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1QFY2014 Results Preview||||| July 3, 2013

Refer to important Disclosures at the end of the report

Note: Stock prices as of June 28, 2013

Table of Contents

StrategyStrategyStrategyStrategyStrategy 2-102-102-102-102-10

1QFY2014 Sectoral Outlook1QFY2014 Sectoral Outlook1QFY2014 Sectoral Outlook1QFY2014 Sectoral Outlook1QFY2014 Sectoral Outlook

Automobile 12

Banking 15

Capital Goods 21

Cement 23

FMCG 25

Infrastructure 27

Information Technology 30

Media 33

Metals 34

Oil & Gas 37

Pharmaceutical 40

Power 43

Telecom 45

Stock WStock WStock WStock WStock Watchatch

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484848


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Refer to important Disclosures at the end of the report 2


Strategy

Subdued revenues to weigh on earnings

The slowdown in economic activity is expected to continue

reflecting in the subdued revenue performance for corporates.For 1QFY2014, we expect the Sensex as well as our coverage

companies to report a muted revenue performance. We expect

Sensex companies to report a 2.4% yoy growth in revenues.

For our coverage universe, we expect growth in revenues to

come in at 4.1% yoy. On a sequential basis, revenues are likely

to decline for both, the Sensex and our coverage companies by

8.5% qoq and 6.9% qoq respectively. We expect oil and gas

(owing mainly to ONGC) and metal companies to weigh down

the revenue growth of our overall coverage universe.

As a result of the deceleration in revenues, we expect only a

modest earnings growth for the Sensex and our coverage

companies, ie 5.6% yoy and 1.3% yoy, respectively. On a

sequential basis, the earnings performance for the Sensex as

well as our coverage companies is likely to decline by 11.1%

and 7.2% qoq respectively. Overall, we expect earnings during

the quarter to be supported by the performance of BFSI, IT,

FMCG and pharmaceutical companies.

We believe that margins have bottomed out. As against a decline

in operating margins for the past few quarters, we expect an

improvement in margins on a yoy basis, during 1QFY2014.

We expect the Sensex and our other coverage companies to

report a margin growth of 78bp yoy and 35bp yoy respectively.But on a sequential basis, we expect a slight contraction in

margins for both the Sensex and our coverage companies by

8bp qoq and 2bp qoq, during the quarter.

Outlook and VOutlook and VOutlook and VOutlook and VOutlook and Valuation:aluation:aluation:aluation:aluation:We are positive in our outlook for equities

owing to factors such as the bottoming out of economic growth,

moderation in inflation and narrowing of fiscal and current account

deficits. We also believe that any further INR depreciation is likely

to be stemmed and we expect the currency to stabilize owing to

factors such as moderating concerns in global markets regarding

impact of the US Feds QE exit and domestically a decline in gold

imports. We expect that over the medium-term the sharpdepreciation is also likely to boost growth in exports, especially as

economic revival in the U.S gains ground. At the same time owing

to our growth as well as real interest rate differentials, the economy

is expected to continue attracting healthy capital inflows.

We expect the Sensex' EPS to grow by 14.5% to`1,384 in FY2014

and by 14.4% to `1,583 in FY2015, implying a CAGR of 14.5%

over FY2013-15. We maintain our 12-month Sensex target of

22,000, with a target multiple of 14x FY2015E earnings. The

target implies an upside of 13.4% from the present levels and

is likely to be back-ended.

SectorSectorSectorSectorSector (%, yoy)(%, yoy)(%, yoy)(%, yoy)(%, yoy) (%, qoq)(%, qoq)(%, qoq)(%, qoq)(%, qoq) (%, yoy)(%, yoy)(%, yoy)(%, yoy)(%, yoy) (%, qoq)(%, qoq)(%, qoq)(%, qoq)(%, qoq) (bps, yoy)(bps, yoy)(bps, yoy)(bps, yoy)(bps, yoy) (bps, qoq)(bps, qoq)(bps, qoq)(bps, qoq)(bps, qoq)

Agriculture (2) 18.7 20.1 7.7 15.8 75 (171)

Auto (7) 5.1 (13.3) 6.8 (23.5) 70 (51)

Auto Anc. (6) 0.9 1.5 (4.8) 9.0 39 14

Banks - New private (4) 24.9 0.8 26.6 (3.2) 92 11

Banks - Old private (2) 7.3 (6.3) 2.1 (14.9) (473) 48

Banks - Large PSU (7) 8.2 (6.5) 0.2 5.7 (172) 315

Banks - Mid PSU (14) 8.7 (8.0) (9.8) 23.2 (179) 231

Banks - Housing finance (2) 22.4 (12.9) 24.1 (18.4) 11 (185)Capital Goods (7) 1.5 (43.7) (15.6) (70.7) (29) (946)

Cement (7) (1.2) (3.7) (26.2) (19.1) (504) 70

FMCG (12) 13.2 2.8 15.6 3.1 (25) 10

Infrastructure (11) 7.4 (26.1) (8.4) (43.1) 35 48

IT (13) 13.6 5.2 9.7 2.4 (35) 75

Media (5) 12.3 2.4 10.5 4.9 15 312

Metals (9) (0.5) (9.0) (18.3) (23.4) (130) (233)

Mining (1) 7.4 (11.0) 1.5 (16.8) (280) (488)

Oil & Gas (4) (6.4) (2.4) 0.4 4.9 127 76

Pharmaceuticals (13) 18.2 15.0 11.1 6.6 (137) (89)

Power (2) 3.5 0.5 0.6 (6.9) 131 31

Telecom (3) 7.9 2.0 (0.3) 104.7 131 13

Coverage Universe (131)Coverage Universe (131)Coverage Universe (131)Coverage Universe (131)Coverage Universe (131) 4.14.14.14.14.1 (6.9)(6.9)(6.9)(6.9)(6.9) 1.31.31.31.31.3 (7.2)(7.2)(7.2)(7.2)(7.2) 3535353535 (2)(2)(2)(2)(2)

Exhibit 1: 1QFY2014 Angel coverage performance estimatesOperating MarginsOperating MarginsOperating MarginsOperating MarginsOperating Margins

Source: Company, Angel Research

Net PNet PNet PNet PNet ProfitrofitrofitrofitrofitNet SalesNet SalesNet SalesNet SalesNet Sales


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Strategy

SectorSectorSectorSectorSector (%, yoy)(%, yoy)(%, yoy)(%, yoy)(%, yoy) (%, qoq)(%, qoq)(%, qoq)(%, qoq)(%, qoq) (%, yoy)(%, yoy)(%, yoy)(%, yoy)(%, yoy) (%, qoq)(%, qoq)(%, qoq)(%, qoq)(%, qoq) (bps, yoy)(bps, yoy)(bps, yoy)(bps, yoy)(bps, yoy) (bps, qoq)(bps, qoq)(bps, qoq)(bps, qoq)(bps, qoq)

Auto (5) 6.4 (12.7) 8.6 (23.2) 77 (61)

Finance (4) 13.1 (4.1) 13.9 0.5 (97) 352

Capital Goods (1) (3.0) (57.4) (12.7) (75.2) 25 (972)

FMCG (2) 13.6 0.7 18.1 1.6 4 35

Infrastructure (1) 9.6 (35.4) 1.6 (48.5) 141 (158)

IT (3) 12.2 4.0 10.0 1.8 (56) 70

Metals (4) (3.7) (10.6) (7.6) (33.5) (120) (260)

Mining (1) 7.4 (11.0) 1.5 (16.8) (280) (488)

Oil & Gas (3) (6.4) (2.4) 1.4 3.5 133 71

Pharma (3) 24.1 21.5 16.3 5.1 (361) (193)

Power (2) 1.7 (0.7) (4.2) (7.1) 189 (16)

Telecom (1) 7.7 1.9 1.0 54.2 199 49

Sensex (30)Sensex (30)Sensex (30)Sensex (30)Sensex (30) 2.42.42.42.42.4 (8.5)(8.5)(8.5)(8.5)(8.5) 5.65.65.65.65.6 (11.1)(11.1)(11.1)(11.1)(11.1) 7878787878 (8)(8)(8)(8)(8)

Exhibit 2: 1QFY2014 Sensex performance estimates

Operating MarginsOperating MarginsOperating MarginsOperating MarginsOperating Margins


Net PNet PNet PNet PNet ProfitrofitrofitrofitrofitNet SalesNet SalesNet SalesNet SalesNet Sales

SectorSectorSectorSectorSector WWWWWeight (%)eight (%)eight (%)eight (%)eight (%) 1QFY2014E1QFY2014E1QFY2014E1QFY2014E1QFY2014E 1QFY20131QFY20131QFY20131QFY20131QFY2013 % chg% chg% chg% chg% chg 1QFY2014E1QFY2014E1QFY2014E1QFY2014E1QFY2014E 1QFY20131QFY20131QFY20131QFY20131QFY2013 % chg% chg% chg% chg% chg

Bajaj Auto 1.7 4,642 4,714 (1.5) 726 718 1.0

Bharti Airtel 2.3 20,859 19,362 7.7 784 776 1.0

BHEL 0.9 8,186 8,439 (3.0) 804 921 (12.7)

Cipla 1.2 2,113 1,917 10.2 367 400 (8.2)

Coal India 1.2 17,719 16,5007.4

4,524 4,4581.5

Dr. Reddy 1.7 3,340 2,541 31.4 453 336 34.8

HDFC 8.2 1,892 1,554 21.7 1,226 1,002 22.3

HDFC Bank 7.7 6,245 5,014 24.6 1,845 1,417 30.1

Hero Moto Corp 1.0 6,245 6,208 0.6 568 615 (7.8)

Hindalco 0.8 6,810 5,964 14.2 328 425 (22.7)

HUL 3.8 6,942 6,250 11.1 852 727 17.2

ICICI Bank 7.5 6,205 5,073 22.3 2,284 1,815 25.8

Infosys 7.4 11,217 9,616 16.7 2,403 2,289 5.0

ITC 10.8 7,714 6,652 16.0 1,898 1,602 18.5

Jindal Steel 0.6 5,106 4,680 9.1 598 385 55.3

Gail India 1.0 12,296 11,089 10.9 918 1,134 (19.0)

L&T 4.7 13,100 11,955 9.6 911 897 1.6

M&M 2.7 10,438 9,248 12.9 850 726 17.1

Maruti Suzuki 1.2 10,424 10,529 (1.0) 785 424 85.2

NTPC 1.8 16,519 15,960 3.5 2,516 2,499 0.7

ONGC 4.3 20,285 20,084 1.0 5,532 6,078 (9.0)

RIL 9.3 82,561 91,875 (10.1) 5,392 4,473 20.5

SBI 3.2 15,352 14,618 5.0 3,740 3,752 (0.3)

Sterlite 0.8 8,372 10,591 (21.0) 1,198 1,419 (15.5)

Sun Pharma 2.5 3,377 2,658 27.1 961 796 20.8

Tata Motors 3.2 46,839 43,171 8.5 2,683 2,685 (0.1)

Tata Power 0.9 2,035 2,284 (10.9) 177 312 (43.3)

Tata Steel 1.1 32,728 33,821 (3.2) 487 598 (18.5)TCS 5.4 18,021 14,868 21.2 3,829 3,281 16.7

Wipro 1.3 10,186 10,653 (4.4) 1,633 1,580 3.3

TTTTTotalotalotalotalotal 100.0100.0100.0100.0100.0 417,766417,766417,766417,766417,766 407,888407,888407,888407,888407,888 2.42.42.42.42.4 51,27051,27051,27051,27051,270 48,53848,53848,53848,53848,538 5.65.65.65.65.6

Exhibit 3: Sensex companies' 1QFY2014 performance estimates

Net PNet PNet PNet PNet Profit (rofit (rofit (rofit (rofit (````` cr)cr)cr)cr)cr)Net Sales (Net Sales (Net Sales (Net Sales (Net Sales (````` cr)cr)cr)cr)cr)



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Strategy

Sectoral Analysis

Automobile - Margins to support moderate earnings

growth

For 1QFY2014, we expect our coverage automobile companies

to report a modest revenue growth of 5.5% yoy. This would

largely be driven by strong growth in net average realizations

backed by superior product-mix and price increases. Volumes,

however, are expected to decline 4% yoy due to continuous

slowdown across most of the segments. The top-line growth is

expected to be driven by strong growth at Mahindra & Mahindra

(M&M; led by the tractor segment) and Tata Motors (led by

Jaguar-Land Rover [JLR]). We expect margins to improve by

about 80bp yoy mainly due to easing of commodity prices,favorable exchange rate movement for the sector and lower

levels of discounting. We expect Maruti Suzuki (MSIL),

Tata Motors (TTMT) and M&M to drive the sector's earnings

(of 8.7% yoy) during the quarter.

Excluding Tata Motors, our coverage automobile universe is

expected to post a modest top-line growth of 1.0% yoy;

nevertheless, earnings are likely to register a strong growth of

13.9% yoy as margins are likely to swell by about 120bp yoy.

Banking - New Private Banks to continue their

outperformanceWe expect our coverage new private banks to continue

outperforming their nationalized counterparts and older private

banks and report a robust earnings performance. Aided by

strong NII growth of 26.4% yoy and healthy non-interest income

growth of 22.3% yoy, new private banks are expected to report

a strong 24.9% yoy growth in operating profit and 26.6% yoy

increase in earnings. On the other hand, our coverage

PSU banks and older private banks are expected to register

moderate operating performance, with operating income growth

of 7-8% yoy each. Despite modest growth of 5.1% yoy in operating

profit, PSU banks are expected to report an earnings decline of 3.1%

yoy, primarily dragged by an 18.2% yoy increase in provisioning.

Older private banks are expected to report a 1.7% decline in

operating profit and a subdued 2.1% yoy growth in earnings.

Cement - Lower realization to weigh on earnings

We expect our cement universe to report a substantial 26.2%

yoy decline in earnings, impacted by lower realization and a

substantial increase in operating costs. We expect the top-line

to decline marginally by 1.2% yoy, impacted by both lower

volumes and weak realizations. The operating margin isexpected to decline steeply by 504bp yoy and this sharp

contraction can be attributed to lower realization and increase

in freight and raw material costs.

FMCG - Healthy revenue performance to drive earnings

We expect our FMCG universe to post a healthy 13.2% yoy

top-line growth owing to higher volumes, better realizationsand superior mixes. On an average we expect a reasonably

healthy volume growth (in high single digits) in the domestic

market for these companies. The FMCG coverage universe is

expected to post a strong 15.6% yoy earnings growth driven by

healthy top-line performance. On the margins front, we expect

some companies to report a contraction owing to the impact of

INR depreciation on imported raw materials and higher

advertising and sales promotion expenditure.

Infrastructure - Challenging environment to weigh on earnings

For the infrastructure sector, subdued revenue performance,along with high interest cost and pressure on margins, are

expected to result in a muted performance at the earnings level.

Against this backdrop, we expect a decline in the earnings of

companies under our coverage, with L&T being the only

exception.

There has been no respite for infrastructure companies from

persistent headwinds such as high interest rates and

slower-than-anticipated revival in industrial capex. Further,

stretched balance sheets and working capital on the back of

investment in subsidiaries and delay in payments from clientscontinue to pose a problem. This has resulted in execution slowdown

and shrinking bottom-lines for most infrastructure companies.

We believe that a stock-specific approach would yield higher

returns, given the disparity among the companies in our

coverage universe and changing dynamics, affecting them either

positively or negatively. Hence, we remain positive on companies

having 1) a comfortable leverage position; 2) superior return

ratios and 3) lesser dependence on capital markets for raising

equity for funding projects.

Capital goods - Headwinds continue to affect earnings

Amid slowdown in the Indian economy, investments across

various sectors have substantially decelerated. The headwinds

in the power sector have limited order visibility further for

companies in boiler turbine generator (BTG) space, especially

from private utilities. Although some orders are expected from

state and central utilities, tough competition in BTG space is

likely to result in margin contraction and finalization of these

orders is also likely to witness delay due to ongoing headwinds

(such as fuel crisis, constraints in land acquisition and poor

health of state electricity boards [SEBs]). Although transmissionand distribution (T&D) companies are comparatively better

placed due to steady ordering, they are still facing execution

risks due to delay in clearances and revenue deferrals.


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5



Strategy

IT - INR depreciation and moderate volume growth to

drive earnings

Traditionally, 1Q of a financial year is a strong quarter forIT companies as client budgets on discretionary, operational

and capital spending, which are frozen by 4Q, witness a flush

in this quarter. We expect 1QFY2014 to be better than 4QFY2013,

but not as good as 1Q is traditionally, due to economic uncertainty

across developed economies, leading clients to delay their

incremental budget flush from their end. We expect revenue growth

in 1QFY2014 to be volume driven and pricing to remain stable.

On the back of INR depreciation and moderate volume growth,

profitability of tier-I companies such as Infosys, TCS and HCL

Tech is expected to increase by 6.5%, 0.4% and 3.0% qoq,respectively. The profitability of Wipro is expected to decline by

6.0% qoq due to hiving off of non-IT businesses along with

negative impact of wage hikes. Amongst mid-tier IT companies,

earnings growth is expected to be a mixed bag.

Metals - Earnings to remain under pressure

We expect our overall coverage metal companies to report a

steep 18.3% decline in earnings performance. Our coverage

steel companies are faced with decline in revenue as well as

pressure on margins due to lower prices on a yoy basis. Our

coverage non-ferrous companies are expected to continuefacing a double whammy of declining product prices coupled

with higher input costs. We expect non-ferrous companies to

report lower bottom-lines on a yoy basis owing to a decline in

LME prices coupled with sticky costs.

Oil and Gas - ONGC to weigh on earnings performance

We expect a mixed performance on the profitability front for

our coverage oil and gas companies. Overall, we expect Sensex

and our coverage oil and gas companies to report an almost

flat earnings performance, weighed down by ONGC's numbers.

We expect earnings for ONGC to decline by 9.0% yoy, largely

due to a yoy increase in other expenses. Excluding ONGC, our

coverage oil and gas companies are likely to post an improved

earnings growth of 7.0% yoy and Sensex oil and gas companies

are likely to report a healthy 12.5% yoy growth in earnings.

Pharmaceuticals - Robust revenue growth but margins

under pressure

The Indian pharmaceutical sector is expected to post a robust

revenue growth for 1QFY2014. We expect our coverage

pharmaceutical universe to register a growth of 18.2% yoy in

the top-line. But on the operating front, we expect margins to

decline by 137bp. With pressure on margins coupled with a

higher tax rate, we expect our coverage pharmaceutical

companies to report an earnings growth of 11.1% yoy during

the quarter.

Telecom - Expect modest revenue growth

For 1QFY2014, we expect a modest revenue growth for the

industry on the back of increase in MOU, inch up in voice ARPM

and increasing share of VAS in revenues. We expect our

coverage telecom companies to post a revenue growth of 7.9%

yoy and 2.0% qoq. On the margins front, we expect the EBITDA

margin of Idea Cellular and Reliance Communications (RCom)

to decline by 70bp and 27bp qoq to 26.9% and 30.6%,

respectively, while EBITDA margin of Bharti Airtel is expected to

inch up by 49bp qoq to 32.2%, aided by a low base effect. In

our view, the telecom industry can improve structurally only afterdata revenues start picking up. We are currently Neutral on the

telecom sector and will refrain from taking any call till financial

clarity on the stocks emerges.

Fed signals U.S economy on the mend,reduction in asset purchases

The Federal Reserve (Fed) in its June policy meeting maintained

status quo on rates and asset purchases. The Fed indicated that

it would continue with its ultra accommodative monetary policy

stance, keeping interest rates near zero at 0.25%, at least until

unemployment remains above 6.5% and inflation is maintained

near its 2% medium-term objective. The Federal Open Market

Committee (FOMC) decided to continue with asset purchases

of US$85bn per month (US$45bn in treasury securities and

US$40bn in mortgage backed securities) to maintain downward

pressure on interest rates.

At the same time, the Fed signaled at the economic recovery

gaining strength and hence a subsequent tapering of the asset

purchases. In his statement Federal Reserve Chairman Ben

Bernanke stated that, "Going forward, the economic outcomes

that the Committee sees as most likely involve continuing gains

in labor markets, supported by moderate growth that picks up

over the next several quarters as the near-term restraint from

fiscal policy and other headwinds diminishes. We also see

inflation moving back toward our 2% objective over time. If the

incoming data are broadly consistent with this forecast, the

Committee currently anticipates that it would be appropriate to

moderate the monthly pace of purchases later this year; and if

the subsequent data remain broadly aligned with our current

expectations for the economy, we would continue to reduce the

pace of purchases in measured steps through the first half of

next year, ending purchases around midyear."


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Strategy

Source: Bloomberg, Angel Research

Exhibit 5: Majority of stock markets tumbled in 2013YTD

(30.0)

(20.0)

(10.0)

0.0

10.0

20.0

30.0

Braz

il

China

Euroarea

HK

India

Indonesia

Japan

Ma

laysia

Russ

ia

S.K

orea

UK

US

(%) 2012 2013 YTD


Exhibit 6: As USD gains strength, most currencies depreciate

(15.0)

(10.0)

(5.0)

0.0

5.0

10.0

Braz

il

Chin

a

Euroarea

HK

India

Ind

onesia

Japan

Ma

laysia

Russ

ia

S.K

orea

UK

(-d

eprec

iati

on

/+

apprec

iati

on

)2 01 2 2 01 3 Y TD

(%)

Source: Federal Reserve

Exhibit 4: Economic Projections released by the Federal Reserve

20132013201320132013 20142014201420142014 20152015201520152015

Real GDP growth 2.0-2.6 2.2-3.6 2.3-3.8Unemployment rate 6.9-7.5 6.2-6.9 5.7-6.4

CPI Inflation 0.8-1.5 1.4-2.0 1.6-2.3

Source: SEBI, Angel Research

Exhibit 7: FIIs net sold Indian equities and debt during June 2013

(6.0)

(4.0)

(2.0)

-

2.0

4.0

6.0

Apr-

11

May-1

1

Jun-1

1

Jul-11

Aug-1

1

Sep-1

1

Oct-11

Nov-1

1

Dec-1

1

Jan-1

2

Fe

b-1

2

Mar-

12

Apr-

12

May-1

2

Jun-1

2

Jul-12

Aug-1

2

Sep-1

2

Oct-12

Nov-1

2

Dec-1

2

Jan-1

3

Fe

b-1

3

Mar-

13

Apr-

13

May-1

3

Jun-1

3

(USDbn) FII net equity inflows FII net debt inflows

The equity markets, particularly those in emerging economies,

reacted negatively to the Fed's indication of a sooner-than-

expected exit from QE3. The USD has strengthened against

most currencies in advanced economies as well as in emerging

markets. The risk-off trade has led to an outflow of capital from

emerging markets.

In the Indian markets, FIIs net sold USD1.8bn of equity and

US5.4bn of debt during June 2013. As a consequence of these

global factors, the INR has come under sharp pressure since

May 2013 and depreciated by about 9% since the beginning of

the year. After this initial bout of reaction, we expect stemming

of the outflows and normalization in capital inflows going ahead

although inflows in equities are likely to remain lower than the

US$26bn poured in during FY2013.

CAD comes in at 4.8% for FY2013, expected to

moderate going ahead

As expected, based on the already released trade data, the

Current Account Deficit (CAD) moderated significantly in

4QFY2013 to US$18.2bn as compared to US$31.8bn in

3QFY2013 and US$21.2bn in the corresponding quarter of

the previous year. The CAD as a proportion of GDP came in

much lower at 3.6% of GDP as compared to the record-high of

6.5% of GDP (6.7% of GDP reported earlier) during 3QFY2013.

For FY2013 as a whole, CAD has come in at 4.8% of GDP

(lower than the estimated 5.0% of GDP) as compared to 4.2%

of GDP in FY2012.

Overall, for FY2013 as a whole, the trade deficit widened to

10.6% of GDP from 10.2% of GDP in FY2012 as exports

reported a decline of 1.0% despite flat import growth. At the

same time, growth in invisibles declined by 3.7% in FY2013 as

against a robust 40.8% growth in FY2012, mainly owing to the

de-growth of business services and huge net outflow of

investment income (US$22.4bn vis--vis US$16.5bn in

FY2012).

Despite the huge record-high annual CAD at US$88.2bn, theBalance of Payments (BoP) remained positive with accretion of

foreign exchange reserves amounting to US$3.8bn vis-a-vis

US$12.9bn of drawdown on reserves in FY2012. The healthy

financing of the CAD during FY2013 can be attributed to inflows

through FII and FDI.

Going ahead, we believe that the CAD is likely to moderate

during FY2014 owing to two important factors - 1) pick-up in

export growth as the US economy revives and 2) normalization

of gold imports. Despite an almost 16.0% correction in gold

prices (in INR terms) since January 2013, gold imports have

increased by 121% yoy in April 2013 and 88% yoy in

May 2013 reflecting the huge volume growth. We believe that


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7



Strategy

Source: RBI, Angel Research

Exhibit 8: Sharp moderation in CAD during 4QFY2013

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

(% of GDP)(USD bn)

Current account deficit Current account deficit/GDP (RHS)

1Q09

2Q09

3Q09

4Q09

1Q10

2Q10

3Q10

4Q10

1Q11

2Q11

3Q11

4Q11

1Q12

2Q12

3Q12

4Q12

1Q13

2Q13

3Q13

4Q13


Exhibit 9: Much lower trade deficit ex oil and gold

38.0

43.0

48.0

53.0

58.0

0.0

50.0

100.0

150.0

200.0

FY2008 FY2009 FY2010 FY2011 FY2012 FY2013

(USD )INR(USD bn)

Trade deficit Ex oil, ex gold USD INR (RHS)/

4QFY124QFY124QFY124QFY124QFY12 1QFY131QFY131QFY131QFY131QFY13 2QFY132QFY132QFY132QFY132QFY13 3QFY133QFY133QFY133QFY133QFY13 4QFY134QFY134QFY134QFY134QFY13 FY12FY12FY12FY12FY12 FY13FY13FY13FY13FY13

AAAAA..... Current AccountCurrent AccountCurrent AccountCurrent AccountCurrent Account (21.8)(21.8)(21.8)(21.8)(21.8) (17.1)(17.1)(17.1)(17.1)(17.1) (21.1)(21.1)(21.1)(21.1)(21.1) (31.8)(31.8)(31.8)(31.8)(31.8) (18.2)(18.2)(18.2)(18.2)(18.2) (78.2)(78.2)(78.2)(78.2)(78.2) (88.2)(88.2)(88.2)(88.2)(88.2)

I. Trade balance (51.5) (43.8) (47.8) (58.4) (45.6) (189.8) (195.7)

a) Exports 80.2 75.0 72.6 74.2 84.8 309.8 306.6

b) Imports 131.7 118.8 120.4 132.6 130.4 499.5 502.2

II. Invisibles 29.8 26.8 26.7 26.6 27.5 111.6 107.5

a) Services 17.5 15.0 16.3 16.6 17.0 64.1 64.9

b) Transfers 16.8 16.7 15.9 15.8 15.7 63.5 64.0

c) Income (4.6) (4.9) (5.6) (5.8) (5.2) (16.0) (21.5)

BBBBB..... Capital accountCapital accountCapital accountCapital accountCapital account 16.516.516.516.516.5 16.516.516.516.516.5 20.720.720.720.720.7 31.531.531.531.531.5 20.520.520.520.520.5 67.867.867.867.867.8 89.389.389.389.389.3

I. Foreign Investment 15.3 1.9 15.9 11.9 17.0 39.2 46.7

a) FDI 1.4 3.8 8.2 2.1 5.7 22.1 19.8

b) FII 13.9 (1.9) 7.7 9.8 11.3 17.2 26.9

II. Loans 2.7 6.0 5.2 10.8 9.2 19.3 31.1

a) External assistance 0.3 0.1 0.1 0.3 0.5 2.3 1.0

b) Commercial borrowings 2.3 0.5 1.0 2.8 4.2 10.3 8.5

c) Short-term credit 0.2 5.4 4.1 7.7 4.5 6.7 21.7

III. Banking Capital 2.0 9.4 5.5 5.2 (3.6) 16.2 16.6

a) Commercial banks 2.0 9.5 4.8 5.3 (3.5) 16.0 16.1

of which NRI deposits 4.7 6.6 2.8 2.7 2.8 11.9 14.8

IV. Rupee debt service (0.0) (0.0) (0.0) (0.0) (0.0) (0.1) (0.1)

V. Other capital (3.4) (0.7) (5.8) 3.5 (2.1) (6.9) (5.0)

C. Errors and omissions (0.6) 1.1 0.2 1.1 0.3 (2.4) 2.7

DDDDD..... Overall BalanceOverall BalanceOverall BalanceOverall BalanceOverall Balance (5.7)(5.7)(5.7)(5.7)(5.7) 0.50.50.50.50.5 (0.2)(0.2)(0.2)(0.2)(0.2) 0.80.80.80.80.8 2.72.72.72.72.7 (12.8)(12.8)(12.8)(12.8)(12.8) 3.83.83.83.83.8

Exhibit 10: BoP positive in FY2013 supported by strong capital inflows (in USD bn)


this excessive buying of gold can be attributed to front-ended

demand and is likely to normalize going forward particularly

as investment demand for the yellow metal is expected to

remain sluggish. In terms of volumes, gold imports are likely

to come in at 50 tonnes in June 2013 as compared to

162 and 142 tonnes in April and May 2013 respectively. Gold

is the second-largest item of import and amounts to about

10% of total imports in our economy. As far as financing the

CAD is concerned, we expect the interest rate and

growth differentials of our economy to continue providing

an impetus for attracting capital flows.


9/56



Strategy

INR depreciation to be stemmed

The softening of global commodity prices has been a welcome

respite but weakness in the currency could possibly offset its

positive impact on these variables in the short-term and also

affect performance of corporates exposed to foreign debt. The

INR depreciated sharply by 10% since May 2013 and even

breached the 60- mark, reaching a record-low of 60.77 to the

USD in intraday trade on June 26, 2013.

We believe that any further INR depreciation is likely to be

stemmed and we expect the currency to stablize owing to factors

such as stability in the financial markets and decline in gold

imports and hence moderation in the trade deficit. We believe

that the U.S is unlikely to taper off liquidity in a hurry and hence

further INR depreciation on global cues looks unwarranted.

The Fed looks to be firmly in the drivers seat as commodity

prices remain benign and inflationary pressures remain

well-anchored. In addition, real GDP growth in the U.S for

1Q2013 has been revised downwards to 1.8% from 2.4%. In

this scenario, the Fed is unlikely to exit from its accomodative

policy stance. We believe that the tapering is likely to be done

gradually and in an orderly fashion without any risks to global

financial stability. At the same time, over the medium-term the

sharp depreciation is expected to boost growth in exports as

economic revival in the U.S gains ground.

Source: Office of Economic Advisor, Angel Research

Exhibit 13: WPI and core inflation in RBI's comfort zone

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0

10.0

(%) Cor e Inf lation WPI Inf lation

Apr-

11

Jun-1

1

Aug-1

1

Oct-11

Dec-1

1

Fe

b-1

2

Apr-

12

Jun-1

2

Aug-1

2

Oct-12

Dec-1

2

Fe

b-1

3

Apr-

13


Exhibit 14: Moderation in CPI and WPI inflation

WPI Inflation CPI inflation

2.0

4.0

6.0

8.0

10.0

12.0

Jan-1

2

Fe

b-1

2

Mar-

12

Apr-

12

May-1

2

Jun-1

2

Jul-12

Aug-1

2

Sep-1

2

Oc

t-12

Nov-1

2

Dec-1

2

Jan-1

3

Fe

b-1

3

Mar-

13

Apr-

13

May-1

3

(%)

In the interim, the government has stepped in and hiked import

duty on gold by 200bp to 8% and the RBI has imposed

restrictions on banks with regard to importing gold, sale ofgold coins etc. These measures are likely to impact demand for

gold along with the deceleration in prices dampening investment

demand. We believe that in the near-term, the government is

likely to consider some more steps to stabilize the currency such

as increasing FII/ECB investment limits, liberalizing norms for

attracting more stable FDI investment across more sectors and

may even contemplate a sovereign bond issue.

We believe that the weakness in the currency played a major role

in the Reserve Bank of India (RBI) staying put on policy rates,

despite decelerating inflation, in its June monetary policy meeting.

In its guidance on future rate cuts, the RBI emphasized that

'a durable receding of inflation' would open up space for

monetary policy easing. We maintain our expectation of a 50bp

reduction in the repo rate during FY2014 to address downside

risks to economic growth.

Moderation in inflation to within comfortlevels is a much needed breather

Headline Wholesale Price Index (WPI) inflation has moderated

considerably to 4.7% in May 2013 from an average of 7.4% in

FY2013. Core (non-food, manufactured) inflation in particular


Exhibit 11: Sharp INR depreciation since May 2013

46.0

48.0

50.0

52.0

54.0

56.0

58.0

60.0

62.0

Jan-1

2

Fe

b-1

2

Mar-

12

Apr-

12

May-1

2

Jun-1

2

Jul-12

Aug-1

2

Sep-1

2

Oct-12

Nov-1

2

Dec-1

2

Jan-1

3

Fe

b-1

3

Mar-

13

Apr-

13

May-1

3

Jun-1

3

(USDINR)


Exhibit 12: Key monetary policy rates

7.25

6.25

4.00

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0

10.0

Jun-08 Jun-09 Jun-10 Jun-11 Jun-12 Jun-13

(%) Repo rate Reverse Repo rate CRR


10/56


11/56



Outlook and Valuation

Source: Angel Research

Exhibit 16: Sensex EPS growth over FY2013-15

1,208

1,384

1,583

500

700

900

1,100

1,300

1,500

1,700

FY2013 FY2014E FY2015E

(`)

14.5% gro

wth14.4

% growth

Strategy

Source: Angel Research

Exhibit 17: Sensex one-year forward P/E

5.0

10.0

15.0

20.0

25.0

30.0

Jun-01 Jun-03 Jun-05 Jun-07 Jun-09 Jun-11 Jun-13

Sensex 1 year forward P/ E 15 year Avg 5 year Avg

We are positive in our outlook for equities owing to factors such

as the bottoming out of economic growth, moderation in

inflation and narrowing of fiscal and current account deficits.

We also believe that any further INR depreciation is likely to be

stemmed and we expect the currency to stabilize owing to factors

such as moderating concerns in global markets regarding

impact of the US Feds QE exit and domestically a decline in

gold imports. We expect that over the medium-term the sharp

depreciation is also likely to boost growth in exports, especially

as economic revival in the U.S gains ground. At the same

time owing to our growth as well as real interest rate

differentials, the economy is expected to continue attracting

healthy capital inflows.

We expect the Sensex' EPS to grow by 14.5% to 1,384 in FY2014

and by 14.4% to 1,583 in FY2015, implying a CAGR of 14.5%

over FY2013-15. We maintain our 12-month Sensex target of

22,000, with a target multiple of 14x FY2015E earnings. The

target implies an upside of 13.4% from the present levels and

is likely to be back-ended.


12/56

11



1QFY2014 Sectoral Outlook


13/56



Automobile

CV sales continue to be sluggish

The commercial vehicle (CV) segment continued its downward

slide in 1QFY2014 (down 5.2% in FY2014 YTD after declining

2% in FY2013) led by weakness across the MHCV and

LCV segments. While slowdown in economic activity, softening

of freight rates and lower cargo availability led to a sharp decline

in MHCV volumes; LCV volumes too remained muted due to

weak growth in consumption. We expect the demand scenarioto remain challenging in 1HFY2014; however, we expect

CV volumes to recover in 2HFY2014 and register an overall

growth of 6-8% in FY2014.

For 1QFY2014, we expect CV manufacturers to report a loss

on the bottom-line front due to the sharp fall in volumes, leading

to lower utilization levels, and contraction in operating margins.

We expect Ashok Leyland (AL) to register an ~20% yoy decline

in net sales following an ~21% yoy drop in volumes. We expect

its EBITDA margins to witness a sharp contraction of ~350bp

yoy to 4.5% for the quarter due to adverse product-mix and

lower utilization levels, leading to a bottom-line loss of `74cr.

On a standalone basis, we expect TTMT to register a decline of

~17% yoy in its revenues due to an ~19% yoy decline in

volumes. Led by lower volumes, adverse product-mix and

relatively higher discounts, we expect EBITDA margins to decline

~380bp yoy, resulting in a net loss of ~`270cr. However, led

by a strong performance at JLR (expected to post a strong

revenue growth of ~15% yoy driven by an ~11% yoy growth in

volumes), consolidated revenues are expected to witness a

healthy growth of ~9% yoy. On the operating front, we expect

EBITDA margins to remain stable, backed by superior product

and geography mix at JLR (JLR margins expected to improve

100bp yoy to 15.4%) and also due to softening of commodity

prices. However, consolidated bottom-line is expected to remain

flat yoy due to a sharp increase in depreciation expense.

Another quarter of weak volumes

The domestic automotive industry has begun FY2014 on a

somber note after having witnessed a sharp deceleration ingrowth (cumulative domestic sales grew at a modest pace of

~3% yoy) in FY2013. The primary factors that impacted growth

in FY2013 like slowdown in economic activity, poor consumer

and business sentiments and higher fuel prices continued to

suppress demand in 1QFY2014 as well. Except for Mahindra

and Mahindra (MM) and Jaguar - Land Rover (JLR), all the

other companies in our coverage universe witnessed a volume

de-growth. While the medium and heavy commercial vehicle

(MHCV), passenger car (PC) and motorcycle segments continued

to remain the most impacted, growth in the utility vehicle (UV)

and light commercial vehicle (LCV) segments too tapered off in

1QFY2014. The tractor segment however witnessed a strong

growth during the quarter, with inventory correction having been

undertaken by companies in 4QFY2013 and also on account

of festival season demand and expectation of a normal

monsoon.

Going ahead, we expect the demand environment for the sector

to remain sluggish in 2QFY2014 as well and expect a marginal

recovery in volumes in 2HFY2014 led by continuous softening

of interest rates, expectation of a normal monsoon, festival

season demand and also on account of the base effect.

Margins to improve leading to healthy earnings growth

For 1QFY2014, we expect automotive original equipment

manufacturers' (OEM) in our coverage universe to register a

healthy revenue growth of ~5% yoy. This would largely be driven

by strong growth in net average realizations backed by superior

product-mix and price increases. Volumes, however, are

expected to decline ~6% yoy due to continuous slowdown across

most of the segments. The top-line growth is expected to be

driven by strong growth at MM (led by the tractor segment) and

Tata Motors (led by JLR). Sequentially, the top-line is expected

to report a significant decline of ~13% due to the base effect.

We expect EBITDA margins to improve ~70bp yoy to 13%,mainly due to easing of commodity prices, favorable exchange

rate movement and lower levels of discounting. Primary

commodities like steel, aluminum, copper and natural rubber

have witnessed a decline of 7-13% yoy in their prices, during

the quarter. As a result, we expect net profit to post a healthy

growth of ~7% yoy. We expect Maruti Suzuki (MSIL) and MM to

drive the sector's earnings during the quarter. Excluding Tata

Motors (TTMT), our OEM coverage universe is expected to post

a modest top-line growth of ~1% yoy; nevertheless, earnings

are likely to register a strong growth of ~14% as EBITDA margins

are expected to swell by ~120bp.Auto index outperforms the Sensex

The BSE Auto index outperformed the Sensex in 1QFY2014 by

clocking gains of 7.2% as against gains of 3% posted by the


Exhibit 1: 1QFY2014 - Stock price performance

(8.4)

(1.2)

6.9

(8.4)

(6.0)

7.8

12.220.2

2.5

7.8

4.5

(15.6)

(8.4)

(0.4)

(15.6)

(13.3)

0.6

5.0

13.0

(4.7)

0.6

(2.7)

(20.0) (10.0) 0.0 10.0 20.0 30.0

Ashok Leyland

Bosch

Bajaj Auto

Cummins India

Exide Industries

Hero MotoCorp

MM

Maruti Suzuki

Motherson Sumi

MRF

Tata Motors

Relative to Auto index (%) Absolute

Sensex. The outperformance was led by the expectations of

volume recovery following continuous easing of interest rates.

Index heavyweights like MSIL and MM outperformed the BSE

Auto index, led by a favorable exchange rate movement and

strong growth in tractor volumes, respectively.


14/56

13



Automobile

Source: Company; Angel Research

Exhibit 2: TTMT and AL Quarterly volumes

SegmentSegmentSegmentSegmentSegment 1QFY20141QFY20141QFY20141QFY20141QFY2014 1QFY20131QFY20131QFY20131QFY20131QFY2013 % chg% chg% chg% chg% chg FY2013FY2013FY2013FY2013FY2013 FY2012FY2012FY2012FY2012FY2012 % chg% chg% chg% chg% chg

TTMTTTMTTTMTTTMTTTMT 153,172153,172153,172153,172153,172 188,774188,774188,774188,774188,774 (18.9)(18.9)(18.9)(18.9)(18.9) 810,086810,086810,086810,086810,086 906,579906,579906,579906,579906,579 (10.6)(10.6)(10.6)(10.6)(10.6)Total CV 116,088 126,634 (8.3) 581,148 585,187 (0.7)

Total PV 37,084 62,140 (40.3) 228,938 321,392 (28.8)

Exports (incl. above) 11,435 13,071 (12.5) 50,831 63,078 (19.4)

ALALALALAL 21,72121,72121,72121,72121,721 27,58527,58527,58527,58527,585 (21.3)(21.3)(21.3)(21.3)(21.3) 114,713114,713114,713114,713114,713 102,126102,126102,126102,126102,126 12.312.312.312.312.3

Exhibit 4: BJAUT, HMCL and TVSL Quarterly volumes


BJABJABJABJABJAUTUTUTUTUT 979,275979,275979,275979,275979,275 1,078,9711,078,9711,078,9711,078,9711,078,971 (9.2)(9.2)(9.2)(9.2)(9.2) 4,237,1624,237,1624,237,1624,237,1624,237,162 4,349,5604,349,5604,349,5604,349,5604,349,560 (2.6)(2.6)(2.6)(2.6)(2.6)

Motorcycles 860,151 982,623 (12.5) 3,757,105 3,834,405 (2.0)

Three-wheelers 119,124 96,348 23.6 480,057 515,155 (6.8)

Exports (incl. above) 362,563 415,645 (12.8) 1,547,157 1,579,824 (2.1)

HMCLHMCLHMCLHMCLHMCL 1,559,0031,559,0031,559,0031,559,0031,559,003 1,640,2901,640,2901,640,2901,640,2901,640,290 (5.0)(5.0)(5.0)(5.0)(5.0) 6,073,5816,073,5816,073,5816,073,5816,073,581 6,235,1956,235,1956,235,1956,235,1956,235,195 (2.6)(2.6)(2.6)(2.6)(2.6)

TVSLTVSLTVSLTVSLTVSL 494,494494,494494,494494,494494,494 519,160519,160519,160519,160519,160 (4.8)(4.8)(4.8)(4.8)(4.8) 2,032,5152,032,5152,032,5152,032,5152,032,515 2,198,4932,198,4932,198,4932,198,4932,198,493 (7.5)(7.5)(7.5)(7.5)(7.5)

Two-wheelers 477,199 510,081 (6.4) 1,983,676 2,158,375 (8.1)

Three-wheelers 17,295 9,079 90.5 48,839 40,118 21.7

Exports (incl. above) 72,154 64,839 11.3 245,628 288,442 (14.8)


Exhibit 3: MSIL and MM Quarterly volumes


MSILMSILMSILMSILMSIL 266,434266,434266,434266,434266,434 295,896295,896295,896295,896295,896 (10.0)(10.0)(10.0)(10.0)(10.0) 1,171,4341,171,4341,171,4341,171,4341,171,434 1,133,6951,133,6951,133,6951,133,6951,133,695 3.33.33.33.33.3Domestic 245,346 263,264 (6.8) 1,051,046 1,006,316 4.4

Exports 21,088 32,632 (35.4) 120,388 127,379 (5.5)

MMMMMMMMMM 197,562197,562197,562197,562197,562 185,606185,606185,606185,606185,606 6.46.46.46.46.4 787,256787,256787,256787,256787,256 718,586718,586718,586718,586718,586 9.69.69.69.69.6

Automotive - domestic118,214 118,184 0.0 530,915 453,987 16.9

Automotive - exports 4,771 7,841 (39.2) 32,456 29,177 11.2

Tractor - domestic 71,390 56,561 26.2 211,596 221,730 (4.6)

Tractor - exports 3,187 3,020 5.5 12,289 13,692 (10.2)


additional capacity at Honda Motors and Scooters India and

the success of theMaestro and Ray models. However, growth

in the motorcycle segment has dipped in the negative zone

during the quarter (down 1.4% YTD in FY2014; flat in FY2013)

due to the high base of last year and also on account of

postponement of purchases by the consumers. On a qoq basis

though, motorcycle sales recovered due to the festival season

in the North and inventory de-stocking in the last quarter. Going

ahead, we expect the demand environment to improve for the

2W industry (expect a 6-8% growth for FY2014) led by

expectations of a normal monsoon which would likely revive

rural demand.

For 1QFY2014, we expect Hero MotoCorp (HMCL) to post a

marginal growth of ~1% yoy in its top-line, aided by an ~6%

yoy growth in net average realization, driven by a favorable

product-mix and price increases. Total volumes though posted

a decline of ~5% yoy due to the slowdown in domestic

motorcycle demand. On the operating front, we expect EBITDA

margins to remain stable yoy as increase in power, freight and

transportation costs and higher marketing spends are likely to be

mitigated by easing of commodity prices and favorable currency

movement. However, the bottom-line is expected to decline by ~8%

yoy as the tax benefits at the Haridwar plant expired in FY2013.

For Bajaj Auto (BJAUT), we expect the top-line to decline by

~2% yoy, despite a ~9% yoy growth in net average realization.

Improvement in realization was led by a better product-mix(higher share of three-wheelers in the volume-mix) and price

increases executed by the company in the export and domestic

markets. Total volumes declined by ~9% yoy due to a ~13%

yoy decline in volumes in the motorcycle segment. Export sales

too registered a drop of ~13% yoy. We expect EBITDA margins

to improve ~50bp yoy to 18.4%, largely led by a superior

product-mix and softening of commodity prices, leading to a

flat bottom-line.

Slowdown in UV sales weighs down overall PV

segment sales

The domestic passenger vehicle (PV) industry managed to remain

in the positive in FY2013 (grew at a rate of 2.2% yoy) despite a

6.7% decline in the PC segment, primarily due to a strong growth

of 52.2% in the UV segment. However, the growth in theUV segment has slowed down considerably of late and the

segment posted a modest growth of just 4.1% YTD in FY2014.

This, coupled with an 11.3% volume decline in PC sales, has

led to a significant decline of 8.6% YTD in FY2014 for the PV

segment. While demand for petrol cars remains weak due to

higher fuel prices, demand for diesel cars too has moderated

sharply over the last few months. Going ahead, we expect PV

sales to remain subdued and expect the segment to post a

volume growth of 5-6% in FY2014.

MSIL reported an ~10% yoy decline in volumes in 1QFY2014

on account of a slowdown in petrol and diesel car sales and

also due to decline in exports. However, with a 10% yoy growth

in net average realization, due to superior product-mix and

price increases, we expect only a marginal decline of ~1% in

the top-line (excluding Suzuki Power Train operations). On the

operating front, we expect the EBITDA margin to improve

significantly by ~410bp yoy to 11.4%, primarily driven by a

favorable exchange rate. Consequently the net profit of the

company is expected to surge ~85% yoy to `785cr.

2W sales remain under pressure

The demand slowdown witnessed in the two-wheeler (2W)

industry in FY2013 (grew by just 2.9% yoy) continued in

1QFY2014 with domestic sales growing by only 1% YTD in

FY2014. The growth, although meager, continues to be driven

by momentum in the scooter segment (grew 13.9% YTD in

FY2014 vs 14.2% growth in FY2013) led by the availability of

Auto ancillariesAuto ancillary companies under our coverage universe (ex.

Apollo Tyres and Motherson Sumi Systems) are expected to report

a poor performance for the quarter due to continued weakness


15/56



Automobile

Analyst - YAnalyst - YAnalyst - YAnalyst - YAnalyst - Yaresh Karesh Karesh Karesh Karesh Kothariothariothariothariothari

Exhibit 5: Quarterly estimates Automobile (````` cr)

Source: Company, Angel Research; Note: Price as on June 28, 2013; * Consolidated numbers; ^ OPM adjusted for royalty payment

CompanyCompanyCompanyCompanyCompany CMPCMPCMPCMPCMP Net SalesNet SalesNet SalesNet SalesNet Sales OPM (%)OPM (%)OPM (%)OPM (%)OPM (%) Net PNet PNet PNet PNet Profitrofitrofitrofitrofit EPS (EPS (EPS (EPS (EPS (````))))) EPS (EPS (EPS (EPS (EPS (````))))) P/E (x)P/E (x)P/E (x)P/E (x)P/E (x) TTTTTargetargetargetargetarget Reco.Reco.Reco.Reco.Reco.

(((((`````))))) 1QFY14E1QFY14E1QFY14E1QFY14E1QFY14E % chg% chg% chg% chg% chg 1QFY14E1QFY14E1QFY14E1QFY14E1QFY14E chg bpchg bpchg bpchg bpchg bp 1QFY14E1QFY14E1QFY14E1QFY14E1QFY14E % chg% chg% chg% chg% chg 1QFY14E1QFY14E1QFY14E1QFY14E1QFY14E % chg% chg% chg% chg% chg FY13FY13FY13FY13FY13 FY14EFY14EFY14EFY14EFY14E FY15EFY15EFY15EFY15EFY15E FY13FY13FY13FY13FY13 FY14EFY14EFY14EFY14EFY14E FY15EFY15EFY15EFY15EFY15E (((((`````)))))

AL 20 2,357 (19.8) 4.5 (347) (74) - (0.3) - 0.5 1.0 2.2 37.1 19.2 9.0 27 Buy

BJAUT 1,917 4,642 (1.5) 18.4 52 726 1.0 25.1 1.0 105.2 118.8 139.7 18.2 16.1 13.7 2,096 Accum.

HMCL 1,662 6,245 0.6 11.2 (25) 568 (7.8) 28.4 (7.8) 106.1 110.3 140.0 15.7 15.1 11.9 1,820 Accum.

MSIL 1,538 10,424 (1.0) 11.4 408 785 85.2 27.2 85.2 79.2 106.6 121.4 19.4 14.4 12.7 1,822 Buy MM 967 10,438 12.9 12.5 70 850 17.1 14.4 17.0 56.9 61.2 70.2 17.0 15.8 13.8 1,103 Accum.

TTMT* 281 46,839 8.5 13.5 24 2,683 (0.1) 8.4 (0.1) 32.0 36.2 41.5 8.8 7.8 6.8 347 Buy

TVSL 33 1,692 (5.5) 5.8 (14) 50 (3.1) 1.0 (3.1) 4.4 5.0 5.8 7.5 6.6 5.7 35 Accum.

Exhibit 6: Quarterly estimates Auto Ancillary (````` cr)

Source: Company, Angel Research; Note: Price as on June 28, 2013, * Consolidated numbers; # December ending; & Full year EPS is consolidated

CompanyCompanyCompanyCompanyCompany CMPCMPCMPCMPCMP Net SalesNet SalesNet SalesNet SalesNet Sales OPM (%)OPM (%)OPM (%)OPM (%)OPM (%) Net PNet PNet PNet PNet Profitrofitrofitrofitrofit EPS (EPS (EPS (EPS (EPS (`````))))) EPS (EPS (EPS (EPS (EPS (`````))))) P/E (x)P/E (x)P/E (x)P/E (x)P/E (x) TTTTTargetargetargetargetarget Reco.Reco.Reco.Reco.Reco.

(((((`````))))) 1QFY14E1QFY14E1QFY14E1QFY14E1QFY14E % chg% chg% chg% chg% chg 1QFY14E1QFY14E1QFY14E1QFY14E1QFY14E chg bpchg bpchg bpchg bpchg bp 1QFY14E1QFY14E1QFY14E1QFY14E1QFY14E % chg% chg% chg% chg% chg 1QFY14E1QFY14E1QFY14E1QFY14E1QFY14E % chg% chg% chg% chg% chg FY13FY13FY13FY13FY13 FY14EFY14EFY14EFY14EFY14E FY15EFY15EFY15EFY15EFY15E FY13FY13FY13FY13FY13 FY14EFY14EFY14EFY14EFY14E FY15EFY15EFY15EFY15EFY15E (((((`````)))))

Apollo Tyres* 57 3,091 (2.3) 11.5 39 145 4.7 2.9 4.7 11.8 12.8 14.9 4.8 4.4 3.8 - Neutral

Bharat Forge& 221 707 (22.8) 22.2 (291) 66 (36.9) 2.9 (36.9) 12.3 14.5 17.3 18.0 15.2 12.8 - Neutral

Bosch# 8,948 2,168 0.5 16.8 163 249 0.8 79.4 0.8 305.2 373.5 438.7 29.3 24.0 20.4 - Neutral

Exide Industries 121 1,615 4.1 13.6 (142) 145 (4.9) 1.7 (4.9) 6.2 7.8 9.1 19.7 15.5 13.3 141 Buy

FAG Bearings# 1,420 332(12.4)

12.5(427)

29(37.6)

17.4(37.6)

95.8 88.4 109.5 14.8 16.1 13.0 - Neutral

Motherson Sumi* 198 6,665 6.2 8.8 165 221 5.9 3.8 5.9 9.8 12.5 14.8 20.3 15.8 13.4 222 Accum.

easing of commodity prices and also due to the low base effect of

last year. As a result, the net profit is expected to remain flat during

the quarter.

Exide Industries (EXID) is expected to register a revenue growth

of ~4% yoy, with growth in the automotive replacement market

offsetting weak OEM sales. We expect EBITDA margins to decline

~140bp yoy to 13.6% on account of increase in lead prices (up

~5% yoy) and also due to increase in power costs and distribution

expenses, leading to an ~5% yoy decline in net profit.

We expect Motherson Sumi Systems (MSS) to register a 6% yoy

growth in its consolidated revenues, driven by a strong growth

of ~24% yoy (~4% qoq) in Samvardhana Motherson Reflectec

(SMR) revenues, which were aided by improving utilization levels.

However revenues at Peguform (accounting for ~50% of totalrevenue) are expected to remain flat yoy as well as qoq. We expect

EBITDA margins to improve by ~165bp yoy to 8.8% led by

improvement in operating performance at SMR, which is expected

to result in an ~6% yoy growth in the adjusted net profit.

Outlook

While the near term environment cont inues to remain

challenging for the automotive sector, we believe the long-term

structural growth drivers for the industry such as GDP growth

(leading to increasing affluence of rural and urban consumers),

favorable demographics, low penetration levels, entry of global

players and easy availability of finance will remain intact. Wecontinue to prefer stocks that have strong fundamentals, high

exposure to rural and export markets and command superior

pricing power.WWWWWe maintain our positive view on Ashok Le maintain our positive view on Ashok Le maintain our positive view on Ashok Le maintain our positive view on Ashok Le maintain our positive view on Ashok Leyland,eyland,eyland,eyland,eyland,

Maruti Suzuki and TMaruti Suzuki and TMaruti Suzuki and TMaruti Suzuki and TMaruti Suzuki and Tata Motors.ata Motors.ata Motors.ata Motors.ata Motors.

in demand for OEMs and sluggish sales in the replacement

segment. Additionally, operating margins are expected to remain

under pressure due to unfavorable currency movement and

reduced operating leverage. Nevertheless, easing of commodity

prices is expected to provide some respite to the ancillary

manufacturers. We expect Apollo Tyres and Motherson Sumi

Systems to outperform in the auto ancillary space in 1QFY2014

driven by easing cost pressures and improving utilization levels

at the new plants respectively.

We expect Apollo Tyres (APTY) to post an ~2% yoy decline in

the consolidated top-line, primarily on account of an ~15%

and ~2% yoy decline in South Africa and India revenues

respectively. However, we expect the European operations to

register a revenue growth of ~3% yoy. We expect operating

margins to improve ~40bp yoy to 11.5%, driven by a declinein the prices of natural rubber. As a result, we expect the

consolidated bottom-line of the company to improve by

~5% yoy for the quarter.

We expect Bharat Forge (BHFC) to report an ~23% yoy decline

in standalone revenues, following an ~24% yoy decline in

volumes (tonnage terms). The volume decline was led by

continued weakness in the domestic and export markets

(mainly the US and Europe). We expect operating margins to

decline sharply by ~290bp yoy to 22.2%, largely on account

of lower utilization levels, which is likely to result in an

~37% yoy decline in the company's bottom-line.We expect Bosch (BOS) to report a marginal growth of

~1% yoy in its revenues for the quarter as MHCV demand

continues to remain under pressure. On the operating front, we

expect margins to improve ~160bp yoy to 16.8%, largely due to


16/56

15



Banking

Banking stocks underperformed broader market, as

global events offset improvement in domestic macro

fundamentals

Banking stocks under our coverage underperformed broader

market during the quarter, as nearly half of our coverage PSU

banks registered a sequential decline of more than 12%, even

while private banks witnessed a sequential gain of upto 6%. At

the beginning of the quarter, improvement in domestic macro

fundamentals triggered a rally in the banking stocks, however,

global factors (weaker currency on back of strengthening dollar

and hints of the US Fed gradually tapering its bond buying in

near term) led them to decline in the concluding month of the

quarter. Domestic macro fundamentals (particularly inflation and

current account deficit) have clearly shown signs of improvement;however, global factors particularly weaker currency has

moderated their effect.

At the shorter end of the interest rate curve, the three-month

CD and CP rates have eased significantly sequentially. At the

longer end of the yield curve, many banks have recently reduced

their peak retail term deposit rates, which is likely to provide

some respite from margin pressures emanating from asset


Exhibit 2: Deposits growth remains moderate

0.0

5.0

10.0

15.0

20.0

25.0

30.0

May-0

9

Aug-0

9

Nov-0

9

Fe

b-1

0

May-1

0

Aug-1

0

Nov-1

0

Fe

b-1

1

May-1

1

Aug-1

1

Nov-1

1

Fe

b-1

2

May-1

2

Aug-1

2

Nov-1

2

Fe

b-1

3

May-1

3

(%) Credit growth Deposit growth


Exhibit 3:Liquidity pressures eased in 1QFY2014

(2,000)

(1,500)

(1,000)

(500)

-

500

Jul-12

Aug-1

2

Sep-1

2

Oct-12

Nov-

12

Dec-1

2

Jan-1

3

Fe

b-1

3

Mar-

13

Apr-

13

May-1

3

Jun-1

3

(` bn)

quality challenges and lower average base rate.

Overall, we expect private banks to report robust earnings

performance with a 25.0% yoy growth, while PSU banks areexpected to report a bottom-line de-growth of 3.1% yoy.

Dissecting private banks performance, new private banks are

expected to report strong earnings growth of 26.6% yoy, as

against muted 2.1% yoy growth for the older ones. Within PSU

banks, large-PSUs are expected to report flat earnings

performance, whereas mid-PSUs are expected to report earnings

de-growth of 9.8% yoy, respectively.

Credit growth outlook remains tough; Deposits growth

remains moderate

Credit growth for the banking system, as of May 31, 2013

stood at 14.1% yoy (as against credit growth of 18.3% yoywitnessed at a similar time last year). Challenging economic

growth environment, elevated interest servicing costs and policy

woes in select sectors have affected investment sentiments.

Hence, incremental credit demand remains weak, largely

comprising of working capital needs. Going forward, in our

view, credit growth for FY2014 is likely to be around 15%, as

pipeline for credit disbursement for banks, as indicated by their

Managements, remains thin, largely comprising of sanctions

already in place.

Deposit growth has also remained moderate at 13.4% yoy as

of May 31, 2013. Moderate deposit growth, in our view, is on

account of cyclical slowdown, persistently elevated retail inflation

and shift in savings pattern towards physical assets. Though

WPI inflation has moderated significantly, however, high food

Exhibit 1: 1QFY2014 stock performance

(%)(%)(%)(%)(%) Returns (qoq)Returns (qoq)Returns (qoq)Returns (qoq)Returns (qoq) Returns (yoy)Returns (yoy)Returns (yoy)Returns (yoy)Returns (yoy)

LIC Housing Finance Ltd 12.9 (6.0)

UCO Bank 9.4 (23.4)

Yes Bank Ltd 5.9 33.8

HDFC Bank Ltd 5.5 17.0

HDFC Ltd. 4.1 31.7

ICICI Bank Ltd 1.2 17.6

Jammu & Kashmir Bank Ltd 0.4 21.1

Axis Bank Ltd (0.2) 27.8

Syndicate Bank (3.3) (0.6)

Bank Of Maharashtra (4.0) 0.2

Vijaya Bank (4.8) (23.3)

State Bank of India (6.1) (9.9)

Canara Bank (6.7) (13.2)

Central Bank Of India (7.0) (24.3)South Indian Bank Ltd (8.6) (7.1)

Corp Bank (9.1) (16.6)

Punjab National Bank (9.7) (19.8)

IDBI Bank Ltd (12.0) (24.4)

Andhra Bank (14.5) (31.7)

Federal Bank Ltd (15.0) (8.9)

Bank of Baroda (15.1) (21.7)

United Bank of India (16.1) (21.4)

Union Bank of India (16.4) (12.8)

Oriental Bank of Commerce (18.9) (19.3)

Dena Bank (23.1) (30.3)

Indian Overseas Bank (23.4) (40.2)Bank of India (24.5) (34.1)

Allahabad Bank (29.6) (40.5)

Indian Bank (36.2) (36.2)



17/56



Banking

Exhibit 4: 4QFY2013 and 1QFY2014 Lending and deposit rates

Source: Company, Angel Research; Note: * 1-3 year maturity bucket

AvgAvgAvgAvgAvg. Base rates (%). Base rates (%). Base rates (%). Base rates (%). Base rates (%) AvgAvgAvgAvgAvg. BPLR rates (%). BPLR rates (%). BPLR rates (%). BPLR rates (%). BPLR rates (%) FD rates* (%)FD rates* (%)FD rates* (%)FD rates* (%)FD rates* (%)

BankBankBankBankBank 4QFY134QFY13

4QFY134QFY134QFY13 1QFY141QFY14

1QFY141QFY141QFY14 bp changebp change

bp changebp changebp change4QFY134QFY134QFY134QFY134QFY13 1QFY141QFY14


bp changebp changebp change4QFY134QFY134QFY134QFY134QFY13 1QFY141QFY14


bp changebp changebp change

ANDHBK 10.41 10.25 (16) 14.66 14.50 (16) 9.20 9.00 (20)

ALLBK 10.36 10.20 (16) 14.61 14.45 (16) 9.15 9.00 (15)

FEDBK 10.34 10.20 (14) 17.75 17.75 - 9.25 9.00 (25)

UCOBK 10.34 10.20 (14) 14.73 14.50 (23) 9.10 8.75 (35)

IOB 10.38 10.25 (13) 15.50 15.50 - 9.00 9.00 -

INDBK 10.33 10.20 (13) 14.61 14.50 (11) 9.00 9.00 -

J&KBK 10.38 10.25 (13) 14.88 14.75 (13) 8.50 8.50 -

UTDBK 10.37 10.25 (12) 14.60 14.60 (0) 9.00 8.75 (25)

SYNBK 10.37 10.25 (12) 14.62 14.50 (12) 9.05 9.00 (5)

BOB 10.36 10.25 (11) 14.61 14.50 (11) 9.36 8.75 (61)

BOI 10.36 10.25 (11) 14.61 14.50 (11) 9.25 9.00 (25)

CENTBK 10.36 10.25 (11) 15.00 15.00 - 9.00 9.00 -

BOM 10.36 10.25 (11) 15.00 15.00 - 8.75 9.10 35

PNB 10.36 10.25 (11) 14.00 14.00 - 9.00 9.00 -

UNBK 10.36 10.25 (11) 14.86 14.75 (11) 9.00 9.00 -

CRPBK 10.35 10.25 (10) 15.00 15.00 - 9.10 9.10 -

HDFCBK 9.70 9.60 (10) 18.20 18.10 (10) 8.75 8.75 -

VIJAYA 10.30 10.20 (10) 14.75 14.75 - 9.25 9.10 (15)

CANBK 10.34 10.25 (9) 14.59 14.50 (9) 9.10 9.00 (10)

OBC 10.34 10.25 (9) 14.75 14.75 - 9.00 8.75 (25)

DENABK 10.34 10.25 (9) 15.75 15.75 - 9.00 8.75 (25)

IDBI 10.34 10.25 (9) 14.84 14.75 (9) 9.00 9.00 -

SBI 9.72 9.70 (2) 14.47 14.45 (2) 8.75 8.75 -

AXSB 10.00 10.00 - 17.75 17.75 - 9.00 8.75 (25)

ICICIBK 9.75 9.75 - 18.50 18.50 - 9.00 9.00 -SIB 10.50 10.50 - 19.00 19.00 - 9.60 9.00 (60)

YESBK 10.50 10.50 - 19.75 19.75 - 9.25 9.10 (15)

inflation has kept retail inflation elevated (food items have 50%

weightage in retail inflation calculation). With expectations of

good monsoons this time around, softening global commodities

and recent moderate revisions to kharif crops minimum support

prices, food inflation should eventually taper off, leading to

moderation in retail inflation as well. Even, the yellow metal is

expected to trend downwards and hence is not likely to attract

investors, as it did in past when it gave substantial returns. Hence,

we expect deposit growth to pick up going forward, as retail

inflation is expected to moderate and there is incremental shift

back from Gold to financial savings.

Margins to remain under pressure

During the quarter, more than half of our coverage banks

reduced their retail term deposit rates (peak rates within 1-3year tenure) by 10-60bp, while most others maintained their

rates. The highest decline in peak retail term deposit rates was

witnessed in case of South Indian Bank and Bank of Baroda

(around 60bp), followed by UCO Bank (35bp). Despite

moderate deposit growth for quite some time now, comfortable

systemic liquidity (on back of subdued credit demand) prompted

most of our coverage banks to reduce their retail term deposit

rates. Though, deposit rates are reduced now, however, they

are almost flat compared to 3QFY2013 levels, as most of the

banks which have reduced rates in current quarter, had

increased rates in 4QFY2013 owing to tight liquidity conditions.

During 1QFY2014, even when the RBI effected a 25bp reduction

in policy rates, almost all banks maintained their base lending

rates, as their funding costs remain affected by elevated systemic

deposits rates. Unless the systemic deposit rates moderate from

the current elevated levels, there would be limited scope for

bankers to lower their lending rates here on.

None of our coverage banks reduced their base rates during

the quarter, however, many of them had reduced rates in last

quarter which is expected to get reflected partially in this quarter.

On an average basis, the base rate for Andhra Bank and

Allahabad Bank was sequentially lower by 16bp each, followedby Federal Bank and UCO Bank by 14bp each and Indian

Overseas Bank, Indian Bank and J&K Bank by 13bp each.

Short-term borrowing costs have moderated significantly during

the quarter, as reflected in the 75-100bp sequential correction

in the three-month CD and CP rates. Substantial correction in

short-term funding costs, in our view, is likely to provide some

support to the margins.


18/56

17



Banking


Exhibit 8: Net NPA trend (%) for the banking industry

1.00 0.991.04

1.28

1.361.30

1.49

1.74

1.80

1.72

0.90

1.00

1.10

1.20

1.30

1.40

1.50

1.60

1.70

1.80

1.90

3QFY11 2QFY12 1QFY13 4QFY13


Exhibit 7: Gross NPA trend (%) for the banking industry

2.40

2.28

2.43

2.73

2.852.80

3.09

3.42

3.49

3.32

2.10

2.30

2.50

2.70

2.90

3.10

3.30

3.50

3.70

3QFY11 2QFY12 1QFY13 4QFY13


Exhibit 5: Gross NPA trends (%) Private vs PSU

2.702.57

2.36 2.33

2.24 2.172.01

2.05 2.06 2.00

1.902.42 2.352.27

2.45

2.85

3.022.98

3.34

3.76 3.87

3.67

1.50

2.00

2.50

3.00

3.50

4.00

2QFY11 4QFY11 2QFY12 4QFY12 2QFY13 4QFY13

Pvt Banks PSU Banks


Exhibit 6: Net NPA trends (%) Private vs PSU

0.790.69

0.56 0.56 0.54 0.540.46 0.49

0.54 0.55 0.53

1.131.07

1.091.16

1.471.56 1.50

1.73

2.042.12

2.01

0.00

0.50

1.00

1.50

2.00

2.50

2QFY11 4QFY11 2QFY12 4QFY12 2QFY13 4QFY13

Pvt Banks PSU Banks

New private banks expected to post strong earnings

performanceAided by strong NII growth of 26.4% yoy and healthy non-

interest income growth of 22.3% yoy, new private banks are

expected to report a strong 24.9% yoy growth in operating profit

and 26.6% yoy increase in earnings. On the other hand, our

coverage PSU banks and older private banks are expected to

register moderate operating performance, with operating

income growth of 7-8% yoy each. Despite modest growth of

5.1% yoy in operating profit, PSU banks are expected to report

earnings decline of 3.1% yoy, primarily dragged by 18.2% yoy

increase in provisioning. While older private banks are expected

to report 1.7% decline in operating profit and subdued 2.1%yoy growth in earnings.

Asset quality performance remains the key monitorable

in the near term

Asset qualit y concerns continued to plague the sec tor 's

fundamentals with increased intensity in FY2013, than in

FY2012. On an aggregate basis, NPA ratios for PSU banks

have trended northwards every quarter since the beginning of

FY2012. These banks have found themselves to be relatively

more exposed to overleveraged companies in sensitive sectors,

whose financials have bore the most severe brunt of the slowingeconomic growth environment and persisting burden of elevated

interest servicing costs.

Incremental stressed assets formation (slippages and fresh

restructuring) for the banking sector has remained elevated and

much above comfort levels, for quite some time now. However,the pace of the asset quality deterioration has witnessed signs

of moderation in the past two quarters. While the annualized

slippage ratio was higher by 26bp yoy from 2.7% in FY2012 to

2.9% in FY2013, the increase was, however, lower than what

was witnessed in 9MFY2013 and 1HFY2013, when the

annualized slippage ratio increased by 38bp (to 3.0% from 2.6%

in 9MFY2012) and 57bp yoy (to 3.2% from 2.6% in 1HFY2012),

which suggest that 2HFY2013 has been better than 1HFY2013.

Sustained moderation in inflation, in our view, should ease

margin pressures for corporates and SMEs and eventually should

revive growth. Overall, we believe that asset quality pressures

should gradually recede from current levels, however, since

economic revival is expected to be slow and gradual, stressed

asset creation would continue to remain the key thing to watch

out for in the next few quarters.

On the fresh restructuring front, as guided by their respective

Managements, the pipeline appears sizeable for PSU banks

such as SBI, BOB, CANBK, UNBK, DENABK, INDBK and ALBK.

As far as the progress on state electricity board (SEB) restructuring

under the centre's Financial Restructuring Plan (FRP) is concerned,

four states - Tamil Nadu, Uttar Pradesh, Haryana and Rajasthanhave finalized restructuring of their short-term debt under the

FRP during the quarter, which is expected to be implemented

either in this quarter or in next quarter. Other states like Madhya


19/56



Banking


Exhibit 11: Corporate and G-Sec bond yields

9.0

0

8.9

9

8.9

7

8.9

1

7.7

9

7.8

3

7.9

6

7.9

6

8.7

3

8.6

7

8.6

9

8.6

2

7.4

6

7.5

5

7.7

0

7.4

6

6.0

6.5

7.0

7.5

8.0

8.5

9.0

9.5

AAA 1 Yr AAA 3 Yr AAA 5 Yr AAA 10 Yr Gsec 1Yr Gsec 3Yr Gsec 5Yr Gsec 10Yr

(%) 31-Mar-13 30-Jun-13


Exhibit 12: 10-year G-sec yields movement

6.6

6.8

7.0

7.2

7.4

7.6

7.8

8.0

8.2

1-Apr-13 15-Apr-13 29-Apr-13 13-May-13 27-May-13 10-Jun-13 24-Jun-13

(%)

IndustryIndustryIndustryIndustryIndustry No.No.No.No.No. AggAggAggAggAgg. Debt (. Debt (. Debt (. Debt (. Debt (````` cr)cr)cr)cr)cr) %%%%%

Iron & Steel 59 52,682 23.0

Infrastructure 20 21,912 9.6

Power 18 18,460 8.1

Textiles 74 17,767 7.8Construction 7 14,362 6.3

Telecom 11 11,681 5.1

Fertilizers 8 8,455 3.7

Pharmaceuticals 14 7,895 3.4

NBFC 8 7,316 3.2

Sugar 27 7,125 3.1

Cements 11 6,595 2.9

Ship-Breaking/Ship Building 3 6,213 2.7

Petrochemicals 3 5,493 2.4

Hospitality 12 4,951 2.2

Refineries 1 4,874 2.1

Others 125 33,233 14.5

TTTTTotalotalotalotalotal 401401401401401 229,013229,013229,013229,013229,013 100.0100.0100.0100.0100.0

Exhibit 10: Industry-wise approvals under CDR

Source: CDR Cell, Angel Research

ReferredReferredReferredReferredReferred ApprovedApprovedApprovedApprovedApproved

No. of casesNo. of casesNo. of casesNo. of casesNo. of cases Add. (Add. (Add. (Add. (Add. (````` cr)cr)cr)cr)cr) No. of casesNo. of casesNo. of casesNo. of casesNo. of cases Add. (Add. (Add. (Add. (Add. (````` cr)cr)cr)cr)cr)

FY10 31 20,175 31 17,763

FY11 49 22,614 27 6,615

1QFY12 18 4,595 10 8,141

2QFY12 18 21,095 7 2,095

3QFY12 23 19,187 17 21,364

4QFY12 28 23,012 16 8,001

FY12 87 67,889 50 39,601

1QFY13 41 20,528 17 17,957

2QFY13 33 18,907 18 18,925

3QFY13 25 20,957 35 24,581

4QFY13 31 31,256 39 17,035

FY13 130 91,648 109 78,498

OutstandingOutstandingOutstandingOutstandingOutstanding 522522522522522 298,141298,141298,141298,141298,141 401401401401401 229,013229,013229,013229,013229,013

Exhibit 9: CDR snapshot

Source: CDR Cell, Angel Research

Pradesh and Andhra Pradesh are yet to finalize plan for

restructuring their short term debt under the FRP. As per the FRP,

50% of the short-term debt of discoms would be converted to

bonds (which would be eventually taken over by states over a

period of 2-5 years), while the balance 50% would be

restructured by the banks. Conversion of short-term debt to

bonds (priced at around 9-10%) would result in 200-300bp

reduction in yields for banks and would be negative for banks

from an NIM perspective.

Corporate debt restructuring (CDR) referrals have also risen

significantly over the last several quarters, closely tracking the

deteriorating economic growth environment. Under CDR

mechanism, fresh approvals of around `17,000cr in 4QFY2013

Decline in bond yields capped, still treasury gains

would be healthy if not substantial as expected earlier

During 1QFY2014, the Indian 10-year benchmark bond yields

trended significantly lower for the first two months on account

of monetary policy expectations/outcome. It however lost some

ground and edged higher in the last month on back of global

factors (weak currency and hints of US Fed gradually tapering

its bond buying in the near term).

In April, the yields trended southwards gradually, as easing

global commodities prices, sustained moderation in WPI Inflation

and subdued industrial activity, revived hopes of increased

headroom for easing by the central bank. To add to it, the

(in case the implementation is delayed for any reason) and the

pending cases of around `31,000cr (only those which are

approved and implemented during the quarter), would add to

the restructuring book of participating banks during the quarter.

Private banks have continued to perform relatively much better

vis--vis their PSU counterparts on the asset quality front. Though

they have not been sparred from asset quality pressures,

however, they have managed to keep most of their asset quality

largely intact until now in a challenging economic environment,

by not only reporting much lower slippages, but also performing

better on the recoveries and upgrades front. Even going ahead,

we would expect private banks to continue outperforming their

nationalized peers on the asset quality front.


20/56

19



Banking

Source:C-line, Angel Research, Note:* For PSU banks excl. SBI and IDBI

Exhibit 13: PSU banks price band (P/ABV)*

0.30

0.60

0.90

1.20

1.50

1.80

Sep-0

4

Apr-

05

Nov-0

5

Jun-0

6

Jan-0

7

Aug-0

7

Mar-

08

Oct-08

May-0

9

Dec-0

9

Jul-10

Fe

b-1

1

Sep-1

1

Apr-

12

Nov-1

2

Jun-1

3

Source:C-line, Angel Research, Note:*under our coverage

Exhibit 14: New Private banks price band (P/ABV)*

0.50

1.00

1.50

2.00

2.50

3.00

3.50

4.00

Sep-0

4

Apr-

05

Nov-0

5

Jun-0

6

Jan-0

7

Aug-0

7

Mar-

08

Oct-08

May-0

9

Dec-0

9

Jul-10

Fe

b-1

1

Sep-1

1

Apr-

12

Nov-1

2

Jun-1

3

Indian government reduced withholding tax rate for foreigners

on Indian debt (both public and private), in a bid to attract

more inflows, which aided the downward movement in yields.

In its annual policy on May 3, the RBI obliged with a 25bp rate

cut, but hinted at little room for further easing, thereby stemming

any immediate downward movement in yields. During most of

May, the yields trended lower on infusion of liquidity by the

central bank via OMOs, issue of a new 10-year bond paper

and increased expectation of further monetary easing when

economic data release indicated continued moderation in

inflation and subdued industrial activity. During the end of the

month, comments from the RBI governor pertaining to elevated

retail inflation weighed on rate cut hopes and yields inched

upwards. In June, the yields edged higher, as northward

momentum in bond prices was driven by weak currency,

monetary policy expectations/actual outcome and on statement

from the US Fed indicating a gradual tapering of bond purchase

program in the near term. Overall, the 10-year bonds ended

the quarter at 7.46% (7.96% as of March 31, 2013) and hence

the treasury gains for the banking sector during the quarter

are expected to be healthy, if not substantial as expected earlier.

Outlook and valuation

Domestic macro fundamentals (particularly inflation) have

clearly shown signs of improvement, however, global factors

(weak currency on back of strengthening dollar and hints of the

US Fed gradually tapering its bond buying in near term) have

moderated their effect. Banking stocks have significantly

underperformed the broader markets, which we believe is an

overreaction to the recent events.

Within the private banks space, we maintain our Buy rating on

AXSB and ICICIBK, given their favorable cyclical and structural

outlook. After the recent underperformance, most PSU banks

are trading below their historic low valuations. We believe the

time is right to invest in them. We would recommend investing

in those PSU banks, which would stand to gain the most from

an eventual turn-around, which would lead to lower re-pricing

of high-cost deposits (relative benefit for banks with low-CASA)

and higher recoveries (relative benefit for banks that have

experienced maximum asset quality pain, and importantly, also

provided for it already). For PSUs, we would recommend a

basket investment strategy, as we still do not rule out possibilities

of a single negative surprise in asset quality affecting one bank's

quarterly performance. Screening for these criteria, as well as

Tier-1 capital adequacy and valuations, amongst large-caps

we prefer SBI, PNB and BOB and amongst mid-caps, post the

sharp correction, we recommend a Buy on BOM, SYNDBKwe recommend a Buy on BOM, SYNDBKwe recommend a Buy on BOM, SYNDBKwe recommend a Buy on BOM, SYNDBKwe recommend a Buy on BOM, SYNDBK,,,,,

INDBKINDBKINDBKINDBKINDBK, CRPBK, CRPBK, CRPBK, CRPBK, CRPBK, ALBK and UTDBK, ALBK and UTDBK, ALBK and UTDBK, ALBK and UTDBK, ALBK and UTDBK.....


21/56



Analyst - VAnalyst - VAnalyst - VAnalyst - VAnalyst - Vaibhav Agrawaaibhav Agrawaaibhav Agrawaaibhav Agrawaaibhav Agrawal/l/l/l/l/Sourabh TSourabh TSourabh TSourabh TSourabh Taparia/Harshal Paparia/Harshal Paparia/Harshal Paparia/Harshal Paparia/Harshal Patkaratkaratkaratkaratkar

Source: Company, Angel Research; Note: Price as on June 28, 2013

Exhibit 15: Quarterly estimates (((((````` cr)cr)cr)cr)cr )CompanyCompanyCompanyCompanyCompany CMPCMPCMPCMPCMP Operating Income Net POperating Income Net POperating Income Net POperating Income Net POperating Income Net Profit EPS (rofit EPS (rofit EPS (rofit EPS (rofit EPS (`````) Adj B) Adj B) Adj B) Adj B) Adj BVPS (VPS (VPS (VPS (VPS (`````))))) P/E (x) P/ABP/E (x) P/ABP/E (x) P/ABP/E (x) P/ABP/E (x) P/ABV (x)V (x)V (x)V (x)V (x) TTTTTargetargetargetargetarget Reco.Reco.Reco.Reco.Reco.

(((((`````))))) 1QFY14E1QFY14E1QFY14E1QFY14E1QFY14E % chg% chg% chg% chg% chg 1QFY14E1QFY14E1QFY14E1QFY14E1QFY14E % chg% chg% chg% chg% chg FY13FY13FY13FY13FY13 FY14EFY14EFY14EFY14EFY14E FY15EFY15EFY15EFY15EFY15E FY13FY13FY13FY13FY13 FY14EFY14EFY14EFY14EFY14E FY15EFY15EFY15EFY15EFY15E FY13FY13FY13FY13FY13 FY14EFY14EFY14EFY14EFY14E FY15EFY15EFY15EFY15EFY15E FY13FY13FY13FY13FY13 FY14EFY14EFY14EFY14EFY14E FY15EFY15EFY15EFY15EFY15E (((((`````)))))

AXSB 1,323 4,440 26.3 1,411 22.4 110.7 133.8 161.5 705.2 810.8 936.0 12.0 9.9 8.2 1.9 1.6 1.4 1,778 Buy

FEDBK 409 641 4.1 192 0.8 49.0 49.8 56.6 369.2 410.5 454.9 8.4 8.2 7.2 1.1 1.0 0.9 455 Accum.

HDFCBK 669 6,245 24.6 1,845 30.1 28.3 36.3 45.1 152.2 180.2 215.0 23.6 18.4 14.8 4.4 3.7 3.1 752 Accum.

ICICIBK 1,070 6,205 22.3 2,284 25.8 72.2 86.2 99.5 578.2 634.0 698.0 14.8 12.4 10.7 1.9 1.7 1.5 1,454 Buy

SIB 23 419 12.7 128 4.0 3.8 4.0 4.3 20.4 23.7 27.0 6.1 5.8 5.3 1.1 1.0 0.9 24 Accum.

YESBK 461 1,053 38.6 378 30.2 36.3 43.0 49.7 162.0 197.4 238.5 12.7 10.7 9.3 2.8 2.3 1.9 489 Accum.

ALLBK 90 1,517 (6.1) 288 (43.9) 23.7 27.6 33.2 168.7 192.6 224.0 3.8 3.3 2.7 0.5 0.5 0.4 123 Buy

ANDHBK 82 1,211 3.2 350 (3.4) 23.0 19.2 23.1 129.1 144.0 161.3 3.6 4.3 3.5 0.6 0.6 0.5 - Neutral

BOB 575 3,807 6.7 1,138 (0.1) 106.0 120.6 144.6 735.5 834.7 951.3 5.4 4.8 4.0 0.8 0.7 0.6 761 Buy

BOI 232 3,358 16.4 758 (14.5) 46.1 55.2 68.2 345.2 391.8 449.8 5.0 4.2 3.4 0.7 0.6 0.5 270 Buy

BOM 53 1,031 24.3 207 47.1 10.6 12.1 12.9 70.9 80.0 89.9 4.9 4.4 4.1 0.7 0.7 0.6 61 Buy

CANBK 360 3,029 19.4 751 (3.1) 64.8 76.7 86.4 472.9 534.2 603.3 5.6 4.7 4.2 0.8 0.7 0.6 422 Buy

CENTBK 62 2,005 17.9 447 33.2 8.1 12.6 18.7 88.5 100.7 114.7 7.6 4.9 3.3 0.7 0.6 0.5 69 Accum.

CRPBK 350 1,341 18.1 353 (4.8) 93.8 94.9 104.9 594.1 673.7 757.6 3.7 3.7 3.3 0.6 0.5 0.5 436 Buy

DENABK 70 798 5.8 165 (30.8) 23.2 22.0 24.9 134.7 152.6 175.1 3.0 3.2 2.8 0.5 0.5 0.4 79 Accum.

IDBI 71 2,120 18.6 548 28.3 14.1 19.8 22.8 142.1 158.7 178.2 5.0 3.6 3.1 0.5 0.4 0.4 80 Accum.

INDBK 115 1,408 2.4 371 (19.6) 35.7 35.2 41.0 221.5 248.7 281.8 3.2 3.3 2.8 0.5 0.5 0.4 141 Buy

IOB 50 1,872 9.8 214 (8.3) 6.1 12.5 19.7 116.2 133.4 150.9 8.1 4.0 2.5 0.4 0.4 0.3 53 Accum.

J&KBK 1,227 758 20.6 257 4.4 217.6 215.5 210.2 1,003.2 1,167.6 1,314.9 5.6 5.7 5.8 1.2 1.1 0.9 1,315 Accum.

OBC 207 1,578 2.8 325 (17.1) 45.5 55.7 62.3 376.2 423.6 472.0 4.5 3.7 3.3 0.5 0.5 0.4 236 Accum.

PNB 651 4,997 2.8 1,264 1.5 134.3 152.4 176.2 802.2 943.2 1,104.0 4.8 4.3 3.7 0.8 0.7 0.6 883 Buy

SBI 1,954 15,352 5.0 3,740 (0.3) 206.2 227.4 284.8 1,364.7 1,567.0 1,799.1 9.5 8.6 6.9 1.4 1.2 1.1 2,518 Buy

SYNBK 109 1,659 6.7 446 1.3 33.3 27.4 27.9 158.9 179.8 2

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