Sharekhan Valueguide April 2012

Sharekhan ValueGuide
April 2012
April 2012
CONTENTS
From Sharekhans Desk

Pressure of policy and politics
After the smart gains initially this year, the equity market has hit the roadblocks of policy inaction and political logjam. Given the pressure from the 2Ps, policy (or lack of it) and politics, the sentiments have taken a hit and the market is unable to sustain its momentum. The domestic support was limited and the rally was driven by foreign inflows. 06
EQUITY FUNDAMENTALS Sharekhan Top Picks Stock Idea Sharekhan Budget Special Railway Budget Special Stock Update Sharekhan Special TECHNICALS Sensex COMMODITY 24 07 Switch Idea 25 11 Sector Update Viewpoint 26 12 15 REGULAR FEATURES 16 Report Card 23 Earnings Guide DERIVATIVES 29 View 30 4 I
PMS DESK ProPrimeTop Equity ProPrimeDiversified Equity ProTechDiversified ProTechNifty Thrifty ProTechTrailing Stops ADVISORY DESK Smart Trades Derivative Trades MID Trades MUTUAL FUNDS DESK 43 43 43 38 39 40 41 42
FUNDAMENTALS Crude oil Gold Silver TECHNICALS Gold Silver Crude Oil CURRENCY FUNDAMENTALS INR-USD INR-EUR TECHNICALS USD-INR EUR-INR
31 Copper 32 Lead 32 Zinc 34 Copper 34 Natural gas 34 Nickel
32 32 33 35 35 35
36 INR-GBP 36 INR-JPY
36 36
Top MF Picks (equity) Top SIP Fund Picks
44 45
37 GBP-INR 37 JPY-INR
37 37
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disclaimer
April 2012
REPORT CARD
STOCK IDEAS STANDING (AS ON APRIL 03, 2012)
COMPANY RECO PRICE
W NE
EQUITY
FUNDAMENTALS
PRICE TARGET 3,000.0 785.0 570.0 ** 1,588.0 890.0 1,294.0 1,050.0 86.0 1,612.0 ** 1,009.0 1,065.0 384.0 1,893.0 328.0 450.0 636.0 164.0 1,015.0 471.0 362.0 547.0 2,980.0 523.0 406.0 1,070.0 84.0 250.0 538.0 759.0 186.0 1,382.0 345.0 75.0 ** 2,725.0 105.0 129.0 ** 1,620.0 768.0 298.0 173.0 89.0 330.0
RECO DATE 12-Dec-11 19-Nov-07 23-Dec-03 30-Dec-03 18-Feb-08 5-Feb-04 6-Mar-06 6-Dec-05 27-Jul-09 27-Dec-11 26-May-08 26-May-08 22-Apr-12 22-Apr-12 25-Sep-06 11-Nov-05 8-Jan-07 19-Dec-03 19-Aug-05 31-May-11 1-0ct-10 17-Jul-08 7-May-09 30-Aug-04 30-Dec-03 29-Jul-11 23-Dec-03 17-Nov-05 12-Aug-04 6-Jan-06 1-Apr-04 22-Aug-02 23-Jan-12 9-May-11 22-Mar-11 9-Feb-11 13-Feb-12 26-Sep-08 12-Aug-05 31-Oct-11 24-Feb-05 21-Mar-06 15-Nov-10 2-Feb-12 25-Jan-12 14-Sep-10
CURRENT RECO Buy Buy Hold Hold Buy Buy Buy Buy Buy Reduce Buy Buy Buy Hold Buy Hold Buy Buy Hold Buy Buy Buy Buy Buy Buy Hold Buy Buy Buy Buy Hold Buy Hold Reduce Buy Reduce Buy Buy Hold Hold Buy Buy Buy Buy Hold Buy
PRICE AS ON 03-APR-12 2,738.7 687.5 530.2 2,858.5 1,362.1 752.7 1,178.0 993.6 80.5 1,647.4 664.7 810.7 804.3 366.2 1,518.9 264.1 336.8 431.1 146.0 761.2 383.4 310.1 494.8 2,643.2 505.4 403.8 908.2 65.2 227.1 534.4 706.6 171.2 1,309.6 465.1 67.6 59.1 2,172.6 88.9 119.0 446.5 1,175.8 739.5 195.4 154.0 86.1 201.2
GAINLOSS (%) 7.7 27.3 640.5 314.8 -23.0 165.5 176.4 39.2 117.4 -2.3 22.0 9.3 236.5 18.5 37.1 119.4 7.6 97.8 189.6 -0.8 -19.5 -48.2 241.2 136.2 390.7 24.6 219.8 -14.9 553.5 562.2 509.1 2123.4 12.6 -10.3 -14.4 16.8 356.4 -37.8 50.8 25.4 412.7 272.9 5.0 17.6 3.7 -44.4
ABSOLUTE PERFORMANCE 1M 3M 6M 12M 7.2 1.6 1.9 0.2 2.5 -9.0 -1.9 9.1 -0.3 -5.4 0.3 3.1 -3.6 -0.4 -3.6 -11.3 -2.9 -7.9 1.6 3.6 1.6 -1.5 11.2 -3.6 4.1 6.0 -1.4 -4.8 10.6 10.3 4.5 8.5 0.6 5.1 17.1 -1.6 -5.2 2.9 -4.3 3.3 -1.0 5.9 3.0 0.7 5.0 6.7 10.6 5.0 23.8 1.5 32.0 4.8 1.6 31.3 36.8 12.2 51.4 23.9 19.0 37.4 13.4 11.3 -1.3 24.1 16.9 -2.0 -1.7 6.4 34.7 8.3 28.0 0.8 27.8 15.3 14.2 22.6 5.4 18.2 42.6 25.6 68.5 39.8 30.9 33.9 26.8 11.6 45.3 6.2 -10.1 18.9 10.5 41.1 16.8 6.6 13.0 13.1 -1.9 -8.4 15.8 4.4 43.5 7.8 21.3 15.3 4.3 16.4 0.0 -19.7 -10.0 1.4 -4.1 4.1 -7.4 -5.5 25.5 11.9 24.9 20.2 1.7 -10.2 14.6 13.5 -11.7 18.9 23.6 31.5 -1.3 3.3 11.5 -31.4 34.4 30.7 13.3 -1.2 -21.3 11.2 -2.1 1.7 24.4 -2.2 14.0 -10.3 -18.4 -27.9 2.7 16.3 15.6 16.7 21.7 7.3 -14.3 -22.3 -8.0 -37.5 -4.0 -30.0 -46.4 11.9 -16.9 3.9 38.0 4.5 9.8 45.7 -18.2 -23.6 27.2 29.9 1.6 24.3 6.0 15.8 -23.2 -17.4 -20.7 -45.1 16.8 -5.6 -17.0 -5.3 35.3 32.4 -6.9 -14.1
1M 8.1 2.4 2.7 1.0 3.4 -8.3 -1.1 10.0 0.5 -4.6 1.2 3.9 -2.8 0.4 -2.8 -10.6 -2.1 -7.1 2.5 4.5 2.4 -0.6 12.1 -2.8 4.9 6.8 -0.5 -4.0 11.5 11.2 5.4 9.4 1.4 5.9 18.0 -0.8 -4.4 3.8 -3.5 4.2 -0.2 6.8 3.9 1.5 5.9 7.6
RELATIVE TO SENSEX 3M 6M 12M -2.0 -7.0 9.6 -10.1 17.0 -7.2 -10.0 16.3 21.2 -0.6 34.1 9.7 5.4 21.7 0.5 -1.4 -12.6 9.9 3.6 -13.2 -12.9 -5.8 19.3 -4.0 13.3 -10.7 13.2 2.1 1.2 8.6 -6.6 4.7 26.3 11.2 49.3 23.8 15.9 18.6 12.3 -1.2 28.7 -5.9 -20.4 5.3 -2.1 25.0 9.6 0.0 6.0 6.1 -7.9 -14.0 8.6 -2.1 34.7 1.1 13.8 8.1 -2.2 9.2 -6.2 -24.6 -15.5 -4.9 -10.0 -2.3 -13.1 -11.3 17.7 4.9 17.2 12.8 -4.6 -15.7 7.5 6.5 -17.1 11.5 16.0 23.4 -7.4 -3.1 4.6 -35.6 26.1 22.6 6.3 -7.3 -26.2 4.3 -8.2 -4.6 36.2 7.1 24.8 -1.8 -10.7 -21.1 12.4 27.3 26.6 27.7 33.3 17.5 -6.2 -14.9 0.7 -31.6 5.1 -23.4 -41.3 22.5 -9.1 13.7 51.0 14.4 20.2 59.5 -10.4 -16.4 39.3 42.2 11.2 36.0 16.1 26.7 -15.9 -9.6 -13.1 -39.9 27.8 3.4 -9.2 3.7 48.1 45.0 1.9 -6.0
EVERGREEN
GSK Consumers HDFC HDFC Bank Infosys Larsen & Toubro Reliance Ind Tata Consultancy Services 2,544.0 540.0 71.6 689.1 1,768.0 283.5 426.3 714.0 37.0 1,610.0 545.0 741.9 239.0 309.0 1,108.0 120.4 313.0 218.0 50.4 767.0 476.0 599.0 145.0 1,119.0 103.0 324.0 284.0 76.6 34.8 80.7 116.0 7.7 1,163.0 417.0 79.0 69.0 476.0 143.0 78.9 356.0 229.4 198.3 186.0 131.0 83.0 362.0
APPLE GREEN
Aditya Birla Nuvo Apollo Tyres Bajaj Auto Bajaj Finserv Bajaj Holdings Bank of Baroda Bank of India Bharat Electronics Bharat Heavy Electricals Bharti Airtel Corp Bank Crompton Greaves Divi's Labs GAIL Glenmark Pharmaceuticals GCPL Grasim HCL Technologies Hindustan Unilever ICICI Bank Indian Hotel Company ITC# Lupin M&M Marico Maruti Suzuki Piramal Healthcare PTC India Punj Lloyd SBI Sintex Industries^ TGBL (Tata Tea)^ Wipro
EMERGING STAR
Axis (UTI) Bank Cadila Healthcare# Eros International Media Gateway Distriparks Greaves Cotton^ ITNL
W NE
April 2012
EQUITY
FUNDAMENTALS
REPORT CARD
STOCK IDEAS STANDING (AS ON APRIL 03, 2012)

COMPANY IRB Infra Kalpataru Power Max India Opto Circuits India Thermax Yes Bank Zydus Wellness
W NE
RECO PRICE 234.0 112.0 212.0 199.0 124.2 332.0 530.0 27.0 109.0 282.0 50.6 258.0 393.0 72.0 132.0 43.0 16.7 427.0 210.0 142.0 164.0 65.2 43.0 180.0 54.0 387.0 58.0 370.0 60.4 185.0 384.0 46.0 163.0 162.0 799.0 21.4 411.0 138.4 73.0 120.1 106.0 88.0 445.0
PRICE TARGET 200.0 151.0 234.0 355.0 526.0 431.0 323.0 27.0 142.0 405.0 188.0 522.0 310.0 125.0 389.0 36.0 105.0 800.0 277.0 70.0 179.0 65.0 35.0 1,340.0 132.0 500.0 500.0 283.0 631.0 760.0 1,550.0 259.0 167.0 227.0 400.0 70.0 400.0 107.0 271.0 156.0 131.0 160.0 **
RECO DATE 29-Nov-10 15-Mar-12 24-Nov-09 13-May-08 14-Jun-05 2-Dec-10 18-Nov-11 2-Feb-12 30-Aug-11 29-Jun-11 17-Mar-05 16-Mar-10 5-Apr-10 12-Aug-11 5-Nov-07 8-Oct-09 30-Dec-03 7-Oct-10 19-Jan-11 23-Dec-09 3-Nov-10 18-Jan-10 6-Jul-10 19-Dec-03 8-Dec-05 3-Nov-11 20-Mar-06 4-Oct-07 24-Dec-03 4-Oct-07 10-Aug-05 25-Jan-12 27-Aug-09 6-Sep-10 9-Jan-08 30-Aug-05 31-Dec-07 26-Feb-08 25-Aug-06 3-Feb-11 19-Jun-09 10-Feb-11 17-Nov-05
CURRENT RECO Buy Buy Buy Buy Hold Buy Reduce Reduce Buy Buy Buy Buy Buy Buy Buy Buy Buy Hold Buy Buy Buy Buy Buy Buy Buy Buy Buy Buy Buy Buy Hold Hold Buy Buy Buy Buy Hold Buy Buy Buy Hold Hold Hold
PRICE AS ON 03-APR-12 193.9 107.8 169.2 192.5 483.6 374.3 393.3 32.0 120.0 277.2 149.5 443.5 133.6 108.7 338.9 26.7 88.6 650.1 266.1 55.0 166.8 48.4 15.2 931.2 107.0 425.5 286.7 173.2 569.1 625.0 1,512.3 237.7 136.0 195.2 326.6 59.5 345.2 50.2 190.9 121.6 106.2 153.0 3,173.7
GAINLOSS (%) -17.1 -3.8 -20.2 -3.3 289.4 12.7 34.8 -15.6 10.1 -1.7 195.4 71.9 -66.0 51.0 156.7 -37.9 431.5 52.2 26.7 -61.3 1.7 -25.8 -75.1 417.3 98.1 9.9 394.3 -53.2 842.1 237.8 293.8 416.7 -16.6 20.5 -59.1 178.0 -16.0 -63.7 161.4 1.2 0.1 73.9 613.2
ABSOLUTE PERFORMANCE 1M 3M 6M 12M 0.8 3.1 -1.2 -4.6 -10.0 6.4 8.7 8.0 3.5 3.4 -3.5 3.9 -6.2 8.9 -1.8 -10.3 13.2 3.9 11.3 -4.3 6.5 -0.3 -56.0 -2.6 -0.6 21.5 0.1 -16.2 1.2 9.4 4.9 1.2 -2.7 2.5 -1.2 5.5 -3.3 -0.8 -0.6 -4.6 -6.4 10.8 16.7 51.7 18.2 15.6 30.8 19.7 60.9 5.3 36.9 22.6 35.8 23.6 27.9 49.1 64.4 20.4 14.7 61.0 -4.5 45.3 103.5 37.8 44.1 -27.9 21.2 16.5 37.2 25.2 -5.9 15.8 16.0 29.5 36.1 4.1 23.8 37.0 21.9 11.3 60.5 61.5 50.3 36.8 53.4 54.2 17.7 -0.5 -11.6 17.2 6.3 36.9 -26.0 18.6 14.9 -1.0 -8.8 17.1 5.2 50.7 28.8 -21.4 16.5 -18.0 35.3 71.4 27.4 9.4 -51.9 -2.5 4.5 28.1 -3.1 -10.7 24.0 16.5 31.0 -3.8 -4.0 -8.0 8.7 -1.5 8.8 12.5 19.6 -2.1 4.9 56.8 77.3 -9.9 -21.2 1.9 -5.8 -24.7 20.6 -30.7 11.4 23.0 -12.2 -6.6 5.1 -37.0 14.0 10.7 -46.3 -10.7 24.6 54.3 -0.2 -8.9 -29.2 -64.1 -19.6 -16.1 31.7 -17.4 -40.3 29.7 11.1 35.3 -29.8 -10.8 13.1 -16.6 10.2 2.2 -25.5 -14.0 -16.7 -23.5 50.3 61.3
1M 1.6 4.0 -0.3 -3.8 -9.3 7.3 9.6 8.9 4.3 4.2 -2.7 4.7 -5.4 9.8 -1.0 -9.5 14.2 4.8 12.2 -3.5 7.4 0.5 -55.7 -1.8 0.2 22.5 0.9 -15.5 2.0 10.3 5.8 2.0 -1.8 3.4 -0.4 6.3 -2.5 0.0 0.2 -3.8 -5.7 11.7 17.7
RELATIVE TO SENSEX 3M 6M 12M 34.4 4.7 2.4 15.8 6.1 42.5 -6.7 21.3 8.6 20.3 9.5 13.3 32.1 45.6 6.7 1.6 42.6 -15.4 28.7 80.2 22.1 27.6 -36.1 7.4 3.2 21.5 10.9 -16.6 2.6 2.7 14.8 20.6 -7.8 9.6 21.3 7.9 -1.4 42.1 43.0 33.2 21.1 35.9 36.6 10.4 -6.7 -17.1 10.0 -0.3 28.4 -30.6 11.3 7.8 -7.1 -14.4 9.9 -1.3 41.4 20.9 -26.3 9.3 -23.0 26.9 60.8 19.6 2.6 -54.9 -8.5 -2.0 20.2 -9.1 -16.2 16.3 9.3 22.9 -9.7 -9.9 -13.6 2.0 -7.6 2.0 5.6 12.2 -8.2 -1.6 47.1 66.4 -1.4 -13.7 11.5 3.2 -17.6 32.0 -24.2 21.9 34.6 -3.9 2.2 15.0 -31.0 24.7 21.2 -41.2 -2.2 36.4 68.9 9.2 -0.2 -22.5 -60.7 -12.0 -8.2 44.2 -9.6 -34.6 41.9 21.6 48.1 -23.1 -2.4 23.8 -8.7 20.7 11.8 -18.4 -5.9 -8.8 -16.2 64.5 76.6
UGLY DUCKLING
Ashok Leyland # Bajaj Corp CESC Deepak Fert Federal Bank Gayatri Projects India Cements Ipca Laboratories ISMT Jaiprakash Associates KKCL NIIT Technologies Orbit Corporation Polaris Financial Tech Pratibha Industries Provogue India*** Punjab National Bank Ratnamani Metals Raymond
W NE
Selan Exploration Shiv-Vani Oil & Gas Sun Pharma Torrent Pharma UltraTech Cement Union Bank of India United Phosphorus V-Guard Industries
VULTURE'S PICK
Mahindra Lifespace Orient Paper and Industries Tata Chemicals Unity Infraprojects
CANNONBALL
Allahabad Bank Andhra Bank IDBI Bank Madras Cement Shree Cement
**Price target under review ^ Reco price adjusted for stock split ***Price target and reco price adjusted for the demerger
#Reco price adjusted for bonus
April 2012
FROM SHAREKHANS DESK
from sharekhans desk

April 2012
Pressure of policy and politics

After the smart gains initially this year, the equity market has hit the roadblocks of policy inaction and political logjam. Given the pressure from the 2Ps, policy (or lack of it) and politics, the sentiments have taken a hit and the market is unable to sustain its momentum. The domestic support was limited and the rally was driven by foreign inflows. However, the recent developments have spooked foreign investors and foreign fund flows have dwindled lately. The policy makers, the Reserve Bank of India (RBI) and the finance minister (FM), did precious little to ease out liquidity condition and/or boost private investments. The RBI deferred policy rate cuts citing loose fiscal policy and rising crude prices as key concerns, putting the ball in the FMs court. The FM did precious little to push forward reforms or come out with a credible roadmap/plan to curtail the fiscal deficit. On the contrary, it announced a large government borrowing programme that unnerved the debt/bond market and raised questions on the possibility of policy rate cuts even in April 2012 by the RBI. In case of budget, the devil lies in the fine print of the Finance Bill. In the budget, the FM proposes to amend certain sections of the Income Tax Act with retrospective effect to make the Vodafone-Hutchison kind of deals between foreign investors taxable in India. The proposal, which seeks to overturn a Supreme Court verdict on the case, could have a farreaching impact on foreign investments as it may deter foreign investors from coming to India where laws are changed arbitrarily. Like Lloyd Blankfein, chairman, Goldman Sachs, warned, It [the Vodafone case] seems so unbelievable. It will hurt Indias image as a place where the rule of law prevails. Moreover, the General Anti-Avoidance Rule (GAAR) provisions suggest taxing of foreign portfolio investments through tax heavens like Mauritius. The ambiguity of GAAR provisions and their effect on portfolio investments through participatory note (P-notes) have confused foreign institutional investors and the flood of portfolio investments has reduced to a trickle post-budget, adversely affecting the equity market. As if the policy blunders werent enough, the break-out of a fresh bout of allegations of misappropriation/mismanagement of natural resources and/or scam in allotment of defence contracts dented the overall sentiments. The preliminary report of the Comptroller and Auditor General of India suggests huge revenue loss for the government (in trillions of rupees) on account of auctioning of coal blocks to private sector companies, which have made supernormal profits. The government had barely recovered from this blow when the army chief fired the next salvo. He wrote to the prime minister saying he was offered a bribe of Rs14 crore to clear sub-standard equipment for the army. Whats more, he also warned that the countrys security was at risk, what with 97% of its air defence being obsolete. This created a furore in the parliament but what added fuel to fire was the leaking of this letter to the media. Globally too the environment has not been favourable of late. Though the recent Chinese manufacturing data is better than expected but fears persist that the worlds second largest economy China may be heading for a hard landing. Meanwhile, the ongoing crisis in the Middle-East and the resulting threat of supply disruptions has hardened crude oil again. Thus, the pressure of policy and politics combined with unfavourable global cues is telling on the equity market. Our research team had indicated in the latest Market Outlook report at the start of the month itself that the equity market would find it difficult to sustain the momentum given the hurdles ahead. However, the view in the medium to long term is constructive, given the reversal in the interest rate cycle and the markets reasonable valuation (10-12% below the long-term average). Consequently, we retain the house view that the market would consolidate in a range around the current level over the next few months before the next leg up. In the meantime, the near-term volatility would provide attractive entry points for investors to accumulate quality stocks.
6 Sharekhan ValueGuide
EQUITY
FUNDAMENTALS
SHAREKHAN TOP PICKS
SHAREKHAN TOP PICKS
Sharekhan Top Picks

In the third month of 2012, volatility spiked up in the Indian market on account of political and policy concerns. The global environment was also not very conducive for equities during this period with growing concerns related to the hard landing of the Chinese economy. Consequently, the Sensex and the Nifty have declined by around 1.3% each since the release of the previous issue of Sharekhans Top Picks on March 3, 2012. But the Sharekhans Top Picks basket outperformed the benchmark indices with a marginal gain in the same period which was aided by gains of 6.1% and 11.1% recorded by Orient Paper and Industries, and Marico respectively in the same period. We are making three changes to the basket this month. We are replacing Grasim Industries with Madras Cement and Pratibha Industries with IL&FS Transportation Networks as part of the churn within the sectors. In view of the impending Q4 corporate results we are also replacing Tata Consultancy Services (TCS) with Apollo Tyres on account of expectations of weak quarterly results of TCS and an improvement in the performance of Apollo Tyres.
ABSOLUTE OUTPERFORMANCE (RETURNS IN %)

140.0% 120.0% 100.0% 80.0% 60.0% 40.0% 20.0% 0.0% YTD CY2012 CY2011 CY2010 CY2009 Since Jan 2009 -20.0% -40.0%
CONSTANTLY BEATING NIFTY AND SENSEX (RETURNS IN %)

18 0.0% 16 0.0% 14 0.0% 12 0.0% 10 0.0% 8 0.0% 6 0.0% 4 0.0% 2 0.0% 0.0% Jul-09 Jul-10 Mar-10 Mar-11 Jul-11 May-09 May-10 May-11 Sep-09 Sep-10 Sep-11 Nov-09 Nov-10 Nov-11 Mar-12 Jan-10 Jan-11 Jan-12
Sharekhan (Top Picks)
Sensex
Nifty
Sharekhan
Sens ex
Nif ty
NAME Apollo Tyres Bank of Baroda Bharat Electronics Divis Laboratories ICICI Bank ITNL Madras Cement Marico Orient Paper Selan Exploration Sun Pharma
* CMP as on March 30, 2012
CMP* (RS) 79 794 1,515 767 887 193 153 175 59 280 570
FY11 9.1 7.4 14.4 23.7 19.8 8.7 17.2 41.5 8.3 15.0 32.5
PER FY12E 8.8 6.6 13.3 21.0 16.4 8.1 10.3 32.9 6.7 10.4 24.2
FY13E 6.8 5.8 12.0 16.6 14.4 6.5 9.4 24.6 5.6 7.5 24.0
FY11 18.3 23.5 17.2 23.9 9.6 22.1 13.0 32.7 17.0 18.7 19.2
ROE (%) FY12E 15.9 21.1 14.9 23.4 10.8 15.3 19.0 30.7 18.4 21.9 21.1
FY13E 17.2 20.6 13.8 25.6 11.4 14.0 18.0 31.7 18.9 23.6 17.7
PRICE TARGET 86 1,065 1,893 1,015 1,070 330 160 186 70 500 631
UPSIDE (%) 8 34 25 32 21 71 4 7 18 79 11
April 2012
SHAREKHAN TOP PICKS

NAME CMP (RS) 79 PER FY12E 8.8 ROE (%) FY12E 15.9
EQUITY
FUNDAMENTALS
PRICE TARGET 86 UPSIDE (%) 8
FY11 9.1
FY13E 6.8
FY11 18.3
FY13E 17.2
APOLLO TYRES
Remarks:
We view Apollo Tyres as the best tyre play amongst the Indian listed tyre companies. The company is also the best diversification story whereby it is now the largest radial manufacturer in the country. It is also a global tyre play after the acquisition of Vredestien in Europe and of Dunlop in South Africa and derives 23% of its sales globally. Europe continues to be the shining spot with the company recording double-digit margins at the EBIT level helped by strong sales of Vredestiens branded replacement tyres. Increased sales of Apollo branded tyres in Europe would provide additional fillip to its profitability. The company is likely to benefit from an uptick in the domestic commercial vehicle (CV) replacement segment and increased sales of CV radial tyres. The rupees depreciation will see reduced threat from Chinese imports. Stable material prices, recovery in South African operations and increased proportion of Apollo branded tyres in the premium European market are likely to improve the margins. At the current market price the stock trades at a PE multiple of 6.8x discounting its FY2013E earnings. We maintain our Buy with a price target of Rs86.
BANK OF BARODA
794
7.4
6.6
5.8
23.5
21.1
20.6
1,065
34
Remarks:
Bank of Baroda stands out among the PSU banks as it continues to deliver strong earnings growth with improvement in key operational metrics. The banks business growth is expected to remain better than industrys (contributed by stronger overseas growth) with relatively stable margins which will lead to a healthy growth in the top line. While the asset quality of most PSU banks has deteriorated significantly over the past two to three quarters, BoBs asset quality has remained healthy due to lower slippages. Although, the asset quality risks have risen due to weak macro environment and policy issues, yet BoB is expected to fare better than the other PSU banks in terms of asset quality, resulting in lower credit cost and higher growth in earnings. The operating metrics of BoB has improved significantly led by strong focus on CASA, margins, fee income etc. The bank is expected to post RoE and RoA of around 20% and 1.1% respectively over the next two years. We believe BoB commands a premium over the other PSU banks due to a steady growth in its core income and a healthy asset quality. Currently, the stock is trading at 1.2x FY2013 book value which is reasonable. We recommend a Buy on the stock with a price target of Rs1,065.
BHARAT ELECTRONICS
1,515
14.4
13.3
12.0
17.2
14.9
13.8
1,893
25
Remarks:
BEL, a public sector unit, is one of the leading defence companies in India. With the increase in the defence budget and the focus on modernisation of the defence technology, BEL is best placed to take a sizeable pie of the defence spend. The companys order book currently stands at Rs27,000 crore, which is around 5x its FY2011 revenues. This gives us a strong revenue visibility for at least the next two to three years. BEL has entered into joint ventures and technology collaborations to strengthen its position in the defence services space, reap the benefits of the offset clause (which it believes is worth $300 million in the next five to seven years) and enter into newer areas of operations. The March quarter is the strongest for BEL and the upcoming budget could also have something positive to offer to the defence sector and in turn to BEL. Also, in the Budget 2012-13, the defence allocation has been increased by 17.6% to Rs1.93 lakh crore and the capex budget has been increased by 15% to Rs79,579 crore. The key risk remains its execution: a delay in release of orders could lead to slower execution. At the current market price the stock trades at 12x its FY2013E earnings. The company has huge cash reserve of Rs5,875 crore, which translates into cash per share of Rs734 and gives the stock further support. We maintain our Buy recommendation on the stock.
DIVIS LABORATORIES
767
23.7
21.0
16.6
23.9
23.4
25.6
1,015
32
Remarks:
Strong M9FY2012 performance (PAT growth 27%) has re-affirmed our confidence in the growth potential of Divis Labs. The new DSN SEZ facility at Vishakhapatnam that started production from one of its blocks in June 2011 (the remaining blocks of this facility are likely to get operational over FY2012-13) is likely to bring better economies of scale and tax benefits. A near debt-free balance sheet and strong cash flow are likely to help build a war chest for pursuing strategic investments (biosimilars) and exploit growth opportunities in niche segments like high potency drugs for oncology and steroids for contraceptives. With the order inflow picking up and its new plant getting operational, Divis has a strong revenue growth visibility and the operating leverage in the business will boost its margins. At the current market price the stock trades at a PE multiple of 16.6x discounting its FY2013E earnings. We maintain our Buy recommendation.
April 2012
EQUITY
NAME
FUNDAMENTALS
CMP (RS) 887 PER FY12E 16.4 ROE (%) FY12E 10.8
SHAREKHAN TOP PICKS

PRICE TARGET 1,070 UPSIDE (%) 21
FY11 19.8
FY13E 14.4
FY11 9.6
FY13E 11.4
ICICI BANK
Remarks:
ICICI Bank is back on growth path as its advances are growing at a healthy rate (up 19.1% YoY and 5.2% QoQ in Q3FY2012). We expect the advances of the bank to grow by 18% CAGR over FY2011-13. This should lead to a 15% CAGR growth in the net interest income in the same period. ICICI Banks asset quality has shown a turnaround as its NPAs have continued to decline over the last six quarters led by contraction in slippages. This has led to a sharp reduction in the provisions and an increase in the profitability. Going forward, we expect the NPAs to decline further which will lead to lower NPA provisions and hence aid the profit growth. With a pick-up in the business growth and an improvement in the margins the RoEs are likely to expand to about 12% over the next two years while the RoA would improve to 1.4%. This would be driven by a 17% CAGR in profits over FY2011-13. Despite the run-up in the stock over the past two months it trades at 1.6x FY2013E book value. We expect the stock to re-rate, given the improvement in the profitability led by lower NPA provisions, a healthy growth in the core income and improved operating metrics. We recommend Buy with a price target of Rs1,070.
ITNL
193
8.7
8.1
6.5
22.1
15.3
14.0
330
71
Remarks:
IL&FS Transportation Networks Ltd (ITNL) is Indias largest player in the BOT road segment with 10,269 lane km in various stages of development, construction or operation. It has a pan-India presence and a diverse project portfolio consisting of 23 road and bus transportation projects as well as a metro rail project. Recently it bagged four road BOT projects which form 50% of the existing order book, thus providing good revenue visibility over the next two to three years. Further, with 8,800km of NHAIs target for FY2013, ITNL is well equipped to capitalise on the huge and growing opportunity in the road infrastructure sector due to its established track record in operating BOT road projects, its execution capabilities and the strong support from IL&FS. It has a fair mix of annuity and toll projects in its portfolio which provides revenue comfort. Further, it is present across the value chain except the civil construction services, which it outsources to the local contractors. This helps the company to handle a large number of projects at a time and diversify geographically, reducing the risk of concentration. Thus, we expect the sales and earnings to grow at CAGR of 10% and 16% respectively over FY2012-14E. At the current market price, the stock is currently trading at 6.5x its FY2013E earnings and at a P/BV of 0.8x. We maintain our Buy recommendation with a price target of Rs330.
MADRAS CEMENT
153
17.2
10.3
9.4
13.0
19.0
18.0
160
Remarks:
Madras Cement is a predominant player in the south region with an installed capacity of 12.5MMT. The company will be the biggest beneficiary of the recent partial recovery in the cement offtake in the southern region. Further, the supply discipline has resulted in strong realisation. We expect the earnings of the company to grow by around 35% over FY2011-13. The company has posted a volume growth of over 22% YoY for February 2012 and we believe the volume growth along with the realisation growth would support the revenue growth in Q4FY2012. To overcome the issue of power shortage in Tamil Nadu and to control the power cost the company is setting up captive thermal power plants in Ariyalur and RR Nagar to meet the energy requirements. As per the plan a 60MW thermal power plant would be set up at Ariyalur (of this 40MW has already been commissioned and the balance 20MW is expected in the near term) and a 25MW thermal power plant will be set up at RR Nagar. The company is likely to be the biggest beneficiary of the sharp correction in the price of imported coal as it imports 50-60% of its total coal requirement. So going forward, significant savings in the power and fuel costs can be expected. Any failure to adhere to supply discipline could be a key risk to the cement price and hence the same could adversely affect the earnings of the company. At the current market price of Rs153 the stock trades at PE of 9.4x its FY2013E earnings and an EV/EBIDTA of 5.8x on FY2013E.
MARICO
175
41.5
32.9
24.6
32.7
30.7
31.7
186
Remarks:
Marico is one of the strongest players in the Indian hair care and edible oil markets. Its flagship brand Parachute along with Nihar commands a 54% share in the domestic branded coconut oil market. Its portfolio of value-added hair oil got strong traction in the domestic market helping it to clock around 20% volume growth in the domestic market. The companys good for heart edible oil brand Saffola is also witnessing mid-teen volume growth on account of improving consumer awareness. Apart from domestic operations, Marico has strong international presence in Bangladesh, Egypt, South Africa, and the recently entered South East Asia. Though the nearterm performance has been affected by political instability and high inflationary environment in some of the international markets, we believe the long-term growth potential is intact in these markets. Kaya is showing signs of improvement with a double-digit same-store collection growth in the past few quarters. Any significant increase in the prices of the key raw materials (including copra) and a slowdown in the sales volume growth would act as the key risks to our earnings estimates. We expect the top line to grow at a CAGR of about 25% over FY2011-13 and the bottom line to grow at a CAGR of 30% over the same period (on the back of an expected improvement in the margins due to the softening of raw material prices). At the current market price the stock trades at 32.9x its FY2012E EPS of Rs5.3 and 24.6x its FY2013E EPS of Rs7.1.
April 2012
SHAREKHAN TOP PICKS

NAME CMP (RS) 59 PER FY12E 6.7 ROE (%) FY12E 18.4
EQUITY
FUNDAMENTALS
PRICE TARGET 70 UPSIDE (%) 18
FY11 8.3
FY13E 5.6
FY11 17.0
FY13E 18.9
ORIENT PAPER
Remarks:
OPIL, a part of CK Birla group, is a diversified conglomerate operating in three segments; cement, paper and fans. The cement division contributes over 53% of the total revenue. The company benefits due to its diversified business model. Due to the recent increase in cement prices, the present realisation of the company is higher by over 24% over FY2011. The surge in the realisation will be able to offset the cost inflation and the profitability of the division is likely to improve (marginally). In the electrical division, due to the new product launches and gaining market shares, the company would deliver over 11% revenue growth in FY2012. Going forward, the division can witness growth on the back of lighting products (CFL) and household appliances. The restructuring plan to demerge the cement division augurs well for the company as the uncertainty in the profitability of the paper division was one of the major overhangs on the stock. Hence, the valuation could get re-rated going ahead. However, the key concern remains the poor volume offtake in its key market, ie Andhra Pradesh (which accounts for 37% of the total dispatches). At the current market price of Rs59, the stock trades at a PE of 5.6x and EV/EBIDTA of 4.1x, discounting its FY2013 earnings estimate.
SELAN EXPLORATION
280
15.0
10.4
7.5
18.7
21.9
23.6
500
79
Remarks:
Selan Exploration (Selan) has rights to develop five small discovered (minimal exploration risk) oil fields (Bakrol, Lohar, Indrora, Karjisan and Ognaj) in Cambay Basin (Gujarat) with proven oil & gas reserves. Between FY2006 and FY2009, Selan ramped up its production by 4x. In the next phase (FY2009-11), with stagnate oil production it did preparatory work to ramp up drilling in the existing fields and the new field, Indrora (the most prolific one with significant reserves). Currently, the company is waiting for the final approval for drilling which could ramp up its production significantly in the near future. Based on this, we expect the company to ramp up its production more than two times by FY2014 over that of FY2011. It would lead to an earnings growth (CAGR) of 41% during FY2011-13. At the current market price, the stock trades at a PE of 7.5x and EV/EBITDA of 3.6x based on our FY2013 estimates. We remain bullish on its production ramp-up plan and recommend Buy with a price target of Rs500.
SUN PHARMA
570
32.5
24.2
24.0
19.2
21.1
17.7
631
11
Remarks:
The combination of Sun Pharma and Taro offers an excellent business model for Sun Pharma, as has been reflected in the M9FY2012 performance (its revenue grew 31% YoY in M9FY2012). Though Taro may not show a similar performance in the next quarter, but we expect a better performance from Sun Pharma going forward mainly driven by the resumption of sales from the US based Cranbury facility, which has been cleared by the USFDA recently. Sun Pharma seeks to acquire the remaining equity in Taro and, if successful, that will not only help achieve better synergy but also boost earnings from the first year itself. We expect 24% and 16% revenue and PAT CAGR respectively over FY2011-13. With a strong cash balance, Sun Pharma is well positioned to capitalise on the growth opportunities. Its debt-free balance sheet insulates it from the negative impact of volatile currency. Due to provisions of Union Budget 2012-13, which provided for Alternate Minimum Tax (ALT) on partnership-based units availing various tax concessions, Sun Pharmas earnings are likely to get reduced to the extent of 9% in FY2013. At the current market price, Sun Pharma is trading at 24.2x and 24.0x FY2012 and FY2013 estimated EPS respectively. We maintain our Buy recommendation on the stock with a price target of Rs631, which implies 26x FY2013E EPS.
April 2012
10
EQUITY
FUNDAMENTALS
STOCK IDEA
EMERGING STAR
KALPATARU POWER TRANSMISSION

BUY; CMP: RS112
MARCH 15, 2012
Concerns priced in, growth ahead

COMPANY DETAILS
Price target: Market cap: 52-week high/low: NSE volume (no of shares): BSE code: NSE code: Sharekhan code: Free float (no of shares): Rs151 Rs1,720 cr Rs148/88 75,210 522287 KALPATPOWR KALPATPOWR 6.9 cr
KEY POINTS
Better times ahead: Competition in the domestic T&D EPC space intensified in the last few years, adversely affecting the market share, margins and valuations of the established players including Kalpataru Power Transmission Ltd (KPTL). However, the stringent norms adopted by PGCIL recently could ease the competition to some extent in future. Meanwhile, KPTL has gained a strong foothold in some highgrowth international geographies. Also, opportunity in the T&D space is huge and growing impressively. The domestic opportunity is pegged at Rs150,000 crore in the 12th Five-Year Plan and the global opportunity is around $1.5-2.0 trillion between FY2011 and FY2030. Strong order book provides growth visibility: After the muted performance of the past two years, we expect an improvement in the revenue growth of KPTL from FY2012. This will be backed by a strong order book of Rs5,500 crore (standalone), ie 1.8x its FY2012E revenues. In JMC Projects (a 67% subsidiary) the strong revenue traction is likely to continue in FY2013 and FY2014, thanks to an order book of over Rs5,000 crore. The consolidated revenue is estimated to grow at 17% CAGR during FY2012-14. Moreover, the renewed focus of the government on the power sector could improve the generation-linked transmission infrastructure demand. Concerns on margin and cash flows priced in: On account of a competitive bidding environment and the extended execution time line of projects (primarily ROW issues), the EBITDA margin of KPTL (stand-alone) is likely to remain subdued in the near term which is already priced in the stock. Further, on account of the tightened payment norms adopted by PGCIL, KPTL could witness strain in its working capital requirements and cash flows. Nevertheless, KPTLs balance sheet position is better than that of its peers with relatively less leverage (a consolidated debt-equity ratio of 0.6x). Further, the peaking of the interest rate in the near future could be beneficial, as for KPTL the interest cost is the highest cost component below the EBITDA line. Ripe for re-rating: Given the tough business environment, the valuation multiples of the T&D EPC companies have contracted significantly in the past few years. The current valuation multiple of 7-8x one-year forward earnings (as against the average of 15-16x earlier) does not factor in the potential revival in the overall business outlook. The estimated earnings growth of 17% (CAGR; during FY2012-14) implies a PEG of 0.4x. Based on the SOTP method, we value the stock (KPTL at 9x, JMC Projects at 6x of FY2014E earnings and SPV at 1x equity invested) at Rs151, which is 1x FY2014E book value and 5x EV/EBIDTA FY2014E. We initiate coverage on KPTL with a Buy recommendation.
KEY FINANCIALS (CONSOLIDATED) Particulars FY2009 Net sales (Rs cr) 3,246.0 10.1 110.9 7.2 -32.7 15.1 1.9 8.1 1.2 17.9 13.5
SHAREHOLDING PATTERN
Others 10% Institutions 23%
Promoters 55%
Foreign 12%
PRICE CHART
150 140 130 120 110 100 90 80 Mar-11 Dec-11 Sep-11 Mar-12 Jun-11
FY2010 4,031.9 10.9 177.6 11.6 60.1 9.4 1.6 6.0 1.4 19.6 18.8
FY2011 4,354.7 11.1 200.1 13.0 12.6 8.4 1.0 5.0 1.4 17.9 15.0
FY2012E 5,260.5 10.3 192.7 12.6 -3.7 8.7 0.9 5.3 1.4 16.1 11.2
FY2013E 6,242.7 10.1 220.4 14.4 14.4 7.6 0.8 4.7 1.4 16.2 11.6
FY2014E 7,262.0 10.0 265.5 17.3 20.5 6.3 0.7 4.2 1.6 17.0 12.5
EBITDA margin (%) Net profit (Rs cr) EPS (Rs) EPS growth (%) PER (x)
PRICE PERFORMANCE
(%) Absolute Relative to Sensex 1m 1.4 1.0 3m 18.6 4.9 6m 1.7 -5.4 12m 3.1 4.6
P/BV (x) EV/EBITDA (x) Dividend yield (%) RoCE (%) RoE (%)
Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a postition in the companies mentioned in the article.
For detailed report, please visit the Research section of our website, sharekhan.com.
11
April 2012
BUDGET SPECIAL
EQUITY
FUNDAMENTALS
SHAREKHAN BUDGET SPECIAL
MARCH 16, 2012
Union Budget 2012-13: Right on intent, low on action

The Union Budget 2013 reflects another instance of the governments indecisiveness on critical policy issues. In his speech, the finance minister acknowledged that there is a need to achieve fiscal consolidation, curtail subsidy burden and revive private investments but he did little in terms of policy action to address the same. The budget proposes steps to boost revenues by rolling back fiscal stimulus (a 2% hike in both the excise duty and the service tax rate) and expresses intent to limit the subsidy bill to 2% of the gross domestic product (GDP; against 2.5% in FY2012). But there is no clear roadmap of the action needed to achieve the same. One senses that the governments focus has been on the safe passage of the finance bill and that the measures to cut down subsidy burden and to achieve the targeted fiscal consolidation will follow suit post budget. On the whole, the finance minister in this budget has set more realistic targets than he had in the previous year but he has missed out perhaps the last opportunity before the general election to take bold policy decisions. The budgeted tax revenue receipts appear to be more realistic this year. The gross tax revenue growth of 19.5% would be supported by a robust growth in the indirect taxes resulting out of an increase in the excise duty and service tax rates. It reduces the securities transaction tax (STT) by 20% on cash delivery transactions and proposes to introduce equity saving schemes with tax deduction of 50% on direct equity investments up to Rs50,000 by retail investors having annual income below Rs10 lakh. The equity savings scheme would have a lock-in period of three years. It proposes steps to attract foreign inflows by allowing qualified financial institutions (QFIs) to access the Indian bond market and by introducing two-way fungibility for Indian depository receipt issues.
KEY NEGATIVES
The governments borrowing figure (net) of Rs479,000 crore (as against Rs437,000 crorethe revised estimate of FY2012) exceeds the consensus estimate, and would adversely affect the liquidity conditions and increase the risk of crowding out of the private sector. No material reforms have been announced in the budget; there has been no hike in the foreign direct investment (FDI) limit in aviation, insurance and retail sectors either. The budget has not announced any timeline for the implementation of tax reforms, the Goods and Services Tax (GST) and the Direct Tax Code (DTC).
KEY POSITIVES
The budget sets a fiscal deficit target of 5.1% (against 5.9% in FY2012) and a total subsidy target of 2% of the GDP; but the roadmap to achieve the same is not clear, given the absence of any proposal to pass on the higher cost to consumers. It provides incentives for the infrastructure sector in terms of easing norms/limits for external commercial borrowings (ECBs) and of channelising higher retail savings into infrastructure bonds. It lowers the personal tax burden by 12-15% for the middle income group which will have a positive impact on consumption/ discretionary spending.
TRENDS IN TAX REVENUES Gross tax revenues Gross tax revenue % YoY Direct tax % change YoY Corporation tax % change YoY Income tax % change YoY Indirect tax Indirect tax revenue YoY Indirect tax as of total Excise % change YoY Import duty % change YoY Service tax % change YoY Other tax revenues % change YoY FY2006A 3,661.5 20.1 1,572.6 19.2 1,012.8 22.5 559.9 13.6 2,088.9 20.7 57.1 1,112.3 12.2 650.7 12.9 230.6 62.4 95.4 360.1 FY2007A 4,735.1 29.3 2,194.1 39.5 1,443.2 42.5 750.9 34.1 2,541.0 21.6 53.7 1,176.1 5.7 863.3 32.7 376.0 63.1 125.6 31.6 FY2008A 5,931.5 25.3 2,955.6 34.7 1,929.1 33.7 1,026.4 36.7 2,975.9 17.1 50.2 1,236.1 5.1 1,041.2 20.6 513.0 36.4 185.6 47.8 FY2009A 6,053.0 2.0 3,194.4 8.1 2,134.0 10.6 1,060.5 3.3 2,858.6 -3.9 47.2 1,086.1 -12.1 998.8 -4.1 609.4 18.8 164.2 -11.5 FY2010A 6,245.3 3.2 3,770.4 18.0 2,447.3 14.7 1,323.2 24.8 2,474.9 -13.4 39.6 1,036.2 -4.6 833.2 -16.6 584.2 -4.1 21.2 -87.1 FY2011A 7,930.7 27.0 4,452.7 18.1 2,986.9 22.1 1,465.9 10.8 3,478.0 40.5 43.9 1,383.0 33.5 1,358.1 63.0 710.2 21.6 26.7 25.9 FY2012RE 9,016.6 13.7 4,995.6 12.2 3,276.8 9.7 1,718.8 17.3 4,021.1 15.6 44.6 1,507.0 9.0 1,530.0 12.7 950.0 33.8 34.1 27.7
(Rs '00 crore) FY2013BE 10,776.1 19.5 5,690.1 13.9 3,732.3 13.9 1,957.9 13.9 5,086.0 26.5 47.2 1,943.5 29.0 1,866.9 22.0 1,240.0 30.5 35.5 4.3
April 2012
12
EQUITY
GAINERS OF BUDGET 2012-13 Sector Infrastructure Logistics Retail Power Media Education/UID LOSERS OF BUDGET 2012-13 Sector Oil & Gas Auto Pharma Telecommunications Hotel
FUNDAMENTALS
BUDGET SPECIAL
Comments Investment in infrastructure doubled in 12th Five-Year Plan, tax-free bonds doubled, withholding tax on interest payment on ECBs reduced from 20% to 5%. 100% deduction allowed on capital expenditure (capex) on container freight stations (CFS)/inland container depot (ICD), increased deduction from 100% to 150% on capex on cold chain warehouses. Positive for Gateway Distriparks, Arshiya International and other logistic companies. Reduction in incidence of the excise duty on branded apparels from 4.5% to 3.6% is likely to boost the demand for branded apparels, and benefit companies like Provogue and Raymonds. Clear attention on fuel security front; customs duty cut for coal, natural gas, liquefied natural gas (LNG) and coal mining equipment; allocation of tax-free bonds of Rs10,000 crore; ECB fund raising promoted with easier norms. However, no mention of restructuring of SEBs is a negative. Exemption of film content from service tax ambit, faster GST roll-out and higher capital availability through venture capital funding. Positive for companies like Eros International, PVR Cinemas, Cinemax and Reliance MediaWorks. Increase in allocation for education projects/skill development/unique identification (UID; Aadhaar) positive for NIIT, Everonn Education, Educomp Solutions, Tera Software, CMC etc. Comments Lower provisioning of subsidy, no hike in prices of petroleum products and increase in cess negative for Oil India, ONGC and the oil marketing companies (OMCs). Excise duty hike of over 2% and higher excise on truck chassis negative for Tata Motors and Ashok Leyland. Though no announcement of additional excise duty on diesel vehicles is a relief for Mahindra and Mahindra (M&M) and Maruti Suzuki. Increase in basic excise duty (from 10% to 12% on bulk drugs and from 5% to 6% on formulations), imposition of alternative minimum tax (AMT) on profits from partnerships affects Sun Pharmaceuticals, Strides Arcolab and Cadila Healthcare in terms of a higher tax incidence. Non-tax revenue break-up shows a budgeted estimate of Rs40,000 crore from the auction of spectrum which would be pressure on the cash flow situation on the telecom sector. Plus, increase in service tax would make telecom services more expensive. Increase in service tax from 10.3% to 12.36% and non-granting of infrastructure status are both negative.
It has abolished the import duty on coal but not mentioned anything about restructuring the state electricity boards (SEBs) required to boost the power generation sector. It has increased the cess on oil upstream companies which is illtimed, given the recent auction of ONGC offer for sale.
FISCAL CONSOLIDATION TARGETS

6,000 5,000 4,000 3,000 2,000 1,000 0 FY2012RE FY2013BE FY1999 FY2000 FY2001 FY2002 FY2003 FY2004 FY2005 FY2006 FY2007 FY2008 FY2009 FY2011A FY10A 7% 6% 5% 4% 3% 2% 1% 0%
FISCAL DEFICIT PEGGED @5.1%...WILL RBI CUT RATES?

Potential slippages in fiscal consolidation
While the market was expecting a definite clarity on the fiscal consolidation front, the budget inadequately addresses the same. Though the 5.1% fiscal deficit target is lower than the FY2012 target of about 5.9%, the revenue target could be missed as the same is based on an assumption of a recovery in economic growth in FY2012-13. Second, there is no clarity on the roadmap to limit the subsidy bill within 2% of the GDP unless the government takes some out-of-the-budget steps to curtail fuel and fertiliser subsidy. For instance, on fertiliser side also the subsidy budgeted is Rs60,000 crore (compared with ~Rs67,200 crore in FY2012) which seems insufficient. Therefore, as the crude prices and fertiliser prices remain firm the slippage on subsidies is likely to be similar to that seen in FY2012.
TREND IN FISCAL DEFICIT
6 ,0 0 0 5 ,0 0 0 4 ,0 0 0 3 ,0 0 0 2 ,0 0 0 1 ,0 0 0 0 FY2012RE - 1 ,0 0 0 FY2013BE FY1999A FY2000A FY2001A FY2002A FY2003A FY2004A FY2005A FY2006A FY2007A FY2008A FY2009A FY2010A FY2011A 7% 6% 5% 4% 3% 2% 1% 0% -1% -2%
Fiscal Def icit
FD as % of GDP
GOVERNMENT BORROWINGS (RS 00 CRORE)
6,000 5,000 4,000 3,000 2,000 1,000 0 FY2002A FY2003A
Gross Debt Market Borrow ings Net Debt Market Borrow ings net as % of gross borr
FY2012RE
95% 90% 85% 80% 75% 70% 65% 60% 55% 50% FY2013BE
FY2004A
FY2005A
FY2006A
FY2007A
FY2008A
FY2009A
FY2010A
High target for market borrowings; could increase further on fiscal slippages
The gross market borrowings for FY2013 are pegged at Rs479,000 crore compared with Rs436,000 crore in FY2012. During FY2012 the borrowings were revised upwards due to fiscal slippages, so
Fis c a l De f ic it FD a s % o f G DP
Re v e n u e De f ic it RD a s % o f G DP
Pr ima r y De f ic it PD a s % o f G DP
13
FY2011A
April 2012
BUDGET SPECIAL
MAJOR OUTLAYS BY CENTRE Particulars Agriculure and allied activities Rural development Irrigation and food control Energy Industry and minerals Transport Communication Science technology and environment General economic surveys Social services General services Grand total FY2012BE 14,744 46,292 565 155,495 45,214 116,861 20,256 16,186 15,802 153,812 7,230 592,457 FY2012RE 14,855 39,132 489 147,190 40,581 109,205 11,994 12,713 19,420 157,056 5,536 558,172 Change YoY % 0.8 (15.5) (13.4) (5.3) (10.2) (6.6) (40.8) (21.5) 22.9 2.1 (23.4) (5.8)
EQUITY
FUNDAMENTALS
RS (CR) Change YoY % 19.1 4.2 160.6 5.2 41.0 14.8 28.5 30.5 27.6 20.3 57.2 16.7
FY2013BE 17,692 40,763 1,275 154,842 57,227 125,357 15,411 16,592 24,777 188,872 8,701 651,509
higher borrowings on an expanded base will be perceived as a negative by the market. This is likely to keep the bond yields firm and may affect the private investments. However, if the fiscal deficit expands the borrowings could inch up as had happened in FY2012.
National Family Benefit Scheme (NFBS) by 100%, showing its inclination for social schemes.
Conclusion: increased uncertainty on policy rate cuts in April 2012

Thus, the government has done little to inspire enough confidence in the Reserve Bank of India (RBI) to begin its policy rate reversal cycle in April this year. We believe that the RBI would prefer the crude oil prices to cool down and the government to take some out-of-the-budget steps to rein in the subsidy bill. The hardening of the bond yields by 10-12 basis points also reflects the nervousness in the debt market and indicates the growing uncertainty over the possibility of policy rate cuts in April this year.
PROCEEDS FROM DISINVESTMENTS
450 400 350 300 250 200 150 100 50 0 FY2012RE FY2013BE FY1999A FY2000A FY2001A FY2002A FY2003A FY2004A FY2005A FY2006A FY2007A FY2008A FY2009A FY2010A
Focus on social schemes continues

Focus on its pet schemes like Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA), right to education (RTE) etc would continue. The expenses on administering the implementation of food security will be fully provided in the FY2013 budget. Further, the government has raised allocation to RTE by 22%, to National Rural Health Mission (NRHM) by 15% and to
TREND AND COMPOSITION OF SUBSIDIES
2500 2000 1500 1000 500 FY12RE FY13BE 0 FY02A FY03A FY04A FY05A FY06A FY07A FY08A FY09A FY10A FY11A
Fo o d
Fe r tilis e r s
Pe tr o le u m S u b s id y
Pr iv a tis a tio n / Div e s tme n ts
PERSONAL INCOME TAX

In the Union Budget 2012-13, the finance minister has increased the basic exemption limit for individual tax payers to Rs200,000 from the earlier Rs180,000 which would lead to a saving of Rs2,060 per tax payer (for female tax payers Rs1,030). The budget has also raised the upper limit of 20% tax slab to Rs1,000,000 from the earlier Rs800,000 which would lead to an additional benefit of Rs20,600 per tax payer. Further, the budget has introduced a new section, 80TTA, wherein deduction would be allowed to the tax payer (individual and Hindu Undivided Family) up to Rs10,000 in respect of any income by way of interest on deposits in savings account with banks, cooperative banks and post office. Section 80D (relating to medical insurance) would be amended to include the payment made on
account of preventive health check-up for an amount of up to Rs5,000 (effective from April 1, 2013). Finally, the effective age of a senior citizen being an Indian resident has been reduced from sixty-five years to sixty years for all purposes.
INDIVIDUAL TAX PAYERS FY2011-12 Tax slabs (Rs) Up to 180,000 180,001 500,000 500,001- 800,000 Above 800,001 Tax rate (%) Nil 10.3 20.6 30.9 Tax slabs (Rs) Up to 200,000 200,001 500,000 500,001 - 1,000,000 above 1,000,001 FY2012-13 Tax rate (%) Nil 10.3 20.6 30.9
For detailed report, please visit the Research section of our website, sharekhan.com. Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a postition in the companies mentioned in the article.
April 2012
14
FY2011A
EQUITY
FUNDAMENTALS
R A I LWAY B U D G E T
RAILWAY BUDGET SPECIAL

Contrary to expectations, the Railway Budget 2012-13 avoided populism and hiked passenger fares after a gap of ten years. The passenger fare hike has come on the back of a substantial increase in the freight rates effected just prior to the budget. The railway minister also detailed an extensive plan to invest a huge sum in expansion and modernisation of the railway network over the next five years and sought additional budgetary support for the same. He has set an ambitious five-year target to improve the operational ratio to 74% from the 95% revised estimate for FY2011-12. On an overall basis, the railway budget suggests that the apprehension of a hugely populist Union Budget after the Congress Partys debacle in the Uttar Pradesh assembly election has been allayed for now. However, there is strong opposition to the passenger fare rate hike from the railway ministers party and leaders.
MARCH 14, 2012

The budget estimates a surplus of Rs15,556 crore in FY2012 which would be a quantum jump from the FY2012 level. The growth in the surplus hinges on an increase in traffic receipts and containment of working expenses.
Rail Budget 2012-13: Populism avoided

Capex on safety, expansion and modernisation
The capital expenditure (capex) for FY2013 is pegged at Rs60,100 crore, an increase of 4.2% over the FY2012 capex. Out of the total capex outlay for FY2013, Rs24,000 crore would be sourced through budgetary support, Rs18,050 crore from internal resources, Rs15,000 crore from market borrowings, Rs2,000 crore through internal resources and Rs1,050 crore from external sources of financing, like public-private partnership (PPP). The railways plans to invest heavily in safety, hygiene, expansion and moderatinsation for which a total outlay of Rs7.35 lakh crore has been allocated in the 12th Five-Year Plan. The budget has proposed a capex of Rs6,872 crore for building 725km of new lines and Rs3,393 crore for doubling of 700km railway line. Further, the budget targets 800km gauge conversion and 1,100km electrification in FY2013 at a cost of about Rs2,900 crore.
INCREASE IN CAPEX (RS CRORE)
70000 60000 50000 40000 30000 20000 10000 2011-12RE 0 2004-05 2005-06 2006-07 2007-08 2008-09 2010-11 2012-13BE Pla n O u tla y
PERFORMANCE FOR 2011-12

The gross traffic receipts came in at Rs1,03,917 crore, short by Rs2,322 crore of the FY2012 budget estimate. This was due to a lower than expected growth in passenger and freight volumes. The ordinary working expenses exceeded the budgeted estimate by around Rs2,000 crore at Rs75,650 crore; the pension payments also expanded by Rs1,000 crore in FY2012. The operating ratio stood at 95.0% as compared to 91.1% in the FY2012 budget estimate. The surplus was significantly lower at Rs1,492 crore compared with the budgeted estimate of Rs5,258 crore. This was mainly on account of a sharp rise in the working expenses.
BUDGET FOR 2012-13

The budget estimates for FY2012-13 foresee an increase of 56% in the passenger and freight volumes. Further, with the increase in the freight rates and passenger fare the gross receipts could increase by about 27% in FY2013. The working expenses are estimated to grow at 14% in FY2013 to Rs84,400 crore, resulting in an operating ratio of 84.9%.
POSITIVES Passenger fares have been increased after a gap of ten years; though inadequate the move would still provide some relief to the strained financial health of the railways. Freight rates were increased substantially recently outside of the railway budget. The railways borrowings are expected to be around Rs15,000 crore in FY2012-13, significantly lower than that in FY2011. A stiff target has been set to bring the operational ratio down to 84.9% in FY2012-13 (from PERFORMANCE OF INDIAN RAILWAYS Particulars Gross traffic receipts Working expenses Operating ratio (%) Ordinary working expenses Appropriations to depreciation reserve fund Appropriation to pension fund Net traffic receipts Net miscellaneous receipts Net revenues Net dividend payable Surplus (+) or deficit (-)
The demand for higher budgetary allocation will strain the already tight fiscal deficit scenario. The operational ratio at 95% is among the lowest in recent years and shows high inefficiencies of operations and low internal accruals. Further, the hiring of 100,000 employees in FY2013 would increase the cost pressure substantially. The hike in the passenger fares is quite inadequate considering the deterioration in the financial health of the railways. (RS CR) 2012-13BE 132,552 112,400 84.8* 84,400 9,500 18500 20,152 2,081 22,233 6,676 15,556
2008-09 79,862 71,839 88.0 54,349 7,000 10,490 8,023 1,152 9,175 4,718 4,457
2009-10 86,964 82,915 95.3* 65,810 2,187 14,918 4,049 1,495 5,544 5,543 1
2010-11 94,536 89,474 94.6* 68,139 5,515 15820 5,061 1,285 6,346 4,941 1,404
2011-12RE 103,917 98,610 94.9* 75,650 6,160 16800 5,307 1,837 7,144 5,652 1,491
* calculated as not disclosed in the budget documents; BE = budget estimate; PE: Provisional Estimates For detailed report, please visit the Research section of our website, sharekhan.com. Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a postition in the companies mentioned in the article.
15
April 2012
STOCK UPDATE
EQUITY
FUNDAMENTALS
ADITYA BIRLA NUVO

APPLE GREEN
COMPANY DETAILS
Price target: Market cap: 52 week high/low: NSE volume (No of shares): BSE code: NSE code: Sharekhan code: Free float (No of shares): Rs1,050 Rs10,826 cr Rs994/710 91,995 500303 ABIRLANUVO ABIRLANUVO 5.6 cr
BUY; CMP: RS951 MARCH 26, 2012 Bullishness continues

We continue with our bullish outlook and Buy rating on Aditya Birla Nuvo, Of late there has been a lot of speculation in the media over the companys businesses, and we clarify the situation and present our understanding and analysis of the recent news flow on the company.
Aditya Birla Nuvo to sell Madura Garments for $500 million

Media reports state that as per their sources Aditya Birla Nuvo is selling its branded apparel business, Madura Garments. Madura Garments is a 100% subsidiary of Aditya Birla Nuvo and owns marquee apparel brands like Louis Philippe, Peter England, Van Heusen, Allen Solly and Espirit in its portfolio. The current media valuation seems to be at a 100% premium to our estimated value, thus, if it happens, would be positive.
Public & Others 12% Foreign 23%
Idea Cellular on the block

We believe Aditya Birla Nuvo is the cheapest way of gaining exposure to Idea Cellular There has been speculation in the market and the media that Idea Cellular is on the block. Idea Cellulars management has categorically denied the same Our analysis on Idea Cellular puts an equity value of about Rs34,000,we believe that exposure to Idea Cellular through Aditya Birla Nuvo is still cheap and offers a decent upside.
Institutions 12% Promoters 50% Non-promoter corporate 3%
PRICE PERFORMANCE
(%) Absolute Relative to Sensex 1m 10.9 15.4 3m 26.8 14.7 6m 3.3 -4.1 12m 23.3 27.4
Issue of warrants to promoters also speaks of positive sentiment

In meeting of its board of directors Aditya Birla Nuvo decided to issue 1.65 crore warrants of face value Rs10 each to the promoter/promoter group on a preferential allotment basis, We view this development as a positive.
BHARTI AIRTEL
APPLE GREEN
COMPANY DETAILS
Price target: Market cap: 52 week high/low: NSE volume (No of shares): BSE code: NSE code: Sharekhan code: Free float (No of shares): Rs450 Rs128,357 cr Rs447/309 57.3 lakh 532454 BHARTIARTL BHARTIARTL 119.6 cr
BUY; CMP: RS338 MARCH 9, 2012 Read through MTN results for Bharti
Over the last two days, two developments pertaining to Bharti Airtel (Bharti) have taken place- 1) MTNs results were declared which provided some understanding on the competitive scenario in Bhartis major African regions of operation and 2) the Telecom Regulatory Authority of India (TRAI) issuing a consultation paper on auction of spectrum. We present below the analysis of the same and their likely implication on Bharti. Bharti to remain under pressure: Spectrum refarming would entail high operational cost for incumbent players like Bharti and Idea which have substantial spectrum in the efficient 900MHZ band. Further MTN results implicitly state that if Bharti Africa has to continue gaining market share in the African region, it would have to up its ante on the capex front. This would put some strain on Bhartis African business cash flow position. Further the competitive and cost landscape in Africa would continue to remain as has been seen from MTNs results and comments. We believe that Bharti is likely to remain under pressure. We however continue to maintain our Buy rating on the stock with a price target of Rs450 (8.1x FY2013EV/EBITDA). Any clarity on the pending regulatory issues is likely to drive stock performance in the near term.
12m 1.9 6.7
Public & Others 2% Foreign 18% Institutions 8% Non-promoter corporate 4%
Promoters 68%
PRICE PERFORMANCE
(%) Absolute Relative to Sensex 1m -13.0 -10.6 3m -12.6 -14.2 6m -17.9 -18.6
April 2012
16
EQUITY
FUNDAMENTALS
STOCK UPDATE
CESC
UGLY DUCKLING
COMPANY DETAILS
Price target: Market cap: 52 week high/low: NSE volume (No of shares): BSE code: NSE code: Sharekhan code: Free float (No of shares): Rs405 Rs3,366 cr Rs364/186 2.1 lakh 500084 CESC CESC 7.0 cr
BUY; CMP: RS268 MARCH 7, 2012 Another tariff hike to set the outlook positive
Event: WBERC approves CESCs 13% hike in tariffs
The West Bengal Electricity Regulatory Commission (WBERC) has allowed CESC to hike the tariffs for FY2012 by 13% with retrospective effect from April 2011.
Second tariff hike in FY2012; effectively 24% tariff hike allowed during FY2012
CESC had been allowed to raise tariffs by 46 paise per unit in April 2011. Now, again WBERC allowed it to raise tariff to Rs5.88/unit for FY2012. Hence, effectively CESC is allowed a total hike of 24.3% in FY2012. This strengthens our expectations of CESC getting approval for a tariff of Rs6.28 per unit for FY2013.
Others 13% Institutions 17%
Impact on our estimates

As the revised tariff will be retrospectively effective from April 2011, there would be additional revenue of around Rs450 crore. We believe the company would book all the prior period revenue in Q4FY2012 and adjust the same as receivable which would be recoverable from customers in a spread of 48 months. Based on this, we have revised our sales estimates for FY2012 and FY2013 by 11% and 12% respectively. Also, we have revised PAT estimates by 9% for FY2012 but retain our FY2013 earnings estimates.
12m -16.9 -11.8
Promoters 52%
Foreign 18%
PRICE PERFORMANCE
(%) Absolute Relative to Sensex 1m -6.5 -3.6 3m 5.5 3.1 6m -13.7 -15.5
View: Retain Buy

Currently, the stock is trading at 0.6x its FY2012E and 0.5x its FY2013E stand-alone book value. We continue to rate CESC as a Buy considering its cheap valuation and the improving financial health of the retail business, which was a major drag on the overall balance sheet of the company.
GLAXOSMITHKLINE CONSUMER HEALTHCARE

EVERGREEN
COMPANY DETAILS
Price target: Market cap: 52 week high/low: NSE volume (No of shares): BSE code: NSE code: Sharekhan code: Free float: (No of shares) SHAREHOLDING PATTERN
Others 25% Promoters 43% FIIs 15% Domestic institutions 17%
Rs3,000 Rs11,240 cr Rs2,730/2,120 17,123 500676 GSKCONS GSKCONS 2.4 cr
BUY; CMP: RS2,670 MARCH 27, 2012 Annual report review

Key points
Cash conversion cycle improved further: The companys cash conversion cycle improved from negative 89 days in CY2010 to negative 100 days in CY2011, indicating an improvement in working capital management. Hence despite an above 40% growth in loans and advances in the last couple of years, the companys ability to generate cash from operating activities has remained strong. Return ratios remain strong: The return ratios continued to improve with the return on net worth (RoNW) and return on capital employed (RoCE) up from 32.2% and 48.7% respectively in CY2010 to 33.8% and 51.7% in CY2011. Cheery dividend player: As anticipated the company has paid a dividend of Rs35 per share in CY2011. The dividend payout ratio stood at 41% in CY2011, which has improved in comparison to its average dividend payout ratio of around 33%. Maintain positive bias on stock: We have incorporated the CY2011 balance sheet numbers in our estimates and the same has not led to any major change in our earnings estimates. Considering the low penetration of the MFD category and GSKs strong presence in it, we believe the company is well poised to achieve a top line and bottom line growth of close to 20% each over CY2011-13. At the current market price the stock trades at 26.2x its CY2012E EPS of Rs101.8 and 22.1x its CY2013E EPS of Rs121.1. We maintain our Buy recommendation on the stock with a price target of Rs3,000.
PRICE PERFORMANCE
(%) Absolute Relative to Sensex 1m -1.7 3.3 3m 3.3 -3.5 6m 12.6 5.7 12m 22.0 32.6
17
April 2012
STOCK UPDATE
EQUITY
FUNDAMENTALS
GODREJ CONSUMER PRODUCTS

APPLE GREEN
COMPANY DETAILS
Price target: Market cap: 52 week high/low: NSE volume (No of shares): BSE code: NSE code: Sharekhan code: Free float (No of shares): Rs547 Rs14,471 cr Rs464/348 1.9 lakh 532424 GODREJCP GODREJCP 10.6 cr
BUY; CMP: RS447 MARCH 6, 2012 Price target revised to Rs547

KEY POINTS
We expect the consolidated top line of GCPL to grow at a CAGR of close to 25% over FY2012-14. This will be driven by a strong growth in the household insecticide (HI) and hair colour segments in the domestic market and a sustained growth of above 20% in most of the international markets. The growth would be driven by portfolio enhancement, increased penetration and adequate support of media and promotional activities. The company is reaping the benefits of low-cost raw materials. Also there are no significant launches in the next two quarters. Hence the consolidated operating OPM would sustain in the range of 19-20% in the next two quarters. Also, the increasing contribution from the high-margin international business has largely offset the risk of impact of volatility in the raw material prices on the margins. The commodity risk is limited upto 25% of the consolidated revenues, and the increased contribution from the international business would help the consolidated OPM to remain in the range of 17.0-18.5% over FY2012-14. We expect GCPLs consolidated top line and bottom line to grow at a CAGR of 24% and 26% respectively over FY2011-14. The sustained strong growth in the domestic HI business and the strong growth in the international markets remain key growth drivers for the company over the long run. We have revised our price target upwards to Rs547. At the current market price the stock trades at 20.6x its FY2013E EPS of Rs26.1. We maintain our Buy recommendation on the stock.
Others 10% Institutions 22% Promoters 68%
PRICE PERFORMANCE
(%) Absolute Relative to Sensex 1m 1.0 2.4 3m 14.0 10.2 6m 4.6 0.4 12m 19.1 25.1
ITC
APPLE GREEN
COMPANY DETAILS
Price target: Market cap: 52 week high/low: NSE volume (No of shares): BSE code: NSE code: Sharekhan code: Free float (No of shares): Rs250 Rs171,867 cr Rs225/166 73.2 lakh 500875 ITC ITC 779.6 cr
Key points
The Government of India has imposed a 10% ad valorem duty on 50% of the MRP of cigarettes (exceeding the length of 65mm) in the Union Budget 2012-13. This is an additional charge on the existing specified excise duty on different slabs of cigarettes (of above 65mm in length). We believe ITC needs to take an additional price increase in the range of 7-9% in its cigarette portfolio to mitigate the impact of the excise duty hike. A price increase of additional 7-9% in the cigarette portfolio will have an impact on the sales volume of ITCs cigarette business, resulting in flattish sales for a quarter or two. Hence, we have reduced our cigarette business volume growth expectation for FY2013 to 3.5% from 6% earlier. The downward revision in the sales volume growth estimate of the cigarette business has resulted in a downward revision of about 2% in our earnings estimate for FY2013. We have rolled over our price target to the FY2014 earnings estimate. Hence our revised price target stands at Rs250 (based on 23x its FY2014E EPS of Rs10.9). In view of the strong balance sheet, better earnings visibility and about 15% upside from the current level, we maintain our penchant for ITC in the large-cap FMCG space. At the current market price the stock trades at 24.0x its FY2013E EPS of Rs9.2. We maintain our Buy recommendation on the stock.
Others 17% Domestic Institutions 35%
FIIs 48%
PRICE PERFORMANCE
(%) Absolute Relative to Sensex 1m 6.0 10.1 3m 10.4 -2.3 6m 9.2 5.5 12m 29.2 33.8
April 2012
18
EQUITY
FUNDAMENTALS
STOCK UPDATE
JAIPRAKASH ASSOCIATES
UGLY DUCKLING
COMPANY DETAILS
Price target: Market cap: 52 week high/low: NSE volume (No of shares): BSE code: NSE code: Sharekhan code: Free float (No of shares): Rs105 Rs16,338 cr Rs103/50 1.8 cr 532532 JPASSOCIAT JPASSOCIAT 112.8 cr
BUY; CMP: RS77 MARCH 28, 2012 New orders in bag, execution a key challenge
We present below the key takeaways from our recent interaction with the management of Jaiprakash Associates Ltd (JAL).
JAL has been awarded two contracts by Mangdechhu Hydroelectric Project Authority, Bhutan for the construction of two contract packages pertaining to 720MW hydroelectric projects. The cost of constructing the two projects is around Rs914 crore and the management expects a operating profit margin (OPM) of 20-21%. The two mega projects of the EPC division, namely Karcham Wangtoo and Yamuna Expressway, have been completed. Hence, both the projects will start generating revenues and support the overall earnings of the company. With the likely surge in the revenues of Jaiprakash Power Venture and Jaypee Infratech, the parent (JAL) is likely to benefit in terms of a higher dividend income. JAL has maintained the momentum in the volume growth and posted a 40% year-onyear (Y-o-Y) growth in its dispatches for February 2012. Going ahead, with the likely increase in the infrastructure spending we believe the volume growth of the company will be in double digits and ahead of the all-India industry volume growth. In addition to the impressive volume growth, the company has also benefited in terms of a healthy realisation, primarily due to supply discipline. During Q3FY2012 the realisation of the company grew by 15.8% YoY to Rs3,947 per tonne. Further, with the price hike undertaken during February and March 2012, we believe the cement realisation and EBITDA per tonne of the company in Q4FY2012 would be higher YoY as well as sequentially. We maintain our Buy recommendation on the stock with a price target of Rs105. At the current market price, the stock is trading at a PE of 25.1x FY2012 and 18.5x FY2013 earnings estimates
Institutions 13% Foreign 18% Promoters 47%
Public & others 22%
PRICE PERFORMANCE
(%) Absolute Relative to Sensex 1m 16.2 17.3 3m 50.5 38.1 6m 10.6 5.6 12m -9.6 -2.9
MAHINDRA & MAHINDRA

APPLE GREEN
COMPANY DETAILS
Price target: Market cap: 52 week high/low: NSE volume (No of shares): BSE code: NSE code: Sharekhan code: Free float (No of shares): Rs759 Rs41,520 cr Rs875/617 24.2 lakh 500520 M&M M&M 45.8 cr
HOLD; CMP: RS676 MARCH 9, 2012 Tractor production cut in March 2012
KEY POINTS
Mahindra & Mahindra (M&M) has announced a cut in production of tractors amounting to two days in a week in the current month to normalise the built up of excess inventory in the system. The production cut will be undertaken at Rudrapur, Nagpur and Jaipur. The management also predicted of a flat year-on-year (Y-o-Y) growth in March 2012 and guided for an 8% growth in FY2013. The subdued volume sales figures in February 2012 and a rather muted expectation for March 2012 have vindicated our bearish stance. We see two issues - an overall slowdown at the industry level and the second would be a loss of market share by M&M. Thus, we believe that the company might find it difficult to meet its 8-10% volume growth guidance for FY2013. Consequently, we lower our estimates to 5% volume growth for FY2013 which leads to a cut of 5.4% in our already below consensus earnings estimates for FY2013 and FY2014.
Public & Others 15% Non Corp Holdings 10% Institutions 20% Promoters 25%
Foreign 30%
Valuation
3m -10.9 -12.5 6m -14.1 -14.7 12m 3.6 8.6
PRICE PERFORMANCE
(%) Absolute Relative to Sensex 1m -2.1 0.6
We lower our estimates to 5% volume growth for FY2013 which leads to a cut of 5.4% in our already below consensus earnings estimates for FY2013 and FY2014. We believe that M&M would continue to underperform in the near-term due to growth concerns on tractors and an overhang of higher diesel tax on the automotive segment. Thus, we maintain our Hold recommendation despite upside to our target price of Rs759 per share.
19
April 2012
STOCK UPDATE
EQUITY
FUNDAMENTALS
ORBIT CORPORATION
UGLY DUCKLING
COMPANY DETAILS
Price target: Market cap: 52 week high/low: NSE volume (No of shares): BSE code: NSE code: Sharekhan code: Free float (No of shares): Rs70 Rs631 cr Rs69/25 4.1 lakh 532837 ORBITCORP ORBITCORP 5.98 cr
BUY; CMP: RS55 MARCH 21, 2012 Timely clearances of projects hold the key
KEY POINTS
Sales booking in Q4FY2012 likely to be better than Q3: Orbit Corp is expecting presales for Q4FY2012 to be better than Q3FY2012 sales booking of Rs71.1 crore (32,921 sq ft). For Q4FY2012 as well, the company is looking at bulk sales (as done in the third quarter) in two of its properties viz Orbit Residency at Andheri, Mumbai and Orbit Terraces at Lower Parel, Mumbai which are at an advanced stage. New launches to kick in from Q1FY2013: With the amended Development Control Regulation (DCR) now in place, the company expects the approval process to be streamlined and gain momentum in a months time. The company plans to launch a slum rehabilitation project (SRA) in Santa Cruz (phase 1 of ~100,000 sq ft) where it is in talks with a few Singapore firms for partnership, a new project at Napean Sea Road (60,000 sq ft) and another new project at Kemps Corner (~100,000 sq ft) by H1FY2013. Mandwa project to take 6-9 months to get approvals and clearances: The pending approvals and clearances for Mandwa will take approximately six to nine months. In response to Bombay Environmental Action Group (BEAG) allegations against Orbit Corp the environment secretary had ordered an inspection of the area and concluded that there was no case of mangroves being destroyed. Maintain Buy: The next couple of quarters need to be keenly watched in terms of the cut in interest rate cycle and the progress on the approvals front for the company. Further any success in roping private equity in few of its projects will help the company improve its balance sheet. We maintain our Buy rating on the stock with a target price of Rs70. At the current market price, the stock trades at 7.8x its FY2013E earnings and 0.4x its FY2013E price to book value (P/BV).
Foreign 1%
Institutions 1%
Public & others 50%
Promoters 48%
PRICE PERFORMANCE
(%) Absolute Relative to Sensex 1m -15.2 -10.5 3m 111.2 84.7 6m 49.2 46.8 12m 14.7 16.6
PROVOGUE INDIA
UGLY DUCKLING
COMPANY DETAILS
Price target: Market cap: 52 week high/low: NSE volume (No of shares): BSE code: NSE code: Sharekhan code: Free float (No of shares): Rs35 Rs187 cr Rs49/16 4.5 lakh 532647 PROVOGUE PROVOGUE 6.1 cr
Provogue India (Provogue)s shares that had got temporarily suspended from trading for the demerger process got listed on the bourses at Rs17 per share. As per the scheme of demerger every shareholder holding 1 share of Provogue has received 1 share of Prozone Capital Shopping Centers Ltd (PCSCL; face value Rs2). The face value of Provogue shares has got reduced from Rs2 to Rs1. Shares of PCSCL will get relisted after it files for the same, which may take one to three months. Our fair value for Prozone works out to Rs27 per share. Post restructuring, our revised target price for Provogue is Rs35; Maintain Buy: Post restructuring Provogue now holds only the core retail assets that include brand salesProvogue along with export sales, ie those which were part of standalone financials. Thus our standalone financials and estimates for Provogue remain intact. We expect a decline in FY2012 profits while we expect FY2013 to witness strong recovery with a 26% growth in earnings. Valuing branded business and the export business of Provogue with a blended price earning ratio (PER) at 10x FY2013, we arrive at a target price of Rs35 for Provogue. Thus our revised target price for Provogue now stands at Rs35 and we maintain our Buy rating.
Foreign 14% Public & Others 28% Institutions 1% Non-promoter corporate 10% Promoters 47%
PRICE PERFORMANCE
(%) Absolute Relative to Sensex 1m 32.9 38.3 3m 42.4 28.8 6m 15.7 7.4 12m -18.2 -15.4
April 2012
20
EQUITY
FUNDAMENTALS
STOCK UPDATE
PTC INDIA
APPLE GREEN
COMPANY DETAILS
Price target: Market cap: 52 week high/low: NSE volume (No of shares): BSE code: NSE code: Sharekhan code: Free float (No of shares): Rs75 Rs1,822 cr Rs96/38 15.4 lakh 532524 PTC PTC 21.6 cr
BUY; CMP: RS62
MARCH 23, 2012
Tariff hike and policy reforms the key to future growth

The past two quarters have been depressed for PTC India owing to the continuous delay in receiving payment from two state electricity boards (SEBs), Tamil Nadu SEB and Uttar Pradesh SEB. The recent petition filed by the Tamil Nadu state utility to hike tariff with effect from April 1, 2012 amid mounting losses could see the enforcement of the tariff hike and would augur well for PTC India. Also, the commissioning of its first power tolling project, the Simhapuri power plant (150MW), is expected by March end and would boost its trading volumes from FY2013 onwards. We remain positive on its subsidiaries investment where big scope of value unlocking exists. For example, PTC India Financial Services plans to sell part of its stake in the Indian Energy Exchange (IEX), at a good valuation. In view of the recent developments in its various projects, we have fine-tuned our volume estimates. Overall, our estimates have been upgraded for FY2012 and FY2013 by 5-10% each. Accordingly, our price target has been upgraded to Rs75. The near-term trigger in the stock is the receipt of payments from SEBs, a reduction in debt and interest costs, and the commissioning of various power projects under power purchase agreements. The stock is also trading very attractively at 0.7x FY2014E book value. Hence, we maintain our Buy rating on PTC India.
6m -13.6 -18.1 12m -23.6 -21.3
Others 24% Promoters 16% Foreign 14%
Institutions 46%
PRICE PERFORMANCE
(%) Absolute Relative to Sensex 1m -5.7 -0.6 3m 49.4 37.1
RELIANCE INDUSTRIES
EVERGREEN
COMPANY DETAILS
Price target: Market cap: 52 week high/low: NSE volume (No of shares): BSE code: NSE code: Sharekhan code: Free float (No of shares): Rs890 Rs268,815 cr Rs1,065/687 46.2 lakh 500325 RELIANCE RELIANCE 181.7 cr
Key points
The gross refining margin (GRM) of the Singapore Complex has fallen sharply to around $2.4 per barrel from $5.6 per barrel at the end of Q3FY2012 on account of contraction in the gasoil crack. Reliance Industries Ltd (RIL) has reported a GRM of $6.8 per barrel for Q3FY2012. However, looking at the severe drop in the Singapore Complex GRM we believe RIL may post a sequential drop in the GRM in its Q4FY2012 report card. The gas output at the Krishna Godavari (KG) D6 oil field has been declining and the field is currently producing 34.5 million standard cubic meter of gas per day (mmscmd) compared to 53-54mmscmd a year ago. According to the management guidance in the media reports, the gas output is further expected to slide to 27mmscmd by FY2013 and to 22mmscmd by FY2014. Hence with the likely drop in the gas output there is a downside risk of around 3% to our FY2013 earnings estimate. RIL have sought increase in price for the gas produced from KG-D6 fields. However, the oil ministry has rejected the proposal stating that the price of 4.2 per mmbtu is fixed till FY2014. We believe any upward revision in the gas price in the near term augurs well for the company. A few negative developments like the fall in the GRM, the lower than expected output from the KG basin and the margin pressure in the petrochemical division could be downside risk to our earnings estimate for FY2012 and FY2013. However, we maintain our earnings estimates for FY2012 and FY2013 and would revise them after the Q4FY2012 results. Currently, the stock is trading at 12.8x and 11.6x of FY2012 and FY2013 estimated earnings respectively. We maintain our Buy rating on RIL with a revised price target of Rs890.
Others 22% Bodies Corporate 5% Institutions 28% Promoters 45%
PRICE PERFORMANCE
(%) Absolute Relative to Sensex 1m -5.3 -4.4 3m 9.8 -1.1 6m -1.0 -7.3 12m -18.8 -17.3
21
April 2012
STOCK UPDATE
EQUITY
FUNDAMENTALS
TATA CONSULTANCY SERVICES

EVERGREEN
COMPANY DETAILS
Price target: Market cap: 52 week high/low: NSE volume (No of shares): BSE code: NSE code: Sharekhan code: Free float (No of shares): Rs1,294 Rs227,664 cr Rs1,247/903 15.8 lakh 532540 TCS TCS 50.7 cr
BUY; CMP: RS1,163 MARCH 15, 2012 Short term hiccups, business fundamentals remain strong
We recently interacted with Tata Consultancy Services (TCS) management to get an insight on the industry environment and current business traction.
Management expects flattish Q4FY2012, however growth would likely pick up in Q1FY2013
On the back of a slower than anticipated ramp up in some of the discretionary projects during the quarter, the management has indicated at a flattish sequential volume growth for Q4FY2012, which would be significantly lower than the modest December 2011 quarter volume growth of 3.2%. However, the company has seen ramp up in the discretionary projects starting in the latter part of the quarter. The growth will be reflected in Q1FY2013. The companys margins during the quarter would be impacted by the rupee appreciation, the strong gross addition coupled with the absence of anticipated volume growth. The earnings before interest and tax margins are likely to decline by around 240-260bps quarter on quarter to below 27%. However, the management remains confident on maintaining the margin at around 27% for FY2013 on constant currency basis. Valuation and view: We believe a muted Q4FY2012 owing to slower ramp up in the projects is a short term hiccup for TCS and expect it to make a strong come back in Q1FY2013. Further the correction in the stock price of TCS in the medium term would be on account of weak sentiments over a soft Q4. TCS is an attractive investment opportunity from a 12 months perspective. We reiterate our positive stance on the underlying business fundamentals of TCS and continue to prefer it over Infosys for the next 12 months. We maintain our Buy recommendation on the stock with a 12 month target price of Rs1,294.
Public & Others 5% Foreign 13.4% Institutions 7.7% Non-promoter corporate 0.4% Promoters 74.1%
PRICE PERFORMANCE
(%) Absolute Relative to Sensex 1m -5.4 -5.8 3m -2.1 -13.4 6m 14.4 6.3 12m 6.8 8.3
UNITED PHOSPHORUS
UGLY DUCKLING
COMPANY DETAILS
Price target: Market cap: 52 week high/low: NSE volume (No of shares): BSE code: NSE code: Sharekhan code: Free float (No of shares): Rs167 Rs6,281 cr Rs171/120 11.1 lakh 512070 UNITEDPHOS UNITEDPHOS 33.6 cr

Revenue growth guidance revised downward for FY2012 to 25-30%: United Phosphorus Ltd (UPL) has reduced its revenue growth guidance for FY2012 due to the extended winter weather in some of its major markets. The company expects a revenue growth of 25-30% for the year 2011-12 which is much lower than the 35-40% growth guidance given earlier. During M9FY2012 UPL has seen a robust growth of 40.8% on the back of good volume and inorganic growth. But in Q4FY2012 volume offtake will undergo a de-growth due to prolonged winter in the western countries, which has delayed the sowing season to Q1FY2013. Revised guidance implies muted performance in Q4FY2012: The downgrade in revenue guidance to 25-30% in FY2012 and margin guidance in the range of 18-20% implies a muted performance in Q4FY2012. Going by the guidance, we expect a flattish growth in revenue in Q4FY2012 as compared to 40.8% growth in M9FY2012 and that there would be a single digit growth in earnings. Outlook and valuation: Given the expectation of a low volume offtake in Q4FY2012 due to unfavourable weather conditions in the USA and Europe, we have revised downward our earnings estimate for FY2012 by 21.5% to Rs13.9 and by 15.5% for FY2013 to Rs16.7. Consequently we have also reduced our target price from Rs197 to Rs167 per share. At the current market price the stock is trading at 9.6x and 8x its FY2012 and FY2013 earnings estimates respectively. Though the valuation has turned attractive after the steep correction in the past two days, we believe the stock could continue to underperform in the near term in anticipation of lackluster results. However, the stock offers value for long term investors. Hence, we maintain our Buy recommendation on the stock.
Public & others 22%
Promoter 27%
Foreign 35%
MF & FI 16%
PRICE PERFORMANCE
(%) Absolute Relative to Sensex 1m -3.3 -4.8 3m 0.9 -5.5 6m -2.4 -7.7 12m 2.4 5.9
April 2012
22
EQUITY
FUNDAMENTALS
SHAREKHAN SPECIAL
SHAREKHAN SPECIAL SHAREKHAN SPECIAL Monthly economy review

Economy: Industrial growth remains subdued; inflation increases
In January 2012, the Index of Industrial Production (IIP) grew by 6.8%, which was significantly higher than the markets expectations. The higher than expected performance was led by a strong growth in the manufacturing sector (up 8.5% year on year [YoY]) and a sharp jump in the non-durable consumer goods sector. The Wholesale Price Index (WPI)-based inflation for February 2012 came in at 6.95%, higher than the Streets expectations. The inflation rate for December 2011 too has been revised upwards to 7.74% from the provisional figure of 7.47%. The growth in exports remained weak showing an increase of 10.1% YoY (up 6.7% in December 2011). Imports grew by 20.3% YoY (up 19.8% in December 2011). The trade deficit for January 2012 came in at $14.7 billion, higher than the trade deficit level recorded in December 2011. The trade deficit increased by 117.9% YoY.
OCTOBER 06, 2008 MARCH 28, 2012

The yields on the government securities (G-Secs; of ten-year maturity) stood at 8.6% as on March 28, 2012, in line with the previous months levels. The G-Sec yields across the long-term maturities have increased on a month-on-month (M-o-M) basis.
Equity market: FIIs remain buyers

During the MTD period in March 2012 (March 1-26), the FIIs were net buyers of equities and the domestic mutual funds were net sellers of domestic equities. For the MTD period in March 2012 (March 126), the FIIs bought equities worth Rs8,702 crore while the mutual funds sold equities worth Rs1,081 crore.
Banking stocks outperform

In the last one month, the BSE Bankex has declined by 4.1% as compared with a decline of 4.9% recorded in the Sensex in the same period. The outperformance has been driven by the 125-basis-point CRR cut and expectations of a repo rate cut in Q1FY2013. However, due to the stubbornly high inflation and a silent Union Budget, the expectations of a rate cut have softened.
KEY FINANCIALS (CONSOLIDATED) Company 1M Yes Bank Federal Bank IndusInd Bank Bank of Baroda HDFC Bank IDBI Bank Kotak Mahindra State Bank of India Axis Bank Bank Of India Punjab National Bank ICICI Bank Canara Bank Union Bank
M - Month
Banking: CRR cut by 75 basis points; interest rates likely to decline in Q1FY2013
In its last policy meeting, the Reserve Bank of India (RBI) had maintained the status quo on the interest rates. However, prior to the monetary policy the RBI had reduced the cash reserve ratio (CRR) by 75 basis points (125 basis points since January 25, 2012). However, at the March 15th mid quarter policy review the RBI kept the rates unchanged. Going ahead, if inflation moderates or the government initiates steps for fiscal consolidation the RBI may reduce the repo rates in the April 17th policy review meeting. The credit offtake registered a growth of 16.4% YoY (as on March 9, 2012), which was higher than the growth of 15.8% recorded in the previous month (as on February 10, 2012). The credit growth is in line with the RBIs guidance of 16%. The deposits registered a growth of 13.9% YoY (as on March 9, 2012), which was lower than the 15% year-on-year (Y-o-Y) growth seen during the previous month (on February 10, 2011). The growth in the deposits has fallen due to the higher yields offered by the other debt instruments. The credit-deposit (CD) ratio was at 76.7% (as on March 9, 2012), higher compared with the 75.6% CD ratio as on February 10, 2012. Meanwhile, the incremental CD ratio increased to 109% for the period, which was higher than the ratio seen during the previous month, reflecting a slower deposit growth and tighter liquidity in the market.
Absolute 3M 40.7 21.1 25.5 16.2 15.1 28.5 14.6 27.3 29.0 20.5 12.4 19.7 21.8 25.1 5.0 3.7 1.0 -0.8 -2.7 -3.7 -3.7 -4.0 -4.9 -5.0 -5.5 -6.4 -11.0 -12.0
Relative 1M 9.5 8.2 5.3 3.4 1.5 0.5 0.5 0.1 -0.8 -0.9 -1.4 -2.4 -7.1 -8.3 3M 16.8 0.5 4.2 -3.5 -4.4 6.7 -4.8 5.7 7.2 0.0 -6.7 -0.6 1.2 3.9
23
April 2012
SWITCH IDEA
EQUITY
FUNDAMENTALS
SHAREKHAN SPECIAL RETAIL
CMP ALOK: RS19, RAYMOND: RS410 OCTOBER 06, 2008 MARCH 30, 2012
Shift from Alok Industries to Raymond

KEY POINTS
Alok Industriesa commodity play with stretched balance sheet: Alok Industries (Alok) operates across the entire textile value chain from yarn manufacturing to apparel fabric, made-up fabric (bed sheets/pillow covers and other sheeting fabric) and final garmenting. Despite such presence across verticals, the business seems to be commodity in nature as there is no recognisable brand that Alok can boast of in any of the segments it operates in. Further, the company is highly leveraged with a consolidated debt-equity ratio of 3.5-4.0x. The balance sheet could further come under stress given the tough liquidity conditions and to fund its planned capacity expansion. Raymonda brand play; improving financials and well heeled distribution set-up: On the other hand, Raymond has a presence in the worsted, denim and readymade apparel segments. It does not have presence in the yarn segment, which is low on value addition. But over the years it has created enviable brands like Raymond, Color Plus, Park Avenue and Parx with a deep and wide distribution set-up and its unique store presence The Raymond Shop. Its consolidated debt-equity ratio is at manageable levels of 1.0-1.2x and the operating cash inflows are expected to improve in future. The development of land at Thane and the exit from the non-core diversified business are additional triggers for value unlocking in the near future. Valuation: Raymonds outperformance is sustainable: Over the last one year, Raymond has outperformed the benchmark indices considerably whereas Alok has performed in line with the benchmark index, the Sensex. We believe that the outperformance by Raymond is well deserved and sustainable on account of its improving fundamentals and strong brand strength coupled with its robust distribution set-up. We expect Raymond to report a compounded annual growth of 26.7% in its earnings over the next two years. At the current price, Raymond is trading at 5.1x its FY2013E EV/EBITDA and 10.8x its 2013E price/earnings (PE) while Alok is trading at around 5x its 2013E EV/EBITDA. We believe that Raymond deserves better valuation than Alok, given the formers improving fundamentals and strong brand lineage. Branded apparel plays like Page Industries (Jockey), Kewal Kiran Clothing (Killer) and Titan Industries are trading at an average band of 16-22x their FY2013E earnings. With Raymond having four power and performing brands in its portfolio, it would fast catch up with the valuations of the other listed plays. On the other hand, there is high risk of further equity dilution in Alok which would be a drag on its valuations. Further, close to 90% of the promoter holding is pledged that increases risk for minority shareholders in volatile market conditions. Hence we suggest our investors to switch from Alok to a strategically better placed stock and focus play, Raymond. Our sum-of-theparts based valuation puts a price target of Rs500 on the stock. Risk to our call: If the consumer discretionary demand continues to witness a slowdown, as seen in Q3FY2012, for a prolonged period, then our FY2013 earnings estimate for Raymond may be at risk and hence also our price target for the same. Second, there could be a temporary blip in Aloks share price if the management sells its office space (based in Mumbai) to reduce its debt levels.
SWITCH IDEAS REPORT CARD (AS PER MARCH 30, 2012)

Switch Ideas suggest churn with comparable companies usually within the same sector with an objective to enhance returns over a period of 6-12 months. The list of Switch Ideas released till date and their interim performance are given below.
Sr No. 1 2 3 4 5 6 7 8 9 Date 01-Dec-11 02-Dec-11 12-Dec-11 15-Dec-11 20-Dec-11 23-Dec-11 27-Dec-11 27-Dec-11 17-Feb-12 Switch from Ranbaxy HUL Infosys Indian Oil Corp. Reliance Power Asian Paints M&M Baja Auto HDFC Bank Reco price 444.0 395.0 2731.3 268.3 70.5 2666.5 703.0 1634.9 531.0 Gain / Loss -5.6 -3.8 -4.9 2.1 -65.8 -21.4 0.9 -2.6 2.1 Switch to Sun Pharma ITC TCS Oil India CESC GSK Consumers Maruti Hero MotoCorp HDFC Reco price 522.3 207.0 1179.9 471.1 215.0 2487.5 967.9 1938.0 710.0 Gain / Loss 9.0 9.6 -1.0 9.3 26.6 10.5 39.4 6.0 -5.1 Net Gain / Loss 3.4 5.8 -5.9 11.4 -39.2 -11.0 40.3 3.4 -3.1
Real estate Switch Ideas were advised action to exit weaker stocks on pullback rallies to shift to safer and better stocks in the sector.
April 2012
24
EQUITY
FUNDAMENTALS
SECTOR UPDATE
BANKING
The Reserve Bank of India (RBI) has capped the amount of loan any non banking financial company (NBFC) can lend against gold at 60% of the value (loan to value). The tier I capital adequacy ratio (CAR) has also been raised from 10% to 12% with effect from April 2014. Further, the RBI has restricted NBFCs from lending against gold coins/primary gold or bullion. These regulations will reduce the leverage and lower the net interest margins (NIM) and return on equity (ROE). This is a big negative for listed players like Muthoot Finance, Mannapuram Finance, IIFL etc (not under our coverage).
MARCH 22, 2012 RBI caps LTV for gold loans - Negative for Mannapuram and Muthoot
Mannapuram Finance and Muthoot Finance have grown at a compounded annual growth rate (CAGR) of 198% and 70% respectively over FY2007 - 11. Therefore the new regulation will reduce the growth of the companies as competition vis a vis banks will increase while customers could also switch to money lenders offering higher LTVs.
Big negative for Mannapuram and Muthoot

The development is a big negative for listed players like Muthoot Finance and Mannapuram Finance (not under our coverage). Post the regulations the gold NBFCs would require to restructure their businesses to minimise the impact of the regulations.
Cap on LTV @60% will impact ROEs

Since the RBI has decided to cap the loan to value (LTV) at 60% for gold loans, the leverage levels will drop and impact the ROE of the companies. Currently the LTV ratio of Mannapuram Finance and Muthoot Finance is around 70-75% including the replacement costs. The reduction in LTV would result in a drop in average yield (2025% currently) and will impact the profits significantly. The companies (Mannapuram Finance and Muthoot Finance) have been maintaining ROEs of around 25-28% which could drop by approximately 500bps and impact the valuation multiple.
.also negative for India Infoline, SKS Microfinance

The regulations are also negative for the new entrants in the gold loans category such as India Infoline and SKS Microfinance. The regulations as of now are for NBFCs only. But if they get extended to banks then banks like South Indian Bank, which has 26% of the book in gold loans, would be negatively impacted. Compared to that, Federal Banks exposure to gold loans is much lower at around 6% of the book.
Business growth could come under pressure

Earlier the RBI had expressed concerns on rapid business growth and rising risks of gold-loan focused NBFCs. The loan books of
PHARMACEUTICALS
MARCH 19, 2012 Budget 2013 is net negative for pharma players
Key points
Negatives outweighs positives in Union Budget 2013 for pharma: The proposal of the Union Budget 2013 to increase the basic excise duty and extend the applicability of alternate minimum tax (AMT) to units controlled by partnerships under certain conditions are some of the key provisions which would materially impact the performance of a few players in the pharmaceutical (pharma) sector. The provisions related to weighted deduction of 200% for in-house research and development (R&D) expenditure have been extended for another five years. A higher allocation of funds for building infrastructure in rural areas and concession in customs duty on import of medical devices including raw materials for medical devices are some of the key bounty for the sector. The net impact we feel remains negative for key players in the short to medium term. Sun Pharma and Cadila Healthcare to take steeper impact among peers: These proposals are set to increase the tax burden for companies like Sun Pharmaceutical Industries (Sun Pharma; 59% contribution of profits from partnership-based undertakings), Cadila Healthcare (58% of profits being contributed by partnered undertakings) and Torrent Pharmaceuticals (Torrent Pharma; undisclosed profit from partnership based undertakings), as they have manufac-
turing units in Sikkim which are being controlled by partnership firms floated to by-pass taxation meant for only companies. We revise earnings estimates, target price: We revise our earnings estimates for Sun Pharma, Cadila Healthcare and Torrent Pharma to factor the new provisions proposed in the budget, which would lead to an incurrence of a higher effective tax rate for the mentioned companies. Accordingly, we have revised downwards our earnings estimate for Sun Pharma by 10% and 9% for FY2013 and FY2014 respectively while Cadila Healthcares earnings estimates have been reduced by 5% and 6% for FY2013 and FY2014 respectively. Torrent Pharma, which started its partnership based manufacturing units in FY2011 is likely to have a marginal impact of 2-3% in FY2013 and FY2014 assuming a 25% contribution to consolidated profits from its partnership firm based in Sikkim. Accordingly, we have reduced the target price of Sun Pharma by 9% to Rs631. The target price of Cadila Health has been revised down by 6% to Rs768 while that of Torrent Pharma has been revised down by 3% to Rs760. We maintain Buy recommendations for these stocks.
25
April 2012
SECTOR UPDATE
EQUITY
FUNDAMENTALS
POWER EQUIPMENT
MARCH 1, 2012
NTPC order - BGR shines, BHEL gets fair share, L&T misses yet again
BGR Energy Systems (BGR) has emerged as the lowest bidder for the supply of supercritical boilers and turbine-generators (TG) respectively for the 7260MW (11x 660MW) National Thermal Power Corporation (NTPC) power projects. It is likely to get 7 units of boiler orders worth Rs6,500 crore at a realisation of Rs1.4 crore/MW. Here, Bharat Heavy Electricals Ltd (BHEL) is likely to get Rs3,700 crore worth of orders due to favourable NTPC tendering specifications, provided it matches the L1 quotations. Larsen and Toubro (L&T), which emerged as the third lowest bidder in the TG bid, is unlikely to bag any order. and FY2014 earnings estimate). We maintain our Hold rating on the stock.
L&T (CMP Rs1,278, Buy) yet to open its account with NTPC
L&T appears to have lost out to BGR and BHEL in its price bid in the super-critical bulk tender order from NTPC. We feel that this was in accordance with the companys focus on the sustenance of healthy margins. The company has been earlier disqualified in the first round of 11x660MW equipment bid on technical ground. In the 9x800MW segment the company emerged as L2; the order was given to the joint venture of JSW Energy with Toshiba. L&T currently has a well-diversified order book of Rs145,768 crore in M9FY2012, of which only 29% is contributed by the power sector. Hence, the shortfall in this sector could partly be compensated by contributions from other sectors. At the current market price the stock is trading at 11.9x its FY2014 consolidated earnings estimate. We maintain our Buy rating on the stock on its diversified business exposure and attractive valuations.
BHEL - to get fair share of order

The company has emerged as L2 bidder in all NTPC orders due to favourable NTPC tendering specifications. We estimate that the company has garnered orders worth Rs13,879 crore at least (around 36% of the total) in the total ordering of Rs38,152 crore. The recent intervention of the Prime Ministers Office (PMO) in the form of directive to Coal India to sign FSA with power developers would boost the investment sentiments in the power sector. Power sector reforms and possible levy of import duty to improve competitive environment could result in re-rating of multiples. Hence we are slightly increasing the target multiple to 12x (from the earlier 10x). Our revised price target stands at Rs328 (roll-over of the target multiple on average of FY2013
ANIL
VIEWPOINT CMP: RS244 MARCH 27, 2012
Well placed to cash in on the potential opportunity
Anil, largest player with wide product portfolio: Anil is one of the top three players in the domestic starch industry with an organised market share of close to 20%. However, in the highmargin value-added starch products it has a market share of 40-50%. R&D has played pivotal role in Anils success, helping the company to gradually shift from a commodity product business to a business of value-added products. The company has reputed clients including players like ITC, Nestle India, Amway, Dabur, Heinze, Lupin, Arvind Mills and Raymond. Robust track record with aggressive expansion plans: Anil has grown its revenues at a robust 31% CAGR in the tough period of FY2008-11. The improving revenue mix in favour of valueadded products has enabled it to double its OPM to 17.2% from less than 10% earlier, resulting in an exponential growth at 76.7% CAGR in its earnings during the three-year period. Going ahead, we expect Anils revenues to grow at a CAGR of 25% over FY2011-14 and the increasing proportion of the valueadded products would further boost the margins to around 19% in the next two years. Additional triggers: The Anil group of companies received the approval from the ministry of food processing industries of India to set up a Mega Food Park project in Gujarat. The group will form a special purpose vehicle in which Anil will have a majority stake of 40%. Once the project is completed it will add tremendous value to the stock of Anil. The companys manufacturing facility is located at Bapunagar, Ahmedabad in an area covering 1.5 lakh square metre. In future the company could shift its manufacturing facility to a special economic zone/ tax benefit zone, thereby unlocking value in terms of land bank. Outlook and valuation: With the enhancing capacity, Anil is well poised to cash in on the opportunity created by the increasing demand for starch in the domestic market. At the current market price the stock trades at 3.5x its FY2013E EPS of Rs70.4 and 2.3x its FY2014E EPS of Rs106.1. We see potential for a substantial upside in the stock over the next 12-24 months. Historically, the stock has traded at PE multiple of 4-5x its oneyear forward earnings.
April 2012
26
EQUITY
FUNDAMENTALS
VIEWPOINT
BHARAT FORGE
VIEWPOINT
Key points
Stand-alone revenue growth likely to moderate: Bharat Forge Ltd (BFL)s stand-alone revenues are expected to grow by 13.5% compounded annual growth rate (CAGR) between FY2012 and FY2014 as against the growth of 40% CAGR achieved in FY2010-12. The share of the non-automotive business in the stand-alone revenues has gone up from 30% in FY2010 to 35% in M9FY2012. BFL aims to equate the non-automotive revenues with the automotive revenues over the next ten years. Non automotive businessthe game changer: The company charted a major diversification path after the slump in its automotive business in FY2009. While the non-automotive business is primarily focused on forgings, the company is targeting to increase the proportion of machining components from 30% currently to 100%. The company receives 47% contribution from exports in the non-automotive business and the rest from the domestic markets. Capital allocation critical to boost valuation in long run: The company has allocated over Rs900 crore or 25% of its balance sheet into various investments and joint ventures (JVs) to enhance the growth but has met with limited success. While the subsidiaries on a consolidated basis are expected to report a
CMP: RS326
MARCH 20, 2012
Robust business; wait for better entry point

25% revenue growth in FY2012, they are still operating at less than 1% profit before tax (PBT) margin. Other business will take time to take off and add substantially to valuations: The BFL-Alstom JV is expected to receive the order worth Rs3,300 crore from NTPC being the lowest bidder (L1). The other JVs with NTPC and KPIT are also in investment phase.
Valuations
For FY2013, we are factoring in a lower than consensus revenue growth of 12.1% for the stand-alone operations. We estimate the standalone earnings per share (EPS) would grow by 19% CAGR, higher than the revenue growth of 13.5% CAGR between FY2012 and FY2014. The company is expected to boost its earnings in FY2014 as new investments/capital expenditure (capex) start contributing to revenues. We also expect a reduction in debt during FY2014 as the capital expenditure reaches its tail end.The company can trade at 13x FY2014 earnings and the valuations can also incorporate the book value of its investments in subsidiaries and JVs. In spite of having the positive long-term view, the sharp runup in the stock has now got limited upside in store.
LIBERTY PHOSPHATE
Subsidy reduction not to hurt volume growth
We have interacted with the management of Liberty Phosphate to understand the impact of reduction in subsidy payout rates on non urea fertilisers and its fallout on the demand environment. The government has decided to reduce subsidy payout on nutrients in complex fertilisers on the back of a decrease in the prices of raw materials in international markets. The government has decreased the subsidy on phosphorous by 32.6% to Rs21.8 while that on sulphur remains unchanged. Single Sulphur Phosphate (SSP) contains 16% phosphorous and 12% sulphur. So a decline in the subsidy on phosphorous will reduce the subsidy payout on SSP by 31.4% to Rs3,690 per tonne. A decrease in subsidy on SSP will restrict the company from decreasing the maximum retail price (MRP) from the current level of Rs5,000 per tonne. As per our interaction with the management, the price of SSP can be increased by Rs1,000 per tonne to Rs6,000 per tonne if the government reduces subsidy in the forthcoming budget. We expect the demand for SSP to remain strong in spite of a likely price hike as it will find preference as a substitute to diammonium phosphate (DAP). The price of DAP has run up sharply in the last one year from Rs9,400 to Rs19,000 per tonne. Farmers, as a result, have been forced to look for a substitute. A special initiative taken by the government to use more of indigenously manufactured fertilisers in order to restrict subsidy will provide support to SSP manufacturing as a substitute to DAP in the long term. Given the aggressive expansion of its manufacturing capacities the company can potentially grow at a compounded annual growth rate (CAGR) of around 28.6% over the next two years. In terms of valuation, the stock trades at around 1.7x FY2013 rough estimates. This makes it one of the cheapest stocks in the complex fertiliser space. Liberty Phosphate has appreciated by over 22% since we introduced the stock with a positive bias in the viewpoint section of our daily online publication Investors Eye on September 7, 2011. We maintain our positive bias on the stock.
27
April 2012
VIEWPOINT
EQUITY
FUNDAMENTALS
RAMA PHOSPHATES
VIEWPOINT CMP: RS60
In for good times
Single super phosphate (SSP) manufacturers will benefit the most from the rising selling price of most complex fertilisers especially diammonium phosphate (DAP). After the implementation of the Nutrient-based pricing scheme (NBS) for complex fertilisers, the prices of the complex fertilisers have shot up sharply in the past couple of years due to a rising input cost. In case of DAP, the prices of the key raw materials like rock phosphate and phosphoric acid have firmed up sharply. Thus, farmers have shifted to low-grade phosphatic fertilisers like SSP, which has only 16% phosphate content as compared to 46% in case of DAP. Rama Phosphates is the third largest player in the SSP manufacturing space with a total installed capacity of 4.78 lakh tonne. It has undertaken capacity expansion at its existing manufacturing locations of Indore and Udaipur, and would add around 3 lakh tonne of additional capacity in the next two years (1.5 lakh tonne each in FY2013 and FY2014) to around 6.8 lakh tonne. The capacity addition would help cater to the needs of the key growing markets for SSP, ie Madhya Pradesh, Rajasthan, Gujarat and Maharashtra. SSP is extensively used by farmers for cultivating sugar-cane and oilseeds. The current holding of the companys promoter stands at 81% but as per the Securities and Exchange Board of India guidelines a promoter has to bring down his holding to 75% by June 2013. The promoter is looking for a strategic investor in order to dilute his stake in the company. After the introduction of NBS for SSP in FY2011 and a gradual increase in the demand for SSP as compared with the other fertilisers, the companys management is looking at divesting the promoters stake at a premium to the current price. This, we believe, is positive for the stock. In terms of valuations, the stock trades at around 2x FY2014 rough estimates and below its book value (on full depreciated assets). This makes it one of the cheapest stocks in the fertiliser space. Moreover, the potential reduction of the promoters stake at a premium to the current valuation is another trigger for the stock. We are extremely positive on the stock and see scope for substantial appreciation. However, given the extremely low market cap and float at the counter, we are not initiating active coverage on the stock.
MARCH 23, 2012
TECH MAHINDRA
Tech Mahindra and Mahindra Satyam merger finalised
The much awaited merger of Tech Mahindra and Mahindra Satyam has got finalised with the boards of the two entities having approved the proposal. The swap ratio for the merger is worked out to be 2 shares of Tech Mahindra (face value Rs10) for every 17 shares of Mahindra Satyam (face value of Rs2). As per the managements indication, the merger process will take another six to nine months to complete and the record date of the merger would be announced in due course. entity would derive synergies from strong capabilities of Tech Mahindra in mobility and system integration whereas the legacy strength of Satyam in the area of enterprise solutions would be the key differentiator for the merged entity. Among geographies, the revenue exposure will be more balanced with 42% accounted by the US, 35% by Europe and 23% by emerging markets. Valuation: We view the merger of Mahindra Satyam with Tech Mahindra as a positive catalyst for creating a value accretive entity for the future. However, legal hurdles pending with Mahindra Satyam and slowdown in the telecom vertical (main industry exposure for Tech Mahindra) would stand to be a roadblock in the medium term. On a longer-term, the new entity will have a more diversified and scalable revenue stream and operational synergies will create value for the investors. At the current market price, both Tech Mahindra and Mahindra Satyam trade at 10x and 9x their FY2013E and FY2014E consensus earnings respectively. We continue to remain positively biased on Mahindra Satyam. Currently, we do not have any active rating on Tech Mahindra and Mahindra Satyam.
Key synergies from the merger

The combined entity would be the fifth largest domestic IT company: The merged entitys revenues are at around $2.4 billion for the last 12 months (ended December 2011), making it the fifth largest domestic IT company, next to HCL Technologies among the listed space. The entity would be the sixth largest when taking Cognizant Technologies into consideration. In terms of market capitalisation, the merged entity will be at around Rs17,000 crore. Diversified revenue stream with strong domain expertise in focused areas: The merged entitys revenue stream will be much diversified as compared to the current single industry (telecom) exposure of Tech Mahindra. The new entitys revenue mix will comprise of sectors like banking, financial services and insurance (BFSI), manufacturing and telecom among others. On the other hand, the merged
April 2012
28
EQUITY
TECHNICALS
TREND & VIEW
Consolidation to continue
Sensex: Daily view
The Sensex has been consolidating in a range forming a triangular pattern. It is now expected to continue with the consolidation between 16900 and 18000 levels in the short term. Wave 1 or A is already completed from 15135 levels and in the short-term wave 2 or B is in process. The momentum indicators have given a positive crossover and are trading around the zero line, which is a positive sign for the market in the short term. A key support would be around 17200 and 16900 and resistance would be around 17800 and 18000.
Short term Trend Down Trend reversal 17700 Support 17000 Resistance 17700 Target
14 21 28 0.0% 18500 18000 23.6% 17500 38.2%
50.0%
17000
61.8% 16500
16000
15500 100.0%
15000 KST (-1.36201)
-5 5 12 December 19 26 2 2012 9 16 23 30 6 February 13 21 27 5 March 12 19 26 2 April 9 1
17000
Sensex: Weekly view

X
21500 21000 20500
The Sensex has broken out from a downward sloping channel forming higher tops and higher bottoms and is also in the process of retesting the pattern. According to the Elliott wave theory, the index has completed a W-X-Y-X-Z correction and a new move on the upside has started, which can move up till 18520 and 19800. The first leg on the upside as wave 1 or A has completed and wave 2 or B is in the process with reversal of 16570 and a target of 18830. The momentum indicators have given a negative crossover and are trading above the zero line, which is a negative sign for the markets in the medium term.
W
20000 19500 19000 18500 18000 17500
A OR 1 X
17000
16500
16000
15500
Z KST (3.74622)
15000
10 5 0 -5 -10 ay Jun Jul Aug Sep Oct Nov Dec 2011 Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2012 Feb Mar Apr May Jun
23000
Sensex: Monthly view

The Sensex has formed a double top around the all time high ie 21207, which is a crucial resistance going forward. It has posted a negative close this month, trading below the 20 month moving average (MMA) ie 18157, which will act as a very crucial resistance in the medium term. The index has retraced almost 61.8% of the entire fall from 2010 November highs ie 21108 to the current lows ie 15135 and is expected to target at least 18830 and 19800,which are 61.8 % and 78.6% retracement levels. The Sensex has retraced close to 50% of the previous rally from the 2009 low of 7697 to the 2010 November high of 21108 and has now started a new cycle on the upside.
Medium term Trend Up Trend reversal 16570 Support 16570 Resistance 18830 Target 18830
22000 0.0% 21000 20000 19000 23.6% 18000 17000 38.2% 16000 15000 50.0% 14000 61.8% 13000 12000
11000
10000
9000
8000 100.0%
KST (-5.82090)
40 30 20 10 0 -10 -20 -30 -40 A M J J A S O N D 2011 A M J J A S O N D 2012 A M J J A S O N D 2013
N D 2007
A M J J A S O N D 2008
29
April 2012
MONTHLY VIEW
EQUITY
DERIVATIVES
Derivative view: The Rollover Game

The March series had started the month on a negative note. It continued witnessing selling pressure and profit booking with there being uncertainty related to major events lined up later during the month. These included the state election results, the Monetary Policy Review by the Reserve Bank of India and the railway and the union budget. As nothing much came from these events, the Nifty finally wrapped the last month of the financial year by playing a see-saw ride and ending lower by 5.55% (expiry to expiry basis). The April series witnessed a cheerful comeback. The market traded firm on the first two days of the month due to positive cues from the global markets and with there being no major events lined up for the series. This helped the market to sustain above its 200 day moving average (DMA) which is a good sign. The April series started the month with an open interest of Rs12,116 crore in Nifty futures vs Rs13,931 crore (in the previous series), Rs23,913 crore vs Rs29,562 crore in stocks futures, Rs41,788 crore vs Rs48,830 crore in index options and Rs1,687 crore vs Rs2,198 crore in stocks options. These figures are lower compared to the March series. The rollover on the other hand was also significantly lower standing at 58.46% for the Nifty and 78.85% for the market. The rollover was mostly on the long side, indicating that a majority of the positions have been left uncovered. As a result the market may witness volatile movement in the coming days as there is more headroom for building positions.
MARKET WIDE VS NIFTY ROLLOVER
side theres a hurdle around 5470 levels. We feel that the overall bias is positive unless the Nifty holds the previous swing low. Once the Nifty surpasses the 5470 level and closes above it, the levels of 5600-5700 could be targeted. Hence one can form a bull call spread of 5400-5500 at the current levels or buy a plain vanilla call option of 5500/5600 strike once the Nifty closes above the 5470 level. Top five stock futures with the highest open interest in the current series
STOCK FUTURES (SHAREKHAN SCRIP CODE) RELIANCE SBIN TATAMOTORS ICICIBANK TATASTEEL OPEN INTEREST (RS CR) 914.8 856.7 736.1 724.4 584.4
Top five stock options with the highest open interest in the current series
STOCK OPTIONS (SHAREKHAN SCRIP CODE) SBIN RELIANCE TATAMOTORS INFY ICICIBANK OPEN INTEREST (RS CR) 351.2 195.7 156.6 152.5 97.7
Strategy for the month: Nifty Bull Call Spread

A bull call spread is formed when the stock/index is expected to move in an upward direction. It is formed by buying an out-of-the-money call option (5400) and selling another out-of-the-money call option of a higher strike price (5500) with the quantity of both being the same and both having the same underlying and expiry. It is a limited profit - limited loss strategy with a favourable risk to reward ratio.
FORMATION STRIKE 5400 5500
TYPE Call Call
BUY/SELL Buy Sell
PREMIUM 79 42
NET COST 37.00
PAY-OFF DIAGRAM
On the call side, 5400 strike followed by 5500 and 5600 strikes have the highest number of shares in open interest whereas on the put side, 5200 strike followed by 5000 strike have the highest number of shares in open interest. The put to call ratio has started the month above 1.12 which is much above the 1.02-1.04 in case of last month. The implied volatility on the other hand has cooled off significantly from the high of 28-30%. It is now hovering in the band of 22-24% for the April series.
View
The Nifty has seen a sharp spike from the levels of 5150-5170 (from the 200 DMA). It was a major resistance area last month and is now acting as a good support. The volume weighted average price (VWAP) for the series stands at 5250 levels. On the higher
April 2012
30
COMMODITY
FUNDAMENTALS
MONTHLY VIEW
Commodities: Lower on global slowdown fear Macro-economy

Key points Euro area caps bail-out fund at 800 billion euros German unemp. down in March; ZEW Eco. Sent. +ve for 2nd month S&Ps Kraemer : Italys risks main focus for policy makers Spain budget deficit target above the limit committed European economy contracts in Q4 as exports decline Greece secures historical debt deal, but third bail-out possible OECD: UK back in recession US consumer spending up on energy prices; income lags Goldman: Warm weather boosted the US economy; will now be a drag US housing data mostly disappointing Feds Bullard: monetary policy may be at a turning point China non-manufacturing industries contracted in February China manufacturing PMI at one year high on seasonal factor China lowers GDP growth target to 7.5% as export gains slow China posted its largest trade deficit since at least 1989 in February Chinas home prices far from reasonable levels, premier Wen says Rio Tinto, BHP: Chinas economy is slowing Societe Generale: Chinas corp. profits wont grow this year IMF: China hard-landing concerns exaggerated Australia posts first trade deficit in 11 months Japans unexpected rebound in trade surplus encouraging sign IMF: Oil prices could rise 30% if Iran supplies disrupted
COMMODITY PRICES IN MARCH (IN $) Commodity Copper Zinc Lead Gold Silver Crude oil High 8695.3 2165.0 2285.0 1790.8 37.5 111.0 Low 8176.8 1978.0 1960.0 1628.2 31.1 102.1 Close 8445.0 2000.0 2042.0 1668.2 32.2 103.0 % Mon chg -0.6 -5.3 -5.5 -1.7 -7.0 -3.8
MONTHLY CHANGE IN DOE CRUDE STOCKS (FEB-MAR) Crude oil Change in (000' bbls) 24-Feb-12 Change in (%) 8522 344868 2.47 Dist. -5574 141440 -3.94 Gasoline -6557 229927 -2.85
Refinary utlisation rate was at 84.5% in the last week of March.
MONTHLY CHANGE IN SHFE STOCKS (FEB-MAR) Copper Change (in tonne) 23-Feb-12 Change (in %) 2728 216086 1.26 Lead -10829 37709 -28.72 Zinc -4077 380788 -1.07
MONTHLY CHANGE IN LME STOCKS (FEB-MAR) Copper Change (in tonne) 29-Feb-12 Change (in %) -40150 296425 -13.54 Lead 6125 370450 1.65 Zinc 29825 867550 3.44
NoteLME: London Metal Exchange , SHFE: Shanghai Futures Exchange, DOE: Department of Energy (US)
Crude oil: Likely to fall further on easing Iran tensions

Key points OPEC pins high prices on speculators, IEA warns on supply Gasoline deficit looms in the USA East coast on shutdowns Iran says atomic talks to resume in April as Erdogan pledges aid Iranian oil exports to drop by 300k barrels a day: Reuters Saudi Arabia can raise oil output 25% if needed, Naimi says EIA cuts non-OPEC output forecast for this year and the next Strategic oil release possible as high oil prices threaten global economy IEA warns that OPEC spare capacity to reach the lowest since 2008 IEAwestern oil inventories below their five-year average for seventh consecutive month
WTI NYMEX crude oil
CMP: $103.02
Crude oil prices fell last month on Chinas slowdown fears, mostly bearish economic indicators out of Europe, disappointing US housing reports and reports indicating Iran would resume talks over nuclear programmes next month. Talks of release of crude oil from strategic reserves by western nations played a crucial role in sending the prices lower. Irans Foreign Minister Ali Akbar Salehi said on March 28, 2012 that negotiations over the countrys controversial nuclear programme would resume in the next month. The release of stocks from the strategic stockpile would bring down the prices. However experts opine that logistical upheavals in the US oil market over the past year may now make such a move slower and more complicated. Logistical problems constrained the government's release of 30 million barrels of oil last summer. We look for $98-108 range this month with a downward bias until the demand for gasoline picks up in the driving season.
31
April 2012
MONTHLY VIEW
COMMODITY
FUNDAMENTALS
Precious metals: Weighed down by slowdown, uncertainty regarding quantitative easing

Key points Dollar Index a tad higher month on month India raises tax on gold imports for second time to curb deficit Shanghai may allow qualified FIIs to invest in futures, gold, Times says Russian central bank reduces gold holdings by 3.80 tonne; the first decline in five years Mexico, Tajikistan and Turkey reduce holdings by 0.1, 0.2 and 1.3 tonne respectively Gold investment demand fell by nearly 6% last year--CPM Gold Year Book (GYB) 2012 The velocity of the US M2 money supply was at record low levels during the fourth quarter of 2011, suggesting low inflationGYB 2012 Correlation between the price of gold and US inflation levels on a monthly basis from 1970 to 2011 stands at 7%GYB 2012 The total supply of gold climbed to 3,372 tonne in 2011--GYB 2012 CPM estimates that central banks bought a net of about 395 tonne last year GYB notes a very modest 0.6% gain in total gold fabrication demand for the last year This year US mint silver coin sales in March surpass the February figure Chinas silver imports were 213.2 tonne in February this year, slightly higher than January
Gold
CMP: $1,668
Gold is likely to be vulnerable in case the US Federal Reserve doesnt go for further easing in the near term. The April meeting of the Federal Open Market Committee (FOMC) would be closely watched by the traders. So far the opinions regarding further quantitative easing are mixed. High crude oil prices remain a deterrent to further monetary stimulus. Gold might not benefit much in case of a sterilised easing by the US Federal Reserve. Bank of Japan (BoJ) and Bank of England refraining from further stimulus caps the advance in the gold prices. The yellow metal can rise to $1,730 level in the near term as the euro is expected to strengthen a bit against the US Dollar on the European Central Bank (ECB)s long-term refinancing operations (LTRO), firewall provisioning and encouraging indicators out of Germany. However, the upside is likely to be limited. Disappointment on the easing front could take the metal down to $1,575 level. We suggest selling into rallies in that case.
Silver
CMP: $32.25
Silver is likely to trade in a range with a downward bias in April 2012 as crude oil and base metals are likely to be under pressure. Though once again a lot would depend on the US central banks stance. The upside is likely to be capped around $34.50 while the downside could extend to $29. A crucial support is seen in the $30.90-31.50 range.
Base metals: Can fall further

Key points Copper to average at $3.5 to $4 through 2020, Chile Council says Chinas February copper imports hit second-highest level ever World copper supply outpaced demand in December 2011, ICSG says Chinas copper product exports damped by EU crisis, Iran sanctions Chinas copper buying: credit financing playing a major role ILZSG: Global lead market in 9,000-tonne surplus in January 2012 China's recycled lead output falls 0.9% in 2011 Zinc prices will climb this year, says Zhuzhou Smelter (Chinas biggest smelter) ILZSG: Global zinc market in 23,000-tonne surplus in January 2012
Copper
CMP: Rs433
Copper prices slipped a tad last month but the red metal fared much better than its peers as the London Metal Exchange (LME) inventories continued to decline sharply. Strength in the euro and equities also supported the counter. Shanghai Futures Exchange (SHFE) inventories rose month on month, though the stocks fell in the last two weeks of the month. LME cash-to-3 month spread continues to be in backwardation on declining LME stockpiles. Talks of Chinas hard landing or a significant slowdown amid recession in Europe could take the prices lower. Chinas imports remain high, however a chunk of the imports is for getting credit financing that makes the metal vulnerable given the huge inventories (in the tune of 5 lakh to 10 lakh tonne) in Chinas bonded warehouse. We look for a correction to the Rs416 level and the correction could extend to the Rs404 level. The upside is likely to be capped around Rs452 (a weaker rupee would support the prices).
Lead
CMP: Rs105
Lead was down sharply last month on slowing demand from the automobile sector in China. In a supportive development, recycled lead production fell in China due to environmental checks in major recycled lead production hubs. A decline in SHFE inventories could support the prices at lower levels. We look for a range of Rs98-109 with a downward bias.
April 2012
32
COMMODITY
FUNDAMENTALS
MONTHLY VIEW
Zinc
CMP: Rs102.50
The global refined zinc market was in surplus by 23,000 metric tonne in January this year. The gap was smaller than the 57,000-tonne surplus in the same month of 2011. China's biggest zinc smelter, Zhuzhou Smelter Group, has predicted a rise in zinc prices this year, citing tighter supply as a reason. The supply and demand balance is expected to improve for the company in 2012, though support from downstream sectors will be relatively limited due to global economic uncertainty, the Shanghai-listed smelter said in its 2011 annual report. We look for a range of Rs96-106 this month. CMP as on March 31, 2012
Major economic events in April 2012

Date 1-Apr-12 2-Apr-12 2-Apr-12 2-Apr-12 2-Apr-12 4-Apr-12 4-Apr-12 4-Apr-12 4-Apr-12 4-Apr-12 5-Apr-12 5-Apr-12 5-Apr-12 6-Apr-12 6-Apr-12 9-Apr-12 9-Apr-12 10-Apr-12 12-Apr-12 12-Apr-12 13-Apr-12 13-Apr-12 13-Apr-12 15-Apr-12 16-Apr-12 17-Apr-12 17-Apr-12 17-Apr-12 19-Apr-12 20-Apr-12 24-Apr-12 24-Apr-12 24-Apr-12 25-Apr-12 25-Apr-12 26-Apr-12 27-Apr-12 27-Apr-12 27-Apr-12 Region China US UK Germany Euro zone US UK Germany Event PMI Manufacturing ISM Manufacturing PMI Manufacturing PMI Manufacturing PMI Manufacturing Factory orders PMI Services Factory orders MoM (SA) Forecast 50.8 531.1 50.7 48.1 47.7 1.50% 53.4 1.40% 48.7 1% 0.40% 325B 0.50% 210K 8.30% 3.50% -----------------------Actual 53.10 -52.10 48.4 47.7 -----------Prior 51 52.4 51.2 48.1 47.7 -1.00% 53.8 -2.70% 48.7 1.00% -0.40% 325B 0.50% 227K 8.30% 3.20% Impact Up on seasonal factors; limited positive impact. Sustainability of encouraging data would support industrial commodities as China and Europe are likely to disappoint. Supportive for GBP, industrial commodities. Slightly supportive for commodities, euro. Euro zone's manufacturing activity remains in contraction; bearish for commoties. Important for industrial commodities and the US Dollar. Important for GBP and the industrial commodities. Important for industrial commodities as Germany remains in focus for signs of contagion from European crisis. Euro zone's services sector remains in contraction. Data would be closely watched for signs of worsening. No changes expected in the rates; assessment of economy by the European Central Bank would be closely watched by the traders. Important for GBP and industrial commodities. Important for GBP. Increase in the size of asset purchases would be bearish for GBP. Focus would be on the assessment of the economy, hints about asset purchase plans. Stronger than expected data would support the US Dollar but weigh on gold as it would reduce the possibility of further easing. Industrial commodities would eventually gain. Only statistically important as pool size is shrinking. A lower than expected number would be positive for industrial commodities on increased possibility of further easing. Shows investors confidence, a higher than forecast data would be supportive for the euro. Both import and export figures need to be analysed as both domestic and global economies look shaky. Improvement in the US imports would support industrial commodities. Important for industrial commodities. A higher than expected data would be bearish for commodities as chances of quantitative easing (QE) fade; would be supportive for the US Dollar. Important for industrial commodities as traders closely watch China for a significant slowdown/hard landing. Important for industrial commodities and US Dollar (would rise if the data disappoints). Important for industrial commodities. Improvement in deficit would be supportive for the euro. Housing sector is still showing weakness, continued weakness increases the QE possibility. Sustainability needed to ensure that the US recovery is holding its ground. Six-month forward looking investors' and analysts' expectations. Important for industrial commodities and the euro move. Worsening of sentiments would weigh on the euro and commodities. Important for industrial commodities and the euro Higher confidence would support industrial commodities. Gold can fall. Sales of new homes in the US fell for the second consecutive month in February. Important for the dollar and industrial commodities. A weaker data would support gold. Important for industrial commodities and the euro as the euro region grapples with recessionary pressure. Important for all commodities with focus on QE3 Important for GBP and industrial commodities. Important for industrial commodities and the euro. Important for all commodities with focus on QE3 Higher confidence would support industrial commodities. Gold can fall. Important for industrial commodities and the euro.
Euro zone PMI Services Euro zone ECB announces interest rates UK UK UK US US China Industrial production (MoM) BOE asset purchase target BOE announces rates Change in non-farm payrolls Unemployment rate Consumer Price Index (YoY)
Euro zone Sentix Investor Confidence China Trade balance (USD) US Trade balance Euro zone Euro zone industrial output (SA; MoM) US CPI ex food and energy (YoY) China China US Euro zone US US Euro zone Euro zone Germany US US Industrial production (YoY) Real GDP (QoQ) Advance retail sales Euro zone trade balance Housing starts MoM% Industrial production ZEW Survey (economic sentiment) Euro zone Consumer Confidence IFO - business climate Consumer confidence New home sales MoM
--8.2 - - -$31.48B - - -$52.6B - - 0.20% - - 2.20% -------------------2.00% 1.10% -7.6B -1.10% 0.00% 11 -12 109.8 70.2 -1.60% -0.25% -0.30% -0.3 3% -5.9
Euro zone Industrial new orders SA (MoM) US UK Euro zone US US Germany FOMC rate decision GDP (QoQ) Business climate indicator GDP QoQ (annualised) U. of Michigan Confidence GFK Consumer Confidence Survey
33
April 2012
TREND & VIEW
COMMODITY
TECHNICALS
Gold: Down trend intact

Gold faced selling pressure near the 61.8% retracement mark. The down move, which originated from the key Fibonacci level, is sub-dividing into lower degree waves. Currently gold is trading near its 20-week moving average (WMA; $1,681) and the 40-week exponential moving average (WEMA; $1,654). The weekly, monthly as well as the quarterly momentum indicators are in a sell mode. The medium-term target is the weekly lower Bollinger Band ($1,573). Reversal has been kept above the swing high ($1,717).
Trend Down Trend reversal $1,717 Supports $1,627/1,600 Resistances $$1,681/1,700 Target $1,573
Jun Jul Aug Sep Nov Dec 2011 Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2012 Mar Apr May Jun Jul Aug Sep KST (-0.59125) 15 10 5 0 -5 2000 1950
100.0%
1900
78.6%
1850 1800
61.8% 50.0% 38.2%

1650
1717
1750 1700
23.6%
1573
0.0%
1600 1550 1500
1450
1400
1350
Silver: Targeting the low

Silver kissed and tumbled from the medium-term falling trendline. The white metal has fallen from the weekly upper Bollinger Band towards the middle one. The weekly momentum indicator has triggered a fresh bearish crossover. The key levels on the downside are $30.62 ie 61.8% retracement of the rise and $27.9 ie the weekly lower Bollinger Band. Overall silver is set to test the low of $26.14. Reversal can be trailed to $35.6, ie above the trendline.
0.0% 100.0%
KST (2.22894) 40 30 20 10 0 -10 55
SILVER [CASH] (32.2000, 33.1800, 31.6100, 32.2200, +0.04000)
100.0%
50
45
61.8% 50.0% 38.2% 0.0%
40
35.6
35
23.6%
50.0% 61.8%
30.62
30
26.14
25
Trend Down
Trend reversal $35.6
Supports $30.62/27.9
Resistances $33.18/34.8
Target $26.14
Aug Sep Oct Nov Dec 2011 Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2012 Mar Apr May Jun Jul Aug Sep 20
Light sweet crude oil: Bears take control

Crude oil crossed the long term falling trendline, though it couldnt sustain itself at the higher levels. It has broken a medium-term rising trendline and is falling towards the long-term rising trendline ($89). The short term supports are the 20-WMA ($101.2) and the 40 -WEMA ($98). The weekly momentum indicator that was showing a negative divergence has given a sell signal. Reversal for the bearish view would be above $108.3 on a closing basis.
Trend Down Trend reversal $108.3 Supports $101.2/98 Resistances $105/107 Target $89
008 A M J J A S O N 2009 A M J J A S O N 2010 A MJ J A S O N 2011 A MJ J A S O N 2012 A MJ J A KST (5.94739) 30 20 10 0 -10 -20 -30 -40 -50 160 150 140 130 120
LIGHT CRUDE CONTINUOUS 1000 BARRE LS [NYMEX] (106.790, 107.730, 102.130, 103.020, -3.85001)
108.3
110 100 90
89
80 70
60
50
40
30
April 2012
34
COMMODITY
TECHNICALS
TREND & VIEW
Copper: Probability in favour of bears

Copper formed a triangle in the second leg of the pullback. With the triangle breakout it formed the third leg on the upside, which achieved its equality target ($3.9). The base metal also reached near the 61.8% retracement mark ($4.02). Structurally copper seems to have formed a reversal triangle to end the pullback. The weekly momentum indicator is also suggesting the same. Hence unless the high of $3.99 is crossed, there is a high probability of the bears pushing the red metal down. The target on the downside would be the swing low of $3.38.
Trend Down Trend reversal $3.99 Supports $3.77/3.66 Resistances $3.91/3.96 Target $3.38
Nov Dec 2011 Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2012 Feb Mar Apr May Jun KST (5.88079) 15 10 5 0 -5 -10 -15
HG COPPER CONTINUOUS 25000 LBS [COMEX] ( 3.80550, 3.90400, 3.76200, 3.82500, +0.01650) 4.9 4.8 4.7 4.6 4.5 4.4 4.3 4.2
100.0%
61.8% 50.0% 38.2%
3.99
4.1 4.0 3.9 3.8 3.7 3.6 3.5
23.6%
3.38
3.4 3.3 3.2 3.1
0.0%
3.0 2.9 2.8 2.7
NG: Leaks through the channel

MCX natural gas (NG) has broken the lower end of the larger channel. The recent bounce in NG faced resistance near the junction of the upper end of the falling channel (yellow), the 40-day exponential moving average (DEMA) and the daily upper Bollinger Band. The daily momentum indicator has completed a pullback cycle and has started a new cycle down. A key resistance is at Rs120, ie above multiple resistances. On the downside the equality target is Rs100 whereas 1.618 times the previous fall is Rs85, which is near the lower end of the channel as well.
Trend Down Trend reversal Rs120 Supports Rs105/90 Resistances Rs113/116 Target
161.8%
KST (-3.82111) 5 0 -5 -10 -15 -20 NATURAL GAS MMB TU - 1 MONTH (110.500, 110.500, 109.700, 110.200, -0.70000) 210 200 190 180 170 160 150 140 130
0.0%
120
120
110
100.0%
100
100
90
85
80
Rs100/85
ust
September
October
November
December
2012
February
March
April
May
Nickel: Near the neckline

Nickel formed a three-wave pullback that retraced 50% of the previous fall. From there nickel has started its next leg down. The weekly momentum indicator has given a bearish crossover. In terms of price pattern the right shoulder of a head-andshoulders pattern is being formed. The neckline and the previous low, ie Rs855 and Rs845 respectively are a crucial support zone; below that the equality target is Rs695. Reversal for the bearish view can be trailed to Rs1,050, ie above the falling trendline.
Trend Down Trend reversal Rs1,050 Supports Rs845/750 Resistances Rs975/1,009 Target
S O N D 2009 A M J J A S O N D 2010 A M J J A S O N D 2011 A M J J A S O N D 2012 A M J J A S KST (-3.59127) 0
NICKEL 1 KG - 1 MONTH (935.500, 943.000, 877.300, 917.400, -17.7000)
100.0%
61.8% 50.0% 38.2% 23.6%
1050
1500 1450 1400 1350 1300 1250 1200 1150 1100 1050 1000 950 900
0.0%
850
845
800 750 700
695
650 600 550 500
450
400
Rs695
35
April 2012
MONTHLY VIEW
CURRENCY
FUNDAMENTALS
Currency market : Indian Rupee falls across the board

Key points
CURRENCY LEVELS IN MARCH (IN RS) Low 49.14 65.30 78.10 59.78 Close 50.91 67.86 81.19 61.47 Monthly chg (%) -2.97 -2.14 -3.67 -0.14
Poll results dash hopes of economic reforms in India Currency High Indias GDP to grow at 7.5% in 2012-13: Fitch INR-USD 51.74 Japanese Yen falls to 11-month low vs the US Dollar INR-EUR 68.29 Japans fiscal situation worse than Greeces: Yasushi Kinoshita, INR-GBP 81.70 director-general of the International Bureau at Japans Ministry of INR-JPY 63.18 Finance UK budget gap almost doubles as taxes fall, spending jumps UK mortgage approvals decline to eight-month low, BOE says Euro can extend rally on firewall strengthening and Germanys data before declining Euro leaders seek global help after firewall boosted
March contract price movement
USDINR 52 51.5 (in Rs.) 51 50.5 50 49.5 49 28-Feb-12 1-Mar-12 5-Mar-12 7-Mar-12 12-Mar-12 14-Mar-12 16-Mar-12 20-Mar-12 22-Mar-12 27-Mar-12 JPY INR 63 62.5 62 61.5 61 60.5 60 59.5 59
March contract price movement

69 68.5 68 67.5 67 66.5 66 65.5 65 1-Mar-12 5-Mar-12 7-Mar-12 28-Feb-12 EURINR GBPINR 82 81.5 81 80.5 80 79.5 79 78.5 78 22-Mar-12 27-Mar-12
(in Rs.)
12-Mar-12
14-Mar-12
16-Mar-12
INR-USD
20-Mar-12
CMP: Rs51.22
The Indian Rupee posted losses against all its counterparts last month on poll results, high oil prices, risk averse sentiments due to tepid global macro-economic indicators and widening budget deficit. Indias budget deficit in the 11 months through February 2012 was 94.6% of the fiscals goal. With the Congress Party faring poorly in assembly elections, investors fear that there would be inadequate fiscal consolidation and few policy reforms. The Indian budget this year is seen as taking a measured approach with no significant longterm structural reforms. This budget targets a fiscal deficit of 5.10%. The market sees a possibility of slippage of 30-40 basis points. Citibank opines that this budget seeks to tread the middle ground on fiscal consolidation and sustaining growth, which could well be the most appropriate course of action, but this is not what would drive the markets over the near term. We look for a range of Rs49.80-51.90 (spot) with an upward bias for the US Dollar.
INR-GBP
CMP: Rs81.96
The British Pound was the best performer against the Indian Rupee last month as it rallied on occasional safe haven buying (the pound is still considered to be a semi-safe haven on the deficit reduction goals and approach) and speculation that Bank of England (BoE) would refrain from additional stimulus. Though the currency is somewhat overbought at the current levels amid not so encouraging data out of the UK, it looks appealing on momentum and sentiments. We expect it to reach the level of Rs84 (spot) before the currency stalls against the US Dollar while strong support is seen in the Rs78.60-79.40 zone (spot).
INR-EUR
CMP: Rs68.27
The euro is likely to rise to 1.36-1.37 vs the US Dollar on firewall boosting, Germanys data and the Greece deal before the downtrend resumes. It can rise to Rs69.90 (spot) vs the Indian Rupee. A strong support is seen in the Rs66.90-67.21 zone.
INR-JPY
CMP: Rs62.36
The reduced possibility of further easing by the US Federal Reserve, Bank of Japan (BoJ) adding liquidity to the system, high oil prices and a surge in the US bond yields weighed heavily on the Japanese Yen last month. The economic indicators out of Japan have been mostly upbeat of late. In a positive development for the yen, Japan reported an unexpected trade surplus for February and higher than forecast exports. We expect the yen to move in the 80-84 range in the short term with an upward bias vs the Dollar, though the greenback looks more appealing in the medium term to long term. We look for a range of Rs60.50-63.30. CMP as on March 31, 2012
April 2012
36
CURRENCY
TECHNICALS
TREND & VIEW
USD-INR: Bears warmed up

USD-INR retraced 50% of the first leg of the fall (51.5). Near the key Fibonacci level it is showing signs of weakness. It has formed a Dark cloud cover a bearish candle. The daily momentum indicator has started a new cycle on the downside. Thus there is a high probability of USD-INR kicking off the next leg down. The targets for that would be 47.9 (61.8% retracement of the previous rally) and 46.1 (junction of 78.6% retracement of the previous rally and equality target). A key resistance would be 51.5 on a closing basis.
KST (1.37670)
GBP-INR: Near key resistances

GBP-INR has retraced nearly 78.6% of the previous fall (82.4). Beyond that there is a multiple resistance zone, which comprises the long term falling trendline, larger 78.6% retracement and the previous high (83.96). Unless that is crossed we expect GBP-INR to form the next leg on the downside. The daily momentum indicator is showing a negative divergence near the overbought zone. The targets on the downside are 76.61 (previous low) and 75 (lower end of the medium-term rising channel).
Relative Strength Index (65.5001) 70 60
0
50 40
USDINR - INDIAN RUPEE (51.4000, 51.4000, 50.8000, 50.8700, -0.46000)
30
55. 0 54. 5 54. 0 53. 5 53. 0 52. 5
GBPINR (81.8820, 82.0720, 81.2310, 81.4430, -0.44900)
0.0%
10 0.0 %
83.96
100.0 %
23 .6%
61 .8% 50 .0% 38 .2%
78.6% 61.8% 50.0% 38.2% 23.6%
51.5
52. 0 51. 5 51. 0 50. 5
38 .2% 23 .6% 50 .0% 0.0% 61 .8%
50. 0 49. 5 49. 0 48. 5 48. 0
0.0%
76.61 75
47.9
47. 5 47. 0 46. 5
78 .6%
46.1
46. 0 45. 5 45. 0 44. 5
10 0.0%
44. 0 43. 5
85.5 85.0 84.5 84.0 83.5 83.0 82.5 82.0 81.5 81.0 80.5 80.0 79.5 79.0 78.5 78.0 77.5 77.0 76.5 76.0 75.5 75.0 74.5 74.0 73.5 73.0 72.5 72.0 71.5 71.0 70.5 70.0 69.5
ne
July
August
September
Oct ober
November
December
2012
February
March
April
May
June
July
August
September
October
November
December
2012
February
March
April
EUR-INR: Pressure building up

After the decline from 71.27 to 63.53, EUR-INR has done a pullback rally. It has reached the upper end of the short term rising channel, intermediate rising channel line and the 61.8% retracement of the decline. The presence of multiple resistances along with negative divergence in the daily momentum indicator suggests that downside pressure is building up. On the weekly chart it has formed a Bearish Harami Cross a bearish candle. Tight reversal can be placed above the high of 68.58 on a closing basis whereas the key resistance is at 69.65 (78.6% retracement mark). The targets on the downside are 64.9 and 63.53.
Relative Strength Index (62.3971) 70 60 50 40 30 EURINR (68.2590, 68.5850, 67.7210, 67.8760, -0.38800) 72.0 71.5 71.0 70.5
JPY-INR: Pattern suggests downside

JPY-INR has achieved the equality target. Since then it is trading in a range-bound manner. Structurally it could have formed a bearish running triangle. The pattern remains valid as long as the high of 0.6272 holds. In that case the lower end of the rising channel (0.585) would be the target. On the flip side, if the bulls manage to surpass the level of 0.6272, then JPY-INR can extend till 0.656.
KST (1.07505)
5 4 3 2 1 0 -1 -2 -3 -4
10 0.0 %
JPYINR (0.62260, 0.62720, 0.61290, 0.61410, -0.00850) 0.70 0.69 0.68 0.67
78 .6%
69.65
70.0 69.5 69.0
100.0%
61 .8% 50 .0% 38 .2%
68.5 68.0 67.5 67.0 66.5 66.0
61.8% 50.0%
0.656
0.66 0.65 0.64
38.2% 23.6%
0.6272
0.63 0.62 0.61 0.60
23 .6%
65.5
64.9
65.0 64.5 64.0
0.0%
0.59
0.0%
63.5
63.53
63.0 62.5 62.0 61.5
0.585
0.58 0.57 0.56 0.55
ne
July
August
September
October
November
December
2012
February
March
April
May
gust
September
October
November
December
2012
February
March
April
Currency USD-INR GBP-INR EUR-INR JPY-INR
View Down Down Down Down
Reversal 51.50 83.96 69.65 0.6272
Supports 50.3/48.6 80.42/77.8 67.35/66.3 0.6072/0.5925
Resistances 51/51.48 82.4/83.7 68.58/69.5 0.6190/0.6235
Target 47.9-46.1 76.61-75 64.9-63.53 0.5850
37
April 2012
PMS FUNDS
PMS
DESK
Portfolio Management Service

We are pleased to introduce you to Sharekhans Portfolio Management Service (PMS) in which we completely manage your investment portfolio so that you stop worrying about the market volatility and focus your energy on things that you like to do! We have a wide range of strategies that you can choose from. Our strategies are based on fundamental research and technical analysis. We have the following strategies on offer:
ProPrime (based on fundamental research)

Top Equity Nifty Thrifty Trailing Stoploss Diversified Equity Diversified
ProTech (based on technical analysis)
PROPRIME - TOP EQUITY

OVERVIEW
The ProPrimeTop Equity PMS strategy is suitable for the long-term investors looking to create an equity portfolio through disciplined investments that will lead to a growth in the portfolios value with low to medium risk.
(In %) 1 month 3 month 6 month
Product performance as on March 31, 2012

Scheme -2.0 12.6 0.3 -5.1 11.3 -8.1 12.6 -11.0 Sensex -2.0 12.6 5.8 -4.4 11.3 -8.9 12.6 -12.7 Nifty -1.7 14.5 7.1 -3.4 12.4 -9.3 14.5 -12.5
INVESTMENT STRATEGY
Disciplined investment decisions are taken in specific stocks based on thorough fundamental research. Investments are made primarily in the Nifty Fifty or the BSE 100 scrips. Attempts to have an exposure of minimum of 70% in the Nifty Fifty stocks and that of minimum of 90% in the BSE 100 stocks. Endeavours to create a core portfolio of blue-chip companies with a proven track record and have partial exposure to quality companies in the mid-cap space.
1 year 3 year Since inception* Best month Worst month Best quarter Worst quarter
#18-May-11
Disclaimer: Returns are based on a clients returns since inception and may be different from those depicted in the risk disclosure document.
PRICING
Minimum investment of Rs25 lakh Charges 2% per annum; AMC fee charged every quarter 0.5% brokerage 20% profit sharing after the 12% hurdle is crossed at the end of every fiscal
Top 10 stocks
Bank of Baroda Bharat Heavy Electricals Cipla Divis Laboratoriess GAIL ICICI Bank Reliance Industries Selan Explo. Tech. Sintex Industries
Fund Manager: Gaurav Dua

FUND OBJECTIVE
State Bank of India
A good return on money through long-term investing in quality companies
April 2012
38
PMS
DESK
PMS FUNDS
PROPRIME - DIVERSIFIED EQUITY

OVERVIEW
The ProPrimeDiversified Equity PMS strategy is suitable for long-term investors looking to create an equity portfolio through disciplined investments that will lead to a growth in the portfolios value with medium to high risk.
INVESTMENT STRATEGY
Disciplined investment decisions are taken in specific stocks based on thorough fundamental research. A balanced mix of value and growth stocks (mid-cap and small-cap) is created that represents investment opportunities across sectors and market capitalisation. Invests in quality value and growth stocks with good earnings visibility and healthy balance sheet. The fund manager, with the help of extensive, in-house, superior research, identifies fundamentally sound companies to invest in. The fund manager strives to capture the short-term trading opportunities to maximise the potential of the swings in specific stocks.
(In %) 1 month 3 month 6 month 1 year 3 year

Scheme -2.7 33.5 0.9 -14.2 21.0 93.3 37.5 -24.1 65.0 -29.1 S&P CNX 500 -1.3 17.3 6.1 -8.7 84.0 181.1 34.4 -27.2 51.2 -28.6
PRICING
Minimum investment of Rs25 lakh Charges 2.5% per annum; AMC fee charged every quarter 0.5% brokerage 20% profit sharing after the 15% hurdle is crossed at the end of every fiscal
Since inception* Best month Worst month Best quarter Worst quarter
*24-Sept-04
FUND MANAGERS VIEW

The March of 2012 was eventful. The stock market indices experienced a rollercoaster ride throughout the month. This ultimately shook the confidence of the common investor who was finally thinking of returning to the market after missing the bounce at the beginning of the year. Portfolios have come up very sharply by 30-40% from the lows of December 2011 and retraced by 10-12% in the last 15-20 days. There has been no change in the major macro or micro economic factors locally as well globally. Ultimately, two things matter: Liquidity and Earnings. Since we are positive on both these factors, we continue to follow the strategy of buying on dips and selling on rise. Keeping our mid-cap ideas intact in the ProPrime-Diversified Equity portfolio, we have been successful in exiting some of the stocks. We have generated cash and traded banking and financial stocks to increase the weightage as well to create alpha by trading. The stocks we have kept in focus are Federal Bank, Yes Bank, Bank of Baroda, IDBI Bank, SAIL and Sterlite Industries.
Top 10 stocks
Bank of Baroda BHEL Diamond Power Infrastructure GAIL Gayatri Projects Il&Fs Transport Networks Reliance Industries Reliance Infrastructure Southern Petrochemicals Industries Sterlite Industries (India)
Fund Manager: Suhas Samant

FUND OBJECTIVE
A good return on money through long-term investing regardless of short-term volatility
39
April 2012
PMS FUNDS
PMS
DESK
PROTECH - DIVERSIFIED
OVERVIEW
The ProTechDiversified PMS strategy is suitable for long-term investors who desire to profit from both bullish and bearish market conditions. The strategy involves going long (buying) or going short (selling without holding) on certain investment classes by predicting the market direction based on a back-tested automated model.
INVESTMENT STRATEGY
This strategy has the potential to generate profits irrespective of the market direction by going long or short on specific indices and stocks. It invests in the Nifty and the Bank Nifty indices (via futures) and 10 stock futures. An automated basic back-testing model is used to predict the market direction for each of the indices and stocks which then decides the strategy to be deployed in terms of going long or short. The portfolio is not leveraged, ie its exposure will never exceed its value.
(In %) 1 month 3 month 6 month 1 year 3 year

Scheme -8.1 3.2 8.1 8.8 19.4 11.3 -8.1 6.3 -1.3 Sensex -2.0 12.6 5.8 -10.5 -0.9 11.7 -10.6 13.4 -12.7 Nifty -1.7 14.5 7.1 -9.2 0.3 12.4 -10.2 14.5 -12.5
Since inception*
PRICING
Minimum investment of Rs25 lakh Charges AMC fees: Brokerage: Profit sharing: 0% 0.05% Flat 20% charged on a quarterly basis
Best month Worst month Best quarter Worst quarter

*16-May-2010
FUND MANAGERS VIEW

A zig-zag month: March of 2012 turned out to be a roller-coaster ride for the market with wide swings in either direction. The market finally closed the month with a loss 1.66%. In the latter part of the month the market traded in a zig-zag fashion and surprised most traders with its velocity and lack of clear direction. Such market behaviour where every alternate day there is a wide swing in the opposite direction has not been witnessed for the past several months and this has forced the traders to stay on the sidelines. March was really a volatile month for the ProTech Diversified investors too. There was a higher number of whipsaws in the scheme as the Nifty oscillated around 52505300 levels right at the inflection point. Any systematic trading system will have to go through such kind of market behaviour at times. But as back-tested results of the scheme indicate, such instances are rare, difficult to predict or avoid and more often than not followed by a big trend. In March this year, ProTech Diversified portfolios net asset value (NAV) dipped by 8.11% eroding almost half the returns made in the earlier two months of the current quarter. But on a quarterly basis, the scheme has delivered close to 3.2%. At this juncture, as there has been a decent correction in the NAV from the top and as per the back-tested results there is a high probability that the market will take a strong directional move. So it is a good time to make fresh investment in the scheme.
Investments in*
Aban Offshore Bank Nifty DLF IDBI Jindal Steel Jaiprakash Associate Nifty Punj Llyod Ranbaxy Sesa Goa Tata Motors Yes Bank
Fund Manager: Abhinay Jain
*Traded stocks
FUND OBJECTIVE
Absolute returns irrespective of market conditions through a long-short strategy followed in multiple investments
April 2012
40
PMS
DESK
PMS FUNDS
PROTECH - NIFTY THRIFTY

OVERVIEW
The ProTechNifty Thrifty PMS strategy is suitable for long-term investors who desire to profit from both bullish and bearish market conditions. The strategy involves going long (buying) or going short (selling without holding) on Nifty futures by predicting the market direction based on a back-tested automated model.

(In %) 1 month 3 month 6 month 1 year 3 year Since inception* Best month Scheme 0.3 5.0 9.5 13.1 41.6 144.6 28.9 -17.1 33.3 -11.7 Sensex -2.0 12.6 5.8 -10.5 79.3 71.9 28.3 -23.9 49.3 -25.0 Nifty -1.7 14.5 7.1 -9.2 75.3 75.3 28.1 -26.4 42.0 -24.5
INVESTMENT STRATEGY
The strategy has the potential to generate profits irrespective of the market direction by going long or short on Nifty futures. An automated basic back-testing model is used to predict the market direction for the Nifty which then decides the strategy to be deployed in terms of going long or short. The portfolio is not leveraged, ie its exposure never exceeds its value.
PRICING
Worst month Best quarter Worst quarter

*01-Feb-2006
Investments in
FUND MANAGERS VIEW

This year, in February we had given back some of our gains. However, in March we had a marginal positive return. March was a volatile month but our system held on to a one-sided trade all through the month, awaiting the next move. Thus, the month ended with a 0.3% return and the financial year 2012 with a 13.13% return vs a negative 9.23% return from the Nifty in the same period. With that performance we ended the seventh consecutive year with positive returns. Seven years and people are still not convinced that absolute returns create wealth. In the same period the Sensex has been up 71.91% and the Nifty Thriftys net asset value has risen 144.57%! March witnessed only two trades and most of the month we held on to our short positions despite volatility. In other words, unlike in the last few years the number of trades in a trading range reduced drastically last month. This is a major change in the markets behaviour and bodes well for automated trend following systems. It means that there will be fewer drawdowns and returns will become linear upwards. I have been re-iterating that during a trending market you often get a windfall from one big move up or down. The market seems to be setting up for that and its a great time to remain invested for the gain.
Nifty Index
Fund Manager: Rohit Shrivastava

FUND OBJECTIVE
Absolute returns irrespective of market conditions.
41
April 2012
PMS FUNDS
PMS
DESK
PROTECH - TRAILING STOPS

OVERVIEW
Our ProTechTrailing Stops PMS strategy is ideal for Traders and Investors looking for Regular Income from trading and desire to make profits in both bullish and bearish market conditions. It is designed to payout book profits on monthly basis.* It is also for those investors who are looking for better income than Fixed Income or Deposits. This strategy involves going Long (buying) or Short (selling without holding) on stock futures. * Terms and conditions apply
(In %) 1 month

Scheme -4.4 8.3 18.6 Sensex -2.0 12.6 5.8 -6.3 11.3 -8.9 12.6 -12.7 Nifty -1.7 14.5 7.1 -4.6 12.4 -9.3 14.5 -12.5
INVESTMENT STRATEGY
This strategy spots the winning trades based on technical analysis vs time framebased portfolios, basically the momentum calls. A risk model has been developed for stock portfolio allocation that reduces the risk and portfolio volatility through staggered building of positions. It is non-leveragedthe exposure will never exceed the value of the portfolio.
3 month 6 month 1 year 3 year
Since Inception-RSD* 29.0 Best month Worst month Best quarter Worst quarter 9.1 -4.4 9.9 -1.0
PRICING
*09th May 2011 (Revised strategy date)
Investments in
FUND MANAGERS VIEW

After consistent returns for four months it was good to see reality last month. A negative return for March tells us that there will be drawdowns. But for all the volatility a negative 4.43% return was little to give back and our risk management allowed us to stay in the game with limited net asset value (NAV) volatility. The financial year as a whole ended with a return of 29% vs the Niftys 4.6%. This is an unmatched performance with zero leverage and goes to show the Trailing Stops portfolios intention of delivering absolute returns. The market has spent six weeks in the same trading range of 5150-5500 and that is enough time to spend in a range. So we should be looking at a break-out from that level. Another clear trend should emerge soon from where returns will once again overshoot and meet investors expectations. This should happen irrespective of whether the Nifty is headed up or down. Within this trading range, we have kept our exposure below 30% of the portfolio and will raise our stakes only when the trend becomes more apparent.
Stock futures
Fund Manager: Rohit Shrivastava

FUND OBJECTIVE
Absolute returns irrespective of market conditions.
April 2012
42
ADVISORY
DESK
MONTHLY PERFORMANCE
Advisory Products & Services

Sharekhans Advisory Desk is a central desk consisting of Mumbaibased expert advisory team that runs various sample model portfolios (for illustration purposes only) for clients of all profiles, be they traders or investors. Targeted at all types of clients, it is ideal for those who do not have the time to monitor the market tick by tick or to sift through pages of research for data or to pour over complex charts to catch a trend. Advisory Desk caters to both traders and investors. For traders it has three products, Smart Trades, Derivative Trades and MID Trades. For investors it runs the Sharekhan Portfolio Doctor service under which it reviews an existing portfolio on various parameters and suggests recommendations on a regular basis to improve its performance.
PRODUCTS & SERVICES
Investors
Portfolio Doctor
Traders
Smart Trades
Derivative Trades
MID Trades
FOR INVESTORS PORTFOLIO DOCTOR

Portfolio Doctor evaluates an existing portfolio on various parameters and suggests recommendations on a regular basis to improve its performance. It is targeted at long-term investors with a portfolio value of more than Rs10 lakh. The Portfolio Doctor service involves three simple steps: analysis of an existing portfolio, realignment of the portfolio with Sharekhans recommendations and creation of a Model Portfolio.
FOR TRADERS SMART TRADES

Smart Trades are calls generated based on the market pulse or the flavour of the season (these calls are not based on fundamental research). These calls are targeted at short-term delivery traders with a medium risk profile.
MID TRADES
MID Trades are trading calls on liquid stocks where momentum is expected before or after the announcement of results or where there is some news/event probable. These calls are generated by our Market Intelligence Desk and are rolled out based on the market pulse. The calls under MID Trades are not based on fundamental research but are generated using basic technical indicators and derivatives analysis. MID Trades are for intra-day and short-term swing traders. All these products require perfect discipline and money management for desired results.
DERIVATIVE TRADES
Derivative Trades are generated by the Sharekhan Derivatives Desk based on the analysis of open interest and other indicators. It is a leveraged product and ideal for aggressive futures traders. Product performance Product Ticket size (Rs) Month No of calls Profit and loss (Rs) Returns (%) Strike rate (%) Smart Trades* 300,000 Mar 2012 YTD FY12 18 -7,503 -2.5 NA 252 -62,688 -20.9 NA
Derivative Trades 300,000 Mar 2012 YTD FY12 10 -4,605 -1.5 NA 278 20,738 6.9 NA
MID Trades NA Mar 2012 33 NA NA 33 YTD FY12 450 NA NA 49
Sensex Performance NA Mar 2012 YTD FY12 NA NA -2.0 NA NA NA -10.5 NA
* Net of brokerage; its a "long only" product.
Please note there may be some deviation in the actual performance reported in TradeTiger due to a difference in the method of closure of an idea in a particular month.
For more details on any of the Advisory Desk products write to us at info@sharekhan.com READY FOR ROARING ADVICE
43
April 2012
MF PICKS
MUTUAL FUNDS
DESK
SHAREKHANS TOP MUTUAL FUND PICKS (EQUITY)

Scheme name Star rating NAV (Rs) Absolute 6 months 16.5 212.6 26.7 14.0 20.6 17,752.7 44.1 16.3 17.0 14.4 18.0 6,386.8 48.4 57.9 36.3 16.3 38.3 6,858.3 136.0 25.9 21.1 16.3 33.2 4,275.8 16.5 22.1 12.0 24.7 12.2 5,385.2 216.5 58.6 21.9 62.4 84.9 11.2 10.1 6.3 10.2 6.1 8.1 3.6 6.2 2.8 -0.6 2.8 3.3 11.6 2.2 8.9 9.0 11.4 7.3 9.2 5.7 9.8 5.2 3.8 7.5 9.6 5.4 3.0 1.4 -4.6 9.5 6.2 6.8 8.5 5.0 6.9 7.9
MARCH 28, 2012

Data as on February 29, 2012
Returns (%) Compounded annualised 1 year 3 years 5 years 7.8 6.3 -0.7 7.0 14.8 -0.4 17.5 16.4 8.1 9.2 6.5 0.2 6.5 11.7 10.2 6.2 2.1 0.1 3.7 6.5 8.6 6.2 0.1 0.7 3.7 5.7 10.5 12.2 2.9 1.0 7.2 12.1 5.2 8.2 8.8 3.8 33.7 32.2 31.6 27.6 26.6 25.9 50.8 42.3 41.1 41.0 36.4 32.2 45.2 43.1 43.0 40.0 33.5 28.4 38.4 36.7 32.1 29.3 28.6 26.4 35.7 30.0 29.0 28.8 28.5 24.9 36.4 33.5 30.3 27.8 27.5 18.6 -12.1 10.6 --6.5 9.0 -11.4 --3.0 14.0 6.1 12.0 -10.4 6.8 10.1 -8.2 11.4 14.9 6.6 8.8 10.9 -10.0 -7.5 14.1 14.8 14.6 11.6 11.9 8.4
Since inception 14.4 25.6 16.9 7.3 25.6
Large-cap funds ICICI Prudential Focused Bluechip Equity Fund - Ret Franklin India Bluechip Principal Large Cap Fund DSP BlackRock Top 100 Equity Fund - IP UTI Wealth Builder Fund - Series II Indices BSE Sensex Mid-cap funds SBI Magnum Sector Funds Umbrella - Emerg Buss Fund HDFC Mid-Cap Opportunities Fund DSP BlackRock Small and Midcap Fund Religare Mid Cap Fund IDFC Sterling Equity Fund Indices BSE MID CAP Multi-cap funds ICICI Prudential Discovery Fund SBI Magnum Global Fund 94 Reliance Equity Opportunities Fund Mirae Asset India Opportunities Fund - Reg Reliance NRI Equity Fund Indices BSE 500 Tax saving funds ICICI Prudential Taxplan Canara Robeco Equity Taxsaver Reliance Tax Saver (ELSS) Fund Tata Tax Advantage Fund - 1 Taurus Taxshield Indices CNX500 Thematic funds Fidelity India Special Situations Fund Canara Robeco Infrastructure Fund UTI India Lifestyle Fund Birla Sun Life India GenNext Fund DSP BlackRock Natural Resources & New Energy Fund-Ret Indices S&P Nifty Balanced funds HDFC Prudence Fund HDFC Balanced Fund Reliance RSF - Balanced Canara Robeco Balance Tata Balanced Fund Indices Crisil Balanced Fund Index
21.9 10.8 10.6 7.5 15.6
23.2 13.3 20.3 13.2 20.2
23.2 36.2 12.2 8.4 14.3
10.9 13.6 4.0 14.5 8.4
20.2 16.6 12.3 10.3 16.1
Every individual has a different investment requirement, which depends on his financial goals and risk-taking capacities. We at Sharekhan first understand the individuals investment objectives and risk-taking capacity, and then recommend a suitable portfolio. So, we suggest that you get in touch with our Mutual Fund Advisor before investing in the best funds.
Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a postition in the mutual funds mentioned in the article.
April 2012
44
MUTUAL FUNDS
DESK
MF PICKS
SHAREKHANS TOP SIP FUND PICKS

Investment period Total amount invested (Rs) Funds would have grown to (Rs) 1 year 12,000 Present value (Rs) Compounded annualised return (%) Present value (Rs) 3 years 36,000 Compounded annualised return (%)
APRIL 04, 2012

Data as on March 30, 2012
5 years 60,000 Present Compounded value (Rs) annualised return (%)
Large-cap funds Franklin India Bluechip DSP BlackRock Top 100 Equity Fund Birla Sun Life Top 100 Fund Tata Pure Equity Fund UTI Top 100 Fund BSE Sensex Multi-cap funds ICICI Prudential Discovery Fund - IP Tata Dividend Yield Fund Birla Sun Life Dividend Yield Plus UTI Opportunities Fund Quantum Long-Term Equity Fund BSE 500 Mid-cap funds SBI Magnum Sector Funds Umbrella Emerg Buss Fund IDFC Premier Equity Fund - Plan A DSP BlackRock Small and Midcap Fund Kotak Midcap Fund Franklin India Prima Fund BSE Midcap Tax saving funds Franklin India Taxshield Reliance Tax Saver (ELSS) Fund ICICI Prudential Taxplan HDFC Long Term Advantage Fund HDFC Taxsaver S&P Nifty 12,484.1 12,883.9 12,259.4 12,339.6 12,232.3 12,053.7 4.0 7.4 2.2 2.8 1.9 0.4 42,463.1 42,436.2 41,469.6 41,367.6 40,940.0 37,720.7 5.7 5.6 4.8 4.7 4.4 1.6 81,313.2 80,622.4 81,062.4 78,230.3 79,991.6 68,811.4 6.3 6.1 6.2 5.5 5.9 2.8 12,570.9 12,430.7 12,245.9 12,524.1 12,513.6 12,054.9 4.8 3.6 2.1 4.4 4.3 0.5 47,260.2 43,840.4 42,445.9 41,551.2 41,415.9 36,841.4 9.5 6.8 5.6 4.9 4.8 0.8 88,740.6 90,473.9 84,244.2 74,908.2 77,420.6 65,912.9 8.1 8.6 7.0 4.5 5.2 1.9 12,727.7 12,697.6 12,576.4 12,709.6 12,584.3 12,020.7 6.1 5.8 4.8 5.9 4.9 0.2 44,659.8 44,624.3 43,464.4 43,229.6 43,140.8 37,359.8 7.5 7.4 6.5 6.3 6.2 1.2 94,852.9 88,609.7 90,291.3 87,091.2 86,969.9 68,270.2 9.6 8.1 8.5 7.7 7.7 2.6 12,350.1 12,398.6 12,273.9 12,312.2 12,273.9 11,904.5 2.9 3.3 2.3 2.6 2.3 -0.8 41,070.1 40,179.3 39,729.0 39,276.6 39,083.2 37,203.2 4.5 3.7 3.3 2.9 2.8 1.1 79,443.9 77,029.9 73,684.8 74,029.5 69,935.1 67,744.1 5.8 5.1 4.2 4.3 3.1 2.5
(*invested on 1st day of every month) We will be showing compounded annualised returns for three years and five years from now on.
Every individual has a different investment requirement, which depends on his financial goals and risk-taking capacities. We at Sharekhan first understand the individuals investment objectives and risk-taking capacity, and then recommend a suitable portfolio. So, we suggest that you get in touch with our Mutual Fund Advisor before investing in the best funds.
Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a postition in the mutual funds mentioned in the article.
45
April 2012
EARNINGS GUIDE
EQUITY
FUNDAMENTALS
Prices as on April 03, 2012
Sharekhan Earnings Guide

Company Price (Rs) FY11 Sales FY12E FY13E FY11 Net Profit FY12E FY13E FY11 EPS FY12E (%) EPS Growth FY13E FY13/FY11 PE (x) ROCE (%)
RONW (%) FY13E
DPS
FY11 FY12E FY13E FY12E FY13E FY12E
Div Yield (Rs) (%)
Evergreen
GSK Consumers HDFC HDFC Bank Infosys Larsen & Toubro Reliance Ind TCS 2,738.7 687.5 530.2 2,858.5 1,362.1 752.7 1,178.0 2,306.1 4,247.0 14,878.0 27,501.0 52,089.1 265,810.6 37,324.5 2,685.5 5,108.0 17,810.0 34,384.3 62,396.6 321,240.5 49,529.1 3,220.8 6,089.0 21,038.0 39,403.5 68,269.2 299.8 3,536.0 3,926.0 6,835.0 3,920.9 355.2 4,156.0 5,190.0 8,440.3 4,930.0 20,730.5 10,802.0 428.1 4,895.0 6,218.0 9,605.8 5,680.8 22,960.3 13,332.7 71.3 24.1 16.9 119.5 64.5 58.7 44.4 84.5 28.3 21.1 147.6 81.1 63.1 55.2 101.8 32.3 25.3 167.9 93.5 69.9 68.1 19% 16% 22% 19% 20% 9% 24% 38.4 28.5 31.4 23.9 21.1 12.8 26.5 32.4 24.3 25.1 19.4 16.8 11.9 21.3 26.9 21.3 21.0 17.0 14.6 10.8 17.3 51.7 40.4 12.0 12.1 42.5 52.0 36.4 12.4 13.0 41.3 33.8 21.0 19.0 29.1 16.9 11.9 33.0 34.0 19.2 19.6 27.1 16.8 11.6 32.4 35.0 9.0 3.3 60.0 14.5 9.0 14.0 1.3 1.3 0.6 2.1 1.1 1.2 1.2
319,424.5 19,293.7 59,230.5 8,682.9
Applegreen
Aditya Birla Nuvo@ Apollo Tyres Bajaj Auto Bajaj Finserv Bajaj Holdings Bank of Baroda Bank of India Bharat Electronics BHEL Bharti Airtel Corp Bank Crompton Greaves Divi's Labs GAIL Glenmark Pharma GCPL Grasim HCL Technologies Hindustan Unilever ICICI Bank Indian Hotel Co ITC# Lupin M&M Marico Maruti Suzuki Piramal Healthcare PTC India Punj Lloyd SBI Sintex Industries^ TGBL (Tata Tea)^ Wipro 993.6 80.5 1,647.4 664.7 810.7 804.3 366.2 1,518.9 264.1 336.8 431.1 146.0 761.2 383.4 310.1 494.8 2,643.2 505.4 403.8 908.2 65.2 227.1 534.4 706.6 171.2 1,309.6 465.1 67.6 59.1 2,172.6 88.9 119.0 446.5 5,436.0 8,867.8 16,609.0 2,444.0 898.2 11,611.0 10,453.0 5,471.7 41,566.1 59,467.0 4,264.0 10,005.1 1,307.1 32,458.6 2,949.1 3,643.0 21,269.0 16,034.2 19,691.0 15,665.0 2,891.7 21,468.3 5,706.8 23,494.0 3,128.3 36,965.0 2,556.0 8,997.3 7,849.6 48,351.0 4,483.5 6,004.5 31,054.2 6,012.0 12,560.3 20,164.6 13,380.0 11,299.4 6,294.8 48,747.8 71,383.0 4,717.0 11,677.9 1,621.4 40,519.9 3,959.5 4,763.3 24,431.0 20,910.9 22,795.7 17,832.0 3,295.4 24,947.8 6,774.5 30,326.0 4,057.8 34,255.0 2,043.1 7,963.0 10,043.1 56,408.3 4,755.0 6,532.1 37,763.3 6,877.0 14,266.3 22,936.4 15,112.0 12,994.5 6,984.3 50,538.3 80,169.0 5,459.0 13,265.0 1,964.1 47,376.1 4,402.0 5,903.9 26,379.0 23,908.5 25,866.9 20,708.0 3,844.4 28,533.8 8,163.4 35,271.8 4,860.3 46,942.1 302.2 440.9 2,615.0 1,114.8 2,322.8 4,242.0 2,489.0 841.4 6,011.2 5,859.0 1,413.0 926.8 429.3 3,561.3 392.8 476.9 2,164.0 1,710.0 2,134.4 5,151.0 -105.6 4,987.6 862.5 2,662.0 256.9 2,289.0 367.5 456.2 3,193.0 4,560.0 2,357.5 910.6 6,221.6 5,141.0 1,463.0 453.6 483.8 3,868.5 733.7 616.1 2,555.0 2,247.7 2,513.7 6,200.0 116.7 6,061.0 955.8 2,531.6 322.9 1,343.0 110.0 119.0 -178.4 10,935.8 364.3 324.5 5,731.9 473.0 583.8 3,333.1 5,137.0 3,101.1 1,008.0 6,544.9 8,291.0 1,707.0 790.1 612.1 3,999.1 619.6 786.6 2,797.0 2,845.5 2,989.1 7,090.0 234.2 7,150.6 1,178.5 2,647.6 437.3 2,199.4 26.6 8.7 90.4 77.1 219.0 107.6 45.5 105.2 24.6 15.4 95.3 14.3 32.4 28.1 14.5 14.7 236.0 24.4 9.9 44.7 -1.4 6.4 19.3 42.0 4.2 79.2 32.4 9.0 110.4 115.7 43.1 113.8 25.4 13.5 98.7 7.1 36.5 30.5 27.1 17.0 278.7 32.1 11.6 53.9 1.5 7.8 21.4 41.2 5.3 46.5 6.4 4.0 -5.4 172.2 11.8 5.2 23.4 41.7 11.6 115.3 130.4 56.7 126.0 26.7 21.8 115.2 12.3 46.2 31.5 22.9 21.6 305.1 40.6 13.8 61.6 2.9 9.2 26.4 43.1 7.1 76.1 19.3 5.6 3.0 228.2 14.0 6.8 26.5 25% 15% 13% 10% 12% 9% 4% 19% 10% -7% 19% 6% 26% 21% 14% 29% 18% 17% 20% 17% 1% 30% -2% 9% 32% -3% 30% 11% 37.4 9.2 18.2 7.5 8.0 14.4 10.8 21.9 4.5 10.2 23.5 13.7 21.4 33.7 11.2 20.7 40.8 20.3 -46.6 35.5 27.7 16.8 40.8 16.5 -2.3 14.4 -12.3 16.7 6.0 29.7 20.9 30.7 8.9 14.9 7.0 8.5 13.3 10.4 24.9 4.4 20.6 20.9 12.6 11.4 29.1 9.5 15.7 34.8 16.8 43.5 29.1 24.9 17.2 32.3 28.2 72.7 16.9 -10.9 12.6 7.6 22.9 19.1 23.8 6.9 14.3 6.2 6.5 12.1 9.9 15.4 3.7 11.8 16.5 12.2 13.5 22.9 8.7 12.4 29.3 14.7 22.5 24.7 20.2 16.4 24.1 17.2 24.1 12.1 19.7 9.5 6.3 17.5 16.8 8.9 15.5 51.5 21.0 39.8 18.9 17.7 28.9 21.1 18.6 17.7 18.6 27.9 104.0 5.9 47.0 21.3 23.2 25.4 12.6 -0.3 7.5 5.9 11.0 8.1 22.5 10.0 17.0 38.8 19.9 34.3 20.0 24.8 30.9 17.8 15.3 19.5 17.5 29.4 93.9 8.5 50.7 21.8 20.0 29.9 18.9 1.4 10.0 8.4 11.4 9.5 23.1 7.1 15.9 54.6 20.4 13.0 14.9 25.4 16.1 19.0 12.4 23.4 18.8 22.1 26.4 14.7 27.0 81.6 10.8 4.7 36.8 22.4 20.9 30.7 9.3 0.8 7.0 -5.9 15.8 11.5 8.0 21.9 8.3 17.2 42.8 19.9 15.3 13.8 22.6 18.0 19.1 18.4 25.6 17.1 15.8 24.5 13.6 27.8 73.6 11.4 8.6 39.6 21.4 17.6 31.7 13.9 2.3 8.1 3.2 18.4 15.6 9.7 21.4 5.5 0.5 40.0 1.3 35.0 16.5 7.0 21.6 6.3 1.0 20.0 1.4 10.0 7.5 0.4 4.5 20.0 7.5 3.5 14.0 1.0 4.5 3.0 11.5 0.7 7.5 12.0 1.5 0.2 30.0 0.7 2.0 6.0 0.6 0.6 2.4 0.2 4.3 2.1 1.9 1.4 2.4 0.3 4.6 1.0 1.3 2.0 0.1 0.9 0.8 1.5 0.9 1.5 1.5 2.0 0.6 1.6 0.4 0.6 2.6 2.2 0.3 1.4 0.7 1.7 1.3
2,411.5 -3,435.8 9,583.0 12,712.4 64,190.5 5,202.7 7,082.7 42,636.0 138.5 -160.0 8,265.0 460.5 248.0 5,253.3
334.4 -204.6 165.0 101.2 14,485.9 434.2 418.7 6,511.8 4.7 -4.8 130.2 14.9 4.0 21.4
Emerging Star
Axis (UTI) Bank Cadila Healthcare# Eros Intl Media Gateway Distriparks
@Stand-alone financials
1,175.8 739.5 195.4 154.0
11,195.0 4,630.3 707.0 599.1
13,467.0 5,346.9 891.3 764.0
15,787.0 5,838.2 1,103.7 877.5
3,389.0 711.1 117.3 96.8
4,077.0 770.9 154.9 134.5
4,725.0 871.9 201.8 146.6
82.5 34.7 12.9 9.0
99.3 37.7 16.9 12.4
115.1 42.6 22.1 13.6
18% 11% 31% 23%
14.3 21.3 15.1 17.1
11.8 19.6 11.6 12.4
10.2 17.4 8.8 11.3
20.8 22.9 16.9
21.5 24.7 17.3
19.7 27.8 20.9 18.8
19.4 24.7 22.8 18.7
14.0 6.3 0.0 3.0
1.2 0.9 0.0 1.9
**June ending company
Note: For Grasim and Apollo Tyres we have shifted our estimates to consolidated
46
April 2012
EQUITY
Company Price (Rs)
FUNDAMENTALS
Sales FY11 FY12E 1,801.7 5,232.3 3,110.9 5,260.5 2,269.9 5,524.6 2,556.0 327.4 FY13E 1,992.5 6,425.1 4,117.3 6,242.7 2,622.9 5,864.8 3,235.0 360.0 FY11 169.7 432.3 452.4 200.1 32.0 367.2 383.5 727.1 59.6 Net Profit FY12E 145.7 463.8 484.4 192.7 465.6 410.9 990.0 60.6 FY13E 166.9 574.3 482.9 220.4 549.7 447.8 1,175.0 70.1 FY11 7.0 22.3 13.6 13.0 19.7 32.2 20.9 15.2 EPS FY12E 6.0 23.9 14.6 12.6 25.0 34.5 25.9 15.5 (%) EPS Growth FY13E FY13/FY11 6.8 29.6 14.5 14.4 29.5 37.6 30.8 17.9 -2% 15% 3% 5% 22% 8% 21% 9% 12.3 9.0 14.3 8.3 9.8 15.0 17.9 25.9 PE (x) ROCE (%)
EARNINGS GUIDE
RONW (%) FY13E 24.9 14.0 15.7 11.6 26.7 23.5 18.3 33.4 DPS Div Yield (Rs) (%) 1.1 3.5 1.5 1.5 4.5 9.0 2.5 4.0 1.3 1.7 0.8 1.4 2.3 1.9 0.7 1.0
FY11 FY12E FY13E FY12E FY13E FY12E 12.0 8.4 13.3 8.6 7.7 14.0 14.4 25.4 12.8 6.8 13.4 7.5 6.5 12.9 12.2 22.0 37.6 13.0 13.8 16.1 19.8 40.9 45.9 36.8 11.6 12.5 16.2 19.9 37.0 40.5 25.6 15.3 18.3 11.2 28.9 26.0 20.5 37.2
Greaves Cotton^ ITNL IRB Infra Kalpataru Power Max India Opto Circuits India Thermax Yes Bank Zydus Wellness
86.1 201.2 193.9 107.8 169.2 192.5 483.6 374.3 393.3
1,667.3 4,048.3 2,438.2 4,354.7 6,668.0 1,585.6 4,884.4 1,870.2 336.5
Ugly Duckling
Ashok Leyland # Bajaj Corp CESC Deepak Fert Federal Bank Gayatri Projects India Cements Ipca Laboratories ISMT Jaiprakash Asso KKCL NIIT Technologies Orbit Corporation Polaris Financial Pratibha Industries Provogue India PNB Ratnamani Metals Raymond Selan Exploration Shiv-Vani Oil & Gas Sun Pharma Torrent Pharma UltraTech Cement Union Bank of India United Phosphorus V-Guard Industries 32.0 120.0 277.2 149.5 443.5 133.6 108.7 338.9 26.7 88.6 650.1 266.1 55.0 166.8 48.4 15.2 931.2 107.0 425.5 286.7 173.2 569.1 625.0 1,512.3 237.7 136.0 195.2 11,117.6 359.4 3,939.9 1,564.8 2,263.4 1,440.6 3,501.0 1,898.9 1,611.4 13,320.2 236.6 1,232.2 385.6 1,586.3 1,268.1 565.4 15,420.0 812.2 3,036.0 71.0 1,461.9 5,721.4 2,122.0 13,209.9 8,255.0 5,804.3 726.3 12,025.0 467.9 4,959.5 2,227.7 2,557.0 1,683.3 4,141.0 2,385.5 2,040.7 14,651.0 301.2 1,650.3 379.9 2,182.8 1,650.4 646.6 17,621.0 1,148.4 3,466.0 91.9 1,533.2 7,973.2 2,547.4 17,474.5 8,860.0 7,548.0 977.0 13,263.4 562.4 5,454.0 2,593.2 2,911.0 2,047.4 4,525.0 2,774.2 2,311.3 17,265.0 363.6 2,061.0 562.7 2,638.1 2,068.7 725.6 20,140.0 1,369.0 3,780.0 129.2 1,542.9 8,753.7 2,960.0 18,997.5 10,268.0 8,583.9 1,266.1 636.1 103.1 488.4 186.6 587.1 62.4 66.3 262.8 75.4 653.0 46.2 180.9 78.3 191.7 71.5 33.4 4,434.0 80.5 149.2 31.8 225.0 1,816.1 248.2 1,278.7 2,082.0 585.8 39.0 432.5 117.9 477.0 215.2 707.0 69.8 298.0 326.1 40.8 663.0 53.5 217.0 32.2 218.5 77.6 32.3 4,781.0 83.1 199.8 45.5 205.3 2,434.2 339.4 1,995.8 1,628.0 641.2 44.9 460.8 142.8 503.3 266.0 847.0 98.7 364.0 368.5 87.8 897.0 66.1 232.7 82.0 266.3 107.8 40.7 5,692.0 107.5 239.4 63.2 219.0 2,458.2 403.0 2,255.4 2,274.0 759.0 67.7 2.4 7.0 38.9 21.2 34.3 52.1 2.2 20.9 5.1 3.1 37.5 30.5 6.9 20.4 7.2 2.9 139.9 17.4 24.3 18.7 48.5 17.5 29.3 54.0 39.7 12.7 13.1 1.6 8.0 38.0 24.4 41.3 27.0 9.7 26.0 2.8 3.1 43.4 36.6 2.8 23.1 7.7 2.8 150.9 17.9 32.5 26.8 44.3 23.5 40.1 72.8 31.1 13.9 15.0 1.7 9.7 40.1 30.2 49.5 38.1 11.9 29.4 6.0 4.2 53.6 39.2 7.2 26.9 9.5 3.6 179.7 23.2 39.0 37.2 47.2 23.7 47.6 82.3 43.4 16.7 22.7 -15% 18% 2% 19% 20% -14% 133% 19% 9% 16% 20% 13% 2% 15% 15% 11% 13% 15% 27% 41% -1% 16% 27% 23% 5% 15% 32% 13.3 17.1 7.1 7.0 12.9 2.6 49.4 16.2 5.3 28.6 17.3 8.7 8.0 8.2 6.7 5.2 6.7 6.1 17.5 15.3 3.6 32.5 21.3 28.0 6.0 10.7 14.9 20.0 15.0 7.3 6.1 10.7 4.9 11.2 13.0 9.5 28.6 15.0 7.3 19.6 7.2 6.3 5.4 6.2 6.0 13.1 10.7 3.9 24.2 15.6 20.8 7.6 9.8 13.0 18.5 12.4 6.9 4.9 9.0 3.5 9.1 11.5 4.5 21.1 12.1 6.8 7.6 6.2 5.1 4.2 5.2 4.6 10.9 7.7 3.7 24.0 13.1 18.4 5.5 8.1 8.6 10.0 37.3 6.7 12.8 14.2 7.0 25.8 9.8 8.7 30.6 32.4 7.8 26.0 18.1 8.0 18.0 13.9 26.5 13.5 25.6 25.9 19.6 14.6 21.7 10.3 40.6 6.5 13.8 15.3 8.0 24.2 11.8 10.8 35.4 30.7 10.8 27.4 18.0 9.1 19.9 16.8 30.4 12.6 23.7 26.4 19.8 15.6 25.2 10.6 29.6 8.3 18.8 13.1 14.7 7.0 26.8 6.4 7.1 27.0 26.1 3.4 19.5 14.9 4.6 20.4 17.6 14.1 21.9 12.4 21.1 29.1 16.0 12.2 15.1 23.8 10.7 32.3 8.3 20.1 14.2 15.1 8.0 24.2 12.1 9.0 27.9 24.0 8.1 20.4 17.0 5.3 20.7 19.1 16.0 23.6 12.8 17.7 27.1 15.6 15.2 15.7 29.0 1.0 1.9 4.0 5.0 8.5 2.5 1.5 3.2 1.3 0.9 10.0 7.5 1.5 4.5 0.6 0.3 22.0 2.5 1.0 1.8 1.0 3.5 8.0 6.0 8.0 2.0 3.5 3.1 1.6 1.4 3.3 1.9 1.9 1.4 0.9 4.7 1.1 1.5 2.8 2.7 2.7 1.2 1.6 2.4 2.3 0.2 0.6 0.6 0.6 1.3 0.4 3.4 1.5 1.8
Vulture's Pick
Mahindra Lifespace@ Orient Paper Tata Chemicals Unity Infraprojects 326.6 59.5 345.2 50.2 476.7 1,959.0 11,060.2 1,701.5 462.4 2,349.0 12,885.7 1,890.1 452.4 2,733.0 14,299.6 2,310.0 103.1 143.1 690.4 94.4 114.6 180.0 864.4 100.1 115.5 215.0 970.5 132.6 24.9 7.1 27.1 12.7 27.7 8.9 33.9 13.5 27.9 10.5 38.1 17.9 6% 22% 19% 19% 13.1 8.4 12.7 4.0 11.8 6.7 10.2 3.7 11.7 5.7 9.1 2.8 13.9 13.0 16.4 17.4 12.9 13.0 16.9 19.1 10.7 18.0 14.3 14.4 9.9 19.0 14.4 16.5 5.0 1.2 10.0 1.0 1.5 2.0 2.9 2.0
Cannonball
Allahabad Bank Andhra Bank IDBI Bank Madras Cement Shree Cement 190.9 121.6 106.2 153.0 3,173.7 5,393.0 4,118.0 6,412.5 2,605.0 3,511.9 6,733.0 4,778.0 6,418.2 3,124.0 4,289.0 7,880.0 5,330.0 7,420.6 3,383.0 5,178.0 1,423.0 1,267.0 1,650.0 211.0 258.2 1,902.0 1,438.0 1,695.0 356.0 201.0 2,256.0 1,569.0 1,962.0 388.0 341.0 29.9 22.6 16.8 8.9 74.1 39.9 25.7 17.2 14.9 57.6 47.4 28.0 19.9 16.3 98.0 26% 11% 9% 35% 15% 6.4 5.4 6.3 17.2 42.8 4.8 4.7 6.2 10.3 55.1 4.0 4.3 5.3 9.4 32.4 9.0 8.0 9.0 11.0 20.6 20.4 11.1 19.0 10.0 20.8 19.1 11.8 18.0 15.0 5.0 5.5 3.5 1.8 8.0 2.6 4.5 3.0 1.1 0.3
#UltraTech numbers are post merger of Samruddhi Cement.
47
April 2012
EARNINGS GUIDE
Remarks
EQUITY
FUNDAMENTALS
Evergreen GSK Consumers GSK is one of the leading players in the MFD segment with a market share of 71% in the domestic market. Judicious new launches and brand extensions and the expansion of its distribution reach have helped GSK to stay ahead of the competition and maintain its pricing power over the years. In a bid to de-risk its business model, GSK has expanded its product portfolio by entering into new categories such as biscuits, noodles, energy bars, sports drinks and oats in the recent years. With cash balance of Rs1,000 crore the company can invest into growth initiatives as well as reward the investors with healthy dividend payment. Hence we recommend a Buy on the stock with a price target of Rs3,000. HDFC is among the top mortgage lender providing housing loans to individuals, corporates and developers. It has interests in banking, asset management and insurance through its key subsidiaries. As these subsidiaries are growing faster than HDFC, the value contributed by them would be significantly higher going forward. HDFC Bank was established in 1994 as a part of liberalisation of the Indian banking industry by the Reserve Bank of India (RBI). It was one of the first banks to receive an 'in principle' approval from the RBI to set up a private sector bank. Its relatively high margins (compared with its peers), strong branch network and better asset quality make HDFC Bank a safe bet. Infosys is India's premier IT and IT-enabled services company. It is one of the key beneficiaries of the strong trend of offshore outsourcing. The company is relatively better positioned to weather the tough business environment and is also among the major beneficiaries of the revival in IT spending. However, visa litigation and quarterly underperformance would remain an overhang on the stocks performance. Larsen & Toubro, being the largest engineering and construction company in India, is a direct beneficiary of the strong domestic infrastructure boom. Strong potential from its international business, its sound execution track record, bulging order book and strong performance of subsidiaries further reinforce our faith in it. There also lies great growth potential in some of its new initiatives. However, the recent cut in its order inflow guidance amid a tough business environment has hampered the stocks sentiments in the recent times. RIL holds a great promise in E&P business with gas production from KG basin starting from April 2009 and crude oil production commencing from September 2008. We expect the companys GRM to pick up with a likely improvement in the light-heavy crude oil price differential. The company is likely to fetch premium over Singapore Complex GRM due to its superior refinery complexity and captive use of KG D-6 gas. We expect the petrochem margins to be maintained in the medium term on uptick in the domestic demand. Currently the decline in gas output from KG D6 basin is weighing high on the stock price. However its deal with BP is expected to benefit RIL in terms of the global expertise of BP in deep-water exploration to ramp-up production at KG-D6. TCS pioneered the IT services outsourcing business from India and is the largest IT service firm in the country. It is a leader in most service offerings and is in the process of further consolidating its leadership position through the inorganic route and large deals. TCS with a strong base in BFSI is well placed to garner incremental deals in the sector. Its consistent quarterly performance (better than peers) coupled with the higher predictability of its earnings would keep it the Streets favourite over Infosys. Apple Green Aditya Birla Nuvo We believe the value businesses of the company (insulators, textiles, fertilisers, carbon black and rayon) have started witnessing increased efficiency as reflected in sharp improvement in their operating margins, while the growth businesses (retail, BPO, life insurance and financial services) are showing improved revenue visibility and gaining strong market share. We believe strong internal cash flows from value businesses coupled with promoter funding would aid in meeting the funding requirement of the growth businesses. Apollo Tyres is the market leader in truck and bus tyre segments with a 28% market share. A strong demand in the OEM and replacement tyre segments coupled with the commencement of additional capacity at its new Chennai facility is likely to see a healthy growth in its volume going forward. The European and South African acquisitions have yielded regional and product diversification. The Indian operations contribute about 62%; VBBV contributes around 25%; and Apollo Dunlop, South Africa contributes approximately 13% to the consolidated revenues. Bajaj Auto is a leading two-wheeler automobile company. It is moving up the value chain by concentrating on the executive and premium motorcycle segments. The launch of the new Pulsar and the KTM range would be the key for it to maintain its leadership position in the premium bike segment and for maintaining domestic volume growth. Exports remain the key for the company to drive overall volumes. Bajaj Finserv is actively present in businesses such as vehicle finance, consumer finance, distribution etc with insurance being the dominant contributor to revenues. It is one of the top few players in the fast growing life insurance segment and also has a sizable presence in the general insurance segment. Bajaj Holdings is the holding company of the Bajaj group, having a 30% stake each in Bajaj Auto and Bajaj Finserv. The two-wheeler sales are expected to improve going forward with new product launches. The insurance business makes it one of the largest players in the insurance space.
HDFC
HDFC Bank
Infosys
L&T
Reliance Ind
TCS
Apollo Tyres
Bajaj Auto
Bajaj Finserv
Bajaj Holdings
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Bank of Baroda
BoB is among the top PSU banks having sizeable overseas presence (86 offices in 25 countries) and a strong domestic network of over 3,400 branches across the country. It has a stronghold in the western and eastern parts of India. The bank has laid out aggressive plans to expand its income streams from both domestic and international businesses. Bank of India has a wide network of branches, spread across the country and abroad, along with a diversified product and services portfolio and steadily growing assets. The asset quality had posed concerns and affected the operating performance of the bank. Bharti Airtel continues to perform well in the African telecom market in terms of both, growth in subscriber base and revenue market share. The return of pricing power in the domestic market visible through recent tariff hikes coupled with improving efficiency and market share in the acquired Zain Africa operations puts Bharti Airtel in a sweet spot. Bharat Electronics Ltd (BEL), a PSU manufacturing electronic, communication and defence equipment, is benefiting from the enhanced budgetary outlay for strengthening and modernising the countrys security. The growth in revenue is also expected to be aided by the civilian and export orders. The companys current order book of Rs27,000 crore provides revenue visibility for the next two years. BHEL, India's biggest power equipment manufacturer will be the prime beneficiary of the four-fold increase in the investments being made in the domestic power sector. The current order book of Rs1,35,000 crore stands at around 2.8x its FY2012 revenues providing revenue visibility for at least the next three years. However, the key challenge before the company now would be to maintain a robust order inflow amid rising competition in the power equipment space and a profitable execution of the order book. Corporation Bank is a mid-sized PSU bank having strong presence in the corporate segment. The bank is planning to expand its retail and SME book, and expand the CASA ratio which will improve the net interest margin over the medium term. The bank is most aggressive on technology implementation which gives it a competitive edge over its peers. Crompton Greaves' key businessesindustrial and power systemsholds huge potential in view of investment opportunities in infrastructure particularly Transmission and Distribution sector in India. Its consumer products segment, which has done very well in the recent years, also led to diversification in its business exposure. The synergy from the acquisition of Pauwels, GTV, Microsol, Emotron and QEI will drive the companys consolidated earnings. However, continuing disappointment in the Q3FY2012 results have added to the investors concerns on the companys growth slowdown and competitive margin pressure. M9FY2012 performances have re-affirmed our confidence in Divis Laboratories growth potential. The new DSN SEZ facility at Vishakhapatnam which started in June 2011 is likely to bring better economies of scale and tax benefits. A near debt-free balance sheet and strong cash flow are likely to help build a war chest for pursuing strategic investments (biosimilars) and exploit growth opportunities in niche segments like high potency for oncology and steroids for contraceptives. GAIL India, a leading gas transmission company, is aggressively expanding its pipeline network and plans to invest more than Rs28,000 crore over FY2011-14 in a phased manner to significantly expand its gas pipeline network to over 14,000km and its transmission capacity to around 300mmscmd. On account of lower domestic gas production, we expect a subdued performance from its core gas transmission business in the next 1-2 years. However, the LNG trading business is likely to see an uptick in the same period. Glenmark Pharmaceuticals has exhibited an impressive operating performance during M9FY2012 but for forex losses which dented profits. Through the successful development and out-licencing of five molecules in a short span of eight years, Glenmark has become India's best play on research-led innovation. It has built a pipeline of 14 molecules and has clinched five out-licensing deals worth $1,672 million (received $192 million as initial milestone payment).Its core business has seen stupendous success due to its focus on niche specialties. Godrej Consumer Products Ltd (GCPL) is a major player in personal wash, hair colour and household insecticide market segments in India. The recent acquisitions of Darling Group, Tura, Megasari and Latin American companies has helped the company to expand its geographic footprint. We believe the decent sales volume growth in the domestic business coupled with a strong growth in Megasari (Indonesian business), African and the Argentine business would help GCPL to achieve an above 20% CAGR top line and bottom line growth over FY2011-14. Grasim is better placed compared to the other large players in the cement space due to its strong balance sheet, comfortable debt-equity ratio (0.33x H1FY2012), attractive valuation and due to its diversified business. The demand for VSF products continues to be strong in the global market and Grasim being a leading domestic player is well placed to capture incremental demand. Further, the company is in the process of adding another 120,000 tonne capacity in VSF by FY2013 with an investment of Rs1,690 crore.
Bank of India
Bharti Airtel
BEL
BHEL
Corp Bank
Crompton Greaves
Divi Labs
GAIL
Glenmark Pharma
GCPL
Grasim
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HCL Tech
HCL Tech is one of the leading Indian IT service vendors. It has outperformed its peers in terms of better financial performance in the past few quarters on the back of a ramp-up in business from large deals bagged earlier. We expect HCL Tech to show a superior earning CAGR of 29% over FY2011-2013E with a broad based revenue growth and margin improvement. With improved revenue visibility and consistency in financial performance, we value HCL Tech at a 25% discount to Infosys. HUL is India's largest FMCG company. It would achieve around 15% Y-o-Y top line growth driven by a mix of sales volume and a price-led growth. However, the higher input prices will continue to sustain pressure on the profitability in the near term. Overall we expect HULs bottom line to growth at CAGR of 18% over FY2011-14. In the long term, HUL will be one of the key beneficiaries of the Indian consumerism story. ICICI Bank is India's largest private sector bank with a network of over 2,500 branches in India and a presence in around 18 countries. The bank has once again entered an expansionary mode after making a conscious effort to contract its advances book due to asset quality concerns. The bank offers substantial value unlocking opportunities with the expected listing of its subsidiaries like ICICI Securities and ICICI Prudential Life Insurance. Indian Hotels is the largest hotelier in India with a vast portfolio of hotel properties around the globe. Over the long term the company would benefit from increase in tourism and corporate travel in India. Also, a turnaround in profitability of its overseas properties would boost its earnings. ITC has a strategy of effectively utilising the excess cash generated from its cash cow, the cigarette business, to strengthen and enhance its other non-cigarette businesses. This would nurture the growth of these businesses some of which are at nascent stage. Thus we believe the company will deliver sustained and steady growth in coming years. The expected ramp up in the launch of oral contraceptives, ophthalmic products and a robust pipeline of new launches in the domestic and overseas markets provide strong growth visibility for Lupin. Further, with an expanded field force and therapy focused marketing division; its formulation business in the domestic market has been performing better than the industry. The deal with Eli-Lilly to distribute human insulin would open an incremental revenue stream for Lupin in the Indian market. M&M is a leading maker of tractors and utility vehicles in India. New product launches are likely to drive its growth going forward in the automobile segment, while the company is witnessing a moderation in tractor demand. Associating with world majors in passenger cars and commercial vehicles have helped it diversify into various automobile segments, while the value of its subsidiaries adds to its sum-of-the-parts valuation. Marico is among India's leading FMCG companies. Its core brands, Parachute and Saffola, have a strong footing in the market. It follows a three-pronged strategy which hinges on expansion of existing brands, launch of new product categories (especially in the beauty and wellness space) and growth through acquisitions. While the domestic product portfolio is likely to achieve a steady growth in volumes, the international business is expected to post a robust growth on the back of an increase in distribution to neighbouring countries and extension of its international product portfolio over the long run. Maruti Suzuki is India's largest small carmaker. It is the only pure passenger car play in the domestic market. While the new Swift has seen unprecedented response from the market, there is considerable stress in its petrol portfolio. Suzuki of Japan has also identified India as a manufacturing hub for small cars for its worldwide markets. Even though the pharma business is witnessing strong traction, diversification into unrelated areas allays our fears of losing focus on the core business. With the NCE business becoming an integral part of the parent company, the risk profile of the company has increased. We value the company at a higher discount rate of 50% (from 20% earlier) as it still has a hefty cash balance of Rs8,500 crore (part to be received over a period of 4 years), which could be utilised for high risky ventures. PTC India Ltd is a leading power trading company in India with a market share of 33% in the short term trading market. In the last few years, the company has made substantial investments in areas like power project financing, coal trading and power tolling which have great growth potential in the future. However, owing to continuous delay in payments from state electricity boards the company raised debt in Q2FY2012 which has marred its recent financial performance. Still, its valuations look quite attractive on a sum-of-the-parts basis. Punj Lloyd is the second largest EPC player in the country (first being Larsen & Toubro) with a global presence. However, since FY2009, the profitability has come under severe pressure due to cost overruns/ liquidated damages in some of Simon Carves (subsidiary) projects. Thus it has put Simon Carves under administration. Further Libyan projects will take another three-four quarters to begin execution. Therefore, going ahead, the successful execution of its projects along with debt reduction and working capital management hold the key as the company enjoys a robust order book.
HUL
ICICI Bank
Indian Hotels Co
ITC
Lupin
M&M
Marico
Maruti Suzuki
Piramal Health
PTC India
Punj Lloyd
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SBI
State Bank of India is the largest bank of India with loan assets of Rs8.6 lakh crore. The loan growth is likely to remain slightly subdued in FY2012 while the core operating performance will be healthy with stable net interest margin. Successful merger of the associate banks could provide further upside for the parent bank. The asset quality of the bank would remain a key monitorable. A key player in the plastic specialties space, Sintex Industries has a diverse business model with presence in construction, prefabs, custom moulding and textile businesses. Being a pioneer in the monolithic construction technique, it has a good order book position. But owing to policy paralysis, the company is going slow on the execution front, which is likely to break the strong growth momentum seen by it in the last two years. The stock has underperformed the Sensex and the Nifty. The stock is currently trading at 4.6x its one year forward earnings which is cheap in terms of valuation. Thus we maintain Buy on it. Over the past few years, Tata Global Beverage Ltd (TGBL, formerly Tata Tea) has transformed its focus from being a mere tea and coffee company to a complete beverage maker. The recent addition of Mount Everest mineral water to its product portfolio and its tie-up with Pepsico Inc to make a mark in the non-carbonated beverage space are likely to be the new growth drivers for the company in the long run. Also its JV with Starbucks would help it to explore opportunities in the coffee retailing space. Its intention to acquire companies in the US, Europe and Russia also augurs well to enhance its geographical footprint. Wipro is one of the leading Indian IT service companies. The company has lagged the other IT biggies in terms of performance. In the medium term we expect Wipro to demonstrate a relatively weaker earnings growth as it gets back on its feet post organisational re-structuring and with its lower presence in the banking and financial services space. We expect Wipros earnings to grow at a CAGR of 11% over FY2011-13E. Emerging Star
Sintex Industries
TGBL
Wipro
Axis Bank
Over the last few years, Axis Bank has grown its balance sheet aggressively. Notably, the bank has maintained a delicate balance between aggressive balance sheet growth and profitability. Besides the core banking business, the bank has forayed into the asset management business and is acquiring the securities and investment banking business of ENAM. We expect the quality of its earnings to improve as the proportion of fee income goes up. Despite a weak performance in M9FY2012, Cadila's improving performance in the US generic vertical and emerging markets along with steady progress in the CRAMS space (through joint ventures)enrich its growth visibility of achieving a $3 billion revenue target by 2015. It has acquired three entities in FY2012 namely, Nesher Pharma (US), Bremer Pharma (Germany) and Biochem Pharma (India) during FY2012, which should supplement the growth. However, imposition of new tax (Union budget 2013) on partnership based units in Sikkim would be a drag on earnings. Eros is one of the largest integrated film studios in India with multi-platform revenue streams and a well-established distribution network across the globe. With its proven track record, de-risked business model and aggressive rampup plans, we believe the company is well poised to gain from the rising discretionary spending on film entertainment driven by the countrys favourable demographics. Thus, EIML is a compelling value play on the Indian media and entertainment industry. With its dominant presence in the container freight station segment and recent forays into the rail freight and cold chain businesses, GDL has evolved as an integrated logistic player. Its CFS business is a cash cow while its investments in the rail and cold storage businesses have started bearing fruits. It is one of the largest player in the CFS business and has also evolved as the largest player in the rail freight business as well as the cold storage business. The further proposed capex planned in all the three segments will strengthen its presence in each of the segment and increase its pan-India presence. We expect GDLs revenue and net profit to grow at 17% and 11% CAGR respectively over FY2012-14. Greaves Cotton is a midsize and well-diversified engineering company. The Companys core competencies are in Diesel/Petrol engines, Power Gensets, Agro engines & pumpsets (Engines segment) and Construction Equipment (Infrastructure equipment segment). The engine business accounts for ~85% of the companys revenue, while the rest comes from infrastructure equipment. Given the sharp deterioration in growth and margins in the core three-wheeler business we cut our FY2013 estimates and maintain our Hold recommendation. ITNL is Indias largest player in the BOT road segment with a pan-India presence and a diverse project portfolio. The fair mix of annuity and toll projects, and state and NHAI projects along with the geographical diversification across 12 states reduces the risk to a large extent and provides comfort. Further, a strong pedigree along with the outsourcing of civil construction activity helps ITNL to scale up its portfolio faster. Thus, it is well equipped to capitalise on the huge and growing opportunity in the road infrastructure sector.
Cadila
Eros Intl Media
GDL
Greaves Cotton
IL&FS Trans
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IRB Infra
IRB is the largest toll road BOT player in India and the second largest BOT operator in the country with all its projects being toll based. It has an integrated business model with an in-house construction arm which provides a competitive advantage in bidding for the larger projects and captures the entire value from the BOT asset. Further, it has a profitable portfolio as majority of its operational projects have become debt-free and it has presence in high-growth corridors which provides healthy cash flow. Thus, IRB is well poised to benefit from the huge opportunity in the road development projects on the back of its proven execution capability and the scale of its operations. Kalpataru Power Transmission Ltd (KPTL) is a leading EPC player in the transmission & distribution space in India. Opportunities in this space are likely to grow significantly thereby providing healthy growth visibility (also current order book is 2x its FY12E sales). As a result of intense competition, since FY2008, domestically this space witnessed margin pressure followed by valuation contraction. We believe concerns are priced in the current valuation and the stock is attractively priced at ~7x its forward earnings. Moreover, its construction subsidiary, JMC Projects is getting traction and upcoming BOOT projects are likely to generate sustainable RoE of 16-17%. Hence, we rate KPTL as buy with a target price of Rs151. Max India is a unique investment opportunity providing direct exposure to two sunrise industries of insurance and healthcare services. Max New York Life, its life insurance subsidiary, is among the leading private sector players, has gained the critical mass and enjoys some of the best operating parameters in the industry. With insurance penetration picking up in India and with the company entering into a tie up with Axis Bank we expect to see a healthy growth in the companys annual premium equivalent (APE) going ahead. Having strong presence in organ monitoring systems, Opto Circuits has diversified into the invasive space, supplying stents for medical use. A lower cost base and an attractive pricing strategy have enabled the company's stents to gain acceptance globally. Besides, the Criticare acquisition has further enabled it to diversify into gas monitoring system and strengthen its position in the USA. The quick turnaround in the recently acquired Cardiac Lifescience is impressive and would drive the future growth. The energy and environment businesses of Thermax are set to benefit from a continuing rise in India Inc's capex. Its group order book stands at Rs5,809 crore, which is 1.1x its FY2011 consolidated revenue. While its super-critical boilers foray is yet to see some major order inflow, we remain positive on its diversified sector exposure and opportunities in the infrastructure sector. Yes Bank, a new generation private bank, started its operations in November 2004 and is the only greenfield bank approved by the RBI in the last decade. The bank is promoted by Rana Kapoor and Ashok Kapur. Yes Bank follows a unique business model based on knowledge banking, which offers product depth and a sustainable competitive edge over established banking players. Knowledge led banking also enables the bank to generate strong fee income, which eventually translates into higher return ratios. Zydus Wellness owns three high growth brands, Nutralite, Sugar free and Ever Yuth in the niche health and wellness segment. The company focuses on rampant growth by increasing the distribution of existing products, scaling up the existing product portfolio through variants and new product launches leveraging the three brands. However the company is facing intensifying competition in some of its key categories, which has moderated the sales growth in H1FY2012. Though the top line growth is likely to remain subdued, the bottom line is likely to grow by around 10% on the back of tax benefits from the new facility in Sikkim. Ugly Duckling Ashok Leyland, the second largest commercial vehicle (CV) manufacturer in India, is a pure CV play. The new greenfield facility in Pantnagar in Uttaranchal has provided strategic cost and diversification benefits. The company has ventured into LCV space with the launch of Dost together with Nissan. It has also entered into construction equipment space through JV with John Deere. Bajaj Corp is the third largest player in the hair oil segment and has emerged as the dominant player in the premium light hair oil (LHO) category with its Almond Drops hair oil. With its strong brand positioning, distribution strength and healthy balance sheet, it is well poised to ride on the strong consumer demand emerging due to the rising disposable income and growing aspirations of the Indians. Any initiative on the companys part to expand its limited product portfolio or strengthen its core business would be the key upside trigger for the stock. Hence, we recommend Buy on the stock with a price target of Rs142. CESC is the power distributor in Kolkata and Howrah backed by 1,225MW of power generation capacity, which is a strong cash generating business. Further, it is adding 1,200MW of generation capacity which would be on stream by FY2015. Moreover, having 80% of assured coal supply from invested company and coal linkages, CESC has a high degree of integrated status among peers. Despite that, the stock is currently one of the cheapest stock in the Indian utility space trading at a discount to its book value primarily on account of the concerns related to losses from its retail business, Spencers. However, we believe the concerns are overdone and the company has started exhibiting store level profit in FY2011 which is an initial sign of revival as per the management. Nevertheless, this possible turnaround of retail business is not priced in the current stock price; hence the stock is a rerating candidate.
Kalpataru
Max India
Opto Circuits
Thermax
Yes Bank
Zydus Wellness
Ashok Leyland
Bajaj Corp
CESC
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April 2012
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Deepak Fert
DFPCL manufactures and supplies industrial chemicals and ANP fertilisers. Given the expansion in TAN capacity, introduction of new products in the fertiliser division and ability to manage cost pressures, we expect the company to report a good growth in revenue on the back of good volumes from the fertiliser segment. Going forward the company may see pressure on margin due to increase in price of key input materials for the chemical segment. Federal Bank is the fifth largest private sector bank in India in terms of asset size and has traditionally been a strong player in south India especially Kerala. The bank is expected to witness an improvement in its RoE due to leveraging of its equity and easing of cyclical asset-quality pressures. Gayatri Projects is a Hyderabad-based infrastructure company with a very strong presence in irrigation, road and industrial construction businesses. The order book excluding Andhra Pradesh irrigation projects stands at Rs5,239 crore, which is 3.1x its FY2012E revenues. It is also expanding its power and road BOT portfolio and plans to unlock value by offloading stake to private equity. We feel the company has potential to transform itself into a bigger player and expect its net profit to grow at a CAGR of 24% over FY2011-13. India Cements installed capacity has got enhanced to 16MTPA which will result in volume growth and drive the earnings of the company. The company is also setting up a 100MW captive power plant, which is expected to come on stream by FY2013. However, in spite of cost inflation we expect the profitability of the company to improve in FY2012 due to the increase in the cement realisation on account of supply discipline followed by the manufacturers. Ipca has successfully capitalised on its inherent strength in producing low-cost drugs to tap the export markets. The company's ongoing efforts in the branded formulations business in the emerging economies, revival in the UK operations, pan-European initiatives, likely approval of one additional product under institutional business and a significant scale-up in the US business will drive its formulation exports. The USFDA approval for the Indore SEZ are expected shortly, which would help ramp up sales in the US. A leading maker of seamless tubes, ISMT is likely to benefit from improving demand in its traditional user industries like automobile and mining. It would also gain from efforts taken to expand its product offerings and it increasing the size of its addressable market by penetrating into energy and oil exploration sectors. However, a delay in commissioning of its 40MW power plant has led to a delay in margin expansion for the company. With the power plant now expected to be commissioned in FY2013, we have lowered our estimates and now expect the profit to grow at a CAGR of 9% over FY2011-13E. Jaiprakash Associates, India's leading cement and construction company, is all set to reap the benefits of India's infrastructure spending. The company has also monetised very well on the real estate properties of Yamuna Expressway. Moreover, the marked improvement in macro environment has improved accessibility to capital and thus eased the concerns of liquidity to some extent. However, higher leverage could act as drag on the valuation. Kewal Kiran Clothing Ltd is a branded apparel play with four brands in its kitty. Killer, its flagship denim brand, has created a niche space in the minds of consumers. With a gross market turnover of approximately Rs145 crore, Killer is ahead of its rival--Spykar. We believe that a strong brand profile, a disciplined management and a consistent track record coupled with a robust balance sheet position (cash on books at ~Rs120 a share) puts KKCL in a sweet spot. With its strong domain expertise in a few niche verticals and competitive advantage in terms of significant contribution from its non-linear initiatives, NIIT Technologies is well placed to benefit from the overall improvement in the demand environment. The recent large deal wins give further revenue visibility for the future. Moreover, the company has healthy cash on the books with minimal debt which leaves scope for further acceleration in growth through inorganic initiatives and act as another re-rating trigger for the stock. Given its unique business model, Orbit is expected to cash in the massive re-development opportunities in southern and central Mumbai. Further, given its presence in the luxury segment, which is less price sensitive, it will be able to revive faster once the real estate industry recovers. Punjab National bank (PNB) has one of the best deposit mixes in the banking space with low-cost deposits constituting around 39% of its total deposits that helps it maintain one of the highest margins in the sector . A strong liability franchise and technology focus will help the bank boost its core lending operations and fee income related businesses. Polaris Financial Technology (Polaris) is one of the few integrated midcap IT companies having a strong foothold in the BFSI vertical and having offerings in both, the services and solutions segments. We continue to remain positive on the Intellect side of the business and expect a faster and stronger growth momentum in the coming years which would in turn enable margin improvement as well.
Federal Bank
Gayatri Proj
India Cements
Ipca Lab
ISMT
Jaiprakash Asso
KKCL
NIIT Tech
Orbit Corp
PNB
Polaris
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Pratibha Ind
Pratibha Industries is a dominant player in water & irrigation and urban infrastructure space. It has also diversified into other high-margin areas like road BOT, power and oil & gas. The current order book stands at Rs4,959 crore, which is 3.0x its FY2012E revenues. Given the governments thrust on developing these segments, we expect the net profit to grow at a CAGR of 23% over FY2011-13. Further the company is looking at exiting HSAW pipe manufacturing business (which has been an overhang for past one year) which will improve balance sheet and profitability. Provogue India is a strong bet to play the up-cycle in the discretionary consumption space. The companys core businessfashion apparels continues to do well. Further, its subsidiary Prozone, which is developing multipurpose infrastructure in tier II cities with a well-funded balance sheet and good portfolio of land bank, has received clearance certificate for the Indore property and expects to soon get clearance for its Coimbatore project. Ratnamani Metals and Tubes is the largest stainless steel tubes and pipes maker in India. In spite of the challenging business environment due to increasing competition, we believe the stock is attractively valued. The management has maintained a strong outlook on the potential opportunities in the oil & gas sector. The company has reported strong revenue growth but margins have been trending downwards. Revenues and earnings are likely to grow at a CAGR of 30% and 15% respectively for FY2011-13E. Raymond is present in the fast growing discretionary & lifestyle category of branded textiles and apparels. With the growing income, rise in aspirations to lead a luxurious life, greater discretionary spending and favourable demographics, the segment of branded apparels & fabrics presents a tremendous growth opportunity and Raymond with its brands and superior distribution set up is very well geared to encash the same. We believe that Raymond with its strong brands and an enviable distribution reach is a quality play on the fast growing lifestyle & discretionary segment. Further the company's efforts towards enhanced focus on its power brands coupled with benefits of turnaround performance are not getting reflected in the valuations and hence we believe the stock is due for a rerating. Further, any development with regard to the Thane land in the form of either joint development or disposal would lead to value unlocking and provide significant cash to the company. Selan Exploration is an oil exploration & production company with five oil fields in the oil rich Cambay Basin of Gujarat. The initiatives taken to monetise the oil reserves in its Bakrol and Lohar oil fields are likely to improve production. Further, it intends to explore its next field, Indrora, which is the most prolific one with significant reserves. Based on this, we expect the company to ramp up its production more than two times by FY2014 over that of FY2011. It would lead to an earnings growth of 41% (three years CAGR over FY2011-13) as it is expected to take advantage of the ramp-up in production, higher crude price and stable operating cost. Hence, we rate this stock as Buy. The company is the largest on-shore oil exploration service provider in the domestic market. Its strong order book of Rs2,700 crore, which is 1.8x its FY2011 revenues, provides healthy visibility to its revenues for two years. Currently the stock is trading attractively at low valuation. The combination of Sun Pharma and Taro offers an excellent business model. With a stronghold in the domestic formulation market, Sun Pharma has become an aggressive participant in the Para IV patent challenge space. Along with the exclusivities in the USA, the recent consolidation of the Taro acquisition has provided the much-needed boost to the stock. However, imposition of new tax (Union Budget 2013) on partnership based units in Sikkim would be a drag on earnings.. A well-known name in the domestic formulation market, Torrent has been investing in expanding its international presence. With the investment phase now over, Torrent should start gaining from its international operations in Russia and Brazil. The impending turnaround of its German acquisition, Heumann, will also drive the profitability of the company. However, imposition of new tax (Union Budget 2013) on partnership based units in Sikkim would be a drag on earnings. UltraTech is Indias largest cement company with approximately 52 million tonne cement capacity. The company has benefited from an improvement in its market mix. Further, ramping-up of the new capacity and savings accruing from new captive power plants will improve the companys cost efficiency. A leading global producer of crop protection products, intermediates, specialty chemicals and other industrial chemicals, United Phosphorus has presence across value-added agricultural inputs ranging from seeds to crop protection products and post-harvest activities. A diversified geography and the recent acquisition of DVA Agro Brazil will help the company to have a strong presence in the Brazilian market and help in growing inorganically. United Phosphorus has reduced its revenue growth guidance for FY2012 due to the extended winter weather in some of its major markets. The company expects a revenue growth of 25-30% for the year 2011-12 which is much lower than the 35-40% growth guidance given earlier.
Provogue India
Ratnamani Metals
Raymond
Selan Exploration
Shiv-vani
Sun Pharma
Torrent Pharma
UltraTech Cement
United Phos
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April 2012
EQUITY
FUNDAMENTALS
Remarks
EARNINGS GUIDE
UBI V Guard Ind
Union Bank has a strong branch network and an all-India presence. The banks earnings growth has deteriorated due to asset quality pressures. V-Guard Industries is an established brand in the electrical and household goods space, particularly in South India. Over the years, it has successfully ramped up its operation and network to become a multi-product company. The company has recently also forayed into non-South India and is particularly focusing on the tier-II and III cities where there is a lot of pent-up demand for its products. We expect VGI to post a CAGR of 32% in its earnings over FY2011-13E. Vulturess Pick
Mahindra Lifespace
The company is the first in India to own two integrated business cities (IBC; which is a combination of SEZ and domestic area)one in Chennai and the other at Jaipur and both have become operational. Further, it has acquired land at Pune and Chennai to come up with two more IBCs. Apart from this, it has 3.75 million sq ft of residential and commercial projects under construction across various cities and an additional land bank of 12.6 million sq ft for future development. Consequently, we expect the company's stand-alone net profit to grow at a CAGR of 5.9% over FY2011-13. Orient Paper has increased its cement capacity from 3.4 million tonne to 5 million tonne and installed a 50MW captive power plant to save on power costs. We believe, the company will be able to deliver an impressive volume growth in FY2012 due to the commissioning of its new capacity. Further, a change in its market mix in favour of the western region compared to southern region augurs well for the company. The company is also in the process to de-merge its cement division which could act as a value unlocking. With a combined capacity of 5.5MMTPA Tata Chemicals is the second largest soda ash producer in the world. Tata Chemicals has purchased 25% stake in urea-ammonia green field project at Goban with investment at $290mn. Further changes in urea policy are likely to benefit the company further. We expect IMACID to show a strong performance on the back of a steep increase in the price of phosphoric acid, the main raw material for the production of DAP. TCL is expected to show a strong performance on the back of a relatively healthy demand for soda ash and sodium bicarbonate in India compared to the rest of the world. With a well-diversified order book, Unity Infrastructure is expected to be the key beneficiary of the government's thrust on infrastructure spending. The order book remains strong at Rs3,991 crore, which is 2.1x its FY2012E revenues. We expect its net profit to post a CAGR of 18.5% on the back of a strong order book during FY2011-13. Further, it has recently forayed into road BOT segment and plans to enter power segment also. Cannonball
Orient Paper
Tata Chemicals
Unity Infra
Allahabad Bank
With a wide network of over 2,200 branches spread across India, Allahabad Bank enjoys a strong hold in north and east India. With an average RoE of ~20% during FY2010-12E, coupled with improving asset quality trends the bank is one of the stronger players in the public sector banks. Andhra Bank, with a wide network of over 1,200 branches across the country, has a strong presence in south India especially in Andhra Pradesh. Though the bank is available at attractive valuation, concerns on asset quality front and political situation within the state would affect its operations. IDBI Bank is one of leading public sector banks of India. The bank is expected to improve its core performance significantly, which is likely to reflect in the form of better margins and return ratios. Due to rising asset quality risks and slower business growth the stock is likely to underperform in the near term. Madras Cement, one of the most cost-efficient cement producers in India, will benefit from the capacity addition carried out ahead of its peers in the southern region. The 3-million-tonne expansion will provide the much-needed volume growth in the future. However, regional demand remains lacklustre but on account of the improvement in the realisation due to supply discipline and a likely change in the market mix, we believe, the profitability of the company would improve in FY2012. The companys cement grinding capacity has enhanced to 13.5MTPA which will support the volume growth of the company in the coming years. Additionally, the company has set up 300MW power plant entirely for merchant sale, which is expected to support revenue growth going ahead. Thus, a volume growth of the cement division and the additional revenue accruing from the sale of surplus power will drive the earnings of the company.
Andhra Bank
IDBI Bank
Madras Cement
Shree Cement
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Sharekhan Valueguide April 2012

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Sharekhan Valueguide April 2012

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From Sharekhans Desk

31 Copper 32 Lead 32 Zinc 34 Copper 34 Natural gas 34 Nickel

Top MF Picks (equity) Top SIP Fund Picks

STOCK IDEAS STANDING (AS ON APRIL 03, 2012)

#Reco price adjusted for bonus

FROM SHAREKHANS DESK

from sharekhans desk

Pressure of policy and politics

SHAREKHAN TOP PICKS

SHAREKHAN TOP PICKS

Sharekhan Top Picks

ABSOLUTE OUTPERFORMANCE (RETURNS IN %)

CONSTANTLY BEATING NIFTY AND SENSEX (RETURNS IN %)

Sharekhan (Top Picks)

SHAREKHAN TOP PICKS

SHAREKHAN TOP PICKS

SHAREKHAN TOP PICKS

KALPATARU POWER TRANSMISSION

MARCH 15, 2012

Concerns priced in, growth ahead

Others 10% Institutions 23%

SHAREKHAN BUDGET SPECIAL

MARCH 16, 2012

Union Budget 2012-13: Right on intent, low on action

FISCAL CONSOLIDATION TARGETS

FISCAL DEFICIT PEGGED @5.1%...WILL RBI CUT RATES?

Fiscal Def icit

GOVERNMENT BORROWINGS (RS 00 CRORE)

6,000 5,000 4,000 3,000 2,000 1,000 0 FY2002A FY2003A

Conclusion: increased uncertainty on policy rate cuts in April 2012

Focus on social schemes continues

Pr iv a tis a tio n / Div e s tme n ts

PERSONAL INCOME TAX

RAILWAY BUDGET SPECIAL

MARCH 14, 2012

Rail Budget 2012-13: Populism avoided

PERFORMANCE FOR 2011-12

BUDGET FOR 2012-13

ADITYA BIRLA NUVO

BUY; CMP: RS951 MARCH 26, 2012 Bullishness continues

Aditya Birla Nuvo to sell Madura Garments for $500 million

Idea Cellular on the block

Institutions 12% Promoters 50% Non-promoter corporate 3%

Issue of warrants to promoters also speaks of positive sentiment

Impact on our estimates

View: Retain Buy

GLAXOSMITHKLINE CONSUMER HEALTHCARE

Rs3,000 Rs11,240 cr Rs2,730/2,120 17,123 500676 GSKCONS GSKCONS 2.4 cr

BUY; CMP: RS2,670 MARCH 27, 2012 Annual report review

GODREJ CONSUMER PRODUCTS

BUY; CMP: RS447 MARCH 6, 2012 Price target revised to Rs547

Public & others 22%

MAHINDRA & MAHINDRA

Public & others 50%

BUY; CMP: RS62

MARCH 23, 2012

Tariff hike and policy reforms the key to future growth

TATA CONSULTANCY SERVICES

BUY; CMP: RS136 MARCH 2, 2012 Price target revised to Rs167

SHAREKHAN SPECIAL SHAREKHAN SPECIAL Monthly economy review

OCTOBER 06, 2008 MARCH 28, 2012