india daily, august 5, 2009 · for private circulation only. for important information about kotak...

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

INDIA DAILYAugust 5, 2009 India 4-Aug 1-day1-mo 3-mo

Sensex 15,831 (0.6) 6.2 30.5

Nifty 4,681 (0.7) 5.8 27.8

Global/Regional indices

Dow Jones 9,320 0.4 12.6 10.8

Nasdaq Composite 2,011 0.1 12.0 14.7

FTSE 4,671 (0.2) 10.3 7.7

Nikkie 10,367 (0.1) 5.6 15.5

Hang Seng 20,796 (0.1) 14.2 26.6

KOSPI 1,565 (0.1) 10.2 11.9

Value traded - India

Cash (NSE+BSE) 270.4 246.0 265.5

Derivatives (NSE) 608.6 548.4 463

Deri. open interest 663.7 711 645

Forex/money market

Change, basis points

4-Aug 1-day 1-mo 3-mo

Rs/US$ 47.7 11 (83) (217)

10yr govt bond, % 7.0 16 22 68

Net investment (US$mn)

3-Aug MTD CYTD

FIIs 99 - 7,206

MFs 30 - 757

Top movers -3mo basis

Change, %

Best performers 4-Aug 1-day 1-mo 3-mo

ABAN IN Equity 1158.3 1.4 30.4 165.1

SCS IN Equity 107.0 3.4 37.9 135.7

WGS IN Equity 227.6 (1.3) 15.0 112.6

FTECH IN Equity 1548.0 4.0 19.0 99.7

SESA IN Equity 238.1 (1.6) 27.3 96.3

Worst performers

TCOM IN Equity 493.9 (1.7) 2.3 (12.5)

SUNP IN Equity 1159.2 (1.2) 0.7 (10.7)

ESOIL IN Equity 155.8 2.2 0.3 (0.4)

BHARTI IN Equity 400.8 (2.4) (2.1) 6.8

RIL IN Equity 2039.8 1.1 0.6 8.3

Contents

New releases

Strategy: KS-Ownership Navigator June 2009 quarter changes (qoq)

Economy: KIE Conference Call: Growth still a concern; to early to shift balance to inflation

Updates

Axis Bank: Announces plans to dilute 20% of equity base, might indicate fresh strategic initiatives

Technology: From value to momentum

Technology: Cognizant (CTSH) 2QCY09 results - reaffirm improving demand dynamics

Banks/Financial Institutions: Core performance better than expected, treasury income boosts earnings

Industrials: Bright outlook post dim quarter; but valuations discount that

News Round-up

• ABG Shipyard has raised its open offer for the shareholders of Great Offshore by more than 15%, prompting yet another twist in the battle with rival Bharati Shipyard (ET)

• Non-performing assets (NPAs) of government banks have been rising sharply and have grown to an astronomical Rs 44,000 crore till March 2009 despite the fact that last year UPA government had waived off a large portion of these bad loans through agricultural loan waiver scheme extended to lakhs of farmers across the country.(ET)

• Reliance Industries Ltd (RIL) will pick up a 67 per cent stake in Krishna Godavari Gas Network Ltd (KGGNL), a joint venture promoted by the Andhra Pradesh government, for undertaking city gas distribution in the state. (BS)

• Reliance Infrastructure (R-Infra) has been awarded the Rs 11,000-crore Mumbai Metro-II project on a Build Operate Transfer (BOT) basis. The project is for a concession period of 35 years, with an extension clause of another 10 years.(BS)

• India will not slow down on financial reforms, but would recalibrate the roadmap for reforms given the backdrop of the global crisis, the RBI Governor Duvvuri Subbarao said on Tuesday. (FE)

• India is planning amendments to the Double Taxation Avoidance treaty with Mauritius to prevent its misuse for avoiding taxes. (BS)

Source: ET= Economic Times, BS = Business Standard, FE = Financial Express, BL = Business Line.

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

FIIs invest Rs297 bn in the June 2009 quarter.

FIIs buy Property and Banking; sell Telecom

Mutual Funds (MFs) buy Energy and Utilities

Insurance sell Automobiles and Utilities; buy Property

Key stock changes

FIIs sell Bharti Airtel and SBI; buy DLF, L&T and Indiabulls Real Estate

MFs buy NTPC and Bharti Airtel; sell L&T, Axis Bank

Insurance sell Reliance Infrastructure, PNB; buy ICICI Bank and Unitech

Overweight/Underweight companies

FIIs are overweight Banking, Technology; underweight Energy and Utilities

MFs are overweight Banking and Industrials; underweight Energy, Metals

Limitations of our analyses

Assumption: BSE-200 is the primary investable universe for institutions

LIC portfolio comprises stocks with more than 1% holdings

Unless otherwise specified, analysis in this report is with respect to BSE-200

Strategy.dot

Strategy

KS-Ownership Navigator June 2009 quarter changes (qoq). The June 2009 quarter witnessed heavy buying (Rs297 bn) by FIIs through (1) promoter stake sales and (2) Qualified Institutional Placements (QIPs). FIIs increased their positions in property and banking stocks while insurance companies reduced their exposure in automobiles and utilities. FII holdings in BSE-200 companies stand at US$137 bn (16.1%) as of June 30, 2009 versus US$79 bn (15.1%) as on March 31, 2009

INDIA

AUGUST 05, 2009

NEW RELEASE

BSE-30: 15,831

Strategy India

KOTAK INSTITUTIONAL EQUITIES RESEARCH 3

Sector-wise changes in holdings of FIIs, MFs, Insurance and LIC during June 2009 quarter Sector-wise changes in portfolio in June 2009 over March 2009, at quarter average prices (Rs mn), (1)

Note:(1) We have used the average of month-end prices of stocks for each of the three months in the latest quarter.(2) Insurance numbers include LIC.

Sector-wise change in net investment - FIINet investment (Rs297 bn)

(20,000)

-

20,000

40,000

60,000

80,000

100,000

Prop

erty

Bank

ing

Indu

stria

l

Ener

gy

Met

als

Cem

ent

Tech

nolo

gy

Aut

omob

iles

Con

sum

ers

Phar

mac

eutic

als

Che

mic

als

Med

ia

Util

ities

Oth

ers

Tele

com

Sector-wise change in net investment - LICNet divestment (Rs19 bn)

(15,000)

(10,000)

(5,000)

-

5,000

10,000

Met

als

Tele

com

Oth

ers

Con

sum

ers

Cem

ent

Indu

stria

l

Tech

nolo

gy

Med

ia

Prop

erty

Che

mic

als

Phar

mac

eutic

als

Aut

omob

iles

Bank

ing

Ener

gy

Util

ities

Sector-wise change in net investment - MFNet investment (Rs40 bn)

(20,000)

(10,000)

-

10,000

20,000

30,000

Ener

gy

Util

ities

Tech

nolo

gy

Oth

ers

Prop

erty

Tele

com

Cem

ent

Med

ia

Che

mic

als

Phar

mac

eutic

als

Aut

omob

iles

Met

als

Indu

stria

l

Con

sum

ers

Bank

ing

Sector-wise change in net investment - InsuranceNet divestment (Rs17 bn)

(10,000)

(5,000)

-

5,000

10,000

Prop

erty

Bank

ing

Tele

com

Oth

ers

Cem

ent

Met

als

Med

ia

Che

mic

als

Indu

stria

l

Phar

mac

eutic

als

Tech

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Ener

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Con

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Util

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Aut

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Source: Kotak Institutional Equities

Key stock investments made by FIIs during the June 2009 quarter Key stock changes in June 2009 over March 2009, at quarter average prices (a)

Where the big bucks appeared:Company FII MF Insurance LIC FII MF Insurance LIC Company (Rs mn) (% of equity)FIIsIndiabulls real estate 33.2 4.9 — — 25,396 3,767 — — DLF 49,111 9.2Unitech 16.2 1.6 2.7 — 22,509 2,244 3,788 — Larsen & Toubro 29,907 4.0IDFC 10.2 (1.4) — 0.1 14,858 (1,971) 173 112 Indiabulls real estate 25,396 33.2DLF 9.2 0.2 — — 49,111 1,211 (83) — Unitech 22,509 16.2Suzlon Energy 7.8 1.2 — — 10,273 1,572 — — ICICI Bank 19,218 2.7IFCI Ltd 5.8 1.1 (3.3) (3.3) 1,776 350 (1,019) (1,019) IDFC 14,858 10.2Bajaj Hindustan 4.7 (0.3) — — 935 (66) — — HDFC Bank 13,048 2.3Bank of Baroda 4.1 (2.2) (1.5) (1.5) 6,056 (3,243) (2,243) (2,159) Suzlon Energy 10,273 7.8Larsen & Toubro 4.0 (1.4) (0.0) — 29,907 (10,320) (285) (285) Axis Bank 9,206 3.5Gujarat NRE Coke 4.0 1.4 — — 714 248 — — State Bank of India 9,205 0.9Mahindra & Mahindra Financial 3.9 3.2 — — 924 763 — — Jaiprakash Associates 8,812 3.4Crompton Greaves 3.7 (1.0) 0.2 0.3 3,195 (877) 137 219 Cairn India 8,419 2.0Axis Bank 3.5 (1.9) — — 9,206 (5,036) — — Tata Consultancy Services 8,236 1.2Ultra Tech Cement 3.5 4.4 1.6 1.6 2,883 3,632 1,277 1,319 Reliance Infrastructure 7,125 3.0Polaris Software Lab. 3.4 0.4 (0.5) — 293 32 (44) — Jindal Steel & Power 6,201 1.9Jaiprakash Associates 3.4 0.4 — — 8,812 1,013 18 — Union Bank 3.2 (2.8) (0.0) (3.3) 3,341 (2,832) (17) (3,391) Glaxosmithkline Consumer 3.2 0.1 (0.7) (0.7) 1,203 24 (267) (267) Punjab National Bank 3.1 (1.6) (2.4) (0.3) 5,977 (2,992) (4,674) (606) Edelweiss Capital 3.1 0.6 — — 839 167 — — Reliance Infrastructure 3.0 1.1 (2.4) (3.0) 7,125 2,695 (5,625) (7,180) Jindal Saw 3.0 (2.9) — — 501 (481) — — Mercator Lines 3.0 1.2 — — 365 147 — — Shriram Transport 2.9 3.8 — — 1,655 2,176 — — Shree Renuka Sugars 2.8 (2.1) — — 963 (725) — — Housing Development & Infrastructure 2.8 0.7 — — 1,703 420 — — Hindalco Industries 2.8 1.2 1— 3.4 3,538 1,572 1,336 4,389 MindTree 2.7 — — — 401 (13) — — ICICI Bank 2.7 — 0.9 0.3 19,218 83 6,835 1,924 Maharashtra Seamless 2.6 (1.9) (0.0) - 410 (290) (6) -

Note: (1) We have used the average of month-end prices of stocks for each of the three months in the latest quarter.

ChangeChange in shares (% of equity) Change (Rs mn)


India Strategy

4 KOTAK INSTITUTIONAL EQUITIES RESEARCH

Key stock divestments made by FIIs during the June 2009 quarter Key stock changes in June 2009 over March 2009, at quarter average prices (a)

Where the big bucks vanished:Company FII MF Insurance LIC FII MF Insurance LIC Company (Rs mn) (% of equity)FIIsNIIT (11.1) 8.7 — — (846) 666 (1) — Bharti Airtel (17,105) (1.1)SREI (10.1) 8.6 — — (777) 657 — — National Thermal Power Corp. (9,923) (0.6)Mahindra Life Space Developer (7.4) 5.7 — — (726) 563 — — Essar Oil Ltd (5,234) (2.8)India Infoline (7.3) 6.0 — — (2,424) 1,977 — — Mahindra & Mahindra (3,761) (2.2)Rolta India (4.7) 0.1 — — (814) 24 — — India Infoline (2,424) (7.3)India Cements (4.5) 3.2 (0.3) — (1,685) 1,219 (98) — Adani Exports (2,250) (1.4)PSL (3.7) (1.8) — — (179) (88) — — GMR Infrastructure (2,245) (0.9)Zee News (3.5) 1.6 — — (332) 151 — — India Cements (1,685) (4.5)Adlabs Films (3.3) 0.7 — — (471) 95 — — ZEE Entertainment Enterprises (1,368) (2.1)Great Eastern Shipping Co. (3.1) 1.3 — — (1,163) 489 119 168 Educomp Solutions (1,349) (2.6)Nagarjuna Construction Co. (3.1) 0.9 — — (808) 246 — — Lanco Infratech (1,174) (1.7)Bajaj Holding & Investment (2.9) 1.9 — — (1,035) 695 70 — Great Eastern Shipping Co. (1,163) (3.1)Essar Oil Ltd (2.8) 0.7 — — (5,234) 1,223 — — Satyam Computer Services (1,067) (1.9)videocon industries (2.6) 0.9 — — (914) 323 5 — Bajaj Holding & Investment (1,035) (2.9)Educomp Solutions (2.6) 2.7 — — (1,349) 1,416 — — Tata Communications (1,022) (0.7)HT Media (2.3) 0.3 — — (514) 57 — — Indian Hotels Co. (2.3) — — — (997) 138 - — Mahindra & Mahindra (2.2) 1.5 (0.2) — (3,761) 2,497 (344) — Titan Industries (2.1) 2.0 (0.2) — (940) 905 (81) — Opto Circuits India Ltd (2.1) 0.9 — — (495) 225 — — ZEE Entertainment Enterprises (2.1) 1.9 — — (1,368) 1,282 — — GSPL (2.0) 0.8 (0.0) — (562) 209 (13) 5 MAX India (2.0) 1.8 — — (844) 774 — — Tanla Solutions (2.0) (0.8) — — (128) (51) — — Satyam Computer Services (1.9) 1.2 0.5 (0.8) (1,067) 696 290 (453) Deccan Chronicle (1.9) 0.5 — — (323) 83 — — Sintex (1.8) 0.4 — — (257) 63 — — Radico Khaitan (1.7) 0.1 — — (128) 8 — — Lanco Infratech (1.7) 1.7 — (0.5) (1,174) 1,225 (333) (333) Glenmark Pharmaceuticals (1.6) (0.7) — — (816) (366) — —

Note: (1) We have used the average of month-end prices of stocks for each of the three months in the latest quarter.

ChangeChange in shares (% of equity) Change (Rs mn)


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

Too early to say that balance has shifted from growth to inflation

In the context of high fiscal deficit, worries about inflation and possible monetary tightening ahead, Dr. Virmani explained that growth was still a concern and that it was too early to shift balance from concern on growth. He added that IIP growth was still low even though it may improve in 2HFY10 on base effects. On the possible impact of drought on FY2010 growth, he clarified that it was too early to quantify the same, but pointed out that the Economic Survey had stated that projected 7.0%±0.75% was based on the normal monsoon assumption. He also stated that capital flow position was comfortable this year not only from BOP viewpoint, but also for supporting growth and private investment.

Higher fiscal deficit aimed to offset decline in private demand; can be rolled back ahead

Asserting that the high fiscal deficit of 6.2% of GDP in FY2009 and of 6.8% of GDP in FY2010BE were conscious policy choices, Dr. Virmani said they were necessary to increase government consumption to partially offset the fall in private demand. He reiterated that high fiscal deficits could be rolled back as they had increased due to temporary factors such as (1) farm debt waiver, (2) Pay Commission arrears, (3) tax cuts to boost private demand and (4) acceleration (front-loading) of planned public investment spending on infrastructure. Offsetting measures were not taken earlier as government wanted to give consumption stimulus.

Fiscal impact of drought likely to be small and manageable

The overall fiscal impact of any drought relief package was likely to be small as (1) NREGA allocation was already significantly increased in the Union budget and (2) there could be saving on the food subsidies to the degree that high food stocks would get depleted bringing about saving on carry over costs of such stocks. Dr. Virmani added that NREGA was a unique social-based scheme that acted as an automatic stabilizer that increased rural employment and demand when consumption and labor demand fell due to shocks such as drought, while its fiscal bill would automatically decline when rural demand and employment improved.

Introduction of GST from FY2011 on track

On the question whether the implementation of Goods and Services Tax (GST) scheduled to be introduced from April 2010 was on track, he said that there was no reason to believe that was not the case. He pointed out that (1) the Finance Minister’s budget speech was clear on this, and (2) States were motivated on this and the empowered committee of State Finance Ministers, headed by the Finance Minister of West Bengal, was driving the process. On the need for Constitutional amendment redefining relative taxation powers of the Centre and States to enable introduction of GST, Dr. Virmani accepted that here was lack of clarity, but added that even if it was necessary it could be quickly done. On the timeline for introducing new nutrient-based fertilizer subsidy scheme, Dr. Virmani stated that proposal belonged to the budget of this year so it would be reasonable to presume its implementation this year

(Replay of the Conference call is temporarily available at (+91)-22-67763765; for full transcript please email: [email protected])

Economy.dot

Economy Indian Economy

KIE Conference Call: Growth still a concern; to early to shift balance to inflation. In a KIE Conference Call with investors, Dr. Arvind Virmani, Chief Economic Advisor to the Government of India exuded confidence that the large fiscal deficit was a conscious policy choice to give consumption stimulus and can be rolled back ahead. He added that: (1) monsoon deficiency is unlikely to have much impact on the fiscal deficit, (2) growth was still a concern.

INDIA

AUGUST 05, 2009

TRANSCRIPT

BSE-30: 15,831

QUICK NUMBERS

• Indian economy FY2010E growth projection at 7.0%±0.75% had assumed normal monsoon

• Early to quantify impact of monsoon on agricultural crop

• Capital flows in FY2010 comfortable for supporting BOP and growth


Sensitivity analysis on the impact on BVPS and EPS

Our calculations assuming that the fresh equity issuance is made at the current market price (Rs895), suggests that the company’s BVPS as of March 2010 and March 2011 would be higher by 40% at Rs424 and 24% at Rs473 against our current estimates. Our EPS estimates for the company would stand revised lower by 9-6% at Rs53.8 and Rs64 in FY2010E and FY2011E (assumes loan growth remains at our current expected levels). The near-term RoEs would be lower at around 14% compared to our current expectations of 19%.

.dot

Axis Bank (AXSB)

Banks/Financial Institutions

Announces plans to dilute 20%of equity, might indicate fresh strategic initiatives. Axis Bank’s board has decided to raise fresh equity by issuing shares not exceeding 71.4 mn equity shares (19.9% of current equity base) through a combination of GDR/QIP issuance and preferential allotment to promoters. The company’s decision to raise fresh capital might indicate strategic plans like acquiring banks, entering the life insurance business and/or focus on higher growth as its Tier I ratio as of June 2009 was a healthy 9.4% and could have supported 20-25% CAGR in loans over the next few years. We would be updating our estimates when there is greater clarity on this issuance. Stock remains our preferred pick amongst private banks.

Axis BankStock data Forecasts/Valuations 2009 2010E 2011E

52-week range (Rs) (high,low) EPS (Rs) 50.6 59.1 68.2Market Cap. (Rs bn) 321.2 EPS growth (%) 76.2 16.8 15.6

Shareholding pattern (%) P/E (X) 17.7 15.2 13.1Promoters 42.4 NII (Rs bn) 36.9 47.0 59.3FIIs 31.2 Net profits (Rs bn) 18.2 21.2 24.5MFs 8.2 BVPS 284.5 329.9 382.3

Price performance (%) 1M 3M 12M P/B (X) 3.1 2.7 2.3Absolute 2.4 42.6 17.6 ROE (%) 19.1 19.2 19.2Rel. to BSE-30 (3.5) 9.3 11.2 Div. Yield (%) 1.1 1.3 1.5

Company data and valuation summary

974-278

BUY

AUGUST 05, 2009

UPDATE

Coverage view: Attractive

Price (Rs): 895

Target price (Rs): 850

BSE-30: 15,831

QUICK NUMBERS

• Announces a plan to dilute 20% of current equity base

• Sensitivity analysis suggests BVPS could be higher by 40% by March 2010 while earnings could be lower by 9% in FY2010E

Axis Bank Banks/Financial Institutions


BVPS as of March 2010 could be enhanced by 40% Sensitivity analysis of impact on EPS, BVPS, RoE MArch fiscal year-ends, 2010-2011E

Current estimates Post-issue estimates % change2010E 2011E 2010E 2011E 2010E 2011E

EPS (Rs) 59.1 68.2 53.8 64.0 (8.9) (6.3) BVPS (Rs) 330 382 462 473 40.0 23.7 RoE (%) 19.2 19.2 14.9 14.3

Note:(1) We assume that fresh equity would be available only from September 2009.(2) Equity dilution is assumed to happen at the current market price of Rs895.

Source: Company, Kotak Institutional Equities estimates


1QFY10 performance—a good starting point

The Indian IT companies, with only a few exceptions, beat the Street’s (low) expectations on revenues as well as margins quite comfortably. More importantly, volume/pricing stability seen across companies also provided comfort on the worst being over. Expectations of sequential growth from the next quarter appear firmly set in, despite the companies’ commentary tending on the cautious side. In addition, sharp margin expansion seen across companies also cheered the Street. We remain positive on the improving business momentum for the Indian IT players, but have mixed opinion on the margin expansion reported. We see 1QFY10 as a turning point in the sequential revenue trajectory. However, acceleration in revenue growth will necessitate a sacrifice on margins; we would keenly monitor hiring and investment decisions over the next few months.

Cost cutting the big surprise—sustainable for Tier 1 players but not for others

1QFY10 margin performance of the Indian IT companies drove home two important points—(1) the variable cost structure of the IT services business, and (2) the agile response of the Indian IT companies to the volume slowdown in the industry. Rather ironically, in the middle of a challenging phase for the sector, some of the mid-sized companies reported historically high profitability, and most companies generated robust free cash. What’s not to like about that, one may ask? Our concern emanates from the belief in the long-term growth potential of the industry and need for sustained investments in the front-end S&M as well as back-end delivery organizations to capture the vast opportunity. We see some of the cost optimization measures taken by the mid-sized pack as extreme and do not see 1QFY10 margins as sustainable.

Earnings upgrade to sustain—BFSI and newer verticals to drive growth

Barring a sudden devaluation of the US$ or another financial catastrophe of the ‘sub-prime’ proportions, we expect consistent upgrades in the Street’s earnings estimates, especially for the tier-I companies. This would be driven by greater confidence on acceleration of revenue growth. We expect stable to improving demand from the BFSI segment, and sustained growth momentum in the energy, utilities, retail, and pharma verticals. Telecom will likely remain subdued, though there are incremental growth opportunities in the emerging markets.

Valuations—stocks moving to peak cycle multiples

Belief in the potential of the Indian IT sector appears to be back, as reflected in the sharp expansion in multiples post the earnings releases. While we share the belief, we remain concerned about expectations possibly running ahead of expectations. A 17-18X PE multiple implies 4-5 years of 15% earnings growth followed by a 5-6% growth in perpetuity. While earnings growth at these rates is not improbable, stocks’ already discounting such growth, leaves little room for disappointment on business improvement or execution. We, therefore, continue to back tier-I companies given—(1) lower execution risks and (2) better, well-oiled sales and marketing engine to capture incremental growth opportunities. Infosys and Wipro are our preferred picks.

Technology India

From value to momentum. Indian IT stocks have moved from strong value plays three months back to momentum stocks, banking on consistent upgrades in earnings estimates to sustain prices. We believe that revenue upgrades will consistently accrue over the next 12-months; 1QFY10 results were a good starting point. We recommend Tier 1 plays for the IT recovery story. Stay away from Tier 2 names as revenue recovery is unlikely to materialize; cost rationalization is already played out and reflected in results.

ATTRACTIVE

AUGUST 05, 2009

UPDATE

BSE-30: 15,831

Technology India


Exhibit 1 depicts the 1QFY10 quarterly performance for the tech companies under our coverage

Exhibit 1: June 2009 quarter financial performance of key companies under our coverage

Jun-09 qoq (%) yoy (%) Jun-09E versus est. (%)InfosysRevenues (US$ mn) 1,121 (0.1) (3.0) 1,107 1.3 Revenues (Rs mn) 54,720 (2.9) 12.7 53,876 1.6 EBITDA (Rs mn) 18,680 (1.2) 26.3 16,606 12.5 Net income (Rs mn) 15,270 (4.4) 20.1 13,837 10.4 EBITDA margin (%) 34.1 30.8 331 bpsTCSRevenues (US$ mn) 1,480 3.3 (3.0) 1,429 3.6 Revenues (Rs mn) 72,070 0.5 12.4 69,574 3.6 EBITDA (Rs mn) 19,619 4.4 28.1 17,470 12.3 Net income (Rs mn) 15,203 15.7 22.2 12,938 17.5 EBITDA margin (%) 27.2 25.1 211 bpsWiproRevenues (US$ mn) - Global IT Services 1,033 (1.3) (3.3) 1,032 0.1 Revenues (Rs mn) - Wipro Limited 63,188 (3.5) 6.0 63,340 (0.2) EBIT (Rs mn) 10,903 0.5 11.8 10,465 4.2 Net income (Rs mn) 9,796 1.8 10.8 9,358 4.7 Global IT EBIT margin (%) 21.4 20.2 124 bpsPatniRevenues (US$ mn) 162 3.5 (11.3) 160 1.3 EBIT (US$ mn) 24 51.9 44.5 17 45.2 Net income (US$ mn) 29 91.7 18.7 22 32.9 EBIT margin (%) 15.0 10.2 480 bpsHexawareRevenues (US$ mn) 54 1.9 (20.7) 53 2.1 Revenues (Rs mn) 2,591 (2.0) (8.9) 2,556 1.4 EBITDA (Rs mn) 558 42.3 572.0 344 62.0 Net income (Rs mn) 396 128.8 316.2 133 198.5 EBITDA margin (%) 21.5 13.5 806 bpsPolarisRevenues (US$ mn) 67 (3.2) (12.4) 67 0.2 Revenues (Rs mn) 3,255 (3.5) 2.7 3,238 0.5 EBITDA (Rs mn) 552 (10.6) 42.3 512 7.9 Net income (Rs mn) 318 (0.8) 24.6 322 (1.1) EBITDA margin (%) 17.0 15.8 117 bpsMindTreeRevenues (US$ mn) 62 (7.5) 13.0 66 (6.4) Revenues (Rs mn) 3,048 (9.8) 36.3 3,231 (5.7) EBITDA (Rs mn) 507 (41.4) 8.2 722 (29.8) Net income (Rs mn) 567 201.9 NM 576 (1.6) EBITDA margin (%) 16.6 22.4 -577 bps

Source: Companies, Kotak Institutional Equities estimates

Stability in revenues and sharp expansion in margins the key highlights

Most companies managed to beat expectations moderately on the revenue front and massively on margins in the June 2009 quarter. While favorable cross-currency movements aided reported US$ revenue growth, the underlying trends in volumes (notable was volume growth for TCS) and pricing (constant currency sequential decline was lower than expectations) were comforting. TCS stood out with its 3.3% qoq US$ revenue growth (versus expectation of flat to marginal uptick in revenues), while MindTree disappointed with a 7.5% qoq revenue decline. Sequential (and yoy) expansion in operating margins for most companies was the major positive surprise for the quarter. We discuss this in detail later in the note.

Guidance for 2QFY10E though not fully convincing is on the right track

Exhibit 2 depicts the Sep 2009 quarter guidance from Infosys, Wipro, and Patni. The (1)-+2% sequential US$ revenue growth guidance for the Sep 2009 quarter from these companies does indicate a degree of stability in the business. However, the companies will have to outperform on their guidance to satiate market’s heightened expectations. Unlike some street participants, we expect revenue recovery to be gradual and expect 2-3% sequential US$ revenue growth for the tier-I pack. We find Cognizant’s 3% qoq growth guidance for the Sep 2009 quarter more realistic than Infosys’ and Wipro’s.

1QFY10 RESULTS

REVIEW

India Technology


Exhibit 2: Revenue and EPS guidance for various Indian IT companies for Sep 2009 quarter

ActualsJun-09 Sep-09 qoq (%) yoy (%) Sep-09 qoq (%) yoy (%)

InfosysRevenues (US$ mn) 1,121 1,110 (1.0) (8.7) 1,130 0.8 (7.1)Revenues (Rs bn) 54.7 53.2 (2.8) (1.9) 54.1 (1.1) (0.1)EPS (Rs) 26.7 23.7 (11.2) (5.4) 24.1 (9.6) (3.7)EPADS (US$) 0.55 0.50 (9.1) (10.7) 0.51 (7.3) (8.9)Re/US$ rate 47.9WiproRevenues Combined IT services (US$ mn) (a) 1,033 1,035 0.2 (6.8) 1,053 2.0 (5.1)PatniRevenues (US$ mn) 162 163 0.7 (11.2) 165 1.9 (10.1)Net income (US$ mn) (b) 32.8 22.5 (31.4) (2.7) 23.5 (28.3) 1.6

Note:(a) Global IT services + Wipro Infotech's services business (India + Middle East).(b) Net income for Patni ex-forex gains/losses.

Guidance (lower-end or single point) Guidance (upper-end)

Source: Companies, Kotak Institutional Equities

Pricing performance better than our expectations, reflects impact of most of the renegotiations

Pricing metrics surprised positively again (see Exhibit 3 for the reported pricing trends for Infosys and Wipro). We have long highlighted that the Indian IT companies have been managing the pressure on per capita realizations by moving projects from the traditional T&M structure to more fixed price and other innovative structures. Margins on non-T&M projects are more a function of the company’s execution skills and are relatively insulated from rate card reduction pressure. Exhibit 4 depicts the FPP proportion (% of revenues) trends for the leading companies over the past few quarters. We do highlight that fixed price engagements carry additional risks which can come to the fore and impact profitability if the project is not executed well or the initial pricing/effort assumptions go wrong.

Essentially, all the cost reduction offered to clients need not reflect in the form of lower per capita realization. For example, a T&M contract converted to a FPP with 10% cost of ownership reduction for the client could be managed by the company with 10% fewer resources—this would show up in lower volumes and lower utilization (which impacts margins as well) and not necessarily reflect in lower realization. Another situation could be a pricing discount in the form of a free knowledge transfer for a client; again, this would show up in lower billed man-months (and lower utilization) instead of impacting reported pricing. Thus, some of the volume pressure witnessed by the tier-I Indian IT companies in recent quarters could really be pricing concessions being offered to clients.

Exhibit 3: Per-capita realizations were better than expected in June 2009 quarter

US$/manmonth Jun-09 qoq (%) yoy (%)InfosysOnsite 11,718 2.6 (4.7) Offshore 4,638 0.1 (8.3) WiproOnsite 11,787 1.3 0.1 Offshore 4,302 (2.3) (2.3)

Source: Companies

Technology India


Exhibit 4: Fixed price contracts as percentage of revenues (%)

Quarter ended Jun-07 Sep-07 Dec-07 Mar-08 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09Tata Consultancy Services 42.7 43.7 45.4 44.2 42.8 43.4 45.5 47.1 47.4

Infosys Technologies 27.5 29.8 32.8 33.2 32.8 34.1 36.3 38.3 38.1

Wipro 24.6 26.5 28.5 29.1 30.6 31.6 36.0 38.1 38.4

Cognizant Technology Solutions 24.0 24.0 25.6 26.8 25.7 26.3 27.8 29.1 TBD

Patni Computer Systems 31.9 31.4 34.0 34.4 34.8 36.8 37.8 37.5 39.8

Source: Companies

Operating margins—never underestimate the ability of Indian corporates to cut costs

Sequential (and yoy) expansion in operating margins for most companies was the major positive surprise for the quarter. Relaxed supply side environment, sustained bench reduction, and aggressive S&M and G&A optimization drove margin expansion despite pressure from Rupee appreciation. Among the tier-I companies, TCS and Infosys surprised the most. Hexaware reported historically high margins, which Patni reported its highest margins in the past 10 quarters.

A large part of consensus earnings upgrades, especially for the tier-II companies, was driven by increase in margin assumptions; revenue upgrades were not meaningful relatively. However, we highlight that the dual assumption of revenue recovery and margin sustenance is fraught with risks. A sustained revenue recovery would entail investments into sales and marketing, re-building of bench to manage skill-set mismatches (especially for tier-II companies), and increased travel and communication expenses. We do not see margin sustaining at 1QFY10 levels for most Indian IT companies and accordingly keep our margin forecasts substantially lower than the June 2009 quarter levels. Any Rupee appreciation poses an additional risk.

Benefit of extension of STPI tax benefits to TCS, HCLT and Tier 2 cos

We highlight that a proportion of our FY2011E/CY2010E EPS upgrades for the Indian IT companies has been driven by reduction in tax rate assumptions after the STPI sunset clause was extended for a year to end-March 2011 from end-March 2010 in the latest Finance bill. We note that our FY2011E estimates for the HCLT and Mphasis, who are yet to report, are not adjusted for the revised tax rates yet. TCS, HCLT, and the tier-II pack have been the bigger beneficiaries of the sunset clause extension.

Hiring—Wipro’s numbers matter and they finally had net recruitment

Wipro reported positive net hiring after a headcount decline in three of the past four quarters. We see Wipro’s hiring as a key indicator of the underlying demand environment given that Wipro was the quickest among the tier-I companies to adjust its hiring to the underlying demand trends. We find the continuing decline in the employee headcount of some of the tier-II companies (Patni, Polaris, Hexaware) a source of concern and a question mark on the movement of their order books. As highlighted earlier, this could jeopardize these companies’ ability to participate in the revenue recovery cycle.

India Technology


Valuations—sustenance of expanded multiple depends on companies meeting raised expectations

Exhibit 5 depicts the 12-month forward PE multiples of the tier-I IT companies. Belief in the potential of the Indian IT sector appears to be back, as reflected in the sharp expansion in multiples post the earnings releases. While we share the belief, we remain concerned about expectations possibly running ahead of expectations. A 17-18X PE multiple implies 4-5 years of 15% earnings growth followed by a 5-6% growth in perpetuity. While earnings growth at these rates is not improbable, stocks’ already discounting such growth, leaves little room for disappointment on business improvement or execution. We, therefore, continue to back tier-I companies given—(1) lower execution risks and (2) better, well-oiled sales and marketing engine to capture incremental growth opportunities. Infosys and Wipro are our preferred picks.

Exhibit 5: 12-month roll forward PE chart for Infosys, Wipro, and TCS

12 month forward rolling P/E Chart

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Source: Bloomberg, Kotak Institutional Equities estimates

Technology India


Kotak Institutional Equities: Valuation summary of key Indian technology companies

4-Aug-09 EPS (Rs) PER (X) EV/EBITDA (X) EV/Sales (X)Company Price (Rs) Rating (Rs m) (US$ m) 2009E 2010E 2011E 2009E 2010E 2011E 2009E 2010E 2011E 2009E 2010E 2011EHCL Technologies 252 REDUCE 175,453 3,675 16.2 13.1 17.0 15.6 19.3 14.9 8.6 8.5 8.1 1.8 1.7 1.6Hexaware Technologies 74 REDUCE 10,616 222 4.1 8.1 8.7 18.0 9.1 8.5 6.2 3.7 3.6 0.7 0.7 0.6Infosys Technologies 2,044 BUY 1,173,113 24,570 102.4 102.5 112.8 20.0 19.9 18.1 14.7 14.1 11.9 4.9 4.6 3.8Mindtree 456 BUY 18,761 393 13.2 37.0 43.9 34.4 12.3 10.4 5.9 8.5 6.5 1.6 1.5 1.3Mphasis BFL 497 REDUCE 103,567 2,169 14.2 38.9 33.5 35.1 12.8 14.8 26.6 9.2 8.7 5.4 2.4 2.1Patni Computer Systems 369 REDUCE 47,360 992 26.8 33.8 36.7 13.7 10.9 10.0 6.6 4.9 4.6 1.1 1.0 0.9Polaris Software Lab 124 SELL 12,263 257 13.1 13.8 12.9 9.5 9.0 9.6 3.8 4.6 4.8 0.6 0.6 0.6TCS 530 ADD 1,037,610 21,732 26.4 30.5 33.8 20.0 17.4 15.7 14.0 12.4 10.9 3.6 3.3 2.9Wipro 482 ADD 705,269 14,772 25.7 27.5 32.0 18.7 17.6 15.1 13.8 12.3 10.1 2.7 2.5 2.1

Technology Neutral 3,284,011 68,782 19.4 17.7 15.9 13.5 12.0 10.5 3.3 3.0 2.6

KS universe (b) 35,719,317 748,127 17.8 16.4 13.6 11.5 9.8 8.3 1.7 1.7 1.5

Target O/S shares EPS growth (%) Net Profit (Rs mn) EBITDA (Rs mn) Sales (Rs mn)Company Price (mn) 2009E 2010E 2011E 2009E 2010E 2011E 2009E 2010E 2011E 2009E 2010E 2011EHCL Technologies 135 695 6.0 (19.0) 29.5 12,106 10,024 12,345 21,756 21,927 22,370 103,194 108,565 116,448Hexaware Technologies 60 144 (46.4) 97.1 7.4 590 1,162 1,248 1,289 1,895 1,706 11,520 10,369 10,818Infosys Technologies 1,900 574 29.6 0.1 10.1 58,800 58,842 64,764 71,950 72,578 82,472 216,930 224,584 259,090Mindtree 500 41 (50.5) 179.5 18.5 496 1,523 1,806 3,309 2,258 2,765 12,375 12,504 14,016Mphasis BFL 335 208 15.7 174.5 (13.9) 2,954 8,109 6,979 3,868 11,004 11,049 19,065 41,311 45,754Patni Computer Systems 320 129 (19.3) 26.1 8.6 3,636 4,347 4,722 5,188 6,381 6,229 31,633 31,826 33,184Polaris Software Lab 80 99 76.0 5.4 (6.4) 1,294 1,364 1,278 2,335 1,878 1,778 13,779 13,228 13,890TCS 510 1,957 3.1 15.2 10.8 51,753 59,636 66,094 71,781 78,178 85,983 278,129 290,492 324,565Wipro 520 1,462 15.8 6.6 16.6 37,635 40,132 46,806 50,559 54,322 62,860 254,564 263,660 303,733Technology 14.7 9.4 11.3 169,263 185,140 206,041 232,035 250,422 277,212 941,188 996,540 1,121,497

KS universe (b) 1.4 8.5 20.4

Note

(a) HCL Technologies is June fiscal year-ending

(b) Patni Computers Systems and Hexaware Technologies are December year-ending.

Mkt cap.



CTSH 2QCY09 results—continues outperforming peers

Exhibit 1 summarizes the 2QCY09 results of CTSH. CTSH continued the trend of outperforming peers on revenue growth reporting 4.1% qoq and 13.3% yoy growth in US$ revenues. We highlight that CTSH has consistently outperformed peers on revenue growth over the past several quarters (see Exhibit 2) and its 3QCY09 revenue guidance reaffirms the continuation of the trend. Non-GAAP EBIT margin expanded 60 bps qoq to 20.8%. Bulk of the margin expansion was driven by lower SG&A expenses. The company generated cash of US$175 mn during the quarter taking its end-June 2009 cash balance to US$1.14 bn.

Raises CY2009 revenue guidance; 3QCY09 guidance better than peers

CTSH raised its CY2009 revenue growth guidance to at least 11.5% yoy from at least 10% earlier. The company has guided for revenues of US$800 mn for 3QCY09, implying a 3% qoq and 9% yoy growth. Implied 4QCY09 revenues of US$818 mn imply a 2.2% qoq growth, conservative in our view, given the improving demand dynamics.

Read-through for the sector—clear improvement in demand environment

CTSH’s 2QCY09 revenue performance, CY2009 guidance raise, and CTSH management’s commentary on steady performance across verticals and pricing stability indicate a definitive improvement in offshore IT services demand. We have long argued that a sequential uptick in demand was contingent on improvement in pace of decision making rather than an uptick in the global economy. Contrary to the cautious management commentary of Infosys and Wipro, we believe the pace of decision making has improved and expect revenue recovery to begin in the Sep 2009 quarter. In this light, we believe that CTSH’s 3QCY09 revenue growth guidance of 3% qoq is more realistic than Infosys’ (-1% to +1%) and Wipro’s (0.2% to 2%) and see scope for some outperformance.

Recent expansion in multiples does limit upside from current levels, though

Belief in the potential of the Indian IT sector appears to be back (and not without reason), as reflected in the sharp expansion in multiples post the earnings releases. While we share the belief, we remain concerned about expectations possibly running ahead of expectations. A 17-18X PE multiple implies 4-5 years of 15% earnings growth followed by a 5-6% growth in perpetuity. While earnings growth at these rates is not improbable, stocks’ already discounting such growth, leaves little room for disappointment on business improvement or execution. We, therefore, continue to back tier-I companies given—(1) lower execution risks and (2) better, well-oiled sales and marketing engine to capture incremental growth opportunities. Infosys and Wipro are our preferred picks.

Technology India

Cognizant (CTSH) 2QCY09 results—reaffirm improving demand dynamics. CTSH reported strong results for the June 2009 quarter. Revenue growth of 4.1% qoq beat consensus expectations by ~1%. The company also raised its CY2009 revenue guidance to at least 11.5% yoy growth (from 10% earlier). Performance was steady in financial services and strong across other verticals; guidance for 3QCY09 is a robust 3% qoq and appears more realistic than Infosys’ and Wipro’s. We remain positive on tier-I names.

ATTRACTIVE

AUGUST 05, 2009

UPDATE

BSE-30: 15,831

QUICK NUMBERS

• CTSH beats consensus revenue estimates by 1%; reports 4% sequential growth

• Raises CY2009 revenue growth guidance to at least 11.5% from at least 10% earlier

• Performance steady across verticals

Technology India


Exhibit 1: Cognizant interim results (US$ mn)

2QCY08 1QCY09 2QCY09 % qoq % yoyRevenues 685.4 745.9 776.6 4.1 13.3 Cost of revenues (380.9) (419.7) (433.3) 3.2 13.8 SG&A expenses (167.1) (166.9) (170.0) 1.9 1.7 EBITDA 137.5 159.3 173.2 8.8 26.0 Depreciation and amortization (17.8) (21.2) (21.6) 2.0 21.4 EBIT 119.7 138.1 151.7 9.8 26.7 Other income 4.4 (2.6) 17.5 PBT 124.1 135.5 169.2 24.9 36.4 Provision for taxes (20.2) (22.4) (27.9) 24.8 38.2 PAT 103.9 113.1 141.3 24.9 36.0

Margins (%)EBITDA 20.1 21.4 22.3 EBIT 17.5 18.5 19.5 Net income 15.2 15.2 18.2

Tax rate (%) 16.3 16.5 16.5

Source: Company

Exhibit 2: Cognizant continues to outperform peers on revenue growth

Sep-07 Dec-07 Mar-08 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 Sep-09E (a)Revenues (US$ mn)Infosys 1,022 1,084 1,142 1,156 1,218 1,171 1,122 1,121 1,143 Wipro 858 979 1,032 1,068 1,110 1,100 1,046 1,033 1,049 TCS 1,392 1,488 1,517 1,525 1,574 1,483 1,433 1,480 1,492 Cognizant 559 600 643 685 735 753 746 777 800 qoq growth (%)Infosys 10.1 6.1 5.4 1.2 5.3 (3.8) (4.2) (0.1) 2.0 Wipro 10.1 14.2 5.4 3.5 4.0 (0.9) (4.9) (1.3) 1.6 TCS 9.8 6.9 1.9 0.5 3.2 (5.8) (3.4) 3.3 0.8 Cognizant 8.2 7.4 7.2 6.6 7.2 2.5 (1.0) 4.1 3.0 yoy growth (%)Infosys 37.0 32.1 32.5 24.5 19.2 8.0 (1.8) (3.0) (6.1) Wipro 37.0 29.4 12.4 1.4 (3.3) (5.5) TCS 43.1 37.2 29.0 20.3 13.1 (0.4) (5.5) (3.0) (5.2) Cognizant 48.0 41.4 39.7 32.7 31.5 25.5 16.0 13.3 8.9

Note:(a) KIE estimates for Infosys, Wipro and TCS; actual point guidance for Cognizant.


India Technology


Exhibit 3: Strong sequential revenue performance driven by Healthcare and Retail verticals

Jun-08 Mar-09 Jun-09 qoq (%) yoy (%)Revenues (US$ mn)Financial Services 314 331 332 0.4 5.9 Healthcare 165 189 204 7.8 24.2 Retail/Mft/Logistics 107 123 133 7.9 24.2 Others 100 102 107 4.9 7.1 Total 685 746 777 4.1 13.3

% of revenuesFinancial Services 45.8 44.4 42.8 Healthcare 24.0 25.4 26.3 Retail/Mft/Logistics 15.6 16.5 17.1 Others 14.6 13.7 13.8 Total 100.0 100.0 100.0

Source: Company


Margin trend was mixed; timing of lending rate reduction impacted 1QFY10 margins for pubic banks

The trend in margin movement was mixed for most public banks and depended on the timing of the lending rate reduction. Deposit re-pricing (retail deposits are now getting re-priced at 200-300bps lower) benefits are likely to accrue more significantly from 2QFY10E onwards. Companies like Bank of Baroda, Union Bank of India and Bank of India had reduced their lending rates effective from first week of April 2009 and this impacted their margins in 1QFY10. Similarly most other banks like SBI, Canara Bank, Indian Bank, IOB delayed their reduction of lending rates, resulting in stable / improving margins on a sequential basis in 1QFY10. These banks have reduced their lending rates effective from first week of July or last week of June; thus we expect 2QFY10E margins to increase marginally for these banks despite the benefits on deposit repricing. Smaller public banks like Andhra Bank and Corporation Bank fared better on NIM front compared to their bigger peers.

Amongst private banks, margins were stable for Axis Bank (benefiting from wholesale deposit re-pricing), while ICICI Bank and HDFC Bank witnessed a sequential margin decline as their high yielding loans declined. We expect the margins of banks to improve over the next few quarters as the loan demand improves and leads to a hardening of rates.

Reported asset quality remains healthy as of now

One of the key positives of 1QFY10 resutls was the movement on asset quality front. Most banks witnessed steady trends on NPLs, with both gross and net NPLs not changing much. Retail NPLs, on the uncollateralized front continued to rise for ICICI Bank and HDFC Bank. The fears on corporate health reduced further during the quarter on back of a somewhat improving economy and ability of many corporates to raise equity. Many bank managements’ highlighted that the SME sector continues to remain under some stress, especially companies related to the export sector where delinquencies are expected to rise.

But restructured assets increased sharply for few banks

While reported NPLs remained stable, restructured assets for most public banks and Axis Bank increased sharply. Restructured assets for PNB especially were very high at Rs50 bn (against pending proposals of Rs6 bn, as of March 2009). Restructured asses for most other public banks also increased, but were largely in the range of what were the pending approvals at the end of March 2009. Companies like State Bank of India, Indian Bank, Bank of Baroda did surprise positively on asset quality. ICICI Bank witnessed a reduction in restructured assets as some of the restructured assets were upgraded during the quarter.

Banks/Financial Institutions India

Core performance better than expected, treasury income boosts earnings. Net profits of most banks increased by 20-100% in 1QFY10 aided by treasury income and moderate operational performance. Margin pressure was visible for most public banks, though somewhat better than expected. Restructured assets continued to rise (sharply in few cases), but reported NPLs were low. Valuations appear expensive, but earnings could provide upside if asset quality performance is better than expected. We prefer SBI, Axis Bank, PNB, BOB and Union Bank amongst banks, Shriram Transport Finance amongst NBFCs while larger caps like ICICI Bank and HDFC Bank may underperform.

ATTRACTIVE

AUGUST 05, 2009

UPDATE

BSE-30: 15,831

QUICK NUMBERS

• Banks reported 20-100% growth in earnings

• Valuations are expensive, but earnings could surprise positively on back of lower NPLs

• Reiterate preference for select public banks, Axis Bank amongst private banks and Shriram Transport amongst non-banks

India Banks/Financial Institutions


NIM declined for most public banks, private banks were better in stemming decline in NIM NIM and yoy growth in NII, March fiscal year-ends, 1QFY09-1QFY10 (%)

NIM (%) NII yoy growth (%)

1QFY09 2QFY09 3QFY09 4QFY10 1QFY10 1QFY09 2QFY09 3QFY09 4QFY10 1QFY10

Public banksAndhra Bank 2.9 3.4 3.4 2.6 2.9 1.2 31.6 27.5 15.3 20.4 Bank of Baroda 2.8 2.8 3.3 2.9 2.4 5.8 7.9 46.6 43.0 7.9 Bank of India 2.6 2.8 3.0 2.7 2.3 24.7 38.3 44.4 17.8 10.1 Canara Bank 2.6 2.7 2.8 2.8 2.7 14.0 46.0 33.2 41.7 26.7 Corporation Bank 2.4 2.4 2.5 2.4 2.3 1.6 8.7 43.2 6.4 23.7 Indian Bank 3.2 3.9 3.9 3.3 3.6 10.0 46.4 28.1 30.1 36.7 IOB 2.8 2.9 2.9 2.6 2.7 2.0 28.1 28.6 13.1 16.4 OBC 2.1 2.4 2.4 1.9 1.8 0.8 30.6 41.1 5.3 8.4 PNB 3.3 3.8 3.9 3.6 3.4 4.8 25.3 38.1 25.7 28.9 State Bank of India (a) 3.0 3.2 3.2 2.9 2.3 14.7 45.0 35.3 0.9 4.3 Union Bank 2.9 3.5 3.7 2.8 2.3 10.3 48.6 50.0 20.1 (1.0)

Old private banksFederal Bank 3.9 4.4 4.4 4.3 3.3 46.4 60.8 85.2 15.9 2.8 J&K Bank 3.1 3.4 3.3 3.0 3.0 19.3 33.9 30.2 11.7 17.6

New private banksAxis Bank 3.4 3.5 3.1 3.4 3.3 92.1 55.2 24.4 24.6 29.0 HDFC Bank 4.1 4.2 4.3 4.2 4.1 65.4 52.8 31.1 12.8 7.7 ICICI Bank # 2.4 2.4 2.4 2.6 2.4 41.3 20.2 1.6 2.9 (5.0)

Note. (a) SBI reports YTD NIM and hence is not comparable qoq


Banks that deferred reducing their PLR were able to lower decline in NIM Chronological order of the change in PLR over the past one-year

SBI Bank of Baroda PNB Indian Bank Bank of IndiaDate Rate (%) Date Rate (%) Date Rate (%) Date Rate (%) Date Rate (%)

27-Jun-08 12.75 11-Aug-08 14.00 01-Jul-08 13.00 10-Aug-08 13.25 1-Jul-08 14.00 12-Aug-08 13.75 01-Aug-08 14.00 10-Nov-08 13.00 10-Nov-08 13.25 01-Dec-08 12.50 10-Nov-08 13.25 11-Jun-08 13.25

1-Jan-09 12.25 1-Jan-09 12.50 01-Jan-09 12.00 1-Jan-09 12.50 1-Jan-09 12.50 28-Jun-09 11.75 1-Apr-09 12.00 01-Feb-09 11.50 1-Jul-09 12.00 1-Apr-09 12.00

01-May-09 11.00

Source: Companies



Incremental loan growth continues to remain sluggish Incremental deposits and loans of companies under coverage, March fiscal year-ends, 1QFY08-1QFY10 (Rs bn)

Incremental deposits Incremental loans

1QFY08 4QFY08 1QFY09 2QFY09 4QFY10 1QFY10 1QFY08 4QFY08 1QFY09 2QFY09 4QFY10 1QFY10

Public banks

Andhra Bank (7) 55 (3) 13 56 10 (5) 32 (5) 24 24 5

Bank of Baroda (25) 151 29 62 238 62 (54) 112 45 83 168 (13)

Bank of India 24 142 92 50 180 53 17 111 81 64 86 31

Canara Bank 7 98 23 152 121 68 (38) 87 27 94 93 24

Corporation Bank 9 62 (7) 55 121 (19) 4 47 (2) 46 36 (11)

Indian Bank 27 77 12 24 29 41 6 35 43 36 14 2

IOB 15 55 7 58 92 7 7 64 24 63 41 11

OBC 5 37 54 41 70 43 (3) 41 7 51 34 25

PNB 27 138 66 132 127 92 (10) 180 (51) 160 132 33

State Bank of India 141 273 245 579 492 215 25 265 264 502 387 4

Union Bank 18 46 34 87 91 52 1 16 - 107 53 (22)

Old private banks

Federal Bank (7) 26 10 (5) 49 (5) (2) 14 14 10 8 9

J&K Bank (5) 21 (1) 25 18 (16) 3 6 12 12 2 (3)

New private banks

Axis Bank 23 191 13 139 117 (71) 0 18 1 (5) 26 (7)

HDFC Bank 133 14 301 29 (21) 29 69 (80) 334 54 1 49

ICICI Bank 3 146 (99) (111) 93 (81) 24 101 (15) (22) 58 (202)


Reported asset quality remains healthy across banks under coverage Reported gross and net NPLs of banks, March fiscal year-ends, 1QFY09-1QFY10

Gross NPLs (Rs bn) Gross NPLs (%) Net NPLs (Rs bn) Net NPLs (%)1QFY09 2QFY09 4QFY09 1QFY10 1QFY09 2QFY09 4QFY09 1QFY10 1QFY09 2QFY09 4QFY09 1QFY10 1QFY09 2QFY09 4QFY09 1QFY10

Public banksAndhra Bank 3.9 3.7 3.7 3.6 1.2 1.0 0.8 0.8 0.4 0.9 0.8 1.0 0.1 0.2 0.2 0.2 Bank of Baroda 20.9 19.5 18.4 20.7 1.9 1.6 1.3 1.6 5.8 5.0 4.5 3.8 0.5 0.4 0.3 0.3 Bank of India 20.2 19.8 24.7 27.9 1.6 1.5 1.7 1.9 6.3 6.1 6.3 12.3 0.5 0.5 0.4 0.8 Canara Bank 14.5 15.7 21.7 24.6 1.3 1.3 1.6 1.7 9.4 10.6 15.1 18.1 0.9 0.9 1.1 1.3 Corporation Bank 5.8 6.0 5.6 6.1 1.5 1.4 1.1 1.3 1.4 1.8 1.4 1.5 0.4 0.4 0.3 0.3 Indian Bank 4.2 4.7 4.6 4.7 1.0 0.9 0.9 0.9 0.8 1.0 0.9 2.1 0.2 0.2 0.2 0.4 IOB 11.0 17.3 19.2 23.4 1.7 2.5 2.5 3.0 4.7 10.0 10.0 12.0 0.8 1.4 1.3 1.6 OBC 12.2 11.8 10.6 11.5 2.2 1.9 1.5 1.6 5.3 5.2 4.4 5.0 1.0 0.9 0.7 0.7 PNB 32.6 31.2 27.7 28.6 2.8 2.4 1.8 1.8 7.1 5.4 2.6 3.0 0.6 0.4 0.2 0.2 State Bank of India 114.1 125.5 155.9 153.2 2.5 2.5 2.8 2.8 63.0 66.2 95.5 84.0 1.4 1.3 1.8 1.6 Union Bank 15.8 16.7 19.2 18.7 2.1 1.9 2.0 2.0 1.1 1.2 3.3 6.8 0.2 0.1 0.3 0.7 Old private banksFederal Bank 5.5 5.7 5.9 6.3 2.6 2.6 2.6 2.7 0.9 0.9 0.7 0.7 0.5 0.4 0.3 0.3 J&K Bank 4.8 4.9 5.6 5.1 2.3 2.3 2.6 2.4 1.9 2.1 2.9 1.6 1.0 1.0 1.4 0.8 New private banksAxis Bank 6.4 7.1 9.0 9.2 0.9 0.9 1.0 1.0 3.3 3.4 3.3 3.7 0.5 0.4 0.4 0.4 HDFC Bank 15.0 16.8 19.9 21.6 1.5 1.6 2.0 2.1 5.0 5.8 6.3 6.6 0.5 0.6 0.6 0.6 ICICI Bank 92.8 102.7 99.3 97.0 4.1 4.6 4.5 4.9 41.0 43.0 46.2 46.7 1.8 1.9 2.1 2.4

Total 379.6 409.3 450.9 462.2 2.3 2.3 2.3 2.4 157.3 168.4 204.1 208.8 1.0 1.0 1.1 1.1QoQ (%) increase (1.0) 7.8 6.1 2.5 (0.6) 7.1 14.4 2.3




Restructured assets range between 4.5-8% of loan book for most public banks Quantum of restructured loans as of June 2009

Loan proposals (Rs b Total

Restructured Gross NPLs Net NPLs(Restructured + proposals +

net NPLs)Public banksAndhra Bank 23.6 5.3 3.6 1.0 24.6 5.5 BorrowerBoB 42.0 2.9 20.7 3.8 45.8 3.2 FacilityBoI 67.0 4.5 27.9 12.3 79.3 5.4 BorrowerCanara Bank 55.0 3.9 24.6 18.1 73.1 5.2 BorrowerCorporation Bank 23.5 5.0 6.1 1.5 25.0 5.3 BorrowerIndian Bank 41.0 7.9 4.7 2.1 43.1 8.3 BorrowerIOB 70.0 9.1 23.4 12.0 82.0 10.7 BorrowerOBC 55.0 7.7 11.5 5.0 60.0 8.4 BorrowerPNB 94.0 6.0 32.6 3.0 97.0 6.1 FacilitySBI 210.0 3.8 153.2 84.0 294.0 5.4 FacilityUnion Bank 56.0 5.8 18.7 6.8 62.8 6.5 Borrower

New private banksAxis Bank 25.2 3.2 9.2 3.7 28.9 3.7 FacitliyHDFC Bank 1.2 0.1 21.6 6.6 7.8 0.8 FacilityICICI Bank 34.0 1.7 97.0 46.7 80.7 4.1 Facility

As % of loan book

As % of loan book

Nature of Restructruing


Banks made significantly higher loan loss provisions (compared to past year) in the current quarter Loan loss provisions of companies, MArch fiscal year-ends, 1QFY09-1QFY10 (Rs mn)

1QFY09 2QFY09 3QFY09 4QFY09 1QFY10Public banksAndhra Bank 362 457 320 921 380 Bank of Baroda 581 620 1,040 2,030 3,171 Bank of India 1,440 800 2,070 1,920 1,780 Canara Bank 1,550 1,530 3,570 2,500 2,160 Corporation Bank 320 530 540 400 600 Indian Bank 112 - 330 - 1,400 IOB 450 1,250 1,100 1,900 820 OBC 600 334 685 708 1,000 PNB 571 2,459 4,253 2,337 2,730 State Bank of India (2,111) 10,930 5,151 11,953 12,482 Union Bank (510) 2,400 1,660 2,700 2,860 Old private banksFederal Bank 286 1,510 1,340 516 932 J&K Bank 126 113 132 626 800 New private banksAxis Bank 667 1,390 2,750 2,730 3,700 HDFC Bank 3,244 3,373 4,654 6,000 6,300 ICICI Bank 7,925 8,680 10,080 10,845 11,237


Non-interest income was very strong – driven largely by treasury

Non-interest income was the key earnings driver for almost all banks, as treasury income remained fairly strong during the quarter. Most banks booked significant treasury gains (25-40% of PBT) as they benefited from lower yields at the short end. Incremental deposits growth has exceeded the incremental loan growth in the past few quarters leading to an increase in the investments book of banks. Thus, a larger quantum of treasury book and positive yield movement helped banks to report strong treasury profits. Buoyant equity markets also aided treasury profits in the quarters. Fee income trends were mixed with most public banks reported steady growth. Private banks also benefited substantially on this count in 1QFY10, treasury income of HDFC Bank was Rs2.6 bn (30% of PBT), ICICI Bank had Rs7.1 bn of trading profits (59% of PBT) and Axis Bank booked Rs3.3 bn of income under this head (38% of PBT).



Treasury profits contributed 25-40% of PBT for most banks in the quarter Quantum of treasury profits and as % of PBT, March fiscal year-ends, 1QFY09-1QFY10

Treasury profits (Rs mn) Treasury profits as % of PBT1QFY09 2QFY09 3QFY09 4QFY09 1QFY10 1QFY09 2QFY09 3QFY09 4QFY09 1QFY10

Public banksAndhra Bank (10) (80) 670 1,624 1,280 (1.2) (3.6) 19.3 66.0 36.4 Bank of Baroda 890 923 4,180 3,009 2,554 15.3 15.3 39.3 27.5 24.4 Bank of India 683 180 4,350 2,240 2,400 9.4 1.9 28.5 21.9 27.6 Canara Bank (219) 35 3,440 3,490 282 (13.5) 0.6 39.9 38.0 4.0 Corporation Bank 45 237 1,234 2,909 1,854 2.0 8.0 28.6 62.7 44.5 Indian Bank 239 30 1,095 578 1,029 8.9 0.7 22.7 9.5 20.2 IOB (1,740) 580 3,626 3,170 340 (57.7) 13.7 52.2 59.2 7.6 OBC 610 780 1,851 1,569 2,363 41.6 35.6 55.4 34.1 64.6 PNB 120 720 3,410 2,384 3,585 1.6 6.9 21.0 18.1 28.3 State Bank of India 2,228 1,616 6,740 15,089 7,088 9.2 4.5 15.7 38.7 20.2 Union Bank 80 (380) 980 2,270 2,090 2.5 (7.7) 10.9 36.1 35.0 Old private banksFederal Bank (83) (70) 640 343 579 (10.2) (4.8) 19.1 14.8 25.6 J&K Bank 260 53 58 406 668 14.7 3.3 3.3 26.4 37.9 New private banksAxis Bank 1,110 362 1,140 1,660 3,260 22.0 5.8 14.7 18.8 37.9 HDFC Bank (776) (156) 2,321 2,436 2,560 (11.4) (2.0) 25.1 26.7 29.8 ICICI Bank (5,940) (1,530) 9,760 2,140 7,140 (64.5) (11.2) 55.4 20.0 59.2

Source: Companies, Kotak Institutional Equities

Most banks had sluggish growth in their non-treasury revenues. PNB, Union Bank and SBI were the exceptions yoy growth in non-treasury income (ex-treasury), March fiscal year-ends, 1QFY09-1QFY10 (%)

1QFY09 2QFY09 3QFY09 4QFY09 1QFY10Public banksAndhra Bank 2.7 16.6 35.0 (7.6) (8.0) Bank of Baroda 44.0 17.2 17.3 16.8 5.7 Bank of India 57.7 56.6 40.4 (5.2) (18.5) Canara Bank 7.8 (9.6) (12.9) (18.9) 14.1 Corporation Bank 28.8 5.6 28.8 4.5 13.6 Indian Bank 33.3 15.9 (26.1) (13.6) 12.7 IOB 195.9 29.3 36.9 40.2 36.8 OBC 6.5 36.8 20.0 41.0 7.7 PNB 17.8 64.2 72.9 32.2 37.7 State Bank of India 38.5 35.7 24.3 27.3 31.1 Union Bank 17.2 55.7 29.3 8.5 49.6 Old private banksFederal Bank 26.7 63.8 50.6 10.9 (14.4) J&K Bank (2.2) (23.3) (29.4) 30.4 25.9 New private banksAxis Bank 89.2 105.8 53.1 32.9 23.1 HDFC Bank 27.3 51.0 29.2 61.9 17.4 ICICI Bank 21.5 7.0 (28.3) (33.6) (35.5)


Public banks maintained better growth rates compared to private peers

In line with the industry trend, loan growth was slow for most banks during the quarter. Industry recorded a growth of 4% over March 2009 levels. Most public banks reported a 1-2% growth qoq. ICICI Bank witnessed a sharp 9% qoq decline in loan book; even Axis Bank reported a 8%decline in its loan book in contrast to the trend of the past few quarters. Credit growth generally remains sluggish during from April – July period and tends to pick-up during the later half of the fiscal. We currently model 15-16% loan growth in FY2010E.



Public banks continue to maintain better loan growth compared to private banks yoy growth in loans, March fiscal year-ends, 1QFY09-1QFY10 (%)

1QFY09 2QFY09 3QFY09 4QFY09 1QFY10Public banksAndhra Bank 23.0 19.5 34.2 28.6 31.8Bank of Baroda 42.1 32.4 33.2 34.9 28.3Bank of India 38.8 35.0 31.3 26.1 20.3Canara Bank 16.1 25.1 30.8 28.9 27.9Corporation Bank 28.3 33.3 30.4 23.8 21.6Indian Bank 48.1 47.0 37.5 28.8 16.7IOB 30.4 35.8 31.3 24.2 21.2OBC 24.2 30.4 28.1 24.8 27.8PNB 19.6 28.6 39.4 29.5 38.1State Bank of India 30.4 37.5 29.1 30.2 22.5Union Bank 19.1 26.2 25.2 29.5 26.6Old private banksFederal Bank 38.3 31.6 23.4 18.4 14.7J&K Bank 15.7 17.5 13.1 10.8 2.7New private banksAxis Bank 37.7 52.6 52.2 49.2 33.8HDFC Bank 79.8 64.1 38.4 55.9 7.2ICICI Bank 13.0 7.2 (1.4) (3.2) (11.6)


Better loan growth by public banks is leading to a higher market share for these entities Market share of various bank groups, (%)

Jul-08 Jul-09Public banks 70.3 73.7 Private banks 20.3 18.2 Foreign banks 7.1 5.7

Note:Data for public banks includes RRBs.

Source: RBI

Public banks have made high ad-hoc provisions for wages; private banks report better cost/income ratios

Most public banks made provisions for their likely liabilities on account of the wage negotiations that are currently underway between the IBA and employee unions. Earlier these provisions have been based on an assumption of 13-17% hike in wages for employees. However, during this quarter, most banks have revised their wage hike assumption to 17-18%, which resulted in somewhat higher employee provisions during the quarter.



Operating expenses growth was high for public banks. HDFC Bank and ICICI Bank were reported a decline in operating costs yoy growth in operating expenses, March fiscal year-ends, 1QFY09-1QFY10 (%)

1QFY09 2QFY09 3QFY09 4QFY09 1QFY10Public banksAndhra Bank 3.4 16.0 28.9 33.2 27.7 Bank of Baroda 12.4 3.4 32.2 32.7 16.7 Bank of India 3.7 18.3 22.4 23.2 26.4 Canara Bank 3.3 0.8 9.0 26.0 16.8 Corporation Bank (0.3) (5.6) 39.2 17.4 43.8 Indian Bank 3.4 (0.5) (4.0) 6.9 32.1 IOB 29.8 44.0 39.5 54.5 46.7 OBC 24.3 31.2 82.0 (3.4) 9.3 PNB 4.7 11.4 20.7 41.8 37.5 State Bank of India 9.4 16.6 36.7 32.0 51.0 Union Bank (2.0) 34.6 33.2 126.1 30.6 Old private banksFederal Bank 15.3 24.8 36.3 11.8 31.7 J&K Bank 16.3 11.0 10.2 29.3 14.2 New private banksAxis Bank 50.3 44.2 33.6 11.7 30.8 HDFC Bank 66.5 69.4 39.1 26.6 7.1 ICICI Bank 0.5 (11.7) (18.5) (22.9) (19.2)


PAT growth ranged between 20-100% in the current quarter yoy growth in PAT, March fiscal year-ends, 1QFY09-1QFY10 (%)

1QFY09 2QFY09 3QFY09 4QFY09 1QFY10Public banksAndhra Bank (45.0) 6.8 33.7 61.9 230.1 Bank of Baroda 12.1 20.8 41.4 172.3 84.8 Bank of India 78.3 79.4 77.4 7.2 4.0 Canara Bank (49.0) 31.8 52.9 55.2 353.0 Corporation Bank 4.1 18.7 34.4 26.7 41.8 Indian Bank 2.6 14.3 14.1 63.1 52.4 IOB (4.7) 12.3 26.0 5.4 17.9 OBC 58.4 35.4 82.1 (296.9) 16.8 PNB 20.5 31.3 85.8 59.2 62.4 State Bank of India 15.1 40.2 37.0 45.6 42.0 Union Bank 1.4 31.1 84.0 (10.8) 93.7 Old private banksFederal Bank 1.8 19.9 98.1 11.0 100.1 J&K Bank 58.0 7.5 10.5 31.5 (11.0) New private banksAxis Bank 120.1 76.9 63.2 60.9 70.3 HDFC Bank (2.6) 43.3 44.8 33.9 30.5 ICICI Bank (6.0) 1.2 3.4 (35.3) 20.6

Source: Companies



Our earnings estimates for most large banks has marginally increased, while smaller banks have seen larger earnings upgrades Current and prior EPS estimates, March fiscal year-ends, 2010-2011E (Rs)

Prior EPS estimates Current EPS estimates % change2010E 2011E 2010E 2011E 2010E 2011E

Public banksAndhra Bank 10.7 12.0 13.3 15.2 24.0 26.5 Bank of Baroda 55.7 60.2 60.9 62.1 9.4 3.1 Bank of India 46.3 53.2 51.5 56.2 11.3 5.7 Canara Bank 37.5 44.8 41.4 51.1 10.4 14.0 Corporation Bank 51.5 55.3 58.0 57.1 12.7 3.2 Indian Bank 25.2 28.5 27.6 30.2 9.4 6.0 Indian Overseas Bank 17.4 23.9 19.7 25.4 13.5 6.3 Oriental Bank of Commerce 26.7 32.4 29.1 31.5 9.0 (2.7) Punjab National Bank 98.5 115.1 100.7 115.2 2.2 0.1 State Bank of India 121.3 139.2 129.8 149.1 7.0 7.1 Union Bank 30.1 36.1 32.4 35.4 7.8 (1.9) Old private banksFederal Bank 31.4 38.2 34.3 39.9 9.4 4.3 J&K Bank 80.8 95.4 86.6 96.3 7.1 0.9 New private banksAxis Bank 56.1 66.6 59.1 68.2 5.3 2.5 HDFC Bank 61.5 75.0 63.3 73.5 3.0 (2.0) ICICI Bank 32.1 38.3 34.3 40.4 6.9 5.4


High fiscal deficit may lead to hardening of rates in 2HFY10

The fiscal deficit of the government of India at 6.8% of GDP in FY2010E is likely to lead to hardening of interest rates in 2HFY10. An improvement in loan demand and/or sharp improvement in the balance of payments position (BoP) may lead to a hardening of rates in the system. Our calculations indicate that the interest rates in the system may not harden significantly provided the money supply grows at 20% yoy, BoP surplus is around US$40 bn and loans grow at 20% yoy —refer our report “Foreign flows could be too much of a good thing; be selective” (dated June 28,2009) for details.

Loan growth of NBFCs in line with estimates, traction in mortgages is a positive surprise

Most NBFCs under coverage reported moderate loan growth – in line with our expectations. Auto finance companies (Shriram Transport Finance and Mahindra Finance) reported low traction during the quarter though we maintain a positive outlook for the 2HFY10 when demand is likely to pick up. Nevertheless, monsoons remain a key variable that could impact their loan demand. Disbursement trends in infrastructure finance companies were mixed; we anyway believe that it is inaccurate to track disbursements on a quarterly basis as their business tends to be lumpy. The turnaround in mortgages was a positive surprise- LIC Housing Finance reported sharp 60% growth in disbursements. HDFC has also guided for pick-up in retail approvals though loan growth of non-retail segment has been faster over the last 2-3 quarters.

NBFCs pass on lower interest rates; delay in loan resets helps infrastructure finance companies

Most NBFC seems to be gradually passing on the benefit of lower interest rates to their consumers as shown by a qoq decline in margins. Infrastructure finance companies (PFC and REC) have not fully passed on the benefit of lower borrowing rates to their consumers and continue to report higher than long-term margins. We expect the traction to continue for next few quarters.



Key trends and observations on the quarterly results of NBFCs

Stocks Earnings Loan growth Margins NPLsHousing Finance companies

HDFC

PAT up 21%- in line with estimates; higher-than-expected capital gains and dividend income,core PBT below estimates

Moderate disbursements growth- 20%, share of non-retail loans increasing in overall loan book Reported spreads stable

Infrastructure finance companies

IDFC

PAT up 26% yoy and significantly above estimates supported by equity market linked income- investment banking fees and capital gains; core fees above estimates

Growth subdued in 1QFY10, outlook positive over the medium term as credit rating is no longer an impediment Marginally below 4QFY10

PFC

Core PBT up 38% due to expansion in margins and loan growth; MTM gains on forex and lower tax provisions pushed reported earnings In line with expectations

Better-than-expected margins, positive traction will likely continue over next few quarters

REC

PBT up 47% yoy due to 33% loan growth and improvement in margins; lower tax provisions pushed reported earnings

Somewhat above expectations-33% yoy

Better-than-expected margins, positive traction will likely continue over the next few quarters

NPLs were low, decline to negligible levels in June 2009 -0.03%

Srei Infrastructure Finance Reported earnings largely supported by forex gains

Sharp growth in infrastructure finance loan book

Decline in margins in the JV business is a concern

Lower collection efficiency in April and May but improvement in June; NPL ratios stable qoq

Auto finance NBFCs

Mahindra Finance PAT above estimates due to lower-than-expected provisions Disbursement growth low at 8%

Margins down qoq due to lower interest rates on new loans, higher NPLs

15% qoq rise; trend in monsoon remains crucial

Shriram Transport Finance PAT in lineModerate growth, in line with expectations

Margins down qoq, capital infusion will support margins over the next few quarters

Gross NPL ratio rise marginally, net NPLs decline - incremental slippages are low but existing delinquent accounts are likely finding it difficult to repay overdues; hence NPLs are showing up


Asset quality pressure may resurface due to delay in sharp macro improvements

Most NBFCs reported qoq rise in NPL which is likely a seasonal trend. The increase was sharp in case of LIC Housing Finance (up 50% qoq) though the overall gross NPL ratio remains low (below 2%). The macro business environment has clearly improved from 3QFY09. However, delay in sharp turnaround in the macro-environment (pick up in demand) may result in aging of delinquent accounts and push reported NPLs (as customers find the difficult to meet their overdues) though current slippages are low.

We studied the trends of current and overdue collection efficiency of the securitized loan pools originated by Shriram Transport Finance and rated by Fitch Ratings. The company’s current collection efficiency (current collections/ current month bills) has been somewhat stable in since January 2009 (i.e. since the business scenario stabilized). However, the overdue collection efficiency (overdues collected/overdues at the beginning of the month) is deteriorating, even in the past few months when the market had begun to stabilize. This implies that the overdue/ delinquent clients are finding it difficult to repay their dues even as standard category clients remain disciplined.



Current collection efficiency appears stable Overdue collection efficiency is declining Current collection efficiency of STFC's ABS pools,August 2008- April 2009 (%) Overdue collection efficiency of STFC's ABS pools, August 2008- April 2009 (%)

Pool No. Name of the pool Pool No. Name of the pool 1 STFCL - DA Program March 2009-2 6 STFCL's New CV Jan 20092 STFCL's Mixed CV - December 2008 7 STFCL's New CV Dec 20083 ILSS 2 Trust 2009 8 STFCL's Tractor September 20084 Nuvo V Trust 9 STFCL's Used CV September 20085 STFCL's New CV March 2009 10 Small Operators Trust 2008

11 STFCL- Assignment of loan receivables program 2007

60

70

80

90

100

Aug

-08

Sep-

08

Oct

-08

Nov

-08

Dec

-08

Jan-

09

Feb-

09

Mar

-09

Apr

-09

1 2 3 4 5 6 7

8 9 10 11

60

70

80

90

100

Aug

-08

Sep-

08

Oct

-08

Nov

-08

Dec

-08

Jan-

09

Feb-

09

Mar

-09

Apr

-09

1 2 3 4 5 6

7 8 9 10 11

Source: Fitch ratings

Valuations appear to be expensive for most banks Key valuation parameters, March fiscal year-ends,2009-2011E

Price(Rs) Market cap. EPS (Rs) PER (X) BVPS (Rs) PBR (X) RoE (%)

Reco. 4-Aug-09 US $bn 2009 2010E 2011E 2009 2010E 2011E 2009 2010E 2011E 2009 2010E 2011E 2009 2010E 2011EPublic banksAndhra Bank BUY 105 91 0.9 13.5 13.3 15.2 6.7 6.8 6.0 75 85 95 1.2 1.1 1.0 18.9 16.6 16.9BoB ADD 480 433 3.3 60.9 60.9 62.1 7.1 7.1 7.0 310 360 411 1.4 1.2 1.1 18.7 15.0 14.5BoI ADD 370 334 3.7 57.2 51.5 56.2 5.8 6.5 5.9 224 267 314 1.5 1.2 1.1 29.2 19.0 18.7Canara Bank ADD 295 285 2.5 50.5 41.4 51.1 5.6 6.9 5.6 245 277 316 1.2 1.0 0.9 18.3 12.0 13.1Corporation Bank BUY 420 352 1.1 62.2 58.0 57.1 5.7 6.1 6.2 341 386 429 1.0 0.9 0.8 19.6 14.3 13.8Indian Bank BUY 185 145 1.3 28.0 27.6 30.2 5.2 5.2 4.8 128 150 174 1.1 1.0 0.8 23.9 19.9 17.9IOB BUY 140 89 1.0 24.3 19.7 25.4 3.7 4.5 3.5 109 127 149 0.8 0.7 0.6 22.1 12.6 15.4OBC REDUCE 190 178 0.9 36.1 29.1 31.5 4.9 6.1 5.6 242 265 289 0.7 0.7 0.6 13.7 8.8 10.0PNB BUY 800 707 4.7 98.0 100.7 115.2 7.2 7.0 6.1 417 494 582 1.7 1.4 1.2 23.0 19.9 20.1SBI BUY 1,870 1,857 24.7 143.7 129.8 149.1 12.9 14.3 12.5 913 1,007 1,119 2.0 1.8 1.7 17.1 12.7 13.3

SBI incl. banking subs BUY 1,870 1,612 21.4 178.7 158.3 177.8 9.0 10.2 9.1 1,122 1,243 1,386 1.4 1.3 1.2 17.3 13.4 13.7SBI (core banking business) BUY 1,870 1,434 19.1 137.9 123.3 149.6 10.4 11.6 9.6 836 930 1,042 1.7 1.5 1.4 17.9 14.0 15.2

Union Bank BUY 280 234 2.5 34.2 32.4 35.4 6.8 7.2 6.6 140 167 196 1.7 1.4 1.2 27.2 19.8 20.1Old private banksFederal Bank BUY 320 239 0.9 27.8 34.3 39.9 8.6 7.0 6.0 253 280 311 0.9 0.9 0.8 11.5 12.9 13.0J&K Bank BUY 550 459 0.5 84.5 86.6 96.3 5.4 5.3 4.8 541 607 681 0.8 0.8 0.7 16.7 15.1 14.9New private banksAxis Bank BUY 850 895 6.7 50.6 59.1 68.2 17.7 15.2 13.1 285 330 382 3.1 2.7 2.3 19.1 18.3 18.9HDFC Bank REDUCE 1,430 1,469 13.1 52.8 63.3 73.5 27.8 23.2 20.0 354 471 528 4.2 3.1 2.8 16.9 15.3 15.1ICICI Bank REDUCE 685 764 17.8 33.8 34.3 40.4 22.6 22.2 18.9 445 466 491 1.7 1.6 1.6 7.8 7.1 8.0

ICICI standalone REDUCE 685 557 13.0 30.7 30.9 36.6 18.1 18.0 15.2 331 338 354 1.7 1.6 1.6 9.2 9.2 10.6Non-banksIDFC ADD 110 139 3.8 5.8 7.7 8.7 24.0 17.9 15.9 48 54 61 2.9 2.6 2.3 12.9 15.4 15.3India Infoline ADD 145 141 0.8 5.1 7.7 8.2 27.6 18.3 17.1 55 57 61 2.6 2.4 2.3 10.8 15.3 15.5Mahindra Finance ADD 250 245 0.4 22.4 26.7 28.8 10.9 9.2 8.5 154 172 193 1.6 1.4 1.3 15.4 16.4 15.8Power Finance Corporation SELL 160 232 5.6 13.0 18.0 20.0 17.9 12.9 11.6 102 114 127 2.3 2.0 1.8 13.4 16.7 16.6Shriram Transport ADD 350 300 1.1 30.1 33.9 37.8 10.0 8.9 7.9 114 132 156 2.6 2.3 1.9 29.6 28.0 26.3Srei Infrastructure finance ADD 95 69 0.2 7.0 7.5 6.8 9.8 9.3 10.2 97 103 108 0.7 0.7 0.6 12.5 10.3 10.2

Rural Electrification Corp. BUY 190 197 3.5 16.5 19.6 21.3 12.0 10.0 9.2 83 99 115 2.4 2.0 1.7 21.2 21.5 19.9

Target price (Rs)

Source: Companies, Bloomberg, Kotak Institutional Equities estimates



Financial sector stocks have underperformed the market in the past one month Absolute and relative market performance, (%)

Price (Rs) 1 month 3 month 6 month 12 month Ytd 1 month 3 month 6 month 12 month YtdPublic banksAndhra Bank 91 12.9 60.5 71.1 54.5 64.6 6.4 23.0 (0.6) 42.2 0.3Bank of Baroda 433 (1.2) 32.6 76.0 55.8 54.7 (6.9) 1.6 2.3 43.4 (5.7)Bank of India 334 (5.0) 44.8 38.4 15.3 16.3 (10.5) 11.0 (19.6) 6.2 (29.1)Canara Bank 285 3.9 37.4 58.3 42.5 51.7 (2.1) 5.3 (8.0) 31.2 (7.5)Corporation Bank 352 8.1 57.5 96.7 30.0 86.2 1.9 20.7 14.3 19.7 13.4Indian Bank 145 0.8 39.2 29.4 36.6 5.7 (5.0) 6.7 (24.8) 25.8 (35.6)Indian Overseas Bank 89 1.6 31.1 51.6 (2.6) 24.0 (4.3) 0.5 (11.9) (10.3) (24.4)Oriental Bank of Commerce 178 (3.3) 31.2 34.1 9.9 15.4 (8.9) 0.6 (22.0) 1.2 (29.7)Punjab National Bank 707 1.9 40.5 76.4 43.8 34.3 (4.1) 7.7 2.5 32.4 (18.2)SBI 1,857 2.6 36.0 69.4 23.0 44.1 (3.3) 4.2 (1.6) 13.2 (12.2)Union Bank of India 234 (8.1) 35.8 61.3 66.7 43.7 (13.4) 4.1 (6.2) 53.5 (12.5)Old private banksFederal Bank 239 (3.6) 25.5 68.5 14.5 47.6 (9.2) (3.8) (2.0) 5.4 (10.1)J&K Bank 459 (6.0) 39.0 48.3 (10.8) 29.3 (11.5) 6.5 (13.8) (17.9) (21.2)New private banksAxis Bank 895 2.4 46.8 126.4 26.7 77.3 (3.5) 12.5 31.6 16.7 8.0HDFC Bank 1,469 (3.1) 22.5 65.8 32.5 47.1 (8.7) (6.1) (3.6) 22.0 (10.3)ICICI Bank 764 1.1 44.1 95.9 19.2 70.4 (4.7) 10.5 13.9 9.8 3.8Non-banksHDFC 2,505 (3.2) 27.5 74.1 5.5 68.5 (8.8) (2.3) 1.2 (2.8) 2.7IDFC 139 (4.0) 62.4 157.5 41.0 108.2 (9.6) 24.5 49.7 29.8 26.9Indiainfoline 141 7.5 70.7 230.5 0.6 176.6 1.3 30.8 92.1 (7.4) 68.6LIC Housing Finance 614 (6.0) 69.7 198.9 89.4 166.5 (11.5) 30.1 73.7 74.4 62.4MMFS 245 (8.4) 17.1 24.9 (0.4) (3.3) (13.7) (10.3) (27.4) (8.3) (41.1)PFC 232 11.1 38.9 71.3 73.8 74.3 4.7 6.4 (0.4) 60.1 6.2Shriram Transport 300 (2.2) 29.4 59.7 (3.4) 53.9 (7.9) (0.8) (7.2) (11.1) (6.2)SREI 69 (12.3) 65.3 113.7 (36.4) 78.3 (17.4) 26.7 24.2 (41.4) 8.6Rural Electrification Corp. 197 15.0 80.5 126.5 120.3 169.8 8.3 38.3 31.6 102.8 64.4

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

Source: Bloomberg, Kotak Institutional Equities estimates


Industrials revenues disappoint led by products/ industry segment; some signs of revival visible

Industrials segment aggregate revenues were about 10% below our estimates led by lower-than-expected revenues of L&T, Suzlon, ABB and Siemens (see exhibit 1). Highlight that slowdown in L&T, Siemens and ABB was primarily led by the industrials segment. Along with weak demand environment, companies also highlighted pricing pressure in this segment (partially absorbed by softening of commodity prices). We believe that, apart from BHEL, margins in the sector are likely to remain capped at current levels.

However we highlight that some signs of revival were seen during the quarter. Siemens reported inflow growth of 12.5% post 20% decline seen in previous quarter. L&T has also recently reported certain large order inflows from the oil & gas and power segment. ABB also reported a sequential revenue growth across all segments. Order momentum also picked up for Thermax and domestic market of Cummins.

We prefer L&T, Crompton, BGR Energy and Siemens

In the industrial segment we prefer L&T, Crompton, BGR Energy and Siemens. We believe that L&T is a better play on likely revival of capex activity versus BHEL along with upside from the power business. We prefer Crompton over other T&D players led by relatively to lower valuation and resilient business led by diversity of exposure. We are positive on BGR Energy based on relatively attractive valuations and likely pick up of execution of large EPC orders. We upgrade our rating on Siemens with a target price of Rs515/share. We are more positive on Siemens versus ABB based on some revival seen in order inflow activity in Siemens, relatively stronger performance in recent quarters and no issue of cash flow working capital etc faced in the last few quarters. We were disappointed by the weak results of Suzlon energy and highlight near-term uncertainty regarding industry and company-specific issues. Key catalyst to the stock price include order inflow announcements, Hansen stake sale, further visibility on debt reduction and cash generation from operations.

Construction revenues affected by state elections; prefer Punj Lloyd and IVRCL

Construction segment revenues were below estimates led by disappointing revenues in IVRCL and Nagarjuna (see exhibit 20). The lower revenues in these companies were primarily led by ongoing state elections. We are positive on the construction sector play based on (1) potential valuation of infrastructure and real estate assets, (2) potential earnings upgrades with new order inflows, (3) lower interest cost led by decline in borrowing rates, (4) higher-than-expected execution, positive long-term prospects for infrastructural investments and (5) relatively attractive valuations.

In the construction sector, we prefer Punj Lloyd and IVRCL. Punj Lloyd remains our top preference in the sector based on relatively attractive valuations, belief that all negative have already been built in to the stock price and strong order backlog. We are positive on IVRCL based on likely strong earnings growth and positive long term outlook for infrastructural investments.

Industrials India

Bright outlook post dim quarter; but valuations discount that. Industrials segment aggregate revenues were below estimates led by weak industrial demand. Companies also highlighted pricing pressure in this segment (partially absorbed by decline in commodity prices). Highlight visible pick up in order booking activity in some companies versus previous slow quarter. We prefer L&T, Crompton, BGR Energy and Siemens in the industrials space and Punj and IVRCL in the construction space.

NEUTRAL

AUGUST 05, 2009

UPDATE

BSE-30: 15,831

India Industrials


Industrials: Revenues disappoint led by products/ industry segment

Exhibit 1: Industrials segment 1QFY10 results - key numbers (Rs mn)

Jun-09 Jun-09E Jun-08 Mar-09 vs est. yoy qoq CommentsBharat Heavy Electricals

Net sales 55,957 54,047 43,292 105,401 3.5 29.3 (46.9) EBITDA 5,162 6,714 3,737 16,963 (23.1) 38.1 (69.6)

EBITDA margin 9.2 12.4 8.6 16.1 PBT 7,187 8,710 5,903 20,945 (17.5) 21.7 (65.7) PAT-reported 4,706 5,662 3,844 13,475 (16.9) 22.4 (65.1)

Larsen & ToubroNet sales 73,627 86,035 69,014 104,670 (14.4) 6.7 (29.7) EBITDA 7,863 8,388 6,574 14,489 (6.3) 19.6 (45.7)

EBITDA margin 10.7 9.8 9.5 13.8 PBT 8,514 8,373 7,551 15,813 1.7 12.8 (46.2)

PAT 5,783 5,610 5,024 11,404 3.1 15.1 (49.3) Extraordinaries 10,199 - - (1,439) PAT-reported 15,982 5,610 5,024 9,965 184.9 218.1 60.4

ABBNet sales 15,148 18,309 16,303 13,931 (17.3) (7.1) 8.7 EBITDA 1,379 2,151 2,042 1,271 (35.9) (32.5) 8.5

EBITDA margin 9.1 11.8 12.5 9.1 PBT 1,284 2,122 2,019 1,203 (39.5) (36.4) 6.8 PAT-reported 836 1,379 1,318 784 (39.4) (36.6) 6.7

SiemensNet sales 19,177 20,724 18,097 23,830 (7.5) 6.0 (19.5) EBITDA 2,571 2,280 2,546 3,489 12.8 1.0 (26.3)

EBITDA margin 13.4 11.0 14.1 14.6 PBT 2,568 2,286 2,620 3,429 12.4 (2.0) (25.1)

PAT 1,669 1,486 1,694 2,255 12.4 (1.5) (26.0) Extraordinaries 1,701 - - - PAT-reported 3,370 1,486 1,694 2,255 126.8 98.9 49.4

Suzlon EnergyNet sales 11,650 22,000 20,866 57,110 (47.0) (44.2) (79.6) EBITDA (1,730) 3,190 3,022 3,160 (154.2) (157.2) (154.7)

EBITDA margin (14.8) 14.5 14.5 5.5 PBT (4,550) 261 1,761 1,900 (1,843.1) (358.4) (339.5) PAT (4,440) 204 1,409 2,260 (2,280.7) (415.1) (296.5) Extraordinaries (180) - (2,298) 600 (92.2) (130.0) PAT-reported (4,610) 204 (889) 2,810 (2,364.2) 418.7 (264.1)

Crompton GreavesNet sales 21,975 23,342 20,348 24,600 (5.9) 8.0 (10.7) EBITDA 2,476 2,451 2,083 3,287 1.0 18.9 (24.7)

EBITDA margin 11.3 10.5 10.2 13.4 PBT 2,299 2,150 1,794 3,075 6.9 28.1 (25.2) PAT-reported 1,605 1,419 1,227 1,940 13.1 30.8 (17.3)

BGR Energy SystemsNet sales 3,111 4,567 3,068 7,183 (31.9) 1.4 (56.7) EBITDA 422 468 312 836 (9.8) 35.5 (49.5)

EBITDA margin 13.6 10.3 10.2 11.6 PBT 307 373 263 707 (17.8) 16.5 (56.6) PAT-reported 202 246 172 470 (17.8) 17.4 (56.9)

Bharat ElectronicsNet sales 9,106 4,642 3,922 27,352 96.2 132.2 (66.7) EBITDA 916 (43) (242) 8,068 NA NA (88.6)

EBITDA margin 10.1 (0.9) (6.2) 29.5 PBT 1,073 261 46 8,233 311.0 2,252.1 (87.0) PAT-reported 727 180 25 5,594 303.7 2,786.3 (87.0)

KIE industrials sector totalNet sales 209,750 233,666 194,911 364,076 (10.2) 7.6 (42.4) EBITDA 19,060 25,599 20,073 51,562 (25.5) (5.0) (63.0) EBITDA margin 9.1 11.0 10.3 14.2 (17.1) (11.8) (35.8) PBT 18,681 24,536 21,956 55,305 (23.9) (14.9) (66.2) PAT 11,088 16,186 14,715 38,181 (31.5) (24.6) (71.0) Extraordinaries 11,720 - (2,298) (839) (610.0) (1,497.4) PAT-reported 22,818 16,186 12,416 37,292 41.0 83.8 (38.8)

- Revenues about 10% below estimates led by lower-than-expected revenues in L&T, Suzlon, ABB and Siemens - Margins decline by about 120 bps yoy led by negative EBITDA in Suzlon and decline in margins in ABB and Siemens

- Revenues significantly below estimates- Revenue decline led by power systems segment probably due to withdrawal from RGGVY projects - Margins also decline significantly by about 340 bps yoy

- Revenues miss estimates led by lower-than-expected revenues from the 2 large EPC contracts - Expect sharp pick up from 2Q onwards

- Strong revenue growth led by spill over revenues from 4Q - Company increasing emphasis on having mode balanced revenues over the four quarters

Change (%)

- Revenues broadly in line - Margins miss estimates led by higher-than-expected raw material and employee expenses - Benefit from commodity price declines likely to kick in from 2Q onwards

- Results beat estimates led by higher-than-expected operating margin and lower interest expense - Growth and margin expansion led by power segment; industry segment continues to see a slowdown

- Revenue slowdown led by industrials segment - Margin expansion led by higher proportion of projects crossing the margin recognition threshold during the quarter - Exceptional income of Rs10.2 bn from sale of ready mix concrete business

- Very low sales volume of 123 MW leads to significant decline in revenues- Margin adversely affected due to low volumes as well as higher proportion of project business

- Revenues disappoint led by slowdown in industrials segment- Higher-than-expected margins of 13.4% offset disappointing revenues- Net-term revenue growth/ order inflows likely to be driven by power segment


Industrials India


BHEL: Highlight stronger business outlook, valuations remain expensive

Strong revenue growth of 29% yoy, broadly in line with our estimates, was primarily driven by the power segment. Some weakness was witnessed in industrials segment with sedate yoy revenue growth and margin decline. The margins of BHEL were below our estimates led by higher-than-expected raw material and employee expenses. We had built in partial effect of decline in commodity prices to affect margins. The management highlighted that this impact would be seen from 2Q onwards (led by inventory of about 8-9 months) which would lead to a margin expansion of about 200 bps.

The management increased its revenue growth guidance to 25% (from about 20% earlier) and order inflow guidance to Rs550 bn (from Rs500 bn) for FY2010E. Highlight that recent large order wins in the private sector is a key positive development considering the increasing role of private sector players in the XIIth plan onwards. The company also faces reduced competition from the Chinese players due to likely licensing restriction for supplying supercritical equipment in India and favorable currency movement.

Retain REDUCE rating

We have a REDUCE rating on the stock based on (a) high valuations, (b) upcoming domestic competition, (c) potential for underperformance versus peers as economic outlook improves and (d) margin expansion from commodity and employee expenses is already priced-in.

Exhibit 2: BHEL 1QFY10 result - key numbers (Rs mn)

1QFY10 1QFY10E 1QFY09 4QFY09 1QFY10E 1QFY09 4QFY09 FY2010E FY2009 % chgNet revenues 55,957 56,104 43,292 105,401 (0.3) 29.3 (46.9) 330,023 262,342 25.8 (Inc)/Dec in WIP 301 (144) 1,722 (309.1) (82.5) 11,515 (100.0) Raw material cost (35,753) (32,540) (25,179) (69,227) 9.9 42.0 (48.4) (193,196) (171,204) 12.8 Staff cost (11,137) (9,500) (8,953) (14,075) 17.2 24.4 (20.9) (46,820) (41,128) 13.8 Other items (4,206) (6,732) (5,280) (6,858) (37.5) (20.3) (38.7) (29,216) (23,511) 24.3 Total Expenditure (50,795) (48,773) (39,555) (88,438) 4.1 28.4 (42.6) (269,233) (224,328) 20.0 EBITDA 5,162 7,331 3,737 16,963 (29.6) 38.1 (69.6) 60,790 38,014 59.9 Other income 3,029 3,095 2,917 5,072 (2.1) 3.8 (40.3) 13,928 14,124 (1.4) PBIDT 8,190 10,426 6,655 22,035 (21.4) 23.1 (62.8) 74,718 52,138 43.3 Interest (43) (29) (26) (81) 49.9 67.2 (47.1) (114) (307) (62.8) Depreciation (961) (1,006) (726) (1,008) (4.5) 32.4 (4.7) (4,026) (3,343) 20.4 PBT 7,187 9,391 5,903 20,945 (23.5) 21.7 (65.7) 70,578 48,489 45.6 Tax (2,481) (3,287) (2,059) (7,471) (24.5) 20.5 (66.8) (25,055) (17,103) 46.5 PAT 4,706 6,104 3,844 13,475 (22.9) 22.4 (65.1) 45,523 31,385 45.0

Key ratios (%)Raw material/ Sales 63.4 58.0 58.5 64.0 58.5 60.9 Staff cost/ Sales 19.9 16.9 20.7 13.4 14.2 15.7 Other exp/ Sales 7.5 12.0 12.2 6.5 8.9 9.0 EBITDA margin 9.2 13.1 8.6 16.1 18.4 14.5 PBDIT margin 14.6 18.6 15.4 20.9 22.6 19.9 Effective tax rate 34.5 35.0 34.9 35.7 35.5 35.3

Order detailsOrder backlog 1,240,000 950,000 1,207,075 30.5 2.7 1,311,405 1,207,075 8.6 Order inflow 90,921 134,297 164,054 (32.3) (44.6) 538,305 597,000 (9.8)

% chg


India Industrials


Exhibit 3: BHEL 1QFY10 segmental result - key numbers (Rs mn)

1QFY10 1QFY09 4QFY09 1QFY09 4QFY09 FY2010E FY2009 % chgSegmental revenues Power 45,688 35,087 86,079 30.2 (46.9) 274,468 213,444 28.6 Industry 13,325 12,851 27,161 3.7 (50.9) 87,637 72,495 20.9

Revenue mix (%)Power 77.4 73.2 76.0 75.8 74.6 Industry 22.6 26.8 24.0 24.2 25.4

EBIT margin (%)Power 18.1 18.7 20.1 18.1 Industry 12.2 14.1 21.5 16.8

% chg


Larsen & Toubro: Sedate results, may make up for it in 2H

Revenues disappointed at Rs73.6 bn, about 14% below our estimates, led by products segment which reported a significant yoy revenue decline of 31%. The management highlighted that all businesses within the segment witnessed a slowdown in the domestic and overseas geographies. The revenue disappointment was offset by higher-than-expected margins of 10.7%. The margin expansion led by (1) larger proportion of orders crossing the margin recognition threshold and (2) cost control mechanisms.

L&T reported sedate order inflows of Rs95.7 bn, down 22% yoy, in 1Q. However the management maintained its guidance of 25-35% growth in order inflows in FY2010E and expects strong pick up in ordering activity from 2H onwards. Highlight that L&T has recently won a large order worth Rs53 bn for Mumbai High Offshore Projects from ONGC. Highlight risk to working capital levels led by higher dependence on public sector orders.

Revise earnings estimates led by higher order booking assumption

We have increased our earnings estimates to Rs60.7 and Rs75.4 from Rs60.1 and Rs71.7 for FY2010E and FY2011E respectively. Our earnings revision is based on higher order booking assumption for FY2010E led by recent large order wins, higher other income assumption and changes related to updated FY2009 balance sheet.

Reiterate ADD with a revised target price of Rs1,525/share

We revise our SOTP-based target price on the stock to Rs1,525/share from Rs1,425 earlier comprised of (1) Rs1,188 from the core construction business based on 18X FY2011E expected earnings, (2) Rs103 from L&T’s service subsidiaries , (3) Rs82 from the manufacturing subsidiaries, (4) Rs104 from infrastructure SPVs and (5) Rs61 from other subsidiaries.

We retain ADD rating based on (1) improving economic outlook in terms of demand reflected in bounce back in commodity prices as well as financing environment reflected in progress of financial closures of several projects, (2) stable political structure that has potential to catalyze infrastructural investments, (3 strong investments in capacity and capability enhancement that would open new growth vistas such as power equipment, nuclear, defense and (4) strong balance sheet and cash flows that enable L&T to capture opportunities in various areas including infrastructure development.

Industrials India


Exhibit 4: Change in earnings estimates of L&T, March fiscal year-ends, 2010E and 2011E (Rs mn)

Target price (Rs)Rating

FY2010E FY2011E FY2010E FY2011EConsolidatedRevenues 481,428 597,615 466,457 582,371Operating profit 64,809 79,033 64,833 77,571Operating profit margin (%) 13.5 13.2 13.9 13.3Profit before tax 51,441 63,295 51,232 61,020Profit after tax 35,796 44,715 35,880 43,008EPS (Rs) 60.7 75.4 60.1 71.7Order booking 611,976 703,772 605,784 696,652Order backlog 964,524 1,224,312 959,570 1,215,643Growth (%)Revenues 18.9 24.1 15.2 24.8Operating profit 31.3 21.9 31.4 19.6Profit before tax 18.0 23.0 17.5 19.1Profit after tax 21.9 24.9 22.2 19.9EPS 21.1 24.3 20.0 19.3Order booking 18.6 15.0 17.4 15.0StandaloneRevenues 409,692 511,846 407,900 507,143Operating profit 46,793 57,827 47,520 57,872Operating profit margin (%) 11.4 11.3 11.6 11.4Profit before tax 46,303 56,396 45,512 54,738Profit after tax 31,949 38,913 31,403 37,769EPS (Rs) 54.2 65.7 52.6 63.0Growth (%)Revenues 20.8 24.9 20.2 24.3Operating profit 22.1 23.6 24.0 21.8Profit before tax 17.5 21.8 15.5 20.3Profit after tax 17.9 21.8 15.9 20.3EPS 134.3 21.2 127.6 19.7

Old estimates1,525ADD

1,425ADD

New estimates

Source: Kotak Institutional Equities estimates

Exhibit 5: FY2011E-based Sum of The Parts (SOTP) valuation of Larsen and Toubro Earnings/Book FY11 multiple Valuation basis Stake Value Per share

(Rs bn) (X) (%) (Rs bn) (Rs)Core company valuation 38,913 18.0 P/E 100 700 1,188 Key subsidiaries - services 15,124 61 103 L&T Finance 11,755 1.8 P/B 100 21 35 L&T Infotech 3,369 12.0 P/E 100 40 69 Key subsidiaries - manufacturing 4,073 49 82 Tractor Engineers 161 13.0 P/E 100 2 4 Associate companies* 3,912 13.0 P/E 50 29 50 Power equipment JVwth MHI N.A. DCF 51 17 28 Infrastructure SPVs 30,989 2.5 P/B 79 61 104 Other subsidiaries 14,482 2.5 P/B 100 36 61 Total subsidiaries 206.9 351 Grand total 907 1,539

Source: Kotak Institutional Equities estimates

India Industrials


ABB: Risk to earnings estimates in context of high valuations

ABB reported disappointing results at the revenues as well as margin level. The revenue decline was led by the power systems revenues probably due to company’s withdrawal from the RGGVY projects. The segment also reported a significant EBIT margin decline possibly led by lower operating leverage and other project specific issues. However, highlight that the company has reported a sequential improvement in revenues across all segments. The low net income for the quarter was also partially affected by forex losses of about Rs170-180 mn in 1QFY10 which was not present in 1Q09.

ABB reported new order inflows of Rs21 bn in 2QCY09 (down 4.4% yoy) primarily led by the power segment. Highlight that, based on company announcements on BSE, ABB has announced orders to the tune of Rs11.3 bn since April 2009, all from the power segment. Order inflows in the near term are also likely to be driven by the power segment with industrial capex continuing to remain muted.

Retain REDUCE rating with a revised target price of Rs660/share

We reiterate our REDUCE rating on the stock with a revised FY2011E P/E multiple-based target price of Rs660/share from Rs565/share earlier. The target price change is led by a change in multiple to 21X from 18X earlier. Highlight that (a) stock has quoted at premium to L&T and BHEL and we are currently ascribing 18X multiple, (b) average one year forward P/E multiple has been about 23-24 over the last five years and (c) as visibility in investment activity improves (already partly visible from stability in order inflows) multiples would tend towards long-term average.

Exhibit 6: ABB - 2QCY09 - key numbers (Rs mn)

2QCY09 2QCY09E 2QCY08 1QCY09 2QCY09E 2QCY08 1QCY09 1HCY09 1HCY08 % chgSales 15,148 18,309 16,303 13,931 (17.3) (7.1) 8.7 29,080 31,656 (8.1) Expenses (13,769) (16,158) (14,261) (12,660) (14.8) (3.4) 8.8 (26,429) (27,887) (5.2) Stock (142) 198 (64) (171.5) 120.4 (206) 316 RM (10,517) (11,736) (9,698) (10.4) 8.4 (20,215) (22,883) (11.7) Employee (1,085) (1,015) (886) 6.9 22.5 (1,971) (1,985) (0.7) Other Exp (2,025) (1,708) (2,012) 18.5 0.7 (4,037) (3,336) 21.0 EBITDA 1,379 2,151 2,042 1,271 (35.9) (32.5) 8.5 2,651 3,769 (29.7) Other income 110 178 73 143 (38.0) 50.7 (22.9) 253 258 (2.0) PBIDT 1,489 2,329 2,115 1,414 (36.1) (29.6) 5.3 2,904 4,028 (27.9) Interest (80) (98) (8) (103) (17.9) 872.7 (22.1) (184) (36) 403.4 Depreciation (125) (109) (88) (109) 14.3 41.7 14.8 (234) (171) 36.2 PBT 1,284 2,122 2,019 1,203 (39.5) (36.4) 6.8 2,487 3,820 (34.9) Tax (448) (743) (701) (419) (39.7) (36.1) 6.9 (867) (1,325) (34.6) Net profit 836 1,379 1,318 784 (39.4) (36.6) 6.7 1,620 2,495 (35.1)

Key ratios (%)RM / Sales 70.4 70.8 70.1 70.2 71.3 Empl / Sales 7.2 6.2 6.4 6.8 6.3 OE / Sales 13.4 10.5 14.4 13.9 10.5 EBITDA margin 9.1 11.8 12.5 9.1 9.1 11.9 PBIDT Margin 9.8 12.7 13.0 10.2 10.0 12.7 PBT Margin 8.5 11.6 12.4 8.6 8.6 12.1 Tax rate 34.9 35.0 34.7 34.8 34.9 34.7 PAT Margin 5.5 7.5 8.1 5.6 5.6 7.9

Order detailsOrder booking 21,116 22,086 23,033 (4.4) (8.3) 44,149 49,040 (10.0) Order backlog 76,223 67,769 70,315 12.5 8.4 76,223 67,769 12.5

% chg


Industrials India


Exhibit 7: ABB 2QCY09 segmental results - key numbers (Rs mn)

2QCY09 2QCY08 1QCY09 2QCY08 2QCY09 1HCY09 1HCY08 %chgRevenuesPower Products 5,017 5,130 4,259 (2.2) 17.8 9,276 9,392 (1.2) Power Systems 4,643 5,321 4,472 (12.8) 3.8 9,114 10,443 (12.7) Automation Products 4,043 3,953 3,844 2.3 5.2 7,887 7,903 (0.2) Process Automation 2,922 2,844 2,355 2.7 24.1 5,277 5,797 (9.0) Others 191 275 147 (30.5) 30.1 339 386 (12.3) Total 16,816 17,523 15,077 (4.0) 11.5 31,893 33,922 (6.0) Unallocated 69 190 - (63.9) 69 343 (80.0) Less Intersegmentt (1,736) (1,337) (1,016) 29.8 70.8 (2,752) (2,351) 17.1 Net Sales 15,148 16,376 14,061 (7.5) 7.7 29,209 31,914 (8.5) PBITPower Products 679 622 541 9.1 25.5 1,220 1,170 4.2 Power Systems 133 343 280 (61.1) (52.4) 413 798 (48.2) Automation Products 224 584 282 (61.6) (20.4) 506 980 (48.4) Process Automation 300 314 306 (4.6) (2.1) 606 735 (17.6) Others 25 19 (11) 34.8 (337.2) 15 28 (47.3) Total 1,361 1,882 1,398 (27.7) (2.6) 2,759 3,712 (25.7) (Add)/ Less - Interest (80) (8) (103) 872.7 (22.1) (184) 20 (1,020.5) Other unallocated exp. 3 145 (92) (97.7) (103.7) (89) 146 (160.8) Total PBT 1,284 2,019 1,203 (36.4) 6.8 2,487 3,820 (34.9) EBIT Margin (%)Power Products 13.5 12.1 12.7 13.1 12.5 Power Systems 2.9 6.4 6.3 4.5 7.6 Automation Products 5.5 14.8 7.3 6.4 12.4 Process Automation 10.3 11.0 13.0 11.5 12.7 Others 13.3 6.8 (7.3) 4.3 7.2

% chg

Source: Company, Kotak Institutional Equities

Siemens: Earnings probably boosted by one-offs

Siemens reported a revenue growth of 6% yoy about 7.5% below our estimates. The disappointing revenues were however counteracted by higher-than-expected operating margins probably led by one-off write backs of previous provisions. Industrial segments (Industry automation & drives, Building technologies and Industry solutions) continued to reflect slowdown as seen in previous few quarters along with a margin decline. Growth and profitability for the quarter was led by the power T&D and transportation segments.

There was some revival seen in order inflows led by power and transportation segments. Siemens reported order inflows of Rs23 bn in the quarter registering a growth of 12.6% yoy versus Rs20.8 bn in 3QFY08 post 20% decline in previous quarter. However highlight that order inflows boosted by a single large order worth Rs7.2 bn from Adani Power.

Upgrade to ADD with a revised target price of Rs515/share

We have revised our target price of Siemens to Rs515/share from Rs450/share based on higher FY2011E P/E multiple of 21X versus 18X earlier. Highlight that (a) historically stock has quoted at premium to L&T and BHEL and we are currently ascribing 18X multiple, (b) average one year forward P/E multiple has been about 23-24 over the last five years and (c) as visibility in investment activity improves (already partly visible from stability in order inflows) multiples would tend towards long-term average.

We upgrade our rating on the stock to ADD from REDUCE earlier based on 13.4% upside to our target price. We are more positive on Siemens versus ABB based on (1) Siemens has reported stronger operational performance in the recent quarters and may continue to do so for two three quarters more, (moderate yoy growth versus yoy declines in ABB), (2) did not face issue of cash flow, working capital etc in the last few quarters and (3) fear of adverse intra-group M&A transactions is receding.

India Industrials


Exhibit 8: Siemens (standalone) - 3Q09 - key numbers, year ending September 30, 2009 (Rs mn)

3Q09 3Q09E 3Q08 2Q09 3Q09E 3Q08 2Q09 9M09 9M08 % chgSales 19,177 20,724 18,097 23,830 (7.5) 6.0 (19.5) 59,405 58,665 1.3 Expenses (16,606) (18,445) (15,550) (20,341) (10.0) 6.8 (18.4) (51,643) (54,592) (5.4) Stock 996 1,339 (799) (25.6) (224.6) 1,582 1,457 Raw material (14,706) (14,819) (17,230) (0.8) (14.6) (45,733) (48,682) (6.1) Employee (1,428) (1,196) (1,354) 19.4 5.5 (3,912) (3,178) 23.1 Other Exp (1,467) (874) (959) 67.8 53.1 (3,580) (4,188) (14.5) EBITDA 2,571 2,280 2,546 3,489 12.8 1.0 (26.3) 7,762 4,074 90.5 Other income 78 30 124 30 157.3 (37.1) 157.3 2,341 327 616.6 EBIDT 2,649 2,310 2,671 3,519 14.7 (0.8) (24.7) 10,103 4,400 129.6 Interest 118 169 111 94 (29.9) 7.1 25.5 377 295 28.0 Depreciation (199) (193) (161) (184) 3.1 23.6 8.2 (565) (461) 22.5 PBT 2,568 2,286 2,620 3,429 12.4 (2.0) (25.1) 9,916 4,234 134.2 Tax (899) (800) (926) (1,174) 12.4 (2.9) (23.4) (2,686) (1,799) 49.3 Net profit 1,669 1,486 1,694 2,255 12.4 (1.5) (26.0) 7,230 2,436 196.9 Extraordinary items 1,701 — — — 1,701 1,246 36.5 RPAT 3,370 1,486 1,694 2,255 126.8 98.9 49.4 8,931 3,681 142.6

Key ratios (%)Raw material / Sales 71.5 74.5 75.7 74.3 80.5 Employee expenses / Sales 7.4 6.6 5.7 6.6 5.4 Other expenses / Sales 7.7 4.8 4.0 6.0 7.1 EBITDA margin 13.4 11.0 14.1 14.6 13.1 6.9 PBT margin 13.4 11.0 14.5 14.4 16.7 7.2 Tax rate 35.0 35.0 35.3 34.2 27.1 42.5 PAT margin 8.7 7.2 9.4 9.5 12.2 4.2

Order detailsOrder booking 23,400 20,780 18,594 12.6 25.8 61,791 63,322 (2.4) Order backlog 101,450 98,469 97,047 3.0 4.5 101,450 98,469 3.0

% chg


Exhibit 9: Segmental revenues and margins of Siemens for 3Q09, year ending September 30, 2009 (Rs mn)

3Q09 3Q08 2Q09 2Q08 1Q09 9M09 9M08 % chgRevenuesIndustrial 7,039 7,590 7,884 (7.3) (10.7) 21,900 22,604 (3.1) Industry Automation & Drives 4,503 4,514 5,169 (0.2) (12.9) 14,266 14,097 1.2 Building Technologies 205 238 208 (14.0) (1.7) 560 644 (12.9) Industry Solutions 2,331 2,838 2,507 (17.9) (7.0) 7,074 7,863 (10.0) Power 9,824 8,427 14,305 16.6 (31.3) 31,792 30,827 3.1 Fossil Power Generation 750 153 840 389.4 (10.7) 2,475 748 230.8 Oil and Gas 1,294 1,151 1,409 12.4 (8.2) 3,634 3,405 6.7 Power T&D 7,779 7,122 12,056 9.2 (35.5) 25,684 26,674 (3.7) Others 4,030 3,222 3,752 25.1 7.4 11,341 9,203 23.2 Mobility 2,742 1,582 2,346 73.3 16.9 7,325 4,794 52.8 Healthcare 1,137 1,504 1,223 (24.4) (7.0) 3,530 3,960 (10.9) Real estate 151 136 183 11.0 (17.6) 486 449 8.3 Total 19,096 18,097 23,682 5.5 (19.4) 102,201 98,696 3.6 EBIT MarginIndustrial 6.4 11.6 7.8 7.4 9.8 Industry Automation & Drives 6.0 8.0 7.1 6.5 7.6 Building Technologies 6.3 10.8 3.2 3.0 7.7 Industry Solutions 7.3 17.6 9.8 9.4 13.9 Power 16.9 16.7 18.2 16.3 4.8 Fossil Power Generation 12.4 143.1 6.8 8.5 (250.8) Oil and Gas 18.3 10.9 16.9 16.2 9.8 Power T&D 17.1 14.9 19.2 17.1 11.3 Others 4.2 4.1 6.7 4.8 3.9 Mobility 3.7 4.5 (3.2) (0.5) (3.2) Healthcare (0.4) 3.3 8.9 2.6 2.5 Real estate 115.8 62.0 78.1 92.7 56.3 EBIT Margin 11.6 1.6 0.7 16.4 6.3

% chg


Industrials India


Suzlon: Low volume dents profitability; near-term prospects appear uncertain

Suzlon reported very low sales volumes of 123 MW during 1QFY10 versus 338 MW in 1QFY09 leading to negative net income for the quarter. The low domestic volumes were attributed to postponement in ordering decision by clients led to post the Union Budget in July 2009. Company highlighted that it has seen a pick up in ordering activity/ enquiries post the budget. Low international sales were primarily due to postponement of accepting deliveries at the client end led by financing difficulties. The company has maintained its FY2010E sales guidance of 2,400-2,600 MW. However, the sales are likely to be more back-ended in nature especially in international sales.

Recent fund raising programs to address liquidity needs

Highlight that Suzlon has recently completed two fund raising programs (GDR issuance of US$108 mn and FCCB issuance of US$90 mn) in order to address the liquidity needs of the company.

Hansen and REpower also report relatively weak results

Hansen Transmissions reported 1QFY10 revenues of EUR136 mn, down 2.2% yoy, from EUR139 mn in 1QFY09 with significantly lower EBITDA margin of 5.2%. The management has also reduced its current year guidance from low to moderate growth to flat revenues for FY2010E highlighting near-term environment difficulties.

Reiterate ADD with a target price of Rs110/share

We reiterate our ADD rating on the stock based on lower near-term prospects for the company and the wind industry and increased risk to meeting our execution estimates. We believe that the upside to stock would pan out over a longer horizon versus earlier expectation. Key catalysts to the stock price include (1) order inflows, (2) Hansen stake sale, (3) further visibility on reduction in debt levels and (4) cash generation from operation.

Exhibit 10: Suzlon Energy - 1QFY10 wind business results (Rs mn)

1QFY10 1QFY10E 1QFY09 4QFY09 1QFY10E 1QFY09 4QFY09 FY2010E FY2009 %chgMW sales 123 400 338 1,046 (69.3) (63.6) (88.2) 2,193 2,790 (21.4) Income from operations 11,650 22,000 20,866 57,110 (47.0) (44.2) (79.6) 119,930 159,120 (24.6) Expenditure (13,380) (18,810) (17,844) (53,950) (28.9) (25.0) (75.2) (105,124) (143,240) (26.6) Raw material consumption (8,300) (13,748) (38,980) (39.6) (78.7) (76,604) (104,810) (26.9) Staff cost (2,220) (2,011) (2,310) 10.4 (3.9) (11,232) (8,970) 25.2 Other expenditure (2,860) (2,085) (12,660) 37.2 (77.4) (19,022) (29,460) (35.4) EBITDA (1,730) 3,190 3,022 3,160 (154.2) (157.2) (154.7) 14,806 15,880 (6.8) Other income 140 250 429 1,710 (44.1) (67.4) (91.8) 2,301 2,460 (6.5) PBDIT (1,590) 3,440 3,452 4,870 (146.2) (146.1) (132.6) 17,107 18,340 (6.7) Interest & finance charges (2,340) (2,046) (1,205) (2,140) 14.4 94.2 9.3 (9,063) (5,680) 59.6 Depreciation (620) (1,133) (486) (830) (45.3) 27.6 (25.3) (4,533) (2,600) 74.4 PBT (4,550) 261 1,761 1,900 (1,843.1) (358.4) (339.5) 3,511 10,060 (65.1) Tax 110 (57) (351) 360 (291.5) (131.3) (69.4) (892) (30) 2,872.1 PAT (4,440) 204 1,409 2,260 (2,280.7) (415.1) (296.5) 2,619 10,030 (73.9) One-time items included in PAT (180) - (2,298) 600 (92.2) (130.0) (8,960) (100.0) Associates/Minority interest 10 - - (50) Adjusted PAT (4,610) 204 (889) 2,810 (2,364.2) 418.7 (264.1) 2,619 1,070 144.8

Key ratios (%)Material cost 71.2 65.9 68.3 63.9 65.9 Staff cost 19.1 9.6 4.0 9.4 5.6 Other expenditure 24.5 10.0 22.2 15.9 18.5 EBITDA margin (14.8) 14.5 14.5 5.5 12.3 10.0 PBDIT margin (13.6) 15.6 16.5 8.5 14.3 11.5 Pre-tax margin (39.1) 1.2 8.4 3.3 2.9 6.3 Tax rate 2.4 22.0 20.0 (18.9) 25.4 0.3 PAT margin (38.1) 0.9 6.8 4.0 2.2 6.3

% chg


India Industrials


Crompton Greaves: Results beat expectations led by strong margin expansion

Crompton reported consolidated revenues of Rs22 bn in 1QY10, up 8% yoy, from Rs20.3 bn in 1QFY09 slightly below our expectations. Higher-than-expected operating margin helped the company beat our net earnings estimates. The growth and margin expansion was led by power and consumers segment with industrials segment reflecting slowdown. Slight slowdown in power segment revenues was due to a cyclone at the Bhopal testing facility which affected revenues to the tune of about Rs260 mn.

Slight correction in revenue growth guidance led by slowdown in the industrial segment

The management guided for a revenue growth of 12-14% at a standalone basis and 4-5% on a consolidated basis down from a guidance of 15% earlier. The management has guided for a revenue growth of 20% for the power segment and about 14% for the consumers segment with de-growth of 2-3% expected in the industrials segment.

Order inflows face a blip during the quarter; expected to pick up from 2Q

Inflows declined by 20% yoy on a consolidated basis to Rs22.8 bn. The management highlighted that the decline in order inflows is just a temporary blip and is expected pick up from 2Q onwards. The management expects order inflows to pick up significantly in 2Q led by the power and industrials segment with consumers growing at the same rate as in 1Q.


We reiterate our ADD rating on the stock with a target price of Rs315/share based on (1) the sharp discount to peers, (2) relatively attractive valuations, (3) diversity of exposure, and (4) resilience of business.

Exhibit 11: Crompton Greaves - 1QFY10 consolidated revenue model (Rs mn)

1QFY10 1QFY10E 1QFY09 4QFY09 1QFY10E 1QFY09 4QFY09 FY2010E FY2009 % chgSales 21,975 23,342 20,348 24,600 (5.9) 8.0 (10.7) 97,389 87,373 11.5 Expenses (19,499) (20,891) (18,265) (21,313) (6.7) 6.8 (8.5) (85,392) (77,429) 10.3 Stock 315 1,407 (1,142) (77.6) (127.6) - 241 (100.0) Raw material (13,894) (14,592) (13,836) (4.8) 0.4 (61,752) (55,165) 11.9 Employee (2,865) (2,507) (2,891) 14.3 (0.9) (10,926) (10,627) 2.8 Other Exp (3,055) (2,573) (3,445) 18.8 (11.3) (12,714) (11,878) 7.0 EBITDA 2,476 2,451 2,083 3,287 1.0 18.9 (24.7) 11,531 9,944 16.0 Other income 239 128 171 215 86.4 39.6 11.2 758 600 26.4 EBIDT 2,715 2,579 2,254 3,502 5.3 20.5 (22.5) 12,044 10,544 14.2 Interest (45) (127) (138) (128) (64.5) (67.2) (64.9) (574) (656) (12.6) Depreciation (371) (302) (323) (299) 22.9 15.1 24.3 (1,422) (1,216) 16.9 PBT 2,299 2,150 1,794 3,075 6.9 28.1 (25.2) 10,200 8,672 17.6 Tax (695) (731) (567) (1,135) (5.0) 22.4 (38.8) (3,330) (3,047) 9.3 Net profit 1,605 1,419 1,227 1,940 13.1 30.8 (17.3) 6,751 5,625 20.0

Key ratios (%)Raw material / Sales 61.8 64.8 60.9 62.2 62.9 Employee exp/ Sales 13.0 12.3 11.7 11.0 12.2 Other exp. Sales 13.9 12.6 14.0 12.8 13.6 EBITDA margin 11.3 10.5 10.2 13.4 11.6 11.4 PBT Margin 10.5 9.2 8.8 12.5 10.3 9.9 Tax rate 30.2 34.0 31.6 36.9 33.8 35.1 PAT margin 7.3 6.1 6.0 7.9 6.8 6.4

% chg


Industrials India


Exhibit 12: Segment-wise standalone and consolidated revenues and EBIT for Crompton (Rs mn)

1QFY10 1QFY09 4QFY09 1QFY09 4QFY09 1QFY10 1QFY09 4QFY09 1QFY09 4QFY09RevenuesPower Systems 5,084 4,584 7,222 10.9 (29.6) 14,838 13,672 17,713 8.5 (16.2) Consumer Products 4,129 3,631 3,703 13.7 11.5 4,129 3,631 3,703 13.7 11.5 Industrial systems 2,539 2,632 2,698 (3.5) (5.9) 2,794 2,879 2,976 (2.9) (6.1) Others 76 72 74 4.8 2.7 308 257 286 19.9 7.6 Total 11,735 10,829 13,618 8.4 (13.8) 21,975 20,348 24,600 8.0 (10.7) PBITPower Systems 809 614 1,284 31.8 (37.0) 1,395 1,160 2,241 20.2 (37.8) Consumer Products 580 422 449 37.5 29.2 580 422 449 37.5 29.2 Industrial systems 508 522 550 (2.6) (7.7) 526 561 618 (6.2) (14.9) Others 8 (4) 7 (274.4) 2.7 52 35 45 47.9 14.7 Total 1,905 1,553 2,291 22.7 (16.8) 2,553 2,178 3,354 17.2 (23.9) Revenue mix (%)Power Systems 43.3 42.3 53.0 67.5 67.2 72.0 Consumer Products 35.2 33.5 27.2 18.8 17.8 15.1 Industrial systems 21.6 24.3 19.8 12.7 14.1 12.1 Others 0.6 0.7 0.5 1.4 1.3 1.2 PBIT margins (%)Power Systems 15.9 13.4 17.8 9.4 8.5 12.7 Consumer Products 14.1 11.6 12.1 14.1 11.6 12.1 Industrial systems 20.0 19.8 20.4 18.8 19.5 20.8 Others 9.9 (6.0) 9.9 16.7 13.6 15.7 Total 16.2 14.3 16.8 11.6 10.7 13.6

% change % changeStandalone Consolidated


BGR Energy: EPC execution and margin expansion to drive growth

BGR Energy reported revenues of Rs3.1 bn significantly lower than our estimates led by:

Decline in revenues from the oil & gas segment led by delays in renegotiation and finalization of Iraq project

Decline in revenues in the Air Fin Cooler segment due to change in scope of three domestic orders

Lower-than-expected revenues from the two large EPC contracts. The management highlighted that EPC contracts typically require about 6-8 months to start revenue recognition.

Aggressive growth guidance of 50% for FY2010E

BGR management is confident of pick up in EPC revenues in 2HFY10E and has guided for a strong revenue growth of 50% in FY2010E. and 30-40% in FY2011E. The revenue growth would primarily be driven by pick up in execution of the two large EPC contracts viz. Mettur and Kalisindh. The management also highlighted that margins are likely to improve led by commodity price declines.

Recent order wins boost order backlog

BGR energy reported strong order inflows of Rs16.7 bn during the quarter, primarily driven by the Chandrapur Mega Project order worth Rs16.3 bn. The order is for the BOP works for the main plant package of the 2X500 MW Chandrapur awarded by Maharashtra State Power Generation Company Ltd.


India Industrials


We reiterate our ADD rating on the stock based on (1) relatively attractive valuations, (2) likely pick up of execution of large EPC orders which would boost revenues, (3) potential margin expansion with effect of commodity price decline, (4) high near-term visibility based on large order backlog and (5) subjectively positive commentary from management on near-term growth as well as future prospects.

Exhibit 13: BGR Energy Systems - 1QFY10 results - Key numbers (Rs mn)

1QFY10 1QFY10E 1QFY09 4QFY09 1QFY10E 1QFY09 4QFY09 FY2010E FY2009 % chgSales 3,111 4,452 3,068 7,183 (30.1) 1.4 (56.7) 28,720 19,303 48.8Expenses (2,688) (3,995) (2,757) (6,347) (32.7) (2.5) (57.6) (25,435) (17,214) 47.8 Stock (5) (2) (46) 182.6 (89.8) - 11 (100.0) RM (2,328) (2,536) (5,834) (8.2) (60.1) (23,926) (15,848) 51.0 Employee exp (217) (133) (191) 62.4 13.8 (862) (744) 15.8 Other exp (139) (86) (276) 61.9 (49.8) (647) (633) 2.3EBITDA 422 456 312 836 (7.4) 35.5 (49.5) 3,285 2,089 57.2Other income 67 82 41 47 (17.5) 66.4 43.2 327 317 3.1EBIDT 490 538 352 883 (9.0) 39.1 (44.5) 3,612 2,406 50.1Interest (163) (143) (76) (153) 13.4 115.3 6.0 (717) (579) 23.7Depreciation (21) (22) (14) (23) (5.9) 52.4 (9.8) (88) (75) 17.0PBT 307 373 263 707 (17.8) 16.5 (56.6) 2,807 1,752 60.3Tax (104) (127) (91) (237) (17.8) 14.8 (56.1) (945) (596) 58.6Net profit 202 246 172 470 (17.7) 17.4 (56.9) 1,862 1,156 61.1

Key RatiosRM/Sales 75.0 82.7 81.9 83.3 82.0Employee exp/Sales 7.0 4.3 2.7 3.0 3.9Other Exp/Sales 4.5 2.8 3.8 2.3 3.3EBITDA margin 13.6 10.3 10.2 11.6 11.4 10.8PBT margin 9.9 8.4 8.6 9.8 9.8 9.1Tax rate 34.0 34.0 34.5 33.6 33.7 34.0PAT Margin 6.5 5.5 5.6 6.5 6.5 6.0

chg (%)


BEL: Significantly beat estimates led by spillover and higher revenue booking

BEL more than doubled its revenue for the quarter versus last year recording a yoy growth of 132%. Management attributed the strong revenues during the quarter to (1) spillover from 4QFY09 and (2) higher emphasis on more even revenue booking across the quarters. BEL reported EBITDA margin of 10.1% significantly below our full year margin assumption of 20%. We believe that at these levels of revenue booking the company could have booked much higher margins.

Reiterate REDUCE with a target price of Rs1,475/share

We maintain our REDUCE rating on the stock based on limited upside to our target price and low near-term visibility. We highlight that as the economic outlook improves the stock is likely to underperform as its business is independent of business cycles and is more attractive when outlook on broad economy is weaker.

Industrials India


Exhibit 14: BEL - key numbers - 1QFY10 (Rs mn)

1QFY10 1QFY10E 1QFY09 4QFY09 1QFY10E 1QFY09 4QFY09 FY2010E FY2009 % chgNet Sales 9,106 4,642 3,922 27,352 96.2 132.2 (67) 52,931 45,707 15.8Raw Material (6,103) (2,321) (2,826) (15,266) 163.0 116.0 (60) (28,848) (30,515) (5.5)Stock Adjustment 63 - 803 (36) (92.1) (278) - 6,561 (100.0)Employee Expenses (1,704) (1,900) (1,591) (2,326) (10.3) 7.1 (27) (9,028) (7,524) 20.0Other Expenses (445) (464) (550) (1,656) (4.0) (19.0) (73) (3,176) (3,254) (2.4)Total Expenditure (8,189) (4,685) (4,164) (19,284) 74.8 96.7 (58) (41,052) (34,733) 18.2EBITDA 916 (43) (242) 8,068 (2,215.2) (478.0) (89) 11,880 10,974 8.3Other Income 437 598 529 478 (26.9) (17.3) (9) 2,389 2,079 14.9PBIDT 1,354 555 287 8,546 144.1 372.4 (84) 14,268 13,053 9.3Interest (1) (27) (0) (36) (96.8) 84.3 (98) (108) (108) 0.0PBDT 1,353 528 286 8,510 156.3 372.9 (84) 14,161 12,945 9.4Depreciation (280) (267) (240) (277) 5.0 16.5 1 (1,067) (1,043) 2.3PBT 1,073 261 46 8,233 311.0 2,252.1 (87) 13,094 11,903 10.0Tax (346) (81) (20) (2,639) 327.2 1,593.2 (87) (4,190) (3,818) 9.7PAT 727 180 25 5,594 303.7 2,786.3 (87) 8,904 8,085

Key ratios (%)Material cost ratio 66.3 50.0 51.6 55.9 54.5 52.4Employee cost ratio 18.7 0.0 40.6 8.5 17.1 16.5Other exps ratio 4.9 10.0 14.0 6.1 6.0 7.1EBITDA margin 10.1 12.0 (6.2) 29.5 22.4 24.0PBIDT margin 14.9 11.9 7.3 31.2 27.0 28.6PBT margin 11.8 5.6 1.2 30.1 24.7 26.0Effective tax rate 32.2 31.0 44.8 32.1 32.0 32.1EPS 9.1 2.3 0.3 69.9 111.3 101.1PAT margin 8.0 3.9 0.6 20.5 16.8 17.7

% chg


India Industrials


Key highlights of certain uncovered industrial companies

Exhibit 15: Industrials sector (Uncovered companies) – Company wise 1QFY10 results - key numbers (Rs mn)

Jun-09 Jun-08 Mar-09 yoy qoqAreva T&D, India

Net sales 7,883 6,218 8,450 26.8 (6.7) EBITDA 1,071 1,101 1,088 (2.8) (1.6) EBITDA margin 13.6 17.7 12.9 (23.3) 5.5 PBT 794 982 885 (19.2) (10.3) PAT 537 635 597 (15.4) (10.0)

ThermaxNet sales 5,376 7,170 9,483 (25.0) (43.3) EBITDA 689 911 1,333 (24.4) (48.3) EBITDA margin 12.8 12.7 14.1 0.9 (8.8) PBT 692 940 1,335 (26.4) (48.2) PAT 465 637 930 (27.0) (50.0)

VoltasNet sales 11,789 10,067 12,661 17.1 (6.9) EBITDA 1,007 776 905 29.7 11.2 EBITDA margin 8.5 7.7 7.2 10.8 19.5 PBT 1,083 1,030 820 5.2 32.1 PAT 709 619 551 14.5 28.8

CumminsNet sales 6,394 7,302 10,714 (12.4) (40.3) EBITDA 1,175 1,170 1,821 0.5 (35.5) EBITDA margin 18.4 16.0 17.0 14.7 8.1 PBT 1,246 1,210 1,663 3.0 (25.0) PAT 897 882 1,182 1.6 (24.1)

Industrials sector total (incl. uncovered)Net sales 241,192 225,667 405,384 6.9 (40.5) EBITDA 23,002 24,032 56,710 (4.3) (59.4) EBITDA margin 9.5 10.6 14.0 (10.4) (31.8) PBT 22,495 26,118 60,007 (13.9) (62.5) PAT 13,696 17,488 41,440 (21.7) (66.9) Extraordinaries 11,712 (2,054) (849) (670.2) (1,480.3) PAT-reported 25,418 15,434 40,541 64.7 (37.3)

% chg


Areva T&D India:

Strong revenue growth of 27% in 2QCY09 and 45% for 1H09 led by order backlog

Margins affected during quarter due to restructuring costs – most of it completed and hence profitability should improve from nest quarter

Management highlighted 15-20% fall in price level in transmission segment based on bids to PGCIL

Primary reason for price decline attributed to increased competition and limited demand; part of price fall absorbed by commodity price decline

Order inflows down 14% yoy; inflows led by power segment; industrials segment continues to see slowdown

Industrials India


Exhibit 16: Areva 2QCY09 results - key numbers (Rs mn)

2QCY09 2QCY08 1QCY09 2QCY08 1QCY09 1HCY09 1HCY08 % chgNet Sales 7,883 6,218 8,450 26.8 (6.7) 16,333 11,247 45.2 (Inc)/Dec in WIP (48) 317 (56) (115.1) (15.0) (104) 649 (116.0)Raw material (5,059) (3,950) (6,033) 28.1 (16.2) (11,092) (7,485) 48.2 Staff cost (700) (514) (651) 36.3 7.5 (1,351) (996) 35.7 Other items (1,005) (970) (622) 3.7 61.7 (1,627) (1,522) 6.9Total Expenditure (6,812) (5,116) (7,362) 33.1 (7.5) (14,174) (9,353) 51.5EBITDA 1,071 1,101 1,088 (2.8) (1.6) 2,159 1,893 14.0Other income - 17 - (100.0) - 52 (100.0)PBDIT 1,071 1,118 1,088 (4.2) (1.6) 2,159 1,945 11.0Interest (163) (40) (123) 304.2 32.7 (285) (69) 311.8Depreciation (115) (96) (80) 20.1 43.0 (195) (155) 26.2PBT 794 982 885 (19.2) (10.3) 1,679 1,721 (2.5)Tax (257) (348) (289) (26.2) (11.1) (545) (629) (13.3)PAT 537 635 597 (15.4) (10.0) 1,134 1,093 3.8Exceptional items (36) 12 (83) (398.3) (56.7) (118) 95 (224.6)Reported PAT 501 647 514 (22.5) (2.5) 1,015 1,188 (14.5)

Key RatiosRaw Material to Sales 64.8 58.4 72.1 68.5 60.8Staff Cost to sales 8.9 8.3 7.7 8.3 8.9Other exp to sales 12.8 15.6 7.4 10.0 13.5EBITDA margin 13.6 17.7 12.9 13.2 16.8PBDIT margin 13.6 18.0 12.9 13.2 17.3Effective tax rate 32.3 35.4 32.6 32.5 36.5PAT Margin 6.8 10.2 7.1 6.9 9.7

% chg


Thermax Ltd:

Weak revenues led by lower order inflows in 3Q09; product orders start generating revenues with a lag of 3-6 months while project orders with 6-18 months; project “Ever-lean” on track to contain costs

Weak industrial segment growth led by credit difficulty and slow-medium pace of execution in certain orders

India Industrials


Exhibit 17: Thermax (standalone) - 1QFY10 - key numbers (Rs mn)

1QFY10 1QFY09 4QFY09 1QFY09 4QFY09Total Income 5,376 7,170 9,483 (25.0) (43.3) Expenses (4,687) (6,259) (8,150) (25.1) (42.5) Stock (5) (83) (86) (94.1) (94.3) RM (3,331) (4,381) (6,052) (24.0) (45.0) Employee (522) (597) (660) (12.5) (20.9) Other Exp (829) (1,198) (1,351) (30.8) (38.6) EBITDA 689 911 1,333 (24.4) (48.3) Other income 103 102 119 1.1 (13.5) EBIDT 792 1,013 1,452 (21.8) (45.4) Interest (5) (3) (17) 80.3 (71.5) Depreciation (95) (70) (100) 36.4 (4.8) PBT 692 940 1,335 (26.4) (48.2) Tax (227) (303) (405) (25.2) (44.0) Net profit 465 637 930 (27.0) (50.0) Extraordinary items - - 14 (100.0) RPAT 465 637 943 (27.0) (50.7)

Key ratios (%)RM / Sales 62.0 62.3 64.7 Empl / Sales 9.7 8.3 7.0 OE / Sales 15.4 16.7 14.2 EBITDA margin 12.8 12.7 14.1 PBT Margin 12.9 13.1 14.1 Tax rate 32.8 32.3 30.3 PAT Margin 8.6 8.9 9.8

Segmental revenuesEnergy 4,194 5,472 7,632 (23.3) (45.0) Environment 1,252 1,787 2,023 (29.9) (38.1) Less Intersegment (71) (89) (172) (20.9) (58.9) Total 5,376 7,170 9,483 (25.0) (43.3) Segmental PBITEnergy 522 796 1,063 (34.4) (51.0) Environment 149 211 411 (29.5) (63.8) Net Interest expense (5) (3) (17) 80.3 (71.5) Other net unallocable income 26 (64) (123) (141.1) (121.3) Total Profit before tax 692 940 1,335 (26.4) (48.2) Segmental PBIT margin (%)Energy 12.4 14.5 13.9 Environment 11.9 11.8 20.3 Total Profit before tax 12.9 13.1 14.1

% chg


Voltas Ltd:

Revenue growth of 17% led by Electromechanical Projects segment which grew by 35% yoy to Rs6.3 bn in 1QFY10

Margins remain relatively flat yoy; decline in raw material costs offset by increase in employee and other expenses as a % of sales

Margins decline in Engineering Products and Services and Unitary Cooling Products segment

Industrials India


Exhibit 18: Voltas - 1QFY10 revenue model (Rs mn)

1QFY10 1QFY09 4QFY09 1QFY09 4QFY09Sales 11,789 10,067 12,661 17.1 (6.9) Expenses (10,782) (9,291) (11,756) 16.1 (8.3) Stock (569) 321 919 (276.9) (161.9) RM (7,610) (7,730) (10,384) (1.5) (26.7) Employee (1,182) (853) (1,148) 38.5 3.0 Other Exp (1,421) (1,029) (1,142) 38.1 24.5 EBITDA 1,007 776 905 29.7 11.2 Other income 117 289 (39) (59.5) (399.2) PBDIT 1,124 1,065 866 5.5 29.8 Interest (2) 5 6 (142.6) (140.4) Depreciation (39) (41) (52) (4.7) (25.4) PBT 1,083 1,030 820 5.2 32.1 Tax (374) (411) (269) (8.9) 38.9 Net profit 709 619 551 14.5 28.8 Extraordinary items 28 232 59 (87.9) (52.7) RPAT 737 851 610 (13.4) 20.8

Key ratiosRM / Sales 69.4 73.6 74.8 Empl / Sales 10.0 8.5 9.1 OE / Sales 12.1 10.2 9.0 EBITDA 8.5 7.7 7.2 PBT Margin 9.2 10.2 6.5 Tax rate 34.5 39.9 32.8 PAT margin 6.0 6.2 4.3

Segmental revenuesUnitary Cooling Products 4,295 4,008 2,346 7.2 83.1Engineering agency and services 1,139 1,364 1,342 (16.5) (15.1)Electromechanical Projects 6,272 4,632 8,701 35.4 (27.9)Others 0 105 87 (100.0) (100.0)Total 11,707 10,109 12,477 15.8 (6.2)Less Intersegment (3) (42) (17) (93.3) (83.2)Total 11,704 10,067 12,460 16.3 (6.1)Segmental PBITUnitary Cooling Products 357 368 236 (3.0) 51.2Engineering agency and services 157 214 71 (26.4) 121.1Electromechanical Projects 560 375 551 49.3 1.6Others (1) 10 5 (114.3) (128.6)Net Interest expense (2) 5 6 (142.6) (141.8)Other net unallocable income 40 58 290 (30.6) (86.2)Total Profit before tax 1,111 1,030 1,159 7.9 (4.1)Segmental EBIT margin (%)Unitary Cooling Products 8.3 9.2 10.1 (0.9)Engineering agency and services 13.8 15.7 5.3 (1.9)Electromechanical Projects 8.9 8.1 6.3 0.8Others 0.0 9.3 5.6 (9.3)

% change


Cummins India Ltd:

Revenues decline by 12% yoy led by steep slowdown in exports; exports declined by 70% on a qoq basis

Margin expansion seen despite low volumes led by lower raw material and other expenses as a percentage of sales

Company highlights some momentum building in domestic market especially in the power generation segment; international likely to remain slow

Management also highlighted pricing pressures led by increase in domestic and international competition which is likely to lead to a slight dip in margins

India Industrials


Exhibit 19: Cummins 1QFY10 - Key numbers (Rs mn)

1QFY10 1QFY09 4QFY09 1QFY09 4QFY09Sales 6,394 7,302 10,714 (12.4) (40.3)Expenses (5,220) (6,133) (8,893) (14.9) (41.3) Stock (233) 314 (285) (174.2) (18.4) RM (3,957) (5,267) (6,750) (24.9) (41.4) Employee (514) (386) (816) 33.0 (37.0) Other Exp (516) (793) (1,043) (35.0) (50.5)EBITDA 1,175 1,170 1,821 0.5 (35.5)Other income 166 145 8 14.8 2,057.1PBDIT 1,341 1,314 1,829 2.0 (26.7)Interest (6) (6) (19) 9.1 (68.3)Depreciation (89) (99) (147) (10.5) (39.8)PBT 1,246 1,210 1,663 3.0 (25.0)Tax (350) (327) (481) 6.8 (27.3)Net profit 897 882 1,182 1.6 (24.1)

Key ratiosRM / Sales 65.5 67.8 65.7Empl / Sales 8.0 5.3 7.6OE / Sales 8.1 10.9 9.7EBITDA margin 18.4 16.0 17.0PBDIT margin 21.0 18.0 17.1PBT Margin 19.5 16.6 15.5Tax rate 28.1 27.1 28.9PAT Margin 14.0 12.1 11.0EPS 4.5 4.5 6.0

%chg


Industrials India


Construction: Revenues affected by state elections

Exhibit 20: Construction segment 1QFY10 results - key numbers (Rs mn)

Jun-09 Jun-09E Jun-08 Mar-09 vs est. yoy qoq CommentsPunj Lloyd

Net sales 29,728 31,488 26,558 32,173 (5.6) 11.9 (7.6) EBITDA 3,094 2,991 2,187 (785) 3.4 41.5 NAEBITDA margin 10.4 9.5 8.2 (2.4) PBT 1,872 1,805 1,451 (1,888) 3.7 29.0 NAPAT-reported 1,250 1,264 985 (2,556) (1.1) 26.9 NA

IVRCLNet sales 10,860 12,564 9,285 16,272 (13.6) 17.0 (33.3) EBITDA 996 1,131 820 1,420 (11.9) 21.5 (29.8) EBITDA margin 9.2 9.0 8.8 8.7 PBT 516 657 550 980 (21.4) (6.2) (47.3) PAT-reported 351 434 435 799 (19.0) (19.3) (56.0)

Nagarjuna ConstructionNet sales 10,010 12,104 9,709 10,959 (17.3) 3.1 (8.7) EBITDA 1,052 1,150 924 852 (8.5) 13.8 23.4

EBITDA margin 10.5 9.5 9.5 7.8 PBT 578 631 544 517 (8.3) 6.4 11.9 PAT-reported 382 416 371 382 (8.2) 3.0 0.0

Sadbhav EngineeringNet sales 2,994 3,249 2,630 3,986 (7.8) 13.9 (24.9) EBITDA 340 357 294 359 (4.9) 15.6 (5.4) EBITDA margin 11.4 11.0 11.2 9.0

PBT 244 254 216 338 (3.7) 13.2 (27.7) PAT-reported 179 178 149 290 0.9 20.4 (38.2)

KIE construction sector totalNet sales 53,593 59,406 48,182 63,390 (9.8) 11.2 (15.5) EBITDA 5,482 5,629 4,225 1,846 (2.6) 29.7 196.9 EBITDA margin 10.2 9.5 8.8 2.9 PBT 3,211 3,347 2,760 (53) (4.1) 16.3 (6,129.8) PAT-reported 2,162 2,291 1,940 (1,085) (5.6) 11.5 (299.2)

Change (%)

- Revenues about 10% below estimates led by IVRCL and Nagarjuna which faced delays due to state elections - Margin expansion led by Punj Lloyd and Nagarjuna

- Revenues disappoint led by delays due to ongoing state elections - Higher interest expense leads to yoy decline in net income

- Revenue slowdown attributed to state elections and typically slower 1H - Margins expand by 100 bps yoy; likely to sustain margin levels of 10.5%

- Slight revenue disappointment offset by higher-than-expected margins - Margin expansion led by lower employee and other expenses

- Results in line with estimates; revenues driven by roads BOT segment - Margins remain relatively flat on a yoy basis


Punj Lloyd: Results broadly in line

The slight disappointment in revenue estimates was offset by higher-than-expected margin led by lower employee and other expenses as a percentage of sales. The company reported a strong order backlog of Rs279 bn which provides 2 years of revenue visibility. The strong order inflows of Rs99.5 bn primarily driven by the Libyan geography (Rs77.8 bn). Despite the political turmoil witnessed in Libya in the past, we believe the country is attempting to rebuild its bridges with the international community.

High working capital and debt levels could be a cause for concern

We highlight that working capital levels of Punj Lloyd have further deteriorated since March 2009. The debt levels of the company also increased from end-FY2009 levels. Total debt of the company increased to Rs38.9 bn versus Rs35.6 bn at the end of FY2009 likely to be led by high working capital loans. This led to deterioration in net debt: equity ratio to 1.3 at the end of 1QFY10 versus 1.1 at the end of FY2009.

Reiterate BUY with a target price of Rs300/share

We reiterate our BUY rating on the stock based on (1) negative events have already panned out and are already reflected in the price, (2) strong and diversified order backlog provides near-term earnings visibility and (3) attractive valuations.

India Industrials


Exhibit 21: Punj Lloyd (consolidated) - 1QFY10 - key numbers (Rs mn)

1QFY10 1QFY10E 1QFY09 4QFY09 1QFY10E 1QFY09 4QFY09 FY2010E FY2009 % chgNet Sales 29,728 31,488 26,558 32,173 (5.6) 11.9 (7.6) 136,905 119,120 14.9 Expenditure (26,634) (28,497) (24,371) (32,958) (6.5) 9.3 (19.2) (124,242) (116,028) 7.1 Material (18,305) (16,071) (23,445) 13.9 (21.9) (85,566) (79,871) 7.1 Staff cost (3,239) (3,276) (3,783) (1.2) (14.4) (15,060) (12,922) 16.5 Other expenditure (5,090) (5,024) (5,729) 1.3 (11.2) (23,616) (23,235) 1.6 EBITDA 3,094 2,991 2,187 (785) 3.4 41.5 NA 12,664 3,093 309.5 Other Income 63 227 23 134 (72.4) 167.5 (53.2) 907 745 21.8 PBDIT 3,157 3,218 2,211 (651) (1.9) 42.8 NA 13,571 3,838 253.6 Interest (744) (887) (368) (729) (16.2) 102.0 2.0 (3,550) (2,208) 60.8 Depreciation (541) (526) (392) (508) 3.0 38.2 6.7 (2,102) (1,771) 18.7 Profit before Tax 1,872 1,805 1,451 (1,888) 3.7 29.0 NA 7,919 (141) NATax (622) (542) (469) (667) 14.8 32.6 (6.8) (2,455) (2,260) 8.6 Profit after Tax 1,250 1,264 982 (2,555) (1.1) 27.4 NA 5,464 (2,401) NAExceptional items — — 4 (1) (100.0) (100.0) - 148 (100.0) Net Profit 1,250 1,264 985 (2,556) (1.1) 26.9 NA 5,464 (2,253) NA

Key ratios (%)Material costs/ Sales 61.6 60.5 72.9 62.5 67.1 Staff cost/ Sales 10.9 12.3 11.8 11.0 10.8 Other exp/ Sales 17.1 18.9 17.8 17.3 19.5 EBITDA margin 10.4 9.5 8.2 (2.4) 9.3 2.6 PBDIT margin 10.6 10.1 8.3 (2.0) 9.8 3.2 PBT margin 6.3 5.7 5.5 (5.9) 5.8 (0.1) PAT margin 4.2 4.0 3.7 (7.9) 4.0 (2.0) Effective tax rate 33.2 30.0 32.3 (35.3) 31.0 (1,608.8)

Order detailsOrder backlog 278,893 200,621 208,033 39.0 34.1 285,492 208,033 37.2 Order booking 99,460 31,223 21,126 218.5 370.8 214,064 132,096 62.1

% chg


IVRCL Infrastructure: Lower revenues attributed to state elections

IVRCL reported revenues of Rs10.7 bn in 1QFY10, up 17% yoy, about 13.6% lower than our estimate of Rs12.6 bn. The management highlighted that the slower revenues in this quarter was deliberate on the part of the company while awaiting the completion of the elections in certain states. The company’s revenues were reduced by about Rs2.5 bn (Rs2 bn from irrigation sector and Rs0.5 bn from power) during the quarter led by this slowdown. Strong order backlog of Rs139 bn mostly comprising of government projects; water segment continues to dominate backlog

Margin expansion trend likely to continue

The management highlighted that the margin expansion witnessed in 1QFY10 is likely to continue going forwards as well. Highlight that the margin expansion was achieved despite Rs2.5 bn of lower revenues booked during the quarter.


We maintain our BUY rating on the stock based on (1) attractive valuations, (2) strong likely near-term earnings growth, (3) high revenue visibility based on strong order backlog and (4) long-term outlook for infrastructural investments.

Industrials India


Exhibit 22: IVRCL - 1QFY10 - key numbers (Rs mn)

1QFY10 1QFY10E 1QFY09 4QFY09 1QFY10E 1QFY09 4QFY09 FY2010E FY2009 % chgNet Sales 10,860 12,564 9,285 16,272 (13.6) 17.0 (33.3) 60,910 48,819 24.8 CoGS (9,263) (7,497) (14,051) 23.6 (34.1) (51,804) (41,772) 24.0

Construction exp (4,327) (3,721) (4,710) 16.3 (8.1) (16,579) Subcontracting exp (1,646) (2,283) (5,351) (27.9) (69.2) (13,513) Masonry and labour (3,291) (1,493) (3,991) 120.5 (17.5) (11,681)

Staff cost (418) (423) (538) (1.1) (22.3) (2,436) (1,953) 24.7 Other expenditure (183) (545) (264) (66.4) (30.5) (1,066) (876) 21.7 Expenditure (9,864) (11,433) (8,465) (14,853) (13.7) 16.5 (33.6) (55,306) (44,601) 24.0 EBITDA 996 1,131 820 1,420 (11.9) 21.5 (29.8) 5,604 4,218 32.9 Other income 39 163 26 87 (76.1) 49.4 (55.0) 794 299 165.5 PBIDT 1,035 1,294 846 1,506 (20.0) 22.3 (31.3) 6,398 4,517 41.6 Interest (389) (498) (194) (392) (21.8) 100.8 (0.6) (2,051) (1,306) 57.0 Depreciation (129) (139) (102) (134) (7.0) 26.8 (3.6) (627) (473) 32.5 Profit before tax 516 657 550 980 (21.4) (6.2) (47.3) 3,720 2,738 35.9 Tax (165) (223) (115) (181) (26.1) 43.5 (9.0) (1,250) (478) 161.4 Profit after tax 351 434 435 799 (19.0) (19.3) (56.0) 2,470 2,260 9.3

Key ratios (%)CoGS/Sales 85.3 80.7 86.3 85.1 85.6 Construction/Sales 39.8 40.1 28.9 34.0 Subcontracting exp/Sales 15.2 24.6 32.9 27.7 Masonry and labour/Sales 30.3 16.1 24.5 23.9 Staff cost/Sales 3.8 4.6 3.3 4.0 4.0 Other expenditure/Sales 1.7 5.9 1.6 1.8 1.8 EBITDA margin 9.2 9.0 8.8 8.7 9.2 8.6 PBT Margin 4.8 6.3 5.9 6.0 6.1 5.6 Net Profit margin 3.2 4.2 4.7 4.9 4.1 4.6 Effective tax rate 32.0 34.0 20.9 18.5 33.6 17.5

% chg


Nagarjuna Construction: Lower execution offset by higher margins

Nagarjuna reported 1QFY10 revenues of Rs10 bn, up only 3.1% yoy, significantly below our expectation of Rs12.1 bn. The management highlighted that the lower executions was due to delays in payments from several state government due to ongoing state elections. Furthermore the first half of the year is relatively slower and management expects execution to pick up significantly in the second half of the fiscal. EBITDA margin of the company expanded by about 100 bps yoy in 1QFY10 to 10.4%, versus our expectation of relatively flat margins, leading to an EBITDA growth of 13% yoy.

Maintains full-year guidance of Rs55 bn of consolidated revenues

The management maintained its full-year revenue guidance of Rs55 bn at the consolidated level comprising of Rs48 bn from the standalone entity, Rs5-5.5 bn from the Dubai and Muskat construction subsidiaries and Rs1-Rs1.5 bn from the international real estate business.

Board approves Gautami stake sale – upside of about Rs4.4/share

Nagarjuna has approved the sale of its 9.5% stake in Gautami power project to GVK Power & Infrastructure. Nagarjuna would receive a total consideration of Rs1.12 bn for this stake sale. The company anticipates capital gains of about Rs500 mn from the stake sale. This would contribute about Rs1 bn to the value of the company implying a per share contribution of Rs4.4/share.

India Industrials


Exhibit 23: Nagarjuna Construction - 1QFY10 - key numbers (Rs mn)

1QFY10 1QFY10E 1QFY09 4QFY09 1QFY10E 1QFY09 4QFY09 FY2010E FY2009 % chgNet sales 10,010 12,104 9,709 10,959 (17.3) 3.1 (8.7) 50,165 41,199 21.8 Operating costs (8,972) (10,954) (8,794) (10,143) (18.1) 2.0 (11.5) (45,585) (37,777) 20.7

Construction costs (8,321) (8,064) (9,574) (41,938) (34,972) 19.9 Stock (261) 701 (217) (137.3) 20.6 1,378 Raw materials (2,793) (3,608) (3,074) (22.6) (9.1) (14,420) Other construction exp (4,357) (4,197) (5,203) 3.8 (16.3) (18,007) Labour (909) (961) (1,080) (5.4) (15.9) (3,923)

Staff cost (454) (501) (409) (9.3) 11.2 (2,543) (1,886) 34.9 Other expenditure (197) (229) (161) (13.7) 23.0 (1,104) (920) 20.0 Operating profit 1,038 1,150 916 816 (9.7) 13.3 27.2 4,580 3,422 33.8 Other income 14 117 9 37 (88.2) 61.1 (62.6) 435 356 22.1 Interest cost (346) (466) (239) (213) (25.6) 45.2 62.7 (1,874) (964) 94.5 Depreciation (127) (170) (142) (123) (25.3) (10.5) 3.5 (569) (533) 6.7 Profit before tax 578 631 544 517 (8.3) 6.4 11.9 2,572 2,282 12.7 Tax (196) (215) (173) (135) (8.5) 13.5 45.5 (849) (743) 14.2 Profit after tax 382 416 371 382 (8.2) 3.0 0.0 1,723 1,539 12.0

Key ratios (%)Construction exp/ Sales 83.1 83.1 87.4 83.6 84.9 Staff cost 4.5 5.2 3.7 5.1 4.6 Other expenditure 2.0 2.4 1.5 2.2 2.2 EBITDA margin 10.4 9.5 9.4 7.4 9.1 8.3 PBT margin 5.8 5.2 5.6 4.7 5.1 5.5 PAT margin 3.8 3.4 3.8 3.5 3.4 3.7 Effective tax rate 33.9 34.0 31.8 26.1 33.0 32.6

Order detailsOrder booking 27,030 17,449 8,769 54.9 208.3 73,680 55,250 33.4 Order backlog 139,020 121,540 122,000 14.4 14.0 146,800 122,980 19.4

% chg


Sadbhav Engineering: Results broadly in line with estimates

Sadbhav engineering reported revenues of Rs3 bn, operating profit margin of 11.4% and PAT of Rs179 mn for 1QFY10 broadly in line with our estimates. The management guided for a strong revenue growth of 27-30% in FY2010E to Rs13.5 bn. The large order backlog of Rs45 bn provides a visibility of about 3.5 years based on FY2010E revenues and is primarily led by road BOT segment. The company plans to enter aggressively in mining business to reduce dependence on BOT and has recently won 2 new orders (worth Rs3 bn) from Western and Mahanadi coal fields. The company has also submitted bids of about Rs76 bn and targets to win Rs15-20 bn orders by Mar-10.

Aurangabad-Jalna starts toll collections

The management cited that the Aurangabad-Jalna project has started tolling and generates about Rs0.6 mn per day toll collection. The company expects this number to rise to about Rs0.7 mn per day post the monsoon season. Also, we highlight that the toll rates are scheduled to increase by 18.5% from April 1, 2010 post which the company expects to generate toll collection of about Rs0.9 mn per day.


We retain our BUY rating on the stock based on (1) relatively attractive valuations, (2) strong order book, which provides near-term earnings visibility and (3) positive long-term outlook for infrastructural investments.

Industrials India


Exhibit 24: Sadbhav, Interim results (stand alone), March fiscal year-ends, (Rs mn) % chg

1QFY10 1QFY10E 1QFY09 4QFY09 1QFY10E 1QFY09 4QFY09 FY2010E FY009 % chgNet sales 2,994 3,249 2,630 3,986 (7.8) 13.9 (24.9) 12,997 10,625 22.3 Total expenditure (2,654) (2,892) (2,336) (3,627) (8.2) 13.6 (26.8) (11,538) (9,542) 20.9 Inc/(Dec) in stock (14) (373) (100.0) (100.0) (23) (100.0) Raw materials (623) (614) (1,070) 1.5 (41.7) (2,741) (100.0) Construction expense (1,915) (1,593) (2,011) 20.2 (4.8) (6,253) (100.0) Staff cost (41) (34) (41) 19.7 1.3 (157) (100.0) Other expenditure (75) (81) (133) (7.3) (43.4) (368) (100.0) EBITDA 340 357 294 359 (4.9) 15.6 (5.4) 1,458 1,083 34.7 Other income 24 9 2 97 918.7 (75.0) 36 117 (69.4) PBDIT 364 366 296 456 (0.6) 22.9 (20.2) 1,494 1,200 24.5 Interest (64) (70) (43) (75) (8.5) 49.5 (14.9) (279) (214) 30.3 Depreciation (56) (43) (38) (44) 30.8 47.5 28.4 (172) (157) 9.9 Pretax profits 244 254 216 338 (3.7) 13.2 (27.7) 1,043 829 25.8 Tax (65) (76) (67) (47) (14.6) (2.8) 36.8 (348) (196) 77.3 Adjusted profits 179 178 149 290 0.9 20.4 (38.2) 695 633 9.8

Key ratios (%)Raw materials/ sales 20.8 23.9 36.2 26.0 Construction exp./ sales 64.0 60.6 50.5 58.9 Staff cost/ sales 1.4 1.3 1.0 1.5 Other exp./ sales 2.5 3.1 3.3 3.5 EBITDA margin 11.4 11.0 11.2 9.0 11.2 10.2 PBDIT margin 12.2 11.3 11.3 11.4 11.5 11.3 PBT margin 8.2 7.8 8.2 8.5 8.0 7.8 Effective tax rate 26.6 30.0 31.0 14.1 33.4 23.7 PAT margin 6.0 5.5 5.7 7.3 5.3 6.0


India Industrials


Infrastructure sector:

Exhibit 25: Infrastructure segment 1QFY10 results - key numbers (Rs mn)

Jun-09 Jun-09E Jun-08 Mar-09 vs est. yoy qoq CommentsIRB Infrastructure

Net sales 4,141 3,712 2,301 3,211 11.6 80.0 29.0 EBITDA 1,662 1,681 1,170 1,205 (1.1) 42.0 37.9 EBITDA margin 40.1 45.3 50.8 37.5 PBT 1,033 982 669 536 5.2 54.4 92.6 PAT-reported 815 826 543 422 (1.3) 50.0 92.9

GVKPILNet sales 3,322 1,330 1,670 149.8 99.0 EBITDA 944 503 361 87.8 161.7

EBITDA margin 28.4 37.8 21.6 (24.8) 31.5 PBT 317 314 95 0.8 234.1 PAT-reported 327 406 143 (19.3) 129.7

KIE infra. sector totalNet sales 7,463 3,631 4,881 105.6 52.9 EBITDA 2,606 1,673 1,565 55.8 66.4 EBITDA margin 34.9 46.1 32.1 (24.2) 8.8 PBT 1,350 983 631 37.3 113.9 PAT-reported 1,142 949 565 20.4 102.2

Change (%)

- Strong revenue growth led by construction segment- Margin decline likely led by lower-than-expected toll segment margins- Construction segment reports strong margins of 18.2%

- Revenue growth led by power segment with start of commercial operation of 2 power plants- Net income declines by 19% yoy led by higher interest and depreciation costs


IRB Infrastructure Developers: Results boosted by construction business

Construction segment reported a strong growth of 120.7% in revenues to Rs2.7 bn in 1QFY10 versus Rs1.2 bn in 1QFY09. Operating margins were also strong at 18.4% versus our full year assumption of 16% for the full year. Lower-than-expected EBITDA margin of 40.1% is likely led by lower-than-expected toll segment margins. Lower net income profitability was led by lower EBITDA margin as well as higher interest cost.

Toll revenue growth led by start of toll collection in Surat-Dahisar project

Toll revenues of IRB grew by about 72% yoy to Rs1.9 bn in 1QFY10 from Rs1.1 bn in 1QFY09. The growth was led by (1) start of toll collection in the Surat-Dahisar road project which contributed to Rs778 mn of toll revenues and (2) 6% growth seen in Mumbai-Pune toll revenues. We highlight a potential for a sharp spike in traffic levels in the Surat-Dahisar as well as Bharuch-Surat projects. We believe that the current traffic levels are trough level data and hence the traffic is likely to see a sharp spike in growth along with economic revival.


We reiterate our BUY rating on the stock based on potential upsides from (1) potential traffic growth revival in Surat-Dahisar and Bharuch-Surat projects, (2) potential incremental project wins, (3) recent evidence of relatively low market competition, (4) strong balance sheet with cash generating assets in the portfolio, (5) management assertion that they would grow without dilution, (6) government zeal to push through the road infrastructure development program.

Industrials India


Exhibit 26: IRB (consolidated) - 1QFY10 - Key numbers (Rs mn)

1QFY10 1QFY10E 1QFY09 4QFY09 1QFY10E 1QFY09 4QFY09 FY2010E FY2009 % chgNet Sales 4,141 3,712 2,301 3,211 11.6 80.0 29.0 20,855 9,919 110.3 Total Expenses (2,480) (1,132) (2,006) 119.1 23.6 (11,533) (5,545) 108.0 Direct expenses (2,235) (901) (1,729) 147.9 29.2 (4,682)Employees cost (142) (97) (116) 46.2 22.0 (425)Other Expenditure (103) (134) (161) (22.6) (35.9) (438)EBITDA 1,662 1,681 1,170 1,205 (1.1) 42.0 37.9 9,322 4,374 113.1 Other Income 215 94 59 66 128.1 264.5 227.3 377 296 27.4 PBDIT 1,877 1,775 1,229 1,271 5.7 52.7 47.7 9,699 4,670 107.7 Depreciation (376) (419) (255) (331) (10.1) 47.6 13.8 (1,951) (1,144) 70.6 EBIT 1,500 1,357 974 940 10.6 54.0 59.7 7,748 3,526 119.7 Interest (467) (374) (305) (403) 24.8 53.2 15.8 (2,894) (1,377) 110.2 PBT 1,033 982 669 536 5.2 54.4 92.6 4,854 2,149 125.8 Tax Expense (182) (157) (126) (101) 16.1 44.3 80.2 (988) (378) 161.4 Net Profit 851 826 543 435 3.1 56.8 95.5 3,866 1,772 118.2 Minority interest (37) — — (13) 179.5 (319) (13) 2,321.8 Reprted PAT 815 826 543 422 (1.3) 50.0 92.9 3,547 1,758 101.7

Key ratios (%)Direct expenses/ Sales 54.0 39.2 53.8 47.2 Employees cost/ Sales 3.4 4.2 3.6 4.3 Other exp/ Sales 2.5 5.8 5.0 4.4 EBITDA margin 40.1 45.3 50.8 37.5 44.7 44.1 PBDIT margin 45.3 47.8 53.4 39.6 46.5 47.1PBT margin 24.9 26.5 29.1 16.7 23.3 21.7PAT margin 20.6 22.2 23.6 13.6 18.5 17.9Effective tax rate 17.6 15.9 18.8 18.8 20.3 17.6

%chg


Exhibit 27: IRB - key segmental numbers - 1QFY10 (Rs mn)

1QFY10 1QFY09 4QFY09 1QFY09 4QFY09 FY2010E FY2009 FY2008Revenues 4,356 2,359 3,277 84.7 32.9 20,855 10,215 7,327 BOT 1,607 1,113 1,280 44.4 25.6 8,526 4,543 3,696 Construction 2,750 1,246 1,997 120.7 37.7 12,329 5,672 3,631

EBITDA 1,877 1,227 1,271 52.9 47.7 9,338 4,670 4,110 BOT 1,371 938 907 46.1 51.3 7,365 3,657 3,380 Construction 505 289 364 74.9 38.9 1,973 1,013 730

Margins (%) 43.1 52.0 38.8 44.8 45.7 56.1 BOT 85.3 84.3 70.9 86.4 80.5 91.4 Construction 18.4 23.2 18.2 16.0 17.9 20.1

PBT 1,033 667 536 54.8 92.6 4,854 2,149 1,666 BOT 720 427 334 68.5 115.3 Construction 313 240 202 30.6 55.1

PAT 852 542 422 57.2 101.6 3,547 1,759 1,139 BOT 598 378 287 58.3 108.3 Construction 253 164 135 54.5 87.5

% change


GVK Power & Infrastructure Ltd: Power segment buoyed by gas availability

Strong yoy revenue growth of 150% to Rs3.3 bn primarily led by the power segment with start of commercial operations of Jegurupadu II and Gautami power plants. Net income profitability was adversely affected by higher interest and depreciation costs led by start of commercial operation of the two power plants.

India Industrials


Visible revival in traffic growth in the roads projects; however MIAL traffic declines 7% yoy

Revival of traffic growth in Jaipur-Kishangarh is visible with a healthy growth of 14.1% yoy to Rs397 mn versus an average of 7% growth seen in FY2009. The PCU count has increased by about 7% yoy in 1QFY10 versus relatively flat growth in FY2009. However we highlight that MIAL reported 7% yoy decline in passenger traffic, with revenues remaining flat on a yoy basis.

Reports progress on projects under construction with large proportion of equity already financed

We highlight that GVK has already funded large proportion of equity in projects under construction such as Goindwal (about Rs3 bn), SEZ (about Rs1 bn) and Alaknanda about Rs3 bn) and so may not have large equity requirements in these projects in the near-term.


We retain our BUY rating on the stock based on (1) relatively attractive valuation of about 2X FY2011E P/B, (2) likely pick up in traffic across road and airport assets and (3) potential for incremental project wins with strong balance sheet position post QIP.

Exhibit 28: GVKPIL - consolidated 1QFY10 results - key numbers (Rs mn)

1QFY10 1QFY09 4QFY09 1QFY09 4QFY09 FY2010E FY2009 % chgNet sales 3,322 1,330 1,670 149.8 99.0 19,126 5,138 272.3 Cost of fuel (2,015) (602) (1,035) 234.9 94.7 (11,157) (2,494) 347.4 Employee cost (55) (37) (56) 48.9 (0.5) (87) (173) (49.6) Other expenditure (308) (188) (218) 63.4 40.9 (1,833) (708) 158.7 Cost of goods sold (2,378) (827) (1,309) 187.5 81.7 (13,077) (3,375) 287.5 EBITDA 944 503 361 87.8 161.7 6,049 1,763 243.1 Depreciation (358) (194) (193) 84.7 86.1 (2,258) (780) 189.7 EBIT 586 309 168 89.7 248.3 3,791 983 285.5 Interest (expense) (307) (78) (95) 291.7 224.6 (2,468) (334) 639.3 Other income/(expense) 38 84 21 (54.8) 78.8 9 202 (95.7) Pre-tax profit 317 314 95 0.8 234.1 1,331 851 56.4 Income tax (80) (30) (11) 166.2 665.7 (571) (101) 463.3 Minority interest (22) (1) (0) 1,741.7 5,425.0 (45) (3) 1,368.2 Share from associates 113 123 47 (7.9) 143.2 534 316 69.3 Net profit 327 406 130 (19.3) 151.0 1,249 1,072 16.5

Key ratios (%)Cost of fuel/ Sales 60.7 45.2 62.0 58.3 48.5 Employee cost/ Sales 1.7 2.8 3.3 0.5 3.4 Other exp/ Sales 9.3 14.2 13.1 9.6 13.8 EBITDA margin 28.4 37.8 21.6 31.6 34.3 PBT margin 9.5 23.6 5.7 7.0 16.6 PAT margin 9.9 30.5 7.8 6.5 20.9 Effective tax rate 25.4 9.6 11.1 42.9 11.9

%chg


Industrials India


Exhibit 29: GVKPIL - 1QFY10 segmental results (Rs mn)

1QFY10 1QFY09 4QFY09 1QFY09 4QFY09Segment revenuePower 2,893 952 1,254 204.0 130.8 Roads 397 348 385 14.1 3.1 Others 32 30 31 6.0 4.6 Net sales 3,322 1,330 1,669 149.8 99.0 Segment resultPower 366 71 (39) 414.6 (1,035.8) Roads 188 211 183 (11.0) 2.7 Others 32 26 25 20.8 26.1 EBIT MarginPower 12.6 7.5 (3.1) Roads 47.3 60.6 47.5 Others 100.0 87.7 83.0 Capital employedPower 45,722 20,019 45,055 128.4 1.5 Roads 5,169 5,619 5,314 (8.0) (2.7) Others 1,236 2,219 1,288 (44.3) (4.0) Unallocated (26,960) (3,857) (26,786) 599.1 0.6 Total 25,168 24,001 24,870 4.9 1.2

%change


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st 5, 2009 Kotak Institutional Equities: Valuation summary of key Indian companies

4-Aug-09 Mkt cap.

O/S shares EPS (Rs) EPS growth (%) PER (X)

Company Price (Rs) Rating (Rs mn) (US$ mn) (mn) 2009E 2010E 2011E 2009E 2010E 2011E 2009E 2010E 2011EAutomobilesAshok Leyland 36 ADD 48,358 1,013 1,330 1.5 2.3 2.4 (57.8) 50.3 5.8 23.8 15.8 15.0

Bajaj Auto 1,322 ADD 191,250 4,006 145 45.2 85.0 100.9 (13.4) 87.9 18.7 29.2 15.5 13.1

Hero Honda 1,617 REDUCE 322,925 6,764 200 64.2 87.5 94.9 32.5 36.3 8.5 25.2 18.5 17.0

Mahindra & Mahindra 927 ADD 270,346 5,662 292 28.7 51.1 53.3 (23.3) 78.1 4.2 32.3 18.1 17.4

Maruti Suzuki 1,493 SELL 431,347 9,034 289 42.2 70.0 73.0 (29.6) 65.9 4.3 35.4 21.3 20.5

Tata Motors 443 SELL 246,499 5,163 556 20.8 23.7 26.0 (58.3) 14.1 9.6 21.3 18.7 17.1

Automobiles Cautious 1,510,725 31,642 (24.8) 56.4 8.3 29.1 18.6 17.2 Banks/Financial InstitutionsAndhra Bank 91 BUY 44,014 922 485 13.5 13.3 15.2 13.5 (1.5) 14.4 6.7 6.8 6.0

Axis Bank 895 BUY 321,202 6,727 359 50.6 59.1 68.2 56.9 16.8 15.6 17.7 15.2 13.1

Bank of Baroda 433 ADD 158,310 3,316 366 60.9 60.9 62.1 55.1 0.0 1.9 7.1 7.1 7.0

Bank of India 334 ADD 175,603 3,678 526 57.2 51.5 56.2 40.7 (9.9) 9.1 5.8 6.5 5.9

Canara Bank 285 ADD 117,014 2,451 410 50.5 41.4 51.1 32.4 (18.1) 23.3 5.6 6.9 5.6

Corporation Bank 352 BUY 50,533 1,058 143 62.3 58.0 57.1 21.5 (6.8) (1.6) 5.7 6.1 6.2

Federal Bank 239 BUY 40,885 856 171 27.8 34.3 39.9 (19.2) 23.6 16.1 8.6 7.0 6.0

HDFC 2,505 NR 712,462 14,922 284 80.2 93.4 105.4 (6.4) 16.4 12.9 31.2 26.8 23.8

HDFC Bank 1,469 REDUCE 664,097 13,909 452 52.8 63.3 73.5 17.6 20.0 16.0 27.8 23.2 20.0

ICICI Bank 764 REDUCE 850,052 17,804 1,113 33.8 34.3 40.4 (15.4) 1.7 17.6 22.6 22.2 18.9

IDFC 139 ADD 180,108 3,772 1,295 5.8 7.7 8.7 1.9 33.9 12.6 24.0 17.9 15.9

India Infoline 141 ADD 43,901 919 312 5.1 7.7 8.2 (8.7) 50.5 7.3 27.6 18.3 17.1

Indian Bank 145 BUY 62,166 1,302 430 28.0 27.6 30.2 24.1 (1.4) 9.7 5.2 5.2 4.8

Indian Overseas Bank 89 BUY 48,487 1,016 545 24.3 19.7 25.4 10.3 (18.9) 28.6 3.7 4.5 3.5

J&K Bank 459 BUY 22,236 466 48 84.5 86.6 96.3 13.8 2.4 11.2 5.4 5.3 4.8

LIC Housing Finance 614 NR 52,217 1,094 85 62.5 68.8 80.3 37.3 10.0 16.8 9.8 8.9 7.6

Mahindra & Mahindra Financial 245 ADD 23,451 491 96 22.4 26.7 28.8 7.5 19.0 8.1 10.9 9.2 8.5

Oriental Bank of Commerce 178 REDUCE 44,521 932 251 36.1 29.1 31.5 51.4 (19.4) 8.3 4.9 6.1 5.6

PFC 232 SELL 266,224 5,576 1,148 13.0 18.0 20.0 14.3 38.6 11.1 17.9 12.9 11.6

Punjab National Bank 707 BUY 223,013 4,671 315 98.0 100.7 115.2 50.9 2.7 14.4 7.2 7.0 6.1

Reliance Capital 913 ADD 224,658 4,705 246 39.3 29.0 28.9 (5.6) (26.2) (0.5) 23.2 31.4 31.6

Rural Electrification Corp. 197 BUY 168,887 3,537 859 16.5 19.6 21.3 50.7 19.1 8.8 12.0 10.0 9.2

Shriram Transport 300 ADD 63,473 1,329 212 30.1 32.5 36.9 56.8 7.9 13.7 10.0 9.2 8.1

SREI 69 ADD 8,065 169 116 7.0 7.5 6.8 (38.4) 6.1 (9.5) 9.8 9.3 10.2

State Bank of India 1,857 BUY 1,179,258 24,699 635 143.7 129.8 149.1 34.8 (9.6) 14.9 12.9 14.3 12.5

Union Bank 234 BUY 118,248 2,477 505 34.2 32.4 35.4 24.5 (5.1) 9.2 6.8 7.2 6.6

Banks/Financial Institutions Attractive 5,863,087 122,800 26.7 1.2 13.1 13.5 13.3 11.8 CementACC 900 REDUCE 169,083 3,541 188 56.3 74.0 57.1 (12.2) 31.6 (22.8) 16.0 12.2 15.8 Ambuja Cements 109 REDUCE 166,167 3,480 1,522 7.2 7.9 6.6 (5.0) 10.2 (16.8) 15.2 13.8 16.6 Grasim Industries 2,790 REDUCE 255,806 5,358 92 238.6 251.9 266.5 (16.2) 5.6 5.8 11.7 11.1 10.5

India Cements 155 ADD 43,650 914 282 17.8 19.4 15.2 n/a 9.1 (21.8) 8.7 8.0 10.2

Shree Cement 1,728 BUY 60,192 1,261 35 174.7 209.9 195.6 93.7 20.1 (6.8) 9.9 8.2 8.8

UltraTech Cement 803 BUY 99,959 2,094 124 78.8 90.2 73.8 (3.1) 14.5 (18.2) 10.2 8.9 10.9

Cement Neutral 794,856 16,648 (8.0) 13.6 (10.4) 12.4 10.9 12.1 Consumer productsAsian Paints 1,412 ADD 135,468 2,837 96 38.6 56.1 65.6 (1.7) 45.4 16.9 36.6 25.2 21.5 Colgate-Palmolive (India) 664 REDUCE 90,354 1,892 136 21.6 28.0 31.0 26.3 29.7 10.7 30.8 23.7 21.5 GlaxoSmithkline Consumer (a) 1,108 ADD 46,585 976 42 44.8 60.9 68.5 15.8 36.0 12.4 24.7 18.2 16.2 Godrej Consumer Products 234 ADD 60,462 1,266 258 6.7 8.7 10.0 (5.3) 30.3 14.9 35.0 26.9 23.4 Hindustan Unilever 294 BUY 640,762 13,421 2,179 9.5 10.6 12.2 19.0 11.1 15.0 30.9 27.8 24.2 ITC 247 BUY 928,962 19,457 3,769 8.7 10.3 11.8 2.8 19.3 14.3 28.5 23.9 20.9 Jyothy Laboratories 111 ADD 8,052 169 73 5.5 10.0 12.1 (12.9) 80.6 21.7 20.1 11.1 9.1 Nestle India (a) 2,179 ADD 210,104 4,401 96 58.6 73.0 85.6 31.0 24.6 17.3 37.2 29.9 25.5 Tata Tea 904 BUY 55,922 1,171 62 57.0 62.8 69.2 5.3 10.1 10.2 15.9 14.4 13.1

Consumer products Attractive 2,176,670 45,589 9.9 19.7 14.5 29.7 24.8 21.7 ConstructionsIVRCL 333 BUY 45,127 945 135 16.7 18.2 22.4 7.4 9.3 22.9 20.0 18.3 14.9 Nagarjuna Construction Co. 150 NR 34,293 718 229 6.7 7.5 9.1 (6.3) 12.0 21.2 22.3 19.9 16.4 Punj Lloyd 241 BUY 74,962 1,570 311 (6.9) 16.9 19.8 (169.6) (343.2) 17.2 (34.7) 14.3 12.2 Sadbhav Engineering 744 BUY 9,296 195 13 50.6 55.6 77.9 25.0 9.8 40.2 14.7 13.4 9.5 Construction Attractive 163,678 3,428 (70.7) 373.9 20.8 74.9 15.8 13.1

EV/EBITDA (X) Price/BV (X) RoE (%)

Target price Upside

ADVT-3mo

2009E 2010E 2011E 2009E 2010E 2011E 2009E 2010E 2011E 2009E 2010E 2011E (Rs) (%) (US$ mn)

14.0 9.0 7.4 1.3 1.2 1.2 2.8 2.8 2.8 6.2 8.1 8.2 37 1.8 4.2

15.6 9.2 8.1 10.2 7.1 5.1 1.5 1.5 1.5 37.7 53.1 44.0 1,260 (4.7) 6.3

15.0 11.1 9.8 8.2 6.3 5.0 1.2 1.4 1.4 36.6 38.7 32.6 1,330 (17.8) 19.1

21.7 12.1 11.2 5.1 3.7 3.1 1.0 1.0 1.0 17.4 23.8 19.4 915 (1.3) 22.8

21.2 12.1 10.8 4.5 3.7 3.2 0.3 0.2 0.3 13.4 19.0 16.8 1,100 (26.3) 21.6

14.5 10.7 9.7 1.8 1.7 1.5 1.3 1.3 1.3 9.0 9.3 — 335 (24.4) 46.0

17.0 11.0 9.9 4.0 3.3 2.9 1.0 1.0 1.1 13.6 17.9 16.7

— — — 1.2 1.1 1.0 5.0 3.7 4.2 18.9 16.6 16.9 105 15.7 1.9

— — — 3.5 3.1 2.7 1.1 1.3 1.5 19.1 19.2 19.2 850 (5.0) 73.2

— — — 1.4 1.2 1.1 2.1 2.1 2.1 18.7 16.3 14.7 480 10.8 9.9

— — — 1.5 1.2 1.1 2.4 2.2 2.4 29.2 21.0 19.3 370 10.8 15.7

— — — 1.2 1.0 0.9 2.8 2.8 3.5 18.3 13.2 14.7 295 3.4 5.6

— — — 1.0 0.9 0.8 3.5 3.3 3.3 19.6 16.0 14.0 420 19.2 0.9

— — — 0.9 0.9 0.8 2.2 2.7 3.1 11.5 12.9 13.5 320 33.9 3.2

— — — 5.4 4.8 4.3 1.2 1.3 1.5 18.2 18.7 18.6 — — 65.1

— — — 4.4 3.1 2.8 0.6 0.8 0.9 16.9 15.8 14.7 1,430 (2.7) 50.8

— — — 1.7 1.6 1.6 1.4 1.5 1.7 7.8 7.5 8.4 685 (10.3) 188.1

— — — 2.9 2.6 2.3 0.9 0.9 1.1 12.9 15.4 15.3 120 (13.7) 51.2

— — — 3.6 2.9 2.5 1.8 2.3 2.7 11.9 17.5 17.2 145 3.0 16.6

— — — 1.1 1.0 0.8 3.5 3.3 3.6 22.9 19.2 18.2 185 27.9 2.9

— — — 0.8 0.7 0.6 5.9 4.2 4.6 22.1 14.2 16.1 140 57.3 4.3

— — — 1.0 0.9 0.8 3.7 3.8 4.2 16.7 15.1 14.9 550 19.9 0.5

— — — 2.2 1.8 1.5 2.2 2.5 2.9 26.2 23.9 23.4 — — 20.4

— — — 1.7 1.4 1.3 2.3 2.7 2.9 15.4 16.4 15.8 270 10.2 1.0

— — — 0.9 0.8 0.8 4.1 3.3 3.6 13.7 9.6 9.7 190 6.9 3.1

— — — 2.4 2.1 1.9 1.2 2.3 2.6 13.8 17.3 17.2 185 (20.2) 6.2

— — — 1.7 1.4 1.2 2.8 2.8 3.3 23.0 20.3 20.1 800 13.1 18.2

— — — 3.3 3.1 2.8 0.6 0.5 0.5 15.3 10.2 9.3 875 (4.1) 157.6

— — — 2.4 2.0 1.7 1.0 1.8 2.0 21.2 21.5 19.9 190 (3.4) 6.0

— — — 2.9 2.5 2.0 2.9 3.2 3.7 29.6 27.0 25.8 350 16.6 3.2

— — — 0.8 0.7 0.6 1.4 1.7 1.7 12.5 10.3 10.2 90 29.8 4.0

— — — 2.0 1.8 1.7 1.6 1.6 1.7 17.1 13.5 14.0 1,870 0.7 113.4

— — — 1.7 1.4 1.2 2.1 2.0 2.2 27.2 21.2 19.5 280 19.6 7.7

— — — 2.2 1.9 1.7 1.6 1.7 1.9 16.1 14.4 14.6

8.1 6.2 7.1 3.2 2.7 2.4 2.6 2.6 2.6 24.7 27.1 18.4 875 (2.8) 13.4 8.2 7.6 8.5 2.7 2.4 2.2 2.7 1.7 2.0 19.7 19.1 14.1 85 (22.1) 7.6 6.6 5.4 5.2 2.2 1.9 1.6 1.2 1.2 1.2 21.1 18.4 16.8 2,560 (8.2) 11.9

5.9 4.7 5.3 1.2 1.0 1.0 1.2 1.4 2.1 14.8 14.6 10.4 155 0.3 10.1

6.7 4.7 4.4 5.0 3.0 2.3 0.6 0.6 0.6 65.7 46.0 29.4 2,000 15.8 0.8

6.1 4.8 5.3 2.3 1.9 1.6 0.7 1.0 1.0 31.1 27.3 18.3 900 12.1 5.9

7.0 5.6 5.9 2.5 2.1 1.8 1.7 1.5 1.6 20.0 19.0 14.9

21.8 15.1 12.9 11.9 9.8 8.1 1.2 1.9 2.2 36.6 44.4 42.8 1,400 (0.9) 1.0 25.4 20.0 16.8 41.8 37.8 42.0 2.3 3.4 4.2 155.1 167.1 185.2 620 (6.7) 2.9 14.1 10.6 9.4 6.1 5.1 4.5 1.4 2.0 2.8 26.8 30.7 29.6 1,200 8.3 0.9 24.2 16.9 14.6 10.6 6.5 5.7 1.7 1.7 1.7 46.9 30.2 26.0 210 (10.4) 0.9 23.7 20.9 18.1 31.1 27.8 24.9 3.0 3.2 3.7 112.4 105.9 108.9 320 8.8 26.3 17.5 14.7 13.0 6.4 5.6 4.8 1.5 1.6 1.8 25.3 26.3 26.0 255 3.4 36.8 12.8 6.8 5.1 2.2 1.9 1.7 2.1 2.6 3.2 10.7 16.8 19.0 145 30.7 23.7 19.9 16.8 44.4 36.2 29.8 2.0 2.4 2.8 126.7 133.6 128.5 2,400 10.1 1.7 8.4 7.5 6.2 1.2 1.1 1.0 1.9 2.1 2.3 9.8 10.1 10.4 900 (0.5) 3.3

19.4 16.2 14.1 8.7 7.6 6.7 2.0 2.3 2.6 29.3 30.6 30.9

13.7 10.6 8.8 2.5 2.2 1.9 0.2 0.2 0.2 13.2 12.8 13.8 360 8.0 32.7 12.1 10.2 9.0 2.0 1.9 1.7 0.8 1.1 1.3 9.4 9.8 11.0 — — 8.9 23.3 8.1 7.2 3.0 2.5 2.1 0.1 0.3 0.4 (8.6) 19.9 19.4 300 24.5 44.4 10.3 7.8 6.4 2.7 2.3 1.9 0.7 0.8 0.9 18.0 16.8 19.4 830 11.6 0.2 16.1 9.1 7.9 2.6 2.2 1.9 0.3 0.5 0.6 3.4 14.2 14.8

Dividend yield (%)

Source: Company, Bloomberg, Kotak Institutional Equities estimates

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Kotak Institutional Equities: Valuation summary of key Indian companies

4-Aug-09 Mkt cap.


Company Price (Rs) Rating (Rs mn) (US$ mn) (mn) 2009E 2010E 2011E 2009E 2010E 2011E 2009E 2010E 2011EEnergyBharat Petroleum 488 SELL 159,961 3,350 328 20.4 38.2 41.8 (50.7) 87.6 9.5 24.0 12.8 11.7

Cairn india 239 REDUCE 453,778 9,504 1,897 4.3 8.8 30.8 (3,703) 105 249.9 56 27 7.8

Castrol India (a) 468 BUY 57,870 1,212 124 21.3 31.1 32.0 20.8 45.9 3.0 22.0 15.1 14.6

GAIL (India) 320 ADD 405,658 8,496 1,268 22.1 20.6 22.1 8.4 (6.8) 7.2 14.5 15.5 14.5

GSPL 70 REDUCE 39,226 822 563 2.2 3.5 6.7 21.7 58.3 92.7 31.8 20.1 10.4

Hindustan Petroleum 359 REDUCE 121,535 2,546 339 17.0 41.4 38.6 (49.3) 144.0 (6.8) 21.1 8.7 9.3

Indian Oil Corporation 543 REDUCE 640,253 13,410 1,179 18.9 63.8 43.5 (69.1) 236.9 (31.8) 28.7 8.5 12.5

Oil & Natural Gas Corporation 1,142 BUY 2,442,181 51,151 2,139 91.4 95.8 114.6 (1.5) 4.9 19.6 12.5 11.9 10.0

Petronet LNG 71 REDUCE 53,175 1,114 750 6.9 7.2 8.6 — 3.6 19.6 10.3 9.9 8.3

Reliance Industries 2,040 SELL 2,800,577 58,657 1,373 103.4 103.1 148.2 (1.5) (0.2) 43.6 19.7 19.8 13.8

Reliance Petroleum 127 NR 570,825 11,956 4,500 — 3.1 10.0 n/a n/a n/a n/a n/a 12.6

Energy Cautious 7,745,039 162,217 (10.6) 27.0 30.4 18.1 14.3 11.0 IndustrialsABB 712 REDUCE 150,836 3,159 212 25.8 23.3 30.0 11.3 (9.8) 28.6 27.6 30.5 23.7

BGR Energy Systems 352 ADD 25,333 531 72 15.6 25.9 30.9 29.0 65.4 19.2 22.5 13.6 11.4

Bharat Electronics 1,489 REDUCE 119,088 2,494 80 101.9 113.7 121.2 (0.0) 11.5 6.6 14.6 13.1 12.3

Bharat Heavy Electricals 2,331 REDUCE 1,141,242 23,903 490 64.1 93.1 106.8 9.8 45.1 14.8 36.3 25.0 21.8

Crompton Greaves 285 ADD 104,554 2,190 367 15.3 17.7 20.3 37.3 15.3 15.0 18.6 16.1 14.0

Larsen & Toubro 1,519 ADD 906,596 18,988 597 52.6 60.1 71.7 38.7 14.3 19.3 28.9 25.3 21.2

Maharashtra Seamless 258 BUY 18,179 381 71 35.9 33.0 35.3 22.2 (7.9) 6.9 7.2 7.8 7.3

Siemens 486 REDUCE 163,742 3,430 337 14.2 22.8 22.7 (22.2) 61.0 (0.5) 34.3 21.3 21.4

Suzlon Energy 97 ADD 163,345 3,421 1,678 7.4 3.9 6.1 12.8 (47.2) 54.7 13.1 24.9 16.1

Industrials Neutral 2,792,916 58,497 16.4 18.2 17.4 27.4 23.2 19.8 InfrastructureGVK Power & Infrastructure 44 BUY 69,801 1,462 1,579 0.8 0.7 1.0 (20.6) (13.6) 54.9 58.0 67.1 43.3

IRB Infrastructure 190 BUY 63,066 1,321 332 5.3 10.7 13.6 54.3 101.7 27.5 35.9 17.8 13.9 Infrastructure Attractive 132,867 2,783 13.7 62.1 33.8 46.9 29.0 21.7 MediaDishTV 48 REDUCE 45,568 954 946 (8.8) (3.2) (1.3) n/a (63.4) (60.8) (5.5) (15.0) (38.3)

HT Media 105 ADD 24,491 513 234 0.9 4.8 6.6 (78.8) 422.4 37.4 114.1 21.8 15.9

Jagran Prakashan 92 ADD 27,708 580 301 3.0 4.8 5.8 (6.6) 58.0 20.0 30.3 19.1 16.0

Sun TV Network 264 REDUCE 104,136 2,181 394 9.1 11.3 13.3 9.3 24.4 18.4 29.2 23.5 19.8

Zee Entertainment Enterprises 202 REDUCE 87,624 1,835 434 8.3 10.0 12.0 (6.5) 20.6 19.5 24.4 20.2 16.9

Zee News 41 ADD 9,866 207 240 1.9 2.2 2.7 21.3 14.7 23.4 21.9 19.1 15.5

Media Neutral 299,392 6,271 (22.3) 112.2 49.0 71.9 33.9 22.7

Metals

Hindalco Industries 113 BUY 197,870 4,144 1,753 2.8 3.5 11.1 (77.9) 25.5 218.4 40.8 32.5 10.2

National Aluminium Co. 334 SELL 214,974 4,503 644 19.7 13.7 20.4 (22.0) (30.6) 48.8 16.9 24.3 16.4

Jindal Steel and Power 2,957 SELL 455,194 9,534 154 198.0 247.1 236.4 139.3 24.8 (4.3) 14.9 12.0 12.5

JSW Steel 729 SELL 136,302 2,855 187 13.1 36.8 65.9 (84.7) 180.1 79.1 55.4 19.8 11.1

Hindustan Zinc 735 BUY 310,688 6,507 423 64.6 57.3 74.1 (38.0) (11.2) 29.3 11.4 12.8 9.9

Sesa Goa 238 BUY 187,442 3,926 787 25.1 25.5 34.2 32.6 1.3 34.3 9.5 9.4 7.0

Sterlite Industries 670 REDUCE 563,509 11,802 840 49.2 29.8 38.0 (23.6) (39.3) 27.2 13.6 22.5 17.7

Tata Steel 475 BUY 421,826 8,835 887 110.0 41.2 78.8 45.3 (62.6) 91.6 4.3 11.6 6.0

Metals Cautious 2,487,805 52,106 (0.8) (29.0) 47.3 10.8 15.2 10.3

PharmaceuticalBiocon 230 BUY 46,020 964 200 4.7 14.4 18.6 (79.9) 206.8 29.3 49.1 16.0 12.4 Dishman Pharma & chemicals 194 BUY 15,807 331 81 18.0 21.2 27.3 22.1 17.9 28.7 10.8 9.2 7.1 Divi's Laboratories 499 BUY 32,233 675 65 31.9 36.8 43.3 19.9 15.2 17.7 15.7 13.6 11.5 Dr Reddy's Laboratories 817 BUY 138,473 2,900 169 32.4 49.3 52.5 24.3 52.2 6.4 25.2 16.6 15.6 Glenmark Pharmaceuticals 248 BUY 65,958 1,381 266 11.1 11.6 15.7 (57.0) 4.2 35.1 22.3 21.4 15.8 Jubilant Organosys 215 BUY 36,686 768 171 16.6 24.5 32.9 (26.1) 48.2 34.2 13.0 8.7 6.5 Lupin 926 BUY 82,050 1,719 89 60.2 67.1 72.3 21.0 11.4 7.8 15.4 13.8 12.8 Piramal Healthcare 333 BUY 69,587 1,457 209 17.3 22.1 28.5 (1.9) 28.0 29.0 19.3 15.1 11.7 Ranbaxy Laboratories 281 REDUCE 119,900 2,511 427 (8.1) 4.7 5.1 (134.7) NA NA (34.7) NA 55.6 Sun Pharmaceuticals 1,159 ADD 240,079 5,028 207 87.8 47.6 64.2 17.6 (45.8) 34.9 13.2 24.4 18.1 Pharmaceuticals Attractive 1,058,527 22,170 (19.8) 19.3 21.4 22.0 18.5 15.2 PropertyDLF 398 SELL 676,716 14,174 1,699 29.3 14.7 17.5 (36.6) (49.8) 19.2 13.6 27.1 22.7 Housing Development & Infrastructur 278 ADD 96,133 2,013 345 26.0 12.0 23.3 (49.2) (53.9) 94.8 10.7 23.3 11.9 Indiabulls Real Estate 256 ADD 102,835 2,154 401 3.0 3.1 7.5 (81.8) 3.8 141.1 85.5 82.3 34.1 Mahindra Life Space Developer 321 BUY 13,518 283 42 10.4 10.8 15.4 (38.5) 4.1 42.5 31.1 29.8 20.9 Phoenix Mills 135 BUY 19,583 410 145 5.2 6.0 8.5 63.1 15.8 41.3 26.2 22.6 16.0 Puravankara Projects 97 REDUCE 20,681 433 213 6.8 7.0 7.4 (39.8) 3.6 6.0 14.3 13.8 13.0 Sobha 222 ADD 21,809 457 98 15.1 14.3 16.1 (52.3) (5.6) 12.5 14.7 15.6 13.8 Unitech 94 SELL 225,252 4,718 2,389 7.7 4.4 4.6 (25.7) (42.8) 3.7 12.3 21.5 20.7 Property Neutral 1,176,528 24,642 (36.3) (39.9) 31.0 15.5 25.8 19.7


Target price Upside

ADVT-3mo


5.4 5.3 5.0 1.2 1.1 1.0 1.6 3.4 3.7 5.2 9.1 9.4 475 (2.7) 11.0

39.2 13.6 5.4 1.4 1.3 1.2 — — 8.4 2.5 4.9 16.2 225 (6.0) 34.9

12.5 9.0 8.6 12.9 11.3 10.2 3.2 4.7 4.9 61.2 80.2 73.5 480 2.6 1.0

7.6 8.8 8.9 2.5 2.2 2.0 1.5 1.7 1.7 17.6 14.4 13.9 330 3.2 17.7

11.2 6.6 4.2 2.9 2.7 2.7 1.1 1.7 9.6 9.6 13.9 25.7 65 (6.7) 7.8

6.4 5.1 NA 1.0 0.9 NA 1.5 4.5 4.2 4.4 10.1 8.8 375 4.6 14.1

10.3 4.7 5.2 1.4 1.2 1.1 1.4 3.4 2.3 4.6 14.6 9.1 550 1.3 9.2

4.5 4.3 3.6 2.2 2.0 1.8 2.8 3.2 3.7 17.3 16.2 17.5 1,200 5.1 61.5

7.4 6.7 5.7 2.4 2.0 1.6 2.5 2.8 3.2 23.9 20.6 20.6 64 (9.7) 8.3

11.7 8.3 6.0 2.4 2.1 1.9 0.7 0.8 1.0 15.1 13.0 16.6 1,600 (21.6) 236.7

n/a n/a 9.6 4.2 4.1 3.3 — 1.6 1.6 0.6 10.1 29.0 — — 24.4

8.5 6.5 5.3 2.1 1.9 1.7 1.4 2.0 2.6 11.5 13.3 15.6

16.3 17.2 13.1 7.1 6.0 4.9 0.3 0.4 0.4 29.2 21.3 22.7 660 (7.3) 9.1

12.5 8.4 7.0 4.4 3.5 2.8 0.8 1.3 1.5 21.6 28.8 27.4 400 13.7 1.6

6.5 5.8 5.2 3.0 2.6 2.2 1.7 1.7 1.7 22.4 21.3 19.5 1,450 (2.6) 2.9

20.0 14.0 12.0 8.8 7.0 5.6 0.7 0.9 1.0 26.4 31.0 28.5 2,100 (9.9) 57.8

9.9 8.6 7.3 5.7 4.4 3.5 0.7 0.8 0.9 35.9 30.8 27.6 315 10.4 5.4

17.1 14.8 12.6 5.7 4.4 3.7 0.7 0.7 0.8 22.5 19.7 19.0 1,525 0.4 110.0

4.1 4.2 3.6 1.3 1.2 1.0 2.1 1.9 2.5 20.3 16.0 15.0 285 10.6 1.4

16.3 12.2 12.3 7.3 6.0 4.9 0.6 1.5 0.9 23.3 30.8 25.2 515 6.0 7.8

10.9 12.3 10.3 1.7 1.4 1.3 - - 0.2 12.5 6.2 8.3 110 13.0 163.6

15.5 13.1 11.2 5.5 4.4 3.7 0.7 0.8 0.9 20.2 19.0 18.8

52.5 17.4 16.0 3.0 2.2 2.1 — — 0.7 4.8 3.8 5.0 50 13.1 21.8

18.9 9.8 9.0 3.5 2.8 2.3 0.6 — — 10.1 17.4 18.1 200 5.4 10.8 29.3 12.8 11.7 3.2 2.5 2.2 0.3 — 0.4 6.8 8.5 10.2

(32.4) 69.9 16.2 (7.4) (9.0) (21.5) — — — 84.4 54.0 NA 35 (27.3) 15.4

26.1 10.7 8.7 2.9 2.7 2.5 0.4 0.8 2.5 2.5 12.8 16.3 125 19.6 0.6

17.2 11.0 9.2 4.9 4.6 4.2 2.2 3.1 3.4 16.7 24.9 27.4 105 14.1 1.1

15.3 13.0 10.9 6.0 5.2 4.7 0.9 1.5 2.3 22.5 24.0 24.9 235 (11.1) 2.6

17.3 14.5 11.7 2.6 2.4 2.3 1.1 1.3 1.6 11.9 13.0 14.4 160 (20.8) 8.3

11.4 9.3 7.9 4.0 3.4 2.9 1.0 1.0 1.5 20.1 19.6 20.7 45 9.4 1.5

22.5 14.8 11.1 4.9 4.4 3.8 0.9 1.3 1.8 6.8 12.9 16.7

12.2 8.9 7.0 0.6 0.5 0.5 — — — 10.3 5.2 6.5 135 19.6 28.0

8.6 9.2 6.3 2.0 1.9 1.7 1.0 0.6 0.6 12.7 8.1 11.1 290 (13.1) 4.0

9.8 7.8 7.5 6.0 4.0 3.0 — 0.2 0.2 51.9 40.3 27.6 2,150 (27.3) 50.1

10.0 9.5 7.1 1.5 1.2 1.1 0.1 0.4 0.7 11.7 5.1 10.7 440 (39.6) 57.2

7.5 7.5 5.0 2.1 1.8 1.5 0.5 0.7 0.7 20.1 15.1 16.7 825 12.2 6.2

6.2 5.8 3.6 4.1 3.0 2.2 1.5 1.5 1.5 53.3 36.9 35.9 240 0.8 49.6

9.8 9.7 7.3 2.2 1.5 1.4 — — — 14.3 8.1 8.4 550 (18.0) 66.0

5.0 7.7 5.8 1.0 1.0 0.9 3.0 3.4 3.4 36.3 15.5 25.7 465 (2.2) 146.5

7.6 8.2 6.3 1.7 1.4 1.3 0.8 0.9 0.9 15.5 9.4 12.3

19.7 9.2 7.3 3.0 2.6 2.3 0.0 0.0 0.1 6.2 17.8 20.0 270 17.3 6.1 8.8 7.0 5.5 2.2 1.8 1.5 0.0 0.0 0.0 22.8 21.9 22.9 280 44.1 0.7 6.1 4.7 3.5 5.4 4.1 3.2 0.0 0.1 0.1 40.4 34.4 31.1 565 13.1 3.7

10.9 8.7 7.8 3.9 3.3 2.8 0.8 0.9 1.0 13.6 21.4 19.2 860 5.2 8.2 13.2 12.4 9.9 3.2 2.8 2.4 0.0 0.0 0.0 15.9 13.8 16.2 315 27.0 11.5 13.4 8.5 6.7 2.8 2.2 1.8 0.6 0.6 0.8 16.2 28.7 30.8 250 16.5 0.6 14.4 11.9 10.1 5.7 3.7 3.0 1.3 1.4 1.6 37.1 32.9 26.1 1,180 27.4 3.7 13.9 9.9 8.0 5.3 4.1 3.2 1.3 1.4 1.4 26.2 30.9 31.1 390 17.1 2.2

(162.9) 20.6 22.4 2.8 2.9 2.8 - 1.4 1.4 (9.6) 4.9 5.3 165 (41.2) 16.7 9.8 16.6 11.7 3.5 3.2 2.8 1.2 1.2 1.2 31.6 14.3 17.1 1,250 7.8 22.9

14.4 11.8 9.8 3.7 3.2 2.7 0.8 1.0 1.1 16.9 17.3 18.1

13.5 19.4 16.6 2.8 2.6 2.4 0.8 0.8 1.0 22.5 9.8 10.8 320 (19.7) 174.8 12.8 20.0 7.4 2.1 1.4 1.2 — 1.1 1.9 22.4 9.3 14.9 295 NA 124.8 (277) 75.7 18.3 1.5 1.1 1.1 — — — 1.3 1.6 3.2 235 (8.3) 72.5 47.6 28.6 14.8 1.5 1.5 1.4 1.2 1.2 1.2 4.8 4.9 6.7 410 27.5 1.2 29.3 16.5 11.4 1.3 1.2 1.2 0.7 0.7 1.1 5.1 5.7 7.6 210 55.3 0.5 20.9 16.2 13.2 1.6 1.4 1.3 — 2.1 2.1 11.5 10.8 10.7 85 (12.3) 0.4 14.7 11.7 10.8 2.0 1.3 1.2 1.3 1.8 1.8 10.4 9.8 8.8 215 (3.3) 2.0 16.4 16.2 14.8 4.6 2.2 2.0 — — — 29.5 13.2 10.1 60 (36.4) 171.1 15.2 18.9 14.4 2.6 2.0 1.9 0.5 0.6 0.8 16.7 7.8 9.4

Dividend yield (%)


KO

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st 5, 2009 Kotak Institutional Equities: Valuation summary of key Indian companies

4-Aug-09 Mkt cap.


Company Price (Rs) Rating (Rs mn) (US$ mn) (mn) 2009E 2010E 2011E 2009E 2010E 2011E 2009E 2010E 2011ERetailTitan Industries 1,212 REDUCE 53,820 1,127 44 44.3 49.4 58.5 26.4 11.6 18.4 27.4 24.5 20.7

Retail Neutral 53,820 1,127 26.4 11.6 18.4 27.4 24.5 20.7 TechnologyHCL Technologies 252 REDUCE 175,453 3,675 695 16.2 13.1 17.0 6.0 (19.0) 29.5 15.6 19.3 14.9

Infosys Technologies 2,044 BUY 1,173,113 24,570 574 102.4 102.5 112.8 29.6 0.1 10.1 20.0 19.9 18.1

Mphasis BFL 497 REDUCE 103,567 2,169 208 14.2 38.9 33.5 15.7 174.5 (13.9) 35.1 12.8 14.8

Mindtree 456 BUY 18,761 393 41 13.2 37.0 43.9 (50.5) 179.5 18.5 34.4 12.3 10.4

Patni Computer Systems 369 REDUCE 47,360 992 129 26.8 33.8 36.7 (19.3) 26.1 8.6 13.7 10.9 10.0

Polaris Software Lab 124 SELL 12,263 257 99 13.1 13.8 12.9 76.0 5.4 (6.4) 9.5 9.0 9.6

TCS 530 ADD 1,037,610 21,732 1,957 26.4 30.5 33.8 3.1 15.2 10.8 20.0 17.4 15.7

Wipro 482 ADD 705,269 14,772 1,462 25.7 27.5 32.0 15.8 6.6 16.6 18.7 17.6 15.1

Technology Neutral 3,284,011 68,782 14.7 9.4 11.3 19.4 17.7 15.9 TelecomBharti Airtel 401 ADD 1,521,838 31,874 3,797 22.3 26.9 30.6 26.4 20.5 13.8 17.9 14.9 13.1

IDEA 79 REDUCE 243,963 5,110 3,104 2.9 3.4 3.6 (26.5) 15.8 7.3 27.1 23.4 21.8

MTNL 101 SELL 63,819 1,337 630 3.1 (4.8) (3.9) (57.1) (256.5) (18.1) 33.0 (21.1) (25.8)

Reliance Communications 282 SELL 582,570 12,202 2,064 27.7 21.2 23.0 4.7 (23.3) 8.3 10.2 13.3 12.3

Tata Communications 494 REDUCE 140,762 2,948 285 13.6 14.0 15.2 24.0 3.2 8.2 36.4 35.2 32.6

Telecom Cautious 2,552,951 53,471 11.1 1.1 12.8 15.9 15.7 14.0 TransportationContainer Corporation 1,130 ADD 146,884 3,076 130 64.4 67.8 80.3 11.6 5.3 18.5 17.5 16.7 14.1

Transportation Cautious 146,884 3,076 11.6 5.3 18.5 17.5 16.7 14.1 UtilitiesCESC 325 ADD 40,542 849 125 32.3 37.9 42.0 16.2 17.4 11.0 10.1 8.6 7.7

Lanco Infratech 412 ADD 91,499 1,916 222 14.5 20.8 36.6 (2.5) 43.8 76.2 28.5 19.8 11.2

NTPC 216 SELL 1,781,845 37,320 8,245 9.5 10.8 12.2 1.6 14.1 12.6 22.8 20.0 17.7

Reliance Infrastructure 1,187 BUY 268,898 5,632 226 62.7 63.7 68.6 66.7 1.6 7.8 18.9 18.7 17.3

Reliance Power 167 REDUCE 400,138 8,381 2,397 1.0 2.5 3.1 — 141.5 24.4 163.6 67.8 54.5

Tata Power 1,299 ADD 308,344 6,458 237 47.7 74.6 84.1 49.7 56.5 12.7 27.2 17.4 15.4

Utilities Attractive 2,891,265 60,556 12.3 21.2 14.7 25.7 21.2 18.5 OthersAban Offshore 1,158 SELL 43,876 919 38 95.7 152.5 207.1 32 59.4 35.7 12.1 7.6 5.6 Havells India 297 REDUCE 17,956 376 61 4.9 12.3 19.1 (82) NA 56.2 NA 24.2 15.5

Jaiprakash Associates 245 REDUCE 343,356 7,191 1,403 3.0 6.7 11.4 (39) 123.8 70.2 81.5 36.4 21.4 Jindal Saw 520 ADD 29,963 628 58 74.3 61.5 61.1 20 (17.2) (0.7) 7.0 8.5 8.5

PSL 128 BUY 5,598 117 44 22.2 37.6 30.1 5 69.2 (19.8) 5.8 3.4 4.3 Sintex 217 BUY 29,613 620 136 23.8 25.2 27.6 22 5.6 9.6 9.1 8.6 7.9

Tata Chemicals 256 ADD 62,220 1,303 243 26.6 17.8 26.8 (33) (33.0) 50.4 9.6 14.3 9.5 Welspun Gujarat Stahl Rohren 228 REDUCE 42,956 900 189 17.3 24.0 17.8 (16) 38.7 (25.8) 13.1 9.5 12.8

United Phosphorus 179 BUY 82,559 1,729 462 10.7 13.9 18.0 28 29.7 29.6 16.7 12.9 9.9

Others 658,097 13,784 (8.1) 28.1 30.2 21.1 16.4 12.6

KS universe (b) 35,719,317 748,127 1.4 8.5 20.4 18 16.4 13.6

KS universe (b) ex-Energy 27,974,278 585,910 5.2 3.6 17.1 17.7 17.1 14.6

KS universe (d) ex-Energy & ex-Commodities 24,691,616 517,156 7.1 8.9 15.1 19.2 17.6 15.3

Note:(1) For banks we have used adjusted book values.(2) 2009 means calendar year 2008, similarly for 2010 and 2011 for these particular companies.(3) EV/Sales & EV/EBITDA for KS universe excludes Banking Sector.(4) Rupee-US Dollar exchange rate (Rs/US$)= 47.75


Target price Upside

ADVT-3mo


16.5 15.1 12.6 9.3 7.2 5.7 0.8 0.8 1.0 37.5 33.1 30.5 1,040 (14.2) 2.2

16.5 15.1 12.6 9.3 7.2 5.7 0.8 0.8 1.0 34.1 29.3 27.3

8.6 8.5 8.1 2.8 2.7 2.5 4.8 4.8 4.8 18.6 14.4 17.7 135 (46.5) 6.5

14.7 14.1 11.9 6.4 5.2 4.4 1.1 1.2 1.6 36.7 28.9 26.3 1,900 (7.0) 69.8

26.6 9.2 8.7 7.2 4.8 3.8 0.8 0.9 1.0 22.8 45.4 28.8 335 (32.6) 5.8

5.9 8.5 6.5 3.4 2.6 2.1 0.4 — 1.0 5.5 24.0 22.5 500 9.7 4.0

6.6 4.9 4.6 1.9 1.5 1.4 0.5 1.8 2.0 16.2 14.8 14.6 320 (13.2) 4.2

3.8 4.6 4.8 1.6 1.4 1.2 2.2 1.6 1.6 18.1 16.4 13.6 80 (35.6) 3.9

14.0 12.4 10.9 6.6 5.3 4.5 1.3 1.7 2.5 36.9 33.9 31.1 510 (3.8) 39.4

13.8 12.3 10.1 4.7 3.8 3.2 0.8 1.6 1.9 26.9 24.0 23.3 520 7.8 16.3

13.5 12.0 10.5 5.4 4.4 3.8 1.3 1.6 2.1 27.7 24.8 23.6

10.5 8.9 7.6 4.8 3.7 2.9 0.5 0.7 1.0 31.4 28.0 24.6 425 6.0 89.1

10.0 8.3 7.4 1.8 1.7 1.5 — — — 10.4 7.4 8.0 65 (17.3) 22.2

14.1 (17.7) (60.9) 0.5 0.6 0.6 5.9 - - 1.1 (2.6) (2.2) 50 (50.6) 5.1

8.7 8.5 6.7 1.4 1.3 1.2 0.3 — — 17.0 10.6 10.3 240 (15.0) 80.7

15.5 14.1 13.0 2.0 2.0 1.9 1.0 1.3 1.5 5.4 5.2 5.5 400 (19.0) 8.8

10.0 9.0 7.6 2.4 2.1 1.9 0.6 0.5 0.7 15.4 13.5 13.3

12.8 11.6 9.6 3.9 3.3 2.8 1.3 1.3 1.6 24.0 21.4 21.7 1,125 (0.4) 1.3

12.8 11.6 9.6 3.9 3.3 2.8 1.3 1.3 1.6 22.1 19.9 20.1

5.6 5.7 5.9 1.1 1.0 0.8 1.2 1.5 1.6 11.7 11.9 11.6 345 6.3 3.2

24.1 16.3 7.9 4.2 3.3 2.5 — — — 16.1 18.7 25.2 440 6.9 29.8

18.0 14.7 13.9 3.0 2.8 2.6 1.7 1.9 2.1 13.8 14.5 15.0 180 (16.7) 40.5

23.8 21.7 17.2 1.6 1.5 1.4 0.6 0.7 0.8 4.9 6.1 7.8 1,250 5.3 115.9

— — — 2.9 2.8 2.6 — — — 1.8 4.2 5.0 160 (4.2) 37.4

11.9 11.7 11.2 3.1 2.3 2.1 0.8 0.9 1.1 11.4 15.4 14.3 1,250 (3.7) 15.5

19.0 17.0 15.1 2.7 2.5 2.3 1.2 1.3 1.5 10.7 11.7 12.3

11.8 9.5 8.4 2.4 1.9 1.4 0.3 0.3 0.3 26.5 29.9 29.1 400 (65.5) 94.0 10.3 8.3 7.3 2.8 3.3 2.8 0.8 0.8 0.8 4.5 12.4 19.3 175 (41.0) 2.7

26.1 15.8 14.1 6.2 5.2 4.3 — — — 8.0 15.5 21.9 220 (10.1) 105.6 4.8 5.1 4.5 0.9 0.8 0.7 0.9 0.8 0.8 11.6 8.9 8.6 430 (17.4) 4.4

6.3 6.5 5.2 0.7 0.6 0.6 6.8 6.8 6.8 11.9 13.4 11.3 160 24.6 1.1 6.5 5.9 5.0 1.5 1.3 1.1 0.5 0.5 0.6 16.6 15.0 14.2 275 26.8 4.7

6.3 6.5 5.2 1.3 1.3 1.1 3.4 3.4 3.4 17.9 11.0 14.7 260 1.7 5.9 7.4 5.3 6.3 2.4 1.9 1.6 0.9 0.7 0.8 17.8 21.7 13.4 145 (36.3) 26.8

10.9 7.9 6.3 2.7 2.3 1.9 0.7 0.8 1.1 18.1 19.1 20.8 160 (10.5) 6.4

11.8 9.6 8.7 2.8 2.4 2.1 0.6 0.6 0.7 13.2 14.7 16.3

11.5 9.8 8.3 2.7 2.3 2.1 1.2 1.4 1.7 15.1 14.3 15.3

13.0 11.7 10.0 2.9 2.5 2.2 1.1 1.3 1.5 16.5 14.7 15.2

15.2 13.0 11.3 3.2 2.7 2.4 1.2 1.3 1.5 16.5 15.5 15.7

Dividend yield (%)



Disclosures

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

Source: Kotak Institutional Equities As of June 30, 2009

* The above categories are defined as follows: Buy = We expect this stock to outperform the BSE Sensex by 10% over the next 12 months; Add = We expect this stock to outperform the BSE Sensex by 0-10% over the next 12 months; Reduce = We expect this stock to underperform the BSE Sensex by 0-10% over the next 12 months; Sell = We expect this stock to underperform the BSE Sensex by more then 10% over the next 12 months. These ratings are used illustratively to comply with applicable regulations. As of 30/6/2009 Kotak Institutional Equities Investment Research had investment ratings on 138 equity securities.

Percentage of companies covered by Kotak Institutional Equities, within the specified category.

Percentage of companies within each category for which Kotak Institutional Equities and or its affiliates has provided investment banking services within the previous 12 months.

11.6%

31.9%

26.8%29.7%

0.7%2.9%

0.7% 0.7%

0%

10%

20%

30%

40%

50%

60%

70%

BUY ADD REDUCE SELL

Ratings and other definitions/identifiers

Rating system

Definitions of ratings

BUY. We expect this stock to outperform the BSE Sensex by 10% over the next 12 months.

ADD. We expect this stock to outperform the BSE Sensex by 0-10% over the next 12 months.

REDUCE. We expect this stock to underperform the BSE Sensex by 0-10% over the next 12 months.

SELL. We expect this stock to underperform the BSE Sensexby more than 10% over the next 12 months.

Our target price are also on 12-month horizon basis. Other definitions Coverage view. The coverage view represents each analyst’s overall fundamental outlook on the Sector. The coverage view

will consist of one of the following designations: Attractive (A), Neutral (N), Cautious (C). Other ratings/identifiers NR = Not Rated. The investment rating and target price, if any, have been suspended temporarily. Such suspension is in

compliance with applicable regulation(s) and/or Kotak Securities policies in circumstances when Kotak Securities or its

affiliates is acting in an advisory capacity in a merger or strategic transaction involving this company and in certain other

circumstances. CS = Coverage Suspended. Kotak Securities has suspended coverage of this company. NC = Not Covered. Kotak Securities does not cover this company. RS = Rating Suspended. Kotak Securities Research has suspended the investment rating and price target, if any, for this

stock, because there is not a sufficient fundamental basis for determining an investment rating or target. The previous

investment rating and price target, if any, are no longer in effect for this stock and should not be relied upon. NA = Not Available or Not Applicable. The information is not available for display or is not applicable. NM = Not Meaningful. The information is not meaningful and is therefore excluded.

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Copyright 2009 Kotak Institutional Equities (Kotak Securities Limited). All rights reserved.

Kotak Securities Limited and its affiliates are a full-service, integrated investment banking, investment management, brokerage and financing group. We along with our affiliates are leading underwriter of securities and participants in virtually all securities trading markets in India. We and our affiliates have investment banking and other business relationships with a significant percentage of the companies covered by our Investment Research Department. Our research professionals provide important input into our investment banking and other business selection processes. Investors should assume that Kotak Securities Limited and/or its affiliates are seeking or will seek investment banking or other business from the company or companies that are the subject of this material and that the research professionals who were involved in preparing this material may participate in the solicitation of such business. Our research professionals are paid in part based on the profitability of Kotak Securities Limited, which include earnings from investment banking and other business. Kotak Securities Limited generally prohibits its analysts, persons reporting to analysts, and members of their households from maintaining a financial interest in the securities or derivatives of any companies that the analysts cover. Additionally, Kotak Securities Limited generally prohibits its analysts and persons reporting to analysts from serving as an officer, director, or advisory board member of any companies that the analysts cover. Our salespeople, traders, and other professionals may provide oral or written market commentary or trading strategies to our clients that reflect opinions that are contrary to the opinions expressed herein, and our proprietary trading and investing businesses may make investment decisions that are inconsistent with the recommendations expressed herein. In reviewing these materials, you should be aware that any or all of the foregoing, among other things, may give rise to real or potential conflicts of interest. Additionally, other important information regarding our relationships with the company or companies that are the subject of this material is provided herein.

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

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

This report has not been prepared by Kotak Mahindra Inc. (KMInc). However KMInc has reviewed the report and, in so far as it includes current or historical information, it is believed to be reliable, although its accuracy and completeness cannot be guaranteed. Any reference to Kotak Securities Limited shall also be deemed to mean and include Kotak Mahindra Inc.

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