india daily, may 25, 2012 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 DAILYMay 25, 2012 India 24-May 1-day1-mo 3-mo

Sensex 16,222 1.7 (5.4) (9.5)

Nifty 4,921 1.8 (5.4) (9.4)

Global/Regional indices

Dow Jones 12,530 0.3 (4.3) (3.5)

Nasdaq Composite 2,839 (0.4) (6.3) (4.2)

FTSE 5,350 1.6 (6.5) (9.9)

Nikkie 8,573 0.1 (10.3) (11.1)

Hang Seng 18,684 0.1 (9.5) (12.7)

KOSPI 1,825 0.6 (7.0) (9.7)

Value traded – India

Cash (NSE+BSE) 110 117 138

Derivatives (NSE) 1,664 1,501 869

Deri. open interest 1,344 1,283 1,026

Forex/money market

Change, basis points

24-May 1-day 1-mo 3-mo

Rs/US$ 55.7 (14) 318 655

10yr govt bond, % 8.6 - (5) 22

Net investment (US$mn)

23-May MTD CYTD

FIIs (57) (168) 8,595

MFs 19 1 (282)

Top movers -3mo basis

Change, %

Best performers 24-May 1-day 1-mo 3-mo

DIVI IN Equity 941.0 (0.3) 14.0 30.6

RBXY IN Equity 525.6 4.9 2.0 22.6

APNT IN Equity 3749.8 2.0 9.6 22.3

LPC IN Equity 534.1 (0.8) (3.5) 13.4

GNP IN Equity 355.0 (0.6) 8.7 12.9

Worst performers

HDIL IN Equity 62.2 1.5 (23.6) (42.4)

ADE IN Equity 242.3 0.4 (12.1) (35.7)

UT IN Equity 21.5 1.4 (21.6) (33.9)

EDSL IN Equity 143.9 (1.8) (24.7) (32.8)

BHEL IN Equity 208.1 (0.3) (10.3) (31.5)

Contents

Special Reports

Strategy

Strategy: A brave new India

Daily Alerts

Results

Reliance Power: Rosa sustains stable operations

Hindalco Industries: Novelis disappoints

GSPL: High tariffs offset low volumes

Jet Airways: In-line results; continued stress on cash flows

Company

Bharti Airtel: Qualcomm BWA stake purchase - good strategic intent

Jagran Prakashan: Valid concerns, undue pessimism

Sector

Banks/Financial Institutions: It’s restructuring all the way

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

Here’s to a better system and a new India

We hope the current period of policy inaction in India reflects a transition to a better system of doing business in India, a system based on transparent policies, processes and regulations. We see a better system as being imperative for a more inclusive and sustainable development of India. We welcome the eradication of certain business practices that exploited regulatory and policy deficiencies in certain sectors.

Executive, judicial and regulatory intervention or inadvertent clean-up?

Investors may worry about a bigger role of the Indian executive, judiciary and regulators in business affairs and find it retrograde and interventionist. We view this in a positive light, as necessary cleaning up of an archaic system that thrived on contacts, corruption and cronyism. India may have to pay a price for past excesses through lower GDP growth (policy inaction) over the next 1-2 years. However, we see this as a cross to bear to get rid of a system that fostered corruption in all facets of economic activity.

Unsustainable business models may face challenges in the new environment

The debate about increased Government ‘interference’ notwithstanding, we believe many business models that thrived on some form of regulatory or policy ‘capture’ may face a different and difficult operating environment. Industries and companies can no longer look at a favorable system, policy lacunae and regulatory oversight to earn high returns. They may have to change their business models suitably and focus on volume growth. Investors may have already made their choices albeit painfully. It is up to the companies now.

The political class must choose between politics and development

India’s political leadership has a choice. It can (1) seize the opportunity to change the system and create goodwill among Indian citizens through a better development model and sensible governance or (2) continue with the current system of weak governance and haphazard policies, an approach that is unlikely to meet the aspirations of most Indians. The current ‘halfway’ model will neither eradicate corruption nor result in strong economic growth.

Strategy.dot

Strategy India

A brave new India. We see some of the recent actions of the Indian executive, judiciary and regulators as an attempt to restore the primacy of law and democratic institutions in India. We hope for an equitable, inclusive and transparent development model after eradication of a system based on corruption, cronyism and dysfunctional systems. It may have resulted in strong economic activity but it also extracted very high invisible costs from the Indian economy and society.

INDIA

MAY 24, 2012

NEW RELEASE

BSE-30: 16,222

Strategy India

KOTAK INSTITUTIONAL EQUITIES RESEARCH 3

The difficulty of doing business is probably a big cause of corruption in India Ease of Doing Business Index (#)

Rank Country Rank Country1 Singapore 51 Hungary2 Hong Kong 62 Poland3 New Zealand 71 Turkey4 United States 87 Italy5 Denmark 89 Sri Lanka7 United Kingdom 91 China

13 Canada 94 Morocco

15 Australia 105 Pakistan

17 Thailand 109 Kenya

18 Malaysia 113 Argentina

19 Germany 126 Brazil

20 Japan 129 Indonesia

23 Mauritius 132 India25 Taiwan 133 Nigeria

29 France 136 Philppines

33 UAE 142 Bhutan

35 South Africa 144 Iran

36 Qatar 153 Bolivia

37 Slovenia 160 Afghanistan

44 Spain 171 Zimbabwe

49 Oman 183 Chad

Source: World Bank Doing Business report, Kotak Institutional Equities

Several cases of anti-competitive and anti-consumer behavior penalized by the CCI List of cases in which the CCI penalized price collusion, price manipulation or anti-consumer behavior

Sector Matter under deliberation by CCI Judgment of CCI in the matter PenaltyBFSI Allegations of anti-competitive behavior and

abuse of dominant position against NSEFinds NSE (and subsidiaries) to have indulged in abuse of its dominant position, as evidenced by (1) perpetual free trading in currency derivatives and (2) denial of software interface to competition/other players in the market

5% of average three years turnover of the company. Also directs company to 'cease and desist' from unfair pricing and exclusionary conduct

Chemicals Allegations of anti-competitive conduct for procurement of Aluminum Phosphide Tablets (ALP) required for preservation of food grains by FCI

Finds APL manufactures to have indulged in collusive bidding, as evidenced by their identical bids for APL contracts across time periods/contracts

9% of average three years turnover of ALP manufactures, including United Phosphorous Ltd

Oil & Gas Suo-moto case regarding alleged collusion of LPG cylinder manufactures in tenders floated by downstream oil companies (BPCL/HPCL/IOCL)

Finds LPG cylinder manufactures to have indulged in collusive bidding, as evidenced by six common agents and common meetings called and attended by the manufacturers right before the bidding date

9% of average three years turnover of 48 LPG manufacturers

Media Allegations by film production/distribution companies against explicit 'tie-in', 'exclusive distribution' and 'refusal to deal' agreements promoted by Theatre trade associations as coercive and anti-competitive conduct

Finds the rules of these trade associations in contravention of Competition Act, such as (1) prohibition of members to deal with non-members (exclusion), (2) additional restrictions imposed on non-regional films, among others

10% of average three year receipts of the trade associations. Also directs trade associations to review their rules and regulations in line with the decision

Real Estate Allegations of abuse of dominant position by DLF Ltd in development of high-end residential real estate market in Gurgaon area in Haryana state

Finds DLF Ltd dominant player in the relevant real estate market in Gurgaon and having abused its dominant position, as evidenced by the unfair and discriminatory terms and conditions of the agreements with the buyers

7% of average three years turnover of the company. Also directs company to 'cease and desist' from imposing unfair and discriminatory conditions

Sugar Suo-moto case regarding alleged anti-competitive practices of sugar mills in India

Absolves sugar mills of anti-competitive practices, citing market inefficiencies due to excessive regulatory/government control over sugar and sugarcane.

None. Also, urges the government to frame policies that allow market forces a bigger role in the sector

Travel Allegations of 'cartel-like' actions against travel agent associations in collective boycott of airlines shifting from commission to transaction model of operation

Finds the collective boycott call given by travel associations in contravention of Competition Act, notably direction to members to stop selling tickets of certain airlines

None. Directs travel agent associations to not indulge in such anti-competitive conduct in the future

India Strategy

4 KOTAK INSTITUTIONAL EQUITIES RESEARCH

Source: CCI, Kotak Institutional Equities

The DGH has followed the rulebook strictly for E&P activities in several blocks Recent actions by the Directorate General of Hydrocarbons

Block/field Period Action Reason Consortium

CB-ONN-2003/1 April-12Refused to grant extension of phase-1 by 12 months

Non-completion of mandated MWP under phase-1 by the operator

Reliance Industries, BP Plc

AA-ONJ/2 April-12Rejected ONGC's demand for restructuring of MWP

Proposal rejected on technical grounds ONGC

NEC-OSN-97/2 March-12Refused to review RIL's DoC for D-32 and D-40 gas discoveries

Operator's improper assessment of the production potential from these discoveries

Reliance Industries, Niko Resources, BP Plc

MN-DWN-98/2 March-12Rejected the work program and budget for FY2012-13

Expiry of rig moratorium and incomplete MWP commitments


MZ-ONN-2004/1 February-12Disapproved request for extension of phase-1 exploration

Adequate time and extensions already given OIL, SUNTERA, Shiv-Vani

KG-DWN-98/3 February-12Refused to accept DoC for D-29, D-30 and D-31 gas discoveries

Operator's non-compliance with standard procedures regarding generation of production profile

Reliance Industries, Niko Resources, BP Plc

AA-ONN-2004/1 December-11 Refused to invoke the Force Majeure clause Operator did not report the occurrence on time

OIL, Shiv-Vani

KG-DWN-2001/1 December-11Refused to grant extension for six months to complete the remaining phase-1 MWP

Operator has already been given two extensions earlier

Reliance Industries, Hardy Oil, BP Plc

Kharsang field November-11Refused to allow more than five and a half years as Force Majeure delays

As per terms and conditions stipulated in PSC GeoEnpro Petroleum Ltd

KG-DWN-2003/1 September-11Refused to accept DoC for D-39 and D-41 gas discoveries

Operator violated the PSC norms by including a third discovery in the declaration

Reliance Industries, Hardy Oil, BP Plc

CY-PR-DWN-2001/3 August-11Rejected proposal for third extension in phase-1

Proposed work program during the extension period does not constitute any additional activity in the block


AS-ONN-2000/1 August-11Rejected proposal for six month extension in phase-1

No work program under progressReliance Industries, Hardy Oil, BP Plc

CY-DWN-2001/2 June-11Refused to allow RIL to enter phase-2 of the exploration

Notice period for entering phase-2 already over


North Kathana ML November-10 Denied cost recovery at the TS#8 well Not reviewed/approved by MC Heramec, GSPC

KG-DWN-98/1 October-10Reduced 2009-10 budget from US$42 mn to US$3.41 mn

Appraisal budget restricted to actual costs Reliance Industries, BP Plc

KG-OSN-2001/3 October-10Refused to grant extension to exploration period

Operator submitted the appraisal program 18 days after the scheduled deadline

GSPC, Geo Global Resources, Jubilant Enpro

CY-OS-2 July-10Asked Hardy to relinquish its rights for the block

Non-submission of DoC for a discovery made three years ago

Hardy Oil

NEC-DWN-2002/1 June-10Refused to allow RIL's estimates of PCOs for cost recovery

PCOs are not cost recoverableReliance Industries, Hardy Oil, BP Plc

KK-DWN-2002/2 May-10Refused to substitute the MWP obligation of drilling a well by an alternate 3D API program

Nature of data generated will not be same ONGC, HPCL

KG-OSN-2001/1 April-10Rejected DoC for D-28, D-37 and D-38 discoveries

RIL submitted DoC after the deadline for submission

Reliance Industries

Notes:MC = Management Committee.PSC = Production Sharing Contract.DoC = Declaration of Commerciality.PCO = Parent Company Overheads.

Source: Indian Petro, Infraline, Kotak Institutional Equities

Strategy India


The RBI has been introducing regulations to safeguard India's financial system Recent regulations impacting the banking sector

Year Regulation2009 Payment of interest on savings bank accounts on a daily-product basis

2010 Housing loans by commercial banks: LTV ratio, risk weight and provisioning

2010 Maintenance of Statutory Liquidity Ratio (SLR)

2010 Credit card operations of banks

2010 Prudential guidelines on restructuring of advances by banks

2011 Enhancement of rates of provisioning for non-performing assets and restructured advances

2011 Housing loan limit under priority sector

2011 Marginal standing facility scheme

2011 Interest rate on savings deposits increased

2011 Provisioning coverage ratio for advances

2011 Classification of loans against gold jewelry

2011 Annual financial inspection, priority sector loans, mis-classification by Banks

2011 Draft guidelines for implementation of Basel III Capital Regulations in India

2011 Deregulation of interest rates on NRE deposits and NRO accounts

2011 Marginal standing facility scheme

2011 Interest rates on non-resident (external) rupee (NRE) deposits and FCNR(B) deposits

2011 Guidelines on base rate

2011 Master circular for lending to priority sector

2012 Fair practices code for NBFCs

2012 Lending against gold - LTV ratio capped at 60%

2012 Housing loans by commercial banks: Loan-to-value (LTV) ratio

2012 Deregulation of savings rate

2012 Introduction of Basel-3 final guidelines

Source: Kotak Institutional Equities

India’s tax-to-GDP ratio (based on Central taxes) has languished at 10% for the past few years Tax-to-GDP ratio, March fiscal year-ends, 1998-13E (%)

8.98.0

8.5 8.78.0

8.6 9.0 9.4 9.911.0

11.910.8

9.710.3 10.1 10.6 10.8

0

2

4

6

8

10

12

14

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

RE

2013

BE

2013

E

Tax/GDP (%)

Source: CEIC, Kotak Institutional Equities estimates

India Strategy


Consolidated fiscal deficit has deteriorated over the past few years Consolidated fiscal deficit, March fiscal year-ends, 2000-13E (%)

9.7 9.610.0 9.7

8.6

7.26.7

5.74.9

9.7 9.8

7.8 7.97.1

7.6

0

2

4

6

8

10

12

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

RE

2013

BE

2013

E

GFD/GDP (%)

Source: CEIC, Kotak Institutional Equities estimates

Major projects in the metals sector are unable to start operations or are operating at low capacity utilizations List of major projects in the metals sector suffering from environment and raw material sourcing issues

CapexCompany Project Description (US$ mn) Comments

Hindalco Industries Mahan aluminum project Aluminum smelter 2,283

Removal of clearance for Mahan Coal Block as it is was found to be located in a No-Go forest area. The matter is under review by the GoM and the company has applied for a tapering linkage in the interim. Project unviable without coal block or linkage

Hindustan Zinc Zawar mines1.2 mtpa ore production capacity

NA Forest clearance pending

Jindal Steel and Power Angul integrated steel project3 mtpa Integrated steel complex

3,100 Delays in obtaining forest clearance & execution of mining lease

Jindal Steel and Power Tamnar II project2,400 MW Integrated Power Project

2,917 Delays in obtaining environmental clearance for power plant

Sesa Goa Narrain mines in Karnataka6 mtpa ore production capacity

NASupreme Court has banned mining activity in the Bellary, Hospet and Chitradurga-Tumkur regions of Karnataka

Sesa Goa Goa mining capacity expansion Iron ore mining NADelays in obtaining clearance from the Ministry of Environment and Forests (MOEF)

Sterlite Industries Tuticorin expansion project 0.4 mtpa copper expansion 500 Problems with existing 0.4 mtpa capacity on accusations of flouting pollution norms

Vedanta Aluminum Lanjigarh II alumina refinery 3 mtpa alumina refinery 1,570 Forest clearance application rejected by MOEF. US$900 mn already spent on alumina refinery

Vedanta Aluminum Jharsugda Phase I and II1.75 mtpa aluminum smelter

5,320 Lack of bauxite and captive coal resources impacts financial viability of the project. Sterlite has already invested US$4.4 bn in this project

Source: Company, Kotak Institutional Equities

Strategy India


Many companies, across sectors, benefit from tax exemptions Income-tax exemptions available to Indian companies across sectors

Sector Income tax exemption Companies

Automobile Section 80IB Ashok Leyland, Bajaj Auto, Hero Motocorp

Consumer Section 80IB Colgate, Dabur, Godrej Consumer, HUL, Jyothy, Marico, Nestle

Infrastructure Section 80IAAll infrastructure asset (roads, ports, airports) development companies (IRB, GMR, GVK, GPPV, Sadbhav Engg, NCC, IVRCL A&H, ADSEZ)

Oil and gas Section 35AD GAIL (pipelines)

Oil and gas Section 80IB Cairn India, Reliance Industries

NBFCs Section 36 (1) (viii) HDFC, IDFC, PFC, REC

Section 80IB All major companies have facilities in backward areas

Section 10AA (SEZ) Cadla, Cipla, Divi's, Lupin

Technology Section 10AA (SEZ) All companies

Telecom Section 80IA All companies with circles launched before April 1, 2005

Utilities Section 80IAAll major companies enjoy tax benefits for newly commissioned capacities

Pharmaceuticals

Source: Company data, Kotak Institutional Equities estimates


Operational outperformance driven by higher realizations

RPWR reported revenues of Rs5.3 bn (16% qoq, 7% yoy), operating profit of Rs1.8 bn (28% qoq, 15% yoy) and net income of Rs2.3 bn (13% qoq, 24% yoy) against our estimates of Rs5.3 bn, Rs1.5 bn and Rs1.9 bn respectively. EBITDA beat was primarily on account of higher-than-estimated realizations of Rs4.9/kwh (against our estimate of Rs4.8/kwh), a 4% sequential increase despite a 4% sequential decline in fuel cost. While pre-tax profit was dented by lower other income of Rs1.2 bn against estimated Rs1.9 bn, tax write-back of Rs378 mn led to a 20% net income beat. We discuss the key operational and financial highlights of 4QFY12 results in a subsequent section.

Captive coal for Chitrangi under scanner, Samalkot may be stranded

According to media reports (The Economic Times), Reliance Power requested the Comptroller and Auditor General of India (CAG) that its audit report on coal blocks should not refer to “undue benefits” to the company. The report apparently questioned the diversion of surplus coal from Sasan for the Chitrangi project. Our estimates factor 60% of Chitrangi’s fuel requirements will be met from captive coal and an unfavorable judgment could significantly erode the profitability and valuations of Chitrangi (currently contributing 50% of our SOTP-based valuation).

Besides, RPWR’s almost-complete Samalkot project (2,262 MW) is likely to be idle in the near term as The Central Electricity Authority (CEA) has advised power producers to put on hold domestic gas-based capacities until FY2016 due to non-availability of incremental domestic gas.

Fuel and execution concern on portfolio continues. Maintain SELL

We reiterate our SELL rating and target price of Rs76/share. We maintain our cautious stance on RPWR given the limited visibility on near-term earnings growth and high degree of execution and fuel risk embedded in the portfolio. We have revised our EPS estimates for FY2013E to Rs3.3/share (previously Rs2.9/share) and for FY2014E to Rs2.7/share (previously Rs2.4/share) as we adjust for lower effective tax rate.

Reliance Power (RPWR)

Utilities

Rosa sustains stable operations. Rosa power plant continued to report stable operations with PLF of 86% in 4QFY11 and marginal improvement in operating profits. We maintain our cautious stance noting uncertainty over (1) diversion of captive coal for the Chitrangi project, (2) availability of gas for near-complete Samalkot, and overall fuel and execution risk in the portfolio. We maintain our SELL rating with TP of Rs76.

Reliance PowerStock data Forecasts/Valuations 2012 2013E 2014E

52-week range (Rs) (high,low) EPS (Rs) 3.1 3.3 2.7Market Cap. (Rs bn) 261.9 EPS growth (%) 14.0 8.1 (18.4)

Shareholding pattern (%) P/E (X) 30.2 27.9 34.2Promoters 80.4 Sales (Rs bn) 20.2 40.7 62.6FIIs 4.6 Net profits (Rs bn) 8.7 9.4 7.6MFs 0.2 EBITDA (Rs bn) 6.2 15.7 28.2

Price performance (%) 1M 3M 12M EV/EBITDA (X) 49.2 24.8 16.7Absolute (14.2) (21.7) (15.9) ROE (%) 5.0 5.2 4.0Rel. to BSE-30 (9.0) (13.4) (6.6) Div. Yield (%) 0.0 0.0 0.0

Company data and valuation summary

139-69

SELL

MAY 24, 2012

RESULT

Coverage view: Cautious

Price (Rs): 93

Target price (Rs): 76

BSE-30: 16,222

Reliance Power Utilities


Exhibit 1: Operational outperformance driven by higher realizations Interim results for RPWR, March fiscal year-ends (Rs mn)

(% Chg.)

4QFY12 4QFY12E 4QFY11 3QFY12 4QFY12E 4QFY11 3QFY12 FY2011 FY2012 (% Chg.)Net sales 5,326 5,346 4,954 4,573 (0) 7 16 10,548 20,192 91 Operating costsCost of fuel (2,757) (3,113) (2,621) (2,564) (5,596) (11,285) 102 Cost of goods sold (21) - (43) (19) (788) - Personnel costs (52) (186) (259) (148) (1,200) (730) (39) Other expenses (707) (541) (475) (440) (417) (1,938) 365 EBITDA 1,788 1,507 1,556 1,401 19 15 28 2,547 6,239 145 EBITDA margin (%) 34 28 31 31 24 31 Other income 1,202 1,964 1,028 2,168 8,377 7,476 Interest & finance charges (742) (743) (721) (720) (2,195) (2,976) Depreciation (313) (341) (319) (323) (1,009) (1,215) PBT 1,935 2,387 1,543 2,526 (19) 25 (23) 7,720 9,524 23 Provision for tax (net) 378 (454) 323 (488) (116) (856) Minority Interest — — - — — —Net profit 2,313 1,934 1,866 2,039 20 24 13 7,604 8,668 14 Extraordinary — — — — — —EBITDA margin (%) 34 28 31 31 24 31 Tax rate (%) (20) 19 (21) 19 1 9 Key operating parametersUnits generated (MU) 1,107 1,163 1,129 987 (1.9) 12.2 2,878 4,310 PLF (%) 86 91 88 75 56 83 Average realization (Rs/kwh) 4.9 4.8 4.5 4.8 3.7 4.8 Cost of fuel (Rs/unit) 2.5 2.7 2.3 2.6 7.3 (4.1) 1.9 2.6 O&M (Rs/unit) 0.7 0.6 0.6 0.6 5.5 15.1 0.6 0.6

Source: Company, Kotak Institutional Equities estimates

Exhibit 2: SOTP-based value of RPWR

Capacity Cost Equity Implied P/B Value CoEProject Type (MW) (Rs bn) (Rs mn / MW) (%) Invested Requirement (X) (Rs bn) (%)Rosa I Thermal 600 30 50 20 6 — 2.2 13 12 Rosa II Thermal 600 30 51 20 4 2 2.3 12 12 Butibori Thermal 600 36 61 20 2 6 1.7 7 12 Sasan Thermal 3,960 185 47 25 9 37 0.9 6 12 Chitrangi Thermal 3,960 175 44 30 4 48 2.9 102 15 Total 11,982 556 46 21 25 93 2.0 140 Cash and equivalents 70 Post money value 210 No. of Shares 2.8 Value per share 75


Operational highlights of 4QFY12

We discuss below some key operational and financial highlights

Generation – RPWR’s gross generation registered a decline of 2% yoy at 1,107 MU implying a PLF of 86% as against 88% in 4QFY11.

Fuel cost – average fuel cost declined to Rs2.4/kwh (7% yoy, -4% qoq) indicating the benefit of moderation in imported coal prices as well and currency appreciation during 4QFY12.

O&M cost – average O&M cost increased to Rs0.7/kwh (6% yoy, 15% qoq).

Utilities Reliance Power


Status of power projects and associated captive coal blocks

Butibori (600 MW) – the project has achieved all necessary milestones and construction is in progress. Management has indicated that pre-commissioning activities have commenced from the first unit. The project has linkage from WCL (D grade coal), though absence of a long-term power purchase agreement with a distribution company prevents signing of a fuel supply agreement. Management remains confident of a more pragmatic stance by the regulator and has guided for commissioning by July 2012.

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

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

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

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

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

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

Rosa II 600 30 21 70.0 Mar-12

Butibori 600 36 7 19.0 Jul-12

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

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

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

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

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

Total 19,382 1,013 121 12.0

Capex as of March 2011EPC awardLand Fuel

Enviroment clearance

Financial Closure


Reliance Power Utilities


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

2009 2010 2011 2012 2013E 2014EProfit modelNet revenues — 207 10,548 20,192 40,687 62,555EBITDA (1,031) (1,073) 2,291 6,239 15,671 28,186Other income 3,604 8,227 8,633 7,476 7,040 5,630Interest (expense)/income — (70) (2,195) (2,976) (6,200) (13,809)Depreciation (2) (57) (1,009) (1,215) (2,851) (5,919)Pretax profits 2,570 7,026 7,720 9,524 13,660 14,088Tax (125) (187) (347) (386) (2,613) (2,720) Deferred taxation — (327) 231 (470) (1,679) (3,719)Minority interest — — — — — —Net income 2,445 6,512 7,604 8,668 9,369 7,650 Extraordinary items — — — — — —Reported profit 2,445 6,512 7,604 8,668 9,369 7,650 Earnings per share (Rs) 1.1 2.7 2.9 3.1 3.3 2.7

Balance sheetPaid-up common stock 23,968 23,968 28,051 28,051 28,051 28,051 Total shareholders' equity 137,791 144,630 168,334 177,002 186,371 194,021 Deferred taxation liability — — — 470 2,149 5,869 Minority interest — — — — — —Total borrowings 13,325 22,406 73,348 115,525 180,284 247,419 Total liabilities and equity 151,116 167,037 241,683 292,998 368,804 447,308Net fixed assets 2,879 23,408 36,368 34,189 98,007 184,588 Capital work-in progress 46,780 68,029 126,227 186,379 210,347 213,158 Investments 103,172 79,152 56,790 — — —Cash 216 1,338 19,161 70,243 53,889 39,958Net current assets (excl. cash) (1,931) (4,890) 3,136 2,187 6,561 9,603Total assets 151,116 167,037 241,683 292,998 368,804 447,308Free cash flowOperating cash flow, excl. working capital 2,447 6,896 8,382 10,353 13,899 17,288Working capital changes (4,065) 2,959 (8,026) 949 (4,375) (3,041)Capital expenditure (38,602) (44,820) (73,281) (59,187) (90,637) (95,312)Free cash flow (40,220) (34,965) (72,925) (47,885) (81,113) (81,065)Ratios Net debt/equity (%) 10 15 32 26 68 107 Return on equity (%) 1.8 4.6 4.9 5.0 5.2 4.0 Book value per share (Rs) 57.5 60.3 60.0 63.3 67.2 71.3 ROCE (%) 1.8 4.2 3.9 3.4 3.6 2.5



Operating performance disappoints; adjusted EBITDA at the lower end of guidance

Novelis reported adjusted EBTIDA of US$233 mn, down 17% yoy. Adjusted EBITDA was at the lower end of the implied guidance of US$230-260 mn for 4QFY12. EBITDA of US$317/tonne disappointed, declining 10% yoy. We are surprised that EBITDA/tonne did not recover sequentially despite an 8.2% qoq growth in shipments to 738 kt. In fact, conversion premium declined, as per our analysis. Novelis reported a loss of US$107 mn, contributed by (1) a strategic decision to divest three foil mills in Europe, leading to a charge of US$111 mn and (2) closure of the Saguenay plant in Canada, leading to charge of US$28 mn; adjusted net income was US$25 mn.

Volume decline due to capacity constraints at the start of the year and slowdown in 2HFY12

Shipments declined across all geographies and fell 3.7% overall in FY2012. More disappointing was the shipment decline of 10% in Asia. The management attributed the decline to (1) lack of ramp-up in initially indicated volumes by two OEMs in flat-panel TVs and (2) use of North America’s capacity instead of Asia’s for shipments to the Middle East in FY2012. Beverage-can volumes fell 0.5% to 1,722, kt, and volumes in other segments declined 10% in FY2012. We believe it is too early to talk about market share loss even as 2HFY12 performance raises concerns.

FY2013 adjusted EBITDA guidance at FY2012 level, at least: US$1.05 bn

The company’s guidance is based on a stronger second half. The management indicated there were signs of recovery in most markets, including the troubled Euro zone. Novelis’ guidance indicated continued capex investment with emphasis on the fast growing, highly profitable automotive portfolio. Novelis’ FY2013 guidance for operating cash generation is US$600-700 mn.

Stock inexpensive now but lacks catalysts

Hindalco’s stock price implies value destruction of Rs80/share from new projects. While concerns about viability of some projects are valid, they appear to be built into the stock price. Still, the stock lacks catalysts for performance. We cut our 12-month target price to Rs120 (Rs135 earlier) and maintain our REDUCE rating.

Hindalco Industries (HNDL)

Metals & Mining

Novelis disappoints. Novelis’ 4QFY12 adjusted EBITDA of US$234 mn was at the lower end of its guidance, declining 4.5% yoy. EBITDA of US$317/tonne declined 10% yoy and showed little sequential improvement. Novelis’ FY2013 adjusted EBITDA guidance of at least US$1.05 bn is based on back-ended growth. We cut FY2013-14 consolidated EBITDA estimates by 3-6% for Hindalco and target price to Rs120 (Rs135 earlier). Core business is attractive but overshadowed by delays in execution of Utkal and lack of coal block for Mahan. We retain our REDUCE rating.

Hindalco IndustriesStock data Forecasts/Valuations 2012 2013E 2014E

52-week range (Rs) (high,low) EPS (Rs) 17.3 16.8 14.9Market Cap. (Rs bn) 211.8 EPS growth (%) 35.5 (3.0) (11.2)




200-105

REDUCE

MAY 24, 2012

RESULT

Coverage view: Cautious

Price (Rs): 111


BSE-30: 16,222

Hindalco Industries Metals & Mining


Key changes to our estimates

We have made the following changes to our earnings model: We (1) cut FY2014E aluminum price assumption to US$2,350/tonne from US$2,450/tonne previously; (2) revised the INR/USD rate to Rs52 and Rs51 from Rs50.5 and Rs50 for FY2013E and FY2014E respectively. We also cut Novelis’ EBITDA by ~3%% for FY2013-14. These changes result in a 0.2% and 10% cut in FY2013E and FY2014E EPS estimates, respectively. Exhibit 1 details key revisions to our estimates.

Hindalco trades at 4X FY2013E EBITDA, adjusted for CWIP. Valuation of CWIP is contingent on (1) allocation of coal block for the Mahan aluminum smelter and (2) accelerated progress without cost escalations for the Utkal alumina project. We do not assign value for capital invested in the Mahan project in our fair value.

We cut our valuation multiple to 5.5X 12-month forward EBITDA for the standalone business and 5.75X for Novelis. These multiple adjustments relatively lower confidence in earnings. We value Hindalco’s core business, that is, the standalone operations, ABML and Novelis at Rs190/share. We model Rs55/share of value destruction from the Mahan aluminum smelter. Our fair value of Rs120 is based on aluminum price of US$2,300/tonne for FY2013E. Our fair value reduces to Rs100 at spot aluminum price of US$2,028/tonne (after normalizing target multiple to 6X for Novelis and the standalone business).

Return of capital to parent or dividend unlikely

Novelis is pursuing aggressive capex plans. It intends to expand FRP capacity to 4 mn tonnes from ~3 mn tonnes currently. Novelis’ rationale of continuation of capex is (1) short payback period of the debottlenecking capex. About 250 ktpa capacity expansion has already come through this route and (2) positive view on long-term growth prospects of various aluminum applications.

Expansion may entail project capex of US$1.5 bn besides maintenance capex of US$200-250 mn a year. Novelis will hardly have any cash left after the operating cash flow of US$382 mn for FY2013E is likely to have been used as capex of US$600-700 mn.

Other details

Novelis maintained tight control on working capital management. The company generated operating cash of US$318 mn in 4QFY12.

Metal lag impacted EBITDA to the extent of US$19 mn after gains on this count in previous quarters.

Recycled material accounts for about 39% of current output. Novelis hopes to increase this component to 50% of output by the end of FY2015. The company is investing in recycling plants across all geographies.

The company expects to commission Pinda FRP expansion by the end of 2012. This may add ~220 ktpa to capacity.

Metals & Mining Hindalco Industries


Exhibit 1: Hindalco, change in estimates, March fiscal year ends, 2013-14E (Rs mn)

Revised estimates Old estimates Change (%)2013E 2014E 2013E 2014E 2013E 2014E

HindalcoAluminium metal sales (tonnes) 637,315 811,545 641,900 825,300 (0.7) (1.7) Aluminium price (US$/tonne) 2,300 2,350 2,350 2,450 (2.1) (4.1) Net revenues 288,109 304,859 283,235 306,577 1.7 (0.6) EBITDA 33,013 38,886 33,058 41,934 (0.1) (7.3) PAT 20,882 16,652 19,741 17,454 5.8 (4.6) NovelisShipments (tonnes) 2,982 3,161 3,187 3,282 (6.4) (3.7) Net revenues 577,118 613,771 591,271 605,737 (2.4) 1.3 EBITDA 53,131 56,500 56,270 59,013 (5.6) (4.3) PAT 10,902 12,275 11,989 14,201 (9.1) (13.6) ConsolidatedNet revenues 887,010 939,075 895,837 933,068 (1.0) 0.6 EBITDA 91,049 99,165 94,458 105,784 (3.6) (6.3) PAT 32,128 28,524 32,194 31,676 (0.2) (10.0) EPS (Rs) 16.8 14.9 16.8 16.5 (0.2) (10.0)


Exhibit 2: Hindalco valuation, FY2013E basis (Rs mn)

Multiple Value(X) (Rs mn) (Rs/share)

Hindalco FY2013E EBITDA 33,013 5.5 181,569 95 Novelis FY2013E EBITDA 53,131 5.8 305,503 160 ABML FY2013E EBITDA (proportionate stake) 2,502 5.0 12,510 7 Total Enterprise Value 499,582 261 Less: Net debt (adjusted for CWIP) 269,633 269,633 141 Arrived market capitalization 261,229 120 Target price (Rs) 120

Source: Kotak Institutional Equities estimates

Exhibit 3: Hindalco consolidated leverage details, March fiscal year ends, FY2012-14E (X)

2012E 2013E 2014EExistingEBITDA (Rs mn) 78,596 91,049 99,165 Shareholders funds 320,441 349,545 375,044 Net debt 253,347 308,766 328,762 Net debt/ EBITDA (X) 3.2 3.4 3.3 Net debt/ Equity (X) 0.8 0.9 0.9




Exhibit 4: Novelis, adjusted EBITDA calculation, March fiscal year-ends (US$ mn)

1QFY11 2QFY11 3QFY11 4QFY11 1QFY12 2QFY12 3QFY12 4QFY12Operating EBITDA 235 230 225 245 298 228 133 234 Extraordinary Income (loss) (6) 34 (44) (25) — — — (111) Affiliate income/ (loss) (3) (3) (5) (1) (2) (3) (4) (4) Other income/ (expenses) - net (7) 18 (16) (2) 21 63 1 (46) Restructuring expenses, net (6) (9) (20) 1 (19) (11) (1) (29) EBITDA (as reported) 213 270 140 218 298 277 129 44 Unrealised gain (loss) on derivatives (47) 1 13 (27) 25 (1) (63) (21) Goodwill impairment — — — — — — — —Gain on debt exchange — — (74) (10) — — — (111) Proportional consolidation (10) (11) (11) (14) (13) (12) (9) (15) Restructuring charges, net (6) (9) (20) 1 (19) (11) (1) (29) Other costs, net 13 (1) (6) (12) (1) - (11) (13) Underlying EBITDA 263 290 238 280 306 301 213 233


Exhibit 5: Novelis, interim results, March fiscal year-ends, (US$ mn)

4QFY12 4QFY11 3QFY12 4QFY11 3QFY12Net sales 2,608 2,960 2,462 (11.9) 5.9 Expenditure (2,374) (2,715) (2,329) (12.6) 1.9 Cost of goods sold (2,262) (2,599) (2,224) (13.0) 1.7 SG&A (102) (103) (95) (1.0) 7.4 R&D (10) (13) (10) (23.1) - EBITDA 234 245 133 (4.5) 75.9 Restructuring expenses (29) 1 (1) (3,000.0) NMReported EBITDA 205 246 132 (16.7) 55.3 Depreciation (80) (97) (79) (17.5) 1.3 EBIT 125 149 53 (16.1) 135.8 Interest Income 4 3 3 33.3 33.3 Interest Expense (77) (82) (74) (6.1) 4.1 Extraordinary income (loss) (111) (25) - - NMAffiliate income / (loss) (4) (1) (4) 300.0 - Other income (expenses)- net (46) (2) 1 2,200.0 NMProfit before tax (109) 42 (21) (359.5) 419.0 Income tax 3 21 10 (85.7) (70.0) Profit after tax (106) 63 (11) (268.3) 863.6 Minorities (1) (13) (1) (92.3) - Net income (107) 50 (12) (314.0) 791.7 RatiosGross profit margin 13.3 12.2 9.7 8.8 37.2 EBITDA (adjusted) 9.0 8.3 5.4 8.4 66.1 EBITDA (reported) 7.9 8.3 5.4 (5.4) 46.6 EBIT 4.8 5.0 2.2 (4.8) 122.6 PBT margin (4.2) 1.4 (0.9) (394.6) NMNet income (4.1) 1.7 (0.5) NM 741.7 Key metricsShipments (kt) 738 800 682 (7.8) 8.2 Average realization (US$/tonne) 3,534 3,700 3,610 (4.5) (2.1) Adjusted EBITDA/tonne (US$/tonne) 317 350 312 (9.4) 1.5

(% chg.)


Metals & Mining Hindalco Industries


Exhibit 6: Novelis, key operating matrix, March fiscal year-ends, (US$ mn)

1QFY11 2QFY11 3QFY11 4QFY11 1QFY12 2QFY12 3QFY12 4QFY12Shipments (kt) 779 767 751 800 797 765 682 738 o/w rolled products 746 730 715 771 771 720 648 703 o/w ingots 33 37 36 29 29 45 34 35 Average LME (US$/tonne) 2,092 2,090 2,341 2,506 2,600 2,398 2,094 2,183 Average realization (US$/tonne) 3,252 3,291 3,409 3,700 3,906 3,765 3,610 3,534 Premium over LME (US$/tonne) 1,160 1,201 1,068 1,194 1,306 1,367 1,516 1,351 Cost per tonne (US$) 2,834 2,853 2,972 3,249 3,398 3,332 3,261 3,065 Adjusted EBITDA (US$ mn) 263 290 238 280 306 301 213 233 Adjusted EBITDA/tonne (US$) 338 378 317 350 384 393 312 316


Exhibit 7: Novelis: Shipments by geographies (kt)

Dec-09 Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 Jun-11 Sep-11 Dec-11 Mar-12ShipmentsNorth America 243 274 278 285 262 280 288 274 248 254Europe 188 227 232 227 208 240 237 227 183 228Asia 134 129 146 134 148 152 152 131 117 124South America 84 86 90 91 97 99 90 88 100 97Total 649 716 746 737 715 771 767 720 648 703o/w beverage and food cans 371 406 425 429 424 453 462 437 404 419o/w other rolled products 278 310 321 308 291 318 305 283 244 284Growth yoy (%)Total 2.7 18.3 14.8 6.3 10.2 7.7 2.8 (2.3) (9.4) (8.8) o/w beverage and food cans 2.2 12.5 7.3 5.4 14.3 11.6 8.7 1.9 (4.7) (7.5) o/w other rolled products 3.3 27.0 26.4 7.7 4.7 2.6 (5.0) (8.1) (16.2) (10.7)


Exhibit 8: Expansion projects to focus on beverage cans, automobiles and specialty product markets Details of Novelis’ planned capacity expansion

Existing capacity Post expansion capacityLocation tonnes %age of total tonnes %age of totalNorth America 1,100 36.7 1,360 34.0 Europe 900 30.0 990 24.8 Asia 600 20.0 1,000 25.0 South America 400 13.3 650 16.3

3,000 100.0 4,000 100.0




Exhibit 9: Hindalco (consolidated), profit model, balance sheet and cash-flow model, March fiscal year-ends, 2009-2014E (Rs mn)

2009 2010 2011 2012E 2013E 2014EProfit model (Rs mn)Net sales 656,252 607,221 720,779 816,030 887,010 939,075 EBITDA 53,584 97,458 80,017 78,596 91,049 99,165 Other income 6,878 3,227 4,309 9,571 5,414 5,623 Interest (12,323) (11,041) (18,393) (19,256) (21,046) (29,637) Depreciation (30,378) (27,836) (27,500) (24,871) (29,125) (33,151) Profit before tax 17,761 61,808 38,432 44,040 46,292 42,000 Extraordinaries (22,319) 1,030 100 (5,317) — —Taxes 8,046 (19,319) (9,739) (7,847) (11,437) (11,144) Profit after tax 3,488 43,519 28,793 30,876 34,855 30,855 Minority interest 1,718 (4,237) (3,659) (2,485) (2,156) (1,760) Share in profit/(loss) of associates (353) (27) (571) (571) (571) (571) Reported net income 4,853 39,255 24,564 27,820 32,128 28,524 Adjusted net income 19,791 38,225 24,463 33,137 32,128 28,524 Fully diluted EPS (Rs) 11.6 20.0 12.8 17.3 16.8 14.9 Balance sheet (Rs mn)Equity 158,536 215,446 290,233 320,441 349,545 375,044 Deferred tax liability 27,571 39,382 37,596 37,874 39,438 40,063 Total Borrowings 283,098 239,987 276,920 393,982 462,474 506,813 Current liabilities 162,602 180,166 216,840 218,383 226,497 232,224 Minority interest 12,866 17,372 22,169 24,655 26,811 28,571 Total liabilities 644,672 692,353 843,758 995,335 1,104,764 1,182,713 Net fixed assets 275,249 290,006 234,640 263,251 364,997 459,289 Capital work in progress 29,495 58,008 131,308 186,496 156,532 98,284 Goodwill 42,908 — 89,414 89,414 89,414 89,414 Investments 104,308 112,455 108,549 107,978 107,407 106,836 Cash 21,918 21,954 25,563 85,413 98,485 122,828 Other current assets 170,791 209,930 254,285 262,784 287,930 306,063 Miscellaneous expenditure 4 — — — — —Total assets 644,672 692,353 843,758 995,335 1,104,764 1,182,713 Free cash flow (Rs mn)Operating cash flow excl. working (7,156) 39,333 44,082 46,455 60,131 59,007 Working capital changes 29,309 (5,984) (7,031) (6,957) (17,032) (12,407) Capital expenditure (28,898) (41,708) (77,171) (108,670) (100,908) (69,195) Free cash flow (6,744) (8,359) (40,120) (69,173) (57,808) (22,594) RatiosEBITDA margin (%) 8.2 16.0 11.1 9.6 10.3 10.6 EBIT margin (%) 3.5 11.5 7.3 6.6 7.0 7.0 Debt/equity (X) 1.8 1.1 1.0 1.2 1.3 1.4 Net debt/equity (X) 1.4 0.7 0.7 0.8 0.9 0.9 Net debt/EBITDA (X) 4.1 1.6 2.4 3.2 3.4 3.3 RoAE (%) 11.9 20.4 9.7 10.9 9.6 7.9 RoACE (%) 5.4 10.4 7.7 6.7 6.2 6.0



Expected decline in gas volumes largely offset by higher tariffs

GSPL reported 4QFY12 EBITDA at `2.54 bn (+0.4% qoq and +9.4% yoy) versus our estimate of `2.52 bn. Gas transmission volumes were lower at 31.1 mcm/d versus 32.8 mcm/d in 3QFY12 and 35.6 mcm/d in 4QFY11. However, this was largely offset by higher implied transmission tariffs at `0.96/cu m versus `0.9/cu m in 3QFY12 and `0.79/cu m in 4QFY11. We note that company’s operating profits have improved yoy despite sharp decline in volumes. Reported net income was at `1.29 bn (+2.5% qoq); there is no merit in yoy comparison of net income given the change in depreciation rates effected in FY2011.

Current stock price is reflecting steep cut in transmission tariffs

Our reverse valuation exercise shows that the current stock price (19% correction since PNGRB’s tariff order for IGL) is factoring in transmission tariff of `0.6/cu m in perpetuity, 31% lower than FY2012 implied tariff of `0.87/cu m. We model average transmission tariff of `0.72/cu m in FY2013-22E which results in a reasonable CROCI of 12.8%. Exhibit 2 gives the fair valuation of the company at different levels of CROCI and tariff assumptions.

Gas volumes will improve in the long term

We expect GSPL’s Gujarat pipeline network to benefit from increase in gas supply in the long term led by (1) proposed expansion of Hazira terminal by 1.4 mtpa in 2013 and Dahej terminal by 5 mtpa in 2015 and (2) likely start of production from RIL’s satellite fields and R-series discovery in KG D-6 block by FY2016-17 (see Exhibit 3). However, we remain concerned about gas transmission volumes in the near term led by (1) likely decline in gas supply from KG D-6 block and (2) unlikely increase in LNG imports from PLNG’s Dahej terminal before the commissioning of its second jetty by mid-FY2014E.

Retain BUY with a TP of `85; revised earnings to reflect lower volumes

We maintain our BUY rating on GSPL given 35% potential upside to our DCF-based target price of `85. We have revised FY2013E, FY2014E and FY2015E EPS to `8, `7.7 and `8.8 from `8, `8 and `9.1 to reflect (1) lower gas transmission volumes, (2) 4QFY12 results and (3) other minor changes. We model gas transmission volumes for FY2013E, FY2014E and FY2015E at 33 mcm/d, 35 mcm/d and 38 mcm/d, respectively versus 34 mcm/d in FY2012.

GSPL (GUJS)

Energy

High tariffs offset low volumes. GSPL reported 4QFY12 net income at `1.29 bn (+2.5% qoq) versus our estimate of `1.23 bn. The qoq increase in net income despite lower gas volumes at 31.1 mcm/d (-5.1% qoq) reflects higher transmission tariffs at `0.96/cu m (+6.3% qoq). Stock valuation at 0.9X EV/GCI (FY2012E basis) is reflecting overdone concerns on regulation of tariffs and near-term weakness in volumes. We reiterate our BUY rating on GSPL with a DCF-based TP of `85, which factors in low transmission tariffs and moderate improvement in gas volumes in the long term.

GSPLStock data Forecasts/Valuations 2012 2013E 2014E

52-week range (Rs) (high,low) EPS (Rs) 9.3 8.0 7.7Market Cap. (Rs bn) 35.2 EPS growth (%) 4.2 (13.6) (4.5)




113-62

BUY

MAY 24, 2012

RESULT

Coverage view: Neutral

Price (Rs): 63


BSE-30: 16,222

QUICK NUMBERS

• `0.96/cu m transmission tariff in 4QFY12

• 31.1 mcm/d gas volumes in 4QFY12

• 35% potential upside from current levels

GSPL Energy


Details of 4QFY12 results

Exhibit 1 gives the details of 4QFY12 and compares the same with 3QFY12 and 4QFY11 results. We discuss key financial and operating highlights.

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

(% chg) yoy4QFY12 4QFY12E 4QFY11 3QFY12 4QFY12E 4QFY11 3QFY12 FY2012 FY2011 (% chg) FY2013E

Net sales 2,788 2,744 2,580 2,755 1.6 8.0 1.2 11,233 10,465 7.3 10,106Total expenditure (244) (222) (255) (221) 9.7 (4.3) 10.4 (935) (772) 21.2 (956) Operating costs (107) (111) (90) (114) (444) (357) (431) Gas transportation charges — — — — — — — Staff cost (44) (55) (45) (51) (197) (153) (212) Other expenditure (92) (56) (120) (56) (294) (261) 12.5 (314)EBITDA 2,544 2,522 2,326 2,535 0.9 9.4 0.4 10,298 9,694 6.2 9,150 OPM (%) 91.3 91.9 90.1 92.0 91.7 92.6 90.5 Other income 140 105 68 158 34.0 106.2 (11.1) 513 216 137.4 551Interest (316) (325) (236) (325) (2.8) 34.0 (2.7) (1,302) (961) 35.5 (1,098)Depreciation (466) (474) 173 (460) (1.6) (369.1) 1.3 (1,819) (1,299) 40.0 (1,924)Pretax profits 1,902 1,828 2,331 1,907 4.1 (18.4) (0.3) 7,690 7,650 0.5 6,679 Tax (427) (314) (292) (484) (1,866) (1,351) (1,520) Deferred taxation (182) (281) (533) (162) (603) (1,235) (647)Net income 1,293 1,233 1,506 1,261 4.9 (14.2) 2.5 5,221 5,064 3.1 4,512 Adjusted profits 1,293 1,233 1,506 1,261 4.9 (14.2) 2.5 5,221 5,064 3.1 4,512 Income tax rate (%) 32.0 32.6 35.4 33.9 32.1 33.8 32.4 Earnings per share (Rs) 2.3 2.2 2.7 2.2 4.9 (14.2) 2.5 9.3 9.0 3.1 8.0

Pipline volumesPipeline volumes (mcm) 2,830 2,828 3,200 3,015 0.1 (11.6) (6.1) 12,430 13,005 (4.4) 12,045 Pipeline volumes (mcm/d) 31.1 31.1 35.6 32.8 0.1 (12.5) (5.1) 34.0 35.6 (4.7) 33.0 Gas transmission charge (Rs/cu m) 0.96 0.93 0.79 0.90 3.2 21.1 6.3 0.87 0.79 9.8 0.80


Financial highlights. GSPL reported 4QFY12 EBITDA at `2.54 bn versus `2.53 bn in 3QFY12 and `2.33 bn in 4QFY11. The improvement in EBITDA despite lower transmission volumes at 31.1 mcm/d (-5.1% qoq and -12.5% yoy) reflects (1) higher transmission tariffs at `0.96/cu m (+6.3% qoq and +21.1% yoy) and (2) lower losses in the electricity segment.

Operating details. GSPL’s gas transmission volumes declined to 31.1 mcm/d in 4QFY12 versus 32.8 mcm/d in 3QFY12 and 35.6 mcm/d in 4QFY11; our estimate was 31.1 mcm/d. GSPL’s 4QFY12 implied gas transmission tariffs were higher at `0.96/cu m compared to `0.9/cu m in 3QFY12 and `0.79/cu m in 4QFY11 presumably led by higher realizations from take-or-pay contracts.

GSPL's valuation is highly sensitive to tariff assumptions DCF valuation, CROCI and ROCE at various levels of average tariff, 2013-22E

Average tariff Valuation CROCI ROCE(Rs/cu m) (Rs/share) (%) (%) Comments

0.87 112 15.5 20.0 FY2012 tariffs in perpetuity0.80 100 14.2 17.9 0.72 85 12.8 15.6 Base case0.66 74 11.6 13.8 0.60 63 10.7 12.2 Current stock price

Notes:(a) CROCI and ROCE are average for 2013-22E.


Energy GSPL


We expect increase in gas supply led by higher LNG imports Supply of natural gas in India, March fiscal year-ends, 2010-18E (mcm/d)

2010 2011 2012 2013E 2014E 2015E 2016E 2017E 2018EMumbai High 48 48 48 48 48 48 48 48 48 Gujarat 7 6 6 6 6 6 6 6 6 North-East 9 9 10 10 11 11 11 11 11 Rajasthan 1 1 2 2 2 2 2 2 2 TN/AP 7 7 7 7 7 7 7 7 7 Eastern offshoreKG-D6 (RIL-Niko) 39 56 43 30 25 22 30 40 40 NEC-25 (RIL-Niko) — — — — — — — 6 12 Deen Dayal (GSPC) — — — — 3 5 6 6 6 ONGC — — — 1 2 2 2 2 2 PY-3 0 0 0 0 0 0 0 0 0 Ravva 1 2 2 2 1 1 1 1 1 Western offshoreLakshmi 1 1 1 0 0 0 — — —Panna-Mukta 5 4 6 5 5 5 4 4 4 Tapti 8 7 6 6 6 5 5 5 5 ONGC marginal fields — — — 3 4 6 6 6 6 LNG and CBMPetronet LNG - Dahej 30 33 41 41 40 48 53 62 67 Petronet LNG - Kochi — — — 3 11 16 18 18 18 RGPPL - Dabhol — — — 4 6 8 11 18 18 Shell Total LNG - Hazira 5 4 10 11 14 15 18 18 18 CBM gas — 0 0 2 3 5 6 7 9 Total domestic gas 128 141 129 121 122 124 133 149 157 Total LNG imports 35 37 50 59 70 86 101 117 122 Total gas supply 163 178 179 180 193 210 234 266 279

Source: MOPNG, Kotak Institutional Equities estimates

Earnings assumptions

Exhibit 4 gives our DCF valuation of GSPL.

Gas transportation volumes. We have revised our FY2013E, FY2014E and FY2015E gas transmission volumes to 33 mcm/d, 35 mcm/d and 38 mcm/d versus 34 mcm/d, 36 mcm/d and 39 mcm/d previously. We model GSPL’s gas transportation volumes to increase to 45 mcm/d by FY2017E led by higher LNG imports from Dahej and Hazira terminals.

Gas transportation charges. We model FY2013E, FY2014E and FY2015E gas transportation tariffs at `0.8/cu m, `0.72/cu m and `0.72/cu m. We note that our assumptions result in a CROCI of 12.8% in FY2013-15E.

GSPL Energy


DCF valuation of GSPL (` mn)

2013E 2014E 2015E 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E 2024E EBITDA 9,150 8,692 9,403 10,385 11,100 11,068 11,032 10,993 10,950 10,903 10,903 10,903Adjusted tax expense (1,645) (1,538) (1,858) (2,360) (2,740) (2,846) (2,929) (2,995) (3,046) (3,086)Change in working capital 89 (278) 4 (259) 455 104 49 40 32 26Operating cash flow 7,594 6,876 7,549 7,765 8,816 8,326 8,152 8,038 7,936 7,843Capital expenditure (4,000) (3,500) (2,500) (250) (250) (250) (250) (250) (250) (2,256)Free cash flow 3,594 3,376 5,049 7,515 8,566 8,076 7,902 7,788 7,686 5,586 5,586 5,586Discounted cash flow 3,263 2,737 3,654 4,855 4,941 4,159 3,634 3,196 2,817 1,828Discounted cash flow-1 year forward 3,065 4,093 5,440 5,534 4,658 4,070 3,581 3,155 2,047 1,828Discounted cash flow-2 year forward 4,584 6,092 6,200 5,217 4,558 4,011 3,534 2,293 2,047 1,828

Now + 1-year + 2-yearsDiscount rate (%) 12.0 12.0 12.0 Total PV of free cash flow 35,085 37,471 40,366Terminal value assumptionGrowth to perpetuity (%) — — —FCF in 2022E 5,586 5,586 5,586Exit FCF multiple (X) 8.3 8.3 8.3 Exit EV/EBITDA multiple (X) 4.3 4.3 4.3 Terminal value 46,552 46,552 46,552 PV of terminal value 15,233 15,233 15,233 Total value of operating business 50,318 52,704 55,598

Net debt 11,123 8,669 6,243Equity value 39,194 44,035 49,355 Shares outstanding (mn) 563 563 563 Value of Gujarat pipeline network (Rs) 70 78 88 Value of investments (Rs) 7 7 7 Fair value of GSPL (Rs) 77 85 95

Fiscal Year end (March 31, XXXX) Mar-13 Mar-14 Mar-15 Mar-16 Mar-17 Mar-18 Mar-19 Mar-20 Mar-21 Mar-22 Mar-23 Mar-24Today May-12 May-12 May-12 May-12 May-12 May-12 May-12 May-12 May-12 May-12 May-12 May-12Days left 311 676 1,041 1,407 1,772 2,137 2,502 2,868 3,233 3,598 3,963 4,329 Years left 0.9 1.9 2.9 3.9 4.9 5.9 6.9 7.9 8.9 9.9 10.9 11.9 Discount factor at WACC 0.91 0.81 0.72 0.65 0.58 0.52 0.46 0.41 0.37 0.33 0.29 0.26


Energy GSPL


GSPL: Profit model, balance sheet, cash model, March fiscal year-ends, 2007-15E (` mn)

2007 2008 2009 2010 2011 2012E 2013E 2014E 2015EProfit model (Rs mn)Net sales 3,176 4,179 4,875 9,920 10,391 11,233 10,106 9,710 10,498EBITDA 2,677 3,645 4,249 9,297 9,616 10,298 9,150 8,692 9,403Other income 175 294 243 247 291 513 551 461 458Interest (457) (815) (870) (938) (961) (1,302) (1,098) (784) (543)Depreciation (1,026) (1,632) (1,705) (2,365) (1,533) (1,819) (1,924) (1,987) (2,028)Pretax profits 1,369 1,491 1,918 6,242 7,413 7,690 6,679 6,382 7,290Tax (70) (389) (536) (1,878) (1,180) (1,866) (1,520) (1,463) (1,837)Deferred taxation (409) (82) (145) (261) (1,235) (603) (647) (607) (528)Adjusted net profits 891 1,015 1,236 4,113 5,008 5,221 4,512 4,311 4,925Earnings per share (Rs) 1.6 1.8 2.2 7.3 8.9 9.3 8.0 7.7 8.8

Balance sheet (Rs mn)Total equity 9,659 11,410 12,152 15,638 20,066 24,633 28,492 32,149 35,929Deferred tax liability 917 999 1,144 1,405 2,641 3,244 3,890 4,498 5,026Total borrowings 8,638 9,660 11,509 12,595 14,835 16,282 11,032 8,532 5,032Currrent liabilities 1,845 5,106 5,331 8,334 7,586 5,352 5,349 5,043 5,103Total liabilities and equity 21,059 27,175 30,137 37,973 45,128 49,511 48,763 50,221 51,090Cash 1,811 2,569 975 1,742 2,390 5,158 2,363 2,289 2,596Current assets 2,126 2,928 4,641 5,808 6,607 6,762 6,671 6,642 6,699Total fixed assets 17,029 21,259 24,132 29,755 35,363 36,423 38,563 40,123 40,629Investments — 356 356 666 766 1,164 1,164 1,164 1,164Deferred expenditure 93 63 33 3 2 2 2 2 2Total assets 21,059 27,175 30,137 37,973 45,128 49,511 48,763 50,221 51,090

Free cash flow (Rs mn)Operating cash flow, excl. working capital 2,212 2,743 2,918 6,367 6,808 6,954 6,469 6,397 6,990Working capital changes (1,058) 2,460 (1,752) 1,420 (2,122) (2,390) 89 (278) 4Capital expenditure (4,404) (5,863) (4,579) (7,777) (5,693) (2,705) (4,000) (3,500) (2,500)Investments — (356) — — (100) (398) — — —Other income 146 — 297 157 170 513 551 461 458Free cash flow (3,103) (659) (3,116) 167 (837) 2,373 3,108 3,080 4,952

Ratios (%)Debt/equity 81.7 77.9 86.6 73.9 65.3 58.4 34.1 23.3 12.3 Net debt/equity 45.0 43.8 46.4 42.5 39.5 36.9 25.4 18.9 10.9 RoAE 8.8 8.8 9.6 27.1 25.2 20.6 15.0 12.5 12.7 RoACE 10.0 8.2 8.6 18.5 21.0 16.7 13.7 12.5 12.9 CROCI 13.5 16.9 14.8 23.2 20.2 16.3 13.7 12.2 12.4

Key assumptionsVolumes-old pipelines (mcm/d) 12.6 12.7 11.1 13.8 13.8 13.7 13.8 13.8 13.8 Volumes-new pipelines (mcm/d) 1.7 4.1 3.8 18.2 21.9 20.3 19.3 21.3 24.3 Volumes (mcm/d) 14.3 16.8 14.9 32.0 35.6 34.0 33.0 35.0 38.0 Average tariff (Rs/cu m) 0.61 0.67 0.83 0.86 0.79 0.87 0.80 0.72 0.72



Strong rebound in international business – courtesy Air India and Kingfisher

Jet reported 4QFY12 consolidated revenue at Rs45.8 bn (+26% yoy; +2% qoq), in line with our estimates. Reported EBITDA at Rs4.12 bn (+58% yoy) was in line with our estimates as strong rebound in the international business balanced marginal weakness (versus estimates) in the domestic business. Reported PAT (loss) of Rs3.5 bn was boosted by non-operating revenues of Rs600 mn and exceptional items (forex gains) of Rs300 mn.

Profitability of international business improved qoq; 4QFY12 EBITDAR margin at 12.6% was 450 bps higher qoq. Most of the improvement (qoq) is led by higher PLF—increased from 80% in 3QFY12 to 86% in 4QFY12 as the company gained out of current problems at Kingfisher and Air India. Adjusted for marginal appreciation of Rupee qoq, yield (rev per RPKM) was flat qoq at Rs3.12 (international). Domestic business performed marginally lower than estimates as strong yield environment (yields flat qoq even as 4Q is seasonally weak) was offset by higher expenses. Jet has been the biggest beneficiary of the current turmoil in the Indian aviation sector as it gained significant share of market vacated by Kingfisher. International PLF in 4QFY12 at 86% is highest till date; domestic PLF improved 200 bps qoq to 77%, even as 4Q is seasonally weak.

Cash-flow position stressed – higher yield and incremental credit limits to ease short-term pressure

Jet’s cash-flow position remains worrying even as it has improved in the past two quarters; the company lost Rs1.2 bn of cash (PBT + depreciation) in 4QFY12. There were no sale and lease-back transactions during the quarter as international lessors are wary of the credit profile of the company. During the quarter, the company repaid small amount of debt by delaying payments to various suppliers (higher current liabilities). As per the company, domestic banks have approved incremental working capital limit of Rs5 bn which should ease short-term pressure. Also, yields in the domestic market are up 12% qoq in 1QFY13—should reduce cash losses in the domestic business in 1QFY13. We continue to remain cautious. Retain SELL.

Jet Airways (JETIN)

Others

In-line results; continued stress on cash flows. Jet’s 4QFY12 results were in line with our estimates as marginal domestic underperformance was balanced by strong recovery in the international business with EBITDAR margins improving by 450 bps to 12.6%; PLF touched 86% (all-time high). Jet has gained most out of the current problems at Air India and Kingfisher. Cash-flow position remains stressed; as per the company, gross debt has gone down marginally qoq as it repaid debt by delaying supplier payments. There were no sale and lease-back transactions as lessors are wary of credit profile. With domestic banks approving incremental limits of Rs5 bn and domestic yields up 12% qoq in 1QFY13, the situation should improve. Continue to be cautious. Retain SELL.

Jet AirwaysStock data Forecasts/Valuations 2012 2013E 2014E

52-week range (Rs) (high,low) EPS (Rs) (233.8) (33.8) (29.1)Market Cap. (Rs bn) 27.7 EPS growth (%) 2,225.0 (85.6) (13.9)

Shareholding pattern (%) P/E (X) (1.4) (9.5) (11.0)Promoters 80.0 Sales (Rs bn) 174.5 200.7 213.9FIIs 5.4 Net profits (Rs bn) (20.2) (2.9) (2.5)MFs 3.1 EBITDA (Rs bn) (1.0) 15.0 15.1

Price performance (%) 1M 3M 12M EV/EBITDA (X) (164.1) 10.6 10.1Absolute (6.2) 6.4 (28.7) ROE (%) 0.0 0.0 0.0Rel. to BSE-30 (0.5) 17.5 (20.9) Div. Yield (%) 0.0 0.0 0.0


518-167

SELL

MAY 24, 2012

RESULT

Coverage view:

Price (Rs): 321


BSE-30: 16,222

Others Jet Airways


In-line results – strong rebound in the international business balances weak domestic operations Interim results of Jet Airways, consolidated, March fiscal year-ends (Rs mn)

Change (%)

4QFY12 4QFY12E 4QFY11 3QFY12 KIE est. yoy qoq FY2012 FY2011

Operating revenues 45,788 45,836 36,390 44,695 (0) 26 2 167,032 144,882 15

Total expenditure (44,933) (45,172) (35,848) (45,362) (1) 25 (1) (167,297) (128,552) 30

Employee Remuneration (4,582) (4,684) (4,211) (4,658) — 9 (2) (17,746) (15,078) —

Aircraft Fuel Expenses (21,302) (21,372) (15,235) (20,452) — 40 4 (77,763) (51,673) —

Selling and Distribution Expenses (3,791) (4,017) (3,611) (3,914) — 5 (3) (14,962) (13,714) —

Other Operating expenses (11,990) (11,850) (10,085) (13,104) — 19 (9) (44,776) (36,635) —

EBITDAR 4,123 3,913 3,247 2,567 5 27 61 11,785 27,782 (58)

EBITDAR (%) 9 9 9 6 — — — 7 19 —

Aircraft Lease Rentals (3,268) (3,250) (2,705) (3,234) 1 21 1 (12,050) (11,452)

EBITDA 855 663 542 (667) 29 58 (228) (265) 16,331 (102)

EBIDTA % 2 0 1 (1) — — — (0) 11 —

Non-operating revenues 600 420 641 505 — — — 3,638 2,178 —

Depreciation (2,496) (2,415) (2,214) (2,405) — 13 4 (9,446) (9,186) —

Interest (2,660) (2,510) (2,682) (2,438) — (1) 9 (10,058) (11,842) —

PBT (3,701) (3,842) (3,713) (5,005) NM NM NM (16,131) (2,518) NM

Exceptional items 300 0 1,208 3,777 — — — 1,732 2,033 —

Reported PBT (3,401) (3,842) (2,505) (1,228) NM NM NM (14,399) (485) NM

Provision for tax 144 0 622 0 — — — 198 (373) —

PAT (3,545) (3,842) (1,883) (1,228) NM NM NM (14,201) (858) NM

Change (%) 12 months


Cash-flow position under stress – incremental limits from domestic banks should ease short-term pressure

Jet Airways has lost close to Rs10 bn of cash (EBITDA-interest) in the past five quarters. Given the already stretched balance sheet, the cash-flow position is worrying. Cash outflow needs to stop and the company needs to achieve cash break-even levels soon. In the current quarter the company took care of debt repayments by delaying payments to suppliers. It could not release cash by doing sale and lease-back transactions as foreign lessors are wary of the credit profile.

Cash-flow situation is worrying – company has lost close to Rs10 bn of cash in the past five quarters Quarterly trend in operating cash flow (excluding capex and working capital) for Jet Airways, consolidated, March fiscal year-ends (Rs mn)

3QFY10 4QFY10 1QFY11 2QFY11 3QFY11 4QFY11 1QFY12 2QFY12 3QFY12 4QFY12Operating revenues 33,020 32,456 34,391 34,865 39,580 36,390 39,704 36,845 44,695 45,788Total expenditure 27,921 27,353 30,185 30,606 32,895 35,848 39,341 38,325 45,362 44,933Employee Remuneration 3,273 3,440 3,464 3,661 3,769 4,211 4,040 4,488 4,658 4,582Aircraft Fuel Expenses 10,494 9,926 11,848 11,653 12,937 15,235 18,407 17,604 20,452 21,302Selling and Distribution Expenses 3,218 2,461 2,982 3,488 3,633 3,611 3,693 3,563 3,914 3,791Other Operating expenses 8,112 8,561 9,064 8,791 9,649 10,085 10,444 9,881 13,104 11,990EBITDAR 7,923 8,068 7,033 7,272 9,592 3,247 3,120 1,310 2,567 4,123EBITDAR (%) 24 25 20 21 24 9 8 4 6 9Aircraft Lease Rentals 2,824 2,965 2,827 3,013 2,907 2,705 2,758 2,790 3,234 3,268EBITDA 5,099 5,103 4,206 4,259 6,685 542 363 (1,479) (667) 855EBIDTA % 15 16 12 12 17 1 1 (4) (1) 2Non-operating revenues 663 935 600 365 438 641 441 413 505 600Depreciation 2,459 2,380 2,285 2,361 2,326 2,214 2,253 2,293 2,405 2,496Interest 2,589 2,838 2,876 2,690 2,610 2,682 2,219 2,219 2,438 2,660PBT 714 820 (355) (427) 2,187 (3,713) (3,668) (5,578) (5,005) (3,701)Exceptional items 382 1,531 439 (73) 250 1,208 2,049 (2,572) 3,777 300Reported PBT 1,096 2,351 84 (500) 2,437 (2,505) (1,620) (8,150) (1,228) (3,401)Provision for tax 7 (102) (0) (0) (997) 622 (337) 6 — 144—PAT 1,103 2,249 84 (500) 1,441 (1,883) (1,284) (8,145) (1,228) (3,545)Cash generation (PBT+Depreciation) 3,173 3,200 1,930 1,934 4,513 (1,499) (1,416) (3,285) (2,600) (1,205)


Jet Airways Others


Yields are up 12% qoq in domestic market – most of the gains would be offset by depreciating Rupee

As per our index, which takes into account average one-week forward fares across all the carriers across eight routes, yields in 1QFY13 (QTD) are up ~12% versus 4QFY12 levels. Even as the improvement in yields is encouraging, most of the gains would be offset by a depreciating Rupee (Dollar-denominated costs form ~65% of total costs in India).

Yields have improved as Kingfisher has reduced capacity Kotak’s proprietary index for average one-week forward fares (Rs)

4,000

4,500

5,000

5,500

6,000

6,500

7,000

7,500

8,000

8,500

Nov-10

Dec-10

Jan-11

Feb-11

Mar-11

Apr-11

May-11

Jun-11

Jul-11

Aug-11

Sep-11

Oct-11

Nov-11

Dec-11

Jan-12

Feb-12

Mar-12

Apr-12

May-12

Average one week forward price


Yields are up ~12% qoq in 1QFY13 (QTD) in India Quarterly trend in Kotak’s proprietary index (indicative of yields) in India (Rs)

QuarterAverage one-week

forward price4QFY11 5,3321QFY12 5,9692QFY12 5,5063QFY12 6,4264QFY12 6,5191QFY13 7,337% change over 4QFY12 12.6%


Others Jet Airways


Segmental operating results

Jet Airways: Standalone domestic segment

Domestic business (including Jet Lite) underperformed even as yields were strong Interim results of the domestic business, standalone, March fiscal year-ends (Rs mn)

1QFY11 2QFY11 3QFY11 4QFY11 1QFY12 2QFY12 3QFY12 4QFY12Operating revenues 12,941 12,378 15,407 13,363 15,083 12,093 17,370 17,451Total expenditure (11,511) (11,373) (12,874) (14,124) (15,148) (14,291) (18,380) (18,008)Employee Remuneration (1,682) (1,763) (1,890) (2,357) (2,059) (2,485) (2,626) (2,628)Aircraft Fuel Expenses (4,016) (3,939) (4,566) (5,014) (6,320) (5,774) (7,136) (7,411)Selling and Distribution Expense (1,250) (1,497) (1,622) (1,560) (1,409) (1,362) (1,673) (1,683)Other Operating expenses (3,544) (3,179) (3,769) (4,094) (4,283) (3,585) (5,611) (4,924)EBITDAR 2,449 2,000 3,560 338 1,012 (1,113) 324 805EBITDAR (%) 19 16 23 3 7 (9) 2 5Aircraft Lease Rentals (1,019) (995) (1,027) (1,099) (1,077) (1,085) (1,334) (1,362)EBITDA 1,430 1,005 2,533 (761) (65) (2,198) (1,011) (557)EBIDTA % 11 8 16 (6) (0) (18) (6) (3)Non-operating revenues 355 340 384 366 379 363 441 480Depreciation (614) (620) (632) (572) (598) (609) (599) (589)Interest (1,438) (1,152) (1,251) (1,067) (940) (935) (1,060) (1,349)PBT (267) (427) 1,034 (2,034) (1,224) (3,379) (2,229) (2,015)Exceptional items 489 (53) 125 903 594 (1,374) 1,824 231Reported PBT 222 (480) 1,159 (1,131) (631) (4,753) (405) (1,784)


Yield was flat qoq even as 4Q is seasonally weaker Operating parameters for the domestic business of Jet Airways, standalone, March fiscal year-ends (Rs mn)

1QFY11 2QFY11 3QFY11 4QFY11 1QFY12 2QFY12 3QFY12 4QFY12Number of flights 26,812 27,182 29,507 29,059 32,746 32,136 36,361 36,051ASKMs (mn) 2,772 2,849 3,101 2,914 3,216 3,047 3,538 3,493RPKMs (mn) 2,194 2,035 2,384 2,128 2,399 2,198 2,660 2,693Load factor (%) 79.1 71.4 76.9 73.0 74.6 72.1 75.2 77.1Block hours (hrs) 45,638 46,158 49,548 48,402 54,874 53,309 58,392 57,275Revenue Pax (mn) 2.5 2.3 2.7 2.5 2.8 2.6 3.2 3.3Gross yield (Rs/pax) 4,683 4,495 5,210 4,695 5,004 4,330 4,960 4,834Rev. per RPKM (Rs) 5.05 4.84 5.69 5.25 5.56 4.89 5.66 5.63Cost per ASKM (Rs) 4.15 3.99 4.15 4.85 4.71 4.69 5.20 5.16Cost per ASKM excl. fuel (Rs) 2.70 2.61 2.68 3.13 2.75 2.80 3.18 3.03Fuel cost per ASKM (Rs) 1.45 1.38 1.47 1.72 1.97 1.89 2.02 2.12


Jet Airways Others


Jet Airways: International business

Strong rebound led by higher PLF Interim results of International business, standalone, March fiscal year-ends (Rs mn)

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

Operating revenues 16,709 18,672 19,340 19,142 20,333 20,842 22,022 22,965

Total expenditure (14,117) (14,970) (15,538) (17,014) (19,054) (18,996) (21,378) (21,150)

Employee remuneration (1,384) (1,446) (1,461) (1,440) (1,555) (1,586) (1,598) (1,479)

Aircraft fuel expenses (5,943) (6,003) (6,402) (7,784) (9,316) (9,138) (10,398) (10,813)

Selling and distribution expenses (1,447) (1,689) (1,715) (1,838) (1,985) (1,917) (1,893) (1,696)

Other operating expenses (4,342) (4,669) (4,811) (4,962) (5,202) (5,359) (6,358) (6,083)

EBITDAR 3,593 4,865 4,951 3,118 2,275 2,842 1,775 2,894

EBITDAR (%) 22 26 26 16 11 14 8 13

Aircraft lease rentals (1,001) (1,163) (1,149) (990) (996) (996) (1,131) (1,079)

EBITDA 2,592 3,702 3,802 2,128 1,279 1,846 644 1,815

EBIDTA % 16 20 20 11 6 9 3 8

Non-operating revenues 227 16 22 11 29 23 37 32

Depreciation (1,650) (1,720) (1,673) (1,626) (1,637) (1,671) (1,797) (1,899)

Interest (1,307) (1,341) (1,255) (1,473) (1,202) (1,205) (1,314) (1,230)

PBT (138) 657 896 (960) (1,531) (1,007) (2,430) (1,282)

Exceptional items (50) (52) 125 220 594 (1,374) 1,822 231

Reported PBT (188) 605 1,021 (740) (938) (2,381) (608) (1,051)


Operating parameters for the International business of Jet Airways

1QFY11 2QFY11 3QFY11 4QFY11 1QFY12 2QFY12 3QFY12 4QFY12Number of flights 8,264 8,446 8,714 8,892 9,404 9,442 9,708 9,798ASKMs (mn) 5,397 5,631 5,765 5,894 6,103 6,167 6,443 6,636RPKMs (mn) 4,320 4,527 4,647 4,737 4,912 4,967 5,104 5,710Load factor (%) 80.1 80.4 80.6 80.4 80.5 80.5 80.5 86.0Block hours (hrs) 38,386 39,618 40,676 41,736 43,255 43,230 44,588 45,137Revenue Pax 1.1 1.1 1.2 1.2 1.3 1.3 1.4 1.5Gross yield (Rs/pax) 12,071 12,821 12,652 12,333 12,286 12,930 13,092 12,315Rev. per RPKM (Rs) 2.76 2.90 3.01 2.83 2.92 3.07 3.23 3.12Cost per ASKM (Rs) 2.62 2.66 2.70 2.89 3.12 3.08 3.32 3.19Cost per ASKM excl. fuel (Rs) 1.51 1.59 1.58 1.57 1.60 1.60 1.70 1.56Fuel cost per ASKM (Rs) 1.10 1.07 1.11 1.32 1.53 1.48 1.61 1.63


Others Jet Airways


Jet Lite

Results in line Interim results of Jet Lite, March fiscal year-ends (Rs mn)

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

Operating revenues 4,741 3,815 4,833 4,126 4,288 3,910 5,303 5,372

Total expenditure (4,557) (4,263) (4,483) (5,003) (5,139) (5,037) (5,605) (5,774)

Employee Remuneration (398) (452) (418) (414) (426) (416) (434) (475)

Aircraft Fuel Expenses (1,889) (1,711) (1,969) (2,437) (2,770) (2,692) (2,919) (3,077)

Selling and Distribution Expenses (285) (302) (296) (214) (299) (284) (349) (413)

Other Operating expenses (1,178) (943) (1,069) (1,324) (959) (937) (1,134) (982)

EBITDAR 991 407 1,081 (263) (166) (419) 467 425

EBITDAR (%) 21 11 22 (6) (4) (11) 9 8

Aircraft Lease Rentals (807) (855) (731) (614) (685) (708) (769) (827)

EBITDA 184 (448) 350 (877) (851) (1,127) (302) (402)

EBIDTA % 4 (12) 7 (21) (20) (29) (6) (7)

Non-operating revenues 18 9 32 288 33 28 27 89

Depreciation (21) (21) (21) (18) (18) (13) (9) (8)

Interest (131) (197) (104) (167) (77) (79) (64) (81)

PBT 50 (657) 257 (774) (913) (1,191) (348) (402)

Exceptional items 0 32 0 22 861 177 132 (162)

Reported PBT 50 (625) 257 (752) (52) (1,014) (216) (564)


Operating parameters for Jet Lite, March fiscal year-ends (Rs mn)

1QFY11 2QFY11 3QFY11 4QFY11 1QFY12 2QFY12 3QFY12 4QFY12Number of flights 10,353 9,536 9,404 9,710 10,063 10,518 10,532 10,879ASKMs 1,346 1,263 1,384 1,489 1,447 1,472 1,465 1,445RPKMs 1,111 937 1,143 1,148 1,159 1,100 1,151 1,133Load factor (%) 83 74 83 77 80 75 79 78Block hours (hrs) 17,934 16,354 16,664 17,409 17,265 17,702 17,629 17,655Revenue Pax 1.1 1.0 1.1 1.2 1.2 1.2 1.2 1.2Gross yield (Rs/pax) 3,937 3,737 4,150 3,405 3,451 3,160 3,961 4,258Rev. per RPKM (Rs) 3.84 3.67 3.96 3.32 3.44 3.29 4.16 4.35Cost per ASKM (Rs) 3.39 3.38 3.24 3.36 3.55 3.42 3.83 4.00Cost per ASKM excl. fuel (Rs) 1.98 2.02 1.82 1.72 1.64 1.59 1.83 1.87Fuel cost per ASKM (Rs) 1.40 1.35 1.42 1.64 1.91 1.83 1.99 2.13


Jet Airways Others


Jet has gained as Kingfisher reduced capacity Trend in monthly market shares for domestic airlines (%)

Spicejet Jet Airways Jet Lite Kingfisher Go Air Indigo Air IndiaSep-10 12.6 19.5 7.4 19.8 5.8 16.2 18.7Oct-10 13.6 18.8 7.4 19 6.6 16.8 17.7Nov-10 13.3 19.2 7 19.1 6.9 17.3 17.1Dec-10 13.8 17.7 7.7 18.6 6.4 18.6 17.1Jan-11 14.3 17.3 7.5 19.5 6.4 19.2 15.8Feb-11 13.8 18 8.1 19 6.6 18.7 15.8Mar-11 13.5 17.5 7.9 19.9 6.8 19.5 14.9Apr-11 13.6 17.5 7.3 20 6.4 19.7 15.4May-11 14.2 18.5 7.6 20 6.6 19.9 13.2Jun-11 14 17.8 7.7 19.8 6.1 19.6 14.9Jul-11 13.7 18.3 8.2 19.3 6 19.2 15.2Aug-11 13.4 18.2 8.1 18.8 5.3 18.7 17.4Sep-11 13.9 18.1 8.3 18.4 5.4 19.9 16Oct-11 16.1 17.6 7.2 16.7 6.2 19.6 16.6Nov-11 15.5 19.8 7.3 14 6.2 19.8 17.4Dec-11 16.8 20.5 7.1 12.1 5.7 20.4 17.4Jan-12 16.3 20.9 7.9 11.3 5.8 20.8 17.1Feb-12 15.9 22 7.8 9.7 6.5 21.3 16.8Mar-12 17.1 21.9 7.3 6.4 7.5 21.9 17.9Apr-12 17.7 21.4 6.8 5.4 7.3 23.8 17.6

Source: DGCA, Kotak Institutional Equities

Industry PLF has improved Trend in monthly PLF for domestic aviation industry (%)

70.4

73

75.275

82.8

77.477.3

70.9

78

8583

7472.673.3

80

8485

80 80

7573

84

81.4

7271

77

8081

74

787877

70.1

73

65

70

75

80

85

90

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

Jan-

12

Mar

-12


Others Jet Airways


Industry capacity has got rationalized Monthly capacity of Indian airlines (ASKMs bn)

4.0

4.5

5.0

5.5

6.0

6.5

7.0

Apr

-10

May

-10

Jun-

10

Jul-1

0

Aug

-10

Sep-

10

Oct

-10

Nov

-10

Dec

-10

Jan-

11

Feb-

11

Mar

-11

Apr

-11

May

-11

Jun-

11

Jul-1

1

Aug

-11

Sep-

11

Oct

-11

Nov

-11

Dec

-11

Jan-

12

Feb-

12

Mar

-12

0

4

8

12

16

20ASKMs (bn) - LHS Yoy growth (%) - RHS


Passenger growth was higher than growth in capacity in April Monthly trend in passenger numbers (mn)

CY2009 CY2010 CY2011 CY2012 CY2009 CY2010 CY2011 CY2012January 3.33 4.09 4.9 5.3 (14.7) 22.8% 20.7% 8.0%February 3.34 3.86 4.6 5.1 (6.9) 15.6% 18.5% 10.6%March 3.16 3.9 4.8 4.9 (14.8) 23.4% 23.1% 1.5%April 3.32 4.19 4.7 5.1 (14.8) 26.2% 11.5% 9.0%May 3.93 4.79 5.5 (4.5) 21.9% 14.7%June 3.69 4.5 5.3 5.4 22.0% 18.0%July 3.6 4.08 4.0 23.0 13.3% -2.2%August 3.63 3.99 4.8 26.0 9.9% 19.9%September 3.51 3.91 4.6 24.8 11.4% 18.1%October 3.97 4.62 5.4 29.9 16.4% 16.9%November 3.9 4.88 5.4 26.6 25.0% 11.1%December 4.49 5.21 5.6 35.0 16.1% 8.0%Total 43.9 52.0 59.6 — 18.6% 14.6%

Growth (% yoy)


Maintain SELL with a target price of Rs280

We are maintaining our SELL rating on the stock with a target price of Rs280 (unchanged) at 8.7X FY2013E EBITDAR.

We value Jet Airways at Rs280 per share Valuation table for Jet Airways, FY2013E basis, March fiscal year-ends (Rs mn)

EBITDAR 29,777EV/EBITDAR multiple (X) 8.7EV 259,058Aircraft lease rentals capitalised at 7X (103,447)Net Debt (131,779)Value of the equity 23,832Value per share 276


Jet Airways Others


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

2008 2009 2010 2011 2012E 2013E 2014EProfit modelIncome 102,456 130,779 118,764 145,226 167,032 200,190 213,492Operating expenses

Employee remuneration and benefits (13,888) (15,843) (13,770) (15,105) (17,746) (18,917) (20,239)

Aircraft fuel expenses (40,700) (58,536) (37,584) (51,673) (77,763) (85,499) (91,347)

Selling and distribution expenses (11,137) (12,040) (10,977) (13,714) (14,962) (18,970) (20,138)

Other operating expenses (30,144) (42,519) (34,219) (37,589) (44,776) (47,025) (50,165)

Operating expenses (exc rentals) (95,870) (128,937) (96,550) (118,082) (155,247) (170,411) (181,889)

EBITDAR 6,586 1,842 22,214 27,144 11,785 29,779 31,603Aircraft lease rentals (8,216) (10,429) (11,591) (11,452) (12,050) (14,778) (15,432)

EBITDA (1,630) (8,587) 10,623 15,692 (265) 15,001 16,171Depreciation (8,018) (9,021) (9,691) (9,186) (9,446) (9,122) (9,130)Interest and finance charges (5,225) (8,023) (10,474) (10,858) (10,058) (10,054) (9,503)Non-operating revenue 7,452 3,710 3,617 2,044 3,638 532 430PBT before exceptional items (7,421) (21,921) (5,924) (2,308) (16,131) (3,642) (2,032)Exceptional items (695) 11,651 1,826 1,824 1,732Reported PBT (8,115) (10,270) (4,098) (484) (14,399) (3,642) (2,032)Taxes 1,577 656 (104) (374) 198 728 406PAT (6,539) (9,614) (4,202) (858) (14,201) (2,913) (1,626)EPSDiluted (76) (111) (49) (10) (165) (34) (19)Margins %EBITDAR 6 1 19 19 7 15 15EBITDA (2) (7) 9 11 (0) 7 8PBT (7.2) (16.8) (5.0) (1.6) (9.7) (1.8) (1.0)Balance sheetEquity 863 863 863 863 863 863 863Reserves and surplus 41,697 33,321 32,847 32,374 32,374 32,374 32,374P&L balance (1,052) (12,213) (16,415) (17,273) (37,452) (40,365) (41,991)Net worth 41,508 21,971 17,296 15,964 (4,215) (7,128) (8,754)Secured loans 17,530 50,364 43,066 46,605 46,605 46,605 46,605Unsecured loans 104,523 115,976 99,738 90,199 93,299 87,299 77,299Loan funds 122,053 166,340 142,804 136,804 139,904 133,904 123,904Deferred payment liability 4,125 2,750 1,375 — — — — Deferred tax liability 1,602 — — 336 336 336 336Current liabilties and provisions 45,230 41,125 45,199 50,843 60,117 68,913 73,359Total sources of funds 214,519 232,186 206,674 203,947 196,142 196,025 188,846AssetsGross block 166,687 188,450 180,110 180,048 180,648 181,248 181,848Less: depreciation 25,560 25,502 35,558 43,676 52,789 61,911 71,040Net block 141,127 162,948 144,552 136,372 127,859 119,337 110,807Capital work in progress 13,026 6,571 3,335 3,828 3,828 3,828 3,828Fixed assets 154,153 169,519 147,887 140,200 131,686 123,165 114,635Goodwill on consolidation 18,724 18,724 18,724 18,724 18,724 18,724 18,724Investments 104 1,000 1,000 801 1,000 1,000 1,000Inventories 6,044 6,963 6,975 8,252 10,004 11,518 12,283Sundry debtors 13,990 8,075 8,765 10,254 12,862 14,809 15,793Cash and bank balances 9,584 14,662 8,264 6,772 430 2,129 90Loans and advances 11,921 13,243 15,059 18,944 21,437 24,681 26,321Current assets 41,538 42,943 39,063 44,223 44,732 53,136 54,487Total uses of funds 214,519 232,186 206,674 203,947 196,142 196,025 188,846Free cash flowOperating cash flow excl. working capital (6,846) (14,803) 1,865 5,465 (11,065) 6,208 7,504Working capital changes 4,919 1,728 4,638 (55) 2,422 2,091 1,057Capital expenditure (58,114) 354 (615) (1,253) (600) (600) (600)Investment changes 1,704 (8,844) 3,662 7,179 0 0 0Changes in deferrred payment liability (5,525) (1,375) (1,375) (1,375) 0 0 0Other income 388 272 505 548 671 532 430Free cash flow (63,474) (22,668) 8,681 10,510 (8,572) 8,231 8,391



Doing what telcos do – buying spectrum when opportunity presents itself

We see Bharti’s stake purchase in Qualcomm’s BWA business in India as a call option buyout on large-screen broadband data pick-up in the future. The deal provides Bharti BWA (2,300 MHz, LTE) spectrum in 4 circles – Mumbai, Delhi, Haryana and Kerala. It takes Bharti’s 3G and/or BWA footprint to 18 out of 22 circles in India; Gujarat, Orissa, M.P. and UP (East) are the ones still missing in the portfolio (see Exhibit 2). We see two strategic benefits from the transaction –

BWA spectrum could help ease the inevitable data capacity crunch operators are likely to face in the metros at some point (timing remains uncertain at this point) given the low quantity (lowest globally) of 3G spectrum (per operator and overall) in India.

Positions Bharti well in the 8 circles where they have (100% of partly owned) BWA spectrum to respond to any potential disruptive go-to-market move from Reliance industries. Consolidation of 2nd fragmented BWA spectrum block with a strong operator like Bharti could potentially keep RIL’s aggressiveness in check, in our view.

There is of course a strategic negative here – given that the transaction (per our estimates) has been done at anywhere between 15% and 20% premium over the BWA auction-discovered prices (in Re terms), it does provide some legitimacy to TRAI’s spectrum valuation approach in their recent recommendations.

Transaction contours – we estimate post-money equity value at US$384 mn and EV at ~US$1.2 bn

Bharti will buy 49% equity stake in Qualcomm’s India BWA business – 26% from two minority shareholders (Tulip Telecom and Global holdings, 13% each) and 23% through fresh equity infusion into the company. Transaction has closed, with all approvals in place.

Our computations suggest a pre-money equity valuation of US$295 mn, post-money valuation of US$384 mn, and EV of US$1.2 bn.

Bharti Airtel (BHARTI)

Telecom

Qualcomm BWA stake purchase – good strategic intent. Bharti has entered into a transaction to purchase 49% stake in Qualcomm’s BWA business in India for a total consideration of US$165 mn. Bharti has indicated that it would buy Qualcomm out completely by end-2014. Qualcomm India BWA entity has BWA spectrum in 4 circles – Mumbai, Delhi, Haryana and Kerala. The deal expands Bharti’s mobile broadband spectrum holdings in Mumbai and Delhi while filling the BB spectrum gap in the other two circles. We like the strategic intent even as the deal comes with near-term EPS hit.

Bharti AirtelStock data Forecasts/Valuations 2012 2013E 2014E

52-week range (Rs) (high,low) EPS (Rs) 11.2 18.0 22.3Market Cap. (Rs bn) 1,130.9 EPS growth (%) (29.6) 60.7 23.5


Price performance (%) 1M 3M 12M EV/EBITDA (X) 7.6 6.1 5.2Absolute (3.1) (13.1) (19.6) ROE (%) 8.6 12.7 14.0Rel. to BSE-30 2.8 (4.0) (10.8) Div. Yield (%) 0.3 0.5 0.7


448-280

ADD

MAY 24, 2012

UPDATE

Coverage view: Neutral

Price (Rs): 298


BSE-30: 16,222

Bharti Airtel Telecom


Earnings impact – we estimate an EPS dilution of 6-7% for FY2013/14E

Bharti’s FY2013/14E earnings would get negatively impacted (assuming little or no revenues from this venture for the next two years and completion of 100% stake purchase post March 31, 2014) in two ways –

Interest (or loss of cash yield) on the US$165 mn payout – this would be around Rs0.6 bn for FY2013E and Rs0.7 bn for FY2014E on a post-tax basis.

Share in loss of Qualcomm BWA entity – Bharti would consolidate 49% of net income of Qualcomm’s BWA entity till they take their stake to >50%. We estimate Bharti’s share of loss in the acquired business at Rs3.5 bn for FY2013E and Rs5.1 bn for FY2014E.

Exhibit 1 depicts the computations for the impact discussed above. Summing up the two, the total PAT impact comes to Rs4.1 bn for FY2013E and Rs5.8 bn for FY2014E. In EPS terms, it is an impact of Rs1.08/share (6% of current estimate) and Rs1.53/share (~7% of current estimate). We are of course assuming here that the acquired entity does not capitalize pre-launch interest and amortization expenses. We shall incorporate the acquisition into our model post further discussions with the company on some of these aspects.

Exhibit 1: Deal impact on Bharti's FY2013/14E EPS

FY2013E FY2014EIncrease in net debt (Rs bn) 8.6 8.6 Post-tax cost of debt (%) 8.0 8.0 Interest cost (Rs bn) (a) (0.6) (0.7)

Share of associate lossBharti's stake (%) 49.0 49.0 Average net debt at Qualcomm India BWA entity (Rs bn) 46.8 52.0 Interest at 10% cost of debt (Rs bn) (a) (3.9) (5.2) Amortization of spectrum payout (Rs bn) (a) (b) (2.2) (2.6) EBITDA loss (Rs bn) (a) (1.1) (2.6) Total loss at Qualcomm India BWA entity (Rs bn) (7.2) (10.4) Bharti's share of loss (Rs bn) (3.5) (5.1)

Total PAT impact (Rs bn) (4.1) (5.8) Total EPS impact (Rs/share) (1.08) (1.53) Current EPS estimate (Rs/share) 18.0 22.3 EPS impact versus current (%) (6.0) (6.9)

Note:(a) Impact for FY2013E for 10 months from June 2012.(b) Payout amortized for 18.6 years.(c) Assuming interest/amortization expensing pre-launch.


Telecom Bharti Airtel


Exhibit 2: 3G + BWA spectrum holdings across operators

Bharti Vodafone TTSL Idea RCOM Aircel S Tel BSNL/MTNL Qualcomm Tikoma Augere RILMetrosDelhi 3G + BWA (a) 3G — — 3G — — 3G + BWA BWA (a) — — BWAMumbai 3G + BWA (a) 3G — — 3G — — 3G + BWA BWA (a) — — BWAChennai + TN 3G 3G — — — 3G + BWA — 3G + BWA — — — BWAKolkata BWA 3G — — 3G 3G — 3G + BWA — — — BWAA circlesAndhra Pradesh 3G — — 3G — 3G + BWA — 3G + BWA — — — BWAGujarat — 3G 3G 3G — — — 3G + BWA — BWA — BWAKarnataka 3G + BWA — 3G — — 3G — 3G + BWA — — — BWAMaharashtra BWA 3G 3G 3G — — — 3G + BWA — — — BWAB circlesHaryana BWA (a) 3G 3G 3G — — — 3G + BWA BWA (a) — — BWAKerala BWA (a) — 3G 3G — 3G — 3G + BWA BWA (a) — — BWAMadhya Pradesh — — 3G 3G 3G — — 3G + BWA — — BWA (b) BWAPunjab BWA — 3G 3G 3G 3G — 3G + BWA — — — BWARajasthan 3G — 3G — 3G — — 3G + BWA — BWA — BWAUttar Pradesh (east) — 3G — 3G — 3G — 3G + BWA — BWA — BWAUttar Pradesh (west) 3G — 3G 3G — — — 3G + BWA — BWA — BWAWest Bengal 3G 3G — — 3G 3G + BWA — 3G + BWA — — — BWAC circlesAssam 3G — — — 3G 3G + BWA — 3G + BWA — — — BWABihar 3G — — — 3G 3G + BWA 3G 3G + BWA — — — BWAHimachal Pradesh 3G — — 3G 3G — 3G 3G + BWA — BWA — BWANorth East 3G — — — 3G 3G + BWA — 3G + BWA — — — BWAOrissa — — — — 3G 3G + BWA 3G 3G + BWA — — — BWAJ&K 3G — — 3G 3G 3G + BWA — 3G + BWA — — — BWATotal 3G/BWA circles 18 9 9 11 13 13 3 22 4 5 1 22

Note:(a) 49% Bharti, 51% Qualcomm stake in Qualcomm's BWA business in Delhi, Mumbai, MP, and UP (East).(b) Press reports suggest that Augere intends to exit the Indian market.

Source: DOT, Kotak Institutional Equities


Investment plans of print media have not seen a kind reception

Exhibit 1 presents the trends in stock performance of DBCL and JAGP, highlighting the news-flow around investment plans of these companies; the plans have not been looked at very kindly, notably in print media, since the majority are in the form of operating investment (startup losses) and not capital expenditure, impacting near-term earnings. The concerns have proven to be valid in FY2012 somewhat given (1) higher-than-expected earnings dilution in the near term (1-2 year investment horizon versus 3-5 year investment cycle) and (2) weak macro-economic environment (weak advertising, peak newsprint prices) during this period. In our view, the large quantum of investments in weak operating environment has warranted caution.

The concerns may be overdone given sharp correction in JAGP stock

Exhibit 2 presents the trend in 12-month forward earnings of JAGP (likely excluding the impact of Nai Dunia, which does not seem to have been factored into estimates). The pressure on 12-month forward earnings over the past 18 months is visible given weakening trends in macro-environment (soft advertising, high newsprint inflation). However, the trend is improving given modest increase in 12-month forward earnings estimates over the past 3 months, in complete contrast to the movement in JAGP stock. The valuation decline in JAGP stock (~Rs25/share in past 3 months) at ~Rs8 bn is far in excess of ~Rs1.5 bn acquisition price (gross Rs2.25 bn) + ~Rs1.0 bn future investments, also confirming that the concerns may be overdone.

Domestic newsprint prices stable so far; Rs/US$ could be spoilsport

Exhibit 3 presents the trends in domestic and imported newsprint prices till April 2012; we note that CY2011-12 correspond to FY2012-13 for effective newsprint consumption; given 2-3 months of inventory, JAGP likely already has newsprint stock for 1QFY13 and part of 2QFY13, and effective prices have remained stable with domestic newsprint prices marginally declining and imported prices marginally increasing due to Rs/US$ movement. Expectations of stable domestic prices have provided the leverage for stability in standalone earnings. However, Rs/US$ may play spoilsport as domestic newsprint prices have loose linkages to imported prices.

Jagran Prakashan (JAGP)

Media

Valid concerns, undue pessimism. JAGP stock has corrected 17% in the last one month, post the acquisition of Nai Dunia (#3 print brand in MP market). The concerns on near-term earnings dilution and higher medium-term investments are valid but the reaction to JAGP stock is extreme, in our view; valuation decline is ~3X of acquisition price + estimated future investments in Nai Dunia, despite stability in 12-month forward standalone earnings estimates. BUY with 12-month forward fair value of Rs130 (Rs140 previously). We introduce our top picks in the Indian media sector: Zee Entertainment, DBCL/JAGP regional print basket, Dish TV and Eros India.

Jagran PrakashanStock data Forecasts/Valuations 2012 2013E 2014E

52-week range (Rs) (high,low) EPS (Rs) 5.8 6.5 7.6Market Cap. (Rs bn) 25.8 EPS growth (%) (15.2) 11.8 17.7




132-78

BUY

MAY 24, 2012

UPDATE

Coverage view: Attractive

Price (Rs): 82


BSE-30: 16,222

Media Jagran Prakashan


Revisions to earnings and valuations due to Nai Dunia

Exhibit 4 presents the revised earnings and valuations of JAGP taking into account the Nai Dunia acquisition. We highlight that Nai Dunia would remain in investment mode for the next 3-4 years, incurring cumulative investments of ~Rs1 bn (~Rs300 mn over FY2013E-14E and declining thereafter). In addition, there is also a capital cost incurred given interest lost due to payment for the transaction (~Rs2.25 bn gross, ~Rs1.5 bn net). Accordingly, we revise our FY2013-14E earnings estimates down to Rs6.5/share (Rs7.6/share previously) and Rs7.6/share (Rs9.0/share), ~15% reduction. JAGP stock valuations at ~12.5X FY2013E earnings estimates remain well below historical levels; since listing, JAGP stock has traded at ~19.5X 12-month forward P/E valuations.

Depressed earnings but continued robust balance sheet

JAGP’s earnings and margins may be depressed in the near term on account of the Nai Dunia acquisition but free cash flows and balance sheet remain robust. We maintain our <Rs1.0 bn consolidated capital expenditure for JAGP during FY2013-14E. We expected ~Rs1 bn net cash in the balance sheet at end-FY2012E; gross payment for Nai Dunia acquisition will result in ~Rs1 bn net debt in the balance sheet at end-FY2012E; however, ~Rs1 bn recovery will happen through asset rates and other measures in Nai Dunia. Thus, given robust free cash flow generation during FY2013E, we expect JAGP to exit FY2013E with a net cash balance sheet again. JAGP plans to maintain its Rs3.5/share dividend payout in FY2013E and beyond, implying an attractive dividend yield of ~4.4% in FY2013E-14E; dividend increase in unlikely during this period, however.

Hindi/regional print not overtly cyclical given mix improvement

Exhibit 6 highlights the surprisingly counter-intuitive trend that FMCG advertisers have become reasonably large on print media over the years. Hindi/regional print also displays cyclical trends given dependence on advertisers such as auto and durables but not significantly given (1) share of advertising pie is still below potential and structural growth continues and (2) share of highly cyclical sectors such as Real Estate and BFSI continues to remain below potential (Exhibit 7). The recovery in FMCG advertising bodes well for print; festival season would be the critical period for cyclical sectors.

Indexed performance of regional print media stocks, highlighting the news-flow on investment plans

60

70

80

90

100

110

Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12

DBCL JAGP

DBCL lists with plan to enter Bihar-Jharkhand

DBCL decides to enter Maharashtra as well

JAGP decides to acquire Mid-Day Mumbai

JAGP decides to launch Punjabi Jagran

DBCL delays Bihar; goes slow in Maharashtra

JAGP decides to acquire Nai Dunia

Source: Bloomberg, Media reports, Kotak Institutional Equities estimates

Jagran Prakashan Media


12-month forward EPS estimates and P/E valuation of JAGP stock, CY2010-12

5

6

7

8

9

10

Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-1210

13

16

19

22

25

12-MF EPS estimate 12-MF P/E valuation

Source: Factset consensus, Kotak Institutional Equities

India benchmark newsprint prices, CY2010-12 (Rs/ton)

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov DecCY2012Domestic (45 gsm) 30,000 30,000 30,000 31,000 Imported (45 gsm) 33,375 32,067 32,423 33,351 Imported (US$/ton) 650 650 650 650 Exchange rate (Rs/US$) 51.3 49.3 49.9 51.3 Differential 3,375 2,067 2,423 2,351 CY2011Domestic (45 gsm) 29,750 30,000 30,500 33,500 33,500 33,500 31,000 31,000 31,000 31,000 31,000 31,000 Imported (45 gsm) 31,322 31,351 31,043 31,723 31,851 32,069 32,646 32,646 33,279 35,458 36,219 37,812 Imported (US$/ton) 690 690 690 715 715 715 735 735 735 720 720 720 Exchange rate (Rs/US$) 45.4 45.4 45.0 44.4 44.5 44.9 44.4 44.4 45.3 49.2 50.3 52.5 Differential 1,572 1,351 543 (1,777) (1,649) (1,431) 1,646 1,646 2,279 4,458 5,219 6,812 Change (%)Domestic (45 gsm) 1 - (2) (7) Imported (45 gsm) 7 2 4 5 Imported (US$/ton) (6) (6) (6) (9) CY2010Domestic (45 gsm) 25,000 25,000 25,000 28,500 28,500 28,500 30,000 28,500 28,500 30,500 30,500 30,500 Imported (45 gsm) 27,578 27,795 27,299 28,035 28,857 29,336 32,785 32,579 32,579 31,160 31,512 31,611 Imported (US$/ton) 600 600 600 630 630 630 700 700 700 700 700 700 Exchange rate (Rs/US$) 46.0 46.3 45.5 44.5 45.8 46.6 46.8 46.5 46.5 44.5 45.0 45.2 Differential 2,578 2,795 2,299 (465) 357 836 2,785 4,079 4,079 660 1,012 1,111 Change (%)Domestic (45 gsm) 19 20 22 18 18 18 3 9 9 2 2 2 Imported (45 gsm) 14 13 14 13 10 9 (0) 0 2 14 15 20 Imported (US$/ton) 15 15 15 13 13 13 5 5 5 3 3 3

Source: CRISIL Research, Kotak Institutional Equities



Revised earnings estimates of JAGP, FY2013E-14E (Rs mn)

Revised Previous Change (%)2013E 2014E 2013E 2014E 2013E 2014E

Print ad revenue 11,770 13,620 11,207 12,955 5.0 5.1 Circulation revenue 3,037 3,268 2,740 2,992 10.9 9.2 Other revenue 1,977 2,389 1,973 2,358 0.2 1.3 Total revenues 16,785 19,276 15,920 18,305 5.4 5.3 Production cost 6,431 7,212 5,560 6,128 15.7 17.7 Employee cost 2,503 3,053 2,400 2,962 4.3 3.1 SG&A expenses 4,202 4,811 3,933 4,537 6.8 6.0 Total expenditure 13,136 15,077 11,893 13,627 10.5 10.6

EBITDA 3,648 4,200 4,027 4,678 (9.4) (10.2) EPS (Rs) 6.5 7.6 7.6 9.0 (14.5) (15.3)

P/E ratio (X) 12.5 10.6 10.7 9.0


Readership of JAGP across core, legacy markets (mn)

Q4 2010 Q1 2011 Q2 2011 Q3 2011 Q4 2011 chg (%)UPUDainik Jagran 9.5 9.4 9.6 9.6 9.6 1 Amar Ujala 7.6 7.8 7.9 7.9 8.0 4 Hindi Hindustan 3.8 4.0 4.1 4.2 4.3 14 BJHHindi Hindustan 6.4 6.6 6.6 6.6 6.6 2 Dainik Jagran 3.4 3.5 3.7 3.8 3.9 16 Prabhat Khabar 1.6 1.7 1.8 1.9 2.1 33 CPHDainik Bhaskar 2.4 2.4 2.3 2.2 2.2 (9) Punjab Kesari 2.1 2.0 2.0 1.9 2.0 (5) Dainik Jagran 1.8 1.7 1.7 1.6 1.6 (13) D-NCRNavbharat Times 2.0 2.0 2.0 2.0 1.9 (1) Hindi Hindustan 1.3 1.3 1.3 1.3 1.2 (8) Dainik Jagran 1.1 1.1 1.1 1.0 1.0 (3) Punjab Kesari 0.8 0.8 0.8 0.8 0.7 (10) MPCGDainik Bhaskar 4.6 4.7 4.8 4.9 4.8 5 Nai + Nav Dunia 1.9 2.0 1.9 1.9 1.9 1 Patrika Dainik 1.1 1.1 1.3 1.4 1.8 65 Hari Bhoomi 1.2 1.2 1.2 1.2 1.2 (7)

Source: Indian Readership Survey, Kotak Institutional Equities



Share of top advertisers on Indian print media, CY2009-11 (%)

2009 2010 2011Education 17 15 11 Auto 8 7 10 FMCG 7 7 9 Real Estate 7 8 8 BFSI 8 9 7 Lifestyle 6 5 7 Durables 5 5 6 Retail 6 6 6 Telecom 5 6 5 Corporate 3 3 3

Source: TAM Adex Research, Kotak Institutional Equities

Share of language print in BFSI and Real Estate advertising (%)

Real Estate Share (%) BFSI Share (%)English 50 English 69 Hindi 26 Hindi 14 Marathi 8 Gujarati 4 Tamil 4 Marathi 3 Gujarati 4 Malayalam 3

Source: TAM Adex Research, Kotak Institutional Equities

Ad spends of listed FMCG companies (Rs mn)

3QFY11 4QFY11 1QFY12 2QFY12 3QFY12 4QFY12Advertising expenditureHUL 7,433 6,233 6,330 6,514 6,902 6,773 Dabur India 1,090 748 929 725 1,276 1,046 Glaxo India 898 1,026 1,000 1,196 1,142 1,091 Colgate India 1,206 804 988 1,143 1,075 - Marico India 592 413 727 627 877 778 Gillette India 731 727 876 702 806 836 GCPL 592 407 656 564 588 547 Proctor & Gamble 578 380 453 629 697 526 Total 13,120 10,738 11,959 12,100 13,363 11,597 growth (%) 1 (3) 7 2 8 Overhead expenditureNestle India 4,277 4,201 4,092 4,650 5,079 4,972 Asian Paints 3,343 3,355 3,277 3,848 4,102 4,191

TGB 1,310 1,287 1,194 1,276 1,433 - Total 8,930 8,843 8,563 9,774 10,614 9,163 growth (%) 21 18 18 19 4

Source: Company data, Kotak Institutional Equities



Valuation of Indian print media companies, March fiscal year-ends, 2010-14E

EV EBITDA (Rs bn) EV/EBITDA (X)(Rs bn) 2010 2011 2012E 2013E 2014E 2010 2011 2012E 2013E 2014E

JAGP 25 2.8 3.6 3.3 3.6 4.2 8.8 7.0 7.5 6.8 5.9 JAGP (adjusted) 25 2.8 3.6 3.3 3.9 4.5 8.8 7.0 7.5 6.3 5.5 DBCL 37 3.4 4.0 3.6 4.1 4.9 10.9 9.3 10.5 9.1 7.7 DBCL (adjusted) 37 3.4 4.2 4.3 4.7 5.4 10.9 8.8 8.8 7.9 7.0 HMVL 8 0.8 0.9 1.0 1.2 1.5 9.1 8.6 7.9 6.6 5.2 HTML 25 2.5 3.2 2.8 3.3 4.6 10.1 8.0 9.0 7.7 5.4 HTML (adjusted) 25 2.5 3.1 2.6 3.0 4.3 10.1 8.2 9.8 8.4 5.8

Price EPS (Rs/share) P/E (X)(Rs) 2010 2011 2012E 2013E 2014E 2010 2011 2012E 2013E 2014E

JAGP 80 5.8 6.7 5.8 6.5 7.6 13.7 11.9 13.8 12.4 10.5 JAGP (adjusted) 80 5.8 6.7 5.8 7.0 8.1 13.7 11.9 13.8 11.5 9.9 DBCL 202 10.6 14.1 11.0 13.3 15.9 19.0 14.3 18.3 15.2 12.7 DBCL (adjusted) 202 10.6 14.8 13.2 15.3 17.6 19.0 13.6 15.3 13.2 11.5 HMVL 128 7.9 8.2 8.9 10.4 12.5 16.2 15.6 14.3 12.4 10.2 HTML 115 5.8 7.7 7.0 7.9 11.3 19.7 15.0 16.3 14.6 10.2

Readership (mn) EV/Reader (X)Q4 2010 Q1 2011 Q2 2011 Q3 2011 Q4 2011 Q4 2010 Q1 2011 Q2 2011 Q3 2011 Q4 2011

JAGP 17.1 16.9 17.5 17.5 17.4 1,448 1,466 1,423 1,419 1,423 DBCL 17.7 17.8 18.0 18.8 18.6 2,104 2,094 2,076 1,990 2,009 HMVL 11.5 11.8 12.0 12.0 12.0 663 643 634 631 631 Discount (%) 63 64 64 63 63

Notes:(a) Adjusted for near-term acquisition costs and operating losses in Nai Dunia.(b) Adjusted for near-term launch expenses and startup losses in Jharkhand and Maharashtra.(c) Adjusted for 22% minority interest in subsidiary HMVL post IPO in October-2010.

Source: Company data, Indian Readership survey, Kotak Institutional Equities estimates



Financial summary of JAGP, March fiscal year-ends, 2008-14E (Rs mn)

Standalone Consolidated2008 2009 2010 2011 2012E 2013E 2014E

Profit modelNet sales 7,496 8,234 9,419 12,211 13,799 16,785 19,276 EBITDA 1,638 1,567 2,823 3,568 3,304 3,648 4,200 Other income 215 227 343 256 311 250 265 Interest (60) (59) (66) (91) (246) (96) (96) Depreciation (336) (383) (508) (603) (671) (740) (765) Pretax profits 1,457 1,352 2,592 3,131 2,698 3,062 3,604 Extraordinary items (1) — — (75) — — —Current tax (329) (446) (774) (919) (885) (1,038) (1,229) Deferred taxation (147) 10 (59) (56) 15 20 31 Net income 980 916 1,759 2,078 1,828 2,044 2,406 Adjusted net income 981 916 1,759 2,130 1,828 2,044 2,406 Earnings per share (Rs) 3.3 3.0 5.8 6.7 5.8 6.5 7.6

Balance sheet Total equity 5,388 5,599 6,125 7,022 7,561 8,316 9,432 Deferred taxation liability 531 521 580 618 602 583 552 Total borrowings 791 1,415 1,214 1,924 1,924 1,924 1,924 Current liabilities 1,244 1,624 1,861 2,902 3,403 3,966 4,292 Total liabilities and equity 7,953 9,158 9,780 12,466 13,490 14,789 16,200 Cash 367 828 852 362 872 828 1,838 Other current assets 2,706 2,773 3,322 4,617 4,979 5,501 6,042 Total fixed assets 3,046 3,990 3,941 5,469 5,622 5,943 6,052 Investments 1,833 1,568 1,666 2,018 2,018 1,018 1,018 Total assets 7,953 9,158 9,780 12,466 13,490 14,789 16,200

Free cash flow Operating cash flow 1,327 1,257 2,319 2,684 2,419 2,611 2,971 Working capital changes (354) (125) (259) (368) 139 41 (215) Capital expenditure (755) (1,393) (497) (1,843) (824) (1,061) (874) Free cash flow 218 (261) 1,564 474 1,734 1,591 1,881

Ratios (%)Debt/equity 13 23 18 25 24 22 19 Net debt/equity (24) (16) (19) (6) (12) 1 (9) ROAE (%) 17 15 27 30 23 24 25 ROACE (%) 18 13 24 26 20 20 21

Source: Company data, Kotak Institutional Equities estimates


Banks—loan growth slows to 18% levels; NBFCs—strong growth traction continues

FY2012 saw loan growth slowing down to 18% levels as compared to 25% levels in FY2011. Public sector banks grew 17% yoy (7% qoq) while private banks grew 20% yoy (6% qoq). Loan growth was partly aided by seasonality and meeting priority-sector commitments. Infrastructure loans are slowing down as lending to telecom and SEBs has declined sharply. On the back of weak outlook on fresh capex-related projects, we have broadly maintained a cautious outlook on loan growth at 14-15% CAGR for FY2012-14E.

Most NBFCs continue to report strong growth. Refinancing in infrastructure and retail business was buoyant though on a qoq basis, growth typically moderates in 4Q. However, collections typically pick up in 4Q thereby boosting margins. Infrastructure NBFC have benefited from elevated lending rates in the system (which helps them to price their loans at a higher rate). While banks have lower funding costs as compared to NBFCs, they have kept lending rates high due to higher credit cost and lower capitalization levels. In this backdrop, well-managed NBFCs like IDFC have delivered higher growth and margins. Housing finance companies reported higher collections (a seasonal trend) though we find some signs of fatigue in demand.

Most banks report lower NIM led by de-recognition and higher costs

NIMs were under pressure for the quarter with most banks (except BoI, IOB and J&K Bank) reporting about 20 bps decline qoq. Restructuring of loans and higher slippages resulted in income de-recognition (lower lending yields) while cost of funds continued to increase for the quarter. Slowing loan growth and inability to raise deposits at lower rates will continue to compress NIMs (lower lending spreads though investment spreads are likely to be stable).

NBFCs reported significant yoy NIM compression on the back of interest rate rise in the past four quarters. On a qoq basis, NIMs were flat/ improved marginally likely due to better recoveries. Borrowings costs remained high and core spreads remain under pressure, likely down qoq.

Quarter of high restructured loans led by SEB and aviation segments

Large restructuring in the power and aviation verticals for the quarter resulted in outstanding restructured loans increasing to 6.4% (8% including net NPLs) for public banks as compared to 5.3% (7% including net NPLs) in December 2011. Our analysis indicates that nearly 35% of the SEB exposure for banks has been restructured as of March 2012 and we expect an increase, though at lower pace, in 1QFY13 as select SEBs restructuring was not reported by few banks. Slippages from the restructured loans were primarily from the corporate segment. Banks with a larger share of retail assets continued to report negligible restructured loans.

Banks/Financial Institutions India

It’s restructuring all the way. Earnings (ex-SBI) grew 21% yoy while NII grew 20% yoy for the quarter. Loan growth slowed to 18% levels while NIMs declined qoq. Slippages remained high while restructured loans increased 28% qoq to >6% of loans. We expect peak restructuring to be completed by 1HFY13 as large-ticket loans have been completed. Infra and retail NBFCs continued to report strong traction though we find some fatigue in housing finance companies.

ATTRACTIVE

MAY 24, 2012

UPDATE

BSE-30: 16,222

QUICK NUMBERS

• Earnings grew 60% yoy; NII grew 20% yoy

• Slippages at 2.5%; net NPL and restructured loans at 8% of loans

• Key changes: Downgrade BoB, IOB and Canara Bank to REDUCE; PNB to ADD, upgrade IDFC to BUY



Stress on balance sheet continues for PSU banks barring SBI; retail asset quality stable qoq

Gross NPLs increased 3% qoq (lowest in recent quarters) primarily due to lower slippages at SBI, stable performance by private banks and marginally higher write-offs by public banks. Slippages were high at 2.3% (2.5% in December 2011) for the quarter while write-off was high at 0.5% (0.3% in December 2011). SBI delivered an impressive quarter among public banks while retail asset book showed limited signs of stress. We are building slippages at 2.3% and loan-loss provisions at 1.2% (to factor dynamic provisions) for FY2013-14E.

Most NBFCs reduced NPLs during the quarters. Typically, collections improve in 4Q in the retail business. Within the infra lending segment, PFC reported two slippages while REC and IDFC reported stable asset quality.

Earnings revision of 1-4% downwards for FY2013-14E

We have revised our earnings marginally by 1-4% for FY2013-14E for banks to factor higher credit costs and have started making provisions for dynamic provisions. We expect overall earnings growth at 14% CAGR for FY2012-14E with earnings for public banks at 15% CAGR and earnings for private banks at 11% CAGR. We expect strong earnings growth for SBI, Union Bank, BoI and HDFC Bank for FY2012-14E.

Loan securitization: Enjoying the benefits in the last quarter

According to CRISIL, NBFCs sold/ securitized loans of `100 bn during the quarter. The final guidelines for loan sell down/ securitization (that put restrictions on holding period, minimum retention) are effective from 1QFY13. Loans sold at low rates will buffer NIMs for NBFCs in the near term.

Other operational highlights for the quarter

Non-interest income (ex-treasury) growth for banks was weak as core fee income growth was broadly muted. Treasury income was flat qoq.

Tax rate was substantially lower as the bank took benefits from the recent ruling regarding write-offs and higher provisions for long-term loans.

Consolidated PAT for banks under coverage increased by 58% yoy (20% yoy excluding SBI) Consolidated earnings for banks under coverage, March fiscal year-ends, 4QFY11-4QFY12 (` bn)

4QFY11 3QFY12 4QFY12 QoQ (%) YoY (%)NII 333 385 399 3.5 20.0 Non interest income 159 135 178 31.9 12.5 Total income 491 521 577 10.9 17.6 Provisions 96 95 98 2.6 1.7

Loan loss provisions 78 84 92 10.3 18.8 PAT 107 143 169 18.5 58.4


India Banks/Financial Institutions


Loan growth is slowing down for the system and is currently below 20% levels Yoy growth in loans, March fiscal year-ends, 2008-12 (%)

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10

20

30

40

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Aug Se

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Dec Jan

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2008 2009 2010 2011 2012


Loan growth steadily slowing down for the sector, especially for public banks Yoy growth in loans, March fiscal year-ends, 4QFY11-4QFY12 (%)

4QFY11 1QFY12 2QFY12 3QFY12 4QFY12Public banksAndhra Bank 27.7 32.5 22.1 20.7 17.4 Bank of Baroda 30.6 25.2 23.9 25.8 25.7 Bank of India 26.2 21.6 17.7 20.9 16.1 Canara Bank 25.5 23.7 23.8 15.5 9.4 Corporation Bank 37.4 21.8 17.0 28.4 15.7 Indian Bank 20.9 21.3 23.5 19.1 19.3 Indian Overseas Bank 40.9 43.6 44.4 32.4 23.7 Oriental Bank of Commerce 15.0 14.1 20.7 21.9 15.6 Punjab National Bank 29.7 23.4 19.3 18.5 21.3 State Bank of India 19.8 18.0 16.1 16.5 14.7 Union Bank 26.2 16.7 16.5 16.8 18.3 Old private banksFederal Bank 18.6 21.6 21.6 17.6 18.2 J&K Bank 13.6 14.6 21.8 17.2 26.3 New private banksAxis Bank 36.5 21.4 26.7 20.4 19.2 HDFC Bank 27.1 20.0 20.0 22.1 22.2 ICICI Bank 19.4 19.7 20.5 19.1 17.3 Yes Bank 54.8 26.1 12.7 15.3 10.5 IndusInd Bank 27.6 31.4 28.5 29.7 34.0 Public sector 25.1 21.7 20.1 19.6 17.2 Private sector 26.5 20.8 21.6 20.2 19.7 Total 25.4 21.5 20.4 19.8 17.7




NBFCs reported strong loan growth Yoy loan growth, 4QFY11-4QFY12 (%)

4QFY11 1QFY12 2QFY12 3QFY12 4QFY12LIC Housing Finance 34.2 32.1 29.3 26.6 23.5IDFC 50.0 29.8 14.3 25.3 28.3Power Finance Corporation 24.8 21.5 25.6 28.0 30.6Rural Electrification Corporation 23.6 23.6 23.6 24.6 23.4Shriram Transport Finance 23.9 20.0 20.1 16.2 11.4Mahindra Finance 48.8 52.3 54.0 50.2 40.4


NBFCs’ NIM improved qoq NIM (KS- calculations), 4QFY11-4QFY12 (%)

4QFY11 1QFY12 2QFY12 3QFY12 4QFY12LIC Housing Finance 3.5 2.8 2.5 2.3 2.4IDFC 4.3 4.3 4.3 4.5 4.5Power Finance Corporation 3.5 3.9 4.0 3.8 4.0Rural Electrification Corporation 4.9 4.4 4.4 4.5 4.2Shriram Transport Finance 8.8 8.6 8.9 8.3 8.1Mahindra Finance 12.7 10.1 10.5 10.1 11.7


Deposit growth is picking up and closing the gap between deposit and credit growth Yoy growth in deposits, March fiscal year-ends, 2008-12 (%)

10

14

18

22

26

30

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Dec Jan

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2008 2009 2010 2011 2012

Source: RBI



Deposit growth continues to remain a challenge for the industry Yoy growth in deposits and CASA ratio, March fiscal year-ends, 4QFY11-4QFY12 (%)

Deposit growth CASA ratio

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

Public banksAndhra Bank 18.6 21.7 20.2 20.2 14.9 29.1 27.8 26.1 26.6 26.4 Bank of Baroda 26.7 22.9 22.1 24.0 26.0 34.4 33.9 34.0 34.1 33.2 Bank of India 30.1 25.4 24.1 21.7 6.4 24.5 25.3 25.6 25.6 25.6 Canara Bank 25.3 25.6 25.4 19.7 11.3 28.3 25.4 25.8 23.9 24.3 Corporation Bank 25.9 29.4 24.4 28.5 16.6 26.0 21.0 21.8 21.1 22.1 Indian Bank 20.1 20.1 20.1 20.1 20.1 30.8 30.5 31.0 30.2 30.5 Indian Overseas Bank 31.1 38.1 38.5 33.5 22.9 30.2 27.6 27.5 26.2 26.4 Oriental Bank of Commerce 15.6 17.5 18.9 20.8 12.2 24.6 23.4 22.9 22.3 24.1 Punjab National Bank 25.5 26.9 25.0 23.4 21.3 39.2 38.1 37.1 36.2 36.2 State Bank of India 16.1 16.5 13.8 13.9 11.7 48.7 47.9 48.0 47.5 46.6 Union Bank 30.4 30.4 30.4 30.4 30.4 31.8 31.5 32.1 32.5 31.3 Old private banksFederal Bank 19.3 22.7 30.9 26.6 13.8 26.5 27.2 26.4 28.7 27.5 J&K Bank 20.0 14.5 19.5 19.3 19.4 40.5 40.4 38.2 40.2 40.7 New private banksAxis Bank 33.9 24.5 23.9 33.9 16.3 41.1 40.5 42.2 41.6 41.5 HDFC Bank 24.6 15.4 18.1 21.0 18.3 52.7 49.1 47.3 48.6 48.4 ICICI Bank # 11.7 14.8 9.9 19.7 13.3 45.1 41.9 42.1 43.6 43.5 Yes Bank 71.4 44.1 10.2 18.9 7.0 10.3 10.9 11.0 12.6 15.0 IndusInd Bank 28.7 28.8 22.6 32.3 23.3 27.2 28.2 27.7 26.5 27.3


Lending yields declined led by income de-recognition in slippage and restructured loans Yield on advances, March fiscal year-ends, 4QFY11-4QFY12 (%)

4QFY11 1QFY12 2QFY12 3QFY12 4QFY12Public banksAndhra Bank 11.6 12.2 12.5 12.8 12.3 Bank of Baroda 8.7 9.1 9.6 9.5 9.3 Bank of India 8.8 8.9 9.4 9.5 9.7 Canara Bank 9.7 10.5 10.7 10.9 10.9 Corporation Bank 10.5 11.2 11.8 11.9 11.7 Indian Bank 10.3 11.1 12.1 11.7 10.9 Indian Overseas Bank 9.9 10.5 10.9 10.8 10.9 Oriental Bank of Commerce 10.6 11.4 11.7 12.2 12.7 Punjab National Bank 10.8 11.4 11.9 12.0 11.4 State Bank of India 9.6 10.4 10.8 10.9 11.1 Union Bank 10.4 10.9 11.2 11.3 11.2 Old private banksFederal Bank 11.2 12.0 12.7 12.9 12.5 J&K Bank 11.2 11.4 11.8 12.2 12.2 New private banksAxis Bank* 9.2 10.1 10.8 11.0 10.7 HDFC Bank* 10.4 10.8 11.0 11.3 11.5 ICICI Bank* 8.6 9.0 9.5 9.5 9.8 Yes Bank 10.7 11.6 12.2 12.4 12.5 IndusInd Bank 12.9 13.5 13.8 13.8 13.9

Note: (1) Yields are KS estimates for Axis Bank, HDFC Bank and ICICI Bank




Lower income de-recognition resulted in NIM expansion for select banks NIM and yoy growth in NII for banks, March fiscal year-ends, 4QFY11-4QFY12 (%)

NIM (%) NII yoy growth (%)

3QFY11 4QFY11 1QFY12 2QFY12 3QFY12 4QFY12 3QFY11 4QFY11 1QFY12 2QFY12 3QFY12 4QFY12Public banksAndhra Bank 3.9 3.7 3.8 3.8 3.8 3.3 44.2 31.3 23.6 21.4 17.1 6.1 Bank of Baroda 3.2 3.5 2.9 3.1 3.0 3.0 43.2 49.8 23.6 27.0 15.8 7.0 Bank of India 3.1 2.9 2.2 2.4 2.6 2.9 32.9 48.7 6.6 7.2 4.1 8.4 Canara Bank 3.2 3.1 2.4 2.6 2.5 2.5 41.4 21.7 3.8 (2.1) (8.2) 5.0 Corporation Bank 2.7 2.5 2.1 2.4 2.7 2.4 40.5 29.2 1.4 4.0 2.3 9.5 Indian Bank 3.8 3.8 3.8 3.8 3.8 3.2 18.9 18.9 11.2 15.5 12.8 (2.6) Indian Overseas Bank 3.3 3.2 2.9 2.9 2.6 2.7 42.3 48.1 31.0 32.4 8.1 10.3 OBC 3.1 3.0 2.9 2.6 2.9 2.7 18.0 2.5 (3.7) (8.2) 10.7 5.4 Punjab National Bank 4.1 3.9 3.8 4.0 3.9 3.5 37.5 21.3 19.9 16.0 10.4 9.3 State Bank of India 3.6 3.1 3.6 3.8 4.1 3.9 43.3 19.9 32.8 28.4 26.7 45.2 Union Bank 3.4 3.4 3.1 3.2 3.3 3.3 51.8 22.9 18.0 8.2 10.2 9.3 Old private banksFederal Bank 4.3 4.0 3.9 3.8 3.9 3.6 17.4 9.3 11.2 8.2 18.1 9.7 J&K Bank 3.7 3.7 3.8 3.7 3.6 3.9 32.7 34.7 19.2 16.0 15.7 24.1 New private banksAxis Bank 3.8 3.4 3.3 3.8 3.8 3.6 28.5 16.5 13.9 24.3 23.5 26.2 HDFC Bank 4.2 4.2 4.2 4.1 4.1 4.2 24.9 20.8 18.6 16.6 12.2 19.3 ICICI Bank 2.6 2.7 2.6 2.6 2.7 3.0 12.3 23.3 21.1 13.7 17.3 23.7 Yes Bank 2.8 2.8 2.8 2.9 2.8 2.8 53.2 42.7 35.1 23.1 32.3 28.6 IndusInd Bank 3.6 3.5 3.4 3.4 3.3 3.3 52.7 42.3 31.9 27.1 18.6 19.7 Non-banksHDFC 3.8 4.4 3.2 3.7 3.5 4.8 25.7 23.4 20.9 18.0 9.9 18.3 IDFC 3.9 4.1 4.0 3.9 4.1 4.1 46.0 19.3 23.2 0.4 12.2 17.2 LIC Housing Finance 3.1 3.5 2.8 2.5 2.3 2.4 48.0 38.0 20.7 9.1 (8.4) (11.7) PFC 4.1 3.5 3.9 4.0 3.8 3.8 28.8 10.9 11.1 14.4 16.3 44.3 REC 4.8 4.9 4.4 4.4 4.5 4.4 94.7 (19.7) 31.1 (2.7) (62.2) (3.5) Shriram Transport 9.4 9.3 8.6 8.9 8.3 8.1 34.4 25.4 11.4 10.9 4.5 (0.8) Mahindra Finance 12.1 12.7 10.1 10.5 10.1 11.7 47.4 29.6 32.6 28.9 27.2 33.6 Muthoot 10.4 12.0 11.2 11.4 10.8 9.7 111.6 89.7 128.7 96.8 78.9 28.5




Pace of increase in cost of funds has slowed for few banks though sector saw about 15 bps qoq increase Cost of funds/deposits, March fiscal year-ends, 4QFY11-4QFY12 (%)

4QFY11 1QFY12 2QFY12 3QFY12 4QFY12Public banksAndhra Bank 6.5 7.0 7.5 7.6 7.9Bank of Baroda 4.8 5.4 5.6 5.7 5.8Bank of India 5.3 6.0 6.1 6.0 6.0Canara Bank 5.4 6.5 6.6 6.6 6.7Corporation Bank 6.4 7.3 7.6 7.6 8.0Indian Bank 5.4 6.4 6.6 6.9 6.8Indian Overseas Bank 6.0 6.8 7.2 7.3 7.5Oriental Bank of Commerce 6.5 7.2 7.6 7.9 8.0Punjab National Bank 5.6 6.3 6.5 6.7 6.8State Bank of India 5.3 5.7 5.8 5.9 6.0Union Bank 5.9 6.6 6.9 7.0 7.1Old private banksFederal Bank 6.2 7.0 7.4 7.6 7.6J&K Bank 5.4 5.4 6.2 6.6 6.4New private banksAxis Bank 5.6 6.1 6.2 6.3 6.5HDFC Bank 4.9 5.5 6.2 6.4 6.1ICICI Bank 5.6 6.1 6.4 6.3 6.2Yes Bank 7.8 8.5 8.6 8.9 9.0IndusInd Bank 7.0 7.7 8.2 8.2 8.3


Retail term deposit rates have been revised further post changes made by SBI and policy actions Retail term deposit rates for various maturities, May 2012 (%)

7-14 days

15-30 days

31-45 days

46-90 days

91-179 days

180-269 days

270-364 days

1 Year- less than 2 years

2 Year- less than 3 years

3 years and above

Allahabad Bank 4.0 5.0 5.0 5.5-6 7.0 8.0 8.0 9.5 9.0 8.5-8.75 Andhra Bank 4.0 4.5 4.5 6.0 7.3 8.5 8.5 9.3 9.3 9.0-9.4 Bank of Baroda 4.5 4.5 4.5 4.5 6.8 7.5 7.5 8.75-8.85 8.8 8.0-8.5 Bank of India 4.0 4.5 5.5 5.5 7.3 8.0 8.3 9.25-9.35 9.3 9.25-9.30 Canara Bank 4.0 4.5 4.5 7.0 7.3 8.0 8.0 9.0-9.25 9.0 9.0 Corporation Bank - 6.0 6.5 6.5-8.0 8.0-8.5 9.0 9.0 9.3 9.0 9.0 OBC 4.0 4.5 5.0 5.8 8.0 9.0 9.0 9.5 9.3 9.3 Punjab National Bank 4.0 4.5 4.5 5.5 6.8 7.5 7.5 8.8 8.75-9.0 8.5-8.75 State Bank of India 7.3 7.3 7.3 7.3 7.3 7.25-7.50 7.5 9.0 9.0 8.8 Union Bank of India 4.0 4.8 4.8 6.3 7.25-7.75 8.8 8.8 9.3 9.3 8.75-9.4 ICICI Bank 3.8 4.0 5.0 6.25-6.5 7.0 7.0-7.5 7.5-7.75 8.0-9.25 9.3 8.5-9.25 Axis Bank 3.5 3.5 5.0 6.25-6.50 7.0 7.5 7.5 9.3 9.25-9.3 8.75-9.25 HDFC Bank 3.5 4.0 5.0 7.0 7.3 7.25-7.75 7.25-8.0 8.5-9.25 9.3 8.25-9.25 Federal Bank 5.0 5.0 5.0 7.0 7.0 8.5 8.5 9.0-9.25 9.0 9.0 Yes Bank 5.0 5.0 5.0 6.3 8.3 8.5 9.0 9.0 9.0 8.8




Public sector banks have been constantly increasing their PLR/base rates PLR/base rates for public sector banks (%)

2QFY11 Initial PLRRate

changes Effective PLR Initial Base rateRate

changes Revised Base rateAndhra Bank 12.50 5-Oct-10 12.75 8.25 6-Oct-10 8.50

13-Dec-10 13.00 13-Dec-10 9.00 23-Dec-10 13.25 3-Feb-11 9.50

3-Feb-11 13.75 9-May-11 10.00 6-May-11 14.25 9-Jul-11 10.25

9-Jul-11 14.50 1-Aug-11 10.75 1-Aug-11 15.00 1-May-12 10.50 1-May-12 14.75

Bank of Baroda 6-Aug-10 12.50 13-Dec-10 13.25 8.00 5-Oct-10 8.50 3-Feb-11 13.75 13-Dec-10 9.00

6-May-11 14.25 3-Feb-11 9.50 12-Jul-11 14.50 6-May-11 10.00 1-Aug-11 15.00 12-Jul-11 10.25 1-May-12 14.75 1-Aug-11 10.75

1-May-12 10.50 Bank of India 14-Aug-10 12.50 15-Dec-10 13.25 8.00 6-Oct-10 8.50

1-Feb-11 13.75 15-Dec-10 9.00 6-May-11 14.25 1-Feb-11 9.50 1-Aug-11 15.00 6-May-11 10.00 1-May-12 14.75 1-Aug-11 10.75

1-May-12 10.50 Canara Bank 12.00 12-Aug-10 12.50 8.00 1-Oct-10 8.50

4-Feb-11 13.75 13-Dec-10 9.00 5-May-11 14.25 4-Feb-11 9.50

1-Jul-11 14.50 5-May-11 10.00 1-Aug-11 15.00 1-Jul-11 10.25 1-May-12 14.75 1-Aug-11 10.75

1-May-12 10.50 Indian Bank 2-Jul-09 12.50 1-Oct-10 12.75 8.00 1-Oct-10 8.50

1-Dec-10 13.00 1-Oct-10 8.50 13-Dec-10 13.25 13-Dec-10 9.00 21-Jan-11 13.50 2-Feb-11 9.50 18-Feb-11 13.75 5-May-11 10.00 5-May-11 14.25 13-Jul-11 10.25 13-Jul-11 14.50 1-Aug-11 10.75 1-Aug-11 15.00 1-May-12 10.50 1-May-12 14.75

IOB 23-Aug-10 12.50 1-Oct-10 12.75 8.25 1-Oct-10 8.50 13-Dec-10 13.00 13-Dec-10 9.00 16-Dec-10 13.25 2-Feb-11 9.50

5-Feb-11 13.75 4-May-11 10.00 4-May-11 14.25 6-May-11 10.00 6-May-11 14.25 1-Jul-11 10.25

1-Jul-11 14.50 1-Aug-11 10.75 1-Aug-11 15.00 1-May-12 10.50 1-May-12 14.75

PNB 1-Aug-10 11.75 8-Dec-10 12.50 8.00 1-Oct-10 8.50 31-Jan-11 13.00 13-Dec-10 9.00 4-May-11 13.50 31-Jan-11 9.50 1-Aug-11 14.25 4-May-11 10.00 1-May-12 14.00 1-Aug-11 10.75

1-May-12 10.50 SBI 16-Aug-10 12.25 21-Oct-10 12.50 7.50 21-Oct-10 7.60

3-Jan-11 12.75 3-Jan-11 8.00 14-Feb-11 13.00 14-Feb-11 8.25 25-Apr-11 13.25 25-Apr-11 8.50 12-May-11 14.00 12-May-11 9.25

7-Jul-11 14.25 7-Jul-11 9.50 13-Aug-11 14.75 13-Aug-11 10.00

Union Bank 4-Aug-10 12.25 18-Dec-10 13.25 8.00 15-Oct-10 8.50 9-Feb-11 13.75 27-Dec-10 9.00

7-May-11 14.25 4-Feb-11 9.50 11-Jul-11 14.50 7-May-11 10.00

23-Aug-11 15.00 11-Jul-11 10.25 15-May-12 15.50 1-Aug-11 10.75

26-Dec-12 10.65 1-May-12 10.50




Non-interest income (ex-treasury) declines due to weak fee income

Non-interest income growth was weak for the quarter led by weak fee income growth. Sharp decline in sanctions of fresh projects and slowing loan growth have resulted in weak core fee income growth. Overall investment gains were broadly flat qoq though SBI reported a lower treasury loss (primarily from equity investments) for the quarter. We expect fee income growth to remain under pressure while investment gains are likely to be tempered by elevated interest rates.

Mixed performance on non-interest income (ex-treasury) Yoy growth in non-interest (ex-treasury) income of banks, March fiscal year-ends, 4QFY11-4QFY12 (%)

4QFY11 1QFY12 2QFY12 3QFY12 4QFY12Public banksAndhra Bank 8.3 (1.7) (10.3) 16.1 (11.6) Bank of Baroda 11.2 15.9 26.8 29.2 6.6 Bank of India 6.0 13.3 25.3 32.6 28.3 Canara Bank 64.4 18.4 36.5 15.8 (31.2) Corporation Bank 56.7 1.1 8.8 30.1 (19.9) Indian Bank (6.7) (31.5) 42.8 19.6 5.1 Indian Overseas Bank 44.8 103.8 45.7 14.5 23.2 Oriental Bank of Commerce 14.5 27.5 21.5 29.4 9.6 Punjab National Bank 35.8 27.6 15.2 11.5 14.3 State Bank of India 9.7 (4.3) (10.7) 4.0 18.1 Union Bank 8.2 15.2 5.9 27.4 28.6 Old private banksFederal Bank 6.2 8.1 (20.8) 7.8 (7.4) J&K Bank 9.3 (5.3) 11.4 8.9 18.2 New private banksAxis Bank 67.6 36.4 30.4 29.5 3.5 HDFC Bank 25.0 19.8 19.8 29.6 25.4 ICICI Bank 8.4 5.8 5.7 13.3 12.7 Yes Bank 16.6 8.9 38.4 29.2 42.6 IndusInd Bank 27.0 33.0 32.8 46.6 63.0


Investment gains were flat qoq Treasury income (` mn) and treasury-to-PBT (%) of banks, March fiscal year-ends, 4QFY11-4QFY12

Treasury profits (Rs mn) Treasury profits as % of PBT4QFY11 1QFY12 2QFY12 3QFY12 4QFY12 4QFY11 1QFY12 2QFY12 3QFY12 4QFY12

Public banksAndhra Bank 650 594 222 163 232 15.9 11.4 5.2 3.5 5.5 Bank of Baroda 1,209 740 102 3,855 1,370 8.9 5.2 0.6 21.9 11.5 Bank of India 1,266 1,097 1,544 712 736 17.4 13.1 38.9 6.9 5.6 Canara Bank (180) (770) 1,490 1,570 950 (1.6) (8.3) 14.2 14.6 9.2 Corporation Bank 819 343 1,576 1,115 959 17.2 8.4 31.8 21.3 20.1 Indian Bank 54 450 210 160 272 0.7 7.4 3.0 2.4 11.6 Indian Overseas Bank 300 (152) 490 350 670 5.7 (5.9) 18.1 22.6 10.9 Oriental Bank of Commerce 262 717 183 365 438 9.3 14.7 6.7 8.2 19.9 Punjab National Bank 1,730 1,740 1,050 950 1,650 9.7 11.0 5.8 5.5 8.6 State Bank of India 3,347 1,689 281 (10,904) (263) 17.4 5.5 0.7 (22.5) (0.4) Union Bank 1,120 1,130 1,000 1,010 1,270 15.6 15.3 17.2 32.4 11.7 Old private banksFederal Bank 70 160 141 156 364 2.6 7.3 4.9 5.1 10.2 J&K Bank 227 101 85 88 85 10.3 3.7 2.9 2.9 2.5 New private banksAxis Bank 580 702 280 1,180 1,460 3.7 5.1 2.0 7.2 7.7 HDFC Bank 86 (413) (13) (818) (715) 0.5 (2.6) (0.1) (4.0) (3.4) ICICI Bank (1,960) (250) (800) (650) 1,580 (10.2) (1.4) (3.9) (2.8) 6.0 IndusInd Bank 192 278 239 131 274 7.5 10.4 8.4 4.3 8.2




Fresh slippage remains at elevated levels; strong performance from SBI

Overall gross NPLs increased the slowest at 3% qoq led by strong performance by SBI, private banks and higher write-offs by public banks. Net NPLs declined by 2% qoq but coverage ratio was stable for the quarter. Slippages continued to remain at elevated levels for public sector banks at 2.3% of loans (2.5% of loans in December 2011).

SBI reported a very strong performance with lower slippages and strong performance on recovery/upgradation for the quarter. Indian Bank, IOB and OBC reported weak performance while BoI, Corporation Bank and Union Bank reported a strong performance on slippages.

Write-offs were marginally higher at 0.5% of loans as compared to 0.3% of loans in December 2011. Overall loan-loss provisions remained high as banks had to make provisions for restructured loans and write-offs.

Accretion to gross and net NPLs remained high for the quarter Gross NPLs and net NPLs, March fiscal year-ends, 1QFY12-4QFY12

Gross NPLs (Rs bn) Gross NPLs (%) Net NPLs (Rs bn) Net NPLs (%)1QFY12 2QFY12 3QFY12 4QFY12 1QFY12 2QFY12 3QFY12 4QFY12 1QFY12 2QFY12 3QFY12 4QFY12 1QFY12 2QFY12 3QFY12 4QFY12

Public banksAndhra 11.8 19.9 18.8 18.0 1.6 2.6 2.4 2.1 3.4 10.9 9.4 7.6 0.5 1.5 1.2 0.9 BoB 34.3 34.0 39.0 44.6 1.5 1.4 1.5 1.5 10.2 11.2 13.3 15.4 0.4 0.5 0.5 0.5 BoI 57.9 65.5 63.9 58.9 2.7 3.0 2.7 2.3 26.9 42.4 40.9 36.6 1.3 2.0 1.8 1.5 Canara 36.1 37.9 40.0 40.3 1.7 1.7 1.8 1.7 28.7 31.2 32.7 33.9 1.3 1.4 1.5 1.5 Corporation 8.5 10.8 12.5 12.7 1.1 1.3 1.4 1.3 4.1 7.5 8.9 8.7 0.5 0.9 1.0 0.9 Indian 8.1 10.5 11.9 18.5 1.0 1.2 1.4 2.0 4.2 6.0 7.0 12.0 0.5 0.7 0.8 1.3 IOB 32.9 39.0 39.7 39.2 2.8 3.1 3.0 2.7 12.6 15.0 16.0 19.1 1.1 1.2 1.2 1.4 OBC 20.3 31.1 32.3 35.8 2.1 3.0 2.9 3.2 10.6 19.8 20.6 24.6 1.1 1.9 1.9 2.2 PNB 48.9 51.5 64.4 87.2 2.0 2.1 2.4 2.9 20.9 20.9 29.0 44.5 0.9 0.8 1.1 1.5 SBI 277.7 339.5 401.0 396.8 3.5 4.2 4.6 4.4 124.4 161.2 188.0 158.2 1.6 2.0 2.2 1.8 Union 37.5 51.4 52.1 54.5 2.6 3.5 3.3 3.0 18.9 29.6 28.8 30.3 1.3 2.0 1.9 1.7 Old privateFederal 13.0 12.5 13.6 13.0 3.9 3.6 4.0 3.4 2.4 2.0 2.4 2.0 0.7 0.6 0.7 0.5 J&K 5.3 6.4 5.5 5.2 2.0 1.9 1.8 1.5 0.6 0.6 0.5 0.5 0.2 0.2 0.2 0.2 New privateAxis 15.7 17.4 19.1 18.1 1.1 1.1 1.1 0.9 4.6 5.5 6.8 4.7 0.3 0.3 0.4 0.3 HDFC Bank 18.3 18.9 20.2 20.0 1.0 1.0 1.0 1.0 3.2 3.6 4.0 3.5 0.2 0.2 0.2 0.2 ICICI 100.6 101.1 98.2 95.6 4.6 4.3 4.0 3.8 23.5 22.4 20.8 18.9 1.1 1.0 0.8 0.7 Yes 0.6 0.7 0.7 0.8 0.2 0.2 0.2 0.2 0.0 0.1 0.1 0.2 0.0 0.0 0.0 0.1 IndusInd Bank 3.1 3.3 3.3 3.5 1.1 1.1 1.0 1.0 0.8 0.9 0.9 0.9 0.3 0.3 0.3 0.3

Total 730.5 851.4 936.3 962.8 2.5 2.8 2.9 2.8 300.0 390.6 430.2 421.5 1.0 1.3 1.4 1.3QoQ (%) increa 8.5 16.6 10.0 2.8 6.8 30.2 10.1 (2.0)

Source: Company



Slippage were high for PSU banks (ex-SBI) Additions to NPL and slippage ratio, March fiscal year-ends, 4QFY11-4QFY12

Additions to NPL (Rs mn) Slippage ratio (%)4QFY11 1QFY12 2QFY12 3QFY12 4QFY12 4QFY11 1QFY12 2QFY12 3QFY12 4QFY12

Andhra Bank 1,920 2,410 10,940 3,800 4,735 1.2 1.3 5.8 2.0 2.4 Bank of Baroda 6,145 5,848 5,825 9,525 13,235 1.2 1.0 1.0 1.6 2.0 Bank of India 9,993 16,840 28,214 5,196 3,761 2.1 3.1 5.3 1.0 0.6 Canara Bank 18,420 13,730 12,360 8,620 11,210 3.9 2.6 2.3 1.6 2.0 Corporation Bank 1,470 1,548 5,107 3,735 1,638 0.8 0.7 2.6 1.8 0.7 Indian Bank 2,790 1,660 3,790 3,940 10,400 1.5 0.9 1.8 1.8 4.7 Indian Overseas Bank 8,740 4,850 9,950 6,860 10,170 3.5 1.7 3.3 2.2 3.1 Oriental Bank of Commerce 6,492 3,780 15,030 6,900 13,174 2.9 1.6 6.1 2.6 4.8 Punjab National Bank 12,490 11,770 9,930 16,830 28,190 1.9 2.3 1.9 1.6 2.7 State Bank of India 56,450 61,220 82,700 81,600 43,830 3.1 3.2 4.3 4.1 2.1 Union Bank 3,640 6,440 4,300 4,930 3,660 1.2 2.0 4.9 1.6 1.6 Federal Bank 2,890 3,230 2,650 3,300 2,690 4.1 4.0 3.3 3.9 3.2 Axis Bank 2,480 2,960 4,960 5,350 5,140 0.8 0.8 1.5 1.5 1.4 IndusInd Bank 550 730 1,310 680 840 0.9 1.1 1.8 0.9 1.0 Total 134,469 137,016 197,066 161,265 152,674 2.4 2.2 3.2 2.5 2.3 Total (ex SBI) 78,019 75,796 114,366 79,665 108,844 2.0 1.8 2.7 1.8 2.4


Write-off were high at 0.5% during the quarter Write-off of loans, March fiscal year-ends, 4QFY11-4QFY12

4QFY11 1QFY12 2QFY12 3QFY12 4QFY12 4QFY11 1QFY12 2QFY12 3QFY12 4QFY12Andhra Bank 335 14 1,597 13 71 0.2 0.0 0.9 0.0 0.0 Bank of Baroda 1,315 1,149 4,184 1,552 5,265 0.2 0.2 0.7 0.2 0.7 Bank of India 3,084 1,499 15,961 2,640 4,047 0.6 0.3 2.9 0.5 0.6 Canara Bank 7,840 2,300 4,080 1,090 7,140 1.5 0.4 0.7 0.2 1.2 Corporation Bank - - 2,919 1,366 1,369 — — 1.4 0.6 0.5 Indian Bank - 180 394 794 794 — 0.1 0.2 0.4 0.4 Indian Overseas Bank 2,728 1,440 737 3,270 6,210 1.0 0.5 0.2 1.0 1.8 Oriental Bank of Commerce 3,670 1,425 1,855 600 5,412 1.5 0.6 0.7 0.2 1.9 Punjab National Bank 10,010 110 180 310 660 1.7 0.0 0.0 0.0 0.1 State Bank of India 10,910 6,040 3,200 410 840 0.6 0.3 0.2 0.0 0.0 Union Bank 2,600 3,040 2,320 2,910 1,110 0.7 0.8 0.6 0.7 0.2 Federal Bank - 100 640 300 300 - 0.1 0.8 0.4 0.3 Axis Bank 100 2,300 1,620 2,430 300 0.0 0.7 0.5 0.7 0.1 Total 42,593 19,597 39,688 17,684 33,517 0.7 0.3 0.6 0.3 0.5

Write-offs as percentage of advances (%)Write-offs (Rs mn)




Loan-loss provisions remained high due to higher slippages and restructured loans Loan-loss provision ratio, March fiscal year-ends, 2QFY11-4QFY12 (%)

2QFY11 3QFY11 4QFY11 1QFY12 2QFY12 3QFY12 4QFY12Public banksAndhra Bank 0.8 1.0 1.3 0.8 1.3 1.5 1.0 Bank of Baroda 0.3 0.4 0.7 0.2 0.5 0.8 1.3 Bank of India 0.6 0.3 0.6 0.8 1.5 0.8 0.8 Canara Bank 0.5 0.4 1.0 0.5 0.9 0.6 0.9 Corporation Bank 0.5 0.9 0.9 0.5 0.8 0.6 0.7 Indian Bank 0.7 0.2 1.0 0.6 0.5 0.8 2.4 Indian Overseas Bank 1.3 1.2 1.2 1.5 1.5 1.5 0.8 Oriental Bank of Commerce 1.0 0.8 1.6 0.6 1.3 0.9 1.8 Punjab National Bank 0.8 1.2 1.1 1.2 0.8 1.1 1.8 State Bank of India 1.3 0.9 1.7 1.4 1.5 1.4 1.3 Union Bank 2.0 1.1 0.3 1.0 1.3 2.0 0.9 Old private banksFederal Bank 2.1 1.8 1.2 1.4 0.8 1.1 0.3 J&K Bank 0.8 0.5 0.5 0.6 0.3 0.3 0.4 New private banksAxis Bank 1.2 0.8 0.5 0.5 0.7 0.9 0.4 HDFC Bank 1.1 0.7 0.8 0.9 0.7 0.6 0.6 ICICI Bank 1.3 0.9 0.7 0.8 0.5 0.6 0.7 Yes Bank 0.2 0.2 0.2 - 0.4 0.4 0.2 IndusInd Bank 0.6 0.7 0.5 0.5 0.5 0.4 0.4


Provision coverage ratio is about 70%, including technically written-off portfolio, for most banks Provision coverage ratio, March fiscal year-ends, 3QFY11-4QFY12 (%)

3QFY11 4QFY11 1QFY12 2QFY12 3QFY12 4QFY12 3QFY11 4QFY11 1QFY12 2QFY12 3QFY12 4QFY12Public banksAndhra 64.7 72.5 71.3 45.3 49.9 58.0 80.4 83.9 82.0 61.7 65.4 71.1 BoB 73.1 74.9 70.1 67.1 66.0 65.4 85.5 85.0 82.5 82.0 80.5 80.1 BoI 63.4 59.6 53.6 35.2 35.9 38.0 74.5 72.2 66.8 59.1 60.9 64.2 Canara 27.7 24.0 20.4 17.8 18.3 16.0 75.9 73.0 69.5 68.6 67.9 67.6 Corporation 54.7 49.7 51.5 31.0 29.1 31.8 72.8 74.7 74.9 64.7 62.9 65.3 Indian 44.4 47.3 47.9 43.1 41.6 35.3 83.0 84.3 84.1 79.4 76.5 70.1 IOB 54.4 57.0 61.8 61.4 59.7 51.3 65.4 70.5 73.5 71.8 71.7 67.7 OBC 53.7 51.2 47.9 36.4 36.2 31.3 77.4 76.8 75.1 63.8 63.3 61.5 PNB 65.3 53.4 57.3 59.4 55.0 48.9 77.2 73.2 74.3 76.0 70.0 62.7 SBI 50.1 51.2 55.2 52.5 53.1 60.1 64.1 65.0 67.3 63.5 62.5 68.1 Union 70.2 67.6 68.2 60.5 63.1 62.2 70.2 67.6 68.2 60.5 63.1 62.2 Old private banksFederal 80.3 83.4 81.9 84.3 82.1 84.7 J&K Bank 97.9 89.7 89.0 90.2 91.0 90.4 98.4 92.7 92.5 92.0 94.1 93.8 New private banksAxis Bank 74.0 74.3 70.6 68.5 64.3 73.8 HDFC Bank 81.4 82.5 82.6 81.3 80.3 82.4 ICICI Bank 71.9 75.7 76.6 77.9 78.8 80.2 Yes 76.1 88.6 95.2 80.2 80.0 79.2 IndusInd Bank 70.3 72.6 72.9 72.0 72.0 72.7

Inc write-offEx write-off




Loan-loss provisioning cycle unlikely to reverse from high levels with dynamic provisions Loan-loss provisions, March fiscal year-ends, 2001-14E (%)

0.0

0.6

1.2

1.8

2.4

3.0

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

E

2013

E

2014

E

Private PSU Combined


Aviation and SEB exposure was primarily restructured for the quarter

Restructured loans increased 29% qoq (51% growth in 2HFY12) primarily due to large restructuring in the aviation and SEB sectors as compared to the telecom sector in the previous quarter. Overall restructured loans have increased to 6.4% of loans as compared to 5.3% in December 2011. Our analysis indicates that banks have restructured nearly 35% of their overall exposure to SEB and we should expect this to increase to ~50% by 1HFY13 as a few SEBs are expected to be completed. SEB restructuring has been NPV neutral with banks giving a 7-10 year repayment schedule of principal depending on the strength of the cash flow. We could see a slowdown in fresh restructured loans (ex-SEB) over the next few quarters as some of the large-ticket loans like aviation/telecom has been reported by all banks.

Restructured loans and net NPLs to total loans are at about 8% for most public banks Restructured loans and net NPLs, March fiscal year-ends, 2QFY11-4QFY12 (%)

2QFY11 3QFY11 4QFY11 1QFY12 2QFY12 3QFY12 4QFY12Public banksAndhra 4.6 4.3 3.8 4.1 5.2 5.8 8.1BoB 3.2 3.3 3.3 3.5 3.8 4.3 5.8BoI 6.6 6.2 5.8 6.4 7.1 7.6 8.6Canara 5.8 5.7 4.9 5.3 5.3 6.0 4.9Corporation 4.6 4.8 4.1 4.6 5.6 5.9 7.4Indian 8.4 8.4 7.4 6.9 6.7 7.1 11.2IOB 10.3 9.1 7.3 6.7 6.8 8.8 10.3OBC 6.7 6.6 6.4 4.8 5.8 7.4 10.7PNB 7.2 7.2 7.2 7.4 8.9 9.5 11.9SBI 6.2 6.1 6.2 6.1 6.5 6.7 6.8Union 5.2 5.1 4.8 5.3 6.5 7.4 8.2Total 6.1 6.0 5.7 5.8 6.3 6.9 7.9PrivateAxis Bank 2.1 1.9 1.5 1.8 1.9 2.0 1.9HDFC Bank 0.6 0.5 0.5 0.5 0.6 0.6 0.6ICICI Bank 3.0 2.6 2.0 2.0 2.0 2.1 2.4




Nearly 35% of the SEB exposure for banks has been restructured March fiscal year-end, 2012 (%)

PowerLoans (Rs bn) Infra SEB Non SEB Total SEB Aviation Others

Andhra 847 18.6 5.8 7.0 8.8 1.4 0.8 6.6 24.5 Allahabad 1,111 18.4 1.9 10.2 5.7 1.0 0.4 4.3 51.9 BOB 2,874 3.7 5.2 0.7 0.8 3.7 19.0 BOI 2,488 11.3 2.5 7.2 1.0 - 6.1 42.6 BoMH 570 13.6 9.6 0.8 5.7 - 5.7 - Canara Bank 2,325 17.4 4.8 5.1 3.4 2.2 0.6 0.6 44.6 Central Bank 1,507 21.3 7.8 6.5 11.5 4.2 1.2 6.1 54.8 Corporation 1,005 15.5 2.0 7.3 6.6 1.2 1.3 4.1 59.4 Dena Bank 567 18.0 7.9 7.6 6.0 2.1 - 3.9 26.7 Indian Bank 903 21.3 7.2 3.6 9.9 1.3 0.9 7.7 17.7 IOB 1,407 12.3 4.5 2.5 9.0 1.0 0.9 7.2 21.3 OBC 1,120 22.0 4.0 8.5 8.5 2.6 1.4 4.5 64.4 PNB 2,938 15.6 2.7 5.3 8.5 2.5 1.0 5.0 92.3 SBI 8,676 8.8 - 4.3 4.3 - 0.1 4.1 - SBBJ 492 11.7 4.8 2.8 5.2 2.6 - 2.6 54.9 South Indian 276 5.8 3.7 Uco 1,155 4.3 6.4 0.4 0.9 5.1 10.0 Union 1,810 157.3 5.8 3.3 6.1 1.0 - 5.1 17.1 United 639 19.7 1.8 10.3 3.5 0.4 0.7 2.4 22.1 Vijaya Bank 579 17.0 10.4 8.1 2.2 5.9 21.7 Federal 378 11.9 2.9 3.5 6.4 1.3 0.8 4.3 43.6 Total 33,667 20.3 3.3 3.3 6.2 1.2 0.5 4.5 35.7

Infra exposure (% of loans) Restructured % of total loan

SEB restr. as % of SEB exposure


Cost-income ratios increase for PSU banks

Cost-income ratios for PSU banks increased as the banks saw higher provisions for staff-related expenses while NIMs declined qoq. Private banks, on the other hand, broadly maintained their cost-income ratios similar to the previous quarter levels. We see limited concern on cost-income, going forward, especially for PSU banks, as interest rates have declined—which is positive for provisions for retirement benefits.



Operating expenses growth has slowed down due to lower one-off charges Yoy growth in operating expenses, March fiscal year-ends, 4QFY11-4QFY12 (%)

4QFY11 1QFY12 2QFY12 3QFY12 4QFY12Public banksAndhra Bank 12.8 (1.5) 7.9 9.6 7.5 Bank of Baroda 55.8 16.8 9.3 7.1 10.1 Bank of India 92.6 20.7 21.7 (4.7) (24.5) Canara Bank 38.0 7.3 9.0 (1.9) 8.9 Corporation Bank 37.6 22.6 20.2 29.1 (12.4) Indian Bank 35.2 12.1 5.5 13.7 23.5 Indian Overseas Bank (3.7) 10.2 27.9 19.6 35.2 Oriental Bank of Commerce (1.6) 20.3 4.8 24.8 39.9 Punjab National Bank 51.5 23.9 13.7 6.1 (1.0) State Bank of India 12.6 23.3 10.6 13.1 8.5 Union Bank 95.3 22.9 4.6 28.4 (28.6) Old private banksFederal Bank 26.6 18.5 16.5 16.5 17.0 J&K Bank 36.0 9.7 18.5 7.8 (7.6) New private banksAxis Bank 31.8 25.3 26.2 23.6 27.5 HDFC Bank 24.3 17.8 20.9 17.8 23.5 ICICI Bank 20.9 22.7 20.5 11.6 20.4 Yes Bank 27.1 23.8 31.3 38.4 52.4 IndusInd Bank 32.7 29.9 33.9 29.4 38.9


Cost structures show marginal deterioration in the current quarter Operating expense-to-income ratio of banks, March fiscal year-ends, 4QFY11-4QFY12 (%)

4QFY11 1QFY12 2QFY12 3QFY12 4QFY12Public banksAndhra Bank 38.7 37.9 39.2 37.0 42.2 Bank of Baroda 43.6 37.7 35.2 31.5 44.8 Bank of India 61.5 44.0 43.5 40.7 41.9 Canara Bank 41.7 45.2 42.5 41.6 46.9 Corporation Bank 40.4 42.2 38.7 37.4 35.2 Indian Bank 34.7 38.9 37.7 37.2 42.6 Indian Overseas Bank 38.9 47.4 46.5 49.6 45.6 Oriental Bank of Commerce 35.8 40.3 40.2 42.4 46.6 Punjab National Bank 39.9 41.1 41.8 40.4 36.0 State Bank of India 52.8 45.3 46.0 46.6 43.4 Union Bank 62.5 43.8 44.3 45.9 39.3 Old private banksFederal Bank 40.5 38.6 38.9 37.1 42.9 J&K Bank 44.7 37.3 38.1 38.3 34.6 New private banksAxis Bank 42.2 46.1 45.2 42.3 45.4 HDFC Bank 48.8 48.8 48.9 47.6 50.6 ICICI Bank 44.5 44.9 44.6 41.6 41.7 Yes Bank 34.8 37.4 35.6 37.6 39.8 IndusInd Bank 47.7 48.5 49.4 49.8 49.9

Source: Companies, Kotak Institutional Equities



Lower tax rates for PSU banks

The recent ruling allowing tax benefit on general deductions (as per income tax and not RBI) brought down the tax liability of banks in 4QFY12 and thereby cushioned the impact of sharp decline in PBT for most public banks. Tax rate for the quarter (ex SBI) was at 11% (22% in FY2012 and 31% in FY2011). Banks, following a recent court ruling, are now allowed to claim tax breaks on provisions under bad debts (write-off) in addition to existing general provisions (linked to rural advances and total income as per income tax) as against the earlier norm of adjusting only for excess provisions. Rising share of infrastructure lending and lower tax rate thereof has also reduced the tax liability of banks during the quarter.

The recent judgment (Catholic Syrian Bank versus CIT, February 17, 2012) was on allowance/disallowance of benefits from two separate sections with respect to provisions relating to bad debts. Banks are now allowed to make tax deductible provisions under the following:

Section 36 (1) (VII a) which is 7.5% of total income and up to 10% of rural loans, whichever is higher, and

Section 36 (1) (VII) which pertains to write-offs for banks.

Earlier, banks were claiming the benefit of provisions under Section 36 (1) (VII) that are in excess of the provisions provided under Section 36 (1) (VII a). The court clarified that the provisions under these two sections could be taken independently as the objective was to promote lending in rural advances (factoring the risk towards lending in these regions). However, any write-off in excess of the provisions made would be allowed for rural loans as that would be a dual benefit.

Tax rate for 4QFY12 was at 11%—the lowest in recent quarters Tax rate for banks, March fiscal year-ends, 2011-12 (%)

PBT Tax Tax rate PBT Tax Tax rate PBT Tax Tax rate

(Rs mn) (Rs mn) (%) (Rs mn) (Rs mn) (%) (Rs mn) (Rs mn) (%)

Allahabad Bank 4,467 465 10.4 21,630 2,962 13.7 19,307 5,076 26.3

Andhra Bank 4,173 776 18.6 18,241 4,796 26.3 17,671 5,000 28.3

Bank of Baroda 11,965 (3,217) (26.9) 60,258 10,188 16.9 56,503 14,086 24.9

Bank of India 13,128 3,601 27.4 35,875 9,000 25.1 34,954 10,067 28.8

Bank of Maharashtra 1,058 329 31.1 6,590 2,281 34.6 3,878 574 14.8

Canara 10,291 2,000 19.4 40,827 8,000 19.6 50,259 10,000 19.9

Central Bank of India (2,459) (1,407) 57.2 7,587 2,257 29.7 16,592 4,068 24.5

Corporation Bank 4,765 1,253 26.3 19,055 3,995 21.0 19,336 5,204 26.9

Dena Bank 1,844 (704) (38.2) 9,662 1,631 16.9 8,982 2,866 31.9

IDBI 9,208 1,500 16.3 26,297 5,981 22.7 22,810 6,307 27.6

Indian Bank 2,354 (1,100) (46.7) 22,156 4,686 21.2 26,345 9,204 34.9

Indian Overseas Bank 6,148 859 14.0 12,977 2,476 19.1 15,922 5,197 32.6

Oriental Bank of Commerce 2,196 (453) (20.6) 14,256 2,842 19.9 20,386 5,357 26.3

Punjab National Bank 19,089 4,848 25.4 70,370 21,528 30.6 65,640 21,302 32.5

State Bank of India 64,564 24,061 37.3 184,833 67,760 36.7 149,542 66,897 44.7

Syndicate Bank 2,482 (612) (24.6) 14,270 1,139 8.0 12,854 2,375 18.5

UCO Bank 2,720 192 7.1 11,503 416 3.6 9,141 75 0.8

Union Bank 10,816 3,085 28.5 27,128 9,256 34.1 29,534 8,735 29.6

United Bank 1,712 219 12.8 8,455 2,129 25.2 6,690 1,450 21.7

Vijaya Bank 1,767 (43) (2.4) 6,493 683 10.5 6,080 841 13.8

Total 172,286 35,652 20.7 618,463 164,005 26.5 592,425 184,680 31.2

4QFY12 2012 2011




We have revised earnings downwards to factor higher credit costs Prior and current PAT estimates, March fiscal year-ends, 2013-14E (` mn)

Current PAT estimates Prior PAT estimates % change2013E 2014E 2013E 2014E 2013E 2014E

Public banksAndhra Bank 12,333 14,185 12,933 14,425 (4.6) (1.7) Bank of Baroda 47,958 47,245 47,761 49,283 0.4 (4.1) Bank of India 34,714 38,918 33,947 38,617 2.3 0.8 Canara Bank 34,176 40,240 41,270 53,139 (17.2) (24.3) Corporation Bank 14,350 17,495 15,920 17,777 (9.9) (1.6) Indian Bank 17,563 19,240 20,397 22,432 (13.9) (14.2) Indian Overseas Bank 15,288 19,315 17,195 22,153 (11.1) (12.8) Oriental Bank of Commerce 16,725 17,136 16,896 17,298 (1.0) (0.9) Punjab National Bank 49,701 56,066 53,012 62,252 (6.2) (9.9) State Bank of India 141,825 154,170 140,127 159,735 1.2 (3.5) Union Bank 22,964 23,944 23,681 26,041 (3.0) (8.1) Old private banksFederal Bank 7,335 8,042 8,509 9,748 (13.8) (17.5) J&K Bank 7,907 8,584 7,874 8,616 0.4 (0.4) New private banksAxis Bank 42,507 45,141 41,406 44,791 2.7 0.8 HDFC Bank 65,209 81,386 65,397 82,243 (0.3) (1.0) ICICI Bank 71,779 77,226 64,957 72,358 10.5 6.7 Yes Bank 10,951 13,771 11,114 13,700 (1.5) 0.5 IndusInd Bank 8,977 10,791 8,229 10,142 9.1 6.4 Total 622,262 692,896 630,626 724,750 (1.3) (4.4) Total - Public sector 407,598 447,955 423,140 483,151 (3.7) (7.3) Total - Private sector 214,664 244,941 207,486 241,599 3.5 1.4 Notes: (1) Earnings have been revised post the results for Yes Bank and IndusInd Bank


Mixed trends in NBFCs’ earnings PAT and core PBT growth, 4QFY11- 4QFY12 (%)

4QFY11 1QFY12 2QFY12 3QFY12 4QFY12 4QFY11 1QFY12 2QFY12 3QFY12 4QFY12HDFC 11.1 23.1 13.1 17.3 25.4 23.3 21.7 20.1 10.1 16.1 IDFC 84.3 36.4 (3.1) 30.8 18.9 26.5 (6.2) 54.9 18.7 14.8 LICHF 43.3 27.0 5.0 (7.6) (10.8) 47.3 21.0 (57.9) 42.9 (19.4) PFC 3.0 14.2 15.7 13.5 37.0 1.2 5.3 (40.1) 68.6 29.7 REC 18.2 13.8 14.8 6.9 19.5 24.8 12.7 0.6 15.9 13.1 Shriram Transport 23.1 17.6 18.9 5.5 3.1 28.9 20.0 (0.1) 0.4 (9.6) Mahindra Finance 33.0 50.7 26.6 41.5 49.7 10.9 37.3 16.5 33.5 45.4 Muthoot Finance 75.2 128.4 85.1 74.2 39.7 75.2 128.4 85.1 74.2 39.7

Core PBT (%) PAT (YoY %)




Banking sector valuations Key valuation parameters, March fiscal year-ends, 2011-13E

EPS (Rs) PER (X) BVPS (Rs) PBR (X) RoE (%)Reco. 2011 2012E 2013E 2011 2012E 2013E 2011 2012E 2013E 2011 2012E 2013E 2011 2012E 2013E

Public banksAndhra Bank ADD 105 22.6 24.0 22.0 4.6 4.4 4.8 116 134 150 0.9 0.8 0.7 23.2 19.2 15.6Bank of Baroda REDUCE 684 108.0 121.4 116.3 6.3 5.6 5.9 493 631 724 1.4 1.1 0.9 25.9 22.2 16.5Bank of India BUY 316 45.5 46.8 60.4 6.9 6.8 5.2 292 343 390 1.1 0.9 0.8 17.3 15.1 16.5Canara Bank REDUCE 390 90.9 74.1 77.1 4.3 5.3 5.0 405 466 529 1.0 0.8 0.7 23.2 15.4 14.2Corporation Bank BUY 405 95.4 101.7 96.9 4.2 4.0 4.2 482 559 632 0.8 0.7 0.6 21.9 19.5 16.3Indian Bank BUY 180 38.8 39.8 42.9 4.6 4.5 4.2 184 215 253 1.0 0.8 0.7 22.9 20.0 18.4IOB REDUCE 80 17.3 13.2 20.6 4.6 6.1 3.9 132 136 152 0.6 0.6 0.5 12.7 9.9 13.1OBC BUY 222 51.5 39.1 57.3 4.3 5.7 3.9 350 381 425 0.6 0.6 0.5 15.5 9.9 13.3PNB ADD 725 140.0 144.0 146.5 5.2 5.0 4.9 632 782 902 1.1 0.9 0.8 24.4 21.0 17.4SBI BUY 1,966 130.2 174.5 211.4 15.1 11.3 9.3 1,023 1,251 1,419 1.9 1.6 1.4 12.6 15.7 15.8

SBI incl. banking subs BUY 1,781 178.9 216.8 255.7 10.0 8.2 7.0 1,301 1,582 1,795 1.4 1.1 1.0 13.7 15.5 15.4SBI (core banking business BUY 1,488 130.1 161.5 195.8 11.4 9.2 7.6 922 1,155 1,323 1.6 1.3 1.1 13.9 16.3 17.4

Union Bank BUY 203 39.5 32.3 41.5 5.1 6.3 4.9 211 237 269 1.0 0.9 0.8 20.9 14.8 16.5Old private banksFederal Bank BUY 408 34.3 45.4 45.6 11.9 9.0 8.9 298 333 369 1.4 1.2 1.1 12.0 14.4 13.0J&K Bank ADD 927 126.9 165.7 163.1 7.3 5.6 5.7 717 844 968 1.3 1.1 1.0 19.0 21.2 18.0New private banksAxis Bank ADD 998 82.5 101.2 102.9 12.1 9.9 9.7 463 552 636 2.2 1.8 1.6 19.3 20.0 17.3HDFC Bank ADD 500 16.9 22.0 27.8 29.6 22.7 18.0 109 128 149 4.6 3.9 3.4 16.7 18.7 20.1ICICI Bank BUY 821 44.7 56.1 62.3 18.3 14.6 13.2 478 524 564 1.7 1.6 1.5 9.7 11.2 11.4

ICICI standalone BUY 606 41.2 50.7 56.4 14.7 12.0 10.8 365 405 445 1.7 1.5 1.4 11.5 13.8 14.6Yes Bank ADD 328 20.9 27.7 31.0 15.7 11.9 10.6 109 132 158 3.0 2.5 2.1 21.1 23.1 21.3IndusInd Bank ADD 305 12.4 17.2 19.3 24.6 17.7 15.7 82 96 113 3.7 3.2 2.7 20.8 19.7 18.5Non-banksHDFC REDUCE 664 24.1 27.9 31.4 27.5 23.8 21.2 118 129 163 5.6 5.2 4.1 21.7 22.7 21.8

HDFC core REDUCE 394 20.1 24.0 27.3 19.6 16.4 14.4 58 67 103 6.8 5.8 3.8 38.9 38.4 32.6IDFC BUY 125 8.8 10.3 12.2 14.2 12.1 10.2 71 82 92 1.7 1.5 1.4 14.7 13.6 14.1India Infoline REDUCE 49 7.4 4.5 4.5 6.7 10.8 10.9 58 61 62 0.8 0.8 0.8 13.9 8.8 8.8LIC Hsg Fin ADD 240 20.5 18.1 28.8 29.2 33.2 20.8 88 112 134 6.8 5.4 4.5 25.8 18.6 23.4Mahindra Finance BUY 628 45.2 60.5 76.2 13.9 10.4 8.2 243 288 345 2.6 2.2 1.8 22.0 22.8 24.1Muthoot Finance BUY 123 15.7 24.0 18.8 7.8 5.1 6.5 43 79 98 2.9 1.6 1.3 51.5 41.9 22.7Power Finance Corporation BUY 148 22.8 23.0 28.8 6.5 6.4 5.2 133 158 178 1.1 0.9 0.8 18.3 16.8 17.2

Rural Electrification Corp. BUY 171 26.0 28.6 35.1 6.6 6.0 4.9 129 149 174 1.3 1.1 1.0 21.5 20.5 21.8

Shriram Transport BUY 493 55.1 56.4 63.5 8.9 8.7 7.8 220 269 317 2.2 1.8 1.6 28.1 23.1 21.7

CMP (Rs)

Source: Companies, Bloomberg, Kotak Institutional Equities estimates



Banks and financial institutions have outperformed in recent months Absolute and relative performance of stocks (%)

Price (Rs) 1 month 3 month 6 month 12 month Ytd 1 month 3 month 6 month 12 month YtdPublic banksAndhra Bank 105 (13.2) (15.0) 7.1 (22.8) 31.3 (7.0) (5.0) 4.7 (11.7) 25.1Bank of Baroda 684 (9.8) (14.0) (0.2) (17.2) 2.8 (3.9) (4.1) (2.5) (6.6) (2.0)Bank of India 316 (8.9) (15.2) (8.5) (25.4) 18.6 (3.0) (5.2) (10.5) (14.0) 13.0Canara Bank 390 (17.4) (22.6) (11.3) (24.9) 6.9 (11.1) (12.0) (13.2) (13.6) 1.8Corporation Bank 405 (1.2) (15.1) 14.0 (22.4) 15.7 4.3 (5.2) 11.5 (11.4) 10.2Indian Bank 175 (19.4) (26.3) (7.7) (20.4) (5.3) (12.9) (15.3) (9.8) (9.5) (9.8)Indian Overseas Bank 80 (12.2) (21.1) (13.1) (43.9) 9.4 (6.1) (10.6) (15.1) (30.9) 4.2OBC 222 (10.1) (20.9) (18.0) (34.4) 13.0 (4.1) (10.4) (19.9) (22.2) 7.7Punjab National Bank 725 (17.9) (24.9) (18.1) (31.0) (7.2) (11.6) (14.1) (20.0) (19.1) (11.6)State Bank of India 1,966 (10.3) (10.9) 18.9 (11.5) 21.4 (4.3) (1.2) 16.2 (1.4) 15.7Union Bank of India 203 (5.9) (16.0) (5.1) (35.5) 19.5 (0.2) (5.9) (7.2) (23.2) 13.9Old private banksFederal Bank 408 (1.5) (0.3) 15.0 (2.8) 21.0 4.0 8.4 12.4 6.4 15.3J&K Bank 927 2.0 11.3 23.8 15.7 37.2 7.3 19.0 21.0 23.3 30.7New private banksAxis Bank 998 (10.4) (15.7) 4.2 (17.0) 23.5 (4.4) (5.7) 1.9 (6.4) 17.6HDFC Bank 500 (7.8) (4.8) 16.3 10.8 17.1 (1.9) 4.3 13.7 18.8 11.5ICICI Bank 821 (3.2) (11.9) 12.4 (19.5) 19.9 2.4 (2.2) 9.9 (8.7) 14.2Yes Bank 328 (8.7) (3.5) 18.4 16.1 37.4 (2.8) 5.5 15.8 23.7 30.9Non-banksHDFC 664 (2.8) (1.9) 6.0 2.2 1.8 2.8 7.0 3.6 11.1 (3.0)IDFC 125 (1.2) (11.5) 16.5 (5.8) 35.9 4.3 (1.9) 13.8 3.7 29.5Indiainfoline 49 (17.3) (30.7) (21.2) (35.5) 12.7 (11.0) (19.4) (23.0) (23.2) 7.4LIC Housing Finance 240 (7.2) (3.2) 12.0 10.1 8.2 (1.4) 5.8 9.5 18.3 3.1MMFS 628 (6.4) (13.7) 1.3 (5.9) 2.9 (0.6) (3.9) (1.0) 3.7 (2.0)PFC 148 (19.4) (22.6) (8.8) (26.5) 7.4 (13.0) (12.0) (10.9) (15.1) 2.3Shriram Transport 493 (17.9) (13.7) (3.8) (34.1) 17.0 (11.5) (3.8) (5.9) (21.9) 11.5

Change in price (%) Relative performance to sensex (%)

Source: Bloomberg, Kotak Institutional Equities estimates

Public banks are trading at 1X PBR currently PBR and PER – public banks, March fiscal year-ends, 2003-12 (X)

0

3

6

9

12

15

May

-03

May

-04

May

-05

May

-06

May

-07

May

-08

May

-09

May

-10

May

-11

May

-12

0.0

0.5

1.0

1.5

2.0

2.5PER (RHS) PBR (LHS)


Private banks are trading at 1X PBR currently PBR and PER – private banks, March fiscal year-ends, 2003-12 (X)

0

8

16

24

32

40

May

-03

May

-04

May

-05

May

-06

May

-07

May

-08

May

-09

May

-10

May

-11

May

-12

0.0

0.7

1.4

2.1

2.8

3.5PER (RHS) PBR (LHS)




RoE likely to remain stable at 17% for the sector RoE—public and private banks, March fiscal year-ends, 2007-14E (%)

10.0

12.0

14.0

16.0

18.0

20.0

2007

2008

2009

2010

2011

2012

E

2013

E

2014

E



RoA likely to decline for private banks RoA—public and private banks, March fiscal year-ends, 2007-14E (%)

0.7

0.9

1.0

1.2

1.3

1.5

2007

2008

2009

2010

2011

2012

E

2013

E

2014

E



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March 2012: Results calendar

Mon Tue Wed Thu Fri Sat21-May 22-May 23-May 24-May 25-May 26-MayAdani Enterprises Container Corp BHEL Central Bank of India BPCL DB RealtyGitanjali Gems GTL Canara Bank GSPL Crompton Greaves Eros InternationalKalpataru Power Transmission Opto Circuits Chennai Petroleum Jet Airways Great Offshore Jagran PrakashanNALCO PFC Jyothy Laboraories JM Financial ITC Reliance CommunicationsPfizer Tata Power REC Max India Karur Vysya BankTata Communications Wockhardt Tata Global Beverages Reliance Power Mirc ElectronicsVascon Engineers Tech Mahindra Tecpro Systems MoilVoltamp Transformers Voltas NHPCZee Entertainment Reliance Infrastructure

Religare EnterprisesSun TV NetworkSuzlon Energy

28-May 29-May 30-May 31-MayBalrampur Chinin Mills ABG Shipyard Aban OffshoreBharat Forge Apollo Hospitals BGR Energy SystemBharti Shipyard Aurobindo Pharma Colgate PalmoliveCoal India EIH Dhanlaxmi BankEngineers India Future Capital Holdings DLFFortis Healthcare Hindustan copper Financial TechnologiesIOCL HPCL Gail IndiaMcleod Russel Ipca Laboratories Havells IndiaMonsanto India Lanco Infratech HDILNMDC NCC Jindal SawOil India ONGC Kingfisher AirlinesSadbhav Engineering Phoenix Mills Mahindra & MahindraSJVN Power Grid Tata Chemicals

SAILShipping CorpSun PharmaTata MotorsUnited SpiritsWelspun Corp

Source: BSE, NSE, Kotak Institutional Equities

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Kotak Institutional Equities: Valuation summary of KIE Universe stocks

24-May-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) 2012E 2013E 2014E 2012E 2013E 2014E 2012E 2013E 2014E 2012E 2013E 2014E 2012E 2013E 2014E 2012E 2013E 2014E 2012E 2013E 2014E (Rs) (%) (US$ mn)

Automobiles

Apollo Tyres 88 BUY 44,133 792 504 7.4 10.0 12.0 (15.4) 34.6 20.5 11.8 8.8 7.3 6.1 4.8 4.1 1.4 1.2 1.1 0.5 0.7 0.8 14.4 16.8 17.2 90 2.8 4.9

Ashok Leyland 24 ADD 64,921 1,165 2,661 2.1 2.8 3.5 (10.6) 29.9 27.2 11.5 8.9 7.0 7.2 6.1 4.7 1.4 1.3 1.1 4.1 4.1 4.1 17.5 20.6 23.3 33 35.2 3.8

Bajaj Auto 1,501 ADD 434,288 7,794 289 103.8 111.1 128.8 14.9 7.0 15.9 14.5 13.5 11.6 10.8 10.2 8.9 7.1 5.6 4.4 3.0 3.0 3.4 54.6 46.4 42.5 1,620 8.0 12.9

Bharat Forge 308 REDUCE 72,970 1,310 237 17.5 20.0 23.6 39.2 14.6 17.7 17.6 15.4 13.1 8.9 7.9 6.8 2.8 2.4 2.0 0.3 — — 14.6 15.6 15.5 315 2.4 2.7

Exide Industries 120 SELL 102,085 1,832 850 5.4 6.4 7.4 (27.2) 18.4 15.3 22.1 18.7 16.2 14.8 12.5 11.0 3.3 2.9 2.6 1.1 1.1 1.1 15.9 16.7 16.9 105 (12.6) 3.0

Hero Motocorp 1,821 SELL 363,584 6,525 200 119.1 136.2 137.8 19.8 14.4 1.1 15.3 13.4 13.2 11.6 9.7 8.5 6.6 5.3 4.3 2.5 3.0 3.0 62.1 52.6 41.5 1,900 4.4 19.5

Mahindra & Mahindra 653 BUY 400,758 7,193 614 41.6 44.4 48.9 (0.2) 6.7 10.0 15.7 14.7 13.4 11.9 10.8 9.5 3.2 2.7 2.4 1.5 1.5 1.5 22.0 20.1 19.0 815 24.9 23.7

Maruti Suzuki 1,144 SELL 330,632 5,934 289 56.6 85.4 97.7 (28.6) 50.9 14.5 20.2 13.4 11.7 14.4 8.4 6.9 2.1 1.9 1.6 0.7 0.7 0.7 11.1 14.9 14.9 1,175 2.7 16.3

Tata Motors 267 REDUCE 887,775 15,934 3,325 34.3 38.7 44.7 26.2 12.8 15.6 7.8 6.9 6.0 5.2 4.3 3.7 3.0 2.2 1.6 1.1 1.1 1.1 46.8 37.0 31.3 285 6.7 58.8

Automobiles Neutral 2,701,145 48,479 11.4 15.0 13.9 11.8 10.3 9.0 7.6 6.4 5.5 3.3 2.6 2.1 1.6 1.7 1.8 27.8 25.5 23.5

Banks/Financial Institutions

Andhra Bank 105 ADD 58,756 1,055 560 24.0 22.0 25.3 6.1 (8.3) 15.0 4.4 4.8 4.1 — — — 0.8 0.8 0.7 5.2 4.8 5.5 19.2 15.6 15.9 135 28.6 1.6

Axis Bank 998 ADD 412,291 7,400 413 101.2 102.9 109.2 22.6 1.6 6.2 9.9 9.7 9.1 — — — 1.9 1.7 1.5 1.6 1.6 1.7 20.0 17.3 16.1 1,250 25.3 48.8

Bajaj Finserv 683 REDUCE 98,853 1,774 145 64.0 65.6 76.3 (18.2) 2.6 16.2 10.7 10.4 9.0 — — — 1.8 1.5 1.2 1.8 1.8 1.8 20.5 15.5 15.1 680 (0.5) 2.3

Bank of Baroda 684 REDUCE 282,130 5,064 412 121.4 116.3 114.6 12.4 (4.2) (1.5) 5.6 5.9 6.0 — — — 1.1 1.0 0.9 2.5 2.9 2.8 22.2 17.2 14.9 730 6.7 10.7

Bank of India 316 BUY 181,462 3,257 575 46.8 60.4 67.7 2.9 29.2 12.1 6.8 5.2 4.7 — — — 1.0 0.9 0.9 2.2 3.4 3.8 15.1 16.5 16.2 430 36.1 4.4

Canara Bank 390 REDUCE 172,549 3,097 443 74.1 77.1 90.8 (18.5) 4.1 17.7 5.3 5.0 4.3 — — — 0.9 0.8 0.7 2.8 3.1 3.1 15.4 14.2 14.8 450 15.5 5.9

Corporation Bank 405 BUY 59,985 1,077 148 101.7 96.9 118.1 6.6 (4.7) 21.9 4.0 4.2 3.4 — — — 0.8 0.7 0.6 5.1 5.0 6.1 19.5 16.3 17.5 540 33.3 0.9

Federal Bank 408 BUY 69,711 1,251 171 45.4 42.9 47.0 32.3 (5.6) 9.6 9.0 9.5 8.7 — — — 1.2 1.1 1.0 2.2 2.1 2.3 14.4 12.2 12.2 500 22.7 2.2

HDFC 664 REDUCE 1,016,755 18,248 1,532 27.9 31.4 37.6 15.8 12.4 19.9 23.8 21.2 17.7 — — — 5.3 4.1 3.6 1.6 1.7 2.1 22.7 21.8 21.6 660 (0.6) 68.5

HDFC Bank 500 ADD 1,172,646 21,046 2,347 22.0 27.8 34.7 30.4 26.2 24.8 22.7 18.0 14.4 — — — 3.9 3.4 2.9 0.9 1.1 1.4 18.7 20.1 21.4 565 13.1 26.9

ICICI Bank 821 BUY 945,963 16,978 1,153 56.1 62.3 67.0 25.4 11.0 7.6 14.6 13.2 12.2 — — — 1.6 1.5 1.4 2.0 2.3 2.4 11.2 11.4 11.4 1,100 34.0 76.5

IDFC 125 BUY 187,905 3,372 1,509 10.3 12.2 14.6 17.3 18.8 19.5 12.1 10.2 8.5 — — — 1.5 1.4 1.2 1.7 2.0 2.3 13.6 14.1 15.0 145 16.4 20.5

India Infoline 49 REDUCE 16,031 288 327 4.5 4.5 5.2 (38.3) (1.0) 15.0 10.8 10.9 9.5 — — — 0.9 0.8 0.7 2.7 1.6 1.8 7.7 7.7 8.0 55 12.0 0.8

Indian Bank 175 BUY 75,253 1,351 430 39.8 40.0 43.9 2.7 0.4 9.8 4.4 4.4 4.0 — — — 0.9 0.8 0.7 2.1 2.1 2.3 19.5 16.9 16.0 260 48.5 1.4

Indian Overseas Bank 80 REDUCE 63,959 1,148 797 13.2 19.2 24.2 (24.0) 45.6 26.3 6.1 4.2 3.3 — — — 0.7 0.6 0.5 5.6 6.6 7.9 9.9 12.2 14.0 100 24.6 1.3

IndusInd Bank 305 ADD 142,438 2,556 468 17.2 19.2 23.1 38.5 11.8 20.2 17.7 15.9 13.2 — — — 3.3 2.9 2.4 0.7 0.8 1.0 19.7 18.4 18.8 360 18.2 4.3

J&K Bank 814 ADD 39,471 708 48 165.7 163.1 177.0 30.6 (1.6) 8.6 4.9 5.0 4.6 — — — 1.0 0.8 0.7 4.1 4.1 4.5 21.2 18.0 17.1 950 16.7 0.5

LIC Housing Finance 240 ADD 120,936 2,171 505 18.1 25.4 30.7 (11.8) 40.1 21.1 13.2 9.4 7.8 — — — 2.2 1.9 1.6 1.5 2.0 2.5 18.6 20.7 21.3 290 21.1 13.7

Mahindra & Mahindra Financial 628 BUY 64,304 1,154 102 60.5 76.2 90.1 33.9 26.0 18.2 10.4 8.2 7.0 — — — 2.2 1.9 1.6 2.1 2.7 3.2 22.8 24.1 23.8 825 31.4 1.9

Muthoot Finance 123 BUY 45,609 819 372 24.0 18.8 21.4 52.4 (21.6) 13.8 5.1 6.5 5.7 — — — 1.6 1.3 1.0 3.3 — — 41.9 22.7 21.0 190 54.8 —

Oriental Bank of Commerce 222 BUY 64,742 1,162 292 39.1 57.3 58.7 (24.0) 46.5 2.5 5.7 3.9 3.8 — — — 0.7 0.6 0.6 3.6 5.2 5.3 9.9 13.3 12.4 330 48.7 2.3

PFC 148 BUY 195,723 3,513 1,319 23.0 28.1 31.1 0.9 22.1 10.6 6.4 5.3 4.8 — — — 1.0 0.9 0.9 4.0 4.9 5.5 16.9 16.9 16.6 185 24.7 11.6

Punjab National Bank 725 ADD 245,753 4,411 339 144.0 146.5 165.3 2.9 1.8 12.8 5.0 4.9 4.4 — — — 1.0 0.9 0.8 3.0 3.1 3.5 21.0 17.4 17.0 900 24.2 7.9

Reliance Capital 318 ADD 78,267 1,405 246 21.1 30.1 31.7 126.7 42.5 5.4 15.1 10.6 10.0 — — — 0.7 0.7 0.7 2.7 3.8 4.0 5.8 6.6 6.7 450 41.5 29.6

Rural Electrification Corp. 171 BUY 169,288 3,038 987 28.6 35.1 38.9 10.0 23.0 10.7 6.0 4.9 4.4 — — — 1.2 1.1 1.1 4.4 5.4 6.0 20.5 21.8 20.8 230 34.1 9.8

Shriram Transport 493 BUY 109,908 1,973 223 56.4 63.5 71.7 2.3 12.6 12.9 8.7 7.8 6.9 — — — 1.9 1.7 1.4 2.3 2.6 2.9 23.1 21.7 20.8 650 32.0 3.2

SKS Microfinance 69 RS 5,128 92 75 (89.1) (27.5) (29.0) (667.7) (69.1) 5.4 (0.8) (2.5) (2.4) — — — 0.4 0.5 0.7 — — — (44.7) (19.3) (24.8) — — 1.4

State Bank of India 1,966 BUY 1,319,365 23,680 671 174.5 211.4 229.7 34.0 21.1 8.7 11.3 9.3 8.6 — — — 2.0 1.8 1.5 1.8 1.9 2.0 15.7 15.8 15.2 2,375 20.8 132.4

Union Bank 203 BUY 111,762 2,006 551 32.3 41.5 43.3 (18.2) 28.7 4.3 6.3 4.9 4.7 — — — 1.0 0.9 0.8 3.9 4.0 4.2 14.8 16.5 15.2 280 37.9 5.1

Yes Bank 328 ADD 115,781 2,078 353 27.7 31.0 39.0 32.1 12.1 25.8 11.9 10.6 8.4 — — — 2.5 2.1 1.7 1.2 1.4 1.7 23.1 21.3 22.4 385 17.4 23.9

Banks/Financial Institutions Attractive 7,642,721 137,169 15.3 14.7 12.2 10.8 9.4 8.4 — — — 1.8 1.6 1.4 2.0 2.2 2.5 16.4 16.7 16.8

Cement

ACC 1,156 SELL 217,095 3,896 188 57.1 68.8 78.9 7.8 20.6 14.6 20.2 16.8 14.6 11.4 8.8 7.1 2.8 2.5 2.3 2.8 2.0 2.0 16.9 17.3 17.5 1,060 (8.3) 10.0

Ambuja Cements 142 SELL 215,644 3,870 1,522 7.8 10.3 11.6 (1.2) 32.8 12.4 18.2 13.7 12.2 10.3 7.8 6.8 2.5 2.3 2.1 1.6 1.9 2.7 14.6 17.8 18.0 150 5.9 6.9

Grasim Industries 2,394 BUY 219,573 3,941 92 288.6 282.9 309.2 24.4 (2.0) 9.3 8.3 8.5 7.7 5.1 4.9 4.2 1.3 1.2 1.0 1.4 1.4 1.4 16.9 14.4 13.9 2,800 17.0 3.1

India Cements 74 ADD 22,655 407 307 9.0 10.8 13.6 373.8 20.8 26.0 8.2 6.8 5.4 4.2 4.0 3.1 0.5 0.5 0.5 4.3 4.3 4.3 6.9 8.1 9.4 110 49.2 3.3

Shree Cement 2,558 SELL 89,127 1,600 35 75.8 133.5 129.5 32.6 76.1 (3.0) 33.8 19.2 19.8 8.0 6.6 6.7 4.2 3.6 3.2 0.6 0.8 0.8 13.1 20.2 17.3 2,300 (10.1) 0.7

UltraTech Cement 1,373 SELL 376,353 6,755 274 89.3 95.1 109.3 99.0 6.5 14.9 15.4 14.4 12.6 9.4 8.2 6.9 2.6 2.2 1.9 0.7 0.7 0.7 20.8 18.6 18.1 1,260 (8.2) 4.9

Cement Neutral 1,140,448 20,468 35.8 12.4 12.3 14.5 12.9 11.5 7.8 6.8 5.8 2.1 1.9 1.6 1.5 1.4 1.5 14.5 14.5 14.4

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 3,750 SELL 359,675 6,455 96 99.9 115.6 137.2 23.6 15.7 18.7 37.5 32.4 27.3 26.8 22.0 18.2 14.0 10.2 8.1 1.1 0.9 0.9 42.9 37.4 33.7 3,000 (20.0) 6.2

Colgate-Palmolive (India) 1,207 SELL 164,157 2,946 136 32.5 39.1 44.1 9.9 20.3 12.6 37.1 30.8 27.4 32.0 25.9 22.6 43.5 34.7 30.0 2.3 2.3 2.7 116.1 124.9 117.3 900 (25.4) 1.7

Dabur India 105 ADD 182,217 3,270 1,740 3.7 4.4 5.1 13.3 17.7 16.4 28.3 24.0 20.7 21.7 18.6 15.8 10.9 9.1 7.2 1.2 1.5 1.7 43.9 41.9 39.5 120 14.6 2.2

GlaxoSmithkline Consumer 2,630 ADD 110,606 1,985 42 84.5 105.5 122.7 18.5 24.9 16.4 31.1 24.9 21.4 23.5 19.2 15.8 10.0 8.3 6.9 1.3 1.7 1.9 33.8 35.2 34.3 3,000 14.1 1.1

Godrej Consumer Products 554 ADD 179,317 3,218 324 17.7 22.6 26.1 18.7 27.8 15.6 31.4 24.6 21.2 24.0 17.4 14.6 6.4 4.8 4.3 0.6 0.6 0.7 25.2 23.5 24.8 575 3.8 2.8

Hindustan Unilever 425 ADD 917,113 16,460 2,159 11.9 14.4 16.8 20.6 21.0 16.6 35.6 29.5 25.3 30.0 22.4 18.4 26.1 22.7 19.8 2.1 2.8 3.3 83.8 82.6 84.4 470 10.7 15.5

ITC 233 ADD 1,792,285 32,167 7,681 8.0 9.0 10.5 24.1 13.8 15.6 29.3 25.8 22.3 20.1 17.5 14.9 9.2 8.0 6.5 1.6 1.9 1.3 35.3 34.5 33.2 250 7.1 33.8

Jubilant Foodworks 1,172 SELL 76,909 1,380 66 16.7 24.2 34.9 49.3 44.5 44.6 70.1 48.5 33.6 40.4 27.3 19.7 25.7 16.8 11.2 — — — 44.7 41.8 40.0 900 (23.2) 16.9

Jyothy Laboratories 197 ADD 15,261 274 78 10.8 11.0 12.6 4.0 2.2 14.3 18.3 17.9 15.6 20.0 15.1 13.1 2.2 2.0 1.9 2.4 3.0 3.0 12.4 11.6 12.3 220 11.8 0.3

Nestle India 4,552 SELL 438,880 7,877 96 104.6 125.3 146.5 20.5 19.8 16.9 43.5 36.3 31.1 28.7 23.7 19.6 34.5 24.0 17.7 1.1 1.3 1.5 94.7 77.9 65.7 4,000 (12.1) 3.5

Tata Global Beverages 110 BUY 67,777 1,216 618 5.4 6.0 7.4 36.3 12.1 22.1 20.3 18.1 14.8 12.1 9.4 7.8 1.2 1.1 1.1 1.6 1.8 2.2 7.8 8.0 9.3 120 9.5 4.9

Titan Industries 226 ADD 200,817 3,604 888 6.7 8.1 9.7 36.5 21.2 19.2 33.7 27.8 23.3 22.9 18.6 15.0 13.9 10.6 7.6 1.0 1.3 0.4 47.9 43.2 37.8 270 19.4 13.5

United Spirits 625 BUY 78,546 1,410 126 36.6 42.7 45.9 3.5 16.9 7.5 17.1 14.6 13.6 11.0 10.1 9.2 1.7 1.5 1.4 0.4 0.5 0.6 10.5 11.1 10.8 900 43.9 24.4

Consumer products Attractive 4,689,933 84,173 21.3 17.8 16.6 32.2 27.3 23.4 22.7 18.7 15.8 10.0 8.5 7.1 1.5 1.8 1.7 31.2 31.2 30.2

Constructions

IVRCL 42 REDUCE 11,281 202 267 0.9 3.3 6.0 (84.7) 264.1 83.6 46.8 12.9 7.0 9.0 7.1 5.6 0.6 0.5 0.5 0.9 0.9 0.9 1.2 4.3 7.5 50 18.3 16.8

NCC 31 ADD 7,941 143 257 1.8 3.7 5.5 (71.1) 100.8 49.6 16.8 8.4 5.6 8.0 6.8 6.2 0.3 0.3 0.3 6.5 6.5 6.5 2.0 4.0 5.8 65 110.0 1.9

Punj Lloyd 46 REDUCE 15,451 277 340 3.3 3.3 7.0 (322.9) (0.5) 113.7 13.7 13.8 6.5 6.9 6.4 5.4 0.5 0.5 0.5 0.5 0.6 1.4 3.7 3.6 7.3 60 31.9 3.2

Sadbhav Engineering 121 BUY 18,128 325 150 10.0 10.0 11.5 28.5 0.5 14.2 12.1 12.1 10.6 7.5 7.3 6.2 2.3 2.0 1.7 0.5 0.5 1.3 19.2 16.3 16.1 180 48.8 0.3

Construction Attractive 52,801 948 (13.9) 33.5 60.4 15.8 11.9 7.4 7.6 6.7 5.7 0.6 0.6 0.6 1.5 1.5 2.0 4.1 5.2 7.8

Energy

Aban Offshore 366 BUY 15,934 286 44 71.5 92.4 96.0 (46.7) 29.1 3.9 5.1 4.0 3.8 7.4 6.5 6.3 1.0 0.8 0.7 1.1 1.2 1.4 20.8 21.4 18.1 615 68.0 7.6

Bharat Petroleum 726 RS 262,587 4,713 362 42.3 53.5 58.8 8.8 26.3 10.0 17.2 13.6 12.3 9.0 8.5 7.7 1.6 1.5 1.4 1.9 2.4 2.7 9.3 11.0 11.2 — — 7.1

Cairn india 317 ADD 604,646 10,852 1,907 41.6 63.5 58.5 25.0 52.6 (7.8) 7.6 5.0 5.4 5.6 3.3 3.1 1.3 1.1 1.0 — 3.9 4.7 17.9 23.6 19.3 360 13.6 15.5

Castrol India 508 SELL 125,519 2,253 247 18.9 20.7 21.7 (4.4) 9.4 4.8 26.8 24.5 23.4 18.2 16.8 15.9 22.9 21.0 19.6 3.0 3.2 3.3 87.9 89.4 86.6 400 (21.2) 0.8

GAIL (India) 325 BUY 411,749 7,390 1,268 30.8 30.6 32.1 9.3 (0.7) 4.9 10.5 10.6 10.1 6.9 6.7 5.9 1.7 1.5 1.4 2.6 2.6 2.9 16.7 14.6 13.7 410 26.3 8.3

GSPL 63 BUY 35,168 631 563 9.3 8.0 7.7 4.2 (13.6) (4.5) 6.7 7.8 8.2 4.5 4.8 4.8 1.3 1.1 1.0 1.6 1.6 1.6 20.6 15.0 12.5 85 36.0 2.2

Hindustan Petroleum 306 RS 103,839 1,864 339 11.0 28.8 31.1 (73.2) 162.9 8.0 27.9 10.6 9.8 2.9 3.4 3.1 0.6 0.6 0.6 1.1 2.9 3.1 2.2 5.7 5.8 — — 5.4

Indian Oil Corporation 270 RS 656,032 11,774 2,428 30.1 29.8 33.9 (7.2) (0.9) 13.7 9.0 9.1 8.0 7.1 6.5 5.6 1.1 1.0 0.9 0.6 3.3 3.8 12.2 11.1 11.7 — — 2.4

Oil India 453 BUY 272,580 4,892 601 57.0 63.2 65.5 18.7 10.9 3.7 8.0 7.2 6.9 2.9 2.4 2.1 1.4 1.3 1.2 4.4 4.6 4.9 17.1 16.9 15.8 610 34.5 1.8

Oil & Natural Gas Corporation 258 BUY 2,204,757 39,570 8,556 32.1 33.6 34.3 30.0 4.8 2.2 8.0 7.7 7.5 3.3 2.9 2.5 1.3 1.2 1.1 4.5 4.5 4.5 16.5 15.6 14.4 320 24.2 16.1

Petronet LNG 132 REDUCE 98,775 1,773 750 14.1 14.3 13.3 74.0 1.5 (7.2) 9.3 9.2 9.9 6.4 7.0 6.1 2.5 2.0 1.7 1.9 1.9 1.9 29.7 23.8 18.0 140 6.3 6.5

Reliance Industries 695 REDUCE 2,072,689 37,200 2,981 61.3 57.4 59.7 (1.1) (6.3) 4.1 11.3 12.1 11.6 6.7 7.1 6.3 1.2 1.1 1.0 1.2 1.1 1.2 11.7 10.1 9.6 730 5.0 57.4

Energy Neutral 6,864,274 123,198 10.9 7.4 2.5 9.2 8.6 8.4 5.2 4.7 4.2 1.3 1.2 1.1 2.4 3.0 3.2 13.9 13.5 12.6

Industrials

ABB 723 SELL 153,104 2,748 212 8.7 19.9 23.7 192.0 128.7 19.1 83.0 36.3 30.5 53.0 22.3 18.9 6.0 5.3 4.6 0.4 0.5 0.5 7.4 15.6 16.3 500 (30.8) 1.2

BGR Energy Systems 291 REDUCE 20,986 377 72 29.4 27.2 33.4 (34.4) (7.4) 22.7 9.9 10.7 8.7 5.3 4.4 4.2 1.9 1.7 1.4 2.0 1.9 2.3 20.5 16.5 17.8 260 (10.6) 9.5

Bharat Electronics 1,247 REDUCE 99,740 1,790 80 89.3 120.4 131.6 (16.8) 34.9 9.3 14.0 10.4 9.5 6.5 2.9 1.9 1.8 1.6 1.4 2.0 2.0 2.0 13.2 16.0 15.5 1,550 24.3 1.4

Bharat Heavy Electricals 208 SELL 509,223 9,139 2,448 28.8 26.4 23.1 17.1 (8.0) (12.5) 7.2 7.9 9.0 4.8 4.9 5.2 2.0 1.7 1.5 3.0 2.7 2.4 30.9 23.3 17.5 200 (3.9) 31.3

Crompton Greaves 108 ADD 69,410 1,246 642 6.4 10.3 12.3 (55.2) 60.0 19.8 16.9 10.5 8.8 8.2 5.7 4.6 1.9 1.7 1.4 1.3 1.4 1.7 12.0 17.0 17.7 170 57.1 4.7

Cummins India 411 REDUCE 113,874 2,044 277 21.4 25.0 29.2 (3.7) 16.6 16.8 19.2 16.5 14.1 17.3 14.1 11.6 5.5 4.9 4.3 2.5 2.9 3.4 29.4 30.2 31.0 450 9.5 2.4

KEC International 51 BUY 13,061 234 257 6.2 8.9 10.2 (22.0) 42.2 15.0 8.1 5.7 5.0 5.0 4.9 4.2 1.1 1.0 0.8 2.4 2.6 3.0 14.9 18.2 18.0 80 57.5 0.3

Larsen & Toubro 1,168 ADD 711,411 12,768 609 81.2 85.4 94.2 20.0 5.1 10.3 14.4 13.7 12.4 10.7 9.9 9.2 2.3 1.9 1.7 1.2 1.2 1.2 17.1 15.2 14.5 1,375 17.7 55.9

Maharashtra Seamless 368 BUY 25,948 466 71 45.0 42.1 47.4 (6.6) (6.5) 12.6 8.2 8.7 7.8 5.1 4.5 3.7 0.9 0.9 0.8 2.4 2.3 2.6 11.8 10.3 10.8 425 15.5 0.1

Siemens 682 SELL 232,166 4,167 340 23.9 28.3 32.0 (6.2) 18.2 13.0 28.5 24.1 21.3 17.5 14.9 12.8 5.2 4.4 3.8 0.7 0.8 1.0 19.4 19.8 19.3 575 (15.7) 2.4

Suzlon Energy 21 REDUCE 36,482 655 1,746 (0.9) 3.8 4.2 (85.7) (539.2) 12.4 (24.3) 5.5 4.9 7.4 5.0 4.5 0.6 0.5 0.5 1.0 1.0 1.0 (2.2) 9.7 10.0 32 53.1 13.3

Tecpro Systems 174 ADD 8,787 158 50 28.2 24.4 27.6 4.3 (13.5) 13.4 6.2 7.1 6.3 5.2 5.1 4.5 1.1 1.0 0.9 — — — 19.7 15.0 15.2 220 26.4 0.3

Thermax 429 REDUCE 51,068 917 119 35.1 27.7 31.4 11.0 (21.1) 13.2 12.2 15.5 13.7 7.9 10.1 8.4 3.2 2.8 2.5 2.4 1.8 2.0 28.8 19.3 19.1 430 0.3 0.7

Voltas 90 ADD 29,916 537 331 7.5 8.4 9.0 (23.0) 11.9 6.9 12.0 10.7 10.0 7.9 6.6 5.3 2.0 1.8 1.6 2.6 2.9 3.0 17.2 17.4 16.7 125 38.2 6.5

Industrials Cautious 2,075,175 37,245 13.8 8.9 3.1 12.9 11.9 11.5 8.8 8.0 7.5 2.3 2.0 1.7 1.7 1.7 1.7 17.7 16.6 15.1

Infrastructure

Adani Port and SEZ 112 BUY 225,954 4,055 2,017 5.6 7.0 10.8 22.1 26.1 54.3 20.2 16.0 10.4 15.9 12.0 9.2 4.4 3.6 2.8 0.9 1.2 1.6 23.8 24.9 30.5 160 42.9 3.4

Container Corporation 840 ADD 109,183 1,960 130 73.2 75.4 84.5 8.3 3.0 12.1 11.5 11.1 9.9 7.7 7.1 5.8 1.9 1.7 1.5 2.0 2.1 2.3 18.0 16.4 16.3 975 16.1 1.0

GMR Infrastructure 20 RS 78,626 1,411 3,892 (0.8) (0.2) 0.8 131.2 (77.8) (564.2) (26.0) (116.7) 25.1 11.6 9.6 6.0 0.7 0.7 0.6 — — — (4.0) (0.9) 4.2 — — 4.4

Gujarat Pipavav Port 54 ADD 22,703 407 424 1.4 2.4 2.8 (212.6) 74.7 16.5 39.6 22.7 19.5 14.9 12.2 10.2 2.9 2.5 2.2 — — — 10.4 12.3 12.9 65 21.3 0.2

GVK Power & Infrastructure 12 RS 18,872 339 1,579 1.0 0.3 2.6 1.6 (73.4) 861.1 12.0 45.0 4.7 15.3 18.1 7.0 0.5 0.5 0.5 2.5 2.9 6.7 4.6 1.2 11.1 — — 5.9

IRB Infrastructure 113 BUY 37,491 673 332 11.9 15.2 11.4 (12.9) 27.9 (24.9) 9.5 7.4 9.9 7.2 6.2 6.0 1.1 0.9 0.8 — — — 13.1 13.0 8.4 180 59.6 14.7

Infrastructure Cautious 492,829 8,845 7.0 25.0 51.1 20.7 16.6 11.0 12.0 10.0 7.2 1.7 1.5 1.3 1.0 1.1 1.5 8.0 9.0 12.0

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Media

DB Corp 197 BUY 36,170 649 183 11.2 13.5 16.6 (20.7) 20.6 23.3 17.7 14.6 11.9 10.3 8.5 6.9 3.8 3.4 3.1 2.0 3.0 5.1 23.0 24.5 27.4 300 52.0 0.1

DishTV 58 BUY 61,335 1,101 1,063 (0.7) 0.5 1.7 (62.6) (176.1) 240.3 (86.5) 113.6 33.4 13.4 10.3 7.7 (748.3) 133.9 26.7 — — — (260.1) 287.2 133.5 80 38.6 5.8

Hindustan Media Ventures 134 BUY 9,823 176 73 9.0 10.6 12.7 23.3 17.8 19.5 14.9 12.6 10.6 8.4 6.4 5.0 2.2 2.0 1.7 0.7 1.5 3.0 16.1 16.5 17.5 190 41.9 0.0

HT Media 114 ADD 26,883 482 235 7.0 7.9 11.3 (8.4) 12.3 42.8 16.2 14.4 10.1 7.3 5.8 3.8 1.7 1.6 1.4 0.3 1.7 3.5 11.0 11.3 14.7 140 22.5 0.2

Jagran Prakashan 81 BUY 25,474 457 316 5.8 6.5 7.6 (15.2) 11.8 17.7 13.9 12.5 10.6 7.4 7.0 5.8 3.4 3.1 2.7 4.3 4.3 4.3 25.1 25.8 27.1 130 61.4 0.4

Sun TV Network 250 ADD 98,461 1,767 394 18.5 21.4 25.2 (5.4) 15.9 17.8 13.5 11.7 9.9 7.9 6.9 5.8 3.7 3.5 3.2 4.4 5.6 6.8 30.2 32.2 35.1 390 56.1 2.7

Zee Entertainment Enterprises 127 BUY 121,776 2,186 960 6.0 7.0 8.6 (0.3) 16.9 23.0 21.2 18.2 14.8 14.4 11.8 9.4 2.7 2.5 2.4 1.0 1.2 1.5 13.1 14.5 17.0 150 18.2 3.3

Media Attractive 395,874 7,105 1.1 23.2 26.7 19.8 16.1 12.7 10.1 8.4 6.7 3.4 3.1 2.8 1.9 2.5 3.2 17.0 19.2 22.1

Metals & Mining

Coal India 310 ADD 1,956,494 35,115 6,316 23.4 26.9 32.2 35.1 14.9 19.9 13.2 11.5 9.6 7.9 6.7 5.0 4.4 3.5 2.9 2.3 2.6 3.1 37.3 34.1 33.0 380 22.7 17.5

Hindalco Industries 111 REDUCE 211,788 3,801 1,915 17.3 16.8 14.9 35.5 (3.0) (11.2) 6.4 6.6 7.4 6.2 6.0 5.7 0.7 0.6 0.6 1.4 1.4 1.4 10.9 9.6 7.9 120 8.5 24.7

Hindustan Zinc 116 ADD 489,889 8,792 4,225 12.9 14.0 16.7 10.3 8.8 19.4 9.0 8.3 6.9 5.2 4.0 2.6 1.8 1.6 1.3 2.1 2.1 2.1 22.0 20.2 20.4 145 25.1 2.0

Jindal Steel and Power 468 REDUCE 437,580 7,854 935 42.4 44.4 48.3 5.6 4.7 8.7 11.0 10.5 9.7 8.3 8.0 6.6 2.4 2.0 1.6 0.4 0.4 0.4 24.6 20.5 18.5 530 13.2 18.4

JSW Steel 595 REDUCE 134,527 2,414 226 23.8 67.6 86.0 (69.7) 184.2 27.2 25.0 8.8 6.9 4.1 5.7 5.6 0.8 0.7 0.7 1.3 1.7 1.7 8.2 8.8 10.3 650 9.2 34.6

National Aluminium Co. 58 SELL 148,320 2,662 2,577 3.4 4.0 3.9 (18.6) 19.4 (4.0) 17.0 14.3 14.9 8.7 6.1 5.6 1.3 1.2 1.1 1.7 1.7 1.7 7.6 8.6 7.8 55 (4.4) 0.5

Sesa Goa 179 ADD 155,786 2,796 869 31.0 47.3 38.6 (36.2) 52.6 (18.5) 5.8 3.8 4.6 5.3 5.9 8.2 1.0 0.8 0.7 2.6 2.6 2.6 11.4 9.6 5.9 210 17.2 12.3

Sterlite Industries 95 ADD 320,827 5,758 3,361 15.8 14.8 18.0 3.9 (5.9) 21.1 6.1 6.4 5.3 3.5 3.1 2.4 0.7 0.6 0.6 2.1 2.1 2.1 12.1 10.4 11.4 126 32.0 17.0

Tata Steel 399 ADD 387,253 6,950 971 26.1 56.9 71.8 (65.4) 118.4 26.2 15.3 7.0 5.6 7.2 5.6 4.8 1.0 0.9 0.8 3.0 3.0 3.0 6.7 13.3 15.0 470 17.9 41.6

Metals & Mining Cautious 4,242,463 76,142 (2.6) 17.6 14.0 10.5 8.9 7.8 6.3 5.7 4.7 1.7 1.5 1.3 2.0 2.2 2.4 16.1 16.5 16.4

Pharmaceutical

Apollo Hospitals 629 ADD 87,422 1,569 139 17.4 20.8 27.3 31.4 19.6 31.4 36.2 30.2 23.0 16.1 13.8 10.9 3.5 3.0 2.8 — — — 10.3 10.5 12.4 680 8.0 1.7

Biocon 216 ADD 43,200 775 200 16.9 19.9 21.5 (8.0) 17.7 8.2 12.8 10.9 10.0 6.5 5.4 4.8 1.9 1.7 1.5 — — — 15.7 16.5 16.0 265 22.7 3.3

Cipla 310 REDUCE 248,625 4,462 803 14.1 17.7 20.0 14.2 25.8 12.8 22.0 17.5 15.5 17.2 13.2 11.6 3.3 2.9 2.5 1.0 1.1 1.3 15.6 17.4 17.2 315 1.7 9.3

Cadila Healthcare 742 ADD 152,016 2,728 205 31.9 38.5 44.9 (8.2) 20.8 16.7 23.3 19.3 16.5 18.4 13.9 12.1 5.9 4.8 4.0 1.0 1.1 1.3 27.5 27.5 26.4 810 9.1 1.1

Dishman Pharma & chemicals 46 REDUCE 3,749 67 81 5.1 8.3 10.2 (48.6) 64.7 22.6 9.1 5.5 4.5 7.1 5.3 4.6 0.4 0.4 0.4 — — — 4.6 7.2 8.4 50 8.5 0.3

Divi's Laboratories 941 BUY 124,856 2,241 133 40.2 51.4 63.3 24.2 28.0 23.0 23.4 18.3 14.9 17.6 13.4 10.9 5.9 4.9 4.1 — — — 27.1 29.2 29.8 1,000 6.3 3.0

Dr Reddy's Laboratories 1,707 REDUCE 290,131 5,207 170 83.9 104.2 114.9 29.2 24.2 10.3 20.3 16.4 14.9 13.1 10.6 9.5 5.1 4.0 3.3 0.8 1.0 1.0 27.6 27.3 24.3 1,740 1.9 8.5

GlaxoSmithkline Pharmaceuticals 1,981 SELL 167,826 3,012 85 74.3 82.8 94.6 8.8 11.5 14.2 26.7 23.9 21.0 19.1 15.8 13.5 8.7 8.1 7.3 2.3 2.9 2.9 32.4 35.0 36.6 1,930 (2.6) 0.8

Glenmark Pharmaceuticals 355 REDUCE 96,025 1,723 271 21.9 22.1 26.2 29.3 1.0 18.6 16.2 16.0 13.5 19.5 12.2 10.4 4.0 3.3 2.7 — — — 26.7 22.5 22.0 345 (2.8) 3.9

Jubilant Life Sciences 178 REDUCE 28,387 509 159 1.0 31.0 37.4 (93.1) 3,007.3 20.7 178.7 5.8 4.8 7.6 5.9 5.0 1.2 1.0 0.8 1.1 1.7 2.2 16.2 19.4 19.7 185 3.8 0.2

Lupin 534 ADD 239,357 4,296 448 19.4 27.4 31.6 0.6 41.8 15.2 27.6 19.5 16.9 19.0 13.8 11.6 5.9 4.7 3.8 0.6 0.8 1.0 23.8 27.3 25.4 550 3.0 6.9

Ranbaxy Laboratories 526 SELL 221,799 3,981 422 19.8 37.3 25.8 (51.2) 88.2 (30.9) 26.5 14.1 20.4 16.6 11.2 15.7 5.4 4.0 3.4 — 0.6 0.6 17.3 33.1 18.3 445 (15.3) 7.1

Sun Pharmaceuticals 569 ADD 589,205 10,575 1,036 23.4 25.6 28.6 33.2 9.8 11.4 24.4 22.2 19.9 17.7 14.7 12.6 4.6 3.9 3.3 0.7 0.9 1.1 23.1 21.2 20.0 600 5.5 8.7

Pharmaceuticals Attractive 2,292,597 41,147 9.2 26.0 6.6 22.3 17.7 16.6 15.2 11.7 11.5 3.4 2.9 3.2 0.8 1.0 1.0 15.3 16.3 19.0

Property

DLF 185 ADD 316,853 5,687 1,715 9.7 12.7 16.9 6.5 31.5 33.1 19.1 14.5 10.9 13.3 10.8 8.3 1.2 1.1 1.0 1.3 1.6 1.9 6.1 7.6 9.5 260 40.7 28.5

Housing Development & Infrastructure 62 BUY 27,408 492 441 19.4 29.8 30.9 (2.1) 53.6 3.6 3.2 2.1 2.0 5.2 4.0 3.6 0.3 0.2 0.2 1.6 2.4 3.2 8.4 11.6 10.8 130 109.2 40.5 Mahindra Life Space Developer 307 BUY 12,524 225 41 29.4 29.8 34.3 18.0 1.3 15.1 10.4 10.3 8.9 10.2 7.8 7.7 1.1 1.0 0.9 1.5 1.6 1.8 11.2 10.4 11.0 390 27.1 0.2

Oberoi Realty 261 BUY 86,144 1,546 330 14.9 26.4 42.6 (5.0) 77.3 61.3 17.5 9.9 6.1 15.7 6.1 3.7 2.3 1.9 1.5 0.6 1.0 1.1 13.9 21.1 27.2 300 14.8 0.6

Phoenix Mills 183 BUY 26,528 476 145 7.4 10.7 11.5 17.2 44.1 7.9 24.7 17.1 15.9 17.9 13.4 12.7 1.6 1.5 1.4 1.1 1.1 1.1 6.6 8.9 9.0 300 63.8 0.2 Sobha Developers 296 BUY 29,037 521 98 21.4 25.1 37.4 13.8 17.1 49.2 13.8 11.8 7.9 8.7 7.7 5.3 1.5 1.3 1.2 1.7 1.7 1.7 10.9 11.7 15.6 430 45.2 1.3

Unitech 21 RS 56,120 1,007 2,616 0.9 1.8 2.3 (56.1) 84.8 32.7 22.6 12.2 9.2 25.8 14.1 10.8 0.5 0.4 0.4 0.5 0.5 0.5 2.1 3.7 4.7 — — 9.3

Property Cautious 554,615 9,954 (4.8) 46.1 30.0 15.2 10.4 8.0 12.5 9.0 6.9 0.9 0.9 0.8 1.3 1.6 1.9 6.2 8.4 10.0

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Technology

HCL Technologies 486 REDUCE 347,276 6,233 715 32.0 38.8 43.8 40.0 21.4 12.8 15.2 12.5 11.1 9.1 7.8 6.7 3.2 2.6 2.2 1.6 1.6 1.7 22.0 22.1 21.7 500 2.9 10.5

Hexaware Technologies 127 ADD 37,201 668 294 9.1 12.1 13.5 207.9 33.3 11.2 13.9 10.5 9.4 12.5 7.5 6.3 3.7 3.0 2.4 2.4 2.6 2.8 26.9 31.3 28.3 140 10.5 4.7

Infosys 2,381 ADD 1,366,579 24,527 574 144.9 166.4 183.0 21.0 14.8 10.0 16.4 14.3 13.0 10.8 9.0 7.8 4.4 3.7 3.1 1.9 2.2 2.4 29.0 27.8 25.8 2,825 18.7 71.2

Mahindra Satyam 78 BUY 91,375 1,640 1,176 10.2 8.7 9.8 142.3 (14.5) 13.2 7.6 8.9 7.9 6.2 4.4 3.5 3.1 2.3 1.9 — — 2.5 50.4 29.3 26.1 85 9.4 7.9

Mindtree 607 ADD 24,967 448 41 53.1 66.3 70.7 115.1 24.9 6.6 11.4 9.2 8.6 8.5 5.8 5.2 2.6 2.2 1.9 0.9 3.3 3.5 26.2 26.1 23.7 670 10.4 1.9

Mphasis 373 SELL 78,610 1,411 211 39.0 35.9 35.2 (24.6) (8.1) (1.8) 9.6 10.4 10.6 8.0 7.0 6.6 2.0 1.7 1.5 1.2 1.3 1.5 22.8 17.9 15.3 350 (6.2) 1.5

Polaris Financial Technology 111 REDUCE 11,062 199 100 20.8 19.8 21.5 7.4 (4.7) 8.5 5.3 5.6 5.2 2.9 2.4 1.9 0.9 0.8 0.7 3.5 3.7 3.9 18.1 14.9 14.4 125 12.7 1.4

TCS 1,221 ADD 2,390,622 42,906 1,957 54.4 66.7 74.5 22.0 22.8 11.6 22.5 18.3 16.4 15.9 12.8 11.5 7.4 6.0 5.0 2.0 2.2 2.4 36.8 36.3 33.6 1,270 4.0 39.6

Tech Mahindra 666 BUY 84,915 1,524 127 70.0 83.6 87.3 45.8 19.4 4.4 9.5 8.0 7.6 10.8 8.0 8.0 2.1 1.8 1.7 0.6 1.5 1.7 24.8 25.3 23.6 725 8.9 3.5

Wipro 392 ADD 963,489 17,292 2,456 22.7 27.6 31.5 5.2 21.3 14.3 17.3 14.2 12.5 11.9 9.3 7.9 3.4 2.8 2.4 1.2 1.5 1.8 21.2 21.7 21.0 460 17.3 10.8

Technology Attractive 5,464,800 98,080 19.9 17.9 11.2 17.7 15.0 13.5 12.4 10.0 8.8 4.5 3.8 3.2 1.8 2.0 2.2 25.4 25.0 23.6

Telecom

Bharti Airtel 298 ADD 1,130,925 20,297 3,798 11.2 18.0 22.3 (29.6) 60.7 23.5 26.6 16.5 13.4 7.6 6.1 5.2 2.2 2.0 1.8 — 0.5 0.7 8.6 12.7 14.0 375 25.9 23.0

IDEA 78 ADD 256,006 4,595 3,303 2.2 4.7 7.0 (19.6) 113.7 50.6 35.4 16.6 11.0 7.7 5.8 4.6 2.0 1.8 1.5 — — — 5.7 11.2 14.8 95 22.6 6.7

MTNL 22 RS 13,829 248 630 (9.1) (8.4) (8.3) (11.9) (8.1) (1.7) (2.4) (2.6) (2.7) 0.8 1.0 1.1 0.1 0.1 0.2 — — — (5.7) (5.5) (5.8) — — 1.7

Reliance Communications 65 SELL 133,231 2,391 2,064 3.9 1.0 3.9 (39.7) (73.5) 270.5 16.4 61.8 16.7 7.2 6.1 5.1 0.3 0.3 0.3 — — — 2.0 0.6 2.0 60 (7.0) 17.9

Tata Communications 209 REDUCE 59,465 1,067 285 (28.0) (24.2) (18.3) 12.3 (13.5) (24.4) (7.5) (8.6) (11.4) 9.4 7.4 6.6 2.1 2.7 3.4 — — — (24.9) (27.7) (26.6) 210 0.6 1.0

Telecom Neutral 1,593,456 28,599 (36.1) 67.1 42.7 36.1 21.6 15.1 7.7 6.2 5.2 1.4 1.3 1.2 — — 0.5 3.8 6.1 8.0

Utilities

Adani Power 50 SELL 120,737 2,167 2,393 (0.4) 5.5 4.7 (116.4) (1,517.6) (14.9) (130.6) 9.2 10.8 26.5 7.8 6.0 1.8 1.5 1.3 — — — (1.4) 18.1 13.2 48 (4.9) 7.5

CESC 269 BUY 33,564 602 125 25.9 26.4 37.7 8.0 1.9 42.8 10.4 10.2 7.1 8.2 8.7 5.5 0.6 0.5 0.5 1.7 1.8 1.9 5.5 5.4 7.4 355 32.1 1.4

JSW Energy 44 SELL 71,750 1,288 1,640 2.0 2.2 2.5 (60.6) 9.3 12.3 21.7 19.8 17.7 11.7 7.8 6.4 1.3 1.2 1.1 — — — 5.8 6.2 6.5 40 (8.6) 2.9

Lanco Infratech 12 BUY 26,898 483 2,223 0.8 0.9 1.7 (48.7) 3.0 95.0 14.3 13.9 7.1 9.6 8.1 6.3 0.5 0.5 0.5 — — — 3.9 3.7 6.7 33 172.7 15.1

NHPC 18 BUY 223,258 4,007 12,301 2.0 2.2 2.4 49.2 7.2 10.3 9.0 8.4 7.6 9.7 7.0 6.0 0.8 0.7 0.7 3.0 3.2 3.6 9.0 9.1 9.4 29 59.8 1.5

NTPC 142 REDUCE 1,171,680 21,029 8,245 11.2 12.0 15.3 2.4 6.9 27.6 12.7 11.9 9.3 11.4 10.5 8.0 1.6 1.4 1.3 2.4 2.5 3.2 12.8 12.6 14.7 160 12.6 6.0

Power Grid 105 ADD 487,742 8,754 4,630 6.3 8.0 8.9 9.5 27.2 11.8 16.7 13.2 11.8 12.1 10.2 9.1 2.1 1.9 1.7 1.8 2.3 2.6 13.1 15.2 15.4 125 18.7 5.7

Reliance Infrastructure 455 BUY 120,609 2,165 265 65.3 71.4 72.3 12.5 9.4 1.2 7.0 6.4 6.3 6.2 6.8 5.8 0.5 0.5 0.4 2.3 2.5 2.5 11.7 8.9 8.4 890 95.7 31.4

Reliance Power 93 SELL 261,859 4,700 2,805 3.1 3.3 2.7 14.0 8.1 (18.4) 30.2 27.9 34.2 49.2 24.8 16.7 1.5 1.4 1.3 — — — 5.0 5.2 4.0 76 (18.6) 19.1

Tata Power 89 BUY 220,423 3,956 2,468 4.6 7.5 6.7 (40.6) 63.6 (10.7) 19.4 11.8 13.3 10.6 7.4 6.8 1.6 1.5 1.4 1.7 1.9 1.9 8.1 13.2 10.8 115 28.8 8.1

Utilities Cautious 2,738,521 49,150 (2.4) 21.0 14.1 14.3 11.9 10.4 11.9 9.5 7.8 1.3 1.2 1.1 1.8 2.0 2.4 9.3 10.4 10.9

Others

Carborundum Universal 151 REDUCE 28,210 506 187 11.6 11.4 12.7 27.0 (1.9) 11.9 13.0 13.3 11.9 7.9 7.3 6.5 2.7 2.3 2.0 1.7 1.6 1.8 27.8 21.2 20.1 150 (0.6) 0.2

Coromandel International 261 SELL 73,864 1,326 283 22.5 22.7 24.6 (8.5) 0.9 8.5 11.6 11.5 10.6 9.7 8.3 7.7 3.1 2.7 2.3 2.8 3.0 3.1 27.5 23.3 21.9 260 (0.5) 0.6

Havells India 575 ADD 71,702 1,287 125 30.4 36.1 41.1 23.8 19.0 13.8 18.9 15.9 14.0 12.1 10.0 8.7 7.1 5.1 3.8 0.5 0.5 0.6 44.1 37.1 31.1 600 4.4 3.2

Jaiprakash Associates 60 BUY 126,736 2,275 2,126 6.4 8.1 11.9 6.2 26.1 47.3 9.3 7.4 5.0 10.1 7.9 6.0 1.1 0.9 0.8 — — — 12.0 13.6 17.4 97 62.8 28.8

Jet Airways 321 SELL 27,682 497 86 (233.8) (33.8) (29.1) 2,225.0 (86) (13.9) (1.4) (9.5) (11.0) (164.1) 10.6 10.1 (6.6) (3.9) (2.9) — — — — — — 280 (12.7) 11.6

Rallis India 128 BUY 24,954 448 195 5.1 8.2 9.4 (21.6) 61 14.7 25.2 15.6 13.6 12.3 9.7 8.3 4.5 3.7 3.1 1.6 1.6 1.6 21.6 25.1 23.4 145 13.0 1.0

SpiceJet 32 BUY 14,212 255 441 (8.7) 1.9 2.3 (450.3) (122.1) 18.7 (3.7) 16.7 14.0 (8.9) 12.3 9.1 23.2 9.7 5.7 — — — (202) 82.1 51.3 45 39.8 2.8

Tata Chemicals 310 REDUCE 78,936 1,417 255 32.9 38.8 42.3 25.4 17.9 9.0 9.4 8.0 7.3 5.1 4.3 3.6 1.3 1.1 1.0 3.9 4.8 5.5 18.6 19.5 19.4 365 17.8 1.3

United Phosphorus 115 BUY 53,038 952 462 13.0 17.6 21.3 5.4 35.4 20.7 8.8 6.5 5.4 6.1 4.6 3.7 1.3 1.1 1.0 2.2 3.0 3.9 16.2 18.5 — 150 30.6 5.3

Others 499,334 8,962 (52.7) 175.9 27.0 28.8 10.5 8.2 10.8 7.5 6.1 1.9 1.6 1.4 1.5 1.8 2.0 6.4 15.6 17.0

KS universe (b) 43,440,985 779,665 8.6 16.3 11.6 13.5 11.6 10.4 8.6 7.4 6.4 2.0 1.8 1.6 1.8 2.0 2.2 15.1 15.6 15.6

KS universe (b) ex-Energy 36,576,711 656,467 8.0 19.0 14.1 14.8 12.4 10.9 10.1 8.4 7.2 2.3 2.0 1.8 1.6 1.8 2.0 15.4 16.2 16.5

KS universe (d) ex-Energy & ex-Commodities 31,193,801 559,856 9.5 19.6 14.1 15.7 13.1 11.5 11.4 9.2 7.9 2.4 2.1 1.9 1.6 1.8 2.0 15.3 16.2 16.6

Notes:

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

(b) 2012 means calendar year 2011, similarly for 2013 and 2014 for these particular companies.

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

(d) Rupee-US Dollar exchange rate (Rs/US$)= 55.72

Dividend yield (%)



Disclosures

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

Source: Kotak Institutional Equities As of March 31, 2012

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 15% returns over the next 12 months; Add = We expect this stock to deliver 5-15% returns over the next 12 months; Reduce = We expect this stock to deliver -5-+5% returns over the next 12 months; Sell = We expect this stock to deliver less than -5% 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 31/03/2012 Kotak Institutional Equities Investment Research had investment ratings on 166 equity securities.

18.7%

30.7% 31.9%

18.7%

1.8%0.0% 1.2% 0.6%

0%

10%

20%

30%

40%

50%

60%

70%

BUY ADD REDUCE SELL

Ratings and other definitions/identifiers

Definitions of ratings

Definitions of ratings

BUY. We expect this stock to deliver more than 15% returns over the next 12 months.

ADD. We expect this stock to deliver 5-15% returns over the next 12 months.

REDUCE. We expect this stock to deliver -5-+5% returns over the next 12 months.

SELL. We expect this stock to deliver <-5% 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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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.

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

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

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