mo - india strategy - jan 2014

Research Team ([email protected])

January 2014

India Strategy

Happy New YearHappy New Year

CAGR % PAT SensexFY03-FY14 17 20

FY03-FY08 26 39FY08-FY14 10 05

FY14-FY16E 15 ??

India Inc PerforMeter

Contents

1. Automobiles 2-14Ashok Leyland 6Bajaj Auto 7Eicher Motors 8Exide Industries 9Hero MotoCorp 10Mahindra & Mahindra 11Maruti Suzuki India 12Tata Motors 13TVS Motor 14

2. Capital Goods 15-26ABB 19BHEL 20Crompton Greaves 21Cummins India 22Havells India 23Larsen & Toubro 24Siemens 25Thermax 26

3. Cement 27-38ACC 31Ambuja Cement 32Birla Corporation 33Grasim Industries 34India Cements 35Jaiprakash Associates 36Shree Cement 37UltraTech Cement 38

4. Consumer 39-54Asian Paints 42Britannia Industries 43Colgate Palmolive 44Dabur India 45GSK Consumer 46Godrej Consumer Products 47Hindustan Unilever 48ITC 49Marico 50Nestle India 51Pidilite Industries 52Radico Khaitan 53United Spirits 54

5a. Financials - Banks 55-75Axis Bank 60Bank of Baroda 61Bank of India 62Canara Bank 63Federal Bank 64HDFC Bank 65ICICI Bank 66Indian Bank 67IndusInd Bank 68ING Vysya Bank 69Kotak Mahindra Bank 70Oriental Bank 71

Punjab National Bank 72State Bank of India 73Union Bank 74Yes Bank 75

5b. Financials - NBFC 76-85Bajaj Finance 78HDFC 79IDFC 80LIC Housing Finance 81M & M Financial Services 82Power Finance Corporation 83Rural Electricfication 84Shriram Transport 85

6. Healthcare 86-104Biocon 92Cadila Healthcare 93Cipla 94Divi’s Laboratories 95Dr Reddy’s Labs. 96GSK Pharma 97Glenmark Pharma 98IPCA Laboratories 99Lupin 100Ranbaxy Labs. 101Sanofi India 102Sun Pharmaceuticals 103Torrent Pharma 104

7. Media 105-115D B Corp 109Dish TV 110HT Media 111Jagran Prakashan 112PVR 113Sun TV Network 114Zee Entertainment 115

8. Metals 116-128Hindalco 120Hindustan Zinc 121Jindal Steel & Power 122JSW Steel 123Nalco 124NMDC 125Sesa Goa 126SAIL 127Tata Steel 128

9. Oil & Gas 129-144BPCL 133Cairn India 134GAIL 135Gujarat State Petronet 136HPCL 137IOC 138Indraprastha Gas 139MRPL 140

Oil India 141ONGC 142Petronet LNG 143Reliance Industries 144

10. Real Estate 145-158DLF 150Godrej Properties 151Indiabulls Real Estate 152Jaypee Infratech 153Mahindra Lifespaces 154Oberoi Realty 155Phoenix Mills 156Prestige Estate Projects 157Sobha Developers 158

11. Retail 159-165Future Retail 162Jubilant Food 163Shoppers Stop 164Titan Company 165

12. Technology 166-180Cognizant Technology 170HCL Technologies 171Hexaware Technologies 172Infosys 173KPIT Technologies 174Mindtree 175MphasiS 176Persistent Systems 177TCS 178Tech Mahindra 179Wipro 180

13. Telecom 181-189Bharti Airtel 186Bharti Infratel 187Idea Cellular 188Reliance Communication 189

14. Utilities 190-203CESC 194Coal India 195Jaiprakash Power Ventures 196JSW Energy 197NHPC 198NTPC 199Power Grid Corp. 200PTC India 201Reliance Infrastructure 202Tata Power 203

15. Others 204-209Bata India 204Castrol India 205Just Dial 206Sintex Industries 207UPL 208V-Guard Industries 209

Note: All stock prices and indices for Section C as on 27 December 2013, unless otherwise stated

Section A: India Strategy - Happy New Year ............................................................................. A1-72

Section B: 3QFY14 Highlights & Ready Reckoner ..................................................................... B1-12

Section C: Sectors & Companies .............................................................................................. C1-209

Investors are advised to refer through disclosures made at the end of the Research Report.

February

Q4

Q3

Q2

Q1

April May

July August

October November December

January March

June

September

Govt to raise prices of diesel by INR0.5/ltr/month, deregulate bulk diesel sales and capssubsidized LPG cylinders at 9/household

Government sets up Cabinet Committee onInvestment (CCI) for fast-tracking approvals

RBI cuts repo rate by 25bp to 7.75% Dec-12 inflation at 36 month low at 7.2% GAAR norms deferred to April 2016 Mobile call prices rise for the first time in

3 years Import tax on gold raised by 2pp to 6%

SC gave the clearance for resumption ofmining operations for A and B categorymines in Karnataka

Billionaire Ambani brothers announcesharing a fibre optic network for theirrival telecoms companies

Ranbaxy pleads guilty in US court, agreesto pay USD500m in penalty

IMD predicts normal monsoon for 2013

Ordinance passed for Food Security Programme approved bythe Union Cabinet

AP being split into Telangana; 29th IndianState to be given a go-ahead.

RBI hikes MSF/Bank Rate by 2% to 10.25%,limits LAF support to 1% of NDTL andannounces OMO sale of INR120b

India relaxes FDI rules in 13 sectorsincluding telecom, single brand retail and oil and gas

Unilever hikes stake in HUL by 14.8% to 67.3% for INR192b

RBI ups repo rate, cuts MSF rate by 25bpeach, restores corridor back to 100bp

Sept 13 sees lowest trade deficit of 30-monthat USD7b

Onion prices hit INR100/kg Ms. Arundhati Bhattacharya joins as CMD of

State Bank of India Appointment of Janet Yellen as next Fed Chairman Rahul Gandhi forces government to drop convicted

politicians decree

RBI releases Guidelines for Licensing of New Banksin the Private Sector

First draft guidelines of US Immigration Bill Strides Arcolab enters into agreement to sell its

specialties business to Mylan for USD1.6b No applications received for bidding in Mar'13

spectrum auctions Coal Price Pooling approval implying that Coal

India is now liable to supply 68% of total coalrequirement for the identified projects

Afzal Guru executed for 2001 parliament attack

GDP at 4.8% for Q4FY13 RBI trimmed the repo rate to 7.25 %, lowest since May

2011; announces OMO of INR100b Apr-13 WPI at 41-month low of 4.9% Congress returns to power in Karnataka Wockhardt swallows the bitter pill of FDA import alert RBI bans jewellery import through the consignment

route accounting for 70% of imports Scandal-hit Railway Minister Pawan Kumar Bansal and

Law Minister Ashwani Kumar quit

India hikes bullion import duty to a record 10% Rupee reaches its all-time low of 69, forex reserves drops to

USD275b RBI introduced forex swap window for OMCs, lowers limit

for Overseas Direct Investment and outward remittances RBI announced auction INR220b of cash management bill

every Monday, conducts OMO auction of INR160b Rainfall 14% above average Lok Sabha passes Land Acquisition Bill US jobless claims at a near 6 year low

2QFY14 GDP growth recovers to 4.8% CAD corrects to 1.2% of GDP RBI issues statement to stabilize forex volatility,

estimates FY14 CAD at USD56b Government/RBI indicates return of majority of

OMCs dollar demand back to the market Sachin Tendulkar bids farewell from all forms of

cricket with tears and cheers Highest ever voter turnout for the four state elections Cairn India announces buy back of shares

3QFY13 CAD/GDP spikes to record high of 6.7% RBI expectedly cut repo rates by 25bp, announces

OMO of INR100b DMK pulled out of the ruling UPA coalition COBRAPOST came out with a revealing sting opera-

tion on ICICI, Axis and HDFC Bank exposing moneylaundering modus operandi

BRICS agree to USD100b reserve fund to combatcurrency crisis

Second phase of digitisation deadline ends for 38cities

New RBI chief Raghuram Rajan assumes office, opens swapwindow for FCNR(B) and overseas bank borrowing

9th Annual India General Conference covering close to 100Corporates and over 3000+ investor meetings

Modi crowned as BJP's prime ministerial candidate RBI cuts MSF by 75bp, raises repo by 25bp 1QFY14 BoP reported at 4.9% of GDP Tata Group and Singapore Airlines enters into JV JPA concludes its cement deal to Ultratech US FDA imposes import alert on Ranbaxy Relaxations in Branch Authorization Policy

BJP sweeps in 3 out of 5 state elections (Chattisgarh,Madhya Pradesh and Rajasthan); AAP forms govt in Delhi.

Sensex touches life-time high Forex reserves back to USD290+b levels RBI keeps rates unchanged vs estimates of a hike WPI hits 14 month high of 7.5% Mr V Balakrishnan resigns from Infosys Britain's Tesco will be the first foreign supermarket

to venture into India's USD500b retail sector Reliance JIO makes infrastructure sharing arrangement

with Bharti

JD(U) splits away from NDA ahead of election(17-year old alliance)

Just Dial listed, most successful IPO of the year,with post-issue market cap of ~INR38b

Narayana Murthy returns to Infosys as ExecutiveChairman

CCEA approved increase in gas prices from April 1, 2014 asper Rangarajan committee formula

Current account deficit at record 4.8% of GDP for FY13 L.K. Advani quits all party posts, reverses decision next day Approval of pass through of increased cost of imported coal

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19,895+ 2.4%

May

18,862–5.2%

19,504+ 3.5%

19,760+1.3%

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18,836– 0.1%

19,396–1.8%

19,346–0.3%

19,380+4.1%

18,620–3.8%

21,165+ 9.2%

20,792–1.8%

21,171+1.8%

2013 – India At A GlanceSensexClose

(MoM %)

2014 – Events CalendarFebruary

April May

July August

October November December

January March

June

September

3QFY14 Monetary Policy review

(RBI expected to keep rates

stable)

Advance estimate of FY14 GDP

(expected at 4.5%)

MOBIZ - Insights from domain

experts across businesses

3QFY14 GDP

3QFY14 BoP (expected to remain moderate at less than 2%

of GDP)

Interim Budget session of Parliament 4QFY14 Monetary Policy review (expected to cut rates by

25bp)

FY14 Monetary Policy (expected to cut rates

by 25bp)

General elections

FY14 GDP (expected at 4.5%)

FY14 BoP (expected at 2.3% of GDP)

General elections

State elections for Andhra Pradesh and Sikkim

1QFY15 Monetary Policy review (expected to

hold rates)

State elections for Odisha

2014 FIFA World Cup

2QFY15 Monetary Policy (RBI expected

to continue with its dovish stance)

2014 FIFA World Cup

1QFY15 GDP

1QFY15 BoP

2QFY15 Monetary Policy review

Parliament Monsoon session

3QFY15 Monetary Policy

State elections for Maharashtra, Jammu &

Kashmir and Arunachal Pradesh

2QFY15 GDP

2QFY15 BOP

Parliament Winter session

Jan-Mar 14

Preview&

IndiaStrategy

Apr-Jun 14

Preview

&

IndiaStrategy

Jul-Sep 14

Preview

&

IndiaStrategy

Q4

Q3

Q2

Q1

Motilal Oswal

10th Annual Global

Investor Conference

Motilal Oswal

EUREKA INDIA

Conference, 2014

A–1January 2014

India Strategy | Happy New Year

BSE Sensex: 21,194 S&P CNX: 6,314

2014: Happy New Year!!Earnings recovery | Elections outcome | Monetary easing

2013 MARKETS: Indian equities deliver 9% return | Top performers arebeneficiaries of INR weakness; Expect 2014 to be a year of economicrecovery and positive returns Indian markets ended 2013 with returns of 9%, with the entire gains clocked in

4QCY13. However, sharp currency depreciation led to a negative 3% Sensex returns

in USD terms. BSE Midcap Index delivered negative 6% returns (INR).

The top performing sectors in 2013 were Technology (+60%), followed by Telecom

(26%) and Healthcare (+23%). Real Estate (-32%), PSU Banks (-26%) and Cement (-

14%) were the worst performing sectors.

Average market volumes in 2013 were higher than in 2012. However, the share of

F&O continued to move up to an all-time high of 92% (+200bps).

FIIs invested another USD20b in 2013, making it the third biggest year of inflows.

On the other hand, DIIs withdrew a record USD13b during the year.

Valuations of Indian equities remain attractive with Market Cap to GDP at 62%,

below long term averages. The Sensex PE at 14x is also below long term averages,

while the RoEs at 16% are at their bottom.

We expect 2014 to see improvement in growth rates and moderation in inflation.

This should lead to another year of positive returns for Indian equities. Our top

picks are: HDFC Bank / ICICI Bank, Infosys / Tech Mahindra, Bharti, Tata Motors /

Hero Motocorp, Lupin, ACC, BPCL, Hindalco. Our other bets are LIC Housing, Bank

of Baroda, Divi’s Lab, Eicher Motors, Bata, Shree Cement, SUN TV.

Profit Pool: Oil share halves, Technology doubles; Public sector dwarfed |Profit Pool analysis FY03-14: Identifying themes for next growth cycle Over FY03-14, India Inc PAT expanded by 5.6x at a CAGR of 17%. In Phase 1 (FY03-

08) PAT CAGR was 26% and in Phase 2 (FY08-14) only 10%. Our analysis of the FY03-

14 profit pool leads us to the following key trends -

#1 PUBLIC v/s PRIVATE SECTOR: The ultimate case study of value migration

#2 CYCLICALS: Change in PAT orbit

#3 OIL & GAS: PAT share halves to 20% in best era of crude prices

#4 TECHNOLOGY: PAT share doubles to 13%

#5 FINANCIALS: Private sector cashes in on public banks’ slip

#6 HEALTHCARE: Perfect prescription for high-immunity profits!

#7 CONSUMER: Only a foul-weather friend? Not quite

#8 TELECOM: How a non-cyclical sector can behave like a cyclical

Based on the above, expect some of the following potential themes to play out

going forward -

#1 FY14-16 PAT GROWTH: Expect reversion to mean of 15%

#2 PRIVATE BANKS, TECHNOLOGY: Two large profit pools which can only get bigger

and better; creating several growth opportunities

#3 OIL & GAS: Will reforms pump profits back to the sector?

India Strategy

A–2January 2014


#4 CEMENT, PUBLIC SECTOR BANKS: Early-bird cyclical turnarounds?

#5 TELECOM: Data should help the sector regain its lost voice

Economy: RBI’s focus to shift to growth as Inflation, Currency stabilizes Crisis causes its own conquest. India faced a crisis of the eerie combination of low

growth, high inflation and external instability. Since Dr Rajan assumed the role of

RBI Governor, the approach on various policy measures have seen a significant

shift. This has brought in the much needed stability in aspects of policy rates and

INR. During 1HCY14, as the focus shifts to Elections, this positive approach by RBI

will be critical to address a volatile domestic and global macro environment.

We see a fall in inflation in the coming months to drive a shift in debate to that of

a rate cut sometime in Mar-14. While this may seem to be an out of consensus

view, several components of Inflation can surprise positively led by food inflation,

the way they did negatively. We see RBI easing rates the moment a change in the

direction of inflation is established.

Recent months of trade data show that the big concern of CAD is now surely behind

us. Growth prospects in West will aid exports in 2014, while imports will remain

muted due to domestic slowdown and commodity prices. RBI has used this phase

to build Forex Reserves closer to USD300b. We see some of the restrictions on

gold imports to ease in 1QCY14.

Elections: Alternate climax or anti-climax in the making | AAP forminggovernment in Delhi spices up the national politics landscape The recent assembly elections results clearly indicated a strong anti-Congress

wave bringing out decisive voting against corruption, inflation, lack of policy

reforms, etc.

The decisive mandate saw BJP, riding on the NaMo wave, forming government in

3 out of 5 states with record number of votes. AAP was the BIGGEST SURPRISE,

which formed government in Delhi, with outside support from Congress. AAP’s

40% seat share and 30% vote share indicates that a fresh alternative can no longer

be ruled out.

Till recently, all the political pundits were betting for BJP as the majority party in

the upcoming 2014 Lok Sabha elections riding on the dual wave of anti-Congress

and NaMo. Indian markets were also riding high, driven by the Modi bandwagon,

who stands as a symbol of pro-development driven by his success in Gujarat.

However, AAP’s win in Delhi has queered the national pitch. The focus of AAP’s

early policy action is socialistic, rather than an anti-corruption drive that was

expected from AAP. Many high profile personalities including industrialists have

voluntarily joined the party. Whether AAP, aided by the new joinees, can showcase

their policy action prowess on growth and development front remains to be seen!

Market view: With four months remaining for Lok Sabha elections, a lot of action

is expected on the political front which is likely to keep markets volatile and the

environment uncertain. A churn is taking place in India and the 2014 mandate will

reflect this ‘manthan’!

FED (TAP)ER: FII debt investors pre-empt but equity investors stay put |Private Financials, Technology, Automobiles witness highest FII flows The US Fed recently announced the first round of tapering of its stimulus package

from January 2014, after a period of over 5 years of easing. During this period,

Refer to the Election updatereleased on December 2013

A–3January 2014


India received USD109b, in aggregate, USD91b from equity and USD18b from debt.

The impact of tapering is clearly visible on the debt front with ~USD12b outflows

in the last seven months, since the talks of Fed taper first started. Accordingly, out

of the total debt flows of USD20b received since Nov-08, 40% of the cumulative

debt flows (USD8b) have been withdrawn by investors in CY13 alone.

Equity flows, on the other hand, continue unabated with CY13 receiving USD20b

(3rd highest equity flow ever). With the Fed taper, India could see see moderation

in the flows. This will particularly impact the sectors / stocks where the FII holding

is high.

In this section, we present our analysis on: (i) the beneficiary sectors/stocks which

saw maximum FII inflows during the QE phase, (ii) sectors/stocks where FIIs are

overweight or underweight relative to MSCI ETF. As and when the markets gets

worried on the impact of FII flows, these stocks are likely to be impacted.

3QFY14 Preview: Theme similar to 2Q - Globals do, locals undo | 2Q earningsrebound sustained; Aggregate PAT up 10%; Sensex PAT up 13% We expect MOSL Universe of 143 companies (ex RMs) to report aggregate 3QFY14

PAT growth of 10% YoY, sustaining the earnings rebound in 2QFY14 (+8% YoY v/s

estimated 3% YoY). 4QFY14 PAT growth is expected to be an even higher 13% YoY.

As in 2Q, expect global-facing sectors like Technology, Healthcare and Metals to

outperform their domestic-facing counterparts thanks to 15% YoY depreciation of

the INR vis-à-vis the USD.

Expect Sensex 3QFY14 PAT to grow 13% YoY.

Within Sensex, top 5 PAT growth companies are: Tata Steel (loss to profit), Bharti

(+299% YoY), Tata Motors (+89%), TCS (+48%) and Sun Pharma (+44%). Top 5 PAT de-

growth companies: BHEL (-56% YoY), State Bank (-33%), Sesa Sterlite (-21%), Tata

Power (-10%) and Coal India (-8%).

3QFY14 performance of MOSL Universe by sector: Globals do, locals undoSECTOR Sales EBITDA PAT PAT Delta EBITDA Margins

(no. of companies) Dec-13 YoY % Dec-13 YoY % Dec-13 YoY % Share % Share % Dec-13 YoY bp

High growth sectors 3,382 17 774 29 372 37 43 131 22.9 217

Telecom (4) 368 12 122 23 23 163 3 19 33.1 306

Auto (9) 1,005 16 139 39 65 42 8 25 13.8 230

Technology (10) 517 30 143 37 106 39 12 39 27.7 144

Metals (9) 1,127 13 219 28 82 36 10 28 19.4 217

Health Care (13) 233 22 53 27 35 30 4 10 22.7 99

Media (7) 41 18 13 15 6 22 1 1 30.6 -85

NBFC (8) 90 19 85 20 55 16 6 10 94.1 96

Med/Low growth sectors 491 14 205 16 129 14 15 20 41.7 97

Private Banks (8) 153 19 132 18 78 14 9 12 86.4 -68

Consumer (13) 338 12 73 14 51 13 6 8 21.5 46

PAT de-growth sectors 3,332 8 703 -1 355 -10 41 -53 21.1 -188

Retail (4) 67 -6 6 -1 3 0 0 0 9.4 51

Oil Excl. RMs (9) 1,780 10 273 1 166 0 19 0 15.4 -142

Utilities (10) 601 8 161 4 91 -2 11 -2 26.8 -112

Capital Goods (8) 364 1 34 -15 21 -23 2 -8 9.3 -178

Real Estate (9) 49 18 17 42 6 -27 1 -3 35.1 587

PSU Banks (8) 293 12 185 -3 58 -29 7 -31 63.2 -959

Cement (8) 176 -2 26 -24 10 -38 1 -8 14.5 -421

Others (6) 62 14 11 17 6 22 1 1 17.5 53

MOSL Excl. RMs (143) 7,266 12 1,692 13 861 10 100 100 23.3 19

Sensex (30) 5,003 13 1,071 14 563 13 21.4 27

A–4January 2014


STRATEGY: Navin Agarwal ([email protected]) | Rajat Rajgarhia ([email protected])

STRATEGY: Ashish Gupta | ECONOMIST: Dipankar Mitra

Sources of exhibits in this section include RBI, CMIE, Bloomberg, IMF, UN, Rogers International, Industry, Companies, and MOSL database

FY14/FY15 ESTIMATES: Downgrades take a breather as exports fuel growth |Sensex FY14 EPS upgraded to 11% growth; Expect FY15 growth of 15% MOSL Aggregate PAT to grow 7% in FY14; expect rebound in FY15 to 16%. Sales

growth of 12% in FY14 will see some moderation to 10% in FY15.

Sensex EPS to grow by 11% in FY14 to 1,317 and further accelerate to 15% in FY15 to

1,518. Downgrades to Sensex EPS have taken a breather. In fact, strong earnings

from export driven businesses (benefitting from weak INR) have led to upgrades

of 2% in FY14 and 3% in FY15 EPS.

For 2HFY14, the prominent upgrades have been in Tata Motors, Tata Steel, ICICI

Bank, Maruti, TCS. The stocks to see top downgrades are Sesa Sterlite, BHEL, SBI,

Cipla, Coal India.

Our early estimates suggest the growth of 15% may continue into FY16 as well.

MOSL Universe FY14/FY15 estimates: Expect 16% PAT growth in FY15

Sales Gr./ EBIDTA Margin EBIDTA PAT PAT Gr. / PAT

Sales CAGR EBIDTA Margin Delta CAGR (INR CAGR delta

Sector (INR b) (%) (INR b) (%) (bp) (%) b) (%) FY13-15

(No of Companies) FY13 FY14E FY15E FY13-15 FY13 FY13 FY14E FY15E (FY13-15) FY13 FY14E FY15E FY13-15 shr (%)

High PAT CAGR (>20%) 2,752 8 12 10 744 27.0 -7 151 13 204 3 46 22 12

Telecom (4) 1,306 11 10 11 397 30.4 274 144 18 45 82 65 73 11

Cement (13) 1,108 0 14 7 235 21.2 -474 200 0 111 -33 38 -4 -1

Real Estate (9) 195 18 13 16 71 36.5 17 147 18 30 1 29 14 1

Media (8) 143 17 14 16 41 28.7 85 61 19 19 25 25 25 1

Medium PAT CAGR (15-20%) 10,028 16 14 15 3,159 31.5 5 13 16 1,788 11 16 14 62

Retail (3) 137 15 21 18 14 10.1 -42 31 17 9 6 19 12 0

Consumer (13) 1,190 11 15 13 242 20.4 56 23 15 166 15 19 17 7

Health Care (13) 791 19 14 16 194 24.5 -99 192 19 110 28 18 23 7

Financials (31) 2,197 14 15 15 1,735 79.0 -323 11 12 904 -2 16 6 14

PSU Banks (12) 1,359 11 14 12 997 73.4 -657 2 7 432 -23 18 -5 -5

Private Banks (10) 541 19 17 18 452 83.5 238 -3 20 278 17 16 16 12

NBFC (9) 296 22 15 18 286 96.4 -149 4 17 193 16 13 15 7

Auto (9) 3,773 13 15 14 484 12.8 165 2 21 228 25 16 20 12

Technology (10) 1,940 27 12 19 489 25.2 102 -31 21 372 30 15 22 22

Low PAT CAGR (<15%) 15,212 9 6 8 2,717 17.9 -47 102 9 1,461 3 11 7 25

Metals (9) 4,205 7 9 8 792 18.8 61 57 11 308 6 12 9 7

Oil Ex. RMs (10) 7,416 14 4 9 1,132 15.3 -100 141 10 642 7 12 9 15

Utilities (10) 2,015 6 12 9 603 29.9 80 11 11 377 4 11 8 7

Capital Goods (8) 1,576 -1 3 1 189 12.0 -201 -20 -9 134 -26 1 -13 -4

Others (6) 210 12 11 12 35 16.8 66 70 16 20 11 18 14 1

MOSL Excl. RMs (156) 28,202 12 10 11 6,654 23.6 -6 96 13 3,473 7 16 11 100

Sensex (30) 9,633 6 9 8 1,875 19.5 130 100 14 1,011 9 15 12 NA

Nifty (50) 10,889 13 9 11 2,170 19.9 97 103 17 1,182 12 15 14 NA

A–5January 2014


Positive return years: 25 (74%) 2012 26

Negative return years: 9 (26%) 2010 17

2004 13

2002 4

2011 -25 1997 19

2001 -18 1994 17 2007 47

2000 -21 1993 29 2006 47

1998 -16 1989 17 2005 42 2009 81

1996 -1 1984 7 1992 37 2003 73

1995 -21 1983 7 1990 35 1999 64

1987 -16 1982 4 1988 51 1991 82

2008 -52 1986 -1 1980 25 1981 54 1985 94

Year % Year % Year % Year % Year %

-30 to -60 -30 to 0 0 to 30 30 to 60 >60Percentage Total Return Range

Note: Return is CY Ending.

2013: Sensex positive return led by last quarter

2013 9

2013 MARKETS: Indian equities deliver 9% return, drivenby a 4QCY13 rallyTop performers are beneficiaries of INR weakness; FII flows strong at USD20b

Indian markets ended 2013 with returns of 9%, where the entire gains were made

in 4QCY13. However, a sharp currency depreciation led to a -3% Sensex returns in

USD terms. BSE Midcap Index delivered -6% return (INR).

The top performing sector in 2013 was Technology (+60%), followed by Telecom

(26%) and Healthcare (+23%). Real Estate (-32%), PSU Banks (-26%) and Cement (-

14%) were top negative performing sectors.

Best 6 Index stocks that performed were beneficiaries of rupee weakness. TCS

was the best performing Sensex stock, with 72% return. Both Sun Pharma and

Infosys delivered returns of +50%. SBI and BHEL were the top underperformers,

with negative returns of 26% and 23%. Another PSU, Coal India gave negative

returns of 18%.

Average market volumes in 2013 were higher than in 2012; moreover, the

composition of F&O moved up by 200bps to an all-time high of 92%.

FIIs invested another USD20b in 2013, making it the third highest year of inflows.

On the other hand, DIIs withdrew a record USD13b during the year.

Valuations of Indian equities remain attractive with Market Cap to GDP at 62%.

The Sensex PE at 14x is below long term averages, while the RoEs at 16% are at

their bottom.

A–6January 2014


CY13 world equity returns - Local Currency (%) CY13 world equity returns - In USD (%)

Sectoral performance for CY13 (%) Sectoral performance for CY07-13 CAGR (%)

After a positive return of 26% in CY12, Indian markets delivered 9% return in 4QCY13Markets delivered 9% return in CY13. after it remained flat in 3QCY13 (QoQ,%)

10 Year CAGR of 13.7%

A–7January 2014


Best & worst performers in Sensex for CY13 (%)

Best & worst performers in Sensex for CY07-13 CAGR (%)

Monthly sectoral performance relative to NiftyRelative to Nifty MoM Performance (%) CY13

Sector Jan-13 Feb-13 Mar-13 Apr-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13 Oct-13 Nov-13 Dec-13 Chg (%)

Auto -6 1 -4 5 1 -2 0 1 3 0 4 -3 1

Banks - PSU -1 -9 -1 4 -9 -6 -11 -11 2 6 3 0 -33

Banks - Pvt -1 0 0 6 1 -4 -11 -2 1 9 -1 0 -5

Capital Goods -6 -7 -2 3 -4 -1 -8 -9 4 9 9 2 -12

Cement -6 3 -5 0 -3 2 -3 -9 12 -4 -1 -5 -21

Consumer -2 1 5 6 2 -2 7 -2 3 -10 -2 -2 4

Health Care -4 3 3 4 1 2 4 4 1 -8 1 3 16

Media 4 -2 -3 4 -3 1 8 -1 -5 1 -4 3 -1

Metal -6 -9 -3 -6 -3 -6 -10 18 3 0 5 4 -17

Mid-Cap (BSE) -4 -4 -2 -1 0 -4 -5 0 1 -1 6 4 -12

NBFC -5 -1 2 1 2 -3 -11 -4 4 1 2 -2 -15

Oi l 8 -2 -4 0 -2 5 -2 0 -4 -1 -1 0 -3

Real Estate 4 -5 -11 2 -12 -8 -11 -6 -5 5 3 4 -39

Retai l -4 -5 -3 0 6 -22 17 -10 -1 4 -11 -1 -36

Technology 10 11 2 -21 5 6 21 12 -7 -2 1 6 53

Teleco m 6 1 -8 11 -1 4 20 -7 3 0 -5 -4 19

Uti l i t ies -4 -5 -5 3 -1 -5 -6 -3 5 -4 4 2 -21

Nifty Abs Chg (%) 2 -6 0 4 1 -2 -2 -5 5 10 -2 2 7

Sensex Abs Chg (%) 2 -5 0 4 1 -2 0 -4 4 9 -2 2 9

A–8January 2014


Global Ranking: India v/s others Mkt Cap Mkt Cap Rank Chg in Rank CY14/FY15E

Country (USD t) Dec-03 Dec-07 Dec-08 Dec-13 2003-13 P/E (x) P/B (x) RoE (%)

United States 22.3 1 1 1 1 0 15.2 2.4 15.5

Japan 4.6 2 2 2 2 0 18.4 1.6 8.9

United Kingdom 4.0 3 4 3 3 0 12.8 1.7 13.5

Hong Kong 3.5 7 6 6 4 3 10.3 1.3 12.4

China 3.4 11 3 4 5 6 8.2 1.1 13.8

France 2.1 4 5 5 6 -2 13.0 1.3 10.2

Canada 2.1 6 9 8 7 -1 14.6 1.7 11.9

Germany 2.0 5 7 7 8 -3 12.9 1.6 12.3

Switzerland 1.5 8 12 9 9 -1 14.6 2.4 16.6

Australia 1.3 10 10 11 10 0 14.7 1.9 13.1

South Korea 1.2 15 14 16 11 4 9.5 1.0 10.9

India 1.1 17 8 12 12 5 13.9 2.3 16.4

Brazil 1.0 18 11 14 13 5 10.4 1.0 9.1

Taiwan 0.9 13 18 17 14 -1 14.8 1.6 11.0

Spain 0.8 12 15 13 15 -3 14.9 1.3 9.0

Russ ia 0.8 19 16 20 16 3 4.5 0.6 12.8

Mkt Cap / Total Volumes (Cash Holding Period Days) Indian Market Volumes

Trend in net FII Investment (USD b)Annual Trend Quarterly Trend

A–9January 2014


Trend in net DII investment (USD b)Annual Trend Quarterly Trend

12-month forward Sensex P/E (x) 12-month forward Sensex P/B (x)

Sensex RoE (%) Indian market cap to GDP (%)

A–10January 2014


PROFIT POOL Oil share halves, Technology doubles; Public sector dwarfedProfit Pool analysis FY03-14: Identifying themes for next growth cycle

Over FY03-14, India Inc PAT expanded by 5.6x at a CAGR of 17%. In Phase 1 (FY03-08) PAT

CAGR was 26% and in Phase 2 (FY08-14) only 10%. Our analysis of the FY03-14 profit pool

leads us to the following key trends -





#5 FINANCIALS: Private sector cashes in on public banks' slip




Based on the above, expect some of the following potential themes to play out going

forward -

#1 FY14-16 PAT GROWTH: Expect reversion to mean of 15%

#2 PRIVATE BANKS, TECHNOLOGY: Two large profit pools which can only get bigger and

better; creating several growth opportunities




Backdrop & Summary findingsIn FY14, India's GDP growth is expected to be 4.5%. This virtually takes us back 11 years

to FY03 when India's GDP growth was 4%. We believe GDP growth has bottomed out

with early estimates for FY15 placed at over 5%. So, it is appropriate that we analyze

India Inc's profit pool trends over the past 11 years, and also derive some potential

themes going forward.

Our key findings and conclusions may be summarized as under -

PAT expands to 5.6x in 11 years: Over FY03-14, India Inc PAT expanded by 5.6x at a

CAGR of 17%. There are two distinct growth phases: Phase 1 (FY03-08) which saw

PAT CAGR of 26% on the back of average real GDP growth of 8.7%; and Phase 2

(FY08-14) when GDP growth slipped to 6.7%, and PAT CAGR to only 10%. Stock

market return CAGR was 39% in Phase 1 and 5% in Phase 2. This translates to full-

cycle (FY03-14) return CAGR of 20%, broadly in line with PAT CAGR of 17%.

Public sector dwarfed: The Indian public sector companies have been dwarfed by

their private sector counterparts. The PAT share between the two has virtually

reversed over the 11 years - from 63:37 in favor of public sector in FY03 to 64:36 in

favor of the private sector in FY14.

Cyclicals change their PAT orbit: Most cyclical sectors made hay during the global

sunshine of FY03-08 e.g. PAT CAGR of 143% for Real Estate, 106% for Cement, 62%

for Metals and 42% for Capital Goods. Despite some pull-back in growth rates in

the FY08-14 phase, full-cycle earnings growth of most cyclicals is higher than

corporate sector average of 17%.

A–11January 2014


Oil & Gas PAT share halves to 20% in best era of crude prices: FY03-14 saw crude

prices more than quadruple to USD110 levels. And yet, over this 11-year period,

share of Oil & Gas in corporate sector PAT halved from 40% in FY03 to 20% in FY14.

Technology PAT share doubles to 13%: Riding India's global competitive advantage,

Technology sector PAT share has more than doubled from 6% in FY03 to 13% in

FY14, the third largest profit share after Financials and Oil & Gas.

Expect mean reversion in earnings growth; bounce-back in beaten-down sectors:

Our initial estimates suggest FY14-16 PAT CAGR of 15%. Some beaten-down sectors

are likely to bounce back e.g. Oil & Gas on the back of near-mandatory reforms,

Capital Goods on likely revival in investment cycle in 2HFY15, and Telecom on the

back of lower competitive intensity.

We discuss below the above points in detail in the subsequent pages.

FY03-14 India Inc PAT performance: Sector-wise highlights

SECTOR PAT (INR B) PAT CAGR (%) Avg RoE (%) MOSL Univ. PAT Share (%)

(No. of companies) FY03 FY08 FY14E FY03 FY03 FY08 FY03 FY03 FY08 FY03 FY08 FY14E

-14 -08 -14 -14 -08 -14

Auto (9) 20 80 283 27 32 23 26 27 25 3 4 8

Capital Goods (8) 12 69 99 21 42 6 21 21 21 2 3 3

Cement (13) 2 70 50 35 106 -5 16 18 17 0 3 1

Consumer (13) 48 73 191 13 9 17 35 35 35 7 3 5

Financials (31) 157 366 882 17 18 16 18 19 17 23 17 23

PSU Banks (12) 102 217 332 11 16 7 18 19 17 15 10 9

Private Banks (10) 26 91 325 26 29 24 16 18 15 4 4 9

NBFC (9) 29 58 224 20 15 25 20 20 19 4 3 6

Healthcare (13) 21 48 141 19 18 20 21 23 18 3 2 4

Media (8) 3 6 24 21 17 25 15 13 15 0 0 1

Metals (9) 27 303 325 25 62 1 23 30 17 4 14 9

Oil & Gas (13) 268 540 756 10 15 6 18 22 15 40 26 20

Real Estate (9) 1 90 30 35 143 -17 14 20 11 0 4 1

Retail (3) 0 2 10 45 61 32 25 21 28 0 0 0

Technology (10) 39 152 482 26 31 21 31 34 28 6 7 13

Telecom (4) -4 133 81 L to P L to P -8 10 11 11 -1 6 2

Utilities (10) 72 175 394 17 19 14 14 13 15 11 8 10

Others (6) 2 7 22 22 23 21 20 19 21 0 0 1

MOSL (159) 669 2,115 3,770 17 26 10 19 21 17 100 100 100

FY14 Profit Pool share (%) FY03-14: Technology share up 7pp, Oil & Gas down 20pp

A–12January 2014


PAT expands to 5.6x in 11 years: A tale of two phases India's GDP growth for FY14 may have retraced to FY03 levels. However, over these

11 years, India Inc's profits (significantly represented by MOSL Universe) expanded

to 5.6x at a CAGR of 17%. As the chart below suggests, the 11-year period can be

broken down into two distinct phases -

Phase 1 (FY03-08): Over these 5 years, average GDP growth was a robust 8.7% (v/

s 5.6% in preceding 5 years). As a result, corporate earnings more than trebled i.e.

CAGR of 26%.

Phase 2 (FY08-14): Over these 6 years, average GDP growth slipped 2pp over the

preceding 5-year period to 6.7%. Corporate earnings too rose only to 1.8x i.e.

CAGR of 10%.

India Inc PAT growth vis-à-vis India's GDP growth: 2 distinct phases FY03-08 & FY08-14

Other key metrics: Phase 2 worse off on all counts Sales growth: FY03-14 Sales CAGR is 19%, broken down into 23% during FY03-08

and 16% during FY08-14.

EBITDA growth & margin: FY03-14 EBITDA CAGR at 17.5% is lower than Sales CAGR

as average EBITDA margin slipped from 21.5% in FY03 to 18.6% in exit year FY14.

Here too, there is a sharp performance difference in the two phases. Over FY03-

08, EBITDA CAGR was the same as Sales CAGR at 23%, indicating no hit to margins.

However, over FY08-14, EBITDA CAGR at 13% is lower than Sales CAGR of 16% as

EBITDA Margin dipped from 21.0% in FY08 to 18.6% in FY14

RoE and Dividend payout: Phase 1 average RoE was 21% which slipped to 16% in

Phase 2. However, Dividend payout remained stable throughout FY03-14 around

the average of 26%.

A–13January 2014


FY08-14 Sales growth slips to 16% v/s 23% in FY03-08 FY08-14 sees hit on margins …

FY09-14 average RoE at 16% is 5pp lower than the preceding5-year average of 21% Payout remains stable across cycles

Full-cycle stock market return in line with PAT CAGRStock market return CAGR was 39% in Phase 1 and 5% in Phase 2. This translates to full-

cycle (FY03-14) return CAGR of 20%, broadly in line with PAT CAGR of 17%.

Full-cycle (FY03-14) stock market return at 20% in line with PAT CAGR of 17%

A–14January 2014


Profit Pool analysis: Key past trends; potential future themesOur analysis of the FY03-14 profit pool leads us to the following key trends which we

also discuss in detail -





#5 FINANCIALS: Private sector cashes in on public banks' slip




Based on the above, expect some of the following potential themes to play out going

forward -

#1 FY14-16 PAT GROWTH: Expect reversion to mean of 15-16%

#2 PRIVATE BANKS, TECHNOLOGY: Two large profit pools which can only get bigger

and better




PUBLIC v/s PRIVATE SECTOR: The ultimate case study of value migrationYet another key finding of our Profit Pool analysis is the significant value migration in

India from the public sector to the private sector. Over FY03-14, the private sector has

emerged larger and superior to the public sector on every key metrics -

Absolute PAT levels: Private sector PAT is now 80% higher than public sector PAT v/

s 40% lower in FY03

Profit share: FY14 PAT mix is 64:36 in favor of the private sector, fully reversing the

63:37 in favor of public sector in FY03.

Dividend payout: In FY10, the private sector convincingly overtook the public sector

in absolute dividends paid out. The gap has only widened since then.

Return on Equity: Public sector aggregate RoE is down 7pp over the last 11 years v/

s only 2pp for the private sector.

Past Trend #1

Private sector profits - from 40% lower than public sector in FY03 to 80% higher in FY14

A–15January 2014


Profit mix between private and public sector has exactly reversed in just 11 years

Dividend trend follows PAT trend

Public sector RoE damage also much higher than that for private sector

A–16January 2014


Public Sector Oil Refining & Marketing companies: Classic example of valuedestructionThe public sector oil refining & marketing companies (RMs) present a classic example

of value destruction in the public sector.

In a large profit-pool, highly consolidated, steady volume-growth business, the

aggregate PAT of IOC, HPCL and BPCL is down from INR98b in FY03 to INR70b in

FY14.

PAT share is down from a high 14% of total in FY03 to a miniscule 2% in FY14

Even as aggregate net worth has steadily increased, RoE has plunged from a superior

31% in FY03 to a significantly below-cost-of-equity 7% in FY14.

Needless to add, the RMs have significantly underperformed the markets over

the last 11 years.

The only positive takeaway from this case study is that since much of the downturn is

led by policy (rather, the lack of it), there is a high probability of mean reversion,

especially once a new government is in place post 2014 elections.

IOC, HPCL, BPCL - Share of PAT down from 14% in FY03 to 2% in FY14

IOC, HPCL, BPCL - RoE has plunged from 31% in FY03 to 7% in FY14

A–17January 2014


RM stocks have significantly underperformed the markets for a very long time

Past Trend #2 CYCLICALS: Change in PAT orbitMany sectors made hay during the FY03-08 global liquidity led sunshine, especially

cylicals like Real Estate, Cement, Metals and Capital Goods. At the peak of the cycle in

FY08, these sector profits were several multiples over the base profit of FY03 as shown

below.

Most cyclical sectors made hay during FY03-08 global sunshine …

During the FY09-14 phase of global meltdown coupled with domestic slowdown, PAT

growth of all cyclical sectors was below that of their more secular counterparts. In

fact, Real Estate PAT actually crashed 70% while Cement PAT was down 30%. And yet,

the hyper growth of Phase 1 could not be wiped out, and full-cycle FY03-14 PAT growth

of all the cyclical sectors still remained well above aggregate PAT growth.

A–18January 2014


Despite cyclical sectors' PAT pull-back during FY08-14 …

… full-cycle PAT growth of many cyclical sectors higher than MOSL Universe average

Past Trend #3 OIL & GAS: PAT share halves to 20% in best era of crude pricesFY03-14 saw crude prices more than quadruple to USD110 levels. And yet, over this 11-

year period, share of Oil & Gas in corporate sector PAT halved from 40% in FY03 to 20%

in FY14.

OIL & GAS: PAT share halves to 20% in best era of crude prices

A–19January 2014


Oil & Gas is the only sector to lose share in both the boom and slowdown phases

Past Trend #4 TECHNOLOGY: PAT share doubles to 13%Technology is one of India's biggest success stories over the last decade. Over FY03-14

Sector PAT CAGR was a robust 26%; equally important, it was fairly consistent in

both the phases: 31% CAGR over FY03-08 and 21% CAGR over FY09-14.

Sector PAT share almost doubled from 6% in FY03 to 13% in FY13.

Technology has emerged has the third largest contributor to the profit pool of

FY14.

TECHNOLOGY: PAT share doubles to 13%

Trend in PAT growth divergent from currency movements, contrary toexpectations… Technology sector saw a PAT CAGR of 31% during FY03-08, while CAGR during FY08-

FY14 is much lower at 21%. However, the pattern in currency was quite the opposite.

During the high growth years for PAT, the INR actually appreciated at a CAGR of 4%

(from INR48.3/USD to INR40/USD). Over FY08-FY14, the INR has depreciated at a

CAGR of 9% (to INR60.9/USD from INR40/USD).

This is contrary to the usual expectation of PAT growth being fuelled by a

depreciating currency, and being challenged in an appreciating currency regime.

The best PAT growth for Indian IT has come in the years when the currency steadily

appreciated.

A–20January 2014


Growth in PAT has been divergent to movement in currency

…explained partly by the declining growth rate in industry exports Growth rates for Indian IT exports have seen a steady decline, explained by

multiple factors:

1. Slowdown in the developed economy,

2. Increased competition from MNCs like Accenture, IBM and Cap Gemini, which

set up offshore delivery centers at a healthy rate, and

3. Higher penetration in traditional IT services such as ADM and Testing.

The period post the economic downturn led by financial meltdown saw the

divergence in growth rates across companies, with TCS, CTSH and HCLT gaining

greater share, while INFO and WPRO lagged. This was due to readiness to

aggressively pursue even the traditional services work by the former group, at

competitive rates.

Growth rates have cooled off to low-to-mid teens for the industry

A–21January 2014


Past Trend #5 FINANCIALS: Private sector cashes in on public banks' slipThe Financials sector has been a steady performer over both the phases of FY03-14 -

PAT CAGR of 18% over FY03-08 and 16% over FY08-14. The sector's PAT share has also

been stable around the average of 21% over the period. However, the aggregates

conceal the internal churn within the sector.

In both the phases, private sector PAT CAGR is much higher than that of public

sector banks - 29% v/s 16% during FY03-08, and even more so in the slowdown

phase of FY08-14 at 24% v/s 7%.

The growth differential has caused the sector PAT mix to dramatically shift in favor

of the private sector at 50:50 for FY14, which was at 20:80 in FY03.

FINANCIALS: Steady aggregate PAT growth, but significant differential between public and private

FINANCIALS: FY14 PAT mix a virtual reversal of FY03 mix in favor of private sector

Past Trend #6 HEALTHCARE: Perfect prescription for high-immunity profits!The Healthcare sector comes across as the perfect prescription for profits which are

immune to any kind of turmoil, whether global or local.

Across cycles, Sector PAT CAGR has been consistent - 18% over FY03-08 and 20%

over FY08-14, translating to full cycle PAT CAGR of 19% v/s 17% for MOSL Universe.

Equally important, only 3 of 13 Healthcare companies in our Universe reported

PAT CAGR below aggregate average of 17%.

Ex Ranbaxy and Dr Reddy's, the Healthcare sector's FY03-08 PAT CAGR matched the

aggregate average of 26%.

CAGR: Total 19%; PSU 16%; Pvt 29%

CAGR: Total 14%; PSU 7%; Pvt 24%Financials Sector PAT Trend (INR b)

Financials Sector PAT Mix (%)

A–22January 2014


Only 3 of 13 Healthcare companies had FY03-14 PAT CAGR < MOSL aggregate of 17%

Past Trend #7 CONSUMER: Only a foul-weather friend? Not quiteAt first glance, Consumer sector has underperformed, with FY03-14 PAT CAGR of only

13% v/s 17% for MOSL Universe. Further, FY03-08 PAT CAGR was only 9% v/s 26% for

MOSL Universe. It is only during FY08-14 Consumer PAT CAGR at 17% was higher than

10% for MOSL Universe. Also, every single Consumer company's PAT CAGR during this

phase was higher than 10%. Prima facie, this seems to suggest that Consumer is

primarily a foul weather friend i.e. outperforms only during periods of slowdown.

ITC and HUL have underperformed Universe earnings over the past 11 years

FY03-14 PAT CAGR 18% (ex HUL, ITC): Company-level analysis suggests that the sector's

performance is not as bad as the aggregates suggest. Two companies - ITC and HUL -

have consistently accounted for 60-75% of sector aggregate PAT. And both these

companies have sharply underperformed during FY03-08 with PAT CAGR of only 6%

(HUL's FY08 PAT was actually flat over FY03). Excluding ITC and HUL, FY03-14 sector PAT

CAGR is a healthy 18%.

A–23January 2014


Past Trend #8 TELECOM: Why a non-cyclical sector behaved liked a cyclical oneArguably, no cyclical sector can match the perfect symmetry of Telecom sector's profit

share trend over FY03-14. Whereas, the sector is indeed a highly consumer-facing,

secular business, the Indian telecom sector is a classic case of competition cycle,

rather than business cycle.

TELECOM: Profit share trend more typical than any classical cyclical sector

Over FY03 to FY09, the telecom sector gained rapid scale advantages in a limited

competition scenario. Post the turnaround in FY04, the next 5-year PAT CAGR through

FY09 was a scorching 111%. This coincided with two game-changing events -

1. 2G spectrum auction adding several new players to the sector, in turn, driving

down RPMs, margins and PAT;

2. The leader Bharti Airtel's leveraged mega acquisition of Zain in Africa, causing

further erosion in profits.

TELECOM: Rising competition lowers RPM; Bharti's Africa acquisition too drags PAT

A–24January 2014


Potential Theme #1

Based on the above past trends, we discuss some potential themes to play out

going forward.

FY14-16 PAT GROWTH: Expect mean reversion to 15% levelsThe growth trend emerging from quarterly results suggests that the worst may be

over for India Inc earnings. After 3% YoY PAT de-growth in Jun-2013 quarter, MOSL

Aggregate PAT grew 8% YoY. For the Dec-2013 quarter, our estimates suggest a higher

10% YoY growth, followed by an even higher 13% YoY growth in Mar-2014 quarter.

Further, our FY15 estimates indicate 16% PAT growth and early estimates indicate this

trend to sustain into FY16 as well. Telecom, Cement, Media, Real Estate and Retail are

likely to be among the highest growth sectors.

Quarterly trends suggest PAT growth bottoming out

The quarterly growth trend is expected to further improve in FY15 and FY16

A–25January 2014


Potential Theme #2 PRIVATE BANKS, TECH: 2 big Profit Pools will only get biggerPRIVATE BANKS: The juggernaut rolls on

The Indian Financials Profit Pool is large (23% of total) and steadily growing at

over 15%

Within this, Private Banks are consistently increasing their Profit Pool share, up

from 20% in FY03 to 49% in FY14, driving a high PAT CAGR of 26%. Interesting to

note is that the share of private banks in deposits is still quite low at 19%, providing

room for continued market share gains.

The above trend will sustain for the foreseeable future e.g. FY14-16, Financials

PAT CAGR is estimated at 16% with Private Banks growing a shade faster at 17%.

The issue of new banking licenses is more likely to expand the banking market

rather than significantly disrupt the competitive landscape.

Within Private Banks, HDFC Bank has seen significant corrections in valuations

without any major change in earnings prospects. It offers one of the best investment

opportunities for sustained performance. We have upgraded our rating to Buy.

The Private Banks juggernaut rolls on

HDFC Bank - long-period EPS & P/E band

Financials

Profit Pool (INR b)

A–26January 2014


TECHNOLOGY: Nowhere near the end of the road for Indian IT Global IT-BPM spend is expected to grow over 5% in CY13, as rate of introduction

of disruptive technologies will continue to be faster (SMAC technologies are

forecasted to grow to USD1t+ by 2020.

Trend of increasing adoption of offshoring continues in Continental Europe, driving

growth in the geography. The region is the source of largest deals in the current

pipeline.

With still a lot of penetration yet to happen, new verticals, customers and

geographic markets will continue to gain importance, and offer ample opportunity

for continued double digit industry growth.

Emerging technologies like Cloud, Mobility, Big data and Analytics continue to

gain prominence, and scale in these technologies will determine success of IT

companies over the next few years. While Indian IT continues to evolve its

approach around the same, those with successful bets in this space will be the

likely outperformers going forward.

Prefer Infosys and Tech Mahindra: INFO's stated focus on Products | Platforms |

Solutions, therefore, is a step in the right direction and it has been ahead of the

curve in formulating its strategy of expanding the share of revenues from this

segment. TECHM too, appears to be well placed in order to address the demand

trends shaping the future, with unique advantages compared to peers in areas

like Network, communication and Analytics. Its traction in Run-the-business (RTB)

segments in both Telecom and Enterprise is additionally benefiting from the

synergies of Satyam acquisition. INFO and TECHM are our top picks in the

technology sector.

Opportunity for Indian IT sector big with new verticals, customers and geographic markets continuing to gain importance

Worldwide ITIndustry: USD3,600b

IT Services:USD906b

IT OutsourcingMarket: USD130b

Indian ITExports:USD76b

Segment-wise

oppurtunity by 2020 USD b

IT Services 80

BPM 45

ER&D 40

GICs 28

Software Products 10

Domestic market 75

Internet and Mobile 100

Total 378

Valuation over the years

Market Cap in USD b

Company Mar 03 Mar 08 Dec 13 FY15 PE

TCS - 19.8 68.8 20.1

INFO 5.6 20.4 32.4 16.3

CTSH 1.4 8.3 30.5 20.6

WPRO 6.0 15.5 22.3 15.9

HCLT 0.9 4.2 14.3 13.4

TECHM - 2.1 6.9 12.6

A–27January 2014


Potential Theme #3 OIL & GAS: Reforms can normalise earnings; resulting in significant growth Need for investment in the sector has already propelled the government to take

some bold policy actions in the last 12 months. We do not foresee different policy

actions for private and PSU companies and hence believe that the reversion to the

normalized profitability happen and benefit all.

Government has already initiate some of the policy actions on the petroleum

pricing as well as at policy levels.

On the petroleum pricing front it has a) decontrolled Petrol price in June 2010,

b) allowed monthly price hikes in diesel from January 2013, c) capped LPG

cylinders per household and d) is in process to shift LPG and kerosene subsidy

to direct cash transfer to eventually eliminate dual pricing in the same and

stop leakages.

While, OMC”s earnings in the initial period of reforms are expected to increase

through interest cost reduction, but the significant increase would come in

after diesel de-regulation when they would be able to charge normalized

(higher than current)marketing margins on retail diesel sales.

On the policy front, it is in process to increase domestic gas prices from current

USD4.2/mmbtu to ~USD8/mmbtu, in-line with the proposed formula by the

Rangarajan Committee to boost E&P investments. Other E&P policy decisions

include a) allowing exploration in the developed/producing fields, b)

Integrated block development policy to cut development timelines and c)

initiated process to extend PSC tenure among others.

Oil sector profitability bottomed out, expect recovery led by policy actions Energy sector is a critical lifeline for economic growth and India with ~80% import

dependence, while continuing to promote domestic E&P will have to strengthen

its overall infrastructural capabilities.

With a)inevitable increase of oil import bill (@USD110/bbl) by 1.6x to USD160b in the

next 6 years and b) likely increase in under-recoveries by 1.5x to USD2.2t, if diesel

reforms are halted; oil sector reform become necessity than an option, in our view.

Hence, we believe that the profitability of the oil companies has bottomed out

and will start normalizing from FY15. Our top picks in the sector are ONGC/OINL in

upstream and BPCL in OMC’s for its E&P upside potential. Also, Cairn is at attractive

valuations and could benefit from the production increase as well as likely reserve

upgrade from its ongoing exploration program.

PSU oil have suffered the most due to under recoveries ONGC/OINL's EPS has significant sensitivity to gas price

A–28January 2014


Potential Theme #4 CEMENT, PSU BANKS: Early-bird cyclical turnarounds?CEMENT: Utilisation levels at decade low; expect improvement

Imminent demand recovery (from lows of 4.7% CAGR over FY10-14E) and slowing

capacity addition (5.3% CAGR over FY14-17E) augurs well for improvement in

utilization, pricing and profitability.

This coupled with focus on cost cutting and falling debt levels bodes well for

strong earnings growth during recovery.

In large caps we prefer ACC and Shree Cement, and in mid-caps we prefer Dalmia

Bharat, JK Lakshmi and Birla Corp.

Capacity utilization (%) is at two decade's low

PSU BANKS: Highly levered to economic growth Stressed asset creation hit banks in three ways viz. (1) loan growth slows down,

(2) NIMs fall led by interest income reversals and (3) provisions rise significantly.

In this cycle of FY11/14, stress assets of the PSU banks are expected to rise to 11.9%

as compared to 6.1% in FY11 and earnings to decline by 8% over FY11/14E. RoA's

would be at its low at 0.6%.

As we expect the economic cycle to improve in CY14, we also see peak of stress

asset addition and disablers of earnings in the FY11/14 cycle can become enablers.

Hence overall earnings growth could improve and return ratios rebound.

Cyclical downturn impacts asset quality andCredit cost rise significantly impacting profitability dents earnings- can this reverse?

A–29January 2014


Potential Theme #5 TELECOM: Data should help it regain lost voice With an active subscriber base of ~700m (~60% active SIM penetration), the Indian

wireless market is already showing signs of maturing with active user base and

wireless traffic growing at 6-7% YoY.

The industry focus is therefore shifting from acquiring subscribers to mining the

existing base by affecting voice tariff improvements and stimulating data demand.

With mobile data user penetration at ~15% and mobile data traffic for GSM

incumbents growing at ~100% YoY, we believe that data will be a key growth driver

for the sector.

Over FY14-19, we expect Indian wireless revenue base to grow at ~10% CAGR from

~USD27b to ~USD43b. Half of the incremental revenue is expected to come from

data which will increase from ~10% industry revenue contribution in FY14 to ~25%

in FY19.

EBITDA and PAT CAGR for incumbents would be higher than revenue CAGR given

significant operating and financial leverage.

Data user penetration in India set to leap-frog (%)

A–30January 2014


RBI’s focus to shift to growth as Inflation, Currency stabilizes

Crisis causes its own conquest. India faced a crisis of the eerie combination of low growth,

high inflation and external instability. A change of guard at RBI has brought in the much

needed stability in aspects of policy rates and INR. Since Dr Rajan assumed the role of RBI

Governor, the approach on various policy measures have seen a significant shift. During

1HCY14, as the focus shifts on Elections, this positive approach by RBI will be critical to adress

a volatile domestic and global macro environment.

We see a fall in inflation in the coming months to shift the debate to that of a rate cut

sometime in Mar-14. While this may seem to be an out of consensus view, several components

of inflation can surprise positively, the way they did negatively. December - January trend of

food inflation should be important. RBI will consider easing rates, the moment they see the

change in direction of inflation.

Recent months of trade data are clearly showing that the big concern of CAD is now surely

behind us. Growth prospects in West will aid exports in 2014, while imports will remain low

due to domestic slowdown and commodity prices. RBI has used this phase to build Forex

Reserves closer to USD300b. We see some of the restrictions on gold imports to ease in the

coming months.

ECONOMY

The new leadership brings fresh thinking at RBI 2HCY13 has been one of the worst period of crisis in India. Growth plummeted to

decadal low, inflation remained at high levels particularly consumer inflation while

INR at one point of time became one of the worst performing currencies among

the EMEs. Amidst all these came a change of guard at RBI with a markedly different

approach to address the problem of the day.

1HCY14 would be an interesting and still challenging period for Indian economy.

While everyone goes into the election mode till May-14, RBI would continue to

play an anchor role during this trying times navigating between slow

implementation of US FED’s taper, moderation in inflation but continued low

growth.

Under the leadership of Dr. Subbarao, RBI chased the headline inflation print with

successive hikes in interest rates and very tight liquidity conditions for three years

in a row, that resulted in deposit growth consistently lagging the credit growth

during this period. Inflation still however, did not fall below the tolerance limit of

RBI. In many ways Dr. Rajan is approaching the problem in a vastly different way.

At the outset he wants to steer himself clear of the noise element in the data and

is willing to await for more clarity to emerge in this regard. More formally, he is

moving away from a ‘single target single instrument’ framework to a ‘multiple

target multiple instruments’ approach.

This balanced approach also informed his multidirectional approach to the

solutions through a combination of easing of MSF rates, hike in Repo rates, easing

of liquidity and finally a series of communication aimed at managing inflationary

expectations and expectations regarding RBI policy. In holding his nerve vis-à-vis

a spike in Nov-13 inflation print, he has also vetted for stability in policy.

A–31January 2014


Dr. Subbarao during

May-13 to Aug-13

Situation: Faced with an average inflation of 5.6% and

growth of around 4.8-4.4%.

Response: Kept the repo rates high at 7.25%. Also raised

MSF rates as part of forex crisis reponse. Kept liquidity

tight throughout to keep call money high.

Scorecard: Inflation did not subside and indeed

vegetable inflation kept rising.

Situation: INR moved from 54-69 in four months as CAD

ruled high at 4.9% in 1QFY13 and USD5b flown out during

2QFY14.

Response: Hiked short term rates, inverted yield curve

to attract capital flows, clamped down on gold imports.

Scorecard: Forex volatility at its peak, continued FIIs

outflow, trade deficit corrects to USD12b from USD18/

20b earlier.

Dr. Rajan during

Sep-13 to Dec-13

Situation: Faced an average inflation of 7.2% and growth

of around the same of 4.8%

Response: Lowered the effective MSF rate while hiking

Repo to rationalize the corridor. Also waited for data

to stabilize in the last policy, citing concerns of

overtightening. Eased liquidity and money market

rates.

Scorecard: Inflation is expected to drop sharply from

Dec-13 onwards.

Situation: Forex market volatility at its peak, market

jittery despite improvement in trade data to USD12b

from USD18/20b earlier.

Response: Rationalized policy rates, normalized yield

curve, opened forex swap windows, liberalized certain

aspects of forex market, calmed the market through

timely communication.

Scorecard: INR stabilized at 62/USD, trade data continued

to improve, capital inflow resumed allowed forex built

up.

Crisis

High

inflation

External crisis

The iron hand vs. gentle persuasion - the eight months of two regimes at RBI

A–32January 2014


The iron hand vs. gentle persuasion - the eight months of two regimes at RBI

On inflation and policy: Admittedly, some growth

slowdown is attributable to monetary tightening. Note

that the objective of monetary tightening is to compress

aggregate demand, and so some sacrifice of growth is

programmed into monetary tightening.

On INR: It is the avowed policy of the Reserve Bank not

to target a level of exchange rate and we have stayed

true to that policy.

On tapering: There has been dismay about the ferocity

of depreciation; there has also been a growing

tendency to attribute all of this to the 'tapering' of its

ultra easy monetary policy by the US Fed.

Such a diagnosis, I believe, is misleading. Admittedly,

the speed and timing of the rupee depreciation have

been due to the markets factoring in 'tapering' by the

US Fed, but we will go astray both in the diagnosis

and remedy, if we do not acknowledge that the root

cause of the problem is domestic structural factors.

On inflation and policy: We may be in danger of over

tightening and that has its consequences also,

especially in a weak economy.

On INR: There is no fundamental reason for volatility

in the value of the rupee. We are left with fear about

what others will fear and do to explain what is going

on. At such times, it makes sense to take a deep

breath and examine the fundamentals. I hope you all

will do that..

On tapering: What we need to do is put our house in

order before it (tapering) comes back. The

postponement of tapering is only that, a

postponement. We must use this time to create a

bullet-proof national balance sheet and growth

agenda, which creates confidence in citizens and

investors alike.

Quotes

A–33January 2014


Similarly the response to the external crisis too has been vastly different under the

two regimes. Dr. Subbarao caused a spike in short term rates, inverted the yield curve,

clamped down on gold imports and spent forex reserves to stabilize INR. On the other

hand, Dr. Rajan has eased the short term rates, brought the yield curve back to shape,

relaxed some of the forex restrictions for exporter/importers even while in crisis and

shored up forex reserves through debt capital flows. At the end, the INR stabilized at

around 62/USD while volatility came back to normal levels. Again proactive

communication, especially in between scheduled policy events were used to soothe

the tempered nerves of the financial markets.

In recent times, a friendlier approach from RBI has helped stabilize the market

expectations and improve the outcome than a straight forward iron hand approach

adopted by the earlier regime. This has important implications for events that would

unfold in 1HCY14 and especially with regard to the two prime concerns of 2HCY13, the

debate may now shift to i) when can we see the first rate cut and ii) have we left the

external crisis behind?

Come Mar-14 and we could all be singing rate cuts An analysis of the inflation data reveals that vegetable prices account for much of

the acceleration of inflation since Jun-13.

Indeed vegetable prices with just 1.7% weight in WPI accounted for around 2% of

the 7.5% overall WPI inflation in Nov-13.

Similarly while vegetables accounted for around 5.4% of the weight in CPI it

contributed 3.5% of the 11.2% overall CPI inflation in Nov-13.

Our channel check and high frequency data suggests that various vegetables prices

have nearly halved during Dec-13. This would lead to 1% drop in WPI and 1.5%

drop in CPI inflation during Dec-13.

Moreover, the sharp drop in vegetable prices would be combined with the expected

drop in the cereals and pulses on arrival of new crop. The expectations of a bumper

Ravi crop also expected to accelerate this trend.

A sharp drop in domestic food prices would keep the overall inflation stable,

further reinforced by an expected drop in imported inflation on low international

commodity prices and stable INR.

The recent spike in WPI inflation clearly caused by vegetables alone The same is the case for CPI inflation too

A–34January 2014


A sharp drop in vegetables inflation would lead WPI inflation to drop by 1% Similarly CPI inflation would subside to single digit level in Dec-13

In the light of the above development we expect WPI to stabilize to 6-6.5% level in

1HCY14. Similarly, CPI would moderate to around 9% level from the current 11% level.

This would decisively shift the debate on policy to easing of rates around Mar-14.

We hold that the space for rate cut exists even now as policy rates are around the high

levels that prevailed during the two previous cycles during Mar-07 and Jun-11 despite

inflation hovering near the same levels or lower and growth faltering to decadal low.

Thus we expect once the inflation rate stabilizes, talk of a rate cut would pick up.

However, external stability is a precondition for any rate cut.

We observe that a forex level below USD280 had drawn the panic reaction from RBI in

raising the MSF rate by 200bp. Thus for any talk of rate cut to gain currency forex

reserves needs to be at least in the range of USD280-290b and INR needs to be stable

in the 60-64/USD range.

Falling food prices may see WPI ~6-6.5% in 1HCY14 Similarly CPI may hover around 9% in the coming six months

Space for rate cut already exists as rates are as high as previous However, external stability (forex level of USD280-290b)peaks despite growth faltering and inflation similar or lower is a pre-condition for RBI not to press the panic button

A–35January 2014


Have we left the CAD problem behind? Since Jun-13 the trade deficit has come down sharply to USD10-12b from USD18-

20b earlier. This has resulted in a dramatic correction in the CAD to 1.2% of GDP

during 2QFY13 from 4.9% during 1QFY14.

Thus we expect the CAD/GDP to correct sharply to 2.3% in FY14 and 1.9% in FY15,

far lower than the peak of 4.7% during FY13.

We base our conclusion on the sharply falling imports and the pick up in exports

seen in the recent months. We feel these trends would be durable for the following

reasons.

The decline in imports is broadbased and is due to slowdown in the economy,

particularly the non-oil-non-gold imports. As the economy slowly recovers

the imports, particularly the import intensive sectors, e.g, capital goods would

show generalized growth only with a lag.

The restrictions on gold imports have been effective in suppressing the supply

of gold as seen in the sudden spike in premium paid in the domestic market

vis-à-vis international market on gold since Sep-13.

On the other hand gold demand has been low as investment demand has

evaporated on the back of low return expectations after a decade long bull

run.

Indeed the sharp decline in gold imports has opened up space for removal of

some of the restrictions on gold imports, particularly the high import duties.

Meanwhile exports have started picking up and is expected to do so as growth

in the advanced countries pick up steam.

The commodity-wise breakdown of exports reflect that apart from the primary

products, value added goods too have started gaining traction, including

petroleum products, chemicals and iron & steel. This augurs well for the future

prospect of exports.

Thus as the situation on CAD improves it would provide confidence on the strength

to the external investors regarding the value of INR. A slow return of growth too

would be a critical factor in reviving capital flows.

Thus the fear of tapering has receded and RBI’s pronouncement of much better

preparedness has helped calm the market expectations. Here too Dr. Rajan has

pulled out an winning formula, as the maxim go ‘fortune favours the brave’.

Trade deficit is coming down to FY11 or FY08 levels Raising the hope to correct CAD to sustainable levels

A–36January 2014


CAD is expected to come back to the pre-crisis levels in FY15 (in USDb)

Annual FY08 FY09 FY10 FY11 FY12 FY13 FY14E FY15E

Exports 166 189 182 251 310 307 316 348

Imports 258 309 301 381 500 502 467 506

Trade Deficit -91 -120 -118 -130 -190 -196 -151 -158

Invisible Surplus 76 92 80 86 112 107 110 120

Current A/c deficit -16 -28 -38 -44 -78 -88 -41 -38

Net capital flows 107 7 53 57 68 89 40 50

Forex Reserves 310 252 279 305 294 293 290 301

(As % of GDP)

Exports 13.4 15.5 13.2 14.5 16.8 16.3 17.4 17.4

Imports 20.8 25.4 21.8 22.1 27.0 26.7 25.7 25.3

Trade Deficit -7.4 -9.8 -8.6 -7.6 -10.3 -10.4 -8.3 -7.9

Invisible Surplus 6.1 7.5 5.8 5.0 6.0 5.7 6.0 6.0

Current A/c deficit -1.3 -2.3 -2.8 -2.6 -4.2 -4.7 -2.3 -1.9

External debt 18.1 20.5 18.9 17.3 18.7 21.4 23.2 24.2

The decline in imports is widespread across major items of Restriction on gold has suppressed gold supply as reflected inexports barring oil spike in premium between Indian and international prices

This has prepared the ground for lifting some of the restrictions on gold imports

Date Measure

Jan-12 The import duty of 1% raised to 2%

Mar-12 Import duty raised to 4%

Jan-13 Import duty raised to 6%

May-13 Restriction on bank imports via consignment;

Jun-13 Import duty hiked to 8%; consignment restriction further extended to all agencies

on Jun-13; requirement of outright cash payment

Jul-13 Consignment restrictions withdrawn; stringent requirement of 20%

exports for all imports

Aug-13 Import duty hiked to 10%Excise duty hiked to 9% from 7%

A–37January 2014


12 export items (ranked as per their weight) that has seen theMeanwhile exports have started picking up once again maximum growth in YTDFY14 (YoY%)

A–38January 2014


Alternate climax or anti-climax in the makingAAP forming government in Delhi spices up the national political landscape

The recent assembly elections results clearly indicated a strong anti-Congress wave bringing

out a decisive voting against corruption, inflation, lack of policy reforms, etc.

The decisive mandate saw BJP, riding on the NaMo wave, forming government in 3 out of

5 states with record number of votes. AAP was the BIGGEST SURPRISE, which formed

government in Delhi, with outside support from Congress. AAP’s 40% seat share and 30%

vote share indicates that a fresh alternative can no longer be ruled out.

Till recently, all the political pundits were betting for BJP as the majority party in the

upcoming 2014 Lok Sabha elections riding on the dual wave of anti-Congress and NaMo.

Indian markets were also riding high, driven by the Modi bandwagon, who stands as a

symbol of pro-development driven by his success in Gujarat.

However, AAP’s win in Delhi has queered the national pitch. The focus of AAP’s early policy

action is socialistic, rather than an anti-corruption drive that was expected from AAP

(Refer Annexure I). Many high profile personalities including industrialists have voluntarily

joined the party (Refer Annexure II). Whether AAP, aided by the new joinees, can showcase

their policy action prowess on growth and development front remains to be seen! (Refer

Annexure III)

Market view: With four months remaining for Lok Sabha elections, a lot of action is

expected on the political front which is likely to keep markets volatile and the environment

uncertain. A churn is taking place in India and the 2014 mandate will reflect this ‘manthan’!

ELECTIONS

Strong anti-Congress wave across country; lowest tally for Congress Congress bagged merely 126 of the total 589 seats in 4 major state elections. This is

the lowest ever number of combined seats by Congress. Seat share at 21% and

lowest vote share clearly indicates a strong anti-Congress wave in recent elections.

Growth and governance over entitlement has been the clear preference of voters.

However, while governance is found to be a necessary condition, governance

deficit has nearly unambiguously thrown the incumbent out of its office.

Congress won its lowest ever seats in the recently concluded assembly electionsParties Assembly General Assembly General Assembly

(2003) (2004) (2008) (2009) (2013)

Chahattisgarh 90 11 90 11 90

BJP 50 10 50 10 49

Congress 37 1 38 1 39

Others 3 0 2 0 2

Delhi 70 7 70 7 70

BJP 20 1 23 0 32

Congress 47 6 43 7 8

AAP 0 0 0 0 28

Others 3 0 4 0 2

Madhya Pradesh 230 29 230 29 230

BJP 173 25 143 16 165

Congress 38 4 71 12 58

Others 19 0 16 1 7

Rajasthan 200 25 200 25 199

BJP 120 21 78 4 162

Congress 56 4 96 20 21

Others 24 0 26 1 16

Total seats 590 72 590 72 589

BJP 363 57 294 30 408

Congress 178 15 248 40 126

Refer to the Election updatereleased on December 2013

Congress won merely 126

of the total 589 seats

(1/5 of the total seats) in

4 major state elections

A–39January 2014


Congress vote share also remained very low

Party Vote share Vote share Vote share Vote share Swing

(1998) (2003) (2008) (A) (2013) (B) (B-A)

Chattisgarh

BJP NA 39 40 41 1

Congress NA 37 40 40 0

Others NA 24 20 19 -1

Delhi

BJP 36 35 37 33 -4

Congress 48 48 40 25 -16

AAP 0 0 0 30 30

Others 16 17 23 13 -10

Madhya Pradesh

BJP 39 43 38 45 7

Congress 41 32 33 36 4

Others 20 26 29 19 -10

Rajasthan

BJP 34 40 36 45 10

Congress 45 36 37 33 -4

Others 21 25 28 22 -6

BJP emerges as the alternative in 3 out of 4 major states; betters allexpectations BJP, driven by the strong NaMo wave, emerged as the preferred choice in states

where there was a direct battle between BJP and Congress.

Infact, BJP bettered its own tally and all expectations winning 408 seats out of a

maximum possible 589 seats. This is more than 2/3rd of the total number of seats.

Even BJP’s vote share saw a marked improvement, except Delhi, which saw AAP

eating away some of the vote share.

BJP surpassed the consensus exit polls seat estimate by a significant margin.

The win was supported by the strong Modi wave, riding on his pro-development

philosophy and his heroics in the state of Gujarat.

BJP exceeded all expectations and won higher seats than that predicted by exit polls

States/Parties ABP News - CNN-IBN Times Now India Today Today’s Average of Assembly Swing

Nielsen Week - C Voter -ORG Chanakya all polls (A) (2013) (B) (B-A)

Chhattisgarh 90 90 90 90 90 90 90 0

BJP 43 50 44 53 51 48 49 1

Congress 42 36 41 33 39 38 39 1

Others 5 4 5 4 0 4 2 -2

Delhi 70 70 70 70 70 70 70 0

BJP 37 37 31 41 29 35 32 -3

Congress 16 13 24 20 10 17 8 -9

AAP 15 17 11 6 31 16 28 12

Others 2 3 4 3 0 2 2 0

Madhya Pradesh 230 230 230 230 230 230 230 0

BJP 138 141 128 138 161 141 165 24

Congress 80 72 92 80 62 77 58 -19

Others 12 17 10 12 7 12 7 -5

Rajasthan 200 200 200 200 200 200 199 -1

BJP 110 131 130 110 147 126 162 36

Congress 73 53 48 62 39 55 21 -34

Others 17 16 22 28 14 19 16 -3

Rajasthan and Delhi vote

share - lowest for

Congress

A–40January 2014


The “AAP-rising” – a fresh alternative? The biggest surprise of 2013 assembly elections was Delhi which saw the

emergence of AAP as the second largest party winning 28 seats out of 70. It was

also the runner-up party in 20 seats apart from the 28 seats won. More importantly,

in its first year of existence, AAP won a vote share of 30%.

AAP has formed the government in Delhi with outside support from the Congress.

A party with mere one year of existence forming a government is unconceivable.

The differentiating factor for AAP was its underlying PHILOSOPHY: No high profile

politician, drive against corruption, unorthodox election campaign, and a personal

connect with the voters.

The UNIQUE STRATEGY adopted by AAP to garner peoples mindshare include: i)

symbol of broom to suggest a clean-up, ii) online donation and stopping to accept

donations once the mobilization reached the target of INR200m, iii) 70 manifestos

dedicated to each constituency along with a general manifesto, iv) a transparent

and participative candidate selection process.

Post the AAP win, there is a renewed belief amongst voters that a fresh alternative

is now available in Indian politics.

Combined seats won by Congress lowest in 4 major state elections; BJP highest

AAP's performance exceeded most expectations

States/ Exit Polls Avg of Assembly Swing

Parties ABP News - CNN-IBN Times Now - India Today's Exit polls (2013)

Nielsen Week C Voter Today-ORG Chanakya (A) (B) (B-A)

Total seats 70 70 70 70 70 70 70 0

BJP 37 37 31 41 29 35 32 -3

Congress 16 13 24 20 10 17 8 -9

AAP 15 17 11 6 31 16 28 12

Others 2 3 4 3 0 2 2 0

AAP ate vote share largely from Congress and BSP and also in part from BJP

Party Vote share (%) Swing

1998 2003 2008 (A) 2013 (B) (B-A)

BJP 36 35 37 33 -4

Congress 48 48 40 25 -16

AAP 0 0 0 30 30

Others 16 17 23 13 -10

I have already wished

him well.

Anna Hazare,,

,,

A–41January 2014


AAP got runners up position in 20 seats

Party (Seats won) Runner up seats

BJP AAP INC

BJP (31) 18 14

AAP (28) 22 5

INC (8) 6 2

SAD (1) 1

JD (U) (1) 1

Ind (1) 1

Total (2nd position) 29 20 21

Why AAP assumes significance for 2014 General elections? Any change is always driven by a revolution (against corruption this time). The

biggest question today is, Will AAP drive that CHANGE?

Till recently, all the political pundits were betting for BJP as the majority party in

the upcoming 2014 Lok Sabha elections riding on the dual wave of anti-Congress

and NaMo. Indian markets were also riding high, driven by the Modi bandwagon,

who stands as a symbol of pro-development driven by his success in Gujarat.

However, AAP’s win in Delhi has queered the national pitch. The focus of AAP’s

early policy action is socialistic, rather than an anti-corruption drive that was

expected from AAP (refer Annexure-I for AAP's promises and achievements).

Thus, the national fight has now narrowed to two alternatives: (i) BJP, led by

Narendra Modi, with a righteous and pro-development model and (ii) AAP, led by

Arvind Kejriwal, with a pro-leftist and anti-corruption model.

However, with many high profile personalities including industrialists joining the

party, whether AAP can showcase their policy action prowess on growth and

development front remains to be seen! (refer Annexure-II for high profile joinees).

Arguments for AAP is not a force to reckon with at the national level are : (i) Arvind

Kejriwal carried his socialistic work in Delhi for the last 10 years though it floated

AAP a year ago; (ii) unlike Delhi, where there are no regional parties, other states

have many regional parties and penetrating them will be difficult, and (iii) four

months is too short a time for AAP to set its base pan India.

However, there is equal bullishness that AAP can spoil the party for BJP, like it did

in Delhi (refer Annexure-III for industrialists and journalists reactions).

Market view: One thing is for sure! There is a wind of change in India … who is

likely to be a beneficiary of this change remains to be seen. With four months

remaining for the Lok Sabha elections, a lot of action is expected on the political

front which is likely to keep markets volatile and the environment uncertain.

A–42January 2014


Manifesto: Tall promises and high benchmark; have already started strikingchordsAAP’s manifesto promised a lot of steps for the AAM AADMI. We have presented

below the issues AAP wishes to resolve and the policy actions they have made during

the limited period they have been in power:

1) Electricity bill: To be reduced by 50% through audit of discoms, checking bills and

meters, promotion of solar power.

Key announcements post assuming office

Ordered a 50% cut in electricity prices up to a consumption of 400 units of

power. This will benefit 2.8m people or 82% of electricity consumers. The

subsidy will result in cash outgo of INR610m for Jan-Mar’14.

It has also ordered audit of discoms that provide power to Delhi.

2) Water availability: Households using up to 700 litres of water (per day) would be

given free water. Transparency to be introduced and privatization to be stopped in

Delhi Jal Board.


Free 20kl of water a month or 667litres a day. No levy of any existing charges

such as water cess and sewerage charges will be made.

3) Education: Commitment to high quality education to all, regulate high fees and

donations in private schools, expansion of higher education and regularization of

temporary posts.


Mr. Manish Sisodia, State Education Minister, expressed disappointment at

the low-functioning state of the department.

Delhi government provides scholarships for children from the weaker sections

of society by which half their tuition fees are covered. But only 7 children have

been able to benefit from it in the past year.

4) Transport: Unified Transport Authority, expansion of DTC bus service and Delhi

Metro, making pavements and cycle tracks on all possible roads, preventing police

harassment and revising auto fares in an ongoing manner etc.


Minister of Transport for Delhi, Mr. Saurabh Bharadwaj, has approved the

distribution of 15000 autos, free of cost, to members of the SC/ST.

5) Delhi Jan Lokpal Bill: Commitment to pass Delhi Jan Lokpal Bill within 15 days of

coming to power.

6) Women’s security: Citizens’ security forces would be formed with a branch in

each ward. Special fast track courts for crimes against women.

7) Slums: Flats/plots would be provided on site or as near as possible to existing

location of slums through a consultative process. Till rehabilitation no demolition

and improvement in living conditions.

8) Inflation and unemployment: Basic provisioning to protect people from inflation.

For unemployment, government posts to be filled up, better facilities to be

provided at industrial areas and low interest loans for young entrepreneurs.

Annexure-I

A–43January 2014


9) Other economic issues: Simplified VAT structure, licensing procedure and

opposition to FDI in retail for traders. Other target groups’ measures include

stopping of contract labors for 365 days jobs, enforcement of minimum wages,

social security for unorganized sector, regulation of wage and working hours of

domestic workers, improvement in conditions of rag pickers and licences and

fixed locations for street vendors.


Ordered shelters for all people who are sleeping in the open in Delhi.

Porta Cabin Tents to be transformed into nightshelters and also announced 45

new nightshelters to be made to prevent people from the chilling cold in

Delhi.

7 days of power – 7 high profile joinees in AAP army; ~0.4m members addedpost Dec 8 AAP could not have called for a better response to showcase them at the national

level. AAP currently has its units and committees in atleast 309 districts across

India and is well on its target of having presence in all 672 districts of the country.

The party had less than 0.5m registered members before the Delhi elections.

However, since its stellar debut in Delhi Assembly elections on December 8, AAP

members have almost doubled.

Top three places which have seen recent additions are Uttar Pradesh with 72,416

members, Delhi with 48,001 and Maharashtra with 37,028 members.

With just over a week gone since Arvind Kejriwal took oath as the Chief Minister

of Delhi, AAP has already within its folds many high profile joinees from different

sectors.

Annexure-II

A–44January 2014


Distinguished personalities in various disciplines now dawn as AAP soldiersName of

new joinees

Mr. V

Balakrishnan

or Bala as he

is commonly

known

Mrs. Meera

Sanyal

Mr. Adarsh

Shastri

Mr. Remo

Fernandes

Dr. Oscar

Rebel lo

Mr. Kanu

Kalsar ia

Captain

G.R. Gopinath

Past

association

Former CFO and

Director, Infosys

Former CEO, Royal

Bank of Scotland

Former Head of

Sales (West

India), Apple

Popular singer

from Goa

Leading social

activist from Goa

and a practicing

doctor

Ex BJP MLA

Founder of Air

Deccan

Brief profile/

Credentials

BSc from the University of Madras,

started his career at Amco Batteries

before joining IT major Infosys.

Held a variety of positions for Infosys

including CFO from May'06 to Oct'12.

Member of the Board of Directors of

Infosys till 31st December, 2013.

MBA from INSEAD France, worked

with RBS for 6 years and before that

was associated with ABN Amro for

15 years.

President of Indian Liberal Group, a

non proft think tank for improving

quality of governance in India.

Grandson of former PM, Lal Bahadur

Shastri and son of current Congress

leader Anil Shastri.

40 year old MBA, who has spent over

15 years in telecom sector.

Rose to fame in 1970s and 1980s by

lending his music/songs to several

popular movements which dealt

with social issues like making

Konkani Goa's official language.

Ambassador of Election Commission

of India in 2012 to encourage voting

among youth.

Led the historic peoples movement

in 2006-07 to get anti-Goa Regional

Plan scrapped and save Goa from

total destruction of ecology and

natural beauty.

Worked indefatigably for welfare of

Goa in various causes.

Three term BJP MLA led farmers’

movement against Nirma Group

which wanted to set up a major

cement manufacturing plant in

Bhavnagar district..

Spent eight years in the Indian army,

earning the rank of Captain.

Founded Air Deccan, a low cost

air l ine.

In 2009 Lok Sabha elections, stood

unsuccessfully as an independent

candidate.

Quote shoot

AAP is the most successful startup by

an IIT-ian ever. I would like to be a

part of the revolution happening in

the country

There is a perception that AAP's

economic policies are along the lines

of the Left. I am not in favour of

subsidies but we have parties like

Congress and BJP, who passed the

Food Security Bill and are quibbling

over a subsidy bill (that of power in

Delhi) that is way smaller

Victory of AAP is reaffirmation by

people in the values of transparency

and probity as espoused by my

grandfather Shastriji

I had a cushy life with a great

company but somehow it did not feel

right. I was inspired by Arvind Kejriwal

and felt compelled to do more

I've had enough of voting for different

parties and different leaders and

expecting change, but being short-

changed each time. Like the saying

goes, if I want change, I have to BE

the change

In the national context, AAP is an IDEA

here to completely stay. Post 2014, if

Congress and the khichdi Third Front

comes to power it will be the same

old power brokers, wheeler dealers,

and corrupt crony capitalists back in

action

Now, with the help of this broom, I

will clean up the filth from Gujarat

I am not against industries but

against the industrial development

at the cost of the poor and farmers

The biggest problem with political

parties today is that MPs treat their

constituencies like dirt and the high

command treats its MPs like dirt.

Morals and values don't trickle down

,,

,,

,,

,,

,,

,,

,,

,,

,,,,

,,

,,

,,

,,

,,

,,

,,

,,

A–45January 2014


Quotes from leading Industrialists and Journalists indicate mixed response for AAP

We have collated the reactions of the major industrialist and journalists on AAP's

victory in Delhi. While majority have appreciated the feat performed by AAP, there

are some who believe that AAP's socialist model will not last for long.

Mixed response for AAP

You do not need much money and other resources to

win elections. That’s the lesson at least I got from the

Aam Aadmi Party victory

N R Narayana Murthy,

Co- Founder and Executive Chairman, Infosys

THOSE POSITIVE …

We should wait and watch …. Some goals seem

unrealistic because state government cannot print

money, unlike the Centre

Rahul Bajaj,

Chairman, Bajaj Auto

... THOSE DITHERING

Honesty isn’t just the best policy but the best politics

Anand Mahindra,

CMD, Mahindra & Mahindra

AAP is the 5th revolution in India's domestic politics

after the freedom struggle, socialist movement,

emergency and mandir/mandal politics

Shekhar Gupta, Editor-in-Chief, Indian Express

Annexure-III

Political parties deal in creating distances. Kejriwal

has reduced distances between the politician and

the people

Santosh Desai, columnist for The Times of India,

MD & CEO of Futurebrands India Ltd

It is not necessary that he has to achieve all the goals

on the first day itself. This is how business leaders

function too. They set targets and goals and I’m glad

that he has set goals for his government to achieve. Whether,

he’ll be able to achieve and deliver only a part of the goals is

not a worry as opposed to not having any goals at all

Rajat Jain, Managing Director, Xerox India

Kejriwal's the Amol Palekar of Indian politics, the

man next door

Suhel Seth, Founder Equus Advertising

He is not tried and tested, so I am eager to see what

he does. But I am not wishing him away though there

are others who want to wish him away

Anand Burman,

Chairman, Dabur India

AAP forming govt is a good step. My only concern is

that they have been elected on big economic

promises for the poor and ideal principles for the

rich. An Utopian model which is difficult to live up to, but if

delivered will be laudable

Sunil Alagh, Former MD, Britannia

AAP can play a sport spoiler for few states but can't

be a riding force …. Better Kejriwal does, the better

it is for Modi because it signals a need for change

Rajdeep Sardesai, Editor-in-chief, IBN18 Network

A–46January 2014


FII debt investors pre-empt but equity investors stay putPrivate Financials, Technology, Automobiles witness highest FII flows

The US Fed recently announced the first round of tapering on its stimulus package from

January 2014, after a period of over 5 years in continuance. During this period, India

received USD109b, in aggregate, USD91b from equity and USD18b from debt.

The impact of tapering is clearly visible on the debt front with ~USD12b outflows in the

last seven months, since the talks of Fed taper first started. Accordingly, out of the total

debt flows of USD20b received since Nov-08, 40% of the cumulative debt flows (USD8b)

have been withdrawn by investors in CY13 alone.

Equity flows, on the other hand, continue unabated with CY13 receiving USD20b (3rd

highest equity flow ever). With the Fed taper imminent, India could see see moderation

in the flows. This will particularly impact the sectors / stocks where the FII holding is high.

In this section, we present our analysis on: (i) the beneficiary sectors/stocks which saw

maximum FII inflows during the QE phase, (ii) sectors/stocks where FIIs are overweight or

underweight relative to MSCI ETF. As and when the markets gets worried on the impact

of FII flows, these stocks are likely to be impacted.

FED (TAP)ER

US Federal Reserve stimulus package saw USD3.4t being infused over fiveyears US Federal Reserve has announced three Quantitative Easing (QE), infusing USD3.4t

on aggregate basis. During this period, India received USD109b, USD91.0b from

equity and USD18.4b in debt.

The US Fed recently announced a minor taper of USD10b/month to its third stimulus

package of USD85b per month from January 2014, backed by strong household

spending in US and higher GDP growth.

This was the first round of tapering after a period of more than five years in

continuance.

Fed QE timelines QE saw aggregate infusion of USD3.4t over 5 years

Particulars Start date End date Amt (USD b)

QE1 Dec-08 Mar-10 1,650

QE2 Nov-10 Jun-11 600

QE3 Sep-12 Present 1,140

Total 3,390

2008 FinancialCrisis

September/October 2008

QE1Nov. 25, 2008

March 31, 2010

End of QE1March 31, 2010

QE2Nov. 3, 2010

June 30, 2011

QE3Sept 13, 2012

to present

End of QE2June 30, 2011

A–47January 2014


FII flows galore: Debt sees outflows during the recent months; equity flowsstill healthy For Indian markets, FII ownership is at all-time high at 20.9% at September 30,

2013. Even as a proportion of free float, FII ownership was at its peak of ~44%.

FIIs pumped in net flows of USD109b during the Quantitative Easing (QE) phase; of

which more than 4/5th was in equity (USD91.0b) while the remaining was in debt

(USD18.4b).

Debt has already seen FII outflows of ~USD12b over the past seven months since

the talks of tapering first started off. Thus, CY13 saw net debt outflows of USD8b

(highest ever).

However, net equity flows still remain healthy with USD90.9b in past 5 years. CY13

is the third best year with net equity inflows of USD20b. The past 5 months alone

have seen ~USD8b of net inflows.

FII ownership at its peak in 2QFY14 FII ownership as a proportion of free float at historic high

Stupendous equity inflows in the QE phase; huge debt outflows flows during CY13 (USD b)

A–48January 2014


Debt sees massive outflows of USD12b over the past 7 months (USD b)

However, equities continue to see healthy flows unabated; USD7b in last 5 months

Private financials, Technology and Automobiles are the major beneficiariesWith tapering of US stimulus package, we present sectors which have been the major

beneficiaries of FII flows:

Private financials, Utilities, Technology and Automobiles were the top sectors

seeing maximum FII inflows during CY09-CY13. Higher flows in Utilities was mainly

driven by Coal India's IPO bringing in USD2.5b.

Top 5 sectors received USD44.4b, more than 50% of the total FII flows giving healthy

market returns.

Surprisingly, the sectoral FII flows do not coincide with the sector performance

indicating that mere FII flows are not a determinant of stock performance.

3 out of the top 4 stocks comprised of Private Financials led by HDFC, Axis Bank

and HDFC Bank on account of consistently higher NII growth and stable asset

quality.

Bharti Airtel saw net FII outflow of USD1.4b over this period due to significant

growth concerns led by increased competitive scenario.

A–49January 2014


Private financials, Consumer, Technology are the biggest beneficiaries

Top 5 sectors received more than 50% of the total FII flows (USD b)

Analysis methodologyFor the companies that constitute the BSE-200, we have calculated the quarterly

change in the number of shares owned by FIIs and multiplied it by the average price

for the quarter to derive the FII flows for the quarter. Our calculations may differ

from the actual FII flows due to the assumptions on purchase price and exchange

rate. For sectoral FII flow analysis, we have rebased our computed sector FII flows

for the BSE-200 companies to the total market FII flows for each of the years.

A–50January 2014


Sectoral FII flows (USD b)

Sectors Cumulative Jan-Sep CY12 CY11 CY10 CY09 Price Relative

2013 CAGR (%) perf (pp)

NBFC 10.7 0.8 4.9 0.0 3.9 1.0 20.5 4.4

Banks - Pvt 10.6 2.3 3.2 -0.2 3.6 1.7 25.7 9.6

Uti l i t ies 9.2 2.2 0.8 0.1 6.3 -0.1 -2.0 -18.1

Technology 7.2 2.1 2.9 0.1 0.2 1.9 40.0 23.8

Automobiles 6.7 0.2 1.9 0.0 2.9 1.7 40.9 24.8

Health Care 5.5 2.2 1.6 0.0 0.8 0.9 31.0 14.9

Consumer 5.3 -0.9 2.5 0.5 2.0 1.3 33.0 16.9

Oil & Gas 5.3 1.4 2.0 -0.1 0.8 1.2 7.9 -8.3

Real Estate 5.2 0.5 0.0 -0.1 0.5 4.3 -13.5 -29.7

Metals 4.5 -0.1 1.0 -0.2 0.9 2.9 10.3 -5.9

Banks - PSU 3.0 0.0 0.9 -0.6 1.8 0.9 4.9 -11.2

Cement 2.9 0.4 0.7 0.0 1.5 0.2 29.8 13.7

Capital Goods 1.6 0.1 1.0 -0.2 -0.1 0.8 2.6 -13.5

Media 1.2 0.4 0.1 0.1 0.6 0.0 24.2 8.1

Telecom -0.4 0.3 0.7 0.1 0.3 -1.7 0.5 -15.6

Misc 6.0 1.4 0.6 0.1 3.3 0.6 NA NA

Total 84.4 13.4 24.5 -0.5 29.3 17.6 16.1

Top 20 companies receiving FII flows

Top companies witnessing FII outflows

A–51January 2014


MSCI: Top 25 stocks comprising more than 75% of the total portfolio

Company name MSCI weight (%) FII weight (%) FII weight relative

to MSCI ETF (bp)

Infosys 10.8 9.1 -177

HDFC 7.9 8.3 38

Reliance Industries 7.7 5.3 -239

HDFC Bank 7.0 6.8 -17

Tata Consultancy Services 6.8 5.8 -105

ITC 4.8 5.0 21

Hindustan Unilever 2.5 2.0 -53

Sun Pharmaceutical Industries 2.4 2.7 27

Wipro 2.3 1.2 -109

Larsen & Toubro 2.3 1.3 -99

Mahindra & Mahindra 2.0 2.0 1

Tata Motors 1.9 4.7 279

HCL Technologies 1.8 1.9 12

Dr Reddy's Laboratories 1.7 1.9 17

State Bank of India 1.6 1.2 -40

ICICI Bank 1.6 6.5 486

Kotak Mahindra Bank 1.6 1.5 -1

Oil & Natural Gas Corp 1.5 1.4 -8

United Spirits 1.5 1.5 0

Sesa Sterlite 1.4 1.3 -10

Bharti Airtel 1.3 1.9 60

Tech Mahindra 1.3 1.0 -34

Hero MotoCorp 1.1 1.2 5

Bajaj Auto 1.1 1.0 -10

Cairn India 1.0 0.9 -17

Total 77.0 77.2

FIIs overweight on Private Banks, Autos; underweight on Oil & Gas, CapitalGoods In this section, we present the sectors/stocks in which FIIs are underweight or

overweight relative to MSCI ETF and BSE-200.

Relative to MSCI weights: Our analysis suggests that FIIs are overweight on Private

Banks (459bp) and Auto (275bp) and underweight on Technology (414bp) and Oil &

Gas (298bp). Among stocks, FIIs are overweight on ICICI Bank (486bp), Tata Motors

(279bp) but underweight Reliance Ind (239bp), Infosys (177bp) and Wipro (109bp).

Sectoral difference between MSCI weights and FII weights Difference between MSCI weights and FII weights (bp): ICICI(bp): FIIs were overweight Pvt Banks, Autos; Bank, Tata Motors saw higher FII interest, while RIL andunderweight Technology and Oil & Gas Infosys saw less favor

Note: FII weight is as on September 30, 2013. MSCI weights is based on the ETF weight of MSCI as on December 30, 2013

A–52January 2014


Sector / Portfolio Picks Nifty-50 MOSL Wt Wt relative to Nifty-50 Sector StanceFinancials 26.1 25.0 -1.1 Neutral

Private 16.2 14 -2.2 Neutral

HDFC Bank 6.0 7 1.0 Buy

ICICI Bank 6.1 7 0.9 Buy

NBFCs 6.7 7 0.3 Neutral

HDFC 6.0 3 -3.0 Buy

IDFC 0.7 2 1.3 Buy

LIC Housing 0.0 2 2.0 Buy

PSU 3.2 4 0.8 Neutral

SBI 2.2 2 -0.2 Buy

BOB 0.6 2 1.4 Buy

Technology 16.9 17.0 0.1 Overweight

Infosys 8.1 8 -0.1 Buy

TCS 5.4 5 -0.4 Neutral

Tech Mahindra 0.0 4 4.0 Buy

Auto 8.9 9.0 0.1 Overweight

Tata Motors 3.3 4 0.7 Buy

Hero Motocorp 1.2 3 1.8 Buy

Maruti 1.1 2 0.9 Buy

Healthcare 6.0 8.0 2.0 Overweight

Sun Pharma 2.1 3 0.9 Buy

Lupin 1.0 2 1.0 Buy

Divi's Lab 0.0 2 2.0 Buy

IPCA 0.0 1 1.0 Buy

Energy 11.7 8.0 -3.7 Underweight

Reliance Inds. 7.1 3 -4.1 Neutral

ONGC 2.5 3 0.5 Buy

BPCL 0.4 2 1.6 Buy

Consumer / Retail 11.6 7.0 -4.6 Underweight

ITC 8.6 6 -2.6 Buy

Marico 0.0 1 1.0 Buy

Telecom 1.9 5.0 3.1 Overweight

Bharti Airtel 1.9 3 1.1 Buy

Idea Cellular 0.0 2 2.0 Buy

Metals 4.4 4.0 -0.4 Neutral

NMDC 0.5 2 1.5 Buy

Hindalco 0.8 2 1.2 Buy

Infrastructure & Related sectors 8.4 4.0 -4.4 Underweight

Larsen & Toubro 4.2 2 -2.2 Buy

ACC 0.5 2 1.5 Buy

Utilities 4.0 2.0 -2.0 Underweight

Coal India 0.9 2 1.1 Neutral

Others 0.0 11.0 11.0 Overweight

Sobha Developers 0.0 1 1.0 Buy

PVR 0.0 1 1.0 Buy

TVS Motor 0.0 1 1.0 Buy

Eicher Motors 0.0 1 1.0 Buy

Bata 0.0 1 1.0 Buy

Shree Cement 0.0 1 1.0 Buy

Crompton Greaves 0.0 1 1.0 Buy

SUN TV 0.0 1 1.0 Buy

Petronet 0.0 1 1.0 Buy

DB Corp 0.0 1 1.0 Buy

UPL 0.0 1 1.0 Buy

Cash 0.0 0.0 0.00

Total 100.0 100.0

MOSL modelportfolio

A–53January 2014


3QFY14 PREVIEW Theme similar to 2Q: Globals do, locals undo2Q earnings rebound sustained; Aggregate PAT up 10%; Sensex PAT up 13%

We expect MOSL Universe of 143 companies (ex RMs) to report aggregate 3QFY14 PAT

growth of 10% YoY, sustaining the earnings rebound in 2QFY14 (+8% YoY v/s estimated

3% YoY). 4QFY14 PAT growth is expected to be an even higher 13% YoY.

As in 2Q, expect global-facing sectors like Technology, Healthcare and Metals to outperform

their domestic-facing counterparts thanks to 15% YoY depreciation of the INR vis-à-vis

the USD.

Expect Sensex 3QFY14 PAT to grow 13% YoY.

Within Sensex, top 5 PAT growth companies are: Tata Steel (loss to profit), Bharti (+299%

YoY), Tata Motors (+89%), TCS (+48%) and Sun Pharma (+44%). Top 5 PAT de-growth

companies: BHEL (-56% YoY), State Bank (-33%), Sesa Sterlite (-21%), Tata Power (-10%)

and Coal India (-8%).

Macroeconomic backdrop: Adverse for locals, favorable for globalsThe macroeconomic backdrop for 3QFY14 has remained adverse for most domestic

businesses; however, economic recovery in the developed world and the strong dollar

favored specific global-facing sectors and companies.

IIP remained at almost zero, with no improvement in the investment climate

Festival demand was unexciting; no boost for sectors like Autos, Cement and Real

Estate

INR though sequentially stable was still down 15% YoY

Western economies are in strong recovery mode.

YTDFY14 IIP growth is 0% INR is stable sequentially but still down about 15% YoY

USD/INR - Qtr average

Expect 3QFY14 Aggregate PAT to grow 10% YoY; Sales growth is strong at12%We expect MOSL Universe of 143 companies (excluding RMs i.e. 3 major oil refining &

marketing companies IOC, BPCL, HPCL) to report aggregate 3QFY14 PAT growth of 10%

YoY. This sustains the earnings rebound witnessed in 2QFY14 (+8% YoY v/s estimated

3% YoY), following 6 successive quarters of lower earnings growth culminating in 2%

YoY de-growth in 1QFY14. Sales growth is at 12%, while EBIDTA growth is 13%. 4QFY14

PAT growth is expected to be an even higher 13% YoY, driving 2HFY14 PAT growth to

A–54January 2014


12% YoY (v/s 2% YoY for 2HFY13 and 4% YoY for 1HFY14). Full year FY14 PAT growth is

estimated at 7% YoY v/s 3% in FY13. FY15 PAT growth is estimated at 16% and early

estimates for FY16 suggest this growth momentum will be sustained.

Analyzing the Dec-13 quarter results by sector clearly suggests the significant role of

the “global hand” i.e. gradually economic recovery in the developed world and the

strong US dollar.

Technology, Metals and Healthcare – all USD-led revenue sectors – are expected

to report PAT growth of over 30%, predictably benefiting from the weaker INR YoY.

Interestingly, even the high 42% YoY PAT growth of the Auto sector has multiple

aspects of global hand/currency at play: (1) Tata Motors’ PAT (50% of Auto sector

PAT) is expected to grow 89% YoY led by US-subsidiary JLR, (2) Bajaj, despite 4%

sales de-growth, is expected to report 6% PAT growth due to high margins on

exports led by weak INR, and (3) Both Maruti Suzuki and Hero MotoCorp are

beneficiaries of the strong USD vis-à-vis the yen, ensuring that EBITDA and PAT

growth is much higher than revenue growth.

Within domestic businesses, the underlying trend for the 3-4 quarters is the gross

underperformance of cyclicals vis-à-vis the seculars:

Cement, PSU Banks, Real Estate and Capitals Goods are the top PAT de-growth

sectors by far.

The Financials sector overall is expected to report PAT de-growth (-4% YoY) for the

second quarter in succession. However, within Financials, NBFCs (PAT +16% YoY)

and Private Banks (PAT +14% YoY) are likely to deliver much superior performance

than the cyclically more vulnerable PSU Banks (PAT -29% YoY).

3QFY14 performance of MOSL Universe by sector: Globals do, locals undoSECTOR Sales EBITDA PAT PAT Delta EBITDA Margins

(no. of companies) Dec-13 YoY % Dec-13 YoY % Dec-13 YoY % Share % Share % Dec-13 YoY bp

High growth sectors 3,382 17 774 29 372 37 43 131 22.9 217

Telecom (4) 368 12 122 23 23 163 3 19 33.1 306

Auto (9) 1,005 16 139 39 65 42 8 25 13.8 230

Technology (10) 517 30 143 37 106 39 12 39 27.7 144

Metals (9) 1,127 13 219 28 82 36 10 28 19.4 217

Health Care (13) 233 22 53 27 35 30 4 10 22.7 99

Media (7) 41 18 13 15 6 22 1 1 30.6 -85

NBFC (8) 90 19 85 20 55 16 6 10 94.1 96

Med/Low growth sectors 491 14 205 16 129 14 15 20 41.7 97

Private Banks (8) 153 19 132 18 78 14 9 12 86.4 -68

Consumer (13) 338 12 73 14 51 13 6 8 21.5 46

PAT de-growth sectors 3,332 8 703 -1 355 -10 41 -53 21.1 -188

Retail (4) 67 -6 6 -1 3 0 0 0 9.4 51

Oil Excl. RMs (9) 1,780 10 273 1 166 0 19 0 15.4 -142

Utilities (10) 601 8 161 4 91 -2 11 -2 26.8 -112

Capital Goods (8) 364 1 34 -15 21 -23 2 -8 9.3 -178

Real Estate (9) 49 18 17 42 6 -27 1 -3 35.1 587

PSU Banks (8) 293 12 185 -3 58 -29 7 -31 63.2 -959

Cement (8) 176 -2 26 -24 10 -38 1 -8 14.5 -421

Others (6) 62 14 11 17 6 22 1 1 17.5 53

MOSL Excl. RMs (143) 7,266 12 1,692 13 861 10 100 100 23.3 19

Sensex (30) 5,003 13 1,071 14 563 13 21.4 27

A–55January 2014


Dec-13 quarter pat growth should improve to 10% YoY; still, well below LPA of 14%

Earnings growth seems to have bottomed out; expect mean reversion to 15-17% levels

Dec-13 quarter sales growth, well below LPA of 21%

Dec-13 quarter EBITDA growth at 13% YoY; 12th consecutive quarter growth below LPA of 17%

A–56January 2014


Dec-13 EBITDA margin (ex RMs and Financials) at 19.2%; below LPA for several quarters now

Companies reporting PAT de-growth lowest in the last 10 quartersThe distribution of PAT growth also suggests a major improvement over recent quarters –

Firstly, 29% of 146 companies in MOSL Universe are expected to report PAT de-

growth. This is the lowest level in the last 11 quarters.

Likewise, 42% of companies are likely to see PAT growth higher than 15% which is

marginally higher than the preceding 3 quarters.

An interesting observation is that 47-48% of the companies lie in the PAT growth

band of 0-30%. This is among the highest ever, indicating that increasingly, PAT

growth will veer around the long-period mean of 15%.

Dec-13 PAT margin (ex RMs and Financials) at 10.1%; below LPA for several quarters now

% Revison in 2HFY14E sector PAT in last 3mth % Revison in 2HFY14E companies PAT in last 3mth

A–57January 2014


PAT distribution improving; fewer companies reporting PAT de-growth

Expect Sensex PAT growth of 13% YoY; further acceleration to 16% in 4Q Based on bottom-up estimates of its 30 constituent companies, Sensex 3QFY14

PAT is expected to grow 13% YoY. This is the highest growth in the last 6 quarters.

For 4QFY14, PAT growth is expected to be even higher at 16% YoY, lends further

credence to mean reversion of earnings growth to 15-17% levels.

Sales growth for Sensex-30 is also strong at 13%, while EBIDTA growth is 14%.

While EBIDTA margins are up 27bps YoY to 21.4%, PAT margins are stable at 11.2%.

Several companies will report big growth numbers due to a very low base. The top

5 PAT growth companies are expected to be: Tata Steel (loss to profit), Bharti

(+299% YoY), Tata Motors (+89%), TCS (+48%) and Sun Pharma (+44%). Few other

strong growing names are: Maruti (31%), HDFC Bank (25%), Hero Moto (22%) and

Dr Reddy’s (24%).

The top 5 PAT de-growth companies are expected to be largely cyclicals: BHEL (-

56% YoY), State Bank (-33%), Sesa Sterlite (-21%), Tata Power (-10%) and Coal India

(-8%).

Expect 3QFY14 Sensex PAT growth of 13% YoY, the highest in the last 6 quarters

A–58January 2014


Nifty and the dollar divide: Trend of 2QFY14 continues in 3QFY14 too In 2QFY14, the sharp currency depreciation had played a very important role in

driving the Nifty earnings. Even though in 3QFY14, the INR has remained stable

QoQ, it remains significantly depreciated on a YoY basis, which is still fuelling the

aggregate growth.

We classified the 50 Nifty companies into (1) USD-denominated and (2) Others.

The USD-denominated Nifty includes Technology, Healthcare, Metals, Oil & Gas

(Reliance, Cairn) and Tata Motors’ JLR operations and this now constitutes 42-44%

of the total Nifty earnings. The key findings are as under -

USD-denominated Nifty is expected to clock aggregate PAT growth of 29% YoY,

whereas others are likely to see flat PAT growth. Sales growth for USD will be 19%,

while for others growth is 8%.

Such a steep depreciation of the rupee will lead to a 120bps YoY margin expansion

for USD- denominated companies, while the domestic businesses will see a drop

of 30bps.

Sensex Companies 3QFY14E Performance (INR b)

Company Sales EBITDA PAT PAT Contb. EBITDA margin

Dec-13 Var % YoY Dec-13 Var % YoY Dec-13 Var % YoY (%) Gr. (%) Dec-13 Var (bp)

High PAT Growth (8) 2,063 20 424 37 203 59 37 124 21 261

Tata Steel 362 13 42 87 8 LP 1 25 12 458

Bharti Airtel 220 14 71 22 11 299 2 14 32 228

Tata Motors 604 31 88 55 33 89 6 25 15 223

TCS 214 33 68 46 53 48 10 28 32 276

Sun Pharma 39 44 16 37 12 44 2 6 40 -210

Maruti Suzuki 109 -3 13 41 7 32 1 3 12 358

Hindalco 217 11 22 27 6 30 1 2 10 131

HDFC Bank 47 18 37 19 23 25 4 8 80 114

Dr Reddy’ s Labs 36 25 8 36 5 24 1 1 22 170

Hero Motocorp 68 10 7 40 6 22 1 2 11 232

Infosys 130 25 35 19 28 17 5 6 27 -144

HDFC 17 13 18 14 13 15 2 3 104 86

Med/Low PAT Growth (10) 970 7 320 8 188 8 35 24 33 32

ITC 85 10 33 14 23 14 4 5 39 144

Axis Bank 30 20 28 20 15 13 3 3 95 -3

ICICI Bank 43 22 41 20 25 12 5 4 97 -198

NTPC 170 8 39 -2 25 11 5 4 23 -220

Mahindra & Mahindra 102 -1 16 14 10 11 2 2 15 197

Hind. Unilever 73 10 12 10 9 8 2 1 17 14

Bajaj Auto 52 -4 11 10 9 6 2 1 21 263

Cipla 27 28 6 19 4 6 1 0 22 -177

ONGC 221 5 117 4 58 4 11 3 53 -80

Larsen & Toubro 168 9 17 6 11 3 2 1 10 -29

Negative PAT Growth (12) 1,857 9 305 -4 151 -16 28 -48 16 -218

GAIL 150 21 21 9 12 -4 2 -1 14 -153

Reliance Inds. 1,019 9 73 -13 52 -5 10 -5 7 -173

Coal India 184 6 45 6 43 -8 8 -7 25 1

Tata Power 98 8 17 -10 2 -10 0 0 17 -332

Sesa Sterlite 196 15 67 15 13 -21 2 -6 34 10

State Bank 127 14 71 -8 23 -33 4 -18 56 -1373

BHEL 84 -16 9 -45 5 -56 1 -11 11 -566

Sensex (29) 4,890 13 1,048 14 543 13 100 100 21 18

Note: For Financials, Sales represents Net Interest Income, and EBITDA represents Operating Profit

A–59January 2014


Nifty - USD sales growth poised to sky-rocket … … but no major impact on margins

EBITDA growth in line with sales growth for USD & non-USD Expect USD PAT growth to be much higher than non-USD

OVERALL Expect Technology, Consumer, Private Financials (Banks, NBFCs) and Media to

clock their highest ever sector PAT in a quarter.

Autos and Healthcare should see the highest ever December quarter PAT. In

contrast, for Cement , this is the lowest ever December quarter PAT since 2006,

and for Capital Goods since 2008.

Consumer, Technology and Telecom are the only sectors where all companies are

expected to clock positive PAT growth.

Only one company is expected to de-grow PAT in each of Healthcare (GSK Pharma)

and Private Banks (Federal Bank). In contrast, in PSU banks, only one company is

expected not to de-grow (Union Bank, that too a marginal 2% YoY PAT growth).

We expect the YoY currency impact to benefit the USD-denominated Universe for

another two quarters. This is built in our 25% growth in earnings for them in 4Q

also. However, the domestic businesses will see a marginal rebound in growth

rates to 10% in 4Q, still underperforming the aggregate Universe.

A–60January 2014


3QFY14 Sales growth by sector (%) 3QFY14 EBITDA Margin YoY delta by sector (bp)

3QFY14 EBITDA growth by sector (%) 3QFY14 PAT growth by sector (%)

Contribution to 3QFY14 PAT growth by sector (%) Sector mix of 3QFY14 PAT (%)

A–61January 2014


AUTOS

PAT growth of 42% YoY is primarily led by 89% YoY growth in Tata Motors PAT on the

back of JLR. Ex Tata Motors, sector PAT growth is 13%, driven by Maruti Suzuki (32%

YoY) and Hero Moto (22% YoY) benefitting from favorable JPY movement.

Ashok Leyland and Tata Motors (standalone) are expected to report QoQ increase

in losses on the back of low volumes and higher discounting pressure.

Two-wheelers: After negative growth in FY13 and expected muted growth of 9%

in FY14, two-wheeler PAT should see a bounce back in FY15 on the back of:

(1) Expected revival in volumes with improvement in macro-economic and

consumer sentiments,

(2) Significant reduction in royalty payments for Hero MotoCorp, and

(3) Continued benefit of weak INR reflecting in Bajaj Auto’s profits from exports.

AUTOS: Highest ever December quarter PAT

Other sectorhighlights

CAPITAL GOODS Facilitation of Project Monitoring Group (PMG) in getting mandatory approvals for

INR 340b for infrastructural projects was the key positive to be highlighted for

3QFY14. However, we await more clarity on the incremental pace of project

execution post the same.

Given strong sectoral headwinds, we expect marginal revenue growth for 3QFY14

leading to 15% YoY EBITDA de-growth and 23% YoY PAT de-growth. Amidst turmoil,

expect L&T to stand firm and maintain PAT YoY.

Key triggers to watch: (1) Order inflow guidance by ABB and Siemens, especially

for short-term gestation orders, and (2) Volume guidance by Cummins because of

implementation of CPCB 2 norm.

CAPITAL GOODS: Lowest Dec quarter PAT since 2008

A–62January 2014


CEMENT Expect all companies (except Birla Corp) to clock YoY PAT de-growth; many mid-

caps will even post QoQ de-growth.

Non-recovery of cement demand post monsoon, leading to price roll back was a

negative surprise. As a result, hope of sector recovery in 4QFY14 remains uncertain.

CEMENT: Lowest Dec quarter PAT since 2006

CONSUMER Expect 12% sales growth and 15% PAT growth for the sector led by ITC (+14%),

Godrej Consumer (+37%) and Britannia (+62%).

Volume growth should mirror 2QFY14, and rural-urban gap in growth rates should

narrow.

Expect soft commentary/guidance for topline growth from FMCG managements.

CONSUMER: Highest ever PAT in a quarter

FINANCIALS State-owned banks: Earnings pressure should continue (PAT down 30% YoY) on

the back of lower NIM YoY, higher NPA provisions and MTM losses on their securities

portfolio. But the key here is expected stabilization in core operations and asset

quality trend – which would be viewed positively despite lower earnings growth.

Private banks: Despite NII growth of 19% and PPP growth of 18%, PAT growth is

expected to moderate to 14% YoY given higher credit cost. HDFCB PAT growth is

expected to be highest among peers at 25% YoY.

NBFC: Expect health PAT growth of 16%+ YoY led by state-owned power financiers

(PFC, REC) and strong growth in LICHF and MMFS.

A–63January 2014


PRIVATE FINANCIALS (BANKS, NBFCs): Highest ever PAT in a quarter

HEALTHCARE Expect a strong quarter as slowing revenue growth in India (due to new pricing

policy) will be more than offset by high growth in US and emerging markets.

EBITDA margins should expand 100bp YoY, primarily driven by (1) 14.5% YoY

depreciation in USD/INR, and (2) improving sales mix. Ranbaxy and Divi’s Labs are

also expected to benefit from low-base effect.

Further, INR has remained flat QoQ; hence, major MTM loss on forex liabilities is

unlikely. Expect sector PAT to grow 30% YoY, higher than EBITDA growth of 27%.

Key outperformers are expected to be Ranbaxy, Dr Reddy’s, Glenmark and Divi’s.

GSK Pharma’s operations may continue to be impacted by supply-chain and trade-

channel related issues

HEALTHCARE: Highest ever December quarter PAT

METALS Expect health growth in Sales (+13% YoY) and PAT (36% YoY) on the back of profit

rebound in JSW Steel, Nalco, SAIL, Hindalco and NMDC. However, QoQ Sales will

likely remain flat and PAT up 6%.

Ferrous: Most steel producers are expected to report flat QoQ volumes while

margins are expected be higher due to higher realizations.

Non-ferrous: Realizations will be better QoQ for zinc and lead but flat for

Aluminum. Overall, expect PAT to remain almost flat QoQ (+2%).

A–64January 2014


TELECOM PAT is expected to grow 164% YoY and 54% QoQ given significant operating and

financial leverage.

Finance costs are expected to decline YoY led by lower leverage and relief on

forex losses given stable USD/INR during 3QFY14.

TELECOM: Highest ever quarter PAT since December 2010

MEDIA: Highest ever PAT in a quarter

A–65January 2014


Intra-sector 3QFY14 earnings divergence (%)

Sectors Sector +30% Growth 15-30% growth 0-15% growth -ve earnings Earnings

Growth (%) growth (%) momentum

High growth sectors

Telecom 163 BHARTI: 299, RCOM: 188,

IDEA: 121, BHIN: 39

Autos 42 Tata Motors: 89, EIM: 29, TVSL: 24, M&M: 11, Ashok

Maruti: 32 HMCL: 22 Bajaj Auto: 6 Leyland: Loss

Metals 36 JSW Steel: 121, Hindalco: 30, Hind. Zinc: 9 Sesa Sterlite: -21,

SAIL: 31, Tata Steel: LP NMDC: 22 JSPL: -22

Technology 35 TECHM: 132, HCLT: 49, Infosys: 17 KPIT: 11, PSYS: 6,

TCS: 48 MPHL: 4

Healthcare 30 CDH: 46, SUNP: 44. Dr. Reddy's: 24, Glenmark: 12, GSK Pharma: -36

IPCA: 35, Lupin: 35, DIVI: 23, Cipla: 6

Ranbaxy Labs: LP Biocon: 20

Media 22 PVR: 146, D B Corp: 17 Zee Ent.: 12, Sun TV: -1,

Jagran Prakashan: 48 HT Media: 9 Dish TV: Loss

NBFC 16 LIC Housing: 43 MMFS: 25, BAF: 22, HDFC: 15 SHTF: -3,

PFC: 20, REC: 19 IDFC: -5

Banks-Private 14 HDFC Bank: 25, AXSB: 13, ICICIBC: 12, Federal Bank: -21

IndusInd Bank: 19 YES: 11, KMB: 0

Consumer 13 Britannia: 63, United Spirits: 19, ITC: 14, APNT: 9,

GCPL: 37 Dabur: 17, NEST/HUVR: 8,

Pidilite Inds: 17 MRCO:7

PAT degrowth sectors

Cement -38 Grasim: 25 Birla Corp: 11 ACEM: -29, ACC: -33,

SRCM: -35,

UTCEM: -48

Banks - PSU -29 Union Bank: 2 BOB: -4,

OBC:-23, BOI:-24,

SBI: -33, PNB: -42

Real Estate -27 MLIFE: 28, GPL: 10, PHNX: 5, PEPL: -16,

IBREL: 19 Sobha Dev.: 2 OBER: -35, DLF: -60

Capital Goods -23 Crompton: 315, Havells India: 23 L&T: 3 TMX: -2, KKC: -24,

ABB: 238 BHEL: -56

Uti l i t ies -2 CESC: 26, PTCIN: 15, NTPC: 11, COAL: -8, TPWR: -10,

PWGR: 8, NHPC: 5 JSW: -18,

RELI: -20

Retai l -0.1 Shopper's Stop: 32 Jubi. Foodworks: 9, Future Retail: PL

Titan: 1

Oil & Gas -0.1 MRPL: LP IGL: 10, ONGC: 4, GSPL: -3, GAIL: -4,

(Ex RMs) Oil India: 0 RIL: -5%, CAIR: -7

PLNG: -53

Earnings momentum: Represents number of companies in each of the growth brackets; PL: Profit to Loss; LP: Loss to Profit

4

000

2 4 12

42 21

4 1 04

413

5

2 1 22

1 4 21

Medium/Low growth sectors

0 16

1

0 071

0 243

2411

0 154

1 0 53

1 0 12

3 3 07

0 2 15

A–66January 2014


FY14/15 ESTIMATES Downgrades take a breather as exports fuel growthSensex FY14 EPS upgraded to 11% growth; Expect FY15 growth of 15%

MOSL Aggregate PAT to grow 7% in FY14; expect rebound in FY15 to 16%. Sales growth of

12% in FY14 will see some moderation to 10% in FY15.

Sensex EPS to grow by 11% in FY14 to 1,317 and further accelerate to 15% in FY15 to

1,518. Downgrades to Sensex EPS have taken a breather. In fact, strong earnings from

export driven businesses (benefitting from weak INR) have led to upgrades of 2% in FY14

and 3% in FY15 EPS.

For 2HFY14, the prominent upgrades have been in Tata Motors, Tata Steel, ICICI Bank,

Maruti, TCS. The stocks to see top downgrades are Sesa Sterlite, BHEL, SBI, Cipla, Coal

India.

Our early estimates suggest the growth of 15% may continue into FY16 as well.

Aggregate PAT to grow 7% in FY14; expect rebound in FY15 to 16%Based on bottom-up estimates, we expect MOSL Universe of 156 companies (ex RMs)

to report aggregate FY14 PAT growth of 7% YoY. Growth is dragged down by two major

factors –

First ever de-growth in Financials (-2%), a heavyweight sector accounting for 25%

of FY13 Aggregate PAT; and

Low 7% growth in Oil & Gas (ex RMs), which has the second highest share of FY13

Aggregate PAT (18%).

In FY15, aggregate PAT growth is expected to rebound to 16%, largely led by a bounce

back in these very two sectors, coupled with Telecom re-entering the high profit

growth zone following easing up of competitive intensity. Few domestic cyclicals

(Capital Goods, Cement) will also contribute to growth, post a sharp decline in FY14.

The export facing sectors growth rates will moderate as we build stable currency in

FY15 over FY14 (growth in FY14 was significantly aided by a big currency depreciation).

Expected FY14 PAT growth muted at 7%.... ….sales growth also at 12%

A–67January 2014


MOSL Universe FY14/FY15 estimates: Expect 16% PAT growth in FY15

Sales Gr./ EBIDTA Margin EBIDTA PAT PAT Gr. / PAT

Sales CAGR EBIDTA Margin Delta CAGR (INR CAGR delta

Sector (INR b) (%) (INR b) (%) (bp) (%) b) (%) FY13-15

(No of Companies) FY13 FY14E FY15E FY13-15 FY13 FY13 FY14E FY15E (FY13-15) FY13 FY14E FY15E FY13-15 shr (%)

High PAT CAGR (>20%) 2,752 8 12 10 744 27.0 -7 151 13 204 3 46 22 12

Telecom (4) 1,306 11 10 11 397 30.4 274 144 18 45 82 65 73 11

Cement (13) 1,108 0 14 7 235 21.2 -474 200 0 111 -33 38 -4 -1

Real Estate (9) 195 18 13 16 71 36.5 17 147 18 30 1 29 14 1

Media (8) 143 17 14 16 41 28.7 85 61 19 19 25 25 25 1

Medium PAT CAGR (15-20%) 10,028 16 14 15 3,159 31.5 5 13 16 1,788 11 16 14 62

Retail (3) 137 15 21 18 14 10.1 -42 31 17 9 6 19 12 0

Consumer (13) 1,190 11 15 13 242 20.4 56 23 15 166 15 19 17 7

Health Care (13) 791 19 14 16 194 24.5 -99 192 19 110 28 18 23 7

Financials (31) 2,197 14 15 15 1,735 79.0 -323 11 12 904 -2 16 6 14

PSU Banks (12) 1,359 11 14 12 997 73.4 -657 2 7 432 -23 18 -5 -5

Private Banks (10) 541 19 17 18 452 83.5 238 -3 20 278 17 16 16 12

NBFC (9) 296 22 15 18 286 96.4 -149 4 17 193 16 13 15 7

Auto (9) 3,773 13 15 14 484 12.8 165 2 21 228 25 16 20 12

Technology (10) 1,940 27 12 19 489 25.2 102 -31 21 372 30 15 22 22

Low PAT CAGR (<15%) 15,212 9 6 8 2,717 17.9 -47 102 9 1,461 3 11 7 25

Metals (9) 4,205 7 9 8 792 18.8 61 57 11 308 6 12 9 7

Oil Ex. RMs (10) 7,416 14 4 9 1,132 15.3 -100 141 10 642 7 12 9 15

Utilities (10) 2,015 6 12 9 603 29.9 80 11 11 377 4 11 8 7

Capital Goods (8) 1,576 -1 3 1 189 12.0 -201 -20 -9 134 -26 1 -13 -4

Others (6) 210 12 11 12 35 16.8 66 70 16 20 11 18 14 1

MOSL Excl. RMs (156) 28,202 12 10 11 6,654 23.6 -6 96 13 3,473 7 16 11 100

Sensex (30) 9,633 6 9 8 1,875 19.5 130 100 14 1,011 9 15 12 NA

Nifty (50) 10,889 13 9 11 2,170 19.9 97 103 17 1,182 12 15 14 NA

50% of FY13-15 PAT delta comes from just 3 sectorsTechnology, Oil & Gas, Financials Sectorwise PAT CAGR (%)

FY14/15 Sector earnings: Interesting observations TELECOM: After four consecutive years of PAT decline, easing competitive pressure

should cause Telecom sector profits to rebound sharply in FY14 and FY15 with

growth rates of 65-81% per annum. Bharti will lead this growth as earnings grow

by 51% in FY14, 73% in FY15.

AUTO: After negative growth in FY13, the sector earnings rebounding with 25%

growth in FY14 and extending by 16% further in FY15. While Tata Motors and M&M

are the growth drivers in FY14, Hero and Maruti will lead the earnings in FY15 on

the back of: (1) Healthy monsoon reviving volume growth, especially in rural India,

A–68January 2014


(2) No royalty burden for Hero MotoCorp, and (3) Full benefit of INR benefits in

Maruti's earnings.

CEMENT: Like Autos, even Cement would benefit from expected higher rural

demand in FY15 on the back of good monsoon led higher rural GDP growth. This

should help the sector reverse the muted PAT performance of the preceding years

i.e. 4% growth in FY13 and 33% de-growth in FY14. We expect growth to revive by

38% in FY15.

FINANCIALS: The sector will report its first decline of 2% in FY14, but should see

growth rebounding to 16% in FY15 as credit cost pressure eases on PSU Banks.

Private Banks will grow at 15-17% in both the years. Economic recovery could lead

to upgrade in their estimates in 2HFY15.

HEALTHCARE v/s TECHNOLOGY: In FY14, both Healthcare and Technology sectors

are expected to clock similar healthy growth rates of 28-29%, on the back of weak

INR. Going forward, our numbers do not factor in further weakening of the INR.

This will lead to moderation in growth rates in FY15 to 14-18% for these two sectors.

FY13-15 Sensex EPS CAGR at 14%We now expect Sensex EPS CAGR of 14% over FY13-15, up from the estimate of 11%, a

quarter back. As the growth rates revert back to the long-period mean of 15%, the

composition has significantly shifted in favor of the export facing sectors.

We believe that clarity on domestic investment climate will be important, post the

Elections 2014 for the domestic businesses to see any recovery, that can further aid

the growth rates in 2HFY15.

FY08-13 EPS CAGR at 7%; expect rebound in FY13-15

A–69January 2014


FY14 Sensex EPS up by 2%, ending the downgrade phaseOver the last 3 months, Sensex EPS for FY14 has seen an upgrade of 2% from 1,289 to

1,317. This upgrade has happened after a full 12 months of downgrades in the earnings

cycle. This upgrade could be attributed to companies benefiting from global businesses

or weak INR trends. Even, few domestic businesses such as Private Banks and four

wheelers have weathered this downturn well and have now seen an upgrade in their

earnings.

Sensex Perfomance: Expect FY13-15 PAT CAGR of 14%

Sales EBIDTA EBITDA PAT PAT Contbn %

Sales (INR b) CAGR Margin (%) CAGR PAT (INR b) YoY (%) CAGR to FY15

Company FY13 FY14 FY15 % FY14 FY15 % FY13 FY14 FY15 FY14 FY15 % delta

High PAT Growth (20%+) 5,171 5,616 6,247 10 32.3 33.5 11 668 658 825 -2 25 11 47

Bharti Airtel 769 862 951 11 32.3 33.7 17 23 36 63 58 75 66 8

Hero MotoCorp 236 253 289 11 11.0 13.5 32 21 23 31 7 36 21 2

Sesa Sterlite 722 721 829 7 36.3 35.3 7 62 56 72 -9 27 8 4

HDFC Bank 158 186 226 20 76.1 79.4 25 67 85 106 27 25 26 6

State Bank 612 684 764 12 57.9 59.9 5 179 134 163 -25 22 -5 8

Maruti Suzuki 442 442 498 6 12.0 12.8 22 24 29 35 20 22 21 2

ONGC 1,624 1,810 1,950 10 32.4 34.1 10 242 255 306 5 20 12 15

Larsen & Toubro 609 658 738 10 10.3 10.3 9 49 40 48 -18 20 -1 2

Medium PAT Gr. (10-20%) 9,860 11,063 11,812 9 18.0 19.3 15 1,040 1,238 1,417 19 14 17 51

Infosys 404 505 565 18 26.7 27.6 16 94 105 125 12 19 15 6

NTPC 647 660 759 8 25.0 24.8 5 86 95 112 10 18 14 5

ITC 299 331 380 13 37.0 36.9 15 74 85 99 14 17 16 4

Bajaj Auto 200 203 234 8 20.7 20.7 15 30 33 39 9 17 13 2

Sun Pharma 112 160 190 30 43.2 41.8 27 31 46 53 50 17 32 2

Tata Steel 1,347 1,425 1,467 4 11.5 12.4 21 2 39 46 2,476 16 447 2

Dr Reddy’s Labs 116 136 153 15 21.8 22.5 18 15 19 22 27 16 22 1

Hindalco 802 868 991 11 10.0 11.3 18 32 25 28 -24 14 -7 1

TCS 630 824 944 22 30.9 29.7 25 139 189 216 36 14 24 8

HDFC 62 71 82 15 106.4 106.4 14 48 54 62 12 14 13 2

Reliance Inds. 3,603 4,043 3,982 5 7.5 9.0 8 210 217 246 3 14 8 8

Axis Bank 97 118 135 18 97.6 96.7 19 52 60 68 16 13 15 2

Wipro 374 435 490 14 22.2 22.1 18 61 77 86 25 12 19 3

M&M 687 735 815 9 13.2 13.6 10 36 46 51 26 11 18 1

Cipla 83 102 115 18 23.1 22.8 9 11 15 17 32 11 21 0

ICICI Bank 139 166 191 17 97.7 96.6 18 83 97 107 17 10 13 3

Hind. Unilever 258 281 319 11 15.8 15.8 12 33 35 39 8 10 9 1

Low PAT Growth (<10%) 3,624 4,114 4,588 13 17.4 16.6 10 395 412 418 4 2 3 2

Tata Motors 1,888 2,331 2,720 20 16.2 15.5 26 103 146 157 41 8 23 3

Coal India 683 711 755 5 27.6 27.7 8 177 180 193 2 7 4 4

Tata Power 96 105 115 10 23.4 22.4 13 9 9 8 -4 -4 -4 0

GAIL 473 570 671 19 12.5 10.6 6 40 42 37 5 -13 -4 -2

BHEL 484 396 326 -18 11.9 10.3 -40 66 35 24 -46 -33 -40 -3

Sensex (PAT free float) 18,655 20,793 22,647 10 21.7 22.7 13 977 1,097 1,265 12 15 14 100

A–70January 2014


Sensex companies FY14E EPS Upgrade/Downgrade in last 3 months (%)

FY15 Sensex EPS upgraded by 3%, led by Autos, Private BanksSensex EPS for FY15 has seen an upgrade of 3%, and we now expect growth of 15% to

1,518. The top upgrade drivers have been from Autos, Private Bank and INR

beneficiaries. Several of the cyclical continue to see downgrades in their estimates,

both global and domestic. The contributors to the growth in FY15 are from HDFC Bank,

Infosys and Reliance, unlike FY14 where the top 2 contributors were the cyclicals.

The top 3 Sensex companies to grow in FY15 are Bharti, Hero Motocorp, HDFC Bank.

Companies that will underperform are BHEL, GAIL and Tata Power.

2% upgrade in FY14 Sensex EPS since September 2013

Stock-wise contribution to growth in FY14E Sensex EPS (INR)

A–71January 2014


Sensex companies FY15E EPS Upgrade/Downgrade in last 3 months (%)

3% upgrade in FY15 Sensex EPS since September 2013

Stock-wise contribution to growth in FY15E Sensex EPS (INR)

A–72January 2014


T H I S S P A C E I S I N T E N T I O N A L L Y L E F T B L A N K

Note: In our quarterly performance tables, our four-quarter numbers may not always add up to the full-year

numbers. This is because of differences in classification of account heads in the company’s quarterly and

annual results or because of differences in the way we classify account heads as opposed to the company.

All stock prices and indices as on 27 December 2013, unless otherwise stated.

December 2013 Results Preview

January 2014

MOSL Universe:3QFY14 Highlights

&Ready Reckoner

B–2January 2014

MOSL Universe

MOSL Universe: 3QFY14 aggregate performance highlights (Ex RMs)

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

Sectoral sales growth - quarter ended December 2013 (%)

Sectoral EBITDA growth - quarter ended December 2013 (%)

Sectoral net profit growth - quarter ended December 2013 (%)

9.0%

3.8%

13.2% 12.4%

Mar-13 June-13 Sep-13 Dec-13E

1.6%

8.2%9.9%

-3.0%

Mar-13 June-13 Sep-13 Dec-13E

30.321.8

18.4 17.9 16.3 14.7 13.3 12.1 11.6 10.2 8.0

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B–3January 2014

MOSL Universe

Top 10 by sales growth (%) Worst 10 by sales growth (%)

Top 10 by EBITDA growth (%) Worst 10 by EBITDA growth (%)

Top 10 by net profit growth (%) Worst 10 by net profit growth (%)

Corporate Scoreboard (quarter ended December 2013)

Source: MOSL

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B–4January 2014

MOSL Universe

Valuations - MOSL universe

Sector P/E EV/EBITDA P/BV RoE Div. PAT

(x) (x) (x) (%) yld (%) CAGR

(No. of companies) FY13 FY14E FY15E FY13 FY14E FY15E FY13 FY14E FY15E FY13 FY14E FY15E FY14E FY13-15

Auto (9) 15.9 12.8 11.0 6.1 5.7 4.9 3.8 3.1 2.5 24.1 24.3 23.0 1.4 20.0

Capital Goods (8) 16.4 22.1 21.8 9.3 13.2 12.6 2.9 2.7 2.5 17.7 12.1 11.3 1.4 -13.4

Cement (13) 14.8 22.0 16.0 9.2 10.3 8.1 2.0 1.8 1.7 13.4 8.4 10.7 1.3 -3.8

Consumer (13) 39.2 34.1 28.7 23.5 23.0 19.5 13.6 11.4 10.1 34.8 33.6 35.1 1.6 16.9

Financials (31) 10.4 10.6 9.1 N.M N.M N.M 1.7 1.5 1.3 16.5 14.0 14.5 2.3 6.4

Private Banks (10) 16.7 14.2 12.3 N.M N.M N.M 2.9 2.4 2.1 17.2 17.0 17.2 1.6 16.3

PSU Banks (12) 5.5 7.1 6.0 N.M N.M N.M 0.8 0.7 0.7 14.9 10.2 11.1 3.1 -4.7

NBFC (9) 12.2 10.5 9.3 N.M N.M N.M 2.5 2.1 1.8 20.3 19.8 19.6 2.7 14.6

Health Care (13) 32.6 25.5 21.6 13.9 16.2 12.9 6.2 5.4 4.4 19.1 21.3 20.6 0.7 22.9

Media (8) 31.5 25.3 20.2 13.4 12.2 10.2 5.4 4.8 4.2 17.1 18.9 20.7 1.4 24.7

Metals (9) 10.6 10.0 8.9 5.4 6.0 5.3 1.1 1.0 1.0 10.6 10.4 10.7 2.4 9.0

Oil & Gas (13) 10.9 10.3 8.9 6.5 6.3 5.3 1.5 1.3 1.2 13.4 12.8 13.4 2.4 10.4

Excl. RMs (10) 10.8 10.1 9.0 5.7 5.6 4.9 1.6 1.4 1.3 14.6 14.0 14.1 2.4 9.4

Real Estate (9) 20.8 20.6 16.0 16.0 11.7 9.8 1.1 1.0 1.0 5.4 5.0 6.2 1.5 14.0

Retail (3) 35.5 33.5 28.2 23.8 21.3 17.2 10.4 8.5 6.9 29.3 25.2 24.4 0.7 12.2

Technology (10) 24.8 19.1 16.7 12.7 13.2 11.6 6.6 5.4 4.4 26.7 28.4 26.3 1.4 21.8

Telecom (4) 54.9 30.2 18.3 7.7 7.4 6.1 2.2 2.0 1.8 4.0 6.6 9.9 0.6 73.3

Utilities (10) 11.2 10.8 9.7 8.5 7.9 7.2 1.8 1.6 1.5 15.8 15.0 15.4 3.7 7.7

Others (6) 21.9 19.8 16.8 9.2 11.5 9.8 4.5 4.0 3.5 20.6 20.0 20.8 1.5 14.0

MOSL (159) 15.7 14.7 12.7 N.M N.M N.M 2.4 2.2 1.9 15.4 14.7 15.3 1.8 11.6

MOSL Excl. RMs (156) 15.8 14.8 12.8 N.M N.M N.M 2.5 2.2 2.0 15.8 15.0 15.5 1.8 11.4

Sensex (30) 17.9 16.1 14.0 N.M N.M N.M 3.0 2.6 2.3 16.5 16.1 16.4 1.6 11.9

Nifty (50) 17.2 15.6 13.6 N.M N.M N.M 2.8 2.5 2.2 16.5 15.8 16.1 1.6 13.5

N.M. - Not Meaningful. Source: MOSL

Annual performance - MOSL universe (INR Billion)

Sales EBITDA Net Profit

FY13 FY14E FY15E Chg.# Chg.@ FY13 FY14E FY15E Chg.# Chg.@ FY13 FY14E FY15E Chg.# Chg.@

(%) (%) (%) (%) (%) (%)

Auto (9) 3,773 4,268 4,922 13.1 15.3 484 618 714 27.7 15.5 228 283 328 24.6 15.6

Capital Goods (8) 1,576 1,555 1,602 -1.3 3.0 189 156 157 -17.8 1.0 134 99 101 -25.9 1.2

Cement (13) 1,108 1,107 1,260 -0.1 13.8 235 182 233 -22.4 27.6 111 74 102 -32.8 37.6

Consumer (13) 1,190 1,321 1,523 11.0 15.3 242 277 322 14.1 16.6 166 191 226 15.2 18.5

Financials (31) 2,197 2,510 2,881 14.3 14.8 1,735 1,901 2,186 9.6 15.0 904 882 1,022 -2.4 16.0

Pvt Banks (10) 541 644 754 19.0 17.1 452 553 647 22.4 17.0 278 325 376 17.1 15.5

PSU Banks (12) 1,359 1,505 1,712 10.7 13.8 997 1,005 1,144 0.8 13.8 432 332 392 -23.1 18.1

NBFC (9) 296 361 415 21.9 15.0 286 343 394 20.0 15.0 193 224 254 15.8 13.5

Health Care (13) 791 940 1,072 18.9 14.0 194 221 273 14.1 23.3 110 141 166 27.8 18.1

Media (8) 143 167 191 17.0 14.4 41 49 58 20.5 16.8 19 24 30 24.5 24.9

Metals (9) 4,205 4,488 4,899 6.7 9.2 792 873 981 10.2 12.4 308 325 366 5.7 12.4

Oil & Gas (13) 16,511 17,965 18,286 8.8 1.8 1,365 1,422 1,666 4.2 17.2 715 756 872 5.7 15.3

Excl. RMs (10) 7,416 8,432 8,768 13.7 4.0 1,132 1,202 1,374 6.2 14.3 642 685 769 6.7 12.2

Real Estate (9) 195 230 261 18.3 13.4 71 84 100 18.8 17.9 30 30 38 0.9 28.8

Retail (3) 137 158 191 15.0 20.7 14 15 19 10.1 24.6 9 10 11 6.0 18.8

Technology (10) 1,940 2,465 2,758 27.0 11.9 489 646 715 32.2 10.6 372 482 552 29.5 14.6

Telecom (4) 1,306 1,455 1,605 11.4 10.3 397 482 555 21.4 15.1 45 81 135 81.6 65.3

Utilities (10) 2,015 2,139 2,398 6.1 12.1 603 658 740 9.0 12.5 377 394 437 4.4 11.1

Others (6) 210 235 262 12.2 11.3 35 41 48 16.6 15.7 20 22 26 10.6 17.6

MOSL (159) 37,297 41,004 44,113 9.9 7.6 6,888 7,627 8,766 10.7 14.9 3,546 3,794 4,413 7.0 16.3

Excl. RMs (156) 28,202 31,470 34,595 11.6 9.9 6,654 7,407 8,473 11.3 14.4 3,473 3,724 4,310 7.2 15.7

Sensex (30) 9,633 10,259 11,213 6.5 9.3 1,875 2,130 2,441 13.6 14.6 1,011 1,097 1,265 8.6 15.3

Nifty (50) 10,889 12,302 13,434 13.0 9.2 2,170 2,571 2,945 18.5 14.6 1,182 1,327 1,524 12.2 14.8

# Growth FY14 over FY13; @ Growth FY15 over FY14;

For Banks : Sales = Net Interest Income, EBITDA = Operating Profits; Note: Sensex & Nifty Numbers are Free Float.

B–5January 2014

MOSL Universe

Ready reckoner: quarterly performance

(INR Million) CMP Rating Sales EBITDA Net Profit

(INR) Dec.13 Var. Var. Dec.13 Var. Var. Dec.13 Var. Var.

27.12.13 % YoY % QoQ % YoY % QoQ % YoY % QoQ

Automobiles

Ashok Leyland 17 Neutral 19,079 -19.9 -25.2 -65 PL PL -1,684 Loss Loss

Bajaj Auto 1,935 Buy 52,168 -3.6 0.8 11,124 9.9 -1.7 8,696 6.2 3.9

Eicher Motors 4,976 Buy 16,887 2.1 0.3 1,473 24.9 -6.3 939 29.1 9.5

Exide Inds. 121 Neutral 14,602 -0.1 2.3 2,050 24.5 1.9 1,248 19.9 5.3

Hero Motocorp 2,087 Buy 67,712 10.1 18.9 7,428 39.5 25.7 5,956 22.1 23.7

Mahindra & Mahindra 965 Buy 101,563 -0.8 17.3 15,678 13.7 25.0 10,128 10.7 -1.4

Maruti Suzuki 1,775 Buy 108,670 -3.0 3.8 12,542 40.7 -5.1 6,611 31.9 -1.4

Tata Motors 371 Buy 604,100 31.1 6.2 87,594 54.8 1.4 32,691 88.5 -12.8

TVS Motor 69 Buy 19,856 10.4 -0.1 1,163 9.0 -0.7 651 23.7 -1.6

Sector Aggregate 1,004,637 16.3 6.3 138,988 39.5 3.2 65,235 41.8 -6.8

Capital Goods

ABB 689 UR 21,835 4.9 22.3 1,502 125.5 42.5 567 238.3 59.2

BHEL 173 Buy 83,979 -16.4 -4.8 8,914 -45.4 47.8 5,240 -55.7 -11.2

Crompton Greaves 130 Buy 33,472 12.6 4.4 1,598 88.0 -0.9 617 314.8 5.6

Cummins India 469 Buy 9,775 -10.3 4.8 1,681 -19.4 10.1 1,374 -24.4 -5.1

Havells India 802 Neutral 11,850 12.0 0.9 1,619 15.8 -4.2 1,197 22.7 -4.4

Larsen & Toubro 1,078 Buy 168,315 9.1 16.0 16,831 6.1 12.1 10,708 3.0 2.2

Siemens 663 Neutral 24,075 -3.6 -26.1 739 -59.9 -61.2 110 -82.7 -89.8

Thermax 696 Buy 11,059 5.6 6.0 1,061 -5.2 13.3 751 -1.6 27.0

Sector Aggregate 364,359 0.6 4.9 33,945 -15.5 14.0 20,564 -23.0 -5.1

Cement

ACC 1,120 Buy 27,731 -10.5 10.5 2,490 -21.5 10.5 1,601 -33.1 32.6

Ambuja Cements 185 Neutral 22,120 -4.4 10.3 2,474 -42.2 -3.1 1,633 -29.0 21.3

Birla Corporation 259 Buy 7,218 17.8 1.6 516 0.5 -11.8 357 10.7 -14.2

Grasim Industries 2,716 Buy 13,194 8.5 -6.1 2,253 4.6 -13.8 2,472 24.9 -37.6

India Cements 61 Neutral 10,169 -6.0 -6.4 1,198 -37.8 -6.1 -285 PL Loss

Jaiprakash Associates 54 Buy 34,832 2.5 9.7 7,152 -6.2 -9.5 -33 PL PL

Shree Cement 4,386 Buy 13,499 -5.5 8.2 2,437 -34.4 -2.3 1,471 -35.4 -15.1

Ultratech Cement 1,771 Neutral 47,701 -1.8 6.0 7,004 -31.6 6.2 3,143 -47.7 19.0

Sector Aggregate 176,465 -2.0 6.0 25,525 -24.1 -2.8 10,360 -37.7 -13.2

Consumer

Asian Paints 485 Neutral 35,553 17.1 15.3 5,724 15.7 19.2 3,638 8.5 11.3

Britannia 915 Buy 16,277 12.0 2.1 1,351 72.9 -1.9 927 62.7 -3.2

Colgate 1,305 Neutral 8,763 14.9 -2.2 1,650 10.0 12.7 1,218 9.7 11.2

Dabur 172 Buy 18,803 15.3 7.5 3,196 18.7 -1.3 2,472 17.1 -1.1

Godrej Consumer 847 Neutral 20,634 22.0 5.4 3,570 27.2 20.8 2,353 36.6 20.7

GSK Consumer 4,444 Neutral 8,311 17.2 -14.5 604 18.6 -59.7 775 11.2 -47.3

Hind. Unilever 569 Se l l 72,870 9.5 5.7 12,024 10.4 10.8 9,388 7.5 6.3

ITC 322 Buy 84,833 10.0 7.9 32,661 14.3 8.2 23,323 13.7 11.2

Marico 221 Buy 11,110 -4.6 -0.4 1,611 -0.6 -2.6 1,138 6.5 7.5

Nestle 5,338 Neutral 23,980 11.4 2.1 5,467 10.3 11.1 3,181 8.2 8.9

Pidilite Inds. 290 Neutral 9,758 16.5 -1.6 1,756 16.0 -4.9 1,211 16.8 -3.6

Radico Khaitan 144 Buy 3,782 16.0 7.4 613 22.4 8.6 259 40.9 -7.6

United Spirits 2,537 Neutral 23,479 8.0 15.2 2,465 0.2 20.1 957 18.8 1.5

Sector Aggregate 338,154 11.6 6.2 72,692 14.0 7.8 50,840 13.4 7.0

PULL OUT

B–6January 2014

MOSL Universe


Healthcare

Biocon 466 Neutral 7,614 20.1 3.8 1,713 20.9 1.4 1,096 19.5 7.1

Cadila Health 786 Buy 18,222 13.6 4.3 2,791 9.5 7.1 1,504 46.1 -18.0

Cipla 405 Neutral 26,575 28.4 5.8 5,857 18.8 3.8 3,590 5.9 -2.3

Divis Labs 1,222 Buy 6,280 17.8 11.0 2,384 31.5 -3.7 1,780 23.4 -13.1

Dr Reddy’ s Labs 2,519 Buy 35,947 25.5 7.1 7,729 36.2 -8.6 4,503 23.9 -34.8

Glenmark Pharma 538 Buy 15,628 20.2 7.7 3,221 28.5 6.1 1,757 11.6 22.3

GSK Pharma 2,958 Neutral 6,118 -6.8 -1.4 1,106 -42.2 2.4 1,013 -35.9 -0.4

IPCA Labs. 718 Buy 8,049 14.8 -4.9 1,785 12.7 -23.9 1,189 35.3 -8.2

Lupin 906 Buy 26,513 11.6 5.3 5,668 11.9 4.2 3,797 35.1 12.3

Ranbaxy Labs 464 Se l l 28,791 15.7 2.8 2,335 467.1 20.5 1,121 LP 83.5

Sanofi India 2,749 Neutral 4,668 16.5 -1.2 684 34.9 -31.4 566 26.4 -26.4

Sun Pharma 576 Buy 39,084 43.9 0.3 15,767 36.8 -1.0 11,515 43.9 -2.9

Torrent Pharma 475 Buy 9,718 21.9 1.3 1,827 13.3 5.6 1,261 12.3 17.9

Sector Aggregate 233,208 21.8 3.7 52,867 27.3 -0.9 34,691 29.5 -6.1

Media

D B Corp 285 Buy 5,042 14.9 15.1 1,421 19.2 32.0 824 16.7 37.0

Dish TV 60 Buy 6,163 10.5 4.0 1,648 19.7 11.5 -53 Loss Loss

HT Media 75 Neutral 5,739 4.9 7.3 993 13.5 54.3 576 9.1 177.5

Jagran Prakashan 90 Buy 4,516 29.4 9.2 1,083 18.9 18.0 680 47.5 49.2

PVR 628 Buy 3,632 79.4 -0.7 636 85.2 -15.0 213 146.3 -28.4

Sun TV 376 Buy 5,212 7.3 11.8 3,983 5.8 17.9 1,888 -0.6 21.0

Zee Entertainment 279 Neutral 11,181 19.1 1.5 2,936 12.4 -5.4 2,165 11.6 -8.4


Metals

Hindalco 122 Buy 217,351 10.7 -0.3 22,120 27.1 5.0 6,265 30.2 9.8

Hindustan Zinc 133 Buy 34,349 8.1 -3.5 17,682 18.4 -6.1 17,582 9.0 3.8

JSPL 262 Neutral 50,836 5.9 2.0 15,335 -14.3 -1.5 6,728 -22.4 21.9

JSW Steel 1,007 Se l l 109,072 31.5 -5.0 20,808 58.4 -6.9 6,507 121.5 -17.8

Nalco 38 Buy 16,579 -2.1 -4.6 2,865 56.9 7.0 1,843 55.0 2.9

NMDC 142 Buy 28,966 41.5 16.8 18,391 32.2 23.1 15,827 22.4 20.1

SAIL 72 Se l l 112,375 5.3 -2.6 12,417 9.1 43.2 6,405 30.6 86.9

Sesa Sterlite 201 Neutral 195,686 14.6 8.6 67,183 14.9 -3.4 13,060 -20.9 -6.8

Tata Steel 424 Se l l 361,732 12.7 -1.3 41,778 86.6 12.8 8,001 LP -12.7

Sector Aggregate 1,126,945 13.3 0.4 218,579 27.6 3.7 82,219 35.6 5.9

Others

Bata India 1,054 Buy 5,777 13.5 19.3 907 12.7 43.4 595 16.8 58.2

Castrol India 315 Neutral 8,190 8.0 13.8 1,626 -2.4 11.3 1,210 2.7 19.2

Just Dial 1,386 Buy 1,223 28.5 8.6 336 41.3 -4.5 276 112.5 -3.8

Sintex Inds. 34 Buy 14,795 3.7 8.4 2,309 5.0 8.9 991 0.4 21.8

UPL 193 Buy 27,917 21.6 19.7 5,256 30.0 23.4 2,419 39.4 38.6

V-Guard Inds 472 Buy 4,003 14.7 19.9 381 48.3 40.9 217 41.5 50.0


PL: Profit to Loss; LP: Loss to Profit; UR: Under Review




PULL OUT

B–7January 2014

MOSL Universe


Oil & Gas

BPCL 352 Buy 608,136 -2.4 -1.5 847 -96.3 -95.0 -3,873 PL PL

Cairn India 324 Buy 49,049 14.7 5.5 37,526 14.2 6.2 29,369 -6.9 -13.2

GAIL 341 Neutral 150,337 20.5 7.8 21,469 8.9 52.8 12,367 -3.7 35.1

Gujarat State Petronet 60 Neutral 2,766 6.2 -0.1 2,487 6.4 -0.8 1,152 -3.2 1.0

HPCL 239 Buy 575,297 9.1 10.9 1,812 -53.3 -82.1 -5,076 PL PL

IOC 213 Buy 1,300,404 12.8 18.4 12,610 -75.4 -59.6 -1,310 PL PL

Indraprastha Gas 267 Neutral 10,674 22.8 5.8 2,040 9.0 1.9 951 10.1 2.5

MRPL 42 Neutral 192,772 7.1 2.7 4,112 131.9 -43.7 1,413 LP -40.1

Oil India 484 Buy 26,242 8.7 -3.3 12,205 8.5 -8.1 9,431 0.3 4.4

ONGC 292 Buy 221,055 5.3 -0.9 116,566 3.7 -2.9 57,675 3.7 -4.9

Petronet LNG 122 Buy 108,490 28.8 14.3 3,804 -28.1 4.5 1,484 -53.4 -18.4

Reliance Inds. 879 Neutral 1,018,710 8.5 -1.8 73,215 -12.6 -6.7 52,029 -5.4 -5.2

Sector Aggregate 4,263,931 8.8 6.5 288,694 -17.3 -13.8 155,612 -28.4 -23.4

Excl. RMs 1,780,094 10.2 0.6 273,425 0.8 -1.2 165,871 -0.1 -4.6

Real Estate

DLF 171 Buy 19,857 51.6 1.5 6,851 687.2 15.2 1,130 -60.3 12.9

Godrej Properties 168 Neutral 2,968 11.4 -3.2 772 2.7 -4.5 390 9.9 13.8

Indiabulls Real Estate 69 Buy 4,358 31.6 -3.3 1,314 0.0 -22.1 623 19.2 -23.3

Jaypee Infratech 24 Buy 8,987 -3.7 12.8 4,059 -3.9 14.6 1,397 -9.9 34.6

Mahindra Lifespace 401 Buy 930 51.4 -3.5 128 41.8 4.4 174 28.5 -33.4

Oberoi Realty 230 Buy 1,942 -32.1 2.8 1,146 -32.9 33.1 867 -35.5 35.2

Phoenix Mills 229 Buy 735 6.1 4.0 493 4.0 3.0 359 5.2 -1.6

Prestige Estates 166 Buy 4,744 -3.6 -0.2 1,233 -13.4 3.9 777 -15.5 0.2

Sobha Developers 311 Buy 4,965 15.5 -8.2 1,390 1.2 -3.0 535 1.8 -5.4

Sector Aggregate 49,486 18.4 1.4 17,385 42.2 8.2 6,253 -26.8 7.7

Retail

Future Retail 74 UR 24,560 -22.5 6.0 2,112 -24.0 3.0 -77 PL Loss

Jubilant Foodworks 1,257 Se l l 5,007 30.0 14.7 801 19.2 22.7 412 9.3 24.0

Shopper's Stop 416 Neutral 7,141 18.2 -1.5 536 18.3 34.7 226 32.5 128.4

Titan Company 229 Neutral 30,127 1.0 29.4 2,862 15.5 9.4 2,066 1.3 10.7

Sector Aggregate 66,835 -6.4 15.1 6,311 -1.1 10.4 2,628 -0.1 18.5

Technology

HCL Technologies 1,249 Buy 82,070 30.8 3.1 20,719 48.6 -1.0 14,105 49.4 -0.4

Hexaware Tech. 132 Neutral 6,393 27.3 2.9 1,466 73.1 -0.8 1,013 34.7 2.5

Infosys 3,562 Buy 130,291 25.0 0.5 35,245 18.7 4.0 27,609 16.5 5.1

KPIT Tech. 174 Neutral 7,206 27.9 2.5 1,157 31.1 6.3 664 11.0 -0.4

Mindtree 1,556 Neutral 7,922 34.3 2.9 1,539 27.8 -3.7 986 -0.2 -23.4

MphasiS 425 Neutral 15,931 26.7 -0.1 2,797 20.1 0.2 1,916 3.9 0.8

Persistent Systems 988 Buy 4,381 31.6 1.3 1,072 30.1 -4.5 523 5.7 -13.9

TCS 2,159 Neutral 214,328 33.4 2.2 67,984 46.1 2.4 52,584 48.1 11.8

Tech Mahindra 1,861 Buy 48,472 32.1 1.6 11,233 41.2 1.1 6,671 131.6 -2.6

Wipro 555 Buy 112,855 NA NA 23,267 NA NA 19,993 NA NA

Sector Aggregate (ex Wipro) 516,994 30.3 1.8 143,212 37.4 2.0 106,072 39.2 6.4

Telecom

Bharti Airtel 329 Buy 219,792 13.5 3.1 70,565 22.2 3.3 11,315 298.9 121.0

Bharti Infratel 168 Neutral 27,493 4.7 2.4 10,994 12.0 2.5 3,534 39.1 27.4

Idea Cellular 167 Buy 65,731 17.8 3.9 20,748 40.8 5.2 5,058 121.3 13.0

Reliance Comm 131 Neutral 55,457 4.6 2.8 19,746 19.4 4.7 3,293 188.3 21.0





B–8January 2014

MOSL Universe


CMP Rating Net Interest Income Operating Profit Net Profit



Financials

Private Banks

Axis Bank 1,293 Buy 29,830 19.6 1.6 28,226 19.5 2.6 15,284 13.4 12.2

Federal Bank 84 Buy 5,484 10.3 0.0 3,637 -7.7 2.8 1,658 -21.3 -26.6

HDFC Bank 669 Buy 46,892 17.8 4.7 37,295 19.5 10.1 23,235 25.0 17.2

ICICI Bank 1,108 Buy 42,810 22.3 5.9 41,393 19.9 6.5 25,123 11.6 6.8

IndusInd Bank 422 Buy 7,018 21.5 0.3 5,997 27.0 2.0 3,183 19.1 -3.6

ING Vysya Bank 603 Buy 4,509 11.9 2.4 3,011 14.4 9.0 1,776 9.4 0.7

Kotak Mahindra Bank 737 Neutral 9,413 14.4 1.9 6,266 9.4 3.3 3,624 0.2 2.8

Yes Bank 374 Buy 6,733 15.2 0.2 6,116 8.5 -14.2 3,813 11.4 2.7

Pvt Bkg. Sector Aggregate 152,688 18.7 3.6 131,941 17.8 5.0 77,696 14.2 8.6

PSU Banks

Bank of Baroda 652 Buy 30,136 6.1 4.1 21,795 -2.9 3.3 9,762 -3.5 -16.4

Bank of India 236 Neutral 27,209 17.9 7.7 19,864 7.0 -5.5 6,083 -24.3 -2.2

Canara Bank 282 Neutral 22,916 15.3 4.6 15,439 1.8 8.3 3,403 -52.1 -45.6

Indian Bank 114 Buy 11,204 -2.0 2.4 7,440 -0.5 5.4 2,545 -23.0 -16.8

Oriental Bank 228 Buy 12,956 7.6 1.1 9,042 -2.4 9.6 2,498 -23.5 -0.6

Punjab National Bank 635 Buy 41,022 9.9 2.2 26,735 -0.3 5.5 7,596 -41.8 50.3

State Bank 1,770 Buy 127,399 14.2 4.0 71,484 -8.2 13.3 22,819 -32.8 -3.9

Union Bank 130 Neutral 20,309 7.4 3.9 13,511 -0.5 10.3 3,099 2.5 48.9

PSU Bkg. Sector Aggregate 293,151 11.6 3.9 185,310 -3.1 7.5 57,804 -29.4 -4.6

NBFC

Bajaj Finance 1,530 Buy 6,517 29.3 12.4 3,823 32.6 25.3 1,965 22.2 17.6

HDFC 789 Buy 17,347 12.7 9.9 18,017 13.7 3.8 13,069 14.6 3.2

IDFC 106 Buy 6,726 2.5 -2.0 7,641 8.7 1.7 4,340 -4.6 -10.8

LIC Housing Fin 217 Buy 4,691 26.9 3.5 4,394 24.7 -4.0 3,381 43.1 9.0

M & M Financial 320 Buy 7,208 28.4 6.3 4,906 29.4 6.1 2,505 25.1 13.2

Power Finance Corp 163 Neutral 21,122 25.9 0.1 20,932 27.0 1.6 13,777 19.6 0.6

Rural Electric. Corp. 217 Neutral 17,533 22.6 0.6 17,790 24.4 1.7 12,398 18.9 5.4

Shriram Transport Fin. 673 Buy 9,322 4.2 3.0 7,652 5.6 3.8 3,351 -3.1 2.5

NBFC Bkg. Sector Aggregate 90,466 18.5 3.6 85,155 19.7 3.1 54,787 15.7 2.9

Financials Sector Aggregate 536,305 14.7 3.8 402,407 7.5 5.7 190,287 -3.5 2.6




Utilities

CESC 449 Buy 12,470 19.9 -23.6 3,043 14.4 -19.1 1,275 26.2 -25.5

Coal India 283 Neutral 183,710 6.0 19.2 45,493 6.1 62.8 42,828 -8.5 39.9

Jaiprakash Power 19 Buy 6,114 43.2 -36.9 3,775 40.9 -50.4 -875 Loss PL

JSW Energy 56 Neutral 26,215 10.8 29.5 9,370 11.9 11.8 3,062 -17.6 32.5

NHPC 20 Neutral 9,534 -5.6 -42.2 4,834 -21.2 -52.5 2,544 5.3 -67.2

NTPC 137 Buy 169,638 7.5 4.2 39,223 -1.8 -4.5 24,571 11.3 11.7

Power Grid Corp. 100 Buy 39,198 16.6 -1.6 34,229 17.1 1.5 11,963 8.0 16.2

PTC India 66 Buy 22,222 18.3 -29.2 272 -9.2 -59.9 250 14.7 -59.6

Reliance Infrastructure 431 Buy 34,453 -0.3 21.7 4,300 -12.2 -9.8 3,018 -19.5 -12.7

Tata Power 90 Neutral 97,578 7.9 11.3 16,783 -9.5 -17.4 2,489 -9.8 -1.4


PL: Profit to Loss; LP: Loss to Profit; UR = Under Review

PULL OUT

B–9January 2014

MOSL Universe

Ready reckoner: valuationsCMP (INR) Rating EPS (INR) P/E (x) EV/EBITDA (x) RoE (%)

27.12.13 FY13 FY14E FY15E FY13 FY14E FY15E FY13 FY14E FY15E FY13 FY14E FY15E

Automobiles

Ashok Leyland 17 Neutral 0.6 -1.8 -0.1 26.4 -9.3 -242.6 8.9 48.1 8.7 3.9 -10.6 -0.4

Bajaj Auto 1,935 Buy 105.2 114.4 133.6 18.4 16.9 14.5 12.4 11.0 9.1 43.7 38.0 37.0

Eicher Motors 4,976 Buy 120.1 132.5 195.7 41.4 37.6 25.4 11.3 19.2 13.7 20.8 20.2 25.1

Exide Inds. 121 Neutral 6.2 6.5 7.7 19.7 18.5 15.7 11.8 9.4 8.0 15.3 14.6 15.4

Hero Motocorp 2,087 Buy 106.1 113.3 154.1 19.7 18.4 13.5 12.2 13.6 9.5 45.6 42.1 47.6

Mah. & Mahindra 965 Buy 60.9 76.5 84.7 15.8 12.6 11.4 5.8 6.0 5.1 22.4 20.9 18.7

Maruti Suzuki 1,775 Buy 80.2 96.4 117.3 22.1 18.4 15.1 7.2 8.7 6.8 12.9 13.6 14.7

Tata Motors 371 Buy 32.1 45.3 48.7 11.6 8.2 7.6 4.3 3.6 3.2 29.4 32.9 26.7

TVS Motor 69 Buy 3.8 5.3 7.5 18.0 12.9 9.2 5.3 8.0 5.8 15.1 19.2 23.1

Sector Aggregate 15.9 12.8 11.0 6.1 5.7 4.9 24.1 24.3 23.0

Capital Goods

ABB 689 UR 6.5 8.2 11.5 106.2 83.6 59.9 31.4 32.1 26.5 5.4 6.6 8.8

BHEL 173 Buy 26.8 14.4 9.6 6.5 12.1 18.0 3.9 7.6 9.2 23.5 11.1 7.1

Crompton Greaves 130 Buy 3.1 5.1 8.9 42.3 25.6 14.5 19.0 13.4 10.0 -1.0 8.7 15.1

Cummins India 469 Buy 23.8 22.3 25.2 19.7 21.1 18.6 15.3 17.2 15.2 29.7 24.5 25.6

Havells India 802 Neutral 34.4 40.7 42.1 23.3 19.7 19.1 12.8 13.2 11.7 29.8 28.1 24.0

Larsen & Toubro 1,078 Buy 53.4 43.8 52.4 20.2 24.6 20.6 11.8 13.6 11.9 16.2 14.5 14.4

Siemens 663 Neutral 4.8 13.1 13.8 139.0 50.8 48.1 44.9 23.5 22.5 4.2 11.1 11.1

Thermax 696 Buy 27.0 25.2 29.5 25.8 27.6 23.6 12.9 16.1 13.6 18.4 15.3 16.1


Cement

ACC 1,120 Buy 68.7 45.5 64.3 16.3 24.6 17.4 9.5 13.5 9.8 17.7 11.4 15.4

Ambuja Cements 185 Neutral 10.0 6.4 8.1 18.4 28.9 22.9 9.3 16.4 13.5 18.3 11.0 13.2

Birla Corporation 259 Buy 35.0 29.6 42.8 7.4 8.7 6.0 4.4 5.1 3.4 11.0 8.8 11.6

Grasim Industries 2,716 Buy 291.3 260.0 309.2 9.3 10.4 8.8 4.3 4.6 3.6 13.6 11.0 11.7

India Cements 61 Neutral 5.8 -0.8 3.8 10.5 -77.3 15.9 6.6 8.3 6.3 4.3 -0.5 2.7

J P Associates 54 Buy 2.3 0.9 2.4 23.9 60.3 22.7 17.6 10.0 9.1 3.9 1.5 3.8

Shree Cement 4,386 Buy 314.9 272.2 302.0 13.9 16.1 14.5 8.3 10.8 8.8 30.6 18.4 16.5

Ultratech Cement 1,771 Neutral 96.8 70.1 93.6 18.3 25.3 18.9 11.4 14.1 11.1 18.9 12.0 14.3

Dalmia Bharat 169 Buy 24.3 6.0 8.1 7.0 28.3 20.9 5.6 10.8 8.5 6.6 1.6 2.1

J K Cements 194 Buy 33.0 3.2 17.8 5.9 60.6 10.9 4.9 11.1 6.3 14.4 1.4 7.2

JK Lakshmi Cem. 80 Buy 16.0 7.6 9.1 5.0 10.4 8.7 4.9 8.8 7.1 15.4 6.9 7.9

Ramco Cements 189 Buy 17.0 5.3 14.0 11.1 35.9 13.5 8.8 13.1 7.8 18.3 5.3 13.2

Prism Cement 27 Neutral -1.2 -3.4 -0.5 -22.4 -7.9 -51.6 15.7 25.0 9.0 -5.4 -17.5 -3.1


Consumer

Asian Paints 485 Neutral 11.6 13.0 16.0 41.8 37.4 30.3 27.9 23.6 19.6 33.3 31.7 32.9

Britannia 915 Buy 19.6 31.2 37.0 46.7 29.3 24.8 18.8 19.8 16.3 37.5 47.8 45.7

Colgate 1,305 Neutral 36.5 37.4 44.5 35.7 34.9 29.3 24.9 25.3 20.3 108.4 90.0 90.7

Dabur 172 Buy 4.4 5.4 6.5 39.1 32.1 26.7 24.0 24.7 20.9 35.1 35.1 34.9

Godrej Consumer 847 Neutral 19.6 23.8 29.4 43.2 35.6 28.8 27.9 24.7 20.5 20.9 22.5 23.8

GSK Consumer 4,444 Neutral 98.3 119.1 139.8 45.2 37.3 31.8 35.3 34.7 27.1 30.5 31.1 30.8

Hind. Unilever 569 Se l l 15.2 16.4 18.0 37.4 34.8 31.6 23.9 26.2 22.9 70.8 61.2 57.6

ITC 322 Buy 9.5 10.9 12.7 33.9 29.7 25.4 21.9 19.8 17.2 36.1 37.5 40.1

Marico 221 Buy 6.0 7.3 8.5 36.8 30.2 25.9 22.8 20.4 16.2 19.6 28.5 25.6

Nestle 5,338 Neutral 114.1 124.9 150.3 46.8 42.8 35.5 24.5 25.0 21.3 71.6 58.5 56.4

Pidilite Inds. 290 Neutral 8.5 9.8 11.9 34.2 29.6 24.4 20.9 19.2 15.9 24.9 24.3 24.7

Radico Khaitan 144 Buy 6.6 8.0 10.6 21.8 18.0 13.7 11.8 11.2 9.0 12.1 13.3 15.6

United Spirits 2,537 Neutral 13.9 29.1 53.3 182.9 87.1 47.6 25.0 36.9 27.2 3.4 5.1 8.7


PULL OUT

B–10January 2014

MOSL Universe



Healthcare

Biocon 466 Neutral 16.4 20.4 22.3 28.5 22.8 20.9 8.3 13.0 11.7 12.1 13.8 13.7

Cadila Health 786 Buy 31.9 33.5 40.1 24.6 23.4 19.6 15.4 16.6 13.6 23.7 21.5 21.9

Cipla 405 Neutral 14.2 18.9 20.9 28.4 21.4 19.4 13.1 13.2 11.6 12.7 14.7 14.2

Divis Labs 1,222 Buy 45.4 58.7 67.0 26.9 20.8 18.2 15.6 15.6 12.5 26.0 28.5 27.7

Dr Reddy’ s Labs 2,519 Buy 90.2 115.0 133.5 27.9 21.9 18.9 12.7 14.8 12.5 20.7 21.4 20.4

Glenmark Pharma 538 Buy 18.4 23.1 29.1 29.2 23.3 18.5 13.9 13.1 11.5 18.1 19.0 19.9

GSK Pharma 2,958 Neutral 80.0 55.6 68.5 37.0 53.2 43.2 20.8 46.7 34.4 33.7 22.9 27.7

IPCA Labs. 718 Buy 25.7 34.1 48.0 27.9 21.1 14.9 11.4 12.6 10.4 23.1 24.9 28.3

Lupin 906 Buy 23.1 32.4 42.1 39.2 28.0 21.5 14.4 16.2 13.5 22.5 24.4 25.1

Ranbaxy Labs 464 Se l l 13.0 11.5 13.8 35.7 40.4 33.5 9.7 22.2 8.5 31.4 -18.5 35.0

Sanofi India 2,749 Neutral 76.7 99.4 116.2 35.8 27.6 23.7 23.6 21.3 18.3 14.8 17.4 18.3

Sun Pharma 576 Buy 14.7 22.1 25.8 39.0 26.0 22.3 16.0 16.3 13.8 22.5 28.6 27.2

Torrent Pharma 475 Buy 27.8 29.3 30.7 17.1 16.2 15.5 8.6 11.1 10.4 35.8 30.3 25.8


Media

D B Corp 285 Buy 11.9 15.7 18.8 24.0 18.2 15.2 11.1 10.4 8.8 22.3 26.3 28.0

Dish TV 60 Buy -1.2 -0.3 0.0 -50.8 -175.2 2202.2 14.0 11.2 9.5 NA NA NA

Hindustan Media 113 Buy 11.5 15.4 18.9 9.8 7.3 6.0 7.2 2.6 1.7 17.9 20.1 20.1

HT Media 75 Neutral 7.1 7.1 8.0 10.5 10.5 9.4 7.2 4.1 3.4 10.1 9.2 9.4

Jagran Prakashan 90 Buy 4.7 6.5 8.4 19.2 13.9 10.7 11.3 8.0 6.5 17.5 20.5 23.3

PVR 628 Buy 11.2 16.9 26.4 55.9 37.1 23.8 15.2 13.6 10.1 9.6 10.2 14.3

Sun TV 376 Buy 17.3 18.2 22.6 21.7 20.7 16.7 10.9 9.4 7.8 23.6 23.1 25.5

Zee Entertainment 279 Neutral 7.5 9.5 11.3 37.1 29.3 24.7 20.5 21.3 17.9 19.6 21.5 21.9


Metals

Hindalco 122 Buy 17.0 12.0 13.7 7.2 10.2 8.9 8.1 8.5 6.7 18.0 11.4 11.8

Hindustan Zinc 133 Buy 16.4 16.7 17.3 8.1 8.0 7.7 4.6 4.2 3.5 23.4 20.1 18.0

JSPL 262 Neutral 37.2 27.3 29.8 7.0 9.6 8.8 8.7 9.1 7.5 17.7 12.0 12.3

JSW Steel 1,007 Se l l 49.7 43.7 58.8 20.3 23.1 17.1 6.8 7.1 7.1 6.6 6.1 8.4

Nalco 38 Buy 2.3 3.1 3.2 16.5 12.4 11.9 3.9 4.0 3.2 5.0 6.5 6.5

NMDC 142 Buy 16.7 15.9 17.4 8.5 8.9 8.2 4.3 4.7 4.2 26.8 22.3 20.4

SAIL 72 Se l l 6.0 6.7 6.8 11.9 10.8 10.6 8.6 9.6 8.4 6.1 6.4 6.2

Sesa Sterlite 201 Neutral 20.8 19.0 24.2 9.7 10.6 8.3 2.2 3.9 3.3 9.5 7.8 9.0

Tata Steel 424 Se l l 1.6 40.4 47.0 270.2 10.5 9.0 7.3 6.8 6.2 0.7 17.7 18.0


OthersBata India 1,054 Buy 26.8 30.7 38.5 39.4 34.3 27.4 16.0 20.8 16.9 27.1 25.6 26.5Castrol India 315 Neutral 9.0 9.7 10.9 34.8 32.4 28.9 25.4 23.3 20.1 83.8 71.4 71.4Just Dial 1,386 Buy 10.1 16.6 23.0 137.2 83.3 60.3 62.9 44.7 26.3 25.2 29.5Sintex Inds. 34 Buy 13.3 10.1 10.9 2.5 3.3 3.1 5.3 5.0 4.7 14.3 9.9 9.7UPL 193 Buy 18.1 22.0 26.0 10.7 8.8 7.4 4.2 5.2 4.3 18.2 19.3 19.4V-Guard Inds 472 Buy 21.1 27.1 36.0 22.4 17.4 13.1 13.2 10.8 8.3 26.7 27.6 29.3Sector Aggregate 21.9 19.8 16.8 9.2 11.5 9.8 20.6 20.0 20.8

PULL OUT

B–11January 2014

MOSL Universe



Oil & Gas

BPCL 352 Buy 26.0 35.3 38.5 13.5 10.0 9.1 8.8 8.4 7.7 11.5 14.5 14.3

Cairn India 324 Buy 63.1 64.9 55.2 5.1 5.0 5.9 2.7 2.8 2.5 24.8 23.6 17.2

Chennai Petroleum 68 Buy -118.6 -17.5 29.7 -0.6 -3.9 2.3 -7.9 16.2 5.5 -60.7 -13.4 22.1

GAIL 341 Neutral 31.7 33.2 28.9 10.7 10.3 11.8 7.9 7.9 7.9 17.5 16.4 13.0

Guj. State Petronet 60 Neutral 9.6 8.4 8.9 6.3 7.1 6.7 4.4 3.6 3.5 19.9 15.0 14.1

HPCL 239 Buy 26.7 12.4 23.5 9.0 19.3 10.2 10.7 10.3 8.1 6.7 3.0 5.6

Indraprastha Gas 267 Neutral 25.3 25.8 29.0 10.6 10.3 9.2 5.5 4.8 4.1 26.0 22.1 21.1

IOC 213 Buy 18.3 16.8 27.6 11.6 12.7 7.7 11.7 11.0 6.7 7.2 6.3 9.8

MRPL 42 Neutral -4.3 1.1 6.4 -9.8 38.9 6.7 17.6 7.4 3.9 -11.1 2.9 15.9

Oil India 484 Buy 59.7 54.7 67.3 8.1 8.9 7.2 4.6 4.0 3.0 19.4 16.3 17.9

ONGC 292 Buy 28.3 29.8 35.8 10.3 9.8 8.2 4.6 4.0 3.6 16.8 15.9 17.3

Petronet LNG 122 Buy 15.3 9.8 11.5 8.0 12.4 10.6 6.3 6.8 6.1 28.8 15.5 16.1

Reliance Inds. 879 Neutral 71.9 74.1 84.1 12.2 11.9 10.5 7.8 9.3 7.9 12.3 11.5 11.8


Ex RMS 10.8 10.1 9.0 5.7 5.6 4.9 14.6 14.0 14.1

Real Estate

DLF 171 Buy 4.2 3.2 5.0 40.9 53.4 34.5 23.9 17.0 14.0 2.6 2.0 3.0

Godrej Properties 168 Neutral 8.9 8.2 9.9 18.9 20.5 16.8 19.7 16.4 11.9 9.6 8.8 8.4

Indiabulls Real Est. 69 Buy 4.1 7.8 12.6 16.9 8.9 5.5 7.6 7.1 5.4 2.5 4.7 7.0

Jaypee Infratech 24 Buy 5.0 5.3 4.8 4.8 4.5 5.0 9.0 5.7 5.9 11.6 11.3 9.4

Mahindra Lifespace 401 Buy 34.6 26.9 28.5 11.6 14.9 14.1 9.8 13.3 11.4 10.9 7.9 7.8

Oberoi Realty 230 Buy 15.4 13.0 18.1 15.0 17.7 12.7 12.0 11.4 8.1 12.8 9.8 12.5

Phoenix Mills 229 Buy 5.8 5.8 10.8 39.4 39.2 21.2 22.8 11.5 8.5 4.8 4.6 8.1

Prestige Estates 166 Buy 8.2 9.6 12.4 20.4 17.3 13.4 13.4 11.7 8.9 10.4 11.1 12.7

Sobha Developers 311 Buy 22.2 23.3 28.8 14.1 13.4 10.8 8.6 7.5 6.5 10.5 10.3 11.9


Retail

Jubi. Foodworks 1,257 Se l l 20.9 23.2 31.1 60.1 54.1 40.4 32.3 27.4 19.9 31.2 25.7 25.6

Shopper's Stop 416 Neutral 4.9 7.0 9.7 85.7 59.7 42.9 27.1 21.7 17.4 5.9 7.9 10.1

Titan Company 229 Neutral 8.2 8.4 9.6 28.0 27.2 23.8 21.4 19.5 16.3 42.5 30.2 27.8


Technology

HCL Technologies 1,249 Buy 57.0 81.6 93.8 21.9 15.3 13.3 8.9 9.7 8.8 32.2 39.2 34.5

Hexaware Tech. 132 Neutral 10.9 12.5 14.0 12.1 10.5 9.4 5.1 6.4 5.5 29.3 28.8 26.8

Infosys 3,562 Buy 164.9 184.5 218.8 21.6 19.3 16.3 12.3 12.9 10.6 25.7 24.3 26.3

KPIT Tech. 174 Neutral 10.6 13.9 17.0 16.5 12.5 10.2 4.4 6.9 5.2 22.7 23.6 23.3

Mindtree 1,556 Neutral 81.7 113.3 129.7 19.0 13.7 12.0 7.5 10.5 8.2 25.8 32.3 29.4

MphasiS 425 Neutral 37.5 51.3 42.0 11.3 11.7 10.1 8.2 6.3 7.6 19.1 16.0 16.7

Persistent Systems 988 Buy 46.9 59.9 73.7 21.1 16.5 13.4 5.3 8.2 7.0 20.2 21.9 23.0

TCS 2,159 Neutral 71.2 96.7 110.3 30.3 22.3 19.6 16.6 16.1 14.3 37.8 40.8 36.7

Tech Mahindra 1,861 Buy 93.0 126.5 149.0 20.0 14.7 12.5 3.4 9.4 8.0 32.6 35.1 32.5

Wipro 555 Buy 25.0 31.4 35.1 22.2 17.7 15.8 12.6 13.0 11.3 21.6 25.2 24.1


Telecommunication

Bharti Airtel 329 Buy 6.0 9.1 15.7 54.8 36.2 20.9 7.3 6.8 5.7 4.2 6.0 9.2

Bharti Infratel 168 Neutral 5.6 7.3 8.8 30.2 23.2 19.2 9.5 7.9 7.3 6.3 7.8 9.1

Idea Cellular 167 Buy 3.1 6.0 9.2 54.8 27.7 18.3 8.4 7.8 6.3 7.4 12.9 17.0

Reliance Comm 131 Neutral 0.9 5.7 12.0 139.1 22.9 10.9 7.6 8.9 6.9 0.6 4.0 8.0


B–12January 2014

MOSL Universe

CMP (INR) Rating EPS (INR) P/E (x) P/BV (x) RoE (%)


Private Banks

Axis Bank 1,293 Buy 110.7 128.6 145.7 11.7 10.1 8.9 1.8 1.6 1.4 18.5 16.9 16.6

Federal Bank 84 Buy 9.8 7.8 9.7 8.6 10.8 8.7 1.1 1.0 1.0 13.9 10.1 11.5

HDFC Bank 669 Buy 28.3 35.8 44.8 23.7 18.7 15.0 4.4 3.7 3.1 20.3 21.6 22.7

ICICI Bank 1,108 Buy 72.2 84.1 92.7 15.4 13.2 11.9 2.0 1.8 1.6 14.8 15.2 14.7

IndusInd Bank 422 Buy 20.3 25.5 29.9 20.8 16.6 14.1 3.0 2.6 2.3 17.8 16.7 17.1

ING Vysya Bank 603 Buy 39.6 38.4 41.4 15.2 15.7 14.6 2.1 1.6 1.5 14.6 12.4 10.5

J&K Bank 1,411 Buy 217.5 234.5 246.4 6.5 6.0 5.7 1.4 1.2 1.0 23.6 21.5 19.4

Kotak Mahindra 737 Neutral 29.3 33.0 37.8 25.2 22.3 19.5 3.6 3.1 2.7 15.5 15.0 14.8

South Indian Bank 21 Neutral 3.8 3.4 3.6 5.5 6.1 5.7 1.0 0.9 0.8 20.5 14.9 14.3

Yes Bank 374 Buy 36.3 43.3 49.7 10.3 8.6 7.5 2.3 1.9 1.6 24.8 24.1 22.9

Pvt. Bank Aggregate 16.7 14.2 12.3 2.9 2.4 2.1 17.2 17.0 17.2

PSU Banks

Andhra Bank 63 Neutral 23.0 11.4 15.2 2.7 5.6 4.2 0.4 0.4 0.4 16.2 7.3 9.2

Bank of Baroda 652 Buy 106.0 104.1 105.4 6.1 6.3 6.2 0.9 0.8 0.7 16.1 13.9 12.7

Bank of India 236 Neutral 46.1 44.3 49.3 5.1 5.3 4.8 0.7 0.6 0.6 13.6 12.3 12.2

Canara Bank 282 Neutral 64.8 48.3 56.3 4.4 5.8 5.0 0.5 0.5 0.5 13.3 9.1 9.8

Corporation Bank 263 Neutral 93.8 53.3 68.6 2.8 4.9 3.8 0.4 0.4 0.4 16.1 8.2 9.9

Dena Bank 63 Neutral 23.1 14.4 16.6 2.7 4.4 3.8 0.5 0.4 0.4 17.6 9.9 10.5

IDBI Bank 66 Neutral 14.1 11.2 12.5 4.7 5.9 5.3 0.5 0.4 0.4 10.2 7.4 7.8

Indian Bank 114 Buy 36.8 26.7 31.3 3.1 4.3 3.6 0.5 0.4 0.4 15.6 10.1 11.0

Oriental Bank 228 Buy 45.5 37.1 42.9 5.0 6.2 5.3 0.6 0.5 0.5 11.5 8.8 9.5

Punjab Nat.l Bank 635 Buy 134.3 94.5 121.9 4.7 6.7 5.2 0.7 0.7 0.6 16.5 10.3 12.1

State Bank 1,770 Buy 261.9 195.3 238.1 6.4 8.5 7.1 0.9 0.9 0.8 15.9 10.6 11.8

Union Bank 130 Neutral 36.0 24.2 29.2 3.6 5.4 4.5 0.5 0.5 0.4 15.0 8.9 10.0

PSU Bank Aggregate 5.5 7.1 6.0 0.8 0.7 0.7 14.9 10.2 11.1

NBFC

Bajaj Finance 1,530 Buy 118.8 150.9 180.6 12.9 10.1 8.5 2.3 1.9 1.6 21.9 20.4 20.6

Dewan Housing 212 Buy 35.2 44.2 54.1 6.0 4.8 3.9 0.8 0.7 0.6 17.1 16.3 17.2

HDFC 789 Buy 31.4 35.2 40.1 25.2 22.4 19.7 4.9 4.4 4.0 23.8 25.6 25.2

IDFC 106 Buy 12.1 12.8 14.6 8.7 8.3 7.2 1.2 1.1 1.0 14.1 13.4 13.9

LIC Housing Fin 217 Buy 20.3 24.7 28.9 10.7 8.8 7.5 1.7 1.4 1.3 16.8 17.8 17.9

M & M Financial 320 Buy 15.7 17.8 21.2 20.4 18.0 15.1 4.0 3.5 3.0 23.4 20.8 21.2

Power Finance Corp 163 Neutral 34.3 41.0 45.2 4.7 4.0 3.6 0.9 0.8 0.7 20.1 20.7 19.6

Rural Electric. Corp. 217 Neutral 38.7 47.2 52.9 5.6 4.6 4.1 1.2 1.0 0.9 23.6 24.1 22.6

Shriram Transport 673 Buy 64.7 65.0 73.7 10.4 10.4 9.1 2.1 1.8 1.5 20.6 17.5 17.1

NBFC Aggregate 12.2 10.5 9.3 2.5 2.1 1.8 20.3 19.8 19.6

Financial Sector Aggregate 10.4 10.6 9.1 1.7 1.5 1.3 16.5 14.0 14.5



Utilities

CESC 449 Buy 49.2 55.0 56.9 9.1 8.2 7.9 4.1 5.1 4.8 12.3 12.5 11.6

Coal India 283 Neutral 28.0 28.5 30.5 10.1 9.9 9.3 7.4 5.8 5.5 28.4 24.8 23.6

Jaiprakash Power 19 Buy 1.3 1.3 2.2 14.6 14.5 8.7 15.4 13.1 7.1 6.3 5.8 9.6

JSW Energy 56 Neutral 6.5 7.6 6.7 8.6 7.3 8.3 6.2 5.0 5.2 17.8 19.0 15.1

NHPC 20 Neutral 1.7 2.1 2.4 11.7 9.3 8.4 8.4 9.0 7.7 7.0 7.8 8.6

NTPC 137 Buy 10.5 11.5 13.5 13.1 12.0 10.2 8.8 9.1 8.2 11.2 11.4 12.5

Power Grid Corp. 100 Buy 8.9 8.5 10.3 11.2 11.7 9.7 10.3 9.3 8.8 16.6 14.7 14.7

PTC India 66 Buy 6.7 8.1 8.1 9.9 8.1 8.2 8.3 7.0 6.4 5.6 5.1 5.6

Reliance Infra. 431 Buy 65.2 50.6 54.8 6.6 8.5 7.9 -2.3 0.3 0.6 10.7 6.7 6.9

Tata Power 90 Neutral 3.9 3.7 3.6 23.1 24.1 25.2 15.9 11.5 10.7 8.1 9.6 8.1


UR = Under Review

Note: In our quarterly performance tables, our four-quarter numbers may not always add up to the full-year

numbers. This is because of differences in classification of account heads in the company’s quarterly and

annual results or because of differences in the way we classify account heads as opposed to the company.

All stock prices and indices as on 27 December 2013, unless otherwise stated.

BSE Sensex: 21,194 S&P CNX: 6,314

December 2013 Results Preview

January 2014 C–1

Sectors & Companies

C–2January 2014

December 2013 Results Preview | Sector: Automobiles

Underlying demand remains weak; however festive season led buying and good

monsoon helped tractors and two-wheeler sales: Considering the slowdown in

economic activity and consequent weakness in consumer and business sentiments,

demand continues to remain weak across auto segments. MHCVs and cars have

been the worst impacted. However, tractor volumes continue to remain strong on

favorable monsoon and high farm income. Two-wheeler sales also picked up during

the festive season driven by rural markets.

3QFY14E margins to improve 20bp QoQ on higher volumes: EBITDA margins for our

auto coverage universe (excluding JLR) are expected to improve 20bp QoQ (+200bp

YoY) on higher volumes. YoY margin improvement is driven by two-wheeler majors

Hero Moto, Bajaj Auto, M&M (driven by strong tractor sales) and MSIL (helped by

SPIL merger). Excluding MSIL, margins for our coverage universe would improve by

60bp QoQ (160bp YoY). Continued demand weakness and consequent high

discounting pressure is expected to further exert pressure on margins of CV players.

Easing of macro headwinds to be key catalyst for demand recovery: With expected

increase in rural incomes due to favorable monsoon, coupled with election spending

led improvement in macro-economic environment, we expect better 4Q for the

auto sector. Over the long term, easing macro headwinds in terms of lower interest

rates and higher economic growth would be the key driver for volume growth,

profitability and in turn re-rating.

Valuation and view: Considering the near term weakness in demand environment,

we downgrade the volume growth/earnings estimates for most companies.

Our estimates for Bajaj Auto have been lowered by 4.1%/4% for FY14E/15E, largely

reflecting continued weakness in domestic business. Similarly, we lower the

estimates for HMCL by 3%/4.7% for FY14E/15E EPS.

For Maruti, our FY15E EPS estimates are raised by 8.6% to factor the recent favorable

movement in JPY/INR. Due to continued weakness in UV demand, partially offset by

the strength in tractor volumes, we downgrade M&M's consolidated FY14E/15E EPS

by 2.7%/2%.

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

Automobiles

Expected quarterly performance summary (INR Million)

CMP Rating Sales EBITDA Net Profit



Ashok Leyland 17 Neutral 19,079 -19.9 -25.2 -65 PL PL -1,684 Loss Loss

Bajaj Auto 1,935 Buy 52,168 -3.6 0.8 11,124 9.9 -1.7 8,696 6.2 3.9

Eicher Motors 4,976 Buy 16,887 2.1 0.3 1,473 24.9 -6.3 939 29.1 9.5

Exide Inds. 121 Neutral 14,602 -0.1 2.3 2,050 24.5 1.9 1,248 19.9 5.3

Hero Motocorp 2,087 Buy 67,712 10.1 18.9 7,428 39.5 25.7 5,956 22.1 23.7

Mahindra & Mahindra 965 Buy 101,563 -0.8 17.3 15,678 13.7 25.0 10,128 10.7 -1.4

Maruti Suzuki 1,775 Buy 108,670 -3.0 3.8 12,542 40.7 -5.1 6,611 31.9 -1.4

Tata Motors 371 Buy 604,100 31.1 6.2 87,594 54.8 1.4 32,691 88.5 -12.8

TVS Motor 69 Buy 19,856 10.4 -0.1 1,163 9.0 -0.7 651 23.7 -1.6

Sector Aggregate 1,004,637 16.3 6.3 138,988 39.5 3.2 65,235 41.8 -6.8

Companies Covered

Ashok Leyland

Bajaj Auto

Eicher Motors

Exide Industries

Hero MotoCorp

Mahindra & Mahindra

Maruti Suzuki India

Tata Motors

TVS Motor

C–3January 2014


We raise TTMT FY14E/15E EPS by 3.3%/4.5% respectively driven by continued strength

in JLR volumes and consequent margins, partially offset by weak standalone

performance.

Demand environment and changing competitive landscape in the auto sector would

be the key determinants of stock performance. Prefer Hero MotoCorp and Maruti

Suzuki in large caps and TVS Motor and Eicher Motors in mid-caps.

Volume snapshot for 3QFY14 ('000 units)

3QFY14 3QFY13 YoY (%) 2QFY14 QoQ (%) 9MFY14 9MFY13 YoY (%)

Two wheelers 4,383 4,089 7.2 4,064 7.9 12,394 11,870 4.4

Three wheelers 207 241 -14.1 214 -3.3 623 628 -0.7

Passenger cars 563 606 -7.1 627 -10.3 1,703 1,748 -2.6

UVs & MPVs 200 211 -5.2 182 9.9 559 543 2.9

Total PVs 762 816 -6.6 809 -5.8 2,262 2,291 -1.3

M&HCV 53 62 -13.9 56 -4.4 169 213 -20.7

LCV 138 147 -6.2 137 0.9 399 425 -6.3

Total CVs 191 209 -8.5 192 -0.6 567 638 -11.1

Total 5,544 5,355 3.5 5,279 5.0 15,846 15,427 2.7

Source: SIAM, MOSL

Revised EPS estimates (INR)EPS FY14E FY15E

Rev Old Chg (%) Rev Old Chg (%)

Bajaj Auto 114.4 119.3 -4.1 133.6 139.2 -4.0

Hero MotoCorp 113.3 116.8 -3.0 154.1 161.7 -4.7

Maruti * 96.4 96.3 0.0 117.3 108.0 8.6

M&M * 76.5 78.7 -2.7 84.7 86.4 -2.0

Tata Motors * 45.3 43.9 3.3 48.7 46.6 4.5

Ashok Leyland -1.8 -1.4 NA -0.1 0.5 -114.2

Eicher Motors * 132.5 142.4 -7.0 195.7 201.6 -2.9

Exide Industries 6.5 6.7 -2.8 7.7 8.1 -4.6

* Consolidated

C–4January 2014


Trend in segment-wise EBITDA margins (%) Commodity cost (index)

Trend in key currencies v/s INR Trend in EBITDA margins (%)

Source: Company, MOSL

HDFC Bank's Base rate trend Trend in petrol and diesel prices

Source: HDFC Bank PLR Source: Bloomberg, MOSL

Source: Bloomberg, MOSL

C–5January 2014


Trend in key financials

Volumes (‘000 units) EBITDA Margins (%) Adj PAT (INR M)

3Q YoY QoQ 3Q YoY QoQ 3Q YoY QoQ

FY14E (%) (%) FY14E (bp) (bp) FY14E (%) (%)

BJAUT 976 -13.5 1.5 21.3 260.0 -60.0 8,696 6.2 3.9

HMCL* 1,671 6.2 18.0 11.0 230.0 60.0 5,956 22.1 23.7

TVS Motor 506 -2.4 -0.1 5.9 -10.0 0.0 651 23.7 -1.6

MSIL 286 -5.2 3.7 11.5 360.0 -110.0 6,611 31.9 -1.4

MM 204 -2.6 16.0 15.4 200.0 100.0 10,128 10.7 -1.4

TTMT (S/A) 137 -33.0 -9.9 1.5 -70.0 -50.0 -6,247 38.1 NA

TTMT (Cons) 14.5 220.0 -70.0 32,691 88.5 -12.8

Ashok Leyland 18 -21.8 (23.3) -0.3 -460.0 -250.0 -1,684 NA NA

Eicher Motors 8.7 160.0 -60.0 939 29.1 9.5

Exide Industries 14.0 280.0 0.0 1,248 19.9 5.3

*Normalized for royalty adjusted

Relative Performance-3m (%) Relative Performance-1Yr (%)

80

90

100

110

120

De

c-1

2

Mar

-13

Jun

-13

Sep

-13

De

c-1

3

Sensex IndexMOSL Automobi les Index

95

100

105

110

115

Sep-

13

Oct

-13

Nov

-13

De

c-13

Sens ex IndexMOSL Automobi les Index

Comparative valuation

CMP (INR) Rating EPS (INR) P/E (x) EV/EBITDA (x) RoE (%)


Automobiles

Ashok Leyland 17 Neutral 0.6 -1.8 -0.1 26.4 NA NA 8.9 48.1 8.7 3.9 -10.6 -0.4

Bajaj Auto 1,935 Buy 105.2 114.4 133.6 18.4 16.9 14.5 12.4 11.0 9.1 43.7 38.0 37.0

Eicher Motors 4,976 Buy 120.1 132.5 195.7 41.4 37.6 25.4 11.3 19.2 13.7 20.8 20.2 25.1

Exide Inds. 121 Neutral 6.2 6.5 7.7 19.7 18.5 15.7 11.8 9.4 8.0 15.3 14.6 15.4

Hero Motocorp 2,087 Buy 106.1 113.3 154.1 19.7 18.4 13.5 12.2 13.6 9.5 45.6 42.1 47.6

Mah. & Mahindra 965 Buy 60.9 76.5 84.7 15.8 12.6 11.4 5.8 6.0 5.1 22.4 20.9 18.7

Maruti Suzuki 1,775 Buy 80.2 96.4 117.3 22.1 18.4 15.1 7.2 8.7 6.8 12.9 13.6 14.7

Tata Motors 371 Buy 32.1 45.3 48.7 11.6 8.2 7.6 4.3 3.6 3.2 29.4 32.9 26.7

TVS Motor 69 Buy 3.8 5.3 7.5 18.0 12.9 9.2 5.3 8.0 5.8 15.1 19.2 23.1


C–6January 2014


Ashok LeylandCMP: INR17 Neutral

Expect volumes to decline 21.8% YoY (-23.3% QoQ) on continued

weakness in economic activity and pressure on CV demand.

MHCV volumes expected to decline 32% YoY (on the back of 29%

decline last year). Sequentially, MHCV volumes are expected to decline

37% to 10,008 units (worst quarterly volumes since 3QFY09). LCV (Dost,

Stile) volumes are also expected to decline 3% YoY to 7,710 units.

EBITDA margin expected at negative 30bp (v/s 2.2% in 2QFY14 and

4.3% in 3QFY13) on weak volumes and continued pressure on

discounts.

Expect to report a PBT loss of INR2.1b (v/s PBT loss of INR1.35b in

2QFY14). In Dec-13, ALL sold shares in Indusind Bank worth INR750m

to raise funds.

We cut FY14E/15E EPS on continued weakness in CV industry and

consequent margin pressure.

Key issues to watch out

Current demand environment and discounting trend, plant and

channel inventory for MHCVs.

Industry growth, market share guidance for 4QFY14/FY15.

Pantnagar volume guidance, RM cost outlook and margin guidance

for 4QFY14/FY15.

Capex, investment guidance and divestment plans for 4QFY14/FY15.

Quarterly Performance (INR Million)

Y/E March FY13 FY14 FY13 FY14E

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

Total Volumes (nos) 27,487 29,840 22,666 34,627 21,721 23,110 17,718 25,974 114,620 88,023

Growth (%) 42.6 25.0 -2.2 -4.9 -21.0 -22.6 -21.8 -25.0 11.6 -23.2

Realizations ('000) 1,094 1,105 1,050 1,077 1,088 1,103 1,077 1,116 1,089 1,104

Change (%) -16.1 -15.4 -16.2 -9.1 -0.5 -0.1 2.5 3.7 -13.4 1.4

Net Sales 30,074 32,960 23,805 37,285 23,638 25,496 19,079 28,998 124,812 97,212

Change (%) 19.7 5.8 -18.0 -13.5 -21.4 -22.6 -19.9 -22.2 -3.4 -22.1

RM/Sales % 72.8 72.8 71.9 75.8 75.5 76.3 76.5 76.6 73.1 76.2

Staff / sales % 8.9 8.0 11.0 7.6 10.9 10.0 12.8 9.3 8.6 10.6

Oth. Exp./ Sales % 10.3 9.1 12.8 11.4 12.6 11.5 11.0 12.3 11.3 11.9

EBITDA 2,407 3,341 1,023 1,983 233 563 -65 531 8,765 1,261

EBITDA Margins (%) 8.0 10.1 4.3 5.3 1.0 2.2 -0.3 1.8 7.0 1.3

Other Income 129 239 141 115 123 231 150 166 624 670

Interest 834 1,036 1,071 828 1,007 1,244 1,250 1,093 3,769 4,594

Depreciation 893 984 931 1,000 952 901 940 960 3,808 3,752

PBT before EO Exp 810 1,559 -838 271 -1,603 -1,351 -2,105 -1,355 1,812 -6,415

EO Exp/(Inc) 0 0 -1,563 -1,344 65 -438 0 0 -2,896 -372

PBT 810 1,559 725 1,614 -1,669 -914 -2,105 -1,355 4,707 -6,042

Tax 140 133 -17 114 -251 -663 -421 -270 370 -1,605

Effective Tax Rate (%) 17.3 8.5 -2.3 7.1 15.0 72.6 20.0 19.9 7.9 26.6

Rep. PAT 670 1,426 741 1,500 -1,418 -251 -1,684 -1,086 4,337 -4,438

Change (%) -22.3 -7.5 10.8 -42.0 -311.6 -117.6 -327.1 -172.4 -33.0 -202.3

Adj. PAT 670 1,426 -858 251 -1,362 -371 -1,684 -1,086 1,669 -4,711

Change (%) -22.3 -7.5 -228.2 -90.2 -303.3 -126.0 96.4 -531.7 -74.2 -382.3

E: MOSL Estimates

Financials & Valuation (INR b)Y/E March 2013 2014E 2015E 2016E

Sa les 125 97.2 121.6 144.1

EBITDA 9 1.3 7.0 9.4

NP 1.7 (4.7) (0.2) 1.6

Adj. EPS (INR) 0.6 (1.8) (0.1) 0.6

EPS Gr. (%) (73.3) NA NA NA

BV/Sh. (INR) 16.7 16.7 17.1 17.6

RoE (%) 3.9 (10.6) (0.4) 3.5

RoCE (%) 6.5 (1.9) 3.8 6.1

Payout (%) 95.6 (11.3) (586.4) 163.8

Valuations

P/E (x) 26.4 (9.3) (242.6) 27.1

P/BV (x) 1.0 1.0 1.0 0.9

EV/EBITDA (x) 9.2 63.6 11.8 8.8

Div. Yield (%) 3.6 1.2 2.4 6.0

Bloomberg AL IN

Equity Shares (m) 2,660.7

M. Cap. (INR b)/(USD b) 44 / 1

52-Week Range (INR) 28 / 12

1,6,12 Rel Perf. (%) 1 / -29 / -48

C–7January 2014


Bajaj Auto

Expect 3QFY14E volumes to decline 13.5% YoY (+1.5% QoQ) to 0.98m

units. Sequential growth is driven by seasonal pick-up in domestic

demand during the festive season.

EBITDA margin to decline 60bp QoQ (+260bp YoY) to 21.3%, driven by

unfavorable mix on higher share of Discover M (100cc motorcycle) and

lower share of high margin 3W volumes (from 11.6% to 10.6%), partially

offset by favorable export realizations (2Q realizations stood at 60.9/

USD).

Expect PAT to rise 6.2% YoY (+3.9% QoQ) to INR8.7b.

We downgrade FY14E/FY15E EPS by 4.1%/4% as we cut our volume

assumptions on continued weakness in demand, particularly in the

standalone business.


Update on retail demand post festive season and channel inventory.

Guidance for 4QFY14 volumes and margins.

Details on new launches, update on forex hedges on exports for FY14/

FY15.

Update on RE60 launch timeline (for export and domestic market),

volume and margin guidance.




Volumes ('000 units) 1,079.0 1,049.2 1,127.7 981.2 979.3 961.3 975.9 941.5 4,237.2 3,858

Growth YoY (%) -1.3 -9.9 4.9 -3.5 -9.2 -8.4 -13.5 -4.1 (2.6) (8.9)

Realization (INR/unit) 45,095 47,392 47,996 48,372 50,150 53,831 53,455 53,268 47,195 52,664

Growth YoY (%) 4.7 6.4 3.5 2.1 11.2 13.6 11.4 10.1 5.1 11.6

Net Sales 48,657 49,724 54,127 47,465 49,111 51,749 52,168 50,152 199,973 203,179

Change (%) 3.4 -4.1 8.6 -4.5 0.9 4.1 -3.6 -3.1 2.4 1.6

RM (%) 72.1 71.8 72.4 71.8 69.4 67.0 67.8 67.5 72.0 68.2

Staff cost (%) 3.3 3.1 2.9 3.5 3.7 3.5 3.7 4.1 3.2 3.8

Oth. Exp. (%) 6.9 7.0 6.2 7.6 8.8 7.8 7.5 7.7 6.9 7.9

EBITDA 8,717 9,152 10,118 8,366 9,067 11,320 11,124 10,527 36,353 41,416

Growth YoY (%) 3.8 -6.2 2.8 -4.2 4.0 23.7 9.9 19.1 -2.3 13.9

EBITDA Margins (%) 17.9 18.4 18.7 17.6 18.5 21.9 21.3 21.0 18.2 20.4

Other Income 1,820 1,667 2,032 2,436 1,756 1,242 1,750 2,327 7,955 7,074

Interest 0 2 1 2 1 0 2 10 5 13

Depreciation 352 410 411 466 444 443 450 456 1,640 1,793

PBT 10,184 10,407 11,738 10,334 10,378 12,118 12,422 12,387 42,662 46,684

Effective Tax Rate (%) 29.5 28.8 30.2 25.9 28.9 30.9 30.0 30.0 28.7 30.4

Rep. PAT 7,184 7,407 8,187 7,658 7,377 8,372 8,696 8,670 30,436 32,492

Change (%) 1.0 2.0 3.0 3.4 2.7 13.0 6.2 3.6 1.3 6.8

Adj. PAT 7,184 7,407 8,187 7,658 7,377 8,372 8,696 8,670 30,436 33,114

Growth YoY (%) 1.0 (6.2) (1.8) 0.9 2.7 13.0 6.2 13.2 -2.0 8.8

E: MOSL Estimates

CMP: INR1,935 Buy


Sa les 200.0 203.2 233.7 273.4

EBITDA 36.4 42.0 48.4 57.7

NP 30.4 33.1 38.7 45.9

Adj. EPS (INR) 105.2 114.4 133.6 158.5

EPS Gr. (%) (2.0) 8.8 16.7 18.7

BV/Sh. (INR) 273.1 329.0 392.8 475.8

RoE (%) 43.7 38.0 37.0 36.5

RoCE (%) 59.8 52.9 51.2 50.3

Payout (%) 49.7 51.1 52.2 47.7

Valuations

P/E (x) 18.4 16.9 14.5 12.2

P/BV (x) 7.1 5.9 4.9 4.1

EV/EBITDA (x) 13.5 11.0 9.1 7.2

Div. Yield (%) 2.3 2.6 3.1 3.4

Bloomberg BJAUT IN

Equity Shares (m) 289.4

M. Cap. (INR b)/(USD b) 560 / 9

52-Week Range (INR) 2,229 / 1,658

1,6,12 Rel Perf. (%) -4 / -7 / -19

C–8January 2014


Eicher Motors

With higher production and continued demand momentum, Royal

Enfield’s volumes to increase 75% YoY (+16% QoQ). Expect flat QoQ

standalone margin at 19.3% (+780bp YoY), as we expect Café Racer

launch expenses to offset operating leverage benefits.

Expect VECV’s volumes to decline 29% YoY (-12% QoQ). VECV’s margins

are expected to decline 210bp YoY (-150bp QoQ) to 4.1% due to ramp-

up in MDEP (engine export project), lower volumes and continued

pressure on discounts.

Expect 2.1% YoY (flat QoQ) growth in consolidated sales. Consolidated

margins to improve 160bp YoY (-60bp QoQ) to 8.7%. Consolidated PAT

(after minority) to grow by 29% YoY (+9.5% QoQ) to INR939m.

Company plans to sell 250,000 units in CY14 (v/s 180,000 units expected

in CY13) in the Royal Enfield division. While the CV business remains

weak with no signs of stability yet, Eicher would launch an all-new

range of CVs (based on Volvo’s technical inputs) from Jan-14 onwards.


Ramp-up of Medium Duty engine project, update on commissioning/

launch of bus body plant and new HCV range.

Update on CV demand trends, discount levels and channel inventory.

New launches and timelines under Royal Enfield business.Quarterly Performance (INR Million)

Y/E December CY12 CY13 CY12 CY13E

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

Net Op Income 16,950 15,850 14,831 16,536 17,243 16,699 16,834 16,887 63,899 67,663

Growth (%) 21.7 22.1 2.2 4.7 1.7 5.4 13.5 2.1 11.6 5.9

EBITDA 1,802 1,395 1,114 1,180 1,705 1,662 1,572 1,473 5,490 6,412

EBITDA Margins (%) 10.6 8.8 7.5 7.1 9.9 10.0 9.3 8.7 8.6 9.5

Depreciation 177 187 213 245 275 296 336 356 822 1,262

Other income 543 306 246 271 444 211 153 270 1,366 1,078

Interest cost 9 9 12 10 6 12 23 21 38 62

PBT before EO item 2,160 1,506 1,135 1,196 1,868 1,565 1,366 1,367 5,997 6,166

Exceptional Exp/(Inc) 0 0 0 0 0 0 -527 0 0 0

PBT after EO item 2,160 1,506 1,135 1,196 1,868 1,565 1,893 1,367 5,997 6,166

Effective tax rate (%) 24.3 25.3 17.4 12.1 28.9 19.6 23.1 23.1 20.8 25.9

PAT 1,634 1,125 937 1,052 1,328 1,258 1,456 1,051 4,749 4,566

Minority interest 539 366 277 324 348 335 382 112 1,506 1,177

Recurring PAT 1,096 759 660 727 979 923 857 939 3,243 3,389

Growth (%) 49.5 -0.6 -10.5 -14.9 -10.6 21.7 29.9 29.1 5.0 4.5

Standalone (Royal Enfield)

Royal Enfield (units) 23,899 27,519 30,046 31,968 34,737 40,040 48,240 56,043 113,432 179,058

Growth (%) 40.8 48.1 49.7 68.2 45.3 45.5 60.6 75.3 52.0 57.9

Net Realizations (INR/unit) 92,083 92,162 91,476 92,345 95,299 93,911 94,857 95,514 92,015 94,938

Change - QoQ (%) 2.5 0.1 -0.7 1.0 3.2 -1.5 1.0 0.7 3.2

VECV (derived)

Total CV Volumes 14,346 12,016 10,791 11,735 12,529 11,027 9,428 8,309 48,888 41,293

Growth (%) 13.0 9.0 -14.1 -8.1 -12.7 -8.2 -12.6 -29.2 -0.3 -15.5

Net Realizations (INR '000/unit) 1,019 1,098 1,108 1,138 1,099 1,152 1,277 1,364 1,081 1,207

Change - QoQ (%) -6.9 7.7 0.9 2.7 -3.4 4.8 10.9 6.8 5.8 11.6

E: MOSL Estimates

CMP: INR4,976 Buy

Financials & Valuation (INR b)Y/E December 2012 2013E 2014E 2015E

Net Income 63.9 67.7 83.4 105.6

EBITDA 5.5 6.4 8.6 11.7

Net Profit 3.2 3.9 5.3 7.0

Adj. EPS (INR) 120.1 132.5 195.7 259.7

EPS Gr. (%) 5.0 10.3 47.8 32.7

BV/Sh. (INR) 603.6 706.9 854.2 1,055.3

RoE (%) 20.8 20.2 25.1 27.2

RoCE (%) 23.0 20.8 23.6 28.1

Payout (%) 0.4 0.5 0.6 0.7

Valuations

P/E (x) 41.4 37.6 25.4 19.2

P/BV (x) 8.2 7.0 5.8 4.7

EV/EBITDA (x) 35.1 24.8 16.3 11.9

Div. Yield (%) 0.4 0.5 0.6 0.7

Bloomberg EIM IN


M. Cap. (INR b)/(USD b) 134 / 2

52-Week Range (INR) 5,295 / 2,512

1,6,12 Rel Perf. (%) 7 / 38 / 71

C–9January 2014


Exide Industries

Expect flat YoY revenue at INR14.6b (+2% QoQ).

EBITDA margin expected to improve 280bp YoY (flat QoQ) to 14%.

Average lead cost has remained largely stable QoQ. Exide undertook

a price cut effective Nov-13 on the back of reversal in USD/INR rates

and pressure on replacement market share.

PAT expected to grow by 20% YoY (+5% QoQ) to INR1.25b on a low

base.

We downgrade FY14E/FY15E EPS by 2.8%/4.6% on continued weakness

in OEM demand outlook and consequent impact on margins on lower

capacity utilization (considering its 40-45% volume exposure to OEM

segment).


Update on demand environment for OEMs, auto replacement and

industrial battery segment.

Outlook on RM cost trend, recent pricing action and currency hedges

if any.

Update on capacity expansion plans across product segments.

CMP: INR121 NeutralBloomberg EXID IN


M. Cap. (INR b)/(USD b) 103 / 2


1,6,12 Rel Perf. (%) 6 / -12 / -23




Net Sales 15,511 15,168 14,622 15,382 16,263 14,280 14,602 15,690 60,718 60,835

Growth YoY (%) 24.8 29.1 17.0 6.4 4.9 -5.9 -0.1 2.0 18.9 0.2

RM (%) 65.1 66.2 67.2 67.1 64.3 65.5 65.8 65.1 66.5 65.2

Employee Cost (%) 5.4 5.9 5.8 5.8 5.8 6.0 6.2 6.0 5.7 6.0

Other Exp. (%) 14.5 15.5 15.7 13.8 13.8 14.5 14.0 14.3 14.8 14.2

EBITDA 2,328 1,882 1,647 2,044 2,624 2,012 2,050 2,275 7,899 8,960

EBITDA Margin (%) 15.0 12.4 11.3 13.3 16.1 14.0 14.0 14.5 13.0 14.7

Change (%) 4.6 108.5 -0.5 -4.0 12.7 6.9 24.5 11.3 14.8 13.4

Non-Operating Income 147 125 121 304 62 37 100 322 704 521

Interest 14 10 11 8 4 5 5 7 42 20

Depreciation 276 282 289 288 300 313 323 336 1,135 1,272

PBT after EO Exp 2,185 1,716 1,469 2,053 2,383 1,731 1,821 2,254 7,427 8,189

Tax 665 514 428 588 795 546 574 724 2,195 2,638


Rep. PAT 1,520 1,202 1,041 1,465 1,588 1,185 1,248 1,531 5,232 5,551

Change (%) -6.8 135.0 -0.2 2.8 4.5 -1.5 19.9 4.5 13.4 6.1

Adj. PAT 1,520 1,202 1,041 1,465 1,588 1,185 1,248 1,531 5,232 5,551

Change (%) -6.8 135.0 -0.2 2.8 4.5 -1.5 19.9 4.5 13.4 6.1

E: MOSL Estimates


Net Sales 60.7 60.8 68.2 77.8

EBITDA 7.8 9.0 10.0 11.4

Adj. PAT 5.2 5.6 6.6 7.4

Adj. EPS (INR) 6.2 6.5 7.7 8.7

EPS Growth (%) 13.4 6.2 18.4 13.2

BV/Share (INR) 40.3 44.8 50.1 56.6

RoE (%) 15.3 14.6 15.4 15.5

RoCE (%) 21.2 20.9 21.5 21.6

Payout (%) 26.0 26.8 25.9 22.9

Valuations

P/E (x) 19.7 18.5 15.7 13.8

P/BV (x) 3.0 2.7 2.4 2.1

EV/EBITDA (x) 10.9 9.4 8.0 6.7

Div. Yield (%) 1.3 1.4 1.7 1.7

C–10January 2014


Hero MotoCorp

Expect Hero Moto’s (HMCL) 3QFY14E volumes to rise 6.2% YoY (+18%

QoQ) to 1.67m units. Strong sequential growth is driven by robust

retails during the festive season. HMCL’s festive retails increased by

10% to 1.2m units.

Margins (adjusted for royalty amortization) to improve 60bp QoQ

(+230bp QoQ) to 11%, driven by higher volumes, marginal benefits

from cost reduction measures, partially offset by adverse JPY/INR

movement in 2Q (impact on vendors import with a quarter lag).

Demand environment for the two-wheeler industry has weakened

post the festive season, though rural continues to perform better than

urban markets.

We downgrade FY14E/FY15E EPS by 3%/4.7% as we moderate our

volume growth assumption and consequent compression in margins.


Update on retail demand, post festive season, and channel inventory.

Guidance for 4QFY14 volumes and margins.

Guidance on FY14 volume growth and margins, update on export

plans and new launches together with timelines.




Total Volumes ('000 nos) 1,642 1,333 1,573 1,525 1,559 1,416 1,671 1,638 6,074 6,284

Growth YoY (%) 7.4 -13.7 -1.0 -3.0 -5.1 6.3 6.2 7.4 -2.6 3.5

Net Realization 37,799 38,649 39,102 39,810 39,300 40,223 40,523 40,800 38,828 40,224

Growth YoY (%) 2.6 3.2 3.9 5.0 4.0 4.1 3.6 2.5 3.6 3.6

Net Sales 62,078 51,512 61,513 60,725 61,268 56,965 67,712 66,824 235,827 252,769

Change (%) 10.1 -10.9 2.8 1.8 -1.3 10.6 10.1 10.0 0.9 7.2

RM Cost (% sales) 74.1 73.2 74.5 73.1 72.7 71.9 72.8 72.1 73.8 72.4

Staff Cost (% sales) 3.3 3.7 3.2 3.7 3.6 4.0 3.6 3.5 3.5 3.7

Other Exp (% sales) 8.1 9.8 10.2 10.4 9.3 10.0 9.7 9.8 9.6 9.7

EBITDA 8,974 6,829 7,423 7,765 8,825 8,029 9,421 9,723 30,991 35,999

EBITDA Margins (%) 14.5 13.3 12.1 12.8 14.4 14.1 13.9 14.5 13.1 14.2

Adj. EBITDA Margins (%) 10.7 9.0 8.7 9.6 11.1 10.4 11.0 11.6 9.5 11.0

Other Income 1,439 1,356 1,264 1,778 1,449 1,452 1,500 1,673 5,838 6,075

Interest 29 30 30 31 30 30 31 35 119 125

Depreciation 3,035 2,895 2,832 2,655 2,744 2,869 2,743 2,785 11,418 11,141

PBT 7,349 5,261 5,826 6,857 7,502 6,583 8,147 8,576 25,292 30,808

Tax 1,194 855 947 1,115 2,016 1,769 2,192 2,212 4,110 8,188


PAT 6,155 4,406 4,879 5,742 5,486 4,814 5,956 6,364 21,182 22,620

Adj. PAT 6,155 4,406 4,879 5,742 5,486 4,814 5,956 6,364 21,182 22,620

Growth (%) 10.3 -27.0 -20.4 -4.9 -10.9 9.3 22.1 10.8 -9.5 6.8

E: MOSL Estimates

CMP: INR2,087 Buy


Sa les 235.8 252.8 289.2 332.8

EBITDA 31.0 36.0 40.9 47.9

NP 21.2 22.6 30.8 37.3

Adj. EPS (INR) 106.1 113.3 154.1 186.9

EPS Gr. (%) (10.9) 6.8 36.1 21.3

BV/Sh. (INR) 250.7 287.7 360.5 460.2

RoE (%) 45.6 42.1 47.6 45.5

RoCE (%) 43.6 53.8 62.8 61.8

Payout (%) 65.1 66.0 52.2 46.1

Valuations

P/E (x) 19.7 18.4 13.5 11.2

P/BV (x) 8.3 7.3 5.8 4.5

EV/EBITDA (x) 12.3 10.5 9.0 7.4

Div. Yield (%) 2.9 3.1 3.4 3.6

Bloomberg HMCL IN


M. Cap. (INR b)/(USD b) 417 / 7

52-Week Range (INR) 2,215 / 1,434

1,6,12 Rel Perf. (%) -2 / 14 / 2

C–11January 2014


Mahindra & Mahindra

While M&M continues to face pressure on UV business led by weak

industry demand and higher competitive pressures, growth in tractors

continues to remain strong.

We expect auto volumes to decline 13% YoY (+8% QoQ), while tractor

volumes are expected to grow by 20% YoY (+31% QoQ). Overall

volumes are expected to decline by 3% YoY (+16% QoQ). Sequential

volume growth is driven by seasonal pick-up in festive demand.

Expect M&M (incl. MVML) to report revenue decline of 1% YoY (+17%

QoQ) to INR101.5b.

EBITDA margin (incl. MVML) to improve 90bp QoQ on higher volumes,

better mix (higher tractor share) to 15.4%.

Adjusted PAT estimated at INR10.1b (+11% YoY, flat YoY).


Update on post festive retail demand environment for auto and

tractor division; plant and channel inventory.

Considering competitive launches in FY15/FY16 guidance on auto

volumes and margins.

Guidance for 4QFY14/FY15 tractor volumes (current guidance of 16-

18% for FY14 industry growth).

Update on Ssangyong business and financial performance.

Quarterly Performance (incl. MVML) (INR Million)



Total Volumes (nos) 182,149 188,412 209,266 195,528 194,962 175,799 203,887 177,715 775,358 752,363

Growth YoY (%) 14.4 10.4 14.2 0.1 7.0 -6.7 -2.6 -9.1 10.0 -3.0

Net Realization 487,431 491,082 489,452 510,569 497,564 492,631 498,133 493,887 494,696 495,697

Growth YoY (%) 14.9 14.9 9.2 9.4 2.1 0.3 1.8 -3.3 11.1 0.2

Excise (%) 11.9 13.1 11.8 12.6 10.3 10.0 10.3 10.7 12.3 10.3

Net Op. Income 88,785 92,526 102,426 99,831 97,006 86,604 101,563 87,771 383,566 372,944

Growth YoY (%) 31.5 26.8 24.7 9.5 9.3 -6.4 -0.8 -12.1 22.2 -2.8

RM Cost (% of sales) 71.5 71.0 72.0 71.1 70.2 68.5 69.0 69.0 71.4 69.2

Staff (% of sales) 5.4 5.5 5.2 4.8 5.5 6.2 5.6 5.9 5.2 5.8

Oth. Exp. (% of Sales) 9.2 9.7 9.3 9.7 9.9 10.8 10.0 10.1 9.5 10.3

EBITDA 12,350 12,797 13,795 14,352 14,008 12,544 15,678 12,780 53,293 55,010

EBITDA Margins (%) 13.9 13.8 13.5 14.4 14.4 14.5 15.4 14.6 13.9 14.8

Other income 662 3,260 758 1,017 972 3,628 810 916 5,697 6,327

Interest 714 741 725 784 759 892 880 881 2,964 3,411

Depreciation 1,800 2,045 2,054 2,279 2,080 2,244 2,325 2,448 8,178 9,097

PBT 10,498 13,272 11,774 13,211 12,141 13,036 13,283 10,368 48,754 48,828


Reported PAT 7,785 9,781 9,149 9,630 9,097 10,276 10,128 8,071 36,344 37,572

Adj PAT 7,785 9,781 9,149 8,970 9,097 10,276 10,128 8,071 36,344 37,572

Change (%) 25.9 28.4 35.1 11.7 16.9 5.1 10.7 -10.0 24.8 3.4

E: MOSL Estimates

CMP: INR965 Buy


Sa les 404.4 385.6 428.2 483.9

EBITDA 47.1 50.4 55.3 61.5

NP (incl. MVML) 36.3 37.6 39.1 43.5

Adj. EPS (INR) 60.7 62.8 65.2 72.8

EPS Gr. (%) 24.8 3.4 3.9 11.5

Cons. EPS (INR) 60.9 76.5 84.7 94.3

BV/Share (INR) 248 296 346 403

RoE (%) 22.4 20.9 18.7 17.8

RoCE (%) 23.2 22.0 21.1 20.5

Payout (%) 26.6 26.4 26.9 24.3

Valuations

P/E (x) 15.9 15.4 14.8 13.3

Cons. P/E (x) 15.8 12.6 11.4 10.2

P/BV (x) 3.9 3.3 2.8 2.4

EV/EBITDA (x) 7.4 11.0 9.8 8.5

Div. Yield (%) 1.3 1.5 1.6 1.6

* Incl. MVML

Bloomberg MM IN


M. Cap. (INR b)/(USD b) 594 / 10

52-Week Range (INR) 1,026 / 742

1,6,12 Rel Perf. (%) -1 / -9 / -6

C–12January 2014


Maruti Suzuki India

Our quarterly estimates for 3QFY14E are including SPIL merger. Hence,

YoY performance is strictly not comparable.

Expect volumes to decline 5.2% YoY (+3.7% QoQ) led by continued

weakness in consumer sentiments and consequent pressure on PV

industry demand. Sequential growth is driven by seasonal pick-up in

festive demand.

Realizations to improve 2.1% YoY (+0.2% QoQ). Increase in realizations

is driven by price hike effective Oct-13 of ~0.7-0.8%, partially offset by

higher discounts.

Expect margins to decline 110bp QoQ (+360bp YoY) driven by adverse

JPY/INR movement in 2Q (impact on vendors import with a quarter

lag).

While our FY14E EPS remains unchanged, we upgrade FY15E EPS by

8.6%, largely driven by margin increase on favorable JPY/INR rates.


Update on demand scenario, post festive season, channel inventory,

discounting trends and new launches.

Guidance on FY14 volume growth, margins, forex hedges, localization

efforts.



1Q 2Q 3Q 4Q* 1Q 2Q 3QE 4QE

Total Volumes (nos) 295,899 230,376 301,453 343,756 266,434 275,586 285,727 314,489 1,171,484 1,142,236

Change (%) 5.1 -8.7 25.9 -4.6 -10.0 19.6 -5.2 -8.5 3.3 -2.5

Realizations (INR/car) 355,839 350,302 363,471 379,812 375,144 370,550 371,228 369,153 363,749 371,407

Change (%) 21.3 19.5 15.7 19.1 5.4 5.8 2.1 -2.8 18.8 2.1

Net Op. Revenues 107,782 83,054 112,003 133,040 102,373 104,681 108,670 118,614 435,879 434,338

Change (%) 27.5 8.2 44.9 13.4 -5.0 26.0 -3.0 -10.8 22.5 266.2

RM Cost (% of Sales) 77.8 79.6 78.4 65.6 71.9 69.4 70.9 70.6 74.7 70.7

Staff Cost (% of Sales) 2.1 2.7 2.2 2.9 2.9 3.6 3.3 3.1 2.5 3.2

Other exp. (% of Sales) 12.8 11.6 11.5 16.4 13.8 14.4 14.3 13.5 13.1 14.0

EBITDA 7,864 5,086 8,913 19,996 11,662 13,214 12,542 15,279 42,296 52,697

EBITDA Margins (%) 7.3 6.1 8.0 15.0 11.4 12.6 11.5 12.9 9.7 12.1

Non-Operating Income 1,123 1,563 1,886 3,990 2,043 1,010 2,000 2,847 8,124 7,900

Interest 332 380 459 726 442 434 475 477 1,898 1,829

Depreciation 3,399 3,470 3,583 8,159 4,802 4,992 5,300 5,600 18,612 20,693

PBT 5,256 2,798 6,756 15,101 8,461 8,799 8,767 12,048 29,910 38,075

Tax 1,018 524 1,743 2,705 2,145 2,097 2,157 2,969 5,989 9,367


PAT 4,239 2,275 5,013 12,396 6,316 6,702 6,611 9,080 23,921 28,709

Adjusted PAT 4,239 2,275 5,013 12,396 6,316 6,702 6,611 9,080 23,921 28,709

Change (%) -22.8 -5.4 143.8 93.7 49.0 194.7 31.9 -26.8 46.3 216.2

E:MOSL Estimates; * Including SPIL Merger

CMP: INR1,775 Buy


Sa les 435.9 434.3 498.5 577.3

EBITDA 42.3 52.7 63.7 77.9

Adj. PAT 23.9 28.7 35.4 44.4

Con.adj.EPS(INR) 80.2 96.4 117.3 146.9

EPS Growth (%) 37.8 20.2 21.7 25.2

BV/Share (INR) 615.0 697.2 800.5 933.5

RoE (%) 12.9 13.6 14.7 15.7

RoCE (%) 15.5 17.4 18.6 20.0

Payout (%) 10.1 11.6 10.2 8.2

Valuations

P/E (x) 22.1 18.4 15.1 12.1

P/CE (x) 12.5 10.8 9.0 7.4

EV/EBITDA (x) 11.2 8.7 6.8 5.0

Div. Yield (%) 0.5 0.6 0.7 0.7

Bloomberg MSIL IN


M. Cap. (INR b)/(USD b) 536 / 9

52-Week Range (INR) 1,830 / 1,217

1,6,12 Rel Perf. (%) 3 / 4 / 10

C–13January 2014


Tata Motors

JLR volumes expected to grow 18.5% YoY (+10.2% QoQ) driven by strong

growth in both Jaguar and Land Rover (LR) brand. Jaguar volumes to

rise 33% YoY, while LR volumes to increase 15.8% YoY.

EBITDA margin to improve 220bp YoY (decline 70bp QoQ) on higher

volumes and stronger mix (higher Range Rover/Sport).

Standalone volumes to decline 33% YoY (-10% QoQ) led by 32%/36%

YoY decline in CVs/PVs respectively. Within CVs, MHCVs expected to

report a decline of 26% (despite a lower base), while LCVs to decline

by 34%. Standalone margins to remain weak at 1.5% (-50bp QoQ, -

70bp YoY) on lower volumes and higher discounting pressures.

Expect 31% YoY (+6% QoQ) rise in consolidated sales. Consolidated

margins to decline 70bp QoQ (+220bp YoY). Expect consolidated PAT

to rise 89% YoY (-13% QoQ) to INR32.7b led by strong JLR performance,

translation gains, partially offset by higher standalone loss.

We upgrade FY14E/15E consolidated EPS by 3.3%/4.5% led by upgrades

in JLR, partially offset by higher losses in S/A.


Current JLR demand trends and outlook for 4QFY14/FY15, particularly

China and the US.

Order book for new Range Rover and Range Rover Sport and their

ramp-up schedule.Update on forex hedges (JLR operations).

Volume guidance for MHCVs and PVs, inventory levels, discounts.

Quarterly Performance (Consolidated) (INR Million)



JLR volumes 83,452 77,442 94,828 116,345 90,620 101,931 112,360 129,979 372,067 434,890

Growth YoY (%) 34.5 13.9 9.9 18.6 8.6 31.6 18.5 11.7 18.3 16.9

JLR EBITDA Margins (%) 14.5 14.8 14.0 16.9 16.5 17.8 17.3 18.1 15.2 17.5

S/A volumes 190,783 223,665 203,852 196,370 153,172 151,466 136,501 143,267 809,503 584,406

Growth YoY (%) -3.5 5.8 -11.9 -31.3 -19.7 -32.3 -33.0 -27.0 -12.3 -27.8

S/A EBITDA Margins (%) 7.3 5.9 2.2 3.6 2.3 2.0 1.5 1.6 4.8 1.9

Total Op. Income 433,236 434,029 460,895 560,016 467,847 568,823 604,100 690,674 1,888,176 2,331,443

Growth (%) 30.1 19.9 1.8 10.0 8.0 31.1 31.1 23.3 14.0 23.5

EBITDA 57,548 53,336 56,573 78,015 62,192 86,351 87,594 118,307 245,473 354,445

EBITDA Margins (%) 13.3 12.3 12.3 13.9 13.3 15.2 14.5 17.1 13.0 15.2

Depreciation 15,659 15,944 20,700 23,391 23,477 27,293 31,000 36,793 75,693 118,562

Other Income 2,386 2,068 1,886 1,775 1,823 2,321 1,500 2,590 8,115 8,234

Interest Expenses 8,044 8,474 9,344 9,670 9,482 11,117 11,000 11,328 35,533 42,928

PBT before EO Exp 36,232 30,987 28,416 46,729 31,056 50,262 47,094 72,777 142,362 201,190

EO Exp/(Inc) 4,405 101 1,735 -215 1,786 2,738 0 0 6,027 4,525

PBT after EO Exp 31,826 30,886 26,681 46,943 29,270 47,524 47,094 72,777 136,335 196,665

Tax rate (%) 27.3 32.0 38.7 18.8 39.8 25.1 30.0 21.2 27.7 27.0

PAT 23,138 21,010 16,362 38,116 17,628 35,590 32,966 57,354 98,625 143,538

Minority Interest -276 -230 -152 -178 -198 -106 -175 -256 -837 -735

Share in profit of Associate -414 -32 67 1,517 -169 -65 -100 100 1,138 -234

Adj PAT 25,651 20,816 17,341 39,280 18,337 37,469 32,691 57,198 103,286 145,871

Growth (%) 25.2 (7.3) (50.9) -11.5 -28.5 80.0 88.5 45.6 -17.7 41.2

E: MOSL Estimates

CMP: INR371 Buy


Net Sales 1,888 2,331 2,720 3,252

EBITDA 266 377 421 500

NP 103 146 157 192

Adj. EPS (INR) 32.1 45.3 48.7 59.7

EPS Gr. (%) (17.7) 41.2 7.6 22.4

BV/Sh. (INR) 118.0 158.9 205.8 263.7

RoE (%) 29.4 32.9 26.7 25.4

RoCE (%) 23.4 27.2 24.8 25.3

Payout (%) 7.2 5.2 7.2 5.8

Valuations

P/E (x) 11.6 8.2 7.6 6.2

P/BV (x) 3.1 2.3 1.8 1.4

EV/EBITDA (x) 5.4 3.6 3.2 2.5

Div. Yield (%) 0.5 0.5 0.8 0.8

Bloomberg TTMT IN


M. Cap. (INR b)/(USD b) 1,195 / 19


1,6,12 Rel Perf. (%) -11 / 25 / 10

C–14January 2014





Volumes (units) 519,160 485,999 518,496 509,210 494,494 506,617 505,913 607,356 2,032,865 2,114,380

Growth (%) (3.2) (19.6) (2.1) (4.1) (4.8) 4.2 (2.4) 19.3 (7.6) 4.0

Realization (INR/unit) 35,623 35,234 34,701 34,334 35,596 39,248 39,248 39,248 34,972 37,138

Growth (%) 9.4 6.9 3.5 11.4 (0.1) 11.4 13.1 14.3 7.7 6.2

Net Sales 18,494 17,124 17,992 17,483 17,602 19,884 19,856 21,182 71,093 78,524

Growth (%) 5.9 (14.0) 1.3 6.8 (4.8) 16.1 10.4 21.2 (0.6) 10.5

RM (%) 73.6 72.8 72.0 71.0 71.1 71.2 70.6 71.7 72.4 71.2

Emp cost (%) 5.5 6.3 5.8 5.3 6.4 5.9 6.0 5.7 5.7 6.0

Other exp (%) 15.1 15.0 16.3 18.3 16.8 17.0 17.5 16.7 16.1 17.0

EBITDA 1,075 1,011 1,067 938 989 1,171 1,163 1,271 4,090 4,594

EBITDA margin (%) 5.8 5.9 5.9 5.4 5.6 5.9 5.9 6.0 6.0 5.8

Interest 155 152 118 56 65 52 40 40 480 198

Depreciation 310 320 328 347 314 314 325 338 1,304 1,291

Other Income 51 43 49 96 81 77 70 43 238 271

PBT before EO Exp 661 582 670 631 691 882 868 935 2,544 3,375

EO Exp 0 0 -8 916 0 -303 0 908 -303

PBT after EO Exp 661 582 678 -285 691 1185 868 935 1,636 3,678

Tax rate (%) 22.7 22.3 21.5 -17.6 24.9 25.0 25.0 25.1 29.1 25.0

Reported PAT 511 452 532 -335 519 888 651 701 1,160 2,759

Adjusted PAT 511 452 526 743 519 661 651 701 1,804 2,532

E: MOSL Estimates

TVS MotorCMP: INR69 Buy

Expect TVS Motor's (TVSL) 3QFY14E volumes to decline 2.4% YoY (flat

QoQ) to 505,913 units. Decline in volumes have been largely driven by

Mopeds due to weak demand in southern region, while scooters have

grown by 5% YoY and motorcycles have declined marginally by 1% YoY.

Margins are expected to remain flat YoY at 5.9% (flat QoQ as well).

Recently launched Jupiter scooter have received strong response from

customers and currently is under wait list. Production ramp-up of

scooters, recovery in southern region coupled with upcoming re-launch

of Victor motorcycle (executive motorcycle segment) would drive

volume growth.


Update on retail demand, post festive season, and channel inventory.

Update on new launches together with timelines.


Sa les 70.7 78.5 93.3 106.9

EBITDA 4.1 4.6 5.9 7.1

Adj. PAT 1.8 2.5 3.6 4.5

EPS (INR) 3.8 5.3 7.5 9.4

EPS Gr. (%) -27.3 39.9 40.4 25.9

BV/Sh (INR) 25.8 29.8 35.0 41.5

RoE (%) 15.1 19.2 23.1 24.6

RoCE (%) 15.7 19.3 24.3 26.9

Payout (%) 56.5 30.2 31.3 31.0

Valuations

P/E (x) 18.0 12.9 9.2 7.3

P/BV (x) 2.7 2.3 2.0 1.7

EV/EBITDA (x) 9.5 8.0 5.8 4.4

Div. Yield (%) 1.7 2.2 2.9 3.6

Bloomberg TVSL IN




1,6,12 Rel Perf. (%) 25 / 103 / 52

C–15January 2014

December 2013 Results Preview | Sector: Capital Goods

Satyam Agarwal ([email protected]) / Nirav Vasa ([email protected])

PMG facilitates mandatory clearances…await execution: 1QFY14 saw the intervention

of India's Prime Minister to facilitate speedier execution of projects, which resulted

in the creation of a special cell, Project Monitoring Group (PMG), to address the

bottlenecks in stalled projects on a fast track basis. In 2QFY14, PMG facilitated to get

environmental clearances for projects worth INR202.8b. Other notable achievements

would include facilitating the fuel supply agreement (FSA) for 15.4gw of power plants,

which involved an investment of INR944b. However, we await more clarity on the

execution status of these projects as several industry experts maintain that a

meaningful improvement in large infrastructural capex is expected only post the

outcome of 2014 general elections.

UMPPs get encouraging response despite constrained environment: Power Finance

Corporation (PFC) has shortlisted nine applicants for the Orissa UMPP and eight for

Cheyyur UMPP, who have cleared technical bids by the apex evaluation committee.

Among the pre-qualified applicants who were asked to submit financial bids are NTPC,

Tata Power, NHPC, Adani Power, JSW Energy, Jindal Power, Sterlite Infraventures, CLP

India and L&T. Response from the bidders seems encouraging considering the current

scenario in power sector. Cumulative investment across both projects is expected to

be ~INR500b. Financial bids by the pre-qualified players are expected to be submitted

by the approved applicants as PFC intends to award these projects in 1QFY15.

BTG ordering to emerge from "eclipse": We expect capex for power generation to

commence in the next 12-15 months. Currently, 90gw of power capacity is under

execution, which is expected to be commissioned, of which 60% capacity is from

private sector players facing funding constraints. PLF improvement from central sector

plants to 80% and 70% in case of private sector plants. Resulting in 11.9% CAGR of coal-

based generation till FY19 when juxtaposed with aggregate demand of 997 Bus, the

supply CGAR stands at 8.8%. We believe L&T and TMX would be the major beneficiaries

of the power generation capex once it begins, while BHEL is best-positioned as cyclical

factors support recovery.





ABB 689 UR 21,835 4.9 22.3 1,502 125.5 42.5 567 238.3 59.2

BHEL 173 Buy 83,979 -16.4 -4.8 8,914 -45.4 47.8 5,240 -55.7 -11.2

Crompton Greaves 130 Buy 33,472 12.6 4.4 1,598 88.0 -0.9 617 314.8 5.6

Cummins India 469 Buy 9,775 -10.3 4.8 1,681 -19.4 10.1 1,374 -24.4 -5.1

Havells India 802 Neutral 11,850 12.0 0.9 1,619 15.8 -4.2 1,197 22.7 -4.4

Larsen & Toubro 1,078 Buy 168,315 9.1 16.0 16,831 6.1 12.1 10,708 3.0 2.2

Siemens 663 Neutral 24,075 -3.6 -26.1 739 -59.9 -61.2 110 -82.7 -89.8

Thermax 696 Buy 11,059 5.6 6.0 1,061 -5.2 13.3 751 -1.6 27.0

Sector Aggregate 364,359 0.6 4.9 33,945 -15.5 14.0 20,564 -23.0 -5.1

Capital GoodsCompanies Covered

ABB

BHEL

Crompton Greaves

Cummins India

Havells India

Larsen & Toubro

Siemens

Thermax

C–16January 2014


Maintain Neutral rating on the sector: For 3QFY14E, we expect revenue growth of just

0.6% on a YoY basis. We expect order inflows for 3QFY14E to be muted considering the

constrained environment, with maximum order inflows from short cycle orders. Projects

which received mandatory clearances can be expected to be invited on EoI/bids from

vendors. However, more clarity on the same is awaited due to strong headwinds. L&T's

focus continues to be on order inflows from GCC to meet its targeted order inflow of

INR1t, representing a growth of 20% on a YoY basis. Increasing debtors continue to be

the major concern for BHEL (2QFY14 debtors of ~INR400b, which includes retention

money of INR220b). Thus, await more clarity on the legal notices sent by BHEL to its

customers. Thermax is expected to report muted order inflow from its domestic

customers and has guided for an increase in margins only if order inflows pick up. After

revising its revenue guidance for FY14 in 2QFY14, Havells' management also guided for

higher margins for FY15 based on robust demand for its consumer products. Cummins is

expected to gain as the Government has finally decided to implement CPCB-2 norms

with effect from April 2014. Await more clarity on the quantum of pent-up demand

expected in 4QFY14 and its capability to revise prices to comply with CPCB-2 norms. We

remain Neutral on the sector. Our top picks are Larsen & Toubro, Thermax, Cummins and

BHEL.

Expect muted domestic order inflows in 2QFY14, as well

Domestic project execution impacted in constrained environment



C–17January 2014


List of projects issues were resolved through facilitation by Project Monitoring Group (PMG)

No. Name of Project Location Approx. Approx. Dateof

(PMG SI. No) (State) Investment Generating Commissioning

(in INR b) Capacity (in MWs) of Project

A. Project where Fuel Supply Agreement (FSA) signed for power generation:

1 Maruti Clean Coal and Power Ltd Chhattisgarh 15 300 Quarter-2, 2014-15

2 Kobra West Power Ltd Chhattisgarh 39 600 Quarter-3, 2013-14

3 DB Power Ltd Chhattisgarh 34 1,200 Quarter-4, 2013-14

4 Jhabua Power Ltd Chhattisgarh 36 600 Quarter-1, 2014-15

5 Adani Power Maharashtra Ltd Maharashtra 40 800 Commissioned

6 GMR Kamalanga Energy Ltd Odisha 60 1,050 2 units commissioned,

3rd unit Quarter-3, 2013-14

7 Haldia Energy Ltd West Bengal 34 600 Quarter-2, 2014-15

8 Prayagraj Power Generation Co. Ltd Uttar Pradesh 95 1,980 Quarter-2, 2014-15

9 Raghunathpur TPP (unit - I) West Bengal 30 600 1st unit - Quarter-3, 2013-14,

DBC Power Project 2nd unit - Quarter-2, 2014-15

10 Lanco Amarkantak Chhattisgarh 77 1,320 Quarter-4, 2014-15

11 Corporate Power Ltd Jharkhand 47 540 Quarter-3, 2014-15

12 Ideal Energy Projects Ltd Maharashtra 18 270 Commissioned

13 2x300 MW Thermal Power Plant- Chhattisgarh 25 600 Quarter-3, 2013-14

Bharat Aluminium Ltd

14 SKS Power Generation Chhattisgarh Ltd Chhattisgarh 68 600 Quarter-3, 2014-15

8 FSA signed for 300 MWs only

15 2x600 MW Power Plant Chhattisgarh 136 1,200 Quarter-4, 2013-14

*FSA signed for 600 MWs

16 Jindal India Thermal Power Odisha 91 1,200 Quarter-3, 2013-14

*FSA singed for 600 MWs

17 Talwadi Power Ltd Punjab 100 1,980 Quarter-1, 2014-15

Total 944 15,440

Other Projects facilitated for clearance

No. Name of Project Location Approx. Investment Issues

(PMG SI. No) (State) (INR b) Resolved

1 BPCL Project - Integrated Distilition units Maharashtra 14 Environmental Clearance

2 Ashok Cuttack Angul Tollway Ltd Odisha 11 Environmental Clearance

3 Salka Road - Anupur Railway Track Doubling Chhattisgarh 6 Environmental Clearance

4 Lumding - Silchar Gauge Conversion Assam 43 Environmental Clearance

5 Bhairabi - Sarang New Railway Line Mizoram 23 Environmental Clearance

6 Supreme Panvel Indapur Tollway Maharashtra 9 Environmental Clearance

7 BSCPL Aurang Tollway Ltd Chhattisgarh 12 Environmental Clearance

8 IOCL Project New Marketing Terminal Odisha 2 Approval of DPR for Railway siding

9 Nagai Power Pvt Ltd Tamil Nadu 15 Consortium funding apporval

10 Moonidih XV Seam Jharkhand 1 Environmental Clearance

11 IOCL Project - POL Tap Off Point Odisha 12 Environmental Clearance

12 Lumding - Silchar (482km) Gauge Conversion Assam 43 Environmental Clearance

13 Mumbai & Delhi Airports New Terminal Maharashtra & Delhi 120 Security Clearance

14 OCI Iron & Steel Ltd - Integrated Steel Odisha 12 Environmental Clearance

manufacturing expansion plant

15 Development of Haldia Dock - II (North) West Bengal 8 Environmental Clearance

16 Development of Haldia Dock - II (South) West Bengal 9 Environmental Clearance

Total 340

Source: Media

C–18January 2014


Relative Performance - 3m (%) Relative Performance-1Yr (%)

60

75

90

105

120

De

c-12

Mar

-13

Jun-

13

Sep

-13

De

c-13

Sensex IndexMOSL Capita l Goods Index

85

100

115

130

145

Sep

-13

Oct

-13

No

v-13

De

c-1

3

Sensex IndexMOSL Capi ta l Goods Index




Capital Goods

ABB 689 UR 6.5 8.2 11.5 106.2 83.6 59.9 31.4 32.1 26.5 5.4 6.6 8.8

BHEL 173 Buy 26.8 14.4 9.6 6.5 12.1 18.0 3.9 7.6 9.2 23.5 11.1 7.1

Crompton Greaves 130 Buy 3.1 5.1 8.9 42.3 25.6 14.5 19.0 13.4 10.0 -1.0 8.7 15.1

Cummins India 469 Buy 23.8 22.3 25.2 19.7 21.1 18.6 15.3 17.2 15.2 29.7 24.5 25.6

Havells India 802 Neutral 34.4 40.7 42.1 23.3 19.7 19.1 12.8 13.2 11.7 29.8 28.1 24.0

Larsen & Toubro 1,078 Buy 53.4 43.8 52.4 20.2 24.6 20.6 11.8 13.6 11.9 16.2 14.5 14.4

Siemens 663 Neutral 4.8 13.1 13.8 139.0 50.8 48.1 44.9 23.5 22.5 4.2 11.1 11.1

Thermax 696 Buy 27.0 25.2 29.5 25.8 27.6 23.6 12.9 16.1 13.6 18.4 15.3 16.1


C–19January 2014


ABBCMP: INR689 Under review

ABB inaugurated its new factory set up in Gujarat at a cost of INR2.5b

for manufacturing high voltage switchgear and distribution

transformers. Setting up the factory was in line with company's policy

of "in country for country" approach which lays strong focus on

localization.

The new factory would also be manufacturing GIS systems, post which

ABB could be the first company in India for the same.

For 4QCY13E, we model 5% revenue growth on a YoY basis, EBITDA of

5.9% and PAT of 3%.


Inflow of short cycle orders which supported 5% YoY increase in order

inflows in 3QCY13. Order inflows for 3QCY13 stood at INR17.6b,

supported mainly by order inflows from sectors like renewable, solar,

data centers and exports.

Any major improvement in the performance of projects business,

where margins are being impacted partly by legacy projects and poor

operating leverage, which has suppressed margins.

Quantum of interest cost, which remained at a high level in 3QCY13

at INR270m (v/s INR256m in 1QCY13), mainly due to deterioration of

NWC to 89 days from 71 days.


Net Sales 75.7 76.9 82.3 92.4

EBITDA 3.4 4.7 5.7 6.8

Adj PAT 1.4 1.7 2.4 3.4

Adj EPS (INR) 6.5 8.2 11.5 16.0

EPS Gr (%) -25.5 27.0 39.5 39.0

BV/Sh (INR) 122.6 127.2 133.3 141.9

RoE (%) 5.4 6.6 8.8 11.6

RoCE (%) 5.7 7.1 8.8 10.3

Payout (%) 53.8 40.0 40.0 40.0

Valuations

P/E (x) 106.2 83.6 59.9 43.1

P/BV (x) 5.6 5.4 5.2 4.9

EV/EBITDA (x) 44.0 32.1 26.5 21.8

Div. Yield (%) 0.5 0.6 0.8 1.1

Bloomberg ABB IN


M. Cap. (INR b)/(USD b) 146 / 2


1,6,12 Rel Perf. (%) 5 / 6 / -10



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

Sales 17,903 18,838 18,086 20,823 19,700 17,512 17,859 21,835 75,650 76,906

Change (%) (0.3) 10.0 3.7 (5.3) 10.0 (7.0) (1.3) 4.9 1.2 1.7

EBITDA 975 1,060 664 666 1,065 1,079 1,054 1,502 3,365 4,700

Change (%) -4.0 24.0 -0.4 -38.4 9.2 1.8 58.8 125.5 -7.0 39.7

As % of Sales 5.4 5.6 3.7 3.2 5.4 6.2 5.9 6.9 4.4 6.1

Adjusted EBITDA (%) * 6.2 4.6 4.3 5.2 6.5 6.3 6.2 5.1

Depreciation 223 231 240 246 246 260 257 334 941 1097

Interest 54 77 117 185 198 256 270 327 432 1,050

Other Income 19 14 10 28 14 38 9 13 71 74

PBT 716 766 316 263 636 601 537 854 2,062 2,627

Tax 240 250 102 96 210 205 180 287 688 882


Repoted PAT 476 516 214 168 426 396 356 567 1,374 1,745

Adj. PAT 476 516 214 168 426 396 356 567 1,374 1,745

Change (%) -20.0 33.2 -3.6 -73.8 -10.7 -23.3 66.9 238.3 -25.5 27.0

Order Intake 16,320 20,450 16,790 15,790 15,310 17,310 17,620 27,444 69,660 77,684

Order Book 90,280 91,892 90,596 86,720 82,290 82,350 82,520 82,265 86,720 82,265

BTB (x) 1.2 1.2 1.2 1.1 1.1 1.1 1.5 1.1 1.1

E: MOSL Estimates; * As reported by ABB

C–20January 2014


BHELCMP: INR173 Buy

BHEL continues to face maximum revenue de-growth compared to

peers in the industry. For 3QFY14E, we model revenue de-growth of

16% YoY, EBITDA margin of 10.6% v/s 6.4% in 1HFY14 and PAT de-growth

of 56%. Pressure on margins is expected mainly on lower operating

leverage due to slower pace of project execution.

Overall, the pace of order finalization in utility power segment is

expected to be constrained from near to medium term. However, we

expect the cycle of utility power capex to start over the next 12-15

months (discussed in detail in our report titled - BTG ordering: Emerging

from the eclipse).

Order inflow for 1HFY14 was INR44.7b, down 49% YoY, as ordering

activity continues to be dormant. BHEL recently received an order

worth INR10.2b in 3QFY14 from Neyveli Lignite for supply of steam

turbine generator, associated auxiliaries and civil works.


Increase in retention money which stood at INR220b at end-2QFY14.

Media reports also state that BHEL has sent legal notices to recover

INR170b of its dues; management comment on the same.

Guidance given related to implementation of seventh pay

commission and its impact on BHEL's staff cost.

Any new provisions which are to be made post the merger of BHPV.

Management stated that all provisions are already made in 2QFY14.

Insights shared on growth prospects related to industrial businesses

like metro, power transmission, railways and defence.


Net Sales 484.2 395.6 325.8 358.8

EBITDA 93.9 47.2 33.7 47.6

Adj PAT 65.5 35.1 23.6 36.7

EPS (INR) 26.8 14.4 9.6 15.0

EPS Gr. (%) (4.9) (46.4) (32.9) 55.6

BV/Sh. (INR) 124.4 133.3 139.6 149.3

RoE (%) 23.5 11.1 7.1 10.4

RoCE (%) 24.5 11.4 7.3 10.7

Payout (%) 20.0 30.0 30.0 30.0

Valuations

P/E (x) 6.5 12.1 18.0 11.6

P/BV (x) 1.4 1.3 1.2 1.2

EV/EBITDA (x) 3.8 7.6 9.2 5.2

Div Yield (%) 3.1 2.4 1.7 2.6

Consolidated

Bloomberg BHEL IN


M. Cap. (INR b)/(USD b) 424 / 7


1,6,12 Rel Perf. (%) 15 / -6 / -33




Sales (Net) 83,262 103,996 100,417 188,502 63,526 88,190 83,979 152,031 476,177 387,725

Change (%) 16.9 1.0 -4.8 -2.2 -23.7 -15.2 -16.4 -19.3 0.8 -18.6

EBITDA 12,022 18,995 16,341 46,512 3,886 4,119 8,914 30,297 93,894 47,216

As a % Sales 14.4 18.3 16.3 24.7 6.1 4.7 10.6 19.9 19.7 12.2

Adjusted EBITDA 12,022 18,995 16,341 46,512 3,886 6,033 8,914 30,297 93,894 47,216

Change (%) 41.0 12.0 -12.6 -3.2 -67.7 -68.2 -45.4 -34.9 -3.3 -49.7

As a % Sales 14.2 18.0 16.0 24.2 6.0 6.7 10.6 19.9 19.7 12.2

Interest 55 259 509 405 278 247 302 380 1,253 1,206

Depreciation 2,284 2,163 2,200 2,889 2,308 2,387 2,400 2,421 9,534 9,516

Other Income 3,663 1,307 3,324 2,924 5,385 4,979 1,550 1,651 11,217 13,565

PBT 13,346 17,880 16,955 46,142 6,685 6,465 7,763 29,146 94,324 50,058

Tax 4,137 5,135 5,139 13,766 2,031 1,905 2,523 9,810 28,177 16,269


Reported PAT 9,209 12,745 11,816 32,375 4,654 4,560 5,240 19,336 66,148 33,789

Change (%) 12.9 -9.7 -17.5 -4.2 -49.5 -64.2 -55.7 -40.3 -6.0 -48.9

Adj. PAT 9,209 12,745 11,816 32,375 4,654 5,899 5,240 19,336 65,537 35,129

Change (%) 12.9 -0.9 -17.5 -3.6 -49.5 -53.7 -55.7 -40.3 -4.9 -46.4

Order Intake 55,900 31,530 19,500 209,570 14,690 30,010 75,000 144,289 316,500 263,989

Order Book (INR b) 1,330 1,223 1,137 1,152 1,086 1,023 1,014 1,012 1,152 1,012

BTB (x) 2.7 2.5 2.4 2.4 2.4 2.3 2.4 2.6 2.4 2.6

E: MOSL Estimates

C–21January 2014


Quarterly performance (Consolidated) (INR Million)



Sales (Net) 28,111 29,242 29,718 33,873 31,572 32,049 33,472 37,633 120,944 134,726

Change (%) 15.3 8.1 -1.9 10.1 12.3 9.6 12.6 11.1 77.0 11.4

EBITDA 1,668 1,365 20 779 1,448 1,613 1,598 2,582 3,832 7,241

Change (%) -8.3 -39.6 -98.9 -63.4 -13.2 18.2 231.4 -48.6 89.0

Adjusted EBITDA 1,793 1,490 850 779 1,448 1,613 1,598 2,582 4,912 7,241

As of % Sales (Adj) 6.4 5.1 2.9 2.3 4.6 5.0 4.8 6.9 4.1 5.4

Depreciation 466 544 566 453 527 662 655 659 2,029 2,503

Interest 99 190 213 208 201 193 225 238 709 858

Other Income 192 208 304 51 353 326 335 196 754 1,210

EO Income/(Exp) 0 0 1,207 0 0 0 0 0 1,207 0

PBT 1,294 838 -1,662 169 1,072 1,083 1,053 1,882 640 5,090

Tax 445 414 228 -78 464 506 446 523 1,009 1,939

Effective Tax Rate (%) 34.4 49.4 -13.7 -45.9 43.3 46.7 42.4 27.8 157.5 38.1

Minority interest -9.6 4.2 -1.4 -5.7 7.5 -6.4 -10.0 -31.1 -7.3 -40.0

Reported PAT 859 420 -1,888 253 601 584 617 1,390 -361 3,191

Adjusted PAT 984 545 149 253 601 584 617 1,390 1,926 3,191

Change (%) 23.8 (53.3) (80.7) (74.8) (38.9) 7.1 314.8 450.0 (51.5) 65.7

Order Book 91,720 94,000 92,320 91,250 97,700 97,430 99,958 102,325 91,250 102,325

Order Intake 27,170 25,750 22,570 29,830 24,410 22,500 29,000 33,000 105,450 33,000

BTB (x) 0.8 1.0 0.8 1.0 0.8 1.0 0.8 0.8 0.8 0.8

E: MOSL Estimates

Crompton GreavesCMP: INR130 Buy

Post the restructuring program for its European operations, CG

continues to face growth pangs (discussed in detail in our report titled

- Murphy's Law = Growth Pangs 2.0).

For 3QFY14E, we model standalone revenue growth of 5% on YoY basis,

EBITDA margin of 9% and PAT margin of 6.5%. For subsidiaries, we

expect revenue of euro 184m and EBITDA of 0.9% for 3QFY14E, against

0.2% EBITDA margin in 2QFY14.

Execution of orders in the industrial segment is expected to remain

under pressure due to slower pace of project execution.


Status of Canadian operations and systems business in the US (1H

revenue of USD10-12m), which are being re-organized.

Incremental staff cost savings across the Hungarian plant as customers

start accepting products from the new plant, which operates at 1/6th

the staff cost of Belgium.

Funding pattern for the new factory planned at Baroda for

manufacturing transformers and reactors up to 1,200kv.


Net Sales 120.9 134.7 144.3 161.4

EBITDA 3.8 7.2 9.7 12.1

Adj PAT 1.9 3.2 5.6 7.3

EPS(INR) 3.1 5.1 8.9 11.7

EPS Gr. (%) (48.4) 65.6 76.1 30.8

BV/Sh. (INR) 55.5 58.7 58.3 67.8

RoE (%) (1.0) 8.7 15.1 18.3

RoCE (%) 2.8 6.8 11.4 14.0

Payout (%) 20.1 20.0 20.0 20.0

Valuations

P/E (x) 42.3 25.6 14.5 11.1

P/BV (x) 2.0 2.2 2.2 1.9

EV/EBITDA (x) 20.7 12.6 9.2 7.2

Div Yield (%) 0.9 1.1 1.2 1.4

Consolidated

Bloomberg CRG IN




1,6,12 Rel Perf. (%) 4 / 49 / 5

C–22January 2014


Quarterly Performance (Standalone) (INR Million)



Sales 12,588 10,869 10,895 11,543 10,493 9,327 9,775 11,624 45,894 41,219

Change (%) 21.8 -0.3 13.2 10.9 -16.6 -14.2 -10.3 0.7 11.5 -10.2

EBITDA 2,325 1,999 2,086 1,939 1,756 1,526 1,681 1,995 8,349 6,958

Change (%) 33.7 13.6 29.4 -0.5 -24.5 -23.6 -19.4 2.9 19.7 -16.7

As of % Sales 18.5 18.4 19.1 16.8 16.7 16.4 17.2 17.2 18.2 16.9

Depreciation 114 117 118 124 117 131 140 176 473 565

Interest 14 13 9 11 12 9 15 24 46 60

Other Income 385 338 661 824 668 558 300 424 2,067 1,950

Extra-ordinary Items 0 0 475 0 0 0 0 0 616 0

PBT 2,583 2,207 3,096 2,628 2,294 1,944 1,826 2,219 10,513 8,283

Tax 777 598 755 742 632 496 452 532 2,872 2,112


Reported PAT 1,806 1,609 2,341 1,886 1,662 1,448 1,374 1,687 7,641 6,171

Change (%) 1.9 25.2 66.1 30.4 -8.0 -10.0 -41.3 -10.5 29.2 (19.2)

Adjusted PAT 1,806 1,609 1,817 1,494 1,662 1,448 1,374 1,687 6,606 6,171

Change (%) 32.7 25.2 28.9 3.3 (8.0) (10.0) (24.4) 13.0 20.1 (6.6)

Operational Details

Domestic Sales 8,210 7,650 8,223 8,320 7,550 6,118 7,025 7,610 32,400 -1,769

Change (%) 10.1 (0.5) 21.3 20.2 (8.0) (20.0) (14.6) (8.5) 12.5 (12.7)

Exports 4,210 3,030 2,490 2,960 2,737 3,020 2,550 3,726 12,690 12,056

Change (%) 52.4 0.7 (5.9) (10.0) (35.0) (0.3) 2.4 25.9 8.3 (5.0)

E: MOSL Estimates

Cummins IndiaCMP: INR469 Buy Government has mandated implementation of CPCB-2 for diesel

gensets till 800kw with effect from April 2014. We expect Cummins to

be a key beneficiary as its products are already certified by certification

agencies, according to our channel checks.

Company's focus on domestic manufacturing will also help to compete

with peers, which are still in the process of setting up their own

manufacturing units in India.

Due to the constrained environment, we model 15% de-growth in

domestic revenue and 2% YoY growth in export revenue.

Pig iron prices increased by 3% QoQ in 3QFY14, which are expected to

be passed on to the final consumer via price hikes.


Guidance given by the management on volume growth expected from

pent up demand before the revised norms are expected to be

implemented in 4QFY14. We model 31% QoQ growth in powergen

business in 4QFY14E.

Quantum of increase in business volume from reconditioning and

refurbishment business once the CPCB-2 norms are implemented

due to pricing differential.

Any change in the royalty paid to Cummins Inc for getting access to

CPCB-2 compliant technology.

Any major change in guidance for FY14, which was revised to 15%

decline for domestic business (revenue declined 14% in 1HFY14) and

10% decline for exports (revenue declined 17% in 1HFY14).


Net Sales 45.9 41.2 45.1 52.4

EBITDA 8.3 7.0 7.9 9.5

Adj PAT 6.6 6.2 7.0 8.3

EPS (INR) 23.8 22.3 25.2 29.9

EPS Gr. (%) 20.1 (6.6) 13.0 18.7

BV/Sh. (INR) 87.3 94.3 102.5 113.7

RoE (%) 29.7 24.5 25.6 27.6

RoCE (%) 29.8 24.7 25.7 27.8

Payout (%) 58.9 68.3 67.4 62.7

Valuations

P/E (x) 19.7 21.1 18.6 15.7

P/BV (x) 5.4 5.0 4.6 4.1

EV/EBITDA (x) 14.8 17.3 15.2 12.4

Div Yield (%) 2.5 2.8 3.1 3.4

Bloomberg KKC IN


M. Cap. (INR b)/(USD b) 130 / 2


1,6,12 Rel Perf. (%) 8 / -7 / -18

C–23January 2014





Sales 10,328 9,642 10,584 11,696 10,513 11,740 11,850 12,675 42,250 46,778

Change (%) 25.4 13.4 17.8 11.7 1.8 21.8 12.0 8.4 16.9 10.7

Adj EBITDA 1,281 1,192 1,399 1,460 1,411 1,690 1,619 1,618 5,331 6,338

Change (%) 44.1 9.5 15.2 2.1 10.1 41.8 15.8 10.8 17.0 18.9

Adj EBITDA margin (%) 12.4 12.4 13.2 12.5 13.4 14.4 13.7 12.8 12.6 13.5

Depreciation 118 159 146 156 156 159 163 169 579 647

Interest 102 99 58 26 56 61 25 33 286 175

Other Income 28 20 15 34 32 78 75 65 96 250

PBT 1,004 1,054 1,173 1,342 1,154 1,554 1,506 1,481 4,571 5,694

Tax 204 185 227 243 207 296 309 270 858 1,082


Reported PAT 800 870 947 1,099 947 1,257 1,197 1,211 3,713 4,612

Change (%) 23.5 23.8 20.0 20.0 18.3 44.6 26.5 10.3 21.3 24.2

Adj PAT 880 789 976 1,075 1,029 1,253 1,197 1,211 3,720 4,691

Change (%) 55.5 6.5 17.6 5.3 16.9 58.9 22.7 12.6 21.8 26.1

E: MOSL Estimates

Havells IndiaCMP: INR802 Buy

Management continues to revise its guidance on the positive side.

After revising its revenue guidance for FY14 in 2QFY14, Mr Anil Rai

Gupta, Joint MD, recently stated in the media that, "our company-

level net profit margins had slowed down to 10 odd per cent. We

expect them to increase to 13-13.5% by next year." Increase in margins

was supported mainly on management's expectation of revival in

consumer business, which accounts for 75% of its total revenue.

For Sylvania, Mr Gupta guided for an EBITDA of 5-6%, despite a

challenging environment in Europe. Sylvania's EBITDA margin for

2QFY14 was at 2.9% due to muted operational performance in Europe,

leading to EBITDA of just 1.7%, while EBITDA for Latam region was at

6.2%.

Our interactions with Havells' dealers/distributors support

management's revised guidance of 12% growth for its standalone

business. Major dealers were confident of achieving 10% volume

growth, while remaining 2-3% growth is expected to come from price

hikes undertaken by Havells in September 2013.

We model 13% YoY revenue growth for FY14E, EBITDA margin of 9.6%

and PAT margin of 6.2%.


Growth rates reported in Cables & Wire segment in 3QFY14, which

reported a growth of 52% YoY in 2QFY14, supported mainly by the

base effect.

Improvement in Sylvania's margins across its European business under

the constrained environment and its capability to maintain margins

in Latam business.

Quantum of increase in revenue from Reo switches targeted mainly

for Tier II and III cities.


Net Sales 72.5 82.0 87.6 95.3

EBITDA 6.7 7.9 8.7 9.9

Adj PAT 4.3 5.1 5.2 6.1

Adj EPS (INR) 34.4 40.7 42.1 48.9

EPS Gr. (%) 1.0 18.3 3.3 16.3

BV/Share (INR) 115.6 144.8 175.2 210.0

RoE (%) 29.8 28.1 24.0 23.3

RoCE (%) 21.4 21.4 19.5 20.0

Payout (%) 28.3 26.4 27.8 28.7

Valuations

P/E (x) 23.3 19.7 19.1 16.4

P/BV (x) 6.9 5.5 4.6 3.8

EV/EBITDA (x) 11.9 13.2 11.7 9.8

Div Yield (%) 0.9 1.1 1.2 1.5

Consolidated

Bloomberg HAVL IN


M. Cap. (INR b)/(USD b) 100 / 2


1,6,12 Rel Perf. (%) 3 / 0 / 18

C–24January 2014


Larsen & ToubroCMP: INR1,078 Buy Order inflows disclosed by L&T through press releases are of INR117.1b

(we model an order inflow of INR200b for 3QFY14E), which includes

major export orders worth INR54.4b (order for offshore services from

Qatar for six specialized vehicles worth INR9.6b and an order from

Oman Electricity Transmission Company worth INR29b for EPC work

related to grid stations).

For 3QFY14E, we expect revenue to grow by 9% YoY, with EBITDA margin

of 10% and PAT of 6.4%.


Impact of hiving off its hydrocarbon business into a separate

subsidiary on its balance sheet for which court approval was recently

received.

Execution challanges particularly in domestic market given tight

liquidity conditions & poor demand envioronment.

Commentary/updates given by the management related to possible

listing of its subsidiary IDPL on global stock exchanges.

Any major increase in provisions due to constrained pace of project

execution across multiple segments.

Any major impact seen/expected on order inflows, as several projects

have received mandatory clearances from government authorities.


Sa les 614.7 664.8 745.5 833.7

EBITDA 63.9 67.6 76.3 88.2

Adj PAT * 49.3 40.4 48.3 59.4

EPS (INR)* 53.4 43.8 52.4 64.3

EPS Gr. (%) 2.8 -18.1 19.6 22.9

BV/Sh (INR) 315.7 351.4 392.8 440.4

RoE (%) 16.2 14.5 14.4 14.8

RoCE (%) 14.4 12.4 12.5 12.9

Payout (%) 24.9 27.7 26.9 26.9

Valuations

P/E (x)* 18.3 24.6 20.6 16.7

P/BV (x) 3.1 3.1 2.7 2.4

EV/EBITDA (x) 14.4 15.5 13.8 11.6

Div Yield (%) 1.3 1.2 1.3 1.5

* Consolidated

Bloomberg LT IN


M. Cap. (INR b)/(USD b) 995 / 16

52-Week Range (INR) 1,152 / 678

1,6,12 Rel Perf. (%) 3 / 7 / -10




Net Sales 119,554 131,952 154,294 202,938 125,551 145,095 168,315 219,368 608,733 658,329

Change (%) 26.1 17.4 10.3 9.9 5.0 10.0 9.1 8.1 14.5 8.1

EBITDA 10,847 14,054 14,620 24,509 10,715 14,017 16,831 26,017 64,071 67,580

Change (%) -3.7 15.5 6.9 -1.5 -1.2 -0.3 15.1 6.2 2.0 5.5

Margin (%) 9.1 10.7 9.5 12.1 8.5 9.7 10.0 11.9 10.5 10.3

Adjusted EBIDTA 12,447 14,054 15,870 25,759 11,795 15,017 16,831 26,017 66,071 69,660

Change (%) 10.5 15.5 1.2 -4.2 -5.2 6.9 6.1 1.0 1.9 5.4

Adjusted Margin (%) 10.4 10.7 10.3 12.1 9.4 10.3 10.0 11.9 11.0 10.6

Depreciation 1,919 2,040 2,004 2,222 2,103 2,164 2,250 2,273 8,185 8,789

Interest 2,284 2,350 2,380 2,810 2,453 2,428 3,000 3,620 9,824 11,500

Other Income 6,081 3,294 5,431 3,744 4,726 4,494 3,500 3,723 18,509 16,443

Extraordinary Inc/(Exp) -383 2,672 0 187 0 0 0 0 2,475 0

Reported PBT 12,341 15,630 15,668 23,408 10,885 13,920 15,081 23,847 67,046 63,734

Tax 3,705 4,257 4,450 5,528 3,325 4,145 4,374 6,337 17,940 18,164


Reported PAT 8,636 11,373 11,218 17,880 7,560 9,775 10,708 17,510 49,106 45,570

Adjusted PAT 10,025 9,151 10,393 17,758 8,316 10,475 10,708 17,510 47,327 47,026

Change (%) 34.4 14.6 -7.8 -1.5 -17.0 14.5 3.0 -1.4 5.6 -0.6

Adj PAT (excl Subs Dividend) 7,105 8,521 9,463 16,398 6,116 8,185 9,958 17,250 41,477 41,526

Change (%) 2.9 20.1 4.1 -6.4 -13.9 -3.9 5.2 5.2 1.8 0.1

Order Intake (INR b) 196 210 195 279 252 265 200 174 880 891

Order Book (INR b) 1,531 1,585 1,623 1,536 1,654 1,760 1,790 1,744 1,536 1,744

BTB (x) 2.8 2.8 2.7 2.5 2.7 2.8 2.8 2.6 2.5 2.6

E: MOSL Estimates

C–25January 2014



Y/E September FY13 FY14E FY13 FY14E

1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q

Total Revenues 24,962 29,556 26,420 32,589 24,075 30,057 25,756 32,919 113,527 112,808

Change (%) -0.2 -26.4 -12.5 -3.4 -3.6 1.7 -2.5 1.0 -5.6 -0.6

EBITDA 1,556 754 276 1,753 739 2,266 1,541 4,655 4,207 9,200

As % of Revenues 6.2 2.6 1.0 5.4 3.1 7.5 6.0 14.1 3.7 8.2

Operational EBIDTA 1,841 1,654 1,630 1,905 739 2,266 1,541 4,655 6,905 9,200

As % of Revenues 7.4 5.6 6.2 5.8 3.1 7.5 6.0 14.1 6.1 8.2

Depreciation 588 610 626 678 680 685 690 786 2,502 2,841

Interest Income -87 -84 -39 21 -60 -60 -60 -70 -189 -250

Other Income 69 125 26 134 165 200 230 155 345 750

Extra-ordinary Items 0 0 338 -523 0 0 0 0 -325 0

PBT 951 185 -701 1,752 164 1,721 1,021 3,954 1,537 6,859

Tax 314 -115 -213 260 54 568 337 1,305 246 2,263

Effective Tax Rate (%) 33.0 -62.3 30.4 14.9 33.0 33.0 33.0 33.0 16.0 33.0

Reported PAT 636 300 -488 1,492 110 1,153 684 2,649 1,290 4,595

Adjusted PAT 636 300 -218 1,073 110 1,153 684 2,649 1,680 4,595

Change (%) 5.8 -91.1 -141.1 162.2 -82.7 284.3 -413.7 146.8 -80.1 173.6

Order Intake (INR b) 20 28 26 35 27 34 20 45 102 110

Order Book (INR b) 132 130 130 133 136 140 134 146 137 133

BTB (x) 1.0 1.1 1.2 1.2 1.2 1.3 1.2 1.3 1.2 1.2

E: MOSL Estimates; Adj EBITDA: Adjusted for change in project revenues and cost estimates

SiemensCMP: INR663 Neutral

4QFY13 numbers included several extraordinary items like a) transfer

of postal & logistics technologies, b) CENVAT credit of INR166m, c)

employee separation costs of INR433m and d) impairment loss of

INR355m. For 1QFY14E, we model 4% revenue de-growth, with EBITDA

margin of 3.1% and 83% YoY decline in PAT at INR110m.

Media reports state that Siemens intends to sell 12 residential

properties in Mumbai, with an intention to optimize its asset portfolio.

Impact of the same is expected to result in extraordinary items in the

forthcoming quarters.

Siemens India reported negative earnings for the first time in FY13

due to lower demand and volatile currency.

Consortium of Siemens and Alstom is among the four qualified bidders

for electrical and signaling work for the 343km Bhaupur- Khurha section

of the Eastern Dedicated Freight Corridor. Civil work contract for the

same has been awarded to Tata-Aldisa JV for a consideration of INR33b.


Any major increase in revenue from services, which accounted for

7% of FY13 revenue and increased 43% YoY.

Capability to maintain order inflows in a constrained environment.

4QFY13 order inflows of INR35.4b, up 22% YoY and 35% QoQ.

NWC which stood at 49 days at end-4QFY14 v/s 67 days at end-March

2013 on management's cautious approach.

Financials & Valuation (INR b)Y/E September 2013 2014E 2015E 2016E

Net Sales 113.5 112.8 120.5 138.5

EBITDA 4.2 9.2 9.7 15.2

Adj PAT 1.7 4.6 4.9 7.9

Adj EPS (INR) 4.8 13.1 13.8 22.5

EPS Gr (%) -67.7 173.6 5.6 63.4

BV/Sh. (INR) 114.5 121.1 128.0 139.3

RoE (%) 4.2 11.1 11.1 16.8

RoCE (%) 5.1 12.8 12.7 18.9

Payout (%) 124.0 49.7 49.7 49.7

Valuations

P/E (x) 136.2 50.8 48.1 29.5

P/BV (x) 5.8 5.5 5.2 4.8

EV/EBITDA (x) 51.9 23.0 22.1 14.0

Div. Yield (%) 0.8 0.8 0.9 1.4

Bloomberg SIEM IN


M. Cap. (INR b)/(USD b) 234 / 4


1,6,12 Rel Perf. (%) 8 / 13 / -10

C–26January 2014





Sales 9,835 11,924 10,468 14,682 8,628 10,433 11,059 15,083 46,909 45,203

Change (%) -5.8 -8.5 -17.5 -13.0 -12.3 -12.5 5.6 2.7 -11.6 -3.6

EBITDA 964 1,218 1,119 1,672 814 937 1,061 1,764 5,071 4,575

Change (%) -15.1 -13.3 -18.0 -9.7 -15.5 -23.1 -5.2 5.5 -13.1 -9.8

As of % Sales 9.8 10.2 10.7 11.4 9.4 9.0 9.6 11.7 10.8 10.1

Depreciation 132 139 133 145 142 140 152 173 549 607

Interest 37 34 20 5 8 19 25 48 96 100

Other Income 187 274 124 244 81 75 200 316 730 673

PBT 981 1,318 1,090 1,767 745 853 1,084 1,859 5,156 4,542

Tax 309 407 326 614 243 551 333 571 1,657 1,394


Reported PAT 672 911 764 1,153 503 302 751 1,288 3,500 3,147

Adj PAT 672 911 764 1,153 503 592 751 1,288 3,500 3,147

Change (%) -15.9 -10.4 -20.1 -11.2 -25.2 -66.9 -1.6 11.7 -14.0 -10.1

Order Book 44,740 44,120 46,490 43,358 55,300 53,080 51,771 50,753 43,358 50,753

Order Intake 12,580 11,620 12,840 11,550 21,230 7,680 9,750 12,997 48,590 51,657

BTB (x) 0.9 0.9 0.9 1.2 1.2 1.2 1.2 1.1 0.9 1.1

E: MOSL Estimates

ThermaxCMP: INR696 Buy

Pace of project execution is likely to remain challenging under the

constrained environment. We expect energy segment revenue to grow

6% YoY (1HFY14 de-growth of 17% YoY) and 5% growth in environment

segment (1HFY14 de-growth of 2% YoY).

Order inflow from domestic customers is likely to remain muted

(2QFY14 domestic order inflow was INR5.5b v/s average domestic

inflows of INR9.3b in FY13). TMX received an order worth INR2.7b for

supply of heat recovery steam generators from Reliance Ind in 3QFY14

(1QFY14 order inflow from Reliance was INR17b).

In a recent media report management stated that "company is hopeful

of stable third quarter and is likely to see an improvement in

performance in the fourth quarter (4Q)" and also stated that margins

are unlikely to improve unless order inflow picks up.


Quantum of order inflows would be the key variable to focus in a

constrained environment. Order inflow for 1HFY14 was INR35.8b, up

29% YoY on consolidated basis (we model consolidated order inflow

of INR58.6b for FY14E).

Updates shared by management on the pace of project execution,

mainly Reliance Ind (order value INR19.7b and accounts for 32% of

the consolidated unexecuted order book of INR61.3b).

Revenue from its subsidiaries had stagnated at INR1.9b in 1QFY14

and 2QFY14 but subsidiary profits had increased 91% QoQ in 2QFY14.

Maintaining the revenue momentum across subsidiaries would be a

crucial factor to watch for.


Net Sales 54.3 53.7 58.2 70.0

EBITDA 5.0 4.8 5.6 7.0

Adj PAT 3.2 3.0 3.5 4.7

EPS (INR) 27.0 25.2 29.5 39.4

EPS Gr. (%) (20.2) (6.6) 17.0 33.3

BV/Sh. (INR) 160.0 177.1 197.3 223.8

RoE (%) 18.4 15.3 16.1 19.0

RoCE (%) 14.8 12.8 14.2 17.2

Payout (%) 30.3 32.4 31.7 32.7

Valuations

P/E (X) 20.2 27.6 23.6 17.7

P/BV (X) 3.4 3.9 3.5 3.1

EV/EBITDA (X) 12.3 16.1 13.6 10.6

Div Yield (%) 1.3 1.0 1.1 1.6

Bloomberg TMX IN




1,6,12 Rel Perf. (%) 5 / 4 / 4

C–27January 2014

December 2013 Results Preview | Sector: Cement





ACC 1,120 Buy 27,731 -10.5 10.5 2,490 -21.5 10.5 1,601 -33.1 32.6

Ambuja Cements 185 Neutral 22,120 -4.4 10.3 2,474 -42.2 -3.1 1,633 -29.0 21.3

Birla Corporation 259 Buy 7,218 17.8 1.6 516 0.5 -11.8 357 10.7 -14.2

Grasim Industries 2,716 Buy 13,194 8.5 -6.1 2,253 4.6 -13.8 2,472 24.9 -37.6

India Cements 61 Neutral 10,169 -6.0 -6.4 1,198 -37.8 -6.1 -285 PL Loss

Jaiprakash Associates 54 Buy 34,832 2.5 9.7 7,152 -6.2 -9.5 -33 PL PL

Shree Cement 4,386 Buy 13,499 -5.5 8.2 2,437 -34.4 -2.3 1,471 -35.4 -15.1

Ultratech Cement 1,771 Neutral 47,701 -1.8 6.0 7,004 -31.6 6.2 3,143 -47.7 19.0

Sector Aggregate 176,465 -2.0 6.0 25,525 -24.1 -2.8 10,360 -37.7 -13.2

Jinesh K Gandhi ([email protected]) / Sandipan Pal ([email protected])

Demand fails to recoup in seasonally stronger quarterCement demand continued to remain sluggish in 3QFY14E, with a weak October,

followed by a relatively better November and again a subdued December. Adverse

impact continues in housing and infrastructure vertical, coupled with sand mining

issues, delayed crop selling and politico-economic uncertainties. We estimate growth

of 1% YoY (+3% QoQ) in 3QFY14E and ~2.5% for FY14E for MOSL universe. Capacity

utilization is expected to remain at 69% (unchanged QoQ), which is the lowest 3Q

level in last decade. Our interactions with dealers across regions highlight a possible

better rural demand in 4QFY14E, also propelled by recent easing of sand mining issue,

post SC verdicts.

Price volatility persists despite futile attempts by players; net increaseestimated at INR1/bag QoQWeak demand and aggressive stance by tier II players resulted in rollback of couple of

price increase attempts (September-end and mid-November) taken by industries.

Overall, we estimate weighted average national prices to increase by INR1/bag QoQ

(-INR8/bag YoY) in 3QFY14E. This includes specific trends of (a) INR2-3/bag QoQ increase

in south and central, (b) INR1/bag increase in east, (c) INR1/bag decline in west and

(d) flattish trend in south. There have been instances of sharp plunge in non-trade

prices in between select markets like Rajasthan. We factor for YoY (-INR2/bag) and

INR10/bag YoY increase in realizations in FY14E and FY15E respectively.

Weaker demand and price to maintain pressure on profitabilityProfitability is expected to be under pressure in 3QFY14E as well, after a weak 2QFY14,

as there has been (1) weak pricing trend, (2) continued cost push in energy and freights

and (3) no major benefits of seasonal operating leverage due to a weak demand. We

estimate EBITDA at ~INR505/bag (+INR6/bag QoQ, -INR293/bag YoY for pure cement

players). We estimate EBITDA/ton at INR793/906 for FY14E/FY15E respectively based

on (-INR2)/INR10 per bag YoY price increases.

Valuation and viewWe revise the realizations improvement assumption for FY14E/15E at INR-2/10 per

bag YoY (v/s earlier estimate of INR0/15 per bag) to factor the disappointment in

expectation of realization improvement in 3QFY14E. This has resulted in downgrade

CementCompanies Covered

ACC

Ambuja Cements

Birla Corporation

Grasim Industries

India Cements

Jaiprakash Associates

Shree Cement

UltraTech Cement

C–28January 2014


Demand growth flattish YoY in a seasonally strong quarter MOSL cement universe volumes to grow 1% YoY (+3% QoQ)

Source: Company/MOSL

Source: CMA/MOSL

Utilizations fail to improve in a seasonally strong quarter Trend in average quarterly cement price remains weak (INR/bag)

of our FY15E EPS estimates by 1-13% for ACC/ACEM/UTCEM/SRCM/Grasim. While

demand recovery is expected to be gradual, slowing capacity addition coupled with

higher capex and opex cost would support cement prices and profitability, going

forward. Recovery in demand would be critical for operating and stock performance.

In large caps, we prefer ACC and Shree Cement, while in mid-caps we prefer Birla

Corp, Madras Cement and Dalmia Bharat.

60%

70%

80%

90%

100%

3QFY

09

1QFY

10

3QFY

10

1QFY

11

3QFY

11

1QFY

12

3QFY

12

1QFY

13

3QFY

13

1QFY

14

3QFY

14E

262

320

282 30

0

264 28726

1

322

283 29

3

265

259

316

275 28

9

262

281

245

307

272

294

264 27

7

245

308

271

296

266

286

278

North Eas t West South Centra l National

Average

3QFY13 4QFY13 1QFY14 2QFY14 3QFY14

3,77

13

,747

3,40

1

3,4

49

3,65

4

3,2

79

3,49

0

3,89

9

4,0

22

3,79

7

4,12

9

4,2

08

4,44

8

4,4

84

4,3

28

4,28

8

4,31

8

4,2

23

4,17

9

1QFY

10

2QFY

10

3QFY

10

4QFY

10

1QFY

11

2QFY

11

3QFY

11

4QFY

11

1QFY

12

2QFY

12

3QFY

12

4QFY

12

1QFY

13

2QFY

13

3QFY

13

4QFY

13

1QFY

14

2QFY

14

3Q

FY14

E

Rea l i zation (INR/ton)

1,31

0

1,2

16

828

878 92

5

593 92

7

1,03

1

614 85

5

1,0

04

1,15

6

988

798 83

2

805

499

505

394

1QFY

10

2QFY

10

3QFY

10

4QFY

10

1QFY

11

2QFY

11

3QFY

11

4QFY

11

1QFY

12

2QFY

12

3QFY

12

4QFY

12

1QFY

13

2QFY

13

3QFY

13

4QFY

13

1QFY

14

2QFY

14

3QFY

14E

EBITDA (INR/ton)

Source: CMA/MOSL

Weaker realizations, cost push and weak operating leverage toRealization to remain flat QoQ as suggested by price trend keep profitability under pressure

C–29January 2014


Trend in key operating parametersNet Sales (INR m) EBITDA Margins (%) Net Profit (INR m)

3QFY14 YoY (%) QoQ (%) 3QFY14 YoY (Rs) QoQ (Rs) 3QFY14 YoY (INR) QoQ (INR)

ACC 27,731 -10.5 10.5 9.0 -130 0 1,601 -33.1 32.6

Ambuja Cement 22,120 -4.4 10.3 11.2 -730 -150 1,633 -29.0 21.3

UltraTech 47,701 -1.8 6.0 14.7 -640 0 3,143 -47.7 19.0

Birla Corp 7,218 17.8 1.6 7.2 -120 -110 357 10.7 -14.2

India Cement 10,169 -6.0 -6.4 11.8 -600 0 -285 -209.0 26.4

Shree Cement 13,499 -5.5 8.2 18.1 -800 -190 1,471 -35.4 -15.1

Dalmia Bharat 7,202 6.8 1.1 10.7 -820 40 -64 -135.1 -75.4

J K Cements 6,311 -8.1 1.1 9.1 -1,040 300 -49 -109.0 -77.3

JK Lakshmi Cem. 4,513 -8.6 0.5 11.6 -830 -90 47 -88.7 -54.8

Madras Cement 8,110 -7.0 -10.4 14.7 50 -60 43 -94.9 -76.4

Orient Paper 3,421 0.7 6.5 10.8 -580 0 159 -49.2 10.1

Prism Cement 12,436 5.9 8.0 2.2 170 450 -447 -17.0 -61.2

Sector Agg. 170,431 -3.4 5.1 11.6 -500 0 7,609 -50.3 28.5

Recent correction makes valuations attractive (FY12)

Trend in key financial parametersVolume (m tons) Realization (INR/ton) EBITDA (INR/ton)

3QFY14 YoY (%) QoQ (%) 3QFY14 YoY (BP) QoQ (BP) 3QFY14 YoY (%) QoQ (%)

ACC 6.0 0.5 7.8 4,244 79 9 408 -126 11

Ambuja Cement 5.4 -0.6 9.6 4,131 -163 27 462 -333 -61

UltraTech 9.7 -2.1 5.4 4,826 10 23 709 -307 5

Birla Corp 1.9 20.0 0.6 3,876 -71 38 376 -74 32

India Cement 2.4 -1.7 -2.5 4,166 -198 50 504 -293 -19

Shree Cement 3.1 4.3 -4.2 3,334 -390 0 578 -440 -92

Dalmia Bharat 1.6 8.0 -2.3 4,291 102 0 480 -379 34

J K Cements 1.4 -4.3 -5.3 4,554 -188 286 413 -511 153

JK Lakshmi Cem. 1.3 2.5 -0.6 3,522 -427 40 408 -377 -28

Madras Cement 2.0 1.5 -9.6 4,139 -382 60 444 -560 60

Orient Paper 1.0 2.5 5.1 3,462 -62 45 375 -211 6

Prism Cement 1.4 3.0 15.0 3,727 84 80 59 121 296

Sector Agg. 37.0 1.0 3.1 4,223 -105 44 505 -293 6


Revised EPS estimates (INR)

FY14E/CY13E FY15E/CY14E

Rev Old Chg (%) Rev Old Chg (%)

ACC 45.5 51.5 -11.6 64.3 64.7 -0.5

Ambuja Cement 6.4 7.2 -11.3 8.1 8.6 -6.4

UltraTech 70.1 86.4 -18.9 93.6 102.9 -9.0

Birla Corp 29.6 34.1 -13.0 42.8 42.6 0.5

India Cement -0.8 1.9 -141.7 3.8 5.0 -23.6

Shree Cement 272.2 312.7 -13.0 302.0 315.7 -4.3

Ambuja

Gras im

UltraTech

Birla Corp

India CementShree

ACC

0

50

100

150

200

0% 6% 12% 18% 24%

RoCE (%)

EV

(U

SD

/Ton

)

Replacement Cost at

USD140/ton

C–30January 2014





Cement

ACC 1,120 Buy 68.7 45.5 64.3 16.3 24.6 17.4 9.5 13.5 9.8 17.7 11.4 15.4

Ambuja Cements 185 Neutral 10.0 6.4 8.1 18.4 28.9 22.9 9.3 16.4 13.5 18.3 11.0 13.2

Birla Corporation 259 Buy 35.0 29.6 42.8 7.4 8.7 6.0 4.4 5.1 3.4 11.0 8.8 11.6

Grasim Industries 2,716 Buy 291.3 260.0 309.2 9.3 10.4 8.8 4.3 4.6 3.6 13.6 11.0 11.7

India Cements 61 Neutral 5.8 -0.8 3.8 10.5 -77.3 15.9 6.6 8.3 6.3 4.3 -0.5 2.7

J P Associates 54 Buy 2.3 0.9 2.4 23.9 60.3 22.7 17.6 10.0 9.1 3.9 1.5 3.8

Shree Cement 4,386 Buy 314.9 272.2 302.0 13.9 16.1 14.5 8.3 10.8 8.8 30.6 18.4 16.5

Ultratech Cement 1,771 Neutral 96.8 70.1 93.6 18.3 25.3 18.9 11.4 14.1 11.1 18.9 12.0 14.3

Dalmia Bharat 169 Buy 24.3 6.0 8.1 7.0 28.3 20.9 5.6 10.8 8.5 6.6 1.6 2.1

J K Cements 194 Buy 33.0 3.2 17.8 5.9 60.6 10.9 4.9 11.1 6.3 14.4 1.4 7.2

JK Lakshmi Cem. 80 Buy 16.0 7.6 9.1 5.0 10.4 8.7 4.9 8.8 7.1 15.4 6.9 7.9

Ramco Cements 189 Buy 17.0 5.3 14.0 11.1 35.9 13.5 8.8 13.1 7.8 18.3 5.3 13.2

Prism Cement 27 Neutral -1.2 -3.4 -0.5 -22.4 -7.9 -51.6 15.7 25.0 9.0 -5.4 -17.5 -3.1


Relative Performance - 3m (%) Relative Performance-1Yr (%)

60

75

90

105

120

Dec

-12

Mar

-13

Jun-

13

Sep-

13

Dec

-13

Sensex IndexMOSL Cement Index

98

102

106

110

Sep

-13

Oct

-13

Nov

-13

De

c-13

Sensex IndexMOSL Cement Index

C–31January 2014




1Q 2Q 3Q 4Q* 1Q 2Q 3Q 4QE

Cement Sales (m ton) 6.72 6.05 5.40 5.94 6.42 6.12 5.54 5.97 24.1 24.0

YoY Change (%) 9.1 2.0 -5.1 -0.2 -4.5 1.2 2.6 0.5 1.6 -0.2

Cement Realization 4,231 4,558 4,502 4,166 4,269 4,298 4,235 4,244 4,358 4,263

YoY Change (%) 8.7 12.5 19.1 -0.8 0.9 -5.7 -5.9 1.9 9.7 -2.2

QoQ Change (%) 0.7 7.7 -1.2 -7.5 2.5 0.7 -1.5 0.2

Net Sales 28,430 27,576 24,310 30,989 29,111 27,952 25,087 27,731 111,305 109,881

YoY Change (%) 18.5 14.8 13.1 24.0 2.4 1.4 3.2 -10.5 18.0 -1.3

EBITDA 5,988 6,306 4,215 3,172 4,468 4,335 2,253 2,490 19,681 13,546

Margins (%) 21.1 22.9 17.3 10.2 15.3 15.5 9.0 9.0 17.7 12.3

Depreciation 1,305 1,356 1,352 1,575 1,383 1,387 1,444 1,505 5,589 5,719

Interest 316 301 257 273 108 179 110 123 1,147 520

Other Income 1,121 1,360 975 1,468 1,205 908 1,023 1,365 4,923 4,500

PBT before EO Item 5,487 6,009 3,581 2,792 4,182 3,677 1,721 2,227 17,869 11,807

PBT after EO Item 2,134 6,009 3,581 2,792 5,861 3,677 1,721 2,227 14,515 13,485

Tax 580 1,829 1,094 400 1,484 1,086 514 625 3,903 3,708

Rate (%) 27.2 30.4 30.6 14.3 25.3 29.5 29.8 28.1 26.9 27.5

Reported PAT 1,554 4,179 2,487 2,392 4,377 2,591 1,207 1,601 10,612 9,777

Adjusted PAT 3,859 4,179 2,487 2,392 3,124 2,591 1,207 1,601 12,918 8,560

Margins (%) 13.6 15.2 10.2 7.7 10.7 9.3 4.8 5.8 11.6 7.8

YoY Change (%) 10.1 24.2 48.4 -15.2 -19.1 -38.0 -51.4 -33.1 11.9 -33.7

E: MOSL Estimates; * Merger of RMC business from 4QCY12

ACCCMP: INR1,120 Buy

Dispatches in 4QCY13E are estimated to grow 0.5% YoY (+8% QoQ) to

5.97mt. Average realizations are expected to remain flat QoQ (+1.3%

YoY) to INR4,244/ton.

Revenue is expected to de-grow by 11% YoY (+11% QoQ) to INR27.7b.

EBITDA margins are expected to remain unchanged QoQ (-1.2pp YoY)

due to (a) lower realizations growth and (c) push on energy and freight

cost. EBITDA/ton is estimated at INR408 (+INR11 QoQ, -INR122 YoY).

PAT would decline 33% YoY (+33% QoQ) to INR1.6b.

We cut the EPS estimates (ex-synergies) by 11.6%/0.5% for CY13E/

CY14E to INR45.5 and INR64.3 respectively to factor for weaker

realizations in volume and higher cost.

The stock trades at 17.4x CY14E EPS, 8.7x EV/EBITDA and USD85/ton.

Maintain Buy with a target price of INR1,297 (CY14E USD101/ton).


Volume growth recovery and outlook.

Cement pricing outlook and sustainability, considering recent

downtrend in November and December.

Progress in ongoing capex for Jamul expansion of 5mt.

Update of synergies and other guided cost saving measures.


Sa les 111.3 109.9 122.6 140.4

EBITDA 19.7 13.5 18.5 23.6

NP 12.9 8.6 12.1 15.7

Adj. EPS (INR) 68.7 45.7 64.3 83.6

EPS Gr. (%) 14.1 -33.5 40.8 30.0

BV/Sh (INR) 392.9 406.9 430.5 467.6

RoE (%) 17.7 11.4 15.4 18.6

RoCE (%) 23.5 15.2 20.6 24.8

Payout (%) 61.8 73.1 63.3 55.6

Valuations

P/E (x) 16.3 24.6 17.4 13.4

P/BV (x) 2.9 2.8 2.6 2.4

EV/EBITDA (x) 8.9 12.8 8.7 7.4

EV/Ton (USD) 93 91 85 82

Bloomberg ACC IN


M. Cap. (INR b)/(USD b) 211 / 3

52-Week Range (INR) 1,453 / 912

1,6,12 Rel Perf. (%) 1 / -19 / -30

C–32January 2014




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

Sales Volume (m ton)* 6.18 5.63 4.79 5.39 5.96 5.46 4.89 5.36 21.99 21.66

YoY Change (%) 9.6 6.5 -0.4 -5.6 -3.6 -3.1 2.0 -0.6 2.5 -1.5

Realization (INR/ton) 4,257 4,556 4,521 4,293 4,271 4,297 4,103 4,131 4,400 4,205

YoY Change (%) 8.5 10.7 20.3 5.2 0.3 -5.7 -9.2 -3.8 11.0 -4.4

QoQ Change (%) 4.4 7.0 -0.8 -5.0 -0.5 0.6 -4.5 0.7

Net Sales 26,315 25,660 21,645 23,133 25,448 23,457 20,049 22,120 96,749 91,075

YoY Change (%) 18.9 17.9 19.8 -0.7 -3.3 -8.6 -7.4 -4.4 13.8 46.4

EBITDA 7,470 7,223 5,673 4,282 5,118 4,920 2,554 2,474 24,675 15,067

Margins (%) 28.4 28.2 26.2 18.5 20.1 21.0 12.7 11.2 25.5 16.5

Depreciation 1,209 1,215 1,373 1,576 1,204 1,223 1,246 1,261 5,373 4,934

Interest 168 180 166 243 132 171 178 168 757 649

Other Income 1,122 908 939 1,100 1,339 1,051 940 1,270 4,042 4,600


Extraordinary Inc/(Exp) -2,791 0 -499 -279 1,741 0 481 0 -3,570 2,223

PBT after EO Exp/(Inc) 4,424 6,736 4,575 3,284 6,862 4,578 2,551 2,315 19,018 16,306

Tax 1,301 2,047 1,535 1,164 1,983 1,336 891 682 6,048 4,892

Rate (%) 29.4 30.4 33.6 35.5 28.9 29.2 34.9 29.5 31.8 30.0

Reported Profit 3,122 4,689 3,040 2,120 4,879 3,242 1,660 1,633 12,971 11,414

Adj PAT 5,075 4,689 3,371 2,300 3,641 3,242 1,346 1,633 15,435 9,858

YoY Change (%) 24.5 34.9 96.6 -28.8 -28.3 -30.9 -60.1 -29.0 23.0 -36.1

E: MOSL Estimates

Ambuja CementsCMP: INR185 Neutral

Dispatches in 4QCY13E are estimated to de-grow 0.6% YoY (+10% QoQ)

to 5.36mt. Average realizations are expected to decline by 0.7% QoQ

(-3.8% YoY) to INR4,131/ton.

EBITDA margins are expected to decline by 7.3pp YoY (-1.5pp QoQ) to

11.2%, impacted by lower realizations, cost push and no seasonal

benefits from operating leverage. EBITDA/ton is estimated at ~INR462/

ton (-INR61/ton QoQ and -INR333/ton YoY).

PAT is estimated to decline 29% YoY (+21% QoQ) to INR1.6b.

We cut the EPS estimates (ex-synergies) by 11.3%/6.4% for CY13E/

CY14E to INR6.4 and INR8.1 respectively to factor the weaker

realizations volume and higher cost.

The stock trades at 22.9x CY14E EPS, 13.2x EV/EBITDA and USD132/ton.

Maintain Neutral with a target price of INR185 (CY14E USD126/ton).





Progress in ongoing mining land acquisition and capex in Nagaur

(Rajasthan) plant of 4.5mt.


Sa les 96.7 91.1 101.3 115.6

EBITDA 24.7 15.1 18.4 22.5

NP 15.4 9.9 12.4 15.7

Adj. EPS (INR) 10.0 6.4 8.1 10.2

EPS Gr. (%) 22.4 -36.1 26.2 26.2

BV/Sh. (INR) 56.9 59.7 62.5 66.9

RoE (%) 18.3 11.0 13.2 15.7

RoCE (%) 27.6 16.3 19.2 22.7

Payout (%) 49.8 62.9 64.9 57.2

Valuations

P/E (x) 18.4 28.9 22.9 18.1

P/BV (x) 3.2 3.1 3.0 2.8

EV/EBITDA (x) 9.8 16.2 13.2 10.3

EV/Ton (USD) 139 137 132 127

Bloomberg ACEM IN


M. Cap. (INR b)/(USD b) 285 / 5


1,6,12 Rel Perf. (%) -1 / -10 / -17

C–33January 2014





Cement Sales (m ton) 1.63 1.58 1.55 1.71 1.87 1.85 1.86 1.92 6.47 7.50

YoY Change (%) 7.1 11.7 11.9 4.6 14.8 17.3 20.0 12.3 8.5 16.0

Cement Realization 4,021 3,934 3,784 3,581 3,864 3,541 3,591 3,885 3,827 3,722

YoY Change (%) 17.8 25.2 8.1 -0.9 -3.9 -10.0 -5.1 8.5 12.0 -2.7

QoQ Change (%) 11.3 -2.2 -3.8 -5.4 7.9 -8.3 1.4 8.2

Net Sales 6,580 6,274 6,126 6,658 7,720 7,107 7,218 7,983 25,638 30,028

YoY Change (%) 18.1 24.2 14.7 2.4 17.3 13.3 17.8 19.9 14.1 17.1

EBITDA 1,258 1,102 514 663 668 585 516 1,284 3,536 3,054

Margins (%) 19.1 17.6 8.4 10.0 8.7 8.2 7.2 16.1 13.8 10.2

Depreciation 235 252 285 272 302 311 315 334 1,044 1,263

Interest 237 141 171 99 207 249 255 298 649 1,009

Other Income 346 347 270 701 367 422 450 515 1,663 1,755

Profit before Tax 1,132 1,056 328 992 525 448 396 1,167 3,507 2,537

Tax 284 254 6 265 66 32 40 116 809 254

Rate (%) 25.1 24.0 1.7 26.8 12.5 7.1 10.0 10.0 23.1 10.0

PAT 847 802 322 726 460 416 357 1,051 2,698 2,283

Margins (%) 12.9 12.8 5.3 10.9 6.0 5.9 4.9 13.2 10.5 7.6

YoY Change (%) -24.3 206.8 -26.3 26.4 -45.7 -48.2 10.7 44.7 12.8 -15.4

E: MOSL Estimates

Birla CorporationCMP: INR259 Buy

3QFY14E volumes are estimated to grow 20% YoY (+0.6% QoQ) to 1.86mt

on a low base of last year when the mining ban was implied. Average

realizations are expected to decline by 5.1% YoY (+1.4% QoQ) to

INR3,591/ton.

EBITDA margins are expected to decline by 1.2pp YoY (1pp QoQ) to

7.2%, impacted by higher cost. EBITDA/ton (including non-cement

business) is estimated to decline by ~INR39/ton QoQ (-111/ton YoY)

to INR277/ton.

PAT estimated to grow 11% YoY (-14% QoQ) to INR357m.

We cut the FY14E/15E EPS estimates by 13%/unchanged to factor better

volume but lower realizations and cost push.

The stock trades at 4.8x FY16E EPS, 2.3x EV/EBITDA and USD21/ton.

Maintain Buy with a target price of INR317 (4x FY15E EV/EBITDA).





Status of mining ban at Rajasthan plant.


Sa les 25.6 30.0 33.7 37.7

EBITDA 3.5 3.1 4.6 6.0

NP 2.7 2.3 3.3 4.1

Adj. EPS (INR) 35.0 29.6 42.8 53.6

EPS Gr. (%) 12.8 -15.4 44.5 25.2

BV/Sh. (INR) 318.2 338.4 370.8 412.8

RoE (%) 11.0 8.8 11.6 13.0

RoCE (%) 10.7 8.0 11.8 13.5

Payout (%) 24.9 31.6 24.4 21.7

Valuations

P/E (x) 7.4 8.7 6.0 4.8

P/BV (x) 0.8 0.8 0.7 0.6

EV/EBITDA (x) 4.1 4.8 3.0 2.3

EV/Ton (USD) 25 26 25 21

Bloomberg BCORP IN




1,6,12 Rel Perf. (%) 3 / 7 / -22

C–34January 2014





VSF Volume (ton) 77,013 85,312 78,579 95,161 77,518 93,025 90,366 99,590 336,065 360,499

YoY Change (%) 40.4 8.0 0.5 0.3 0.7 9.0 15.0 4.7 9.5 7.3

VSF Realization (INR/ton) 128,024 126,656 121,668 119,150 116,501 121,590 119,590 119,538 123,678 119,428

YoY Change (%) -16.0 1.6 -5.3 -1.8 -9.0 -4.0 -1.7 0.3 -4.5 -3.4

QoQ Change (%) 5.5 -1.1 -3.9 -2.1 -2.2 4.4 -1.6 0.0

Net Sales 12,390 13,453 12,157 13,765 11,489 14,055 13,194 13,266 51,814 52,005

YoY Change (%) 21.0 10.5 -2.2 -1.1 -7.3 4.5 8.5 -3.6 6.3 0.4

EBITDA 2,953 2,898 2,154 2,141 2,025 2,613 2,253 2,274 10,145 9,165

Margins (%) 23.8 21.5 17.7 15.6 17.6 18.6 17.1 17.1 19.6 17.6

Depreciation 360 386 395 451 484 530 545 633 1,592 2,192

Interest 61 78 107 145 78 95 100 148 391 421

Other Income 844 2,106 951 1,181 958 2,213 1,050 1,280 5,082 5,500

PBT before EO Items 3,376 4,540 2,603 2,726 2,420 4,201 2,658 2,772 13,245 12,052

Extraordinary Inc/(Exp) 0 0 0 2,044 8 184 0 0 2,044 192

PBT after EO Items 3,376 4,540 2,603 4,770 2,429 4,385 2,658 2,772 15,289 12,243

Tax 647 712 623 1,046 167 250 186 193 3,029 796

Rate (%) 19.2 15.7 24.0 21.9 6.9 5.7 7.0 7.0 19.8 6.5

Reported PAT 2,729 3,827 1,980 3,724 2,261 4,135 2,472 2,579 12,260 11,448

Adj. PAT 2,729 3,827 1,980 2,128 2,254 3,962 2,472 2,579 10,621 11,268

YoY Change (%) -13.1 11.0 -27.9 -12.6 -17.4 3.5 24.9 21.2 -9.8 6.1

E: MOSL Estimates

Grasim IndustriesCMP: INR2,716 Buy

VSF volumes are estimated to grow 15% YoY (-2.9% QoQ) to 90,366

tons, impacted by uncertain global economic outlook. VSF realizations

are estimated to decline by ~INR2/kg QoQ, YoY INR119.6/kg.

This is due to price increase taken in VSF segment August -13, as import

parity price has gone up in line with rupee depreciation. We are

assuming price/kg of INR119/121 for FY14E/15E.

Standalone EBITDA margins are estimated to decline by 150bp QoQ

(-0.6pp YoY) to 17.1% YoY, due to raising pulp price and currency.

EBITDA is estimated to grow by 4.6% YoY (-13.8% QoQ) to INR2.3b,

translating into PAT of INR2.5b - growth of 25% YoY (-38% QoQ).

Cutting FY14E/15E EPS by 12%/7% to factor the higher cost push.

The stock trades at 8.8x FY15E consolidated EPS, 5.3x FY15E EV/EBITDA

and USD72/ton. Maintain Buy with a target price of INR3,557 (FY15E-

based SOTP).


Outlook on VSF business and strategy to utilize upcoming capacities

(~47% capacity growth).

Cement business outlook on demand and pricing and status of

capacity addition.


Sa les 276.4 267.6 303.8 344.2

EBITDA 56.6 47.0 59.1 71.5

Adj. PAT 36.7 30.5 37.0 43.9

Adj. EPS (INR) 291.3 260.0 309.2 345.3

EPS Gr. (%) -3.6 -10.7 18.9 11.7

BV/Sh. (INR) 2,142 2,372 2,650 2,963

RoE (%) 13.6 11.0 11.7 11.7

RoCE (%) 18.5 14.4 16.3 18.4

Payout (%) 9.0 11.2 10.3 9.3

Valuations

P/E (x) 9.3 10.4 8.8 7.9

P/BV (x) 1.3 1.1 1.0 0.9

EV/EBITDA (x) 6.1 6.7 5.3 3.8

EV/Ton (USD) 101 80 72 75

Bloomberg GRASIM IN


M. Cap. (INR b)/(USD b) 249 / 4

52-Week Range (INR) 3,242 / 2,121

1,6,12 Rel Perf. (%) 2 / -14 / -23

C–35January 2014





Sales Dispatches (m ton) 2.38 2.51 2.42 2.78 2.65 2.44 2.38 2.75 10.06 10.22

YoY Change (%) 2.9 3.5 10.8 6.7 11.3 -2.9 -1.7 -0.9 5.6 1.6

Realization (INR/ton) 4,464 4,355 4,364 4,221 4,188 4,116 4,166 4,467 4,360 4,241

YoY Change (%) 7.6 3.1 2.9 -0.6 -6.2 -5.5 -4.5 5.8 3.4 -2.7

QoQ Change (%) 5.1 -2.4 0.2 -3.3 -0.8 -1.7 1.2 7.2

Net Sales 12,014 11,227 10,824 11,906 12,384 10,859 10,169 12,460 45,970 45,872

YoY Change (%) 13.7 3.1 15.0 6.7 3.1 -3.3 -6.0 4.7 9.4 -0.2

Total Expenditure 9,237 9,176 8,897 10,228 10,473 9,584 8,971 10,631 37,537 39,659

EBITDA 2,777 2,051 1,927 1,679 1,910 1,276 1,198 1,829 8,433 6,213

Margins (%) 23.1 18.3 17.8 14.1 15.4 11.7 11.8 14.7 18.3 13.5

Depreciation 692 699 708 720 680 682 690 709 2,818 2,760

Interest 949 667 822 638 999 988 980 980 3,078 3,946

Other Income 37 32 34 84 25 80 50 55 186 210

PBT before EO expense 1,173 717 431 404 257 -314 -422 196 2,724 -283

PBT 973 717 431 404 257 -314 -422 196 2,524 -283

Tax 353 226 169 141 89 -89 -137 75 888 (62)

Rate (%) 36.2 31.5 39.3 34.8 34.6 28.3 32.5 38.2 35.2 22.0

Reported PAT 621 491 261 263 168 -225 -285 121 1,636 -221

Adj PAT 748 491 261 263 168 -225 -285 121 1,765 -221

YoY Change (%) -26.7 -29.6 -53.6 -59.4 -77.5 -145.9 -209.0 -54.0 -40.5 -112.5

Margins (%) 6.2 4.4 2.4 2.2 1.4 -2.1 -2.8 1.0 3.8 -0.5

E: MOSL Estimates

India CementsCMP: INR61 Neutral

India Cement's volumes are expected to de-grow by 1.7% YoY (-3%

QoQ) to 2.38mt. Weaker pricing environment over 2H of 3QFY14 to

result in -4.5% YoY (+1.2% QoQ) change in realizations to INR4,166/

ton. We estimate revenue of ~INR70m from IPL (v/s INR90m in 3QFY13).

EBITDA is estimated at INR1.2b (-38% YoY and -6% QoQ) and EBITDA

margin to improve by 0.1pp QoQ (-6pp YoY) to 11.8%, translating into

a net loss of INR285m.

Pure Cement's EBITDA/ton is estimated to increase by ~IN63/ton QoQ

(-319 YoY) to INR504/ton.

We cut the FY14E EPS estimates to INR0.8, v/s INR1.9 earlier, and by

24% in FY15E to INR3.8, led by lower volume, realizations growth and

higher push in energy cost.

Valuations are at 15.9x FY15E EPS, 5.8x FY15E EBITDA and USD53/ton.

Maintain Neutral with a target price of INR56 (6x FY15E EV/EBITDA).


Demand and pricing outlook, especially in South India.

Expected timeline and potential cost savings from captive coal block

in Indonesia and AP power plant.

Roadmap for increase in stake in Trinetra (Rajasthan plant).

Timeline and capex plan over TN expansion of 2.6mt.


Sa les 46.0 45.9 51.7 58.9

EBITDA 8.4 6.2 7.9 9.5

NP 1.8 -0.2 1.1 2.2

Adj. EPS (INR) 5.8 -0.8 3.8 7.8

EPS Gr. (%) -31.3 -113.6 -586.3 103.6

BV/Sh (INR) 133.1 131.2 132.5 136.1

RoE (%) 4.3 -0.5 2.7 5.3

RoCE (%) 8.4 5.1 7.4 9.5

Payout (%) 43.6 -162.8 64.7 49.4

Valuations

P/E (x) 10.5 -77.3 15.9 7.8

P/BV (x) 0.5 0.5 0.5 0.4

EV/EBITDA (x) 5.1 7.7 5.8 4.5

EV/Ton (USD) 52 55 53 50

Bloomberg ICEM IN




1,6,12 Rel Perf. (%) 1 / -3 / -40

C–36January 2014


Nalin Bhatt ([email protected])/Aditya Bahety ([email protected])




Sales 29,636 29,825 33,984 38,642 33,149 31,761 34,832 39,971 132,087 139,713

Change (%) -6.9 -4.8 2.8 -4.9 11.9 6.5 2.5 3.4 5.8

EBITDA 7,713 7,711 7,625 8,507 7,847 7,904 7,152 9,006 31,755 31,909

Change (%) -0.2 3.1 -6.5 -16.6 1.7 2.5 -6.2 5.9 0.5

As of % Sales 26.0 25.9 22.4 22.0 23.7 24.9 20.5 22.5 24.0 22.8

Depreciation 1,763 1,778 1,813 1,908 1,943 1,962 1,950 1,993 7,261 7,848

Interest 4,653 4,544 5,327 5,490 5,900 6,542 6,450 6,421 20,114 25,312

Other Income 731 448 1,176 679 371 1,245 1,200 1,260 3,034 4,076

Extra-ordinary income 9 33 8 43 93 3,952

PBT 2,037 1,870 1,670 1,831 4,327 656 -48 1,852 7,507 6,776

Tax 649 590 561 596 982 -206 -15 891 2,495 1,652

Effective Tax Rate (%) 31.8 31.6 33.6 32.5 22.7 -31.4 31.0 48.1 33.2 24.4

Reported PAT 1,388 1,280 1,109 1,235 3,345 862 -33 961 5,013 5,124

Adj PAT 1,379 1,280 1,101 1,192 207 862 -33 961 4,920 1,986

Change (%) 28.7 -0.5 -45.9 -57.3 -85.0 -32.7 -103.0 -19.4 -59.6

Cement Business

Volumes (m ton) 3.59 3.25 3.71 3.95 3.61 3.39 3.63 4.37 14.50 15.00

Revenues (INR m) 15,629 13,719 14,747 16,363 15,393 13,633 14,732 19,071 60,459 62,830

Realization (INR/t) 4,354 4,221 3,971 4,147 4,264 4,021 4,061 4,361 4,170 4,189

E: MOSL Estimates, *Change (% YoY) is not comparable due to Jaypee Cement de-merger

Jaiprakash AssociatesCMP: INR54 Buy

We expect JPA to post revenue of INR34.8b, EBITDA of INR7.2b and net

loss of INR33m in 3QFY14.

For the Cement business, we have assumed realization of INR4,061/

ton v/s INR4,021/ton in 2QFY14. We estimate volumes at 3.63m ton,

down 2% YoY.

EPC revenue would grow 11% YoY to INR14.1b and EBIT margin would

be flat YoY at 23%.

JPA sold its 4.8m ton Gujarat-based capacity to Ultratech for INR38b.

The consideration involves takeover of INR36.5b debt in Jaypee

Cement (100% subsidiary of JPA) and INR1.5b equity issuance.

Media articles indicate that JPA is also considering sale of its Himachal-

based cement capacity and hydropower assets in Jaiprakash Power.

We expect JPA to post standalone net profit of INR2b in FY14 (down

60%) and INR5.3b in FY15 (up 165%). The stock trades at 22.7x FY15E

EPS.


Cement realizations and cost.

Update on further disinvestment.

EPC division profitability and visibility on revenues/order book.

Ramp-up in Real Estate, revenue recognition.


Sa les 133.6 139.7 156.6 166.9

EBITDA 33.3 31.9 34.7 36.6

NP 4.9 2.0 5.3 8.1

Adj. EPS (INR) 2.3 0.9 2.4 3.6

EPS Gr. (%) -52.9 -60.4 165.2 53.2

BV/Sh. (INR) 60.1 62.2 64.0 66.8

RoE (%) 3.9 1.5 3.8 5.6

RoCE (%) 7.5 7.1 7.8 8.4

Payout (%) 22.8 8.8 22.8 22.8

Valuations

P/E (x) 23.9 60.3 22.7 14.8

P/BV (x) 0.9 0.9 0.8 0.8

EV/ EBITDA (x) 10.5 10.0 9.1 7.9

Div. Yield (%) 0.8 0.3 0.9 1.3

Bloomberg JPA IN


M. Cap. (INR b)/(USD b) 120 / 2


1,6,12 Rel Perf. (%) 13 / -7 / -54

C–37January 2014


Shree CementCMP: INR4,386 Buy

We expect cement volumes to grow 4.3% YoY (-4.2% QoQ) to 3.13mt

(including clinker) and realizations are expected to remain flat QoQ (-

10.5% YoY) to INR3,334/ton.

Merchant power sale is estimated at 790m units (v/s 786m units YoY

and 417m QoQ) at ~INR3.9/unit (v/s INR3.85 QoQ and INR3.97 YoY).

Weak realizations and QoQ increase in cost trend led to cement

business profitability at INR578/ton (-INR92/ton QoQ and -INR440/

ton QoQ).

Power EBITDA contribution estimated at INR632m (v/s INR670m YoY/

INR310m QoQ). Adjusted PAT seen at INR1.5b (v/s INR1.7b QoQ v/s

INR2.3b YoY).

We cut the FY14E/15E EPS estimates by 13%/4.3% to factor the lower

volume, lower realizations and cost push.

Valuations are at 14.5x FY15E EPS, 8.8x FY15E EBITDA and USD84/ton.

Maintain Buy with a target price of INR4,700 (FY15E EV/ton of USD100).


Volume and pricing outlook for North India.

Pet coke price trend and update on any forward agreements for

merchant power.

Update on planned expansion and progress in capex plans.

Financials & Valuation (INR b)Y/E June 2013 2014E 2015E 2016E

Sa les 55.7 57.1 65.7 75.8

EBITDA 15.4 12.8 16.2 19.7

NP 10.0 7.7 8.0 9.9

Adj EPS (INR) 314.9 272.2 302.0 383.3

EPS Growth (%) 14.8 -13.6 11.0 26.9

BV/Share (Rs) 1,103 1,296 1,496 1,744

RoE (%) 30.6 18.4 16.5 17.5

RoCE (%) 28.1 18.9 19.7 21.3

Payout (%) 8.1 12.7 13.1 12.3

Valuations

P/E (x) 13.9 16.1 14.5 11.4

P/BV (x) 4.0 3.4 2.9 2.5

EV/EBITDA (x) 9.0 10.8 8.8 6.5

EV/Ton (USD) 110 91 84 80

Bloomberg SRCM IN


M. Cap. (INR b)/(USD b) 153 / 2

52-Week Range (INR) 5,210 / 3,413

1,6,12 Rel Perf. (%) -3 / -14 / -13




Sales Dispat. (m ton) 3.04 3.00 3.26 3.17 3.26 3.13 3.43 3.33 12.46 13.14

YoY Change (%) 22.4 5.2 -6.2 -6.0 7.2 4.3 5.3 5.0 -16.2 5.5

Realization (INR/Ton) 3,815 3,724 3,498 3,578 3,334 3,334 3,634 3,783 3,628 3,526

YoY Change (%) 12.2 4.1 -1.7 -4.6 -12.6 -10.5 3.9 5.7 3.4 -2.8

QoQ Change (%) 1.7 -2.4 -6.1 2.3 -6.8 0.0 9.0 4.1

Net Sales 12,964 14,281 14,281 14,414 12,475 13,499 15,330 15,767 55,671 57,072

YoY Change (%) 52.2 19.4 0.3 0.4 -3.8 -5.5 7.4 9.4 -4.0 2.5

EBITDA 3,902 3,717 4,054 3,800 2,494 2,437 3,839 4,039 15,378 12,761

Margins (%) 30.1 26.0 28.4 26.4 20.0 18.1 25.0 25.6 27.6 22.4

Depreciation 942 818 1,265 1,332 1,139 1,200 1,500 1,851 4,356 5,690

Interest 543 563 447 378 312 320 450 461 1,931 1,543

Other Income 328 323 576 913 740 750 800 710 2,114 3,000

PBT before EO Exp 2,745 2,659 2,918 3,003 1,783 1,667 2,689 2,437 11,205 8,528

Extra-Ord Expense 10 120 1 0 11 0 0 -11 11 0

PBT 2,736 2,539 2,917 3,002 1,773 1,667 2,689 2,447 11,194 8,528

Tax 454 365 176 159 50 196 316 291 1,155 853

Rate (%) 16.6 14.4 6.0 5.3 2.8 11.8 11.8 11.9 10.3 10.0

Reported PAT 2,281 2,174 2,741 2,843 1,722 1,471 2,373 2,157 10,040 7,675

Adj PAT 2,289 2,277 2,741 2,843 1,732 1,471 2,373 2,148 10,049 7,675

YoY Change (%) 438.0 284.6 85.2 -19.1 -24.3 -35.4 -13.4 -24.5 59.6 -23.6

E: MOSL Estimates

C–38January 2014





Sales (m ton) 10.33 9.29 9.94 11.13 10.09 9.23 9.73 11.67 40.7 40.7

YoY Change (%) 4.8 0.7 -1.7 -3.6 -2.3 -0.6 -2.1 4.9 -0.2 0.2

Grey Cement Realn.(INR/ton) * 4,121 4,219 4,050 4,011 4,120 3,973 3,973 4,273 4,102 4,096

YoY Change (%) 9.9 20.4 7.8 3.0 0.0 -5.8 -1.9 6.5 9.8 -0.1

QoQ Change (%) 5.8 2.4 -4.0 -1.0 2.7 -3.6 0.0 7.6

Net Sales 50,719 46,994 48,574 53,892 49,575 45,021 47,701 60,128 200,179 202,425

YoY Change (%) 16.6 20.3 6.4 1.0 -2.3 -4.2 -1.8 11.6 10.2 1.1

EBITDA 12,897 10,052 10,243 11,993 10,491 6,597 7,004 11,788 45,185 35,880

Margins (%) 25.4 21.4 21.1 22.3 21.2 14.7 14.7 19.6 22.6 17.7

Depreciation 2,281 2,325 2,388 2,460 2,521 2,573 2,650 2,750 9,454 10,493

Interest 498 600 521 478 660 888 925 950 2,097 3,423

Other Income 869 706 1,212 1,833 1,882 574 900 1,144 4,620 4,500

PBT after EO Expense 10,987 7,834 8,545 10,888 9,192 3,711 4,329 9,232 38,254 26,464

Tax 3,203 2,334 2,537 3,626 2,466 1,070 1,186 2,529 11,700 7,251

Rate (%) 29.2 29.8 29.7 33.3 26.8 28.8 27.4 27.4 30.6 27.4

Reported PAT 7,784 5,500 6,008 7,262 6,726 2,641 3,143 6,703 26,554 19,213

Adj PAT 7,784 5,500 6,008 7,262 6,726 2,641 3,143 6,703 26,554 19,213

YoY Change (%) 14.0 97.2 5.5 -15.8 -13.6 -52.0 -47.7 -7.7 10.7 -27.6

E: MOSL Estimates; * Grey cement realization is our estimate

UltraTech CementCMP: INR1,771 Neutral


Sa les 200.2 202.4 231.9 265.6

EBITDA 45.2 35.9 45.8 55.2

NP 26.6 19.2 25.7 30.9

Adj EPS (INR) 96.8 70.1 93.6 112.6

EPS Growth (%) 10.4 -27.6 33.6 20.3

BV/Share (INR) 555.7 614.0 693.7 788.9

RoE (%) 18.9 12.0 14.3 15.2

RoCE (%) 21.4 14.1 16.6 18.5

Payout (%) 10.9 16.7 14.9 15.5

Valuations

P/E (x) 18.3 25.3 18.9 15.7

P/BV (x) 3.2 2.9 2.6 2.2

EV/EBITDA (x) 10.0 13.2 10.5 8.7

EV/Ton (USD) 142 126 122 122

Bloomberg UTCEM IN


M. Cap. (INR b)/(USD b) 485 / 8

52-Week Range (INR) 2,066 / 1,405

1,6,12 Rel Perf. (%) -9 / -18 / -20

Cement volumes are estimated to grow -2.1% YoY (+5.4% QoQ) to

9.73mt. Realizations are estimated to decline by 1.9% YoY (0% YoY) to

INR3,973/ton. Its supplementary business of white cement and RMC

are estimated to grow 11% and 0% YoY (respectively) in volume and

2.5% YoY in realizations.

Flattish realizations coupled with sequential cost push would result

in impact on EBITDA/ton of INR709/ton (+INR5/ton QoQ, -INR307/ton

YoY). EBITDA margin would decline 7.4pp QoQ (0pp YoY) to 14.7%.

EBITDA is estimated to de-grow 1.8% YoY (+6% QoQ) to INR7b,

translating into PAT de-growth of 48% YoY (+19% QoQ) to INR3.1b.

We cut the EPS estimates for FY14E/15E by 19%/9% to INR70/INR93.6

respectively.

The stock trades at 18.9x FY15E EPS, 10.5x FY15E EV/EBITDA and

USD122/ton. Maintain Neutral with a target price of INR1,878 (FY15E

EV/ton of USD130).





Progress and timeline over JPA deal.

Update on financial performance of Star Cement, UAE.

C–39January 2014

December 2013 Results Preview | Sector: Consumer





Asian Paints 485 Neutral 35,553 17.1 15.3 5,724 15.7 19.2 3,638 8.5 11.3

Britannia 915 Buy 16,277 12.0 2.1 1,351 72.9 -1.9 927 62.7 -3.2

Colgate 1,305 Neutral 8,763 14.9 -2.2 1,650 10.0 12.7 1,218 9.7 11.2

Dabur 172 Buy 18,803 15.3 7.5 3,196 18.7 -1.3 2,472 17.1 -1.1

Godrej Consumer 847 Neutral 20,634 22.0 5.4 3,570 27.2 20.8 2,353 36.6 20.7

GSK Consumer 4,444 Neutral 8,311 17.2 -14.5 604 18.6 -59.7 775 11.2 -47.3

Hind. Unilever 569 Se l l 72,870 9.5 5.7 12,024 10.4 10.8 9,388 7.5 6.3

ITC 322 Buy 84,833 10.0 7.9 32,661 14.3 8.2 23,323 13.7 11.2

Marico 221 Buy 11,110 -4.6 -0.4 1,611 -0.6 -2.6 1,138 6.5 7.5

Nestle 5,338 Neutral 23,980 11.4 2.1 5,467 10.3 11.1 3,181 8.2 8.9

Pidilite Inds. 290 Neutral 9,758 16.5 -1.6 1,756 16.0 -4.9 1,211 16.8 -3.6

Radico Khaitan 144 Buy 3,782 16.0 7.4 613 22.4 8.6 259 40.9 -7.6

United Spirits 2,537 Neutral 23,479 8.0 15.2 2,465 0.2 20.1 957 18.8 1.5


Expect 12% sales growth, 13.6% PAT growth for our Consumer coverage: We expect

our Consumer coverage universe to post 12% revenue growth and 13.6% PAT growth

in 3QFY14. Sales growth, though higher than the 10.3% in 2QFY14, would be towards

the lower end of the recent range. EBITDA is likely to grow 14.2%, with 50bp margin

expansion, led by ITC, Godrej Consumer Products (GCPL), Britannia (BRIT) and Marico

(MRCO). We expect ITC to post 10% sales growth (~2% cigarette volume decline) and

13.7% PAT growth. HUVR’s sales are likely to grow 10% (volume growth of ~5%), with

flattish EBITDA margin.

Rural-urban growth gap narrowing; delayed winter to impact Personal Care categories:

Our channel checks and management interactions indicate further moderation in

market growth, especially in the Foods and Personal Care categories. The key theme

for 3QFY14 could be narrowing of the growth rate gap between rural and urban

markets. Our interactions indicate that growth in the rural markets, which was holding

on well so far, has also begun moderating (still higher than urban growth though).

Discretionary categories like Paints and Adhesives continue to witness good

momentum and should see double-digit volume growth. Delayed arrival of winter

could impact Skin Care (HUVR, Dabur, ITC, Emami). Overall, we expect volume growth

for staples to hover around 2QFY14 levels.

Mixed input cost dynamics; selective pricing actions taken to pass on RM inflation:

The input costs scenario was mixed, with inflation in copra, LAB, palm oil and titanium-

dioxide (TiO2) prices, and correction in select edible oil, sugar and wheat prices. Also,

lag impact of INR depreciation will be reflected in 3Q margins. We note selective

pricing actions by HUVR, Marico, ITC and Dabur to pass on the impact of raw material

(RM) inflation. HUVR has withdrawn its promotions in Soaps & Detergents. We expect

gross margin expansion for HUVR, Dabur and GCPL. We expect Consumer companies

to continue their high advertisement and promotion spends to support decelerating

volumes.

Gautam Duggad ([email protected])

ConsumerCompanies Covered

Asian Paints

Britannia Industries

Colgate Palmolive

Dabur India

GSK Consumer

Godrej Consumer Products

Hindustan Unilever

ITC

Marico

Nestle India

Pidilite Industries

Radico Khaitan

United Spirits

C–40January 2014


3QFY14 volume growth expectations

Quarter Ending Jun-11 Sep-11 Dec-11 Mar-12 Jun-12 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13

Asian Paints 15.0 15.0 12.0 18.0 -2.0 5.0 13.0 3.0 10.0 10.0 10.0

Colgate (Toothpaste) 14.0 15.0 15.0 14.0 13.0 11.0 8.0 11.0 11.0 10.0 9.0

Dabur 8.6 10.0 10.8 12.4 12.0 10.5 9.5 12.0 9.0 8.0 9.0

Godrej Consumer

Soaps 9.0 19.0 20.0 17.0 22.0 6.0 2.0 4.0 7.0 5.0 3.0

GSK Consumer 14.0 8.0 12.0 7.0 7.4 4.5 6.0 8.0 7.0 7.0 8.0

Hindustan Unilever 8.3 9.8 9.1 10.0 9.0 7.0 5.0 6.3 4.0 5.0 5.0

ITC (cigarette) 8.0 7.5 5.0 5.5 1.5 0.5 1.5 2.5 -1.5 -3.0 -2.0

Marico

Parachute 10.0 10.0 13.0 11.1 18.0 9.0 6.0 5.0 4.0 6.0 4.0

Hair Oil 32.0 26.0 20.0 17.5 25.0 20.0 30.0 24.0 16.0 15.0 15.0

Saffola 15.0 11.0 15.0 3.3 12.0 6.0 4.0 5.0 10.0 10.0 10.0

Radico Khaitan 12.3 9.7 10.5 6.8 8.2 7.8 6.5 7.4 7.6 7.0 7.0

United Spirits 15.4 8.0 0.7 5.1 1.9 -1.0 7.0 3.8 0.2 5.0 4.0


Relative Performance-3m (%)

Relative Performance-1Yr (%)

Widespread moderation in Staples; downside risks to earnings estimates: FMCG

categories have seen widespread moderation across geographies and income

segments. While consensus expectations of better monsoon led kharif harvest

boosting rural consumption are firmly entrenched, we see threat to the same. FMCG

growth rates did not change materially in the drought year (CY09) even with a lag. We

see downside risks to earnings estimates ahead.

Flight to defensive trade has played out; stock performance to be function of earnings

growth: Consumer spending has moderated QoQ due to weak macros and higher food

inflation. Lagged impact of GDP slowdown and weak consumer sentiment is likely to

reflect in FMCG topline growth. The Consumer sector has benefited from the flight to

defensive trade, which resulted in sustained re-rating over the last three years.

However, with fundamentals deteriorating at the margin and valuation premium at

peak, we expect the sector to underperform, going forward. In the last four months

since 1QFY14 results, the BSE FMCG index has underperformed the Sensex by 21%.

Stock returns henceforth will be more a function of earnings growth, in our view. We

see limited possibility, if any, of valuation re-rating. We continue to prefer niche

plays with strong pricing power and greater visibility on volume growth and

profitability. ITC, Britannia and Dabur remain our preferred picks in the sector.

Impact of input price changes

Input Price Trend (Y-o-Y) Unit CMP (INR) 12m change % Impact Companies

LAB Up INR/Kg 132.1 15.5 Negative HUL

Soda Ash Sideways INR/50Kg 1065 -6.6 Positive HUL

Palm Fatty Acid UP US$/MT 721 20.6 Negative HUL, Godrej Consumer

Palm Oil UP MYR/MT 2565 22.1 Negative Britannia, Nestle, HUL, ITC

HDPE Up INR/Kg 112 21.0 Negative All Companies

Sugar Down INR/Qtl 3045 -11.2 Positive Britannia, Nestle, GSK Consumer

Titanium Dioxide Up INR/Kg 255 10.9 Negative Asian Paints

Copra Up INR/Qtl 7350 59.8 Negative Marico


90

96

102

108

114

Sep-

13

Oct

-13

Nov

-13

Dec

-13

Sensex IndexMOSL Consumer Index

94

102

110

118

126

Dec

-12

Ma

r-13

Jun

-13

Sep

-13

Dec

-13

Sensex IndexMOSL Consumer Index

C–41January 2014


PFAD prices up 10% QoQ LAB prices up 16% YoY




Consumer

Asian Paints 485 Neutral 11.6 13.0 16.0 41.8 37.4 30.3 27.9 23.6 19.6 33.3 31.7 32.9

Britannia 915 Buy 19.6 31.2 37.0 46.7 29.3 24.8 18.8 19.8 16.3 37.5 47.8 45.7

Colgate 1,305 Neutral 36.5 37.4 44.5 35.7 34.9 29.3 24.9 25.3 20.3 108.4 90.0 90.7

Dabur 172 Buy 4.4 5.4 6.5 39.1 32.1 26.7 24.0 24.7 20.9 35.1 35.1 34.9

Godrej Consumer 847 Neutral 19.6 23.8 29.4 43.2 35.6 28.8 27.9 24.7 20.5 20.9 22.5 23.8

GSK Consumer 4,444 Neutral 98.3 119.1 139.8 45.2 37.3 31.8 35.3 34.7 27.1 30.5 31.1 30.8

Hind. Unilever 569 Se l l 15.2 16.4 18.0 37.4 34.8 31.6 23.9 26.2 22.9 70.8 61.2 57.6

ITC 322 Buy 9.5 10.9 12.7 33.9 29.7 25.4 21.9 19.8 17.2 36.1 37.5 40.1

Marico 221 Buy 6.0 7.3 8.5 36.8 30.2 25.9 22.8 20.4 16.2 19.6 28.5 25.6

Nestle 5,338 Neutral 114.1 124.9 150.3 46.8 42.8 35.5 24.5 25.0 21.3 71.6 58.5 56.4

Pidilite Inds. 290 Neutral 8.5 9.8 11.9 34.2 29.6 24.4 20.9 19.2 15.9 24.9 24.3 24.7

Radico Khaitan 144 Buy 6.6 8.0 10.6 21.8 18.0 13.7 11.8 11.2 9.0 12.1 13.3 15.6

United Spirits 2,537 Neutral 13.9 29.1 53.3 182.9 87.1 47.6 25.0 36.9 27.2 3.4 5.1 8.7


New launches during 3QFY14

Company Brand Category

HUL Clinic Plus Almond Oil Hair Care

HUL Sunsilk Natural Hair Care

HUL Basmati Rice Staples

Dabur Vatika Hibiscus Hair Oil Hair Oils

Dabur Ratnaprash Health Supplements

Emami Boroplus Facewash Skin Care

Britannia Masala Chaas Dairy


Copra prices up ~70% YoY Sugar prices benign

Source: Companies, MOSL

PFAD prices (INR/MT)

44,335

29,607

37,811

54,321

34,303

40,326

Dec‐1

0

Mar‐1

1

Jun‐

11

Sep‐

11

Dec‐1

1

Mar‐1

2

Jun‐

12

Sep‐

12

Dec‐1

2

Mar‐1

3

Jun‐

13

Sep‐

13

Dec‐1

3

LAB Prices (INR/Kg)

132

138

121

119114116

112

10995

8286859079

Jun‐0

9

Sep

‐09

Dec‐0

9

Ma

r‐10

Jun‐1

0

Sep

‐10

Dec‐1

0

Ma

r‐11

Jun‐1

1

Sep

‐11

Dec‐1

1

Ma

r‐12

Jun‐1

2

Sep

‐12

Dec‐1

2

Ma

r‐13

Jun‐1

3

Sep

‐13

Dec‐1

3

1,500

3,500

5,500

7,500

9,500

Apr‐0

8

Aug

‐08

Dec‐0

8

Apr‐0

9

Aug

‐09

Dec‐0

9

Apr‐1

0

Aug

‐10

Dec‐1

0

Apr‐1

1

Aug

‐11

Dec‐1

1

Apr‐1

2

Aug

‐12

Dec‐1

2

Apr‐1

3

Aug

‐13

Dec‐1

3

Copra price (INR/quinta l )

3,080

3,895

3,008

2,400

2,800

3,200

3,600

4,000

Feb‐

11

May‐1

1

Au

g‐1

1

Nov‐1

1

Jan‐1

2

Apr‐1

2

Jul‐

12

Oct‐1

2

De

c‐12

Mar‐1

3

Jun‐1

3

Sep‐

13

De

c‐13

C–42January 2014





Volume Growth (%) * -2.0 5.0 13.0 2.0 10.0 12.0 10.0 10.0 8.0 8.0

Net Sales 25,373 26,124 30,371 27,137 28,185 30,841 35,553 33,311 109,006 127,890

Change (%) 12.4 16.4 18.7 6.9 11.1 18.1 17.1 22.8 13.6 17.3

Raw Material/PM 14,838 15,714 18,133 15,523 16,138 17,665 20,799 19,211 64,209 73,812

Gross Profit 10,535 10,410 12,238 11,614 12,048 13,176 14,755 14,100 44,796 54,078

Gross Margin (%) 41.5 39.8 40.3 42.8 42.7 42.7 41.5 42.3 41.1 42.3

Operating Expenses 6,156 6,797 7,292 7,878 7,627 8,374 9,031 9,611 28,123 34,642

% of Sales 24.3 26.0 24.0 29.0 27.1 27.2 25.4 28.9 25.8 27.1

EBITDA 4,379 3,613 4,947 3,735 4,421 4,802 5,724 4,489 16,673 19,436

Margin (%) 17.3 13.8 16.3 13.8 15.7 15.6 16.1 13.5 15.3 15.2

Change (%) 12.7 14.0 24.6 -0.5 1.0 32.9 15.7 20.2 12.8 16.6

Interest 109 122 79 58 86 120 140 135 367 576

Depreciation 334 357 366 489 599 603 520 336 1,546 2,058

Other Income 326 421 467 577 503 760 514 398 1,791 2,170

PBT 4,262 3,555 4,969 3,766 4,239 4,839 5,578 4,416 16,552 18,972

Tax 1,273 1,041 1,466 1,178 1,390 1,449 1,785 1,470 4,957 6,062


PAT before Minority 2,989 2,514 3,503 2,589 2,850 3,390 3,793 2,946 11,595 12,910

Minority Interest 106 122 151 78 98 122 155 166 456 501

Adjusted PAT 2,884 2,392 3,352 2,511 2,752 3,268 3,638 2,780 11,139 12,409

Change (%) 9.5 14.6 30.5 -3.2 -4.6 36.7 8.5 10.7 12.7 11.4

E: MOSL Estimates

CMP: INR485 Neutral

We expect Asian Paints to post 17% revenue growth to INR35.6b in

3QFY14, with another quarter of double-digit domestic decorative

paints volume growth.

We estimate 4% pricing growth during the quarter.

Operating margins would be flat at 16.1%, led by gross margin uptick

of 100bp, as the full impact of price hikes taken in 2QFY14 flows

through the P&L.

International business is likely to report mixed performance, with

continued weakness in the Caribbean being offset to an extent by

Middle East and Asia.

We estimate PAT growth at 8.5%, slightly subdued due to higher base

(30.5% growth in 3QFY13).

The stock trades at 30.3x FY15E EPS of INR16. Neutral.


Comments on volume growth trends and demand scenario.

Outlook on raw material scenario.

International business margins.

Update on Sleek integration and near term strategy.


Sa les 109.0 127.9 149.3 173.1

EBITDA 16.7 19.4 23.1 27.0

Adj. PAT 11.1 12.4 15.4 18.1

Adj. EPS (INR) 11.6 13.0 16.0 18.9

EPS Gr. (%) 12.7 11.7 23.4 17.9

BV/Sh.(INR) 34.9 40.8 48.7 57.6

RoE (%) 33.3 31.7 32.9 32.8

RoCE (%) 44.2 43.4 43.5 43.4

Payout (%) 41.6 46.3 43.7 45.1

Valuations

P/E (x) 41.8 37.4 30.3 25.7

P/BV (x) 13.9 11.9 10.0 8.4

EV/EBITDA (x) 27.5 23.5 19.6 16.5

Div. Yield (%) 1.2 1.4 1.7 2.1

Bloomberg APNT IN


M. Cap. (INR b)/(USD b) 465 / 8


1,6,12 Rel Perf. (%) -8 / -5 / 2

Asian Paints

C–43January 2014





Net Sales 12,216 14,028 14,533 14,866 14,034 15,945 16,277 16,996 55,644 63,252

YoY Change (%) 10.8 8.7 16.5 13.5 14.9 13.7 12.0 14.3 12.4 13.7

COGS 7,575 9,042 9,192 9,369 8,374 9,666 10,092 10,362 35,184 38,494

Gross Profit 4,642 4,986 5,341 5,497 5,660 6,278 6,185 6,634 20,459 24,758

Margins (%) 38.0 35.5 36.8 37.0 40.3 39.4 38.0 39.0 36.8 39.1

Other Exp 3,991 4,379 4,559 4,337 4,492 4,902 4,834 5,196 17,255 19,424

% of Sales 32.7 31.2 31.4 29.2 32.0 30.7 29.7 30.6 31.0 30.7

Total Exp 11,566 13,422 13,752 13,706 12,867 14,568 14,926 15,557 52,440 57,918

EBITDA 651 606 782 1,161 1,168 1,377 1,351 1,438 3,204 5,334

Margins (%) 5.3 4.3 5.4 7.8 8.3 8.6 8.3 8.5 5.8 8.4

YoY Growth (%) 37.6 -17.6 -4.2 70.6 79.5 127.0 72.9 23.9 18.5 66.5

Depreciation 130 143 149 149 153 157 164 163 571 637

Interest 95 88 91 104 34 11 24 27 377 96

Other Income 179 266 257 369 267 199 180 161 1,066 808

PBT 605 642 797 1,277 1,249 1,408 1,343 1,410 3,322 5,409

Tax 170 186 228 399 386 451 416 424 983 1,677

Rate (%) 28.1 29.0 28.6 31.2 30.9 32.0 31.0 30.1 29.6 31.0

Adjusted PAT 435 456 570 878 863 957 927 986 2,339 3,732

YoY Change (%) 4.0 -4.8 5.3 65.7 98.6 109.8 62.7 12.2 18.9 59.6

E: MOSL Estimates

CMP: INR915 Buy

We expect Britannia to post sales of INR16.2b, up ~12% YoY. Volume

growth, though on low base, is likely to remain in mid single digits, as

the discretionary Processed Foods category remains under pressure.

Nonetheless, Biscuits are relatively resilient, with QoQ growth

moderating by ~2%.

We estimate 290bp YoY EBITDA margin expansion to 8.3%, driven by

better gross margins and cost savings in overheads.

The raw material environment for Britannia is stable. Its focus on

premiumization coupled with rationalization of regional low margin

SKUs should augur well for near-term operating margins.

Competitive dynamics in Biscuits have remained stable over the last

3-4 quarters.

The stock trades at 24.8x FY15E EPS. Buy.


Volume growth in Biscuits.

Outlook on raw material scenario.

Sustainability of operating margin expansion, the key driver of stock

outperformance in CY13.


Sa les 55.6 63.3 72.7 83.1

EBITDA 3.2 5.3 6.4 7.5

Adj. PAT 2.3 3.7 4.4 5.2

Adj. EPS (INR) 19.6 31.2 37.0 43.9

EPS Gr. (%) 39.3 59.6 18.3 18.7

BV/Sh.(INR) 52.2 65.3 80.8 99.2

RoE (%) 37.5 47.8 45.7 44.2

RoCE (%) 60.4 71.2 64.8 69.1

Payout (%) 52.9 50.0 50.0 50.0

Valuations

P/E (x) 46.7 29.3 24.8 20.9

P/BV (x) 17.5 14.0 11.3 9.2

EV/EBITDA (x) 33.4 19.8 16.3 13.6

Div. Yield (%) 1.1 1.7 2.0 2.4

Bloomberg BRIT IN


M. Cap. (INR b)/(USD b) 109 / 2


1,6,12 Rel Perf. (%) 1 / 27 / 76

Britannia Industries

C–44January 2014





Toothpaste Volume Gr % 11.0 11.0 8.0 11.0 11.0 9.0 10.0 9.0 10.3 10.0

Net Sales 7,361 7,738 7,627 8,116 8,446 8,957 8,763 9,269 30,841 35,435

YoY Change (%) 20.5 17.7 13.9 18.3 14.7 15.8 14.9 14.2 17.5 14.9

COGS 2,997 3,238 3,045 3,222 3,283 3,621 3,505 3,707 12,502 14,116

Gross Profit 4,364 4,499 4,582 4,894 5,164 5,336 5,258 5,562 18,339 21,319

Gross Margin (%) 59.3 58.1 60.1 60.3 61.1 59.6 60.0 60.0 59.5 60.2

Other operating Expenses 2,939 2,928 3,294 3,407 3,662 3,923 3,838 3,902 12,568 15,324

% to sales 39.9 37.8 43.2 42.0 43.4 43.8 43.8 42.1 40.8 43.2

Other operating Income 200 187 211 200 151 50 230 352 797 783

EBITDA 1,625 1,758 1,499 1,687 1,653 1,463 1,650 2,012 6,568 6,778

Margins (%) 21.5 22.2 19.1 20.3 19.2 16.2 18.3 20.9 20.8 18.7

YoY Growth (%) 21.7 28.2 2.4 -0.7 1.7 -16.8 10.0 19.3 13.5 381.4

Depreciation 105 106 113 113 117 117 127 124 437 485

Interest 0 0 0 0 0 0 1 4 0 5

Financial other Income 112 149 117 121 171 130 152 147 499 600

PBT 1,632 1,801 1,504 1,695 1,707 1,477 1,673 2,031 6,630 6,888

Tax 457 350 393 463 409 382 455 558 1,663 1,804

Rate (%) 28.0 19.4 26.1 27.3 24.0 25.8 27.2 27.5 25.1 26.2

Adj PAT 1,174 1,451 1,111 1,232 1,297 1,095 1,218 1,473 4,968 5,084

YoY Change (%) 16.9 34.9 -3.9 -5.8 10.5 -24.5 9.7 19.6 11.3 2.3

E: MOSL Estimates

CMP: INR1,305 Neutral

We expect sales growth of 15% YoY to INR8.76b; Toothpaste volume

growth is estimated at 9%-10%, commendable given the widespread

moderation in other FMCG categories.

We expect 80bp contraction in EBITDA margin to 18.3% on account of

higher ad spends to defend market share post P&G’s launch. We note

that P&G’s launch has not done any harm to Colgate’s share, as yet.

However, we expect P&G to take counter measures in early CY14.

Colgate’s latest innovation, Visible White, has received good response,

especially in modern trade, according to the management.

Despite expensive valuations on a depressed earnings base, stock

volatility post P&G’s entry in the Toothpaste category provides a good

long-term entry opportunity, in our view.

The stock trades at 29.4x FY15E EPS. Neutral.


Volume growth in toothpaste.

Ad spends and competitive intensity in Toothpastes.


Sa les 30.8 35.4 41.0 47.1

EBITDA 6.6 6.8 8.4 10.0

Adj. PAT 5.0 5.1 6.0 7.1

Adj. EPS (INR) 36.5 37.4 44.5 51.9

EPS Gr. (%) 11.3 2.3 18.9 16.8

BV/Sh.(INR) 38.1 45.0 53.1 62.7

RoE (%) 108.4 90.0 90.7 89.7

RoCE (%) 108.5 90.1 90.7 89.7

Payout (%) 70.0 70.0 70.0 70.0

Valuations

P/E (x) 35.7 34.9 29.4 25.1

P/BV (x) 34.3 29.0 24.6 20.8

EV/EBITDA (x) 26.1 25.3 20.3 17.0

Div. Yield (%) 2.0 2.0 2.4 2.8

Bloomberg CLGT IN


M. Cap. (INR b)/(USD b) 177 / 3

52-Week Range (INR) 1,580 / 1,190

1,6,12 Rel Perf. (%) 0 / -15 / -24

Colgate Palmolive

C–45January 2014





Volume Growth (%) 12.0 10.5 9.5 12.0 9.0 10.7 10.0 12.0 10.0 10.0

Net Sales 14,620 15,226 16,307 15,311 16,511 17,488 18,803 18,152 61,464 70,954

YoY Change (%) 21.4 20.6 12.3 12.3 12.9 14.9 15.3 18.6 16.3 15.4

Total Exp 12,576 12,674 13,615 12,708 14,156 14,250 15,606 14,852 51,463 58,864

EBITDA 2,044 2,552 2,693 2,603 2,355 3,238 3,196 3,300 10,001 12,090

Margins (%) 14.0 16.8 16.5 17.0 14.3 18.5 17.0 18.2 16.3 17.0

YoY Growth (%) 14.9 5.5 19.0 16.4 15.2 26.9 18.7 26.8 15.2 4.7

Depreciation 267 196 305 282 287 236 314 343 1,124 1,180

Interest 213 149 78 150 133 200 80 112 589 525

Other Income 356 292 273 355 420 280 319 438 1,242 1,457

PBT 1,921 2,500 2,582 2,527 2,355 3,083 3,121 3,283 9,530 11,842

Tax 378 464 478 507 484 579 655 772 1,826 2,490

Rate (%) 19.7 18.6 18.5 20.1 20.6 18.8 21.0 23.5 19.2 21.0

Minority Interest 2 13 -6 0 10 6 -6 1 24 11

Adjusted PAT 1,541 2,023 2,111 2,020 1,860 2,498 2,472 2,510 7,680 9,341

YoY Change (%) 20.6 16.4 22.2 18.4 20.7 23.5 17.1 24.3 19.3 21.6

E: MOSL Estimates

CMP: INR172 Buy

We expect sales growth of 15.3% to INR18.8b, led by ~10% domestic

organic volume growth.

Gap between urban and rural growth rates should narrow for Dabur,

in our view.

We expect margin expansion of 50bp to 17%, led by operating leverage

in international business. While currency dynamics had brought in

additional risks, price hikes were implemented to pass on input cost

inflation.

We expect PAT growth of 17% to INR2.47b.

The stock trades at 26.6x FY15E EPS of INR6.5. Buy.


Domestic volume growth and outlook on rural demand.

Margin guidance for FY15.

Progress on international business margin improvement.


Sa les 61.5 71.0 82.8 96.0

EBITDA 10.0 12.1 14.1 16.6

Adj. PAT 7.7 9.3 11.3 13.4

Adj. EPS (INR) 4.4 5.4 6.5 7.7

EPS Gr. (%) 19.3 21.6 20.5 18.9

BV/Sh.(INR) 12.6 15.3 18.5 22.4

RoE (%) 35.1 35.1 34.9 34.4

RoCE (%) 38.1 39.6 39.3 41.0

Payout (%) 40.2 42.7 42.7 42.7

Valuations

P/E (x) 39.0 32.1 26.6 22.4

P/BV (x) 13.6 11.2 9.3 7.7

EV/EBITDA (x) 30.1 24.6 20.8 17.4

Div. Yield (%) 1.0 1.3 1.6 1.9

Bloomberg DABUR IN


M. Cap. (INR b)/(USD b) 301 / 5


1,6,12 Rel Perf. (%) 0 / 0 / 25

Dabur India

C–46January 2014




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

MFD Volume Growth (%) 7.0 7.4 6.0 6.0 8.0 7.0 10.0 8.0 7.5 7.5

Net Sales 8,130 7,297 8,275 7,091 9,399 8,529 9,719 8,311 35,959 10,855

YoY Change (%) 14.5 11.7 14.9 17.8 15.6 16.9 17.4 17.2 16.8 15.5

Total Exp 6,514 6,191 6,871 6,581 7,691 7,343 8,221 7,707 30,961 8,901

EBITDA 1,617 1,107 1,405 510 1,708 1,187 1,499 604 4,998 1,954

Margins (%) 20.3 15.2 17.0 7.2 18.2 13.9 15.4 7.3 13.9 18.0

YoY Change (%) 11.3 12.3 19.1 -17.3 5.6 7.2 6.7 18.6 7.8 14.4

Depreciation 119 86 77 79 107 122 116 232 577 120

Interest 12 8 3 1 1 2 1 41 45 1

Other Income 479 572 578 606 680 759 855 859 3,153 902

PBT 1,964 1,585 1,903 1,035 2,279 1,822 2,237 1,190 7,528 2,735

Tax 645 519 617 338 715 623 768 415 2,520 875

Rate (%) 32.8 32.8 32.4 32.7 31.4 34.2 34.3 34.9 33.5 32.0

Adj PAT 1,320 1,066 1,286 697 1,564 1,200 1,469 775 5,008 1,860

YoY Change (%) 19.3 29.3 24.8 17.9 18.5 12.5 14.3 11.2 14.7 18.9

E: MOSL Estimates


We expect SKB to report net sales of INR8.3b, up 17% YoY, led by 8%

volume growth.

Healthy performance in both the core brands, Boost and Horlicks, driven

by introduction of new variants and low unit price (LUP) strategy should

aid 3Q performance.

We estimate EBITDA margin at 7.3%, flat QoQ.

Higher tax rates (up 220bp YoY to 34.9%) should result in relatively

subdued 11% growth in PAT.

The stock trades at 31.8x CY14E EPS. Neutral.


MFD volume growth.

Outlook on market growth and raw material environment.


Sa les 30.8 36.0 41.6 48.2

EBITDA 4.6 5.0 6.3 7.5

Adj. PAT 4.1 5.0 5.9 6.9

Adj. EPS (INR) 98.3 119.1 139.8 164.9

EPS Gr. (%) 16.4 21.1 17.4 18.0

BV/Sh.(INR) 322.1 382.7 453.8 537.7

RoE (%) 30.5 31.1 30.8 30.7

RoCE (%) 54.6 54.2 53.6 45.5

Payout (%) 49.1 49.1 49.1 49.1

Valuations

P/E (x) 42.5 37.3 31.8 26.9

P/BV (x) 13.8 11.6 9.8 8.3

EV/EBITDA (x) 29.0 34.8 27.1 22.3

Div. Yield (%) 1.0 1.1 1.3 1.6

Bloomberg SKB IN


M. Cap. (INR b)/(USD b) 187 / 3

52-Week Range (INR) 6,020 / 3,482

1,6,12 Rel Perf. (%) -3 / -19 / 7

GlaxoSmithKline Consumer

C–47January 2014





Net Sales 13,886 15,953 16,913 17,155 17,203 19,574 20,634 20,916 63,908 78,327

YoY Change (%) 39.2 34.5 25.8 29.7 23.9 22.7 22.0 21.9 31.7 22.6

EBITDA 1,988 2,440 2,806 2,752 2,208 2,954 3,570 3,424 9,985 12,156

Margins (%) 14.3 15.3 16.6 16.0 12.8 15.1 17.3 16.4 15.6 15.5

YoY Growth (%) 39.3 18.0 5.8 11.5 11.0 21.1 27.2 24.4 16.0 21.7

Depreciation 199 206 205 160 221 244 220 210 770 895

Interest 164 200 189 222 240 257 194 111 775 803

Other Income 181 194 188 281 178 172 188 342 844 880

Forex gain / (loss) -176 -76 -27 -48 -154 -63 0 218 -328 0

PBT 1,630 2,151 2,574 2,602 1,769 2,562 3,344 3,662 8,957 11,337

Tax 192 476 674 531 338 470 813 896 1,792 2,517

Rate (%) 11.8 22.1 26.2 20.4 19.1 18.3 24.3 24.5 20.0 22.2

Minority Int 213 83 178 19 126 142 178 288 493 735

Adj PAT 1,225 1,593 1,722 2,052 1,305 1,950 2,353 2,478 6,672 8,086

YoY Change (%) 22.2 24.8 3.1 22.4 6.5 22.4 36.6 20.7 26.7 21.2

E: MOSL Estimates

CMP: INR847 Neutral

We expect GCPL to post 22% revenue growth to INR20.6b in 3QFY14,

led by healthy performance in the domestic Household Insecticides

and Hair Colors segments. We expect Soaps business to post lackluster

(low single digit) volume growth.

Household Insecticide growth would be driven by recent innovations

and activations; nonetheless, growth rates should moderate from

high 20’s to low 20’s, in our view.

We expect continued strong performance from Indonesia (Megasari).

Price hikes taken in 2Q post the implementation of minimum wage

hikes should bring margin stability 3QFY14 onwards.

Ad spends should stabilize, as innovation intensity has come off. We

estimate operating margin expansion of 70bp to 17.3%. Recent uptick

in palm oil prices will reflect in margins, unless neutralized by price

hikes. Driven by low base, we estimate PAT growth of 36.6% for the

quarter.

The stock trades at 28.8x FY15E EPS of INR29.4. Neutral.


Volume growth trends in Soaps; comments on growth outlook for

Household Insecticide portfolio.

International business outlook, given the currency volatility.


Sa les 63.9 78.3 91.5 107.2

EBITDA 10.0 12.2 14.6 17.3

Adj. PAT 6.7 8.1 10.0 12.2

Adj. EPS (INR) 19.6 23.8 29.4 35.9

EPS Gr. (%) 26.7 21.2 23.7 22.2

BV/Sh.(INR) 93.7 105.8 123.5 147.7

RoE (%) 20.9 22.5 23.8 24.3

RoCE (%) 24.8 27.6 29.5 30.5

Payout (%) 40.8 42.1 34.0 27.8

Valuations

P/E (x) 43.2 35.6 28.8 23.6

P/BV (x) 9.0 8.0 6.9 5.7

EV/EBITDA (x) 30.2 24.7 20.5 17.0

Div. Yield (%) 0.9 1.2 1.2 1.2

Bloomberg GCPL IN


M. Cap. (INR b)/(USD b) 288 / 5


1,6,12 Rel Perf. (%) -5 / -5 / 7

Godrej Consumer Products

C–48January 2014





Volume Growth (%) 9.0 7.0 5.0 6.0 4.0 5.0 7.0 8.0 8.0 6.5

S&D EBIT Margin (%) 12.2 14.3 12.4 12.0 13.4 14.3 12.4 12.0 12.5 12.5

PP EBIT Margin (%) 25.8 24.2 28.3 25.8 26.8 24.2 28.3 25.8 25.3 25.3

Net Sales (incl service inc) 63,788 63,108 66,548 64,658 68,090 68,926 72,870 70,987 258,102 280,875

YoY Change (%) 14.1 12.5 11.7 12.1 6.7 9.2 9.5 9.8 16.7 8.8

COGS 33,677 32,695 34,191 34,326 34,828 34,699 37,164 38,152 134,888 144,843

Gross Profit 30,110 30,414 32,357 30,333 33,262 34,227 35,706 32,835 123,214 136,031

Margin (%) 47.2 48.2 48.6 46.9 48.9 49.7 49.0 46.3 47.7 48.4

Operating Exp 20,446 20,646 21,470 20,615 22,406 23,374 23,683 22,117 83,176 91,581

% to sales 32.1 32.7 32.3 31.9 32.9 33.9 32.5 31.2 32.2 32.6

EBITDA 9,664 9,767 10,888 9,718 10,856 10,853 12,024 10,718 40,037 44,451

YoY Change (%) 28.1 18.2 12.2 16.6 12.3 11.1 10.4 10.3 21.6 11.0

Margins (%) 15.2 15.5 16.4 15.0 15.9 15.7 16.5 15.1 15.5 15.8

Depreciation 576 577 593 614 664 639 664 684 2,360 2,651

Interest 53 63 75 60 62 63 45 -20 251 150

Other Income 2,186 1,488 1,337 1,058 1,768 1,510 1,203 1,018 6,069 5,498

PBT 11,221 10,615 11,557 10,102 11,897 11,661 12,518 11,072 43,495 47,148

Tax 2,676 2,556 2,827 2,293 3,046 2,831 3,129 2,795 11,944 11,801

Rate (%) 23.8 24.1 24.5 22.7 25.6 24.3 25.0 25.2 27.5 25.0

Adjusted PAT 8,546 8,059 8,730 7,808 8,851 8,830 9,388 8,277 33,143 35,347

YoY Change (%) 47.7 22.9 14.5 17.7 3.6 9.6 7.5 6.0 24.6 6.7

E: MOSL Estimates

CMP: INR569 Sell

We expect HUVR to post 4% volume growth and 9.5% revenue growth.

Consumer demand has not improved sequentially. Delayed winter is

likely to impact Personal Product (PP) revenues, as HUVR had built up

trade inventory in Fair & Lovely (F&L) in 2QFY14.

The company has restrained promotions in Soaps & Detergents to

combat input cost inflation and currency impact. However, pricing

anniversary in Beverages will offset realization growth.

Operating margins are likely to stay flat at 16.5%. Elevated competitive

intensity in Oral Care would keep ASP spends high. However,

competitive intensity in Detergents is sequentially benign.

We expect PP margins to contract owing to mix deterioration (lower

growth in Skin Care), higher ad spends in Oral Care, and the high base

effect (up 159bp to 28.3% in 3QFY13).

We expect EBITDA and PAT to grow at a subdued 10% and 7.5% YoY,

respectively. The stock trades at 31.6x FY15E EPS of INR18. Sell.


Comments on volume growth and consumer demand environment.

Competitive intensity and comments on F&L/Skin Care business.


Sa les 252.1 275.0 313.3 356.4

EBITDA 40.0 44.5 50.3 58.0

Adj. PAT 32.9 35.3 38.9 43.7

Adj. EPS (INR) 15.2 16.4 18.0 20.2

EPS Gr. (%) 26.7 7.6 10.0 12.5

BV/Sh.(INR) 21.5 26.7 31.2 36.3

RoE (%) 70.8 61.2 57.6 55.8

RoCE (%) 94.2 81.9 79.1 78.8

Payout (%) 55.9 58.1 64.0 64.3

Valuations

P/E (x) 37.4 34.8 31.6 28.1

P/BV (x) 26.5 21.3 18.2 15.7

EV/EBITDA (x) 29.4 26.2 22.9 19.7

Div. Yield (%) 1.5 1.7 2.0 2.3

Bloomberg HUVR IN


M. Cap. (INR b)/(USD b) 1,230 / 20


1,6,12 Rel Perf. (%) -6 / -16 / 0

Hindustan Unilever

C–49January 2014


Quarterly Performance INR Million



Cigarette Vol Gr (%) 1.5 0.5 1.5 2.5 -2.0 -4.0 -2.0 -0.5 1.5 1.5

Cigarette-net EBIT Margin (%) 57.5 61.4 61.1 58.3 63.4 64.8 62.5 60.0 59.6 60.3

Non Cigarette FMCG Loss -388 -303 -240 119 -189 -127 100 150 -813 810

Net Sales 67,065 72,263 77,121 82,574 74,107 78,625 84,833 93,751 299,013 331,316

YoY Change (%) 14.6 18.6 22.8 18.8 10.5 8.8 10.0 13.5 18.9 10.8

Total Exp 43,313 45,371 48,543 55,511 46,194 48,446 52,172 61,927 192,738 208,739

EBITDA 23,752 26,893 28,578 27,063 27,913 30,179 32,661 31,824 106,275 122,577

Growth (%) 21.3 21.0 20.0 18.9 17.5 12.2 14.3 17.6 20.1 15.3

Margins (%) 35.4 37.2 37.1 32.8 37.7 38.4 38.5 33.9 35.5 37.0

Depreciation 1,948 1,889 2,052 2,067 2,153 2,209 2,257 2,186 7,956 8,805

Interest 138 233 252 243 170 21 214 376 865 780

Other Income 1,699 1,840 3,298 2,540 2,032 2,462 3,958 3,175 9,387 11,627

PBT 23,366 26,611 29,572 27,293 27,622 30,412 34,147 32,437 106,842 124,618

Tax 7,344 8,247 9,053 8,014 8,709 9,436 10,825 10,772 32,658 39,741

Rate (%) 31.4 31.0 30.6 29.4 31.5 31.0 31.7 33.2 30.6 31.9

Adj PAT 16,021 18,364 20,519 19,280 18,913 20,976 23,323 21,665 74,184 84,877

YoY Change (%) 20.2 21.3 20.6 19.4 18.1 14.2 13.7 12.4 20.4 14.4

E: MOSL Estimates

CMP: INR322 Buy

We expect ITC to post ~2% decline in Cigarette volumes. While a

recovery in Cigarettes is underway vis-à-vis 1HFY14, we expect it to

be gradual.

Two consecutive years of 15%+ price hikes are impacting the RSFT

(regular size filter tip) segment, while the 64mm segment continues

to grow and gain traction (now 8% of volumes). ITC has recently taken

10-12% price hikes in mass RSFT brands (Wills, Gold Flake, etc).

We expect net sales to grow 10% to INR84.8b, which reflects

moderation across segments.

We estimate 140bp margin expansion to 38.5%, led by Cigarettes and

improving profitability in FMCG - Others.

Cigarette margins would be supported by ~19% average price hike

implemented post budget.

We expect FMCG - Others to post 15% revenue growth.

Higher tax rate should result in 13.7% PAT growth to INR23.2b.



Cigarette volume trend post price hikes and update on 64mm

segment.

Demand outlook for FMCG - Others.

Sustenance of profitability in FMCG - Others portfolio.

Signs of pick-up in Hotels business.


Sa les 296.1 327.2 375.1 430.3

EBITDA 106.3 122.6 139.9 159.9

Adj. PAT 61.6 74.2 84.9 99.3

Adj. EPS (INR) 9.5 10.9 12.7 14.6

EPS Gr. (%) 20.4 14.4 17.0 15.0

BV/Sh.(INR) 26.3 28.9 31.7 34.3

RoE (%) 36.1 37.5 40.1 42.6

RoCE (%) 50.2 53.5 56.5 60.2

Payout (%) 76.1 76.1 78.4 81.9

Valuations

P/E (x) 33.9 29.7 25.4 22.1

P/BV (x) 12.2 11.1 10.2 9.4

EV/EBITDA (x) 22.4 19.3 16.7 14.5

Div. Yield (%) 1.9 2.2 2.6 3.2

Bloomberg ITC IN


M. Cap. (INR b)/(USD b) 2,553 / 41


1,6,12 Rel Perf. (%) -1 / -13 / 2

ITC

C–50January 2014





Domestic organic vol gr (%) 14.0 10.0 9.0 8.0 10.0 4.0 5.0 6.0 11.0 6.0

Net Sales 12,672 11,559 11,640 9,973 13,797 11,154 11,110 10,619 45,843 46,679

YoY Change (%) 21.7 19.5 10.9 9.7 8.9 -3.5 -4.6 6.5 15.5 1.8

COGS 6,469 5,639 5,587 4,410 6,710 5,594 5,555 5,721 22,105 23,581

Gross Profit 6,203 5,920 6,053 5,563 7,086 5,560 5,555 4,897 23,738 23,098

Gross margin (%) 48.9 51.2 52.0 55.8 51.4 49.8 50.0 46.1 51.8 49.5

Other Expenditure 4,364 4,435 4,433 4,373 4,816 3,905 3,944 3,536 17,605 16,201

% to Sales 34.4 38.4 38.1 43.9 34.9 35.0 35.5 33.3 38.4 34.7

EBITDA 1,839 1,486 1,620 1,189 2,270 1,655 1,611 1,362 6,134 6,897

Margins (%) 14.5 12.9 13.9 11.9 16.5 14.8 14.5 12.8 13.4 14.8

YoY Change (%) 47.0 28.6 31.1 9.3 23.5 11.4 -0.6 14.5 29.7 12.4

Depreciation 193 225 195 253 206 168 176 230 866 780

Interest 135 180 146 113 121 104 146 126 575 497

Other Income 150 101 127 115 167 158 159 196 494 680

PBT 1,660 1,182 1,406 938 2,109 1,541 1,448 1,201 5,186 6,300

Tax 403 293 360 189 512 431 333 242 1,245 1,518

Rate (%) 24.2 24.8 25.6 20.1 24.3 27.9 23.0 20.1 24.0 24.1

Minority Interest 0 30 -23 26 44 52 -23 3 79 -76

Adjusted PAT 1,258 859 1,068 723 1,553 1,059 1,138 956 3,862 4,706

YoY Change (%) 48.0 9.7 21.2 1.2 23.5 23.3 6.5 32.3 21.1 21.8

E: MOSL Estimates

CMP: INR221 Buy

We expect sales to decline 4.5% YoY to INR11.1b, as the base quarter

had Kaya financials. On like-to-like basis, sales growth would be 3.5%

(led by 3-4% domestic volume growth). Volume growth would be

subdued; the demand environment has deteriorated for Marico vis-

à-vis 2QFY14 across categories. International business should benefit

from currency tailwinds, but on constant currency basis, growth is

likely to moderate.

Copra prices are up ~65% YoY and ~33% QoQ. Marico has implemented

price hikes of 5-7% in its Parachute portfolio. Sunflower and Kardi Oil

prices are benign (down on YoY basis).

We expect 250bp gross margin contraction. However, EBITDA margin

would be flattish.

We expect PAT growth of 15.7% YoY, aided by 250bp lower tax rate.



Comments on volume growth trends in key categories.

Paras brands performance.

Margin expansion international business.


Sa les 45.8 46.7 53.5 62.1

EBITDA 6.1 6.9 8.4 9.9

Adj. PAT 3.9 4.7 5.5 6.4

Adj. EPS (INR) 6.0 7.3 8.5 10.0

EPS Gr. (%) 15.6 21.8 16.5 17.4

BV/Sh.(INR) 30.5 25.7 33.3 40.7

RoE (%) 19.6 28.5 25.6 24.6

RoCE (%) 29.0 38.1 37.4 36.6

Payout (%) 12.5 10.9 9.4 22.0

Valuations

P/E (x) 36.8 30.2 25.9 22.1

P/BV (x) 7.2 8.6 6.6 5.4

EV/EBITDA (x) 23.7 20.4 16.2 13.4

Div. Yield (%) 0.3 0.4 0.4 1.0

Bloomberg MRCO IN


M. Cap. (INR b)/(USD b) 142 / 2


1,6,12 Rel Perf. (%) 2 / -6 / -10

Marico

C–51January 2014




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

Net Sales 20,475 19,866 21,156 21,526 22,481 22,132 23,483 23,980 83,023 92,076

YoY Change (%) 13.1 12.7 7.8 10.1 9.8 11.4 11.0 11.4 10.8 10.9

COGS 9,384 9,024 9,712 9,644 10,158 10,004 10,568 10,941 37,764 41,671

Gross Profit 11,091 10,842 11,444 11,882 12,323 12,128 12,915 13,039 45,259 50,406

Margin (%) 54.2 54.6 54.1 55.2 54.8 54.8 55.0 54.4 54.5 54.7

Operating Exp 6,519 6,554 7,010 6,926 6,997 7,248 7,992 7,572 27,008 29,809

EBITDA 4,572 4,288 4,434 4,957 5,326 4,880 4,923 5,467 18,251 20,596

Margins (%) 22.3 21.6 21.0 23.0 23.7 22.0 21.0 22.8 22.0 22.4

YoY Growth (%) 18.7 24.5 8.1 20.1 16.5 13.8 11.0 10.3 18.9 12.8

Depreciation 528 673 735 835 821 887 835 898 2,772 3,440

Interest 23 220 44 99 79 85 100 86 387 350

Other income 136 113 173 211 200 249 348 232 633 1,029

PBT 4,158 3,507 3,827 4,233 4,626 4,157 4,336 4,716 15,726 17,835

Tax 1,272 1,085 1,197 1,293 1,512 1,334 1,416 1,534 4,847 5,796

Rate (%) 30.6 30.9 31.3 30.5 32.7 32.1 32.7 32.5 30.8 32.5

Adjusted PAT 2,886 2,423 2,630 2,940 3,114 2,823 2,920 3,181 10,879 12,038

YoY Change (%) 9.9 10.3 -2.0 9.7 7.9 16.5 11.0 8.2 8.7 10.7

E: MOSL Estimates


We expect Nestle India to report net sales of INR24b, up 11.4% YoY;

growth would be price-led. Our channel checks indicate that volume

growth in the company’s core categories is yet to pick up. Continued

moderation in discretionary foods consumption is a key headwind.

EBITDA margin is likely to be flat at 22.8%, aided by carryover impact

of earlier price hikes.

PAT would grow 8.2% to INR3.2b.

Lower base of CY13 can provide a good platform for sales recovery in

CY14. However, underlying recovery in its volume growth will be a

function of revival in consumer sentiment.

The stock trades at 35.5x CY14E EPS. Neutral.


Volume growth.

Management commentary around portfolio rationalization.

New launches from the recently commissioned capacity is another

important monitorable from a medium term perspective.


Sa les 83.0 92.1 107.4 124.4

EBITDA 18.3 20.6 23.8 27.7

Adj. PAT 11.0 12.0 14.5 17.3

Adj. EPS (INR) 114.1 124.9 150.3 179.5

EPS Gr. (%) 9.9 9.4 20.4 19.4

BV/Sh.(INR) 186.5 240.1 293.1 345.8

RoE (%) 71.6 58.5 56.4 56.2

RoCE (%) 59.6 56.3 61.7 65.9

Payout (%) 49.4 54.1 62.0 68.1

Valuations

P/E (x) 46.8 42.8 35.5 29.7

P/BV (x) 28.6 22.2 18.2 15.4

EV/EBITDA (x) 28.4 25.0 21.3 18.1

Div. Yield (%) 0.9 1.1 1.5 2.3

Bloomberg NEST IN


M. Cap. (INR b)/(USD b) 515 / 8

52-Week Range (INR) 5,865 / 4,410

1,6,12 Rel Perf. (%) -6 / -4 / -2

Nestle India

C–52January 2014





Sales 9,125 8,209 8,376 7,608 10,148 9,912 9,758 8,813 33,317 38,631

Change (%) 18.8 16.0 21.6 16.7 11.2 20.7 16.5 15.8 18.3 16.0

Gross Profit 4,087 3,680 3,770 3,645 4,681 4,426 4,381 4,082 15,182 17,569

Gross Margin (%) 44.8 44.8 45.0 47.9 46.1 44.6 44.9 46.3 45.6 45.5


% of sales 23.9 26.9 26.9 31.5 24.1 26.0 26.9 29.9 27.2 26.6

EBITDA 1,907 1,468 1,514 1,248 2,240 1,846 1,756 1,443 6,136 7,285

EBITDA Margin (%) 20.9 17.9 18.1 16.4 22.1 18.6 18.0 16.4 18.4 18.9

Change (%) 25.4 14.5 27.3 30.2 17.5 25.8 16.0 15.6 24.0 18.7

Depreciation 124 128 141 139 153 168 167 146 532 634

Interest 91 18 86 36 36 38 82 73 232 229

Other Income 139 121 164 235 90 87 186 385 659 748

PBT 1,831 1,443 1,450 1,307 2,140 1,727 1,694 1,609 6,031 7,170

Tax 498 325 413 352 595 470 483 481 1,588 2,028


Adj PAT 1,333 1,117 1,037 956 1,546 1,257 1,211 1,128 4,443 5,142

Change (%) 23.6 29.3 19.9 27.6 16.0 12.5 16.8 18.0 24.9 15.7

E: MOSL Estimates

CMP: INR290 Neutral

We expect Pidilite to post 16.5% revenue growth, led by double-digit

volume growth in Consumer and Bazaar segments. Industrial

Chemicals should benefit from INR depreciation (25% of revenues

from exports).

EBITDA margin is likely to remain flat YoY at 18%.

PAT would grow 16.8% YoY to INR1.21b.

Continued double-digit volume growth in a discretionary category,

especially in the current weak macro environment, underscores

Pidilite’s strong brand equity.



Volume growth in Fevicol.

Outlook on Industrial and Construction Chemicals.

Progress on Elastomer project, if any.


Sa les 33.3 38.6 45.8 53.0

EBITDA 6.1 7.3 8.6 10.1

Adj. PAT 4.4 5.1 6.2 7.4

Adj. EPS (INR) 8.5 9.8 11.9 14.1

EPS Gr. (%) 21.0 15.7 20.9 18.5

BV/Sh.(INR) 34.0 40.3 48.0 57.8

RoE (%) 24.9 24.3 24.7 24.3

RoCE (%) 31.8 33.0 33.3 32.9

Payout (%) 35.5 35.8 35.5 30.0

Valuations

P/E (x) 34.2 29.6 24.4 20.6

P/BV (x) 8.5 7.2 6.0 5.0

EV/EBITDA (x) 23.7 19.7 16.3 13.6

Div. Yield (%) 0.9 1.0 1.2 1.2

Bloomberg PIDI IN


M. Cap. (INR b)/(USD b) 149 / 2


1,6,12 Rel Perf. (%) -6 / -3 / 24

Pidilite Industries

C–53January 2014





Net sales 3,038 2,970 3,260 3,315 3,573 3,521 3,782 3,687 12,584 14,563

YoY Change (%) 2.1 13.9 8.1 16.8 17.6 18.5 16.0 11.2 10.0 15.7

Total Expenses 2,514 2,479 2,760 2,911 2,963 2,957 3,169 3,161 10,597 12,250

EBITDA 524 491 501 403 611 564 613 525 1,986 2,313

Margins (%) 17.3 16.5 15.4 12.2 17.1 16.0 16.2 14.2 15.8 16.2

YoY Change (%) 22.4 10.7 12.1 1.5 16.5 14.9 22.4 30.2 16.4

Depreciation 90 85 90 88 95 97 106 126 353 423

Interest 168 172 216 182 204 198 206 144 739 752

Other Income 62 84 85 74 85 89 92 73 304 338

PBT 328 318 279 207 396 358 392 329 1,198 1,475

Tax 75 110 95 40 90 78 133 112 320 413

Rate (%) 22.9 34.6 34.1 19.3 22.7 21.8 34.0 34.0 26.7 28.0

Adjusted PAT 253 208 184 167 306 280 259 217 878 1,062

YoY Change (%) 21.8 40.4 -22.3 -1.4 21.2 35.0 40.9 29.7 15.3 20.9

E: MOSL Estimates

CMP: INR144 Buy

We expect Radico to post 16% revenue growth to INR3.8b, led by 7%

volume growth.

The premium segment should continue to grow at a faster pace, aided

by up-trading.

Trade situation in Tamil Nadu remains fluid and will continue to hit

branded IMFL players in 3QFY14, despite comparable base.

We expect margin expansion of 80bp to 16.2%, owing to scale benefits.

We forecast PAT growth of 41% on a depressed base (22% PAT decline

in 3QFY13.)



Trade issues in Tamil Nadu; price hikes received, if any, during the

quarter.

ENA price trend and outlook.


Sa les 12.6 14.6 17.0 19.2

EBITDA 2.0 2.3 2.8 3.2

Adj. PAT 0.9 1.1 1.4 1.6

Adj. EPS (INR) 6.6 8.0 10.6 11.9

EPS Gr. (%) 9.9 20.9 32.2 12.8

BV/Sh.(INR) 57.0 63.6 72.3 82.2

RoE (%) 12.1 13.3 15.6 15.5

RoCE (%) 10.3 11.3 13.5 13.8

Payout (%) 17.6 17.6 17.6 17.6

Valuations

P/E (x) 21.8 18.0 13.6 12.1

P/BV (x) 2.5 2.3 2.0 1.8

EV/EBITDA (x) 13.3 11.4 9.2 8.0

Div. Yield (%) 1.1 0.8 1.1 1.2

Bloomberg RDCK IN




1,6,12 Rel Perf. (%) 6 / 33 / -13

Radico Khaitan

C–54January 2014





Volume Growth (%) 2 -1 7 4 0 -1 4 6 3 3

ENA Price/Case 151 159 172 176 171 180 175 175 165 173

Net Sales 20,573 22,207 21,740 20,577 21,924 20,387 23,479 22,955 85,097 88,744

YoY Change (%) 6.3 24.0 11.3 10.5 6.6 -8.2 8.0 11.6 12.8 4.3

Total Exp 17,223 19,676 19,281 18,584 19,142 18,334 21,014 20,574 74,763 79,064

EBITDA 3,350 2,531 2,459 1,993 2,782 2,053 2,465 2,381 10,334 9,681

Margins (%) 16.3 11.4 11.3 9.7 12.7 10.1 10.5 10.4 12.1 10.9

Depreciation 162 188 173 195 195 168 225 317 718 904

Interest 1,656 1,700 1,636 1,570 1,595 1,364 1,390 1,201 6,562 5,550

PBT from operations 1,532 643 651 228 992 521 850 863 3,054 3,226

Other income 607 -48 608 836 781 891 600 610 2,002 2,882

PBT 2,139 595 1,258 1,065 1,773 1,412 1,450 1,473 5,056 6,108

Tax 689 202 453 288 592 470 493 492 1,632 2,046

Rate (%) 32.2 34.0 36.0 27.1 33.4 33.3 34.0 33.4 32.3 33.5

PAT 1,450 393 806 777 1,181 943 957 981 3,424 4,062

YoY Change (%) 5.9 -75.3 64.6 878.1 -18.5 140.1 18.8 26.3 278.0 18.6

Extraordinary Inc/(Exp) 0 0 0 -217 0 0 0 0 -217 0

Reported PAT 1,450 393 806 560 1,181 943 957 981 3,208 4,062

E: MOSL Estimates


We expect UNSP to post 8% revenue growth to INR23.5b, led by 4%

volume growth. Trade issues in Tamil Nadu remain, and UNSP has

decided to exit its direct presence in the state.

Raw material prices remain inflationary.

We expect margin contraction of 80bp to 10.5%.

PAT would grow 18.8% to INR957m, led by lower interest cost post

partial repayment of loans.

The stock trades at 47.6x FY15E EPS of INR53.3. Neutral. Resolution of

legal uncertainty around UBHL stake sale of 6.98% and potential

divestment of W&M are key near-term catalysts for stock.


Volume growth and commentary on Tamil Nadu.

Recent legal issues surrounding UBHL stake sale to Diageo.

ENA price trend and outlook.

Movement in net debt.


Sa les 106.0 98.5 114.5 131.0

EBITDA 12.6 11.7 15.7 18.3

Adj. PAT 1.7 4.2 7.7 9.9

Adj. EPS (INR) 13.9 29.1 53.3 67.9

EPS Gr. (%) 7.3 109.9 82.9 27.6

BV/Sh.(INR) 402.7 576.4 608.6 653.9

RoE (%) 3.4 5.1 8.7 10.4

RoCE (%) 10.1 8.6 11.7 13.3

Payout (%) 28.8 15.5 9.4 7.4

Valuations

P/E (x) 182.9 87.1 47.6 37.3

P/BV (x) 6.3 4.4 4.2 3.9

EV/EBITDA (x) 32.8 33.8 24.8 21.1

Div. Yield (%) 0.2 0.2 0.2 0.2

Bloomberg UNSP IN


M. Cap. (INR b)/(USD b) 369 / 6

52-Week Range (INR) 2,815 / 1,708

1,6,12 Rel Perf. (%) -8 / 2 / 24

United Spirits

C–55January 2014

December 2013 Results Preview | Sector: Financials - Banks

Financials – BanksCompanies Covered

Axis Bank

Bank of Baroda

Bank of India

Canara Bank

HDFC Bank

Federal Bank

ICICI Bank

Indian Bank

IndusInd Bank

ING Vysya

Kotak Mahindra Bank

Oriental Bank

Punjab National Bank

State Bank

Union Bank

Yes Bank

Post significant volatility in interest rate and forex in 1HFY14, 3QFY14 has seen a

stable macro-economic environment, which is a much-needed relief for financials.

While inflation continued to spring a negative surprise, RBI Governor's stance to wait

and watch for the monetary action was a positive surprise. However, growth and

inflation dynamics continue to be complex. Moderation in economic growth, high

inflation, delay in monetary easing and stretched balance sheets of some of the

corporates remain key risks for banks.

While concerns are well discounted in valuations, improvement in macro-economic

environment is critical for state-owned banks. Better visibility on growth, healthy

core operations and returns ratio, top management continuity, lower asset quality

issues, adequate capitalization, strengthening liability franchise and low hanging fruits

(ability to capture market share from state-owned banks due to superior service) etc

will keep premium valuation of private banks intact. Remain selective with the top

picks being HDFCB, ICICIBC, SBIN and OBC.

Alpesh Mehta ([email protected]) / Sohail Halai ([email protected])




Financials - Banks

Private Banks

Axis Bank 1,293 Buy 29,830 19.6 1.6 28,226 19.5 2.6 15,284 13.4 12.2

Federal Bank 84 Buy 5,484 10.3 0.0 3,637 -7.7 2.8 1,658 -21.3 -26.6

HDFC Bank 669 Buy 46,892 17.8 4.7 37,295 19.5 10.1 23,235 25.0 17.2

ICICI Bank 1,108 Buy 42,810 22.3 5.9 41,393 19.9 6.5 25,123 11.6 6.8

IndusInd Bank 422 Buy 7,018 21.5 0.3 5,997 27.0 2.0 3,183 19.1 -3.6

ING Vysya Bank 603 Buy 4,509 11.9 2.4 3,011 14.4 9.0 1,776 9.4 0.7

Kotak Mahindra Bank 737 Neutral 9,413 14.4 1.9 6,266 9.4 3.3 3,624 0.2 2.8

Yes Bank 374 Buy 6,733 15.2 0.2 6,116 8.5 -14.2 3,813 11.4 2.7

Pvt Bkg. Sector Aggregate 152,688 18.7 3.6 131,941 17.8 5.0 77,696 14.2 8.6

PSU Banks

Bank of Baroda 652 Buy 30,136 6.1 4.1 21,795 -2.9 3.3 9,762 -3.5 -16.4

Bank of India 236 Neutral 27,209 17.9 7.7 19,864 7.0 -5.5 6,083 -24.3 -2.2

Canara Bank 282 Neutral 22,916 15.3 4.6 15,439 1.8 8.3 3,403 -52.1 -45.6

Indian Bank 114 Buy 11,204 -2.0 2.4 7,440 -0.5 5.4 2,545 -23.0 -16.8

Oriental Bank 228 Buy 12,956 7.6 1.1 9,042 -2.4 9.6 2,498 -23.5 -0.6

Punjab National Bank 635 Buy 41,022 9.9 2.2 26,735 -0.3 5.5 7,596 -41.8 50.3

State Bank 1,770 Buy 127,399 14.2 4.0 71,484 -8.2 13.3 22,819 -32.8 -3.9

Union Bank 130 Neutral 20,309 7.4 3.9 13,511 -0.5 10.3 3,099 2.5 48.9

PSU Bkg. Sector Aggregate 293,151 11.6 3.9 185,310 -3.1 7.5 57,804 -29.4 -4.6


*Standalone

C–56January 2014


Initial signs of core operations' improvement - too early to judgeLower referrals to CDR, bankers comments of stable-to-declining trend in net

slippages, largely flat restructured book QoQ (partially helped by SEB bonds) and

expectation of few large ticket recoveries in the quarter is giving initial signs of

stabilization in asset quality for banks (mainly state-owned). However, growth remains

weak, business confidence low and lead indicators/green shoots of recovery not in

sight. Further, RBI and Government's tough stance on asset quality may spring a

negative surprise on NPL/provisions. Thus, we remain cautious on asset quality.

Margins to be stable/decline marginally in 3QFY14EEasing of liquidity in the system has led to reduction in short term rates (6M/12M CD

rates on average basis for 3QFY14 are lower by 100/60bp over average of 2QFY14).

Further, our interactions with bankers suggest that incremental spreads over base

rate has increased and NIMs protection is a key focus area. While NIMs of certain

private banks are expected to moderate, led by higher reliance on bulk deposits and

lag impact of deposit re-pricing,stability in asset quality, aggressive reduction in bulk

deposits will help state-owned banks to contain cost of funds and maintain NIMs.

Banks with excess liquidity on balance sheet like CBK, BOI and BOB can surprise

positively by increasing the CD ratio. Thus, we expect NII growth of 4% QoQ and 12%

YoY for state-owned banks.

Deposit growth outpaces loan growth, overall growth mutedFor the fortnight-ended Dec 13, 2013, loans/deposits grew by 15%/17% YoY. The reversal

in growth trends has been driven by (1) strong flows from FCNR window (bankers

have mobilized USD27b) and (2) shift of loans to credit substitutes as bond market

rates eased over the last few months. FCNR deposits, being a leveraged product, will

also help to report strong loan growth QoQ. In our view, core deposit growth is still

weak, and with the busy season round the corner, both deposit and lending rates

could be hiked in 4Q. We factor loan and deposit growth of 14% and 13% respectively.

Stress creation to remain high - factored in estimatesEconomic environment continues to be challenging and stress creation is expected to

remain high for the system. However, our interactions suggest that the situation has

not worsened and banks are holding on to the guidance given in 2QFY14. While recovery

mechanism remains slow, upgrades/recoveries from few large/mid-corporate

accounts could drive positive surprise. We factor net slippage ratio (for state-owned

banks) of 2.1% in 3QFY14E, compared to 1.9% in 2QFY14. Retail focused banks are

likely to be better placed (most private sector banks); however, unlike past, retail

delinquency has started to increase. Thus, NPA is expected to rise in this segment as

well.

CDR references - cumulative pipeline of 0.8% of loansPreliminary data suggests that CDR referrals for 3QFY14 were high at ~INR290b,

compared to INR250b in 2QFY14. However, in the last two months, proposals were

just INR60b - significantly lower than the experience of prior months. Though the

trend is encouraging, we prefer to wait and watch as this could be on account of RBI

clamping down on banks for higher restructuring. Meanwhile, pipeline of restructuring

Bankers' comments on

asset quality are a

positive. However, little

relief from macro-

economic environment

Bankers' comments:

State-owned banks

expect stable- to-

improving NIMs, while

private banks guide for

flat- to-declining

NIMs QoQ

FCNR deposits were a

major source of business

(deposits and loans)

during the quarter

Bankers' comments:

State-owned banks guide

for flat- to-declining

stress assets, and private

banks guide for increase

in restructuring

CDR references down

sharply in November and

December - one-off or

trend. The jury is out

C–57January 2014


(proposals received but yet not approved) at end-2QFY14 was high at INR450b (0.8%

of loans). During the , banks would also receive SEB bonds from Rajasthan, Haryana

and UP discoms, which may help contain the increase in restructured pool.

MTM and NPA provisioning to continue to dent profitabilityDue to dichotomy of easing liquidity and inflationary pressures, yield curve has

flattened from being inverted. Since end of September 2013, one-year G-sec yields

have cooled down by 25bp+; however, the longer tenure yield has increased by 15bp+.

Thus, MTM position of banks is unlikely to be altered significantly and investment

depreciation will remain high for state-owned banks. Barring BoB, other state-owned

banks have adopted the policy of amortizing MTM (in line with RBI dispensation) over

FY14.

This coupled with high credit cost will keep overall provisioning high. Hence, even as

PPP growth is expected to be 8% YoY, overall PAT is expected to decline by 5% YoY. For

private banks, credit cost is expected to be stable/increase and for couple of banks,

IIB and FB, investment depreciation will keep provisions high.

Sector strategy: Not out of woods yet, remain selectiveThe policy stance to contain inflationary expectation in the medium term will keep

interest rates higher in the system, thus delaying growth revival. Higher interest rates,

with moderating economic growth, will exert pressure on business growth and asset

quality of Indian financials. State-owned banks will be more impacted due to a high

share of corporate business. From an uncertain policy stance of inverted yield curve

(negative for financials) move towards flattening curve is positive from earnings

perspective (especially on margins), in our view.

Considering the slower pace of core deposit mobilization and expected pick-up in

lending activity, interest rates in both retail liability and lending side could rise. Private

banks have already increased the base rates by 20-25bp and some PSU banks increased

it by 10-25bp. If the core deposits growth will remain muted, then there is a possibility

of further 25bp hike in lending rates over three to six months. In this current

uncertainty, we remain selective and prefer banks with strong capitalization (risk of

dilution low) and liability franchise (emerge stronger in the upturn of economy),

management stability, P&L strength (to absorb credit cost risk) and those who have

recognized stress upfront (risk of setback remains low). Top picks: private banks -

HDFCB, ICICIBC and YES. State-owned banks: SBIN, BOB and OBC.

No material change in

MTM requirement on

investments

Aging NPAs to keep credit

cost high, expect QoQ

decline in net slippages.

Top bets: HDFCB, ICICIBC,

SBIN, BOB, OBC and YES

C–58January 2014


Loan growth moderates led by shift to credit substitutes Deposit growth improves led by inflow from FCNR window

Net slippages expected to be at a high level MTM requirement to impact profitability in 2HFY14E


CD rates: Interest rates cool off in 3QFY14 Yield curve flattens but settles at high level (%)

(INR m) Overall MTM Unrecognized (to be

requirement (reported) providedin 2HFY14)

SBIN 21,033 14,022

PNB 10,457 6,902

BoI 6,479 1,817

CBK 10,611 7,055

UNBK 2,343 2,008

INBK 2,660 1,773

OBC 2,425 1,617

C–59January 2014





Financials - Banks

Private Banks

Axis Bank 1,293 Buy 110.7 128.6 145.7 11.7 10.1 8.9 1.8 1.6 1.4 18.5 16.9 16.6

Federal Bank 84 Buy 9.8 7.8 9.7 8.6 10.8 8.7 1.1 1.0 1.0 13.9 10.1 11.5

HDFC Bank 669 Buy 28.3 35.8 44.8 23.7 18.7 15.0 4.4 3.7 3.1 20.3 21.6 22.7

ICICI Bank 1,108 Buy 72.2 84.1 92.7 15.4 13.2 11.9 2.0 1.8 1.6 14.8 15.2 14.7

IndusInd Bank 422 Buy 20.3 25.5 29.9 20.8 16.6 14.1 3.0 2.6 2.3 17.8 16.7 17.1

ING Vysya Bank 603 Buy 39.6 38.4 41.4 15.2 15.7 14.6 2.1 1.6 1.5 14.6 12.4 10.5

J&K Bank 1,411 Buy 217.5 234.5 246.4 6.5 6.0 5.7 1.4 1.2 1.0 23.6 21.5 19.4

Kotak Mahindra 737 Neutral 29.3 33.0 37.8 25.2 22.3 19.5 3.6 3.1 2.7 15.5 15.0 14.8

South Indian Bank 21 Neutral 3.8 3.4 3.6 5.5 6.1 5.7 1.0 0.9 0.8 20.5 14.9 14.3

Yes Bank 374 Buy 36.3 43.3 49.7 10.3 8.6 7.5 2.3 1.9 1.6 24.8 24.1 22.9

Pvt. Bank Aggregate 16.7 14.2 12.3 2.9 2.4 2.1 17.2 17.0 17.2

PSU Banks

Andhra Bank 63 Neutral 23.0 11.4 15.2 2.7 5.6 4.2 0.4 0.4 0.4 16.2 7.3 9.2

Bank of Baroda 652 Buy 106.0 104.1 105.4 6.1 6.3 6.2 0.9 0.8 0.7 16.1 13.9 12.7

Bank of India 236 Neutral 46.1 44.3 49.3 5.1 5.3 4.8 0.7 0.6 0.6 13.6 12.3 12.2

Canara Bank 282 Neutral 64.8 48.3 56.3 4.4 5.8 5.0 0.5 0.5 0.5 13.3 9.1 9.8

Corporation Bank 263 Neutral 93.8 53.3 68.6 2.8 4.9 3.8 0.4 0.4 0.4 16.1 8.2 9.9

Dena Bank 63 Neutral 23.1 14.4 16.6 2.7 4.4 3.8 0.5 0.4 0.4 17.6 9.9 10.5

IDBI Bank 66 Neutral 14.1 11.2 12.5 4.7 5.9 5.3 0.5 0.4 0.4 10.2 7.4 7.8

Indian Bank 114 Buy 36.8 26.7 31.3 3.1 4.3 3.6 0.5 0.4 0.4 15.6 10.1 11.0

Oriental Bank 228 Buy 45.5 37.1 42.9 5.0 6.2 5.3 0.6 0.5 0.5 11.5 8.8 9.5

Punjab Nat.l Bank 635 Buy 134.3 94.5 121.9 4.7 6.7 5.2 0.7 0.7 0.6 16.5 10.3 12.1

State Bank 1,770 Buy 261.9 195.3 238.1 6.4 8.5 7.1 0.9 0.9 0.8 15.9 10.6 11.8

Union Bank 130 Neutral 36.0 24.2 29.2 3.6 5.4 4.5 0.5 0.5 0.4 15.0 8.9 10.0

PSU Bank Aggregate 5.5 7.1 6.0 0.8 0.7 0.7 14.9 10.2 11.1


60

75

90

105

120

Dec

-12

Ma

r-13

Jun-

13

Sep-

13

Dec

-13

Sensex IndexMOSL Financia l s Index

95

100

105

110

115

120

Sep-

13

Oct

-13

Nov

-13

Dec

-13

Sensex IndexMOSL Fina ncia l s Index

C–60January 2014





Interest Income 64,829 66,872 69,649 70,476 72,778 76,090 79,356 82,776 271,826 311,001

Interest Expense 43,030 43,603 44,701 43,829 44,126 46,723 49,527 52,726 175,163 193,102

Net Interest Income 21,799 23,269 24,948 26,647 28,652 29,367 29,830 30,050 96,663 117,899

% Change (Y-o-Y) 26.4 15.9 16.6 24.2 31.4 26.2 19.6 12.8 20.6 22.0

Other Income 13,355 15,931 16,154 20,072 17,813 17,661 18,035 21,465 65,511 74,974

Net Income 35,154 39,200 41,102 46,718 46,465 47,028 47,864 51,515 162,174 192,873


Operating Profit 19,637 21,783 23,615 27,997 28,436 27,498 28,226 30,938 93,031 115,098

% Change (Y-o-Y) 26.0 22.7 14.7 37.4 44.8 26.2 19.5 10.5 25.2 23.7

Other Provisions 2,588 5,094 3,868 5,954 7,123 6,875 5,069 4,981 17,504 24,047

Profit before Tax 17,048 16,688 19,747 22,044 21,313 20,623 23,158 25,958 75,527 91,051

Tax Provisions 5,513 5,453 6,275 6,492 7,224 7,000 7,874 8,769 23,733 30,866

Net Profit 11,535 11,235 13,472 15,552 14,089 13,623 15,284 17,188 51,794 60,185

% Change (Y-o-Y) 22.4 22.1 22.2 21.8 22.1 21.3 13.4 10.5 22.1 16.2

Operating Parameters

NIM (Reported,%) 3.4 3.5 3.6 3.7 3.9 3.8 3.5

NIM (Cal, %) 3.3 3.5 3.6 3.5 3.7 3.7 3.6 3.4 3.3 3.5

Deposit Growth (%) 21.3 21.2 17.2 14.8 7.1 8.4 10.7 14.0 14.8 14.0

Loan Growth (%) 29.8 22.9 20.7 16.0 15.8 16.9 16.6 15.0 16.0 15.0

CD Ratio (%) 76.9 73.1 73.4 78.0 83.1 78.8 77.3 78.7 78.0 78.7

Core CASA ratio (%) 36.0 36.2 35.8 36.0 38.9 39.4 36.0

Asset Quality

OSRL (INR b) 38.3 40.7 42.6 43.7 42.1 48.1 43.7

OSRL (%) 2.2 2.4 2.4 2.2 2.1 2.4 2.2

Gross NPA (INR b) 20.9 21.9 22.8 23.9 24.9 27.3 29.5 32.5 23.9 32.5

Gross NPA (on customer assets, %) 1.1 1.1 1.1 1.1 1.1 1.2 1.2 1.3 1.1 1.3

E: MOSL Estimates

Axis BankCMP: INR1,293 Buy

Loan growth is expected to be above industry average at ~17% YoY.

This would be driven by healthy momentum in retail and SME segment,

while corporate loan book is expected to be muted.

NIM is expected to moderate by 10bp+ to 3.7%, driven by pressure on

cost of funds and build-up of PSL (low yielding).

Fee income growth is expected to be lower than the balance sheet

growth at ~12%. Muted corporate fees and moderation in retail fees

on a higher base is expected to drag overall fees lower.

Stress creation in large/mid-corporate segment is expected to

continue. We factor a slippage ratio of ~1.8% (v/s 1.4% in 2QFY14) and

credit cost of 1.1% (v/s 0.6% in 2QFY14) for 3QFY14E. Bank may utilize

some of the contingency provision made earlier. Maintain Buy.

Key issues to watch for

Despite sharp increase in cost of funds, AXSB was able to manage its

cost of funds. Similar surprise could lead to earnings upgrade.

Bank increased its stress addition guidance to INR60b (v/s INR50b) in

1QFY14. Any revision in the same could alter the outlook.


NII 96.7 117.9 135.1 157.0

OP 93.0 115.1 130.7 153.0

NP 51.8 60.2 68.2 80.6

NIM (%) 3.3 3.5 3.5 3.5

EPS (INR) 110.7 128.6 145.7 172.3

EPS Gr. (%) 7.8 16.2 13.3 18.3

BV/Sh. (INR) 699.9 811.6 933.2 1,077.1

ABV/Sh. (INR) 690.1 798.4 916.1 1,056.6

RoE (%) 18.5 16.9 16.6 17.1

RoA (%) 1.7 1.6 1.6 1.7

Payout (%) 19.1 19.2 19.2 19.2

Valuations

P/E(X) 11.7 10.1 8.9 7.5

P/BV (X) 1.8 1.6 1.4 1.2

P/ABV (X) 1.9 1.6 1.4 1.2

Div. Yield (%) 1.4 1.6 1.9 2.2

Bloomberg AXSB IN


M. Cap. (INR b)/(USD b) 605 / 10

52-Week Range (INR) 1,549 / 764

1,6,12 Rel Perf. (%) 12 / -11 / -15

C–61January 2014





Interest Income 85,576 87,226 88,449 90,716 94,869 94,735 99,541 105,374 351,967 394,519



% Change (YoY) 21.8 11.5 7.0 0.6 3.3 1.1 6.1 13.8 9.7 6.0

Other Income 7,708 8,283 8,406 11,909 12,306 9,739 10,233 12,042 36,306 44,319

Net Income 35,689 36,906 36,815 40,049 41,197 38,687 40,369 44,055 149,459 164,307



% Change (YoY) 23.2 11.4 -13.6 5.1 8.7 -11.0 -2.9 11.0 4.9 1.2



Tax Provisions 2,081 4,223 2,026 -4,825 2,503 801 2,290 2,787 3,505 8,381

Net Profit 11,389 13,014 10,116 10,289 11,679 11,681 9,762 10,878 44,807 44,002

% Change (YoY) 10.3 11.6 -21.6 -32.2 2.5 -10.2 -3.5 5.7 -10.5 -1.8


NIM (Reported, %) 2.7 2.7 2.7 2.5 2.4 2.3 2.7

NIM (Calculated, %) 2.6 2.6 2.5 2.3 2.2 2.2 2.2 2.2 2.4 2.2

Deposit Growth (%) 22.3 24.0 18.8 23.1 22.0 18.8 22.8 15.0 23.1 15.0

Loan Growth (%) 23.0 22.2 14.8 14.2 12.4 16.3 19.2 15.0 14.2 15.0

CASA Ratio (%) 32.2 31.8 32.2 30.4 31.2 32.7 31.6

Tax Rate (%) 15.4 24.5 16.7 -88.3 17.7 6.4 19.0 20.4 7.3 16.0

Asset Quality

OSRL (INR B) 179.8 195.8 205.0 200.1 207.2 215.3 200.1

OSRL (%) 6.3 6.7 6.8 6.1 6.4 6.3 6.1

Gross NPA (%) 1.8 2.0 2.4 2.4 3.0 3.2 3.3 3.4 2.4 3.4

E: MOSL Estimates

Bank of BarodaCMP: INR652 Buy


NII 113.2 120.0 140.8 159.4

OP 90.0 91.1 105.4 117.7

NP 44.8 44.0 44.5 50.2

NIM (%) 2.4 2.2 2.3 2.2

EPS (INR) 106 104 105 119

EPS Gr. (%) -12.7 -1.8 1.2 12.8

BV/Sh. (INR) 707 789 871 964

ABV/Sh. (INR) 643 675 734 832

RoE (%) 16.1 13.9 12.7 13.0

RoA (%) 0.9 0.8 0.7 0.7

Div. Payout (%) 27.4 23.2 23.2 23.2

Valuations

P/E(X) 6.1 6.3 6.2 5.5

P/BV (X) 0.9 0.8 0.7 0.7

P/ABV (X) 1.0 1.0 0.9 0.8

Div. Yield (%) 3.3 3.2 3.2 3.6

Loan and deposit each is expected to grow 5% QoQ. However, on a YoY

basis, deposit growth is expected to be higher at 23%, compared to

19% YoY loan growth.

NIM is expected to be stable QoQ at 2.2%.

Fee income growth picked up in 2QFY14 and we expect the trend to

remain healthy. Hence, we factor a fee income growth of 17% YoY.

Contribution from net investment gains is expected to decline to

INR1.3b, compared to INR2.1b in 2QFY14.

Stress creation is expected to remain at a high level. Hence, factored

net slippage ratio of 2.1% and credit cost of 95bp. Further, at end-

2QFY14, management guided for restructuring of INR20b.

YoY PPP and PAT are expected to be decline led by YoY decline in NIM

and high provisioning expense. Maintain Buy.


Outlook on asset quality and restructuring – management confident

of improving asset quality with large part of pain taken upfront.

Domestic CD ratio is at 70% - below industry average and improvement

in the same could cushion/provide push to NIM.

Bloomberg BOB IN


M. Cap. (INR b)/(USD b) 275 / 4


1,6,12 Rel Perf. (%) 3 / 3 / -34

C–62January 2014





Interest Income 77,092 80,055 80,227 81,716 85,412 92,393 97,302 101,858 319,089 376,965



% Change (Y-o-Y) 11.0 15.3 11.7 -1.0 24.1 15.1 17.9 16.1 8.5 18.1

Other Income 8,409 8,941 9,371 10,939 11,808 11,003 8,998 10,400 37,660 42,209

Net Income 28,844 30,901 32,456 35,700 37,178 36,274 36,207 39,152 127,900 148,811



% Change (Y-o-Y) 19.9 19.5 7.2 3.0 30.3 13.4 7.0 2.5 11.4 12.6



Tax Provisions 3,139 1 1,365 -1,921 5,217 2,484 2,607 3,098 2,584 13,406

Net Profit 8,875 3,019 8,035 7,566 9,642 6,218 6,083 6,546 27,493 28,488

% Change (Y-o-Y) 71.5 -38.5 12.2 -20.6 8.6 106.0 -24.3 -13.5 2.7 3.6


NIM (Reported, %) 2.3 2.4 2.4 2.5 2.5 2.3 2.5

NIM (Cal, %) 2.3 2.4 2.5 2.5 2.3 2.2 2.3 2.3 2.3 2.3

Deposit Growth (%) 15.7 11.2 13.6 20.0 22.4 29.9 28.2 22.0 20.0 22.0

Loan Growth (%) 22.9 20.0 20.3 16.5 17.1 29.4 24.7 24.0 16.5 24.0

CASA Ratio (Reported, %) 32.0 32.8 33.8 32.8 31.4 30.4 32.8

Tax Rate (%) 26.1 0.0 14.5 -34.0 35.1 28.5 30.0 32.1 8.6 32.0

Asset Quality

OSRL (INR b) 175.7 178.5 181.4 176.4 162.3 175.0 176.4

OSRL (%) 6.6 6.9 6.5 6.0 5.2 5.2 6.0

Gross NPA (INR b) 67.5 89.0 86.3 87.7 94.1 98.8 106.2 113.3 87.7 113.3

Gross NPA (%) 2.6 3.4 3.1 3.0 3.0 2.9 3.0 3.1 3.0 3.1

E: MOSL Estimates

Bank of IndiaCMP: INR236 Neutral

On a sequential basis, loan and deposit growth is expected to be in

line with industry average. However, on a YoY basis, it is expected to

be strong at 25% and 28% respectively.

NIM is expected to improve marginally to 2.3%, aided by improvement

in international NIM.

Factored investment depreciation of INR1.1b as the bank is expected

to recognize MTM provisions (amortized over three quarters at end-

2QFY14) on domestic portfolio.

Slippages are expected to be at an elevated level; we have factored a

slippage ratio of 2.8% and credit cost of 0.9%. At end-2QFY14, bank

guided for a restructuring pipeline of INR10-15b.

While operating profit is expected to grow by 7% YoY, higher provisions

and tax rate of 30% (v/s 14% in 3QFY13) are expected to dent earnings

(decline of 24% YoY). Maintain Neutral.


Asset quality performance has been volatile over last few quarters;

outlook on slippages and restructuring pipeline remains a key.

Business growth is expected to remain strong. However, with scarcity

of capital, outlook on future growth is important.


NII 90.2 106.6 126.0 145.8

OP 74.6 84.0 95.2 106.9

NP 27.5 28.5 31.7 36.3

NIM (%) 2.3 2.3 2.3 2.3

EPS (INR) 46.1 44.3 49.3 56.5

EPS Gr. (%) -1.1 -3.9 11.4 14.6

RoE (%) 13.6 12.3 12.2 12.7

RoA (%) 0.7 0.6 0.5 0.5

BV/Sh. (INR) 362 386 424 466

ABV/Sh. (INR) 298 316 344 385

Div. Payout (%) 29.4 24.4 24.4 24.4

Valuations

P/E(X) 5.1 5.3 4.8 4.2

P/BV (X) 0.7 0.6 0.6 0.5

P/ABV (X) 0.8 0.7 0.7 0.6

Div. Yield (%) 4.2 3.9 4.4 5.0

Bloomberg BOI IN


M. Cap. (INR b)/(USD b) 152 / 2


1,6,12 Rel Perf. (%) 9 / -6 / -40

C–63January 2014





Interest Income 84,729 85,955 85,445 84,651 92,696 96,545 99,796 104,386 340,779 393,422



% Change (Y-o-Y) 4.2 -0.2 3.6 2.5 8.0 12.0 15.3 14.0 2.5 12.4

Other Income 6,926 6,081 8,458 10,065 12,383 7,730 8,414 9,686 31,530 38,213

Net Income 25,362 25,649 28,338 30,971 32,294 29,642 31,329 33,518 110,320 126,783



% Change (Y-o-Y) 9.7 -19.9 -2.8 13.9 36.2 11.1 1.8 0.8 -0.9 11.7



Tax Provisions 2,000 2,000 1,800 2,200 1,900 1,250 747 802 8,000 4,699

Net Profit 7,752 6,610 7,105 7,254 7,921 6,259 3,403 3,825 28,721 21,408

% Change (Y-o-Y) 6.8 -22.4 -18.9 -12.5 2.2 -5.3 -52.1 -47.3 -12.5 -25.5


NIM (Cal, %) 2.1 2.2 2.3 2.3 2.0 2.2 2.2 2.2 2.2 2.3

Deposit Growth (%) 11.5 7.7 3.1 8.8 14.2 16.3 25.7 16.0 8.8 16.0

Loan Growth (%) 4.9 -1.0 0.3 4.2 10.8 30.3 35.2 25.0 4.2 25.0

CD Ratio (%) 67.4 64.1 67.4 68.1 65.4 71.8 72.5 73.3 68.1 73.3

CASA Ratio (%) 23.3 24.8 25.1 24.2 23.1 24.3 24.2

Tax Rate (%) 20.5 23.2 20.2 23.3 19.3 16.6 18.0 17.3 21.8 18.0

Asset Quality

OSRL (INR b) 129.6 137.7 133.8 159.0 172.7 180.5 159.0

OSRL (%) 5.7 6.4 6.1 6.6 6.9 6.4 6.6

Gross NPA (INR b) 45.0 56.1 60.9 62.6 73.3 74.8 80.0 85.3 62.6 85.3

Gross NPA (%) 2.0 2.6 2.8 2.6 2.9 2.6 2.7 2.8 2.6 2.8

E: MOSL Estimates

Canara BankCMP: INR282 Neutral

CBK has moved from consolidation phase to aggressive growth strategy

and thus loan growth is expected to be 35%+ YoY, on a lower base.

While systemic cost of funds has increased, further room to improve

CD ratio (72% at end-2QFY14) is expected to provide cushion to NIM.

Hence, factor stable NIM QoQ.

In line with the pick-up in balance sheet growth, fee income growth is

expected to be healthy at 20% YoY. However, overall non-interest

income is expected to be flat led by lower trading gains. Factored net

investment loss of INR2.6b v/s loss of INR170m in 2QFY14.

Modeled net slippage ratio of 1.7%, compared to 1.2% in 2QFY14 and

credit cost is expected to remain high at 0.6%+ -- ageing of the NPA

portfolio could lead to higher provisions.

While YoY PPP growth is expected to be flat, overall profitability would

be impacted by higher provisions. Maintain Neutral.


Outlook on slippages and restructuring.

CBK reported strong growth across segments. Aggressive growth

strategy in the current environment could add pressure on asset

quality.


NII 78.8 88.6 104.5 118.3

OP 58.9 65.8 74.4 82.3

NP 28.7 21.4 24.9 26.7

NIM (%) 2.2 2.1 2.2 2.1

EPS (INR) 65 48 56 60

EPS Gr. (%) -12.5 -25.5 16.5 7.2

BV/Sh. (INR) 513 551 595 630

ABV/Sh. (INR) 436 444 471 501

RoE (%) 13.3 9.1 9.8 9.9

RoA (%) 0.7 0.5 0.5 0.4

Div. Payout (%) 23.3 23.2 23.2 23.2

Valuations

P/E(X) 4.4 5.8 5.0 4.7

P/BV (X) 0.5 0.5 0.5 0.4

P/ABV (X) 0.6 0.6 0.6 0.6

Div. Yield (%) 4.6 3.4 4.0 4.3

Bloomberg CBK IN


M. Cap. (INR b)/(USD b) 125 / 2


1,6,12 Rel Perf. (%) 14 / -31 / -52

C–64January 2014





Interest Income 15,367 15,256 15,218 15,835 16,533 17,144 17,466 18,281 61,676 69,424



% Change (YoY) 6.9 6.6 -5.8 -2.3 3.7 8.4 10.3 16.2 1.1 9.6

Other Income 1,243 1,394 2,039 1,969 2,158 1,434 1,666 2,000 6,644 7,258

Net Income 6,160 6,453 7,012 6,766 7,254 6,918 7,150 7,573 26,391 28,894



% Change (YoY) -2.1 -3.2 -5.9 -0.8 15.6 1.2 -7.7 3.0 -3.1 2.7

Other Provisions 628 305 744 982 2,451 110 1,180 1,277 2,658 5,018


Tax Provisions 934 1,041 1,088 494 498 1,171 798 822 3,556 3,289

Net Profit 1,904 2,151 2,108 2,219 1,057 2,258 1,658 1,705 8,382 6,678

% Change (YoY) 30.2 12.5 4.4 -6.6 -44.5 5.0 -21.3 -23.2 7.9 -20.3


NIM (Reported,%) 3.4 3.6 3.5 3.1 3.1 3.3 3.4

NIM (Cal, %) 3.4 3.6 3.4 3.1 3.1 3.3 3.3 3.2 3.2 3.1

Deposit Growth (%) 59.3 56.0 62.6 81.5 12.7 14.7 13.4 8.0 17.7 8.0

Loan Growth (%) 19.0 8.0 18.9 16.8 8.5 16.3 9.6 7.0 16.8 7.0

CD Ratio (%) 75.2 73.3 76.5 76.5 72.4 74.3 74.0 75.8 76.5 75.8

CASA Ratio (%) 20.9 21.2 21.5 19.9 21.4 22.7 19.9

Asset Quality

Gross NPA (INR b) 14.1 14.4 15.6 15.5 14.8 14.7 15.6 16.8 15.5 16.8

Gross NPA (%) 3.6 3.8 3.9 3.4 3.5 3.4 3.5 3.5 3.4 3.5

E: MOSL Estimates

Federal BankCMP: INR84 Buy

Conservative approach amid challenging economic environment is

expected keep business growth lower, with loan and deposit growth

at 10% YoY and 13% YoY respectively.

Lower dependence on bulk deposits and expected NRI flows (NRI SA

deposits as well) will keep overall increase in cost of funds under

check. Further, growth is expected to be driven by better yielding

retail and SME segment, which will help the bank to keep margins

stable QoQ at 3.3%.

On a lower base, fee income growth is expected to be 25%+ YoY.

While retail and SME slippages are expected to be contained, slippages

in corporate segment may increase in line with managements’

expectation at end-2QFY14.

Overall earnings are expected to decline 20%+ YoY driven by lower

NIM and net investment loss of INR350m, compared to a gain of INR1b+

in 3QFY13. Maintain Buy.


Outlook on mid-corporate segment and watch-list accounts.

Liability profile improved in 2QFY14 as the bank reduced its

proportion of bulk business in 2QFY14. Strategy in terms of their asset

growth for FY14/15.


NII 19.7 21.6 24.9 28.7

OP 14.6 15.0 17.2 19.8

NP 8.4 6.7 8.3 9.5

NIM (%) 3.2 3.1 3.2 3.2

EPS (INR) 9.8 7.8 9.7 11.1

EPS Gr. (%) 7.9 -20.3 24.0 14.9

BV/Sh. (INR) 74.4 80.6 88.2 97.0

ABV/Sh. (INR) 71.1 76.5 83.9 91.9

RoE (%) 13.9 10.1 11.5 12.0

RoA (%) 1.3 0.9 1.0 1.0

Payout (%) 21.3 20.9 20.9 20.9

Valuations

P/E(X) 8.6 10.8 8.7 7.6

P/BV (X) 1.1 1.0 1.0 0.9

P/ABV (X) 1.2 1.1 1.0 0.9

Div. Yield (%) 2.1 1.7 2.1 2.4

Bloomberg FB IN




1,6,12 Rel Perf. (%) 5 / -7 / -31

C–65January 2014





Interest Income 81,757 86,748 88,904 93,239 96,630 100,933 106,149 109,147 350,649 412,859



% Change (Y-o-Y) 28.2 31.8 27.8 20.6 21.0 15.3 17.8 17.0 22.7 17.7

Other Income 16,494 14,718 19,277 18,036 19,256 18,444 21,456 22,140 68,526 81,295

Net Income 53,018 53,537 59,094 60,989 63,443 63,209 68,347 72,399 226,637 267,399



% Change (Y-o-Y) 31.6 25.5 31.3 17.3 23.6 26.9 19.5 26.0 21.7 23.9



Tax Provisions 6,762 7,184 8,573 7,723 9,351 10,184 10,809 10,647 30,249 40,992

Net Profit 14,174 15,600 18,591 18,898 18,439 19,823 23,235 23,640 67,257 85,137

% Change (Y-o-Y) 30.6 30.1 30.0 30.1 30.1 27.1 25.0 25.1 30.2 26.6


NIM (Reported,%)* 4.6 4.4 4.1 4.3 4.6 4.3 4.4

NIM (Cal, %)# 4.8 4.9 4.7 4.9 4.8 4.8 4.8 4.8 4.8 4.7

Deposit Growth (%) 22.0 18.8 22.2 20.1 17.8 14.2 16.8 18.0 20.1 18.0

Loan Growth (%) 21.5 22.9 24.3 22.7 21.2 16.0 17.9 22.0 22.7 22.0

CASA Ratio (%) 46.0 46.4 45.4 47.4 44.7 45.0 47.4 47.5

Tax Rate (%) 32.3 31.5 31.6 29.0 33.6 33.9 31.8 31.1 31.0 32.5

Asset Quality

OSRL (%) 0.1 0.1 0.1 0.2 0.2 0.2 0.2

Gross NPA (INR B) 20.9 21.3 24.3 23.3 27.2 29.4 32.7 36.0 23.3 36.0

Gross NPA (%) 1.0 0.9 1.0 1.0 1.0 1.1 1.1 1.2 1.0 1.2

E: MOSL Estimates; * Reported on total assets; # Cal. on interest earning assets

HDFC BankCMP: INR669 Buy

On the back of healthy retail business, HDFCB is expected to deliver

loan growth of 18%+ YoY. Deposit growth is expected to be in line with

loan growth at ~17% YoY.

NIM is expected to be stable QoQ and YoY at 4.3%. Thus, NII is expected

to grow ~5% QoQ and 18% YoY.

Fee income growth is expected to be lower than the balance sheet

growth and be at ~12% YoY. Contribution from trading income is

expected to be negligible.

Asset quality is expected to remain healthy, though stress in few

segments of retail loans has increased, which needs to be watched.

We build provisions of INR3.2b v/s INR3.9b in 2QFY14.

Earnings growth is expected to be healthy at 25+ YoY. Upgrade to Buy.


Commentary on retail portfolio, which has so far been holding up

well even amid a slowdown in economy.

Branch expansion has been strong in the last couple of years;

continuation of strategy would be a positive.


NII 158.1 186.1 226.5 275.7

OP 114.3 141.5 179.8 224.0

NP 67.3 85.1 106.5 133.1

NIM (%) 4.8 4.7 4.7 4.7

EPS (INR) 28.3 35.8 44.8 55.9

EPS Gr. (%) 28.4 26.6 25.1 25.0

BV/Sh. (INR) 152.1 179.5 213.9 256.8

ABV/Sh. (INR) 150.7 176.0 207.5 247.2

RoE (%) 20.3 21.6 22.7 23.8

RoA (%) 1.8 2.0 2.0 2.1

Payout (%) 22.8 23.4 23.4 23.4

Valuations

P/E(X) 23.7 18.7 15.0 12.0

P/BV (X) 4.4 3.7 3.1 2.6

P/ABV (X) 4.4 3.8 3.2 2.7

Div. Yield (%) 0.8 1.1 1.3 1.7

Bloomberg HDFCB IN


M. Cap. (INR b)/(USD b) 1,571 / 25


1,6,12 Rel Perf. (%) -1 / -9 / -11

C–66January 2014


ICICI BankCMP: INR1,108 Buy




Interest Income 95,457 100,263 101,383 103,653 104,207 108,133 114,400 117,194 400,756 443,934



% Change (YoY) 32.4 34.5 29.0 22.5 19.7 19.9 22.3 16.8 29.2 19.6

Other Income 18,799 20,430 22,146 22,082 24,843 21,665 24,305 25,636 83,457 96,448

Net Income 50,729 54,142 57,136 60,114 63,048 62,100 67,115 70,060 222,121 262,322



% Change (YoY) 32.0 35.7 28.5 15.8 29.3 21.8 19.9 20.9 27.1 22.7



Tax Provisions 6,684 7,293 8,335 8,400 9,468 9,110 9,770 9,842 30,712 38,190

Net Profit 18,151 19,561 22,502 23,041 22,742 23,521 25,123 25,611 83,255 96,996

% Change (YoY) 36.3 30.1 30.2 21.2 25.3 20.2 11.6 11.2 28.8 16.5


NIM (Reported,%) 3.0 3.0 3.1 3.3 3.3 3.3 3.3

NIM (Cal, %) 2.9 3.0 3.0 3.2 3.1 3.3 3.3 3.3 3.0 3.3

Deposit Growth (%) 16.1 14.8 9.9 14.5 8.7 9.8 14.4 14.9 14.5 14.9

Loan Growth (%) 21.6 17.6 16.5 14.4 12.3 15.5 15.8 17.7 14.4 17.7

CASA Ratio (%) 39.1 37.5 37.4 38.1 39.0 40.3 38.1

Asset Quality

OSRL (INR b) 41.7 44.5 45.6 53.2 59.2 68.3 53.2

OSRL (%) 1.6 1.6 1.6 1.8 2.0 2.1 1.8

Gross NPA (INR b) 98.2 100.4 97.6 96.1 100.1 100.3 103.8 107.8 96.1 107.8

Gross NPA (%) 3.5 3.5 3.3 3.2 3.2 3.1 3.1 3.1 3.2 3.1

E: MOSL Estimates

On a YoY basis, loan and deposit growth is expected to be in line with

industry average at 16% and 14% respectively.

Margins are expected to be stable QoQ at ~3.3% (+30bp YoY). Hence,

NII growth is expected to be 20%+ YoY (+6% QoQ).

Fee income growth is expected to be in the mid-teens as lower base

of corporate fees catches up and traction in retail fees improve.

We expect creation of stress assets to increase in 3QFY14 driven by

restructuring of loans (in line with management guidance). Hence,

we expect credit cost to increase QoQ. At end-2QFY14, the bank had

guided for credit cost of 90-100bp for FY14 v/s 1HFY14 credit cost of

80bp.

While operating profit growth is expected to be healthy at 18%+ YoY,

overall earnings growth is expected to be moderate at 5% YoY, led by

higher credit cost. Maintain Buy.


Domestic loan growth and traction in retail portfolio.

Challenges have risen in large/mid-corporate segment. And while

retail segment’s performance is expected to remain strong, outlook

on large/mid-corporate segment remains important.


NII 138.7 165.9 191.3 225.8

OP 132.0 162.0 184.8 215.4

NP 83.3 97.0 107.0 124.9

NIM (%) 3.0 3.2 3.3 3.4

EPS (INR) 72 84 93 108

EPS Gr (%) 28.7 16.5 10.3 16.7

BV/Sh (INR)* 459 518 583 659

ABV/Sh (INR)* 446 500 559 630

RoE (%) 14.8 15.2 14.7 15.2

RoA (%) 1.6 1.7 1.6 1.7

Div. Payout (%) 32.2 34.8 34.8 34.8

Valuations

AP/E (x) 12.8 10.7 9.5 7.9

AP/BV (x) 2.0 1.7 1.5 1.3

AP/ABV (x) 2.1 1.8 1.6 1.4

Div. Yield (%) 1.8 2.3 2.5 2.9

* BV adj for invt in susbdiaries, Prices adjfor sub value

Bloomberg ICICIBC IN


M. Cap. (INR b)/(USD b) 1,277 / 21

52-Week Range (INR) 1,237 / 759

1,6,12 Rel Perf. (%) 3 / -5 / -12

C–67January 2014





Interest Income 33,738 34,104 35,465 35,620 36,658 38,013 39,228 40,609 138,926 154,508



% Change (Y-o-Y) 12.0 -1.3 -2.3 2.3 -4.9 -2.4 -2.0 2.8 2.4 -1.6

Other Income 2,227 3,645 2,402 4,605 5,297 2,769 3,221 3,886 12,879 15,172

Net Income 13,759 14,848 13,837 15,678 16,265 13,706 14,424 15,274 58,122 59,669



% Change (Y-o-Y) 7.6 -1.4 -17.9 -29.2 2.3 -22.3 -0.5 35.5 2.9 2.7


Profit before Tax 6,945 7,063 3,365 888 4,912 4,807 3,535 3,716 18,262 16,971

Tax Provisions 2,328 2,096 59 -2,032 1,738 1,749 990 1,039 2,451 5,516

Net Profit 4,617 4,967 3,306 2,919 3,174 3,058 2,545 2,677 15,811 11,455

% Change (Y-o-Y) 13.5 6.0 -37.1 -15.5 -31.3 -38.4 -23.0 -8.3 -9.5 -27.6


NIM (Rep, %) 3.3 3.1 3.1 2.9 2.7 2.6 3.1 2.7

NIM (Cal, %) 3.5 3.3 3.2 3.0 2.9 2.8 2.7 2.7 3.2 2.7

Deposit Growth (%) 15.0 12.9 13.5 17.5 17.8 16.4 16.4 16.0 17.5 16.0

Loan Growth (%) 13.8 10.8 13.6 17.5 16.3 15.6 15.1 15.0 17.5 15.0

CD Ratio (%) 73.9 73.0 74.0 75.5 73.0 72.5 73.2 74.6 75.5 74.6

CASA Ratio (%) 29.3 29.0 28.3 27.6 26.9 28.0 27.6

Tax Rate (%) 33.5 29.7 1.8 -228.9 35.4 36.4 28.0 28.0 13.4 32.5

Asset Quality

Gross NPA (INR b) 15.5 19.8 31.8 35.7 37.2 41.8 46.4 50.4 35.7 50.4

Gross NPA (%) 1.7 2.1 3.2 3.3 3.4 3.8 4.0 4.1 3.3 4.1

E: MOSL Estimates

Indian BankCMP: INR114 Buy

Business growth is expected to be in line with industry average, with

YoY loan and deposit growth of 15% and 16% respectively.

Declining trend in NIM is expected to continue led by increase in cost

of funds. Hence, we model a 5bp QoQ decline.

Factor net slippage ratio of 3.3% and credit cost of 80bp. Further,

continued restructuring in large and mid-corporate segment would

add stress on balance sheet.

At end-2QFY14, AFS investments as a proportion of overall investment

stood at 27%, which could translate into MTM loss. We model net

investment loss of INR625m v/s gain of INR254m in 2QFY14.

Led by increasing operating expenses and higher provisioning

expense, PAT is expected to decline to INR2.5b v/s INR3.3b in 3QFY13.

We have not incorporated expected conversion of preference share

into equity impact of which could be negative 5% on BV. Maintain Buy.


Asset quality has been very volatile. Improvement in the same and

outlook would be a key for future performance.

Core operations have been under pressure – any uptick would be

viewed positively.


NII 45.2 44.5 51.7 58.2

OP 30.6 30.7 34.8 37.6

NP 15.8 11.5 13.5 14.9

NIM (%) 3.2 2.7 2.8 2.7

EPS (INR) 37 27 31 35

EPS Gr. (%) -9.5 -27.6 17.4 10.6

BV/Sh. (INR) 243 263 287 313

ABV/Sh (INR) 207 208 221 242

RoE (%) 15.6 10.1 11.0 11.2

RoA (%) 1.0 0.7 0.7 0.6

Div. Payout (%) 20.8 23.8 23.2 23.2

Valuations

P/E (x) 3.1 4.3 3.6 3.3

P/ BV (x) 0.5 0.4 0.4 0.4

P/ABV (x) 0.5 0.5 0.5 0.5

Div. Yield (%) 5.8 4.8 5.5 6.1

Bloomberg INBK IN




1,6,12 Rel Perf. (%) 10 / -10 / -51

C–68January 2014





Interest Income 16,320 17,279 18,005 18,228 19,122 20,186 21,260 22,670 69,832 83,237



% Change (YoY) 24.1 21.6 34.2 42.4 40.4 37.3 21.5 9.3 31.0 25.6

Other Income 3,188 3,205 3,558 3,679 4,706 4,167 4,676 4,960 13,630 18,509

Net Income 8,029 8,302 9,336 10,291 11,501 11,167 11,694 12,189 35,958 46,551



% Change (YoY) 29.6 26.1 35.2 43.4 58.8 40.0 27.0 18.8 34.0 34.5

Other Provisions 535 491 787 819 1,321 889 1,175 1,200 2,631 4,584


Tax Provisions 1,143 1,205 1,262 1,542 1,747 1,688 1,640 1,781 5,152 6,856

Net Profit 2,363 2,503 2,673 3,074 3,348 3,302 3,183 3,475 10,612 13,309

% Change (YoY) 31.1 29.6 29.8 37.6 41.7 32.0 19.1 13.0 32.2 25.4


NIM (Reported,%) 3.2 3.3 3.5 3.7 3.7 3.7 3.4

NIM (Cal, %) 3.3 3.3 3.6 3.7 3.7 3.7 3.6 3.4 3.7 3.8

Deposit Growth (%) 27.8 24.5 26.0 27.7 23.5 11.1 11.1 16.0 27.7 16.0

Loan Growth (%) 31.2 30.8 30.8 26.4 27.3 24.2 22.3 22.0 26.4 22.0

CD Ratio (%) 82.6 82.5 83.0 81.9 85.2 92.3 91.4 86.1 81.9 91.4

CASA Ratio (%) 27.9 28.0 28.7 29.3 30.0 31.8 29.3

Tax Rate (%) 32.6 32.5 32.1 33.4 34.3 33.8 34.0 33.9 32.7 34.0

Asset Quality

OSRL (INR b) 0.9 0.7 1.1 1.3 1.3 1.5 1.3

OSRL (%) 0.2 0.2 0.3 0.3 0.3 0.3 0.3

Gross NPA (INR b) 3.7 4.1 4.2 4.6 5.1 5.5 6.3 7.4 4.6 7.4

Gross NPA (%) 1.0 1.0 1.0 1.0 1.1 1.1 1.2 1.3 1.0 1.3

E: MOSL Estimates; Quarterly calculated margins based on total assets, yearly on interest earning assets

IndusInd BankCMP: INR422 Buy

Growth in commercial vehicle finance portfolio is likely to moderate

on the back of slower demand. However, introduction of new products

will drive growth in consumer finance portfolio. In corporate segment,

growth is expected to be driven by working capital. Loan growth is

expected to be above industry average at 22% YoY.

Margins are expected to moderate by 10-15bp QoQ to ~3.5%.

Fee income growth is expected to be healthy at ~25% YoY, driven by

traction in forex related and investment banking fees.

Overall asset quality is expected to be healthy; however, we may see

delinquencies and fresh restructuring inching up. Building a credit

cost ratio of 68bp, compared to 60bp in 2QFY14.

Bank is expected to make provisions of INR350m+ on account of

depreciation of investment (in accordance with amortization done in

2QFY14). Maintain Buy.


Growth strategy, traction in new products and fee-based income.

New additions to saving bank accounts and traction in SA deposits.

Outlook on asset quality, especially on CV portfolio (given the

slowdown in industry) and mid-corporate segment.


NII 22.3 28.0 33.8 40.5

OP 18.4 24.7 29.0 34.4

NP 10.6 13.3 15.6 18.3

NIM (%) 3.7 3.8 3.8 3.7

EPS (INR) 20.3 25.5 29.9 35.0

EPS Gr. (%) 18.3 25.4 17.4 17.1

BV/Sh. (INR) 141.9 162.9 187.5 216.4

ABV/Sh. (INR) 140.2 160.7 184.0 211.5

RoE (%) 17.8 16.7 17.1 17.3

RoA (%) 1.6 1.7 1.6 1.6

Payout (%) 20.3 17.5 17.5 17.5

Valuations

P/E (X) 20.8 16.6 14.1 12.1

P/BV (X) 3.0 2.6 2.3 2.0

P/ABV (X) 3.0 2.6 2.3 2.0

Div. Yield (%) 0.7 0.9 1.1 1.2

Bloomberg IIB IN


M. Cap. (INR b)/(USD b) 221 / 4


1,6,12 Rel Perf. (%) -1 / -20 / -8

C–69January 2014





Interest Income 11,714 11,976 12,389 12,537 13,086 13,173 13,915 14,867 48,616 55,040



% Change (Y-o-Y) 31.0 21.5 24.5 32.7 23.9 19.4 11.9 8.0 27.3 15.3

Other Income 1,710 1,689 1,866 2,004 2,445 1,847 2,175 2,422 7,269 8,889

Net Income 5,142 5,377 5,895 6,241 6,699 6,250 6,684 6,998 22,655 26,631



% Change (Y-o-Y) 48.1 20.2 24.6 29.0 50.3 21.4 14.4 12.0 29.3 23.2

Other Provisions 267 64 246 336 681 181 400 520 912 1,782


Tax Provisions 607 710 764 804 837 820 836 850 2,885 3,343

Net Profit 1,301 1,502 1,623 1,703 1,751 1,763 1,776 1,814 6,130 7,104

% Change (Y-o-Y) 38.4 30.2 35.8 33.7 34.6 17.4 9.4 6.5 34.3 15.9


NIM (Reported,%) 3.3 3.5 3.6 3.7 3.6 3.5 3.5

NIM (Cal, %) 3.3 3.4 3.6 3.5 3.4 3.5 3.5 3.3 3.4 3.5

Deposit Growth (%) 14.6 17.8 19.1 17.4 14.1 10.7 11.5 12.0 17.4 12.0

Loan Growth (%) 22.8 20.8 20.2 10.6 13.0 9.4 9.2 16.0 10.6 16.0

CD Ratio (%) 81.5 83.0 83.8 76.9 80.7 82.1 82.1 79.6 76.9 79.6

CASA Ratio (%) 33.3 32.8 31.7 32.5 30.2 32.5 32.5

Tax Rate (%) 31.8 32.1 32.0 32.1 32.3 31.7 32.0 31.9 32.0 32.0

Asset Quality

Gross NPA (INR B) 5.9 5.8 5.7 5.7 5.9 5.7 6.5 7.6 5.7 7.6

Gross NPA (%) 2.0 1.9 1.8 1.8 1.8 1.7 1.8 2.0 1.8 2.0

Net NPA (%) 0.19 0.13 0.05 0.03 0.19 0.19 0.21 0.23 0.03 0.23

ING Vysya BankCMP: INR603 Buy

While on a sequential basis, loan growth is expected to be ~5%, YoY

growth is expected to be sub-10%. This is partially due to large

repayment of INR21.5b from the telecom segment.

NIM is expected to remain steady QoQ at 3.4%. While pressure on

cost of funds is expected to continue, redeployment of funds from

lower yielding investments to loans will provide cushion to NIM.

Fee income (ex-forex) is expected to grow by 11% YoY. However, forex

income is expected to be strong and help overall non-interest income.

Asset quality performance remains strong and it would be a key

indicator to watch.

Modeled provision expense of INR400m v/s INR181m in 2QFY14 and

INR246m in 3QFY13 to provide a buffer for credit cost. Maintain Buy.


Utilizing the strong capitalization for business growth would be vital.

Demonstration of operating leverage and performance and outlook

on asset quality remains critical.

Over the past few quarters, SA deposit growth has been in low single

digits, although it picked up in 2QFY14. Sustaining and improving the

same would be a positive.


NII 15.4 17.7 20.2 23.9

OP 9.9 12.2 14.1 17.0

NP 6.1 7.1 7.7 8.9

NIM (%) 3.2 3.2 3.1 3.1

EPS (INR) 39.6 38.4 41.4 48.3

EPS Gr. (%) 30.2 -2.9 7.8 16.5

BV/Sh. (INR) 292.1 376.2 410.9 451.3

ABV/Sh. (INR) 291.7 373.0 405.8 443.8

RoE (%) 14.6 12.4 10.5 11.2

RoA (%) 1.2 1.2 1.1 1.1

Payout (%) 16.1 16.2 16.2 16.2

Valuations

P/E(X) 15.2 15.7 14.6 12.5

P/BV (X) 2.1 1.6 1.5 1.3

P/ABV (X) 2.1 1.6 1.5 1.4

Div. Yield (%) 0.9 0.9 1.0 1.1

Bloomberg VYSB IN




1,6,12 Rel Perf. (%) 0 / -11 / 6

C–70January 2014


KMB Group: Earnings Trends (INR Million)



Kotak Bank (Standalone) 2,824 2,804 3,617 4,362 4,028 3,525 3,624 3,661 13,607 14,839

Kotak Prime 940 1,140 1,050 1,190 1,170 1,250 1,313 1,401 4,307 5,133

Kotak Mah. Investments 40 160 80 50 40 110 125 124 336 399

Lending Business 3,804 4,104 4,747 5,602 5,238 4,885 5,062 5,186 18,250 20,371

YoY Growth (%) 9.0 16.3 23.9 40.1 37.7 19.0 6.6 -7.4 22.9 11.6

Kotak Securities 230 400 380 130 310 400 360 364 1,145 1,434

Kotak Mah. Capital Co. 60 40 20 40 40 -20 30 41 167 91

Capital Market Business 290 440 400 170 350 380 390 405 1,312 1,525

YoY Growth (%) 20.8 76.0 42.9 -69.1 20.7 -13.6 -2.5 138.2 -0.4 16.2

Intl. Subsidiaries -50 80 50 -10 -100 10 30 60 60 0

Kotak Mah. AMC & Trustee Co. 40 -50 110 20 70 170 180 180 35 600

Kotak Investment Advisors 80 90 60 80 10 40 60 90 307 200

Asset Management Business 70 120 220 90 -20 220 270 330 401 800

YoY Growth (%) -58.8 50.0 266.7 -43.8 -128.6 83.3 22.7 266.7 -0.8 99.3

Consol. PAT excluding Kotak Life 4,164 4,664 5,367 5,862 5,568 5,485 5,722 5,921 19,964 22,696

YoY Growth (%) 6.8 20.8 28.7 24.5 33.7 17.6 6.6 1.0 20.4 13.7

Kotak OM Life Insurance 320 470 530 580 710 440 460 480 1,900 2,090

Consolidation Adjust. -50 -112 -125 214 -3 -96 -50 -80 21 -150

Consol. PAT Including Kotak Life 4,435 5,022 5,772 6,656 6,275 5,829 6,132 6,321 21,885 24,636

YoY Growth (%) 6.6 16.0 24.6 27.8 41.5 16.1 6.2 -5.0 19.4 12.6

E: MOSL Estimates

Kotak Mahindra BankCMP: INR737 Neutral

Lending business

Profit from the lending business is expected to moderate to ~7% YoY,

led by muted profitability for the standalone bank. Profitability for

Kotak Prime is expected to be strong at 25% YoY.

For the standalone bank, we expect loan growth to be moderate at

10% YoY and PAT to be flat. Margins are expected to be stable QoQ,

and credit cost (including standard asset provisioning) to be ~40bp

(30bp in 3QFY13).

Capital Market and Asset Management business

We expect PAT from Capital Market related businesses to be flat both

on a sequential and YoY basis.

In the Asset Management business, profitability is expected to

improve 23% YoY. Overall contribution of capital market and asset

management business would continue to be low at near 10%. Maintain

Neutral.


Business growth and CASA trends.

Asset quality trends, especially in the CV segment.

Financials & Valuation (Standalone, INR b)Y/E March 2013 2014E 2015E 2016E

NII 32.1 37.4 43.7 51.9

OP 21.6 26.5 30.3 35.1

NP 13.6 14.8 17.4 20.0

NIM (%) 4.6 4.5 4.6 4.7

EPS (INR) 29.3 33.0 37.8 43.0

EPS Gr. (%) 18.5 12.6 14.6 13.8

Cons. BV. (INR) 204.3 236.3 273.0 314.8

Cons. RoE (%) 15.5 15.0 14.8 14.6

RoA (%) 1.8 1.7 1.7 1.7

Payout (%) 2.8 2.9 2.9 2.9

Valuations

P/E(X) (Cons.) 25.2 22.3 19.5 17.1

P/BV (X) (Cons.) 3.6 3.1 2.7 2.3

P/ABV (X) (Cons.) 3.7 3.2 2.8 2.4

Div. Yield (%) 0.1 0.1 0.1 0.1

Bloomberg KMB IN


M. Cap. (INR b)/(USD b) 565 / 9


1,6,12 Rel Perf. (%) -5 / -8 / 4

C–71January 2014





Interest Income 42,872 44,146 44,687 45,343 47,177 46,758 48,273 51,202 177,048 193,410



% Change (YoY) 10.6 16.9 5.7 13.6 16.1 10.7 7.6 12.0 11.5 11.5

Other Income 4,084 4,068 3,778 4,617 5,381 3,119 4,029 4,634 16,547 17,162

Net Income 15,343 15,639 15,822 16,755 18,451 15,928 16,985 18,230 63,559 69,594



% Change (YoY) 11.9 21.5 12.0 25.5 21.4 -10.4 -2.4 3.3 17.5 2.8



Tax Provisions 1,730 1,592 -39 -1,202 2,022 232 567 688 2,081 3,508

Net Profit 3,914 3,022 3,264 3,079 3,534 2,514 2,498 2,564 13,279 11,110

% Change (YoY) 10.4 80.2 -7.9 16.2 -9.7 -16.8 -23.5 -16.7 16.3 -16.3


NIM (Rep, %) 2.8 2.8 2.8 2.8 2.9 2.8 2.8

NIM (Cal,%) 2.7 2.7 2.7 2.7 2.8 2.7 2.7 2.7 2.7 2.6

Deposit Growth (%) 9.4 9.8 7.9 12.8 11.5 6.7 8.1 11.0 12.8 11.0

Loan Growth (%) 16.0 12.5 11.7 15.2 12.4 9.2 9.2 12.2 15.2 12.2

CD Ratio (%) 71.3 71.8 72.7 73.3 71.8 73.3 73.3 74.0 73.3 74.0

CASA Ratio (%) 24.0 24.1 23.9 23.9 23.5 24.5 23.9

Tax Rate (%) 30.7 34.5 -1.2 -64.0 36.4 8.4 18.5 21.2 13.5 24.0

Asset Quality

OSRL (INR b) 105.7 109.4 109.9 99.4 102.7 94.1 99.4

OSRL (%) 9.3 9.2 8.9 7.6 8.0 7.3 7.6

Gross NPA (INR b) 33.8 34.7 36.9 41.8 43.0 48.9 54.6 59.7 41.8 59.7

Gross NPA (%) 3.0 2.9 3.0 3.2 3.4 3.8 4.0 4.1 3.2 4.1

Oriental Bank of CommerceCMP: INR228 Buy

Bank is cautiously growing its balance sheet. Hence, loan and deposit

growth each is expected to be lower than industry average at 9% YoY.

Margins are expected to be stable QoQ at 2.8%. While systemic interest

rate remains high, bank has reduced its dependence on bulk deposits,

which should help contain the increase in cost of funds.

Pressure on asset quality is expected to continue. Hence, factor net

slippage ratio of 2.7% v/s 2.8% in 2QFY14 and credit cost of 0.9% v/s 1%

in 2QFY14.

At end-2QFY14, management had given a guidance of INR20b of

restructuring for 2HFY14. While the restructured pool is expected to

increase, bonds issuance by SEBs will help to an extent.

Increase in provisions is expected to be driven by elevated provisioning

from depreciation on investments and higher tax rate, which in turn

will result in lower earnings (decline 24% YoY). Maintain Buy.


Balance sheet growth and outlook on NIM.

Tax rate: In 1QFY14, bank made higher tax provisions and effective

tax rate stood at 36%; declined to 8% in 2QFY14. Currently, we factor

a tax rate of 19%.


NII 47.0 52.4 60.5 68.0

OP 36.9 38.0 43.1 46.8

NP 13.3 11.1 12.8 14.9

NIM (%) 2.7 2.6 2.7 2.6

EPS (INR) 46 37 43 50

EPS Growth (%) 16.3 -18.6 15.7 16.1

BV/Sh. (INR) 415 437 470 508

ABV/Sh. (INR) 350 342 364 398

RoE (%) 11.5 8.8 9.5 10.2

RoA (%) 0.7 0.5 0.5 0.5

Div. Payout (%) 23.4 23.2 23.2 23.2

Valuations

P/E (x) 5.0 6.2 5.3 4.6

P/BV (x) 0.6 0.5 0.5 0.4

P/ABV (x) 0.7 0.7 0.6 0.6

Div. Yield (%) 4.0 3.2 3.8 4.4

Bloomberg OBC IN




1,6,12 Rel Perf. (%) 22 / 3 / -42

C–72January 2014





Interest Income 105,540 104,280 105,288 103,788 104,045 107,335 111,877 117,388 418,933 440,646



% Change (YoY) 18.5 5.6 5.6 14.2 5.8 10.1 9.9 10.5 10.8 9.1

Other Income 11,680 9,072 9,705 11,740 13,421 8,993 9,984 11,787 42,159 44,185

Net Income 48,611 45,548 47,038 49,527 52,496 49,149 51,006 53,553 190,724 206,204



% Change (YoY) 14.8 0.2 0.2 -2.9 4.7 0.1 -0.3 2.1 2.8 1.7



Tax Provisions 5,627 3,935 5,747 2,423 6,320 1,306 3,575 3,800 17,741 15,001

Net Profit 12,457 10,656 13,056 11,317 12,753 5,055 7,596 7,985 47,477 33,389

% Change (YoY) 12.7 -11.6 13.5 -20.5 2.4 -52.6 -41.8 -29.4 -2.8 -29.7


NIM (Rep, %) 3.6 3.5 3.5 3.5 3.5 3.5 3.5

NIM (Cal, %) 3.5 3.4 3.4 3.4 3.5 3.5 3.5 3.4 3.4 3.4

Deposit Growth (%) 18.9 17.3 8.2 3.2 3.0 1.2 9.4 14.0 3.2 14.0

Loan Growth (%) 21.2 18.4 13.2 5.1 3.6 6.5 9.8 12.0 5.1 12.0

CD Ratio (%) 76.4 73.5 77.1 78.8 76.9 77.4 77.4 77.5 78.8 77.5

CASA Ratio (%) 35.6 37.0 38.4 40.9 39.6 40.7 40.9

Tax Rate (%) 31.1 27.0 30.6 17.6 33.1 20.5 32.0 32.2 27.2 31.0

Asset Quality

OSRL (INR B) 240.5 259.0 285.3 305.3 319.1 348.2 305.3

OSRL (%) 8.2 8.8 9.6 9.9 10.5 11.1 9.9

Gross NPA (INR B) 99.9 140.2 140.0 134.7 150.9 165.3 179.3 191.3 134.7 191.3

Gross NPA (%) 3.3 4.7 4.6 4.3 4.8 5.1 5.4 5.4 4.3 5.4

Punjab National BankCMP: INR635 Buy

Loan growth is expected to improve QoQ (+4% QoQ) as the strategy of

consolidation is now behind. However, on a YoY basis, loan growth is

expected to be below industry average at 10%.

NIM is expected to moderate marginally to ~3.4%, led by increase in

cost of funds and incremental growth in low yielding segments (top

corporates and secured retail).

Fee income growth is expected to be moderate at 7% YoY.

Bank adopted the amortization of MTM in three quarters. Hence, we

factor net investment loss of INR2.2b, compared to a gain of INR410m

in 3QFY13.

With macro-economic environment challenges prevailing in the

system, we factor net slippage ratio of 2.3% v/s 2% in 2QFY14. Hence,

credit cost is expected to remain high at 1.2%. Maintain Buy.


Management strategy: (1) balance sheet growth, (2) liability mix and

(3) asset quality management.

Pipeline of restructured loans.


NII 148.6 162.0 180.4 203.6

OP 109.1 110.9 123.4 138.1

NP 47.5 33.4 43.1 49.9

NIM (%) 3.4 3.4 3.3 3.3

EPS (INR) 134 94 122 141

EPS Gr. (%) -6.7 -29.7 29.0 15.9

BV/Sh. (INR) 884 957 1,050 1,158

ABV/Sh. (INR) 751 754 801 884

ROE (%) 16.5 10.3 12.1 12.8

ROA (%) 1.0 0.7 0.7 0.8

Div. Payout (%) 23.3 23.2 23.2 23.2

Valuations

P/E(X) 4.7 6.7 5.2 4.5

P/BV (X) 0.7 0.7 0.6 0.5

P/ABV (X) 0.8 0.8 0.8 0.7

Div. Yield (%) 4.3 3.0 3.8 4.5

Bloomberg PNB IN


M. Cap. (INR b)/(USD b) 224 / 4


1,6,12 Rel Perf. (%) 17 / -13 / -35

C–73January 2014





Interest Income 289,225 296,068 303,436 307,842 317,183 339,221 352,292 367,550 1,196,571 1,376,246



% Change (YoY) 14.7 4.7 -3.2 -4.4 3.5 11.6 14.2 19.0 2.4 12.1

Other Income 34,931 33,466 36,485 55,467 44,743 32,778 36,666 54,833 160,348 169,020

Net Income 146,177 143,205 148,030 166,251 159,862 155,292 164,066 186,679 603,661 665,899



% Change (YoY) 12.9 -1.6 7.3 -19.1 -7.6 -14.2 -8.2 2.2 -1.6 -6.9



Tax Provisions 19,688 18,699 17,268 2,804 14,443 9,079 8,874 10,531 58,459 42,927

Net Profit 37,516 36,581 33,961 32,992 32,411 23,750 22,819 26,119 141,050 105,098

% Change (YoY) 136.9 30.2 4.1 -18.5 -13.6 -35.1 -32.8 -20.8 20.5 -25.5


NIM (Reported, %) 3.6 3.3 3.3 3.2 3.2 3.2 3.3

NIM (Cal, %) 3.7 3.4 3.4 3.2 3.2 3.3 3.3 3.3 3.3 3.2

Deposit Growth (%) 16.1 16.5 15.6 15.2 14.0 14.0 15.1 16.0 15.2 16.0

Loan Growth (%) 18.9 17.2 15.6 20.5 15.7 19.0 17.3 15.0 20.5 15.0

Domestic CD Ratio (%) 77.8 76.6 79.2 82.4 78.8 80.5 82.4

CASA Ratio (%) 46.1 45.0 45.5 46.5 44.7 43.6 46.5

Tax Rate (%) 34.4 33.8 33.7 7.8 30.8 27.7 28.0 28.7 29.3 29.0

Asset Quality

OSRL (INR B) 164 219 238 322 330 392 322

OSRL (%) 1.8 2.4 2.4 3.1 3.1 3.6 3.1

Gross NPA (INR B) 472 492 535 512 609 642 680 729 512 729

Gross NPA (%) 5.0 5.2 5.3 4.8 5.6 5.6 5.8 5.9 4.8 5.9

State Bank of IndiaCMP: INR1,770 Buy

Loan growth is expected to be in line with industry at 17%+ YoY, while

deposit growth is expected to be lower at ~15%.

Expect NIM to improve by ~5bp QoQ, modeled NIM at 3.7%, with an

increase in 20bp base rate during the quarter. Also, NII is expected to

grow by 14% YoY.

Fee income growth is expected to be flat YoY. We factor net investment

loss of INR4b, compared to a gain of INR2.2b in 2QFY14 and INR5.4b in

3QFY13, thus dragging earnings.

Macro-economic environment remains challenging and we factor net

slippage ratio of 2.1% and credit cost of 100bp.

Thus, we expect PAT to decline 33% YoY and be at INR22.8b.

Excluding subsidiaries, the stock trades at 0.8x FY15E consolidated BV

(adjusted for value of insurance) and 7.1x FY15E EPS. Maintain Buy.


Business growth and margin outlook.

Performance relating to asset quality and restructuring pipeline.


NII 443.3 496.9 553.9 635.2

OP 310.8 289.4 336.3 386.4

NP 141.0 105.1 127.7 145.6

NIM (%) 3.3 3.2 3.1 3.1

EPS (INR) 262 195 238 272

EPS Gr. (%) 14.6 -25.4 21.9 14.3

Cons. BV (INR) 1,769 1,928 2,122 2,344

Cons.ABV (INR) 1,475 1,439 1,564 1,730

RoE (%) 15.9 10.6 11.8 12.3

RoA (%) 1.0 0.6 0.7 0.7

Div. Payout (%) 18.5 18.5 18.5 18.5

Valuations

Cons. P/E (x) 6.4 8.5 7.1 6.2

Cons. P/BV (x) 0.9 0.9 0.8 0.7

Cons P/ABV (x) 1.1 1.2 1.1 1.0

Div. Yield (%) 2.3 1.8 2.1 2.4

Bloomberg SBIN IN


M. Cap. (INR b)/(USD b) 1,211 / 20

52-Week Range (INR) 2,550 / 1,453

1,6,12 Rel Perf. (%) -3 / -20 / -36

C–74January 2014





Interest Income 60,699 61,098 63,199 66,251 68,573 72,711 76,400 79,679 251,247 297,363



% Change (YoY) 14.6 11.4 9.9 8.7 4.8 5.6 7.4 8.5 11.0 6.6

Other Income 4,912 5,458 6,395 8,755 7,563 6,112 6,887 7,886 25,520 28,447

Net Income 23,129 23,960 25,310 28,550 26,654 25,656 27,196 29,363 100,949 108,868



% Change (YoY) 8.7 5.6 5.8 5.4 11.4 -3.7 -0.5 -11.0 6.3 -1.7



Tax Provisions 2,370 2,310 1,986 2,397 1,700 801 1,175 1,426 9,063 5,102

Net Profit 5,116 5,546 3,024 7,894 5,602 2,081 3,099 3,738 21,579 14,520

% Change (YoY) 10.2 57.3 53.5 2.1 9.5 -62.5 2.5 -52.6 20.7 -32.7


NIM (Reported,%) 3.0 3.0 3.0 2.9 2.6 2.5 3.0

NIM (Cal, %) 3.0 3.0 2.9 2.8 2.5 2.5 2.5 2.5 2.8 2.5

Deposit Growth (%) 11.5 15.6 16.6 18.3 22.3 27.0 24.7 20.0 18.3 20.0

Loan Growth (%) 19.1 19.4 21.3 17.0 16.0 25.7 21.6 15.0 17.0 15.0

CD Ratio (%) 78.3 78.1 79.4 80.3 74.6 77.2 76.9 76.8 80.3 76.8

CASA Ratio (%) 30.9 30.5 31.3 31.0 29.1 28.3 31.0

Tax Rate (%) 31.7 29.4 39.6 23.3 23.3 27.8 27.5 27.6 29.6 26.0

Asset Quality

Gross NPA (INR b) 65.4 64.7 63.8 63.1 70.9 80.6 89.1 98.2 63.1 98.2

Gross NPA (%) 3.8 3.7 3.4 3.0 3.5 3.6 3.9 4.0 3.0 4.0

E: MOSL Estimates

Union Bank of IndiaCMP: INR130 Neutral

Loan and deposit are expected to grow at 21% YoY and 25% YoY

respectively.

While pressure on cost of funds has increased, lower dependence on

bulk borrowings will help the bank to contain cost of funds. Hence,

factored flat NIM of 2.5% (on an already lower base).

We model net investment gains of INR250m v/s INR710m in 3QFY13.

Fee income growth is expected to be in mid-teens.

Stress creation is expected to remain elevated. Hence, we factor net

slippage ratio of 2.5% and credit cost of 0.9% for 3QFY14.

Restructured loans portfolio would continue to rise. At end-2QFY14,

management had given a guidance of expected restructuring of

INR20b+ for 2HFY14.

PPP and earnings are expected to remain flat YoY. Maintain Neutral.


Performance of net slippages on the asset quality front and

restructuring pipeline, which is on the rise.

CASA ratio and margins are on a continuous decline. Trends and efforts

to improve the same need to be watched.


NII 75.4 80.4 93.4 109.9

OP 55.8 54.9 60.3 68.8

NP 21.6 14.5 17.6 20.2

NIM (%) 2.8 2.5 2.5 2.5

EPS (INR) 36 24 29 34

EPS Gr. (%) 11.5 -32.9 21.0 15.4

BV/Sh. (INR) 263 281 304 330

ABV/Sh. (INR) 224 209 216 244

RoE (%) 15.0 8.9 10.0 10.7

RoA (%) 0.7 0.4 0.4 0.4

Div. Payout (%) 25.8 23.2 23.2 23.2

Valuations

P/E(X) 3.6 5.4 4.5 3.9

P/BV (X) 0.5 0.5 0.4 0.4

P/ABV (X) 0.6 0.6 0.6 0.5

Div. Yield (%) 6.1 3.7 4.5 5.2

Bloomberg UNBK IN




1,6,12 Rel Perf. (%) 8 / -39 / -62

C–75January 2014





Interest Income 18,863 19,864 21,336 22,877 23,979 25,013 26,378 27,887 82,940 103,257



% Change (Y-o-Y) 33.3 35.9 36.7 42.4 39.6 28.2 15.2 10.5 37.3 22.1

Other Income 2,881 2,768 3,132 3,794 4,421 4,461 3,773 4,210 12,574 16,865

Net Income 7,603 8,009 8,975 10,175 11,012 11,182 10,506 11,260 34,762 43,959



% Change (Y-o-Y) 41.4 25.6 41.3 47.3 47.9 47.1 8.5 0.3 39.1 23.3

Other Provisions 300 317 567 975 970 1,791 550 570 2,160 3,881


Tax Provisions 1,395 1,469 1,645 1,742 1,821 1,626 1,753 1,780 6,251 6,981

Net Profit 2,901 3,061 3,423 3,622 4,008 3,711 3,813 4,005 13,007 15,538

% Change (Y-o-Y) 34.3 30.2 34.7 33.2 38.2 21.3 11.4 10.6 33.1 19.5


NIM (Reported,%) 2.8 2.9 3.0 3.0 3.0 2.9 2.9

NIM (Cal, %) 2.8 2.9 3.1 3.0 2.9 3.0 3.0 2.9 2.8 2.8

Deposit Growth (%) 15.2 18.6 20.2 36.2 29.9 29.2 27.0 15.0 36.2 15.0

Loan Growth (%) 16.4 22.9 22.3 23.7 24.3 13.6 15.3 15.0 23.7 15.0

Customer assets growth (%) 32.4 32.5 27.4 30.9 24.2 12.7 30.9

CD Ratio (%) 76.7 80.4 77.8 70.2 73.4 70.6 70.6 70.2 70.2 70.2

CASA Ratio (%) 16.3 17.3 18.3 18.9 20.2 20.4 18.9 20.5

Asset Quality

Gross NPA (INR B) 1.1 1.0 0.8 0.9 1.0 1.3 2.0 2.6 0.9 2.6

Gross NPA (%) 0.3 0.2 0.2 0.2 0.2 0.3 0.4 0.5 0.2 0.5

E: MOSL Estimates

Yes BankCMP: INR374 Buy

Loan growth is expected improve on a sequential basis. However, on

a YoY basis, it is expected to be largely in line with industry average at

15%. Deposit growth to outpace loan growth and be at 25%+ YoY.

NIM is expected to moderate as cost of funds remains high and bank

has refrained from increasing its base rate. We factor a 5bp+ QoQ

decline in NIM.

Fee income (ex-financial markets) growth is expected to moderate as

the higher base of financial advisory catches up. Expect YoY decline in

financial advisory income. Growth in transaction banking and fees

from third party distribution is expected to remain strong.

YES has demonstrated strong asset quality performance over the

quarters amid a challenging economic environment. We expect the

healthy trend to continue.

Maintain Buy.


Impact and outlook on cost of funds and consequently on NIM.

Rollout of branch network and continuation of the same would be

vital to build its retail business (especially SA deposits).

Capital raising plans.


NII 22.2 27.1 31.9 37.2

OP 21.4 26.4 29.8 34.4

NP 13.0 15.5 17.8 20.2

NIM (%) 2.8 2.8 2.9 3.0

EPS (INR) 36.3 43.3 49.7 56.2

EPS Gr. (%) 31.0 19.5 14.6 13.2

BV/Sh. (INR) 161.9 196.9 237.1 282.5

ABV/Sh. (INR) 161.8 196.5 234.5 278.2

RoE (%) 24.8 24.1 22.9 21.7

RoA (%) 1.5 1.5 1.5 1.4

Div. Payout (%) 19.2 19.1 19.1 19.1

Valuations

P/E(X) 10.3 8.6 7.5 6.6

P/BV (X) 2.3 1.9 1.6 1.3

P/ABV (X) 2.3 1.9 1.6 1.3

Div. Yield (%) 1.6 1.9 2.2 2.5

Bloomberg YES IN


M. Cap. (INR b)/(USD b) 134 / 2


1,6,12 Rel Perf. (%) 1 / -28 / -30

C–76January 2014

December 2013 Results Preview | Sector: Financials - NBFC

Financials – NBFCCompanies Covered

Bajaj Finance

HDFC

IDFC

LIC Housing Fin

M & M Financial

Power Finance Corp

Rural Electric. Corp.

Shriram Transport F in.

Growth rates to remain healthy; marginal pressure on spreadsThe performance of retail NBFCs (HFCs and AFCs) is expected to remain strong, led by

healthy loan growth (+20%), largely stable margins and asset quality outlook. While

competition from banks in the retail financing space is intensifying, growth outlook

remains healthy, led by the buoyancy in semi urban and rural economy, market share

gain, loan mix change, unique customer base and expanding branch network. Within

the NBFC space, we continue to like HDFC, IDFC and BAF.

Housing finance companies: For housing finance companies (HFCs), 3QFY14E is likely

to remain a steady quarter, as growth in individual loans remains buoyant and asset

quality healthy. We expect overall loan growth for HDFC and LIC Housing Finance

(LICHF) to remain healthy at +20%. Margins are likely to remain stable/marginally

moderate on a sequential basis. No major regulatory changes were announced during

the quarter. HDFC remains our preferred pick; we also like LICHF on valuation.

Infrastructure finance companies: Infrastructure sector continues to remain in a fragile

state. However, government has cleared projects worth over INR1.5t over the past

few months, which is good for the sector and will have a positive impact but with a

lag. While the reforms initiated for discoms have started to bear results and is a relief

for state-owned NBFCs like RECL and POWF, fuel availability remains the most critical

issue for the power sector and a resolution is still not in sight. Among the infrastructure

finance companies, we expect growth to remain healthy for REC and PFC at +20%.

However, growth rates for IDFC are likely to moderate sub 10%. Margins are likely to

moderate during the quarter. While large account unlikely to fall into the NPA category,

asset quality will remain a key monitorable in the current environment.

Sunesh Khanna ([email protected]) / Alpesh Mehta ([email protected])




Financials - NBFC

Bajaj Finance 1,530 Buy 6,517 29.3 12.4 3,823 32.6 25.3 1,965 22.2 17.6

HDFC 789 Buy 17,347 12.7 9.9 18,017 13.7 3.8 13,069 14.6 3.2

IDFC 106 Buy 6,726 2.5 -2.0 7,641 8.7 1.7 4,340 -4.6 -10.8

LIC Housing Fin 217 Buy 4,691 26.9 3.5 4,394 24.7 -4.0 3,381 43.1 9.0

M & M Financial 320 Buy 7,208 28.4 6.3 4,906 29.4 6.1 2,505 25.1 13.2

Power Finance Corp 163 Neutral 21,122 25.9 0.1 20,932 27.0 1.6 13,777 19.6 0.6

Rural Electric. Corp. 217 Neutral 17,533 22.6 0.6 17,790 24.4 1.7 12,398 18.9 5.4

Shriram Transport Fin. 673 Buy 9,322 4.2 3.0 7,652 5.6 3.8 3,351 -3.1 2.5

NBFC Bkg. Sector Aggregate 90,466 18.5 3.6 85,155 19.7 3.1 54,787 15.7 2.9


C–77January 2014


Asset finance companies: Retail asset finance companies (AFCs) delivered strong

performance both in terms of growth and asset quality in the current cycle. Among

AFCs under our coverage, we expect both MMFS and Bajaj Finance to report healthy

growth in AUM led by good monsoon, strong festival season and continued buoyancy

in rural India. SHTF delivered healthy growth in the previous three quarters despite

the sluggish CV sales; however, such high growth is concerning, given the stress in CV

segment and increasing delinquency levels. Margins are likely to moderate

sequentially due to increase in wholesale funding costs. Asset quality will remain a

key monitorable, given the continued stress on CV/UV/tractors/car sales. BAF is our

preferred pick in this segment.




Financials - NBFC

Bajaj Finance 1,530 Buy 118.8 150.9 180.6 12.9 10.1 8.5 2.3 1.9 1.6 21.9 20.4 20.6

Dewan Housing 212 Buy 35.2 44.2 54.1 6.0 4.8 3.9 0.8 0.7 0.6 17.1 16.3 17.2

HDFC 789 Buy 31.4 35.2 40.1 25.2 22.4 19.7 4.9 4.4 4.0 23.8 25.6 25.2

IDFC 106 Buy 12.1 12.8 14.6 8.7 8.3 7.2 1.2 1.1 1.0 14.1 13.4 13.9

LIC Housing Fin 217 Buy 20.3 24.7 28.9 10.7 8.8 7.5 1.7 1.4 1.3 16.8 17.8 17.9

M & M Financial 320 Buy 15.7 17.8 21.2 20.4 18.0 15.1 4.0 3.5 3.0 23.4 20.8 21.2

Power Finance Corp 163 Neutral 34.3 41.0 45.2 4.7 4.0 3.6 0.9 0.8 0.7 20.1 20.7 19.6

Rural Electric. Corp. 217 Neutral 38.7 47.2 52.9 5.6 4.6 4.1 1.2 1.0 0.9 23.6 24.1 22.6

Shriram Transport 673 Buy 64.7 65.0 73.7 10.4 10.4 9.1 2.1 1.8 1.5 20.6 17.5 17.1

NBFC Aggregate 12.2 10.5 9.3 2.5 2.1 1.8 20.3 19.8 19.6


60

75

90

105

120

Dec

-12

Ma

r-13

Jun-

13

Sep-

13

Dec

-13

Sensex IndexMOSL Financia l s Index

95

100

105

110

115

120

Sep-

13

Oct

-13

Nov

-13

Dec

-13

Sensex IndexMOSL Fina ncia l s Index

C–78January 2014





Income from operations 6,670 6,858 7,917 7,803 8,837 8,742 9,887 9,466 29,248 36,932

Other Operating Income 343 497 333 520 446 875 400 500 1,689 2,203

Operating Income 7,013 7,355 8,250 8,323 9,283 9,617 10,287 9,966 30,937 39,135

YoY Growth (%) 56.0 49.6 36.9 34.5 32.4 30.7 24.7 19.7 37.5 26.5

Interest expenses 2,636 2,947 3,209 3,265 3,314 3,821 3,821 3,441 12,057 14,397

Net Income 4,377 4,408 5,041 5,058 5,969 5,796 6,466 6,525 18,880 24,738

YoY Growth (%) 41.6 35.9 26.6 31.4 36.4 31.5 28.3 29.0 26.4 31.0

Other income 18 11 36 112 41 23 24 103 177 191

Total Income 4,394 4,419 5,077 5,170 6,010 5,819 6,490 6,628 19,057 24,929



YoY Growth (%) 41.2 40.9 35.1 40.6 38.8 25.2 30.9 35.3 25.6 32.8

Provisions and Cont. 320 534 513 450 639 523 950 709 1,818 2,821


Tax Provisions 677 616 762 746 911 857 892 956 2,803 3,616

Net Profit 1,387 1,287 1,608 1,638 1,757 1,670 1,930 2,170 5,913 7,510

YoY Growth (%) 73.1 37.3 32.2 56.7 26.7 29.8 20.1 32.5 45.5 27.0

Loan Growth (%) 60.5 52.6 41.3 35.4 32.8 29.0 30.6 30.0 36.3 30.0

Cost to Income Ratio (%) 45.9 45.0 43.5 46.2 45.3 47.8 42.0 42.8 45.1 44.4

Tax Rate (%) 32.8 32.4 32.1 31.3 34.1 33.9 31.6 33.5 33.5 33.1

E: MOSL Estimates

Bajaj FinanceCMP: INR1,530 Buy

Bajaj Finance continues to ride high on its diversification strategy and

strong focus. Healthy growth momentum seen in the consumer and

SME segments. AUM is expected to grow at a healthy pace at 30%.

Margins are likely to improve during this quarter due to robust

consumer durable sales; during last quarter, margins stood at 11.9%.

We expect NII to grow at 30% YoY and 12% QoQ.

Asset quality is expected to remain stable. As on September 2013,

GNPAs were 1.14% and NNPAs were 0.26%.

We expect provisions of INR950m v/s INR510m during 3QFY13 and

INR523m during the last quarter.

We expect net profit to grow at 20% YoY to INR1.7b.

The stock trades at 1.7x FY14E and 1.5x FY15E BV. Maintain Buy.


Business growth momentum, as the company has been growing its

AUMs at 25%+ rate for the past 12 quarters.

Margin trends as NIMs generally increase during 3Q.

Asset quality trends in CE and two-wheeler business.


NII 17.2 22.5 28.0 34.0

PPP 10.5 13.9 17.3 21.0

PAT 5.9 7.5 9.0 10.5

EPS (INR) 119 151 181 210

EPS Gr. (%) 21 27 20 16

BV/Share (INR) 676 801 950 1,123

RoA on AUM (%) 3.8 3.7 3.5 3.3

RoE (%) 21.9 20.4 20.6 20.3

Payout (%) 12.6 14.0 14.0 14.0

Valuations

P/E (x) 11.8 9.3 7.8 6.7

P/BV (x) 2.1 1.7 1.5 1.2

Div. Yield (%) 1.1 1.6 1.9 2.3

Bloomberg BAF IN



52-Week Range (INR) 1,591 / 966

1,6,12 Rel Perf. (%) 7 / 1 / 8

C–79January 2014






YoY Change (%) 19.1 11.5 24.5 13.6 16.6 13.9 12.7 12.0 18.5 14.2

Profit on Sale of Inv. 202 941 963 1,049 0 868 650 638 3,156 2,156

Other operating income 2,223 2,480 853 1,405 2,726 2,347 1,650 1,691 7,274 8,413

Net Operating Income 15,467 17,281 17,206 22,263 17,933 19,003 19,647 24,515 72,216 81,098

YoY Change (%) 18.8 17.3 18.3 14.4 15.9 10.0 14.2 10.1 16.9 12.3

Other Income 74 78 84 116 80 80 90 100 351 350

Total Income 15,541 17,358 17,290 22,379 18,013 19,083 19,737 24,615 72,567 81,448


Pre Provisioning Profit 14,199 15,881 15,851 21,247 16,378 17,363 18,017 23,284 67,178 75,042

YoY Change (%) 19.0 17.2 17.6 14.9 15.3 9.3 13.7 9.6 16.9 11.7

Provisions 400 400 400 250 300 150 175 178 1,450 803

PBT 13,799 15,481 15,451 20,997 16,078 17,213 17,842 23,106 65,728 74,239

YoY Change (%) 17.4 15.7 16.3 15.1 16.5 11.2 15.5 10.0 16.0 12.9

Provision for Tax 3,780 3,970 4,050 5,445 4,350 4,550 4,773 6,186 17,245 19,859

PAT 10,019 11,511 11,401 15,552 11,728 12,663 13,069 16,919 48,483 54,380

YoY Change (%) 18.6 18.6 16.2 17.3 17.1 10.0 14.6 8.8 17.6 12.2

E: MOSL Estimates

HDFCCMP: INR789 Buy

HDFC's loan growth (net of sell-downs) is likely to remain healthy at

20% YoY and 4.5% QoQ.

Spreads should be largely stable at 2.2-2.3% levels. HDFC has recently

reduced home loan rates by 25bp for retail customers.

NII is likely to remain strong at INR16.2b, registering a growth of 15%

YoY.

Non-interest income is likely to grow 26% YoY.

Asset quality has remained healthy over the past several quarters and

the trend is likely to continue. In 2QFY14, GNPAs were 0.79% on 90

days overdue basis.

We model provisions of INR175m v/s INR400m seen in 3QFY13.

We expect profit to grow at 14.6% YoY at INR13.06b.

The stock trades at 4.4x FY14E AP/ABV and 3.5x FY15E AP/AEPS (price

adjusted for value of other businesses and book value adjusted for

investments made in those businesses). Maintain Buy.


Loan growth and movement in spreads (on individual loans).

Asset quality trends; progress on the recovery of a corporate account

that became NPL during 1QFY14.


NII 61.8 70.5 81.9 94.5

PPP 67.2 75.0 87.2 100.5

PAT 48.5 54.4 61.9 71.5

Adj. EPS (INR) 26.2 29.6 33.9 39.3

EPS Gr. (%) 15.3 13.3 14.3 16.1

BV/Sh. (INR) 161.7 180.3 199.1 221.3

ABV / Sh. (INR) 108.5 127.1 146.0 168.2

RoAA (%) 2.7 2.6 2.5 2.5

Core RoE (%) 23.8 25.6 25.2 24.8

Payout (%) 46.6 46.4 46.4 46.4

Valuations

AP/E (x) 22.5 18.7 15.1 13.0

P/BV (x) 4.9 4.4 4.0 3.6

AP/ABV (x) 5.4 4.4 3.5 3.0

Div. Yield (%) 1.6 1.8 2.0 2.3

Bloomberg HDFC IN


M. Cap. (INR b)/(USD b) 1,219 / 20


1,6,12 Rel Perf. (%) -6 / -18 / -14

C–80January 2014





NII 6,220 6,430 6,560 6,430 6,860 6,860 6,726 6,726 25,640 27,172

% Change (YoY) 29 29 22 10 10 7 3 5 22 6

- Infra Loans 5,550 5,960 6,110 6,030 6,310 6,420 6,255 6,255 23,650 25,240

- Treasury 670 470 450 400 550 440 471 471 1,990 1,932

Other operating income 1,462 1,568 1,676 2,412 2,715 1,061 1,565 1,931 7,118 7,272

- Asset management 640 690 870 890 930 1,040 950 1,043 3,090 3,963

- IB and Broking 90 210 80 400 130 80 115 123 780 448

- Fixed Income 120 190 300 570 1,390 (180) 200 280 1,180 1,690

- Loan related/others 612 478 426 552 265 121 300 486 2,068 1,171

Principal investments 20 490 70 1,290 630 960 775 849 1,870 1,850

Other Income 14 16 59 9 6 6 0 1 98 12

Net Income 7,716 8,504 8,365 10,141 10,211 8,886 9,066 9,507 34,726 37,670

% Change (YoY) 8 (19) (6) 23 32 4 8 (6) (0) 8


Operating profit 6,556 7,263 7,032 8,581 8,826 7,512 7,641 8,043 29,432 32,021

% Change (YoY) 10 (21) (8) 27 35 3 9 (6) (0) 9

Provisions 1,026 305 518 1,647 592 501 1,300 1,335 3,496 3,727

PBT 5,530 6,957 6,514 6,934 8,234 7,011 6,341 6,708 25,936 28,294

Tax 1,713 2,188 1,965 1,646 2,627 2,099 1,966 2,076 7,511 8,767

PAT 3,817 4,770 4,549 5,289 5,607 4,912 4,375 4,632 18,425 19,527

Less: Consol Adjustments 19 13 (2) 32 34 44 35 37 62 150

Consol PAT 3,798 4,757 4,551 5,257 5,573 4,868 4,340 4,596 18,362 19,377

% Change (YoY) 21 (9) 19 57 47 2 (5) (13) 18 6

E: MOSL Estimates

IDFCCMP: INR106 Buy

IDFC has consciously moderated loan growth in the wake of uncertain

macro environment. Loan growth is expected at 1.5% QoQ and 4.7%

YoY.

We expect margins to contract 5bp on a QoQ basis, translating into 2%

YoY growth in NII.

Revenue from Investment Banking and Broking business is expected

to decline sequentially, given the subdued activity levels in capital

markets. However, we expect revenue from fixed income to improve

sequentially. Loan related and other fee income is expected to increase

sequentially to INR300m.

Cost to income ratio on a 12-month rolling basis is likely to remain

stable at 15%. Asset quality is expected to remain stable; we model

provisions of INR1.3b, against INR518m in 3QFY13 and INR501m during

the last quarter.

We expect profit to decline ~5% YoY to INR4.4b.

The stock trades at 0.9x FY14E EPS and 0.8x FY15E ABV. Buy.


Loan growth guidance, given the uncertain macro environment.

Movement in spreads.

Asset quality trends.


NII 25.8 27.6 30.1 33.7

PPP 29.4 32.0 35.9 40.0

Cons. PAT 18.4 19.4 22.2 24.7

EPS (INR) 12.1 12.8 14.6 16.3

EPS Gr. (%) 18.0 5.5 14.5 11.6

BV/Share (INR) 90.3 99.8 110.7 122.9

ABV/Share (INR) 81.3 90.8 101.7 113.8

RoAA (%) 2.9 2.8 3.0 3.0

Core RoE (%) 15.1 15.5 15.7 15.6

Payout (%) 26.2 27.3 27.3 27.4

Valuations

P/E (x) 8.7 8.3 7.2 6.5

P/BV (x) 1.2 1.1 1.0 0.9

P/ABV (x) 1.1 0.9 0.8 0.7

Div. Yield (%) 2.5 2.7 3.0 3.4

* Adj for value of subs

Bloomberg IDFC IN


M. Cap. (INR b)/(USD b) 161 / 3


1,6,12 Rel Perf. (%) 1 / -28 / -48

C–81January 2014





Interest Income 17,179 18,081 19,050 20,281 21,303 22,237 23,456 24,844 74,591 91,840



YoY Growth (%) -2.9 5.8 13.5 24.3 29.7 28.2 26.9 17.5 10.3 25.0

Fees and other income 494 537 500 466 477 787 550 797 1,998 2,611

Net Income 3,999 4,073 4,196 5,074 5,024 5,321 5,241 6,211 17,343 21,797

YoY Growth (%) -5.0 4.0 10.6 17.5 25.6 30.7 24.9 22.4 6.8 25.7

Operating Expenses 521 679 673 946 613 744 847 1,015 2,819 3,219


YoY Growth (%) -8.2 1.2 8.0 19.2 26.8 34.9 24.7 25.9 4.7 27.9

Provisions and Cont. 436 69 319 -35 171 341 -225 -360 789 -73


Tax Provisions 766 894 843 1,002 1,135 1,136 1,238 1,490 3,504 4,999

Net Profit 2,277 2,430 2,362 3,162 3,105 3,101 3,381 4,066 10,232 13,653

YoY Growth (%) -11.2 147.0 -22.7 24.7 36.3 27.6 43.1 28.6 11.9 33.4

Loan Growth (%) 24.1 23.2 23.8 23.4 22.1 20.4 19.2 16.9 23.4 16.9

Borrowings Growth (%) 23.7 24.2 22.1 22.6 22.6 20.6 20.7 18.4 22.6 18.4


Tax Rate (%) 25.2 26.9 26.3 24.1 26.8 26.8 26.8 26.8 25.5 26.8

E: MOSL Estimates

LIC Housing FinanceCMP: INR217 Buy

LICHF’s loan growth is likely to remain healthy at 19% YoY on the back

of buoyant demand in the individual loans segment.

Individual loan segment is likely to grow by 20.5% YoY and 4.3% QoQ,

while the developer segment is expected to remain flat QoQ. Share

of builder loan is likely to fall below 3% of overall book.

We expect margins to remain flat QoQ at 2.21%. During the quarter,

LICHF raised retail PLR by 10bp and also withdrew the 15bp rebate on

Bhagyalakshmi Scheme.

Asset quality is likely to remain stable. We model provisioning reversal

of ~INR225m (v/s provisioning of INR319m in 3QFY13). The reversal

would be on account of provisioning release for teaser loans.

We expect net profit to grow at 43% YoY to INR3.38b.



Asset quality in the developer category; outlook on performance in

the developer portfolio.

Margin trends, as LICHF has been disappointing on the margin front

for past few quarters. Margins bounced back in the last quarter;

however, sustaining/improving margins will be key.

Overall asset quality trends.


NII 15.3 19.2 22.2 26.1

PPP 14.5 18.6 21.3 24.9

Adj. PAT 10.2 12.5 14.6 17.3

Adj. EPS (INR) 20.3 24.7 28.9 34.3

EPS Gr. (%) 2.2 22.0 16.9 18.6

BV/Sh (INR) 128.3 149.7 172.9 200.4

RoAA (%) 1.5 1.5 1.5 1.5

RoE (%) 16.8 17.8 17.9 18.4

Payout (%) 21.7 20.9 20.9 20.9

Valuations

P/E (x) 10.4 8.5 7.3 6.1

P/BV (x) 1.6 1.4 1.2 1.0

Div. Yield (%) 1.8 2.3 2.5 3.0

Bloomberg LICHF IN


M. Cap. (INR b)/(USD b) 110 / 2


1,6,12 Rel Perf. (%) 4 / -25 / -35

C–82January 2014






Other Income 39 135 53 153 60 96 95 99 533 350

Total income 8,390 9,292 10,009 11,256 10,985 12,127 13,029 14,682 38,947 50,823

YoY Growth (%) 49.8 43.9 35.0 32.9 30.9 30.5 30.2 30.4 39.4 30.5


Net Income 4,916 5,394 5,665 6,784 6,224 6,875 7,303 8,628 22,759 29,030



YoY Growth (%) 56.6 51.8 35.6 31.2 28.1 27.6 29.4 28.7 41.7 28.5

Provisions 854 836 815 329 1,252 1,262 1,100 862 2,833 4,476


Tax Provisions 784 914 975 1,160 995 1,151 1,302 1,767 3,833 5,216

Net Profit 1,610 1,876 2,002 3,184 1,912 2,212 2,505 3,384 8,674 10,014

YoY Growth (%) 57.6 38.4 29.4 39.9 18.7 17.9 25.1 6.3 39.9 15.4

AUM growth (%) 39.3 35.6 32.0 35.1 34.8 30.2 27.8 27.5 35.1 27.5

Borrowings growth (%) 44.8 38.9 34.5 35.1 36.8 30.0 28.1 31.0 35.1 31.0


Provisions/Operating Profits (%) 26.3 23.1 21.5 7.0 30.1 27.3 22.4 14.3 18.5 22.7

Tax Rate (%) 32.8 32.7 32.8 26.7 34.2 34.2 34.2 34.3 30.6 34.2

E: MOSL Estimates; We have not included EO inc. of INR154m in 4QFY13 for presentation purpose; According taxes have been adj.

M & M Financial ServicesCMP: INR320 Buy

MMFS continues to ride high on its multi-product strategy and strong

rural focus. Healthy growth momentum in the CV, used vehicle and

car segments is likely to sustain on the back of the festive season

gone by. AUMs are expected to grow at a healthy pace at 30% levels.

Margins are likely to remain flat during this quarter; during last quarter,

margins stood at 9.5%.

We expect NII to grow at 29% YoY and 6% QoQ.

Asset quality is expected to remain stable. As in September 2013,

GNPAs were 4.1% and NNPAs were 1.9%.

We expect provisions of INR1.1b v/s INR975m during 3QFY13 and

INR1.25b during the last quarter.

We expect net profit to grow at ~25% YoY to INR2.5b.



Business growth momentum, given the good monsoon festival

season. Also, growth as MMFS has been growing its AUMs at 30%+

rate for the past 12 quarters.

Margin trends as it raised lending rates during the quarter.

Asset quality trends, given continued weakness in car sales.


NII 22.2 28.7 35.0 41.5

PPP 15.3 19.7 24.4 28.9

PAT 8.7 10.0 11.9 14.1

EPS (INR) 15.7 17.8 21.2 25.0

EPS Gr. (%) 29.8 13.4 19.2 17.9

BV/Sh (INR) 79.1 92.2 107.9 126.3

ABV/Sh (INR) 76.1 86.7 99.1 114.8

RoA on AUM (%) 3.9 3.4 3.2 3.1

RoE (%) 23.4 20.8 21.2 21.4

Payout (%) 27.1 26.3 26.3 26.3

Valuations

P/E (x) 19.7 17.4 14.6 12.4

P/BV (x) 3.9 3.4 2.9 2.5

P/ABV (x) 4.1 3.6 3.1 2.7

Div. Yield (%) 1.2 1.3 1.5 1.8

Bloomberg MMFS IN


M. Cap. (INR b)/(USD b) 180 / 3


1,6,12 Rel Perf. (%) 4 / 16 / 32

C–83January 2014





Interest Income 39,000 41,300 44,190 45,920 49,590 52,230 53,954 57,068 170,410 212,842



YoY Gr % 40.8 36.6 53.0 40.4 39.4 43.1 25.9 25.2 52.7 32.7

Other Income 90 160 90 250 100 220 200 212 590 732

Net Operational Income 14,030 14,910 16,870 17,510 19,530 21,330 21,322 21,820 63,320 84,002

YoY Gr % 36.9 37.0 50.5 36.6 39.2 43.1 26.4 24.6 40.2 32.7

Exchange gain/(loss) -770 -240 -460 90 -1,070 -1,350 -1,250 -1,180 -1,380 -4,850

Total Net Income 13,260 14,670 16,410 17,600 18,460 19,980 20,072 20,640 61,940 79,152

YoY Gr % 39.6 151.2 6.4 35.2 39.2 36.2 22.3 17.3 41.5 27.8

Operating Expenses 286 351 389 426 319 721 390 495 1,450 1,925

YoY Gr % 5.8 6.2 34.0 4.1 11.8 105.6 0.4 16.2 12.1 32.7

% to Income 2.2 2.4 2.4 2.4 1.7 3.6 1.9 2.4 2.3 2.4


YoY Gr % 40.6 159.9 5.9 36.2 39.8 34.5 22.8 17.3 42.4 27.7

Provisions 20 -30 900 -90 910 1,370 1,250 1,189 800 4,719

PBT 12,954 14,350 15,122 17,264 17,231 17,889 18,432 18,957 59,690 72,508

Tax 3,240 3,978 3,940 4,320 5,230 5,159 5,530 5,834 15,478 21,753

Tax Rate % 25.0 27.7 26.1 25.0 30.4 28.8 30.0 30.8 25.9 30.0

PAT 9,714 10,372 11,182 12,944 12,001 12,730 12,902 13,123 44,212 50,756

YoY Gr % 41.6 147.5 0.9 57.9 23.5 22.7 15.4 1.4 45.8 14.8

Adjusted PAT (For Forex) 10,292 10,545 11,522 12,877 12,746 13,691 13,777 13,939 45,235 54,154

YoY Gr % 38.6 31.4 45.6 59.9 23.8 29.8 19.6 8.3 44.0 19.7

E:MOSL Estimates; Quarterly and annual numbers would not match due to differences in classification

Power Finance CorporationCMP: INR163 Neutral

Loan growth is expected to remain healthy at 21% YoY. On a sequential

basis, loans and borrowings are expected to grow by ~4% and ~5%

respectively.

NII is expected to grow at a healthy 26% YoY on the back of healthy

loan growth. Margins are likely to moderate QoQ.

We expect MTM loss of INR1.25b during the quarter, compared with a

gain of INR1.25b loss incurred in 2QFY14.

We expect NIM to remain moderate at 4.8%, compared to 5% reported

during 2QFY14.

Barring a couple of accounts, asset quality at large remained healthy.

However, it will remain a key monitorable, given the uncertain macro

environment and issues related to fuel linkages.

The stock trades at 0.8x FY14E and 0.7x FY15E BV. Maintain Neutral.


Growth trends and asset quality performance, against the backdrop

of challenging fuel linkages issues hurting power generation

companies.

Movement in spreads and yields on assets.

Overall disbursement trends and disbursements to SEBs for

transnational finance.


NII 62.7 83.3 92.4 107.2

PPP 60.5 77.2 88.5 102.9

Adj. PAT 45.2 54.2 59.7 70.3

Adj. EPS (INR) 34.3 41.0 45.2 53.2

EPS Gr. (%) 43.4 19.7 10.2 17.7

BV/Sh (INR) 183.9 213.4 247.1 286.9

Adj. RoAA (%) 3.1 3.0 2.8 2.9

RoE (%) 20.1 20.7 19.6 19.9

Payout (%) 24.2 23.2 23.2 23.2

Valuations

P/E (x) 4.8 4.0 3.6 3.1

P/BV (x) 0.9 0.8 0.7 0.6

Div. Yield (%) 4.3 4.7 5.4 6.3

Bloomberg POWF IN


M. Cap. (INR b)/(USD b) 215 / 3


1,6,12 Rel Perf. (%) 2 / 5 / -28

C–84January 2014





Interest Income 29,968 32,405 35,014 35,522 39,141 41,672 42,714 43,788 132,910 167,314



YoY Gr (%) 28.1 34.8 42.3 38.0 43.3 36.2 22.6 24.6 36.0 31.9

Other Operational Income 717 514 322 726 675 432 600 839 2,279 2,546

Net Operational Income 12,372 13,316 14,626 14,813 17,377 17,864 18,133 18,390 55,126 72,234

YoY Gr (%) 30.4 36.1 41.0 37.1 40.5 34.2 24.0 24.1 39.2 31.0

Other Income -133 79 -34 112 -374 -815 -725 -611 23 -2,525

Total Net Income 12,239 13,394 14,591 14,925 17,004 17,049 17,408 17,779 55,149 69,709

YoY Gr (%) 27.2 52.3 27.9 36.3 38.9 27.3 19.3 19.1 35.2 26.4

Operating Expenses 456 585 507 656 564 514 567 960 2,203 2,605

YoY Gr (%) 8.7 34.2 -34.9 -2.2 23.8 -12.1 12.0 46.3 -5.3 18.2

% to Income 3.7 4.4 3.5 4.4 3.3 3.0 3.3 5.4 4.0 3.7


YoY Gr % 28.0 53.2 32.5 38.8 39.5 29.1 19.6 17.9 37.7 26.7

Op. Profit adj. forex gain /loss 12,158 12,949 14,305 14,310 17,020 17,488 17,790 17,735 53,721 70,034

YoY Gr (%) 31.0 34.7 46.5 38.4 40.0 35.1 24.4 23.9 37.8 30.4

Provisions 0 0 250 1,057 560 340 450 634 1,307 1,984

PBT 11,784 12,809 13,835 13,212 15,880 16,194 16,390 16,185 51,640 65,120

YoY Gr (%) 31.6 53.2 33.2 29.0 34.8 26.4 18.5 22.5 36.1 26.1

Tax 3,016 3,270 3,568 3,609 4,343 5,088 4,671 4,457 13,463 18,559

Tax Rate (%) 25.6 25.5 25.8 27.3 27.3 31.4 28.5 27.5 26.1 28.5

PAT 8,767 9,539 10,267 9,603 11,537 11,107 11,719 11,728 38,176 46,561

YoY Gr (%) 32.5 52.8 33.4 25.9 31.6 16.4 14.1 22.1 35.5 22.0

Adjusted PAT 9,046 9,643 10,430 9,633 11,958 11,761 12,398 12,392 38,752 48,509

YoY Gr (%) 35.6 34.3 47.9 25.5 32.2 22.0 18.9 28.6 35.6 25.2

E:MOSL Estimates; Quarterly and annual numbers would not match due to differences in classification

Rural Electrification CorpCMP: INR217 Neutral

Loan growth is expected to remain healthy at 21% YoY and ~4% QoQ.

RECL’s margins have stood at 4.86% (highest in last four years). This

was led by an improvement in yields, while it also maintained a tight

leash on cost of funds. However, in the current quarter, we expect

10bp moderation in margins.

We factor forex MTM loss of INR950m v/s INR950m in 2QFY14.

Barring a couple of accounts, asset quality at large remained healthy,

though it will be a key monitorable, given the uncertain macro

environment. We model provisions of INR450m during the quarter.

We expect PAT to grow by 13% YoY to INR11.5b.

The stock trades at 1x FY14E and 0.9x FY15E BV. Maintain Neutral.


Growth trends and asset quality performance, against the backdrop

of challenging macro environment.

Movement in spreads and yield on assets.

Overall disbursement trends and disbursements to SEBs for

transnational finance.


NII 52.8 69.7 76.7 86.5

PPP 52.9 67.1 74.2 87.1

PAT 38.2 46.6 52.2 61.4

EPS (INR) 38.7 47.2 52.9 62.2

EPS Gr. (%) 35.4 22.0 12.1 17.6

BV/Sh (INR) 178.2 213.6 253.3 300.0

RoAA (%) 3.3 3.4 3.3 3.3

RoE (%) 23.6 24.1 22.6 22.5

Payout (%) 24.9 24.9 24.9 24.9

Valuations

P/E (x) 5.7 4.7 4.2 3.5

P/BV (x) 1.2 1.0 0.9 0.7

Div. Yield (%) 3.8 4.6 5.2 6.1

Bloomberg RECL IN


M. Cap. (INR b)/(USD b) 214 / 3


1,6,12 Rel Perf. (%) -6 / 1 / -19

C–85January 2014


Quaterly Performance (INR Million)



Interest Income 8,876 10,946 12,046 13,104 13,856 15,598 16,846 17,570 45,028 63,869

Interest expenses 6,173 6,859 7,350 8,057 8,692 9,809 10,495 10,840 28,439 39,836


YoY Growth (%) 1.8 16.0 51.0 74.1 91.1 41.6 35.2 33.4 36.1 44.9

Securitization income 5,323 4,590 4,252 3,892 3,859 3,262 2,971 2,988 18,057 13,079

Net Income (Incl. Securitization) 8,025 8,678 8,947 8,939 9,022 9,051 9,322 9,718 34,645 37,113

YoY Growth (%) 2.6 4.0 11.3 11.0 12.4 4.3 4.2 8.7 7.4 7.1

Fees and Other Income 702 314 300 569 1,084 529 625 684 1,885 2,922

Net Operating Income 8,727 8,991 9,247 9,508 10,106 9,580 9,947 10,401 36,530 40,034

YoY Growth (%) 5.2 4.5 11.0 14.4 15.8 6.6 7.6 9.4 8.9 9.6



YoY Growth (%) 2.5 4.4 12.1 14.2 12.1 3.5 5.6 7.1 8.5 6.8

Provisions 2,026 2,106 2,126 2,193 2,764 2,643 2,830 2,862 8,508 11,099


Tax Provisions 1,543 1,638 1,662 1,713 1,435 1,457 1,471 1,542 6,556 5,904

Net Profit 3,219 3,376 3,460 3,552 3,410 3,268 3,351 3,584 13,606 13,614

YoY Growth (%) -7.3 12.7 14.3 15.3 6.0 -3.2 -3.1 0.9 8.2 0.1

AUM Growth (%) 13.3 15.8 18.6 23.5 25.2 22.0 18.7 14.0 23.5 14.0

Disbursement Growth (%) 12.2 28.6 42.0 54.6 47.9 17.5 5.7 -1.5 34.6 15.0

Securitization Inc. / Net Inc. (%) 61.0 51.1 46.0 40.9 38.2 34.0 29.9 28.7 49.4 32.7


Tax Rate (%) 32.4 32.7 32.5 32.5 29.6 30.8 30.5 30.1 32.5 30.3

E: MOSL Estimates; * Quaterly nos and full year nos will not tally due to different way of reporting financial nos

Shriram Transport FinanceCMP: INR673 Buy

AUMs are likely to grow at 19%/3% YoY/QoQ. We expect disbursements

growth to remain muted at 6% YoY and 2% QoQ.

Sequentially, disbursements may see some moderation in growth at

6% YoY and 2% QoQ. Disbursements grew sharply with a growth rate

of over 31% in 1HFY14.

Margins are expected to remain flat sequentially at 6.9%. Hence, NII

(incl. securitization income) should grow 5% YoY.

Given the uncertain macro environment and slowdown in CV sales,

asset quality continues to be a key monitorable.

We have factored higher provisions of INR2.7b v/s INR2b in 3QFY13

and INR2.6b in 2QFY14.

We expect PAT to decline 3% YoY at INR3.35b.

The stock trades at 1.5x FY14E and 1.2x FY15E consolidated BV. Buy.


Business growth, pickup in growth was observed during last two

quarters and management commentary on the same.

Movement in borrowing costs and margins.

Asset quality trends, given sluggish CV sales.


Net Inc. 34.6 37.1 43.0 48.9

PPP 28.7 30.6 35.0 39.4

PAT 13.6 13.6 15.4 17.3

Cons.PAT 14.6 14.7 16.7 18.7

EPS (INR) 60.0 60.0 68.1 76.1

EPS Gr. (%) 7.9 0.1 13.4 11.8

Cons. EPS (INR) 64.7 65.0 73.7 82.5

Cons. EPS Gr. (%) 11.9 0.4 13.5 11.9

BV/Sh(INR) 317.1 369.0 427.9 493.8

Cons. BV (INR) 323.0 379.9 444.4 516.7

RoA on AUM (%) 2.6 2.3 2.3 2.3

RoE (%) 20.6 17.5 17.1 16.5

Payout (%) 13.6 13.3 13.3 13.3

Valuations

P/Cons. EPS (x) 8.5 8.5 7.5 6.7

P/Cons. BV (x) 1.7 1.5 1.2 1.1

Div. Yield (%) 1.3 1.2 1.4 1.6

Bloomberg SHTF IN


M. Cap. (INR b)/(USD b) 152 / 2


1,6,12 Rel Perf. (%) 12 / -19 / -18

C–86January 2014

December 2013 Results Preview | Sector: Healthcare

Expected quarterly performance summary (INR million)




Biocon 466 Neutral 7,614 20.1 3.8 1,713 20.9 1.4 1,096 19.5 7.1

Cadila Health 786 Buy 18,222 13.6 4.3 2,791 9.5 7.1 1,504 46.1 -18.0

Cipla 405 Neutral 26,575 28.4 5.8 5,857 18.8 3.8 3,590 5.9 -2.3

Divis Labs 1,222 Buy 6,280 17.8 11.0 2,384 31.5 -3.7 1,780 23.4 -13.1

Dr Reddy’ s Labs 2,519 Buy 35,947 25.5 7.1 7,729 36.2 -8.6 4,503 23.9 -34.8

Glenmark Pharma 538 Buy 15,628 20.2 7.7 3,221 28.5 6.1 1,757 11.6 22.3

GSK Pharma 2,958 Neutral 6,118 -6.8 -1.4 1,106 -42.2 2.4 1,013 -35.9 -0.4

IPCA Labs. 718 Buy 8,049 14.8 -4.9 1,785 12.7 -23.9 1,189 35.3 -8.2

Lupin 906 Buy 26,513 11.6 5.3 5,668 11.9 4.2 3,797 35.1 12.3

Ranbaxy Labs 464 Se l l 28,791 15.7 2.8 2,335 467.1 20.5 1,121 LP 83.5

Sanofi India 2,749 Neutral 4,668 16.5 -1.2 684 34.9 -31.4 566 26.4 -26.4

Sun Pharma 576 Buy 39,084 43.9 0.3 15,767 36.8 -1.0 11,515 43.9 -2.9

Torrent Pharma 475 Buy 9,718 21.9 1.3 1,827 13.3 5.6 1,261 12.3 17.9

Sector Aggregate 233,208 21.8 3.7 52,867 27.3 -0.9 34,691 29.5 -6.1

Alok Dalal ([email protected]) / Hardick Bora ([email protected])

EBITDA to grow by 27% on the back of strong operational performance byDr. Reddy's, Ranbaxy, Glenmark and Divi's LabsFor 3QFY14E, we expect sales growth of 22% YoY and EBITDA of 27% YoY for our

pharma universe (excluding one-offs). Adjusted PAT is likely to grow 30% YoY. Strong

operational performance will be driven by continued foreign currency benefit along

with a low base effect for some companies.

EBITDA growth would be mainly led by strong performance by Dr. Reddy's, Ranbaxy,

Glenmark and Divi's Labs. Growth for Dr. Reddy's and Glenmark will be driven by

increased contribution from recently-launched products in the US and better sales

mix. Ranbaxy is expected to report high growth on an abnormally low base of 4QCY12,

which was impacted by gLipitor recall and high consent decree related costs. Divi's

Labs is also expected to report robust EBITDA margin growth aided by favorable

currency and low base effect (3QFY13 had lowest EBITDA in three years). Among

MNCs, Sanofi India may report healthy operational performance aided by improving

margin profile and growth in products exiting DPCO-1995. GSK Pharma may continue

to report YoY decline in EBITDA due to supply chain and trade channel related issues.

HealthcareCompanies Covered

Biocon

Cadila Healthcare

Cipla

Divi’s Laboratories

Dr Reddy’s Labs.

GSK Pharma

Glenmark Pharma

IPCA Laboratories

Lupin

Ranbaxy Labs.

Sanofi India

Sun Pharmaceuticals

Torrent Pharma

Note: Historic numbers exclude upside from one-off opportunities

3QFY14E aggregates excluding one-offs

Healthcare Universe YoY Growth (%) EBITDA Margin Net Profit Margin

Aggregates Sales EBITDA Adj PAT Dec-13 Dec-12 Chg.(bp) Dec-13 Dec-12 Chg.(bp)

MNC Pharma 2.0 -26.1 -22.1 16.6 22.9 -630 14.6 19.2 -453

Big 5 Generics 25.4 35.3 37.9 23.8 22.1 175 15.6 14.2 142

CRAMS 17.8 31.5 23.4 38.0 34.0 397 28.3 27.0 130

Second Tier generics 17.6 17.3 23.2 19.1 19.2 -6 11.5 11.0 53

Sector Aggregate 21.8 27.3 29.5 22.7 21.7 99 14.9 14.0 89

Note: Above numbers exclude one-offs to facilitate comparison of core operations. Big-5

Generics include Sun, Ranbaxy, Cipla, Dr Reddy's and Lupin.

C–87January 2014


At the macro level, we expect operating performance for our universe to benefit

from the favorable currency. Moreover, marginal QoQ change in USD/INR may not

lead to material MTM forex impact on loans/derivatives. We expect adjusted PAT

growth at 30%.

Core 3QFY14 performance: key highlightsDr. Reddy's, Ranbaxy, Glenmark and Divi's Labs to record strong operational

performance: We expect Dr. Reddy's, Ranbaxy, Glenmark and Divi's Labs to record

strong EBITDA growth for 3QFY14E. We attribute the following company specific reasons

for this performance:

1. Dr. Reddy's: We expect Dr. Reddy's to report strong growth of 36% in core EBITDA.

This will be driven by a robust 41% growth in US base business, in turn aided by

increasing market share in recent product launches like gDacogen and gReclast.

Russia is also expected to report strong growth this quarter. Hence, we expect

core EBITDA margin to expand 170bp YoY to 21.5%.

2. Ranbaxy: Company would witness a sharp increase in EBITDA YoY on an abnormally

low base. In 4QCY12, its operations were impacted by gLipitor recall and high

consent decree related expenses. With steady contribution from Absorica, the

company is likely to report a healthy quarter on this low base.

3. Glenmark: We expect Glenmark's 3QFY14E performance to be driven by 20% YoY

core revenue growth, primarily led by US generics. Core EBITDA growth of 28%

would be faster than the revenue growth, primarily due to improving sales mix.

4. Divi's Labs: Given its largely unhedged operations and ~14.5% YoY depreciation of

INR v/s USD, we expect Divi's Labs to report 37% YoY growth in EBITDA. This growth

will come over a low base of 3QFY13, when the company reported the lowest

EBITDA margin since 3QFY10, due to adverse sales mix.

5. MNCs: We expect GSK Pharma's operating performance to continue to be impacted

by supply chain and trade channel related issues. Sanofi India may report a healthy

operational performance aided by improving margin profile and growth in

products exiting DPCO-1995.

Sector viewGenerics

Emerging markets to help improve profitability gradually from FY14.

New launches imperative for driving growth in core US business.

Differentiation becoming imperative -- low competition/patent challenge

products, brands, NCE research will be key differentiators.

Increasing MNC interest in generics space -- may lead to large acquisitions/supply

arrangements with Indian companies.

Top picks: Dr Reddy's, Lupin, Sun Pharma and IPCA Labs.

CRAMS (Contract Research & Manufacturing Services)

Favorable macro trends: India on the threshold of significant opportunity, given

the optimum combination of strong chemistry and regulatory skills and low costs.

Inventory de-stocking impacted performance over 2010-12. Expect healthy

performance in FY14.

Top picks: Divi's Laboratories.

C–88January 2014


MNC Pharma

Portfolio realignment in favor of lifestyle products to drive growth in medium-to-

long term.

Branded generics, patented products and in-licensing to drive long term growth.

Parent's commitment to listed entity is imperative.

Short term adverse impact likely from the proposed new pharma policy.

Key developmentsThe major developments during the quarter were Torrent Pharma's acquisition of

part of Elder's domestic business and GSK Pharma's open offer announcement.

1. Torrent Pharma acquires part of Elder Pharma's domestic business for INR20b;

steep valuation would prolong payback period

Torrent Pharma has entered into a binding agreement to acquire a part of Elder

Pharma's domestic formulations business for a consideration of INR20b. The deal

is expected to be cash/EPS accretive by FY16E/17E.

TRP will be acquiring 30 brands from three of the five segments of Elder where

TRP recently entered or plans to enter in the near future. The acquired business

has sales of INR4b and EBITDA margin of 35%. This implies valuation of ~5x sales

and ~14x EBITDA.

While the deal puts TRP in a strong position in the high cash churning domestic

pharma market, the high valuations of the deal have induced TRP to take on high

leverage (D/E to increase from 0.5x in FY13 to 1.3x in FY15E). The ensuing interest

expense will elongate the pay-back period and decrease return ratios.

2. GSK Pharma announces open offer to increase stake by 24% to 75% for USD1b

GlaxoSmithKline Pharma Plc (GSK UK) has made an open offer to acquire 24.3%

stake in Glaxo Pharma India (GLXO) for INR 64b at INR3100/share. The offer is at a

premium of ~26% to previous day's closing price of GLXO. Subject to regulatory

clearance, the offer period is expected to begin in February 2014.

GSK UK currently holds 50.67% stake in GLXO which will go up to 75% if the open

offer is successful. GSK UK intends to keep the Indian pharma arm listed.

According to the parent, the transaction will be earnings neutral for the first year

and accretive thereafter. It will be funded through GSK UK's existing cash resources.

Over the last few years, emerging markets including India have become a very

important market for GSK UK's long term plans. Same time last year, GSK UK made

an open offer to increase its shareholding in the consumer arm from 43.16% to

75%. Last month, GSK UK had committed a capex program of USD140m for a new

facility at Bangalore.

C–89January 2014


Key launches in the US - hits and misses3QFY14 saw some interesting developments in terms of generic launches in the US.

While Lupin overcame requisite regulatory hurdles to launch two low competition

products, Ranbaxy's exclusive copy of generic Diovan and Valcyte continue to remain

out of sight.

Hits and misses

Generic Brand US sales

name equivalent Indication (USD m) Competition

Hits Choline Tri lipix Anti-diabetic 450 Mylan (launched);

Fenofibrate Impax & Actavis (settled);

Sandoz & Anchen (sued)

Abacavir Sulfate; Trizivir Anti-retroviral 111 None

Lamivudine;

Zidovudine

Miss Valsartan Diovan Anti-hypertensive 1,900 NA

Valgancyclovir Valcyte Cytomegalovirus 400 NA

Infections

Source: MOSL Research

Hits

Lupin launches first exclusive copy of generic Trizivir…

Lupin has announced its launch of generic Trizivir. It has FTF exclusivity on the drug

which generated annual US sales of USD111m for its innovator. Company successfully

proved non-infringement of the combination patents and had already obtained the

necessary ANDA approval on Dec 5, 2013. This implies that subsequent Para IV ANDA

filers will have to successfully challenge the current set of patents to enter the market;

these expire between September 2016 and November 2018. We believe that LPC is

the only Para IV ANDA filer and Mylan is the other known ANDA filer with a Para III

certification. As such, marketing exclusivity may continue for LPC beyond the statutory

six months.

We expect revenue contribution of USD16m from this opportunity over the next 12

months, with a PAT of USD9m-10m. We assign a value of INR6/share to this opportunity

and add it to the target price.

… and second generic version of Trilipix

Lupin also launched its generic version of Trilipix in the US. The product has USD450m

of sales. Lupin is the second generic producer to enter the market. Company had filed

a Para IV ANDA for the product and was sued by the innovator, Abbott, in March 2010.

The case was subsequently settled in June 2012.

Apart from Lupin, there are at least five other Para IV filers. Mylan already launched

its generic in July 2013, while Impax and Actavis too have settled for an early launch.

Suits against Sandoz and Anchen Pharma are still ongoing. We believe competition

could be limited to four players in the short term, with two more players entering in

the longer run.

We estimate USD11m/18m sales in FY14E/15E, with 2% contribution to EPS, which is

already modeled in our estimates.

C–90January 2014


Currency movement (INR/USD)

Source: Bloomberg

Misses

Ranbaxy's generic Diovan still out of sight…

While the street was hopeful after dismissal of Mylan's pleas for revoking Ranbaxy's

exclusivity and allowing another generic player in the market, Ranbaxy's exclusive

copy is already late by a year. Despite the recent issuance of import alert on Mohali

plant, the management continues to maintain that RBXY still holds the exclusive

marketing rights for 180 days and is confident of monetizing it.

Diovan generates USD1.9b in sales from the US for Novartis. If successfully launched,

we expect this opportunity to generate one-off sales of ~USD100m for Ranbaxy over

the exclusivity period. We also expect Novartis to introduce an authorized generic

version through its generic unit, Sandoz.

… while generic Valcyte also seems to be delayed

Another FTF opportunity for Ranbaxy, generic Valcyte, also seems to find some delay

in launch. Company received tentative approval from the US FDA on June 24, 2008,

while the litigation with Roche was still ongoing. Subsequent to a win in the lower

court, Ranbaxy settled with Roche to launch its generic version of Valcyte sometime

in September 2013.

Valcyte generates ~USD300m in US sales for Roche. On successful launch, we expect

this opportunity to generate one-off sales of ~USD19m for Ranbaxy over the exclusivity

period. Since Ranbaxy is the AG, it will be the only generic player in the market.

INR depreciation will aid sales, but higher MTM losses would limit benefitfor someIn 3QFY14, the average USD/INR rate of INR depreciated by ~14.5% against that in

3QFY13. Thus, we expect companies with largely un-hedged net exports to realize the

benefit of favorable currency at EBITDA level. Some companies that are likely to benefit

the most include: (1) Biocon, (2) Cipla, (3) Divi's Labs, (4) IPCA and (5) Dr. Reddy's.

Similarly, USD/INR has been largely flat QoQ. We do not expect companies with large

forex debt and derivative exposures to report any MTM losses/gains, thus allowing

the operational benefit to flow through to PAT level. Companies with large forex

liabilities are: (1) Ranbaxy, (2) IPCA, (3) Cadila and (4) Glenmark.

46

53

60

67

74

Jul-

12

Aug

-12

Sep

-12

Oct

-12

No

v-12

Dec

-12

Jan-

13

Feb

-13

Ma

r-13

Ap

r-13

Ma

y-13

Jun-

13

Jul-

13

Aug

-13

Sep

-13

Oct

-13

No

v-13

Dec

-13

C–91January 2014





Healthcare

Biocon 466 Neutral 16.4 20.4 22.3 28.5 22.8 20.9 8.3 13.0 11.7 12.1 13.8 13.7

Cadila Health 786 Buy 31.9 33.5 40.1 24.6 23.4 19.6 15.4 16.6 13.6 23.7 21.5 21.9

Cipla 405 Neutral 14.2 18.9 20.9 28.4 21.4 19.4 13.1 13.2 11.6 12.7 14.7 14.2

Divis Labs 1,222 Buy 45.4 58.7 67.0 26.9 20.8 18.2 15.6 15.6 12.5 26.0 28.5 27.7

Dr Reddy’ s Labs 2,519 Buy 90.2 115.0 133.5 27.9 21.9 18.9 12.7 14.8 12.5 20.7 21.4 20.4

Glenmark Pharma 538 Buy 18.4 23.1 29.1 29.2 23.3 18.5 13.9 13.1 11.5 18.1 19.0 19.9

GSK Pharma 2,958 Neutral 80.0 55.6 68.5 37.0 53.2 43.2 20.8 46.7 34.4 33.7 22.9 27.7

IPCA Labs. 718 Buy 25.7 34.1 48.0 27.9 21.1 14.9 11.4 12.6 10.4 23.1 24.9 28.3

Lupin 906 Buy 23.1 32.4 42.1 39.2 28.0 21.5 14.4 16.2 13.5 22.5 24.4 25.1

Ranbaxy Labs 464 Se l l 13.0 11.5 13.8 35.7 40.4 33.5 9.7 22.2 8.5 31.4 -18.5 35.0

Sanofi India 2,749 Neutral 76.7 99.4 116.2 35.8 27.6 23.7 23.6 21.3 18.3 14.8 17.4 18.3

Sun Pharma 576 Buy 14.7 22.1 25.8 39.0 26.0 22.3 16.0 16.3 13.8 22.5 28.6 27.2

Torrent Pharma 475 Buy 27.8 29.3 30.7 17.1 16.2 15.5 8.6 11.1 10.4 35.8 30.3 25.8



98

102

106

110

Sep-13 Oct-13 Nov-13 Dec-13

Sens ex IndexMOSL Hea l thcare Index

80

95

110

125

140

Dec-12 Mar-13 Jun-13 Sep-13 Dec-13

Sensex IndexMOSL Hea l thcare Index

C–92January 2014


Consolidated Quarterly Performance (INR Million)



Net Sales 5,767 5,924 6,342 6,244 6,948 7,339 7,614 7,541 24,853 29,442

YoY Change (%) 30.6 16.5 22.6 2.3 20.5 23.9 20.1 20.8 19.1 18.5


EBITDA 1,227 1,165 1,417 1,045 1,462 1,689 1,713 1,668 5,430 6,532

Margins (%) 21.3 19.7 22.3 16.7 21.0 23.0 22.5 22.1 21.8 22.2

Depreciation 427 446 461 459 483 500 496 504 1,793 1,982

Interest 32 11 29 9 4 3 7 10 81 24

Other Income 159 495 253 1,639 284 187 222 233 2,546 927

PBT 927 1,203 1,180 2,215 1,259 1,373 1,433 1,387 6,101 5,452

Tax 137 304 253 281 297 319 308 330 975 1,254

Rate (%) 14.8 25.3 21.4 12.7 23.6 23.2 21.5 23.8 16.0 23.0


PAT 788 896 917 1,911 935 1,023 1,096 1,030 5,088 4,084

YoY Change (%) 12.5 4.6 26.4 73.7 18.7 14.2 19.5 -46.1 50.3 -19.7

Margins (%) 13.7 15.1 14.5 30.6 13.5 13.9 14.4 13.7 20.5 13.9

Licensing income 139 0 88 19 76 34 76 117 1,386 900

YoY Change (%) -0.7 -100.0 -69.9 -95.9 -45.3 - -13.9 517.1 0.0 -35.1

Contract research 1,224 1,291 1,397 1,660 1,546 1,881 1,918 2,177 26 659

YoY Change (%) 39.1 39.1 24.7 40.7 26.3 45.7 37.3 31.1 0.0 2,469.0

E: MOSL Estimates; Note - Quarterly nos will not add up to full-year nos due to restatements

BioconCMP: INR466 Neutral

We expect Biocon's sales to grow 20% YoY to INR7.6b, led by 37%

growth in CRO division. Biopharma division is expected to grow 16%.

We expect licensing income at INR76m (INR88m in 3QFY13).

EBITDA is estimated to grow 21% YoY to INR1.7b, with EBITDA margin

up 20bp to 22.5% due to better sales mix and favorable currency.

The management indicated that the long-term derivative contracts

for the BMS deal have expired and thus the quarter could see greater

the benefit of depreciating INR at operating level.

We expect adjusted PAT to grow just 15% YoY to INR1b, in line with the

operational performance.

Key growth drivers for FY14E/15E will be 1) traction in insulin initiative

in RoW, 2) ramp-up in CRO division, 3) contribution from immuno-

suppressants supplies and 4) branded formulations. However, high

R&D costs and long term capex in the near term will exert pressure on

profitability and return ratios.

The stock trades at 23.5x FY14E and 20.9x FY15E earnings. Option values

for the future include separate listing of Contract Research business

and potential out-licensing of the Oral Insulin NCE by BMS. Return

ratios are likely to remain subdued, with both RoE and RoCE in the

13-14% range from FY13 to FY15E. Maintain Neutral.


Update on initiatives to out-licence Anti-CD6.

Progress on product registration for Rh-Insulin in Europe/US.

Ramp-up in contract services business.


Sa les 24.9 29.4 34.6 41.3

EBITDA 5.4 6.4 7.6 9.4

Net Profit 3.3 4.0 4.5 5.5

Adj. EPS (INR) 16.4 19.9 22.3 27.3

EPS Gr. (%) -3.4 21.4 12.2 22.8

BV/Sh. (INR) 134.7 147.6 162.0 179.8

RoE (%) 12.1 13.5 13.7 15.2

RoCE (%) 17.8 13.8 14.0 15.4

Payout (%) 34.5 35.1 35.1 35.1

Valuations

P/E (x) 28.5 23.5 20.9 17.0

P/BV (x) 3.5 3.2 2.9 2.6

EV/EBITDA (x) 15.3 13.3 11.7 9.7

Div. Yield (%) 1.6 1.3 1.4 1.8

Bloomberg BIOS IN




1,6,12 Rel Perf. (%) 17 / 57 / 56

C–93January 2014





Net Revenues 15,486 15,476 16,041 16,119 16,371 17,468 18,222 18,632 63,581 70,692

YoY Change (%) 24.3 24.3 16.0 15.3 5.7 12.9 13.6 15.6 20.8 11.2


EBITDA 3,116 2,306 2,550 2,864 2,858 2,605 2,791 2,958 11,257 11,213

Margins (%) 20.1 14.9 15.9 17.8 17.5 14.9 15.3 15.9 17.7 15.9

Depreciation 434 432 496 466 466 518 568 618 1,828 2,168

Interest 572 405 479 316 278 319 350 350 1,686 1,298

Other Income 553 65 171 87 125 248 100 100 370 574

PBT after EO Income 2,663 1,533 1,746 2,170 2,239 2,017 1,974 2,091 8,112 8,320

Tax 654 494 630 -583 203 101 375 397 1,195 1,076

Rate (%) 24.5 32.2 36.1 -26.9 9.1 5.0 19.0 19.0 14.7 12.9

Min. Int/Adj on Consol 61 88 86 128 80 82 95 100 364 357

Reported PAT 1,948 951 1,029 2,625 1,956 1,834 1,504 1,593 6,553 6,887

Adj PAT 1,948 951 1,029 2,625 1,956 1,834 1,504 1,593 6,553 6,887

YoY Change (%) 39.4 -5.7 -29.9 47.0 0.4 92.9 46.1 -39.3 15.8 5.1

Margins (%) 12.6 6.1 6.4 16.3 11.9 10.5 8.3 8.6 10.3 9.7

Adj PAT incl one-offs 1,948 951 1,029 2,625 1,956 1,834 1,504 1,593 6,553 6,887

Domestic formulation sales 5,818 6,018 5,699 5,708 6,252 6,263 6,155 5,993 23,232 24,916

YoY Change (%) 27.2 28.0 21.4 14.4 7.5 4.1 8.0 5.0 22.6 7.3

US sales 3,592 3,674 3,920 3,882 3,874 4,730 5,032 5,270 15,068 18,906

YoY Change (%) 50.1 19.7 14.1 9.9 7.9 28.7 28.4 35.8 21.2 25.5

E: MOSL Estimates

Cadila HealthcareCMP: INR786 Buy

We expect Cadila Healthcare's (CDH) 3QFY14E revenue to grow 14%

YoY to INR18.2b, led by 28% YoY growth in the US formulations. Total

export formulations is expected to grow 21% YoY to INR9.4b, while

domestic formulations is likely to grow 8% YoY to INR6.2b, impacted

by the new drug policy.

We expect EBITDA to grow 9% YoY to INR2.8b as fixed overheads

continue to weigh on operations. Continued delay in FDA approvals

has prolonged the consolidation phase.

However, adjusted PAT is expected to grow 46% YoY to INR1.5b, aided

primarily by lower taxes, compared to 3QFY13.

While FY14 continues to be a year of consolidation for CDH, we believe

pressure on margins would start to ease as the new drug approvals

start coming through for key markets.

We believe CDH has made investments in the right areas and will

unlock value at the appropriate time. We expect FY15 to be a year of

recovery for CDH.

The stock trades at 23.4x FY14E and 19.6x FY15E EPS. Maintain Buy.


Update on US launches from the Moraiya facility.

Progress on improvement in balance sheet.


Sa les 63.6 70.7 80.3 92.8

EBITDA 11.3 11.2 13.5 17.0

Net Profit 6.5 6.9 8.2 10.5

Adj. EPS (INR) 31.9 33.5 40.1 51.3

EPS Gr. (%) 15.5 5.0 19.5 27.9

BV/Sh. (INR) 143.8 168.3 198.2 236.3

RoE (%) 23.7 21.5 21.9 23.6

RoCE (%) 17.9 15.6 17.0 20.7

Payout (%) 30.5 25.5 24.3 24.7

Valuations

P/E (x) 24.6 23.4 19.6 15.3

P/BV (x) 5.5 4.7 4.0 3.3

EV/EBITDA (x) 16.2 16.6 13.6 10.6

Div. Yield (%) 0.9 1.1 1.4 1.4

Bloomberg CDH IN


M. Cap. (INR b)/(USD b) 161 / 3


1,6,12 Rel Perf. (%) 3 / -9 / -22

C–94January 2014





Net Revenues 19,581 21,918 20,705 19,667 24,639 25,124 26,575 25,931 82,793 102,268

YoY Change (%) 23.0 23.3 17.8 5.4 25.8 14.6 28.4 31.8 97.0 95.4


EBITDA 5,397 6,770 4,930 4,095 6,754 5,642 5,857 5,397 21,979 23,649

Margins (%) 27.6 30.9 23.8 20.8 27.4 22.5 22.0 20.8 26.5 23.1

Depreciation 729 740 780 783 789 914 1,040 1,170 3,305 3,913

Interest 11 54 93 176 408 450 450 450 276 1,757

Other Income 531 641 535 585 691 756 420 420 1,323 2,288


Tax 1,182 1,618 1,203 1,045 1,500 1,358 1,197 1,049 5,443 5,103

Rate (%) 22.8 24.4 26.2 28.1 24.0 27.0 25.0 25.0 27.6 25.2

Reported PAT 4,006 5,000 3,389 2,676 4,749 3,676 3,590 3,147 15,449 15,163

Adj PAT 2,632 3,536 3,389 2,676 4,749 3,676 3,590 3,147 11,440 15,163

YoY Change (%) 3.9 14.5 25.6 -1.9 80.4 4.0 5.9 17.6 1.7 32.5

Margins (%) 13.4 16.1 16.4 13.6 19.3 14.6 13.5 12.1 13.8 14.8

Domestic formulation sales 9,388 9,332 9,241 7,780 11,039 10,398 10,622 8,883 35,892 40,942

YoY Change (%) 30.4 13.7 9.3 8.3 17.6 11.4 15.0 14.2 15.6 14.1

Export formulations 8,101 10,389 9,692 9,536 10,344 12,190 13,640 14,570 37,718 50,744

YoY Change (%) 23.0 38.2 38.0 11.5 27.7 17.3 40.7 52.8 27.1 34.5

E: MOSL Estimates

CiplaCMP: INR405 Neutral

Cipla's core revenue for 3QFY14E is likely to grow 28% YoY to INR26.6b.

The domestic formulations business is expected to grow 15% YoY to

INR10.6b due to the impact of pricing policy. Export formulations

revenue is estimated to increase 41% YoY to INR13.6b due to

consolidation of Cipla Medpro.

EBITDA is estimated to grow 19% YoY to INR5.8b, with EBITDA margin

likely contracting by 180bp YoY to 22% on account of higher employees

and R&D cost.

We expect adjusted PAT to grow 6% YoY to INR3.6b on account of higher

interest costs and depreciation as well as lower other income.

We believe that the coming quarters will be challenging for Cipla due

to (1) impact on sales/profits due to the drug pricing policy and (2)

increasing pressure on profitability due to the ongoing business

transition.

The stock trades at 21.4x FY14E and 19.4x FY15E earnings. Maintain

Neutral.


Update on launch of inhalers in Europe.

Improvement in profitability at Cipla Medpro.


Sa les 82.8 102.3 114.9 128.7

EBITDA 22.0 23.6 26.2 29.5

Net Profit 11.4 15.2 16.8 19.6

Adj. EPS (INR) 14.2 18.9 20.9 24.5

EPS Gr. (%) 4.7 32.4 10.6 17.2

BV/Sh. (INR) 112.2 128.4 146.5 168.3

RoE (%) 12.7 14.7 14.2 14.5

RoCE (%) 19.4 18.5 18.1 18.7

Payout (%) 12.1 18.6 22.4 0.0

Valuations

P/E (x) 28.4 21.4 19.4 16.6

P/BV (x) 3.6 3.2 2.8 2.4

EV/EBITDA (x) 15.2 14.2 12.7 11.1

Div. Yield (%) 0.5 0.7 1.0 0.0

Bloomberg CIPLA IN


M. Cap. (INR b)/(USD b) 325 / 5


1,6,12 Rel Perf. (%) 2 / -8 / -12

C–95January 2014





Net Op Revenue 4,684 4,726 5,333 6,496 5,159 5,659 6,280 8,022 21,399 25,120

YoY Change (%) 30.6 33.5 28.6 -8.2 10.1 19.7 17.8 23.5 15.1 17.4


EBITDA 1,904 1,846 1,813 2,507 1,959 2,477 2,384 3,107 8,102 9,926

Margins (%) 40.7 39.1 34.0 38.6 38.0 43.8 38.0 38.7 37.9 39.5

Depreciation 175 188 204 203 209 225 230 294 769 958

Interest 4 3 4 6 4 4 8 11 18 27

Other Income 418 -112 234 93 547 376 196 188 497 1,307

PBT 2,143 1,544 1,838 2,391 2,293 2,624 2,342 2,990 7,812 10,249

Tax 469 364 396 573 546 574 562 777 1,792 2,460

Rate (%) 21.9 23.6 21.5 23.9 23.8 21.9 24.0 26.0 22.9 24.0

Reported PAT 1,674 1,180 1,442 1,818 1,747 2,049 1,780 2,213 6,020 7,789

Adj PAT 1,674 1,180 1,442 1,818 1,747 2,049 1,780 2,213 6,020 7,789

YoY Change (%) 63.2 11.2 17.7 -15.3 4.4 73.7 23.4 21.7 12.9 29.4

Margins (%) 35.7 25.0 27.0 28.0 33.9 36.2 28.3 27.6 28.1 31.0

CCS Revenues 2,148 2,268 2,507 3,118 2,476 2,716 2,952 3,669 10,272 11,813

YoY Change (%) 22.2 37.5 36.9 -15.3 15.3 19.7 17.8 17.7 15.1 15.0

Carotenoid Revenues 210 250 185 265 280 330 241 604 910 1,454

YoY Change (%) 50.0 4.2 -7.5 15.2 33.3 32.0 30.0 127.9 12.3 59.8

E: MOSL Estimates;

Divi's LaboratoriesCMP: INR1,222 Buy

Divi's Laboratories (DIVI) is likely to post 18% YoY increase in 3QFY14E

revenue to INR6.3b on increased capacity utilization at the new SEZ

unit and favorable currency impact. Growth would be driven by both

CCS and API business.

EBITDA is likely to grow 32% YoY to INR2.4b on a low base of 3QFY13

when the company reported the lowest EBITDA margin in three years.

Thus, EBITDA margin is likely to expand 400bp YoY to 38%.

We expect PAT to grow 23% YoY to INR1.8b, slower than EBITDA mainly

due to higher depreciation, lower other income and higher taxes.

There was a forex gain of INR160m in 3QFY13.

Divi's expects FY14 revenue to grow by 15-20% (15% guided earlier),

with FY15 growth expected above 20%. Capacity utilization at DSN SEZ

would continue to ramp up aided by the US FDA approval for the

remaining three blocks (inspection in 4QFY14).

The power shortage issue has been resolved and will aid margin

expansion. Management expects to maintain at least 38% EBITDA

margin, going forward.

The stock trades at 20.8x FY14E and 18.2x FY15E earnings. Maintain

Buy.


Ramp-up at Vizag SEZ and timeline for its US FDA inspection.

Impact of subsiding power cost on profitability.


Sa les 21.4 25.1 30.7 37.0

EBITDA 8.1 9.9 12.2 14.8

Net Profit 6.0 7.8 8.9 11.5

Adj. EPS (INR) 45.4 58.7 67.0 86.9

EPS Gr. (%) 12.9 29.4 14.2 29.7

BV/Sh. (INR) 188.4 223.6 260.4 307.6

RoE (%) 26.0 28.5 27.7 30.6

RoCE (%) 33.1 37.1 36.1 39.4

Payout (%) 38.7 40.0 45.0 45.0

Valuations

P/E (x) 26.9 20.8 18.2 14.1

P/BV (x) 6.5 5.5 4.7 4.0

EV/EBITDA (x) 20.0 16.3 13.2 10.8

Div. Yield (%) 1.2 1.6 2.1 2.7

Bloomberg DIVI IN


M. Cap. (INR b)/(USD b) 162 / 3

52-Week Range (INR) 1,228 / 905

1,6,12 Rel Perf. (%) 2 / 14 / 3

C–96January 2014


We expect Dr Reddy's Laboratories (DRRD) to post 26% YoY growth in

revenue (no one-off this quarter) for 3QFY14E to INR36b.

Growth would be led by 41% YoY growth in US revenue and 38% YoY

growth in the Russia/CIS. Domestic formulation is likely to grow 8%

YoY, while PSAI is estimated to grow 23% YoY.

Core EBITDA would grow 36% YoY to INR7.7b, driven by improving

product mix in the US base business and strong growth in Russia. This

quarter will see the full benefit of gVidaza launch along with continued

upside from gDacogen.

Thus, we expect core EBITDA margin to expand 170bp YoY.

Adjusted PAT would be INR4.5b, up 24% YoY - lower than the growth in

EBITDA mainly due to higher tax expense.

While there is uncertainty on timely FDA approvals, recently-launched

limited competition injectable products and pipeline of 65 pending

ANDAs will support growth in the US over medium term.

The stock trades at 21.9x FY14E and 18.9x FY15E core earnings. Maintain

Buy.


View on pipeline for products in the US.

FY15 outlook for both generics and PSAI businesses.

Quarterly Performance - IFRS (INR Million)



Gross Sales 25,406 28,809 28,651 33,400 28,449 33,575 35,947 37,641 116,266 135,612

YoY Change (%) 28.4 27.0 3.5 25.6 12.0 16.5 25.5 12.7 20.2 16.6


EBITDA 4,996 6,909 5,674 7,185 5,398 8,456 7,729 7,980 24,763 29,563

Margins (%) 19.7 24.0 19.8 21.5 19.0 25.2 21.5 21.2 21.3 21.8

Amortization 1,296 2,064 1,382 1,495 1,603 1,733 1,833 1,933 6,237 7,102

Other Income 25 796 168 2,162 342 972 273 293 3,151 1,879


Tax 365 1,567 827 2,141 528 792 1,665 1,712 4,900 4,697

Rate (%) 9.8 27.8 18.5 27.3 12.8 10.3 27.0 27.0 22.6 19.3

Net Profit 3,360 4,074 3,633 5,711 3,609 6,903 4,503 4,628 16,777 19,643

One-off/low-competition PAT in US 715 586 0 325 335 0 0 0 1,627 335

Adjusted PAT 2,645 3,488 3,633 5,386 3,273 6,903 4,503 4,628 15,150 19,307

YoY Change (%) 17.5 29.9 71.4 101.5 23.8 97.9 23.9 -14.1 55.7 27.4

Margins (%) 10.4 12.1 12.7 16.1 11.5 20.6 12.5 12.3 13.0 14.2

US Sales 7,920 9,270 9,243 11,413 10,871 13,244 13,020 12,400 37,846 49,541

YoY Change (%) 37.6 47.4 -16.8 30.7 37.3 42.9 40.9 8.6 18.7 30.9

Branded formualtion sales 8,968 9,056 9,654 9,323 9,459 11,543 11,769 11,199 37,001 43,970

YoY Change (%) 32.8 17.1 24.6 18.5 5.5 27.5 21.9 20.1 22.9 18.8

E: MOSL Estimates

Dr Reddy's LaboratoriesCMP: INR2,519 Buy


Sa les 116.3 135.6 153.2 171.0

EBITDA 24.8 29.6 34.5 38.0

Net Profit 15.1 19.3 22.4 24.6

Adj. EPS (INR) 90.2 115.0 133.5 146.5

EPS Gr. (%) 21.9 27.4 16.1 9.8

BV/Sh. (INR) 435.4 536.9 654.0 784.2

RoE (%) 20.7 21.4 20.4 18.7

RoCE (%) 17.2 17.8 19.5 19.2

Payout (%) 16.3 13.8 12.2 11.1

Valuations

P/E (x) 27.9 21.9 18.9 17.2

P/BV (x) 5.8 4.7 3.9 3.2

EV/EBITDA (x) 17.6 14.6 12.3 10.8

Div. Yield (%) 0.6 0.6 0.6 0.6

Bloomberg DRRD IN


M. Cap. (INR b)/(USD b) 428 / 7

52-Week Range (INR) 2,554 / 1,721

1,6,12 Rel Perf. (%) 0 / 4 / 28

C–97January 2014




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

Net Sales 6,228 6,520 6,685 6,567 6,321 6,369 6,205 6,118 25,999 25,035

YoY Change (%) 3.3 16.1 10.0 16.0 1.5 -2.3 -7.2 -6.8 11.2 -3.7


EBITDA 1,957 2,028 1,989 1,914 1,629 1,137 1,080 1,106 7,888 4,972

Margins (%) 31.4 31.1 29.8 29.1 25.8 17.9 17.4 18.1 30.3 19.9

Depreciation 41 43 48 46 42 50 50 52 178 193

Interest 0 0 0 3 0 0 0 0 3 0

Other Income 804 479 479 477 817 454 455 439 2,239 2,164

PBT before EO Expense 2,720 2,464 2,419 2,341 2,404 1,541 1,485 1,493 9,944 6,943

Tax 863 768 783 762 698 590 468 480 3,176 2,236

Rate (%) 31.7 31.2 32.4 32.5 29.1 38.3 31.5 32.1 31.9 32.2

Adjusted PAT 1,857 1,696 1,636 1,579 1,706 951 1,017 1,013 6,769 4,708

YoY Change (%) -0.3 11.8 12.1 7.2 -8.1 -44.0 -37.8 -35.9 7.2 -30.5

Margins (%) 29.8 26.0 24.5 24.1 27.0 14.9 16.4 16.6 26.0 18.8

Extra-Ord Expense 628 61 113 198 16 -201 8 0 999 371

Reported PAT 1,229 1,635 1,523 1,382 1,690 1,151 1,010 1,013 5,769 4,336

E: MOSL Estimates

GlaxoSmithKline PharmaceuticalsCMP: INR2,958 Neutral

We expect GlaxoSmithKline Pharmaceuticals (GLXO) to report 7% YoY

growth in 4QCY13E sales to INR6.1b, impacted by the lower volume

offtake during the quarter due to trade channel dispute and impact of

the pricing policy.

EBITDA is likely to decline by 42% YoY to INR1.1b and EBITDA margin

down 11% YoY to 18.1%. Profitability will continue to be impacted by

supply chain related issues highlighted in 1QCY13 and price revisions

taken due to the policy.

We expect adjusted PAT to decline 36% YoY to INR1.5b in 4QCY13E, in

line with EBITDA decline, due to subdued operational performance.

Performance for 1QCY13 was impacted by supply chain related issues,

some of which were expected to get resolved by 3QCY13. While some

of these factors are temporary in nature, we believe the normalization

in margins will be gradual.

GLXO deserves premium valuations due to strong parentage (giving

access to large product pipeline), brand-building ability and likely

positioning in post patent era. It is one of the few companies with the

ability to drive reasonable growth without any major capital

requirement, leading to high RoCE of 45-50%.

The stock trades at 53.2x CY13E and 43.2x CY14E EPS. Maintain Neutral.


Update on supply chain and trade channel issues.

Impact of Drug Price Control Order (DPCO) 2013.


Sa les 26.0 25.0 28.0 32.2

EBITDA 7.9 5.0 6.7 9.0

Net Profit 6.8 4.7 5.8 7.4

Adj. EPS (INR) 80.0 55.6 68.5 87.1

EPS Gr. (%) 7.3 -30.5 23.2 27.2

BV/Sh. (INR) 237.3 242.3 247.2 259.2

RoE (%) 33.7 22.9 27.7 33.6

RoCE (%) 49.4 33.8 41.3 50.1

Payout (%) 71.3 92.3 91.6 85.1

Valuations

P/E (x) 37.0 53.2 43.2 34.0

P/BV (x) 12.5 12.2 12.0 11.4

EV/EBITDA (x) 29.1 46.7 34.4 25.8

Div. Yield (%) 1.7 1.5 1.9 2.2

Bloomberg GLXO IN


M. Cap. (INR b)/(USD b) 251 / 4

52-Week Range (INR) 2,964 / 2,005

1,6,12 Rel Perf. (%) 20 / 15 / 31

C–98January 2014


We expect Glenmark Pharmaceuticals (GNP) to post 20% YoY growth

in core revenue (excluding one-offs and R&D income) for 3QFY14E to

INR15.6b, led primarily by 38% growth in US generics business.

Reported sales would grow 14% YoY to INR15.7b.

The branded business is likely to grow 6% YoY due to slowdown in

semi-regulated markets. We do not expect any R&D licensing income

for the quarter (INR493m recorded in 3QFY13).

Core EBITDA is likely to grow 29% YoY to INR3.2b, with core EBITDA

margin up 130bp YoY, driven by better sales mix. Reported EBITDA

would stand at INR3.3b, up 14% YoY.

Adjusted PAT is expected at INR1.8b, up 12% YoY, lower than EBITDA,

mainly due to higher depreciation cost. Reported PAT is likely to

decline 14% YoY due to higher licensing income last year.

We expect GNP to gradually reduce its net debt over FY14E-16E period,

resulting in improvement in D/E from 1x in FY13 to 0.5x by FY16E. We

also expect gradual improvement in return ratios over the same

period.



Product pipeline for the US.

Update on free cash flow generation and debt repayment schedule.

Timeline for reporting clinical data for NCE pipeline

Quarterly performance (INR Million)



Net Revenues (Core) 10,404 12,552 13,813 13,355 12,379 14,630 15,702 16,632 50,123 59,343

YoY Change (%) 19.8 18.9 34.0 25.3 19.0 16.6 13.7 24.5 24.7 18.4

EBITDA 2,198 2,560 3,158 2,694 2,474 3,153 3,273 3,504 10,610 12,404

Margins (%) 21.1 20.4 22.9 20.2 20.0 21.6 20.8 21.1 21.2 20.9

Depreciation 275 321 356 318 349 605 602 611 1,270 2,167

Interest 380 384 400 436 464 485 496 425 1,600 1,870

Other Income -521 219 95 -196 37 138 48 45 -403 268

PBT 1,022 2,074 2,497 1,744 1,698 2,201 2,223 2,513 7,337 8,635

Tax 218 477 366 46 392 628 400 479 1,107 1,900

Rate (%) 21.3 23.0 14.7 2.6 23.1 28.5 18.0 19.1 15.1 22.0

Reported PAT (incl one-offs) 804 1,597 2,130 1,698 1,306 1,573 1,823 2,034 6,230 6,735


Adj PAT (excl one-offs) 506 1,424 1,575 1,486 1,287 1,437 1,757 1,886 4,992 6,366

YoY Change (%) -53.6 91.3 1,972.1 565.9 154.1 0.9 11.6 26.9 54.0 27.5

Margins (%) 4.9 11.3 11.4 11.1 10.4 9.8 11.2 11.3 10.0 10.7

US Sales 3,924 4,307 4,365 4,291 4,470 5,579 6,003 6,234 16,887 22,158

YoY Change (%) 56.2 43.5 36.8 24.9 13.9 29.5 37.5 45.3 39.1 31.2

E: MOSL Estimates

Glenmark PharmaceuticalsCMP: INR538 Buy


Sa les 40.2 50.1 59.3 69.2

EBITDA 9.9 10.6 12.4 13.9

Net Profit 3.2 5.0 6.3 7.9

Adj. EPS (INR) 12.0 18.4 23.1 29.1

EPS Gr. (%) -8.6 54.0 25.5 25.9

BV/Sh. (INR) 88.8 102.0 122.0 146.4

RoE (%) 13.5 18.1 19.0 19.9

RoCE (%) 11.4 16.1 18.6 19.9

Payout (%) 13.6 10.2 14.1 15.9

Valuations

P/E (x) 44.9 29.2 23.3 18.5

P/BV (x) 6.1 5.3 4.4 3.7

EV/EBITDA (x) 16.8 15.8 13.1 11.5

Div. Yield (%) 0.4 0.4 0.6 0.7

Bloomberg GNP IN


M. Cap. (INR b)/(USD b) 146 / 2


1,6,12 Rel Perf. (%) 6 / -13 / -9

C–99January 2014






YoY Change (%) 19.7 23.7 14.0 19.7 27.0 9.8 14.8 18.4 19.3 15.6

EBITDA 1,329 1,788 1,584 1,423 1,710 2,345 1,785 1,730 6,232 7,571

Margins (%) 21.0 23.2 22.6 21.2 21.2 27.7 22.2 21.8 22.2 23.3

Depreciation 199 209 216 216 241 252 250 265 867 1,008

Interest 95 89 74 55 71 57 75 60 334 264

Other Income -470 155 -146 103 -435 -346 125 60 -488 -596

PBT 565 1,646 1,148 1,255 963 1,690 1,585 1,465 4,543 5,703

Tax 135 395 269 501 245 396 396 366 1,299 1,403

Rate (%) 23.9 24.0 23.4 39.9 25.4 23.4 25.0 25.0 28.6 24.6

Reported PAT 430 1,251 879 754 718 1,295 1,189 1,099 3,243 4,300

Adj PAT 430 1,251 879 754 718 1,295 1,189 1,099 3,243 4,300

YoY Change (%) -30.3 60.5 37.5 -1.5 67.0 3.5 35.3 45.7 17.4 32.6

Margins (%) 6.8 16.2 12.5 11.2 8.9 15.3 14.8 13.8 11.5 13.2

Domestic formulation 2,242 2,628 2,127 1,784 2,504 2,762 2,425 2,056 8,781 9,747

YoY Change (%) 18.6 14.6 13.4 20.8 11.7 5.1 14.0 15.3 16.6 11.0

Export formualtions 2,245 3,392 3,175 3,131 3,300 3,626 3,669 4,082 11,942 14,677

YoY Change (%) 8.7 30.2 9.5 30.8 47.0 6.9 15.6 30.4 19.9 22.9

E: MOSL Estimates

IPCA LaboratoriesCMP: INR718 Buy

We expect Ipca Laboratories' (IPCA) 3QFY14E revenue to grow 15% YoY

to INR8b, led by 16% growth in export formulations. Domestic

formulation is expected to grow 14% YoY, while total API sales would

increase 11% YoY.

EBITDA is likely to grow 13% YoY to INR1.8b, with a mere 40bp decline

in EBITDA margin to 22.2%.

Despite moderate operational performance, we expect adjusted PAT

to grow 35% YoY to INR1b, boosted by higher other income. This is due

to a forex loss of INR186m on forex loans and hedges reported in

3QFY13.

We expect significant ramp-up in IPCA's international formulations

revenue led by 25% CAGR in export formulations and 40% CAGR in US

business over FY13-16E. Domestic formulations growth is likely to be

maintained at 14-15%.

We expect IPCA to clock FY13-16E EPS CAGR of 32% on the back of 18%

revenue CAGR, aided by 190bp EBITDA margin expansion and reversal

of MTM losses.

The stock is valued at 21.1x FY14E EPS and 14.9x FY15E EPS. Maintain

Buy.


Ramp-up at recently-approved Indore SEZ for the US.

Outlook for institutional tender business post FY14.


Sa les 28.1 32.5 39.1 46.0

EBITDA 6.2 7.6 9.2 11.1

Net Profit 3.2 4.3 6.1 7.5

Adj. EPS (INR) 25.7 34.1 48.0 59.6

EPS Gr. (%) 17.4 32.6 40.9 24.2

BV/Sh. (INR) 123.1 150.4 188.8 236.5

RoE (%) 23.1 24.9 28.3 28.0

RoCE (%) 25.2 26.2 30.4 31.5

Payout (%) 18.1 20.0 20.0 20.0

Valuations

P/E (x) 27.9 21.1 14.9 12.0

P/BV (x) 5.8 4.8 3.8 3.0

EV/EBITDA (x) 15.3 12.6 10.4 8.5

Div. Yield (%) 0.7 1.0 1.3 1.7

Bloomberg IPCA IN




1,6,12 Rel Perf. (%) 3 / 1 / 29

C–100January 2014


We expect Lupin's (LPC) 3QFY14E revenue to grow 12% YoY to INR27.7b,

driven mainly by 18% YoY growth in advanced market formulations

(excl. one-off US sales). Domestic formulations are expected to grow

5% YoY, impacted by trade channel related issues.

Core revenue, excluding one-off upside from generic Tricor and Trizivir,

is expected at INR26.5b, up 12% YoY.

EBITDA is estimated to increase 14% YoY to INR6.5b, with EBITDA

margin expanding 40bp YoY, mainly aided by improving sales mix in US

generics and operating leverage benefits. Core EBITDA is expected to

be INR5.6b, with core EBITDA margin at 21.4%, flat YoY.

We expect adjusted PAT at INR3.8b, up 35% YoY, aided by lower tax

expenses YoY. Reported PAT is expected at INR4.6b, up 34% YoY.

Key growth drivers for FY14E/15E will be the strong product pipeline

for the US, including higher contribution from oral contraceptives.

While India formulations will see a slowdown in FY14E impacted by

the new pricing policy, we expect growth to rebound to historical

levels of 18-20% in FY15E.

The stock trades at 28x FY14E and 21.5x FY15E EPS. Maintain Buy.


Outlook on future launches in the US.

Revival in constant currency sales growth in I'rom.

Outlook on domestic formulations business, post DPCO 2013.




Net Sales 22,192 22,393 24,659 25,374 24,207 26,315 27,724 29,747 94,617 107,993

YoY Change (%) 43.8 28.6 37.6 34.7 9.1 17.5 12.4 17.2 37.9 14.1


EBITDA 4,230 4,545 5,698 6,103 5,340 6,232 6,515 6,901 20,576 24,988

Margins (%) 19.1 20.3 23.1 24.1 22.1 23.7 23.5 23.2 21.7 23.1

Depreciation 654 690 688 1,290 624 606 700 750 3,322 2,680

Interest 101 101 77 133 54 49 54 54 410 211

Other Income 582 657 617 547 565 1,178 390 390 2,403 2,522

PBT 4,058 4,412 5,550 5,227 5,226 6,755 6,151 6,487 19,247 24,620

Tax 1,208 1,438 2,116 1,080 2,172 2,582 1,538 1,628 5,842 7,920

Rate (%) 29.8 32.6 38.1 20.7 41.6 38.2 25.0 25.1 30.4 32.2

Reported PAT 2,850 2,974 3,434 4,148 4,055 4,173 4,613 4,859 13,405 17,700

EO Exp/(Inc) 0 0 0 0 -1,000 0 0 0 0 -1,000


Recurring PAT 1,783 2,753 2,812 3,000 3,331 3,383 3,797 3,959 10,348 14,470

YoY Change (%) -15.1 3.2 12.5 262.1 86.8 22.9 35.1 32.0 46.7 39.8

Margins (%) 8.0 12.3 11.4 11.8 13.8 12.9 13.7 13.3 10.9 13.4

Advanced mkt formulations 11,826 11,745 14,646 14,875 13,917 14,183 16,687 17,600 53,100 63,270

YoY Change (%) 68.6 34.6 57.5 37.2 17.7 20.8 13.9 18.3 48.0 19.2

Emerging mkt formulations 8,049 8,256 7,660 8,063 7,861 9,270 8,566 9,589 32,027 35,286

YoY Change (%) 27.4 23.0 15.4 35.0 -2.3 12.3 11.8 18.9 24.9 10.2

E: MOSL Estimates; Quarterly nos will not add up to full year nos due to restatement of past quarters

LupinCMP: INR906 Buy


Sa les 93.7 108.0 123.1 141.2

EBITDA 20.0 25.0 29.8 33.8

Net Profit 10.3 14.5 18.8 21.6

Adj. EPS (INR) 23.1 32.4 42.1 48.2

EPS Gr. (%) 30.4 40.2 29.9 14.5

BV/Sh. (INR) 116.3 149.3 185.7 227.1

RoE (%) 22.5 24.4 25.1 23.4

RoCE (%) 33.3 35.7 33.8 32.0

Payout (%) 15.6 17.7 21.2 0.0

Valuations

P/E (x) 39.2 28.0 21.5 18.8

P/BV (x) 7.8 6.1 4.9 4.0

EV/EBITDA (x) 20.6 16.2 13.5 11.5

Div. Yield (%) 0.4 0.7 0.9 0.0

Bloomberg LPC IN


M. Cap. (INR b)/(USD b) 405 / 7


1,6,12 Rel Perf. (%) 2 / 5 / 38

C–101January 2014



Y/E March CY12 FY14 CY12 FY14E

2Q 3Q 4Q 1Q 2Q 3QE 4QE 5QE

Net Income 32,284 26,910 27,112 25,005 26,834 28,016 28,791 28,072 124,597 136,719

YoY Change (%) 54.2 28.4 -28.5 -34.0 -16.9 4.1 6.2 3.5 22.6 9.7

EBITDA 5,113 3,495 811 1,906 2,625 1,938 2,335 2,454 19,379 11,266

Margins (%) 15.8 13.0 3.0 7.6 9.8 6.9 8.1 8.7 15.6 8.2

Depreciation 783 816 805 797 763 849 880 910 3,202 4,205

Interest 484 389 537 512 488 503 510 510 1,796 2,527

Other Income -2,972 1,889 -334 254 -1,378 -297 604 350 340 -466

PBT before EO Expense 874 4,178 -865 851 -3 289 1,550 1,384 14,721 4,068

Extra-Ord Expense 5,993 -3,933 3,657 -818 4,863 4,202 -382 0 2,272 7,866

PBT after EO Expense -5,119 8,112 -4,522 1,669 -4,866 -3,913 1,931 1,384 12,449 -3,798

Tax 683 542 340 353 311 570 465 415 2,939 2,117

Rate (%) -13.3 6.7 -7.5 21.1 -6.4 -14.6 24.1 30.1 23.6 -55.7

Reported PAT -5,802 7,570 -4,862 1,316 -5,177 -4,483 1,466 968 9,510 -5,915


Reported PAT (incl one-offs) -5,857 7,542 -4,924 1,257 -5,241 -4,542 1,410 912 9,228 -6,208

Adj PAT (excl. one-offs) 1,447 2,055 -45 904 1,302 611 1,121 912 5,496 4,848

YoY Change (%) 37.1 26.9 -101.2 -55.7 -10.0 -70.3 -45.5 0.0 -32.5 -11.8

Margins (%) 4.5 7.6 -0.2 3.6 4.9 2.2 3.9 3.2 4.4 3.5

Adj PAT incl one-offs 2,781 2,340 810 904 1,302 611 1,121 912 9,679 7,538

US Sales (USD m) 254 155 136 110 138 126 131 135 946 385

YoY Change (%) 167.4 84.2 -64.8 -72.5 -45.8 -18.8 -3.9 -0.9 31.4 -59.3

India formulation sales 5,541 5,829 5,418 5,427 5,426 5,748 5,510 5,765 22,073 24,832

YoY Change (%) 14.9 13.0 -0.4 10.3 -2.1 -1.4 1.7 6.4 11.6 12.5

E: MOSL Estimates; Reporting period changed to March ending; FY14E figures are 15 months

Ranbaxy LaboratoriesCMP: INR464 Sell

We expect Ranbaxy Laboratories (RBXY) to post 6% YoY growth in sales

for 4QFY14E to INR28.8b, impacted by a slowdown in India, Europe

and Africa. Excluding the upside from gActos last year, core sales are

expected to grow 16% YoY.

EBITDA is expected to grow 188% YoY to INR2.3b, on an abnormally

low base of 4QCY12, which was impacted by gAtorvastatin recall and

high consent decree related costs. Similarly, growth in core EBITDA

would be ~5x, with core EBITDA margin up 6.4% YoY.

We expect reported PAT at INR1.4b, compared to INR4.9b loss reported

in 4QCY12. PAT, adjusted for forex impact and FTFs, is expected at

INR1.1b, compared to a loss of INR45m in the previous quarter.

We believe the outlook for RBXY remains challenging as quality/

compliance issues have impacted its operations and will weigh on

investor confidence.

It is imperative for the company to improve core business margins as

one-offs have started to wane off.

The stock trades at 36.3x FY14E and 30.1x FY15E EPS. Maintain Sell.


Timeline for resolving US FDA issues under the consent decree.

Improvement in core EBITDA margin.

Launch timeline for Divan and Valcyte.


Sales* 124.6 136.7 141.8 140.5

EBITDA* 19.4 11.3 27.3 19.3

Adj. PAT 5.5 4.8 5.8 10.6

Rep. EPS (INR)* 30.2 -14.7 39.5 25.0

Adj. EPS (INR) 13.0 11.5 13.8 25.0

EPS Gr. (%) -32.5 -11.8 20.6 80.5

BV/Sh. (INR) 96.4 79.4 113.1 132.3

RoE (%) 31.4 -18.5 35.0 18.9

RoCE (%) 21.0 9.3 23.9 14.6

Payout (%) 0.0 20.4 42.3 23.4

Valuations

P/E (x) 32.0 36.3 30.1 16.7

P/BV (x) 4.3 5.2 3.7 3.1

EV/EBITDA (x) 10.2 22.2 8.5 11.9

Div. Yield (%) 0.0 0.5 1.2 1.2

* FY14E figures are 15 months

Bloomberg RBXY IN


M. Cap. (INR b)/(USD b) 196 / 3


1,6,12 Rel Perf. (%) 6 / 34 / -17

C–102January 2014




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

Net Sales 3,225 3,741 3,966 4,007 3,629 4,100 4,725 4,668 14,939 17,122

YoY Change (%) 16.7 23.5 26.8 18.6 12.5 9.6 19.1 16.5 21.5 14.6


EBITDA 492 522 805 507 468 623 997 684 2,335 2,772

Margins (%) 15.3 14.0 20.3 12.7 12.9 15.2 21.1 14.7 15.6 16.2

Depreciation 183 186 307 223 223 227 234 254 907 938

Interest 4 4 3 3 3 1 0 1 14 5

Other Income 289 267 266 382 414 396 402 403 1,204 1,615

PBT 594 599 761 663 656 791 1,165 832 2,617 3,444

Tax 193 194 248 215 213 279 396 266 722 1,154

Effective tax Rate (%) 32.5 32.4 32.6 32.4 32.5 35.3 34.0 31.9 27.6 33.5

Reported PAT 401 405 513 448 443 512 769 566 1,895 2,290

Adj PAT 401 405 513 448 443 512 769 566 1,895 2,290

YoY Change (%) -20.8 -18.5 -6.4 24.3 10.5 26.4 49.9 26.4 -0.9 20.9

Margins (%) 12.4 10.8 12.9 11.2 12.2 12.5 16.3 12.1 12.7 13.4

Domestic sales 2,765 3,040 3,288 3,315 3,169 3,420 3,699 3,671 12,408 13,959

YoY Change (%) 24.5 24.6 27.7 18.9 14.6 12.5 12.5 10.7 23.8 12.5

E: MOSL Estimates

Sanofi IndiaCMP: INR2,749 Neutral

We expect Sanofi India's (SANL) revenue to increase 17% YoY in

4QCY13E to INR4.6b, led by the domestic formulations business.

EBITDA is likely to grow 35% YoY to INR684m on a low base of 4QCY12.

EBITDA margin would stand at 14.7% v/s 12.7% in 4QCY12.

We expect PAT to grow 26% YoY to INR566m. Growth is likely to be

lower than EBITDA due to higher depreciation and amortization

expenses.

SANL's profitability has declined significantly in the last six years, with

EBITDA margin declining from 25% for CY06 to 15.6% for CY12, mainly

impacted by discontinuation of Rabipur sales in the domestic market

and acquisition of Universal Healthcare in 2011.

RoE has declined from 28.6% to 14.8% over the same period.

We believe the stock price performance is likely to remain muted in

the short term until clarity emerges on future growth drivers.

The stock trades at 27.6x CY13E and 23.7x CY14E EPS. Maintain Neutral.


Amortization of goodwill and brands acquired from Universal

Medicare.

Impact of the Drug Price Control Order (DPCO), 2013.


Sa les 14.9 17.1 19.7 22.7

EBITDA 2.3 2.8 3.1 3.7

Net Profit 1.8 2.3 2.7 3.2

Adj. EPS (INR) 76.7 99.4 116.2 137.2

EPS Gr. (%) -7.6 29.6 16.9 18.0

BV/Sh. (INR) 518.0 571.1 635.1 720.1

RoE (%) 14.8 17.4 18.3 19.0

RoCE (%) 21.5 25.6 26.6 27.7

Payout (%) 50.0 46.7 44.9 38.1

Valuations

P/E (x) 35.8 27.6 23.7 20.0

P/BV (x) 5.3 4.8 4.3 3.8

EV/EBITDA (x) 25.3 21.3 18.3 15.0

Div. Yield (%) 1.2 1.5 1.6 1.6

Bloomberg SANL IN



52-Week Range (INR) 2,940 / 2,180

1,6,12 Rel Perf. (%) -3 / 0 / 10

C–103January 2014


We expect Sun Pharmaceuticals (SUNP) to post 48% YoY growth in

sales to INR42.2b, driven by 75% growth in US revenue on account of

URL and DUSA Pharma consolidation and traction in base business.

Domestic formulation is likely to grow 14% YoY, while RoW markets

will increase 29%. Core sales are expected to grow 44% YoY to INR39b.

EBITDA is likely to increase 45% YoY to INR18.3b. We expect EBITDA

margin to decline 90bp YoY to 43.3% due to declining profitability in

business, excluding Taro. Thus, we expect core EBITDA margin to

decline 210bp YoY to 40.3%, with core EBITDA at INR15.7b.

We expect reported PAT to grow 52% YoY to INR13.4b. Adjusted PAT is

expected to stand 44% higher at INR11.5b.

We believe the US will continue to be the core earnings driver for

SUNP along with support from India and RoW markets.

While India formulations will see a slowdown in FY14E impacted by

the pricing policy, we expect growth to rebound to historical levels of

16-18% in FY15E.

The stock trades at 26x FY14E and 22.3x FY15E core EPS. Maintain Buy.


Outlook on competitive landscape for Taro's products.

Sustainability of price increases at URL Pharma.

Sun PharmaceuticalsCMP: INR576 Buy


Sa les 112.4 159.9 190.0 240.1

EBITDA 49.1 69.1 79.3 105.9

Rep. PAT 30.1 27.0 60.5 84.0

Rep.EPS (INR) 14.5 13.0 29.2 40.6

Core PAT 30.5 45.8 53.4 61.1

Core EPS (INR) 14.8 22.1 25.8 29.5

EPS Gr. (%) 31.3 50.0 16.6 14.3

BV/Sh. (INR) 72.4 82.4 107.5 143.4

RoE (%) 22.5 28.6 27.2 23.5

RoCE (%) 31.5 27.5 41.0 41.8

Payout (%) 17.3 21.8 12.9 10.9

Valuations

P/E (x) 39.0 26.0 22.3 19.5

P/BV (x) 8.0 7.0 5.4 4.0

EV/EBITDA (x) 15.3 15.3 15.3 15.3

Div. Yield (%) 0.7 0.7 0.7 0.7

Bloomberg SUNP IN


M. Cap. (INR b)/(USD b) 1,192 / 19


1,6,12 Rel Perf. (%) -3 / 6 / 45




Net Revenues 26,581 26,572 28,520 30,715 34,822 41,921 42,262 40,936 112,389 159,940

YoY Change (%) 62.5 40.3 33.0 31.8 31.0 57.8 48.2 33.3 40.4 42.3


EBITDA 12,169 11,684 12,611 12,599 15,306 18,284 18,309 17,239 49,062 69,138

Margins (%) 45.8 44.0 44.2 41.0 44.0 43.6 43.3 42.1 43.7 43.2

Depreciation 801 829 844 887 978 1,005 1,050 1,080 3,362 4,113

Net Other Income -231 1,476 936 1,102 735 1,079 1,032 1,032 3,284 3,878

PBT before EO Exp 11,136 12,331 12,703 12,814 15,063 18,358 18,291 17,191 48,984 68,903

EO Exp/(Inc) 0 5,836 0 0 25,174 0 0 0 5,836 25,174

PBT 11,136 6,495 12,703 12,814 -10,111 18,358 18,291 17,191 43,149 43,729

Tax 1,925 2,139 2,369 1,773 1,511 2,760 3,018 3,074 8,205 10,363

Rate (%) 17.3 17.3 18.6 13.8 10.0 15.0 16.5 17.9 16.8 15.0

Profit after Tax 9,211 4,356 10,335 11,041 -11,622 15,598 15,273 14,117 34,944 33,366

Share of Minority Partner 1,256 1,161 1,521 925 1,139 1,975 1,852 1,442 4,863 6,408

Reported PAT 7,956 3,195 8,814 10,116 -12,761 13,623 13,421 12,675 30,081 26,958

One-off upsides 2,276 1,303 812 976 1,145 1,763 1,907 1,488 5,367 6,302

Adj Net Profit 5,679 7,728 8,002 9,140 11,269 11,861 11,515 11,187 30,550 45,831

YoY Change (%) 29.5 41.7 31.0 25.6 98.4 53.5 43.9 22.4 31.5 50.0

Margins (%) 21.4 29.1 28.1 29.8 32.4 28.3 27.2 27.3 27.2 28.7

US Sales 15,411 13,301 14,946 17,879 20,314 25,880 26,116 24,586 59,238 59,946

YoY Change (%) 147.8 66.5 43.7 76.9 31.8 94.6 74.7 37.5 70.6 1.2

Taro Sales 7,751 7,084 8,856 7,209 7,441 11,421 11,036 9,381 33,788 33,217

YoY Change (%) 0.0 32.7 40.7 9.8 -4.0 61.2 24.6 30.1 52.7 -1.7

E: MOSL Estimates; Qtr. no. don’t match with annual no. because of reinstatement of financials; Est. include one-off upsides.

C–104January 2014


We expect Torrent Pharmaceuticals (TRP) to post 22% YoY growth in

3QFY14E sales to INR9.7b, led by strong growth in all markets outside

India, except Brazil. We expect domestic formulations to grow 11%

YoY to INR2.9b, while Brazil is expected to continue to show a

slowdown this quarter.

EBITDA is likely to grow 12% YoY to INR1.8b, with EBITDA margin

declining 140bp YoY.

Adjusted PAT would be INR1.2b, up 13% YoY, in line with operational

performance.

Over the last six years, Torrent has delivered 30.5% EPS CAGR, even as

capital employed CAGR was just 17.5%. RoCE has increased from 14.5%

in FY05 to 35.7% in FY13.

We believe that current valuations do not reflect the improvement in

business profitability (ex Europe), scale-up of international operations,

and Torrent's strong positioning in domestic formulations, particularly

in chronic therapeutic segments.



Sustained recovery in domestic formulations.

Performance of Brazilian operations amid market pressures.

Outlook for US business.





YoY Change (%) 18.4 12.1 14.8 29.2 21.3 25.2 21.9 12.7 19.1 19.6

EBITDA 1,560 1,443 1,612 2,200 1,880 1,730 1,827 1,786 6,930 7,223

Margins (%) 20.3 18.8 20.2 25.3 20.2 18.0 18.8 18.2 21.6 18.8

Depreciation 201 203 204 220 210 220 229 239 830 898

Interest 94 80 67 100 80 150 90 19 340 339

Other Income 140 123 89 80 80 100 130 140 430 450


Extra-Ord Expense 0 -110 0 370 -200 -60 0 0 370 -260


Tax 374 309 309 480 380 390 377 334 1,470 1,480

Rate (%) 26.6 24.1 21.6 24.5 22.8 26.7 23.0 20.0 23.7 23.0

Reported PAT 1,030 1,085 1,121 1,110 1,490 1,130 1,261 1,335 4,350 5,216

Minority Interest 12 12 -3 0 0 0 0 0 20 0

Adj PAT 1,019 963 1,123 1,480 1,290 1,070 1,261 1,335 4,705 4,956

YoY Change (%) 14.1 -3.7 35.0 164.4 26.7 11.2 12.3 -9.8 43.2 5.3

Margins (%) 13.3 12.6 14.1 17.0 13.9 11.2 13.0 13.6 14.6 12.9

Dom. formulations sales 2,778 2,710 2,586 2,180 3,120 2,970 2,870 2,442 10,240 11,402

YoY Change (%) 13.5 14.7 12.7 9.8 12.3 9.6 11.0 12.0 12.7 11.3

Intl. formulations sales 4,212 4,362 4,490 5,260 5,390 5,720 5,773 5,796 18,340 22,679

YoY Change (%) 33.3 13.5 14.2 34.1 28.0 31.1 28.6 10.2 23.8 23.7

E: MOSL Estimates

Torrent PharmaCMP: INR475 Buy


Sa les 32.1 38.4 47.7 56.2

EBITDA 6.9 7.2 9.6 11.6

Net Profit 4.7 5.0 5.2 6.2

Adj. EPS (INR) 27.8 29.3 30.7 36.8

EPS Gr. (%) 43.2 5.3 4.8 20.1

BV/Sh. (INR) 84.9 108.1 129.8 155.9

RoE (%) 35.8 30.3 25.8 25.8

RoCE (%) 33.5 27.9 22.2 19.9

Payout (%) 52.2 27.8 29.3 29.3

Valuations

P/E (x) 17.1 16.2 15.5 12.9

P/BV (x) 5.6 4.4 3.7 3.0

EV/EBITDA (x) 11.7 11.1 10.4 8.4

Div. Yield (%) 4.8 1.5 1.6 1.9

Bloomberg TRP IN




1,6,12 Rel Perf. (%) -2 / 3 / 24

C–105January 2014

December 2013 Results Preview | Sector: Media

Shobhit Khare ([email protected])

Expected quarterly performance summary (INR million)




D B Corp 285 Buy 5,042 14.9 15.1 1,421 19.2 32.0 824 16.7 37.0

Dish TV 60 Buy 6,163 10.5 4.0 1,648 19.7 11.5 -53 Loss Loss

HT Media 75 Neutral 5,739 4.9 7.3 993 13.5 54.3 576 9.1 177.5

Jagran Prakashan 90 Buy 4,516 29.4 9.2 1,083 18.9 18.0 680 47.5 49.2

PVR 628 Buy 3,632 79.4 -0.7 636 85.2 -15.0 213 146.3 -28.4

Sun TV 376 Buy 5,212 7.3 11.8 3,983 5.8 17.9 1,888 -0.6 21.0

Zee Entertainment 279 Neutral 11,181 19.1 1.5 2,936 12.4 -5.4 2,165 11.6 -8.4


Abbreviations and acronyms

GEC: General entertainment

channel

DTH: direct to home

Advertising: Regulatory ad cap to impact broadcasters; expect healthygrowth for regional printBroadcasters are likely to be adversely impacted by the regulatory cap on

advertisement duration. The regulator, TRAI reduced the duration of advertisements

from 14 minutes/hour in 2QFY14 to 12 minutes/hour in 3QFY14. Strong market share

and sports revenue would translate to ~20% ad revenue growth for Zee v/s NIL for Sun

TV, which has been unable to adjust pricing in line with the sharp correction in

advertising inventory. Ad growth for regional print is likely to remain strong at 15/16%

YoY for DB Corp/HMVL and ~10% YoY (like-to-like) for Jagran. For HT English, we expect

ad growth to improve to 6% YoY (v/s 4% YoY in 2QFY14).

Expect 21% YoY earnings growth for Media universeWhile Jagran/HMVL are expected to report the highest YoY earnings growth at ~50%

(low base), DB Corp and Zee should continue with steady performance (12/17%

earnings growth). Dish TV's net loss is expected to decline ~70% QoQ driven by strong

EBITDA growth. HT Media's PAT is expected to grow by ~9%.

DTH: Industry subscriber additions to increase QoQWe expect DTH subscriber additions to increase QoQ, led by festive demand. However,

gross additions for Dish TV are likely to remain relatively muted (~0.45m in 3QFY14),

driven by some erosion in market share, led by higher competitive pressure.

Hiccups in digitization process continueThere have been hiccups in phase-I implementation, as cable subscribers are yet to

fully transition to "addressable" systems. The regulator, TRAI recently extended the

deadline for phase-I gross billing and phase-II customer application form collection

to 31 December 2013.

Digitization remains a strong theme for broadcasting; earnings revivalcontinues for regional printOur industry interactions suggest that the ad environment remains challenging. The

print media sector continues to post earnings recovery, led by yield improvement

focus for regional print and cost management. Digitization remains a strong theme

for broadcasting and distribution stocks, as the government and regulator have been

aggressively monitoring the digitization progress.

MediaCompanies Covered

D B Corp

Dish TV

H T Media

Jagran Prakashan

PVR

Sun TV Network

Zee Entertainment

C–106January 2014


Media: Quarterly financials

1QFY13 2QFY13 3QFY13 4QFY13 1QFY14E 2QFY14 3QFY14 YoY (%) QoQ (%)

Advertisement Revenue (INR b)

ZEEL 4.5 5.3 5.1 4.8 5.3 5.8 6.1 20 5

Sun TV 2.8 2.8 3.3 3.1 3.1 2.7 3.3 0 22

Dish TV NM NM NM NM NM NM NM NM NM

DB Corp 2.7 2.6 3.2 2.8 3.3 3.1 3.7 15 18

Jagran Prakashan 2.2 2.2 2.4 2.3 2.9 2.8 3.2 33 12

HT Media 3.7 3.6 4.1 3.8 4.1 3.9 4.5 9 17

HMVL 1.2 1.1 1.2 1.1 1.3 1.3 1.4 16 8

Subscription Revenue (INR b)

ZEEL 3.6 3.9 4.1 4.5 4.2 4.6 4.8 16 4

Sun TV 1.5 1.5 1.6 1.6 1.8 1.9 1.9 21 0

Dish TV 4.6 4.7 4.9 5.0 5.3 5.4 5.6 14 5

DB Corp 0.7 0.7 0.7 0.7 0.8 0.8 0.8 14 4


HT Media 0.5 0.6 0.6 0.6 0.6 0.6 0.6 14 0

HMVL 0.4 0.4 0.4 0.4 0.4 0.4 0.4 15 1

Total Revenue (INR b)

ZEEL 8.4 9.5 9.4 9.6 9.7 11.0 11.2 19 2

Sun TV 4.3 4.3 4.9 4.7 6.0 4.7 5.2 7 12

Dish TV 5.2 5.3 5.6 5.6 5.8 5.9 6.2 10 4

DB Corp 3.8 3.8 4.4 4.0 4.5 4.4 5.0 15 15


HT Media 4.9 5.1 5.5 5.0 5.4 5.3 5.7 5 7

HMVL 1.6 1.6 1.6 1.6 1.8 1.8 1.9 16 6

EBITDA (INR b)

ZEEL 2.3 2.2 2.6 2.4 2.9 3.1 2.9 12 -5

Sun TV 3.2 3.3 3.8 3.5 3.5 3.4 4.0 6 18

Dish TV 1.6 1.6 1.4 1.2 1.2 1.5 1.6 20 11

DB Corp 0.76 0.86 1.19 0.94 1.33 1.08 1.42 19 32


HT Media 0.67 0.57 0.87 0.72 0.78 0.64 0.99 14 54

HMVL 0.28 0.29 0.29 0.29 0.40 0.41 0.42 48 3

EBITDA Margin (%)

ZEEL 27.7 22.8 27.8 25.1 30.0 28.2 26.3 -156bp -193bp

Sun TV 75.9 75.9 77.5 73.7 58.8 72.4 76.4 -105bp 401bp

Dish TV 29.9 29.2 24.7 21.6 21.0 25.0 26.7 205bp 179bp

DB Corp 20.3 22.7 27.2 23.6 29.6 24.6 28.2 103bp 359bp

Jagran Prakashan 24.8 24.3 26.1 15.8 24.7 22.2 24.0 -212bp 179bp

HT Media 13.7 11.1 16.0 14.3 14.4 12.0 17.3 131bp 527bp

HMVL 17.7 18.0 17.6 18.9 22.0 23.2 22.7 502bp -58bp

Adj. PAT (INR b)

ZEEL 1.58 1.88 1.94 1.80 2.25 2.36 2.17 12 -8

Sun TV 1.64 1.52 1.90 1.78 1.64 1.56 1.89 -1 21

Dish TV -0.32 -0.21 -0.45 -0.44 -0.30 -0.16 -0.05 -88 -67

DB Corp 0.44 0.49 0.71 0.55 0.76 0.60 0.82 17 37


HT Media 0.41 0.33 0.53 0.40 0.48 0.21 0.58 9 177

HMVL 0.21 0.22 0.21 0.23 0.30 0.25 0.31 50 26

* Consolidated numbers from 1QFY14. Not comparable with previous quarters Source: Company, MOSL

C–107January 2014


3QFY14 ad revenue growth (YoY, %)

3QFY14 subscription/circulation revenue growth (YoY, %)

Newsprint prices have started to trend down but impact to be offset by INR depreciation (USD/MT)

Industry DTH subscriber base and additions trend


C–108January 2014





Media

D B Corp 285 Buy 11.9 15.7 18.8 24.0 18.2 15.2 11.1 10.4 8.8 22.3 26.3 28.0

Dish TV 60 Buy -1.2 -0.3 0.0 -50.8 -175.2 2202.2 14.0 11.2 9.5 NA NA NA

Hindustan Media 113 Buy 11.5 15.4 18.9 9.8 7.3 6.0 7.2 2.6 1.7 17.9 20.1 20.1

HT Media 75 Neutral 7.1 7.1 8.0 10.5 10.5 9.4 7.2 4.1 3.4 10.1 9.2 9.4

Jagran Prakashan 90 Buy 4.7 6.5 8.4 19.2 13.9 10.7 11.3 8.0 6.5 17.5 20.5 23.3

PVR 628 Buy 11.2 16.9 26.4 55.9 37.1 23.8 15.2 13.6 10.1 9.6 10.2 14.3

Sun TV 376 Buy 17.3 18.2 22.6 21.7 20.7 16.7 10.9 9.4 7.8 23.6 23.1 25.5

Zee Entertainment 279 Neutral 7.5 9.5 11.3 37.1 29.3 24.7 20.5 21.3 17.9 19.6 21.5 21.9



90

95

100

105

110

Dec

-12

Mar

-13

Jun-

13

Sep-

13

Dec

-13

Sensex IndexMOSL Media Index

98

102

106

110

114

Sep

-13

Oct

-13

Nov

-13

Dec

-13

Sensex IndexMOSL Media Index

C–109January 2014





Sales 3,770 3,784 4,389 3,981 4,494 4,380 5,042 4,556 15,923 18,473

YoY (%) 6.6 6.9 11.0 10.4 19.2 15.8 14.9 14.5 8.8 16.0


EBITDA 765 861 1,192 939 1,328 1,077 1,421 1,175 3,760 5,001

YoY (%) -23.8 11.6 17.1 24.0 73.7 25.1 19.2 25.1 5.9 33.0

EBITDA margin (%) 20.3 22.7 27.2 23.6 29.6 24.6 28.2 25.8 23.6 27.1

Depreciation 135 143 151 151 158 159 160 165 581 640

Interest 17 19 19 22 25 23 28 27 80 102

Other Income 46 38 38 92 45 39 45 81 213 210

PBT 658 736 1,060 858 1,191 934 1,279 1,064 3,313 4,468

Tax 222 251 352 307 430 332 455 379 1,132 1,597


PAT 436 486 708 551 761 602 824 685 2,181 2,872

Minority Interest 0 0 2 -1 0 0 0 0 0 0

Adj PAT 437 486 706 552 761 602 824 685 2,181 2,872

YoY (%) -28.5 20.7 27.6 21.7 74.3 23.8 16.7 24.1 7.9 31.7

Revenue break-up (INR m)

Ad revenue (print) 2,701 2,636 3,184 2,779 3,253 3,099 3,662 3,202 11,300 13,216

Circulation revenue 656 698 729 731 767 796 831 833 2,814 3,227

Radio 140 153 191 183 172 175 214 206 667 766

Event management 46 40 9 31 15 18 18 18 126 69

Others 227 257 276 257 288 292 318 297 1,017 1,194

Total revenue 3,770 3,784 4,389 3,981 4,494 4,380 5,042 4,556 15,923 18,473

E: MOSL Estimates

D B CorpCMP: INR285 Buy

We expect print advertising revenue to grow 15% YoY to INR3.66b.

Circulation revenue is likely to grow 14% YoY to INR0.83b.

Aggregate revenue is likely to increase 15% YoY to INR5.04b.

We estimate 3QFY14 EBITDA at INR1.42b, up 19% YoY. We expect EBITDA

margin to expand ~100bp YoY to 28.2%.

Net profit is likely to grow 17% YoY to INR0.82b.

The stock trades at 18.2x FY14E and 15.2x FY15E EPS. Buy.


YoY ad growth (we expect 15%)

EBITDA margin (we expect 28.2%).


Net Sales 15.9 18.5 20.7 23.2

EBITDA 3.76 5.00 5.72 6.50

Adj. Net Profit 2.18 2.87 3.45 4.01

Adj. EPS (INR) 11.9 15.7 18.8 21.9

Adj. EPS Gr. (%) 7.9 31.6 20.3 16.2

BV/Sh (INR) 56.2 63.1 71.2 80.6

RoE (%) 22.3 26.3 28.0 28.8

RoCE (%) 18.0 22.0 23.9 25.0

Div. Payout (%) 53.7 55.7 57.0 57.0

Valuations

P/E (x) 24.0 18.2 15.2 13.0

P/BV (x) 5.1 4.5 4.0 3.5

EV/EBITDA (x) 14.0 10.4 8.8 7.5

Div. Yield (%) 1.9 2.6 3.2 3.8

Bloomberg DBCL IN




1,6,12 Rel Perf. (%) 5 / 10 / 17

C–110January 2014





Sales 5,200 5,336 5,578 5,554 5,784 5,926 6,163 6,331 21,668 24,204

YoY Change (%) 12.9 10.7 13.7 5.9 11.2 11.1 10.5 14.0 10.7 11.7

Operating expenses 3,644 3,779 4,201 4,354 4,567 4,447 4,514 4,464 15,873 17,992

EBITDA 1,556 1,557 1,377 1,200 1,217 1,479 1,648 1,867 5,795 6,211

YoY Change (%) 38.7 27.9 14.6 -16.7 -21.8 -5.0 19.7 55.6 16.3 7.2

EBITDA margin (%) 29.9 29.2 24.7 21.6 21.0 25.0 26.7 29.5 26.7 25.7

Depreciation 1,512 1,533 1,713 1,450 1,444 1,504 1,534 1,568 6,276 6,050

Interest 473 317 288 344 354 345 324 304 1,284 1,328

Other Income 106 80 175 157 277 211 158 158 512 804

PBT -324 -213 -449 -436 -304 -160 -53 153 -1,252 -363

Adjusted net profit -324 -213 -449 -436 -304 -160 -53 153 -1,252 -363

YoY Change (%) 76.8 -56.3 4.4 -11.0 -6.0 -24.9 -88.3 -135.2 -21.2 -71.0

Net Subs (m) 9.8 10.0 10.5 10.7 10.9 11.0 11.3 11.5 10.7 11.5

ARPU (INR/month) 156 159 160 157 167 165 169 171 157 166

Revenue break-up (INR m)

Subscription revenue 4,556 4,729 4,943 5,001 5,280 5,370 5,636 5,809 19,228 22,096

Lease rentals 460 430 380 320 300 260 251 250 1,597 1,061

Others 184 177 255 233 203 296 276 271 843 1,047

Total revenue 5,200 5,336 5,578 5,554 5,784 5,926 6,163 6,331 21,668 24,204

E: MOSL Estimates

Dish TVCMP: INR60 Buy

We expect revenue to increase 10.5% YoY and 4% QoQ to INR6.16b.

Subscription revenue is likely to increase 5% QoQ to INR5.64b.

We expect gross additions of 0.45m and net additions of 0.25m.

EBITDA margin would expand 170bp QoQ to 26.7%, largely on operating

leverage from ARPU improvement.

Net loss is likely to decline by 67% QoQ to INR53m.

The stock trades at an EV of 11.2x FY14E and 9.5x FY15E EBITDA. Buy.


Quarterly gross adds (we expect 0.45m)

ARPU (we expect INR169)

EBITDA margin (we expect 26.7%)


Net Sales 21.7 24.2 27.8 32.3

EBITDA 5.8 6.2 7.2 9.2

Adj. Net Profit -1.3 -0.4 0.0 2.1

Adj. EPS (INR) -1.2 -0.3 0.0 2.0

Adj. EPS Gr. (%) NA NA NA NA

BV/Sh (INR) -1.5 -1.8 -1.8 0.2

RoE (%) NA NA NA NA

RoCE (%) 1.2 4.6 10.2 58.4

Div. Payout (%) NA NA NA NA

Valuations

P/E (x) NA NA NA 30.2

P/BV (x) NA NA NA NA

EV/EBITDA (x) 12.7 11.2 9.5 7.1

EV/Sub (INR) 6,830 6,057 5,293 4,558

Bloomberg DITV IN




1,6,12 Rel Perf. (%) 13 / -13 / -30

C–111January 2014





Revenue 4,899 5,107 5,470 5,005 5,409 5,347 5,739 5,407 20,482 21,901

YoY (%) -1.4 3.6 3.9 1.3 10.4 4.7 4.9 8.0 1.9 6.9


EBITDA 669 565 875 718 779 644 993 777 2,826 3,192

YoY (%) -25.9 -20.7 12.6 49.3 16.5 13.9 13.5 8.3 -1.6 13.0

EBITDA margin (%) 13.7 11.1 16.0 14.3 14.4 12.0 17.3 14.4 13.8 14.6

Depreciation 220 242 220 232 219 223 231 243 914 916

Interest 103 98 110 135 137 174 140 143 446 594

Other Income 209 244 238 247 276 570 275 274 938 1,395

PBT 555 469 783 597 699 816 897 665 2,404 3,077

Tax 129 107 222 167 183 177 252 188 624 800


PAT 426 362 562 430 516 639 645 477 1,780 2,277

Minority Interest 19 29 34 29 41 57 70 59 111

Reported PAT 407 333 528 401 475 582 576 418 1,669 2,051

Adj PAT 407 333 528 401 475 207 576 418 1,669 1,676

YoY (%) -21.0 -24.0 9.5 82.5 16.7 -37.7 9.1 4.3 1 0

Ad revenue growth (%) -3 -2 2 1 10 6 9 11 0 9

-English -6 -3 -3 3 8 4 6 8 -2 7

-Hindi 5 1 15 -3 14 11 16 16 5 14

Circulation revenue growth (%) 8 11 12 19 16 14 14 14 13 14

-English -3 1 6 27 25 11 12 13 7 14

-Hindi 13 16 15 16 12 15 15 15 15 14

E: MOSL Estimates

H T MediaCMP: INR75 Neutral

We expect HT Media to post revenue of INR5.74b, up 5% YoY.

We expect ad revenue to grow 9% YoY to INR4.52b.

We expect circulation revenue to increase 14% YoY to INR0.64b.

EBITDA margin is likely to increase by 130bp YoY to 17.3%.

Net profit should grow 9% YoY to INR0.58b.

The stock trades at 10.5x FY14E and 9.4x FY15E EPS. Neutral.


YoY English ad growth (we expect 6% YoY growth)

Hind ad growth (we expect 16% YoY growth)

EBITDA margin (we expect 17.3%)


Net Sales 20.5 21.9 23.6 25.7

EBITDA 2.83 3.19 3.35 3.66

Adj. Net Profit 1.68 1.68 1.89 2.18

Adj. EPS (INR) 7.1 7.1 8.0 9.3

Adj. EPS Gr. (%) 2.5 0.0 12.6 15.5

BV/Sh (INR) 74.0 81.4 89.9 99.8

RoE (%) 10.1 9.2 9.4 9.8

RoCE (%) 10.0 11.1 10.7 11.1

Div. Payout (%) 6.5 7.5 8.2 8.2

Valuations

P/E (x) 10.5 10.5 9.4 8.1

P/BV (x) 1.0 0.9 0.8 0.8

EV/EBITDA (x) 4.9 4.1 3.4 2.5

Div. Yield (%) 0.5 0.9 0.9 1.0

Bloomberg HTML IN




1,6,12 Rel Perf. (%) -11 / -34 / -36

C–112January 2014


Quarterly Performance (Consolidated from 1QFY14) (INR Million)

Y/E March FY13* FY14# FY13 FY14E


Sales 3,175 3,221 3,489 3,428 4,131 4,137 4,516 4,327 13,314 17,111

YoY (%) 4.2 5.5 7.7 10.4 30.1 28.4 29.4 26.2 7.0 28.5


EBITDA 788 782 911 540 1,019 918 1,083 877 3,021 3,898

YoY (%) -3.9 -1.1 7.0 -18.0 29.3 17.5 18.9 62.3 -3.2 29.0

EBITDA margin (%) 24.8 24.3 26.1 15.8 24.7 22.2 24.0 20.3 22.7 22.8

Depreciation 148 161 166 185 181 190 194 205 660 770

Interest 76 59 77 65 71 78 78 77 278 305

Other Income -7 133 -9 109 -12 -55 78 78 225 89

PBT 557 694 659 398 755 595 889 673 2,308 2,912

Tax 0 0 0 -4 177 139 209 159 -4 684

Effective Tax Rate (%) 0.0 0.0 0.0 -1.1 23.5 23.3 23.5 23.6 (0.2) 23.5

Adjusted net profit 390 486 461 283 578 456 680 514 1,620 2,228

YoY (%) -21.5 6.2 11.6 -34.0 48.1 -6.2 47.5 81.6 -17.3 37.5

Key Metrics

Ad revenue growth (YoY, %) 8 4 7 8 31 29 33 31 4 14

Circulation revenue growth (YoY,%) 10 9 12 21 35 35 30 19 13 19

RM/Sales (%) 36 34 34 36 34 36 37 36 35 29

E: MOSL Estimates; * Standalone # consolidated, Nai Duniya financials included from 4QFY13 onwards

Jagran PrakashanCMP: INR90 Buy

Jagran's financials will not be comparable on a YoY basis due to inclusion

of 'Nai Duniya'.

We expect advertising revenue to grow 33% YoY to INR3.18b on

reported basis. On a like-to-like basis, we expect ad revenue growth

of 10%.

We expect circulation revenue to grow 30% YoY to INR0.91b on a

reported basis.

Aggregate revenue is likely to increase 29% YoY to INR4.52b.

We estimate EBITDA at INR1.08b and EBITDA margin at 24%.

Adjusted earnings are expected at INR0.68b, up 3% YoY despite

consolidation of Nai Duniya.



YoY ad growth (we expect 33% including ad revenue of Nai Duniya)

EBITDA margin (we expect 24%)


Net Sales 15.3 17.1 18.9 20.9

EBITDA 3.0 3.9 4.6 5.3

Adj. Net Profit 1.5 2.0 2.7 3.2

Adj. EPS (INR) 4.7 6.5 8.4 10.0

Adj. EPS Gr. (%) -17.3 38.3 30.2 19.5

BV/Sh (INR) 29.5 33.6 38.5 45.0

RoE (%) 17.5 20.5 23.3 24.0

RoCE (%) 18.8 15.8 16.9 18.1

Div. Payout (%) 50.2 45.3 41.8 35.0

Valuations

P/E (x) 19.2 13.9 10.7 8.9

P/BV (x) 3.0 2.7 2.3 2.0

EV/EBITDA (x) 10.5 7.7 6.2 5.1

Div. Yield (%) 2.2 2.8 3.3 3.3

Bloomberg JAGP IN




1,6,12 Rel Perf. (%) 7 / -2 / -22

C–113January 2014


PVRCMP: INR628 Buy

We expect revenue to grow 79.4% YoY (decline 0.7% QoQ) to INR3,632m

in 3QFY14. We estimate footfalls at 16.5m, ATP at INR172 and F&B SPH

at INR54.

EBITDA margin is likely to expand 50bp YoY (shrink 300bp QoQ) to

17.5%, aided by synergies from Cinemax acquisition.

We expect PAT to grow 146% YoY (decline 28% QoQ) to INR213m.

While 3Q had the highest content release, apart from Dhoom-3, none

of the movies performed well. Hence, footfalls and revenues were

adversely impacted.

We downgrade our FY14E and FY15E EBITDA by 9.7% and 5.3%,

respectively.

The stock is trading at an EV of 13.6x FY14E and 10.1x FY15E EBITDA. We

maintain Buy, with a target price of INR635 (8x FY16E EV/EBITDA).

Key issues to watch out for

Growth in footfalls.

New screen openings.

Synergies with Cinemax.


Sa les 8.1 14.0 17.3 21.1

EBITDA 1.2 2.3 3.0 3.9

NP 0.4 0.7 1.1 1.7

EPS (INR) 11.2 16.9 26.4 41.5

EPS Gr (%) 14.7 50.7 56.2 57.0

BV/Sh (INR) 162.2 172.8 196.3 234.4

RoE (%) 9.6 10.2 14.3 19.3

RoCE (%) 7.8 11.9 16.4 20.9

Payout (%) 10.4 13.7 11.0 8.4

Valuations

P/E (x) 55.9 37.1 23.8 15.1

P/BV (x) 3.9 3.6 3.2 2.7

EV/EBITDA (x) 26.6 13.6 10.1 7.8

Div. Yield (%) 0.2 0.5 0.6 0.8

Bloomberg PVRL IN




1,6,12 Rel Perf. (%) 2 / 84 / 112

Niket Shah ([email protected]) / Atul Mehra ([email protected])




Net Sales 1,799 1,927 2,024 2,448 3,352 3,658 3,632 3,283 8,053 13,954

YoY Change (%) 53.3 64% 43.2 108.0 86% 90% 79% 34% 55.7 73.3


EBITDA 338 366 343 164 594 748 636 279 1,169 2,258

Margins (%) 18.8 19.0 17.0 6.7 17.7 20.4 17.5 8.5 14.5 16.2

Depreciation 179 89 118 175 182 209 196 213 560 826

Interest 47 52 92 176 194 210 189 197 368 817

Other Income 8 9 11 19 21 13 16 19 91 113

PBT before EO expense 120 234 145 -167 238 342 266 -112 332 729

Extra-Ord expense 0 0 13 41 23 0 -190 -12 0

PBT 120 234 145 -180 197 319 266 78 320 729

Tax 42 73 56 -294 57 42 53 16 (124) 230

Rate (%) 34.8 31.1 38.5 164 29.1 13.2 20.0 20.0 -38.7 31.5

MI & Profit/Loss of Asso. Cos. -3 -1 2 3 4 -1 0 0 2 0

Reported PAT 76 162 91 117 143 275 213 62 445 499

Adj PAT 81 162 87 104 165 298 213 -90 459 499

YoY Change (%) 37.1 14 -3.9 105 84 146 -187 0.9 0.1

Margins (%) 4.2 8.4 4.5 4.8 4.3 7.5 5.9 1.9 5.5 3.6

E: MOSL Estimates

C–114January 2014





Revenue 4,258 4,333 4,859 4,727 6,019 4,664 5,212 5,414 18,176 21,309

YoY (%) -6.2 -4.0 14.3 10.7 41.4 7.6 7.3 14.5 3.4 17.2

EBITDA 3,230 3,290 3,763 3,486 3,537 3,377 3,983 4,149 13,769 15,045

YoY (%) -11.7 -10.0 10.3 6.2 9.5 2.6 5.8 19.0 -1.7 9.3

As of % Sales 75.9 75.9 77.5 73.7 58.8 72.4 76.4 76.6 75.8 70.6

Depreciation and Amortization 933 1,138 1,044 1,017 1,174 1,176 1,293 1,158 4,132 4,801

Interest 2 5 17 24 7 9 14 18 48 48

Other Income 132 96 106 216 134 378 193 194 550 899

PBT 2,427 2,243 2,808 2,661 2,489 2,570 2,868 3,167 10,139 11,095

Tax 784 726 910 886 845 879 981 1,079 3,306 3,783


Reported PAT 1,643 1,517 1,899 1,775 1,644 1,692 1,888 2,088 6,833 7,312

Adj PAT 1,643 1,517 1,899 1,775 1,644 1,560 1,888 2,088 6,833 7,181

YoY (%) -12.4 -15.8 13.1 11.6 0.1 2.9 -0.6 17.7 -1.6 5.1

Revenue Breakup (INR m)

Advertising and Broadcast 2,800 2,810 3,270 3,050 3,140 2,683 3,270 3,424 11,930 12,517

International 260 260 260 260 290 323 305 309 1,040 1,227

DTH 890 900 945 1,000 1,060 1,084 1,106 1,121 3,735 4,370

Domestic Cable 300 340 370 380 420 492 492 504 1,390 1,908

Films and Others 8 23 14 37 1,109 82 40 56 81 1,287

Total 4,258 4,333 4,859 4,727 6,019 4,664 5,212 5,414 18,176 21,309

E: MOSL Estimates; *1QFY14/2QFY14 includes IPL revenue of INR985.4m/INR54.2m and IPL EBITDA loss of INR307.9m/INR30.9m

Sun TV NetworkCMP: INR376 Buy

We expect revenue to increase 7.3% YoY to INR5.2b.

Advertising and broadcasting revenue is likely to remain flat YoY at

INR3.27b.

We expect total subscription revenue (domestic + international) to

grow 20.8% YoY to INR1.9b.

EBITDA is likely to grow 5.8% YoY to INR3.98b.

We expect PAT to remain flat YoY at INR1.89b.



YoY ad growth (we expect flat)

QoQ subscription growth (we expect flat)


Net Sales 18.2 21.3 24.7 28.2

EBITDA 13.8 15.0 17.7 20.3

Adj. Net Profit 6.8 7.2 8.9 10.9

Adj. EPS (INR) 17.3 18.2 22.6 27.7

Adj. EPS Gr. (%) -1.6 5.1 23.8 22.7

BV/Sh (INR) 73.4 80.4 88.5 98.3

RoE (%) 23.6 23.1 25.5 28.2

RoCE (%) 45.3 46.2 49.1 51.4

Div. Payout (%) 54.8 53.9 55.4 56.0

Valuations

P/E (x) 21.7 20.7 16.7 13.6

P/BV (x) 5.1 4.7 4.3 3.8

EV/EBITDA (x) 10.5 9.4 7.8 6.6

Div. Yield (%) 2.5 2.7 3.3 4.1

Bloomberg SUNTV IN


M. Cap. (INR b)/(USD b) 148 / 2


1,6,12 Rel Perf. (%) -1 / -10 / -21

C–115January 2014





Advertsing Revenue 4,472 5,281 5,094 4,792 5,301 5,833 6,113 5,817 19,639 23,063

Growth (%) 18 34 29 15 19 10 20 21 24.0 17.4

Subscription Revenue 3,641 3,950 4,098 4,546 4,241 4,581 4,769 4,939 16,234 18,530

Growth (%) 19 36 26 13 16 16 16 9 22.6 14.1

Other Sales and Services 317 305 197 305 191 599 299 377 1,123 1,466

Net Sales 8,430 9,536 9,388 9,643 9,733 11,013 11,181 11,132 36,997 43,059

Change (%) 20.7 32.7 24.4 11.0 15.5 15.5 19.1 15.4 21.7 16.4

Prog, Transmission & Direct Exp 3,757 4,791 4,185 4,669 4,108 5,041 5,293 4,893 17,401 19,335

Staff Cost 888 873 895 835 956 992 1,002 1,016 3,491 3,966

Selling and Other Exp 1,453 1,695 1,697 1,716 1,754 1,875 1,950 2,034 6,561 7,613

EBITDA 2,332 2,177 2,611 2,423 2,915 3,105 2,936 3,189 9,544 12,145

Change (%) 49.5 4.9 20.9 51.5 25.0 42.6 12.4 31.6 29.0 27.3

As of % Sales 27.7 22.8 27.8 25.1 30.0 28.2 26.3 28.7 25.8 28.2

Depreciation 99 96 90 115 87 91 100 115 399 392

Finance cost 18 23 16 29 22 34 34 32 86 122

Other Income 301 260 360 538 722 549 376 369 1,459 2,023

PBT 2,517 2,318 2,865 2,817 3,528 3,529 3,178 3,412 10,517 13,655

Tax 947 444 933 1,014 1,289 1,166 1,017 1,100 3,338 4,574


PAT 1,570 1,874 1,933 1,803 2,239 2,363 2,161 2,313 7,179 9,080

Minority Interest/Associates -12 -2 -8 8 -8 0 -4 -4 -15 -15

Adj PAT after Minority Interest 1,582 1,876 1,941 1,795 2,246 2,363 2,165 2,316 7,194 9,095

Change (%) 18.3 20.3 39.3 26.3 42.0 25.9 11.6 29.0 26.0 26.4

Subscription revenue (INR m)

Domestic 2,504 2,808 2,962 3,374 3,168 3,350 3,554 3,734 11,648 13,806

International 1,137 1,141 1,136 1,172 1,073 1,231 1,216 1,205 4,586 4,725

Total Subscription revenue 3,641 3,949 4,098 4,546 4,241 4,581 4,769 4,939 16,234 18,530

E: MOSL Estimates

Zee Entertainment EnterprisesCMP: INR279 Neutral

We expect advertising revenue to increase 20% YoY to INR6.1b.

We estimate subscription revenue growth of 16% YoY to INR4.77b.

EBITDA margin is likely to decline 160bp YoY to 26.3%.

Adjusted PAT would grow 12% YoY to INR2.17b.



YoY ad growth (we expect 20%)

Sports loss (we expect INR300m)


Net Sales 37.0 43.1 50.3 59.6

EBITDA 9.5 12.1 14.3 18.2

Adj. Net Profit 7.2 9.1 10.8 13.9

Adj. EPS (INR) 7.5 9.5 11.3 14.6

Adj. EPS Gr. (%) 27.9 26.4 18.9 28.4

BV/Sh (INR) 41.0 47.7 55.7 66.0

RoE (%) 19.6 21.5 21.9 23.9

RoCE (%) 29.1 32.8 32.6 35.5

Div. Payout (%) 26.6 25.0 25.0 25.0

Valuations

P/E (x) 37.1 29.3 24.7 19.2

P/BV (x) 7.0 6.0 5.1 4.3

EV/EBITDA (x) 26.5 20.6 17.3 13.3

Div. Yield (%) 0.7 0.9 1.0 1.3

Bloomberg Z IN


M. Cap. (INR b)/(USD b) 267 / 4


1,6,12 Rel Perf. (%) 7 / 6 / 17

C–116January 2014

December 2013 Results Preview | Sector: Metals





Hindalco 122 Buy 217,351 10.7 -0.3 22,120 27.1 5.0 6,265 30.2 9.8

Hindustan Zinc 133 Buy 34,349 8.1 -3.5 17,682 18.4 -6.1 17,582 9.0 3.8

JSPL 262 Neutral 50,836 5.9 2.0 15,335 -14.3 -1.5 6,728 -22.4 21.9

JSW Steel 1,007 Se l l 109,072 31.5 -5.0 20,808 58.4 -6.9 6,507 121.5 -17.8

Nalco 38 Buy 16,579 -2.1 -4.6 2,865 56.9 7.0 1,843 55.0 2.9

NMDC 142 Buy 28,966 41.5 16.8 18,391 32.2 23.1 15,827 22.4 20.1

SAIL 72 Se l l 112,375 5.3 -2.6 12,417 9.1 43.2 6,405 30.6 86.9

Sesa Sterlite 201 Neutral 195,686 14.6 8.6 67,183 14.9 -3.4 13,060 -20.9 -6.8

Tata Steel 424 Se l l 361,732 12.7 -1.3 41,778 86.6 12.8 8,001 LP -12.7

Sector Aggregate 1,126,945 13.3 0.4 218,579 27.6 3.7 82,219 35.6 5.9

Sanjay Jain ([email protected]) / Pavas Pethia ([email protected])

Ferrous

Early green shoots in Europe; steel prices improve in N.America and EuropeIn 3QFY14, steel prices showed an improvement in North America and Europe,

increasing by 3% and 2% QoQ respectively due to better demand expectation. There

are some early green shoots on economic recovery in these regions as major sentiments

indicators are showing an uptrend. On the other hand, China and CIS region witnessed

a price correction (down 1% each QoQ). Demand growth seems to be moderating in

China to more reasonable single digit levels. Key raw material prices such as iron ore

and coking coal were mostly unchanged. Iron ore prices increased marginally by 1%

QoQ to USD136/t, while coking coal prices declined 1% QoQ to USD141/t.

Domestic steel prices rise on cost pressure; steel demand still weakIndian steel prices moved higher due to price hikes taken by producers to cover for

the higher cost. Long product (TMT) prices increased 2% QoQ. Sponge iron and pellet

prices increased 5% and 7% QoQ respectively. Prices for iron ore fines inched upwards

on constraint supply. Iron ore fines prices in Odisha region moved from a low of

INR1,500/t in 2QFY14 to INR2,200/t currently. NMDC also hiked prices for both fines

and lumps twice in 3QFY14. However, demand scenario still remains weak in the

country. Most steel producers are expected to report flat QoQ volumes, while margins

are expected be higher due to higher realizations.

MetalsCompanies Covered

Hindalco

Hindustan Zinc

Jindal Steel & Power

JSW Steel

Nalco

NMDC

Sesa Sterlite

SAIL

Tata Steel

C–117January 2014


Chinese steel prices correct 1% QoQ (USD/t) CIS prices correct 1% QoQ (USD/t)

European steel prices improve 2% QoQ (EURO/t) N. American steel prices improve 3% QoQ (USD/t)


International steel market


Iron ore prices (CFR China) improved 1% QoQ (USD/t) Coking coal prices corrected 1% QoQ (USD/t)

C–118January 2014


Iron ore fines prices (INR/t) Pellet (Barbil) prices (INR/t)

Non-ferrous

Aluminum prices remain weak; other base metals prices improveAverage 3QFY14 non-ferrous metal prices were mixed with zinc and copper increasing

2% and 1% QoQ respectively, while lead prices were flat. However, aluminum prices

corrected 1% QoQ. Aluminum spot premiums also corrected on an average basis by

8% QoQ to USD230/t. However, premium has once again jumped to ~USD260/t levels

in December. We factor aluminum, zinc and lead prices of USD2,000/t, USD1,900/t and

USD2,100/t in FY15E. We believe that non-ferrous companies are structurally better

placed than steel companies in terms of demand and pricing scenario in India. Hindalco

and NMDC are our top picks in the metal space.

Source: Steel Mint, MOSL

Indian long steel prices (INR/T, exl. ED & VAT) Steel intermediate prices (INR/T, exl. ED & VAT)

Source: Steel Mint, Company, MOSL

Indian steel market

C–119January 2014





Metals

Hindalco 122 Buy 17.0 12.0 13.7 7.2 10.2 8.9 8.1 8.5 6.7 18.0 11.4 11.8

Hindustan Zinc 133 Buy 16.4 16.7 17.3 8.1 8.0 7.7 4.6 4.2 3.5 23.4 20.1 18.0

JSPL 262 Neutral 37.2 27.3 29.8 7.0 9.6 8.8 8.7 9.1 7.5 17.7 12.0 12.3

JSW Steel 1,007 Se l l 49.7 43.7 58.8 20.3 23.1 17.1 6.8 7.1 7.1 6.6 6.1 8.4

Nalco 38 Buy 2.3 3.1 3.2 16.5 12.4 11.9 3.9 4.0 3.2 5.0 6.5 6.5

NMDC 142 Buy 16.7 15.9 17.4 8.5 8.9 8.2 4.3 4.7 4.2 26.8 22.3 20.4

SAIL 72 Se l l 6.0 6.7 6.8 11.9 10.8 10.6 8.6 9.6 8.4 6.1 6.4 6.2

Sesa Sterlite 201 Neutral 20.8 19.0 24.2 9.7 10.6 8.3 2.2 3.9 3.3 9.5 7.8 9.0

Tata Steel 424 Se l l 1.6 40.4 47.0 270.2 10.5 9.0 7.3 6.8 6.2 0.7 17.7 18.0


Relative performance-3m (%) Relative performance-1Yr (%)

55

70

85

100

115D

ec-1

2

Ma

r-13

Jun-

13

Sep

-13

Dec

-13

Sens ex IndexMOSL Meta ls Index

95

100

105

110

115

120

Sep-

13

Oct

-13

Nov

-13

Dec

-13

Sensex IndexMOSL Meta ls Index

Base metal prices were mixed QoQ (Quarterly averageUSD/ton)Quarter Zinc Aluminium Copper Lead Alumina Silver (INR/kg)

Avg. QoQ YoY Avg. QoQ YoY Avg. QoQ YoY Avg. QoQ YoY Avg. QoQ YoY Avg. QoQ YoY

(%) (%) (%) (%) (%) (%) (%) (%) (%) (%) (%) (%)

3QFY14 1,894 2 -3 1,770 -1 -11 7,139 1 -10 2,103 0 -4 322 1 -1 46,273 0 -23

2QFY14 1,859 1 -1 1,780 -3 -7 7,073 -1 -8 2,101 2 6 318 -3 1 46,077 3 -17

1QFY14 1,840 -9 -5 1,834 -8 -7 7,147 -10 -9 2,053 -11 4 327 -4 3 44,837 -20 -18

4QFY13 2,032 4 0 2,002 0 -8 7,931 0 -5 2,301 5 10 341 5 8 55,927 -7 1

3QFY13 1,946 3 3 1,997 4 -4 7,908 3 6 2,198 11 11 326 3 -1 59,949 8 11

2QFY13 1,885 -2 -15 1,918 -3 -20 7,705 -2 -14 1,974 0 -20 316 0 -15 55,755 2 -5

1QFY13 1,927 -5 -14 1,978 -9 -24 7,869 -5 -14 1,973 -6 -23 317 0 -22 54,406 -2 -5

4QFY12 2,024 7 -15 2,175 4 -13 8,308 11 -14 2,093 6 -20 317 -4 -19 55,256 3 15

3QFY12 1,897 -15 -18 2,090 -13 -11 7,488 -17 -13 1,982 -19 -17 329 -12 -10 53,770 -9 35

2QFY12 2,223 -1 10 2,398 -8 15 8,982 -2 24 2,458 -4 21 372 -8 17 58,791 2 96

1QFY12 2,249 -6 12 2,598 4 24 9,137 -5 30 2,550 -2 31 404 4 21 57,430 20 101

4QFY11 2,393 3 5 2,502 7 16 9,644 12 33 2,603 9 17 391 7 20 48,008 20 82

3QFY11 2,315 15 5 2,343 12 17 8,633 19 30 2,389 18 4 366 15 20 39,929 33 46

2QFY11 2,012 0 15 2,089 0 16 7,242 3 24 2,031 5 6 317 -5 18 29,948 5 28

1QFY11 2,017 -12 37 2,092 -3 41 7,013 -3 50 1,943 -12 29 335 3 61 28,557 8 30

C–120January 2014





Alumina (Production, kt) 335 328 326 330 348 334 355 359 1,319 1,396

Aluminium (sales, kt) 124 127 135 147 130 132 135 170 532 566

Copper (sales, kt) 71 73 82 84 68 77 85 85 310 315

Avg LME Aluminium (USD/T) 1,978 1,918 1,997 2,002 1,834 1,780 1,770 1,900 1,974 1,821

Net Sales 60,279 61,635 68,717 69,938 58,379 63,049 73,263 79,757 260,569 274,448

Change (YoY %) 0.0 -1.7 3.4 -8.5 -3.2 2.3 6.6 14.0 -2.0 5.3

EBITDA 4,631 5,153 5,821 6,432 4,785 5,398 5,851 7,606 22,037 23,639

Change (YoY %) -46.6 -23.0 -18.6 -25.6 3.3 4.8 0.5 18.2 -29.3 7.3

Interest 815 279 1,690 1,577 1,487 1,832 1,487 2,578 4,360 7,384

Depreciation 1,705 1,728 1,884 1,726 1,831 1,964 1,964 2,666 7,042 8,424

Other Income 1,714 1,324 1,741 2,312 2,249 2,798 2,230 2,017 7,091 9,295

PBT (before EO item) 3,826 4,471 3,988 5,442 3,716 4,401 4,630 4,379 17,726 17,126

Extra-ordinary Income 1,300 1,440 2,030 2,740

PBT (after EO item) 5,126 4,471 5,428 5,442 5,746 4,401 4,630 4,379 20,466 17,126

Total Tax 878 882 1,093 621 1,005 830 1,179 1,001 3,474 4,015

% Tax 23.0 19.7 27.4 11.4 27.0 18.9 25.5 22.9 17.0 23.4

Adjusted PAT 2,948 3,589 2,895 4,820 2,711 3,571 3,451 3,378 14,252 13,111

Change (YoY %) -54.2 -28.6 -35.8 -24.7 -8.0 -0.5 19.2 -29.9 -36.3 -8.0

Novelis Shipments (kt) 722 719 647 698 708 718 721 749 2,786 2,896

Novelis adj. EBITDA (USDm) 259 277 185 240 218 228 238 261 961 945

Consolidated adj. PAT 7,864 9,431 4,811 8,970 4,162 5,705 6,265 7,188 32,485 24,795

E: MOSL Estimates

HindalcoCMP: INR122 Buy

Net sales to increase 16% QoQ: We expect net sales to increase 16%

QoQ (up 7% YoY) to INR73b due to higher sales volumes in both

aluminum and copper segment. Aluminum sales volume is expected

to increase 2% QoQ, while copper sales volume is likely to increase

10% QoQ. HNDL's blended realization for aluminum is likely to remain

flat QoQ to INR159,340/t as aluminum LME prices are more or less flat

QoQ. We expect Novelis shipments to remain flat QoQ at 721kt, while

operating margins are expected to increase 4% QoQ to USD330/ton.

Standalone EBITDA to increase 8% QoQ: We expect standalone EBITDA

to increase 8% QoQ to INR5.9b due to higher aluminum and copper

sales volume and better margins in copper segment.

Maintain Buy: Hindalco is at an inflexion point as operating cash flows

are poised for rapid growth and as benefits of USD8b investment have

begun. Margins of aluminum business should expand, driven by

declining cost of production. Novelis' free cash flows will also improve

in FY15E as it exits the capex cycle. Reiterate Buy.


Mahan coal block is critical to drive profitability of its 359ktpa Mahan

smelter. The coal block has received stage I forest clearance so far.


Sa les 801.9 868.2 991.4 1,103.3

EBITDA 80.6 86.9 112.5 131.6

NP 32.5 24.8 28.4 32.7

Adj. EPS (INR) 17.0 12.0 13.7 15.8

EPS Gr(%) -4.4 -29.2 14.3 15.2

BV/Sh. (INR) 100.7 110.4 122.5 136.7

RoE (%) 18.0 11.4 11.8 12.2

RoCE (%) 5.8 5.0 6.6 7.5

Payout (%) 9.7 13.6 11.9 10.4

Valuations

P/E (x) 7.2 10.2 8.9 7.7

P/BV 1.2 1.1 1.0 0.9

EV/EBITDA (x) 8.9 8.5 6.7 5.4

Div. Yield (%) 1.1 1.1 1.1 1.1

Bloomberg HNDL IN


M. Cap. (INR b)/(USD b) 252 / 4


1,6,12 Rel Perf. (%) -1 / 15 / -14

C–121January 2014




Production (integrated) 1Q 2Q 3Q 4Q 1Q 2Q 3QE 4QE

Zn refined (000 tons) 157 153 168 181 173 195 196 217 659 781

Pb refined (000 tons) 27 23 20 32 27 29 24 31 102 111

Silver (tons) 79 80 62 100 86 92 77 88 321 343

Net Sales 27,477 28,655 31,780 39,087 29,842 35,591 34,349 38,571 126,998 138,353

Change (YoY %) -3.5 8.7 14.0 24.7 8.6 24.2 8.1 -1.3 11.4 8.9

EBITDA 14,286 14,431 14,940 21,160 15,031 18,834 17,682 20,001 64,816 71,548

As % of Net Sales 52.0 50.4 47.0 54.1 50.4 52.9 51.5 51.9 51.0 51.7

Interest 129 -21 75 108 109 80 80 80 291 350

Depreciation 1,734 1,746 1,772 1,219 1,843 1,865 1,883 1,902 6,470 7,494

Other Income 5,743 5,398 5,063 4,118 5,403 2,669 4,726 5,270 20,322 18,068


Extra-ordinary Income 0 0 0 -175 795 -612 0 0 -175 0

PBT (after EO item) 18,166 18,104 18,156 23,776 19,275 18,946 20,445 23,289 78,201 81,772

Total Tax 2,353 2,706 2,031 2,117 2,671 2,544 2,862 3,261 9,206 11,337

% Tax 13.0 14.9 11.2 8.9 13.9 13.4 14.0 14.0 11.8 13.9

Reported PAT 15,813 15,398 16,125 21,658 16,605 16,403 17,582 20,029 68,995 70,435

Adjusted PAT 15,813 15,398 16,125 21,818 15,920 16,932 17,582 20,029 69,149 70,435

Change (YoY %) 5.5 12.9 26.1 53.7 0.7 10.0 9.0 -8.2 24.4 1.9

Avg LME Zinc (USD/T) 1,927 1,885 1,946 2,032 1,840 1,859 1,897 1,900 1,948 1,874

Avg LME Lead (USD/T) 1,973 1,974 2,198 2,301 2,053 2,101 2,105 2,100 2,112 2,090

Silver (USD/oz) 28 28 31 30 22 20 21 21 29 21

E: MOSL Estimates

Hindustan ZincCMP: INR133 Buy

Net sales to decrease 3% QoQ due to lower volumes: We expect net

sales to decrease 3% QoQ (up 8% YoY) to INR34b on lower sales volume.

Realizations are expected to be marginally higher. LME zinc prices

have increased 2% QoQ, while lead prices have been flat QoQ. We

expect mine metal production of 230kt, while integrated lead/zinc

production is likely to be 220kt.

EBITDA to decrease 6% QoQ: We expect EBITDA to decrease 6% QoQ

to INR17.6b (+18% YoY) due to lower volumes. Integrated silver

production is expected to be 77t (down 17% QoQ).

Maintain Buy: HZL has guided for 950kt of MIC production in FY14 and

335tons of silver. We model 892kt of MIC production and 343t of

integrated silver production. We expect EBITDA to post 5% CAGR over

FY13-15E on higher sales volumes. The stock trades at 7.7x FY15E EPS

and at an EV of 3.5x FY15E EBITDA. Maintain Buy.


Management has guided for mine production (MIC basis) of 950k

tons in FY14. Growth in production from Zawar and Kayar and further

ramp-up at SK Mines are crucial to drive overall mine production.


Sa les 127.0 138.4 142.2 156.2

EBITDA 64.8 71.5 71.8 81.6

NP 69.1 70.4 73.1 78.0

Adj. EPS (INR) 16.4 16.7 17.3 18.5

EPS Gr(%) 24.4 1.9 3.7 6.7

BV/Sh. (INR) 76.4 89.4 103.1 117.9

RoE (%) 23.4 20.1 18.0 16.7

RoCE (%) 25.6 22.6 20.2 20.1

Payout (%) 22.2 21.8 21.0 19.7

Valuations

P/E (x) 8.1 8.0 7.7 7.2

P/BV 1.7 1.5 1.3 1.1

EV/EBITDA (x) 5.4 4.2 3.5 2.4

Div. Yield (%) 2.3 2.3 2.3 2.3

Bloomberg HZ IN


M. Cap. (INR b)/(USD b) 562 / 9


1,6,12 Rel Perf. (%) 0 / 25 / -11

C–122January 2014


Jindal Steel & PowerCMP: INR262 Neutral

Net sales to decline 4% YoY: We expect standalone net sales to

decrease 4% YoY (up 1% QoQ) to INR36.9b on lower sales volume.

Steel sales volume would decrease 4% YoY (down 5% QoQ) to 705,000t.

We expect pellet sales volume to decrease 33% YoY (down 35% QoQ).

Power sales are likely to remain flat YoY (up 421% QoQ) to 605m units.

We expect standalone EBITDA to decrease 7% QoQ to INR10.1b.

Jindal Power's sales volume to increase 2% QoQ: Power sales volumes

at Jindal Power are likely to increase 2% QoQ (up 21% YoY) to 2b units,

while the average rate is expected to be INR3.2/unit. PAT would grow

22% QoQ to INR3.6b.

Maintain Neutral: Valuations are not demanding though headwinds

still remain. Stock is trading at FY15E P/BV of 1x. We value the stock at

INR271 based on SOTP. Maintain Neutral.


Angul steel melt shop is expected to be lit in 2HFY14 but it will take

couple of months for production to stabilize. Coal gasification and

sponge iron unit are expected to start in 2HFY14. Also, the CPP at

Angul will be fully commissioned in FY14. There is still no clarity on

final signing of lease for the Utkal B1 coal block due to delay from the

state government side. The coal block is critical to derive profitability

from the Angul 1.6mtpa project.

2,400mw Brownfield expansion is on time and is expected to be

commissioned during 2HFY14. It has coal linkage for 1,200mw, while

remaining 1,200mw is yet to get linkage coal allotment.


Sa les 198.1 199.7 253.2 303.9

EBITDA 65.7 61.6 73.9 90.2

Adj. PAT 34.8 25.5 27.9 33.2

Adj. EPS (INR) 37.2 27.3 29.8 35.4

EPS Gr(%) -14.2 -26.7 9.1 19.0

BV/Sh. (INR) 227.3 229.0 255.1 287.8

RoE (%) 17.7 12.0 12.3 13.1

RoCE (%) 12.3 9.2 9.5 11.5

Payout (%) 4.4 7.5 6.9 5.8

Valuations

P/E (x) 7.0 9.6 8.8 7.4

P/BV 1.2 1.1 1.0 0.9

EV/EBITDA (x) 7.4 9.1 7.5 5.7

Div. Yield (%) 0.6 0.8 0.8 0.8

Bloomberg JSP IN


M. Cap. (INR b)/(USD b) 245 / 4


1,6,12 Rel Perf. (%) 1 / 18 / -51



Sales volume 1Q 2Q 3Q 4Q 1Q 2Q 3QE 4QE

Steel (000 tons) 561 639 734 909 665 740 705 801 2,843 2,829

Pellets (000 tons) 395 436 623 658 551 639 417 517 2,112 3,842

CPP (M kwh) 584 547 603 517 384 116 605 476 2,251 1,381

Jindal Power (M kwh) 2,015 1,746 1,651 1,999 2,000 1,952 1,996 2,037 7,411 7,984

Net Sales 33,311 35,890 38,209 42,137 34,252 36,556 36,854 39,513 149,547 147,175

EBITDA 10,377 12,607 12,781 11,363 10,477 10,833 10,109 10,339 47,127 41,758

As % of Net Sales 31.2 35.1 33.4 27.0 30.6 29.6 27.4 26.2 31.5 28.4

Interest 2,186 1,779 2,876 2,369 2,318 3,337 2,755 3,030 9,209 11,440

Depreciation 2,372 2,489 2,543 3,081 3,036 3,036 3,226 3,444 10,485 12,742

Other Income 122 74 39 1,358 63 56 223 1,526 1,593 1,867


Extra-ordinary Income -5,741 0 0 -1,000 -2,000 -1,000 0 0 -6,741 -3,000

PBT (after EO item) 201 8,413 7,401 6,271 3,185 3,516 4,351 5,391 22,285 16,443

Total Tax 76 2,591 2,196 1,496 796 950 1,218 1,510 6,360 4,474

% Tax 38.1 30.8 29.7 23.9 25.0 27.0 28.0 28.0 28.5 27.2

Reported PAT 124 5,822 5,205 4,774 2,389 2,567 3,133 3,882 15,926 11,970

Adjusted PAT 4,602 5,822 5,205 5,774 4,389 3,567 3,133 3,882 21,404 14,970

JPL PAT 3,144 2,603 2,558 2,822 3,217 3,006 3,675 3,765 11,126 13,662

Adj consol PAT 9,594 8,973 8,673 8,602 6,943 5,521 6,728 6,350 34,842 25,542

E: MOSL Estimates

C–123January 2014





Sales ('000 tons) 2,109 2,170 2,170 2,430 2,550 3,130 2,933 2,933 8,879 11,545

Realization (INR per ton) 42,853 40,880 38,214 38,234 36,699 36,695 37,194 37,504 39,973 37,028

Net Sales 90,376 88,709 82,924 92,909 93,582 114,857 109,072 109,981 354,918 427,492

EBITDA 17,728 15,252 13,136 16,973 17,491 22,340 20,808 21,938 63,088 82,576

As % of Net Sales 19.6 17.2 15.8 18.3 18.7 19.4 19.1 19.9 17.8 19.3

EBITDA (INR per ton) 8,406 7,028 6,053 6,985 6,859 7,137 7,096 7,481 7,105 7,153

EBITDA (USD per ton) 155 127 112 129 122 115 114 121 130 118

Interest 4,067 4,208 4,546 4,425 6,418 6,890 6,959 7,028 17,245 27,294

Depreciation 4,678 4,812 4,975 5,274 6,439 6,852 6,989 7,129 19,739 27,409

Other Income 723 783 566 537 723 1,208 1,220 1,232 2,609 4,383

PBT (before EO Item) 9,706 7,015 4,181 7,811 5,357 9,806 8,080 9,013 28,713 32,256

EO Items -5,921 4,224 -3,274 1,299 -8,529 -8,394 0 0 -3,672 -16,923

PBT (after EO Item) 3,786 11,239 907 9,110 -3,173 1,412 8,080 9,013 25,041 15,333

Total Tax 1,096 3,016 -460 3,377 -965 400 1,616 1,803 7,029 2,853

% Tax 28.9 26.8 -50.7 37.1 30.4 28.3 20.0 20.0 28.1 18.6

Reported PAT 2,690 8,223 1,367 5,732 -2,208 1,013 6,464 7,210 18,012 12,479

Preference Dividend 70 70 70 70 70 70 70 70 279 279

Adjusted PAT 6,912 4,976 2,938 5,549 4,290 7,911 6,507 7,266 20,374 25,974

Consolidated adj PAT 4,091 2,468 586 3,136 1,596 3,305 2,633 3,019 10,280 10,553

E: MOSL Estimates; Note: JSW Ispat is excluded until 4QFY13

JSW SteelCMP: INR1,007 Sell

Standalone (S/A) revenue to increase 32% YoY: We expect standalone

net sales to increase 32% YoY to INR109b due to 35% increase in

volumes on account of merger with JSW Ispat. Average steel realization

would fall 3% YoY (up 1% QoQ) to INR37,194/ton.

S/A EBITDA to increase 58% YoY: We expect JSTL's EBITDA to increase

58% YoY to INR20.8b. We expect EBITDA/ton to decrease 1% QoQ to

USD114. Gains due to higher realization will be offset by higher iron

ore fines prices. NMDC's e-auction data for Karnataka suggests

significant jump in premiums over floor prices for fines.

Maintain Sell: JSTL has been able to sustain margins despite weak

demand scenario. It has so far benefited from lower fines prices in

the Karnataka region. However, iron ore fines prices have started to

increase due to constraint supply. This will exert pressure on margins.

The stock trades at an expensive 17.1x FY15E EPS and EV of 7.1x FY15E

EBITDA. Maintain Sell.


Given that availability of iron ore remains critical in Karnataka, JSTL's

FY14 and FY15 production guidance will be the key figures to watch

out. It is targeting to produce 11.55mt of saleable steel and 12mt of

crude steel in FY14.

Company is investing ~INR22b in the 55mw WHRB, railway siding,

lime calcinations, 1mtpa coke oven plant and 4mtpa pellet plant for

its Dolvi units. Turnaround of profitability of Dolvi units due to plant

level integrations could provide upside to our estimates.


Sa les 382.1 483.0 507.1 529.0

EBITDA 65.0 87.5 87.1 86.9

Adj. PAT 11.1 10.6 14.2 12.3

Adj. EPS (INR) 49.7 43.7 58.8 50.9

EPS Gr(%) -25.3 -12.2 34.6 -13.3

BV/Sh. (INR) 764.8 672.9 718.8 756.9

RoE (%) 6.6 6.1 8.4 6.9

RoCE (%) 8.4 10.4 9.0 8.4

Payout (%) 25.9 68.8 19.2 22.0

Valuations

P/E (x) 20.3 23.1 17.1 19.8

P/BV 1.3 1.5 1.4 1.3

EV/EBITDA (x) 7.9 7.1 7.1 7.0

Div. Yield (%) 1.0 1.0 1.0 1.0

Note: JSW Ispat included in FY14 and FY15

Bloomberg JSTL IN


M. Cap. (INR b)/(USD b) 243 / 4

52-Week Range (INR) 1,010 / 452

1,6,12 Rel Perf. (%) 6 / 44 / 15

C–124January 2014





Aluminium Sales ('000 tons) 102 101 102 98 85 75 80 83 403 323

Alumina Sales ('000 tons) 253 190 220 320 283 374 336 354 983 1,348

Avg LME Aluminium (USD/ton) 1,978 1,918 1,997 2,008 1,834 1,780 1,770 1,900 1,975 1,821

Alumina Exports (USD/ton) 343 323 328 341 325 316 310 323 334 318

Net Sales 17,481 16,083 16,928 18,673 15,606 17,382 16,579 18,406 69,165 67,973

Change (YoY %) -0.8 -0.3 16.7 4.6 -10.7 8.1 -2.1 -1.4 4.6 -1.7


EBITDA 3,042 -16 1,827 4,216 1,530 2,677 2,865 4,043 9,069 11,114

As % of Net Sales 17.4 -0.1 10.8 22.6 9.8 15.4 17.3 22.0 13.1 16.4

Interest 32 41 2 0 0 0 0 0 75 0

Depreciation 1,224 1,239 1,231 1,361 1,245 1,286 1,292 1,299 5,054 5,121

Other Income 1,403 1,391 1,127 1,190 1,787 1,228 1,138 1,202 5,111 5,355

PBT 3,190 95 1,720 4,046 2,072 2,619 2,711 3,946 9,050 11,348

Total Tax 959 47 531 1,585 476 827 868 1,263 3,122 3,433

% Tax 30.1 49.5 30.9 39.2 23.0 31.6 32.0 32.0 34.5 30.3

Reported PAT 2,231 48 1,189 2,460 1,597 1,792 1,843 2,683 5,928 7,915

Adjusted PAT 2,231 48 1,189 2,460 1,597 1,792 1,843 2,683 5,928 7,915

E: MOSL Esitmates

NalcoCMP: INR38 Buy

Net sales to decrease 5% QoQ on lower sales: We expect net sales to

decrease 5% QoQ (down 2% YoY) to INR16.6b due to lower alumina

volumes. Aluminum sales volume is likely to increase 7% QoQ to 80kt.

Aluminum realization is expected to decrease 3% QoQ, while alumina

realization is expected to decrease 2% QoQ to INR19,205/t.

EBITDA to increase 7% QoQ: We expect EBITDA to increase 7% QoQ to

INR2.9b due to better availability of linkage coal, compared to last

quarter.

Power cost to remain high till Utkal coal block commissioning; maintain

Buy: NACL has a strong balance sheet, with cash surplus of ~INR50b,

post capex. Potential upsides from the Utkal e-block, further expansion

of the alumina refinery, weakening INR and peaking of labor cost as

older employees retire over the next three to five years are long term

positives. Maintain Buy.


Utkal coal block remains the key to company's future profitability. It

has received stage I forest clearance so far.

Progress on Panchpatmali bauxite mining lease renewal. Currently,

it is operating through temporary one year permit.

Status of investment in NPCIL JV. It will be investing INR8.95b for a

26% stake in the venture.

Aluminum production has been affected due constraint in supply of

linkage coal from MCL and lower LME prices. Nalco is operating at 25-

30% lower capacity and the trend is likely to continue due to weak

LME and lower linkage coal supply.


Sa les 69.2 68.0 78.7 81.6

EBITDA 9.1 11.1 11.6 13.2

NP 5.9 7.9 8.2 9.3

Adj. EPS (INR) 2.3 3.1 3.2 3.6

EPS Gr(%) -31.5 33.5 3.5 14.1

BV/Sh. (INR) 46.3 47.9 49.6 51.8

RoE (%) 5.0 6.5 6.5 7.2

RoCE (%) 7.2 8.7 8.9 9.8

Payout (%) 63.6 47.6 46.0 40.3

Valuations

P/E (x) 16.5 12.4 11.9 10.5

P/BV 0.8 0.8 0.8 0.7

EV/EBITDA (x) 5.3 4.0 3.2 2.4

Div. Yield (%) 3.3 3.3 3.3 3.3

Bloomberg NACL IN




1,6,12 Rel Perf. (%) 0 / 21 / -34

C–125January 2014





Production (m tons) 6.9 5.4 5.4 9.6 6.9 5.9 7.2 8.5 27.2 28.5

Sales (m tons) 6.9 5.9 5.3 8.2 7.3 6.5 7.4 8.5 26.3 29.6

Avg Iron ore realization (USD/t) 76 80 70 71 70 61 63 66 75 65

Avg Iron ore realization (INR/t) 4,102 4,130 3,630 3,680 3,735 3,290 3,487 3,703 3,880 3,566

Lumps % (production) 37 39 36 34 37 34 36 36 36 36

Net Sales 28,404 26,120 20,477 32,043 28,706 24,799 28,966 34,423 107,043 116,894

Change (QoQ %) 9.5 -8.0 -21.6 56.5 -10.4 -13.6 16.8 18.8 11.6

Change (YoY %) 2.1 -14.7 -27.4 23.5 1.1 -5.1 41.5 7.4 -4.9 9.2


EBITDA 23,020 19,349 13,913 21,556 19,052 14,936 18,391 22,109 77,838 74,488

Change (QoQ %) 16.4 -15.9 -28.1 54.9 -11.6 -21.6 23.1 20.2 10.1

Change (YoY %) 2.1 -20.6 -38.5 9.0 -17.2 -22.8 32.2 2.6 -12.8 -4.3

As % of Net Sales 81.0 74.1 67.9 67.3 66.4 60.2 63.5 64.2 72.7 63.7

EBITDA per ton (USD) 62 60 48 48 47 37 40 42 54 42

Interest 0 0 0 132 0 0 0 0 0 0

Depreciation 328 332 339 387 364 348 357 366 1,385 1,434

Other Income 5,521 5,831 5,563 5,474 5,209 5,384 5,241 5,426 22,389 21,260

PBT (before EO Item) 28,214 24,848 19,137 26,511 23,897 19,972 23,275 27,170 98,841 94,315

Extra-ordinary Income -4,058 -4,058 0

PBT (after EO Item) 28,214 24,848 19,137 22,453 23,897 19,972 23,275 27,170 94,783 94,315

Total Tax 9,154 8,062 6,209 7,804 8,176 6,788 7,448 8,694 31,228 31,106

% Tax 32.4 32.4 32.4 34.8 34.2 34.0 32.0 32.0 32.9 33.0

Reported PAT 19,060 16,786 12,928 14,650 15,722 13,184 15,827 18,476 63,556 63,208

Adjusted PAT 19,060 16,786 12,928 17,297 15,722 13,184 15,827 18,476 66,277 63,208

Change (QoQ %) 13.7 -11.9 -23.0 33.8 -9.1 -16.1 20.1 16.7 11.5

Change (YoY %) 5.8 -14.5 -30.5 3.2 -17.5 -21.5 22.4 6.8 -9.2 -4.6

E: MOSL Esitmates

NMDCCMP: INR142 Buy

Iron ore sales to increase 41% YoY: We expect standalone net sales to

increase 41% YoY (up 17% QoQ) to INR30b due to higher realization

and sales volume. We expect iron ores sales volume to increase 39%

YoY (up 14% QoQ) to 7.4mt. NMDC has achieved iron ore sales of 4.8mt

in the first two months of the quarter. Iron ore realization is likely to

increase 6% QoQ to INR3,487/ton due to price hikes taken by NMDC in

October and December. Lumps percentage is expected to be 36% in

3QFY14.

EBITDA to increase 23% QoQ: We expect EBITDA to increase 23% QoQ

to INR18.4b due to higher realization and volumes.

Sales volume to post CAGR of 10% over FY13-15E: We continue to

believe that iron ore supply is getting tighter in India, which will

improve the pricing power for iron ore fines. We expect NMDC to

deliver ~10% CAGR in volumes during FY13-15E. NMDC trades at 1.6x

FY15E BV and at an EV of 4.2x FY15E EBITDA. Valuation attractive. Buy.


NMDC's internal target of iron ore sales volumes at 30-32mt is higher

than our estimates of 29.6m ton for FY14.


Sa les 107.0 116.9 127.7 131.4

EBITDA 77.8 74.5 81.4 83.2

Adj. PAT 66.3 63.2 68.8 70.4

Adj. EPS (INR) 16.7 15.9 17.4 17.8

EPS Gr(%) -9.2 -4.6 8.9 2.3

BV/Sh. (INR) 69.4 77.1 86.3 95.9

RoE (%) 26.8 22.3 20.4 19.3

RoCE (%) 26.7 22.2 20.3 19.2

Payout (%) 51.1 51.4 47.2 46.1

Valuations

P/E (x) 8.5 8.9 8.2 8.0

P/BV 2.0 1.8 1.6 1.5

EV/EBITDA (x) 4.5 4.7 4.2 4.0

Div. Yield (%) 4.9 4.9 4.9 4.9

Bloomberg NMDC IN


M. Cap. (INR b)/(USD b) 563 / 9


1,6,12 Rel Perf. (%) 10 / 28 / -21

C–126January 2014





Net Sales 184,639 177,909 170,751 188,339 143,610 180,260 195,686 200,955 717,800 720,511

Change (YoY %) -22.2 1.3 14.6 6.7 0.4


EBITDA 68,007 62,221 58,454 67,450 54,790 69,550 67,183 69,901 252,320 261,423

As % of Net Sales 36.8 35.0 34.2 35.8 38.2 38.6 34.3 34.8 35.2 36.3

Interest 9,761 25,310 15,554 19,391 15,710 14,730 15,278 15,258 46,640 60,976

D & A 12,294 12,403 12,919 16,264 18,870 20,520 22,390 24,240 75,680 86,020

Other Income 5,443 8,613 9,924 5,462 6,680 4,870 6,911 7,784 29,530 26,245


Extra-ordinary Income -1,644 2,756 -1,106 -2,094 0 1,730 -405 -405 150 920

PBT (after EO item) 49,751 35,877 38,798 35,163 26,890 40,900 36,020 37,782 159,680 141,592

Total Tax 4,309 4,694 4,074 4,262 3,100 5,010 4,595 -6,320 10,240 6,386

% Tax 8.7 13.1 10.5 12.1 11.5 12.2 12.8 -16.7 6.4 4.5

Reported PAT 45,442 31,183 34,725 30,901 23,790 35,890 31,424 44,102 146,250 135,206

Minority interest 21,933 15,786 19,327 19,216 17,790 20,140 18,770 21,281 73,730 77,981

Adjusted PAT 25,153 12,641 16,503 13,779 6,000 14,020 13,060 23,225 72,520 56,305

Change (YoY %) -76.1 10.9 -20.9 68.6 -22.4

E: MOSL Estimates; Please note that these consolidated numbers for previous quarters are based on proforma estimates.

Sesa SterliteCMP: INR201 Neutral

Net sales to increase 9% QoQ: We expect consolidated net sales to

increase 9% QoQ due to higher sales volume in copper and power

business.

EBITDA to decrease 3% QoQ: We expect consolidated EBITDA to

decrease 3% QoQ to INR67.2 due to lower volumes in zinc/lead

segment. Depreciation is expected to be higher by 9% QoQ to

INR22.4b. Adj PAT is likely to decrease 7% QoQ to INR13.1b.

Maintain Neutral: Assuming LME price of USD2,000/ton for aluminum,

USD1,900/ton for zinc and USD2,100/ton for lead in FY15E, our SOTP-

based valuation works out to INR235/share. Maintain Neutral.


It is widely believed that the Indian government needs to urgently

divest in HZ and Balco so that the much-needed monies can be raised

to partially bridge the fiscal deficit and meet divestment targets. We

believe delisting HZ and merging it with Sesa-Sterlite is perhaps the

best option for capital efficiency - HZ's cash will become fungible and

available for servicing CAIR's acquisition debt.


Sa les 721.6 720.5 829.4 909.6

EBITDA (attrib.) 174.9 176.2 208.6 231.6

NP 61.7 56.3 71.7 74.7

Adj. EPS (INR) 20.8 19.0 24.2 25.2

EPS Gr(%) -32.9 -19.8 16.3 32.7

BV/Sh. (INR) 87.7 122.2 152.0 169.8

RoE (%) 9.5 7.8 9.0 8.9

RoCE (%) 14.0 11.1 11.7 12.1

Payout (%) 19.7 21.6 16.9 20.9

Valuations

P/E (x) 9.7 10.6 8.3 8.0

P/BV 0.9 0.8 0.7 0.7

EV/EBITDA (x)* 5.8 5.8 4.6 3.9

Div. Yield (%) 1.7 1.7 1.7 2.2

Note: Sesa-Sterlite merged entity basis;

* attributable

Bloomberg SSLT IN


M. Cap. (INR b)/(USD b) 597 / 10


1,6,12 Rel Perf. (%) 12 / 33 / -5

C–127January 2014





Sales (m tons) 2.5 2.6 2.8 3.2 2.6 3.0 2.9 3.5 11.1 12.0

Change (YoY %) -9.1 -8.2 5.8 4.8 15.3 5.5 7.8 -2.9 8.3

Realization (INR per ton) 43,110 41,362 38,800 38,533 39,190 38,260 38,750 39,060 40,302 38,812

Change (YoY %) 5.9 5.3 -8.7 -9.9 -9.1 -7.5 -0.1 1.4 -2.5 -3.7

Net Sales 107,775 108,202 106,701 123,304 102,679 115,355 112,375 134,757 445,983 465,166

Change (%) -3.7 -3.4 -3.4 -9.9 -4.7 6.6 5.3 9.3 -5.4 4.3

EBITDA 15,153 11,093 11,384 9,039 9,673 8,669 12,417 19,245 46,669 50,003

Change (YoY %) 15.5 -16.4 -28.0 -51.7 -36.2 -21.9 9.1 112.9 -23.4 7.1

EBITDA per ton (INR) 6,061 4,241 4,140 2,825 3,692 2,875 4,282 5,578 4,217 4,172

EBITDA per ton (USD) 112 77 76 52 66 46 69 90 77 69

Interest 1,249 1,862 2,220 2,145 1,918 2,165 2,265 2,510 7,476 8,858

Depreciation 4,018 4,026 4,049 1,838 3,929 3,988 4,350 4,652 13,932 16,919

Other Income 2,785 2,255 2,209 2,178 2,262 1,527 1,561 1,498 9,426 6,848

PBT (after EO Inc.) 10,101 7,879 7,016 7,398 5,209 13,924 7,363 13,581 32,394 40,077

Total Tax 3,137 2,448 2,173 2,944 700 2,121 957 1,766 10,701 5,543

% Tax 31.1 31.1 31.0 39.8 13.4 15.2 13.0 13.0 33.0 13.8

Reported PAT 6,964 5,431 4,843 4,454 4,509 11,804 6,405 11,816 21,693 34,534

Adjusted PAT 8,485 4,996 4,904 4,844 5,270 3,427 6,405 11,816 23,228 26,777

Change (YoY %) 1.2 -50.2 -55.4 -43.2 -37.9 -31.4 30.6 143.9 -37.5 15.3

E: MOSL Estimates

Steel Authority of IndiaCMP: INR72 Sell

Net sales to increase 5% YoY due to higher volumes: We expect net

sales to increase 5% YoY (down 3% QoQ) to INR112b due to higher

sales volumes. SAIL has already achieved 1.8mt of sales in the first

two months of 3QFY14. We expect sales volumes to increase 5% YoY to

2.9mt. Realization is expected to remain flat YoY (up 1% QoQ) to

INR38,750/ton.

Margins to improve 43% QoQ to USD69/ton: We expect EBITDA/ton to

increase 43% QoQ to USD69/ton due to higher realization and absence

of excessive provisioning done in 2QFY14.

INR720b capex benefits to accrue slowly; maintain Sell: We expect

earnings to post 6% CAGR over FY13-15E, despite 8% CAGR in volumes,

due to SAIL's uncompetitive cost structure, execution delays, weak

domestic steel scenario and poor operating efficiencies. Full benefits

of the INR720b capex will accrue gradually due to poor execution. The

stock still appears expensive at 10.6x FY15E EPS and an EV of 8.4x

FY15E EBITDA. Maintain Sell.


BOF commissioning at ISP and RSP will be critical for volume ramp-up

in FY14 and FY15.


Sa les 450.9 468.7 502.7 570.3

EBITDA 51.2 54.1 68.0 81.1

NP 24.8 27.5 27.9 27.7

Adj. EPS (INR) 6.0 6.7 6.8 6.7

EPS Gr(%) -34.1 10.6 1.5 -0.7

BV/Sh. (INR) 100.8 107.0 112.6 118.1

RoE (%) 6.1 6.4 6.2 5.8

RoCE (%) 7.2 6.0 6.0 6.0

Payout (%) 41.5 27.5 17.3 17.5

Valuations

P/E (x) 11.9 10.8 10.6 10.7

P/BV 0.7 0.7 0.6 0.6

EV/EBITDA (x) 9.4 9.6 8.4 7.7

Div. Yield (%) 2.8 2.8 1.4 1.4

Bloomberg SAIL IN


M. Cap. (INR b)/(USD b) 296 / 5


1,6,12 Rel Perf. (%) 3 / 36 / -29

C–128January 2014





Steel Sales ('000 tons) 1,590 1,730 1,887 2,279 2,005 2,038 2,050 2,170 7,486 8,263

Change (YoY %) -0.2 5.0 16.3 28.9 26.1 17.8 8.6 -4.8 12.9 10.4

Avg Seg.Realn. (INR/tss) 51,530 48,459 45,387 44,394 44,719 44,742 44,980 44,980 47,099 44,858

Net Sales 89,080 91,506 93,703 107,705 94,554 99,210 100,496 104,019 381,994 398,279

EBITDA 29,768 25,162 25,262 33,040 28,343 29,379 32,541 32,436 113,232 122,699

(% of Net Sales) 33.4 27.5 27.0 30.7 30.0 29.6 32.4 31.2 29.6 30.8

Steel EBITDA(INR/tss) 17,419 13,327 12,360 14,061 13,493 13,284 14,791 14,144 14,314 14,060

Steel EBITDA(USD/tss) 321 241 228 259 241 214 239 228 263 232

Interest 4,544 4,539 5,090 4,594 4,664 4,366 4,497 4,632 18,768 18,159

Depreciation 3,544 3,913 4,339 4,608 4,596 5,510 4,642 4,688 16,404 19,436

Other Income 1,519 2,397 357 4,747 1,442 3,257 359 4,771 9,020 9,829

PBT (before EO Inc.) 23,199 19,107 16,190 28,586 20,525 22,760 23,761 27,887 87,081 94,933

EO Income(exp) -1,970 96 -6,841 -8,715

PBT (after EO Inc.) 21,229 19,203 16,190 21,744 20,525 22,760 23,761 27,887 78,366 94,933

Total Tax 7,663 5,695 5,726 8,652 6,964 7,173 7,841 9,203 27,736 31,181

% Tax 36.1 29.7 35.4 39.8 33.9 31.5 33.0 33.0 35.4 32.8

Reported PAT 13,566 13,508 10,464 13,092 13,561 15,587 15,920 18,684 50,630 63,752

Adjusted PAT 15,536 13,412 10,464 19,933 13,561 15,587 15,920 18,684 59,345 63,752

Consolidated Financials

Net Sales 338,212 341,327 321,071 346,505 328,048 366,449 361,732 368,817 1,347,115 1,425,046

EBITDA 36,003 23,101 22,389 43,689 36,880 37,054 41,778 48,691 123,212 164,403

Reported PAT 5,170 -4,133 -7,886 -66,775 11,423 9,510 8,311 13,005 -73,624 42,071

Adj. PAT (after MI & asso) 7,949 -4,066 -7,433 8,843 11,213 9,168 8,001 12,673 3,323 41,054

TSE Sales (000 tons) 3,210 3,420 3,020 3,420 3,140 3,460 3,417 3,488 13,070 13,505

TSE EBITDA(USD/tss) 36 -2 -26 33 44 26 38 65 11 43

E: MOSL Estimates; tss=ton of steel sales

Tata SteelCMP: INR424 Sell

Tata Steel India (TSI): We expect net revenue to increase 7% YoY (up

1% QoQ) to INR100b due to higher sales volume. Steel volumes are

expected to increase 9% YoY (up 1% QoQ) to 2.1mt. Realization is

expected to decline 1% YoY (up 1% QoQ). We expect EBITDA to increase

11% QoQ to INR33b and EBITDA/ton to increase 12% QoQ to USD239/

ton due to higher realization and some gains on costs.

TSE and others: We expect Tata Steel Europe (TSE) and other

subsidiaries to report EBITDA/ton of USD34 due to slightly higher

prices. We expect steel shipments to increase 10% YoY (down 2% QoQ)

to 4.3mt.

Indian steel demand still subdued; early green shoots in Europe;

maintain Sell: We expect domestic steel environment to remain

challenging due to weak demand scenario and increasing capacity in

India. On the other hand, there are early green shoots on European

demand recovery. However, business environment still remains

challenging in the region. The stock trades at 9x FY15E EPS and an EV of

6.2x FY15E EBITDA. Maintain Sell.


Funding of TSE modernization and upgradation program as TSE's cash

flows are insufficient to support its capex.


Sa les 1,347 1,425 1,467 1,491

EBITDA 123.2 164.4 181.7 196.0

Adj. PAT 1.5 39.3 45.7 58.1

Adj. EPS (INR) 1.6 40.4 47.0 59.8

EPS Gr(%) -91.6 2,476 16.4 27.1

BV/Sh. (INR) 217.3 240.6 281.2 333.5

RoE (%) 0.7 17.7 18.0 19.5

RoCE (%) 6.6 9.4 10.1 10.7

Payout (%) -12.3 21.6 18.6 16.7

Valuations

P/E (x) 270.2 10.5 9.0 7.1

P/BV 2.0 1.8 1.5 1.3

EV/EBITDA (x) 8.2 6.8 6.2 5.7

Div. Yield (%) 1.9 1.9 1.9 2.1

Bloomberg TATA IN


M. Cap. (INR b)/(USD b) 412 / 7


1,6,12 Rel Perf. (%) 4 / 48 / -11

C–129January 2014

December 2013 Results Preview | Sector: Oil & Gas

Singapore GRMs down 20% QoQ to USD4.3/bbl in 3QFY14, crude flattish QoQ: Refinery

margins would be under pressure, with seasonally weak Reuters Singapore GRMs

declining 20% QoQ to USD4.3/bbl, primarily driven by lower gasoline cracks. Increase

in Arab L-H differential would improve RIL’s premium over Singapore GRMs (estimated

at USD3.2/bbl for 3QFY14) though. Crude prices were flat QoQ in 3QFY14 (Brent average

at USD109/bbl; flat YoY and QoQ), led by easing of geo-political concerns in Iran. INR/

USD averaged at 62, up 14% YoY and flat QoQ.

Except for PE, petchem spreads down QoQ: Except for PE (simple spread over naphtha

improved 3.8% QoQ), petchem spreads declined 3-13% QoQ. However, led by higher

international prices and steep INR depreciation, the domestic premium to international

prices reduced significantly in 3QFY14, except for PVC.

QoQ increase in under-recoveries primarily due to higher losses on LPG: We estimate

14% QoQ increase in under-recoveries to INR406b, led by increase in per unit LPG

losses. We model upstream sharing similar to 2QFY14 (subsidy at USD56/bbl) and expect

the government to compensate ~INR200b in 3QFY14. However, on the back of higher

retail selling price for diesel and capping of LPG cylinders, the YoY demand growth

softened (-1% YTD for diesel; +2% YTD for LPG) and provided some respite to ballooning

under-recoveries. We model upstream sharing at INR686/650/551b and downstream

sharing at nil/nil/INR46b for FY14/FY15/FY16, with the rest shared by the government.

Valuation and view: Given the expected diesel deregulation in 12-18 months, and

notification of gas price hike in the coming weeks, we prefer ONGC/OINL in upstream

(significant earnings growth opportunity) and BPCL among the OMCs (strong balance

sheet and E&P potential). We maintain Neutral on GAIL due to headwinds for gas

availabi lity. However, we believe PLNG is available at attractive valuations, given its

medium-term earnings potential. We maintain Buy on Cairn India for its attractive

valuations. We reiterate Neutral on RIL, as the next earnings growth is still some time

away – when its new core business/E&P projects commission from FY16/FY17. Key

things to watch for: RIL update on key projects and Cairn India’s ramp-up/exploration.

Harshad Borawake ([email protected])/Kunal Gupta([email protected])

Oil & GasCompanies Covered

BPCL

Cairn India

GAIL

Gujarat State Petronet

HPCL

IOC

Indraprastha Gas

MRPL

Oil India

ONGC

Petronet LNG

Reliance Industries

Expected quarterly performance summary (INR Million)CMP Rat ing Sales EBITDA Net Profit



BPCL 352 Buy 608,136 -2.4 -1.5 847 -96.3 -95.0 -3,873 PL PL

Cairn India 324 Buy 49,049 14.7 5.5 37,526 14.2 6.2 29,369 -6.9 -13.2

GAIL 341 Neutral 150,337 20.5 7.8 21,469 8.9 52.8 12,367 -3.7 35.1

Gujarat State Petronet 60 Neutral 2,766 6.2 -0.1 2,487 6.4 -0.8 1,152 -3.2 1.0

HPCL 239 Buy 575,297 9.1 10.9 1,812 -53.3 -82.1 -5,076 PL PL

IOC 213 Buy 1,300,404 12.8 18.4 12,610 -75.4 -59.6 -1,310 PL PL

Indraprastha Gas 267 Neutral 10,674 22.8 5.8 2,040 9.0 1.9 951 10.1 2.5

MRPL 42 Neutral 192,772 7.1 2.7 4,112 131.9 -43.7 1,413 LP -40.1

Oil India 484 Buy 26,242 8.7 -3.3 12,205 8.5 -8.1 9,431 0.3 4.4

ONGC 292 Buy 221,055 5.3 -0.9 116,566 3.7 -2.9 57,675 3.7 -4.9

Petronet LNG 122 Buy 108,490 28.8 14.3 3,804 -28.1 4.5 1,484 -53.4 -18.4

Reliance Inds. 879 Neutral 1,018,710 8.5 -1.8 73,215 -12.6 -6.7 52,029 -5.4 -5.2

Sector Aggregate 4,263,931 8.8 6.5 288,694 -17.3 -13.8 155,612 -28.4 -23.4

Excl. RMs 1,780,094 10.2 0.6 273,425 0.8 -1.2 165,871 -0.1 -4.6

C–130January 2014


Crude price was flat QoQ at USD109/bbl (USD/bbl) Brent-WTI spread widened QoQ to USD12/bbl in 3QFY14 (USD/bbl)

GRMs down 20% QoQ; crude flat QoQ, Arab L-H spread increases QoQ

Singapore GRM down 20% QoQ to USD4.3/bbl in 3QFY14 (USD/bbl) Gasoline cracks declined meaningfully during 3QFY14 (USD/bbl)

Our key assumptions

Our crude price assumption for FY14/15/16 is USD108.5/105/

105/bbl and USD100/bbl over long term.

We expect regional benchmark Singapore Reuters GRM

to remain in the USD7-9/bbl range for the near term.

We model Singapore GRM at USD5.6/bbl in FY14.

Arab L-H differential higher QoQ in 3QFY14 (USD/bbl)

Source: Reuters, Bloomberg, MOSL

Polymer spreads increased QoQ in 2QFY14 (INR/kg) POY/PSF spreads also improved QoQ (INR/kg)

30

60

90

120

150

Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Dec-13

Brent cru de (month ly a ve rage )Brent cru de (q uarterly avera ge)

0

3

6

9

12

De c-07 De c-08 Dec-09 Dec-10 Dec-11 De c-12 Dec-13

Arab L-H (month ly average)

Arab L-H (quarterly a ve rage )

4

2.6

-40

-30

-20

-10

0

10

De c-07 Dec-08 De c-09 Dec-10 Dec-11 Dec-12 Dec-13

20

30

40

50

60

2Q

FY12

3Q

FY12

4Q

FY12

1Q

FY13

2Q

FY13

3Q

FY13

4Q

FY13

1Q

FY14

2Q

FY14

3Q

FY14

0

5

10

15

20PE PP PVC

40

46

52

58

64

2QF

Y12

3QF

Y12

4QF

Y12

1QF

Y13

2QF

Y13

3QF

Y13

4QF

Y13

1QF

Y14

2QF

Y14

3QF

Y14

POY PSF

0

3

6

9

12

Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Dec-13

Singa pore GRM (Mon thly Avg)Singa pore GRM (Qtr Avg)

5.8

(3.4)

(25.0)

18.5 16.9

(9.9)

-45

-25

-5

15

35

Gas

olin

e

Nap

hth

a LPG

Die

sel

Jet/

Ker

o

Fuel

Oil

3QFY13 4QFY13 1QFY14 2QFY14 3QFY14

C–131January 2014


Petchem margins declined QoQ in 3QFY14 (INR/kg)

(RIL Basic prices - INR/kg) Simple Spreads Int.Spreads

PE PP PVC POY PSF PE PP PVC POY PSF

3QFY12 80.3 84.0 53.5 91.2 97.1 34.7 38.5 7.9 55.2 61.1

4QFY12 83.4 84.1 56.2 91.7 96.4 31.4 32.1 4.2 50.5 55.2

1QFY13 91.9 92.1 61.8 92.4 95.8 43.3 43.5 13.3 54.0 57.4

2QFY13 91.2 91.9 63.5 93.8 96.2 40.3 41.0 12.6 53.3 55.7

3QFY13 89.4 92.2 62.0 94.0 98.3 37.9 40.7 10.6 53.2 57.5

4QFY13 93.0 97.9 63.5 97.3 101.4 40.6 45.4 11.1 55.8 59.9

1QFY14 92.5 95.9 63.3 95.0 96.3 44.3 47.7 15.2 56.9 58.1

2QFY14 104.4 109.7 72.8 107.2 107.9 46.6 51.9 15.0 61.4 62.1

3QFY14 107.6 109.8 72.3 103.4 106.0 48.4 50.6 13.1 56.3 58.9

QoQ (%) 3.1 0.1 -0.7 -3.6 -1.8 3.8 -2.5 -13.0 -8.3 -5.2

YoY (%) 20.4 19.2 16.7 10.0 7.9 27.6 24.2 23.8 5.8 2.4

Source: Bloomberg/MOSL

3QFY14 under-recoveries up 14% QoQ to INR406b; we model upstream share at INR686/650/

551b in FY14/15/16

(INR b) FY13 1QFY14 2QFY14 3QFY14E 4QFY14E FY14E FY15E FY16E

Fx Rate (INR/USD) 54.5 55.9 62.5 62.0 62.0 60.6 61.0 60.0

Brent (USD/bbl) 111 103 111 109 111 109 105 105

Product Sales (mmt) 104 25 24 26 25 100 114 120

Product-wise Gross Under recoveries (INR b)

Auto Fuels 915 105 187 204 177 673 354 234

Domestic Fuels 696 149 168 202 191 710 697 685

Total 1,610 254 355 406 368 1,383 1,051 918

Sharing of Gross Under recoveries (INR b)

Government 1,000 80 178 203 236 697 401 321

Upstream 600 153 167 162 204 686 650 551

OMC's 10 21 10 41 (72) 0 0 46

Total 1,610 254 355 406 368 1,383 1,051 918

Sharing of Gross Under recoveries (%)

Government 62 31 50 50 64 50 38 35

Upstream 37 60 47 40 55 50 62 60

OMC's 1 8 3 10 (19) 0 0 5

Total 100 100 100 100 100 100 100 100




Petrol and diesel price difference (INR/liter) Diesel under-recoveries averaged INR10.1/liter for 3QFY14


10

25

40

55

70

85

De

c-03

De

c-04

De

c-05

De

c-06

De

c-07

De

c-08

De

c-09

De

c-10

De

c-11

De

c-12

De

c-13

Petrol Diese lRetai l p rice s

(INR/l tr)

95

100

105

110

115

Sep‐

13

Oct‐1

3

Nov‐1

3

De

c‐1

3

Sensex IndexMOSL Oil & Gas Index

90

100

110

120

Dec‐1

2

Ma

r‐13

Jun‐

13

Sep‐

13

Dec‐1

3

Sensex IndexMOSL Oi l & Gas Index

10.5

14.5

3.8

17.1

5.1

20.4

(5)

0

5

10

15

20

25

1Q

FY08

2Q

FY09

3Q

FY10

4Q

FY11

Nov‐1

1

Jan‐

12

Ap

r‐12

Jun‐

12

Sep‐

12

Nov‐1

2

Feb‐

13

Ap

r‐13

Jul‐

13

Sep‐

13

Dec‐1

3

Die sel under recovery (INR/l tr)

C–132January 2014


‐4

2

8

14

20

1Q

2Q

3Q

4Q

1Q

2Q

3Q

4Q

1Q

2Q

3Q

4Q

1Q

2Q

3Q

4Q

1Q

2Q

3Q

4Q

1Q

2Q

3Q

4Q

1Q

2Q

3Q

4Q

1Q

2Q

3Q

4Q

1Q

2Q

3Q

FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14

Premi um/ (dis count) Si ngapore GRM RIL

ONGC's net realization estimated at USD45/bbl GAIL transmission volumes under pressure (mmscmd)


Expect RIL premium to Singapore GRM at USD3.2/bbl Cairn's Rajasthan production likely to average 185kbpd


Comparative valuationCMP (INR) Rating EPS (INR) P/E (x) EV/EBITDA (x) RoE (%)


Oil & Gas

BPCL 352 Buy 26.0 35.3 38.5 13.5 10.0 9.1 8.8 8.4 7.7 11.5 14.5 14.3

Cairn India 324 Buy 63.1 64.9 55.2 5.1 5.0 5.9 2.7 2.8 2.5 24.8 23.6 17.2

Chennai Petroleum 68 Buy -118.6 -17.5 29.7 -0.6 -3.9 2.3 -7.9 16.2 5.5 -60.7 -13.4 22.1

GAIL 341 Neutral 31.7 33.2 28.9 10.7 10.3 11.8 7.9 7.9 7.9 17.5 16.4 13.0

Guj. State Petronet 60 Neutral 9.6 8.4 8.9 6.3 7.1 6.7 4.4 3.6 3.5 19.9 15.0 14.1

HPCL 239 Buy 26.7 12.4 23.5 9.0 19.3 10.2 10.7 10.3 8.1 6.7 3.0 5.6

Indraprastha Gas 267 Neutral 25.3 25.8 29.0 10.6 10.3 9.2 5.5 4.8 4.1 26.0 22.1 21.1

IOC 213 Buy 18.3 16.8 27.6 11.6 12.7 7.7 11.7 11.0 6.7 7.2 6.3 9.8

MRPL 42 Neutral -4.3 1.1 6.4 -9.8 38.9 6.7 17.6 7.4 3.9 -11.1 2.9 15.9

Oil India 484 Buy 59.7 54.7 67.3 8.1 8.9 7.2 4.6 4.0 3.0 19.4 16.3 17.9

ONGC 292 Buy 28.3 29.8 35.8 10.3 9.8 8.2 4.6 4.0 3.6 16.8 15.9 17.3

Petronet LNG 122 Buy 15.3 9.8 11.5 8.0 12.4 10.6 6.3 6.8 6.1 28.8 15.5 16.1

Reliance Inds. 879 Neutral 71.9 74.1 84.1 12.2 11.9 10.5 7.8 9.3 7.9 12.3 11.5 11.8


Ex RMS 10.8 10.1 9.0 5.7 5.6 4.9 14.6 14.0 14.1

45

116 125 118 125 125 125138

167 172 170 169 173 175 185

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

FY11 FY12 FY13 FY14

Rajas than Gros s Prodn (kbpd)

116 115 120 120 117 119 119 116 110 106 105 99 99 95 96

1Q

2Q

3Q

4Q

1Q

2Q

3Q

4Q

1Q

2Q

3Q

4Q

1Q

2Q

3QE

FY11 FY12 FY13 FY14

Gas - Trans mi ss ion (mms cmd)

65 39 48 83 45 44 47 47 48 51 40 45 45

73

77

63 63 62 63

63 64

64

63

48

67

33

7024

1733

80.8

79

.2

89.

1 10

8.9

12

1.3

115

.9

111

.5

12

1.6

109.

9

109.

9

110.

2

114

.0

102

.9

10

9.0

10

9.2

1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q

3Q

E

FY11 FY12 FY13 FY14

Net Rea l i zation Subs idy Burden Gross Rea l i zation

C–133January 2014





Net Sales 545,227 568,595 623,398 662,820 587,053 617,574 608,136 553,225 2,400,041 2,365,988

Change (%) 18.2 34.5 6.0 2.5 7.7 8.6 -2.4 -16.5 13.3 -1.4

EBITDA -81,757 41,932 22,584 65,527 9,054 16,806 847 28,979 48,287 55,686

% of Sales -15.0 7.4 3.6 9.9 1.5 2.7 0.1 5.2 2.0 2.4

Depreciation 4,801 3,983 4,657 5,820 5,305 5,382 5,400 5,414 19,261 21,501

Interest 5,205 4,117 5,758 3,172 5,253 3,244 3,025 3,183 18,252 14,705

Other Income 3,395 16,516 4,307 5,366 3,695 4,839 3,706 4,227 29,583 16,466

PBT -88,368 50,348 16,476 61,901 2,191 13,020 -3,873 24,609 40,357 35,947

Tax 0 0 0 13,928 688 3,708 0 7,822 13,928 12,218

Tax rate (%) 0.0 0.0 0.0 22.5 31.4 28.5 0.0 31.8 34.5 34.0

PAT -88,368 50,348 16,476 47,973 1,503 9,311 -3,873 16,787 26,429 23,729

Change (%) n m n m -47.5 21.1 n m -81.5 n m -65.0 101.6 -10.2

Adj. PAT -88,368 50,348 16,476 47,973 1,503 9,311 -3,873 16,787 26,429 23,729

Adj. EPS -122.2 69.6 22.8 66.4 2.1 12.9 -5.4 23.2 36.6 32.8

Key Assumption (INR b)

Gross under recovery 116 90 94 90 61 88 99 87 390 335

Upstream sharing 37 36 36 60 37 42 40 48 168 166

Govt. sharing 0 72 60 87 19 44 50 56 219 169

Net Under/(Over) recovery 80 -18 -2 -57 5 2 10 -18 2 0

As a % of Gross 68.5 n m n m n m 8.9 2.4 10.1 n m 0.6 0.0

E: MOSL Estimates

BPCLCMP: INR352 Buy

Similar to prior quarters, the profitability of OMCs (BPCL, HPCL, IOCL)

would depend more on subsidy sharing, which is ad-hoc, than on

business fundamentals. Government subsidy compensation typically

comes with a delay.

3QFY14 gross under-recoveries are up 14% QoQ, led by higher LPG

losses.

We model OMCs’ subsidy sharing nil/nil/INR46b and upstream subsidy

sharing at INR686/650/551b for FY14/FY15/16, with the government

sharing the balance.

We peg refinery throughput at 6mmt for 3QFY14 v/s 5.6mmt in 3QFY13

and 6mmt in 2QFY14.

We expect BPCL to report net loss of INR3.9b in 3QFY14.

BPCL trades at 9.1x FY15E EPS and 0.5x FY15E adjusted (for investments

and E&P) BV. E&P upsides from Mozambique and Brazil are the key

medium-term triggers. Buy .


(a) subsidy sharing, and

(b) GRMs.


S a l e s 2,422 2,507 2,574 2,699

EBITDA 66.7 68.7 68.4 70.1

Adj. PAT 18.8 25.5 27.8 28.6

Adj. EPS (INR) 26.0 35.3 38.5 39.5

EPS Gr. (%) 140.9 35.7 9.0 2.7

B V/Sh.(INR) 232 255 281 310

RoE (%) 11.5 14.5 14.3 13.4

RoCE (%) 8.3 7.8 7.4 8.2

Payout* (%) 35.2 35.1 35.4 26.6

Valuations

P/E (x) 13.5 10.0 9.1 8.9

P/BV (x) 1.5 1.4 1.2 1.1

EV/EBITDA (x) 8.5 8.4 7.7 6.3

Div. Yield (%) 3.1 2.9 3.0 2.6

*Based on standalone

Bloomberg BPCL IN


M. Cap. (INR b)/(USD b) 254 / 4


1,6,12 Rel Perf. (%) 3 / -11 / -8

C–134January 2014





Net Sales 44,400 44,431 42,776 43,634 40,629 46,499 49,049 50,295 175,241 186,473

Change (%) 19.6 67.5 38.1 19.5 -8.5 4.7 14.7 15.3 33.6 6.4

EBITDA 34,921 34,516 32,862 32,582 30,099 35,325 37,526 38,042 134,880 140,991

Exploration w/off 352 262 277 3,657 1,001 513 980 1,252 4,549 3,746

D,D&A 4,373 4,515 4,824 4,747 5,193 5,465 6,085 7,017 18,459 23,760

Interest 295 188 52 152 105 110 110 110 687 435

Other Income (Net) 964 2,226 1,819 2,219 1,251 1,109 1,184 1,346 7,228 4,890

Forex Fluctuations 8,663 -7,858 2,357 -28 6,820 4,292 -1,000 0 3,134 10,112

PBT 39,528 23,918 31,884 26,218 31,871 34,637 30,535 31,008 121,548 128,052

Tax 1,271 697 323 582 599 787 1,166 1,457 2,872 4,009

Tax rate* (%) 4.1 2.2 1.1 2.2 2.4 2.6 3.7 4.7 2.4 3.4

Adj. PAT 38,257 23,222 31,561 25,636 31,272 33,851 29,369 29,551 118,676 124,043

YoY Change (%) 40.3 204.3 39.5 17.3 -18.3 45.8 -6.9 15.3 49.5 4.5

Merger arrangement gain 1,888 1,888 0

PAT 38,257 23,222 33,449 25,636 31,272 33,851 29,369 29,551 120,564 124,043

Adj. EPS 20.0 12.2 16.5 13.4 16.4 17.7 15.4 15.5 62.1 64.9

Key Assumptions and Cain’s share in production (kboepd)

Exchange rate (INR/USD) 54.2 55.5 54.2 54.2 56.0 62.1 62.0 61.9 54.5 60.5

Brent Price (USD/bbl) 108.7 110.0 110.0 113.5 102.8 110.6 109.2 110.6 108.3 108.3

Ravva & Cambay Prodn 10.2 9.2 9.1 8.6 10.6 10.0 10.1 10.1 9.3 10.2

Rajasthan Prodn 117.0 120.3 119.0 118.0 121.0 122.8 129.5 136.5 118.6 127.5

Total 127.2 129.4 128.1 126.6 131.6 132.9 139.6 146.6 127.8 137.7

E: MOSL Es timates; * Excluding forex fluctuations, includes MAT credit.

Cairn IndiaCMP: INR324 Buy

We expect Cairn India’s 3QFY14 Rajasthan production to increase to

185kbpd from 176kbpd in 2QFY14, primarily led by ramp-up in

production at Aishwariya and increase in production from Mangala

fields, and total net sales of 129.5kboepd (v/s 119kboepd in 3QFY13

and 123kboepd in 2QFY14).

We expect net sales of INR49b (v/s INR46b in 2QFY14), led by increase

in average production at its Rajasthan block. We estimate EBITDA at

INR37.5b v/s INR32.9b in 3QFY13 and INR35.3b in 2QFY14.

We expect other income to increase, led by higher cash balance. We

estimate forex loss of INR1b v/s gain of INR4.3b in 2QFY14 due to ~1% INR

appreciation as on 31 December 2013 as compared to 30 September 2013.

We model Brent crude price of USD108.5/105/105/bbl in FY14/15/16 and

long-term price of USD100/bbl, and take a quality discount of 12.5%

for Cairn India.

Key operational things to watch in the medium-term would be (a)

progress on already announced buy-back program, (b) production

ramp-up, and (c) reserve updates, with ongoing 100 well exploration

program at Rajasthan. With increasing cash balance on the balance

sheet, clarity on utilization would be positive.

The stock currently trades at 5.9x FY15E EPS of INR55.2. Maintain Buy .


(a) net realization, and (b) forex fluctuations.


S a l e s 175.2 186.5 192.5 187.6

EBITDA 134.9 141.0 139.9 127.1

Adj. PAT 119.2 124.0 105.5 94.5

Adj. EPS (INR) 63.1 64.9 55.2 49.5

EPS Gr. (%) 51.7 2.9 -15.0 -10.4

B V/Sh.(INR) 250 301 341 378

RoE (%) 24.8 23.6 17.2 13.8

RoCE (%) 24.5 22.3 19.0 15.3

Payout (%) 21.6 23.4 23.4 23.4

Valuations

P/E (x) 5.1 5.0 5.9 6.6

P/BV (x) 1.3 1.1 1.0 0.9

EV/EBITDA (x) 3.4 2.8 2.5 2.5

Div. Yield (%) 3.5 4.0 3.4 3.1

Bloomberg CAIR IN


M. Cap. (INR b)/(USD b) 620 / 10


1,6,12 Rel Perf. (%) -4 / 0 / -7

C–135January 2014


Quarterly Performance (INR Million)Y/E March FY13 FY14 FY13 FY14E


Net Sales 110,886 113,612 124,743 124,086 128,556 139,446 150,337 151,792 473,327 570,131

Change (%) 25.0 17.1 10.8 18.7 15.9 22.7 20.5 22.3 17.5 20.5

EBITDA 18,991 13,803 19,722 11,367 14,642 14,055 21,469 21,147 63,882 71,313

% of Net Sales 17.1 12.1 15.8 9.2 11.4 10.1 14.3 13.9 13.5 12.5

Depreciation 2,169 2,491 2,424 2,726 2,808 2,888 2,914 2,959 9,809 11,569

Interest 588 261 552 549 612 1,082 1,108 1,145 1,950 3,947

Other Income 612 2,685 1,841 3,317 1,018 2,798 1,500 1,553 8,455 6,869

PBT 16,846 13,736 18,587 11,409 12,241 12,883 18,948 18,595 60,578 62,666

Tax 5,508 3,882 5,738 5,227 4,159 3,726 6,580 6,093 20,356 20,558

Rate (%) 32.7 28.3 30.9 45.8 34.0 28.9 34.7 32.8 33.6 32.8

Adj PAT 11,338 9,854 12,849 6,065 8,082 9,157 12,367 12,503 40,105 42,108

Change (%) 15.1 -10.0 32.6 68.0 -28.7 -7.1 -3.7 106.1 17.6 5.0

EPS (INR) 8.9 7.8 10.1 4.8 6.4 7.2 9.7 9.9 31.6 33.2

Key Assumptions

Gas Trans. volume (mmsmd) 110 106 105 99 99 95 96 96 105 97

Petchem sales (‘000MT) 66 101 128 132 121 108 115 116 427 460

Segmental EBIT Breakup (INR m)

Transmission

Natural Gas 5,673 6,049 6,195 406 5,538 5,762 4,901 4,540 18,323 20,741

LPG 709 -489 133 620 550 426 413 413 973 1,802

Natural Gas Trading 4,956 2,447 2,986 3,469 3,025 4,870 3,590 3,196 13,858 14,682

Petrochemicals 1,958 4,182 4,395 4,716 4,383 3,909 3,975 4,229 15,250 16,495

LPG & Liq.HC (pre-subsidy) 11,373 8,521 12,063 10,799 6,891 4,707 7,266 7,363 42,756 26,226

Unallocated; GAILTEL 81 69 -834 -338 -255 17 0 0 -1,022 -238

Total 24,751 20,779 24,939 19,671 20,132 19,691 20,145 19,741 90,139 79,708

Less: Subsidy -7,000 -7,857 -6,143 -5,872 -7,000 -6,987 0 0 -26,872 -13,987

Total 17,751 12,922 18,796 13,799 13,132 12,704 20,145 19,741 63,268 65,721

E: MOSL Estimates

GAIL (India)CMP: INR341 Neutral

We expect GAIL to report PAT of INR12.4b (down 4% YoY; up 35% QoQ).

We estimate GAIL’s subsidy sharing at nil in 3QFY14 v/s INR6.1b in

3QFY13 and INR7b in 2QFY14. GAIL’s subsidy sharing has been

provisionally capped at INR14b for FY14 (already shared in 1HFY14).

Subsidy sharing assumption: For FY14/FY15/FY16, we model upstream

sharing at INR686/650/551b. For GAIL, we have assumed a sharing of

INR14/14/12b in FY14/15/16 v/s INR26.9b in FY13.

We model gas transmission volumes at 96mmscmd v/s 105 in 3QFY13

and 95 in 2QFY14. Segmental EBIT (pre-subsidy) is expected to increase

by 47% QoQ, mainly led by nil subsidy sharing.

Adjusted for investments, the stock trades at 9.2x FY15E EPS of INR28.9.

Though we like the management’s strategy to build network to enable

gas sourcing, we remain Neutral due to medium-term earnings

concern led by likely under-utilization of its new network on account

of headwinds to incremental gas availabi lity.


(a) subsidy sharing, (b) transmission volumes, and (c) cost of natural

gas for consumption in LPG and petrochemicals segment.


S a l e s 473.3 570.1 671.5 727.7

EBITDA 62.8 71.3 71.0 74.6

Adj. PAT 40.2 42.1 36.7 37.9

Adj. EPS (INR) 31.7 33.2 28.9 29.9

EPS Gr. (%) 10.1 4.7 -12.8 3.3

B V/Sh.(INR) 191 213 231 251

RoE (%) 17.5 16.4 13.0 12.4

RoCE (%) 19.4 17.0 13.9 14.2

Payout (%) 35.2 34.9 34.9 34.9

Valuations

P/E (x) 8.4 8.0 9.2 8.9

P/BV (x) 1.4 1.3 1.2 1.1

EV/EBITDA (x) 7.2 7.2 7.2 6.6

Div. Yield (%) 2.8 2.9 2.6 2.6

Bloomberg GAIL IN


M. Cap. (INR b)/(USD b) 432 / 7


1,6,12 Rel Perf. (%) 0 / 2 / -12

C–136January 2014


Quarterly Performance (INR Milllion)



Net Sales 2,676 2,732 2,606 3,590 2,961 2,770 2,766 2,785 11,603 11,282

Change (%) -5.9 -2.7 -4.9 29.9 10.6 1.4 6.2 -22.4 4.0 -2.8

EBITDA 2,465 2,520 2,338 3,268 2,691 2,508 2,487 2,478 10,591 10,164

% of Net Sales 92.1 92.2 89.7 91.0 90.9 90.6 89.9 89.0 91.3 90.1

% Change -5.9 -2.5 -7.1 29.7 9.2 -0.5 6.4 -24.2 3.4 -4.0

Depreciation 439 464 478 480 458 470 485 503 1,861 1,915

Interest 317 316 314 315 380 367 380 382 1,263 1,509

Other Income 176 226 230 158 139 141 150 157 790 586

PBT 1,884 1,966 1,776 2,630 1,992 1,812 1,772 1,750 8,257 7,326

Tax 636 638 586 1,015 729 671 620 580 2,876 2,601

Rate (%) 33.7 32.5 33.0 38.6 36.6 37.1 35.0 33.1 34.8 35.5

PAT 1,248 1,328 1,190 1,615 1,263 1,141 1,152 1,170 5,381 4,725

Change (%) -9 3 -6 25 1 -14 -3 -28 3 -12

EPS (INR) 2.2 2.4 2.1 2.9 2.2 2.0 2.0 2.1 9.6 8.4

Transmission Vol. (mmscmd) 31.1 28.6 27.3 22.2 22.1 21.2 21.3 21.4 27.3 21.5

Implied tariff (INR/mscm) 903 993 1,043 1,768 1,411 1,365 1,350 1,374 1,135 1,375

E: MOSL Estimates

Gujarat State PetronetCMP: INR60 Neutral

We expect GSPL to report net sales of INR2.8b and PAT of INR1.2b

(down 3% YoY and up 1% QoQ).

We bui ld flattish QoQ gas transmission volumes at 21mmscmd in

3QFY14 (v/s 27.3mmscmd in 3QFY13 and 21.2mmscmd in 2QFY14), led

by decline in KG-D6 production.

GSPL has won all three bids for cross -country pipelines conducted by

PNGRB last year. We await clarity on the timelines and other details

regarding these pipelines.

We bui ld gas transmission volumes of 21.5mmscmd in FY14. We model

average tariff at INR1,375/mscm in FY14. The stock trades at 6.7x FY15E

EPS of INR8.9. Maintain Neutral.


(a) transmission volumes, and

(b) tariff.


S a l e s 11.6 11.3 11.2 12.0

EBITDA 10.6 10.2 10.0 10.7

Adj. PAT 5.4 4.7 5.0 5.5

Adj. EPS (INR) 9.6 8.4 8.9 9.8

EPS Gr. (%) 3.1 -12.2 6.1 9.8

B V/Sh.(INR) 52 59 67 76

RoE (%) 19.9 15.0 14.1 13.7

RoCE (%) 22.3 17.7 16.4 16.2

Payout (%) 12.6 12.2 13.9 13.1

Valuations

P/E (x) 6.3 7.1 6.7 6.1

P/BV (x) 1.1 1.0 0.9 0.8

EV/EBITDA (x) 4.0 3.6 3.5 3.2

Div. Yield (%) 1.7 1.7 1.7 1.7

Bloomberg GUJS IN




1,6,12 Rel Perf. (%) 1 / 1 / -31

C–137January 2014





Net Sales 440,765 484,639 527,510 612,379 517,639 518,602 575,297 701,831 2,065,294 2,313,369

Change (%) 8.0 30.9 10.1 16.9 17.4 7.0 9.1 14.6 15.9 12.0

EBITDA -88,759 22,480 3,877 101,826 -6,879 10,142 1,812 29,941 39,424 35,016

% of Net Sales -20.1 4.6 0.7 16.6 -1.3 2.0 0.3 4.3 2 2

Change (%) n m n m -89.1 86.3 n m -54.9 -53.3 -70.6 -246.7 12.6

Depreciation 4,544 4,910 4,947 4,914 5,100 5,426 5,500 5,678 19,315 21,704

Interest 5,492 3,899 6,135 2,852 4,668 3,962 3,838 3,575 18,377 16,042

Other income 2,524 3,419 2,446 3,910 2,042 2,435 2,450 2,114 12,300 9,040

Exceptional Item 3,784 6,181 6,229 -15,479 0 0 0 0 714 0

PBT -92,488 23,271 1,471 82,492 -14,605 3,189 -5,076 22,802 14,746 6,310

Tax 0 0 0 5,699 0 0 0 2,096 5,699 2,096

Rate (%) 0.0 0.0 0.0 6.9 0.0 0.0 0.0 9.2 38.6 33.2

PAT -92,488 23,271 1,471 76,793 -14,605 3,189 -5,076 20,706 9,047 4,214

Change (%) n m n m -94.6 65.8 n m -86.3 n m -73.0 -0.7 -53.4

Adj. EPS -272.8 68.6 4.3 226.5 -43.1 9.4 -15.0 61.1 26.7 12.4

Key Assumptions (INR b)

Gross under recovery 107 83 87 85 58 82 94 83 362 318


Govt. subsidy 0 67 55 126 18 41 47 53 248 160

Net Under recovery 73 -17 -2 -52 5 2 9 -17 2 0

Net Sharing (%) 69 n m n m n m 9 2 10 n m n m n m

E: MOSL Estimates; * 1QFY14 net sales includes receivables from ONGC

HPCLCMP: INR239 Buy




comes with a delay.


losses.




We peg refinery throughput at 3.9mmt for 3QFY14 v/s 4.2mmt in

3QFY13 and 3.9mmt in 2QFY14.

We expect HPCL to report net loss of INR5.1b in 3QFY14.

HPCL trades at 10.2x FY15E EPS and 0.6x FY15E BV. We have a Buy rating

due to our positive stance on diesel reforms and attractive valuations.



(b) GRMs.


S a l e s 2,065 2,313 2,162 2,282

EBITDA 39.4 35.0 41.6 40.3

Adj. PAT 9.0 4.2 8.0 8.3

Adj. EPS (INR) 26.7 12.4 23.5 24.5

EPS Gr. (%) -0.7 -53.4 89.1 4.5

B V/Sh.(INR) 405 413 428 444

RoE (%) 6.7 3.0 5.6 5.6

RoCE (%) 6.8 4.8 6.1 5.9

Payout (%) 37.3 34.8 35.3 35.3

Valuations

P/E (x) 9.0 19.3 10.2 9.8

P/BV (x) 0.6 0.6 0.6 0.5

EV/EBITDA (x) 8.5 7.2 6.1 4.9

Div. Yield (%) 3.6 1.5 3.0 3.1

Bloomberg HPCL IN




1,6,12 Rel Perf. (%) 13 / -14 / -24

C–138January 2014


Quarterly Performance (Standalone) (INR Million)Y/E March FY13 FY14 FY13 FY14E


Net Sales 966,028 1,057,913 1,152,767 1,284,497 1,102,332 1,098,595 1,300,404 1,426,274 4,461,204 4,927,604

Change (%) -4.1 18.7 0.1 0.6 14.1 3.8 12.8 11.0 3.1 10.5

EBITDA -202,360 90,627 51,310 165,205 -13,994 31,224 12,610 79,575 104,782 109,415

% of Net Sales -20.9 8.6 4.5 12.9 -1.3 2.8 1.0 5.6 2.3 2.2

% Change n m n m -52.2 17.7 n m -65.5 -75.4 -51.8 -38.3 4.4

Depreciation 12,775 12,865 13,243 13,128 13,858 14,342 14,500 14,454 52,010 57,154

Interest 18,491 15,108 16,726 13,766 14,702 13,542 13,613 12,960 64,092 54,817

Other Income 9,117 33,460 11,978 13,244 11,621 13,500 14,193 14,124 67,798 53,438

PBT -224,510 96,113 33,320 151,554 -30,932 16,839 -1,310 66,285 56,478 50,881

Tax 0 0 0 6,426 0 0 0 10,176 6,426 10,176

Rate (%) n m 0.0 0.0 4.2 n m 0.0 n m 15.4 11.4 20.0

Adj. PAT -224,510 96,113 33,320 145,128 -30,932 16,839 -1,310 56,109 50,053 40,705

Change (%) n m n m -61.5 2.1 n m -82.5 n m -61.3 -57.1 -18.7

PAT -224,510 96,113 33,320 145,128 -30,932 16,839 -1,310 56,109 50,053 40,705

Adj. EPS -92.5 39.6 13.7 59.8 -12.7 6.9 -0.5 23.1 20.6 16.8

Gross under recovery (INR b) 255 204 212 187 136 183 212 198 858 729


Govt. sharing 0 161 135 237 43 92 106 126 533 368

Net Under recovery 175 -38 -4 -127 12 4 21 -38 5 0

E: MOSL Estimates

Indian Oil CorporationCMP: INR213 Buy




comes with a delay.


losses.




We peg refinery throughput at 12.7mmt for 3QFY14 v/s 14.2mmt in

3QFY13 and 13.3mmt in 2QFY14.

We expect IOCL to report net loss of INR1.3b in 3QFY14.

IOCL trades attractively at 0.7x FY15E BV and 7.7x FY15E EPS. Buy.



(b) GRMs.


S a l e s 4,607 4,714 4,783 4,687

EBITDA 127.4 116.5 182.8 194.9

Adj. PAT 44.5 40.7 67.0 69.7

Adj. EPS (INR) 18.3 16.8 27.6 28.7

EPS Gr. (%) -62.7 -8.5 64.7 4.1

B V/Sh.(INR) 261 272 290 310

RoE (%) 7.2 6.3 9.8 9.6

RoCE (%) 7.6 6.2 10.2 10.5

Payout (%) 35.2 34.9 36.0 34.5

Valuations

P/E (x) 11.6 12.7 7.7 7.4

P/BV (x) 0.8 0.8 0.7 0.7

EV/EBITDA (x) 9.2 9.8 5.9 5.3

Div. Yield (%) 2.9 2.4 3.8 3.8

Bloomberg IOCL IN


M. Cap. (INR b)/(USD b) 517 / 8


1,6,12 Rel Perf. (%) 3 / -17 / -28

C–139January 2014





Net Sales 7,602 8,546 8,694 8,818 9,015 10,090 10,674 10,637 33,661 40,416

Change (%) 41.7 43.2 31.4 22.4 18.6 18.1 22.8 20.6 33.8 20.1

EBITDA 1,793 2,060 1,871 1,848 1,924 2,001 2,040 1,956 7,572 7,921

EBITDA (Rs/scm) 5.6 6.1 5.5 5.5 5.7 5.7 5.7 5.5 5.6 5.6

% of Net Sales 23.6 24.1 21.5 21.0 21.3 19.8 19.1 18.4 22.5 19.6

% Change 13.9 30.9 25.7 9.7 7.3 -2.9 9.0 5.8 19.8 4.6

Depreciation 427 477 474 489 532 548 560 610 1,867 2,249

Interest 155 140 141 125 128 98 100 104 562 430

Other Income 36 39 26 38 51 49 60 64 138 223

PBT 1,247 1,482 1,282 1,272 1,315 1,404 1,440 1,306 5,282 5,465

Tax 396 489 418 437 442 476 490 443 1,741 1,851

Rate (%) 31.8 33.0 32.6 34.3 33.6 33.9 34.0 34.0 33.0 33.9

PAT 850 992 863 835 873 928 951 862 3,541 3,613

PAT (INR/scm) 2.6 2.9 2.5 2.5 2.6 2.6 2.7 2.4 2.6 2.6

Change (%) 6.2 28.5 24.9 3.4 2.6 -6.5 10.1 3.2 15.3 2.0

EPS 6.1 7.1 6.2 6.0 6.2 6.6 6.8 6.2 25.3 25.8

Gas Volumes (mmscmd)

CNG 2.67 2.80 2.80 2.77 2.77 2.87 2.89 2.87 2.76 2.85

PNG 0.88 0.88 0.91 0.98 0.95 0.97 0.99 1.07 0.91 0.99

Total 3.55 3.69 3.71 3.74 3.71 3.84 3.88 3.94 3.67 3.84

E: MOSL Estimates

Indraprastha GasCMP: INR267 Neutral

We expect IGL to report volumes of 3.9mmscmd and PAT of INR951m

(up 10% YoY and 3% QoQ) for 3QFY14.

Lack of domestic gas has forced IGL to use high cost LNG leading to

significant price increase in the last 2-3 years. This has led to fall in

IGL's volume growth from robust double digit to single digit thereby

limiting earnings growth in near term.

We expect 3QFY14 CNG volumes to grow 3% YoY to 2.9mmscmd and

PNG volumes to grow 9% YoY to 1mmscmd.

We model in total volumes of 3.8/4.1/4.4mmscmd in FY14/FY15/FY16.

The stock trades at 9.2x FY15E EPS of INR29.

Post the High Court quashing PNGRB's tariff cut order, PNGRB has now

approached the Supreme Court and the hearing is sti ll on. We maintain

our Neutral rating due to lack of clarity in predicting earnings for IGL

and await the Supreme Court decision.


(a) EBITDA margin,

(b) sales volume and

(c) Supreme Court case verdict


S a l e s 33.7 40.4 45.2 50.5

EBITDA 7.6 7.9 8.6 9.4

Adj. PAT 3.5 3.6 4.1 4.5

Adj. EPS (INR) 25.3 25.8 29.0 32.0

EPS Gr. (%) 15.3 2.0 12.4 10.5

B V/Sh.(INR) 107 127 149 174

RoE (%) 26.0 22.1 21.1 19.9

RoCE (%) 32.4 28.3 27.0 25.8

Payout (%) 21.7 19.4 20.7 18.7

Valuations

P/E (x) 10.6 10.3 9.2 8.3

P/BV (x) 2.5 2.1 1.8 1.5

EV/EBITDA (x) 5.3 4.8 4.1 3.4

Div. Yield (%) 2.1 1.9 2.2 2.2

Bloomberg IGL IN




1,6,12 Rel Perf. (%) -5 / -12 / -3

C–140January 2014





Net Sales 128,099 163,101 179,921 185,795 152,659 187,623 192,772 198,495 656,915 731,549

Change (%) -4.2 39.8 39.1 17.3 19.2 15.0 7.1 6.8 22.1 11.4

EBITDA -6,476 11,569 1,774 1,428 1,683 7,305 4,112 5,810 8,294 18,910

% of Net Sales n m 7.1 1.0 0.8 1.1 3.9 2.1 2.9 1.3 2.6

Change (%) n m 1,435 -41 -82 n m n m n m n m -39.9 128.0

Depreciation -1,375 -1,456 -1,550 -1,663 -1,688 -1,761 -1,800 -1,890 -6,044 -7,139

Interest -1,102 -701 -777 -706 -779 -926 -1,000 -1,095 -3,286 -3,800

Other Income 495 369 192 105 293 335 350 407 1,160 1,384

PBT b/f forex/exceptional -8,458 9,781 -362 -836 -491 4,953 1,662 3,231 125 9,355

Forex gain/(loss) -6,490 2,836 -2,570 856 -5,166 -2,495 0 0 -5,368 -7,661

Exceptional items 0 30 0 445 1,118 0 0 0 475 1,118

PBT -14,948 12,647 -2,932 465 -4,539 2,458 1,662 3,231 -4,769 2,812

Tax -257 -796 -664 -1,095 0 -100 -249 -550 -2,812 -900

Rate (%) n m 6.3 n m 235.7 n m 4.1 15.0 17.0 n m 32.0

PAT -15,206 11,851 -3,596 -630 -4,539 2,358 1,413 2,681 -7,580 1,912

Change (%) n m 4,811.4 n m n m n m -80.1 n m n m n m -125.2

EPS (INR) -8.7 6.8 -2.1 -0.4 -2.6 1.3 0.8 1.5 -4.3 1.1

GRM (USD/bbl) -4.2 9.2 1.9 2.0 2.9 5.0 3.3 3.9 2.5 3.8

Throughput (mmt) 2.9 3.6 3.8 4.1 3.3 3.7 3.8 3.9 14.4 14.6

E: MOSL Estimates

MRPLCMP: INR42 Neutral

We expect MRPL to report PAT of INR1.4b for 3QFY14 (v/s loss of INR3.6b

in 3QFY13 and profit of INR2.4b in 2QFY14).

We estimate EBITDA at INR4.1b (v/s INR1.8b in 3QFY13 and INR7.3b in

2QFY14). Regional benchmark Reuters Singapore GRM declined 22%

QoQ to USD4.3/bbl from USD5.5/bbl due to decline in gasoline cracks.

On the operational front, we expect refinery throughput at 3.8mmt.

Medium-term GRM outlook continues to be subdued due to

overcapacity and sluggish global demand. Expect GRM to be volatile

(occasional spurts) due to occasional bunching up of shutdowns.

For MRPL, we model in GRM of USD3.8/bbl for FY14 and USD5.4/bbl for

FY15.

Key event to watch out is the schedule of commissioning of its up-

gradation and expansion project.

The stock trades at 6.7x FY15E EPS and at an EV of 3.6x FY15E EBITDA.

Maintain Neutral.


(a) GRMs,

(b) forex fluctuations and

(c) inventory changes.


S a l e s 657.0 749.9 781.8 805.0

EBITDA 8.4 18.9 32.0 36.5

Adj. PAT -8.0 1.9 11.2 15.3

Adj. EPS (INR) -4.3 1.1 6.4 8.7

EPS Gr. (%) n m -123.9 484.3 36.6

B V/Sh.(INR) 37 38 43 49

RoE (%) -11.1 2.9 15.9 18.9

RoCE (%) -0.2 5.4 20.3 24.2

Payout (%) 0.0 21.4 23.9 22.8

Valuations

P/E (x) -9.8 38.9 6.7 4.9

P/BV (x) 1.1 1.1 1.0 0.9

EV/EBITDA (x) 15.3 7.0 3.6 2.6

Div. Yield (%) - 0.5 3.1 4.0

Bloomberg MRPL IN




1,6,12 Rel Perf. (%) -5 / 12 / -39

C–141January 2014


Quarterly Performance (Standalone) (INR Billion)Y/E March FY13 FY14 FY13 FY14E


Net Sales 23.3 24.0 24.1 23.8 19.8 27.1 26.2 24.3 95.3 97.5

Change (%) 2.0 -26.6 -3.3 38.2 -15.1 13.0 8.7 2.2 -2.5 2.3

EBITDA 11.0 11.5 11.2 8.8 7.0 13.3 12.2 10.5 42.5 43.0

% of Net Sales 47.0 47.8 46.6 37.1 35.2 49.0 46.5 43.2 44.6 44.1

Change (%) -12.2 -29.2 -15.7 82.6 -36.4 15.8 8.5 19.1 287.6 1.1

D,D&A 2.0 2.6 2.2 2.4 2.7 4.7 2.7 2.8 9.2 12.8

Interest 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.1

OI (incl. Oper. other inc) 4.8 5.2 4.9 4.6 4.7 4.7 4.8 4.8 19.6 19.0

PBT 13.8 14.1 13.9 11.0 9.0 13.3 14.3 12.5 52.8 49.1

Tax 4.5 4.6 4.5 3.4 2.9 4.3 4.9 4.2 16.9 16.2

Rate (%) 32.5 32.4 32.4 30.7 32.2 32.2 34.0 33.3 32.1 33.0

PAT 9.3 9.5 9.4 7.6 6.1 9.0 9.4 8.3 35.9 32.9

Change (%) 9.5 -16.2 -7.3 71.9 -34.5 -5.3 0.3 9.1 4.1 -8.4

Adj. PAT 9.3 9.5 9.4 7.6 6.1 9.0 9.4 8.3 35.9 32.9

Adj. EPS (INR) 15.5 15.9 15.6 12.7 10.1 15.0 15.7 13.9 59.7 54.7

Key Assumptions (USD/bbl)

Exchange rate (INR/USD) 54.2 55.2 54.2 54.4 56.0 62.5 62.0 61.9 54.5 60.6

Gross Oil Realization 109.8 108.6 108.6 111.4 101.9 108.3 109.0 109.2 109.6 107.1

Subsidy 56.0 56.0 56.0 56.0 56.0 56.0 56.0 70.6 56.0 59.6

Net Oil Realization 53.8 52.6 52.6 55.4 45.9 52.3 53.0 38.6 53.6 47.5

Subsidy (INR b) 20.2 20.8 19.5 18.5 19.8 22.3 23.4 29.4 78.9 94.9

E: MOSL Estimates

Oil IndiaCMP: INR484 Buy

We expect OINL to report PAT of INR9.4b (v/s INR9.4b in 3QFY13 and

INR9b in 2QFY14). OINL’s subsidy sharing has been ad-hoc at USD56/

bbl for 1HFY14, similar to FY13 and we model the same for 3QFY14.

We estimate EBITDA at INR12.2b (up 9% YoY and down 8% QoQ). We

estimate gross realization at USD109/bbl v/s USD109/bbl in 3QFY13

and USD108/bbl in 2QFY14 and net realization at USD53/bbl v/s USD53/

bbl in 3QFY13 and USD52/bbl in 2QFY14.

Subsidy sharing assumption: For FY14/15/16, we model upstream

sharing at INR686/650/551b, and OINL’s share at 13.4% of upstream. We

expect OINL to share INR23.4b in 3QFY14.

Our Brent price assumption is USD108.5/105/105/bbl for FY14/15/16 and

at USD100/bbl for long term. We model upstream sharing at INR686/

650/551b in FY14/15/16.

The stock trades at 7.2x FY15E EPS of INR67.3. We remain positive on

OINL due to recently announced diesel reforms, gas price hike and its

strong operational foothold: (1) steady production growth, (2) high

share of oil in its reserves (55% in 1P and 62% in 2P), and (3) attractive

valuations (>40% discount to its global peers on EV/BOE, 1P basis).

Maintain Buy.


(a) subsidy sharing, (b) DD&A charges, and (c) oil & gas production

volumes.


S a l e s 95.3 97.5 113.7 127.4

EBITDA 42.5 43.0 54.2 62.2

Adj. PAT 35.9 32.9 40.4 44.2

Adj. EPS (INR) 59.7 54.7 67.3 73.6

EPS Gr. (%) 4.1 -8.4 22.9 9.4

B V/Sh.(INR) 320 354 396 442

RoE (%) 19.4 16.3 17.9 17.6

RoCE (%) 26.0 21.6 24.0 23.6

Payout (%) 58.2 37.3 37.3 37.3

Valuations

P/E (x) 8.1 8.9 7.2 6.6

P/BV (x) 1.5 1.4 1.2 1.1

EV/EBITDA (x) 4.2 4.0 3.0 2.5

Div. Yield (%) 6.2 3.7 4.5 5.0

Bloomberg OINL IN


M. Cap. (INR b)/(USD b) 291 / 5


1,6,12 Rel Perf. (%) -1 / -28 / -4

C–142January 2014


Quaterly performance (Standalone) (INR Billion)Y/E March FY13 FY14 FY13 FY14E


Net Sales 200.8 197.9 209.9 213.9 192.2 223.1 221.1 206.8 822.5 843.1

Change (%) 24.0 -12.5 15.8 13.7 -4.3 12.8 5.3 -3.3 8.6 2.5

EBITDA 110.4 102.7 112.4 102.9 84.0 120.0 116.6 102.0 428.4 422.5

% of Net Sales 55.0 51.9 53.5 48.1 43.7 53.8 52.7 49.3 52.1 50.1

D,D & A 32.0 37.3 44.1 71.3 39.0 45.0 45.6 57.5 184.6 187.0

Interest 0.3 0.0 0.0 0.0 0.0 0.0 0.0 0.2 0.3 0.2

Other Income 11.3 20.0 13.9 16.9 12.9 15.9 13.8 14.3 62.0 56.8

PBT 89.4 85.4 82.1 48.5 57.8 90.9 84.8 58.6 305.4 292.1

Tax 28.6 26.4 26.5 14.6 17.7 30.3 27.1 18.6 96.2 93.6

Rate (%) 32.0 30.9 32.2 30.2 30.6 33.3 31.9 31.8 31.5 32.1

PAT 60.8 59.0 55.6 33.9 40.2 60.6 57.7 40.0 209.3 198.5

Adjusted PAT 60.8 59.0 55.6 33.9 40.2 60.6 57.7 40.0 209.3 198.5

Change (%) 48.4 -31.8 20.0 -40.0 -33.9 2.8 3.7 18.1 -9.1 -5.1

Adj. EPS (INR) 7.1 6.9 6.5 4.0 4.7 7.1 6.7 4.7 24.5 23.2


Fx rate (INR/USD) 54.2 55.2 54.2 54.4 56.0 62.5 62.0 61.9 54.5 60.6

Gross Oil Realization 109.9 109.9 110.2 114.0 102.9 109.0 109.2 111.0 111.0 108.0

Subsidy 63.3 63.1 62.2 63.1 62.7 64.2 64.3 78.3 62.9 67.4

Net Oil Realization 46.6 46.8 48.0 50.9 40.2 44.8 44.9 32.7 48.1 40.7

Subsidy (INR b) 123.5 123.3 124.3 123.1 126.2 138.0 138.6 174.3 494.2 577.1

E: MOSL Estimates

ONGCCMP: INR292 Buy

We expect ONGC to report adjusted PAT of INR58b (v/s INR56b in

3QFY13 and INR61b in 2QFY14). ONGC’s subsidy sharing has been ad-

hoc at USD56/bbl for 1HFY14, similar to FY13 and we model the same

for 3QFY14.

We estimate EBITDA at INR117b (v/s INR112b in 3QFY13 and INR120b

in 2QFY14).

We estimate gross realization at USD109/bbl v/s USD110/bbl in 3QFY13

and USD109/bbl in 2QFY14, and net realization at USD45/bbl v/s USD48/

bbl in 3QFY13 and USD45/bbl in 2QFY14.

Subsidy sharing assumption: For FY14/15/16, we model upstream

sharing at INR686/650/551b, and ONGC’s share at 84.1% of upstream.

We expect ONGC to share INR138.6b in 3QFY14.

Our Brent price assumption is USD108.5/105/105/bbl for FY14/15/16 and

at USD100/bbl for long term.

We remain positive on the stock due to (a) likely gas price hike in near

term, (b) continued diesel price hikes, (c) attractive valuations with

an implied dividend yield of 4%. The stock trades at 8.2x FY15E

consolidated EPS of INR35.8. Maintain Buy.


(a) subsidy sharing,

(b) DD&A charges, and

(c) oil & gas production volumes.


S a l e s 1,624 1,810 1,950 2,036

EBITDA 549 586 666 750

Adj. PAT 240 255 310 336

Adj. EPS (INR) 28.3 29.8 35.8 38.8

EPS Gr. (%) (8.8) 6.2 21.5 8.6

B V/Sh.(INR) 178 196 218 242

RoE (%) 16.8 15.9 17.3 16.9

RoCE (%) 15.2 14.9 16.9 16.4

Payout (%) 45.4 39.3 39.1 39.1

Valuations

P/E (x) 10.3 9.8 8.2 7.5

P/BV (x) 1.6 1.5 1.3 1.2

EV/EBITDA (x) 4.3 4.0 3.6 3.2

Div. Yield (%) 3.3 3.4 4.1 4.5

Bloomberg ONGC IN


M. Cap. (INR b)/(USD b) 2,499 / 40


1,6,12 Rel Perf. (%) -3 / -21 / 3

C–143January 2014




Net Sales 70,304 75,484 84,228 84,656 84,442 94,935 108,490 113,818 314,672 401,684

Change (%) 52.1 40.6 33.1 32.8 20.1 25.8 28.8 34.4 38.6 27.7

EBITDA 4,571 5,182 5,289 4,344 3,978 3,639 3,804 4,212 19,385 15,634

% of Net Sales 6.5 6.9 6.3 5.1 4.7 3.8 3.5 3.7 6.2 3.9

Change (%) 4.3 15.6 4.1 18.8 -13.0 -29.8 -28.1 -3.0 10.1 -19.4

Depreciation 459 467 472 468 467 597 1,042 1,107 1,866 3,212

Interest 329 317 291 247 240 386 739 740 1,184 2,106

Other Income 266 248 149 203 152 161 175 208 865 697

PBT 4,048 4,646 4,675 3,831 3,423 2,818 2,198 2,574 17,200 11,012

Tax 1,340 1,500 1,490 1,380 1,170 1,000 714 836 5,710 3,721

Rate (%) 33.1 32.3 31.9 36.0 34.2 35.5 32.5 32.5 33.2 33.8

PAT 2,708 3,146 3,185 2,451 2,253 1,818 1,484 1,737 11,490 7,291

Change (%) 5.5 20.8 7.8 0.0 -16.8 -42.2 -53.4 -29.1 8.7 -36.5

EPS (INR) 3.6 4.2 4.2 3.3 3.0 2.4 2.0 2.3 15.3 9.7

Dahej Gas Volume (TBTU) 127.2 135.0 140.6 122.0 129.5 122.8 133.3 137.3 524.8 522.9

Dahej Gas Volumes (mmt) 2.5 2.7 2.8 2.4 2.6 2.4 2.7 2.7 10.4 10.4

Kochi Gas Volumes (mmt) 0.0 0.0 0.0 0.1 0.0 0.1

Avg. Dahej Regas (INR/mmbtu) 44.9 49.1 47.6 45.3 41.8 41.3 40.8 43.8 46.7 41.9

E: MOSL Estimates

Petronet LNGCMP: INR122 Buy

PLNG's reported numbers will not be comparable due to

commissioning of the Kochi terminal. We expect PLNG to report PAT

of INR1.5b (down 53% YoY and 18% QoQ) for 3QFY14, primarily due to

Kochi plant’s depreciation and interest burden post commissioning

of the plant in August 2013. We estimate EBITDA at INR3.8b (down

28% YoY and up 5% QoQ).

We have built in LNG volumes at 2.7mmt in 3QFY14, 9% higher QoQ.

We model 10.5mmtpa volumes at Dahej in FY14, of which 7.5mmtpa

would be on long-term contract and 3mmtpa on short-term. We model

in 0.1mmt volumes from Kochi in FY14.

We model 5% escalation in re-gasification tariff till FY16 and flat

thereafter at Dahej.

The stock trades at 10.6x FY15E consolidated EPS of INR11.5. PLNG is

well placed to benefit from the continued gas deficit in the country

and completion of the Kochi - Bangalore pipeline leg will be positive

for the stock. Maintain Buy.


(a) interest and depreciation charges for Kochi terminal,

(b) spot volumes, and

(c) marketing margin on spot volumes.


S a l e s 314.7 401.7 442.6 523.8

EBITDA 18.4 15.6 19.3 23.1

Adj. PAT 11.5 7.4 8.6 10.4

Adj. EPS (INR) 15.3 9.8 11.5 13.8

EPS Gr. (%) 4.9 -36.0 17.5 19.9

B V/Sh.(INR) 59.3 67.1 76.3 87.4

RoE (%) 28.8 15.5 16.1 16.9

RoCE (%) 24.1 16.8 18.1 19.3

Payout (%) 19.1 21.1 19.9 19.9

Valuations

P/E (x) 8.0 12.4 10.6 8.8

P/BV (x) 2.1 1.8 1.6 1.4

EV/EBITDA (x) 6.0 7.0 6.4 5.2

Div. Yield (%) 2.1 1.4 1.6 1.9

Bloomberg PLNG IN




1,6,12 Rel Perf. (%) -7 / -10 / -33

C–144January 2014


Quarterly Performance (Standalone) (INR Billion)



Net Sales 918.8 903.4 938.9 842.0 876.5 1,037.6 1,018.7 1,109.5 3,602.9 4,042.3

Change (%) 13.4 15.0 10.3 -1.2 -4.6 14.9 8.5 31.8 9.2 12.2

EBITDA 67.5 77.1 83.7 78.3 70.8 78.5 73.2 80.8 307.9 303.3

% of Net Sales 7.3 8.5 8.9 9.3 8.1 7.6 7.2 7.3 8.5 30.1

Change (%) -32.0 -21.7 14.9 19.2 4.9 1.9 -12.6 3.3 -8.4 -1.5

Depreciation 24.3 22.8 24.6 22.4 21.4 22.3 22.4 22.7 94.7 88.7

Interest 7.8 7.4 8.1 7.1 8.1 8.1 8.1 8.2 30.4 32.4

Other Income 19.0 21.1 17.4 22.4 25.4 20.6 22.1 21.2 80.0 89.2

PBT 54.3 68.0 68.5 71.2 66.6 68.7 64.9 71.1 262.8 271.3

Tax 9.6 14.3 13.5 15.3 13.1 13.8 12.8 14.5 52.8 54.3

Rate (%) 17.7 21.0 19.7 21.5 19.7 20.1 19.8 20.4 20.1 20.0

Adj. PAT 44.7 53.8 55.0 55.9 53.5 54.9 52.0 56.6 210.0 217.1

Change (%) -21.0 -5.7 23.9 31.9 19.7 2.1 -5.4 1.3 4.8 3.3

Adj. EPS (INR) 15.3 18.4 18.8 19.1 18.3 18.8 17.8 19.4 71.6 74.3


Fx Rate (INR/USD) 54.2 55.5 54.2 54.2 56.0 62.1 62.0 62.0 54.5 60.5

Brent Price (USD/bbl) 109 110 110 114 103 111 110 110 111 109

RIL GRM 7.6 9.5 9.6 10.1 8.4 7.7 7.5 8.0 9.2 7.9

Singapore GRM 6.7 9.1 6.5 8.7 6.6 5.4 4.3 6.0 7.8 5.6

Premium/(disc) to Singapore 0.9 0.4 3.1 1.4 1.8 2.3 3.2 2.0 1.4 2.3

KG-D6 Gas Prodn (mmscmd) 33.0 28.5 24.0 19.2 14.8 14.0 12.0 14.4 26.2 13.8

Segmental EBIT Breakup (INRb)

Refining 21.5 35.4 36.2 35.2 29.5 31.7 30.2 34.9 128.3 126.3

Petrochemicals 17.6 17.4 19.4 19.0 18.9 25.0 23.1 23.0 73.3 90.0

E&P 9.7 8.7 5.9 4.6 3.5 3.6 3.5 4.3 28.9 14.8

Total 48.8 61.6 62.2 59.2 52.8 60.8 56.9 62.3 230.5 231.2

E: MOSL Estimates; Segmental EBIT includes non-interest other income

Reliance IndustriesCMP: INR879 Neutral

We expect RIL to report GRM of USD7.5/bbl for 3QFY14 v/s USD7.7/bbl

in 2QFY14. Singapore GRMs decreased 22% QoQ due to weak gasoline

cracks. We also expect some QoQ easing in petchem profits.

We estimate average KG-D6 volume at 12mmscmd for 3QFY14 v/s

14mmscmd in 2QFY14.

We expect RIL to report PAT of INR52b (v/s INR55b in 3QFY13 and

INR54.9b in 2QFY14).

RIL trades at 11.6x FY15E adjusted EPS of INR84.1. RIL’s new refining/

petchem projects are likely to add to earnings from end-FY16/FY17,

but medium-term outlook on core business remains weak, with RoE

reaching sub-12%. We maintain Neutral.


(a) GRMs,

(b) petchem margin, and

(c) KG-D6 production.


S a l e s 3,603 4,043 3,982 3,963

EBITDA 308 304 358 402

Adj. PAT 210 217 246 275

Adj. EPS (INR) 71.9 74.1 84.1 93.9

EPS Gr. (%) 4.8 3.1 13.8 11.7

B V/Sh.(INR) 616 679 750 830

RoE (%) 12.3 11.5 11.8 11.9

RoCE (%) 11.6 10.9 11.5 11.8

Payout (%) 14.6 16.4 16.3 16.4

Valuations

P/E (x) 13.5 13.1 11.6 10.3

P/BV (x) 1.4 1.3 1.2 1.1

EV/EBITDA (x) 8.9 9.3 8.0 7.4

Div. Yield (%) 1.0 1.1 1.2 1.4

Bloomberg RIL IN


M. Cap. (INR b)/(USD b) 2,839 / 46


1,6,12 Rel Perf. (%) 1 / -6 / -2

C–145January 2014

December 2013 Results Preview | Sector: Real Estate





DLF 171 Buy 19,857 51.6 1.5 6,851 687.2 15.2 1,130 -60.3 12.9

Godrej Properties 168 Neutral 2,968 11.4 -3.2 772 2.7 -4.5 390 9.9 13.8

Indiabulls Real Estate 69 Buy 4,358 31.6 -3.3 1,314 0.0 -22.1 623 19.2 -23.3

Jaypee Infratech 24 Buy 8,987 -3.7 12.8 4,059 -3.9 14.6 1,397 -9.9 34.6

Mahindra Lifespace 401 Buy 930 51.4 -3.5 128 41.8 4.4 174 28.5 -33.4

Oberoi Realty 230 Buy 1,942 -32.1 2.8 1,146 -32.9 33.1 867 -35.5 35.2

Phoenix Mills 229 Buy 735 6.1 4.0 493 4.0 3.0 359 5.2 -1.6

Prestige Estates 166 Buy 4,744 -3.6 -0.2 1,233 -13.4 3.9 777 -15.5 0.2

Sobha Developers 311 Buy 4,965 15.5 -8.2 1,390 1.2 -3.0 535 1.8 -5.4


Realty index beats broader index in 3QFY14 BSE Realty Index has outperformed the broader index by 13% in 3QFY14, largely

due to factors like value buying on select stocks, relatively comforting monetary

policy, political expectations, along with a few favorable global macro

developments.

While core operations are yet to see a drastic improvement, near-to-medium

term risk perceptions have proved to be ameliorating sequentially during

3QFY14.

Operational strengths are improving due to rising discipline and conservativeness

of managements. But the recovery has been slow on account of headwinds and

re-appurtenance of concerns over approvals, demand slowdown etc.

Physical market trends not showing improvement, rather slowdownconcerns galore Mumbai market is continuing with torpidity, with select instances of products

getting success on account of attractive positioning and pricing. IBREL's Sky Forest,

Sky, Lodha's Blue Moon (Central Mumbai), L&T's in Powai, Kalpataru's in

Goregaon, Shaporji's in Kandivali have garnered decent response with better

pricing and/or subvention scheme (10-20% discount to market). However,

broader market is still under tepid response. New provision of 20% allocation

for affordable housing in case of bigger projects may lead to further delay in

project planning and approvals.

NCR market has witnessed limited fresh launches, with major developers guiding

for demand contraction. Last major launches were Tata Housing's in Dwarka

Expressway (@INR11,000/sf), DLF Crest (@INR15,000/sf) in Phase V. Response to

Godrej Properties launch of Summit with 25:75 scheme, other upcoming launch

of IBREL and Mahindra Lifespaces are key to watch out.

Bangalore market continues to see strong demand in mid-income segment, albeit

there has been major slowdown in premium (>INR10m ticket size) projects.

While Prestige, being relatively better placed with mid-segment inventory, is

expected to maintain healthy pre-sales momentum, Sobha is likely to see a

deceleration in pre-sales run-rate due to high mix of premium projects.

Sandipan Pal ([email protected])

Real EstateCompanies Covered

DLF

Godrej Properties

Indiabulls Real Estate

Jaypee Infratech

Mahindra Lifespaces

Oberoi Realty

Phoenix Mills

Prestige Estate Projects

Sobha Developers

C–146January 2014


Prefer companies poised in favorable operating cycle We prefer companies which have reasonably cleared their older inventories and

are riding on new and strong operating cycles, led by fresh launches, robust pre-

sales and favorable market outlook.

With downside risk to realizations and volumes hereon, the cash flow certainty

lies with players with strong FY12-14 pre-sales and reasonably strong balance

sheet to carry forward execution.

While the asset valuations (discount to NAV) are attractive, the relative strengths

in earnings visibility render comforts to select companies. We prefer Sobha, DLF,

Prestige, and IBREL.

Key expectations In 2QFY14 Real estate universe is expected to post a revenue growth of 18% YoY

(up +1.4% QoQ), EBITDA growth of 42.2% YoY (down 8.2% QoQ) and PAT de-growth

of 26.8% YoY (+7.7% QoQ). We expect the Operating cash flow (OCF) and FCFE to

improve YoY for across most developers.

Key issues to watch out Status of planned launches and approvals

Demand trend and pricing stability in so-far performing markets (Bangalore,

Chennai, Pune).

Scale-up in execution reflected in improvement in revenue booking or cash

collections (DLF, UT).

Leasing velocity and managements' outlook in commercial verticals (PEPL, Oberoi,

DLF).

New acquisitions and visibility on the same (Oberoi, MILFE, Godrej).

Cash flow and trend in leverage (DLF, PHNX, Godrej).



Quarterly Trend in Presales value (INR b)

Presales (INR b) FY12 FY13 FY14

FY11 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q

NCR Centric developers 149.0 27.9 24.5 37.7 46.7 23.9 28.8 23.8 25.4 34.0 12.3

DLF 59.4 11.1 6.3 11.1 24.3 6.0 6.3 12.5 13.4 24.3 7.3

Unitech 43.2 10.2 10.7 9.4 7.8 7.0 8.4 6.8 5.9 4.5 2.7

Anantraj 5.4 1.0 1.6 0.9 3.6 1.6 0.7 0.5 0.4 1.2 0.5

JPIN 41.0 5.7 5.8 16.4 11.0 9.3 13.4 4.0 5.7 4.0 1.8

Mumbai Centric developers 79.1 8.3 14.9 6.9 9.6 9.1 9.3 14.2 8.1 19.3 8.3

IBREL 48.4 3.8 4.9 4.5 6.3 6.0 6.1 12.0 5.9 15.9 6.4

HDIL 20.7 1.9 7.7 0.6 0.5 1.0 1.0 - - 2.5 1.1

ORL 10.1 2.6 2.3 1.8 2.8 2.1 2.2 2.2 2.2 0.9 0.8

Bangalore Centric developers 31.4 6.5 13.9 10.8 13.9 18.2 15.9 16.5 19.2 18.8 20.6

Sobha 10.9 3.0 4.9 4.5 5.0 4.8 5.3 5.3 6.8 6.0 6.3

PEPL 13.8 2.1 7.8 4.7 6.0 10.0 8.2 7.5 5.4 10.2 10.7

Purva 6.6 1.4 1.2 1.6 2.9 3.4 2.4 3.7 7.0 2.6 3.6

Diversified 16.9 4.0 2.9 5.0 6.9 4.8 7.9 5.2 6.3 4.9 3.4

MAHLIFE 7.0 1.7 0.8 3.0 0.6 0.5 0.9 1.5 1.5 0.7 0.7

GPL 10.0 2.3 2.2 2.0 6.4 4.3 7.0 3.7 4.8 4.2 2.7


55

70

85

100

115

De

c-1

2

Mar

-13

Jun

-13

Sep

-13

De

c-1

3

Sensex IndexMOSL Real Estate Index

90

105

120

135

Sep-

13

Oct

-13

Nov

-13

Dec

-13

Sensex IndexMOSL Real Estate Index

C–147January 2014


Bank loan to developers stood at INR1437b as on Sep-13 Quarterly trend in launch and presales

Launch trend (msf) key cities highlight Sharp upswing in Bangalore (9M launch > CY12

annual launch)

NCR and Mumbai (MMR) flat YoY

Pan India shows a YoY growth in new launches

Top 6 cities launch, sales trend (value) Inventory position (months)

Source: Liases Foras, MOSL

Launch trend (msf) across key cities Pre-sales volume (msf) across cities highlight

Pre-sales volume (msf) across cities highlight Mumbai (MMR) flattish, while NCR volume plunged

sharply

Bangalore (-20% YoY) and Pune volume declined,

albeit Chennai posted a growth

Overall Pan India witnessed 11% YoY decline in

volume in 9MCY13

Soruce: RBI, MOSL Source: Liases Foras, MOSL

C–148January 2014


Pre-sales value (INR b) across cities highlight Lower volume sales partially offset by better value

sales

The trend is evident in MMR (a growth in value),

NCR, Bangalore (lower decline than in volume

terms)

Pan India suggests only 2% YoY decline (v/s 11% in

volume terms)

Pre-sales value (INR b) across cities highlight Price trend in MMR (Mumbai)

MMR prices are still high but time correction is on.

However, there has been a proliferation of 20:80

schemes across markets. Central Mumbai's certain

launches (IBREL, Lodha) have seen decent response.

NCR has seen a decline in transaction price. There has

been a rising mix of Noida and Gr. Noida sales.

Price trend in NCR Price trend in Bangalore

Bangalore witnessed the sharpest rise. This is partially

due to higher mix of premium-end products from

developers, encouraged by strong uptrend in pre-sales

in past couple of years. This could be a test to

affordability going forward.

Source: Liases Foras, MOSL

C–149January 2014





Real Estate

DLF 171 Buy 4.2 3.2 5.0 40.9 53.4 34.5 23.9 17.0 14.0 2.6 2.0 3.0

Godrej Properties 168 Neutral 8.9 8.2 9.9 18.9 20.5 16.8 19.7 16.4 11.9 9.6 8.8 8.4

Indiabulls Real Est. 69 Buy 4.1 7.8 12.6 16.9 8.9 5.5 7.6 7.1 5.4 2.5 4.7 7.0

Jaypee Infratech 24 Buy 5.0 5.3 4.8 4.8 4.5 5.0 9.0 5.7 5.9 11.6 11.3 9.4

Mahindra Lifespace 401 Buy 34.6 26.9 28.5 11.6 14.9 14.1 9.8 13.3 11.4 10.9 7.9 7.8

Oberoi Realty 230 Buy 15.4 13.0 18.1 15.0 17.7 12.7 12.0 11.4 8.1 12.8 9.8 12.5

Phoenix Mills 229 Buy 5.8 5.8 10.8 39.4 39.2 21.2 22.8 11.5 8.5 4.8 4.6 8.1

Prestige Estates 166 Buy 8.2 9.6 12.4 20.4 17.3 13.4 13.4 11.7 8.9 10.4 11.1 12.7

Sobha Developers 311 Buy 22.2 23.3 28.8 14.1 13.4 10.8 8.6 7.5 6.5 10.5 10.3 11.9


Trends in commercial landscape across cities:9MCY13 pan India demand (20msf) marginally higher than supply (18 months). However, in absolute terms, demand is still weak

and de-grew 5% YoY (over 9MCY12). CY12 was 21% YoY de-growth over CY11. Bangalore remains the best performing market, with

consistently higher (than MMR, NCR) volume and lowest vacancy level. NCR volume moderated (-26% YoY), but Mumbai posted a

strong growth (+34% YoY). New supply in Mumbai almost halved, thus improving vacancy level.

4QCY11 1QCY12 2QCY12 3QCY12 4QCY12 1QCY13 2QCY13 3QCY13

Supply (msf)

NCR 2.0 1.0 0.7 1.7 1.1 1.3 0.8 1.3

Mumbai 1.0 2.7 0.5 2.7 1.6 1.5 1.0 0.1

Bangalore 0.8 1.7 0.7 2.3 0.7 0.7 0.6 2.8

Chennai - 0.3 0.6 0.6 1.2 1.5 - 1.6

Pune 0.6 0.3 0.2 0.6 0.5 1.0 1.0 0.3

Hyderabad - - 0.3 1.0 0.1 0.1 0.8 1.1

Kolkata 0.3 - 0.2 0.2 0.5 0.2 0.3 0.1

India 4.7 6.0 3.1 9.1 5.7 6.3 4.5 7.2

Absorption (msf)

NCR 1.6 0.9 1.7 1.2 1.1 0.7 1.2 0.9

Mumbai 1.2 1.1 0.4 0.9 1.2 1.3 1.0 0.9

Bangalore 3.0 3.6 1.8 3.0 1.6 1.0 4.2 2.9

Chennai 1.2 0.7 0.7 0.8 1.4 0.9 0.9 1.1

Pune 0.5 0.5 0.3 0.4 0.4 0.3 0.4 0.6

Hyderabad 0.4 0.5 0.5 0.8 0.9 0.5 0.3 0.3

Kolkata 0.5 0.2 0.5 0.5 0.3 0.1 0.2 0.2

India 8.4 7.5 5.9 7.6 6.8 4.9 8.2 6.9

Vacancy (%)

NCR 31 31 30 30 31 32 31 32

Mumbai 23 23 23 23 22 22 22 21

Bangalore 16 15 14 13 14 13 13 14

Chennai 25 24 24 23 20 22 20 18

Pune 26 26 25 25 25 24 22 21

Hyderabad 11 10 10 10 8 11 11 13

Kolkata 19 18 15 14 17 18 18 18

India 22 22 22 21 20 21 20 20

Source: DTZ

C–150January 2014





Sales 21,977 20,395 13,100 22,256 23,141 19,561 19,857 20,178 77,728 82,737

Change (%) (10.1) -19.5 -35.6 -15.0 5.3 -4.1 51.6 -9.3 -19.3 6.4

EBITDA 10,670 7,464 870 7,258 9,156 5,948 6,851 7,424 26,262 29,378

Change (%) -4.0 -36.4 -89.4 -9.0 -14.2 -20.3 687.2 2.3 -32.7 11.9

As % of Sales 48.6 36.6 6.6 32.6 39.6 30.4 35 37 33.8 35.5

Depreciation 1,786 1,837 2,479 1,861 1,782 1,660 1,697 1,718 7,962 6,856

Interest 6,226 5,224 5,809 5,882 5,914 6,091 5,941 5,913 23,140 23,859

Other Income 1,311 1,173 9,812 932 1,391 2,685 2,059 2,445 13,229 8,580

PBT 3,970 1,575 2,395 118 2,909 1,680 1,317 2,238 8,059 8,144

Tax 1,137 394 -84 -196 913 855 356 646 1,251 2,769

Effective Tax Rate (%) 29 25.0 -3.5 -165.5 31.4 50.9 27 29 15.5 34.0

Reported PAT Pre MI 2,833 1,271 2,442 314 1,996 825 962 1,592 6,808 5,375

Adj. PAT 2,928 1,385 2,848 -42 1,812 1,001 1,130 1,763 7,119 5,705

Change (%) (18.3) (62.8) 10.2 (102.0) (38.1) (27.8) (60.3) LTP (40.7) (19.9)

Presales (msf) 1.3 1.6 2.3 2.0 1.8 0.9 0.9 2.6 7.2 6.2

Presales (INR b) 6.0 6.3 12.5 13.4 24.3 7.3 7.0 19.6 38.2 58.1

Realization (INR/sf) 4,638 3,914 5,435 6,679 13,425 8,022 7,611 7,496 5,299 9,309

Leasing (msf) 0.3 0.2 0.4 0.2 0.4 0.6 0.4 0.4 1.2 1.8

E: MOSL Estimates

DLFCMP: INR171 Buy


Net Sales 77.7 82.7 92.1 99.1

EBITDA 26.3 29.4 35.0 38.6

Adj PAT 7.1 5.7 8.8 12.3

EPS (INR) 4.2 3.2 5.0 6.9

EPS Gr. (%) -40.8 -23.5 54.9 39.2

BV/Sh. (INR) 152.9 157.2 159.9 164.4

RoE (%) 2.6 2.0 3.0 4.0

RoCE (%) 6.0 5.9 6.7 7.5

Payout (%) 55.8 73.0 47.1 33.9

Valuations

P/E (x) 40.9 53.4 34.5 24.8

P/BV (x) 1.1 1.1 1.1 1.0

EV/EBITDA (x) 19.3 16.1 13.7 12.0

Div. Yield (%) 1.2 1.2 1.2 1.2

We expect DLF to post a sequentially flattish performance in 3QFY14,

as there has been no new launch and no major project expected to

cross the revenue recognition threshold.

3QFY14 revenue is seen at INR19.9b (flat QoQ, 52% YoY against the

one-off 3QFY13), EBITDA at INR6.9b (estimated margin of 35%), and

PAT at INR1.1b (+13% QoQ, -60% YoY). Weak profitability to continue

for a few more quarters, as many of its recent launches with stronger

margins are likely to cross the threshold 1QFY15 onwards.

Expectation of sequential improvement in margin is partially

attributable to possible exclusion of Primerica insurance, which was

earlier contributing losses (deal with DHFL concluded in Dec-13).

In the absence of any new launch, we expect pre-sales run-rate to

decline QoQ to INR7b (v/s INR7.3b in 2Q). Expect cash flow situation

to deteriorate QoQ, as 2QFY14 had seen a one-off inflow of INR4b+

under the subvention scheme at Crest project.

In 2QFY14 (ex-dividend and Crest one-offs), DLF posted marginally

positive FCFE. Thus, with expectation of sequential worse-off in FCFE

in 3Q and receipt of balance payment in DHFL-Primerica deal, leverage

is likely to remain largely flattish-to-marginally down QoQ.

DLF trades at 34.5x FY15E EPS, 1.1x FY15E BV and 36% discount to our

NAV estimate of INR267. Maintain Buy with a target price of INR213.


Progress in launch plan and revised management guidance

Trend in operating cash flow after a good 2QFY14.

Timeline for Aman Resort and other divestment plans to reach de-

leveraging target.

Bloomberg DLFU IN


M. Cap. (INR b)/(USD b) 305 / 5


1,6,12 Rel Perf. (%) 12 / -15 / -34

C–151January 2014





Total Revenue 2,261 2,327 2,664 3,119 2,016 3,065 2,968 3,367 10,371 11,415

Change (%) 73.1 66.9 77.9 -11.0 -10.9 31.7 11.4 8.0 34.7 10.1

EBITDA 403 719 751 984 406 808 772 978 2,858 2,963

Change (%) 100 124 181 25 1 12 2.7 -1 80.9 3.7

As of % Sales 17.8 30.9 28.2 31.6 20.1 26.4 26.0 29.0 27.6 26.0

Depreciation 10 11 11 12 12 14 15 20 44 62

Interest 6 7 8 9 8 8 8 9 30 34

Other Income 67 4 14 20 427 139 70 53 104 689

PBT 454 705 746 983 812 925 819 1,001 2,889 3,557

Tax 196 215 233 271 299 319 254 302 916 1,174


PAT before MI 258 489 513 713 514 606 565 699 1,973 2,383

Reported PAT 172 326 355 532 395 343 390 497 1,384 1,625

Change (%) 70.6 67.5 24.0 33.7 130.1 5.1 9.9 -6.5 41.3 17.3

Presales (msf)** 0.7 1.1 0.6 0.5 0.5 0.4 0.5 0.7 2.9 2.1

Presales (INR b) 4.3 7.0 3.7 4.8 4.2 2.7 3.2 5.4 19.8 15.6

Realizations (INR/sf) 6,100 6,179 6,687 9,391 8,715 6,178 6,400 7,925 6,822 7,385

E MOSL Estimates; ** GPL's share

Godrej PropertiesCMP: INR168 Neutral


Net Sales 10.4 11.4 15.1 18.3

EBITDA 2.9 3.0 4.3 5.5

NP 1.4 1.6 2.0 2.5

EPS (INR) 8.9 8.2 9.9 12.6

EPS Gr. (%) 41.3 -8.0 21.9 26.6

BV/Sh (INR) 91.6 113.9 122.7 268.2

RoE (%) 9.6 8.8 8.4 9.8

RoCE (%) 8.6 9.2 9.4 10.9

Payout (%) 13.2 14.3 11.8 9.3

Valuations

P/E (x) 18.9 20.5 16.8 13.3

P/BV (x) 1.8 1.5 1.4 0.6

EV/EBITDA (x) 9.8 10.8 8.0 6.5

Div. Yield (%) 1.2 1.2 1.2 1.2

Bloomberg GPL IN




1,6,12 Rel Perf. (%) -6 / -45 / -53

Godrej Properties 3QFY14 revenue to grow 11% YoY to ~INR3b, EBITDA

is expected at INR772m (margin at 26%, flat QoQ) and PAT to grow

9.9% YoY to INR390m.

Launch has been delayed due to approval process, albeit a few of its

planned launches in Mumbai have been getting good enquiry as per

our recent interactions with the management.

We expect pre-sales to remain muted, with no major new launches

and moderation in demand in ongoing markets at Ahmedabad, NCR

and Pune. Negative FCFE is expected to increase the gearing from

0.6x.

To boost demand, company has come up with various attractive offers,

including 25:75 scheme in projects like Summit (Gurgaon),

Ahmedabad, Kolkata, Mumbai and Pune.

The stock trades at 17% discount to SOTP value of INR199/share, 16.8x

FY15E EPS and 1.4x FY15E BV. Maintain Neutral.


Progress in approvals in planned launches and demand momentum

in major markets.

Leasing progress in BKC and other commercial projects.

Trend in cash flow and leverage.

C–152January 2014





Sales 2,147 3,423 3,313 4,123 5,083 4,506 4,358 6,806 13,006 20,754

Change (%) -14.3 3.1 -7.1 -7.4 136.8 31.6 31.6 65.1 -6.5 59.6

EBITDA 791 1,209 1,314 1,372 1,467 1,687 1,314 2,338 4,686 6,807

Change (%) 52.9 17.9 27.4 29.7 85.4 39.5 0.0 70.4 21 45

As % of Sales 36.9 35.3 39.7 33.3 28.9 37.4 30.2 34.4 36 33

Depreciation 52 53 44 54 55 46 46 68 204 215

Interest 439 697 660 473 491 526 600 774 2,269 2,391

Other Income 72 83 200 103 165 201 165 159 457 690

PBT 372 542 810 947 1,087 1,316 833 1,656 2,671 4,891

Tax 85 177 309 345 385 452 250 576 916 1,663


Rep. PAT (Pre Min. & associates) 287 364 501 602 702 863 583 1,080 1,742 3,288

Change (%) -22.6 -5.1 22.6 7.4 144.4 136.9 16.4 79.3 5.1 88.7

Reported PAT 378 322 523 519 726 812 623 1,127 1,742 3,288

Change (%) 30 -18.2 25.3 -7.5 92 152 19 117 5 89

Presales (msf) 1.2 1.0 0.7 1.6 0.7 0.9 1.0 2.9 4.1

Presales (INR b) 12.1 12.0 5.9 15.9 6.4 6.8 8.4 30.0 38

Realizations (INR/sf) 10,202 12,193 8,153 10,205 9,333 8,000 8,126 10,370 9,086

E MOSL Estimates

Indiabulls Real EstateCMP: INR69 Buy


Net Sales 13.0 20.8 24.2 27.4

EBITDA 4.7 6.8 8.3 9.4

NP 1.7 3.3 5.1 5.8

EPS (INR) 4.1 7.8 12.6 14.5

EPS Gr. (%) 17.4 88.7 62.9 14.6

BV/Sh. (INR) 159.9 163.5 170.8 178.7

RoE (%) 2.5 4.7 7.0 7.7

RoCE (%) 5.1 7.3 8.6 9.7

Payout (%) 57.0 52.8 39.0 42.6

Valuations

P/E (x) 16.9 8.9 5.8 5.1

P/BV (x) 0.4 0.4 0.4 0.4

EV/EBITDA (x) 10.7 7.8 6.0 4.8

Div Yield (%) 2.9 5.0 5.8 7.2

Bloomberg IBREL IN




1,6,12 Rel Perf. (%) 0 / 3 / -12

We expect revenue at INR4.3b (32% YoY), EBITDA at INR1.3b (flat YoY),

with margin of 30% and PAT of INR623m (+19% YoY). We have kept our

estimate of Blu crossing revenue threshold in 4QFY14 (leading to surge

in 4Q revenue), but with a chance of getting deferred to 1QFY15 - in

which case, we expect downgrade in 4QFY14E/FY14E estimates. We

await clarity on the same from management.

Post strong 1QFY14, due to lack of any major launch, we expect 3QFY14

pre-sales run-rate to witness flattish QoQ trend. However, expect cash

flow to remain steady due to execution progress, leading to decline

in net debt (missing in 2QFY14 due to PE exit).

IBREL trades at 40% discount to NAV estimate of INR125 and 5.8x FY15E

EPS and 0.4x FY14E BV. Maintain Buy with a target price of INR94.


Pre-sales in Central Mumbai projects (Blu and Sky).

Progress in planned launches in NCR, Chennai (delayed on

approvals).

Cash flow and leverage guidance.

Leasing at IPIT, which witnessed a few cancellations in 2QFY14.

Any management guidance on potential buyback.

C–153January 2014




1Q 2Q 3Q 4Q 1Q 2Q 3QE 4QE Cons. Cons.

Sales 6,783 7,047 9,331 9,582 7,692 7,966 8,987 14,257 32,743 38,902

Change (%) 9.9 -1.5 3.4 4.1 13.4 13.0 -3.7 48.8 3.8 18.8

EBITDA 2,721 3,584 4,224 4,238 3,352 3,541 4,059 7,500 14,767 18,451

Change (%) -8.5 -8.9 -15.0 -2.7 23.2 -1.2 -3.9 77.0 -10.5 24.9

As of % Sales 40.1 50.9 45.3 44.2 43.6 44.4 45.2 52.6 45.1 47.4

Depreciation 6 35 54 55 86 67 80 99 149 332

Interest 98 1,323 2,259 2,435 2,315 2,212 2,300 2,373 6,115 9,200

Other Income 8 35 27 109 74 51 90 106 179 321

PBT 2,625 2,262 1,939 1,857 1,025 1,313 1,769 5,134 8,682 9,241

Tax 525 453 388 371 215 275 371 1,079 1,737 1,941


Reported PAT 2,099 1,810 1,551 1,485 810 1,038 1,397 4,055 6,945 7,300

Change (%) -11.7 -41.7 -60.5 -57.5 -61.4 -42.6 -9.9 173.1 -46.2 5.1

Adj PAT 2,099 1,810 1,551 1,485 810 1,038 1,397 4,055 6,945 7,300

Change (%) -11.7 -41.7 -60.5 -57.5 -61.4 -42.6 -9.9 173.1 -46.2 5.1

Presales (msf) 2.5 3.0 1.2 1.4 1.0 0.5 1.0 1.4 8.1 3.8

Presales (INR b) 9.3 13.4 4.3 5.7 4.0 1.8 3.5 4.7 32.7 14.0


E: MOSL Estimates

Jaypee InfratechCMP: INR24 Buy

We expect revenue at INR9b (-4% YoY), EBITDA at INR4.1b (-4%), margin

at 45% and PAT at INR1.4b (-10% YoY).

We have assumed INR3b of land revenue (from INR15b of divestment

concluded in 1QFY14, INR5.1b done till date), and INR360m of

Expressway revenue (v/s INR3,020m in 2QFY14).

Pre-sales momentum is expected to remain subdued due to weak

demand and no new launch at Parcel 3. Agra project is yet to overcome

clearence issue. We maintain FY14E pre-sales at INR14b (v/s 1HFY14

pre-sales of INR5.8b).

Weakening operations and high leverage level have been key

concerns. JPIN trades at 5x FY15E EPS, 0.5x FY14E BV. Maintain Buy.


Traffic growth and toll revenue trend in expressway.

Response to Parcel 3, Agra launches and overall market outlook.

Any further divestment plan and deleveraging.


Net Sales 32.7 38.9 36.7 37.6

EBITDA 14.8 18.5 17.4 17.6

Adj PAT 6.9 7.3 6.6 6.5

Adj EPS (INR) 5.0 5.3 4.8 4.6

EPS Gr. (%) -46.2 5.1 -9.6 -2.2

BV/Sh. (INR) 44.5 48.6 52.2 55.6

RoE (%) 11.6 11.3 9.4 8.6

RoCE (%) 10.9 12.7 11.7 11.1

Payout (%) 23.4 22.3 24.6 25.2

Valuations

P/E (x) 4.8 4.5 5.0 5.1

P/BV (x) 0.5 0.5 0.5 0.4

EV/EBITDA (x) 7.6 5.7 5.9 5.7

Div. Yield (%) 4.2 4.2 4.2 4.2

Bloomberg JPIN IN




1,6,12 Rel Perf. (%) 19 / 4 / -64

C–154January 2014





Sales 1,041 838 614 1,022 670 963 930 945 3,515 3,508

Change (%) 27.8 -10.6 -60.1 -27.0 -35.6 14.9 51.4 -7.5 -25.0 -0.2

EBITDA 319 151 91 172 93 123 128 160 731 504

As % of Sales 30.6 18.0 14.7 16.8 13.9 12.8 13.8 16.9 20.8 14.4

Change (%) 84.8 -41.7 -80.4 -46.1 -70.8 -18.4 41.8 -6.7 -39.6 -31.0

Depreciation 4 4 4 5 5 5 8 8 18 30

Interest 14 14 19 15 107 97 120 139 62 463

Other Income 134 301 133 140 237 382 240 242 707 1,100

PBT 434 433 200 292 218 402 240 256 1,359 1,111

Tax 141 119 64 60 60 141 66 78 384 345


Adj. PAT 293 314 136 232 158 261 174 178 975 767

Change (%) 71.5 -0.1 -65.7 -27.7 -46.2 -16.7 28.5 -23.5 -18.9 -21.3

Unaudited Consolidated (incl. MWC Projects)

Revenue 1,209 1,511 1,320 3,343 1,761 1,962 1,700 1,910 7,383 7,333

Change (%) 17.4 -3.8 -23.7 24.6 45.6 51.6 28.8 -42.9 5.3 -0.7

PAT (pre-minority) 183 246 207 925 263 224 250 457 1,562 1,193

Change (%) 28.3 -22.7 -31.2 166.1 43.4 -10.0 20.8 -50.6 18.7 -22.3

Revenue from MWCs* 168 673 706 2,322 1,090 999 770 966 3,868 3,825

Operational performance

Sales volume (msf) 0.2 0.2 0.4 0.4 0.2 0.2 0.3 0.4 1.1 1.0

Sales value (INR b) 0.5 0.9 1.5 1.5 0.7 0.7 1.0 1.9 4.4 4.4


E: MOSL Estimates; *Revenue outside Standalone is largely contributed by Mahindra World City (MWC) Chennai and Jaipur

Mahindra LifespacesCMP: INR401 Buy

Mahindra Lifespaces' (MILFE) 3QFY14 standalone revenue is expected

to remain subdued at INR930m (flattish QoQ, albeit +51% YoY, due to

weak 3QFY13), margins at ~14%, EBITDA at INR128m (+41% YoY), while

PAT at INR174m (+28% YoY).

Ashvita III and Aqualily C (consol) are the key projects with expectation

of crossing the revenue threshold by 3QFY14.

In the absence of any major launches, we expect pre-sales to remain

subdued, with relative seasonal improvement and driven by Nagpur,

Hyderabad and Chennai projects. While launch pipeline, post recent

acquisitions, has been strong, it hinges on progress in approvals. We

estimate FY14E pre-sales at INR4.4b (v/s INR4.4b in FY13).

The stock trades at 14% discount to SOTP of INR455/share, 14.1x FY15E

EPS and 1.1x FY15E BV. Maintain Buy.


Progress in approvals in recent acquisitions.

Trend in gearing level.

Leasing progress in Jaipur DTA, and clarity on possible re-sizing.

Progress of land acquisition in North Chennai SEZ.


Net Sales 7.4 7.3 7.6 9.2

EBITDA 2.4 2.0 2.4 2.9

Adj PAT 1.4 1.1 1.2 1.6

Adj EPS (INR) 34.6 26.9 28.5 38.7

EPS Growth (%) 18.7 -22.3 6.0 35.6

BV/Share (INR) 316.9 339.1 363.8 399.4

RoE (%) 10.9 7.9 7.8 9.7

RoCE (%) 11.4 8.5 9.0 10.5

Payout (%) 18.4 24.1 22.2 16.5

Valuations

P/E (x) 11.6 14.9 14.1 10.4

P/BV (x) 1.3 1.2 1.1 1.0

EV/EBITDA (x) 10.2 13.3 11.4 9.1

Div. Yield (%) 1.2 1.2 1.2 1.2

Bloomberg MLIFE IN




1,6,12 Rel Perf. (%) -1 / -12 / -12

C–155January 2014


Consolidated Quarterly Performance (INR Million)



Total Revenue 1,999 2,577 2,861 3,039 2,184 1,890 1,942 4,772 10,476 10,788

Change (%) 24.2 15.7 52.8 19.3 9.3 -26.7 -32.1 57.0 27.0 3.0

EBITDA 1,139 1,496 1,707 1,779 1,335 861 1,146 2,660 6,121 6,001

Change (%) 26.1 29.5 50.5 8.3 17.2 -42.5 -32.9 49.5 26.6 -2.0

As of % Sales 57 58 60 59 61 46 59 56 58.4 56

Depreciation 70 71 71 72 69 68 88 127 285 352

Interest 1 1 1 1 1 1 1 1 4 0

Other Income 309 250 219 221 210 127 200 -6 999 531

PBT 1,376 1,674 1,854 1,927 1,476 919 1,257 2,525 6,827 6,176

Tax 368 430 509 475 457 278 390 791 1,783 1,916


Reported PAT 1,008 1,244 1,345 1,452 1,018 642 867 1,734 5,045 4,260

Change (%) -4.7 11.6 31.7 1.1 1.0 -48.4 -35.5 19.4 9.1 -15.5

Presales (msf) 0.1 0.1 0.1 0.1 0.05 0.04 0.05 0.12 0.5 0.3

Presales (INR b) 2.1 2.2 2.2 2.2 0.9 0.8 0.8 2.6 8.7 5.1


E: MOSL Estimates

Oberoi RealtyCMP: INR230 Buy

We expect another muted quarter to follow in 3QFY14, with subdued

pre-sales run-rate, possibly a marginally better contribution from

Esquire, as revival in execution from mid-2QFY14 should improve

buyers' perception.

Revenue is seen at INR1.9b (-32% YoY), EBITDA margin back to 59%

(after one-offs in 2Q) and EBITDA at INR1.1b (-33% YoY). We estimate

PAT of INR867m (-36% YoY).

Due to absence of any launch, declining pre-sales and customer

collections, we expect the cash balance to reduce further, depending

on the pace of execution in Esquire and Oasis.

With the recent run-up in stock price, management commentary would

be crucial on some of the elusive aspects like Oasis launch and hotel

deal (earlier guided for 4QFY14), Mulund verdict (as hearings are over),

any positives in Commerz II leasing, and any other possible launch

plan (JVLR, Goregaon phase III)

While management had earlier guided for Esquire crossing revenue

recognition threshold in 4QFY14, any deviation from the same would

lead to meaningful downgrade in 4QFY14E/FY14E P&L numbers.

The stock trades attractively at 12.7x FY15E EPS, 1.5x FY15E BV and at

13% discount to our NAV estimate of INR270. Buy with a TP of INR242.


Sales momentum in Esquire (Goregaon) and Grande (Andheri).

Visibility on new launches (Mulund/Phase III of Exquisite).

Clarity on Oasis launch and hotel tie-up.

Leasing visibility in Commerz II.

Visibility on change in usage at JVLR project.


Net Sales 10.5 10.8 13.4 17.6

EBITDA 6.1 6.0 8.3 11.0

Adj PAT 5.0 4.3 5.9 7.9

Adj EPS (INR) 15.4 13.0 18.1 24.0

EPS Growth (%) 9.1 -15.5 39.4 32.8

BV/Share (INR) 126.8 137.5 153.2 174.9

RoE (%) 12.8 9.8 12.5 14.7

RoCE (%) 17.3 14.2 18.0 21.2

Payout (%) 15.2 18.0 12.9 9.7

Valuations

P/E (x) 15.0 17.7 12.7 9.6

P/BV (x) 1.8 1.7 1.5 1.3

EV/EBITDA (x) 10.6 11.4 8.1 5.8

Div. Yield (%) 0.9 0.9 0.9 0.9

Bloomberg OBER IN




1,6,12 Rel Perf. (%) 20 / 8 / -31

C–156January 2014





Sales 626 665 693 722 698 707 735 801 4,699 12,778

Change (%) 17.0 23.4 20.1 20.3 11.5 6.4 6.1 10.9 19.1 171.9

EBITDA 394 438 474 479 475 479 493 525 2,632 5,796

Change (%) 19.3 31.4 27.0 31.8 20.4 9.2 4.0 9.6 24.5 120.2

As % of Sales 63 66 68 66 68 68 67 66 56.0 45.4

Depreciation 67 69 69 71 65 65 69 74 474 1,169

Interest 58 72 70 66 72 97 100 101 1,430 3,773

Other Income 143 156 126 140 215 172 155 157 521 510

PBT 413 454 461 483 553 488 479 507 1,248 1,364

Tax 107 123 120 122 135 123 120 129 428 450

Effective Tax Rate (%) 26 27 26 25 24 25 25 25 34.3 33.0

Reported PAT Pre MI 306 330 341 361 418 365 359 378 813 914

Change (%) 12.4 38.2 26.9 32.2 36.7 10.6 5.2 4.6 -5.9 12.4

Adj. PAT 306 330 341 361 418 365 359 378 842 845

Change (%) 12.4 38.2 26.9 32.2 36.7 10.6 5.2 4.6 -20.3 0.4

E: MOSL Estimates

Phoenix MillsCMP: INR229 Buy

We expect High Street Phoenix's (HSP) 3QFY14 revenue at INR735m,

(6% YoY), EBITDA at INR493m (margin of 67%) and PAT of INR359m

(5.2% YoY). We expect rentals to post 15-16% YoY growth to ~INR564,

in line with growth in consumption. We model for 11% rental CAGR

over FY13-16E (v/s management expectation of 15% over FY13-18).

Hotel operations are expected to witness closure of new operator

soon. We expect 3QFY14 operation performance to improve QoQ, with

higher occupancy and F&B opening of Mekong, Libai and EXO Bar.

Pune, Bangalore and Chennai Market City malls have largely reached

threshold trading density. Incremental leasing are happening at 2-

2.5x of average rentals. We expect Market city portfolio to continue

posting 8-10% QoQ growth in total rentals in 3QFY14.

With IL&FS loan, due to Kurla Market City stake increase, we expect

the net debt to increase by ~INR2b QoQ.

The stock trades at a PER of 21.2x FY15E EPS, 1.7x FY15E BV and 24%

discount to NAV of INR289. Buy with a target price of INR260.


Sales momentum in Phase II projects in Market City.

Progress in Pune and Bangalore Phase II residential launch, which

have been delayed till 4QFY14.

Progress on ramp-up in recently-commenced malls.

Improvement in operating cash flow, which can lead to de-leveraging.

Update on proposed stake purchases in market city projects.


Net Sales 4.7 12.8 17.1 22.8

EBITDA 2.6 5.8 7.7 10.0

Adj PAT 0.8 0.8 1.6 3.0

EPS (INR) 5.8 5.8 10.8 20.4

EPS Growth (%) -20.3 0.4 85.3 88.7

BV/Share (INR) 122.1 125.6 134.1 152.1

RoE (%) 4.8 4.6 8.1 13.4

RoCE (%) 6.6 10.2 11.9 15.9

Payout (%) 40.3 40.1 21.7 11.5

Valuations

P/E (x) 39.4 39.2 21.2 11.2

P/BV (x) 1.9 1.8 1.7 1.5

EV/EBITDA (x) 20.7 11.5 8.5 6.3

Div. Yield (%) 0.9 0.9 0.9 0.9

Bloomberg PHNX IN




1,6,12 Rel Perf. (%) -1 / -22 / -17

C–157January 2014





Total Revenue 2,192 2,414 4,921 5,597 4,983 4,753 4,744 5,708 19,476 24,684

Change (%) -12 88.5 195 177 127 97 -3.6 2 85.1 26.7

EBITDA 704 725 1,424 1,321 1,289 1,187 1,233 1,528 5,791 7,111

Change (%) 2.1 47.2 184.1 92.5 83.2 63.7 -13.4 15.7 95.2 22.8

As of % Sales 32.1 30.0 28.9 23.6 25.9 25.0 26.0 26.8 30 29

Depreciation 77 83 83 87 80 83 85 87 682 834

Interest 240 191 209 258 257 265 269 285 1,489 1,787

Other Income 272 195 195 278 310 288 247 229 636 617

PBT 659 647 1,328 1,253 1,263 1,126 1,127 1,385 4,256 5,106

Tax 166 190 407 363 396 350 349 424 1,314 1,583


Reported PAT 493 457 920 890 867 776 777 961 2,941 3,523

Adj PAT 493 457 920 890 867 776 777 961 2,860 3,373

Change (%) 35.3 73.9 227.9 132.6 75.8 69.9 -15.5 8.0 246.2 17.9

Presales (msf) 2.0 1.6 1.4 0.9 1.8 1.8 1.8 1.3 6.0 6.7

Presales (INR b) 10.1 8.2 7.5 5.4 10.2 10.7 9.8 7.5 31.2 38.1


Leasing (msf) 0.06 0.07 0.24 0.08 0.16 0.48 0.25 0.21 0.5 1.1

E: MOSL Estimates

Prestige Estate ProjectsCMP: INR166 Buy

We expect P&L to maintain stability, with INR4.7b of revenue booking

(-4% YoY) and margins of 26%, translating into EBITDA of INR1.2b

(-13% YoY), and PAT of INR777m (-16% YoY).

Garden Bay and Philadelphia are two projects expected to cross the

revenue booking threshold in 3Q, with a meaningful number of

threshold crossings slated in 4QFY14.

PEPL is likely to maintain its pre-sales strength in 3QFY14, with

expected bookings of ~INR10b. Soft launch of phase I of Lakeside

Habitat (@INR4,750/sf for apartment and @INR7,500/sf for villas) has

received good initial response.

Malls at Hyderabad and Mangalore will be operational in Mar-14, while

Hotel Aloft will be by Feb-14. There has been no major leasing in the

completed Polygon. Hence, we expect a rather stable rental run-rate

in 3QFY14, with possible improvement of INR30-50m from further

stabilization of Vijaya Mall.

The stock trades at 13.4x FY15E EPS, 1.7x FY15E BV and at 21% discount

to our NAV estimate of INR196. Buy with a target price of INR186.


Outlook of Bangalore residential market and leasing momentum.

Execution progress in ongoing projects, collections and movements

of debtors.

Cash flow dynamics, land acquisition and debt movements.


Net Sales 19.5 24.7 30.9 35.9

EBITDA 5.8 7.1 9.3 11.0

Adj PAT 2.9 3.4 4.3 5.6

Adj EPS (INR) 8.2 9.6 12.4 16.0

EPS Growth (%) 246.2 17.9 28.8 29.2

BV/Share (INR) 78.4 86.6 97.6 112.2

RoE (%) 10.4 11.1 12.7 14.3

RoCE (%) 11.7 11.9 14.1 15.6

Payout (%) 17.2 14.6 11.3 8.6

Valuations

P/E (x) 20.4 17.3 13.4 10.4

P/BV (x) 2.1 1.9 1.7 1.5

EV/EBITDA (x) 13.6 11.7 8.9 7.3

Div. Yield (%) 0.7 0.7 0.7 0.7

Bloomberg PEPL IN




1,6,12 Rel Perf. (%) 9 / -1 / -16

C–158January 2014





Sales 4,332 4,148 4,298 5,867 4,616 5,408 4,965 5,698 18,645 20,687

Change (%) 56 41 37 12 7 30 16 -3 32 11

EBITDA 1,198 1,285 1,374 1,626 1,390 1,433 1,390 1,623 5,483 5,836

Margin (%) 28 31 32 28 30 26.5 28.0 28.5 29.4 28.2

Depreciation 140 141 153 160 165 172 177 177 594 691

Interest 377 443 439 446 396 434 440 453 1,705 1,723

Other Income 16 14 15 11 14 37 20 15 55 86

PBT 697 715 797 1,031 843 864 793 1,008 3,239 3,508

Tax 247 214 271 336 342 298 258 330 1,068 1,228

Effective Tax Rate (%) 35 30 34 33 41 34 33 33 33 35

Net PAT 450 501 526 696 501 566 535 679 2,171 2,280

Reported PAT 450 501 526 696 501 566 535 679 2,172 2,281

Change (%) 69 42 4 -29 11 13 2 -2 5 5

Presales (msf) 0.8 0.9 0.9 1.1 0.9 1.0 0.7 1.1 3.8 3.7

Presales (INR b) 4.8 5.3 5.3 6.8 6.0 6.3 5.0 6.2 22.2 23.6


E: MOSL Estimates

Sobha DevelopersCMP: INR311 Buy

We expect a weaker operational quarter for Sobha in 3QFY14, with

sequential deterioration in pre-sales run-rate on account of higher

inventory in premium ticket size projects which are seeing a slowdown

in Bangalore currently.

Revenue is expected to post 16% YoY growth to INR5b, EBITDA at

INR1.4b (+1% YoY), with margins of 28%, while PAT is seen at INR535m

(+2% YoY).

There has been no fresh launch from the guided pipeline. However, it

has entered into a JDA with Lakshmi Machine Works (LMW) Ltd for

4.76 acres of land at Coimbatore. The indicative saleable area for the

project would be ~0.33msf, with Sobha having 70% area sharing. Given

most of the approvals were already in place, the project was soft

launched in the name of Elan at ~INR5,200/sf, which may increase to

INR5,400/sf during the formal launch.

Given prevailing weakness in premium product's saleability, Sobha's

management is revisiting its launch plan, with greater focus on medium

segment projects. However, its actual launch may be still a couple of

months away, considering the approval timeline, which may pose a

threat to its full year guidance. We have cut FY14E pre-sales estimates

by 8% to INR23.6b.

The stock trades attractively at 10.8x FY15E EPS, 1.2x FY15E BV and at

37% discount to our NAV estimate of INR480. Buy with a TP of INR410.


Outlook of Bangalore residential market.

Management's revised launch plan and guidance.

Execution progress in ongoing projects, collections.

Land acquisition, debt movements and commercial capex.


Net Sales 18.6 20.7 23.7 29.9

EBITDA 5.5 5.8 6.8 8.5

Adj PAT 2.2 2.3 2.8 3.9

EPS (INR) 22.2 23.3 28.8 39.9

EPS Growth (%) 5.5 5.0 23.8 38.7

BV/Share (INR) 217.9 231.8 251.2 281.8

RoE (%) 10.5 10.3 11.9 15.0

RoCE (%) 14.5 14.3 15.8 18.8

Payout (%) 31.6 34.4 27.8 20.0

Valuations

P/E (x) 14.1 13.4 10.8 7.8

P/BV (x) 1.4 1.3 1.2 1.1

EV/EBITDA (x) 7.9 7.5 6.5 5.1

Div. Yield (%) 2.2 2.6 2.6 2.6

Bloomberg SOBHA IN




1,6,12 Rel Perf. (%) -8 / -21 / -28

C–159January 2014

December 2013 Results Preview | Sector: Retail





Future Retail 74 UR 24,560 -22.5 6.0 2,112 -24.0 3.0 -77 PL Loss

Jubilant Foodworks 1,257 Se l l 5,007 30.0 14.7 801 19.2 22.7 412 9.3 24.0

Shopper's Stop 416 Neutral 7,141 18.2 -1.5 536 18.3 34.7 226 32.5 128.4

Titan Company 229 Neutral 30,127 1.0 29.4 2,862 15.5 9.4 2,066 1.3 10.7

Sector Aggregate 66,835 -6.4 15.1 6,311 -1.1 10.4 2,628 -0.1 18.5

We expect our Retail universe (excluding Future Retail, which has undergone

restructuring) to post 6.4% sales growth, 16.5% EBITDA growth and 4.6% PAT growth.

Titan's subdued performance in the Jewelry business, moderation in same store sales

(SSS) for Jubilant and continuation of healthy 8-10% SSS growth for traditional retailers

would be the highlights of 3QFY14, in our view.

Consumer sentiment mixed; Jewelry, QSR bear the bruntIn sharp contrast to 1HFY14, specialty retail segments like Jewelry and QSR are bearing

the brunt of muted consumer sentiment and weak macro factors. However, traditional

retailers should do well, as segments such as Apparel, Footwear, Bags and Accessories

have seen improvement. Channel checks suggest good pick-up in the latter part of

December (especially post Christmas), backed by incentives/discounts and activations

by retailers. Jewelry retailers are likely to post lackluster numbers, as the festive and

wedding season sales were sub-par. Our discussions with various jewelers suggest

15-20% industry-wide decline in festive season sales. We expect Jubilant Foodworks

to post another muted quarter, as discretionary spending has not yet revived, given

the backdrop of sticky food inflation and its impact on consumer wallets.

Aggressive space expansionAmidst the challenging retail spending environment, we note that space expansion

has continued unabated. Shoppers Stop opened four stores during the quarter while

we expect Jubilant to have opened ~40 stores (in line with its annual guidance of 135

store openings). Titan has also guided for unchanged expansion plans (100ksf in FY14),

notwithstanding the near-term demand and regulatory challenges.

Regulatory challenges in Jewelry; media speculation around roll-backRegulatory challenges are currently overshadowing the fundamentals (weak demand,

gold price correction, etc). Supply crunch led widening of gold premium is creating

competitive disadvantage for branded players. Titan is yet to receive approval for

higher hedging limits/hedging on overseas exchanges. Our channel checks with

Jewelers suggest significant increase in smuggled gold. Recent media articles suggest

that the government/regulators are mulling roll-back of restrictive measures. While

the timing/quantum of such measures is unfathomable, any softening in regulatory

stance will aid branded players, in our view. 3QFY14 also witnessed the first ever FDI

application in multi-brand retail. Tesco has proposed to buy 50% stake in Trent.

Gautam Duggad ([email protected])

RetailCompanies Covered

Future Retail

Jubilant Foodworks

Shoppers Stop

Titan Company

C–160January 2014


Shoppers Stop: Double-digit LTL growth should sustain Gold prices down 6.3% YoY and 9% QoQ

Retail becoming an event-based play in the short termSlowdown in discretionary consumption and continued challenging macro backdrop

keeps us cautious on the Retail sector. We believe stock performance is now also

contingent upon certain events, e.g. Titan on regulatory softening, Shoppers Stop on

potential tie-up with MNC retailer. Relatively, we still prefer Titan, as we believe it is

a long-term play on aspiration-led lifestyle consumption, which in turn is driven by

favorable demographics. Jubilant's valuations deter us from turning constructive at

this stage, despite its attractive long-term prospects in a growing QSR space.

Relative performance-3m (%) Relative performance-1Yr (%)

0

20

40

60

80

100

120

Dec

-12

Mar

-13

Jun-

13

Sep-

13

Dec

-13

Sensex Index

MOSL Reta i l Index

98

102

106

110

114

Sep-

13

Oct

-13

Nov

-13

Dec

-13

Sens ex IndexMOSL Retai l Index

Jubilant Foodworks' SSS growth has sharply decelerated


C–161January 2014





Retail

Jubi. Foodworks 1,257 Se l l 20.9 23.2 31.1 60.1 54.1 40.4 32.3 27.4 19.9 31.2 25.7 25.6

Shopper's Stop 416 Neutral 4.9 7.0 9.7 85.7 59.7 42.9 27.1 21.7 17.4 5.9 7.9 10.1

Titan Company 229 Neutral 8.2 8.4 9.6 28.0 27.2 23.8 21.4 19.5 16.3 42.5 30.2 27.8


Area addition plans on trackShoppers Stop: Four stores added in 3QFY14 Jubilant Foodworks: Expect addition of 40 stores in 3QFY14


C–162January 2014


Quarterly Performance: Core Retailing (INR Million)

Y/E June FY12 CY13

1Q 2Q 3Q 4Q 5Q 6Q 1Q 2Q 3Q 4QE

Net Sales 29,106 28,933 30,264 29,627 30,600 31,708 23,360 22,561 23,170 24,560

YoY Change (%) 12.8 4.9 7.6 3.6 5.1 9.6 -22.8 -23.9 -24.3 -22.5

Total Exp 26,583 26,321 27,488 26,864 27,953 28,929 21,580 20,659 21,120 22,448

EBITDA 2,523 2,612 2,776 2,763 2,647 2,779 1,780 1,901 2,050 2,112

Growth (%) 18.6 9.6 12.0 6.9 4.9 6.4 -35.9 -31.2 -22.6 -24.0

Margins (%) 8.7 9.0 9.2 9.3 8.7 8.8 7.6 8.4 8.8 8.6

Depreciation 828 877 887 929 975 1,215 730 788 800 804

Interest 1,305 1,582 1,725 1,804 1,761 1,567 1,160 1,280 1,440 1,483

Other Income 79 40 16 28 132 69 30 60 60 60

PBT 468 193 180 58 44 66 -80 -107 -130 -115

Tax 138 58 60 19 14 22 -26 -40 -50 -38

Rate (%) 29.5 30.1 33.3 33.0 33.0 33.0 33.0 37.5 38.5 33.0

Adjusted PAT 330 135 120 39 29 44 -54 -67 -80 -77

E: MOSL Estimates

Future RetailCMP: INR74 Under Review

For 4QCY13, reported results will include the numbers of only Future

Retail. The base quarter numbers included Pantaloon, Brand Factory

and Central. Hence, the quarterly numbers will not be comparable on

a like-to-like basis.

We expect Future Retail to report sales of INR24.6b.

In the Value segment, SSS growth would be 8%.

We estimate EBITDA at INR2.1b and EBITDA margin at 8.5%.

We expect interest cost of INR1.5b, flat QoQ, but down 5% YoY due to

debt reduction post de-leveraging deals.

We expect loss of INR50m at the PAT level.

Our stock recommendation is Under Review.


SSS performance - commentary on consumer demand.

Progress on debt reduction and inventory optimization.

Financials & Valuation (INR b)Y/E December 2010 2011 2012* 2013E

Sa les 89.3 110.1 180.2 125.5

EBITDA 8.2 9.6 16.1 10.8

Adj. PAT 1.7 1.9 0.7 -0.03

Adj. EPS (INR) 8.2 8.7 3.1 -0.1

EPS Gr. (%) 25.8 7.1 -64.3 -103.8

* 18 months, 2013 is calendar year

Bloomberg FRL IN




1,6,12 Rel Perf. (%) 1 / -29 / -78

C–163January 2014





No of Stores 489 515 552 576 602 632 672 711 576 711

LTL Growth (%) 22.3 19.8 16.1 7.7 6.3 6.6 8.0 12.0 16.2 10.0

Net Sales 3,145 3,421 3,851 3,658 3,965 4,367 5,007 4,926 14,076 18,265

YoY Change (%) 45.0 42.3 39.0 29.3 26.1 27.6 30.0 34.7 38.4 29.8

Gross Profit 2,309 2,530 2,863 2,703 2,937 3,195 3,720 3,686 10,405 13,537

Gross Margin (%) 73.4 74.0 74.3 73.9 74.1 73.2 74.3 74.8 73.9 74.1

Other Expenses 1,736 1,943 2,192 2,091 2,270 2,542 2,919 2,885 7,961 10,616

EBITDA 573 587 672 612 667 653 801 800 2,444 2,921

EBITDA Growth (%) 36.3 34.5 30.3 20.7 16.4 11.3 19.2 30.7 30.0 19.5

Margins (%) 18.2 17.2 17.4 16.7 16.8 15.0 16.0 16.2 17.4 16.0

Depreciation 117 138 140 152 179 179 196 211 547 765

Interest 0 0 1 0 0 0 1 1 1 1

Other Income 19 20 20 20 22 24 25 29 78 100

PBT 475 468 551 480 510 498 629 618 1,974 2,255

Tax 152 145 174 153 170 165 217 203 623 755

Rate (%) 31.9 30.9 31.6 31.9 33.3 33.2 34.5 32.9 31.6 33.5

Adjusted PAT 323 323 377 327 340 332 412 415 1,351 1,500

YoY Change (%) 39.3 36.5 28.0 11.4 5.1 2.8 9.3 26.9 26.0 11.0

E: MOSL Estimates

Jubilant FoodworksCMP: INR1,257 Sell

We expect 3% increase in sales to INR5b. LTL sales growth would be

8%.

Discretionary spending remains weak due to poor consumer sentiment

coupled with higher inflation.

We expect 140bp EBITDA margin contraction to 16% due to low

operating leverage and costs related to Dunkin operations. However,

we note that JUBI has withdrawn its 1-for-1 scheme (under which it

was offering one pizza free with every pizza purchased) in mid-

November.

We estimate 9.3% PAT growth for 3QFY14 to INR412m.

We expect JUBI to add 40 stores during 3QFY14.

The stock trades at 40.4x FY15E EPS of INR31.1. Sell.


Comments on (1) demand outlook for Quick Service Restaurants

(QSRs) and Pizzas, and (2) competition in Home Delivery Pizza format.

Performance of Dunkin Donuts and margin guidance.

Changes in expansion and capex strategy, if any.


Sa les 14.1 18.3 24.2 31.0

EBITDA 2.4 2.9 3.9 4.9

Adj. PAT 1.4 1.5 2.0 2.6

Adj. EPS (INR) 20.9 23.2 31.1 39.6

EPS Gr. (%) 26.0 11.0 33.9 27.4

BV/Sh.(INR) 67.1 90.3 121.4 147.3

RoE (%) 31.2 25.7 25.6 26.9

RoCE (%) 42.8 36.4 36.6 38.1

Payout (%) 0.0 0.0 0.0 30.3

Valuations

P/E (x) 60.1 54.1 40.4 31.7

P/BV (x) 18.7 13.9 10.4 8.5

EV/EBITDA (x) 32.3 27.0 19.6 15.2

Div. Yield (%) 0.0 0.0 0.0 1.0

Bloomberg JUBI IN



52-Week Range (INR) 1,390 / 928

1,6,12 Rel Perf. (%) -5 / 9 / -12

C–164January 2014





LTL Sales Gr (%) 1.0 2.0 12.5 10.0 12.0 15.5 10.0 8.0 7.4 11.0

Deptt Stores 52 55 55 55 60 61 65 65 55 65

Net Sales 4,467 5,796 6,041 6,251 5,371 7,252 7,141 7,068 22,555 26,831

YoY Change (%) 13.7 16.5 20.4 15.6 20.2 25.1 18.2 13.1 16.7 19.0

Total Exp 4,330 5,505 5,588 5,868 5,137 6,854 6,605 6,622 21,291 25,218

EBITDA 138 291 453 383 234 398 536 447 1,264 1,614

Growth (%) -47.7 -24.9 9.6 5.4 69.4 36.7 18.3 16.8 -11.4 27.6

Margins (%) 3.1 5.0 7.5 6.1 4.3 5.5 7.5 6.3 5.6 6.0

Depreciation 120 142 120 125 133 167 122 95 507 517

Interest 77 77 86 79 98 98 101 111 319 408

Other Income 74 31 32 35 32 33 34 88 172 187

PBT 15 102 279 214 34 166 346 330 610 876

Tax 3 38 108 62 11 66 119 106 211 303

Rate (%) 17.9 37.1 38.7 29.1 32.2 40.1 34.5 32.1 34.6 34.6

Adjusted PAT 12 64 171 152 23 99 226 224 399 573

YoY Change (%) -89.3 -67.3 -11.4 10.4 86.1 55.2 32.5 47.6 -37.9 43.5

E: MOSL Estimates

Shoppers StopCMP: INR416 Neutral

We estimate 18.2% increase in sales to INR7.14b. Same store sales

(SSS) growth should come in at 10%, bolstered by good performance

in Apparel, Leather and Footwear.

We estimate EBITDA margin at 7.5%, flat YoY, but the highest in four

quarters.

Hypercity would continue to be a drag on consolidated profitability.

SHOP has added four Shoppers Stop department stores and one

HyperCITY store during 3QFY14.

The stock trades at 42.9x FY15E EPS (standalone). Maintain Neutral.


Comments on SSS performance.

Margin outlook for the future.

Changes in expansion strategy, if any.

Guidance on HyperCITY breakeven.


Sa les 22.3 26.8 31.2 35.8

EBITDA 1.3 1.6 2.0 2.4

Adj. PAT 0.4 0.6 0.8 1.0

Adj. EPS (INR) 4.9 7.0 9.7 11.9

EPS Gr. (%) -37.9 43.5 39.1 22.8

BV/Sh.(INR) 82.5 88.3 96.3 105.4

RoE (%) 5.9 7.9 10.1 11.3

RoCE (%) 7.3 9.9 12.2 13.7

Payout (%) 13.6 15.0 15.0 20.0

Valuations

P/E (x) 85.6 59.7 42.9 34.9

P/BV (x) 5.0 4.7 4.3 3.9

EV/EBITDA (x) 27.6 21.7 17.3 14.5

Div. Yield (%) 0.2 0.3 0.3 0.6

Bloomberg SHOP IN




1,6,12 Rel Perf. (%) 24 / -4 / -16

C–165January 2014





Net Sales 22,057 22,760 29,829 25,931 31,077 23,290 30,127 28,461 101,127 112,954

YoY Change (%) 9.2 8.6 23.2 14.8 40.9 2.3 1.0 9.8 15.6 11.7

Total Exp 19,937 20,266 27,351 23,467 28,627 20,672 27,265 25,701 91,020 102,266

EBITDA 2,120 2,494 2,478 2,464 2,449 2,617 2,862 2,759 10,116 10,688

EBITDA Growth (%) 10.3 19.4 20.1 34.1 15.6 4.9 15 12.0 37 6

Margins (%) 9.6 11.0 8.3 9.5 7.9 11.2 9.5 9.7 10.0 9.5

Depreciation 123 130 142 150 146 149 153 141 545 589

Interest 126 121 117 142 170 200 164 327 506 861

Other Income 252 238 571 496 382 304 286 184 1,008 1,156

PBT 2,123 2,481 2,791 2,669 2,515 2,573 2,831 2,475 10,072 10,394

Tax 561 679 752 819 691 706 764 633 2,811 2,794

Rate (%) 26.4 27.4 26.9 30.7 27.5 27.4 27.0 25.6 27.9 26.9

Adjusted PAT 1,561 1,801 2,039 1,850 1,825 1,867 2,066 1,842 7,262 7,600

YoY Change (%) 8.7 21.3 24.4 28.2 16.9 3.6 1.3 -0.4 20.1 4.7

E: MOSL Estimates

Titan CompanyCMP: INR229 Neutral

We estimate sales at INR30.1b, up 1% YoY.

Continued weak consumer sentiment in discretionary categories

coupled with regulatory challenges would impact Jewelry

performance. Performance in Watches would also remain weak.

Lackluster festive and wedding season along with correction in gold

prices would characterize the Jewelry division's 3QFY14 performance.

We estimate margin expansion of 120bp YoY due to mix improvement

in Jewelry division (TTAN is yet to re-commence sale of gold coins).

Lack of gold coin sales would impact segment EBIT in absolute terms.

Watch margins would contract YoY due to currency impact and lack of

operating leverage resulting from decline in volumes.



Hedging strategy, once existing 'gold on lease' contracts expire. TTAN

has not yet received regulatory approvals for higher hedging limits.

Commentary around consumer demand outlook in its core categories

as well as Fragrance and Helmets.

Expansion plans.


Sa les 101.1 113.0 135.4 158.8

EBITDA 10.1 10.7 13.0 15.8

Adj. PAT 7.3 7.5 8.5 10.5

Adj. EPS (INR) 8.2 8.4 9.6 11.8

EPS Gr. (%) 20.1 3.1 14.2 22.7

BV/Sh.(INR) 22.1 27.9 34.7 42.9

RoE (%) 42.5 30.2 27.8 27.5

RoCE (%) 59.4 38.2 35.9 36.9

Payout (%) 30.0 30.0 30.0 30.0

Valuations

P/E (x) 28.0 27.2 23.8 19.4

P/BV (x) 10.3 8.2 6.6 5.3

EV/EBITDA (x) 19.0 19.5 16.3 13.2

Div. Yield (%) 1.1 1.1 1.3 1.5

Bloomberg TTAN IN


M. Cap. (INR b)/(USD b) 204 / 3


1,6,12 Rel Perf. (%) -3 / -9 / -28

C–166January 2014

December 2013 Results Preview | Sector: Technology





HCL Technologies 1,249 Buy 82,070 30.8 3.1 20,719 48.6 -1.0 14,105 49.4 -0.4

Hexaware Tech. 132 Neutral 6,393 27.3 2.9 1,466 73.1 -0.8 1,013 34.7 2.5

Infosys 3,562 Buy 130,291 25.0 0.5 35,245 18.7 4.0 27,609 16.5 5.1

KPIT Tech. 174 Neutral 7,206 27.9 2.5 1,157 31.1 6.3 664 11.0 -0.4

Mindtree 1,556 Neutral 7,922 34.3 2.9 1,539 27.8 -3.7 986 -0.2 -23.4

MphasiS 425 Neutral 15,931 26.7 -0.1 2,797 20.1 0.2 1,916 3.9 0.8

Persistent Systems 988 Buy 4,381 31.6 1.3 1,072 30.1 -4.5 523 5.7 -13.9

TCS 2,159 Neutral 214,328 33.4 2.2 67,984 46.1 2.4 52,584 48.1 11.8

Tech Mahindra 1,861 Buy 48,472 32.1 1.6 11,233 41.2 1.1 6,671 131.6 -2.6

Wipro 555 Buy 112,855 NA NA 23,267 NA NA 19,993 NA NA

Sector Aggregate (ex Wipro) 516,994 30.3 1.8 143,212 37.4 2.0 106,072 39.2 6.4

Ashish Chopra ([email protected])/Siddharth Vora ([email protected])

Seasonality speed breaker to cyclical traction: The industry appears well placed to

deliver faster growth in FY14 than in FY13, and there are early indicators that growth

could continue accelerating in FY15. However, as far as 3QFY14 is concerned, the macro

traction is not enough to offset the seasonal weakness brought about by furloughs

and shutdowns. We expect constant currency (CC) growth rates to be below 3% across

the top-tier, with the exception of HCL Technologies (HCLT), where we expect

improvement in Software Services growth. Infosys (INFO) could lag, given that seasonal

disruption will get compounded by significant shuffle at the top level. Among tier-II

IT too, we expect growth to be muted at ~3% QoQ for Mindtree (MTCL), Persistent

Systems (PSYS) and KPIT.

Cross-currency tailwind on the back of GBP appreciation: The GBP has appreciated by

4.4% QoQ in 3QFY14, and companies with higher GBP revenue booking should benefit.

TCS expects positive impact of ~100bp from cross-currency movements. We see lower

impact for INFO (~50bp) based on 2QFY14 currency mix. HCLT, Tech Mahindra (TECHM)

and Wipro (WPRO) should see impact comparable to TCS.

Margin headwinds for HCLT, MTCL, PSYS: Impact from wage hikes will be a margin

headwind for HCLT(120bps) and MTCL. PSYS wi ll suffer from tough 2Q comparable,

where license sale flowed down to operating margin. Hikes to 20% of personnel at

MTCL along with investments in people would pull margin down by ~150bp. With

QoQ movement in INR/USD relatively stable, we expect limited margin pressures

across the board. We expect cost optimization measures at INFO to drive 100bp QoQ

improvement in operating margin.

Watch for commentary on CY14 budgets, CTSH guidance, INFO's outlook: Come January,

the companies will have a clearer idea on the clients' technology budgets for the full

year. Also, CTSH's revenue growth guidance for CY14 will set the tone for expectations

for the industry. INFO is expected to deliver much better growth than its guidance,

and some idea of the impact of changes in the management will be conveyed in its

relative performance.

TechnologyCompanies Covered

Cognizant Technology

HCL Technologies

Hexaware Technologies

Infosys

KPIT Cummins

MindTre e

MphasiS

Persistent Systems

TCS

Tech Mahindra

Wipro

C–167January 2014


Constant currency growth rates to be below 3% across the top-tier, with the exception of HCLT

Only HCL Tech and Wipro to have incremental revenues greater than last quarter

Among tier-II IT too, we expect constant currency revenue growth to be at ~3% QoQ


Tier-I offers better risk-reward; prefer INFO, TECHM: We do not expect any further

bridging of the valuation gap between tier-II and tier-I on the following counts: [1] In

terms of growth fundamentals, tier-II continues to at best, match tier-I, despite a

significantly lower revenue base, [2] Current discount to top-tier IT is much lower to

historical P/E discount at which tier-II has traded, and [3] Cash conversion capability at

tier-II has been significantly inferior.

INFO and TECHM are our top picks in tier-I. While we believe that TCS will continue to

outperform its peers, valuations keep us Neutral on the stock. HCLT is a play on the

rising IMS opportunity, combined with expectation of improvement in growth mix.

Relative performance-3m (%)

Relative performance-1Yr (%)

3.6

1.73.2

4.2

2.53.1

3.2

4.33.6

3.0

98

103

108

113

118

Sep-

13

Oct

-13

Nov

-13

De

c-1

3

Sensex IndexMOSL Technology Index

0

50

100

150

200

Dec

-12

Ma

r-13

Jun-

13

Sep-

13

Dec

-13

Se nsex Inde xMOSL Te chnology I ndex

C–168January 2014


Estimate aggregate top-tier USD revenue growth at 3.1% QoQ

Revenues (USD m) Revenues (INR b)

Company 3QFY14E 3QFY13 YoY (%) 2QFY14 QoQ (%) 3QFY14E 3QFY13 YoY (%) 2QFY14 QoQ (%)

TCS 3,457 2,948 17.3 3,337 3.6 214 161 33.4 210 2.2

Infosys 2,101 1,911 10.0 2,066 1.7 130 104 25.0 130 0.5

Wipro 1,684 1,577 6.8 1,631 3.2 113 109 3.1 108 4.8

HCLT 1,324 1,154 14.7 1,270 4.2 82 63 30.8 80 3.1

Tech Mahindra 782 675 15.8 758 3.1 29.2 22.8 28.5 28.8 1.4

Aggregate 9,348 8,265 13.1 9,062 3.1 569 460 23.7 556 2.4

EBITDA Margin (%) PAT (INR b)


TCS 31.7 29.0 280 31.6 10 53 36 48.1 47 11.8

Infosys 27.1 28.5 -140 26.1 90 28 24 16.5 26 5.1

Wipro* 22.9 19.6 330 21.2 160 20 17 16.5 19 3.5

HCLT 25.2 22.2 300 26.3 -100 14 9 49.4 14 -0.4

Tech Mahindra 23.2 21.7 148 23.3 -11 6.7 2.9 132 6.8 -3

Aggregate 27.5 25.3 218 27.1 38 121 89 36.4 114 6.5

* Wipro: QoQ margins in overall business is expanding as 2Q excludes translation gains on revenues

Across tier-II, growth will be lower at 2.6% QoQ; expect aggregate margins to decline 40bp

Revenues (USD m) Revenues (INR b)


Persistent Systems 71 61 16.3 68 3.2 4.4 3.3 31.6 4.3 1.3

Hexaware 103 92 11.6 99 4.3 6.4 5.0 27.3 6.2 2.9

KPIT Cummins 116 103 12.3 112 3.6 7.2 5.6 27.9 7.0 2.5

Mindtree 128 110 16.3 124 3.0 7.9 5.9 34.3 7.7 2.9

Mphasis 263 237 10.9 260 1.1 15.9 12.6 26.7 15.9 -0.1

Aggregate 680 603 12.8 663 2.6 42 32 28.9 41 1.5

EBITDA Margin (%) PAT (INR b)


Persistent Systems 24.5 24.7 -30 26.0 -150 0.5 0.5 6 0.6 -13.9

Hexaware 22.9 16.9 610 23.8 -90 1.3 0.7 83 1.0 27.4

KPIT Cummins 16.1 15.7 40 15.5 60 0.7 0.6 11 0.7 -0.4

Mindtree 19.4 20.4 -100 20.8 -130 1.0 1.0 0 1.3 -23.4

Mphasis 17.6 18.5 -100 17.5 10 1.9 1.8 4 1.9 0.8

Aggregate 19.2 18.7 40 19.6 -40 5.3 4.6 16 5.5 -1.9


EBITDA margin: Infosys to benefit from cost saving measures; wage hike to impact HCL Tech

*EBITDA margin in USD for Cognizant Source: Company, MOSL

C–169January 2014


3QFY14 currency highlights (INR)

Rates (INR) Change (QoQ, %)

USD EUR GBP AUD USD EUR GBP AUD

Average 62.0 84.4 100.4 57.5 -0.1 2.7 4.3 1.2

Closing 61.8 85.1 102.1 55.2 -1.3 0.6 1.0 -5.5


3QFY14 currency highlights (USD)

Rates (USD) Change (QoQ, %)

EUR GBP AUD EUR GBP AUD

Average 1.36 1.62 0.93 2.7 4.4 1.2

Closing 1.37 1.66 0.89 1.6 2.3 -4.3


Cross currencies: Assumed rates v/s actualsGuided at EUR GBP AUD INR/USD

Infosys 1.30 1.52 0.91 62.61

Wipro 1.34 1.57 0.93 61.98

Actual (Average) 1.36 1.62 0.93 61.98

Change (%) EUR GBP AUD INR/USD Impact on USD revenue

Infosys 4.7 6.5 1.5 -1.0 0.99

Wipro 1.6 3.2 -0.3 0.0 0.59

EPS estimates (INR): MOSL v/s Consensus

3QFY14 FY14 FY15 Upside/Downside to Consensus (%)

MOSL Consensus MOSL Consensus MOSL Consensus 3QFY14 FY14 FY15

Infosys 48.3 46.4 184.5 182.7 218.8 214.8 4.2 1.0 1.9

TCS 26.8 25.7 96.7 94.6 110.3 112.0 4.4 2.2 -1.5

Wipro 8.1 8.2 31.4 30.9 35.1 35.2 -0.6 1.6 -0.2

HCL Tech 19.9 19.2 81.6 80.7 93.8 90.4 3.9 1.1 3.7

Tech Mahindra 30.3 30.0 123.6 121.7 146.2 136.8 0.9 1.5 6.9

Cognizant 1.1 1.1 4.8 5.0 5.6 6.0 -5.4 -4.0 -7.4

Persistent Systems 13.1 15.2 59.9 61.8 73.7 75.1 -13.7 -3.2 -1.9

Mindtree 30.7 30.5 113.3 114.6 129.7 130.6 0.8 -1.1 -0.7

KPIT Tech. 3.4 3.7 13.9 14.2 17.0 15.2 -9.3 -2.0 12.4

Hexaware 3.4 3.8 12.5 12.7 14.0 14.2 -10.6 -1.0 -1.3





Technology

HCL Technologies 1,249 Buy 57.0 81.6 93.8 21.9 15.3 13.3 8.9 9.7 8.8 32.2 39.2 34.5

Hexaware Tech. 132 Neutral 10.9 12.5 14.0 12.1 10.5 9.4 5.1 6.4 5.5 29.3 28.8 26.8

Infosys 3,562 Buy 164.9 184.5 218.8 21.6 19.3 16.3 12.3 12.9 10.6 25.7 24.3 26.3

KPIT Tech. 174 Neutral 10.6 13.9 17.0 16.5 12.5 10.2 4.4 6.9 5.2 22.7 23.6 23.3

Mindtree 1,556 Neutral 81.7 113.3 129.7 19.0 13.7 12.0 7.5 10.5 8.2 25.8 32.3 29.4

MphasiS 425 Neutral 37.5 51.3 42.0 11.3 11.7 10.1 8.2 6.3 7.6 19.1 16.0 16.7

Persistent Systems 988 Buy 46.9 59.9 73.7 21.1 16.5 13.4 5.3 8.2 7.0 20.2 21.9 23.0

TCS 2,159 Neutral 71.2 96.7 110.3 30.3 22.3 19.6 16.6 16.1 14.3 37.8 40.8 36.7

Tech Mahindra 1,861 Buy 93.0 126.5 149.0 20.0 14.7 12.5 3.4 9.4 8.0 32.6 35.1 32.5

Wipro 555 Buy 25.0 31.4 35.1 22.2 17.7 15.8 12.6 13.0 11.3 21.6 25.2 24.1


C–170January 2014


Quarterly Performance (US GAAP) (USD Million)


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

Revenues 1,711 1,795 1,892 1,948 2,021 2,161 2,306 2,362 7,346 8,850

Q-o-Q Change (%) 2.9 4.9 5.4 3.0 3.7 7.0 6.7 2.5 20.0 20.5

Direct Expenses 985 1,031 1,112 1,151 1,200 1,272 1,382 1,421 4,278 5,276

SG&A 374 397 385 402 413 421 443 461 1,558 1,738

SG&A as % of Sales 21.9 22.1 20.3 20.6 20.4 19.5 19.2 19.5 21.2 19.6

EBITDA 353 368 395 396 408 469 480 480 1,511 1,837

Margins (%) 20.6 20.5 20.9 20.3 20.2 21.7 20.8 20.3 20.6 20.8

Other Income 4 3 9 10 11 -6 2 13 26 19

Depreciation 35 36 39 39 42 42 43 44 149 170

PBT bef. Extra-ordinary 322 335 364 366 377 420 439 449 1,388 1,686

Provision for Tax 79 83 87 87 93 120 120 121 336 454

Rate (%) 24.4 24.8 24.0 23.8 24.6 28.5 27.2 27.0 24.2 26.9

PAT before EO 244 252 277 279 284 300 320 328 1,051 1,232

Q-o-Q Change (%) 7.3 3.4 9.9 0.7 1.9 5.7 6.4 2.6 19.0 17.2

Headcount addition 2,800 4,500 5,400 6,300 6,000 1,600 2,100 8,000 19,000 17,600

Closing Headcount 140,500 145,000 150,400 156,700 162,700 164,300 166,400 174,300 156,700 174,300

Utilization (%) 67 68 70 68 67 70 75 74 68 72

E: MOSL Estimates

CognizantCMP: USD99 Not Rated

For 4QCY13, CTSH has guided revenue of at least USD2,352m, which

implies QoQ growth of 2%. It has upgraded its full-year revenue growth

guidance to at least 20.3% to USD8,840m from at least 19%, earlier.

We expect CTSH to beat its 4QCY13 guidance and post revenue of

USD2,362m, up 2.5% QoQ.

CTSH has discontinued its practice of filling employee bonus levels

linked to sales growth targets which was considered as a precursor to

the likely guidance for the following calendar year.

With ~78% of revenues from North America, CTSH is unlikely to benefit

from GBP appreciation, which is expected to add 50-100bp to its

tier-I peers' USD revenue growth.

We expect EBITDA margin to contract 50bp QoQ to 20.3%. Our SGA

estimate is 19.5%, +30bp QoQ due to promotions given out during the

quarter.

We estimate net income at USD328m, +2.6% QoQ, and net margin at

13.9%, flat QoQ.

The stock trades at 20.7x CY14E and 17.9x CY15E EPS. Not Rated.


Guidance for CY14 will set the tone for industry expectations for FY15.

Commentary on US and Europe demand environment post positive

commentary from Accenture.

Financials & Valuation (USD b)Y/E December 2012 2013E 2014E 2015E

S a l e s 7.3 8.9 10.5 12.0

EBITDA 1.5 1.8 2.1 2.4

PAT 1.1 1.2 1.5 1.7

EPS (INR) 3.5 4.0 4.8 5.6

EPS Gr. (%) 21.0 17.0 18.8 15.6

BV/Sh. (INR) 16.0 19.6 24.5 30.0

RoE (%) 23.9 22.8 21.8 20.4

RoCE (%) 28.9 29.1 27.2 25.4

Payout (%) 0.0 0.0 0.0 0.0

Valuations

P/E (x) 28.7 24.6 20.7 17.9

P/BV (x) 6.2 5.1 4.1 3.3

EV/EBITDA (x) 18.3 14.8 12.3 10.1

Div yld (%) 0.0 0.0 0.0 0.0

Bloomberg CTSH US


M.Cap. (USD b) 31

52-Week Range (USD) 100 / 61

C–171January 2014


Quarterly Performance (US GAAP) (INR Million)

Y/E June FY13 FY14 FY13 FY14E

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

Revenues 60,910 62,738 64,246 69,442 79,610 82,070 85,019 84,574 257,336 331,273

Q-o-Q Change (%) 2.9 3.0 2.4 8.1 14.6 3.1 3.6 -0.5 22.4 28.7

EBITDA 13,288 13,945 14,156 16,147 20,930 20,719 21,711 20,626 57,536 83,985

Margins (%) 21.8 22.2 22.0 23.3 26.3 25.2 25.5 24.4 22.4 25.4

Other Income -253 154 887 782 -1,200 -734 -196 -124 1,570 -2,254

PAT 8,642 9,444 10,189 11,975 14,160 14,105 15,245 14,462 40,250 57,972

Q-o-Q Change (%) 2.8 9.3 7.9 17.5 18.2 -0.4 8.1 -5.1

Y-o-Y Change (%) 80.0 70.9 75.1 42.4 63.9 49.4 49.6 20.8 63.9 44.0

Diluted EPS (INR) 12.3 13.5 14.4 17.0 20.0 19.9 21.5 20.4 57.0 81.6

USD Revenues 1,114 1,154 1,191 1,228 1,270 1,324 1,371 1,410 4,687 5,375

Q-o-Q Change (%) 3.2 3.6 3.2 3.1 3.5 4.2 3.6 2.8 12.9 14.7

Gross Margin (%) 34.9 35.5 35.6 36.5 39.0 38.3 38.4 37.3 35.6 38.2

SGA (%) 13.0 13.2 13.6 13.3 12.7 13.0 12.8 12.9 13.3 12.9

Tax rate (%) 23.8 23.7 24.0 21.5 20.2 22.0 22.0 22.0 23.2 21.6

Net Employee additions 1,016 -141 -791 1,102 1,691 2,770 2,000 2,050 1,186 8,511

E: MOSL Estimates; After adjusting for ESOP charges

HCL TechnologiesCMP: INR1,249 Buy

We expect USD revenue growth of 4.2% QoQ to USD1,324m. Traction

in IMS is likely to remain strong and we estimate 8.6% QoQ growth to

USD457m. Software Services revenue would grow 1.9% QoQ to

USD810m.

Cross-currency movements would have a positive impact of ~90bp.

Our volume growth estimate in Software Services stands at 1.4% QoQ.

In INR terms, we expect 3.1% QoQ revenue growth to INR82.07b.

Wage hikes given during the quarter would be a 120bp headwind to

margins. We expect EBITDA margin to decline 110bp QoQ to 25.2%.

Our PAT estimate for the quarter is INR14.1b, down 0.4% QoQ. Our PAT

margin estimate is 17.2%, a contraction of 60bp QoQ.

HCLT announced signing of deals with a TCV of over USD1b in 1QFY14,

the fourth consecutive quarter of USD1b+ deal signing. TPI has

suggested that 4QCY13 will see healthy deal closures, driving

expectation of healthy deal signings at HCLT.



TCV of deals signed during the quarter.

Growth in Software Services segment.

Growth in US after improved outlook (Europe outgrew US in the last

three quarters).

Financials & Valuation (INR b)Y/E June 2013 2014E 2015E 2016E

Sa les 257.3 331.3 367.3 414.8

EBITDA 57.5 84.0 87.9 97.4

PAT 40.3 58.0 67.1 74.8

EPS (INR) 57.0 81.6 93.8 103.9

EPS Gr. (%) 62.6 43.1 14.9 10.7

BV/Sh. (INR) 205.9 277.4 353.7 431.7

RoE (%) 32.2 39.2 34.5 29.9

RoCE (%) 29.1 33.3 29.9 26.9

Payout (%) 21.1 15.9 17.7 23.3

Valuations

P/E (x) 21.9 15.3 13.3 12.0

P/BV (x) 6.1 4.5 3.5 2.9

EV/EBITDA (x) 14.3 9.6 8.7 9.0

Div yld (%) 1.0 1.0 1.3 1.9

Bloomberg HCLT IN


M. Cap. (INR b)/(USD b) 882 / 14

52-Week Range (INR) 1,261 / 615

1,6,12 Rel Perf. (%) 14 / 45 / 90

C–172January 2014


Quarterly Performance (Indian GAAP) (USD Million)Y/E December CY12 CY13 CY12 CY13E

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

Revenues 4,383 5,001 5,075 5,023 5,077 5,366 6,211 6,393 19,482 23,047

Q-o-Q Change (%) 31.2 14.1 1.5 -1.0 1.1 5.7 15.7 2.9 34.3 18.3

Direct Cost 2,574 2,995 3,067 3,210 3,162 3,252 3,683 3,840 11,846 13,937

Other Operating Exps 827 859 910 966 936 841 1,050 1,087 3,562 3,914

Operating Profit 982 1,147 1,098 847 979 1,273 1,478 1,466 4,074 5,196

Margins (%) 22.4 22.9 21.6 16.9 19.3 23.7 23.8 22.9 20.9 22.5

Other Income 138 49 55 138 118 62 -120 -67 290 -7

Depreciation 71 76 88 89 93 94 98 100 324 385

PBT bef. Extra-ordinary 1,049 1,120 1,065 896 1,004 1,241 1,260 1,298 4,040 4,803

Provision for Tax 165 230 225 144 211 262 272 286 764 1,031

Rate (%) 15.7 20.5 21.1 16.1 21.0 21.1 21.6 22.0 18.9 21.5

Net Income bef. Extra-ordinary 884 890 840 752 793 979 988 1,013 3,276 3,773

Q-o-Q Change (%) 0.2 0.7 -5.6 -10.5 19.8 23.5 0.9 2.5 22.8 15.2

USD Revenues 88.0 91.2 92.8 92.4 94.1 94.8 98.8 103.1 364 390.8

Q-o-Q Change (%) 4.6 3.6 1.8 -0.4 1.8 0.7 4.3 4.3 18.3 7.3

Diluted EPS - After EOI (INR) 2.9 3.0 2.8 2.6 2.6 3.3 3.3 3.4 10.9 12.5

E: MOSL Estimates

Hexaware TechnologiesCMP: INR132 Neutral

We estimate revenue growth of 4.3% QoQ to USD103.1m. In Rupee

terms, we expect revenue growth of 2.9% QoQ to INR6.4b(average

INR/USD assumed at 62 for 4QCY13 v/s realized rate of INR62.91/USD

for HEXW in 3Q).

HEXW managed to more than recover the EBITDA margin shrinkage

that resulted from client specific issues in 4QCY12, in line with its

guidance for gradual pick-up in margins in CY13.

We have seen a margin recovery of 690bp in 9MCY13. We model EBITDA

margin decline of 90bp QoQ to 22.9% in 4QCY13.

Also, we expect SGA to increase by 10bp QoQ to 17%.

Our PAT estimate for the quarter is INR1,013m, a growth of 2.5% QoQ.

Our implied PAT margin estimate is 15.8%, down 10bp QoQ.

Barings recently acquired the promoters' stake in the company for a

maximum of INR135 per share. Post this, HEXW has discontinued giving

any guidance on revenues and margins. Dividend policy is under

review - for the first time in many years, no dividend was announced

last quarter.

The stock trades at 9.4x CY14E and 8.4x CY15E EPS. Neutral.


Strategy under the new promoters.

Dividend policy.

Peoplesoft implementation and large deals traction.


S a l e s 19.5 23.0 26.5 29.8

EBITDA 4.1 5.2 5.6 6.0

PAT 3.3 3.8 4.2 4.7

EPS (INR) 10.9 12.5 14.0 15.6

EPS Gr. (%) 22.2 15.1 11.6 11.6

BV/Sh. (INR) 40.3 47.2 57.1 68.0

RoE (%) 27.0 26.6 24.5 23.0

RoCE (%) 31.2 33.4 30.0 26.7

Payout (%) 48.7 29.5 36.2 3.9

Valuations

P/E (x) 12.1 10.5 9.4 8.4

P/BV (x) 3.3 2.8 2.3 1.9

EV/EBITDA (x) 8.6 6.5 5.6 4.8

Div yld (%) 4.1 2.9 3.9 3.9

Bloomberg HEXW IN




1,6,12 Rel Perf. (%) 7 / 47 / 47

C–173January 2014


Quarterly Performance (IFRS) (INR Million)Y/E March FY13 FY14 FY13 FY14E


Revenues 96,160 98,580 104,240 104,540 112,670 129,650 130,291 131,942 403,520 504,553

Q-o-Q Change (%) 8.6 2.5 5.7 0.3 7.8 15.1 0.5 1.3 19.6 25.0

EBITDA 29,460 28,720 29,700 27,694 29,830 33,890 35,245 36,044 115,570 134,508

Margins (%) 30.6 29.1 28.5 26.5 26.5 26.1 27.1 27.3 28.6 26.7

Other Income 4,760 7,060 5,030 6,740 5,770 5,100 5,582 5,792 23,590 22,245

PAT 22,890 23,690 23,690 23,940 23,740 26,260 27,609 28,320 94,206 105,426

Q-o-Q Change (%) -1.2 3.5 0.0 1.1 -0.8 10.6 5.1 2.6 13.3 11.9

Diluted EPS (INR) 40.1 41.5 41.5 41.9 41.5 42.1 48.3 49.6 164.9 184.5

USD Revenues 1,752 1,797 1,911 1,938 1,991 2,066 2,101 2,128 7,398 8,287

Q-o-Q Change (%) -1.1 2.6 6.3 1.4 2.7 3.8 1.7 1.3 5.8 12.0

Operating Metrics

Gross Margin (%) 42.2 40.9 39.8 37.9 37.9 37.9 38.3 38.5 40.1 38.1

SGA (%) 11.6 11.8 11.3 11.4 11.4 11.8 11.3 11.1 11.5 11.4

Tax rate (%) 27.8 28.3 25.5 23.7 26.8 26.4 26.5 26.5 26.3 26.6

Net Employee additions 1,157 2,610 1,508 1,419 575 2,964 3,443 2,790 6,694 9,772

Utiliz. - excl. trainees (%) 71.6 73.3 73.2 73.9 75.9 77.8 77.1 75.5 73.0 76.6

Q-o-Q Volume Growth (%) 2.8 3.8 2.7 1.6 3.4 2.6 1.3 1.4 11.8 10.8

Q-o-Q Realization chg (%) (3.7) (0.2) 3.6 (0.2) (0.6) 1.2 0.4 (0.1) (3.0) 0.4

E: MOSL Estimates

InfosysCMP: INR3,562 Buy

Infosys' guidance of 9-10% growth in full-year USD revenues implies

-1.6% revenue CQGR to meet the lower end and -0.8% CQGR to meet

the higher end. We expect the company to beat the higher end of the

guided band.

For 3QFY14, we expect overall revenue to grow 1.7% QoQ to USD2.1b.

This includes positive impact of 50bp from cross-currency, implying

constant currency (CC) revenue growth of 1.2% QoQ. In INR terms, we

expect revenue growth of 0.5% QoQ to INR130.3b.

We expect EBITDA margin to expand 100bp QoQ to 27.1%.

Infosys has been aggressive in addressing cost optimization and we

expect some gains from the lower hanging fruits to show on the

margins, as well. We expect overall utilization including trainees to

decline 70bp QoQ to 73% due to the shutdown and furloughs

experienced during the quarter.

We expect PAT to increase 5.1% QoQ to INR27.6b, led by higher margins.

The stock trades at 19.3x FY14E and 16.3x FY15E earnings. Buy .


Commentary on early indicators for FY15.

Deal signings in the BITS segment and growth in the same.

Revenue growth beat to that implied by guidance and performance

on margins after recent cost optimization initiatives.


S a l e s 403.5 504.6 564.5 638.1

EBITDA 115.6 134.5 155.8 180.6

PAT 94.2 105.4 125.0 145.4

EPS (INR) 164.9 184.5 218.8 254.4

EPS Gr. (%) 13.3 11.9 18.6 16.3

BV/Sh. (INR) 696.5 824.7 985.0 1,169.2

RoE (%) 25.7 24.3 26.3 25.7

RoCE (%) 28.5 27.9 27.5 27.0

Payout (%) 25.5 24.4 22.9 23.6

Valuations

P/E (x) 21.6 19.3 16.3 14.0

P/BV (x) 5.1 4.3 3.6 3.0

EV/EBITDA (x) 15.6 12.9 10.6 8.7

Div Y ield (%) 1.2 1.3 1.4 1.7

Bloomberg INFO IN


M. Cap. (INR b)/(USD b) 2,035 / 33

52-Week Range (INR) 3,570 / 2,190

1,6,12 Rel Perf. (%) 4 / 32 / 46

C–174January 2014


KPIT TechnologiesCMP: INR174 Neutral


S a l e s 22.4 28.0 31.9 36.4

EBITDA 3.7 4.5 5.3 6.1

PAT 2.0 2.8 3.4 4.0

EPS (INR) 10.6 13.9 17.0 20.1

EPS Gr. (%) 31.5 31.8 22.6 18.0

BV/Sh. (INR) 53.3 64.5 81.6 101.7

RoE (%) 22.7 23.6 23.3 22.0

RoCE (%) 30.2 29.4 28.7 27.2

Payout (%) 9.5 7.2 8.8 7.5

Valuations

P/E (x) 16.5 12.5 10.2 8.6

P/BV (x) 3.3 2.7 2.1 1.7

EV/EBITDA (x) 8.5 6.4 4.8 3.5

Div yld (%) 0.6 0.6 0.9 0.9

Bloomberg KPIT IN


M. Cap. (INR b)/(USD b) 34 / 0.6


1,6,12 Rel Perf. (%) 19 / 31 / 52

KPIT expects revenue growth in 3QFY14 to be higher than in 2QFY14.

We expect USD revenue to grow 3.6% QoQ to USD116m. In INR terms,

we expect revenue growth of 2.5% QoQ to INR7.2b.

We expect EBITDA margin to expand 60bp QoQ to 16.1%.On the back

of absence of two one-offs that hurt margins in 2QFY14: [1] leadership

training at Stanford: -71bp(INR50m), and [2] industry event

sponsorship: -43bp (INR30m). Consequently our SGA estimate for the

quarter stands at 16.1%, -200bp QoQ. In absolute terms, our SGA

estimate is INR1,160m v/s INR1,275m in 2QFY14.

Our PAT estimate for the quarter is INR664m, down 0.4% QoQ. Our PAT

margin estimate is 9.2%, down 30bp QoQ. PAT would be sequentially

lower on account of an estimated forex loss of INR45m v/s loss of

INR14m in 2QFY14.

KPIT has guided a revenue band of USD465m-475m for FY14, implying

growth at 13.3-15.7%, which would be revisited this quarter. We

estimate FY14 revenue at USD461m, a growth of 12.2%.



Growth in top account (Cummins) and SAP.

Revision in full year revenue guidance.

Margins performance and outlook.




Revenues 5,383 5,672 5,633 5,699 6,132 7,028 7,206 7,648 22,386 28,014

QoQ Change (%) 42.1 5.4 4.7 1.2 7.6 14.6 2.5 6.1 50.3 25.1

Direct Expenses 3,506 3,703 3,706 3,725 4,200 4,665 4,889 5,070 14,640 18,823

SG&A 1,065 1,024 1,045 963 960 1,274 1,160 1,247 4,096 4,642

EBITDA 812 945 882 1,011 972 1,088 1,157 1,332 3,650 4,549

Margins (%) 15.1 16.7 15.7 17.7 15.9 15.5 16.1 17.4 16.3 16.2

Other Income 30 -191 77 -86 59 23 1 39 -170 122

Depreciation 113 114 118 121 122 148 156 153 466 579

Interest 35 34 42 42 63 74 69 67 154 272

PBT bef. Extra-ordinary items 694 605 800 762 847 889 933 1,151 2,860 3,820


Rate (%) 26.6 31.6 22.8 27.1 29.0 24.9 28.8 28.8 26.8 27.9

PAT after MI 486 407 599 512 601 667 664 819 2,003 2,753

QoQ Change (%) 16.9 (16.8) 47.2 (19.3) 17.5 11.0 (0.4) 23.3 62.0 43.6

Extra-ordinary Items 27 55 -94 0 0 0 0 0 -13 0

PAT aft. Minority and EO 513 461 504 512 601 667 664 819 1,990 2,753

QoQ Change (%) 24.9 (10.0) (1.6) 1.5 17.5 11.0 (0.4) 23.3 63.8 38.3

Diluted EPS (INR) 2.8 2.5 2.7 2.6 3.0 3.4 3.4 4.1 10.6 13.9

USD Revenues 98 103 103 106 109 112.2 116 123 410 461

QoQ Change (%) 33.5 5.5 0.0 2.0 3.1 3.1 3.6 6.1 33.6 12.2

Offshore util. (%) 74.1 74.7 72.9 74.1 73.4 72.9 73.0 75.0 73.9 73.6

Onsite util. (%) 94.7 94.5 92.8 94.3 94.2 92.4 92.0 94.0 94.1 93.1

E: MOSL Estimates

C–175January 2014





Revenues 5,630 5,963 5,901 6,124 6,477 7,696 7,922 8,255 23,618 30,350

Q-o-Q Change (%) 23.3 5.9 -1.0 3.8 5.8 18.8 2.9 4.2 23.3 28.5

Direct Expenses 3,442 3,570 3,517 3,745 3,824 4,448 4,684 4,805 14,274 17,761

SGA 1,014 1,074 1,180 1,216 1,462 1,650 1,698 1,734 4,484 6,544


Margins (%) 20.9 22.1 20.4 19.0 18.4 20.8 19.4 20.8 20.6 19.9

Other Income 52 74 70 154 117 48 107 108 350 380

Forex Gain / (Loss) 86 -415 142 -153 618 200 -163 -161 -340 494

Depreciation & Amort. 159 159 151 155 181 197 201 216 624 795

Interest 3 4 2 1 1 2 2 2 10 7

PBT bef. Extra-ordinary 1,150 815 1,263 1,008 1,744 1,647 1,280 1,446 4,236 6,117


Rate (%) 22.6 11.4 21.8 21.7 22.4 21.9 23.0 23.0 20.0 22.5

Reported PAT 890 722 988 789 1,354 1,287 986 1,114 3,389 4,740

Q-o-Q Change (%) 63.3 -18.9 36.8 -20.1 71.6 -4.9 -23.4 13.0 55.1 39.9

USD Revenue 105.5 107.3 109.9 113.0 117.7 124.0 127.8 133.1 435.7 502.6

Q-o-Q Change (%) 4.1 1.7 2.5 2.8 4.2 5.4 3.0 4.2 8.2 15.4

Util including trainees (%) 68.9 71.7 71.4 69.6 69.6 65.9 67.0 67.0 70.4 67.3

E: MOSL Estimates

MindTreeCMP: INR1,556 Neutral

We model 3QFY14 revenue at USD127.8m, a growth of 3% QoQ. The

company expects furloughs to impact revenue growth in 3Q; the

Hi-tech vertical continues to be volatile.

In INR terms, our revenue estimate stands at INR7.9b, up 2.9% QoQ.

QoQ depreciation in average realized INR is usually different at MTCL

than for peers due to its accounting practice of taking prevailing USD

rate at the beginning of the month for the whole month.

Our EBITDA margin estimate is 19.4%, down 140bp QoQ. Wage hikes

to 20% of personnel at MTCL along with investments in people would

pull margins down.

Our PAT estimate for the quarter is INR986m, which implies a PAT

margin of 12.4%, well below 16.7% in the previous quarter, which was

inflated by forex gains of INR200m. We model INR163m of forex losses

during the quarter.

MTCL had reiterated its confidence of improving its growth rate in

FY14 v/s FY13. The confidence emanates from deal wins worth

~USD400m in the last three quarters.

The stock trades at 13.7x FY14E and 12x FY15E EPS. Maintain Neutral.


Performance and outlook for the Hi-tech vertical.

Deal wins on the back of strong couple of quarters.

Outlook on FY15 based on early conversations with top clients.


S a l e s 23.6 30.4 35.1 40.2

EBITDA 4.9 6.0 7.4 8.6

PAT 3.4 4.7 5.4 6.2

EPS (INR) 81.7 113.3 129.7 147.7

EPS Gr. (%) 52.2 38.6 14.5 13.9

BV/Sh. (INR) 314.5 386.4 496.4 622.1

RoE (%) 25.8 32.3 29.4 26.4

RoCE (%) 37.0 35.5 34.6 31.7

Payout (%) 14.7 13.2 13.1 12.9

Valuations

P/E (x) 19.0 13.7 12.0 10.5

P/BV (x) 4.9 4.0 3.1 2.5

EV/EBITDA (x) 12.2 9.7 7.5 6.0

Div Yld (%) 0.8 1.0 1.1 1.2

Bloomberg MTCL IN



52-Week Range (INR) 1,599 / 680

1,6,12 Rel Perf. (%) 10 / 76 / 113

C–176January 2014


Mphasis - Quarterly Performance (INR Million)

Y/E October FY12 FY13 5MFY14 FY13E 5M

1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q Jan-14 Mar-14 FY14E

Revenues 13,672 13,289 13,551 13,062 12,571 14,054 15,398 15,940 15,931 10,535 57,963 26,465

Q-o-Q Change (%) 5.7 -2.8 2.0 -3.6 -5.4 11.8 9.6 3.5 -0.1 -33.9 8.2 -54.3

Direct Expenses 9,995 9,454 9,596 9,088 9,052 10,168 11,136 11,602 11,575 7,657 41,958 19,232

Sales, Gen. & Admin. Exp. 1,155 1,221 1,280 1,274 1,191 1,468 1,463 1,548 1,559 1,039 5,670 2,597

Operating Profit 2,522 2,614 2,675 2,700 2,328 2,418 2,799 2,790 2,797 1,839 10,335 4,636

Margins (%) 18.4 19.7 19.7 20.7 18.5 17.2 18.2 17.5 17.6 17.5 17.8 17.5

Other Income 338 340 441 394 423 290 193 156 168 366 1,062 534

Depreciation 468 455 415 407 378 350 365 353 358 241 1,446 599

PBT bef. Extra-ordinary 2,392 2,499 2,701 2,687 2,373 2,358 2,627 2,593 2,607 1,965 9,951 4,572

Provision for Tax 544 605 614 594 529 593 701 691 691 521 2,514 1,212

Rate (%) 22.7 24.2 22.7 22.1 22.3 25.1 26.7 26.6 26.5 26.5 25.3 26.5

PAT bef. Extra-ordinary 1,848 1,894 2,087 2,093 1,844 1,765 1,926 1,902 1,916 1,444 7,437 3,360

Q-o-Q Change (%) -5.1 2.5 10.2 0.3 -2.6 -4.3 9.1 -1.2 0.8 -24.6 -6.1 -54.8

Diluted EPS (INR) 8.8 9.0 9.9 9.9 8.8 8.4 9.2 9.0 9.1 6.9 35.3 16.0

USD Revs 271 266 252 248 237 263 265 260 262.6 117.6 1,025 380

Q-o-Q Change (%) -2.0 -1.8 -5.2 -1.6 -6.0 11.0 1.0 -2.1 1.1 -55.2 -1.1 -62.9

E: MOSL Estimates

MphasisCMP: INR425 Neutral

We model revenue at USD262.6m, which implies 1.1% QoQ growth,

driven by large deal ramp-up at Digital Risk and growth in mature

markets.

HP revenues continue to decline and we have modeled INR200m of

reversal of receivables outstanding from India Government.

Digital Risk remains the sole growth engine for Mphasis, given that

the current run rate excludes the new deal win of USD102m (to be

executed over three years) and the other large deal of USD101m too is

not at steady state. Revenues from Digital Risk should continue to

grow at a fast clip.

In INR terms, we estimate revenue at INR15.9b, down 0.1% QoQ.

EBITDA margin should expand 10bp QoQ to 17.6%. We expect EBITDA

to be flattish (up 0.2% QoQ) at INR2.79b.

We expect SG&A expense to go up by 90bp to 10.3% v/s 9.4% in 3QFY13.

We have assumed tax rate at 26% for the quarter.

We expect PAT to increase by 5% QoQ to INR2.02b. Our PAT margin

estimate is 11.5%, down 100bp QoQ due to incremental investments

in S&M as guided by the management.

The stock trades at 11.1x FY14E and 10.1x FY15E EPS. Maintain Neutral.


Outlook for Digital Risk, HP Channel and Direct Channel.

Change in headcount and hiring outlook.

Financials & Valuation (INR b)Y/E October 2012 2013 Mar.14E Mar.15E

S a l e s 53.6 58.0 26.5 66.8

EBITDA 10.5 10.3 4.6 12.5

PAT 7.9 7.4 3.4 8.8

EPS (INR) 37.5 35.3 16.0 42.0

EPS Gr. (%)* -4.6 -5.8 8.4 9.5

BV/Sh. (INR) 210 235 243 260

RoE (%)* 19.1 15.9 16.1 16.7

RoCE (%)* 19.6 17.4 17.4 18.8

Payout (%) 45.3 48.1 43.8 50.0

Valuations

P/E (x)* 11.3 12.0 11.1 10.1

P/BV (x) 2.0 1.8 1.8 1.6

EV/EBITDA (x)* 6.0 6.8 6.4 5.1

Div yld (%) 4.0 4.0 4.0 4.9

*Annualized values for 5m FY14E

Bloomberg MPHL IN




1,6,12 Rel Perf. (%) 4 / 5 / 2

C–177January 2014





Revenues 3,007 3,269 3,330 3,340 3,573 4,324 4,381 4,666 12,945 16,943

Q-o-Q Change (%) 12.3 8.7 1.9 0.3 7.0 21.0 1.3 6.5 29.4 30.9

EBITDA 807 890 824 831 777 1,122 1,072 1,233 3,352 4,204

Margins (%) 26.8 27.2 24.7 24.9 21.7 26.0 24.5 26.4 25.9 24.8

Other Income -47 -78 84 102 263 -24 -66 13 61 186

Depreciation 185 189 198 211 237 263 264 264 783 1,027

PBT bef. Extra-ordinary 575 623 710 722 803 835 742 982 2,630 3,363

Provision for Tax 160 176 215 203 232 227 219 290 754 968

Rate (%) 27.7 28.3 30.3 28.1 28.9 27.2 29.5 29.5 28.7 28.8

PAT aft. Minority and EO 416 446 495 519 571 608 523 693 1,876 2,395

Q-o-Q Change (%) -0.7 7.4 10.9 4.8 10.0 6.5 -13.9 32.4 31.2 27.6

Diluted EPS (INR) 10.4 11.2 12.4 13.0 14.3 15.2 13.1 17.3 46.9 59.9

USD Revenues 54.9 60.1 60.8 62.1 63.0 68.5 70.7 75.3 237.8 277.4

Q-o-Q Change (%) 6.3 9.4 1.2 2.2 1.5 8.6 3.2 6.5 14.7 16.6

E: MOSL Estimates

Persistent SystemsCMP: INR988 Buy

We expect PSYS' overall USD revenue to grow 3.2% QoQ to USD70.7m.

In INR terms, we expect revenue to grow 1.3% to INR4.38b.

Growth in Services is expected to be driven by platforms, with product

engineering expected to be relatively muted. IP revenues are

expected to be flat as license revenues in the location based IP in 2Q

will be replaced by HPCA revenue ramp up in 3Q.

We expect EBITDA margin to decline 150bp QoQ to 24.5%. On the back

of lower license sales in this quarter and the costs related to Ohio

centre, which is yet to start generating revenues.

PSYS continues to see healthy traction in terms of deal pipeline and

revenues in its major geography, the US. The seasonal weakness in 3Q

is not as likely to impact growth during the quarter.

While IP-led revenues will remain volatile, PSYS expects to grow the

segment by 20%+ YoY. It remains confident of healthy organic growth

in the IP segment, driven by HPCA, Connectors, TNPM and r-Cloud.

Our PAT estimate for the quarter is INR523m, down from INR608m in

the previous quarter due to lower other income (loss of INR66m v/s

INR24m in 2Q) on the back of forex losses and higher tax rate.

The stock trades at 16.5x FY14E and 13.4x FY15E EPS. Buy .


Traction in SMAC and outlook on Product Engineering Services growth.

Commentary on potential of winning large deals.

Commentary on HPCA (Radia) renewals and overall IP revenues

expectation.


S a l e s 12.9 16.9 19.7 23.1

EBITDA 3.4 4.2 4.7 5.6

Adj. PAT 1.9 2.4 2.9 3.6

Adj. EPS (INR) 46.9 59.9 73.7 90.3

EPS Gr. (%) 31.2 27.6 23.0 22.6

B V/Sh.(INR) 262.1 300.5 360.0 434.2

RoE (%) 20.2 21.9 23.0 23.4

RoCE (%) 14.8 16.1 17.7 18.2

Payout (%) 19.2 20.0 19.0 17.7

Valuations

P/E (x) 21.1 16.5 13.4 10.9

P/BV (x) 3.8 3.3 2.7 2.3

EV/EBITDA (x) 10.3 7.9 6.8 5.4

Div. Yield (%) 0.9 1.2 1.4 1.6

Bloomberg PSYS IN



52-Week Range (INR) 1,058 / 477

1,6,12 Rel Perf. (%) 9 / 85 / 83

C–178January 2014


Quarterly Performance (IFRS) (INR Million)



Revenues 148,687 156,208 160,699 164,301 179,871 209,772 214,328 220,243 629,895 824,214

Q-o-Q Change (%) 12.1 5.1 2.9 2.2 9.5 16.6 2.2 2.8 28.8 30.8

EBITDA 43,328 44,403 46,540 46,599 51,532 66,390 67,984 69,123 180,870 255,029

Margins (%) 29.1 28.4 29.0 28.4 28.6 31.6 31.7 31.4 28.7 30.9

Other Income 1,754 3,103 2,133 4,185 2,517 -427 4,686 2,551 11,174 9,326

PAT 32,806 35,121 35,518 35,969 37,962 47,018 52,584 51,790 139,413 189,354

Q-o-Q Change (%) 11.9 7.1 1.1 1.3 5.5 23.9 11.8 -1.5 31.0 35.8

Diluted EPS (INR) 16.8 17.9 18.1 18.4 19.4 24.0 26.8 26.4 71.2 96.7

USD Revenues 2,728 2,853 2,948 3,040 3,165 3,337 3,457 3,552 11,568 13,511

Q-o-Q Change (%) 3.0 4.6 3.3 3.1 4.1 5.4 3.6 2.8 13.7 16.8

Operating Metrics

Gross Margin (%) 47.2 46.4 47.4 47.8 47.2 49.0 49.1 49.0 47.2 48.6

SGA (%) 18.1 18.0 18.4 19.4 18.6 17.3 17.4 17.7 18.5 17.7

Tax rate (%) 22.2 21.0 21.8 23.9 24.1 24.8 24.0 24.0 22.3 24.2

Util - excl. trainees (%) 81.3 81.6 81.7 82.0 82.7 83.4 84.2 84.8 81.7 83.8

Q-o-Q Volume Gr (%) 5.3 5.0 1.3 4.4 6.1 7.8 2.7 2.4 15.2 17.6

E: MOSL Estimates

Tata Consultancy ServicesCMP: INR2,159 Neutral

We expect revenue to grow 3.6% QoQ to USD3,457m. Break-up of the

3.6% QoQ revenue growth: [1] 2.6% QoQ due to organic revenue growth

in constant currency, [2] 1% QoQ due to positive cross-currency impact

(4.4% GBP appreciation against USD).

In INR terms, we expect revenue growth of 2.2% QoQ to INR214.3b.

We expect operating margin to be flat on constant currency basis.

Currency movements are likely to result in a margin headwind of 25-

30bp. We are currently modeling QoQ EBIT margin expansion of 10bp

to 30.3%.

Our SGA assumption for the quarter is 17.4% (v/s 17.3% in 2QFY14).

We expect positive other income of INR4.8b (v/s a negative INR427m

in 2QFY14), driven by forex gain of INR1.75b during the quarter (v/s

loss of INR3.3b in 2QFY14).

Our PAT estimate stands at INR52.5b, up 11.8% QoQ and implies PAT

margin of 24.5%, up 210bp QoQ. Our effective tax rate assumption is

24% (down 80bp QoQ).

TCS has mentioned that there are initial indicators of FY15 being better

than FY14.

The stock trades at 22.3x FY14E and 19.6x FY15E EPS. Maintain Neutral.


Client budgets and outlook for FY15 compared to growth in FY14.

Probability of higher growth due to reinvestment of currency gains.

Roadmap on investments of currency gains to pull margin back to

~27%


S a l e s 629.9 824.2 944.3 1,088.9

EBITDA 180.9 255.0 280.6 317.0

PAT 139.4 189.4 216.1 247.3

EPS (INR) 71.2 96.7 110.3 14.1

EPS Gr. (%) 31.0 35.7 14.1 19.1

BV/Sh. (INR) 209.8 264.1 337.0 422.3

RoE (%) 37.8 40.8 36.7 43.5

RoCE (%) 43.8 49.8 43.5 39.3

Payout (%) 30.9 33.1 29.0 11.9

Valuations

P/E (x) 30.3 22.3 19.6 17.1

P/BV (x) 10.3 8.2 6.4 5.1

EV/EBITDA (x) 23.0 16.1 14.3 12.2

Div. yield (%) 1.0 1.5 1.5 1.6

Bloomberg TCS IN


M. Cap. (INR b)/(USD b) 4,229 / 68

52-Week Range (INR) 2,258 / 1,248

1,6,12 Rel Perf. (%) 5 / 33 / 63

C–179January 2014


Tech MahindraCMP: INR1,861 Buy

We expect revenue to grow 3.1% QoQ to USD782m, aided by large

deal traction and pick-up in demand for Enterprise Business Solutions

(EBS, 20% of Satyam's revenues) and Business Intelligence (5-6% of

revenues).

In INR terms, we expect revenue growth of 1.6% QoQ to INR48.5b.

Our SGA assumption for the quarter is 16.5% (v/s 16.3% in 2QFY14).

We expect EBITDA margin to decline by 10bp QoQ to 23.2% on account

of 70bp drop in utilization due to shutdown and furloughs experienced

during the quarter.

Our PAT estimate is INR6.67b (after adjusting for restructuring fees), a

decline of 2.5% QoQ. This implies PAT margin of 13.8%, down 60bp

QoQ due to higher forex losses (INR910m v/s INR260m in 2QFY14).

Our other income estimate is a loss of INR278m v/s a gain of INR380 in

2QFY14.

The stock trades at 15.1x FY14E and 12.7x FY15E EPS. Maintain Buy .


Commentary on large deal traction and deals TCV following a healthy

2Q.

Commentary on BT and Telecom vertical outlook.

Large deal progress in the Enterprise business at Satyam.

Financials & Valuation (INR b)*Y/E March 2013 2014E 2015E 2016E

S a l e s 143.3 186.6 211.9 242.0

EBITDA 30.6 41.4 46.5 52.6

Adj. PAT 19.8 27.0 32.4 37.5

Adj. EPS (INR) 93.0 126.6 149.7 172.5

EPS Gr. (%) 32.1 36.2 18.2 15.3

B V/Sh.(INR) 321.3 409.8 538.8 653.7

RoE (%) 32.6 35.1 32.5 29.7

RoCE (%) 35.3 35.2 32.3 30.4

Payout (%) 5.9 4.0 3.4 2.9

Valuations

P/E (x) 20.0 15.1 12.7 10.8

P/BV (x) 5.8 4.6 3.5 2.9

EV/EBITDA (x) 11.6 8.3 7.2 6.0

Div. Yield (%) 0.3 0.3 0.3 0.3

* TECHM standalone

Bloomberg TECHM IN


M. Cap. (INR b)/(USD b) 432 / 7

52-Week Range (INR) 1,872 / 895

1,6,12 Rel Perf. (%) 6 / 61 / 93



Revenues 33,727 35,237 36,683 37,673 41,032 47,715 48,472 49,370 143,320 186,589

Q-o-Q Change (%) 4.5 4.1 2.7 8.9 16.3 1.6 1.9 30.2

Direct Cost 21,007 22,271 22,761 23,968 25,693 28,826 29,242 30,810 90,007 114,570

Other Operating Exps 5,328 5,397 5,965 5,992 6,694 7,779 7,998 8,146 22,682 30,617


Margins (%) 21.9 21.5 21.7 20.5 21.1 23.3 23.2 21.1 21.4 22.2

Other Income 1,129 -697 1,308 381 2,073 380 -278 517 2,121 2,692

Interest 251 214 204 253 223 241 163 68 922 696

Depreciation 915 908 866 1,207 1,174 1,222 1,256 1,267 3,896 4,919

PBT bef. Extra-ordinary 7,355 5,750 8,195 6,634 9,321 10,027 9,535 9,596 27,934 38,479

Provision for Tax 1,911 1,176 1,931 1,461 2,328 2,840 2,479 2,495 6,479 10,142

Rate (%) 26.0 20.5 23.6 22.0 25.0 28.3 26.0 26.0 23.2 26.4

Minority Interest -40 -15 -109 -137 -130 -4 -50 -50 -301 -234

Net Income bef. Extra-ordinary 5,404 4,559 6,155 5,036 6,863 7,183 7,006 7,051 21,154 28,103

Q-o-Q Change (%) -15.6 35.0 -18.2 36.3 4.7 -2.5 0.6 56.8 32.9

Adj. for Restructuring item 335.0 335.0 335.0 335.0 335.0 335.0 335.0 111.7 1,340.0 1,116.7

Extra-ordinary items 0 0 -2,940 1,340 0 0 0 0 -1,600 0

Net Income aft. EO & Restr. fees 5,069 4,224 2,880 6,041 6,528 6,848 6,671 6,939 18,214 26,986

Q-o-Q Change (%) 1.5 -16.7 -31.8 109.8 8.1 4.9 -2.6 4.0 53.2 48.2

Diluted EPS (INR) 23.8 19.8 27.3 22.0 30.7 32.1 31.3 32.5 93.0 126.6

USD Revenues 615 644 675 698 724 758 782 796 2,633 3,060

Q-o-Q Change (%) 4.7 4.7 3.5 3.7 4.7 3.1 1.9 16.2

E: MOSL Estimates

C–180January 2014


Wipro Quarterly Performance (IFRS) (INR Million)



Revenues 106,530 106,566 109,487 96,078 97,294 107,727 112,855 117,222 374,256 435,097

Q-o-Q Change (%) 7.9 0.0 2.7 -12.2 1.3 10.7 4.8 3.9 17.4 16.3

EBIT 18,722 18,587 18,700 17,067 17,650 20,229 23,267 25,032 67,346 86,179

Margins (%) 17.6 17.4 17.1 17.8 18.1 18.8 20.6 21.4 18.0 19.8

Other Income 1,223 2,662 3,402 2,744 2,918 4,949 2,831 2,953 11,250 13,652

PAT 15,802 16,106 17,164 17,373 16,233 19,321 19,993 21,446 61,362 76,993

Q-o-Q Change (%) 6.7 1.9 6.6 1.2 -6.6 19.0 3.5 7.3

Y-o-Y Change (%) 18.4 23.8 17.9 17.3 2.7 20.0 16.5 23.4 17.3 25.5

Diluted EPS (INR) 6.4 6.6 7.0 6.4 6.6 7.8 8.1 8.7 25.0 31.4

USD Revenues 1,515 1,541 1,577 1,585 1,588 1,631 1,684 1,735 6,218 6,638

Q-o-Q Change (%) -1.4 1.7 2.4 0.5 0.2 2.7 3.2 3.0 5.0 6.8

Gross Margin (%) 31.6 31.3 31.0 30.3 30.9 31.1 32.7 33.3 30.4 32.1

SGA (%) 14.0 13.9 13.9 12.5 12.8 12.3 12.1 12.0 12.4 12.3

IT Services EBIT (%)* 21.0 20.7 20.2 20.2 20.0 22.5 22.4 23.3 20.5 22.1

Tax rate (%) 20.2 23.9 21.9 20.1 20.7 22.9 23.0 23.0 21.5 22.5

Net Employee additions 2,632 2,017 2,336 2,907 1,469 -65 3,715 4,165 9,892 9,284

Utilization-incl.trainees (%) 68.3 66.8 64.8 64.9 64.7 66.1 66.1 66.9 66.7 66.2

Offshore revenues (%) 46.2 46.6 46.2 46.6 46.1 45.8 46.0 46.4 37.4 46.1

Rev Guidance (USDm) 1,520- 1,520- 1,560- 1,585- 1,575- 1,620- 1,660-

1,550 1,550 1,590 1,630 1,610 1,650 1,690

E: MOSL Estimates

WiproCMP: INR555 Buy

Wipro had guided a revenue growth band of 1.8%-3.6% QoQ for

3QFY14, implying revenue of USD1,660m-1,690m. We model revenue

growth at the midpoint of the guided band (2.4% QoQ in constant

currency terms; 3.2% QoQ in reported currency terms) to USD1,684m.

We expect SGA to be 12.1% (v/s 12.3% in 2Q) and overall EBIT margin

to expand 180bp QoQ to 20.6%. This is because the revenue in 2Q

excluded translation gains on currency.

We expect net employee additions of 3,715 (v/s a reduction of 65 in

2QFY14).

IT Services EBIT margin is likely to decline by 10bp QoQ to 22.4%.

Our PAT estimate for the quarter is INR18.4b, an increase of 13.6%

QoQ.

We expect Wipro to sustain its performance for the future quarters as

well, and guide 2-4% QoQ growth in constant currency.

The stock trades at 17.7x FY14E and 15.8x FY15E EPS. Buy .


Revenue growth guidance for 4QFY14.

Commentary on large deal wins and ramp-up schedule.

Outlook on growth in Americas.


S a l e s 374.3 435.1 489.7 550.8

EBITDA 83.7 96.4 108.4 120.5

PAT 61.4 77.0 86.3 96.9

EPS (INR) 25.0 31.4 35.1 39.5

EPS Gr. (%) 17.3 25.5 12.1 12.3

BV/Sh. (INR) 115.6 133.0 158.8 186.6

RoE (%) 21.6 25.2 24.1 22.9

RoCE (%) 21.9 25.6 25.4 24.5

Payout (%) 28.0 23.9 22.8 25.3

Valuations

P/E (x) 22.2 17.7 15.8 14.1

P/BV (x) 4.8 4.2 3.5 3.0

EV/EBITDA (x) 16.3 12.9 11.2 9.8

Div Yld (%) 1.3 1.4 1.4 1.8

Bloomberg WPRO IN


M. Cap. (INR b)/(USD b) 1,369 / 22


1,6,12 Rel Perf. (%) 14 / 48 / 34

C–181January 2014

December 2013 Result s Preview | Sector: Telecom

Expect seasonal uptick in traffic, though offset by lower discounting and Odisha cyclone

impact: We expect average wireless traffic (Bharti/Idea/RCom/Vodafone) to increase

by ~3% QoQ in 3QFY14 against 3.6% QoQ decline in 2QFY14 and 2.9% growth in 3QFY13.

At the industry level, there has been a volume impact of lower discounted minutes

during the festive season and disruption due to cyclone in Odisha (contributes 2% of

industry revenue).

Blended RPM to improve by ~1% QoQ: Post 4-8% RPM increase in 1HFY14 (v/s 4QFY13),

we expect RPM to improve ~1% QoQ on a blended basis, largely led by data growth.

We expect voice RPM to remain largely flat QoQ, as bulk of the tariff actions undertaken

earlier this year have already reflected in the 2QFY14 numbers.

EBITDA margin to remain stable for Bharti/Idea: We expect EBITDA margin to remain

largely stable QoQ. While Idea is likely to witness a disproportionate growth in network

costs due higher site rollout intensity, 3QFY14 has been traditionally marked with

higher sales and marketing cost for Bharti India.

Bharti Africa – operational momentum to remain strong: We believe that operational

momentum in the Africa business remains strong. Operations in Nigeria have been

returning to normalcy post the earlier impact of shutdowns. We model 2-3% QoQ

growth in USD denominated revenue/EBITDA for Bharti Africa after factoring an impact

of ~4% QoQ due to adverse movement in the local currency basket v/s USD.

Subscriber additions normalizing: Subscriber additions during 3QFY14 seem to be

normalizing at ~5m/month for the industry post sharp decline in September 2013 due

to change in subscriber reporting criteria by RCom.

Spectrum auction key event to watch: We attended the pre-bid conference organized

by the Department of Telecom (DoT) for the upcoming spectrum auction in February

2014. Key issues raised by the industry included: (1) ascending spectrum usage charge

(SUC) regime (3-8% v/s flat 3% for auctioned spectrum recommended by TRAI) being

a disincentive for incumbents to bid for additional spectrum, (2) need to increase

visibility on contiguity/continuity of spectrum being bid for, and (3) ensuring a

minimum 5MHz spectrum block for operators planning to bid for the 900/1,800MHz

Abbreviations and acronyms

RPM: revenue per minute

TRAI: Telecom Regulatory

Authority of India

ARPU: average revenue per

user

MOU: minutes of use





Bharti Airtel 329 Buy 219,792 13.5 3.1 70,565 22.2 3.3 11,315 298.9 121.0

Bharti Infratel 168 Neutral 27,493 4.7 2.4 10,994 12.0 2.5 3,534 39.1 27.4

Idea Cellular 167 Buy 65,731 17.8 3.9 20,748 40.8 5.2 5,058 121.3 13.0

Reliance Comm 131 Neutral 55,457 4.6 2.8 19,746 19.4 4.7 3,293 188.3 21.0


Shobhit Khare ([email protected])

TelecomCompanies Covered

Bharti Airtel

Bharti Infratel

Idea Cellular

Reliance Communication

C–182January 2014


Wireless subscriber net additions (m)

Industry subscriber

additions have stabilized

spectrum exclusively for 3G/4G rollouts. In contrast with the cold response to the

earlier two spectrum auctions held in November 2012 and March 2013, we believe the

industry is warming up to the upcoming spectrum auctions.

Valuation and view: During FY13-16, we expect 15/23/14% EBITDA CAGR for Bharti/

Idea/RCom led by 7/9/3% traffic CAGR and 2-4% RPM CAGR in the India wireless

business. Reiterate Buy on Bharti (trades at ~5.9x proportionate FY15E EV/EBITDA)

and Idea (trades at ~6.3x FY15E EV/EBITDA), and Neutral on RCom (trades at ~6.9x

FY15E EV/EBITDA).

Source: TRAI, MOSL

QoQ wireless traffic growth (%)

We expect wireless traffic

to grow ~3% QoQ

We expect blended RPM

to increase 1% QoQ

Trend in wireless RPM (INR)

19 2015 13 11

7 7 8 83

10 8

2

85

-21

-5-2 -2

-14

-26

-2 -1

6

-13 3 2 2

-6

579

20

Jan

-11

Feb

-11

Ma

r-11

Ap

r-11

Ma

y-11

Jun

-11

Jul-

11A

ug-1

1S

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ar-

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ay-

12Ju

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2Ju

l-12

Aug

-12

Sep

-12

Oct

-12

No

v-12

Dec

-12

Jan

-13

Feb

-13

Ma

r-13

Ap

r-13

Ma

y-13

Jun

-13

Jul-

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32

12

1 1

7

0

47

43

53 3

-2

1

-2-4

-6

8

-2 -3

-5-3 -3

1Q

FY12

2Q

FY12

3Q

FY12

4Q

FY12

1Q

FY13

2Q

FY13

3Q

FY13

4Q

FY13

1Q

FY14

2Q

FY14

3QF

Y14E

Bh arti (India ) Idea RCOM Vodafon e-India

44.4

44.6

43.344.1

39

41

42

44

45

1Q

FY12

2Q

FY12

3Q

FY12

4Q

FY12

1Q

FY13

2Q

FY13

3Q

FY13

4Q

FY13

1Q

FY14

2Q

FY14

3QF

Y14E

B harti Idea Vod afone -India RCOM

C–183January 2014


Aggregate revenue

growth to remain

strong at 13% YoY

Aggregate traffic growth and RPM trend for wireless majors

*Bharti, Idea, RCom, Vodafone Source: TRAI, MOSL

-1

3

6

4

-3

3

53

5

-4

2-1

1

-21

113

000-2

1Q

FY12

2Q

FY12

3Q

FY12

4Q

FY12

1Q

FY13

2Q

FY13

3Q

FY13

4Q

FY13

1Q

FY14

2Q

FY14

3QF

Y14E

QoQ tra ffi c growth (%) QoQ RPM growth (%)

1314 15 15

11

86

7

12 1213

1Q

FY12

2Q

FY12

3Q

FY12

4Q

FY12

1Q

FY13

2Q

FY13

3Q

FY13

4Q

FY13

1Q

FY14

2Q

FY14

3QF

Y14E

Aggregate India wireless revenue growth (YoY, %)

Leverage remains

reasonable for Bharti/

Idea, but alarming for

RCom

Net Debt/Equity (FY13)

5.9

3.22.6

2.1

RCom Voda fone India Bh arti Ide a

1.4

0.9

1.2

RCo m Idea B harti


Net Debt/EBITDA (FY13)

C–184January 2014


3QFY14: Summary Expectations

Wireless KPIs

FY12 FY13 FY14 YoY QoQ

1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3QE (%) (%)

EOP Wireless Subs (m)

Bharti (India) 169 173 176 181 187 186 182 188 191 193 198 8.8 2.3

I d e a 95 100 106 113 117 115 114 122 125 127 129 13.5 1.7

RCOM 143 147 150 153 155 135 119 123 127 116 119 0.1 2.1

Vodafone - India 142 145 148 150 154 153 147 152 155 156 159 7.8 2.2

AV. Wireless Subs (m)

Bharti (India) 166 171 174 178 184 187 184 185 190 192 196 6.4 1.8

I d e a 92 98 103 110 115 116 115 118 123 126 128 11.8 1.7

RCOM 139 145 149 152 154 145 127 121 125 122 117 -7.3 -3.4

Vodafone - India 138 143 146 149 152 153 150 150 154 155 157 4.8 1.3

ARPU (INR/month)

Bharti (India) 190 183 187 189 185 177 185 193 200 192 196 5.8 1.9

I d e a 160 155 159 160 156 148 158 167 174 164 168 6.3 2.4

RCOM 103 101 100 99 98 102 119 128 119 121 129 8.2 6.5

Vodafone - India 169 164 167 173 174 169 176 187 196 191 197 12.0 3.2

MOU/Sub

Bharti (India) 445 423 419 431 433 417 435 455 455 437 441 1.4 1.0

I d e a 391 364 369 379 379 359 384 406 398 368 376 -2.0 2.2

RCOM 233 227 224 227 228 236 271 291 282 277 291 7.5 5.0

Vodafone India (reported) 308 297 303 318 324 313 329 344 346 334 341 3.8 2.2

Vodafone India (adj) 411 396 405 424 433 418 438 459 461 445 455 3.8 2.2

Revenue per min (p)

Bharti (India) 42.8 43.2 44.6 43.8 42.7 42.6 42.6 42.4 44.0 44.0 44.4 4.3 0.9

I d e a 40.9 42.6 43.1 42.2 41.2 41.2 41.1 41.1 43.7 44.6 44.6 8.5 0.1

RCOM 44.4 44.7 44.5 43.7 43.1 43.2 43.8 43.9 42.0 43.5 44.1 0.6 1.4

Vodafone India (reported) 54.8 55.2 55.0 54.4 53.6 53.9 53.6 54.3 56.6 57.2 57.8 7.9 1.0

Vodafone India (adj) 41.1 41.4 41.3 40.8 40.2 40.4 40.2 40.7 42.5 42.9 43.3 7.9 1.0

Wireless traffic (B min)

Bharti (India) 221 217 219 231 239 234 241 253 258 251 259 7.6 3.1

I d e a 109 106 114 124 131 126 132 143 147 139 145 9.5 4.3

RCOM 98 99 100 103 105 102 103 105 106 102 103 -0.3 1.1

Vodafone India (reported) 128 128 133 142 148 144 148 155 160 156 161 8.8 3.5

Vodafone India (adj) 170 170 178 190 197 192 197 207 213 207 215 8.8 3.5



90

100

110

120

130

Dec

-12

Ma

r-13

Jun-

13

Sep-

13

Dec

-13

Sens ex Ind exMOSL Telecom Inde x

98

101

104

107

110

Sep-

13

Oct

-13

Nov

-13

De

c-1

3

Sens ex Inde xMOSL Telecom Inde x

C–185January 2014


Quarterly F inancials (INR b)

FY12 FY13 FY14 YoY QoQ

1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3QE (%) (%)

Revenue

Bharti (ex Africa) 126.3 126.8 131.6 134.2 126.6 126.9 131.0 133.6 141.2 140.8 146.0 11.5 3.7

Bharti (consolidated) 169.7 172.7 184.8 187.3 185.6 188.1 193.6 195.8 202.6 213.2 219.8 13.5 3.1

I d e a 45.2 46.2 50.3 53.7 55.0 53.1 55.8 60.6 65.4 63.2 65.7 17.8 3.9

RCOM 53.0 50.4 50.5 53.1 53.2 52.0 53.0 54.1 54.1 53.9 55.5 4.6 2.8

Vodafone - India (implied) 70.0 70.5 73.3 77.4 79.4 77.7 79.2 84.1 90.4 89.0 93.0 17.4 4.5

EBITDA (INR b)

Bharti (ex Africa) 46.0 45.7 45.2 47.4 40.4 40.9 41.5 45.2 49.3 49.1 51.0 23.1 4.1


I d e a 12.0 11.9 13.4 15.1 14.4 14.2 14.7 17.5 21.0 19.7 20.7 40.8 5.2

RCOM 16.0 16.1 16.1 16.3 16.5 16.4 16.5 16.7 17.0 18.9 19.7 19.4 4.7

EBITDA Margin (%)

Bharti (ex Africa) 36.4 36.1 34.4 35.3 31.9 32.3 31.6 33.9 34.9 34.8 35.0 331bp 11bp

Bharti (consolidated) 33.6 33.7 32.2 33.3 29.6 30.3 29.8 30.9 32.3 32.0 32.1 228bp 7bp

I d e a 26.6 25.7 26.7 28.1 26.1 26.8 26.4 28.9 32.1 31.2 31.6 515bp 39bp

RCOM# 30.2 31.8 31.9 30.7 31.0 31.5 31.2 30.9 31.4 35.0 35.6 442bp 65bp

PAT (INR b)

Bharti (ex Africa) 15.2 14.5 12.7 13.5 15.8 13.9 8.9 10.8 14.8 14.0 19.0 114.1 35.5


I d e a 1.8 1.1 2.0 3.4 2.3 2.4 2.3 3.8 4.9 4.5 5.1 121.3 13.0

RCOM 2.2 3.2 2.4 2.0 1.9 1.3 1.1 -2.4 1.3 2.7 3.3 188.3 21.0

EPS (INR)

Bharti 3.2 2.7 2.7 2.7 2.0 1.9 0.7 1.3 1.8 1.3 2.8 278.9 121.0

I d e a 0.5 0.3 0.6 0.7 0.7 0.7 0.7 0.9 1.4 1.3 1.5 120.9 13.0

RCOM 1.1 1.6 1.2 1.0 0.9 0.6 0.6 -1.2 0.6 1.3 1.6 188.3 21.0

Capex (INR b)

Bharti (ex Africa) 24.7 20.6 7.8 11.0 26.5 25.5 12.0 18.8 12.6 10.4 19.7 65.0 89.3

I d e a 10.4 11.0 9.0 8.4 4.1 9.7 6.5 13.3 4.3 8.8 11.6 77.9 31.6

RCOM 3.6 3.5 3.6 4.3 3.7 4.2 4.2 3.4 2.1 3.8 3.9 -5.2 3.0




Telecommunication

Bharti Airtel 329 Buy 6.0 9.1 15.7 54.8 36.2 20.9 7.3 6.8 5.7 4.2 6.0 9.2

Bharti Infratel 168 Neutral 5.6 7.3 8.8 30.2 23.2 19.2 9.5 7.9 7.3 6.3 7.8 9.1

Idea Cellular 167 Buy 3.1 6.0 9.2 54.8 27.7 18.3 8.4 7.8 6.3 7.4 12.9 17.0

Reliance Comm 131 Neutral 0.9 5.7 12.0 139.1 22.9 10.9 7.6 8.9 6.9 0.6 4.0 8.0


C–186January 2014


Quarterly Performance (Consolidated) (INR Million)Y/E March FY13 FY14 FY13 FY14E


Revenue 185,601 193,999 193,624 195,821 202,639 213,244 219,792 226,630 769,045 862,304

YoY Growth (%) 9.3 12.3 4.8 4.6 9.2 9.9 13.5 15.7 7.6 12.1

EBITDA 54,856 59,369 57,749 60,605 65,449 68,321 70,565 74,237 232,579 278,573

YoY Growth (%) -3.9 2.1 -3.1 -2.8 19.3 15.1 22.2 22.5 -1.9 19.8

QoQ Growth (%) -12.0 8.2 -2.7 4.9 8.0 4.4 3.3 5.2

Margin (%) 29.6 30.6 29.8 30.9 32.3 32.0 32.1 32.8 30.2 32.3

Net Finance Costs 7,367 9,250 12,310 11,157 11,676 16,111 9,528 9,259 40,085 46,574

Share of JV/associate /others 706 982 943 875 3,075 833 1,651 1,756 3,506 7,315

Depreciation & Amortization 35,901 36,891 37,350 38,006 38,470 39,394 40,209 41,028 148,148 159,101


Income Tax Expense / (Income) 4,543 7,195 6,192 7,254 9,685 8,635 11,292 13,292 25,183 42,903

Profit after Tax 7,751 7,016 2,839 5,063 8,693 5,015 11,187 12,415 22,669 37,309

Minority interest -129 196 -2 23 -1,804 106 129 129 88 -1,441

Reported Net Profit / (Loss) 7,622 7,212 2,836 5,086 6,889 5,120 11,315 12,544 22,757 35,869

YoY Growth (%) -37.3 -29.8 -72.0 -49.4 -9.6 -29.0 298.9 146.6 -46.6 57.6

India - Mobile ARPU (INR/month) 185 177 185 193 200 192 196 201 185 197

India - Mobile MOU/sub/month 433 417 435 455 455 437 441 450 436 444

Consolidated net debt (INR b) 656 612 585 586 593 620 587 567 586 567

India - Mobi le Traffic (B Min) 239 234 241 253 258 251 259 269 968 1,038

QoQ Growth (%) 3.7 -2.1 2.8 5.1 2.1 -2.7 3.0 4.0

India - Mobile RPM (p/min) 42.7 42.6 42.6 42.4 44.0 44.0 44.4 44.7 42.4 44.3

QoQ Growth (%) -2.6 -0.2 -0.1 -0.5 3.9 0.0 0.9 0.8

Africa - Revenue (USD m) 1,066 1,097 1,133 1,120 1,062 1,119 1,151 1,180 4,416 4,512

Africa - EBITDA (USD m) 275 298 300 285 283 301 308 320 1,157 1,211

Africa - EBITDA margin (%) 25.8 27.1 26.5 25.4 26.7 26.9 26.7 27.1 26.2 26.8

E: MOSL Estimates

Bharti AirtelCMP: INR329 Buy

We expect consolidated revenue to grow 13.5% YoY and 3% QoQ to

INR219.8b. We expect India revenue to grow 10% YoY to INR146b and

Africa business revenue to grow 3% QoQ to USD1.15b.

Consolidated EBITDA margin is likely to increase ~10bp QoQ. We

expect ~20bp QoQ EBITDA margin expansion for India business.

India mobile revenue is likely to grow 10% YoY to INR117.7b, driven by

7% YoY traffic growth (+3% QoQ) and YoY wireless RPM growth of 4%

(+1% QoQ). We estimate EBITDA margin for the mobile business at

33.5%, flat QoQ.

Africa business performance is likely to post 2.8/2.4% revenue/EBITDA

growth QoQ in USD terms. We estimate an ARPU of USD5.7 and

subscriber base of 68m.

Consolidated net profit is expected to increase ~3x YoY to INR11.3b.

We have assumed forex loss of INR2.1b in our 3QFY14 estimates.

Bharti trades at prop.EV/EBITDA of 7.3x FY14E and 5.9x FY15E. Buy.


RPM growth (we expect RPM to increase by ~1% QoQ), mobile traffic

in India business (we expect 3% QoQ growth), forex loss (we have

modeled INR2.1b forex loss), and Africa business financials (we expect

2-3% revenue/EBITDA growth in USD terms).


Net Sales 769.0 862.3 950.9 1,033.7

EBITDA 232.6 278.6 320.2 353.9

Adj. Net Profit 22.8 35.9 62.7 81.2

Adj. EPS (INR) 6.0 9.1 15.7 20.3

Adj. EPS Gr. (%) -46.6 51.3 73.0 29.5

BV/Sh (INR) 143.4 164.4 177.1 194.4

RoE (%) 4.2 6.0 9.2 10.9

RoCE (%) 4.3 5.6 6.9 7.5

Div. Payout (%) 10 10 10 10

Valuations

P/E (x) 54.8 36.2 20.9 16.2

P/BV (x) 2.3 2.0 1.9 1.7

EV/EBITDA (x) 8.1 7.3 6.0 5.1

Div. Yield (%) 0.2 0.3 0.5 0.6

Bloomberg BHARTI IN


M. Cap. (INR b)/(USD b) 1,314 / 21


1,6,12 Rel Perf. (%) -2 / 5 / -6

C–187January 2014




Sales 24,165 25,555 26,264 26,736 26,220 26,837 27,493 28,199 102,720 108,749

YoY Change (%) 11.3 8.5 5.0 4.7 5.5 8.7 5.9


EBITDA 8,859 9,578 9,816 10,049 10,550 10,729 10,994 11,267 38,302 43,540

YoY Change (%) -16.7 19.1 12.0 12.0 12.1 8.2 13.7

EBITDA margin (%) 36.7 37.5 37.4 37.6 40.2 40.0 40.0 40.0 37.3 40.0

Depreciation 5,396 5,528 5,620 5,655 5,528 5,326 5,325 5,321 22,199 21,500

Interest 849 1,033 996 1,067 1,044 1,335 985 976 3,945 4,340

Other Income 543 646 569 1,369 1,469 569 663 805 3,127 3,506

PBT 3,157 3,663 3,769 4,696 5,447 4,637 5,347 5,776 15,285 21,207

Tax 1,023 1,186 1,228 1,845 1,871 1,863 1,813 1,950 5,282 7,497


Adjusted net profit 2,134 2,477 2,541 2,873 3,576 2,774 3,534 3,825 10,003 13,710

YoY Change (%) 34.3 67.6 12.0 39.1 33.1 33.2 37.1

Revenue mix

Rent revenue mix (%) 63 62 62 61 61 60 60 60 62 60

Energy & other reimbursements (%) 37 38 38 39 39 40 40 40 38 40

E: MOSL Estimates

Bharti InfratelCMP: INR168 Neutral

We expect revenue to grow 4.7% YoY to INR27.5b.

Revenue from rent is likely to grow 2% QoQ while energy and other

reimbursements are likely to grow 3% QoQ.

We expect EBITDA to grow 2.5% QoQ to INR11b. EBITDA margin would

remain flat QoQ at 40%.

We expect 27.4% QoQ increase in reported PAT to INR3.53b due to

impact of one-offs related to mark-to-market impact on investments

during 2QFY14.

Bharti Infratel trades at an EV/EBITDA of 6.3x FY14E and 5.7x FY15E.

Neutral.


Consolidated co-location additions (we expect ~2,400), trend in

consolidated sharing revenue per sharing operator (we expect 0.6%

QoQ increase).

Bloomberg BHIN IN


M. Cap. (INR b)/(USD b) 318 / 5


1,6,12 Rel Perf. (%) 3 / 0 /-


Net Sales 102.7 108.7 118.1 128.5

EBITDA 38.3 43.5 46.8 50.4

Adj. Net Profit 10.0 13.7 16.6 19.6

Adj. EPS (INR) 5.6 7.3 8.8 10.4

Adj. EPS Gr. (%) 29.6 30.0 21.1 18.3

BV/Sh (INR) 91.0 94.5 98.5 103.2

RoE (%) 6.3 7.8 9.1 10.3

RoCE (%) 5.6 6.8 7.6 8.4

Div. Payout (%) 86.5 52.2 53.9 55.1

Valuations

P/E (x) 30.2 23.2 19.2 16.2

P/BV (x) 1.8 1.8 1.7 1.6

EV/EBITDA (x) 8.1 7.0 6.3 5.6

Div. Yield (%) 2.9 2.3 2.8 3.4

C–188January 2014




1Q 2Q 3Q 4Q# 1Q# 2Q 3QE 4QE

Gross Revenue 55,037 53,140 55,785 60,614 65,388 63,233 65,731 68,871 224,578 263,223

YoY Growth (%) 21.7 15.0 10.9 12.9 18.8 19.0 17.8 13.6 14.9 17.2

QoQ Growth (%) 2.5 -3.4 5.0 8.7 7.9 -3.3 3.9 4.8

EBITDA 14,355 14,225 14,734 17,491 21,013 19,715 20,748 22,189 60,045 83,415

YoY Growth (%) 19.2 19.9 9.6 16.1 46.4 38.6 40.8 26.9 17.9 38.9

QoQ Growth (%) -4.8 -0.9 3.6 18.7 20.1 -6.2 5.2 6.9

Margin (%) 26.1 26.8 26.4 28.9 32.1 31.2 31.6 32.2 26.7 31.7




Income Tax Exp. / (Income) 1,019 1,136 1,196 2,313 2,572 2,495 2,821 3,263 5,664 11,151

Adj Net Profit / (Loss) 2,342 2,400 2,286 3,842 4,878 4,476 5,058 5,852 10,110 20,013

YoY Growth (%) 32.1 126.9 13.7 12.0 108.2 86.5 121.3 52.3 39.8 98.0

Margin (%) 4.3 4.5 4.1 6.3 7.5 7.1 7.7 8.5 4.5 7.6

Mobile ARPU (INR/month) 156 148 158 167 174 164 168 172 156 167

QoQ Growth (%) -2.5 -5.1 6.8 5.7 4.2 -5.7 2.4 2.5 -0.9 7.2

Mobile MOU/sub/month 379 359 384 406 398 368 376 385 376 381

QoQ Growth (%) 0.0 -5.3 7.0 5.7 -2.0 -7.5 2.2 2.4 1.2 1.2

Mobi le Traffic (B Min) 131 126 132 143 147 139 145 152 532 583

QoQ Growth (%) 5.3 -4.0 5.2 8.5 2.8 -5.8 4.3 4.9 17.4 9.5

Mobile RPM (INR) 0.41 0.41 0.41 0.41 0.44 0.45 0.45 0.45 0.41 0.44

QoQ Growth (%) -2.5 0.2 -0.2 0.0 6.3 1.9 0.1 0.1 -2.1 6.0

E: MOSL Estimates; # Adjusted for one-off provision for licence and WPC charges of INR0.76b in 4QFY13 and INR0.25b in 1QFY14

Idea CellularCMP: INR167 Buy

We expect consolidated revenue to grow 17.8% YoY (4% QoQ) to

INR65.7b.

Mobile traffic growth would be 4% QoQ (9.5% YoY). We expect RPM to

remain flat QoQ (8.5% growth YoY).

ARPU is likely to increase 2% QoQ to INR168 (v/s 6% decline in 2QFY14).

We expect EBITDA margin to expand 40bp QoQ to 31.6%. We estimate

EBITDA loss in new circles at INR1.3b.

Net profit would increase 121% YoY and 13% QoQ to INR5.06b.

Idea trades at an EV/EBITDA of 7.8x FY14E and 6.3x FY15E. Maintain

Buy.


RPM trajectory (we expect RPM to remain flat QoQ), mobile traffic

(we expect 4% QoQ growth), and EBITDA loss in new circles (we expect

INR1.3b).


Net Sales 224.6 263.2 296.5 330.1

EBITDA 60.0 83.4 98.1 112.3

Adj. Net Profit 10.1 20.0 30.4 36.4

Adj. EPS (INR) 3.1 6.0 9.2 11.0

Adj. EPS Gr. (%) 39.6 97.6 52.0 19.7

BV/Sh (INR) 43.6 49.8 57.9 67.6

RoE (%) 7.4 12.9 17.0 17.5

RoCE (%) 5.7 8.3 11.3 12.3

Div. Payout (%) 11.5 11.5 11.5 11.5

Valuations

P/E (x) 54.8 27.7 18.3 15.2

P/BV (x) 3.8 3.4 2.9 2.5

EV/EBITDA (x) 11.4 7.8 6.3 5.7

Div. Yield (%) 0.2 0.4 0.6 0.8

Bloomberg IDEA IN


M. Cap. (INR b)/(USD b) 555 / 9


1,6,12 Rel Perf. (%) -8 / 8 / 49

C–189January 2014




Gross Revenue 53,192 52,020 53,013 54,059 54,116 53,942 55,457 57,170 210,035 220,685

YoY Growth (%) 7.7 3.2 4.9 1.8 1.7 3.7 4.6 5.8 3.3 5.1

QoQ Growth (%) 0.2 -2.2 1.9 2.0 0.1 -0.3 2.8 3.1

EBITDA 16,502 16,382 16,533 16,684 17,010 18,856 19,746 20,966 66,101 76,578

YoY Growth (%) 3.0 2.1 2.6 2.2 3.1 15.1 19.4 25.7 2.5 15.9

QoQ Growth (%) 1.1 -0.7 0.9 0.9 2.0 10.9 4.7 6.2

Margin (%) 31.0 31.5 31.2 30.9 31.4 35.0 35.6 36.7 31.5 34.7



Profit before Tax 1,875 1,323 1,142 -1,683 1,309 2,733 3,308 4,498 2,657 11,849

Income Tax Expense / (Income) -39 0 0 751 7 12 15 20 712 53

Adjusted Net Profit / (Loss) 1,914 1,323 1,142 -2,434 1,302 2,721 3,293 4,478 1,945 11,795

YoY Growth (%) -14.4 -59.0 -52.6 -220.7 -32.0 105.7 188.3 -284.0 -80.3 506.4

Margin (%) 3.6 2.5 2.2 -4.5 2.4 5.0 5.9 7.8 0.9 5.3

Reported Net Profit / (Loss) 1,624 1,021 1,055 3,027 1,082 6,750 3,043 4,228 6,727 15,104

Wireless ARPU (INR/month) 98 102 119 128 119 121 129 130 109 123

QoQ Growth (%) -1.0 3.8 16.6 7.5 -7.1 1.7 6.5 1.1 6.9 12.4

Wireless MOU/sub/month 228 236 271 291 282 277 291 291 251 282

QoQ Growth (%) 0.4 3.6 14.8 7.4 -2.9 -1.8 5.0 0.0 9.0 12.3

Wireless Traffic (B Min) 105 102 103 105 106 101 103 105 416 415

QoQ Growth (%) 1.8 -2.5 0.5 2.3 1.0 -4.9 1.4 2.0 4.1 -0.2

Wireless RPM (INR) 0.43 0.43 0.44 0.44 0.42 0.43 0.44 0.45 0.43 0.44

QoQ Growth (%) -1.3 0.2 1.6 0.1 -4.3 3.6 1.4 1.1 -1.8 0.1

E: MOSL Estimates

Reliance CommunicationsCMP: INR131 Neutral

We expect revenue to grow 2.8% QoQ to INR55.5b.

We expect RPM to increase 1.4% QoQ to INR0.44.

With lower impact of seasonality on RCom, wireless traffic is likely to

grow 1.4% QoQ to 103b minutes.

Consolidated EBITDA would grow 5% QoQ to INR19.7b.

We estimate PAT at INR3.3b.

RCom trades at an EV/EBITDA of 8.9x FY14E and 6.9x FY15E. Neutral.


Key things to watch for: RPM trend (we expect 1.4% QoQ growth),

traffic growth (we expect 1.4% QoQ).


Net Sales 210.0 220.7 239.1 258.2

EBITDA 66.1 76.6 89.6 98.4

Adj. Net Profit 1.9 11.8 24.8 37.1

Adj. EPS (INR) 0.9 5.7 12.0 18.0

Adj. EPS Gr. (%) -80.3 506.4 110.1 49.7

BV/Sh (INR) 142.8 143.9 155.6 173.3

RoE (%) 0.6 4.0 8.0 10.9

RoCE (%) 3.3 4.6 5.7 7.2

Div. Payout (%) 9.0 4.0 2.6 1.7

Valuations

P/E (x) 139.1 22.9 10.9 7.3

P/BV (x) 0.9 0.9 0.8 0.8

EV/EBITDA (x) 10.0 8.9 6.9 5.7

Div. Yield (%) 0.2 0.2 0.2 0.2

Bloomberg RCOM IN


M. Cap. (INR b)/(USD b) 271 / 4


1,6,12 Rel Perf. (%) -8 / 1 / 69

C–190January 2014

December 2013 Results Preview | Sector: Utilities

Expected quarterly performance summary (INR Million)CMP Rating Sales EBITDA Net Profit



CESC 449 Buy 12,470 19.9 -23.6 3,043 14.4 -19.1 1,275 26.2 -25.5

Coal India 283 Neutral 183,710 6.0 19.2 45,493 6.1 62.8 42,828 -8.5 39.9

Jaiprakash Power 19 Buy 6,114 43.2 -36.9 3,775 40.9 -50.4 -875 Loss PL

JSW Energy 56 Neutral 26,215 10.8 29.5 9,370 11.9 11.8 3,062 -17.6 32.5

NHPC 20 Neutral 9,534 -5.6 -42.2 4,834 -21.2 -52.5 2,544 5.3 -67.2

NTPC 137 Buy 169,638 7.5 4.2 39,223 -1.8 -4.5 24,571 11.3 11.7

Power Grid Corp. 100 Buy 39,198 16.6 -1.6 34,229 17.1 1.5 11,963 8.0 16.2

PTC India 66 Buy 22,222 18.3 -29.2 272 -9.2 -59.9 250 14.7 -59.6

Reliance Infrastructure 431 Buy 34,453 -0.3 21.7 4,300 -12.2 -9.8 3,018 -19.5 -12.7

Tata Po wer 90 Neutral 97,578 7.9 11.3 16,783 -9.5 -17.4 2,489 -9.8 -1.4


We expect Utilities companies in our coverage to report aggregate revenue growth of

8% YoY and PAT de-growth of 2% YoY. The PAT de-growth would be led by Coal India

(down 8.5% YoY) and IPPs like JSW Energy (down 18% YoY), JP Power (down 10% YoY)

and R Infra (down 20% YoY). We expect NTPC and Powergrid to report PAT growth of

11% and 8% YoY, respectively, led by benefit from commercialization. We estimate

decline in Tata Power PAT due to lower contribution from mining business.

October-November generation growth muted at 3.5% YoY; PLF down 280bp: In

October-November 2013, all India generation saw muted growth at 3.5% YoY, led by

lower demand from SEBs. Overall PLF declined 280bp YoY to 53.1%. Coal and lignite

based generation grew 3.6% YoY but PLF declined 730bp, led by fuel supply issues and

lower demand. Gas-based generation continued to de-grow (down 41% YoY) on account

of decline in gas production in India. Hydro generation was up 31% YoY, led by good

monsoons, while nuclear generation grew 9% YoY.

Power deficit declines to ~4% for October-November; peak deficit remains low: Power

demand witnessed YoY de-growth of 4% and 2%, respectively in October and November

2013. Power supply grew 2% YoY, leading to base deficit of ~4% v/s 9% for the same

period last year. The southern region registered significant improvement, with deficit

declining to 5.2% from 18% last year. The substantial improvement is on account of

lower demand, led by good monsoons and reluctance of SEBs to buy high cost power.

The deficit in the western region has declined substantially to 0.9% from 3.7%.

Imported coal prices look up QoQ, INR appreciates; ST (IEX) prices remain below

INR3/unit: On an average, imported coal prices during the quarter were USD79/ton

v/s USD88/ton in 3QFY13 and USD73/ton in 2QFY14. 3QFY14 represents the first quarter

of increase in global coal prices after 9 quarters. However, the impact of increase is

limited, as the INR gained some ground and appreciated to INR62/USD v/s INR63/USD

in 2QFY14. However, continued uptrend in global coal prices could hurt operating

Nalin Bhatt ([email protected])

UtilitiesCompanies Covered

CESC

Coal India

Jaiprakash Po wer Ventures

JSW Energy

NHPC

NTPC

Power Grid

PTC India

Reliance Infrastructure

Tata Power

C–191January 2014


margins of companies like JSW Energy, Adani Power, etc. The short term prices in the

day-ahead market have remained muted and range below INR3/unit.

Valuation and view: The Power sector has begun to witness several initiatives by

authorities to address concerns on SEBs, fuel supply pacts and PPAs. It would, however,

take a while before clarity on several issues emerges. In this environment, we continue

to prefer CPSUs, which are relatively better positioned on these fronts.

Oct-Nov 2013: All-India generation growth muted Coal plant PLF dipped by 7.25p YoY

Power demand growth negative for Oct-Nov Base deficit remains range-bound at ~4%

Peak deficit too remains low ST prices remain muted, though up QoQ (INR/unit)

C–192January 2014



Comparative valuationCMP (INR) Rating EPS (INR) P/E (x) EV/EBITDA (x) RoE (%)


Utilities

CESC 449 Buy 49.2 55.0 56.9 9.1 8.2 7.9 4.1 5.1 4.8 12.3 12.5 11.6

Coal India 283 Neutral 28.0 28.5 30.5 10.1 9.9 9.3 7.4 5.8 5.5 28.4 24.8 23.6

Jaiprakash Power 19 Buy 1.3 1.3 2.2 14.6 14.5 8.7 15.4 13.1 7.1 6.3 5.8 9.6

JSW Energy 56 Neutral 6.5 7.6 6.7 8.6 7.3 8.3 6.2 5.0 5.2 17.8 19.0 15.1

NHPC 20 Neutral 1.7 2.1 2.4 11.7 9.3 8.4 8.4 9.0 7.7 7.0 7.8 8.6

NTPC 137 Buy 10.5 11.5 13.5 13.1 12.0 10.2 8.8 9.1 8.2 11.2 11.4 12.5

Power Grid Corp. 100 Buy 8.9 8.5 10.3 11.2 11.7 9.7 10.3 9.3 8.8 16.6 14.7 14.7

PTC India 66 Buy 6.7 8.1 8.1 9.9 8.1 8.2 8.3 7.0 6.4 5.6 5.1 5.6

Reliance Infra. 431 Buy 65.2 50.6 54.8 6.6 8.5 7.9 -2.3 0.3 0.6 10.7 6.7 6.9

Tata Power 90 Neutral 3.9 3.7 3.6 23.1 24.1 25.2 15.9 11.5 10.7 8.1 9.6 8.1


RB Index* prices improve QoQ (USD/ton) INR range-bound, up marginally QoQ

* 6,000Kcal, FoB South Africa Source: CEA, CERC and Bloomberg

60

75

90

105

120

Dec

-12

Ma

r-13

Jun-

13

Sep-

13

Dec

-13

Se nse x IndexMOSL Uti l i ties Index

95

100

105

110

115

Sep

-13

Oct

-13

No

v-13

Dec

-13

Sense x IndexMOSL Uti l i ties Index

C–193January 2014


Generation and PLFs of various plants

Capacity Nov-13 Nov-12 YTDFY14 YTDFY13

(MW)* Generation PLF (%) Generation PLF (%) Generation PLF (%) Generation PLF (%)

Adani Power

- Mundra 4,620 2,572.6 77.3 2,046.1 63.0 19,301.4 71.3 13,835.4 52.1

- Tirora 1,980 1,070.9 75.1 0.0 0.0 6,012.4 56.9 475.7 38.6

GVK

- JP 1 & 2 455 79.2 23.8 101.9 30.7 624.3 23.5 1,327.0 49.9

- Gautami 464 0.0 0.0 58.1 17.2 0.0 0.0 873.6 32.2

GMR

- Barge Mounted 570 160.6 38.6 30.3 18.9 362.0 10.9 356.4 27.7

- Chennai 200 106.1 72.6 31.6 21.6 539.0 46.1 384.0 32.9

- Vemagiri 370 0.0 0.0 44.5 16.5 0.0 0.0 0.0 0.0

JPL

- Chattisgarh 1,000 703.7 97.7 572.3 79.5 5,715.9 97.6 5,237.2 89.4

Rel Infra

- Dahanu 500 341.8 95.0 369.4 102.6 2,846.3 97.2 2,911.1 99.4

- Samalkot (AP) 220 37.8 23.6 45.0 28.0 325.5 25.3 548.1 42.7

- Goa 48 21.0 59.9 21.6 61.6 170.7 60.9 165.1 58.9

- Kochi 174 0.0 0.0 0.0 0.0 47.0 9.3 0.0 0.0

Rel Power

- Rosa 1,200 796.1 92.1 821.6 95.1 5,557.2 79.1 5,300.6 75.4

Tata Power

- Trombay 1,580 683.9 73.9 765.5 62.2 5,176.8 53.0 6,666.2 68.5

- TISCO (Jamshedpur) 441 167.2 64.5 206.6 79.7 1,632.2 77.4 1,955.7 89.1

- Mundra UMPP 4,000 1,268.2 44.0 1,266.7 73.3 14,882.7 63.5 5,232.9 68.1

- Maithon 1,050 545.9 72.2 0.0 0.0 4,057.1 66.0 2,726.2 54.1

Torrent Power

- Existing 500 273.8 95.1 203.3 67.2 1,707.8 72.9 2,172.7 88.1

- Sugen 1,148 164.2 19.6 236.1 28.2 1,536.9 22.9 3,376.3 50.4

JSW Energy

- Rajwest 1,080 160.4 20.6 325.0 83.6 3,305.3 52.3 2,284.3 72.2

- Karnataka/Ratnagiri 2,060 609.3 98.4 1,413.1 95.3 8,787.0 83.1 10,084.8 95.3

CESC 1,285 683.9 73.9 655.5 70.9 6,301.2 83.7 6,304.1 83.8

Lanco Infratech

- Kondapali 716 113.6 21.7 170.1 32.5 990.5 23.7 1,831.6 43.8

- Amarkantak 600 209.0 48.4 257.4 59.6 1,452.9 41.4 2,086.2 59.4

- UPCL 1,200 361.3 41.8 663.5 88.5 4,239.8 60.3 3,698.7 72.7

- Anpara 1,200 635.4 73.5 525.5 60.8 4,450.3 63.3 4,450.3 38.0

KSK

- Wardha 1,140 506.1 61.7 251.6 64.7 2,719.7 57.9 2,265.4 71.6

Sterlite

- Jharsuguda 2,400 602.1 34.8 536.6 31.1 5,915.3 42.1 5,498.6 40.0

*Monitored capacity by CEA Source: CEA

C–194January 2014


Quarterly Performance (Standalone Numbers - excl Spencers Retail) (INR Million)



Sales 14,200 13,440 10,400 15,130 14,360 16,320 12,470 17,849 52,420 60,124

Change (%) 20.0 8.3 0.8 9.7 1.1 21.4 19.9 18.0 14.1 14.7

EBITDA 2,900 3,110 2,660 4,570 3,210 3,760 3,043 4,820 13,240 14,833

Change (%) 8.6 19.6 24.9 5.8 10.7 20.9 14.4 5.5 14.4 12.0

As of % Sales 20.4 23.1 25.6 30.2 22.4 23.0 24.4 27.0 25.3 24.7

Depreciation 770 760 770 760 840 840 830 858 3,060 3,368

Interest 780 890 860 850 900 1,030 800 814 3,380 3,544

Other Income 210 240 240 240 190 270 200 165 930 825

PBT 1,560 1,700 1,270 3,200 1,660 2,160 1,613 3,312 7,730 8,745

Tax 310 340 260 640 350 450 338 695 1,550 1,833


Reported PAT 1,250 1,360 1,010 2,560 1,310 1,710 1,275 2,617 6,180 6,912

Adjusted PAT 1,250 1,360 1,010 2,560 1,310 1,710 1,275 2,617 6,180 6,912

Change (%) 12.5 19.3 36.5 2.0 4.8 25.7 26.2 2.2 12.4 11.8


Generation 2,430 2,426 2,067 1,792 2,404 2,450 2,104 1,912 8,715 8,870

S a l e s 3,388 3,173 2,383 2,414 3,342 3,299 2,634 3,129 11,357 12,405

Realization (Rs/unit) 4.2 4.2 4.4 6.3 4.3 4.9 4.7 5.7 4.6 4.8

Overall PLF (Derived) (%) 90.6 90.4 77.0 66.8 89.6 91.3 78.4 71.3 81.2 82.7

E: MOSL Estimates

CESCCMP: INR449 Buy


S a l e s 52.4 60.1 65.5 72.0

EBITDA 12.5 14.0 14.3 15.2

Net Profit 6.2 6.9 7.2 7.8

Adj. EPS (INR) 49.2 55.0 56.9 62.0

EPS Gr. (%) 11.6 11.8 3.5 8.9

BV/Sh (INR) 416.4 465.7 517.0 573.2

RoE (%) 12.3 12.5 11.6 11.4

RoCE (%) 10.9 10.9 10.4 10.4

Payout (%) 14.2 12.7 14.1 12.9

Valuations

P/E (x) 9.1 8.2 7.9 7.2

P/BV (x) 1.1 1.0 0.9 0.8

EV/EBITDA (x) 6.3 5.4 5.0 4.4

Div. Yield (%) 1.6 1.6 1.8 1.8

Bloomberg CESC IN




1,6,12 Rel Perf. (%) 14 / 23 / 37

We expect CESC to report PAT of INR1.3b, a growth of 26%, on account

of higher accretion to regulated assets capitalized in FY13 and tariff

hike in 4QFY13. We expect revenue of INR12.5b (up 20% YoY) and

EBITDA of INR3b (up 14% YoY).

We estimate generation of 2.1b units and sales of 2.6BU in 3QFY14.

PLF would be almost flat YoY.

CESC has recently commissioned its mall in Kolkata. It would also earn

rental income in the standalone entity. The full-year impact of the

rental income would be ~INR150m.

Spencers has been consistently consolidating (closing less profitable

stores) and plans to concentrate more on hyperstores.

CESC has synchronized one of its units at the 600MW Dhariwal project

and it would be commissioned shortly.

We expect standalone (ex Spencers) PAT of INR6.9b in FY14 (up 12%)

and INR7.2b in FY15 (up 4%).


Performance of Spencers - same store sales (SSS) growth, store

EBITDA.

Details on commissioning of Chandrapur facility.

Details on Ranchi distribution circle.

C–195January 2014




Sales 165,006 145,725 173,250 199,046 164,724 154,115 183,710 208,915 683,027 711,464

Change (%) 13.8 10.8 12.9 2.5 -0.2 5.8 6.0 5.0 9.4 4.2

EBITDA 48,146 28,617 42,883 61,191 39,579 27,940 45,493 83,159 180,836 196,171

Change (%) -0.1 15.5 -5.6 61.6 -17.8 -2.4 6.1 35.9 15.6 8.5

As of % Sales 29.2 19.6 24.8 30.7 24.0 18.1 24.8 39.8 26.5 27.6

Depreciation 5,356 3,872 4,204 4,698 4,757 4,949 4,850 4,858 18,130 19,414

Interest 126 102 96 127 74 80 100 145 452 399

Other Income 20,714 20,929 23,605 22,065 22,196 21,828 23,000 23,700 87,467 90,724

EO Income/(Expense) -103 -107 -2,849 0 -50 -91 0 0 69 -50

PBT 63,275 45,464 59,338 78,431 56,894 44,647 63,543 101,855 249,790 267,031

Tax 18,582 14,703 18,387 24,508 19,585 14,124 20,715 32,726 76,227 87,150


Reported PAT 44,693 30,761 40,951 53,923 37,310 30,524 42,828 69,129 173,564 179,881

Adjusted PAT* 44,796 30,781 46,801 54,139 37,360 30,615 42,828 69,129 176,624 179,931

Change (%) 8.4 37.8 26.8 -10.5 -16.6 -0.5 -8.5 27.7 9.9 1.9

Key Operational metrics

Production 102.5 89.1 117.4 143.3 102.9 97.6 125.0 152.2 452.2 477.7

Sales/Offtake 113.0 101.7 120.5 130.0 115.3 109.1 129.0 139.3 465.2 492.7

Blended Realization (INR/ton)

- Regulated 1,267 1,281 1,232 1,403 1,296 1,262 1,300 1,396 1,298 1,318

- E-auction 2,562 2,460 2,941 2,308 2,140 2,220 2,250 2,246 2,544 2,212

- Washed Coal 2,315 2,092 2,491 2,264 2,117 2,327 2,200 2,116 2,300 2,186

- Own Consumption 3,023 2,626 2,703 2,759 2,810 1,816 5,000 5,477 2,781 2,848

E: MOSL Estimates; *Pre Exceptional

Coal IndiaCMP: INR283 Neutral


S a l e s 683.0 711.5 755.4 802.3

EBITDA 180.8 196.2 209.1 222.2

NP* 176.6 179.9 192.8 203.7

EPS (INR)* 28.0 28.5 30.5 32.3

EPS Gr. (%) 9.3 1.9 7.2 5.7

BV/Sh. (INR) 76.7 88.1 100.3 113.2

RoE (%)** 28.4 24.8 23.6 22.2

RoCE (%) 56.9 52.5 48.8 45.4

Payout (%) 50.1 50.1 50.1 60.1

Valuations

P/E (x) 10.1 9.9 9.3 8.8

P/BV (x) 3.7 3.2 2.8 2.5

EV/EBITDA (x) 6.5 5.8 5.5 4.8

Div. Yield (%) 4.9 5.0 5.4 6.8

*Adj. EPS, **RoE is adj.for OB reserves

accounts, as appplicable under IFRS

Bloomberg COAL IN


M. Cap. (INR b)/(USD b) 1,787 / 29


1,6,12 Rel Perf. (%) 3 / -14 / -30

We expect Coal India to report revenue of INR183.7b (up 6% YoY) and

PAT of INR43b (down 9% YoY) for 3QFY14. Dispatches would grow 7%

YoY to 129m tons; we estimate production at 125m tons, up 6.5% YoY.

The RB Index has improved from USD73/ton in 2QFY14 to USD78/ton -

the first ever QoQ improvement after nine consecutive quarters of

decline. The INR has appreciated marginally to INR62 from INR63 in

the previous quarter. Higher coal prices could help improve realizations

for e-auction/washed coal, going forward.

ACQ realization is likely to be higher in 3QFY14, as Coal India had

taken a tariff hike effective from mid-May.

We expect consolidated PAT of INR180b in FY14 (up 2%) and INR193b

in FY15 (up 7%). The stock trades at 9.3x FY15E EPS.


Volumes, realization trend for 3Q and guidance for FY14/15.

E-auction and ACQ mix guidance for FY14/15.

Modalities of coal import.

Clarity on OFS/buyback and special dividend.

C–196January 2014


Jaiprakash Power VenturesCMP: INR19 Buy


S a l e s 24.6 33.5 72.8 109.3

EBITDA 19.3 25.2 46.5 63.7

NP 3.8 3.8 6.3 13.7

EPS (INR) 1.3 1.3 2.2 4.7

EPS Gr. (%) (6.1) 0.8 66.9 116.8

BV/Sh. (INR) 22.0 22.9 21.9 26.2

RoE (%) 6.3 5.8 9.6 19.4

RoCE (%) 5.9 6.1 9.8 14.0

Payout (%) - - - -

Valuations

P/E (x) 14.6 14.5 8.7 4.0

P/BV (x) 0.8 0.8 0.9 0.7

EV/EBITDA (x) 14.3 13.1 7.1 4.6

Div. Yield (%) - - - -

Bloomberg JPVL IN




1,6,12 Rel Perf. (%) 4 / -13 / -60



Sales 5,454 9,058 4,270 3,744 7,863 9,692 6,114 8,437 22,526 32,106

Change (%) 98.1 39.4 7.6 27.5 44.2 7.0 43.2 125.3 39.4 42.5

EBITDA 4,900 8,115 2,679 1,637 5,882 7,610 3,775 6,623 17,331 23,890

Change (%) 98.6 33.4 -25.0 -32.9 20.0 -6.2 40.9 304.6 19.0 37.8

As of % Sales 89.9 89.6 62.7 43.7 74.8 78.5 61.7 78.5 76.9 74.4

Depreciation 674 774 960 831 1,082 1,075 1,350 1,603 3,239 5,110

Interest 2,278 2,885 2,874 2,946 3,506 3,574 3,650 3,916 10,983 14,645

Other Income 91 73 113 105 48 74 200 263 382 585

PBT 2,039 4,528 -1,043 -2,034 1,343 3,036 -1,025 1,367 3,491 4,720

Tax 210 868 -67 -811 414 517 150 455 200 1,536

Effective Tax Rate (%) 10.3 19.2 6.4 39.9 30.8 17.0 -14.6 33.3 5.7 32.5

Reported PAT 1,830 3,660 -976 -1,223 929 2,519 -875 912 3,292 3,184

Adjusted PAT (Pre Exceptional) 1,830 3,660 -976 -973 1,179 2,519 -875 912 3,542 3,434

Change (%) 162.9 30.4 -263.9 1,338.8 -35.6 -31.2 -10.3 -193.7 -11.7 -3.0

Operational Details - Generation (MU)

B a s p a 343 660 151 104 426 650 158 185 1,258 915

Vishnuprayag 574 937 261 116 438 0 0 0 1,888 1,314

Karcham Wangtoo 1,191 2,154 467 242 1,528 2,279 475 185 4,054 2,863

Bina 0 11 171 238 301 319 821 880 421 421

E: MOSL Estimates

For 3QFY14, we expect JPVL to post revenue of INR6b (up 43% YoY),

EBITDA of INR3.8b (up 41% YoY) and net loss of INR875 (down 10%

YoY).

We estimate generation at 475MU from Karcham Wangtoo and at

821MU from Bina. Vishnuprayag was not operational during the

quarter.

Nigrie (1.3GW) is likely to be commissioned in FY14 and Bara I (2GW)

in FY15.

The Amelia North mine is also expected to commission in 2HFY14.

We expect JPVL to post net profit of INR3.8b in FY14 (up 1%) and INR6.3b

in FY15 (up 67%). The stock trades at 8.7x FY15E EPS.


Clarity on offloading hydro assets.

Coal availability for Bina TPS (500MW).

Updates on clearance of Dongri Tal II coal mine.

Updates on commissioning of Nigrie (1.3GW) and Bara I (2GW).

C–197January 2014





Total Operating Income 21,915 20,765 23,652 23,010 24,310 20,246 26,215 28,191 89,343 99,370

Change (%) 72.2 108.4 33.7 10.6 10.9 -2.5 10.8 22.5 46.0 11.2

EBITDA 5,834 5,769 8,370 7,959 9,226 8,378 9,370 9,651 27,932 36,626

Change (%) 48.4 388.2 139.5 35.6 58.1 45.2 11.9 21.3 92.9 31.1

Depreciation 1,697 1,605 1,572 1,741 2,008 2,032 2,350 2,468 6,615 8,858

Interest 2,426 2,281 2,364 2,557 2,747 2,927 3,100 3,205 9,628 11,978

Other Income 764 453 300 617 453 549 400 407 2,134 1,809

Extraordinary items 2,325 -925 610 -43 1,872 1,675 0 0 1,966 3,547

PBT 150 3,261 4,125 4,322 3,052 2,293 4,320 4,386 11,857 14,052

Tax 160 721 1,005 848 870 569 1,188 1,303 2,733 3,930


Reported PAT -10 2,540 3,120 3,474 2,182 1,724 3,132 3,083 9,124 10,122

Share of profit from Assoc 0 0 0 -117 46 61 40 40 -117 187

Minority interest -44 -1 15 0 -5 37 30 27 -29 89

Exceptional Income/ (Expense) 1,915 -925 610 -43 1,872 685 0 0 1,556 2,557

Reported PAT (Post MI) 34 2,541 3,105 3,357 2,141 1,626 3,062 3,016 9,037 9,846

Adjusted PAT 1,949 1,615 3,715 3,314 4,013 2,311 3,062 3,016 10,592 12,403

Change (%) 43.0 n.a. n.a. 96.9 105.9 43.1 -17.6 -9.0 219.8 17.1

Operational Details

Sales Mix (MUs)

- Long Term 2,233 2,036 2,264 2,271 2,704 2,268 2,472 2,309 8,808 9,753

- Merchant 2,498 2,205 2,616 2,570 2,275 1,507 2,819 3,140 9,885 9,741

Realization (INR/unit) 4.56 4.81 4.77 4.67 4.88 5.26 4.89 5.12 4.70 5.02

- PPA 3.64 3.65 3.30 2.99 3.81 4.30 3.74 3.98 3.26 3.89

- Merchant 4.40 4.60 4.60 4.60 4.48 5.20 4.55 4.60 4.55 4.65

E: MOSL Estimates

JSW EnergyCMP: INR56 Neutral


S a l e s 89.3 99.4 102.4 102.7

EBITDA 27.9 36.6 32.1 28.7

NP 10.6 12.4 11.0 9.8

Adj. EPS (INR) 6.5 7.6 6.7 6.0

EPS Gr. (%) 219.7 17.1 -11.6 -10.9

BV/Sh. (INR) 37.8 42.1 46.9 51.2

RoE (%) 17.8 19.0 15.1 12.2

RoCE (%) 14.4 15.9 14.7 13.2

Payout (%) 31.0 19.8 25.0 25.0

Valuations

P/E (x) 8.6 7.3 8.3 9.3

P/BV (x) 1.5 1.3 1.2 1.1

EV/EBITDA (x) 6.3 5.1 5.2 5.2

Div. yield (%) 3.6 2.7 3.0 2.7

Bloomberg JSW IN




1,6,12 Rel Perf. (%) 7 / 15 / -25

We expect JSWEL to report consolidated revenue of INR26b (up 11%

YoY) and PAT of INR3.1b (down 18% YoY).

We estimate generation of 5.4BU, including coal and lignite capacity.

The growth in generation would primari ly be led by RajWest project.

We assume moderation in generation for Vijayanagar and Ratnagiri

projects.

We have assumed short-term realization of INR4.6/unit, almost flat

YoY. We expect fuel cost to be ~INR2.7/unit (coal based) as the mix of

South African and Indonesian coal changes during the quarter.

The entire capacity of RajWest project (1,080MW) is operational.

Clearance for enhancing the capacity of the Kaprudi lignite mine is

still pending.

We expect JSWEL to report consolidated PAT of INR12.4b in FY14 (up

17%) and INR11.0b in FY15 (down 12%). Stock trades at 8.3x FY15E EPS.


ST realization, fuel mix and fuel cost for 3QFY14, and guidance for

FY14/15.

RajWest project: lignite mine clearance.

Capacity addition targets under the 12th plan.

C–198January 2014





Sales 14,218 17,725 10,104 10,994 16,194 16,500 9,534 12,142 53,066 54,370

Change (%) -3.3 -4.6 14.6 -23.8 13.9 -6.9 -5.6 10.4 -6.2 2.5

EBITDA 9,040 12,036 6,132 6,050 10,707 10,187 4,834 7,139 33,240 32,868

Change (%) -5.5 -9.4 61.9 -39.1 18.4 -15.4 -21.2 18.0 -9.1 -1.1

As of % Sales 63.6 67.9 60.7 55.0 66.1 61.7 50.7 58.8 62.6 60.5

Depreciation 2,218 2,532 2,390 2,546 2,760 2,825 2,625 2,214 9,693 10,425

Interest 798 1,047 989 1,020 1,160 1,203 1,200 958 3,854 4,521

Other Income 2,451 2,406 1,890 3,156 2,486 3,002 2,500 1,433 9,928 9,421

EO Income/(Expense) 0 0 0 2,400 0 0 0 0 2,400 0

PBT 8,475 10,863 4,644 8,041 9,272 9,161 3,509 5,401 32,021 27,343

Tax 1,777 3,028 1,526 2,208 2,073 2,085 965 2,355 8,539 7,478


Reported PAT 6,698 7,834 3,118 5,833 7,199 7,076 2,544 3,045 23,482 19,865

Adjusted PAT 6,450 7,272 2,416 2,863 7,160 7,747 2,544 3,045 19,000 20,497

Change (%) 6.6 -6.4 -18.8 35.7 11.0 6.5 5.3 6.4 0.6 7.9

Operational Details

Generation (MUs) 6,148 7,634 2,563 2,496 6,388 6,719 2,350 2,286 22,825 21,737

Increase/ (Decrease) (%) -2.2 10.0 -17.8 4.6 3.9 -12.0 -8.3 -8.4 22.2 -4.8

Installed Capacity (MW) 5,287 5,518 5,551 5,562 5,694 5,814 5,979 6,499 5,562 5,979

- Owned 3,767 3,998 4,031 4,042 4,174 4,294 4,459 4,979 4,042 4,459

- JV's 1,520 1,520 1,520 1,520 1,520 1,520 1,520 1,520 1,520 1,520

E: MOSL Estimates

NHPCCMP: INR20 Neutral


S a l e s 64.0 64.3 70.5 72.9

EBITDA 41.8 41.3 45.7 46.0

NP 23.6 26.5 29.5 30.7

Adj. EPS (INR) 1.7 2.1 2.4 2.8

EPS Gr. (%) -5.9 25.4 11.5 17.8

BV/Sh. (INR) 24.7 26.6 28.0 29.4

RoE (%) 7.0 7.8 8.6 8.5

RoCE (%) 8.5 8.0 8.7 8.8

Payout (%) 30.8 33.7 36.0 37.6

Valuations

P/E (X) 11.7 9.3 8.4 7.1

P/BV (X) 0.8 0.7 0.7 0.7

EV/EBITDA (X) 8.4 8.4 7.2 6.8

Div. Yield (%) 3.0 3.5 4.2 4.6

Bloomberg NHPC IN


M. Cap. (INR b)/(USD b) 242 / 4


1,6,12 Rel Perf. (%) 7 / -1 / -33

We expect NHPC to report revenue of INR9.5b (down 6% YoY) and PAT

of INR2.5b (up 5% YoY) for 3QFY14. Generation is likely to decline from

2.6BU in 3QFY13 to 2.4BU due to the impact of floods.

In FY14, NHPC is targeting to add 937MW of projects, while it has

commissioned TLDP III (132MW) during 1QFY14 and 3 units of URI II

(120MW) in 2Q/3QFY14. Nimo Bazgo (45MW), 1 unit of URI II (120MW)

and Parbati III are also expected to commission in FY14.

NHPC has guided addition of only 164MW TLDP IV during FY15/16.

However, given substantial delays in FY13 capacity addition and current

expectation of ~937MW addition in FY14, we expect slippages in

commissioning in FY14, to be passed on to FY15.

We expect NHPC to report consolidated PAT of INR26.5b in FY14 (up

25%) and INR29.5b in FY15 (up 11.5%). The stock trades at 8.4x FY15E

EPS.


Incentives for 3QFY14 and progress on projects impacted by floods.

Total capacity addition for FY14/15.

Updates on Parbati II and Subhanshri Lower projects.

C–199January 2014




Sales 159,600 161,197 157,749 164,618 156,129 162,723 169,638 171,900 643,164 660,390

Change (%) 12.6 4.8 2.9 1.2 -2.2 0.9 7.5 4.4 5.2 2.7

EBITDA 36,306 42,243 39,952 39,065 42,653 41,088 39,223 39,607 157,565 162,571

Change (%) 26.7 30.4 39.9 -5.0 17.5 -2.7 -1.8 1.4 19.9 3.2

As of % Sales 22.7 26.2 25.3 23.7 27.3 25.3 23.1 23.0 24.5 24.6

Depreciation 7,602 7,865 8,288 10,213 9,423 9,679 10,000 10,389 33,968 39,491

Interest 4,994 3,035 5,304 5,912 6,174 6,205 6,400 6,825 19,244 25,604

Other Income 8,849 10,482 7,546 17,714 7,459 7,871 7,890 9,648 44,591 32,868

EO Inc./(Exp.) 16,841 0 0 0 0 16,841 0

PBT 32,559 41,825 33,907 57,495 34,514 33,075 30,713 32,041 165,786 130,344

Tax 7,573 10,402 7,940 13,679 9,244 8,146 6,143 6,151 39,592 29,684


Reported PAT 24,987 31,424 25,968 43,816 25,270 24,929 24,571 25,890 126,194 100,660

Adjusted PAT 24,093 19,440 22,069 22,054 22,263 21,989 24,571 25,890 86,352 94,712

Change (%) 26.7 31.4 6.7 -3.9 -7.6 13.1 11.3 17.4 8.3 9.7

Capacity

- NTPC 34,810 34,810 34,810 35,810 35,810 35,810 36,310 36,970 35,810 36,970

- JVs 4,364 4,364 4,864 5,364 5,364 5,364 5,864 6,059 5,364 6,059

Total 39,174 39,174 39,674 41,174 41,174 41,174 42,174 43,029 41,174 43,029

Addition 2,160 - 500 1,500 - - 1,000 855 4,160 1,855

E: MOSL Estimates; Adj profit based on the calculations provided by the management

NTPCCMP: INR137 Buy


S a l e s 647.0 660.4 759.5 809.2

EBITDA 171.1 165.3 188.2 212.8

NP 86.4 94.7 111.5 124.5

Adj EPS (INR) 10.5 11.5 13.5 15.1

EPS Gr. (%) 8.3 9.7 17.7 11.6

BV/Sh. (INR) 97.5 104.5 112.5 121.4

RoE (%) 11.2 11.4 12.5 12.9

RoCE (%) 14.3 11.0 11.4 11.7

Payout (%) 43.4 42.2 41.2 41.2

Valuations

P/E (x) 13.1 12.0 10.2 9.1

P/BV (x) 1.4 1.3 1.2 1.1

EV/EBITDA (x) 8.6 9.1 8.2 7.5

Div. Yield (%) 4.2 3.2 3.5 3.9

Bloomberg NTPC IN


M. Cap. (INR b)/(USD b) 1,133 / 18


1,6,12 Rel Perf. (%) -10 / -14 / -21

We expect NTPC to report PAT of INR24.5b (up 11% YoY). Profit growth

would mainly be led by the addition of new capacities.

Generation is likely to be flat YoY, mainly led by lower generation

from gas-based capacity at ~2.8BU v/s 5.2BU in 3QFY13, down 46% YoY.

We expect coal-based generation to remain flat.

For FY14, the capacity addition target stands at 1.8GW. While NTPC has

commissioned 1.1GW by December 2013, the total commercialization

target for FY14 is 1.5GW.

NTPC's Farakka project in West Bengal has started movement of

imported coal by barges through inland waterways. NTPC will

transport 3mmtpa of coal through inland waterways to the Farakka

station for seven years.

NTPC's Koldam project dam refilling exercise has begun and the project

is expected to be commissioned next year.

We expect NTPC to report PAT of INR94.7b in FY14 (up 10%) and INR112b

in FY15 (up 18%). The stock trades at 10.2x FY15E EPS. Maintain Buy .


Plant avai lability factor (PAF) for coal-based projects and generation

loss.

Guidance on capacity addition/commercialization for FY14/15.

Updates on captive coal block development.

C–200January 2014




Sales 28,883 30,858 33,617 33,738 35,565 39,816 39,198 40,535 127,095 155,115

Change (%) 31.1 36.3 36.3 8.8 23.1 29.0 16.6 20.1 26.6 22.0

EBITDA 24,646 26,693 29,231 28,311 30,557 33,709 34,229 36,584 108,880 135,079

Change (%) 33.6 40.6 39.0 8.7 24.0 26.3 17.1 29.2 29.9 24.1

As of % Sales 85.3 86.5 87.0 83.9 85.9 84.7 87.3 90.3 85.7 87.1

Depreciation 7,565 8,252 8,653 9,049 9,644 9,660 10,057 12,868 33,519 42,230

Interest 6,461 5,295 6,848 6,747 7,599 8,014 8,259 7,751 25,352 31,623

Other Income 920 1,570 1,286 2,417 803 1,228 1,300 1,296 6,193 4,626

Extraordinary Inc / (Exp) 0 -140 6 -117 60 0 0 0 -247 0

PBT 11,540 14,856 15,009 15,049 14,177 17,263 17,213 17,260 56,449 65,853

Tax 2,836 3,597 3,717 3,954 3,747 4,815 5,250 5,181 14,104 18,993


Reported PAT 8,705 11,259 11,291 11,094 10,431 12,447 11,963 12,079 42,345 46,859

Adjusted PAT (Pre Exceptional) 9,065 10,071 11,072 10,926 10,370 10,296 11,963 12,073 41,359 44,702

Change (%) 29.1 32.5 43.0 0.9 14.4 2.2 8.0 10.5 24.6 8.1

Operational Details

Capitalization 41,000 26,600 25,860 78,540 29,500 20,500 60,000 75,000 172,000 185,000

Regulated Equity 190,112 198,092 205,850 215,000 223,850 230,000 248,000 270,500 215,000 270,500

E: MOSL Estimates

Power Grid CorporationCMP: INR100 Buy


S a l e s 127.6 155.1 181.1 216.8

EBITDA 109.4 135.1 158.0 190.3

NP 41.4 44.7 53.7 66.6

EPS (INR) 8.9 8.5 10.3 12.7

EPS Gr. (%) 24.6 -4.4 20.0 24.1

BV/Sh. (INR ) 56.7 66.5 73.2 81.4

RoE (%) 16.6 14.7 14.7 16.5

RoCE (%) 9.3 9.2 9.0 9.6

Payout (%) 35.0 33.3 35.0 35.0

Valuations

P/E (x) 11.2 11.7 9.7 7.8

P/BV (x) 1.8 1.5 1.4 1.2

EV/EBITDA (x) 10.0 9.3 8.8 8.0

Div. Yield (%) 2.8 2.6 3.1 3.8

Bloomberg PWGR IN


M. Cap. (INR b)/(USD b) 522 / 8


1,6,12 Rel Perf. (%) 5 / -19 / -22

We expect PWGR to report PAT of INR12b (up 8% YoY) for 3QFY14.

Profit growth would be led mainly by capitalization. We expect PWGR

to capitalize INR60b during the quarter, higher than the average

INR25b/quarter in 1HFY14. We expect capex of INR53b in 3QFY14.

We estimate Consultancy revenue at INR1.4b and Telecom revenue at

INR725m. We estimate contribution of ~INR850m to PBT from

Consultancy and Telecom.

PWGR has synchronized the Raichur-Solapur 765kV single circuit

transmission line, integrating the southern region with the all-India

grid. The line has load carrying capacity of 2GW.

PWGR has raised INR54b through fresh issue of shares, which would

enable it to meet equity funding requirement for projects under

construction.

We expect PAT of INR44.7b in FY14 (down 4%) and INR54b in FY15 (up

20%). The stock trades at 9.7x FY15E EPS and 1.4x FY15E BV.


Capitalization/capex guidance for FY14/15.

Updates on green energy projects.

Updates on state JVs.

C–201January 2014




Sales 19,869 27,928 18,778 21,987 27,704 31,402 22,222 25,921 88,569 107,249

Change (%) -20.1 16.9 41.2 52.3 39.4 12.4 18.3 17.9

EBITDA 313 569 300 512 340 679 272 293 1,700 1,584

Change (%) -34.4 28.3 42.9 58.7 8.6 19.2 -9.2 -42.7 17.0 -6.8

As of % Sales 1.6 2.0 1.6 2.3 1.2 2.2 1.2 1.1 1.9 1.5

Depreciation 10 10 11 11 11 11 11 13 42 46

Interest 1 4 4 0 4 3 2 1 9 10

Other Income 26 63 12 23 81 189 70 91 119 431

Extraordinary Income/(Expense) -23 0 0 7 3 1 0 0 -17 -4

PBT 304 619 297 530 410 854 329 370 1,785 1,964

Tax 98 173 79 147 114 235 79 91 497 519


Reported PAT 206 446 218 371 296 619 250 279 1,287 1,445

Adjusted PAT 229 446 218 377 293 618 250 279 1,270 1,441

Change (%) -49.4 25.4 129.2 26.2 27.8 38.7 14.7 -26.0

Operational Details

Power Traded (MUs) 6,566 9,428 5,871 6,732 8,068 10,450 6,240 7,075 28,597 31,833

Growth (% YoY) -2.4 8.9 28.6 53.7 22.9 10.8 6.3 5.1 17.6 11.3

Adj Margins (Ps/Unit) 3.98 3.06 3.74 3.71 3.48 4.06 3.75 3.80 3.31 3.79

E: MOSL Estimates; % Change for FY13E not comparable given inclusion of tolling profits from 1QFY13 onwards

PTC IndiaCMP: INR66 Buy


S a l e s 88.6 107.2 126.6 139.3

EBITDA 1.7 1.6 1.4 1.5

NP 2.0 2.4 2.4 2.7

Adj. EPS (INR) 6.7 8.1 8.1 9.0

EPS Gr. (%) -3.2 21.0 -0.4 11.5

BV/Sh. (INR) 78.6 80.8 83.3 86.3

RoE (%) 5.6 5.1 5.6 6.4

RoCE (%) 3.8 5.4 5.6 6.8

Payout (%) 45.0 45.4 45.0 45.0

Valuations

P/E (x) 9.9 8.1 8.2 7.3

P/BV (x) 0.8 0.8 0.8 0.8

EV/EBITDA (x) 9.4 7.0 6.4 5.1

Div. yield (%) 3.0 2.8 3.1 3.7

Bloomberg PTCIN IN




1,6,12 Rel Perf. (%) 3 / 33 / -19

We expect PTCIN to report revenue of INR22b (up 18% YoY) and PAT of

INR250m (up 15% YoY) for 3QFY14.

We estimate volumes at ~6.3BU (up 6% YoY) and adjusted trading

margin at ~Paisa3.8/kwh.

On the Simhapuri/Meenaxi tolling business, we expect PTCIN to

achieve sales volume of 460MU and PBT spread of INR0.30/unit, flat

QoQ.

Higher rebate and surcharge income had boosted PAT in 2QFY14 and

provisioning of the same in 3QFY14 remains a key monitorable.

We expect PTCIN to report consolidated PAT of INR2.4b in FY14 (up

21%) and INR2.4b in FY15 (flat YoY). The stock trades at 8.2x FY15E EPS.


Trading volumes and margins for FY14 and guidance for FY15.

Simhapuri and Meenakshi business volumes and PBT contribution.

Receipt of outstanding dues from Uttar Pradesh DISCOMs.

Guidance on commissioning of projects.

C–202January 2014





Sales 34,473 35,002 34,552 39,193 32,789 28,318 34,453 46,523 143,220 142,083

Change (%) -5.8 -11.4 -22.8 -31.6 -4.9 -19.1 -0.3 18.7 -19.6 -0.8

EBITDA 4,598 4,535 4,898 5,126 4,401 4,768 4,300 4,315 19,158 17,784

Change (%) -33.9 -36.1 -24.9 -17.0 -4.3 5.1 -12.2 -15.8 -28.4 -7.2

As of % Sales 13.3 13.0 14.2 13.1 13.4 16.8 12.5 9.3 13.4 12.5

Depreciation 1,130 922 980 888 828 847 1,000 1,024 3,921 3,699

Interest 1,902 1,980 2,055 1,902 2,172 2,316 2,250 2,273 8,794 9,011

Other Income 2,586 3,457 2,433 1,374 3,141 3,004 2,500 2,524 10,806 11,169

Exceptional item 4,183 0 0 0 0 0 4,183 0

PBT 4,152 5,090 8,480 3,710 4,542 4,608 3,550 3,542 21,432 16,243

Tax (incl con tingencies) 882 949 1,887 -2,280 800 1,150 533 441 1,437 2,924

Effective Tax Rate (%) 21.2 18.6 22.2 -61.5 17.6 25.0 15.0 12.5 6.7 18.0

Reported PAT 3,270 4,141 6,594 5,990 3,742 3,458 3,018 3,101 19,995 13,319

PAT (Pre Exceptionals) 3,270 4,141 3,749 5,990 3,742 3,458 3,018 3,101 17,150 13,319

Change (%) 13.8 -15.5 -7.6 -7.5 14.4 -16.5 -19.5 -48.2 -12.6 -22.3

Operational Details - EPC Division

Revenues 17,749 19,184 19,260 23,049 16,537 12,375 17,874 26,754 79,243 73,540

EBIDTA 3,031 2,836 3,050 3,533 2,312 1,785 1,877 1,772 16,114 7,746

Margin (%) 17.1 14.8 15.8 15.3 14.0 14.4 10.5 6.6 20.3 10.5

E: MOSL Estimates; Quarterly nos. are on standalone basis

Reliance InfrastructureCMP: INR431 Buy


S a l e s 142.7 142.1 149.7 166.5

EBITDA 18.6 17.8 18.8 21.1

NP 17.2 13.3 14.4 17.0

Adj. EPS(INR) 65.2 50.6 54.8 64.8

EPS Gr. (%) -14.3 -22.3 8.3 18.2

BV/Sh. (INR) 734 777 823 879

ROE (%) 10.7 6.7 6.9 7.6

ROCE (%) 10.7 8.3 8.6 9.3

Payout (%) 11.2 14.9 15.4 13.0

Valuations

P/E (X) 6.6 8.5 7.9 6.6

P/BV (X) 0.6 0.6 0.5 0.5

EV/EBITDA (X) -0.8 0.3 0.6 0.2

Div. yield (%) 1.5 1.6 1.7 1.7

Bloomberg RELI IN


M. Cap. (INR b)/(USD b) 113 / 2


1,6,12 Rel Perf. (%) 2 / 19 / -26

We expect RELI to report revenue of INR34.5b (flat YoY) and PAT of

INR3b (down 20% YoY) for 3QFY14. EPC revenue for the quarter would

be INR17.8b (v/s INR19.3b in 3QFY13).

In the Cement business, the total capacity under development is

5mtpa, both in MP and Maharashtra. The grinding unit at Butibori is

commissioned.

Civil work for the Metro-1 project in Mumbai is 100% complete. The

project is expected to commission in 2HFY14. RELI has asked for a 3-

fold hike in the Mumbai Metro's tariff, led by cost escalation of

~INR20b.

In the Delhi metro, RELI's total investment is INR28b, including equity

of INR7b. RELI is confident of receiving complete equity.

EPC revenues might be impacted in FY14/15 due to delays in large

capacity projects of Chittrangi, Krishnapattnam and Tilaiya.

We expect RELI to report standalone PAT of INR13.3b in FY14 (down

22.5%) and INR14.4b in FY15 (up 8.3%). The stock trades at 7.9x FY15E

EPS.


Performance of EPC division and order book position

Performance of Infrastructure business and updates on projects under

construction

Contribution from Cement business

C–203January 2014




Units Generated 4,259 4,272 3,873 3,366 3,897 3,404 3,977 4,916 15,770 16,195

Total Operating Income 22,841 25,198 25,491 22,143 26,075 21,995 28,040 29,190 95,673 105,301

Change (%) 18.9 29.3 13.2 -6.8 14.2 -12.7 10.0 31.8 12.6 10.1

EBITDA 3,759 5,279 5,685 5,793 7,420 6,023 5,631 5,610 20,517 24,685

Change (%) -12.1 26.0 19.7 30.4 97.4 14.1 -1.0 -3.2 16.2 20.3

As of % Sales 16.5 21.0 22.3 26.2 28.5 27.4 20.1 19.2 21.4 23.4

Depreciation 1,548 1,556 1,281 -744 1,360 1,396 1,450 1,461 3,641 5,667

Interest 1,386 1,643 1,788 1,965 2,363 1,620 2,600 2,743 6,783 9,326

Other Income 3,456 1,963 318 1,204 2,456 1,299 1,400 1,445 6,940 6,600

PBT 4,281 4,043 2,934 5,776 6,153 3,470 2,981 2,852 17,034 16,291

Tax 1,158 1,083 770 3,776 1,926 852 984 945 6,787 4,707


Reported PAT 3,123 2,960 2,164 2,000 4,227 2,618 1,997 1,907 10,247 11,585

Adjusted PAT 4,140 2,969 1,285 885 3,527 2,703 1,997 1,907 9,279 11,627

Change (%) 40.8 -18.8 -30.3 -61.4 -14.8 -9.0 55.5 115.4 -13.6 25.3

Consolidated Adjusted PAT 3,059 2,062 2,759 1,337 1,081 2,525 2,489 2,772 9,217 8,867

Change (%) -26.4 -53.4 -50.0 -62.0 -64.7 22.4 -9.8 107.3 -47.7 -3.8

E: MOSL Estimates

Tata PowerCMP: INR90 Neutral


S a l e s 95.7 105.3 114.9 120.2

EBITDA 20.2 24.7 25.8 28.0

NP 9.2 8.8 8.4 8.5

Adj. EPS (INR) 3.9 3.7 3.6 3.6

EPS Gr. (%) (47.7) (4.1) (4.5) 1.0

BV/Sh. (INR) 49.1 52.7 55.8 59.2

RoE (%) 8.1 9.6 8.1 8.3

RoCE (%) 7.5 8.3 8.9 11.9

Payout (%) 27.6 33.2 26.7 29.5

Valuations

P/E (x) 23.1 24.1 25.2 24.9

P/BV (x) 1.8 1.7 1.6 1.5

EV/EBITDA (x) 15.1 11.5 10.7 7.4

Div. yield (%) 1.5 1.5 1.5 1.5

Bloomberg TPWR IN


M. Cap. (INR b)/(USD b) 213 / 3


1,6,12 Rel Perf. (%) 12 / -2 / -27

We expect TPWR to report standalone PAT of INR2b (up 55% YoY) and

consolidated PAT of INR2.5b (down 10% YoY) for 3QFY14.

Generation from TPWR's 2,021MW (Mumbai region) capacity in

October-November 2013 was 1.7BU, down 20% YoY. Mundra UMPP

generation was 3.3BU and PLF was 57%. Maithon generation was 1.1BU

and PLF was 73%.

Global coal prices have increased in 3QFY14, after nine consecutive

quarters of decline. The RB Index for 3QFY14 stood at USD79/ton, up

from USD73/ton in 2QFY14, its lowest since FY11. Improvement in coal

price could lead to higher contribution from mining SPVs. INR

appreciation (INR62/USD in 3Q v/s INR63/USD in 2Q) would, however,

marginally impact translation gains.

CERC is expected to deliver its final judgement on the Mundra UMPP

tariff hike, as the stakeholders' views are heard. TPWR seeks INR0.67/

unit tariff hike to ward off the losses on account of fuel cost under-

recovery.

We expect TPWR to report consolidated PAT of INR8.8b in FY14 (down

4%) and INR8.4b in FY15 (down 5%). The stock trades at 25.2x FY15E

EPS.


Contribution/loss from Maithon/Mundra UMPP project.

CERC order on Mundra UMPP tariff revision.

Sales/Realization for KPC/Arutmin mines.

C–204January 2014



Bata IndiaCMP: INR1,054 Buy

We expect revenue to grow 13.5% YoY (19.3% QoQ) to INR5,777m in

4QCY13. Same store sales (SSS) growth is likely to sustain at ~9% level.

EBITDA margin is likely to remain flat YoY at 15.7%. 4Q is the best

quarter for Bata in terms of revenues and margins.

We expect PAT to grow 16.5% YoY (58.2% QoQ) to INR595m.

The stock is trading at 27.4x CY14E and 22.5x CY15E EPS. We value the

stock at 25x CY15E and arrive at a target price of INR1,170. Maintain

Buy.


Stores added during the quarter (our expectation: 25) and guidance

on new store additions (our expectation: 100 in CY14).

Details about new advertisement campaign, loyalty program.

SSS growth (our expectation: 9%).


Sa les 18.4 20.9 24.3 28.4

EBITDA 2.7 3.1 3.8 4.5

NP 1.7 2.0 2.5 3.0

EPS (INR) 26.8 30.7 38.5 46.8

EPS Gr. (%) -33.4 14.7 25.3 21.6

BV/Sh.(INR) 108.8 131.4 159.4 193.5

RoE (%) 27.1 25.6 26.5 26.5

RoCE (%) 39.3 37.9 38.7 39.1

Payout (%) 26.0 26.4 27.1 27.3

Valuations

P/E (x) 39.4 34.4 27.4 22.5

P/BV (x) 9.7 8.0 6.6 5.5

EV/EBITDA (x) 24.0 20.8 16.9 13.7

Dividend yield 0.6 0.7 0.9 1.0

Bloomberg BATA IN



52-Week Range (INR) 1,086 / 688

1,6,12 Rel Perf. (%) -6 / 18 / 13



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

Net Sales 4,059 5,038 4,237 5,090 4,538 5,725 4,844 5,777 18,425 20,879

YoY Change (%) 29.9 16.5 13.8 18.0 11.8 13.6 14.3 13.5 19.0 13.3


EBITDA 598 831 510 805 628 961 633 907 2,744 3,128

Margins (%) 14.7 16.5 12.0 15.8 13.8 16.8 13.1 15.7 14.9 15.0

Depreciation 122 124 127 140 131 141 156 159 514 565

Interest 2 2 2 5 2 2 2 2 10 8

Other Income 60 67 97 76 69 78 89 116 300 361

PBT 534 773 478 734 564 895 563 861 2,519 2,915

Tax 174 247 158 226 180 276 187 267 804 942

Rate (%) 32.6 31.9 33.0 30.7 32.0 30.8 33.2 31.0 31.9 32.3

Reported PAT 360 527 320 509 384 619 376 595 1,716 1,974

Adj PAT 360 527 320 509 384 619 376 595 1,716 1,974

YoY Change (%) -67.1 28.4 5.3 13.0 6.6 17.6 17.3 16.8 -24.0 15.0

Margins (%) 8.9 10.5 7.6 10.0 8.5 10.8 7.8 10.3 9.3 9.5

E: MOSL Estimates

C–205January 2014



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

Volumes (m litres) 52.6 56.7 46.1 48.5 50.1 54.1 44.8 50.9 203.9 199.9

Realizations (INR/ ltr) 149 150 156 156 156 159 161 161 153.0 164.8

Net Sales 7,817 8,513 7,213 7,580 7,814 8,588 7,196 8,190 31,209 31,788

YoY Change (%) 4.1 7.8 7.4 -1.5 0.0 0.9 -0.2 8.0 4.7 1.9

Net Raw Material 4,590 4,974 4,334 4,345 4,429 4,638 4,091 4,699 16,894 17,857

Employee Expenses 265 339 310 370 335 385 432 310 1,284 1,462

Other Operating Expenses 1,394 1,506 1,354 1,200 1,366 1,659 1,212 1,555 5,520 5,792


EBITDA 1,568 1,694 1,215 1,665 1,684 1,906 1,461 1,626 6,142 6,677

YoY Change (%) -12.6 -13.4 -6.8 8.8 7.4 12.5 20.2 -2.4 -6.7 8.7

Margins (%) 20.1 19.9 16.8 22.0 21.6 22.2 20.3 19.9 19.7 21.0

Depreciation 60 60 66 80 71 73 79 79 266 302

Interest 7 3 1 10 5 3 1 9 21 18

Other Income 335 162 130 181 245 226 197 235 808 903


Extraordinary Inc/(Exp) 0 0 0 0 198 30 0 228

PBT 1,836 1,793 1,278 1,756 1,853 2,254 1,608 1,773 6,663 7,488

Tax 607 584 421 577 610 718 563 563 2,189 2,454

Rate* (%) 33.1 32.6 32.9 32.9 32.9 31.9 35.0 31.7 32.9 32.8

Reported PAT 1,229 1,209 857 1,179 1,243 1,536 1,045 1,210 4,474 5,034

Adj PAT 1,229 1,209 857 1,179 1,243 1,338 1,015 1,210 4,474 4,806

YoY Change (%) -10.0 -15.2 -9.9 10.4 1.1 10.7 18.4 2.7 -7.0 7.4

Margins (%) 15.72 14.20 11.88 15.6 15.9 15.6 14.1 14.8 14.3 15.1

E: MOSL Estimates


Castrol IndiaCMP: INR315 Neutral

We estimate EBITDA margin at ~20% v/s 20.3% in 3QCY13 and 22% in

4QCY12.

We expect revenue to grow 8% YoY led by 5% volume growth and 14%

increase in realization.

For the full-year, CY13, we model 2% volume degrowth, compensated

by 8% increase in realization.

We expect net profit to increase 3% YoY to INR1.2b.

The stock trades at 28.9x CY14E EPS. Our DCF-based target price is

INR297. Though we remain positive on CSTRL's long term prospects,

given rich valuations, we have a Neutral rating.


Sa les 31.2 31.8 34.1 36.9

EBITDA 6.2 6.7 7.7 8.6

Adj. PAT 4.5 4.8 5.4 6.0

Adj. EPS (INR) 9.0 9.7 10.9 12.1

EPS Gr. (%) -8.1 8.8 12.3 11.1

BV/Sh.(INR) 13.1 14.1 10.7 12.3

RoE (%) 83.8 71.4 71.4 88.0

RoCE (%) 109.1 94.2 94.7 120.9

Payout (%) 96.7 90.0 85.5 86.6

Valuations

P/E (x) 34.8 32.4 28.9 26.0

P/BV (x) 24.0 22.3 29.5 25.6

EV/EBITDA (x) 24.3 22.3 19.5 0.0

Div. Yield (%) 2.4 2.4 2.5 2.9

Bloomberg CSTRL IN


M. Cap. (INR b)/(USD b) 156 / 3


1,6,12 Rel Perf. (%) 3 / -15 / -3

Harshad Borawake ([email protected])/Kunal Gupta([email protected])

C–206January 2014





Net Sales 817 876 952 983 1,046 1,127 1,223 1,282 3,628 4,679

YoY Change (%) 28.0 28.6 28.5 30.5 38.4 29.0

Total Expenditure 567 629 714 710 683 774 887 886 2,619 3,230

EBITDA 250 247 238 273 363 352 336 396 1,008 1,449

Margins (%) 30.6 28.2 25.0 27.8 34.7 31.3 27.5 30.9 27.8 31.0

Depreciation 28 34 41 42 42 44 44 45 144 168

Interest 0 0 0 0 0 0 0 0 0 0

Other Income 19 18 34 64 73 87 102 109 135 370

PBT before EO expense 242 231 232 295 393 394 394 460 1,000 1,651

Extra-Ord expense 0 -15 0 0 0 0 0 0 -15 0

PBT 242 216 232 295 393 394 394 460 984 1,651

Tax 75 71 102 81 113 108 118 140 300 487

Rate (%) 31 33 44.0 27.6 29 27 30.0 30.5 30.4 29.5

Reported PAT 166 145 130 214 280 287 276 320 685 1,164

Adj PAT 166 155 130 214 280 287 276 320 700 1,164

YoY Adj PAT Change (%) - 68.5 84.9 112.5 49.6 38.8 66.3

Margins (%) 20.4 17.7 13.6 21.8 26.8 25.4 22.5 24.9 19.3 24.9

E: MOSL Estimates

Just DialCMP: INR1,386 Buy

We expect revenue to grow 28.5% YoY (8% QoQ) in 3QFY14 to

INR1,223m, largely driven by growth in paid campaigns.

EBITDA margin would expand 290bp YoY (shrink 340bp QoQ) to 27.9%,

primarily driven by lower employee cost and higher operating

leverage. However, margins will see a sequential decline due to higher

ad spends during the quarter.

PAT is likely to grow 113% YoY to INR276m, driven by higher margins.


Progress in monetization of new launches (Search Plus) during the

quarter.

Guidance on one-time advertising expenditure for new launches.


Sa les 3.6 4.7 6.0 7.3

EBITDA 1.0 1.4 2.0 2.6

NP 0.7 1.2 1.6 2.0

EPS (INR) 10.1 16.6 23.0 29.1

EPS Gr. (%) 6.3 64.6 38.1 26.6

BV/Sh.(INR) 61.3 71.1 84.8 102.2

ROE (%) 26.3 25.2 29.5 31.1

RoCE (%) 37.5 35.8 41.7 44.0

Payout (%) 41.1 38.4 40.4 39.9

Valuations

P/E (x) 136.6 83.0 60.1 47.5

P/BV (x) 22.5 19.4 16.3 13.5

EV/EBITDA (x) 95.6 66.0 46.9 36.2

Div. Yield (%) 0.3 0.5 0.8 1.0

Bloomberg JUST IN



52-Week Range (INR) 1,440 / 589

1,6,12 Rel Perf. (%) 12 / 108 / -


C–207January 2014

Sandipan Pal ([email protected])





YoY Growth (%) -2.8 3.6 22.9 36.9 4.4 13.9 3.7 9.5 14.7 7.8

EBITDA 1,776 1,828 2,198 1,890 1,609 2,121 2,309 2,273 7,695 8,312

EBITDA Margin (%) 16.4 15.3 15.4 13.5 14.3 15.5 15.7 14.8 15.1 15.1

YoY Growth (%) -3.4 -13.6 9.6 -13.7 -13.2 1.8 1.9 9.9 7.2 8.0

Depreciation 483 505 520 546 564 572 556 532 2,054 2,224

Interest 354 361 312 436 434 476 467 454 1,462 1,831

Other Income 42 64 36 456 87 5 71 116 596 280

Extraordinary items -289 -49 -450 -116 -37 -84 -15 -14 -903 -150

Profit before Tax 692 978 953 1,247 661 993 1,342 1,390 3,871 4,386

Tax Provisions 241 258 420 -250 201 269 376 379 669 1,225

Tax / PBT 25 25 30 -18 29 27 28 27 14.0 27.0

PAT before MI & Income from Assoc 451 721 533 1,497 460 724 967 1,011 3,202 3,162

Min. Int. and Profit from Associate 17 3 3 13 6 5 9 10 0 30

Consolidated PAT 468 723 536 1,510 466 729 976 1,021 3,238 3,132

Adj. Consolidated PAT 757 772 986 1,626 503 813 991 1,035 4,141 3,282

YoY Growth (%) -20.0 -21.6 43.2 79.0 -33.5 5.3 0.4 -36.4 17.2 -20.8

E: MOSL Estimates

September 2013 Results Preview | Sector: Diversified

Sintex IndustriesCMP: INR34 Buy

We expect Sintex's 3QFY14 revenue to grow 4% YoY to INR14.8b, EBITDA

to increase 2% YoY to INR2.3b and adj PAT to remain flat YoY to INR1b.

We expect:

Monolithic to post 23% YoY de-growth, margin at 14% (stable QoQ).

Prefab to register a growth of 18% YoY, margins 23%.

Overseas composites to grow 19% YoY, margin 9.7% (partly driven by

stabilization of acquisitions in Poland and Germany). Overseas

automobile vertical is yet to show signs of an improvement, albeit

the growth in electrical and medical imaging segments.

Domestic to remain flat YoY (+2%), with margin of 15.5%.

The stock trades at FY15E P/E of 3.1x and EV/EBITDA of 4.7x. We value

Sintex at INR38 (3.5x FY15E EPS).


Outlook in monolithic business and improvement in working capital.

Operations stabilization in recent acquisitions in Germany and Poland,

along with outlook on overseas composite business.

Capex plan in textile business.


Net sales 51.1 55.1 58.4 66.6

EBITDA 7.7 8.3 9.2 11.2

Adj. PAT 4.1 3.3 3.5 4.6

Adj EPS (INR) 13.3 10.1 10.9 14.1

EPS Gr. (%) 2.1 -23.9 7.6 29.4

BV/share (INR) 100.4 107.3 117.9 132.1

RoE (%) 14.3 9.9 9.7 11.3

RoCE (%) 10.3 9.5 9.4 10.8

Payout (%) 7.8 8.4 7.2 7.0

Valuations

P/E (x) 2.5 3.3 3.1 2.4

P/BV (x) 0.3 0.3 0.3 0.3

EV/EBITDA (x) 4.8 5.0 4.7 3.9

Div. Yield (%) 2.1 2.1 2.1 2.1

Bloomberg SINT IN




1,6,12 Rel Perf. (%) 11 / -23 / -57

C–208January 2014

Jinesh K Gandhi ([email protected])




Net Revenues 22,222 18,560 22,956 28,207 24,558 23,316 27,917 31,061 91,945 106,853

YoY Change (%) 19.8 4.8 20.2 32.3 10.5 25.6 21.6 10.1 19.9 16.2


EBITDA 3,944 3,261 4,042 5,372 4,566 4,259 5,256 6,140 16,618 20,221

Margins (%) 17.7 17.6 17.6 19.0 18.6 18.3 18.8 19.8 18.1 18.9

Depreciation 734 820 961 1,022 863 968 950 968 3,537 3,749

Interest 1,109 869 1,013 1,299 1,358 1,212 1,250 1,239 4,290 5,060

Other Income 275 262 280 183 265 282 300 174 1,000 1,020


Extra-Ord Expense 0 0 0 352 0 199 0 0 352 199


Tax 703 457 685 186 683 578 1,007 717 2,032 2,984

Rate (%) 29.6 24.9 29.2 6.5 26.2 26.7 30.0 17.5 21.5 24.4

Reported PAT 1,672 1,377 1,663 2,695 1,927 1,584 2,349 3,390 7,407 9,250

Income from Associate Co 357 -179 72 89 200 -38 70 63 339 295

Adjusted PAT 2,029 1,198 1,735 3,114 2,127 1,745 2,419 3,452 8,022 9,695

YoY Change (%) 10.1 68.0 52.9 38.0 4.8 45.7 39.4 10.9 36.2 20.8

Margins (%) 9.1 6.5 7.6 11.0 8.7 7.5 8.7 11.1 8.7 9.1

Market-mix

Domestic 6,220 4,910 4,010 2,910 7,690 6,380 5,036 3,276 18,050 22,382

YoY Change (%) 16.0 -13.7 5.2 24.9 23.6 29.9 25.6 12.6 5.0 24.0

% of sales 27.6 26.1 17.3 10.3 31.0 27.0 18.3 10.2 19.4 20.7

Exports 16,280 13,910 19,230 25,470 17,130 17,220 22,411 28,729 74,890 85,491

YoY Change (%) 20.7 13.5 23.4 33.2 5.2 23.8 16.5 12.8 23.9 14.2

% of sales 72.4 73.9 82.7 89.7 69.0 73.0 81.7 89.8 80.6 79.3

Total Sales (incl OI) 22,500 18,820 23,240 28,380 24,820 23,600 27,447 32,006 92,940 107,873

E: MOSL Estimates

September 2013 Results Preview | Sector: Agrochemicals

UPLCMP: INR193 Buy

We expect consolidated revenue to grow 21.6% YoY to INR27.9b. While

domestic revenue would grow 26% YoY, international revenue would

grow 16% YoY.

EBITDA margin is likely to expand 120bp YoY to 18.8% due to favorable

forex movement and operating leverage, translating into EBITDA

growth of 30% YoY to INR5.3b.

We expect PAT to grow of 39% YoY to INR2.4b.

Valuations are attractive at 7.4x FY15E EPS and EV of 4.8x FY15E EBITDA.

Maintain Buy, with a target price of INR235 (9x FY15E EPS).


Update on season in US and Rabi crop in India.

Any revision in outlook for FY14, considering favorable climatic

patterns and weaker INR.

Status of integration of DVA Agro, Brazil and turnaround of Sipcam

Isagro, Brazil.


Sa les 91.9 106.9 119.2 132.6

EBITDA 16.6 20.2 23.1 25.9

NP 8.0 9.7 11.5 13.8

Adj EPS (INR) 18.1 22.0 26.0 31.3

EPS Growth (%) 42.1 21.4 18.3 20.1

BV/Share (Rs) 105.0 123.5 145.4 172.6

RoE (%) 18.2 19.3 19.4 19.7

RoCE (%) 17.3 18.9 19.5 20.2

Payout (%) 17.5 16.4 16.3 13.7

Valuations

P/E (x) 10.7 8.8 7.4 6.2

P/BV (x) 1.8 1.6 1.3 1.1

EV/EBITDA (x) 6.7 5.7 4.8 4.0

Div. Yield (%) 1.3 1.6 1.8 1.8

Bloomberg UPLL IN




1,6,12 Rel Perf. (%) 12 / 31 / 47

C–209January 2014

September 2013 Results Preview | Sector: Electrical Goods

V-Guard IndustriesCMP: INR472 Buy

We expect revenue to grow 14.7% YoY (19.9% QoQ) to INR4,003m in

3QFY14. Growth would bounce back from the 2QFY14 growth rate of

6.6% on the back of demand uptick witnessed in the South India

market, post November 2013.

EBITDA margin would expand 215bp YoY (140bp QoQ) to 9.5%, driven

by ~300bp YoY decline in other expenses to 5.5% (primarily due to

lower ad spends).

We expect PAT to grow 41.5% YoY (50% QoQ) to INR217m.

The stock is trading at 17.5x FY14E and 13.2x FY15E EPS. Maintain Buy.


Update on demand environment in South India market.

Demand for digital UPS, given resumption of power cuts.


Sa les 13.6 16.2 20.0 25.0

EBITDA 1.1 1.4 1.8 2.3

NP 0.6 0.8 1.1 1.4

EPS (iNR) 21.1 27.1 36.0 46.0

EPS Gr. (%) 23.8 28.6 32.7 28.0

BV/Sh (INR) 87.6 108.9 136.7 173.4

RoE (%) 26.7 27.6 29.3 29.7

RoCE (%) 27.4 29.2 33.4 37.5

Payout (%) 19.4 21.4 22.6 20.2

Valuations

P/E (x) 22.4 17.5 13.2 10.3

P/BV (x) 5.4 4.3 3.5 2.7

EV/EBITDA (x) 14.2 10.8 8.4 6.5

Div. Yield (%) 0.7 1.1 1.5 1.7

Bloomberg VGRD IN




1,6,12 Rel Perf. (%) -6 / -9 / -16





Net Sales 3,190 3,135 3,490 3,787 4,082 3,340 4,003 4,734 13,602 16,160

YoY Change (%) 32.8 48.2 41.5 38.5 28.0 6.6 14.7 25.0 40.0 18.8


EBITDA 343 300 257 199 309 271 381 462 1,099 1,422

Margins (%) 10.7 9.6 7.4 5.3 7.6 8.1 9.5 9.8 8.1 8.8

Depreciation 28 29 29 29 29 29 34 40 114 135

Interest 45 43 49 63 55 48 64 65 200 236

Other Income 5 11 15 5 11 11 10 10 36 42

PBT 276 239 194 113 237 205 294 367 822 1,093

Tax 69 59 40 24 60 60 76 94 193 284

Rate (%) 25.1 24.8 20.7 21.1 25.5 29.4 26.0 25.5 23.4 26.0

Reported PAT 207 180 153 89 176 145 217 273 629 809

Adj PAT 207 180 153 89 176 145 217 273 629 809

YoY Change (%) 67.3 162.9 23.2 -53.4 -14.6 -19.4 41.5 205.7 23.8 28.5

Margins (%) 6.5 5.7 4.4 2.4 4.3 4.3 5.4 5.8 4.6 5.0

E: MOSL Estimates

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mo - india strategy - jan 2014

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