sectoral outlook

8/2/2019 Sectoral Outlook

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4QFY2012 Results Preview||||| April 4, 2012

Refer to important Disclosures at the end of the report

Note: Stock prices as on March 30, 2012

Table of Contents

StrategyStrategyStrategyStrategyStrategy 2-92-92-92-92-9

4QFY2012 Sectoral Outlook4QFY2012 Sectoral Outlook4QFY2012 Sectoral Outlook4QFY2012 Sectoral Outlook4QFY2012 Sectoral Outlook

Automobile 11

Banking 14

Capital Goods 19

Cement 21

FMCG 23

Infrastructure 25

Information Technology 28

Metals 31

Oil & Gas 34

Pharmaceutical 37

Power 40

Real Estate 42

Telecom 44

Stock WStock WStock WStock WStock Watchatchatchatchatch 4747474747


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Refer to important Disclosures at the end of the report 2


Strategy

Macro fundamentals improving... both on the global and domestic fronts

Global crisis threats, which have plagued world markets since

2007 (first the subprime crisis and then European sovereign

debt crisis), have finally begun to recede, as evidenced by the

improving global economic environment. With improving

sentiment and substantial liquidity support in the U.S. and

European economies, we expect emerging markets such as India

to once again develop into bright prospects for capital inflows.

Indian markets have already witnessed net inflows of

~`45,000cr in the first three months of CY2012 compared to

net outflow of ~`4,000cr in CY2011. Further, domestically,

with repo rate cuts on the anvil (likely to begin in the next

few months), macro fundamentals are expected to improve

going into FY2013.

During 4QFY2012E, earnings growth of our coverage universe

(ex. SBI on account of one-off provisioning in 4QFY2011)

is expected to remain moderate at around 4.3% yoy,

as successive quarters of margin compression and high interest

continue to weigh down on profitability. Similarly, we expect

Sensex 4QFY2012E earnings to remain sudued and grow at

meager 5.8% yoy (ex. SBI). Sensex earnings growth for FY2012E

is expected to be modest at 9% yoy. However, cooling inflation

and interest rates are expected to underpin healthier growth

over FY2012-14E. We expect Sensex companies to deliver EPSgrowth of 13.4% yoy in FY2013E and 14.3% yoy in FY2014E,

translating into a reasonable 13.9% CAGR over FY2012-14E.

Earnings growth is expected to be broad-based with significant

contributions from rate-sensitive financials and auto stocks,

followed by metal, IT and oil and gas stocks. We assign a conservative

multiple of 14.5x to FY2014E earnings, resulting into a

12-month Sensex target of 20,700, which implies an upside of ~19%

from current levels.

Global crisis threats receding

Global economic markets have been experiencing turbulenttimes over the past 3-4 years and have witnessed an elongated

downturn on account of multiple financial crisis. The series of

crisis started with the subprime crisis in the U.S. and was followed

by fears of a double-dip recession in the U.S. and ongoing

European sovereign debt crisis. The magnitude of these crisis

prompted central banks all around the world to undertake a

series of quantitative easing (QE) measures. Notably, QE1 and

QE2 by the Fed from November 2008 to June 2011and then

the LTRO programs by the ECB over the last three months have

led to stimulating effects, as reflected in the overall improving

global economic outlook.Economic situation in the U.S. has improved significantly over

the past six months (credited to the soft monetary policy adopted

by the Fed), as suggested by the series of better-than-estimated

economic data and as reflected in the strong performance of

U.S. equity markets (at their four-year high). The initial jobless

claims (as of March 23, 2012) have declined sharply to 359K

from 390K registered on January 6, 2012, and from the

all-time high of 659K registered three years back (March 27,

2009). In fact, the current initial jobless claims reading is the

lowest since April 2008 and is lower by ~13% than the average

levels of 400K over the last 10 years.

Consumer confidence levels in the U.S. (71.6 in February 2012

and 70.2 in March 2012) are at their highest levels since March

2008 (barring the 72 reading recorded in February 2011),

indicating the renewed optimism about the future state ofeconomic affairs among consumers. The monthly nonfarm

payroll data, which denotes the number of jobs added or lost

in the economy (excluding government and farming-related

jobs) over the preceding month, has been in the positive territory

for the past consecutive 17 months (addition of 2,812K jobs).

Since July 2011, nonfarm payroll data has registered higher

levels compared to the forecasts for every month; this, along

with consistently lower-than-estimated jobless claims, reflects

the positive effect of the stimulation created by the Fed's

accommodative monetary policy. The Fed is expected to remain

committed to ongoing liquidity creation measures (as indicatedby a recent speech by Fed's chairperson, Ben Bernanke) to further

fuel consumer demand and business investment.

Source: Bloomberg, Angel Research

Exhibit 2: Higher-than-estimated jobs created in last 8 months

85

67.5

60

95

125

155

140

210

96

85

202

112

157

223

284

227

0

50

100

150

200

250

300

Jul -11 Aug -11 Sep -11 Oct-11 Nov-11 Dec -11 Jan -12 Feb -12

('000)

Survey Latest


Exhibit 1: Jobless claims lowest since April 2008

0

150

300

450

600

750

Jan-0

2

Dec-0

2

Nov-0

3

Oc

t-04

Sep-0

5

Aug-0

6

Jul-07

Jun-0

8

May-0

9

Apr-

10

Mar-

11

Fe

b-1

2

(`000)


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Capital inflows likely to be healthy

Dual concerns (global and domestic) remained an overhang

on Indian stock markets in CY2011, which led to reduced capital

inflows into Indian markets. However, with improving sentiment

and substantial liquidity support in the U.S. and European

economies, Indian markets have witnessed a sharp increase incapital inflow in the last three months. From January-March

2012, Indian markets received net FII inflows worth ~`45,000cr

as compared to net outflow of ~`4,000cr in CY2011. We expect

FII inflows to further pick up from these levels, primarily on

account of the following four reasons:

1) U.S. markets are trading at their four-year highs; and liquidity

creation through the LTRO programs, in our view, is likely to

make emerging markets such as India once again bright

prospects for capital inflows.

2) Improvement in domestic macro fundamentals is expectedto gather pace post the commencement of monetary easing,

which is expected to begin over the next couple of months.

Strategy

Source: Bloomberg, Angel Research; Note: 10-year govt. bond yields

Exhibit 3: Bond yields* off their peak levels

CountryCountryCountryCountryCountry CurrentCurrentCurrentCurrentCurrent PPPPPeakeakeakeakeak DiffDiffDiffDiffDiff CurrentCurrentCurrentCurrentCurrent PPPPPeakeakeakeakeak DiffDiffDiffDiffDiff

yieldyieldyieldyieldyield yieldyieldyieldyieldyield spreadspreadspreadspreadspread spreadspreadspreadspreadspread

Germany 1.9 3.5 1.6 - - -

Italy 5.2 7.3 2.1 3.3 5.5 2.3

Spain 5.4 6.7 1.3 3.5 4.7 1.2

Greece 19.9 37.1 17.2 18.0 35.3 17.3


Exhibit 4: Capital inflows have picked up in CY2012

(15,000)(10,000)

(5,000)

-

5,000

10,000

15,000

20,000

25,000

30,000

Jan-1

1

Fe

b-1

1

Mar-

11

Apr-

11

May-1

1

Jun-1

1

Jul-11

Aug-1

1

Sep-1

1

Oc

t-11

Nov-1

1

Dec-1

1

Jan-1

2

Fe

b-1

2

Mar-

12

( cr)`

Source: Markit, Angel Research

Exhibit 5: Manufacturing PMI index - India

57.9 57.9 58.0 57.5

55.3

53.652.6

50.4

52.051.0

54.2

57.556.6

45.0

50.0

55.0

60.0

Fe

b-1

1

Mar-

11

Apr-

11

May-1

1

Jun-1

1

Jul-11

Aug-1

1

Sep-1

1

Oc

t-11

Nov-1

1

Dec-1

1

Jan-1

2

Fe

b-1

2

Source: Markit, Angel Research

Exhibit 6: Services PMI index - India60.2

58.8 59.2

55.056.1

58.2

53.8

49.849.1

53.254.2

58.0

56.5

46.0

50.0

54.0

58.0

62.0

Fe

b-1

1

Mar-

11

Apr-

11

May-1

1

Jun-1

1

Jul-11

Aug-1

1

Sep-1

1

Oct-11

Nov-1

1

Dec-1

1

Jan-1

2

Fe

b-1

2

The recent rounds of LTRO by the ECB, motivated by the success

of QEs in the U.S., infused funds worth ~EUR1trn into the

capital-starved European banks. Euro reforms coupled with

liquidity creation are expected to encourage economic growth

in European countries. The recent success of Greek debt swap

(up to 70% hair cut), successful introduction of austerity measures

and decline in bond yields from their peaks suggest that the

worst of Eurozone crisis is behind us.

3) The slowdown in China on account of slowing consumption

and weakening export growth is expected to reduce competition

for foreign capital inflows.4) As global crisis threats recede further, global investors would

once again look to diversify their portfolios and look at emerging

markets like India for enhanced returns.

Domestic economic outlook hinged on interest rate reversal

Back home, the domestic economy has also been able to reduce

the magnitude of headwinds over the last couple of months.

Improved order book for some of the infra companies (road

and ports), increased cement dispatches and rising vehicle sales

(partly attributed to pre-budget surge) point towards an

improving economic outlook. Strong PMI data over the last fourmonths (both manufacturing and services) indicates continued

expansionary activities. The rate of growth in new businesses is

the fastest since April 2011, while confidence levels were at

their eight-month high in the latest February readings, signaling

continued improvement in demand. Going ahead, however,

we feel further improvement in domestic fundamentals is also

hinged on interest rate reversal, which we expect would begin

in the next few months.


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Sensex EPS expected to post a 13.9% CAGR over

FY2012-14E

We expect Sensex EPS to grow by 13.4% to `1,253 in FY2013Eand by 14.3% to `1,433 in FY2014E, implying a 13.9% CAGR

over FY2012-14E.

Meanwhile, Sensex EPS for FY2012E is expected to post modest

9.0% growth with significant contribution from BFSI stocks,

followed by stocks from IT, auto and oil and gas sectors. Of the

total growth in Sensex EPS in FY2012E over FY2011, BFSI stocks

are expected to contribute 47.6%, while IT, auto and oil and

gas companies are expected to contribute 23.1%, 16.6% and

16.2%, respectively. Without these contributions, Sensex EPS

growth would have been negative in FY2012E. BFSI companiesare estimated to post strong yoy profit growth on account of

healthy NIM expansions. While earnings of IT companies (mainly

Infosys and TCS) are expected to grow on account of sharp INR

depreciation and strong business growth, the auto sector's

contribution to overall growth is expected to be on account of

strong show by Tata Motors despite significant earnings decline

expected in Maruti Suzuki.

On the other hand, metals, telecom, power and real estate

stocks are expected to drag Sensex EPS growth. Metal stocks

are estimated to pull down Sensex EPS growth by 17.3%, mainlyon account of a 46.7% yoy earnings decline expected in

Tata Steel due to higher input cost as well as global demand

slowdown affecting overseas operations. Telecom companies

are also expected to drag down Sensex EPS growth by 7.1% on

the back of higher amortization expenses due to 3G services

rollout as well as impact of INR depreciation on interest costs of

foreign borrowings.

Inflation environment should aid monetary easing

commencement

In February 2012, inflation levels moderated substantially to6.95% (down ~250bp) compared to the preceding three months

and are in-line with the RBI's year-end inflation projections. Food

inflation for February 2012 climbed back to 6.1% yoy from

negative 0.5% yoy for January 2012; however, the sharp yoy

jump can be attributed to the low base effect (decline of 5.8%

mom in food inflation in February 2011). Also, for February

2012, annualized mom food inflation levels stood at 5.6%, lower

than the six-month annualized figure of 7.1%. Manufacturing

inflation in February eased further to 5.7% yoy (lowest levels in

over a year) from 6.5% yoy levels in January 2012. Annualized

mom growth in the manufacturing index stood at 4.2% and

even the six-month annualized figure was at low 4.6% levels.

More importantly, core inflation, which the RBI tracks closely

for its monetary policy decisions, eased further to 5.5% levels.

Strategy

Source: EAIndustry, Angel Research

Exhibit 7: WPI levels have moderated significantly

0.0

4.0

8.0

12.0

16.0

20.0

Feb -11 Apr-11 Jun-11 Aug-11 Oct-11 Dec -11 Feb -12

WPI Primary Articles Fuel & Power

(%)

Source: Angel Research

Exhibit 8: Sectoral contribution to Sensex EPS growth in FY12E

(17.3)(7.1) (1.8) (0.3)

16.67.5

47.611.1

23.1

16.2 4.4100.0

(26.5)

(6.5)

13.5

33.5

53.5

73.5

93.5

113.5

133.5

Metals

Telecom

Power

Rea

lE

state

Auto

Engg

.

Finance

FMCG I

T

Oil

&Gas

Pharma

Total

In FY2013E, when Sensex EPS is expected to grow by 13.4%,

the BFSI sector again would be the largest contributor to its

growth with 38.2% of the overall increase. Other sectors, which

are also expected to contribute reasonably well, are auto and

IT. Ex. BFSI stocks' contribution, Sensex EPS growth would have

The marked decline in manufacturing inflation levels over the

past three months (~240bp) has been visible post the dip in

primary inflation, as a large part of pass-through of primary

inflation is, in our view, already done with. Going ahead,

sustained lower food inflation levels are likely to lead to lower

wage inflation, which in turn are likely to translate into furthereasing of manufacturing inflation levels.

Hence, in our view, the overall inflation environment should

aid monetary easing commencement; and we expect the RBI to

begin with more decisive signaling through repo rate cuts in

the next few months.

The consequent reduction in interest rates should end the spell

of margin compression, which has afflicted corporate earnings

in the past several quarters. We are factoring in ~100bp

reduction in interest rates over FY2013 (inflation levels expected

to be lower by 150bp) and expect the reduction in interestservicing costs to have a pronounced positive effect on FY2013

earnings, especially for capital-intensive sectors, which have

been battered by elevated interest burden for quite a while now.


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been much lower at 6.4%. The BFSI sector's growth is expected

to be primarily on account of strong performances by all

companies, owing to stable margins and improving asset quality,implying lower provisioning and, therefore, higher profits.

Auto and IT companies are expected to contribute 13.6% and

13.4%, respectively, to total Sensex EPS growth in FY2013E.

The auto sector's contribution to overall growth is expected to

be on account of strong show by Maruti Suzuki, which had

been grappled with production troubles in FY2012E. Growth

in the profits of IT companies is expected due to decent business

growth as CY2012 IT budget is expected to be flat to marginally

positive. Even among them, Wipro is expected to fare much

better, as it is expected to reap benefits of restructuring exercise

done in FY2012, depicting the low base effect. Metals andFMCG companies are also expected to contribute to Sensex

EPS growth by 9.5% and 7.7%, respectively. Notably, none of

the sectors is expected to contribute negatively to Sensex EPS

growth in FY2013E.



13.61.0

38.27.7

13.5

9.53.9 2.0 3.2

0.46.9 100.0

-

20.0

40.0

60.0

80.0

100.0

Au

to

Engg

.

Fin

ance

FMCG I

T

Me

tals

Oil

&G

as

Ph

arma

Power

Rea

lE

sta

te

Tele

com

Tota

l

In FY2014E, we expect Sensex EPS to grow by 14.3%, with BFSI

stocks continuing to dominate Sensex EPS growth, contributing

34.9%. Other sectors that are expected to contribute significantly

to EPS growth are metal and oil and gas. Metal companies are

expected to contribute a higher 14.4% of the increase in EPS onthe back of strong performance by Tata Steel and JSPL.

Both these companies would start getting additional profits in

FY2014E from their new capacities coming on stream around

that time. Oil and gas companies are expected to contribute

12.8% to Sensex EPS growth due to 11% earnings growth

expected in index heavyweight, Reliance Industries. Again, none

of the sectors is expected to report a decline in earnings.



9.8 2.9

34.9

6.3

10.9

14.4

12.8 1.3 1.5 1.53.7 100.0

-

20.0

40.0

60.0

80.0

100.0

Au

to

Engg

.

Fin

ance

FMCG IT

Me

tals

Oil

&G

as

Ph

arma

Power

Rea

lE

sta

te

Tele

com

Tota

l

Expect Sensex to reach 20,700 by March 2013

We remain optimistic on the long-term prospects of the Indiangrowth story due to benefits of demographic dividend,

a primarily domestic consumption-driven economy, its relative

better positioning globally, reasonable earnings growth

trajectory and attractive valuations vis--vis India's structurally

positive outlook. Global crisis threats, which have plagued world

markets since 2007 (first the subprime crisis and then European

sovereign debt crisis), have finally begin to recede, as evidenced

by the improving global economic environment. With improving

sentiment (driven by accommodative monetary policies) and

substantial liquidity support in the U.S. and European economies,

we expect emerging markets such as India to once again develop

into bright prospects for capital inflows. Further, domestically,

with repo rate cuts on the anvil (likely to begin in the next few

months), macro fundamentals are expected to improve going

into FY2013.

Rate-sensitive sectors, which have been facing the brunt of high

interest servicing costs for quite some time now, are expected to

take the driver's seat from the defensives and drive the earnings

growth over FY2012-14E. Within rate-sensitive sectors,

we continue to like financials, infra and auto, which are likely

to benefit the most from the expected reduction in interest rates.Within export-oriented sectors, we continue to like stocks in the

pharma space. We maintain our 12-month Sensex target of

20,700, assigning a conservative multiple of 14.5x (vs. 5-year

range of 13.8-19.1x and average of 16.9x and 10-year range

of 10.8-17.9x and average of 14.3x) FY2014E earnings.

Our target implies an upside of ~19% from current levels, which

is likely to be back-ended.


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Sensex 4QFY2012E earnings to grow 10.9% yoy

Sensex companies are expected to report healthy top-line growth

of 15.5% yoy during the quarter. Operating margins are

expected to contract by 285bp on a yoy basis to 18.3%

(ex. Financials). However, on a sequential basis, margin

compression, which has affected profitability in the last few

quarters, is expected to moderate, with a minimal expected dip

of 25bp. Net profit margin is expected to come in at 11.8% (ex.

SBI), up by 100bp on a qoq basis. Overall, we expect Sensex

4QFY2012E earnings to grow by 13.6% yoy, aided mainly by

SBI (one-off provisioning item in 4QFY2011), despite being

dragged by an earnings decline of 14.8% yoy expected in oil

and gas stocks on account of margin contraction of 652bp yoy.Ex. SBI, Sensex earnings growth is expected to be much lower

at 5.8% yoy. Ex. SBI and oil and gas stocks, Sensex earnings

growth is expected to be 10.9% yoy.

Sensex net profit growth of 13.6% in 4QFY2012E is

primarily aided by strong bottom-line numbers expected

from BFSI, IT and auto companies. Ex. BFSI, auto and

IT companies' contribution, Sensex' yoy net profit growth is

expected to be in the negative territory. Sensex' top-line

growth is likely to be dominated by auto and oil and gas

stocks, accounting for combined top-line growth of ~57%.

Sensex IT companies are expected to report strong 27.0%

yoy sales growth on account of modest volume growth

emanating from decent budget flush from clients and yoy

INR depreciation. Profitability of companies such as Infosys,

TCS and Wipro is expected to rebound by healthy 27.1%,

24.0% and 10.6% yoy, respectively, aided mainly by yoy

INR depreciation.

Sensex pharmaceutical companies are expected to buck the

trend of margin compression, with a strong 896bp yoy OPM

expansion on the back of 11.4% yoy top-line growth, partlyaided by the yoy depreciation of the INR vs. USD.

Bottom-line growth is expected to be strong at 60.9% yoy.

We expect Sensex BFSI companies ex. SBI (as SBI had

one-off item in 4QFY2011 pertaining to provisioning

expenses) to post healthy 19.6% yoy bottom-line growth on

the back of stable to improving margins and healthy

performance of private banks.

While oil and gas stocks are expected to contribute a sizeable

23% to the top-line growth of the Sensex, operating margins

are expected to decline rather steeply by 652bp. ONGC isexpected to face higher subsidy burden in 4QY2012E, which

Source: Blommberg, Company, Angel Research

Exhibit 12: Sensex one-year forward P/E

6.0

9.0

12.0

15.0

18.0

21.0

24.0

27.0

S en sex 1 y ear forward P/ E 15 y ear Avg 5 y ear Avg

Mar-

97

Dec-9

7

Sep-9

8

Jun-9

9

Mar-

00

Dec-0

0

Sep-0

1

Jun-9

9

Mar-

03

Dec-0

3

Sep-0

4

Jnl-05

Mar-

06

Dec-0

6

Sep-0

7

Jun-0

8

Mar-

09

Dec-0

9

Sep-1

0

Jul-11

Mar-

12

Source: Bloomberg, Company, Angel Research

Exhibit 13: Earnings yield vs. bond yield

3.0

5.0

7.0

9.0

11.0

13.0

Earni ngs Yie ld 1 0Yr G- Se c Yie ld

Mar-

00

Sep-0

0

Mar-

01

Sep-0

1

Mar-

02

Sep-0

2

Mar-

03

Sep-0

3

Mar-

04

Sep-0

4

Mar-

05

Sep-0

5

Mar-

06

Sep-0

6

Mar-

07

Sep-0

7

Mar-

08

Sep-0

8

Mar-

09

Sep-0

9

Mar-

10

Sep-1

0

Mar-

11

Sep-1

1

Mar-

12


Exhibit 11: Sensex EPS estimates

1,014

1,105

1,253

1,433

300

500

700

900

1,100

1,300

1,500

FY2011 FY2012E FY2013E FY2014E

(`)

9.0%growt

h 13.4% growth

14.3% gr

owth

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is expected to result in a 5.6% and 5.0% decline in the top

line and bottom line, respectively. Although GAIL is expected

to report 20.3% yoy top-line growth on account of highergas prices, its bottom-line growth is expected to come

in at 1.9% on account of 260bp margin compression.

For RIL, we expect healthy 16.5% yoy top-line growth on the

back of rise in prices of petrochemical products. However,

due to margin compression, the bottom line is expected to

decline by 22.3% yoy.

Sensex' auto companies are also expected to contribute

significant 34% to Sensex' top-line growth. Strong revenue

growth is mainly on account of healthy volume growth, price

increases and favorable currency impact primarily on the

JLR front. Operating margins are expected to remain stable

on account of easing raw-material prices. Overall,

for Sensex auto companies, we expect revenue growth of

31% yoy and net profit growth of 27.1% yoy.

We expect Sensex FMCG companies to post decent 15.7%

yoy growth in sales, aided by modest volume growth coupled

with price hikes taken by companies. Margins are expected

to improve by ~255bp yoy. Bottom-line growth for Sensex

FMCG companies is expected to be healthy at 23.3% yoy.

From the capital goods pack, BHEL is expected to witness

14.0% yoy top-line growth. PAT margin is estimated to

fall by 60bp yoy, resulting in decent bottom-line growthof 9.2% yoy.

Sensex metal companies are expected to witness overall

muted sales growth of 1.9% yoy due to modest top-line

performance of steel companies on account of flat yoy

realization and the expected decline in the top-line of

nonferrous metal companies owing to lower LME prices.

Margins are expected to decline by 470bp yoy due to higher

input costs. Overall, we expect flat profit growth for Sensex

metal companies. For Coal India, we expect a sharp 5.9%

yoy decline in net profit mainly on account of higher staff

costs provisions.

The telecom sector is expected to witness strong sales growth

of 20.4% yoy mainly on account of strong growth in Africa

business and decent Indian subscriber growth. Operating

profit of the sector is expected to grow by modest 10.9%

yoy, impacted by increased operational charges. Net profit,

however, is expected to decline by 22.2% yoy on account of

higher amortization expenses due to 3G services rollout as

well as impact of INR depreciation on interest costs of foreign

borrowings.

Net Sales (Net Sales (Net Sales (Net Sales (Net Sales (````` cr)cr)cr)cr)cr) Adj. Net PAdj. Net PAdj. Net PAdj. Net PAdj. Net Profit (rofit (rofit (rofit (rofit (````` cr)cr)cr)cr)cr)

CompanyCompanyCompanyCompanyCompany WWWWWeightage (%)eightage (%)eightage (%)eightage (%)eightage (%) 4QFY2012E4QFY2012E4QFY2012E4QFY2012E4QFY2012E 4QFY20114QFY20114QFY20114QFY20114QFY2011 % chg% chg% chg% chg% chg 4QFY2012E4QFY2012E4QFY2012E4QFY2012E4QFY2012E 4QFY20114QFY20114QFY20114QFY20114QFY2011 % chg% chg% chg% chg% chg

Finance 24.6 27,418 22,774 20.4 7,986 3,730 114.1

IT 16.1 32,662 25,710 27.0 6,784 5,574 21.7

Oil & Gas 14.5 109,896 96,964 13.3 7,626 8,950 (14.8)

FMCG 11.5 12,421 10,736 15.7 2,179 1,767 23.3

Auto 9.9 80,782 61,663 31.0 6,232 4,904 27.1

Engineering 6.4 39,898 33,765 18.2 4,916 4,484 9.6

Metals 6.1 55,443 54,432 1.9 5,564 5,557 0.1

Telecom 3.1 18,973 15,756 20.4 1,090 1,401 (22.2)

Power 3.0 18,645 20,505 (9.1) 3,281 3,409 (3.8)

Pharma 2.7 3,431 3,079 11.4 1,057 657 60.9

Mining 1.5 17,672 15,089 17.1 3,958 4,207 (5.9)

Real Estate 0.6 2,382 2,683 (11.2) 446 345 29.4

SensexSensexSensexSensexSensex 100.0100.0100.0100.0100.0 419,622419,622419,622419,622419,622 363,155363,155363,155363,155363,155 15.515.515.515.515.5 51,11951,11951,11951,11951,119 44,98444,98444,98444,98444,984 13.613.613.613.613.6

Sensex #Sensex #Sensex #Sensex #Sensex # 16.016.016.016.016.0 16.816.816.816.816.8

Exhibit 14: Sensex earnings summary

Source: Company, Angel Research; Note: #On free-float adjusted basis


9/55



Net Sales (Net Sales (Net Sales (Net Sales (Net Sales (````` cr)cr)cr)cr)cr) Adj. Net PAdj. Net PAdj. Net PAdj. Net PAdj. Net Profit (rofit (rofit (rofit (rofit (````` cr)cr)cr)cr)cr)

CompanyCompanyCompanyCompanyCompany 4QFY2012E4QFY2012E4QFY2012E4QFY2012E4QFY2012E 4QFY20114QFY20114QFY20114QFY20114QFY2011 % chg% chg% chg% chg% chg 4QFY2012E4QFY2012E4QFY2012E4QFY2012E4QFY2012E 4QFY20114QFY20114QFY20114QFY20114QFY2011 % chg% chg% chg% chg% chg

Auto & Auto Ancillary 100,578 76,546 31.4 7,431 6,157 20.7

Capital Goods 31,719 28,595 10.9 3,558 3,447 3.2Cement 14,519 12,264 18.4 1,682 1,702 (1.2)

Construction 33,797 30,748 9.9 2,455 2,523 (2.7)

Financials 69,804 61,777 13.0 19,485 13,856 40.6

FMCG 25,008 21,343 16.8 3,471 2,752 25.7

IT 44,842 35,612 25.9 8,344 6,867 21.5

Metals & Mining 99,566 97,279 2.4 14,545 16,878 (13.8)

Oil & Gas 113,333 100,619 12.6 9,889 11,408 (13.3)

Pharmaceutical 18,075 13,686 32.1 3,975 2,242 77.3

Power 17,863 16,675 7.1 2,916 2,975 (2.0)

Real Estate 3,160 3,270 (3.4) 698 573 21.9

Telecom 29,098 24,920 16.8 1,433 1,832 (21.7)

Angel UniverseAngel UniverseAngel UniverseAngel UniverseAngel Universe 601,363601,363601,363601,363601,363 523,332523,332523,332523,332523,332 14.914.914.914.914.9 79,88379,88379,88379,88379,883 73,21073,21073,21073,21073,210 9.19.19.19.19.1

Exhibit 15: Angel universe estimates summary

Source: Company, Angel Research; Note: Only for coverage stocks for which quarterly results are estimated

Earnings growth of our coverage to moderate in 4QFY12E

Earnings growth trajectory of our coverage universe is expected

to moderate in 4QFY2012 as well, as higher input costs andinterest rates continue to affect margins and the overall

profitability of corporates. For our coverage universe as a whole

(ex. SBI due to one-off provisioning expenses in 4QFY2011),

we expect yoy top-line growth to remain reasonable at close to

15% levels. However, the compression in OPM and higher

interest costs are likely to restrict operating profit and net profit

growth to just ~4.3% yoy each.

For our financials coverage universe, private banks are

expected to continue to outperform public sector banks and

drive earnings growth in the sector. Overall, we expect large

private banks to post 18.5% yoy growth in net interest

income, while PSU banks are expected to register 19.4%yoy growth (9.8% yoy ex. SBI). While large private banks are

expected to report healthy 20.7% yoy growth on the net profit

front, PSU banks are likely to post relatively lower 13.4% yoy

growth (ex. SBI) due to higher provisioning expenses.

For 4QFY2012E, we expect our FMCG coverage universe

to register healthy ~16.8% yoy top-line growth, backed by

modest volume growth and price hikes. OPMs are expected

to expand by 152bp on the back of superior product mix and

cut in A&P costs, which would result in healthy 26.4% yoy growth

in operating profit and 25.7% yoy growth in net profit.

IT companies are expected to report healthy top-line growthof 25.9% yoy on account of INR depreciation vs. the USD

and modest volume growth, considering moderate demand

for IT solutions. Operating margins are expected to remain

flat due to increased employee cost on a yoy basis,

as pent-up demand in 1HFY2012 forced companies to hike

salaries. Overall, IT companies under our coverage are

expected to report earnings growth of ~22% yoy.

For our automobile coverage universe, we expect strong revenuegrowth of 31.4% yoy, driven by volume growth and pricing action.

A large portion of this jump is expected to be on account of

Tata Motors, which continues to record strong performance on

the JLR front. Operating margins are likely to remain flat, led by

stable commodity prices. Overall, we expect earnings of our

our automobile coverage universe to grow by 20.7% yoy.

Pharma companies under our coverage universe are expected

to register steep ~77.3% yoy earnings growth (ex. Ranbaxy

29.2% yoy), mainly on account of strong top-line growth of

32.1% yoy coupled with significant improvement in margins by

around 876bp.

In the metals pack, we expect the top line of steel companies

under our coverage to report modest performance on

account of flat realizations on a yoy basis. Further, due to

relatively higher raw-material costs, margins of steel

companies are likely to contract by 295-708bp yoy.

For nonferrous metal companies, we expect margin

compression (165-1,558bp yoy) on account of declining LME

prices and higher coal cost.

Moreover, sectors like capital goods, construction and cement

are likely to continue facing the brunt of higher interest costs

in 4QFY2012E as well. For our capital goods universe,

we expect moderate 3.2% yoy bottom-line growth; while forinfra and cement companies, we expect a 2.7% and 1.2%

yoy decline in net profit, respectively. However, with interest

rates projected to have a downward trajectory over

FY2012-14E, we expect these sectors to report improved

performance going ahead.

Strategy


10/55

9



Strategy

Net Sales (Net Sales (Net Sales (Net Sales (Net Sales (````` cr)cr)cr)cr)cr) Adj.Adj.Adj.Adj.Adj.Net PNet PNet PNet PNet Profit (rofit (rofit (rofit (rofit (````` cr)cr)cr)cr)cr) WWWWWeightageeightageeightageeightageeightage % Contribution% Contribution% Contribution% Contribution% Contribution

CompanyCompanyCompanyCompanyCompany 4QFY2012E4QFY2012E4QFY2012E4QFY2012E4QFY2012E 4QFY20114QFY20114QFY20114QFY20114QFY2011 % chg% chg% chg% chg% chg 4QFY2012E4QFY2012E4QFY2012E4QFY2012E4QFY2012E 4QFY20114QFY20114QFY20114QFY20114QFY2011 % chg% chg% chg% chg% chg (%)(%)(%)(%)(%) to Sensex growthto Sensex growthto Sensex growthto Sensex growthto Sensex growth#####

Bajaj Auto 4,721 4,052 16.5 815 676 20.7 1.7 1.9

Bharti Airtel 18,973 15,756 20.4 1,090 1,401 (22.2) 3.1 (2.9)

BHEL 20,954 18,380 14.0 3,054 2,798 9.2 1.5 2.4

Cipla 1,690 1,615 4.6 282 214 31.8 1.1 1.2

Coal India 17,672 15,089 17.1 3,958 4,207 (5.9) 1.5 (0.7)

DLF 2,382 2,683 (11.2) 446 345 29.4 0.6 0.7

Gail India 10,697 8,894 20.3 798 783 1.9 1.3 0.2

HDFC 1,867 1,655 12.8 1,267 1,142 11.0 6.8 3.4

HDFC Bank 4,727 4,095 15.4 1,451 1,115 30.2 6.7 7.2

Hero Honda 5,984 5,351 11.8 658 502 31.1 1.4 2.1

Hindalco 6,680 6,761 (1.2) 516 708 (27.1) 1.2 (3.6)

HUL 5,737 4,899 17.1 640 486 31.7 3.0 2.1

ICICI Bank 4,875 4,150 17.5 1,719 1,452 18.3 7.0 7.2

Infosys 9,100 7,250 25.5 2,310 1,818 27.1 9.6 11.3

ITC 6,684 5,836 14.5 1,539 1,281 20.1 8.5 4.9

Jindal Steel & Power 4,414 3,848 14.7 994 1,002 (0.7) 1.6 (0.1)

L&T 18,945 15,384 23.1 1,862 1,686 10.4 4.9 4.3

M&M 8,046 6,682 20.4 611 607 0.7 2.2 0.1

Maruti Suzuki 11,843 9,864 20.1 503 660 (23.8) 1.3 (2.1)

NTPC 16,468 15,519 6.1 2,711 2,782 (2.5) 1.8 (0.4)

ONGC 14,530 15,396 (5.6) 2,652 2,791 (5.0) 3.9 (0.9)

RIL 84,669 72,674 16.5 4,177 5,376 (22.3) 9.2 (17.8)

SBI 15,948 12,874 23.9 3,549 21 NA 4.1 42.7

Sterlite 10,912 10,000 9.1 1,311 1,951 (32.8) 1.2 (7.8)

Sun Pharma 1,741 1,463 19.0 775 443 75.0 1.6 3.6

Tata Motors 50,188 35,715 40.5 3,645 2,460 48.2 3.3 20.7

Tata Power 2,177 4,986 (56.3) 570 627 (9.1) 1.2 (1.1)

Tata Steel 33,437 33,823 (1.1) 2,743 1,896 44.7 2.2 16.0

TCS 13,438 10,158 32.3 2,952 2,381 24.0 4.7 4.6

Wipro 10,125 8,302 21.9 1,522 1,375 10.6 1.9 1.0

TTTTTotalotalotalotalotal 419,622419,622419,622419,622419,622 363,155363,155363,155363,155363,155 15.515.515.515.515.5 51,11951,11951,11951,11951,119 44,98444,98444,98444,98444,984 13.613.613.613.613.6 100.0100.0100.0100.0100.0 100.0100.0100.0100.0100.0

SensexSensexSensexSensexSensex##### 16.016.016.016.016.0 16.816.816.816.816.8

Exhibit 16: Earnings estimates for Sensex companies

Source: Angel Research; Note: #based on free-float weightages


11/55



4QFY2012 Sectoral Outlook


12/55

11



Automobile

Strong demand for LCVs driving CV sales

The CV segment sustained its strong growth momentum,

registering 18.6% yoy growth YTD in FY2012, led by impressive

26.9% yoy growth in the LCV segment. Demand for LCVs

continued to be driven by growth in the agriculture sector,

preference for low payload vehicles and structural factors suchas proliferation of the hub and spoke model and new launches.

The M&HCV segment, however, witnessed 9.2% yoy growth as

slowdown in industrial activity and higher financing rates

impacted demand. Going ahead, we expect the LCV segment

to sustain its strong performance and post a CAGR of 16-18%

over the next two years.

During 4QFY2012, TTMT is likely to report robust ~41% yoy

growth in net sales, led by strong volume growth on the domestic

and JLR (driven byEvoque) fronts, along with favorable currency

movement (primarily at JLR). As a result, adjusted net profit is

likely to report impressive ~38% yoy growth. We expect AL topost strong ~19% yoy growth in volumes; however, higher

contribution of Dost in total volumes is likely to impact net

For 4QFY2012, we expect our auto universe to witness robust

revenue growth of ~30% yoy (~13% qoq), led by healthy volume

growth of ~10% yoy (~3% qoq) coupled with price increases

and favorable currency movement (primarily on the JLR front).

We expect EBITDA margin of our universe to marginally expand

by 40bp yoy (flat qoq) to ~13%, led by stable raw-material

prices and better product mix. As a result, adjusted net profit

(excluding forex loss) is likely to register strong ~25% yoy (~10%

qoq) growth. Amongst automobile companies, Tata Motors

(TTMT) is expected to report a robust set of results, benefitting

from sustained volume momentum at Jaguar Land Rover (JLR)

in recent months. However, Maruti Suzuki (MSIL) and Ashok

Leyland (AL) are expected to report poor performance mainly

on account of margin pressures.

The domestic automotive industry witnessed healthy volume

growth YTD in FY2012, registering 12.5% yoy growth despite

dual concerns of economic slowdown and high interest rates.

Volume growth, however, remained mixed and has been driven

by strong 26.9% yoy growth in the light commercial vehicle

(LCV) segment and healthy 14.8% and 12.8% yoy growth in

the two-wheeler (2W) and utility vehicle (UV) segments,

respectively. The passenger car (PC) segment, on the other hand,

remained the most affected and reported flat growth during

the period. During 4QFY2012, while TTMT and MSIL reported

better-than-expected volume performance, TVS Motor (TVSL)and Mahindra and Mahindra (MM, mainly on the tractors front)

reported lower-than-expected volume growth. Going ahead,

in FY2013, we expect interest rates to ease, leading to revival

in demand in the passenger vehicle (PV) and commercial vehicle

(CV) segments; however, volume growth in the 2W and tractor

segments is likely to be muted, led by high base effect and

slowdown in rural demand. In the long run though, volume

outlook across all the segments is expected to be positive, aided

by rising income levels, easy availability of finance, new product

launches and improved outlook for exports.

Union Budget 2012-13 - Marginally negative

Union Budget 2012-13 was marginally negative for the

automobile sector, as general excise duty was raised by 2%

across all product categories. Additionally, excise duty has been

rationalized to ad-valorem from ad-valorem and fixed rate for

large PV and CV chassis. Following the budget announcements,

most of the companies have announced price hikes to pass on

the burden. Hence, we do not expect any significant impact of

the budget announcement on earnings; however, due to

increased cost of ownership for consumers, there could be delay

in demand recovery for four-wheelers (4W) in our view. Further,absence of any additional excise duty on diesel vehicles is a big

positive for MM and MSIL.

Auto index outperforms the Sensex

The BSE Auto Index gained 24.5% in 4QFY2012 as against

12.6% gains recorded by the Sensex, thereby posting a strongoutperformance of 11.8% during the quarter. The

outperformance was led by index heavyweights, TTMT and MSIL;

however, MM, BJAUT and HMCL underperformed the index on

concerns relating to demand slowdown in the tractors and 2W

segments. While TTMT benefitted from strong JLR volume growth

and blockbuster 3QFY2012 results, MSIL's performance was

boosted by restoration of operations at Manesar plant and

availability of additional diesel engines from Fiat. Further, higher

discounts and fears of increase in excise duty in Union Budget

2012-13 led to pre-buying by customers, thereby supporting

overall volume growth. Further, Apollo Tyres (APTY) and Exide

Industries (EXID) also posted sharp gains during the quarter,

led by a decline in raw-material (natural rubber and lead) prices.


Exhibit 1: 4QFY2012 - Stock price performance

34.7

33.2

5.3

27.7

42.4

41.7

7.9

2.0

46.6

54.5

10.38.7

(19.1)

3.2

17.9

17.3(16.6)

(22.4)

22.2

30.1

(30.0) (20.0) (10.0) 0.0 10.0 20.0 30.0 40.0 50.0 60.0

Apollo Tyres

Ashok Leyland

Bajaj Auto

Bharat Forge

Cummins India

Exide Industries

Hero MotoCorp

M&M

Maruti Suzuki

Tata Motors

Relative to Auto index (%) Absolute


13/55



Automobile

Pre-budget buying and high discounts boost PV sales

The PV industry, which witnessed challenging times during

9MFY2012 owing to multiple headwinds in the form of higher

interest rates, persistent inflation, fuel price hikes and labor issues

at MSIL, registered better-than-expected growth in 4QFY2012.

The better-than-expected performance recorded by the PV

industry in 4QFY2012 in spite of various adverse economic

factors can be attributed to pre-budget buying by consumers inanticipation of excise duty hike in the Union Budget, higher

discounts offered by OEMs and restoration of supply by market

leader, MSIL. However, market conditions have remained

challenging for the industry in FY2012, which has resulted in

modest volume growth of 3% yoy YTD in FY2012. Noticeably,

volumes in the domestic PC segment (~75% of PV sales)

registered flat growth during the period. Further, significant price

differential between petrol and diesel prices in recent times

(currently at ~`24 against five-year historical average of ~`14)

led to a shift in consumer demand in favor of diesel cars. As a

result, diesel car volumes have grown by 35% yoy YTD in

FY2012, while petrol car volumes have declined by 15% yoy.

Going ahead, with the likely easing of interest rates, we believe

the worst is over for the industry and expect the domestic PC

segment to report 13-15% yoy volume growth in FY2013, driven

by increased diesel engine capacity by manufacturers and pickup

in demand for petrol cars.

During 4QFY2012, we expect MSIL to report strong ~20% yoy

(impressive ~55% qoq) growth in its top line, led by ~5% yoy

growth in volumes and ~14% yoy growth in net average realization.

However, the bottom line is expected to witness a decline of ~24%yoy, as EBITDA margin is likely to dip by ~300bp yoy to 7% due to

adverse currency impact on direct as well as indirect imports.

average realization and overall profitability. This coupled with

higher interest outgo (higher working capital requirement) is

likely to impact the bottom line, which is expected to decline by

~15% yoy during the quarter.

Moderation seen in 2W sales

The 2W segment, which had so far remained insulated from

the slowdown in economic activity and fuel price hikes, finallysuccumbed to the pressures and witnessed moderation in

demand during 4QFY2012. Retail volumes remained weak

during the quarter, leading to an increase in dealer inventory

levels to 30-40 days from normal levels of 20-25 days. Going

ahead, for FY2013E, we expect the industry's volume growth to

remain sluggish, registering around ~10% growth. However,

on a YTD basis, the 2W segment has reported healthy 16.2%

yoy growth, as sales continue to be benefitted by inadequate

public transport system, rising income levels (particularly in rural

areas) and strong replacement demand in urban markets.

Domestic volumes grew by 14.8% yoy, while exports registered

strong 26.9% yoy growth YTD in FY2012.

On the volume front, there was a slowdown in growth across

2W majors, with BJAUT and HMCL reporting modest growth of

9.9% and 8.2% yoy, respectively. TVSL, however, reported flat

growth as volumes were impacted due to increased competitive

pressures and slowdown in demand. We expect 2W companies

in our coverage universe to report strong 20-32% yoy growth

in 4QFY2012 earnings, led by healthy volume growth and

improved margins on the back of increased average net

realization and easing of commodity cost pressures.

Source: Company; Angel Research; Note: Volumes for March 2012 are estimated

Exhibit 2: TTMT and AL Quarterly volumes

SegmentSegmentSegmentSegmentSegment 4QFY20124QFY20124QFY20124QFY20124QFY2012 4QFY20114QFY20114QFY20114QFY20114QFY2011 % chg% chg% chg% chg% chg FY2012FY2012FY2012FY2012FY2012 FY2011FY2011FY2011FY2011FY2011 % chg% chg% chg% chg% chg

TTMTTTMTTTMTTTMTTTMT 274,336274,336274,336274,336274,336 236,329236,329236,329236,329236,329 16.116.116.116.116.1 900,919900,919900,919900,919900,919 803,316803,316803,316803,316803,316 12.212.212.212.212.2

M&HCV 64,674 62,020 4.3 222,105 211,636 4.9

LCV 103,521 83,503 24.0 360,150 285,347 26.2

TTTTTotal CVotal CVotal CVotal CVotal CV 168,195168,195168,195168,195168,195 145,523145,523145,523145,523145,523 15.615.615.615.615.6 582,255582,255582,255582,255582,255 496,983496,983496,983496,983496,983 17.217.217.217.217.2

Utility vehicles 19,599 14,057 39.4 55,974 43,070 30.0

PC 86,542 76,749 12.8 262,690 263,263 (0.2)

TTTTTotal PVotal PVotal PVotal PVotal PV 106,141106,141106,141106,141106,141 90,80690,80690,80690,80690,806 16.916.916.916.916.9 318,664318,664318,664318,664318,664 306,333306,333306,333306,333306,333 4.04.04.04.04.0

Exports (incl. above) 18,248 15,384 18.6 63,273 58,042 9.0ALALALALAL 35,35335,35335,35335,35335,353 29,68029,68029,68029,68029,680 19.119.119.119.119.1 101,473101,473101,473101,473101,473 94,10694,10694,10694,10694,106 7.87.87.87.87.8

Exhibit 4: BJAUT, HMCL and TVSL Quarterly volumes


BJABJABJABJABJAUTUTUTUTUT 1,041,6521,041,6521,041,6521,041,6521,041,652 948,195948,195948,195948,195948,195 9.99.99.99.99.9 4,374,0454,374,0454,374,0454,374,0454,374,045 3,823,9293,823,9293,823,9293,823,9293,823,929 14.414.414.414.414.4

Motorcycles 913,900 836,668 9.2 3,851,057 3,387,018 13.7

Three-wheelers 127,752 111,527 14.5 522,988 436,884 19.7

Exports (incl. above) 364,723 275,843 32.2 1,597,133 1,203,718 32.7

HMCLHMCLHMCLHMCLHMCL 1,573,7371,573,7371,573,7371,573,7371,573,737 1,454,4311,454,4311,454,4311,454,4311,454,431 8.28.28.28.28.2 6,236,9156,236,9156,236,9156,236,9156,236,915 5,402,4435,402,4435,402,4435,402,4435,402,443 15.415.415.415.415.4

TVSLTVSLTVSLTVSLTVSL 526,075526,075526,075526,075526,075 533,772533,772533,772533,772533,772 (1.4)(1.4)(1.4)(1.4)(1.4) 2,198,1532,198,1532,198,1532,198,1532,198,153 2,046,7372,046,7372,046,7372,046,7372,046,737 7.47.47.47.47.4

Motorcycles 194,127 218,825 (11.3) 845,174 836,821 1.0

Scooters 118,162 123,726 (4.5) 530,367 466,264 13.7

Mopeds 205,319 179,155 14.6 781,888 703,723 11.1

Three-wheelers 8,467 12,066 (29.8) 40,724 39,929 2.0

Exports (incl. above) 57,070 70,513 (19.1) 287,210 234,850 22.3


Exhibit 3: MSIL and MM Quarterly volumes


MSILMSILMSILMSILMSIL 359,382359,382359,382359,382359,382 343,350343,350343,350343,350343,350 4.74.74.74.74.7 1,132,7431,132,7431,132,7431,132,7431,132,743 1,271,0151,271,0151,271,0151,271,0151,271,015 (10.9)(10.9)(10.9)(10.9)(10.9)Domestic 321,200 312,399 2.8 1,006,092 1,132,749 (11.2)

Exports 38,182 30,951 23.4 126,651 138,266 (8.4)

MMMMMMMMMM 182,175182,175182,175182,175182,175 167,006167,006167,006167,006167,006 9.19.19.19.19.1 714,492714,492714,492714,492714,492 590,719590,719590,719590,719590,719 21.021.021.021.021.0

Automotive - domestic 122,830 102,056 20.4 451,227 358,023 26.0

Automotive - exports 8,975 5,562 61.4 29,518 19,042 55.0

Tractor - domestic 46,791 56,293 (16.9) 220,310 201,786 9.2

Tractor - exports 3,579 3,095 15.6 13,437 11,868 13.2



14/55

13



Automobile

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

Auto ancillaries to track the auto sector

While OE demand continues to remain sluggish on account of

macro concerns such as rising interest rates and slowdown inindustrial activity, replacement sales have also seen moderate

offtake due to weakness in overall economic activity, thereby

negatively affecting ancillary manufacturers. We, however,

expect the demand environment to improve in the OE as well

as replacement segment in FY2013, aided by the likely easing

of interest rates. During 4QFY2012, we expect auto ancillary

companies to report moderate net profit growth on account of

modest domestic auto sales and operating margin pressures.

We expect a sequential expansion in the operating margins of

Bosch and FAG Bearings, mainly due to stronger INR comparedto 3QFY2012, as imports form a substantial portion of raw-

material costs for both the companies.

Motherson Sumi is expected to witness yet another challenging

quarter, as its operating margin is likely to remain under pressure

owing to ramping up of new plants in Brazil and Hungary and

due to consolidation of low-margin Peguform operations.

However, the standalone performance will benefit from normal

production at its major client, MSIL.

We expect EXID to continue to report improved performance

sequentially, as revenue growth will be driven by increased 4Wbattery volumes and uptick in inverter batteries. We expect qoq

expansion in the company's operating margin on the back of

softening lead prices (down ~20% yoy) and better product mix.

As a result, PAT is expected to jump by ~25% sequentially.

Led by healthy PV and CV sales, APTY is likely to register astrong ~19% yoy increase in its top line. EBITDA margin is

estimated to improve by 50bp qoq to 10.4%, as natural rubber

prices have declined by ~6% qoq.

We expect Bharat Forge to report strong top-line growth of ~22%

yoy, driven by healthy growth in the CV sector and aided further

by its diversified business model (one-third of revenue from

non-auto business); operating margin of the company is

expected to improve with easing commodity prices, leading to

~17% yoy growth in net profit.

Outlook

We believe long-term structural growth drivers of the Indian

automobile industry such as GDP growth (leading to increasing

affluence of rural and urban consumers), favorable

demographics, low penetration levels, entry of global players

and easy availability of finance are intact, which should support

a 13-14% CAGR in auto volumes over FY2012-14E. As such,

we prefer stocks that have strong fundamentals, high exposure

to rural and exports markets and command superior pricing

power. Against the backdrop of likely easing of interest rates,

we expect demand revival in the 4W segment. Hence, we remainHence, we remainHence, we remainHence, we remainHence, we remainpositive on ALpositive on ALpositive on ALpositive on ALpositive on AL, MM and TTMT, MM and TTMT, MM and TTMT, MM and TTMT, MM and TTMT.....

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

Source: Company, Angel Research; Note: Price as on March 30, 2012, * Consolidated numbers; ^ OPM adjusted for royalty payments

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

(((((`````))))) 4QFY12E4QFY12E4QFY12E4QFY12E4QFY12E % chg% chg% chg% chg% chg 4QFY12E4QFY12E4QFY12E4QFY12E4QFY12E chg bpchg bpchg bpchg bpchg bp 4QFY12E4QFY12E4QFY12E4QFY12E4QFY12E % chg% chg% chg% chg% chg 4QFY12E4QFY12E4QFY12E4QFY12E4QFY12E % chg% chg% chg% chg% chg FY12EFY12EFY12EFY12EFY12E FY13EFY13EFY13EFY13EFY13E FY14EFY14EFY14EFY14EFY14E FY12EFY12EFY12EFY12EFY12E FY13EFY13EFY13EFY13EFY13E FY14EFY14EFY14EFY14EFY14E (((((`````)))))

AL 30 4,298 12.3 10.8 (252) 253 (15.3) 0.9 (15.3) 2.1 2.6 3.1 14.4 11.8 9.8 37 Buy

BJAUT 1,678 4,721 16.5 20.6 9 815 20.7 28.2 20.7 105.3 115.9 125.9 15.9 14.5 13.3 1,888 Accumulate

HMCL^ 2,055 5,984 11.8 12.5 36 658 31.1 32.9 31.1 120.0 135.0 141.4 17.1 15.2 14.5 2,177 Accumulate

MSIL 1,349 11,843 20.1 7.0 (300) 503 (23.8) 17.4 (23.8) 50.3 85.4 100.7 26.8 15.8 13.4 1,510 Accumulate

MM 697 8,046 20.4 11.4 (131) 611 0.7 10.4 0.7 41.8 44.6 48.7 16.7 15.6 14.3 802 Buy

TTMT* 276 50,188 40.5 14.2 170 3,645 48.2 11.5 48.8 35.1 38.7 42.9 7.9 7.1 6.4 318 Buy

TVSL 41 1,733 8.0 6.4 83 55 31.0 1.1 31.0 4.9 5.0 5.6 8.3 8.2 7.3 56 Buy

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

Source: Company, Angel Research; Note: Price as on March 30, 2012, * Consolidated numbers; # December year ending; & Full year EPS is consolidated

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

(((((`````))))) 4QFY12E4QFY12E4QFY12E4QFY12E4QFY12E % chg% chg% chg% chg% chg 4QFY12E4QFY12E4QFY12E4QFY12E4QFY12E chg bpchg bpchg bpchg bpchg bp 4QFY12E4QFY12E4QFY12E4QFY12E4QFY12E % chg% chg% chg% chg% chg 4QFY12E4QFY12E4QFY12E4QFY12E4QFY12E % chg% chg% chg% chg% chg FY12EFY12EFY12EFY12EFY12E FY13EFY13EFY13EFY13EFY13E FY14EFY14EFY14EFY14EFY14E FY12EFY12EFY12EFY12EFY12E FY13EFY13EFY13EFY13EFY13E FY14EFY14EFY14EFY14EFY14E (((((`````)))))

Apollo Tyres* 79 3,241 18.7 10.4 (137) 140 (27.1) 2.8 (27.1) 7.9 10.5 12.5 10.0 7.5 6.3 94 Buy

Bharat Forge& 321 967 21.5 25.0 76 118 17.4 5.1 17.4 17.9 22.3 26.6 17.9 14.4 12.1 372 Buy

Bosch# 8,251 2,245 8.3 18.5 (35) 301 9.9 96.0 9.9 357.5 394.5 439.3 23.1 20.9 18.8 8,787 Accumulate

Exide Industries 149 1,325 8.0 14.5 (425) 130 (20.4) 1.5 (20.4) 5.8 7.5 8.9 25.7 19.7 16.7 - Neutral

FAG Bearings#

1,676 35314.9

19.0(147)

443.2

26.63.2

105.9 121.0 137.8 15.8 13.9 12.2 - NeutralMotherson Sumi* 186 5,686 145.3 7.5 (353) 158 13.6 4.1 13.6 7.5 13.3 18.0 24.7 14.0 10.3 216 Buy


15/55



Banking

Banking stocks after underperforming the Sensex for three

consecutive quarters (1QFY2012-3QFY2012) were able to

outperform the Sensex handsomely by 15.8% (absolute returns

of 28.4%) in 4QFY2012 on account of lower valuations and

improving economic outlook. The rally in banking stocks was

led by mid cap PSU banks, within which Dena Bank gave the

highest sequential returns of 84.3%, followed by UCO Bank and

Syndicate Bank, which gave returns of 73.8% and 62.4%,

respectively. Inflation levels moderated significantly in 4QFY2012

(~250bp), leading to increased anticipation of rate cuts, which

fueled the rally in banking stocks. Throughout 4QFY2012, the

RBI continued with open market operations (OMOs) and, along

with cumulative 125bp cut in cash reserve ratio (CRR), infused

liquidity worth ~`2lakh cr in the financial system, which allowed

banks to manage the tight liquidity situation (owing to slowingdeposit growth and dollar sales by the RBI). Considering the

significant moderation in inflation levels over 4QFY2012, we

expect the RBI to commence with repo rate cuts in the next few

months, which, in our view, should help banking stocks in

maintaining their positive performance in FY2013 as well.

Deposit growth decelerates in 4QFY2012

Credit growth for the banking sector has been on a declining

trend since the beginning of FY2011. Credit growth as of March9, 2012, stood weak at 16.3% yoy, which can primarily be

attributed to the slowing economy along with a high base effect

(23.2% yoy growth as of March 11, 2011). Interest rates have

remained elevated for quite some time now (base rate for SBI

at 10% since August 2011), leading to continued tapering off

in the credit appetite of the economy. Incremental credit in

FY2012 YTD is lower by 10.3% yoy compared to FY2011 YTD;

deposit accretion, which had picked up post successive deposit

rate hikes, decelerated quite sharply during 4QFY2012 to 13.9%

yoy (as of March 9, 2012) compared to 16.9% yoy as of

December 30, 2011. Incremental FY2012 YTD deposits as ofMarch 9, 2012, are only marginally higher by 0.2% yoy

compared to FY2011 YTD.

Source: RBI, Angel Research; Note: #Between March 26, 2010 andMarch11, 2011, * Between March 25, 2011 and March 09, 2012

Exhibit 2: Deposits growth decelerates

611,278

647,544

548,021

648,667

400,000

500,000

600,000

700,000

C re di t o ff ta ke ( ` c r) D ep os it m ob il is at io n ( ` c r)

F Y2011# F Y2012*

( cr)`

Slowing deposit growth coupled with the RBI's intervention in

the forex market to support the depreciating rupee has led to

liquidity pressures exacerbating since the starting of CY2012

(avg. borrowings of ~`1.4lakh cr compared to ~`88,000cr in

3QFY2012). While the RBI has infused ~`2lakh cr in the system

through CRR cuts and OMOs, liquidity pressure has remained

intact (`1.25lakh cr as of March 30, 2012) and is expected toease only post the commencement of FY2013.

Source: RBI, Angel Research

Exhibit 3:Average LAF borrowings higher in 4QFY2012

(250)

(200)

(150)

(100)

(50)

-

50

Apr-

11

May-1

1

Jun-11

Jul-11

Aug-11

Sep-1

1

Oct-11

Nov-1

1

Dec-11

Jan-12

Fe

b-1

2

Mar-

12

('000 cr)

Exhibit 1: 4QFY2012 stock performance

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

Dena Bank 84.3 (13.4)

UCO Bank 73.8 (26.0)

Syndicate Bank 62.4 (9.5)

Allahabad Bank 61.9 (19.0)United Bank 55.4 (32.0)

Yes Bank 54.4 19.1

Central Bank 53.3 (28.2)

Andhra Bank 49.0 (20.9)

Bank of Maharashtra 42.5 (8.2)

Axis Bank 41.8 (18.4)

Union Bank of India 38.8 (32.1)

Bank of India 36.2 (23.7)

Jammu & Kashmir Bank 36.0 5.1

IDBI Bank 34.3 (26.5)

Indian Bank 31.9 4.8

Canara Bank 30.5 (24.0)

ICICI Bank 30.0 (20.2)

State Bank of India 29.5 (24.2)

Vijaya Bank 29.3 (26.4)

Oriental Bank of Commerce 28.7 (35.1)

Indian Overseas Bank 28.6 (34.4)

BankexBankexBankexBankexBankex 28.428.428.428.428.4 (11.6)(11.6)(11.6)(11.6)(11.6)

Federal Bank 26.6 1.9

South Indian Bank 22.9 8.1

HDFC Bank 21.8 10.8

Corp Bank 21.4 (33.2)

Bank of Baroda 19.7 (17.5)

LIC Housing Finance 19.0 16.5

Punjab National Bank 18.5 (23.7)SensexSensexSensexSensexSensex 12.612.612.612.612.6 (10.5)(10.5)(10.5)(10.5)(10.5)

HDFC 3.3 (4.0)



16/55

15



Banking

Margins expected to remain stable in 4QFY2012

Deposit and lending rates for most banks remained stable over

4QFY2012. Consequently, we do not expect any major

sequential variance in the margins of banks during 4QFY2012.

The cumulative release of ~`80,000cr through CRR cuts during

4QFY2012 is expected to aid in improved NIMs for the banking

sector. However, a sharp rise in short-term borrowing rates on

account of ongoing liquidity crisis (avg. 3M CD at 10.3% compared

to 9.4% in 3QFY2012) is likely to weigh down the impact, especiallyfor mid-size PSU banks that rely heavily on bulk deposit for their

liability funding (leading to possible margin contraction in a few

cases). Moreover, volatility in asset quality, poses a corresponding

risk to our margin estimates and could lead to divergence in NIMs

from our estimates.

Private Banks to continue outperforming PSUs at net

profit level

Overall, we expect large private banks to post 18.5% yoy growth

in net interest income, while PSU banks are expected to register

19.4% yoy growth (9.8% yoy excl. SBI). Both Private and PSU

banks are expected to report healthy performances on the pre-provisioning profit front with growth of 21.0% yoy and 28.6%

yoy (23.3% yoy excl. SBI), respectively. High growth at PPP level

in PSU banks (excl. SBI) is also attributable to low base effect in

4QFY2011 due to pension expenses.While large private banks

are expected to report healthy 20.7% yoy growth on the net

profit front, PSU banks are likely to post relatively lower 13.4%

yoy growth (excl. SBI) due to higher provisioning expenses.

Asset quality remains the major overhang

Asset quality pressures for Public sector banks were expected to

marginally abate post the switchover to system based NPA

recognition as higher recoveries and upgrades (technical aswell as cash) were expected to keep NPA levels under control.

However, continued chunky NPAs from the corporate sector

(aviation, telecom, mining, textiles, etc.) as well as from

agriculture led to higher than estimated fresh slippages from

these segments during 3QFY2012, leading to upsurge in NPA

levels as a whole for public sector banks.

Private Banks, on the contrary which have sharply improved

their asset quality over the past two years saw their provisioning

costs decline further during 4QFY2012. Consequently, while

PSU banks saw a 12.1% qoq and 12.7% qoq increase in their

gross and net NPA levels, private banks only witnessed a 1.3%qoq and 4.1% qoq rise in their gross and net NPA levels,

respectively.

Exhibit 4: 3QFY2012 and 4QFY2012 Lending and deposit rates

Source: Company, Angel Research; Note: *1-3 Yr Maturity bucket

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

BankBankBankBankBank 3QFY123QFY123QFY123QFY123QFY12 4QFY124QFY124QFY124QFY124QFY12 BP changeBP changeBP changeBP changeBP change 3QFY123QFY123QFY123QFY123QFY12 4QFY124QFY124QFY124QFY124QFY12 BP changeBP changeBP changeBP changeBP change 3QFY123QFY123QFY123QFY123QFY12 4QFY124QFY124QFY124QFY124QFY12 BP changeBP changeBP changeBP changeBP changeFEDBK 10.52 10.74 22 17.75 17.75 - 9.50 9.75 25

J&KBK 10.31 10.50 19 15.00 15.00 - 9.50 9.50 -

YESBK 10.43 10.50 7 20.00 20.00 - 9.60 9.60 -

ALLBK 10.75 10.75 - 15.00 15.00 - 9.50 9.50 -

ANDHBK 10.75 10.75 - 15.00 15.00 - 9.40 9.40 -

AXSB 10.00 10.00 - 17.75 17.75 - 9.25 9.25 -

BOB 10.75 10.75 - 15.00 15.00 - 9.35 9.35 -

BOI 10.75 10.75 - 15.00 15.00 - 9.25 9.25 -

CANBK 10.75 10.75 - 15.00 15.00 - 9.25 9.25 -

CENTBK 10.75 10.75 - 15.00 15.00 - 9.40 9.30 (10)

CRPBK 10.65 10.65 - 15.00 15.00 - 9.65 9.65 -

HDFCBK 10.00 10.00 - 18.50 18.50 - 9.25 9.25 -

ICICIBK 10.00 10.00 - 18.75 18.75 - 9.25 9.25 -IDBI 10.75 10.75 - 15.25 15.25 - 9.50 9.50 -

INDBK 10.75 10.75 - 15.00 15.00 - 9.50 9.50 -

IOB 10.75 10.75 - 15.50 15.50 - 9.50 9.50 -

OBC 10.75 10.75 - 15.00 15.00 - 9.75 9.75 -

PNB 10.75 10.75 - 14.25 14.25 - 9.40 9.30 (10)

SBI 10.00 10.00 - 14.75 14.75 - 9.25 9.25 -

SIB 10.50 10.50 - 19.00 19.00 - 9.75 9.75 -

SYNBK 10.75 10.75 - 15.00 15.00 - 9.35 9.35 -

UCOBK 10.75 10.75 - 15.00 15.00 - 9.50 9.50 -

UTDBK 10.60 10.60 - 14.85 14.85 - 9.25 9.25 -

VIJAYA 10.65 10.65 - 15.00 15.00 - 9.35 9.35 -

DENABK 10.70 10.70 - 15.75 15.75 - 9.60 9.60 -

BOM 10.70 10.67 (3) 15.00 15.00 - 9.35 9.35 -UNBK 10.75 10.65 (10) 15.50 15.50 - 9.25 9.25 -


17/55



Banking

ReferredReferredReferredReferredReferred ApprovedApprovedApprovedApprovedApproved

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

FY10 31 20,175 31 17,763

FY11 49 22,614 27 6,615

1QFY12 18 4,595 10 8,141

2QFY12 18 21,095 7 2,095

3QFY12 23 19,187 17 21,364

9MFY12 59 44,877 34 31,600

Cummulative 364 183,481 276 142,514

Exhibit 9: CDR Snapshot

Source: CDR Cell, Angel Research

IndustryIndustryIndustryIndustryIndustry No.No.No.No.No. AggAggAggAggAgg. Debt (. Debt (. Debt (. Debt (. Debt (````` cr)cr)cr)cr)cr) Debt in %Debt in %Debt in %Debt in %Debt in %Iron & Steel 30 38,186 26.8

Infrastructure 12 17,080 12.0

Textiles 57 11,370 8.0

Telecom 9 9,199 6.5

Fertilizers 8 8,454 5.9

NBFC 6 6,592 4.6

Sugar 24 6,562 4.6

Cements 9 6,112 4.3

Petrochemicals 3 5,493 3.9

Refineries 1 4,874 3.4

Power 7 3,836 2.7Other (Jewel., Liq., edible oil etc.) 5 3,498 2.5

Pharmaceuticals 9 3,349 2.4

Chemicals 15 2,898 2.0

Electronics 3 2,521 1.8

Metals (Non-ferrous Metals) 5 2,171 1.5

Paper/Packaging 16 2,147 1.5

Others 57 8,172 5.7

TTTTTotalotalotalotalotal 276276276276276 142,514142,514142,514142,514142,514 100.0100.0100.0100.0100.0

Exhibit 10: Industry wise exposure to CDR

Source: CDR Cell, Angel Research

Source: Company, Angel Research

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

1.16

1.09 1.08 1.07

1.00 0.98

1.04

1.28

1.36

0.90

1.00

1.10

1.20

1.30

1.40

1.50

3QFY10

4QFY10

1QFY11

2QFY11

3QFY11

4QFY11

1QFY12

2QFY12

3QFY12


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

2.46

2.362.43

2.472.40

2.27

2.43

2.73

2.86

2.10

2.30

2.50

2.70

2.90

3.10

3QFY10

4QFY10

1QFY11

2QFY11

3QFY11

4QFY11

1QFY12

2QFY12

3QFY12


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

3.19 3.12 3.20 3.06

2.892.65

2.55

2.45 2.412.53 2.56

2.64 2.58 2.59 2.612.71

2.96

3.29

1.50

1.80

2.10

2.40

2.70

3.00

3.30

3.60

3QFY10

4QFY10

1QFY11

2QFY11

3QFY11

4QFY11

1QFY12

2QFY12

3QFY12

Pvt Banks PSU Banks


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

1.39

1.151.05

0.900.78

0.62 0.62 0.59 0.60

1.22 1.26 1.27

1.21 1.18 1.261.28

1.531.69

0.30

0.50

0.70

0.90

1.10

1.30

1.50

1.70

3QFY10

4QFY10

1QFY11

2QFY11

3QFY11

4QFY11

1QFY12

2QFY12

3QFY12

Pvt Banks PSU Banks

Almost all banks resorted to higher restructuring during

3QFY2012 with loans to SEBs and GTL being the primarycontributors. Within PSU banks, BOM (up 55.0% qoq) and

Central bank (up 50.5% qoq) witnessed highest sequential rises

in their restructured books. Banks with exposure to GTL also had

to take NPV hits in their P&L (ranging from 10%-20% of the total

loan advances) during 3QFY2012, denting their bottom-line.

Approvals of cases wor th `20,000cr during 3QFY2012

(~`45,000cr during 9MFY2012) and pending approvals of

`24,000cr under the CDR mechanism along with bank-specific

exposures, in our view, are expected to further fatten the already-

heavy restructured books over the next few quarters. Also, with

sectors such as infra, real estate, metals and aviation continuingto face macro headwinds, asset-quality concerns, in our view,

are expected to linger.


18/55

17



Bond yields remain volatile during the quarter

The 10-year G-sec bond yields maintained their downward

trajectory and touched an eight-month low in the first fortnight ofJanuary 2012 (8.19% as on January 9, 2012), as liquidity infusion

through RBI's OMOs, moderating inflation and expectations of

rate cuts eased bond market sentiments. Bond yields, however,

rose upwards in the first fortnight of March 2012 on account of

uptick in global crude oil prices and expectations of the

government exceeding its annual fiscal deficit target for FY2012,

before rising further post Union Budget 2012-13, as the

government's higher-than-expected market borrowings plan

dampened bond market sentiments.

The 10-year G-sec yields ended the quarter at 8.54% (8.57%

as of December 30, 2011) and hence we do not expect materialMTM losses/gains for the banking sector. However, considering

the intra-quarter volatility witnessed, several banks could report

trading gains on their investment book in 4QFY2012 results.

Banking


Exhibit 11: Corporate and G-Sec bond yields

9.5

4

9.5

8

9.5

2

9.4

2

8.4

3

8.4

4

8.5

3

8.5

7

9.8

5

9.6

5

9.5

7

9.4

7

8.4

1

8.6

4

8.6

1

8.5

9

7.50

8.00

8.50

9.00

9.50

10.00

AAA 1 -yr AAA 3-yr AAA 5 -yr AAA 10-yr Gsec 1-yr Gsec 5-yr Gsec 7-yr Gsec 10-yr

D ec. 30, 2011 M ar. 29, 2012


Exhibit 12: 10-year G-sec yields movement

8.0

8.2

8.3

8.5

8.6

8.8

30

-Dec-11

6-Jan-1

2

13

-Jan-1

2

20

-Jan-1

2

27

-Jan-1

2

3-Fe

b-1

2

10

-Fe

b-1

2

17

-Fe

b-1

2

24

-Fe

b-1

2

2-Mar-

12

9-Mar-

12

16

-Mar-

12

23

-Mar-

12

30

-Mar-

12

Capital Infusion in PSU banks

The government, in light of capital constraints being faced by

the banking sector and the upcoming Basel-3 norms, earmarked

a healthy allocation of ~`16,000cr for capital infusion in public

sector banks in Union Budget 2012-13. In terms of the ongoing

round of capital infusion by the government, State Bank of India

is the biggest beneficiary with capital infusion of `7,900cr,

followed by IDBI Bank and Punjab National Bank with capital

infusion worth `5,293cr and `2,875cr, respectively.

Outlook and Valuation

Asset quality, in our view, continues to be the key monitorable

and a major concern on the banking sector's fundamentals.

However, considering the impending repo rate cuts, which are

expected to begin in the next few months, and stable margin

outlook going ahead, we remain positive on the banking sector.

Inflation levels for FY2012 are lower by 100-150bp compared

to FY2011, which is a key positive, and we believe the current

inflation environment (apart from fuel-related concerns) should

aid the commencement of the monetary easing cycle. Margins

of the banking sector are also expected to hold on to current

levels due to capital constraints in PSU Banks (owing to Basel 3

norms). Moreover, recoveries from technical NPAs and RBI's

prudent countercyclical norms, in our view, are an additional

buffer which should aid in absorbing higher provisioning costs.

Further, with the improvement in domestic macro fundamentals

expected to gather pace in 2HFY2013 on account of lower

interest burden, we expect asset-quality headwinds to begin

receding, albeit gradually.

Within private banks, our top picks remain Axis Bank and Yes

Bank, where we expect significant re-rating upsides. We expect

these banks to continue posting healthy operating performance

going forward. At current valuations, we view them as being

substantially undervalued compared to Sensex/HDFC Bank/

peers. We also like ICICI Bank on account of its conservative

stance adopted for its balance sheet growth over the last threeyears, which has resulted in significant improvement in the bank's

ROAs.


Exhibit 13: Capital Infusion in PSU banks

BankBankBankBankBank Tier 1 RatioTier 1 RatioTier 1 RatioTier 1 RatioTier 1 Ratio GOIGOIGOIGOIGOI LICLICLICLICLIC TTTTTotalotalotalotalotal

(9MFY2012)(9MFY2012)(9MFY2012)(9MFY2012)(9MFY2012) ((((( ````` cr)cr)cr)cr)cr) ((((( ````` cr)cr)cr)cr)cr) ((((( ````` cr)cr)cr)cr)cr)

St. Bank of India 7.6 7,900 - 7,900

IDBI Bank 7.5 4,630 663 5,293

Punjab National Bank 7.9 1,285 1,590 2,875

Bank of India 7.7 1,045 1,037 2,083

Indian Overseas Bank 6.7 1,675 303 1,978

Bank of Baroda 9.3 - 1,613 1,613

Allahabad Bank 8.9 1,003 459 1,462

Union Bank 8.0 355 650 1,005

Central Bank 7.8 659 341 1,000

Bank of Maharashtra 7.1 860 135 995

Punjab and Sind Bank 8.0 895 96 991

Syndicate Bank 8.4 539 327 866

UCO Bank 7.8 500 259 759

United Bank 8.4 173 132 305

Dena Bank 8.5 - 151 151

Vijaya Bank 9.0 - 147 147


19/55



Banking

Analyst - VAnalyst - VAnalyst - VAnalyst - VAnalyst - Vaibhav Agrawaaibhav Agrawaaibhav Agrawaaibhav Agrawaaibhav Agrawal/l/l/l/l/VVVVVarun Varun Varun Varun Varun Varmarmarmarmarmaaaaa

Exhibit 16: Quarterly estimates (((((````` cr)cr )cr)cr )cr)CompanyCompanyCompanyCompanyCompany CMPCMPCMPCMPCMP Operating Income Net POperating Income Net POperating Income Net POperating Income Net POperating Income Net Profit EPS (rofit EPS (rofit EPS (rofit EPS (rofit EPS (`````) Adj B) Adj B) Adj B) Adj B) Adj BVPS (VPS (VPS (VPS (VPS (`````))))) P/E (x) P/ABP/E (x) P/ABP/E (x) P/ABP/E (x) P/ABP/E (x) P/ABV (x)V (x)V (x)V (x)V (x) TTTTTargetargetargetargetarget Reco.Reco.Reco.Reco.Reco.

(((((`````))))) 4QFY12E4QFY12E4QFY12E4QFY12E4QFY12E % chg% chg% chg% chg% chg 4QFY12E4QFY12E4QFY12E4QFY12E4QFY12E % chg% chg% chg% chg% chg FY12EFY12EFY12EFY12EFY12E FY13EFY13EFY13EFY13EFY13E FY14EFY14EFY14EFY14EFY14E FY12EFY12EFY12EFY12EFY12E FY13EFY13EFY13EFY13EFY13E FY14EFY14EFY14EFY14EFY14E FY12EFY12EFY12EFY12EFY12E FY13EFY13EFY13EFY13EFY13E FY14EFY14EFY14EFY14EFY14E FY12EFY12EFY12EFY12EFY12E FY13EFY13EFY13EFY13EFY13E FY14EFY14EFY14EFY14EFY14E (((((````)))))

AXSB 1,146 3,838 21.8 1,159 13.6 100.5 113.9 136.4 538.8 615.2 721.1 11.4 10.1 8.4 2.1 1.9 1.6 1,550 BuyFEDBK 426 694 17.9 227 32.2 44.8 49.5 57.2 333.8 372.9 417.9 9.5 8.6 7.4 1.3 1.1 1.0 - Neutral

HDFCBK 520 4,727 15.4 1,451 30.2 22.1 28.4 35.6 125.4 147.2 174.6 23.6 18.3 14.6 4.1 3.5 3.0 567 Accum.

ICICIBK 887 4,875 17.5 1,719 18.3 54.5 65.3 78.3 509.0 546.0 590.3 16.3 13.6 11.3 1.7 1.6 1.5 1,135 Buy

SIB 25 350 24.1 111 35.5 3.5 3.7 3.9 17.8 20.7 23.8 7.1 6.7 6.2 1.4 1.2 1.0 - Neutral

YESBK 367 684 27.9 267 31.5 28.0 34.4 42.2 133.8 163.0 198.8 13.1 10.7 8.7 2.7 2.3 1.8 477 Buy

ALLBK 186 1,857 14.6 565 119.3 42.7 37.4 40.9 193.9 225.2 256.9 4.4 5.0 4.6 1.0 0.8 0.7 205 Accum.

ANDHBK 119 1,282 10.5 328 5.0 23.8 23.6 27.0 129.2 144.6 166.6 5.0 5.1 4.4 0.9 0.8 0.7 - Neutral

BOB 794 3,761 9.1 1,297 0.2 121.8 131.4 153.3 628.4 738.9 857.3 6.5 6.0 5.2 1.3 1.1 0.9 943 Buy

BOI 361 3,066 -2.1 704 42.6 44.4 50.0 65.4 295.9 344.5 392.0 8.1 7.2 5.5 1.2 1.0 0.9 392 Accum.

BOM 55 821 12.1 110 59.2 8.4 10.7 13.5 67.7 72.1 82.6 6.5 5.1 4.1 0.8 0.8 0.7 62 Accum.

CANBK 474 2,880 24.1 981 9.1 77.5 85.7 95.4 450.8 515.6 590.9 6.1 5.5 5.0 1.1 0.9 0.8 532 Accum.

CENTBK 100 1,623 -16.8 127 (4.0) 9.4 13.1 19.9 100.0 104.2 115.6 10.7 7.6 5.0 1.0 1.0 0.9 92 Reduce

CRPBK 425 1,372 9.6 416 20.4 106.0 108.3 111.5 544.1 618.6 700.2 4.0 3.9 3.8 0.8 0.7 0.6 508 Buy

DENABK 90 738 13.2 209 32.8 22.7 23.2 25.6 123.0 141.1 162.6 4.0 3.9 3.5 0.7 0.6 0.6 114 Buy

IDBI 105 1,786 0.1 389 (24.7) 16.8 15.5 21.5 126.4 132.1 147.2 6.2 6.7 4.9 0.8 0.8 0.7 - Neutral

INDBK 240 1,554 12.4 525 19.5 44.0 45.5 48.8 218.5 253.5 291.3 5.5 5.3 4.9 1.1 0.9 0.8 - Neutral

IOB 94 1,706 6.6 252 (41.9) 12.5 15.9 21.1 138.8 143.7 160.1 7.5 5.9 4.5 0.7 0.7 0.6 104 Accum.

J&KBK 917 591 10.4 207 49.3 165.4 178.0 195.8 843.9 980.0 1,129.9 5.5 5.2 4.7 1.1 0.9 0.8 - Neutral

OBC 252 1,531 16.6 418 25.3 44.4 50.8 60.9 374.7 411.5 456.0 5.7 5.0 4.1 0.7 0.6 0.6 296 Buy

PNB 926 4,772 14.3 1,321 10.0 150.9 156.3 178.7 733.4 883.2 1,034.1 6.1 5.9 5.2 1.3 1.0 0.9 1,138 Buy

SBI 2,095 15,948 23.9 3,549 NA 176.5 220.9 269.8 1,055.0 1,318.1 1,584.5 11.9 9.5 7.8 2.0 1.6 1.3 2,593 Buy

SYNBK 111 1,651 16.6 329 13.8 23.3 23.2 27.5 134.1 149.3 170.4 4.8 4.8 4.0 0.8 0.7 0.7 128 Buy

UCOBK 79 1,370 20.6 342 51.2 16.2 17.8 18.8 77.8 90.1 101.4 4.9 4.4 4.2 1.0 0.9 0.8 - Neutral

UNBK 235 2,454 5.9 600 0.4 30.6 40.7 49.5 225.1 260.9 304.3 7.7 5.8 4.7 1.0 0.9 0.8 274 Buy

UTDBK 72 886 11.6 206 44.0 17.5 18.4 21.7 107.7 117.6 134.2 4.1 3.9 3.3 0.7 0.6 0.5 87 Buy

VIJAYA 58 630 1.5 129 138.5 8.8 9.5 11.5 67.5 71.9 78.0 6.6 6.1 5.1 0.9 0.8 0.7 55 Reduce

HDFC 674 1,867 12.8 1,267 11.0 27.6 31.2 37.2 128.4 158.3 178.6 24.4 21.6 18.1 5.2 4.3 3.8 - NeutralLICHF 263 489 (5.7) 279 (11.2) 18.6 25.3 31.9 113.5 133.8 159.4 14.1 10.4 8.2 2.3 2.0 1.7 295 Accum.

Source: Company, Angel Research; Note: Price as on March 30, 2012

Coming to PSU banks, valuations for the entire pack revived

sharply during the quarter. This led to a few specific cases

(Andhra Bank, UCO Bank, Central Bank and Vijaya Bank),wherein we believe valuations exceeded fundamentals. Hence,

we recommend Neutral or Reduce on these stocks, while being

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

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

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0.20

0.40

0.60

0.80

1.00

1.201.40

1.60

1.80

Apr-

01

Apr-

02

Apr-

03

Apr-

04

Apr-

05

Apr-

06

Apr-

07

Apr-

08

Apr-

09

Apr-

10

Apr-

11

Apr-

12

Source:C-line, Angel Research

Exhibit 15: Large Pvt. banks price band (P/ABV)

-

0.50

1.00

1.50

2.00

2.50

Apr-

01

Apr-

02

Apr-

03

Apr-

04

Apr-

05

Apr-

06

Apr-

07

Apr-

08

Apr-

09

Apr-

10

Apr-

11

Apr-

12

positive on banks such as Dena Bank, United Bank, Bank of

Maharashtra and Syndicate Bank, which we believe have a

superior earnings quality outlook compared to peers. Withinlarge-cap PSU banks, we continue to prefer SBI and BOB due

to their structurally strong fundamentals vis--vis peers.


20/55

19



Capital Goods

We expect companies in our capital goods (CG) universe to

post average top-line growth of 10.9%. However, on the

bottom-line front, the picture is mixed, with most companies inour coverage universe posting a decline mainly on account

of margin pressure and, in some cases, due to higher

interest cost.

ABB India (CMP/TP: `842/`503) (Rating: Sell)

For 1QCY2012, we expect ABB India (ABB) to post decent

top-line growth of 14.5% yoy to `2,053cr, driven by the

company's balanced performance across all segments. EBITDA

margin is likely witness marginal improvement of 23bp yoy to

5.9%. Also, on a qoq basis, we expect the company's margin to

improve by 100bp.Aided by modest revenue growth, ABB'sAided by modest revenue growth, ABB'sAided by modest revenue growth, ABB'sAided by modest revenue growth, ABB'sAided by modest revenue growth, ABB'sbottom line is expected to jump by 15.7% tobottom line is expected to jump by 15.7% tobottom line is expected to jump by 15.7% tobottom line is expected to jump by 15.7% tobottom line is expected to jump by 15.7% to `````68.9cr68.9cr68.9cr68.9cr68.9cr. W. W. W. W. Weeeee

maintain our Sell recommendation on the stock with a targetmaintain our Sell recommendation on the stock with a targetmaintain our Sell recommendation on the stock with a targetmaintain our Sell recommendation on the stock with a targetmaintain our Sell recommendation on the stock with a target

price ofprice ofprice ofprice ofprice of `````503.503.503.503.503.

sectoral outlook

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