yield on average investments 8.3 7.8 7.2 7.6 7.5 7.0 Average cost of funds 7.4 6.5 5.8 7.4 7.1 6.8 Interest on deposits 7.4 6.4 5.8 7.4 7.1 6.8 Difference 1.6 2.0 2.5 2.1 2.2 2.2 Net interest income/earning assets 2.0 2.4 2.9 2.6 2.7 2.7 New provisions/average net loans 0.4 0.7 1.1 1.2 1.2 1.3 Interest income/total income 65.1 70.8 81.3 77.8 78.3 78.5 Fee income to total income 13.1 13.9 12.4 13.1 12.4 12.2 Fees income to PBT 34.6 35.6 31.1 41.7 34.1 36.6 Net trading income to PBT 35.1 10.6 (3.2) 9.7 9.3 10.0 Exchange inc./PBT 9.2 4.7 6.0 8.8 7.5 8.5 Operating expenses/total income 45.1 41.0 36.8 40.1 40.2 42.1 Operating expenses/assets 1.4 1.3 1.3 1.3 1.3 1.4 Operating profit /AWF 0.9 1.0 1.4 1.1 1.1 1.0 Tax rate 21.9 29.3 26.3 28.3 28.3 28.3 Dividend payout ratio 20.2 20.1 20.2 20.2 20.2 20.2 Share of deposits Current 7.8 8.5 6.8 6.8 7.3 7.8 Fixed 76.3 75.0 75.4 76.4 75.4 74.4 Savings 15.9 16.5 17.8 16.8 17.3 17.8 Loans-to-deposit ratio 69.6 69.4 69.0 70.9 71.6 72.3 Equity/assets (EoY) 6.6 6.0 6.9 6.6 6.5 6.2 Asset quality trends (%)Gross NPL 1.5 1.7 2.0 3.0 3.2 3.2 Net NPL 0.6 0.9 1.0 1.9 2.0 2.0 Slippages 0.9 1.7 1.9 3.4 2.7 2.5 Provision coverage 58.2 50.7 51.2 39.3 40.1 41.5 Dupont analysis (%)Net interest income 2.0 2.3 2.8 2.5 2.6 2.6 Loan loss provisions 0.2 0.5 0.6 0.7 0.8 0.8 Net other income 1.1 1.0 0.6 0.7 0.7 0.7 Operating expenses 1.4 1.6 1.4 1.3 1.4 1.4 (1- tax rate) 78.1 70.7 73.7 71.7 71.7 71.7 ROA 0.9 0.9 1.0 0.7 0.9 0.8 Average assets/average equity 15.4 16.0 15.5 14.9 15.3 15.8 ROE 13.7 14.5 15.5 10.9 13.4 12.5




OBC, income statement and balance sheet March fiscal year-ends, 2009-14E (` mn)

2009 2010 2011 2012E 2013E 2014EIncome statementTotal interest income 88,565 102,571 120,878 158,244 175,549 193,578 Loans 65,197 75,675 89,539 121,108 137,395 153,875 Investments 21,410 24,618 27,744 32,751 35,643 37,541 Cash and deposits 1,957 2,279 3,595 4,385 2,511 2,162 Deposits from customers 65,319 70,282 74,744 110,335 120,342 131,775 Net interest income 19,965 29,074 41,775 43,259 50,558 57,031 Loan loss provisions 2,176 5,636 9,694 12,502 14,504 17,409 Net interest income (after prov.) 17,789 23,438 32,082 30,757 36,054 39,622 Other income 10,715 12,000 9,601 12,360 14,049 15,580 Net fee income 4,015 5,721 6,349 7,301 8,032 8,835 Net capital gains 4,814 4,236 754 2,000 2,500 2,700 Net exchange gains 1,072 759 1,233 1,542 1,773 2,039 Operating expenses 13,828 16,860 18,925 22,329 25,995 30,534 Employee expenses 7,562 9,713 10,485 12,600 14,782 17,640 Depreciation on investments 2,336 (5) 963— 3,000— 250— 250—Other Provisions 738 2,529— 1,409— 300— 300— 300—Pretax income 11,601 16,055 20,386 17,489 23,559 24,118 Tax provisions 2,546 4,708 5,357 4,946 6,662 6,820 Net Profit 9,054 11,347 15,029 12,543 16,896 17,298 % growth 156.3 25.3 32.4 (16.5) 34.7 2.4 Operating profit 9,122 11,814 20,595 18,489 21,309 21,668 % growth 31.1 29.5 74.3 (10.2) 15.3 1.7

Balance sheet Balance with banks 44,069 64,776 83,044 83,044 83,044 83,044Net value of investments 284,890 357,853 420,748 452,617 510,703 577,447 Govt. and other securities 249,245 327,530 365,997 398,880 456,966 523,710 Shares 4,477 5,207 6,571 6,571 6,571 6,571 Debentures and bonds 23,988 19,256 18,036 18,036 18,036 18,036

Net Owned assets 13,839 13,940 13,978 15,600 17,235 18,879Other assets 19,843 21,624 28,739 28,739 28,739 28,739Total assets 1,125,826 1,374,310 1,613,434 1,817,505 2,049,846 2,322,532

Deposits 983,688 1,202,576 1,390,543 1,585,654 1,805,667 2,065,678Borrowings and bills payable 31,391 53,283 60,898 60,898 60,898 60,898Other liabilities 36,712 36,071 51,021 51,021 51,021 51,021Total liabilities 1,051,791 1,291,930 1,502,462 1,697,574 1,917,586 2,177,597Paid-up capital 2,505 2,505 2,918 2,918 2,918 2,918Reserves & surplus 71,529 79,874 108,054 117,014 129,342 142,017Total shareholders' equity 74,034 82,379 110,971 119,931 132,260 144,935



Margin improvement across the board

Havells’ consolidated revenue in 3QFY12 at Rs16.6 bn (+11% yoy; +5% qoq) was almost in line with our estimates. Reported PAT at Rs886 mn was lower than our estimates at Rs912 mn led by forex loss of Rs194 mn. At the operating level, the company outperformed our estimates led by margins which are at the highest levels since FY2009. Standalone business reported EBITDA margin at 14% (excluding forex losses of Rs135 mn) as all the business segments reported contribution margins which are at/near four-year highs. Sylvania also reported significant improvement as it reported 3QFY12 EBITDA margins at 9.7% excluding yearly charge on account of increase in pension liabilities of Euro3.3 mn. Including the same as a part of operating expenses, 3QFY12 EBITDA margins at 6.8% were lower than our estimates at 7.5%.

Debt declined qoq at the standalone level

Net debt in the standalone business declined qoq from Rs1.03 bn in 2QFY12 to Rs870 mn in 3QFY12.This is in spite of Rs482 mn of incremental investment into Sylvania to make final repayment of recourse loan. In Sylvania, net debt has remained constant qoq at Euro125.4 mn.

Increasing our earning estimates – maintain ADD with a revised target price of Rs500

We have increased our earning estimates led by higher EBITDA margins in the standalone business (~100 bps higher versus earlier EBITDA margins at ~12%). Sylvania estimates are unchanged as we maintain our margins estimates at 7.8%, 8% and 8.5% for FY2012E, FY2013E and FY2014E respectively, even as the management is targeting double-digit margins from next year onwards – could be a source of positive earnings surprise. Our new EBITDA estimates for the consol business are ~9% higher versus earlier in FY2012E, FY2013E and FY2014E. We maintain ADD with a revised target price of Rs500 (DCF-based).

Havells India (HAVL)

Others

Outperforms on all counts. Havells’ operating results (excluding forex, extraordinary items) were significantly ahead of our estimates led by higher margins in India as well as in Sylvania (excluding pension liability charge). Margins across all segments in the standalone business are the highest/near highest in the past four years even as most of the other companies in similar businesses have reported margin pressure in the past few quarters. In Sylvania there has been a change of fortunes as the European (laggard earlier) business reported robust margins (9.7%) while the LatAm business reported subdued margins (5.9%) led by inventory provisions (one-off) and lower sales (-4% yoy). We have increased our estimates; retain ADD with TP of Rs500 (DCF based).

Havells IndiaStock data Forecasts/Valuations 2012 2013E 2014E


Shareholding pattern (%) P/E (X) 14.9 13.5 12.0Promoters 61.6 Sales (Rs bn) 62.5 68.3 74.5FIIs 16.8 Net profits (Rs bn) 3.7 4.1 4.6MFs 1.9 EBITDA (Rs bn) 6.6 7.4 8.1

Price performance (%) 1M 3M 12M EV/EBITDA (X) 9.7 8.4 7.3Absolute 15.1 21.8 26.7 ROE (%) 43.3 34.7 29.3Rel. to BSE-30 5.5 28.6 38.3 Div. Yield (%) 0.6 0.7 0.7


451-290

ADD

JANUARY 30, 2012

RESULT

Coverage view:

Price (Rs): 444


BSE-30: 16,863

Others Havells India


Havells outperformed our estimates led by higher-than-estimated margins across businesses Interim results of Havells, consolidated, March fiscal year-ends (Rs mn)

3QFY12 3QFY12E 3QFY11 2QFY12 KIE est. yoy qoq FY2012 FY2011 Chng. (%)Net revenues 16,596 16,327 14,967 15,850 2 11 5 47,405 40,675 16.5 Total expenditure (14,841) (14,713) (13,811) (14,145) 1 7 5 (42,517) (37,025) 14.8 EBITDA 1,755 1,614 1,156 1,705 9 52 3 4,888 3,650 33.9 Margins (%) 10.6 9.9 7.7 10.8 10.3 9.0

Other income 62 50 182 135 215 37 481.1 Depreciation (231) (217) (203) (214) (655) (596) 9.9

EBIT 1,586 1,447 1,135 1,626 10 40 (2) 4,448 3,091 43.9 Margins (%) 9.6 8.9 7.6 10.3 9.4 7.6

Net Interest (251) (291) (215) (277) (794) (588) 35.0 PBT 1,335 1,156 920 1,349 15 45 (1) 3,654 2,503 46.0

Extraordinaries (194) 0 (66) (301) (463) 71 Reported PBT 1,141 1156 854 1,048 (1) 34 9 3,191 2,574 NMTax (255) (244) (219) (240) (701) (689) 1.7 Reported PAT 886 912 635 808 (3) 40 10 2,490 1,885 32.1

Note:

The revenue number for 4QFY11 is not comparable due to change in revenue recognition policy

9 months(% change)


Sylvania’s reported EBITDA margins in 3QFY12 at 9.7% (excluding pension liability charges) were much higher than our estimate at 7.5% Interim results of Sylvania, March fiscal year-ends (Rs mn)

(% chg.)3QFY12 3QFY12E 3QFY11 2QFY12 KIE est. yoy qoq FY2012 FY2011

Net sales 7,818 7,834 7,636 7,461 0% 2% 5% 336 336 Total expenditure (7,284) (7,246) (7,379) (6,906) 1% -1% 5% (312) (317) EBITDA 534 588 257 555 -9% 108% -4% 24 19 OPM (%) 6.8 7.5 3.4 7.4 0% 0% — 7.2 5.5 Other income 40 20 124 119 0% 0% — 3 0 Interest (183) (206) (163) (206) 0% 12% -11% (12) (8) Depreciation (127) (125) (125) (122) 0% 2% 4% (6) (6) Pretax profits 264 277 93 346 -5% 184% -24% 9 4 Extraordinaries (60) — (66) (170) — (1) Tax (77) (76) (45) (74) (3) (3) Net income 127 201 (18) 102 NM NM NM 6 1

9 months (Euro mn)


Sales declined in LatAm markets – source of growth earlier Geographical revenue break-up for Sylvania, March fiscal year-ends (Euro mn)

(% change)

4QFY10 1QFY11 2QFY11 3QFY11 4QFY11 1QFY12 2QFY12 3QFY12 yoy qoq

Europe 75.0 65.7 65.6 75.2 73.2 64 69 72 -5% 4%

Americas 29.7 33.4 37.6 37.4 35.5 36.1 39.7 35.8 -4% -10%

Others 5.4 6.3 6.5 6.2 4.8 5.9 6.8 6.3 1% -7%

Total 110.1 105.4 109.6 118.8 113.5 106 116 114 -4% -1%


Havells India Others


Standalone business outperformed led by higher-than-expected margins Interim results of Havells, standalone, March fiscal year-ends (Rs mn)

3QFY12 3QFY12E 3QFY11 2QFY12 KIE est yoy qoq FY2012 FY2011 (% chg)Net revenues 8,962 8,493 7,221 8,504 5.5 24.1 5.4 25,689 21,025 22.2 Total expenditure (7,708) (7,467) (6,365) (7,358) — — — (14,649) (11,932) EBITDA 1,254 1,027 856 1,146 22.1 46.4 9.3 3,332 2,579 29.2 Margins (%) 14.0 12.1 11.9 13.5 — 13.0 12.3

Other income 21 30 59 16 — — — 51 33 Depreciation (104) (92) (75) (91) — — — (281) (223)

EBIT 1,171 965 840 1,071 21.4 39.5 9.4 3,102 2,389 29.8 Margins (%) 13.1 11.4 11.6 12.6 — — — 12.1 11.4

Net Interest (69) (85) (52) (71) — — — (224) (105) PBT 1,103 880 788 1,000 25.3 40.0 10.3 2,878 2,284

Extraordinaries (135) - - (131) — (248) 83 Reported PBT 968 880 788 868 10.0 22.8 11.4 2,630 2,367 11.1 Tax (179) (168) (177) (166) — — — (491) (516) Reported PAT 789 712 611 702 10.9 29.1 12.3 2,139 1,851 15.6

SegmentalRevenues

Switchgear 2,261 2,262 1,843 2,218 (0.1) 22.7 1.9 6,586 5,961 10 Cable and Wires 3,907 3,507 3,102 3,692 11.4 26.0 5.8 11,163 8,710 28 Lighting and fixtures - India 1,448 1,443 1,190 1,374 0.4 21.7 5.4 4,033 3,189 26 Electrical consumer durables 1,346 1,281 1,086 1,220 5.0 23.9 10.3 3,907 3,149 24 Others - - - - — — — — 16

Total 8,962 8,493 7,221 8,504 6 24 5 25,689 21,025 Contribution

Switchgear 894 860 651 839 4.0 37.3 6.5 2,539 2,020 26 Cable and Wires 385 316 267 342 22.0 44.2 12.7 1,037 738 41 Lighting and fixtures - India 379 354 239 336 7.3 58.6 12.8 1,018 594 71 Electrical consumer durables 390 346 277 338 12.6 40.5 15.3 1,145 882 30 Others - - - - — — — — 6 Unallocable (1,012) (910) (593) (915) 11.2 70.6 10.5 (2,884) (1,879)

Total 1,036 965 842 940 7 23 10 2,855 2,362 Contribution margin (%)

Switchgear 39.5 38.0 35.3 37.8 38.6 33.9 Cable and Wires 9.9 9.0 8.6 9.3 9.3 8.5 Lighting and fixtures - India 26.2 24.5 20.1 24.5 25.2 18.6 Electrical consumer durables 28.9 27.0 25.5 27.7 29.3 28.0 Others #DIV/0! — —

Total 11.6 11.4 11.7 11.1 11.1 11.2

Change (%) 9 months


Few observations

Even as the operating performance is commendable, few points worth highlighting:

Cable business has played a dominant role in increasing the overall margins (standalone) as the contribution margins (cables) have increased to 9.2% (9MFY12), highest since FY2009. Contribution in absolute terms is significant as it has accounted for 43% (Rs11 bn out of total sales of Rs25.4 bn) of sales in 9MFY12. Given the commodity nature of the product, we are not entirely sure if the margin improvement in the business is sustainable. Also, in an environment of declining commodity prices the margins could compress as the carrying cost of inventory would always be lower than the spot price (which drives the market price of wires).



Philips reported 4QFY11 EBITDA margins in the lighting business have declined qoq to 3.7% from 6.4% in 3QFY11 after adjusting for one-offs – even as the sales growth (yoy) rates have been better than Sylvania. The company has mentioned pricing pressure in the European market as one of the reasons for fall in margins apart from other reasons like company-specific operational issues, disposal of slow moving inventories etc. Havells has attributed the variance to their singular focus on operational efficiencies rather than growth versus Philips which seems to have invested for growth in the business which has not materialized.

Philips has been reporting declining EBITDA margins in the lighting business since the last 4 quarters Quarterly trend in sales, sales growth (yoy) and EBITDA for lighting business, Philips, December year-ends (Euro mn)

-

500

1,000

1,500

2,000

2,500

1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11

0

5

10

15

20

25Sales (LHS) Sales growth (RHS) Adj. EBITDA (RHS)


Margins in the various business segments (SA) are at highest/near-highest levels in the past four years

Trend in quarterly contribution margins for various business segments (standalone) for Havells, March fiscal year-ends (%)

-5%

5%

15%

25%

35%

45%

1Q09

2Q09

3Q09

4Q09

1Q10

2Q10

3Q10

4Q10

1Q11

2Q11

3Q11

4Q11

1Q12

2Q12

3Q12

Switchgear Cables Lighting Consumer durables


Havells India Others


Net debt declined qoq in the standalone business

Net debt declined in the standalone business qoq after taking into account Rs482 mn incremental investment into Sylvania Quarterly trend in net debt, standalone (Rs mn)

Sept' 11 Dec' 11Working capital loan 541 2Term loan 1,192 1,664Less: Cash 703 796Net debt 1,030 870


Net debt remained constant qoq in Sylvania Quarterly trend in net debt for Sylvania (Euro mn)

Sept' 11 Dec' 11Tem loan 71 65Working capital 36 39Other short term 29 31Less: Cash 11 9Net debt 125 125


Change in estimates

We have increased our earning estimates led by higher margins in the standalone business Change in estimates for Havells, consolidated, March fiscal year-ends (Rs mn)

2012E 2013E 2014E 2012E 2013E 2014E 2012E 2013E 2014ERevenues 62,533 68,301 74,500 62,533 68,301 74,500 — — — India 34,503 39,200 43,943 34,503 39,200 43,943 — — — Sylvania 28,031 29,101 30,557 28,031 29,101 30,557 — — — EBITDA 6,645 7,385 8,114 6,281 6,971 7,648 5.8 5.9 6.1 India 4,459 5,057 5,516 4,095 4,643 5,051 8.9 8.9 9.2 Sylvania 2,186 2,328 2,597 2,186 2,328 2,597 — — — EBITDA (%) 10.6 10.8 10.9 10.0 10.2 10.3 India 12.9 12.9 12.6 11.9 11.8 11.5 Sylvania 7.8 8.0 8.5 7.8 8.0 8.5 Adjusted PAT 3,830 4,114 4,623 3,504 3,799 4,279 9.3 8.3 8.1 India 3,119 3,367 3,651 2,793 3,053 3,307 11.7 10.3 10.4 Sylvania 711 747 972 711 747 972 NM NM NMEPS (Rs) 29.7 33.0 37.1 27.5 30.5 34.3 8.1 8.3 8.1

Old estimates Change (%)New estimates




Summary financials: Havells Profit and loss statement, balance sheet and cash flow model for Havells, consolidated, March fiscal year-ends (Rs mn)

2007 2008 2009 2010 2011E 2012E 2013E 2014EProfit model Total income 15,472 50,022 54,775 54,256 56,126 62,533 68,301 74,500

EBITDA 1,458 3,466 2,885 3,206 5,571 6,645 7,385 8,114 Interest (expense)/income (209) (1,036) (1,253) (979) (902) (1,053) (1,056) (1,021)

Depreciation (97) (694) (905) (837) (804) (929) (1,016) (1,109)

Other income 54 250 86 222 237 254 184 246

Pretax profits 1,205 1,986 814 1,611 4,102 4,917 5,497 6,230 Extra-ordinary items — — (1,986) — (36) (500) — —

Reported PBT 1,205 1,986 (1,172) 1,611 4,066 4,417 5,497 6,230 Tax (161) (321) (435) (600) (1,008) (1,087) (1,383) (1,607)

Deferred taxation (23) (56) 6 (332) (23) - - —

Profit after tax 1,021 1,610 (1,602) 680 3,035 3,330 4,114 4,623

Adjusted PAT 1,021 1,610 297 680 3,061 3,707 4,114 4,623 Diluted earnings per share (Rs) 9.5 13.3 2.5 5.7 24.5 29.7 33.0 37.1

Balance sheetTotal equity 2,603 6,901 6,147 4,004 6,543 9,472 13,148 17,297

Deferred taxation liability 118 (76) (97) 266 559 559 559 559

Total borrowings 561 12,962 12,278 10,666 11,173 11,216 10,677 10,386

Current liabilities 2,818 15,142 14,501 15,876 17,363 17,011 18,242 19,613

Total liabilities and equity 6,100 34,929 32,829 30,813 35,637 38,257 42,625 47,854 Cash 365 2,429 2,473 1,484 1,779 1,865 4,322 6,581.2

Other current assets 3,281 20,800 17,935 16,907 20,299 21,979 22,835 24,629

Goodwill — 3,346 3,579 3,212 3,354 3,354 3,354 3,354

Tangible fixed assets 2,423 8,323 8,842 9,210 10,206 11,059 12,113 13,289

Investments 32 32 — — — — — —

Total assets 6,100 34,929 32,829 30,813 35,637 38,257 42,625 47,854

Free cash flowOperating cash flow, excl. working capital 1,156 2,320 (1,054) (518) 3,769 3,970 4,946 5,486

Working capital changes 753 (3,498) 2,168 2,543 (2,013) (2,032) 375 (423)

Capital expenditure (1,001) (7,725) (1,676) (1,077) (1,727) (1,783) (2,070) (2,285)

Investment changes — 578 33 — — — — —

Other income 13 32 18 16 8 254 184 246

Free cash flow 920 (8,294) (512) 964 36 409 3,435 3,024

Ratios (%)EBITDA margin 9.4 6.9 5.3 5.9 9.9 10.6 10.8 10.9

Debt/equity 20.6 189.9 203.0 249.9 157.5 111.9 78.0 58.2

Net debt/equity 7.2 154.3 162.1 215.2 132.5 93.3 46.4 21.4

RoAE 44.6 33.7 4.6 13.2 53.9 43.3 34.7 29.3

RoACE 38.4 21.3 10.4 6.6 22.5 22.8 21.5 20.5



Loan growth in line with industry average at 17%

Loans grew by 17% yoy (14% YTD, 5% qoq) to `297 bn. Growth on yoy basis would be more representative from the next quarter as the impact of state loans was reflected in 4QFY11. J&K Bank has nearly 60% of the overall loans outside J&K state and the portfolio outside J&K state is primarily to the large corporate segment (60% of the loans outside J&K). We believe that the biggest risk for the bank is the pace at which it is planning to grow outside J&K—as it tends to be wholesale in nature and driven by participation in consortiums. We are building loan growth at 17% CAGR for FY2012-14E.

Scope for NIM expansion continues as CD ratio maintained at 60% levels

NIM for the quarter was at 3.6%—maintained for the quarter as the benefit of expansion of asset yields (lending and investments improved 35 bps qoq) was offset by higher cost of deposits (45 bps qoq). Net interest income increased by 16% yoy (4% qoq) to `4.5 bn. CD ratio for the quarter was maintained at 60% levels. Net interest income grew 16% yoy. Improvement in CD ratio would likely result in a sharp margin expansion but the bank continues to invest these deposits in low-yielding investment book. Deposit growth was at 19% yoy (3% qoq increase) to `488 bn. CASA ratio for the quarter improved 200 bps qoq to 40% (savings deposits grew 27% yoy).

Asset quality improves; coverage ratio healthy, remains comfortable at above 90% levels

Balance sheet continues to remain impressive with limited asset quality concerns. Gross NPLs declined 15% yoy to 1.8% of loans (`5.5 bn in December 2011 compared to `6.4 bn in September 2011). Coverage ratio (excluding write-offs) at 91% levels is one of the best and has been maintained at these levels for the past two years. Net NPL is currently at 0.2% of loans. Healthy coverage ratio offers strong comfort against any sharp deterioration in macro environment.

J&K Bank (JKBK)


Low provisions driving earnings. J&K Bank reported a strong quarter with earnings growth of 27% yoy driven by lower provisions (40% decline). Gross NPLs declined 15% qoq. CASA ratio improved to 40% (200 bps qoq). The bank is well-positioned from a balance sheet perspective with coverage ratio at about 90% levels. Valuations attractive at 1X book and 5X FY2012E book for RoEs in the range of 17-18% levels and 6% CAGR in earnings. Maintain ADD.

J&K BankStock data Forecasts/Valuations 2012 2013E 2014E


Shareholding pattern (%) P/E (X) 5.2 5.1 4.6Promoters 53.2 NII (Rs bn) 17.9 19.0 20.6FIIs 24.8 Net profits (Rs bn) 7.5 7.8 8.5MFs 2.4 BVPS 824.1 940.9 1,065.9

Price performance (%) 1M 3M 12M P/B (X) 1.0 0.9 0.8Absolute 20.3 (0.7) 15.0 ROE (%) 20.0 17.9 17.1Rel. to BSE-30 10.3 4.9 25.4 Div. Yield (%) 3.9 4.0 4.4


915-645

ADD

JANUARY 30, 2012

RESULT


Price (Rs): 813


BSE-30: 16,863

QUICK NUMBERS

• NII grew 16% yoy; NIM stable qoq

• Gross NPLs decline 15% qoq; coverage ratio strong at 91%

• Maintain ADD with TP of `950

Banks/Financial Institutions J&K Bank


Other highlights for the quarter

Non-interest income trends remain weak at `738 mn (5% yoy decline). Fee income growth was relatively better at 13% yoy but treasury gains declined 51% yoy.

Cost-income ratio for the quarter was at 38% (similar to the previous quarter).

Overall capital adequacy stands comfortable at 13.6% with tier-1 ratio at 11.4%.

Strong scope for improvement in business growth Credit growth and deposit growth, CD ratio, March fiscal year-ends, 3QFY09-3QFY12

-

8.0

16.0

24.0

32.0

40.0

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

50.0

55.0

60.0

65.0

70.0

75.0

Credit growth (LHS)Deposits growth (LHS)CD ratio (RHS)

Source: Kotak Institutional Equities, Company

Asset quality continues to remain healthy Gross NPA, net NPA and provision coverage (ex write-off), March fiscal year-ends, 3QFY09-3QFY12

-

1

3

4

6

7

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

40.0

52.0

64.0

76.0

88.0

100.0

Gross NPA (LHS)Net NPA (LHS)Provision coverage (RHS)(Rs bn) (%)


Jammu and Kashmir Bank-Rolling PBR and PER January 2005-January 2012 (X)

-

3

6

9

12

15

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

-

0.4

0.8

1.2

1.6



J&K Bank Banks/Financial Institutions


Jammu and Kashmir Bank, quarterly results Quarterly results summary, March fiscal year-ends

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

Interest income 9,347 10,139 10,559 11,556 12,665 36 12,165 4 Loans 6,499 7,184 7,507 8,060 8,802 35 8,580 3 Investments 2,802 2,901 2,993 3,427 3,747 34 3,576 5 Balance with RBI & banks 46 54 60 69 117 155 9 1,244

Interest expense 5,451 5,981 6,187 7,213 8,157 50 7,729 6 Net interest income 3,895 4,157 4,372 4,343 4,508 16 4,436 2

Non-interest income 776 1,190 670 712 738 (5) 697 6 Other income exld treasury 597 963 569 627 650 9 597 9 Treasury income 179 227 101 85 88 (51) 100 (12)

Total income 4,671 5,348 5,042 5,055 5,246 12 5,133 2 Operating expenses 1,863 2,388 1,878 1,927 2,009 8 2,107 (5)

Employee cost 1,276 1,673 1,278 1,255 1,308 2 1,404 (7) Other cost 586 715 600 672 700 19 704 (0)

Operating profit pre provisions 2,808 2,959 3,164 3,128 3,238 15 3,026 7 Provisions and cont. 306 756 445 223 182 (41) 380 (52)

Investment depreciation 2 198 37 45 (2) Provisions for NPA 299 348 367 206 211 (29) 300 (30)

PBT 2,502 2,203 2,719 2,904 3,056 22 2,646 16 Tax 823 818 896 908 922 12 904 2 Net profit 1,679 1,386 1,823 1,997 2,134 27 1,742 23 Tax rate (%) 32.9 37.1 33.0 31.3 30.2 - 34.2 - PBT-invt gains+ provisions 2,624 2,522 3,022 3,070 3,177 21 2,926 9

Key balance sheet items (Rs bn)Total Deposits 409 447 431 474 488 19

Savings deposits 118 127 132 135 150 27 Current deposits 44 54 42 46 46 5 Term deposits 247 266 257 293 292 18 CASA ratio (%) 39.6 40.5 40.4 38.2 40.2

Advances 254 262 264 282 297 17 Investments 172 197 182 198 198 15

AFS 58 75 60 72 66 HTM 114 122 121 126 132

Assets 464 505 490 531 548

Asset quality detailsGross NPLs (Rs mn) 5,038 5,188 5,283 6,419 5,450 8 Gross NPL ratio (%) 2.0 2.0 2.0 1.9 1.8 Net NPLs (Rs mn) 106 532 584 630 489 361 Net NPL ratio (%) 0.0 0.2 0.2 0.2 0.2 Provision coverage (%) 97.9 89.7 89.0 90.2 91.0 Provision coverage (%, ex write-off) 98.4 92.7 92.5 92.0 94.1

Yield management measures (%)Cost of Deposits 5.1 5.4 5.4 6.2 6.6 Yield on Advances 10.7 11.2 11.4 11.8 12.2 Yield on Investments 6.5 6.3 6.3 7.2 7.6 Net Interest Margins 3.7 3.7 3.8 3.7 3.6

Capital adequacy details (%)CAR 14.1 13.3 13.7 13.5 13.6

Tier I 11.7 11.3 11.8 11.3 11.4 Tier II 2.5 2.0 1.9 2.3 2.2




Break-up of balance sheet Quarterly balance sheet, March fiscal year-ends, 3QFY11-3QFY12 (` mn)

3QFY11 4QFY11 1QFY12 2QFY12 3QFY12 Balance sheet snapshot (Rs mn)

Capital 485 485 485 485 485

Reserves and surplus 29,620 34,302 36,125 38,121 40,253

Deposits 408,774 446,759 430,779 474,248 487,789

Borrowings 11,159 11,047 12,484 843 8,679

Other liabilities and provisions 14,381 12,489 10,373 1,011 10,674

Total 464,418 505,082 490,246 514,709 547,880

Cash and balance with RBI 23,527 29,750 28,752 30,421 29,585

Balance with banks etc 4,491 5,738 5,891 9,367 9,383

Investments 172,171 196,958 181,644 197,845 198,387

Advances 253,627 261,936 264,035 282,356 297,341

Fixed assets 3,823 3,938 3,920 4,041 4,083

Other assets 6,779 6,762 6,005 7,372 9,100

Total 464,418 505,082 490,246 531,402 547,880


Key changes in estimates March fiscal year-ends, 2012-14E (` mn)

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

Net Interest income 17,857 18,995 20,627 17,727 18,924 20,751 0.7 0.4 (0.6) NIM (%) 3.4 3.3 3.3 3.5 3.4 3.3 Loan (Rs bn) 304 358 421 304 364 436 - (1.8) (3.5)

Other income 3,171 4,294 5,093 3,171 4,294 4,793 - - 6.3 Treasury 500 1,200 1,500 500 1,200 1,200 - - 25.0

Total income 21,027 23,289 25,720 20,898 23,218 25,544 0.6 0.3 0.7 Operating expense 8,304 9,083 10,000 8,298 9,099 10,032 0.1 (0.2) (0.3)

Employee expense 5,448 5,795 6,162 5,464 5,811 6,180 (0.3) (0.3) (0.3) Other expenses 2,856 3,288 3,838 2,834 3,287 3,852 0.8 0.0 (0.4)

Provisions 1,279 2,466 2,983 1,561 2,386 2,658 (18.1) 3.4 12.2 NPLs 849 2,151 2,726 1,132 1,671 2,001 (25.0) 28.8 36.2 Invt depreciation 200 200 200 200 600 600

PBT 11,445 11,740 12,736 11,038 11,733 12,854 3.7 0.1 (0.9) Tax 3,910 3,952 4,223 3,771 3,949 4,262 3.7 0.1 (0.9) PAT 7,535 7,788 8,513 7,268 7,784 8,591 3.7 0.1 (0.9) PBT - treasury + provisions 12,223 13,006 14,219 12,100 12,919 14,312 1.0 0.7 (0.6)


J&K Bank Banks/Financial Institutions


Jammu and Kashmir Bank, growth rates and key ratios March fiscal year-ends, 2009-14E (%)

2009 2010 2011 2012E 2013E 2014EGrowth rates (%)Net loan 10.8 10.2 13.6 16.0 17.8 17.5 Customer assets 11.1 11.1 14.9 14.2 16.3 16.4 Investments excld. CPs and debentures growth 9.0 10.6 21.3 25.7 (21.1) (38.6) Net fixed and leased assets 3.9 2.4 92.9 (28.0) (1.4) (2.2) Cash and bank balance 18.9 (12.5) (23.1) (35.3) 77.4 98.4 Total Asset 15.1 12.9 18.7 10.6 7.5 10.1 Deposits 15.4 12.8 20.0 10.7 7.3 10.2

Current 7.7 5.8 9.6 (26.2) 7.3 10.2 Savings 15.2 29.0 24.0 6.9 7.3 10.2 Fixed 17.4 8.1 20.4 20.1 7.3 10.2

Net interest income 23.4 11.9 37.9 15.7 6.4 8.6 Loan loss provisions 82.4 79.4 (15.4) (43.8) 153.5 26.7 Total other income 0.0 69.9 (12.4) (13.1) 35.4 18.6

Net fee income 0.2 24.5 22.4 - 18.0 18.0 Net capital gains (12.7) 176.6 (46.7) (45.9) 140.0 25.0 Net exchange gains 21.9 25.0 25.0 25.0 25.0 25.0

Operating expenses 16.7 22.6 31.4 9.4 9.4 10.1 Employee expenses 23.5 31.4 42.9 4.0 6.4 6.3

Key ratios (%)Yield on average earning assets 8.7 7.8 8.2 9.2 9.0 8.9 Yield on average loans 11.5 10.6 10.7 11.8 11.2 11.0 Yield on average investments 7.0 5.8 6.5 6.8 6.7 6.6 Average cost of funds 6.2 5.3 5.1 6.2 6.1 6.0 Interest on deposits 6.2 5.2 5.1 6.1 6.1 6.0 Difference 2.5 2.5 3.1 3.0 2.9 2.9 Net interest income/earning assets 2.9 2.9 3.4 3.4 3.3 3.3 New provisions/average net loans 0.5 0.8 0.6 0.3 0.7 0.7 Interest income/total income 80.3 72.9 80.9 84.9 81.6 80.2 Fee income to total income 6.7 6.8 6.7 6.0 6.4 6.9 Fees income to PBT 13.2 13.1 13.6 11.1 12.8 13.9 Net trading income to PBT 3.3 26.8 5.5 2.6 8.5 10.2 Exchange income to PBT 2.3 1.8 2.0 2.1 2.5 2.9 Operating expenses/total income 37.8 37.6 39.8 39.5 39.0 38.9 Operating expenses/assets 1.3 1.4 1.6 1.6 1.6 1.6 Operating profit /AWF 1.7 1.6 1.9 2.1 1.9 1.8 Tax rate 35.2 35.3 34.2 34.2 33.7 33.2 Dividend payout ratio 20.0 20.8 20.5 20.5 20.5 20.5 Share of deposits

Current 14.0 13.1 12.0 8.0 8.0 8.0 Savings 24.1 27.6 28.5 27.5 27.5 27.5

Loans-to-deposit ratio 63.4 61.9 58.6 61.4 67.4 71.9 Equity/assets (EoY) 7.0 7.1 6.9 7.3 7.7 8.0 Asset quality trends (%)Gross NPL 2.6 1.9 1.9 2.0 2.0 2.0 Net NPL 1.4 0.3 0.2 0.3 0.3 0.4 Slippages 2.1 0.9 0.7 1.5 1.5 1.5 Provision coverage 48.6 86.1 89.7 86.5 83.5 78.9 Dupont analysis (%)Net interest income 2.8 2.8 3.3 3.4 3.3 3.3 Loan loss provisions 0.3 0.4 0.3 0.2 0.4 0.4 Net other income 0.7 1.0 0.8 0.6 0.7 0.8 Operating expenses 1.3 1.5 1.7 1.6 1.6 1.6 Invt. depreciation 0.1 (0.1) 0.1 0.0 0.0 0.0 (1- tax rate) 64.8 64.7 65.8 65.8 66.3 66.8 ROA 1.2 1.3 1.3 1.4 1.3 1.3 Average assets/average equity 14.4 14.2 14.3 14.1 13.3 12.7 ROE 16.7 18.2 19.0 20.0 17.9 17.1




Jammu and Kashmir Bank, income statement and balance sheet March fiscal year-ends, 2009-14E (` mn)

2009 2010 2011 2012E 2013E 2014EIncome statementTotal interest income 29,881 30,569 37,131 47,726 51,335 55,002

Loans 22,949 23,417 26,296 33,328 37,168 42,952 Investments 6,620 7,046 10,661 14,047 13,689 11,137 Cash and deposits 312 106 174 351 478 912

Total interest expense 19,879 19,375 21,695 29,869 32,340 34,375 Deposits from customers 19,148 18,406 20,692 28,874 31,346 33,380

Net interest income 10,003 11,193 15,437 17,857 18,995 20,627 Loan loss provisions 995 1,785 1,511 849 2,151 2,726 Net interest income (after prov.) 9,008 9,408 13,926 17,008 16,844 17,901 Other income 2,451 4,162 3,648 3,171 4,294 5,093

Net fee income 834 1,039 1,272 1,272 1,501 1,771 Net capital gains 627 1,734 924 500 1,200 1,500 Net exchange gains 147 144 188 235 294 368

Operating expenses 4,709 5,774 7,589 8,304 9,083 10,000 Employee expenses 2,788 3,664 5,236 5,448 5,795 6,162

Depreciation on investments 421 (388) 410 200 200 200 Other Provisions 8 269 230 230 115 57 Pretax income 6,321 7,916 9,344 11,445 11,740 12,736 Tax provisions 2,223 2,792 3,192 3,910 3,952 4,223 Net Profit 4,098 5,124 6,152 7,535 7,788 8,513 % growth 13.8 25.0 20.1 22.5 3.4 9.3 PBT - Treasury + Provisions 7,117 7,848 10,571 12,223 13,006 14,219 % growth 22.7 10.3 34.7 15.6 6.4 9.3

Balance sheetCash and bank balance 52,748 46,142 35,488 22,975 40,767 80,869

Cash 1,520 1,305 1,710 1,710 1,710 1,710 Balance with RBI 21,509 26,142 28,039 15,527 33,318 73,420 Balance with banks 4,496 524 4,150 4,150 4,150 4,150

Net value of investments 107,363 139,562 196,958 222,352 192,478 150,206 Govt. and other securities 76,052 84,421 103,249 130,675 102,535 61,825 Shares 494 633 2,919 2,919 2,919 2,919 Debentures and bonds 11,010 14,238 19,279 17,351 15,616 14,055

Net loans and advances 209,304 230,572 261,936 303,904 358,038 420,789

Fixed assets 1,994 2,041 3,938 2,836 2,796 2,734 Net leased assets - - - - - - Net Owned assets 1,994 2,041 3,938 2,836 2,796 2,734

Other assets 5,523 7,150 6,762 6,762 6,762 6,762 Total assets 376,933 425,468 505,082 558,829 600,840 661,360

Deposits 330,041 372,372 446,759 494,778 530,868 584,915 Borrowings and bills payable 13,102 14,613 14,377 14,377 14,377 14,377 Other liabilities 7,561 8,378 9,158 9,158 9,158 9,158 Total liabilities 350,704 395,363 470,295 518,313 554,403 608,450 Paid-up capital 485 485 485 485 485 485 Reserves & surplus 25,744 29,620 34,302 40,031 45,953 52,425 Total shareholders' equity 26,229 30,105 34,787 40,516 46,438 52,910



Strong revenues ahead of estimates by 10% likely led by strong execution of existing BOT projects

Sadbhav Engineering reported sales of Rs7.2 bn versus our estimate of Rs6.6 bn, up 52% on a yoy basis (Rs4.7 bn in 3QFY11). The company has been highlighting strong execution of (1) Dhule-Palasner (achieved provisional CoD), (2) Bijapur-Hungund (close to achieving provisional CoD) and (3) Rohtak-Panipat (aiming for completing eight months ahead of schedule by January 2013). The company may report weak 4QFY12 revenues on (1) large base and (2) completion of key projects.

Margin misses on higher construction cost; interest cost lower sequentially; net PAT up 58% yoy

The company reported EBITDA margin of 10.4%, 40 bps lower versus our estimate of 10.8% and down 70 bps on a yoy basis. The fall in margin was led by higher construction cost as proportion of sales (250 bps negative impact) partially offset by lower other expenses as a percentage of sales (down 160 bps yoy) on operating leverage. Interest cost at Rs106 mn was down sequentially from Rs154 mn in 2QFY12. Net PAT at Rs417 mn was up 58% yoy (Rs264 mn in 3QFY11).

Strong balance sheet on lower debt, minimal equity requirement to support next leg of growth

We expect debt to reduce going forward led by (1) lower receivables from Dhule (accounts for majority of receivables at end-1HFY12) and (2) lower funding requirement in SIPL on speedy execution (release of contingency reserve, lower debt levels corresponding to lower project cost). The company has sufficient internal resources for the remaining Rs2 bn of incremental equity requirement (internal accruals excluding toll collection, Ahemdabad ring road cash reserve). It can therefore leverage its balance sheet (0.2X D:E at end-FY2013E) to support the next leg of growth.

Retain estimates; highlight increased value from BOT projects versus weak construction outlook

We retain our standalone estimates of Rs10 and Rs10 for FY2012E and FY2013E and BUY rating with TP of Rs180. We highlight larger share of our SOTP from the company’s road BOT assets on (1) bonus revenues of early completion (Rs0.85-1 bn), (2) potential project cost savings (Rs4.5 bn) and (3) strong growth in toll revenues (better traffic growth, inflation-linked toll rate revision). However, slow order inflow traction is likely to constrain standalone construction business growth.

Sadbhav Engineering (SADE)

Construction

Strong execution and sequential decline in interest costs are key positives. Sadbhav reported strong revenues of Rs7.2 bn (up 52% yoy, 10% beat) with weaker margin on higher share of construction cost. Interest cost declined sequentially leading to PAT of Rs417 mn (up 58% yoy, 4.5% beat). We highlight balance sheet strength on (1) lower debt projections (freeing up of receivables, contingency reserve) and (2) sufficient internal resources (accruals, cash) for pending equity needs. Retain estimates; highlight increased value from BOT projects versus weak construction outlook.

Sadbhav EngineeringStock data Forecasts/Valuations 2012 2013E 2014E



Price performance (%) 1M 3M 12M EV/EBITDA (X) 7.9 7.7 6.6Absolute 26.6 (3.7) 29.2 ROE (%) 19.2 16.3 16.1Rel. to BSE-30 13.6 (0.5) 37.9 Div. Yield (%) 0.5 0.5 1.2


155-82

BUY

JANUARY 30, 2012

RESULT


Price (Rs): 127


BSE-30: 17,234

QUICK NUMBERS

• Revenues increase 52% yoy to Rs7.2 bn, beating estimates by 10%

• Margin declines 70 bps yoy, 40 bps lower than estimate

• Interest cost falls sequentially to Rs70 mn, PAT up 58% yoy to Rs417 mn

Construction Sadbhav Engineering


Positively surprise on execution although margin slightly weaker than expected

Better-than-expected revenues likely on strong execution of existing BOT projects. Sadbhav Engineering reported sales of Rs7.2 bn versus our estimate of Rs6.6 bn, up 52% on a yoy basis (Rs4.7 bn in 3QFY11). Stronger-than expected sales growth is likely to have resulted from stronger execution of key BOT projects. The company has been highlighting strong execution of (1) Dhule Palasner (achieved provisional CoD), (2) Bijapur Hungund (close to achieving provisional CoD) and (3) Rohtak Panipat (aiming for completing 8 months before schedule by January 2013).

Margin misses estimates on higher share of construction cost. The company reported EBITDA margin of 10.4%, 40 bps lower versus our estimate of 10.8% and down 70 bps on a yoy basis. The fall in margin was led by higher construction cost as proportion of sales (250 bps negative impact) partially made up lower share of other expenses (160 bps positive impact) on operating leverage.

Interest cost is lower on a sequential basis. Interest cost at Rs106 mn is below Rs154 mn in the 2QFY12. Company has reported PAT of Rs417 mn, a 58% increase on a yoy basis (Rs264 mn in 3QFY11).

Sadbhav, 3QFY12 results (standalone), March fiscal year-ends (Rs mn)

3QFY12 3QFY12E 3QFY11 2QFY12 vs est. yoy qoq 9MFY12 9MY11 % changeOperational income 7,237 6,601 4,762 4,304 9.6 52.0 68.1 17,670 11,624 52.0Total expenditure (6,485) (5,892) (4,233) (3,851) 10.1 53.2 68.4 (15,787) (10,275) 53.6

Construction expenses (6,146) (3,924) (3,468) 56.6 77.2 (14,767) (8,929) 65.4Employee expenses (89) (69) (91) 29.4 (2.6) (273) (187) 46.1Other expenses (250) (241) (292) 3.7 (14.4) (747) (588) 27.0

EBITDA 752 710 529 453 6.0 42.3 66.1 1,883 1,349 39.6Other income 46 42 14 52 8.0 224.4 (12.8) 114 18Depreciation (69) (84) (68) (70) (18.8) 0.1 (2.5) (208) (200) 4.3Net Interest (106) (70) (68) (154) 51.8 55.0 (31.3) (385) (171) 125.9

PBT 624 598 406 281 4.3 53.6 121.9 1,404 998 40.7Taxes (206) (198) (142) (100) 4.0 45.1 107.1 (467) (142)Net PAT 417 399 264 181 4.5 58.1 130.0 937 855 9.5

Key ratios (%)Construction exp./ sales 84.9 82.4 80.6 83.6 76.8Staff cost/ sales 1.2 1.4 2.1 1.5 1.6Other exp./ sales 3.5 5.1 6.8 4.2 5.1

EBITDA margin 10.4 10.8 11.1 10.5 10.7 11.6PBT margin 8.6 9.1 8.5 6.5 7.9 8.6Effective tax rate 33.1 33.2 35.0 35.5 33.3 14.3PAT margin 5.8 6.0 5.5 4.2 5.3 7.4EPS 2.8 2.7 1.8 1.2 # # 6.2 5.7

% change


4Q estimates imply declining sales based on high base, completion of BOT projects

Sadbhav has reported revenues of Rs17 bn in 9MFY12 versus revenue of Rs11.6 bn in 9MFY11 (FY2012E revenues of Rs26 bn). We expect that 4QFY12 revenues may not have strong growth on back of large base as well as completion of projects like Dhule-Palasner and Bijapur Hungund. We expect the company to report full year FY2012E margin of Rs10.4% implying 9.7% margin in 4QFY12E.

Sadbhav Engineering Construction


Sadbhav, 4QFY12-implied estimates (standalone), March fiscal year-ends (Rs mn)

9MFY12 9MY11 % change 4QFY12-implied 4QFY11 % change FY2012E FY2011 % changeOperational income 17,670 11,624 52.0 8,217 10,467 (21.5) 25,888 22,092 17.2Total expenditure (15,787) (10,275) 53.6 (7,421) (9,559) (22.4) (23,208) (19,834) 17.0

Construction expenses (14,767) (8,929) 65.4 (9,740) (18,669)Employee expenses (273) (187) 46.1 (121) (308)Other expenses (747) (588) 27.0 (268) (857)

EBITDA 1,883 1,349 39.6 796 908 (12.4) 2,679 2,258 18.7Other income 114 18 81 34 195 52Depreciation (208) (200) 4.3 100 (69) (245.6) (308) (269) 14.9Net Interest (385) (171) 125.9 (19) (113) (83.5) (367) (284) 29.2PBT 1,404 998 40.7 796 760 4.7 2,199 1,758 25.1Taxes (467) (142) 1,171 (221) (704) (562)Net PAT 937 855 9.5 559 539 3.7 1,495 1,196 25.1

Key ratios (%)Construction exp./ sales 83.6 76.8 93.1 84.5Staff cost/ sales 1.5 1.6 1.2 1.4Other exp./ sales 4.2 5.1 2.6 3.9EBITDA margin 10.7 11.6 9.7 8.7 10.4 10.2PBT margin 7.9 8.6 9.7 7.3 8.5 8.0Effective tax rate 33.3 14.3 (147.1) 29.1 32.0 32.0PAT margin 5.3 7.4 6.8 5.1 5.8 5.4EPS 6.2 5.7 3.7 3.6 10.0 8.0


Strong balance sheet to help capture incremental opportunities

Lower receivables on Dhule’s provisional CoD. Majority of the company’s present receivables (Rs5.5 bn as of end-Sep-11) are attributed to the Dhule-Palasner project. We expect these receivables to get paid down with the company now having received provisional CoD thereby leading to lower debt levels.

Lower debt requirement in SIPL on speedy execution. The Company would also benefit from lowered debt levels from SIPL as the lenders release the contingency reserve as its projects achieve earlier-than-expected completion (provisional CoD received for Dhule and expected for Bijapur – Hungund). Furthermore, lower project costs on speedy execution would also result in lower funding requirements for the BOT assets.

We expect Sadbhav’s debt position to improve from about 0.6X debt:equity at end-FY2011 to 0.4X by end-FY2012E and 0.2X by end-FY2013E.



Sadbhav reducing its leverage post sharp increase in FY2010 Trends in leverage for Sadbhav Engineering, March fiscal year-ends, 2009-13E (X)

0.6

1.1

0.6

0.40.2

0

2,000

4,000

6,000

8,000

10,000

2009

2010

2011

2012

E

2013

E

0.0

0.3

0.5

0.8

1.0

1.3

1.5

(Rs mn) (X)Equity Debt D/E


Minimal pending equity needs, money at hand help fund next round of growth

All of Sadbhav’s BOT projects put together required SIPL to put in about Rs8.6 bn of equity. The company has (1) already put in Rs2.6 bn of equity, and (2) raised Rs4 bn from private equity investment in SIPL. The management expects about Rs1.4 bn of internal accruals in SIPL (excluding toll revenues) and Rs400-420 mn of net cash balance in Ahemdabad ring road SPV to help fund part of the remaining Rs2 bn

Securitization of key assets (such as Ahemdabad ring road) would open more funding options apart from savings from early completion and sanctioned debt limits (Rs1.8 bn of funding from ICICI with 6.5% coupon for first 5 years of 7-year term loan) at SIPL level.

BOT: Speedy execution accrues cost saving, bonus income; toll collection growth also strong

Sadbhav has demonstrated strong execution of its BOT assets being ahead of schedule across most of its projects. This is likely to benefit the company on (1) cost savings on projects which reduces total initial capital investment requirement thereby potentially increasing returns from the project and (2) bonus income (proportion of toll collections) from early completion of projects. The company has also witnessed a strong growth in toll revenues on back of better traffic growth and inflation linked toll rate revision in its operational projects.

Bonus revenues from early completion of Dhule-Palasner and Bijapur-Hungund

Dhule-Palasner. Sadbhav recently achieved provisional CoD for 75% completion of its Dhule-Palasner project and expects to receive 100% CoD by end-March, 2012. This is versus scheduled completion date of June, 2012. The company can now start tolling and would from hereon receive 75% of the toll revenues for the period ending June-12 as a bonus to its original concession period. The management cited that this could potentially result in bonus revenues to the tune of Rs350-400 mn).

Bijapur-Hungund. Sadbhav also expects 75% provisional CoD for its Bijapur – Hungund project to come soon and 100% CoD by end-Feb, 2012. This is versus scheduled completion date of Mar-2013. The management expects to receive about Rs1.05 bn of bonus revenues from this project of which about Rs450-480 mn would be given to the third-party EPC contractor (KNR Construction, for the outsourced portion of construction).



Ahead of schedule in several under-construction projects Details of BOT projects of Sadbhav Engineering

Cost Length Concession App.Sadbhav Stake (Rs mn) (km) (years) date CoD FY2012E FY2013E FY2014E

Ahmedabad Ring Road 80% (PBA - 20%) 4,571 76 Dec-26 619 702 781 Aurangabad-Jalna 51% (PBA - 49%) 2,770 69 Oct-31 274 334 354 Mumbai Nasik 20% (Gammon -80%) 7,020 100 Oct-26 185 213 239

Nagpur-Seoni (Annuity) 51% (SREI - 49%) 4,890 56 Nov-27 460 460 460 Mah Border- Dhule 20% (HCC Laing - 80%) 14,200 97 Sep-27 Dec-09 Mar-12 — 487 542 Mah border check post 90% (SREI - 10%) 14,300 NA Mar-33 655 917 1,356 Rohtak-Panipat 100% 13,500 80 Mar-35 Apr-11 Oct-13 — — 1,289 Hyderabad-Yadgiri 60% (GKC - 40%) 4,800 35 Mar-33 Jul-10 May-12 — 249 373 Bijapur - Hungund 77% (MCL - 23%) 12,250 100 Mar-30 Sep-10 Feb-12 — 827 920 Total 78,301 613 2,192 4,188 6,314

Operational

Propotional toll revenues (Rs mn)

OperationalOperational


Strong execution in several projects may lead to Rs4.5 bn of project cost savings

Strong execution of BOT projects is also likely to lead to savings in project costs thereby increasing potential returns of the projects. The management expects to have a project cost savings to the tune of about Rs4.5 bn on the back of fast execution of Bijapur-Hungund, Rohtak-Panipat, Hyderabad-Yadgiri and Mumbai border checkpost projects. Key developments in these projects include:

Rohtak-Panipat. Sadbhav is running about 8 months ahead of schedule in the Rohtak-Panipat project and is aiming for a Jan-13 completion (planned CoD of Oct -13).

Mumbai border checkpost. The management cited strong progress in the Mumbai border checkpost project and expects one checkpost to be opened very shortly, another three by end-Feb 2012, one in March 2012 and another four by end-June. Hence the company would have eight (of the total 22) check posts open by end-June 2012.

Sadbhav would also benefit from savings on lower debt as the company gets back contingency reserve built in the projects.

Strong toll collections expected on better traffic growth and higher inflation

The company highlighted strong traffic growth seen at Aurangabad-Jalna, Ahemdabad ring road and Mumbai-Nasik projects. Toll revenues would be further boosted in the near term on significant annual toll hikes on the back of high inflation in FY2012E (toll hikes calculated on the basis of inflation over the last financial year).

Construction: Lower inflows coupled with strong recent execution may contain growth

Sadbhav has reported inflows of about Rs5.5 bn (including L1 order from Bharat Coking Coal). We expect another Rs8-9 bn of incremental inflows in FY2012E from the contracts bid by the company for roads and mining projects. Our revised estimates build in inflows of about Rs14 bn in FY2012E, a sharp decline of about 42% over FY2011 inflows of Rs24 bn.

We believe that reduced order inflows coupled with strong execution of existing projects would constrain growth in construction revenues going forward. We expect construction revenues for the company to grow at 17% in FY2012E and then decline 2.3% in FY2013E.



Segmental numbers for Sadbhav Engg (standalone), March fiscal year-ends, 2009-13E (Rs mn)

2009 2010 2011 2012E 2013ETotal standalone

Order inflows 29,349 39,266 24,046 13,877 33,298 Yoy growth (%) 145.6 33.8 (38.8) (42.3) 139.9

Revenues 10,625 12,569 22,092 25,888 25,280 Yoy growth (%) 21.8 18.3 75.8 17.2 (2.3)

Order backlog 46,407 67,686 69,640 57,630 65,649 Roads (BOT)Order inflows 23,671 30,650 1,930 1,500 17,500

Revenues 5,934 6,475 12,282 11,526 10,837 Yoy growth (%) 100.5 9.1 89.7 (6.2) (6.0) Order backlog 24,737 43,502 33,150 23,124 29,787 Roads (others)Order inflows 2,624 4,700 15,318 4,595 5,974 Yoy growth (%) (9.9) 79.1 225.9 (70.0) 30.0 Revenues 1,716 3,329 5,780 8,554 7,694 Yoy growth (%) (44.3) 93.9 73.6 48.0 (10.1) Order backlog 7,161 8,532 18,070 14,111 12,391 IrrigationOrder inflows 4,397 2,500 3,750 Yoy growth (%) - 50.0 Revenues 1,462 752 1,254 2,710 2,814 Yoy growth (%) 53.3 (48.5) 66.7 116.1 3.8 Order backlog 7,388 6,447 9,590 9,380 10,316 MiningOrder inflows 3,291 4,105 2,401 5,282 6,075 Yoy growth (%) 12.7 24.7 25.0 120.0 15.0 Revenues 1,475 2,021 2,776 3,097 3,935 Yoy growth (%) 454.4 37.0 37.4 11.6 27.0 Order backlog 7,121 9,205 8,830 11,015 13,155


Signs of build-up of organization strength

Sadbhav is investing in expanding its opportunity set as it aims to moves up the value chain into design and building of elevated structures (including Metro). The company also reported a sharp increase in its employee cost to Rs184 mn in 1HFY12 from Rs118 mn in 1HFY11 (56% yoy jump). Sadbhav has also recently opened its Mumbai office where it has purchased some commercial area already. It has set up teams for contract and tendering business with finance and accounts functions to follow.

Weak sector commentary lack of financial closures impend construction activity

The company cited funding concerns for the projects awarded by NHAI in the last two years. It believes that about of the projects in value terms may not have achieved financial closure as banks have started scrutinizing proposals and adding relevant covenants. The company also believes that minimal amount of equity has been invested in these projects further reflecting reduced activity in the sector. Key factor leading to such slowdown in activity aggressive bids by players believing cash flows from projects nearing completion to fund equity for recent project wins.



Financials of Sadbhav Engg (standalone), March fiscal year-ends, 2006-13E (Rs mn)

2007 2008 2009 2010 2011 2012E 2013EProfit model Total income 4,886 8,721 10,625 12,569 22,092 25,888 25,280 Expenses (4,307) (7,749) (9,530) (11,198) (19,832) (23,208) (22,645) EBITDA 579 972 1,095 1,371 2,260 2,679 2,635 Interest (expense)/income (54) (157) (214) (331) (427) (367) (275) Depreciation (149) (139) (157) (233) (269) (308) (364) Other income 6 30 108 158 195 195 215 Pretax profits 381 706 832 966 1,760 2,199 2,211 Tax (129) (221) (179) (297) (576) (704) (707) Adjusted net income 263 489 639 642 1,163 1,495 1,503 EPS (Rs) 2.4 4.1 5.1 5.1 7.8 10.0 10.0 Balance sheetTotal equity 1,466 2,861 3,435 3,915 6,257 7,648 9,046 Deferred taxation liability 93 97 110 141 161 161 161 Total borrowings 730 1,503 2,111 4,242 3,961 2,750 2,250 Total liabilities and equity 2,290 4,461 5,656 8,298 10,379 10,558 11,457 Net fixed assets 1,119 1,430 1,545 2,101 2,298 2,639 3,075 Investments 461 1,205 1,246 1,441 3,264 4,764 4,764 Net current assets (excl. cash) 433 1,706 2,756 4,308 3,971 2,478 2,387 Cash 251 103 100 448 846 677 1,230 Total assets 2,290 4,461 5,656 8,298 10,379 10,559 11,457 RatiosEBITDA margin (%) 11.8 11.1 10.3 10.9 10.2 10.4 10.4 PAT margin (%) 5.4 5.6 6.0 5.1 5.3 5.8 5.9 Debt/equity (X) 46.8 50.8 59.6 104.6 61.7 35.2 24.4 RoAE (%) 16.8 16.5 18.0 15.8 18.1 19.2 16.3 RoACE (%) (349.7) 36.2 17.7 14.2 46.2 70.4 41.0


Proportional financial of SIPL based on stake in various projects, March fiscal year-ends, 2010-18E (Rs mn)

2010 2011 2012E 2013E 2014E 2015E 2016E 2017E 2018EIncome statementTotal income 607 1,184 2,208 4,154 5,815 6,757 7,491 8,209 9,573 Expenses (74) (169) (320) (660) (991) (1,147) (1,487) (1,289) (1,502) EBITDA 533 1,015 1,888 3,494 4,824 5,610 6,003 6,920 8,071 Interest (expense)/income (648) (1,049) (1,565) (3,056) (4,191) (4,097) (3,978) (3,844) (3,694) Depreciation (276) (466) (1,181) (1,635) (1,801) (1,870) (2,006) (2,151) (2,517) Other income — — — 35 44 26 20 30 51 Pretax profits (483) (592) (953) (1,258) (1,219) (426) (55) 860 1,816 Tax — — — — — (64) (145) (193) (313) Net income (483) (592) (953) (1,258) (1,219) (490) (200) 709 1,455 Balance sheetShare capital 2,031 2,434 8,751 9,952 9,952 9,952 9,952 9,952 9,952 Reserves and surplus (469) (549) (1,502) (2,761) (3,980) (4,470) (4,670) (3,961) (2,507) Total debt 12,239 19,567 35,676 39,703 39,060 38,274 37,147 36,461 34,927 Grant 102 410 2,267 2,267 2,327 2,327 2,367 2,367 2,367 Total sources of funds 13,903 21,864 45,191 49,162 47,359 46,083 44,796 44,818 44,739 Net fixed assets 13,478 21,911 43,757 47,558 45,760 44,142 42,305 40,759 39,807 Investments 403 2 2 2 2 2 2 2 2 Net WCap (excl. cash) (277) (585) (380) (380) (380) (380) (380) (380) (380) Cash 298 536 1,813 1,982 1,978 2,319 2,869 4,437 5,310 Total assets 13,903 21,864 45,191 49,162 47,359 46,083 44,796 44,818 44,739



EBITDA margin jumps to 30% (highest since 4QFY08)

MLIFE’s EBITDA margin came in at 30%, versus 27.5% in 2QFY12, which is the highest since 4QFY08 as costs not directly related to construction (operating costs, staff costs and other expenditure) declined to 7.7% of revenues from 14.5% in 2QFY12, even though construction costs rose to 62.4% of sales from 58% in 2QFY12. MLIFE reported revenues of Rs1.5 bn (+1% yoy, +64% qoq) and PAT of Rs395 mn (+18% yoy, +26% qoq and 32% above estimates) as Splendor 1 achieved completion and Aura phase 3 contributed more than our expectation.

Strong sales backed by new phases in Aura (NCR)

MLIFE sold 0.6 mn sq. ft for Rs3.2 bn, which is its strongest quarterly sales performance to date and more than its 1HFY12 sales. This was driven by robust sales in the newly launched phase in Aura, which sold 0.48 mn sq. ft out of the 0.53 mn sq. ft launched. MLIFE also entered Nagpur with a 0.24 mn sq. ft project named Bloomdale. Though the company is ready with all approvals to launch its Ghatkopar project it is awaiting clarity on new DCR norms through which it could get 10% higher FSI after paying the requisite premium.

World Cities see modest progress; leasing at Jaipur key for valuation

At Mahindra World City Chennai, the total number of customers at the end of 3QFY12 was 60, of which 38 campuses/facilities are operational (60 at the end of 2QFY12 of which 37 were operational). At MWC Jaipur, eight customers are operational (six at the end of 2QFY12) and 10 have initiated development (nine at the end of 2QFY12). The company has received approval for the Gem and Jewellery SEZ (25 acres) and started marketing the Domestic Tariff Area (324 acres).

Retain BUY with a revised target price of Rs405

We cut revenue estimates for FY2012/13/14 by 13%/12%/21% and cut EBITDA estimates by 11%/13%/21% respectively as we note delays in delivery dates over the end of 1QFY12 – one year delay in Aura phase 2 and 3, and a nine-month delay in Aura phase 1, Aqualily Villas B, Aqualily Apartments A and Iris Court phase 2. We see possible upsides from Jaipur MWC as we value it at 1X P/B and would assign full DCF-based value when we see (1) clarity on DTC and subsequent absorption and (2) at least a couple of residential launches in MWC. Key risks to our recommendation are (1) macro risk to demand and pricing in Mumbai and (2) uncertainty caused by DTC, impacting progress at World Cities.

Mahindra Life Space Developer (MLIFE)

Property

Strong sales led by new launches. MLIFE sold 0.6 mn sq. ft for Rs3.2 bn (its best quarterly sales performance, exceeding 1HFY12 sales) of which 0.5 mn sq. ft came from new phases of Aura. EBITDA margin jumped to 30% (highest since 4QFY08), another highlight of the quarter. We retain our BUY rating with a revised target price of Rs405 (Rs450 earlier). We cut estimates to reflect delays in project delivery by 3-12 months.

Mahindra Life Space DeveloperStock data Forecasts/Valuations 2011 2012E 2013E



Price performance (%) 1M 3M 12M EV/EBITDA (X) 8.3 6.8 5.3Absolute 15.8 (9.8) (16.3) ROE (%) 10.4 10.2 11.2Rel. to BSE-30 6.1 (4.7) (8.7) Div. Yield (%) 0.0 0.0 0.0


427-235

BUY

JANUARY 30, 2012

RESULT

Coverage view: Cautious

Price (Rs): 275


BSE-30: 17,234

QUICK NUMBERS

• Revenue: Rs1.5 bn (+1% yoy, +64% qoq)

• EBITDA: Rs462 mn (+8% yoy, +79% qoq)

• Sales volume: 0.6 mn sq. ft, up from 0.1 mn sq. ft in 2QFY12

Mahindra Life Space Developer Property


MLIFE’s revenues were up 64% qoq Interim results (standalone), MLIFE, March fiscal year-ends (Rs mn)

(% chg.)3QFY12 3QFY12E 3QFY11 2QFY12 3QFY12E yoy qoq 9MFY12 9MFY11 (%chg)

Net sales 1,538 1,031 1,558 938 49.2 (1.3) 64.0 3,290 3,127 5.2 Total expenditure (1,076) (773) (1,130) (679) 39.2 (4.8) 58.4 (2,398) (2,304) 4.1 Cost of construction (957) (1,007) (544) (5.0) 76.1 (2,020) (1,970) 2.6 Operating expenses (23) (27) (24) (12.4) (4.5) (59) (76) (21.6) Staff cost (51) (43) (48) 18.5 6.7 (153) (118) 29.8 Other expenditure (45) (54) (64) (16.8) (29.9) (165) (140) 17.9 EBITDA 462 258 428 258 79.1 7.9 78.7 892 824 8.3 OPM (%) 30.0 25.0 27.5 27.5 27 26 Other income 87 180 66 182 (51.7) 32.1 (52.2) 360 229 57.3 Interest (2) (5) - (5) (56.0) (56.0) (10) - #DIV/0!Depreciation (7) (7) (6) (7) - 13.6 - (20) (17) 16.9 Pretax profits 540 426 488 428 26.6 10.6 25.9 1,223 1,035 18.1 Exceptional itemsTax (145) (127) (157) (124) 14.6 (7.6) 17.3 (351) (316) 10.8 Deferred taxation 1 4 10 (75.7) (90.9) 8 7 27.3 Net income 395 299 334 314 32.0 18.2 25.7 880 726 21.3 Adjusted profits 395 299 334 314 32.0 18.2 25.7 880 726 21.3 Income tax rate (%) 27.1 29.8 33.0 31.2 29.4 31.2


EBITDA margin rises to 30%, highest since 4QFY08 EBITDA margin, MLIFE, March fiscal year-ends (%)

19.114.8

30.0

27.524.6

21.2

27.5

(1.1)

26.2

15.3

35.9

14.6

11.7

22.2

(7.6)

15.8

8.0

23.2

28.023.9

29.422.0

(10)

0

10

20

30

40

50

2QFY

07

4QFY

07

2QFY

08

4QFY

08

2QFY

09

4QFY

09

2QFY

10

4QFY

10

2QFY

11

4QFY

11

2QFY

12


Residential sales are MLIFE’s best quarterly performance Sales performance, MLIFE

FY2007 FY2008 FY2009 FY2010 FY2011 1QFY11 2QFY11 3QFY11 4QFY11 1QFY12 2QFY12 3QFY12Area sold (mn sq. ft) 0.3 0.3 0.4 1.2 1.4 0.2 0.5 0.5 0.3 0.3 0.1 0.6Sales value (Rs mn) 1,480 1,560 1,580 5,900 7,000 920 2,560 2,330 1,190 1,720 620 3,020 Sales realisation (Rs/sq. ft) 4,933 5,200 3,950 4,917 5,000 6,133 4,979 4,450 4,760 5,059 5,166 4,951


Property Mahindra Life Space Developer


MLIFE has 3.8 mn sq. ft of ongoing projects Projects status at end-3QFY12 along with area sold at end-3QFY12, MLIFE, March fiscal year-ends

Saleable area Total UnitsName of the project City Launch (mn sq. ft) Nos. 3QFY11 4QFY11 1QFY12 2QFY12 3QFY12 3QFY11 4QFY11 1QFY12 2QFY12 3QFY12Ongoing projectsAura - Phase 1 NCR 3QFY10 0.27 231 100% 100% 100% 100% 100% 2,450 2,450 2,450 2,450 2,450Aura - Phase 2 NCR 2QFY11 0.24 166 100% 100% 100% 100% 100% 3,175 3,175 3,175 3,175 3,175Aura - Phase 3 NCR 1QFY12 0.21 110 NA NA 85% 100% 100% NA NA 4,100 4,100 4,100Aura - Phase 4 NCR 3QFY12 0.28 141 NA NA NA NA 93% NA NA NA NA 4,375Aura - Phase 5 NCR 3QFY12 0.25 110 NA NA NA NA 86% NA NA NA NA 4,375Eminente Angelica Mumbai 1QFY10 0.15 67 68% 89% 100% 100% 100% 9,600 9,650 9,650 9,650 9,650Splendour Phase 2 Mumbai 4QFY10 0.36 246 60% 83% 92% 99% 99% 7,600 7,700 7,700 7,700 8,200Eminente Aspen Mumbai 2QFY11 0.15 68 97% 97% 97% 100% 100% 9,500 9,500 9,500 9,500 10,350Royal Ivy (GE Garden) Mumbai 1QFY12 0.12 60 NA NA 0% 3% 7% NA NA 10,500 10,500 10,747Aqualily Villas A Chennai 4QFY10 0.12 41 72% 97% 97% 97% 100% 4,200 4,600 4,600 4,600 4,350Aqualiliy Villas B Chennai 4QFY10 0.11 33 72% 66% 84% 81% 82% 4,200 4,600 4,600 4,600 4,350Aqualily Apartments A Chennai 2QFY11 0.14 80 89% 95% 96% 98% 98% 2,950 3,100 3,100 3,100 3,230Iris Court - Phase 1 Chennai 3QFY11 0.27 244 99% 100% 100% 100% 100% 2,575 2,700 2,700 2,700 2,850Aqualily Apartments B Chennai 4QFY11 0.32 178 NA 13% 23% 25% 35% NA 3,100 3,100 3,100 3,230Iris Court - Phase 2 Chennai 4QFY11 0.30 229 NA 20% 36% 50% 48% NA 2,700 2,700 2,700 2,950Aqualiliy Villas C Chennai 2QFY12 0.11 40 NA NA NA 19% 25% NA NA NA 4,700 4,550Aqualiliy Villas D Chennai 3QFY12 0.12 37 NA NA NA NA 8% NA NA NA NA 4,550Bloomdale IA Nagpur 3QFY12 0.24 210 NA NA NA NA 4% NA NA NA NA 2,650Total 3.76 2,291

Area sold (mn sq. ft) Last BSP (Rs/sq. ft)


Signs of delays in ongoing projects Completion dates of projects, MLIFE, March fiscal year-ends (%)

Saleable areaName of the project City Launch (mn sq. ft) 3QFY11 4QFY11 1QFY12 2QFY12 3QFY12Ongoing projectsAura - Phase 1 NCR 3QFY10 0.27 Mar-12 Mar-12 Mar-12 Dec-12 Dec-12Aura - Phase 2 NCR 2QFY11 0.24 Dec-13 Dec-12 Dec-12 Dec-13 Dec-13Aura - Phase 3 NCR 1QFY12 0.21 NA NA Dec-13 Mar-14 Dec-14Aura - Phase 4 NCR 3QFY12 0.28 NA NA NA NA Jun-15Aura - Phase 5 NCR 3QFY12 0.25 NA NA NA NA Jun-15Eminente Angelica Mumbai 1QFY10 0.15 Dec-13 Dec-13 Dec-13 Dec-13 Dec-13Splendour Phase 2 Mumbai 4QFY10 0.36 Jun-12 Dec-12 Dec-12 Dec-12 Dec-12Eminente Aspen Mumbai 2QFY11 0.15 Mar-12 Dec-12 Dec-12 Dec-12 Dec-12Royal Ivy (GE Garden) Mumbai 1QFY12 0.12 NA NA Dec-14 Dec-14 Dec-14Aqualily Villas A Chennai 4QFY10 0.12 Sep-11 Sep-11 Sep-11 Mar-12 Mar-12Aqualiliy Villas B Chennai 4QFY10 0.11 Sep-11 Dec-11 Dec-11 Sep-12 Sep-12Aqualily Apartments A Chennai 2QFY11 0.14 Sep-12 Jan-13 Jan-13 Jun-13 Sep-13Iris Court - Phase 1 Chennai 3QFY11 0.27 Mar-12 Jul-12 Jul-12 Sep-12 Sep-12Aqualily Apartments B Chennai 4QFY11 0.32 NA Jul-13 Jul-13 Sep-14 Sep-14Iris Court - Phase 2 Chennai 4QFY11 0.30 NA Sep-13 Sep-13 Mar-14 Jun-14Aqualiliy Villas C Chennai 2QFY12 0.11 NA NA NA Sep-14 Sep-13Aqualiliy Villas D Chennai 3QFY12 0.12 NA NA NA NA Mar-14Bloomdale IA Nagpur 3QFY12 0.24 NA NA NA NA Apr-13Total 3.76

Completion date


Key balance sheet highlights (standalone)

Loans increased to Rs1.6 bn from Rs1.3 bn at the end of 2QFY12 and cash and bank balances declined by Rs130 mn to Rs722 mn though the company might also have liquid investments (Rs 0.6bn at the end of FY2011), details of which have not been disclosed.

Inventories increased by 67% qoq to Rs2.6 bn and debtors rose by 23% qoq to Rs1.5 bn.

Loans and advances declined 13% qoq to Rs4.2 bn.



Standalone balance sheet MLIFE, March fiscal year-ends (Rs mn)

30-Sep-09 31-Mar-10 30-Sep-10 31-Mar-11 30-Sep-11 31-Dec-11Shareholder's fundsCapital 508 508 508 408 408 408 ESOPs outstanding 3 4 5 6 7 8 Reserves and Surplus 8,739 9,076 9,478 9,868 10,354 10,749 Deferred tax liability (net) 30 18 15 9 1 - Loan funds 1,000 1,300 1,600 TOTAL 9,280 9,606 10,007 11,292 12,070 12,765

Use of fundsFixed assets & CWIP (net) 350 324 324 319 309 295 Investments 3,961 4,096 3,776 3,621 4,386 4,416 Current assets, loans and advancesInventories 2,959 2,880 2,809 1,687 1,528 2,552 Sundry debtors 422 989 1,118 1,820 1,251 1,539 Cash and bank balances 652 1,051 900 2,049 852 722 Other current assets 285 323 312 348 377 360 Loans and advances 1,462 1,601 2,741 3,331 4,857 4,217 Less: current liabilities and provisionsLiabilites 698 1,366 1,857 1,529 1,374 1,218 Provisions 112 291 116 353 117 117 Net current assets 4,970 5,187 5,907 7,351 7,375 8,054 TOTAL 9,280 9,606 10,007 11,292 12,070 12,765


Changes to model

Over FY2012E, we note (1) delay of one year in the completion of Aura phase 2, Aura phase 3, (2) nine months’ delay in Aura phase 1, Aqualiliy Villas B, Aqualily Apartments A, Iris Court phase 2 and (3) 3-6 months’ delay in Aqualily Villas A, Iris Court phase 1 and Aqualily Apartments B.

Approvals and therefore launches of projects in Ghatkopar (Mumbai) and Hyderabad have also been delayed, impacting sales and delaying potential revenue recognition from these projects.

Standalone debt in MLIFE increased to Rs1.6 bn from Rs1.3 bn at the end of 2QFY12 and we are now modeling Rs1.6 bn of debt for the end of FY2012.

Accordingly, we cut our revenue and net income estimates for FY2012/13/14 by 13%/12%/21% and 14%/14%/18% respectively.

We see possible upsides from Jaipur SEZ as we value Jaipur SEZ at 1X P/B and would assign full DCF-based value as and when we see (1) clarity on DTC and absorption after that and (2) at least a couple of residential launches in the SEZ.

Cut estimates due to delays in delivery schedule Estimate changes, MLIFE

2012E 2013E 2014E 2012E 2013E 2014E 2012E 2013E 2014ERevenue (Rs mn) 5,411 6,215 6,930 6,247 7,093 8,770 (13) (12) (21) EBITDA (Rs mn) 1,475 1,771 1,685 1,660 2,025 2,125 (11) (13) (21) Net income (Rs mn) 1,088 1,315 1,310 1,260 1,532 1,602 (14) (14) (18)

New Old % change


Property Mahindra Life Space Developer


Our target price is Rs405 Valuation model, MLIFE, March fiscal year-ends (Rs)

Valuation of business Multiple(Rs bn) (%) (Rs bn) (Rs/share)

SEZsMWC Chennai DCF 5.5 100 5.5 135 MWC Jaipur Book value 1.3 100 1.3 32 Total 6.8 167 Mahindra Lifespace standaloneResidential property NAV 5.6 100 5.6 137 Commercial property NAV 1.6 100 1.6 38 Total 7.2 176 FY2013E Net Cash 1.9 100 1.9 46 FY2013E Investments 0.6426 100 0.6 16 NAV valuation (Rs bn) 16.5 Equity valuation (Rs/share) 405

Valuation Methodology

Value contribution


Standalone profit and loss for MLIFE Profit and Loss model, MLIFE, 2009-14E, March fiscal year-ends (Rs mn)

2009 2010 2011 2012E 2013E 2014EProfit and Loss modelTotal revenues 1,654 3,207 4,766 5,411 6,215 6,930 Land and construction costs (1,243) (2,127) (3,137) (3,521) (3,957) (4,715) Employee costs (76) (120) (159) (172) (208) (251) SG&A costs (151) (152) (242) (243) (280) (277) EBITDA 184 808 1,227 1,475 1,771 1,685 Other income 325 290 303 280 300 320 Interest (0) - (12) (137) (84) - Depreciation 69 (23) (25) (29) (30) (30) Pretax profits 578 1,075 1,494 1,590 1,956 1,975 Extraordinary items - - - - - - Current tax (95) (299) (473) (511) (580) (671) Deferred tax (19) 18 10 10 (62) 6 Net income 464 794 1,030 1,088 1,315 1,310 Adjusted net income 464 794 1,030 1,088 1,315 1,310




Standalone balance sheet for MLIFE Profit and Loss model, MLIFE, 2009-14E, March fiscal year-ends (Rs mn)

2009 2010 2011 2012E 2013E 2014EBalance sheetEquityShare capital 411 408 408 408 408 408 Preference capital 100 100 — — — — Reserves/surplus 8,461 9,080 9,874 10,742 11,818 12,865 Total equity 8,972 9,588 10,283 11,150 12,226 13,273 Deferred tax liability/(asset) 36 18 9 (1) 61 55 LiabilitiesSecured loans — — 1,000 1,600 — — Total borrowings 1,000 1,600 Currrent liabilities 967 1,657 1,883 1,568 2,100 2,554 Total capital 9,975 11,263 13,174 14,318 14,387 15,883 AssetsCash 988 1,051 2,048 2,776 1,884 2,196 Current assets 4,998 5,793 7,185 7,604 8,596 9,357 Gross block 490 464 483 508 508 961 Less: accumulated depreciation 142 140 164 192 223 253 Net fixed assets 348 324 319 316 285 708 Capital work-in-progress 25 — — — — — Total fixed assets 373 324 319 316 285 708 Intangible assets — — — — — — Investments 3,616 4,096 3,621 3,621 3,621 3,621 Misc. expenses — — — — — — Total assets 9,975 11,263 13,174 14,318 14,387 15,883



Sales at Rs10 bn were up 35% yoy, 4% higher than our estimates

Sales growth was impressive, up 35% yoy aided by a weaker Rupee. Overall sales are ahead of our estimates by 4% with branded formulations in ROW markets beating our estimates; however, other major geographies of US and India disappointed. US sales were down qoq to US$63 mn versus our estimate of US$65 mn despite this quarter being the first full quarter of FTF Malarone sales, which should be contributing at least US$5-7 mn of quarterly sales. This implies excluding Malarone, US sales are down at least 12% qoq. India grew 11% in 3QFY12, lower than our expectations of 16% impacted by inventory adjustment in the channel.

EBITDA margin (adjusted for forex) drops qoq to 18%

EBITDA margin adjusted for net forex loss of Rs1 bn (Rs1.5 bn was MTM translational loss on forex debt of US$350 mn and Rs480 mn was forex gain on net receivables) was at 18%, down 250 bps qoq, lower than our estimate of 20.6%. This was due to (1) lower gross margin as proportion of sales from India, which enjoys the highest gross margin, fell this quarter, (2) sharp jump in R&D costs to Rs760 mn versus our estimate of Rs550 mn (run-rate exceeds earlier annual R&D guidance of Rs2.2 bn), (3) higher staff costs due to a weaker Rupee and hiring in India. Sharp sequential decline in EBITDA and higher interest costs, up 23% qoq, led to PAT adjusted for forex loss and research income at Rs1.1 bn, 11% below our estimates. We expect EBITDA margin in 4QFY12E to remain weak at 18.5% due to lower growth in India and marginal sequential pick-up in US.

Downgrade to REDUCE (was ADD) with TP at Rs340 (was Rs375), 13X FY2013E EPS

Despite sales growth of 31% in 9MFY12, we remain disappointed with its quality with high-margin regions of India and US not growing as per our expectations. We believe this margin pressure will continue for some time; this along with sharp increase in R&D expenses and higher interest costs will result in muted yoy PAT growth. We reduce our FY2012-13E PAT by 11-19% due to lower Rupee assumption at 50.5 in FY2013E versus 52.5 earlier, higher R&D expenses leading to lower margin and higher interest costs. We arrive at a TP of Rs340 on account of (1) 13X FY2013E core EPS of Rs25 (adjusting for FTF, research income and adding back NCE spend) at 25-35% discount to front-line generics and (2) Zetia value per share of Rs8.

Glenmark Pharmaceuticals (GNP)

Pharmaceuticals

Lower margin leads to PAT miss. Sales met our estimates but high-margin regions of India and US disappointed. Sharp escalation in R&D costs and lower sales contribution from high-margin regions led to a 200 bps qoq margin decline. We remain concerned about (1) slower growth in India and US on a high base, (2) higher R&D costs in FY2012-13E, 15% higher than earlier company guidance and (3) higher interest costs. These factors along with lower Rupee rate lead us to cut our FY2012-13E PAT by 11-20%. Downgrade to REDUCE (was ADD); TP Rs340 (was Rs375).

Glenmark PharmaceuticalsStock data Forecasts/Valuations 2012 2013E 2014E



Price performance (%) 1M 3M 12M EV/EBITDA (X) 12.6 10.6 9.2Absolute 6.2 2.8 0.7 ROE (%) 23.6 21.5 0.0Rel. to BSE-30 (2.7) 8.5 9.8 Div. Yield (%) 0.0 0.0 0.0


351-241

REDUCE

JANUARY 30, 2012

RESULT, CHANGE IN RECO.

Coverage view: Neutral

Price (Rs): 312


BSE-30: 16,863

QUICK NUMBERS

• Sales at Rs10 bn were up 35% yoy, US and India disappoint

• EBITDA margin (adjusted for forex) drops qoq to 18%

• Downgrade to REDUCE (was ADD)

Glenmark Pharmaceuticals Pharmaceuticals


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

3QFY12 3QFY12E 3QFY11 2QFY12 3QFY12E 3QFY11 2QFY12Net sales 10,073 9,685 7,486 9,370 4 35 7Consumption of raw materials 4,087 3,486 3,346 2,632 17 22 55(Inc)/ in stock in trade (385) — (836) 703 NM NM NMPersonnel cost 1,735 1,650 1,417 1,575 5 22 10Other expenses 3,087 2,950 1,875 2,741 5 65 13R&D 760 550 350 650 38 117 17Total Expenditure 9,284 8,636 6,153 8,301 8 51 12EBITDA 788 1,048 1,334 1,069 (25) (41) (26)Other income 108 250 246 (78) (57) (56) NMResearch income 238 255 — 1,185 (6) NM (80)Interest 357 300 396 291 19 (10) 23Depreciation 231 275 246 247 (16) (6) (6)PBT 545 978 938 1,637 (44) (42) (67)Tax 84 244 73 (238) (66) 15 NMPAT 461 733 865 1,875 (37) (47) (75)Exceptional exp — — — — NM NM NMPAT 461 733 865 1,875 (37) (47) (75)PAT ex forex, research inc 1,122 1,255 865 1,492 (11) 30 (25)

Generics 4,368 4,396 3,006 3,990 (1) 45 9 USA 3,190 3,309 2,041 3,001 (4) 56 6 Europe 307 206 194 185 49 58 65 Latin America 36 51 43 41 (30) (17) (14) API 836 831 728 763 1 15 10Specialty 5,704 5,288 4,480 5,380 8 27 6 India 2,547 2,773 2,288 2,539 (8) 11 0 Europe 664 411 448 378 62 48 76 Latin America 825 832 559 738 (1) 48 12 ROW 1,669 1,273 1,186 1,725 31 41 (3)Total Revenues 10,073 9,685 7,486 9,370 4 35 7

% change

Source: Kotak Institutional Equities estimates, Company

Profit and loss statement, March fiscal year-ends, 2009-14E

2009 2010 2011 2012E 2013E 2014ENet sales 21,160 24,774 28,596 36,463 43,188 48,453Materials (6,646) (7,843) (9,918) (12,681) (12,729) (13,835)Selling and administration (3,162) (4,864) — — — —Employee cost (2,515) (2,691) (5,103) (6,356) (7,628) (9,153)R& D (883) (773) (1,350) (2,560) (2,688) (2,822)Others (3,405) (2,641) (7,197) (9,490) (11,229) (12,598)Total expenditure (16,610) (18,811) (23,568) (31,087) (34,273) (38,409)EBITDA 4,550 5,963 5,028 5,375 8,915 10,045Depreciation/amortisation (1,027) (1,206) (947) (977) (1,250) (1,450)EBIT 3,523 4,757 4,081 4,398 7,665 8,595Net finance cost (1,405) (1,640) (1,605) (1,406) (1,200) (1,020)Other income 1,740 490 1,444 255 350 350NCE Income — 232 895 2,535 218 212PBT 3,858 3,839 4,816 5,782 7,033 8,137Current tax (1,465) (1,049) (237) (392) (985) (1,139)Deferred tax 383 521 — — — —Reported net profit 2,776 3,310 4,578 5,390 6,048 6,997


Pharmaceuticals Glenmark Pharmaceuticals


Balance sheet, cash model, March fiscal year-ends, 2009-14E (Rs mn)

2009 2010 2011 2012E 2013E 2014EBalance sheetTotal equity 15,982 23,552 20,372 25,383 30,957 37,448Total debt 20,943 18,694 21,005 20,687 17,794 14,182Current liabilities 4,563 5,186 7,857 9,061 11,418 13,588Minority Interests 32 130 267 267 267 267Deferred tax liabilities 569 710 (1,081) (1,081) (1,081) (1,081)Total equity and liab 42,089 48,273 48,420 54,316 59,354 64,404Cash and cash equivale 715 1,070 1,986 2,000 1,000 1,000Current assets 20,077 23,140 24,029 27,489 32,277 36,277Net fixed assets 7,857 9,245 10,337 13,060 14,510 15,760Net intangibles 7,806 8,628 10,329 10,129 9,929 9,729Capital -WIP 5,454 6,008 1,457 1,457 1,457 1,457Investments 181 181 181 181 181 181Total assets 42,089 48,273 48,320 54,316 59,354 64,404

Free cash flow Operating cash flow, e 4,214 5,301 6,793 7,478 8,130 9,125Working capital (3,893) (2,450) 1,782 (2,510) (2,526) (1,861)Capital expenditure (9,227) (3,923) 2,417 (3,500) (2,500) (2,500)Investments 7 0 (100) 100 0 0Free cash flow (8,898) (1,072) 10,892 1,568 3,104 4,764


Change in estimates, March fiscal year-ends (Rs mn)

2012E 2013E 2012E 2013E 2012E 2013ENet sales 36,463 43,188 36,385 43,858 0 (2)EBITDA 5,375 8,915 5,990 9,537 (10) (7)Adjusted EBITDA margin 19.9 20.6 21.4 21.7 (1.5) (1.1)PAT 5,390 6,048 6,034 7,448 (11) (19)

New estimates Earlier estimates % change


Glenmark Pharmaceuticals Pharmaceuticals


Price target, FY2013E

FY2011 FY2012E FY2013EReported EPS (a) 16.8 19.9 22.4Licensing Income post 10% tax (b) 3.0 8.4 0.7EPS excl licensing (c=a-b) 13.8 11.5 21.6FTF EPS /share (d) 1.8 1.3EPS excl licensing, FTF (e=c-d) 13.8 9.7 20.3NCE R&D spend (f) 5.0 5.2Core EPS (g=e+f) 14.7 25.5

PE multiple 13

Core business value 331NPV value of Zetia 8Price target 339Upside 8%

Average 3-year multiple 25Average 1-year multiple 15

Implied target price multiple 13Current P/E multiple (on core EPS) 21 12


Para IV pipeline and valuation

Zetia Cutivate Malarone Locoid Launch date Dec-16 Mar-12 3Q2011 end 2013Exclusivity no of days 135 180 180 180Effective sales for generic opportunity 651 24 32 19Price erosion 30% 20% 20% 20%GGL market share 65% 65% 65% 65%GGL revenues (US$ mn) 296 12 17 10Net margin assumption 60% 60% 60% 60%Net profit (US$ mn) 178 7 10 6Net profit (Rs mn) 8,565 356 482 282 Net profit per share (Rs) 31.7 1.3 1.8 1.0Discounted net profit per share (Rs) 16.0 1.3 1.8 1.0Glenmark' share (Rs) 8.0 1.3 1.8 1.0



Strong sales growth at 55% based on healthy volume and organic growth, aided by currency

Sales growth at 55% beat our estimate of 36%, led by (1) 28% volume growth reflecting the strong underlying demand industry is witnessing, (2) pricing increase of 8%, up from 4% last quarter, (3) organic growth of 35%, up from 25% in 2QFY11 and (4) inorganic growth of 20%, versus 15% in 2QFY12 as DVA Agro and other acquisitions registered sales of Rs3b in 3QFY12. (1) India reported lower growth than estimated at 15%, (2) ROW sales nearly doubled showing the impact of inorganic growth while (3) Europe and NA came back strongly this quarter, actually growing in local currency terms, in what is a seasonally weak quarter for these regions due to strong underlying demand and impact of higher pricing. In Europe, UPL benefited from price increases of more than 8% leading to sales growing yoy in local currency terms after many quarters of yoy decline.

EBITDA margin flat yoy at 18%, 100 bps lower than our estimates

EBITDA margin (excluding other income) remained flat yoy, 100 bps lower than our estimates. Margin remained flat despite phenomenal sales growth due to (1) consolidation of low gross margin DVA AGRO business which has gross margin of 28-30% versus company average of 35-37%. This resulted in GM declining 300 bps yoy, (2) staff costs were up 28% qoq due to impact of a higher Rupee. We estimate FY2012E margin at 19% and estimate 4QFY12E margin at 19.9%, flat yoy. As guided by UPL last quarter, the company reported marginal forex loss of Rs16 mn as MTM forex loss on loans was nullified by forex gain on account of realized gains on options outstanding against liabilities. Tax rate at 32% was higher than expected 20% due to higher proportion of sales from India; however, UPL expects tax rate in FY2012E at around 20-23% implying lower tax rate in 4QFY12E.

We estimate FY2012E sales growth at 37%, at mid-point of company guidance

UPL maintained its FY2012E sales growth guidance at 35-40% and EBITDA margin guidance (including other income) at 19-20%. We estimate sales growth of 37% in FY2012E and 15% in FY2013E. We reduce our FY2013E PAT by 11% due to lower Rupee assumption at 50.5 in FY2013E versus 52.5 earlier, higher tax rate at 22% versus 20% earlier and lower other income.

United Phosphorus (UNTP)

Others

In-line quarter. Reported PAT was 20% higher than our estimates due to minimal forex loss; strong sales growth resulted in beat of 15% versus our estimate although margin was lower than our estimate by 100 bps. PBT ex-forex at Rs2 bn was in line with our estimates. We estimate FY2012E sales growth at 37%, at mid-point of company guidance. We leave our FY2012E PAT unchanged and reduce FY2013E PAT by 11% due to lower Rupee assumption, higher tax and lower other income. Move rating a notch lower to ADD (from BUY), target price at Rs170 (unchanged).

United PhosphorusStock data Forecasts/Valuations 2012 2013E 2014E



Price performance (%) 1M 3M 12M EV/EBITDA (X) 5.2 4.0 3.4Absolute 13.3 (3.2) 2.5 ROE (%) 17.3 21.3 0.0Rel. to BSE-30 3.8 2.2 11.8 Div. Yield (%) 2.1 2.4 3.1


172-120

ADD

JANUARY 30, 2012

RESULT, CHANGE IN RECO.

Coverage view:

Price (Rs): 144


BSE-30: 16,863

QUICK NUMBERS

• Strong sales growth at 55%

• EBITDA margin, flat yoy at 18%, 100 bps lower than our estimates

United Phosphorus Others


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

3QFY12 3QFY12E 3QFY11 2QFY12 3QFY12E 3QFY11 2QFY12Net sales+other income 19,288 16,823 12,221 17,757 15 58 9Op. costs 15,804 13,616 10,010 14,502 16 58 9EBITDA 3,484 3,207 2,211 3,255 9 58 7EBITDA (excl other inc), 18.1 19.1 18.1 18.3 (1.0) (0.0) (0.3)Fx loss (gain) in interest 16 800 300 1,114 (98) (95) (99)Interest 810 700 593 805 16 37 1Depreciation 785 720 491 719 9 60 9Other income 107 200 262 196 (47) (59) (45)PBT 1,979 1,187 1,090 814 67 82 143Tax 626 237 266 151 164 135 315PAT 1,353 950 823 663 42 64 104Income from associate (216) (20) 12 51 NM NM NMPAT before exceptional 1,137 930 836 713 22 36 60PBT ex forex 1,996 1,987 1,390 1,927 0 44 4

India 3,810 4,814 3,320 5,690 (21) 15 (33)International 15,580 12,202 9,160 12,260 28 70 27 North America 3,590 1,776 2,220 2,990 102 62 20 Europe 2,650 2,055 2,020 2,230 29 31 19 Rest of the World 9,340 8,370 4,920 7,040 12 90 33Total 19,390 17,016 12,480 17,950 14 55 8

Price growth 8 0 (3) 4 8 11 4Volume growth 28 33 15 31 (5) 13 (3)Exchange rate 19 3 (5) 5 16 24 14

Organic growth 35 21 5 25 15 31 10Inorganic growth 20 16 3 15 4 17 5

% change


UPL—profit and loss statement, March fiscal year-ends, 2009-14E (Rs mn)

2009 2010 2011 2012E 2013E 2014ENet sales 48,021 52,900 56,497 79,283 91,553 99,428Operating expensesMaterials (24,512) (29,542) (29,881) (43,463) (50,478) (54,686)Selling and administration (6,161) (6,387) (9,096) (9,538) (11,902) (12,926)Employee cost (4,794) (5,018) (5,146) (6,647) (7,311) (8,042)R&D (306) (310) (428) (396) (458) (497)Others (3,806) (3,356) (2,388) (4,361) (4,120) (4,474)

Total expenditure (39,578) (44,612) (46,939) (64,404) (74,269) (80,625)EBITDA 8,444 8,288 9,558 14,878 17,284 18,803Depreciation and amortisation (1,927) (2,147) (2,138) (2,912) (2,500) (2,700)

EBIT 6,517 6,141 7,420 11,966 14,784 16,103Net finance cost (1,761) (1,825) (2,309) (3,180) (2,800) (2,000)Other income 265 1,932 1,674 (350) 628 628

Pretax profits before extra-ordinaries 5,021 6,249 6,784 8,436 12,612 14,731Current tax (263) (408) (896) (1,574) (2,775) (3,241)Deferred tax 19 (442) 150 — — —

Reported net profit 4,747 5,399 6,038 6,862 9,837 11,490(Profit)/loss in minority interest (25) (59) (104) — — —Share of profit/(loss) in associate 200 188 (142) (209) (150) (100)Prior adjustments (net) (268) (35) (92) — — —

Reported net profit after minority interes 4,654 5,492 5,701 6,654 9,687 11,390Exceptional items (95) (231) (125) (157) — —

Reported net profit after minority interes 4,559 5,262 5,576 6,497 9,687 11,390


Others United Phosphorus


UPL—balance sheet statement, March fiscal year-ends, 2009-14E (Rs mn)

2009 2010 2011 2012E 2013E 2014EBalance sheetNet worth 26,730 29,918 37,261 42,164 49,993 58,993Debt 20,665 23,818 24,919 24,016 25,324 25,157Current liabilities 16,260 14,616 19,358 26,568 32,418 37,036Minority Interests 95 140 180 180 180 180Deferred payment liabilities 677 375 374 374 374 374Deferred tax liabilities 338 780 731 731 731 731Total equity and liabilities 64,765 69,648 82,822 94,032 109,020 122,471Cash and cash equivalents 5,539 15,778 15,659 10,659 15,000 20,000Current assets 35,635 27,465 34,256 51,378 61,024 68,675Net assets incl intangibles 18,494 18,128 23,867 22,955 23,955 24,755Investments 4,332 7,612 8,232 8,232 8,232 8,232Deferred tax asset 765 665 809 809 809 809Total assets 64,765 69,648 82,822 94,032 109,020 122,471Free cash flow Operating cash flow, excl. w. capital 8,018 8,863 9,572 11,850 14,031 15,260Working capital (9,471) 6,273 (2,098) (10,432) (4,061) (3,564)Capital expenditure (3,620) 427 (6,561) (2,000) (3,500) (3,500)Investments (268) 286 (155) — — —Free cash flow (5,340) 15,849 758 (583) 6,470 8,196


Change in estimates (Rs mn)

2012E 2013E 2012E 2013E 2012E 2013ENet sales 79,283 91,553 78,023 91,587 2 (0)EBITDA 14,878 17,284 15,132 17,128 (2) 1Depreciation (2,912) (2,500) (2,768) (2,500) 5 0

EBIT 11,966 14,784 12,364 14,628 (3) 1Net finance cost (3,180) (2,800) (2,969) (2,400) 7 17Other income (350) 628 (991) 1,371 (65) (54)

PBT 8,436 12,612 8,404 13,599 0 (7)Tax (1,574) (2,775) (1,669) (2,720) (6) 2

PAT 6,862 9,837 6,735 10,879 2 (10)MI (209) (150) (13) (15) 1,504 900

PAT 6,654 9,687 6,722 10,864 (1) (11)Exceptional items (157)

PAT 6,497 9,687 6,722 10,864 (3) (11)PAT ex forex 7,293 9,687 7,991 10,385 (9) (7)

% changeNew estimates Old estimates



We raise consolidated earnings estimates by 9-19% in FY2012 and FY2013

We have increased our consolidated earnings estimates by 9-19% in FY2012 and FY2013, reflecting the following:

We have increased our Evoque volume estimates from 30,000 and 50,000 units to 50,000 and 72,000 units in FY2012 and FY2013 respectively, which primarily explains the increase in our volume forecasts for JLR.

We also use 76.3/76.8 GBP/INR rate versus 73.0 earlier in FY2012/2013E for translation of JLR accounts into INR, in line with our Economist’s forecast, which has led to a 5% increase in our consolidated earnings forecasts.

Stock factors success of Evoque launch; Downgrade to SELL

We believe the current stock price factors strong volume growth and stable margin trajectory in JLR operations. Developed markets (the US and Europe) are likely to contribute 52% of total volumes in FY2013 and we expect muted growth in these geographies. We expect China, Russia, the Middle East and the Rest of Asia to be the key markets for growth for JLR. We forecast 30% yoy growth in China, 25% yoy growth in Russia and 22% yoy growth in the Rest of the World volumes (excluding China, Russia, the EU and the US), which we believe factors upsides from increase in distribution in China and new product launches.

We also expect incremental competition in the mini SUV segment to increase as Audi recently launched Q3 and Daimler plans to launch mini SUVs in CY2012 and CY2013.

Hence we downgrade the stock to SELL (from ADD earlier) after a sharp run in the stock price due to better-than-expected performance of Evoque. Our target price of Rs225 is based on sum-of-the-parts valuation methodology. We value the standalone business at 6.5X EV/EBITDA multiple and JLR at 4X EV/EBITDA multiple on our FY2013 estimates (in line with the last 10-year average multiple of BMW).

Tata Motors (TTMT)

Automobiles

Downgrade to SELL. We downgrade the stock to SELL (from ADD earlier) as current valuations price in most of the upside from Evoque’s success. The stock trades at 5X EV/EBITDA (after deducting 450 mn pounds of capitalized R&D from EBITDA) on our FY2013 estimates, trading at a significant premium to European luxury car manufacturers. We have raised our target price to Rs225 (from 195 earlier) driven by increase in our volume estimates for Evoque.

Tata MotorsStock data Forecasts/Valuations 2012 2013E 2014E


Shareholding pattern (%) P/E (X) 8.4 7.2 6.0Promoters 35.1 Sales (Rs bn) 1,573.7 1,792.9 2,016.1FIIs 40.4 Net profits (Rs bn) 92.3 108.2 130.6MFs 1.9 EBITDA (Rs bn) 190.5 218.4 251.8

Price performance (%) 1M 3M 12M EV/EBITDA (X) 5.5 4.7 3.9Absolute 30.9 13.1 1.7 ROE (%) 39.5 34.3 30.8Rel. to BSE-30 20.0 19.4 10.9 Div. Yield (%) 1.2 1.2 1.2


261-138

SELL

JANUARY 30, 2012

CHANGE IN RECO.


Price (Rs): 234


BSE-30: 17,234

Automobiles Tata Motors


Downgrade to SELL

We downgrade the stock to SELL (from ADD earlier) as current valuations price in most of the positives while neglecting inherent risks in the JLR business. The stock trades at 5X EV/EBITDA (after deducting 450 mn pounds of capitalized R&D from EBITDA) on our FY2013 estimates, trading at a significant premium to European luxury car manufacturers.

Our target price of Rs 225 is based on sum-of-the-parts valuation methodology. We value the standalone business at 6.5X EV/EBITDA multiple and JLR at 4X EV/EBITDA multiple on our FY2013 estimates (in line with the last 10-year average multiple of BMW).

Key reasons for our SELL rating

Standalone business is under pressure due to muted growth in the MHCV business. Operating margins are likely to remain under pressure due to deteriorating profitability of the passenger car business. We expect standalone operations to burn cash of Rs25 bn over FY2012-2013 due to significant capex and increase in working capital.

JLR has surprised us and consensus mainly by significantly better-than-expected performance of Evoque, which was launched in September 2011. Evoque has sold ~30,000 units since its launch. We forecast 50,000 units and 72,000 units of sales of Evoque in FY2012 and FY2013 respectively. Incremental competition in the mini SUV segment is expected to increase in CY2012 with recent launches by Audi (Q3) and upcoming launches by Daimler (mini SUV compacts), which are likely to be priced more aggressively than Evoque.

We expect JLR EBITDA margins to remain stable at about 14% in FY2013 as we believe slightly negative impact of product mix/raw material pressure is likely to be offset by a positive geographical mix and currency benefit. Our Economist expects the British Pound to depreciate versus US Dollar by 4% yoy and the British Pound to appreciate versus the Euro by 3% yoy in FY2013, which is likely to be positive for JLR’s EBITDA margins. We expect part of the benefit to be passed on to consumers as competition increases.

We believe the current stock price factors strong volume growth and stable margin trajectory in JLR operations. Developed markets (the US and Europe) are likely to contribute 52% of total volumes in FY2013 and we expect muted growth in these geographies. We expect China, Russia, the Middle East and the Rest of Asia to be the key markets for growth for JLR. We forecast 30% yoy growth in China, 25% yoy growth in Russia and 22% yoy growth in the Rest of the World volumes (excluding China, Russia, the EU and the US) which we believe factors upsides from an increase in distribution in China and new product launches.

Tata Motors sum-of-the-parts valuation methodology

EBITDA Multiple ValueValue per

share(Rs mn) (X) (Rs mn) (Rs) Comments

Tata Motors standalone EV 48,150 6.5 312,972 98 based on 6.5X FY2013E EBITDA

JLR standalone EV 121,243 4.0 484,970 152

based on 4X FY2013E EBITDA, deducting 450 mn pounds of R&D expense from reported EBITDA

Less: Net debt - consol 155,380 49 ex vehicle financing debtTotal standalone + JLR 642,563 202 Value of subsidiaries 21 SOTP-based value 223 Target price 225


Tata Motors Automobiles


European luxury car valuation comparison

Company 2012E 2013E 2012E 2013E 2012E 2013E

BMW 0.6 0.5 2.8 3.0 8.4 9.2

Daimler 0.4 0.4 3.5 3.6 8.3 8.8

Fiat 0.2 0.2 2.2 1.7 9.7 7.6

Audi 0.5 0.5 3.3 3.0 10.4 8.9

Average 0.4 0.4 3.0 2.8 9.2 8.6

EV/Sales EV/EBITDA P/E

Source: Bloomberg

We raise earnings estimates due to increase in volume estimates of Evoque

We have increased our consolidated earnings estimates by 9-19% in FY2012 and FY2013 reflecting the following factors:

We have increased our Evoque volume estimates from 30,000 and 50,000 units to 50,000 and 72,000 units in FY2012 and FY2013 respectively, which primarily explains the increase in our volume forecasts for JLR.

We also use 76.3/76.8 GBP/INR rate versus 73.0 earlier in FY2012/2013E for translation of JLR accounts into INR, in line with our Economist’s forecast, which has led to a 5% increase in our consolidated earnings forecasts.

We have slightly tweaked our standalone volume estimates due to better-than-expected performance of passenger car volumes over the past few months but reduced our EBITDA margin estimates, factoring a deteriorating product mix.

We revise our standalone earnings estimates slightly Standalone earnings revision table, March fiscal year-ends, 2012-2013E (Rs mn)

2012E 2013E 2012E 2013E 2012E 2013E

Volumes (units) 868,199 971,405 837,389 936,799 3.7 3.7

Net sales 535,897 605,861 535,544 610,748 0.1 (0.8)

EBITDA 38,650 48,150 40,182 49,602 (3.8) (2.9)

EBITDA margin (%) 7.2 7.9 7.5 8.1

Adjusted net profit 14,426 19,149 14,166 18,856 1.8 1.6

EPS 4.3 5.8 4.3 5.7 # 1.8 1.6

New estimates Old estimates % change




We revise our JLR estimates upwards by 6-18% over FY2012 and FY2013 JLR earnings revision table, March fiscal year-ends, 2012-2013E (mn pounds)

2012E 2013E 2012E 2013E 2012E 2013E

Volumes (units) 298,430 333,771 280,047 304,246 6.6 9.7

Average realization 42,141 42,984 42,546 42,545 (1.0) 1.0

Net sales 12,576 14,347 11,915 12,944 5.5 10.8

EBITDA 1,806 2,030 1,721 1,833 5.0 10.7

EBITDA margin (%) 14.4 14.1 14.4 14.2

Product development 170 180 160 180

Depreciation 436 468 426 468

Adjusted net profit 965 1,125 910 953 6.1 18.1

EPS (pound) 0.3 0.3 0.3 0.3 6.1 18.1



We have increased our consolidated earnings estimates by 9-19% over FY2012 and FY2013 Consolidated earnings revision table, March fiscal year-ends, 2012-2013E (Rs mn)

2012E 2013E 2012E 2013E 2012E 2013E

Net sales 1,573,705 1,792,915 1,483,334 1,641,495 6.1 9.2

EBITDA 190,500 218,410 179,840 197,873 5.9 10.4

EBITDA margin (%) 12.1 12.2 12.1 12.1

Adjusted net profit 90,541 108,213 83,071 91,097 9.0 18.8

EPS 27.2 32.5 # 25.0 27.4 9.0 18.8

GBPINR rate 76.3 76.8 73.0 73.0 4.5 5.2





We expect JLR volumes to grow by 12% yoy in FY2013 JLR geographical mix, March fiscal year-ends, 2009-2014E (units)

2009 2010 2011 2012E 2013E 2014ENorth America 35,133 41,700 52,618 57,879 60,773 63,812 UK 40,152 57,100 58,464 58,464 58,464 61,387 Europe (excluding UK) 45,171 50,600 54,566 54,566 54,566 57,295 Russia 15,726 8,800 11,693 17,539 21,924 23,459 China 8,700 17,000 26,796 50,912 66,186 74,128 Asia Pac (excl China) 8,365 8,000 13,000 19,500 24,375 27,300 Rest of World 14,053 10,683 26,463 39,568 47,482 54,604 Total volumes 167,300 193,883 243,600 298,430 333,771 361,985 YoY change (%)North America 18.7 26.2 10.0 5.0 5.0 UK 42.2 2.4 - - 5.0 Europe (excluding UK) 12.0 7.8 - - 5.0 Russia (44.0) 32.9 50.0 25.0 7.0 China 95.4 57.6 90.0 30.0 12.0 Asia Pac (excl China) (4.4) 62.5 50.0 25.0 12.0 Rest of World (24.0) 147.7 49.5 20.0 15.0 Total volumes 15.9 25.6 22.5 11.8 8.5


We expect Evoque to drive most of the volume growth in JLR Product mix of JLR, March fiscal year-ends, 2009-2014E (units)

2009 2010 2011 2012E 2013E 2014EX-Type 10,387 8,462 354 44 - - S-Type 61 - - - - - XF 31,844 33,870 32,665 34,000 37,400 41,140 XJ 3,523 2,639 13,560 14,500 15,225 15,986 XK 6,040 6,049 5,239 5,500 5,775 6,064 Jaguar 51,855 51,020 51,818 54,044 58,400 63,190

Defender 18,663 19,131 18,438 22,000 22,000 23,760 Discovery 26,733 30,846 40,368 42,386 42,386 45,777 Freelander 45,221 48,011 57,402 52,000 52,000 56,160 Range Rover 18,240 19,783 25,292 30,000 36,584 39,466 RRSport 35,514 39,406 47,587 48,000 50,400 54,432 Evoque 50,000 72,000 79,200 Land Rover 144,371 157,177 189,087 244,386 275,371 298,795




We expect standalone operating margins to remain under pressure Tata Motors profit and loss, balance sheet and cash flow statement, March fiscal year-ends, 2009-2014E (Rs mn)

2009 2010 2011 2012E 2013E 2014EProfit model (Rs mn)Net sales 253,541 353,738 478,074 535,897 605,861 703,506 EBITDA 13,293 37,454 42,873 38,650 48,150 62,093 Other income 7,144 2,710 4,140 3,377 3,698 4,050 Interest (6,737) (11,038) (11,440) (9,900) (9,870) (9,878) Depreciaton (8,745) (10,339) (13,608) (14,615) (17,427) (18,365) Profit before tax 4,956 18,787 21,965 17,512 24,550 37,901 Extra ordinary income/(expenses) 5,183 9,509 - (5,857) - - Current tax (150) - (84) (3,147) (6,629) (10,233) Deferred tax 25 (5,895) (3,763) 1,818 1,228 - Net profit 10,013 22,401 18,118 10,326 19,149 27,667 Adjusted net profit 4,831 12,892 18,118 14,426 19,149 27,667 Adjusted Diluted EPS (Rs) 1.9 4.6 5.4 4.3 5.8 8.3 Balance sheet (Rs mn)Equity 5,141 5,706 6,377 6,377 6,377 6,377 Reserves and Surplus 117,161 143,949 193,756 192,891 200,848 217,325

Deferred tax liability 8,658 15,086 20,232 18,413 17,186 17,186 Total borrowings 131,656 166,259 158,988 152,988 147,988 142,988 Current liabilities 108,355 173,726 162,552 171,272 179,917 191,856 Foreign currency translation difference 1,641

Total liabilities 372,612 504,726 541,905 541,941 552,316 575,731 Net fixed assets 145,993 164,360 174,756 190,142 202,715 214,350 Investments 129,681 223,369 226,242 203,369 193,369 173,369

Cash 11,418 17,533 24,289 10,561 570 7,647 Other current assets 85,499 97,847 116,617 137,870 155,662 180,365 Miscellaneous expenditure 20 1,617 - - - -

Total assets 372,612 504,726 541,905 541,941 552,316 575,731 Free cash flow (Rs mn)Operating cash flow excl. working capital 2,789 23,165 28,543 25,603 31,651 41,982 Working capital changes (950) 27,506 (26,463) (12,533) (9,148) (12,764)

Capital expenditure (40,113) (23,102) (23,817) (30,000) (30,000) (30,000)

Free cash flow (38,274) 27,569 (21,737) (16,930) (7,498) (782) RatiosEBITDA margin (%) 5.2 10.6 9.0 7.2 7.9 8.8 Debt/equity (X) 1.1 1.1 0.8 0.8 0.7 0.6 Net debt/equity (X) 1.0 1.0 0.7 0.7 0.7 0.6 RoAE (%) 4.8 9.5 10.4 7.2 9.4 12.8

Book value/share (X) 47.2 51.2 60.2 59.9 62.3 67.3




We expect consolidated profits to increase by 20% yoy in FY2013 driven by JLR Tata Motors consolidated profit and loss, balance sheet and cash flow statement, March fiscal year-ends, 2009-2014E (Rs mn)

2009 2010 2011 2012E 2013E 2014EProfit model (Rs mn)Net sales 709,389 925,193 1,231,333 1,573,705 1,792,915 2,016,119

EBITDA 18,488 81,160 168,175 190,500 218,410 251,762 Other income 7,990 416 2,310 6,811 7,536 8,272 Interest (19,309) (22,397) (20,454) (25,948) (24,258) (23,893) Depreciaton (25,068) (38,871) (46,555) (63,864) (70,468) (73,608)

Profit before tax (17,900) 20,307 102,062 101,641 131,220 162,533 Extra ordinary income/(expenses) (3,393) 14,919 2,310 - (5,857) - Tax (3,358) (10,058) (12,164) (15,200) (23,007) (31,971) Minority Interest (403) 542 528 - - -

Net profit (25,053) 25,711 92,736 86,441 102,356 130,562 Adjusted net profit (21,660) 10,791 90,426 86,441 108,213 130,562 Adjusted Diluted EPS (Rs) (44.9) 18.5 27.2 27.2 32.5 39.3 Balance sheet (Rs mn)Equity 5,141 5,706 6,377 6,377 6,377 6,377 Reserves and Surplus 54,266 76,359 185,338 260,587 357,609 476,979 Deferred tax liability 6,802 15,796 20,961 20,961 20,961 20,961 Total borrowings 349,739 351,924 327,914 318,508 302,941 277,931 Current liabilities 311,618 417,208 469,838 538,940 589,451 635,215

Total liabilities 731,595 731,596 731,597 731,598 731,599 731,600 Net fixed assets 357,333 385,063 434,931 510,686 571,542 629,257 Goodwill 37,187 34,229 35,848 35,848 35,848 35,848 Investments 12,574 22,191 25,443 41,000 41,000 41,000 Cash 41,213 87,433 109,479 52,325 50,561 61,384 Other current assets 276,062 337,863 400,870 501,656 574,531 646,117 Miscellaneous expenditure 7,226 2,348 6,324 6,324 6,324 6,324

Total assets 731,595 731,596 731,597 731,598 731,599 731,600 Free cash flow (Rs mn)Operating cash flow excl. working capital 20,939 67,261 152,885 161,328 195,403 219,791 Working capital changes (13,441) 26,009 (40,484) (31,684) (22,364) (25,822) Capital expenditure (207,360) (84,754) (81,128) (131,506) (131,323) (131,323)

Free cash flow (199,861) 8,515 31,274 (1,862) 41,716 62,646 RatiosEBITDA margin (%) 2.6 8.8 13.7 12.1 12.2 12.5 Debt/equity (X) 5.9 4.3 1.7 1.2 0.8 0.6 Net debt/equity (X) 5.2 3.2 1.1 1.0 0.7 0.4 Book value (Rs per share) 108 78 45 68 97 133 ROAE (%) (36.5) 15.3 66.1 39.5 34.3 30.8



Downgrade to ADD after sustained outperformance for a year and limited upside to target price

We note a sharp price rally in Adani Ports & SEZ (ADSEZ) stock price. It delivered absolute returns of 17% over the past one month and relative outperformance (versus the Sensex) of 9.3%. Even over the past 12 months the stock outperformed BSE by 16%.

Valuations demanding at 13X FY2013E adj. EV/EBITDA; revise TP to Rs160 on Abbot inclusion

Mundra Port (price adjusted for value from other assets) trades at a relatively demanding valuation of 13X FY2013E EV/EBITDA and 4X P/B. We value other assets at a total of Rs26/share (Rs52 bn) valuing each asset at 2-3X the equity to be invested for this adjustment. We revise our consolidated earnings to Rs5.4 and Rs7.6 from Rs5.8 and Rs8.6 for FY2012E and FY2013E respectively based on consolidation of Abbot Point coal terminal and correspondingly revise our TP to Rs160 (from Rs155; NPV addition of Rs6). We downgrade our rating one notch to ADD from BUY as (1) the recent sharp run-up limits the upside to our TP of Rs160, (2) relatively demanding valuations of 13X FY2013E EV/EBITDA and 4X P/B, and (3) our standalone port estimates may have limited upside (105 MT volume in FY2014E). Key risks relate to utilization of likely strong cash flows (expect the company to report EBITDA of Rs16 bn in FY2012 and Rs21 bn in FY2013).

Abbot Point terminal refinancing may be a near-term catalyst

We believe it may be possible to refinance acquisition debt without equity investment (based on bankable take-or-pay contracts in addition to letter of comfort etc.). We believe the acquisition is unlikely to be a value losing deal on evidence of (1) a recent rail link increasing visibility of additional business, (2) long-term established take-or-pay contracts and (3) incremental mining plans in Bowen Basin. We note potential upsides to our valuation such as (1) option to expand capacity by 30 MMT, (2) potential for further margin expansion, (3) lower tax rate, depending on corporate structuring possibilities, and (4) lower-than-expected interest costs.

Other upsides from smaller ports and incremental additions to the portfolio

Other upsides may pan out from (1) smaller ports in the portfolio such as Dahej and Hazira, besides Mormugao and others, (2) incremental asset additions to the portfolio and (3) faster SEZ area absorption.

Adani Port and SEZ (ADSEZ)

Infrastructure

Downgrade to ADD due to sustained outperformance. We downgrade ADSEZ to ADD (from BUY, revised TP of Rs160 from Rs155) on (1) its recent price run up (up 17% in one month and 16% outperformance over the past one year) and (2) ensuing demanding valuations (>13X FY2013E adj. EV/EBITDA). We believe Abbot Point is value accretive, but the key risk relates to utilization of likely strong cash generation. Upsides originate from (1) strong performance at smaller ports, (2) positive takeaways from Abbot Point refinance and capacity expansion and (3) faster SEZ area absorption.

Mundra Port and SEZStock data Forecasts/Valuations 2011 2012E 2013E





170-110

ADD

JANUARY 24, 2012

CHANGE IN RECO.


Price (Rs): 138


BSE-30: 16,863

Adani Port and SEZ Infrastructure


Recent sharp outperformance prompts downgrade

We note a sharp price rally in Adani Ports & SEZ (ADSEZ) stock price of about 17% over the past one month. Besides the absolute price run up, the stock has significantly outperformed the market (Sensex) by 9.3%. The stock also outperformed on a 12-month basis by 15.6%.

We downgrade our rating on the company to REDUCE from BUY as (1) a recent sharp run up limits upside to our TP of Rs160/, (2) relatively demanding valuations of 13X FY2013E EV/EBITDA and 4X P/B, and (3) our standalone port estimates may have limited upside.

Absolute and relative stock performance for Adani Ports, GPPL (%)

1-Month 3-Month 6-Month 12-Month 1-Month 3-Month 6-Month 12-MonthAdani Ports & SEZ 17.3 (9.1) (5.9) 6.5 9.3 (8.7) 1.1 15.6 Sensex 7.9 (0.3) (6.9) (9.1)

Absolute Relative

Source: Bloomberg

Valuation appears relatively expensive; trading at a premium to global peers

Mundra Port (market price adjusted for value from SEZ and other port assets) trades at relatively demanding valuations of 13X FY2013E EV/EBITDA and 4X FY2013E P/B.

Key numbers and valuation metrics of Mundra Port, March fiscal year-ends, 2011-14E

FY2011 FY2012E FY2013E FY2014ECapacityBulk (mn tons) 75 75 75 75 Containers ('000 TEUs) 2,500 2,500 2,500 2,500 Crude (mn tons) 20 30 40 40 Total (mn tons) 125 135 145 145 VolumesBulk (mn tons) 31 44 49 59 Containers ('000 TEUs) 1,228 1,554 1,860 2,137 Crude (mn tons) 7 11 20 20 Total (mn tons) 53 73 91 105 Financial summary (Rs mn)Revenues 18,851 23,457 30,363 37,196 EBIDTA 13,100 16,157 21,186 26,120 PAT 9,862 10,747 16,231 21,053 Key ratios (%)Revenue growth 35.4 24.4 29.4 22.5 EBIDTA margin 69.5 68.9 69.8 70.2 RoE 25.3 22.7 27.8 28.6 RoCE 13.1 12.4 15.3 19.0 Per share (Rs)EPS 4.9 5.3 8.0 10.4 BVPS 21.3 25.6 32.2 40.7

Key valuation ratios (X)P/E 25.0 22.9 15.2 11.7 P/B 5.7 4.8 3.8 3.0 EV/EBITDA 20.8 18.1 13.2 10.2

Note: Market price of MPSEZ has been adjusted by Rs26/share for value from other assets


We value other assets at a total of Rs26/share (Rs52 bn) valuing each asset at 2-3X the equity to be invested for this adjustment

Infrastructure Adani Port and SEZ


Strong near-term estimates: 105-mn-ton port by FY2014E (90 MMT in FY2013E)

We have built strong growth into Mundra Port volumes over the next few years. We estimate total port volumes will post strong CAGR of 26% over the next three years, FY2012-14 led by (1) a 24% CAGR of bulk cargo volumes (led by strong growth in coal cargo), (2) container cargo posting CAGR of 20% and (3) 48% CAGR for crude volumes. Hence, we believe there is very limited upside risk to our volume estimates.

We expect the port to have a volume of 105mn tons by FY2014, including bulk, container and crude volumes led by (1) 26 MMT of coal cargo for the two upcoming power plants (Adani Power and Tata Power), (2) increase in HPCL crude volumes for the upcoming Bhatinda refinery to 9 MMT, (3) increase in IOCL crude volumes to about 11 MMT from 6.7 MMT in FY2011 (led by increased capacity of Panipat refinery), (4) ramp-up in container volumes to about 2.1 mn TEUs (about 26 MMT, from 1.2 mn TEUs in FY2011) and (5) bulk volumes of about 38 MMT (excluding coal for Adani and Tata power plants) versus current levels of 16 MMT in FY2011.

Expect strong volume growth in the near term - port to reach 100 MMT by FY2013E Expected port capacity, volume and utilization of Mundra port, March fiscal year-ends, 2010E and 2013E

FY2011 volumes FY2013E-end capacity FY2013E volumes FY2014E volumesCargo type (MMT) (MMT) (MMT) (MMT)Container 15 30 22 26

(mn TEUs) 1.2 3 1.9 2.1

Coal cargo 15 50 30 38

Other bulk 16 30 18 21

POL 7 40 20 20

Total 52 150 91 105

HPCL's SPM to increase the port's POL capacity to rise to 40 mtpa from current 20 mtpa

45-50 mtpa coal terminal likely to be commissioned by Oct-2010E

Coal requirements of about 22 mn tons in FY2013E for Adani and Tata Power thermal plants

Container volume growth aided by spill-over traffic from over-capacitated west-coast ports

Strong growth in POL volumes led by start of Bhatinda refinery and capacity expansion at Panipat

Source: Company, Industry, Kotak Institutional Equities estimates

Not much room for upside to long-term estimates as well

We expect Mundra Port to reach volumes of 200 mn tons by FY2025, implying CAGR of 6.5-7% over FY2014-25. We have also built in strong volume growth for other ports (Dahej, Mormugao and Hazira) and expect them to operate at maximum capacities by FY2022.

Downside risks: cash flow utilization, delays/low utilization in power projects, tariffs and high capex

ADSEZ’s key risks relate to potential utilization of strong cash-flow, likely to be generated by Mundra port. We expect the Mundra port asset to generate strong cash flows over the next 3-4 years. It is likely to generate EBITDA of Rs16 bn in FY2012 and Rs21 bn in FY2013 and average annual operating cash flow of Rs21 bn over the next three years (over FY2012-14).

Strong cash flow generation by Mundra port Revenues, EBITDA, cash flow generation by Mundra port, March fiscal year-ends, 2011-15E (Rs mn)

2011 2012E 2013E 2014E 2015ERevenues 18,851 23,457 30,363 37,196 44,436

EBITDA 13,100 16,157 21,186 26,120 31,602 Net PAT 9,862 10,747 16,231 21,053 26,443

Operating cash 13,013 11,569 26,682 25,681 34,624 Free cash flow 312 (16,148) 17,790 18,024 33,195




Delays/lower capacity utilization in associated power projects is another key risk

We expect Mundra port to register strong growth in bulk volumes over the next three years. We expect bulk volumes CAGR of about 24% over FY2012-14. This growth will be led mainly by an increase in coal volumes on the start of operations of associated power plants in the vicinity of the port (Adani Power, Tata Power). Coal volumes for the power plants are expected to increase to 13 mn tons in FY2013 and 17 mn tons in FY2014 from about 3 mn tons in FY2011. Delays/lower capacity utilization of these power plants would potentially lead to lower coal volume requirements and thereby adversely impact volumes handled at the port. We note that the power sector is facing several structural issues related to coal linkages, environmental clearances and other issues, which increases the risk of timely execution of the power projects.

Other risks relate to (1) inability to sustain tariffs at current/projected levels, and (2) cost escalation/or higher-than-expected capital expenditure.

Abbot Point refinance may be a catalyst; Mundra Port may not need to put in equity

We believe it may be possible for ADSEZ to refinance the acquisition debt without equity investment (based on letter of comfort, security of physical asset and bankable take-or-pay contracts).

Australian tax structure does not allow tax deductibility of interest, if the capital structure uses more than 75% debt, on the part of debt that is above the 75% norm. This clause may catalyze MPSEX to put in some equity. Although rough sense would be that tax disadvantage on excess portion of debt in Australia is likely to be a much smaller cost than the cost of putting that capital from India as equity. So they may still go ahead with 100% debt. A letter of comfort from ADSEZ may be given, which is not formally a guarantee but is widely relied on.

Prima facie NPV of about AUD246 mn (Rs6/share) for Abbot Point

Based on our rough valuation we arrive at a prima facie value of about AUD246 mn (about Rs6.3/share for ADSEZ) for the investment. Key assumptions in our valuation include:

Volumes: Volumes of 20 mn tons in FY2011 and ramping up to 50 mn tons in FY2016E leading to revenue of AUD305 mn and EBITDA of Rs213 mn (in line with the company’s press release). Volumes remain constant after that. We have assumed 2% inflation in revenues and costs through the life of the lease agreement. While the asset can eventually be expanded to 80 MT, we have retained our volume assumptions at 50 MT through the life of the asset.

Capital structure: We have assumed debt of AUD1.65 bn and equity of AUD150 mn, interest cost of 3% in the first two years (US Libor + 200 bps) and 7% thereafter (Australian 10 year yield of 5.5% currently) with debt repayment of 15 years starting from FY2016E. We have not built any other capex to reach volumes of 50 MTT.

Depreciation: We have assumed that AUD1.8 bn is depreciable gross block. We have used depreciation rate of 3.3% and tax rate of 30%. Tax rate may be lower depending on corporate structuring possibilities

Value is based on free cash-flows to equity until FY2040.



Rough valuation of Abbot Port Container Terminal, June fiscal year-ends, 2011E-40E (AUD mn)

2011E 2012E 2013E 2014E 2015E 2016E 2017E 2018E 2019E 2020E 2030E 2040E 2111EVolumes (mn tons) 20 30 35 40 45 50 50 50 50 50 50 50 50 Revenues 110 168 201 234 269 305 311 318 325 331 408 501 2,181 EBITDA 59 96 126 157 188 213 218 223 227 232 285 351 1,527 EBITDA margin (%) 53.6 57.0 63.0 67.0 70.0 69.8 70.0 70.0 70.0 70.0 70.0 70.0 70.0 Free cash flow to equityEBIT 5 42 72 103 134 159 164 169 173 178 231 297 1,527 Tax expense — — — — (8) (18) (21) (25) (28) (32) (69) (89) (458) EBIT (post tax) 5 42 72 103 126 141 143 144 145 146 162 208 1,069 Depreciation 54 54 54 54 54 54 54 54 54 54 54 54 —Interest & debt repayment 1,601 (50) (107) (107) (107) (210) (203) (196) (189) (182) (110) — —Capex (1,800) — — — — — — — — — — — —Equity cash flows (141) 47 19 50 73 (15) (6) 2 10 19 106 262 1,069

NPV till 2040 246 6

NPV of full 99 years 600 15

Per share


Asset may have several sources of upside, not yet built into our model

We note potential sources of upside to our valuations such as:

Option to expand capacity by another 30 mn tons. Along with the operations of the existing 50 mn tons capacity ADSEZ has also won the right to enhance the port capacity by 30 mn tons. The company has been allotted land adjacent to the port for this expansion with all clearances and approvals in place. The management said there was enough demand for additional volumes (based on interest expressed during the previous expansion phase) and would go ahead with the capex only if long-term contracts were in place for the additional capacity. Coal from Adani Enterprises’ Galilee Basin could also be one of the potential customers for the additional capacity.

Potential for further margin expansion from 70% levels. The management also cited several sources of potential margin expansion: (1) EBITDA of AUD213 mn (70% EBITDA margin) in FY2016 was primarily the estimate of the Government entity; note that as a Government entity there would be several expenses related to welfare and other areas, which ADSEZ would not incur, (2) the port terminal is operated by Abbot Point Bulk Coal Pty Ltd (APBC), a subsidiary of Xstrata Coal (based on an agreement between NQBP and Xstrata). This agreement would terminate in 2015, after which ADSEZ would directly operate the port and hence margins made by APBC (earns AUD1.8 for every AUD2.5).

Lower tax rate depending on corporate structuring possibilities. ADSEZ is considering the option of a trust structure for the port. In such a structure, the trust would have to pay full tax only on cash accumulated by the trust and not what is distributed. The income taxed on dividend distributed would be at a lower rate of about 18% (versus full corporate tax rate of 30%).

Lower-than-expected interest cost. The company could potentially tie-up loans at lower rates of about 6-6.5% versus our assumption of 7% which would further add value to the company.

Adjusting for these upsides, the port could potentially have an NPV of over AUD727 mn (Rs15-16/share), versus our initial estimate of AUD280 mn.



Other upsides from smaller ports and incremental additions to the portfolio

Other upsides to valuation may pan out from

Smaller ports in the portfolio such as Dahej port apart from Hazira and Mormugao: The three port assets, viz. Dahej, Hazira and Mormugao, presently contribute about Rs22 bn (Rs11/share) to our target price of Mundra port. This implies an average P/B of about 2.5X potential equity investment for these ports.

Incremental asset additions to the portfolio: Incremental project wins would be another source of upside to our valuation. The company has won projects to develop a 6.5 mtpa coal import terminal at Visakhapatnam and a bulk cargo terminal at Kandla Port. These projects are presently not included in our target price of the company.

Faster SEZ area absorption: Faster-than-expected absorption of SEZ land area would be another upside to our valuation. Presently we expect the entire area (about 18,500 acres) to be absorbed over 21 years (FY2011-31E).

Revise estimates and target price to Rs160/share on inclusion of Abbot Point

We revise our consolidated earnings estimates to Rs5.4 and Rs7.6 from Rs5.8 and Rs8.6 for FY2012E and FY2013E, respectively based on consolidation of Abbot Point Coal terminal.

We correspondingly revise our SOTP-based target price to Rs160 (from Rs155) comprising (1) Rs133/share from the Mundra port business (Mar-13E-based DCF valuation), (2) Rs6/share from the SEZ business, (3) Rs5/share from Dahej port value, (4) Rs5/share from Mormugao and Hazira ports, (5) Rs6/share from Abbot Point Coal Terminal and (6) Rs3/share from book value of investments in Adani Logistics.

We arrive at an SOTP-based target price of Rs160 for ADSEZ FY2013E-based Sum-Of-Total-Parts valuation of Adani Port and SEZ

Valuation MPSEZ stake Value of MPSEZ stake Per share P/B implied EV/EBITDA implied(Rs mn) (%) (Rs mn) (Rs) Method of valuation (X) (X)

Mundra port 268,641 100.0 268,641 133 Mar13E-based DCF 4.1 14.2 SEZ 11,281 100.0 11,281 6 Mar13E-based DCFDahej port 13,417 74.0 9,928 5 Mar13E-based DCF 3.9 Mormugao port 2,882 100.0 2,882 1 Mar13E-based DCF 2.1 Hazira port 9,136 100.0 9,136 5 Mar13E-based DCF 1.9 Abbot Point Port 12,618 100.0 12,618 6 Mar13E-based DCF 1.6 Adani Logistics 3,119 100.0 6,237 3 2.0X book value 2.0 Total 159




Standalone financials of Adani Port & SEZ Ltd, March fiscal year-ends, 2007-15E (Rs mn)

2007 2008 2009 2010 2011 2012E 2013E 2014E 2015EIncome statementNet sales 5,814 8,182 11,351 13,925 18,851 23,457 30,363 37,196 44,436 Total operating costs (2,669) (2,828) (3,735) (4,314) (5,751) (7,299) (9,176) (11,076) (12,834)

Operational costs (1,944) (1,836) (2,614) (2,871) (4,190) (5,351) (6,789) (8,330) (9,718) Employees (148) (266) (367) (541) (666) (964) (1,304) (1,554) (1,806) Selling & Admin (577) (726) (754) (902) (895) (984) (1,083) (1,191) (1,310)

EBITDA 3,145 5,354 7,616 9,611 13,100 16,157 21,186 26,120 31,602 Other income 58 279 443 311 498 312 605 797 1,507 Depreciation (807) (1,006) (1,372) (1,681) (2,079) (2,714) (3,263) (3,686) (3,701) Financial charges (631) (1,062) (1,330) (415) (750) (1,874) (1,500) (1,700) (2,375) Pre-tax profit 1,765 3,565 5,358 7,826 10,769 11,882 17,029 21,531 27,033 Taxation 125 (1,534) (529) (595) (907) (1,135) (798) (478) (590) Adjusted PAT 1,890 2,030 4,828 7,231 9,862 10,747 16,231 21,053 26,443 EPS (Rs) 0.9 1.1 2.3 3.5 4.9 5.3 8.0 10.4 13.1

Balance sheetShareholders funds 7,463 26,125 29,453 34,882 42,941 51,722 64,985 82,188 103,796

Share capital 3,632 4,035 4,035 4,035 4,035 4,035 4,035 4,035 4,035 Reserves and surplus 3,831 22,090 25,418 30,848 38,906 47,687 60,950 78,153 99,761

Loan funds 12,822 19,067 23,130 31,572 27,098 47,500 35,500 25,500 25,500 Amt received/ receivable under LT lease 7,415 6,811 6,518 6,225 5,932 5,638 5,345 5,052 4,901 Deferred tax liability (net) 471 1,774 2,297 2,812 3,496 4,528 5,126 5,340 5,433 Total sources of funds 28,172 53,778 61,398 75,491 79,467 109,388 110,956 118,080 139,630 Total fixed assets 24,014 32,477 44,840 56,045 66,314 80,321 83,950 86,915 84,643 Investments 790 10,827 4,317 7,210 7,150 18,145 20,145 21,150 21,150 Cash and bank balance 569 8,896 11,307 8,587 1,387 1,508 2,537 4,718 30,552 Net current assests excl cash 2,740 1,579 934 3,649 4,616 9,414 4,324 5,297 3,285 Total application of funds 28,172 53,778 61,398 75,491 79,467 109,388 110,956 118,080 139,630




Consolidated financials of Adani Ports & SEZ Ltd, March fiscal year-ends, 2007-15E (Rs mn)

2007 2008 2009 2010 2011 2012E 2013E 2014E 2015EIncome statementNet sales 5,812 8,170 11,949 14,955 20,001 34,926 45,481 56,021 68,471 Total operating costs (2,669) (2,813) (4,393) (5,293) (7,007) (12,260) (15,098) (17,951) (20,997) EBITDA 3,143 5,357 7,557 9,663 12,994 22,666 30,383 38,070 47,474 Other income 58 279 446 321 309 585 1,034 1,463 2,496 Depreciation (807) (1,023) (1,468) (1,868) (2,388) (6,417) (7,276) (7,828) (7,791) Financial charges (631) (1,079) (1,459) (559) (880) (4,773) (7,950) (8,562) (9,354) Pre-tax profit 1,763 3,535 5,075 7,556 10,036 12,060 16,190 23,143 32,826 Taxation 125 (1,534) (533) (601) (874) (1,135) (843) (587) (1,400) Adjusted PAT 1,887 2,001 4,542 6,955 9,162 10,925 15,347 22,556 31,426 EPS (Rs) 5.2 5.2 10.7 16.7 4.6 5.4 7.6 11.2 15.6

Balance sheetShareholders funds 7,493 26,216 29,306 34,637 41,899 50,114 62,222 81,020 107,279

Share capital 3,632 4,051 4,045 4,035 4,035 4,035 4,035 4,035 4,035 Reserves and surplus 3,861 22,164 25,261 30,602 37,864 46,079 58,187 76,985 103,244

Minority interest 14 17 93 822 987 885 948 1,084 1,416 Loan funds 12,822 20,680 28,957 37,062 35,925 145,748 142,248 129,005 129,004 Amt received/ receivable under LT lease 7,159 6,568 6,505 6,291 6,121 5,638 5,345 5,052 4,901 Deferred tax liability (net) 471 1,771 2,296 2,817 3,468 4,528 5,126 5,340 5,433 Total sources of funds 27,960 55,252 67,156 81,629 88,400 206,913 215,889 221,501 248,032 Net block 19,840 29,739 35,597 48,500 63,508 164,556 180,373 191,056 185,374 Capital WIP 4,180 6,934 16,195 19,183 21,174 21,957 16,500 4,500 4,500 Total fixed assets 24,020 36,673 51,792 67,682 84,683 186,513 196,873 195,556 189,874 Investments 766 8,886 2,072 2,249 1,070 4,508 4,508 4,508 4,508 Cash and bank balance 611 9,029 12,951 9,997 2,515 6,731 10,225 16,285 50,327 Net current assests excl cash 2,504 663 321 1,701 132 9,160 4,283 5,152 3,324 Total application of funds 27,960 55,252 67,156 81,629 88,400 206,913 215,889 221,501 248,032



Short-term challenges exist

Industry sources and our channel checks suggest that Titan’s jewelry business is likely facing short-term demand challenges with respect to jewelry demand due to high and volatile gold prices. Moreover, the Diwali festive season (in 3QFY12) was probably not as buoyant as 2010:

There are signs of slowdown in jewelry demand. Our discussions with select jewelers suggest that the Diwali festive season (in 3QFY12) witnessed sluggish demand; ornaments made to cater to festive demand had low offtake and some local jewelers were melting and remodeling the designs.

Volatility in gold price over past six months has likely impacted volume demand (already seen in the 3% jewelry volume growth in 2QFY12) as consumers tend to postpone purchase in the hope of further correction in gold price.

The company has benefitted significantly over the past few years as gold prices have soared – this impacted its absolute profitability levels positively as the company charges making charge as % of gold price.

Lower GDP growth rate could impact watches sales growth in near term. The correlation between GDP growth rate and Titan’s watches sales growth is reasonably strong at 0.6 (in 2005-11). After more than 8% GDP growth rate in FY2010 and FY2011, the KIE economy team expects growth to temper down to 6.7% in FY2012E and 6.6% in FY2013E posing downside risks to watches sales growth.

There seems to be continued stress in the eyewear business – the company was running promotions for an extended period (in December 2011, a second one after the annual sale period in June/July 2011).

Titan Industries (TTAN)

Consumer products

Downgrading a notch after steep run-up in stock price. We downgrade Titan a notch to ADD (BUY previously). We remain believers in the long-term opportunity for Titan; however, strong near-term performance (~20% absolute returns over the last one month) coupled with limited earnings upgrade opportunity in FY2013E due to challenging operating environment (volatile gold prices) and weak consumer sentiment (impacting watches) limit absolute return potential, in our view.

Titan IndustriesStock data Forecasts/Valuations 2012 2013E 2014E





238-140

ADD

JANUARY 30, 2012

CHANGE IN RECO.


Price (Rs): 201


BSE-30: 17,234

Titan Industries Consumer products


Competitive activity in the organized jewelry market continues to be high – (1) Mumbai-based Tribhivandas Bhimji Zaveri (TBZ), Kerala-based Joy Allukas, and NCR-based PC Jewellers are looking at expanding presence at national level, (2) these jewelers also have ‘me-too’ schemes on the lines of Tanishq’s Golden Harvest, in fact PCJ is offering a higher discount (two installments free for 12 installments by customer) to the consumers than Tanishq (one installment free for 11 installments by the customer), (3) Tanishq and Reliance Jewels are offering ~20% discount on the total bill value for diamond jewelry purchases above a certain threshold.

Valuations do not provide buffer; downgrade to ADD (BUY previously)

We are believers in the long-term opportunity for Titan, (1) likely higher discretionary spends, (2) penetration and consumption-led growth, (3) mix improvement in favor of diamond and studded jewelry is a positive as it enjoys higher margins and reduces the vulnerability of the company to volatility in gold prices. At 25XFY2013E, we believe that most of the positives are priced in. Opportunity for earnings upgrade is limited, with likely headwinds in FY2013E for both demand conditions and for margins. Our EPS estimates are Rs6.5 and Rs7.9 for FY2012E and FY2013E. Key downside risk is continuing volatility in gold price and further deterioration in consumer demand.

Strong correlation between GDP growth and watches sales growth GDP growth and watches sales growth, March fiscal year-ends, 2005-12E (%)

6

7

8

9

10

2005 2006 2007 2008 2009 2010 2011

(10)

-

10

20

30

GDP growth (LHS) Watches volume growth (RHS)

Correlation (2005-2010) = 0.6GDP growth likely at 6.7% in FY2012E


Consumer products Titan Industries


Tanishq’s aggressive offer probably indicates weaker consumer sentiment


Titan Industries Consumer products


Profit model, balance sheet, cash model for Titan Industries, March fiscal year-ends, 2008-14E (Rs mn)

2008 2009 2010 2011 2012E 2013E 2014EProfit model Net sales 29,969 38,326 46,772 65,330 80,294 95,820 113,454 EBITDA 2,388 3,329 3,960 5,895 7,627 9,253 12,014

Interest (expense) (208) (288) (254) (82) (115) (75) (125)

Depreciation (333) (423) (607) (351) (393) (426) (452)

Other income 45 53 127 571 804 812 851

Pretax profits 1,892 2,671 3,226 6,032 7,923 9,564 12,288

Tax (373) (697) (818) (1,701) (2,234) (2,439) (3,133)

Deferred taxation (73) 65 134 33 95 (143) (184)

Profit after tax 1,446 2,039 2,542 4,364 5,784 6,982 8,970

Earnings per share (Rs) 1.8 2.2 2.9 4.9 6.5 7.9 10.1 Balance sheetTotal equity 4,458 5,579 7,319 10,356 13,803 17,669 25,600

Deferred taxation liability 252 188 54 21 (74) 70 254

Total borrowings 2,103 1,666 730 680 680 680 680

Current liabilities 9,123 10,401 12,949 26,512 25,148 27,745 29,742

Total liabilities and equity 15,936 17,833 21,052 37,569 39,557 46,163 56,276 Cash 554 564 1,973 11,083 14,708 18,689 25,551

Other current assets 12,481 14,259 16,262 23,382 21,338 23,889 27,042

Total fixed assets 2,877 2,995 2,801 3,078 3,485 3,559 3,657

Investments 23 16 16 26 26 26 26

Total assets 15,936 17,833 21,052 37,569 39,557 46,163 56,276 Key assumptionsRevenue growth 43.3 27.9 22.0 39.7 22.9 19.3 18.4

EBITDA margin 8.0 8.7 8.5 9.0 9.5 9.7 10.6

EPS growth 56.0 26.4 29.3 71.7 32.5 20.7 28.5



TGB’s JV with Starbucks—a medium-term positive

According to media reports, TGB’s JV with Starbucks is likely a 50:50 joint venture wherein the stores will be named “Starbucks Coffee: A Tata Alliance”. The JV named as “Tata Starbucks Limited” (TSL) is likely targeting to open 50 stores by end-CY2012E with focus on Mumbai, Bangalore and Delhi. TSL also has an MoU with Tata Coffee (a 58% subsidiary of TGB) for sourcing of coffee for its retail operations. The initial investment envisaged for the business is ~Rs4 bn (we note that TGB has net cash of ~Rs6 bn).

Our view:

We view TGB’s JV with Starbucks to operate a coffee chain in India as a medium-term positive. This JV could potentially address a significant challenge faced by TGB—of appropriate allocation of capital in growth businesses. Starbucks globally prefers to go solo and there are only few exceptions (Costa Rica is one example). This deal could potentially be a win-win for TGB if it can leverage Starbucks’ retail skills for effective utilization of its cash. However, cultural match would be a key operational challenge, in our view.

Fast facts about coffee market in India. The in-home consumption market for coffee is estimated to be ~Rs12 bn and the OOH (out-of-home) coffee market in India is estimated to be ~1.2X of the in-home market. The key players are Café Coffee Day, Barista Lavazza and Costa Coffee with ~1,200, ~300 and ~75 outlets respectively. On a tangent, we highlight the market opportunity—for example, the OOH coffee consumption market in US is estimated to be US$41 bn and the in-home coffee market is ~US$6 bn.

Tata Global remains a preferred pick; margins have likely bottomed out, reiterate BUY

We reiterate our BUY rating on TGB with a target price of Rs110. After posting weak 1HFY12 numbers, we see signs of turnaround with a relatively strong 3QFY12 performance (led by the India business). We expect the trend to continue due to a correction in tea and coffee prices and benefit of price hikes taken during the year. Cheap valuations provide support as well, in our view—the stock trades at 14.7X FY2013E P/E.

Tata Global Beverages (TGBL)

Consumer products

Aroma is good; taste unknown. We view TGB’s JV with Starbucks to operate a coffee chain in India as a medium-term positive. This JV could potentially address a significant challenge faced by TGB—of appropriate allocation of capital in growth businesses. This deal could potentially be a win-win for TGB if it can leverage Starbucks’ retail skills for effective utilization of its cash. However, cultural match would be a key operational challenge, in our view. TGB remains a preferred pick (upgraded in Dec 2011); BUY.

Tata Global BeveragesStock data Forecasts/Valuations 2012 2013E 2014E



Price performance (%) 1M 3M 12M EV/EBITDA (X) 9.2 8.4 6.4Absolute 8.7 9.1 (1.9) ROE (%) 8.2 9.5 10.2Rel. to BSE-30 (0.4) 15.2 7.1 Div. Yield (%) 1.8 2.2 2.5


120-80

BUY

JANUARY 30, 2012

UPDATE


Price (Rs): 98


BSE-30: 16,863

Tata Global Beverages Consumer products


While fundamental worries regarding demonstrated execution capabilities of management and TGB’s predominant presence in low-growth markets remain, cheap valuations likely capture most of the negatives. Key triggers are (1) potential of ‘Himalayan’ under the TGB-Pepsi JV, (2) media reports suggest likely stake sale in Tetley and (3) potential of ‘Activate’ mineral water. Key risks are input cost inflation not neutralized by price increases and increase in competitive activity forcing higher promotional spends.

Margins have likely bottomed out EBITDA margins of TGB, March fiscal year-ends, 2006-14E

5.5 6.8 6.8 6.2 6.8 5.9 5.7 6.8 7.4

17.6 17.015.8

12.811.8

9.88.7 9.3 9.5

0

3

6

9

2006 2007 2008 2009 2010 2011 2012E 2013E 2014E

-

5

10

15

20EBITDA (Rs bn) EBITDA margin (%)


Trend in Robusta coffee price (indexed to base)

100

120

140

160

180

200

220

Jul-0

9

Sep-

09

Nov

-09

Jan-

10

Mar

-10

May

-10

Jul-1

0

Sep-

10

Nov

-10

Jan-

11

Mar

-11

May

-11

Jul-1

1

Sep-

11

Nov

-11

Source: Bloomberg

Trend in Arabica coffee price (indexed to base)

60

80

100

120

140

160

180

Jan-

08

Mar

-08

May

-08

Jul-0

8

Sep-

08

Nov

-08

Jan-

09

Mar

-09

May

-09

Jul-0

9

Sep-

09

Nov

-09

Jan-

10

Mar

-10

May

-10

Jul-1

0

Sep-

10

Nov

-10

Jan-

11

Mar

-11

May

-11

Jul-1

1

Sep-

11

Nov

-11

Source: Bloomberg

Consumer products Tata Global Beverages


Tata Global Beverages: Consolidated profit model, balance sheet, cash model, March fiscal year-ends, 2008-14E (Rs mn)

2008 2009 2010 2011 2012E 2013E 2014EProfit model (Rs mn)

Net sales 43,096 48,479 57,830 59,824 65,566 73,359 78,114

EBITDA 6,820 6,194 6,837 5,859 5,726 6,799 7,440

Other income 1,527 2,154 1,932 1,182 929 1,156 1,340

Interest (3,063) (2,101) (1,491) (1,197) (107) (188) (227)

Depreciation (916) (987) (1,029) (994) (1,022) (1,036) (1,051)

Pretax profits 4,369 5,259 6,249 4,850 5,526 6,731 7,503

Tax (1,343) (1,477) (2,477) (2,025) (1,791) (2,234) (2,430)

Net profits 3,026 3,782 3,772 2,825 3,735 4,497 5,072

Minority interest and share of associates (133) (513) (30) (377) (427) (427) (427)

Net profits excl. extraordinaries 2,893 3,269 3,742 2,448 3,308 4,070 4,645

Earnings per share (Rs) 4.7 5.3 6.1 4.0 5.3 6.6 7.5

Balance sheet (Rs mn)

Total equity 34,142 36,310 37,232 39,571 41,599 44,093 46,939

Total borrowings 26,093 24,311 17,968 10,415 4,303 1,544 900

Currrent liabilities 24,229 27,088 26,916 27,621 29,990 32,624 34,464

Total liabilities and equity 84,465 87,708 82,116 77,607 75,892 78,262 82,303

Cash 13,232 10,892 19,038 9,973 7,329 7,173 9,749

Current assets 20,054 34,974 20,943 23,792 24,275 27,019 28,717

Total fixed assets 37,268 38,330 36,944 37,977 37,773 37,555 37,322

Investments 13,910 3,513 5,191 5,865 6,515 6,515 6,515

Total assets 84,465 87,708 82,116 77,607 75,892 78,262 82,303

Key assumptions

Revenue growth (%) 7.1 12.5 19.3 3.4 9.6 11.9 6.5

EBITDA margin(%) 15.8 12.8 11.8 9.8 8.7 9.3 9.5

EBITDA growth (%) (0.4) (9.2) 10.4 (14.3) (2.3) 18.7 9.4

EPS growth (%) (1.2) 13.0 14.5 (34.6) 35.1 23.0 14.1



Good overall performance in a seasonally weak quarter

Despite the prevailing macro issues, the micro indicators from company results remained robust with good revenue growth performance from all tier – I companies in a seasonally weak December quarter. Broad-based revenue growth, significant additions to large relationships (tier-1 IT ramped by seven clients to US$100 mn + category), aggressive lateral recruitment and strong deal flows provided comfort on the demand environment. Even mid-sized companies reported strong performance with Mindtree, KPIT and Polaris growing 3.1-6% qoq in constant currency.

Expect Indian IT to deliver/ exceed lowered revenue growth expectations

Infosys guidance of flat revenues and weak commentary from TCS on discretionary spending for 4QFY12 growth (even though clarified by the management later that 4Q would be a growth quarter) raised concerns about growth. We concede that the industry has witnessed moderate slowdown over the past six months, led by flattening of spending among investment banking clients, a wind down of M&A-related spending and muted trends in the telecom vertical.

However this moderate slowdown has to be viewed against the backdrop of stock price correction and revised growth expectations. In our view, stocks are implying 10-12% US Dollar revenue growth compared with 20% from tier-1 IT six months ago. We believe revised revenue growth estimates have risk to upsides rather downsides. Our confidence on growth emanates from continued market share gains across three axes: vertical, geography and service offerings. This is backed by strong lateral recruitments, reasonable progress in decision making (offshore IT is hurt more by indecision than slowdown), large deal wins and improved deal activity in Europe.

Key metrics from December 2011 quarter results

Margins. Currency benefits helped expand margins by 60-265 bps qoq for the tier-I firms. Rupee depreciation provides Indian IT with a windfall which can be reinvested to accelerate market share gain. Midcap names had a windfall and allowed all of it to pass through the P&L.

Pricing. Improved qoq for Infosys and TCS. More important, commentary of stable or marginal pressure on pricing is encouraging and shall ensure little margin headwind for FY2013E.

Growth metrics. Verticals like BFSI, manufacturing and retail showed good growth across players, while strong revenue growth in Europe came as a positive surprise amid the ongoing concerns of the Euro zone crisis affecting IT spends.

Guidance. Infosys revised its FY2012 US dollar revenue growth guidance down to 16.4% from 17-19% indicating flat revenue growth for 4QFY12, which clearly disappointed the Street. Wipro’s guidance was of 1-3% growth in 4QFY12.

Attrition for all key players came down even as lateral hiring numbers remained strong.

Technology India

3QFY12 review: guidance overshadows good quarter. December 2011 was a good quarter with Indian tier-I IT services players growing 3.7-4.5% in c/c terms in a seasonally weak period. Margins expanded, aided by a weak Rupee. However, Infosys’ weak guidance and TCS’ commentary dampened sentiment even as strong lateral hiring trends and deal pipeline gives comfort on achieving/exceeding the Street’s lowered expectations. Valuations at 15-16X FY2013E earnings are not demanding and imply 10-12% revenue growth, achievable in our view. Buy Tier 1 IT top picks are Infosys, TCS. We have a selective approach to midcaps; we recommend Mindtree and Hexaware.

ATTRACTIVE

JANUARY 30, 2012

UPDATE

BSE-30: 16,863

India Technology


Remain positive on the sector; BUY Infosys/TCS

We retain our positive outlook on the sector and expect companies to deliver/ exceed lowered growth expectations for the Street. We forecast 12.7-14.0% revenue for FY2013 for Tier 1 IT. Trading at 15-16X FY2013E EPS, valuations of Tier 1 IT is at the upper-end of trough cycle; we expect ~15% stock price returns from the current levels over the next 12-months. We reiterate our BUY Infosys and TCS, and are also positive on select mid-cap names like MindTree and Hexaware which have displayed strong margin improvements with relatively low risk to revenue growth prospects.

Exhibit 1: Dec 2011 quarter performance versus KIE estimates

Revenues EBITDA margin Net IncomeInfosys Inline Beat BeatTCS Inline Inline InlineWipro Inline Inline BeatHCL Tech Inline Inline BeatPolaris Miss Beat BeatMindtree Inline Inline Beat

Note:

vs KIE estimates

(1) Revenue and net income beat/miss implies revenues/net income more/less than estimates by 1% or more.

Source: Companies, Kotak Institutional Equities estimates

Technology India


Exhibit 2: Dec 2011 quarter financial performance of key companies under our coverage

Dec-11 qoq (%) yoy (%) Dec-11E versus est. (%)InfosysRevenues (US$ mn) 1,806 3.4 13.9 1,805 0.0 Revenues (Rs mn) 92,980 14.8 30.8 92,457 0.6 EBITDA (Rs mn) 31,350 24.7 32.8 30,436 3.0 Net income (Rs mn) 23,720 24.4 33.3 22,915 3.5 EBITDA margin (%) 33.7 32.9 80 bpsTCSRevenues (US$ mn) 2,586 2.4 20.6 2,590 (0.2) Revenues (Rs mn) 132,040 13.5 36.6 132,464 (0.3) EBITDA (Rs mn) 40,921 11.6 21.8 40,588 0.8 Net income (Rs mn) 28,866 18.4 23.0 29,016 (0.5) EBITDA margin (%) 31.0 30.6 35 bpsWiproRevenues (US$ mn) - Global IT Services 1,506 2.2 12.0 1,507 (0.1) Revenues (Rs mn) - Wipro Limited 99,972 9.9 27.7 98,117 1.9 EBIT (Rs mn) - Wipro Limited 17,239 15.9 20.1 16,735 3.0 Net income (Rs mn) 14,561 12.9 11.2 14,008 3.9 Global IT EBIT margin (%) 20.8 20.7 10 bpsHCLTRevenues (US$ mn) 1,022 2.0 18.3 1,019 0.3 Reveneus (Rs mn) 52,452 12.8 35.8 51,971 0.9 EBITDA (Rs mn) 9,503 22.2 57.1 9,265 2.6 Net income (Rs mn) 5,527 15.1 48.8 5,164 7.0 EBITDA margin (%) 18.1 17.8 29 bpsPolarisRevenues (US$ mn) 112 1.0 26.2 114 (1.1) Revenues (Rs mn) 5,725 12.3 43.2 5,781 (1.0) EBITDA (Rs mn) 1,055 69.8 101.4 833 26.7 Net income (Rs mn) 611 13.2 21.8 651 (6.2) EBITDA margin (%) 18.4 14.4 402 bpsMindTreeRevenues (US$ mn) 104 2.3 21.6 104 (0.7) Revenues (Rs mn) 5,197 13.8 35.1 5,223 (0.5) EBITDA (Rs mn) 897 52.6 99.8 883 1.6 Net income (Rs mn) 606 11.2 98.7 566 7.1 EBITDA margin (%) 17.3 16.9 36 bps

Source: Companies, Kotak Institutional Equities estimates

Exhibit 3: Revenue and EPS guidance for various Indian IT companies for Dec 2011 quarter

Actuals Sep-11 Dec-11 qoq (%) yoy (%) Dec-11 qoq yoy (%) FY2012 yoy (%) FY2012 yoy (%)

InfosysRevenues (US$ mn) 1,806 1,806 0.0 12.7 1,810 0.2 13.0 7,029 16.3 7,033 16.4Revenues (Rs bn) 93.0 93.9 1.0 29.5 94.1 1.2 29.8 342.7 24.6 342.9 24.7EPS (Rs) 41.5 42.1 1.5 33.0 42.1 1.5 33.0 147.1 23.2 147.1 23.2Re/US$ rate 51.5 52.0 52.0 52.0 52.0WiproRevenues IT services (US$ mn) (a)

1,506 1,520 1.0 8.6 1,550 3.0 10.7

Note:(a) Global IT services

Guidance (lower-end or single point)

Guidance (upper-end)

Guidance (lower-end)

Guidance (upper-end)

Source: Companies

India Technology


Exhibit 4: Earnings revision for the top companies - marginal downward revisions in revenue and earnings estimates

FY2012E FY2013E FY2012E FY2013E FY2012E FY2013EInfosysRevenues (US$ mn) 7,036 7,995 7,083 8,171 (0.7) (2.2) EPS (Rs) 147.5 178.1 147.8 180.6 (0.3) (1.4) EBITDA margin (%) 32.2 32.0 31.9 32.1 28 bps -13 bpsTCSRevenues (US$ mn) 10,179 11,602 10,217 11,766 (0.4) (1.4) EPS (Rs) 55.2 67.5 55.8 68.6 (0.9) (1.6) EBIT margin (%) 28.1 27.7 28.0 27.9 13 bps -15 bpsWiproIT Services Revenues (US$ mn) 5,936 6,706 5,950 6,688 (0.2) 0.3 EPS (Rs) 23.2 28.2 23.2 27.9 (0.2) 1.2 IT services EBITmargin (%) 21.1 21.7 21.3 21.4 -18 bps 23 bpsHCLTRevenues (US$ mn) 4,171 4,699 4,276 4,871 (2.5) (3.5) EPS (Rs) 33.8 39.9 33.0 38.7 2.6 3.1 EBITDA margin (%) 18.3 17.4 17.6 17.0 66 bps 41 bps

Revised Earlier Change (%)/(bps)


Exhibit 5: US$ revenue growth of the IT companies under coverage

Dec-09 Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 Jun-11 Sep-11 Dec-11Revenues (US$ mn)TCS 1,635 1,686 1,794 2,004 2,144 2,244 2,412 2,525 2,586 Infosys 1,232 1,296 1,358 1,496 1,585 1,602 1,671 1,746 1,806 Wipro IT 1,127 1,166 1,204 1,273 1,344 1,400 1,408 1,473 1,506 HCL Tech 652 685 738 804 864 915 963 1,002 1,022 Polaris 73 76 79 84 89 97 101 111 112 Mindtree 70 74 77 82 85 86 93 101 104 Total 4,788 4,984 5,249 5,743 6,111 6,344 6,647 6,958 7,136 Sequential quarter change (%)TCS 6.3 3.1 6.4 11.7 7.0 4.7 7.5 4.7 2.4 Infosys 6.8 5.2 4.8 10.2 5.9 1.1 4.3 4.5 3.4 Wipro IT 5.8 3.5 3.2 5.7 5.6 4.2 0.5 4.6 2.2 HCL Tech 3.4 5.1 7.6 9.0 7.5 5.9 5.2 4.1 2.0 Polaris 3.7 5.3 3.3 5.9 6.6 8.5 4.1 10.6 1.1 Mindtree 7.9 5.7 3.4 7.0 3.5 1.2 7.2 9.5 2.3 Total 5.9 4.1 5.3 9.4 6.4 3.8 4.8 4.7 2.5 YoY growth (%)Total 3.3 10.9 14.4 27.0 27.6 27.3 26.6 21.2 16.8

Source: Companies

Technology India


Exhibit 6: Vertical wise split of revenue (US$ mn) Broad-based, except telecom which continues to be a drag

3QFY12 3QFY12Revenue % of revenues qoq yoy Revenues % of revenues qoq yoy

Infosys TCSBFSI 638 35.3 3.4 11.1 BFSI 1,120 43.3 1.9 17.1 Manufacturing 368 20.4 4.5 18.6 Manufacturing 202 7.8 2.4 30.7 Telecom 177 9.8 (2.5) (10.7) Telecom 259 10.0 (4.3) 1.4 Retailing 275 15.2 0.8 19.4 Healthcare 137 5.3 2.4 22.9 Others, of which 349 19.3 7.9 27.9 Retail & Distribution 318 12.3 4.1 36.1 Utilities 108 6.0 8.9 12.1 Transportation 98 3.8 2.4 34.8 Logistics & Transportation 36 2.0 21.7 26.6 Energy & Utilities 106 4.1 (2.3) 12.4 Others 204 11.3 5.3 38.4 Others 347 13.4 9.8 30.3 Total 1,806 100.0 3.4 13.9 Total 2,586 100.0 2.4 20.6 Wipro HCL TechGlobal Media & Telecom 232 15.4 0.3 1.5 Financial services 259 25.3 2.8 21.6 Finance Solutions 411 27.3 3.0 12.0 Manufacturing 301 29.5 3.7 28.7 Manufacturing & hi-tech 286 19 2.2 6.4 Telecom 82 8.0 (4.0) (12.4) Health, LS and services 151 10 4.3 7.7 Retail & CPG 90 8.8 5.6 14.4 Retail & transportation 224 14.9 3.6 8.4 MP&E 65 6.4 (4.0) 11.3 Energy & Utilities 202 13.4 0.0 51.6 Life sciences 88 8.6 15.4 21.1 Total 1,506 100.0 2.2 12.0 E&U, public sector 66 6.5 (17.8) 5.9 Mindtree Others 71 7.0 7.4 37.0 Manufacturing 16.0 15.4 2.3 24.1 Total 1,022 100.0 2.0 18.3 Banking and financial 21.7 20.9 (0.1) 25.9 T&T 12.8 12.3 16.5 26.8 PES 34.3 33.1 (5.4) (1.1) Others 19.0 18.3 15.6 82.5 Total 104 100.0 2.3 21.6

Growth (%) Growth (%)

Source: Companies, Kotak Institutional Equities

Exhibit 7: Geographical split of revenues (US$ mn) Europe exhibited strong revenue growth

3QFY12 3QFY12Revenues % of revenues qoq yoy Revenues % of revenues qoq yoy

Infosys HCL TechNorth America 1,150 63.7 0.9 12.2 America 601 58.8 7.4 21.8 Europe 408 22.6 14.0 18.1 Europe 274 26.8 2.7 19.2 India 38 2.1 (1.3) 8.8 Rest of the world 147 14.4 (16.6) 4.5 Rest of the world 209 11.6 (0.0) 17.0 Total 1,022 100.0 2.0 18.3 Total 1,806 100.0 3.4 13.9 PolarisWipro US/North America 50 44.9 (0.2) 27.7 North America 790 52.5 3.8 8.5 Europe 26 23.0 3.6 13.9 Europe 425 28.2 0.1 11.6 India, APAC & MEA 36 32.2 1.0 34.4 Japan 20 1.3 2.2 (2.9) Total 112 100.0 1.3 26.2 Rest of the world 271 18.0 1.1 26.0 Mindtree- India 137 9.1 0.0 14.6 North America 58 56.2 (1.5) 13.2 Total 1,506 100.0 2.2 12.0 Europe 29 28.1 11.9 76.2 TCS India 7 7.2 (6.7) 4.3 North America 1,378 53.3 2.2 20.2 APAC 9 8.5 8.7 (12.4) Europe 659 25.5 2.0 21.6 Total 104 100.0 2.3 21.6 India 217 8.4 3.6 10.1 Others 331 12.8 3.2 28.7 Total 2,586 100.0 2.4 20.6

Growth (%) Growth (%)


India Technology


Exhibit 8: Service line split of revenue (US$ mn)

Revenues % of revenues qoq yoy Revenues % of revenues qoq yoyInfosys WiproApplication development 309 17.1 3.4 24.9 Tech. Infra practices 327 21.7 0.4 13.6 Application maintenance 394 21.8 4.4 10.4 Analytics & Info mgmt 99 6.6 2.2 25.3 Business Process Mgmt 94 5.2 (0.4) 5.8 BAS 464 30.8 3.2 15.8 Consulting & PI 444 24.6 3.0 8.2 BPO 128 8.5 (1.2) 2.4 Infrastructure Mgmt 110 6.1 8.8 15.8 Product engg. & mobility 126 8.4 2.2 10.7 Product Engineering 65 3.6 9.5 57.8 ADM 361 24.0 4.0 7.1 System Integration 108 6.0 3.4 22.1 Total revenues 1,506 100.0 2.2 12.0 Testing Services 143 7.9 (0.3) 18.4 HCL TechOthers 52 2.9 (16.7) 0.1 Engg and R&D services 193 18.9 3.6 5.0 Products 87 4.8 18.2 3.2 Infrastructure Services 240 23.5 (2.6) 50.4 Total revenues 1,806 100.0 3.4 13.9 Custom applications 335 32.8 3.2 22.1 TCS Enterprise application 207 20.3 4.5 5.4 ADM 1,138 44.0 0.8 17.9 BPO services 46 4.5 (0.3) (6.3) Business Intelligence 114 4.4 (4.1) 0.1 Total revenues 1,022 100.0 2.0 18.3 Enterprise solutions 295 11.4 5.2 43.2 MindtreeAssurance services 197 7.6 2.4 29.1 Development 41 39.8 2.6 6.2 Engineering services 119 4.6 (1.9) 15.6 Maintenance 24 23.5 (2.7) 32.3 Infrastructure services 274 10.6 13.1 21.8 Consulting & IP licensing 5 5.0 11.2 52.0 Global consulting 72 2.8 10.3 46.8 Package Implementation 5 5.0 65.0 109.7 BPO 279 10.8 1.5 14.3 Ind testing 17 16.3 (8.4) 11.4 Asset leverage solutions 98 3.8 (2.7) 14.6 Infrastructure mgmt 11 10.4 9.7 56.2 Total revenues 2,586 100.0 2.4 20.6 Total revenues 104 100.0 2.3 21.6

Growth (%)3QFY12 3QFY12 Growth (%)


Exhibit 9: Operating margin trajectory of the Indian IT companies

3QFY11 2QFY12 3QFY12 qoq (bps) yoy (bps)TCS 30.2 29.1 31.0 191 bps 80 bpsInfosys 33.3 31.1 33.7 265 bps 46 bpsWipro - IT services 25.2 23.2 23.8 60 bps -145 bpsHCL Tech 15.7 16.7 18.1 139 bps 246 bpsMindtree 11.7 12.9 17.3 438 bps 559 bpsPolaris 13.1 12.2 18.4 624 bps 533 bps


Technology India


Exhibit 10: Net hiring trends for Indian IT companies

Jun-09 Sep-09 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 Jun-11 Sep-11 Dec-11Infosys (945) 1,548 4,429 3,914 1,026 7,646 5,311 3,041 2,740 8,262 3,266 Wipro (b) 441 (360) 4,855 5,955 4,224 2,975 3,591 2,894 4,105 5,240 5,004 TCS (2,119) 320 7,692 10,775 3,271 10,717 12,497 11,700 3,576 12,580 11,981 HCL Tech 190 227 1,245 2,441 6,428 5,661 2,049 1,153 3,626 3,474 2,556 Mindtree (c) 1,602 (243) 677 170 715 572 87 (124) 30 1,003 354 Polaris (46) (387) 519 188 207 959 172 124 455 471 604 Total (877) 1,105 19,417 23,443 15,871 28,530 23,707 18,788 14,532 31,030 23,765

Note(a) Consolidated hiring by various companies(b) Wipro hiring is for IT services only(c) June 2009 quarter for Mindtree includes consolidation of Aztecsoft


Exhibit 11: Attrition came off during the quarter, but still above comfortable levels

Jun-09 Sep-09 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 Jun-11 Sep-11 Dec-11TCS (a) 10.7 10.8 11.5 11.8 13.1 14.1 14.1 14.4 14.8 12.5 12.8 TCS (f) 7.8 8.1 10.4 10.2 13.1 15.6 10.0 16.1 17.1 14.9 12.5 Infosys (b) 11.1 10.9 11.6 13.4 15.8 17.1 17.5 17.0 15.8 15.6 15.4 Infosys (f) 17.2 17.3 15.9 19.3 27.4 22.3 18.4 18.2 21.7 20.6 17.8 Wipro (c) 10.3 13.6 14.3 17.6 24.4 24.9 23.9 23.4 25.2 22.4 20.6 Mindtree 11.4 9.7 10.7 14.1 17.8 21.9 24.2 25.1 25.6 21.7 19.4 HCL Tech (e) 13.0 12.8 12.8 13.9 15.7 16.7 17.2 17.0 16.5 15.9 15.9 HCL Tech (f) 23.7 30.1 31.1 33.0 33.6 36.4 35.5 35.0 31.6 29.6 25.7

Notes:(a) LTM attrition including BPO(b) Standalone attrition numbers for last twelve months, ex BPO/subsidiaries(c) Wipro Technologies only, quarterly annualized attrition, includes involuntary attrition(d) Attrition is LTM and ex-BPO(e) For IT services only, excludes involuntary attrition(f) Quarterly annualized attrition computed (includes BPO)


Exhibit 12: Days sales outstanding (DSO) for selected Indian technology companies (days)

Quarter ended Jun-09 Sep-09 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 Jun-11 Sep-11 Dec-11Tata Consultancy Services 93 91 85 82 87 82 83 85 89 94 92 Infosys 71 67 65 66 71 68 67 73 75 77 74 Wipro 84 81 86 87 91 93 95 93 102 107 104 HCL Technologies 84 90 82 84 80 80 77 73 71 78 78 Polaris Software Lab 47 47 41 43 45 44 44 45 52 57 56


India Technology


Kotak Institutional Equities: Valuation summary of key Indian technology companies

30-Jan-12 PER (X) EV/EBITDA (X) EV/Sales (X)Company Price (Rs) Rating (Rs m) (US$ m) 2011 2012E 2013E 2011 2012E 2013E 2011 2012E 2013E 2011 2012E 2013EHCL Technologies 429 REDUCE 302,480 6,094 22.9 33.8 39.9 18.8 12.7 10.8 11.4 7.4 6.4 1.9 1.4 1.1

Hexaware Technologies 81 ADD 23,566 475 3.0 8.6 9.5 27.5 9.4 8.5 20.6 7.6 5.1 1.8 1.3 1.0

Infosys 2,712 BUY 1,556,860 31,365 119.7 147.5 178.1 22.7 18.4 15.2 15.5 12.2 9.7 5.0 3.9 3.1

Mindtree 427 ADD 17,590 354 24.7 50.5 53.9 17.3 8.5 7.9 9.7 5.7 4.3 1.1 0.8 0.7

Mphasis 375 SELL 79,095 1,593 51.8 39.0 34.6 7.3 9.6 10.9 6.1 8.0 7.2 1.5 1.6 1.3

Patni Computer Systems 460 NR 61,272 1,234 42.6 30.3 34.3 10.8 15.2 13.4 7.3 7.1 5.3 1.4 1.2 1.0

Polaris Software Lab 139 REDUCE 13,868 279 19.3 21.7 24.0 7.2 6.4 5.8 4.1 2.5 1.8 0.6 0.4 0.3

Mahindra Satyam 73 REDUCE 85,848 1,730 4.2 7.5 8.1 17.4 9.7 9.1 12.9 5.8 4.2 1.1 0.8 0.6

TCS 1,112 BUY 2,175,917 43,837 44.5 55.2 67.5 25.0 20.1 16.5 18.9 14.1 11.5 5.7 4.2 3.4

Tech Mahindra 629 SELL 79,298 1,598 48.0 75.2 80.0 13.1 8.4 7.9 8.9 9.5 7.8 1.7 1.6 1.3

Wipro 410 ADD 1,005,649 20,260 21.6 23.2 28.2 19.0 17.7 14.5 14.1 12.0 9.5 3.0 2.4 2.0

Technology Attractive 5,401,444 108,820 21.0 17.4 14.6 15.2 11.9 9.6 3.8 2.9 2.4

KS universe (b) 44,295,821 892,408 15.1 14.0 11.5 9.8 8.7 7.2 1.5 1.2 1.1

Target O/S shares EPS growth (%) Net Profit (Rs mn) EBITDA (Rs mn) Sales (Rs mn)Company Price (mn) 2011 2012E 2013E 2011 2012E 2013E 2011 2012E 2013E 2011 2012E 2013EHCL Technologies 460 705 30.4 47.9 18.0 16,143 23,902 28,350 26,270 38,677 42,631 158,551 211,699 244,694

Hexaware Technologies 100 290 (36.8) 191.2 10.8 1,073 2,498 2,767 938 2,500 3,515 10,546 14,274 17,848

Infosys 3,100 574 10.5 23.2 20.8 68,720 84,647 102,234 89,640 110,732 134,245 275,010 344,280 419,667

Mindtree 540 41 (52.7) 104.5 6.8 1,017 2,078 2,219 1,777 2,871 3,591 15,091 19,342 23,741

Mphasis 310 211 18.8 (24.6) (11.4) 10,908 8,223 7,285 12,649 9,849 10,177 50,365 50,980 56,403

Patni Computer Systems 400 133 16.5 (29.0) 13.5 5,675 4,029 4,572 6,165 5,754 6,947 31,696 34,852 38,426

Polaris Software Lab 145 100 25.7 12.5 10.4 1,926 2,166 2,391 2,139 3,274 3,809 15,863 21,376 25,113

Mahindra Satyam 80 1,176 68.9 79.5 7.0 4,938 8,862 9,479 4,551 9,339 11,195 51,450 64,372 75,255

TCS 1,250 1,957 26.8 24.1 22.1 87,165 108,132 132,052 111,985 148,497 179,027 373,246 495,813 608,979

Tech Mahindra 600 126 (26.3) 56.5 6.5 6,291 9,845 10,486 10,033 9,350 11,043 51,402 56,143 64,464

Wipro 460 2,454 14.5 7.4 21.7 52,974 56,880 69,209 67,434 77,749 94,252 310,986 381,675 451,546

Technology 17.0 21.2 19.2 256,829 311,262 371,045 333,580 418,591 500,433 1,344,207 1,694,807 2,026,136

KS universe (b) 18.4 8.1 21.1

Notes(a) HCL Technologies is June fiscal year-ending(b) Patni Computers Systems and Hexaware Technologies are December year-ending.

Mkt cap. EPS (Rs)


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December 2011: Results calendar

Mon Tue Wed Thu Fri Sat30-Jan 31-Jan 1-Feb 2-Feb 3-Feb 4-FebAllahabad Bank Aban Offshore Ashok Leyland Andhra Bank Container Corp Carborundum UniversalBajaj Corp Berger Paints Prestige Estaes Chennai Petroleum Dr. Reddy's Laboratories GVKPILBalrampur Chini Mills Blue Dart Express Satyam Computers Corporation Bank Godrej Industries India InfolineGlenmark Pharmaceuticals Central Bank of India UCO Bank Essar Port Hindustan Petroleum Maharashtra SeamlessGMDC City Union Bank Welspun Corp Hexaware Technologies Power Finance CorpHavells India Crompton Greaves Lakshmi Vilas Bank Rolta IndiaIL& FS Investment Dabur India Manappuram FinanceIndiabulls Financial Services Financial Technologies MaricoIndian Bank Firstsource Solution ONGCKansai Nerolac HCL Infosystems Piramal HealthcareLIC Housing Finance ICICI Bank Piramal Life SciencesMahindra Life Space Developers IDBI Bank ThermaxMcleod Russel IPCA LaboratoriesNMDC Jagran PrakashanOriental Bank of Commerce KEC InternationalPunjab & Sind Bank Mahindra Holidays & ResortsPVR NMDCSadbhav Engineering Paper ProductsTaj GVK PTC IndiaUnited Phosphorus Punjab National Bank

Shoppers StopSiemensTitan IndustriesTVS MotorUnited Bank of India

6-Feb 7-Feb 8-Feb 9-Feb 10-Feb 11-FebAdani Port & SEZ Bajaj Corp Bharat Forge ACC Apollo Hospital EnterprisesAdani Power Cadila Healthcare Essar Shipping Ambuja Cement BPCLBGR Energy Systems GMR Infra Power Grid Anant Raj Industries MTNLDena Bank IL&FS Transporation Bharti Airtel Apollo Tyres Tata ChemicalsGlaxosmithkline Consumers JM Financial Dishman Pharmaceuticals Tata PowerHindustan Unilever Mahindra & Mahindra Hindalco Industries TV Today NetworkJubilant Life Sciences Jindal StainlessMOIL MRFNALCO VA Tech Wabag13-Feb 14-Feb 15-Feb 16-FebLanco Infratech Educomp Solutions Glaxosmithkline PharmaSAIL Shipping Corp of India

Voltas

Source: BSE, NSE, Kotak Institutional Equities

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Kotak Institutional Equities: Valuation summary of KIE Universe stocks

30-Jan-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 68 BUY 34,404 691 504 8.7 6.8 9.2 (26.1) (22.0) 34.6 7.8 10.0 7.4 5.8 5.7 4.3 1.3 1.1 1.0 0.7 0.6 0.8 20.1 13.4 15.7 80 17.2 3.0

Ashok Leyland 27 ADD 71,705 1,440 2,661 2.4 1.9 2.3 68.1 (19.7) 22.5 11.4 14.1 11.5 7.8 8.5 7.4 1.6 1.5 1.5 3.7 3.7 3.7 21.8 15.9 18.2 26 (3.5) 2.6

Bajaj Auto 1,550 ADD 448,628 9,009 289 90.4 106.8 122.3 43.9 18.1 14.6 17.2 14.5 12.7 13.1 10.9 9.7 9.1 6.6 5.0 2.6 2.6 2.6 84.9 52.5 44.7 1,715 10.6 20.0

Bharat Forge 283 ADD 67,263 1,351 237 12.5 16.7 19.8 1,402.1 32.8 18.7 22.6 17.0 14.3 10.6 8.5 7.4 3.0 2.6 2.2 1.2 — — 8.2 14.3 15.2 315 11.1 1.9

Exide Industries 131 SELL 111,180 2,233 850 7.5 5.1 6.5 18.0 (32.1) 28.4 17.5 25.8 20.1 12.6 16.8 13.4 4.1 3.7 3.2 1.1 1.0 1.0 25.5 14.9 17.0 105 (19.7) 3.9

Hero Motocorp 1,824 SELL 364,323 7,316 200 99.3 118.0 129.5 (11.1) 18.8 9.7 18.4 15.5 14.1 11.9 10.9 9.5 7.8 6.8 5.7 5.8 3.8 3.8 56.5 66.1 58.8 1,815 (0.5) 25.6

Mahindra & Mahindra 665 BUY 408,371 8,201 614 41.7 43.9 49.0 22.7 5.3 11.6 15.9 15.1 13.6 12.3 11.5 10.0 3.8 3.2 2.7 1.7 1.4 1.4 27.3 23.1 21.7 840 26.3 33.6

Maruti Suzuki 1,193 ADD 344,744 6,923 289 79.2 52.3 90.0 (8.4) (33.9) 72.0 15.1 22.8 13.3 9.4 15.4 8.0 2.5 2.3 2.0 0.6 0.6 0.6 17.6 10.3 15.8 1,250 4.8 18.4

Tata Motors 234 SELL 777,718 15,618 3,325 27.2 27.8 32.5 737.9 2.1 17.2 8.6 8.4 7.2 5.9 5.5 4.7 4.0 2.9 2.1 1.6 1.2 1.2 66.1 39.5 34.3 225 (3.8) 68.9

Automobiles Cautious 2,628,336 52,783 82.8 0.3 20.0 12.8 12.8 10.7 8.5 8.1 6.7 4.0 3.3 2.6 2.3 1.8 1.8 31.1 25.5 24.8


Andhra Bank 100 BUY 55,846 1,122 560 22.6 23.4 22.3 5.0 3.2 (4.7) 4.4 4.3 4.5 — — — 0.9 0.8 0.7 5.5 5.7 5.4 23.2 18.8 15.8 170 70.3 1.3

Axis Bank 1,023 BUY 434,279 8,721 424 82.5 95.5 102.8 33.0 15.7 7.6 12.4 10.7 10.0 — — — 2.3 2.0 1.7 1.3 1.6 1.7 19.3 19.6 18.2 1,350 31.9 54.4

Bajaj Finserv 436 ADD 63,131 1,268 145 78.2 63.2 62.9 102.3 (19.2) (0.4) 5.6 6.9 6.9 — — — 1.8 1.3 1.0 2.9 2.9 2.9 37.2 21.9 16.8 650 49.0 0.8

Bank of Baroda 741 BUY 290,893 5,842 393 108.0 115.6 121.2 29.1 7.1 4.9 6.9 6.4 6.1 — — — 1.5 1.3 1.1 2.6 2.8 2.9 25.9 21.5 19.2 1,050 41.8 9.2

Bank of India 336 BUY 183,920 3,694 547 45.5 46.7 62.0 37.4 2.7 32.8 7.4 7.2 5.4 — — — 1.2 1.0 0.9 2.4 2.5 3.3 17.3 15.1 17.6 450 33.9 5.3

Canara Bank 457 BUY 202,584 4,068 443 90.9 74.8 93.2 23.3 (17.7) 24.6 5.0 6.1 4.9 — — — 1.1 1.0 0.8 2.4 2.6 2.6 23.2 15.5 16.9 550 20.3 8.0

Corporation Bank 401 BUY 59,363 1,192 148 95.4 86.2 89.5 16.3 (9.7) 3.9 4.2 4.7 4.5 — — — 0.8 0.7 0.7 5.0 4.5 4.7 21.9 16.8 15.4 600 49.7 0.6

Federal Bank 392 BUY 67,102 1,348 171 34.3 42.4 49.7 26.3 23.5 17.3 11.4 9.3 7.9 — — — 1.3 1.2 1.1 2.2 2.7 3.1 12.0 13.5 14.3 500 27.5 3.6

HDFC 688 REDUCE 1,009,374 20,271 1,467 24.1 27.7 31.8 22.4 14.9 14.7 28.6 24.9 21.7 — — — 5.8 5.1 3.9 1.3 1.5 1.8 21.7 22.0 21.4 725 5.4 28.2

HDFC Bank 479 ADD 1,114,332 22,378 2,326 16.9 22.1 28.1 31.0 30.9 27.2 28.4 21.7 17.0 — — — 4.4 3.8 3.2 0.7 0.9 1.1 16.7 18.8 20.5 560 16.9 30.6

ICICI Bank 852 BUY 981,581 19,712 1,152 44.7 52.0 53.7 23.9 16.3 3.3 19.1 16.4 15.9 — — — 1.8 1.7 1.6 1.6 1.8 1.9 9.7 10.5 10.1 1,100 29.1 99.6

IDFC 126 ADD 189,942 3,814 1,509 8.8 10.3 12.1 4.6 17.1 18.2 14.4 12.3 10.4 — — — 1.8 1.5 1.4 1.7 1.6 1.9 14.7 13.6 13.9 150 19.1 19.9

India Infoline 51 SELL 16,639 334 327 7.4 3.5 5.0 (9.3) (52.3) 41.1 6.9 14.5 10.3 — — — 1.0 0.9 0.8 6.1 1.4 2.1 12.9 6.4 8.1 70 37.5 0.5

Indian Bank 214 BUY 91,949 1,847 430 38.8 40.9 48.3 10.5 5.5 18.1 5.5 5.2 4.4 — — — 1.2 1.0 0.8 3.5 3.6 4.2 22.3 19.9 20.1 300 40.2 1.5

Indian Overseas Bank 86 BUY 53,212 1,069 619 17.3 14.4 27.8 33.6 (17.2) 93.6 5.0 6.0 3.1 — — — 0.7 0.6 0.5 5.8 2.2 4.5 12.7 9.1 15.9 140 62.8 1.1

IndusInd Bank 278 BUY 129,306 2,597 466 12.4 16.8 17.7 45.2 35.2 5.4 22.4 16.6 15.7 — — — 3.5 3.0 2.7 0.7 1.0 1.0 20.8 19.3 17.2 325 17.1 3.4

J&K Bank 814 ADD 39,473 793 48 126.9 155.4 160.7 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 0.3

LIC Housing Finance 246 ADD 116,719 2,344 475 20.5 22.7 27.1 47.2 10.8 19.2 12.0 10.8 9.1 — — — 3.0 2.5 2.1 1.8 2.0 2.4 25.8 23.6 23.6 260 5.8 12.6

Mahindra & Mahindra Financial 707 BUY 72,439 1,455 102 45.2 55.6 71.9 26.1 23.0 29.3 15.6 12.7 9.8 — — — 2.9 2.6 2.2 1.4 1.7 2.2 22.0 21.1 23.1 825 16.7 1.7

Muthoot Finance 178 BUY 66,093 1,327 371 15.7 21.6 26.7 108.4 37.1 23.7 11.3 8.2 6.7 — — — 5.0 2.2 1.6 — — — 51.5 36.7 28.1 230 29.2 —

Oriental Bank of Commerce 251 BUY 73,349 1,473 292 51.5 44.1 54.4 13.7 (14.3) 23.2 4.9 5.7 4.6 — — — 0.7 0.7 0.6 4.1 3.5 4.4 15.5 11.1 12.6 430 71.0 3.2

PFC 162 BUY 213,967 4,297 1,320 22.8 17.0 27.9 11.1 (25.3) 63.8 7.1 9.5 5.8 — — — 1.4 1.1 1.0 2.4 2.1 3.4 18.4 12.7 17.0 210 29.5 14.1

Punjab National Bank 955 BUY 302,635 6,078 317 140.0 157.0 181.8 13.0 12.2 15.8 6.8 6.1 5.3 — — — 1.5 1.3 1.1 2.3 3.4 3.9 24.4 22.7 22.1 1,350 41.3 8.5

Reliance Capital 353 ADD 86,956 1,746 246 9.3 12.6 24.2 (25.3) 35.8 91.7 38.0 27.9 14.6 — — — 1.2 1.2 1.2 1.1 1.4 2.7 3.3 4.4 8.1 470 33.1 23.1

Rural Electrification Corp. 183 BUY 180,544 3,626 987 26.0 28.7 33.7 28.1 10.5 17.2 7.0 6.4 5.4 — — — 1.4 1.2 1.1 4.1 4.5 5.3 21.5 20.7 21.1 230 25.8 10.5

SKS Microfinance 88 RS 6,485 130 74 15.7 (89.1) (27.5) (41.8) (667.7) (69.1) 5.6 (1.0) (3.2) — — — 0.4 0.6 0.7 — — — 8.3 (44.7) (19.3) — — 1.6

State Bank of India 1,985 BUY 1,260,632 25,316 635 130.2 172.6 216.5 (9.9) 32.6 25.4 15.3 11.5 9.2 — — — 1.9 1.7 1.5 1.7 1.8 1.9 12.6 15.9 17.5 2,300 15.9 134.5

Union Bank 215 BUY 115,319 2,316 536 39.5 31.6 44.0 (3.9) (19.8) 39.0 5.5 6.8 4.9 — — — 1.0 0.9 0.8 3.6 3.0 4.1 20.9 14.4 17.5 340 58.0 4.4

Yes Bank 314 BUY 108,917 2,187 347 20.9 26.4 31.6 39.6 25.9 19.9 15.0 11.9 9.9 — — — 2.9 2.4 2.0 0.8 1.0 1.2 21.1 21.9 21.7 375 19.5 17.0

Banks/Financial Institutions Attractive 7,714,864 154,933 20.0 9.8 21.4 12.6 11.5 9.5 — — — 2.0 1.8 1.5 1.7 1.9 2.2 16.0 15.3 16.3

Cement

ACC 1,170 SELL 219,867 4,415 188 55.6 57.3 69.0 (33.2) 3.1 20.4 21.1 20.4 17.0 13.0 11.7 9.1 3.2 2.9 2.6 3.0 2.0 2.0 17.5 16.5 17.4 980 (16.3) 7.0

Ambuja Cements 161 SELL 244,417 4,908 1,522 7.9 7.9 9.8 (1.5) (0.2) 24.8 20.4 20.4 16.4 12.5 11.4 9.0 3.1 2.8 2.6 1.3 1.4 1.5 16.6 14.8 16.8 135 (15.9) 6.8

Grasim Industries 2,585 BUY 237,096 4,761 92 232.0 275.8 281.7 (22.9) 18.9 2.2 11.1 9.4 9.2 6.7 5.5 4.9 1.6 1.4 1.3 0.7 1.3 1.3 15.7 16.2 14.5 2,900 12.2 3.4

India Cements 79 ADD 24,282 488 307 1.9 9.9 10.1 (81.2) 424.3 1.8 41.8 8.0 7.8 14.8 5.1 4.6 0.6 0.5 0.5 2.0 4.0 4.0 1.4 7.3 7.0 90 13.9 1.2

Shree Cement 2,222 REDUCE 77,391 1,554 35 57.2 80.2 119.4 (72.5) 40.3 48.9 38.9 27.7 18.6 9.1 6.9 6.0 4.0 3.7 3.2 0.6 0.7 0.9 10.7 13.9 18.4 2,085 (6.1) 0.4

UltraTech Cement 1,190 REDUCE 326,121 6,549 274 44.9 79.7 89.4 (49.2) 77.7 12.2 26.5 14.9 13.3 12.9 8.5 7.3 2.6 2.2 1.9 0.4 0.5 0.7 16.7 18.7 17.7 1,220 2.5 3.8

Cement Neutral 1,129,175 22,676 (23.7) 29.2 12.9 19.3 14.9 13.2 10.2 7.8 6.7 2.4 2.1 1.9 1.2 1.2 1.3 12.2 14.0 14.0

Price/BV (X) Dividend yield (%)

Source: Company, Bloomberg, Kotak Institutional Equities estimates

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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 2,988 SELL 286,618 5,756 96 80.8 94.4 106.9 13.0 16.8 13.3 37.0 31.7 28.0 24.7 21.5 17.4 14.0 10.7 8.8 1.1 0.9 1.2 43.9 39.9 35.6 2,500 (16.3) 4.6

Colgate-Palmolive (India) 983 SELL 133,729 2,686 136 29.6 32.5 39.1 (4.9) 9.9 20.3 33.2 30.2 25.1 28.9 25.9 20.9 34.8 35.4 28.2 2.2 2.9 2.8 113.4 116.1 124.9 900 (8.5) 2.0

Dabur India 93 REDUCE 160,985 3,233 1,740 3.3 3.6 4.4 12.8 11.3 19.9 28.3 25.4 21.2 22.9 19.2 16.1 12.3 9.5 7.5 1.2 1.4 1.7 51.2 42.9 40.3 105 13.5 2.5

GlaxoSmithkline Consumer (a) 2,520 ADD 105,974 2,128 42 71.3 85.0 104.1 28.8 19.2 22.5 35.3 29.7 24.2 25.5 23.0 18.8 11.4 9.6 8.1 2.0 1.5 1.8 32.2 34.2 35.4 2,900 15.1 1.3

Godrej Consumer Products 435 ADD 140,843 2,828 324 14.9 16.8 21.8 31.3 13.1 29.8 29.2 25.9 19.9 24.8 19.8 14.8 8.2 6.1 5.0 1.2 0.7 0.7 35.9 27.6 28.9 460 5.7 1.6

Hindustan Unilever 382 REDUCE 825,661 16,581 2,159 9.9 11.8 14.2 4.8 19.7 19.7 38.7 32.3 27.0 33.1 26.5 21.1 31.3 27.0 23.1 2.0 2.6 3.1 66.3 89.8 92.4 420 9.8 25.0

ITC 201 ADD 1,542,663 30,980 7,681 6.4 7.9 9.0 20.7 22.5 14.1 31.3 25.6 22.4 20.8 17.4 15.0 9.2 7.9 6.9 2.2 1.9 2.2 33.2 34.9 34.3 230 14.5 28.9

Jubilant Foodworks 900 SELL 59,070 1,186 66 11.2 16.1 23.6 99.6 43.8 46.5 80.4 55.9 38.2 49.2 30.8 21.4 30.8 19.9 13.1 — — — 46.6 43.2 41.3 750 (16.7) 21.1

Jyothy Laboratories 164 ADD 12,759 256 78 10.3 8.4 10.8 (6.2) (18.8) 28.0 15.9 19.6 15.3 12.4 30.1 22.5 1.9 1.8 1.7 3.7 2.8 3.6 12.3 9.7 11.7 190 15.5 0.3

Marico 149 BUY 91,695 1,841 615 3.9 5.0 6.5 (12.8) 28.1 30.2 38.4 30.0 23.0 23.7 21.1 16.3 9.8 7.7 6.0 0.4 0.5 0.6 30.3 29.2 29.7 175 17.4 0.9

Nestle India (a) 4,260 SELL 410,688 8,248 96 86.8 106.6 125.0 16.7 22.8 17.3 49.1 40.0 34.1 32.7 26.4 22.1 48.0 34.0 25.4 1.1 1.4 1.7 116.5 99.7 85.4 3,600 (15.5) 2.8

Tata Global Beverages 98 BUY 60,541 1,216 618 4.0 5.3 6.6 (34.6) 35.1 23.0 24.7 18.3 14.9 10.2 9.9 7.9 1.2 1.1 1.1 2.0 1.8 2.2 6.4 8.2 9.5 110 12.4 2.4

Titan Industries 201 BUY 178,845 3,592 888 4.8 6.5 7.9 69.1 34.5 20.9 41.6 30.9 25.6 30.4 22.5 17.9 16.4 12.4 9.7 0.6 1.1 1.5 47.1 45.7 42.5 210 4.2 17.5

United Spirits 651 BUY 81,730 1,641 126 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 38.3 15.6

Consumer products Attractive 4,091,798 82,173 16.3 19.4 17.9 34.1 28.5 24.2 23.9 20.0 16.6 10.5 9.0 7.7 1.7 1.7 2.1 30.9 31.6 32.0

Constructions

IVRCL 46 BUY 12,309 247 267 5.9 4.2 5.0 (25.2) (28.5) 18.5 7.8 10.9 9.2 6.2 7.3 6.4 0.6 0.6 0.6 1.3 0.9 0.9 8.2 5.5 6.2 59 28.0 5.7

Nagarjuna Construction Co. 53 BUY 13,548 272 257 6.4 4.1 5.5 (29.7) (35.5) 32.7 8.3 12.9 9.7 7.6 7.9 7.1 0.6 0.6 0.5 2.0 3.8 3.8 7.1 4.4 5.7 85 61.0 0.9

Punj Lloyd 50 REDUCE 16,860 339 340 (1.5) 3.4 6.5 (56.6) (328.7) 90.7 (33.4) 14.6 7.7 12.2 6.7 5.8 0.6 0.5 0.5 (0.1) 0.6 1.1 (1.7) 3.8 6.9 60 20.8 4.1

Sadbhav Engineering 127 BUY 18,997 381 150 7.8 10.0 10.0 51.0 28.5 0.5 16.3 12.7 12.6 9.8 7.9 7.6 3.0 2.4 2.1 0.5 0.5 0.5 18.1 19.2 16.3 180 42.0 0.4

Construction Attractive 61,714 1,239 (1.1) 24.7 33.3 15.9 12.8 9.6 8.6 7.3 6.4 0.8 0.7 0.7 0.8 1.3 1.5 4.8 5.8 7.2

Energy

Aban Offshore 442 BUY 19,215 386 44 134.2 96.5 115.8 25.9 (28.1) 19.9 3.3 4.6 3.8 6.6 7.2 6.5 0.9 1.0 0.8 0.8 0.9 1.0 33.3 24.4 22.7 635 43.8 7.9

Bharat Petroleum 564 RS 204,053 4,098 362 38.9 30.6 45.8 (32.5) (21.3) 49.5 14.5 18.4 12.3 9.7 9.6 8.4 1.4 1.3 1.2 2.5 1.8 2.7 9.2 6.8 9.6 — — 6.8

Cairn india 343 REDUCE 652,909 13,112 1,903 33.3 45.7 62.7 501.1 37.2 37.1 10.3 7.5 5.5 7.5 5.8 3.7 1.6 1.4 1.2 — - 4.4 16.9 19.7 23.5 355 3.5 16.4

Castrol India (a) 475 REDUCE 117,470 2,359 247 19.8 19.7 21.6 28.5 (0.6) 9.9 24.0 24.1 22.0 15.3 16.4 14.7 22.7 21.2 19.7 3.2 3.3 3.6 100.2 91.0 93.0 410 (13.7) 0.7

GAIL (India) 369 BUY 467,815 9,395 1,268 28.2 30.1 31.0 13.8 6.8 3.2 13.1 12.3 11.9 8.2 8.7 8.2 2.2 2.0 1.7 2.0 2.2 2.3 17.5 16.3 14.7 485 31.5 10.5

GSPL 80 REDUCE 45,035 904 563 8.9 9.1 8.6 21.7 2.1 (5.2) 9.0 8.8 9.3 6.0 5.5 5.5 2.0 1.6 1.4 1.2 2.3 3.2 25.2 20.4 16.6 93 16.2 1.8

Hindustan Petroleum 284 RS 96,262 1,933 339 40.8 14.4 23.7 (20.8) (64.8) 64.9 7.0 19.8 12.0 3.1 4.5 4.1 0.6 0.6 0.6 4.9 1.6 2.6 9.0 2.9 4.6 — — 4.5

Indian Oil Corporation 281 RS 682,254 13,701 2,428 32.4 14.5 32.3 (34.0) (55.2) 122.2 8.7 19.4 8.7 8.4 9.6 6.4 1.2 1.1 1.0 3.4 1.7 3.5 13.3 5.6 11.7 — — 2.7

Oil India 1,202 BUY 288,997 5,804 240 120.0 154.5 186.9 4.2 28.8 21.0 10.0 7.8 6.4 4.8 2.8 2.1 1.7 1.5 1.3 3.1 3.9 4.7 16.2 18.4 19.3 1,720 43.1 1.9

Oil & Natural Gas Corporation 276 BUY 2,359,612 47,387 8,556 24.7 33.7 38.2 7.4 36.8 13.3 11.2 8.2 7.2 4.2 3.5 2.7 1.6 1.4 1.2 3.2 4.0 4.5 14.3 17.3 17.3 355 28.7 13.6

Petronet LNG 161 SELL 120,825 2,426 750 8.1 14.9 13.6 50.3 83.4 (8.2) 19.9 10.8 11.8 11.5 7.7 8.3 4.0 3.1 2.5 1.2 1.9 1.9 20.9 31.1 22.5 140 (13.1) 6.1

Reliance Industries 795 BUY 2,369,150 47,578 2,981 62.0 63.9 67.9 24.8 3.1 6.3 12.8 12.4 11.7 7.0 6.3 5.7 1.5 1.3 1.2 1.0 1.1 1.3 13.0 12.2 11.6 925 16.4 83.0

Energy Attractive 7,423,597 149,083 11.6 9.9 19.5 11.1 10.1 8.4 6.2 5.4 4.4 1.5 1.4 1.2 2.1 2.2 3.1 13.8 13.6 14.6

Industrials

ABB 805 SELL 170,671 3,427 212 3.0 11.7 22.7 (82.2) 291.5 94.5 269.9 68.9 35.4 196.5 45.7 23.1 7.0 6.6 5.7 0.2 0.4 0.4 2.6 9.9 17.3 515 (36.1) 1.5

BGR Energy Systems 226 REDUCE 16,331 328 72 44.8 32.5 20.3 60.0 (27.3) (37.6) 5.1 7.0 11.1 3.6 4.6 4.3 1.7 1.4 1.3 4.4 2.9 1.8 39.0 22.5 12.3 200 (11.6) 3.8

Bharat Electronics 1,388 ADD 111,056 2,230 80 107.3 115.8 132.8 11.6 8.0 14.7 12.9 12.0 10.5 5.1 5.6 3.6 2.2 1.9 1.7 1.6 1.8 1.8 18.2 16.8 16.9 1,650 18.9 1.1

Bharat Heavy Electricals 244 REDUCE 597,582 12,001 2,448 24.6 27.5 23.3 39.7 12.0 (15.4) 9.9 8.9 10.5 6.3 6.4 6.8 3.0 2.4 2.0 2.6 2.4 2.0 33.3 29.7 20.9 230 (5.8) 25.3

Crompton Greaves 134 ADD 85,704 1,721 642 14.3 9.2 10.3 11.5 (36.0) 12.3 9.3 14.6 13.0 6.0 8.6 7.2 2.6 2.3 2.0 1.8 1.1 1.1 31.7 16.7 16.3 155 16.0 4.4

KEC International 53 BUY 13,497 271 257 8.0 6.4 7.9 4.1 (19.8) 22.4 6.6 8.2 6.7 5.7 6.2 5.3 1.4 1.2 1.0 2.3 1.8 2.2 22.5 15.5 16.6 65 23.8 0.3

Larsen & Toubro 1,305 REDUCE 794,732 15,960 609 67.7 80.7 87.0 18.1 19.2 7.8 19.3 16.2 15.0 14.1 11.0 10.1 3.0 2.5 2.2 1.1 1.1 1.1 17.0 16.8 15.4 1,325 1.5 70.7

Maharashtra Seamless 333 BUY 23,455 471 71 48.2 42.1 46.8 24.8 (12.6) 11.0 6.9 7.9 7.1 4.3 4.3 3.5 0.9 0.8 0.8 2.5 2.5 2.8 13.8 11.1 11.5 460 38.3 0.2

Siemens 741 SELL 252,261 5,066 340 25.5 27.2 30.5 13.6 6.6 12.1 29.1 27.3 24.3 20.0 17.1 15.3 6.4 5.5 4.7 0.7 0.7 0.8 24.2 21.7 20.7 640 (13.7) 3.1

Suzlon Energy 26 REDUCE 46,833 941 1,777 (6.0) 2.0 3.5 (4.6) (133.6) 72.0 (4.4) 13.0 7.6 17.4 6.5 5.6 0.7 0.6 0.5 — 0.8 0.8 (15.8) 4.8 7.5 40 51.8 14.3

Tecpro Systems 172 BUY 8,656 174 50 27.0 28.8 24.8 24.2 6.9 (14.1) 6.4 5.9 6.9 4.4 4.9 4.9 1.3 1.1 1.0 — — — 26.8 20.2 15.2 200 16.6 0.1

Thermax 491 REDUCE 58,521 1,175 119 31.6 32.8 31.4 44.3 3.7 (4.3) 15.5 15.0 15.6 10.3 10.0 10.0 4.5 3.7 3.2 1.8 1.9 1.8 31.5 27.0 21.9 440 (10.4) 0.9

Voltas 91 REDUCE 30,031 603 331 9.8 6.4 7.6 (14.3) (34.4) 17.6 9.3 14.1 12.0 5.2 9.3 7.2 2.2 2.0 1.8 2.2 2.2 2.6 26.1 14.8 15.9 90 (0.9) 2.9

Industrials Cautious 2,209,330 44,369 23.9 19.6 0.9 16.4 13.7 13.6 10.6 9.3 8.8 2.9 2.4 2.1 1.5 1.4 1.4 17.7 17.7 15.6

Infrastructure

Adani Port and SEZ 138 ADD 279,215 5,607 2,017 4.6 5.4 7.6 36.3 19.0 40.5 30.4 25.6 18.2 24.7 18.7 13.7 6.5 5.5 4.4 0.6 0.7 1.1 23.4 23.3 26.9 160 15.6 4.4

Container Corporation 975 ADD 126,724 2,545 130 67.6 71.7 77.9 11.7 6.1 8.7 14.4 13.6 12.5 10.4 9.1 7.9 2.5 2.2 2.0 1.6 1.7 1.8 18.9 17.5 16.8 1,150 18.0 1.1

GMR Infrastructure 28 RS 109,376 2,197 3,892 (0.3) (0.8) (0.2) (178.0) 131.2 (77.8) (83.5) (36.1) (162.4) 18.5 13.4 11.1 1.1 1.0 0.9 — — — (1.8) (4.0) (0.9) — — 3.1

Gujarat Pipavav Port 57 ADD 24,164 485 424 (1.2) 1.2 2.3 (65.8) (195.8) 100.8 (47.5) 49.6 24.7 25.0 16.6 12.8 3.3 3.1 2.7 — — — (9.1) 8.9 12.1 63 10.4 0.3

GVK Power & Infrastructure 15 RS 24,320 488 1,579 1.0 1.0 0.3 (0.6) 1.6 (73.4) 15.7 15.4 58.0 17.6 16.2 19.1 0.7 0.7 0.7 — 1.9 2.3 4.7 4.6 1.2 — — 4.0

IRB Infrastructure 164 ADD 54,641 1,097 332 13.6 11.9 15.2 30.4 (12.9) 27.9 12.1 13.9 10.8 8.1 8.5 7.2 2.1 1.6 1.3 0.9 — — 19.3 13.1 13.0 190 15.6 4.0

Infrastructure Cautious 618,440 12,420 10.5 4.5 34.6 27.8 26.6 19.8 16.5 13.8 11.3 2.4 2.1 1.9 0.7 0.7 0.9 8.7 7.8 9.5

Dividend yield (%)


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Media

DB Corp 190 BUY 34,732 697 183 14.1 11.2 13.5 32.7 (20.7) 20.6 13.4 17.0 14.1 8.7 9.9 8.2 4.2 3.7 3.3 2.1 2.1 3.2 35.0 23.0 24.5 300 58.3 0.1

DishTV 61 BUY 65,109 1,308 1,063 (1.8) (0.7) 0.6 (27.7) (62.1) (192.8) (34.3) (90.6) 97.6 30.4 14.2 10.6 103.8 (713.7) 113.1 — — — (81.9) (268.1) 275.3 80 30.6 5.7

Eros International 198 BUY 19,218 386 97 11.8 15.6 19.6 19.0 32.7 25.6 16.8 12.7 10.1 11.6 8.9 6.4 2.8 2.3 1.9 — — — 24.9 20.1 20.4 270 36.2 1.2

Hindustan Media Ventures 119 BUY 8,748 176 73 7.3 9.0 10.6 198.0 23.3 17.8 16.3 13.2 11.2 7.6 7.2 5.5 2.3 2.0 1.7 0.8 0.8 1.7 23.3 16.1 16.5 190 59.4 0.0

HT Media 135 ADD 31,776 638 235 7.7 7.5 9.2 31.0 (3.1) 23.3 17.6 18.1 14.7 8.2 9.0 6.6 2.2 2.1 1.9 0.3 1.5 3.0 14.9 11.8 13.4 160 18.4 0.1

Jagran Prakashan 95 BUY 30,123 605 316 6.8 6.6 7.9 16.7 (3.1) 20.0 14.0 14.4 12.0 8.3 8.0 6.8 4.3 3.9 3.4 3.7 3.7 4.2 32.8 28.1 30.1 150 57.5 0.1

Sun TV Network 291 BUY 114,736 2,304 394 19.5 20.0 23.8 48.1 2.5 18.9 14.9 14.5 12.2 9.0 8.5 7.3 4.7 4.2 3.8 3.0 3.4 4.8 36.5 32.1 33.8 400 37.4 5.0

Zee Entertainment Enterprises 125 BUY 122,247 2,455 978 5.8 6.2 7.7 10.0 6.4 23.3 21.4 20.1 16.3 14.4 13.2 10.5 2.9 2.8 2.7 1.1 1.1 1.3 14.2 14.3 16.9 160 28.1 3.3

Media Neutral 426,688 8,569 51.6 8.0 28.4 21.6 20.0 15.6 11.5 10.4 8.3 4.0 3.6 3.3 1.6 1.8 2.5 18.4 18.2 21.3

Metals & Mining

Coal India 336 ADD 2,120,088 42,576 6,316 17.3 22.9 27.4 13.6 32.1 20.0 19.4 14.7 12.2 11.3 8.6 7.2 6.1 4.8 3.8 1.2 2.0 2.5 35.1 36.5 34.9 380 13.2 26.3

Hindalco Industries 138 ADD 263,394 5,290 1,915 12.8 15.4 16.0 (36.0) 20.6 4.1 10.8 8.9 8.6 6.0 6.9 6.4 0.9 0.8 0.8 1.1 1.1 1.1 9.7 9.7 9.3 150 9.1 25.7

Hindustan Zinc 132 ADD 559,601 11,238 4,225 11.6 12.7 14.7 21.8 8.8 16.0 11.4 10.4 9.0 7.5 6.4 4.5 2.5 2.1 1.8 0.8 1.9 1.9 24.3 21.8 21.4 150 13.3 1.7

Jindal Steel and Power 533 REDUCE 497,795 9,997 934 40.2 40.9 46.1 5.1 1.7 12.7 13.3 13.0 11.6 9.9 9.5 8.8 3.5 2.8 2.3 0.3 0.3 0.3 30.9 24.1 21.8 530 (0.5) 19.7

JSW Steel 682 REDUCE 154,030 3,093 226 78.6 63.3 74.9 (2.2) (19.4) 18.2 8.7 10.8 9.1 6.4 5.8 6.2 0.9 0.9 0.8 1.8 1.5 1.5 13.6 14.1 9.2 610 (10.5) 38.1

National Aluminium Co. 56 SELL 144,841 2,909 2,577 4.2 3.5 3.9 36.4 (16.7) 13.1 13.5 16.2 14.4 5.9 7.0 5.8 1.3 1.2 1.2 2.7 2.7 2.7 9.9 7.8 8.5 55 (2.1) 0.4

Sesa Goa 204 REDUCE 182,295 3,661 895 48.6 32.7 46.8 65.3 (32.7) 43.1 4.2 6.2 4.4 3.6 5.5 5.8 1.4 1.2 0.9 1.9 1.9 1.9 36.8 17.2 22.1 190 (6.7) 12.5

Sterlite Industries 113 BUY 378,639 7,604 3,361 15.2 13.5 15.2 26.2 (11.0) 12.4 7.4 8.3 7.4 4.6 4.0 3.2 0.9 0.8 0.8 1.0 1.8 1.8 13.0 10.5 10.8 150 33.2 15.2

Tata Steel 442 BUY 429,655 8,628 971 75.3 42.4 56.2 (2,258.1) (43.7) 32.6 5.9 10.4 7.9 5.8 7.3 5.9 1.2 1.0 1.0 2.7 2.7 2.7 24.7 9.2 12.7 490 10.8 54.2

Metals & Mining Cautious 4,730,338 94,996 39.1 0.2 16.2 11.4 11.4 9.8 7.2 7.0 6.1 2.2 1.9 1.6 1.2 1.8 2.0 19.0 16.5 16.7

Pharmaceutical

Apollo Hospitals 598 BUY 83,067 1,668 139 13.2 17.1 21.2 21.0 29.3 24.0 45.2 34.9 28.2 20.5 15.3 13.1 4.3 3.3 2.9 — — — 9.8 10.3 10.5 650 8.7 5.2

Biocon 258 BUY 51,580 1,036 200 18.4 16.8 20.7 23.9 (8.7) 23.2 14.0 15.4 12.5 7.8 8.5 6.7 2.5 2.3 2.0 — — — 19.4 15.7 17.2 380 47.3 2.8

Cipla 341 SELL 274,157 5,506 803 12.3 15.6 18.4 (10.0) 26.2 18.0 27.7 21.9 18.6 24.0 16.5 13.2 4.1 3.6 3.1 0.8 0.9 1.0 15.4 17.2 18.0 330 (3.4) 9.5

Cadila Healthcare 655 REDUCE 134,202 2,695 205 34.7 32.5 45.4 40.6 (6.5) 39.8 18.9 20.2 14.4 16.5 14.4 11.2 6.2 5.0 4.0 1.0 1.0 1.4 37.5 27.4 30.7 765 16.7 1.3

Dishman Pharma & chemicals 51 REDUCE 4,148 83 81 9.8 (0.9) 11.0 (31.8) (109.1) (1,325.4) 5.2 (57.1) 4.7 7.6 10.8 6.2 0.5 0.5 0.4 — — — 9.6 (0.8) 9.9 40 (21.6) 0.2

Divi's Laboratories 786 ADD 104,231 2,093 133 32.4 37.4 46.4 25.7 15.6 24.1 24.3 21.0 16.9 20.1 16.4 12.0 5.8 4.9 4.2 — — — 25.9 25.4 26.8 935 19.0 2.4

Dr Reddy's Laboratories 1,656 ADD 281,480 5,653 170 64.9 82.3 108.3 932.5 26.7 31.5 25.5 20.1 15.3 17.9 13.3 10.3 6.1 4.9 3.8 0.7 0.8 0.8 24.8 27.0 28.0 1,800 8.7 11.4

GlaxoSmithkline Pharmaceuticals (a) 1,934 SELL 163,854 3,291 85 68.3 75.5 83.3 15.5 10.6 10.3 28.3 25.6 23.2 18.6 17.8 15.5 8.4 8.6 8.0 2.1 2.6 2.9 30.9 33.2 35.7 1,930 (0.2) 0.9

Glenmark Pharmaceuticals 312 BUY 84,329 1,694 270 17.0 22.3 27.6 33.6 31.4 23.7 18.4 14.0 11.3 20.5 17.0 10.4 4.1 3.2 2.6 — — — 20.6 26.0 25.2 375 20.3 3.3

Jubilant Life Sciences 175 REDUCE 27,878 560 159 14.4 11.6 34.9 (45.6) (19.8) 201.6 12.1 15.1 5.0 10.3 6.6 5.9 1.3 1.2 1.0 1.1 1.1 1.7 12.3 19.8 18.8 180 2.9 0.5

Lupin 472 ADD 211,323 4,244 448 19.2 21.1 26.5 25.6 9.7 25.3 24.5 22.3 17.8 20.5 17.7 13.2 6.3 5.1 4.2 0.6 0.7 1.0 29.5 25.8 26.2 520 10.3 7.5

Ranbaxy Laboratories 451 SELL 190,675 3,829 423 40.6 19.0 42.8 474.9 (53.3) 125.7 11.1 23.7 10.5 13.6 14.2 8.5 3.4 3.2 2.4 — — — 34.5 14.0 26.4 400 (11.2) 10.6

Sun Pharmaceuticals 534 ADD 552,596 11,097 1,036 17.5 21.7 28.3 34.4 23.5 30.5 30.4 24.6 18.9 26.1 18.3 14.2 5.3 4.4 3.6 0.7 0.7 0.9 21.0 21.6 23.4 625 17.1 9.1

Pharmaceuticals Neutral 2,163,519 43,449 43.1 7.3 34.7 22.7 21.1 15.7 18.3 14.4 10.8 3.6 3.1 2.6 0.7 0.8 1.0 16.0 14.8 16.8

Property

DLF 205 ADD 351,487 7,059 1,715 9.1 11.9 15.7 (14.5) 31.3 31.8 22.6 17.2 13.1 15.4 12.2 9.2 1.3 1.3 1.2 1.0 1.2 1.4 5.4 7.5 9.2 270 31.7 36.0

Housing Development & Infrastructure 76 BUY 33,318 669 441 19.8 24.8 32.7 24.2 25.0 32.1 3.8 3.1 2.3 4.5 5.7 3.8 0.4 0.3 0.3 — 1.3 2.0 10.0 10.7 12.4 150 98.5 17.6

Indiabulls Real Estate 67 RS 26,769 538 402 4.0 8.5 15.4 (1,095.5) 114.1 81.5 16.8 7.8 4.3 12.3 9.8 4.3 0.2 0.2 0.2 0.5 0.8 1.1 1.4 2.9 5.0 — — 9.7

Mahindra Life Space Developer 277 BUY 11,312 227 41 24.9 30.8 37.5 30.2 23.7 21.6 11.1 9.0 7.4 8.4 6.0 4.4 1.1 1.0 0.9 1.8 1.6 1.8 10.4 11.6 12.7 450 62.3 0.2

Oberoi Realty 245 BUY 80,672 1,620 330 15.7 14.9 26.4 14.8 (5.0) 77.3 15.6 16.4 9.3 11.6 11.9 5.7 2.4 2.2 1.8 0.4 0.6 1.0 19.9 13.9 21.1 300 22.6 0.2

Phoenix Mills 177 BUY 25,609 514 145 6.3 7.4 10.7 53.0 17.2 44.1 27.9 23.8 16.5 20.7 17.3 12.9 1.6 1.5 1.4 1.0 1.1 1.1 5.8 6.6 8.9 300 69.7 0.1

Puravankara Projects 64 REDUCE 13,638 274 213 5.5 9.0 10.9 (18.9) 62.8 21.5 11.6 7.1 5.8 16.7 9.2 7.7 0.9 0.8 0.7 1.6 2.3 3.1 8.0 12.0 13.1 80 25.2 0.0

Sobha Developers 255 BUY 25,021 502 98 18.8 15.6 25.7 33.8 (17.2) 65.3 13.6 16.4 9.9 11.8 12.7 8.0 1.3 1.3 1.1 1.2 1.4 1.6 10.2 7.9 12.0 340 33.3 0.7

Unitech 26 RS 66,716 1,340 2,616 2.3 2.3 2.3 (23.4) 0.2 (3.0) 11.0 11.0 11.3 13.1 11.1 9.3 0.6 0.5 0.5 0.4 0.8 1.2 5.4 5.0 4.4 — — 10.7

Property Cautious 667,930 13,414 5.3 33.1 35.6 15.6 11.7 8.6 12.7 10.3 7.3 1.0 0.9 0.8 0.8 1.1 1.4 6.1 7.5 9.3

Dividend yield (%)


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Technology

HCL Technologies 429 REDUCE 302,480 6,075 705 22.9 33.8 39.9 30.4 47.9 18.0 18.8 12.7 10.8 11.4 7.4 6.4 3.6 2.7 2.2 1.7 1.9 1.9 21.0 22.8 22.3 460 7.2 10.4

Hexaware Technologies 81 ADD 23,566 473 290 3.0 8.6 9.5 (36.8) 191.2 10.8 27.5 9.4 8.5 20.6 7.6 5.1 2.4 2.1 1.8 1.8 3.7 4.0 9.3 24.0 23.1 100 23.2 1.9

Infosys 2,712 BUY 1,556,860 31,265 574 119.7 147.5 178.1 10.5 23.2 20.8 22.7 18.4 15.2 15.5 12.2 9.7 6.0 5.0 4.1 2.2 1.7 2.1 28.0 29.6 29.6 3,100 14.3 73.1

Mahindra Satyam 73 REDUCE 85,848 1,724 1,176 4.2 7.5 8.1 68.9 79.5 7.0 17.4 9.7 9.1 12.9 5.8 4.2 5.0 3.3 2.4 — — — 27.6 41.0 30.8 80 9.6 5.8

Mindtree 427 ADD 17,590 353 41 24.7 50.5 53.9 (52.7) 104.5 6.8 17.3 8.5 7.9 9.7 5.7 4.3 2.3 1.8 1.6 0.6 1.2 3.8 14.4 23.9 21.5 540 26.3 0.6

Mphasis 375 SELL 79,095 1,588 211 51.8 39.0 34.6 18.8 (24.6) (11.4) 7.3 9.6 10.9 6.1 8.0 7.2 2.4 2.0 1.8 1.1 1.2 1.3 38.6 22.8 17.3 310 (17.4) 2.0

Polaris Financial Technology 139 REDUCE 13,868 279 100 19.3 21.7 24.0 25.7 12.5 10.4 7.2 6.4 5.8 4.1 2.5 1.8 1.3 1.1 1.0 2.7 2.8 2.9 20.2 19.2 18.2 145 4.2 1.2

TCS 1,112 BUY 2,175,917 43,698 1,957 44.5 55.2 67.5 26.8 24.1 22.1 25.0 20.1 16.5 18.9 14.1 11.5 8.6 7.0 5.7 1.6 2.0 2.4 37.8 38.5 38.3 1,250 12.4 36.7

Tech Mahindra 629 SELL 79,298 1,592 126 48.0 75.2 80.0 (26.3) 56.5 6.5 13.1 8.4 7.9 8.9 9.5 7.8 2.4 2.0 1.8 0.6 0.6 1.6 20.2 27.2 25.3 600 (4.7) 2.0

Wipro 410 ADD 1,005,649 20,196 2,454 21.6 23.2 28.2 14.5 7.4 21.7 19.0 17.7 14.5 14.1 12.0 9.5 4.2 3.5 3.0 1.1 1.2 1.5 24.3 21.7 22.2 460 12.2 15.0

Technology Attractive 5,401,444 108,474 17.0 21.2 19.2 21.0 17.4 14.6 15.2 11.9 9.6 5.5 4.5 3.8 1.8 1.7 2.1 26.2 26.1 25.8

Telecom

Bharti Airtel 357 ADD 1,356,313 27,238 3,798 15.9 14.4 25.2 (32.6) (9.4) 75.0 22.4 24.8 14.2 9.8 8.2 6.2 2.8 2.9 2.4 — — — 13.3 11.5 18.8 405 13.4 46.4

IDEA 91 ADD 299,114 6,007 3,303 2.7 2.1 4.6 (0.5) (22.2) 118.5 33.3 42.8 19.6 10.8 8.4 6.4 2.4 2.4 2.1 — — — 7.6 5.7 11.6 100 10.4 13.1

MTNL 29 RS 18,207 366 630 (10.4) (9.1) (8.4) (33.7) (11.9) (8.1) (2.8) (3.2) (3.4) 1.1 1.5 1.9 0.2 0.2 0.2 — — — (6.1) (5.7) (5.5) — — 0.4

Reliance Communications 93 SELL 191,952 3,855 2,064 6.5 3.5 2.6 (71.1) (46.9) (24.9) 14.3 26.9 35.8 6.3 8.2 7.0 0.5 0.5 0.5 — — — 3.2 1.7 1.3 60 (35.5) 16.3

Tata Communications 223 REDUCE 63,527 1,276 285 (24.9) (27.0) (26.6) (13.0) 8.4 (1.4) (9.0) (8.3) (8.4) 11.4 8.6 7.7 1.8 2.5 4.1 — — — (17.5) (25.1) (37.0) 215 (3.5) 0.9

Telecom Cautious 1,929,112 38,741 (45.8) (19.8) 86.8 27.9 34.8 18.6 9.3 8.4 6.4 1.7 1.7 1.6 — — — 6.0 4.9 8.5

Utilities

Adani Power 79 REDUCE 188,704 3,790 2,393 2.4 5.3 10.1 200.7 126.4 90.2 33.5 14.8 7.8 35.0 15.0 6.2 3.0 2.3 1.8 — — — 8.5 17.7 26.0 74 (6.2) 2.5

CESC 250 BUY 31,228 627 125 39.1 37.8 41.4 13.1 (3.4) 9.5 6.4 6.6 6.0 4.4 5.9 6.0 0.7 0.6 0.5 1.6 1.9 2.0 10.8 9.6 9.6 400 60.0 1.4

JSW Energy 55 REDUCE 90,364 1,815 1,640 5.1 1.6 2.3 12.9 (69.5) 44.8 10.7 35.2 24.3 11.8 17.7 8.2 1.6 1.6 1.5 (1.8) — — 16.1 4.5 6.3 43 (22.0) 1.4

Lanco Infratech 15 BUY 32,789 658 2,223 1.6 1.9 2.6 (22.6) 14.7 36.9 8.9 7.8 5.7 10.1 10.4 7.3 0.7 0.6 0.6 — — — 9.2 8.4 10.3 39 164.4 4.1

NHPC 20 BUY 246,630 4,953 12,301 1.3 2.0 2.2 (27.2) 49.2 7.2 14.9 10.0 9.3 11.1 10.3 7.5 0.9 0.9 0.8 3.0 2.7 2.9 6.4 9.0 9.1 29 44.6 2.6

NTPC 172 REDUCE 1,416,159 28,440 8,245 10.9 11.4 12.2 4.2 4.1 7.6 15.7 15.1 14.0 11.9 13.3 11.5 2.1 1.9 1.7 2.3 2.0 2.1 13.6 13.0 12.9 175 1.9 9.0

Reliance Infrastructure 515 BUY 136,535 2,742 265 58.0 57.2 75.6 (6.5) (1.4) 32.2 8.9 9.0 6.8 11.8 7.6 7.3 0.6 0.6 0.5 1.4 2.0 2.2 6.8 10.3 9.0 890 72.9 18.7

Reliance Power 97 SELL 271,396 5,450 2,805 2.7 2.7 2.9 (0.2) (2.0) 7.7 35.7 36.4 33.8 142.1 50.0 23.0 1.6 1.5 1.5 — — — 4.9 4.3 4.5 76 (21.4) 8.2

Tata Power 103 BUY 254,363 5,108 2,468 7.6 7.1 8.2 21.5 (6.5) 14.1 13.5 14.4 12.6 10.7 8.5 8.8 1.7 1.6 1.5 1.4 1.5 1.6 13.8 11.6 12.1 125 21.3 7.0

Utilities Cautious 2,668,167 53,583 4.3 7.2 17.2 15.6 14.6 12.4 13.2 12.2 9.5 1.6 1.4 1.3 1.7 1.6 1.7 9.9 9.9 10.6

Others

Carborundum Universal 149 REDUCE 27,873 560 187 9.1 11.6 12.5 67.7 26.6 7.8 16.3 12.9 12.0 10.1 7.4 6.8 3.3 2.7 2.3 1.3 1.6 1.8 25.2 25.9 23.4 155 4.0 0.1

Havells India 444 ADD 55,363 1,112 125 24.5 27.5 30.5 334.1 12.0 10.8 18.1 16.1 14.6 11.6 10.3 8.9 7.8 5.6 4.2 0.6 0.6 0.7 53.9 40.4 32.8 450 1.4 3.2

Jaiprakash Associates 66 BUY 140,771 2,827 2,126 6.0 6.4 6.9 230.2 5.9 7.6 11.0 10.4 9.7 11.5 8.5 7.5 1.3 1.2 1.1 — — — 13.3 12.0 11.7 105 58.6 23.2

Jet Airways 245 BUY 21,142 425 86 (10.1) (233.8) (24.3) (91.0) 2,225 (89.6) (24.4) (1.0) (10.1) 9.6 (157.6) 9.5 1.3 (5.0) (3.3) — — — (5.0) — — 320 30.7 10.5

SpiceJet 22 BUY 9,533 191 441 2.5 (5.4) 3.0 (1.8) (317.9) (154.4) 8.7 (4.0) 7.3 12.6 (9.1) 9.7 3.0 6.5 3.4 — — — (961) (102.5) 61.4 50 131.5 1.3

Tata Chemicals 334 REDUCE 85,152 1,710 255 26.2 32.9 38.8 (0.7) 25.4 17.9 12.7 10.2 8.6 7.7 5.4 4.6 1.6 1.4 1.2 3.0 3.6 4.5 16.9 18.6 19.5 365 9.2 2.1

United Phosphorus 144 BUY 66,384 1,333 462 12.3 14.6 23.5 3.9 17.9 61.6 11.6 9.9 6.1 7.1 4.7 3.9 1.8 1.6 1.3 1.4 2.1 2.4 18.0 16.9 23.3 170 18.3 3.0

Others 406,219 8,158 233.8 (58.9) 248.3 14.3 34.8 10.0 10.1 9.4 6.9 1.7 1.7 1.5 1.0 1.3 1.6 12.1 4.9 14.8

KS universe (b) 44,295,644 889,560 18.4 8.4 21.3 15.1 13.9 11.5 9.8 8.7 7.2 2.3 2.1 1.8 1.6 1.7 2.0 15.4 14.9 15.9

KS universe (b) ex-Energy 36,872,046 740,477 20.6 7.9 21.8 16.3 15.1 12.4 11.4 10.1 8.3 2.6 2.3 2.0 1.5 1.6 1.8 16.0 15.3 16.3

KS universe (d) ex-Energy & ex-Commodities 31,012,534 622,804 19.2 9.0 23.4 17.3 15.9 12.9 12.8 11.2 9.0 2.7 2.4 2.1 1.5 1.5 1.7 15.6 15.1 16.3

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$)= 49.80

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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Copyright 2012 Kotak Institutional Equities (Kotak Securities Limited). All rights reserved.

1. Note that the research analysts contributing to this report may not be registered/qualified as research analysts with FINRA; and

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

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

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