India Strategy Oct 2012

October 2012

India Strategy

GST

Bank License

Lokpal

Aadhaar MMDR

NPPP

LARR

Spectrum Digit

Roads

Coal

izati

on

FDI nt stme Dive

FDI

Fired up? Research Team ([email protected])

Contents Section A: India Strategy - Fired up? ......................................................................................... A1-59 Section B: 2QFY13 Highlights & Ready Reckoner ..................................................................... B1-12 Section C: Sectors & Companies .............................................................................................. C1-199 1.

Automobiles Bajaj Auto Hero MotoCorp Mahindra & Mahindra Maruti Suzuki India Tata Motors

2.

Capital Goods ABB BGR Energy BHEL Crompton Greaves Cummins India Havells India Larsen & Toubro Siemens Thermax

10-22 14 15 16 17 18 19 20 21 22

Cement ACC Ambuja Cement Birla Corporation Grasim Industries India Cements Jaiprakash Associates Shree Cement UltraTech Cement

23-33 26 27 28 29 30 31 32 33

Consumer Asian Paints Britannia Industries Colgate Palmolive Dabur India GSK Consumer Godrej Consumer Products Hindustan Unilever ITC Marico Nestle India Pidilite Industries United Spirits

34-48 37 38 39 40 41 42 43 44 45 46 47 48

Financials Andhra Bank Axis Bank Bank of Baroda Bank of India Canara Bank Dewan Housing Federal Bank HDFC HDFC Bank ICICI Bank IDFC Indian Bank IndusInd Bank

49-79 55 56 57 58 59 60 61 62 63 64 65 66 67

3.

4.

5.

2-9 5 6 7 8 9

ING Vysya Bank Kotak Mahindra Bank LIC Housing Finance M & M Financial Services Oriental Bank Power Finance Corporation Punjab National Bank Rural Electricfication Shriram Transport State Bank Union Bank Yes Bank 6.

7.

Healthcare Biocon Cadila Healthcare Cipla Divi’s Laboratories Dishman Pharma Dr Reddy’s Labs. GSK Pharma Glenmark Pharma IPCA Laboratories Jubilant Life Sciences Lupin Opto Circuits Ranbaxy Labs. Sanofi India Strides Acrolab Sun Pharmaceuticals Torrent Pharma

68 69 70 71 72 73 74 75 76 77 78 79 80-101 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 100 101

Media Dish TV HT Media Jagran Prakashan Sun TV Network Zee Entertainment

102-112 108 109 110 111 112

8.

Metals Hindalco Hindustan Zinc Jindal Steel & Power JSW Steel Nalco NMDC Sesa Goa SAIL Sterlite Industries Tata Steel

113-127 118 119 120 121 122 123 124 125 126 127

9.

Oil & Gas BPCL Cairn India Chennai Petroleum GAIL

128-144 132 133 134 135

Gujarat State Petronet HPCL IOC Indraprastha Gas MRPL Oil India ONGC Petronet LNG Reliance Industries

136 137 138 139 140 141 142 153 144

10. Real Estate Anant Raj Industries DLF HDIL Mahindra Lifespaces Oberoi Realty Phoenix Mills Unitech

145-156 150 151 152 153 154 155 156

11. Retail Jubilant Food Pantaloon Retail Shoppers Stop Titan Industries

157-163 160 161 162 163

12. Technology Cognizant Technology HCL Technologies Infosys MphasiS TCS Tech Mahindra Wipro

164-173 167 168 169 170 171 172 173

13. Telecom Bharti Airtel Idea Cellular Reliance Communication Tulip Telecom

174-182 179 180 181 182

14. Utilities CESC Coal India JSW Energy NHPC NTPC Power Grid Corp. PTC India Reliance Infrastructure Tata Power

183-195 187 188 189 190 191 192 193 194 195

15. Others 196-199 Castrol India 196 Multi Commodity Exchange 197 Sintex Industries 198 United Phosphorus 199

Note: All stock prices and indices for Section C as on 28 September 2012, unless otherwise stated

India Strategy | Fired up?

India Strategy BSE Sensex: 18,763

S&P CNX: 5,703

Fired up? Policy engine revives| Next challenge: Investment cycle | New earnings cycle?

2QFY13 highlights: Non-cyclicals have a field day in muted quarter 2QFY13 is likely to be a muted quarter in terms of India's corporate sector performance.  PAT growth of 9% YoY: We expect MOSL Universe (ex RMs, oil refining and marketing companies) to report PAT growth of 9% YoY. This is the lowest 2Q PAT growth in the last 7 years, barring the Lehman-crisis quarter of September 2009.  Expect Technology, Financials, Healthcare and Consumer to positively dominate the quarter's performance. On the other hand, global commodities (mainly, Oil & Gas and Metals) will pull down aggregate profits.  Sensex PAT growth is even more muted at just 2% (ex ONGC, the growth is 9%). Six global cyclicals are major drags, ex which Sensex PAT should be up 15%.  Top five Sensex companies by PAT growth: TCS (+42% YoY), SBI (+31%), HDFC Bank (+30%), Sun Pharma (+29%), and Infosys (+26%).  Bottom five Sensex companies by PAT growth: Tata Steel (-63% YoY), Maruti Suzuki (-51%), Bharti (-36%), Tata Power (-30%) and Hero Motocorp (-27%). Quarterly performance - MOSL universe (INR b) Sector (No of companies) High YoY PAT Growth Cement (8) Technology (6) Health Care (17) Medium/Low YoY PAT Growth Financials (25) Private Banks (8) PSU Banks (9) NBFC (8) Consumer (12) Media (5) Others (4) Utilities (10) Oil & Gas ex RMs (10) Oil & Gas incl RMs (13) Negative YoY PAT Growth Auto (5) Capital Goods (9) Retail (4) Metals (10) Real Estate (7) Telecom (4) MOSL (139) MOSL Excl. RMs (136) Sensex (30) October 2012

Sales Sep-11 Sep-12 680 145 361 174 749 402 96 251 54 245 25 38 485 1,441 3,126 1,017 623 336 57 937 41 276 7,271 5,587 3,769

830 162 460 208 854 460 118 276 66 283 27 40 534 1,703 3,886 1,148 721 364 64 932 35 310 8,487 6,304 4,229

EBITDA PAT Var % Sep-11 Sep-12 Var Sep-11 Sep-12 YoY % YoY 22 11 27 20 14 14 22 10 21 16 10 7 10 18 24 13 16 8 12 0 -13 12 17 13 12

153 26 89 39 588 320 79 189 53 51 8 8 119 301 191 121 75 41 5 161 19 88 1,240 1,350 838

198 36 116 46 674 369 98 206 64 60 9 7 127 288 385 135 86 42 6 159 15 91 1,555 1,458 866

30 38 31 20 15 15 24 10 22 18 2 -2 6 -4 102 11 15 4 14 -2 -21 3 25 8 3

101 10 65 25 285 160 46 78 36 35 4 4 65 179 38 76 46 28 2 91 8 15 597 738 466

139 19 88 32 339 191 57 91 43 41 4 4 70 181 245 75 46 27 2 80 6 10 865 802 477

EBITDA Margin Var Sep-11 Sep-12 Var % YoY (bp) 38 89 34 28 19 19 23 17 19 18 17 15 7 1 539 -1 0 -1 -6 -12 -28 -32 45 9 2

22.5 17.8 24.5 22.3 78.4 79.7 81.9 75.1 96.6 20.7 34.5 20.4 24.6 20.9 6.1 11.9 12.1 12.1 9.3 17.2 47.0 31.9 17.1 24.2 22.2

23.9 22.1 25.2 22.3 78.9 80.2 83.4 74.8 97.4 21.2 32.1 18.7 23.7 16.9 9.9 11.8 12.0 11.7 9.5 17.0 42.5 29.4 18.3 23.1 20.5

139 425 73 8 45 55 142 -36 83 51 -243 -172 -87 -398 381 -17 -6 -47 23 -23 -452 -246 127 -104 -175 A–1

India Strategy | Fired up?

From Cradle of Pessimism … came a Ray of Hope. Have things FIRED UP? For almost 18 months, the Indian economy and markets have been groping through intensifying darkness and concerns, culminating in the Cradle of Pessimism (our 4QFY12 strategy theme). At the beginning of 2QFY13, there were some Rays of Hope (our 1QFY13 strategy theme) with the Presidential elections giving way to new political alignments. While things remained stuck during July-August, the month of September 2012 saw a complete U-turn from policy paralysis to raging reforms. The last few weeks have seen a significant number of policies / announcements / discussions, and the debate has shifted to "whether UPA-2 led by Congress is finally FIRED UP?"

MACRO ECONOMY

FDI

Re-starting the policy engine – FDI in limelight; further growth catalysts – lower deficits, improved flows, monetary easing With a precipitous fall in the Indian rupee coupled with a rating downgrade staring India, the government finally bit the proverbial bullet with a change in Finance Minister and a series of policy measures, even at the cost of severing ties with the largest ally, TMC. This, in turn, has catalyzed a slew of measures in the last few weeks that have led to an improvement in sentiment: (1) fuel price hike / reforms, (2) opening/relaxing FDI in multi-brand retail, aviation, broadcasting, (3) Cabinet approval to raise FDI in insurance and pension, (4) easing of fund-raising abroad, (4) proposed GAAR deferral, etc. It also appeared to wade through the political fallout of these measures. While reality will take a lot longer to reflect the first round of reforms, and require several more follow-up initiatives, the perception has undoubtedly started changing for the better. To some extent, this is visible in INR appreciation (a 7% appreciation), revival of flows (FIIs inflows at USD 16b in CY12) and market sentiment (Sensex up 8% in 3QCY12, making India among the best peforming markets in the world). We believe that 3 important drivers for the markets, going forward, are: (1) Fiscal situation – our FY13 deficit estimate revised down from 5.9% to 5.4%, (2) Domestic flows into equity markets – base-case USD30b inflows over FY14-17, (3) Shift towards a more accommodative monetary stance – RBI should cut interest rates / CRR in 4QCY12.

INVESTMENT CYCLE

Addressing logjam the next big challenge The next big challenge is to address the investment logjam. However, unlike the initial set of reforms that have been largely addressed through policy decisions, the investment phase requires a more involved decision-making process, as land, water, resources, etc, are the prerogatives of the state governments. Execution is the key challenge, as several structural issues impacting growth remain unaddressed. We believe that the government will kick-start its efforts towards reviving the investment climate by accelerating public spending. Our action wish list includes:  Successful resolution of the contentious issues in the Power sector (through SEB debt recast, standard bidding document, and coal price pooling)  Close monitoring of CPSU capex (FY13 investment target at INR1.8t is double the highest ever - INR931b in FY11)  Take-off of large public expenditure projects (like Dedicated Freight Corridor, railways, urban transport, etc). Addressing structural issues impacting infrastructure investments has become important.  Acceleration of financial sector reforms, including corporate bond market and

October 2012

A–2

India Strategy | Fired up?

access to Insurance / Pension money for investment projects. Also, an expenditure switching strategy is required that reduces government revenue spending by cutting subsidies and steps up capital expenditure to crowd-in private investments.  Successful implementation of the National Investment Board that will provide "single window" clearance. The government has identified 89 projects worth USD20b for fast track clearance. We identify the key structural issues in core segments: #1 UTILITIES: Initial steps encouraging, but new investments sometime away #2 METALS & MINING: Huge investments stuck; will require close monitoring #3 FINANCIALS: Loan growth moderating; revival will ease asset quality concerns #4 TELECOM: Spectrum pricing and allocation, conducive M&A policy critical #5 OIL & GAS: Rational product pricing, gas reforms imperative #6 INFRASTRUCTURE: Creating conducive environment for large scale development #7 MEGA PROJECTS: DFC, railways, urban transport can accelerate investment spend

FY14 EARNINGS

Early signs of a rebound in earnings growth; FY14 Sensex EPS to grow 14% to INR1,395 Our bottom-up estimates for the MOSL universe of companies (ex RMs) suggests FY14 EBITDA growth of 15% and PAT growth of 14%. This growth is driven mainly by (1) Bounce back in sectors which were affected in FY13 (Auto, Telecom); and (2) Steady growth in seculars (Consumer, Healthcare, Financials) offsetting low growth in specific sectors like Oil & Gas, Technology and Capital Goods. For the 5 years ending FY13, Sensex EPS CAGR has been muted at 8%. However, India's long period average (LPA) earnings growth is 15%. Now, our bottom-up earnings estimates for Sensex companies suggest FY14 Sensex EPS growth of 14%, close to the LPA. The key question: Is FY14 the beginning of a new earnings cycle? We believe there are a few early signs that this is a distinct possibility: 1. Earnings downgrade cycle has bottomed out 2. Our FY14 assumptions are not aggressive 3. FY14 earnings mix is less vulnerable than that of FY13 initial estimates 4. More stocks have a bias for earnings upgrade than downgrade.

INVESTMENT STRATEGY Valuations below long-term averages; scope to re-rate as growth returns

Strategy  Navin Agarwal [email protected]  Rajat Rajgarhia [email protected] Economist  Dipankar Mitra [email protected] Sources of exhibits in this section include RBI, CMIE, Bloomberg, IMF, UN, Rogers International, Industry, Companies, and MOSL database

October 2012

Combined action of government and RBI could lead to upgrades in FY13 GDP growth estimate (currently at 6.5%). Our earnings estimates for FY13 and FY14 have been stable for the last 2 quarters. We believe the downgrade cycle is now behind us. Recent government measures along with more to come, monetary easing, and stable to declining commodities can drive earnings upgrades, going forward. Valuations remain below historical averages (FY14 P/E of 13.5x v/s 10-year average of 14.8x). We see more upsides in markets from here. Our top Overweights are Financials (ICICI / SBI / LIC Housing), Infrastructure & related (L&T, Jaiprakash) and Autos (Tata Motors, Maruti). Our key Underweights are Consumer, Technology, Oil & Gas and Utilities. We have a significant allocation to mid-caps too. Our preferred picks are Yes Bank, MCX, CESC, Hexaware, Petronet, Sun TV, JSW Energy and Oberoi. A–3

India Strategy | Fired up?

MARKETS Indian equities – Top performer in CY12 YTD In 3QCY12, Indian markets yielded 8% return QoQ, after an almost flat 2QCY12. With this, the BSE Sensex is up by 21% YTD CY12, and among the best performing markets globally. As the recent series of reforms led to significant appreciation in currency, USD return of Sensex at 22% is also among the best. With this performance, India now trades at a marginal premium to the rest of the global markets, well supported by an expected rebound in FY14 corporate performance 14% earnings growth coupled with a strong 17% RoE. The confidence of FIIs has remained intact throughout CY12, despite a significant slowdown in macroeconomic parameters. They have bought another USD16b of Indian equities, while DIIs have been big sellers to the extent of over USD7b. Indian markets grew 8% in 3QCY12 after a flat 2QCY12 49 31

9

2 0 1

1

-5 -3

-6

-25 Sep-08

Mar-08

Sep-07

Mar-07

Sep-06

Mar-06

Sep-05

Mar-05

Sep-04

Mar-04

Sep-03

Mar-03

Sep-02

0

-14

-14

8

-13

-23 Mar-02

2

-4

-5

-6

13

Mar-11

-10

-19 Sep-01

-2

-4

Sep-09

-8

Mar-09

-6

13

12

11

Sep-12

6

18

18 17

17

Mar-12

11

20

Sep-11

20

16 18

13

Sep-10

23

Mar-10

18

16

No negative quarters in 2012 to date, despite several challenges facing the economy and corporate sector

World Equity Indices CY12YTD (local currency, %) World Equity Indices 3QCY12 (local currency, %) Indi a - Sens ex

21

S&P 500

India is amongst the top performing markets globally in 2012

15

9

South Korea

8 8

MSCI EM

9

Indi a - Sens ex

South Korea

9

MSCI EM

Ta i wan

9

S&P 500

6

Tai wan

6

5

Ja pan

7

Rus s i a MICEX

4

UK

Bra zi l

4

Chi na

3

Rus s i a MICEX

2

UK Chi na (HSCEI)

October 2012

Brazi l

3 -1

Japan

3

-2

A–4

India Strategy | Fired up?

World Equity Indices CY12 YTD Perf (%) in USD

South Korea

14

Brazi l

8

Ta i wan

13

Tai wan

8

MSCI EM

Even in USD terms, India's performance has been amongst the better ones

11

South Korea

15

S&P 500

13

Indi a - Sens ex

22

India - Sens ex

World Equity Indices 3QCY12 Perf (%) in USD

MSCI EM

9

Rus s i a MICEX

7

Rus s i a MICEX

UK

7

UK

China (HSCEI) Bra zi l

7 6 6

S&P 500

4

Ja pan

7

Chi na (HSCEI)

-1

Japan

-4

3 1

India v/s World: Richer valuations supported by superior growth and profitability Global Indices EPS growth and PE Global Indices P/B and RoE

12

1.6

2.0

2.3

16

17

2.6

11 15

Average P/B :1.5x Average RoE: 13.6%

Pvt-Ba nks

19

Sectoral Performance for CY12 YTD (%) 15

Pvt-Ba nks

43

Rea lEs ta te

11

Cons umer

36

Cons umer

10

Capita l Goods

36

Auto

10

PSU-Ba nks

35

Hea lthca re

9

Rea l Es tate

34

Capi tal Goods

9

BSEMid-Cap

29

Sens ex

8

Hea l thcare

28

BSEMi d-Cap

7

Auto

28

Oi l

7

Sens ex

4

PSU-Ba nks

21

Oi l

15

Uti li ti es

3

Uti l iti es

14

Technol ogy

3

Meta l

13

Metal Tel ecom -8

October 2012

1.5

10 15

Sectoral Performance for 3QCY12 (%)

Banks and Consumer have been the top performers in 2012

1.3

Indonesia

12

1.2

India

11

1.2

US-S&P500

1.1

13 28

India

Indonesia

Singapore

UK-FTSE

1.1

Taiwan

14

0.6

RoE (%) CY13 / FY14

UK-FTSE

18

14

Singapore

9

13

HongKong

12

13

Average P/E :10.9x 32 Average EPS Growth: 14.7% Brazil

17

8

13

China

11

Korea

China

Russia

15

12

Korea

-2

10

Brazil

10

Russia

10

US-S&P500

9

HongKong

5

8

P/B (x) CY13 / FY14

EPS Growth CY13/FY14 (%)

Taiwan

PE (x) CY13 / FY14

-2

3

Technol ogy Tel ecom

-17

A–5

India Strategy | Fired up?

Sensex Stock Performance CY12 YTD (%) 60 54 50 47 47

40 38 35 34

L&T, ICICI Bank the top performers in CY12

27 23 21 21 20 19 19 19 15 11 11 9 5 4 4 3 0 -1 -4 -6 -8

L&T ICICI Bank TataMotors HDFCBank Maruti SunPharma SBI ITC HUL M&M TataPower SENSEX Reliance TataSteel CoalIndia Cipla HDFC Bajaj Auto TCS Sterlite ONGC NTPC Dr Reddy's Hindalco BHEL GAIL HeroMoto Wipro JSPL Infosys Bharti

-23

Sensex Stock Performance 3QCY12 (%) 22 20

20 18 18 17 15

14 13 12

10 9 9 8 6 5 5 4 3 2 1 1 1 0 -9 -9 -12 -13

M&M Cipla HUL HDFC ICICI Bank BajajAuto Maruti L&T RelianceInd. HDFC Bank TataMotors SunPharma GAIL SENSEX BHEL NTPC ITC SBI Coal India TataPower TCS Infosys Hindalco DrReddy's ONGC Sterlite Wipro JSPL TataSteel Hero Moto Bharti

-2 -3 -5

Trend in net FII Investment (USD b) Annual Trend

Quarterly Trend 29.3

6.4

6.9 5.2 4.4 2.3

0.1 0.8

-0.5

Trend in net DII Investment (USD b) Annual Trend

3.0 3.2

2.4

2.1

Sep-12

Jun-11

Mar-11

Dec-10

Sep-10

Jun-10

2.4

1.8 0.8

0.5

0.4

2.1 0.8

0.6

0.5

5.9

5.3

5.4

Mar-10

Quarterly Trend

16.9 Indian institutional investors have been net sellers of equities Jan-09 to date

3.7

Dec-09

Sep-09

Jun-09

Dec-08

-1.0 -0.4

-1.3 Mar-09

-2.4-3.3 Sep-08

CY12 YTD

CY11

CY10

CY09

CY08

CY07

CY06

CY05

CY04

CY03

CY02

CY01

CY00

-12.2

0.1

Jun-12

10.8 8.1 6.7 8.6

9.1

7.4

Mar-12

16.1

Dec-11

1.5 2.7 0.7

17.6

Sep-11

17.8

12.6 10.1

-2.2 -3.4 Sep-12

Jun-12

Dec-11

Sep-11

Jun-11

Mar-11

Dec-10

Sep-10

Jun-10

Mar-10

Dec-09

Sep-09

Jun-09

Mar-09

Dec-08

CY12 YTD

CY11

CY10

CY09

CY08

CY07

CY06

October 2012

Sep-08

-5.2 -7.4

Mar-12

-4.7

-4.4

A–6

India Strategy | Fired up?

MACRO ECONOMY Re-starting the policy engine; FDI in limelight Further growth catalysts: Lower deficits, improved flows, monetary easing The UPA-2 government had significantly disappointed the Indian markets by abstaining from any critical policy decisions to improve the looming macroeconomic crisis - industrial production slump, high inflation, high interest rates, depressed investment climate and damaged global perception of India. India has a track record of initiating far-reaching reforms only when faced with extreme crisis. With a precipitous fall in the Indian rupee coupled with a rating downgrade staring India, the government finally bit the proverbial bullet with a change in Finance Minister and a series of policy measures, even at the cost of severing ties with the largest ally, TMC (Trinamool Congress led by Mamta Banerjee).

FDI

This, in turn, has catalyzed a slew of measures in the last few weeks that has led to an improvement in sentiment. These measure include (1) fuel price hike, (2) opening/relaxing FDI in multi-brand retail, aviation, broadcasting, (3) Cabinet approval to raise FDI in insurance and pension fund, (5) easing of fundraising abroad, (6) proposed GAAR implementation, etc. It also appeared to wade through the political fallout of these measures. Simultaneously, the government also sought to give a thrust to development by finalizing the 12th Plan, putting in place a mechanism to monitor large infrastructure projects at the PMO level, developing an airport hub, international airports, etc. While reality will take a lot longer to reflect the first round of reforms, and require several more follow-up initiatives, the perception has undoubtedly started changing for the better. To some extent, this is visible in INR appreciation, revival of flows and market sentiment. In this backdrop, we attempt to reassess three factors that can act as significant catalysts for further economic revival (1) fiscal situation (2) domestic flows into equity markets, and (3) possible shift towards a more accommodative monetary stance.

A. Fiscal deficit slippage to be of lower order than envisaged earlier YTD FY13 fiscal situation has remained stressful So far, the current financial year has displayed weaknesses on the fiscal front, with receipts falling short of expenditure, widening the fiscal gap (23% YoY).  On the receipts side, while tax revenue was buoyant (21% YoY), non-tax revenue (9% YoY) and capital receipts (-50% YoY) fell with spectrum sale and disinvestment yet to take off.  On the expenditure front, subsidy ballooned resulting in highest ever non-plan spend as a share of full-year budget in 15 years at 43%. Curtailment of plan expenditure (12% YoY) was not enough to bring the overall spending as a percentage of full-year budget at 38% higher than the long period average (LPA) of 35%. 

October 2012

A–7

India Strategy | Fired up?

This resulted in the deficit indicators surpassing their 15-year averages by a fairly wide margin. Fiscal deficit reached 66% of full year target (v/s LPA of 52%) while the same for revenue deficit was as high as 79% (v/s LPA of 68%).  All these resulted in our prediction of a large fiscal slippage placed at 5.9% of GDP (as against the budgeted 5.1%), taking it closer to the FY12 level, indicating no fiscal correction YoY. If the current trend would have continued, the worst case fiscal deficit could stand as high as 6.3%. 

While tax trends have kept up with LPA, total receipts have lagged behind Tota l Recei p ts

35% 25% 15%

5MFY13

5MFY12

5MFY11

5MFY10

5MFY09

5MFY08

5MFY07

5MFY06

5MFY05

5MFY04

5MFY03

5MFY02

5MFY01

5MFY00

5MFY99

5% 5MFY98

As % of Budgeted Amount

Tax Reven ue (Ne t) 45%

5MFY12

5MFY13

5MFY12

5MFY13

5MFY11

5MFY10

5MFY09

To tal Expe ndi ture

5MFY08

5MFY07

5MFY06

5MFY05

5MFY04

5MFY03

Pl an Expe ndi ture

5MFY02

5MFY01

5MFY00

5MFY99

Non-Pl an Expend i ture 48% 44% 40% 36% 32% 28% 24% 20% 5MFY98

As % of B udgeted Amount

Highest ever non-plan expenditure along with lower than LPA plan expenditure

Fi scal Defi ci t

October 2012

Reven ue De fi ci t

200% 150% 100% 50% 5MFY11

5MFY10

5MFY09

5MFY08

5MFY07

5MFY06

5MFY05

5MFY04

5MFY03

5MFY02

5MFY01

5MFY00

5MFY99

0% 5MFY98

As % of Budgeted Amount

Deficit indicators stay well above the long period average

A–8

India Strategy | Fired up?

Our initial fiscal deficit estimate for FY13 pegged it at 5.9% 6.5 5.5 4.5

-0.3 5.9

minus cash carry forward

add shortfall in disinvestment

add shortfall i n spectrum

drought

add food, fert.,

add fuel subsidy

FY13BE

5.1

FY13E

3.5 2.5 1.5

0.1

0.2

0.3

0.6

Slew of measures taken may take fiscal deficit to GDP ratio to 5.5% in FY13  

Divestment



Roads 

Spectrum

Coal







The recent policy measures taken by the government, however, have changed the deficit outlook significantly for the remaining part of FY13. As a first measure, the government increased the price of diesel and capped the subsidized quantum of LPG, along with rationalization of taxes, resulting in a net gain of INR100b to the exchequer. To kick-start the disinvestment program, the government has shortlisted four PSUs. Besides, it is considering alternative and fast track mode of disinvestment through strategic sale of Hindustan Zinc, Balco and SUUTI. All these may take the disinvestment proceeds higher than the budgeted amount of INR300b. The government has also alerted PSUs to transfer their huge cash reserves as special dividend or undertake fresh investment. Either way, it would help bridge the fiscal gap. As evidenced by recent experiences, the provision of planned expenditure has exceeded actual expenditure by a fair margin. Continuation of this trend would provide a cushion of INR200b buffer to spillover of non-plan spend, especially on subsidies. The recent Supreme Court opinion on Presidential reference has possibly given additional levers to the government for meeting its resource sale targets (eg. Spectrum, land, coal mines etc). The above measures undertaken and contemplated have led us to reduce our fiscal deficit estimate to 5.5% of GDP from 5.9% earlier. Further, we expect no additional borrowing, as the extent of fiscal slippage is small and can be met by recourse to short-term borrowing.

Recent policy measures have rekindled hope of containing slippage at manageable levels

As % of GDP

6.5 6.0 0.1

5.5 5.0

0.1

0.2

5.9

5.5

4.5 4.0 F Y13 - Ea rl i er esti m ate

October 2012

l ess l e ss l ower o i l di si n ve stm ent b ill

l e ss l ower p l an expend i ture

FY13E - Revi s ed

A–9

India Strategy | Fired up?

A few factors that can alter the fiscal scenario dramatically Disinvestment

i)

Planned expenditure

Special dividend from PSUs

Spectrum sale

Government approved disinvestment of four PSUs including three mining and one OMC. This would mobilize INR150b. i i ) Vedan ta Group incr eas es the offer f or s trategic sale of Hindustan Zinc and Balco to INR220b. i i i ) SUUTI stake sale to garner INR200b. A curtailment in plan expenditure would free up sizable resources. For example, in FY12, planned expenditure grew 12.6% against 16.5% growth provided in the budget. A 4% scaling back on 22% growth in plan expenditure in FY13 would free resourses to the tune of INR200b, or 0.2% of GDP. The nine cash rich PSUs have significant cash balance with them. Even if a part of this is ploughed back to the government, it would reduce fiscal deficit. The government has budgeted ~INR400b out of telecom spectrum sale. The recent Supreme Court opinion on Presidential reference has possibly given additional levers to the government for meeting its resource sale targets (eg. Spectrum, land, coal mines etc).

Expect fiscal consolidation in FY14 despite higher welfare bill  



 

The fiscal consolidation attempt is likely to be carried forward to FY14, aided by a few additional factors. We expect GDP growth to revive to 6.5% in FY14 from 5.8% in FY13. In the past, we have seen that revenue buoyancy improves on the back of higher GDP growth. Imputing this trend, the tax-GDP ratio in FY14 should touch FY09 levels (close to 8%), but be lower than the levels seen during the FY07-08 peak (8.2-8.8%). Reform in petroleum product prices together with the oil and INR outlook would result in lower petroleum subsidy bill in FY14 to INR660b than INR1.1t in FY13. This would create the necessary headroom for implementing the Food Security Bill (if only on a limited scale to begin with) even if the principle of limiting subsidies to 2% of GDP is broadly adhered to. Additionally, as witnessed during the previous episode of fiscal correction, the planned expenditure growth may be pruned to only 14-15% if need be. These three factors, viz., higher revenue buoyancy on account of faster growth, reduction in petroleum subsidy and cutback on planned expenditure would see FY14 fiscal deficit ratio improving to 4.5% to GDP as envisaged in the revised fiscal consolidation framework (FRBM).

With better growth in FY14, tax-GDP ratio is expected to inch up Tax-GDP

10

GDP growth

8 6 4 2

October 2012

FY14E

FY13BE

FY12RE

FY10 FY11

FY09

FY07 FY08

FY06

FY05

FY02 FY03 FY04

FY00 FY01

FY99

FY97 FY98

FY95 FY96

FY93 FY94

FY92

FY90 FY91

0

A–10

India Strategy | Fired up?

Containment of oil subsidy would create headroom for Food Security Bill and still keep subsidy bill within 2.2% of GDP Fe rti l i ze r

Foo d

Petrol eu m

Oth ers

Sub si dy a s % o f GDP (RHS)

3,000

3

2,000

2

1,000

1

0

0 FY12RE

FY13BE

FY13E

FY14E

India plans to come back to revised FRBM track 6.0

5.9

5.7

5.3

4.5

3.9

FY15 - FRBM

FY14 - FRBM

FY13E

FY12

FY11

FY10

2.5

FY09

3.3

FY08

3.9

4.0

6.4 4.7

FY07

FY04

FY03

FY02

FY01

4.5

FY06

6.2

FY05

5.7

B. Likely revival of flows to equity market  





 

October 2012

Even during strong years for equity markets, a low share of savings actually gets channelized to the same. While the average share of household equity investments stands at 5% of financial savings, it goes down to half of that level and less than 2% when taken as a share of household savings and overall savings of the country as a whole. Even within that, there is a wide variation, with household savings as a percentage of financial savings varying between a negative 0.9% to a high of 12.8% in the last decade. In recent years, flows to equity market (comprising of investments from mutual funds, insurance, etc.) have been negligible due to GDP slowdown and nonperformance of the domestic equity market. With the revival in growth and recent market performance, interest in equity market should revive. The government in recent weeks has been in active engagement with the domestic mutual fund and insurance sectors to initiate reforms and revive inflows. This, along with the likely drop in interest rates and improved GDP growth, should create a positive backdrop for domestic flows into Indian equities. These flows typically come in phases, and the next 3-4 years could be one such significantly positive phase.

A–11

India Strategy | Fired up?

However, a mean reversion can lead to USD30b of domestic flows into equity market DIIs in ve stment (LHS) - Bas e cas e DII (as % of fi n . s avi n gs ) - Ba se cas e

DII (as % of fi n. savi ngs) - Bul l cas e DII (as % of fi n.s avi ngs) - Bear cas e

36

USD48b

(USD b)

27

USD31

18

USD13

9 0 FY17E

FY16E

FY15E

FY14E

FY13E

FY12

FY11

FY10

FY09

FY08

FY07

FY06

FY05

FY04

FY03

FY02

FY01

-9

12 9 6 3 0 -3 -6

C. Monetary policy: Case for change in policy stance   



  

 



October 2012

So far, RBI has maintained a strict anti-inflationary stance, as inflation has stayed above its comfort level for too long. However, a few factors have changed, raising hopes that inflation could moderate, going forward. At the outset, rapid appreciation of the INR changes the inflationary outlook for the petroleum and manufacturing group inflation with expected easing of 2240bp for these groups. Moreover, after the initial bout, the impact of QE3 on commodities has been rather limited. This, together with INR appreciation, has aligned the commodity trends in India and abroad. This would yield positive benefits for core inflation in India, which is expected to move back towards 5% by March 2012 after hardening to 6% in the near term. Thus, while a firm up of the inflationary trend appears inevitable for 3QFY13 (~8%), it is expected to ease considerably in 4QFY13 (7.6%). RBI is also likely to take due note of the improving fiscal outlook and slew of reform measures initiated - the two reasons put forward by it for not easing policy rates further more. Thus, a cut in the policy rates in October 2012 is highly probable. Meanwhile, RBI's liquidity injections in the form of OMO have been a big relief on the liquidity front, which has come to the striking distance of being in surplus mode on latest count. This has eased market rates considerably, well ahead of RBI's rate cut. Irrespective of the possibility of further rate cut, RBI must keep liquidity intervention ongoing, as policy rate easing could only be made effective in a situation of lower liquidity deficit. As money supply growth at 13.4% as at September 2012 remains well within RBI's indicative projection of 15%, there is space for further monetary easing without creating inflationary impulses.

A–12

India Strategy | Fired up?

INR appreciation would reduce the gap between commodity price trends in India and abroad Ro gers USD (Yo Y %)

Core inflation would go below 5% again by March 2013, if INR appreciates to 52 in 2HFY13

Ro gers INR (YoY %)

10

‐10

4

‐5

‐20

2

‐20

Oct‐12

Sep‐12

Apr‐12

Jan‐12

Indi a 's core i nfl ati o n

Mar‐10 May‐10 Jul‐10 Sep‐10 Nov‐10 Jan‐11 Mar‐11 May‐11 Jul‐11 Sep‐11 Nov‐11 Jan‐12 Mar‐12 May‐12 Jul‐12 Sep‐12 Nov‐12 Jan‐13 Mar‐13

6

Aug‐12

0

Jul‐12

25

Jun‐12

8

May‐12

10

Mar‐12

R oge rs INR (RHS) 40

Feb‐12

20

10

Inflationary pressures may ease somewhat on INR appreciation and easing commodity prices F Y13E ‐ Earl i er

Liquidity is coming close to neutral zone now LAF bala nce (ne t reverse repo ) (LHS) 3mth CP rates (RHS)

FY13E ‐ Revi se d

9.0%

900

8.5%

12

400

8.0%

7

‐100

7.5%

2

Apr‐ 10 Jun‐10 Aug‐ 10 Oct‐10 Dec‐10 Feb‐11 Apr‐ 11 Jun‐11 Aug‐ 11 Oct‐11 Dec‐11 Feb‐12 Apr‐ 12 Jun‐12 Aug‐ 12 Latest

Mar‐13

F eb‐13

Jan‐13

Dec‐12

Nov‐12

‐8

Oct‐12

‐1600

S ep‐12

6.0% Aug‐12

‐3

Jul‐12

‐1100 Jun‐12

6.5% May‐12

‐600

Apr‐12

7.0%

RBI would consider improved fiscal Expect RBI to cut rates going forward outlook for monetary easing Re po R ate 8% 7%

6.25%

Jan ‐12 5.50%

6.00%

6%

October 2012

4%

Oct‐12 7.50%

R BI surprised the mkt Sep‐12 Oct‐12 4.50% 4.00%

Mar‐12 4.75%

Dec‐12

Oct‐12 Nov‐12

Jul‐12

Aug‐12 Sep‐12

Jun‐12

Jan‐12 Feb‐12 Mar‐12

Nov‐11 Dec‐11

Oct‐11

Aug‐11

Sep‐11

Jul‐11

Jun‐11

Apr‐11 May‐11

Feb‐11 Mar‐11

3% Jan‐11

FY13 (Current expectations)

5%

FY13 (Earl ier expectations)

FY13BE

Apr‐12 8.00%

8.50%

Apr‐12 May‐12

5.3

5.1

Cash Res erve Ra ti o

9%

5.9

A–13

India Strategy | Fired up?

INVESTMENT Addressing logjam the next big challenge Requires more involved decision making process 

 

After a long hiatus during which the government was widely criticized for policy inaction, and the opposition and coalition politics too were blamed for stalling key reforms, the government seems to have tightened its belt to streamline the decision making process. The first round of reforms has centered around FDI approvals, subsidy rationalization and discussions on improving capital market flows. The next big challenge is to address the investment logjam. However, unlike the initial set of reforms that have been largely addressed through policy decisions, the investment phase requires a more involved decision making process, as land, water, resources, etc, are the prerogatives of the state governments.

Crystal gazing: What can possibly revive the investment climate? The investment climate has worsened over the past 18 months due to structural impediments, policy uncertainty, persistent inflation and rising interest rates. We believe that the government will kick-start its efforts towards reviving the investment climate by accelerating public spending. Our action wish list includes:  Successful resolution of the contentious issues in the Power sector (through SEB debt recast, standard bidding document, and coal price pooling)  Close monitoring of CPSU capex (FY13 investment target at INR1.8t is double the highest ever - INR931b in FY11)  Take-off of large public expenditure projects (like Dedicated Freight Corridor, railways, urban transport, etc). Addressing structural issues impacting infrastructure investments has become important.  Acceleration of financial sector reforms, including corporate bond market and access to Insurance / Pension money for investment projects. Also, an expenditure switching strategy is required that reduces government revenue spending by cutting subsidies and steps up capital expenditure to crowd-in private investments.  Successful implementation of the National Investment Board that will provide "single window" clearance. The government has identified 89 projects worth USD20b for fast track clearance.

Rays of hope include… Decline in global commodity prices Currency appreciation  Moderation in interest rates  Fiscal consolidation, leading to possible crowd-in of private investments  

Slowdown more pronounced for industry, particularly in core sectors The investment climate has worsened over the past 18 months due to structural impediments, policy uncertainty, persistent inflation and rising interest rates. The slowdown has had a pronounced impact on GDP growth rate. Addressing the current logjam is the next big challenge. Industrial sector has acted as a continued drag on the overall GDP growth with its contribution to GDP dropping to 10-20% currently from 30-50% earlier. Moreover, industry has been particularly stuck by the empty middle structure with investment facing sectors dragging industrial growth to near zero level. October 2012

A–14

India Strategy | Fired up?

Collapse in the Industrial growth had triggered a downgrade in GDP

60 45

0

8

30

-10

4

15

0

0

YTDFY13

Nondurables

Durables

Consumer goods

-20 Intermediate goods

FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 Jun-11 Sep-11 Dec-11 Mar-12 Jun-12

FY12

10

12

Capital goods

16

FY11

20

Basic goods

Sha re of Indus try in overal l growth (%, RHS) Indus try growth GDP growth

Empty middle structure continues to haunt

Structural issues impacting growth remain unaddressed The next big challenge is to address the investment logjam, but this is easier said than done. Unlike the initial set of reforms that have been largely addressed through policy decisions, the investment phase requires a more involved decision making process, as land, water, resources, etc, are the prerogatives of the state governments. Execution is the key challenge, as several structural issues impacting growth remain unaddressed. We identify the key structural issues in core segments like Utilities, Metals, Financials, Telecom, Oil & Gas and Infrastructure: #1 UTILITIES: Initial steps encouraging, but new investments sometime away #2 METALS & MINING: Huge investments stuck; will require close monitoring #3 FINANCIALS: Loan growth moderating; revival will ease asset quality concerns #4 TELECOM: Spectrum pricing and allocation, conducive M&A policy critical #5 OIL & GAS: Rational product pricing, gas reforms imperative #6 INFRASTRUCTURE: Creating conducive environment for large scale development #7 MEGA PROJECTS: DFC, railways, urban transport can accelerate investment spend

#1 Utilities

Initial steps encouraging, but new investments sometime away The Indian Utilities sector has seen step-up in capacity addition under the 11th Plan to 52GW v/s ~20GW in the earlier plan period. However, the fuel supply ramp-up, both for coal and gas projects has been below par, impacting project economics. Additionally, higher commercial losses of DISCOMs have also impacted affordability, investments in T&D and growth in demand for power. Over the last 12 months, the Prime Minister's Office (PMO), Ministry of Petroleum (MoP) and Ministry of Coal (MoC) have taken several measures to put the sector back on track. These include (1) financial restructuring plan (FRP) for DISCOMs, (2) steps to enhance rake availability / easing of environment norms to help ramp up domestic coal production, and (3) steps being taken to formulate new bid document, which would have fuel cost as pass-through under tariff. While these measures are

October 2012

A–15

India Strategy | Fired up?

encouraging, their successful implementation would first boost current/upcoming capacity additions under the 12th Plan. We believe new investments in the Power sector, particularly by the private sector, are still sometime away. Private developers might face issues, given higher DER, existing PPA/FSA issues, ventures like overseas mine acquisition, etc.

(a) DISCOMs: Weakest link in value chain but recent initiatives to drive improvement losses

at

Key measures that will drive improvement

-596

Financial restructuring plan (FRP)

FY12E

-669 FY11E

-635 FY10

-537

Particulars Tariff increase

FY09

-319 FY08

-271 FY07

FY06

-209

Commercial INR600b+

LT power availability / ST power cap

Remarks Loss making states like Tamil Nadu, Rajasthan and Haryana have raised tariffs. UP too has filed tariff petition. Fuel adjustment on quarterly basis. State regulator empowered to carry out suo moto tariff hike. State government (50%) and lenders (50%) to recast debt of INR1.9t. Conditions include (1) abolition of any gaps between revenue and cost, (2) annual tariff revision, (3) audit of books, (4) reduction in T&D losses, etc. Central government support of INR240b for debt to be assumed by state. Incentive-based scheme for T&D loss reduction. Higher availability at lower rates given sizable capacity addition. ST power procurement monitored and now through bids only. Cap on ST procurement as also regulatory approval.

OUR VIEW: Positive Impact of above measures  DISCOMs would have higher cash inflows through tariff, while moratorium would provide cushion in cash outflows, which would drive growth in power demand.  Lenders relatively secured now, as state government is made party to restructuring - should start incremental disbursement/growth.  Kick-start investment in T&D sector, as reduction in AT&C losses is a precondition to avail benefits.

(b) Fuel, PPA issues at the forefront; domestic production ramp-up is key; new bid document to allow fuel cost pass-through Shortfall in meeting capacity addition beyond FY10 FSA Qty

Cumulative Requirement CIL's total OLD FSA Quantity @ 80% supply Comm.# FY10 24 24 19 298 274 FY11 25 49 39 304 274 FY12 72 121 97 312 274 FY13E 40 161 128 347 274 FY14E 44 205 164 377 274 FY15E 47 252 201 407 274 #Assumed old FSA will be given coal only up to 90% ACQ levels till FY09. assuming 65% domestic supply and 15% import for 80% trigger level are

October 2012

Supply to Shortfall new FSA 24 0 30 -9 38 -59 73 -55 103 -61 133 -68 * Calculated sacrosanct numbers

A–16

India Strategy | Fired up?

PPA review sought Developer Adani Power JSW Energy Tata Power

Cap (MW) 1,000 300 4,000

Reliance Power

4,000

Lanco Infratech Jaiprakash Power

600 1,000

Remarks GUVNL PPA signed at INR2.39/unit is proposed to be reviewed PPA with MSEDCL under contest, given change in Indonesian laws Mundra UMPP tariff review sought; INR0.67/unit increase on levelized tariff bid of INR2.26/unit Krishnapatnam UMPP progress halted due to Indonesia price regulation Amarkantak project PPA in dispute with state over cost, tariff cap, etc Karcham Wangtoo project PPA under review due to cost escalation

Key measures taken to address issues Particulars Coal production

PPAs

Remarks CEPI and No-Go hurdle removed Rake availability enhanced Greater focus on captive coal development Mandate to sign FSA to bring accountability Review taken up for discussion at various levels Auditor General's view sought - PPA can be reviewed New bid document under preparation - bid on capacity charge ONLY, fuel cost pass-through

OUR VIEW: Steps in right direction; would watch for milestone/ improvement Impact of above measures  Coal India's production has begun to look up - production/dispatches up 7.6%/ 6.2% YTD FY13 v/s near-zero growth in FY12. Domestic coal supply improvement to enable low cost power availability to DISCOMs.  Coal price pooling would be inevitable to tide over domestic shortfall through imports - states' consent crucial.  New projects would have significantly lower risk, as developers bid on capacity charge and fuel cost pass-through - an important enabler to kick-start investment process.  Captive coal block development now being monitored and developers made accountable; several instances of de-allocation, forfeiture of bank guarantees.

#2 Metals & Mining

Huge investments stuck; will require close monitoring Metals & Mining is another sector that will require close monitoring to restart the investment cycle. The huge investments made by various companies are stuck at different levels. Various projects of Vedanta, Hindalco, JSPL, JSW Steel, Tata Steel, etc still face delays because of issues relating to land acquisition, mining clearances, availability of water, etc. These issues are yet to be addressed in the current wave of reforms. Vedanta has served notice for its closure, as it is unable to source bauxite despite proximity to mines in Odisha and has already run losses of INR25b. Operating assets are closing down and projects are getting delayed.

October 2012

A–17

India Strategy | Fired up?

The following examples highlight the deteriorating state of investments Economic activity/Projects Mahan 359ktpa smelter and 900MW CPP

Issues Coal block was allocated in JV with Essar Energy in 2006. Production was expected to start in 2009. The Mahan Coal Block was declared in no-go area in 2010. EGOM gave the coal block stage-I forest clearance in May 2012.

Mining ban in Goa

Iron ore mining in Goa is largely meant for exports. The low grade ore can be used after blending it with high grade ore. High cost of logistics makes it unviable for Indian steel producers. Ineffective administration was unable to check illegal mining. The Shah Commission report made numerous allegations. Clueless state and central governments put a blanket ban on mining, impacting even the disciplined players. JSPL's 1.6mtpa steel expansion in Angul involves a coal gasification based DRI plant. The Utkal B1 coal mine is essential for the profitability of the project.

JSPL, Angul (Greenfield project)

#3 Financials

Current status INR86b has already been spent from the total INR107b. Without stage-I approval, production is not expected in the next two years. The project NPV is negative without captive coal block. There is no further communication by the government on coal block clearance since May 2012. The Goa government temporarily suspended all mining operations in the state in September. In a tug of war between the state and the center, the MoEF later suspended environmental clearances for iron ore mines. This has complicated the matter further for restart of mining in the state.

JSPL is yet to sign mining lease despite most approvals in place for the last one year. The issue keeps moving between the state and central governments, as officials are reluctant to take any action in light of the controversy over various mine allotments. The mantra seems to be "no decision is a good decision".

Loan growth moderating; economic revival will ease asset quality concerns Dearth of deployment opportunities leading to moderation in loan growth: Given the backdrop of slowing economic growth, policy logjam and issues related to documental clearances, corporate capital spending has slowed down significantly. CMIE data indicates that new project investments in FY12 have declined 35% and are lower than in FY07. The deceleration continued in 1HFY13 as well, with new investments declining by as much as 50% YoY. This has also translated into moderate loan growth, with deceleration in key sectors like Infrastructure (especially Power), Metals and Services. Incremental loan growth decelerating (INR b)

Added

Revi ved

Shel ved

Del eted

On a quarterly basis, incremental loans decelerated in FY12 except in 4Q and the trend of deceleration continues in FY13 FY08

FY09

FY10

FY11

2,000

October 2012

Jul-12

Sep-12

Mar-12

May-12

Jan-12

Nov-11

Sep-11

Jul-11

Mar-11

May-11

Jan-11

Nov-10

Sep-10

Jul-10

May-10

Mar-10

0

1Q

2Q

1,211 1,066 1,499

-87 437 256

4,000

1,109 1,454 791 171 605 56

6,000

1,634 1,461 561

8,000

3Q

FY12

FY13

2,154 1,124 2,202 1,767 3,279

Quarterly project additions in the quarter ended September 2012 lowest since June 2004

3,401 2,170

New project additions slowing down

4Q

A–18

India Strategy | Fired up?

Loan growth has moderated across key segments (%)

Loans Industry within which Infrastrcuture Of which Power Of which Telecom Of which Roads and Ports Metals Textiles Services Real Estate NBFCs Personal Loans Housing Loans Agriculture * till August 2012: annualized

YoY Growth Mar-10 Mar-11 Mar-12 16.6 20.8 17.2 24.4 23.6 21.3

Mar-09 17.8 20.9 31.5 30.9 31.5 36.5 19.7 6.5 18.3 48.4 31.3 10.1 9.3 23.8

40.7 50.9 18.0 56.3 26.5 18.2 12.5 -0.3 14.8 4.1 7.7 22.9

38.6 43.3 69.2 25.8 28.8 19.2 23.9 21.4 54.8 17.0 15.0 10.6

Incremental Contribution Mar-09 Mar-10 Mar-11 Mar-12 100.0 100.0 100.0 100.0 45.6 58.4 48.1 53.9

YTD* 4.4 2.4

17.6 22.2 -6.8 23.6 21.8 10.4 14.7 7.8 26.3 12.1 12.1 13.5

9.8 19.3 -13.6 13.9 12.7 -5.6 -0.3 -9.6 20.3 13.6 18.7 2.1

16.1 7.3 3.0 3.1 5.3 1.6 24.9 7.5 5.9 12.9 5.9 16.2

24.9 14.4 2.1 6.0 7.8 4.2 18.3 -0.1 3.3 5.3 4.9 17.6

22.8 12.7 6.4 3.0 7.3 3.6 27.1 3.1 9.7 15.5 7.0 6.9

14.4 9.3 -1.1 3.4 7.1 2.4 20.6 1.4 7.2 13.0 6.5 9.7

YTD* 100.0 24.3 31.4 32.8 -6.5 8.2 16.8 -4.6 -1.9 -6.0 23.2 53.9 37.3 5.8

Cost of funds in the system needs to be lowered: With inflation being relatively sticky and above comfort zone, RBI has refrained from aggressive cuts in repo rate. Headline interest rates have remained at an elevated level. This is also reflected in higher term deposit cost (+160bp YoY) for banks under our coverage. Coupled with sharp fall in incremental CASA ratio (especially due to decline in CA deposits), cost of funds for the banking system has gone up significantly. With the current growth-inflation dynamics and government actions being pro-growth, it is important for interest rates in the system to go down to boost the improving sentiment. Incremental CASA ratio lowest in a decade (%)

Nega ti ve Carry on CRR

10.0 8.5 7.0 5.5 4.0

26 1922 16 13

29

54 4750 43 40 3336

0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5 5.0 5.5 6.0 6.5 7.0 7.5 8.0

FY12

FY11

FY10

FY09

FY08

FY07

6 9 0 3

FY06

FY11

19.5

FY10

FY09

FY08

FY07

FY06

FY05

23.2

FY05

29.9

36.1

34.2

FY04

37.6

FY04

Cos t of Depos i ts Cos t of Term Depos i ts Repo Rate

50.3

44.8

FY12

48.3

Reduction in CRR to bring down negative carry by 3-4bps

Cost of deposits has increased (%)

Repo rate/CRR cut would help the cause: Under the current base rate regime, for lending rate to decline, it becomes imperative for cost of funds to go down first. However, with repo rate at the current level of 8%, it is unlikely that term deposit rates (blended rate at ~8% v/s 6.5% in FY11; implies that cost of incremental term deposits is even higher) would decline. Hence, RBI action in the form of reduction in repo rate and CRR is warranted, which could ease pressure on systemic interest rates and in-turn, a gradual decline in lending rates as well. Government action along with supportive actions by the RBI is a must to combat the slowdown in the economy. October 2012

A–19

India Strategy | Fired up?

How did we derive incremental cost of deposits (including negative carry) of 8.7%?  Incremental SA ratio of 20% and CA ratio of 0% (due to sharp moderation in corporate profitability and better treasury management). Thus weighted average CASA cost stood at 0.4%  Share of retail term deposits in overall deposits at 60% and cost of deposits at 9%, thus weighted average cost of deposits at 5.4%  Share of bulk deposits at 20% with the cost of deposits at 9.8%, thus weighted average cost of deposits at 1.96%  Negative carry on account of CRR (50bp) and SLR (at 8% Yield on Investments at 10bp)

Incremental cost of fund have increased in the system

2.0 0.5

0.8

0.1

8.7 5.4

Reta i l TD Cos t

-ve Ca rry on SLR

-ve Ca rry on CRR

CASA Cos t

Bul k Dep. Cos t

Incr. Cos t of Dep.

Stress loans ex-AI and SEBs have increased 110bp v/s reported increase of 280bp: Stress loans for state-owned banks (MOSL coverage) have increased to 7.7% in 1QFY13 as compared to 4.9% in FY11. However, it is important to note that restructuring of SEB and Air India (state-owned entities) loans constituted bulk of the stress loans (1.7%), excluding which the increase would have been 110bp. The stated stress loans appear higher even on account of loans restructured prior to FY10 (2.1% of loan book), which would be eligible for removal from the restructured loan category if the Mahapatra Committee recommendations on restructuring are approved in the current form. Stress loans would decline significantly to 3.8% (ex-AI and SEBs) as against headline numbers of 7.7% (6% ex-AI and SEBs).

SEB and AI forms bulk of new restructer loans ( %) NNPA OSRL Of which AI and SEB Of Prior to FY10 OSRL ex AI and SEB Stress loans Stress Loans ex AI and SEB Stress Loans ex AI and SEB and loans restructured prior to FY10

1QFY11 1.1 4.2 4.2 5.3 5.3 -

2QFY11 1.1 4.1 4.1 5.2 5.2 -

3QFY11 1.1 4.0 4.0 5.1 5.1 -

4QFY11 1.1 3.8 3.8 4.9 4.9 -

1QFY12 1.2 3.8 3.8 4.9 4.9 -

2QFY12 1.5 3.8 3.8 5.3 5.3 -

3QFY12 1.6 4.1 0.1 4.0 5.7 5.6 -

4QFY12 1.5 5.3 1.2 2.1 4.2 6.8 5.6 3.5

1QFY13 1.8 6.0 1.7 2.1 4.2 7.7 6.0 3.8

Growth revival will assuage asset quality concerns: The key feature of the current economic slowdown is that it is particularly severe for the industrial sector. IIP growth decelerated to 3.1% in FY12 and is expected to decelerate to sub-2% in FY13. This is important from the Banking sector's perspective because the industrial sector accounts for ~45% of bank loans and improvement in economic growth could help assuage a lot of asset quality issues. Within Industry, we note that the proportion Power sector loans has increased to 7.5% in FY12 as against 4.2% in FY08. There could be increased stress in Power sector loans. However, the silver lining of the government's serious intent to improve the health of SEBs and resolve issues relating to the Power sector could be a big boost to the health of banks.

October 2012

A–20

India Strategy | Fired up?

#4 Telecom

Spectrum pricing and allocation, conducive M&A policy critical Over FY07-12, private telecom operators invested ~USD60b, including the outlay for 3G and BWA spectrum. Hypercompetition and lack of regulatory clarity has significantly impacted the return ratios of all operators, with the challengers currently incurring significant losses. Listed operators require an RPM increase of 12-64% to reach even the base RoCE level of 12%. Further investments in the sector have been curtailed due to low returns and lower availability of funding due to stressed balance sheets of most operators. Investment activity is unlikely to resume, unless balance sheets get repaired. RPM increase required to reach 12% RoCE (FY13 basis) Bharti (India & SA) Avg Capital Employed (INRb) 783 EBIT for 12% ROCE (INRb) 140 Wirelss traffic (b min) 997 Wireless revenue (INRb) 444 EBIT (INRb) 75 Wireless RPM (INR) 0.43 Incremental EBIT required (INRb) 66 Incremental revenue required (INRb) 82 Incremental RPM required (INR) 0.08 Wireless RPM required (INR) 0.51 % increase required 19

Idea 272 49 556 231 26 0.41 22 28 0.05 0.46 12

RCom 692 124 426 185 29 0.43 95 119 0.28 0.71 64

Some of the initiatives that the government can take to restore financial health of the sector are: 1) Clear policy on spectrum pricing and allocation, with visibility on roadmap for all spectrum blocks to be made available in the future 2) Putting all available spectrum to auction upfront rather than creating artificial scarcity by putting limited amounts for auction 3) Conducive M&A policy which can support transfer of spectrum from inefficient operators to efficient ones 4) Negotiation-based settlement on 3G intra-circle roaming and Vodafone tax case 5) Removal of policy overhangs like spectrum re-farming that might result in significant operational disruption as well as financial burden for the industry

#5 Oil & Gas

Rational product pricing, gas reforms imperative Petroleum product under-recoveries have been continuously rising in the last few years, led by increasing oil prices and a depreciating rupee. Gross under-recoveries for FY13 are likely to be at a new high of INR1.6t v/s INR1.4t in FY12. However, with oil price at ~USD110/bbl and the rupee appreciating, the outlook for the sector appears better. More importantly, over the years, the Indian economy has acquired increased resilience to high oil prices and high under-recoveries. If the average oil price were to remain at USD105-110/bbl in FY13/FY14, the import bill as well as subsidy estimate as a percentage of GDP would be well below FY09 levels, when oil prices had averaged at USD85-90/bbl. Recent steps by the Indian government to hike diesel prices and limit subsidized LPG cylinders are bold (though inevitable!), in our view. Further policy follow-up by fast-tracking the implementation of subsidy through cash transfer is positive.

October 2012

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120

9.0

FY14E

FY13E

FY12

FY11

FY10

FY09

FY08

FY07

-1.0 FY06

0 FY05

1.5

FY04

30

FY03

4.0

FY02

60

FY01

6.5

FY00

90

India's high oil dependence (~80%) overshadows the increased resilience of the Indian economy to high oil prices and high under-recoveries. Brent price of USD110/bbl now… India's net oil import bill and government subsidy burden as a percentage of GDP … is similar to Brent at USD85-90/bbl in FY09

Oil imports & subsidy (% to GDP)

Brent Crude Pri ce (USD/bbl ) - LHS Net petrol eum i mports (% to GDP) Petrol eum Subs i dy (% to GDP)

FY99

Brend Oil price (USD/BL)

Oil @ USD110 now is oil @ USD85-90 in FY09

Model diesel price hike of INR2/liter in FY14, exchange rate of INR54/52/USD for FY13/14

Rational petroleum product prices imperative for healthy economic growth: Controlling (under-pricing) petroleum products not only results in inefficiencies such as (i) substitution of low value products (e.g. fixed price diesel replacing marketpriced fuel oil), and (ii) adulteration, but also impacts (a) India's energy security, (b) financial health of oil companies (increased debt, reduced profitability), and (c) government finances (high fiscal deficit). If India's GDP were to grow by 9%, energy consumption would grow by 6-7%. Rational energy prices are necessary for healthy economic growth. They would also incentivize domestic producers to increase their production.

Under-recoveries and their sharing (INR b) Sensitivity of under-recoveries to oil price/exchange rate (INR b)

695

1,000

0

426

508

FY08 FY09 FY10 FY11 FY12 FY13EFY14E

500

-600

100* 709 888 1,068 1,247 1,426

105* 921 1,109 1,297 1,485 1,673

110* 1,134 1,330 1,526 1,722 1,919

120* 1,558 1,771 1,985 2,198 2,411

0 FY14E

375 144 573 610 347 458 316 405

600

FY12

461

80* 90* 50 191 296 52 216 447 54 242 609 56 296 772 58 441 934 Brent (USD/bbl)* Fx Rate (INR /USD

968

FY13E

812

1,500

FY11

575

780

2,000

1,200

FY10

773

1,203

FY09

1,033

1,800

1,577

Gross Under recoveries (INRb)

OMC's s ha ring Oi l Bonds /Ca s h Ups trea m Tota l

FY08

Auto Fuel s Domes ti c Fuel s Total 1,385

Recent policy actions are positive 

October 2012

The recent Kelkar Committee report had recommended immediate price hikes and had also provided a roadmap of policy goals to reduce under-recoveries.  Diesel: Aim to eliminate half the diesel subsidy per unit in FY13 and the remaining half over FY14.  LPG: To eliminate LPG subsidy by FY15 by reducing it by 25% by FY13, with the remaining 75% over the next two years.  Kerosene: To reduce the subsidy by one-third by FY15.

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

Though government has been largely aware of the path required to reduce underrecoveries and in turn the subsidy burden, it has not been able to follow a clear roadmap. Nevertheless, despite all the political constraints, the government has in part put itself on a path to reduce under-recoveries. Few of its steps include:  Decontrol of petrol prices (with small hiccups, petrol is now largely deregulated).  Limiting of subsidized LPG cylinders (real impact would be seen over the medium term).  Subsidy by cash transfer to beneficiaries' accounts (reduce leakages and subsidy through direct targeting). For instance, a study by NCAER indicates that ~40% of the PDS kerosene is diverted for non-PDS use.

Gas price reforms to boost domestic production: Domestic gas price has been historically controlled by the government. Against the price of imported gas at USD11/ mmbtu, domestic gas price is limited at USD4.2-5.7/mmbtu. The last hike in administered gas price was in June 2011, post KG-D6 gas pricing. With domestic gas prices at a significant discount to imported gas prices, there is little incentive for upstream companies to invest at the fixed gas price of USD4.2/mmbtu. Also, the breakeven price for new deepwater discoveries in the country is pegged at USD5-6/ mmbtu. While there is no clear policy roadmap to increase or rationalize domestic gas price, we expect the next price revision to take place in sync with the scheduled price revision for KG-D6 gas in March 2014 or earlier in view of declining KG-D6 production and dire need for gas in India. Though it would be difficult to estimate the likely price revision, it is easy to identify the beneficiaries. Higher gas price is likely to facilitate the development of RIL's discoveries in KG-D6 and NEC-25, but from the earnings perspective, we believe ONGC will be the largest beneficiary.

ONGC's EPS is more sensitive to increase in gas price than RIL's Gas Price (USD/mmbtu) 4.2 6.0 7.0 8.0 9.0 Exchange rate (INR/USD) 55.0 55.0 55.0 55.0 55.0 Gas Price (INR/mscm) 8,085 11,550 13,475 15,400 17,325 ONGC - FY14 basis Standalone gas sales (mmscmd) 53 53 53 53 53 Standalone gas sales (bcm) 19 19 19 19 19 Incremental PBT (INRb) - cumulative 67 104 141 178 Incremental PAT (INRb) - cumulative* 45 70 95 119 Incremental EPS (INR/sh) - cumulative 33.4 5.2 8.1 11.1 14.0 % increase over base FY14 EPS 16 24 33 42 RIL - FY14 basis; 60% stake in KG-D6 Gas production (mmscmd) 25.0 25.0 25.0 25.0 25.0 Gas production (bcm) 9.1 9.1 9.1 9.1 9.1 Incremental PBT (INRb) - cumulative 19 30 40 51 Incremental PAT (INRb) - cumulative** 15 24 32 40 Incremental EPS (INR/sh) - cumulative 69.7 5.2 8.1 10.9 13.8 % increase over base FY14 EPS 7 12 16 20 * Full tax rate assumed; **tax rate of 20% assumed; Sensitivity would be in favor of RIL if its production increases beyond 40mmscmd October 2012

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#6 Infrastructure

Creating conducive environment for large scale development Infrastructure spending in India was targeted at USD500b (7.5% of GDP) under the 11th Plan, up from USD227b in the 10th Plan (5% of GDP). The initial estimate for the 12th Plan suggested infrastructure spending at USD1t, representing 9% of GDP. The share of the private sector was expected to increase from 24% in the 10th Plan to 36.2% in the 11th Plan and to 51% in the 12th Plan. This, in our view, is difficult, with several policy/regulatory hindrances, lack of established models for PPP framework, lack of initiatives to establish long-term funding for the sector, etc. Except for the Roads sector, other major areas of infrastructure are languishing. In Roads too, developers, particularly those that bid aggressively, are witnessing financial crunch.

#7 Mega projects

DFC, railways, urban transport can accelerate investment spend Take-off of large public expenditure projects (like DFC, railways, urban transport, etc) has become important at the current juncture. In this context, the ruling coalition regaining control over the Railway Ministry (contributing ~12% of the infrastructure spending in 12th Plan) raises hopes of an accelerated spending program.  Urban infrastructure development is now becoming an important priority, given the haphazard urbanization in various cities. There are 30 cities in India with a population of over 2m each, and according to the Planning Commission, these cities might implement Metro Rail at some stage or the other. There are 14 cities with a population of over 3m each and 7 cities with a population of over 5m each. Several of these cities are actively planning Metro Rail. Delhi has completed its Metro Rail project, while Bangalore has opened a section. Metro Rail projects are under construction in Chennai, Kolkata, Mumbai, Jaipur and Hyderabad. During the 12th Plan (FY13-17), the Working Group of Urban Transportation estimates investments in Metro Rail projects at INR1.3t.  Capacity addition in transport infrastructure (particularly railways) since independence has been woefully inadequate. The railway route kilometers have increased at a CAGR of 0.3% and running track kilometers at a CAGR of 0.7%. In comparison, net ton kilometers have increased at a CAGR of 4.5%. This has led to massive pressure on the existing infrastructure, and the accumulated deficiencies are acting as key growth bottlenecks for several segments. Coal availability to power projects has been impacted, given the evacuation constraints, though Coal India continues to carry a large inventory of 60m tons. There is an urgent need to address the logistics issue, given that a large part of India's mineral resources is located in the eastern states of Jharkhand, Chhattisgarh and Orissa, while western and southern India are the major consumption and industrial centers. Indian Railways has planned a steep increase in spending in the 12th Plan to INR5t+ v/s ~INR2.2t in the 11th Plan, but funding remains a key challenge.  The Dedicated Freight Corridor (DFC) is an important project that attempts to partly correct the under-investment in railway infrastructure, and we expect project awards to commence in FY13. The project is being funded by multilateral agencies from Japan and World Bank. Hence, funding is not expected to be a major challenge. We believe that the DFC combined with the Delhi Mumbai Industrial Corridor will have a meaningful multiple effects on the economy.

October 2012

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FY14 Earnings Early signs of a rebound in earnings growth Sensex EPS growth reverts to LPA of 15%; Earnings downgrades bottoming out Expect FY14 earnings growth of 14%  Sensex EPS growth has reverted to LPA of 15%  Is FY14 the beginning of a new earnings cycle? There are some early signs: #1 Earnings downgrade cycle has bottomed out #2 Our FY14 assumptions far from aggressive #3 FY14 earnings mix is less vulnerable than that of FY13 initial estimates #4 More stocks have a bias for earnings upgrade than downgrade 

Expect FY14 earnings growth of 14% Our bottom-up estimates for the MOSL universe of companies (ex RMs) suggests FY14 sales growth of 8%, EBITDA growth of 15% and PAT growth of 14%. This growth is driven mainly by – 1. Bounceback in sectors which were affected in FY13 (Auto, Telecom); and 2. Steady growth in secular sectors (Consumer, Healthcare, Financials) offsetting low growth in specific sectors like Oil & Gas, Technology and Capital Goods. Annual Performance - MOSL Universe Sector FY13E

Sales (INR B) FY14E CH. (%) #

CH. (%) @

FY13E

EBIDTA (INR B) FY14E CH. (%) #

CH. (%) @

High PAT Growth YoY 5,309 5,989 14 13 952 1,114 9 Telecom (4) 1,264 1,386 11 10 376 423 4 Retail (4) 281 328 17 17 27 32 18 Real Estate (11) 232 294 3 26 95 123 2 Auto (5) 3,532 3,981 16 13 454 537 14 Medium PAT Growth YoY 8,408 9,308 8 11 2,923 3,436 12 Media (5) 112 128 11 14 36 41 10 Health Care (17) 880 966 19 10 205 223 17 Others (4) 173 192 10 11 34 39 6 Consumer (12) 1,175 1,360 17 16 247 292 21 Metals (10) 3,962 4,179 1 5 717 844 3 Financials (27) 2,106 2,482 14 18 1,685 1,997 14 NBFC (8) 272 323 23 19 265 315 21 Private Banks (8) 484 583 21 20 410 499 22 PSU Banks (11) 1,350 1,576 10 17 1,010 1,184 10 Low PAT Growth YoY 14,216 14,807 15 4 2,695 2,984 8 Cement (8) 963 1,104 13 15 228 260 20 Utilities (10) 2,185 2,413 15 10 621 726 19 Technology (6) 1,864 2,083 23 12 468 503 22 Excl. RMs (10) 7,546 7,422 14 -2 1,166 1,275 -2 Oil & Gas (13) 16,160 16,193 11 0 1,421 1,577 -2 Capital Goods (9) 1,659 1,785 9 8 212 222 2 MOSL (145) 36,547 38,875 11 6 6,824 7,837 9 MOSL Excl. RMs (142) 27,933 30,104 13 8 6,570 7,534 10 Sensex (30) 9,740 10,314 13 6 1,902 2,160 9 Nifty (50) 10,978 11,605 11 6 2,183 2,474 10 *Growth FY12 over FY11; # Growth FY13 over FY12; @ Growth FY14 over FY13. For Banks Operating Profits; Note: Sensex & Nifty Numbers are Free Float October 2012

FY13E

PAT (INR B) FY14E CH. (%) #

CH. (%) @

17 324 420 -6 30 12 48 73 -23 50 21 10 14 18 32 30 46 60 -1 30 18 219 274 -4 25 18 1,583 1,865 14 18 17 17 20 15 20 8 127 152 22 20 16 19 22 4 19 18 166 198 20 19 18 381 451 4 18 19 874 1,022 16 17 19 176 209 19 19 22 248 294 20 18 17 449 519 14 16 11 1,675 1,800 9 7 14 118 134 19 13 17 384 428 10 11 7 352 382 23 8 9 677 712 4 5 11 761 810 -4 7 5 144 146 1 1 15 3,666 4,184 8 14 15 3,583 4,085 10 14 14 1,039 1187 10 14 13 1,199 1363 11 14 : Sales = Net Interest Income, EBIDTA =

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Sensex EPS growth has reverted to LPA of 15% For the 5 years ending FY13, Sensex EPS CAGR has been muted at 8%. However, it becomes more interesting when seen from a longer term perspective. India’s longperiod average (LPA) earnings growth is 15%. However, the last 20 years’ earnings can be bracketed into 4 distinct cycles of 5 years each as shown below. Sensex EPS trend: Distinct boom-bust cycles

3

4 1,395

FY93-13: 15% CAGR

FY08-12: 8% CAGR 1,024

FY03-08: 25% CAGR 718

1,221

834

FY14E

FY13E

FY10

FY09

FY08

523

FY07

450

FY06

FY04

272

FY03

216 236

FY02

280

FY01

278

FY00

FY97

291

FY99

266

FY98

250

FY96

FY95

FY94

FY93

81

129 181

348

FY05

FY98-03: -1% CAGR

FY93-98: 29% CAGR

833 820

1,125

FY12

2

FY11

1

Is FY14 the beginning of a new earnings cycle? Post Cycle 3 i.e. the FY03-08 boom, the 15-year Sensex EPS CAGR scaled up to 17%. However, the slowdown since then has caused the same to revert to the LPA of 15%. Now, our bottom-up earnings estimates for Sensex companies suggest FY14 Sensex EPS growth of 14%, close to the LPA. The key question: Is FY14 the beginning of a new earnings cycle? A definitive yes or no is tough, given the high level of global and domestic uncertainty on several macroeconomic and business variables – resolution of Eurozone crisis, GDP growth (both global and for India), commodity prices especially oil, exchange rate, etc. Still, we believe that there are a few early signs that this is a distinct possibility: 1. Earnings downgrade cycle has bottomed out 2. Our FY14 assumptions are far from aggressive 3. FY14 earnings mix is less vulnerable than that of FY13 initial estimates 4. More stocks have a bias for earnings upgrade than downgrade.

Early sign #1 Earnings downgrade cycle has bottomed out We introduced our FY13 estimates in December 2010 when bottom-up aggregation of Sensex companies’ PAT suggested FY13 EPS of 1,492. Since then, a combination of global headwinds (mainly sovereign debt crisis in Eurozone) and domestic politicoeconomic logjam has led to an 18% downgrade in Sensex EPS to 1,218 currently.

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However, the pace of downgrade has slowed down considerably. In the last 9 months, Sensex EPS downgrade is less than 4%, and in the last 3 months, there is actually a miniscule upgrade. Equally important, if not more, FY14 earnings estimates have not seen any meaningful downgrade in the last 6 months. Clearly, the last two quarters are some evidence of a possible end to the earnings downgrade cycle. Earnings downgrade cycle seems to have bottomed out for FY13 … FY13 EPS (INR)

FY13 EPS Growth YoY (%)

15% downgrade in the first 12 months 1,492

1,471

18

18

Dec 10

Ma r 11

1,397

1,337

18

17

Jun 11 New Seri es

Sep 11

… and also FY14

Less than 4% downgrade in last 9 months

1,267

1,259

14

14

Dec 11 New Seri es

FY14 EPS (INR)

Ma r 12

1,218

1,221

8

9

June 12

Sep 12

FY14 EPS YoY (%)

1,431

1,387

1,395

14

14

14

Mar 12

June 12

Sep 12

Bharti, Reliance and Tata Steel led the downgrade of FY13 Sensex EPS 18 -16

-17

-18

-18

-19

-20

-21

-43

RIL

Tata Steel

JSPL

NTPC

BHEL

SBI

Sterlite

ONGC

L&T

Maruti

TCS

Coal India

Sensex EPS (Dec-10)

-54

1,221 -64

-21

Sensex EPS (Current)

-13

Others (net)

35

Bharti

1,492

Early sign #2 Our FY14 assumptions far from aggressive We believe most of our underlying assumptions for FY14 estimates are far from aggressive, impacted by the current macroeconomic slowdown and weak business sentiment. Thus, in most sectors, key operating metrics are assumed at the same depressed levels of FY13 or lower e.g. Capital Goods order intake, Consumer revenue growth, prices of most metals and oil, credit offtake, credit cost, wireless traffic, power tariff, etc. The only metrics where some recovery is modeled in are Auto/ Cement volumes and USD revenue growth for Technology sector.

October 2012

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Key Operating Metrics / Assumptions FY12A Auto 2 Wheeler Volume Growth 12% 4 Wheeler Volume Growth 10% CV Volume Growth 19% Capital Goods Avg order intake growth (%) -26% Cement Volume Growth (%) 7.0 Price Change (INR/bag) 23.0 Consumer Value Growth (%) 19.0 EBITDA Margins (%) 20.0 Financials Credit Growth (%) 17.0 Credit cost (% of average loans) 0.9 Media Ad Revenue Growth (%) 2 Metals Steel (USD/ton) 863 Aluminium (USD/ton) 2,346 Copper (USD/ton) 8,501 Zinc (USD/ton) 2,121 Oil & Gas Brent Oil Price (USD/bbl) 114.5

FY13E

FY14E

Remarks

3% 5% 8%

12% 15% 14%

21%

8%

Industrial capex, orders to remain sluggish on high cost of capital.

8.0 20.0

10.0 10.0

FY14 volumes to be driven by pre-election developmental activities, as well as demand from individual housing.

17.0 21.0

16.0 21.0

Marginally revised the gross margin assumptions upward

16.0 1.0

16.0 1.0

Unchanged as investment climate is yet to improve We continue to build higher credit cost in FY14

10

12

720 1,996 7,898 1,910

672 2,100 7,500 2,000

Domestic steel price assumptions lowered by 10%-15% given sluggish demand, significant decline in RM prices and increased threat of cheaper imports, especially from China. No major change in Base metals assumptions.

110

105

High uncertainty in oil market fundamentals: demand growth (pegged at 0.8mmbbl/d in 2012, 2013), geopolitics (Iran situation, US election). OPEC (ex Iran) producing at historically high levels. Unless meaningful closures happen. GRMs unlikely to rise above USD79/bbl. Global operating rates (ex of US) are likely to remain low led by lower demand and commissioning of new refineries.

FY13 volume growth downgraded to 3% Recovery in FY14 on low base (strike in Maruti’s Manesar plant) M&HCV to grow -2.5%/+12% in FY13/FY14, LCVs 15%/15%.

Ad growth to recover in FY13 on a low base and improve in FY14

Singapore GRM (USD/bbl)

8.3

8.0

8.0

Technology USD Rev. Growth (top-tier) USD / INR

21% 48.2

12% 54.5

16% 53

Sluggish beginning to CY12 marred growth rates for FY13. Continued budget spends albeit at a slower pace imply some pick up in growth in FY14, though still not enough to match that in FY12

16

11

8

-0.9

-1.9

2.4

Wireless traffic growth to impacted by withdrawal of promotions and lower subscriber additions Pricing pressures to recede on corrective actions by the industry

3.5 66

4.0 67

4.0 67

Telecom Wireless traffic growth (%) RPM change (%) Utilities Merchant Power Rate PLF

Early sign #3

Our assumptions for Utilities sector remain unchanged

FY14 earnings mix is less vulnerable than that of FY13 initial estimates We compared the FY14 earnings mix with that of our initial FY13 initial estimates (which saw sharp downgrades subsequently). We believe that the current earnings mix has lower likelihood of major downgrades. Our key observations:  Earnings mix has marginally improved in favor of domestic plays over global plays.  More importantly, with both domestic and global plays, share of non-cyclicals has increased. Thus, share of overall non-cyclical earnings has increased from 55% in FY13IE (initial estimates in Dec-2010) to 60% for FY14E.

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Within Domestic Non-cyclicals, the share of Telecom is lower in FY14E vis-à-vis FY13IE, whereas share of Financials, Utilities and Consumer is higher.  Likewise, within Global cyclicals, share of volatile Oil & Gas and Metals is lower, whereas share of Tata Motors (which has majorly turned around) is higher.  Finally, there is no chunky contributor to the build-up of Sensex EPS from 1,221 for FY13 to 1,395 for FY14. This, we believe, further reduces the risk of downgrade due to adverse developments in 1-2 companies. 

FY14 earnings mix suggests FY13 kind of downgrades unlikely to recur MOSL Universe PAT mix (%) FY13IE FY13CE FY14E

Sensex EPS mix (%) FY13IE FY13CE FY14E

Domestic Plays Domestic Non-cylical Financials Utilities Auto Ex Tata Motors Telecom Consumer Others Domestic Cyclical Capital Goods Cement Real Estate Global Plays Global Non-Cyclical Technology Health Care Global Cyclical Oil & Gas ex RMs Metals Tata Motors

57 47 24 9 4 4 4 3 10 5 3 2 43 12 9 3 32 18 11 3

54 45 24 11 3 1 5 1 9 4 3 1 46 13 10 4 33 19 11 3

55 47 25 10 3 2 5 1 9 4 3 2 45 13 9 4 32 17 11 3

48 41 16 11 6 4 4 6 6 52 14 12 2 39 24 11 4

48 43 18 13 5 1 5 5 5 52 16 14 3 36 23 7 5

49 44 19 13 6 2 5 4 4 51 16 13 3 35 22 8 6

Total Non-cyclical Total Cylical

58 42

59 41

60 40

55 45

59 41

60 40

Total PAT (INR b)/Sensex EPS (INR) 3,934 3,583 4,085 1,492 1,221 Growth YoY (%) 17 10 14 18 9 IE - Initial Estimates; CE - Current Estimates; Note: Others Include Media, Retail

1,395 14

5

4

4

4

4

M&M

TCS

Maruti

Bharti

Bajaj Auto

L&T

NTPC

Reliance Ind. Reliance

HUL

3

3

2

2

2

2

1

1

-1 -3

1,395 -5

BHEL

5

JSPL

5

Infosys

11 14 12 16 14 20 22

8

8

3

9

ONGC

FY14 Sensex EPS build-up is well diversified 1

October 2012

FY14E EPS

Tata Power

GAIL

Cipla

Sun Pharma

Coal India

Wipro

Hero Moto

Dr Reddy’s

Sterlite Inds.

Hindalco

ITC

HDFC

ICICI Bank

SBI

HDFC Bank

Tata Steel

Tata Motors

FY13E EPS

1,221

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India Strategy | Fired up?

Early sign #4

More stocks have a bias for earnings upgrade than downgrade As things stand, we believe more stocks in the Sensex are likely to see an upgrade in their FY14 estimates, based on the impact of recently announced policy measures and expected macroeconomic developments (e.g. rate cut). More importantly, the stocks account for 48% of aggregate Sensex PAT v/s 24% of PAT for those with potential downgrades. Also, stocks like Bharti, Tata Steel and BHEL could see a swing in either direction depending on 1-2 key triggers playing out. Such stocks account for 6% of Sensex PAT. FY14 Sensex EPS: Favorable Upgrade-Downgrade equation

October 2012

Potential Upgrades (48% of Sensex PAT)

Potential Downgrades (24% of Sensex PAT

Potential swings either side (6% of Sensex PAT)

Dr Reddy’ s Labs ICICI Bank Larsen & Toubro Maruti Suzuki NTPC ONGC Reliance Inds. State Bank Tata Motors

Coal India Hero Motocorp Infosys JSPL TCS

Bharti Airtel BHEL Tata Steel

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Valuations and Model Portfolio Indian markets have staged a strong comeback in September 2012 to end the quarter with a gain of 8%. Our June quarter strategy report had focused on RAY OF HOPE as we expected the changing political realignments to lead to some positive reforms. And indeed, the Indian government, post the monsoon session of Parliament, has pursued a hectic agenda of reforms to kickstart growth and infuse confidence among investors and corporates. Most of the measures announced till date have been largely confidence boosters. However, the government needs to act now on 2 key issues: (1) Strong steps to curb fiscal deficit, and (2) Re-starting the investment/capex cycle. Concrete actions on both these fronts hold the key to further re-rating of the markets. Recent currency appreciation will help ease inflation, and also enable RBI do its bit to stimulate growth. Combined action of government and RBI could lead to upgrades in FY13 GDP growth estimate (currently at 6.5%). Our earnings estimates for FY13 and FY14 have been stable for the last 2 quarters. We believe the downgrade cycle is now behind us. Recent government measures along with more to come, monetary easing, and stable to declining commodities can drive upgrades going forward. Valuations remain below historical averages (FY14 PE of 13.5x v/s 10-year average of 14.8x). We see more upsides in markets from here. Sensex PE (x): 12-month forward 27

Sensex PB (x): 12-month forward 4.8

24.6

4.2

3.9

22 10 Year Avg: 14.8x

17

14.3

12

3.0 2.4 10 Year Avg: 2.7x

2.1

10.7 7

1.6

Indian market Cap to GDP

82

95

83

10 Year Avg: 20.2% 17.2 Sep-12

Sep-11

Sep-10

Sep-08

Sep-07

Sep-06

Sep-05

Sep-04

Sep-03

Sep-09

15.8 Sep-02

FY13E

FY12

FY11

FY10

FY09

FY08

FY07

FY06

FY05

Sep-12

20.0 17.5

FY04

FY03

FY02

Sep-11

65

55

15.0

FY01

Sep-10

24.2

22.5

23

October 2012

Sep-09

Sep-08

Sep-07

Sep-06

Sep-05

Sep-04

25.0

89 70

Average of 62% for the period 52 42 26

Sep-03

Sensex RoE (%) 103

26

Sep-02

Sep-12

Sep-11

Sep-10

Sep-09

Sep-08

Sep-07

Sep-06

Sep-05

Sep-04

Sep-03

Sep-02

1.2

A–31

India Strategy | Fired Up?

We make the following changes in our Model Portfolio for 2QFY13:  We marginally raise our weight in Financials through PSU Banks, and increase our weight in Autos, and Infrastructure/related sectors  We cut weights in Technology, Consumer and Healthcare.  Our biggest Overweight is Infrastructure & related sectors, and our biggest Underweight is Consumer.  We have further increased our exposure to mid-caps. Sensex v/s Autos index

Sensex v/s Consumer index

Se nse x

130

B se Auto

145

Sen sex

Bs e Cons ume r

130

115

115

100

100

Sep-11 Sep-11 Oct-11 Nov-11 Dec-11 Dec-11 Jan-12 Feb-12 Mar-12 Mar-12 Apr-12 May-12 Jun-12 Jun-12 Jul-12 Aug-12 Sep-12 Sep-12

S ep-11 S ep-11 Oct-11 Nov-11 Dec-11 Dec-11 Jan-12 F eb-12 Mar-12 Mar-12 Apr-12 May-12 Jun-12 Jun-12 Jul-12 Aug-12 S ep-12 S ep-12

85

85

Sensex v/s BSE Mid-caps Sen sex

Bs e Ba nke x

126

120

112

105

98

90

84

75

70

Sep-11 Sep-11 Oct-11 Nov-11 Dec-11 Dec-11 Jan-12 Feb-12 Mar-12 Mar-12 Apr-12 May-12 Jun-12 Jun-12 Jul-12 Aug-12 Sep-12 Sep-12

135

Financials

October 2012

+

Sens ex

Bs e Mi dcap

Sep-11 Sep-11 Oct-11 Nov-11 Dec-11 Dec-11 Jan-12 Feb-12 Mar-12 Mar-12 Apr-12 May-12 Jun-12 Jun-12 Jul-12 Aug-12 Sep-12 Sep-12

Sensex v/s Bankex

Financials: Biggest weight; ICICI Bank, SBI top picks Financials remain the biggest weight in the Model Portfolio (in-line with the benchmark) as recent policy measures by government and expected monetary easing will lower asset quality pressures. We have raised our stance to Overweight as we believe that credit costs have peaked and valuations will gain further.  ICICI Bank is our top bet in the sector. Re-rating of ICICI will be led by expansion in RoEs over the next 2 years coupled with strong capital adequacy of above 10%. Any release of capital in Insurance JV will be an added catalyst.  Among other private banks, we have kept our weights unchanged on HDFC Bank and Yes Bank, despite strong gains in CY12. Fall in deposit rates and growing loan book will drive earnings for the sector.  SBI remains our second biggest Overweight in Financials. Despite high slippages, the bank has been able to show strong profits and improve RoE. As credit costs peak in FY13, earnings upgrade cycle can be strong for SBI in FY14. Valuations are attractive (FY14E P/B of 1.2x), and the stock could get re-rated in a falling interest rate scenario. A–32

India Strategy | Fired Up?

We retain Union Bank as we expect 22% EPS CAGR over FY12-14 (led by lower credit costs) and improvement in RoE to 16.9%. Stock trades at 0.7x FY14 book and offers dividend yield of 4%.  We have removed M&M Financial Services post a strong stock performance.  We have added LIC Housing (valuations now attractive at 1.8xP/B FY14, beneficiary of fall in rates, and steady business growth).  Power Finance is another addition as SEB loan restructuring eases bad loan worries and loan disbursements resume. The stock trades at 0.9x P/B FY14. 

ICICI Bank P/B

Yes Bank P/B P/B (x)

3.3

Avg(x)

Peak (x)

Mi n(x)

P/B (x)

6.0

Avg(x)

Pe ak(x)

Mi n(x) 4.8

2.9

2.6 1.9

4.5 1.8

1.7

1.2

3.0

2.2

1.5

0.7

0.5

2.1

0.5

SBI P/B

Sep-12

Mar-12

Sep-11

Mar-11

Sep-10

Mar-10

Sep-09

Mar-09

Sep-08

Mar-08

Sep-07

Sep-12

Mar-12

Sep-11

Mar-11

Sep-10

Mar-10

Sep-09

Mar-09

Sep-08

Mar-08

Sep-07

0.0

LIC HSF P/B P/B (x)

2.6

Avg(x)

Peak (x)

Mi n(x) 2.3

P/B (x)

3.2

Avg(x)

Pe ak(x)

Mi n(x)

2.9

2.1

2.4

1.6

1.6

1.4

1.6

1.2

0.8

October 2012

+

Sep-10

Mar-10

Sep-09

Mar-09

Sep-08

Mar-08

Sep-07

S ep‐12

Mar‐12

S ep‐11

Mar‐11

S ep‐10

Mar‐10

S ep‐09

Mar‐09

S ep‐08

Mar‐08

S ep‐07

Infrastructure

Sep-12

0.5

0.0

Mar-12

0.6

Sep-11

0.8

Mar-11

1.1

2.0

Infrastructure & related: Biggest Overweight; add L&T, Jaiprakash, DLF Last quarter, we had changed our stance on Infrastructure and related sectors from Underweight to Overweight after several quarters. Now, we have added further weight to the sector.  L&T remains the top stock (upgraded to Buy a quarter back) on the back of continued strong order intake (led by Infrastructure and Overseas orders), excellent risk management, expected stable margins, and management commitment to correct capital structure.  We have added our exposure to Jaiprakash as the stock benefits from strong cement realizations, de-leveraging of balance sheet, and fall in interest rate.  DLF is a new addition as it benefits from positive macro, improving operating leverage and financial de-leveraging. Its favorable near-term market-mix and product-mix offer high conviction on meaningful uptick in FY13 sales (we estimate ~INR60b v/s INR53b in FY12). Operating cash deficit to improve in FY13 to INR8.1b (v/s INR20.4b in FY12) before breakeven in FY14. Our target price is INR286. A–33

India Strategy | Fired Up?

L&T P/E

DLF P/B P/E (x)

54

Avg(x)

Pe ak(x)

Mi n(x)

45.9

P/B (x)

10.5

Avg(x)

Peak (x) 8.8

8.0

36

Mi n(x)

5.5 18.1

–

P/E (x)

30

23.2

Avg

Peak (x)

17.5

18

0

10.4 Sep-12

Mar-12

Sep-11

Mar-11

Sep-10

Mar-10

Sep-09

Mar-09

Sep-08

Mar-08

Sep-07

Sep-12

Mar-12

Aug-11

Jan-11

6

Jul-10

Dec-09

May-09

Nov-08

Apr-08

14.6

12

LPA o f -2% -32.4 Sep-07

Sep-12

24.7

5.1

-20

Mi n

24

20

October 2012

Mar-12

Infos ys P/E

Techno l ogy PE Rel ati ve to Se nse x PE (%)

–

Sep-11

Our stance on Technology remains Underweight with restricted exposure to Infosys and HCL Tech.  Our FY14 USD revenue growth estimate across the top-tier is 15%, up from 10% in FY13. However, signs of meaningful demand pick-up remain elusive, implying downgrade risk to current volume estimates for FY14.  INR has appreciated to 51.75/USD, which could trigger a 4-8% downgrade in our FY14 EPS estimates (currently based on INR53/USD).  Despite ~22% INR depreciation from 1QFY12 to 1QFY13, margins across the toptier hardly benefited, as the currency gains got reinvested in lower-margin contracts and high-cost workforce onsite. As most of these investments are irrevocable in nature, offsets to margin headwinds appear limited in an appreciating currency environment. Margin sustainability is a key concern.

40

Oil & Gas

Mar-11

Sep-09

Mar-09

Sep-08

Mar-08

Sep-07

S ep-12

Mar-12

S ep-11

Mar-11

S ep-10

Mar-10

Mar-09

S ep-08

Mar-08

S ep-07

S ep-09

Technology: Remain Underweight; concerns on volumes, margins

Tech P/E relative to Sensex P/E

-40

1.4

0.9

0.5

Mar-10

10.1 0

Technology

2.5

3.0

Sep-10

22.2

18

Oil & Gas: Remain Underweight; cut Reliance, add ONGC We remain Underweight on the Oil & Gas sector.  Expect RIL to deliver strong 2QFY13 earnings led by high GRMs; however, recent refining margins have again turned weak. Core businesses remain volatile with very limited upside potential. Upgrade in Reliance could come from hike in gas prices, which remains an event risk. As the stock has delivered a strong return of 20% from the recent lows, we have cut our exposure.

A–34

India Strategy | Fired Up?



We have added exposure to ONGC at current levels. Recent policy actions of diesel price hike/limiting subsidized cylinders, coupled with appreciating INR/ USD, augur well for ONGC as its subsidy burden reduces. Despite subsidy burden, ONGC's RoE is at a respectable 18% level. The stock trades at P/E of 8.4x FY14 EPS of INR33.4, attractive EV/BOE of 5.3x (1P basis; >40% discount to global peers), and offers a dividend yield of 3.5%.

Oil & Gas Sector P/E

ONGC P/B Oil & Gas Se ctor - PE

P/B (x)

3.7

Avg(x)

Pe ak(x)

Mi n(x)

23 20.4

3.1

2.8

17

LPA of 12.3x 1.9

2.0

1.5

10.0

Sep-12

Mar-12

Mar-10

Sep-09

Mar-09

Sep-08

Mar-08

Sep-07

Sep-12

Mar-12

Aug-11

Jan-11

Consumer: Biggest Underweight; valuations rich; ITC only exposure

–

Consumer

Jul-10

Dec-09

May-09

Nov-08

Apr-08

Sep-07

1.0

Sep-11

5

1.4 Mar-11

9.0

Sep-10

11

After a massive outperformance, Consumer sector now trades at historical high valuations relative to the markets. We are Underweight on the sector due to slowing demand growth led by weakening rural buoyancy. Our only exposure in the sector is ITC (which is also an Underweight).

Consumer P/E relative to Sensex P/E

HUVR P/E P/E (x)

Cons ume r PE Re l ati ve to Sen sex PE

Avg(x)

Pea k(x)

36

160

Mi n(x) 32.4

32.4

120 80

105

LPA of 50%

73

40

24.8

20

10

0

28

18.7

-40

Healthcare

October 2012

–

Sep-12

Mar-12

Sep-11

Mar-11

Sep-10

Mar-10

Sep-09

Mar-09

Sep-08

Mar-08

Sep-07

Sep-12

Mar-12

Aug-11

Jan-11

Jul-10

Dec-09

May-09

Nov-08

Apr-08

Sep-07

12

Healthcare: Cutting weight; hit by recent headwinds We have reduced our weight on Healthcare, given recent headwinds of new drug pricing policy, currency appreciation, and strong outperformance of the sector YTDCY12.  Our top bet in the sector is Dr Reddy's as we expect strong performance in FY13 leading to earnings upgrade; valuations remain attractive.  We continue to like Divi's as it benefits from its core abilities of good chemistry skills coupled with strong customer relationships, leading to ramp-up in order inflows. Strong order-backed capex and healthy guidance (25% topline growth for FY13) are the key positives from a near-to-medium term perspective. A–35

India Strategy | Fired Up?

Healthcare Sector P/E

Dr Reddy's P/E

He al thca re Sector ‐ PE (x) 33

P/E (x)

84

Avg(x)

Pea k(x)

30.0

77.2

64

26 20.6 LPA of 22.5x

19

Mi n(x)

Negative Earnings Cycle

44

24.2

24

15.9

17.8

17.8

+

Sep‐12

Mar‐12

Sep‐11

Mar‐11

Sep‐10

Mar‐10

Sep‐09

Mar‐09

Sep‐08

Sep‐07

Sep‐12

Mar‐12

Aug‐11

Jan‐11

Jul‐10

Dec‐09

May‐09

Nov‐08

Apr‐08

Sep‐07

Autos

Mar‐08

4

12

Autos: Overweight; bet on Tata Motors, Maruti, Bajaj Auto We raise our weight in Autos to Overweight in this quarter.  Tata Motors is our top bet in Autos and we have further raised our exposure to the stock. JLR volumes will retain volume momentum (15%) and profitability. Domestic volumes should see recovery in FY14. Strong FCF will further help the balance sheet. Our target price of INR370 has over 40% upside.  Maruti is another top pick as it benefits from currency appreciation and stable commodity prices including oil. Resolution of labor issues has led to stronger than expected volumes recently, driving upgrades. We expect earnings to rebound in FY14 with growth of14%. Our target price has 19% upside.  Within 2-wheelers, we prefer Bajaj Auto as FY14 volumes should grow 13% and margins remain strong due to hedges at higher levels. Strong cash flow will drive INR300/share cash on books and high dividends. The stock trades at P/E of 14x FY14 EPS.

Autos Sector P/E

Maruti Cash P/E Auto Se ctor ‐ PE (x)

35

Ca s h P/E (x)

Avg(x)

Pe ak(x)

Mi n(x)

18 14.9

29.2

27

14 LPA of 12x

10.9

11

9.2

10

10.3

6 6.1

Sep-12

Jan-11

Aug-11

Jun-10

Nov-09

Apr-09

Sep-08

Feb-08

Aug-07

Jan-07

Jun-06

Apr-05

Nov-05

Sep-04

Jul-03

Sep‐12

Mar‐12

Aug‐11

Jan‐11

Jul‐10

Dec‐09

May‐09

Nov‐08

Apr‐08

Sep‐07

October 2012

–

Feb-04

2

3

Utilities

4.4 Feb-12

19

Utilities: Cutting weight; remove Coal India on multiple concerns We have cut our weight on Utilities as we remove Coal India from the portfolio.  For Coal India, lower international coal prices coupled with appreciating rupee will impact PAT from market-linked e-auction sales (15%+ of volume, 40-45% at PBT level). We see risk to our FY13/14E earnings, as current realizations are marginally higher than FY12 average, and have a downside risk. Importantly, current earnings already factor superior production/dispatch growth. Negative surprise A–36

India Strategy | Fired Up?

could also come from implementation of MMDR Act. Valuations at 12x FY14E P/E (downside risk to EPS of INR31) and 3.6x P/BV (RoE of 25%) limit potential upside.  NTPC remains our preferred bet as capacity addition delays are now getting addressed and FY13-15 could see capacity addition of 4GW per annum v/s historic average of 2GW. Over FY12-15, NTPC would add 15GW of commercial capacity, which could drive FY14E EPS to ~INR14 FY14E (18 months from now). The stock is trading attractive at 1.7x FY14E BV of INR103/share. Utilities Sector P/B

NTPC P/B Uti l i tie s Se ctor - PB

4.0

P/B (x)

4.3

Avg(x)

Pe ak(x)

Mi n(x) 3.7

3.7

3.6

3.3 LPA of 2.1x

2.5 1.8

2.8 1.6

1.7

2.3

2.1

1.7

1.5

1.0

Telecom

Sep-12

Mar-12

Sep-11

Mar-11

Sep-10

Mar-10

Sep-09

Mar-09

Sep-08

Mar-08

Telecom: Wait & watch; concerns, stock prices bottomed out;

–

We had cut our weight in Telecom last quarter and retain the lower weight. Pricing seems to have bottomed-out given renewed industry attempts to raise tariffs and lower promotions/discounting. Significant balance sheet stress, continued high level of losses for challengers, and potential large payments towards spectrum should prevent irrational competition. We await outcome of upcoming 2G spectrum auction in November which could provide visibility on future competitive structure as well as liability for spectrum payments. While stocks may have bottomed out, we would wait for the earnings cycle to improve for any change in view.

Bharti EV/EBITDA

Idea EV/EBITDA

EV/EBDITA(x)

16.0

Sep-07

Sep-12

Mar-12

Aug-11

Jan-11

Jul-10

Dec-09

May-09

Nov-08

Apr-08

Sep-07

1.3

Pea k(x)

Avg(x)

Mi n(x)

EV/EBDITA(x)

Pea k(x)

Avg(x)

Mi n(x)

18.0 14.5

10.0

9.1

5.5 Mar-12

Sep-11

Mar-11

Sep-10

Mar-10

Sep-09

Mar-09

Sep-08

2.0 Mar-08

Sep-12

Mar-12

Sep-11

Mar-11

Sep-10

Mar-10

Sep-09

Mar-09

Sep-08

Mar-08

Sep-07

4.0

6.0

6.0

Sep-07

6.3

October 2012

8.6

10.0

6.1

7.0

16.9

14.0

Sep-12

13.0

A–37

India Strategy | Fired Up?

Metals

Metals: Underweight; but still like Hindalco, Sterlite

–

We are Underweight on Metals as we have negative outlook for steel stocks, while base metal stocks still have to bear near-to-medium term pain of low returns on large investment in greenfield aluminum projects in India. We believe that steel intensity of the world is on decline once again after a decade of high growth. China, which was the sole driver of demand, has already achieved high level of per capita steel consumption vis-a-vis peak levels achieved by developed countries. Historically, decline in world steel intensity has resulted in stock underperformance. We believe that base metal stocks are better placed over steel stocks because (1) monetary expansion (e.g. QE3) boosts LME prices, earnings and stock valuations, and (2) the fundamentals of steel pricing are more dependent on return of high fixed assets.  We continue to like Hindalco because its conversion business provides 70% of operating cash flows and is insulated from LME volatility. Investments in low RoI aluminum greenfield projects in India have led to the stock's underperformance. We believe current valuations already factor in most negatives. Strong spot premium and LME have improved earnings outlook. Valuation at 1x P/B FY14E adjusted for goodwill (RoE 18.5%) is attractive.  We have introduced Sterlite in the portfolio. Sterlite is likely to get re-rated as its investment cycle is now behind and Hindustan Zinc's cash flows after minority buy-out will de-stress the balance sheet of merged Sesa-Sterlite. Any visibility on availability of bauxite in Odisha could be catalyst as well.

Hindalco P/B

Sterlite P/B Avg(x)

Peak (x)

Mi n(x)

4.5 2.0 1.1

1.3

Mi n(x)

1.6

1.4 0.7

0.6

0.8

S ep-12

Mar-12

S ep-11

Mar-11

S ep-10

Mar-10

S ep-09

Mar-09

Sep-12

Mar-12

Sep-11

Mar-11

0.0

Sep-10

Sep-09

Mar-09

Sep-08

Mar-08

Sep-07

October 2012

Mar-10

0.6

0.1

Pe ak(x)

2.5

S ep-08

2.5

Avg(x)

2.4

Mar-08

3.7

P/B (x)

3.2

S ep-07

P/B (x)

4.9

A–38

India Strategy | Fired Up?

Our preferred mid-caps Yes Bank [YES IN, Mkt Cap USD2.6b, CMP INR382] Investment Argument  YES is effectively using the current phase of moderation in economic growth to de-risk and de-bulk its balance sheet, expand its retail franchise, and improve risk management systems. In the process, growth is expected to be lower than historical levels, but liability mix is likely to improve.  Rapid branch expansion, acquisition of new customers and deepening of existing customer relationships would ensure healthy growth across parameters. With 50% of the existing branches less than 18 months old, we expect strong productivity gains to occur going forward.  Post deregulation of savings deposit rates, share of SA in overall deposits increased to 6% v/s ~2% as on 1HFY12 and CASA ratio improved from 11% to 16.3%. We expect CASA ratio to further improve to 18.6%/20.9% in FY13/14.  Asset quality of the bank remains one of the best in the industry with stress assets merely 0.6% of the loan book. 12-month Outlook  As rates decline and liquidity improves, YES (being a wholesale borrower) would be a key beneficiary on margins.  Healthy core income growth, control over opex, and healthy asset quality will drive PAT growth of 28%.  CRAR stood at 16.5%, with tier-I ratio at 9.2%. We expect the bank to raise capital over next 12 months, which will further be book accretive. Key Risks  Deterioration in SME business outlook could increase YES's risk quotient.  Delay in capital raising could hurt growth prospects and expansion plans. Valuations  We expect earnings CAGR of 25% over FY12-14. RoA/RoE are expected to be strong at ~1.5%/23%+.  In an easy liquidity environment, the stock can see further re-rating from the current P/B of 1.9x FY14E. Buy.

Union Bank [UNBK IN, Mkt Cap USD2.2b, CMP INR208] Investment Argument  UNBK has been able to deliver impressive margins of 3%+ despite higher slippages (which led to higher interest income reversal) and tight liquidity conditions (FY12 NIM was 3.2%, down just 10bp YoY). Management expects to maintain 3% margin going forward led by fall in cost of funds and improvement in asset quality. Loan CAGR is expected to be ~16% during FY12-14 which would lead to similar NII CAGR.

October 2012

A–39

India Strategy | Fired Up?

UNBK's fee income to average assets (ex income on forex transactions) at 40bp remains low vis-a-vis peers. However, management's increased focus on the same has started yielding results – fee income growth has improved to 17% in 1QFY13 v/s 14% for FY12 and 4% in FY11. Continued traction in fee income can provide cushion to earnings in case pressure on asset quality increases.  UNBK is highly leveraged to macroeconomic environment given the asset quality pressure seen over past two years. As the situation improves and liquidity condition eases, concerns over asset quality should abate, leading to re-rating of the stock. 

12-month Outlook Near-term challenges remain in terms of asset quality risks and higher asset restructuring. However, we believe current valuations largely discount the same.  Of UNBK's total SEB exposure of INR110b, INR58b is towards healthy SEBs and INR34b has already been restructured. As per the recent SEB debt restructuring plan, there could be some relief for UNBK on this front. 

Key Risks  Despite equity infusion of INR7.6b over FY11/12, UNBK's core Tier I ratio stood at 7.7% which implies higher capital requirement in coming years, especially under the Basel III regime. Valuations We expect 16% earnings CAGR over FY12-14, and RoA/RoE at 0.8%/17%.  The stock has run up substantially (30%+ in past one month), in line with other mid-sized PSBs. Still, valuations remain attractive at 0.7x FY14E P/B and dividend yield of 4%+. Maintain Buy. 

Hexaware [HEXW IN, Mkt Cap USD678m, CMP INR123] Investment Argument  HEXW's decision to develop core competence and differentiation in key areas – Capital Markets, Travel & Transportation, EAS, and Testing – is the right approach for a relatively small player. The 'foot-in-the-door' obtained from flagship services like PeopleSoft helped it forge relationships, strengthened further by cross-selling services like IMS and BPO.  Large deals won by the company act as strong references in facilitating similar such wins in the future. It now has four services contributing more than 10% of its revenue v/s two a couple of quarters ago.Oracle may release a new version of PeopleSoft in CY13, and HEXW is well placed to tap that opportunity.  HEXW has restricted itself to pure services deals, reducing the risk around revenue quality and profitability. 12-month Outlook  We expect healthy growth to continue with CY11-13 USD revenue CAGR of 19.8%.  Our EBITDA margin estimate is 22.5% for CY12 (INR/USD @ 53.6) and 22.1% for CY13 (INR/USD @ 53.5).  Our EPS CAGR over CY11-13 stands at 24.8%. October 2012

A–40

India Strategy | Fired Up?

Key Risks  Sharp appreciation in the currency will impact profitability.  Slowdown in deal signings momentum will hurt revenue growth.  Within BFSI, it has high exposure to capital markets, the segment under maximum stress. Valuations  The stock trades at 9.9x CY12E and 8.6x CY13E EPS.  Our target price of INR167 is based on 12x CY13E EPS. Buy.

MCX [MCX IN IN, Mkt Cap USD1.2bm, CMP INR1,244] Investment Argument  Multi Commodity Exchange of India (MCX) is a state-of-the-art electronic commodity futures exchange, and has over 86% share (as at 31 March 2012) of the Indian commodity futures market.  Growth potential in volumes remains huge given that number of clients trading on the commodities platform is currently less than 2m v/s an estimated 18-20m in equities. Also, globally, Gold futures volumes are 70-80x that of physical trade v/s 17-18x in India, 20x in Crude v/s 7x in India, 100x in Aluminum v/s 8-9x in India.  Bill to amend the outdated Forward Contracts (Regulation) Act (FCRA) could be passed by the Parliament in the forthcoming session. This will give a fillip to MCX's volumes with entry of new products and participants. We believe value from MCX-SX (stock exchange promoted by MCX and FTECH in 2008) is more definite than merely option value. 12-month Outlook  Given the drop in volatility index over the last couple of quarters, we assume flat volumes YoY in FY13.  If the FCRA Bill gets passed in the forthcoming parliamentary session, it will lead to volume surge from: 1) introduction of options trading, 2) introduction of new related products such as freight-, rainfall-, and commodity indices, and 3) increased investor participation, as banks, mutual funds and foreign institutional investors could be allowed to transact on India's commodity futures markets. Key Risks  Significant proportion of costs incurred towards parent and group companies.  Concentration of turnover in four commodities.  Regulatory paralysis could impact growth. Valuations  We expect revenue CAGR of 11% over FY12-15 and EPS CAGR of 12.5%.  The stock trades at 22.2x FY13E and 18.7x FY14E EPS.

October 2012

A–41

India Strategy | Fired Up?

We value the standalone commodity exchange business at 20x FY14E earnings, which translates to a value of INR1,330/share. We value MCX-SX at INR14b, 11x the potential revenues of INR1.3b in FY14. MCX's share in MCX-SX (including warrants) contributes additional INR110/share to its valuation.  Our target price is INR1,440. Buy. 

JAYPEE INFRATECH [JPIN IN, Mkt Cap USD1.4b, CMP INR53] Investment Argument  JPIN offers a unique synergistic business model of infrastructure development (Yamuna Expressway, YE) and real estate value unlocking.  The company is expected to generate free cash flow (FCF) beginning FY13 itself, given (1) expressway going ex-capex, and (2) strong operating performance in real estate. FCF will be utilized for debt repayment and potential growth in payout.  Value unlocking story is sustainable, though a bit clouded by some concerns: (a) traffic growth at YE, (b) relative weakness real estate market mix, and (c) risk of policy actions. Some of the concerns are easing off. 12-month Outlook  Expect steady sales momentum, and strong collections to continue in Noida and GB Nagar land parcels on the back of improvement in market outlook.  We expect meaningful clarity over YE toll income to emerge in the first 6-9 months of operations. Our recent interaction with the management suggests initial PCUs of ~10,000 in the month of August 2012.  We estimate net surplus (FCF - interest) of ~INR2.1b/5.2b in FY13/14, which would most likely be utilized towards repayment of YE debt over the next 12-13 years, along with potential growth in payout. Key Risks Downside risks to expressway traffic growth assumptions.  Delay in revival of Noida market.  Policy risks from new government at Uttar Pradesh. 

Valuations  We expect 22% revenue CAGR over FY12-14, translating into ~15% EBITDA CAGR. PAT is likely to decline @ 12% over FY12-14 on account of depreciation and interest charge related to the Yamuna Expressway.  JPIN trades at (a) P/E of 7.9x FY13E and 7.4x FY14E, (b) P/BV of 1.1x FY13E and 1x FY14E vis-à-vis RoE of ~15%.  Buy with target price of INR60, given sustainable value unlocking story, steady operations and inexpensive valuations.

October 2012

A–42

India Strategy | Fired Up?

United Phosphorus [UNTP IN, Mkt Cap USD1.1b, CMP INR131] Investment Argument  Worst is behind us with trough operating performance in FY12. Expect FY13 to be a recovery year: (a) strong volume bounceback in key markets, (b) integration of LatAm acquisitions, c) benefit of lower crude, and (d) benefit of weaker INR.  UNTP is getting stronger in the global generic agrochem industry, as it has outperformed large peers like Makhteshim and Nufarm. While UPL's performance was muted in FY09-12, its global peers performance was even worse with severe margin erosion and net losses.  With acquisitions of SIB and DVA Agro Brazil, UNTP has established a strong foothold in key LatAm market. These acquisitions will be a key growth driver over next 2-3 years, reduce seasonality in its business and boost margins.  UNTP is targeting 5-year revenue CAGR of 15% and part recovery in profitability, driven by strong growth in emerging markets, ~USD5.5b products going off-patent over next 3-4 years, and focus on cost. 12-month Outlook  FY13 revenues is expected to grow ~15%, EBITDA margin stable (not factoring in favorable forex), and PAT growth of 17% (adj for MTM forex loss). Key Risk  Adverse climatic conditions in any of the key regions. Valuations  Long-term outlook is positive given integration benefits from SIB and DVA Agro. However, there are no short-term re-rating catalysts. Ongoing buyback of up to 19.2m shares up to INR150/share should support stock prices. The stock trades at 8.8x FY13E and 6.7x FY14E EPS. Buy with target price of INR195 (~10x FY14E EPS).

Petronet LNG [PLNG IN, Mkt Cap USD2.2b, CMP INR158] Investment Argument  Strong earnings visibility: Petronet LNG's earnings offer high visibility in near / long term given (a) huge gas demand-supply gap in India, and (b) annual re-gas charge escalation to protect IRR. Besides, 2.8x capacity expansion over next few years will further boost earnings.  Unlikely to come under PNGRB purview: PNGRB has no mandate to regulate LNG business, and if desired, the same will have to be through an amendment to the PNGRB Act passed by the Parliament. Further, marketing margins are unlikely to be curtailed as LNG prices are market determined and unlike domestic gas, LNG sourcing requires serious efforts.  Capacity expansion projects on track: PLNG expects to commission its Kochi terminal by Dec-12 and also, expect simultaneous completion of 44km Phase-I of Kochi-Bangalore pipeline through which it will supply gas. Further, it expects to complete (a) Dahej 2nd jetty project by 4QFY14 (additional capacity of 3mmt), (b) Dahej expansion by 2015-end (taking overall capacity to 18mmt), and (c) Gangavaram terminal by 2016-end and interim FSRU facility by 2014-end.

October 2012

A–43

India Strategy | Fired Up?

12-month Outlook  As Phase 2 of Kochi-Mangalore-Bengaluru pipeline will commission in 2HCY13, earnings growth will be back ended in FY14. FY13 earnings will be muted (can see growth if marketing margins remain flat v/s our assumption of decline) as Kochi terminal's depreciation would hit P&L but its revenue contribution would start accruing only in FY14. Key Risks  LNG business is currently unregulated. Recently, concerns have emerged on the likely control of marketing margins. If this happens, it could pose a risk to PLNG's earnings. Valuations  With no risk to near-term earnings, we believe the next cycle of earnings growth would come post FY13 led by (1) volume ramp-up at Kochi, (2) second jetty at Dahej, and (3) new capacity at Dahej and Gangavaram. We build conservative marketing margin of INR22/15 per mmbtu in FY13/14 and nil thereafter.  The stock trades at 10.5x FY14E EPS of INR15. We value PLNG at INR205, the average of two methodologies (1) P/E (13x FY14E EPS), and (2) DCF (INR214). Buy.

Crompton Greaves [CRG IN, Mkt Cap USD1.5b, CMP INR126] Investment Argument  For CG, the attempt now is to ensure that 'the value of whole is substantially more than the sum of the parts' and make a full transformation to a global corporation. We believe that this journey provides several levers to boost revenues. Internationalization / integration could potentially double industrial business revenues — new factories in new geographies, new products like switchgear plant in Brazil, transformer plant in Brazil / Saudi, etc will contribute incrementally in a meaningful manner. The recent acquisition of ZIV has targets to nearly treble revenues in 3 years' time given synergy benefits.  Overseas business is likely to see significant turnaround and could possibly become profitable by mid-FY13 driven by ongoing revenue optimization and cost reduction. 12-month Outlook  Aggressive restructuring of its manufacturing footprint in overseas business will help it turn profitable by mid-FY13, in our view. We expect international subsidiaries to report EPS of INR0.5 in FY13, from loss of INR2.1 in FY12.  Organizational restructuring across geographies / product segments has been completed to break away from 'silo' structures towards integrated product offerings; initial success in railways / oil & gas has been encouraging.  The switchgear plant in Brazil is expected to add USD100m to revenues, contributing to ~10% of the overseas business. In India, commissioning of the drives plant in 3QFY13 will also contribute meaningfully to standalone operations.

October 2012

A–44

India Strategy | Fired Up?

Key Risks  Volatile macro environment, deterioration in European market, etc, could delay recovery in earnings in overseas business. Valuations  The risk-reward appears favorable – we model 47% consolidated earnings CAGR over FY12-14 driven by 14% revenue CAGR and 230bp margin expansion.  We arrive at price target of INR163/sh, based on P/E of 12x FY14E for standalone business and EV/EBIDTA of 8x FY14E for overseas business.

CESC Ltd [CESC IN, Mkt Cap USD0.8b, CMP INR340] Investment Argument  Regulated business provides earnings/cash flow comfort: CESC gets an assured return and steady cash flows from its regulated business in Kolkata (INR5b+ pa).  FY14 corporate EBITDA break-even for Spencer: Spencer's store-level EBITDA has improved from INR25/sq ft in FY11 to INR32 in FY12 and has already crossed INR50 in YTDFY13. Robust revenue growth and expansion would help achieve corporate EBITDA break-even by FY14.  New projects on strong footing: CESC is constructing 1.2GW of power projects with 0.6GW expected in next 12 months and additional 0.6GW by FY15. While PPA is not yet signed for 1GW, the new bid document allows fuel cost pass-through, and we believe that project return closer to regulated return (18-20% RoE) should not be an issue. Equity already invested is INR8b+. 12-month outlook  Key variables for CESC are: (1) Continued positive momentum in Spencer performance, and (2) Progress on 600MW Chandrapur project. While FDI in multibrand retail has recently been allowed, we believe this is only a long-term positive for Spencer as it can currently fund its expansion through CESC. Key Risks  Slowdown in overall retail and Spencer, impacting pace of loss reduction (reduction of INR400-450m pa compared to loss of INR1.1b in FY12). Valuation  We expect CESC to report standalone PAT of INR6b in FY13 (up 8% YoY) and INR6.7b in FY14 (up 12% YoY).  Stock quotes at PER and P/B of 6x and 0.6x FY14E standalone. Maintain Buy.

JSW Energy [JSW IN, Mkt Cap USD1.9b, CMP INR61] Investment Argument  Beneficiary of lower thermal coal prices: 2GW of JSWEL's capacity is combination of merchant power sales and spot coal purchases. Also, these capacities are located in Southern/Western India, which are high deficit regions and command higher ST tariffs. Lower international coal price thus would drive earnings.

October 2012

A–45

India Strategy | Fired Up?



1.1GW of regulated project provides further comfort: JSWEL's 1.1GW Raj West project in Rajasthan has captive lignite mine, and is based on CERC terms (cost plus RoE). This could provide sizable earnings growth in FY14 (project to be fully operational by 2QFY13).

12-month outlook  Continue weakness in imported coal and rupee appreciation could be twin benefits. JSWEL's gross margin improved to INR2.1/unit in 1QFY13 v/s INR0.21/ unit in 2QFY12.  Sustained gross margin, higher PLF and contribution from Raj West are key earnings drivers. Key Risks  Earnings volatility could be higher owing to converter business model.  INR depreciation in the past has been steep and volatility has been high – unfavorable to JSWEL.  Delay in the approval of Raj West tariff order could impact interim profitability. Valuations  We expect consolidated PAT of INR6.2b for FY13 (up 88%) and INR10.5b for FY14 (up 69%).  Stock trades at 10x FY14E reported EPS. Buy.

Sun TV Network [SUNTV IN, Mkt Cap USD2.6b, CMP INR349] Investment Argument  Deal with Arasu cable has removed a significant overhang for Sun TV and indicates a more stable regulatory environment for Sun going forward.  Sun TV to benefit from mandatory digitization resulting in higher subscription revenue from cable system without any incremental investment.  Advertising cycle is close to its lowest ebb and likely to improve as economic environment improves.  Most profitable media company with high dividend yield of 3% and a healthy payout ratio of 50%. 12 Month Outlook With de-growth in analog revenue from Tamil Nadu largely behind, we expect revenue growth to improve from 5% in FY13 to 12% in FY14.  Success of digitization for phase I (4 metros) and phase II (38 cities) over the next 12 months should be a significant sentiment booster for the entire TV value chain. 

Key Risk Further delay in mandatory digitization  Continued sluggishness in ad environment  Any adverse news flow from ongoing investigations in 2G scam. 

Valuations  After a decline in FY13, we expect earnings growth of 10% in FY14  Sun TV is trading at a P/E of 19x FY13 and 17.4x FY14. Buy October 2012

A–46

India Strategy | Fired Up?

MOSL model portfolio Sector weight / Portfolio Picks Financials Private ICICI Bank HDFC Bank Yes Bank PSU SBI PNB Union Bank NBFCs LIC Housing Power Finance Infrastructure & Related sectors Larsen & Toubro Jaiprakash Associates BHEL ACC DLF Oil & Gas Reliance Inds. ONGC BPCL Auto Tat a Motor s Maruti Suzuki Bajaj Auto Technology Infosys HCL Tech Healthcare Dr Reddy's Divi's Lab Consumer / Retail ITC Metals Hindalco Sterlite Telec om Bharti Airtel Idea Cellular Utilities NTPC Others CESC Crompton Eicher Motors Hexaware Jaypee Infra JSW Energy MCX Oberoi Petronet Sun TV United Phosphorous Zee Entertainment Cash Total October 2012

BSE-100 27.6 14.7 5.5 5.3 0.5 5.9 2.7 0.5 0.2 7.0 0.4 0.3 10.4 4.0 0.4 1.0 0.6 0.4 12.0 6.7 2.7 0.5 7.6 2.3 0.9 1.2 10.7 5.6 0.7 4.8 0.9 0.3 13.3 6.7 3.8 0.7 0.7 2.1 1.6 0.3 5.7 1.2 1.9 0.0 0.2 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.2 0.5 0.0 100.0

MOSL Weight 28.0 13 7 4 2 10 6 2 2 5 3 2 14.0 5 3 2 2 2 10.0 4 4 2 9.0 4 3 2 8.0 6 2 5.0 3 2 4.0 4.0 4.0 2 2 3.0 2 1 3.0 3 12.0 1 1 1 1 1 1 1 1 1 1 1 1 0 100.0

Weight relative to BSE-100 0.4 -1.7 1.5 -1.3 1.5 4.1 3.3 1.5 1.8 -2.0 2.6 1.7 3.6 1.0 2.6 1.0 1.4 1.6 -2.0 -2.7 1.3 1.5 1.4 1.7 2.1 0.8 -2.7 0.4 1.3 0.2 2.1 1.7 -9.3 -2.7 0.2 1.3 1.3 0.9 0.4 0.7 -2.7 1.8 10.1 1.0 0.8 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 0.8 0.5 0.0

Effective Sector Stance Overweight Neutral Buy Neutral Buy Overweight Buy Buy Buy Neutral Buy Buy Overweight Buy Buy Neutral Neutral Buy Underweight Neutral Buy Buy Overweight Buy Buy Buy Underweight Buy Buy Overweight Buy Buy Underweight Buy Neutral Buy Buy Neutral Neutral Buy Underweight Buy Overweight Buy Neutral Not Rated Buy Buy Buy Buy Buy Buy Buy Buy Neutral

A–47

India Strategy | Fired up?

2QFY13 PREVIEW Non-cyclicals have a field day in muted quarter Technology, Healthcare, Financials & Consumer continue to deliver strong results    

2QFY13 PAT growth 9% YoY; lowest for any 2Q in last 7 years (ex global crisis) Sectoral analysis: Non-cyclicals have a field day; Technology, Healthcare, Financials & Consumer continue to deliver strong results 2QFY13 Sensex PAT growth just 2% YoY, lowest in last 12 quarters ex SBI-shocker 4QFY11 2HFY13 residual PAT growth 9% for aggregate and 7% for Sensex; allays downgrade concerns for FY13.

2QFY13 PAT growth 9% YoY; lowest for any 2Q in last 7 years (ex global crisis) 2QFY13 is likely to be yet another muted quarter in terms of India’s corporate sector performance. We expect MOSL Universe (ex RMs, oil refining and marketing companies) to report PAT growth of 9% YoY.  This is the lowest 2Q PAT growth in the last 7 years, barring the global-financialcrisis quarter of 2QFY10 when PAT de-grew 11%. In fact, excluding the financialcrisis quarters, 2QFY13 PAT growth is also the second lowest in the last 7 years. 

Ex crisis, 2QFY13 is lowest 2Q PAT growth in last 7 years …

… and the second lowest PAT growth in last 28 quarter

37

55

25

22

20

3437

11

Global crisis

9

36 34 25

42 24 26 20 15 Global Crisis

18

9 1311

11 9

0

1QFY13

3QFY12

1QFY12

3QFY11

1QFY11

3QFY10

1QFY10

1QFY09

3QFY08

1QFY08

3QFY07

1QFY07

Sep‐12E

Sep‐11

Sep‐10

Sep‐09

Sep‐08

Sep‐07

Sep‐06

Sep‐05

23 26 22 24

-8 -11 -15-15

‐11

3QFY09

21

Sensex performance weak, both absolute and relative to aggregate: 2QFY13 aggregate PAT for Sensex 30 companies is expected to grow only 2% YoY. This is very weak in more than one way – 1. It is the lowest Sensex PAT growth in the last 12 quarters, excluding the “SBI-shock quarter” of 4QFY11 which saw SBI PAT collapsing to near zero; and 2. Relative to the aggregate too, 2QFY13 Sensex PAT growth is weak – 6pp lower than aggregate PAT growth, the highest in the last 12 quarters, again excluding the SBIshock quarter. Lowest Sensex PAT growth ex the "SBI-shock quarter" …

… and worst growth relative to aggregate (ex SBI shock)

44

12 26

20

27

30

2

22 12

16

15 6

2

5

4 0 -1

-2

-3

3

2

-6

October 2012

2QFY13E

1QFY13

4QFY12

3QFY12

2QFY12

1QFY12

4QFY11

3QFY11

2QFY11

1QFY11

4QFY10

3QFY10

2QFY13E

1QFY13

4QFY12

3QFY12

2QFY12

-11 1QFY12

4QFY11

3QFY11

2QFY11

1QFY11

4QFY10

3QFY10

-2

A–48

India Strategy | Fired up?

Sectoral analysis: Non-cyclicals to have a field day A sectoral breakdown of 2QFY13 corporate performance clearly suggests the dominance of non-cyclical sectors:  Of the large sectors, the highest YoY PAT growth is expected to be in Technology (+34%), Healthcare (+28%), Financials (+19%) and Consumer (+18%).  Telecom is the only major non-cyclical to report major PAT de-growth (-32% YoY). Another non-cyclical, Utilities, continues to maintain steady performance (PAT up 7% YoY).  Expect most cyclicals to report negative or flat PAT growth: Oil & Gas ex RMs (+1.3%), Metals (-12%), Autos (flat), Capital Goods (flat) and Real Estate (-28%).  Cement is the only major cyclical expected to report robust PAT growth (+89% YoY).  Non-cyclicals contribute 103% of the incremental PAT over 2QFY12, whereas cyclicals have a negative contribution of 3%. Quarterly performance - MOSL universe (INR b) Sector (No of companies) High YoY PAT Growth Cement (8) Technology (6) Health Care (17) Medium/Low YoY PAT Growth Financials (25) Private Banks (8) PSU Banks (9) NBFC (8) Consumer (12) Media (5) Others (4) Utilities (10) Oil & Gas ex RMs (10) Oil & Gas incl RMs (13) Negative YoY PAT Growth Auto (5) Capital Goods (9) Retail (4) Metals (10) Real Estate (7) Telecom (4) MOSL (139) MOSL Excl. RMs (136) Sensex (30)

Sales Sep-11 Sep-12 680 145 361 174 749 402 96 251 54 245 25 38 485 1,441 3,126 1,017 623 336 57 937 41 276 7,271 5,587 3,769

830 162 460 208 854 460 118 276 66 283 27 40 534 1,703 3,886 1,148 721 364 64 932 35 310 8,487 6,304 4,229

EBITDA PAT Var % Sep-11 Sep-12 Var Sep-11 Sep-12 YoY % YoY 22 11 27 20 14 14 22 10 21 16 10 7 10 18 24 13 16 8 12 0 -13 12 17 13 12

153 26 89 39 588 320 79 189 53 51 8 8 119 301 191 121 75 41 5 161 19 88 1,240 1,350 838

198 36 116 46 674 369 98 206 64 60 9 7 127 288 385 135 86 42 6 159 15 91 1,555 1,458 866

30 38 31 20 15 15 24 10 22 18 2 -2 6 -4 102 11 15 4 14 -2 -21 3 25 8 3

101 10 65 25 285 160 46 78 36 35 4 4 65 179 38 76 46 28 2 91 8 15 597 738 466

139 19 88 32 339 191 57 91 43 41 4 4 70 181 245 75 46 27 2 80 6 10 865 802 477

EBITDA Margin Var Sep-11 Sep-12 Var % YoY (bp) 38 89 34 28 19 19 23 17 19 18 17 15 7 1 539 -1 0 -1 -6 -12 -28 -32 45 9 2

22.5 17.8 24.5 22.3 78.4 79.7 81.9 75.1 96.6 20.7 34.5 20.4 24.6 20.9 6.1 11.9 12.1 12.1 9.3 17.2 47.0 31.9 17.1 24.2 22.2

23.9 22.1 25.2 22.3 78.9 80.2 83.4 74.8 97.4 21.2 32.1 18.7 23.7 16.9 9.9 11.8 12.0 11.7 9.5 17.0 42.5 29.4 18.3 23.1 20.5

139 425 73 8 45 55 142 -36 83 51 -243 -172 -87 -398 381 -17 -6 -47 23 -23 -452 -246 127 -104 -175

Other aggregate highlights Sales growth at 13% YoY is the lowest in the last 12 quarters, and is expected to moderate further in 2HFY13 to 10%. This is led by a combination of both lower commodity prices and slowing volume growth.  EBITDA margin is expected to contract 120bp YoY led by Oil & Gas ex RMs(-400bp) and Telecom (-250bp). As a result, EBIDTA growth at 8% is lower than Sales growth. 

October 2012

A–49

India Strategy | Fired up?

EBITDA growth is expected to pick up somewhat in 2HFY13, as lower commodity prices have a lag impact on raw material costs.  There are 3 sectors/sub-sectors where all companies are expected to report positive PAT growth – Technology, Private Banks and NBFCs. In 2 other sectors, only one company is expected to report PAT de-growth – Cement (Jaiprakash) and Consumer (United Spirits).  There are 3 sectors where only one company is expected to clock positive PAT growth even as all its peers de-grow – Metals (Nalco), Telecom (Idea), and Real Estate (Phoenix Mills). Non-cyclicals (Technology, Healthcare, Consumer, Financials) dominate 2QFY13 corporate performance 2QFY13 PAT growth by sector (%)

Contribution to YoY PAT delta by sector (%)

89

34

0

0

8 -6 -23 -47 -87 -124

-243 -246

Media

MOSL*

Utilities

Cap Goods

Metals

Retail Health Care Auto

Consumer

Technology

Cement

Real Estate

Metals

-398 -452

Telecom O&G exRMs Real Est

73 51 23

8

Cap Goods

Media

Utilities

Cement

Retail

Telecom

MOSLEx.RMs

Financials

Consumer

Auto

Oil Ex. RMs

Metals

425

-13

Health Care

Real

Cap. Goods

Retail

Auto

Oil Ex. RMs

Utilities

Consumer

NBFC

Health

Cement

Banks-Pvt

Banks-PSU

Technology

Telecom

Metals

Real Estate

-17

… but EBITDA margin damage widespread (chg in margin, bp)

0

Technology

-8

-28-32

2QFY13 sales growth (%) healthy across sectors … 27 20 18 16 16 14 13 12 12 11 10 10

1

-1 -4

-12

Retail

Auto

Cap. Goods

Sensex

Oil Ex. RMs

Utilities

MOSLEx.RMs

Media

Banks-PSU

Consumer

NBFC

Banks - Pvt

Technology

Health Care

-1 -6 Cement

4

0

Media

2 1

17 14 11 10 10 7

Telecom

21

34 28 23 19 18 17 17 9 7

Distribution of earnings growth: Skew towards PAT de-growth persists 15-30%

0-15%

<0%

PAT growth ex RMs (%)

32

39

35

29

34

23

19

19

26

13 22

27

24

15 17

18

23

22

20

25

24

27

24 Sep 12E

38

23

40

June 12

18

21

18 18

43

Mar 12

20

35

Dec 11

10 22

31

Sep 11

24

June 11

32

43

25

Mar 11

27

41

27

Dec 10

14 10

30

Sep 10

51

14 22

18 14

Mar 10

9 17

27 9 13

31

Dec 09

35

Sep 09

26

32

June 09

22 10

41

Mar 09

42

June 10

-8.4 -15.5 -14.9 -11.3 22.7 41.7 25.5 22.3 23.7 8.9 13.1 10.6 4.4 18.4 11.1 8.7

Dec 08

Sep 08

June 08

Mar 08

Dec 07

52

June 07

54

Mar 07

60

>30%

25.1 15.4 24.3 25.6 19.7 14 21 24 23 26 15 14 19 24 26 23 21 11 18 18 48 44 45 35 30 Sep 07

55.2 36.4 34.0 11 17 14 11 11 11 19 19 23

Dec 06

% of MOSL Universe companies

Earnings Growth %

PAT Growth Ex RMs (%)

October 2012

A–50

India Strategy | Fired up?

Sector highlights

October 2012



AUTOS: Volume slowdown visible across segments, except UVs/LCVs. While commodity prices are benign, adverse product mix and Fx movement would lead to an increase in RM cost by 30bp QoQ and 10bp YoY. We estimate 2QFY13 EBITDA margins to decline 70bp QoQ (70bp YoY), impacted by adverse product mix, adverse Fx movement and negative operating leverage. Maruti Suzuki (-200bp YoY/-290bp QoQ) and Hero MotoCorp (-190bp YoY/-120 QoQ) would be worst impacted. We are downgrading our earnings estimates for Bajaj Auto and Hero MotoCorp to factor in weaker than expected demand and adverse currency movement (except Bajaj). We prefer Tata Motors, Maruti Suzuki and Bajaj Auto.



CAPITAL GOODS: We expect 2QFY13 revenue growth to moderate to 8% YoY (v/s 17% YoY in 1QFY13), given the depleting order book and constrained environment. Ordering activity continues to be sluggish, particularly in the industrial / power generation segment. Current BTB stands at 2.4x, the lowest in 18 quarters and continues to impact reported performance. In 2QFY13, we expect EBITDA margin of 12%, down 40bp YoY, impacted by poor fixed cost absorption. While commodity prices have corrected meaningfully, a large part of the decline is negated by currency movements. Companies with high local manufacturing content (like BHEL, Cummins and Thermax) will be the key beneficiaries.



CEMENT: Cement volume growth is expected to be muted at 2% YoY (down ~12%QoQ). As a result, capacity utilization is also expected to decline 120bp YoY (-10pp QoQ). However, cement prices remain strong with only moderate seasonal corrections in 2QFY13 of INR5/bag (national average). QoQ drop in realizations, coupled with negative operating leverage (950bp QoQ lower utilizations) and cost push (partial impact of diesel price hike) would drive down EBITDA/ton to INR979/ton (down INR224/t QoQ, +INR383/ton YoY). We expect recovery in volumes and strong pricing in 2HFY13 to restore strong operating performance.



CONSUMER: Sustenance of volume growth amidst weaker macro environment will be the key highlight of 2QFY13, in our view. For 2QFY13, we estimate our coverage universe to post ~16% revenue growth (16% in 1QFY13) and ~18% PAT growth (~22 % in 1QFY13). EBITDA is likely to grow 18.5% on the back of sustained revenue growth and some softening in input costs. We expect ITC to post 16% sales growth (1% cigarette volume growth) and ~17% PAT growth; HUL’s sales are likely to grow 15% (8% volume growth) and 19% PAT growth.



FINANCIALS are likely to report healthy 2QFY13 PAT growth of 19%, led by Private Banks and select PSU banks, viz, SBI, BOI, OBC and UNBK. In terms of segments, we expect PAT growth of 23% YoY for Private Banks, 8.6% YoY for Public Sector Banks (ex SBI), and ~19% YoY for NBFCs. Performance of Public Sector Banks is expected to be mixed with SBI (+32%), OBC (+98%), BOI (+44%) and UNBK (+66%) reporting strong numbers on a lower base and many others muted or lower. Asset quality will remain the most important driver of PAT performance. Private Banks are likely to report better earnings and asset quality performance vis-à-vis Public Sector Banks. Ex Kotak Mahindra and Federal, private banks are expected to report PAT A–51

India Strategy | Fired up?

growth in the range of 20-30%. Among NBFCs, MMFSL is expected to report the strongest earnings growth of 35%+, followed by DEWH. Other NBFCs are likely to report 20% earnings growth, except LICHF whose PAT growth is likely to be muted. 

HEALTHCARE: For 2QFY13, we expect topline growth of 21% YoY for our universe (ex one-offs) with EBITDA growth at 22% YoY. Adjusted PAT is expected to grow 28% YoY. Adjusted PAT growth at 28% is higher than EBITDA growth mainly due to reversal of forex losses due to the appreciation of the INR v/s the USD in last few weeks. Among CRAMS companies, we expect Divi's and Dishman to report strong operational performance on a low base, new order inflow, and favorable currency.



MEDIA: Aggregate PAT for our media universe is expected to improve 10% YoY. Ad revenue trends remain sluggish but are likely bottoming-out. Headwinds for print companies seem to be receding on gradual decline in newsprint costs as well as sharp appreciation in the INR. Digitization remains a strong theme for broadcasting and distribution stocks as most participants do not foresee a postponement in the digitization deadline of October 31 for metros.



METALS: Ferrous: Domestic operations of steel majors are expected to report 3% lower revenue QoQ, with 4% higher volumes more than offset by 7% decline in realization. EBITDA is expected to be down 10% QoQ and EBITDA/ton lower by USD20-30/t. SAIL and Tata Steel (India) are expected to deliver volume growth of 8% and 4% QoQ and JSW Steel flat. In 1QFY13 most steel companies had increased inventories which are expected to be partially liquidated in the current quarter. Non-ferrous – Average 1QFY13 base metal LME prices corrected 0-3% QoQ but spot premiums moved up significantly supporting margins. Operating margins for both Sterlite and Hindalco (standalone) are expected to improve QoQ. HZL volumes and margins are expected to remain flat QoQ.

October 2012



OIL & GAS: Ex RMs, expect EBITDA decline of 4% and flat PAT (up 1% YoY). We expect Reliance Industries to report 17% YoY EBITDA decline, led by lower GRMs, petchem margins and KG-D6 gas volumes. Cairn is likely to report 79% YoY EBITDA growth led by Rajasthan production growth. ONGC and Oil India are estimated to report 16% and 22% YoY decline in EBITDA led by lower net realization (~USD54/ bbl in 2QFY13 v/s ~USD85/bbl in 2QFY12) and higher cess rate of INR4,500/MT v/s INR2,500 in FY12. The quantum of government support to OMCs and subsidy sharing by upstream companies remains uncertain. Still, refiners’ earnings are expected to benefit by crude inventory gains and rupee appreciation.



REAL ESTATE: Given spillover launches (which were deferred by delay in approvals) and a weak 2QFY12, we expect our real estate universe to post a YoY uptick in sales momentum. We expect aggregate sector revenue de-growth of 13.1% YoY (+7.7% QoQ), EBITDA decline of 21.4% YoY (-9.2% QoQ) and PAT decline of 27.6% YoY (-7.8% QoQ). Despite improved operating cash flow, meaningful success in debt reduction plan is likely to be visible in 2HFY13 only.

A–52

India Strategy | Fired up?



TECHNOLOGY: Aggregate INR revenue is expected to grow 27.5% YoY and PAT 33.6%, led by 21% YoY depreciation in the Rupee v/s the US Dollar. USD revenue growth across the top-tier is 8% YoY (10% including Cognizant). TCS, Cognizant and HCL are likely to continue leading revenue growth (+3.6%-4.6% QoQ), followed by Infosys (+2.9% QoQ) and Wipro (+1% QoQ). Pricing is expected to be stable across the board. Margins are expected to decline at Wipro on two-month residual impact of wage hikes and hedge losses in the topline, as also at HCL due to wage hikes becoming effective from July 1.



TELECOM: Aggregate 2QFY13 PAT for listed wireless majors is expected to decline 32% YoY and 17% QoQ. For 2QFY13, we expect average wireless traffic for top 4 operators to decline ~1% QoQ led by seasonal weakness and lower promotions. Wireless RPM decline is likely to abate, down 0.3% QoQ v/s ~2% QoQ decline in the preceding two quarters. Among operators, we expect Bharti to exhibit relatively lower traffic decline given its price aggression.



UTILITIES: We expect our Utility universe (ex Coal India) to report aggregate 2QFY13 revenue growth of 9% YoY and PAT de-growth of 2% YoY. PAT growth is likely to be muted for IPPs. NTPC (higher capacity addition) and PGCIL (better capitalization) would show PAT growth of 26% and 22% YoY, respectively. ST prices at IEX touched a high of INR6/unit in mid-July but fell sharply post that. ST forward curve has been strong and the last 3-month contracts are executed at price of INR4+/unit. Globally, imported coal prices have weakened and INR has shown weakness too. Players fueling their plants on imported coal will report improved gross margins.

Company highlights

October 2012



DLF: We expect flat revenue QoQ at INR21.4b in 2QFY13, 25% YoY de-growth in EBITDA and 18% PAT de-growth to INR2.9b owing to higher interest expense. During 2QFY13, DLF divested NTC Mills and received initial tranche of INR5b. However, we expect leverage level to remain largely unaltered due to operating deficit. Progress in major divestments (Aman Resort, windmills) and balance payment in NTC Mills deals followed by debt reduction are key factors to watch out for.



HDFC BANK: It will most likely report its 52nd consecutive quarter of 30%+ PAT growth on back of superior margins, strong loan growth and commendable performance on asset quality. Our estimates suggest this trend will sustain all through FY13.



HUL: Turnaround which began in FY11 has gathered steam and is evident in sustained volume momentum notwithstanding higher base. HUVR’s distribution and trade initiatives coupled with improved go-to-market capabilities and aggressive innovation pipeline has laid a foundation for strong performance in FY13 and FY14, in our view. This should translate into a robust 8% volume growth and 19% PAT growth for 2Q13.

A–53

India Strategy | Fired up?

October 2012



MARUTI SUZUKI: 2QFY13 performance is expected to be impacted by recent labor issue at its Manesar plant. Moreover, weak demand for petrol cars and consequent high discounts, adverse mix, unfavorable forex and recent wage hike negotiated with workers are expected to hurt margins. We estimate 260bp QoQ (-160bp YoY) decline in EBITDA margin to 4.7% and PAT decline of 51% YoY (-72% QoQ) to INR1.18b.



BHARTI: Consolidated PAT is expected to decline 36% YoY and 14% QoQ to INR6.6b. PAT for India & SA is expected to decline 22-23% YoY/QoQ. We have not assumed any forex gain/loss for Bharti in our 2QFY13 estimates. However Bharti could report forex gain for the quarter due to INR appreciation.



WIPRO: Wipro accounts for its hedge losses in the topline; segmental breakdown of IT Services revenues also include translation losses. In 2QFY13, closing currency appreciated QoQ (implying loss on assets translations) while average INR depreciated QoQ (implying losses on hedges taken too). Therefore, while for most IT companies, this could imply other income losses, at Wipro, the same is likely to have operating margin implications. We are currently modeling 100bp QoQ decline in IT Services EBIT margin at 20%. Large forex impact would imply a significant miss on the same.



NTPC: We expect NTPC to report PAT growth of 26% YoY largely on the back of base effect, as operations in September 2011 were impacted due to coal shortage/wet coal and strike at Coal India. Generation for Jul-Aug 2012 stood at 36.5BUs (up 2% YoY) and coal plant PLF for the same period stood at 77% v/s 82% YoY.



SBIN is expected to report PAT growth of 30%+, led by strong margin and lower provisions (on a higher base of 2QFY12). Higher slippages have been a concern in the past and the trend needs to be watched.



SESA GOA: Sesa Goa is expected to report 57% YoY decline in revenues due to lower iron ore volumes, affected by temporary closure of mining in Goa. There is further downside risk to our iron ore volume estimates of 7.9dmt in FY13 and 15.7dmt in FY14 as restarting of mining could take much longer time than expected.

A–54

India Strategy | Fired up?

2QFY13 Sensex PAT growth just 2% YoY 









For 2QFY13, we expect Sensex companies’ aggregate Sales growth of 12% YoY. A 175bp damage to margin leads to EBITDA growth being sharply lower than Sales growth at only 3% YoY. PAT growth at 2% YoY is in line with EBITDA growth. All growth figures are well below long-period averages. This performance is very weak in more than one way – 1. It is the lowest Sensex PAT growth in the last 12 quarters, excluding the “SBIshock quarter” of 4QFY11 which saw SBI PAT collapsing to near zero. Nearly half (i.e. 14 out of 30) Sensex companies are expected to post YoY PAT decline for 2QFY13. 2. Relative to the aggregate too, 2QFY13 Sensex PAT growth is weak – 6pp lower than aggregate PAT growth, the highest in the last 12 quarters, again excluding the SBI-shock quarter. This is primarily led by PAT decline in several cyclicals – Oil &Gas (ONGC, GAIL, Reliance Inds), Metals (Hindalco, Sterlite, Tata Steel) and Autos (Hero MotoCorp, Bajaj Auto, Maruti) – many of these companies had reported PAT growth in 1QFY13. As in the MOSL Universe aggregates, non-cyclicals and cyclicals have a major and distinct impact on Sensex PAT:  Of the 9 Sensex companies with highest PAT growth, 8 are non-cyclicals.  Non-cyclicals more than offset the 390% drag on PAT contribution by the cyclicals. Given ONGC’s high 13% weight in Sensex PAT and its sharp de-growth of 26% YoY, it alone accounts for a 7pp drop in Sensex PAT growth. Thus, ex ONGC, aggregate Sensex PAT growth is a much more respectable 9%. Top five Sensex companies by PAT growth: TCS (+42% YoY), SBI (+31%), HDFC Bank (+30%), Sun Pharma (+29%), and Infosys (+26%).

Sensex Sales growth (YoY, %) 44 34 27 20

33 23 21 20

30

37 36 38

32

32

31 30

22

22

LPA 22%

19

28 22 18

23 26 22 25 19 17 12

16 6

-5

-11

-6

1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2QE FY05

October 2012

FY06

FY07

FY08

FY09

FY10

FY11

FY12

FY13E

A–55

India Strategy | Fired up?

Sensex PAT growth (YoY, %)

25

28

39 42 33

43 31 30

24

44 33

30 26

17 19

25 23

LPA 19%

20

30

26 27 22

16

12 6

12 -7

15 6

2

-2 -15

-21 -25 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2QE FY05

FY06

FY07

FY08

FY09

FY10

FY11

FY12

FY13E

Sensex 2QFY13 performance - It's cyclicals v/s non-cyclicals (INR b) Sales Sep-12 Var % YoY High PAT Growth TCS State Bank HDFC Bank Sun Pharma Infosys NTPC Coal India Wipro ICICI Bank Cipla Med/Low PAT Growth HDFC Hind. Unilever M&M ITC Tata Motors Larsen & Toubro Negative PAT Growth Reliance Inds. BHEL Bajaj Auto Sterlite Inds. Hindalco Dr Reddy’s Labs JSPL GAIL ONGC Hero Motocorp Tata Power Bharti Airtel Maruti Suzuki Tata Steel Sensex (30)

October 2012

898 158 115 36 23 100 156 147 111 33 20 820 15 65 95 70 443 133 2,511 937 105 48 104 197 25 51 112 218 52 71 196 83 313 4,229

17 36 10 22 26 24 1 12 22 30 15 21 18 15 31 15 22 18 8 19 2 -7 2 2 15 15 15 -4 -11 14 13 5 -5 12

EBDITA Sep-12 Var % YoY 313 46 85 28 9 31 31 27 21 30 5 134 16 10 11 26 58 13 418 82 18 9 25 22 5 16 14 119 5 13 60 4 28 866

18 36 13 30 20 23 -3 10 22 29 18 23 21 19 28 16 29 13 -10 -17 -1 -12 0 2 9 -14 -15 -16 -28 -3 2 -21 2 3

EBITDA margin Sep-12 Var (bp) 34.9 29.2 73.8 76.5 38.1 30.9 20.1 18.6 19.2 93.4 25.2 16.4 111.9 15.3 11.7 36.8 13.1 10.0 16.6 8.8 16.8 17.8 23.8 11.2 18.3 30.6 12.4 54.9 9.3 18.4 30.4 4.7 9.0 20.5

47 17 245 432 -201 -13 -98 -27 9 -51 58 21 299 57 -23 33 66 -44 -330 -378 -60 -105 -51 -2 -110 -1019 -454 -773 -220 -322 -324 -157 58 -175

PAT Sep-12 203 35 37 16 7 24 19 28 16 18 4 79 12 8 9 18 25 8 196 55 12 7 13 9 2 8 8 64 4 3 7 1 1 477

Var % YoY 29 42 31 30 29 26 26 25 22 21 21 14 19 19 17 17 11 3 -18 -3 -4 -11 -15 -15 -17 -20 -24 -26 -27 -30 -36 -51 -63 2

PAT Contbn % Growth % 42 7 8 3 1 5 4 6 3 4 1 17 2 2 2 4 5 2 41 12 3 1 3 2 0 2 2 13 1 1 1 0 0

404 91 79 32 14 44 34 50 26 29 6 85 17 11 11 23 21 2 -389 -14 -5 -8 -20 -15 -4 -19 -23 -200 -15 -12 -33 -11 -12

A–56

India Strategy | Fired up?

Bottom five Sensex companies by PAT growth: Tata Steel (-63% YoY), Maruti Suzuki (-51%), Bharti Airtel (-36%), Tata Power (-30%) and Hero MotoCorp (-27%). Tata Steel and Maruti Suzuki are the bottom performers for the second quarter in a row.



2HFY13 residual PAT growth modest; allays downgrade concerns for FY13 In 1HFY13, PAT growth for MOSL Universe (ex RMs) was 6% YoY. In order to meet our full year FY13 PAT growth estimate of 9%, implied residual 2HFY13 PAT works out to 12% YoY. Most sectors comfortably placed for 2HFY13 PAT; no major earnings downgrade risk for FY13

32

29

20 18

19

36 21 19

23

18

17 15

16

4

45

28

21 10

10

Capital Goods

Metals

Financials

Utilities

Technology

Oil ex RMs

Retail

Consumer

Real Estate

‐13

‐16 Cement

‐29 Health Care

‐23 Media

‐6

‐22 ‐19 Telecom

38

2HFY12A (PAT growth YoY, %)

Automobiles

2HFY13E YoY (PAT growth YoY, %) 42

Even the disaggregated, sector-wise picture for residual 2HFY13 is comforting. Only 4 sectors need to deliver PAT growth of 25%+, viz, Media, Real Estate, Healthcare and Cement. Of these, Media and Real Estate enjoy the benefit of low base as their 2HFY12 PAT was down 23% and 29%, respectively. Sensex 2HFY13E PAT growth at 7%: As in the case of aggregates, even for Sensex, 2HFY13 PAT growth is a modest 7% with earnings headwinds adequately modeled in, in our view. 2HFY13E PAT for Sensex companies: As in the aggregates, no major downgrade concerns here too L to P 48 9

9

8

7

6

3

3

3

2

October 2012

Tata Power

BHEL

JSPL

Hero Moto

Bajaj Auto

ONGC

Sun Pharma

L&T

Infosys

Sterlite Inds.

SBI

Sensex

M&M

Coal India

Wipro

Hindalco

Reliance Inds.

NTPC

ICICI Bank

ITC

Cipla

HDFC

Hind. Unilever

GAIL

TCS

HDFC Bank

Maruti Suzuki

Dr Reddy’s

Tata Steel

‐6 ‐9 ‐10 ‐12 ‐18 ‐18

‐25 ‐28 Bharti Airtel

30 25 25 20 20 18 17 17 16 13 11

Tata Motors

57

2HFY13E YoY (PAT growth YoY, %)

A–57

India Strategy | Fired up?

Intra-sector 2QFY13 earnings divergence (%) Sectors

Sector Growth (%)

Autos

0

Capital Goods

-1

+30% Growth

ABB: 145 Cement

89

Consumer

18

Bank - Private

Bank - PSU

Bank - NBFC

Healthcare

Media

Metals

Oil & Gas (Ex RMS) Real Estate

23

17

19

28

17

-12

3

-28

0-15% growth

M & M: 17

Tata Motors: 11

Cummins: 23

Havells: 6, L&T: 3

-ve earnings growth (%)

-6

Jubilant Foodworks: 45

Technology

34

HCL Tech: 65, TCS: 42

Telecom

-32 Idea Cellular: 92 7

Titan Inds: 15 Infosys: 26, Tech Mah: 24, Wipro: 22

MphasiS: 14

Earnings momentum

0 1 1 Bajaj Auto: -11, 3 HMCL: -27, MSIL: -51 BHEL: -4, 1 1 2 Siemens: -11, 5 CRG: -14, TMX: -18 Jaiprakash 1 Associates: -27 5 1 1

Shree Cement: LP, India Grasim ACC: 103, Ultratech: 94, Cements: 22 Industries: 4 ACEM: 92, Birla Corp: 54 Marico: 37, Pidilite Inds: 28, Britannia: 12, United Godrej Consumer: 36 Dabur: 22, HUVR: 19, GSK Consumer: 12, Spirits: -2 ITC: 17, CLGT/APNT: 16 Nestle: 10 Yes Bank: 30, IndusInd Bank: 28, ING Vysya Bk: 15, HDFC Bank: 30 Axis Bank: 22, KMB: 6, ICICI Bank: 21 Federal Bank: 5 OBC: 98, Andhra Bank: 2, BOB: -7, Union Bank: 66, PNB: 1, Canara Bank: -14 BOI: 44, SBIN: 31 Indian Bank: 0 M&M Financial: 37, PFC: 21, IDFC: 20, Shriram Trans: 10, Dewan Housing: 33 HDFC: 19, LIC Hsg. Fin.: 1 REC: 19 Dishman: LP, Sun Pharma: 29, Torrent Pharma: 12, Cadila: 110, Glenmark: 92, Divis Lab: 27, Opto Circuits: 10 Sanofi India: -9 Jubilant Life: 67, Lupin: 22, Cipla: 21, Ranbaxy Labs: 4, Dr Reddy's Lab: -17 IPCA Labs: 41 GSK Pharma: 18 Biocon: 3 Dish TV: Loss, Jagran Prakashan: 59 Zee Ent: 2 Sun TV: -1 HT Media: -8 HZ: -1, NMDC: -7, Sesa Goa: 139 Nalco: 23 STLT: -15, HNDL: 15, JSPL: -20, SAIL: -36, JSW: -35, TATA -63 MRPL: 3,365, Indraprastha RIL: -3, GSPL: -16, Chennai Petroleum: 305, Gas: 12, Oil India: -17, Cairn India: 271 Petronet LNG: 0 GAIL: -24, ONGC: -26 Oberoi Realty: 2, Phoenix Mills: 26 MLIFE: -3, HDIL: -27, DLF: -37, Unitech: -47

Retail

Utilities

15-30% growth

6 3

2

3 3 0

4

0

2

4

2

0

6

5

4

2

1

3

0

8

1 0

1

1

3 2

3 0

2 5

0

1

0

Shopper's Stop: -82, 1 0 Pantaloon: -94

1

Bharti Airtel: -36, 1 0 Tulip Telecom: -37, RCom: -60, Adani Power: PL, 1 4 Tata Power: -30, Reliance Infra: -48

October 2012

6 2

1 0

2 3

0 3

NTPC: 26, Coal India: 25, CESC: 14, 2 Powergrid: 24, NHPC: 10 PTC India: 19 Earnings momentum: Represents number of companies in each of the growth brackets; PL: Profit to Loss; LP: Loss to Profit JSW Energy: LP

1

2

3

A–58

India Strategy | Fired up?

N O T E S

October 2012

A–59

September 2012 Results Preview

BSE Sensex: 18,763

S&P CNX: 5,703

MOSL Universe: 2QFY13 Highlights & Ready Reckoner

Note: In our quarterly performance tables, our four-quarter numbers may not always add up to the full-year numbers. This is because of differences in classification of account heads in the company’s quarterly and annual results or because of differences in the way we classify account heads as opposed to the company. All stock prices and indices as on 28 September 2012, unless otherwise stated.

October 2012

MOSL Universe

MOSL Universe: 2QFY13 aggregate performance highlights Quarterly performance - MOSL universe

(INR Billion)

Sales (No of companies)

Sep-12

EBITDA

Var.

Var.

YoY (%)

QoQ (%)

Sep-12

Net Profit

Var.

Var.

YoY (%)

QoQ (%)

Auto (5) 721 15.7 -3.2 86 15.1 -5.9 Capital Goods (9) 364 8.2 14.7 42 4.0 26.3 Cement (8) 162 11.1 -9.9 36 37.7 -22.7 Consumer (12) 283 15.6 3.4 60 18.5 6.1 Financials (25) 460 14.4 4.1 369 15.2 3.9 Private Banks (8) 118 22.1 3.6 98 24.2 4.8 PSU Banks (9) 276 10.0 4.1 206 9.5 3.1 NBFC (8) 66 21.2 5.1 64 22.2 5.0 Health Care (17) 208 19.7 6.8 46 20.2 4.9 Media (5) 27 9.5 3.4 9 1.8 0.3 Metals (10) 932 -0.5 -4.8 159 -1.8 -9.4 Oil & Gas (13) 3,886 24.3 8.9 385 101.9 LP Excl. RMs (10) 1,703 18.1 5.3 288 -4.4 24.8 Real Estate (7) 35 -13.1 7.7 15 -21.4 -9.2 Retail (4) 64 11.6 8.1 6 14.4 9.2 Technology (6) 460 27.5 4.8 116 31.3 2.9 Telecom (4) 310 12.2 0.3 91 3.5 -0.1 Utilities (10) 534 10.1 -2.0 127 6.2 -13.8 Others (4) 40 6.6 -6.1 7 -2.3 -7.4 MOSL (139) 8,487 16.7 4.1 1,555 25.4 48.0 MOSL Excl. RMs (136) 6,304 12.8 1.6 1,458 8.0 2.4 Sensex (30) 4,229 12.2 0.8 866 3.3 0.4 For Banks : Sales = Net Interest Income, EBITDA = Operating Profits; LP = Loss to Profit

Sep-12

Var.

Var.

YoY (%)

QoQ (%)

-0.2 -1.4 89.0 17.7 19.0 22.9 16.8 18.7 28.2 17.1 -12.1 539.3 1.3 -27.6 -5.5 33.6 -32.4 7.0 15.3 44.9 8.7 2.4

-8.8 10.2 -24.9 4.1 -0.4 2.9 -4.0 3.6 16.7 14.3 -23.2 LP 25.7 -7.8 11.8 2.5 -16.1 -22.6 -12.0 112.3 -1.3 -3.6

46 27 19 41 191 57 91 43 32 4 80 245 181 6 2 88 10 70 4 865 802 477

Quarterly performance - MOSL universe Sector (No. of Companies) Auto (5) Capital Goods (9) Cement (8) Consumer (12) Financials (25) Private Banks (8) PSU Banks (9) NBFC (8) Health Care (17) Media (5) Metals (10) Oil & Gas (13) Excl. RMs (10) Real Estate (7) Retail (4) Technology (6) Telecom (4) Utilities (10) Others (4) MOSL (139) MOSL Excl. RMs (136) Sensex (30) October 2012

Sep.11 12.1 12.1 17.8 20.7 79.7 81.9 75.1 96.6 22.3 34.5 17.2 6.1 20.9 47.0 9.3 24.5 31.9 24.6 20.4 17.1 24.2 22.2

EBITDA Margin (%) Sep.12 12.0 11.7 22.1 21.2 80.2 83.4 74.8 97.4 22.3 32.1 17.0 9.9 16.9 42.5 9.5 25.2 29.4 23.7 18.7 18.3 23.1 20.5

Chg. (%)

Sep.11

-0.1 -0.5 4.3 0.5 0.6 1.4 -0.4 0.8 0.1 -2.4 -0.2 3.8 -4.0 -4.5 0.2 0.7 -2.5 -0.9 -1.7 1.3 -1.0 -1.8

7.4 8.2 7.1 14.1 39.9 47.9 31.2 65.8 14.2 15.4 9.8 1.2 12.4 20.1 4.0 18.1 5.6 13.5 9.4 8.2 13.2 12.4

Net Profit Margin (%) Sep.12 6.4 7.5 12.0 14.4 41.5 48.2 33.1 64.5 15.3 16.5 8.6 6.3 10.7 16.7 3.4 19.0 3.4 13.1 10.2 10.2 12.7 11.3

Chg. (%) -1.0 -0.7 4.9 0.3 1.6 0.3 1.9 -1.3 1.0 1.1 -1.1 5.1 -1.8 -3.4 -0.6 0.9 -2.2 -0.4 0.8 2.0 -0.5 -1.1 B–1

MOSL Universe

MOSL Universe: 2QFY13 aggregate performance highlights (Ex RMs) Quarter-wise sales growth (% YoY)

Quarter-wise net profit growth (% YoY) 17.1%

22.2% 17.6% 15.3%

10.8%

12.8%

8.7% 5.1%

Dec-11

Ma r-12

June-12

Dec-11

Sep-12E

Ma r-12

June-12

Sep-12E

Sectoral sales growth - quarter ended September 2012 (%) 27

20

18

16

16

14

13

12

12

11

10

10

8 0

Utilities

Media

4

3

2 -2

-4

Real Estate

Cement

6

Metals

Retail

8

Cap Goods

Telecom

MOSL Ex. RMs

Financials

Consumer

Auto

Oil Ex. RMs

Healthcare

Technology

-13

Sectoral EBITDA growth - quarter ended September 2012 (%) 38

31 20

18

15

15

14

Metals

Oil Ex. RMs

Real Estate

0

Media

Cap Goods

1

Telecom

Utilities

MOSL Ex. RMs

Retail

Auto

Financials

Consumer

Healthcare

Technology

Cement

-21

-1

-6

-12

-28

-32

Sectoral net profit growth - quarter ended September 2012 (%)

October 2012

Metals

Real Estate

Telecom

Retail

Cap Goods

Auto

7

Utilities

9

MOSL Ex. RMs

17

Media

18

Consumer

19

Financials

28

Health Care

Technology

Cement

34

Oil Ex. RMs

89

B–2

October 2012

110

103

Top 10 by net profit growth (%)

98

-94

-82

Oil India Strides Arcolab MCX

-48

-47 -42

Hero Motocorp BGR Energy

-24

Maruti Suzuki

-31 -25

-11

-22

DLF

1,135

-28

-11

Oil India

Worst 10 by EBITDA growth (%)

NHPC

-18

Gujarat State

-20 -14

DLF

-21

Unitech

-57 -22 -16

Tulip Telecom

MCX

-60

-51

BGR Energy

-63

DLF

271

Unitech

3,365

Reliance Infrastructure

Worst 10 by net profit growth (%)

Maruti Suzuki

143

Reliance Infrastructure Hero Motocorp

-49

Unitech

-62 -49

Shopper's Stop

-55

Reliance Comm

58

Tata Steel

60 Sesa Goa

37

Adani Power

Top 10 by EBITDA growth (%)

Sesa Goa

Godrej Consumer

Divis Labs

39

Nalco

66

Ultratech Cement

Jubilant Foodworks Dewan Housing Indraprastha Gas Power Grid Corp.

MRPL

Shree Cement

Petronet LNG

Cairn India

Top 10 by sales growth (%)

Pantaloon Retail Shopper's Stop

120

40

Oriental Bank of

139

76

ABB

77 43

ACC

145

Ambuja Cements Dishman Pharma

79 43

United Phosphorous Cadila Health

190

44

Sesa Goa

89

Cairn India

ACC

111 44

ABB

305

47

Strides Arcolab

Birla Corporation Shree Cement

MRPL 52

Cairn India

Chennai Petroleum

MRPL

MOSL Universe

Corporate Scoreboard (quarter ended September 2012) Worst 10 by sales growth (%)

84 -9

-21

-37 -37

Source: MOSL

B–3

MOSL Universe

Annual performance - MOSL universe Sales EBITDA FY12 FY13E FY14E Chg.# Chg.@ FY12 FY13E FY14E Chg.# Chg.@ FY12 (%) (%) (%) (%) Auto (5) 3,041 3,532 3,981 16.1 12.7 399 454 537 13.8 18.1 228 Capital Goods (9) 1,525 1,659 1,785 8.8 7.6 207 212 222 2.3 4.7 143 Cement (8) 853 963 1,104 12.9 14.7 190 228 260 20.1 13.8 99 Consumer (12) 1,005 1,175 1,360 17.0 15.7 204 247 292 20.7 18.4 138 Financials (27) 1,843 2,106 2,482 14.3 17.9 1,473 1,685 1,997 14.4 18.5 751 Private Banks (8) 400 484 583 20.9 20.5 336 410 499 22.0 21.6 207 PSU Banks (11) 1,222 1,350 1,576 10.5 16.7 917 1,010 1,184 10.1 17.2 395 NBFC (8) 221 272 323 23.1 18.8 219 265 315 20.8 19.0 148 Health Care (17) 739 880 966 19.0 9.9 176 205 223 16.8 8.5 104 Media (5) 101 112 128 10.9 14.2 32 36 41 9.7 16.6 15 Metals (10) 3,914 3,962 4,179 1.2 5.5 694 717 844 3.3 17.7 365 Oil & Gas (13) 14,578 16,160 16,193 10.8 0.2 1,447 1,421 1,577 -1.8 11.0 789 Excl. RMs (10) 6,603 7,546 7,422 14.3 -1.6 1,185 1,166 1,275 -1.6 9.3 653 Real Estate (11) 226 232 294 2.6 26.4 93 95 123 1.8 29.6 47 Retail (4) 240 281 328 16.9 17.0 23 27 32 17.6 21.4 9 Technology (6) 1,521 1,864 2,083 22.6 11.7 385 468 503 21.8 7.3 287 Telecom (4) 1,140 1,264 1,386 10.9 9.6 360 376 423 4.5 12.3 63 Utilities (10) 1,893 2,185 2,413 15.4 10.4 521 621 726 19.1 16.8 350 Others (4) 157 173 192 9.8 11.4 32 34 39 6.3 16.2 18 MOSL (145) 32,778 36,547 38,875 11.5 6.4 6,236 6,824 7,837 9.4 14.8 3,405 Excl. RMs (142) 24,803 27,933 30,104 12.6 7.8 5,973 6,570 7,534 10.0 14.7 3,269 Sensex (30) 8,597 9,740 10,314 13.3 5.9 1,739 1,902 2,160 9.4 13.5 945 Nifty (50) 9,902 10,978 11,605 10.9 5.7 1,981 2,183 2,474 10.2 13.3 1,077 # Growth FY13 over FY12; @ Growth FY14 over FY13. For Banks : Sales = Net Interest Income, Note: Sensex & Nifty Numbers are Free Float.

(INR Billion) Net Profit FY13E FY14E Chg.# Chg.@ (%) (%) 219 274 -3.8 24.8 144 146 0.8 0.8 118 134 18.9 13.2 166 198 20.4 18.8 874 1,022 16.4 17.0 248 294 19.8 18.3 449 519 13.6 15.5 176 209 18.8 18.9 127 152 22.1 19.7 17 20 14.5 20.3 381 451 4.5 18.3 761 810 -3.6 6.5 677 712 3.8 5.1 46 60 -1.4 30.0 10 14 18.2 32.3 352 382 22.6 8.5 48 73 -22.8 50.2 384 428 9.7 11.4 19 22 4.4 19.5 3,666 4,184 7.7 14.1 3,583 4,085 9.6 14.0 1,039 1,187 9.9 14.3 1,199 1,363 11.3 13.7 EBITDA = Operating Profits;

Valuations - MOSL universe Sector (No. of companies) Auto (5) Capital Goods (9) Cement (8) Consumer (12) Financials (27) Private Banks (8) PSU Banks (11) NBFC (8) Health Care (17) Media (5) Metals (10) Oil & Gas (13) Excl. RMs (10) Real Estate (11) Retail (4) Technology (6) Telecom (4) Utilities (10) Others (4) MOSL (145) MOSL Excl. RMs (142) Sensex (30) Nifty (50) N.M. - Not Meaningful. October 2012

P/E (x) FY12 FY13E FY14E

EV/EBITDA (x) FY12 FY13E FY14E

P/BV (x) FY12 FY13E FY14E

RoE Div. PAT (%) yld (%) CAGR FY12 FY13E FY14E FY12 FY12-14

11.9 16.5 18.1 38.1 12.3 19.7 7.4 15.1 26.4 32.0 9.6 9.9 10.5 18.0 45.2 19.3 22.7 14.6 16.7 14.6 14.9 16.7 16.3

6.7 10.7 9.8 25.5 NM NM NM NM 15.9 14.4 6.4 6.2 5.6 14.0 19.0 13.5 7.2 11.0 10.3 N.M N.M N.M N.M

3.9 3.6 2.8 13.3 2.1 3.1 1.3 2.9 5.2 5.7 1.3 1.6 1.7 1.1 7.3 4.9 1.5 2.4 3.6 2.5 2.5 2.9 2.7

32.4 21.6 15.8 34.9 17.3 15.9 17.4 19.5 19.7 17.7 13.3 15.8 16.0 6.1 16.0 25.2 6.5 16.3 21.8 16.8 16.9 17.1 16.7

12.4 16.4 15.2 31.6 10.6 16.4 6.5 12.7 21.6 27.9 9.2 10.3 10.1 18.3 38.3 15.7 29.5 13.3 16.0 13.5 13.6 15.4 15.0

9.9 16.3 13.4 26.6 9.0 13.9 5.6 10.7 18.1 23.2 7.8 9.6 9.6 14.0 28.9 14.5 19.6 12.0 13.4 11.8 11.9 13.5 13.2

5.6 10.6 8.3 21.0 NM NM NM NM 13.6 12.8 6.5 6.2 5.6 13.4 16.1 10.8 6.9 9.6 9.5 N.M N.M N.M N.M

4.6 10.0 7.1 17.6 NM NM NM NM 12.3 10.7 5.6 5.5 5.0 10.0 13.2 9.7 5.8 8.4 7.9 N.M N.M N.M N.M

3.0 3.1 2.6 10.8 1.8 2.7 1.1 2.5 4.3 5.0 1.2 1.4 1.5 1.1 6.4 4.1 1.4 2.2 3.3 2.2 2.2 2.6 2.6

2.5 2.8 2.2 9.1 1.6 2.4 0.9 2.1 3.7 4.5 1.1 1.3 1.4 1.0 5.5 3.4 1.3 1.9 2.9 1.9 2.0 2.3 2.3

24.4 19.1 16.8 34.2 17.2 16.7 16.7 19.4 20.1 18.0 12.8 13.9 14.9 5.8 16.7 26.4 4.9 16.1 20.5 16.1 16.4 16.9 17.0

25.1 17.1 16.7 34.0 17.5 17.4 16.8 19.9 20.6 19.4 13.6 13.4 14.1 7.0 19.1 23.5 6.9 16.2 21.5 16.3 16.5 17.0 17.0

1.7 1.5 1.0 1.2 1.8 1.1 2.5 2.1 1.0 1.2 1.9 2.0 2.0 0.9 0.6 1.8 0.4 2.4 2.1 1.7 1.7 1.6 1.6 Source:

9.6 0.8 16.0 19.6 16.7 19.1 14.6 18.9 20.9 17.4 11.2 1.3 4.4 13.2 25.0 15.3 7.7 10.6 11.7 10.9 11.8 12.1 12.5 MOSL B–4

MOSL Universe

Ready reckoner: quarterly performance (INR Million)

CMP (INR) 28.09.12

Rating Sep.12

Sales Var. % YoY

Var. % QoQ

Sep.12

EBITDA Var. % YoY

Var. % QoQ

Sep.12

Net Profit Var. % YoY

Var. % QoQ

Automobiles Bajaj Auto Hero Motocorp Mahindra & Mahindra Maruti Suzuki Tata Motors Sector Aggregate

1,833 1,879 865 1,350 267

Buy Buy Buy Buy Buy

48,254 51,770 95,445 82,507 442,658 720,634

-6.9 -10.5 30.6 5.4 22.3 15.7

-0.8 -16.6 3.2 -23.4 2.2 -3.2

8,573 4,801 11,193 3,909 57,988 86,465

-12.1 -27.7 28.1 -20.9 28.7 15.1

-1.7 -28.3 0.9 -50.3 0.8 -5.9

7,005 4,401 8,656 1,175 24,824 46,061

-11.3 -27.1 17.4 -51.1 10.5 -0.2

-2.5 -28.5 19.3 -72.3 -3.2 -8.8

Capital Goods ABB BGR Energy BHEL Crompton Greaves Cummins India Havells India Larsen & Toubro Siemens Thermax Sector Aggregate

798 275 247 126 508 625 1,597 709 561

Neutral Neutral Neutral Neutral Neutral Buy Buy Neutral Neutral

19,190 7,038 105,257 29,629 12,056 9,796 132,967 35,693 12,020 363,645

10.1 -8.8 2.2 9.5 10.6 15.0 18.2 -1.1 -7.8 8.2

1.9 15.2 26.4 5.4 -4.2 -5.4 11.2 25.5 22.2 14.7

1,109 883 17,694 1,981 2,230 1,162 13,297 2,914 1,142 42,411

66.3 -19.9 -1.3 -12.4 26.8 12.9 13.3 0.7 -18.7 4.0

4.6 0.4 47.2 18.8 -4.1 -4.9 6.6 201.6 18.5 26.3

543 296 12,329 1,003 1,584 784 8,223 1,579 837 27,179

145.1 -42.3 -4.1 -14.0 23.2 5.9 3.0 -11.3 -17.7 -1.4

5.2 -11.5 33.9 16.8 -12.3 -10.9 -18.0 333.8 24.6 10.2

Cement ACC Ambuja Cements Birla Corporation Grasim Industries India Cements Jaiprakash Associates Shree Cement Ultratech Cement Sector Aggregate

1,469 202 282 3,315 95 82 3,954 1,968

Neutral Buy Buy Buy Buy Buy Buy Buy

24,042 21,709 5,456 11,736 11,466 32,233 10,927 44,095 161,664

11.8 20.3 5.8 -2.5 5.3 2.9 47.4 12.8 11.1

-13.4 -15.4 -17.1 -5.3 -4.6 8.8 -24.9 -13.1 -9.9

4,167 5,512 766 2,856 2,519 7,266 3,216 9,358 35,661

89.0 77.0 142.7 -1.7 0.0 -2.9 111.1 60.3 37.7

-36.0 -23.7 -39.1 -3.3 -9.3 -5.8 -33.2 -27.6 -22.7

2,497 3,561 404 3,597 854 943 2,166 5,402 19,423

103.2 92.1 54.5 4.3 22.5 -26.7 LP 93.6 89.0

-40.3 -24.1 -52.3 31.8 14.1 -31.6 -38.4 -30.6 -24.9

Consumer Asian Paints Britannia Colgate Dabur Godrej Consumer GSK Consumer Hind. Unilever ITC Marico Nestle Pidilite Inds. United Spirits Sector Aggregate

3,937 476 1,206 128 668 2,994 545 272 199 4,374 206 1,218

Neutral Sell Sell Neutral Neutral Neutral Neutral Buy Buy Neutral Buy Neutral

25,500 14,500 7,700 14,700 16,250 8,100 64,500 69,700 11,500 22,750 8,450 19,700 283,350

13.3 12.0 17.2 16.5 37.0 12.5 15.0 14.5 18.0 15.9 19.0 10.0 15.6

0.4 18.7 4.6 0.5 17.0 11.0 1.1 3.8 -9.2 14.5 -7.4 -4.2 3.4

3,825 827 1,670 2,852 2,860 1,377 9,869 25,650 1,564 4,960 1,622 2,916 59,990

18.5 7.1 18.2 20.5 36.9 16.7 19.4 15.6 34.1 20.9 24.6 13.9 18.5

-12.6 27.1 2.8 38.4 43.8 24.4 2.1 8.3 -15.4 15.5 -14.9 -13.0 6.1

2,428 548 1,253 2,122 1,736 1,153 7,784 17,680 1,074 2,954 1,108 828 40,669

16.3 12.3 16.5 22.1 35.9 11.9 19.3 16.8 37.2 10.0 28.2 -2.3 17.7

-15.8 26.2 6.7 37.5 33.0 8.2 -8.9 10.4 -13.3 21.6 -16.9 -25.1 4.1

PULL OUT October 2012

B–5

MOSL Universe

Ready reckoner: quarterly performance (INR Million)

Healthcare Biocon Cadila Health Cipla Dishman Pharma Divis Labs Dr Reddy’ s Labs Glenmark Pharma GSK Pharma IPCA Labs. Jubilant Life Lupin Opto Circuits Ranbaxy Labs Sanofi India Strides Arcolab Sun Pharma Torrent Pharma Sector Aggregate

CMP (INR) 28.09.12

Rating Sep.12

Sales Var. % YoY

Var. % QoQ

Sep.12

EBITDA Var. % YoY

Var. % QoQ

Sep.12

Net Profit Var. % YoY

Var. % QoQ

275 872 381 96 1,080 1,647 422 1,977 482 212 596 130 530 2,374 883 693 695

Neutral Buy Neutral Neutral Buy Buy Buy Buy Buy Neutral Buy Neutral Neutral Neutral Buy Neutral Buy

6,067 15,810 20,468 3,436 4,932 24,822 11,589 6,674 7,133 12,803 20,925 7,012 25,341 3,901 6,185 22,526 8,290 207,915

19.3 27.0 15.1 27.6 39.3 15.1 25.0 9.8 14.4 22.2 27.2 24.8 20.9 24.8 -19.6 26.4 21.3 19.7

5.2 2.1 17.2 9.0 5.3 8.9 17.5 2.4 12.4 3.6 2.1 -1.9 10.0 4.3 21.7 -2.2 8.1 6.8

1,453 3,439 5,156 830 1,833 4,542 2,076 2,082 1,639 2,691 3,674 1,885 2,706 636 1,555 8,583 1,659 46,439

8.9 24.7 17.8 76.5 45.2 8.6 19.9 18.3 3.7 14.0 32.9 21.9 55.4 26.4 -9.6 20.1 18.0 20.2

18.4 0.6 24.8 -0.7 -3.8 26.4 12.8 2.7 23.3 -0.1 12.4 -0.7 9.1 21.8 37.6 -17.5 6.4 4.9

886 2,158 3,735 304 1,350 2,229 1,426 1,720 1,098 1,326 2,442 1,337 1,688 499 1,347 7,063 1,119 31,728

3.4 110.1 20.9 LP 27.3 -17.0 91.5 17.8 40.9 67.0 21.5 10.5 4.2 -8.9 189.9 29.5 11.9 28.2

12.4 10.8 22.2 -21.6 -19.4 -4.3 181.5 1.4 155.5 43.8 16.4 -3.1 -2.0 23.3 1050.3 5.2 9.8 16.7

Media Dish TV HT Media Jagran Prakashan Sun TV Zee Entertainment Sector Aggregate

83 93 91 349 196

Neutral Neutral Neutral Buy Neutral

5,406 4,982 3,317 4,491 8,640 26,836

12.1 1.0 8.6 -0.5 20.3 9.5

4.0 1.7 4.5 5.5 2.5 3.4

1,548 674 864 3,518 1,997 8,602

27.1 -5.3 9.3 -3.7 -3.8 1.8

-0.5 0.8 9.6 8.9 -14.4 0.3

-100 403 729 1,787 1,598 4,417

Loss -8.0 59.2 -0.8 2.4 17.1

Loss -0.9 30.7 8.8 1.0 14.3

Metals Hindalco Hindustan Zinc JSPL JSW Steel Nalco NMDC SAIL Sesa Goa Sterlite Inds. Tata Steel Sector Aggregate

121 135 428 757 51 194 85 171 99 401

Buy Buy Neutral Sell Neutral Buy Sell Neutral Buy Sell

197,200 26,853 50,958 83,636 16,991 28,466 107,892 3,363 104,064 312,934 932,355

2.0 1.8 15.2 9.6 5.3 -7.0 -3.6 -57.4 2.1 -4.6 -0.5

-1.0 22,023 -2.3 14,162 8.4 15,591 -7.5 14,335 -2.8 2,418 0.2 22,246 0.1 13,918 -80.6 1,001 -2.3 24,805 -7.5 28,051 -4.8 158,550

1.8 -3.3 -13.6 9.4 58.5 -8.7 4.9 -61.5 -0.1 2.0 -1.8

10.0 -0.9 -2.1 -19.1 -20.5 -3.4 -8.2 -85.2 7.5 -22.1 -9.4

9,117 13,555 8,401 3,882 1,714 18,226 6,377 5,621 12,653 791 80,338

-15.5 -0.6 -20.0 -35.2 23.0 -7.2 -36.4 138.8 -15.3 -62.8 -12.1

1.2 -14.3 -12.4 -41.5 -23.2 -4.4 -27.8 -50.5 -10.8 -90.0 -23.2

14.4 -24.2 -18.3 8.2 -2.3

-12.0 7.3 -6.0 -8.9 -7.4

1,057 712 751 1,568 4,087

11.2 -20.6 -23.8 119.9 15.3

-12.6 10.0 -0.8 -22.7 -12.0

Others Castrol India MCX Sintex Inds. United Phosphorous Sector Aggregate

311 1,284 67 131

Buy Buy Buy Buy

7,745 1,283 10,710 20,360 40,097

15.3 -17.7 -7.4 14.7 6.6

-9.0 4.3 -0.9 -8.1 -6.1

1,490 811 1,669 3,521 7,492

PULL OUT October 2012

B–6

MOSL Universe

Ready reckoner: quarterly performance (INR Million)

Sep.12

Sales Var. % YoY

346 331 129 383 81 307 251 265 61 490 280 158 837

Buy 571,811 Neutral 48,725 Buy 100,501 Neutral 111,932 Neutral 2,426 Buy 496,111 Buy 1,115,444 UR 8,530 Neutral 168,502 Buy 25,886 Buy 217,664 Buy 81,708 Neutral 937,028 3,886,267 1,702,901

35.2 83.7 6.7 15.4 -13.6 34.0 25.1 42.9 44.4 -20.8 -3.8 52.2 19.3 24.3 18.1

71 234 98 378 265 196 24

Buy Buy Neutral Buy Buy Buy Buy

868 21,370 4,192 1,173 2,134 628 4,888 35,252

-4.9 -15.6 -5.1 25.0 -4.1 32.5 -21.9 -13.1

-12.2 -2.8 108.4 12.6 6.7 0.3 19.9 7.7

425 8,762 3,144 293 1,238 396 709 14,966

-16.5 -25.3 -14.6 13.5 7.1 18.7 -48.7 -21.4

-15.1 -17.9 8.2 -8.0 8.7 0.4 29.5 -9.2

Retail Jubilant Foodworks Pantaloon Retail Shopper's Stop Titan Industries Sector Aggregate

1,373 214 401 262

Neutral Neutral Neutral Neutral

3,450 30,562 5,660 24,450 64,122

43.5 5.0 13.8 16.6 11.6

9.7 3.2 26.7 10.9 8.1

628 2,812 198 2,469 6,107

46.9 11.4 -48.8 23.3 14.4

Technology HCL Technologies Infosys MphasiS TCS Tech Mahindra Wipro Sector Aggregate

577 2,534 402 1,294 972 381

Buy Buy Sell Neutral Neutral Buy

62,080 100,052 13,551 157,685 16,291 110,824 460,483

33.5 23.5 3.1 35.5 22.2 21.9 27.5

4.9 11,987 4.0 30,956 0.0 2,768 6.1 46,122 5.6 3,085 4.0 21,299 4.8 116,217

195,659 54,458 52,462 7,328 309,908

13.3 17.9 4.1 4.2 12.2

Oil & Gas BPCL Cairn India Chennai Petroleum GAIL Gujarat State Petronet HPCL IOC Indraprastha Gas MRPL Oil India ONGC Petronet LNG Reliance Inds. Sector Aggregate Oil & Gas Excl. RMs UR = Under Review Real Estate Anant Raj Inds DLF HDIL Mahindra Lifespace Oberoi Realty Phoenix Mills Unitech Sector Aggregate

CMP (INR) 28.09.12

Rating

Telecom Bharti Airtel 265 Neutral Idea Cellular 85 Buy Reliance Comm 65 Neutral Tulip Telecom 46 Sell Sector Aggregate PL: Profit to Loss; LP: Loss to Profit

Sep.12

EBITDA Var. % YoY

4.9 17,903 9.7 37,609 -8.9 4,499 0.9 13,935 -9.3 2,218 12.6 16,697 15.5 62,858 12.2 1,861 31.5 9,306 10.9 12,679 8.4 119,438 16.2 4,380 2.0 82,024 8.9 385,406 5.3 287,949

LP 78.8 LP -15.5 -14.2 LP LP 18.3 1134.8 -21.7 -15.6 -2.3 -16.7 101.9 -4.4

Var. % QoQ

1.1 -1.1 -1.4 2.3 0.3

59,536 13,775 15,916 1,949 91,177

Var. % QoQ

Sep.12

Net Profit Var. % YoY

LP 10,183 7.7 28,308 LP 2,962 -26.6 8,364 -10.0 1,085 LP 11,403 LP 41,570 3.8 866 LP 8,361 15.7 9,399 8.2 64,009 -4.2 2,616 21.6 55,482 LP 244,609 24.8 181,453

Var. % QoQ

LP 271.0 304.7 -23.6 -16.1 LP LP 12.2 3365.2 -17.4 -25.9 0.5 -2.7 539.3 1.3

LP -26.0 LP -26.2 -13.1 LP LP 1.9 LP 1.1 5.3 -3.4 24.0 LP 25.7

299 2,331 1,084 303 1,090 301 492 5,901

-13.8 -37.4 -27.3 -3.4 -2.2 26.2 -46.8 -27.6

-15.6 -20.4 2.9 3.5 8.1 -1.5 7.2 -7.8

9.6 1.8 43.7 16.5 9.2

344 21 36 1,764 2,165

45.5 -93.6 -81.8 15.4 -5.5

6.4 -45.3 186.0 13.0 11.8

54.4 23.0 17.9 36.3 51.1 22.4 31.3

-6.2 5.1 3.5 6.4 -6.6 -0.6 2.9

7,932 24,015 2,092 34,563 2,978 15,927 87,506

65.3 26.0 14.3 41.7 23.7 22.4 33.6

-5.7 4.9 0.2 5.4 -12.0 0.8 2.5

2.4 16.1 -0.8 -4.1 3.5

1.8 -4.0 -3.5 1.6 -0.1

6,563 2,036 1,281 545 10,424

-36.1 92.5 -60.3 -37.4 -32.4

-13.9 -13.1 -33.1 -0.4 -16.1

PULL OUT October 2012

B–7

MOSL Universe

Ready reckoner: quarterly performance (INR Million)

CMP (INR) 28.09.12

Utilities Adani Power CESC Coal India JSW Energy NHPC NTPC Power Grid Corp. PTC India Reliance Infrastructure Tata Power Sector Aggregate PL: Profit to Loss; LP: Loss

53 331 359 61 19 168 120 71 539 107

Rating Sep.12

Sales Var. % YoY

Sep.12

EBITDA Var. % YoY

Var. % QoQ

Sep.12

Neutral Buy Buy Buy Neutral Buy Buy Buy Buy Neutral

11,649 12,980 147,128 20,198 16,515 155,840 31,672 29,853 37,700 70,935 534,468

8.6 4.6 11.9 102.7 -11.1 1.3 39.9 25.0 -4.6 13.5 10.1

-20.4 2,320 -8.6 2,882 -10.8 27,321 -7.8 5,438 16.2 11,540 -2.4 31,290 9.7 27,572 50.2 536 9.4 4,901 -2.2 13,048 -2.0 126,847

-55.3 10.8 10.3 360.2 -13.1 -3.4 45.3 20.8 -30.9 -3.4 6.2

88.3 -0.6 -43.3 -6.8 27.7 -13.8 11.9 71.4 6.6 -7.7 -13.8

-2,872 1,297 27,919 1,100 8,533 18,604 9,392 423 2,551 3,097 70,044

PL 13.8 25.0 LP 9.8 25.7 23.6 19.0 -48.0 -30.0 7.0

Loss 3.8 -37.7 -43.6 32.3 -22.1 3.6 84.9 -22.0 1.2 -22.6

Rating

Net Interest Income Sep.12 Var. Var. % YoY % QoQ

Operating Profit Var. Var. % YoY % QoQ

Sep.12

Net Profit Var. % YoY

Var. % QoQ

Var. % QoQ

Net Profit Var. % YoY

Var. % QoQ

to Profit

CMP (INR) 28.09.12

Financials Private Banks Axis Bank 1,137 Buy Federal Bank 446 Buy HDFC Bank 629 Neutral ICICI Bank 1,057 Buy IndusInd Bank 354 Buy ING Vysya Bank 407 Buy Kotak Mahindra Bank 648 Neutral Yes Bank 382 Buy Pvt Banking Sector Aggregate PSU Banks Andhra Bank 113 Buy Bank of Baroda 799 Neutral Bank of India 310 Neutral Canara Bank 431 Buy Indian Bank 192 Buy Oriental Bank 302 Buy Punjab National Bank 840 Buy State Bank 2,238 Buy Union Bank 208 Buy PSU Banking Sector Aggregate PSU Banking Sector Aggregate Ex SBI NBFC Dewan Housing 200 Buy HDFC 773 Buy IDFC 154 Buy LIC Housing Fin 282 Buy M & M Financial 898 Buy Power Finance Corp 189 Buy Rural Electric. Corp. 218 Buy Shriram Transport Fin. 619 Buy NBFC Banking Sector Aggregate Financials Sector Aggregate

22,743 5,190 36,067 32,582 5,232 3,527 7,463 4,975 117,778

13.3 9.4 22.5 30.0 24.8 16.1 23.3 29.0 22.1

9,737 28,121 23,844 19,006 11,991 11,799 37,455 114,777 19,468 276,198 161,421 1,596 14,663 6,548 3,817 5,214 14,031 11,711 8,384 65,964 459,940

4.3 5.6 3.5 2.0 8.1 2.7 3.5 5.4 3.6

Sep.12

20,314 3,835 27,598 30,430 4,300 2,254 4,564 4,893 98,187

14.4 6.1 29.8 29.3 29.1 19.0 20.1 26.8 24.2

3.5 10.7 6.9 3.2 6.4 3.6 1.8 6.5 4.8

11,242 2,006 15,616 18,236 2,481 1,321 2,764 3,066 56,733

22.2 4.9 30.2 21.3 28.5 14.5 6.3 30.5 22.9

-2.5 5.4 10.2 0.5 5.0 1.5 -2.1 5.7 2.9

2.4 9.6 25.2 -3.1 5.6 19.2 8.5 9.5 17.2 10.0 10.4

3.8 6,990 0.5 22,446 16.7 18,708 3.1 13,970 4.0 8,908 4.8 8,840 1.4 28,275 3.2 84,660 6.9 13,685 4.1 206,482 4.7 121,822

1.8 5.5 20.6 -13.0 -3.3 16.6 11.9 13.3 13.6 9.5 7.0

-0.6 0.2 11.8 0.2 6.0 -1.4 -0.5 3.5 8.0 3.1 2.7

3,209 10,833 7,095 7,336 4,709 3,320 12,183 36,952 5,834 91,472 54,520

1.5 -7.1 44.5 -13.9 0.5 98.0 1.1 31.5 65.5 16.8 8.6

-11.3 -4.9 -20.0 -5.4 2.0 -15.2 -2.2 -1.5 14.0 -4.0 -5.6

43.3 17.9 31.5 14.2 33.6 29.9 23.3 0.4 21.2 14.4

11.1 1,417 12.4 16,413 4.1 6,793 8.9 3,730 6.9 3,430 0.7 13,806 0.5 11,801 4.5 6,882 5.1 64,272 4.1 368,940

44.1 21.2 31.0 11.2 35.1 30.9 23.0 0.9 22.2 15.2

18.5 954 15.6 11,592 3.6 4,002 7.2 2,559 5.6 1,863 0.4 9,713 -1.5 8,548 1.4 3,295 5.0 42,527 3.9 190,732

32.8 19.4 20.5 1.3 37.4 21.1 19.3 10.1 18.7 19.0

22.7 15.7 5.4 12.4 15.7 -5.6 -5.5 2.4 3.6 -0.4

PULL OUT October 2012

B–8

MOSL Universe

Ready reckoner: valuations CMP (INR) 28.09.12 Automobiles Bajaj Auto Hero Motocorp Mahindra & Mah. Maruti Suzuki Tata Motors Sector Aggregate

1,833 1,879 865 1,350 267

Rating

EPS (INR) FY12 FY13E FY14E

P/E (x) FY12 FY13E FY14E

EV/EBITDA (x) FY12 FY13E FY14E

RoE (%) FY12 FY13E FY14E

Buy Buy Buy Buy Buy

107.4 119.1 51.2 58.2 37.8

99.3 108.0 63.7 67.2 33.2

124.3 124.1 78.4 94.8 41.3

17.1 15.8 16.9 23.2 7.1 11.9

18.4 17.4 13.6 20.1 8.0 12.4

14.7 15.1 11.0 14.2 6.5 9.9

12.5 13.4 5.9 13.2 4.6 6.7

12.9 14.5 4.7 9.0 3.8 5.6

9.9 11.2 3.8 6.3 3.1 4.6

56.7 55.4 23.0 10.8 38.4 32.4

43.3 41.8 21.7 10.5 25.2 24.4

44.5 39.7 19.3 13.2 24.7 25.1

Capital Goods ABB 798 BGR Energy 275 BHEL 247 Crompton Greaves 126 Cummins India 508 Havells India 625 Larsen & Toubro 1,597 Siemens 709 Thermax 561 Sector Aggregate

Neutral Neutral Neutral Neutral Neutral Buy Buy Neutral Neutral

8.7 31.0 28.2 5.7 19.8 29.6 78.0 16.9 33.9

11.3 21.1 24.9 9.3 24.1 31.1 85.2 23.1 27.1

17.4 25.3 20.3 12.6 25.6 41.4 91.4 31.3 31.5

91.6 8.9 8.8 22.0 25.6 21.1 20.5 42.0 16.6 16.5

70.9 13.0 9.9 13.6 21.0 20.1 18.7 30.7 20.7 16.4

45.7 10.9 12.2 10.0 19.8 15.1 17.5 22.7 17.8 16.3

58.6 6.1 5.4 10.7 19.0 13.0 14.3 23.3 9.9 10.7

41.7 8.0 6.1 8.4 15.2 12.1 12.7 17.0 11.4 10.6

27.6 8.2 7.3 6.5 13.7 9.6 10.9 12.8 9.0 10.0

7.4 22.2 30.3 10.7 28.8 38.7 17.8 14.6 27.4 21.6

9.1 13.4 22.2 15.6 30.7 31.7 17.1 18.8 18.7 19.1

13.0 14.5 16.0 18.7 28.9 32.1 16.4 23.0 19.2 17.1

Cement ACC Ambuja Cements Birla Corporation Grasim Industries India Cements J P Associates Shree Cement Ultratech Cement Sector Aggregate

1,469 202 282 3,315 95 82 3,954 1,968

Neutral Buy Buy Buy Buy Buy Buy Buy

59.0 8.2 31.1 288.6 9.6 4.8 274.4 87.5

73.3 11.9 33.0 348.3 11.1 3.6 310.2 109.5

86.4 13.2 32.9 375.8 14.8 4.6 361.4 122.6

24.9 24.7 9.1 11.5 9.9 17.1 14.4 22.5 18.1

20.0 17.0 8.5 9.5 8.5 23.1 12.7 18.0 15.2

17.0 15.3 8.6 8.8 6.4 17.9 10.9 16.1 13.4

14.6 14.5 5.8 5.2 5.9 9.4 9.0 13.4 9.8

11.0 10.0 5.5 4.5 5.2 9.6 6.9 11.3 8.3

9.6 8.8 5.1 3.6 4.2 8.5 5.8 9.7 7.1

16.2 16.3 10.7 15.5 7.3 10.4 40.5 20.4 15.8

18.5 21.5 10.5 16.0 7.3 7.6 34.4 21.2 16.8

20.0 21.1 9.7 15.0 8.9 9.8 31.7 19.9 16.7

Consumer Asian Paints Britannia Colgate Dabur Godrej Consumer GSK Consumer Hind. Unilever ITC Marico Nestle Pidilite Inds. United Spirits Sector Aggregate

3,937 476 1,206 128 668 2,994 545 272 199 4,374 206 1,218

Neutral Sell Sell Neutral Neutral Neutral Neutral Buy Buy Neutral Buy Neutral

103.1 15.6 33.4 3.7 16.3 84.5 11.9 8.0 5.2 105.7 7.0 19.5

117.8 18.4 38.6 4.4 21.6 101.7 15.5 9.4 6.8 117.1 8.4 19.3

137.3 23.7 43.8 5.4 26.3 113.5 18.0 11.0 8.5 138.5 10.1 35.1

38.2 30.4 36.1 34.6 41.0 35.4 45.7 34.1 38.4 41.4 29.5 62.4 38.1

33.4 25.9 31.2 29.0 30.9 29.4 35.1 29.0 29.4 37.4 24.5 63.2 31.6

28.7 20.1 27.6 23.6 25.4 26.4 30.2 24.7 23.6 31.6 20.4 34.7 26.6

24.4 21.9 26.7 26.4 29.0 22.2 34.6 22.9 27.7 27.6 20.4 18.6 25.5

21.0 16.8 22.6 21.4 21.9 19.0 27.2 19.1 20.5 22.7 15.4 16.5 21.0

17.4 12.1 19.3 17.5 17.9 16.6 23.3 16.0 16.3 18.7 12.5 14.8 17.6

36.0 34.9 107.7 37.1 25.2 31.0 74.6 32.7 28.0 95.7 26.3 4.9 34.9

34.0 33.2 35.1 37.9 111.3 103.5 36.0 36.2 23.1 24.3 31.4 29.8 72.1 63.4 32.5 32.4 21.6 21.8 73.6 63.5 24.6 24.8 4.7 7.9 34.2 34.0

PULL OUT October 2012

B–9

MOSL Universe

Ready reckoner: valuations CMP (INR) 28.09.12

Rating

EPS (INR) FY12 FY13E FY14E

P/E (x) FY12 FY13E FY14E

EV/EBITDA (x) FY12 FY13E FY14E

RoE (%) FY12 FY13E FY14E

275 872 381 96 1,080 1,647 422 1,977 482 212 596 130 530 2,374 883 693 695

Neutral Buy Neutral Neutral Buy Buy Buy Buy Buy Neutral Buy Neutral Neutral Neutral Buy Neutral Buy

16.9 27.6 14.0 7.0 40.2 71.4 11.4 74.5 21.9 13.6 19.4 23.6 14.1 83.0 38.5 22.4 38.4

17.9 41.2 16.2 15.6 53.0 85.1 18.2 81.0 29.3 21.0 24.1 22.5 18.0 73.5 52.8 26.5 49.5

18.4 52.4 18.4 17.5 64.1 100.1 26.3 92.6 38.2 33.4 31.2 25.3 21.8 92.4 61.5 29.4 59.0

16.2 31.5 27.2 13.8 26.9 23.1 37.0 26.5 22.0 15.5 30.7 5.5 37.5 28.6 23.0 30.9 18.1 26.4

Media Dish TV HT Media Jagran Prakashan Sun TV Zee Entertainment Sector Aggregate

83 93 91 349 196

Neutral Neutral Neutral Buy Neutral

-1.5 7.0 5.6 17.6 5.9

-0.5 6.0 5.6 18.2 7.0

0.3 6.8 6.5 20.1 8.5

Metals Hindalco Hindustan Zinc JSPL JSW Steel Nalco NMDC SAIL Sesa Goa Sterlite Inds. Tata Steel Sector Aggregate

121 135 428 757 51 194 85 171 99 401

Buy Buy Neutral Sell Neutral Buy Sell Neutral Buy Sell

17.1 13.2 42.4 66.5 3.4 18.5 9.0 31.8 16.7 18.6

18.9 14.4 39.8 49.9 3.5 20.4 6.7 36.1 16.3 31.2

20.6 16.7 38.5 73.7 3.3 24.9 8.6 33.5 17.7 56.6

7.1 10.3 10.1 11.4 15.2 10.5 9.5 5.4 6.0 21.6 9.6

Buy Buy Buy Buy

9.8 56.1 13.0 12.8

9.5 56.1 13.0 14.9

11.7 66.5 15.3 19.5

31.7 22.9 5.1 10.3 16.7

Healthcare Biocon Cadila Health Cipla Dishman Pharma Divis Labs Dr Reddy’ s Labs Glenmark Pharma GSK Pharma IPCA Labs. Jubilant Life Lupin Opto Circuits Ranbaxy Labs Sanofi India Strides Arcolab Sun Pharma Torrent Pharma Sector Aggregate

Others Castrol India 311 MCX 1,284 Sintex Inds. 67 United Phosphorous 131 Sector Aggregate

15.3 21.2 23.5 6.2 20.4 19.4 23.2 24.4 16.4 10.1 24.8 5.8 29.5 32.3 16.7 26.2 14.0 21.6

14.9 16.7 20.7 5.5 16.9 16.5 16.0 21.4 12.6 6.3 19.1 5.1 24.3 25.7 14.4 23.6 11.8 18.1

9.0 17.3 17.6 7.6 20.3 12.3 13.3 19.6 12.8 8.4 21.0 6.7 14.6 29.7 15.9 20.5 11.3 15.9

8.3 13.9 15.0 4.8 15.6 14.0 14.2 18.3 10.3 6.0 16.3 5.6 12.4 24.1 11.4 16.5 9.0 13.6

8.0 11.3 14.0 4.3 12.3 12.4 11.3 15.7 8.7 5.0 13.4 4.9 16.5 19.4 10.7 15.7 7.3 12.3

14.9 23.8 15.0 6.3 25.0 21.1 13.5 32.9 24.0 9.7 23.8 37.2 -72.0 17.3 16.9 21.5 29.3 19.7

14.3 29.0 15.0 12.9 27.5 21.9 17.7 33.5 26.4 13.5 24.3 28.7 28.3 13.9 18.5 20.7 30.9 20.1

13.4 29.3 15.1 12.9 27.7 22.7 20.5 34.2 27.6 18.8 26.2 26.6 15.7 15.6 14.5 19.7 29.2 20.6

-55.2 -181.0 13.2 15.5 16.2 16.3 19.8 19.2 33.2 27.9 32.0 27.9

264.6 13.8 14.1 17.4 23.1 23.2

19.3 6.4 10.3 9.6 24.9 14.4

15.2 6.3 8.9 9.1 20.7 12.8

11.7 5.2 8.1 7.8 17.0 10.7

NA 11.0 24.5 26.3 17.5 17.7

NA 8.6 20.6 24.7 18.3 18.0

NA 8.8 20.2 25.1 19.3 19.4

6.4 9.4 10.7 15.2 14.7 9.5 12.8 4.8 6.1 12.9 9.2

5.9 8.1 11.1 10.3 15.6 7.8 10.0 5.1 5.6 7.1 7.8

6.9 6.5 8.4 6.7 7.2 6.3 7.4 5.2 3.0 7.3 6.4

7.2 5.6 9.5 6.6 7.3 5.4 8.9 13.6 2.8 6.8 6.5

6.3 4.1 8.9 6.0 6.5 4.1 7.9 10.9 2.4 6.1 5.6

20.3 22.5 24.6 8.9 7.6 31.7 9.6 19.8 14.1 7.8 13.3

20.2 20.8 19.7 6.6 7.5 28.3 6.7 20.6 12.4 11.5 12.8

18.5 20.4 17.0 9.3 6.8 26.9 8.2 18.7 12.3 18.9 13.6

32.7 22.9 5.1 8.8 16.0

26.7 19.3 4.4 6.7 13.4

22.6 14.8 5.4 5.7 10.3

22.6 15.3 5.0 4.7 9.5

18.0 14.8 4.0 3.7 7.9

93.7 31.0 14.0 14.9 21.8

83.8 26.9 12.7 15.5 20.5

75.6 27.8 13.3 17.8 21.5

PULL OUT October 2012

B–10

MOSL Universe

Ready reckoner: valuations CMP (INR) 28.09.12

Rating

EPS (INR) FY12 FY13E FY14E

P/E (x) FY12 FY13E FY14E

EV/EBITDA (x) FY12 FY13E FY14E

RoE (%) FY12 FY13E FY14E

346 331 129 383 81 307 265 251 61 490 280 158 837

Buy Neutral Buy Neutral Neutral Buy UR Buy Neutral Buy Buy Buy Neutral

10.8 48.7 4.2 28.8 9.3 26.9 21.9 49.2 5.2 57.3 30.4 14.1 67.7

21.6 64.2 13.8 31.0 7.7 24.5 25.3 24.4 2.9 58.7 29.8 13.1 67.8

21.5 54.0 34.5 32.1 7.6 27.4 28.0 30.3 8.5 64.7 33.4 15.0 69.7

32.1 6.8 31.1 13.3 8.7 11.4 12.1 5.1 11.7 8.5 9.2 11.2 12.4 9.9 10.5

16.1 5.2 9.4 12.3 10.4 12.5 10.5 10.2 21.2 8.3 9.4 12.1 12.3 10.3 10.1

16.1 6.1 3.7 11.9 10.5 11.2 9.5 8.3 7.2 7.6 8.4 10.5 12.0 9.6 9.6

11.5 5.3 50.9 9.6 5.4 12.6 6.4 8.1 6.5 3.9 3.7 7.6 8.0 6.2 5.6

8.5 3.5 9.8 9.0 5.9 11.3 5.5 8.9 7.3 3.7 3.7 7.9 9.3 6.2 5.6

8.8 3.4 5.3 8.7 5.8 9.0 4.8 7.0 4.6 3.3 3.1 5.9 8.9 5.5 5.0

5.0 21.0 1.6 17.9 23.4 7.1 27.5 20.2 13.2 20.7 20.7 34.1 13.0 15.8 16.0

9.5 23.1 5.3 17.2 16.4 6.2 26.4 9.5 6.8 18.7 17.7 25.1 11.7 13.9 14.9

8.9 16.7 12.5 16.0 14.3 6.6 24.7 11.0 18.2 18.4 17.8 23.8 11.0 13.4 14.1

71 234 599 98 58 52 378 265 196 136 24

Buy Buy Neutral Neutral Buy Buy Buy Buy Buy Buy Buy

3.8 7.1 12.6 19.3 3.5 9.3 29.2 14.1 7.3 2.5 0.9

5.0 9.0 16.0 12.9 4.2 6.7 32.5 15.8 7.8 5.5 0.8

6.6 10.7 19.6 17.8 6.1 7.2 34.0 24.7 16.0 8.2 1.3

18.6 33.0 47.7 5.1 16.5 5.6 12.9 18.8 26.9 53.9 26.8 18.0

14.3 26.1 37.4 7.6 13.7 7.7 11.6 16.8 25.2 24.5 30.2 18.3

10.8 21.8 30.6 5.5 9.5 7.2 11.1 10.7 12.3 16.5 18.8 14.0

17.9 16.3 39.5 5.3 11.5 8.3 10.8 15.3 20.9 20.7 34.3 14.0

13.6 17.1 32.3 5.3 9.8 7.8 9.7 11.9 17.3 12.8 37.8 13.4

9.7 13.4 24.4 3.8 7.8 6.2 9.1 6.9 10.2 9.8 23.0 10.0

3.1 4.5 8.3 7.9 2.2 24.5 10.3 13.1 6.2 4.1 2.0 6.1

3.8 5.5 8.4 5.1 2.6 15.2 10.5 13.1 6.3 8.4 1.7 5.8

4.8 6.3 9.5 6.6 3.6 14.3 10.0 17.9 11.7 11.0 2.7 7.0

Retail Jubilant Foodworks1,373 Pantaloon Retail 214 Shopper's Stop 401 Titan Industries 262 Sector Aggregate

Neutral Neutral Neutral Neutral

16.4 4.8 7.8 6.8

23.9 6.7 2.7 8.1

35.4 9.3 6.8 10.0

83.9 44.6 51.2 38.5 45.2

57.3 31.9 149.1 32.4 38.3

38.8 22.9 59.3 26.2 28.9

46.0 8.0 23.3 26.8 19.0

30.7 7.2 33.9 21.7 16.1

21.4 6.6 21.8 17.4 13.2

37.7 3.4 9.9 48.7 16.0

38.2 4.6 3.3 42.4 16.7

39.0 6.2 7.8 34.8 19.1

Technology HCL Technologies Infosys MphasiS TCS Tech Mahindra Wipro Sector Aggregate

577 2,534 402 1,294 972 381

Buy Buy Sell Neutral Neutral Buy

35.1 145.5 37.5 54.4 70.4 22.7

46.3 166.5 40.8 71.6 87.2 26.0

47.6 180.7 37.2 78.8 101.0 28.2

16.5 17.4 10.7 23.8 13.8 16.8 19.3

12.5 15.2 9.9 18.1 11.1 14.7 15.7

12.1 14.0 10.8 16.4 9.6 13.5 14.5

10.2 11.6 8.3 17.4 10.5 11.8 13.5

8.0 9.8 7.6 13.0 6.6 10.0 10.8

7.4 8.8 8.2 11.5 5.6 9.0 9.7

26.0 28.0 18.7 36.7 30.2 21.2 25.2

27.8 27.3 17.5 38.3 24.4 20.7 26.4

25.8 25.8 13.9 33.7 23.0 19.4 23.5

Telecommunication Bharti Airtel Idea Cellular Reliance Comm Tulip Telecom Sector Aggregate

265 85 65 46

Neutral Buy Neutral Sell

11.2 2.2 4.8 19.1

7.6 3.1 3.6 12.2

10.5 5.8 5.9 11.2

23.6 39.0 13.5 2.4 22.7

34.9 27.2 17.8 3.8 29.5

25.2 14.7 11.0 4.2 19.6

7.0 8.1 7.6 4.0 7.2

6.9 6.8 7.2 4.7 6.9

5.8 5.2 6.4 4.7 5.8

8.1 5.7 2.9 22.9 6.5

5.3 7.7 2.3 11.3 4.9

7.0 12.8 3.6 9.5 6.9

Oil & Gas BPCL Cairn India Chennai Petroleum GAIL Guj. State Petronet HPCL Indraprastha Gas IOC MRPL Oil India ONGC Petronet LNG Reliance Inds. Sector Aggregate Oil & Gas Ex RMS UR = Under Review Real Estate Anant Raj Inds DLF Godrej Properties HDIL IBREL Jaypee Infratech Mahindra Lifespace Oberoi Realty Phoenix Mills Prestige Estates Unitech Sector Aggregate

PULL OUT October 2012

B–11

MOSL Universe

Ready reckoner: valuations CMP (INR) 28.09.12 Utilities Adani Power CESC Coal India JSW Energy NHPC NTPC Power Grid Corp. PTC India Reliance Infra. Tata Power Sector Aggregate

53 331 359 61 19 168 120 71 539 107

CMP (INR) 28.09.12 Private Banks Axis Bank 1,137 Federal Bank 446 HDFC Bank 629 ICICI Bank 1,057 IndusInd Bank 354 ING Vysya Bank 407 Kotak Mah. Bank 648 Yes Bank 382 Private Bank Aggregate PSU Banks Andhra Bank 113 Bank of Baroda 799 Bank of India 310 Canara Bank 431 Corporation Bank 418 Dena Bank 106 Indian Bank 192 Oriental Bank 302 Punj. National Bank 840 State Bank 2,238 Union Bank 208 PSU Bank Aggregate NBFC Dewan Housing 200 HDFC 773 IDFC 154 LIC Housing Fin 282 M & M Financial 898 Power Finance Corp 189 Rural Electric. Corp. 218 Shriram Transport 619 NBFC Aggregate Sector Aggregate

Rating

EPS (INR) FY12 FY13E FY14E

Neutral Buy Buy Buy Neutral Buy Buy Buy Buy Neutral

-0.4 44.1 25.4 2.0 2.0 10.1 7.2 6.9 74.8 7.4

Rating

EPS (INR) FY12 FY13E FY14E

P/E (x) FY12 FY13E FY14E

Buy Buy Neutral Buy Buy Buy Neutral Buy

102.7 45.4 22.0 56.1 17.2 30.4 24.7 27.7

109.5 47.0 28.7 68.3 22.0 35.4 26.2 35.4

125.6 55.7 35.8 78.7 27.5 40.3 29.8 43.0

11.1 9.8 28.6 18.9 20.6 13.4 26.2 13.8 19.7

10.4 9.5 21.9 15.5 16.1 11.5 24.7 10.8 16.4

9.0 8.0 17.6 13.4 12.9 10.1 21.8 8.9 13.9

2.1 1.3 4.9 2.6 3.7 1.6 3.7 2.9 3.1

1.8 1.2 4.2 2.3 3.1 1.4 3.2 2.4 2.7

1.6 1.1 3.6 2.1 2.5 1.3 2.8 1.9 2.4

20.3 14.4 18.7 12.8 19.2 14.3 15.4 23.1 15.9

18.8 13.4 20.7 14.2 20.7 13.0 14.0 24.1 16.7

18.4 14.3 21.9 14.7 21.6 13.2 13.9 23.9 17.4

Buy Neutral Neutral Buy Neutral Buy Buy Buy Buy Buy Buy

24.0 121.4 46.6 74.1 101.7 22.9 40.6 39.1 144.0 228.6 32.3

25.0 110.6 53.9 73.7 110.5 27.0 42.8 50.8 155.5 284.5 42.0

28.0 129.0 63.7 85.5 119.2 31.1 45.7 56.6 185.1 330.3 48.1

4.7 6.6 6.7 5.8 4.1 4.6 4.7 7.7 5.8 9.8 6.4 7.4

4.5 7.2 5.8 5.9 3.8 3.9 4.5 5.9 5.4 7.9 4.9 6.5

4.0 6.2 4.9 5.0 3.5 3.4 4.2 5.3 4.5 6.8 4.3 5.6

0.8 1.3 1.0 0.9 0.7 0.9 0.9 0.8 1.1 1.5 0.9 1.3

0.7 1.1 0.8 0.8 0.6 0.7 0.8 0.7 0.9 1.3 0.8 1.1

0.7 1.0 0.7 0.7 0.6 0.6 0.7 0.7 0.8 1.1 0.7 0.9

19.2 22.1 15.6 17.1 19.5 20.7 19.8 10.7 21.1 17.2 14.9 17.4

17.5 16.6 15.5 14.9 18.4 20.2 18.0 12.7 18.5 17.8 16.8 16.7

17.2 16.8 16.0 15.2 17.3 19.6 16.8 12.8 18.8 18.0 16.9 16.8

25.6 27.9 10.3 18.1 60.4 23.9 28.6 55.6

37.7 32.1 10.9 21.8 79.4 29.5 34.9 59.8

51.3 38.6 13.3 31.7 93.7 32.7 41.7 70.4

7.8 27.7 15.0 15.6 14.9 7.9 7.6 11.1 15.1 12.3

5.3 24.0 14.2 12.9 11.3 6.4 6.3 10.3 12.7 10.6

3.9 20.0 11.7 8.9 9.6 5.8 5.2 8.8 10.7 9.0

1.2 6.0 1.9 2.5 3.1 1.2 1.5 2.3 2.9 2.1

1.0 4.9 1.7 2.2 2.6 1.1 1.3 2.0 2.5 1.8

0.8 4.3 1.6 1.8 2.2 0.9 1.1 1.6 2.1 1.6

18.5 27.3 13.7 20.3 22.8 17.5 20.5 23.1 19.5 17.3

21.7 29.4 12.8 18.0 25.1 17.6 21.6 20.6 19.4 17.2

22.7 30.9 14.1 20.8 24.6 17.4 22.2 20.3 19.9 17.5

Buy Buy Buy Buy Buy Buy Buy Buy

1.5 47.5 28.8 3.7 2.0 11.5 8.6 7.7 43.5 5.7

P/E (x) FY12 FY13E FY14E

2.6 -124.7 53.0 7.5 30.9 14.1 6.3 30.1 2.1 9.4 13.5 16.6 10.3 16.8 9.5 10.2 48.0 7.2 4.0 14.4 14.6

36.2 7.0 12.5 16.5 9.6 14.6 14.0 9.2 12.4 18.7 13.3

20.3 6.2 11.6 9.7 9.3 12.4 11.6 7.4 11.2 27.0 12.0

EV/EBITDA (x) FY12 FY13E FY14E

RoE (%) FY12 FY13E FY14E

28.6 5.5 10.3 12.4 7.0 11.6 12.4 14.0 2.0 17.9 11.0

-1.5 12.1 31.9 5.8 8.6 11.8 14.8 5.4 11.4 9.8 16.3

13.8 5.2 8.1 8.0 7.9 11.3 10.1 7.3 3.0 17.2 9.6

10.0 4.9 7.1 6.1 7.7 9.3 9.4 6.5 2.4 17.6 8.4

P/BV (x) FY12 FY13E FY14E

5.3 11.7 28.5 10.3 7.9 12.5 16.1 6.4 6.3 8.6 16.1

9.2 11.7 25.0 15.9 7.9 13.7 17.4 7.6 6.6 6.5 16.2

RoE (%) FY12 FY13E FY14E

PULL OUT October 2012

B–12

September 2012 Results Preview

Sectors & Companies BSE Sensex: 18,763

S&P CNX: 5,703

Note: In our quarterly performance tables, our four-quarter numbers may not always add up to the full-year numbers. This is because of dif fer ences in classific ation of acc ount heads in the compan y ’s quarterly and annual results or because of dif ferences in the way we cla ssify accoun t heads as oppose d to the comp an y. All stock prices and indices as on 28 September 2012, unless otherwise stated.

October 2012

C–1

September 2012 Results Preview Sector: Automobiles

Automobiles Company Name Bajaj Auto Hero MotoCorp Mahindra & Mahindra Maruti Suzuki India Tata Motors

Slowdown visible across segments except UVs and LCVs Slowdown, hitherto visible in M&HCVs, cars and 3Ws, is now evident in 2Ws as well with volumes down 4% YoY in 2QFY13. The only segments with healthy growth are UVs (+29% YoY) and LCVs (+13% YoY). Our channel checks indicate that start to the festive season has not been encouraging. Dealer inventory is high particularly in 2Ws and cars. Recent hike in diesel prices does not augur well for CVs. Expected softening in interest rates and reform-led improvement in macro environment and consumer sentiment hold the key for volume growth to resume.

2QFY13 margins to remain under pressure due to adverse mix, forex and negative operating leverage Despite benign commodity prices, expect RM cost to rise 30bp QoQ and 10bp YoY on the back of adverse product mix, weak currency and negative operating leverage. We expect 2QFY13 EBITDA margins to decline 70bp QoQ (70bp YoY). Maruti Suzuki (200bp YoY/-290bp QoQ) and Hero MotoCorp (-190bp YoY/-120 QoQ) are likely to be worst impacted.

Easing of macro headwinds a key catalyst for demand recovery Lending rates are expected to fall from near peak levels, auguring well for PV and CV demand. Strengthening INR is positive for Maruti Suzuki and Hero MotoCorp, but negative for Bajaj Auto. Softening in commodity prices would support profitability. Easing of macro headwinds remains the key driver for volume growth and profitability, and in turn, for re-rating of auto stocks.

Widespread earnings downgrade; prefer Maruti, Tata Motors, Bajaj We are downgrading our earnings estimates for Bajaj Auto, Hero MotoCorp and Maruti Suzuki to factor in weaker than expected demand in 2QFY13 and adverse currency movement (except for Bajaj). Changing competitive landscape in the auto sector will likely be a key determinant of stock performance. While we believe that the worst of competitive pressure is behind for passenger cars, the same is increasing for incumbents in 2W, UVs and CVs, implying at least a near-term overhang on valuations. We prefer Maruti Suzuki, Tata Motors and Bajaj Auto.

Expected quarterly performance summary CMP (INR) 28.09.12 Bajaj Auto 1,833 Hero Motocorp 1,879 Mahindra & Mahindra 865 Maruti Suzuki 1,350 Tata Motors 267 Sector Aggregate

(INR Million)

Rating Sep.12 Buy Buy Buy Buy Buy

48,254 51,770 95,445 82,507 442,658 720,634

Sales Var. % YoY -6.9 -10.5 30.6 5.4 22.3 15.7

Var. % QoQ -0.8 -16.6 3.2 -23.4 2.2 -3.2

Sep.12 8,573 4,801 11,193 3,909 57,988 86,465

EBITDA Var. % YoY -12.1 -27.7 28.1 -20.9 28.7 15.1

Var. % QoQ -1.7 -28.3 0.9 -50.3 0.8 -5.9

Net Profit Sep.12 Var. % YoY 7,005 -11.3 4,401 -27.1 8,656 17.4 1,175 -51.1 24,824 10.5 46,061 -0.2

Var. % QoQ -2.5 -28.5 19.3 -72.3 -3.2 -8.8

Jinesh Gandhi ([email protected]) / Chirag Jain ([email protected]) October 2012

C–2

September 2012 Results Preview Sector: Automobiles

Commodity prices have moderated (INR, indexed) 1QFY12

2QFY12

3QFY12

4QFY12

INR continues to depreciate (indexed)

1QFY13

USD

2QFY13E

Euro

GBP

JPY

180

95 95

Sep-12

Jun-12

Mar-12

Dec-11

Sep-11

Jun-11

Mar-11

Dec-10

Sep-10

Jun-10

Mar-10

Rubber

Dec-09

81

83

100 96

Al umi ni um

80 Sep-09

Lea d

105

Jun-09

Steel (HRC)

100 93 95 95 93 95

130 100 83 90 87 86 103

100 113 97 103 100 95

155

Source: Bloomberg/MOSL

Trend in EBITDA margins (%)

Trend in segment-wise EBITDA margins (%)

Aggregate

Aggrega te (i ncl JLR)

1QFY12

2QFY12

3QFY12

4QFY12

1QFY13

2QFY13E

18

9

8.8 7.2 6.7 9.5 7.3 7.3

12

11.2 9.0 8.9 8.7 9.4 8.5

13.9 14.9 15.1 14.7 13.9 13.5

15

2QFY13E

1QFY13

4QFY12

3QFY12

2QFY12

1QFY12

4QFY11

3QFY11

2QFY11

1QFY11

4QFY10

3QFY10

2QFY10

1QFY10

6

2W

Cars

CVs

Source: Company/MOSL

Interest costs have started to moderate (%)

Trend in fuel costs (INR/liter)

HDFC Ba nk Ba s e Ra te 11

80

10

65

Petrol

Di es el (INR/l tr)

50

9

INR21.5/Ltr

35 8

Source: HDFC Bank PLR

October 2012

Aug-12

Dec-11

Apr-11

Aug-10

Dec-09

Sep-12

Apr-09

Apr-12

Aug-08

Nov-11

Dec-07

Jun-11

Apr-07

Ja n-11

Aug-06

Aug-10

Dec-05

7

Apr-05

20

Source: Bloomberg/MOSL

C–3

September 2012 Results Preview Sector: Automobiles

Trend in Key Financials Volumes (‘000 units) 2Q YoY QoQ FY13E (%) (%)

Sensex Index MOSL Automobiles Index

Sensex Index

Indus try ('000 uni ts )

3,948

4,090

4,388

4,551

4,743

1QFY11

2QFY11

3QFY11

4QFY11

16%

12%

4,949

18%

4QFY10

20%

3,559

2QFY10 3,484

3,108 1QFY10

Sep-12

Jun-12

Mar-12

Dec-11

Sep-11

10%

3QFY10

110 95 80

28%

16%

8% -3%

12%

2QFY13E

32% 26%

5,214

140 125

Growth YoY (%)

40%

1QFY13

37%

5,307

MOSL Automobiles Index

Source: Bloomberg/MOSL

Revised EPS estimates (INR)

Key operating indicators

-2.5 -25.2 -83.9 19.3 232.4 -3.2 14.6

Trend in industry volumes

4QFY12

Relative Performance-1Yr (%)

5,079

Sep-12

Jun-12

Jul-12

Aug-12

85

3QFY12

95

Bajaj Auto 1,046 -10.2 -3.1 17.8 -100 -10 7,005 -11.3 Hero MotoCorp* 1,398 -9.5 -14.9 9.6 -190 -120 4,602 -23.8 Maruti Suzuki 208 -17.4 -29.6 4.4 -190 -290 684 -71.5 M&M 189 10.8 3.9 11.6 -30 -20 8,656 17.4 Tata Motors (S/A) 222 5.2 16.5 7.3 10 -10 11,453 308.0 Tata Motors (Cons) 13.1 70 -20 24,824 10.5 Aggregate ** 3,063 -8.4 -9.6 9.4 -70 -70 32,401 22.2 *Normalized; **Aggregate includes Tata Motor’s standalone performance only

5,111

105

Adj PAT (INR M) 2Q YoY QoQ FY13E (%) (%)

2QFY12

115

EBITDA Margins (%) 2Q YoY QoQ FY13E (bp) (bp)

1QFY12 4,822

Relative Performance-3m (%)

FY13E Rev Old Chg (%) Bajaj Auto 99.3 103.2 -3.7 Hero MotoCorp 108.0 113.0 -4.4 Maruti * 65.1 68.2 -4.5 M&M * 55.4 55.3 0.2 Tata Motors *# 33.2 33.5 -0.9 * Consolidated; # Normalized EPS adj. for R&D capitalization

Volumes ('000 units) EBITDA Margins (%) 2Q 2Q YoY 1Q QoQ 2Q 2Q YoY 1Q FY13E FY12 (%) FY13 (%) FY13E FY12 (bp) FY13 Bajaj Auto 1,046 1,164 -10.2 1,079 -3.1 17.8 18.8 -100 17.9 Hero MotoCorp* 1,398 1,544 -9.5 1,642 -14.9 9.6 11.5 -190 10.8 Maruti Suzuki 208 252 -17.4 296 -29.6 4.4 6.3 -190 7.3 M&M 189 171 10.8 182 3.9 11.6 11.9 -30 11.8 Tata Motors (S/A) 222 211 5.2 191 16.5 7.3 7.2 10 7.3 Tata Motors (Cons) 13.1 12.4 70 13.3 Aggregate** 3,063 3,343 -8.4 3,390 -9.6 9.4 10.1 -70 10.1 *Normalized; ** Aggregate includes Tata Motor’s standalone performance only

Rev 124.3 124.1 93.6 61.0 41.3

FY14E Old 130.1 127.3 95.6 61.2 38.3

Chg (%) -4.4 -2.5 -2.1 -0.3 8.1 Source: MOSL

Adjusted PAT (INR m) QoQ 2Q 2Q YoY 1Q QoQ (bp) FY13E FY12 (%) FY12 (%) -10 7,005 7,898 -11.3 7,184 -2.5 -120 4,602 6,036 -23.8 6,155 -25.2 -290 684 2,404 -71.5 4,238 -83.9 -20 8,656 7,374 17.4 7,256 19.3 -10 11,453 2,807 308.0 3,446 232.4 -20 24,824 22,461 10.5 25,651 -3.2 -70 32,401 26,519 22.2 28,278 14.6 Source: SIAM/ MOSL

Comparative valuation CMP (INR) 28.09.12

Rating

Automobiles Bajaj Auto 1,833 Buy Hero Motocorp 1,879 Buy Mahindra & Mah. 865 Buy Maruti Suzuki 1,350 Buy Tata Motors 267 Buy Sector Aggregate * Consolidated # Normalized EPS (for October 2012

EPS (INR) FY12 FY13E FY14E

P/E (x) FY12 FY13E FY14E

EV/EBITDA (x) FY12 FY13E FY14E

RoE (%) FY12 FY13E FY14E

107.4 119.1 51.2 58.2 37.8

17.1 15.8 16.9 23.2 7.1 11.9

12.5 13.4 5.9 13.2 4.6 6.7

56.7 55.4 23.0 10.8 38.4 32.4

99.3 108.0 63.7 67.2 33.2

124.3 124.1 78.4 94.8 41.3

18.4 17.4 13.6 20.1 8.0 12.4

14.7 15.1 11.0 14.2 6.5 9.9

12.9 14.5 4.7 9.0 3.8 5.6

9.9 11.2 3.8 6.3 3.1 4.6

43.3 41.8 21.7 10.5 25.2 24.4

44.5 39.7 19.3 13.2 24.7 25.1

R&D capitalization) C–4

September 2012 Results Preview Sector: Automobiles

Bajaj Auto BSE Sensex

18,763 Bloomberg Equity Shares (m) 52 Wk Range (INR) 1,6,12 Rel Perf (%) Mcap (INR b) Mcap (USD b) 

  



S&P CNX

5,703 BJAUT IN 289.4 1,850/1,410 2/2/7 530.3 10.1

CMP: INR1,833 Year End 3/11A 3/12A 3/13E 3/14E

Net Sales PAT EPS (INR m) (INR m) (INR) 163,981 26,150 90.4 195,290 31,069 107.4 195,245 28,748 99.3 226,449 35,980 124.3

Buy EPS Gr. (%) 43.9 18.8 -7.5 25.2

P/E (X) 16.9 18.3 14.6

P/CE (X) 16.2 17.4 14.0

P/BV (X) 8.7 7.3 5.9

EV/ EBITDA 12.4 12.8 9.8

RoE (%) 66.7 56.7 43.3 44.5

RoCE (%) 76.0 73.0 60.0 61.2

We expect BJAUT’s 2QFY13 volumes to decline 10.2% YoY (-3.1% QoQ) to 1.05m, impacted by weak demand and late start to the festive season. However, product mix is expected to improve QoQ with higher 3W sales (key export markets are stabilizing) and greater contribution of executive/premium segment motorcycles (driven by recent launches in domestic market). Price increases in July in both 2Ws and 3Ws together with product mix improvement should drive up realizations (+3.6% YoY, +2.3% QoQ). So, expect fall in net sales to be checked at 7% YoY (-0.8% QoQ) to INR48.3b. Expect EBITDA margin to remain largely stable QoQ at 17.8% (-100bp YoY, -10bp QoQ) as RM cost pressures offset the benefits of price hikes and favorable product mix. We expect EBITDA of INR8.57b (-12.1% YoY, -1.7% QoQ). Higher other income will likely offset impact of increase in taxation (Pantnagar tax exemption lower at 30% from 100% to 30%). We expect adjusted PAT to decline 11.3% YoY to INR7b (-2.5% QoQ). We are downgrading our EPS estimates for FY13/14 by 3.7%/4.4% to factor in weaker than expected demand environment. We model in USD/INR at 52.5 for FY14; a weaker INR holds potential for upgrade. The stock trades at 18.3x FY13E and 14.6x FY14E EPS. Maintain Buy.

Quarterly Performance Y/E March

(INR Million)

FY13E 1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE Volumes ('000nos) 1,092.8 1,164.1 1,075.4 1,017.2 1,079.0 1,045.6 1,106.3 1,027.1 4,349.6 4,257.8 Change (%) 17.7 16.3 13.6 7.3 -1.3 -10.2 2.9 1.0 13.7 (2.1) Realization 43,066 44,543 46,361 45,729 45,095 46,151 46,382 45,786 44,899 45,856 Change (%) 2.8 2.6 5.1 4.6 4.7 3.6 0.0 0.1 4.7 2.1 Net Sales 47,063 51,854 49,859 46,514 48,657 48,254 51,310 47,025 195,290 195,245 Change (%) 21.0 19.4 19.4 12.2 3.4 -6.9 2.9 1.1 19.1 0.0 RM/Sales % 73.6 72.5 71.5 71.2 72.1 72.1 71.8 71.7 72.2 71.9 Staff cost/Sales % 3.0 2.8 2.6 2.6 3.3 3.3 3.1 3.0 2.8 3.2 Oth. Exp./Sales % 5.5 6.1 6.5 6.9 6.9 6.9 7.1 7.3 6.2 7.1 EBITDA 8,398 9,755 9,841 9,206 8,717 8,573 9,280 8,503 37,200 35,073 EBITDA Margins (%) 17.8 18.8 19.7 19.8 17.9 17.8 18.1 18.1 19.0 18.0 Other Income 1,441 1,564 1,681 1,395 1,820 1,750 1,800 1,902 6,080 7,271 Extraordinary Expenses/Inc 0 -954 -589 203 0 0 0 0 -1,340 0 Interest 2 202 0 18 0 26 25 51 222 102 Depreciation 306 394 321 434 352 360 370 383 1,456 1,466 PBT 9,531 9,768 10,612 10,351 10,184 9,937 10,685 9,971 40,262 40,777 Tax 2,420 2,510 2,660 2,631 3,000 2,931 3,152 2,946 10,221 12,029 Effective Tax Rate (%) 25.4 25.7 25.1 25.4 29.5 29.5 29.5 29.5 25.4 29.5 Rep. PAT 7,111 7,258 7,952 7,720 7,184 7,005 7,533 7,025 30,041 28,748 Adj. PAT 7,111 7,898 8,340 7,590 7,184 7,005 7,533 7,025 31,069 28,748 Change (%) 20.5 15.8 25.0 12.3 1.0 (11.3) (9.7) (7.4) -9.7 -7.5 E: MOSL Estimates; 4QF12, 3QFY12, & 4QFY11 numbers are not comparable with other quarterly numbers due to restatement

October 2012

FY12

FY13

FY12

C–5

September 2012 Results Preview Sector: Automobiles

Hero MotoCorp BSE Sensex

S&P CNX

18,763 Bloomberg Equity Shares (m) 52 Wk Range (INR) 1,6,12 Rel Perf (%) Mcap (INR b) Mcap (USD b)





 



5,703 HMCL IN 199.7 2,279/1,703 -8/-15/-18 375.3 7.1

CMP: INR1,879 Year End 3/11A 3/12A 3/13E 3/14E

Buy

Net Sales PAT (INR m) (INR m) 192,450 20,077 233,681 23,781 230,292 21,566 265,789 24,779

EPS (INR) 100.5 119.1 108.0 124.1

EPS P/E GR. (%) (X) -10.0 18.4 15.8 -9.3 17.4 14.9 15.1

P/CE (X) 14.2 15.3 13.3

P/BV (X) 8.7 7.3 6.0

EV/ EBITDA 10.1 10.6 8.7

RoE (%) 62.5 55.4 41.8 39.7

RoCE (%) 59.2 52.4 45.7 50.4

We expect HMCL’s 2QFY13 volume to decline 9.5% YoY to 1.39m (-14.9% QoQ) on the back of weak retail demand and high channel inventory. Realizations are expected to decline 25bp QoQ (+70bp YoY) given adverse product mix as buyers downtrade to cheaper and more fuel-efficient motorcycles. We estimate net sales at INR52.7b, down 9% YoY, 15% QoQ. EBITDA margin (adjusted for change in royalty accounting) is expected to decline 120bp QoQ at 9.6% (-190bp YoY) on account of adverse product mix and lag impact of weaker INR (on both RM cost and royalty). Adj EBITDA is expected to decline 24% YoY (-25% QoQ), translating into 24% YoY decline in PAT to INR4.6b (-25.2% QoQ). The management expects 2W industry volumes to grow 4-5% in FY13, with Hero MotoCorp growing in-line with the industry. Demand pick-up in festive season would be critical for the company to achieve this guidance. HMCL has announced capacity addition of 2m by 2QFY14. It is investing INR25.75b on two plants (capacity of 0.75m at Rajasthan by 1QFY14 and 1.25m at Gujarat by 2QFY14) and an R&D center. The company will be funding these investments through internal accruals and cash of ~INR40b as at March 2012. We are downgrading our EPS estimates for FY13/14 by 4.4%/2.5%, to factor in weaker than expected demand environment and high channel inventory restricting wholesale dispatches. The stock trades at 17.4x FY13E and 15.1x FY14E EPS. Maintain Buy.

Quarterly Performance

(INR Million)

Y/E March Total Volumes ('000 nos) Change (%) Net Realization Change (%) Net Sales Change (%) Total Cost RM Cost (% sales) Staff Cost (% sales) Other Exp (% sales) EBITDA EBITDA Margins (%) Adj. EBITDA Margins (%) Other Income Depreciation PBT Effective Tax Rate (%) Adj. PAT Change (%) E: MOSL Estimates October 2012

FY12 1Q 1,529.6 23.9 36,858 6.7 56,376 32.2 48,536 75.3 2.9 7.9 7,840 13.9 10.7 1,379 2,398 6,696 16.7 5,579 13.5

2Q 1,544.3 20.1 37,456 6.8 57,843 28.2 49,106 73.0 3.1 8.8 8,737 15.1 11.5 1,248 2,785 7,245 16.7 6,036 19.4

3Q 1,589.3 11.3 37,649 5.0 59,836 16.9 50,887 73.4 3.3 8.3 8,949 15.0 11.1 1,305 2,987 7,238 15.3 6,130 24.3

FY13 4Q 1,572.0 8.1 37,929 3.1 59,625 11.4 51,097 74.1 3.2 8.4 8,529 14.3 10.8 1,774 2,804 7,469 19.2 6,036 20.3

1Q 1,642.3 7.4 37,799 2.6 62,078 10.1 53,104 74.1 3.3 8.1 8,974 14.5 10.8 1,439 3,035 7,349 16.3 6,155 10.3

2QE 1,373.0 -11.1 37,705 0.7 51,770 -10.5 44,968 74.5 3.7 8.7 6,801 13.1 9.3 1,300 2,800 5,271 16.5 4,401 -27.1

3QE 1,520.0 -4.4 37,988 0.9 57,741 -3.5 50,023 74.3 3.6 8.8 7,718 13.4 9.7 1,400 2,840 6,248 16.5 5,217 -14.9

FY12 4QE 1,538.5 -2.1 38,155 0.6 58,703 -1.5 50,478 74.1 3.6 8.3 8,225 14.0 10.4 1,583 2,818 6,959 16.8 5,792 -4.0

FY13E

6,235.2 6,073.8 15.4 -2.6 37,478 37,915 5.2 1.2 233,681 230,292 21.4 -1.5 199,603 198,574 74.0 74.3 3.1 3.5 8.3 8.5 34,078 31,718 14.6 13.8 11.0 10.1 5,756 5,722 10,973 11,493 28,647 25,827 17.0 16.5 23,781 21,566 19.4 -9.3

C–6

September 2012 Results Preview Sector: Automobiles

Mahindra & Mahindra BSE Sensex

18,763 Bloomberg Equity Shares (m) 52 Week Range (INR) 1,6,12 Rel Perf (%) Mcap (INR b) Mcap (USD b)

S&P CNX

5,703 MM IN 598.6 875/622 6/17/-5 517.5 9.8

CMP: INR865 Year End 3/11A 3/12A 3/13E 3/14E

N. Sales (INR m) 234,603 318,535 393,584 443,341

Buy

PAT * S/A EPS * Cons. Con EPS Cons, (INR m) (INR) EPS (INR) Gr (%) P/E (X) 25,732 43.0 48.0 18.1 28,888 48.3 51.2 6.6 16.9 33,149 55.4 63.7 24.4 13.6 36,511 61.0 78.4 22.9 11.0

RoE (%) 25.0 23.0 21.7 19.3

RoCE (%) 26.8 23.1 24.3 22.7

EV/ EV/ Sales EBITDA 1.6 13.5 1.3 11.1 1.2 10.4

* S/A including MVML

2QFY13 performance is not strictly comparable YoY due to merger of MADPL in 4QFY12. We expect MM to report overall 2QFY13 volume growth of 10.8% YoY (+3.9% QoQ), driven by 23.9% YoY (+10.2% QoQ) growth in UV & pick-ups, but 13.3% YoY de-growth (-16.5% QoQ) in tractors. Realizations to decline 0.6% QoQ to INR505k.  We estimate net sales at INR96.5b, up 31% YoY and 3% QoQ. We expect EBITDA margin to decline 20bp QoQ to 11.6% (down 30bp YoY). However, EBITDA margin (incl MVML) is expected to improve 30bp YoY (down 30bp QoQ) to 13.6% driven by ramp-up in recent launches in auto segment (manufactured at Chakan plant). We estimate EBITDA at INR11.2b, up 28% YoY and 0.9% QoQ. Other income is likely to be higher sequentially at INR2.6b due to receipt of dividend from subsidiaries; this would translate into adjusted PAT of INR8.7b (+17.4% YoY, 19.3% QoQ). Including MVML, EBITDA and adjusted PAT are estimated at INR12.5b and INR9.2b.  Outlook for the auto division remains healthy with both key segments UVs and pick-ups performing well. Recent launch of refreshed Verito and Quanto (mini-SUV based on Xylo platform) should help sustain healthy growth momentum. Management has guided for FY13 tractor industry growth of 0-2% considering weak monsoon (albeit the late recovery), pressure on crop prices, and lower infrastructure/construction activity.  We have marginally upgraded our FY13 consolidated EPS by 1.6% to factor in strong performance from the auto division. However, we downgrade our FY14 consolidated EPS 4.7% for higher than expected losses at Ssangyong Motors. The stock trades at 13.6x FY13E and 11x FY14E consolidated EPS. Maintain Buy. 

Quarterly Performance

(INR Million)

Y/E March Total Volumes (nos) Change (%) Net Realization Change (%) Net Sales Change (%) Operating Other Income EBITDA EBITDA Margins (%) EBITDA Margins (incl MVML) Other income Interest Depreciation EO Expense Effective Tax Rate (%) Reported PAT Adj PAT Change (%) PAT (incl MVML) E: MOSL Estimates October 2012

FY12 1Q 159,197 25.1 416,344 3.4 66,281 29.3 990 8,954 13.3 14.2 550 262 1,099 0 25.7 6,049 6,049 7.6

2Q 170,701 29.2 428,047 6.5 73,068 37.6 538 8,740 11.9 13.3 2,315 49 1,257 0 24.4 7,374 7,374 1.4

3Q 183,228 23.3 451,808 10.5 82,784 36.3 1,045 10,230 12.2 13.3 667 348 1,408 0 27.6 6,622 6,622 7.3 6,770

FY13 4Q 195,478 21.8 472,753 14.4 92,413 39.3 1,459 9,694 10.3 12.1 956 709 1,997 -1,083 3.1 8,745 7,696 26.9 8,030

FY12

1Q 182,149 14.4 507,713 21.9 92,479 39.5 1,195 11,094 11.8 13.9 599 460 1,548

2QE 189,175 10.8 504,531 17.9 95,445 30.6 1,050 11,193 11.6 13.6 2,600 500 1,675

3QE 204,250 11.5 499,425 10.5 102,008 23.2 1,300 12,294 11.9 13.3 850 550 1,925

4QE 196,678 0.6 501,084 6.0 98,552 6.6 1,556 11,524 11.5 13.0 1,231 553 2,028

25.1 7,256 7,256 20.0 7,785

25.5 8,656 8,656 17.4 9,154

25.5 7,948 7,948 20.0 8,441

25.9 7,538 7,538 -2.1 7,768

FY13E

704,935 772,252 24.2 9.5 445,318 503,053 9.7 13.0 313,920 388,484 36.2 23.8 4,615 5,100 37,707 46,105 11.8 11.7 13.3 13.6 4,658 5,280 1,628 2,063 5,761 7,176 1,083 0 20.2 25.5 28,789 31,398 27,924 31,398 8.1 12.4 28,888 33,149

C–7

September 2012 Results Preview Sector: Automobiles

Maruti Suzuki India BSE Sensex

18,763

S&P CNX

5,703

Bloomberg MSIL IN Equity Shares (m) 302.1 52 Week Range (INR) 1,428/906 1,6,12 Rel Perf (%) 10/-5/12 Mcap (INR b) 407.8 Mcap (USD b) 7.7

CMP: INR1,350 Year End 3/11A 3/12A 3/13E 3/14E

Buy

Net Sales PAT Cons.EPS EPS Cons.P/E P/CE (INR m) (INR m) (INR) Gr. (%) (X) (X) 369,199 23,101 82.4 -9.2 355,871 16,351 58.2 -29.4 23.2 14.1 427,281 19,993 67.2 15.5 20.1 10.6 500,583 28,234 94.8 41.1 14.2 8.1

P/BV (X) 2.6 2.1 1.9

EV/ EBITDA 12.6 9.1 6.3

RoE (%) 16.5 10.8 10.5 13.2

RoCE (%) 22.1 13.2 12.4 15.9

Our quarterly estimates exclude SPIL merger, as the company would be reporting performance without SPIL. However, our full year estimates include SPIL.  MSIL’s 2QFY13 performance is expected to be impacted due to supply constraint in diesel cars given recent labor unrest at its Manesar plant. Moreover, margins will be hit by (1) weak petrol car demand and consequent high discounts, (2) lag impact of unfavorable currency movement in 1QFY13, and (3) recent wage hike negotiated with workers (assuming 1HFY13 provisioning happens in 2QFY13).  We expect MSIL’s 2QFY13 volumes to de-grow 8.7% YoY (-22% QoQ) to 230,376. Realizations are likely to decline 2.3% QoQ (+16.4% YoY) on lower proportion of diesel car given supply constraints. EBITDA margin is likely to decline 260bp QoQ (-160bp YoY) to 4.7% with lower volumes, adverse mix and forex, and higher wages. EBITDA expected at INR3.9b, down 21% YoY (-50% QoQ), translating into recurring PAT of INR1.2b (-51% YoY, -72% QoQ).  We are revising our estimates to factor in for faster than estimated ramp-up. Our estimates now factors in for volume growth of 3.8%/15% in FY13/FY14 to 1.18m/1.35m units, JPY/INR of 0.685/0.663 and ~10bp/10bp increase in staff cost in FY13 and FY14, resulting in -10bp/+140bp change in EBITDA margins in FY13/FY14 (excl SPIL). As a result, our consol. EPS has seen upgrade of ~3%/1% for FY13/FY14 to INR67.2/94.8 and cash EPS upgrade of ~2/1% to INR127/INR166. The stock trades at 14.2x FY14E consolidated EPS and 8.1x FY14E cash EPS. Maintain Buy. 

Quarterly Performance Y/E March 1Q 2Q Total Volumes ('000 nos) 281.5 252.3 Change (%) -0.6 -19.6 Realizations (INR/car) 293,279 298,741 Change (%) 3.2 4.8 Net Op. Revenues 84,541 78,316 Change (%) 1.7 -14.4 RM Cost (% of Sales) 78.0 78.6 Staff Cost (% of Sales) 2.1 2.5 Other exp. (% of Sales) 10.3 12.5 Total Cost 76,437 73,374 EBITDA 8,104 4,942 EBITDA Margins (%) 9.6 6.3 Change (%) -5.5 -48.5 Non-Operating Income 1,841 1,177 Interest 58 109 Depreciation 2,425 2,664 PBT 7,462 3,346 Tax 1,970 942 Effective Tax Rate (%) 26.4 28.1 PAT 5,492 2,404 Change (%) 7.2 -59.8 E:MOSL Estimates; * Excluding SPIL Merger October 2012

(INR Million) FY12 3Q 239.5 -27.6 314,247 12.0 77,316 -18.6 79.1 2.7 13.0 73,282 4,034 5.2 -55.3 1,746 178 2,989 2,613 557 21.3 2,056 -63.6

4Q 360.3 4.9 318,770 11.7 117,270 17.2 79.6 2.2 10.9 108,685 8,585 7.3 -15.3 2,969 208 3,306 8,040 1,642 20.4 6,398 1.4

1Q 295.9 5.1 355,839 21.3 107,782 27.5 77.8 2.2 12.6 99,919 7,863 7.3 -3.0 1,123 332 3,399 5,255 1,018 19.4 4,238 -22.8

2QE 230.4 -8.7 347,724 16.4 82,507 5.4 78.8 3.2 13.3 78,598 3,909 4.7 -20.9 1,250 300 3,400 1,459 285 19.5 1,175 -51.1

FY13* 3QE 305.1 27.4 351,202 11.8 109,786 42.0 78.3 2.4 12.0 101,737 8,049 7.3 99.6 2,000 300 3,450 6,299 1,228 19.5 5,071 146.6

4QE 345.5 -4.1 360,311 13.0 127,206 8.5 78.6 2.3 11.2 117,134 10,072 7.9 17.3 2,950 269 3,516 9,237 1,808 19.6 7,429 16.1

FY12

FY13E*

1,133.7 -10.8 306,131 7.7 355,871 -2.8 78.9 2.4 11.7 330,742 25,129 7.1 -30.9 8,269 552 11,384 21,462 5,111 23.8 16,351 -29.2

1,176.8 3.8 354,361 15.8 427,281 20.1 78.4 2.5 12.2 397,387 29,893 7.0 19.0 7,323 1,200 13,765 22,251 4,339 19.5 17,912 9.5

C–8

September 2012 Results Preview Sector: Automobiles

Tata Motors BSE Sensex

S&P CNX

18,763 Bloomberg Equity Shares (m) 52 Week Range (INR) 1,6,12 Rel Perf (%) Mcap (INR b) Mcap (USD b)

5,703 TTMT IN 3,323.8 321/145 6/-11/57 889.0 16.9

CMP: INR267 Year End* 3/11A 3/12A 3/13E 3/14E

Sales (INR M) 1,221,279 1,656,545 1,971,042 2,185,850

Buy

Adj. PAT Adj. EPS Normal Cons. Normal (INR M) (INR) EPS (INR) ^ P/E (X) P/E (X) 90,695 27.3 15.4 125,568 37.8 22.2 7.1 12.0 110,482 33.2 14.0 8.0 19.1 137,408 41.3 19.5 6.5 13.7

RoE (%) 47.3 38.4 25.2 24.7

RoCE (%) 26.5 24.1 23.9 24.2

EV/ EV/ Sales EBITDA 0.6 4.4 0.5 3.7 0.4 3.1

* Consolidated; ^ Normalized for capitalized expenses  







On a consolidated basis, we expect 2QFY13 net operating revenues to grow 22% YoY (+2.2% QoQ) to INR442b. Expect standalone revenues to de-grow 4.2% YoY (+17.3% QoQ), while JLR should grow 17.2% YoY (-6.1% QoQ). We expect EBITDA at INR58b, up 28.7% YoY (+0.4% QoQ), as EBITDA margin improves 70bp YoY (-20bp QoQ) to 13.1%. However, Adjusted PAT is expected to grow only 10.5% YoY (down 3.2% QoQ) due to increase in JLR tax provision (post tax credit accounted in 4QFY12 on accumulated JLR losses). We expect 2QFY13 standalone volumes to grow 5.2% YoY (+16.5% QoQ), driven by growth in LCVs and PVs. Post inventory correction in 1Q, M&HCV volumes are expected to improve 27% QoQ but would still be lower YoY on weak demand. We estimate 2QFY13 standalone net sales at INR124, stable EBITDA margin at 7.3% (+10bp YoY, 10bp QoQ), and EBITDA at INR9b, down 3.4% YoY (+16.4% QoQ). Other income is expected to be higher QoQ/YoY with dividend income from JLR (GBP150m); this would translate into PAT growth of 2.7x YoY (2.3x QoQ) to INR11.5b. For JLR, we expect strong volume growth of 16.1% YoY (-5.4% QoQ) to 78,981 driven by Evoque. Realizations would likely decline 75bp QoQ (+90bp YoY), resulting in 17.2% YoY (-6% QoQ) revenue growth to GBP3.4b (IFRS). We expect EBITDA margin at 14.1% (-40bp QoQ, -30bp YoY), impacted by negative operating leverage and weaker product mix in favor of Evoque & Freelander and lower RR volumes ahead of new model launch. As a result, expect recurring PAT to be GBP240m (+39% YoY, +1.6% QoQ). We marginally lower our FY13 consolidated EPS by 0.9% to factor in higher than expected weakness in the M&HCV business. However, we upgrade our FY14 consolidated EPS by 8% to factor better product/market mix in JLR. The stock trades at 6.5x FY14E consolidated EPS, and 13.7x FY14E normalized EPS. Maintain Buy.

Quarterly Performance (Consolidated)

(INR Million)

Y/E March Total Op Income Growth (%) EBITDA EBITDA Margins (%) Depreciation Other Income Interest Expenses PBT before EO Exp Adj PAT Growth (%) JLR Volumes Growth (%) QoQ JLR EBITDA Margins (%) S/A Volumes (nos) Change (%) S/A EBITDA Margins (%) E: MOSL Estimates October 2012

FY12 1Q 332,888 23.0 42,358 12.7 11,432 1,658 8,556 24,028 20,481 (3.5) 62,037 -6.2 13.4 197,606 3.8 8.8

2Q 361,975 26.9 45,039 12.4 13,308 608 5,251 27,089 22,461 6.4 68,000 9.6 14.4 211,400 1.8 7.2

3Q 452,603 44.0 68,270 15.1 16,159 1,675 7,204 46,581 35,307 43.9 86,322 26.9 17.0 231,328 19.2 6.7

FY13 4Q 509,079 44.3 67,445 13.2 15,354 1,586 7,721 45,956 44,403 79.2 98,074 13.6 14.6 286,019 16.7 9.5

1Q 433,236 30.1 57,548 13.3 15,659 2,386 8,044 36,232 25,651 25.2 83,452 -14.9 14.5 190,900 -3.4 7.3

2QE 442,658 22.3 57,988 13.1 16,000 1,250 7,000 36,238 24,824 10.5 78,981 -5.4 14.1 222,317 5.2 7.3

3QE 503,274 11.2 61,399 12.2 16,500 1,500 7,000 39,399 27,102 -23.2 94,250 19.3 14.2 243,000 5.0 7.9

FY12

FY13E 4QE 591,873 1,656,545 1,971,042 16.3 35.6 19.0 78,446 223,112 255,382 13.3 13.5 13.0 23,317 56,254 71,476 1,700 6,618 6,836 9,648 29,822 31,692 47,180 143,654 159,050 33,061 125,568 110,482 -25.5 38.5 -12.0 105,877 314,433 362,560 12.3 29.1 15.3 14.8 15.0 14.4 282,589 922,867 936,680 -1.2 10.4 1.5 8.9 8.1 8.0

C–9

September 2012 Results Preview Sector: Capital Goods

Capital Goods Company Name ABB

Revenue, margins impacted by declining order book: We expect revenue growth in 2QFY13 to moderate to 8% YoY (v/s 17% YoY in 1QFY13), given the depleting order books and constrained environment. Ordering activity continues to be sluggish, particularly in the industrial / power generation segment. Current BTB stands at 2.4x, the lowest in 18 quarters and continues to impact reported performance. In 2QFY13, we expect EBITDA margin of 12%, down 40bp YoY, impacted by poor fixed cost absorption. While commodity prices have corrected meaningfully, a large part of the decline is negated by currency movements. Companies with high local manufacturing content (like BHEL, Cummins and Thermax) will be the key beneficiaries.

BGR Energy BHEL Crompton Greaves Cummins India Havells India Larsen & Toubr o

Investment climate at crossroads; environment challenging: Net banking credit to the Infrastructure sector is declining since June 2011 and has reached FY09 levels. Project sanctions in 4QFY12 were the lowest since FY06, indicating accentuating slowdown in Industrial and Infrastructure spending. Net projects added per quarter have shown a continuous decline - INR1.5t in 1QFY13 v/s the run rate of INR5t during the period September 2006 to June 2010. Our interactions with several companies suggest that banks are insisting on 70-100% upfront equity for Infrastructure projects, resulting in larger players taking a "bidding holiday". Structural issues like SEB finances (for Power sector), resource availability, land / water / environment, and tight liquidity for project financing are challenges for capex upturn. The government is attempting to address several of these.

Siemens Thermax

Gauging the environment through non-covered companies: Our analysis of 29 noncovered companies also points towards growing challenges, particularly for industrial products, which have relatively shorter business cycles than projects. In 1QFY13, aggregate revenue declined 12% YoY for nine non-covered industrial product companies and 4% YoY for five covered companies (based on segmental analysis). Project revenues are relatively insulated (up 17% YoY in 1QFY13 for non-covered companies), led by healthy execution of existing orders. Also, the impact of slowdown has been building up over the last 3-4 quarters, with TTM sales growth declining from 20% in 2QFY12 to 2% in 1QFY13, aggregated for the 14 companies. Management commentary across companies indicates challenging and uncertain outlook in the medium term.

Expected quarterly performance summary

ABB BGR Energy BHEL Crompton Greaves Cummins India Havells India Larsen & Toubr o Siemens Thermax Sector Aggregate

CMP (INR) 28.09.12 798 275 247 126 508 625 1,597 709 561

(INR Million)

Rating Sep.12 Neutral Neutral Neutral Neutral Neutral Buy Buy Neutral Neutral

19,190 7,038 105,257 29,629 12,056 9,796 132,967 35,693 12,020 363,645

Sales Var. % YoY 10.1 -8.8 2.2 9.5 10.6 15.0 18.2 -1.1 -7.8 8.2

Var. % QoQ 1.9 15.2 26.4 5.4 -4.2 -5.4 11.2 25.5 22.2 14.7

Sep.12 1,109 883 17,694 1,981 2,230 1,162 13,297 2,914 1,142 42,411

EBITDA Var. % YoY 66.3 -19.9 -1.3 -12.4 26.8 12.9 13.3 0.7 -18.7 4.0

Var. % QoQ 4.6 0.4 47.2 18.8 -4.1 -4.9 6.6 201.6 18.5 26.3

Net Profit Sep.12 Var. % YoY 543 145.1 296 -42.3 12,329 -4.1 1,003 -14.0 1,584 23.2 784 5.9 8,223 3.0 1,579 -11.3 837 -17.7 27,179 -1.4

Var. % QoQ 5.2 -11.5 33.9 16.8 -12.3 -10.9 -18.0 333.8 24.6 10.2

Satyam Agarwal ([email protected]) / Deepak Narnolia ([email protected]) October 2012

C–10

September 2012 Results Preview Sector: Capital Goods

Initial ray of hope, but near-term concerns impact valuations: Our Capital Goods coverage trades at 15x FY13E earnings (20% discount to long-term average of 18x). The premium relative to the Sensex enjoyed by the sector (MOSL coverage universe) has significantly eroded over the past two years. Our Capital Goods universe now trades at a 4% discount to the Sensex v/s long-term average premium of 29%. We expect flat earnings over FY12-14 for our coverage. The government's resolve to address the contentious issues in the Power sector, close monitoring of PSU capex, take-off of large public expenditure projects (like DFCC, railways, urban transport, etc) can possibly kick-start the investment cycle. Decline in commodity prices provides another ray of hope. We are Neutral on the sector; our top picks are L&T and Crompton Greaves.

Revenue growth supported by project business

Expect margin compression across companies

Moderating sales growth is likely to impact margins, while softening commodity prices could have a positive impact going forward; estima te 2QFY13 industr y margins a t 10.5% (down 39bp YoY). 17.5 12.3 11.0 8.2 1QF Y13

4QF Y12

13.1 9.2 3QF Y12

12.4 8.5 2QF Y12

12.0 8.4 1QF Y12

15.2

15.9 10.6

10.2 3QF Y11

4QF Y11

9.7

14.3

9.0

2QF Y11

13.3

EB ITDA Margi n (%)

1QF Y11

16.5 11.9 4QF Y10

16.1 10.6 3QF Y10

13.5 9.1 2QF Y10

11.6 8.2 1QF Y10

11.5 4QF Y09

15.4

9.6 3QF Y09

11.7 12.1 8.5 8.7 2QF Y09

1QF Y09

19.1 31.3 28.8 19.7 26.8 8.9 7.2 4.7 25.0 15.6 24.1 30.4 14.5 15.3 17.5 15.3 18.4 16.6

38.0 35.1 32.2

1QFY08 2QFY08 3QFY08 4QFY08 1QFY09 2QFY09 3QFY09 4QFY09 1QFY10 2QFY10 3QFY10 4QFY10 1QFY11 2QFY11 3QFY11 4QFY11 1QFY12 2QFY12 3QFY12 4QFY12 1QFY13

13.5

Net Profi t Margi n (%)

En g Sector (reven ue growth %)

Sour ce: Company, MOSL

1QFY13 order growth boosted by NTPC bulk tender awards

BTB (x) declining on slowing order inflows

Order intake remains sluggish, impacted by slowdown in the power sector and slowing industrial capex; the T&D segment showed pick-up in ordering, driven by improved ordering by Power Grid. Ordering activity in the building & construction has also been showing healthy traction.

-16

-12 -22

2.4 2.4 2.4 2.6 2.7 2.8 2.6 2.7 2.8 3.0 3.0 3.0 3.1 2.9 2.9 2.9 2.8 2.6 2.4 2.4 1,427 1,529 1,632 1,849 2,051 2,196 2,232 2,340 2,494 2,705 2,888 3,007 3,170 3,199 3,397 3,405 3,472 3,374 3,228 3,320

-7

-34-47 1QFY13

1QFY10

3QFY09

1QFY09

3QFY08

1QFY08

-19

9

20

3QFY12

-2

36 20

1QFY12

23

3QFY11

22

1QFY11

13

25

BTB (x)

2QF Y08 3QF Y08 4QF Y08 1QF Y09 2QF Y09 3QF Y09 4QF Y09 1QF Y10 2QF Y10 3QF Y10 4QF Y10 1QF Y11 2QF Y11 3QF Y11 4QF Y11 1QF Y12 2QF Y12 3QF Y12 4QF Y12 1QF Y13

46 41

40

3QFY10

53

Orde r boo k (INR bn)

Order intake YoY % 64

Sour ce: Company, MOSL

October 2012

C–11

September 2012 Results Preview Sector: Capital Goods

Incremental credit disbursements now lower than industry

Infrastructure credit disbursement declining since June 2011 Infra structure (Bank Cre di t, ttm, INR b) Ind ustri es excl i nfra (Bank Credi t, ttm INR b )

In frastru ctu re (Ba nk Cred i t, ttm, INR b) In frastru ctu re ba nk cre di t (ttm, % YoY)

3,200

1,600 80

2,400

1,300

40

1,000

1,600

0

700

-40

400

-80

800 0 Apr-07

Apr-08 Feb-09 De c-09 Oct-10 Au g-11 Jun-12

4QFY12 project sanctions at shocking levels

194

169

8,000

151

827

1,250

1,067

787

821

787

575

506

255

4QFY10

1QFY11

2QFY11

3QFY11

4QFY11

1QFY12

2QFY12

3QFY12

4QFY12

Coverage companies have fared better in maintaining margins (Industrial product EBIT Margins, %, ttm) Non covered co mpa ni es

Non covered compan i es

Co ve red com pan i es

1QF Y13

3QF Y12

1QF Y12

3QF Y11

1QF Y11

3QF Y10

1QF Y10

1QF Y08

3QF Y09

5% 1QF Y09

0% 1QFY13

-25% 3QFY12

8%

1QFY12

3% 3QFY11

0%

1QFY11

11%

3QFY10

14%

6%

1QFY10

9%

25%

3QF Y08

17%

50%

3QFY09

F eb-08 Mar-09 Apr-10 May-11 Jun-12

1,194 3QFY10

Dec-05 Jan-07

1,327 2QFY10

2,000 Oct-03 Nov-04

908

4,000

1QFY10

154

Apr-97 May-98 Jun-99 Jul-00 Aug-01 S ep-02

160

GDP Growth Covered comp ani es

1QFY09

Apr-12

10,000

Industrial products revenue have strong co-relation with GDP growth (revenue growth % YoY, ttm)

3QFY08

Apr-11

6,000

181

146

1QFY08

Apr-10

Net Projects adde d (INR b)

Projects (No s) 167

175

Ap r-09

Net project additions decline to INR1.5t in 1QFY13

Mar-96

189

Sancti ons (INR B) 231 202

Ap r-08

Power products Revenues show contrasting trends (ttm, % YoY), Power products margins have eroded, but showing signs of with coverage companies witnessing demand improvement stabilization (% EBIT margins, ttm)

1QFY13

3QFY12

1QFY12

3QFY11

1QFY11

3QFY10

Non covered co mpa ni es )

1QFY10

3QFY09

1QFY09

1QF Y13

3QF Y12

1QF Y12

0% 3QF Y11

-20% 1QF Y11

5% 3QF Y10

0% 1QF Y10

10%

3QF Y09

20%

1QF Y09

15%

3QF Y08

40%

1QF Y08

60%

20%

3QFY08

Covered comp ani es

Non covere d comp ani es

1QFY08

Covered comp ani es

Source: Company, MOSL October 2012

C–12

September 2012 Results Preview Sector: Capital Goods

Relative Performance-1Yr (%)

75

90

60 Sep-12

Sep-12

95

Jun-12

90

Sep-11

100

Aug-12

105

Jul-12

105

Jun-12

Sens ex Ind ex MOSL Capi ta l Goods Inde x

120

Mar-12

Sen sex In dex MOSL Cap ita l Good s Ind ex

110

Dec-11

Relative Performance - 3m (%)

Comparative valuation CMP (INR) 28.09.12 Capital Goods ABB 798 BGR Energy 275 BHEL 247 Crompton Greaves 126 Cummins India 508 Havells India 625 Larsen & Toubr o 1,597 Siemens 709 Thermax 561 Sector Aggregate

October 2012

Rating

EPS (INR) FY12 FY13E FY14E

P/E (x) FY12 FY13E FY14E

EV/EBITDA (x) FY12 FY13E FY14E

RoE (%) FY12 FY13E FY14E

Neutral Neutral Neutral Neutral Neutral Buy Buy Neutral Neutral

8.7 31.0 28.2 5.7 19.8 29.6 78.0 16.9 33.9

91.6 8.9 8.8 22.0 25.6 21.1 20.5 42.0 16.6 16.5

58.6 6.1 5.4 10.7 19.0 13.0 14.3 23.3 9.9 10.7

7.4 22.2 30.3 10.7 28.8 38.7 17.8 14.6 27.4 21.6

11.3 21.1 24.9 9.3 24.1 31.1 85.2 23.1 27.1

17.4 25.3 20.3 12.6 25.6 41.4 91.4 31.3 31.5

70.9 13.0 9.9 13.6 21.0 20.1 18.7 30.7 20.7 16.4

45.7 10.9 12.2 10.0 19.8 15.1 17.5 22.7 17.8 16.3

41.7 8.0 6.1 8.4 15.2 12.1 12.7 17.0 11.4 10.6

27.6 8.2 7.3 6.5 13.7 9.6 10.9 12.8 9.0 10.0

9.1 13.4 22.2 15.6 30.7 31.7 17.1 18.8 18.7 19.1

13.0 14.5 16.0 18.7 28.9 32.1 16.4 23.0 19.2 17.1

C–13

September 2012 Results Preview Sector: Capital Goods

ABB BSE Sensex

18,763 Bloomberg Equity Shares (m) 52 Week Range (INR) 1,6,12 Rel Perf (%) Mcap (INR b) Mcap (USD b) 





 

 

S&P CNX

5,703 ABB IN 211.9 915/541 2/-13/-6 169.1 3.2

CMP: INR798

Neutral

Year Net Sales PAT EPS End (INR m) (INR m) (INR) 12/10A 62,871 632 3.0 12/11A 73,703 1,845 8.7 12/12E 80,876 2,386 11.3 12/13E 93,730 3,696 17.4

EPS Gr (%) -82.2 191.9 29.3 54.9

P/E (x) 91.6 70.9 45.7

P/BV (x) 6.7 6.3 5.7

RoE (%) 2.6 7.4 9.1 13.0

RoCE (%) 3.1 8.1 9.5 13.1

EV/ EV/ Sales EBITDA 2.3 58.6 2.0 41.7 1.7 27.6

We expect ABB to report revenue growth of 10% YoY and EBITDA margin of 5.8% (up 200bp YoY) for 3QCY12, aided by a low base. Profitability would remain under pressure, given higher competitive intensity and execution of low margin fixed price contracts. Also, the benefit of softening commodity prices has largely been negated by INR depreciation as 40% of the raw material consumption is imported (largely from parent company). For CY12, we expect PAT to grow 30% on a low base to INR2.4b. We assume EBITDA margin of 5.8%, up 100bp; EBITDA margin expansion would be driven by ABB's exit from rural electrification projects. However, profitability continues to face headwinds and is lagging expectations due to intensifying competition and low margin legacy orders. During 2QCY12, ABB reported a turnaround in Power Systems after reporting losses in the segment for 8 consecutive quarters. However, its Process Automation business is facing cost overruns. Also, margins in its Low Voltage Product business have been impacted by MCB capacity expansion by 3x, led by poor fixed cost absorption. Order book currently stands at INR91.7b, up 9% YoY. BTB stands at 1.2x TTM sales. ABB has announced plans to again double its MCB capacity and is also expanding its High Voltage Products capacity at a cost of INR2.5b. In Process Automation, ABB is making efforts to build a service portfolio that will provide stability to margins. We believe that correcting the manufacturing footprint will be the key driver of structural improvement in margins. Key things to watch for: a) EBITDA margin devlopment, b) order in flow from industry sector. The stock trades at 70.9x CY12E and 45.7x CY13E earnings. Maintain Neutral.

Quarterly Performance

(INR Million)

Y/E December Sales Change (%) EBITDA Change (%) As % of Sales Depreciation Interest Other Income PBT Tax Effective Tax Rate (%) Repot ed PAT Adj. PAT Change (%) Order Intake Order Book BTB (x) E: MOSL Estimates October 2012

CY11 1Q 17,960 21.7 1,016 356.2 5.7 144 40 45 877 282 32.1 595 595 796.8 16,951 83,291 1.2

2Q 17,125 18.4 855 70.8 5.0 264 67 65 589 202 34.3 387 387 1.1 17,918 84,150 1.2

3Q 17,435 24.8 666 93.3 3.8 263 71 38 371 149 40.2 222 222 92.6 24,926 91,513 1.2

CY12 4Q 21,999 6.2 1,080 230.5 4.9 124 129 14 840 199 23.7 641 641 845.3 22,093 91,288 1.2

1Q 17,903 (0.3) 975 -4.0 5.4 223 54 19 716 240 33.5 476 476 -20.0 16,320 90,280 1.2

2Q 18,838 10.0 1,060 24.0 5.6 231 77 14 766 250 32.6 516 516 33.2 20,606 91,750 1.2

3QE 19,190 10.1 1,109 66.3 5.8 260 75 25 799 256 32.0 543 543 145.1 28,665 101,200 1.3

4QE 25,727 16.9 1,579 46.2 6.1 280 75 29 1,254 403 32.2 850 850 32.6 25,407 99,989 1.2

CY11

CY12E

74,742 17.5 3,618 131.9 4.8 795 307 162 2,677 832 31.1 1,845 1,845 191.8 81,888 91,288 1.2

81,658 9.3 4,723 30.5 5.8 995 280 87 3,535 1,149 32.5 2,386 2,386 29.3 90,998 99,989 1.3 C–14

September 2012 Results Preview Sector: Capital Goods

BGR Energy BSE Sensex

18,763

S&P CNX

5,703

Bloomberg BGRL IN Equity Shares (m) 72.0 52 Week Range (INR) 374/173 1,6,12 Rel Perf (%) 0/-24/-30 Mcap (INR b) 19.8 Mcap (USD b) 0.4

CMP: INR275

Neutral

Year Net Sales PAT EPS End (INR m) (INR m) (INR) 03/11A 47,632 3,124 43.3 03/12A 34,471 2,237 31.0 03/13E 35,162 1,522 21.1 03/14E 41,489 1,823 25.3

EPS Gr. (%) 54.6 -28.4 -31.9 19.8

P/E (X) 8.9 13.0 10.9

P/BV (X) 2.4 1.6 1.5

RoE (%) 37.7 22.2 13.4 14.5

RoCE (%) 16.3 10.7 7.7 8.1

EV/ EV/ Sales EBITDA 1.0 7.3 0.9 8.0 1.0 8.2



For 2QFY13, we expect revenue of INR7.03b (down 9% YoY), EBITDA of INR883m (down 20% YoY), with EBITDA margin at 12.5% (down 180bp YoY), and net profit of INR296m (down 42% YoY). For FY13, we expect revenue to grow 2% YoY, EBITDA margin of 11.8% (down 190bp), and PAT of INR1.55b (down 31%). The management expects revenue of INR37b-38b, up 10% on the back of existing order book and 11-12% EBITDA margin in FY13/14.



Order book as at the end of June 2012 stood at INR150b, of which INR7b were product orders and INR143b were projects. Projects include NTPC bulk tenders of INR86b (57% of total order book), INR22b of EPC and INR30b of BOP. The management has indicated that bidding pipeline stands at ~11GW for FY13.



Land for the turbine factory has already been acquired and construction work is expected to have started by the end of July 2012, while 70% of the land for the Boiler factory has been acquired. However, we believe that order execution would be crucial, especially in light of the company’s constrained cash flows.



Key things to watch for: (a) Realization of the retention money, as increasing debtors’ balance has significantly deteriorated working capital cycle, (b) Profitability in the NTPC bulk tenders, in which BGR has reportedly bid aggressively.



The stock trades at 13x FY13E and 10.9x FY14E earnings. Maintain Neutral.

Quarterly Performance (Standalone)

(INR Million)

Y/E March Sales Change (%) EBITDA Change (%) As of % Sales Depreciation Interest Other Income PBT Tax Effective Tax Rate (%) Reported PAT Adj PAT Change (%) Order Intake Order book BTB (x) E: MOSL Estimates October 2012

FY12 1Q 7,329 -19.2 948 -8.7 12.9 37 180 13 743 241 32.4 503 503 -17.0 2,602 75,000 1.6

2Q 7,715 -32.1 1,102 -16.7 14.3 40 302 0 761 247 32.5 514 514 -34.0 5,260 72,554 1.7

3Q 8,037 -36.1 1,313 -10.8 16.3 41 461 0 811 263 32.4 548 548 -37.4 15,469 80,000 2.1

FY13 4Q 11,377 -22.2 1,356 -19.0 11.9 43 411 51 954 282 29.6 672 672 -31.7 6,537 75,160 2.2

1Q 2QE 3QE 6,109 7,038 8,447 -16.6 -8.8 5.1 880 883 977 -7.2 -19.9 -25.6 14.4 12.5 11.6 41 43 48 342 400 460 0 2 2 496 442 471 162 146 153 32.6 33.0 32.5 335 296 318 335 296 318 -33.4 -42.3 -42.0 31,073 56,907 8,000 100,125 150,000 149,561 2.2 1.6 2.5

FY12 4QE 13,595 19.5 1,430 5.4 10.5 53 490 2 889 289 32.5 600 600 -10.7 14,020 149,945 2.5

FY13E

34,471 35,190 -27.6 2.1 4,731 4,169 -14.1 -11.9 13.7 11.8 161 185 1,354 1,692 53 8 3,268 2,300 1,033 750 31.6 32.6 2,235 1,550 2,235 1,550 -31.1 -30.7 29,868 29,868 75,160 149,945 1.7 2.2

C–15

September 2012 Results Preview Sector: Capital Goods

BHEL BSE Sensex

18,763 Bloomberg Equity Shares (m) 52 Week Range (INR) 1,6,12 Rel Perf (%) Mcap (INR b) Mcap (USD b) 



 

 

S&P CNX

5,703 BHEL IN 2,447.6 344/195 4/-12/-39 604.2 11.5

CMP: INR247 Year Net Sales End (INR m) 03/11A 404,443 03/12A 479,788 03/13E 476,593 03/14E 454,887

PAT EPS (INR m) (INR) 56,650 23.1 68,918 28.2 60,836 24.9 49,569 20.3

Neutral EPS Gr. (%) 20.9 21.7 -11.7 -18.5

P/E (X) 11.5 9.9 12.2

P/BV (X) 3.1 2.1 1.8

RoE (%) 31.4 30.3 22.2 16.0

RoCE (%) 35.0 33.0 23.6 16.9

EV/ EV/ Sales EBITDA 1.5 7.3 1.1 6.1 1.2 7.3

Declining commodity prices in USD terms and INR depreciation have meaningfully improved BHEL's competitive positioning, given that the competitors' cost base is largely composed of imported equipment, while BHEL has a larger in-house domestic cost base. Order book stood at INR1,329b (down 17%) as at June 2012; BTB declined from a peak of 4-4.5x in FY09 to 2.7x. Given the execution period of 3.5-4 years for power sector projects, the ratio is now in an uncomfortable zone and would constrain revenue growth, going forward. We expect revenue to decline by 1%/5% in FY13/FY14. In FY13, BHEL targets 14-15GW of orders, which appears challenging, given the prevailing business environment in the Power sector. BHEL's utility power order intake in FY12 was 2.8GW and industry size was 4GW. While the investment climate remains constrained, we believe that the situation could improve, driven by structural drivers like the following: (1) Imposition of 21% effective import duty has improved the competitive positioning of domestic players by 14%, (2) SEB debt restructuring, (3) Coal price pooling and increased domestic coal availability, (4) New standard bidding document making fuel cost pass-through, (5) continued strong growth in power consumption, etc. Key things to watch for: (a) Order inflow, (b) Performance on profitability - increasing pricing pressure and negative operating leverage are likely to squeeze EBITDA margin. The stock trades at 9.9x FY13E and 12.2x FY14E earnings. Maintain Neutral.

Quarterly Performance Y/E March Sales (Net) Change (%) EBITDA As a % Sales Adjusted EBITDA Change (%) As a % Sales Interest Depreciation Other Income PBT Tax Effective Tax Rate (%) Reported PAT Change (%) Adj. PAT Change (%) Order intake Order book (INRb) BTB (x) E: MOSL Estimates October 2012

(INR Million) FY12 1Q 2Q 3Q 4Q 71,234 102,986 105,426 192,595 9.9 23.7 19.1 7.5 10,184 19,592 20,350 49,372 14.3 19.0 19.3 25.6 8,524 17,932 20,350 49,372 -17.1 5.2 -5.3 68.5 14.1 16.9 19.1 25.2 88 96 145 183 1,709 1,888 1,861 2,541 3,435 2,199 2,415 3,989 11,822 19,806 20,758 50,637 3,667 5,686 6,432 16,838 31.0 28.7 31.0 33.3 8,155 14,120 14,326 33,798 21.8 23.6 2.1 20.8 8,155 12,858 14,326 33,580 14.8 11.1 -0.2 73.6 24,710 143,060 (15,040) 68,230 1,596 1,610 1,465 1,347 3.8 3.6 3.2 2.9

FY13 1Q 83,262 16.9 12,022 14.4 12,022 41.0 14.2 55 2,284 3,663 13,346 4,137 31.0 9,209 12.9 9,209 12.9 55,900 1,330 2.7

2QE 3QE 105,257 112,275 2.2 6.5 17,694 20,017 16.8 17.8 17,694 20,017 -1.3 -1.6 16.5 17.5 125 130 2,200 2,300 2,500 2,350 17,869 19,937 5,539 6,180 31.0 31.0 12,329 13,756 -12.7 -4.0 12,329 13,756 -4.1 -4.0 30,000 60,000 1,255 1,202 2.6 2.4

FY12

FY13E 4QE 167,016 472,279 467,811 -13.3 13.6 -0.9 37,118 98,880 86,850 22.2 20.2 18.2 37,118 97,076 86,850 -24.8 20.6 -10.5 21.8 20.3 18.2 408 513 718 2,120 8,000 8,904 2,427 12,656 10,939 37,017 103,023 88,167 11,476 32,623 27,332 31.0 31.7 31.0 25,541 70,400 60,836 -24.4 17.1 -13.6 25,541 68,919 60,836 -23.9 21.8 -11.7 60,621 220,960 295,021 1,141 1,353 1,141 2.4 2.9 2.4 C–16

September 2012 Results Preview Sector: Capital Goods

Crompton Greaves BSE Sensex

S&P CNX

18,763 Bloomberg Equity Shares (m) 52 Week Range (INR) 1,6,12 Rel Perf (%) Mcap (INR b) Mcap (USD b)

5,703 CRG IN 641.5 175/102 4/-18/-31 81.0 1.5

CMP: INR126 Year End 3/11A 3/12A 3/13E 3/14E

Neutral

Net Sales PAT EPS (INR m) (INR m) (INR) 100,051 9,268 14.3 112,486 3,733 5.7 131,290 6,029 9.3 145,945 8,104 12.6

EPS Gr. (%) 12.4 -59.7 61.5 34.4

P/E (X) 22.0 13.6 10.0

P/BV (X) 2.2 2.0 1.8

RoE (%) 30.5 10.7 15.6 18.7

RoCE (%) 28.1 9.6 13.0 15.0

EV/ EV/ Sales EBITDA 0.9 13.3 0.7 7.8 0.6 5.9

The management has guided 12-14% growth in consolidated revenue, EBITDA margin of 8-9%, and 15% growth in order intake for FY13.  Over the next three years, the management expects to improve EBITDA margin by 450bp (from 7.1% in FY12), driven by improved product offerings/new geographies (+150bp), raw material sourcing rationalization (+150bp), rationalization of manufacturing footprint (+100bp) and improvement in manufacturing processes (+100bp).  Key things to watch for: (a) Profitability in overseas and domestic power business, (b) Further announcements on efficiency improvement measures.  The stock trades at 13.6x FY13E and 10x FY14E earnings. Maintain Neutral. 

Quarterly performance

(INR Million)

Y/E March Standalone Performance Sales Change (%) EBITDA Change (%) As of % Sales (Adj) Subsidiaries Performance Revenues Revenue growth (%) EBITDA As of % Sales (Adj) Consolidated performance Sales (Net) Change (%) EBITDA Change (%) As of % Sales (Adj) Depreciation Interest Other Income PBT Tax Effective Tax Rate (%) Minority interest PAT Change (%) Order book Order Intake BTB (x) E: MOSL Estimates

October 2012

FY12

FY13

FY12

FY13E

1Q

2Q

3Q

4Q

1Q

2QE

3QE

4QE

14,688 9.4 1,867 -10.8 12.7

14,515 0.5 1,614 -30.1 11.1

16,245 16.1 1,753 -23.1 10.8

19,406 9.9 1,973 -25.3 10.2

16,592 13.0 1,684 -9.8 10.1

16,102 10.9 1,642 1.8 10.2

18,333 12.9 2,035 16.1 11.1

22,164 14.2 2,901 47.0 13.1

64,854 9.0 7,207 -22.7 11.1

73,190 12.9 8,162 13.3 11.2

9,689 1.0 -48 -0.5

12,541 31.6 646 5.2

14,035 40.6 73 0.5

11,367 -0.5 158 1.4

11,520 18.9 84 0.7

13,527 7.9 338 2.5

14,624 4.2 658 4.5

13,693 20.5 788 5.8

47,632 17.5 830 1.7

53,364 12.0 1,868 3.5

24,377 5.9 1,819 -38.8 7.5 608 110 151 1,253 475 37.9 -17.1 795 (58.4) 70,880 17,040 0.7

27,056 12.8 2,260 -32.2 8.4 726 102 215 1,647 463 28.1 16.5 1,167 (45.4) 71,200 22,600 0.7

30,280 26.3 1,826 -46.3 6.0 627 112 155 1,242 487 39.2 -16.4 771 (66.9) 81,830 34,010 0.7

30,774 5.8 2,132 -42.9 6.9 639 139 3 1,357 396 29.2 -42.9 1,003 (65.4) 83,664 28,961 0.7

28,111 15.3 1,668 -8.3 5.9 466 99 192 1,294 445 34.4 -9.6 859 8.1 91,720 27,170 0.8

29,629 9.5 1,981 -12.4 6.7 545 172 142 1,406 420 29.9 -17.2 1,003 (14.0) 97,537 29,810 0.8

32,956 8.8 2,693 47.5 8.2 590 218 127 2,012 520 25.8 -17.3 1,510 95.7 102,675 31,678 0.8

40,593 112,486 131,290 31.9 12.4 16.7 4,588 8,037 10,930 115.2 -40.2 36.0 11.3 7.1 8.3 940 2,600 2,540 341 463 830 20 524 480 3,328 5,498 8,040 696 1,821 2,080 20.9 33.1 25.9 -24.9 -59.9 -69.0 2,657 3,736 6,029 164.8 (59.7) 61.4 104,087 83,664 104,087 29,265 102,611 117,923 0.8 0.7 0.8

C–17

September 2012 Results Preview Sector: Capital Goods

Cummins India BSE Sensex

18,763 Bloomberg Equity Shares (m) 52 Week Range (INR) 1,6,12 Rel Perf (%) Mcap (INR b) Mcap (USD b) 









S&P CNX

5,703 KKC IN 277.2 518/322 3/0/9 140.7 2.7

CMP: INR508 Year End 3/11A 3/12A 3/13E 3/14E

Neutral

Net Sales PAT EPS (INR m) (INR m) (INR) 40,425 5,911 21.3 41,172 5,502 19.8 47,278 6,691 24.1 52,885 7,107 25.6

EPS Gr. (%) 33.1 -6.9 21.6 6.2

P/E (x) 25.6 21.0 19.8

P/BV (x) 6.9 6.1 5.4

RoE (%) 35.5 28.8 30.7 28.9

RoCE (%) 35.4 28.8 30.9 29.1

EV/ EV/ Sales EBITDA 2.8 16.3 2.9 15.3 2.6 13.8

For FY13, we expect revenue growth of 15%, aided by new products from Phaltan Megasite, and pre-buying, given stringent emission norms for Powergen. However, the scenario continues to be challenging, given the slowdown, and the impact is more pronounced in the high horsepower (HHP) segment. Domestic demand for DG sets declined 5-10% in FY12. We believe that the twin trend of softening commodity prices and INR depreciation have meaningfully improved near-term margin outlook for Cummins (KKC). Currency depreciation makes KKC more competitive in the global network of Cummins Inc, leading to possibilities for increased outsourcing. Weak INR has also improved KKC’s competitive positioning vis-à-vis competitors, who largely rely on imports. The DG sets business faces multiple headwinds: (1) Limited demand drivers, given economic slowdown and tight liquidity, (2) Increased competitive intensity, particularly in HHP segment, and (iii) Structural lowering of power deficit in India (KKC has been a key beneficiary of the demand spurt in Southern region over the last one year – current TTM base deficit at 11.3% v/s 4.1% TTM in August 2011; we believe that commissioning of Kudankulam nuclear plant / synchronous grid connection will lower deficits). Key things to watch for: (a) Demand growth in the domestic market – tight liquidity conditions are likely to impact growth, (b) Any slowdown in the export market, as Caterpillar dealer sales show 13% decline in YTD FY13. The stock trades at 21x FY13E and 19.8x FY14E earnings. Maintain Neutral.

Quarterly Performance (Standalone)

(INR Million)

Y/E March Sales Change (%) EBITDA Change (%) As of % Sales Depreciation Interest Other Income PBT Tax Effective Tax Rate (%) Reported PAT Change (%) Adjusted PAT Change (%) Domestic Sales Change (%) Exports Change (%) E: MOSL Estimates October 2012

FY12 1Q 10,335 11.4 1,739 -11.9 16.8 94 11 283 2,432 661 27.2 1,772 26.3 1,360 (3.0) 7,456 10.3 2,763 27.9

2Q 10,903 -0.1 1,759 -19.0 16.1 98 5 163 1,819 534 29.3 1,286 -23.4 1,286 (23.4) 7,689 17% 3,009 9.0

3Q 9,624 -3.0 1,612 -10.3 16.7 109 11 454 1,945 536 27.5 1,410 1.5 1,410 1.5 6,653 (4.04) 2,768 4.5

FY13 4Q 10,404 -0.1 1,948 9.2 18.7 119 21 242 2,049 604 29.5 1,446 0.4 1,446 0.4 6,846 (11.22) 3,367 24.7

1Q 12,588 21.8 2,325 33.7 19.5 114 14 385 2,582 777 30.1 1,806 1.9 1,806 32.7 8,104 8.7 4,310 56.0

2QE 12,056 10.6 2,230 26.8 18.5 128 15 175 2,262 679 30.0 1,584 23.2 1,584 23.2 8,376 8.9 3,500 16.3

3QE 10,874 13.0 1,979 22.8 18.2 142 15 350 2,172 608 28.0 1,564 10.9 1,564 10.9 7,444 11.9 3,250 17.4

4QE 11,761 13.0 2,358 21.0 20.0 166 17 232 2,407 669 27.8 1,738 20.2 1,738 20.2 7,874 15.0 3,705 10.0

FY12

FY13E

41,172 1.8 6,972 -8.7 16.9 420 54 1,233 7,732 2,334 30.2 5,913 0.0 5,501 (6.9) 28,614 (0.3) 11,908 12.3

47,278 14.8 8,892 27.5 19.1 550 60 1,141 9,423 2,733 29.0 6,691 13.2 6,691 21.6 31,798 10.5 14,765 24.0

C–18

September 2012 Results Preview Sector: Capital Goods

Havells India BSE Sensex

18,763 Bloomberg Equity Shares (m) 52 Week Range (INR) 1,6,12 Rel Perf (%) Mcap (INR b) Mcap (USD b)

S&P CNX

5,703 HAVL IN 124.8 640/335 11/2/59 78.0 1.5

CMP: INR625

Buy

Year Net Sales PAT* EPS* EPS* End (INR m) (INR m) (INR) Gr. (%) 3/11A 56,126 3,067 24.6 341.1 3/12A 65,182 3,699 29.6 20.6 3/13E 70,469 3,879 31.1 4.9 3/14E 76,782 5,160 41.4 33.0 * Consolidated nos, pre exceptionals

P/E (X) 21.1 20.1 15.1

P/BV (X) 8.2 6.3 4.9

RoE (%) 46.9 38.7 31.7 32.1

RoCE (%) 20.6 23.6 22.7 24.1

EV/ EV/ Sales EBITDA 0.9 8.9 1.2 12.1 1.0 9.6



For 2QFY13, we expect standalone revenue of INR9.7b (up 15% YoY), EBITDA of INR1162m with EBITDA margin at 11.9% (down 100bp YoY), impacted by doubling of Switchgear capacity. Net profit is likely to be INR784m (up 6% YoY).



For FY13, we expect revenue growth of 16%, EBITDA margin of 11.9% (down 30bp), and PAT of INR3.4b (up 11%). The management expects 15-20% growth in standalone sales on the back of 10-15% growth in Switchgear, 1520% in Cables and Wires, and 20%+ growth in Consumer Durables along with Lighting and Fixtures. The company is confident of maintaining its margin levels.



Sylvania, which had been reporting sustained improvement in profitability after its turnaround beginning 2QFY11, has again reported losses in 1QFY13, impacted by adverse currency movement and decline in sales. The business continues to face currency headwinds in the near term while European sales are likely to be muted. The management expects 2-3% growth in EUR terms and stable EBITDA margin in FY13. We have factored in a sales growth of 1% in EUR terms and EBITDA margin of 6.5% (down 70bp).



Key things to watch for: (a) Growth in new product launches in Consumer Appliances, (b) Slowdown in overseas demand, (c) Cross-selling opportunities.



The stock trades at 20.1x FY13E and 15.1x FY14E earnings. Maintain Buy.

Quarterly Performance (Standalone)

(INR Million)

Y/E March Sales Change (%) EBITDA Change (%) EBITDA margin (%) Depreciation Interest Other Income PBT Tax Effective Tax Rate (%) Reported PAT Change (%) Adj PAT Change (%) E: MOSL Estimates

October 2012

FY12

FY13

1Q

2Q

3Q

4Q

1Q

2QE

3QE

4QE

8,235 19.4 973 8.7 10.8 86 94 2 795 147 18.5 648 21.5 566 3.6

8,518 28.5 1,029 38.0 12.9 91 71 2 868 166 19.1 703 21.0 741 39.9

8,982 29.8 1,144 39.6 13.5 104 75 1 967 178 18.4 789 29.1 830 44.1

10,485 24.2 1,468 46.8 13.8 166 197 3 1,108 192 17.3 916 34.4 1,022 50.0

10,353 25.7 1,222 46.9 12.6 118 102 2 1,004 204 20.3 800 23.5 880 55.5

9,796 15.0 1,162 6.1 11.9 120 90 4 956 172 18.0 784 11.6 784 5.9

10,239 14.0 1,218 0.3 11.9 125 85 5 1,013 182 18.0 830 5.3 830 0.0

11,668 11.3 1,402 -4.5 12.0 125 88 9 1,198 214 17.8 984 7.5 984 -3.7

FY12

FY13E

36,220 25.4 4,621 29.1 12.8 447 444 8 3,738 683 18.3 3,060 26.4 3,056 26.5

42,056 16.1 5,004 8.3 11.9 488 365 20 4,171 772 18.5 3,404 11.2 3,399 11.3

C–19

September 2012 Results Preview Sector: Capital Goods

Larsen & Toubro BSE Sensex

18,763

S&P CNX

5,703

Bloomberg LT IN Equity Shares (m) 608.9 52 Week Range (INR) 1,619/971 1,6,12 Rel Perf (%) 11/12/0 Mcap (INR b) 972.2 Mcap (USD b) 18.4  



 

CMP: INR1,597

Buy

Year Net Sales PAT* EPS* EPS End (INR m) (INR m) (INR) Gr. (%)* 3/11A 439,059 42,416 69.7 13.0 3/12A 531,705 47,730 78.0 11.9 3/13E 618,981 52,140 85.2 9.2 3/14E 701,694 55,953 91.4 7.3 Consolidated; EPS is fully diluted

P/E* (X) 18.5 18.7 17.5

P/BV (X) 3.5 3.4 3.0

RoE (%) 16.6 17.8 17.1 16.4

RoCE (%) 13.9 14.1 13.8 13.5

EV/ EV/ Sales EBITDA 1.7 14.3 1.6 14.3 1.5 12.6

We expect standalone revenue to grow 18% YoY in 2QFY13, driven by healthy execution of existing order book. In FY13, we expect revenue to grow 16%. The management has guided 15-20% revenue growth in FY13. We estimate standalone EBITDA margin at 10% (down 40bp YoY) for 2QFY13 and at 11.5% (down 30bp) for FY13. In the E&C business, we expect EBITDA margin to remain flat at 12.7% in FY13 v/s the management's guidance of +/-50bp change. Margins will be supported by commodity price declines, especially in overseas orders. In 1HFY12, L&T announced orders amounting to INR282b (INR151b in 1QFY13 and INR130b in 2QFY13). Reported order intake over 1QFY13 was INR196b, up 21% YoY. In 2QFY13, the company has been awarded an EPC order worth INR7,490m by ONGC for four wellheads in the hydrocarbon sector after a long gap of over one year. This is significant, given the loss of key orders to competition in the last 1-2 years. L&T also won a significant order worth INR13,020m from Petroleum Development Oman LLC. Key things to watch for: (a) Any deterioration in working capital cycle, (b) E&C margins, as one-third of the order book is on fixed price contracts and decline in commodity prices should start supporting margins, going forward. The stock trades at 18.7x FY13E and 17.5x FY14E earnings. Maintain Buy.

Quarterly Performance (Standalone) Y/E March

(INR Million) FY12

1Q 2Q 3Q Net Sales 94,826 112,452 139,836 Change (%) 21.1 20.5 22.5 EBITDA 11,265 11,741 13,641 Change (%) 12.1 16.7 10.2 Margin (%) 11.9 10.4 9.8 Adjusted EBITDA 11,265 11,741 15,641 Adjusted Margin (%) 11.9 10.4 11.2 Depreciation 1,679 1,709 1,803 Interest 1,613 1,970 1,907 Other Income 2,962 3,632 4,271 Extraordinary Inc/(Exp) 0 0 0 Reported PBT 10,935 11,693 14,202 Tax 3,474 3,709 4,286 Effective Tax Rate (%) 31.8 31.7 30.2 Reported PAT 7,461 7,984 9,915 Adjusted PAT 7,461 7,984 11,275 Change (%) 12.0 15.0 40.0 Adj PAT (excl Subs Dividend) 6,901 7,094 9,085 Change (%) 12.0 10.6 19.5 Order Intake 162 161 171 Order book (INR b) 1,362 1,422 1,458 BTB (x) 3.0 3.0 2.9 E: MOSL Estimates; All quarterly numbers are for standalone October 2012

FY13 4Q 184,609 21.0 25,608 9.3 13.9 25,608 13.9 1,804 1,211 3,142 550 26,285 7,081 26.9 19,204 18,654 22.1 18,144 25.5 212 1,457 2.7 entity

1Q 2QE 3QE 119,554 132,967 162,789 26.1 18.2 16.4 10,869 13,297 17,500 -3.5 13.3 28.3 9.1 10.0 10.8 12,469 13,297 17,500 10.4 10.0 10.8 1,919 1,900 2,100 2,284 2,300 2,300 6,058 2,650 2,650 -383 0 0 12,340 11,747 15,750 3,705 3,524 5,040 30.0 30.0 32.0 8,635 8,223 10,710 10,023 8,223 10,710 34.3 3.0 -5.0 7,103 7,973 10,460 2.9 12.4 15.1 196 177 188 1,531 1,575 1,601 2.8 2.7 2.7

FY12

FY13E 4QE 203,672 531,705 618,981 10.3 21.1 16.4 29,753 62,826 71,418 16.2 11.4 13.7 14.6 11.8 11.5 29,753 64,826 71,418 14.6 12.2 11.5 2,160 6,995 8,079 2,316 6,661 9,200 2,498 13,383 13,856 0 550 -383 27,775 63,103 67,612 7,793 18,538 20,061 28.1 29.4 29.7 19,982 44,565 47,550 19,982 44,825 48,948 7.1 23.7 9.2 19,886 40,745 45,432 9.6 20.0 11.5 179 706 741 1,578 1,457 1,578 2.6 3.3 3.0

C–20

September 2012 Results Preview Sector: Capital Goods

Siemens BSE Sensex

S&P CNX

18,763 5,703 Bloomberg SIEM IN Equity Shares (m) 337.0 52 Week Range (INR) 872/627 1,6,12 Rel Perf (%) -1/-1 7/-29 Mcap (INR b) 238.9 Mcap (USD b) 4.5







  

CMP: INR709

Neutral

Year Net Sales PAT* EPS* EPS* End (INR m) (INR m) (INR) Gr. (%) 9/11A 121,064 8,434 25.0 2.0 9/12E 125,775 5,690 16.9 -32.5 9/13E 140,580 7,769 23.1 36.5 9/14E 160,190 10,540 31.3 35.7 * Standalone, Year end - September

P/E* (X) 42.0 30.7 22.7

P/BV (X) 6.0 5.6 4.9

RoE (%) 23.1 14.6 18.8 23.0

RoCE (%) 24.4 15.3 19.6 24.0

EV/ EV/ Sales EBITDA 1.9 23.1 1.6 16.9 1.4 12.7

For 4QFY12, we expect Siemens (SIEM) to report revenue of INR35b, down 1% YoY. In 9MFY12, it reported revenue of INR90b (up 6% YoY), impacted by delays in offtake by customers and sluggish industrial capex, though strong execution of Qatar/Torrent projects supported revenue. A large part of SIEM’s business portfolio comprises of early and mid-cycle products; hence, the impact of slowdown has started becoming more pronounced. The revenue break-up is as follows: Products 56%, Projects 31% and Services 12%. We expect order intake to remain muted, with a growth of 5% in FY12. During 9MFY12, order intake declined 23% YoY to INR73b; excluding large orders received last year, base orders posted a growth of ~8% YoY. Post the Qatar project, SIEM is aggressively tapping other MENA (Middle East and North Africa) markets, which should help support order intake. We expect margins to remain flattish in 4QFY12 at 8.2% due to pricing pressure in the Power business though softening commodity prices should support margins. Depreciation of the INR against the EUR is likely to impact margins, given that around half the raw material and components cost is based on imports from the parent company. We expect SIEM to report a PAT of INR1.6b in 4QFY12, down 11% YoY. For FY12, we expect a PAT of INR5.7b (down 32%). Key things to watch for: (a) Margins, particularly in Industrial Solutions and Power Transmission businesses, (b) Any large size order inflow from MENA. The stock trades at 30.7x FY13E and 22.7x FY13E earnings. Maintain Neutral, with a target price of INR743 (25x FY12E earnings).

Quarterly Performance (Standalone)

(INR Million)

Y/E September Total Revenues Change (%) EBITDA Change (%) As % of Revenues Depreciation Interest Income PBT Tax Effective Tax Rate (%) Reported PAT Adjusted PAT Change (%) Order Intake (INR b) Order book (INR b) BTB (x) E: MOSL Estimates October 2012

FY11 1Q 25,804 35.7 3,688 0.3 14.3 345 258 3,600 1,220 33.9 2,381 2,381 25.9 40 151 1.5

2Q 31,208 40.2 4,288 49.9 13.7 367 229 4,151 1,407 33.9 2,744 2,744 51.5 33 154 1.4

3Q 27,825 23.9 2,508 3.6 9.0 401 182 2,288 741 32.4 1,548 1,548 -0.9 23 150 1.3

FY12 4Q 36,085 19.3 2,895 -27.1 8.0 410 223 2,708 927 34.2 1,781 1,781 -29.1 27 139 1.2

1Q 23,676 -8.2 1,254 -66.0 5.3 431 227 1,050 343 32.7 707 707 -70.3 28 140 1.2

2Q 37,973 21.7 4,944 15.3 13.0 469 41 4,516 1,476 32.7 3,040 3,040 10.8 18 126 1.0

3Q 28,433 2.2 966 -61.5 3.4 506 76 536 172 32.1 364 364 -76.5 27 125 1.0

FY11

FY12E

4QE 35,693 120,290 -1.1 28.0 2,914 13,371 0.7 3.4 8.2 11.1 630 1,522 106 900 2,391 12,750 811 4,295 33.9 33.7 1,579 8,454 1,579 8,454 -11.3 2.2 31 123 119 139 1.0 1.2

125,775 3.9 10,079 -25.3 8.0 2,036 450 8,492 2,802 33.0 5,690 5,690 -32.5 104 119 1.0

C–21

September 2012 Results Preview Sector: Capital Goods

Thermax BSE Sensex

18,763 Bloomberg Equity Shares (m) 52 Week Range (INR) 1,6,12 Rel Perf (%) Mcap (INR b) Mcap (USD b)

 



 

S&P CNX

5,703 TMX IN 119.2 570/388 7/9/1 66.9 1.3

CMP: INR561

Neutral

Year Net Sales PAT EPS End (INR m) (INR m) (INR) 3/11A 52,472 3,818 32.0 3/12A 60,313 4,034 33.9 3/13E 57,936 3,231 27.1 3/14E 57,229 3,748 31.5 Consolidated

EPS Gr. (%) 48.7 5.7 -19.9 16.0

P/E (x) 15.1 20.7 17.8

P/BV (x) 3.7 3.6 3.2

RoE (%) 31.9 27.4 18.7 19.2

RoCE (%) 29.0 22.9 15.4 16.1

EV/ EV/ Sales EBITDA 0.9 8.9 1.0 11.4 0.9 9.0

Revenue visibility for FY13 remains low, given loss of key expected projects to competition in recent months and lack of concrete pipeline for large power projects / slowing industrial capex. We expect order intake to remain muted in FY13 – up 20% on a low base to INR53b. Consolidated order book as at the end of 1QFY13 was down 26% YoY at INR50.4b. Power EPC accounts for ~1/3rd of the current backlog. Thermax last reported large orders in 1QFY12, when it received two key orders – an order worth INR4b to construct a 3x32MW cogeneration plant on EPC basis and an order worth INR3.66b to supply of boilers for a 120MW captive power plant. Project side orders from segments like Power, Oil & Gas, Metallurgy, Cement, etc continue to get deferred, given the macro volatility; the scenario continues to be challenging. Thus far, Thermax has shown impressive performance on the profitability front, even in a challenging business environment. ~20% of its staff costs and 40-50% of other costs are variable, providing a cushion to manage margins. However, we believe that if the macro environment continues to be volatile, Thermax might have to start compromising on margins to bag orders (as market share / fixed costs are important priorities). Decline in commodity prices should provide support to margins. Key things to watch for: (a) Order inflow, particularly from the Power segment for the boiler-turbine-generator (BTG) manufacturing plant being built, (b) Pick-up in ordering activity in the Renewable Energy segment. The stock trades at 20.7x FY13E and 17.8x FY14E earnings. Maintain Neutral.

Quarterly Performance (Standalone)

(INR Million)

Y/E March Sales Change (%) EBITDA As of % Sales Depreciation Interest Other Income PBT Tax Effective Tax Rate (%) Reported PAT Change (%) Adj PAT Change (%) Order Book Order Intake BTB (x) E: MOSL Estimates

October 2012

FY12 1Q 10,443 32.2 1,135 10.9 111 4 149 1,170 371 31.7 799 20.7 799 20.7 58,890 14,440 1.1

2Q 13,035 19.4 1,405 10.8 117 11 208 1,485 468 31.5 1,017 13.6 1,017 13.6 57,700 11,890 1.1

3Q 12,693 2.3 1,364 10.7 120 17 157 1,384 429 31.0 955 -4.7 955 (4.7) 51,000 5,900 0.9

FY13 4Q 16,868 -4.5 1,853 11.0 121 34 272 1,971 673 34.1 1,298 2.6 1,298 2.6 42,300 8,090 0.8

1Q 9,835 -5.8 964 9.8 132 37 187 981 309 31.5 672 -15.9 672 (15.9) 44,740 12,580 0.9

2QE 12,020 -7.8 1,142 9.5 129 12 230 1,231 394 32.0 837 -17.7 837 (17.7) 42,846 8,323 0.8

3QE 11,530 -9.2 1,153 10.0 132 18 180 1,184 367 31.0 817 -14.5 817 (14.5) 40,897 8,260 0.8

4QE 15,678 -7.1 1,647 10.5 122 2 221 1,744 575 33.0 1,169 -9.9 1,169 (9.9) 40,897 11,137 0.8

FY12

FY13E

53,041 9.3 5,839 11.0 470 66 705 6,009 1,940 32.3 4,069 6.4 4,069 6.4 42,300 40,320 0.8

49,063 -7.5 4,906 10.0 515 69 818 5,140 1,645 32.0 3,495 -14.1 3,495 (14.1) 40,897 40,300 0.8

C–22

September 2012 Results Preview Sector: Cement

Cement Company Name ACC Ambuja Cements Birla Corporation Grasim Industries

2QFY13 dispatches growth to moderate at ~2% led by delayed monsoon: Recovery in cement demand was thwarted in 2QFY13 given (1) heavy rains in August (delayed monsoon), and (2) weak demand from organized housing and infrastructure. We estimate cement dispatches growth of 2% YoY (down ~12% QoQ). As a result, capacity utilization is also expected to decline 120bp YoY (-10pp QoQ). We expect demand to recover post monsoon, with FY13 volume growth of 7.9% for the industry, translating into capacity utilization of 75% in FY13 as against 74% in FY12. 1HFY13 volume growth of ~6.7% implies residual growth of 8.9% for 2HFY13.

India Cements Jaiprakash Associates Shree Cement UltraTech Cement

Prices resilient; decline during monsoon lower than our initial estimates: Despite demand weakness, cement prices remained strong with only modest seasonal correction in 2QFY13. National average retail price for 2Q was down only INR5/bag QoQ (+INR30/bag YoY). Prices are (1) broadly stable QoQ in West, North and South (except AP where prices are down INR30-35/bag QoQ), and (2) down INR10/bag in East and Central. We are factoring in INR20/bag improvement in FY13 realizations over FY12 average, which is INR10/bag higher than 2QFY13 average pricing. Profitability to deteriorate QoQ on lower realization, higher cost: Expect EBITDA/ton to be down INR224 QoQ at INR979/ton (+INR383/ton YoY) on the back of (1) lower realizations, (2) negative operating leverage (utilization down 950bp QoQ), and (3) cost push (partial impact of diesel price hike). We expect the potential benefit of softening rupee on lower imported coal prices to reflect partially from 2QFY13, which will dilute impact of higher freight rates due to diesel price hike. For FY13, we expect EBITDA to improve only ~INR210/ton (to INR1,110/ton) as INR400/ton higher realization is diluted by cost push. Valuation and view: Cement prices have been resilient even during seasonally weak period. This, we believe, reflects high cost (both opex and capex), implying little downside risk to any major price correction in medium-to-long term. Cement stocks have outperformed the market led by strength in pricing; this has resulted in large caps trading at slight premium to replacement cost. We expect strong earnings growth to drive stock performance hereon. Recovery in cement volume growth would be the key catalyst for stock performance to sustain. We prefer Ambuja Cement and UltraTech/Grasim in large-caps, and Shree Cement in mid-caps.

Expected quarterly performance summary CMP (INR) 28.09.12 ACC 1,469 Ambuja Cements 202 Birla Corporation 282 Grasim Industries 3,315 India Cements 95 Jaiprakash Associates 82 Shree Cement 3,954 Ultratech Cement 1,968 Sector Aggregate

(INR Million)

Rating Sep.12 Neutral Buy Buy Buy Buy Buy Buy Buy

24,042 21,709 5,456 11,736 11,466 32,233 10,927 44,095 161,664

Sales Var. % YoY 11.8 20.3 5.8 -2.5 5.3 2.9 47.4 12.8 11.1

Var. % QoQ -13.4 -15.4 -17.1 -5.3 -4.6 8.8 -24.9 -13.1 -9.9

EBITDA Sep.12 Var. % YoY 4,167 89.0 5,512 77.0 766 142.7 2,856 -1.7 2,519 0.0 7,266 -2.9 3,216 111.1 9,358 60.3 35,661 37.7

Var. % QoQ -36.0 -23.7 -39.1 -3.3 -9.3 -5.8 -33.2 -27.6 -22.7

Net Profit Sep.12 Var. % YoY 2,497 103.2 3,561 92.1 404 54.5 3,597 4.3 854 22.5 943 -26.7 2,166 LP 5,402 93.6 19,423 89.0

Var. % QoQ -40.3 -24.1 -52.3 31.8 14.1 -31.6 -38.4 -30.6 -24.9

Jinesh K Gandhi ([email protected]) / Sandipan Pal ([email protected]) October 2012

C–23

3,441

3,520

3QFY09

4QFY09

October 2012

444 601

2QFY13 retail prices inclusive of excise duty hike of INR4-6/bag

1QFY13 2QFY13E

Central

1,036 1,034 786

248 263 283 298 293

1QFY13

4QFY12

South

832

614

Wes t

2QFY12 3QFY12

Ea s t 203 223 245 275 262

North

1,068

921

294 295 304 310 303

4QFY12

1QFY12

4QFY11

Rea li zati on (INR/ton)

3QFY11

965

908

247 259 283 290 295

3QFY12

2QFY11

4QFY10 1QFY11

843

1,218

2QFY12

2QFY10 3QFY10

Cha nge (%)

1,298

229 260 299 340 328

2QFY13

2QFY13

4QFY12

2QFY12

4QFY11

2QFY11

4QFY10

2QFY10

4QFY09

2QFY09

4QFY08

2QFY08

4QFY07

2QFY07

4QFY06

6.2

245 262 274 273 272

18.3

52

1QFY10

293

2QFY13

1QFY13

6.0

894 1,102

298

1QFY13

4QFY12

10.3

2QFY09 3QFY09 4QFY09

283

4QFY12

2.1

3QFY12

51 56 64 59 2QFY12

Growth (%)

1QFY09

263

3QFY12

7.6

Avg Na ti onal Retai l Pri ces (INR/ba g)

14.0

248

2QFY12

Expect demand growth to moderate at 2.9%

1,039 910

4,404 4,268

1QFY13

9.8

261

1QFY12

1QFY12

4QFY11

10.2

2QFY13E

4,299

4QFY12

11.1

258

4QFY11

3.2

3.2

4,211

237

3QFY11

3QFY11

54

3QFY12

11.0

223 -11.2

2QFY11

2QFY11

1QFY11

4QFY10

9.4 9.3

3,915

243

1QFY11

5.9

10.8

2QFY12

232

4QFY10

11.0

-2.7

229

3QFY10

50 46 49 55 53 48 51 58

4,102

3,910

-2.4

252

2QFY10

3QFY10 Des pa tches (MT)

1QFY12

4QFY11

3,524

3,346

-3.5

250

1QFY10

2QFY10

6.9

3QFY11

2QFY11

3,707

3,497

4QFY10

2.7

238

4QFY09

1QFY10

4.0

1QFY11

3,410

3,744

3QFY10

3,740

2QFY10

3.0

238

3QFY09 6.2

3.2

238

2QFY09 12.2

1QFY10

2QFY09

3,423 3,475

1QFY09

September 2012 Results Preview Sector: Cement

…utilization to decline YoY 120%

9.0

105% 90%

0.9

75%

60%

Source: CMA/MOSL

2QFY13 average cement prices seasonally down QoQ, although lower than estimated (INR/bag) 2QFY13E

Nati ona l Average

Source: CMA/MOSL

Cost inflation, negative operating leverage to offset benefit of higher realizations

EBITDA (INR/ton)

Source: Company/MOSL

C–24

September 2012 Results Preview Sector: Cement

Trend in key operating parameters Volume (m tons) 2QFY13E YoY (%) QoQ (%) 6.3 10.0 2.6 5.3 10.0 -9.1 10.1 9.2 -3.5 1.4 -0.9 -3.4 2.6 5.1 4.1 2.7 9.6 -16.8 28.3 8.6 -4.2

ACC Ambuja Cement UltraTech Birla Corp India Cement Shree Cement Sector Aggregate

Realization (INR/ton) 2QFY13E YoY (INR) QoQ (INR) 4,196 418 -200 4,220 466 -160 4,598 419 -151 3,854 206 -107 4,386 163 60 3,411 0 -200 4,268 353 -135

EBITDA (INR/ton) 2QFY13E YoY (INR) QoQ (INR) 606 219 -299 876 229 -261 840 218 -258 473 176 -275 1,033 -5 105 757 -46 -336 786 172 -248

Trend in key financial parameters Net Sales (INR m) 2QFY13 YoY (%) QoQ (%) 26,265 22.2 -2.1 22,320 23.7 -12.4 46,322 18.5 -6.6 5,396 4.7 -6.1 11,729 7.7 0.8 9,657 13.0 -35.1 121,689 17.9 -9.3

ACC Ambuja Cement UltraTech Birla Corp India Cement Shree Cement Sector Aggregate

Relative Performance - 3m (%) Sens ex Index MOSL Cement Index

Sep-12

Aug-12

Jul-12

Jun-12

145 130 115 100 85

Relative Performance-1Yr (%)

ACC Ambuja Cement Grasim UltraTech Birla Corp India Cement Shree Cement

200 EV (USD/Ton)

140 120 100

Net Profit (INR m) YoY (%) QoQ (%) 89.9 -33.7 60.7 -31.2 71.0 -28.6 -31.3 -66.0 25.6 26.6 -43.8 -94.9 59.6 -35.9 Source: Company/MOSL

Rev

FY13E Old

Chg (%)

Rev

FY14E Old

Chg (%)

66.8 10.8 330.2 103.4 24.1 11.9 310.2

70.3 10.8 324.6 103.4 34.8 12.0 300.7

-4.9 -0.2 1.7 -0.1 -30.7 -0.4 3.2

83.0 12.6 365.2 116.9 26.9 15.6 361.4

86.1 12.7 352.6 113.2 36.7 15.6 345.2

-3.6 -0.7 3.6 3.2 -26.7 0.2 4.7

Replacement Cost at USD140/ton

150

Ul traTech ACC

100

Ambuja Shree

Gra s i m

Indi a Cement 50 Bi rl a Corp

0

Sep-12

Jun-12

80 Mar-12

2QFY13 2,333 2,979 4,770 180 1,083 99 11,444

Recent correction makes valuations attractive (FY12)

160

Dec-11

EBITDA Margins (%) YoY (BP) QoQ (BP) 420 -610 350 -520 360 -490 150 -660 -70 290 -170 -430 270 -470

Revised EPS estimates (INR)

Sens ex Index MOSL Cement Index

Sep-11

2QFY13 14.4 20.8 18.5 7.6 22.5 21.7 18.2

0%

6%

12%

18%

24%

30% RoCE (%)

36%

42%

48%

54%

Comparative valuation CMP (INR) 28.09.12 Cement ACC Ambuja Cements Birla Corporation Grasim Industries India Cements J P Associates Shree Cement Ultratech Cement Sector Aggregate October 2012

1,469 202 282 3,315 95 82 3,954 1,968

Rating

EPS (INR) FY12 FY13E FY14E

P/E (x) FY12 FY13E FY14E

EV/EBITDA (x) FY12 FY13E FY14E

RoE (%) FY12 FY13E FY14E

Neutral Buy Buy Buy Buy Buy Buy Buy

59.0 8.2 31.1 288.6 9.6 4.8 274.4 87.5

24.9 24.7 9.1 11.5 9.9 17.1 14.4 22.5 18.1

14.6 14.5 5.8 5.2 5.9 9.4 9.0 13.4 9.8

16.2 16.3 10.7 15.5 7.3 10.4 40.5 20.4 15.8

73.3 11.9 33.0 348.3 11.1 3.6 310.2 109.5

86.4 13.2 32.9 375.8 14.8 4.6 361.4 122.6

20.0 17.0 8.5 9.5 8.5 23.1 12.7 18.0 15.2

17.0 15.3 8.6 8.8 6.4 17.9 10.9 16.1 13.4

11.0 10.0 5.5 4.5 5.2 9.6 6.9 11.3 8.3

9.6 8.8 5.1 3.6 4.2 8.5 5.8 9.7 7.1

18.5 21.5 10.5 16.0 7.3 7.6 34.4 21.2 16.8

20.0 21.1 9.7 15.0 8.9 9.8 31.7 19.9 16.7 C–25

September 2012 Results Preview Sector: Cement

ACC BSE Sensex

18,763 Bloomberg Equity Shares (m) 52 Wk Range (INR) 1,6,12 Rel Perf (%) Mcap (INR b) Mcap (USD b)

S&P CNX

5,703 ACC IN 187.9 1,475/1,077 4/1/21 276.1 5.2

CMP: INR1,469 Year Net Sales PAT End (INR m) (INR m) 12/10A 77,173 10,137 12/11A 94,387 11,083 12/12E 109,564 13,781 12/13E 125,950 16,231

Neutral EPS (INR) 53.9 59.0 73.3 86.4

EPS Gr. (%) -38.2 9.3 24.3 17.8

P/E (X) 25.5 20.6 17.0

P/BV (X) 3.8 3.6 3.2

RoE (%) 16.2 16.2 18.5 20.0

RoCE EV/ EV/Ton (%) EBITDA (USD) 16.3 157 15.7 14.6 154 19.9 11.0 150 21.5 9.6 148



Expect 2QCY12 dispatches to de-grow 4.2% YoY (~10% down QoQ) to 5.45mt, and Average realization to decline 3.9% QoQ to INR4,411/ton (+13% YoY).



Net sales should grow 11.8% YoY (down 13% QoQ) to INR24b. EBITDA margins are expected to compress 6.1pp QoQ (up 7pp YoY) to 17.3%, on the back of lower realizations and negative operating leverage. EBITDA/ton is estimated to improve by ~INR377/ton YoY (-INR311/ton QoQ) to INR765.



Expect EBITDA to de-grow 36% QoQ (up ~89% YoY) to INR4.2b, translating into PAT de-growth of ~40% QoQ (up ~103% YoY).



We are downgrading our EPS estimates for CY12/CY13 by 1%/2% to INR73.3/86.4 to factor in lower volumes and marginally lower realization.



We believe ACC stock valuations at 17x CY13E EPS and 9.6x CY13E EV/EBITDA fairly reflect underlying business fundamentals. Maintain Neutral with target price of INR1,396 (9x CY13 EV/EBITDA).

Quarterly Performance (Standalone)

(INR Million)

Y/E December Cement Sales (m ton) YoY Change (%) Cement Realization YoY Change (%) QoQ Change (%) Net Sales YoY Change (%) Total Expenditure EBITDA Margins (%) Depreciation Interest Other Income PBT before EO Item EO Income/(Expense) PBT after EO Item Tax Rate (%) Reported PAT Adjusted PAT Margins (%) YoY Change (%) E: MOSL Estimates October 2012

CY11 1Q 6.16 10.4 3,893 3.4 11.6 23,982 14.1 18,439 5,542 23.1 1,125 253 669 4,834 0 4,834 1,327 27.5 3,507 3,507 14.6 -13.4

2Q 5.93 12.5 4,052 5.7 4.1 24,030 18.9 18,527 5,503 22.9 1,158 271 771 4,845 0 4,845 1,479 30.5 3,366 3,366 14.0 -6.2

3Q 5.69 17.8 3,779 11.5 -6.8 21,500 31.3 19,296 2,204 10.3 1,199 253 944 1,695 617 2,312 637 27.5 1,676 1,229 5.7 22.8

CY12 4Q 5.95 6.1 4,206 20.5 11.3 25,027 27.8 21,134 3,893 15.6 1,270 192 982 3,414 2,280 5,693 2,466 43.3 3,227 1,935 7.7 39.2

1Q 6.72 9.1 4,256 9.3 1.2 28,602 19.3 22,442 6,161 21.5 1,305 316 948 5,487 -3,354 2,134 580 27.2 1,554 3,859 13.5 10.1

2Q 6.05 2.0 4,591 13.3 7.9 27,778 15.6 21,270 6,508 23.4 1,356 301 1,157 6,009 0 6,009 1,829 30.4 4,179 4,179 15.0 24.2

3QE 5.45 -4.2 4,411 16.8 -3.9 24,042 11.8 19,876 4,167 17.3 1,375 300 1,050 3,542 0 3,542 1,045 29.5 2,497 2,497 10.4 103.2

4QE 6.46 8.6 4,512 7.3 2.3 29,141 16.4 23,882 5,259 18.0 1,411 299 1,045 4,594 0 4,594 1,348 29.3 3,246 3,246 11.1 67.7

CY11

CY12E

23.7 11.5 3,978 9.7

24.7 4.0 4,440 11.6

94,387 22.3 77,395 16,992 18.0 4,753 969 3,518 14,788 2,897 17,685 4,431 25.1 13,254 11,083 11.7 9.3

109,564 16.1 87,469 22,095 20.2 5,448 1,216 4,200 19,631 -3,354 16,278 4,802 29.5 11,476 13,781 12.6 24.3

C–26

September 2012 Results Preview Sector: Cement

Ambuja Cements BSE Sensex

18,763 Bloomberg Equity Shares (m) 52 Week Range (INR) 1,6,12 Rel Perf (%) Mcap (INR b) Mcap (USD b)

S&P CNX

5,703 ACEM IN 1,534.4 206/136 2/11/23 309.9 5.9

CMP: INR202 Year Net Sales PAT End (INR m) (INR m) 12/10A 73,902 12,434 12/11A 85,306 12,547 12/12E 101,997 18,262 12/13E 117,222 20,213

Buy EPS (INR) 8.1 8.2 11.9 13.2

EPS Gr. (%) 4.3 0.6 45.5 10.7

P/E (X) 24.7 17.0 15.3

P/BV (X) 3.9 3.5 3.0

RoE (%) 18.1 16.3 21.5 21.1

RoCE EV/ EV/Ton (%) EBITDA (USD) 24.1 23.2 14.5 194 31.2 10.0 189 30.6 8.8 184



Expect dispatches to grow ~0.9% YoY (down 14% QoQ) to 4.85mt, and average realization to decline 1.8% QoQ (up ~19.2% YoY) to INR4,476/ton.



Net sales should grow 20.3% YoY (down 15% QoQ) to INR21.7b. EBITDA margin is expected to contract 280bp QoQ (up 8.1pp YoY) to 25.4%, impacted by QoQ lower utilization and negative operating leverage. EBITDA/ton should be down INR146/ton QoQ to INR1,136 (+INR489/ton YoY).



Expect EBITDA to de-grow 24% QoQ (up +77% YoY) to INR5.5b, translating into PAT de-growth of 24% QoQ (up 92% YoY) to INR3.6b.



We broadly maintain our EPS estimates for CY12/13 at INR11.9/13.2. We believe valuations at 15.3x CY13E and 8.8x CY13E EV/EBITDA are attractive given Ambuja's superior profitability. Maintain Buy with target price of INR207 (9x CY13E EV/EBITDA).

Quarterly Performance

(INR Million)

Y/E December Sales Volume (m ton) YoY Change (%) Realization (INR/ton) YoY Change (%) QoQ Change (%) Net Sales YoY Change (%) EBITDA Margins (%) Depreciation Interest Other Income PBT before EO Item Extraordinary Inc/(Exp) PBT after EO Exp/(Inc) Tax Rate (%) Reported Profit Adj PAT YoY Change (%) E: MOSL Estimates

October 2012

CY11 1Q 5.64 6.7 3,923 4.2 11.2 22,125 11.2 6,170 27.9 1,061 138 621 5,592 0 5,592 1,517 27.1 4,075 4,075 -7.8

2Q 5.29 -3.5 4,114 10.1 4.9 21,764 6.3 5,853 26.9 1,074 152 693 5,320 0 5,320 1,845 34.7 3,475 3,475 -11.2

3Q 4.81 6.7 3,754 8.1 -8.7 18,051 15.4 3,115 17.3 1,079 138 857 2,755 -206 2,548 834 32.7 1,715 1,854 21.9

CY12 4Q 5.71 12.6 4,092 16.0 9.0 23,366 30.6 4,285 18.3 1,238 99 937 3,886 -243 3,643 544 14.9 3,099 3,305 31.2

1Q 6.18 9.6 4,260 8.6 4.1 26,333 19.0 7,445 28.3 1,209 168 1,147 7,215 -2,791 4,424 1,301 29.4 3,122 5,075 24.5

2Q 5.63 6.5 4,556 10.7 6.9 25,660 17.9 7,223 28.2 1,215 180 908 6,736 0 6,736 2,047 30.4 4,689 4,689 34.9

3QE 4.85 0.9 4,476 19.2 -1.8 21,709 20.3 5,512 25.4 1,265 160 1,000 5,087 0 5,087 1,526 30.0 3,561 3,561 92.1

4QE 6.18 8.2 4,579 11.9 2.3 28,296 21.1 7,301 25.8 1,306 137 1,195 7,052 0 7,052 2,115 30.0 4,937 4,937 49.4

CY11

CY12E

21.45 5.4 3,977 9.5

22.84 6.5 4,465 12.3

85,306 15.4 19,315 22.6 4,452 526 3,050 17,387 -358 17,029 4,740 27.8 12,289 12,547 0.9

101,997 19.6 27,481 26.9 4,995 646 4,250 26,090 -2,791 23,299 6,990 30.0 16,309 18,262 45.5

C–27

September 2012 Results Preview Sector: Cement

Birla Corporation BSE Sensex

18,763

S&P CNX

5,703

Bloomberg BCORP IN Equity Shares (m) 77.0 52 Week Range (INR) 345/202 1,6,12 Rel Perf (%) 26/-10/-29 Mcap (INR b) 21.8 Mcap (USD b) 0.4

CMP: INR282 Year Net Sales PAT End (INR m) (INR m) 03/11A 21,238 3,199 03/12A 22,469 2,392 03/13E 24,243 2,545 03/14E 27,537 2,532

Buy EPS (INR) 41.5 31.1 33.0 32.9

EPS Gr. (%) -42.6 -25.2 6.4 -0.5

P/E (X) 9.1 8.5 8.6

P/BV (X) 1.0 0.9 0.8

RoE (%) 15.5 10.7 10.5 9.7

RoCE EV/ EV/Ton (%) EBITDA (USD) 15.4 11.3 5.8 44 12.0 5.5 45 11.6 5.1 44

Expect Birla Corp's revenues to grow 18% YoY (down 17% QoQ) to INR5.5b. Cement volume growth should be muted at 2.6% YoY (down ~11% QoQ) to 1.45mt, impacted by limestone mining ban at its Rajasthan plant. However, realization is likely to improve 19% YoY (down 5% QoQ) to INR3,821/ton.  Expect EBITDA margin to slip 5.1pp to 14% (+7.9% YoY) on the back of (1) lower realizations, (2) negative operating leverage, and (3) cost push due to higher RM cost (as purchased limestone/clinker replaces captive source) and higher energy cost. We estimate cement EBITDA/ton at INR528 (down INR245/ton QoQ, but up INR305/ton YoY). As a result, EBITDA is estimated to de-grow 39% QoQ (up 143% YoY) to INR766m, translating into PAT de-growth of 52% QoQ (up 54.5% YoY) to INR404m.  Birla Corp's Rajasthan plant (~2mt capacity) operations are impacted since August 2011 due to ban on mining within 10km of the Chittorgarh Fort. The company lost its appeal in the High Court. The company has appealed against the verdict in the Supreme Court, and since then the levy has been stayed. Non-resolution of this issue would severely curtail operations at Rajasthan plant, especially as the company is expanding capacity there. Our estimates partly factor in non-resolution of the ban in foreseeable future, resulting in higher RM Cost.  We are maintaining our EPS estimates for FY13/14 at INR33/INR32.9. The stock trades at 8.6x FY14E EPS and 5.1x FY14 EV/EBITDA. Maintain Buy with target price of INR277 (5x FY14E EV/EBITDA). 

Quarterly Performance

(INR Million)

Y/E March Cement Sales (m ton) YoY Change (%) Cement Realization YoY Change (%) QoQ Change (%) Net Sales YoY Change (%) Total Expenditure EBITDA Margins (%) Depreciation Interest Other Income Profit before Tax Tax Rate (%) PAT Margins (%) YoY Change (%) E: MOSL Estimates

October 2012

FY12 1Q 1.52 2.0 3,413 -2.8 -0.1 5,570 -3.1 4,082 1,487 26.7 175 120 346 1,538 420 27.3 1,119 20.1 -5.4

2Q 1.41 2.0 3,213 3.0 -5.9 5,155 6.4 4,840 316 6.1 178 117 275 295 34 11.5 261 5.1 -62.1

3Q 1.39 -6.7 3,500 18.5 8.9 5,341 11.4 4,678 664 12.4 188 161 341 656 219 33.4 437 8.2 -37.2

FY13 4Q 1.63 7.2 3,612 5.7 3.2 6,514 9.7 5,731 782 12.0 259 128 575 970 396 40.8 575 8.8 -8.9

1Q 1.63 7.1 4,021 17.8 11.3 6,580 18.1 5,322 1,258 19.1 235 237 346 1,132 284 25.1 847 12.9 -24.3

2QE 1.45 2.6 3,821 18.9 -5.0 5,456 5.8 4,690 766 14.0 280 240 300 546 142 26.0 404 7.4 54.5

3QE 1.47 6.0 3,921 12.0 2.6 5,649 5.8 4,865 784 13.9 300 265 350 569 148 26.0 421 7.5 -3.7

4QE 1.71 4.7 4,120 14.1 5.1 6,558 0.7 5,340 1,218 18.6 300 270 544 1,192 320 26.8 872 13.3 51.8

FY12

FY13E

5.96 0.4 3,415 6.3

6.26 5.0 3,978 16.5

22,469 5.8 19,345 3,124 13.9 800 525 1,662 3,461 1,068 30.9 2,392 10.6 -25.2

24,243 7.9 20,217 4,026 16.6 1,115 1,012 1,540 3,439 894 26.0 2,545 10.5 6.4

C–28

September 2012 Results Preview Sector: Cement

Grasim Industries BSE Sensex

18,763 Bloomberg Equity Shares (m) 52 Wk Range (INR) 1,6,12 Rel Perf (%) Mcap (INR b) Mcap (USD b)

S&P CNX

5,703 GRASIM IN 91.7 3,347/2,208 4/19/32 304.1 5.8

CMP: INR3,315 Year Net Sales PAT End (INR m) (INR m) 03/11A* 213,183 22,790 03/12A* 249,878 26,475 03/13E* 267,983 31,944 03/14E* 306,836 34,468 * Consolidated

Buy EPS (INR) 248.5 288.6 348.3 375.8

EPS Gr. (%) -16.7 16.2 20.7 7.9

P/E (X) 11.5 9.5 8.8

P/BV (X) 1.8 1.5 1.3

RoE (%) 16.8 16.7 17.3 16.0

RoCE EV/ EV/Ton (%) EBITDA (USD) 16.5 143 17.7 7.4 146 18.8 6.5 147 18.5 5.3 109



Expect Grasim's 2QFY13 VSF volumes to be stable at 73,375 tons (+1.4% YoY, +1% QoQ) given steady demand and no production impact due to water shortage. VSF realization should also be stable at INR127/kg (+INR2.5/kg YoY, -INR1/kg QoQ) on back of bottomed-out utilization level. We assume FY13/14 realization of INR127/129 per kg.



Grasim's 2QFY13 standalone revenues are estimated to de-grow 2.5% YoY (-5% QoQ) to INR11.7b, impacted by lower volume. EBITDA margin is likely to remain stable YoY at 24.3% (up 50bp QoQ).



EBITDA is estimated to de-grow 2% YoY (-3% QoQ) to INR2.9b, translating into PAT of INR3.6b, up 4% YoY and 32% QoQ.



We are maintaining our consolidated EPS for FY13/14 at INR348.3/375.8. The stock trades at attractive valuations of 8.8x FY14E consolidated EPS, 5.3x FY14E EV/EBITDA and 1.3x P/BV. Implied valuation of the cement business is USD109/ton. Maintain Buy with target price of INR3,357 (SOTP based).

Quarterly Performance Y/E March

(INR Million) FY12

1Q 2Q 3Q 4Q 1Q 2QE VSF Volume (ton) 54,839 78,959 78,215 94,904 77,013 77,838 YoY Change (%) -18.5 17.0 -7.6 10.8 40.4 -1.4 VSF Realization (INR/ton) 152,409 124,689 128,499 121,293 128,024 127,024 YoY Change (%) 29.3 7.1 4.4 -16.3 -16.0 1.9 QoQ Change (%) 5.1 -18.2 3.1 -5.6 5.5 -0.8 Net Sales 10,237 12,035 12,429 13,885 12,390 11,736 YoY Change (%) 8.3 29.0 2.4 -2.6 21.0 -2.5 Total Expenditure 6,707 9,130 9,575 11,717 9,438 8,879 EBITDA 3,529 2,905 2,854 2,168 2,953 2,856 Margins (%) 34.5 24.1 23.0 15.6 23.8 24.3 Depreciation 351 356 366 369 360 400 Interest 106 107 72 74 61 60 Other Income 1,010 2,157 1,093 1,503 844 2,100 PBT after EO Items 4,082 4,599 3,509 3,228 3,376 4,496 Tax 941 1,150 765 792 647 899 Rate (%) 23.0 25.0 21.8 24.5 19.2 20.0 Reported PAT 3,141 3,448 2,745 2,436 2,729 3,597 Adj. PAT 3,141 3,448 2,745 2,436 2,729 3,597 Margins (%) 30.7 28.7 22.1 17.5 22.0 30.7 YoY Change (%) 40.3 23.3 -2.9 -38.4 -13.1 4.3 E: MOSL Estimates; '* Not comparable YoY due to demerger of cement business

October 2012

FY13 3QE 82,915 6.0 127,024 -1.1 0.0 12,557 1.0 9,496 3,061 24.4 475 80 1,000 3,506 701 20.0 2,805 2,805 22.3 2.2

4QE 100,662 6.1 127,164 4.8 0.1 14,384 3.6 10,895 3,488 24.3 557 83 1,556 4,404 909 20.6 3,495 3,495 24.3 43.5

FY12

FY13E

306,917 0.6 129,563 2.3

338,428 10.3 127,293 -1.8

48,724 7.3 37,114 11,611 23.8 1,442 358 5,607 15,418 3,648 23.7 11,770 11,770 24.2 -0.4

51,067 4.8 38,709 12,358 24.2 1,792 284 5,500 15,782 3,156 20.0 12,626 12,626 24.7 7.3

C–29

September 2012 Results Preview Sector: Cement

India Cements BSE Sensex

S&P CNX

18,763 Bloomberg Equity Shares (m) 52 Week Range (INR) 1,6,12 Rel Perf (%) Mcap (INR b) Mcap (USD b)

5,703 ICEM IN 307.2 119/65 5/-29/23 29.2 0.6

     

CMP: INR95 Year Net Sales PAT End * (INR m) (INR m) 03/11A 35,007 664 03/12A 42,034 2,958 03/13E 46,069 3,035 03/14E 52,563 3,918 * Consolidated

Buy EPS (INR) 2.3 9.6 11.1 14.8

EPS Gr. (%) -79.6 314.9 16.2 32.6

P/E (X) 9.9 8.5 6.4

P/BV (X) 0.7 0.6 0.6

RoE (%) 1.6 7.3 7.3 8.9

RoCE EV/ EV/Ton (%) EBITDA (USD) 3.6 10.3 5.8 67 11.2 4.8 64 12.5 3.9 58

Expect India Cement's 2QFY13 volumes to grow 3% YoY (+5% QoQ) to 2.5mt, and realization at INR4,374/ton (up 3.6% YoY, down 2% QoQ) on stable pricing environment due to production discipline. 2QFY13 revenues are estimated to grow 5.3% YoY (-5% QoQ) to INR11.5b, including INR400m revenues from IPL (v/s INR515m in 2QFY12). Expect EBITDA of INR2.5b (-9% QoQ, flat YoY) with EBITDA margin down 1.1pp QoQ/YoY to 22%, translating into PAT growth of 22.5% YoY (+14% QoQ) to INR854m. Our estimate does not factor in any MTM forex loss. Pure Cement's EBITDA/ton is estimated to decline INR158/ton QoQ (-INR30/ton YoY) to INR1,008. Our estimates factor in EBITDA of INR100m from IPL in 2QFY13 and INR310m in FY13. While our estimates do not yet factor in any benefit of softening in imported coal prices, India Cement would be one of the biggest beneficiaries with ~15% higher EPS for 10% lower imported coal prices. We are downgrading our EPS estimates for FY13/14 by 2%/4.5% to INR11.1/14.8, led by higher freight cost post increase in diesel prices. Valuations at 6.4x FY14E EPS, 3.9x FY14E EBITDA and USD58/ton are attractive. Maintain Buy with target price of INR142 (5x FY14E EV/EBITDA).

Quarterly Performance (Standalone)

(INR Million)

Y/E March Sales Dispatches (m ton) YoY Change (%) Realization (INR/ton) YoY Change (%) QoQ Change (%) Net Sales YoY Change (%) Total Expenditure EBITDA Margins (%) Depreciation Interest Other Income PBT before EO expense Extra-Ord expense PBT Tax Rate (%) Reported PAT Adj PAT YoY Change (%) Margins (%) E: MOSL Estimates October 2012

FY12 1Q 2.31 -13.0 4,148 29.2 8.8 10,568 20.0 8,151 2,417 22.9 619 619 49 1,229 0 1,229 208 16.9 1,021 1,021 749.5 9.7

2Q 2.43 -10.6 4,223 45.2 1.8 10,891 29.5 8,371 2,520 23.1 626 895 29 1,027 0 1,027 330 32.1 697 697 -257.4 6.4

3Q 2.19 7.1 4,242 15.7 0.5 9,415 20.6 7,470 1,946 20.7 622 750 46 620 0 620 57 9.2 563 563 137.0 6.0

FY13 4Q 2.60 2.0 4,245 11.4 0.1 11,160 11.8 9,008 2,152 19.3 646 640 70 935 0 935 286 30.6 649 649 -9.5 5.8

1Q 2.38 2.9 4,464 7.6 5.1 12,014 13.7 9,237 2,777 23.1 692 949 37 1,173 200 973 353 36.2 621 748 -26.7 6.2

2QE 2.50 3.0 4,374 3.6 -2.0 11,466 5.3 8,947 2,519 22.0 700 700 50 1,169 0 1,169 316 27.0 854 854 22.5 7.4

3QE 2.25 3.0 4,362 2.8 -0.3 10,046 6.7 8,194 1,852 18.4 725 700 60 487 0 487 131 27.0 356 356 -36.9 3.5

4QE 2.70 3.9 4,581 7.9 5.0 12,543 12.4 9,698 2,845 22.7 753 725 78 1,445 0 1,445 382 26.4 1,063 1,063 63.8 8.5

FY12

FY13E

9.52 -4.4 4,216 24.9

9.83 3.2 4,450 5.6

42,034 20.1 33,001 9,034 21.5 2,513 2,867 193 3,846 0 3,846 880 22.9 2,966 2,966 347.1 7.1

46,069 9.6 36,075 9,994 21.7 2,870 3,075 225 4,275 200 4,075 1,182 29.0 2,893 3,035 2.3 6.6 C–30

September 2012 Results Preview Sector: Cement

Jaiprakash Associates BSE Sensex

S&P CNX

18,763 Bloomberg Equity Shares (m) 52 Week Range (INR) 1,6,12 Rel Perf (%) Mcap (INR b) Mcap (USD b)

5,703 JPA IN 2,126.5 89/50 10/-3/3 174.8 3.3

CMP: INR82

Buy

Year Net Sales PAT EPS* EPS* P/E* P/BV RoE RoCE EV/ EV/ End (INR m) (INR m) (INR) Gr. (%) (X) (X) (%) (%) Sales EBITDA 3/11A 129,665 7,421 3.5 -17.0 8.3 10.6 3/12A 128,531 10,203 4.8 37.5 15.3 1.5 10.4 10.0 2.3 8.7 3/13E 142,843 8,997 4.2 -11.8 16.6 1.4 8.5 10.9 2.1 8.6 3/14E 160,665 11,577 5.4 28.7 12.9 1.3 10.4 12.5 1.8 7.6 * Not Fully Diluted; FCCB O/S of INR14b at conversion price of INR166/sh (dilution of ~5%)



We expect Jaiprakash Associates (JPA) to post 2QFY13 revenue of INR32.2b, EBITDA of INR7.3b and PAt of INR943m. The numbers are not comparable YoY due to de-merger of cement capacity.



Contribution from the EPC division is expected to be moderate with revenue down 12% YoY to INR12.5b. We expect EBIT of INR3b in 2QFY13 (v/s INR5.5b YoY) and EBIT margin of 21.5% v/s 35% YoY. 2QFY13 performance would be healthy due to cement division where EBIT would be higher YoY, given the rise in cement capacity, coupled with improved realizations.



In FY12, cement capacity stood at 33m tons (up from 26m tons as at end-FY11). The management expects installed capacity to reach 36m tons by March 2013, which would drive contribution from the division in FY13. Of this, Gujarat and AP capacity (~10m tons) has been hived off to wholly-owned subsidiary, Jaypee Cements Ltd. JPA is looking to divest stake in Jaypee Cement to raise funds for de-leveraging.



We expect JPA to post standalone PAT of INR7.6b in FY13E (down 26% YoY) and INR9.8b in FY14E (up 30% YoY). The stock trades at a reported P/E of 12.9x FY14E. Maintain Buy.

Quarterly Performance FY12 FY13 1Q 2Q 3Q 4Q 1Q 2QE 3QE Sales 31,833 31,324 33,054 40,621 29,636 32,233 37,860 Change (%)* 0.3 4.6 14.2 4.0 EBITDA 7,728 7,482 8,160 10,194 7,713 7,266 8,992 Change (%)* 20.4 9.9 3.1 31.7 As of % Sales 24.3 23.9 24.7 25.1 26.0 22.5 23.8 Depreciation 1,721 1,761 2,022 1,638 1,763 1,750 1,800 Interest 4,284 4,049 4,485 5,800 4,653 4,700 4,750 Other Income 74 560 1,205 317 731 550 600 Extra-ordinary income -2 -3 16 49 9 0 0 PBT 1,796 2,228 2,873 3,123 2,037 1,366 3,042 Tax 726 942 824 285 649 424 943 Effective Tax Rate (%) 40.4 42.3 28.7 9.1 31.8 31.0 31.0 Reported PAT 1,070 1,287 2,050 2,838 1,388 943 2,099 Adj PAT 1,072 1,287 2,034 2,789 1,379 943 2,099 Change (%)* 1.3 11.4 -12.9 -3.3 E: MOSL Estimates, *Change (% YoY) is not comparable due to Jaypee Cement de-merger

(INR Million)

Y/E March

4QE 41,871 10,423 24.9 1,863 4,771 618 0 4,407 1,380 31.3 3,027 3,027

FY12

FY13E

128,531 -0.9 34,397 19.1 26.8 6,142 17,817 2,645 61 13,143 2,880 21.9 10,264 10,203 37.8

141,997 34,505 24.3 7,176 18,874 2,499 0 10,953 3,395 31.0 7,558 7,558

Nalin Bhatt ([email protected])/Satyam Agarwal ([email protected]) October 2012

C–31

September 2012 Results Preview Sector: Cement

Shree Cement BSE Sensex

18,763 Bloomberg Equity Shares (m) 52 Wk Range (INR) 1,6,12 Rel Perf (%) Mcap (INR b) Mcap (USD b)

  



 

S&P CNX

5,703 SRCM IN 34.8 3,989/1,725 7/20/107 137.7 2.6

CMP: INR3,954 Year Net Sales PAT End (INR m) (INR M) 03/11A 34,535 6,972 06/12A 48,792 9,558 06/13E 60,273 10,847 06/14E 68,347 12,760

Buy EPS (INR) 200.1 274.4 310.2 361.4

EPS Gr. (%) -31.4 37.1 13.0 16.5

P/E (X) 14.4 12.7 10.9

P/BV (X) 5.0 3.9 3.1

RoE (%) 36.5 40.5 34.4 31.7

RoCE EV/ EV/Ton (%) EBITDA (USD) 8.4 19.6 9.0 157 27.4 6.9 131 25.1 5.8 113

Expect Shree's 2QFY13 cement volumes to grow 14.7% YoY (-15% QoQ) to 2.85mt (including clinker) and realization to improve 2.7% QoQ (flat YoY) to INR3,785/ton. Merchant power sale is estimated at 100m units (v/s 14m units YoY and 390m QoQ) @ INR4.25/unit (v/s INR4.44 in 5QFY12 and INR4.98 in 2QFY12). Expect 2QFY13 sales to grow 47.4% YoY (down 25% QoQ) to INR10.9b, driven by strong recovery in both cement and merchant power business. Merchant power revenues are estimated at INR425m (v/s INR1.7b in 5QFY12 and INR69m in 2QFY12). Cost push in form of fuel and freight will dilute benefit of better cement realizations and higher merchant power volumes, resulting in EBITDA margin compression of 3.7pp QoQ (up 8.8pp YoY) to 29.4%. Cement EBITDA/ ton is expected to decline by ~INR210/ton QoQ (up ~INR504/ton YoY) to INR1,114/ton. Expect lower depreciation to boost adjusted PAT to INR2.2b (v/s loss of INR1.3b in 2QFY12). We are upgrading our adjusted EPS estimates for FY13/14 by 3%/5% to INR310/361.4 to account for (1) lower pet coke/imported coal prices, and (2) upgrade in volume on the back of new capacity. The stock trades at 10.9x FY14E EPS, 5.8x FY14E EBITDA and USD113/ton. Maintain Buy with target price of INR4,230 (SOTP based).

Quarterly Performance FY12 1Q 2Q 3Q 4Q Sales Dispat. (m ton) 2.69 2.49 2.85 3.47 YoY Change (%) 8.3 9.0 8.8 20.6 Realization (INR/Ton) 3,405 2,955 3,798 3,560 YoY Change (%) 4.0 -1.8 33.2 7.9 QoQ Change (%) 3.2 -13.2 28.5 -6.2 Net Sales 10,187 7,413 12,586 14,241 YoY Change (%) 7.9 3.3 61.4 33.1 EBITDA 2,591 1,524 3,320 4,210 Margins (%) 25.4 20.6 26.4 29.6 Depreciation 1,598 1,619 2,351 2,346 Interest 476 468 519 411 Other Income 158 204 172 774 PBT before EO Exp 676 -360 622 2,227 Extra-Ord Expense 83 -468 0 508 PBT 593 108 622 1,719 Tax 43 -277 30 576 Rate (%) 7.3 -256.9 4.9 33.5 Reported PAT 550 385 592 1,143 Adj PAT 627 -1,286 592 1,481 YoY Change (%) -73.7 -360.7 304.8 NA E:MOSL Estimates; ^ Y/E March for FY11; * volumes are estimated

(INR Million)

Y/E June

October 2012

5Q * 3.37 25.1 3,805 11.8 6.9 14,553 42.9 4,812 33.1 818 480 322 3,836 1 3,835 320 8.3 3,515 3,516 460.9

1Q 2.85 14.7 3,685 24.7 -3.2 10,927 47.4 3,216 29.4 850 450 250 2,166 0 2,166 0 0.0 2,166 2,166 -268.4

FY13E 2Q 3.09 8.6 3,785 -0.3 2.7 14,261 13.3 3,829 26.9 950 455 175 2,599 0 2,599 552 21.3 2,047 2,047 245.7

3Q 3.76 8.1 3,985 11.9 5.3 17,729 24.5 5,328 30.1 1,700 470 700 3,858 0 3,858 820 21.3 3,038 3,038 105.2

FY12 4Q (15 Mon) 3.67 14.87 8.8 15.9 3,988 3,576 4.8 14.8 0.1 17,356 58,980 19.3 36.6 4,981 16,456 28.7 27.9 1,781 8,731 476 2,354 325 1,630 3,048 7,001 0 123 3,048 6,878 1,079 693 35.4 10.1 1,969 6,185 1,969 6,296 -44.0 66.9

FY13E 13.37 -10.1 3,876 8.4 60,273 2.2 17,353 28.8 5,281 1,851 1,450 11,671 0 11,671 2,451 21.0 9,220 9,220 46.4

C–32

September 2012 Results Preview Sector: Cement

UltraTech Cement BSE Sensex

18,763 Bloomberg Equity Shares (m) 52 Wk Range (INR) 1,6,12 Rel Perf (%) Mcap (INR b) Mcap (USD b)

S&P CNX

5,703 UTCEM IN 274.0 2,005/1,057 7/23/57 539.2 10.2

CMP: INR1,968

Buy

Year Net Sales PAT EPS EPS P/E P/BV End (INR m) (INR m) (INR) Gr. (%) (X) (X) 03/11A* 132,062 14,042 51.2 -41.7 03/12A 181,664 23,982 87.5 70.8 22.5 4.2 03/13E 210,570 30,013 109.5 25.2 18.0 3.5 03/14E 244,669 33,594 122.6 11.9 16.1 2.9 * Merger of Grasim's cement business assumed w.e.f. 1 July

RoE (%) 18.4 20.4 21.2 19.9 2010

RoCE EV/ EV/Ton (%) EBITDA (USD) 21.1 23.7 13.4 207 24.7 11.3 209 24.2 9.7 172



Expect UltraTech's 2QFY13 cement volumes to de-grow 1.3% YoY (down 12% QoQ) to 9.1mt, and realization to improve 13.6% YoY (down 3.4% YoY) to INR3,984/ton. Consequently net revenue is expected to grow 12.8% YoY (down 13% QoQ) to INR44.1b.



White cement revenue should grow 5% YoY and RMC business volumes 9% YoY.



Despite cost push in energy and freight, higher realization should drive up EBITDA margin 6.3pp YoY at 21.2% (down 4.3pp QoQ). EBITDA/ton works out to INR1,051, up ~INR389 YoY (down +INR222 QoQ).



Expect EBITDA to grow 60% YoY (down ~28% QoQ) to INR9.4b, translating into PAT growth to ~94% YoY (-31% QoQ) to INR5.4b.



We maintaining our EPS estimate for FY13/14 at INR109.5/122.6. The UltraTech stock trades at 16.1x FY14E EPS, 9.7x FY14E EBITDA and USD172/ton. Maintain Buy with target price of INR1,832 (9x FY14E EV/EBITDA).

Quarterly Performance FY12 1Q 2Q 3Q Sales (m ton) 9.86 9.22 10.11 YoY Change (%) -3.9 0.3 3.2 Grey Cement Realn.(INR/ton) * 3,749 3,507 3,759 YoY Change (%) 11.8 19.3 19.0 QoQ Change (%) 6.2 -6.5 7.2 Net Sales 43,515 39,101 45,681 YoY Change (%) 9.1 21.6 23.0 EBITDA 11,882 5,837 9,647 Margins (%) 27.3 14.9 21.1 Depreciation 2,230 2,228 2,236 Interest 712 660 281 Other Income 641 1,002 876 PBT before EO expense 9,583 3,952 8,005 PBT after EO Expense 9,583 3,952 8,672 Tax 2,752 1,162 2,503 Rate (%) 28.7 29.4 28.9 Reported PAT 6,831 2,790 6,169 Adj PAT 6,831 2,790 5,695 YoY Change (%) 22.5 141.0 78.5 E: MOSL Estimates; * Grey cement realization is our estimate

(INR Million)

Y/E March

October 2012

FY13 4Q 11.54 6.9 3,894 10.3 3.6 53,366 18.9 12,641 23.7 2,332 586 2,000 11,723 11,723 3,050 26.0 8,673 8,673 19.3

1Q 10.33 4.8 4,124 10.0 5.9 50,748 16.6 12,918 25.5 2,281 498 849 10,987 10,987 3,203 29.2 7,784 7,784 14.0

2QE 9.10 -1.3 3,984 13.6 -3.4 44,095 12.8 9,358 21.2 2,350 500 1,100 7,608 7,608 2,206 29.0 5,402 5,402 93.6

3QE 10.80 6.8 4,084 8.7 2.5 52,867 15.7 11,513 21.8 2,400 565 900 9,448 9,448 2,740 29.0 6,708 6,708 17.8

4QE 12.49 8.2 4,284 10.0 4.9 62,860 17.8 15,467 24.6 2,492 571 2,051 14,455 14,455 4,175 28.9 10,280 10,280 18.5

FY12

FY13E

40.7 1.7 3,738 14.7

42.7 4.9 4,131 10.5

181,664 37.6 40,007 22.0 9,026 2,239 4,520 33,262 33,929 9,467 27.9 24,462 23,982 70.8

210,570 15.9 49,256 23.4 9,523 2,135 4,900 42,498 42,498 12,324 29.0 30,174 30,174 25.8

C–33

September 2012 Results Preview Sector: Consumer

Consumer Expect another steady quarter - 16% sales growth, 18% PAT growth: For 2QFY13, we expect our coverage universe to post ~16% revenue growth (16% in 1QFY13) and ~18% PAT growth (~22% in 1QFY13). EBITDA is likely to grow 18.5% on sustained revenue growth and softening input costs. We expect ITC to post 16% sales growth (1% cigarette volume growth) and ~17% PAT growth; Hindustan Unilever's sales are likely to grow 15% (volume growth of 8%) and PAT is likely to grow 19%, led by healthy growth in Soaps & Detergents and Personal Care products.

Company Name Asian Paints Britannia Industries Colgate Palmolive Dabur India GSK Consumer Godrej Consumer Products Hindustan Unilever ITC Marico Nestle India

No concerns on broadbased demand outlook; no down-trading witnessed: Except for a few discretionary categories, consumer demand in Processed Foods has been healthy. Late revival of the monsoon provides respite to future rural consumer demand. Despite the past few quarters of price hikes, volume growth across product categories is likely to remain healthy. We expect moderation in demand in few discretionary categories. All companies under our universe, barring Nestle, are likely to report healthy volume growth in HPC categories. Agri-based input costs and crude soften; INR depreciation negates impact: Prices of edible oils like groundnut oil, safflower oil and sunflower oil, and other agri commodities like copra, wheat, barley, sugar and palm oil are down on a YoY basis. Prices of crude and crude-linked commodities are also on a downward trend. However, steep INR depreciation has negated the impact in many commodities, prices of which are linked globally. Britannia, GlaxoSmithKline, Hindustan Unilever, Nestle and Marico are likely to report EBITDA margin expansion while Asian Paints and Colgate are likely to report flat margins.

Pidilite Industries United Spirits

New launches continue, albeit at a slower pace; we sense better pricing environment: Despite the relatively sober macroeconomic environment, new launch activity remained healthy during the quarter. However, the pace of new launches has moderated. Our discussions with industry players as well as our channel checks do not indicate any let down in competitive intensity. Consequently, sales promotion Expected quarterly performance summary

Asian Paints Britannia Colgate Dabur Godrej Consumer GSK Consumer Hind. Unilever ITC Marico Nestle Pidilite Inds. United Spirits Sector Aggregate

CMP (INR) 28.09.12 3,937 476 1,206 128 668 2,994 545 272 199 4,374 206 1,218

(INR Million)

Rating Sep.12 Neutral Sell Sell Neutral Neutral Neutral Neutral Buy Buy Neutral Buy Neutral

25,500 14,500 7,700 14,700 16,250 8,100 64,500 69,700 11,500 22,750 8,450 19,700 283,350

Sales Var. % YoY 13.3 12.0 17.2 16.5 37.0 12.5 15.0 14.5 18.0 15.9 19.0 10.0 15.6

Var. % QoQ 0.4 18.7 4.6 0.5 17.0 11.0 1.1 3.8 -9.2 14.5 -7.4 -4.2 3.4

Sep.12 3,825 827 1,670 2,852 2,860 1,377 9,869 25,650 1,564 4,960 1,622 2,916 59,990

EBITDA Var. % YoY 18.5 7.1 18.2 20.5 36.9 16.7 19.4 15.6 34.1 20.9 24.6 13.9 18.5

Var. % QoQ -12.6 27.1 2.8 38.4 43.8 24.4 2.1 8.3 -15.4 15.5 -14.9 -13.0 6.1

Net Profit Sep.12 Var. % YoY 2,428 16.3 548 12.3 1,253 16.5 2,122 22.1 1,736 35.9 1,153 11.9 7,784 19.3 17,680 16.8 1,074 37.2 2,954 10.0 1,108 28.2 828 -2.3 40,669 17.7

Var. % QoQ -15.8 26.2 6.7 37.5 33.0 8.2 -8.9 10.4 -13.3 21.6 -16.9 -25.1 4.1

Gautam Duggad ([email protected]) / Sreekanth P.V.S. ([email protected]) October 2012

C–34

September 2012 Results Preview Sector: Consumer

Relative Performance-3m (%) Sens ex Index MOSL Cons umer Index 112 108 104 100 Sep-12

Jun-12

Jul-12

Aug-12

96

Relative Performance-1Yr (%)

145

Sens ex Index MOSL Cons umer Index

130 115 100 Sep-12

Jun-12

Mar-12

Dec-11

Sep-11

85

schemes continue unabated, especially in modern trade outlets. Pricing environment in the HPC bucket has improved, given P&G's focus on improving profitability. Pricebased competition from P&G, especially in Hair Care, has softened. Peak sector valuations drive our preference for niche plays: Consumer demand in the staples and HPC categories continues to be healthy, higher base and tough macro environment notwithstanding. Volume growth should remain healthy, barring few exceptions. Given the absolute as well as relative peak sector valuations, we see limited absolute upside in most of our coverage universe. We continue to prefer niche plays with strong pricing power and greater visibility on volume growth and profitability. ITC, Marico, GlaxoSmithKline Consumer and Pidilite are our top picks in the sector. Slight moderation in volume growth visible Quarter Ending

Sep-10 Dec-10 Mar-11

Asian Paints Colgate (Toothpaste) Dabur Godrej Consumer Soaps Hair Color GSK Consumer Hindustan Unilever ITC (cigarette) Marico Parachute Hair Oil Saffola United Spirits

Jun-11 Sep-11 Dec-11 Mar-12

27.0 13.0 10.0

16.0 13.0 9.3

15.0 14.0 8.6

15.0 15.0 10.0

12.0 15.0 10.8

18.0 14.0 12.4

-2.0 13.0 12.0

5.0 14.0 9.0

-10.0 12.0 18.0 14.0 -0.5

3.0 2.0 13.0 13.0 2.0

9.0 5.0 5.5 14.0 -2.0

9.0 10.0 14.0 8.3 8.0

19.0 8.0 8.0 9.8 7.5

19.0 9.0 12.0 9.1 5.0

17.0 9.0 7.0 10.0 5.5

22.0 5.0 7.4 9.0 1.5

12.0 5.0 7.0 9.0 1.0

10.0 18.0 14.0 16.0

5.0 31.0 13.0 14.0

5.0 21.0 14.0 12.0

10.0 32.0 15.0 15.4

10.0 26.0 11.0 8.0

13.0 20.0 15.0 0.7

New launches during 2QFY13 Company Britannia Parag Milk Foods CavinKare D S Group Perfetti Van Melle HUL Marico Nestle India

Jun-12 Sep-12E

0.0 12.0 13.5

Brand Daily Fresh Go Milk Cavin's Pure+ Yomil Alpenliebe Juzt Jelly TRESemme/Comfort One Rinse Saffola Muesli Munch Rollz, Kit Kat

11.1 18.0 9.0 17.5 12.0 14.0 3.3 25.0 15.0 5.1 1.9 6.0 Source: Company, MOSL

Category Flavoured yoghurt-mango, vanilla, strawberry 100% natural & zero preservative UHT milk Beverages (UHT treated milk) Milk-based powdered beverage Candy Hair Care/Laundry Care Breakfast cereal market Chocolate/Chocolate

Softening in input costs augurs well for sector gross margins Input

Price Trend (YoY)

Unit

Current Price (INR)

LAB Soda Ash Palm Fatty Acid Palm Oil HDPE Sugar Wheat Milk TiO2 Copra

Sideways Up Down Down Sideways Sideways Up Up Sideways Down

INR/Kg INR/50Kg US$/MT MYR/MT INR/Kg INR/Qtl INR/Qtl Index INR/Kg INR/Qtl

117 1,140 670 2,169 93 3,795 1,460 206 250 4,025

October 2012

12m chg. %

Change from peak/bottom

7 18 -17 -26 19 28 26 48 0 -29

Peak Peak -62 -64 Peak 28 Peak Peak -16 7

Impact

Companies

Negative Neutral Positive Positive Negative Positive Negative Negative Positive Positive

HUL HUL HUL, Godrej Consumer Britannia, Nestle, HUL, ITC All Companies Britannia, Nestle, GSK Consumer Nestle, ITC and Britannia Nestle, GSK Consumer Asian Paints Marico Source:Companies, MOSL C–35

September 2012 Results Preview Sector: Consumer

Input costs: Mixed trends Palm Fatty Acid: Range bound (INR/ton)

LAB Prices: continue to stay firm (INR/kg) LAB Pri ces

PFAD pri ces (INR/ton)

70,000

140

55,000 40,000

INR/Kg

46,446 45,781

25,000

110 90 85

95

89

117

82

71

65

10,000

Sep-08 Dec-08 Mar-09 Jun-09 Sep-09 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 Jun-11 Sep-11 Dec-11 Mar-12 Jun-12 Sep-12

Sep-12

Jun-12

Mar-12

Dec-11

Sep-11

Jun-11

Copra prices; trending down after steep rise (INR/Qtl) Copra Pri ces 6,700 6,250

Ti O2 Dupont pri ce Del hi 278

7,300

250

6,150

220

180

152

140

5,525

6,125 5,000

4,350

3,850

3,900

Oct-11

Jul-11

Apr-11

Jan-11

Oct-10

Jul-10

Jan-10

Apr-10

2,700

Sep-12

Jun-12

Mar-12

Dec-11

Sep-11

Jun-11

Mar-11

Dec-10

Sep-10

Jun-10

Mar-10

Dec-09

100

4,175

5,400

Jul-12

220

INR/Qtl

260

Apr-12

300

Jan-12

Mar-11

Dec-10

Sep-10

Jul-10

Apr-10

Dec-09

Oct-09

50

Titanium Dioxide: at an all time high

Sep-09

114 109

91

76

80

30,216

112

116

125

Source: Companies, MOSL

Comparative valuation CMP (INR) 28.09.12 Consumer Asian Paints Britannia Colgate Dabur Godrej Consumer GSK Consumer Hind. Unilever ITC Marico Nestle Pidilite Inds. United Spirits Sector Aggregate

October 2012

3,937 476 1,206 128 668 2,994 545 272 199 4,374 206 1,218

Rating

EPS (INR) FY12 FY13E FY14E

P/E (x) FY12 FY13E FY14E

EV/EBITDA (x) FY12 FY13E FY14E

RoE (%) FY12 FY13E FY14E

Neutral Sell Sell Neutral Neutral Neutral Neutral Buy Buy Neutral Buy Neutral

103.1 15.6 33.4 3.7 16.3 84.5 11.9 8.0 5.2 105.7 7.0 19.5

38.2 30.4 36.1 34.6 41.0 35.4 45.7 34.1 38.4 41.4 29.5 62.4 38.1

24.4 21.9 26.7 26.4 29.0 22.2 34.6 22.9 27.7 27.6 20.4 18.6 25.5

36.0 34.9 107.7 37.1 25.2 31.0 74.6 32.7 28.0 95.7 26.3 4.9 34.9

117.8 18.4 38.6 4.4 21.6 101.7 15.5 9.4 6.8 117.1 8.4 19.3

137.3 23.7 43.8 5.4 26.3 113.5 18.0 11.0 8.5 138.5 10.1 35.1

33.4 25.9 31.2 29.0 30.9 29.4 35.1 29.0 29.4 37.4 24.5 63.2 31.6

28.7 20.1 27.6 23.6 25.4 26.4 30.2 24.7 23.6 31.6 20.4 34.7 26.6

21.0 16.8 22.6 21.4 21.9 19.0 27.2 19.1 20.5 22.7 15.4 16.5 21.0

17.4 12.1 19.3 17.5 17.9 16.6 23.3 16.0 16.3 18.7 12.5 14.8 17.6

34.0 33.2 35.1 37.9 111.3 103.5 36.0 36.2 23.1 24.3 31.4 29.8 72.1 63.4 32.5 32.4 21.6 21.8 73.6 63.5 24.6 24.8 4.7 7.9 34.2 34.0

C–36

September 2012 Results Preview Sector: Consumer

Asian Paints BSE Sensex

18,763

S&P CNX

5,703

Bloomberg APNT IN Equity Shares (m) 95.9 52-Week Range (INR) 4,170/2,551 1,6,12 Rel. Perf. (%) -1/17/12 M.Cap. (INR b) 377.6 M.Cap. (USD b) 7.2     

CMP: INR3,937 Year End 3/11A 3/12A 3/13E 3/14E

Neutral

Net Sales Adj.PAT EPS (INR m) (INR m) (INR) 77,223 8,432 87.9 96,322 9,887 103.1 110,400 11,637 121.3 129,785 13,718 143.0

EPS Gr. (%) 1.0 17.3 17.7 17.9

P/E (X) 38.2 32.4 27.5

P/BV (X) 13.7 11.2 9.3

RoE (%) 38.5 36.0 34.7 33.8

RoCE (%) 50.7 47.8 46.6 45.6

EV/ EV/ Sales EBITDA 3.8 24.4 3.4 20.4 2.8 16.8

We expect Asian Paints (APNT) to report net sales of INR25.5b, a growth of 13.3%. Domestic decorative paints demand is likely to remain subdued but better than 1QFY13. We expect 4-5% volume growth. In the international business, South Asia is likely to do well, but the Middle East business still remains under pressure. We expect gross margin to expand 100bp to 41% on stable INR and lower titanium dioxide prices. We estimate EBITDA margin at 15% and adjusted PAT at INR2.4b, up 16.3%. Average titanium dioxide (20% of RM) prices softened 3-4% in 2QFY13. APNT's RM index increased by 6% during the quarter. APNT's current valuations adequately capture the positives, viz. strong long-term growth visibility, dominant market positioning, and thought leadership in the Paints industry. However, the current macroeconomic environment presents near-term challenges for decorative paints demand. The stock trades at 32.4x FY13E EPS and 27.5x FY14E EPS. Neutral.

What to look for Volume growth in domestic market and the trend in gross and EBITDA margins.



Quarterly Performance (Consolidated)

(INR Million)

Y/E March Volume Growth %* Net Sales Change (%) Raw Material/PM Gross Profit Gross Margin (%) Operating Expenses % of Sales EBITDA Margin (%) Change (%) Interest Depreciation Other Income PBT Tax Effective Tax Rate (%) PAT before Minority Minority Interest Adjusted PAT Change (%) E: MOSL Estimates October 2012

FY12

FY13

1Q

2Q

3Q

4Q

1Q

2QE

3QE

4QE

15.0 22,571 23.3 13,537 9,035 40.0 5,149 22.8 3,886 17.2 11.9 65 291 338 3,868 1,155 29.9 2,713 79 2,634 18.5

15.0 22,508 24.3 13,507 9,001 40.0 5,772 25.6 3,229 14.3 -2.6 88 300 292 3,133 955 30.5 2,179 91 2,087 -2.8

12.0 25,605 22.0 15,514 10,092 39.4 6,118 23.9 3,974 15.5 15.2 90 307 225 3,802 1,138 29.9 2,664 96 2,569 16.6

18.0 25,387 29.5 15,213 10,174 40.1 6,420 25.3 3,754 14.8 31.8 166 314 470 3,744 1,097 29.3 2,647 52 2,595 39.5

-2.0 25,393 12.5 14,838 10,554 41.6 6,176 24.3 4,379 17.2 12.7 109 334 326 4,262 1,273 29.9 2,989 106 2,884 9.5

5.0 25,500 13.3 15,045 10,455 41.0 6,630 26.0 3,825 15.0 18.5 130 365 300 3,630 1,107 30.5 2,523 95 2,428 16.3

13.0 30,100 17.6 17,910 12,191 40.5 7,104 23.6 5,087 16.9 28.0 130 375 300 4,882 1,489 30.5 3,393 95 3,298 28.4

11.0 29,407 15.8 17,431 11,977 40.7 7,139 24.3 4,837 16.4 28.9 135 464 282 4,521 1,406 31.1 3,115 87 3,028 16.7

FY12

FY13E

15.0 96,322 24.7 57,770 38,552 40.0 23,465 24.4 15,088 15.7 211.9 410 1,211 1,074 14,541 4,335 29.8 10,206 319 9,887 17.3

8.0 110,400 14.6 65,224 45,176 40.9 27,049 24.5 18,128 16.4 20.1 504 1,538 1,209 17,295 5,275 30.5 12,020 382 11,637 17.7 C–37

September 2012 Results Preview Sector: Consumer

Britannia Industries BSE Sensex

18,763 Bloomberg Equity Shares (m) 52-Week Range (INR) 1,6,12 Rel. Perf. (%) M.Cap. (INR b) M.Cap. (USD b)     

 

S&P CNX

5,703 BRIT IN 119.5 600/434 -9/-25/-9 56.9 1.1

CMP: INR476

Sell

Year Net Sales PAT End (INR m) (INR m) 03/11A 41,983 1,453 03/12A 49,470 1,867 03/13E 56,500 2,198 03/14E 66,094 2,828

EPS (INR) 12.2 15.6 18.4 23.7

EPS Gr. (%) -13.2 28.5 17.7 28.7

P/E (X) 30.4 25.9 20.1

P/BV (x) 10.6 9.1 7.6

RoE (%) 32.2 34.9 35.1 37.9

RoCE (%) 31.2 36.1 59.3 53.8

EV/ EV/ Sales EBITDA 1.1 21.9 1.0 16.8 0.8 12.1

We expect Britannia Industries (BRIT) to report sales of INR14.5b, a growth of 12%. Volume growth is likely to remain in single digits, as the discretionary processed foods category is undergoing a slowdown. We estimate 100bp expansion in gross margin to 35.2% and 30bp contraction in EBITDA margin due to firm input costs. We estimate 12.3% PAT growth, with tax rate at ~28%, up 90bp. Among input costs, wheat prices are up ~16%, sugar prices are 18% higher. INR depreciation has negated the effect of declining palm oil prices to a large extent. We expect competitive intensity to remain elevated, as players like Parle, ITC and Cadbury try to increase share in the high margin premium creams and cookies segment. The increased competition will keep growth and margin expansion under check. Premiumization across product portfolios and launches in non Bakery segments (Milk, Snacks and Breakfast Cereals) is likely to continue, as it offers attractive potential for growth. The stock trades at 25.9x FY13E EPS and 20.1x FY14E EPS. Sell.

What to look for Gross and EBITDA margins, and new launches in premium categories.



Quarterly Performance

(INR Million)

Y/E March Net Sales YoY Change (%) COGS Gross Profit Margins (%) Other Exp % of Sales Total Exp EBITDA Margins (%) YoY Growth (%) Depreciation Interest Other Income PBT Tax Rate (%) Adjusted PAT YoY Change (%) E: MOSL Estimates

October 2012

FY12

FY13

1Q

2Q

3Q

4Q

1Q

2QE

3QE

4QE

11,030 21.0 7,257 3,773 34.2 3,300 29.9 7,073 473 4.3 15.6 111 93 304 573 155 27.0 418 27.2

12,941 18.2 8,408 4,533 35.0 3,761 29.1 12,170 772 6.0 45.9 116 97 110 670 182 27.1 488 48.8

12,474 15.4 7,910 4,565 36.6 3,749 30.1 11,658 816 6.5 46.3 122 95 148 747 206 27.6 541 42.8

13,096 16.8 8,223 4,873 37.2 4,192 32.0 12,415 680 5.2 8.0 125 95 226 685 155 22.6 530 22.6

12,216 10.8 7,575 4,642 38.0 3,991 32.7 11,566 651 5.3 37.6 130 95 179 605 170 28.1 435 4.0

14,500 12.0 9,396 5,104 35.2 4,278 29.5 13,674 827 5.7 7.1 135 90 160 762 213 28.0 548 12.3

14,150 13.4 8,971 5,179 36.6 4,316 30.5 13,287 863 6.1 5.8 140 75 160 808 226 28.0 582 7.6

15,634 19.4 10,144 5,491 35.1 4,603 29.4 14,747 887 5.7 30.4 142 63 197 879 245 27.9 634 19.5

FY12

FY13E

49,541 18.0 31,798 17,743 35.8 15,003 30.3 46,801 2,740 5.5 32.8 473 381 788 2,675 698 26.1 1,977 36.1

56,500 14.0 36,085 20,415 36.1 17,188 30.4 53,273 3,227 5.7 17.8 547 323 696 3,053 855 28.0 2,198 11.2

C–38

September 2012 Results Preview Sector: Consumer

Colgate Palmolive BSE Sensex

S&P CNX

18,763 5,703 Bloomberg CLGT IN Equity Shares (m) 136.0 52-Week Range (INR) 1,264/932 1,6,12 Rel. Perf. (%) -3/-2/11 M.Cap. (INR b) 164.0 M.Cap. (USD b) 3.1   

  



CMP: INR1,206 Year Net Sales PAT End (INR m) (INR m) 03/11A 22,206 4,026 03/12A 26,239 4,544 03/13E 30,921 5,251 03/14E 35,798 5,950

Sell EPS (INR) 29.6 33.4 38.6 43.8

EPS Gr. (%) -0.3 12.9 15.6 13.3

P/E (X) 36.1 31.2 27.6

P/BV (X) 38.7 31.5 26.1

RoE (%) 114.1 107.7 111.3 103.5

RoCE (%) 114.3 108.4 111.7 103.9

EV/ EV/ Sales EBITDA 6.1 26.7 5.1 22.6 4.4 19.3

We expect Colgate Palmolive (CLGT) to post sales growth of 17% to INR7.7b. Toothpaste volume growth is likely to be 14% v/s ~13% in 1QFY13. Gross margin would be flat at 60%. Price hikes and mix improvement would aid marginal gross margin expansion of 10bp. We expect 20bp expansion in EBITDA margin to 21.1% due to continuous investments in ad spends and sales promotion on account of heightened competitive activity by HUL (has launched range of products under the Pepsodent Expert Protection range). PBT would grow 18%. Higher tax rate at 25.5% (up 260bp) would result in 16.3% increase in PAT to INR1.2b. Though volume growth remains steady, input cost and increasing ad spends will keep earnings growth in check. While we like CLGT's sustained double-digit volume growth in its core Toothpaste category, we believe current valuations leave little room for error, given the context of rising competitive intensity, especially in the high margin Sensitive category. We estimate PAT CAGR of 14.4% over FY12-14. The stock trades at 31.2x FY13E EPS and 27.6x FY14E EPS. Sell.

What to look for  Ad spends and market share in both Toothpaste and Toothbrush categories. Quarterly Performance

(INR Million)

Y/E March Toothpaste Volume Gr % Net Sales YoY Change (%) COGS Gross Profit Gross Margin (%) Other operating Expenses % to sales Other operating Income EBITDA Margins (%) Depreciation Interest Financial other Income PBT Tax Rate (%) Adj PAT YoY Change (%) E: MOSL Estimates October 2012

FY12

FY13

1Q

2Q

3Q

4Q

1Q

2QE

3QE

4QE

14.0 6,111 15.6 2,467 3,644 59.6 2,476 40.5 166 1,335 21.3 88 4 138 1,381 377 27.3 1,004 -17.6

15.0 6,572 19.1 2,637 3,936 59.9 2,706 41.2 183 1,413 20.9 106 8 95 1,395 319 22.9 1,076 7.2

15.0 6,696 20.0 2,651 4,045 60.4 2,754 41.1 202 1,493 21.6 99 6 97 1,485 330 22.2 1,156 74.3

14.0 6,859 17.9 2,748 4,112 59.9 2,583 37.7 170 1,699 24.2 100 2 131 1,728 420 24.3 1,308 14.6

13.0 7,361 20.5 2,997 4,364 59.3 2,939 39.9 200 1,625 21.5 105 0 112 1,632 457 28.0 1,174 16.9

14.0 7,700 17.2 3,080 4,620 60.0 3,160 41.0 210 1,670 21.1 100 8 120 1,682 429 25.5 1,253 16.5

14.0 7,850 17.2 3,062 4,789 61.0 3,269 41.6 230 1,750 21.7 100 7 100 1,743 436 25.0 1,307 13.1

13.0 8,010 16.8 2,968 5,042 62.9 3,266 40.8 214 1,990 24.2 95 5 102 1,991 475 23.9 1,516 15.9

FY12

FY13E

14.0 26,239 18.2 10,502 15,736 60.0 10,514 40.1 738 5,960 22.1 393 21 443 5,989 1,446 24.1 4,544 12.9

13.0 30,921 17.8 12,107 18,814 60.8 12,634 40.9 855 7,035 22.1 400 20 434 7,048 1,797 25.5 5,251 15.6

C–39

September 2012 Results Preview Sector: Consumer

Dabur India BSE Sensex

S&P CNX

18,763 5,703 Bloomberg DABUR IN Equity Shares (m) 1,740.7 52-Week Range (INR) 132/92 1,6,12 Rel. Perf. (%) -1/14/11 M.Cap. (INR b) 223.0 M.Cap. (USD b) 4.2

CMP: INR128 Year End 3/11A 3/12A 3/13E 3/14E

Neutral

Net Sales PAT (INR m) (INR m) 40,774 5,686 52,832 6,449 61,276 7,698 70,614 9,463

EPS (INR) 3.3 3.7 4.4 5.4

EPS Gr. (%) 13.2 13.4 19.4 22.9

P/E (X) 34.6 29.0 23.6

P/BV (X) 12.9 10.4 8.5

RoE (%) 40.9 37.1 36.0 36.2

RoCE (%) 36.9 37.3 39.4 41.2

EV/ EV/ Sales EBITDA 4.3 26.4 3.6 21.4 3.1 17.5



We expect Dabur to report net sales of INR14.7b, up 16.5%, with 9% volume growth. We expect the stable growth trajectory to continue in 2QFY13. Growth would be led by a combination of volume growth (8-9%), mix improvement and modest price hikes.



Competitive intensity remains strong in Shampoos, with companies running various sales promotion schemes to gain market share. However, recent price hike by P&G in Pantene Bottles (up 5% w.e.f. October 2012) offers some respite.



On the international business front, no positive surprises are expected and growth in the Middle East would remain muted.



We expect 70bp EBITDA margin expansion, driven by a favorable input cost environment and price hikes taken over the past 12 months. EBITDA is likely to grow 20.5% to INR2.8b.



PAT would grow 22% to INR2.1b.



The stock trades at 29x FY13E EPS and 23.6x FY14E EPS. Neutral.

What to look for  Organic volume growth, ad spends and margins in the domestic business. Quarterly Performance (Consolidated)

(INR Million)

Y/E March Volume Growth (%) Net Sales YoY Change (%) Total Exp EBITDA Margins (%) YoY Growth (%) Depreciation Interest Other Income PBT Tax Rate (%) Minority Interest Adjusted PAT YoY Change (%) E: MOSL Estimates

October 2012

FY12

FY13

1Q

2Q

3Q

4Q

1Q

2QE

3QE

4QE

8.6 12,046 31.4 10,267 1,779 14.8 29.9 248 145 216 1,602 323 20.1 2 1,277 19.6

10.0 12,623 29.8 10,258 2,366 18.7 16.5 217 172 189 2,166 427 19.7 0 1,739 8.4

10.8 14,527 34.5 12,312 2,215 15.2 5.7 208 183 231 2,055 337 16.4 -10 1,728 11.9

12.4 13,636 23.0 11,483 2,153 15.8 4.7 293 57 280 2,083 377 18.1 0 1,705 16.0

12.0 14,620 21.4 12,559 2,061 14.1 15.9 267 213 342 1,923 378 19.6 2 1,543 20.8

9.0 14,700 16.5 11,848 2,852 19.4 20.5 280 180 250 2,642 518 19.6 2 2,122 22.1

9.0 16,500 13.6 13,728 2,772 16.8 25.2 300 160 250 2,562 502 19.6 2 2,058 19.1

8.0 15,457 13.4 12,782 2,675 17.3 24.2 300 161 243 2,457 482 19.6 2 1,974 15.7

FY12

FY13E

10.5 52,832 29.6 44,319 8,513 16.1 10.0 967 557 917 7,905 1,464 18.5 -8 6,449 13.4

9.5 61,276 16.0 50,916 10,360 16.9 21.7 1,147 714 1,085 9,584 1,879 19.6 8 7,698 19.4

C–40

September 2012 Results Preview Sector: Consumer

GlaxoSmithKline Consumer BSE Sensex

S&P CNX

18,763 5,703 Bloomberg SKB IN Equity Shares (m) 42.1 52-Week Range (INR)3,111/2,179 1,6,12 Rel. Perf. (%) -3/2/18 M.Cap. (INR b) 125.9 M.Cap. (USD b) 2.4

CMP: INR2,994

Neutral

Year Net Sales PAT EPS End (INR m) (INR m) (INR) 12/10A 23,800 2,998 71.3 12/11A 27,759 3,552 84.5 12/12E 30,253 4,278 101.7 13/13E 36,701 4,775 113.5

EPS Gr. (%) 28.8 18.5 20.4 11.6

P/E (X) 35.4 29.4 26.4

P/BV (X) 11.0 9.2 7.8

RoE (%) 31.2 31.0 31.4 29.8

RoCE (%) 47.3 47.5 47.2 44.7

EV/ EV/ Sales EBITDA 4.1 22.2 3.6 19.0 3.1 16.6



In 3QCY12, we expect GlaxoSmithKline Consumer (SKB) to report net sales of INR8.1b, up 12.5%. MFD volume would grow ~7%, in line with 2QCY12 performance. We do not see any pick-up in CSD offtake in the remaining quarters of CY12.



We estimate 60bp increase in EBITDA margin despite high wheat prices on account of price hikes, mix improvement due to underperformance of the CSD segment and lower ad spends in non-MFD categories.



EBITDA is likely to grow 16.7%; we expect ~13% growth in PBT due to lower other income.



We estimate ~12% increase in PAT, impacted by higher tax rate at 33.3%.



We are positive on SKB's strong leadership position in the MFD space. However, we believe that the stock price and current valuations factor in the positives. We maintain Neutral at 29.4x CY12E and 26.4x CY13E EPS.

What to look for  MFD volume growth, performance of Horlicks Oats, update on CSD situation, and Foodles' current market status. Quarterly Performance

(INR Million)

Y/E December MFD Volume Growth (%) Net Sales YoY Change (%) Total Exp EBITDA Margins (%) YoY Change (%) Depreciation Interest Other Income PBT Tax Rate (%) Adj PAT YoY Change (%) E: MOSL Estimates

October 2012

CY11

CY12

1Q

2Q

3Q

4Q

1Q

2Q

3QE

4QE

5.5 7,100 9.5 5,647 1,453 20.5 9.2 109 7 340 1,677 571 34.0 1,106 15.0

14.0 6,534 21.6 5,548 985 15.1 10.2 113 9 360 1,223 398 32.6 825 14.9

8.0 7,201 17.5 6,021 1,180 16.4 24.1 117 10 476 1,530 499 32.6 1,030 31.1

12.0 6,021 18.6 5,404 616 10.2 5.5 121 9 487 973 327 33.6 646 21.0

7.0 8,130 14.5 6,514 1,617 20.3 11.3 119 12 479 1,964 645 33.0 1,320 19.3

7.4 7,297 11.7 6,191 1,107 15.2 12.3 86 8 572 1,585 519 32.8 1,066 29.3

10.0 8,100 12.5 6,723 1,377 17.0 16.7 137 11 500 1,729 576 33.3 1,153 11.9

10.0 6,725 11.7 5,943 782 11.6 26.9 228 9 560 1,108 369 33.3 739 14.5

CY11

CY12E

10.0 26,855 16.5 22,566 4,289 16.0 13.8 460 35 1,608 5,403 1,851 34.3 3,552 18.5

9.0 30,253 12.7 25,370 4,883 16.1 13.8 570 40 2,114 6,387 2,109 33.0 4,278 20.4

C–41

September 2012 Results Preview Sector: Consumer

Godrej Consumer Products BSE Sensex

S&P CNX

18,763 Bloomberg Equity Shares (m) 52-Week Range (INR) 1,6,12 Rel. Perf. (%) M.Cap. (INR b) M.Cap. (USD b)

5,703 GCPL IN 340.3 702/370 -6/30/52 227.2 4.3



  

 



CMP: INR668 Year End 3/11A 3/12A 3/13E 3/14E

Net Sales PAT (INR m) (INR m) 36,763 4,736 48,509 5,266 63,147 7,363 78,327 8,962

Neutral EPS (INR) 14.6 16.3 21.6 26.3

EPS Gr. (%) 32.8 11.2 33.0 21.7

P/E (X) 41.0 30.9 25.4

P/BV (X) 10.3 7.1 6.2

RoE (%) 27.5 25.2 23.1 24.3

RoCE (%) 18.4 20.4 22.7 24.6

EV/ EV/ Sales EBITDA 4.9 27.7 3.9 21.9 3.2 17.9

We expect Godrej Consumer Products (GCPL) to post 37% increase in net sales to INR16.2b, driven by continued momentum in domestic business (both toilet soaps and household insecticides) and beneficial impact of inorganic growth (Darling and Chile acquisition). We expect ~20% organic sales growth for the quarter. Gross margin would expand in domestic business; we estimate EBITDA margin at 17.6% for 2QFY13. Despite higher depreciation and interest costs, other income would lead PAT growth, which is likely to grow 36% YoY to INR1.7b. The volume growth momentum achieved in Soaps in the last few quarters is likely to continue in 2QFY13. However, margins in the category would be under pressure due to high competitive intensity and disproportionate ad spends behind Cinthol re-launch. GCPL has USD305m of unhedged forex loans; it plans to repay loans of USD60m in FY13 and retire its debt by FY18. We expect GCPL's domestic business growth to remain healthy, driven by continued synergistic benefits from GHPL and GCPL trade integration. However, recent outperformance leaves limited upside potential in the near term. The stock trades at 30.9x FY13E EPS and 25.4x FY14E EPS. Neutral.

What to look for  Soaps volume growth, revenue growth in Home Insecticides and performance of Megasari. Quarterly Performance (Consolidated)

(INR Million)

Y/E March Net Sales YoY Change (%) EBITDA Margins (%) YoY Growth (%) Depreciation Interest Other Income Forex gain / (loss) PBT Tax Rate (%) Minority Int Adj PAT YoY Change (%) E: MOSL Estimates

October 2012

FY12 1Q 9,978 39.6 1,427 14.3 11.5 159 111 132 24 1,314 312 23.8 0 1,002 10.3

2Q 11,860 23.3 2,088 17.6 25.1 159 241 220 -166 1,742 432 24.8 33 1,277 -2.0

3Q 13,441 35.9 2,653 19.7 60.1 171 287 248 -55 2,388 555 23.2 162 1,671 40.7

FY13 4Q 13,230 32.4 2,481 18.8 39.6 155 194 203 -8 2,327 547 23.5 50 1,730 22.1

1Q 13,886 39.2 1,988 14.3 39.3 199 164 181 -176 1,630 112 6.9 213 1,305 30.2

2QE 16,250 37.0 2,860 17.6 36.9 220 300 200 0 2,540 660 26.0 144 1,736 35.9

3QE 17,000 26.5 3,366 19.8 26.9 230 300 250 0 3,086 802 26.0 144 2,140 28.0

4QE 16,010 21.0 3,083 19.3 24.3 238 282 351 176 3,090 829 26.8 78 2,183 26.2

FY12

FY13E

48,509 32.0 8,607 17.7 35.4 644 658 672 -205 7,771 2,261 29.1 245 5,266 11.2

63,147 30.2 11,298 17.9 31.3 887 1,046 982 0 10,346 2,404 23.2 579 7,363 39.8

C–42

September 2012 Results Preview Sector: Consumer

Hindustan Unilever BSE Sensex

S&P CNX

18,763 5,703 Bloomberg HUVR IN Equity Shares (m) 2,159.5 52-Week Range (INR) 554/319 1,6,12 Rel. Perf. (%) -2/22/49 M.Cap. (INR b) 1176.0 M.Cap. (USD b) 22.3

CMP: INR545 Year End 3/11A 3/12A 3/13E 3/14E

Neutral

Net Sales PAT (INR m) (INR m) 197,352 21,533 229,214 26,567 262,323 33,530 293,494 38,973

EPS (INR) 10.0 12.3 15.5 18.0

EPS Gr. (%) 3.5 23.4 26.2 16.2

P/E (X) 44.3 35.1 30.2

P/BV (X) 34.1 25.3 19.1

RoE (%) 81.8 74.6 72.1 63.4

RoCE (%) 103.7 97.2 94.3 83.4

EV/ EV/ Sales EBITDA 5.2 34.6 4.4 27.2 3.8 23.3

We expect Hindustan Unilever (HUVR) to report 15% increase in sales to INR64.5b and estimate volume growth of ~8%. Demand momentum in core categories remains healthy, barring some moderation in the discretionary part of the Foods portfolio.  Gross margin would expand 240bp to 48%, led by change in product mix, better pricing environment for Soaps & Detergents and softening in palm oil and PFAD prices.  We believe that HUVR's limited pricing actions and comparatively higher base should restrict operating margin expansion during the quarter to 60bp. Other income should revert to the normative trend in the absence of one-offs. We expect PAT growth of 19% YoY to INR7.8b. In 2QFY13, the company launched Tresseme Shampoo.  The stock trades at 35.1x FY13E and 30.2x FY14E earnings. We like the sustained volume momentum in HUVR's categories as also the increased aggression in trade coupled with strong innovation pipeline. However, rich valuations and tough comparables in 2HFY13 underscore our Neutral rating. What to look for  Volume growth: sustenance of volume growth in mid to high single digits.  2Q margins for Soaps & Detergents and Personal Products.  Commentary around Foods business. 

Quarterly Performance

(INR Million)

Y/E March Volume Growth (%) S&D EBIT Margin (%) PP EBIT Margin (%) Net Sales (incl service inc) YoY Change (%) COGS Gross Profit Margin % Operating Exp % to sales EBITDA YoY Change (%) Margins (%) Depreciation Interest Other Income PBT Tax Rate (%) Adjusted PAT YoY Change (%) E: MOSL Estimates October 2012

FY12

FY13

1Q

2Q

3Q

4Q

1Q

2QE

3QE

4QE

8.3

9.8

9.1

10.0

9.0

9.0

9.0

9.0

FY12

FY13E

9.3

9.0

9.2

12.4

10.8

11.3

12.2

12.6

11.3

11.7

11.6

12.5

25.3 55,889 14.6 30,798 25,091 44.9 17,548 31.4 7,543 10.8 13.5 562 0 506 7,487 1,702 22.7 5,784 11.0

24.4 56,105 17.8 30,010 26,095 46.5 17,828 31.8 8,267 27.8 14.7 571 5 777 8,467 1,942 22.9 6,525 22.3

25.9 59,561 16.2 30,751 28,810 48.4 18,921 31.8 9,890 36.4 16.6 568 5 801 10,118 2,496 24.7 7,622 29.9

26.3 57,659 16.1 31,223 26,437 45.8 18,103 31.4 8,334 29.8 14.5 571 2 700 8,461 1,825 21.6 6,636 29.0

25.8 63,788 14.1 33,677 30,110 47.2 20,446 32.1 9,665 28.1 15.2 576 53 2,186 11,222 2,676 23.8 8,546 47.7

25.0 64,500 15.0 33,540 30,960 48.0 21,092 32.7 9,869 19.4 15.3 590 3 900 10,176 2,391 23.5 7,784 19.3

26.4 67,000 12.5 34,237 32,763 48.9 21,239 31.7 11,524 16.5 17.2 595 2 910 11,837 2,782 23.5 9,055 18.8

26.5 67,035 16.3 34,808 32,227 48.1 21,921 32.7 10,306 23.7 15.4 596 2 898 10,606 2,492 23.5 8,114 22.3

25.5 229,214 16.1 122,781 106,432 46.4 72,399 31.6 34,033 27.1 14.8 2,272 12 2,783 34,532 7,966 23.1 26,567 26.6

25.3 262,323 14.4 136,262 126,061 48.1 84,697 32.3 41,363 21.5 15.8 2,357 70 4,894 43,830 10,300 23.5 33,530 26.2

C–43

September 2012 Results Preview Sector: Consumer

ITC BSE Sensex

S&P CNX

18,763 Bloomberg Equity Shares (m) 52-Week Range (INR) 1,6,12 Rel. Perf. (%) M.Cap. (INR b) M.Cap. (USD b)

5,703 ITC IN 7,738.1 273/189 -5/10/24 2,104.0 39.9

      

CMP: INR272 Year End 3/11A 3/12A 3/13E 3/14E

Buy

Net Sales PAT (INR m) (INR m) 214,590 49,867 251,738 61,624 291,436 72,431 334,890 85,198

EPS (INR) 6.5 8.0 9.4 11.0

EPS Gr. (%) 28.9 23.6 17.5 17.6

P/E (X) 34.1 29.0 24.7

P/BV (X) 11.2 9.5 8.0

RoE (%) 31.3 32.7 32.5 32.4

RoCE (%) 43.5 45.7 45.8 46.0

EV/ EV/ Sales EBITDA 8.2 22.9 6.9 19.1 5.9 16.0

We expect ITC to post 14.5% revenue growth to INR69.7b. Margin expansion of 30bp would drive (a) ~15.6% growth in EBITDA to INR25.6b, and (b) 16.8% YoY growth in PAT to INR17.6b. Cigarette volumes would grow ~1%, impacted by price hikes post the changes in duty structure and increase in VAT rates in many states. We expect flattish EBIT margin for the Cigarettes business. Sustained momentum in Staples and Personal Care should drive non-Cigarette FMCG sales. We expect sequential improvement in profitability and estimate INR300m loss at EBIT level. Paper margins are likely to remain flat; revenue growth would be moderate at ~11% owing to capacity constraints. The Hotels business is likely to remain under pressure, owing to continued weak macroeconomic environment and higher supply. ITC commissioned its Chennai property during the quarter. The company is test marketing cigarettes in the 64mm category and has launched 5-6 brands at the INR2 and INR2.5 price points (Gold flake). The stock trades at 29x FY13E EPS of INR9.4 and 24.7x FY14E EPS of INR11. Buy.

What to look for Cigarette volume growth and margins, reduction in losses in FMCG business.



Quarterly Performance

INR Million

Y/E March Cigarette Vol Gr (%) Cigarette-net EBIT Margin (%) Non Cigarette FMCG Loss Net Sales YoY Change (%) Total Exp EBITDA Growth (%) Margins (%) Depreciation Interest Other Income PBT Tax Rate (%) Adj PAT YoY Change (%) E: MOSL Estimates

October 2012

FY12

FY13

1Q

2Q

3Q

4Q

1Q

2QE

3QE

4QE

8.0

7.5

5.0

5.0

1.5

1.0

2.2

2.5

FY12

FY13E

6.4

2.0

54.9

58.2

57.0

54.1

57.5

58.2

57.8

55.0

56.1

57.1

(763) 58,524 20.4 38,945 19,579 19.1 33.5 1,665 200 1,656 19,370 6,043 31.2 13,327 24.5

(559) 60,852 17.6 38,662 22,190 18.0 36.5 1,701 142 1,808 22,155 7,012 31.6 15,143 21.5

(468) 62,478 14.2 38,667 23,811 18.0 38.1 1,739 157 2,851 24,767 7,757 31.3 17,010 22.5

(167) 69,545 16.9 46,913 22,633 18.8 32.5 1,880 148 2,079 22,683 6,540 28.8 16,143 26.0

(388) 67,131 14.7 43,447 23,683 21.0 35.3 1,948 138 1,768 23,366 7,344 31.4 16,021 20.2

(297) 69,700 14.5 44,050 25,650 15.6 36.8 1,800 200 1,900 25,550 7,869 30.8 17,680 16.8

(250) 73,500 17.6 45,350 28,151 18.2 38.3 2,030 200 2,950 28,871 8,892 30.8 19,978 17.5

(50) 81,105 16.6 53,939 27,166 20.0 33.5 2,263 212 2,117 26,808 8,057 30.1 18,751 16.2

(1,957) 251,738 17.3 163,252 88,486 19.4 35.2 6,985 779 8,253 88,975 27,352 30.7 61,624 23.6

(985) 291,436 15.8 186,786 104,650 18.3 35.9 8,041 750 8,734 104,594 32,163 30.8 72,431 17.5

C–44

September 2012 Results Preview Sector: Consumer

Marico BSE Sensex

S&P CNX

18,763 5,703 Bloomberg MRCO IN Equity Shares (m) 643.8 52-Week Range (INR) 209/134 1,6,12 Rel. Perf. (%) -3/9/24 M.Cap. (INR b) 128.4 M.Cap. (USD b) 2.4

CMP: INR199 Year End 3/11A 3/12A 3/13E 3/14E

Buy

Net Sales PAT (INR m) (INR m) 31,283 2,375 39,968 3,189 47,179 4,361 54,963 5,442

EPS (INR) 3.9 5.2 6.8 8.5

EPS Gr. (%) 1.4 34.2 30.5 24.8

P/E (X) 38.4 29.4 23.6

P/BV (X) 10.7 6.4 5.1

RoE (%) 25.9 28.0 21.6 21.8

RoCE (%) 29.7 30.5 30.5 30.6

EV/ EV/ Sales EBITDA 3.1 26.5 2.8 20.5 2.3 16.3



Marico (MRCO) is likely to report net sales of INR11.5b, up 18%, with domestic volume growth at 13%.



We expect double-digit volume growth in value-added hair oil and Saffola. Parachute should report 8-10% volume growth.



Copra prices witnessed a sharp fall, with the 2QFY13 average 33% lower than in 2QFY12. Rice bran and kardi oil prices continue to be firm.



Gross margin should expand 300bp to 48.5% due to benefits of sharp fall in copra prices and lack of any meaningful price cuts.



We expect 160bp expansion in EBITDA margin to 13.6%. PAT would grow 37% YoY to INR1.07b.



The stock trades at 29.4x FY13E EPS and 23.6x FY14E EPS. Buy.

What to look for Volume growth in Parachute and Saffola, performance / gross margin of international business.



Quarterly Performance

(INR Million)

Y/E March Volume Growth (%) Net Sales YoY Change (%) COGS Gross Profit Gross margin (%) Other Expenditure % to Sales EBITDA Margins (%) YoY Change (%) Depreciation Interest Other Income PBT Tax Rate (%) Minority Interest Adjusted PAT YoY Change (%) E: MOSL Estimates October 2012

FY12

FY13

1Q

2Q

3Q

4Q

1Q

2QE

3QE

4QE

14.0 10,414 31.8 5,952 4,462 42.8 3,211 30.8 1,251 12.0 18.6 169 98 92 1,075 210 19.6 15 850 15.3

14.0 9,745 25.6 5,329 4,415 45.3 3,249 33.3 1,167 12.0 17.7 177 91 106 1,005 205 20.4 17 783 9.4

13.0 10,578 29.4 5,451 5,127 48.5 3,909 37.0 1,217 11.5 22.1 188 82 92 1,039 178 17.1 20 841 21.0

17.0 9,177 22.9 4,264 4,913 53.5 3,814 41.6 1,100 12.0 38.8 191 113 105 901 189 20.9 -2 714 -0.6

14.0 12,672 21.7 6,411 6,261 49.4 4,414 34.8 1,848 14.6 47.7 193 170 176 1,660 403 24.2 19 1,238 45.7

13.0 11,500 18.0 5,923 5,578 48.5 4,014 34.9 1,564 13.6 34.1 205 180 180 1,359 272 20.0 13 1,074 37.2

14.0 12,250 15.8 6,125 6,125 50.0 4,557 37.2 1,568 12.8 28.8 220 160 180 1,368 274 20.0 13 1,081 28.6

14.0 10,757 17.2 6,012 4,745 44.1 3,339 31.0 1,407 13.1 27.9 240 155 205 1,216 229 18.8 21 967 35.3

FY12

FY13E

14.0 39,968 27.9 20,987 18,981 47.5 14,240 35.6 4,741 11.9 15.9 725 424 429 4,021 782 19.5 50 3,189 34.2

13.5 47,179 18.0 24,470 22,709 48.1 16,323 34.6 6,386 13.5 34.7 858 665 741 5,604 1,177 21.0 66 4,361 36.8

C–45

September 2012 Results Preview Sector: Consumer

Nestle India BSE Sensex

S&P CNX

18,763 5,703 Bloomberg NEST IN Equity Shares (m) 96.4 52-Wk. Range (INR) 5,024/3,930 1,6,12 Rel. Perf. (%) -13/-12/-11 M.Cap. (INR b) 421.8 M.Cap. (USD b) 8.0

CMP: INR4,374

Neutral

Year Net Sales Adj. PAT EPS End (INR m) (INR m) (INR) 12/10A 62,547 8,370 86.8 12/11A 74,908 10,188 105.7 12/12E 85,777 11,287 117.1 12/13E 101,953 13,349 138.5

EPS P/E YoY (%) (X) 20.0 50.4 21.7 41.4 10.8 37.4 18.3 31.6

P/BV (X) 33.1 33.1 23.5 17.5

RoE (%) 116.5 95.7 73.6 63.5

RoCE (%) 151.8 89.6 61.7 59.6

EV/ EV/ Sales EBITDA 6.7 33.4 5.7 27.6 5.0 22.7 4.2 18.7



We expect Nestle India (NEST) to report net sales of INR22.7b, up 16%. Growth would be price-led; volume recovery would be gradual, in our view.



Gross margin is likely to expand 110bp YoY to 53% due to the benefit of price increases in the last few quarters.



We expect EBITDA margin to expand 90bp to 21.8% on account of mix improvement and savings in overheads.



EBITDA is likely to increase 21% to INR4.9b. We estimate higher interest at INR230m and depreciation at INR680m due to capacity expansion.



We expect 10% growth in PBT and 10% growth in PAT, as tax rates remain flat at ~30%.



We remain positive on NEST's long-term prospects on healthy demand and growth potential of its portfolio. However, at current valuations, the stock appears expensive, given the context of sub-par volume growth. The stock trades at 37.4x CY12E and 31.6x CY13E EPS. Neutral.

Quarterly Performance

(INR Million)

Y/E December Net Sales YoY Change (%) COGS Gross Profit Margin (%) Operating Exp EBITDA Margins (%) YoY Growth (%) Depreciation Interest Other income PBT Tax Rate (%) Adjusted PAT YoY Change (%) E: MOSL Estimates

October 2012

CY11 1Q

2Q

3Q

4Q

1Q

18,100 22.3 8,841 9,259 51.2 5,406 3,853 21.3 26.7 327 1 128 3,653 1,027 28.1 2,626 33.3

17,631 20.2 8,718 8,912 50.5 5,467 3,445 19.5 17.2 367 6 80 3,152 956 30.3 2,196 9.0

19,631 19.9 9,454 10,177 51.8 6,074 4,103 20.9 27.2 394 12 121 3,819 1,134 29.7 2,685 23.5

19,547 17.0 8,880 10,667 54.6 6,540 4,127 21.1 25.1 446 33 181 3,828 1,148 30.0 2,681 20.9

20,475 13.1 9,384 11,091 54.2 6,519 4,572 22.3 18.7 528 23 136 4,158 1,272 30.6 2,886 9.9

CY12 2Q 19,866 12.7 9,024 10,842 54.6 6,547 4,295 21.6 24.7 673 220 113 3,514 1,085 30.9 2,429 10.6

3QE

4QE

22,750 15.9 10,693 12,058 53.0 7,098 4,960 21.8 20.9 680 230 165 4,215 1,260 29.9 2,954 10.0

22,686 16.1 10,007 12,680 55.9 7,682 4,997 22.0 21.1 683 178 172 4,307 1,290 29.9 3,018 12.6

CY11

CY12E

74,908 19.8 35,894 39,015 52.1 23,487 15,528 20.7 24.3 1,533 51 509 14,452 4,264 29.5 10,188 21.7

85,777 14.5 39,107 46,670 54.4 27,846 18,824 21.9 21.2 2,564 651 586 16,194 4,907 30.3 11,287 10.8

C–46

September 2012 Results Preview Sector: Consumer

Pidilite Industries BSE Sensex

S&P CNX

18,763 Bloomberg Equity Shares (m) 52-Week Range (INR) 1,6,12 Rel. Perf. (%) M.Cap. (INR b) M.Cap. (USD b)

5,703 PIDI IN 506.1 212/134 5/16/11 104.5 2.0

CMP: INR206 Year End 3/11A 3/12A 3/13E 3/14E

Buy

Net Sales Adj.PAT (INR m) (INR m) 23,806 3,330 28,164 3,557 33,820 4,415 40,398 5,305

EPS (INR) 6.6 7.0 8.4 10.1

EPS Gr. (%) 13.4 6.5 20.2 20.2

P/E (X) 29.5 24.5 20.4

P/BV (X) 7.8 6.0 5.1

RoE (%) 29.2 26.3 24.6 24.8

RoCE (%) 30.9 29.1 31.4 32.5

EV/ EV/ Sales EBITDA 3.6 20.5 3.0 16.0 2.5 13.0



We expect Pidilite Industries (PIDI) to post 19% revenue growth, led by double-digit volume growth in the Consumer and Bazaar segments, though Industrial Chemicals would remain under pressure. We expect margin pressure to sustain in Industrial Chemicals but margins would expand in the Consumer and Bazaar segments.



Gross margin would expand 100bp on account of decline in VAM prices. EBITDA margin is also likely to increase 90bp to 19.2%, driven by higher gross margin and operating leverage.



We expect tax rate to increase by 200bp to 27%. However, healthy revenue growth would ensure PAT growth of ~28% to INR1.1b.



Uncertainty regarding the synthetic elastomer project continues and the company is yet to take a call on the project implementation.



The stock trades at 24.5x FY13E EPS of INR8.4 and 20.4x FY14E EPS of INR10.1. Maintain Buy.

Quarterly Performance

(INR Million)

Y/E March Sales Change (%) Gross Profit Gross Margin % Operating Expenses % of sales EBITDA EBITDA Margin % Change (%) Depreciation Interest Other Income PBT Tax Effective Tax Rate (%) Adj PAT Change (%) E: MOSL Estimates

October 2012

FY12

FY13

1Q

2Q

3Q

4Q

1Q

2QE

3QE

4QE

7,680 21.5 3,439 44.8 1,918 25.0 1,521 19.8 -2.2 116 48 70 1,428 350 24.5 1,078 0.1

7,103 20.5 3,093 43.5 1,791 25.2 1,302 18.3 4.8 118 59 29 1,153 289 25.1 864 2.2

6,918 16.5 2,989 43.2 1,782 25.8 1,207 17.4 1.9 121 73 45 1,058 268 24.8 790 -6.5

6,519 15.6 3,045 46.7 2,087 32.0 958 14.7 17.8 124 47 152 939 190 20.2 749 41.6

9,125 18.8 4,087 44.8 2,180 23.9 1,907 20.9 25.4 124 91 139 1,831 498 27.2 1,333 23.6

8,450 19.0 3,769 44.6 2,146 25.4 1,622 19.2 24.6 135 40 70 1,517 410 27.0 1,108 28.2

8,300 20.0 3,735 45.0 2,175 26.2 1,560 18.8 29.3 140 35 50 1,435 388 27.0 1,048 32.7

7,946 21.9 3,773 47.5 2,510 31.6 1,263 15.9 31.8 150 39 148 1,222 296 24.2 926 23.7

FY12

FY13E

28,164 18.3 12,490 44.3 7,540 26.8 4,950 17.6 2.5 479 245 428 4,653 1,096 23.6 3,557 6.8

33,820 20.1 15,363 45.4 9,011 26.6 6,353 18.8 28.3 548 205 407 6,007 1,592 26.5 4,415 24.1

C–47

September 2012 Results Preview Sector: Consumer

United Spirits BSE Sensex

S&P CNX

18,763 5,703 Bloomberg UNSP IN Equity Shares (m) 130.8 52-Week Range (INR) 1,295/450 1,6,12 Rel. Perf. (%) 25/98/37 M.Cap. (INR b) 159.3 M.Cap. (USD b) 3.0      

CMP: INR1,218 Year End 3/11A 3/12A 3/13E 3/14E

Net Sales Adj.PAT (INR m) (INR m) 73,762 3,458 87,794 2,390 101,377 2,359 116,676 4,299

Neutral EPS (INR) 28.2 19.5 19.3 35.1

EPS Gr. (%) 9.4 -30.9 -1.3 82.2

P/E (X) 43.1 62.4 63.2 34.7

P/BV (X) 3.6 3.1 3.0 2.8

RoE (%) 8.2 4.9 4.7 7.9

RoCE (%) 9.7 8.3 8.8 10.4

EV/ EV/ Sales EBITDA 3.0 20.7 2.7 20.3 2.4 18.1 2.1 14.8

We expect United Spirits (UNSP) to post 10% revenue growth to INR19.7b in 2QFY13, led by 6% volume growth. The premium segment would grow at a faster pace, aided by up-trading and increased investments in this segment by the company. Modest ~3% QoQ growth in ENA prices would aid 50bp expansion in margins to 14.8%. PAT would decline 2% to INR828m, impacted by 37% increase in interest cost and higher tax rate. We note that Kerala has announced a price increase, which will provide support to margins. The industry expects price increase in Andhra Pradesh in October, which could boost 3Q margins. The stock trades at 63.2x FY13E EPS of INR19.3 and 34.7x FY14E EPS of INR35.1. Neutral. Positive news flow around Diageo deal will favorably impact stock price.

What to look for  Volume growth recovery, given the slower volume growth in 1QFY13 (1.9%).  ENA price trend and outlook; increase in ENA prices post 2Q can limit expected margin recovery in FY13.  Interest cost trends.

Quarterly Performance (Standalone)

(INR Million)

Y/E March Volume Growth % ENA Price/Case Net Sales YoY Change (%) Total Exp EBITDA Margins (%) Depreciation Interest PBT From operations Other income PBT Tax Rate (%) PAT YoY Change (%) Extraordinary Inc/(Exp) Reported PAT E: MOSL Estimates

October 2012

FY12

FY13

1Q

2Q

3Q

4Q

1Q

2QE

3QE

4QE

15.4 147 19,354 32.3 16,051 3,303 17.1 127 1,302 1,874 165 2,039 671 32.9 1,369 12.6 8 1,377

8.0 153 17,906 32.2 15,346 2,560 14.3 152 1,241 1,167 100 1,267 419 33.1 848 5.7 632 1,479

0.7 164 19,539 -0.3 17,671 1,869 9.6 155 1,392 322 170 492 165 33.5 327 -71.3 143 471

5.1 162 18,627 17.0 16,867 1,760 9.5 175 1,663 -77 132 55 -24 -43.8 79 -86.7 21 100

1.9 151 20,573 6.3 17,223 3,350 16.3 162 1,656 1,532 262 1,794 689 38.4 1,105 -19.3 345 1,450

6.0 153 19,700 10.0 16,784 2,916 14.8 180 1,700 1,036 200 1,236 408 33.0 828 -2.3

10.0 154 24,500 25.4 21,193 3,308 13.5 200 1,700 1,408 200 1,608 530 33.0 1,077 228.9

10.0 154 22,414 20.3 20,299 2,115 9.4 206 1,452 457 638 1,095 322 29.4 774 874.2

828

1,077

774

FY12

FY13E

10.0 154 75,427 18.4 65,934 9,492 12.6 609 5,944 2,940 1,119 4,059 1,288 31.7 2,771 -20.5 657 3,428

7.0 154 87,186 15.6 75,499 11,687 13.4 748 6,507 4,432 1,300 5,732 1,949 34.0 3,783 36.5 3,783

C–48

September 2012 Results Preview Sector: Financials

Financials Company Name Andhra Bank Axis Bank Bank of Baroda Bank of India Canara Bank Dewan Housing HDFC HDFC Bank Federal Bank ICICI Bank IDFC Indian Bank IndusInd Bank ING Vysya Kotak Mahindra Bank LIC Housing M&M Financial Services Oriental Bank Power Finance Corporation Punjab National Bank Rural Electrification Shriram Transport State Bank Union Bank Yes Bank

Challenges for the Financials sector continued in 2QFY13 as well, led by moderation in growth and sustained pressure on asset quality. However, the government's concrete steps towards reforms have brought in a ray of hope.

Banks - aggregate PAT growth to remain healthy For 2QFY13, we expect our Banking coverage universe to report healthy PAT growth of 19% YoY (~15% YoY ex-SBIN), largely driven by 23% YoY profit growth from private sector banks. PAT of state-owned banks is likely to grow 17% YoY (9% YoY ex-SBIN), but decline 4% QoQ (led by higher provisions, muted fees and higher tax rate in some cases). A lean business quarter; CD ratio falls; higher monies parked in government securities: For the fortnight ended 21 September 2012, loans grew 16.4% YoY and deposits grew 13.7% YoY. On a sequential basis, while loans were flat, deposits increased marginally. Higher funds are flowing into G-Secs, as a result of which the incremental ID ratio is 100%+ whereas the overall CD ratio has declined from 76.4% to 75.8%. As in FY12, in FY13 too, working capital would be a key driver for corporate loan growth. 2-3 years of continued moderation in the capex cycle will have a lag impact on other loan segments (Services and Retail). We expect loan growth for the system to be 15-16% for FY13. While SA deposit growth is likely to improve, it is unlikely to keep pace with overall deposit growth. Further, CA deposits in the system continue to decline. This would pressurize CASA ratio. Benefits of fall in deposit rates to be compensated by fall in yields on assets - NIM to remain stable: QTD 3M, 6M and 12M bulk deposit rates have declined by 60bp each, whereas on YTD basis the decline is much sharper at 225bp, 180bp and 130bp respectively the benefits of which will percolate in the form of lower cost of funds. However, this would be compensated by (a) fall in yields on loans, as banks have reduced spreads on loans in certain cases and have reduced base rate/PLR in May 2012, (b) continued pressure on CASA ratio, and (c) higher flow of money into low yielding investments due to muted loan growth. We expect margins to be flattish/ improve marginally QoQ. Specific banks (viz. Bank of India), wherein margins declined significantly in 1QFY13 due to higher reversal of interest income (on the back of restructuring / slippages) may see some relief. Addition of stress on balance sheet to continue: Considering the challenging macro environment, we expect slippages to remain elevated (especially for state-owned banks), led by stress in mid-size corporate and SME segments. Retail focused banks are likely to be better placed (most private sector banks). However, unlike the past, retail delinquency has started increasing. Hence, NPAs are expected to rise in this segment, as well. Increased focus on balance sheet management by banks may lead to improvement in recoveries and upgradations, which would provide cushion to asset quality.

Alpesh Mehta ([email protected])/ Sohail Halai ([email protected])/Umang Shah ([email protected]) October 2012

C–49

September 2012 Results Preview Sector: Financials

Pace of restructuring has slowed down: With most SEB loans restructured and SEB restructuring package approved by the Cabinet, we do not expect significant SEB restructuring in 2QFY13. As witnessed in 1QFY13, restructuring would be significantly lower than in 4QFY12. However, stress in the large corporate segment and higher referrals to CDR would lead to some increase in overall restructured portfolio. Muted trading gains in debt market; equity gains can surprise positively: In 2QFY13, the 1-year and 10-year benchmark G-Sec yields have remained largely stable. As a result, higher MTM reversals in case of bond portfolio are unlikely, though there may be some write-back on the equity portfolio. Trading gains would be flat/ decline QoQ, as yields remained in a narrow range. Estimate aggregate profit growth of ~19% YoY, led by private banks (23% YoY); ExSBIN, state-owned banks' profit to grow 8.6% YoY: The performance of private sector banks is likely to remain better than their state-owned counterparts. For the private sector banks under our coverage, NII growth is likely to be ~22% YoY (led by healthy loan growth and largely stable margins), operating profit growth is likely to be ~24% YoY (due to contained cost) and PAT growth is likely to be ~23% (due to stable credit cost). State-owned banks are likely to report NII and operating profit growth of ~10% each YoY. PAT would grow 17% YoY, led by lower growth in provisions on a high base. Continued reforms key to improvement in growth and asset quality outlook: Recent reforms by the government have led to improvement in sentiment and growth outlook, in turn leading to improvement in valuations. Further re-rating will be contingent upon expected resolution of the problems faced in the Infrastructure space and fall in interest rates (boost to G-Sec portfolio). On a reported basis, near-term profitability is likely to be under pressure due to continued stress on asset quality, led by economic moderation and sluggish growth. Benefits of reforms would be reflected in business and asset quality with a lag. Top picks in our Banking universe: Our top picks are SBIN (most exposed to improvement in macroeconomic environment and strategy to recognize stress upfront), ICICIBC (healthy capitalization and asset quality, improving core operations), OBC (focused strategies and attractive valuations), and YES (strong play on improvement in liquidity and healthy asset quality). Deposit growth improves

14.3

13.4

13.7

58.3

61.0

62.3

62.9

3QFY12

4QFY12

1QFY13 21Sep-12

17.4

54.9 1QFY12

16.9

52.1 4QFY11

56.2

49.9 3QFY11

2QFY12

14.4 16.8 47.1 2QFY11

15.9 18.5

15.0 46.4 1QFY11

17.2

47.7

44.9

47.6

1QFY13 21Sep-12

4QFY10

46.9 4QFY12

42.7

43.7 3QFY12

3QFY10

41.5 2QFY12

19.8 17.7

16.4

40.9 1QFY12

41.2

16.5

39.4 4QFY11

2QFY10

19.5

37.7 3QFY11

Chg YoY (%)

40.3

20.0

34.3 2QFY11

De pos i ts (INR t)

1QFY10

21.5

34.1 1QFY11

18.7

19.2

32.4 4QFY10

15.9

21.9

13.8 30.2 3QFY10

17.1

12.7 28.7 2QFY10

16.2 28.0

Chg YoY (%)

1QFY10

24.5

Loa ns (INR t)

22.0

Loan growth remains moderate

Source: Company, MOSL October 2012

C–50

September 2012 Results Preview Sector: Financials

Incremental deposit mobilization healthy (INR b) 3,279

21‐Sep‐12

617

1,167 1QFY13

Jul‐12

2,671

2,030 3QFY12

4QFY12

1,313 2QFY12

2,857

744 2QFY11

1QFY12

1,440 1QFY11

2,222

2,240 4QFY10

4QFY11

1,502 3QFY10

2,745

876 2QFY10

3QFY11

1,969

Apr‐12

CD ratio has moderated YTD

1QFY10

56 21‐S ep‐12

1QF Y13

4QF Y12

3QF Y12

561

605 2QF Y12

1QF Y12

4QF Y11

3QF Y11

171 2QF Y11

1QF Y11

4QF Y10

3QF Y10

2,170

1,461

1,767

1,634

2,202

791 2QF Y10

1QF Y10

256

1,499

3,401

Incremental loans flat QoQ (INR b)

Liquidity has improved since April/May-12

CD Ratio (%)

N et R epo (INR b)

1,600

78.0

800

74.0

0

70.0

‐800

66.0 ‐1,600

Bulk deposit rates have cooled off significantly 12.5

Sep‐12

Jun‐12

Feb‐12

Nov‐11

Jul‐11

Apr‐11

Dec‐10

Sep‐10

May‐10

Apr‐09

2.5

Feb‐10

4.5

Oct‐09

6.5

Jul‐09

8.5

Slippage ratio for state-owned banks to remain high (%) PSB s (Ex‐SBIN) 3.3 2.8 2.3 1.9

2.4 1.9

8.0 7.0

7.2

Sep‐12

Feb‐12

Nov‐11

Sep‐11

Jul‐11

Apr‐11

Feb‐11

Nov‐10 8.1

8.0 7.9

6.9 7.0

2.6

8.3 8.4

8.6 8.5 8.1 8.2

8.3

8.5 8.1 8.0 8.0

8.0 7.4

6.0 5.0

10‐Yea r G‐Se c Yi el d

5.8 5.0

4.8 4.1

4.0

4.3

5.2

Referrals to CDR remain high Agg. De bt (INR b)

3.4 2.42.2

Sep‐10

9.0

PSBs

2.5

Jun‐10

1‐Year G‐Sec Yi el d

12 Mo nth (%)

10.5 9.4 9.8 9.0 9.7 10.2 9.5 9.5 8.9 7.9 10.1 6.5 9.4 9.6 9.4 9.3 8.8 8.7 5.6 6.7 5.8 6.0 7.6 6.0 6.3 4.7 4.6

10.5

Apr‐10

Yield cur ve remains flat (%)

Apr‐09 Jun‐09 Aug‐09 Nov‐09 Jan‐10 Apr‐10 Jun‐10 Sep‐10 Nov‐10 Jan‐11 Apr‐11 Jun‐11 Sep‐11 Nov‐11 Feb‐12 Apr‐12 Jun‐12 Sep‐12

6 Mon th (%)

‐2,400 Jan‐10

21‐Sep‐12

4QFY12

4QFY11 2QFY12

2QFY11

2QFY10 4QFY10

2QFY09 4QFY09

4QFY08

2QFY08

4QFY07

2QFY07

4QFY06

2QFY06

4QFY05

62.0

3.3

No. o f Ca ses Re cd . 87

2.6

49

1.7

41

31 202

226

679

205

192

4QF Y11 1QF Y12 2QFY12 3QFY12 4QF Y12 1QF Y13 2QF Y13E

29

FY10

FY11

FY12

1QFY13

2Q‐QTD

Sour ce: Company, MOSL October 2012

C–51

September 2012 Results Preview Sector: Financials

NBFCs - performance continues to be strong The performance of retail NBFCs (HFCs as well as retail AFCs) remains strong, led by healthy growth and benign asset quality outlook. Pick-up in monsoon, expected resolution of some of the issues faced by the Infrastructure segment, SEB package, and continued buoyancy in the rural economy augurs well for the growth and asset quality of NBFCs. Even improvement in liquidity and decline in bulk borrowing rates will lead to healthy spreads and profitability. While there are various positives at play, increasing competition from banks (especially in home loan and auto loan segments) and rising delinquencies in the CV segment reduce the margin of safety to an extent, as valuations remain rich. Within the NBFC space, we continue to like HDFC, IDFC and MMFS. Housing Finance Companies: For housing finance companies (HFCs), 2QFY13 is likely to remain a steady quarter, as growth in individual loans remains buoyant. Growth in the developer loan portfolio is likely to remain muted due to unfavorable macro environment. However, we expect overall loan growth for HDFC, LICHF (despite weak developer loan growth) and DEWH to remain healthy. Margins are likely to remain stable on a sequential basis. Asset quality would continue to be healthy. No major regulatory changes were announced during the quarter. Infrastructure Finance Companies: 2QFY13 witnessed one of the major and much awaited reforms in the form of SEB Debt Restructuring Plan to improve the financial health of DISCOMs. We believe this is a major step forward by the government towards reforms and also for the Infrastructure / Power sector as a whole. For the major infrastructure finance companies (IFCs) - IDFC, POWF and RECL, we expect growth to remain healthy. Margins are likely to get some cushion due to fall in wholesale rates YTD. Overall, we expect margins to be stable QoQ. While no large accounts are likely to fall into NPA category, asset quality will remain a key monitorable in the current environment. Asset Finance Companies: Retail asset finance companies (AFCs) have delivered strong performance both in terms of growth as well as asset quality in the current cycle. Among the AFCs under our coverage, we expect MMFS to report healthy growth in AUM on the back of its multi-product strategy; for SHTF, growth is likely to remain sluggish. Margins would remain stable sequentially. Asset quality will be a key monitorable against the backdrop of slowdown in the macroeconomic environment and delayed monsoon. During the quarter, the RBI released the final securitization as well as the final priority sector guidelines. The final guidelines on both the issues are less disruptive and are unlikely to impact the AFCs in a negative way.

October 2012

C–52

September 2012 Results Preview Sector: Financials

Expected quarterly performance summary CMP (INR) 28.09.12

Rating

(INR Million) Net Interest income Sep.12 Var. Var. % YoY % QoQ

Operating Profit Sep.12 Var. Var. % YoY % QoQ

Net Profit Sep.12 Var. % YoY

Financials Private Banks Axis Bank 1,137 Buy 22,743 13.3 4.3 20,314 14.4 3.5 11,242 Federal Bank 446 Buy 5,190 9.4 5.6 3,835 6.1 10.7 2,006 HDFC Bank 629 Neutral 36,067 22.5 3.5 27,598 29.8 6.9 15,616 ICICI Bank 1,057 Buy 32,582 30.0 2.0 30,430 29.3 3.2 18,236 IndusInd Bank 354 Buy 5,232 24.8 8.1 4,300 29.1 6.4 2,481 ING Vysya Bank 407 Buy 3,527 16.1 2.7 2,254 19.0 3.6 1,321 Kotak Mah. Bank (SA) 648 Neutral 7,463 23.3 3.5 4,564 20.1 1.8 2,764 Yes Bank 382 Buy 4,975 29.0 5.4 4,893 26.8 6.5 3,066 Pvt Banking Sector Aggregate 117,778 22.1 3.6 98,187 24.2 4.8 56,733 PSU Banks Andhra Bank 113 Buy 9,737 2.4 3.8 6,990 1.8 -0.6 3,209 Bank of Baroda 799 Neutral 28,121 9.6 0.5 22,446 5.5 0.2 10,833 Bank of India 310 Neutral 23,844 25.2 16.7 18,708 20.6 11.8 7,095 Canara Bank 431 Buy 19,006 -3.1 3.1 13,970 -13.0 0.2 7,336 Indian Bank 192 Buy 11,991 5.6 4.0 8,908 -3.3 6.0 4,709 Oriental Bank of Comm. 302 Buy 11,799 19.2 4.8 8,840 16.6 -1.4 3,320 Punjab National Bank 840 Buy 37,455 8.5 1.4 28,275 11.9 -0.5 12,183 State Bank 2,238 Buy 114,777 9.5 3.2 84,660 13.3 3.5 36,952 Union Bank 208 Buy 19,468 17.2 6.9 13,685 13.6 8.0 5,834 PSU Banking Sector Aggregate 276,198 10.0 4.1 206,482 9.5 3.1 91,472 PSU Banking Sector Aggregate Ex SBI 161,421 10.4 4.7 121,822 7.0 2.7 54,520 NBFC Dewan Housing 200 Buy 1,596 43.3 11.1 1,417 44.1 18.5 954 HDFC 773 Buy 14,663 17.9 12.4 16,413 21.2 15.6 11,592 IDFC# 154 Buy 6,548 31.5 4.1 6,793 31.0 3.6 4,002 LIC Housing Fin 282 Buy 3,817 14.2 8.9 3,730 11.2 7.2 2,559 M & M Financial 898 Buy 5,214 33.6 6.9 3,430 35.1 5.6 1,863 Power Finance Corp.* 189 Buy 14,031 29.9 0.7 13,806 30.9 0.4 9,713 Rural Electric. Corp.* 218 Buy 11,711 23.3 0.5 11,801 23.0 -1.5 8,548 Shriram Transport F in. 619 Buy 8,384 0.4 4.5 6,882 0.9 1.4 3,295 NBFC Banking Sector Aggregate 65,964 21.2 5.1 64,272 22.2 5.0 42,527 Sector Aggregate 459,940 14.4 4.1 368,940 15.2 3.9 190,732 * For POWF/RECL operating profit and profit after tax are adjusted for forex gains/losses # For IDFC operating profit and profit after tax growth is adjusted for extraordinary gains in 2QFY12

October 2012

Var. % QoQ

22.2 4.9 30.2 21.3 28.5 14.5 6.3 30.5 22.9

-2.5 5.4 10.2 0.5 5.0 1.5 -2.1 5.7 2.9

1.5 -7.1 44.5 -13.9 0.5 98.0 1.1 31.5 65.5 16.8 8.6

-11.3 -4.9 -20.0 -5.4 2.0 -15.2 -2.2 -1.5 14.0 -4.0 -5.6

32.8 19.4 20.5 1.3 37.4 21.1 19.3 10.1 18.7 19.0

22.7 15.7 5.4 12.4 15.7 -5.6 -5.5 2.4 3.6 -0.4

C–53

September 2012 Results Preview Sector: Financials

Relative Performance-3m (%)

Relative Performance-1Yr (%)

Se ns e x Inde x MOSL Fi nanci al s Index

120

Se ns ex Index MOSL Fi na nci a l s Index

130 120

110

110 100

Sep-12

Jun-12

Dec-11

Sep-11

Sep-12

Aug-12

80 Jul-12

80 Jun-12

90 Mar-12

100

90

Comparative valuation CMP (INR) 28.09.12 Private Banks Axis Bank 1,137 Federal Bank 446 HDFC Bank 629 ICICI Bank 1,057 IndusInd Bank 354 ING Vysya Bank 407 Kotak Mah. Bank 648 Yes Bank 382 Private Bank Aggregate PSU Banks Andhra Bank 113 Bank of Baroda 799 Bank of India 310 Canara Bank 431 Indian Bank 192 Oriental Bank 302 Punjab Nat. Bank 840 State Bank 2,238 Union Bank 208 PSU Bank Aggregate NBFC Dewan Housing 200 HDFC 773 IDFC 154 LIC Housing Fin 282 M & M Financial 898 Power Finance Corp 189 Rural Electric. Corp. 218 Shriram Transport 619 NBFC Aggregate Sector Aggregate

October 2012

Rating

EPS (INR) FY12 FY13E FY14E

P/E (x) FY12 FY13E FY14E

Buy Buy Neutral Buy Buy Buy Neutral Buy

102.7 45.4 22.0 56.1 17.2 30.4 24.7 27.7

109.5 47.0 28.7 68.3 22.0 35.4 26.2 35.4

125.6 55.7 35.8 78.7 27.5 40.3 29.8 43.0

11.1 9.8 28.6 18.9 20.6 13.4 26.2 13.8 19.7

10.4 9.5 21.9 15.5 16.1 11.5 24.7 10.8 16.4

9.0 8.0 17.6 13.4 12.9 10.1 21.8 8.9 13.9

2.1 1.3 4.9 2.1 3.7 1.6 3.7 2.9 3.1

1.8 1.2 4.2 1.9 3.1 1.4 3.2 2.4 2.7

1.6 1.1 3.6 1.7 2.5 1.3 2.8 1.9 2.4

20.3 14.4 18.7 12.8 19.2 14.3 15.4 23.1 15.9

18.8 13.4 20.7 14.2 20.7 13.0 13.7 24.1 16.7

18.4 14.3 21.9 14.7 21.6 13.2 13.8 23.9 17.4

Buy Neutral Neutral Buy Buy Buy Buy Buy Buy

24.0 121.4 46.6 74.1 40.6 39.1 144.0 228.6 32.3

25.0 110.6 53.9 73.7 42.8 50.8 155.5 284.5 42.0

28.0 129.0 63.7 85.5 45.7 56.6 185.1 330.3 48.1

4.7 6.6 6.7 5.8 4.7 7.7 5.8 9.4 6.4 7.4

4.5 7.2 5.8 5.9 4.5 5.9 5.4 7.5 4.9 6.5

4.0 6.2 4.9 5.0 4.2 5.3 4.5 6.5 4.3 5.6

0.8 1.3 1.0 0.9 0.9 0.8 1.1 1.4 0.9 1.3

0.7 1.1 0.8 0.8 0.8 0.7 0.9 1.2 0.8 1.1

0.7 1.0 0.7 0.7 0.7 0.7 0.8 1.0 0.7 0.9

19.2 22.1 15.6 17.1 19.8 10.7 21.1 17.2 14.9 17.4

17.5 16.6 15.5 14.9 18.0 12.7 18.5 17.8 16.8 16.7

17.2 16.8 16.0 15.2 16.8 12.8 18.8 18.0 16.9 16.8

25.6 27.9 10.3 18.1 60.4 23.9 28.6 55.6

37.7 32.1 10.9 21.8 79.4 29.5 34.9 59.8

51.3 38.6 13.3 31.7 93.7 32.7 41.7 70.4

7.8 22.7 15.0 15.6 14.9 7.9 7.6 11.1 15.1 12.3

5.3 19.1 14.2 12.9 11.3 6.4 6.3 10.3 12.7 10.6

3.9 15.0 11.7 8.9 9.6 5.8 5.2 8.8 10.7 9.0

1.2 5.9 1.8 2.5 3.1 1.2 1.5 2.3 2.9 2.1

1.0 5.4 1.6 2.2 2.6 1.1 1.3 2.0 2.5 1.8

0.8 4.3 1.5 1.8 2.2 0.9 1.1 1.6 2.1 1.6

18.5 27.3 16.2 20.3 22.8 17.5 20.5 23.1 19.5 17.3

21.7 29.4 14.8 18.0 25.1 17.6 21.6 20.6 19.4 17.2

22.7 30.9 16.0 20.8 24.6 17.4 22.2 20.3 19.9 17.5

Buy Buy Buy Buy Buy Buy Buy Buy

P/BV (x) FY12 FY13E FY14E

RoE (%) FY12 FY13E FY14E

C–54

September 2012 Results Preview Sector: Financials

Andhra Bank BSE Sensex

18,763

S&P CNX

5,703

Bloomberg ANDB IN Equity Shares (m) 559.6 52 Week Range (INR) 139/79 1,6,12 Rel Perf (%) 17/-12/-23 Mcap (INR b) 63.0 Mcap (USD b) 1.2 



  

CMP: INR113 Year End 3/11A 3/12A 3/13E 3/14E

Buy

NET INC. PAT EPS (INR m) (INR m) (INR) 41,179 12,671 22.6 46,193 13,447 24.0 49,767 13,998 25.0 56,158 15,658 28.0

EPS Gr. (%) 5.0 6.1 4.1 11.9

P/E (X) 5.0 4.7 4.5 4.0

BV (INR) 116 134 152 173

P/BV (X) 1.0 0.8 0.7 0.7

P/ABV (X) 1.0 0.9 0.9 0.8

RoAA (%) 1.3 1.1 1.0 1.0

RoAE (%) 23.2 19.2 17.5 17.2

NIM is likely to be stable QoQ, as the benefit of fall in cost of funds would be negated by corresponding pressure on yield on loans. The 25bp reduction in base rate in August 2012 and continuous reversal on account of FITL would keep yields under pressure. On a higher base of INR8.3b, slippages are likely to decline QoQ. However, due to challenges in the macro environment, we model in slippages at an elevated level of INR5b+. ANDB has performed well on recoveries and upgradations in 2HFY12, and strong performance on these could provide cushion to asset quality. With the exception of SEBs, the pace of restructuring is likely to slow down in 2QFY13. However, ANDB's exposure to some SEBs may get restructured in FY13. The stock trades at 0.7x FY14E BV, and at 4x FY14E EPS. Maintain Buy. Key things to watch for: (1) Asset quality: Net slippages and outlook on restructuring and (3) NIM performance.

Quarterly Performance

(INR Million)

Y/E March Interest Income Interest Expense Net Interest Income % Change (Y-o-Y) Other Income Net Income Operating Expenses Operating Profit % Change (Y-o-Y) Other Provisions Profit before Tax Tax Provisions Net Profit % Change (Y-o-Y) Operating Metrics NIM (Reported, %) NIM (Cal, %) Deposit Growth (%) Loan Growth (%) CASA Ratio (%) Tax Rate (%) Asset Quality OSRL (INR b) OSRL (%) Gross NPA (INR b) Gross NPA (%) E: MOSL Estimates October 2012

FY12

FY13

FY12

FY13E

1Q 26,342 17,239 9,104 23.7 2,170 11,273 4,277 6,997 37.1 1,770 5,227 1,370 3,857 20.4

2Q 27,825 18,313 9,512 21.4 1,778 11,290 4,423 6,868 21.7 2,607 4,261 1,100 3,161 4.3

3Q 29,230 19,392 9,839 17.1 2,353 12,191 4,515 7,676 22.5 3,094 4,582 1,550 3,032 -8.4

4Q 29,990 20,851 9,139 6.1 2,299 11,438 4,828 6,610 -7.1 2,437 4,173 776 3,397 8.6

1Q 31,215 21,830 9,385 3.1 2,357 11,742 4,708 7,034 0.5 2,066 4,968 1,350 3,618 -6.2

2QE 32,004 22,267 9,737 2.4 2,256 11,993 5,003 6,990 1.8 2,502 4,488 1,279 3,209 1.5

3QE 32,887 22,712 10,175 3.4 2,503 12,679 5,172 7,507 -2.2 2,516 4,991 1,422 3,568 17.7

4QE 34,083 23,428 10,654 16.6 2,699 13,354 5,656 7,697 16.5 2,702 4,995 1,392 3,603 6.1

113,387 75,794 37,593 16.7 8,599 46,193 18,042 28,150 16.7 9,907 18,243 4,796 13,447 6.1

130,188 90,237 39,952 6.3 9,816 49,767 20,540 29,228 3.8 9,785 19,442 5,444 13,998 4.1

3.8 3.7 21.7 32.0 27.8 26.2

3.8 3.8 20.2 21.5 26.1 25.8

3.8 3.8 20.2 20.3 26.6 33.8

3.3 3.3 14.9 17.1 26.4 18.6

3.3 3.2 18.5 14.3 26.7 27.2

3.3 16.3 18.0 28.5

3.3 16.3 16.0 28.5

3.3 16.0 15.0 27.9

3.7 3.5 14.9 17.1 26.4 26.3

3.2 16.0 15.0 28.0

21.7 2.9 11.8 1.6

22.5 3.0 19.9 2.7

32.3 4.1 18.8 2.4

55.9 6.6 18.0 2.1

67.7 7.8 23.6 2.7

26.1 3.0

29.5 3.2

32.8 3.4

55.9 6.6 18.0 2.1

32.8 3.4 C–55

September 2012 Results Preview Sector: Financials

Axis Bank BSE Sensex

S&P CNX

CMP: INR1,137

18,763 5,703 Bloomberg AXSB IN Equity Shares (m) 413.2 52 Week Range (INR) 1,309/785 1,6,12 Rel Perf (%) 5/-8/-8 Mcap (INR b) 469.7 Mcap (USD b) 8.9

     

Year Net Income End (INR m) 3/11A 111,951 3/12A 134,380 3/13E 154,433 3/14E 182,976

PAT (INR m) 33,885 42,422 46,566 53,422

Buy EPS (INR) 82.5 102.7 109.5 125.6

EPS Gr. (%) 33.0 24.4 6.6 14.7

P/E (X) 11.1 10.4 9.0

BV (INR) 463 547 625 731

P/BV (X) 2.1 1.8 1.6

P/ABV (X) 2.1 1.9 1.6

RoAA (%) 1.6 1.6 1.5 1.5

RoAE (%) 19.3 20.3 18.8 18.4

Loan growth is expected to remain strong at over 25% YoY, partially aided by a lower base of 2QFY12. NIM are likely to expand by 10bp, as low yielding priority sector loans runs off and bulk deposit rates have cooled down. In 1QFY13, AXSB had reported NIM of 3.4%. Fee income growth is expected to be ~15% YoY. Pressure on fees from Corporate Banking and Capital Marketrelated services is expected to continue, but Retail fees would remain strong. Gross stress addition (i.e. gross slippage and addition to restructured loans) is expected to remain high, so does the credit cost. Improvement in upgradations and recoveries remains the key. The stock trades at 1.8x FY13E and 1.6x FY14E BV, and at 10.4x FY13E and 9.0x FY14E EPS. Buy. Key things to watch for: (1) Pressure on asset quality has increased and performance on gross slippages and restructured loans remains a key thing to monitor, (2) margins are expected to improve, but scope for positive surprise remains, (3) fee income growth.

Quarterly Performance

(INR Million)

Y/E March

FY12

FY12

FY13E

1Q 48,814 31,573 17,241 13.9 11,679 28,920 13,335 15,585 7.5 1,758 13,826 4,403 9,424 27.0

2Q 52,760 32,687 20,073 24.3 12,349 32,422 14,665 17,756 19.5 4,056 13,701 4,497 9,203 25.2

3Q 57,770 36,367 21,403 23.5 14,298 35,701 15,109 20,592 24.2 4,223 16,369 5,346 11,023 23.7

4Q 60,603 39,142 21,461 26.2 15,876 37,337 16,962 20,376 11.9 1,393 18,983 6,210 12,773 25.2

1Q 64,829 43,030 21,799 26.4 13,355 35,154 15,517 19,637 26.0 2,588 17,048 5,513 11,535 22.4

2QE 66,526 43,783 22,743 13.3 14,649 37,392 17,078 20,314 14.4 3,659 16,656 5,413 11,242 22.2

3QE 68,292 44,549 23,742 10.9 15,912 39,654 18,104 21,550 4.7 4,590 16,960 5,512 11,448 3.9

4QE 69,665 45,791 23,874 11.2 18,359 42,233 19,007 23,227 14.0 4,903 18,324 5,983 12,341 -3.4

219,946 139,769 80,177 22.2 54,202 134,380 60,071 74,309 15.8 11,430 62,878 20,456 42,422 25.2

269,311 177,153 92,158 14.9 62,275 154,433 69,706 84,728 14.0 15,740 68,987 22,421 46,566 9.8

3.3 3.2 24.5 21.4 40.5 31.8

3.8 3.7 23.9 26.7 42.2 32.8

3.8 3.7 33.9 20.4 41.6 32.7

3.6 3.4 16.3 19.2 41.5 32.7

3.4 3.3 21.3 29.8 39.1 32.3

3.4 17.9 25.8 32.5

3.4 14.3 24.4 32.5

3.3 15.0 18.0 32.7

3.6 3.3 16.3 19.2 41.5 32.5

3.2 15.0 18.0 32.5

21.5 1.6 15.7 1.1

24.1 1.7 17.4 1.1

27.0 1.8 19.1 1.1

30.6 1.8 18.1 0.9

38.3 2.2 20.9 1.1

24.7 1.4

28.3 1.5

32.5 1.6

30.6 1.8 18.1 0.9

32.5 1.6

Interest Income Interest Expense Net Interest Income % Change (Y-o-Y) Other Income Net Income Operating Expenses Operating Profit % Change (Y-o-Y) Other Provisions Profit before Tax Tax Provisions Net Profit % Change (Y-o-Y) Operating Metrics NIM (Reported,%) NIM (Cal, %) Deposit Growth (%) Loan Growth (%) CASA Ratio (%) Tax Rate (%) Asset Quality OSRL (INR b) OSRL (%) Gross NPA (INR b) Gross NPA (on customer assets, %) E: MOSL Estimates October 2012

FY13

C–56

September 2012 Results Preview Sector: Financials

Bank of Baroda BSE Sensex

S&P CNX

CMP: INR799

18,763 5,703 Bloomberg BOB IN Equity Shares (m) 412.4 52 Week Range (INR) 881/606 1,6,12 Rel Perf (%) 21/-8/-13 Mcap (INR b) 329.3 Mcap (USD b) 6.2      

Year Net Income End (INR m) 3/11A 116,114 3/12A 137,393 3/13E 154,075 3/14E 180,172

Neutral

PAT EPS (INR m) (INR) 42,417 108 50,070 121 45,605 111 53,193 129

EPS Gr. (%) 29.1 12.4 -8.9 16.6

P/E (X) 6.6 7.2 6.2

BV (INR) 502 621 715 825

P/BV (X) 1.3 1.1 1.0

P/ABV (X) 1.3 1.2 1.0

RoAA (%) 1.3 1.2 0.9 0.9

RoAE (%) 25.2 22.1 16.6 16.8

Margins should remain stable QoQ or decline marginally, as the pressure on yields on loans would offset any benefits from fall in bulk deposit rates. NII is likely to grow 10% YoY. We expect fee income growth to moderate to sub-5% YoY. However, higher trading gains would lead to strong non-interest income growth of over 23% YoY. Stress on the balance sheet has increased, with gross slippage ratio in the last two quarters at 2%+. While slippages are expected to remain high, recoveries and upgradations could provide some respite to asset quality. The pace of restructuring had slowed down in 1QFY13, with the bank restructuring loans worth INR7.7b as against INR50.3b in 4QFY12. However, pressure in corporate segment restructuring is likely to continue. The stock trades at 1.1x FY13E and 1x FY14E BV, and 7.2x FY13E and 6.2x FY14E EPS. Maintain Neutral. Key things to watch for: (1) Performance on asset quality, especially on gross slippages, (2) Restructured portfolio, (3) Fee income growth, (4) Guidance on tax rate.

Quarterly Performance

(INR Million)

Y/E March

FY12

FY12

FY13E

1Q 66,318 43,346 22,972 23.6 6,409 29,380 11,198 18,183 19.0 3,911 14,272 3,944 10,328 20.2

2Q 72,514 46,845 25,669 25.9 7,343 33,013 11,743 21,270 28.4 4,834 16,436 4,775 11,661 14.4

3Q 76,720 50,165 26,555 15.8 11,493 38,048 12,097 25,952 40.2 8,367 17,585 4,686 12,899 20.7

4Q 81,185 53,211 27,974 7.0 8,978 36,952 16,550 20,402 4.9 8,437 11,965 -3,217 15,182 17.3

1Q 85,576 57,595 27,981 21.8 7,708 35,689 13,281 22,407 23.2 8,938 13,469 2,081 11,389 10.3

2QE 86,580 58,459 28,121 9.6 9,082 37,203 14,757 22,446 5.5 7,807 14,639 3,806 10,833 -7.1

3QE 89,114 59,921 29,193 9.9 9,775 38,968 15,187 23,780 -8.4 8,109 15,671 4,075 11,597 -10.1

4QE 93,379 62,356 31,023 10.9 11,193 42,216 17,007 25,209 23.6 8,981 16,227 4,440 11,787 -22.4

296,737 193,567 103,170 17.2 34,223 137,393 51,587 85,806 22.9 25,548 60,258 10,188 50,070 18.0

354,649 238,331 116,317 12.7 37,758 154,075 60,232 93,843 9.4 33,836 60,007 14,402 45,605 -8.9

2.9 2.7 22.9 25.2 33.9 27.6

3.1 2.9 22.1 23.9 34.0 29.1

3.0 2.9 24.0 25.8 34.1 26.6

3.0 2.8 26.0 25.7 33.2 -26.9

2.7 2.6 22.3 23.0 32.2 15.4

2.6 19.8 22.5 26.0

2.6 18.5 17.4 26.0

2.7 16.0 16.0 27.4

3.0 2.8 26.0 25.7 33.2 16.9

2.6 16.0 16.0 24.0

92.4 98.4 116.6 171.4 179.8 4.0 4.1 4.5 6.0 6.3 34.3 34.0 39.0 44.6 53.2 1.5 1.4 1.5 1.5 1.8 loans restructured in international book

58.7 2.0

64.3 2.1

68.7 2.0

171.4 6.0 44.6 1.5

68.7 2.0

Interest Income Interest Expense Net Interest Income % Change (YoY) Other Income Net Income Operating Expenses Operating Profit % Change (YoY) Other Provisions Profit before Tax Tax Provisions Net Profit % Change (YoY) Operating Metrics NIM (Reported, %) NIM (Calculated, %) Deposit Growth (%) Loan Growth (%) CASA Ratio (%) Tax Rate (%) Asset Quality OSRL (INR b) OSRL (%) Gross NPA (INR b) Gross NPA (%) E: MOSL Estimates; # This includes October 2012

FY13

C–57

September 2012 Results Preview Sector: Financials

Bank of India BSE Sensex

S&P CNX

18,763 5,703 Bloomberg BOI IN Equity Shares (m) 574.5 52 Week Range (INR) 408/254 1,6,12 Rel Perf (%) 11/-20/-16 Mcap (INR b) 178.3 Mcap (USD b) 3.4      

CMP: INR310 Year Net Income End (INR m) 3/11A 104,525 3/12A 116,346 3/13E 132,579 3/14E 156,010

Neutral

PAT EPS (INR m) (INR) 24,887 45.5 26,775 46.6 30,974 53.9 36,582 63.7

EPS Gr.(%) 37.4 2.5 15.7 18.1

P/E (X) 6.7 5.8 4.9

BV (INR) 283 327 371 423

P/BV (X) 1.0 0.8 0.7

P/ABV (X) 1.1 1.0 0.9

RoAA (%) 0.8 0.7 0.7 0.7

RoAE (%) 17.8 15.6 15.5 16.0

Loan growth is likely to be above industry average at ~25% YoY, while deposit growth is likely to be lower at ~17%. Lower deposit growth is in line with the bank’s strategy to reduce bulk deposits in its balance sheet. Margins are expected to improve by ~25bp in the absence of one-offs. In 1QFY13, margins had declined sharply by 60bp led by reversal of interest income on Air India restructuring and NPAs. Fee income should grow ~15% YoY. However, overall growth in non-interest income is likely to be flat, led by muted treasury gains and recoveries from written-off accounts. High slippages and restructuring are likely to continue translating into higher credit cost. The stock trades at 0.8x FY13E and 0.7x FY14E BV, and at 5.8x FY13E and 4.9x FY14E EPS. Maintain Neutral. Key things to watch for: (1) Gross and net slippages, (2) Restructured portfolio and outlook on the same, (3) Margin movement.

Quarterly Performance

(INR Million)

Y/E March Interest Income Interest Expense Net Interest Income % Change (Y-o-Y) Other Income Net Income Operating Expenses Operating Profit % Change (Y-o-Y) Other Provisions Profit before Tax Tax Provisions Net Profit % Change (Y-o-Y) Operating Metrics NIM (Reported, %) NIM (Cal, %) Deposit Growth (%) Loan Growth (%) CASA Ratio (Reported, %) Tax Rate (%) Asset Quality OSRL (INR b) OSRL (%) Gross NPA (INR b) Gross NPA (%) E: MOSL Estimates October 2012

FY12

FY13

FY12

FY13E

1Q 66,336 47,926 18,410 5.8 6,601 25,011 11,051 13,959 -1.0 5,672 8,287 3,112 5,175 -28.6

2Q 68,864 49,825 19,039 7.2 8,418 27,457 11,942 15,515 12.5 11,544 3,972 -940 4,911 -20.4

3Q 71,501 50,826 20,676 4.1 8,522 29,197 11,878 17,319 24.7 6,931 10,388 3,227 7,162 9.7

4Q 78,106 53,096 25,010 8.4 9,671 34,681 14,535 20,146 67.1 7,018 13,128 3,601 9,527 93.0

1Q 77,092 56,656 20,436 11.0 8,409 28,844 12,109 16,736 19.9 4,722 12,013 3,139 8,875 71.5

2QE 81,777 57,933 23,844 25.2 8,553 32,397 13,689 18,708 20.6 8,350 10,358 3,263 7,095 44.5

3QE 83,948 59,028 24,920 20.5 9,363 34,283 14,059 20,225 16.8 9,250 10,975 3,457 7,518 5.0

4QE 86,111 60,033 26,078 4.3 10,977 37,055 16,726 20,329 0.9 9,426 10,903 3,416 7,487 -21.4

284,807 201,672 83,134 6.4 33,212 116,346 49,407 66,939 24.3 31,164 35,775 9,000 26,775 7.6

328,928 233,650 95,278 14.6 37,302 132,579 56,582 75,997 13.5 31,748 44,249 13,275 30,974 15.7

2.2 2.3 25.4 21.6 30.5 37.6

2.4 2.4 24.1 17.7 31.6 -23.7

2.6 2.5 21.7 20.9 32.4 31.1

2.9 2.9 6.5 16.3 34.3 27.4

2.3 2.2 15.7 22.9 32.0 26.1

2.5 16.7 24.9 31.5

2.6 17.6 19.9 31.5

2.6 18.0 17.2 31.3

2.5 2.5 6.5 16.3 34.3 25.2

2.5 18.0 17.2 30.0

87.6 4.1 57.9 2.7

84.5 3.9 65.5 3.0

104.5 4.5 63.9 2.7

134.8 5.4 58.9 2.3

175.7 6.6 67.5 2.6

75.3 2.8

83.7 3.0

92.7 3.1

134.8 5.4 58.9 2.3

92.7 3.1

C–58

September 2012 Results Preview Sector: Financials

Canara Bank BSE Sensex

18,763

S&P CNX

5,703

Bloomberg CBK IN Equity Shares (m) 443.0 52 Week Range (INR) 566/306 1,6,12 Rel Perf (%) 28/-15/-19 Mcap (INR b) 191.0 Mcap (USD b) 3.6    

 

CMP: INR431 Year Net Income End (INR m) 3/11A 105,108 3/12A 106,169 3/13E 111,631 3/14E 133,833

Buy

PAT EPS (INR m) (INR) 40,259 90.9 32,827 74.1 32,634 73.7 37,860 85.5

EPS Gr. (%) 23.3 -18.5 -0.6 16.0

P/E (X) 5.8 5.9 5.0

BV (INR) 405 464 525 597

P/BV (X) 0.9 0.8 0.7

P/ABV (X) 1.0 0.9 0.8

RoAA (%) 1.3 0.9 0.8 0.8

RoAE (%) 26.4 17.1 14.9 15.2

Loan and deposit growth is expected to be below industry average at ~7% and ~10%, respectively, in line with CBK's strategy of de-bulking the balance sheet. Margins are expected to remain largely flat QoQ. Fee income growth is likely to be muted on a YoY basis. Lower decline in recoveries from written-off accounts may pressurize overall non-interest income growth. Slippages expected to remain at elevated levels. However, strong performance on recoveries and upgradations may ease some pressure. As at the end of 1QFY13, CBK has restructured INR55b of SEB loans, out of its overall exposure of INR120b. The stock trades at 0.8x FY13E and 0.7x FY14E BV, and 5.9x FY13E and 5x FY14E EPS. Buy. Key things to watch for: (1) Margins could surprise positively, (2) Trading profits and MTM write-back, given high proportion of AFS investments, (3) Performance on net slippages.

Quarterly Performance

(INR Million)

Y/E March Interest Income Interest Expense Net Interest Income % Change (Y-o-Y) Other Income Net Income Operating Expenses Operating Profit % Change (Y-o-Y) Other Provisions Profit before Tax Tax Provisions Net Profit % Change (Y-o-Y) Operating Metrics NIM (Rep, %) NIM (Cal, %) Deposit Growth (%) Loan Growth (%) CASA Ratio (%) Tax Rate (%) Asset Quality OSRL (INR b) OSRL (%) Gross NPA (INR b) Gross NPA (%) E: MOSL Estimates October 2012

FY12

FY13

FY12

FY13E

1Q 71,565 53,877 17,688 2.4 5,510 23,198 10,495 12,703 -14.4 3,446 9,258 2,000 7,258 -28.4

2Q 76,145 56,528 19,617 -2.1 8,283 27,900 11,847 16,053 13.4 5,531 10,522 2,000 8,522 -15.4

3Q 78,121 58,935 19,186 -8.2 7,791 26,976 11,209 15,767 4.2 5,012 10,756 2,000 8,756 -20.8

4Q 82,675 62,273 20,402 5.0 7,693 28,094 13,187 14,907 -12.0 4,616 10,291 2,000 8,291 -7.8

1Q 84,729 66,293 18,435 4.2 6,926 25,362 11,424 13,938 9.7 4,185 9,752 2,000 7,752 6.8

2QE 85,962 66,956 19,006 -3.1 7,542 26,548 12,578 13,970 -13.0 4,800 9,170 1,834 7,336 -13.9

3QE 87,872 67,626 20,246 5.5 8,344 28,590 13,342 15,248 -3.3 4,715 10,533 2,107 8,426 -3.8

4QE 90,080 68,343 21,736 6.5 9,395 31,132 15,066 16,066 7.8 4,729 11,337 2,218 9,119 10.0

308,506 231,613 76,893 -0.1 29,276 106,169 46,737 59,432 -2.4 18,605 40,827 8,000 32,827 -18.5

348,642 269,218 79,424 3.3 32,208 111,631 52,409 59,222 -0.4 18,430 40,792 8,158 32,634 -0.6

2.4 2.4 25.7 23.7 25.4 21.6

2.6 2.5 25.4 23.8 25.8 19.0

2.6 2.4 19.7 15.5 23.9 18.6

2.6 2.5 11.5 10.0 24.3 19.4

2.4 2.2 11.5 4.9 23.3 20.5

2.2 10.3 6.6 20.0

2.3 12.5 10.2 20.0

2.4 12.0 11.0 19.6

2.5 2.5 11.5 10.0 24.3 19.6

2.3 12.0 11.0 20.0

78.1 3.6 36.1 1.7

77.2 3.5 37.9 1.7

85.1 3.9 40.0 1.8

75.1 3.2 40.3 1.7

129.6 5.7 45.0 2.0

48.1 2.1

50.0 2.1

51.3 2.0

75.1 3.2 40.3 1.7

51.3 2.0

C–59

September 2012 Results Preview Sector: Financials

Dewan Housing Finance BSE Sensex

S&P CNX

18,763 5,703 Bloomberg DEWH IN Equity Shares (m) 116.8 52 Week Range (INR) 279/142 1,6,12 Rel Perf (%) 13/-25/-19 Mcap (INR b) 23.4 Mcap (USD b) 0.4

CMP: INR200 Year Net Income End (INR m) 3/11A 7,126 3/12E 8,418 3/13E 12,158 3/14E 15,225

Buy

PAT (INR m) 2,937 2,987 4,408 5,507

EPS (INR) 28.1 25.6 37.7 51.3

EPS Gr. (%) 48.8 -9.1 47.6 36.1

P/E (X) 7.8 5.3 3.9

BV (INR) 149 173 206 246

P/BV (X) 1.2 1.0 0.8

RoAA (%) 2.0 1.3 1.5 1.4

RoAE (%) 26.7 18.5 21.7 22.7

Consolidated financials 

DEWH’s strong loan growth momentum is likely to continue in 2QFY13. We expect loan growth (on balance sheet) of 35%+ YoY and AUM growth of 45%+ YoY. We expect NII to grow 43% YoY to INR1.6b.



Margins are likely to remain stable QoQ, as the liquidity situation has eased considerably and wholesale borrowing costs have come off substantially.



We expect asset quality to remain stable sequentially.



We expect PAT to grow 33% YoY and 23% QoQ to INR954m.



The stock trades at 1x FY13E and 0.8x FY14E BV. Maintain Buy.



Key things to watch for: (1) Business growth trends, (2) Movement in spreads, (3) Cost to income ratio, (4) FBHFL performance.

Quarterly Performance (Standalone)

(INR Million)

Y/E March Interest Income Interest Expenses Net Interest Income YoY Growth (%) Fees and other income Net Income YoY Growth (%) Operating Expenses YoY Growth (%) Operating Profits YoY Growth (%) Provisions Profit before Tax Tax Provisions PAT including extraordinary item YoY Growth (%) Extraordinary Items PAT excluding extraordinary item YoY Growth (%) Operating Metrics Loan growth (%) Borrowings growth (%) Cost to Income Ratio (%) Tax Rate (%) E: MOSL Estimates October 2012

FY12

FY13

FY12

FY13E

1Q 4,652 3,599 1,053 48.2 325 1,378 36.0 471 36.0 907 36.0 33.0 874 216 658.1 28.4 0 658 28.4

2Q 5,404 4,290 1,114 37.4 486 1,599 3.9 616 50.0 983 -13.0 116.0 867 148 718.9 -23.1 0 719 23.9

3Q 6,029 4,788 1,241 43.6 590 1,831 47.2 692 60.0 1,138 40.0 150.0 988 238 749.7 21.4 0 750 21.4

4Q 6,498 5,213 1,285 34.7 714 1,999 40.3 806 46.0 1,193 36.0 -62.0 1,255 317 937.6 59.9 250 688 17.2

1Q 6,957 5,521 1,436 36.4 432 1,868 35.5 672 43.0 1,196 32.0 150.0 1,046 268 778.0 18.2 0 778 18.2

2QE 7,531 5,935 1,596 43.3 600 2,196 37.3 779 26.0 1,417 44.0 127.0 1,290 335 954.5 32.8 0 954 32.8

3QE 8,039 6,262 1,778 43.3 650 2,428 32.6 860 24.0 1,568 38.0 134.0 1,434 373 1,061.0 41.5 0 1,061 41.5

4QE 8,603 6,666 1,937 50.8 713 2,651 32.6 924 15.0 1,727 45.0 171.2 1,556 408 1,147.2 22.4 0 1,147 66.8

22,583 17,890 4,693 40.5 2,114 6,807 30.4 2,585 48.0 4,221 21.0 237.0 3,984 920 3,064.3 15.6 250 2,814 22.5

31,130 24,383 6,747 43.8 2,395 9,142 34.3 3,235 25.0 5,907 40.0 582.2 5,325 1,385 3,940.7 28.6 0 3,941 40.0

56.7 55.9 34.2 24.7

50.7 61.7 38.5 17.1

49.8 50.8 37.8 24.1

37.2 28.9 40.3 25.3

39.5 38.6 36.0 25.6

37.2 28.9 35.5 26.0

37.1 41.1 35.4 26.0

44.6 47.6 34.9 26.3

37.2 28.9 38.0 23.1

44.6 47.6 35.4 26.0

C–60

September 2012 Results Preview Sector: Financials

Federal Bank BSE Sensex

S&P CNX

18,763 Bloomberg Equity Shares (m) 52 Week Range (INR) 1,6,12 Rel Perf (%) Mcap (INR b) Mcap (USD b)

5,703 FB IN 171.0 480/322 4/-3/7 76.2 1.4

     

CMP: INR446 Year Net Income End (INR m) 3/11A 22,634 3/12A 24,857 3/13E 27,048 3/14E 32,209

Buy

PAT EPS (INR m) (INR) 5,871 34.3 7,768 45.4 8,041 47.0 9,530 55.7

EPS Gr. (%) 26.4 32.3 3.5 18.5

P/E (X) 9.8 9.5 8.0

BV (INR) 298 333 369 412

P/BV (X) 1.3 1.2 1.1

P/ABV (X) 1.4 1.3 1.2

RoAA (%) 1.2 1.4 1.2 1.3

RoAE (%) 12.0 14.4 13.4 14.3

We expect loan growth to remain in line with industry average at ~17%. However, on a high base deposit growth expected to be below industry average at ~11%. Easing pressure on cost of deposits, improving yield on advances and absence of one-offs is likely to provide cushion to margins, which are expected to improve ~10bp. Fee income is expected to grow by ~5% YoY. However, expected strong trading gains would drive overall noninterest income, which is likely to grow ~24% YoY. On slippages, we expect a run-rate similar to 1QFY13. However, stress in the large corporate segment remains a risk. The stock trades at 1.2x FY13E and 1.1x FY14E BV, with RoA of over 1.2%. However, RoE is likely to be in lowerteens, as leverage remains low on strong capital base. Maintain Buy. Key things to watch for: (1) Trend in slippages and recoveries, (2) Business growth, (3) Fee income performance.

Quarterly Performance

(INR Million)

Y/E March Interest Income Interest Expense Net Interest Income % Change (YoY) Other Income Net Income Operating Expenses Operating Profit % Change (YoY) Other Provisions Profit before Tax Tax Provisions Net Profit % Change (YoY) Operating Metrics NIM (Reported,%) NIM (Cal, %) Deposit Growth (%) Loan Growth (%) CASA Ratio (%) Tax Rate (%) Asset Quality OSRL (INR b) OSRL (%) Gross NPA (INR b) Gross NPA (%) E: MOSL Estimates October 2012

FY12

FY13

FY12

FY13E

1Q 12,447 7,850 4,598 11.2 1,169 5,767 2,226 3,541 5.6 1,340 2,200 739 1,462 10.8

2Q 13,678 8,934 4,744 8.2 1,170 5,914 2,301 3,613 -6.2 722 2,891 979 1,912 36.2

3Q 14,668 9,388 5,280 18.1 1,379 6,660 2,472 4,187 17.4 1,153 3,035 1,016 2,019 41.1

4Q 14,790 9,878 4,912 9.7 1,606 6,518 2,793 3,724 6.3 155 3,569 1,193 2,376 38.4

1Q 15,367 10,451 4,916 6.9 1,243 6,160 2,695 3,465 -2.1 628 2,837 934 1,904 30.2

2QE 15,849 10,660 5,190 9.4 1,451 6,640 2,805 3,835 6.1 818 3,017 1,011 2,006 4.9

3QE 16,128 10,793 5,335 1.0 1,596 6,931 2,944 3,988 -4.8 962 3,025 998 2,027 0.4

4QE 16,424 10,928 5,496 11.9 1,821 7,317 3,162 4,156 11.6 1,122 3,033 929 2,104 -11.4

55,584 36,050 19,534 11.8 5,323 24,857 9,793 15,065 5.6 3,370 11,695 3,927 7,768 32.3

63,769 42,832 20,937 7.2 6,111 27,048 11,605 15,443 2.5 3,530 11,913 3,872 8,041 3.5

3.9 3.9 22.7 17.8 27.2 33.6

3.8 3.8 30.9 21.6 26.4 33.9

3.9 4.0 26.6 17.6 28.7 33.5

3.6 3.6 13.8 18.2 27.5 33.4

3.4 3.4 17.8 19.0 28.7 32.9

3.5 10.7 16.6 33.5

3.5 16.4 22.7 33.0

3.5 16.0 15.0 30.6

3.8 3.8 13.8 18.2 27.5 33.6

3.5 16.0 15.0 32.5

14.2 4.4 13.0 3.9

14.5 4.3 12.5 3.6

14.4 4.3 13.6 4.0

24.7 6.5 13.0 3.4

26.7 7.0 14.1 3.6

15.3 3.8

16.5 3.9

18.1 4.1

24.7 6.5 13.0 3.4

18.1 3.4 C–61

September 2012 Results Preview Sector: Financials

HDFC BSE Sensex

18,763 Bloomberg Equity Shares (m) 52 Week Range (INR) 1,6,12 Rel Perf (%) Mcap (INR b) Mcap (USD b)

S&P CNX

5,703 HDFC IN 1,477.0 785/601 0/7/7 1,141.5 21.7

CMP: INR773 Year Net Income End (INR m) 3/11A 53,181 3/12A 61,975 3/13E 75,126 3/14E 90,173

Buy

PAT EPS (INR m) (INR) 35,350 24.1 41,226 27.9 49,225 32.1 59,173 38.6

EPS P/BV Gr. (%) (X) 22.4 15.8 6.0 15.1 4.9 20.2 4.3

ABV* AP/ABV* AP/AE# RoAA Adj RoE (INR) (X) (X) (%) (%) 91.2 2.9 26.6 100.5 5.9 22.7 2.8 27.3 105.9 5.4 19.1 2.9 29.4 125.8 4.3 15.0 2.9 30.9

* Price adj. for value of key ventures. BV is adj. by deducting invt in key ventures from NW # Price adj. for value of key ventures. EPS is adj. for dividend from key ventures 

HDFC’s loan growth (net of sell downs) is likely to remain healthy at ~20%+ YoY. Spreads should be largely stable at ~2.2%.



Non-interest income is likely to grow ~33% YoY. We have modeled investment gains of INR500m as against INR869m in 2QFY12. We expect dividend income to increase to INR1.8b from INR1.6b in 1QFY13.



Asset quality has remained healthy over the past several quarters and the trend is likely to continue. In 1QFY13, GNPAs were 0.79% on 90 days overdue basis and 0.49% on 180 days overdue basis.



However, we conservatively model higher provisions (similar to 1QFY13 levels) of INR424m against INR400m in 1QFY13 and INR170m in 2QFY12.



The stock trades at 4.3x FY14E AP/ABV and 15x FY14E AP/AEPS (price adjusted for value of other businesses and book value adjusted for investments made in those businesses). Maintain Buy.



Key things to watch for: (1) Movement of spreads, (2) Loan growth and guidance, (3) Asset quality trend.

Quarterly Performance

(INR Million)

Y/E March Interest Income Interest Expense Net Interest Income YoY Change (%) Profit on Sale of Inv. Other operating income Net Operating Income YoY Change (%) Other Income Total Income Operating Expenses Pre Provisioning Profit YoY Change (%) Provisions PBT Ex Invest. profits YoY Change (%) PBT YoY Change (%) Provision for Tax PAT YoY Change (%) E: MOSL Estimates October 2012

FY12 1Q 36,098 25,149 10,948 17.1 163 1,909 13,020 20.8 47 13,067 1,132 11,935 21.6 180 11,593 19.9 11,755 21.6 3,310 8,445 21.6

2Q 39,340 26,905 12,435 14.7 869 1,430 14,734 18.1 52 14,786 1,239 13,547 17.9 170 12,508 16.4 13,377 18.0 3,670 9,707 20.2

3Q 42,488 30,124 12,364 15.1 880 1,306 14,549 9.9 52 14,601 1,119 13,483 9.8 200 12,403 18.6 13,283 9.5 3,470 9,813 10.1

FY13 4Q 46,823 29,389 17,434 27.2 791 1,233 19,458 18.3 63 19,520 1,030 18,491 17.1 250 17,450 22.9 18,241 17.4 4,980 13,261 16.1

1Q 46,924 33,882 13,042 19.1 202 2,223 15,467 18.8 74 15,541 1,342 14,199 19.0 400 13,597 17.3 13,799 17.4 3,780 10,019 18.6

2QE 49,222 34,560 14,663 17.9 500 2,550 17,713 20.2 50 17,763 1,350 16,413 21.2 424 15,489 23.8 15,989 19.5 4,397 11,592 19.4

3QE 50,596 35,078 15,518 25.5 750 1,600 17,868 22.8 50 17,918 1,475 16,443 22.0 456 15,237 22.9 15,987 20.4 4,356 11,630 18.5

4QE 56,535 35,906 20,629 18.3 1,048 2,151 23,828 22.5 40 23,868 1,337 22,531 21.8 678 20,805 19.2 21,852 19.8 5,905 15,947 20.3

FY12

FY13E

163,689 111,568 52,121 16.3 2,702 6,939 61,762 16.7 213 61,975 4,519 57,456 16.4 800 53,954 19.7 56,656 16.4 15,430 41,226 16.6

203,277 139,426 63,852 22.5 2,500 8,524 74,876 21.2 250 75,126 5,504 69,622 21.2 1,958 65,164 20.8 67,664 19.4 18,438 49,225 19.4

C–62

September 2012 Results Preview Sector: Financials

HDFC Bank BSE Sensex

18,763

S&P CNX

CMP: INR629

5,703

Bloomberg HDFCB IN Equity Shares (m) 2,346.7 52 Week Range (INR) 639/400 1,6,12 Rel Perf (%) 0/13/23 Mcap (INR b) 1,475.4 Mcap (USD b) 28.0      

Year Net Income End (INR m) 3/11A 148,783 3/12A 175,405 3/13E 217,274 3/14E 263,511

Neutral

PAT EPS (INR m) (INR) 39,264 16.9 51,671 22.0 67,291 28.7 83,920 35.8

EPS Gr. (%) 31.0 30.4 30.2 24.7

P/E (X) 28.6 21.9 17.6

BV (INR) 109.1 127.4 149.4 176.8

P/BV (X) 4.9 4.2 3.6

P/ABV (X) 5.0 4.3 3.6

RoAA (%) 1.6 1.7 1.8 1.8

RoAE (%) 16.7 18.7 20.7 21.9

HDFCB is expected to deliver above industry loan and deposit growth, both on a YoY and QoQ basis. On a YoY basis, loans and deposits are likely to grow ~20% and ~19%, respectively. NIMs are expected to decline marginally QoQ. Strong loan growth coupled with healthy margins would translate into NII growth of 3% QoQ and ~23% YoY . Fee income growth is expected to be 20%+, aided by lower base. Further, trading gains and strong growth in forex income would boost growth in non-interest income to 30%+. Asset quality is likely to remain healthy. However, stress in few segments of retail loans has increased, which needs to be watched. The stock trades at 4.2x FY13E and 3.6x FY14E BV, and at 21.9x FY13E and 17.6x FY14E EPS. Maintain Neutral. Key things to watch for: (1) Traction in fee income, (2) Being largely in retail lending, HDFCB has reported commendable asset quality performance; trend and outlook on retail portfolio remains a key factor to watch.

Quarterly Performance

(INR Million)

Y/E March

FY12

FY12

FY13E

1Q 59,780 31,300 28,480 18.6 11,200 39,680 19,346 20,334 16.3 4,437 15,897 5,047 10,850 33.7

2Q 67,177 37,732 29,445 16.6 12,117 41,562 20,304 21,258 17.6 3,661 17,598 5,604 11,994 31.5

3Q 72,026 40,867 31,160 12.2 14,200 45,360 21,580 23,780 14.7 3,292 20,488 6,191 14,297 31.4

4Q 73,880 39,997 33,883 19.3 14,920 48,803 24,671 24,132 15.1 2,983 21,149 6,618 14,531 30.4

1Q 80,074 45,234 34,841 22.3 15,295 50,135 24,326 25,809 26.9 4,873 20,936 6,762 14,174 30.6

2QE 82,658 46,591 36,067 22.5 16,424 52,491 24,894 27,598 29.8 4,800 22,798 7,181 15,616 30.2

3QE 85,171 47,290 37,881 21.6 17,770 55,651 25,304 30,347 27.6 3,200 27,147 8,551 18,595 30.1

4QE 87,352 47,857 39,494 16.6 19,502 58,996 28,336 30,660 27.1 2,946 27,714 8,809 18,905 30.1

272,864 149,896 122,968 16.6 52,437 175,405 85,901 89,504 15.9 14,373 75,132 23,461 51,671 31.6

335,254 186,971 148,283 20.6 68,990 217,274 102,860 114,414 27.8 15,819 98,594 31,304 67,291 30.2

4.2 4.7 15.4 20.0 49.1 31.7

4.1 4.5 18.1 20.0 47.3 31.8

4.1 4.6 21.0 22.1 48.6 30.2

4.2 4.7 18.3 22.2 48.4 31.3

4.3 4.6 22.0 21.5 46.0 32.3

4.5 18.9 20.5 31.5

4.5 24.4 21.6 31.5

4.5 21.0 22.0 31.8

4.2 4.6 18.3 22.2 48.4 31.2

4.5 21.0 22.0 31.8

24.0 1.0

26.4 1.1

28.3 1.2

2.0 0.1 20.0 1.0

28.3 1.2

Interest Income Interest Expense Net Interest Income % Change (Y-o-Y) Other Income Net Income Operating Expenses Operating Profit % Change (Y-o-Y) Other Provisions Profit before Tax Tax Provisions Net Profit % Change (Y-o-Y) Operating Metrics NIM (Reported,%)* NIM (Cal, %)# Deposit Growth (%) Loan Growth (%) CASA Ratio (%) Tax Rate (%) Asset Quality OSRL (INR b) OSRL (%) Gross NPA (INR b) Gross NPA (%) E: MOSL Estimates; * Reported on October 2012

FY13

3.5 1.9 1.9 2.0 2.1 0.2 0.1 0.1 0.1 0.1 18.3 18.9 20.2 20.0 20.9 1.0 1.0 1.0 1.0 1.0 total assets; # Cal. on interest earning assets

C–63

September 2012 Results Preview Sector: Financials

ICICI Bank BSE Sensex

18,763

S&P CNX

5,703

Bloomberg ICICIBC IN Equity Shares (m) 1,152.8 52 Week Range (INR) 1,087/641 1,6,12 Rel Perf (%) 8/13/8 Mcap (INR b) 1,218.8 Mcap (USD b) 23.1

  

 

CMP: INR1,057

Buy

Year Net Income PAT EPS EPS P/E AP/E* ABV* AP/ABV* Core RoAA End (INR m) (INR m) (INR) Gr. (%) (X) (X) (INR) (X) RoAE (%) (%) 3/11A 156,648 51,514 44.7 23.9 19.7 371 11.5 1.3 3/12A 182,369 64,653 56.1 25.4 18.9 15.6 409 2.1 12.8 1.5 3/13E 220,063 78,775 68.3 21.8 15.5 12.6 453 1.9 14.2 1.5 3/14E 256,506 90,734 78.7 15.2 13.4 10.7 504 1.7 14.7 1.5 * Price adjusted for value of key ventures and BV adjusted for investments in these ventures

Loan growth is expected to remain healthy at 18% YoY, led by growth in the domestic segment. While on a YoY basis, deposit growth is likely to be a moderate 14%, on a QoQ basis, it is likely to be in line with loan growth. Fee income is expected to be muted. However, trading profits as against trading loss of INR800m in 2QFY12 would provide cushion to non-interest income. Asset quality has been holding fairly well over the past few quarters. We expect this to continue, given the benign asset quality in the retail segment, changing loan portfolio mix (unsecured retail loans now constitute just 1.3% of overall loans as against 9%+ in FY08), and better risk management practices. Excluding subsidiaries, the stock trades at 1.7x FY14E ABV (BV adjusted for NPAs and investments in subsidiaries) and 10.7x FY14E EPS. Maintain Buy. Key things to watch for: (1) Margin performance, (2) Guidance on loan growth, (3) While performance on asset quality has been strong, increasing stress in large and mid-corporate segments might lead to higher restructuring.

Quarterly Performance

(INR Million)

Y/E March Interest Income Interest Expense Net Interest Income % Change (YoY) Other Income Net Income Operating Expenses Operating Profit % Change (YoY) Other Provisions Profit before Tax Tax Provisions Net Profit % Change (YoY) Operating Metrics NIM (Reported,%) NIM (Cal, %) Deposit Growth (%) Loan Growth (%) CASA Ratio (%) Tax Rate (%) Asset Quality OSRL (INR b) OSRL (%) Gross NPA (INR b) Gross NPA (%) E: MOSL Estimates October 2012

FY12

FY13

FY12

FY13E

1Q 76,185 52,076 24,109 21.1 16,429 40,538 18,200 22,338 2.1 4,539 17,800 4,480 13,320 29.8

2Q 81,576 56,512 25,064 13.7 17,396 42,460 18,922 23,537 6.4 3,188 20,350 5,318 15,032 21.6

3Q 85,919 58,799 27,120 17.3 18,919 46,039 19,168 26,871 14.7 3,411 23,460 6,179 17,281 20.3

4Q 91,746 60,699 31,048 23.7 22,285 53,332 22,216 31,116 35.0 4,693 26,423 7,405 19,018 31.0

1Q 95,457 63,527 31,929 32.4 18,799 50,729 21,235 29,493 32.0 4,659 24,835 6,684 18,151 36.3

2QE 98,015 65,433 32,582 30.0 19,902 52,484 22,054 30,430 29.3 5,449 24,981 6,745 18,236 21.3

3QE 100,263 65,924 34,339 26.6 22,060 56,399 22,996 33,403 24.3 5,963 27,440 7,409 20,031 15.9

4QE 102,354 65,433 36,920 18.9 23,530 60,451 24,595 35,856 15.2 5,201 30,654 8,298 22,356 17.6

335,427 228,085 107,342 19.0 75,028 182,369 78,504 103,865 14.8 15,830 88,034 23,382 64,653 25.5

396,088 260,317 135,771 26.5 84,292 220,063 90,880 129,183 24.4 21,273 107,910 29,136 78,775 21.8

2.6 2.5 14.8 19.7 40.0 25.2

2.6 2.5 9.9 20.5 38.3 26.1

2.7 2.5 19.7 19.1 39.0 26.3

3.0 2.8 13.3 17.3 39.0 28.0

3.0 2.8 16.1 21.6 39.1 26.9

2.8 13.6 18.2 27.0

2.8 12.2 15.7 27.0

2.9 20.6 15.4 27.1

2.7 2.6 13.3 17.3 39.0 26.6

2.8 20.6 15.4 27.0

19.7 0.9 99.8 4.4

25.0 1.1 100.2 4.1

30.7 1.2 97.2 3.8

42.6 1.7 94.8 3.6

41.7 1.6 98.2 3.5

99.2 3.5

102.2 3.5

104.1 3.5

42.6 1.7 94.8 3.6

104.1 3.5 C–64

September 2012 Results Preview Sector: Financials

IDFC BSE Sensex

S&P CNX

18,763 Bloomberg Equity Shares (m) 52 Week Range (INR) 1,6,12 Rel Perf (%) Mcap (INR b) Mcap (USD b)

5,703 IDFC IN 1,512.4 162/90 6/11/25 233.6 4.4

CMP: INR154

Buy

Year Net Inc. PAT End (INR m) (INR m) 3/11A 25,455 12,817 3/12A 29,788 15,540 3/13E 33,582 16,466 3/14E 39,479 20,047 *Adjusted for Investment in

EPS EPS (INR) Gr. (%) 8.8 7.4 10.3 17.1 10.9 6.0 13.3 21.7 subsidaries , Prices

P/E (x) 15.0 14.2 11.7 adjusted

ABV AP/ABV RoAA Core (INR)* (x) (%) RoE (%) 60.6 3.2 17.8 72.7 1.8 2.9 16.2 80.7 1.6 2.5 14.8 90.5 1.5 2.6 16.0 for other ventures



Loan growth is likely to remain strong. We model in 4% QoQ and 33% YoY loan growth.



We expect spreads to remain largely stable on a QoQ basis, translating into ~4% QoQ and 32% YoY growth in NII.



We factor modest gains of INR300m from principal investments as against INR2.4b in 2QFY12 (one-off; IDFC had booked gains on partial stake sale in NSE).



Revenues from Investment Banking and Broking likely to remain muted sequentially, given the subdued activity levels in capital markets. However, we expect revenues from Asset Management to improve marginally QoQ.



Asset quality is expected to remain stable. However, we conservatively model in provisions of INR1b as against INR631m in 2QFY12.



The stock trades at 11.7x FY14E EPS and 1.5x FY14E ABV. Maintain Buy.



Key things to watch for: (1) Business growth guidance, (2) Movement in spreads, (3) Emerging asset quality trends.

Quarterly Performance

(INR Million)

Y/E March NII % Change (YoY) - Infra Loans - Treasury Fees - Asset management - IB and Broking - Loan related/others Principal investments Other Income Net Income % Change (YoY) Operating Expenses Operating profit % Change (YoY) Provisions PBT Tax PAT Less: Consol Adjustments Consol PAT % Change (YoY) E: MOSL Estimates October 2012

FY12 1Q 4,830 43.3 4,280 550 1,165 620 150 395 (20) 76 6,051 (1.1) 1,142 4,909 399 4,509 1,378 3,132 (4.8) 3,136 (6.2)

2Q 4,980 33.2 4,390 590 1,480 800 180 500 2,430 11 8,901 36.9 1,314 7,587 44.0 631 6,956 1,715 5,241 (1.7) 5,243 54.9

FY13 3Q 5,460 18.7 4,730 730 1,220 680 240 300 910 7 7,597 15.1 1,266 6,331 27.0 978 5,353 1,537 3,816 4.1 3,812 18.6

4Q 5,860 22.6 5,400 460 1,037 600 140 297 290 63 7,251 3.4 1,505 5,746 13.0 838 4,908 1,590 3,319 (29.7) 3,348 16.5

1Q 6,290 30.2 5,550 740 1,392 640 90 662 20 14 7,716 27.5 1,160 6,556 34.0 1,026 5,530 1,713 3,817 19.2 3,798 21.1

2QE 6,548 31.5 5,763 786 1,145 750 95 300 300 40 8,033 (9.7) 1,240 6,793 (10.0) 1,000 5,793 1,796 3,997 (5.0) 4,002 (23.7)

3QE 6,882 26.1 6,022 860 1,270 800 145 325 325 65 8,542 12.5 1,400 7,142 13.0 1,000 6,142 1,904 4,238 (5.0) 4,243 11.3

4QE 7,301 24.6 6,352 949 1,530 940 208 382 379 81 9,291 28.1 1,842 7,449 30.0 1,051 6,398 1,984 4,413 (9.2) 4,423 32.1

FY12

FY13E

21,130 28.1 18,800 2,330 4,902 2,700 710 1,492 3,610 157 29,799 13.6 5,227 24,572 22.0 2,846 21,726 6,219 15,508 (32.1) 15,540 21.2

27,022 27.9 23,687 3,335 5,336 3,130 538 1,669 1,024 200 33,582 12.7 5,642 27,941 14.0 4,077 23,864 7,398 16,466 0.0 16,466 6.0 C–65

September 2012 Results Preview Sector: Financials

Indian Bank BSE Sensex

S&P CNX

18,763 5,703 Bloomberg INBK IN Equity Shares (m) 429.8 52 Week Range (INR) 265/152 1,6,12 Rel Perf (%) 12/-23/-25 Mcap (INR b) 82.6 Mcap (USD b) 1.6      

CMP: INR192 Year Net Income End (INR m) 3/11A 52,180 3/12A 56,502 3/13E 60,014 3/14E 68,846

Buy

PAT EPS (INR m) (INR) 17,141 39.9 17,470 40.6 18,386 42.8 19,621 45.7

EPS Gr. (%) 10.2 1.9 5.2 6.7

P/E (X) 4.7 4.5 4.2

BV (INR) 184 215 248 283

P/BV (X) 0.9 0.8 0.7

P/ABV (X) 0.9 0.8 0.7

RoAA (%) 1.5 1.3 1.2 1.1

RoAE (%) 22.9 19.8 18.0 16.8

We expect business growth to moderate further, with a loan and deposit growth of 12-13%. NIM is likely to remain stable on a QoQ basis, however, decline ~30bp on a YoY basis. Consequently, NII growth would be restricted to just 5% YoY. Asset quality is expected to be under pressure, led by increased stress in the large corporate segment. Performance on recoveries and upgradations would be a key thing to watch for. INBK’s exposure to SEBs as at the end of 1QFY13 stood at INR50b, of which INR22b has been restructured. Restructuring of SEBs and other corporate accounts would lead to an increase in the restructured portfolio. The stock trades at 0.8x FY13E and 0.7x FY14E BV, and at 4.5x FY13E and 4.2x FY14E EPS. Maintain Buy. Key things to watch for: (1) Asset quality outlook: Gross slippages and restructured portfolio, (2) Margin performance.

Quarterly Performance

(INR Million)

Y/E March Interest Income Interest Expense Net Interest Income % Change (Y-o-Y) Other Income Net Income Operating Expenses Operating Profit % Change (Y-o-Y) Other Provisions Profit before Tax Tax Provisions Net Profit % Change (Y-o-Y) Operating Metrics NIM (%) NIM (Cal, %) Deposit Growth (%) Loan Growth (%) CASA Ratio (%) Tax Rate (%) Asset Quality OSRL (INR b) OSRL (%) Gross NPA (INR b) Gross NPA (%) E: MOSL Estimates October 2012

FY12

FY13

FY12

FY13E

1Q 27,814 17,514 10,300 11.2 2,493 12,793 4,982 7,811 -6.8 1,770 6,042 1,972 4,069 10.5

2Q 30,348 18,994 11,354 15.5 3,423 14,777 5,568 9,209 24.6 2,203 7,005 2,318 4,687 12.7

3Q 32,240 20,540 11,700 12.8 2,812 14,513 5,397 9,116 12.3 2,361 6,754 1,495 5,259 7.0

4Q 31,911 21,085 10,826 -2.6 3,070 13,896 5,923 7,973 -11.7 5,618 2,354 -1,100 3,454 -21.3

1Q 33,738 22,206 11,532 12.0 2,227 13,759 5,356 8,402 7.6 1,457 6,945 2,328 4,617 13.5

2QE 34,530 22,540 11,991 5.6 2,958 14,949 6,041 8,908 -3.3 1,982 6,926 2,216 4,709 0.5

3QE 35,220 22,878 12,342 5.5 2,973 15,315 5,916 9,399 3.1 2,348 7,051 2,256 4,795 -8.8

4QE 35,799 22,832 12,968 19.8 3,024 15,991 6,517 9,474 18.8 3,158 6,316 2,052 4,264 23.4

122,313 78,133 44,180 9.5 12,322 56,502 21,870 34,632 8.3 11,953 22,679 5,209 17,470 1.9

139,287 90,455 48,832 10.5 11,181 60,014 23,830 36,183 6.2 8,945 27,238 8,852 18,386 5.2

3.4 3.6 21.3 21.3 31.3 32.6

3.8 3.8 18.6 23.4 30.0 33.1

3.6 3.7 17.8 19.1 31.3 22.1

3.2 3.3 14.2 20.4 31.5 (46.7)

3.3 3.5 15.0 13.8 29.3 33.5

3.5 12.6 11.5 32.0

3.5 13.3 13.2 32.0

3.5 15.0 14.7 32.5

3.4 3.6 14.2 20.4 31.5 23.0

3.5 15.0 14.7 32.5

52.5 6.4 8.1 1.0

51.3 5.9 10.5 1.2

55.7 6.3 11.9 1.4

89.0 9.8 18.5 2.0

99.2 10.6 15.5 1.7

18.1 1.9

20.8 2.1

22.7 2.2

89.0 9.8 18.5 2.0

22.7 2.2

C–66

September 2012 Results Preview Sector: Financials

IndusInd Bank BSE Sensex

S&P CNX

18,763 Bloomberg Equity Shares (m) 52 Week Range (INR) 1,6,12 Rel Perf (%) Mcap (INR b) Mcap (USD b)

5,703 IIB IN 467.7 356/222 5/9/20 165.5 3.1

 

   

CMP: INR354 Year Net Income End (INR m) 3/11A 20,902 3/12A 27,160 3/13E 35,438 3/14E 44,971

Buy

PAT EPS (INR m) (INR) 5,773 12.4 8,026 17.2 10,287 22.0 12,844 27.5

EPS Gr. (%) 45.3 38.5 28.2 24.9

P/E (X) 20.6 16.1 12.9

BV (INR) 82 97 115 139

P/BV (X) 3.7 3.1 2.5

P/ABV (X) 3.7 3.1 2.6

RoAA (%) 1.4 1.6 1.6 1.7

RoAE (%) 19.3 19.2 20.7 21.6

We expect IIB to report above industry business growth, with loan growth of 30% and deposit growth of 23%. Margins are likely to expand ~10bp, led by decline in cost of funds and higher proportion of fixed loans. As a result, NII is expected to grow 25%. Traction in savings account (SA) deposits is likely to continue, providing further cushion to margins. Fee income growth expected to be strong at 30%. Asset quality is likely to remain healthy. In 1QFY13, IIB had reported a slippage ratio of 1.5%, led by higher slippages in the corporate segment. The stock trades at 3,1x FY13E and 2.5x FY14E BV, and at 16.1x FY13E and 12.9x FY14E EPS. Maintain Buy. Key things to watch for: (1) IIB has shown commendable performance on the asset quality front over the last few quarters; however, given its high exposure to the CV segment, performance on asset quality needs to be watched, (2) Growth in SA deposits, (3) Branch additions.

Quarterly Performance

(INR Million)

Y/E March

FY12 1Q 11,646 7,746 3,900 31.9 2,154 6,054 2,937 3,117 35.2 446 2,671 870 1,802 52.0

2Q 13,239 9,047 4,192 27.1 2,392 6,584 3,254 3,330 27.2 470 2,860 929 1,931 45.0

3Q 13,897 9,591 4,307 18.6 2,651 6,958 3,465 3,492 19.9 428 3,064 1,005 2,060 33.9

FY13

FY13E

4Q 14,810 10,166 4,644 19.7 2,921 7,565 3,774 3,791 27.2 460 3,331 1,097 2,234 30.1

1Q 16,320 11,479 4,841 24.1 3,188 8,029 3,989 4,040 29.6 535 3,505 1,143 2,363 31.1

2QE 16,941 11,709 5,232 24.8 3,264 8,495 4,195 4,300 29.1 625 3,675 1,194 2,481 28.5

3QE 17,492 11,885 5,607 30.2 3,494 9,102 4,474 4,628 32.5 725 3,903 1,268 2,635 27.9

4QE 18,012 12,012 6,000 29.2 3,812 9,812 4,823 4,989 31.6 832 4,157 1,347 2,809 25.8

53,592 36,549 17,042 23.8 10,118 27,160 13,430 13,730 26.9 1,804 11,927 3,900 8,026 39.0

68,765 47,085 21,680 27.2 13,758 35,438 17,481 17,957 30.8 2,717 15,240 4,953 10,287 28.2

3.3 3.3 23.3 34.0 27.3 32.9

3.2 3.3 27.8 31.2 27.9 32.6

3.4 23.4 29.8 32.5

3.4 23.7 27.8 32.5

3.5 25.0 25.0 32.4

3.3 3.6 23.3 34.0 27.3 32.7

3.7 25.0 25.0 32.5

0.9 0.9 0.3 0.2 3.5 3.7 4.1 4.6 5.1 1.0 1.0 1.0 1.1 1.2 assets, yearly on interest earning assets

0.9 0.3 3.5 1.0

5.1 1.2

Interest Income Interest Expense Net Interest Income % Change (YoY) Other Income Net Income Operating Expenses Operating Profit % Change (YoY) Other Provisions Profit before Tax Tax Provisions Net Profit % Change (YoY) Operating Metrics NIM (Reported,%) 3.4 3.4 3.3 NIM (Cal, %) 3.3 3.4 3.3 Deposit Growth (%) 28.8 22.6 32.3 Loan Growth (%) 31.4 28.5 29.7 CASA Ratio (%) 28.2 27.7 26.5 Tax Rate (%) 32.5 32.5 32.8 Asset Quality OSRL (INR b) 1.1 0.9 0.7 OSRL (%) 0.4 0.3 0.2 Gross NPA (INR b) 3.1 3.3 3.3 Gross NPA (%) 1.1 1.1 1.0 E: MOSL Estimates; Quarterly calculated margins based on total October 2012

FY12

C–67

September 2012 Results Preview Sector: Financials

ING Vysya Bank BSE Sensex

S&P CNX

18,763 Bloomberg Equity Shares (m) 52 Week Range (INR) 1,6,12 Rel Perf (%) Mcap (INR b) Mcap (USD b)

5,703 VYSB IN 150.1 415/276 4/8/20 61.1 1.2

  

 

CMP: INR407 Year Net Income End (INR m) 3/11A 16,614 3/12A 18,781 3/13E 22,409 3/14E 26,809

Buy

PAT EPS (INR m) (INR) 3,186 26.3 4,563 30.4 5,313 35.4 6,055 40.3

EPS Gr. (%) 42.3 15.4 16.4 14.0

P/E (X) 13.4 11.5 10.1

BV (INR) 208 258 288 322

P/BV (X) 1.6 1.4 1.3

P/ABV (X) 1.6 1.4 1.3

RoAA (%) 0.9 1.1 1.0 1.0

RoAE (%) 13.4 14.3 13.0 13.2

Business growth is expected to be above industry average, with loans and deposits growing at 21-22% YoY. Though margins would be lower by 10bp on a YoY basis, they would be stable QoQ at 3.3%. NII is likely to grow 16% YoY and 3% QoQ. Macro-economic challenges coupled with high exposure to the SME segment could lead to some pressure on asset quality. In 1QFY13, slippages increased QoQ to INR1b, led by higher slippages in the mid-corporate and SME segments. We expect similar run-rate of slippages to continue; upgradations and recoveries need to be watched. The stock trades at 1.4x FY13E and 1.3x FY14E BV, and at 11.5x FY13E and 10.1x FY14E EPS. Maintain Buy. Key things to watch for: (1) Margin movement, (2) Fee income and opex growth, which would be key factors for RoA improvement, (3) Performance on asset quality.

Quarterly Performance

(INR Million)

Y/E March Interest Income Interest Expense Net Interest Income % Change (Y-o-Y) Other Income Net Income Operating Expenses Operating Profit % Change (Y-o-Y) Other Provisions Profit before Tax Tax Provisions Net Profit % Change (Y-o-Y) Operating Metrics NIM (Reported,%) NIM (Calculated,%) Deposit Growth (%) Loan Growth (%) CASA Ratio (%) Tax Rate (%) Asset Quality Gross NPA (INR b) Gross NPA (%) PCR ( %) E: MOSL Estimates

October 2012

FY12

FY13

FY12

FY13E

1Q 8,708 6,088 2,620 10.1 1,405 4,025 2,557 1,468 -1.2 62 1,406 466 940 36.1

2Q 9,331 6,295 3,036 19.4 1,625 4,661 2,767 1,894 2.8 175 1,719 566 1,154 53.3

3Q 9,915 6,679 3,236 31.6 1,699 4,935 2,822 2,113 32.5 334 1,779 584 1,195 44.0

4Q 10,615 7,423 3,192 18.9 1,968 5,160 2,957 2,203 53.9 566 1,637 363 1,274 39.5

1Q 11,714 8,281 3,433 31.0 1,710 5,142 2,967 2,175 48.1 267 1,908 607 1,301 38.4

2QE 11,973 8,447 3,527 16.1 1,860 5,387 3,133 2,254 19.0 325 1,929 608 1,321 14.5

3QE 12,248 8,616 3,632 12.2 2,065 5,697 3,289 2,408 13.9 450 1,958 627 1,331 11.4

4QE 12,516 8,720 3,796 18.9 2,387 6,183 3,455 2,729 23.8 711 2,018 659 1,359 6.7

38,568 26,485 12,084 20.1 6,698 18,781 11,102 7,679 20.9 1,138 6,541 1,978 4,563 43.2

48,451 34,064 14,387 19.1 8,022 22,409 12,844 9,565 24.6 1,752 7,813 2,500 5,313 16.4

3.0 3.0 29.4 25.5 33.8 33.1

3.4 3.3 17.8 22.8 32.6 32.9

3.5 3.5 16.1 22.6 32.6 32.8

3.3 3.2 16.6 21.8 34.2 22.2

3.3 3.2 14.6 22.9 33.3 31.8

3.2 21.5 20.7 31.5

3.2 25.0 19.8 32.0

3.2 22.0 20.0 32.7

3.3 3.2 16.6 21.8 34.2 30.2

3.2 22.0 20.0 32.0

5.2 2.2 83.9

5.1 2.0 84.8

5.4 2.0 85.0

5.6 1.9 90.7

5.9 2.0 90.4

6.4 2.1 86.0

6.9 2.1 82.0

7.5 2.1 79.3

5.6 1.9 90.7

7.5 2.1 79.3

C–68

September 2012 Results Preview Sector: Financials

Kotak Mahindra Bank BSE Sensex

S&P CNX

18,763 Bloomberg Equity Shares (m) 52 Week Range (INR) 1,6,12 Rel Perf (%) Mcap (INR b) Mcap (USD b)

5,703 KMB IN 740.7 650/418 6/15/27 479.9 9.1

CMP: INR648 Year End 3/11A 3/12A 3/13E 3/14E

Neutral

Cons. PAT Cons. EPS EPS (INR m) (INR) Gr. (%) 15,667 21.3 13.3 18,322 24.7 16.3 19,420 26.2 6.0 22,046 29.8 13.5

P/E Cons. BV P/BV (X) (INR) (X) 148.8 26.2 174.2 3.7 24.7 199.6 3.2 21.8 228.5 2.8

P/ABV (X) 3.8 3.3 2.9

Cons. RoAA* Core RoE (%) (%) RoE*(%) 16.6 1.9 15.4 15.4 1.9 15.4 14.0 1.5 13.7 13.9 1.5 13.8

* For standalone Bank

Lending business  Growth in profit of the lending business is likely to remain muted. We expect ~8% YoY growth in lending business profit.  Growth in loans and deposits for the standalone bank is expected to be ~19% YoY and ~21% YoY, respectively. Margins are likely to remain under pressure on a QoQ basis.  For Kotak Prime, we expect loan growth of ~18% YoY and PAT growth of ~10% YoY. Capital Market and Asset Management business We expect PAT of capital market related businesses to grow by ~22% YoY on a lower base. Profit from the Securities business would grow sequentially but decline on a YoY basis.  In the Asset Management business, we expect strong growth in profit to INR155m v/s INR80m in 2QFY12 and INR70m in 1QFY13, as international subsidiaries are expected to report profit in 2QFY13 v/s net loss of INR70m in 2QFY12.  The stock trades at 3.2x FY13E and 2.8x FY14E BV. Maintain Neutral.  Key things to watch for: (1) Business growth and outlook, (2) Improvement in CASA ratio, (3) Asset quality trends and (4) Margin movement. 

KMB Group: Earnings Trends

(INR Million)

Y/E March Kotak Bank (Standalone) Kotak Prime Kotak Mah. Investments Lending Business YoY Growth (%) Kotak Securities Kotak Mah. Capital Co. Capital Market Business YoY Growth (%) Intl. Subsidiaries Kotak Mah. AMC & Trustee Co. Kotak Investment Advisors Asset Management Business YoY Growth (%) Consol. PAT excluding Kotak Life YoY Growth (%) Kotak OM Life Insurance Consolidation Adjust. Consol. PAT Including Kotak Life YoY Growth (%) E: MOSL Estimates October 2012

FY12 1Q 2,520 940 30 3,490 29.3 230 10 240 -55.8 -30 90 110 170 -52.0 3,900 8.4 460 -200 4,160 26.9

2Q 2,600 900 30 3,530 33.7 290 -40 250 -57.7 -70 70 80 80 -60.7 3,860 12.4 530 -60 4,330 18.9

FY13 3Q 2,760 1,040 30 3,830 34.7 240 40 280 -48.4 -40 30 70 60 -71.3 4,170 16.0 470 -10 4,630 20.7

4Q 2,970 970 60 4,000 17.5 500 50 550 -16.9 30 30 100 160 -34.7 4,710 9.2 570 -70 5,210 6.2

1Q 2,820 940 40 3,800 8.9 230 60 290 20.8 -50 40 80 70 -58.8 4,160 6.7 320 -50 4,430 6.5

2QE 2,764 991 44 3,799 7.6 256 49 305 22.0 10 55 90 155 93.8 4,259 10.3 583 -30 4,812 11.1

3QE 2,718 1,034 48 3,800 -0.8 269 54 323 15.3 20 70 95 185 208.3 4,308 3.3 541 -30 4,818 4.1

4QE 2,892 1,092 53 4,038 0.9 288 59 347 -36.9 20 95 110 225 40.6 4,610 -2.1 790 -40 5,359 2.9

FY12

FY13E

10,850 3,849 153 14,852 28.0 1,260 60 1,320 -43.5 -110 220 360 470 -53.4 16,642 11.3 2,030 -349 18,322 16.9

11,195 4,057 185 15,437 3.9 1,044 222 1,265 -4.2 0 260 375 635 35.1 17,337 4.2 2,233 -150 19,420 6.0

C–69

September 2012 Results Preview Sector: Financials

LIC Housing Finance BSE Sensex

18,763 Bloomberg Equity Shares (m) 52 Week Range (INR) 1,6,12 Rel Perf (%) Mcap (INR b) Mcap (USD b)

S&P CNX

5,703 LICHF IN 505.0 290/206 7/-1/21 142.3 2.7

CMP: INR282 Year End 3/11A 3/12A 3/13E 3/14E

Net Inc. (INR m) 17,710 16,240 19,094 25,128

Buy

PAT Adj. PAT EPS EPS (INR m) (INR m)* (INR)* Gr. (%) 9,743 10,285 21.7 55.5 9,142 10,011 19.8 -8.4 11,015 11,015 21.8 10.0 15,987 14,827 29.4 34.6

P/E (X) 14.2 12.9 9.6

BV (INR) 87.8 112.5 129.2 153.5

P/BV Adj. Adj. RoAE (X) RoAA (%) (%) 2.4 27.2 2.5 1.8 20.3 2.2 1.6 18.0 1.8 1.7 20.8

*Adjusted for extraordinary items 

LICHF’s loan growth is likely to remain healthy on the back of buoyant demand in the individual loans segment. We expect loan growth to remain healthy at ~23% YoY. However, the YoY decline in the builder loan portfolio is likely to continue.



We expect margins to expand ~10bp QoQ, led by (1) moderating cost of funds, and (2) re-pricing of teaser rate loans (expected re-pricing of loans worth ~INR25b in 2QFY13), which would provide cushion to margins.



Asset quality is likely to remain healthy. We model provisioning expense of ~INR200m (v/s INR2b of provisions in 2QFY12 on account of change in the standard asset provisioning requirement by NHB) for the quarter.



The stock trades at 2.2x FY13E and 1.8x FY14E BV. Maintain Buy.



Key things to watch for: (1) Outlook on disbursement growth, especially builder loans, (2) Movement in spreads, (3) Emerging asset quality trends.

Quarterly Performance

(INR Million)

Y/E March Interest Income Interest Expenses Net Interest Income YoY Growth (%) Fees and other income Net Income YoY Growth (%) Operating Expenses Operating Profit YoY Growth (%) Provisions and Cont. Profit before Tax Tax Provisions Net Profit YoY Growth (%) Adj PAT (Post Tax) YoY Growth (%) Operating Metrics Loan Growth (%) Borrowings Growth (%) Cost to Income Ratio (%) Tax Rate (%) E: MOSL Estimates October 2012

FY12

FY13

FY12

FY13E

1Q 13,581 9,971 3,610 22.6 601 4,211 24.7 422 3,789 27.0 334 3,454 889 2,565 21.0 2,565 21.0

2Q 14,580 11,238 3,342 9.5 574 3,916 5.9 561 3,354 5.1 2,047 1,307 323 984 -58.0 2,527 7.9

3Q 15,387 12,129 3,258 -7.5 538 3,795 -30.4 534 3,262 -33.3 -797 4,059 1,003 3,056 43.1 2,258 -23.5

4Q 16,280 12,572 3,708 -11.8 610 4,318 -16.7 854 3,464 -22.7 -24 3,488 952 2,536 -19.4 2,536 -12.9

1Q 17,179 13,674 3,505 -2.9 494 3,999 -5.0 521 3,479 -8.2 436 3,043 766 2,277 -11.2 2,277 -11.2

2QE 18,038 14,221 3,817 14.2 603 4,420 12.9 690 3,730 11.2 200 3,530 971 2,559 160.1 2,559 1.3

3QE 18,869 14,718 4,151 27.4 676 4,826 27.2 715 4,111 26.0 225 3,886 1,069 2,817 -7.8 2,817 24.8

4QE 20,152 15,084 5,068 36.7 781 5,849 35.5 872 4,976 43.7 242 4,734 1,373 3,361 32.5 3,361 32.5

59,827 45,911 13,916 1.4 2,324 16,240 -8.3 2,371 13,870 -10.8 1,561 12,309 3,167 9,142 -6.2 10,011 -2.7

74,237 57,697 16,540 18.9 2,554 19,094 17.6 2,798 16,296 17.5 1,103 15,193 4,178 11,015 20.5 11,015 10.0

32.1 31.3 10.0 25.7

29.3 28.0 14.3 24.7

26.6 25.9 14.1 24.7

23.5 24.2 19.8 27.3

24.1 23.7 13.0 25.2

23.4 22.7 15.6 27.5

24.3 24.0 14.8 27.5

23.9 26.1 14.9 29.0

23.5 24.2 14.6 25.7

23.9 26.1 14.7 27.5

C–70

September 2012 Results Preview Sector: Financials

M & M Financial Services BSE Sensex

18,763

S&P CNX

5,703

Bloomberg MMFS IN Equity Shares (m) 102.7 52 Week Range (INR) 910/590 1,6,12 Rel Perf (%) 12/27/26 Mcap (INR b) 92.3 Mcap (USD b) 1.8

CMP: INR898 Year Net Income End (INR m) 3/11A 13,173 3/12A 16,743 3/13E 22,688 3/14E 27,460

PAT (INR M) 4,631 6,201 8,151 9,625

Buy EPS (INR) 45.2 60.4 79.4 93.7

EPS Gr. (%) 26.0 33.6 31.4 18.1

P/E (X) 14.9 11.3 9.6

BV (INR) 243 287 346 415

P/BV (X) 3.1 2.6 2.2

P/ABV RoA on (X) AUM (%) 3.7 3.2 3.5 2.7 3.6 2.2 3.5

RoAE (%) 22.0 22.8 25.1 24.6



MMFS will continue to benefit from its multi-product strategy and sustain the strong growth momentum in the CV, used vehicle and car segments. We expect AUM growth to be healthy at ~32% YoY.



Margins are likely to remain stable on a sequential basis. In 1QFY13, gross spreads were 9.3%.



MMFS delivered strong asset quality performance in FY12, which continued in 1QFY13. As at June 2012, GNPAs were 3.8% and NNPAs were 1.2%. We expect asset quality to remain healthy.



During the quarter, the company sold partial stakes in its insurance broking subsidiary. Gains on the same are likely to be booked in 3QFY13.



The stock trades at 2.6x FY13E and 2.2x FY14E BV. Maintain Buy.



Key things to watch for: (1) Business growth trends, (2) Movement in spreads, (3) Asset quality trends.

Quarterly Performance

(INR Million)

Y/E March Operating Income Other Income Total income YoY Growth (%) Interest Expenses Net Income Operating Expenses Operating Profit YoY Growth (%) Provisions Profit before Tax Tax Provisions Net Profit YoY Growth (%) Operating Metrics AUM growth (%) Borrowings growth (%) Cost to Income Ratio (%) Provisions/Operating Profits (%) Tax Rate (%) E: MOSL Estimates October 2012

FY12

FY13

FY12

FY13E

1Q 5,538 64 5,603 39.6 2,160 3,443 1,369 2,074 25.5 561 1,513 491 1,022 37.7

2Q 6,491 159 6,650 38.9 2,589 4,061 1,521 2,539 22.3 523 2,016 661 1,355 16.3

3Q 7,378 36 7,414 39.9 3,150 4,264 1,467 2,797 22.8 494 2,303 756 1,547 33.5

4Q 8,393 77 8,470 44.6 3,304 5,166 1,603 3,563 45.0 142 3,421 1,144 2,277 45.4

1Q 8,351 39 8,390 49.8 3,475 4,916 1,667 3,248 56.6 854 2,395 784 1,610 57.6

2QE 8,810 100 8,910 34.0 3,596 5,314 1,884 3,430 35.1 650 2,780 917 1,863 37.4

3QE 9,295 100 9,395 26.7 3,722 5,673 1,858 3,815 36.4 750 3,065 1,011 2,054 32.7

4QE 10,382 133 10,515 24.1 3,729 6,786 2,131 4,654 30.6 728 3,926 1,302 2,624 15.3

27,425 521 27,946 41.3 11,203 16,743 5,920 10,823 29.0 1,570 9,254 3,051 6,202 33.9

36,838 372 37,210 33.2 14,523 22,688 7,540 15,148 40.0 2,982 12,167 4,015 8,152 31.4

38.9 49.2 39.8 27.1 32.4

40.7 51.1 37.5 20.6 32.8

40.1 49.5 34.4 17.7 32.8

36.2 44.3 31.0 4.0 33.4

37.9 44.8 33.9 26.3 32.8

31.6 34.0 35.4 18.9 33.0

27.9 24.1 32.7 19.7 33.0

25.6 24.9 31.4 15.6 33.2

36.2 44.3 35.4 14.5 33.0

25.6 24.9 33.2 19.7 33.0

C–71

September 2012 Results Preview Sector: Financials

Oriental Bank of Commerce BSE Sensex

S&P CNX

18,763 5,703 Bloomberg OBC IN Equity Shares (m) 291.8 52 Week Range (INR) 324/190 1,6,12 Rel Perf (%) 36/15/-11 Mcap (INR b) 88.0 Mcap (USD b) 1.7

     

CMP: INR302 Year Net Income End (INR m) 3/11A 51,376 3/12A 54,560 3/13E 64,461 3/14E 74,684

Buy

PAT EPS (INR m) (INR) 15,029 51.5 11,416 39.1 14,821 50.8 16,502 56.6

EPS Gr. (%) 13.7 -24.0 29.8 11.3

P/E (X) 7.7 5.9 5.3

BV (INR) 350 380 419 462

P/BV (X) 0.8 0.7 0.7

P/ABV (X) 0.9 0.8 0.8

RoAA (%) 1.0 0.7 0.8 0.7

RoAE (%) 17.1 10.7 12.7 12.8

Focus on de-bulking of balance sheet coupled with higher base of 2QFY12 (sequential growth was 7.5%+) would lead to moderation in business growth. We expect sub-10% YoY growth in loans and deposits. Margins are likely to expand ~5bp, led by re-pricing of liabilities. However, pressure on loan yields would contain the expansion. We expect NII to grow ~5% QoQ and 19% YoY. Slippages are likely to remain elevated; continued traction in recoveries and upgradations would be the key. With the cabinet approving the SEB debt restructuring package, the pending restructuring of SEB loans would be important. Further stress in the large corporate segment could lead to increase in the restructuring pool. The stock trades at 0.7x FY13E and 0.7x FY14E BV, and at 5.9x FY13E and 5.3x FY14E EPS. Buy. Key things to watch for: (1) Performance on asset quality, especially on net slippages and restructured loans, (2) Margin movement, (3) Fee income growth has been volatile in the last few quarters; improvement in fee income growth would be a key positive, (4) Decrease in bulk deposits on the balance sheet.

Quarterly Performance

(INR Million)

Y/E March Interest Income Interest Expense Net Interest Income % Change (YoY) Other Income Net Income Operating Expenses Operating Profit % Change (YoY) Other Provisions Profit before Tax Tax Provisions Net Profit % Change (YoY) Operating Metrics NIM (Rep, %) NIM (Cal,%) Deposit Growth (%) Loan Growth (%) CASA Ratio (%) Tax Rate (%) Asset Quality OSRL (INR b) OSRL (%) Gross NPA (INR b) Gross NPA (%) E: MOSL Estimates October 2012

FY12

FY13

FY12

FY13E

1Q 35,965 25,782 10,183 -3.7 3,238 13,421 5,408 8,014 -2.5 3,143 4,871 1,324 3,547 -2.4

2Q 38,011 28,116 9,895 -8.1 2,774 12,669 5,087 7,582 -5.9 4,853 2,729 1,051 1,677 -57.8

3Q 41,965 30,566 11,399 10.7 2,953 14,352 6,081 8,271 6.9 3,809 4,462 920 3,542 -13.2

4Q 42,208 31,526 10,682 5.4 3,438 14,119 6,580 7,539 -10.6 5,344 2,196 -453 2,649 -20.6

1Q 42,872 31,613 11,258 10.6 4,084 15,343 6,377 8,965 11.9 3,321 5,644 1,730 3,914 10.4

2QE 43,996 32,197 11,799 19.2 3,591 15,390 6,550 8,840 16.6 4,097 4,744 1,423 3,320 98.0

3QE 45,167 32,738 12,429 9.0 3,557 15,986 6,781 9,204 11.3 4,180 5,024 1,457 3,567 0.7

4QE 46,636 33,261 13,375 25.2 4,367 17,743 7,417 10,325 37.0 4,565 5,761 1,742 4,019 51.7

158,149 115,991 42,158 0.9 12,402 54,560 23,155 31,406 -3.2 17,148 14,258 2,842 11,416 -24.0

178,671 129,810 48,861 15.9 15,600 64,461 27,125 37,336 18.9 16,163 21,172 6,352 14,821 29.8

2.9 2.7 17.5 14.1 23.4 27.2

2.6 2.6 18.9 20.8 22.9 38.5

2.9 2.9 20.8 21.9 22.3 20.6

2.7 2.6 12.2 16.7 24.1 -20.6

2.8 2.7 9.4 16.0 24.0 30.7

2.8 8.4 10.5 30.0

2.8 7.9 9.7 29.0

2.9 16.0 15.0 30.2

2.8 2.7 12.2 16.7 24.1 19.9

2.7 16.0 15.0 30.0

36.6 3.7 20.3 2.1

41.2 3.9 31.1 3.0

60.9 5.5 32.3 2.9

95.1 8.4 35.8 3.2

109.5 9.6 33.8 3.0

34.8 3.0

36.0 3.0

37.0 2.8

95.1 8.4 35.8 3.2

37.0 2.8 C–72

September 2012 Results Preview Sector: Financials

Power Finance Corporation BSE Sensex

S&P CNX

18,763 5,703 Bloomberg POWF IN Equity Shares (m) 1,319.9 52 Week Range (INR) 224/131 1,6,12 Rel Perf (%) 11/0/10 Mcap (INR b) 249.0 Mcap (USD b) 4.7

CMP: INR189 Year End 3/11A 3/12A 3/13E 3/14E

Net Inc. (INR m) 36,736 43,756 54,505 61,599

Buy

Adj PAT (INR m) 26,391 31,539 38,924 43,180

EPS (INR) 23.0 23.9 29.5 32.7

EPS Gr. (%) 16.0 3.9 23.4 10.9

P/E (X) 7.9 6.4 5.8

BV (INR) 133 158 177 200

P/BV Adj. RoAA Adj. RoAE (X) (%) (%) 2.9 18.5 1.2 2.7 17.5 1.1 2.8 17.6 0.9 2.7 17.4



We expect loan growth to remain healthy at ~25% YoY. On a sequential basis, loans and borrowings are expected to grow at ~2%.



After increasing sharply in 1QFY13 (+31bp QoQ), we expect margins to decline by ~10bp QoQ. As a result, NII would grow ~30% YoY, but remain largely flattish sequentially.



We expect MTM loss of INR600m in 2QFY13 (due to higher proportion of unhedged foreign currency borrowings), lower than the INR770m recorded in 1QFY13 (due to currency appreciation during the quarter).



Asset quality would be a key monitorable given the uncertain macro environment. We are conservatively factoring in INR500m of provisions for the quarter.



The stock trades at 1.1x FY13E and 0.9x FY14E BV. Maintain Buy.



Key things to watch for: (1) Management’s outlook on business growth, (2) Asset quality trend, and (3) Impact of SEB debt restructuring plan.

Quarterly Performance Y/E March

(INR Million) FY12

1Q 2Q 3Q Interest Income 28,480 30,740 32,130 Interest Expenses 18,580 19,940 21,160 Net Interest Income 9,900 10,800 10,970 YoY Gr % 15.4 20.5 18.5 Other Income 350 80 240 Net Operational Income 10,250 10,880 11,210 Exchange gain/(loss) -750 -5,040 4,210 Total Net Income 9,500 5,840 15,420 YoY Gr % 10.3 -41.6 64.7 Operating Expenses 270 330 290 YoY Gr % N.M. -10.8 0.0 % to Income 2.8 5.7 1.9 Operating Profit 9,230 5,510 15,130 YoY Gr % 7.3 -42.8 66.8 Adjusted PPP (For Forex) 9,980 10,550 10,920 YoY Gr % 8.2 17.6 17.7 Provisions 70 0 390 PBT 9,160 5,510 14,740 Tax 2,298 1,320 3,660 Tax Rate % 25.1 24.0 24.8 PAT 6,862 4,190 11,080 YoY Gr % 5.1 -40.2 68.1 Adjusted PAT (For Forex) 7,424 8,023 7,915 E:MOSL Estimates; Quarterly and annual numbers would not October 2012

FY13 4Q 1Q 2QE 3QE 4QE 35,890 39,000 39,780 40,377 41,725 23,600 25,060 25,749 26,393 27,375 12,290 13,940 14,031 13,984 14,351 45.8 40.8 29.9 27.5 16.8 530 90 150 200 260 12,820 14,030 14,181 14,184 14,611 200 -770 -600 -600 -530 13,020 13,260 13,581 13,584 14,081 48.6 39.6 132.5 -11.9 8.1 409 286 375 410 476 32.0 5.8 13.6 41.4 16.5 3.1 2.2 2.8 3.0 3.4 12,611 12,974 13,206 13,174 13,604 49.2 40.6 139.7 -12.9 7.9 12,411 13,744 13,806 13,774 14,134 51.4 37.7 30.9 26.1 13.9 960 20 500 1,000 980 11,651 12,954 12,706 12,174 12,624 3,455 3,240 3,431 3,287 3,414 29.7 25.0 27.0 27.0 27.0 8,196 9,714 9,275 8,887 9,210 35.2 41.6 121.4 -19.8 12.4 8,055 10,292 9,713 9,325 9,597 match due to differences in classification

FY12

FY13E

97,605 64,606 43,960 24.5 1,200 45,160 -1,380 43,780 19.2 1,294 32.5 3.0 42,486 18.8 43,861 23.0 1,420 41,066 10,733 26.1 30,333 15.8 31,417

126,025 84,940 56,305 37.0 700 57,005 -2,500 54,505 24.5 1,547 19.6 2.8 52,958 24.6 55,458 26.4 2,500 50,458 13,371 26.5 37,087 22.3 38,927

C–73

September 2012 Results Preview Sector: Financials

Punjab National Bank BSE Sensex

S&P CNX

18,763 5,703 Bloomberg PNB IN Equity Shares (m) 339.2 52 Week Range (INR) 1091/659 1,6,12 Rel Perf (%) 18/-18/-27 Mcap (INR b) 284.8 Mcap (USD b) 5.4    

 

CMP: INR840 Year Net Income End (INR m) 3/11A 154,199 3/12A 176,175 3/13E 203,863 3/14E 235,001

PAT (INR m) 44,335 48,847 52,753 62,776

Buy EPS (INR) 139.9 144.0 155.5 185.1

EPS Gr. (%) 13.0 2.9 8.0 19.0

P/E (X) 5.8 5.4 4.5

BV (INR) 632 777 906 1,059

P/BV (X) 1.1 0.9 0.8

P/ABV (X) 1.2 1.1 0.9

RoAA (%) 1.3 1.2 1.1 1.1

RoAE (%) 24.5 21.1 18.5 18.8

We expect loan growth to remain above industry average at 21% YoY. Deposit growth would be moderate at 16% YoY on a higher base. Margins are likely to be stable at ~3.6% QoQ, but would be lower by 35bp on a YoY basis. Consequently, NII is likely to grow ~10% YoY and be flat QoQ. Stress on the balance sheet has increased, with gross slippage ratio in the last two quarters at 4.5%+. We expect slippages to remain high, but recoveries and upgradations could provide some respite to asset quality. The pace of restructuring had slowed down in 1QFY13, with the bank restructuring loans worth INR12b as against INR86b in 4QFY12. However, with referrals to CDR remaining at an elevated level, restructuring during the quarter would be a key thing to watch for. The stock trades at 0.9x FY13E and 0.8x FY14E BV, and at 5.4x FY13E and 4.5x FY14E EPS. Buy. Key things to watch for: (1) Balance sheet growth and guidance, (2) Net slippages, (3) Outlook on restructuring, (4) Margin movement, (4) CASA ratio.

Quarterly Performance

(INR Million)

Y/E March

FY12 1Q 83,152 52,000 31,153 19.9 10,837 41,990 17,250 24,739 17.9 8,935 15,804 4,753 11,051 3.4

2Q 89,520 54,994 34,526 16.0 8,889 43,414 18,137 25,278 20.4 7,103 18,175 6,124 12,050 12.1

3Q 94,810 59,444 35,366 10.4 9,541 44,907 18,143 26,764 13.9 9,461 17,303 5,803 11,501 5.5

FY13 4Q 96,798 63,698 33,100 9.3 12,760 45,859 16,498 29,362 17.1 10,273 19,089 4,848 14,241 18.6

1Q 105,450 68,498 36,951 18.6 11,660 48,611 20,203 28,409 14.8 10,325 18,084 5,627 12,457 12.7

2QE 107,251 69,795 37,455 8.5 11,410 48,865 20,590 28,275 11.9 10,489 17,786 5,602 12,183 1.1

FY13E

3QE 110,304 71,131 39,173 10.8 11,957 51,130 20,880 30,250 13.0 11,180 19,070 6,007 13,063 13.6

4QE 113,782 72,433 41,349 24.9 13,908 55,257 21,815 33,441 13.9 11,368 22,073 7,022 15,051 5.7

364,280 230,131 134,149 13.6 42,026 176,175 70,028 106,148 17.2 35,773 70,375 21,528 48,847 10.2

436,787 281,858 154,929 15.5 48,934 203,863 83,488 120,375 13.4 43,362 77,012 24,259 52,753 8.0

3.5 15.8 21.3 31.50

3.5 15.0 16.0 31.81

3.8 3.5 21.3 21.3 36.2 30.6

3.4 15.0 16.0 31.50

126.9

142.2

230.6 7.9 87.2

142.2

Interest Income Interest Expense Net Interest Income % Change (YoY) Other Income Net Income Operating Expenses Operating Profit % Change (YoY) Other Provisions Profit before Tax Tax Provisions Net Profit % Change (YoY) Operating Metrics NIM (Rep, %) 3.8 4.0 3.9 3.5 3.6 NIM (Cal, %) 3.6 3.9 3.8 3.3 3.5 3.5 Deposit Growth (%) 26.9 25.0 23.4 21.3 18.9 16.1 Loan Growth (%) 23.4 19.3 18.7 21.3 21.2 21.2 CASA Ratio (%) 38.1 37.1 36.2 36.2 35.6 Tax Rate (%) 30.1 33.7 33.5 25.4 31.1 31.5 Asset Quality OSRL (INR b) 114.2 137.4 155.5 230.6 240.5 OSRL (%) 4.7 5.5 5.9 7.9 8.2 Gross NPA (INR b) 48.9 51.5 64.4 87.2 99.9 112.7 E: MOSL Estimates, Yearly numbers vary with full year number on account of reclassification October 2012

FY12

C–74

September 2012 Results Preview Sector: Financials

Rural Electrification Corp BSE Sensex

S&P CNX

18,763 Bloomberg Equity Shares (m) 52 Week Range (INR) 1,6,12 Rel Perf (%) Mcap (INR b) Mcap (USD b)

5,703 RECL IN 987.5 251/142 6/2/13 215.4 4.1

CMP: INR218 Year End 3/11A 3/12A 3/13E 3/14E

Net Inc. (INR m) 36,443 40,777 49,817 59,561

Buy PAT (INR m) 25,664 28,170 34,455 41,199

EPS (INR) 25.9 28.6 34.9 41.7

EPS Gr. (%) 28.2 10.1 22.2 19.6

P/E (X) 7.6 6.3 5.2

BV (INR) 129 149 174 202

P/BV (X) 1.5 1.3 1.1

RoAA (%) 3.4 3.0 3.1 3.1

RoAE (%) 21.5 20.5 21.6 22.2



We expect loan growth momentum to remain healthy at ~23% YoY and ~4% QoQ.



After the sharp improvement in 1QFY13, we expect NIM to moderate by ~20bp QoQ in 2QFY13, as RECL utilized the excess liquidity on the balance sheet in 1QFY13. The higher increase in borrowings during the quarter could impact margins.



We are factoring in MTM loss of INR200m for 2QFY13 v/s INR374m in 1QFY13.



Asset quality is likely to remain a key monitorable given the uncertain macro environment. We conservatively model in higher provisions (INR250m) during the quarter.



The stock trades at 1.3x FY13E and 1.1x FY14E BV. Maintain Buy.



Key things to watch for: (1) Management’s outlook on business growth and asset quality, (2) Movement in spreads, and (3) Impact of SEB debt restructuring plan.

Quarterly Performance Y/E March Net Interest Income YoY Gr (%) Other Operational Income Net Operational Income YoY Gr (%) Other Income Total Net Income YoY Gr (%) Operating Expenses YoY Gr (%) % to Income Operating Profit YoY Gr % Op. Profit adj. forex gain /loss YoY Gr (%) Provisions PBT YoY Gr (%) Tax Tax Rate (%) PAT YoY Gr (%) Adjusted PAT YoY Gr (%) E:MOSL Estimates; Quarterly and October 2012

(INR Million) FY12 1Q 2Q 3Q 9,097 9,501 10,052 17.3 21.8 18.5 393 171 136 9,490 9,673 10,188 18.9 18.1 12.6 136 -880 1,221 9,625 8,793 11,408 16.3 0.5 21.4 419 456 779 22.2 18.5 101.6 4.4 5.2 6.8 9,206 8,337 10,629 16.1 -0.3 17.9 9,278 9,597 9,763 16.9 18.7 8.6 250 0 241 8,956 8,337 10,389 12.9 -0.3 15.2 2,338 2,112 2,693 26.1 25.3 25.9 6,619 6,225 7,695 12.7 0.7 15.9 6,672 7,166 7,054 13.5 19.8 6.5 annual numbers would not

FY13 4Q 1Q 2QE 3QE 4QE 10,207 11,654 11,711 11,925 12,322 19.5 28.1 23.3 18.6 20.7 595 717 250 250 169 10,803 12,372 11,961 12,175 12,491 22.2 30.4 23.7 19.5 15.6 145 -133 200 300 451 10,948 12,239 12,161 12,475 12,943 9.2 27.2 38.3 9.4 18.2 671 456 560 660 831 19.7 8.7 22.9 -15.2 23.9 6.1 3.7 4.6 5.3 6.4 10,277 11,784 11,601 11,815 12,112 8.6 28.0 39.1 11.2 17.9 10,341 11,984 11,801 11,941 13,012 16.2 29.2 23.0 22.3 25.8 32 0 250 250 250 10,245 11,784 11,351 11,565 11,862 8.3 31.6 36.2 11.3 15.8 2,618 3,016 2,951 3,007 3,139 25.6 25.6 26.0 26.0 26.5 7,627 8,767 8,400 8,558 8,723 8.9 32.5 34.9 11.2 14.4 7,675 9,046 8,548 8,706 8,816 16.5 35.6 19.3 23.4 14.9 match due to differences in classification

FY12

FY13E

38,852 19.3 736 39,588 16.2 1,189 40,777 11.9 2,326 38.7 5.7 38,451 10.6 38,980 14.9 523 37,929 9.1 9,758 25.7 28,170 9.6 28,566 14.0

47,612 22.5 1,386 48,999 23.8 819 49,817 22.2 2,506 7.8 5.0 47,311 23.0 78,438 101.2 750 46,561 22.8 12,106 26.0 34,455 22.3 35,115 22.9

C–75

September 2012 Results Preview Sector: Financials

Shriram Transport Finance BSE Sensex

18,763 Bloomberg Equity Shares (m) 52 Week Range (INR) 1,6,12 Rel Perf (%) Mcap (INR b) Mcap (USD b)

S&P CNX

CMP: INR619

5,703 SHTF IN 226.3 680/416 -6/-4/-14 140.1 2.7

Year Net Income End (INR m) 3/11A 30,680 3/12A 34,130 3/13E 36,273 3/14E 41,445

Buy

PAT EPS (INR m) (INR) 12,028 53.2 12,574 55.6 13,542 59.8 15,930 70.4

EPS P/E GR. (%) (X) 37.4 4.5 11.1 7.7 10.3 17.6 8.8

BV (INR) 217 265 316 377

P/BV P/ABV RoA on AUM (X) (X) (%) 3.2 2.3 2.4 2.8 2.0 2.0 2.6 1.6 1.7 2.6

RoAE (%) 27.5 23.1 20.6 20.3



We expect AUM to grow ~15% YoY. On a sequential basis, disbursements are likely to remain largely stable. We are modeling growth of 1.5% QoQ.



Margins are expected to remain stable sequentially. As a result, NII (including securitization income) growth should be flat on a YoY basis.



Given the uncertain macro environment, asset quality continues to be a key monitorable. We have factored in higher provisions (INR2b) similar to 1QFY13 levels.



We expect PAT to grow ~10% YoY and 2% QoQ.



The stock trades at 2x FY13E and 1.6x FY14E BV. Maintain Buy.



Key things to watch for: (1) Outlook on growth, (2) Movement in spreads, (3) Asset quality trend.

Quaterly Performance

(INR Million)

Y/E March

FY12 1Q 8,368 5,714 2,654 -15.1 5,167 7,821 16.0 477 8,297 16.8 1,678 6,620 18.3 1,420 5,200 1,727 3,473 20.2

Interest Income Interest expenses Net Interest Income YoY Growth (%) Securitisation income Net Income (Incl. Securitization) YoY Growth (%) Fees and Other Income Net Operating Income YoY Growth (%) Operating Expenses Operating Profit YoY Growth (%) Provisions Profit before Tax Tax Provisions Net Profit YoY Growth (%) Operating Metrics AUM Growth (%) Disbursement Growth (%) Securitization Inc. / Net Inc. (%) Cost to Income Ratio (%) Tax Rate (%) E: MOSL Estimates; * Quaterly nos October 2012

2Q 9,675 6,153 3,522 -4.4 4,825 8,347 19.3 258 8,605 19.0 1,788 6,818 20.4 2,363 4,454 1,460 2,994 0.2

FY13 3Q 9,458 6,347 3,110 -23.2 4,927 8,038 4.5 294 8,331 5.7 1,867 6,465 5.5 1,920 4,545 1,518 3,027 0.4

4Q 9,158 6,259 2,899 -10.6 5,157 8,056 5.4 255 8,311 6.3 1,782 6,529 4.1 1,918 4,610 1,530 3,081 -9.6

22.3 19.9 16.2 11.1 20.4 5.0 -4.2 -19.7 62.3 56.1 59.1 62.0 20.2 20.8 22.4 21.4 33.2 32.8 33.4 33.2 and full year nos will not tally due to

1Q 8,876 6,173 2,702 1.8 5,323 8,025 2.6 702 8,727 5.2 1,940 6,787 2.5 2,026 4,761 1,543 3,219 -7.3

FY12

FY13E

35,581 23,950 11,632 -17.0 20,075 31,707 9.5 2,423 34,130 11.2 7,638 26,492 13.0 7,683 18,809 6,235 12,574 4.5

42,325 27,379 14,946 28.5 19,147 34,093 7.5 2,181 36,273 6.3 8,248 28,026 5.8 7,963 20,062 6,520 13,542 7.7

14.5 15.1 15.5 11.1 13.7 12.3 11.9 -2.0 53.5 49.3 47.9 58.8 22.1 23.5 23.1 22.4 32.5 32.5 32.6 33.1 way of reporting financial nos

15.5 12.5 52.8 22.7 32.5

2QE 10,384 6,729 3,655 3.8 4,729 8,384 0.4 450 8,834 2.7 1,952 6,882 0.9 2,000 4,882 1,587 3,295 10.1

13.3 12.2 61.0 22.2 32.4 different

3QE 11,215 7,032 4,183 34.5 4,530 8,714 8.4 475 9,189 10.3 2,159 7,029 8.7 1,975 5,054 1,643 3,412 12.7

4QE 11,850 7,445 4,405 51.9 4,565 8,970 11.3 553 9,523 14.6 2,196 7,327 12.2 1,963 5,365 1,748 3,617 17.4

C–76

September 2012 Results Preview Sector: Financials

State Bank of India BSE Sensex

18,763 Bloomberg Equity Shares (m) 52 Wk Range (INR) 1,6,12 Rel Perf (%) Mcap (INR b) Mcap (USD b) 



  

S&P CNX

5,703 SBIN IN 671.0 2,475/1,576 15/-2/0 1,501.7 28.5

CMP: INR2,238

Buy

Year Net Income PAT EPS *Cons. Cons. Cons. BV *Cons. *Cons. RoAA End (INR m) (INR m) (INR) EPS (INR) P/E (X) (INR) P/BV (X) P/ABV (X) (%) 3/11A 483,510 82,645 130.2 168.3 1,303 0.7 3/12A 576,425 117,073 174.5 228.6 9.4 1,541 1.4 1.6 0.9 3/13E 636,297 151,763 226.2 284.5 7.5 1,773 1.2 1.5 1.0 3/14E 725,138 174,922 260.7 330.3 6.5 2,043 1.0 1.4 1.0 * Valuation multiples are adjusted for SBI Life's value

RoAE (%) 12.7 16.0 17.4 17.5

Strong traction in CASA and fall in bulk deposits rates would keep a check on cost of funds. However, this would be offset by the impact on yields, as the bank has reduced lending rates in specific segments. We expect margins to remain largely stable QoQ; NII is likely to grow 3% QoQ and ~10% YoY. We expect slippages to decline QoQ but still remain at an elevated level, given the challenging macro environment. Improvement in upgrades and recoveries would be critical. In 1QFY13, gross slippages had increased significantly to INR108.4b (annualized slippage ratio of 5.6%). Restructuring is likely to increase sequentially, led by systemic restructuring. Adjusted for the value of Insurance (INR107/share), the stock trades at 1x FY14E consolidated BV and 6.5x FY14E consolidated EPS. Maintain Buy. Key things to watch for: (1) Trend in slippages and recoveries, (2) Restructured loans and outlook on the same, (2) Growth and margin outlook.

Quarterly Performance

(INR Million)

Y/E March Interest Income Interest Expense Net Interest Income % Change (YoY) Other Income Net Income Operating Expenses Operating Profit % Change (YoY) Other Provisions Profit before Tax Tax Provisions Net Profit % Change (YoY) Operating Metrics NIM (Reported, %) NIM (Cal, %) Deposit Growth (%) Loan Growth (%) CASA Ratio (%) Tax Rate (%) Asset Quality OSRL (INR b) OSRL (%) Gross NPA (INR b) Gross NPA (%) E: MOSL Estimates October 2012

FY12

FY13

FY12

FY13E

1Q 241,974 144,979 96,995 32.8 35,342 132,338 59,913 72,424 18.1 41,569 30,855 15,020 15,835 -45.7

2Q 260,269 155,452 104,817 29.2 33,674 138,492 63,749 74,743 17.6 33,855 40,888 12,784 28,104 12.4

3Q 277,144 161,956 115,188 27.3 20,730 135,918 63,318 72,600 7.3 24,074 48,526 15,895 32,630 15.4

4Q 285,828 169,918 115,911 43.8 53,768 169,678 73,710 95,968 57.8 31,404 64,564 24,061 40,503 N.A.

1Q 289,167 177,979 111,189 14.6 34,988 146,177 64,410 81,767 12.9 24,563 57,204 19,688 37,516 136.9

2QE 295,095 180,318 114,777 9.5 36,421 151,198 66,538 84,660 13.3 28,245 56,415 19,463 36,952 31.5

3QE 301,432 182,934 118,499 2.9 39,885 158,384 72,969 85,414 17.7 29,886 55,528 19,157 36,371 11.5

4QE 309,663 1,065,215 1,195,358 187,877 632,304 729,107 121,786 432,911 466,250 5.1 33.1 7.7 58,752 143,514 170,046 180,538 576,425 636,297 85,173 260,690 289,091 95,365 315,735 347,206 -0.6 24.6 10.0 32,812 130,902 115,507 62,553 184,833 231,699 21,628 67,760 79,936 40,925 117,073 151,763 1.0 41.7 29.6

3.6 3.7 16.5 18.0 47.8 48.7

3.8 3.9 13.8 16.1 47.6 31.3

4.1 4.1 13.9 16.5 47.5 32.8

3.9 4.0 11.7 14.7 46.6 37.3

3.6 3.7 16.1 18.9 46.1 34.4

3.6 17.3 18.9 34.5

3.6 18.0 15.5 34.5

3.6 18.0 18.0 34.6

3.9 3.9 11.7 14.7 46.6 36.7

3.6 18.0 18.0 34.5

289 3.8 278 3.5

277 3.5 340 4.2

261 3.1 401 4.6

312 3.6 397 4.4

295 3.2 472 5.0

528 5.4

581 5.8

631 6.0

312 3.6 397 4.4

631 6.0

C–77

September 2012 Results Preview Sector: Financials

Union Bank of India BSE Sensex

S&P CNX

18,763 5,703 Bloomberg UNBK IN Equity Shares (m) 550.5 52 Week Range (INR) 274/150 1,6,12 Rel Perf (%) 29/-16/-31 Mcap (INR b) 114.3 Mcap (USD b) 2.2    

 

CMP: INR208 Year Net Income End (INR m) 3/11A 82,550 3/12A 92,413 3/13E 102,017 3/14E 119,311

Buy

PAT EPS (INR m) (INR) 20,819 39.6 17,871 32.3 23,221 42.0 26,585 48.1

EPS GR. (%) -3.6 -18.5 30.1 14.6

P/E (X) 6.4 4.9 4.3

BV (INR) 211 236 267 303

P/BV (X) 0.9 0.8 0.7

P/ABV (X) 1.0 1.0 0.9

RoAA (%) 1.0 0.7 0.8 0.8

RoAE (%) 20.9 14.8 16.7 16.9

Loan growth is expected to remain healthy at 22% YoY and deposit growth to improve to 17% YoY on lower base. Margins are likely to expand by 10bp+ QoQ. In 1QFY13, UNBK reported a 25bp decline in NIM to 3%, led by (1) higher reversal of interest income and (2) due to seasonal factors. Fee income growth is expected to be healthy at ~15%, however, lower trading and forex gain would lead to non-interest income growth of ~5%. Slippages are expected to remain high. However, the high base of 1QFY13 would lead to a sequential decline. In 1QFY13, UNBK had reported slippages of INR16.3b, led by slippages in few large corporate accounts. Recoveries and upgradations are likely to remain healthy and provide cushion to asset quality. The stock trades at 0.8x FY13E and 0.7x FY14E BV, and at 4.9x FY13E and 4.3x FY14E EPS. Maintain Buy. Key things to watch for: (1) Margin movement, (2) Gross slippages and traction in recoveries and upgradations.

Quarterly Performance

(INR Million)

Y/E March Interest Income Interest Expense Net Interest Income % Change (YoY) Other Income Net Income Operating Expenses Operating Profit % Change (YoY) Other Provisions Profit before Tax Tax Provisions Net Profit % Change (YoY) Operating Metrics NIM (Reported,%) NIM (Cal, %) Deposit Growth (%) Loan Growth (%) CASA Ratio (%) Tax Rate (%) Asset Quality OSRL - Facilitywise (INR b) OSRL (%) Gross NPA (INR b) Gross NPA (%) E: MOSL Estimates October 2012

FY12

FY13

FY12

FY13E

1Q 49,157 33,255 15,902 18.0 4,840 20,742 9,084 11,658 11.7 4,284 7,374 2,730 4,644 -22.8

2Q 51,104 34,492 16,611 8.2 5,009 21,621 9,571 12,050 6.6 6,228 5,822 2,297 3,524 16.2

3Q 53,747 35,939 17,809 10.2 5,921 23,730 10,889 12,841 1.8 9,727 3,114 1,144 1,970 -66.0

4Q 57,434 38,668 18,766 9.3 7,554 26,320 10,332 15,988 83.9 5,172 10,816 3,085 7,732 29.4

1Q 60,699 42,482 18,217 14.6 4,912 23,129 10,459 12,671 8.7 5,185 7,486 2,370 5,116 10.2

2QE 63,377 43,909 19,468 17.2 5,247 24,715 11,030 13,685 13.6 5,041 8,644 2,809 5,834 65.5

3QE 65,056 44,863 20,193 13.4 5,886 26,078 11,413 14,666 14.2 5,600 9,066 2,946 6,119 210.6

4QE 67,972 46,838 21,134 12.6 6,960 28,094 12,464 15,631 -2.2 6,425 9,206 3,055 6,151 -20.4

211,443 142,354 69,089 11.1 23,324 92,413 39,875 52,538 22.0 25,410 27,128 9,256 17,871 -14.2

257,104 178,091 79,013 14.4 23,004 102,017 45,365 56,652 7.8 22,250 34,401 11,180 23,221 29.9

3.1 3.0 16.4 16.7 31.5 37.0

3.2 3.2 10.0 16.5 32.1 39.5

3.3 3.3 10.0 16.8 32.5 36.7

3.3 3.2 10.1 18.3 31.3 28.5

3.0 3.0 11.5 19.5 31.0 31.7

3.1 17.0 21.7 32.5

3.1 15.9 19.5 32.5

3.1 16.0 15.0 33.2

3.3 3.0 10.1 18.3 31.3 34.1

3.0 16.0 15.0 32.5

24.1 1.7 37.5 2.6

23.2 1.6 51.4 3.5

39.3 2.5 52.1 3.3

74.7 4.1 54.5 3.0

84.2 4.8 65.4 3.8

69.0 3.9

74.3 4.0

79.4 3.8

74.7 4.1 54.5 3.0

79.4 3.8

C–78

September 2012 Results Preview Sector: Financials

Yes Bank BSE Sensex

S&P CNX

18,763 Bloomberg Equity Shares (m) 52 Week Range (INR) 1,6,12 Rel Perf (%) Mcap (INR b) Mcap (USD b)

5,703 YES IN 353.0 389/231 7/0/26 134.9 2.6

     

CMP: INR382 Year Net Income End (INR m) 3/11A 18,702 3/12A 24,728 3/13E 32,650 3/14E 40,727

Buy

PAT EPS (INR m) (INR) 7,271 20.9 9,770 27.7 12,506 35.4 15,167 43.0

EPS Gr. (%) 48.9 32.1 28.0 21.3

P/E (X) 13.8 10.8 8.9

BV (INR) 109 132 162 197

P/BV (X) 2.9 2.4 1.9

P/ABV (X) 2.9 2.4 2.0

RoAA (%) 1.5 1.5 1.5 1.5

RoAE (%) 21.1 23.1 24.1 23.9

Loan growth is expected to be ~16% YoY as bank continues to focus on building granularity and invest in high rated corporate papers. Deposit growth would be ~17%. YES is focusing on increasing its CASA base to build its liability franchise. Its CASA ratio stood at 16.3% as at the end of 1QFY13. Movement in CASA ratio remains a key parameter to monitor. Margins are expected to remain largely stable QoQ, despite a decline in bulk deposit rates. As higher investment in credit substitutes would put pressure on yields on assets. YES has been able to manage asset quality fairly well as of 2QFY13. However, increasing stress in the large corporate segment could throw a negative surprise. The stock trades at 2.4x FY13E and 1.9x FY14E BV, and at 10.8x FY13E and 8.9x FY14E EPS. Buy. Key things to watch for: (1) Business growth and outlook for FY14, (2) Margin movement in a falling interest rate scenario, led by higher SA deposit rate, (3) CASA ratio, (4) Branch expansion.

Quarterly Performance

(INR Million)

Y/E March Interest Income Interest Expense Net Interest Income % Change (Y-o-Y) Other Income Net Income Operating Expenses Operating Profit % Change (Y-o-Y) Other Provisions Profit before Tax Tax Provisions Net Profit % Change (Y-o-Y) Operating Metrics NIM (Reported,%) NIM (Cal, %) Deposit Growth (%) Loan Growth (%) CASA Ratio (%) Tax Rate (%) Asset Quality OSRL (INR m) OSRL in bp Gross NPA (INR b) Gross NPA (%) E: MOSL Estimates October 2012

FY12

FY13

FY12

FY13E

1Q 13,995 10,454 3,542 35.1 1,653 5,195 1,944 3,251 30.6 15 3,236 1,075 2,161 38.2

2Q 14,387 10,530 3,856 23.1 2,141 5,997 2,138 3,859 37.1 379 3,481 1,130 2,350 33.3

3Q 16,841 12,565 4,276 32.3 2,114 6,390 2,402 3,988 28.1 224 3,765 1,224 2,541 32.9

4Q 17,851 13,369 4,482 28.6 2,664 7,146 2,842 4,304 23.4 285 4,019 1,301 2,718 33.6

1Q 18,863 14,142 4,722 33.3 2,881 7,603 3,007 4,596 41.4 300 4,296 1,395 2,901 34.3

2QE 19,294 14,318 4,975 29.0 2,925 7,900 3,008 4,893 26.8 350 4,543 1,476 3,066 30.5

3QE 19,710 14,461 5,249 22.8 3,075 8,324 3,148 5,175 29.8 450 4,725 1,536 3,190 25.5

4QE 20,256 14,742 5,514 23.0 3,308 8,823 3,302 5,520 28.3 557 4,963 1,615 3,348 23.2

63,074 46,917 16,156 29.6 8,571 24,728 9,325 15,402 29.4 902 14,500 4,730 9,770 34.4

78,123 57,663 20,460 26.6 12,189 32,650 12,465 20,184 31.0 1,657 18,527 6,021 12,506 28.0

2.8 2.7 44.1 26.1 10.9 33.2

2.9 2.9 10.2 12.7 11.0 32.5

2.8 2.9 18.9 15.3 12.6 32.5

2.8 2.8 7.0 10.5 15.0 32.4

2.8 2.8 15.2 16.4 16.3 32.5

2.8 17.3 15.5 32.5

2.9 15.7 14.5 32.5

2.9 17.0 15.0 32.5

2.8 2.6 7.0 10.5 15.0 32.6

2.7 17.0 15.0 32.5

870 26 0.6 0.2

1,755 51 0.7 0.2

1,757 49 0.7 0.2

2,013 53 0.8 0.2

1,965 51 1.1 0.3

1.4 0.4

1.9 0.4

2.3 0.5

2,013 53 0.8 0.2

2.3 0.5 C–79

September 2012 Results Preview Sector: Healthcare

Healthcare Topline to grow by 21%, EBITDA by 22% on the back of strong operational performance by Sun Pharmaceuticals, Ranbaxy, Divi's Laboratories, Cadila and Lupin

Company Name Biocon Cadila Healthcare

For 2QFY13, we expect topline growth of 21% YoY for our universe (excluding oneoffs), with EBITDA growth at 22% YoY. Adjusted PAT is likely to grow 28% YoY. EBITDA growth would be mainly led by strong performance by Sun Pharmaceuticals, Ranbaxy, Cadila, Lupin and Divi's Laboratories, and would be partly aided by favorable currency. Adjusted PAT growth at 28% would be higher than EBITDA growth, mainly because of reversal of forex losses due to the appreciation of the INR v/s the USD in the last few weeks.

Cipla Dishman Pharma Divi’s Laboratories Dr Reddy’s Labs. GSK Pharma Glenmark Pharma IPCA Laboratories

2QFY13 aggregates excluding one-offs

Jubilant Life Sciences

Healthcare Universe YoY Growth (%) EBITDA Margin Net Profit Margin Aggregates Sales EBITDA Adj. PAT Sep-12 Sep-11 Chg.(bp) Sep-12 Sep-11 Chg.(bp) MNC Pharma 14.9 20.1 10.5 25.7 24.6 111 21.0 21.8 -83 Big 4 Generics 21.8 25.7 14.5 23.1 22.4 71 15.5 16.4 -98 CRAMS 26.7 30.8 66.4 25.3 24.5 79 14.1 10.7 336 Second Tier generics 18.7 16.6 52.2 20.4 20.8 -37 13.8 10.8 303 Sector Aggregate 20.9 22.6 28.2 22.6 22.3 32 15.1 14.2 87 Note: Above numbers exclude one-offs to facilitate comparison of core operations. Big-4 Generics include Ranbaxy, Cipla, Dr Reddy's and Sun.

Lupin Opto Circuits Ranbaxy Labs. Sanofi India Strides Arcolab Sun Pharmaceuticals Torrent Pharma

Expected quarterly performance summary CMP (INR) 28.09.12 275 872 381 96 1,080 1,647 422 1,977 482 212 596 130 530 2,374 883 693 695

(INR million)

Rating

Sales EBITDA Net Profit Sep.12 Var. Var. Sep.12 Var. Var. Sep.12 Var. % YoY % QoQ % YoY % QoQ % YoY Biocon Neutral 6,067 19.3 5.2 1,453 8.9 18.4 886 3.4 Cadila Health Buy 15,810 27.0 2.1 3,439 24.7 0.6 2,158 110.1 Cipla Neutral 20,468 15.1 17.2 5,156 17.8 24.8 3,735 20.9 Dishman Pharma Neutral 3,436 27.6 9.0 830 76.5 -0.7 304 LP Divis Labs Buy 4,932 39.3 5.3 1,833 45.2 -3.8 1,350 27.3 Dr Reddy’ s Labs Buy 24,822 15.1 8.9 4,542 8.6 26.4 2,229 -17.0 Glenmark Pharma Buy 11,589 25.0 17.5 2,076 19.9 12.8 1,426 91.5 GSK Pharma Buy 6,674 9.8 2.4 2,082 18.3 2.7 1,720 17.8 IPCA Labs. Buy 7,133 14.4 12.4 1,639 3.7 23.3 1,098 40.9 Jubilant Life Neutral 12,803 22.2 3.6 2,691 14.0 -0.1 1,326 67.0 Lupin Buy 20,925 27.2 2.1 3,674 32.9 12.4 2,442 21.5 Opto Circuits Neutral 7,012 24.8 -1.9 1,885 21.9 -0.7 1,337 10.5 Ranbaxy Labs Neutral 25,341 20.9 10.0 2,706 55.4 9.1 1,688 4.2 Sanofi India Neutral 3,901 24.8 4.3 636 26.4 21.8 499 -8.9 Strides Arcolab Buy 6,185 -19.6 21.7 1,555 -9.6 37.6 1,347 189.9 Sun Pharma Neutral 22,526 26.4 -2.2 8,583 20.1 -17.5 7,063 29.5 Torrent Pharma Buy 8,290 21.3 8.1 1,659 18.0 6.4 1,119 11.9 Sector Aggregate 207,915 19.7 6.8 46,439 20.2 4.9 31,728 28.2 Note: Historic numbers include one-offs and hence YoY comparison may not give the correct picture

Var. % QoQ 12.4 10.8 22.2 -21.6 -19.4 -4.3 181.5 1.4 155.5 43.8 16.4 -3.1 -2.0 23.3 1050.3 5.2 9.8 16.7

Nimish Desai ([email protected]) October 2012

C–80

September 2012 Results Preview Sector: Healthcare

Core 2QFY13 performance: Key highlights Sun, Ranbaxy, Divi's, Cadila and Lupin to record strong operational improvement: From our coverage universe, we expect Sun Pharmaceuticals, Ranbaxy, Divi's Laboratories, Cadila and Lupin to record strong EBITDA growth for 2QFY13. We attribute the following company-specific reasons for this performance: 1. Sun Pharmaceuticals: Expect strong operating performance, primarily led by improvement in profitability of Taro and favorable currency. 2. Ranbaxy: Likely to report healthy growth in EBITDA, led by a very low base. 3. Divi's Laboratories: Strong operational performance, led by healthy topline growth, favorable currency and low base effect. 4. Cadila: Expect strong growth in EBITDA, led by healthy topline growth, mainly due to strong growth in the international business. 5. Lupin: Healthy growth in EBITDA, led by topline growth (mainly regulated and semi-regulated markets) and partly due to favorable currency.  CRAMS companies to report strong operational performance: We expect Divi's Laboratories and Dishman to report strong operational performance on a low base, new order inflows and favorable currency. 

Sector view Generics  Emerging markets to help improve profitability gradually from 2012.  New launches imperative for driving growth in core US business.  Differentiation becoming imperative - low competition/patent challenge products, brands, NCE research will be key differentiators.  Increasing MNC interest in Generics space - may lead to large acquisitions/supply arrangements with Indian companies.  Top picks: Dr Reddy's, Cadila, IPCA and Torrent. CRAMS (Contract Research & Manufacturing Services)  Favorable macro trends: India on the threshold of significant opportunity, given the optimum combination of strong chemistry & regulatory skills and low-costs.  Inventory de-stocking impacted performance over the last couple of years. Expect healthy performance FY13 onwards.  Top picks: Divi's Laboratories. MNC Pharma  Portfolio realignment in favor of lifestyle products to drive growth in medium-tolong term.  Branded generics, patented products and in-licensing to drive long-term growth.  Parent's commitment to listed entity is imperative.  Short-term adverse impact likely from the proposed new pharma policy.  Top picks: GlaxoSmithKline Pharmaceuticals.

October 2012

C–81

September 2012 Results Preview Sector: Healthcare

Proposed New Pharma Policy: Highlights The GoM (Group of Ministers) has recently proposed the New Pharma Policy (although the Supreme Court has raised some objections to it). We give below the key highlights based on broad details released to the media:  All 348 drugs under the National List of Essential Medicines (NLEM) will come under price control.  Price cap for these drugs will be calculated as the weighted average price (WAP) of all the brands having market share of more than 1%. Players selling any of these drugs at prices higher than WAP will have to lower their prices.  Combinations will be kept out of price controls.  These proposals will now be sent by the GoM to the Cabinet for a final approval. Our view  Based on the overall details available (we are still awaiting the fine print and the actual policy document), we expect MNC players to take the maximum hit due to their premium pricing policy.  Among Indian players, companies with high exposure to anti-infectives may get adversely impacted since such medicines account for 17% of NLEM. In our coverage universe of Indian companies, Cipla, Cadila and Ranbaxy have high exposure to anti-infectives. For the remaining companies, the impact is likely to be relatively moderate-to-low. Actual impact on these companies may vary depending on their positioning/pricing policy for each drug.  We await details from various companies on the exact impact.  Combinations to be kept outside price controls: The proposed policy is relatively better than general expectations, since combination drugs have been kept outside the purview of price control. It was generally perceived that combinations will be subjected to price controls, thus increasing the overall span of price control to ~60%. If combinations are kept outside the purview of price controls, then the span of price control will be 30-40% rather than 60%, which should please the industry.  Market-based pricing: The GoM has resisted pressure of finalizing a cost-based pricing policy, which is also incrementally positive, as for the first time, the policy will make drug prices market-determined.  Trade channels to share part of the impact: The hit on the industry due to lower prices will be partly compensated by lower margins for the trade/retail channels for drugs that get impacted.  Preliminary estimates indicate that the hit to the overall industry will be higher than the impact under the proposed NPPP (in October 2011), wherein the impact was estimated at INR25b-30b. Once cleared by the Cabinet, prices of 60% of essential medicines (NLEM) will be reduced by over 20%, while in certain cases the prices may come down by even 70%.  This implies that under the new proposals, the overall impact on the industry will be 2-3x that proposed under the NPPP.

October 2012

C–82

September 2012 Results Preview Sector: Healthcare 

The table below gives the impact on key companies if the same ratio is applied:

Proposed Pharma Policy: Impact on FY14 EPS (INR m) Company GSK Pharma Ranbaxy Cadila Cipla Dr Reddy's Lab Glenmark IPCA Sun Pharma Lupin

DF Sales 27,905 25,701 27,151 43,220 17,101 13,950 10,050 38,734 28,284

% of Total Sales 97 24 36 48 15 26 32 34 28

Impact on EPS (%) NPPP w/o combinations 2x NPPP 3x NPPP 13 20-25 30-40 4 5-10 10-15 3 5-7 7-10 3 5-7 7-10 2 3-5 5-10 2 3-5 5-10 2 3-5 5-10 1 2 3-5 1 2 3-5 Source: Company, MOSL

However, it should be noted that application of the above multiples may not give the exact picture, as the NPPP had proposed bringing all combination drugs under price control whereas the latest proposals exclude combination drugs from price control. The table above gives our approximate estimates.  We note that MNCs like GlaxoSmithKline Pharmaceuticals will be adversely impacted along with Indian players like Ranbaxy, Cipla and Cadila. While the actual impact on these companies will be known only when further details on the policy are available, we believe that these three companies will be relatively more impacted, given their significant exposure to the anti-infective segment.  None of the companies have confirmed the impact depicted in the table above and we await more clarity from the management of these companies.  The above view is based on the preliminary details that have been made public. We will analyze the actual impact post the receipt of the final policy document. 

Spate of US FDA clearances during the quarter 2QFY13 witnessed some positive news flows related to US FDA clearances for Indian players. Some of the companies that had favorable outcome include: 1. Cadila: Resolved the US FDA warning letter for its Moraiya facility. This could potentially have positive implications during the coming quarters, as the US FDA starts clearing pending products from this facility. 2. Claris Lifesciences: Resolved the US FDA warning letter for its Gujarat facility. This will help the company ramp up the US business gradually from CY13. 3. Sun Pharmaceuticals: US subsidiary, Caraco received US FDA clearance for resuming manufacturing at its US facility. The manufacturing was stopped by the US FDA in FY10.

Recent appreciation of the INR will reverse forex losses for many companies The INR has depreciated by ~17% YoY against the USD but has appreciated ~5% from 30 June 2012. This appreciation is likely to partially reverse the forex losses recorded by many pharmaceuticals companies in 1QFY13. Some of the key companies where such reversals will result in significant positive impact on profits are: 1. Ranbaxy, 2. Cadila, 3. Dishman, 4. Glenmark, 5. IPCA Labs and 6. Jubilant Lifesciences.

October 2012

C–83

September 2012 Results Preview Sector: Healthcare

Currency movement (INR/USD) 58 55 52 49 46 43 Sep-12

Aug-12

Jul-12

Jun-12

May-12

Apr-12

Mar-12

Feb-12

Jan-12

Dec-11

Nov-11

Oct-11

Sep-11

Aug-11

Jul-11

Jun-11

40

Source: Bloomberg

Relative Performance-1Yr (%)

95

95

80 Sep-11

100

Sep-12

110

Aug-12

105

Jul-12

125

Jun-12

110

Sep-12

140

Jun-12

115

Sens ex Index MOSL Hea l thca re Index

Mar-12

Sens ex Index MOSL Heal thca re Index

Dec-11

Relative Performance-3m (%)

Comparative valuation CMP (INR) 28.09.12

Rating

EPS (INR) FY12 FY13E FY14E

P/E (x) FY12 FY13E FY14E

Healthcare Biocon 275 Neutral 16.9 17.9 18.4 16.2 15.3 14.9 Cadila Health 872 Buy 27.6 41.2 52.4 31.5 21.2 16.7 Cipla 381 Neutral 14.0 16.2 18.4 27.2 23.5 20.7 Dishman Pharma 96 Neutral 7.0 15.6 17.5 13.8 6.2 5.5 Divis Labs 1,080 Buy 40.2 53.0 64.1 26.9 20.4 16.9 Dr Reddy’ s Labs 1,647 Buy 71.4 85.1 100.1 23.1 19.4 16.5 Glenmark Pharma 422 Buy 11.4 18.2 26.3 37.0 23.2 16.0 GSK Pharma 1,977 Buy 74.5 81.0 92.6 26.5 24.4 21.4 IPCA Labs. 482 Buy 21.9 29.3 38.2 22.0 16.4 12.6 Jubiliant Life 212 Neutral 13.6 21.0 33.4 15.5 10.1 6.3 Lupin 596 Buy 19.4 24.1 31.2 30.7 24.8 19.1 Opto Circuits 130 Neutral 23.6 22.5 25.3 5.5 5.8 5.1 Ranbaxy Labs 530 Neutral 14.1 18.0 21.8 37.5 29.5 24.3 Sanofi India 2,374 Neutral 83.0 73.5 92.4 28.6 32.3 25.7 Strides Arcolab 883 Buy 38.5 52.8 61.5 23.0 16.7 14.4 Sun Pharma 693 Neutral 22.4 26.5 29.4 30.9 26.2 23.6 Torrent Pharma 695 Buy 38.4 49.5 59.0 18.1 14.0 11.8 Sector Aggregate 17 26.4 21.6 18.1 Ranbaxy core valuations adjusted for DCF value of Para-IV upsides of INR61/sh

October 2012

EV/EBITDA (x) FY12 FY13E FY14E

RoE (%) FY12 FY13E FY14E

9.0 17.3 17.6 7.6 20.3 12.3 13.3 19.6 12.8 8.4 21.0 6.7 14.6 29.7 15.9 20.5 11.3 15.9

14.9 23.8 15.0 6.3 25.0 21.1 13.5 32.9 24.0 9.7 23.8 37.2 -72.0 17.3 16.9 21.5 29.3 19.7

8.3 13.9 15.0 4.8 15.6 14.0 14.2 18.3 10.3 6.0 16.3 5.6 12.4 24.1 11.4 16.5 9.0 13.6

8.0 11.3 14.0 4.3 12.3 12.4 11.3 15.7 8.7 5.0 13.4 4.9 16.5 19.4 10.7 15.7 7.3 12.3

14.3 29.0 15.0 12.9 27.5 21.9 17.7 33.5 26.4 13.5 24.3 28.7 28.3 13.9 18.5 20.7 30.9 20.1

13.4 29.3 15.1 12.9 27.7 22.7 20.5 34.2 27.6 18.8 26.2 26.6 15.7 15.6 14.5 19.7 29.2 20.6

C–84

September 2012 Results Preview Sector: Healthcare

Biocon BSE Sensex

18,763 Bloomberg Equity Shares (m) 52 Week Range (INR) 1,6,12 Rel Perf (%) Mcap (INR b) Mcap (USD b)

S&P CNX

5,703 BIOS IN 200.0 363/208 5/8/-35 54.9 1.0

CMP: INR275 Year Net Sales PAT End (INR m) (INR m) 03/11A 27,707 547 03/12A 20,865 3,384 03/13E 24,895 3,580 03/14E 27,549 3,675

Neutral EPS (INR) 2.7 16.9 17.9 18.4

EPS Gr. (%) -81.3 518.6 5.8 2.7

P/E (X) 16.3 15.4 15.0

P/BV (X) 2.4 2.2 2.0

RoE (%) 2.7 14.9 14.3 13.4

RoCE (%) 6.5 13.0 13.6 13.2

EV/ EV/ Sales EBITDA 2.2 9.0 1.9 8.3 1.8 8.0

We expect Biocon’s 2QFY13 topline to grow 19% YoY to INR6b, mainly on the back of (1) contract research revenue, led by new customer additions, and (2) 19% growth in Biopharma revenue. Licensing income is likely to decline 28% YoY to INR262m.  EBITDA would grow 9% YoY to INR1.45b and EBITDA margin would shrink 230bp to 24% due to increased R&D spending on the biogeneric pipeline.  We expect adjusted PAT to grow just 3% YoY to INR886m on account of higher depreciation and higher tax rate. 

The key growth drivers for FY13/14 would be: (1) traction in the company’s Insulin initiative in emerging markets, (2) ramp-up in Contract Research business, and (3) incremental contribution from immunosuppressant API supplies. However, given the high cost of developing biogeneric products, we believe cost pressures are likely to continue in FY13/14, impacting earnings and return ratios. Option values for the future include separate listing of Contract Research business and potential out-licensing of the Oral Insulin NCE. The stock trades at 15.4x FY13E and 15x FY14E earnings. Return ratios are likely to remain subdued, with both RoE and RoCE in the 13-14% range for FY13 and FY14. Maintain Neutral.

Consolidated Quarterly Performance Y/E March

(INR Million)

FY13E 1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE Net Sales 4,417 5,084 5,172 6,102 5,767 6,067 6,354 6,707 20,865 24,895 YoY Change (%) -33.3 -25.1 -29.0 -13.0 30.6 19.3 22.9 9.9 -24.7 19.3 Total Expenditure 3,213 3,750 3,898 4,556 4,540 4,615 4,855 5,117 15,691 19,126 EBITDA 1,204 1,334 1,274 1,546 1,227 1,453 1,500 1,590 5,174 5,769 Margins (%) 27.2 26.2 24.6 25.3 21.3 23.9 23.6 23.7 24.8 23.2 Depreciation 451 429 434 431 427 473 482 548 1,744 1,930 Interest 57 20 29 30 32 20 33 48 122 133 Other Income 123 160 150 13 159 161 215 233 618 769 PBT 820 1,045 961 1,099 927 1,121 1,199 1,228 3,926 4,475 Tax 119 188 113 121 137 235 258 265 541 895 Rate (%) 14.6 18.0 11.8 11.0 14.8 21.0 21.5 21.6 13.8 20.0 Minority Interest 0 0 0 0 2 0 0 -2 0 0 PAT 701 857 848 978 788 886 941 965 3,384 3,580 YoY Change (%) -8.7 -3.9 -15.8 -3.0 12.5 3.4 11.0 -1.3 518.6 5.8 Margins (%) 15.9 16.9 16.4 16.0 13.7 14.6 14.8 14.4 16.2 14.4 Licensing income 140 365 292 463 139 262 294 395 1,253 1,090 YoY Change (%) -33.3 58.7 -62.0 35.4 -0.7 -28.3 0.8 -14.7 -19.2 -13.0 Contract research 880 928 1,120 1,180 1,224 1,280 1,386 1,442 4,101 5,331 YoY Change (%) 22.2 19.0 42.1 32.3 39.1 37.9 23.8 22.2 29.0 30.0 E: MOSL Estimates; Note - Quarterly nos will not add up to full-year nos due to restatements; FY12 topline shows degrowth due to divestment of Axicorp business which had contributed INR9.7b to topline in FY11 October 2012

FY12

FY13

FY12

C–85

September 2012 Results Preview Sector: Healthcare

Cadila Healthcare BSE Sensex

18,763 Bloomberg Equity Shares (m) 52 Week Range (INR) 1,6,12 Rel Perf (%) Mcap (INR b) Mcap (USD b)

S&P CNX

5,703 CDH IN 204.7 964/629 -7/9/-2 178.6 3.4

CMP: INR872 Year Net Sales PAT End (INR m) (INR m) 03/11A 46,302 6,334 03/12A 52,633 5,660 03/13E 65,272 8,431 03/14E 75,697 10,718

Buy EPS (INR) 30.9 27.6 41.2 52.4

EPS Gr. (%) 26.4 -10.6 49.0 27.1

P/E (X) 31.5 21.2 16.7

P/BV (X) 6.9 5.5 4.4

RoE (%) 37.5 27.5 29.0 29.3

RoCE (%) 30.5 22.8 25.2 26.9

EV/ EV/ Sales EBITDA 3.7 17.3 3.0 13.8 2.5 11.2

Cadila’s 2QFY13 topline is likely to grow 27% YoY to INR15.8b, led by 30% YoY growth in the domestic formulations business and 29% YoY growth in the formulations export business. While the acquisition of Biochem would drive growth in the domestic formulations, growth in the formulations export business would be partially led by favorable currency.  We expect EBITDA to grow 25% YoY to INR3.4b. EBITDA margin is likely to contract by 30bp YoY to 21.8% due to lower profitability of the acquired companies.  Adjusted PAT would grow 110% YoY to INR2.1b, primarily led by the low base of 2QFY12, when PAT was impacted by forex losses of INR900m v/s estimated forex gains of INR160m. 

We expect strong 37% EPS CAGR over FY12-14 for the core operations, excluding one-offs. Over the next two years, RoCE would be 25% and RoE would be ~29%. Our estimates exclude the impact of the proposed new pharma policy. Sustaining double-digit growth without diluting return ratios has been Cadila’s key USP over the past few years. The company has chalked out a detailed plan to achieve revenue of USD3b in FY16. We believe it will be a difficult target to achieve this organically. Yet, we expect strong earnings growth trajectory, given (1) recovery in growth for the US business post the recent resolution of US FDA’s warning letter, (2) presence in key geographies, and (3) strong growth expected in revenue from various JVs. The stock trades at 21.2x FY13E and 16.7x FY14E consolidated EPS. Maintain Buy. Quarterly Performance (Consolidated)

(INR Million)

Y/E March 1Q Net Revenues 12,457 YoY Change (%) 9.9 Total Expenditure 9,433 EBITDA 3,024 Margins (%) 24.3 Depreciation 347 Interest 189 Other Income 140 PBT after EO Income 2,628 Tax 285 Rate (%) 10.9 Min. Int/Adj on Consol 45 Reported PAT 2,298 Adj PAT 1,433 YoY Change (%) -11.9 Margins (%) 11.5 Adj PAT incl one-offs 2,298 E: MOSL Estimates; # Forex loss is lower October 2012

FY12 2Q 12,450 11.5 9,693 2,757 22.1 375 255 -790 1,337 235 17.6 75 1,027 1,027 -39.9 8.2 1,027

3Q 13,832 18.6 11,193 2,640 19.1 465 276 -160 1,739 174 10.0 74 1,492 1,492 -7.9 10.8 1,492

FY13 4Q 13,980 15.3 11,152 2,828 20.2 391 350 151 2,238 436 19.5 93 1,709 1,709 23.9 12.2 1,709

1Q 15,486 24.3 12,067 3,419 22.1 434 301 -21 2,663 654 24.5 61 1,948 1,948 36.0 12.6 1,948

2QE 15,810 27.0 12,372 3,439 21.8 476 318 255 2,900 667 23.0 75 2,158 2,158 110.1 13.6 2,158

3QE 16,799 21.4 13,304 3,495 20.8 495 324 20 2,695 620 23.0 74 2,002 2,002 34.2 11.9 2,002

4QE 17,176 22.9 13,402 3,774 22.0 499 329 135 3,081 668 21.7 90 2,323 2,323 36.0 13.5 2,323

FY12

FY13E

52,633 13.7 41,385 11,248 21.4 1,579 1,069 -658 7,942 1,130 14.2 286 6,526 5,660 -10.6 10.8 6,526

65,272 24.0 51,145 14,127 21.6 1,904 1,272 389 11,340 2,608 23.0 300 8,431 8,431 49.0 12.9 8,431

C–86

September 2012 Results Preview Sector: Healthcare

Cipla BSE Sensex

18,763 Bloomberg Equity Shares (m) 52 Week Range (INR) 1,6,12 Rel Perf (%) Mcap (INR b) Mcap (USD b)

S&P CNX

5,703 CIPLA IN 802.9 395/276 -3/17/18 305.6 5.8

CMP: INR381 Year Net Sales PAT End (INR m) (INR m) 03/11A 63,145 9,671 03/12A 70,207 11,442 03/13E 79,591 12,993 03/14E 88,698 14,779

Neutral EPS (INR) 12.0 14.0 16.2 18.4

EPS Gr. (%) -3.7 16.2 15.3 13.6

P/E (X) 27.1 23.5 20.6

P/BV (X) 4.0 3.5 3.1

RoE (%) 14.5 14.7 15.0 15.1

RoCE (%) 15.8 18.8 19.9 19.0

EV/ EV/ Sales EBITDA 4.3 18.3 3.8 15.7 3.4 14.8

Cipla’s core topline for 2QFY13 is likely to grow 15% YoY to INR20.46b while reported topline (including oneoffs) is likely to grow 23% YoY, driven by generic Lexapro supplies to Teva. The domestic formulations business would grow 19% YoY to INR9.8b while exports (excluding one-offs) would grow 12% YoY to INR10.2b, impacted by muted 10% YoY growth in formulation exports to INR8.2b.  Core EBITDA would grow 18% YoY. EBITDA margin is likely to expand 60bp YoY to 25.2%, led by favorable revenue mix, improving capacity utilization at Indore SEZ, and favorable currency. Reported EBITDA (including one-offs) is likely to grow 37% YoY.  We expect adjusted PAT to grow 21% YoY to INR3.7b, led by healthy operational performance and higher other income. Reported PAT (including one-offs) is likely to grow 41% YoY to INR4.4b. 

Cipla continues to face short-term headwinds in ramping up its core formulation exports business despite a favorable currency. Its muted export performance raises uncertainty on the timelines of ramp-up at Indore SEZ. While large capex (for past few years) is a long-term positive, we believe it is imperative for the company to improve asset utilization at Indore to drive future growth and derive benefits of operating leverage (overhead expenses continue to adversely impact performance). Strong 1HFY13 bottomline growth will be mainly driven by generic Lexapro supplies to Teva which will not recur from 2HFY13. The stock trades at 23.5x FY13E and 20.6x FY14E earnings. Our estimates exclude the impact of the proposed new pharma policy. Maintain Neutral. Quarterly Performance

(INR Million)

Y/E March Net Revenues YoY Change (%) Total Expenditure EBITDA Margins (%) Depreciation Interest Other Income Profit before Tax Tax Rate (%) Reported PAT Adj PAT YoY Change (%) Margins (%) Domestic formulation sales YoY Change (%) Other operating income YoY Change (%) E: MOSL Estimates October 2012

FY12 1Q 15,914 7.5 12,219 3,695 23.2 703 43 249 3,199 666 20.8 2,533 2,533 -1.6 15.9 7,202 8.9 411 -21.6

2Q 17,780 10.1 13,404 4,376 24.6 656 24 243 3,939 850 21.6 3,090 3,090 17.5 17.4 8,208 9.8 462 30.2

3Q 17,580 13.2 13,666 3,915 22.3 757 32 302 3,426 727 21.2 2,699 2,699 16.0 15.4 8,457 17.5 465 -11.0

FY13 4Q 18,530 11.2 14,330 4,200 22.7 1,006 22 390 3,561 794 22.3 2,767 2,577 20.3 13.9 7,182 12.3 498 13.2

1Q 19,582 23.0 14,183 5,399 27.6 728 11 531 5,190 1,182 22.8 4,008 3,057 20.7 15.6 9,388 30.4 408 -0.7

2QE 20,468 15.1 15,312 5,156 25.2 766 12 291 4,669 934 20.0 4,369 3,735 20.9 18.3 9,771 19.0 492 6.5

3QE 19,832 12.8 15,240 4,592 23.2 781 13 306 4,104 821 20.0 3,283 3,283 21.7 16.6 9,581 13.3 496 6.5

4QE 19,709 6.4 15,487 4,222 21.4 850 13 328 3,688 770 20.9 2,918 2,918 13.2 14.8 8,068 12.3 406 -18.6

FY12

FY13E

70,207 11.2 53,619 16,589 23.6 3,122 383 1,395 14,478 3,036 21.0 11,442 11,252 16.3 16.0 31,048 12.2 1,730 -6.1

79,591 13.4 60,222 19,369 24.3 3,125 49 1,456 17,651 3,707 21.0 13,944 12,993 15.5 16.3 36,808 18.6 1,802 4.1

C–87

September 2012 Results Preview Sector: Healthcare

Dishman Pharma BSE Sensex

18,763 Bloomberg Equity Shares (m) 52 Week Range (INR) 1,6,12 Rel Perf (%) Mcap (INR b) Mcap (USD b)

S&P CNX

5,703 DISH IN 81.3 107/33 -8/104/48 7.8 0.1

CMP: INR96 Year Net Sales PAT End (INR m) (INR m) 03/11A 9,908 814 03/12A 11,221 568 03/13E 13,898 1,265 03/14E 15,856 1,426

Neutral EPS (INR) 10.0 7.0 15.6 17.5

EPS Gr. (%) -29.6 -30.2 122.5 12.7

P/E (X) 13.7 6.2 5.5

P/BV (X) 0.8 0.7 0.7

RoE (%) 9.7 6.3 12.9 12.9

RoCE (%) 8.1 8.9 13.6 13.8

EV/ EV/ Sales EBITDA 1.5 7.5 1.2 4.8 1.0 4.3

We expect Dishman’s revenue to increase 27.6% YoY to INR3.4b in 2QFY13, partially led by favorable currency. The CRAMS business is likely to grow 26% YoY to INR2.1b, boosted mainly by strong performance in CRAMS supplies from Indian facilities. Revenue from CarbogenAMCIS is would decline 10% YoY to INR957m. Revenue from MM business would grow 30% YoY to INR1.3b.  EBITDA is likely to grow 76% YoY to INR830m. EBITDA margin would expand 670bp YoY to 24.2% due to low base effect, better product mix with lower share of QUATs business, and favorable currency.  The company is likely to report net profit of INR304m due to better operational performance and absence of forex losses (forex losses for 2QFY12 were INR187m). 

The macro environment for CRAMS business remains favorable given India’s inherent cost advantages and chemistry skills. We believe Dishman’s India operations will benefit from increased outsourcing from India, given its strengthening MNC relations and expansion of some of the existing customer relationships. However, the company needs to ramp-up its contracts with innovators to take advantage of the macro opportunity. We expect revenue CAGR of 18.8%, EBITDA CAGR of 27.8% and earnings CAGR of 58% over FY12-14. Earnings growth is led by recovery in operational performance, better product-mix and lower tax expense. Low asset utilization, high debt and delayed ramp-up of CRAMS contracts remain our main concern. The stock currently trades at 6.2x FY13E and 5.5x FY14E earnings. RoCE will continue to be subdued till new facilities and CRAMS contracts ramp up. Maintain Neutral. Quarterly Performance (Consolidated)

(INR Million)

Y/E March Net Sales YoY Change (%) Total Expenditure EBITDA Margins (%) Depreciation Interest Other Income PBT after EO Income Tax Rate (%) Reported PAT Adj PAT YoY Change (%) Margins (%) CRAMS - India Sales YoY Change (%) Carbogen AMCIS Sales YoY Change (%) E: MOSL Estimates October 2012

FY12 1Q 2,372 17.5 1,935 437 18.4 187 137 56 169 17 10.4 151 151 -44.3 6.4 840 56.9 748 -16.1

2Q 2,692 26.5 2,222 471 17.5 207 150 -183 -70 -7 9.3 -64 -64 -121.6 -2.4 626 -10.0 1,062 16.4

3Q 2,655 14.5 2,128 526 19.8 191 164 89 260 93 35.7 167 167 859.7 6.3 668 -15.1 1,023 28.7

FY13 4Q 3,502 1.7 2,677 825 23.5 180 218 95 522 208 39.9 313 313 36.4 8.9 1,044 19.6 1,154 9.1

1Q 3,153 32.9 2,317 836 26.5 193 231 26 438 50 11.5 387 387 156.1 12.3 640 -23.7 1,330 77.8

2QE 3,436 27.6 2,605 830 24.2 203 238 39 428 124 29.0 304 304 8.8 1,169 86.6 957 -9.9

3QE 3,565 34.3 2,756 809 22.7 216 243 35 385 112 29.0 274 274 63.6 7.7 1,275 90.7 1,037 1.3

4QE 3,745 6.9 2,871 875 23.3 234 239 35 436 135 31.1 300 300 -4.2 8.0 1,366 30.9 664 -42.5

FY12

FY13E

11,221 13.2 8,996 2,225 19.8 765 729 150 880 312 35.4 568 568 -30.1 5.1 3,178 9.9 3,987 9.0

13,898 23.9 10,549 3,350 24.1 847 951 135 1,686 422 25.0 1,265 1,265 122.5 9.1 4,450 40.0 3,987 0.0 C–88

September 2012 Results Preview Sector: Healthcare

Divi's Laboratories BSE Sensex

S&P CNX

18,763 5,703 Bloomberg DIVI IN Equity Shares (m) 132.7 52 Week Range (INR) 1,201/695 1,6,12 Rel Perf (%) -11/36/33 Mcap (INR b) 143.4 Mcap (USD b) 2.7

CMP: INR1,080 Year Net Sales PAT End (INR m) (INR m) 03/11A 13,071 4,293 03/12A 18,586 5,333 03/13E 23,488 7,030 03/14E 29,363 8,507

Buy EPS (INR) 32.4 40.2 53.0 64.1

EPS Gr. (%) 25.7 24.1 31.8 21.0

P/E (X) 26.9 20.4 16.9

P/BV (X) 6.7 5.6 4.7

RoE (%) 25.9 27.1 30.0 30.2

RoCE (%) 28.2 34.1 37.2 37.6

EV/ EV/ Sales EBITDA 7.7 21.0 6.1 16.0 4.9 12.9

Divi’s Laboratories (DIVI) is likely to post 39% YoY increase in 2QFY13 revenue to INR4.9b on new order inflows. The CCS business would grow 44% YoY while the API business is likely to grow 39% YoY. Carotenoids revenue would grow 10% YoY.  EBITDA is likely to grow 45% YoY to INR1.83b, led by strong revenue growth and low base effect. EBITDA margin would expand 150bp.  We expect adjusted PAT to grow 27% YoY to INR1.35b. PAT growth would be lower than EBITDA growth YoY due to higher depreciation and absence of forex gains (for 2QFY12, the company had recorded forex gains of INR90m). 

We expect DIVI to be a key beneficiary of the increased pharmaceutical outsourcing from India, given its strong relationships with global innovator companies. It is targeting a fresh capex of INR1.5b-2b for FY13, despite the ~INR4.5b capex undertaken in the past two years. We believe that this reflects the management’s confidence in driving future growth since DIVI does not usually undertake capex without adequate visibility of customer orders. We estimate 37% RoCE and 30% RoE for the next two years, led by traction in the high-margin CRAMS business, sustained profitability in the Generics business and increased contribution from the new SEZ. The stock trades at 20.4x FY13E and 16.9x FY14E earnings. Maintain Buy. Quarterly Performance Y/E March

(INR Million) FY12

1Q 2Q Net Op Revenue 3,586 3,541 YoY Change (%) 36.1 38.7 Total Expenditure 2,308 2,279 EBITDA 1,277 1,262 Margins (%) 35.6 35.6 Depreciation 140 152 Interest 2 6 Other Income 164 227 PBT 1,299 1,332 Tax 273 257 Deferred Tax 1 14 Rate (%) 21.0 20.4 Reported PAT 1,026 1,061 Adj PAT 1,026 1,061 YoY Change (%) 22.5 47.4 Margins (%) 28.6 30.0 CCS Revenues 1,757 1,650 YoY Change (%) 42.6 49.3 Carotenoid Revenues 140 240 YoY Change (%) -17.6 100.0 E: MOSL Estimates; Quarterly financials from 1QFY12 October 2012

3Q 4Q 4,147 7,080 33.9 47.9 2,663 4,251 1,484 2,829 35.8 40.0 162 166 2 27 284 78 1,604 2,714 341 566 38 0 23.6 20.9 1,226 2,148 1,226 2,148 24.5 22.9 29.6 30.3 1,831 3,682 26.8 58.9 200 230 33.3 27.1 are on stand-alone

FY13 1Q 2QE 4,684 4,932 30.6 39.3 2,780 3,100 1,904 1,833 40.7 37.2 175 198 4 8 418 83 2,143 1,708 469 359 0 0 21.9 21.0 1,674 1,350 1,674 1,350 63.2 27.3 35.7 27.4 2,148 2,382 22.2 44.3 210 262 50.0 9.0 basis while annual

3QE 5,520 33.1 3,456 2,064 37.4 211 8 124 1,969 413 0 21.0 1,555 1,555 26.9 28.2 2,723 48.7 283 41.7 financials

FY12

FY13E 4QE 8,352 18,586 23,488 18.0 42.2 26.4 5,220 11,736 14,555 3,132 6,850 8,932 37.5 36.9 38.0 243 621 827 13 37 34 203 615 827 3,079 6,806 8,899 627 1,474 1,869 0 0 0 20.4 21.7 21.0 2,452 5,333 7,030 2,452 5,333 7,030 14.1 24.2 31.8 29.4 28.7 29.9 3,988 8,921 11,241 8.3 46.3 26.0 335 810 1,090 45.7 30.4 34.6 are on consolidated basis C–89

September 2012 Results Preview Sector: Healthcare

Dr Reddy's Laboratories BSE Sensex

18,763 Bloomberg Equity Shares (m) 52 Wk Range (INR) 1,6,12 Rel Perf (%) Mcap (INR b) Mcap (USD b)

S&P CNX

5,703 DRRD IN 169.2 1,818/1,444 -9/-13/-3 278.7 5.3

CMP: INR1,647 Year Net Sales PAT EPS End (INR m) (INR m) (INR) 03/11A 74,693 11,099 65.6 03/12A 96,737 12,109 71.4 03/13E 104,990 14,426 85.1 03/14E 116,165 16,977 100.1

Buy EPS Gr. (%) 12.6 19.1 17.7

P/E (X) 23.1 19.4 16.5

P/BV (X) 4.9 4.2 3.7

RoE (%) 24.1 21.1 21.9 22.7

RoCE (%) 16.7 20.3 17.0 18.0

EV/ EV/ Sales EBITDA 3.0 12.3 2.8 14.0 2.6 12.3



We expect Dr Reddy’s Laboratories (DRRD) to post 15% YoY growth in core revenue (excluding one-off sales) for 2QFY13 to INR24.8b. This would be led by 18% YoY growth in core US revenue and 16% YoY growth in the international branded formulations segment. PSAI business revenue is likely to grow 15.5% YoY.



Core EBITDA is likely to grow just 7% YoY to INR4.5b, impacted mainly by higher SG&A and R&D expenses and partly due to absence of export incentives. We expect core EBITDA margin to decline 140bp YoY to 18.3%.



Adjusted PAT would decline 17% YoY to INR2.2b, impacted mainly by muted EBITDA growth and estimated forex loss of INR450m v/s forex gain of INR151m for 2QFY12. Higher tax rate will also adversely impact PAT growth. Including contribution from one-off opportunities, we expect PAT to decline 11% YoY to INR2.7b.

Traction in the US, branded formulations and PSAI businesses will be the key growth drivers for DRRD over the next two years. We believe that FY13 will be a year of strong growth for DRRD, with the management guiding a topline of USD2.5b. Earnings upgrade is likely as and when the street gets convinced that DRRD can achieve this target. We estimate core EPS at INR85.1 for FY13 and INR100 for FY14. Our estimates exclude upsides from patent challenges/ low-competition opportunities in the US (we estimate one-time PAT contribution of INR3.3b from such opportunities in FY13). The stock currently trades at 19.4x FY13E and 16.5x FY14E core earnings. Our estimates exclude the impact of the proposed new pharma policy. Maintain Buy. Quarterly Performance - IFRS Y/E March

(INR Million) FY12

1Q 2Q 3Q 4Q Gross Sales 19,783 22,679 27,692 26,583 YoY Change (%) 17.5 21.3 45.9 31.8 Total Expenditure 15,948 17,880 19,003 20,167 EBITDA 3,835 4,799 8,689 6,416 Margins (%) 19.4 21.2 31.4 24.1 Amortization 1,233 1,268 1,307 2,444 Other Income 144 178 365 292 Profit before Tax 2,746 3,709 7,747 4,264 Tax 120 631 2,616 837 Rate (%) 4.4 17.0 33.8 19.6 Net Profit 2,626 3,078 5,131 3,427 One-off/low-competition PAT in US 363 393 2,726 1,372 Adjusted PAT 2,263 2,685 2,405 2,055 YoY Change (%) 47.6 9.3 0.8 -3.5 Margins (%) 11.4 11.8 8.7 7.7 E: MOSL Estimates; Note-Estimates do not include one-off upsides.

October 2012

FY13 1Q 25,406 28.4 20,410 4,996 19.7 1,296 25 3,725 365 9.8 3,360 1,031 2,329 2.9 9.2

2QE 24,822 9.5 20,280 4,542 18.3 1,394 -363 2,786 557 20.0 2,737 508 2,229 -17.0 9.0

3QE 26,734 -3.5 21,254 5,481 20.5 1,451 74 4,104 821 20.0 3,854 571 3,283 36.5 12.3

4QE 28,028 5.4 21,839 6,189 22.1 1,548 79 4,719 1,017 21.6 4,986 1,284 3,702 80.1 13.2

FY12

FY13E

96,737 29.5 72,997 23,740 24.5 6,254 979 18,465 4,204 22.8 14,261 4,854 9,408 10.6 9.7

104,990 8.5 83,782 21,208 20.2 5,689 -185 15,334 2,760 18.0 14,938 3,394 11,543 22.7 11.0

C–90

September 2012 Results Preview Sector: Healthcare

GlaxoSmithKline Pharmaceuticals BSE Sensex

18,763 Bloomberg Equity Shares (m) 52 Wk Range (INR) 1,6,12 Rel Perf (%) Mcap (INR b) Mcap (USD b)

S&P CNX

5,703 GLXO IN 84.7 2,338/1,830 -11/-21/-19 167.5 3.2

CMP: INR1,977 Year Net Sales PAT End (INR m) (INR m) 12/10A 21,116 5,814 12/11A 23,380 6,314 12/12E 25,650 6,864 12/13E 28,899 7,840

Buy EPS (INR) 68.6 74.5 81.0 92.6

EPS Gr. (%) 15.2 8.6 8.7 14.2

P/E (X) 26.5 24.4 21.4

P/BV (X) 8.7 8.2 7.3

RoE (%) 30.1 32.9 33.5 34.2

RoCE (%) 44.8 47.9 48.9 49.9

EV/ EV/ Sales EBITDA 6.2 19.6 5.7 18.3 5.0 15.7



We expect GlaxoSmithKline Pharmaceuticals (GLXO) to post 10% YoY growth in 3QCY12 topline to INR6.6b. The muted growth in topline would be because of lower offtake of acute therapy products during the quarter due to erratic rainfall.



EBITDA is likely to grow 18% YoY to INR2.1b, on a low base. EBITDA margin would expand 220bp to 31.2% due to low base of 3QCY11, when EBITDA margin was 29%.



We expect PAT to grow 18% YoY to INR1.7b in 3QCY12, in line with operational performance.

We believe GLXO is one of the best plays on the IPR regime in India, with aggressive plans to launch new products in the high-growth lifestyle segments. It is likely to record double-digit topline growth in the long-term, though the proposed new pharma policy may adversely impact growth in the short term. Given the high profitability of operations, we expect this growth to lead to sustainable RoE of ~30%. This growth is likely to be funded through miniscule capex and negative net working capital. GLXO deserves premium valuations due to strong parentage, brand-building ability and likely positioning in post patent era. It is one of the few companies with the ability to drive reasonable growth without any major capital requirement, leading to high RoCE of 45-50%. Our estimates exclude potential adverse impact of the proposed new pharma policy. The stock is currently valued at 24.4x CY12E and 21.4x CY13E earnings. Maintain Buy.

Quarterly Performance

(INR Million)

Y/E December Net Sales YoY Change (%) Total Expenditure EBITDA Margins (%) Depreciation Interest Other Income PBT before EO Expense Tax Rate (%) Adjusted PAT YoY Change (%) Margins (%) Extra-Ord Expense Reported PAT E: MOSL Estimates October 2012

CY11 1Q 6,029 11.4 3,920 2,109 35.0 44 0 580 2,645 782 29.6 1,863 15.6 30.9 1,859 5

2Q 5,615 12.8 3,746 1,870 33.3 49 0 421 2,242 725 32.3 1,517 8.6 27.0 41 1,475

3Q 6,076 4.4 4,316 1,760 29.0 49 0 441 2,152 692 32.2 1,460 -7.7 24.0 1 1,459

4Q 5,660 15.4 3,954 1,706 30.1 61 3 535 2,177 703 32.3 1,474 20.5 26.0 106 1,367

1Q 6,228 3.3 4,271 1,957 31.4 41 0 804 2,720 863 31.7 1,857 -0.3 29.8 628 1,229

CY12 2Q 3QE 6,520 6,674 16.1 9.8 4,492 4,592 2,028 2,082 31.1 31.2 43 43 0 0 479 472 2,464 2,511 768 791 31.2 31.5 1,696 1,720 11.8 17.8 26.0 25.8 61 0 1,635 1,720

4QE 6,229 10.0 4,353 1,876 30.1 44 0 492 2,324 734 31.6 1,590 7.9 25.5 0 1,590

CY11

CY12

23,380 10.7 15,935 7,445 31.8 204 3 1,978 9,216 2,902 31.5 6,314 8.6 27.0 2,008 4,306

25,650 9.7 17,707 7,944 31.0 171 0 2,248 10,020 3,156 31.5 6,864 8.7 26.8 689 6,175

C–91

September 2012 Results Preview Sector: Healthcare

Glenmark Pharmaceuticals BSE Sensex

S&P CNX

18,763 Bloomberg Equity Shares (m) 52 Week Range (INR) 1,6,12 Rel Perf (%) Mcap (INR b) Mcap (USD b)

5,703 GNP IN 269.8 450/265 -4/29/17 113.8 2.2

CMP: INR422

Buy

Year Net Sales PAT EPS EPS P/E P/BV RoE RoCE EV/ EV/ End (INR m) (INR m) (INR) Gr. (%) (X) (X) (%) (%) Sales EBITDA 03/11A 29,491 3,548 12.5 7.2 17.4 13.4 03/12A 40,206 3,244 11.4 -8.6 37.0 4.8 13.5 12.1 3.3 13.3 03/13E 47,388 5,169 18.2 59.3 23.2 3.9 17.7 16.8 2.8 14.2 03/14E 54,005 7,472 26.3 44.5 16.1 3.1 20.5 20.6 2.4 11.3 Note: Company has adopted IFRS accounting wef FY11. Estimates exclude one-off upsides

We expect Glenmark Pharmaceuticals (GNP) to post 25% YoY growth in core revenue (excluding one-offs and R&D income) for 2QFY13 to INR11.59b, led mainly by like-to-like growth of 33% in the generics business. The branded business is likely to grow 19% YoY. We do not expect any R&D licensing income in 2QFY13 (INR1.18b recorded in 2QFY12).  Core EBITDA is likely to grow 20% YoY to INR2.07b, while EBITDA margin would decline 80bp to 18% due to higher R&D expenses.  GNP is likely to report 91% YoY growth in adjusted PAT to INR1.4b, primarily due to low base of 2QFY12, when the company had recorded MTM forex losses of INR810m. We believe that improved working capital and moderate capex will impart flexibility to the management to target debt reduction. Return ratios should improve gradually over the next two years, with RoCE increasing from 12.1% to 20-21% and RoE increasing from 13.5% to 20-21%. GNP has differentiated itself among Indian pharmaceutical companies through its significant success in NCE research. Improved working capital cycle coupled with potential debt reduction is likely to address investor concerns related to adverse balance sheet in the coming quarters. The stock trades at 23.2x FY13E and 16.1x FY14E EPS. Our estimates exclude the impact of the proposed new pharma policy. Maintain Buy.



Quarterly performance Y/E March

(INR Million) FY12

1Q 2Q 3Q 4Q Net Revenues (Core) 8,683 10,554 10,311 10,659 YoY Change (%) 27.4 45.7 37.3 34.5 EBITDA 2,966 2,983 2,046 1,864 Margins (%) 34.2 28.3 19.8 17.5 Depreciation 264 247 231 236 Interest 408 291 357 410 Other Income 125 -808 -912 377 PBT before EO Expense 2,420 1,637 545 1,595 Extra-Ord Expense 0 1,317 0 0 PBT after EO Expense 2,420 321 545 1,595 Tax 319 -238 84 73 Rate (%) 13.2 -74.2 15.4 4.6 Reported PAT (incl one-offs) 2,101 559 461 1,522 Minority Interest 8 11 10 11 Adj PAT (excl one-offs) 1,092 745 76 1,331 YoY Change (%) 17.8 -24.6 -92.2 101.4 Margins (%) 12.6 7.1 0.7 12.5 US Sales 2,512 3,001 3,190 3,435 YoY Change (%) 37.2 34.1 56.3 53.1 R&D licensing income 1,112 1,185 238 0 YoY Change (%) 24.3 E: MOSL Estimates; 1Q and 2Q numbers will not be comparable yoy due October 2012

FY13 1Q 2QE 3QE 4QE 10,404 11,589 12,464 12,931 19.8 9.8 20.9 21.3 2,198 2,076 2,371 2,646 21.1 17.9 19.0 20.5 275 261 272 259 380 385 371 346 -521 250 -25 40 1,022 1,679 1,703 2,082 0 0 0 0 1,022 1,679 1,703 2,082 218 233 237 272 21.3 13.9 13.9 13.1 804 1,589 1,577 1,920 21 20 20 19 506 1,426 1,446 1,791 -53.6 91.5 1,803.5 34.5 4.9 12.3 11.6 13.8 3,924 3,803 3,883 4,238 56.2 26.8 21.7 23.4 0 0 0 0 -100.0 to absence of R&D licensing income

FY12

FY13E

40,206 40.6 9,860 24.5 979 1,466 -1,218 6,198 1,317 4,881 238 4.9 4,643 40 3,244 -8.6 8.1 12,137 45.3 2,535 183.2

47,388 17.9 9,291 19.6 1,067 1,482 -256 6,486 0 6,486 961 14.8 5,891 80 5,169 59.3 10.9 15,848 30.6 245 -90.3 C–92

September 2012 Results Preview Sector: Healthcare

IPCA Laboratories BSE Sensex

S&P CNX

18,763 Bloomberg Equity Shares (m) 52 Week Range (INR) 1,6,12 Rel Perf (%) Mcap (INR b) Mcap (USD b)

5,703 IPCA IN 125.7 493/230 12/35/66 60.6 1.1

CMP: INR482 Year Net Sales PAT End (INR m) (INR m) 03/11A 18,969 2,628 03/12A 23,587 2,762 03/13E 27,968 3,701 03/14E 32,555 4,816

Buy EPS (INR) 20.9 21.9 29.3 38.2

EPS Gr. (%) 25.7 4.7 34.0 30.1

P/E (X) 22.0 16.4 12.6

P/BV (X) 4.8 3.9 3.1

RoE (%) 27.4 24.0 26.4 27.6

RoCE (%) 25.6 24.1 27.7 29.4

EV/ EV/ Sales EBITDA 2.8 12.8 2.3 10.3 2.0 8.7

We expect IPCA’s 2QFY13 topline to grow 14.4% YoY to INR7.1b, led mainly by 23% growth in API exports. Domestic formulations would grow 13.4% YoY to INR2.6b. The malaria season in the domestic market did not pick up strongly due to erratic rainfall though there was some recovery in September. This would impact growth in domestic formulations.  EBITDA is likely to grow just 4% YoY to INR1.6b due to a 230bp decline in EBITDA margin to 23%, led mainly by lower growth in the domestic formulations business.  We expect adjusted PAT to grow 41% YoY to INR1b despite the muted growth in EBITDA due to low base of 2QFY12, when the company had reported forex loss of INR271m against which we expect it to report a forex gain of INR100m. 

Strong traction in exports coupled with growth recovery in the domestic formulations business will be the key triggers for IPCA over the next two years. We expect IPCA to clock EPS CAGR of 32% over FY12-14 on the back of 17% revenue CAGR, coupled with 120bp EBITDA margin expansion and reversal of MTM forex losses. Return ratios continue to be strong, with RoCE of ~28% and RoE of 27%, which is reflective of the conservative management strategy and efficient capital allocation. The stock currently trades at 16.4x FY13E and 12.6x FY14E EPS. Our estimates exclude the impact of the proposed new pharma policy. Maintain Buy. Quarterly Performance

(INR Million)

Y/E March Net Revenues (Core) YoY Change (%) EBITDA Margins (%) Depreciation Interest Other Income PBT Tax Rate (%) Reported PAT Adj PAT YoY Change (%) Margins (%) Domestic formulation YoY Change (%) Export formualtions YoY Change (%) E: MOSL Estimates

October 2012

FY12 1Q 5,299 26.8 952 18.0 154 83 118 832 215 25.9 617 617 58.8 11.6 1,890 12.3 2,066 69.3

2Q 6,235 20.3 1,580 25.3 176 118 -245 1,042 262 25.2 780 780 -17.1 12.5 2,292 3.3 2,605 48.8

3Q 6,148 31.8 1,513 24.6 181 108 -359 864 225 26.0 639 639 0.0 10.4 1,876 5.7 2,898 73.4

FY13 4Q 5,611 13.5 1,117 19.9 142 111 88 952 186 19.5 766 766 16.9 13.7 1,477 14.7 2,393 5.2

1Q 6,344 19.7 1,329 21.0 199 95 -470 565 135 23.9 430 430 -30.3 6.8 2,242 18.6 2,245 8.7

2QE 7,133 14.4 1,639 23.0 202 102 130 1,464 366 25.0 1,098 1,098 40.9 15.4 2,599 13.4 2,892 11.0

3QE 7,112 15.7 1,720 24.2 219 117 60 1,444 361 25.0 1,083 1,083 69.4 15.2 2,166 15.5 3,269 12.8

4QE 7,378 31.5 1,670 22.6 222 112 125 1,461 372 25.4 1,090 1,090 42.2 14.8 1,657 12.2 4,167 74.2

FY12

FY13E

23,587 24.3 5,135 21.8 671 413 -408 3,643 881 24.2 2,762 2,762 5.3 11.7 7,534 8.2 9,961 44.0

27,968 18.6 6,359 22.7 843 426 -155 4,935 1,234 25.0 3,701 3,701 34.0 13.2 8,664 15.0 12,573 26.2

C–93

September 2012 Results Preview Sector: Healthcare

Jubilant Life Sciences BSE Sensex

S&P CNX

18,763 Bloomberg Equity Shares (m) 52 Week Range (INR) 1,6,12 Rel Perf (%) Mcap (INR b) Mcap (USD b)

5,703 JOL IN 159.3 226/154 21/8/-7 33.7 0.6

CMP: INR212 Year Net Sales PAT End (INR m) (INR m) 03/11A 34,334 2,297 03/12A 42,540 2,173 03/13E 52,145 3,345 03/14E 59,572 5,328

Neutral EPS (INR) 14.4 13.6 21.0 33.4

EPS Gr. (%) -45.7 -5.4 53.9 59.3

P/E (X) 15.5 10.0 6.3

P/BV (X) 1.4 1.3 1.1

RoE (%) 10.5 0.6 13.5 18.8

RoCE (%) 6.0 8.1 12.2 15.5

EV/ EV/ Sales EBITDA 1.6 8.4 1.2 6.0 1.0 5.0

For 2QFY13, we expect healthy topline growth for Jubilant Organosys (JOL) at 22.2% YoY to INR12.8b, driven by the Generics and Life Science Ingredients businesses. While the Generics business would grow 30% YoY, the Life Science Ingredients business would grow 24% YoY. The Life Science Services business is likely to grow 8% YoY.  We expect EBITDA to grow 14% YoY to INR2.69b despite 22% YoY topline growth due to a 150bp decline in EBITDA margin to 21%.  Adjusted PAT would grow 67% YoY to INR1.3b, mainly led by a low base of 2QFY12, when JOL had reported forex loss of INR426m against our expectation of a forex gain of INR313m. 

We expect JOL to record 18% topline CAGR, 22% EBITDA CAGR, and 56% EPS CAGR (on a low base) over FY12-14. Strong earnings growth would be partly led by the reversal of forex loss to forex gains based on our assumption of currency appreciation over FY12. JOL needs to restructure its balance sheet significantly (currently, it has debt of INR36b to support an overall topline of INR42.5b). High debt continues to be concerning. Some of its past acquisitions (like Draxis) have been at expensive valuations, resulting in extended payback periods and lower return ratios. High debt and low RoCE (12-15%) remain overhangs. The stock trades at 10x FY13E and 6.3x FY14E EPS. Maintain Neutral. Quarterly Performance

(INR Million)

Y/E March Net Sales YoY Change (%) Total Expenditure EBITDA Margins (%) Depreciation Interest Other Income PBT before EO Expense Extra-Ord Expense PBT after EO Expense Tax Rate (%) PAT Minority Interest Reported PAT Adjusted PAT YoY Change (%) Margins (%) E: MOSL Estimates

October 2012

FY12 1Q 9,443 -3.8 7,623 1,820 19.3 498 434 37 925 0 925 152 16.4 774 3 771 771 22.9 8.2

2Q 10,481 6.1 8,120 2,361 22.5 508 497 -372 984 0 984 93 9.5 891 97 794 794 -3.3 7.6

3Q 10,872 25.5 8,801 2,071 19.0 539 566 -1,507 -541 0 -541 89 -16.4 -630 154 -784 -784 -277.7 -7.2

FY13 4Q 11,711 31.5 9,899 1,812 15.5 662 586 29 593 820 -227 351 -154.5 -578 57 -635 476 -22.8 4.1

1Q 12,359 30.9 9,666 2,693 21.8 591 593 -968 541 0 541 389 71.8 152 102 50 50 -93.5 0.4

2QE 12,803 22.2 10,113 2,691 21.0 649 595 383 1,830 0 1,830 403 22.0 1,427 101 1,326 1,326 67.0 10.4

3QE 13,325 22.6 10,594 2,731 20.5 703 619 80 1,489 0 1,489 298 20.0 1,191 101 1,090 1,090 8.2

4QE 13,657 16.6 11,210 2,447 17.9 762 620 75 1,140 0 1,140 161 14.1 979 100 879 879 84.5 6.4

FY12

FY13E

42,540 23.9 34,547 7,992 18.8 2,207 2,096 -929 2,761 1,620 1,141 684 60.0 457 311 146 2,173 -5.4 5.1

52,145 22.6 41,584 10,561 20.3 2,705 2,427 -429 5,000 0 5,000 1,250 25.0 3,750 405 3,345 3,345 53.9 6.4

C–94

September 2012 Results Preview Sector: Healthcare

Lupin BSE Sensex

S&P CNX

18,763 Bloomberg Equity Shares (m) 52 Week Range (INR) 1,6,12 Rel Perf (%) Mcap (INR b) Mcap (USD b)

5,703 LPC IN 446.2 632/410 -2/6/11 266.1 5.0

CMP: INR596 Year Net Sales PAT End (INR m) (INR m) 03/11A 57,068 8,582 03/12A 69,597 8,676 03/13E 88,755 10,748 03/14E 101,852 13,950

Buy EPS (INR) 19.3 19.4 24.1 31.2

EPS Gr. (%) 25.9 0.7 23.9 29.8

P/E (X) 30.7 24.8 19.1

P/BV (X) 6.6 5.5 4.6

RoE (%) 29.3 23.8 24.3 26.2

RoCE (%) 25.1 24.6 26.8 27.8

EV/ EV/ Sales EBITDA 4.0 21.0 3.1 16.3 2.7 13.4

We expect Lupin’s 2QFY13 topline to grow 27% YoY, driven mainly by 73% YoY growth in Japan on the back of Irom acquisition and favorable currency, 28% YoY growth in revenue from advanced markets (Ex-Japan) and 31% YoY growth in formulations revenue from exports to semi-regulated markets. The domestic formulations business is likely to report 17% YoY growth to INR6b.  EBITDA would grow 33% YoY, with EBITDA margin expanding 80bp YoY on the back of a low base, favorable currency and better product mix.  We expect adjusted PAT to grow 21.5% YoY to INR2.4b. PAT growth would be lower than EBITDA growth due to higher tax rate. 

Key growth drivers for Lupin will be: (1) increased traction in India formulations and emerging markets, (2) strong launch pipeline for the US, and (3) contribution from oral contraceptives in the US. We expect EPS of INR24.1 for FY13 (up 24%) and INR31.2 for FY14 (up 30%), translating into 27% EPS CAGR over FY12-14. Significant internationalization of operations without dilution of return ratios has been Lupin’s key achievement over the last five years. We expect this to sustain. The stock trades at 24.8x FY13E and 19.1x FY14 EPS. Our estimates exclude the impact of the proposed new pharma policy. Maintain Buy. Quarterly Performance (Consolidated) Y/E March

(INR Million) FY12

FY13

1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE Net Sales 15,432 16,448 17,917 18,832 22,192 20,925 22,280 23,359 YoY Change (%) 17.6 17.1 22.1 23.7 43.8 27.2 24.3 24.0 Total Expenditure 12,734 13,684 14,134 15,511 17,961 17,250 17,831 18,681 EBITDA 2,698 2,764 3,783 3,321 4,230 3,674 4,449 4,678 Margins (%) 17.5 16.8 21.1 17.6 19.1 17.6 20.0 20.0 Depreciation 471 522 576 706 654 698 712 728 Interest 58 66 86 145 101 117 113 120 Other Income 257 324 -15 489 582 420 340 407 PBT 2,426 2,499 3,106 2,960 4,058 3,279 3,965 4,237 Tax 286 441 701 1,677 1,208 787 912 978 Rate (%) 11.8 17.6 22.6 56.7 29.8 24.0 23.0 23.1 Reported PAT 2,140 2,718 2,406 1,283 2,850 2,618 3,053 3,259 Extra-Ordinary Exp/(Inc) 0 -659 0 0 0 0 0 0 Minority Interest 39 49 55 56 46 50 50 54 Recurring PAT 2,101 2,010 2,498 499 2,098 2,442 3,003 3,205 YoY Change (%) 7.0 -6.5 11.5 -77.6 -0.1 21.5 20.2 542.3 Margins (%) 13.6 12.2 13.9 2.6 9.5 11.7 13.5 13.7 Advanced mkt formulations 7,013 7,761 9,300 11,811 11,826 10,729 12,030 13,021 YoY Change (%) 11.9 15.3 26.0 50.4 68.6 38.2 29.4 10.2 Emerging mkt formulations 6,317 6,711 6,637 6,065 8,049 8,095 8,113 8,376 YoY Change (%) 24.4 28.7 32.3 22.6 27.4 20.6 22.2 38.1 E: MOSL Estimates; Quarterly nos will not add up to full year nos due to restatement of past quarters October 2012

FY12

FY13E

69,597 22.0 56,382 13,215 19.0 2,275 355 1,376 11,961 3,086 25.8 10,295 659 199 8,677 1.1 12.5 35,885 27.1 25,730 27.0

88,755 27.5 71,723 17,032 19.2 2,791 451 1,749 15,539 3,885 25.0 11,780 0 200 10,748 23.9 12.1 47,606 32.7 32,633 26.8

C–95

September 2012 Results Preview Sector: Healthcare

Opto Circuits BSE Sensex

S&P CNX

18,763 5,703 Bloomberg OPTC IN Equity Shares (m) 242.3 52 Week Range (INR) 225/115 1,6,12 Rel Perf (%) -2/-41/-41 Mcap (INR b) 31.4 Mcap (USD b) 0.6

CMP: INR130 Year Net Sales PAT End (INR m) (INR m) 03/11A 15,856 3,661 03/12A 23,569 5,719 03/13E 29,207 5,441 03/14E 33,413 6,128

Neutral EPS (INR) 15.1 23.6 22.5 25.3

EPS Gr. (%) 49.3 56.2 -4.9 12.6

P/E (X) 5.5 5.7 5.1

P/BV (X) 1.8 1.5 1.2

RoE (%) 30.4 37.2 28.7 26.6

RoCE (%) 24.1 22.4 22.5 22.1

EV/ EV/ Sales EBITDA 1.7 6.7 1.5 5.6 1.2 4.9

We expect Opto Circuits (OPTC) to post 25% YoY growth in 2QFY13 revenue to INR7b, led by a growth of 49% YoY in the invasive business. The non-invasive segment is likely to post 20% YoY growth to INR5.6b.  EBITDA would grow 22% YoY to INR1.9b and EBITDA margin would contract by 60bp, mainly due to higher overheads.  We expect OPTC to post PAT growth of 10.5% YoY despite healthy operational performance due to higher depreciation & amortization, increased interest cost and higher tax rate. OPTC has delivered strong revenue and earnings growth over the last few years, coupled with high return ratios. Despite rapid growth, it remains a marginal player in the global medical devices industry, which gives OPTC the opportunity to sustain its high revenue growth rate for the next couple of years. However, large accumulated goodwill in the books , high working capital requirements leading to high debt, inadequate free cash flow generation remain our major concerns. We note that the management is targeting reduction in working capital. We believe it is imperative for the company to deliver this without diluting the overall growth for the business. Potential fund raising in Eurocor could dilute earnings, with commensurate benefits from the equity dilution accruing only over the long-term (since the funds are likely to be utilized for financing clinical trials for key products, which could be time-consuming). The stock trades at 5.7x FY13E and 5.1x FY14E EPS. Maintain Neutral. 

Quarterly Performance (Consolidated)

(INR Million)

Y/E March Net Revenues YoY Change (%) Total Expenditure EBITDA Margins (%) Depreciation Interest Other Income PBT before EO Income EO Exp/(Inc) PBT after EO Income Tax Rate (%) Min. Int/Adj on Consol Reported PAT Adj PAT YoY Change (%) Margins (%) Non Invasive sales YoY Change (%) Invasive sales YoY Change (%) E: MOSL Estimates October 2012

FY12 1Q 5,208 78.4 3,776 1,432 27.5 150 109 49 1,222 0 1,222 57 4.7 1 1,164 1,164 40.6 22.4 4,220 99.4 940 25.3

2Q 5,620 69.6 4,074 1,547 27.5 109 138 -51 1,248 0 1,248 33 2.7 5 1,210 1,210 56.3 21.5 4,640 100.9 940 4.3

3Q 6,113 46.4 4,403 1,710 28.0 141 168 -42 1,359 -5 1,364 109 8.0 3 1,251 1,253 30.4 20.5 4,770 56.2 1,300 24.5

FY13 4Q 6,627 21.7 5,163 1,464 22.1 146 177 186 1,328 0 1,328 -772 -58.1 6 2,093 2,093 90.9 31.6 5,090 23.8 1,490 19.8

1Q 7,151 37.3 5,251 1,899 26.6 196 187 27 1,544 0 1,544 150 9.7 15 1,380 1,380 18.6 19.3 5,828 38.1 1,251 33.1

2QE 7,012 24.8 5,126 1,885 26.9 202 197 16 1,502 0 1,502 150 10.0 15 1,337 1,337 10.5 19.1 5,566 19.9 1,401 49.0

3QE 7,476 22.3 5,510 1,966 26.3 234 213 18 1,537 0 1,537 154 10.0 -15 1,398 1,368 9.2 18.3 5,913 24.0 1,518 16.8

4QE 7,569 14.2 5,682 1,887 24.9 175 192 9 1,528 0 1,528 158 10.3 15 1,355 1,355 -35.3 17.9 5,883 15.6 1,667 11.9

FY12

FY13E

23,569 48.6 17,404 6,165 26.2 546 592 136 5,162 0 5,162 -572 -11.1 15 5,719 5,719 56.2 24.3 18,720 61.5 4,670 18.6

29,207 23.9 21,569 7,638 26.2 806 789 70 6,112 0 6,112 611 10.0 60 5,441 5,441 -4.9 18.6 23,190 23.9 5,838 25.0

C–96

September 2012 Results Preview Sector: Healthcare

Ranbaxy Laboratories BSE Sensex

S&P CNX

18,763 Bloomberg Equity Shares (m) 52 Week Range (INR) 1,6,12 Rel Perf (%) Mcap (INR b) Mcap (USD b)

5,703 RBXY IN 420.4 578/367 -10/17/-6 222.6 4.2

CMP: INR530

Neutral

Year Net Sales PAT EPS EPS P/E P/BV RoE End (INR m) (INR m) (INR) GR. (%) (X) (X) (%) 12/10A 73,623 3,008 25.8 467.1 19.4 12/11A 80,509 5,955 14.1 -45.3 33.2 4.9 -72.0 12/12E 98,819 7,586 18.0 27.4 26.0 3.9 28.3 12/13E 110,022 9,203 21.8 21.3 21.5 3.4 15.7 Note: All valuation ratios adjusted for INR61/sh DCF value of FTFs

RoCE (%) 15.9 19.4 21.9 14.7

EV/ EV/ Sales EBITDA 2.3 14.6 2.0 12.3 2.2 16.5



We expect Ranbaxy Laboratories (RBXY) to post 21% YoY growth in core topline for 3QCY12, partially led by favorable currency. 3QCY12 performance will reflect the core operating performance after several quarters, as we do not expect any one-offs from Para-IV upsides.



We expect core EBITDA to grow 55% YoY to INR2.7b. EBITDA margin would expand by 240bp YoY to 10.7% on a very low base.



Adjusted PAT would grow 4% YoY to INR1.68b despite healthy operational performance due to higher interest cost and significantly higher tax outgo.

The US FDA/DoJ settlement and signing of the consent decree is likely to delay the full recovery of supplies to US from India into CY13 compared to our previous assumption of the benefits coming through in CY12. The current valuations factor in the likely improvement in core EBITDA margin (we expect margins to improve to 13.6% by CY13 from the current 10-11%). We believe that for the stock to get higher valuations, it is imperative for RBXY to improve core business margins, as one-offs wane in the coming quarters. The stock is valued at 26x CY12E and 21.5x CY13E core EPS, adjusting for INR61/share of DCF value of Para-IV pipeline. Our estimates exclude the impact of the proposed new pharma policy. We rate the stock Neutral. Quarterly performance

(INR Million)

Y/E December Net Income YoY Change (%) EBITDA Margins (%) Depreciation Interest Other Income PBT before EO Expense Extra-Ord Expense PBT after EO Expense Tax Rate (%) Reported PAT Minority Interest Reported PAT (incl one-offs) Adj PAT YoY Change (%) Margins (%) E: MOSL Estimates October 2012

CY11 1Q 21,809 -19.2 4,032 18.5 736 145 671 3,823 -20 3,842 782 20.4 3,060 16 3,044 1,724 223.2 7.9

2Q 20,931 -2.7 1,817 8.7 735 166 607 1,522 -1,118 2,640 185 7.0 2,455 23 2,432 1,055 -30.4 5.0

3Q 4Q 20,955 37,923 8.3 74.3 1,741 8,601 8.3 22.7 788 1,681 153 304 -1,490 -790 -690 5,825 3,624 34,859 -4,313 -29,034 256 747 -5.9 -2.6 -4,569 -29,780 77 47 -4,646 -29,828 1,620 1,556 58.9 -2,675.7 7.7 4.1

1Q 37,868 73.6 9,552 25.2 799 377 1,556 9,933 -4,047 13,980 1,374 9.8 12,606 139 12,468 2,017 17.0 5.3

CY12 2Q 3QE 32,285 25,341 54.2 20.9 5,113 2,706 15.8 10.7 783 892 483 486 -2,972 2,302 875 3,629 5,994 -2,420 -5,119 6,049 683 726 -13.3 12.0 -5,801 5,323 56 100 -5,857 5,223 1,722 1,688 63.2 4.2 5.3 6.7

4QE 29,282 -22.8 3,221 11.0 958 489 439 2,212 550 1,662 200 12.0 1,461 106 3,921 2,159 38.7 7.4

CY11

CY12E

101,614 13.4 16,189 15.9 3,940 768 -1,001 10,480 37,345 -26,865 1,969 -7.3 -28,834 -163 -28,997 5,955 98.0 5.9

124,776 22.8 20,592 16.5 3,432 1,836 1,325 16,649 76 16,573 2,983 18.0 13,590 400 16,610 7,586 27.4 6.1

C–97

September 2012 Results Preview Sector: Healthcare

Sanofi India BSE Sensex

S&P CNX

18,763 Bloomberg Equity Shares (m) 52 Wk Range (INR) 1,6,12 Rel Perf (%) Mcap (INR b) Mcap (USD b)

5,703 SANL IN 23.0 2,430/2,002 4/1/-10 54.7 1.0

CMP: INR2,374 Year Net Sales PAT End (INR m) (INR m) 12/10A 10,850 1,550 12/11A 12,297 1,912 12/12E 14,864 1,693 12/13E 17,144 2,128

Neutral EPS (INR) 67.3 83.0 73.5 92.4

EPS Gr. (%) -1.5 23.3 -11.4 25.7

P/E (X) 28.6 32.3 25.7

P/BV (X) 4.9 4.5 4.0

RoE (%) 15.5 17.3 13.9 15.6

RoCE (%) 23.6 25.3 20.6 23.1

EV/ EV/ Sales EBITDA 4.3 29.7 3.4 24.1 2.9 19.4

We expect Sanofi India’s 3QCY12 topline to grow 25% YoY to INR3.9b, led by the domestic formulations business. The domestic formulations business is likely to grow 27% YoY to INR3.2b on the back of the acquisition of Universal Medicare. The export business would grow 13% YoY to INR625m.  EBITDA is likely to grow 26% YoY to INR636m, led mainly by topline growth. We expect EBITDA margin to expand by 20bp YoY to 16.3%.  We expect PAT to decline 9% YoY to INR499m, despite better operational performance. This is because other income would decline 16% YoY due to payment made towards the acquisition of Universal Medicare and depreciation & amortization charges would jump 219% YoY due to amortization of acquisition goodwill. 

We believe Sanofi India (SANL) will be one of the key beneficiaries of the patent regime in the long term. The parent has a strong R&D pipeline, with a total of 61 products undergoing clinical trials, of which 18 are in Phase-III or pending approvals. Some of these are likely to be launched in India. However, SANL’s profitability has declined significantly in the last five years, with EBITDA margin declining from 25% in CY06 to 14.3% in CY11, mainly impacted by discontinuation of Rabipur sales in the domestic market, lower export growth and higher staff & promotional expenses. RoE has declined from 28.6% to 17.3% during the period. The stock trades at 32.3x CY12E and 25.7x CY13E EPS. Our estimates do not factor in the impact of the proposed new pharma policy. We believe that the stock performance will remain muted in the short term until clarity emerges on future growth drivers. Maintain Neutral.

Quarterly Performance

(INR Million)

Y/E December Net Sales YoY Change (%) Total Expenditure EBITDA Margins (%) Depreciation Interest Other Income PBT Tax Effective tax Rate (%) PAT YoY Change (%) Margins (%) Domestic sales YoY Change (%) E: MOSL Estimates

October 2012

CY11 1Q 2,763 9.9 2,328 435 15.7 54 2 379 758 252 33.2 506 40.2 18.3 2,221 12.6

2Q 3,028 11.5 2,600 428 14.1 54 0 361 735 238 32.4 497 17.2 16.4 2,440 12.1

3Q 3,127 13.5 2,624 503 16.1 61 0 369 811 263 32.4 548 15.9 17.5 2,575 11.0

4Q 3,379 17.9 2,985 394 11.7 142 2 286 535 -10 -1.8 545 16.1 2,788 24.5

1Q 3,225 16.7 2,733 492 15.3 183 4 289 594 193 32.5 401 -20.8 12.4 2,765 24.5

CY12 2Q 3QE 3,741 3,901 23.5 24.8 3,219 3,266 522 636 14.0 16.3 186 195 4 0 267 309 599 750 194 250 32.4 33.4 405 499 -18.5 -8.9 10.8 12.8 3,029 3,276 24.1 27.2

4QE 4,008 18.6 3,525 483 12.1 200 2 323 604 205 33.8 400 -26.7 10.0 3,293 18.1

CY11

CY12E

12,297 13.3 10,537 1,760 14.3 311 4 1,395 2,839 743 26.2 2,096 31.2 17.0 10,024 15.1

14,864 20.9 12,743 2,122 14.3 764 10 1,188 2,535 842 33.2 1,693 -19.2 11.4 12,364 23.3

C–98

September 2012 Results Preview Sector: Healthcare

Strides Arcolab BSE Sensex

18,763 Bloomberg Equity Shares (m) 52 Week Range (INR) 1,6,12 Rel Perf (%) Mcap (INR b) Mcap (USD b)

S&P CNX

5,703 STR IN 57.7 958/330 0/42/144 51.0 1.0

CMP: INR883 Year Net Sales PAT End (INR m) (INR m) 12/10A 16,958 1,220 12/11A 25,245 2,245 12/12E 23,880 3,080 12/13E 25,790 3,588

Buy EPS EPS P/E (INR) YOY (%) (X) 20.9 99.8 38.5 84.0 23.4 52.8 37.2 17.1 61.5 16.5 14.6

P/BV (X) 3.8 2.3 2.0

RoE (%) 11.6 16.9 18.5 14.5

RoCE (%) 11.9 12.8 13.7 14.8

EV/ EV/ Sales EBITDA 2.3 12.7 2.2 8.9 2.0 8.3

We expect Strides Arcolabs (STR) to post 19.6% QoQ decline in 3QCY12 revenue to INR6.18b, impacted by the divestment of the Australasia generics business. On a like-to-like basis, we expect topline growth of 7%, led by 33% growth in specialty business. The residual pharma business (post divestment) is likely to grow 20% YoY to INR2.1b, while licensing income is likely to decline by a significant 51% YoY to INR839m.  EBITDA would decline 10% YoY to INR1.56b on account of lower licensing income and divestment of the Australasia generics business. However, EBITDA margin would expand 280bp due to higher contribution of the high-margin specialty business.  We expect adjusted net profit to grow 190% YoY to INR1.34b due to a significantly low base of 3QCY11, when the company had reported forex loss of INR583m. Lower interest cost and lower tax rate is also likely to aid PAT growth. 

STR is set to emerge as a specialty products company, with revenue contribution from this segment increasing from 28% in CY09 to an estimated 67% in CY13. The company has an impressive specialty product pipeline. It has large manufacturing capacities in place to support revenue scale-up, coupled with strong marketing partners like Pfizer and GSK. We expect STR to post 26% earnings CAGR over CY11-13, led by revenue ramp-up in the SI (sterile injectables) segment and substantial reduction in interest cost owing to debt repayment. Return ratios are set to improve over CY11-13 and debt-equity should decline from 1.9x in CY10 to 0.6x in CY13. The stock trades at 17.1x CY12E and 14.6x CY13E EPS. Maintain Buy. Quarterly performance (consolidated) Y/E December

(INR Million) CY11

CY12

1Q 2Q 3Q 4Q 1Q 2Q 3QE Net Revenues 4,875 5,813 7,693 6,865 5,275 5,083 6,185 YoY Change (%) 30.5 27.9 86.6 50.7 8.2 -12.6 -19.6 Total Expenditure 3,958 4,731 5,973 5,893 4,007 3,952 4,630 EBITDA 917 1,081 1,720 972 1,267 1,130 1,555 Margins (%) 18.8 18.6 22.4 14.2 24.0 22.2 25.1 Depreciation 183 340 222 298 237 257 275 Interest 438 467 491 507 390 510 410 Other Income 245 515 -477 700 -143 -223 595 PBT before EO Income 540 790 530 867 497 141 1,464 EO Exp/(Inc) 0 0 0 0 -6,316 -946 0 PBT after EO Income 540 790 530 867 6,813 1,087 1,464 Tax 89 94 62 141 392 182 117 Rate (%) 16.5 12.0 11.7 16.3 5.7 16.7 8.0 Minority Int/Adj on Consol 44 6 4 42 1 0 0 Reported PAT 407 689 465 684 6,421 905 1,347 Adj PAT 407 689 465 684 467 117 1,347 YoY Change (%) 18.2 8.7 76.0 14.8 -83.0 189.9 Margins (%) 8.4 11.9 6.0 10.0 8.9 2.3 21.8 E: MOSL Estimates; Note: Quarterly numbers don't add up to full year numbers due to restatement October 2012

4QE 7,338 6.9 5,458 1,879 25.6 290 400 375 1,565 0 1,565 116 7.4 -1 1,450 1,450 111.9 19.8

CY11

CY12

25,245 48.9 20,594 4,652 18.4 1,043 1,903 1,021 2,727 0 2,727 387 14.2 95 2,245 2,245 84.0 8.9

23,880 -5.4 18,048 5,833 24.4 1,059 1,710 603 3,666 -7,263 10,929 807 7.4 0 10,122 2,860 27.4 12.0 C–99

September 2012 Results Preview Sector: Healthcare

Sun Pharmaceuticals Industries BSE Sensex

18,763 Bloomberg Equity Shares (m) 52 Week Range (INR) 1,6,12 Rel Perf (%) Mcap (INR b) Mcap (USD b)

S&P CNX

5,703 SUNP IN 1,035.6 698/448 -5/12/33 718.0 13.6

CMP: INR693 Year Net Sales PAT End (INR m) (INR m) 03/11A 52,066 14,041 03/12A* 80,057 25,873 03/12A 74,406 23,228 03/13E 90,922 27,449 03/14E 111,894 30,425 *Including Para-IV/one-off

Neutral EPS EPS (INR) Gr. (%) 13.6 47.8 25.0 42.5 22.4 65.4 26.5 18.2 29.4 10.8 upsides

P/E (X) 51.1 27.7

P/BV (X) 0.0 5.9

RoE (%) 16.2 21.5

RoCE (%) 23.4 30.3

26.1 23.6

5.0 4.3

20.7 19.7

30.2 27.0

EV/ EV/ Sales EBITDA 0.0 0.0 8.3 20.4 6.4 5.5

16.5 15.7

We expect Sun Pharmaceuticals (SUNP) to post 37% YoY growth in core topline (excluding one-offs) for 2QFY13 to INR24.5b, mainly led by 37% YoY growth in revenue from Taro and 40% YoY growth in core revenue from the US. While better product pricing would aid growth in revenue from Taro, low base would aid growth in core revenue from the US. The domestic formulations business is likely to grow 21% YoY to INR8.5b. The export formulations business (other than the US) is likely to grow 35% YoY. Including revenue from one-off product opportunities, the topline would grow 40% YoY to INR26.5b.  Core EBITDA (ex-Para IV/low competition products) is likely to grow 34% YoY to INR9.6b. Core EBITDA margin would decline 100bp to 39.1% on a high base. Including the upsides from one-off product opportunities, EBITDA is likely to grow 35% YoY to INR10.6b.  We expect adjusted PAT to grow 30% YoY to INR7b, in line with strong operational performance, but pulled down by increased tax rate. Including one-offs, reported PAT is likely to grow 30% YoY to INR7.8b. An expanding generics portfolio coupled with sustained double-digit growth in high-margin lifestyle segments in India is likely to bring in long-term benefits for SUNP. Its ability to sustain superior margins even on a high base is a clear positive. Key drivers for the future include: (1) Ramp-up in US business and recovery of sales at Caraco post the resolution of cGMP issues, (2) Monetization of the Para-IV pipeline in the US, (3) Launch of controlled substances in the US, and (4) Sustaining Taro’s high profitability. The stock is currently valued at 26.1x FY13E and 23.6x FY14E core earnings. Our estimates exclude the impact of the proposed new pharma policy. While we are positive on SUNP’s business outlook, rich valuations have tempered our bullishness. We maintain Neutral. Large inorganic initiatives (SUNP has cash of USD0.9b-1b) would be the key upside risk to our Neutral view. 

Quarterly Performance (Consolidated) Y/E March

(INR Million) FY12

1Q 2Q 3Q 4Q Net Revenues 16,357 18,946 21,451 23,299 YoY Change (%) 16.9 38.3 34.0 59.2 Total Expenditure 10,883 11,106 11,814 13,748 EBITDA 5,474 7,840 9,638 9,552 Margins (%) 33.5 41.4 44.9 41.0 Depreciation 647 668 774 823 Net Other Income 969 1,183 -272 2,082 PBT 5,796 8,355 8,591 10,811 Tax 143 1,281 634 1,768 Rate (%) 2.5 15.3 7.4 16.4 Profit after Tax 5,653 7,074 7,957 9,043 Share of Minority Partner 643 1,097 1,274 841 Reported PAT 5,010 5,977 6,683 8,202 One-off upsides 624 523 573 923 Adj Net Profit 4,386 5,454 6,110 7,279 YoY Change (%) 30.4 32.8 99.2 39.5 Margins (%) 26.8 28.8 28.5 31.2 E: MOSL Estimates; Quarterly no. don’t match with annual no. because October 2012

FY13 1Q 2QE 26,581 24,501 62.5 29.3 14,413 14,910 12,169 9,591 45.8 39.1 801 805 -231 1,165 11,136 9,951 1,925 1,791 17.3 18.0 9,211 8,160 1,256 1,097 7,956 7,775 1,240 712 6,716 7,063 53.1 29.5 25.3 28.8 of reinstatement of

3QE 4QE 24,153 25,060 12.6 7.6 15,296 16,772 8,856 8,288 36.7 33.1 872 876 1,940 2,203 9,925 9,615 1,786 1,810 18.0 18.8 8,138 7,805 1,274 999 7,999 7,229 1,135 423 6,864 6,806 12.3 -6.5 28.4 27.2 financials

FY12

FY13E

80,057 39.9 47,550 32,507 40.6 2,912 3,958 33,554 3,826 11.4 29,727 3,855 25,873 2,644 23,228 65.4 29.0

100,296 25.3 61,392 38,904 38.8 3,354 5,078 40,627 7,313 18.0 33,314 4,626 30,958 3,510 27,449 18.2 27.4

C–100

September 2012 Results Preview Sector: Healthcare

Torrent Pharma BSE Sensex

S&P CNX

18,763 Bloomberg Equity Shares (m) 52 Week Range (INR) 1,6,12 Rel Perf (%) Mcap (INR b) Mcap (USD b)

5,703 TRP IN 84.6 727/505 -8/4/13 58.8 1.1

CMP: INR695 Year Net Sales PAT End (INR m) (INR m) 03/11A 22,049 2,702 03/12A 26,959 3,251 03/13E 32,764 4,191 03/14E 38,020 4,989

Buy EPS (INR) 31.9 38.4 49.5 59.0

EPS Gr. (%) 0.8 20.3 28.9 19.0

P/E (X) 18.1 14.0 11.8

P/BV (X) 4.9 3.9 3.1

RoE (%) 29.2 29.3 30.9 29.2

RoCE (%) 25.9 28.5 32.0 31.5

EV/ EV/ Sales EBITDA 2.1 11.3 1.7 9.0 1.4 7.3

We expect Torrent Pharmaceuticals (TRP) to post 21% YoY growth in core topline for 2QFY13 to INR8.29b, led by the international formulations segment, which is likely to grow 26% YoY on the back of strong growth in the US, Europe (ex-Germany) and Brazil. Topline growth would be partially led by favorable currency. We expect domestic formulations to grow 11.7% YoY to INR2.6b.  EBITDA is likely to grow 18% YoY while EBITDA margin is likely to decline by 60bp mainly due to higher staff costs and overheads as well as uptick in R&D spending.  We expect adjusted PAT to grow 12% YoY to INR1.1b despite 18% EBITDA growth due to higher tax outgo. Over the last seven years, TRP has delivered 33% EPS CAGR, though capital employed has grown at a CAGR of just 17%. It has consistently improved its profitability, with RoCE increasing from 14.5% in FY05 to 28.5% in FY12. We expect 24% EPS CAGR over FY12-14, in line with strong operating performance. Its high return ratios are likely to sustain, despite large capex and growing cash on the books. We believe that current valuations do not reflect the improvement in business profitability, the turnaround of international operations, and TRP’s strong positioning in the domestic formulations business, particularly in chronic therapeutic segments. TRP should trade at a premium to most mid-cap pharma companies, and its valuation gap vis-à-vis frontline pharma companies should reduce. The stock trades at 14x FY13E and 11.8x FY14E earnings. Our estimates exclude the impact of the proposed new pharma policy. Maintain Buy. 

Quarterly Performance

(INR Million)

Y/E March Net Revenues (Core) YoY Change (%) EBITDA Margins (%) Depreciation Interest Other Income PBT before EO Expense Extra-Ord Expense PBT after EO Expense Tax Rate (%) Reported PAT Minority Interest Adj PAT YoY Change (%) Margins (%) Dom. formulations sales YoY Change (%) Intl. formulations sales YoY Change (%) E: MOSL Estimates October 2012

FY12 1Q 6,475 19.7 1,531 23.6 202 41 24 1,313 0 1,313 287 21.9 1,026 1 893 20.3 13.8 2,460 10.1 3,061 19.3

2Q 6,833 17.5 1,406 20.6 201 28 43 1,219 0 1,219 212 17.3 1,008 8 1,000 31.2 14.6 2,385 8.4 3,762 36.7

3Q 6,966 20.6 1,215 17.4 197 2 23 1,040 0 1,040 201 19.3 839 7 832 8.1 11.9 2,294 8.4 3,787 33.6

FY13 4Q 6,743 33.6 850 12.6 218 89 124 668 654 14 24 3.6 -10 7 527 23.1 7.8 2,016 9.6 3,854 51.1

1Q 7,669 18.4 1,560 20.3 201 94 140 1,404 0 1,404 374 26.6 1,030 12 1,019 14.1 13.3 2,802 13.9 4,071 33.0

2QE 8,290 21.3 1,659 20.0 224 89 145 1,491 0 1,491 373 25.0 1,119 0 1,119 11.9 13.5 2,665 11.7 4,745 26.1

3QE 8,476 21.7 1,607 19.0 238 82 150 1,438 0 1,438 324 22.5 1,114 0 1,114 34.0 13.1 2,633 14.8 4,910 29.7

4QE 8,171 21.2 1,201 14.7 269 106 125 950 0 950 182 19.1 769 0 769 45.8 9.4 2,350 16.6 4,928 27.9

FY12

FY13E

26,959 22.3 5,006 18.6 817 395 445 4,240 654 3,586 723 17.1 2,863 23 3,251 20.3 12.1 9,167 9.3 14,332 33.9

32,764 21.5 6,186 18.9 932 371 560 5,443 0 5,443 1,252 23.0 4,191 0 4,191 28.9 12.8 10,450 14.0 18,795 31.1 C–101

September 2012 Results Preview Sector: Media

Media Company Name Dish TV

Ad environment remains tough but worst likely behind; festive season holds the key: Advertising spends remained subdued in 2QFY13. Zee is likely to clock another strong quarter of ad growth (17% YoY), led by low base, contribution from the sports segment and strong ratings performance. However, ad growth for other companies is likely to remain subdued - 6-8% YoY growth for Sun TV / Jagran and ~1% YoY decline for HT Media.

H T Media Jagran Prakashan Sun TV Network Zee Entertainment

PAT to remain flat YoY for broadcasting companies; expect significant reduction in Dish TV's Net loss: Zee's adjusted PAT is likely to remain largely flat YoY and QoQ, as higher ad revenue would be offset by higher programming costs, launch expenses and sports loss. Sun TV's PAT would be flat, led by muted ad growth and decline in overall subscription revenue due to lower analog revenue from Tamil Nadu. Dish TV's net loss is likely to decline 70-80% YoY/QoQ on better margin performance and no forex loss. Among print companies, we expect Jagran to report 11% PAT growth while HT Media is likely to report 19% PAT decline, largely due to ad revenue decline in the English print segment v/s growth in Hindi. DTH: Subscriber additions likely to remain flat QoQ; festive season and mandatory digitization to favorably impact 3QFY13 numbers: We expect DTH subscriber additions to remain largely flat QoQ, given the relatively tough macroeconomic situation and limited benefit of digitization in the metros. DTH additions are likely to increase meaningfully in 3QFY13, led by festive season as well as the implementation of mandatory digitization in the metros.

All eyes on metro digitization; further postponement unlikely: Our interactions across the industry value chain indicate that 31 October 2012 is likely to remain the deadline for digitization of metros and further postponement is unlikely. Data released by the Abbreviations and acronyms GEC: General entertainment Ministry of I&B indicate that 68% set-top box seeding has already been achieved as of September 2012, with Mumbai at ~95% and other metros at 50-70%. channel DTH: direct to home

Hindi GEC ratings: Strong competition among top-4: During 2QFY13, Zee TV improved its average weekly GRP by ~11% QoQ to 239 - third consecutive quarter of improvement. All top-4 GECs, except Star Plus, improved average ratings performance in 2QFY13, significantly bringing down the lead enjoyed by Star Plus. Sustenance of ratings in 3QFY13 would be critical for Zee to monetize the festive season.

Expected quarterly performance summary

Dish TV HT Media Jagran Prakashan Sun TV Zee Entertainment Sector Aggregate

CMP (INR) 28.09.12 83 93 91 349 196

(INR million)

Rating Sep.12 Neutral Neutral Neutral Buy Neutral

5,406 4,982 3,317 4,491 8,640 26,836

Sales Var. % YoY 12.1 1.0 8.6 -0.5 20.3 9.5

Var. % QoQ 4.0 1.7 4.5 5.5 2.5 3.4

Sep.12 1,548 674 864 3,518 1,997 8,602

EBITDA Var. % YoY 27.1 -5.3 9.3 -3.7 -3.8 1.8

Var. % QoQ -0.5 0.8 9.6 8.9 -14.4 0.3

Net Profit Sep.12 Var. % YoY -100 Loss 403 -8.0 729 59.2 1,787 -0.8 1,598 2.4 4,417 17.1

Var. % QoQ Loss -0.9 30.7 8.8 1.0 14.3

Shobhit Khare ([email protected]) October 2012

C–102

September 2012 Results Preview Sector: Media

Digitization remains a strong theme for broadcasting stocks; headwinds for print receding: Ad revenue trends remain sluggish but likely bottoming out, with most companies expecting stable/improving ad spends QoQ. Headwinds for print companies seem to be receding, with gradual decline in newsprint costs and sharp INR appreciation. Digitization remains a strong theme for broadcasting and distribution as most participants do not foresee postponement in digitization deadline for metros. Media coverage - Quarterly 1QFY11 2QFY11 3QFY11 4QFY11 1QFY12 2QFY12 3QFY12 4QFY12 1QFY13 2QFY13E YoY (%) QoQ (%) Advertisement Revenue (INR b) ZEEL 3.8 Sun TV 2.6 Dish TV NM HT Media 3.3 Jagran Prakashan 1.9 Subscription Revenue (INR b) ZEEL 2.6 Sun TV 1.7 Dish TV 2.5 HT Media 0.5 Jagran Prakashan 0.6 Total Revenue (INR b) ZEEL 6.8 Sun TV 4.4 Dish TV 3.0 HT Media 4.0 Jagran Prakashan 2.7 EBITDA (INR b) ZEEL 1.9 Sun TV 3.6 Dish TV 0.3 HT Media 0.80 Jagran Prakashan 0.90 EBITDA Margin (%) ZEEL 27.6 Sun TV 81.7 Dish TV 10.6 HT Media 19.8 Jagran Prakashan 33.4 Adjus ted PAT (INR b) ZEEL 1.21 Sun TV 1.71 Dish TV -0.63 HT Media 0.41 Jagran Prakashan 0.56

4.1 2.7 NM 3.3 1.9

4.4 3.0 NM 3.7 1.9

4.8 3.0 NM 3.6 1.9

3.8 2.7 NM 3.8 2.0

3.9 2.7 NM 3.7 2.1

4.0 2.9 NM 4.1 2.2

4.2 2.8 NM 3.7 2.1

4.5 2.8 NM 3.7 2.2

4.6 2.9 NM 3.7 2.3

17 6 NM -1 8

3 4 NM -2 4

2.7 1.4 2.7 0.4 0.5

2.8 2.7 3.1 0.5 0.6

3.1 1.5 3.7 0.5 0.6

3.1 1.6 3.9 0.5 0.6

2.9 1.6 4.1 0.5 0.6

3.3 1.2 4.3 0.5 0.6

4.0 1.3 4.3 0.5 0.6

3.6 1.2 4.6 0.5 0.6

3.7 1.3 4.7 0.5 0.7

27 -17 14 6 11

1 10 3 2 6

7.1 4.2 3.3 4.5 2.8

7.5 6.0 3.7 4.7 2.9

8.0 4.6 4.3 4.7 2.8

7.0 4.5 4.6 5.0 3.0

7.2 4.5 4.8 4.9 3.1

7.5 4.3 4.9 5.3 3.2

8.7 4.3 5.2 4.9 3.1

8.4 4.3 5.2 4.9 3.2

8.6 4.5 5.4 5.0 3.3

20 0 12 1 9

2 5 4 2 4

1.9 3.3 0.5 0.79 0.91

1.5 5.0 0.7 0.88 0.90

2.3 3.6 0.9 0.88 0.71

1.6 3.7 1.1 0.90 0.82

2.1 3.7 1.2 0.71 0.79

2.2 3.4 1.2 0.78 0.85

1.6 3.3 1.4 0.48 0.66

2.3 3.2 1.6 0.67 0.79

2.0 3.5 1.5 0.67 0.86

-4 -4 27 -5 9

-14 9 -1 1 10

26.5 78.2 15.3 17.8 32.8

20.4 83.9 17.9 19.0 31.4

28.4 79.0 20.8 18.6 25.3

22.3 80.6 24.4 18.2 26.9

28.9 81.0 25.2 14.4 25.9

28.6 80.2 24.5 14.8 26.3

18.4 76.9 27.5 9.7 21.2

27.7 75.9 29.9 13.7 24.8

23.1 78.3 28.6 13.5 26.1

1.26 1.67 -0.45 0.39 0.56

1.14 2.25 -0.44 0.48 0.53

2.09 2.08 -0.37 0.53 0.42

1.34 1.88 -0.18 0.52 0.50

1.56 1.80 -0.49 0.44 0.46

1.39 1.68 -0.43 0.48 0.41

1.42 1.59 -0.49 0.22 0.43

1.58 1.64 -0.32 0.38 0.39

-578bp -455bp -263bp 249bp 338bp -129bp -91bp -12bp 17bp 123bp

1.60 2 1 1.79 -1 9 -0.10 NM NM 0.35 -19 -7 0.51 11 31 Sour ce: Company, MOSL

Phase-I digitization status (September 2012)

Mumbai Kolkata Delhi Chennai Tot al

House TV penetration Holds (m) (%) 2.7 85 3.3 61 3.3 88 1.1 95 10.4 80

October 2012

TV HHs (m) 2.3 2.0 2.9 1.1 8.2

DTH subs (m) 0.7 0.3 0.9 0.6 2.6

Cable TV HHs (m) 1.6 1.6 2.1 0.4 5.7

20% provision for 2nd TV 0.3 0.3 0.4 0.1 1.1

Cable TV STB STB seeding subs (m) installed (m) achieved (%) 1.9 1.8 95 2.0 1.3 67 2.5 1.3 53 0.5 0.3 49 6.8 4.7 68 Sour ce: Company, MOSL C–103

September 2012 Results Preview Sector: Media

Recent GRP trends of major Hindi GEC’s Zee TV Son y

Star Pl us Sab

Co l ors Li fe Ok

11%

10%

420

6%

330 240 150 60

-2%

Dec-10 Jan-11 Jan-11 Mar-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 Jun-12 Jul-12 Aug-12 Sep-12

GRPs of leading Hindi GECs, except Star Plus, improved during the quarter.

Hindi GEC: QoQ increase (decrease) in GRP (%)

Star Pl us

Col ors

Zee TV

Son y

Source: Bloomberg/MOSL

Hindi GEC (~31% of viewership) S tar Pl us

Col o rs

Zee TV

S ony

S AB

40 30 20 10 S ep-12

Jul-12

Apr-12

F eb-12

Nov-11

S ep-11

Jun-11

Apr-11

Jan-11

Nov-10

Aug-10

Mar-10

Jan-10

Oct-09

Aug-09

Jun-09

Mar-09

0 Jan-09

With a decline in ratings for Star Plus, the top-4 GECs are evenly placed. The success of launches during the festive season is likely to determine the leadership position

Jun-10

Market share trends

Hindi movies (~12% of viewership) Zee Ci n ema

MAX

Star Gol d

Movi es OK

60 45 30 15

Sep-12

Jul-12

Apr-12

Feb-12

Dec-11

Sep-11

Jul-11

May-11

Feb-11

Dec-10

Oct-10

Jul-10

May-10

Mar-10

Dec-09

Oct-09

Aug-09

May-09

Mar-09

0 Jan-09

Top-3 channels continue to compete strongly in the Hindi Movie genre. Movies OK has emerged as the undisputed number-4 in a cluttered genre

Bengali GEC (~3% of viewership) Star Jal s ha

Ze e Ban gl a

ETV B angl a

65 50 35 20

October 2012

Sep-12

Jul-12

Apr-12

Feb-12

Dec-11

Sep-11

Jul-11

May-11

Feb-11

Dec-10

Oct-10

Jul-10

May-10

Mar-10

Dec-09

Oct-09

Aug-09

May-09

Mar-09

5 Jan-09

The Bengali GEC market has become an effective duopoly given continued market share decline for ETV

C–104

September 2012 Results Preview Sector: Media

Marathi GEC (4% of viewership) Ze e Marathi

Star Pravah continues to improve upon its leadership position in the Marathi GEC market

ETV Mara thi

Sta r Pra va h

60 45 30 15

Sep-12

Jul-12

Apr-12

Feb-12

Dec-11

Sep-11

Jul-11

May-11

Feb-11

Dec-10

Oct-10

Jul-10

May-10

Mar-10

Dec-09

Oct-09

Aug-09

May-09

Mar-09

Jan-09

0

Tamil GEC (~5% of viewership) S un TV

Sun TV remains the market leader in the Tamil GEC market

Star Vi jay TV

Kal ai gnar TV

Jaya TV

75 60 45 30 15 S ep-12

Jun-12

Mar-12

Dec-11

S ep-11

Jul-11

Apr-11

Jan-11

Oct-10

Jul-10

Apr-10

Jan-10

Oct-09

Jul-09

Apr-09

Jan-09

0

Telugu GEC (~4% of viewership) Gemi ni TV

ETV Tel ugu

Zee Te l ugu

Maa Tel u gu

50 40 30 20 10 Sep-12

Jun-12

Mar-12

Dec-11

Sep-11

Jun-11

Mar-11

Dec-10

Sep-10

Jun-10

Mar-10

Dec-09

Sep-09

Jul-09

Apr-09

0 Jan-09

Gemini TV remains the market leader in Telugu GEC; Maa Telugu has emerged as the clear number-2 and has been closing the gap v/s Gemini

Kannada GEC (~3% of viewership) Uda ya TV

Udaya TV continues to maintain a wide lead over competitors in the Kannada GEC market

Suvarna

ETV Kanna da

Zee Kan nada

50 40 30 20 10

October 2012

Sep-12

Jun-12

Apr-12

Jan-12

Nov-11

Aug-11

Jun-11

Mar-11

Jan-11

Oct-10

Jul-10

May-10

Feb-10

Dec-09

Sep-09

Jul-09

0

C–105

September 2012 Results Preview Sector: Media

Malyalam GEC (~1% of viewership) Asi a net

Su rya TV

Mazhavi l Manora ma

75

Asianet remains a strong number-1

60 45 30 15 Sep-12

Jul-12

Apr-12

Feb-12

Nov-11

Sep-11

Jun-11

Apr-11

Jan-11

Nov-10

Aug-10

Jun-10

Mar-10

Jan-10

Oct-09

Aug-09

Jun-09

Jan-09

Mar-09

0

Sour ce: Company, MOSL

Balaji Telefilms: Trends in OPH and programming rates Co mmi ssi o ned programmi ng hours

4.0

270

3.0

180

2.0

90

1.0

0

0.0 3QFY06 4QFY06 1QFY07 2QFY07 3QFY07 4QFY07 1QFY08 2QFY08 3QFY08 4QFY08 1QFY09 2QFY09 3QFY09 4QFY09 1QFY10 2QFY10 3QFY10 4QFY10 1QFY11 2QFY11 3QFY11 4QFY11 1QFY12 2QFY12 3QFY12 4QFY12 1QFY13

Rate per hour for Balaji Telefilms improved in 1QFY13 after two consecutive quarters of decline

Ra te pe r hour (INR m)

360

Industry DTH subscriber base and additions trend

32

36

39

2.0

41

44

46 4QFY12

26

3.4 2.3

3QFY12

24

2.9

1QFY12

21

3.5

3QFY11

19

2QFY11

2.7

1QFY11

17

2.5

4QFY10

15

1.8

2.2

3QFY10

13

2QFY10

3QFY09

2.2

1QFY10

11

2.1

4QFY09

8 2QFY09

1.2

1.0 7

2.0

2QFY12

5.6 3.1

1QFY09

Industry DTH additions remain sluggish; expect improvement in 3QFY13

Quarte rl y sub scri ber a dds (m)

4QFY11

DTH s ubscri be rs (m)

Newsprint prices have been largely stable (USD/MT) 800 700

Newsprint prices (USD/ton) have remained largely flat

600 500

October 2012

Sep-12

Jun-12

Mar-12

Dec-11

Sep-11

Jun-11

Mar-11

Dec-10

Sep-10

Jun-10

Mar-10

Dec-09

Sep-09

Jul-09

Apr-09

Jan-09

Oct-08

Jul-08

Apr-08

Jan-08

400

C–106

September 2012 Results Preview Sector: Media

Relative Performance-1Yr (%)

95

80

80 Sep-12

Sep-12

95

Sep-11

110

Aug-12

110

Jul-12

125

Jun-12

125

Dec-11

140

Sens ex Inde x MOSL Medi a Index

140

Jun-12

Sens ex Inde x MOSL Medi a Inde x

Mar-12

Relative Performance-3m (%)

Comparative valuation CMP (INR) 28.09.12 Media Dish TV HT Media Jagran Prakashan Sun TV Zee Entertainment Sector Aggregate

October 2012

83 93 91 349 196

Rating

EPS (INR) FY12 FY13E FY14E

P/E (x) FY12 FY13E FY14E

EV/EBITDA (x) FY12 FY13E FY14E

Neutral Neutral Neutral Buy Neutral

-1.5 7.0 5.6 17.6 5.9

-55.2 -181.0 13.2 15.5 16.2 16.3 19.8 19.2 33.2 27.9 32.0 27.9

19.3 6.4 10.3 9.6 24.9 14.4

-0.5 6.0 5.6 18.2 7.0

0.3 6.8 6.5 20.1 8.5

264.6 13.8 14.1 17.4 23.1 23.2

15.2 6.3 8.9 9.1 20.7 12.8

11.7 5.2 8.1 7.8 17.0 10.7

RoE (%) FY12 FY13E FY14E NA 11.0 24.5 26.3 17.5 17.7

NA 8.6 20.6 24.7 18.3 18.0

NA 8.8 20.2 25.1 19.3 19.4

C–107

September 2012 Results Preview Sector: Media

Dish TV BSE Sensex

S&P CNX

18,763 Bloomberg Equity Shares (m) 52 Week Range (INR) 1,6,12 Rel Perf (%) Mcap (INR b) Mcap (USD b)

5,703 DITV IN 1,063.6 85/52 14/29/-9 87.7 1.7

CMP: INR83

Neutral

Year Net Sales PAT EPS End (INR m) (INR m) (INR) 03/11A 14,366 -1,897 -1.8 03/12A 19,578 -1,588 -1.5 03/13E 22,622 -485 -0.5 03/14E 28,197 332 0.3

EPS P/E Gr. (%) (X) NA NA NA NA NA NA NA 264.6

P/BV (X) 139.8 NA NA NA

RoE (%) NA NA NA NA

RoCE (%) NA NA 3 10

EV/ EV/ Sales EBITDA 4.8 18.9 4.2 15.0 3.3 11.5



We expect revenue to increase 12% YoY and 4% QoQ to INR5.4b.



Subscription revenue is likely to grow 3% QoQ to INR4.7b.



We expect gross additions of 0.5m and net additions of 0.15m in 2QFY13.



EBITDA margin is likely to decline 130bp QoQ to 28.6% largely due to higher opex.



Net loss would decline 70-80% YoY/QoQ to INR0.1b. We have not modeled any forex gain/loss in 2QFY13.



The stock trades at an EV of 15x FY13E and 11.5x FY14E EBITDA. Maintain Neutral.

Quarterly performance

(INR Million)

Y/E March Sales YoY Change (%) Operating expenses EBITDA YoY Change (%) EBITDA margin (%) Depreciation Interest Other Income PBT Adjusted net profit YoY Change (%) Net Subs (m) ARPU (INR/month) Revenue break-up (INR m) Subscription revenue Lease rentals Others Total revenue E: MOSL Estimates

October 2012

FY12

FY13

FY12

FY13E

1Q

2Q

3Q

4Q

1Q

2QE

3QE

4QE

4,604 51.3 3,482 1,122 248.5 24.4 1,107 334 137 -183 -183 -71.0 8.9 150

4,822 47.8 3,605 1,217 144.5 25.2 1,162 634 92 -487 -487 7.7 9.2 152

4,905 31.4 3,703 1,202 80.2 24.5 1,232 477 78 -430 -430 -3.0 9.5 152

5,247 21.2 3,805 1,442 59.9 27.5 1,678 348 94 -490 -490 32.4 9.6 151

5,200 12.9 3,644 1,556 38.7 29.9 1,512 473 106 -324 -324 76.8 9.8 156

5,406 12.1 3,858 1,548 27.1 28.6 1,452 303 107 -100 -100 -79.5 10.0 158

5,773 17.7 4,366 1,408 17.2 24.4 1,474 234 108 -192 -192 -55.4 10.8 161

6,243 19.0 4,458 1,785 23.8 28.6 1,502 263 111 131 131 -126.6 11.3 165

19,578 36.3 14,594 4,984 108.7 25.5 5,180 1,778 386 -1,588 -1,588 -16.3 9.6 153

22,622 15.5 16,326 6,296 26.3 27.8 5,939 1,273 432 -485 -485 -69.5 11.3 157

3,923 550 131 4,604

4,133 550 140 4,822

4,258 449 198 4,905

4,338 660 249 5,247

4,556 460 184 5,200

4,707 500 199 5,406

5,039 520 215 5,773

5,474 540 229 6,243

16,650 2,209 719 19,578

19,776 2,020 827 22,622

C–108

September 2012 Results Preview Sector: Media

H T Media BSE Sensex

18,763

S&P CNX

5,703

Bloomberg HTML IN Equity Shares (m) 235.0 52 Week Range (INR) 157/82 1,6,12 Rel Perf (%) -6/-38/-47 Mcap (INR b) 21.9 Mcap (USD b) 0.4

CMP: INR93

Neutral

Year Net Sales Adj. PAT Adj EPS EPS End (INR m) (INR m) (INR) Gr. (%) 03/11A 17,861 1,809 7.7 26 03/12A 20,030 1,655 7.0 -9 03/13E 20,226 1,594 6.0 -14 03/14E 22,417 1,792 6.8 12

P/E (x) 13.2 15.5 13.8

P/BV (x) 1.4 1.3 1.2

RoE (%) 14.9 11.0 8.6 8.8

RoCE (%) 13.0 10.5 9.9 10.4



We expect revenue to grow 1% YoY to INR5b.



Ad revenue would decline 1% YoY to INR3.7b, led by 3% decline in the English business.



We expect circulation revenue to increase 6% YoY to INR0.53b.



EBITDA margin is likely to decline 90bp YoY to 13.5%.



Adjusted earnings would decline 19% YoY to INR0.35b.



The stock trades at 15.5x FY13E and 13.8x FY14E EPS. Neutral.

Quarterly performance (Consolidated)

(INR Million)

Y/E March Revenue YoY (%) Operating expenses EBITDA YoY (%) EBITDA margin (%) Depreciation Interest Other Income Extra-ordinary exps PBT Tax Effective Tax Rate (%) PAT Minority Interest Reported PAT Adj PAT YoY (%) Ad revenue growth (%) -English -Hindi Circulation revenue growth (%) -English -Hindi E: MOSL Estimates October 2012

EV/ EV/ Sales EBITDA 0.9 6.4 0.9 6.3 0.7 5.2

FY12

FY13

1Q

2Q

3Q

4Q

1Q

2QE

3QE

4QE

4,969 22.9 4,066 903 13.0 18.2 214 53 146 0 782 242 30.9 540 25 515 515 24.4 17 18 15 3 4 3

4,931 10.7 4,219 713 -9.9 14.4 233 74 204 0 610 141 23.1 469 31 438 438 13.0 12 8 24 21 34 16

5,266 13.2 4,489 777 -12.0 14.8 220 83 168 0 642 161 25.1 481 -1 482 482 0.8 10 11 8 7 0 10

4,941 5.0 4,460 481 -45.1 9.7 249 104 179 0 307 81 26.4 226 6 220 220 -58.5 3 -4 21 3 -15 13

4,899 -1.4 4,230 669 -25.9 13.7 220 103 209 0 555 129 23.2 426 19 407 407 -21.0 -3 -6 5 8 -3 13

4,982 1.0 4,308 674 -5.3 13.5 225 100 185 0 534 101 18.9 433 30 403 403 -8.0 -1 -3 3 6 -5 11

5,243 -0.4 4,459 784 0.9 15.0 230 101 190 0 643 122 19.0 521 48 473 473 -1.8 -3 -10 18 7 -8 15

5,102 3.3 4,475 627 30.4 12.3 248 101 190 0 469 88 18.9 380 70 310 310 41.2 1 0 5 13 10 15

FY12

FY13E

20,107 12.6 17,234 2,873 -14.2 14.3 916 315 697 0 2,340 625 26.7 1,715 61 1,655 1,655 -9 10 8 17 8 4 10

20,226 0.6 17,472 2,754 -4.1 13.6 923 405 774 0 2,201 440 20.0 1,761 167 1,594 1,594 -4 -1 -5 8 9 -2 14

C–109

September 2012 Results Preview Sector: Media

Jagran Prakashan BSE Sensex

S&P CNX

18,763 5,703 Bloomberg JAGP IN Equity Shares (m) 316.3 52 Week Range (INR) 115/78 1,6,12 Rel Perf (%) -7/-19/-29 Mcap (INR b) 28.9 Mcap (USD b) 0.5

CMP: INR91

Neutral

Year Net Sales Adj PAT Adj EPS EPS End (INR m) (INR m) (INR) Gr. (%) 03/11A 12,211 2,183 6.9 18 03/12A 13,557 1,783 5.6 -18 03/13E 15,833 1,777 5.6 0 03/14E 17,172 2,050 6.5 15

P/E (X) 16.2 16.3 14.1

P/BV (X) 3.8 3.8 2.7

RoE (%) 33.2 24.5 20.6 20.2

RoCE (%) 24.4 15.6 18.1 14.1

EV/ EV/ Sales EBITDA 2.4 10.3 1.9 8.9 1.7 8.1



We expect advertising revenue to grow 8% YoY to INR2.3b on a standalone basis.



Circulation revenue is likely to grow 11% YoY and 6% QoQ to INR0.7b.



Aggregate revenue would increase 9% YoY to INR3.3b.



We estimate EBITDA at INR0.86b, up 9% YoY. We expect EBITDA margin to expand 20bp YoY to 26.1%.



Adjusted earnings would grow 11% YoY to INR0.51b.



The stock trades at 16.3x FY13E and 14.1x FY14E EPS. Neutral.

Quarterly Performance (Standalone)

(INR Million)

Y/E March

FY12 1Q 3,046 12.9 2,226 820 -9.0 26.9 150 28 78 720 223 31.0 497 -10.6 0 497

Sales YoY (%) Operating expenses EBITDA YoY (%) EBITDA margin (%) Depreciation Interest Other Income PBT Tax Effective Tax Rat e (%) Reported net profit YoY (%) Extra-ordinary item Adjusted net profit Revenue break-up Ad revenue 2,043 Circulation revenue 582 Other s (Outdoor,ev ent mgmt, etc) 422 Total revenue 3,046 E: MOSL Estimates

October 2012

FY13

FY12

FY13E

2Q 3,054 10.3 2,263 791 -13.0 25.9 160 29 40 642 184 28.6 458 -17.5 0 458

3Q 3,240 13.3 2,389 851 -5.2 26.3 165 44 -42 600 187 31.2 413 -21.5 0 413

4Q 3,104 9.8 2,445 659 -7.7 21.2 181 45 183 615 187 30.4 428 1.8 0 428

1Q 3,175 4.2 2,387 788 -3.9 24.8 148 76 -7 557 0 0 557 12.1 167 390

2QE 3,317 8.6 2,453 864 9.3 26.1 150 73 88 729 0 0 729 59.2 219 510

3QE 3,591 10.8 2,600 990 16.3 27.6 150 70 88 858 0 0 858 107.7 257 600

4QE 3,391 9.2 2,614 777 17.9 22.9 150 68 88 646 0 0 646 50.9 194 452

12,445 11.6 9,324 3,121 -8.8 25.1 657 146 259 2,577 781 30.3 1,796 -12.7 0 1,796

13,474 8.3 10,054 3,419 9.6 25.4 598 287 255 2,790 0 0 2,790 55.3 837 1,953

2,119 612 323 3,054

2,235 623 382 3,240

2,103 628 373 3,104

2,207 641 328 3,175

2,288 676 352 3,317

2,459 704 428 3,591

2,271 701 418 3,391

8,500 2,445 1,500 12,445

9,225 2,722 1,527 13,474

C–110

September 2012 Results Preview Sector: Media

Sun TV Network BSE Sensex

S&P CNX

18,763 5,703 Bloomberg SUNTV IN Equity Shares (m) 394.1 52 Week Range (INR) 362/177 1,6,12 Rel Perf (%) 15/6/19 Mcap (INR b) 137.7 Mcap (USD b) 2.6

CMP: INR349 Year End 3/11A 3/12A 3/13E 3/14E

Buy

Net Sales PAT EPS (INR m) (INR m) (INR) 19,237 7,722 19.6 17,574 6,946 17.6 18,390 7,178 18.2 20,616 7,914 20.1

EPS Gr. (%) 36.1 -10.0 3.3 10.3

P/E (X) 19.8 19.2 17.4

P/BV (X) 5.2 4.7 4.4

RoE (%) 32.4 26.3 24.7 25.1

RoCE (%) 63.1 51.2 47.0 49.5



We expect revenue to remain flat YoY but increase 5% QoQ to INR4.5b.



Advertising and broadcasting revenue would grow 6% YoY and 4% QoQ to INR2.9b.



We expect total subscription revenue (domestic + international) to decline 17% YoY to INR1.3b.



EBITDA is likely to decline 4% YoY to INR3.5b.



We expect PAT to decline 1% YoY to INR1.79b.



The stock trades at 19.2x FY13E and 17.4x FY14E EPS. Maintain Buy.

Quarterly Performance

(INR Million)

Y/E March 1Q Revenue 4,540 YoY (%) 3.1 EBITDA 3,659 YoY (%) 1.7 As of % Sales 80.6 Depreciation and Amortization 1,061 Interest 2 Other Income 173 PBT 2,769 Tax 892 Effective Tax Rate (%) 32.2 Reported PAT 1,876 Adj PAT 1,876 YoY (%) 9.8 Revenue Breakup (INR m) Advertising and Broadcast 2,700 International 200 DTH 840 Domestic Cable 560 Films and Others 240 Total 4,540 E: MOSL Estima tes * YoY growth f or 3QFY12

October 2012

EV/ EV/ Sales EBITDA 7.7 9.6 7.1 9.1 6.1 7.8

FY12 2Q 3Q*

FY12

FY13E

17,574 -8.6 14,007 -10.1 79.7 4,430 56 742 10,263 3,317 32.3 6,946 6,946 -10.0

18,390 4.6 14,314 2.2 77.8 4,318 17 623 10,602 3,425 32.3 7,178 7,178 3.3

2,740 2,850 2,800 2,800 2,904 3,192 3,113 11,090 180 240 220 260 270 276 286 840 790 840 860 890 916 941 959 3,330 470 290 310 300 370 400 420 1,630 333 31 80 8 30 30 25 684 4,513 4,251 4,270 4,258 4,491 4,839 4,804 17,574 adjust ed for one-time revenue/cost rela ted to 'Enthiran' in 3QFY11

12,009 1,092 3,706 1,490 93 18,390

4,513 6.2 3,654 10.0 81.0 1,176 8 186 2,657 856 32.2 1,801 1,801 7.6

4,251 -4.9 3,411 -2.8 80.2 1,125 36 232 2,483 804 32.4 1,679 1,679 -14.4

FY13 4Q

1Q

2QE

3QE

4QE

4,270 -7.3 3,282 -9.8 76.9 1,068 9 151 2,355 765 32.5 1,590 1,590 -23.7

4,258 -6.2 3,230 -11.7 75.9 933 2 132 2,427 784 32.3 1,643 1,643 -12.4

4,491 -0.5 3,518 -3.7 78.3 1,026 5 152 2,640 853 32.3 1,787 1,787 -0.8

4,839 13.8 3,814 11.8 78.8 1,180 5 172 2,801 905 32.3 1,896 1,896 13.0

4,804 12.5 3,752 14.3 78.1 1,180 5 167 2,734 883 32.3 1,851 1,851 16.4

C–111

September 2012 Results Preview Sector: Media

Zee Entertainment Enterprises BSE Sensex

18,763 Bloomberg Equity Shares (m) 52 Week Range (INR) 1,6,12 Rel Perf (%) Mcap (INR b) Mcap (USD b)

S&P CNX

5,703 Z IN 958.8 202/110 12/50/54 187.6 3.6

CMP: INR196 Year End 3/11A 3/12A 3/13E 3/14E

Neutral

Net Sales PAT EPS (INR m) (INR m) (INR) 29,414 5,852 6.0 30,406 5,712 5.9 35,139 6,730 7.0 39,786 8,107 8.5

EPS Gr. (%) 14.4 -1.4 19.0 20.5

P/E (X) 33.2 27.9 23.1

P/BV (X) 5.6 4.9 4.3

RoE (%) 16.9 17.5 18.3 19.3

RoCE (%) 23.8 25.5 26.4 27.8

EV/ EV/ Sales EBITDA 5.8 23.8 4.9 19.7 4.3 16.2



We expect advertising revenue to grow 17% YoY and 3% QoQ to INR4.6b.



We estimate subscription revenue at INR3.7b, up 1% QoQ. Broadcasters continue to focus on signing new deals for upcoming digitization, limiting near-term growth in domestic subscription revenue.



EBITDA margin is likely to decline 580bp YoY and 450bp QoQ to 23.1%. Margins would be impacted by higher programming costs, launch expenses for new channels like Zee Aflam and higher Sports loss due to India-Sri Lanka series telecast (monetization was further impacted, as the series was not telecast on DD).



Adjusted PAT is likely to increase 2% YoY and 1% QoQ to INR1.6b.



The stock trades at 28x FY13E and 23x FY14E EPS. Neutral.

Quarterly Performance

(INR Million)

Y/E March Advertsing Revenue Subscription Revenue Other Sales and Services Net Sales Change (%) Pr og, Transmission & Direct Exp Staff Cost Selling and Other Exp EBITDA As of % Sales Depreciation Finance cost Other Income Extraordinary items PBT Tax Effective Tax Rate (%) PAT Minority Interest Adj PAT after Minority Interest Change (%) E: MOSL Estimates

October 2012

FY12

FY13

1Q

2Q

3Q

4Q

1Q

2QE

3QE

4QE

3,787 3,051 145 6,983 3.2 3,423 747 1,253 1,560 22.3 89 30 255 0 1,696 394 23.2 1,302 -35 1,337 10.4

3,949 2,910 324 7,184 1.0 3,224 688 1,197 2,076 28.9 78 56 279 0 2,221 621 28.0 1,600 40 1,560 23.6

3,955 3,262 332 7,548 0.0 3,422 731 1,236 2,160 28.6 74 182 340 0 2,243 867 38.6 1,376 -17 1,393 22.1

4,150 4,022 519 8,691 8.9 4,242 759 2,090 1,600 18.4 81 -219 330 180 2,248 618 28.2 1,630 28 1,422 -31.8

4,472 3,641 317 8,430 20.7 3,757 888 1,453 2,332 27.7 99 18 301 0 2,517 947 37.6 1,570 -12 1,582 18.3

4,621 3,693 327 8,640 20.3 4,283 828 1,532 1,997 23.1 100 18 302 0 2,181 595 27.3 1,586 -12 1,598 2.4

4,701 3,836 337 8,873 17.5 4,283 836 1,624 2,129 24.0 101 18 304 0 2,314 632 27.3 1,682 -12 1,694 21.6

4,774 4,079 345 9,197 5.8 4,283 850 1,716 2,348 25.5 102 19 302 0 2,530 689 27.3 1,841 -14 1,855 30.5

FY12

FY13E

15,841 13,245 1,320 30,406 3.4 14,311 2,925 5,775 7,395 24.3 323 50 1,204 180 8,407 2,500 29.7 5,907 15 5,712 -2.4

18,567 15,248 1,325 35,139 15.6 16,605 3,402 6,325 8,807 25.1 401 73 1,210 0 9,543 2,863 30.0 6,680 -50 6,730 17.8

C–112

September 2012 Results Preview Sector: Metals

Metals COMPANY NAME

Hinda lco

Global steel prices decline, led by China; domestic prices also correct 9-10% QoQ

Nalco

Global steel prices continued their downtrend, with major correction in China. Average steel prices declined 8%, 4%, 14% and 4% QoQ, respectively in Russia, Europe, China and North America. Domestic steel prices also mirrored global steel prices, with long and flat steel prices declining 9% and 10% QoQ, respectively. The price correction in China is also impacting prices in other regions, as Chinese mills are flooding steel products elsewhere to compensate for domestic slowdown. In India, imports have already jumped by 39% YoY in 1HFY13 to 3.3mt.

NMDC

Global HRC prices trending downwards (USD/ton)

Hindustan Zinc Jindal Steel & Power JSW Steel

Sesa Goa

Ru ss i a

900

North Ameri ca

Europe RHS(Euro /to n)

650

Sep‐12

Jul‐12

May‐12

450 Mar‐12

540 Jan‐12

500

Nov‐11

630

Sep‐11

Tat a Steel

Jul‐11

550

May‐11

720

Mar‐11

Sterlite Industries

Jan‐11

600

Nov‐10

810

Sep‐10

SAIL

Source: Bloomberg/MOSL

Expected quarterly performance summary CMP Rating (INR) Sep.12 28.09.12 Hindalco 121 Buy 197,200 Hindustan Zinc 135 Buy 26,853 JSPL 428 Neutral 50,958 JSW Steel 757 S e l l 83,636 Nalco 51 Neutral 16,991 NMDC 194 Buy 28,466 SAIL 85 Sell 107,892 Sesa Goa 171 Neutral 3,363 Sterlite Inds. 99 Buy 104,064 Tat a Steel 401 S e l l 312,934 Sector Aggregate 932,355

Sales Var. % YoY 2.0 1.8 15.2 9.6 5.3 -7.0 -3.6 -57.4 2.1 -4.6 -0.5

Var. Sep.12 % QoQ -1.0 22,023 -2.3 14,162 8.4 15,591 -7.5 14,335 -2.8 2,418 0.2 22,246 0.1 13,918 -80.6 1,001 -2.3 24,805 -7.5 28,051 -4.8 158,550

EBITDA Var. % YoY 1.8 -3.3 -13.6 9.4 58.5 -8.7 4.9 -61.5 -0.1 2.0 -1.8

Var. % QoQ 10.0 -0.9 -2.1 -19.1 -20.5 -3.4 -8.2 -85.2 7.5 -22.1 -9.4

(INR Million) Net Profit Sep.12 Var. Var. % YoY % QoQ 9,117 -15.5 1.2 13,555 -0.6 -14.3 8,401 -20.0 -12.4 3,882 -35.2 -41.5 1,714 23.0 -23.2 18,226 -7.2 -4.4 6,377 -36.4 -27.8 5,621 138.8 -50.5 12,653 -15.3 -10.8 791 -62.8 -90.0 80,338 -12.1 -23.2

Sanjay Jain ([email protected]) / Pavas Pethia ([email protected]) October 2012

C–113

September 2012 Results Preview Sector: Metals

China’s domestic steel prices also declining (USD/ton) HRC

800

Reb ar

700 600

Sep-12

Jul-12

Jun-12

Apr-12

Mar-12

Jan-12

Nov-11

Oct-11

Aug-11

Jul-11

May-11

Apr-11

Feb-11

Dec-10

Nov-10

Sep-10

500

Source: Bloomberg/MOSL

In India, both flat and long steel prices witnessed 9-10% correction (INR/ton) HRC Mumbai

TMT (Mu mba i)

39,000

42,000

37,000

40,000 38,000

35,000

S ep-12

Aug-12

Jun-12

May-12

Mar-12

F eb-12

Dec-11

S ep-11

Sep-12

Aug-12

Jul-12

Jun-12

May-12

Apr-12

May-12

Mar-12

Feb-12

Jan-12

Dec-11

32,000

Nov-11

31,000 Oct-11

34,000

Sep-11

33,000

Nov-11

36,000

Source: Bloomberg/MOSL

Global steel production growth stagnates, as Chinese demand plateaus The global monthly crude steel production decreased 0.5% YoY to 123.7mt in August, as most regions registered degrowth/flat production. Though demand had been weak in Europe and other developed regions, China alone was able to fuel global steel consumption growth so far. However, demand in China too appears to have plateaued. Major economic indicators in China point to a slowdown - China PMI dropped to 49.2 in August 2012. We expect China's per capita steel consumption growth to moderate to ~2% from the double-digit growth witnessed in the last decade (refer to our report, "Downhill Run" dated August 2012 for more information) Global steel production flat in August, as capacity utilization declined 3pp to 75% YoY (%)

Capaci ty Uti l i zati on

Aug-12

Jun-12

Apr-12

Feb-12

Dec-11

70 Oct-11

-9

Aug-11

105

74 Jun-11

2

Apr-11

112

77

Feb-11

13

81

Dec-10

119

Oct-10

24

84

Aug-10

126

Percentage

35

Aug-09 Oct-09 Dec-09 Feb-10 Apr-10 Jun-10 Aug-10 Oct-10 Dec-10 Feb-11 Apr-11 Jun-11 Aug-11 Oct-11 Dec-11 Feb-12 Apr-12 Jun-12

(m tons)

Gl ob al 133

Source: Bloomberg/MOSL October 2012

C–114

September 2012 Results Preview Sector: Metals

China production growth averaged just 3% in last 12 months YoY (%)

60

30

55

17

50

4

45

-9

PMI

43

YoY (%)

58

65

54

50 46 Aug-09 Oct-09 Dec-09 Feb-10 Apr-10 Jun-10 Aug-10 Oct-10 Dec-10 Feb-11 Apr-11 Jun-11 Aug-11 Oct-11 Dec-11 Feb-12 Apr-12 Jun-12 Aug-12

Aug-09 Oct-09 Dec-09 Feb-10 Apr-10 Jun-10 Aug-10 Oct-10 Dec-10 Feb-11 Apr-11 Jun-11 Aug-11 Oct-11 Dec-11 Feb-12 Apr-12 Jun-12 Aug-12

(m tons)

Chi na

China PMI dipped below 50 to 49.2 in August 2012

Source: Bloomberg/MOSL

Spreads of Chinese steel mills unaffected due to falling raw material prices; expect steel prices to decline further Despite severe correction in steel prices, Chinese mills are still able to maintain healthy spreads, as raw material prices have also declined. Low-vol premium hard coking coal average prices (fob Australia) have declined 18% QoQ in 2QFY13. Similarly, average iron ore prices have corrected 18% QoQ in 2QFY13. With China's burgeoning demand for raw materials moderating, the downtrend in both iron ore and coking coal prices is likely to continue. We expect Chinese steel prices to correct further, in line with raw material prices. Correction in raw material prices much more severe than in steel prices (USD/ton) 63.5% Iron ore F i nes CIF

Sp ot cok i ng co al (fob Aus tral i a)

Sep-12

Sep-12

Aug-12

Aug-12

Jul-12

Jun-12

Apr-12

Feb-12

Dec-11

Oct-11

Aug-11

Jun-11

S ep-12

Apr-11

120 Oct-10

75 Jul -12

250 May-12

170

Mar-12

110

Jan-12

330

Nov-11

220

S ep-11

145

Jul -11

410

May-11

270

Mar-11

180

Jan-11

490

Nov-10

215

S ep-10

570

Feb-11

320

Dec-10

Chi na 2n d grade cok e

... while Chinese mills spread remained healthy Ri cha rds B ay Ste am Coal

250 200 USD PER TSS

120 105 90 75

150 100 50

Sep-12

Jul-12

May-12

Mar-12

Jan-12

Nov-11

Sep-11

Jul-11

May-11

Mar-11

Jan-11

Nov-10

Sep-10

0 Nov-10 Dec-10 Dec-10 Jan-11 Mar-11 Apr-11 May-11 Jun-11 Jul-11 Aug-11 Sep-11 Sep-11 Nov-11 Dec-11 Jan-12 Feb-12 Mar-12 Apr-12 May-12 Jun-12 Jul-12 Aug-12 Sep-12

USD/t

135

Source: Bloomberg/MOSL October 2012

C–115

September 2012 Results Preview Sector: Metals

Non-ferrous Base metal prices recover in September; aluminum spot premiums at alltime high Average 2QFY13 non-ferrous metal prices have corrected 0-3% QoQ, with sharp recovery in September, after the announcement of QE III. With LME prices remaining weak during the quarter, aluminum spot premium has shot up to all-time high levels. Weaker demand for the metal has resulted in capacity cuts by aluminum majors such as Rusal, Alcoa Inc and Norsk Hydro. However, subsidies and other benefits offered by the governments in Australia, China and Europe are still keeping some of the high cost smelters afloat. We are factoring aluminum prices of USD1,996/ton in FY13 and USD2,100/ton in FY14. Margin pressure has eased a little CPC

USD/ton

4,000

Al um in a

Po w er

LM E

3,000 2,000 1,000

Sep-12

May-12

Feb-12

Oct-11

Jun-11

Mar-11

Nov-10

Jul-10

Apr-10

Dec-09

Aug-09

May-09

Jan-09

Sep-08

May-08

Feb-08

Oct-07

0

Source: Bloomberg/MOSL

US aluminum spot premiums at all-time high Al umi n i um

300

Zi nc

Coppe r

235 170 105

Sep-12

Apr-12

Oct-11

May-11

Nov-10

Jun-10

Dec-09

Jul-09

Jan-09

Aug-08

Feb-08

Sep-07

Mar-07

Oct-06

Apr-06

40

Source: Bloomberg/MOSL

October 2012

C–116

September 2012 Results Preview Sector: Metals

Quarterly average of base metal prices on LME (USD/tonne) Aluminium Avg. QoQ YoY 1,912 -3 -20 1,978 -9 -24 2,175 4 -13 2,090 -13 -11 2,398 -8 15 2,598 4 24 2,502 7 16 2,343 12 17 2,089 0 16 2,092 -3 41

Copper Avg. QoQ 7,689 -2 7,869 -5 8,308 11 7,488 -17 8,982 -2 9,137 -5 9,644 12 8,633 19 7,242 3 7,013 -3

YoY -14 -14 -14 -13 24 30 33 30 24 50

Lead Avg. QoQ 1,964 0 1,973 -6 2,093 6 1,982 -19 2,458 -4 2,550 -2 2,603 9 2,389 18 2,031 5 1,943 -12

Relative performance-3m (%)

Alumina YoY Avg. QoQ -20 315 -1 -23 317 0 -20 317 -4 -17 329 -12 21 372 -8 31 404 4 17 391 7 4 366 15 6 317 -5 29 335 3

Silver (INR/kg) Avg. QoQ YoY 55,532 2 -6 54,406 -2 -5 55,256 3 15 53,770 -9 35 58,791 2 96 57,430 20 101 48,008 20 82 39,929 33 46 29,948 5 28 28,557 8 30%

Relative performance-1Yr (%)

Sens ex Ind ex MOSL Metal s In dex

110

YoY -15 -22 -19 -10 17 21 20 20 18 61

Sen sex In dex MOSL Meta l s Inde x 120

105

110

100

100

95

90 Sep-11

Sep-12

80

Sep-12

Aug-12

Jul-12

Jun-12

90

Jun-12

YoY -15 -14 -15 -18 10 12 5 5 15 37

Mar-12

2QFY13 1QFY13 4QFY12 3QFY12 2QFY12 1QFY12 4QFY11 3QFY11 2QFY11 1QFY11

Zinc Avg. QoQ 1,879 -2 1,927 -5 2,024 7 1,897 -15 2,223 -1 2,249 -6 2,393 3 2,315 15 2,012 0 2,017 -12

Dec-11

Quarter

Comparative valuation CMP (INR) 28.09.12 Metals Hindalco Hindustan Zinc JSPL JSW Steel Nalco NMDC SAIL Sesa Goa Sterlite Inds. Tat a Steel Sector Aggregate

October 2012

121 135 428 757 51 194 85 171 99 401

Rating

EPS (INR) FY12 FY13E FY14E

Buy Buy Neutral Sell Neutral Buy Sell Neutral Buy Sell

17.1 13.2 42.4 66.5 3.4 18.5 9.0 31.8 16.7 18.6

18.9 14.4 39.8 49.9 3.5 20.4 6.7 36.1 16.3 31.2

20.6 16.7 38.5 73.7 3.3 24.9 8.6 33.5 17.7 56.6

P/E (x) FY12 FY13E FY14E 7.1 10.3 10.1 11.4 15.2 10.5 9.5 5.4 6.0 21.6 9.6

6.4 9.4 10.7 15.2 14.7 9.5 12.8 4.8 6.1 12.9 9.2

5.9 8.1 11.1 10.3 15.6 7.8 10.0 5.1 5.6 7.1 7.8

EV/EBITDA (x) FY12 FY13E FY14E 6.9 6.5 8.4 6.7 7.2 6.3 7.4 5.2 3.0 7.3 6.4

7.2 5.6 9.5 6.6 7.3 5.4 8.9 13.6 2.8 6.8 6.5

6.3 4.1 8.9 6.0 6.5 4.1 7.9 10.9 2.4 6.1 5.6

RoE (%) FY12 FY13E FY14E 20.3 22.5 24.6 8.9 7.6 31.7 9.6 19.8 14.1 7.8 13.3

20.2 20.8 19.7 6.6 7.5 28.3 6.7 20.6 12.4 11.5 12.8

18.5 20.4 17.0 9.3 6.8 26.9 8.2 18.7 12.3 18.9 13.6

C–117

September 2012 Results Preview Sector: Metals

Hindalco BSE Sensex

18,763 Bloomberg Equity Shares (m) 52 Week Range (INR) 1,6,12 Rel Perf (%) Mcap (INR b) Mcap (USD b)

S&P CNX

5,703 HNDL IN 1,990.0 16 5/100 7/-14/-23 239.8 4.5

CMP: INR121 Year Net Sales End (INR m) 3/11A 720,779 3/12A 808,214 3/13E 816,863 3/14E 854,498 Consolidated

Buy

PAT EPS (INR m) (INR) 34,998 17.6 33,970 17.1 37,671 18.9 41,002 20.6

EPS Gr. (%) 278.5 -3.0 10.9 8.8

P/E (X) 7.1 6.4 5.9

P/BV (X) 1.4 1.2 1.0

RoE (%) 23.1 20.3 20.2 18.5

RoCE (%) 10.1 7.5 7.6 8.2

EV/ EV/ Sales EBITDA 0.7 6.9 0.8 7.2 0.7 6.3

Net sales to grow 5% QoQ: We expect net sales to grow 5% QoQ (1% YoY) to INR63.5b on a lower base of 1QFY13, where production of both copper and aluminium was affected due to operational hiccups. Copper operations are back to normal and sales volume is likely to grow 13% QoQ to 80k tons. Aluminum volume is likely to remain flat at 125k tons, as Hirakud smelter's captive power plant operations were partially shut due to breach of ash pond. Average LME aluminum and copper prices have decreased 3% and 2% QoQ, respectively to USD1,912/ton and USD7,689/ton. HNDL's blended realization for aluminum is likely to decrease 3% QoQ to INR162,311/ton while copper realization would decrease 4% QoQ to INR540,340/ton.  EBITDA to grow 29% QoQ: We expect EBITDA to grow 29% QoQ to INR6b on a lower base of 1QFY13. We expect aluminum EBITDA to increase 12% QoQ to INR3.8b and copper EBITDA to increase 77% QoQ to INR2.1b.  Maintain Buy: We expect consolidated EBITDA to increase 14% to INR100.8b in FY14, driven by 28% growth in primary aluminum production to 700k tons and 36% growth in alumina production to 1.9m tons in India and 6% volume growth at Novelis. EPS growth, however, would be lower at 9% to INR20.6 due to higher interest and depreciation charge. The stock trades at 5.9x FY14E EPS and at an EV of 6.3x FY14E EBITDA. Maintain Buy. 

Quarterly Performance (Standalone)

(INR Million)

Y/E March 1Q Production ('000 tons) Aluminium (sales, kt) Copper (sales, kt) Exchange USD/INR Avg LME Aluminium (USD/T) Net Sales Change (YoY %) EBITDA As % of Net Sales EBITDA - Aluminium EBITDA-Copper Interest Depreciation Other Income PBT (after EO item) Tot al Tax % Tax Reported PAT Adjusted PAT Novelis adj. EBITDA (USD m) Consolidated adj. PAT E: MOSL Estimates

October 2012

131 73 44.7 2,618 60,309 16.5 8,671 14.4 6761 1,909 667 1,754 1,779 8,029 1,589 19.8 6,440 6,440 306 11,772

FY12 2Q 129 75 45.4 2,450 62,719 7.0 6,692 10.7 4,758 1,935 675 1,741 1,761 6,037 1,012 16.8 5,025 5,025 301 10,784

FY13

FY12

3Q

4Q

1Q

2QE

3QE

147 84 51.0 2,115 66,470 11.3 7,149 10.8 4,532 2,618 793 1,747 901 5,509 1,002 18.2 4,507 4,507 213 7,519

149 94 50.2 2,225 76,471 11.7 8,648 11.3 5,258 3,390 801 1,658 1,605 7,794 1,395 17.9 6,400 6,400 233 10,141

124 71 54.5 1,985 60,279 0.0 4,631 7.7 3,415 1,216 815 1,705 3,014 5,126 878 17.1 4,248 4,248 259 9,008

125 80 55.5 1,900 63,491 1.2 5,804 9.1 3,815 2,147 847 1,776 1,796 4,977 1,045 21.0 3,932 3,932 266 8,993

145 86 54.0 2,000 70,878 6.6 6,775 9.6 4,627 2,306 881 1,782 919 5,030 1,056 21.0 3,974 3,974 252 8,340

FY13E

4QE 155 556 549 95 325 332 54.0 47.9 54.5 2,100 2,352 1,996 79,121 265,968 273,770 3.5 11.5 2.9 8,536 31,160 25,746 10.8 11.7 9.4 6,127 21,309 15,403 2,567 9,851 10,343 916 2,936 3,460 1,824 6,900 7,087 1,637 6,046 7,366 7,433 27,370 22,566 1,561 4,998 4,541 21.0 18.3 20.1 5,872 22,372 18,025 5,872 22,372 18,025 270 1,053 1,047 10,945 33,970 37,296

C–118

September 2012 Results Preview Sector: Metals

Hindustan Zinc BSE Sensex

18,763 Bloomberg Equity Shares (m) 52 Week Range (INR) 1,6,12 Rel Perf (%) Mcap (INR b) Mcap (USD b)

S&P CNX

5,703 HZ IN 4,225.3 150/107 3/-2/-2 572.3 10.9

CMP: INR135 Year Net Sales End (INR m) 3/11A 99,121 3/12A 114,053 3/13E 119,276 3/14E 136,299 Consolidated

Buy

PAT EPS (INR m) (INR) 49,179 11.6 55,604 13.2 60,947 14.4 70,707 16.7

EPS Gr. (%) 21.7 13.1 9.6 16.0

P/E (X) 10.3 9.4 8.1

P/BV (X) 2.1 1.8 1.5

RoE (%) 24.2 22.5 20.8 20.4

RoCE (%) 28.3 27.2 24.8 24.3

EV/ EV/ Sales EBITDA 3.4 6.5 3.0 5.6 2.3 4.1



Net sales to decline 2% QoQ on lower LME prices and flat volumes: We expect net sales to decline 2% QoQ (grow 2% YoY) to INR26.9b on lower LME prices and flat sales volume. LME zinc prices have declined 2% QoQ to USD1,879/ton while lead prices have remained flat at USD1,964/ton. We expect zinc realization to decrease 1% QoQ to INR112,515/ton and lead realization to increase 6% QoQ to INR121,070/ton. Refined zinc and lead production volume is likely to decrease 1% QoQ to 184k tons.



EBITDA to decrease 1% QoQ: We expect EBITDA to decrease 1% QoQ to INR14.2b (-3% YoY) on lower LME prices. Silver volumes are expected to increase 4% QoQ to 76 tons. Current metal production has been lower as per mining plan which is expected to improve in 2HFY13.



Zinc production to remain flat in FY13; maintain Buy: Zinc production has been impacted as the Rampur Agucha mines are currently mining narrow ore body. Though production ramp-up in 2HFY13 is likely to make up for lost production in 1HFY13, we expect FY13 production to remain flat. Silver volume would increase to 331 tons. The stock trades at 8.1x FY14E EPS and at an EV of 4.1x FY14E EBITDA. Maintain Buy.

Quarterly Performance

(INR Million)

Y/E March Zn & Pb ('000 tons) Silver (tons) Net Sales Change (YoY %) EBITDA As % of Net Sales Interest Depreciation Other Income PBT (before EO item) Extra-ordinary Income PBT (after EO item) Tot al Tax % Tax Reported PAT Adjusted PAT Change (YoY %) Avg LME Zinc (USD/T) Avg LME Lead (USD/T) Silver (USD/oz) E: MOSL Estimates

October 2012

1Q 207 41 28,471 44.3 15,923 55.9 65 1,345 3,554 18,066 -44 18,022 3,073 17.1 14,949 14,986 68.2 2,271 2,531 35

FY12 2Q 3Q 200 218 41 49 26,368 27,868 19.8 6.0 14,648 14,023 55.6 50.3 120 87 1,455 1,591 3,868 3,819 16,940 16,164 -239 -64 16,702 16,099 3,255 3,363 19.5 20.9 13,447 12,736 13,639 12,787 41.2 -0.8 2,247 1,917 2,449 2,009 36 29

FY13 4Q 227 74 31,350 -3.2 16,590 52.9 24 1,671 3,811 18,706 -84 18,622 4,494 24.1 14,128 14,192 -19.9 2,050 2,120 31

1Q 186 73 27,477 -3.5 14,286 52.0 129 1,734 5,743 18,166 0 18,166 2,353 13.0 15,813 15,813 5.5 1,938 1,989 28

2QE 184 76 26,853 1.8 14,162 52.7 129 1,665 4,366 16,734 0 16,734 3,180 19.0 13,555 13,555 -9.5 1,900 1,980 28

3QE 230 92 32,248 15.7 17,180 53.3 129 1,665 4,496 19,882 0 19,882 3,778 19.0 16,104 16,104 18.1 1,900 1,900 28

FY12

FY13E

4QE 235 852 835 89 205 331 32,698 114,053 119,276 4.3 15.1 4.6 17,390 60,695 63,018 53.2 53.2 52.8 129 140 515 1,684 6,107 6,747 4,783 15,428 19,388 20,360 69,877 75,143 0 -431 0 20,360 69,445 75,143 4,886 14,185 14,196 24.0 20.4 18.9 15,474 55,260 60,947 15,474 55,604 60,947 21.0 13.1 9.6 1,900 2,121 1,910 1,900 2,277 1,942 28 33 28

C–119

September 2012 Results Preview Sector: Metals

Jindal Steel & Power BSE Sensex

18,763

S&P CNX

5,703

Bloomberg JSP IN Equity Shares (m) 934.8 52 Week Range (INR) 663/321 1,6,12 Rel Perf (%) 13/-28/-31 Mcap (INR b) 399.6 Mcap (USD b) 7.6

CMP: INR428 Year Net Sales End (INR m) 3/11A 131,122 3/12A 182,086 3/13E 208,816 3/14E 212,763 Consolidated

Neutral

PAT EPS (INR m) (INR) 37,539 40.1 39,649 42.4 37,215 39.8 36,045 38.5

EPS Gr. (%) 6.0 5.6 -6.1 -3.1

P/E (X) 10.1 10.7 11.1

P/BV (X) 2.2 2.0 1.8

RoE (%) 30.5 24.6 19.7 17.0

RoCE (%) 21.3 16.9 13.6 12.2

EV/ EV/ Sales EBITDA 3.1 8.4 3.0 9.5 3.1 8.9

Steel volumes to increase 3% YoY: We expect standalone net sales to grow 11% YoY (11% QoQ) to INR36.9b on liquidation of inventory accumulated in the previous quarter and higher power sales. Steel sales volume would increase 3% YoY (10% QoQ) to 615k tons. We expect pellet sales volume to grow 1% YoY (35% QoQ). Power sales are likely to grow 147% YoY (decline 6% QoQ) to 549m units. We expect standalone EBITDA to decline 2% QoQ to INR10.1b on lower steel prices.  Jindal Power PAT to increase 21% QoQ: Power sales volumes at Jindal Power are likely to be up 2% YoY to 1.9b units while the average rate is likely to decline 8% YoY (flat QoQ) to INR3.7/unit. PAT would grow 21% QoQ, as performance in the previous quarter was impacted by INR1b of accumulated electricity duty imposed by Chhattisgarh government.  Earnings have peaked; maintain Neutral: JSP's existing operating assets continue to deliver superior results, but future projects are likely to have lower return ratios. We believe that earnings have already peaked and expect them to decline at 5% per annum over FY12-14. The stock trades at 11.1x FY14E EPS, 1.8x FY14E BV, and an EV of 8.9x FY14E EBITDA. Maintain Neutral. 

Quarterly Performance (Standalone)

(INR Million)

Y/E March 1Q Sales volume Steel ('000 tons) Pellets (000 tons) CPP (M kwh) Net Sales Change (YoY %) Tot al Expenditur e EBITDA Change (YoY %) As % of Net Sales Interest Depreciation Other Income PBT (before EO item) Extra-ordinary Income PBT (after EO item) Tot al Tax % Tax Reported PAT Adjusted PAT Consolidated PAT Change (YoY %) E: MOSL Estimates October 2012

457 347 259 25,265 19.1 15,631 9,634 21.7 38.1 1,325 2,066 167 6,410 0 6,410 1,709 26.7 4,702 4,702 9,188 -2.4

FY12 2Q 598 526 222 33,338 45.0 21,471 11,867 38.6 35.6 1,459 2,139 77 8,346 -2,478 5,869 1,911 32.6 3,958 6,435 10,495 19.1

FY13

FY12

3Q

4Q

1Q

2QE

3QE

591 464 350 32,983 36.8 22,528 10,454 11.7 31.7 1,553 2,103 202 7,001 -500 6,501 1,890 29.1 4,610 5,110 10,210 15.4

737 691 557 41,740 52.2 28,648 13,093 22.5 31.4 2,490 2,364 1,412 9,650 0 9,650 1,814 18.8 7,836 7,836 11,670 2.0

561 395 584 33,311 31.8 22,934 10,377 7.7 31.2 2,186 2,372 122 5,942 -5,741 201 76 38.1 124 4,602 9,594 4.4

615 533 549 36,906 10.7 26,765 10,141 -14.5 27.5 1,870 2,390 81 5,962 0 5,962 1,669 28.0 4,293 4,293 8,401 -20.0

735 489 709 39,453 19.6 28,629 10,824 3.5 27.4 1,870 2,366 212 6,800 0 6,800 1,904 28.0 4,896 4,896 9,645 -5.5

FY13E

4QE 741 2,385 2,652 516 2,028 1,934 709 1,446 2,550 39,787 133,326 149,457 -4.7 39.3 12.1 28,723 88,278 107,051 11,064 45,048 42,406 -15.5 23.3 -5.9 27.8 33.8 28.4 1,870 6,827 7,796 2,342 8,672 9,469 1,515 1,857 1,930 8,367 31,407 27,072 0 -2,978 -5,741 8,367 28,430 21,330 2,343 7,324 5,993 28.0 25.8 28.1 6,024 21,106 15,338 6,024 24,083 19,816 9,574 41,563 37,215 -18.0 10.7 -10.5

C–120

September 2012 Results Preview Sector: Metals

JSW Steel BSE Sensex

S&P CNX

18,763 Bloomberg Equity Shares (m) 52 Week Range (INR) 1,6,12 Rel Perf (%) Mcap (INR b) Mcap (USD b)

5,703 JSTL IN 223.1 885/464 0/-3/19 168.8 3.2

CMP: INR757 Year Net Sales End (INR m) 3/11A 241,059 3/12A 343,681 3/13E 363,204 3/14E 363,314 Consolidated

Sell

PAT EPS (INR m) (INR) 16,783 75.2 14,844 66.5 11,143 49.9 16,442 73.7

EPS Gr. (%) 17.7 -11.6 -24.9 47.6

P/E (X) 11.4 15.2 10.3

P/BV (X) 1.0 1.0 0.9

RoE (%) 12.3 8.9 6.6 9.3

RoCE (%) 9.9 9.2 8.5 9.5

EV/ EV/ Sales EBITDA 1.2 6.7 1.2 6.6 1.2 6.0

Revenue to increase 10% YoY on higher steel sales: We expect standalone net sales to increase 10% YoY (fall 7% QoQ) to INR83.6b due to lower steel realization and flat QoQ volumes. Average steel realization would fall 7% QoQ to INR39,827/ton. Domestic steel pricing environment remained weak in 2QFY13; long and flat prices decreased 9% and 10% QoQ, respectively.  EBITDA to decrease 19% QoQ: We expect JSTL's EBITDA to decline 19% QoQ to INR14.3b on lower realization and higher iron ore cost. With rapidly depleting inventory at Karnataka, JSTL is forced to procure iron ore from Odisha, which would result in higher raw material cost on account of transportation cost. We expect EBITDA/ ton to decrease 20% QoQ to USD123.  Low cost iron ore benefit faded permanently in Karnataka; maintain Sell: Availability of iron ore is likely to ease post the starting of category A mines in Karnataka, but lower caps on volumes coupled with increased costs such as FBT would result in higher iron ore prices. We believe that the benefit of low cost iron ore for steel mills in Karnataka has faded permanently. We also expect steel prices to correct further and eat up any benefits on account of lower coking coal prices. The stock trades at an expensive 10.3x FY14E EPS and an EV of 6x FY14E EBITDA. Maintain Sell. 

Quarterly Performance (Standalone) Y/E March Sales ('000 tons) Change (YoY %) Realization (INR per ton) Net Sales Change (YoY %) EBITDA Change (YoY %) As % of Net Sales EBITDA (USD per ton) Interest Depreciation Other Income PBT (before EO Item) EO Items PBT (after EO Item) Tot al Tax % Tax Reported PAT Preference Dividend Adjusted PAT Change (YoY %) E: MOSL Estimates October 2012

1Q 1,714 44.0 41,245 70,694 51.0 14,082 36.1 19.9 184 2,268 3,879 327 8,263 0 8,263 2,480 30.0 5,783 70 5,713 66.6

(INR Million) FY12 2Q 3Q 1,882 1,908 19.0 19.8 40,553 41,281 76,321 78,765 32.1 35.6 13,104 12,534 32.1 25.3 17.2 15.9 152 129 2,645 3,274 4,039 4,444 527 456 6,947 5,271 -5,130 -3,188 1,817 2,083 546 -4,600 30.0 -220.8 1,271 6,684 70 70 5,993 9,592 82.6 155.7

FY13 4Q 2,310 33.3 41,319 95,447 34.3 16,518 -0.1 17.3 143 3,677 4,720 483 8,604 1,992 10,596 3,074 29.0 7,522 70 5,592 -32.3

1Q 2,109 23.0 42,853 90,376 27.8 17,728 25.9 19.6 154 4,067 4,678 723 9,706 -5,921 3,786 1,096 28.9 2,690 70 6,632 16.1

2QE 2,100 11.6 39,827 83,636 9.6 14,335 9.4 17.1 123 4,116 4,859 537 5,898 0 5,898 1,946 33.0 3,951 70 3,882 -35.2

3QE 2,036 6.7 37,066 75,464 -4.2 11,957 -4.6 15.8 109 4,198 4,956 465 3,267 0 3,267 1,078 33.0 2,189 70 2,119 -77.9

FY12 FY13E 4QE 2,170 7,814 8,415 -6.0 28.1 7.7 36,324 41,109 39,014 78,836 321,227 328,312 -17.4 37.5 2.2 15,706 56,238 59,726 -4.9 17.7 6.2 19.9 17.5 18.2 134 150 130 4,083 11,864 16,464 4,943 17,082 19,435 493 1,793 2,218 7,174 29,085 26,045 0 -6,326 -5,921 7,174 22,759 20,124 2,367 1,499 6,487 33.0 6.6 32.2 4,806 21,260 13,637 70 279 279 4,737 26,890 17,370 -15.3 36.5 -35.4 C–121

September 2012 Results Preview Sector: Metals

Nalco BSE Sensex

18,763

S&P CNX

5,703

Bloomberg NACL IN Equity Shares (m) 2,577.2 52 Week Range (INR) 68/48 1,6,12 Rel Perf (%) -6/-16/-32 Mcap (INR b) 131.8 Mcap (USD b) 2.5

CMP: INR51

Neutral

Year Net Sales PAT EPS End (INR m) (INR m) (INR) 3/11A 59,590 10,703 4.2 3/12A 66,116 8,650 3.4 3/13E 71,495 8,960 3.5 3/14E 77,506 8,448 3.3 Consolidated

EPS Gr. (%) 33.2 -19.2 3.6 -5.7

P/E (X) 15.2 14.7 15.6

P/BV (X) 1.1 1.1 1.1

RoE (%) 9.9 7.6 7.5 6.8

RoCE (%) 13.3 10.0 10.2 9.7

EV/ EV/ Sales EBITDA 1.2 7.2 1.3 7.3 1.1 6.5



Net sales to grow 5% YoY on higher alumina sales, despite lower LME prices: We expect net sales to grow 5% YoY to INR17b on higher alumina volumes, despite lower realizations. LME prices have fallen 3% QoQ (20% YoY) to USD1,912/ton. We expect average metal realization to decrease 3% QoQ to INR118,104/ton and alumina realization to decrease 9% QoQ to INR16,872/ton. Alumina sales volume would grow 14% QoQ to 287k tons while metal volumes would increase 1% QoQ to 103k tons.



EBITDA to decrease 21% QoQ: We expect EBITDA to decline 21% QoQ to INR2.4b on lower LME prices, despite better volumes. Adjusted PAT would decline 23% QoQ to INR1.7b.



Power cost to remain high till Utkal coal block commissioning; maintain Neutral: NACL has been suffering on account of high power cost and lower LME prices. It is unable to get sufficient linkage coal from Mahanadi Coal Field and has to depend on high cost e-auction and imported coal. Till the commissioning of Utkal coal block, NACL will not be able to reap full benefits of its increased refining capacity and power capacity. Coal field remains a risk. The stock trades at 15.6x FY14E EPS, 1.1x FY14E BV, and an EV of 6.5x FY14E EBITDA. Maintain Neutral.

Quarterly performance (Consolidated) Y/E March Aluminium Sales ('000 tons) Alumina Sales ('000 tons) Avg LME Aluminium (USD/ton) Alumina Exports (USD/ton) Net Sales Change (YoY %) Tot al Expenditur e EBITDA As % of Net Sales Interest Depreciation Other Income PBT Tot al Tax % Tax Reported PAT Adjusted PAT Change (YoY %) E: MOSL Esitmates

October 2012

1Q 109 197 2,618 428 17,625 34.7 12,327 5,298 30.1 0 1,019 1,266 5,545 1,776 32.0 3,768 3,768 32.7

(INR Million) FY12 2Q 3Q 101 98 180 163 2,450 2,115 448 358 16,139 14,509 9.1 0.5 14,614 13,824 1,526 684 9.5 4.7 0 1 1,179 1,235 1,321 1,262 1,667 710 274 198 16.4 27.9 1,393 512 1,393 512 -37.8 -80.0

FY13 4Q 107 285 2,225 343 17,845 -2.2 14,778 3,067 17.2 8 1,232 1,594 3,960 1,139 28.8 2,821 2,437 -20.2

1Q 102 253 1,985 341 17,481 -0.8 14,439 3,042 17.4 32 1,224 1,403 3,190 959 30.1 2,231 2,231 -40.8

2QE 103 287 1,900 304 16,991 5.3 14,573 2,418 14.2 0 1,230 1,333 2,521 807 32.0 1,714 1,714 23.0

3QE 105 298 2,000 320 17,833 22.9 14,753 3,080 17.3 0 1,236 1,266 3,111 995 32.0 2,115 2,115 313.0

4QE 107 309 2,100 336 19,190 7.5 14,887 4,303 22.4 0 1,242 1,203 4,264 1,364 32.0 2,899 2,899 19.0

FY12

FY13E

415 826 2,352 394 66,118 11.0 55,543 10,575 16.0 9 4,666 5,442 11,882 3,387 28.5 8,495 8,109 -24.2

417 1,147 1,996 325 71,495 8.1 58,652 12,843 18.0 32 4,931 5,205 13,086 4,126 31.5 8,960 8,960 10.5

C–122

September 2012 Results Preview Sector: Metals

NMDC BSE Sensex

18,763

S&P CNX

5,703

Bloomberg NMDC IN Equity Shares (m) 3,964.7 52 Week Range (INR) 255/136 1,6,12 Rel Perf (%) -6/13/-29 Mcap (INR b) 768.4 Mcap (USD b) 14.6

CMP: INR194 Year Net Sales End (INR m) 3/11A 113,689 3/12A 112,615 3/13E 126,708 3/14E 158,171 Consolidated

Neutral

PAT EPS (INR m) (INR) 64,992 16.4 73,182 18.5 81,052 20.4 98,826 24.9

EPS Gr. (%) 88.8 12.6 10.8 21.9

P/E (X) 10.5 9.5 7.8

P/BV (X) 3.1 2.6 2.1

RoE (%) 29.7 31.7 28.3 26.9

RoCE (%) 29.5 31.5 28.2 26.8

EV/ EV/ Sales EBITDA 5.0 6.3 4.2 5.4 3.3 4.1



Iron ore sales to decline 21% QoQ: We expect standalone net sales to decline 7% YoY (flat QoQ) to INR28.5b due to lower iron ore sales. Production during the quarter was impacted due to heavy rains, leading to lower sales volume. We expect iron ores sales volume to decrease 21% YoY to 6m tons. Iron ore realization is likely to increase 17% YoY (15% QoQ) to INR4,744/ton.



EBITDA to decrease 3% QoQ: We expect EBITDA to decrease 3% QoQ to INR22.2b on lower iron ore volume and higher operating cost. 1QFY13 margins were boosted by lower operating cost, especially royalty payments.



Domestic iron ore scenario favoring NMDC; maintain Buy: Declining grades and availability of iron ore, increased regulatory vigil and increasing steel capacity has shifted the domestic iron ore demand-supply dynamics in favor of NMDC. Despite falling iron ore prices internationally, NMDC is able to maintain its realization and margins. It is our most preferred pick in the Metals space. We expect earnings to register a CAGR of 16% over FY12-14 due to strong volume growth. The stock trades at 7.8x FY14E EPS, 2.1x FY14E BV, and an EV of 4.1x FY14E EBITDA. Maintain Buy.

Quarterly performance (Consolidated) Y/E March Sales (m tons) Avg Iron ore realisation (USD/t) Net Sales Change (YoY %) EBITDA As % of Net Sales EBITDA per ton (USD) Interest Depreciation Other Income PBT (before EO Item) Extra-ordinary Income PBT (after EO Item) Tot al Tax % Tax Reported PAT Adjusted PAT Change (YoY %) E: MOSL Esitmates

October 2012

(INR Million)

1Q 6.9 90 27,826 10.5 22,547 81.0 73 0 338 4,418 26,627

FY12 2Q 3Q 7.6 6.4 88 86 30,623 28,220 24.5 7.7 24,354 22,607 79.5 80.1 70 69 0 0 324 345 5,029 5,254 29,059 27,516

26,627 8,615 32.4 18,012 18,012 19.8

29,059 9,428 32.4 19,632 19,632 42.4

27,516 8,928 32.4 18,588 18,588 22.4

FY13 4Q 6.5 79 25,946 -31.2 19,774 76.2 61 15 321 5,468 24,905 -513 24,392 7,970 32.7 16,423 16,768 -20.1

1Q 6.8 76 28,404 2.1 23,020 81.0 62 0 328 5,521 28,214

2QE 6.0 85 28,466 -7.0 22,246 78.1 67 0 336 5,705 27,615

3QE 7.7 84 34,783 23.3 27,707 79.7 67 0 344 5,937 33,299

28,214 9,154 32.4 19,060 19,060 5.8

27,615 9,389 34.0 18,226 18,226 -7.2

33,299 11,322 34.0 21,977 21,977 18.2

FY12 4QE 7.7 27.3 84 86 35,056 112,615 35.1 -0.9 27,144 89,281 77.4 79.3 65 68 0 15 353 1,328 6,222 20,169 33,013 108,108 -513 33,013 107,595 11,224 34,941 34.0 32.5 21,789 72,654 21,789 73,000 29.9 12.3

FY13E 28.2 82 126,708 12.5 100,117 79.0 65 0 1,362 23,385 122,141 122,141 41,089 33.6 81,052 81,052 11.0

C–123

September 2012 Results Preview Sector: Metals

Sesa Goa BSE Sensex

18,763

S&P CNX

5,703

Bloomberg SESA IN Equity Shares (m) 869.1 52 Week Range (INR) 270/149 1,6,12 Rel Perf (%) -12/-19/-26 Mcap (INR b) 149.0 Mcap (USD b) 2.8

CMP: INR171

Neutral

Year Net Sales PAT EPS End (INR m) (INR m) (INR) 3/11A 92,051 42,225 48.6 3/12A 83,101 27,616 31.8 3/13E 39,514 31,359 36.1 3/14E 58,000 29,142 33.5 Consolidated

EPS Gr. (%) 53.6 -34.6 13.6 -7.1

P/E (X) 5.4 4.8 5.1

P/BV (X) 1.0 1.0 0.9

RoE (%) 40.0 19.8 20.6 18.7

RoCE (%) 47.3 25.7 19.5 18.9

EV/ EV/ Sales EBITDA 2.2 2.1 4.6 5.5 3.2 4.5

Revenue to decline 57% YoY: We expect SESA's revenue to decline 57% YoY to INR3.4b due to lower sales volumes. The Goa government temporarily suspended all mining operations in the state in September. The announcement was followed by suspension of environmental clearances for iron ore mines in Goa by MoEF. We expect iron ore sales volumes to decrease 72% YoY in 2QFY13 to 437k tons due to suspension of mining in Goa. Average iron ore realization is likely to decline 19% QoQ to USD80/ton due to significant decline in international iron ore prices in 2QFY13. Average iron ore spot prices in China have declined 18% YoY to USD118/ ton CFR.  EBITDA to decline 85% QoQ: We expect EBITDA to decline 85% QoQ to INR1b and EBIT/ton to decline 28% QoQ to USD22 due to lower iron ore realization.  FY13 volumes at risk on Goa mining suspension; maintain Neutral: We have cut our volume assumption for FY13 from 14.7m tons to 7.9m tons due to Goa mining suspension. We are still maintaining our FY14 volume estimate of 15.7m tons, which is contingent on restarting of mining in Goa (13.5m tons) and Karnataka (2.2m tons). The stock trades at 5.1x FY14E EPS, 0.9x FY14E BV, and an EV of 4.5x FY14E EBITDA. We upgrade the stock to Buy, based on the valuation of the Sesa-Sterlite merged entity. 

Quarterly Performance (Consolidated) Y/E March Realization (USD/dmt) Sales Qty ('000 dmt) Net Sales Change (YoY %) EBITDA As % of Net Sales Interest Depreciation Other Income PBT (before XO item) EO PBT (after XO item) Tot al Tax % Tax Reported PAT before MI Profit from associates Adjusted PAT Change (YoY %) E: MOSL Estimates

October 2012

1Q 102 4,247 21,089 -12.6 11,474 54.4 493 269 1,521 12,232 -15 12,217 3,811 31.2 8,406 0 8,421 -39.7

(INR Million) FY12 2Q 3Q 84 93 1,540 5,040 7,897 26,171 -14.0 16.3 2,600 10,852 32.9 41.5 516 730 243 263 504 180 2,345 10,039 -2,341 -1,779 4 8,260 -9 2,564 -245.9 31.0 13 5,696 0 1,219 2,354 8,695 -33.0 -18.4

FY13 4Q 102 5,100 27,944 -22.9 11,579 41.4 702 286 141 10,732 79 10,811 3,848 35.6 6,963 4,658 11,542 -20.9

1Q 99 2,900 17,326 -17.8 6,762 39.0 1,178 303 151 5,432 -2,522 2,910 922 31.7 1,988 7,652 11,362 34.9

2QE 80 437 3,363 -57.4 1,001 29.8 934 303 129 -106 0 -106 -32 30.0 -74 5,696 5,621 138.8

3QE 62 1,176 5,980 -77.2 1,845 30.9 934 303 77 686 0 686 206 30.0 480 5,708 6,188 -28.8

4QE 58 3,450 12,844 -54.0 3,861 30.1 934 303 39 2,664 0 2,664 799 30.0 1,865 5,523 7,388 -36.0

FY12

FY13E

99 15,927 83,101 -9.7 36,505 43.9 2,441 1,061 2,346 35,348 -4,056 31,292 10,214 32.6 21,078 5,877 31,012 -27.2

74 7,963 39,514 -52.5 13,469 34.1 3,979 1,211 397 8,676 -2,522 6,154 1,895 30.8 4,259 24,578 30,582 -1.4

C–124

September 2012 Results Preview Sector: Metals

Steel Authority of India BSE Sensex

S&P CNX

18,763 5,703 Bloomberg SAIL IN Equity Shares (m) 4,130.4 52 Week Range (INR) 117/73 1,6,12 Rel Perf (%) -3/-1 7/-34 Mcap (INR b) 352.9 Mcap (USD b) 6.7

CMP: INR85 Year Net Sales End (INR m) 3/11A 428,144 3/12A 463,726 3/13E 439,733 3/14E 483,437 Consolidated

Sell PAT EPS (INR m) (INR) 49,466 12.0 37,174 9.0 27,527 6.7 35,442 8.6

EPS Gr. (%) -27.4 -24.8 -26.0 37.7

P/E (X) 9.5 12.8 10.0

P/BV (X) 0.9 0.8 0.8

RoE (%) 13.9 9.6 6.7 8.2

RoCE (%) 13.9 10.1 7.4 8.2

EV/ EV/ Sales EBITDA 1.0 7.4 1.2 8.9 1.2 7.3



Net sales to decline 4% YoY on lower volumes: We expect net sales to decline 4% YoY (flat QoQ) to INR108b due to lower saleable steel volumes. Sales volumes are likely to decrease 5% YoY to 2.7m tons. Realization would be up 2% YoY (down 7% QoQ) to INR39,960/ton. The domestic steel pricing environment remained weak in 2QFY13; long and flat prices decreased 9% and 10% QoQ, respectively. Global steel prices have also shown downward bias. Average steel prices have decreased 8%, 4%, 14% and 4% QoQ, respectively in Russia, Europe, China and North America



Margins to shrink 16% QoQ to USD93/ton: We expect EBITDA/ton to decline 16% QoQ to USD93/ton due to lower realization. We expect the benefits of lower coking coal prices to accrue slowly but downward pressure on realization would overshadow any incremental benefit. Other income would fall by 43% QoQ to INR1.6b, as cash is used to support capex.



Steel volumes to remain flat in FY13; maintain Sell: We expect earnings to decline at 2% per annum over FY1214 despite 10% CAGR in volumes due to SAIL's uncompetitive cost structure, execution delays, decline in steel realization and poor operating efficiencies. The full benefits of the INR720b capex will be seen only in FY15. The stock still appears expensive at 10x FY14E EPS and an EV of 7.3x FY14E EBITDA. Maintain Sell.

Quarterly Performance (Standalone) Y/E March Sales (m tons) Realization (INR per ton) Change (YoY %) Net Sales Change (%) EBITDA Change (YoY %) As % of Net Sales EBITDA per ton (USD) Interest Depreciation Other Income PBT (after EO Inc.) Tot al Tax % Tax Reported PAT Adjusted PAT Change (YoY %) E: MOSL Estimates

October 2012

1Q 2.75 40,689 3.4 111,896 22.5 13,114 -28.8 11.7 107 1,710 3,742 4,630 12,293 3,913 31.8 8,381 8,381 -28.8

(INR Million) FY12 2Q 3Q 4Q 2.85 2.60 3.20 39,289 42,476 42,787 10.2 22.0 10.6 111,973 110,437 136,920 3.6 -2.4 12.9 13,271 15,811 18,713 -21.7 -12.0 -15.4 11.9 14.3 13.7 102 119 117 2,000 1,855 1,210 3,938 4,093 3,891 4,903 3,837 2,156 7,149 9,037 23,014 2,203 2,716 7,244 30.8 30.1 31.5 4,946 6,321 15,770 10,034 10,984 8,524 -7.9 -0.8 -38.1

FY13 1Q 2QE 3QE 2.50 2.70 3.0 43,110 39,960 37,800 5.9 1.7 -11.0 107,775 107,892 113,400 -3.7 -3.6 2.7 15,153 13,918 13,222 15.5 4.9 -16.4 14.1 12.9 11.7 111 93 82 1,249 1,499 2,411 4,018 4,871 5,070 2,785 1,599 1,469 10,101 9,148 7,211 3,137 2,744 2,163 31.1 30.0 30.0 6,964 6,403 5,048 8,833 6,377 5,027 5.4 -36.4 -54.2

4QE 3.2 37,044 -13.4 118,541 -13.4 17,854 -4.6 15.1 103 2,878 5,922 1,352 10,407 3,122 30.0 7,285 7,255 -14.9

FY12

FY13E

11.4 41,336 11.8 471,226 8.6 60,909 -19.3 12.9 111 6,774 15,664 15,526 51,493 16,076 31.2 35,418 37,140 -22.5

11.4 39,264 -5.0 447,608 -5.0 60,147 -1.3 13.4 97 8,036 19,881 7,205 36,866 11,166 30.3 25,700 27,491 -26.0

C–125

September 2012 Results Preview Sector: Metals

Sterlite Industries BSE Sensex

18,763

S&P CNX

5,703

Bloomberg STLT IN Equity Shares (m) 3,361.2 52 Week Range (INR) 138/86 1,6,12 Rel Perf (%) -11/-19/-31 Mcap (INR b) 333.9 Mcap (USD b) 6.3

CMP: INR99 Year Net Sales End (INR m) 3/11A 304,285 3/12A 411,789 3/13E 421,214 3/14E 463,018 Consolidated

Buy PAT EPS (INR m) (INR) 50,993 15.2 56,058 16.7 54,883 16.3 59,632 17.7

EPS Gr. (%) 26.2 9.9 -2.1 8.7

P/E (X) 6.0 6.1 5.6

P/BV (X) 0.8 0.7 0.7

RoE (%) 13.9 14.1 12.4 12.3

RoCE (%) 15.2 15.1 13.7 14.0

EV/ EV/ Sales EBITDA 0.7 4.0 0.7 3.8 0.6 3.5

Net sales to decrease 2% QoQ: We expect consolidated net sales to decline 2% QoQ (increase 2% YoY) to INR104b on lower base metal prices. LME prices for all base metals have declined 0-3% QoQ. Refined zinc and lead production would be 1% lower QoQ at 184k tons. Aluminum production from Balco is likely to increase 2% QoQ to 61k tons. Copper cathode production would increase 1% QoQ to 88k tons.  EBITDA to grow 7% QoQ: We expect EBITDA to grow 7% QoQ (flat YoY) to INR24.8b on a lower base of 1QFY13, when copper business was impacted by lower by-product realizations. Copper EBIT is likely to increase 29% QoQ to INR2.6b. Aluminum (Balco) EBIT would decline to a negative INR358m on account of lower LME prices. EBIT from the Power segment would grow 38% QoQ to INR2.6b.  Maintain Buy: We expect adjusted PAT to grow at a CAGR of just 3% over FY12-14 to INR59.6b due to project commissioning delays, lower LME prices and higher raw material costs (coal and bauxite). Domestic zinc production growth would be moderate, as mine production has witnessed some setbacks recently. However, valuations remain attractive. The stock trades at 5.6x FY14E EPS and an EV of 3.5x FY14E EBITDA. Maintain Buy. 

Quarterly Performance (Consolidated) Y/E March Copper cathode ('000 tons) Aluminum (BALCO, '000 tons) Aluminum (VAL , '000 tons) Net Sales Change (YoY %) EBITDA As % of Net Sales Interest Depreciation Other Income PBT (before XO item) Extra-ordinary Exp. PBT (after XO item) Tot al Tax % Tax Reported PAT Minority interest Profit/ (Loss) Loss/(profit) of Associates Adjusted PAT Change (YoY %) Avg LME Aluminium (USD/T) Avg LME Copper (USD/T) Avg LME Zinc (USD/T) E: MOSL Estimate October 2012

1Q 74 61 112 98,607 65.2 27,583 28.0 1,740 4,200 7,646 29,289 726 30,015 6,137 20.4 23,878 6,420 1,061 15,672 81.7 2,618 9,163 2,271

(INR Million) FY12 2Q 3Q 87 84 60 63 89 107 101,957 103,037 67.6 23.7 24,820 23,183 24.3 22.5 1,549 1,573 4,450 4,575 8,002 8,768 26,823 25,803 -4,339 -4,318 22,485 21,484 5,049 5,053 22.5 23.5 17,436 16,431 5,030 4,660 1,812 2,636 14,932 13,453 48.1 21.7 2,450 2,090 8,993 7,530 2,247 1,917

FY13 4Q 80 62 115 108,189 7.6 27,054 25.0 3,280 5,072 7,035 25,737 -1,005 24,733 4,867 19.7 19,866 5,499 1,598 13,774 -20.5 2,225 8,318 2,050

1Q 2QE 88 88 60 61 124 124 106,484 104,064 8.0 2.1 23,083 24,805 21.7 23.8 2,419 2,501 5,182 5,268 9,484 8,107 24,966 25,143 -2,174 0 22,792 25,143 3,339 5,783 14.7 23.0 19,453 19,360 5,771 4,706 1,666 2,001 14,190 12,653 -9.5 -15.3 1,985 1,900 7,890 7,700 1,938 1,900

3QE 82 62 124 103,006 0.0 28,205 27.4 2,601 6,018 8,236 27,822 0 27,822 6,677 24.0 21,145 5,721 1,746 13,678 1.7 2,000 8,000 1,900

FY12

FY13E

4QE 82 325 61 246 124 423 107,660 411,789 -0.5 35.3 29,641 102,640 27.5 24.9 2,701 8,142 6,768 18,298 8,524 31,452 28,696 107,652 0 -8,936 28,696 98,717 7,174 21,106 25.0 21.4 21,522 77,611 5,670 21,609 1,490 7,107 14,361 57,831 4.3 22.8 2,100 2,346 8,000 8,501 1,900 2,121

340 260 500 421,214 2.3 105,734 25.1 10,223 23,234 34,350 106,626 -2,174 104,452 22,973 22.0 81,479 21,867 6,903 54,883 -5.1 1,996 7,898 1,910

C–126

September 2012 Results Preview Sector: Metals

Tata Steel BSE Sensex

S&P CNX

18,763 5,703 Bloomberg TATA IN Equity Shares (m) 971.4 52 Week Range (INR) 501/332 1,6,12 Rel Perf (%) -1/-22/-20 Mcap (INR b) 389.3 Mcap (USD b) 7.4

CMP: INR401 Year Net Sales End (INR m) 3/11A 1,187,531 3/12A 1,328,997 3/13E 1,354,936 3/14E 1,372,147 Consolidated

Sell

PAT EPS (INR m) (INR) 59,724 62.3 18,054 18.6 30,279 31.2 55,029 56.6

EPS Gr. (%) -n/a-70.1 67.7 81.7

P/E (X) 21.6 12.9 7.1

P/BV (X) 1.5 1.4 1.2

RoE (%) 40.5 7.8 11.5 18.9

RoCE (%) 13.2 9.1 8.8 10.5

EV/ EV/ Sales EBITDA 0.7 7.3 0.7 6.8 0.7 6.1

Tata Steel India (TSI): We expect net revenue to increase 5% YoY (fall 3% QoQ) to INR86.5b due to increase of 5% YoY (decline of 5% QoQ) in steel realization and flat YoY volumes. Sales volumes are likely to remain flat YoY (increase 4% QoQ) to 1.65m tons in 2QFY13. Average steel price realization is expected to be INR48,840/ton. Domestic steel pricing environment remained weak in 2QFY13; long and flat prices decreased 9% and 10% QoQ, respectively. We expect EBITDA to decline 4% QoQ to INR28.7b and EBITDA/ton to decline 6% QoQ to USD304/ ton.  TSE and others: We expect Tata Steel Europe (TSE) and other subsidiaries to report negative EBITDA due to declining realization in Europe. Average steel prices declined 4% QoQ in 2QFY13 in Europe. We expect EBITDA/ ton to decrease from USD28 in 1QFY13 to a negative USD3 in 2QFY13. We also expect steel shipments to decline 16% YoY (8% QoQ) to 3.8m tons, as demand is very weak in Europe.  Steel environment challenging, price outlook negative; maintain Sell: We expect further correction in steel prices due to weak demand in developed regions, correction in raw material prices and slowdown in Chinese steel consumption, which has been the major demand driver so far. Though TSE's converter model will enable it to get benefits of lower raw material prices, lower realization will eat away the gains. TSI margins are also likely to decline in FY13 and FY14 due to higher proportion of purchased coking coal in the mix and lower realization. The stock trades at 7.1x FY14E EPS, 1.2x FY14E BV, and an EV of 6.1x FY14E EBITDA. Maintain Sell. 

Quarterly Performance (Standalone) Y/E March

(INR Million) FY12 2Q 3Q 1,648 1,622 46,402 47,340 82,119 83,819 15.6 13.3 27,698 26,441 33.7 31.5 357 305 2,343 4,811 2,871 2,891 236 1,976 22,720 20,716 7,767 6,503 34.2 31.4 14,952 14,213 14,952 14,213

1Q Sales ('000 tons) 1,593 Avg Seg. Realization (INR/tss) 45,832 Net Sales 78,603 Change (YoY %) 20.0 EBITDA 31,148 (% of Net Sales) 39.6 EBITDA(USD/tss) 419 Interest 4,537 Depreciation 2,853 Other Income 2,564 PBT (after EO Inc.) 30,482 Tot al Tax 8,288 % Tax 27.2 Reported PAT 22,194 Adjusted PAT 18,034 Consolidated Financials Net Sales 330,002 327,979 331,031 EBITDA 44,572 27,500 19,133 Reported PAT (before MI & asso.) 52,937 1,390 -6,874 Adj. PAT (after MI & asso) 19,846 2,124 -6,027 E: MOSL Estimates; tss=ton of steel sales October 2012

FY13 4Q 1,768 49,103 94,794 13.7 29,916 31.6 324 5,140 2,900 1,829 23,706 8,101 34.2 15,605 15,605 339,986 31,788 2,032 4,335

1Q 1,590 51,530 89,080 13.3 29,768 33.4 324 4,544 3,544 1,519 21,229 7,663 36.1 13,566 15,536

2QE 1,650 48,840 86,509 5.3 28,703 33.2 304 5,460 3,886 1,848 21,204 5,513 26.0 15,691 15,691

FY12

FY13E

3QE 1,900 45,900 94,549 12.8 27,151 28.7 251 5,559 4,132 1,857 19,317 4,443 23.0 14,874 14,874

4QE 2,350 6,631 7,490 44,982 47,214 47,455 113,509 339,335 383,647 19.7 15.4 13.1 31,074 115,368 116,696 27.4 34.0 30.4 223 347 268 5,657 19,254 21,221 4,379 11,514 15,941 1,866 8,864 7,090 22,904 97,624 84,654 4,810 30,659 22,429 21.0 31.4 26.5 18,094 66,964 62,225 18,094 62,804 64,195

338,212 312,934 338,232 36,003 28,051 37,967 5,170 238 11,017 7,949 791 11,469

365,559 1,328,997 1,354,936 40,068 124,168 142,088 12,212 49,485 28,637 12,686 20,279 32,895

C–127

September 2012 Results Preview Sector: Oil & Gas

Oil & Gas Company Name BPCL Cairn India Chennai Petroleum GAIL Gujarat State Petronet HPCL

GRM up 36% QoQ, but YTD, both oil and GRM down 5% : Brent average crude price for 2QFY13 was marginally up 1% QoQ to USD110/bbl. However, volatility was high, led by Eurozone uncertainty, geopolitical developments, and QE3. Brent, after hitting a low of USD89/bbl in June-12, again rose to high of USD116/bbl in mid-Aug, before settling at current levels of USD111/bbl. Similar to oil, product cracks also were volatile with regional benchmark, Reuters Singapore GRM averaging USD9.1/bbl v/s USD6.7/bbl in 1QFY13. Unless meaningful refinery closures happen, we expect margins to remain subdued as global utilization is likely to remain low led by lower demand and commissioning of new refineries.

IOC Indraprastha Gas MRPL Oil India ONGC Petronet LNG Reliance Industries

Petchem spreads subdued: In 2QFY13, polymer spreads over naphtha are down 7-8% QoQ, while integrated polyester spreads are down 2-4% QoQ. However, YoY, PE spreads are up 24% and PP spreads 7%. Polymer margins seem to have bottomed out and are expected to slowly recover, contingent on the global economic growth. Lower LPG losses help QoQ drop in under-recoveries: We estimate 2QFY13 underrecoveries at INR390b, down 18% QoQ, primarily helped by lower LPG losses due to lower international prices. As the recent government decision to increase diesel price by INR5/ltr and limit subsidized LPG cylinder was effected on 13 September 2012, the meaningful positive impact of the same will be seen in subsequent quarters. Subsidy sharing would be again ad hoc as in the previous years, and it will be finalized in the last quarter. We model upstream sharing at 40% and downstream sharing at nil/8% for FY13/FY14, with the balance being the government's share. Valuation and view: Recent diesel price hike and limiting subsidized LPG cylinders will reduce under-recoveries. However, FY13 estimated under-recoveries remain high at INR1.6t (+14% YoY) v/s INR1.4t in FY12. Nevertheless, OMC stocks are at attractive valuations and BPCL is our top pick for its E&P upside potential.

Expected quarterly performance summary CMP (INR) 28.09.12 BPCL 346 Cairn India 331 Chennai Petroleum 129 GAIL 383 Gujarat State Petronet 81 HPCL 307 IOC 251 Indraprastha Gas 265 MRPL 61 Oil India 490 ONGC 280 Petronet LNG 158 Reliance Inds. 837 Oil & Gas Sector Aggregate Oil & Gas Excl. RMs

(INR Million)

Rating Sep.12 Buy 571,811 Neutral 48,725 Buy 100,501 Neutral 111,932 Neutral 2,426 Buy 496,111 Buy 1,115,444 Under Review8,530 Neutral 168,502 Buy 25,886 Buy 217,664 Buy 81,708 Neutral 937,028 3,886,267 1,702,901

Sales Var. % YoY 35.2 83.7 6.7 15.4 -13.6 34.0 25.1 42.9 44.4 -20.8 -3.8 52.2 19.3 24.3 18.1

Var. Sep.12 % QoQ 4.9 17,903 9.7 37,609 -8.9 4,499 0.9 13,935 -9.3 2,218 12.6 16,697 15.5 62,858 12.2 1,861 31.5 9,306 10.9 12,679 8.4 119,438 16.2 4,380 2.0 82,024 8.9 385,406 5.3 287,949

EBITDA Var. % YoY LP 78.8 LP -15.5 -14.2 LP LP 18.3 1134.8 -21.7 -15.6 -2.3 -16.7 101.9 -4.4

Var. % QoQ LP 7.7 LP -26.6 -10.0 LP LP 3.8 LP 15.7 8.2 -4.2 21.6 LP 24.8

Net Profit Sep.12 Var. % YoY 10,183 LP 28,308 271.0 2,962 304.7 8,364 -23.6 1,085 -16.1 11,403 LP 41,570 LP 866 12.2 8,361 3365.2 9,399 -17.4 64,009 -25.9 2,616 0.5 55,482 -2.7 244,609 539.3 181,453 1.3

Var. % QoQ LP -26.0 LP -26.2 -13.1 LP LP 1.9 LP 1.1 5.3 -3.4 24.0 LP 25.7

Harshad Borawake ([email protected]) October 2012

C–128

September 2012 Results Preview Sector: Oil & Gas

Valuations are also attractive for upstream companies, ONGC and Oil India. Likely further policy actions to reduce under-recoveries augurs well for them too.  We maintain Neutral on GAIL and GSPL due to headwinds on incremental gas availability in the medium term. In contrast, domestic gas scarcity is a positive for Petronet LNG.  RIL's new mega projects (petcoke gasification and off-gases cracker) are likely to add to earnings from FY15/FY16. However, the medium-term outlook on core business remains weak with RoE reaching sub-15%. Neutral. 

GRM up QoQ; crude average remains largely flat Crude price average largely flatQoQ (USD/bbl)

Brent-WTI spread average at USD17.7/bbl in 2QFY13 (USD/bbl)

160

20

120

5

80

-10

40

-25

0

-40

Sep-04

Sep-06

Sep-08

Sep-10

Sep-12

Aug-08

Aug-09

Aug-10

Aug-11

Aug-12

Singapore GRM up 36% QoQ to USD9.1/bbl in 2QFY13 (USD/bbl) Auto fuel cracks meaningfully up QoQ (USD/bbl)

2QFY13

4QFY12

2QFY12

4QFY11

2QFY11

4QFY10

2QFY10

4QFY09

2QFY09

4QFY08

2QFY08

4QFY07

2QFY07

4QFY06

2QFY06

4QFY05

2QFY05

Si nga pore GRM (Qtr Avg) 9.5 8.8 9.1 9.1 8.9 8.0 8.6 8.1 7.7 7.2 7.4 8.0 6.8 5.8 5.5 7.5 6.7 4.9 4.7 6.4 7.0 6.6 6.2 6.3 5.5 4.1 4.6 4.2 3.7 3.9 3.6 3.2 1.9

2QFY12

3QFY12

4QFY12

30 15

1QFY13 19.5

2QFY13 20.5

12.6 -0.6

0 -15

-6.4

-30 -31.9 -45 Gas ol i ne Naphtha

LPG

Di es el

Jet/Kero Fuel Oi l

Arab L-H differential lower by USD0.7/bbl in 2QFY13 (USD/bbl) 10

Our key assumptions  Our crude price assumption for FY13/14/15 is USD110/105/ 100/bbl and USD90/bbl over long term.

8 6 4 2 0 Sep-02

Sep-04

Sep-06

Sep-08

Sep-10



We expect regional benchmark Singapore Reuters GRM to remain in the USD7-9/bbl range for the near term.



We model Singapore GRM at USD8/bbl in FY13 and FY14.

Sep-12

Source: Reuters/Bloomberg/MOSL

October 2012

C–129

September 2012 Results Preview Sector: Oil & Gas

Petchem margins weak on QoQ basis in 2QFY13 (INR/kg) (RIL basic prices) PP PVC POY

PE 2QFY11 3QFY11 4QFY11 1QFY12 2QFY12 3QFY12 4QFY12 1QFY13 2QFY13 QoQ (%) YoY (%)

70.1 73.4 74.3 76.6 76.3 80.3 83.4 91.9 91.2 -0.7 19.6

72.4 76.1 81.9 87.9 81.9 84.0 84.1 92.1 91.9 -0.2 12.2

52.0 53.3 53.5 60.7 57.3 53.5 56.2 61.8 63.5 2.7 10.8

69.7 79.8 97.1 95.1 89.3 91.2 91.7 92.4 93.8 1.5 5.0

PSF

Naphtha

PE

68.9 80.8 103.8 104.4 93.4 97.1 96.4 95.8 96.2 0.4 2.9

31.2 36.4 41.9 44.8 44.1 45.6 51.9 48.5 51.3 5.7 16.2

38.9 37.0 32.4 31.8 32.1 34.7 31.4 43.3 39.9 -7.9 24.2

Polymer spreads decline QoQ in 2QFY13 (INR/kg) PE

60

PP

Simple spreads PP PVC 41.3 39.7 40.0 43.0 37.8 38.5 32.1 43.5 40.6 -6.8 7.4

Integrated spreads POY PSF

20.8 16.9 11.6 15.8 13.2 7.9 4.2 13.3 12.2 -8.3 -7.6 Source:

45.2 44.3 51.0 52.0 64.2 70.9 59.8 69.1 54.4 58.5 55.2 61.1 50.5 55.2 54.0 57.4 53.0 55.4 -1.9 -3.5 -2.6 -5.4 Bloomberg/MOSL

POY/PSF spreads largely flat QoQ (INR/kg) POY

PVC

PSF

2QFY13

1QFY13

4QFY12

3QFY12

2QFY12

1QFY12

4QFY11

2QFY11

2QFY13

1QFY13

20 4QFY12

0 3QFY12

35

2QFY12

15

1QFY12

50

4QFY11

30

3QFY11

65

2QFY11

45

3QFY11

80

Source: Company/MOSL

Relative Performance-3m (%) Sens ex Index MOSL Oi l & Gas Index

2QFY13 under-recoveries down 18% QoQ to INR390b; we model upstream share at 40% in FY13 (INR b)

110 105 100

Sep-12

Jun-12

Jul-12

Aug-12

95

Relative Performance-1Yr (%) Sens ex Index MOSL Oi l & Gas Index 120 110 100 90

October 2012

Sep-12

Jun-12

Mar-12

Dec-11

Sep-11

80

FY09

FY10

FY11

FY12

Fx Rate (INR/USD) 46.0 Brent (USD/bbl) 84.8 Gross Under recoveries (INR b) Auto Fuels 575 Domestic Fuels 458 Total 1,033 Sharing (INR b) Oil Bonds/Cash 713 Upstream 329 OMC's sharing -9 Total 1,033 Sharing (%) Government 69 Upstream 32 OMC's sharing -1 Total 100

47.5 69.6

45.6 86.3

47.9 114.5

1QFY13 2QFY13E FY13E 54.2 108.7

55.5 110.2

54.4 110.0

FY14E 53.0 105.0

144 316 461

375 405 780

812 573 1,385

290 188 478

243 147 390

968 610 1,577

695 508 1,203

260 145 56 461

410 303 67 780

835 550 0 1,385

0 151 324 475

242 148 0 391

946 631 0 1,577

626 481 96 1,203

56 31 12 100

53 39 9 100

60 40 0 100

0 32 68 100

62 60 52 38 40 40 0 0 8 100 100 100 Source: Company/MOSL

C–130

September 2012 Results Preview Sector: Oil & Gas

ONGC's net realization estimated at USD53/bbl Net Realizat ion (USD/ bbl)

GAIL transmission volumes under pressure (mmscmd)

Subsidy Burden (USD/bbl)

97

115 116 115 120 120 117 119 119 116 110 109 107 109

33.2 14.1 19.0 27.7 32.8

16.5 24.3 70.1

2.3 58.356.4 57.7 51.4 48.1 62.7 64.8

73.2

66.8 77.3 63.3 59.4 83.7

38.7 48.1

45.0 44.3 46.6 53.3 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q

1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q FY10

FY11

FY12

FY10

FY13

FY11

FY12

FY13

Source: Company/MOSL

Lower Light-Heavy spreads to pressure RIL premium(USD/bbl) Cairn's Rajasthan production likely to average 173kbpd

20

Premi um/ (di s count) RIL

Singapore GRM (Qtr Avg)

15

116

125 118

125

125

125

1Q

2Q

3Q

167

173

1Q

2Q

138

10 5

45

0 -5 1234123412341234123412341234123412341234123412

1Q

FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12F Y13

2Q

3Q

4Q

FY11

4Q

FY12

FY13

Source: Company/MOSL

Comparative valuation CMP (INR) 28.09.12 Oil & Gas BPCL Cairn India Chennai Petroleum GAIL Guj. State Petronet HPCL Indraprastha Gas IOC MRPL Oil India ONGC Petronet LNG Reliance Inds. Sector Aggregate Oil & Gas Ex RMS

October 2012

346 331 129 383 81 307 265 251 61 490 280 158 837

Rating

EPS (INR) FY12 FY13E FY14E

P/E (x) FY12 FY13E FY14E

EV/EBITDA (x) FY12 FY13E FY14E

RoE (%) FY12 FY13E FY14E

Buy Neutral Buy Neutral Neutral Buy UR Buy Neutral Buy Buy Buy Neutral

10.8 48.7 4.2 28.8 9.3 26.9 21.9 49.2 5.2 57.3 30.4 14.1 67.7

32.1 6.8 31.1 13.3 8.7 11.4 12.1 5.1 11.7 8.5 9.2 11.2 12.4 9.9 10.5

11.5 5.3 50.9 9.6 5.4 12.6 6.4 8.1 6.5 3.9 3.7 7.6 8.0 6.2 5.6

5.0 21.0 1.6 17.9 23.4 7.1 27.5 20.2 13.2 20.7 20.7 34.1 13.0 15.8 16.0

21.6 64.2 13.8 31.0 7.7 24.5 25.3 24.4 2.9 58.7 29.8 13.1 67.8

21.5 54.0 34.5 32.1 7.6 27.4 28.0 30.3 8.5 64.7 33.4 15.0 69.7

16.1 5.2 9.4 12.3 10.4 12.5 10.5 10.2 21.2 8.3 9.4 12.1 12.3 10.3 10.1

16.1 6.1 3.7 11.9 10.5 11.2 9.5 8.3 7.2 7.6 8.4 10.5 12.0 9.6 9.6

8.5 3.5 9.8 9.0 5.9 11.3 5.5 8.9 7.3 3.7 3.7 7.9 9.3 6.2 5.6

8.8 3.4 5.3 8.7 5.8 9.0 4.8 7.0 4.6 3.3 3.1 5.9 8.9 5.5 5.0

9.5 23.1 5.3 17.2 16.4 6.2 26.4 9.5 6.8 18.7 17.7 25.1 11.7 13.9 14.9

8.9 16.7 12.5 16.0 14.3 6.6 24.7 11.0 18.2 18.4 17.8 23.8 11.0 13.4 14.1

C–131

September 2012 Results Preview Sector: Oil & Gas

BPCL BSE Sensex

S&P CNX

18,763 Bloomberg Equity Shares (m) 52 Week Range (INR) 1,6,12 Rel Perf (%) Mcap (INR b) Mcap (USD b)

5,703 BPCL IN 723.0 395/230 -9/-6/-6 250.4 4.8

Buy

CMP: INR346 Year Net Sales Adj. PAT Adj. EPS EPS End (INR b) (INR b) (INR) Gr. (%) 03/11A 1,536 16.3 22.6 0.2 03/12A 2,121 7.8 10.8 -52.2 03/13E 2,455 15.6 21.6 99.8 03/14E 2,339 15.6 21.5 -0.1 * Consolidated

P/E (X) 32.1 16.1 16.1

P/BV (X) 1.6 1.5 1.4

RoE (%) 11.1 5.0 9.5 8.9

RoCE (%) 5.5 5.2 7.4 6.5

EV/ EV/ Sales EBITDA 0.3 11.5 0.2 8.5 0.2 8.8



Similar to prior quarters, profitability of OMCs (BPCL, HPCL, IOC) would depend more on subsidy sharing, which is ad hoc, than on business fundamentals. Government subsidy compensation typically comes with a delay.



OMCs' 2QFY13 results would be benefited by (a) inventory gains as crude price are higher USD14/bbl at the quarter-end, and (b) forex gain as rupee has appreciated by ~4%.



2QFY13 under-recoveries are down 18% QoQ, despite higher crude price and average exchange rate, primarily due to lower LPG prices and diesel price hike effected on 13 September 2012.



For subsidy sharing, we model OMCs' sharing at nil/8%, upstream sharing at 40%/40% and government sharing at 60%/52% in FY13/FY14. We model nil under recovery sharing for 2FY13.



We expect BPCL to report PAT of INR10b v/s loss of INR32.3b in 2QFY12 and INR88.4b in 1QFY13.



Key things to watch out for: (a) Subsidy sharing, (b) Forex fluctuations and (c) GRM.



Adjusted for investment value of INR187/sh (E&P, Bina and other listed investments post 25% discount), the stock trades at FY13E P/B of INR0.7x. Buy.

Quarterly Performance (Standalone)

(INR Million)

Y/E March Net Sales Change (%) EBITDA Change (%) % of Sales Depreciation Interest Other Income PBT Tax Tax rate (%) PAT Change (%) Adj. PAT Adj. EPS Key Assumption (INR b) Gross under recovery Upstream sharing Govt. sharing Net Under/(Over) recovery As a % of Gross E: MOSL Estimates October 2012

FY12

FY13

1Q 461,177 34.7 -21,861 nm -4.7 4,901 3,349 4,492 -25,619 0 0.0 -25,619 nm -25,619 -35.4

2Q 422,819 19.7 -27,148 nm -6.4 4,600 4,532 3,987 -32,293 0 0.0 -32,293 nm -32,293 -44.7

3Q 588,245 60.4 36,874 406.3 6.3 4,667 5,174 4,389 31,422 26 0.1 31,396 1,575.5 31,396 43.4

4Q 646,422 42.9 50,571 207.6 7.8 4,681 4,941 4,382 45,331 5,703 12.6 39,628 323.8 39,628 54.8

1Q 545,227 18.2 -81,757 nm -15.0 4,801 5,205 3,395 -88,368 0 0.0 -88,368 nm -88,368 -122.2

2QE 571,811 35.2 17,903 nm 3.1 4,950 5,215 4,991 12,729 2,546 20.0 10,183 nm 10,183 14.1

3QE 662,679 12.7 56,235 52.5 8.5 5,245 5,200 3,707 49,497 9,899 20.0 39,598 26.1 39,598 54.8

103 34 35 34 32.6

49 16 0 32 66.3

76 36 70 -29 nm

98 43 92 -36 nm

116 37 0 80 68.5

93 35 58 0 0.1

91 41 90 -40 nm

FY12 FY13E 4QE 571,855 2,118,662 2,351,572 -11.5 39.9 11.0 53,889 38,436 46,270 6.6 12.6 20.4 9.4 1.8 2.0 5,564 18,849 20,560 5,000 17,996 20,619 2,308 17,250 14,402 45,634 18,842 19,493 -6,013 5,729 6,433 -13.2 30.4 33.0 51,646 13,113 13,060 30.3 -15.2 -0.4 51,646 13,113 13,060 71.4 18.1 18.1 93 43 90 -40 nm

326 130 197 0 0.0

393 156 237 0 nm C–132

September 2012 Results Preview Sector: Oil & Gas

Cairn India BSE Sensex

18,763 Bloomberg Equity Shares (m) 52 Week Range (INR) 1,6,12 Rel Perf (%) Mcap (INR b) Mcap (USD b)

S&P CNX

5,703 CAIR IN 1,907.4 401/258 -9/-12/4 630.9 12.0

Neutral

CMP: INR331 Year Net Sales PAT Adj. EPS EPS End (INR m) (INR m) (INR) Gr. (%) 03/11A 102,779 63,343 33.3 502.6 03/12A 131,130 92,929 48.7 46.3 03/13E 188,419 122,387 64.2 31.7 03/14E 184,280 102,970 54.0 -15.9 *Consolidated

P/E (X) 6.8 5.2 6.1

P/BV (X) 1.3 1.1 1.0

RoE (%) 17.1 21.0 23.1 16.7

RoCE EV/ EV/ (%) BOE (1P)EBITDA 17.9 18.5 20.3 16.2 5.3 23.9 12.7 3.5 18.5 11.5 3.4



We expect Cairn India to report net sales of INR48.7b (v/s INR44.4b in 1QFY13), led by higher average production at its Rajasthan block. We estimate EBITDA at INR37.6b v/s INR21b in 2QFY12 and INR35b in 1QFY13.



We estimate gross oil sales of 173kbpd from Rajasthan field and total net sales of 131kboepd (v/s 99.2kboepd in 2QFY12 and 127kboepd in 1QFY13).



We expect Other income to increase led by higher cash balance. We estimate forex loss of INR2.7b v/s gain of INR8.7b in 1QFY13 due to ~4% QoQ rupee appreciation v/s 10% depreciation in 1QFY13.



The company's near-term focus areas are: (1) debottlenecking of its pipeline, (2) production ramp-up, (3) approvals on further exploration in Rajasthan, and (4) maiden dividend.



We model in Brent crude price of USD110/105/105bbl in FY13/14/15 and long-term price of USD90/bbl, and take a quality discount for Cairn India of 10.5% in FY13 and 12% long-term. We have assumed FY13 tax rate of 9% at the upper end of management guidance of 5-9%.



Key things to watch out for: (a) Net realization, (b) Forex fluctuations.



The stock currently trades at 5.2x FY13E EPS of INR64.2. Maintain Neutral.

Quarterly Performance (Consolidated) Y/E March

(INR Million) FY12

1Q 37,127 341.7 31,748 3,647 446 528 -8

2Q 3Q Net Sales 26,522 30,968 Change (%) -1.3 0.0 EBITDA 21,040 25,456 D,D & A (inc. w/off) 3,531 5,550 Interest 1,228 240 Other Income (Net) 620 1,124 Forex Fluctuations 5,310 3,015 Exceptional items 13,552 PBT 28,175 22,211 23,803 Tax 909 1,029 1,184 Tax rate* (%) 3.2 6.1 5.7 PAT 27,266 7,630 22,619 YoY Change (%) 868.9 -51.9 12.5 EPS 14.3 4.0 11.9 Key Assumptions and Cain's share in production (kboepd) Exchange rate (INR/USD) 44.7 45.8 51.0 Brent Price (USD/bbl) 116.8 112.9 109.3 Ravva and Cambay Prodn. 12.1 11.5 11.4 Rajasthan Production 87.6 87.7 87.6 Total 99.6 99.2 99.0 E: MOSL Estimates; * Excluding forex fluctuations, includes October 2012

FY13

FY12

FY13E 188,419 43.7 145,633 23,335 345 5,846 5,910 0 133,710 11,323 8.9 122,387 54.2 64.2 54.4 110.0 10.2 121.1 131.3

4Q 36,513 -0.1 29,812 4,663 305 923 -2,170

1Q 44,400 19.6 34,921 4,726 295 964 8,663

2QE 48,725 83.7 37,609 4,963 50 1,476 -2,752

3QE 47,238 52.5 36,028 6,450 0 1,597 0

4QE 48,055 31.6 37,075 7,196 0 1,809 0

23,598 1,735 6.7 21,862 -11.0 11.5

39,528 1,271 4.1 38,257 40.3 20.1

31,319 3,011 8.8 28,308 271.0 14.8

31,175 2,806 9.0 28,369 25.4 14.9

31,688 4,236 13.4 27,452 25.6 14.4

131,130 27.6 108,056 17,391 2,220 3,194 6,148 13,552 97,787 4,857 5.3 79,378 25.3 41.6

55.5 110.2 10.2 121.1 131.3

54.0 110.0 10.2 122.5 132.7

54.0 111.1 10.2 123.8 134.0

47.9 114.5 11.5 89.8 101.3

50.2 118.8 10.9 96.3 107.3 MAT credit.

54.2 108.7 10.2 117.0 127.2

C–133

September 2012 Results Preview Sector: Oil & Gas

Chennai Petroleum Corporation BSE Sensex

S&P CNX

18,763 5,703 Bloomberg MRL IN Equity Shares (m) 149.0 52 Week Range (INR) 206/117 1,6,12 Rel Perf (%) -10/-25/-51 Mcap (INR b) 19.3 Mcap (USD b) 0.4

Buy

CMP: INR129 Year Net Sales PAT End (INR m) (INR m) 03/11A 331,406 5,115 03/12A 407,962 619 03/13E 520,945 2,053 03/14E 510,725 5,146

EPS (INR) 34.3 4.2 13.8 34.5

EPS Gr. (%) -15.2 -87.9 231.9 150.7

P/E (X) 31.1 9.4 3.7

P/BV (X) 0.51 0.49 0.45

RoE (%) 14.2 1.6 5.3 12.5

RoCE Div EV/ (%) Yld (%) EBITDA 12.2 8.1 1.0 1.3 50.9 7.2 3.4 9.8 11.4 7.7 5.3



We expect CPCL to report 2QFY13 PAT of INR2.9b v/s INR732m in 2QFY12 and loss of INR9.7b in 1QFY13.



EBITDA is expected to be INR4.5b against EBITDA loss of INR7.8b in 1QFY13. The turnaround is led by positive GRM helped by crude inventory gains. Regional benchmark Reuters Singapore GRM is up 36% QoQ to USD9.1/ bbl from USD6.7/bbl.



On the operational front, we expect refinery throughput at 2mmt (down 21% QoQ and 23% YoY) due to planned 75-day shutdown for tie-up of revamped CDU/VDU units which will increase its refining capacity by 0.6mmt.



We expect refining margins to remain subdued as the global operating rates (ex US) are likely to remain low led by lower demand (particularly in Europe), commissioning of new refineries and delay in capacity closures (protectionist policies by European governments).



Key things to watch out for: (a) GRM, (b) Forex fluctuations, (c) Inventory changes.



For CPCL we model in GRM of USD4.7/bbl for FY13 and USD5.5/bbl for FY14. The stock trades at FY14E P/E of 3.7x and EV/EBITDA of 5.3x. Maintain Buy.

Quarterly Performance

(INR Million)

Y/E March Net Sales Change (%) EBITDA % of Sales % Change Depreciation Interest Other Income PBT Tax Rate (%) PAT Change (%) EPS Key Assumptions GRM (USD/bbl) Throughput (mmt) E: MOSL Estimates

October 2012

FY12

FY13

FY12

FY13E

1Q 98,953 55.6 642 0.6 255.6 913 587 42 -816 -265 nm -551 nm -3.7

2Q 94,231 16.0 -2,102 -2.2 nm 918 93 110 -3,002 -3,734 nm 732 -25.1 4.9

3Q 111,509 33.6 619 0.6 -82.2 910 956 309 -939 -305 32.5 -634 nm -4.3

4Q 103,270 0.2 2,239 2.2 -61.5 913 858 2,707 3,175 2,103 66.2 1,072 -65.9 7.2

1Q 110,379 11.5 -7,848 -7.1 nm 894 1,093 60 -9,774 -85 0.9 -9,690 nm -65.0

2QE 100,501 6.7 4,499 4.5 nm 950 1,095 1,350 3,804 842 22.1 2,962 304.7 19.9

3QE 153,688 37.8 6,895 4.5 1,014.3 980 1,100 480 5,295 1,173 22.1 4,122 nm 27.7

4QE 156,377 51.4 5,764 3.7 157.4 1,096 1,135 480 4,013 -929 -23.1 4,942 361.1 33.2

407,962 23.1 1,398 0.3 -88.4 3,654 2,494 3,168 -1,582 -2,201 139.1 619 -87.9 4.2

520,945 27.7 9,311 1.8 565.9 3,919 4,423 2,370 3,338 1,002 30.0 2,337 277.8 15.7

2.4 2.5

0.3 2.6

3.4 2.7

4.5 2.7

-2.2 2.5

7.1 2.0

7.1 3.2

6.7 3.2

2.6 10.6

4.7 10.9

C–134

September 2012 Results Preview Sector: Oil & Gas

GAIL (India) BSE Sensex

18,763 Bloomberg Equity Shares (m) 52 Week Range (INR) 1,6,12 Rel Perf (%) Mcap (INR b) Mcap (USD b)   

 

S&P CNX

5,703 GAIL IN 1,268.5 445/303 -2/-5/-23 485.9 9.2

Neutral

CMP: INR383 Year Net Sales Adj. PAT EPS End (INR m) (INR m) (INR) 03/11A 324,586 35,610 28.7 03/12A 402,807 36,538 28.8 03/13E 445,447 39,363 31.0 03/14E 489,873 40,771 32.1 *Adjustment for investments

EPS Gr. (%) 16.0 0.4 7.7 3.6

*P/E (X) 10.6 9.8 9.5

*P/BV (X) 1.8 1.6 1.4

RoE (%) 19.8 17.9 17.2 16.0

RoCE (%) 24.8 21.0 18.6 16.2

*EV/ *EV/ Sales EBITDA 1.1 7.2 1.1 7.2 1.1 7.1

We expect GAIL to report adjusted PAT of INR8.4b (down 24%YoY and 26% QoQ). Subsidy sharing assumption: For FY13, we model upstream sharing at 40%, similar to FY12. We also model GAIL's share at INR7.9b in 2QFY13 v/s INR5.7b in 2QFY12 and INR7b in 1QFY13. Segmental EBIT (pre-subsidy) is sharply down 20% QoQ primarily due to lower LPG realizations (down 30% QoQ) and lower gas trading EBIT (1Q included one-time gains). This is partly compensated by higher petchem EBIT (volumes up 59% QoQ). We model gas transmission volumes at 109mmscmd v/s 119 in 2QFY12 and 110 in 1QFY13. Key things to watch out for: a) Subsidy sharing, b) Transmission volumes. Adjusted for investments, the stock trades at 9.5x FY14E EPS of INR32.1. Though we like the management's strategy to build network to enable gas sourcing, we remain Neutral due to medium-term earnings concern led by likely under-utilization of its new network on account of headwinds to incremental gas availability.

Quarterly Performance

(INR Million)

Y/E March

FY12 1Q 88,674 25.0 15,556 17.5 8.4 1,782 208 863 14,429 4,582 31.8 9,847 11.0

Net Sales Change (%) EBITDA % of Net Sales Change (%) Depreciation Interest Other Income PBT Tax Rate (%) PAT Change (%) Key Assumptions Gas Trans. volume (mmsmd) 117 Petchem sales ('000MT) 88 LPG realization (USD/MT) 958 Segmental EBIT Breakup (INRm) Natural Gas transmission 6,520 LPG transmission 690 Natural Gas Trading 3,131 Petrochemicals 2,434 LPG & Liq.HC (pre-subsidy) 9,104 Total 21,544 Less: Subsidy -6,819 Total 14,725 E: MOSL Estimates October 2012

FY12

FY13E

2Q 96,990 19.7 16,482 17.0 15.0 2,008 226 1,434 15,682 4,738 30.2 10,944 18.5

3Q 112,598 34.6 17,605 15.6 33.9 1,975 207 557 15,980 5,066 31.7 10,914 12.8

4Q 104,546 17.6 7,338 7.0 -42.3 2,143 523 2,637 7,309 2,476 33.9 4,833 -38.3

1Q 110,886 25.0 18,991 17.1 22.1 2,169 588 612 16,846 5,508 32.7 11,338 15.1

2QE 111,932 15.4 13,935 12.4 -15.5 2,185 590 1,008 12,168 3,804 31.3 8,364 -23.6

FY13 3QE 113,224 0.6 17,409 15.4 -1.1 2,223 598 1,350 15,938 4,997 31.4 10,942 0.3

4QE 109,405 4.6 15,214 13.9 107.3 2,276 307 39 12,670 3,950 31.2 8,720 80.4

402,807 24.1 56,981 14.1 4.5 7,907 1,165 5,491 53,400 16,862 31.6 36,538 2.6

445,447 10.6 65,549 14.7 15.0 8,853 2,082 3,008 57,622 18,259 31.7 39,363 7.7

119 129 898

119 113 819

116 118 977

110 66 1,015

109 105 710

114 110 900

124 113 800

118 448 912

114 394 856

5,562 722 2,866 4,041 9,187 21,560 -5,666 15,894

6,208 775 3,230 3,875 8,416 22,068 -5,361 16,707

3,248 533 1,659 4,309 10,663 20,037 -13,980 6,057

5,673 709 4,956 1,958 11,373 24,751 -7,000 17,751

5,487 686 2,978 3,754 6,851 19,755 -7,887 11,868

5,740 690 2,978 3,894 10,599 23,900 -8,616 15,284

5,527 692 2,908 3,973 8,683 21,783 -9,354 12,429

21,539 2,720 10,886 14,658 37,371 85,209 -31,826 53,383

22,427 2,777 13,821 13,579 37,506 90,189 -32,858 57,332

C–135

September 2012 Results Preview Sector: Oil & Gas

Gujarat State Petronet BSE Sensex

S&P CNX

18,763 Bloomberg Equity Shares (m) 52 Week Range (INR) 1,6,12 Rel Perf (%) Mcap (INR b) Mcap (USD b)

5,703 GUJS IN 562.7 107/62 -6/-2/-35 45.4 0.9

Neutral

CMP: INR81 Year Net Sales Adj. PAT Adj. EPS EPS P/E P/BV End (INR m) (INR m) (INR) Gr. (%) (x) (x) 03/11A 10,391 5,064 9.0 22.3 03/12A 11,153 5,221 9.3 3.1 8.7 1.8 03/13E 9,676 4,350 7.7 -16.7 10.4 1.6 03/14E 9,278 4,303 7.6 -1.1 10.5 1.4 *Our EPS numbers does not factor in any provision towards

RoE RoCE EV/ EV/ (%) (%) Sales EBITDA 28.4 25.6 23.4 22.8 4.9 5.4 16.4 17.9 5.4 5.9 14.3 15.9 5.3 5.8 "Social Contribution Fund"



We expect GSPL to report net sales of INR2.4b and PAT of INR1.1b (down 16% YoY and 13% QoQ).



We build lower gas transmission volumes at 30mmscmd in 2QFY13 (v/s 35.2mmscmd in 2QFY12 and 31.1mmscmd in 1QFY13) led by decline in KG-D6 production.



The recent tariff approval by PNGRB for GSPL's high pressure pipeline indicates 12.5% tariff cut for GSPL, however was above our and consensus estimate. Further, as against our earlier understanding of retrospective likely impact of (a) tariff change and (b) return the cost of system use gas (SUG), including unaccounted gas; management indicated that they are unlikely to have to refund. Given the non-clarity on this issue we do not build any impact in our estimates and would await for more clarity.



GSPL has won all 3 bids for cross country pipelines and in JV with OMC's is currently building the same. However, concerns remain on the gas availability for these pipelines and are likely to remain underutilized in the initial years of operation.



Key things to watch out for: a) Transmission volumes, b) Clarity on the recent tariff order by PNGRB.



We build gas transmission volumes of 30mmscmd in FY13 and 33mmscmd in FY14. We model average tariff at INR850/mscm in FY13 and INR800/mscm in FY14. The stock trades at 10.5x FY14E EPS of INR7.6. Neutral.

Quarterly Performance

(INR Milllion)

Y/E March Net Sales Change (%) EBITDA % of Net Sales % Change Depreciation Interest Other Income PBT Tax Rate (%) PAT Change (%) EPS (INR) Transmission Vol. (mmscmd) Implied tariff (INR/mscm) E: MOSL Estimates October 2012

FY12 1Q 2,843 12.9 2,619 92.1 10.0 453 324 112 1,954 581 29.7 1,374 31 2.4 36.8 813

2Q 2,808 11.0 2,584 92.0 11.3 440 337 143 1,949 656 33.7 1,293 41 2.3 35.2 835

3Q 2,739 -1.9 2,518 91.9 -3.9 460 325 175 1,907 646 33.9 1,261 -21 2.2 32.8 899

FY13 4Q 2,763 8.3 2,520 91.2 9.7 466 316 165 1,902 610 32.0 1,293 -14 2.3 31.1 956

1Q 2,676 -5.9 2,465 92.1 -5.9 439 317 176 1,884 636 33.7 1,248 -9 2.2 31.1 903

2QE 2,426 -13.6 2,218 91.4 -14.2 475 320 175 1,598 513 32.1 1,085 -16 1.9 30.0 850

3QE 2,387 -12.8 2,181 91.4 -13.4 478 324 175 1,554 499 32.1 1,055 -16 1.9 29.5 850

4QE 2,188 -20.8 1,988 90.9 -21.1 509 336 353 1,495 534 35.7 962 -26 1.7 29.4 797

FY12

FY13E

11,153 7.3 10,241 91.8 6.5 1,819 1,302 593 7,714 2,493 32.3 5,221 3 9.3 34.0 872

9,676 -13.2 8,852 91.5 -13.6 1,902 1,297 878 6,532 2,182 33.4 4,350 -17 7.7 30.0 850

C–136

September 2012 Results Preview Sector: Oil & Gas

HPCL BSE Sensex

S&P CNX

18,763 Bloomberg Equity Shares (m) 52 Week Range (INR) 1,6,12 Rel Perf (%) Mcap (INR b) Mcap (USD b)

5,703 HPCL IN 339.0 385/239 -8/0/-29 104.2 2.0

Buy

CMP: INR307 Year End 03/11A 03/12A 03/13E 03/14E

Sales Adj. PAT Adj. EPS EPS (INR m) (INR m) (INR) Gr. (%) 1,309,342 15,390 45.4 18.3 1,781,392 9,115 26.9 -40.8 1,898,362 8,292 24.5 -8.7 2,007,946 9,295 27.4 11.7

P/E (X) 11.4 12.5 11.2

P/BV (X) 0.8 0.8 0.7

RoE (%) 12.8 7.1 6.2 6.6

RoCE (%) 8.6 6.7 6.2 6.6

EV/ EV/ Sales EBITDA 0.2 9.6 0.1 7.9 0.1 6.4

Standalone 

Similar to prior quarters, profitability of OMCs (BPCL, HPCL, IOC) would depend more on subsidy sharing, which is ad hoc, than on business fundamentals. Government subsidy compensation typically comes with a delay.



OMCs' 2QFY13 results would be benefited by (a) inventory gains as crude price are higher USD14/bbl at the quarter-end, and (b) forex gain as rupee has appreciated by ~4%.



2QFY13 under-recoveries are down 18% QoQ, despite higher crude price and average exchange rate, primarily due to lower LPG prices and diesel price hike effected on 13 September 2012.



For subsidy sharing, we model OMCs' sharing at nil/8%, upstream sharing at 40%/40% and government sharing at 60%/52% in FY13/FY14. We model nil under recovery sharing for 2FY13.



We expect HPCL to report PAT of INR11.4b v/s loss of INR33.6b in 2QFY12 and INR92.5b in 1QFY13.



Key things to watch out for: (a) Subsidy sharing, (b) Forex fluctuations and (c) GRM.



HPCL trades at 12.5x FY13E EPS and 0.8x FY13E BV. We have a Buy rating due to attractive valuations.

Quarterly Performance (Standalone)

(INR Million)

Y/E March Net Sales Change (%) EBITDA % of Net Sales Change (%) Depreciation Interest Other income Exceptional Item PBT Tax Rate (%) PAT Change (%) Adj. EPS Key Assumptions (INR b) Gross under recovery Upstream sharing Oil Bonds/Cash subsidy Net Under recovery Net Sharing (%) E: MOSL Estimates October 2012

FY12

FY13

1Q 407,980 39.6 -26,873 -6.6 66.3 3,886 2,641 2,585 12 -30,803 0 0.0 -30,803 63.5 -90.9

2Q 370,302 31.6 -29,437 -7.9 nm 4,150 3,028 2,971 0 -33,644 0 0.0 -33,644 nm -99.2

3Q 479,174 41.3 35,725 7.5 470.1 4,368 6,982 2,876

95 32 33 31 32

47 16 0 31 67

FY12

27,252 0 0.0 27,252 1,191.6 80.4

4Q 523,936 32.1 54,667 10.4 176.8 4,726 4,326 3,790 -17 49,387 3,077 6.2 46,310 312.5 136.6

1Q 440,765 8.0 -88,759 -20.1 nm 4,544 5,492 6,337 -29 -92,488 0 0.0 -92,488 nm -272.8

2QE 496,111 34.0 16,697 3.4 nm 4,650 4,160 4,925 0 12,812 1,409 11.0 11,403 nm 33.6

3QE 513,057 7.1 52,817 10.3 47.8 4,755 3,520 1,925 0 46,467 5,111 11.0 41,356 51.8 122.0

71 34 66 -28 nm

91 40 85 -34 nm

107 34 0 73 69

86 33 53 0 nm

84 38 83 -36 nm

FY13E 4QE 448,428 1,781,392 1,898,362 -14.4 36.1 6.6 50,319 34,082 31,073 11.2 1.9 2 -8.0 3.0 -215.6 4,995 17,129 18,944 3,040 16,977 16,212 1,291 12,222 14,478 0 -5 -29 43,574 12,193 10,366 -4,448 3,077 2,073 nm 25.2 20.0 48,022 9,115 8,292 3.7 -40.8 -9.0 141.7 26.9 24.5 85 40 82 -36 nm

304 121 183 0 nm

362 144 218 0 nm

C–137

September 2012 Results Preview Sector: Oil & Gas

Indian Oil Corporation BSE Sensex

S&P CNX

18,763 5,703 Bloomberg IOCL IN Equity Shares (m) 2,428.0 52 Week Range (INR) 323/239 1,6,12 Rel Perf (%) -5/-13/-34 Mcap (INR b) 608.3 Mcap (USD b) 11.5

Buy

CMP: INR251 Year Net Sales Adj. PAT Adj. EPS EPS End (INR b) (INR b) (INR) Gr. (%) 03/11A 3,081 78.3 32.3 -26.9 03/12A 4,072 119.3 49.2 52.4 03/13E 4,261 59.4 24.4 -50.3 03/14E 4,425 73.6 30.3 24.0 *Consolidated

P/E (X) 5.1 10.2 8.3

P/BV (X) 1.0 0.9 0.9

RoE (%) 14.2 20.2 9.5 11.0

RoCE (%) 11.2 12.9 9.4 11.1

EV/ EV/ Sales EBITDA 0.3 7.2 0.3 8.0 0.3 6.3



Similar to prior quarters, profitability of OMCs (BPCL, HPCL, IOC) would depend more on subsidy sharing, which is ad hoc, than on business fundamentals. Government subsidy compensation typically comes with a delay.



OMCs' 2QFY13 results would be benefited by (a) inventory gains as crude price are higher USD14/bbl at the quarter-end, and (b) forex gain as rupee has appreciated by ~4%.



2QFY13 under-recoveries are down 18% QoQ, despite higher crude price and average exchange rate, primarily due to lower LPG prices and diesel price hike effected on 13 September 2012.



For subsidy sharing, we model OMCs' sharing at nil/8%, upstream sharing at 40%/40% and government sharing at 60%/52% in FY13/FY14. We model nil under recovery sharing for 2FY13.



We expect IOCL to report PAT of INR41.6b v/s loss of INR75b in 2QFY12 and INR224b in 1QFY13. Reported PAT in FY12 was impacted due to one-time provision of INR77.1b towards entry tax for its Mathura refinery in UP.



Key things to watch out for: (a) Subsidy sharing, (b) Forex fluctuations, and (c) GRM.



IOC trades attractively at 0.9x FY13E book value and 10.2x FY13E EPS. Buy.

Quarterly Performance (Standalone) Y/E March Net Sales Change (%) EBITDA % of Net Sales % Change Depreciation Interest Other Income PBT Tax Rate (%) Adj. PAT Change (%) Extraordinary Items PAT Adj. EPS Key Assumptions (INR b) Gross under recovery Upstream sharing Govt. sharing Net Under recovery As a % of Gross E: MOSL Estimates October 2012

(INR Million) FY12

1Q 1,007,239 40.5 -24,225 -2.4 nm 12,235 10,376 9,649 -37,187 0 nm -37,187 nm -37,187 -15.3 238 79 82 77 32.2

FY13E 2Q 3Q 4Q 1Q 2QE 3QE 4QE 891,456 1,152,084 1,277,355 966,028 1,115,444 1,199,679 1,257,876 4,328,133 4,539,026 16.1 43.4 30.0 -4.1 25.1 4.1 -1.5 32.3 4.9 -53,618 107,247 140,402 -202,360 62,858 149,549 143,184 169,807 153,230 -6.0 9.3 11.0 -20.9 5.6 12.5 11.4 3.9 3.4 nm 293.2 163.7 nm nm 39.4 2.0 45.7 -9.8 12,638 12,839 10,966 12,775 13,500 13,700 14,099 48,678 54,074 14,840 15,652 15,038 18,491 15,930 14,813 14,672 55,905 63,906 6,241 7,810 25,699 9,117 10,795 10,433 7,209 49,398 37,554 -74,855 86,566 140,098 -224,510 44,223 131,469 121,622 114,621 72,805 0 0 -2,003 0 2,653 10,518 1,390 -2,003 14,561 nm nm -1.4 nm 6.0 8.0 1.1 -1.7 20.0 -74,856 86,566 142,101 -224,510 41,570 120,952 120,232 116,624 58,245 nm 429.5 263.9 nm nm 39.7 -15.4 56.6 -50.1 -61,682 -15,396 0 0 0 0 -77,078 0 -74,856 24,884 126,704 -224,510 41,570 120,952 120,232 39,546 58,245 -30.8 35.7 58.5 -92.5 17.1 49.8 49.5 48.0 24.0 118 39 0 78 66.7

FY13

178 83 164 -70 nm

222 98 209 -85 nm

255 80 0 175 68.5

211 80 131 0 0.1

FY12

205 92 201 -87 nm

208 97 198 -88 nm

755 300 455 0 0.0

880 350 530 0 0.0

C–138

September 2012 Results Preview Sector: Oil & Gas

Indraprastha Gas BSE Sensex

18,763

S&P CNX

5,703

Bloomberg IGL IN Equity Shares (m) 140.0 52 Week Range (INR) 439/170 1,6,12 Rel Perf (%) -1/-38/-51 Mcap (INR b) 37.1 Mcap (USD b) 0.7

Under Review

CMP: INR265 Year Net Sales PAT End (INR m) (INR m) 03/11A 17,437 2,594 03/12A 25,151 3,072 03/13E 35,309 3,540 03/14E 43,200 3,916

EPS (INR) 18.5 21.9 25.3 28.0

EPS Gr. (%) 20.4 18.4 15.2 10.6

P/E (X) 12.1 10.5 9.5

P/BV (X) 3.0 2.6 2.2

RoE (%) 28.4 27.5 26.4 24.7

RoCE (%) 35.7 33.2 32.2 29.5

EV/ EV/ Sales EBITDA 1.6 6.4 1.2 5.5 0.9 4.8



We expect IGL to report 2QFY13 volume of 3.72mmscmd and PAT of INR866m (up 12% YoY and 2% QoQ).



We expect 2QFY13 CNG volumes to grow 8% YoY to 2.8mmscmd and PNG volumes to grow 24% YoY to 0.9mmscmd.



Historically, owing to favorable economics vis-à-vis alternative fuels, IGL has been able to pass on any hike in its gas cost thereby insulating any impact on its EBITDA margin. But with absence of KG-D6 gas supply, there is pressure on company's margin as it is sourcing more expensive RLNG to meet demand.



Key things to watch out for: (a) EBITDA margin, (b) Sales volume.



We model in total volumes of 3.9/4.5mmscmd in FY13/FY14. The stock trades at 10.5x FY13E EPS of INR25.3.



Post the High Court quashing PNGRB's tariff cut order on IGL, PNGRB has now approached Supreme Court and the hearing is still on. Given the uncertainty in the likely judgment and impact on the profitability of the company, we keep our rating Under Review.

Quarterly Performance

(INR Million)

Y/E March Net Sales Change (%) EBITDA EBITDA (INR/scm) % of Net Sales % Change Depreciation Interest Other Income PBT Tax Rate (%) PAT PAT (Rs/scm) Change (%) EPS (INR) Gas Volumes (mmscmd) CNG PNG Total E: MOSL Estimates

October 2012

FY12

FY13

FY12

FY13E

1Q 5,364 60.1 1,573 5.6 29.3 47.4 322 90 24 1,185 384 32.4 801 2.8 40.1 5.7

2Q 5,969 34.1 1,574 5.1 26.4 27.9 344 118 21 1,132 360 31.8 772 2.5 16.5 5.5

3Q 6,615 45.5 1,488 4.7 22.5 17.3 368 135 31 1,016 324 31.9 692 2.2 2.9 4.9

4Q 7,203 41.4 1,685 5.3 23.4 24.2 397 136 27 1,179 372 31.5 808 2.5 16.8 5.8

1Q 7,602 41.7 1,793 5.6 23.6 13.9 427 155 36 1,247 396 31.8 850 2.6 6.2 6.1

2QE 8,530 42.9 1,861 5.4 21.8 18.3 445 158 39 1,297 431 33.2 866 2.5 12.2 6.2

3QE 9,178 38.7 1,899 5.2 20.7 27.6 457 159 45 1,327 441 33.2 886 2.4 28.2 6.3

4QE 9,999 38.8 1,977 5.2 19.8 17.3 464 177 51 1,386 449 32.4 937 2.5 16.0 6.7

25,151 44.2 6,320 5.2 25.1 28.4 1,432 479 103 4,512 1,440 31.9 3,072 2.5 18.3 21.9

35,309 40.4 7,529 5.3 21.3 19.1 1,793 650 171 5,257 1,717 32.7 3,540 2.5 15.2 25.3

2.38 0.71 3.10

2.60 0.74 3.34

2.64 0.77 3.41

2.66 0.86 3.52

2.67 0.88 3.55

2.80 0.92 3.72

2.97 0.98 3.94

3.19 1.06 4.25

2.57 0.77 3.34

2.91 0.96 3.87

C–139

September 2012 Results Preview Sector: Oil & Gas

MRPL BSE Sensex

18,763

S&P CNX

5,703

Bloomberg MRPL IN Equity Shares (m) 1,752.6 52 Week Range (INR) 75/50 1,6,12 Rel Perf (%) -12/-7/-17 Mcap (INR b) 106.6 Mcap (USD b) 2.0

Neutral

CMP: INR61 Year Net Sales PAT End (INR m) (INR m) 03/11A 389,567 11,766 03/12A 537,703 9,086 03/13E 659,992 5,026 03/14E 648,920 14,841

EPS (INR) 6.7 5.2 2.9 8.5

EPS Gr. (%) 11.2 -22.8 -44.7 195.3

P/E (X) 11.7 21.2 7.2

P/BV (X) 1.5 1.4 1.2

RoE (%) 19.4 13.2 6.8 18.2

RoCE (%) 23.7 19.2 10.3 16.8

EV/ EV/ Sales EBITDA 0.3 6.2 0.2 7.7 0.2 4.4



We expect MRPL to report 2QFY13 PAT of INR8.4b (v/s INR241m in 2QFY12 and net loss of INR15b in 1QFY13).



EBITDA is expected at INR9.3b (v/s INR754m in 2QFY12 and EBITDA loss of INR13b in 1QFY12). The QoQ turnaround to profit is led by positive GRM helped by crude inventory gains. Regional benchmark Reuters Singapore GRM is up 36% QoQ to USD9.1/bbl from USD6.7/bbl.



On the operational front, we expect refinery throughput at 3.5mmt (up 21% QoQ and 14%YoY), helped by no shutdowns and start of Phase 2 CDU by end-September 2012.



Key things to watch out for: a) GRM, b) Forex fluctuations, c) Inventory changes.



We expect refining margins to remain subdued as the global operating rates (ex US) are likely to remain low led by lower demand (particularly in Europe), commissioning of new refineries and delay in capacity closures (protectionist policies by European governments).



For MRPL, we model inn GRM of USD4/bbl for FY13 and USD7.3/bbl for FY14. The stock trades at FY14E P/E of 7.2x and EV/EBITDA of 4.4x. Maintain Neutral.

Quarterly Performance

(INR Million)

Y/E March Net Sales Change (%) EBITDA % of Net Sales % Change Depreciation Interest Other Income Exceptional items PBT Tax Rate (%) PAT Change (%) EPS (INR) GRM (USD/bbl) Throughput (mmt) E: MOSL Estimates

October 2012

FY12 1Q 133,691 69.9 2,225 1.7 67 -952 -270 1,352 -11 2,366 -639 nm 1,727 506.8 1.0 3.0 3.3

2Q 116,657 39.6 754 0.6 -80 -965 -999 1,522 8 304 -63 -20.6 241 -91.5 0.1 1.7 3.1

3Q 129,308 25.3 3,011 2.3 -45 -1,174 -423 248 47 1,615 -518 -32.0 1,098 -65.0 0.6 3.8 3.0

FY13 4Q 158,384 27.6 7,821 4.9 -8 -1,248 -375 2,697 -22 8,918 -2,897 -32.5 6,021 8.9 3.4 7.1 3.4

1Q 128,099 -4.2 -12,966 nm nm -1,375 -1,102 495 0 -14,948 -257 nm -15,206 nm -8.7 -4.2 2.9

2QE 168,502 44.4 9,306 5.5 1,135 -1,380 -1,110 1,694 0 8,509 -148 -1.7 8,361 3,365.2 4.8 7.5 3.5

3QE 175,883 36.0 8,015 4.6 166 -1,382 -1,113 800 0 6,320 -126 -2.0 6,194 464.3 3.5 6.3 3.8

4QE 187,438 18.3 8,538 4.6 9 -1,382 -633 881 0 7,404 -1,727 -23.3 5,677 -5.7 3.2 6.4 4.0

FY12

FY13E

538,040 38.1 13,811 2.6 -27.2 -4,339 -2,067 5,819 22 13,203 -4,116 -31.2 9,086 -22.9 5.2 3.9 12.8

659,922 22.7 12,893 2.0 -6.7 -5,519 -3,958 3,869 0 7,285 -2,258 -31.0 5,026 -44.7 2.9 4.0 14.2

C–140

September 2012 Results Preview Sector: Oil & Gas

Oil India BSE Sensex

S&P CNX

18,763

Bloomberg OINL IN Equity Shares (m) 601.1 52 Week Range (INR) 552/431 1,6,12 Rel Perf (%) -6/-10/-22 Mcap (INR b) 294.3 Mcap (USD b) 5.6

Buy

CMP: INR490

5,703

Year Net Sales PAT End (INR b) (INR b) 03/11A 83,034 28,872 03/12A 97,741 34,469 03/13E 102,845 35,259 03/14E 113,194 38,867

EPS (INR) 48.0 57.3 58.7 64.7

EPS Gr (%) 10.6 19.4 2.3 10.2

P/E (X) 8.5 8.3 7.6

P/BV (X) 1.7 1.5 1.3

RoE (%) 19.7 20.7 18.7 18.4

RoCE EV (USD)/ EV/ (%) BoE EBITDA 27.3 27.7 7.6 3.9 25.8 6.7 3.7 25.7 6.9 3.3



We expect Oil India to report 2QFY13 PAT of INR9.4b (v/s INR11.4b in 2QFY12 and INR9.3b in 1QFY13). We estimate EBITDA at INR12.7b (down 22% YoY and up 16% QoQ).



We estimate gross realization at USD110.4/bbl v/s USD112.5 in 2QFY12 and USD109.8 in 1QFY13 and net realization at USD55.5/bbl v/s USD86.3 in 2QFY12 and USD53.9 in 1QFY13.



Subsidy sharing assumption: For FY13, we model upstream sharing at 40% (similar to FY12), and Oil India's share at 13.2% of upstream. We model Oil India to share INR21.2b (USD55/bbl) in 2QFY13.



Key things to watch out for: (a) Subsidy sharing, (b) DD&A charges, (c) Oil & Gas production volumes.



Our Brent price assumption is USD110/105/100/90bbl for FY13/14/15/long-term and we model upstream sharing at 40% in FY13/14 and 33% beyond that.



The stock trades at 7.6x FY14E EPS of INR64.7. We remain positive on Oil India due to its strong operational foothold: (1) steady production growth, (2) high share of oil in its reserves (55% in 1P and 62% in 2P), and (3) attractive valuations (>50% discount to its global peers on EV/BOE, 1P basis). Buy.

Quarterly Performance (Standalone)

(INR Billion)

Y/E March Net Sales Change (%) EBITDA % of Net Sales Change (%) D,D&A Interest OI (incl. Oper. other inc) PBT Tax Rate (%) PAT Change (%) % of Net Sales Adj. PAT Key Assumptions (USD/bbl) Exchange rate (INR/USD) Gross Oil Realization Subsidy Net Oil Realization Subsidy (INR b) E: MOSL Estimates October 2012

FY12

FY13

FY12

FY13E

1Q 22.9 50.2 12.5 54.5 67.8 3.6 0.1 3.8 12.6 4.1 32.4 8.5 69.5 37.1 8.5

2Q 32.7 37.8 16.2 49.5 19.9 5.9 0.0 6.8 17.1 5.7 33.5 11.4 24.3 34.8 11.4

3Q 25.0 4.5 13.3 53.5 -3.4 2.9 0.0 4.7 15.1 5.0 33.0 10.1 1.2 40.6 10.1

4Q 17.2 -14.8 4.8 28.0 -50.0 2.8 0.0 4.2 6.2 1.7 28.2 4.4 -20.9 25.9 4.4

1Q 23.3 2.0 11.0 47.0 -12.2 2.0 0.0 4.8 13.8 4.5 32.5 9.3 9.5 39.9 9.3

2QE 25.9 -20.8 12.7 49.0 -21.7 3.9 0.0 5.1 13.8 4.4 32.1 9.4 -17.4 36.3 9.4

3QE 27.1 8.5 13.5 49.9 1.2 4.1 0.0 4.9 14.3 4.7 33.0 9.6 -5.6 35.3 9.6

4QE 26.5 54.4 12.4 46.9 158.0 4.2 0.0 5.5 13.8 4.5 33.0 9.2 107.3 34.7 9.2

97.7 0.0 46.9 47.9 5.5 15.3 0.1 19.5 51.0 16.5 32.4 34.5 15.6 35.3 34.5

102.8 5.2 49.6 48.2 352.4 14.2 0.0 20.3 55.7 18.2 32.6 37.5 303.2 36.5 37.5

44.7 116.3 56.8 59.6 17.8

45.8 112.5 26.2 86.3 8.4

51.0 110.1 53.1 57.0 18.5

50.2 119.7 80.8 38.9 28.7

54.2 109.8 55.9 53.9 20.2

55.5 110.4 54.9 55.5 21.2

54.0 110.2 51.3 58.9 19.7

54.0 111.3 50.1 61.2 19.1

47.9 114.7 54.2 60.4 73.5

54.4 110.4 53.1 57.4 80.1

C–141

September 2012 Results Preview Sector: Oil & Gas

ONGC BSE Sensex

S&P CNX

18,763 Bloomberg Equity Shares (m) 52 Week Range (INR) 1,6,12 Rel Perf (%) Mcap (INR b) Mcap (USD b) 

   

 

Buy

CMP: INR280

5,703 ONGC IN 8,555.5 304/240 -7/-1/-7 2,399.0 45.5

Year Net Sales PAT EPS EPS End (INR b) (INR b) (INR) Gr. (%) 03/11A 1,176 210 24.5 8.1 03/12A 1,464 260 30.4 24.1 03/13E 1,599 255 29.8 -1.9 03/14E 1,696 286 33.4 11.8 *Consolidated, EV/BOE in USD on 1P basis

P/E (X) 9.2 9.4 8.4

P/BV (X) 1.8 1.6 1.4

RoE (%) 19.5 20.7 17.7 17.8

RoCE (%) 18.8 19.4 16.6 16.8

EV/ BoE 6.9 6.6 5.5 5.3

EV/ EBITDA 3.7 3.7 3.1

We expect ONGC to report 2QFY13 PAT of INR64b (v/s INR86.4b in 2QFY12 and INR60.8b in 1QFY13). We estimate EBITDA at INR119b (down 16% YoY and up 8% QoQ). YoY EBITDA decline is primarily due to lower net realization and higher cess rate of INR4,500/MT v/s INR2,500MT in FY12. We estimate gross realization at USD112.7/bbl v/s USD116.8 in 2QFY12 and USD109.9 in 1QFY13, and net realization at USD53.3/bbl v/s USD83.6 in 2QFY12 and USD46.6 in 1QFY13. Subsidy sharing assumption: For FY13, we model upstream sharing at 40% (similar to FY12), and ONGC's share at ~82% of upstream. We expect ONGC to share INR119.2b (USD59.4/bbl) in 2QFY13. Key things to watch out for: (a) Subsidy sharing, (b) DD&A charges, (c) Oil & Gas production volumes. Key medium term earnings triggers include (a) likely production increase in FY14 led by monetization of marginal fields v/s flat production in last several years and (b) likely gas price hike in March-14. Further, likely reserve upsides from its large NELP/nomination acreage would add value over longer term. Our Brent price assumption is USD110/105/100/90bbl for FY13/14/15/long-term and we model upstream sharing at 40% in FY13/14 and 33% beyond that. Despite subsidy burden, RoE is at respectable level of ~18%. Stock trades at P/E of 8.4x FY14 EPs of INR33.4/sh; attractive EV/BOE of 5.3x (1P basis; >40% discount to global peers) and has an implied dividend yield of 3.5%. We value ONGC on SOTP basis at INR320/sh. Buy.

Quaterly performance (Standalone)

(INR Billion)

Y/E March Net Sales Change (%) EBITDA % of Net Sales D,D & A Interest Other Income PBT Tax Rate (%) PAT Adjusted PAT Change (%) Adj. EPS (INR) Key Assumptions (USD/bbl) Fx rate (INR/USD) Gross Oil Realization Subsidy Net Oil Realization Subsidy (INR b) E: MOSL Estimates October 2012

FY12

FY13

FY12

FY13E

1Q 162.0 18.5 92.7 57.2 41.2 0.0 9.3 60.7 19.8 32.5 40.9 40.9 11.8 4.8

2Q 226.2 24.3 141.6 62.6 32.8 0.1 14.4 123.2 36.7 29.8 86.4 86.4 60.4 10.1

3Q 181.2 -2.5 106.6 58.8 45.3 0.0 44.9 106.2 38.7 36.5 67.4 46.4 -20.2 5.4

4Q 188.2 22.2 110.6 58.8 49.1 0.2 15.1 76.4 20.0 26.1 56.5 56.4 119.4 6.6

1Q 200.8 24.0 110.4 55.0 32.0 0.3 11.3 89.4 28.6 32.0 60.8 60.8 48.4 7.1

2QE 217.7 -3.8 119.4 54.9 40.6 0.3 14.4 92.9 28.9 31.1 64.0 64.0 -25.9 7.5

3QE 202.9 11.9 107.1 52.8 49.2 0.2 13.3 70.9 21.7 30.6 49.2 49.2 6.1 5.7

4QE 190.4 1.2 97.6 51.3 50.2 0.2 15.9 63.0 15.8 25.1 47.2 47.2 -16.3 5.5

757.6 15.1 451.4 59.6 168.4 0.3 83.8 366.5 115.2 31.4 251.3 230.2 32.0 26.9

811.8 7.2 434.5 53.5 172.0 1.0 54.9 316.3 95.1 30.1 221.2 221.2 -3.9 25.9

44.7 121.3 73.2 48.1 120.5

45.8 116.8 33.2 83.6 57.1

51.0 111.7 66.8 45.0 125.4

50.2 121.6 77.3 44.3 141.7

54.2 109.9 63.3 46.6 123.5

55.5 112.7 59.4 53.3 119.2

54.0 112.5 65.2 47.3 127.4

54.0 113.6 73.8 39.8 144.1

47.9 117.9 62.6 55.2 444.7

54.4 112.2 65.4 46.8 514.2

C–142

September 2012 Results Preview Sector: Oil & Gas

Petronet LNG BSE Sensex

18,763

S&P CNX

5,703

Bloomberg PLNG IN Equity Shares (m) 750.0 52 Week Range (INR) 180/122 1,6,12 Rel Perf (%) -3/-13/-13 Mcap (INR b) 118.3 Mcap (USD b) 2.2

Buy

CMP: INR158 Year Net Sales PAT Adj. EPS EPS End (INR m) (INR m) (INR) Gr. (%) 03/11A 131,973 6,197 8.3 53.2 03/12A 226,959 10,575 14.1 70.7 03/13E 310,807 9,795 13.1 -7.4 03/14E 362,088 11,253 15.0 14.9

P/E (X) 11.2 12.1 10.5

P/BV (X) 3.4 2.8 2.3

RoE (%) 25.2 34.1 25.1 23.8

RoCE (%) 19.9 26.6 22.4 34.1

EV/ EV/ Sales EBITDA 0.6 7.8 0.5 8.1 0.4 6.1



We expect Petronet to report 2QFY13 PAT of INR2.6b (largely flat YoY and QoQ). We estimate EBITDA at INR4.4b (down 2% YoY and 4% QoQ). Our lower QoQ profit estimate is primarily due to our lower marketing margin assumption.



We have built in LNG volumes at 2.8mmt in 2QFY13, higher than 2.5mmt in 1QFY13 given (1) completion of seasonal fertilizer plant shutdown, and (2) likely uptick in spot volumes due to lower spot LNG prices. We model in 10.7mmtpa volume in FY13 at Dahej, of which 7.5mmtpa would be on long-term contract, 2mmtpa on 2-year contract and the rest on spot/third party basis. We model in Kochi volumes at 0.2mmtpa in 4QFY13.



We model in 5% escalation in re-gasification tariff till FY14 and flat thereafter at Dahej, and Kochi volumes at 0.3/1.1mmt for FY13/14.



Key things to watch out for: (a) Spot volumes, (b) Regasification margin on spot volumes.



With no risk to near term earnings, we believe the next cycle of earnings growth would come post FY13 led by (1) volume ramp-up at Kochi, (2) second jetty at Dahej, and (3) new capacity at Dahej and Gangavaram. We build conservative marketing margin of INR22/15/mmbtu in FY13/14 and nil thereafter.



The stock trades at 10.5x FY14E consolidated EPS of INR15. Lower spot LNG prices and the likely gas price pooling policy for power sector are key near-term positives for the stock. Buy.

Quarterly Performance

(INR Million)

Y/E March Net Sales Change (%) EBITDA % of Net Sales Change (%) Depreciation Interest Other Income PBT Tax Rate (%) PAT Change (%) EPS (INR) Dahej Gas Volume (TBTU) Dahej Gas Volumes (mmt) Kochi Gas Volumes (mmt) Avg. Dahej Regas (INR/mmbtu) E: MOSL Estimates October 2012

FY12

FY13

1Q 46,233 83.0 4,381 9.5 76.9 458 464 263 3,722 1,155 31.0 2,567 130.5 3.4 133.4 2.7

2Q 53,669 75.5 4,483 8.4 65.1 463 458 201 3,763 1,160 30.8 2,603 98.5 3.5 135.1 2.7

3Q 63,303 74.5 5,080 8.0 47.0 463 393 164 4,389 1,435 32.7 2,954 72.8 3.9 144.9 2.9

4Q 63,754 0.6 3,655 5.7 4.0 458 342 796 3,651 1,200 32.9 2,451 18.8 3.3 135.0 2.7

1Q 70,304 0.5 4,571 6.5 4.3 459 329 266 4,048 1,340 33.1 2,708 5.5 3.6 127.2 2.5

2QE 81,708 0.5 4,380 5.4 -2.3 462 365 295 3,848 1,231 32.0 2,616 0.5 3.5 138.4 2.8

3QE 77,291 0.2 4,022 5.2 -20.8 464 382 275 3,451 1,104 32.0 2,347 -20.5 3.1 135.9 2.7

42.2

41.7

45.2

41.7

45.3

40.7

38.2

4QE 81,503 0.2 4,524 5.6 23.8 1,000 839 268 2,953 829 28.1 2,124 -13.4 2.8 137.0 2.7 0.2 40.1

FY12

FY13E

226,959 72.0 17,600 7.8 44.7 1,842 1,657 1,424 15,525 4,950 31.9 10,575 70.7 14.1 548.4 10.9 0.0 42.7

310,807 36.9 17,497 5.6 -0.6 2,386 1,915 1,104 14,299 4,504 31.5 9,795 -7.4 13.1 538.6 10.7 0.2 41.1

C–143

September 2012 Results Preview Sector: Oil & Gas

Reliance Industries BSE Sensex

18,763 Bloomberg Equity Shares (m) 52 Week Range (INR) 1,6,12 Rel Perf (%) Mcap (INR b) Mcap (USD b)

S&P CNX

RIL IN 3,242.5 902/671 -1/6/-9 2,713.0 51.5

Neutral

CMP: INR837

5,703

Year Net Sales PAT EPS End (INR b) (INR b) (INR) 03/11A 2,482 203 62.0 03/12A 3,299 200 61.3 03/13E 3,682 198 61.3 03/14E 3,364 204 63.0 *Adjusted for treasury shares

P/E ADJ. EPS* Adj. P/E Adj. P/B (X) (INR) (X) (X) 68.4 13.7 67.7 12.4 1.5 13.6 67.8 12.3 1.4 13.3 69.7 12.0 1.2

RoE (%) 14.8 13.0 11.7 11.0

RoCE EV/ (%) EBITDA 12.9 12.1 8.1 11.1 9.2 10.7 8.9



We estimate RIL to report strong 2QFY13 GRM at USD9.5/bbl v/s USD6.7/bbl in 1QFY13 helped by higher cracks in auto fuels. However, petchem profits are unlikely to increase due to subdued product spreads.



We expect average 2QFY13 KG-D6 volume of 29mmscmd v/s 33mmscmd in 1QFY13.



We expect RIL to report PAT of INR55.5b (v/s INR57b in 2QFY12 and INR44.7b in 1QFY13).



Key things to watch out for: (a) GRM, (b) Petchem margin, (c) KG-D6 production.



RIL trades at 12x FY14E adjusted EPS of INR69.7. We maintain Neutral due to concerns on cash utilization, RoE reaching sub-15% and increased share (80%) of cyclical refining and petchem businesses in its earnings.

Quarterly Performance (Standalone)

(INR Billion)

Y/E March Net Sales Change (%) EBITDA % of Net Sales Change (%) Depreciation Interest Other Income PBT Tax Rate (%) PAT Change (%) Key Assumptions (USD/bbl) Fx Rate (INR/USD) Brent Price (USD/bbl) RIL GRM Singapore GRM Premium/(disc) to Singapore KG-D6 Gas Prodn (mmscmd) Segmental EBIT Breakup (INR b) Refining Petrochemicals E&P, others Total E: MOSL Estimates; EPS adjusted

October 2012

FY12

FY13

FY12

FY13E

1Q 810.2 39.1 99.3 12.3 6.3 32.0 5.5 10.8 72.6 16.0 22.1 56.6 16.7

2Q 785.7 36.7 98.4 12.5 4.8 29.7 6.6 11.0 73.2 16.1 22.1 57.0 15.8

3Q 851.4 42.4 72.9 8.6 -23.7 25.7 6.9 17.2 57.4 13.0 22.6 44.4 -13.6

4Q 851.8 17.2 65.6 7.7 -33.3 26.6 7.7 23.0 54.3 12.0 22.0 42.4 -21.2

1Q 918.8 13.4 67.5 7.3 -32.0 24.3 7.8 19.0 54.3 9.6 17.7 44.7 -21.0

2QE 937.0 19.3 82.0 8.8 -16.7 24.2 7.7 19.2 69.3 13.8 19.9 55.5 -2.7

3QE 915.8 7.6 74.2 8.1 1.9 24.2 7.6 20.3 62.8 13.1 20.9 49.7 11.9

4QE 927.4 8.9 73.3 7.9 11.7 24.3 7.6 20.6 62.0 13.5 21.8 48.5 14.4

3,299.0 32.9 336.2 10.2 -11.8 113.9 26.7 61.9 257.5 57.1 22.2 200.4 -1.2

3,698.9 12.1 297.1 8.0 -11.6 97.0 30.7 79.1 248.4 50.1 20.2 198.4 250.4

44.7 117 10.3 8.6 1.7 48.6

45.8 113 10.1 9.1 1.0 45.3

51.0 109 6.8 7.9 -1.1 41.0

50.2 119 7.6 7.5 0.1 35.5

54.2 108.7 7.6 6.7 0.9 33.0

55.5 110.2 9.5 9.1 0.4 29.0

54.0 110.0 8.4 8.1 0.3 26.5

54.0 111.1 8.3 8.1 0.3 23.5

47.9 114 8.7 8.3 0.4 42.6

54.4 110 8.5 8.0 0.5 28.0

16.9 21.6 12.9 51.4

17.0 21.7 9.5 48.2

21.5 17.6 9.7 48.8

35.0 17.5 8.7 61.2

26.7 17.6 8.7 53.0

26.3 20.1 7.2 53.6

96.6 89.7 52.7 238.9

109.4 72.8 34.3 216.5

32.0 30.8 22.2 24.2 14.8 15.4 69.0 70.4 for treasury shares

C–144

September 2012 Results Preview Sector: Real Estate

Real Estate Macro impetus and reform thrust positive for the sector

Company Name Anant Raj Industries

Recent favorable macro trends and reform thrust, viz, much-awaited FDI in multibrand retail, policy relaxation in single brand retail, expected interest rate downcycle, etc, are positive for the real estate (RE) sector.  Approval hurdles in worst performing Mumbai market are seemingly easing off with fast-track clearances on the back of new DCR (development control regulations), resulting in visible increase in new launches.  Rational approaches from developers in choosing right product and market mix in their near-term monetization plan have led to better offtake in their recent launches.  While leverage situation is broadly unaltered, improving liquidity outlook and success in divestment transactions have enhanced the expectation of substantial de-leveraging over 2HFY13. 

DLF HDIL Mahindra Lifespaces Oberoi Realty Phoenix Mills Unitech

Despite seasonal weakness, 2QFY13 to see YoY improvement in sales momentum We expect our real estate universe to post a YoY uptick in 2QFY13 sales momentum on the back of (1) spillover launches (which were deferred by delay in approvals) and (2) low base of weak 2QFY12.  Some much awaited launches in Sep-12 (e.g. Phoenix's One Bangalore West and Godrej Summit, Gurgaon) have seen encouraging success even during a weak home buying season.  Phoenix sold ~0.7msf (275+ units @ INR7,000/sf, INR5.3b) in a week's time after launch and Godrej Properties sold ~1msf (695 units @ INR5,800/sf) on the day of launch, despite doing unconventional non-broker marketing. This reaffirms the underlying demand for products offered by branded developers at right prices.  We expect the outperformance to continue in NCR and Southern Markets, but meaningful sign of sales revival in Mumbai market is anticipated in take place only over 2HFY13. 

Expected quarterly performance summary

Anant Raj Inds DLF HDIL Mahindra Lifespace Oberoi Realty Phoenix Mills Unitech Sector Aggregate

CMP (INR) 28.09.12 71 234 98 378 265 196 24

(INR Million)

Rating Sep.12 Buy Buy Neutral Buy Buy Buy Buy

868 21,370 4,192 1,173 2,134 628 4,888 35,252

Sales Var. % YoY -4.9 -15.6 -5.1 25.0 -4.1 32.5 -21.9 -13.1

Var. % QoQ -12.2 -2.8 108.4 12.6 6.7 0.3 19.9 7.7

Sep.12 425 8,762 3,144 293 1,238 396 709 14,966

EBITDA Var. % YoY -16.5 -25.3 -14.6 13.5 7.1 18.7 -48.7 -21.4

Var. % QoQ -15.1 -17.9 8.2 -8.0 8.7 0.4 29.5 -9.2

Net Profit Sep.12 Var. % YoY 299 -13.8 2,331 -37.4 1,084 -27.3 303 -3.4 1,090 -2.2 301 26.2 492 -46.8 5,901 -27.6

Var. % QoQ -15.6 -20.4 2.9 3.5 8.1 -1.5 7.2 -7.8

Sandipan Pal ([email protected]) October 2012

C–145

September 2012 Results Preview Sector: Real Estate

Key expectations For 2QFY13, our RE universe is expected to post revenue de-growth of 13.1% YoY (up +7.7% QoQ), EBITDA decline of 21.4% YoY (down 9.2% QoQ) and PAT decline of 27.6% YoY (down 7.8% QoQ).  We expect operating cash flow to (a) improve for DLF (higher focus on execution), HDIL (FSI and TDR sales), Phoenix (on the back of new launches in residential), and (b) remain stable for Oberoi, Prestige, and Unitech. Despite improving support from operating cash flow, meaningful success in debt reduction is likely to be visible only in 2HFY13. 

Key factors to watch for  

  

Status of planned launches for Mahindra Lifespaces, Oberoi, and DLF's Magnolia launch. Sign of uptick in revenue booking for Prestige (booked higher sales in past quarters), DLF (execution outsourcing), Unitech (refinancing trouble) and customer collection run-rate; Leasing velocity and outlook of management in the commercial vertical. Progress in divestment plan de-leveraging target. New project acquisition by developers with better liquidity (Oberoi, Mahindra Lifespaces).

Expect a restrained business focus to pay off during recovery; return metrics to improve We believe RE developers are now highly controlled and rational in their business approach. Funding constraint has forced them to focus only on select verticals and performing assets, which we believe would be beneficial for medium-term supplydemand economics.  Higher focus on execution by moving to outsourcing model (DLF, IBREL) would bring more certainty to construction and cash flow timelines.  We expect RoE to improve with (a) better asset turn, (b) stable costs, and (c) easing financial leverage. 

Sticking to bottom-up stock picking; prefer DLF, Prestige, Phoenix and Oberoi We continue to prefer companies with (a) strong operating performance, and (b) delta from ebbing concerns - DLF (a play on improving operating and financial leverage), Prestige, Phoenix (steady operations), and Oberoi (still the best defensive bet in inefficient Mumbai market). Coincidentally DLF, Phoenix and Prestige are also the biggest beneficiaries of the likely revival in the retail vertical.  Despite weaker operating performances, high beta stocks like UT, HDIL, IBREL and Anantraj may surprise positively due to bigger scope of macro-driven operational improvement. 

October 2012

C–146

September 2012 Results Preview Sector: Real Estate

Prestige, Sobha, JPIN and DLF have been key outperformers in sales 1QFY11 2QFY11 3QFY11 4QFY11 1QFY12 2QFY12 3QFY12 4QFY12 1QFY13 12.9 12.6 15.0 18.9 11.1 6.3 9.6 25.8 6.0 13.0 10.1 10.4 9.8 10.2 10.7 9.4 7.8 7.0 2.1 0.9 2.3 0.1 1.0 1.6 0.9 0.9 1.6 3.1 31.0 8.7 5.6 3.8 4.9 4.5 6.3 NA 6.4 5.2 7.7 1.5 1.9 7.7 0.6 0.5 0.5 1.8 1.4 3.3 3.5 2.6 2.3 1.8 2.8 2.1 0.8 7.4 3.2 2.5 2.1 7.8 4.7 6.0 10.0 0.9 2.6 2.3 1.2 1.7 0.8 3.0 0.6 0.5 1.4 0.6 3.3 4.6 2.3 2.1 3.5 3.5 5.0 2.7 2.7 2.8 2.7 3.0 4.9 4.5 5.0 4.8 13.9 10.8 6.3 10.0 5.7 5.8 16.4 11.0 6.8 Source: Company/MOSL

DLF

Launch volume improved QoQ, sales volume steady

242

217

234

4QCY10

1QCY11

2QCY11

3QCY11

305

227

3QCY10

2QCY12

250

2QCY10

1QCY12

221

1QCY10

227 4QCY09

248

232 3QCY09

2QCY09

70

2QCY12

69

1QCY12

68

4QCY11

56 3QCY11

58 2QCY11

63

1QCY11

58 4QCY10

66

200

63

317

88

84

70

3QCY10

62

2QCY10

69

Sob ha

Sales value (INR b) jumped 11%QoQ (Top 6 cities)

53

1QCY10

4QCY09

3QCY09

67

UT

285

89

55 38 61

HDIL

Sal e s (ms f) 95

74

PEPL

4QCY11

Launch (ms f)

GPL

14.0

-8

12.5 12.9 14.0

-

14.0

0

4QFY12

12.0 13.0 14.0

400

2QFY12

14.0

8

Sep-05 Feb-06 Jul-06 Dec-06 May-07 Oct-07 Mar-08 Aug-08 Jan-09 Jun-09 Nov-09 Apr-10 Sep-10 Feb-11 Jul-11 Dec-11 May-12

800

4QFY11

13.5

16

12.8

1,200

1QFY11

11.8 12.8

24

13.0 13.0 14.0

Growth (%)

1,600

10.5

Loan (INR b)

Cost of debt stabilized (%)

12.5 13.8 13.7

Bank loan to developers rose to INR1157b as on July-12

9.5 9.9 11.1 11.2

Sales (INR b) DLF Unitech Anantraj IBREL HDIL ORL PEPL MAHLIFE GPL Sobha JPIN

Trend of QoQ price growth (%) shows (a) moderation for Mumbai, b) stagnation for NCR 4QCY10 2QCY12

Chennai

3QCY10 4QCY11

Hyderabad

2QCY10 3QCY11

Pune

1QCY10 2QCY11

Bangalore

Mumbai

20 15 10 5 0 -5 -10

NCR

4QCY09 1QCY11

Source: Liases Foras/Company/MOSL October 2012

C–147

September 2012 Results Preview Sector: Real Estate

Mumbai New launches yet to pick up to desired level (msf)

Sales volume up, value down - implying higher sales in mid-segments

Avg. Quo ted p ri ce s (INR /s f) Avg. s al es pri ces (INR/sf) Inven tory mo nth 50

17

16 16

64 62

11

11 12 9

16 12

99 93 71

85

80 79

67 57 50

72

Thousands

21

27

S al es vol ume (ms f) S al es val ue (INR b)

53

8

12

Quoted prices refuse to fall

40

8

30

6 4

20

2

10 2QCY09 3QCY09 4QCY09 1QCY10 2QCY10 3QCY10 4QCY10 1QCY11 2QCY11 3QCY11 4QCY11 1QCY12 2QCY12

2QCY09 3QCY09 4QCY09 1QCY10 2QCY10 3QCY10 4QCY10 1QCY11 2QCY11 3QCY11 4QCY11 1QCY12 2QCY12

2QCY09 3QCY09 4QCY09 1QCY10 2QCY10 3QCY10 4QCY10 1QCY11 2QCY11 3QCY11 4QCY11 1QCY12 2QCY12

20 18 13 12 13 12 11 9 8 9 8 9 10

12 10

NCR

17

18

70

9

35 0 2QCY09 3QCY09 4QCY09 1QCY10 2QCY10 3QCY10 4QCY10 1QCY11 2QCY11 3QCY11 4QCY11 1QCY12 2QCY12

34 32 19

105

4

50

4

40

3

30

3

20

2

10 2QCY09 3QCY09 4QCY09 1QCY10 2QCY10 3QCY10 4QCY10 1QCY11 2QCY11 3QCY11 4QCY11 1QCY12

50 48 30

49 26 19 11 11

140

27

0

Avg Quoted pri ces (INR/sf) Avg. sa l es pri ce s (INR /s f) Invento ry month (RHS ) Thousands

S al es vo l ume (ms f) Sal es va l ue (INR b)

36

2QCY09 3QCY09 4QCY09 1QCY10 2QCY10 3QCY10 4QCY10 1QCY11 2QCY11 3QCY11 4QCY11 1QCY12 2QCY12

Pricings firm, inventory level declining (still very high at Noida)

Sales performance down QoQ

59

Launch volume down, absence of any big project (msf)

Bangalore Sales momentum showing spiraling trend Pricing strengthened, inventory down

31

Launch volume down QoQ (msf)

Sal es vol ume (msf) Sal es val ue (INR b)

Inven tory as k pri ces (INR/s f) S ol d p ri ce s (INR/s f) Inven tory mon th

67

4

30

35 36 23

5

33 23

35

39

8 3 8 4 8 8 11 10 7 9 7 9 14 11 16

Thousands

11

11

23 12

8

7

27

1

1

4

5

6

10

11

54

4 3 2

68 34 3030

23 18 20 22 22 16

30 181712

1QCY09 2QCY09 3QCY09 4QCY09 1QCY10 2QCY10 3QCY10 4QCY10 1QCY11 2QCY11 3QCY11 4QCY11 1QCY12 2QCY12

1QCY09 2QCY09 3QCY09 4QCY09 1QCY10 2QCY10 3QCY10 4QCY10 1QCY11 2QCY11 3QCY11 4QCY11 1QCY12 2QCY12

2QCY09 3QCY09 4QCY09 1QCY10 2QCY10 3QCY10 4QCY10 1QCY11 2QCY11 3QCY11 4QCY11 1QCY12 2QCY12

1

Source: Liases Foras/Company/MOSL

October 2012

C–148

September 2012 Results Preview Sector: Real Estate

Overall commercial absorption deteriorates; Bangalore remain best placed in vacancy 2Q2011 2.0 3.4 1.7 2.2 2.6 1.8 0.4 14.1 2.0 2.1 3.3 1.1 1.0 1.3 0.3 11.0 32 23 18 26 28 10 28 24

3Q2011 1.6 2.4 1.6 0.8 0.6 7.0 1.0 1.0 2.4 0.6 0.4 0.6 1.4 7.4 32 24 18 27 28 10 21 24

4Q2011 2.0 1.0 0.8 0.6 0.3 4.7 1.6 1.2 3.0 1.2 0.5 0.4 0.5 8.4 31 23 16 25 26 11 19 22

Relative Performance-1Yr (%)

95

75

85

60 Sep-12

Sep-11

90

Aug-12

105

Jul-12

105

Sep-12

120

115

Jun-12

Se ns ex Inde x MOSL Re al Es tate Index

Jun-12

Sens e x Index MOSL Rea l Es tate Inde x

125

2Q2012 0.7 0.5 0.7 0.6 0.2 0.3 0.2 3.1 1.7 0.4 1.8 0.7 0.3 0.5 0.5 5.9 30 23 14 24 25 10 15 22 Source: DTZ/MOSL

Mar-12

Relative Performance-3m (%)

1Q2012 1.0 2.7 1.7 0.3 0.3 6.0 0.9 1.1 3.6 0.7 0.5 0.5 0.2 7.5 31 23 15 24 26 10 18 22

Dec-11

Supply (msf) NCR Mumbai Bangalore Chennai Pune Hyderabad Kolkata India Absorption (msf) NCR Mumbai Bangalore Chennai Pune Hyderabad Kolkata India Vacancy (%) NCR Mumbai Bangalore Chennai Pune Hyderabad Kolkata India

Comparative valuation CMP (INR) 28.09.12 Real Estate Anant Raj Inds 71 DLF 234 Godrej Properties 599 HDIL 98 Indiabulls Real Estate58 Jaypee Infratech 52 Mahindra Lifespace 378 Oberoi Realty 265 Phoenix Mills 196 Prestige Estates 136 Unitech 24 Sector Aggregate

October 2012

Rating

EPS (INR) FY12 FY13E FY14E

P/E (x) FY12 FY13E FY14E

EV/EBITDA (x) FY12 FY13E FY14E

RoE (%) FY12 FY13E FY14E

Buy Buy Neutral Neutral Buy Buy Buy Buy Buy Buy Buy

3.8 7.1 12.6 19.3 3.5 9.3 29.2 14.1 7.3 2.5 0.9

18.6 33.0 47.7 5.1 16.5 5.6 12.9 18.8 26.9 53.9 26.8 18.0

17.9 16.3 39.5 5.3 11.5 8.3 10.8 15.3 20.9 20.7 34.3 14.0

3.1 4.5 8.3 7.9 2.2 24.5 10.3 13.1 6.2 4.1 2.0 6.1

5.0 9.0 16.0 12.9 4.2 6.7 32.5 15.8 7.8 5.5 0.8

6.6 10.7 19.6 17.8 6.1 7.2 34.0 24.7 16.0 8.2 1.3

14.3 26.1 37.4 7.6 13.7 7.7 11.6 16.8 25.2 24.5 30.2 18.3

10.8 21.8 30.6 5.5 9.5 7.2 11.1 10.7 12.3 16.5 18.8 14.0

13.6 17.1 32.3 5.3 9.8 7.8 9.7 11.9 17.3 12.8 37.8 13.4

9.7 13.4 24.4 3.8 7.8 6.2 9.1 6.9 10.2 9.8 23.0 10.0

3.8 5.5 8.4 5.1 2.6 15.2 10.5 13.1 6.3 8.4 1.7 5.8

4.8 6.3 9.5 6.6 3.6 14.3 10.0 17.9 11.7 11.0 2.7 7.0 C–149

September 2012 Results Preview Sector: Real Estate

Anant Raj Industries BSE Sensex

18,763 Bloomberg Equity Shares (m) 52 Week Range (INR) 1,6,12 Rel Perf (%) Mcap (INR b) Mcap (USD b)

S&P CNX

5,703 ARCP IN 294.6 80/35 47/17/9 21.0 0.4

CMP: INR71 Year End 3/11A 3/12A 3/13E 3/14E

Buy

Net Sales PAT EPS (INR m) (INR m) (INR) 4,241 1,681 5.7 3,115 1,135 3.8 4,326 1,473 5.0 5,667 1,948 6.6

EPS Gr. (%) -29.5 -32.5 29.7 32.3

P/E (X) 18.6 14.3 10.8

P/BV (X) 0.5 0.5 0.5

RoE (%) 4.6 3.1 3.8 4.8

RoCE (%) 5.9 3.7 4.4 5.9

EV/ EV/ Sales EBITDA 9.8 18.0 6.7 13.6 4.9 9.7

Delay in Gold Course Road project revenue recognition: We expect revenue to de-grow 5% YoY to INR868m, EBITDA to de-grow 17% YoY to INR425m and PAT to de-grow 14% YoY to INR299m. We estimate EBITDA margin of 49%. The de-growth is attributable to delay in revenue recognition from plotted project at Golf Course Road, which is yet to reach 25% development expenditure hurdle (development expenditure comprises infrastructure development like road network, water supply etc - almost INR7.5m/acre)  Sales run-rate lowered QoQ, collections up in Golf Course Road project: During 2QFY13, the company sold additional 100 at Neemrana (v/s 462units in 1QFY13) and 20 units in Sector-91 (v/s 27 units in 1QFY13). Selling prices at Sector-91 is up to INR4,800/sf (from INR,4200/sf in 1Q), while at Golf Course Road project, the company is selling at INR90,000/sq yard as against initial launch price of INR75,000/sq yard. Of the total sales of INR4.5b in the Golf Course Road project, the company has collected ~INR1.25b to date.  Rental income to improve with higher contribution from mall: Expect rental run-rate (ex Tricolor Hotel) to improve to INR273m (v/s INR255m in 1QFY13) on account of higher contribution from Kirti Nagar mall. While the mall is already 80% occupied, it is operating at effective rental of INR70/sf/m, almost 30% below minimum guarantee rental of INR100/sf/m.  Anant Raj trades at 34% discount to our one-year forward NAV of INR108/share, 10.8x FY14E EPS of INR6.6 and 0.5x FY14E BV. Maintain Buy. 

Quarterly Performance

(INR Million)

Y/E March Total Sales Change (%) EBITDA Change (%) As of % Sales Depreciation Interest Other Income PBT Tax Effective Tax Rate (%) Reported PAT Change (%) E MOSL Estimates

October 2012

FY12 1Q 838 -19.0 493 -13.3 59 27 45 45 466 115 24.7 351 -23.5

2Q 913 -31.3 509 -18.8 56 30 57 76 498 135 27.2 347 -27.7

3Q 922 -25.9 490 -36.5 53 36 69 51 437 97 22.2 315 -37.4

FY13 4Q 449 -29.1 199 -56.2 44 17 36 25 174 48 27.8 122 -60.1

1Q 989 18.0 501 1.5 51 32 37 44 475 110 23.3 355 1.2

2QE 868 -4.9 425 -16.5 49 35 51 55 394 95 24.0 299 -13.8

3QE 1,180 28.1 578 18.0 49 37 58 51 535 134 25.0 401 27.3

4QE 1,244 176.7 630 216.3 51 43 76 62 573 156 27.1 418 242.1

FY12

FY13E

3,115 -26.5 1,699 -27.9 55 110 206 195 1,578 396 25.1 1,135 -32.4

4,326 38.8 2,134 25.6 49 147 223 213 1,977 494 25.0 1,473 29.7

C–150

September 2012 Results Preview Sector: Real Estate

DLF BSE Sensex

18,763 Bloomberg Equity Shares (m) 52 Week Range (INR) 1,6,12 Rel Perf (%) Mcap (INR b) Mcap (USD b)

S&P CNX

CMP: INR234

5,703 DLFU IN 1,714.4 261/170 10/9/-10 400.8 7.6

Year End 3/11A 3/12A 3/13E 3/14E

Buy

Net Sales PAT EPS (INR m) (INR m) (INR) 95,606 16,396 9.7 96,294 12,008 7.1 85,482 15,191 9.0 103,723 18,243 10.7

EPS Gr. (%) -5.2 -26.8 26.5 20.1

P/E (X) 33.0 26.1 21.8

P/BV (X) 1.5 1.5 1.4

RoE (%) 5.8 4.5 5.5 6.3

RoCE (%) 7.1 7.4 8.4 8.6

EV/ EV/ Sales EBITDA 6.5 16.0 7.0 16.8 5.6 13.2



EBITDA, PAT to de-grow YoY: We expect DLF's 2QFY13 revenue at INR21.4b (near-flat QoQ), EBITDA to de-grow 25% YoY to INR8.8b, and PAT to de-grow 37% to INR2.3b owing to higher interest expense.



Leverage level to remain broadly unaltered: During 2QFY13, DLF concluded divestment of NTC Mills and received initial tranche of INR5b. However, we expect leverage level to remain largely unaltered due to prevailing operating deficit. Receipt of balance INR22b by 3QFY13 would be a key debt reduction trigger to watch out for.



Focus on luxury launches: In 2QFY13, DLF launched Bella Greens, a luxury-end villa project at Bannerghatta Road, Bengaluru (ticket size INR28.4-45.6m), re-affirming its strong focus on premium projects in FY13. We expect successful launch of super luxury Magnolia II in 3QFY13 to hold the key to improve its operating deficit.



Key things to watch out for: 1. Progress in major divestments (Aman Resort, windmills), and receipt of balance amount in NTC Mills sale followed by debt-reduction. 2. Successful launch of Magnolia II. 3. Pick-up in cash conversion post shift to third-party contractors and 4. Leasing momentum in the backdrop of FY13 guidance of 2msf.



DLF trades at 21.8x FY14E EPS of INR10.7, 1.4x FY14E BV and 18% discount to our NAV estimate of INR286. Maintain Buy.

Quarterly Performance

(INR Million)

Y/E March Sales Change (%) Total Expenditure EBITDA Change (%) As % of Sales Depreciation Interest Other Income PBT Tax Effective Tax Rate (%) Reported PAT Change (%) E: MOSL Estimates

October 2012

FY12 1Q 24,458 20.6 13,349 11,110 13.4 45.4 1,702 4,964 574 5,018 1,278 25 3,584 (12.8)

2Q 25,324 6.9 13,594 11,730 26.3 46.3 1,753 5,263 448 5,161 1,475 29 3,724 (11.0)

3Q 20,344 (18.0) 12,116 8,227 -30.2 40.4 1,797 6,199 3,617 3,848 1,353 35 2,584 (44.5)

FY13 4Q 26,168 -2.5 18,192 7,976 19.7 30.5 1,636 6,039 1,307 1,448 -413 -28.5 2,117 (38.6)

1Q 21,977 -10.1 11,307 10,670 -4.0 48.6 1,786 6,226 1,311 3,970 1,137 29 2,928 (18.3)

2QE 21,370 (15.6) 12,609 8,762 -25.3 41.0 1,751 6,321 2,249 2,940 705 24 2,331 (37.4)

3QE 20,516 0.8 12,309 8,206 -0.3 40.0 1,860 5,896 9,747 10,197 2,651 26 7,642 195.8

4QE 21,619 -17.4 13,368 8,251 3.4 38.2 1,898 5,142 1,688 2,898 707 24 2,289 26.4

FY12

FY13E

96,294 0.7 57,251 39,043 4.0 40.5 6,888 22,465 5,945 15,635 3,694 23.6 12,008 (26.8)

85,482 -11.2 49,592 35,889 -8.1 42.0 7,295 23,585 14,996 20,005 5,201 26.0 15,191 26.5

C–151

September 2012 Results Preview Sector: Real Estate

HDIL BSE Sensex

18,763 Bloomberg Equity Shares (m) 52 Week Range (INR) 1,6,12 Rel Perf (%) Mcap (INR b) Mcap (USD b)

S&P CNX

5,703 HDIL IN 419.0 135/52 28/9/-16 40.9 0.8

CMP: INR98 Year End 3/11A 3/12A 3/13E 3/14E

Neutral

Net Sales PAT EPS (INR m) (INR m) (INR) 18,655 8,218 19.8 20,064 8,098 19.3 19,054 5,394 12.9 24,259 7,461 17.8

EPS Gr. (%) 25.5 -2.5 -33.4 38.3

P/E (X) 5.1 7.6 5.5

P/BV (X) 0.4 0.4 0.4

RoE (%) 9.0 7.9 5.1 6.6

RoCE (%) 10.7 10.0 8.9 10.9

EV/ EV/ Sales EBITDA 3.9 5.3 3.9 5.3 2.8 3.8



We expect HDIL's 2QFY13 consolidated revenue at INR4.2b (down 5%YoY), EBITDA at INR3.1b, and PAT at INR1.1b (down 27%).



The key revenue contributors are likely to be (1) 1.5-2msf/quarter of FSI sales in Virar/Vasai, (2) TDR sales from newly generated 2msf at Kurla Premiere (owing to change in usage), and (3) other potential FSI sales like one advance staged deal for 1.2msf of Metropolis commercial.



With deferment completion target of its three residential projects (Premiere, Galaxy and Metropolis) to 3/ 4QFY13, no revenue is going to get recognized under project completion method (PCM) in 1HFY12.



We expect cash flow from FSI sales (has been weak till date) to improve on the back of early sign of easing off of approval hurdles. This should also boost construction pace and customer collection run-rate.



Key things to watch out for: 1. Response to its recently launched plotted project Imperial County, Noida, and Premiere Kurla 2. Progress on new launches in Virar, Ghatkopar and Shahad 3. Clarity over other FSI sales under negotiation 4. Progress in de-leveraging 5. Progress in MIAL relocation and status of subsequent phases



The stock trades at 5.5x FY14E and 0.4x FY14E BV and 29% discount to NAV of INR138. Maintain Neutral.

Consolidated Quarterly Performance Y/E March 1Q 2Q Sales 5,144 4,416 Change (%) 13.0 15.7 Total Expenditure 920 733 EBITDA 4,223 3,683 Change (%) 45.6 41.6 As % of Sales 82.1 83.4 Depreciation 213 214 Interest 1,437 1,527 Other Income 60 73 PBT 2,633 2,014 Tax 739 524 Effective Tax Rate (%) 28.1 26.0 Reported PAT 1,894 1,491 Change (%) -12.5 -24.2 E: MOSL Estimates; Numbers as per Schedule 6

October 2012

(INR Million) FY12 3Q 4,254 -8.2 1,229 3,024 9.0 71.1 216 1,603 133 1,338 -220 -16.4 1,558 -31.6

FY13 4Q 6,251 13.1 2,122 4,129 -6.5 66.0 215 1,682 247 2,401 -752 -31.3 3,156 70.4

1Q 2,012 -60.9 -893 2,904 -21.1 144.4 210 1,541 94 1,248 195 15.6 1,054 -29.3

2QE 4,192 -5.1 1,048 3,144 -14.6 75.0 225 1,806 133 1,246 162 13.0 1,084 -27.3

3QE 5,145 21.0 1,286 3,858 27.6 75.0 225 1,878 133 1,889 246 13.0 1,643 5.5

4QE 7,706 23.3 3,662 4,044 -2.1 52.5 234 1,998 172 1,977 288 14.6 1,613 -48.9

FY12

FY13E

20,064 7.6 5,005 15,059 -9.4 75.1 858 6,249 513 8,464 290 3.4 8,098 -1.5

19,054 -5.0 5,104 13,951 -7.4 73.2 901 7,222 533 6,360 890 14.0 5,394 -33.4

C–152

September 2012 Results Preview Sector: Real Estate

Mahindra Lifespaces BSE Sensex

S&P CNX

18,763 5,703 Bloomberg MLIFE IN Equity Shares (m) 40.8 52 Week Range (INR) 390/235 1,6,12 Rel Perf (%) 3/10/15 Mcap (INR b) 15.4 Mcap (USD b) 0.3

CMP: INR378 Year End 3/11A 3/12A 3/13E 3/14E

Net Sales PAT EPS (INR m) (INR m) (INR) 6,119 1,082 26.5 7,013 1,191 29.2 7,760 1,325 32.5 8,086 1,389 34.0

Buy EPS Gr. (%) 37.7 10.1 11.3 4.8

P/E (X) 12.9 11.6 11.1

P/BV (X) 1.3 1.2 1.1

RoE (%) 10.2 10.3 10.5 10.0

RoCE (%) 10.8 10.9 11.1 11.3

EV/ EV/ Sales EBITDA 2.9 10.8 2.7 9.7 2.4 9.1



We expect Mahindra Lifespaces' 2QFY13 standalone revenue to grow 25% YoY to INR1,173m, EBITDA to de-grow 9.2% YoY to INR293m and PAT to de-grow 3.4% YoY to INR303m.



We expect EBITDA margin at 25%, lower than 31% in 1QFY13 given higher proportion revenue contribution from non-Mumbai projects.



Key things to watch out for 1. Progress in stated launches at Hyderabad and Pune (yet to take off) 2. Leasing progress in Jaipur DTA 3. Progress of land acquisition in North Chennai SEZ.



The stock trades at a ~19% discount to our one-year forward SOTP value of INR469/share, 11.1x FY14E EPS of INR4.8 and 1.1x FY14E BV. Buy.

Quarterly Performance: Standalone Y/E March

FY12 FY13 1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE Sales 815 938 1,538 1,400 1,041 1,173 1,407 1,069 Change (%) 19.9 5.4 -1.3 -14.6 27.8 25.0 -8.5 -23.6 Total Expenditure 642 679 1,076 1,082 723 879 1,055 814 EBITDA 172 258 462 318 319 293 352 255 As % of Sales 21.2 27.5 30.0 22.7 30.6 25.0 25.0 23.9 Change (%) -11.5 5.0 9.3 -7.7 44.6 -9.2 -16.7 5.0 Depreciation 7 7 7 7 4 7 7 10 Interest 2 5 2 20 14 24 24 34 Other Income 91 182 87 162 134 154 154 173 PBT 255 428 539 453 434 416 474 385 Tax 84 114 144 132 141 112 123 102 Effective Tax Rate (%) 32.9 26.6 31.0 29.1 32.5 27.0 26.0 26.5 Reported PAT 171 314 395 321 293 303 351 283 Change (%) 18.0 27.4 18.1 5.3 71.5 -3.4 -11.1 -11.9 E: MOSL Estimates; *Revenue outside Standalone is largely contributed by Mahindra World City (MWC) Chennai

October 2012

(INR Million) FY12

FY13E

4,690 4,690 -1.6 0.0 3,479 3,471 1,210 1,219 25.8 26.0 -1.4 0.7 27 29 30 95 522 614 1,676 1,709 474 479 28.3 28.0 1,202 1,231 16.6 2.4 and Jaipur

C–153

September 2012 Results Preview Sector: Real Estate

Oberoi Realty BSE Sensex

18,763 Bloomberg Equity Shares (m) 52 Week Range (INR) 1,6,12 Rel Perf (%) Mcap (INR b) Mcap (USD b)

S&P CNX

5,703 OBER IN 328.2 323/205 9/-6/5 87.0 1.7

CMP: INR265 Year End 3/11A 3/12A 3/13E 3/14E

Buy

Net Sales PAT EPS (INR m) (INR m) (INR) 9,960 5,172 15.8 8,247 4,629 14.1 10,669 5,178 15.8 17,178 8,109 24.7

EPS Gr. (%) 12.9 -10.5 11.9 56.6

P/E (X) 18.8 16.8 10.7

P/BV (X) 2.3 2.1 1.8

RoE (%) 19.9 13.1 13.1 17.9

RoCE (%) 23.6 17.1 17.9 24.8

EV/ EV/ Sales EBITDA 9.0 15.3 6.8 11.9 4.1 6.9



We expect Oberoi Realty's 2QFY13 revenue to de-grow 4.1% YoY to INR2.1b, EBITDA to grow 7% YoY to INR1.2b and PAT to de-grow ~2% to INR1.1b. We estimate EBITDA margin of 58%. Esquire is likely to cross revenue recognition threshold by 4QFY13.



We expect 2QFY13 sales to remain largely flat QoQ. Post increase in the prices across its ongoing projects, the offtake run-rate has declined to 2 apartments every 3 days from 1 per day.



Mulund project is yet to receive MoEF approvals and will be delayed further. On the other hand, we believe Worli project is witnessing decent response during soft launch.



Key things to watch out for 1. Sales momentum in Esquire (Goregaon) and Grande (Andheri) 2. Visibility on new project acquisition 3. Leasing visibility in commercial projects.



The stock trades at 10.7x FY14E EPS of INR24.7, 1.8x FY14E BV and ~21% discount to one-year forward NAV of INR337. Maintain Buy.

Consolidated Quarterly Performance

(INR Million)

Y/E March Total Revenue Change (%) Total Expenditure EBITDA Change (%) As of % Sales Depreciation Interest Other Income PBT Tax Effective Tax Rate (%) Reported PAT Change (%) E: MOSL Estimates

October 2012

FY12 1Q 1,609 0.5 706 903 6.6 56 65 1 542 1,374 316 20.0 1,058 32.5

2Q 2,226 30.9 1,071 1,156 14.8 51.9 66 0 343 1,432 317 22.2 1,114 16.7

3Q 1,873 -53.0 739 1,134 -54.1 60.5 68 1 310 1,375 354 25.8 1,021 -50.3

FY13 4Q 2,548 -4.5 906 1,642 13.3 64.5 70 1 307 1,879 443 23.6 1,436 5.1

1Q 1,999 24.2 860 1,139 26.1 57 70 1 309 1,376 368 26.8 1,008 -4.7

2QE 2,134 -4.1 896 1,238 7.1 58.0 77 0 333 1,493 403 27.0 1,090 -2.2

3QE 2,347 25.3 962 1,385 22.1 59 77 0 333 1,640 443 27.0 1,197 17.3

4QE 4,189 64.4 1,877 2,312 40.8 55 85 0 356 2,585 701 27.1 1,883 31.2

FY12

FY13E

8,247 -17.2 3,412 4,835 -16.2 58.6 269 3 1,501 6,059 1,430 23.6 4,629 -10.5

10,669 29.4 4,596 6,073 25.6 56.9 310 0 1,330 7,090 1,915 27.0 5,174 11.9

C–154

September 2012 Results Preview Sector: Real Estate

Phoenix Mills BSE Sensex

S&P CNX

18,763 5,703 Bloomberg PHNX IN Equity Shares (m) 144.8 52 Week Range (INR) 222/149 1,6,12 Rel Perf (%) 19/-15/-21 Mcap (INR b) 28.4 Mcap (USD b) 0.5

CMP: INR196 Year End 3/11A 3/12A 3/13E 3/14E

Buy

Net Sales PAT EPS (INR m) (INR m) (INR) 2,102 842 5.8 3,666 1,056 7.3 4,315 1,128 7.8 8,690 2,316 16.0

EPS Gr. (%) 36.5 25.5 6.7 105.4

P/E (X) 26.9 25.2 12.3

P/BV (X) 1.7 1.6 1.4

RoE (%) 5.0 6.2 6.3 11.7

RoCE (%) 5.2 6.1 6.1 10.4

EV/ EV/ Sales EBITDA 12.1 20.9 10.0 17.3 4.8 10.2



In 1QFY13, PHNX changed its accounting practice by including electricity charges recovered from licensees in revenue (on gross basis), which were earlier netted off against expense. With this, results for FY13 will not be comparable YoY.



We expect High Street Phoenix's (HSP) 2QFY13 rental at INR628m (v/s INR626m in 1QFY13), EBITDA at INR396m (v/s INR394m in 1QFY13), and PAT of INR301m, up 26%. The growth in rental is attributable to revenue sharing.



Among Market City retails, we expect further increase in pre-leasing in Bengaluru and Chennai, while in Pune, we expect incremental pre-leasing to remain muted due to new product proposition under evaluation.



Recent residential launch at Bangalore One has been encouraging with sales of 0.7msf+ (INR5.3b). Steady sales at Chennai project led to prices rising to INR10,000/sf.



Key things to watch out for: 1. Momentum in commercial and residential sales in Market City projects 2. Progress on ramp-up in recently commenced malls 3. Visibility over stake increase in Market City projects or new acquisitions.



The stock trades at a PER of 12.3x FY14E EPS of INR16, 1.4x FY14E BV and a 25% discount to its one-year forward NAV of INR262. Maintain Buy.

Quarterly Performance (Standalone)

(INR Million)

Y/E March Sales Change (%) Total Expenditure EBITDA Change (%) As % of Sales Depreciation Interest Other Income PBT Tax Effective Tax Rate (%) Adj. PAT Change (%) E: MOSL Estimates

October 2012

FY12 1Q 535 32.4 205 331 12.6 62 67 10 110 363 91 25 272 49.1

2Q 474 6.9 141 333 5.1 70 69 31 89 323 84 26 239 8.0

FY13 3Q 505 12.0 132 373 14.0 74 74 57 113 355 86 24 269 13.1

4Q 600 28.3 237 363 13.2 61 73 68 146 368 95 26 273 0.6

1Q 626 17.0 232 394 19.3 63 67 58 143 413 107 26 306 12.4

2QE 628 32.5 232 396 18.7 63 67 64 137 402 100 25 301 26.2

3QE 638 26.4 223 415 11.1 65 67 78 143 412 103 25 309 15.0

4QE 630 5.0 221 410 12.7 65 67 90 147 401 97 24 304 11.3

FY12 Cons. 3,666 74.4 1,552 2,114 50.4 57.7 563 944 446 1,053 189 18.0 1,056 25.5

FY13E Cons. 4,315 17.7 1,804 2,511 18.8 58.2 884 1,097 646 1,175 282 24.0 1,128 6.7

C–155

September 2012 Results Preview Sector: Real Estate

Unitech BSE Sensex

S&P CNX

18,763 5,703 Bloomberg UT IN Equity Shares (m) 2,438.8 52 Week Range (INR) 38/17 1,6,12 Rel Perf (%) 20/-22/-24 Mcap (INR b) 59.3 Mcap (USD b) 1.1

CMP: INR24

Buy

Year Net Sales PAT EPS End (INR m) (INR m) (INR) 3/11A 33,960 5,677 2.2 3/12A 24,219 2,373 0.9 3/13E 22,217 2,106 0.8 3/14E 28,746 3,470 1.3

EPS Gr. (%) -21.6 -58.2 -11.3 60.6

P/E (X) 26.8 30.2 18.8

P/BV (X) 0.6 0.6 0.6

RoE (%) 4.9 2.0 1.7 2.7

RoCE (%) 5.6 2.8 2.1 3.2

EV/ EV/ Sales EBITDA 4.8 35.6 5.2 39.3 4.0 23.9



Expect margins to improve: We expect 2QFY13 revenue to de-grow 22% YoY to INR4.9b, EBITDA to de-grow 49% to INR709m and PAT to de-grow 47% YoY to INR492m. EBITDA margin is estimated at 14.5%, which should see steady improvement with MTM loss provisioning taken out of P&L.



New launches subdued: Focus on new launches has been low (as guided by the management earlier) to prioritize execution of ongoing projects. We expect sales to deteriorate YoY, except in Noida where run-rate should remain steady. The company launched Exquisite in Noida during 2QFY13.



Execution run-rate contingent on liquidity improvement: Successful re-financing is the key to boost Unitech's execution. We remain concerned about Unitech's FY13 repayment obligation of INR15b+.



Key things to watch out for 1. Sales momentum on the back of lower new launches (estimate INR37b in FY13) 2. Progress in construction and delivery (the company aims at INR4-4.5b/qtr run-rate v/s INR3b currently), along with improvement in debtor days. 3. Strategy to address impending repayment of INR15b+ loan in FY13.



Unitech trades at 40% discount to its one-year forward NAV estimate of INR40 and 18.8x FY14E EPS of INR1.3 and 0.6x FY14E BV. Maintain Buy.

Quarterly Performance

(INR Million)

Y/E March Sales Change (%) Total Expenditure EBITDA Change (%) As of % Sales Depreciation Interest Other Income PBT Tax Effective Tax Rate (%) Reported PAT Change (%) E: MOSL Estimates

October 2012

FY12 1Q 6,155 -25.7 4,957 1,198 -59.2 19.5 84 337 714 1,490 468 31.4 984 -45.4

2Q 6,261 -2.9 4,880 1,381 -45.4 22.1 85 338 403 1,362 424 31.1 924 -46.8

3Q 5,086 -22.9 4,057 1,029 -50.7 20.2 93 279 387 1,044 469 44.9 552 -50.4

FY13 4Q 6,717 -46.8 6,772 -54 -102.8 -0.8 172 252 576 97 475 491.0 23 -97.9

1Q 4,077 -33.8 3,530 547 -54.3 13.4 99 117 345 677 261 38.5 459 -53.4

2QE 4,888 -21.9 4,179 709 -48.7 14.5 111 141 322 779 265 34.0 492 -46.8

3QE 5,999 17.9 5,129 870 -15.4 14.5 116 141 322 935 318 34.0 595 7.8

4QE 7,253 8.0 6,432 822 -1,612 11.3 120 166 299 834 189 22.7 622 2,652

FY12

FY13E

24,219 -28.7 20,938 3,281 -65.3 13.5 434 563 2,080 4,365 1,896 43.4 2,373 -58.2

22,217 -8.3 19,270 2,948 -10.2 13.3 446 564 1,289 3,227 1,033 32.0 2,106 -11.3

C–156

September 2012 Results Preview Sector: Retail

Retail Company Name Jubilant Foodworks Pantaloon Retail

We expect our Retail universe to post 11.6% and 14.4% YoY growth in sales and EBITDA respectively. PAT would decline 5%, due to weak performance by Shoppers Stop and Pantaloon Retail. However, we estimate Jubilant Foodworks' to continue to outpeform and post 45% YoY PAT growth. Titan should post sequentially better Jewellery volumes.

Shoppers Stop Titan Industries

No recovery yet; expect specialty retailers to outperform: Consumer sentiment remains subdued, impacting footfalls and same store sales (SSS) growth of traditional retailers, in our view. Discretionary consumption has not shown any uptick notwithstanding the improving macro environment post the recent government announcements. Jewelry volumes, though sequentially better, are likely to remain under pressure, as higher gold prices and macro uncertainty continue to deter buying. The Quick Service Restaurant (QSR) segment remains an outlier, with continued momentum on the back of more store openings and new launches. Footfalls back to normal after discount season: Discount season sale attracted footfalls in August. However, post the discount season, the footfalls did not sustain. This coupled with weaker than expected ramp up in new stores will continue to impact operating margins of traditional retailers. Committed capex plans will further put strain on financials and increase debt. Shoppers Stop has added 1 department store and Jubilant Foodworks is likely to add ~25 stores during the quarter. We understand that Titan Industries is expanding Fastrack and Jewelry at a rapid pace, but is going slow on Eyewear. FDI in multi-brand retail cleared; do not expect deals in near term: During the quarter, the Government of India (GoI) allowed 51% FDI in multi-brand retail and also amended the sourcing norms for single-brand retail. The most important change vis-à-vis the earlier announced policy is that state governments will have the final say in allowing multi-brand retail in their respective states. It will be the privilege of state governments to decide whether and where a multi-brand retailer with foreign partner should be allowed to open outlets in the state. It will be restricted to cities with population above one million. We believe letting in FDI is a long term positive for Indian Retail, as apart from the natural benefits like technology, back-end expertise, etc, which a global player may bring to the table, it allows capital starved players an

Expected quarterly performance summary CMP (INR) 28.09.12 JJubilant Foodworks 1,373 Pantaloon Retail 214 Shopper's Stop 401 Titan Industries 262 Sector Aggregate

(INR Million)

Rating Sep.12 Neutral Neutral Neutral Neutral

3,450 30,562 5,660 24,450 64,122

Sales Var. % YoY 43.5 5.0 13.8 16.6 11.6

Var. % QoQ 9.7 3.2 26.7 10.9 8.1

Sep.12 628 2,812 198 2,469 6,107

EBITDA Var. % YoY 46.9 11.4 -48.8 23.3 14.4

Var. % QoQ 9.6 1.8 43.7 16.5 9.2

Net Profit Sep.12 Var. % YoY 344 45.5 21 -93.6 36 -81.8 1,764 15.4 2,165 -5.5

Var. % QoQ 6.4 -45.3 186.0 13.0 11.8

Gautam Duggad ([email protected]) / Sreekanth P.V.S. ([email protected]) October 2012

C–157

September 2012 Results Preview Sector: Retail

access to long-term capital. However, given the tough preconditions and complexity in stitching a deal (separate entity, which complies with extant state FDI rules, will have to be floated), we do not see any deal announcement in the near term. No dawn yet; prefer specialty retailers: We remain cautious in the near term, as the sector continues with flat to low single digit same store sales (SSS) growth. We believe segments like Apparel, Home Retailing and Jewelry will take some time to recover from the slowdown due to weak macroeconomic environment and low consumer confidence. Shoppers Stop will face pressure on profitability due to low SSS growth and resultant lack of operating leverage, given weaker ramp up in stores opened in the past 18 months. Jubilant Foodworks has strong cash flows; we would watch for SSS growth trends and revenue from the newly opened Dunkin Donuts. We maintain our Neutral rating on Jubilant and Shoppers Stop. Festive season demand in 3Q holds the key for Titan. Shoppers' Stop - SSS growth remains flat

Titan's jewelry SBU; watch out for Gold prices, volume mix Jewel ry growth %

LTL Sa l es Gr (%) 22 16

21

Gol d pri ce cha nge % (YoY)

90

13

60 7

14

11

2

-1

10

30

1 2

2

0

-6 3QFY07 4QFY07 1QFY08 2QFY08 3QFY08 4QFY08 1QFY09 2QFY09 3QFY09 4QFY09 1QFY10 2QFY10 3QFY10 4QFY10 1QFY11 2QFY11 3QFY11 4QFY11 1QFY12 2QFY12 3QFY12 4QFY12 1QFY13 2QFY13

Sep-12E

Jun-12

Mar-12

Dec-11

Sep-11

Jun-11

Mar-11

Dec-10

Sep-10

Jun-10

Mar-10

Dec-09

Sep-09

Jun-09

-30

Gold prices up 31% YoY and 5% QoQ (INR/10g)

Jubilant Foodworks' LTL sales growth 43.8

30,000 29,297

INR/10 gm

27,000

37.0

35.7

26,607

33.2

36.7

24,000

26.7

30.1 26.2 22.3

21,000

25.0

18,000

2QFY13E

1QFY13

4QFY12

3QFY12

2QFY12

1QFY12

4QFY11

3QFY11

2QFY11

Sep-12

Jun-12

Mar-12

Dec-11

Sep-11

Jun-11

Mar-11

Dec-10

Sep-10

Jun-10

Mar-10

Dec-09

12,000

1QFY11

15,000

Source: Company, MOSL

October 2012

C–158

September 2012 Results Preview Sector: Retail

Area addition plans on track Shoppers Stop

Jubilant Foodworks

Shoppers Stop (LHS)

Hyperci ty (RHS)

60 49 50

52

12

12

12

43

41

51

55

320

338

392

378

364

465

439

411

489

514

90

87

93

96

100

105

110

115

2QFY13E

77

74

8

4QFY12

3QFY12

2QFY12

1QFY12

4QFY11

3QFY11

1QFY11

Sep-12

Jun-12

Mar-12

Dec-11

Sep-11

Jun-11

Mar-11

Dec-10

6

2QFY11

8 Sep-10

7

10

1QFY13

10

30

Jun-10

20

Ci ti es

10

40 30

Stores 14

Source: Company, MOSL

Relative to performance-1Yr (%)

100

95

80

85

60 Sep-12

Jun-12

Sep-11

105

Aug-12

120

Jul-12

115

Sep-12

140

Dec-11

125

Sens ex Index MOSL Reta i l Index

Jun-12

Sens ex Index MOSL Reta i l Index

Mar-12

Relative to performance-3m (%)

Comparative valuation CMP (INR) 28.09.12 Retail Jubilant Foodworks1,373 Pantaloon Retail 214 Shopper's Stop 401 Titan Industries 262 Sector Aggregate UR: Under Review

October 2012

Rating

EPS (INR) FY12 FY13E FY14E

P/E (x) FY12 FY13E FY14E

EV/EBITDA (x) FY12 FY13E FY14E

RoE (%) FY12 FY13E FY14E

Neutral Neutral Neutral Neutral

16.4 4.8 7.8 6.8

83.9 44.6 51.2 38.5 45.2

46.0 8.0 23.3 26.8 19.0

37.7 3.4 9.9 48.7 16.0

23.9 6.7 2.7 8.1

35.4 9.3 6.8 10.0

57.3 31.9 149.1 32.4 38.3

38.8 22.9 59.3 26.2 28.9

30.7 7.2 33.9 21.7 16.1

21.4 6.6 21.8 17.4 13.2

38.2 4.6 3.3 42.4 16.7

39.0 6.2 7.8 34.8 19.1

C–159

September 2012 Results Preview Sector: Retail

Jubilant Foodworks BSE Sensex

S&P CNX

18,763 5,703 Bloomberg JUBI IN Equity Shares (m) 63.5 52 Week Range (INR) 1,397/633 1,6,12 Rel Perf (%) 12/18/44 Mcap (INR b) 87.2 Mcap (USD b) 1.7      

CMP: INR1,373 Year Net Sales Adj PAT End (INR m) (INR m) 03/11A 6,783 720 03/12A 10,175 1,056 03/13E 14,807 1,545 03/14E 20,697 2,284

Neutral EPS (INR) 11.2 16.4 23.9 35.4

EPS Gr. (%) 112.4 46.7 46.3 47.8

P/E (X) 83.9 57.3 38.8

P/BV (X) 31.6 21.9 15.1

RoE (%) 37.6 37.7 38.2 39.0

RoCE (%) 45.1 51.4 53.7 53.5

EV/ EV/ Sales EBITDA 8.6 46.8 5.8 31.2 4.1 21.8

We expect Jubilant Foodworks (JUBI) to report 43.5% increase in sales to INR3.4b. Like to like (LTL) sales growth would be ~25%, marginally higher than in 1QFY13. Gross margin would improve marginally to 74.2%; operating leverage would enable 40bp expansion in EBITDA margin to 18.2%. EBITDA is likely to grow 47% to INR628m. PAT would grow 45.5% to INR344m, driven by 100bp increase in tax rate. We expect the company to add 25 new stores, taking the total to 514 stores. In August, JUBI inaugurated its 500th store in Delhi. Three Dunkin Donuts stores are under operation in New Delhi. The company plans to add 80-100 stores in India in the next five years. We estimate 47% PAT CAGR over FY12-14. However, valuations of 57.3x FY13E and 38.8x FY14E EPS capture the positives and do not factor in an increase in competitive activity in the existing business. Neutral.

What to look for  Operating leverage; trend in EBITDA margin, given price increases and rising overheads on new stores. Quarterly Performance

(INR Million)

Y/E March No of Stores LTL Growth (%) Net Sales YoY Change (%) Gross Profit Gross Margin (%) Other Expenses % of Sales EBITDA EBITDA Growth % Margins (%) Depreciation Interest Other Income PBT YoY Change (%) Tax Rate (%) Adjusted PAT YoY Change (%) E: MOSL Estimates October 2012

FY12 1Q 392 36.7 2,169 60.0 1,617 74.5 1,196 55.2 420 67.2 19.4 87 0 12 346 84.9 108 31.1 232 52.0

2Q 411 26.7 2,404 47.1 1,769 73.6 1,341 55.8 427 43.8 17.8 93 0 14 348 51.6 111 32.0 237 28.4

3Q 439 30.1 2,770 49.2 2,066 74.6 1,551 56.0 516 59.9 18.6 96 0 14 434 72.9 139 32.1 295 55.4

FY13 4Q 465 26.2 2,832 46.2 2,113 74.6 1,604 56.6 509 54.0 18.0 100 0 17 425 65.7 132 31.1 293 51.8

1Q 489 22.3 3,145 45.0 2,309 73.4 1,736 55.2 573 36.3 18.2 117 0 19 475 11.7 152 31.9 323 39.3

2QE 514 25.0 3,450 43.5 2,559 74.2 1,931 56.0 628 46.9 18.2 135 3 24 514 47.7 170 33.0 344 45.5

3QE 535 23.0 4,000 44.4 2,967 74.2 2,207 55.2 760 47.4 19.0 140 3 24 641 47.8 212 33.0 429 45.8

4QE 563 23.0 4,212 48.7 3,148 74.7 2,348 55.7 800 57.2 19.0 141 5 23 676 58.9 223 33.0 453 54.5

FY12

FY13E

463 30.0 10,175 50.0 7,564 74.3 5,698 56.0 1,866 55.3 18.3 377 0 57 1,546 67.3 490 31.7 1,056 46.7

563 23.0 14,807 45.5 10,982 74.2 8,221 55.5 2,761 48.0 18.6 533 11 90 2,306 49.1 761 33.0 1,545 46.3

C–160

September 2012 Results Preview Sector: Retail

Pantaloon Retail BSE Sensex

S&P CNX

18,763 5,703 Bloomberg PF IN Equity Shares (m) 217.1 52 Week Range (INR) 239/125 1,6,12 Rel Perf (%) 42/40/-15 Mcap (INR b) 46.4 Mcap (USD b) 0.9

      

CMP: INR214

Neutral

Year Net Sales PAT End (INR m) (INR m) 06/11A 110,122 1,897 06/12A 122,526 1,071 06/13E 139,931 1,498 06/14E 158,024 2,086

EPS (INR) 8.7 4.8 6.7 9.3

EPS Gr. (%) 7.1 -45.2 39.9 39.0

P/E (X) 44.6 31.9 22.9

P/BV (X) 1.5 1.5 1.4

RoE (%) 6.2 3.4 4.6 6.2

RoCE (%) 12.1 12.0 13.2 9.5

EV/ EV/ Sales EBITDA 0.7 8.2 0.7 7.2 0.6 6.6

We expect core retail sales to grow 5% to INR30.6b in 5QFY13 (year extended to December for FY12) for Pantaloon Retail (PF). Same store sales (SSS) growth dynamics has not seen improvement in the September quarter due to prevailing weak consumer sentiment. EBITDA would grow 11% to INR2.8b, with operating margins expanding 50bp YoY. Adjusted PAT would decline 94% to INR21m, as interest cost continues to consume 2/3rd of EBITDA. Recent deals (AB Nuvo-Pantaloon transaction, Future Capital) will help alleviate the debt strain for PF. Core retail debt stands at INR60b. News flow around potential deals after the allowance of 51% FDI in multi-brand retail will keep fundamentals in the background, we believe. The stock trades at 31.9x FY13E EPS and 22.9x FY14E EPS. Maintain Neutral.

What to look for  Same store sales growth for Value and Lifestyle business.  Space addition.  Interest cost.

Quarterly Performance; Core Retailing

(INR Million)

Y/E June Net Sales YoY Change (%) Total Exp EBITDA Growth (%) Margins (%) Depreciation Interest Other Income PBT Tax Rate (%) Adjusted PAT YoY Change (%) E: MOSL Estimates

October 2012

FY11 1Q 25,814 32.1 23,687 2,127 15.3 8.2 630 933 81 645 218 33.7 428 62.4

2Q 27,586 31.2 25,202 2,383 12.1 8.6 650 1,078 52 708 235 33.2 472 5.5

3Q 28,119 17.6 25,641 2,479 14.0 8.8 660 1,096 34 757 252 33.2 505 34.8

4Q 28,604 15.4 26,019 2,585 26.2 9.0 737 1,177 63 735 242 33.0 492 -17.1

1Q 29,106 12.8 26,583 2,523 18.6 8.7 828 1,305 79 468 138 29.5 330 -22.8

2Q 28,933 4.9 26,321 2,612 9.6 9.0 877 1,582 40 193 58 30.1 135 -71.4

FY12 3Q 30,264 7.6 27,488 2,776 12.0 9.2 887 1,725 16 180 60 33.3 120 -76.2

FY12E 4Q 29,627 3.6 26,864 2,763 6.9 9.3 929 1,804 28 58 19 33.0 39 -92.1

5QE 30,562 5.0 27,750 2,812 11.4 9.2 940 1,890 50 32 10 33.0 21 -93.6

6QE 31,827 10.0 28,867 2,960 13.3 9.3 960 1,947 53 106 35 33.0 71 -47.5

180,319 66.8 163,873 16,446 117.3 9.1 5,422 10,253 266 1,037 321 30.9 716 -62.3

C–161

September 2012 Results Preview Sector: Retail

Shoppers Stop BSE Sensex

18,763 Bloomberg Equity Shares (m) 52 Week Range (INR) 1,6,12 Rel Perf (%) Mcap (INR b) Mcap (USD b)

S&P CNX

5,703 SHOP IN 82.2 427/251 7/-6/-1 32.9 0.6

CMP: INR401 Year Net Sales PAT End (INR m) (INR m) 03/11A 16,589 752 03/12A 19,300 643 03/13E 22,308 221 03/14E 26,579 555

Neutral EPS (INR) 9.1 7.8 2.7 6.8

EPS P/E Gr. (%) (X) 120.1 -14.5 51.2 -65.7 149.1 151.3 59.3

P/BV (X) 5.1 4.9 4.6

RoE (%) 12.6 9.9 3.3 7.8

RoCE (%) 16.3 11.0 5.0 9.6

EV/ EV/ Sales EBITDA 1.7 23.3 1.5 35.1 1.2 21.8



We expect Shoppers Stop (SHOP) to report 13.8% increase in sales to INR5.7b. However, same store sales (SSS) growth would be 1-2%, in our view.



We estimate EBITDA margin at 3.5%, still below the normal trend of 5-6%, as new stores continue to see weak traction. We expect PAT to decline 81% due to weak SSS performance and consequent lack of operating leverage.



Like to like (LTL) sales are likely to grow 1-2% on account of modest demand, despite discount sale season in August.



Higher overheads on new store openings and extended discount period would impact profit margins for the quarter.



Hypercity would remain a drag on consolidated profitability.



The company has added one Shoppers Stop departmental store in 2QFY13.



The stock trades at 149.1x FY13E and 59.3x FY14E standalone EPS. Maintain Neutral.

Quarterly Performance

(INR Million)

Y/E March LTL Sales Gr % Deptt Stores Net Sales YoY Change (%) Total Exp EBITDA Growth % Margins (%) Depreciation Interest Other Income PBT Tax Rate (%) Adjusted PAT YoY Change (%) E: MOSL Estimates

October 2012

FY12 1Q 7 41 3,930 14.4 3,667 263 5.2 6.7 81 44 37 176 59 33.5 117 17.2

2Q 11 43 4,973 14.9 4,586 387 1.4 7.8 88 57 52 294 98 33.5 195 12.5

3Q -1 49 5,017 9.9 4,603 414 -19.7 8.2 94 76 46 290 97 33.5 193 -30.8

FY13 4Q 10 51 5,406 18.5 5,042 363 -2.8 6.7 115 74 44 218 81 37.1 137 -31.0

1Q 1 52 4,467 13.6 4,329 138 -47.7 3.1 120 77 74 15 3 17.9 12 -89.4

2QE 2 55 5,660 13.8 5,462 198 -48.8 3.5 110 75 40 53 18 33.0 36 -81.8

3QE 7 58 5,850 16.6 5,558 293 -29.3 5.0 115 75 40 143 47 33.0 95 -50.5

4QE 5 60 6,331 17.1 6,006 325 -10.5 5.1 108 102 4 119 41 34.9 77 -43.8

FY12

FY13E

7 51 19,300 16.3 17,873 1,427 -6.2 7.4 377 250 178 978 335 34.3 643 -14.5

4 60 22,308 15.6 21,354 954 -33.2 4.3 453 329 159 329 109 33.0 221 -65.7

C–162

September 2012 Results Preview Sector: Retail

Titan Industries BSE Sensex

S&P CNX

18,763 Bloomberg Equity Shares (m) 52 Week Range (INR) 1,6,12 Rel Perf (%) Mcap (INR b) Mcap (USD b)

5,703 TTAN IN 887.8 263/154 12/7/12 232.2 4.4

CMP: INR262 Year Net Sales PAT End (INR m) (INR m) 03/11A 65,209 4,336 03/12A 88,384 6,048 03/13E 103,823 7,158 03/14E 123,199 8,858

Neutral EPS (INR) 4.9 6.8 8.1 10.0

EPS Gr. (%) 65.8 38.4 19.3 23.8

P/E (X) 38.7 32.4 26.2

P/BV (X) 16.0 12.0 9.1

RoE (%) 49.6 48.7 42.4 34.8

RoCE (%) 61.8 66.8 58.7 54.1

EV/ EV/ Sales EBITDA 2.5 26.8 2.1 21.7 1.7 13.9



We expect Titan Industries (TTAN) to post sales of INR24.5b, up 16.6%. EBITDA is likely to grow 23%, with margin expansion of 50bp, driven by savings on excise and direct import of gold. PAT is likely to increase 15.4% to INR1.7b.



Sequentially, footfalls have increased in the Jewelry segment, driven by improved consumer sentiment and better wedding demand.



We estimate 10% decline in Jewelry volumes, as higher gold prices and weak consumer sentiment continue to impact footfalls and demand; however, value growth will remain healthy due to ~23% higher gold prices.



We expect sales to grow 15% in the Jewelry segment and 14% in the Watches segment.



We believe store expansion and festive season demand in 3QFY13 are the key factors to watch for in FY13.



We estimate 21% PAT CAGR over FY12-14, but deterioration in consumer sentiment and decline in gold prices are risks to our estimates. The stock trades at 32.4x FY13E EPS of INR8.1 and 26.2x FY14E EPS of INR10. Neutral.

Quarterly Performance

(INR Million)

Y/E March Net Sales YoY Change (%) Total Exp EBITDA EBITDA Growth % Margins (%) Depreciation Interest Other Income PBT Tax Rate (%) Adjusted PAT YoY Change (%) E: MOSL Estimates

October 2012

FY12 1Q 20,205 61.3 18,284 1,921 73 9.5 99 88 233 1,968 532 27.0 1,436 76.9

2Q 20,963 36.5 18,961 2,002 15 9.6 106 2 201 2,096 567 27.1 1,529 19.7

3Q 24,401 24.8 22,272 2,129 9.2 8.7 119 10 247 2,247 608 28.5 1,639 16.4

FY13 4Q 22,814 28.3 20,744 2,071 95.7 9.1 125 131 255 2,070 627 30.3 1,443 72.0

1Q 22,057 9.2 19,937 2,120 10.3 9.6 123 126 252 2,122 561 28.0 1,561 8.7

2QE 24,450 16.6 21,981 2,469 23.3 10.1 110 160 250 2,449 686 28.0 1,764 15.4

3QE 29,000 18.8 26,100 2,900 36.2 10.0 117 160 240 2,863 802 28.0 2,061 25.8

4QE 28,316 24.1 25,709 2,607 25.9 9.2 131 204 235 2,507 735 29.3 1,772 22.8

FY12

FY13E

88,384 35.5 80,054 8,329 42 9.4 449 437 941 8,384 2,336 27.9 6,048 39.5

103,823 17.5 93,727 10,096 21 9.7 482 650 977 9,941 2,784 28.0 7,158 18.3

C–163

September 2012 Results Preview Sector: Technology

Technology Company Name Cognizant Technology HCL Technologies Infosys MphasiS TCS Tech Mahindra Wipro

Expect TCS, Cognizant to lead growth amid moderate traction in seasonally strong quarter: We expect tier-I IT to grow USD revenue by 1-4.7% QoQ, led by TCS (4.1% QoQ) and Cognizant (4.7% QoQ). Infosys' revenue growth estimate stands at 2.9% QoQ, after two successive quarters of sequential revenue decline, bridging the growth gap with leaders. HCL is likely to continue steady growth (3.6% QoQ), while Wipro may lag, growing 1% QoQ (v/s guidance of 0.3-2.3%), as large deals remain elusive. Margins to decline at HCL Tech and Wipro, remain flat at TCS and Infosys: INR has depreciated by 1.9% QoQ in 2QFY13, which will be slight tailwind for margins. Also, the commentary around pricing remained stable across the board, with no spike in instances of abnormal pricing. Given the wage hikes effective from 1 June 2012 at Wipro and 1 July 2012 at HCL Tech, we expect operating profit margins to decline at these two companies (by 90bp QoQ and 220bp QoQ, respectively). Despite pressures from continued hiring, onsite shift and geographic mix, we expect margins to remain stable at TCS QoQ. Even at Infosys, we expect margins to remain within a tight band. Expect guidance to remain unchanged on the back of unchanged macro outlook: Worries on the macro front have not abated, and there is not enough to suggest incremental change in the commentary across the board. We expect caution to dominate the outlook for FY13, and guidance to remain unchanged. Deal signings lend confidence to Infosys' outlook of at least 5% growth, and Cognizant too should maintain guidance of at least 20% growth. Change in currency assumed in the guidance is likely to moderate EPS estimate at Infosys by ~2pp to INR162. We expect hiring guidance to remain unchanged at TCS and Wipro to guide 1-3% QoQ growth in USD revenue for 3QFY13. Watch for commentary on deal pipeline and velocity, BFSI and Europe: Given the continued sluggishness in the environment, deal signing cycles are likely to remain stretched, potentially thwarting the growth outlook. Also, continued trouble in Europe and BFSI imply that outlook on the two would be keenly anticipated. From the individual company's perspective, watch for volume growth and hiring at TCS, USD revenue growth and pricing at Infosys, volume growth at Wipro and HCL Tech, and BFSI performance at Cognizant.

Expected quarterly performance summary CMP Rating (INR) 28.09.12 HCL Technologies 577 Buy Infosys 2,534 Buy MphasiS 402 Sell TCS 1,294 Neutral Tech Mahindra 972 Buy Wipro 381 Buy Sector Aggregate

Sep.12 62,080 100,052 13,551 157,685 16,291 110,824 460,483

Sales Var. % YoY 33.5 23.5 3.1 35.5 22.2 21.9 27.5

Var. Sep.12 % QoQ 4.9 11,987 4.0 30,956 0.0 2,768 6.1 46,122 5.6 3,085 4.0 21,299 4.8 116,217

EBITDA Var. % YoY 54.4 23.0 17.9 36.3 51.1 22.4 31.3

Var. % QoQ -6.2 5.1 3.5 6.4 -6.6 -0.6 2.9

(INR Million) Net Profit Sep.12 Var. Var. % YoY % QoQ 7,932 65.3 -5.7 24,015 26.0 4.9 2,092 14.3 0.2 34,563 41.7 5.4 2,978 23.7 -12.0 15,927 22.4 0.8 87,506 33.6 2.5

Ashish Chopra ([email protected]) October 2012

C–164

September 2012 Results Preview Sector: Technology

Prefer HCL Tech, Infosys: Large deals signed lend visibility to HCL Tech's revenue growth in FY13, while Infosys' commentary improved slightly through the quarter on the back of deals won. TCS' incrementally cautious outlook on Telecom and rich valuations keep us Neutral on the stock. We agree with Wipro's strategy of investing in the downturn; but improvement in environment remains imperative for quick fruition of its efforts. Expect TCS to lead growth, Infosys to bridge the gap TCS

Infos ys

Wi pro

HCL Tecg

13

Relative Performance - 3m (%) Sensex Index MOSL Technology Index

110 105 100 95 90 85

9 4.1 3.6 2.9 1.0

5 1

Relative Performance - 1Yr (%)

2QFY13E

1QFY13

4QFY12

2QFY12

1QFY12

Q4FY11

3QFY12

2QFY13E

1QFY13

4QFY12

3QFY12

2QFY12

Sep-12

Jun-12

Mar-12

Dec-11

1QFY12

14% 4QFY11

100

3QFY11

20% 2QFY11

110

1QFY11

26%

4QFY10

120

1QFY10

32%

Sep-11

HCLT

38%

130

90

EBITDA Margins across top‐tier TCS Wi pro (overal l )

Infos ys

2QFY10

Sensex Index MOSL Technology Index

Q3FY11

Q2FY11

EBITDA margin to decline at HCL and Wipro on wage hikes

3QFY10

Sep-12

Aug-12

Jul-12

Jun-12

Q1FY11

-3

Source: Company, MOSL

Aggregate PAT to increase 35% YoY, aided by currency swing Company TCS Infosys Wipro HCLT Aggregate

2QFY13E 2,841 1,803 1,530 1,119 7,292

Company TCS Infosys Wipro HCLT Aggregate

2QFY13E 27.6 28.3 16.7 16.8 23.4

October 2012

Revenues (USD) 2QFY12 Yoy (%) 1QFY13 2,525 12.5 2,728 1,746 3.2 1,752 1,473 3.9 1,515 1,002 11.6 1,080 6,746 8.1 7,074 EBIT Margin(%) 2QFY12 Yoy (%) 1QFY13 27.1 51 27.5 28.2 16 28.0 16.4 32 17.6 13.9 291 19.0 22.6 80 23.8

QoQ (%) 4.1 2.9 1.0 3.6 3.1

2QFY13E 158 100 111 62 431

QoQ (%) 12 32 -89 -224 (42)

2QFY13E 35 24 16 8 82

Revenues (INR b) Yoy (%) 1QFY13 QoQ (%) 35.5 149 6.1 23.5 96 4.0 21.9 107 4.0 33.5 59 4.9 28.6 411 4.9 PAT (INR b) 2QFY12 Yoy (%) 1QFY13 QoQ (%) 24 41.7 33 5.4 19 26.0 23 4.9 13 22.4 16 0.8 5 65.2 8 -5.7 61 34.6 80 3.2 Source: Company, MOSL 2QFY12 116 81 91 47 335

C–165

September 2012 Results Preview Sector: Technology

EBITDA margin to decline at HCL and Wipro on wage hikes Incremental revenues - USD m

225 150 75 0 -75 TCS

Infos ys

Wi pro

HCL

Cognizant

Source: Company, MOSL

EPS Estimates (INR) - MOSL v/s Consensus

Infosys TCS Wipro HCL Tech Mphasis Tech Mahindra Cognizant

2QFY13 MOSL Consensus 42.0 42.0 17.7 17.4 6.5 6.4 11.3 11.0 9.9 9.7 22.4 22.5 0.9 0.9

FY13 MOSL Consensus 166.4 164.3 71.6 69.3 26.0 26.2 46.3 43.5 37.5 37.3 87.2 81.9 3.4 3.5

FY14 MOSL Consensus 180.7 177.0 78.8 76.6 28.2 28.6 47.6 48.3 40.8 39.2 101.0 89.1 3.9 4.1

Upside/Downside to Consensus (%) 3QFY12 FY12 FY13 0.1 1.3 2.1 1.4 3.5 3.0 2.1 -0.9 -1.5 2.6 6.4 -1.6 2.9 0.6 3.9 -0.4 6.4 13.3 0.6 -2.2 -4.1 Source: Company, MOSL

2QFY13 Currency highlights (INR) USD

Rates (INR) EUR GBP

AUD

USD

Average

55.2

69.0

87.1

57.3

0.9

Closing

52.9

68.3

85.6

55.1

-5.0

Change (QoQ, %) EUR GBP -0.1

AUD

1.9

5.0

-2.5 -1.5 -2.8 Source: Company,MOSL

2QFY13 Currency highlights (in USD) EUR

Rates (USD) GBP

AUD

EUR

Change (QoQ, %) GBP

AUD

Average

1.25

1.58

1.04

-2.5

-0.2

2.9

Closing

1.29

1.62

1.04

1.5

2.9 1.4 Source: Company/MOSL

2QFY13 guidance exchange rate assumptions

Comparative valuation CMP (INR) 28.09.12 Technology HCL Technologies 577 Infosys 2,534 MphasiS 402 TCS 1,294 Tech Mahindra 972 Wipro 381 Sector Aggregate October 2012

Guided at

EUR

GBP

AUD

INR/USD

Infosys

1.26

1.56

1.02

55.00

Wipro

1.26

1.58

1.01

54.76

Actual (Average)

1.25

1.58

1.04

55.30 Source: Company/MOSL

Rating

EPS (INR) FY12 FY13E FY14E

P/E (x) FY12 FY13E FY14E

EV/EBITDA (x) FY12 FY13E FY14E

RoE (%) FY12 FY13E FY14E

Buy Buy Sell Neutral Buy Buy

35.1 145.5 37.5 54.4 70.4 22.7

16.5 17.4 10.7 23.8 13.8 16.8 19.3

10.2 11.6 8.3 17.4 10.5 11.8 13.5

26.0 28.0 18.7 36.7 30.2 21.2 25.2

46.3 166.5 40.8 71.6 87.2 26.0

47.6 180.7 37.2 78.8 101.0 28.2

12.5 15.2 9.9 18.1 11.1 14.7 15.7

12.1 14.0 10.8 16.4 9.6 13.5 14.5

8.0 9.8 7.6 13.0 6.6 10.0 10.8

7.4 8.8 8.2 11.5 5.6 9.0 9.7

27.8 27.3 17.5 38.3 24.4 20.7 26.4

25.8 25.8 13.9 33.7 23.0 19.4 23.5 C–166

September 2012 Results Preview Sector: Technology

Cognizant Technology Solutions BSE Sensex

18,763 Bloomberg Equity Shares (m) 52-Week Range (USD) 1,6,12 Rel. Perf. (%) M.Cap. (INRb) M.Cap. (USD b)

  

   

S&P CNX

Not Rated

CMP: USD69

5,703

Year Net Sales PAT EPS End (USD m) (USD m) (USD) 12/10A 4,592 734 2.38 12/11A 6,121 884 2.86 12/12E 7,347 1,060 3.45 12/13E 8,711 1,211 3.94

CTSH US 307.3 84/53 4/-5/21 1,118.6 21.2

EPS Gr. (%) 34.2 20.0 20.5 14.2

P/E (X) 24.4 20.3 17.7

P/BV (X) 5.5 4.6 3.7

RoE (%) 23.5 23.4 24.6 23.0

RoCE (%) 27.2 28.6 29.5 27.3

EV/ EV/ Sales EBITDA 3.2 15.5 2.6 12.5 2.1 10.4

We expect Cognizant's revenue to grow 4.7% QoQ to USD1.88b in 3QCY12. The company had guided revenue of USD1.875b, implying a growth of 4.4% QoQ. We expect Cognizant to retain its full-year revenue growth guidance of at least 20%, which implies 4QCY12 growth rate of 4.3% QoQ on our 3Q revenue estimate. 1QCY12 was only the second time in the past six years when the company lowered its full-year guidance. The last time when it did so in CY08 (in the middle of the financial meltdown), it was just a one-quarter phenomenon and guidance was again increased in the next quarter. Our EBITDA margin estimate stands at 21.2% (+70bp QoQ) v/s 20.5% in 2QCY12, on some favorable impact from currency. Our GAAP EPS estimate is USD0.9 v/s the company's guidance of USD0.86. Key things to watch: Commentary on likely client budgets in CY13; traction in discretionary spending; commentary on Europe. The stock trades at 20.3x CY12E and 17.7x CY13E EPS. Not Rated.

Quarterly Performance (US GAAP)

(USD Million)

Y/E December Revenues Q-o-Q Change (%) Direct Expenses SG&A SG&A as % of Sales EBITDA Margins (%) Other Income Depreciation PBT bef. Extra-ordinary Provision for Tax Rate (%) PAT before EO Q-o-Q Change (%) Operating Metrics Headcount addition Closing Headcount Utilization (%)

October 2012

CY11

CY12

CY11

CY12E

1Q 1,371 4.6 782 296 21.6 293 21.3 15 27 280 72 25.7 208 1.0

2Q 1,485 8.3 861 327 22.0 298 20.0 8 28 278 70 25.1 208 -0.1

3Q 1,601 7.8 925 353 22.1 323 20.2 -5 30 288 61 21.1 227 9.2

4Q 1,664 3.9 971 352 21.2 341 20.5 15 32 323 83 25.7 240 5.7

1Q 1,711 2.9 985 374 21.9 353 20.6 4 35 322 79 24.4 244 7.3

2Q 1,795 4.9 1,031 397 22.1 368 20.5 3 36 335 83 24.8 252 3.4

3QE 1,880 4.7 1,067 413 22.0 399 21.2 9 38 371 93 25.0 278 10.4

4QE 1,961 4.3 1,118 431 22.0 411 21.0 10 39 382 95 25.0 286 2.9

6,121 33.3 3,539 1,329 21.7 1,254 20.5 33 117 1,169 286 24.4 884 20.5

7,347 20.0 4,201 1,616 22.0 1,530 20.8 26 147 1,410 350 24.8 1,060 19.9

7,200 111,200 70

7,100 118,300 70

11,700 130,000 70

7,700 137,700 68

2,800 140,500 67

4,500 145,000 68

6,399 151,450 69

5,335 156,850 69

33,700 137,700 69

19,150 156,850 68

C–167

September 2012 Results Preview Sector: Technology

HCL Technologies BSE Sensex

18,763 Bloomberg Equity Shares (m) 52 Week Range (INR) 1,6,12 Rel Perf (%) Mcap (INR b) Mcap (USD b)

S&P CNX

CMP: INR577

5,703 HCLT IN 702.9 595/374 -3/13/28 405.8 7.7

Year End 6/11A 6/12A 6/13E 6/14E

Sales (INR m) 159,118 210,312 257,162 288,099

PAT* (INR m) 16,098 24,556 32,655 33,784

Buy EPS* (INR) 23.1 35.1 46.3 47.6

EPS Gr. (%) 35.0 52.0 31.9 2.9

P/E* (X) 16.5 12.5 12.1

P/BV (X) 3.8 3.1 2.6

RoE (%) 20.8 26.0 27.8 25.8

RoCE (%) 15.9 21.4 25.2 22.3

EV/ EV/ Sales EBITDA 1.9 9.9 1.5 7.9 1.3 7.4

* After ESOP charges 

We estimate HCL Tech's 1QFY13 revenue at USD1.12b, up 3.6% QoQ. In INR terms, our revenue estimate is INR62.08b, up 4.9% QoQ.



We expect volume growth of 3.6% QoQ in Software Services, and USD revenue growth of 3.5% QoQ in Software Services, 2.1% QoQ in BPO and 4.2% QoQ in IMS.



Despite our assumption of 1.2% QoQ depreciation in the INR v/s the USD, we expect EBITDA margin to decline 230bp QoQ (after adjusting for ESOP charges) on account of wage hikes effective from 1 July 2012.



We estimate SGA spends at 13.9% of revenue, +70bp QoQ.



We expect PAT to decline 5.7% QoQ to INR7.9b (after adjusting for ESOP charges), translating into an EPS of INR11.3.



Key things to watch: Commentary on deal pipeline; impact of wage hikes on margins.



The stock trades at 12.5x FY13E and 12.1x FY14E EPS. Maintain Buy.

Quarterly Performance (US GAAP)

(INR Million)

Y/E June

FY12 1Q 46,513 8.2 7,764 16.7 59 4,800 -2.3 59.8 6.9 1,002 4.1

Revenues Q-o-Q Change (%) EBITDA Margins (%) Other Income PAT Q-o-Q Change (%) Y-o-Y Change (%) Diluted EPS (INR) USD Revenues Q-o-Q Change (%) Operating Metrics Gross Margin (%) SGA (%) Tax rate (%) Net Employee additions Util. - incl. trainees (%) Q-o-Q Volume Growth (%) Q-o-Q Realization change (%) Offshore revenues (%) E: MOSL Estimates; After adjusting October 2012

2Q 52,452 12.8 9,487 18.1 -670 5,526 15.1 48.5 7.9 1,022 2.0

3Q 52,156 -0.6 9,363 18.0 -136 5,818 5.3 30.6 8.3 1,048 2.5

FY13E 4Q 59,191 13.5 12,782 21.6 -423 8,409 44.5 71.2 12.0 1,080 3.0

1Q 62,080 4.9 11,987 19.3 287 7,932 -5.7 65.3 11.3 1,119 3.6

2Q 62,794 1.2 11,768 18.7 342 7,774 -2.0 62.0 11.0 1,163 4.0

3Q 65,061 3.6 12,471 19.2 370 8,334 7.2 50.8 11.8 1,205 3.6

4Q 67,227 3.3 12,867 19.1 400 8,615 3.4 48.1 12.2 1,253 4.0

31.1 32.6 32.1 34.8 33.2 32.8 33.0 14.4 14.5 14.2 13.2 13.9 14.1 13.9 26.3 25.5 25.5 22.4 24.0 24.0 24.0 3,474 2,556 -612 1,855 2,600 2,800 3,200 69.7 69.6 72.2 72.4 73.0 72.5 72.5 4.0 4.9 2.9 1.8 3.6 3.8 3.7 1.1 -1.2 -1.0 0.0 -0.1 -0.1 -0.1 42.3 42.1 43.8 42.8 42.9 43.0 43.1 for ESOP charges; Axon is consolidated since December 2008

33.0 13.8 24.0 3,650 72.5 3.7 0.0 43.1

FY12

FY13E

210,312 32.2 39,396 18.7 -1,170 24,553

257,162 22.3 49,094 19.1 -942 27,685

43.6 35.1 4,152 17.1

12.8 46.3 4,268 2.8

31.3 14.7 24.5 7,273 70.8 16.7 0.4 42.8

31.3 14.7 24.5 12,250 72.6 13.9 -0.8 43.0

C–168

September 2012 Results Preview Sector: Technology

Infosys BSE Sensex

18,763 Bloomberg Equity Shares (m) 52 Wk Range (INR) 1,6,12 Rel Perf (%) Mcap (INR b) Mcap (USD b)

S&P CNX

5,703 INFO IN 571.4 2,990/2,102 -2/-20/-12 1,447.9 27.5

CMP: INR2,534 Year End 3/11A 3/12A 3/13E 3/14E

Net Sales PAT (INR m) (INR m) 275,010 68,230 337,340 83,160 405,699 95,045 446,507 103,248

Buy EPS (INR) 119.4 145.5 166.5 180.7

EPS Gr. (%) 11.2 21.9 14.4 8.5

P/E (X) 17.4 15.2 14.0

P/BV (X) 4.3 4.0 3.3

RoE (%) 27.8 28.0 27.3 25.8

RoCE (%) 33.1 32.9 32.5 30.3

EV/ EV/ Sales EBITDA 3.7 11.6 3.0 9.9 2.6 8.8



Our 2QFY13 revenue estimate stands at USD1.8b, up 2.9% QoQ. In INR terms, our revenue growth estimate is INR100b, up 4% QoQ.



We expect Infosys to grow its volumes by 3% QoQ in 2QFY13. To meet its minimum volume growth of 9.5% in FY13, the company requires a volume CQGR of 2.8% over 2Q-4Q.



Infosys had guided USD revenue growth of "at least" 5% for FY13, and had stopped giving guidance for the immediate quarter.



We expect reported pricing to be flattish, after declining 3.2% on a blended basis in constant currency in 1Q. This would still imply some like-to-like decline, given that there is a tailwind of ~80bp on the realization metric from one-time revenue reversal in 1QFY13.



We expect EBITDA margin to expand 30bp QoQ to 30.9%, given our assumption of ~1% depreciation in the realized INR QoQ.



We expect 4.9% increase in PAT to INR24b. Our EPS estimate is INR42.



Key things to watch: Volume growth in 2QFY13; commentary on discretionary spends and pricing; deal signings performance QoQ.



The stock trades at 15.2x FY13E and 14x FY14E EPS. Maintain Buy.

Quarterly Performance (IFRS)

(INR Million)

Y/E March Revenues Q-o-Q Change (%) EBITDA Margins (%) Other Income PAT Q-o-Q Change (%) Diluted EPS (INR) USD Revenues Q-o-Q Change (%) Operating Metrics Gross Margin (%) SGA (%) Tax rate (%) Net Employee additions Utilization - incl. trainees (%) Q-o-Q Volume Growth (%) Q-o-Q Realization change (%) E: MOSL Estimates October 2012

FY12

FY13

1Q 74,850 3.2 21,750 29.1 4,430 17,220 -5.3 30.1 1,671 4.3

2Q 80,990 8.2 25,160 31.1 3,870 19,060 10.7 33.4 1,746 4.5

3Q 92,980 14.8 31,350 33.7 4,220 23,720 24.4 41.5 1,806 3.4

4Q 88,520 -4.8 28,900 32.6 6,520 23,160 -2.4 40.5 1,771 -1.9

1Q 96,160 8.6 29,460 30.6 4,760 22,890 -1.2 40.1 1,752 -1.1

2QE 100,052 4.0 30,956 30.9 5,249 24,015 4.9 42.0 1,803 2.9

3QE 103,412 3.4 31,164 30.1 5,140 24,069 0.2 42.1 1,915 6.2

4QE 106,075 2.6 32,201 30.4 4,257 24,164 0.4 42.3 1,964 2.6

41.8 12.8 28.1 2,740 74.9 3.2 1.2

44.3 13.3 28.6 8,262 77.3 4.4 0.5

45.7 11.9 28.6 3,266 77.4 3.0 (0.1)

44.0 11.4 29.8 4,906 73 -0.6 (1.1)

42.2 11.6 27.8 1,157

42.7 11.8 28.5 5,210

42.6 12.4 28.5 4,159

42.6 12.3 28.5 3,184

2.8 (3.7)

3.0 (0.1)

3.3 2.9

2.6 -

FY12

FY13E

337,340 22.7 107,160 31.8 19,040 83,160 21.9 145.5 6,994 15.8

405,699 20.3 123,689 30.5 19,405 95,045 14.3 166.5 7,434 6.3

44.1 12.3 28.8 19,174 79.1 10.8 4.7

42.5 12.0 28.3 13,710 76.0 9.8 -3.2

C–169

September 2012 Results Preview Sector: Technology

Mphasis BSE Sensex

18,763 Bloomberg Equity Shares (m) 52 Week Range (INR) 1,6,12 Rel Perf (%) Mcap (INR b) Mcap (USD b)

S&P CNX

5,703 MPHL IN 210.0 439/277 3/-12/4 84.5 1.6

CMP: INR402 Year Net Sales PAT End (INR m) (INR m) 10/10A 50,366 10,269 10/11A 50,980 8,308 10/12E 54,063 7,921 10/13E 56,775 8,611

Sell EPS (INR) 48.6 39.3 37.5 40.8

EPS P/E Gr. (%) Ratio 12.5 -19.1 10.2 -4.7 10.7 8.7 9.9

P/BV (x) 2.2 1.9 1.6

RoE (%) 36.4 23.1 18.7 17.5

RoCE (%) 36.4 22.2 19.4 18.6

EV/ EV/ Sales EBITDA 1.3 6.7 1.2 5.9 1.0 4.9



We expect Mphasis to report sequentially flattish revenue at INR13.5b in 4QFY12, as growth in the direct channel is offset by continued decline in the HP channel.



In USD terms, we expect revenue of USD254m v/s USD252m in 3QFY12 (+0.7% QoQ). We estimate 1.1% QoQ growth in ITS and 1% QoQ decline in revenue from Applications.



We model INR400m hedge losses for the company in the topline.



Our EBITDA margin estimate is 20.4%, +70bp QoQ, given the company's continued cost focus amid limited revenue visibility.



We expect 10.2% QoQ growth in PAT to INR2.09b, translating into an EPS of INR9.9.



Key things to watch: Outlook on HP channel in FY13; plans around cash; traction and deal pipeline in the direct channel.



The stock trades at 10.7x FY12E and 9.9x FY13E EPS. Maintain Sell.

Mphasis - Quarterly Performance

(INR Million)

Y/E October Revenues Q-o-Q Change (%) Direct Expenses Sales, Gen. & Admin. Exp. Operating Profit Margins (%) Other Income Depreciation PBT bef. Extra-ordinary Provision for Tax Rate (%) PAT bef. Extra-ordinary Q-o-Q Change (%) Diluted EPS (INR) USD Revs Q-o-Q Change (%) E: MOSL Estimates

October 2012

FY11 1Q 12,335 -8.3 8,769 1,167 2,399 19.5 346 359 2,386 295 12.4 2,091 -19.9 9.9 271 -8.5

2Q 12,571 1.9 8,950 949 2,672 21.3 497 337 2,832 393 13.9 2,439 16.6 11.6 282 3.9

3Q 12,936 2.9 9,396 1,024 2,516 19.4 429 440 2,505 557 22.2 1,948 -20.1 9.3 290 2.9

FY12 4Q 13,138 1.6 9,626 1,165 2,347 17.9 479 414 2,412 582 24.1 1,830 -6.1 8.7 276 -4.7

1Q 13,672 5.7 9,995 1,155 2,522 18.4 338 468 2,392 544 22.7 1,848 -5.1 8.8 271 -2.0

2Q 13,289 -2.8 9,454 1,221 2,614 19.7 340 455 2,499 605 24.2 1,894 2.5 9.0 266 -1.8

3Q 13,551 2.0 9,596 1,280 2,675 19.7 441 415 2,701 614 22.7 2,087 10.2 9.9 252 -5.2

4QE 13,551 0.0 9,513 1,271 2,768 20.4 386 419 2,735 643 23.5 2,092 0.2 9.9 254 0.7

FY11

FY12E

50,980 1.2 36,741 4,305 9,934 19.5 1,751 1,550 10,135 1,827 18.0 8,308 -19.1 39.3 1,119 1.7

54,063 6.0 38,558 4,927 10,579 19.6 1,505 1,757 10,327 2,406 23.3 7,921 -4.7 37.5 1,042 -6.8

C–170

September 2012 Results Preview Sector: Technology

Tata Consultancy Services BSE Sensex

18,763 Bloomberg Equity Shares (m) 52 Wk Range (INR) 1,6,12 Rel Perf (%) Mcap (INR b) Mcap (USD b)

S&P CNX

5,703 TCS IN 1,957.2 1,438/1,015 -10/2/9 2,532.6 48.1

CMP: INR1,294 Year End 3/11A 3/12A 3/13E 3/14E

Net Sales (INR m) 373,245 488,938 632,683 725,936

Neutral

PAT (INR m) 86,826 106,384 140,221 154,286

EPS (INR) 44.4 54.4 71.6 78.8

EPS Gr. (%) 26.3 22.5 31.8 10.0

P/E (X) 23.8 18.1 16.4

P/BV (X) 7.8 6.2 5.0

RoE (%) 37.4 36.7 38.3 33.7

RoCE (%) 42.2 44.1 45.4 39.8

EV/ EV/ Sales EBITDA 5.1 17.4 3.8 13.0 3.2 11.5



We expect TCS to grow its revenue by 4.1% QoQ to USD2.84b in 2QFY13, on the back of 3.9% sequential growth in volumes.



In INR terms, we expect revenue growth of 6% QoQ to INR158b. Pricing would remain flat QoQ.



EBITDA margin would be sequentially flattish at 29.2%, as gains from currency would be offset by [1] continued traction in hiring, [2] slight onsite shift on account of new project start-ups, and [3] higher growth from lower margin geographies like APAC and South America.



We expect PAT to grow 5.4% QoQ to INR34.6b, translating into an EPS of INR17.7.



We expect net hiring of 9,181 employees. Utilization including trainees would increase by 200bp QoQ to 74.3%.



Key things to watch: Volume growth; gross hiring; impact from forex.



The stock trades at 18.1x FY13E and 16.4x FY14E EPS. Maintain Neutral.

Quarterly Performance (IFRS)

(INR Million)

Y/E March

FY12 1Q 107,970 6.3 30,310 28.1 2,887 23,804 -0.9 12.2 2,412 7.5

Revenues Q-o-Q Change (%) EBITDA Margins (%) Other Income PAT Q-o-Q Change (%) Diluted EPS (INR) USD Revenues Q-o-Q Change (%) Operating Metrics Gross Margin (%) 45.5 SGA (%) 17.5 Tax rate (%) 22.7 Net Employee additions 3,576 Utilization - excluding trainees (%) 83.2 Q-o-Q Volume Growth (%) 7.5 Q-o-Q Realization change (%) -0.5 Offshore revenues (%) 55.2 E: MOSL Estimates

October 2012

FY13

FY12

FY13E

2Q 116,335 7.7 33,829 29.1 997 24,390 2.5 12.5 2,525 4.7

3Q 132,040 13.5 40,921 31.0 -920 28,866 18.3 14.7 2,586 2.4

4Q 132,593 0.4 39,117 29.5 1,077 29,324 1.6 15.0 2,648 2.4

1Q 148,687 12.1 43,328 29.1 1,754 32,806 11.9 16.8 2,728 3.0

2QE 157,685 6.1 46,122 29.2 2,430 34,563 5.4 17.7 2,841 4.1

3QE 159,882 1.4 46,263 28.9 3,011 35,057 1.4 17.9 2,961 4.2

4QE 166,429 4.1 49,718 29.9 3,156 37,796 7.8 19.3 3,082 4.1

488,938 31.0 144,177 29.5 4,041 106,384 22.5 54.4 10,171 24.2

632,683 29.4 185,430 29.3 10,351 140,221 31.8 71.6 11,612 14.2

46.6 17.5 24.3 12,580 83.1 6.3 -1.0 54.8

48.0 17.1 22.6 11,981 82.0 3.2 2.0 55.0

47.8 18.3 21.6 11,832 80.6 3.3 -1.0 54.8

47.2 18.1 22.2 4,962 81.3 5.3 -1.0 55.3

47.1 17.9 24.0 9,181 83.7 3.9 -0.1 55.4

47.3 18.3 24.0 7,924 84.0 4.2 0.0 55.9

47.6 17.8 24.0 7,702 83.9 3.5 0.6 55.9

47.1 17.6 22.8 39,969 82.2 23.0 1.1 54.9

47.3 18.0 23.6 29,768 83.3 15.7 -0.9 55.6

C–171

September 2012 Results Preview Sector: Technology

Tech Mahindra BSE Sensex

S&P CNX

18,763 5,703 Bloomberg TECHM IN Equity Shares (m) 127.5 52 Week Range (INR) 980/524 1,6,12 Rel Perf (%) 9/29/53 Mcap (INR b) 123.9 Mcap (USD b) 2.4

CMP: INR972

Buy

Year Net Sales PAT# End (INR m) (INR m) 3/11A 48,413 7,093 3/12A 54,897 9,299 3/13E 70,869 11,512 3/14E 82,293 13,337 # Reported PAT incl Satyam;

EPS* EPS P/E P/BV R0E RoCE EV/ EV/ (INR) Gr. (%) (X) (X) (%) (%) Sales EBITDA 54.3 7.4 30.2 22.1 70.4 29.7 13.8 2.9 30.2 24.5 2.9 13.8 87.2 23.8 11.1 2.3 24.4 24.0 2.3 8.9 101.0 15.9 9.6 1.7 23.0 22.1 1.7 7.6 * EPS incl profits from Satyam, adjusted for restructuring charge



We expect Tech Mahindra's revenue to grow 4.3% QoQ to USD294m, on account of ~USD12m contribution from the acquisition of HGS. In INR terms, we expect revenue of INR16.3b, +55.6% QoQ.



At Mahindra Satyam, we expect revenue to grow 3% QoQ to USD352m. In Rupee terms, revenue would be INR19.55b.



Tech Mahindra's EBITDA margin is expected to decline 250bp QoQ to 18.9% in 2QFY13, on account of wage hikes effective from the onset of the quarter. Even at Satyam, we expect EBITDA margin to decline 210bp QoQ to 19.6%.



Our PAT estimate for Tech Mahindra is INR1.73b and INR1.34b after adjusting the impact of restructuring fees. Our PAT estimate for Satyam is INR2.9b.



Key things to watch: Pipeline in Managed Services; outlook on BT; margin profile post acquisitions.



The stock trades at 11.1x FY13E and 9.6x FY14E EPS. Maintain Buy.

Quarterly Performance (Indian GAAP) - SA

(INR Million)

Y/E March Revenues Q-o-Q Change (%) Direct Cost Other Operating Exps Operating Profit Margins (%) Other Income Interest Depreciation PBT bef. Extra-ordinary Provision for Tax Rate (%) Net Inc. aft. sh. of profits fr. asso. Q-o-Q Change (%) Diluted EPS (INR) USD Revenues Q-o-Q Change (%) E: MOSL Estimates

October 2012

FY12 1Q 12,925 2.5 8,540 1,967 2,418 18.7 460 223 334 2,321 509 21.9 2,768 200.5 18.2 290 4.1

2Q 13,333 3.2 9,069 2,222 2,042 15.3 972 721 507 1,786 393 22.0 2,407 -13.0 15.3 296 2.2

3Q 14,449 8.4 9,861 2,245 2,343 16.2 147 338 390 1,762 294 16.7 2,763 14.8 17.8 289 -2.5

FY13 4Q 14,190 -1.8 9,312 2,487 2,391 16.8 -211 131 383 1,666 242 14.5 3,023 9.4 19.7 282 -2.5

1Q 15,434 8.8 9,684 2,448 3,302 21.4 -174 240 421 2,467 585 23.7 3,384 11.9 22.6 281 -0.1

2QE 16,291 5.6 10,551 2,655 3,085 18.9 -123 286 436 2,240 515 23.0 2,978 -12.0 19.5 294 4.3

3QE 19,300 18.5 12,790 3,127 3,384 17.5 -39 258 507 2,580 593 23.0 3,190 7.1 21.1 357 21.8

4QE 19,844 2.8 13,003 3,215 3,626 18.3 -6 231 512 2,878 662 23.0 3,479 9.1 23.3 367 2.8

FY12

FY13E

54,897 13.4 36,782 8,921 9,194 16.7 1,368 1,413 1,614 7,535 1,438 19.1 4,104 -17.6 70.9 1,156 8.8

70,869 29.1 46,027 11,445 13,397 18.9 -342 1,014 1,876 10,165 2,355 23.2 5,863 42.9 86.7 1,300 12.4

C–172

September 2012 Results Preview Sector: Technology

Wipro BSE Sensex

S&P CNX

CMP: INR381

18,763 5,703 Bloomberg WPRO IN Equity Shares (m) 2,455.6 52 Week Range (INR) 453/324 1,6,12 Rel Perf (%) -2/-21/-4 Mcap (INR b) 936.3 Mcap (USD b) 17.8

Year End 3/11A 3/12A 3/13E 3/14E

Net Sales PAT (INR m) (INR m) 310,986 52,794 375,248 55,731 440,757 63,749 480,255 69,192

Buy EPS (INR) 21.6 22.7 26.0 28.2

EPS Gr. (%) 15.1 5.1 14.4 8.5

P/E (X) 16.8 14.7 13.5

P/BV (X) 3.3 2.8 2.4

RoE (%) 24.2 21.2 20.7 19.4

RoCE (%) 20.1 19.4 19.5 18.6

EV/ EV/ Sales EBITDA 2.3 11.8 1.9 10.0 1.7 8.9



We estimate Wipro's IT revenue at USD1.53b, +1% QoQ, in line with the company's guidance of USD1.52b-1.55b. In INR terms, we estimate Services revenue at INR84.9b, +2.1% QoQ.



We expect volume growth of 1.3% QoQ and flat pricing for IT Services. Wipro's overall revenue is likely to grow 4% QoQ to INR111b.



IT Services EBIT margin would decline 100bp QoQ to 20% on two months of residual impact from wage hikes. Overall EBIT margin would decline 90bp QoQ to 16.7%.



We estimate PAT at INR15.9b, up 0.8% QoQ, and EPS at INR6.48.



Key things to watch: Guidance for 3QFY13; commentary around deals; outlook on BFSI and Telecom.



The stock trades at 14.7x FY13E and 13.5x FY14E EPS. Maintain Buy.

Wipro Quarterly Performance (IFRS)

(INR Million)

Y/E March Revenues Q-o-Q Change (%) EBITDA Margins (%) Margins after taking hedges on top-line (%) Other Income PAT Q-o-Q Change (%) Y-o-Y Change (%) Diluted EPS (INR) USD Revenues Q-o-Q Change (%) Operating Metrics Gross Margin (%) SGA (%) IT Services EBIT (%) Tax rate (%) Net Employee additions Utilization-incl.trainees (%) Q-o-Q Volume Growth(%) Q-o-Q Realization Chg. (%) Offshore revenues (%) Rev Guidance (USDm) Q-o-Q Change (%) E: MOSL Estimates October 2012

FY12

FY13

1Q 85,640 3.2 17,290 20.2

2Q 90,945 6.2 17,397 19.1

3Q 99,972 9.9 19,843 19.8

4Q 98,691 -1.3 19,611 19.9

1Q 106,530 7.9 21,426 20.1

2QE 110,824 4.0 21,299 19.2

3QE 111,205 0.3 21,195 19.1

4QE 112,198 0.9 21,380 19.1

17.5 1,542 13,349 -2.9 1.2 5.4 1,408 0.5

16.4 962 13,009 -2.5 1.2 5.3 1,473 4.6

17.2 1,249 14,564 12.0 10.4 5.9 1,506 2.2

17.2 1,984 14,809 1.7 7.7 6.0 1,536 2.0

17.6 1,223 15,802 6.7 18.4 6.4 1,515 -1.4

16.7 1,444 15,927 0.8 22.4 6.5 1,530 1.0

16.5 1,482 15,866 -0.4 8.9 6.5 1,568 2.5

16.5 1,681 16,154 1.8 9.1 6.6 1,601 2.1

29.9 12.5 22.0 18.9 4,105 71.2 1.8 -2.1 47.6 1,3941,422 -0.4-+1.6

28.6 12.2 20.0 18.0 5,240 70.1 6.0 -0.5 45.7 1,4361,464 2.0-4.0

30.3 13.0 20.8 20.7 5,004 67.0 1.8 2.7 45.6 1,5001,530 1.9-3.9

30.6 13.5 20.7 21.2 -814 67.8 0.8 0.5 46.1 1,5201,540 1-3

30.4 14.0 21.0 20.2 2,632 69.5 0.8 -2.2 45.6 1,5201,550 -1 to 1

30.3 13.8 20.0 19.5 2,415 69.3 1.3 -0.3 46.1 1,5201,550 0.3-2.3

30.2 13.8 19.8 19.5 2,915 70.0 2.7 -0.2 46.2

29.8 13.7 19.5 19.5 3,565 70.0 2.4 -0.3 45.6

FY12

FY13E

375,248 20.7 74,141 19.8

440,757 17.5 85,300 19.4

5,737 55,731

5,829 63,749

5.2 22.7 5,921 13.4

14.4 26.0 6,213 4.9

29.9 12.8 20.8 19.8 13,535 69.0 11.5 3.2 46.2

30.6 13.8 20.1 19.7 11,527 69.7 6.9 -0.6 46.1

C–173

September 2012 Results Preview Sector: Telecom

Telecom Company Name Bharti Airtel Idea Cellular Reliance Communication Tulip Telec om

Wireless traffic to decline ~1% QoQ; RPM pressure to abate: We expect average wireless traffic for top-4 operators to decline ~1% QoQ, led by seasonal weakness and lower promotions. Wireless RPM decline is likely to abate, with average RPM declining by 0.3% QoQ v/s ~2% QoQ declines in the preceding two quarters. Within operators, we expect Bharti Airtel (BHARTI) to exhibit relatively lower traffic decline, given its price aggression. Wireless EBITDA margin to be under pressure: We expect consolidated EBITDA margin for BHARTI to remain largely flat QoQ at 30.4%; margin for India and South Asia business is also likely to be stable at 32%, despite flat revenue, driven by lower SGA expenses. Idea Cellular (IDEA) is likely to report consolidated EBITDA margin of ~25%, down 80bp QoQ. For Reliance Communications (RCOM), we model 2QFY13 consolidated EBITDA margin of 30%. Forex gain could boost PAT: Consolidated PAT is likely to decline by 13-14% QoQ for BHARTI/IDEA and 33% for RCOM, largely due to decline in wireless traffic. While we have not modeled any forex gains, sharp appreciation of the INR v/s the USD could drive mark-to-market gains for all the wireless companies, given their significant USD liabilities.

Abbreviations and acronyms RPM: revenue per minute MNP: mobile number portability VLR: visitor location register TRAI: Telec om Regula tor y Authority of India ARPU: average revenue per user MOU: minutes of use

Expect improved performance at Bharti Africa: We expect improved performance in Africa business with QoQ revenue/EBITDA likely to grow at 3/5% QoQ. 2QFY13 performance in Africa should be supported by ~1% average appreciation in Bharti's African currency basket vs USD. We have not modeled any forex gain/loss in Africa business. Industry subscriber numbers decline in July/August: Industry subscribers declined by ~21m in July 2012 and by a further ~6m in August 2012. While the decline in July was largely due to disconnection by one operator (RCOM), all major operators except RCOM/Aircel reported MoM decline in subscribers during August 2012. The decline was led by lower promotions/ channel commissions as well as likely non-availability of number series.

Expected quarterly performance summary

Bharti Airtel Idea Cellular Reliance Comm Tulip Telec om Sector Aggregate

CMP (INR) 28.09.12 265 85 65 46

(INR Million)

Rating Sep.12 Neutral Buy Neutral Sell

195,659 54,458 52,462 7,328 309,908

Sales Var. % YoY 13.3 17.9 4.1 4.2 12.2

Var. % QoQ 1.1 -1.1 -1.4 2.3 0.3

Sep.12 59,536 13,775 15,916 1,949 91,177

EBITDA Var. % YoY 2.4 16.1 -0.8 -4.1 3.5

Var. % QoQ 1.8 -4.0 -3.5 1.6 -0.1

Net Profit Sep.12 Var. % YoY 6,563 -36.1 2,036 92.5 1,281 -60.3 545 -37.4 10,424 -32.4

Var. % QoQ -13.9 -13.1 -33.1 -0.4 -16.1

Shobhit Khare ([email protected]) October 2012

C–174

September 2012 Results Preview Sector: Telecom

2G auction the key event to watch for: The regulatory environment continues to be uncertain. 2G spectrum auction scheduled in November 2012 would be crucial in determining spectrum pricing, going forward. While industry consolidation/exit of new entrants could lead to an improvement in the operating environment, potential participation of Reliance Industries in the 2G auction could disrupt the market recovery. Valuation and view: During FY12-14, we expect 7/19/5% EBITDA CAGR for BHARTI/ IDEA/RCOM, led by 9/15/6% traffic CAGR in the India wireless business. Reiterate Buy on IDEA (trades at an EV of 5.3x FY14E EBITDA), and Neutral on BHARTI (trades at an EV of 5.8x FY14E EBITDA) and RCOM (trades at an EV of 6.4x FY14E EBITDA).

8 5

F eb-09 Mar-09 Apr-09 May -09 J un-09 J ul-09 Aug-09 Sep-09 Oct-09 Nov -09 Dec -09 J an-10 F eb-10 Mar-10 Apr-10 May -10 J un-10 J ul-10 Aug-10 Sep-10 Oct-10 Nov -10 Dec -10 J an-11 F eb-11 Mar-11 Apr-11 May -11 J un-11 J ul-11 Aug-11 Sep-11 Oct-11 Nov -11 Dec -11 J an-12 F eb-12 Mar-12 Apr-12 May -12 J un-12 J ul-12 -21 Aug-12

-6

2

3

7 7 8 8

Industry subscriber base declined in July/August 2012

9 10 7 8

14 16 12 12 12 14 15 15 17 18 19 20 19 21 17 16 18 17 18 17 19 23 23 19 20 20 15 13 11

Wireless subscriber net additions (m)

Operator wise monthly subscriber additions (m)

Negative additions for operators during August 2012

QoQ wireless traffic growth (%)

We expect wireless traffic for majors to decline by ~1% QoQ in 2QFY13

Source: TRAI/MOSL October 2012

C–175

September 2012 Results Preview Sector: Telecom

We expect RPM to remain largely flat QoQ (INR) B harti

Id ea

Vodafone -In di a

RCOM

0.46

We expect RPM to remain largely flat QoQ

0.44 0.43 0.42

0.41

0.40

Net Debt/EBITDA (FY12, x)

2QFY13E

1QF Y13

4QF Y12

3QF Y12

2QF Y12

1QF Y12

4QF Y11

3QF Y11

2QF Y11

1QF Y11

0.38

Net Debt/Equity (FY12, x)

6.0

1.2

Leverage remains reasonable for Bharti/Idea but alarming for RCom

0.9

0.9

3.5

RCom

Vodafone Indi a

2.7

2.6

Bharti

Idea

RCom

Ide a

Bharti

Source: Company/MOSL

Aggregate traffic growth and RPM trend for wireless majors Qo Q traffi c growth (%) 7 4

6

5 2

0

2

0 -2

-2

-1 2QF Y13E

-1

1QFY13

1QFY12

4QFY11

3QFY11

2QFY11

-1

4QFY12

-2

-4

4

3

3QFY12

1 -1

1QFY11

Traffic to decline on seasonality; RPM to stabilize

QoQ RPM Growth (%)

2QFY12

10

Source: TRAI

October 2012

C–176

September 2012 Results Preview Sector: Telecom

2QFY13: Summary Expectations Wireless KPIs 1QFY11 2QFY11 3QFY11 4QFY11 1QFY12 2QFY12 3QFY12 4QFY12 1QFY13 2QFY13E YoY (%) QoQ (%) 137 69 111 109

143 74 117 116

152 82 126 124

162 90 136 135

169 95 143 142

173 100 147 145

176 106 150 148

181 113 153 150

187 117 155 154

186 116 135 154

8 16 -8 6

-0.8 -1.1 -12.6 -0.1

132 66 107 105

140 72 114 112

148 78 121 120

157 86 131 129

166 92 139 138

171 98 145 143

174 103 149 146

178 110 152 149

184 115 154 152

187 116 145 154

9 19 0 7

1.2 1.4 -5.8 1.0

215 182 130 191

202 167 122 177

198 168 111 176

194 161 107 171

190 160 103 169

183 155 101 168

187 159 100 173

189 160 99 179

185 156 98 180

181 152 104 175

-1 -2 2 4

-2.2 -2.4 5.9 -3.0

480 415 295 328 437

454 394 276 311 415

449 401 251 308 410

449 397 241 307 410

445 391 233 308 411

423 364 227 297 396

419 369 224 303 405

431 379 227 318 424

433 379 228 324 433

424 371 242 316 422

0 2 7 6 6

-2.0 -2.1 6.4 -2.5 -2.5

0.45 0.44 0.44 0.58 0.44

0.44 0.42 0.44 0.57 0.43

0.44 0.42 0.44 0.57 0.43

0.43 0.41 0.44 0.56 0.42

0.43 0.41 0.44 0.55 0.41

0.43 0.43 0.45 0.57 0.42

0.45 0.43 0.45 0.57 0.43

0.44 0.42 0.44 0.56 0.42

0.43 0.41 0.43 0.55 0.42

0.43 0.41 0.43 0.55 0.41

-1 -4 -4 -2 -2

-0.2 -0.2 -0.5 -0.5 -0.5

190 82 94 103 138

191 85 94 105 140

199 94 91 111 147

212 102 94 119 159

221 109 98 128 170

217 106 99 128 170

219 114 100 133 178

231 124 103 142 190

239 132 105 148 197

85

75

75

60 Sep-12

90

Jun-12

95

Sep-12

105

Aug-12

105

Jul-12

120

Jun-12

115

Sens ex Ind ex MOSL Tel ecom Ind ex

Mar-12

Sens ex Ind ex MOSL Tel ecom In dex

October 2012

237 9 -0.8 130 22 -1.0 105 6 0.2 146 14 -1.5 194 14 -1.5 Source: Company/MOSL

Relative Performance-1Yr (%)

Dec-11

Relative Performance-3m (%)

Sep-11

EOP Wireless Subs (m) Bharti (India) Idea* RCOM Voda fone - India AV. Wirele ss Subs (m) Bharti (India) Idea* RCOM Voda fone - India ARPU (INR/month) Bharti (India) Idea* RCOM Voda fone - India MOU/Sub Bharti (India) Idea* RCOM Voda fone India (report ed) Vodafone India (adj) Revenue per min (INR) Bharti (India) Idea* RCOM Voda fone India (report ed) Vodafone India (adj) Wireless traffic (B min) Bharti (India) Idea* RCOM Voda fone India (report ed) Vodafone India (adj)

C–177

September 2012 Results Preview Sector: Telecom

Quarterly Financials 1QFY11 2QFY11 3QFY11 4QFY11 1QFY12 2QFY12 3QFY12 4QFY12 1QFY13 2QFY13E YoY (%) QoQ (%) Revenue (INR b) Bharti (ex Africa)* Bharti (consolidated)* Idea** RCOM# EBITDA (INR B) Bharti (ex Africa)* Bharti (consolidated)* Idea** RCOM# EBITDA Margin (%) Bharti (ex Africa) Bharti (consolidated) Idea** RCOM# PAT (INR B) Bharti (ex Africa) Bharti (consolidated) Idea** RCOM EPS (INR) Bharti Idea RCOM

112.7 122.3 36.5 51.1

113.3 152.2 36.6 51.2

117.2 157.6 39.6 50.0

121.2 162.7 42.0 53.3

126.3 169.7 45.2 53.1

126.8 172.7 46.2 50.4

131.6 184.8 50.3 50.5

134.2 187.3 53.7 53.1

137.2 193.5 55.0 53.2

136.4 195.7 54.5 52.5

8 13 18 4

-0.5 1.1 -1.1 -1.4

42.4 44.1 8.9 16.3

42.2 51.2 8.8 16.6

43.7* 53.2* 9.5 16.7

44.3 54.5 10.0 15.9

46.0 57.1 12.0 16.0

45.7 58.2 11.9 16.1

45.2 59.6 13.4 16.1

47.4 62.3 15.1 16.3

43.6 58.5 14.4 16.5

43.7 59.5 13.8 15.9

-4 2 16 -1

0.2 1.8 -4.0 -3.5

37.6 36.1 24.3 31.9

37.3 33.7 24.0 32.4

37.3* 33.8* 24.0 33.3

36.6 33.5 23.9 29.9

36.4 33.6 26.6 30.2

36.1 33.7 25.7 31.8

34.4 32.2 26.7 31.9

35.3 33.3 28.1 30.7

31.8 30.2 26.1 31.0

32.0 -405bp 30.4 -324bp 25.3 -39bp 30.3 -151bp

24bp 20bp -79bp -68bp

19.0 16.8 2.0 3.0

20.4 16.6 1.8 4.9

18.3 13.0 2.4 5.3

18.2 14.0 2.0 1.8

15.2 12.2 1.8 2.2

14.5 10.3 1.1 3.2

12.7 10.1 2.0 2.4

13.5 10.1 3.4 2.0

14.3 7.6 2.3 1.9

11.1 6.6 2.0 1.3

-23 -36 92 -60

-22.4 -13.9 -13.1 -33.1

4.4 0.6 1.5

4.4 0.5 2.4

3.4 0.7 2.5

3.7 0.8 0.9

3.2 0.5 1.1

2.7 0.3 1.6

2.7 0.6 1.2

2.7 0.7 1.0

2.0 0.7 0.9

1.7 0.6 0.6

-36 92 -60

-13.9 -13.1 -33.1

Capex (INR b) Bharti (ex Africa) 17.4 29.3 29.3 Idea 3.6 3.0 9.5 RCOM 7.9 9.3 19.1 * Before re-branding expenses in 3QFY11; # Adj for consolidation with Spice; full merger from 1QFY11;

31.1 24.7 20.6 7.8 11.0 29.3 25.0 21 -14.7 14.6 10.4 11.0 9.0 8.4 4.1 8.8 -20 114.0 6.6 3.6 3.5 3.6 4.3 3.7 3.7 7 1.2 change in accounting for IRU sales in 4QFY11; ** Idea 4QFY10 includes 1 month Adj for one-off revenue of ~Rs340m and costs reversal of ~Rs380m in 4QFY11

Comparative valuation CMP (INR) 28.09.12 Telecommunication Bharti Airtel 265 Idea Cellular 85 Reliance Comm 65 Tulip Telec om 46 Sector Aggregate

October 2012

Rating

EPS (INR) FY12 FY13E FY14E

Neutral Buy Neutral Sell

11.2 2.2 4.8 19.1

7.6 3.1 3.6 12.2

10.5 5.8 5.9 11.2

P/E (x) FY12 FY13E FY14E 23.6 39.0 13.5 2.4 22.7

34.9 27.2 17.8 3.8 29.5

25.2 14.7 11.0 4.2 19.6

EV/EBITDA (x) FY12 FY13E FY14E 7.0 8.1 7.6 4.0 7.2

6.9 6.8 7.2 4.7 6.9

5.8 5.2 6.4 4.7 5.8

RoE (%) FY12 FY13E FY14E 8.1 5.7 2.9 22.9 6.5

5.3 7.7 2.3 11.3 4.9

7.0 12.8 3.6 9.5 6.9

C–178

September 2012 Results Preview Sector: Telecom

Bharti Airtel BSE Sensex

S&P CNX

18,763 5,703 Bloomberg BHARTI IN Equity Shares (m) 3,793.9 52 Week Range (INR) 412/239 1,6,12 Rel Perf (%) 0/-31/-44 Mcap (INR b) 1,004.8 Mcap (USD b) 19.1 

     

CMP: INR265 Year End 3/11A 3/12A 3/13E 3/14E

Net Sales PAT (INR b) (INR b) 595 60 715 43 796 29 870 40

Buy EPS (INR) 15.9 11.2 7.6 10.5

EPS Gr. (%) -32.6 -29.6 -32.4 38.4

P/E (X) 23.6 34.9 25.2

P/BV (X) 1.9 1.8 1.7

RoE (%) 12.6 8.1 5.3 7.0

RoCE (%) 8.7 6.2 4.5 5.1

EV/ EV/ Sales EBITDA 2.3 7.0 2.1 6.9 1.8 5.8

We expect consolidated revenue to grow 13.3% YoY and 1.1% QoQ to INR195.7b, largely driven by Africa. India and South Asia revenue would grow 8% YoY but decline 0.5% QoQ to INR136.5b. Africa business revenue is likely to grow 3% QoQ to USD1.1b. Consolidated EBITDA margin is likely to expand 20bp QoQ to 30.4%. EBITDA margin in the Africa business as well as India and South Asia would remain flat QoQ at 26% and 32%, respectively. We expect India and SA mobile revenue to grow 8% YoY but decline 1% QoQ to INR106b, led by 0.8% traffic decline and 0.2% RPM decline. Mobile EBITDA margin is likely to be 30.6%, up 30bp QoQ, led by lower SGA costs. Africa business performance is likely to improve, boosted by favorable currency movement resulting in 3%/5% revenue/EBITDA growth on a QoQ basis. We estimate an ARPU of USD6.4 and subscriber base of 59m. Consolidated net profit is likely to decline 36% YoY and 14% QoQ to INR6.6b. PAT for India and South Asia would decline 22-23% YoY/QoQ. We have not assumed any forex gain/loss for BHARTI in our 2QFY13 estimates. The stock trades at an EV of 6.9x FY13E and 5.8x FY14E EBITDA. Maintain Neutral. Key things to watch: QoQ mobile traffic in India (we expect 0.8% decline), forex loss (we have not modeled any forex loss/gain), Africa business financials (we expect 3%/5% revenue/EBITDA growth in USD terms).

Quarterly Performance (Consolidated) Y/E March

FY12 1Q 2Q 3Q 4Q Revenue 169,749 172,698 184,767 187,294 QoQ Growth (%) 4.4 1.7 7.0 1.4 EBITDA 57,058 58,151 59,584 62,329 QoQ Growth (%) 4.7 1.9 2.5 4.6 Margin (%) 33.6 33.7 32.2 33.3 Net Finance Costs 8,551 11,186 7,877 10,572 Depreciation & Amortization 31,314 31,839 35,845 34,683 Profit before Tax 17,195 15,126 15,807 17,056 Income Tax Expense / (Income) 5,141 4,900 5,585 6,976 Profit after Tax 12,054 10,226 10,222 10,080 Reported Net Profit / (Loss) 12,152 10,270 10,113 10,059 YoY Growth (%) -27.7 -38.2 -22.4 -28.2 India - Mobile ARPU (INR/month) 190 183 187 189 QoQ Growth (%) -1.6 -4.0 2.2 1.1 India - Mobile MOU/sub/month 445 423 419 431 QoQ Growth (%) -0.7 -5.0 -1.0 2.8 India - Mobi le Traffic (B Min) 221 217 219 231 QoQ Growth (%) 4.6 -1.9 0.9 5.4 India - Mobile RPM (INR/min) 0.43 0.43 0.45 0.44 QoQ Growth (%) -0.9 1.0 3.2 -1.7 Africa - Subscribers (m) 46 48 51 53 Africa - ARPU (USD/month) 7.2 7.3 7.1 6.8 Africa - EBITDA margin (%) 25.2 26.2 26.7 27.8 E: MOSL Estimates October 2012

(INR Million) FY13 1Q 2QE 3QE 193,501 195,659 200,269 3.3 1.1 2.4 58,487 59,536 61,512 -6.2 1.8 3.3 30.2 30.4 30.7 8,211 9,561 9,929 37,571 38,335 39,168 12,629 11,592 12,366 4,878 4,985 5,273 7,751 6,607 7,093 7,622 6,563 7,016 -37.3 -36.1 -30.6 185 181 188 -2.2 -2.2 4.3 433 424 437 0.4 -2.0 3.0 239 237 245 3.7 -0.8 3.0 0.43 0.43 0.43 -2.6 -0.2 1.3 56 59 61 6.5 6.4 6.3 25.8 26.2 26.5

FY12 FY13E 4QE 206,559 714,507 795,989 3.1 64,092 237,122 243,626 4.2 31.0 33.2 30.6 10,458 38,185 38,159 40,260 133,680 155,334 13,324 65,184 49,911 5,629 22,602 20,765 7,696 42,582 29,146 7,589 42,595 28,791 -24.6 -29.6 -32.4 195 188 189 3.5 447 431 438 2.2 252 889 973 3.0 0.44 0.44 0.43 1.3 64 53 64 6.2 7.1 6.3 26.8 26.5 26.3

C–179

September 2012 Results Preview Sector: Telecom

Idea Cellular BSE Sensex

S&P CNX

18,763 5,703 Bloomberg IDEA IN Equity Shares (m) 3,308.8 52 Week Range (INR) 103/71 1,6,12 Rel Perf (%) 8/-22/-27 Mcap (INR b) 282.4 Mcap (USD b) 5.4

CMP: INR85 Year End 3/11A 3/12A 3/13E 3/14E

Net sales PAT EPS (INR m) (INR m) (INR) 155,032 8,986 2.7 195,412 7,231 2.2 224,887 10,390 3.1 255,652 19,228 5.8

Buy EPS Gr. (%) -11.6 -19.6 43.5 85.0

P/E (X) 39.0 27.2 14.7

P/BV (X) 2.2 2.0 1.8

RoE (%) 7.6 5.7 7.7 12.8

RoCE (%) 5.2 5.4 6.1 9.2

EV/ EV/ Sales EBITDA 2.1 8.1 1.8 6.8 1.5 5.2



Consolidated revenue is likely to grow 18% YoY but decline 1% QoQ to INR54.5b.



We expect IDEA to report 0.9% QoQ decline in mobile traffic. RPM would decline 0.2% QoQ.



ARPU is likely to decline 2.4% QoQ to INR152 (v/s 2.5% decline in 1QFY13).



EBITDA margin would decline 80bp QoQ to 25.3%. We estimate EBITDA loss in new circles at INR1.7b, flat QoQ.



Net profit would grow 92% YoY but decline 13% QoQ to INR2b. The QoQ decline is largely due to negative operating leverage.



The stock trades at an EV of 6.8x FY13E and 5.3x FY14E EBITDA. Maintain Buy.



Key things to watch for: QoQ RPM trend (we expect 0.2% decline), mobile traffic (we expect 0.9% QoQ decline), EBITDA loss in new circles (we expect INR1.7b).

Quarterly Performance (Consolidated) Y/E March

(INR Million) FY12

1Q 2Q 3Q 4Q# 1Q 2QE Gross Revenue 45,207 46,199 50,308 53,697 55,037 54,458 YoY Growth (%) 23.7 26.3 27.2 27.8 21.7 17.9 QoQ Growth (%) 7.6 2.2 8.9 6.7 2.5 -1.1 EBITDA 12,040 11,866 13,446 15,071 14,355 13,775 YoY Growth (%) 35.5 35.0 41.8 50.2 19.2 16.1 QoQ Growth (%) 20.0 -1.4 13.3 12.1 -4.8 -4.0 Margin (%) 26.6 25.7 26.7 28.1 26.1 25.3 Net Finance Costs 2,463 2,939 2,880 2,275 2,670 2,358 Depreciation & Amortization 7,026 7,369 7,575 7,844 8,324 8,509 Profit before Tax 2,551 1,559 2,991 4,952 3,361 2,909 Inc ome Tax Exp. / (Income) 778 501 981 1,523 1,019 873 Adj Net Profit / (Loss) 1,773 1,058 2,010 3,429 2,342 2,036 YoY Growth (%) -12.0 -41.1 -17.3 69.4 32.1 92.5 Margin (%) 3.9 2.3 4.0 6.4 4.3 3.7 Mobile ARPU (INR/month) 160 155 159 160 156 152 QoQ Growth (%) -0.6 -3.1 2.6 0.6 -2.5 -2.4 Mobile MOU/sub/month 391 364 369 379 379 371 QoQ Growth (%) -1.5 -6.9 1.4 2.7 0.0 -2.0 Mobi le Traffic (B Min) 109 106 114 124 131 130 QoQ Growth (%) 6.5 -2.2 7.3 9.1 5.3 -0.9 Mobile RPM (INR) 0.41 0.43 0.43 0.42 0.41 0.41 QoQ Growth (%) 0.9 4.1 1.2 -2.0 -2.5 -0.4 E: MOSL Estimates; # Adjusted for INR1.5b one-off provision for licence and WPC charges October 2012

FY13 3QE 56,567 12.4 3.9 14,913 10.9 8.3 26.4 2,320 8,712 3,882 1,164 2,717 35.2 4.8 158 3.9 382 2.9 134 3.0 0.41 0.9

FY12

FY13E 4QE 58,823 195,411 224,886 9.5 26.0 15.1 4.0 15,942 50,924 58,986 5.8 34.3 15.8 6.9 27.1 26.1 26.2 2,307 10,557 9,655 8,929 29,814 34,474 4,706 10,553 14,857 1,412 3,322 4,468 3,294 7,231 10,390 -3.9 -19.5 43.7 5.6 3.7 4.6 162 158 158 2.7 388 372 383 1.6 138 453 533 3.0 0.42 0.42 0.41 1.0

C–180

September 2012 Results Preview Sector: Telecom

Reliance Communication BSE Sensex

S&P CNX

18,763 5,703 Bloomberg RCOM IN Equity Shares (m) 2,063.0 52 Week Range (INR) 110/47 1,6,12 Rel Perf (%) 21/-33/-31 Mcap (INR b) 133.6 Mcap (USD b) 2.5        

CMP: INR65 Year End 3/11A 3/12A 3/13E 3/14E

Neutral

Net Sales PAT EPS (INR m) (INR m) (INR) 205,627 14,936 7.2 203,424 9,884 4.8 213,915 7,518 3.6 226,430 12,101 5.9

EPS Gr. (%) -69.4 -33.8 -23.9 61.0

P/E (X) 13.5 17.8 11.0

P/BV (X) 0.4 0.4 0.4

RoE (%) 3.9 2.9 2.3 3.6

RoCE (%) 2.9 2.7 2.9 3.4

EV/ EV/ Sales EBITDA 2.4 7.6 2.2 7.2 2.0 6.4

We expect revenue to decline 1.4% QoQ to INR52.5b. Wireless ARPU is likely to grow 6% QoQ to INR104, led by ~20m subscriber disconnections in July 2012. We expect RPM to decline 0.5% QoQ to INR0.43. RCOM's RPM has remained largely flat over the last several quarters. Wireless traffic is likely to grow 7% YoY and remain flat QoQ. Consolidated EBITDA would grow 3% YoY to INR16.5b and margins would expand 30bp QoQ to 31%. We expect RCOM to report proforma PAT of INR1.9b. The stock trades at an EV of 7.2x FY13E and 6.4x FY14E EBITDA. Neutral. Key things to watch for: Margin trajectory in wireless business (we expect 150bp QoQ decline), RPM trend (we expect 0.5% decline).

Quarterly Performance (Consolidated)

(INR Million)

Y/E March 1Q Gross Revenue 49,401 YoY Growth (%) -3.3 QoQ Growth (%) -7.3 EBITDA 16,021 YoY Growth (%) -1.8 QoQ Growth (%) 0.6 Margin (%) 32.4 Net Finance Costs 4,050 Depreciation & Amortization 9,760 Profit before Tax 2,211 Income Tax Expense / (Income) -24 Adjusted Net Profit / (Loss) 2,235 YoY Growth (%) -25.4 Margin (%) 4.5 Extraordinary Exp/Minority Interest 661 Reported Net Profit / (Loss) 1,574 Wireless ARPU (INR/month) 103 QoQ Growth (%) -3.4 Wireless MOU/sub/month 233 QoQ Growth (%) -3.3 Wireless Traffic (B Min) 98 QoQ Growth (%) 3.2 Wireless RPM (INR) 0.44 QoQ Growth (%) -0.1 E: MOSL Estimates

October 2012

FY12 2Q 50,402 -1.5 2.0 16,051 -3.3 0.2 31.8 2,274 10,540 3,237 14 3,223 -34.3 6.4 702 2,521 101 -1.9 227 -2.6 99 1.4 0.45 0.7

3Q 50,521 1.0 0.2 16,111 -3.4 0.4 31.9 3,782 9,780 2,549 141 2,408 -54.2 4.8 546 1,862 100 -1.6 224 -1.3 100 1.0 0.45 -0.3

FY13 4Q 53,100 -0.4 5.1 16,322 2.5 1.3 30.7 5,795 9,703 824 -1,193 2,017 13.6 3.8 -1,299 3,316 99 -0.6 227 1.3 103 3.4 0.44 -2.0

1Q 53,192 7.7 0.2 16,502 3.0 1.1 31.0 5,534 9,093 1,875 -39 1,914 -14.4 3.6 290 1,624 98 -1.0 228 0.4 105 1.8 0.43 -1.3

2QE 52,462 4.1 -1.4 15,916 -0.8 -3.5 30.3 5,316 9,293 1,307 26 1,281 -60.3 2.4 229 1,052 104 5.9 242 6.4 105 0.2 0.43 -0.5

3QE 53,237 5.4 1.5 16,550 2.7 4.0 31.1 5,278 9,396 1,876 38 1,839 -23.6 3.5 229 1,610 114 9.7 262 8.1 107 1.4 0.43 1.4

FY12

FY13E

4QE 53,136 203,424 213,915 0.1 -1.1 5.2 -0.2 16,912 64,506 65,880 3.6 -1.5 2.1 2.2 31.8 31.7 30.8 5,067 15,901 21,036 9,472 39,783 37,254 2,373 8,822 7,590 47 -1,062 72 2,325 9,884 7,518 15.3 -33.8 -23.9 4.4 4.9 3.5 229 610 976 2,096 9,274 6,542 116 102 106 1.9 263 231 244 0.5 109 399 426 1.6 0.44 0.44 0.43 1.4

C–181

September 2012 Results Preview Sector: Telecom

Tulip Telecom BSE Sensex

S&P CNX

18,763 5,703 Bloomberg TTSL IN Equity Shares (m) 145.0 52 Week Range (INR) 163/42 1,6,12 Rel Perf (%) -56/-58/-85 Mcap (INR b) 6.7 Mcap (USD b) 0.1

CMP: INR46 Year End 3/11A 3/12A 3/13E 3/14E

Neutral

Net Sales PAT EPS (INR m) (INR m) (INR) 23,511 3,064 18.9 27,050 3,096 19.1 29,586 1,771 12.2 34,330 1,620 11.2

EPS Gr. (%) 32.7 1.0 -35.9 -8.6

P/E (X) 2.4 3.8 4.1

P/BV (X) 0.5 0.4 0.4

RoE (%) 28.6 22.9 11.3 9.5

RoCE (%) 14.0 12.0 8.1 7.4

EV/ EV/ Sales EBITDA 1.1 4.0 1.2 4.7 1.2 4.7



We expect consolidated revenue to grow 4% YoY to INR7.3b



EBITDA margin is likely to remain flat QoQ at ~27%. EBITDA would grow 2% QoQ to INR1.95b.



We expect reported PAT to decline 37% YoY to INR545m.



The stock trades at an EV of 4.7x FY13/FY14E EBITDA. Neutral.



Key things to watch for: Net finance cost (we expect 3% QoQ increase to INR571m), EBITDA margin trend (we expect margins to remain stable QoQ).

Quarterly Performance (Consolidated)

(INR Million)

Y/E March Gross Revenue YoY Growth (%) QoQ Growth (%) Tot al Operating Expenses EBITDA YoY Growth (%) QoQ Growth (%) Margin (%) Net Finance Costs Non-Operating Income Depreciation & Amortization Profit before Tax Income Tax Expense / (Income) Tax rate (%) Adjusted Net Profit / (Loss) YoY Growth (%) QoQ Growth (%) Margin (%) Exceptional items Reported PAT E: MOSL Estimates October 2012

FY12 1Q 6,539 24.5 2.5 4,691 1,848 30.3 -1.0 28.3 319 -11 495 1,023 251 25 772 20.3 -6.7 11.8 0 772

2Q 7,029 20.1 7.5 4,998 2,032 24.4 10.0 28.9 345 -26 502 1,159 288 25 871 11.6 12.8 12.4 0 871

3Q 6,866 14.0 -2.3 4,875 1,991 16.0 -2.0 29.0 427 10 526 1,048 276 25 773 -5.5 -11.3 11.3 0 773

FY13 4Q 6,617 3.7 -3.6 4,925 1,691 -9.4 -15.0 25.6 537 68 604 617 -42 25 660 -20.2 -14.6 10.0 0 660

1Q 7,165 9.6 8.3 5,246 1,919 3.9 13.5 26.8 556 0 628 736 189 26 547 -29.1 -17.1 7.6 616 1,163

2QE 7,328 4.2 2.3 5,379 1,949 -4.1 1.6 26.6 571 8 665 721 177 25 545 -37.4 -0.4 7.4 0 545

3QE 7,515 9.5 2.5 5,592 1,923 -3.4 -1.4 25.6 748 8 703 480 120 25 360 -53.4 -33.8 4.8 0 360

4QE 7,577 14.5 0.8 5,674 1,903 12.5 -1.0 25.1 734 10 762 417 103 25 314 -52.4 -12.8 4.1 0 314

FY12

FY13E

27,051 15.1

29,586 9.4

19,490 7,561 14.0

21,892 7,694 1.8

28.0 1,629 41 2,127 3,847 772 20 3,075 0.3

26.0 2,600 26 2,758 2,362 590 25 1,771 -42.4

11.4 0 3,075

6.0 616 2,382

C–182

September 2012 Results Preview Sector: Utilities

Utilities COMPANY NAME

CESC Coal India JSW Energy NHPC NTPC Power Grid PTC India Reliance Infrastructure Tata Po wer

We expect utilities companies under our coverage (excluding Coal India) to report aggregate revenue growth of 9% YoY and PAT de-growth of 2% YoY for 2QFY13. PAT growth would be muted for IPPs. However, CPSUs would witness robust PAT growth, led by 26% YoY PAT growth for NTPC (higher capacity addition) and 24% YoY PAT growth for Power Grid (better capitalization). July-August 2012 generation growth muted; PLFs of private coal-based plants most impacted: In July-August 2012, All India generation grew 2% YoY v/s 1QFY13/FY12 generation grow th of 6%/8%. Lower generation grow th despite capacity addition (6.9GW in YTD FY13) is led by de-growth in generation for gas-based (24% YoY) and hydro plants (14% YoY). Coal-based plants reported generation growth of 12%; however, PLF was muted. PLFs of private sector plants were most impacted in YTD FY13, down 10ppt YoY to 60%. Over the last 12 months, India has commissioned 22.6GW of projects (ex renewable energy). Capacity addition should remain strong, as CEA has targeted to add 18GW of projects in FY13, while 6.9GW of projects are already commissioned till August 2012. Power demand strong at 10% YoY; deficit up: Power demand has been strong in YTD FY13. Demand for the months of July-August 2012 grew 10% YoY. Uptick in demand has led to uptick in the deficit for India. YTD FY13 base deficit stood at 8.5% v/s 5.9% a year ago. Also, a relatively volatile monsoon season led to 239bp increase in peak deficit in August 2012 to 11% - in double digits for the first time since March 2012. Imported coal prices remain weak, ST prices also firm: Globally, imported coal prices have weakened. However, INR depreciation has partially taken away the benefit. In INR terms, during 2QFY13 the RB Index declined 5-6% QoQ (Coal Index down 8% QoQ to USD88/ton; INR depreciated 2% QoQ to INR55.2/USD). However, the recent INR appreciation could significantly improve fuel cost savings in 3QFY13. Average spot rate at IEX for 2QFY13 stood at INR3.5/unit (down 1% QoQ and up 22% YoY). ST prices at

Expected quarterly performance summary CMP (INR) 28.09.12 Adani Power 53 CESC 331 Coal India 359 JSW Energy 61 NHPC 19 NTPC 168 Power Grid Corp. 120 PTC India 71 Reliance Infrastructure 539 Tata Po wer 107 Sector Aggregate Sector Aggregate Ex Coal India

(INR Million)

Rating Sep.12 Neutral Buy Buy Buy Neutral Buy Buy Buy Buy Neutral

11,649 12,980 147,128 20,198 16,515 155,840 31,672 29,853 37,700 70,935 534,468 387,341

Sales Var. % YoY 8.6 4.6 11.9 102.7 -11.1 1.3 39.9 25.0 -4.6 13.5 10.1 9.4

Var. Sep.12 % QoQ -20.4 2,320 -8.6 2,882 -10.8 27,321 -7.8 5,438 16.2 11,540 -2.4 31,290 9.7 27,572 50.2 536 9.4 4,901 -2.2 13,048 -2.0 126,847 1.8 99,527

EBITDA Var. % YoY -55.3 10.8 10.3 360.2 -13.1 -3.4 45.3 20.8 -30.9 -3.4 6.2 5.1

Var. % QoQ 88.3 -0.6 -43.3 -6.8 27.7 -13.8 11.9 71.4 6.6 -7.7 -13.8 0.5

Net Profit Sep.12 Var. % YoY -2,872 PL 1,297 13.8 27,919 25.0 1,100 LP 8,533 9.8 18,604 25.7 9,392 23.6 423 19.0 2,551 -48.0 3,097 -30.0 70,044 7.0 42,125 -2.3

Var. % QoQ Loss 3.8 -37.7 -43.6 32.3 -22.1 3.6 84.9 -22.0 1.2 -22.6 -7.9

Nalin Bhatt ([email protected])/Satyam Agarwal ([email protected]) Vishal Periwal ([email protected]) October 2012

C–183

September 2012 Results Preview Sector: Utilities

IEX touched a high of INR6/unit in the middle of July 2012, but have fallen sharply since then. The ST forward curve has been strong; in the last three months, contacts have been executed at over INR4/unit. Valuation and view: The Power sector has begun to witness several initiatives by the authorities to address concerns on SEBs, fuel supply pacts and PPAs. However, it would take a while for clarity to emerge on several issues. In this environment, we continue to prefer CPSUs, which are relatively better positioned on these fronts. Our top picks are NTPC and JSW Energy.

Generation and PLFs of various plants Capacity Aug-12 (MW)* Generation PLF (%) Adani Power - Mundra Phase 1 4,620.0 GVK - JP 1 & 2 455.0 - Gautami 464.0 GMR - Barge Mounted 220.0 - Chennai 200.0 - Vemagiri 370.0 JPL - Chattisgarh 1,000.0 Rel Infra - Dahanu 500.0 - Samalkot (AP) 220.0 - Goa 48.0 - Kochi 174.0 Rel Power - Rosa 1,200.0 Tata Power - Tromba y 1,580.0 - TISCO (Jamshedpur) 441.3 - Mundra UMPP 800.0 Torrent Power - Existing 500.0 - Sugen 1,147.5 JSW Energy - Rajwest Unit-I 540.0 -Karnataka 2,060.0 CESC 1,285.0 Lanco Infratech - Kondapali 716.0 - Amarkantak (LANCO) 600.0 - UPCL 1,200.0 KSK - Wardha 540.0 Sterlite - Jharsuguda 2,400.0 *Monitored capacity by CEA

October 2012

Aug-11 Generation PLF (%)

Generation Jul-Aug-12 Jul-Aug-11

Chg (%)

1,414.1

41.1

1,251.7

85.0

3,117.8

2,181.9

42.9

143.1 92.8

43.0 27.4

266.1 268.5

80.0 79.3

290.8 200.6

466.5 512.1

-37.7 -60.8

38.1 46.7 70.4

23.7 32.0 26.1

125.5 45.8 198.8

78.1 31.4 73.6

90.2 84.1 292.8

361.5 112.6 465.3

NA -25.3 -37.1

707.3

95.1

662.5

89.0

1,343.8

1,412.4

-4.9

385.1 58.8 23.3 0.0

103.5 36.6 66.4 0.0

351.3 136.0 19.6 0.0

94.4 84.7 55.9 0.0

773.5 133.0 38.3 0.0

728.3 231.6 19.6 0.0

6.2 -42.5 95.2 NA

649.2

72.7

303.4

68.0

1,102.8

727.4

51.6

817.3 265.0 394.5

65.0 94.3 33.1

692.0 226.5 0.0

56.3 84.6 0.0

1,668.6 549.9 561.5

1,377.0 429.9 0.0

21.2 27.9 NA

254.2 428.8

85.4 51.2

293.0 732.7

82.9 87.5

551.0 825.9

596.7 1,410.7

-7.7 -41.5

295.1 1,401.6 814.6

73.5 91.5 85.2

0.0 873.8 790.6

0.0 133.5 83.0

474.6 2,710.8 1,640.9

0.0 762.4 1,613.9

NA 255.6 1.7

202.9 293.5 331.9

38.8 65.7 31.2

230.7 332.5 282.5

44.1 74.5 64.5

443.7 692.9 707.5

634.4 581.5 531.5

-30.1 19.2 33.1

227.0

56.5

208.7

70.6

552.2

442.0

24.9

749.6

42.0

494.5

37.6

1,517.2

1,099.8

37.9 Source: CEA

C–184

September 2012 Results Preview Sector: Utilities

12%

80

75 78 74 77 75 75 77 77 81 81 78 83 0% Mar

Feb

Jan

Dec

Nov

Oct

Sept

6.5 4.0

Forward ST prices at over INR4/unit

7.8

ST prices flattish (INR/unit)

4.26

45.0

45

23-Nov-12

8-Nov-12

8-Dec-12 55 40 25

46

10

40.5

-5

36.0

-20 2QFY13

2QFY13

1QFY13

4QFY12

3QFY12

2QFY12

1QFY12

4QFY11

3QFY11

2QFY11

1QFY11

* 6000Kcal, FoB South Africa, 2QFY12 price till 17 August

45 45

55

50

1QFY13

-30%

INR/USD

4QFY12

88

46

3QFY12

96

46

2QFY12

104 121 121 117 107 105

40

50

1QFY12

0%

October 2012

24-Oct-12

54.0 49.5

80

YoY (%)

54

3QFY11

30%

QoQ (%) 58.5

2QFY11

QoQ 60%

1QFY11

YoY

120

88

9-Oct-12

3.6 2QFY13

INR depreciation negated some of the impact (INR/USD)

Avg RB Index (USD/ton)

91

24-Sep-12

3.6 1QFY13

9-Sep-12

3.4 4QFY12

RB Index* softening (USD/ton) 160

4.22 4.22

4.6 2.9 2QFY12

3QFY12

3.1 1QFY12

4QFY11

2.3 3QFY11

3.1 2QFY11

1QFY11

3.6

5.3 4.1 4QFY10

3QFY10

2QFY10

1QFY10

3.5

5.3

4.20

4QFY11

Aug

July

June

May

April

60

9.2

7.5 8.6

Jul

4%

9.0

9.1

Jun

65

79

8.2

Apr

70

8%

84 85 86 83

FY12

14.0 11.5

75

FY11

Mar

85

FY13

16.5

Feb

16%

Jan

Gr (%)

Dec

FY13

Base deficit moving up (%)

Nov

FY 12

90

Aug-12

Aug-12

May-12

Feb-12

Nov-11

Aug-11

May-11

Feb-11

Power demand: Strong; up 10% YoY in YTD FY13

Jun-12

50 Apr-12

0

Feb-12

60

62 67 72 66 75 71 75 70 73 72 70 74 71 73 73 71 77 75 79 76 75 73 Nov-10

55

70

4

Dec-11

2 2

2

Pri vate Sector

80

Oct

2

60

8

Aug-11

5

4

90

Sep

5

12

Jun-11

8

8

Aug

8

Sta te Sector

Apr-11

7

6

4

9 9

May

65

8

100

Feb-11

10 7 8

Centre Sector 16

Dec-10

11

70

Gr (YoY, %)

Oct-10

Al l Indi a Genera ti on (BUs ) 14 14

75

PLFs of coal-based plants: Private sector most impacted (%)

Oct-11

July-August 2012: All-India generation grew 2% YoY

Source: CEA, IEX, CERC, Bloomberg, MOSL C–185

September 2012 Results Preview Sector: Utilities

Relative Performance-1Yr (%)

101

90

98

80 Sep-12

Jun-12

Sep-12

100

Sep-11

104

Aug-12

110

Jul-12

107

Dec-11

110

Se nse x Index MOSL Uti l i ti es Inde x

120

Jun-12

Sen sex Ind ex MOSL Util i ti e s Index

Mar-12

Relative Performance-3m (%)

Comparative valuation CMP (INR) 28.09.12

Rating

EPS (INR) FY12 FY13E FY14E

P/E (x) FY12 FY13E FY14E

EV/EBITDA (x) FY12 FY13E FY14E

RoE (%) FY12 FY13E FY14E

Utilities

Adani Power 53 CESC 331 Coal India 359 JSW Energy 61 NHPC 19 NTPC 168 Power Grid Corp. 120 PTC India 71 Reliance Infra. 539 Tata Power 107 Sector Aggregate * Coal India RoE adjusted

October 2012

Neutral Buy Buy Buy Neutral Buy Buy Buy Buy Neutral

-0.4 44.1 25.4 2.0 2.0 10.1 7.2 6.9 74.8 7.4

1.5 47.5 28.8 3.7 2.0 11.5 8.6 7.7 43.5 5.7

2.6 -124.7 53.0 7.5 30.9 14.1 6.3 30.1 2.1 9.4 13.5 16.6 10.3 16.8 9.5 10.2 48.0 7.2 4.0 14.4 14.6

36.2 7.0 12.5 16.5 9.6 14.6 14.0 9.2 12.4 18.7 13.3

20.3 6.2 11.6 9.7 9.3 12.4 11.6 7.4 11.2 27.0 12.0

28.6 5.5 10.3 12.4 7.0 11.6 12.4 14.0 2.0 17.9 11.0

13.8 5.2 8.1 8.0 7.9 11.3 10.1 7.3 3.0 17.2 9.6

10.0 4.9 7.1 6.1 7.7 9.3 9.4 6.5 2.4 17.6 8.4

-1.5 12.1 31.9 5.8 8.6 11.8 14.8 5.4 11.4 9.8 16.3

5.3 11.7 28.5 10.3 7.9 12.5 16.1 6.4 6.3 8.6 16.1

9.2 11.7 25.0 15.9 7.9 13.7 17.4 7.6 6.6 6.5 16.2

for OB reserves

C–186

September 2012 Results Preview Sector: Utilities

CESC BSE Sensex

S&P CNX

18,763 Bloomberg Equity Shares (m) 52 Week Range (INR) 1,6,12 Rel Perf (%) Mcap (INR b) Mcap (USD b)

5,703 CESC IN 125.6 339/186 1/12/6 41.6 0.8







 

CMP: INR331

Buy

Year Net Sales PAT EPS* End (INR m) (INR m) (INR) 03/11A 40,942 4,670 38.9 03/12A 46,050 5,543 44.1 03/13E 52,527 5,970 47.5 03/14E 58,139 6,662 53.0 * Excl Spencers; fully diluted

EPS* Gr. (%) 13.5 7.7 11.6

P/E* (X) 7.5 7.0 6.2

P/BV (X) 0.9 0.8 0.7

RoE (%) 11.3 12.1 11.7 11.7

RoCE (%) 10.2 10.6 10.4 10.2

EV/ EV/ Sales EBITDA 1.3 5.4 1.1 5.1 1.0 4.8

We expect CESC to report revenue of INR13b (up 5% YoY) and PAT of INR1.3b (up 14% YoY) for 2QFY13. For the period April-May 2012, CESC's 1,225MW generation projects operated at 92% PLF v/s 90% in April-May 2011, while generation was 1.6BU, up 2% YoY. After several rounds of discussions, the Cabinet has approved 51% FDI in multi-brand retail with a rider that the states will have the final say in accepting the proposals. FDI in retail has opened up a window of opportunity for Spencer's to raise long-term funds for its growth. However, state nod is the key to success; 53% of Spencer's area is in states that are opposing the FDI policy. Restructuring led to improvement in Spencer's gross margin and overall performance in 1QFY13. Average sales at Spencer's grew 14% YoY in 1QFY13 to INR1,151/sf/month and store-level EBITDA improved to INR42/sf/ month v/s INR26/sf/month in 1QFY12. We understand that store EBITDA has improved further to INR50/sf/ month on the back of same store sales (SSS) growth of 15%. CESC targets EBITDA breakeven in 3QFY14. CESC has spent INR8.3b (equity) towards 1.2GW of projects as at June 2012. The management expects the Chandrapur project to commission in the next 12 months. The Haldia project is likely to be operational by FY15. We expect CESC to post standalone PAT (ex Spencer's) of INR6b in FY13 (up 8%) and INR6.7b in FY14 (up 12%). The stock trades at 7x FY13E and 6.2x FY14E reported EPS. Maintain Buy.

Operational Details Generation Sales Realization (INR/unit) Overall PLF (Derived) (%)

1QFY12 2,395 2,256 5.2 89.3

2QFY12 2,356 2,324 5.3 87.8

3QFY12 2,197 2,005 5.1 81.9

4QFY12 1,997 1,811 7.6 74.4

1QFY13 2QFY13E 3QFY13E 4QFY13E 2,430 2,425 2,220 2,041 2,467 2,392 2,026 1,678 5.8 5.4 6.5 7.6 90.6 90.4 82.8 76.1

Quarterly Performance (Standalone Numbers - excl Spencers Retail) Y/E March Sales Change (%) EBITDA Change (%) As of % Sales Depreciation Interest Other Income PBT Tax Effective Tax Rate (%) Reported PAT Adjusted PAT Change (%) E: MOSL Estimates October 2012

2Q 12,410 12.3 2,600 -18.2 21.0 720 750 290 1,420 280 19.7 1,140 1,140 -15.6

3Q 10,320 9.9 2,130 -15.8 20.6 750 660 200 920 180 19.6 740 740 -32.7

FY13 4Q 13,790 57.6 4,320 75.6 31.3 720 650 380 3,330 670 20.1 2,660 2,510 124.1

FY13E 9,116 8,556 6.1 92.5

(INR Million)

FY12 1Q 11,830 7.9 2,671 4.3 22.6 710 700 130 1,391 280 20.1 1,111 1,111 1.0

FY12 8,945 8,396 5.5 83.3

1Q 14,200 20.0 2,900 8.6 20.4 770 780 210 1,560 310 19.9 1,250 1,250 12.5

2QE 12,980 4.6 2,882 10.8 22.2 785 740 275 1,632 335 20.5 1,297 1,297 13.8

3QE 13,125 27.2 3,473 63.1 26.5 800 730 310 2,253 462 20.5 1,791 1,791 142.1

4QE 12,782 -7.3 3,011 -30.3 23.6 816 732 399 1,862 391 21.0 1,471 1,471 -41.4

FY12

FY13E

45,930 12.2 11,570 7.8 25.2 2,900 2,760 1,000 6,910 1,410 20.4 5,500 5,500 17.8

52,527 14.4 12,426 7.4 23.7 3,171 2,982 1,194 7,467 1,497 20.0 5,970 5,970 8.5 C–187

September 2012 Results Preview Sector: Utilities

Coal India BSE Sensex

18,763 Bloomberg Equity Shares (m) 52 Week Range (INR) 1,6,12 Rel Perf (%) Mcap (INR b) Mcap (USD b)

S&P CNX

5,703 COAL IN 6,316.4 386/294 -6/-1/-13 2,270.4 43.1

CMP: INR359

Buy

Year Net Sales* PAT* # EPS# End (INR m) (INR m) (INR) FY11A 502,336 109,309 17.3 FY12A 624,154 160,725 25.4 FY13E 693,038 181,666 28.8 FY14E 746,196 194,891 30.9 *Consolidated; # Adjusted; $ RoE is

EPS Gr. (%) 11.2 47.0 13.0 7.3 adj. for

P/E P/BV RoE$ RoCE EV/ EV/ (X) (X) (%) (%) Sales EBITDA 26.4 54.8 14.1 5.6 31.9 57.3 2.7 10.3 12.5 4.4 28.5 56.0 2.4 8.1 11.6 3.6 25.0 48.2 2.1 7.1 OB reserves accounts, as appplicable under IFRS

We expect Coal India (COAL) to report revenue of INR147b (up 12% YoY) and PAT of INR28b (up 25% YoY). We estimate production at 90m tons (up 12% YoY) and dispatches at 104m tons (up 12% YoY). During 2QFY13 (till 9 September) COAL's production was 69m tons (up 9% YoY) and dispatches were 79m tons (up 6% YoY).  E-auction price has been one of the key drivers of earnings growth for COAL. However, we saw a marginal dip in e-auction realization in 1QFY13. We gather that premium over notified prices has further weakened in 2QFY13. We build in e-auction realization of INR2,300/ton in 2QFY13 v/s an average of INR2599/ton in FY12 and INR2,562/ ton in 1QFY13. Softening in global coal prices and appreciating INR could put pressure on realizations of marketlinked volumes (e-auction/washed) for COAL.  The board has approved new FSA (fuel supply agreement) norms, with supply of 65% coal from its own production and 15% from imports. It has approved a revised penalty structure, with base penalty of 1.5% (trigger level of 65-80%) and peak penalty of 40% (supply below 50%).  We expect COAL to report consolidated PAT of INR182b for FY13 (up 13%) and INR195b for FY14 (up 7%). The stock trades at 12.5x FY13E and 11.6x FY14E reported EPS. Maintain Buy.  

Operational Details Volume Assumptions (m tons) Production Sales/Offtake Blended Realization (INR/ton) - Regulated - E-auction

1QFY12

2QFY12

3QFY12

4QFY12

1QFY13 2QFY13E 3QFY13E 4QFY13E

96.3 106.3

80.3 93.2

114.6 110.3

144.6 122.9

102.5 113.0

90.0 104.0

121.0 119.0

1,188 2,246

1,225 2,435

1,174 2,852

1,339 2,852

1,261 2,562

1,260 2,300

1,260 2,750

FY12

FY13E

154.5 132.0

435.8 433.1

468.0 468.0

1,349 2,802

1,235 2,599

1,285 2,617

Quarterly Performance Y/E March Sales Change (%) EBITDA Change (%) As of % Sales Depreciation Interest Other Income EO Income/(Expense) PBT Tax Effective Tax Rate (%) Reported PAT Adjusted PAT* Change (%) E: MOSL Estimates October 2012

(INR Million) FY12 1Q 2Q 3Q 144,991 131,481 153,493 26.8 18.2 20.9 48,197 24,773 45,421 55.5 39.8 34.5 33.2 18.8 29.6 4,308 5,734 5,257 55 83 76 15,589 17,942 18,559 132 165 52 59,555 37,064 58,699 18,115 11,132 18,322 30.4 30.0 31.2 41,439 25,931 40,378 41,308 22,341 36,901 62.8 46.8 39.7

FY13 4Q 194,190 29.7 37,856 -27.2 19.5 4,103 326 23,280 458 57,164 17,221 30.4 39,943 60,493 43.6

1Q 2QE 3QE 165,006 147,128 172,505 13.8 11.9 12.4 48,146 27,321 49,319 -0.1 10.3 8.6 29.2 18.6 28.6 5,356 5,500 5,600 126 150 160 20,714 18,500 19,500 -103 0 0 63,275 40,171 63,059 18,582 12,252 19,391 29.4 30.5 30.8 44,693 27,919 43,668 44,796 27,919 43,668 8.4 25.0 18.3

4QE 208,400 7.3 75,073 98.3 36.0 5,744 181 20,576 0 89,725 27,632 30.8 62,093 62,093 2.6

FY12

FY13E

624,154 24.3 156,388 16.6 25.1 19,402 540 75,369 734 212,549 64,790 30.5 147,759 160,725 47.1

693,038 11.0 203,049 29.8 29.3 22,200 617 79,290 0 259,522 77,857 30.0 181,666 181,666 13.0 C–188

September 2012 Results Preview Sector: Utilities

JSW Energy BSE Sensex

S&P CNX

18,763 Bloomberg Equity Shares (m) 52 Week Range (INR) 1,6,12 Rel Perf (%) Mcap (INR b) Mcap (USD b)

5,703 JSW IN 1,640.1 77/36 30/-4/-2 99.7 1.9

 

  

CMP: INR61 Year Net Sales * End (INR m) 3/11A 42,944 3/12A 61,189 3/13E 90,980 3/14E 102,038 * Consolidated

Buy PAT* EPS (INR m) (INR) 8,418 5.1 3,314 2.0 6,056 3.7 10,269 6.3

EPS Gr. (%) 12.5 -60.6 82.7 69.6

P/E (X) 11.8 30.1 16.5 9.7

P/BV (X) 1.8 1.7 1.7 1.5

RoE (%) 14.8 5.8 10.3 15.9

RoCE (%) 9.7 6.4 10.7 14.0

EV/ EV/ Sales EBITDA 3.0 12.7 2.3 8.2 1.9 6.2

We expect JSWEL to report consolidated revenue of INR20.2b (up 103% YoY) and PAT of INR1.1b (v/s loss of INR221m in 2QFY12) for 2QFY13. JSWEL generated 3.2BU (up 74% YoY) during July-August 2012. Average PLF for the 2,060MW Karnataka/Ratnagiri project stood at 90% (v/s 71% a year ago) and at 59% (v/s 74% in 1QFY13) for the 540MW Rajwest project. In 2QFY13, we expect JSWEL to sell 4.5BU (up 75% YoY). 55% of its sales would be on merchant tariffs. JSWEL's gross margin had improved to INR2.1/unit in 1QFY13. Consumption of high cost inventory had restricted margin expansion in 1Q. The management expects gross margin expansion from 2QFY13. 540MW of capacity at Rajwest is in operations and JSWEL has synchronized an additional 3 units (405MW). The entire project would be ready for commissioning by 2QFY13. We expect JSWEL to report consolidated PAT of INR6.2b for FY13 (up 88%) and INR10.5b for FY14 (up 69%). The stock trades at 16.5x FY13E and 9.7x FY14E reported EPS. Maintain Buy.

Operational Details Sales (MUs) - Long Term - Merchant ST as a % of total Realization (INR/unit)

1QFY12 2,422 672 1,750 72.3 4.51

2QFY12 2,593 646 1,947 75.1 3.15

3QFY12 3,965 1,441 2,524 63.7 3.99

4QFY12 4,617 2,157 2,460 53.3 4.18

1QFY13 2QFY13E 3QFY13E 4QFY13E 4,731 4,481 5,149 5,806 2,233 2,062 2,714 3,273 2,498 2,419 2,435 2,533 52.8 54.0 47.3 43.6 4.56 4.51 4.49 4.43

Quarterly Performance (Consolidated)

Total Operating Income Change (%) EBITDA Change (%) Depreciation Interest Other Income Extraordinary items PBT Tax Effective Tax Rate (%) Reported PAT Exceptional Income/ (Expense) Reported PAT (Post MI) Adjusted PAT Change (%) E: MOSL Estimates October 2012

FY13E 20,167 10,282 9,885 49.0 4.51

(INR Million)

Y/E March

FY12 1Q 12,724 36.5 3,932 -13.1 1,048 1,338 220 0 1,766 441 25.0 1,326 0 1,363 1,363 -54.4

FY12 13,594 4,902 8,692 63.9 4.37

2Q 9,965 17.8 1,182 -63.6 1,098 1,510 708 868 -1,586 -481 30.3 -1,105 868 -1,089 -221 -114.3

3Q 17,687 64.3 3,495 -1.2 1,379 1,995 288 1,375 -965 -148 15.3 -817 1,375 -827 549 -60.2

FY13 4Q 20,812 44.6 5,869 35.5 1,509 2,329 259 -621 2,910 607 20.9 2,303 -621 2,303 1,683 -18.3

1Q 21,915 72.2 5,834 48.4 1,697 2,426 764 2,325 150 160 106.4 -10 1,915 34 1,949 43.0

2QE 20,198 102.7 5,438 360.2 1,721 2,450 425 0 1,692 592 35.0 1,100 0 1,100 1,100 n.a.

3QE 23,142 30.8 6,556 87.6 1,977 2,650 440 0 2,369 829 35.0 1,540 0 1,540 1,540 180.6

4QE 25,724 23.6 7,342 25.1 2,349 3,227 428 0 2,193 769 35.0 1,425 0 1,467 1,467 -12.8

FY12

FY13E

61,187 42.5 14,477 -7.4 5,033 7,172 1,466 1,613 2,125 419 19.7 1,706 1,613 1,700 3,313 -60.6

90,980 48.7 25,169 73.9 7,744 10,753 2,057 2,325 6,404 2,350 36.7 4,055 1,915 4,141 6,056 82.8 C–189

September 2012 Results Preview Sector: Utilities

NHPC BSE Sensex

S&P CNX

18,763 5,703 Bloomberg NHPC IN Equity Shares (m) 12,300.7 52 Week Range (INR) 25/15 1,6,12 Rel Perf (%) 2/-10/-32 Mcap (INR b) 238.0 Mcap (USD b) 4.5

  



 

CMP: INR19 Year Net Sales End (INR m) 03/11A 51,436 03/12A 69,203 03/13E 60,489 03/14E 67,177 * Pre Exceptional

Neutral PAT EPS EPS (INR m) (INR) Gr. (%) 18,169 1.6 17.4 23,652 2.0 28.4 23,187 2.0 -1.7 24,071 2.1 3.8 Earnings, Consolidated

P/E (X) 9.4 9.6 9.3

P/BV (X) 0.8 0.8 0.8

RoE (%) 7.0 8.6 7.9 7.9

RoCE (%) 8.6 10.3 7.6 7.9

EV/ EV/ Sales EBITDA 4.9 7.0 4.9 7.9 4.8 7.7

We expect NHPC to report revenue of INR16.5b (down 11% YoY) and PAT of INR8.5b (up 10% YoY) for 2QFY13. In July-August 2012, NHPC's generation was 5.2BU (up 10% YoY). In FY13, NHPC is targeting to add 1.1GW of projects. It has commissioned Chamera-III 231MW in YTD FY13. Chutak (44MW) and Nimo Bazgo (45MW) projects are ready for commissioning but CoD is partly impacted due to transmission line delays. Local agitation has impacted the commissioning of Uri-II (240MW). The Kishanganga project (330MW) is caught in the controversy between India and Pakistan. The Supreme Court has asked the Ministry of Power (MoP), the Ministry of Environment and Forests (MoEF), and NHPC to file an affidavit on the ongoing Lower Subansiri Hydel Electric Project (LSHEP), which is caught in controversy after an NGO, Assam Public Works (APW), prayed before the apex court to take note of the impact of the LSHEP on low lying areas. As at the end of 1QFY13, NHPC's outstanding debtors stood at INR21b and debtors above 60 days stood lower at INR9.1b (v/s INR12b+ as at the end of FY12). We expect NHPC to report consolidated PAT of INR23.2b for FY13 (down 2%) and INR24.1b for FY14 (up 4%). The stock trades at 9.6x FY13E and 9.3x FY14E reported EPS. Maintain Neutral.

Operational Details Generation (MUs) Increase/ (Decrease) (%) Installed Capacity (MW) - Owned - JV's

1QFY12 6,284 11.0 5,287 3,767 1,520

2QFY12 6,939 -2.6 5,287 3,767 1,520

3QFY12 860 -72.0 5,287 3,767 1,520

4QFY12 1,423 -46.1 5,287 3,767 1,520

1QFY13 2QFY13E 3QFY13E 4QFY13E 6,148 7,618 1,313 3,673 -2.2 9.8 52.7 158.1 5,287 5,518 5,518 5,979 3,767 3,998 3,998 4,459 1,520 1,520 1,520 1,520

Quarterly Performance (Standalone)

Sales Change (%) EBITDA Change (%) As of % Sales Depreciation Interest Other Income EO Income/(Expense) PBT Tax Effective Tax Rate (%) Reported PAT Adjusted PAT Change (%) E: MOSL Estimates October 2012

FY13E 18,752 0.4 5,979 4,459 1,520

(INR Million)

Y/E March

FY12 1Q 14,708 44.2 9,565 17.4 65.0 2,258 865 3,275 0 9,717 1,807 18.6 7,910 6,050 18.4

FY12 18,683 1.0 5,287 3,767 1,520

2Q 18,585 45.1 13,283 25.4 71.5 2,234 883 3,042 -352 12,856 3,191 24.8 9,665 7,769 13.3

3Q 8,820 17.5 3,788 -17.7 43.0 2,237 876 2,032 0 2,707 586 21.6 2,122 2,976 63.9

FY13 4Q 14,437 23.0 9,942 94.6 68.9 2,199 799 2,255 689 9,889 1,868 18.9 8,021 2,109 -18.3

1Q 14,218 -3.3 9,040 -5.5 63.6 2,218 798 2,451 0 8,475 1,777 21.0 6,698 6,450 6.6

2QE 16,515 -11.1 11,540 -13.1 69.9 2,350 830 2,650 0 11,010 2,477 22.5 8,533 8,533 9.8

3QE 10,170 15.3 5,095 34.5 50.1 2,550 875 2,400 0 4,070 916 22.5 3,154 3,154 6.0

4QE 9,426 -34.7 3,816 -61.6 40.5 2,702 1,096 2,931 0 2,949 671 22.7 2,278 2,279 8.1

FY12

FY13E

56,550 33.8 36,579 28.6 64.7 8,927 3,422 10,604 337 35,169 7,452 21.2 27,717 18,884 15.1

50,329 -11.0 29,491 -19.4 58.6 9,819 3,599 10,432 0 26,504 5,841 22.0 20,664 20,664 9.4 C–190

September 2012 Results Preview Sector: Utilities

NTPC BSE Sensex

18,763 Bloomberg Equity Shares (m) 52 Week Range (INR) 1,6,12 Rel Perf (%) Mcap (INR b) Mcap (USD b)







 

S&P CNX

5,703 NTPC IN 8,245.5 190/139 -9/-6/-14 1,384.0 26.3

CMP: INR168

Buy

Year Net Sales PAT * EPS* EPS P/E P/BV End* (INR m) (INR m) (INR) Gr. (%) (X) (X) 03/11A 548,740 79,580 9.7 -5.9 03/12A 611,449 79,720 9.7 0.2 17.4 1.9 03/13E 711,487 93,776 11.4 17.6 14.8 1.8 03/14E 790,502 111,540 13.5 18.9 12.4 1.6 * Pre Excep tional consolida ted Earnings; We have f actored wef FY11 onwards

RoE RoCE EV/ EV/ (%) (%) Sales EBITDA 12.2 12.2 11.8 11.8 2.8 11.7 12.5 12.5 2.5 11.3 13.7 13.7 2.4 9.3 in RoE gross-up ba se d on MAT

We expect NTPC to report revenue of INR156b (up 2% YoY) and PAT of INR18.6b (up 26% YoY) for 2QFY13. PAT growth would largely be on the back of base effect, as September 2011 operations were impacted due to coal shortage/wet coal and due to strike at Coal India. Generation for the period July-August 2012 was 36.5BU (up 2% YoY) while 1QFY13 generation was up 8% YoY. This is largely due to maintenance shutdown taken for a large part of its coal capacity. Coal-based generation was up 3% YoY in July-August 2012 while gas-based generation was down 1% YoY. NTPC's coal plant PLF for JulyAugust 2012 was 77% v/s 82% in July-August 2011. YTD FY13, NTPC has added capacity of 2.1GW (FY13 target of 4.1GW) and has commercialized 2.3GW. In JulyAugust 2012, it commercialized 660MW Sipat U-III. We expect accelerated capacity addition and commercialization in 2HFY13. Under the 12th Plan, NTPC's capacity addition target is 14GW and it has 16.6GW capacity under construction. Additional 2.6GW (Meja/Solapur) is targeted for addition during the 12th Plan period on best effort basis. We expect NTPC to report PAT of INR94b for FY13 (up 13%) and INR112b for FY14 (up 18%). The stock trades at 14.8x FY13E and 12.4x FY14E reported EPS. Maintain Buy.

Operational Details Installed Capacity (MW) Addition (MW) PLF (%) - Coal based projects - Gas based projects

1QFY12 34,854 660

2QFY12 34,854 -

3QFY12 36,014 1,160

4QFY12 37,014 1,000

86.9 62.6

78.4 60.8

83.5 71.1

91.1 66.8

1QFY13 2QFY13E 3QFY13E 4QFY13E 39,174 39,174 40,674 41,174 2,160 1,500 500 86.5 64.5

80.0 65.0

89.0 65.0

Quarterly Performance (Standalone) Y/E March

FY13E 41,174 4,160

85.0 65.2

85.0 65.0

(INR Million) FY12

1Q 2Q 3Q 4Q 1Q 2QE Sales 141,715 153,775 153,333 162,639 159,600 155,840 Change (%) 9.5 4.2 13.6 4.8 12.6 1.3 EBITDA 28,662 32,387 28,564 41,127 36,306 31,290 Change (%) 2.2 -2.2 -22.1 12.9 26.7 -3.4 As of % Sales 20.2 21.1 18.6 25.3 22.7 20.1 Depreciation 6,411 6,583 7,560 7,363 7,602 8,500 Interest 3,744 3,312 4,496 4,870 4,994 5,150 Other Income 9,964 10,093 9,121 7,679 8,849 7,500 PBT 28,472 32,586 25,629 36,574 32,559 25,140 Tax 7,714 8,346 4,324 10,640 7,573 6,536 Effective Tax Rate (%) 27.1 25.6 16.9 29.1 23.3 26.0 Reported PAT 20,758 24,240 21,304 25,934 24,987 18,604 Adjusted PAT 19,015 14,797 20,692 22,958 23,888 18,604 Change (%) 13.0 -8.4 -1.1 -10.6 25.6 25.7 E: MOSL Estimates; Adj profit based on the calculations provided by the management October 2012

95.3 64.5

FY12 37,014 2,820

FY13 3QE 181,322 18.3 38,372 34.3 21.2 9,200 5,400 7,550 31,322 8,144 26.0 23,179 23,179 12.0

FY12

FY13E 4QE 214,725 611,462 711,487 32.0 7.8 16.4 45,978 131,437 151,947 11.8 -2.1 15.6 21.4 21.5 21.4 10,620 27,917 35,922 6,066 17,116 21,610 7,713 36,858 31,612 37,005 123,262 126,026 9,648 31,024 31,151 26.1 25.2 24.7 27,357 92,238 94,875 27,357 79,720 93,776 19.2 0.2 17.6

C–191

September 2012 Results Preview Sector: Utilities

Power Grid Corporation BSE Sensex

S&P CNX

18,763 5,703 Bloomberg PWGR IN Equity Shares (m) 4,629.7 52 Week Range (INR) 124/95 1,6,12 Rel Perf (%) -7/4/10 Mcap (INR b) 557.2 Mcap (USD b) 10.6

CMP: INR120 Year End 3/11A 3/12A 3/13E 3/14E

Net Sales (INR m) 83,887 100,353 133,383 158,493

Buy

PAT EPS (INR M) (INR) 25,411 5.5 33,199 7.2 39,908 8.6 47,902 10.3

EPS Gr (%) 0.3 30.6 20.2 20.0

P/E (X) 16.8 14.0 11.6

P/BV (X) 2.4 2.1 1.9

RoE (%) 13.6 14.8 16.1 17.4

RoCE (%) 9.3 9.2 9.7 9.5

EV/ EV/ Sales EBITDA 10.4 12.4 8.7 10.1 8.1 9.4



We expect Power Grid Corporation of India (PWGR) to report revenue of INR32b (up 40% YoY) and PAT of INR9.3b (up 24% YoY) for 2QFY13. PWGR capitalized ~INR9b in July 2012 and is likely to capitalize INR35b in 2QFY13. The board has accorded investment approval for projects worth INR72b (v/s INR97b YoY) in YTD FY13.



Over the last few months, PWGR's order awards have picked up. It has awarded orders worth INR74b (v/s INR21.2b YoY) in YTDFY13, against project awards of INR232b in FY12 and INR161b in FY11.



For FY13, we expect PWGR to capitalize INR170b, up 21%. In FY12, fixed asset capitalization stood at INR141b v/s INR68b in FY11. For FY13, PWGR has approved capex plans of INR200b v/s INR177b in FY12.



Despite the issues relating to fuel and SEB financials raising doubts on capacity addition in the country, PWGR is upbeat on its capitalization target. Under the 12th Plan, it is focusing on capitalization of corridors rather than transmission lines dedicated to generation projects.



We expect PWGR to report PAT of INR40b in FY13 (up 20%) and INR47.9b in FY14 (up 20%). The stock trades at 14x FY13E and 12x FY14E reported EPS. Maintain Buy.

Operational Details Capitalization (INR m) Regulated Equity (INR m)

1QFY12 8,020 137,918

2QFY12 32,550 147,683

3QFY12 22,280 154,367

4QFY12 78,150 177,812

1QFY13 2QFY13E 3QFY13E 4QFY13E FY12 41,000 35,000 45,000 49,000 141,000 190,112 200,612 214,112 228,812 177,812

Quarterly Performance

(INR Million)

Y/E March Sales Change (%) EBITDA Change (%) As of % Sales Depreciation Interest Other Income Extraordinary Inc / (Exp) PBT Tax Effective Tax Rate (%) Reported PAT Adjus ted PAT (Pre Exceptional) Change (%) E: MOSL Estimates October 2012

FY13E 170,000 228,812

FY12 1Q 22,025 10.2 18,455 9.8 83.8 5,790 4,446 1,432 13 9,638 2,586 26.8 7,053 7,022 18.9

2Q 22,644 6.5 18,978 6.3 83.8 5,966 5,556 1,942 -21 9,419 2,331 24.8 7,087 7,601 27.1

3Q 24,666 20.2 21,027 21.7 85.2 6,792 4,735 1,096 31 10,565 2,472 23.4 8,092 7,743 28.1

FY13 4Q 31,019 40.3 26,038 40.2 83.9 7,177 5,413 3,069 164 16,354 6,037 36.9 10,317 10,832 44.7

1Q 28,883 31.1 24,646 33.6 85.3 7,565 6,461 920 0 11,540 2,836 24.6 8,705 9,065 29.1

2QE 31,672 39.9 27,572 45.3 87.1 8,100 6,800 650 0 13,322 3,930 29.5 9,392 9,392 23.6

3QE 34,010 37.9 29,560 40.6 86.9 9,000 7,300 700 0 13,960 4,118 29.5 9,842 9,842 27.1

FY12 FY13E 4QE 38,820 100,353 133,383 25.1 19.6 32.9 32,597 83,824 114,375 25.2 18.9 36.4 84.0 83.5 85.7 9,505 25,725 34,170 7,822 19,432 28,023 718 7,497 2,989 0 187 0 15,989 45,976 55,170 4,738 13,427 15,622 29.6 29.2 28.3 11,251 32,550 39,548 11,251 33,199 39,908 3.9 30.7 20.2

C–192

September 2012 Results Preview Sector: Utilities

PTC India BSE Sensex

S&P CNX

18,763 5,703 Bloomberg PTCIN IN Equity Shares (m) 294.5 52 Week Range (INR) 76/38 1,6,12 Rel Perf (%) 19/11/-11 Mcap (INR b) 20.8 Mcap (USD b) 0.4

 







CMP: INR71

Buy

Year Net Sales PAT* EPS* End (INR m) (INR m) (INR) 03/11A 90,632 1,660 5.6 03/12A 76,502 2,041 6.9 03/13E 99,995 2,266 7.7 03/14E 128,054 2,816 9.5 * Consolidated

EPS* Gr. (%) 50.0 22.9 11.0 24.3

P/E* (X) 10.2 9.2 7.4

P/BV (X) 0.9 0.9 0.9

RoE (%) 6.5 5.4 6.4 7.6

RoCE (%) 9.2 8.6 6.0 5.9

EV/ EV/ Sales EBITDA 0.2 11.8 0.2 14.8 0.1 12.6

We expect PTC India (PTCIN) to report revenue of INR30b (up 25% YoY) and PAT of INR423m (up 19% YoY) for 2QFY13. Over July-August 2012, PTCIN's volumes stood at ~6.3BU (up 4% YoY). In 2QFY13, we expect PTCIN's traded volumes to be 9.4BU (up 8.6% YoY). Volume growth should pick up in 2HFY13, with the commissioning of sizable projects (including tolling projects) on LT basis. In FY13, we expect PTCIN to trade 28BU (up 15%). We expect average trading margin (adjusted for surcharge and rebates) of INR0.039/unit in 2QFY03 (v/s INR0.058/ unit in 2QFY12). The muted margin growth would be primarily led by increasing competitive intensity in India's power trading market. PTCIN's market share (excluding cross border and intra-state) in ST volumes for July 2012 increased 2% YoY to 35%. In 1QFY13, PTCIN received INR1b from Tamil Nadu (TN) and another tranche of INR750m from TN in July/August 2012. Thus, the outstandings from TN are lower at INR4.5b v/s INR7b earlier. The managment expects to receive the balance dues from TN by 3QFY13. We understand that PTCIN has also begun to realize small sums from UP and expect increased payments once the tariff hike is approved for UP. We expect PTCIN to report consolidated PAT of INR2.2b for FY13 (11%) and INR2.8b for FY14 (up 24%). The stock trades at 9.2x FY13E and 7.4x FY14E reported EPS. Maintain Buy.

Operational Details Power Traded (MUs) Adj Margins (Ps/Unit)

1QFY12 6,726 4.91

2QFY12 8,655 4.16

3QFY12 4,564 3.78

4QFY12 4,380 4.68

1QFY13 2QFY13E 3QFY13E 4QFY13E 6,566 9,400 5,500 6,531 3.98 3.97 3.48 4.30

Quarterly Performance (Standalone) Y/E March

FY12 24,325 4.39

(INR Million) FY12

FY13

FY12

1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE Sales 24,874 23,890 13,300 14,436 19,869 29,853 20,881 29,392 76,502 Change (%) -9.8 -3.3 -24.3 -30.6 -20.1 25.0 57.0 103.6 -15.6 EBITDA 476 444 210 323 313 536 400 590 1,453 Change (%) 77.1 16.5 -48.5 -5.9 -34.4 20.8 90.6 82.8 3.7 As of % Sales 1.9 1.9 1.6 2.2 1.6 1.8 1.9 2.0 1.9 Depreciation 11 11 11 11 10 11 11 14 45 Interest 14 79 103 64 1 0 0 1 260 Other Income 174 140 43 150 26 80 85 90 505 PBT 626 493 138 394 304 605 474 666 1,656 Tax 173 138 43 98 98 181 142 200 452 Effective Tax Rate (%) 27.7 27.9 31.0 25.0 32.3 30.0 30.0 30.0 27.3 Reported PAT 453 356 95 302 206 423 332 466 1,204 Adjusted PAT 453 356 95 299 229 423 332 466 1,201 Change (%) 59.4 -0.5 -74.9 -10.5 -49.4 19.0 248.5 56.0 -11.1 E: MOSL Estimates; % Change for FY13E not comparable given inclusion of tolling profits from 1QFY13 onwards October 2012

FY13E 27,997 3.81

FY13E 99,995 1,838 26.5 1.8 45 2 281 2,095 622 29.7 1,474 1,450

C–193

September 2012 Results Preview Sector: Utilities

Reliance Infrastructure BSE Sensex

S&P CNX

18,763 Bloomberg Equity Shares (m) 52 Week Range (INR) 1,6,12 Rel Perf (%) Mcap (INR b) Mcap (USD b)

5,703 RELI IN 267.5 680/328 9/-15/17 144.1 2.7

 







CMP: INR539

Buy

Year Net Sales PAT EPS* End (INR m) (INR m) (INR) 3/11A 95,289 10,809 40.4 3/12A 178,503 20,002 74.8 3/13E 163,041 11,638 43.5 3/14E 151,643 12,845 48.0 * Consolidated, Fully Diluted

EPS P/E* Gr. (%) RATIO 1.0 85.0 7.2 -41.8 12.4 10.4 11.2

P/BV (X) 0.8 0.7 0.7

RoE (%) 6.8 11.4 6.3 6.6

RoCE (%) 7.4 13.3 8.6 8.0

EV/ EV/ Sales EBITDA 0.3 2.0 0.4 2.9 0.3 2.2

We expect Reliance Infrastructure (RELI) to report revenue of INR37.7b (down 16% YoY) and PAT of INR2.5b (down 37% YoY) for 2QFY13. Towards its EPC segment, RELI is likely to post revenue of INR18.5b (v/s INR24b in 2QFY12) and EBITDA margin of 8% (v/s 23% in 2QFY12) for 2QFY13. The company's EPC order book stands at INR156b (book-to-bill ratio of 1.3x). For FY13, RELI is targeting EPC revenue of INR90b-100b and margins of 8-10%. The company has exited the INR51b Worli-Haji Ali Sealink project, citing changes in terms of contract by MSRDC. It has received BG of INR1b from MSRDC however it had spent INR1.5b in preliminary activites towards the project. Post tariff hike in Mumbai business, RELI has not seen RAB (regulatory asset base) addition in the last three quarters in its Mumbai distribution business. Similarly, for its Delhi distribution business, the accretion to RAB is NIL on an ongoing basis post tariff hike and 8% surcharge. Fuel cost is also allowed to be passed through on a quarterly basis. The Delhi business has RAB of INR130b, of which DERC has approved RAB of INR90b. RAB addition of INR40b over 2011-12 is likely to be approved once the petition for 2013-14 is filed. We expect RELI to report standalone PAT of INR11.6b for FY13 (down 42%) and INR12.8b for FY14 (up 10%). The stock trades at 12.4x FY13E and 11.2x FY14E reported EPS. Maintain Buy.

Operational Details EPC Revenues (INR m) EPC EBITDA (INR m) Margin (%)

1QFY12 18,849 3,824 20.3

2QFY12 24,309 5,579 23.0

3QFY12 29,801 5,020 16.8

4QFY12 43,823 4,982 11.4

1QFY13 2QFY13E 3QFY13E 4QFY13E 17,749 18,500 21,000 29,251 3,031 1,480 1,890 2,702 17.1 8.0 9.0 9.2

Quarterly Performance (Standalone) Y/E March

FY13E 86,500 9,103 10.5

(INR Million) FY12

1Q 2Q 3Q Sales 36,607 39,505 44,777 Change (%) 64.3 62.0 69.8 EBITDA 6,961 7,096 6,518 Change (%) 174.7 70.5 144.1 As of % Sales 19.0 18.0 14.6 Depreciation 689 638 615 Interest 570 833 1,231 Other Income 1,093 1,126 1,468 PBT 6,795 6,752 6,140 Tax (incl con ting encies) 2,490 1,794 1,982 Effective Tax Rate (%) 36.6 26.6 32.3 Reported PAT 4,305 4,957 4,158 PAT (Pr e Exceptionals) 2,874 4,903 4,057 Change (%) 16.7 122.4 118.6 E: MOSL Estimates; Quarterly nos. are on standalone basis October 2012

FY12 116,781 19,405 16.6

FY13 4Q 57,316 148.1 6,173 156.1 10.8 736 1,832 1,685 5,290 -1,292 -24.4 6,581 6,478 56.6

1Q 34,473 -12.7 4,598 -35.2 13.3 1,130 1,902 2,586 4,152 882 21.2 3,270 3,270 -33.3

2QE 37,700 -15.8 4,901 -24.8 13.0 1,100 1,925 1,350 3,226 675 20.9 2,551 2,551 -37.1

3QE 40,655 -29.1 5,285 -14.4 13.0 1,100 1,900 1,375 3,660 765 20.9 2,895 2,895 -55.3

FY12

FY13E 4QE 50,213 178,205 163,041 -49.1 85.3 -8.5 5,447 26,748 20,231 -47.2 127.1 -24.4 10.8 15.0 12.4 1,121 2,678 4,452 1,852 4,466 7,579 1,202 5,372 6,514 3,676 24,977 14,714 755 4,975 3,077 20.5 19.9 20.9 2,921 20,002 11,638 2,921 19,621 11,638 -71.9 84.1 -40.7

C–194

September 2012 Results Preview Sector: Utilities

Tata Power BSE Sensex

18,763 Bloomberg Equity Shares (m) 52 Week Range (INR) 1,6,12 Rel Perf (%) Mcap (INR b) Mcap (USD b)

S&P CNX

5,703 TPWR IN 2,373.3 122/81 2/3/-8 253.8 4.8

CMP: INR107

Neutral

Year Net Sales PAT* EPS* EPS* P/E* P/BV End (INR m) (INR m) (INR) Gr. (%) (X) (X) 03/11A 69,180 17,516 7.4 18.4 03/12A 84,958 17,628 7.4 0.6 14.4 2.2 03/13E 93,003 13,490 5.7 -23.5 18.8 2.1 03/14E 97,488 9,357 3.9 -30.6 27.1 2.0 * Consolidated incl share of profit from KPC and Arutmin Diluted

RoE RoCE EV/ EV/ (%) (%) Sales EBITDA 7.5 6.2 9.8 6.2 3.8 17.9 8.5 5.3 3.4 17.2 6.4 5.2 3.3 17.6 mines, Pre Exceptionals, Fully



We expect Tata Power (TPWR) to report standalone revenue of INR22b (up 9% YoY) and PAT of INR2.2b (down 39% YoY) for 2QFY13. Consolidated PAT for the quarter is likely to be INR3.1b (down 31% YoY).



Generation from TPWR's 2,021MW (Mumbai region) capacity in July-August 2012 was 2.2BU, up 23% YoY. Mundra UMPP generation for the period was 561MU and PLF was muted at 30% v/s 87% in 1QFY13.



TPWR has synchronized the 2nd unit of Mundra UMPP and we expect FY14 to be the first full year of operations. Losses from Mundra UMPP will limit consolidated earnings growth.



TPWR has filed a petition with India's CERC, asking for a tariff hike of ~INR0.67/unit for its Mundra project. CERC has heard TPWR petition and has asked buyers of electricity from the 4,000MW Mundra project to submit their response by the first week of October.



Owing to falling imported coal prices, PT Berau Coal Energy, a subsidiary of Bumi Plc has lowered its production forecast to 20m-22m tons from 23m tons. However, KPC/Arutmin has kept production target intact.



We expect TPWR to report consolidated PAT of INR13.5b for FY13 (down 24%) and INR9.4b for FY14 (down 31%). The stock trades at 18.8x FY13E and 27.1x FY14E reported EPS. Maintain Neutral.

Quarterly Performance (Standalone)

(INR Million)

Y/E March Units Generated Total Operating Income Change (%) EBITDA Change (%) As of % Sales Depreciation Interest Other Income PBT Tax Effective Tax Rate (%) Reported PAT Adjusted PAT Change (%) Consolidated Adjusted PAT Change (%) E: MOSL Estimates

October 2012

FY12 1Q 3,889 19,212 2.9 4,279 -5.1 22.3 1,331 1,124 2,476 4,299 1,484 34.5 2,816 2,940 33.9 4,158 -1.0

2Q 3,772 19,481 19.1 4,189 19.3 21.5 1,353 1,165 3,323 4,995 1,865 37.3 3,130 3,658 68.3 4,425 12.8

3Q 3,970 22,519 36.3 4,751 43.2 21.1 1,512 1,280 4,105 6,065 1,483 24.5 4,582 1,844 23.9 5,523 34.9

FY13 4Q 3,599 23,747 34.7 4,443 7.8 18.7 1,508 1,388 -69 1,478 308 20.9 1,170 2,295 43.1 3,522 -36.3

1Q 4,259 22,841 18.9 3,759 -12.1 16.5 1,548 1,386 3,456 4,281 1,158 27.1 3,123 3,721 26.6 3,059 -26.4

2QE 3,850 21,170 8.7 4,745 13.3 22.4 1,550 1,400 1,250 3,045 822 27.0 2,223 2,223 -39.2 3,097 -30.0

3QE 4,100 23,925 6.2 4,725 -0.6 19.7 1,575 1,475 1,325 3,000 810 27.0 2,190 2,190 18.8 3,521 -36.3

4QE 3,783 25,067 5.6 5,059 13.9 20.2 1,554 1,528 1,333 3,310 891 26.9 2,419 2,419 5.4 3,839 9.0

FY12

FY13E

15,230 84,958 22.8 17,662 14.3 20.8 5,704 4,957 9,835 16,837 5,140 30.5 11,696 10,736 38.7 17,628 -0.7

15,992 93,003 9.5 18,288 3.5 19.7 6,227 5,789 7,364 13,636 3,682 27.0 9,954 10,553 -1.7 13,490 -23.5

C–195

September 2012 Results Preview Sector: Consumer

Castrol India BSE Sensex

S&P CNX

18,763 Bloomberg Equity Shares (m) 52 Week Range (INR) 1,6,12 Rel Perf (%) Mcap (INR b) Mcap (USD b) 

 

 

5,703 CSTRL IN 494.6 318/193 -2/11/14 154.0 2.9

CMP: INR311 Net Sales PAT Year End (INR m) (INR m) 12/10A 28,020 4,914 12/11A 30,821 4,853 12/12E 33,290 4,715 12/13E 35,811 5,768

Buy EPS (INR) 9.9 9.8 9.5 11.7

EPS P/E YoY (%) (X) 27.6 -1.2 31.7 -2.8 32.6 22.3 26.7

P/BV (X) 25.5 23.9 21.5

RoE (%) 79.4 93.7 83.8 75.6

RoCE (%) 112.6 133.6 109.4 101.0

EV/ EV/ Sales EBITDA 4.8 22.5 4.4 22.5 4.1 18.0

We expect Castrol (CSTRL) to report volume growth of ~5.8% YoY and value growth of ~15.3% YoY for 3QCY12, primarily driven by a low base (3QCY11 volumes had declined 8.7% YoY) and recent price hikes. CSTRL had taken price increases of 4-5% across key categories in June 2012 and 2-3% in 3QCY12, the impact of which would be visible in 3QCY12. Nonetheless, one-time marketing initiatives like discount of INR20/Kl for two-wheeler lubes during part of 3QCY12 are likely to partially negate the benefits of the price hikes. Almost 80% of CSTRL's demand in volume terms is from the replacement market. The OEM market accounts for only ~20%. Since profitability in the OEM segment is very low, the share of OEM market in operating profit is even lower. Hence, we believe CSTRL is unlikely to be much impacted by the current growth slowdown in automotive segments such as HCVs and two-wheelers. EBITDA is likely to grow 14% YoY to INR1.5b while EBITDA margin is likely to shrink 20bp YoY to 19.2% on the back of higher raw material cost. We expect net profit to grow 11.2% YoY to INR1.1b. The stock trades at 32.6x CY12E and 26.7x CY13E EPS. We remain bullish on CSTRL's long-term prospects, given its pricing power, unique positioning in the lubricants industry and strong fundamentals. Buy.

Quarterly Performance

(INR Million)

Y/E December Volumes (MT) % YoY Net Sales YoY Change (%) Net Raw Material Employee Expenses Other Operating Expenses Total Expenditure EBITDA Margins (%) Depreciation Interest Other Income PBT Tax Rate (%) PAT YoY Change (%) Margins (%) E: MOSL Estimates

CY11 1Q 56 2.4 7,507 14.8 3,965 259 1,489 5,713 1,794 23.9 63 4 303 2,030 664 32.7 1,366 16.6 18.2

2Q 54 -10.1 7,900 6.2 4,378 297 1,269 5,944 1,956 24.8 63 2 226 2,117 692 32.7 1,425 -5.2 18.0

3Q 46 -8.7 6,716 4.8 3,948 318 1,147 5,413 1,303 19.4 62 9 170 1,402 451 32.2 951 -18.6 14.2

CY12 4Q 52 -3.7 7,694 10.6 4,654 285 1,225 6,164 1,530 19.9 63 4 147 1,610 542 33.7 1,068 0.8 13.9

1Q 53 -5.9 7,817 4.1 4,590 265 1,394 6,249 1,568 20.1 60 7 335 1,836 607 33.1 1,229 -10.0 15.7

2Q 57 4.8 8,513 7.8 4,974 339 1,506 6,819 1,694 19.9 60 3 162 1,793 584 32.6 1,209 -15.2 14.2

3QE 49 5.8 7,746 15.3 4,521 325 1,409 6,255 1,491 19.2 67 5 166 1,585 527 33.3 1,058 11.2 13.7

4QE 55 -2.9 9,214 19.8 4,993 320 2,096 7,408 1,806 19.6 70 5 167 1,898 678 35.7 1,219 14.2 13.2

CY11

CY12E

208 -7.3 29,817 9.0 16,945 1,159 5,130 23,234 6,583 22.1 251 19 846 7,159 2,349 32.8 4,810 -1.9 16.1

213 6.6 33,290 11.6 19,078 1,248 6,405 26,731 6,558 19.7 257 19 830 7,112 2,397 33.7 4,715 -2.0 14.2

Siddharth Bothra ([email protected]) October 2012

C–196

September 2012 Results Preview

Multi Commodity Exchange of India BSE Sensex

18,763

S&P CNX

5,703

Bloomberg MCX IN Equity Shares (m) 51.0 52 Week Range (INR) 1,426/838 1,6,12 Rel Perf (%) 11/-6/Mcap (INR b) 65.5 Mcap (USD b) 1.2

CMP: INR1,284 Year End 3/11A 3/12A 3/13E 3/14E

Sales (INR m) 3,689 5,262 5,172 6,152

PAT (INR m) 1,728 3,618 3,542 3,392

Buy EPS (INR) 33.9 56.1 56.1 66.5

EPS Gr. (%) (21.6) 65.6 18.5

P/E (X) 22.9 22.9 19.3

P/BV (X) 6.6 5.8 5.0

RoE (%) 22.4 31.0 26.9 27.8

RoCE (%) 16.7 24.8 25.8 26.9

EV/ EV/ Sales EBITDA 10.1 15.9 10.1 16.2 8.3 12.9



We expect revenue to grow 4.3% QoQ (but decline 17.7% YoY) to INR1.28b.



Total value of trades at the exchange increased 6.2% QoQ, but declined 19% YoY, on a huge base of 2QFY12, when trading in gold and silver had surged.



Our EBIT estimate stands at INR740m, implying an EBIT margin of 57.7%, +170bp QoQ, on leverage effect of quarterly volume increase. Our EBIT estimate implies a decline of 26% YoY.



Our PAT estimate is INR712m, up 10% QoQ but down 21% YoY.



Key things to watch: Terminal additions; market share; transaction yield.



The stock trades at 22.9x FY13E and 19.3x FY14E EPS. Maintain Buy.

Quarterly Performance

(INR Million)

Y/E March Sales Q-o-Q Gr. (%) Staff Costs Admin and other expenses Depreciation EBIT Margins (%) Other Income PBT Tax Rate (%) Net Income after exceptional item Q-o-Q Gr. (%) EPS (INR) E: MOSL Estimates

FY12 1Q 1,169 10.4 69 382 64 654 55.9 215 869 248 28.6 620 12.9 12.2

2Q 1,558 33.3 67 421 71 999 64.1 224 1,223 327 26.7 896 44.5 17.5

3Q 1,296 -16.8 65 411 70 750 57.9 280 1,030 342 33.2 688 -23.2 13.5

FY13 4Q 1,239 -4.4 79 420 67 672 54.3 308 981 181 18.4 800 16.3 12.9

1Q 1,230 -0.7 78 396 67 689 56.0 233 921 274 29.7 647 -19.1 12.7

2QE 1,283 4.3 79 393 71 740 57.7 256 996 284 28.5 712 10.0 14.0

3QE 1,326 3.4 80 405 71 769 58.0 272 1,040 297 28.5 744 4.5 14.6

4QE 1,352 2.0 82 413 71 787 58.2 280 1,067 304 28.5 763 2.6 15.0

FY12

FY13E

5,262 42.6 280 1,635 272 3,075 58.4 1,027 4,102 1,098 26.8 2,862 62.8 56.1

5,172 -1.7 340 1,607 286 2,940 56.8 1,044 3,984 1,121 28.1 2,863 56.1

Ashish Chopra ([email protected]) October 2012

C–197

September 2012 Results Preview Sector: Diversified

Sintex Industries BSE Sensex

18,763

S&P CNX

5,703

Bloomberg SINT IN Equity Shares (m) 271.0 52 Week Range (INR) 148/50 1,6,12 Rel Perf (%) 14/-29/-66 Mcap (INR b) 18.1 Mcap (USD b) 0.3  







CMP: INR67 Net Sales PAT Year End (INR m) (INR m) 03/11A 44,837 4,553 03/12A 44,535 3,535 03/13E 46,347 3,537 03/14E 51,778 4,151

Buy EPS (INR) 16.8 13.0 13.0 15.3

EPS YoY (%) 57.2 -22.4 0.1 17.4

P/E (X) 5.1 5.1 4.4

P/BV (X) 0.7 0.6 0.5

RoE (%) 20.9 14.0 12.7 13.3

RoCE (%) 14.8 11.3 10.9 12.7

EV/ EV/ Sales EBITDA 0.9 5.4 0.8 5.0 0.7 4.0

Expect YoY de-growth: We expect Sintex Industries' 2QFY13 revenue to de-grow 7% YoY to INR10.7b, EBITDA to de-grow 11% to INR1.7b and Adjusted PAT to de-grow 24% to INR751m. Expect marginal uptick in monolithic; overseas composite to post another weak quarter: We expect the degrowth to be driven by slowdown in Monolithic segment (18% YoY revenue de-growth, +7%QoQ) and overseas composites (20% YoY revenue de-growth). In monolithic, Sintex is witnessing slow improvement in approval process and expects full clarity on the stalled sites by 3QFY13. Overseas, automobile and electrical verticals are yet to show any sign of improvement, but the management expects uptick in electrical segment by 3QFY13. Prefab, Textiles to remain stable: Most other verticals are likely to remain stable: (1) Prefab 18% revenue growth with margin of 20%, and (2) Stable margin in Textiles (21%) and Tanks (10%). Domestic composites is expected to de-grow 14% YoY as Bright was impacted by strikes at Maruti during 2QFY13. Clarity on funding of FCCB redemption key: Sintex has to redeem FCCBs worth USD285m in Mar-13. Of this, USD110m is unutilized; Sintex plans to fund the balance with a mix of ECBs and internal accruals. Clarity on this is a key factor to watch out for. The stock trades at FY13E P/E of 4.4x and EV/EBITDA of 5x. Sintex's current valuation reflects both (1) growth moderation, and (2) other concerns (FCCB repayment, potential conflict of interest in power venture, etc). We value Sintex at INR91 per share based on FY13E P/E of 7x, which is a 33% discount to its LPA P/E.

Quarterly Performance

(INR Million)

Y/E March 1Q Operating Income 11,120 YoY Growth (%) 22.1 EBITDA 1,892 EBITDA Margin (%) 17.0 YoY Growth (%) 22.1 Depreciation 439 Interest 350 Other Income 168 Extraordinary items -9 Profit before Tax 1,271 Tax Provisions 338 Tax / PBT 26 PAT before MI & Income from Assoc 933 Min. Int. and Profit from Associate 0 Consolidated PAT 946 Adj. Consolidated PAT 946 YoY Growth (%) 20.0 E: MOSL Estimates

FY12 2Q 11,571 25.4 2,044 17.7 19.1 437 416 67 -596 662 275 22 387 0 389 985 -61.1

3Q 11,608 -2.1 1,631 14.1 -17.1 467 354 154 135 1,099 283 29 816 -6 824 689 -27.8

FY13 4Q 10,236 -30.1 1,600 15.6 -45.2 335 238 115 4 1,147 263 23 884 28 913 909 -45.3

1Q 10,806 -2.8 1,776 16.4 -3.4 483 354 42 -289 692 241 35 451 17 468 757 -20.0

2QE 10,710 -7.4 1,669 15.6 -11.8 435 365 81 -8 942 207 22 735 8 742 751 -23.8

3QE 11,980 3.2 1,921 16.0 14.1 452 365 67 -180 991 227 23 764 8 772 952 38.2

4QE 12,891 25.9 2,104 16.3 4.4 404 377 79 -189 1,214 266 19 948 8 956 1,145 26.0

FY12

FY13E

44,535 -0.7 7,177 16.1 -12.0 1,678 1,358 505 -466 4,179 1,160 25.0 3,019 0 3,068 3,535 -22.4

46,347 4.1 7,474 16.1 4.1 1,774 1,461 270 -666 3,842 941 20.9 2,901 30 2,871 3,537 0.1

Sandipan Pal ([email protected]) October 2012

C–198

September 2012 Results Preview Sector: Agrochemicals

United Phosphorus BSE Sensex

S&P CNX

18,763 Bloomberg Equity Shares (m) 52 Week Range (INR) 1,6,12 Rel Perf (%) Mcap (INR b) Mcap (USD b)

5,703 UNTP IN 461.8 169/105 7/-8/-19 60.6 1.2

CMP: INR131 Year Net Sales PAT End (INR m) (INR m) 03/11A 58,045 5,701 03/12A 76,547 5,890 03/13E 87,801 6,885 03/14E 98,629 9,003

Buy EPS (INR) 12.3 12.8 14.9 19.5

EPS Gr. (%) 3.8 3.3 16.9 30.8

P/E (X) 10.3 8.8 6.7

P/BV (X) 1.5 1.3 1.1

RoE (%) 17.0 14.9 15.5 17.8

RoCE (%) 17.0 17.3 17.0 18.2

EV/ EV/ Sales EBITDA 1.0 6.3 0.8 5.2 0.7 4.1



Expect United Phosphorus (UNTP) to report 15% YoY growth in consolidated revenue to INR20.4b, with domestic revenue growing 6% and international revenue 30%. (Performance is strictly not comparable YoY due to consolidation of Sipcam and DVA Agro.)



EBITDA margin is expected to decline by 100bp YoY to 17.3% due to higher RM costs and fixed cost, translating into EBITDA growth of 8% to INR3.5b.



We are factoring in MTM forex gain of INR110m (v/s forex loss of INR1.1b in 2QFY12), boosting 120% YoY growth in PAT to INR1.57b.



UNTP has guided for FY13 revenue growth of 15%, EBITDA margin of 18-20% and tax rate of 15-20%.



The company has announced buyback of up to 19.2m shares at a price up to INR150 i.e. cash outgo of up to ~INR2.9b.



We believe current valuations of 8.8x FY13E EPS of INR14.9 and 6.7x FY14E EPS of INR19.5 factor in short-term headwinds. Maintain Buy with target price of INR195 (10x FY14E EPS).

Quarterly Performance (Consolidated)

(INR Million)

Y/E March Net Revenues YoY Change (%) Total Expenditure EBITDA Margins (%) Depreciation Interest Other Income PBT before EO Expense Extra-Ord Expense PBT after EO Expense Tax Rate (%) Reported PAT Income from Associate Co Adjusted PAT YoY Change (%) Margins (%) E: MOSL Estimates

FY12 1Q 18,542 26.3 15,173 3,370 18.2 628 714 305 2,332 0 2,332 466 20.0 1,866 -23 1,843 29.5 9.9

2Q 17,757 41.3 14,502 3,255 18.3 719 1,918 196 814 144 670 151 22.5 519 51 713 -37.8 4.0

3Q 19,080 56.1 15,798 3,282 17.2 785 826 305 1,977 11 1,966 626 31.8 1,340 -216 1,135 35.2 5.9

FY13 4Q 21,269 15.9 17,402 3,867 18.2 792 688 173 2,560 242 2,319 37 1.6 2,282 -263 2,256 -3.4 10.6

1Q 22,142 19.4 18,278 3,864 17.5 734 1,109 354 2,375 0 2,375 703 29.6 1,672 357 2,029 10.1 9.2

2QE 20,360 14.7 16,839 3,521 17.3 850 890 190 1,971 0 1,971 453 23.0 1,518 50 1,568 119.9 7.7

3QE 21,613 13.3 17,813 3,800 17.6 900 1,000 300 2,200 0 2,200 660 30.0 1,540 -190 1,350 19.0 6.2

4QE 23,686 11.4 19,296 4,390 18.5 1,040 1,131 202 2,421 0 2,421 156 6.5 2,265 -327 1,938 -14.1 8.2

FY12

FY13E

76,547 32.9 62,873 13,674 17.9 2,924 4,146 979 7,582 396 7,187 1,280 17.8 5,907 -398 5,834 0.0 7.6

87,801 14.7 72,225 15,576 17.7 3,524 4,131 1,046 8,968 0 8,968 1,973 22.0 6,995 -135 6,860 17.6 7.8

Jinesh K Gandhi ([email protected]) October 2012

C–199

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