sharekhan valueguide 1 february 2015sharekhan valueguide 3 february 2015 the stock market began the...

Sharekhan ValueGuide February 20151

February 2015 Sharekhan ValueGuide2


The stock marketbegan the year ona cheerful note.The strong rallywas driven by theReserve Bank ofIndia’s surpriserate cut a fortnightbefore the bi-monthly policy review meet and the continued softening of crudeoil prices which has a significant favourable impact on India’smacro situation.

REGULAR FEATURESReport Card 4Earnings Guide I

TECHNICALSNifty 26

Stock Ideas 14Stock Updates 16Q3FY15 earnings preview 24Viewpoint 25

From Sharekhan’s Desk EQUITY

06

All eyes on BudgetFUNDAMENTALS

DERIVATIVESView 27

TECHNICALS

Crude Oil 28Gold 29Silver 29Copper 29

FUNDAMENTALS

Lead 29

Zinc 29

Nickel 30

Gold 31Silver 31Crude Oil 31

Copper 32Cotton seed oil cake 32Dhaanya Index 32

TECHNICALS

FUNDAMENTALS

USD-INR 34EUR-INR 34

GBP-INR 34JPY-INR 34

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COMMODITY

CURRENCY

PMS DESKProPrime - Top Equity 35ProPrime - Diversified Equity 36ProTech - IndexFutures Fund 37ProTech - Trailing Stops 38

MUTUAL FUNDS DESK

Top MF Picks (equity) 41

Top SIP Fund Picks 42

RESEARCH BASED EQUITY PRODUCTS

Top Picks Basket 07Union Budget Preview 11Wealth Creator portfolio 13

GBP-INR 33JPY-INR 33

ADVISORY DESKMID Trades 39

USD-INR 33EUR-INR 33

Derivative Ideas 39

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CONTENTS


REPORT CARD EQUITY FUNDAMENTALS

STOCK IDEAS STANDING (AS ON FEBRUARY 03, 2015)

COMPANY CURRENT PRICE AS ON PRICE 52 WEEK ABSOLUTE PERFORMANCE RELATIVE TO SENSEXRECO 03-FEB-15 TARGET HIGH LOW 1M 3M 6M 12M 1M 3M 6M 12M

AUTOMOBILES

Apollo Tyres Buy 238.6 260.0 249.8 110.9 -1.2 -3.8 22.5 101.8 -4.7 -7.0 9.7 39.7Ashok Leyland � Buy 64.9 76.0 69.2 14.9 8.0 33.6 76.9 290.3 4.2 29.2 58.3 170.1Bajaj Auto Hold 2,260.8 2,500.0 2,695.0 1,809.2 -8.8 -12.7 4.2 21.1 -12.0 -15.6 -6.8 -16.2Gabriel Industries Buy 97.6 110.0 106.8 20.0 -3.6 1.9 77.8 370.1 -7.0 -1.5 59.2 225.3M&M Buy 1,199.2 1,440.0 1,433.7 866.5 -3.2 -6.1 -4.1 35.9 -6.6 -9.2 -14.2 -6.0Maruti Suzuki � Buy 3,607.9 4,250.0 3,758.5 1,550.0 2.2 7.1 32.7 120.2 -1.4 3.6 18.8 52.4Rico Auto Industries Buy 45.7 55.0 51.5 7.8 -5.0 -4.5 86.8 467.5 -8.3 -7.6 67.2 292.7TVS Motor Hold 285.3 295.0 322.3 78.3 8.3 13.5 78.5 254.3 4.5 9.7 59.8 145.2BSE Auto Index 19,945.9 20,386.4 11,488.4 2.9 6.4 23.6 70.9 -0.8 2.8 10.6 18.2BANKS & FINANCE

Allahabad Bank Buy 111.2 135.0 150.0 72.2 -17.4 -7.5 -13.2 38.7 -20.3 -10.6 -22.3 -4.0Andhra Bank Hold 91.9 104.0 110.0 53.5 -8.0 1.4 4.3 54.6 -11.3 -2.0 -6.6 7.0Axis (UTI) Bank Buy 586.6 610.0 625.9 216.5 9.3 23.6 44.0 154.4 5.5 19.5 28.9 76.1Bajaj Finance Buy 4,172.3 4,305.3 4,492.4 1,460.0 20.3 44.7 87.2 180.3 16.0 39.9 67.5 94.0Bajaj Finserv Buy 1,468.5 1,544.0 1,532.0 675.0 17.3 41.7 54.1 116.1 13.1 37.0 37.9 49.6Bank of Baroda Hold 185.1 212.0 228.9 101.8 -19.0 -6.8 -2.4 65.4 -21.9 -9.9 -12.6 14.4Bank of India Buy 261.2 348.0 357.0 165.6 -18.7 -12.9 -11.2 35.5 -21.6 -15.8 -20.5 -6.2Capital First Buy 402.3 ** 431.2 126.1 1.9 9.4 52.7 208.0 -1.7 5.8 36.6 113.2Corp Bank Hold 66.9 78.0 83.6 44.0 -1.9 -2.2 -8.5 32.5 -5.4 -5.5 -18.1 -8.3Federal Bank Buy 143.1 170.1 153.8 72.4 -7.3 -6.1 14.6 81.3 -10.5 -9.2 2.6 25.5HDFC Hold 1,230.2 1,359.6 1,361.9 755.0 7.8 13.3 19.2 61.0 4.0 9.5 6.7 11.4HDFC Bank � Hold 1,064.1 ** 1,100.6 629.4 12.5 17.9 31.2 70.3 8.5 14.0 17.5 17.9ICICI Bank Buy 346.6 424.0 393.4 189.2 -7.6 0.4 12.9 76.4 -10.8 -2.9 1.0 22.1IDBI Bank Hold 69.5 82.0 116.5 53.4 -13.5 -7.8 -28.1 19.7 -16.5 -10.8 -35.6 -17.1LIC Housing Finance Buy 470.7 558.1 505.0 192.0 -2.2 23.1 57.9 142.1 -5.6 19.0 41.3 67.5PTC India Fin. Ser. � Buy 62.4 89.6 73.2 12.7 -13.9 16.6 72.8 346.5 -16.9 12.8 54.7 209.0Punjab National Bank Hold 176.9 203.0 231.5 104.8 -21.3 -9.8 -12.2 55.6 -24.1 -12.8 -21.4 7.7SBI � Buy 300.3 378.0 336.0 145.5 -7.0 4.5 17.5 93.9 -10.3 1.1 5.2 34.2Union Bank of India Buy 205.0 268.0 259.7 100.5 -18.6 -12.5 -5.7 84.1 -21.5 -15.4 -15.6 27.4Yes Bank Buy 807.2 930.0 895.0 294.0 1.8 20.6 48.3 170.5 -1.8 16.6 32.7 87.2BSE Bank Index 22,188.5 23,903.8 11,506.4 0.2 9.8 24.7 88.6 -3.4 6.1 11.6 30.5CONSUMER GOODS

GSK Consumers Hold 5,647.6 6,005.0 5,999.0 4,011.0 -5.8 3.4 12.5 29.5 -9.1 0.0 0.7 -10.4Godrej Consumer Products Hold 1,083.7 1,030.0 1,141.2 701.0 11.1 14.6 28.6 50.2 7.2 10.8 15.1 3.9Hindustan Unilever Hold 910.9 925.0 968.9 542.0 19.6 21.6 30.0 62.7 15.3 17.5 16.4 12.6ITC Hold 366.1 380.0 400.3 311.1 -0.2 2.7 3.6 17.7 -3.7 -0.7 -7.3 -18.5Jyothy Laboratories Hold 299.5 ** 305.0 171.3 9.3 20.5 61.0 42.2 5.5 16.5 44.1 -1.6Marico Buy 349.7 385.0 372.0 198.6 10.1 18.8 35.4 65.5 6.2 14.9 21.2 14.5Zydus Wellness Buy 817.4 940.0 952.0 435.0 0.3 30.3 33.9 59.0 -3.3 26.0 19.9 10.1BSE FMCG Index 8,215.2 8,354.9 6,310.1 5.5 9.4 14.4 29.5 1.8 5.7 2.4 -10.4IT / IT SERVICES

CMC Hold 1,915.3 1,925.0 2,407.0 1,334.0 -1.6 -1.6 -2.5 37.1 -5.1 -4.9 -12.7 -5.1Firstsource Solution Buy 30.6 51.0 44.4 24.7 -10.6 -20.6 -20.8 22.7 -13.8 -23.2 -29.1 -15.1HCL Technologies Buy 1,900.3 2,050.0 1,997.0 1,246.3 25.5 23.4 28.8 44.2 21.1 19.3 15.3 -0.2Infosys Buy 2,120.9 2,540.0 2,247.7 1,440.0 9.9 6.4 25.9 25.3 6.0 2.8 12.7 -13.3Persistent Systems Hold 1,649.9 2,050.0 1,921.7 880.0 -4.8 30.0 34.7 78.4 -8.2 25.7 20.5 23.4Tata Consultancy Services � Buy 2,558.3 3,100.0 2,839.7 1,968.8 0.7 -1.6 1.5 19.9 -2.9 -4.9 -9.1 -17.0Wipro Buy 621.6 645.0 654.7 474.7 15.3 15.1 17.1 15.9 11.2 11.3 4.8 -19.8BSE IT Index 11,307.9 11,726.1 8,155.2 8.7 6.9 18.2 27.9 4.9 3.3 5.8 -11.5CAPITAL GOODS / POWER

BHEL Hold 297.1 ** 300.0 145.6 1.3 7.3 22.2 74.7 -2.3 3.8 9.3 20.9CESC Buy 712.3 800.0 828.1 416.6 -1.1 -2.7 -2.4 52.5 -4.5 -5.9 -12.6 5.6Crompton Greaves Buy 178.8 230.0 231.0 116.4 -13.8 -15.7 -16.7 38.2 -16.8 -18.5 -25.4 -4.4Finolex Cable Buy 256.5 285.0 284.0 73.4 -5.0 5.2 24.5 198.3 -8.4 1.7 11.4 106.4Greaves Cotton Buy 145.6 155.0 159.4 56.5 0.4 3.6 29.4 140.8 -3.1 0.2 15.8 66.7Kalpataru Power Transmission Buy 237.9 260.0 252.0 70.5 2.4 42.5 41.1 227.0 -1.2 37.8 26.3 126.3PTC India Buy 97.8 130.0 104.9 52.1 -2.3 2.1 14.2 74.3 -5.8 -1.3 2.2 20.6Skipper Buy 127.9 165.0 149.9 32.0 9.3 26.1 237.9 - 5.5 22.0 202.5 -Thermax Hold 1,153.4 1,300.0 1,233.0 615.0 8.3 18.8 31.2 79.0 4.5 14.8 17.4 23.9Va Tech Wabag � Buy 1,551.4 1,900.0 1,748.0 545.0 -2.2 -2.3 7.9 181.3 -5.7 -5.5 -3.5 94.6V-Guard Industries Hold 1,003.2 1,160.0 1,198.0 403.1 -13.8 7.0 29.7 127.4 -16.9 3.5 16.1 57.4

NEW

NEW

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REPORT CARDEQUITY FUNDAMENTALS

STOCK IDEAS STANDING (AS ON FEBRUARY 03, 2015)

COMPANY CURRENT PRICE AS ON PRICE 52 WEEK ABSOLUTE PERFORMANCE RELATIVE TO SENSEXRECO 03-FEB-15 TARGET HIGH LOW 1M 3M 6M 12M 1M 3M 6M 12M

NEW

� In Top Picks basket ** Price target under review

NEW

NEW

NEW

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Triveni Turbine Buy 109.3 128.0 126.0 52.0 -7.7 17.0 15.8 90.8 -11.0 13.1 3.7 32.0BSE Power Index 2,217.6 2,408.1 1,493.4 1.0 -0.7 0.8 41.3 -2.5 -3.9 -9.8 -2.2BSE Capital Goods Index 17,314.3 17,432.9 9,290.6 6.1 4.9 16.4 80.2 2.4 1.4 4.2 24.7INFRASTRUCTURE / REAL ESTATE

Gayatri Projects Hold 165.5 180.0 192.0 49.5 -1.0 -0.3 7.6 159.2 -4.5 -3.6 -3.7 79.4ITNL Buy 215.5 284.0 257.5 98.7 10.5 8.6 -7.6 94.5 6.6 5.0 -17.3 34.6IRB Infra Buy 269.8 320.0 289.7 71.3 4.0 -0.4 -4.2 245.5 0.3 -3.7 -14.2 139.1Jaiprakash Associates Hold 27.3 40.0 89.9 23.1 -2.2 -19.3 -57.8 -31.9 -5.7 -22.0 -62.2 -52.9Larsen & Toubro Buy 1,722.5 1,840.0 1,776.6 969.0 8.1 1.0 14.0 72.4 4.3 -2.4 2.0 19.3Pratibha Industries Buy 41.7 65.0 66.7 22.9 -5.7 -21.5 -19.1 37.1 -9.0 -24.1 -27.6 -5.1Punj Lloyd Reduce 36.3 30.0 60.9 25.4 -5.1 -10.2 -13.1 31.0 -8.4 -13.2 -22.2 -9.3CNX Infra Index 3,293.0 3,524.1 2,215.5 2.9 -2.1 1.5 42.7 -0.7 -5.3 -9.2 -1.2BSE Real Estate Index 1,789.8 2,272.7 1,189.5 11.6 9.6 -9.1 46.2 7.6 6.0 -18.6 1.2OIL & GAS

Oil India Buy 531.4 720.0 670.0 438.0 -4.2 -13.1 -5.6 25.3 -7.6 -16.0 -15.5 -13.3Reliance Ind � Buy 937.6 1,045.0 1,145.3 793.1 5.5 -6.8 -6.1 14.0 1.7 -9.9 -16.0 -21.1Selan Exploration Technology Buy 306.4 550.0 677.4 275.0 -16.3 -37.8 -50.3 -34.6 -19.2 -39.9 -55.5 -54.7BSE Oil and gas Index 10,288.6 12,132.0 8,260.6 2.9 -7.5 -4.0 24.9 -0.7 -10.6 -14.0 -13.6PHARMACEUTICALS

Aurobindo Pharma Buy 1,224.2 1,272.0 1,275.0 476.2 1.7 14.9 57.5 135.5 -1.9 11.1 40.9 63.0Cipla Hold 677.4 ** 711.9 366.5 4.6 0.6 51.1 60.3 1.0 -2.7 35.2 10.9Cadila Healthcare Hold 1,541.8 1,640.0 1,760.2 849.0 -14.1 3.5 34.9 73.4 -17.1 0.1 20.7 20.0Divi's Labs Hold 1,659.9 1,860.0 1,888.1 1,210.0 -6.9 -5.8 7.4 22.3 -10.2 -8.9 -3.9 -15.4Glenmark Pharmaceuticals Buy 706.4 915.0 841.0 507.1 -1.2 -3.1 10.6 35.6 -4.7 -6.3 -1.0 -6.2JB Chemicals Hold 188.9 251.0 257.9 119.2 -5.1 -13.9 15.3 54.8 -8.4 -16.8 3.2 7.1Ipca Laboratories Hold 619.4 730.0 906.9 599.0 -14.0 -5.8 -13.2 -22.6 -17.0 -8.9 -22.3 -46.4Lupin � Hold 1,546.4 1,650.0 1,610.0 889.1 10.3 14.3 34.2 73.5 6.5 10.5 20.1 20.0Sun Pharmaceutical Industries Buy 941.3 1,018.0 966.0 552.5 16.1 10.1 24.2 64.7 12.0 6.5 11.2 14.0Torrent Pharma Hold 1,135.3 1,205.0 1,231.7 518.6 -6.3 20.7 47.0 103.7 -9.6 16.7 31.6 40.9BSE Health Care Index 15,487.4 15,830.0 9,881.4 5.5 6.4 27.3 53.7 1.8 2.9 14.0 6.4BUILDING MATERIALS

Grasim Buy 3,888.0 4,475.0 3,975.0 2,426.4 10.8 9.2 17.3 57.3 6.9 5.6 5.0 8.9The Ramco Cements Buy 355.8 420.0 380.0 159.1 1.7 -2.9 20.8 107.3 -1.9 -6.1 8.2 43.5Shree Cement Hold 10,848.3 11,500.0 11,786.0 4,210.8 18.3 21.0 47.9 154.3 14.1 17.0 32.3 76.0UltraTech Cement Buy 3,107.6 3,440.0 3,199.9 1,650.3 11.5 20.9 17.7 83.1 7.6 16.9 5.3 26.7DISCRETIONARY CONSUMPTION

Century Plyboards (India)� Buy 184.9 232.0 200.0 21.9 15.9 28.0 121.3 708.2 11.8 23.8 98.1 459.3Cox and Kings Buy 313.9 395.0 368.0 128.0 -0.1 1.9 19.1 125.4 -3.6 -1.4 6.6 56.0Eros International Media Hold 366.8 ** 425.0 145.9 3.7 47.9 81.2 174.7 0.1 43.0 62.2 90.1KDDL Buy 300.7 350.0 316.0 69.0 8.9 93.0 81.4 324.5 5.1 86.6 62.4 193.8KKCL Hold 1,802.9 1,900.0 2,000.0 971.4 -5.4 7.0 6.4 68.6 -8.7 3.5 -4.8 16.7Raymond Hold 515.7 560.0 579.5 266.0 3.6 15.3 27.1 96.7 0.0 11.4 13.8 36.1Relaxo Footwear Buy 680.3 745.0 750.0 240.0 -1.0 27.1 66.5 151.7 -4.5 22.9 49.0 74.2Speciality Restaurants Hold 182.1 222.0 215.1 109.0 -0.7 11.7 34.8 72.7 -4.2 8.0 20.6 19.5Sun TV Network Hold 415.2 425.0 488.0 298.6 9.4 23.1 -1.1 14.3 5.5 19.0 -11.4 -20.9Thomas Cook India Buy 190.2 250.0 216.2 72.5 16.5 14.0 40.6 125.5 12.4 10.3 25.8 56.0Zee Entertainment Enterprises Hold 373.1 400.0 402.4 255.6 -5.1 1.6 26.8 35.7 -8.4 -1.7 13.5 -6.1DIVERSIFIED / MISCELLANEOUS

Aditya Birla Nuvo Buy 1,799.4 2,000.0 1,916.2 1,030.0 -0.4 2.0 20.7 61.2 -3.9 -1.4 8.1 11.6Bajaj Holdings Buy 1,414.1 1,636.0 1,638.0 901.4 -2.5 2.2 8.1 55.2 -5.9 -1.2 -3.3 7.4Bharti Airtel Hold 371.6 450.0 420.0 281.9 2.2 -5.2 -1.8 17.1 -1.4 -8.3 -12.1 -19.0Bharat Electronics � Buy 3,600.7 4,020.0 3,675.0 902.0 21.9 69.4 99.2 284.0 17.6 63.8 78.2 165.7Gateway Distriparks � Buy 382.7 400.0 459.4 125.5 11.9 35.5 70.3 214.3 7.9 31.0 52.4 117.5Max India Buy 499.0 518.0 522.0 177.1 23.4 23.5 61.6 162.3 19.1 19.4 44.7 81.5Ratnamani Metals and Tubes Buy 747.2 815.0 770.0 140.0 6.9 56.8 79.0 432.8 3.1 51.6 60.3 268.7Supreme Industries Hold 616.8 620.0 688.5 406.1 3.6 3.0 6.8 47.8 -0.1 -0.5 -4.4 2.2Technocraft Industries Buy 216.0 270.0 230.8 75.2 17.8 6.5 15.2 147.2 13.6 3.0 3.1 71.1United Phosphorus Buy 416.3 430.0 436.0 176.6 20.9 23.5 27.6 122.5 16.6 19.4 14.2 53.9BSE500 Index 11,299.3 11,544.4 7,382.5 3.3 5.4 13.9 52.7 -0.4 1.9 1.9 5.7CNX500 INDEX 7,137.5 7,293.3 4,632.9 3.2 5.5 14.1 53.5 -0.4 2.0 2.1 6.2CNXMCAP INDEX 13,101.9 13,283.1 7,442.2 1.3 7.5 18.2 73.5 -2.3 3.9 5.8 20.1

NEW


All eyes on Budget

FROM SHAREKHAN’S DESK

from

sha

rekh

an’s

des

k The stock market began the year on a cheerful note. The strong rally was driven by theReserve Bank of India (RBI)’s surprise rate cut a fortnight before the bi-monthly policyreview meet and the continued softening of crude oil prices which has a significant favourableimpact on India’s macro situation.

However, the market has turned wobbly in the past few weeks. The volatility was initiallytriggered by global issues including the news coming out of Europe and the weak economicdata in most of the major economies. Moreover, there are also some domestic issues thathave dented investor sentiment.

To begin with, the Q3FY2015 results of corporate India are distinctly weak (and muchbelow the double-digit earnings growth seen in the previous three quarters). The corporateresults were dented by a slump in the prices of commodities (in case of the metal andenergy companies), volatility in the foreign exchange market (depreciation of the euro andthe yen hurt exporters and the players with substantial overseas operations) and the markdown of inventory (for chemical, plastic and polymer companies).

In addition, the tightening of the restructuring norms from April has led to a sudden surgein the stressed accounts slipping into the restructuring category resulting in a spike inprovisions and a depression in the earnings growth of banks.

Second, the Bharatiya Janata Party juggernaut hitting the Aam Admi Party hurdle in theDelhi assembly election and the growing tilt of voters towards leftist policies have alarmedinvestors. Lastly, the mega follow-on offers from Coal India and HDFC Bank have suckedout close to $5 billion of investor money. What’s more, the government is likely to raisemore revenues through public offers in the coming weeks as part of its divestment target.Such large amount of liquidity being pulled out before the seasonally tight March monthcould act as a drag on the market.

No wonder all the hopes are pinned on the forthcoming Union Budget now. The UnionBudget would provide a glimpse into the government’s policies to revive the economy andkick-start the investment cycle. Our Fundamental research team has released a note on thekey expectations (and investment picks) from the Union Budget in a fairly brief and concisenote on page 11.

Not only the Union Budget has to meet lofty investor expectations but the Parliament hasalso to function normally for the rally to sustain. The winter session of the Parliament wascompletely washed out with little legislative business done. But the government salvagedthe situation by resorting to the ordinance route to take forward some of the key policydecisions and is hoping to get the Parliament’s nod for most of them in the budget session.The Janata Dal (United) has already threatened to disrupt the budget session if the rulingparty supports the brewing mutiny by Janata Dal (United)’s own chief minister in Bihar.

Having said this, we believe most of the issues are short-term in nature. The savings ofclose to Rs4.0-4.5 trillion for India due to softness in commodities could turn out to be abig driver of increased public spending, higher financial savings and consumer demand,which would have a multiplier effect on the financial performance of corporate India.

Consequently, we see this period of volatility (after the one-way rally of the past 18 months)as the much awaited correction. A lot of things are going in favour of India in terms of lowcommodity prices, economic upcycle and a strong political leadership with all the rightintentions and a proven track record. Thus, we retain our positive stance on equities andbelieve that the Indian equity market is set for a multi-year rally. Do not miss this opportunityin trying to time the market. The best thing to do is to invest in a gradual or phased mannerover the next few weeks with an investment perspective of two to three years. �


Sharekhan Top PicksSHAREKHAN TOP PICKS

It has been a good beginning of the year. In terms of performanceSharekhan’s Top Picks basket stayed ahead of the benchmark indicesand sustained the streak of a comprehensive outperformance forthe sixth consecutive month. The Top Picks basket appreciated by6.9% as compared with the returns of 6.1% in the Sensex, 6.4% inthe Nifty and 4.3% in the CNX Mid-cap Index in the same period.

Most of the stocks in the Top Picks basket performed well duringthe month except PTC India Financial Services, which witnessedsome profit booking after higher provisions led to a lower thanexpected earnings growth in Q3FY2015. We believe it was more ofan aberration and the growth in the core business remains extremelystrong and the asset quality remains among the best in the non-banking finance company space.

*CMP as on January 30, 2015 # Price target for next 6-12 months ** Under review

NAME CMP* PER ROE (%) PRICE UPSIDE(RS) FY14 FY15E FY16E FY14 FY15E FY16E TARGET (RS)# (%)

Ashok Leyland 66 -36.7 88.7 21.7 -10.7 4.3 15.1 76 16

Bharat Electronics 3,320 28.5 22.4 19.3 12.9 12.8 12.8 4,020 21

Century Plyboards 184 52.4 29.6 20.9 23.1 39.1 37.6 232 26

Gateway Distriparks 385 29.4 22.5 20.1 17.5 21.3 22.1 465 21

HDFC Bank 1,076 30.4 24.5 19.6 21.3 22.1 23.3 ** -

Lupin 1,584 38.6 27.9 24.4 26.5 27.7 24.4 ** -

Maruti Suzuki 3,645 31 22.2 16.5 15.8 18.9 21.3 4,250 17

PTC India Financials 63 12.4 12.0 8.3 16.1 14.8 19.3 90 44

Reliance Industries 915 13.2 13.4 13.5 11.3 10.1 9.3 1,045 14

SBI 310 21.2 16.5 12.6 10.0 11.4 13.5 378 22

TCS 2,481 25.4 22.7 20 35.2 31.6 29.3 3,100 25

Va Tech Wabag 1,613 39.4 34.1 27.2 14 14.1 15.8 1,900 18

ABSOLUTE RETURNS (TOP PICKS VS BENCHMARK INDICES) % CONSTANTLY BEATING NIFTY AND SENSEX (CUMULATIVE RETURNS) SINCEAPRIL 2009Sharekhan Sensex Nifty CNX

(Top Picks) MIDCAP

CY2015 6.9 6.1 6.4 4.3

CY2014 63.6 29.9 30.9 55.1

CY2013 12.4 8.5 6.4 -5.6

CY2012 35.1 26.2 29.0 36.0

CY2011 -20.5 -21.2 -21.7 -25.0

CY2010 16.8 11.5 12.9 11.5

CY2009 116.1 76.1 72.0 114.0

Since Inception 390.9 190.8 189.0 262.3(Jan 2009)

CONSISTENT OUTPERFORMANCE (ABSOLUTE RETURNS; NOT ANNUALISED) (%)1 month 3 months 6 months 1 year 3 years 5 years

Top Picks 7 13 40 73 140 147Sensex 6 5 14 42 66 77Nifty 6 6 15 44 66 80CNX Mid-cap 4 11 22 74 73 85

EQUITY FUNDAMENTALSSHAREKHAN TOP PICKS

This month we are introducing some stocks that could not onlybenefit from the expected policy announcements in the Union Budgetbut also have a structural growth story. Thus, we are introducingCentury Plyboards (a play on the implementation of Goods andServices Tax) and Bharat Electronics (a play on the government’s“Make in India” call and increased defence spending). We are alsointroducing Maruti Suzuki India and HDFC Bank, which arebellwether stocks in their respective sectors. To accommodate thenew inductions, we are booking profits in Relaxo Footwear, GabrielIndia and ICICI Bank. Also, taking a cautious view on the spectrumauction after a higher than expected base price for 3G airwaves, weare taking out Idea Cellular from the Top Picks basket. �


NAME CMP PER ROE (%) PRICE UPSIDE(RS) FY14 FY15E FY16E FY14 FY15E FY16E TARGET (RS) (%)

ASHOK LEYLAND 66 -36.7 88.7 21.7 -10.7 4.3 15.1 76 16

Remarks: � Ashok Leyland (ALL) is the second largest CV manufacturer in India with a marketshare of 25% in the heavy truck segment and aneven higher share of about 40% in the bus segment. Given the scale of economic slowdown the segment had halved over FY2012-14.With the pick-up in the economy a sharp recovery in the segment is expected.

� Ashok Leyland entered in LCV segment with the launch of the ‘Dost’ in JV with Nissan. The JV has additionally launched the PartnerLCV and Stile van. Going forward, we expect the company to gain a foothold in the LCV segment and expand marketshare.

� The company is also concentrating on verticals other than CVs to de-risk its business model. The company has strong presence inexports and continues to expand in newer geographies. The diesel genset business is also showing signs of recovery after a tepidperformance in FY13-14. Additionally, ALL’s defense business is expected to get a leg-up due to the governments focus on indigenousmanufacture of defense products and FDI in the sector.

� ALL’s OPM has recovered from the lows on the back of reduction in discounts and price hikes taken by the company. Margins areexpected to expand further given the operating leverage. The company has raised Rs660 crore via QIP and is in the process of sellingnon-core assets to pare its debts. With no significant capex planned we expect a de-leveraging of balance sheet and improvement inreturn ratios.

BHARAT ELECTRONICS 3,320 28.5 22.4 19.3 12.9 12.8 12.8 4,020 21

Remarks: � The Make in India initiative will be a boost for India’s defence sector incumbents, BEL being the largest beneficiary. BEL being agovernment-owned company is the largest domestic player in the defence sector with advance technology and strong know-hows.Hence, we see BEL as the biggest beneficiary of the increase in defence spending and the Make in India initiatives.

� BEL is likely to witness strong order flows over the next two to three years and we expect BEL to get an incremental pie of thegovernment spending on defence. The management expects Rs5,000 crore worth of order inflows in FY2015 and Rs7,000-7,500crore of order intake in FY2016.

� We continue to prefer BEL as a niche PSU play in the fast growing defence sector. In the coming years the order inflow in the defencesector is likely to improve on the back of higher spending, technology transfer and the Make in India initiative. We maintain our Buyrating on the stock with a price target of Rs3,500.

GATEWAY DISTRIPARKS 385 29.4 22.5 20.1 17.5 21.3 22.1 465 21

Remarks: � An improvement in exim trade along with a rise in port traffic at the major ports signals an improving business environment for thelogistic companies. Gateway Distriparks being a major player in the CFS and rail logistic segments is expected to witness an improvementin the volumes of its CFS and rail divisions going ahead.

� The improving trend in the rail freight and cold chain subsidiaries would sustain on account of the recent efforts to control costs andimprove utilisation.

� We continue to have faith in the company’s long-term growth story based on the expansion of each of its three business segments, ieCFS, rail transportation and cold storage infrastructure segments. The coming on stream of the Faridabad facility and the strongoperational performance will further enhance the performance of the rail operations. Also, the expected turnaround in the global tradeshould have a positive impact on the CFS operations. We maintain our Buy rating on the stock.

� The stock trades at 2.3x FY2016E BV. Moreover, given the improvement in the profitability led by lower NPA provisions, a healthygrowth in the core income and improved operating metrics, we recommend a Buy with a price target of Rs465.

CENTURY PLYBOARDS 184 52.4 29.6 20.9 23.1 39.1 37.6 232 26

Remarks: � Century Plyboards (Century) is the leading player in the fast growing plyboard and laminate segment. It has an overall share of around25% of the organised plyboard market with an estimated size of Rs4,500-4,800 crore annually. The organised plywood and laminatesegment is growing at a healthy double-digit growth rate due to an improving demand environment and a shift towards brandedproducts. Century with its strong brand equity, unparallel distribution network (10,000 touch points) and manufacturing presence in thetimber rich region of Myanmar is well poised to cash in on the robust growth opportunity.

� The introduction of the GST would create a level playing field between the organised and unorganised players--the unorganisedplayers are currently out of the tax net and thus enjoy lower costs by evading taxes. After the introduction of GST, the tax advantageenjoyed by the unorganised players would plummet and the market share of the organised players is likely surge, benefiting Century.

� We expect the revenues to grow at a CAGR of 22% over FY2014-17 while the benefit on raw material cost reduction, better absorptionof fixed overheads and savings on the logistical front owing to a shift in the raw material base are likely to get reflected in improvedmargins going ahead. This would translate into a strong 49.6% CAGR in the net earnings for FY2014-17. On the back of thesepositives we maintain our Buy rating on the company with a price target of Rs232 (20x FY2017E EPS).

SHAREKHAN TOP PICKSEQUITY FUNDAMENTALS



HDFC BANK 1,076 30.4 24.5 19.6 21.3 22.1 23.3 ** -

Remarks: � HDFC Bank has a strong presence in the retail segment (~50% of the book) and therefore it has been able to maintain a strong growthin loans even in tough times. Going ahead, with a recovery in the economy and improving sentiment in consumer sectors, the loangrowth will improve further which will drive the profitability.

� With a CASA ratio of 43% and a high proportion of retail deposits, the cost of funds remains among the lowest in the system and helpsto maintain a higher net interest margin. In addition, the bank’s loan growth is led by high yielding products such as personal loans,vehicle loans, credit card, mortgages etc which has a positive impact on the NIM.

� The bank maintains impeccable asset quality and its NPA ratios are among the lowest in the system. Given the bank’s stringent creditappraisal procedures and insignificant exposure to troubled sectors, it is expected to maintain robust asset quality.

� HDFC Bank is adequately capitalised and further capital raising of Rs10,000 crore will boost its capital ratios and help to tap the growthopportunities going ahead. The bank is likely to maintain healthy RoE of 18-20% and RoA of 1.8% on a sustainable basis. Therefore,we expect the valuation premium it enjoys compared with the other private banks to expand further.

LUPIN 1,584 38.6 27.9 24.4 26.5 27.7 24.4 ** -

Remarks: � A vast geographical presence, focus on niche segments like oral contraceptives, ophthalmic products, para-IV filings and brandedbusiness in the USA are the key elements of growth for Lupin. The company has remarkably improved its brand equity in the domesticand international generic markets to occupy a significant position in the branded formulation business. Its inorganic growth strategyhas seen a stupendous success in the past. The company is now debt-free and that enhances the scope for inorganic initiatives.

� The company has shown a sharp improvement in the base business’ margin in H1FY2015 on the back of cost rationalisation measuresand better product mix. The management has given a guidance to sustain the operating profit margin (OPM) at 27% to 28% in FY2015(vs 25% in FY2014), which especially impress us. Lupin has recently forged an alliance with Merck Serono to out-licence select drugsand an agreement with Salix Pharma to in-licence products for the Canadian market, which will support growth in the long term.

� The company is expected to see stronger traction in the US business on the back of the key generic launches in recent months and astrong pipeline in the US generic business (over 95 abbreviated new drug applications pending approvals including 86 first-to-files) toensure the future growth. The key products that are going to provide a lucrative generic opportunity for the company include Nexium(market size of $2.2 billion), Lunesta (market size of $800 million) and Namenda (market size of $1.75 billion) that will be going out ofpatent protection in CY2015. The company has recently got FIPB clearance to raise FII investment limits to 49% (from 32% currently).

MARUTI SUZUKI 3,645 31 22.2 16.5 15.8 18.9 21.3 4,250 17

Remarks: � Maruti Suzuki India Ltd (MSIL) is the market leader in the domestic passenger vehicle industry. In M9FY2015, as against an industrygrowth of a modest 3.7% MSIL has grown its volumes by 13% and in the process expanded its market share by 373BPS to 45%.

� The company has further strengthened its sales and service network. Additionally, the drive undertaken by the company’s managementto tap the potential in rural areas paid rich dividends in difficult times for the industry and against rising competitive intensity; thisreaffirms the resilience of MSIL’s positioning and business model.

� The recent launches of Celerio and Alto K10 with the new automatic manual transmission have enthused the market and the companyplans to offer the same on other models too. The company has a pipeline of new launches over the next few years with the mostimportant being the entry into the compact utility vehicle and light commercial vehicle space.

� We expect customer sentiment to improve on the back of a strong government at the centre. Additionally the PV segment is expectedto benefit from the pent-up demand over the past two years; this will benefit MSIL the most due to its high market share in the entrylevel segment. The recent depreciation of the Japanese Yen is expected to boost profitability.

PTC INDIA FINANCIALS 63 12.4 12.0 8.3 16.1 14.8 19.3 90 44

Remarks: � PTC India Financial Services (PFS) stands to benefit from the government’s strong thrust on the renewable energy sector (mainly solarand wind) which should result in a robust growth in loan book (35% CAGR over FY2014-17). About 70% of the incremental disbursementwill be from the renewable segments (loan sanction pipeline of ~Rs7,000 crore or 1.2x of the existing loan book) which has lesser qualityissues due to low gestation period and fuel supply risk, thanks to fiscal support from the government.

� Given the favourable interest rate scenario, the interest spreads may sustain at healthy levels (~4.5%). Any likely downward movementin hedging cost will further reduce the funding cost. The company also has ~Rs300 crore of equity investments in power projects; thesehave appreciated significantly and will result in substantial gains going ahead.

� We expect PFS to register a strong growth in earnings (~40% CAGR over FY2014-17 excluding one-off gains in FY2014) withoutfactoring in gains on equity investments. The asset quality is likely to remain robust and the company is likely to deliver high RoAs (~3.5%)which leaves further scope for upside.

EQUITY FUNDAMENTALSSHAREKHAN TOP PICKS



SBI 310 21.2 16.5 12.6 10.0 11.4 13.5 378 22

Remarks: � SBI is India's largest bank based on most comparable parameters, such as asset size, branch network (18,000 branches) and customerbase. With a revival in the investment cycle and pick-up in consumption, SBI being the largest bank is likely to benefit disproportionately.On the capitalisation front, SBI is better placed (tier-1 CAR at ~10%) compared with the other state-owned banks which should resultin lesser equity dilutions.

� SBI has a market share of ~18% and along with its associate banks it commands a market share of ~25% in the banking system.Going ahead, it will merge its associate banks which will give it an unmatched hold in the domestic banking sector and boost economiesof scale. In addition, the likely monetisation of the insurance and other subsidiaries will strengthen the capital position of the bank.

� SBI also stands to benefit from the pending reforms in government-owned banks (autonomy, holding company structure, reduction ingovernment stake, easing of investment norms). This builds a genuine case for expansion of its valuation multiples. Even as the assetquality has stabilised, the likely increase in treasury profits (due to a decline in bond yields) will take care of the provisioning requirementand hence cushion the profitability. We have a Buy rating on SBI with a price target of Rs378.

TCS 2,481 25.4 22.7 20 35.2 31.6 29.3 3,100 25

Remarks: � TCS pioneered the IT services outsourcing business from India and is the largest IT service firm in the country. It is a leader in mostservice offerings and has further consolidated its position as a full service provider by delivering a robust financial and operationalperformance consistently over the years.

� The consistency and predictability of the earnings performance has put the company on the top of its league. Moreover, the quality ofits performance has also been quite impressive, ie it has been able to report a broad-based growth in all its service lines, geographiesand verticals consistently.

� Though cross-currency head winds and softness in some verticals will affect the earnings in the near term, we believe the overallimprovement in the USA will drive the growth in the coming years. Also, the company’s increasing capabilities in the digital space,which is a high-growth area, consolidates its position among the top-tier global IT companies. We maintain TCS as our top pick in theIT sector and have a Buy rating on the stock.

RELIANCE INDUSTRIES 915 13.2 13.4 13.5 11.3 10.1 9.3 1,045 14

Remarks: � Reliance Industries Ltd (RIL) has a strong presence in the refining, petrochemical and upstream exploration businesses. The refiningdivision of the company is the highest contributor to its earnings and is operating efficiently with a better gross refining margin (GRM)compared with its peers in the domestic market due to the ability of its plant to refine more of heavier crude. However, the gasproduction from the Krishna-Godavari-D6 (KG-D6) field has fallen significantly in the last two years. With the government approval foradditional capex in its allocated gas fields, we believe the production will improve going ahead.

� Though there is uncertainty regarding gas production and pricing of gas from the KG-D6 field, but the traction in volume from shale gasassets is playing positively for the company. Moreover, the upcoming incremental capacities in the petrochemical and refinery businessesare going to drive the future earnings growth as the downstream businesses are on the driving seat and contributing the lion’s share ofthe profitability and cash flow. Hence, the uncertainty related to the domestic gas production and pricing is having a limited materialimpact.

� In recent past there have been signs of improvement in the benchmark GRM which suggests that there could be a healthy improvementin the GRM of RIL too. The stock is available at attractive valuation considering the size, strong balance sheet and cash flow generatingability of the company.

VA TECH WABAG 1,613 39.4 34.1 27.2 14 14.1 15.8 1,900 18

Remarks: � Va Tech Wabag (VTW) is a truly Indian MNC, having global presence in water treatment with superior technology, strong executioncapability and professional management. Globally, fresh water supplies are relatively static and the potential scarcity will drive significantinvestments in this area and a large chunk of this would be from the developing world, where VTW is favourably placed to capturelarge opportunities ahead.

� While opportunities from new projects are huge, we see a jump in recurring business from the operations and maintenance (O&M)segment, which would be less working capital intensive and have stable margins. Moreover, the efforts by the management to rationalisethe cost structure of its overseas business would help the company to improve the overall margin in the coming years.

� We expect the earnings of VTW to grow at a CAGR of 20% in the next two to three years and the RoE to sustain at 15-17%. A presencein a sunrise industry, an asset-light business model and a strong balance sheet (virtually debt-free) are positives to vindicate the beliefthat VTW is one of the few quality engineering companies in India. We remain positive on the stock.

SHAREKHAN TOP PICKSEQUITY FUNDAMENTALS


Union Budget Preview (2015-16)

BUDGET SPECIAL FEBRUARY 09, 2015

The Union Budget assumes critical significance this time around.The weak corporate results in Q3FY2015 suggest that nothingmuch has changed on the ground. In fact, the rural demand ismoderating whereas the urban discretionary spending is yet toshow any meaningful pick-up.

On the investment side, there is enough slack (under utilisation)in the manufacturing sector to trigger a pick-up in the privatesector spending and the infrastructure sector is still strugglingdespite the efforts taken to clear stalled projects.

Onus is on the government to not only revive economy andkick-start investment cycle but also maintain fiscal prudence

With little hope of a sharp pick-up in consumption, private sectorinvestments or exports (given the deterioration in Europe andmany commodity driven emerging markets), the onus is on thegovernment to kick-start the investment (capital expenditure)cycle through increased public spending. The challenge is tomaintain the fiscal consolidation target (fiscal deficit at 3.6%of the gross domestic product [GDP] in FY2016 and at 3% ofthe GDP in FY2017) and boost spending to prop up growth.

GDP = Consumption + Investment (private) + Governmentexpenditure + Net exports

Luckily, the slump in the crude oil prices and the prices of theother commodities could provide enough legroom for thegovernment to spend Rs1.2-1.5 trillion of savings collectedthrough lower subsidies and higher taxation (three hikes in exciseduty on petroleum products).

BUDGET SPECIALEQUITY FUNDAMENTALS

POLICY PRIORITIES AND INVESTMENT THEMES (BUDGET AND BEYOND)

1. POLICY INITIATIVES IN LINE WITH “MAKE IN INDIA” CALL

The big areas in manufacturing where foreign direct investment (FDI) can be attracted are defence, railways, and engineering products and capitalgoods. The best picks to play this theme are manufacturers with established global footprint or leadership in niche areas like: Bharat Electronics,Larsen & Toubro, Bharat Forge, Triveni Turbines and Suprajit Engineering.

2. SOCIAL INFRASTRUCTURE: LOW-COST HOUSING, SANITATION AND CLEAN WATER

� We see a larger role for the housing finance companies with focus on tier-II and tier-III towns and relatively small-ticket home loans, like LIC HousingFinance, CanFin Homes and Capital First along with cement companies like UltraTech Cement, JK Lakshmi Cement and Mangalam Cement.

� Additionally, one can play the sanitation & water theme through Va Tech Wabag and Supreme Industries

3. PROGRESS IN IMPLEMENTATION OF GST AND URBAN CONSUMPTION

One can bet on discretionary consumption and fast moving consumer goods companies to benefit from the implementation of the GST (most likelyfrom April 2016); Union Budget would outline a roadmap for the implementation of the GST and follow it up with a legislative approval for the same.Stocks: Thomas Cook, Century Plyboards, Dish TV, Cox & Kings and KDDL.

Gross fixed capital formation at multi year lows

* GDP as per old series Source: Bloomberg

Capital expenditure stagnated

Source: Union Budget 2014-15


BUDGET SPECIAL EQUITY FUNDAMENTALS

BUDGET SUMMARY Rs '00 crParticulars FY08 FY09 FY10 FY11 FY12 FY13 FY14RE FY15BE

Gross tax revenues 5,931.5 6,053.0 6,245.3 7,930.7 8,891.8 10,362.3 11,589.1 13,645.2

% change YoY 25.3 2.0 3.2 27.0 12.1 16.5 11.8 17.7

Net tax revenues 4,395.5 4,433.2 4,565.4 5,698.7 6,297.7 7,418.8 8,360.3 9,772.6

% change YoY 25.2 0.9 3.0 24.8 10.5 17.8 12.7 16.9

Non tax revenues 1,023.2 969.4 1,162.8 2,186.0 1,216.7 1,373.5 1,932.3 2,125.0

Total expenditure 7,126.7 8,839.6 10,244.9 11,973.3 13,043.7 14,103.7 15,904.4 17,948.9

% change YoY 22.2 24.0 15.9 16.9 8.9 8.1 12.8 12.9

Plan exp 2,050.8 2,752.4 3,033.9 3,790.3 4,123.8 4,136.3 4,755.3 5,750.0

% change YoY 20.7 34.2 10.2 24.9 8.8 0.3 15.0 20.9

Non plan exp 5,075.9 6,087.2 7,211.0 8,183.0 8,919.9 9,967.4 11,149.0 12,198.9

% change YoY 22.7 19.9 18.5 13.5 9.0 11.7 11.9 9.4

Fiscal deficit 1,269.1 3,369.9 4,184.8 3,735.9 5,159.9 4,901.9 5,245.4 5,311.8

as % of GDP 2.5 6.0 6.5 4.8 5.7 4.8 4.6 4.1

Revenue deficit 525.7 2,535.4 3,390.0 2,522.5 3,943.5 3,642.8 3,702.9 3,783.5

as % of GDP 1.1 4.5 5.2 3.2 4.4 3.6 3.3 2.9

Primary deficit -441.2 1,447.9 2,053.9 1,395.7 2,428.4 1,770.2 1,444.7 1,041.6

as % of GDP -0.9 2.6 3.2 1.8 2.7 1.8 1.3 0.8

*As per Union Budget 2014-15

Public spending: Productive allocations necessary

The biggest challenge for the government is to strike the rightbalance between the need for productive (physical infrastructurelike roads, railways, defence) public expenditure and spendingon social schemes (food and fertiliser subsidies, rural employmentschemes including sanitation, drinking water and irrigation).

Increased public spending on short-duration infrastructureprojects like roads can have a high multiplier effect and animmediate visible impact on the economy. Similarly, the focuson defence and railways (Dedicated Freight Corridor) wouldalso encourage the private sector to return to investment modeand improve business sentiment.

Fiscal prudence to motivate RBI to continue with monetaryeasing and increase financial savings

Despite media reports on the possible ignoring of the fiscal deficittargets by the government for the next couple of years, thegovernment is likely to stick to the fiscal deficit target of 3.6%for FY2016 and that of 3% for FY2017 in line with the FiscalResponsibility and Budget Management Act, 2003.

And rightly so for not one but three reasons:

� The fiscal prudence from the government would provideenough ground for the Reserve Bank of India (RBI) to moveahead with its monetary easing stance and cut rates byanother 50-75 basis points in the current calendar year.

� The fiscal prudence and the positive real interest rates arealso an essential requirement to boost private savings infinancial assets and bring down the total cost of funds in thebanking system.

� Lastly, India’s strong fiscal position would provide support tothe Indian Rupee in a volatile global environment and thus boostinvestor interest in the Indian economy. The sovereign ratings ofthe country are also a reflection of the country’s fiscal deficitposition.

Taxation—tweaking to bring more clarity and transparency toattract foreign investors; tax benefits to boost manufacturing

The tax revisions would be watched closely to see if the governmentis taking steps to attract foreign capital (long term) and also boostdomestic manufacturing in line with its “Made in India” call. Tomeet the objective, we expect the following proposals:

� Tax benefits for special economic zones and industrialcorridor (under DIMC)

� A hike in the service tax to bridge the gap between the servicetax rate and the proposed tax rate under the Goods &Services Tax (GST) along with a roadmap for theimplementation of the GST (including allocations tocompensate states for the initial loss of revenues followingthe implementation of the new tax).

� Postponment of General Anti-Avoidance Rules

� Reduction in the minimum alternate tax rate from 18.5%currently

� Roadmap for changes in the long-term capital gains, if anyproposed, to be done in the coming years

Fiscal deficit to improve

Source: Union Budget 2014-15


Wealth Creator portfolioObjective: To build a balanced and actively managed portfolio ofquality companies that will help create meaningful wealth forinvestors in the multi-year rally expected in the Indian equity market.

In addition to some bottom-up picks, the portfolio contains stocksidentified based on three key themes:

� Policy push: Stocks from sectors benefiting from improvementin the policy environment

� Early gainers: Beneficiaries of an economic recovery (stocks fromauto, banking & financial, logistic sectors)

� Evergreen: Steady performers that provide stable and consistentreturns

Portfolio performance review� The Wealth Creator folio has appreciated by 20.1% (weighted average

return) since its inception, comprehensively beating the returns from

WEALTH CREATOR PORTFOLIO JANUARY 30, 2015

COMPARATIVE RETURNSParticulars Returns (on January 30, 2015)

Since inception (Aug 21, 201 4)

Wealth Creator folio (weighted average returns) 20.1%

- Large-cap (64% weightage) 17.7%

- Mid-cap (36% weightage) 24.5%

Sensex 12.4%

Nifty 13.1%

CNX Mid-cap 17.1%

the benchmark indices. However, the returns of 2% have lagged thereturns given by the benchmark indices in January 2015.

� In term of revision, we are adding Axis Bank and Maruti Suzukiin place of ICICI Bank and Hero MotoCorp. The move is moreof a churn within the respective sectors taking cognisance ofthe recent quarterly results and the outlook for the current year.

� In the mid-cap space, the new addition of Century Plyboards isa play on the expected improvement in urban consumerspending in addition to the re-rating trigger in the form of theimplementation of the Goods & Services Tax. CenturyPlyboards replaces Selan Exploration Technology, which is aquality company but whose recent performance has suffereddue to external factors like a plunge in crude oil prices whichhas more than negated the positive impact of a sharp ramp-upin the company’s production volumes. �

WEALTH CREATOR PORTFOLIO EQUITY FUNDAMENTALS

UPDATE ON WEALTH CREATOR PORTFOLIOSr No Scrip Weights Reco price (Rs) Target price (Rs) Potential upside 05-Feb-15 Dec-17

Large-caps (64% weightage)

1 Axis Bank 8% 565 1210 114.2%

2 Larsen & Toubro 8% 1682 3800 125.9%

3 Maruti Suzuki 8% 3522 7450 111.5%

4 Cummins 8% 904 1768 95.6%

5 State Bank of India 8% 291 580 99.3%

6 Sun Pharmaceuticals 8% 959 1650 72.1%

7 Tata Consultancy Services 8% 2558 5100 99.4%

8 Tata Motors DVR 8% 356 850 138.8%

Mid-caps (36% weightage; 4% each)

9 PTC India Financials 4% 60 144 140.0%

10 Finolex Cables 4% 255 650 154.9%

11 Gateway Distripark 4% 392 810 106.6%

12 IRB Infra 4% 255 680 166.7%

13 Network 18 Media 4% 60 150 150.0%

14 Gabriel India 4% 96 200 108.3%

15 Thomas Cook 4% 192 435 126.6%

16 Triveni Turbine 4% 106 265 150.0%

17 Century Plyboards 4% 187 440 135.3%

* Please note we see scope for upward revision in price target (three-year) of some of the stocks, the same would be done after the Q3 results and a detailed interaction with the management


Earnings surge a hop, skip and jump away

COMPANY DETAILS

Price target: Rs165

Market cap: Rs1,146 cr

52-week high/low: R134/32

BSE volume (No of shares): 0.52 lakh

BSE code: 538562

Sharekhan code: SKIPPER

Free float: (No of shares) 2.83 cr

PRICE CHART

SHAREHOLDING PATTERN

(%) 1m 3m 6m 12m

Absolute 4.2 3.6 NA NA

Relative -0.7 -4.3 NA NAto Sensex

PRICE PERFORMANCE

BUY CMP: RS112 JANUARY 19, 2015

KEY POINTS� Firing on two cylinders: Skipper is in a unique position to exploit the growing

opportunities in two lucrative segments: power (transmission tower manufacturing

and EPC projects) and water (PVC pipes). It is a leading transmission tower

manufacturer in India and ideally placed to gain from the huge investments proposed

in the power T&D segment (estimated to grow to Rs3 trillion over the next five

years). It has a comfortable order book of Rs2,200 crore in the transmission business

and is expected to record a steady growth of 20% CAGR during FY2014-17 with a

healthy margin, given its backward integration into manufacturing of steel products.

� Manifold expansion in pipes; going national from regional: In PVC pipes, the

company’s footprint is well established but limited to the east and certain parts of

central India. However, it has chalked out an aggressive plan to raise its capacity by

4x to 40,000TPA by FY2016 to become a pan-India player. Simultaneously, it is

beefing up the hiring process to enter new regions with experienced hands and is

looking to widen its distribution channel across India.

� Margin expansion led by operating leverage and restructuring exercise: It enjoys the

benefits of operating leverage on the margin and has restructured its low-margin steel

tube business by leasing the capacities to Tata Steel on a cost-plus basis. Consequently,

the overall margin will improve from 11% in FY2014 to 14-15% in FY2015 and

elevate its RoE from 12% in FY2014 to around 16% in FY2015 (after the release of

the working capital deployed in the low-margin tube business).

� Set for strong earnings growth and return ratios; Buy: Skipper is a play on two key

growth areas, power T&D and PVC pipes. While traction in the T&D space and

aggressive expansion in the PVC business would drive its growth, the restructuring of

the tube business would help expand the margin and improve the return ratios. We

expect an earnings growth of 60% CAGR and a substantial expansion in the RoE

during FY2014-17. This could be a strong re-rating trigger as the stock’s current

valuations are also quite comfortable at 14x and 10x FY2016E and FY2017E earnings.

Thus, we rate the stock as a Buy with a price target of Rs165 (based on 15x FY2017E

earnings).

� Key concern: The T&D EPC business is usually working capital intensive, hence any

abnormal scale-up in this space could expand the working capital cycle and decrease

the profitability. Skipper is also exposed to forex fluctuation risk due to overseas orders.�

SKIPPER

Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding

or having a postition in the companies mentioned in the article.

VALUATIONS (CONSOLIDATED)Particulars FY2013 FY2014 FY2015E FY2016E FY2017ENet sales 928.2 1073.1 1307.7 1602.5 1912.0OPM (%) 9.7 11.0 14.7 14.5 14.5

Reported PAT 18.7 26.9 73.4 90.4 112.2

Adjusted PAT* 18.7 26.9 44.5 80.4 112.2

Adjusted EPS 1.8 2.6 4.3 7.9 11.0

Growth (YoY) % 91.7 43.7 65.2 80.9 39.5

PER (x) 61.2 42.6 25.8 14.2 10.2

P/B (x) 5.6 5.0 3.8 3.0 2.3

EV/EBIDTA (x) 16.7 12.7 8.0 6.9 6.0

DE (x) 1.9 1.8 1.4 1.3 1.1

Div. yield (%) 0.1 0.1 0.4 0.5 0.6

RoCE (%) 13.89 16.43 25.07 25.67 25.73

RoE (%) 10.13 12.31 16.76 23.56 25.76*Adjusted for forex gains/non-recurring income

For detailed report, please visit the Research section of our website, sharekhan.com.

EQUITY FUNDAMENTALSSTOCK IDEA

30

50

70

90

110

130

Jul-1

4

Aug

-14

Sep

-14

Oct

-14

Nov

-14

Dec

-14

Jan-

15

Promoters72%

Others28%


On a growth Quess(t)

COMPANY DETAILS

Price target: Rs250


52-week high/low: Rs212/73

NSE volume (No of shares): 5.4 lakh

BSE code: 500413

NSE code: THOMASCOOK

Sharekhan code: THOMASCOOK

Free float (No of shares): 6.9 cr

PRICE CHART


(%) 1m 3m 6m 12m

Absolute 7.8 23.3 58 129

Relative 6.8 17.4 42.6 69.6to Sensex

PRICE PERFORMANCE

BUY CMP: RS180 JANUARY 13, 2015

KEY POINTS� An integrated player in the leisure & travel vertical: Thomas Cook India Ltd (TCIL),

owned by the legendary value investor Prem Watsa, is an integrated leisure travelcompany with offerings across the value chain including travel services, holidaypackages, foreign exchange and other related services. It has strengthened its presencein the leisure segment by acquiring Sterling Holiday Resorts (Sterling), which is oneof the leading timeshare and vacation ownership players (owns 19 resorts with over1,500 rooms) in India. The management plans to consolidate all the leisure & travelrelated businesses under TCIL to effectively exploit the huge potential in the domestictourism industry.

� Quess Corp (formerly known as IKYA) turning out to be a huge value creator: Theacquisition of a 75% stake in Quess Corporation (Quess Corp) in early 2013 atRs256 crore reflects Mr Watsa’s acumen as an astute investor. Quess Corp hasexponentially grown its consolidated revenues to Rs1,401 crore in FY2014 frommerely Rs49 crore in FY2009 and emerged as a leader in multiple segments likehuman resources (HR), office management and technology solutions. Given itsexponential growth, strong cash flows and healthy return ratios, we expect hugevalue accretion for the TCIL shareholders and believe that the value could be unlockedthrough a fund raising exercise in future.

� Sterling—scripting a turn-around: Sterling has improved its operating performancesignificantly after being acquired by TCIL (in early 2014). Its revenues grew by 32%and operating loss declined by almost 40% in the first six months of FY2015. Witha well redefined turn-around strategy, the management has guided that the companywould turn profitable this year and significantly improve its margins in the comingyears. We have factored a revenue CAGR of 30% and an OPM of 28% for Sterlingby FY2017.

� Recommend Buy; a structural growth story with multiple growth engines: TCIL is aquality play on the huge growth opportunity in the Indian leisure & travel industry.Further, Quess Corp provides exposure to the fast growing HR, office managementand technology solutions business. Moreover, we see an improving financial performanceof Sterling and value unlocking potential in Quess Corp as re-rating triggers. Thus, werecommend a Buy with a price target of Rs250 (EV/EBITDA of 15x on FY2017Econsolidated earnings factoring fully diluted equity capital of Rs36.45 crore).

� Risk: In addition to possible macro headwinds restricting the growth of the leisure &travel business, the company could suffer if the Watsa group uses TCIL as an investmentvehicle in India to acquire businesses in unrelated areas or having a long gestationperiod.�

THOMAS COOK (INDIA)

Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding

or having a postition in the companies mentioned in the article.

VALUATIONS (CONSOLIDATED)Particulars CY2012 CY2013 FY2015E # FY2016E FY2017E

Net sales (Rs cr) 430.2 1,295.6 2,778.0 3,248.6 3,990.7

Operating profit (Rs cr) 112.0 152.2 298.6 398.9 579.9

Adjusted PAT (Rs cr) 50.4 68.7 141.9 208.4 340.0

EPS (Rs) 11.5 12.3 4.8 4.6 7.5

OPM (%) 26.0 11.7 10.8 12.3 14.5

PE(X) 15.2 14.3 29.4* 38.3 23.5

EV/EBIDTA (X) 38.5 27.9 17.4* 14.8 9.6

RoE (%) 12.1 12.2 11.4* 15.1 21.5

RoCE (%) 17.3 18.7 17.7* 20.7 28.2

# FY2015E earnings for 15 months as the company changed its accounting year from December 2014 to March 2015

* Accordingly, key ratios have been adjusted to provide a fair picture


STOCK IDEAEQUITY FUNDAMENTALS


STOCK UPDATE EQUITY FUNDAMENTALS

PT revised to Rs610, Buy maintainedCOMPANY DETAILS

Price target: Rs610




BSE code: 532215

NSE code: AXISBANK

Sharekhan code: AXISBANK


(%) 1m 3m 6m 12m

Absolute 1.3 27.8 32.1 111.1

Relative to Sensex 2.5 23.8 21.8 56.7

PRICE PERFORMANCE

BUY CMP: RS515 JANUARY 16, 2015AXIS BANK

KEY POINTS� For Q3FY2015, Axis Bank reported a strong set of numbers as the net profit grew by

18.4% YoY supported by a 20% growth in the net interest income and Rs329 crore oftreasury income. Despite a moderate decline of 4BPS QoQ in the net interest margin(due to a 10-BPS base rate cut), it remained at a healthy level of 3.93% (3.96% forM9FY2015).

� The business growth remained strong as advances grew by 23% YoY while depositsgrew by 11% YoY (partly due to fundraising via infrastructure bonds). The asset qualityremained strong and stable as slippages and restructured loans were lower on a sequentialbasis. However, the bank expects a relatively higher stressed loan formation inQ4FY2015 as the regulatory forbearance on restructured loans will end from the nextfiscal.

� Given its strong capital position (Tier-1 CAR of 12.4%), the bank stands to gain fromthe revival in corporate credit. On the asset quality front a revival in the economy andthe likely easing of interest rates should ease the challenges. We expect the bank tomaintain superior return ratios (RoA of 1.8%) led by an 18% earnings CAGR overFY2014-17. We value the bank at 2.4x FY2017E BV resulting in a revised price targetof Rs610. We maintain our Buy rating on the stock.�


Sharekhan Limited, its analyst or dependant(s) of the analyst might be

holding or having a postition in the companies mentioned in the article. For detailed report, please visit the Research section of our website, sharekhan.com.

Risks in near term; maintain Hold with arevised PT of Rs2,500

COMPANY DETAILS

Price target: Rs2,500


52 week high/low: Rs2,690/1,796

NSE volume (no. of shares): 2.9 lakh

BSE code: 532977

NSE code: BAJAJ-AUTO

Sharekhan code: BAJAJ-AUTO

Free float (no. of shares): 14.5 cr

(%) 1m 3m 6m 12m

Absolute -8.9 0.0 9.5 27.1

Relative to Sensex -7.8 -3.1 1.0 -5.6

PRICE PERFORMANCE

HOLD CMP: RS2,420 JANUARY 16, 2015BAJAJ AUTO

KEY POINTS� For Q3FY2015 Bajaj Auto (Bajaj) posted an improved operating performance on a

sequential basis as the product profile tilted in favour of high-margin products such asthree-wheelers and premium motorcycles (Pulsar and KTM). This was evident in asharp 11.3% Y-o-Y increase in blended realisations and operating profit margin (OPM)to 20.3%. However, despite a 10% rise in the operating profit, a lower other incomeand an increase in the depreciation charge led to a 3.8% fall in the adjusted PAT toRs806 crore, which was in line with our estimate. The reported PAT was higher atRs861 crore due to forex gains on forward contracts.

� Given the company’s woes in the domestic motorcycle segment and an expectation ofa sluggish growth in the key export market, ie Nigeria (accounts for 30% of exportrevenues) we have reduced our volume estimates but broadly maintained our marginestimates. As a result, our earnings estimates for FY2016 and FY2017 have been loweredby 10.4% and 8.2% respectively. Our revised price target of Rs2,500 (vs Rs2,625earlier) values the stock at 9.5x FY2017E EBITDA and Bajaj’s 47.9% stake in thepremium motorcycle manufacturer, KTM AG, at Rs130 per share (a 30% discount tothe current market price). Our cautious stance on the stock is largely on account of themarket share loss in the domestic motorcycle segment and the near-term risks in exportgeographies.�



holding or having a postition in the companies mentioned in the article.



STOCK UPDATEEQUITY FUNDAMENTALS

Stellar performance, PT revised to Rs4,305,upgraded to Buy

COMPANY DETAILS



52-week high/low: Rs4,131/1,460


BSE code: 500034

NSE code: BAJFINANCE

Sharekhan code: BAJFINANCE


(%) 1m 3m 6m 12m

Absolute 6.1 24.5 58.2 124.2


PRICE PERFORMANCE

BUY CMP: RS3,766 JANUARY 14, 2015BAJAJ FINANCE

KEY POINTS� For Q3FY2015 Bajaj Finance has reported a robust growth in profit (up 33.1% YoY)

because of a strong 33.4% Y-o-Y growth in the net interest income. Given that thethird quarter of a fiscal is seasonally strong and sees a healthy loan growth due tofestive demand, the assets under management increased to Rs30,882 crore (up 37%YoY) during Q3FY2015.

� The customer additions remained strong (up 59% in YoY) which helped to report astrong growth in a weak environment. Since the company follows stringent creditpractices and has already exited troubled sectors like infrastructure, commercial vehiclesand construction equipment, the asset quality is likely to sustain at healthy levels (GNPAand NNPA were at 1.5 % and 0.5% in Q3FY2015 respectively).

� In view of the strong and sustained growth in the company’s profit, a bright outlookfor its growth (thanks to its presence in multiple products and strong cross-sellingopportunities) and its healthy asset quality, we have revised our earnings estimatesupwards (28% CAGR over FY2014-17). We also believe Bajaj Finance deserves totrade at a premium to the other NBFCs due to its diversified business, presence instrong growth segments and superior operating metrics (RoA of 3.3% and RoE of+22%). We, therefore, value Bajaj Finance at 3x FY2017E BV which results in a newprice target of Rs4,305. We upgrade the rating on the stock to a Buy.�




Steady earnings performance, PT revised toRs1,544, upgraded to Buy

COMPANY DETAILS



52 week high/low: Rs1,415/661


BSE code: 532978

NSE code: BAJAJFINSV

Sharekhan code: BAJAJFINSV


(%) 1m 3m 6m 12m

Absolute -5.1 15.0 36.3 75.0

Relative to Sensex -3.9 11.4 25.7 29.9

PRICE PERFORMANCE

BUY CMP: RS1,288 JANUARY 15, 2015BAJAJ FINSERV

KEY POINTS� For Q3FY2015, Bajaj Finserv reported a 23.6% growth in consolidated profit to Rs347.4

crore driven by a 35.4% growth in the operating profit. Segment-wise, the financing

(Bajaj Finance) and general insurance (despite a rise in claims from the Jammu &

Kashmir flood and the Hudhud cyclone) segments posted a robust profit growth of

33% and 50.5% respectively.

� However, the life insurance business continued to struggle as new business premiums

declined by 15.6% YoY, mainly contributed by the end of the bancassurance tie-up

with Standard Chartered Bank. The shareholders’ profit for life insurance declined to

13.9% YoY to Rs99 crore.

� While the financing and general insurance segments are showing strong traction, a

likely revival in the life insurance segment will boost growth. We have changed our

assumptions for valuation as we now account 74% economic interest of the insurance

business (vs 51% earlier due to a higher possibility of an increase in stake by a JV

partner at the market price). In addition, we have factored in our revised price target

for Bajaj Finance which results in an SOTP-based price target of Rs1,544 for Bajaj

Finserv. We upgrade the rating on Bajaj Finserv from Hold to Buy.�







Buy maintained with arevised PT of Rs1,815

BUY CMP: RS1,418 JANUARY 19, 2015BAJAJ HOLDINGS & INVESTMENT

KEY POINTS

� Bajaj Holdings and Investment Ltd (BHIL) holds Bajaj group’s investments in two

flagship companies, Bajaj Auto (a 31.49% stake) and Bajaj Finserv (a 39.29% stake).

BHIL also has an investment portfolio with a market value of close to Rs3,316 crore in

cash and liquid assets (fixed income and fixed deposits).

� Given the strategic nature of BHIL’s investments (namely Bajaj Auto and Bajaj Finserv),

we have given a holding company discount of 50% to BHIL’s equity investments. The

liquid investments have been valued at cost. We have revised our price target largely to

reflect the increase in our price target for Bajaj Finserv. Our price target of Rs1,815 for

BHIL implies a 28% upside to the stock price and hence we maintain our Buy

recommendation.

� Key concerns: In the Union Budget of 2014-15 the government approved a 49%

composite FDI in the insurance sector which is negative for Bajaj Finserv due to the call

option given to its joint venture partner. However, the company derives comfort from

an RBI circular that suggests the transfer of stake will take place at the market value.�



Strong performance; PT revised to Rs232COMPANY DETAILS

Price target: Rs232




BSE code: 532548

NSE code: CENTURYPLY

Sharekhan code: CENTURYPLY


(%) 1m 3m 6m 12m

Absolute 23.2 68.9 111.0 554.0


PRICE PERFORMANCE

BUY CMP: RS186 JANUARY 22, 2015CENTURY PLYBOARDS (INDIA)

KEY POINTS� Century Plyboards’ Q3FY2015 performance was strong on all counts, the top line

grew at 26.3% YoY. The top line growth was robust supported by soft raw materialprices (raw material cost/sales ratio fell by 900BPS YoY) which resulted in a strongexpansion of 846BPS in the OPM from 9.9% in Q3FY2014 to 18.4% in Q3FY2015.The strong operational performance was reflected in the net earnings, which grew at astrong 110% YoY.

� The management remains confident of the growth momentum and continues to guidefor a 20-25% top line growth for the company on the back of a strong volume growth.Further, the benefits of a soft raw material cost and raw material logistic benefit wouldenable the company to clock margins in the range of 16.0-16.5%. Taking cognisanceof these positive developments, we have raised our margin estimates. This has resultedin an upgrade in our earnings. Our revised EPS estimates for FY2015, FY2016 andFY2017 are Rs6.2, Rs8.8 and Rs11.6 respectively.

� We believe that Century Plyboards with its top-of-the-mind brand recall is wellpositioned to ride the economic revival-driven recovery in demand and increase itsmarket dominance in the plywood and laminate segments. The robust revenue growthcoupled with the margin expansion play would enable the company to deliver a stronggrowth ahead. We expect it to post a 49.6% earnings CAGR over FY2014-17. Theimplementation of GST would provide a fillip to the revenue and earnings performance.In view of these positives, we maintain our Buy rating on the stock with a revised pricetarget of Rs232 (valued at 20x FY2017E).�





COMPANY DETAILS



52 week high/low: Rs1,635/ 895

NSE volume (no. of shares): 26,640

BSE code: 500490

NSE code: BAJAJHLDNG

Sharekhan code: BAJAJHLDNG


(%) 1m 3m 6m 12m

Absolute 2.5 5.8 14.9 60.2

Relative to Sensex -2.4 -2.3 3.9 19.2

PRICE PERFORMANCE




Beats the Street on all counts, Buy maintainedwith a PT of Rs2,050

COMPANY DETAILS





BSE code: 532281

NSE code: HCLTECH

Sharekhan code: HCLTECH


(%) 1m 3m 6m 12m

Absolute 4.4 9.1 3.3 17.6

Relative to Sensex -3.7 -0.5 -9.8 -19.4

PRICE PERFORMANCE

BUY CMP: RS1,794 JANUARY 30, 2015HCL TECHNOLOGIES

KEY POINTS� After two quarters of steady performance, HCL Technologies (HCL Tech) delivered a

strong all-round performance for Q2FY2015 and beat the Street’s estimates on allcounts. IMS made a strong comeback with a 6.2% Q-o-Q growth while the IT servicesgrew by 6.3% QoQ and the BPO services by 4.5% QoQ on a constant-currency basis.The total revenues were up by 4% QoQ to $1,490.8 million (6.2% on a constant-currency basis), which is highest among the top four IT companies. HCL Techoutperformed on the basis of margins despite a staggered wage hike and 15% Q-o-Qincrease in the S&M spending. The EBIT margin remained broadly stable QoQ at23.8% as compared with 23.9% in Q1FY2015. The net income for the quarter washigher by 2.2% QoQ to Rs1,915 crore. However, adjusting for a Rs153.6-crore one-off gain from the real estate sale in Q1FY2015, the net income for the quarter grew by3.1% QoQ.

� HCL Tech is back with top of the quadrant performance among the top four ITcompanies and the management’s commentary indicates the momentum may continuedespite the cross-currency headwinds. The overall demand environment looks promisingwith an improvement in the market share in the key markets and deal momentum. Wehave tweaked our earnings estimates on account of currency reset to Rs61 and Rs60.5for FY2016 and FY2017 respectively. We have introduced our FY2017 estimate in thisnote and rolled over our target multiple to FY2017 estimate to arrive at a price targetof Rs2,050. We maintain our Buy rating on the stock.�



holding or having a postition in the companies mentioned in the article.For detailed report, please visit the Research section of our website, sharekhan.com.

Upgraded to Hold withrevised PT of Rs925

COMPANY DETAILS

Price target: Rs925


52 week high/low: Rs949/542


BSE code: 500696

NSE code: HINDUNILVR

Sharekhan code: HINDUNILVR


(%) 1m 3m 6m 12m

Absolute 22.7 29.9 52.7 73.9


PRICE PERFORMANCE

HOLD CMP: RS893 JANUARY 19, 2015HINDUSTAN UNILEVER

KEY POINTS� HUL’s revenues grew by 8% in Q3FY2015 with the volume in the domestic consumer

business growing by just 3% (vs a 5-6% growth in the earlier quarters). The volumegrowth was lower by 1-2% because of a late arrival of the winter season that affectedthe sales of winter products and the black-out (no sales) period in the soap categorydue to a correction in the high-price inventory.

� The company reduced the prices of some of the products (especially in the highlypenetrated categories such as soaps and detergents) to pass on the benefits of the fallingraw material prices to the consumers. Though the urban consumer sentiment improvedduring the quarter, the same was not reflected in HUL’s sales. The price reductionshould help the company to restore its volume growth to 6-7% in the next six to eightmonths. The OPM is expected to improve YoY due to lower raw material prices.

� HUL’s stock price has corrected by almost 5% due to the lower than expected volumegrowth in Q3FY2015. We expect the volume growth trajectory to improve fromQ1FY2016 and the profitability to improve backed by lower raw material prices in thecoming quarters. Thus, in view of a limited downside risk and expectation of a betteroperating performance in the quarter ahead, we have upgraded the stock from Reduceto Hold with a revised price target of Rs925 (valuing the stock at 36x FY2017E earnings).

� Risk: Any late recovery in the sales volume of some of the key categories would act asa key risk to our earnings estimates.�






In-line performance, maintain BuyCOMPANY DETAILS


Market cap: Rs4,76,386 cr



BSE code: 500209

NSE code: INFY

Sharekhan code: INFY

Free float: (no. of shares) 99.8 cr

(%) 1m 3m 6m 12m

Absolute 0.2 9.0 19.0 17.7

Relative to Sensex 3.2 4.7 11.0 -11.9

PRICE PERFORMANCE

BUY CMP: RS2,074 JANUARY 9, 2015INFOSYS

KEY POINTS� Infosys’ earnings performance in Q3FY2015 was broadly in line with our expectations, though

the expansion in the margin was higher than the Street’s expectation which led the profit toalso beat expectations during the quarter. In Q3FY2015, the revenues of the company indollar terms grew by 0.8% QoQ to $2,218 million (up 2.6% QoQ on a constant-currencybasis, the volumes increased by a strong 4% QoQ while the blended realisation dropped by3.4% QoQ). On the margin front, the EBIT margin improved by 60BPS to 26.7%, driven byhigher utilisation and rupee tailwind. The net income rose by 5% QoQ to Rs3,250 crore.Owing to volatility in the currency market the management has maintained the revenuegrowth guidance for FY2015 at 7-9% based on September 30, 2014 currency rate. The sameseems improbable given there would be an additional impact of cross-currency movements inQ4FY2015. For FY2015 we estimate a revenue growth of 6.7% YoY.

� Infosys is gradually setting its house in order under the leadership of Dr Vishal Sikkaand we expect more improvement in revenue predictability in the coming years. Thoughin the short term growth could moderate owing to cross-currency headwind and softnessin some of the verticals, we believe the company’s long-term strategy of focusing on thedigital space, improving client engagements through design thinking, automation andinnovation, and improving operational efficiency will lead to a sustainable growth inthe coming years. We have tweaked our earnings estimates to incorporate the additionalimpact of cross-currency movements and reset our dollar-rupee assumption to Rs61.6and Rs61.0 for FY2016 and FY2017. We see two positive potential triggers in themedium term: (1) deployment of cash in the form of acquisitions and buy-backs; and(2) an increase in weightage in the major indices owing to higher free floats. We maintainour Buy rating on Infosys with a price target of Rs2,540. �




Operating performance improves,PT revised to Rs558

COMPANY DETAILS

Price target: Rs558




BSE code: 500253

NSE code: LICHSGFIN

Sharekhan code: LICHSGFIN


(%) 1m 3m 6m 12m

Absolute 9.2 48.9 52.4 131.6


PRICE PERFORMANCE

BUY CMP: RS466 JANUARY 15, 2015LIC HOUSING FINANCE

KEY POINTS

� For Q3FY2015 LIC Housing Finance (LIC Housing) reported a net profit of Rs344crore (up 5.4% YoY, adjusted for deferred tax liability the growth was 16%). Theoperating performance was strong as the net interest income grew by 20% YoY.The spreads expanded by 3BPS QoQ while the margins were stable at 2.2% vs2.23% QoQ.

� The loan growth remained strong (up 17% YoY) contributed by a 19% growth in theloans in the individual segment. The proportion of the high-yielding products, loanagainst property and developer loans is expected to increase going ahead. The assetquality improved QoQ as the gross NPA declined to 0.57% from 0.63% in Q2FY2015.

� We believe LIC Housing is a play on the strong growth expected in the housing segmentin the medium to long term and moderation in interest rates. We expect LIC Housing’searnings to grow at a CAGR of 19% over FY2014-17 resulting in an RoE of 20.2% byFY2017. We value LIC Housing at 2.4 x FY2017E BV which results in a new pricetarget of Rs558.�




Foreign60.3%

Institutions15.3%

Non-promoter corporate

0.9%

Promoters13.1%

Public & Others10.5%


Positive outlook on margin, Buy maintained with arevised PT of Rs4,250

COMPANY DETAILS





BSE code: 532500

NSE code: MARUTI

Sharekhan code: MARUTI


(%) 1m 3m 6m 12m

Absolute 6.1 13.9 45.5 101.9

Relative to Sensex -0.3 4.4 29.4 45.2

PRICE PERFORMANCE

BUY CMP: RS3,685 JANUARY 27, 2015MARUTI SUZUKI INDIA

KEY POINTS� Maruti Suzuki India Ltd (MSIL) continues to lead the domestic passenger vehicle (PV)

industry with a strong volume growth of 12.4% in Q3FY2015. A favourable currencyimpact and soft commodity prices led to a 30-BPS sequential expansion in the OPM to12.7%, beating our profitability estimates. However, a fall in the other income and ahigher tax rate led the company to report a net profit of Rs802 crore, which is belowour estimate of Rs865 crore.

� Though MSIL has managed to increase its volume, the industry scenario has beenweak and the industry, ex-Maruti, declined by 3.1% during the quarter. This promptedthe management to maintain discounts at elevated levels. The new launches lined up bythe company would help it defend its market share. On the other hand, a favourableJapanese Yen (JPY) and soft commodity prices would further drive the margin expansion.

� Our volume estimates for FY2016-17 remain largely unchanged. The margin surprise(especially on the gross margin front) in the current quarter as well as expectation offurther benefit accruing due to the recent JPY depreciation has enabled us to furtherincrease our margin estimates for FY2016-17. As a result, our earnings estimates forFY2016 and FY2017 have been revised upwards by 2.6% and 5.9% respectively. MSILhas consolidated its leadership position in the domestic PV segment. With a strongproduct folio and new launches to complement, it is best placed to benefit from theturnaround in the industry. We remain positive on the stock and reiterate our Buyrecommendation with a revised price target of Rs4,250 (vs Rs4,000 earlier) discountingthe FY2017E EBITDA by 10.5x.�




Strong volume growth,PT revised to Rs2,050

COMPANY DETAILS




NSE volume (no. of shares): 53,166

BSE code: 533179

NSE code: PERSISTENT

Sharekhan code: PERSISTENT


(%) 1m 3m 6m 12m

Absolute 13.7 37.3 46.0 85.3


PRICE PERFORMANCE

HOLD CMP: RS1,804 JANUARY 27, 2015PERSISTENT SYSTEMS

KEY POINTS� For Q3FY2015 Persistent Systems Ltd (PSL) reported a 4.2% Q-o-Q growth in revenues

to $79.5 million. The growth was once again led by IT services, which grew by 4.9%QoQ to $64.4 million led by a 5.9% volume growth and 1% Q-o-Q decline in pricerealisation. The internet protocol (IP) business-led revenues continued to remain soft,up by a modest 1.2% QoQ to $15.1 million. In terms of rupee, the revenues were up by6.6% QoQ to Rs494.6 crore. The company’s EBITDA margins declined by 50BPSQoQ to 20.1% (the lowest in the last 12 quarters). The fall in the margins can beattributed to an 11.5% Q-o-Q jump in the S&M cost and a 6.8% increase in theemployee cost, though utilisation witnessed a smart uptick of 400BPS QoQ to 74.3%.The net income for the quarter was up by 4.4% QoQ to Rs74.5 crore.

� From the last one year, PSL has been in a transition for grabbing bigger opportunitiesof digital transformation on the enterprise side. The growth outlook on the IP-ledrevenues is looking promising for the coming years. We have marginally tweaked ourearnings estimates on account of currency reset to Rs61 and Rs60 for FY2016 andFY2017 respectively, and lowered our margin assumptions. At the current marketprice of Rs1,804, the stock is trading at 18.7x and 15.7x FY2016E and FY2017Eearnings respectively. We have rolled over our target multiple to FY2017 estimate andarrived at a price target of Rs2,050. However, given the limited upside from the currentlevels, we maintain our Hold rating on the stock. Nevertheless, PSL being a pure playon the digital spending, a strong balance sheet (cash of Rs817 crore, at 46% of thebalance sheet size) and good corporate governance, still makes a good investment betfor the long-term investors.�






Weak quarter with macro headwinds; PT reviseddown to Rs1,045

COMPANY DETAILS





BSE code: 500325

NSE code: RELIANCE

Sharekhan code: RELIANCE


(%) 1m 3m 6m 12m

Absolute -2.3 -6.2 -9.9 0.3


PRICE PERFORMANCE

BUY CMP: RS901 JANUARY 20, 2015RELIANCE INDUSTRIES

KEY POINTS� In Q3FY2015, the stand-alone net profit of Reliance Industries Ltd (RIL) declined by

8% YoY and 11% QoQ to Rs5,085 crore, 3% lower than our estimate. As expected,

a sharp decline in crude oil prices adversely affected the top line (down 23% YoY and

17% QoQ) and earnings as a result of inventory losses. The stand-alone operating

profit declined by 5% YoY and 12% QoQ. The stand-alone performance mirrored in

the performance of the consolidated results; its consolidated earnings declined by 5%

YoY and 12% QoQ, though its retail business continued to show improvement.

� We have fine-tuned our earnings estimates for RIL to align the sharp fall in crude oil

prices in the recent past; we have revised down our earnings estimate by 7% for FY2015

and by 15% for FY2016. In our view, on the macro headwinds, the stock corrected

substantially in the last quarter and largely factored in the concerns pertaining to the

falling crude oil prices and substantial investments into the non-core areas. On the

contrary, the company is set to witness meaningful earnings growth in FY2017, after

the commissioning of the ongoing large projects (petcoke gasification plant in Jamnagar

refinery and expansion of petchem capacities). Therefore, though we have revised down

our earnings estimates and consequently the price target to Rs1,045, we retain our

positive stance on the stock with our Buy recommendation.�






Better Q2 volume but lower guidance for FY2015COMPANY DETAILS

Price target: Rs620.0




BSE code: 509930

NSE code: SUPREMEIND

Sharekhan code: SUPREMEIND


(%) 1m 3m 6m 12m

Absolute -4.4 -1.6 -0.6 31.0


PRICE PERFORMANCE

HOLD CMP: RS592 JANUARY 22, 2015SUPREME INDUSTRIES

KEY POINTS� During Q2FY2015, Supreme Industries’ consolidated revenues grew by 9% YoY to

Rs1,066 crore, driven by a 9% Y-o-Y increase in the revenues from the core plasticbusiness (volume up 10% YoY; average realisation down 1%) and revenue booking ofRs46 crore from real estate transactions. However, the operating performance was dentedby a markdown of inventory losses (due to softness in crude oil prices) resulting in a 290-BPS erosion in the OPM to 12.1% while the adjusted profit declined by 20.7% YoY.

� The management has revised its volume guidance to 12-15% from 18-20% earlier andthe OPM guidance to 12.5-13.5% from 13.5-14.0% earlier for FY2015. In addition, itexpects further inventory loss of Rs8-9 crore in Q3 (due to RM booked in November2014). It has guided to a capex of Rs270 crore to increase the capacity across alldivisions and is expecting to complete real estate transactions (negotiated sales of another52,320 square feet at a price consideration of Rs93.3 crore) in the coming quarter.Consequently, we have revised our revenue estimate marginally downwards (due to alower volume growth assumption of 9%). Under the composite cylinder business, it isexpecting to execute the remaining pending order of 38,000 cylinders in FY2015 whilethe bathroom fitting business is steadily picking up due to new product launches. Thecompany will continue to focus on high-margin products.

� We have revised our earnings estimates downwards (by 23%) for FY2015, largely dueto a lower volume growth, pressure on the margin performance and delayed pick-up inindustrial activity. We expect the earnings to grow at a CAGR of 15% over FY2014-17. We have introduced FY2017 estimation and rolled over our valuation on it. At thecurrent market price the stock is trading at 18x FY2017E earnings. Given the weaknessin the financial performance in the near term, we retain our Hold rating on the stockwith a price target of Rs620.�





PT revised upwards to Rs3,440COMPANY DETAILS





BSE code: 532538

NSE code: ULTRACEMCO

Sharekhan code: ULTRACEMCO


(%) 1m 3m 6m 12m

Absolute 22.3 27.3 21.5 80.4


PRICE PERFORMANCE

BUY CMP: RS3,143 JANUARY 23, 2015ULTRATECH CEMENT

KEY POINTS� For Q3FY2015 UltraTech Cement (UltraTech) reported a revenue growth of 14.7%

YoY to Rs5,489.8 crore largely driven by a higher volume (up 13.2% YoY) and amarginal increase in the realisation (up 1.3% YoY). However, a higher cost (higherpower & fuel cost and freight cost) affected the OPM, which declined by 56BPS to15.4% (EBIDTA per tonne for the quarter also declined by 2.2% YoY to Rs749 pertonne).

� In order to acquire assets of Jaiprakash Associates Ltd (JAL) in Madhya Pradesh thecompany will issue non-convertible debentures worth Rs4,538 crore (the total cost ofacquisition is Rs5,400 crore), and inherit a debt of Rs627 crore and a negative workingcapital of Rs160.5 crore. Post-acquisition, UltraTech’s capacity will increase to 65million tonne. It would move up to 71 million tonne at the end of FY2016 with thecommissioning of its expanded capacities.

� We have revised downwards our earnings estimates for FY2015 and FY2016 to factorin a lower volume growth and a slower improvement in the realisation. We have rolledforward our valuation to the FY2017 estimate and arrived at a revised price target ofRs3,440. UltraTech is our preferred stock in the cement space due to its strong balancesheet and pan-India presence. We maintain our Buy rating on the stock.�





Strong operating performance, Buy maintainedCOMPANY DETAILS

Price target: Rs930


52 week high/low: Rs805/292


BSE code: 532648

NSE code: YESBANK

Sharekhan code: YESBANK


(%) 1m 3m 6m 12m

Absolute 6.6 32.1 48.9 121.3


PRICE PERFORMANCE

BUY CMP: RS787 JANUARY 14, 2015YES BANK

KEY POINTS� For Q3FY2015, Yes Bank reported a strong growth in earnings (up 30% YoY) mainly

driven by an uptick in the net interest income (up 37% YoY) and in the non-interestincome (up 38% YoY). The LCR compliance absorbed the 20-BPS dip in the cost offunds, hence the margin remained stable at 3.2% on a Q-o-Q basis.

� Customer asset growth was relatively strong at 23% YoY despite moderation in thecredit substitute book. Though the asset quality showed a marginal deterioration, itremains among the best in the industry. The restructured loans increased marginally(0.26% of loans) due to the restructuring of one account.

� Yes Bank delivered a strong earnings performance with healthy operating metrics andincrease in the CASA ratio. We expect the bank’s earnings growth to remain strong (at23% CAGR over FY2014-17) contributed by an uptick in the core income and gainsfrom the credit substitute book (due to softening of interest rates). This should result insuperior return ratios (RoE of 20.3% and RoA of 1.7%). We maintain our Buy ratingon the stock.�





Q3FY2015 earnings previewSHAREKHAN SPECIAL JANUARY 8, 2015

KEY POINTS� Flattish revenue growth more of an aberration: In Q3FY2015

the aggregate revenue growth of the Sensex companies islikely to turn flattish (a growth of 1% year on year [YoY] isthe expectation) and be the slowest in many quarters. Thoughthe domestic demand-driven sectors are gradually showingsigns of a growth revival, the revenue growth of the globaldemand-driven sectors and the energy companies is slowingdown due to moderation in exports and a sharp drop in theprice of crude oil. The revenues of energy companies Oiland Natural Gas Corporation (ONGC), GAIL and RelianceIndustries Ltd (RIL) will decline because of lower realisations.Excluding the three oil & gas majors, the revenue growth ofour universe would be around 6.5% for the third quarter ofFY2015. Thus, the lacklustre Q3 results would be more ofan aberration.

� Margins expand but earnings growth muted: Though theoperating profit margin (OPM) is expected to expand by120 basis points (BPS) on an aggregate basis, the earningsgrowth would be limited to 3.1% (6.5% ex energy) inQ3FY2015. Again, the weak performance of the oil & gasmajors along with that of certain other companies like BharatHeavy Electricals Ltd (BHEL) and Mahindra and Mahindra(M&M) is expected to dent the earnings growth of the entireuniverse.

� Earnings growth to accelerate in FY2016: In spite of twoconsecutive quarters of low to mid single-digit earningsgrowth for the Sensex companies, the consensus estimatefor FY2015 still points to an earnings growth of over 10%,which implies a reversal of the quarterly growth rate of 13-14% seen in Q4FY2014. Also, the consensus estimate factorsin a strong revival in the earnings growth to 18-20% perannum for the next two fiscals, ie FY2016 and FY2017. Webelieve that the economic up cycle would boost the earningsof the private banks, and the financial service, auto anddiscretionary consumption companies, and the signs of thesame are already visible. However, the shift to a highergrowth trajectory would also need the support of theexporting companies. Thus, the global environment needsto be supportive to meet the Street’s expectations.

� Valuation supportive; remain constructive on equities: Purelyon the basis of valuation, the price/earnings (PE) multiple ofthe Sensex at 15.5-16.0x one-year forward earnings is largelyin line with its long-term average. Thus, there is scope forgains in the Sensex owing to the potential multiple expansions(based on higher growth rates) and double-digit earningsgrowth over the next two years. Thus, we remain constructiveon equities and maintain our view of a sustainable multi-year rally.�

SHAREKHAN SPECIAL EQUITY FUNDAMENTALS

Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding orhaving a postition in the companies mentioned in the article.


OUTPERFORMERS UNDERPERFORMERS

ZEE Ent., Eros Int., Persistent Systems HCL Technologies

SBI, Yes Bank, PFS IDBI Bank, Corporation Bank

KDDL, Relaxo Titan, KKCL

Marico, Jyothy Laboratories ITC

Ashok Leyland, TVS Motor M&M

JK Lakshmi Cement, Finolex Cables Shree Cements, BHEL, RIL

Cadila Healthcare, Cipla, Lupin Ipca Laboratories

SENSEX’ ONE-YEAR FORWARD P/E BAND

Source: Bloomberg, Sharekhan Research

ESTIMATED SECTOR-WISE CONTRIBUTION TO SENSEX’ EARNINGS GROWTH (%)

Source: Company data, Sharekhan Research

TREND IN SENSEX’ (EX OIL) EARNINGS GROWTH—ACTUAL VS ESTIMATED

Source: Company data, Sharekhan Research


Weak performance in Q3; long-term growth elements intact

BIOCONVIEW: POSITIVE JANUARY 23, 2015 CMP: RS413

Key points

� Biocon reported a weak performance in Q3FY2015, as

reflected in a moderate 8.5% growth in the net sales, a 426-

BPS decline in the OPM and a 13.4% drop in the adjusted net

profit during the quarter. The company witnessed a strong

20% growth in the contract research business (operated

under Syngene) while the biopharma business continued to

face turbulence in the MENA region and posted a moderate

3% growth during the quarter.

� Going forward, we expect Q4 to see a better performance

on the back of a recovery in the domestic business and

continued traction in the research services business. The

prospects of the company hang on three key triggers: (1)

commissioning of its Malaysian facility (expected by the end

of FY2015); (2) positive phase-III clinical trial data of insulin

glargine (by its partner Mylan; its launch is expected in

VIEWPOINT

Book profit; strong rally discounts all positives

FIEM INDUSTRIESBOOK PROFIT JANUARY 7, 2015 CMP: RS886

Key points

� FIEM Industries Ltd (FIEM), an automotive lighting and rear-view mirror manufacturer, has delivered impressive returns sincewe published our Viewpoint report on the company on March26, 2014. FIEM has rallied by 116% since then and by 67%since we recommended booking partial profit in the stock atRs529 on June 18, 2014.

� The performance of the stock can be attributed to a strongfinancial performance of the company (a mixture of healthytop line, earnings and margin growth). Currently it is trading ata P/E of 12.5x FY2017E earnings, which is above its historicalmultiple and the industry average multiple. Hence, we nowrecommend investors to book full profit at the current marketprice and exit from the stock.

VIEWPOINT

EQUITY FUNDAMENTALS VIEWPOINT

� Our preference for the stock was based on its relatively largeexposure to the fast growing two-wheeler manufacturers likeTVS Motor Company, and Honda Motorcycle and ScooterIndia, and the same has played out well with the company’srevenues growing by 18% in the first half of this fiscal.

� Though we expect the company to sustain the growthmomentum, we believe that the current market price largelyfactors in all the positives and the stock’s valuations are notcheap anymore. Thus, we advise booking profit.�



FY2018); and (3) value unlocking from the public listing of

Syngene (expected in H1FY2016).

� Since we came out with our Viewpoint report on the company

in June 2014 at the market price of Rs490, the stock has

corrected by 16% after reaching its peak of Rs544. While

the long-term growth elements remain intact, the short-

term performance has been affected by the rationalisation

of products, continued adverse situation in the MENA region

and delay in the listing of Syngene. We recommend a Hold

on the stock, keeping in view the long-term prospects in

the bio-similar space. The stock is currently trading at 15.5x

FY2016E earnings, which is in line with its historical (three

years’ average) multiple.�




J A S O N D 2 01 3 M A M J J A S O N D 2 01 4 M A M J J A S O N D 2 015 M A M J J A S O N D 2 0-5

0

5

1 0

1 5

2 0

2 5

3 0K S T (2 6.204 0 )

4 50 0

5 00 0

5 50 0

6 00 0

6 50 0

7 00 0

7 50 0

8 00 0

8 50 0

9 00 00 .0 %

23.6 %

38.2 %

50.0 %

61.8 %

100 .0%

2M a y

1 6 3 0 1 3Ju n e

20 4Ju ly

1 8 1 1 4A u g us t

2 2 5 1 9S e p te m b er

1 1 7O ct o be r

2 3 7 2 1N ov e m be r

5 19D ec em b er

22 01 5

1 6 3 0 1 0Fe b rua ry

2 4 1 0M a rc h

2 4 7A p ril

2 1

23456789

1 01 11 21 3K ST (4 .3 161 4 )

6 30 0

6 40 0

6 50 0

6 60 0

6 70 0

6 80 0

6 90 07 00 07 10 07 20 07 30 07 40 07 50 07 60 07 70 07 80 07 90 08 00 08 10 08 20 08 30 08 40 08 50 08 60 08 70 08 80 08 90 09 00 09 10 09 20 09 30 0

4Au g us t

1 1 1 8 2 5 1 8S e p te m b er

1 5 2 2 2 9 7 1 3O c to be r

2 0 2 7 3 1 0 1 7N ov e m be r

2 4 1 8D ec em b e r

1 5 2 2 2 9 52 01 5

1 2 19 2 7 2 9Fe b rua ry

1 6 2 3-4

-3

-2

-1

0

1

2

3

4

5

6K ST (-0 .4 06 4 5 )

7 40 0

7 50 0

7 60 0

7 70 0

7 80 0

7 90 0

8 00 0

8 10 0

8 20 0

8 30 0

8 40 0

8 50 0

8 60 0

8 70 0

8 80 0

8 90 0

9 00 0

9 10 0

9 20 0� The Nifty met almost all our short-term and medium-term

targets on the upside and reversed exactly from the upper endof the rising channel.

� The index seems to have completed its five-wave rise from thelow of 5118 and the retracement of the same has begun.

� It has also reversed from the upper end of the Bollinger Bandswhich will act as a stiff resistance going forward.

� So far the fall on the hourly chart appears to be a five-wavedecline which means that the short-term top is in place.

� The momentum indicator, Know Sure Thing (KST) has alsogone into sell mode on the daily chart which confirms thedowntrend. The resistance on the upside is pegged at 8950whereas the target comes to 8230, ie the lower end of the risingchannel.�

� On the weekly chart too it clearly appears that the Nifty hascompleted its up move as the weekly KST has also gone intosell mode again. It has been showing a negative divergence fora couple of months now.

� It seems that the previous low of 7961 will be tested once therising channel is broken.

� The index has formed an “evening star” candlestick pattern onthe weekly chart of the Nifty futures which is a trend reversalpattern. Hence, we believe that in this expiry 9030 will be astrong resistance whereas 8230 will be an immediate target.�

� The Nifty bounced as anticipated in the last month once thewave 4 down was over. The index also achieved our short-term as well as medium-term targets and then reversed fromthe upper Bollinger Bands and the channel resistance.

� We believe that the index has started the retracement of theentire rise from 5118 level. The Bank Nifty has fallen a lot andthat is a clear sign of a downtrend as so far the Bank Nifty hasfallen in a five-wave declining fashion which indicates a medium-term reversal.

� So, A minimum of 38.2% retracement in Nifty can get it to7535 levels. The monthly KST is turning from the higher levelsshowing slowdown in the momentum.�

Daily view on Nifty

Weekly view on Nifty

Monthly view on Nifty

Medium term

EQUITY TECHNICALSTREND & VIEW

It is the turn of bears now

Trend Trend reversal Support Resistance Target

Down 9000 8000 9000 8000


Derivative View: Eying budget

The Indian indices had a dream run in the last month with a

cracker of a rally in the first series of 2015. In the January

series the Nifty hit its life-time high at around 8994 levels and

gave returns of around 9.52% on a month-on-month basis.

However, the sharp gain in the Nifty did not reflect the

volatility that was observed during the January expiry. At the

start of the January expiry the Nifty moved in a southward

direction but the fall was mainly due to long unwinding. Later

it bounced back quite sharply making new life-time high and

continued to scale higher with ten consecutive trading gains

finally ending the series just below 9000 levels at around 8950.

The sharp rise in the Nifty was mainly due to long build-up by

both foreign and domestic institutional investors and it was

one of the series in which bears were washed out completely.

Multiple factors like a surprise cut in the interest rates by the

Reserve Bank of India, low crude prices and hopes of

government sticking to its fiscal targets along with planned

disinvestments kept investors’ interest in the stock market.

EQUITY DERIVATIVES MONTHLY VIEW

STOCK FUTURES (SHAREKHAN SCRIP CODE) OPEN INTEREST (RS CR)

HDFCBANK 4799.15

RELIANCE 3058.21

ICICIBANK 2361.31

SBIN 2251.67

INFY 1774.97

Top 5 stock futures with highest OI in current series

Top 5 stock options with highest OI in current series

STOCK OPTIONS (SHAREKHAN SCRIP CODE) OPEN INTEREST (RS CR)

SBIN 584.80

RELIANCE 532.80

ICICIBANK 525.36

HDFCBANK 442.44

AXISBANK 409.50

On the options front, in the February series currently 9000 call

option has the highest number of shares in open interest (OI)

followed by call options of 9200 and 9100. On the put side the

build-up has been seen in the 8500 strike price, which has the highest

number of shares in OI followed by the strike prices of 8700 and

8600. In the past couple of trading sessions, we have seen that

India Vix has been continuously on an uptrend on the back of big

events lined up in this month. We think that the VIX will break its

range. We might see a sharp rise in the implied volatility as well.

The put/call ratio currently stands at 0.85, indicating call options

have seen more build-up than put options. The above data set

suggests that the market has moved up sharply in the last month

and the level of 9000 could act as an immediate resistance. Unless

and until we close above 9000, the market may see more long

unwinding pressure or profit booking at higher levels. Going ahead,

the Union Budget would be the key event to influence the future

direction of the market.�

View

ROLL-OVER: MARKET-WIDE VS NIFTY

The benchmark index, the Nifty, started the February series on

a marginal positive note. The new series started the month with

Rs22,784 crore in Nifty futures vs Rs17,632 crore in the previous

series; Rs65,096 crore in stock futures vs Rs59,713 crore in the

previous series; Rs77,397 crore in index options vs Rs65,929

crore in the previous series; and Rs5,588 crore in stock options

vs Rs4,448 crore in the previous series. The roll-over in the

Nifty stood at 76.52%, which is significantly higher than the

previous month’s roll-over of 66.05% and significantly higher

than the three-month and six-month average roll-over of 68.56%

and 69.84% respectively. The market-wide roll-over stood at

86.37%, which is higher than the previous month’s roll-over of

83.88% and also marginally higher than the three-month and

six-month average roll-over of 85.30% and 84.64% respectively.

This expiry we saw high roll-over of around 76.52% in the

Nifty compared with 66.05% in the last month. The roll-over

cost on the last trading day of the series fell from 62.45 to 33.95,

indicating a mix of long and short positions got carried forward

to the February series.


Commodities: Sideways to lower on stronger dollar, slower global growth, European uncertainties

Key points

� Oil-led deflationary pressure weighing on commodities

• World Bank slashed global growth estimate for 2015 to 3% from3.4% and that for 2016 to 3.3% from 3.5%

• The IMF also cuts global growth forecast for 2015 to 3.5% from 3.8%

• The Swiss National Bank ended the franc’s cap against the euro

• ECB launches a €60-billion monthly bond buying programme fromMarch until September 2016

• Greek leftist party Syriza forms a coalition government with theright-wing party

• Syriza leader Alexis Tsipras pledges to renegotiate the terms ofGreece's €240-billion bail-out

• Hawkish Fed signals buoy the dollar

• S&P cuts Russia's sovereign credit rating to junk status

• Policy makers in China, Europe and Japan added stimulus to spurgrowth

• The Dollar Index climbed to a 12-year high

• US factory production cooled in December 2014 as capital spendingand vehicle assemblies slowed

• US retail sales recorded their largest decline in 11 months in December2014

• Consumer prices in USA drop by most in six years as fuel slumps

• US non-farm payrolls are seen posting 240,000 jobs for December2014

• US durable goods orders fell by 3.4% in January 2015

• PBOC cuts RRR by 50BPS to 19.5%

• China’s economic growth slows to its weakest pace in 24 years

• PBOC plans to cut its GDP growth target for 2015 to around 7%,its lowest projection in 11 years

• China’s PPI in December fell 3.3%, the most in two years

• China GDP rose 7.4% in 2014 YoY, beating the 7.3% estimate

• China’s industrial production in December 2014 grew 7.9% YoYcompared with a 7.4% forecast

Macro-economy

Crude oil: Seen volatile amid surplus production and production cutsKey points

� US crude production accelerated by 27,000bpd to 9.21 million, most since January 1983: EIA• US oil drillers laid down the most rigs in the fourth quarter since 2009• BHP, the largest overseas investor in US shale, will cut the active drill rigs by nearly 40%• Saudi Arabia refrains from cutting output despite a growing glut• Russia oil output rose to a post-Soviet record of 10.667mbpd in December 2014• The IEA lowered its non-OPEC supply growth estimate by 350,000mbpd• US oil shipments surged 34% in November 2014 , the most on record dating back to 1920• Prices will rebound rather than extend declines to as low as $20: OPEC secretary-general• Saudi Arabia made deep cuts to its monthly oil prices of February for European buyers• The UAE plans to boost its production capacity to 3.5mbpd in 2017 from 3mbpd currently

Crude oil slumped by almost 10% in January as the USA pumped oil at the fastest rate in more than three decades while the members ofthe Organization of Petroleum Exporting Countries (OPEC) are showing no sign of considering cutting output to boost oil prices. Crudeoil staged a dead cat bounce in the middle of the month after the death of Saudi King Abdullah raised expectations of some changes in thenation’s oil policy in the near future. Its prices declined further as President Barack Obama’s administration opened the door for increasingoil exports. The USA exported a record amount of crude oil in November 2014 after a five-year run of production growth that has madethe country the most oil-independent in 20 years. The US Energy Information Administration reported that in January this year the UScrude oil production accelerated by 27,000 barrels per day (mbpd) to 9.21mbpd, the most since January 1983. Oil prices jumped towardsthe end of the month as the number of US oil drilling rigs fell the most in a week in nearly 30 years. The counter is likely to trade between$46 and $54 in the near term albeit with high volatility. In the medium term, the counter is likely to fall lower to $30s.

WTI NYMEX crude oil CMP: $49.37

MONTHLY VIEW COMMODITY FUNDAMENTALS

COMMODITY PRICES IN JANUARY 2015 (IN $)

Commodity High Low Close Mon chg %

Copper 6303.0 5339.0 5495.0 -12.8

Zinc 2214.0 2005.0 2125.0 -2.4

Lead 1918.0 1743.0 1859.0 0.1

Nickel 15677.0 13945.0 15165.0 0.1

Gold 1307.0 1167.0 1278.0 7.9

Silver 18.4 15.5 17.2 10.3

Crude oil 55.1 43.6 48.2 -9.4

MONTHLY CHANGE IN SHFE STOCKS (DEC 2014-JAN 2015)

Copper Lead Zinc

Change (in Tonne) 31520 -15523 1882

30th Jan 2015 137042 48852 85639

Change (in %) 29.87 -24.11 2.25

MONTHLY CHANGE IN DOE PETROLEUM STOCKS (DEC 2014-JAN 2015)

Crude oil Dist. Gasoline

Change in (000' bbls) 21272 6966 9287

28th Jan 2015 406727 132687 238335

Change in (%) 5.52 5.54 4.05

Refinary utlization rate was at 89.9% in the last week of January

MONTHLY CHANGE IN LME STOCKS (DEC 2014-JAN 2015)

Copper Lead Zinc Nickel

Change (in Tonne) 71100 -6975 -60850 13092

30th Jan 2015 248125 215000 630750 426240

Change (in %) 40.16 -3.14 -8.80 3.17

Note—LME: London Metal Exchange , SHFE: Shanghai Futures Exchange, DOE: Department of Energy (US)


Gold CMP: $1,264 (spot)

Bullions: Global growth concerns, Chinese demand positive for the complex

Silver CMP: $17.19 (spot)

Silver is likely to be volatile as it would take its clues from gold and the base metals. India’s silver imports rose 15% on a year-on-yearbasis in 2014 on account of switch from gold. As per commitment of traders report, commercials own roughly 50% more short contractsthan long contracts, which is somewhat bearish for the metal. We look for a range of $16-18. The metal is likely to fall to $13.50 in themedium term.

Copper CMP: Rs348 (February contract)

Base metals: China’s strong demand period to offset some of the impact of growth concernsKey points� Industrial metals tumbled on global growth concerns and falling crude oil prices• The complex dependent on stimulus to stay afloat• Copper stocks monitored by the LME and have gained 34% since the start of 2014 till date• Refined copper output in China rose 14% to 7.96 million metric tonne in 2014• China’s copper consumption is likely to grow at the slowest pace since at least 2010• China’s NDRC approved a plan to build urban rail networks in Shandong and Yunnan provinces• China’s State Reserve Bureau is likely to remain an active buyer of copper• China's imports of nickel ores and concentrates fell 61.7% YoY and 13.3% MoM in December• The ILZSG anticipates a 23,000-tonne lead deficit in 2015• Chinese refined zinc production rose by 12.1% in January-October last year

The red metal slumped approximately 13% in January this year due to concerns over the global economic slowdown and discouraging demandfrom major consuming economies. Copper stocks monitored by the London Metal Exchange (LME) have gained 34% since the start of 2014 tilldate. The International Copper Study Group expects a surplus 390,000 tonne in 2015, with the supply expected to outpace the demand for thefirst time in five years. The current estimate is substantially lower than the previous estimate of a 600,000 tonne surplus unveiled in April lastyear. On the support front, State Grid Corp. of China will increase spending by 24% in 2015 after a 14% gain in 2014. Also, Rio Tinto minedcopper output fell by 22% in the fourth quarter of 2014. Copper prices may take minor support on the upcoming Chinese Lunar New Year dueto fresh buying from the world’s biggest consumer. However, global growth concerns cannot be ruled out. We expect a range of Rs430-460 in thenear term. The medium-to-long term target for the metal is Rs280.

Lead CMP: Rs114.50 (February contract)International Lead and Zinc Study Group (ILZSG) predicts that demand for refined lead will increase by 2.1% in 2015, hitting 11.6 milliontonne, while refined lead output will grow by 2.2%, reaching just 11.5 million tonne. The organisation thus anticipates a 23,000-tonne leaddeficit in 2015, just slightly less than the 38,000-tonne deficit seen in 2014. Data from the China Association of Automobile Manufacturerscontinued to show a solid growth in China's vehicle market in 2014. Sales of vehicles in the USA increased by 5.4% year on year in the first elevenmonths of 2014. Meanwhile, China’s scrap batteries are expected to be short in supply as many traders in Zhejiang have suspended operations,refraining from selling against low prices. We expect a range of Rs112-120 with an upward bias.

Gold ended January on a positive note on risk-off sentiment as problems escalated in Greece. The US equities fell in January. The US Federal Reserve(Fed)’s confidence indicated officials’ readiness to begin raising borrowing costs at some point in 2015, though the central bank repeated a pledge to stay“patient” on hiking interest rates and had previously said that the rates would not probably reach “normal” levels until 2017. Nevertheless, the metalheaded for a third monthly gain, the longest rally since September 2012, after the European Central Bank launched a quantitative easing programme lastweek in order to fight deflation while the International Monetary Fund and World Bank reduced global growth forecast, prompting investors to seek thesafety of gold. Swiss National Bank ending Swiss Franc-Euro peg also led the investors to seek the safety of gold. The European worries resurfaced onconcerns that Greece might exit the 19-member zone under the leadership of the anti-austerity party Syriza. China’s demand might pick up in the LunarNew Year holiday period starting from February 19. The metal is likely to trade in its familiar range of $1,225-1,330 with an upward bias. However,the metal is likely to fall below $1,100 in the medium term.

Key points� Holdings in the SPDR Gold ETF contracted to a 6-year low• The US Mint sold a record number of silver coins in 2014• US Mint sales of American Eagle gold coin sales down 70% MoM and 39% YoY• The Netherlands joined Russia and Kazakhstan in adding gold to reserves in December 2014: IMF• Dutch central bank repatriated more than 120 tonne of gold from the US vaults in November 2014• Gold imports from Hong Kong by top consumer China fell by nearly a third in 2014• Central banks will buy about 400 tonne to 500 tonne in 2014 from 409.3 tonne in 2013: WGC• Q3 global jewellery demand declined by 4% while bar and coin demand slumped 21%: WGC

MONTHLY VIEWCOMMODITY FUNDAMENTALS

Zinc CMP: Rs132.50 (February contract)

ILZSG saw a deficit in zinc during the period January to September 2014 coming to a total of 309,000 tonne. A major concern for galvanisingmetal is that China became a net exporter of refined zinc as finance activity was curtailed and Chinese refined metal production rose by 12.1%in the first ten months of 2014. We expect a range of Rs124-133 with a downward bias.


MONTHLY VIEW COMMODITY FUNDAMENTALS

Nickel CMP: Rs930 (February contract)Nickel prices remained under pressure as surplus persisted for the fifth month. The surplus narrowed to 3,000 metric tonne in November from13,000 tonne in October last year, the International Nickel Study Group (INSG) said. In the meantime, nickel showed a slight recovery asproduction was halted at a plant in New Caledonia rekindling supply concerns. Glencore Plc also suspended output at its Koniambo site after aleak. Nickel is expected to be in a deficit of about 40,000 metric tonne after a 45,000-tonne surplus in 2014, according to INSG. We expect arange of Rs880-980 in the near term.

Events watch: Major economic events in February 2015CMP as on February 04, 2015

Date Region Event Survey Actual Prior Impact02/01/2015 China Manufacturing PMI 50.3 49.8 50.1 Manufacturing activity contracted, thereby raising concerns for industrial commodities as

the nation is the biggest consumer of metals; industrial commodities are dependent onfurther stimulus from China and other nations, thus losses are limited; we expect a sharpdecline in the commodities in case stimulus expectations are not met

02/02/2015 USA ISM Manufacturing PMI 53.5 54.9 55.5 Somewhat supportive for the industrial commodities and the USD

02/03/2015 USA Factory orders MoM -1.80% -3.40% -1.70% Dropping factory orders bearish for the USD and industrial commodities, bullish for the precious metals

02/03/2015 USA Total vehicle sales 16.7M 17.0M 16.9M% It is the annualised number of cars and trucks sold domestically during the previous month,supportive for base metals

02/04/2015 USA ISM Non-manufacturing PMI 56.7 56.6 56.2 The data is crucial as it constitutes nearly 70% of the US economy, overall slightly bearish forthe industrial commodities

02/04/2015 USA ADP non-farm employment change 224K 213K 253K Pre-cursor of the US non-farm payroll report, suggests somewhat softer job data

02/05/2015 Euro zone German factory orders MoM 1.40% 4.20% -2.40% Increase in factory order numbers supportive for industrial commodities and euro

02/06/2015 USA Change in non-farm payroll 236K 252K Going by the ADP figure, the NFP data could be a tad softer, thus somewhat bearish forindustrial commodities and bullish for precious metals

02/08/2015 China Trade balance $48.4B $49.61B Widening trade surplus is an indication of more exports in comparison to imports; however,we need to look at both imports and exports figures to gauge the health of both China's andthe rest of the world’s economies

02/10/2015 China CPI YoY 1.00% 1.50% Falling inflation expectations around the world are stoking fear of deflation; if the data trail theforecast, it would lead to concerns that the economy is not strong enough, thus data belowforecast would weigh on both industrial and bullion complex, though expectations of furtherstimulus would keep the downside limited

02/12/2015 USA Core retail sales MoM -0.30% -1.00% Indicator of consumers’ spending behaviour on retail basis, crucial for industrial metals; betterthan expected data would be bullish for industrial commodities and bearish for bullion, suchdata would be dollar supportive

13/2/2015 USA Prelim UoM Consumer Sentiment 98 98.1 The preliminary release is the early report of consumer confidence, thus tends to have a deepimpact; financial confidence is a leading indicator of consumer spending, which accounts for amajority of overall economic activity; better than expected data would be bearish for the bullions

13/2/2015 Euro zone Flash GDP QoQ 0.40% Key indicator of economic growth, a positive surprise will lead to bullishness in metals andenergy counters; the euro would rise against the USD

17/2/2015 Euro zone German ZEW Economic Sentiment 48.4 It's a leading indicator of economic health as it is an economic survey of Germany for the nextsix months; it also covers the economic futures of Europe, the UK, Japan and the USA; betterthan expected data positive for industrial commodities and the euro

18/2/2015 USA PPI MoM -0.30% Higher than estimated would raise concerns about interest rates as it would force the US Fed tohike the rates sooner than later, which means that the USD would rally and commodities would fall

18/2/2015 USA Industrial production MoM -0.10% Topping the estimates would be bullish for industrial commodities as it is a key indicator of thedemand for industrial commodities

19/2/2015 USA Philadelphia Fed Manufacturing Index 6.3 This is a crucial manufacturing indicator, a better than expected data would buoy the USDwhile bullions would fall. Industrial commodities would initially fall on stronger USD buteventually rise on the increased demand prospects

20/2/2015 Euro zone German Flash Manufacturing PMI 50.9 German economy is the power house of the European economy. A better than expected datawould be bullish for the euro and the industrial commodities

23/2/2015 USA Existing home sales 5.04M Better than expected data would be supportive for the USD and industrial commodities

23/2/2015 Euro zone German Ifo business climate 106.7 This survey is highly respected due to its large sample size and historic correlation withGermany and wider euro zone economic conditions; better than expected data would besupportive for the euro and industrial commodities

24/2/2015 USA CB Consumer Confidence 102.9 Crucial for economy as financial confidence is a leading indicator of consumer spending,which accounts for a majority of overall economic activity; stronger data would weigh on thebullion as the USD would gain

26/2/2015 USA Core durable goods orders MoM -3.40% It's a leading indicator of production, higher orders will lead to higher prices of industrialmetals, precious metals would fall

26/2/2015 Euro zone Targeted LTRO 129.8B It has a major impact on currency segment as it’s a total value of money the ECB will create anduse to loan to euro zone banks, less than estimated projections would be bearish for the euro

26/2/2015 Euro zone German prelim CPI MoM The preliminary release is the euro zone's earliest major consumer inflation indicator but theeconomy is grappling with deflationary scare; weaker data would weigh on the euro

26/2/2015 USA CPI MoM -0.40% Higher than expected reading would be bullish for the USD and somewhat bearish for industrialcommodities as rate hike expectations would rise

27/2/2015 USA Preliminary GDP QoQ 2.60% Key indicator of economic growth, a rise in GDP will lead to bullishness in metals and energycounters but bullion would fall and the USD would rally

27/2/2015 USA Chicago PMI 59.4 Stronger than expected data would bode well for the USD and industrial commodities


Gold: Keep an eye

� Gold had taken support near the lower end of a medium-termfalling channel and had started rallying from there.

� In the last few sessions it formed a short-term correction andretraced more than 50% of the previous rise.

� The 61.8% retracement mark ($1,220) and the daily lowerBollinger Band ($1,224) will be the key support zone.

� The 78.6% retracement mark, ie $1,198, will act as a majorsupport on a closing basis.

� The key level on the upside will be $1,306.

Silver: Near key level

� Silver had taken support near the lower end of a medium-termfalling channel. From the low of $14.42 silver turned bullish.

� However, it corrected sharply in the last few sessions and iscurrently trading near a crucial rising trend line.

� Since the medium-term momentum indicators are bullish theshort-term correction can be taken as a buying opportunity.

� Till the time the 78.6% retracement mark, ie $16.14, holds ona closing basis the bullish potential shall remain intact.

� The key levels on the upside will be $17.73 and $18.48.

Trend Trend Supports Resistances Targetreversal

Up $16.14 $16.50/16.38 $17.44/18.18 $17.73/$18.48

� NYMEX crude oil has been cracking down for the last severalmonths. However, it has formed an ending diagonal recentlyand is bouncing back sharply.

� The daily momentum indicator, which was showing a positivedivergence, has entered the positive territory.

� Thus, the oil has reached the junction of the 40-day exponentialmoving average and the daily upper Bollinger Band.

� The oil can stretch further till $59 over the short to mediumterm. On the other hand, the 20-day moving average, ie $47.32,will act as a key support on a closing basis.


Up $47.32 $49.69/48.50 $55.11/57.56 $59


Up $1,198 $1,220/1,200 $1,268/1,285 $1,306

Crude oil: A sharp bounce

TREND & VIEWCOMMODITY TECHNICALS

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100LIGHT CRUDE CONTINUOUS 1000 BARRELS [NYMEX] (49.7900, 54.2400, 49.6900, 53.0500, +3.48000)

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SILVER [CASH] (17.2400, 17.3500, 16.5300, 16.6900, -0.56000)

-5

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10KST (-1.76638)



Up $2.419 $2.49/2.44 $2.63/2.69 $2.70/2.75

Cotton seed oil cake: A bullish structure� NCDEX cotton seed oil cake has formed a short-term correction,

which has formed a bullish flag pattern. Recently it has brokenout on the upside.

� The daily momentum indicator has triggered a bullish cross-over whereas the weekly momentum indicator is already inbullish mode.

� Thus, the agri-commodity has substantial upside potential. Aconservative target will be Rs1,500 whereas a larger target willbe Rs1,550.

� On the downside, the daily lower Bollinger Band, ie Rs1,409,will act as a crucial support.


Up Rs1,409 Rs1,435/1,424 Rs1,474/1,520 Rs1,500/Rs1,550

� From the high of 2784 the Dhaanya Index has fallensignificantly. It has broken multiple supports on the way downwhich will now act as a resistance.

� Currently, the index is forming a minor degree pull-back, whichcan be taken as a selling opportunity.

� The momentum indicators on various time frames are in bearishmode.

� Selling pressure can be seen around the 2500 mark. A reversalcan be pegged above the key daily and weekly MAs, ie at 2550.

� The key levels on the downside are 2397 and 2360.


Down 2550 2424/2400 2494/2520 2397/2360

Copper: In pull-back mode

� COMEX copper saw a steep cut in the month gone by. Afterthe fall it was trading in sideways to bearish manner.

� In terms of price pattern, it formed a triangular pattern andbroke out on the upside.

� Thus, the red metal has entered a pull-back mode. The short-term momentum indicators are in line with the pull-back.

� The key levels on the upside are $2.70 and $2.75.

� On the flip side, the recent low of $2.419 will act as a majorsupport.

COMMODITY TECHNICALSTREND & VIEW

Dhaanya Index: A bearish outlook

13 20 27 3 10November

17 24 1 8 15December

22 29 52015

12 20 26 2 9February

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2.35

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3.15HG COPPER CONTINUOUS 25000 LBS [COMEX] (2.49850, 2.59500, 2.49600, 2.58150, +0.09150)

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0KST (-3.76548)

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1530154015501560COTTON SEED OILCAKE AKOLA QUINTAL - 1 MONTH (1,457.00, 1,462.00, 1,446.00, 1,460.00, +3.00000)

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2850* DHAANYA - NCDEX FUTURE INDEX (2,471.12, 2,473.02, 2,459.27, 2,464.36, -5.56982)

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MACD (-48.2984)


Currencies: Euro down as ECB announces QE programmeKey points

� RBI cut the repo rate by 25BPS to 7.75%

� World Bank slashed its global growth outlook to 3% from 3.4%

� ECB: QE with monthly bond purchase of EUR60 billion for March-September 2016

� UK CPI slowed to the lowest in 14 years

� Swiss National Bank’s decision to end cap of 1.20 franc per euro

CURRENCY LEVELS IN DECEMBER 2014 (IN RS)

Currency High Low Close Monthly chg (%)

USD-INR 63.79 61.30 61.41 -3.56

EUR-INR 77.54 68.98 69.73 -10.19

GBP-INR 98.98 92.00 93.42 -5.60

JPY-INR 53.56 51.79 52.12 -1.39

USD-INR CMP: Rs61.85 (SPOT)The Indian Rupee advanced by 3.5% in January this year on the back of a rise in the risk appetite in the domestic markets and likelyinflows into local share and debt markets as the Reserve Bank of India (RBI) slashed benchmark rate. Strong economic data supportedtoo. India’s industrial production rose 3.8% in November 2014 from a 4.20% decline in October 2014. The RBI cut the repo rate by 25basis points (BPS) to 7.75%. The RBI’s decision to cut the repo rate may help to the revive investment cycle and spur growth. Strength inthe dollar and weakness in the other Asian currencies prevented sharp gains in the rupee. The dollar gained strength against the majorother currencies due to positive economic data and US Federal Reserve (Fed) said the US economy is expanding at a solid pace, signallingthat the US central bank remains firmly on track with plans to raise the interest rates this year. Delhi election results would be crucial fornear-term direction. The pair is likely to trade sideways to higher in the range of 60.80-62.40.

GBP-INR CMP: Rs70.66 (SPOT)The euro fell by 6.67% against the US Dollar (USD) in January this year. The euro remained under pressure as Greece’s parliament failed toelect a president in the final vote triggering an early parliamentary election. The euro traded with a negative bias as the European Court ofJustice gave green signal to the European Central Bank (ECB) to implement quantitative easing (QE). The Swiss National Bank unexpectedlyscrapped its minimum exchange rate and lowered the interest rates further into negative territory which led to uncertainty in the globalmarkets forcing investors to go with the safe haven. The Swiss National Bank roiled worldwide markets with its unexpected decision to enda cap of 1.20 franc per euro. The Euro Zone Consumer Price Index turned negative for the first time since 2009. Later, the euro made a newlow of 1.1097 as the ECB announced a larger than expected quantitative easing programme to fight deflation and boost growth. Protestparty Syriza won the Greek elections. The pair is likely to consolidate its losses and trade in the range of 68.7-71.4 in the near term.

JPY-INR CMP: Rs52.80 (SPOT)The yen appreciated by 1.91% in January this year on the back of demand for safe haven following tumbling crude oil prices, politicalinstability in Greece, and a slower growth anticipation as the World Bank slashed its global growth outlook to 3% from 3.4%. Bankof Japan refrained from adding to a stimulus plan further. The dollar strengthened after the Fed said the US economy is expanding ata fast pace, signalling that the US central bank remains firmly on track with plans to raise interest rates this year. This prevented asharp appreciation in the yen. The JPY-INR is likely to test resistance at 54 while support is at Rs51.80.

January 2015 contract price movement January 2015 contract price movement

CMP as on February 04, 2015

The pound fell by 3.3% against the dollar in January this year touching a new low of 1.4947 as the Bank of England (BoE) kept its interestrates at record low amid signs that Britain’s economic recovery is receding. The two BoE policy makers, Martin Weale and Ian McCafferty,pushing for an interest rate increase dropped their call this month. Further, a slow growth in service, manufacturing and constructionPurchase Managers Index (PMI) data from the country led to the worries among investors that the UK economic growth is losingmomentum. The UK gross domestic product expanded by 0.5% in Q42014 which was below the expectation of 0.6% and the previousquarter’s reading of 0.7%. UK Consumer Purchase Index slowed to the lowest in 14 years. The GBP-INR has a strong support near 91.0.The pair is likely to trade in the range of 93- 96.3 with an upward bias.

CURRENCY FUNDAMENTALS

EUR-INR CMP: Rs93.96 (SPOT)

MONTHLY VIEW

61

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Currency View Reversal Supports Resistances Target

USD-INR Up 61.25 61.42/61.30 62.07/62.56 62.86-63.30

GBP-INR Up 91.81 92.40/91.97 93.68/94.80 95.27-96.20

EUR-INR Up 68.17 69/68.35 70.89/71.45 71.85-73

JPY-INR Up 0.5079 0.5177/0.5100 0.5366/0.5450 0.5507-0.5569

JPY-INR: Scope for bulls� The JPY-INR had reached near the lower end of the multi-month

falling channel as well as near the extended Fibonacci target.Near those levels bulls rushed in to provide support.Consequently, the currency pair formed a bullish outside bar onthe weekly chart. Thus, the low of 0.5079 will act as a crucialsupport.

� From there the currency pair has entered the pull-back mode;however, the pull-back is breaking up into waves of lower degree.

� A minor degree correction has retraced nearly 78.6% of the recentrise. Thus, from hereon the next leg can start off on the upside.The key levels on the upside will be 0.5507 and 0.5569.

USD-INR: Bounce on the cards� The USD-INR has fallen sharply in the last few sessions.

However, it has taken support near the key weekly as well asmonthly moving averages (MAs).

� From there the price has jumped up sharply. The short-termmomentum indicator has triggered a bullish cross-over.

� Thus, the recent low of 61.25 will act as a crucial support on aclosing basis. On the other hand, the key daily MAs, which arenear 62.05-62.16, will be the key resistance zone.

� Once that is crossed on a closing basis a larger upside can beexpected. The key levels on the upside will be 62.86-63.30.

CURRENCY TECHNICALSTREND & VIEW

EUR-INR: Potential to bounce� The EUR-INR has been falling for the last several months. The

entire fall has been unfolding in a channelised manner.

� It had faced resistance near the upper end of the channel. Sincethen it has been cracking down. However, in the last week itposted a positive weekly close after four consecutive negativeweeks.

� The short-term momentum indicators are pointing to a bounce.The currency pair has taken support between the 61.8% and66% retracement marks.

� Thus, unless the low of 68.17 breaks, the price can go for abounce. The key levels on the upside will be 71.85 and 73.

GBP-INR: Watch closely

� The GBP-INR had faced resistance near the key weekly MAs.From there it had fallen sharply. In the week before last it hadbroken the lower end of the falling channels. However, in thelast week it recovered.

� The junction of the 40-month exponential moving average andthe monthly lower Bollinger Band acted as a strong supportzone. The short-term and weekly momentum indicators arerecovering from the oversold zone.

� Thus, the low of 91.81 will now act as a key support zone on aclosing basis. The key levels on the upside will be 95.27 and96.20.

May June July August September November 2015 February

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USDINR - INDIAN RUPEE (61.9945, 62.0752, 61.6350, 61.7090, -0.30100)

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GBPINR (93.5360, 93.6290, 92.5540, 92.7980, -0.62601)

304050607080Relative Strength Index (32.1029)

2010 2011 2012 2013 2014 2015

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EURINR (69.9600, 70.2620, 69.8190, 69.9780, -0.00700)


O N D 2013 A M J J A S O N D 2014 A M J J A S O N D 2015 M A M J J A S O N

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JPYINR (0.52770, 0.53140, 0.52410, 0.52470, -0.00320)

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We are pleased to introduce you to Sharekhan’s PortfolioManagement Service (PMS) in which we completely manageyour investment portfolio so that you stop worrying aboutthe market volatility and focus your energy on things thatyou like to do!

We have a wide range of strategies that you can choose from.Our strategies are based on fundamental research and tech-nical analysis.

Portfolio Management Service

INVESTMENT STRATEGY� Disciplined investment decisions are taken in specific stocks based on thorough

fundamental research.

� Investments are made primarily in the Nifty Fifty or the BSE 100 scrips.

� Attempts to have an exposure of minimum of 70% in the Nifty Fifty stocks and

that of minimum of 90% in the BSE 100 stocks.

� Endeavours to create a core portfolio of blue-chip companies with a proven track

record and have partial exposure to quality companies in the mid-cap space.

Fund Manager: Gaurav Dua

FUND OBJECTIVEA good return on money through long-term investing in quality companies

PRICING� Minimum investment of Rs25 lakh

� Charges

� 2% per annum; AMC fee charged every quarter

� 0.5% brokerage

� 20% profit sharing after the 12% hurdle is crossed at the end of

every fiscal

PROPRIME - TOP EQUITY

OVERVIEWThe ProPrime—Top Equity PMS strategy is suitable for the long-term investors looking

to create an equity portfolio through disciplined investments that will lead to a growth

in the portfolio’s value with low to medium risk.

Top 10 stocks

Axis Bank

Bharti Airtel

Gateway Distriparks

Hero MotoCorp

ICICI Bank

Larsen & Toubro

Reliance Industries

State Bank of India

Tata Motors

Wipro

Product performanceas on January 31, 2015

(In %) Scheme Sensex Nifty

1 month 4.3 6.1 6.4

3 month 12.4 9.6 10.7

6 month 13.0 12.7 14.1

1 year 53.1 42.3 44.7

Best month 12.9 11.2 12.4

Worst month -10.5 -8.9 -9.3

Best quarter 21.7 13.5 14.5

Worst quarter -13.0 -6.1 -10.4

*26-Sep-11

Disclaimer: Returns are based on a client’sreturns since inception and may be different fromthose depicted in the risk disclosure document.

We have the following strategies on offer:

ProPrime (based on fundamental research)

� Top Equity � Diversified Equity

ProTech (based on technical analysis)

� Index Futures Fund � Trailing Stoploss

PMS FUNDSPMS DESK


PMS FUNDS PMS DESK

INVESTMENT STRATEGY

� Disciplined investment decisions are taken in specific stocks based on thorough

fundamental research.

� A balanced mix of value and growth stocks (mid-cap and small-cap) is created

that represents investment opportunities across sectors and market capitalisation.

� Invests in quality value and growth stocks with good earnings visibility and healthy

balance sheet.

� The fund manager, with the help of extensive, in-house, superior research,

identifies fundamentally sound companies to invest in.

� The fund manager strives to capture the short-term trading opportunities to

maximise the potential of the swings in specific stocks.

FUND OBJECTIVEA good return on money through long-term investing regardless of short-term volatility


� Charges

� 2% per annum; AMC fee charged every quarter

� 0.5% brokerage

� 20% profit sharing after the 12% hurdle is crossed at the end of every

fiscal

PROPRIME - DIVERSIFIED EQUITY

OVERVIEWThe ProPrime—Diversified Equity PMS strategy is suitable for long-term investors

looking to create an equity portfolio through disciplined investments that will lead to a

growth in the portfolio’s value with medium to high risk.

Top 10 stocks

Apollo Tyres

Ashok Leyland

Bank of Baroda

Bharti Airtel

Federal Bank

Hero MotoCorp

ICICI Bank

IL&FS Transport. Networks

Lupin

Reliance Industries


(In %) Scheme S&P CNX 500

1 month 3.2 5.8

3 month 5.3 12.7

6 month 4.7 15.7

1 year 63.6 52.2

Since inception* 332.6 429.5

Best month 50.9 34.4

Worst month -23.2 -27.2

Best quarter 71.1 51.2

Worst quarter -28.5 -28.6

*27-Aug-04



PMS FUNDSPMS DESK

Fund Manager: Rohit Srivastava

FUND OBJECTIVEAbsolute returns irrespective of market conditions.


� Charges

� AMC fees: 0%

� Brokerage: 0.05%

� Profit sharing: Flat 20% charged on a quarterly basis

OVERVIEWThe ProTech–Index Futures Fund PMS strategy is suitable for long-term investorswho desire to profit from both bullish and bearish market conditions. The strategyinvolves going long (buying) or going short (selling without holding) on Nifty futuresby predicting the market direction based on a back-tested automated model.



1 month -1.0 6.1 6.4

3 months 5.0 4.7 5.9

FY13-14 8.8 18.9 18.0

FY12-13 3.7 8.2 7.3

FY11-12 13.1 -10.5 -9.2

FY10-11 9.2 10.9 11.1

FY09-10 14.7 80.5 73.8

Since inception* 177.5 188.3 191.5

Best month 28.9 -23.9 -26.4

Worst month -17.1 0.0 0.6

Best quarter 33.3 49.3 42.0

Worst quarter -11.7 17.3 22.3

*01-Feb-2006


FUND MANAGER’S VIEWJanuary of 2015 saw a lot of big moves on both sides which pulled down theperformance of the Index Futures Fund at the end. While there were some gains atthe end we recovered the early losses in the month to close with a loss of 1.02%.However, the three-month return is at 5.04%, which is in line with the market return.

Volatility is increasing by the day and that means we shall get trending markets. Formonths the index has remained in a 5-8% range and that is not helping enhance thereturns of the portfolio. A big move is more than overdue.

Investments in

Nifty Index

INVESTMENT STRATEGY� The strategy has the potential to generate profits irrespective of the market

direction by going long or short on Nifty futures.

� An automated basic back-testing model is used to predict the market directionfor the Nifty which then decides the strategy to be deployed in terms of goinglong or short.

� The portfolio is not leveraged, ie its exposure never exceeds its value.

If you were searching for "Nifty Thrifty" then you are in the right place,the name of the fund has been changed to "Index Futures Fund",to represent the product better; everything else remains the same.

PROTECH - INDEX FUTURES FUND


Fund Manager: Rohit Srivastava

FUND OBJECTIVEAbsolute returns irrespective of market conditions.


� Charges

� AMC fees: 0%

� Brokerage: 0.05%

� Profit sharing: Flat 20% charged on a quarterly basis

PROTECH - TRAILING STOPS



1 month 1.2 6.1 6.4

3 months -0.8 4.7 5.9

FY13-14 -1.1 18.9 18.0

FY12-13 14.9 8.2 7.3

FY11-12 29.0 -6.1 -4.6

FY10-11 - - -

FY09-10 - - -

Since inception* 46.1 57.5 58.7

Best month 9.1 11.3 12.4

Worst month -4.4 -2.0 -1.7

Best quarter 9.9 -12.7 -12.5

Worst quarter -8.2 9.2 9.9

*09th May 2011

Disclaimer: Returns are based on a client’sreturns since inception and may be different fromthose depicted in the risk disclosure document.FUND MANAGER’S VIEW

As moves are getting bigger in the market Trailing Stops is expanding its positions tobecome a little more aggressive than it has been in the recent past. In January 2015we were able to do that and push up returns to 1.15%. Stocks continue to be divergentfrom the indices making view-based stock trades difficult but we expect that to be aphase which should soon end and we have adjusted ourselves accordingly to givehigher returns in the months ahead.

Volatility is increasing by the day and that means we shall get trending markets. Formonths the index has remained in a 5-8% range and that is not helping enhance thereturns of the portfolio. A big move is more than overdue.

Investments in

Nifty Index

Stock futures

INVESTMENT STRATEGY� This strategy spots the winning trades based on technical analysis vs time frame-

based portfolios, basically the momentum calls.

� A risk model has been developed for stock portfolio allocation that reduces therisk and portfolio volatility through staggered building of positions.

� It is non-leveraged—the exposure will never exceed the value of the portfolio.

OVERVIEWOur ProTech–Trailing Stops PMS strategy is ideal for Traders and Investors look-ing for Regular Income from trading and desire to make profits in both bullish andbearish market conditions. It is designed to payout book profits on monthly basis.*

It is also for those investors who are looking for better income than Fixed Incomeor Deposits. This strategy involves going Long (buying) or Short (selling withoutholding) on stock futures.

* Terms and conditions apply

PMS FUNDS PMS DESK


MONTHLY PERFORMANCEADVISORY DESK

Advisory Products and ServicesThe Advisory Desk is a central desk consisting of a Mumbai-basedexpert team that runs various sample model portfolios (for illustrativepurposes only) for clients of all profiles, be they traders or investors.

These products are different from Sharekhan’s research-basedtechnical and fundamental offerings as these essentially try to capturethe trading opportunities in stocks where momentum is expectedbefore or after some event including the announcement of results orwhere some news/event is probable.

Advisory products are ideal for those who do not have time to eithermonitor the market tick by tick or shift through pages of research fordata or pour over complex charts to catch a trend. However, allthese products require perfect discipline and money management.

For investors

PORTFOLIO DOCTORIt is a service under which the Portfolio Doctor reviews an existing portfolio based on various parameters and suggestschanges to improve its performance. To avail of this service please write to the Portfolio Doctor [email protected].

ALPHA DELIVERY PICKSThis is a long only, cash market delivery product where stock ideas are rolled out based on short-term triggers withproper fundamental rationales. The buying price range, stop loss and probable target are clearly defined at the time ofinitiation. These ideas are for a maximum period of one to two months for the medium-term investor. For more detailsof this product please write to us at [email protected].

For traders

SHAREKHAN’S PRE-MARKET ACTIONThese ideas are put out in Sharekhan’s Pre-market Action report along with stop loss and targets valid for a day. Thereis a market watch list of stocks with positive and negative bias for intra-day traders. For more details please write to usat [email protected].

MID DERIVATIVE CALLSThese calls are based on the analysis of open interest, implied volatility and put-call ratio in the derivative market. It isa leveraged product and ideal for aggressive traders. These calls have pre-defined stop loss, targets, time frame andquantity to execute. For details of the product please write to us at [email protected].

MID Derivative Calls performance*

Ticket size (Rs) 100,000

Month Jan 2015 YTD FY2015

No. of calls 23 297

Profit booked 16 193

Stop loss hit 7 104Strike rate (%) 70 65

MID performance*

Product Alpha Delivery PicksMonth Jan 2015 YTD FY2015No. of calls 10 107Profit booked 10 82Stop loss hit 0 25Strike rate (%) 100 77

Report Card

Note: We have discontinued Alpha Swing *Based on closed calls


MUTUAL FUNDS DESK MF PICKS

Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a postition in the mutual funds mentioned in the article.

Every individual has a different investment requirement, which depends on his financial goals and risk-taking capacities. We at Sharekhanfirst understand the individual’s investment objectives and risk-taking capacity, and then recommend a suitable portfolio. So, we suggestthat you get in touch with our Mutual Fund Advisor before investing in the best funds.�

SHAREKHAN’S TOP MUTUAL FUND PICKS (EQUITY) JANUARY 12, 2015Data as on January 05, 2015

Scheme name Star NAV (Rs) Returns (%)rating Absolute Compounded annualised

6 months 1 year 3 years 5 years Since inception

Large-cap fundsReliance Top 200 Fund �� 23.6 16.0 58.6 30.6 14.8 12.3

Birla Sun Life Top 100 Fund �� 42.7 12.8 52.1 29.9 15.3 17.1

SBI Magnum Bluechip Fund �� 26.5 14.3 48.9 29.4 13.0 11.6

Birla Sun Life Frontline Equity Fund - Reg �� 158.8 12.6 47.8 28.7 14.3 25.1

Reliance Focused Large Cap Fund �� 23.0 9.5 39.7 27.7 8.3 9.9

IndicesBSE Sensex 27,842.3 7.2 33.3 20.6 9.5 16.9

Mid-cap fundsUTI Mid Cap Fund �� 76.6 27.6 93.7 43.3 21.6 21.9

Principal Emerging Bluechip Fund �� 65.4 24.1 83.2 43.1 17.9 35.7

Sundaram SMILE Fund - Reg �� 68.9 30.0 114.9 42.3 15.9 21.5

ICICI Prudential MidCap Fund �� 68.2 20.6 84.8 40.3 17.4 20.7

HSBC Midcap Equity Fund �� 37.3 17.9 87.9 37.5 10.9 14.6

IndicesBSE MID CAP 10,547.2 10.4 58.1 26.0 8.9 23.3

Multi-cap fundsBirla Sun Life Pure Value Fund �� 38.5 11.1 100.3 40.5 20.8 22.0

Franklin India High Growth Companies Fund �� 28.7 29.9 81.4 40.1 18.8 15.2

ICICI Prudential Value Discovery Fund �� 109.5 18.8 77.1 39.2 21.4 25.9

SBI Magnum Global Fund 94 �� 126.1 25.4 69.6 36.0 20.2 15.8

Principal Growth Fund �� 94.2 9.7 52.5 32.3 13.0 17.1

IndicesBSE 500 10,854.0 8.6 40.1 22.3 9.2 16.1

Tax saving fundsReliance Tax Saver (ELSS) Fund �� 47.1 19.4 86.3 39.8 20.6 18.2

Axis Long Term Equity Fund �� 29.2 22.3 70.1 37.3 23.9 23.8

Principal Tax Savings Fund �� 139.0 9.4 52.6 32.6 13.5 17.6

Birla Sun Life Tax Relief 96 �� 20.3 21.0 58.5 32.1 12.9 10.9

Birla Sun Life Tax Plan �� 25.8 20.4 56.8 31.3 14.6 12.2

IndicesCNX500 6,857.5 8.8 41.1 22.9 9.2 9.9

Thematic fundsFranklin Build India Fund �� 28.2 31.9 97.4 42.0 19.2 21.4

L&T India Special Situations Fund �� 34.5 15.5 53.5 30.0 16.1 15.4

HSBC Progressive Themes Fund �� 18.7 16.1 90.6 29.7 6.8 7.3

Birla Sun Life Infrastructure Fund - Plan A �� 26.4 11.8 74.3 29.2 9.3 11.7

Religare Invesco Infrastructure Fund �� 13.7 16.6 89.1 28.6 10.9 4.5

IndicesS&P Nifty (CNX Nifty) 8,378.4 8.0 34.7 20.8 9.7 14.9

Balanced funds

SBI Magnum Balanced Fund �� 91.3 16.2 45.7 28.8 13.6 17.1

Tata Balanced Fund - Plan A �� 159.4 15.5 50.7 27.6 16.0 17.3

ICICI Prudential Balanced �� 90.6 14.1 46.6 27.4 17.4 15.6

HDFC Balanced Fund �� 106.0 15.1 52.6 27.0 18.3 17.9

L&T India Prudence Fund �� 18.3 14.0 46.2 27.0 - 16.6

Indices

Crisil Balanced Fund Index -- 8.0 27.7 16.9 9.4 13.7


MUTUAL FUNDS DESK

SHAREKHAN’S TOP SIP FUND PICKS JANUARY 12, 2015

MF PICKS

Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a postition in the mutual funds mentioned in the article.

Every individual has a different investment requirement, which depends on his financial goals and risk-taking capacities. We at Sharekhanfirst understand the individual’s investment objectives and risk-taking capacity, and then recommend a suitable portfolio. So, we suggestthat you get in touch with our Mutual Fund Advisor before investing in the best funds.�

Data as on January 05, 2015

Investment period 1 year 3 years 5 yearsTotal amount invested (Rs) 12,000 36,000 60,000Funds would have grown to (Rs) NAV Present Avg. annual Present Avg. annual Present Avg. annual

value (Rs) return (%) value (Rs) return (%) value (Rs) return (%)

Large-cap funds

Reliance Top 200 Fund 23.6 14,939.5 27.1 57,507.1 17.4 103,792.5 11.8

Birla Sun Life Top 100 Fund 42.7 14,562.2 23.6 56,990.0 17.1 104,353.2 11.9

SBI Magnum Bluechip Fund 26.5 14,461.3 22.6 55,651.6 16.1 100,922.2 11.2

Birla Sun Life Frontline Equity Fund - Reg 158.8 14,378.6 21.9 55,565.8 16.1 100,921.4 11.2

Reliance Focused Large Cap Fund 23.0 14,026.7 18.6 53,447.1 14.5 93,433.9 9.4

BSE Sensex 27,842.3 13,564.8 14.11 49,378.4 11.38 86,879.2 7.80

Multi-cap funds

Birla Sun Life Pure Value Fund 38.5 16,074.5 37.6 71,165.5 26.3 127,917.2 16.6

Franklin India High Growth Companies Fund 28.7 16,414.5 40.8 67,864.6 24.3 124,034.2 15.9

ICICI Prudential Value Discovery Fund 109.5 15,603.0 33.2 65,528.1 22.8 122,499.9 15.6

SBI Magnum Global Fund 94 126.1 15,754.8 34.7 63,957.9 21.8 119,792.2 15.1

Principal Growth Fund 94.2 14,419.7 22.2 57,613.2 17.5 103,183.8 11.7

BSE 500 10,854.0 14,046.2 18.47 51,005.3 12.62 88,342.0 8.17

Mid-cap funds

Sundaram SMILE Fund - Reg 68.9 17,994.8 55.7 74,460.4 28.3 127,745.3 16.6

UTI Mid Cap Fund 76.6 16,559.4 42.2 73,175.3 27.5 133,024.8 17.6

Canara Robeco Emerging Equities 56.7 17,093.3 47.2 73,032.1 27.5 136,084.6 18.1

ICICI Prudential MidCap Fund 68.2 16,027.8 37.2 68,842.3 24.9 120,561.3 15.2

Franklin India Prima Fund 641.4 16,531.9 41.2 68,816.4 24.7 127,479.6 16.5

BSE Midcap 10,547.2 15,142.6 28.46 55,970.7 16.25 93,311.9 9.37

Tax saving funds

Reliance Tax Saver (ELSS) Fund 47.1 16,153.8 38.4 67,313.3 23.9 123,616.1 15.8

Axis Long Term Equity Fund 29.2 15,568.8 32.9 65,268.7 22.6 124,589.0 16.0

Birla Sun Life Tax Relief 96 20.3 15,533.9 32.0 60,381.9 19.3 105,522.5 12.1

Birla Sun Life Tax Plan 25.8 15,445.6 31.2 59,609.6 18.8 106,958.0 12.4

Principal Tax Savings Fund 139.0 14,424.5 22.3 57,757.2 17.6 103,984.0 11.8

CNX Nifty 8,378.4 13,666.8 15.03 49,422.5 11.42 87,043.2 7.84


Prices as on February 03, 2015

FY14 FY15E FY16E FY14 FY15E FY16E FY14 FY15E FY16E FY16/FY14 FY14 FY15E FY16E FY15E FY16E FY15E FY16E (Rs)

EQUITY FUNDAMENTALSEARNINGS GUIDE

Sharekhan Earnings Guide

Note: For Grasim and Apollo Tyres we have shifted our estimates to consolidated

AUTOMOBILES

Apollo Tyres 238.6 13,412.0 13,347.0 14,382.3 1,051.8 1,123.6 1,211.8 20.7 22.1 23.8 10% 11.5 10.8 10.0 23.4 20.9 21.9 19.4 0.8 0.3

Ashok Leyland 64.9 9943.4 13550.3 17732.2 -476.3 210.9 862.5 -1.8 0.7 3.0 - -36.3 87.6 21.4 8.1 16.1 4.3 15.1 0.0 0.0

Bajaj Auto 2260.8 20149.5 22705.8 25087.6 3297.1 3337.1 3631.1 113.9 115.3 125.5 9% 19.8 19.6 18.0 45.3 43.4 32.6 31.2 50.0 2.2

Gabriel Industries 97.6 1286.6 1489.8 1784.7 46.8 72.0 101.0 3.3 5.0 7.0 52% 29.9 19.5 13.9 25.2 31.1 23.0 26.6 0.9 0.9

M&M 1199.2 38817.1 43023.1 49752.4 3852.3 4015.6 4632.0 62.2 63.7 73.3 10% 19.3 18.8 16.4 20.1 20.6 21.3 21.0 14.0 1.2

Maruti Suzuki 3607.9 43700.6 49134.2 57941.7 2783.0 3549.9 4954.3 92.1 117.5 164.0 29% 39.2 30.7 22.0 19.2 22.2 15.8 18.0 12.0 0.3

Rico Auto Industries 45.7 1480.1 1236.8 1162.5 2.7 28.3 53.8 0.2 2.1 4.0 29% 228.7 21.8 11.5 9.9 10.5 5.5 7.7 0.1 0.2

TVS Motor 285.3 7857.7 10207.2 12475.3 260.4 357.4 559.8 5.5 7.5 11.8 29% 52.1 37.9 24.2 23.2 31.9 23.2 30.1 1.4 0.5

BANKS & FINANCE

Allahabad Bank 111.2 7477.1 8383.1 9195.6 1172.0 682.5 1258.1 21.5 12.5 23.1 4% 5.2 8.9 4.8 - - 5.7 9.8 2.5 2.2

Andhra Bank 91.9 5070.2 5718.7 6457.5 435.6 710.0 1013.5 7.4 12.0 17.2 53% 12.4 7.6 5.3 - - 7.9 10.5 1.1 1.2

Axis (UTI) Bank 586.6 19356.9 22461.9 26199.0 6217.7 7125.6 8525.7 26.5 30.3 36.3 17% 22.2 19.3 16.2 - - 17.3 17.9 4.0 0.7

Bajaj Finance 4172.3 2215.3 2757.8 3575.3 719.0 909.6 1172.1 144.5 182.8 235.6 28% 28.9 22.8 17.7 - - 20.8 22.3 16.0 0.4

Bajaj Finserv 1468.5 6021.0 - - 1544.1 - - 97.0 - - - 15.1 - - - - 0.0 0.0 1.8 0.1

Bank of Baroda 185.1 16428.1 18137.8 21044.1 4541.1 3819.9 5139.9 21.1 17.7 23.9 6% 8.8 10.4 7.8 - - 10.2 12.5 4.3 2.3

Bank of India 261.2 15122.4 17264.3 20085.6 2729.3 3160.1 3691.2 42.4 49.1 57.4 16% 6.2 5.3 4.5 - - 10.2 11.0 5.0 1.9

Capital First 402.3 328.2 461.5 597.2 58.4 110.0 160.5 7.1 13.4 19.6 66% 56.5 30.0 20.6 - - 9.1 12.2 2.0 0.5

Corp Bank 66.9 5431.4 6120.2 7089.8 561.7 936.4 1147.3 6.7 11.2 13.7 43% 10.0 6.0 4.9 - - 9.0 10.2 0.4 0.6

Federal Bank 143.1 2922.5 3431.7 4042.9 838.9 974.8 1180.1 9.8 11.4 13.8 19% 14.6 12.6 10.4 - - 13.3 14.5 2.0 1.4

HDFC 1230.2 6803.0 8122.0 9765.9 5440.2 6029.7 7219.9 34.8 38.6 46.2 15% 35.3 31.9 26.6 - - 19.1 20.2 14.0 1.1

HDFC Bank 1064.1 26402.3 31459.7 37627.4 8478.4 10520.9 13154.2 35.3 43.9 54.8 25% 30.1 24.3 19.4 - - 22.1 23.3 6.8 0.6

ICICI Bank 346.6 26,903.4 30,556.1 35,687.7 9,810.5 10,997.8 13,052.2 17.0 19.0 22.6 15% 20.4 18.2 15.3 - - 14.5 15.7 4.6 1.3

IDBI Bank 69.5 9,000.2 8,437.8 9,696.6 1,121.4 612.8 1,055.3 7.0 3.8 6.6 -3% 9.9 18.2 10.6 - - 2.6 4.3 1.0 1.4

LIC Housing Finance 470.7 1898.9 2243.1 2766.0 1317.2 1482.4 1797.9 26.1 29.4 35.6 17% 18.0 16.0 13.2 - - 18.3 19.2 4.5 1.0

PTC India Fin. Ser. 62.4 211.6 322.8 452.3 207.7 210.1 306.8 5.1 5.2 7.6 22% 12.3 11.9 8.2 - - 14.8 19.3 1.0 1.6

Punjab National Bank 176.9 20722.7 22656.8 26301.4 3342.6 3820.0 5194.5 18.5 21.1 28.7 25% 9.6 8.4 6.2 - - 10.2 12.6 2.0 1.1

SBI 300.3 67835.1 76173.7 88887.8 10891.5 14055.7 18316.6 14.6 18.8 24.5 30% 20.6 16.0 12.2 - - 11.4 13.5 3.0 1.0

Union Bank of India 205.0 10700.9 12009.6 13691.5 1696.2 1952.9 2249.8 26.9 31.0 35.7 15% 7.6 6.6 5.7 - - 10.2 10.9 4.0 2.0

Yes Bank 807.2 4437.8 5524.3 6752.2 1617.8 1966.1 2375.3 44.9 47.5 57.4 13% 18.0 17.0 14.1 - - 21.0 18.9 8.0 1.0

CONSUMER GOODS

GSK Consumers* 5647.6 4682.9 4213.1 4815.0 674.8 579.3 675.2 160.4 137.7 160.5 0% 35.2 41.0 35.2 44.3 43.5 29.2 28.7 45.0 0.8

GCPL 1,083.7 7,582.6 8,381.0 9,954.9 753.7 917.4 1,157.7 22.1 27.0 34.0 24% 49.0 40.1 31.9 20.6 23.5 23.9 25.1 5.3 0.5

Hindustan Unilever 910.9 28539.0 32145.7 26393.4 3717.0 3958.3 4745.2 17.2 18.3 21.9 13% 53.0 49.8 41.6 127.7 107.6 93.1 78.1 13.0 1.4

ITC 366.1 33238.6 36686.9 42447.6 8785.2 9641.5 11078.5 11.0 12.1 13.9 12% 33.3 30.3 26.3 42.0 41.8 34.1 33.5 6.0 1.6

Jyothy Laboratories 299.5 1323.9 1527.1 1864.4 85.2 162.0 210.2 4.7 8.9 11.4 56% 63.7 33.6 26.3 12.5 16.0 21.2 24.3 3.0 1.0

Marico^ 349.7 4686.5 5807.3 6730.6 485.4 567.6 745.2 7.5 8.8 11.6 24% 46.6 39.7 30.1 39.9 41.8 35.2 33.7 3.5 1.0

Zydus Wellness 817.4 403.6 424.9 491.0 98.3 94.2 120.8 25.2 24.1 30.9 11% 32.4 33.9 26.5 28.6 30.3 26.3 27.7 6.0 0.7

IT / IT SERVICES

CMC 1915.3 2212.6 2492.3 2877.4 266.0 306.8 353.6 87.8 101.2 116.7 15% 21.8 18.9 16.4 28.5 28.7 24.3 23.6 22.5 1.2

Firstsource Solution 30.6 3105.9 3236.9 3530.0 193.0 263.9 333.6 2.9 3.7 4.9 30% 10.6 8.3 6.2 11.6 13.6 11.9 13.2 0.0 0.0

HCL Technologies** 1900.3 32918.0 37297.8 41808.2 6370.1 7769.4 8543.1 90.3 110.0 121.0 16% 21.0 17.3 15.7 44.6 38.3 37.3 31.7 22.0 1.2

Infosys 2120.9 50133.0 53901.0 60699.0 10861.0 12494.0 14259.0 94.6 108.8 124.2 15% 22.4 19.5 17.1 35.8 34.8 26.0 25.7 31.5 1.5

Persistent Systems 1649.9 1669.2 1915.1 2269.0 249.3 300.7 382.2 62.3 75.2 95.6 24% 26.5 21.9 17.3 30.2 32.5 22.5 23.9 12.0 0.7

TCS 2558.3 81809.4 95301.7 107643.3 19116.9 21421.6 24425.3 97.7 109.5 124.0 13% 26.2 23.4 20.6 40.8 37.8 31.6 29.3 32.0 1.3

Wipro 621.6 43426.9 47052.2 50796.7 7796.7 8679.2 9896.4 31.8 35.4 40.3 13% 19.5 17.6 15.4 19.8 19.9 21.7 21.2 8.0 1.3

CAPITAL GOODS / POWER

BHEL 297.1 38388.8 33808.0 33143.0 3338.0 2864.6 3868.0 14.1 11.7 15.8 6% 21.0 25.4 18.8 12.1 15.1 8.2 10.3 2.8 1.0

CESC 712.3 5510.0 6232.9 6656.3 652.0 697.0 705.1 48.9 52.4 52.9 4% 14.6 13.6 13.5 8.0 7.7 9.2 8.4 7.0 1.0

Crompton Greaves 178.8 13480.6 14457.0 16085.0 244.3 218.0 544.0 3.9 3.5 8.7 49% 45.9 51.1 20.6 9.7 13.9 12.2 12.4 1.2 0.7

Finolex Cable 256.5 2359.0 2608.0 2965.0 189.9 223.0 249.0 12.9 14.6 16.3 12% 19.9 17.6 15.7 21.7 22.9 18.6 17.8 1.6 0.6

Greaves Cotton^ 145.6 1,721.5 1,737.6 1,929.7 121.1 135.0 189.4 5.0 5.5 7.8 25% 29.4 26.3 18.8 20.5 26.2 15.7 20.1 1.3 0.9

Kalpataru Power 237.9 4,055.0 4,560.0 5,264.0 146.0 175.0 220.0 9.5 11.4 14.4 23% 25.0 20.9 16.5 15.3 17.2 8.6 10.1 1.5 0.6

PTC India 97.8 11510.7 12750.0 14669.0 164.7 196.5 227.0 5.6 6.6 7.7 18% 17.6 14.7 12.7 11.2 12.2 15.7 15.6 2.0 2.0

Skipper 127.9 1073.1 1307.7 1602.5 26.9 44.5 80.4 2.6 4.3 7.9 74% 49.2 29.7 16.2 25.1 25.7 16.8 23.6 0.2 0.1

Thermax 1153.4 4302.2 4721.9 5364.0 220.4 316.8 391.0 18.5 26.6 32.8 33% 62.3 43.4 35.1 20.9 23.2 14.9 16.4 6.0 0.5

Company CMP Sales Net profit EPS (%) EPS PE (x) RoCE (%) RoNW (%) DPS Div(Rs) growth yield

(%)


FY14 FY15E FY16E FY14 FY15E FY16E FY14 FY15E FY16E FY16/FY14 FY14 FY15E FY16E FY15E FY16E FY15E FY16E (Rs)

EQUITY FUNDAMENTALS EARNINGS GUIDE

^Marico estimates excluding Kaya’s financials

*GSK Consumer FY2014 financial numbers are estimated for 15 months as the company changed its accounting year end to March 2014, hence not comparable

#We have annualised these ratios to make them comparable

** June year ended

Company CMP Sales Net profit EPS (%) EPS PE (x) RoCE (%) RoNW (%) DPS Div(Rs) growth yield

(%)Va Tech Wabag 1,551.4 2,239.0 2,580.8 3,008.2 108.7 111.7 151.0 40.9 42.1 56.9 18% 37.9 36.8 27.3 32.5 38.5 12.6 15.3 8.0 0.5

V-Guard Industries 1003.2 1517.6 1774.0 2077.0 70.1 78.1 99.1 23.5 26.2 33.2 19% 42.7 38.3 30.2 28.9 30.7 22.4 23.7 4.5 0.4

Triven Turbine 109.3 515.4 701.6 991.3 68.0 94.8 144.9 2.1 2.9 4.4 45% 52.0 37.7 24.8 59.2 51.7 42.4 35.9 0.8 0.7

INFRASTRUCTURE / REAL ESTATE

Gayatri Projects 165.5 1812.5 1619.5 2168.4 64.8 33.7 69.7 21.4 11.1 23.0 4% 7.7 14.8 7.2 8.9 10.3 5.0 9.6 2.0 1.2

ITNL 215.5 6587.0 7199.0 7933.1 391.7 495.4 620.9 15.9 20.1 25.2 26% 13.6 10.7 8.6 9.4 9.9 9.1 10.1 4.0 1.9

IRB Infra 269.8 3731.9 3859.0 4576.2 459.1 545.8 692.0 13.8 16.4 20.8 23% 19.5 16.4 13.0 10.8 13.1 14.5 16.4 4.0 1.5

Jaiprakash Associates 27.3 13327.0 13853.7 15854.8 455.5 -78.0 251.4 2.1 -0.4 1.2 -26% 12.7 -74.3 23.1 7.3 7.7 -0.6 1.8 0.0 0.0

Larsen & Toubro 1,722.5 56,598.9 64,365.0 74,986.0 4,904.6 5,575.0 6,549.0 52.9 60.1 70.7 16% 32.6 28.7 24.4 16.7 18.7 15.6 16.3 14.3 0.8

Pratibha Industries 41.7 2283.6 2763.3 3128.4 39.0 50.1 95.1 3.9 5.0 9.4 56% 10.8 8.4 4.4 13.4 15.2 7.5 13.0 0.2 0.5

Punj Lloyd 36.3 10845.3 11208.3 NA -702.2 -298.9 NA -21.1 -9.0 NA 0% -1.7 -4.0 - 2.5 NA -15.1 NA 0.0 0.0

OIL & GAS

Oil India 531.4 9,609.0 10,820.7 13,362.0 2,977.0 3,308.1 4,294.0 49.6 55.0 71.4 20% 10.7 9.7 7.4 16.5 19.9 15.3 18.2 21.5 4.0

Reliance Ind 937.6 434460.0 402844.0 394066.0 22493.0 22076.0 21953.0 69.6 68.3 67.9 -1% 13.5 13.7 13.8 8.5 7.8 10.1 9.3 9.5 1.0

Selan Exploration 306.4 101.3 89.0 121.0 44.5 35.6 48.2 27.2 21.7 29.4 4% 11.3 14.1 10.4 16.0 19.4 12.9 15.7 5.0 1.6

PHARMACEUTICALS

Aurobindo Pharma 1,224.2 8,099.8 11,711.8 13,084.1 1,375.9 1,614.3 1,897.5 47.2 55.4 65.1 17% 25.9 22.1 18.8 28.5 28.7 35.8 30.6 3.0 0.2

Cipla 677.4 10100.4 11716.2 14723.5 1388.4 1559.8 2152.6 17.3 19.4 26.8 25% 39.2 34.9 25.3 17.8 21.4 14.5 17.2 2.0 0.3

Cadila Healthcare 1541.8 7224.0 8344.6 9981.9 803.5 1128.8 1545.7 39.2 55.1 75.5 39% 39.3 28.0 20.4 20.0 23.7 23.8 25.0 9.0 0.6

Divi's Labs 1659.9 2532.1 3057.9 3691.8 810.5 842.8 1037.4 61.1 63.5 78.2 13% 27.2 26.1 21.2 31.8 32.2 26.0 26.1 20.0 1.2

Glenmark Pharma 706.4 5983.9 7062.8 8361.9 759.8 883.1 1138.0 28.0 32.6 42.0 22% 25.2 21.7 16.8 18.8 20.7 23.3 23.4 4.0 0.6

JB Chemicals 188.9 1,000.6 1,059.6 1,230.0 108.3 124.5 153.5 12.8 14.7 18.1 19% 14.8 12.8 10.4 14.4 16.1 11.4 12.7 3.0 1.6

Ipca Laboratories 619.4 3,181.8 3,254.2 3,895.1 477.4 397.2 615.1 37.8 31.5 48.8 14% 16.4 19.7 12.7 19.2 23.7 18.3 23.4 2.5 0.4

Lupin 1546.4 11086.6 13052.5 15614.2 1836.3 2369.8 2830.1 41.0 52.9 63.1 24% 37.8 29.3 24.5 36.5 34.9 26.3 24.3 6.0 0.4

Sun Pharma 941.3 16004.4 18008.1 20598.7 5721.8 6367.6 7051.1 27.6 30.7 34.0 11% 34.1 30.6 27.6 31.5 28.1 27.6 24.1 0.0 0.0

Torrent Pharma 1135.3 4036.0 4753.0 5517.4 664.0 826.5 1009.0 39.2 48.8 59.6 23% 28.9 23.2 19.0 30.3 26.0 35.8 31.9 5.0 0.4

BUILDING MATERIALS

Grasim 3888.0 29004.2 32519.0 37047.0 1946.8 1799.0 1980.0 212.0 195.9 215.6 1% 18.3 19.8 18.0 12.3 13.7 7.5 7.4 22.5 0.6

The Ramco Cements 355.8 3761.2 3847.0 4515.0 123.0 214.0 367.0 5.2 9.0 15.4 73% 68.8 39.5 23.1 5.7 7.6 8.4 13.1 1.0 0.3

Shree Cement** 10848.3 5887.0 7262.0 8053.0 809.0 795.0 1096.0 248.3 228.3 314.5 13% 43.7 47.5 34.5 16.0 18.0 16.0 18.0 22.0 0.2

UltraTech Cement 3107.6 20080.0 23813.0 27427.0 2048.9 2210.0 2630.0 74.8 80.7 96.0 13% 41.6 38.5 32.4 12.7 14.6 11.6 12.2 9.0 0.3

DISCRETIONARY CONSUMPTION

Cox and Kings 313.9 2307.6 2603.3 2550.2 266.0 378.9 353.0 19.5 27.8 25.9 15% 16.1 11.3 12.1 11.5 10.7 23.9 18.8 1.0 0.3

Century Plyboards (I) 184.9 1348.0 1681.0 2033.0 77.0 139.0 196.0 3.5 6.2 8.8 59% 52.8 29.8 21.0 22.0 26.1 39.1 37.6 0.8 0.4

Eros Intnl Media 366.8 1134.6 1321.9 1545.1 199.7 242.7 280.0 21.7 26.4 30.5 19% 16.9 13.9 12.0 19.6 20.7 18.2 17.6 0.0 0.0

KDDL 300.7 334.7 410.2 497.8 8.5 9.4 12.9 9.9 10.3 14.1 19% 30.4 29.2 21.3 13.5 14.4 17.5 19.1 1.5 0.5

KKCL 1802.9 367.2 405.3 459.0 67.0 63.0 77.5 54.4 51.1 62.9 8% 33.1 35.3 28.7 27.6 27.8 20.5 22.5 20.5 1.1

Raymond 515.7 4548.0 5122.0 5776.0 130.2 110.2 154.2 21.2 18.0 25.1 9% 24.3 28.7 20.5 11.1 12.6 7.3 9.4 2.0 0.4

Relaxo Footwear 680.3 1205.8 1467.1 1791.3 65.6 91.2 125.1 10.9 15.2 20.9 38% 62.4 44.8 32.6 33.7 35.9 21.7 22.5 0.5 0.1

Speciality Restaurants 182.1 263.9 315.1 389.3 18.9 12.6 23.6 4.0 2.7 5.8 20% 45.5 67.4 31.4 5.5 10.0 4.1 7.5 1.0 0.5

Sun TV Network 415.2 2223.6 2406.8 2708.1 748.0 794.4 919.5 19.0 20.2 23.3 11% 21.9 20.6 17.8 34.2 35.3 24.2 25.0 9.5 2.3

Thomas Cook India 190.2 1,295.6 3,130.8 3,558.3 68.7 166.7 229.5 2.5 5.6 5.0 41% 76.1 34.0 38.0 #19.8 22.1 #13.3 16.3 0.4 0.2

Zee Entertainment 373.1 4421.7 4746.7 5275.9 893.1 999.9 1098.2 9.3 10.4 11.4 11% 40.1 35.9 32.7 29.1 28.9 19.8 19.5 2.0 0.5

DIVERSIFIED / MISCELLANEOUS

Aditya Birla Nuvo 1799.4 8338.4 9237.3 10260.1 484.7 538.3 584.2 37.3 41.4 44.9 10% 48.2 43.5 40.1 8.7 8.8 7.0 7.1 7.0 0.4

Bajaj Holdings 1414.1 385.2 - - 1987.6 - - 178.6 - - - 3.0 - - - - - - 30.0 2.1

Bharti Airtel 371.6 85746.0 92860.0 100903.0 3935.0 5414.0 5772.0 9.8 13.5 14.4 21% 37.9 27.5 25.8 11.5 12.6 8.4 8.1 1.8 0.5

Bharat Electronics 3600.7 6275.5 7505.7 8202.6 931.6 1183.4 1375.0 116.5 147.9 171.9 21% 30.9 24.3 20.9 17.0 16.9 12.9 12.8 22.3 0.6

Gateway Distriparks 382.7 1008.1 1071.4 1079.6 142.0 163.9 182.2 13.1 15.1 16.8 13% 29.3 25.4 22.8 14.6 16.2 19.0 20.1 7.0 1.8

Max India 499.0 11683.0 - - 139.5 - - 5.2 - - - 95.8 - - - - - - 1.8 0.4

Ratnamani Metals 747.2 1326.1 1675.0 2001.0 142.8 183.9 228.9 30.6 39.4 49.0 27% 24.4 19.0 15.2 28.9 30.9 21.9 22.7 4.0 0.5

Supreme Industries** 616.8 3962.0 4366.0 5041.0 274.0 240.0 318.0 21.6 18.9 25.0 8% 28.6 32.6 24.7 24.0 27.4 20.2 22.8 8.0 1.3

Technocraft Industries 216.0 1045.0 1039.0 1183.0 104.0 89.0 110.0 32.9 28.3 34.9 3% 6.6 7.6 6.2 17.6 19.4 14.8 16.1 5.0 2.3

United Phosphorus 416.3 10770.9 11910.0 13377.2 1028.6 1098.7 1187.2 23.6 25.6 27.7 8% 17.6 16.3 15.0 15.0 15.8 17.0 17.5 2.5 0.6


Remarks

Automobiles

Apollo Tyres � Apollo Tyres is the market leader in truck and bus tyre segments with a 28% market share. The management isexpecting strong demand traction in the European operations (particularly the summer tyre segment) and isgaining market share in Europe. Further, the domestic operations would see a pick-up in demand in H2FY15. Themargins may sustain at higher levels due to subdued raw material prices. The company will be investing $560mnover the next three years to set up a greenfield facility in Hungary and Rs2,000 crore to expand capacity atChennai facility. We maintain our Buy recommendation on the stock with a price target of Rs265.

Ashok Leyland � Ashok Leyland, the second largest CV manufacturer in India, is a pure CV play. It has ventured into LCV spacewith the launch of Dost in collaboration with Nissan. The MHCV volumes have been under pressure over the pasttwo years due to a subdued economic environment. The discounts in the system have come down and the companyhas managed to take price hikes which propped up margins. A strong government at the centre is expected tofocus on growth led by manufacturing and infrastructure sectors which will improve CV segment’s volumes. Thecompany has raised Rs660 crore via QIP and is in the process of selling non-core assets to pare its debts. We havea Buy recommendation on the stock with a price target of Rs76.

Bajaj Auto � Bajaj Auto, a leading two-wheeler maker, is moving up the value chain by concentrating on the executive andpremium motorcycle segments. It has focused on its Pulsar and Discover brands to establish a strong presenceespecially in the premium segment. Additionally, it derives a third of its volumes from exports and has a strongpresence in the SAARC region and Africa. After a loss of market share in FY14, we expect it to claw back marketshare in FY15 with the launch of the new Discover’s. Exports will continue to drive its overall volumes. Profitabilityremains strong with industry leading EBITDA margin.

Gabriel India � Gabriel is one of India’s leading manufacturers of shock absorbers and front forks with a diversified customerbase. A pick-up in the volumes post-election in both the PV and CV segments as well as higher growth in the two-wheeler segment, increase in market share with HMSI and continued growth in the aftermarket sales are expectedto drive the revenue growth going forward. Moreover, with increasing utilisation levels and higher proportion ofrevenues from the profitable CV segment, the OPM is expected to expand from 6.6% in FY13 to 7.9% in FY16.Further, a reduction in debt level would lead to higher return ratios, going forward. Therefore, we recommend aBuy with a price target of Rs110.

M&M � M&M is a leading maker of tractors and UVs in India. Though the automotive demand is under pressure due todeclining demand for UVs and LCVs, but the demand for tractors remains strong. We expect demand for theautomobile segment to pick up with an improvement in customer sentiment. Additionally, new launches especiallyin the compact UV space will drive volume growth. Also the tractor segment is expected to grow at 8-10% overthe next few years which will benefit M&M. The value of its subsidiaries adds to its sum-of-the-parts valuation.Higher farm income, strong rural positioning and lower vulnerability to interest rates make it a proxy play onfood inflation.

Maruti Suzuki � Maruti Suzuki is India’s largest small car manufacturer. Though the demand for diesel cars is witnessing pressuredue to a hike in diesel prices, but the petrol segment is witnessing a recovery due to the narrowing differentialbetween petrol and diesel prices. The company plans to launch 14 new models over the next five years (includingsome in the high-value UV space) which would boost its volumes and realisation. The recent launch of Celerio andCiaz have been well received. The company has also launched the new Alto K10 with automatic transmissionwhich will be the cheapest automatic available in the country. We expect customer sentiment to improve on theback of a strong government at the centre. Additionally, the PV segment is expected to benefit from the pent-updemand over the past two years and will benefit Maruti Suzuki most due to its high market share in the entry levelsegment. We remain positive on the stock with a price target of Rs4,250.

Rico Auto Inds. � Rico is one of the largest producers of high-pressure non-ferrous die castings for the auto sector. It has recentlydivested its 50% stake in a joint venture with FCC Co., Japan for Rs495 crore. The significant cash flow (nearlyequivalent to current market cap) is expected to be a game changer for the company and enable it to deleverage itsbalance sheet and fund future capex. Additionally, a lower interest burden will result in an exponential growth inthe earnings and free cash flow. The company will be commissioning three new plants in the next 12 months andis poised to benefit from an auto demand revival. We have a Buy recommendation on the stock with a price targetof Rs55.

TVS Motor � TVS Motor is the fourth largest two-wheeler manufacturer in the country with a strong presence in the scootersegment. The scooter segment has grown at a CAGR of 25% over the past five years as opposed to 12% CAGRin motorcycles and currently contributes 25% of the total two-wheeler volumes. With the launch of the Jupiter inOctober 2013, the company has balanced its scooter portfolio and witnessed incremental volumes. Additionally,new launches such as Star City+, refreshed Wego and new Scooty Zest have helped maintain the growth momentum.The company will launch two new motorcycles in H2FY15. Exports, especially of three-wheelers, are doingextremely well. We expect a margin expansion of 40-50BPS over FY14-16. We have a Hold on the stock with aprice target of Rs295.

Banks & Finance

Allahabad Bank � With a wide network of over 2,800 branches spread across India, Allahabad Bank enjoys a stronghold in north and eastIndia. But it has reported a rise in slippages resulting in deterioration of its asset quality. Relatively higher proportionof stressed assets and low tier-I CAR remain concerns, though the low valuation partly factors the same.



Remarks


Andhra Bank � Andhra Bank, with a wide network of over 2,100 branches across the country, has a strong presence in southIndia especially in Andhra Pradesh. Though it is trading at an attractive valuation, but the concerns on assetquality front and the political situation within the state could affect its operations. Valuation factors the same.

Axis Bank � Axis Bank continues to grow faster than the industry and is diversifying its book in favour of retail segment. Thebank’s liability profile has improved significantly which would help to sustain margins at healthy levels. Weexpect the earnings growth to remain reasonably strong driven by a healthy operating performance while assetquality pressures will be manageable.

Bajaj Finance � Bajaj Finance, owned by Bajaj Finserv, is one of the most diversified NBFCs in the country and biggest bankassurance partner for Bajaj Allianz Insurance. It has assets spread across products, viz loans for consumer durables,two- and three-wheelers, loans to small and medium enterprises (SMEs), mortgage loans, commercial loans etc.The asset quality and provisioning remain among best in system.

Bajaj Finserv � Bajaj Finserv is a financial conglomerate having presence in financing business (vehicle finance, consumer financeand distribution) and is among the top players in life insurance and general insurance. Its consumer financebusiness (Bajaj Finance) and general insurance business report a robust performance. The life insurance businessis showing signs of a pick-up after being affected by a change in regulations.

Bank of Baroda � Bank of Baroda is among the top public sector banks (PSBs) having a sizeable overseas presence (102 offices in 24countries) and a strong network of over 4,800 branches across the country. It has a stronghold in western andeastern India. Its performance metrics remain superior to that of the other PSBs, though the asset quality trendswill be the key monitorable.

Bank of India � Bank of India has a network of over 4,600 branches, spread across the country and abroad, along with a diversifiedproduct and services portfolio, and steadily growing assets. The operating performance has weakened due tomargin deterioration. Further, the rising stress on the asset quality and relatively weaker capital position constrainbalance sheet growth.

Capital First � Capital First (erstwhile Future Capital Holdings) has been acquired by global private equity firm, Warburg Pincus(a 72% stake). The present management has taken several initiatives to tap the high-growth retail product segments,like gold loans, loan against property and loan against shares. It has a strong CAR and sound asset quality. Itsloan book is expected to sustain a 25-30% growth in the next three years. As a result of several initiatives taken,the operating leverage will play out and may lead to significant pick-up in profitability over medium term.

Corp Bank � Corporation Bank is a mid-sized PSB having a relatively higher presence in south India. It is predominantlyexposed to the corporate segment, which constitutes about 44% of its book. Due to a higher dependence on thewholesale business and a low CASA ratio, it lags its peers in terms of operational performance. Also, the rise inNPAs could keep provisioning high and weaken earnings performance.

Federal Bank � Federal Bank is among the better performing old private sector banks in India with a strong presence in southIndia, especially Kerala. Under the new management, the bank has taken several initiatives, which would improvethe quality of its earnings and asset book. The asset quality has consistently improved in the past several quartersand the operating performance is picking up gradually.

HDFC � HDFC is among the top mortgage lenders providing housing loans to individuals, corporates and developers. Ithas interests in banking, asset management and insurance through its key subsidiaries. As these subsidiaries aregrowing faster than HDFC, the value contributed by them would be significantly higher going forward. Due todominant market share and consistent return ratios, it trades at a premium to the other NBFCs.

HDFC Bank � HDFC Bank was established in 1994 as part of the liberalisation of the Indian banking industry by the RBI. Thebank continues to report a strong growth in advances with focus on the retail segment. Its relatively high margins(compared with its peers), strong branch network and better asset quality make HDFC Bank a safe bet. However,delay in FIPB approval for increase in foreign investment limit remains a near-term concern.

ICICI Bank � ICICI Bank is India’s largest private sector bank with a network of over 3,700 branches in India and a presence inaround 18 countries. The bank has once again entered an expansionary mode after making a conscious effort tocontract its advances book due to asset quality concerns. The operating profit improved significantly and is thekey driver of the earnings growth. The bank offers substantial value unlocking opportunities from the insuranceand securities businesses.

IDBI Bank � IDBI Bank is one of leading PSBs of India. It is gradually working towards improving its liability base and expandingthe retail book which is likely to reflect in the form of better margins and return ratios. However, due to risingasset quality risks, low tier-I CAR and slower business growth, the stock is likely to underperform in the near term.

LIC Housing � LICHFL is the third largest mortgage financier (including banks) in India with a market share of 11% and loanbook of over Rs90,000 crore. It is promoted by Life Insurance Corporation of India, which is the largest insuranceprovider in India. With over 200 branches, 1,241 direct sales agents, 6,535 home loan agents and 782 customerrelationship associates, the company has among the strongest distribution structures in India to support businessexpansion. Going ahead, a revival in the economy and moderation in the borrowing rates could be the key triggersfor the stock. Therefore, considering stable RoE of ~20%, sound asset quality and healthy growth outlook, thecompany’s fundamentals are strong.


Remarks


PNB � Punjab National Bank has one of the best liability mixes in the banking space, with low-cost deposits constitutingaround 40% of its total deposits. This helps it to maintain one of the highest margins among PSBs. A strongliability franchise and technology focus will help the bank to increase its core lending operations and fee incomerelated-businesses. In view of the weakness in the economy and relatively higher exposure to troubled sectors, theasset quality stress may remain in the near term.

PFS � PTC India Financial Services, owned by PTC India, is focused on providing financial solutions to projects in theenergy value chain. Given the robust lending opportunities in the renewable energy segment and likely reforms inthermal power segment, the company expects to double its loan book over next 12-15 months. With nil net NPAs,its asset quality remains among the best in the system.

SBI � State Bank of India is the largest bank of India with loan assets of over Rs12 lakh crore. The loan growth for FY14was in line with the industry average while the core operating performance was relatively strong. The successfulmerger of the associate banks and value unlocking from insurance business could provide further upside for thebank. While the bank is favourably placed in terms of liability base and the operating profit is also improving, theasset quality would remain a key monitorable in the near term.

Union Bank � Union Bank of India has a strong branch network and an all-India presence. The bank aspires to become thelargest retail bank. Hence, it has ramped up its manpower and infrastructure to ramp up retail, SME lending.However, rising stressed loans and weak capital ratios remain concerns with the bank.

Yes Bank � Yes Bank, a new generation private bank, started its operations in November 2004 and is the only greenfield bankapproved by the RBI in the last decade. The bank is promoted by Rana Kapoor and Ashok Kapur. It follows aunique business model based on knowledge banking, which offers product depth and a sustainable competitiveedge over established banking players. While the operating performance remains healthy, recent capital raisingwill increase the balance sheet growth over the next couple of years.

Consumer goods

GSK Consumers � GSK Consumer Healthcare is a leading player in the MFD segment with a close to 70% share in the domestic market.Judicious new launches and brand extensions, and the expansion of its distribution reach have helped it to stay aheadof the competition and maintain its pricing power over the years. In a bid to de-risk its business model, it has expandedits product portfolio by entering into new categories such as biscuits, noodles, energy bars, sports drinks and oats inthe recent years. With cash balance of close to Rs1,700 crore the company can invest in growth initiatives as well asreward its investors with a healthy dividend payment.

GCPL � Godrej Consumer Products is a major player in personal wash, hair colour and household insecticide marketsegments in India. The recent acquisitions of Darling Group, Tura, Megasari and Latin American companies havehelped the company to expand its geographic footprint. We believe the decent sales volume growth in the domesticbusiness coupled with a strong growth in the Indonesian, African and Argentine businesses would help it toachieve 18% CAGR top line growth and 20% bottom line growth over FY14-17.

HUL � Hindustan Unilever is India’s largest FMCG Company. With declining inflation and improving sentiment, HUL’svolume growth in the domestic business is expected to improve in the coming years. Also it would be one of thekey beneficiaries of reducing input prices. Though business fundamentals have improved, the valuation remains atpremium levels. Hence we recommend Hold on the stock. In the long term, it will be one of the key beneficiariesof the Indian consumerism story.

ITC � ITC has a strategy of effectively utilising the excess cash generated from its cash cow, the cigarette business, tostrengthen and enhance its other non-cigarette businesses. This would nurture the growth of these businesses someof which are at a nascent stage. Thus, the company will deliver a sustained and steady growth in the coming years.However, the core cigarette business’ performance is reeling under regulatory concerns, thereby affecting theprofitability of the business in the near term.

Jyothy Labs � Jyothy Laboratories is the market leader in the fabric whitener segment in India. With the successful integration ofHenkel and the induction of a new management team led by S Raghunanadan, it is transforming itself from a one-brand wonder to an aggressive FMCG player. We expect its top line to grow at a CAGR of 20%. A stable OPMand lower interest cost would aid the PAT to grow strongly in the near term.

Marico � Marico is among India’s leading FMCG companies. Its core brands, Parachute and Saffola, have a strong footingin the market. It follows a three-pronged strategy which hinges on expansion of its existing brands, launch of newproduct categories (especially in the beauty and wellness space) and growth through acquisitions. While the domesticproduct portfolio is likely to achieve a steady growth in volumes, the international business is now gainingmomentum on the back of an increase in distribution and strong performance by the core brands.

Zydus Wellness � Zydus Wellness is bearing the brunt of a limited product portfolio of three brands (Nutralite, Sugar Free andEveryuth) that cater to a niche category. The company would benefit from improving urban consumer sentimentand a new distribution system in FY2016. Thus, we expect a better operating performance from it in FY2016.


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IT/IT services

CMC � As per the scheme of amalgamation, CMC as an entity will cease to exist in the next six months as it will get fullyintegrated into TCS. Thus, by the record date of the swap ratio, the stock price of CMC will eventually trade at adiscount of around 21% to that of TCS as per the swap ratio of 79 shares of TCS for every 100 shares of CMC. Weretain our Hold rating on the stock for the existing shareholders, in line with our positive view on TCS (for which wehave a price target of Rs3,100). But for fresh investment it would be more prudent to buy into TCS rather thanCMC, as the latter will cease to exist as an entity in the next few quarters.

Firstsource � Firstsource Solutions is a specialized BPO service provider. It has scripted a remarkable turn-around from beingon the brink of a financial burn-out to being an operationally sound company with a large scope for furtherimprovement. The health of its balance sheet (which was one of the prime concerns) is improving gradually as thecompany is gradually reducing its debt burden through internal accruals. The revenue visibility remains strong asthe existing top clients continue to be in good shape while operational efficiencies and reduction in interest expensesdue to lower debt augur well for the earnings growth trajectory in FY15 and FY16.

HCL Tech � HCL Technologies is one of the leading Indian IT service vendors. It has reported consistent financial performancein the past several quarters on the back of a ramp-up in business from the large deals bagged earlier and strongmomentum in the IMS space. It continues to demonstrate a strong growth visibility with a robust backlog of dealsand successful execution with market share gain strategy through vendor churns/consolidation. We remain positiveon the company in view of its order wins and superior earnings visibility.

Infosys � Infosys is India's premier IT and IT-enabled services company. We believe that top level exits and lower predictabilityof growth (currently lagging peers) is weighing on the company’s performance. With the new CEO, Vishal Sikka, atthe helm, the investors will now keenly focus on the company’s roadmap for future under the completely newleadership bench. Nevertheless, the valuations seem reasonable at the moment and a much better operatingenvironment in the USA and Europe give us confidence of an improved growth momentum after the completion of

transition period.

Persistent � Persistent Systems has proven expertise and strong presence in newer technologies, strength to improve its IP baseand the best-in-the-class margin profile which sets it apart from the other mid-cap IT companies. We maintain ourconfidence due to an optimistic management outlook driven by acceleration in the product engineering servicesbusiness, new technologies and increased momentum in the IP space after consolidating the HP Client Automationrevenues.

TCS � Tata Consultancy Services pioneered the IT services outsourcing business in India and is the largest IT service firmin the country. It is a leader in most service offerings and has further consolidated its leadership through theinorganic route. With a strong base it is well placed to garner incremental deals across sectors. Its consistentquarterly performance (better than peers’) coupled with the higher predictability of its earnings would keep it theStreet’s favourite counter in the IT space.

Wipro � Wipro is one of the leading Indian IT service companies. It has lagged the other IT biggies in terms of performancefor several quarters. The leadership and organisational changes that the company had adopted a couple of yearsago have just started to show tangible results which is reflected in the positive management commentary.Additionally, the overall improvement in the demand environment bodes well for the company’s revenue visibility.

Capital goods/Power

BHEL � Bharat Heavy Electricals, India’s biggest power equipment manufacturer, has been the prime beneficiary of the multi-fold increase in the investments made in the domestic power sector over the last few years. However, the order inflowhas been showing signs of slowing down which would remain a major concern for the company. The key challengebefore the company now would be to maintain a robust order inflow and margin amid rising competition and lowerorder inflow. The current order book of Rs103,700 crore stands at around 2.7x FY14 sales.

CESC � CESC is the power distributor in Kolkata and Howrah (backed by 1,225MW of power generation capacity) whichis a strong cash generating business. Further, 600MW of regulated generation capacity (to serve Kolkata distribution)would come on stream next year in Haldia. However, another 600MW is ready in Chandrapur which is lookingfor coal and power purchase linkage. The losses in the retail business have reduced in the last two years and thecompany is expected to break even at the operating level in FY15. The newly acquired subsidiary, FirstSource, isperforming well in line with expectations. We retain our Buy recommendation on CESC.

Crompton Greaves � Crompton Greaves’ key businesses—industrial and power systems—hold high potential in view of the investmentopportunities in the power transmission and distribution sector. Its consumer products segment is expected towitness a high growth. Though the domestic operations remain relatively stable, but the international operationswent through a restructuring. While the European subsidiaries are on recovery path post-restructuring, thesubsidiaries in Canada and the USA are yet to turn positive. However, the management expects a turn-aroundsoon. Demerger of consumer business would unlock substantial value in the stock. Hence, we remain positive onthis stock.


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Finolex Cables � Finolex Cables, a leading manufacturer of power and communications cables, is set to benefit from an improvingdemand environment in its core business of cables and leveraging its brand strength to build a high-margin consumerproduct business (of switchgears, lamps etc). However, due to its derivative exposure in the past, it suffered lossesfollowed by valuation de-rating. More importantly, there is no more exposure hence the overhang of the derivativeshould fade away. We see healthy earnings growth, return ratios in high teens and high cash flow boding well forthe stock; hence, we remain positive on the stock.

Greaves Cotton � Greaves Cotton is a mid-sized and well-diversified engineering company. Its core competencies are in diesel/petrolengines, power gensets, agro engines, pump sets (engine segment) and construction equipment (infrastructureequipment segment). The foray in the mini tractor segment and international markets would open new growthavenues. The management has taken a strategic call to close and hive off the loss-making divisions. The stepstaken include (1) the closure of the legacy casting unit in Pune; (2) the hive-off of the engineering unit in Germany;and (3) the closure of operations at the infrastructure division. With the closure of the infrastructure business andan expected improvement in the engine business, we expect the company to return to its 15%-plus OPM level byFY16 and hence recommend a Buy with a price target of Rs155.

Kalpataru � Kalpataru Power Transmission is a leading EPC player in the transmission & distribution space in India.Opportunities in this space are likely to grow significantly, thereby providing healthy growth visibility (also currentconsol order book is 1.4x its FY14 sales). The OPM of the stand-alone business is likely to remain around 9-10%;however the OPM of JMC Projects (a subsidiary) is showing signs of improvement after a significant drop in thelast two years. Subham Logistic is also expected to contribute meaningfully to the bottom line and add value. Weretain our Buy rating.

PTC India � PTC India is a leading power trading company in India with a market share of 35-40% in the short-term tradingmarket. In the last few years, the company has made substantial investments in areas like power generationprojects and power project financing which will start contributing to its earnings. Long pending receivables wasone of the drags on the company’s balance sheet and return ratios; however, the concern has receded after receivingpayment from UPSEB. We retain Buy due to expectations of a healthy volume uptick with an increasing share oflong-term contract business.

Skipper � Skipper is uniquely placed to exploit the growing opportunities in two lucrative segments: power (transmissiontower manufacturing and EPC projects) and water (PVC pipes). It has a comfortable order book of Rs2,200 crorein the transmission business, which looks promising given the huge investments proposal by the government in thepower T&D segment in the next five years. It plans to expand the PVC capacity manifold 4x) and aspires to turna national player from a regional player. After the revamp of its low-margin steel tube business and due tooperating leverage the overall margin may improve substantially in the next two years and boost its earnings andreturn ratios. The earnings are poised to surge; hence we are positive on the stock.

Thermax � The energy and environment businesses of Thermax are direct beneficiaries of the continuous rise in India Inc’scapex. Thermax’ group book stands at Rs6,217 crore, which is around 1.4x its FY14 consolidated revenues.However, the company has shown its ability to maintain a double-digit margin in a tough environment. Themanagement sounded positive with a likely recovery in industrial capex cycle. We retain Hold on the stock due toits rich valuation.

Triveni Turbines � Triveni Turbines Ltd (TTL) is a market leader in the up to 30MW steam turbine segment. TTL is at an inflexionpoint with a strong ramp-up in the after-market segment and overseas business while the domestic market isshowing distinct signs of a pick-up. The company has also formed a JV with GE for steam turbines of 30-100MWrange which is likely to grow multifold in the next 4-5 years. TTL is virtually a debt-free company with a limitedcapex requirement and an efficient working capital cycle, reflected in very healthy return ratios. Further, boostedby the expected uptick in the domestic capex cycle, the company’s earnings are likely to grow by 25%+ per annumover the next 3-4 years.

V Guard Ind � V-Guard Industries is an established brand in the electrical and household goods space, particularly in southIndia. Over the years, it has successfully ramped up its operation and network to become a multi-product company.It has recently also forayed into regions other than the south and is particularly focusing on the tier-II and III citieswhere there is a lot of pent-up demand for its products. We expect a CAGR of 21% in its earnings over FY14-17and RoE of 22-24% during this period.

Va Tech Wabag � Chennai based VA Tech Wabag (VTW) is one of the world’s leading companies in the water treatment field witheight decades of plant building experience. Given the rising scarcity of fresh water availability, we expect flow ofhuge investments in water segment both globally and domestically. With rising urbanisation and industrialisationin India, we expect substantial investments in this space. Moreover, we expect the water segment to get substantialfocus and budgetary allocation, with the pro-reform BJP-led government at the centre. Given the large opportunityahead and inherent strengths of VTW, like professional management, niche technical expertise and global presence,we expect the earnings to grow by 23% (CAGR) during FY2014-17, and generate RoE in the range of 16-17%.We’ve initiated coverage on VTW with a price target of Rs1,900.


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Infrastructure/Real estate

Gayatri Proj � Gayatri Projects is a Hyderabad-based infrastructure company with a very strong presence in irrigation, road andindustrial construction businesses. The order book stands at Rs7,206 crore, which is 3.6x its FY13 revenues. It isalso expanding its power and road BOT portfolio and plans to unlock value by offloading stake to private equity.The company has potential to transform itself into a bigger entity.

IL&FS Trans � IL&FS Transportation Networks is India’s largest player in the BOT road segment with a pan-India presence anda diverse project portfolio. The fair mix of annuity and toll projects, and state and NHAI projects along with thegeographical diversification across 12 states reduce the risk to a large extent and provide comfort. Further, astrong pedigree along with the outsourcing of civil construction activity helps it to scale up its portfolio faster.Thus, it is well equipped to capitalise on the huge and growing opportunity in the road infrastructure sector.

IRB Infra � IRB Infrastructure Developers is the largest toll road BOT player in India and the second largest BOT operator inthe country with all its projects being toll based. It has an integrated business model with an in-house constructionarm which provides a competitive advantage in bidding for the larger projects and captures the entire value fromthe BOT asset. Further, it has a profitable portfolio as majority of its operational projects have become debt-freeand it has presence in high-growth corridors which provides healthy cash flow. Thus, it is well poised to benefitfrom the huge opportunity in the road development projects on the back of its proven execution capability and thescale of its operations.

Jaiprakash Asso � Jaiprakash Associates, India’s leading cement and construction company, is all set to reap the benefits of India’sinfrastructure spending. The company has also monetised very well the real estate properties of Yamuna Expressway.The marked improvement in the macro environment has improved accessibility to capital and thus eased theconcerns of liquidity to some extent. However, higher leverage could act as drag on the valuation.

L&T � Larsen & Toubro, being the largest engineering and construction company in India, is a direct beneficiary of thedomestic infrastructure capex cycle. The strong potential of its international business, its sound execution track recordand bulging order book, and the strong performance of subsidiaries further reinforce our faith in it. Recent measuresplanned by the company to improve its return ratios augur well. Hence, we remain positive on the stock.

Pratibha Ind � Pratibha Industries is a dominant player in water & irrigation and urban infrastructure segments. It has also diversifiedinto other high-margin areas like road BOT, power and oil & gas. The current order book stands at Rs8,000 crore,which is 3.7x its FY13 revenues. The company is facing margin pressure and higher interest expenditure on accountof the rising debt to finance working capital needs. We currently remain cautious and await positive developmentsin terms of debt and working capital requirements.

Punj Lloyd � Punj Lloyd is the second largest EPC player in the country with a global presence. However, since FY09 theprofitability has come under severe pressure due to cost overruns/liquidated damages in some of Simon Carves (asubsidiary) projects. Thus, it has put Simon Carves under administration. Further, Libyan projects will take anotherfew quarters to begin execution. Therefore, the successful execution of its projects along with debt reduction andworking capital management will drive its growth as it enjoys a robust order book.

Oil & gas

Oil India � Oil India has several hydrocarbon discoveries across reserves in Rajasthan and the north-eastern region of India.The total proven and proven and probable reserves of the company stand at 473 million barrels (mmbbls) and941mmbbls respectively. In addition to the huge oil reserves, the company’s reserve-replacement ratio is quitehealthy at 1.6x, which implies a comfortable level of accretion of oil reserves through new discoveries. Further, itoffers healthy dividend yield, which provides comfort to investors. The full benefit of the recent policy reformslike deregulation of diesel and gas price revision are expected to reflect in the FY16 numbers and augur well forthe company.

Reliance Ind � Reliance Industries holds a great promise in E&P business with gas production from the KG basin. Further, a likelyrevision in the natural gas prices will be a positive trigger. In the refining space, we expect its GRM to pick up witha likely improvement in the light-heavy crude oil price differential. The company is likely to fetch a premium overSingapore Complex’ GRM due to its superior refinery complexity and captive use of KG-D6 gas. We expect thepetrochem margins to be maintained in the medium term on an uptick in the domestic demand. Currently, the declinein gas output from the KG-D6 basin is weighing on the stock price; however, incremental capacity in the petchembusiness would be the earnings driver in the coming years.

Selan Exploration � Selan Exploration Technology is an oil E&P company with five oil fields in the oil-rich Cambay Basin of Gujarat.The initiatives taken to monetise the oil reserves in its Bakrol and Lohar oil fields are likely to improve production.Further, it intends to explore its next field, Indrora, which is the most prolific one with significant reserves. Basedon this, we expect it to ramp up production significantly, subject to approval for the new wells. We expectproduction ramp-up in FY16 and hence we expect the earnings to grow significantly in the next two to three years.


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Pharmaceuticals

Aurobindo Pharma� Aurobindo Pharma is set to post a healthy growth on the back of a ramp-up in the USA and the European market,thanks to a strong product pipeline built over a period and focus on niche segments like injectibles, hormones,penems and sterile products. The expected increase in the export-led business and a favourable tilt in the revenuemix are likely to boost the margin, resulting in a faster growth in the earnings as compared with the revenues. Ithas recently acquired the commercial operations (revenue size EUR320mn) of Actavis Plc in seven western Europeancountries and Natrol in the USA to take on the nutraceutical business, which is a strategic fit. We expect therevenues and net profit to grow at a CAGR of 25% and 17% over FY14-16 respectively.

Cadila � Cadila Healthcare’s performance in the US generic vertical is likely to improve on the back of new productapprovals. Besides, its consumer business and exports to the emerging markets will help it to achieve its target ofgenerating revenues of $3 billion by FY16. It got DCGI approval for its first NCE called Lipaglyn to treat type-IIdiabetes; this will add value to its R&D pipeline. However, recently it received an adverse observation report(Form-483) on one of its products filed with the US regulator from its Moraiya plant which will be a key overhangon the stock.

Cipla � Cipla has brought about a paradigm shift in its business strategy. To revive growth, it has (1) enhanced focus ontechnology-intensive products in the inhalation and nasal spray segments; (2) established front-end presence in thekey markets like South Africa and Europe; (3) developed an appetite for inorganic expansions; and (4) invested infuture growth areas like biosimilars. Though the rationalisation of products and creation of front-end presence inthe key markets would hurt earnings in the short term, but the base business would continue to grow steadily. Thegrowth would be fast-tracked in H2FY15 on the back of the launch of combination inhalers in Europe, ramp-upin generics in the USA and synergy from consolidation.

Divi’s Labs � The new DSN SEZ facility at Vishakhapatnam that started in June 2011 augurs well for Divi’s Laboratories. Thecompany is likely to see an improvement in economies of scale which will also lead to tax benefits after USFDAapprovals for three additional production blocks expected to come in H2FY15. A near debt-free balance sheet andstrong cash flow are likely to help build a war chest for pursuing strategic investments (biosimilars) and exploitthe growth opportunities in niche segments, like oncology and steroids for contraceptives. The company hasplanned to set up a new facility at Vishakhapatnam with an initial investments of Rs500 crore, which will startcontributing revenues from H2FY17.

Glenmark Pharma � Glenmark Pharmaceuticals exhibited an impressive operating performance during FY14 in the core business onkey generic launches, though, higher R&D expenses and tax payments restricted the profit growth. Throughsuccessful development and out-licencing of six molecules in a short span of eight years, it has become India’s bestplay on research-led innovation. It has built a pipeline of 14 molecules and clinched six out-licencing deals worth$1,672 million (active deals worth $938). It has received over $200 million as initial milestone payment. Its corebusiness has seen stupendous success due to its focus on niche specialties. It has recently announced a plan to setup a new facility in the USA to de-risk the business. We are confident of its long-term growth prospects.

Ipca Lab � Ipca Laboratories has successfully capitalised on its inherent strength of producing low-cost drugs to tap theexport markets. Its ongoing efforts in the branded formulations business in the emerging economies, the revival inthe UK operations, the pan-European initiatives, the likely approval of one additional product under institutionalbusiness and a significant scale-up in the US business will drive its formulation exports. But it has recently got anImport Alert by USFDA on its Ratlam API facility while formulation facility at Indore SEZ has already beenserved adverse inspection report (Form-483. The USFDA action is likely to hamper the US business for nearly 12to 18 months.

J B Chemicals � Two years after selling the OTC business in Russia and CIS, JB Chemicals and Pharmaceuticals has reestablisheditself in the export market while retaining leadership in the domestic branded formulation market. A major chunkof the proceeds from the sale of the OTC business has stayed in its balance sheet while the operating performanceof the company has improved in recent quarters. We expect the company to fast forward growth rates on the backof focus on regulated markets like the USA. The utlisation of surplus cash of over Rs500 crore would provide thekey trigger to the stock.

Lupin � The expected ramp-up in the launch of oral contraceptives, ophthalmic products, branded franchise (with additionof in-licenced product-Alinia and Locoid lotion) in the USA and a robust pipeline of new launches in the domesticand overseas markets provide strong growth visibility for Lupin. Further, with an expanded field force and therapyfocused marketing division, its formulation business in the domestic market has been performing better than theindustry. The deal with Eli-Lilly to distribute human insulin would open an incremental revenue stream for Lupinin the Indian market.


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Sun Pharma � The combination of Sun Pharmaceuticals, Taro, Dusa Pharma and the generic business of URL Pharma offers anexcellent business model, as has been reflected in the 42% Y-o-Y revenue growth and 59% profit growth in FY14.It has recently announced plans to acquire Ranbaxy Laboratories for $4 billion through a share swapping deal.The acquisition augurs well for the company as it will help establish a leadership position in key markets includingIndia, apart from leading to synergy of $250 million in next two years. With a strong cash balance, it is wellpositioned to capitalise on the growth opportunities and inorganic initiatives. The company has recently gotForm-483 from USFDA for its Halol facility, though the observations are not serious and we expect the resolutionto come in 3-4 months.

Torrent Pharma � A well-known name in the domestic formulation market, Torrent Pharmaceuticals has been investing in expandingits international presence. With the investment phase now over, it should start gaining from its internationaloperations in the USA, Russia and Brazil. Better field force productivity, focus on developed market and strongerbalance sheet would result in a sustainable earnings growth. It has recently acquired the 30 key brands of ElderPharma for Rs2,000 crore, which is a strategic fit in long run. The company has proposed to raise funds up toRs10,000 crore through a mix of equity and debt instruments, part of which may be used for inorganic initiatives.

Building materials

Grasim � Grasim is better placed compared with the other large players in the cement space due to its strong balance sheet, comfortabledebt/equity ratio, attractive valuation and diversified business. The demand for VSF products remains strong in the globalmarket and Grasim being a leading domestic player is well placed to capture the incremental demand.

The Ramco Cements � The Ramco Cements, one of the most cost-efficient cement producers in India, will benefit from the capacity additioncarried out ahead of its peers in the southern region. The 3mtpa expansion will provide the much-needed volumegrowth in the future. The regional demand remains lacklustre but on account of the improvement in the realisationdue to supply discipline and a likely change in the market mix its profitability will improve (marginally) in FY15.

Shree Cement � Shree Cement’s cement grinding capacity has grown to 18.2mtpa which will support its volume growth in thecoming years. It has set up 300MW power plant entirely for merchant sale which is expected to support itsrevenue growth going ahead. Thus, a volume growth of the cement division and the additional revenue accruingfrom the sale of surplus power will drive the earnings of the company.

UltraTech Cement � UltraTech Cement is India’s largest cement company with approximately 52mtpa cement capacity. It has benefitedfrom an improvement in its market mix. Further, the ramping-up of the new capacity and savings accruing fromthe new captive power plants will improve its cost efficiency.

Discretionary consumption

Century Plyboard � Century Plyboard is a leading player in the organised plywood industry with a market share of 25%. A strong growthin the sector, Century’s premium positioning and brand equity strength, and the impending GST roll-out would enableit to post a revenue growth (CAGR) of 22.1% over FY14-17. On the back of a revenue growth and better absorptionof fixed costs, the earnings are likely to grow at a much stronger rate of 49.6% CAGR over FY14-17. It is a qualityconsumer play in a niche growing segment. Its robust return ratios and strong growth potential make us positive on

the stock. We have a Buy rating on it with a price target of Rs232.

Cox & Kings: � Cox & Kings is an integrated player with a strong presence in the global leisure travel segment and the educationtourism segment in Europe. It has 30% market share in the global outbound tourism market and a market leaderin education tourism in the UK. An improving global macro environment (conducive to travel & tourism industry)and the company’s focus on de-leveraging its balance sheet will help it to achieve a double-digit earnings growthin the medium term. The stock is currently trading at a discount to some of its domestic and international peers.Hence, we recommend a Buy on it with a price target of Rs395.

Eros Intl Media � Eros International Media is one of the largest integrated film studios in India with multi-platform revenue streamsand a well-established distribution network across the globe. With its proven track record, an impressive movieslate and alliance with HBO coming into foray, it is well poised to gain from the rising discretionary spending onfilm entertainment driven by the country’s favourable demographics. Thus, it is a compelling value play on theIndian media and entertainment industry.

KKCL � Kewal Kiran Clothing is a branded apparel play with four brands in its kitty. Killer, its flagship denim brand, hascreated a niche space in the minds of consumers. With a gross market turnover of over Rs300 crore, Killer is aheadof its rival, Spykar. A strong brand profile, a disciplined management and a consistent track record coupled witha robust balance sheet make us positive on the company.


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KKDL � KKDL Ltd (erstwhile Kamala Dials and Devices) is present in the watch manufacturing business and has a strongpresence in the luxury watches retail business through subsidiary, Ethos. The watch business generates steady revenuesand cash flow with minimal capex, as no capacity is likely to come on stream and the utilisation levels are expectedto improve. The high-end retail watch business “Ethos” provides a strong growth opportunity in terms of revenuegrowth via its online venture wherein it generates leads that translate into lower customer acquisition cost and betterfixed cost management that would result in robust margin improvement and strong profit growth. This unique high-growth potential business along with the steady manufacturing business that generates free cash is attractively pricedcurrently and offers significant returns over the medium to long term. We put a Buy rating on the stock, valuing itusing the SOTP method (the manufacturing vertical is valued at 6x FY2016E earnings + the high-end Ethos is valued

at 1.2x FY2016E sales) to arrive at a price target of Rs350.

Raymond � Raymond is present in the fast-growing discretionary & lifestyle category of branded textiles and apparels. Withgrowing incomes, rise in aspirations to lead a luxurious life, greater discretionary spending and favourabledemographics, the segment of branded apparels & fabrics presents a good growth opportunity and Raymond withits brands and superior distribution set-up is very well geared to encash the same. Any development with regard tothe Thane land in the form of either joint development or disposal would lead to value unlocking and providesignificant cash to the company.

Relaxo Footwear � Relaxo Footwear is present in the fast-growing footwear category, wherein it caters to customers with its four top-of-the-mind-recall brands, viz, Hawaii, Sparx, Flite and Schoolmate. It has emerged as an attractive investmentopportunity due to its growing scale, strong brand positioning and healthy financial performance.

Speciality Rest. � Speciality Restaurants is a leading player in the fine-dining space with a portfolio of well-established brands suchas Mainland China and Sigree. It is a good proxy on the Indian consumption story as several factors such asdemographics, increasing disposable income and the trend of nuclear families are playing in its favour. Given thestrong brand franchisee, an improving outlook on the margin and a broadening of the valuation gap with comparablelisted peers, we maintain our Hold rating on the stock.

Sun TV Network � Sun TV is the undisputed leader in the south Indian TV entertainment market. The broadcasters are one of keybeneficiaries of the mandatory digitisation process initiated by the government as its implementation is expectedto lead to a six-fold increase in ARPU of cable subscribers from Rs4 currently to Rs15-20 post-DAS regime.However, on account of a delay in the implementation of DAS in phases 3 and 4 the revenue accretion is expectedto be delayed. Though it is a dominant player in the south Indian advertising market (where it enjoys a 30%market share), but its ad revenue growth has been soft in recent quarters. We believe that the delay DAS process,muted ad revenue growth and ongoing CBI enquiries will remain an overhang in the near term.

Thomas Cook (I) � Thomas Cook India Ltd (TCIL), owned by the legendary value investor Prem Watsa, is an integrated leisure traveland human service management company in India. The improvement in the domestic and global macro environmentprovides a huge growth opportunity in the Indian leisure and travel industry. Quess Corp (its human resourcemanagement business) provides exposure to the fast growing HR, office management and technology solutionsbusiness. Moreover, we see an improving financial performance of Sterling and the value unlocking potential inQuess Corp as re-rating triggers. We recommend Buy with a price target of Rs250.

Zee Entertainment � Zee Entertainment Enterprises, part of the Essel group, is one of India's leading TV media and entertainmentcompanies. It has a bouquet of 34 channels across Hindi, regional, sports and lifestyle genres. It is best placed to benefitfrom the digital addressable system regime rolled out by the government. The company has consistently outgrownthe industry in terms of advertising growth and is a leader in terms of market share. Anticipating an overallimprovement in the domestic macro environment the management expects this trend to continue going ahead.

Diversified/Miscellaneous

Aditya Birla Nuvo � We like the strong positioning that Aditya Birla Nuvo’s businesses enjoy in their respective fields. It is amongst thetop five players in the insurance, asset management and telecom segments (Idea Cellular is the fastest growing telecomcompany, third in ranking). Madura Garments, with its marquee brands, and consistent and resilient growth, is aprofitable set-up. In an improving macro-economic environment the company would be well placed to grow.

Bajaj Holdings � Bajaj Holdings & Investment Ltd (BHIL, erstwhile Bajaj Auto) was demerged in December 2007, whereby itsmanufacturing business was transferred to the new Bajaj Auto Ltd (BAL) and its strategic business consisting of thewind farm and financial services businesses was vested with Bajaj FinServ (BFS). All the businesses and properties,assets, investments and liabilities of erstwhile Bajaj Auto, other than the manufacturing and strategic ones, now remainwith BHIL. BHIL is a primary investment company focused on new business opportunities. It holds more than 30%stake each in BAL and BFS. We have a Buy recommendation on the stock with a price target of Rs1,815.

Bharti Airtel � Bharti Airtel is the leader in the Indian mobile telephony space. With the regulatory overhang receding and the industryas well as the company focusing on the quality of revenues rather than volume, better times can be expected aheadfor the sector and hence the company. We remain optimistic about the company.


BEL � Bharat Electronics, a PSU manufacturing electronic, communication and defence equipment, is benefiting from theenhanced budgetary outlay for strengthening and modernising the country’s security. The growth in revenues is alsoexpected to be aided by the civilian and export orders. The company’s current order book of around Rs23,500 croreprovides revenue visibility for the next three to four years. The huge cash reserve would also support the stock.

GDL � With its dominant presence in the container freight station segment and recent forays into the rail freight and coldchain businesses, Gateway Distriparks has evolved as an integrated logistic player. Its CFS business is a cash cowwhile its investments in the rail and cold storage businesses have started bearing fruits. It is one of the largestplayers in the CFS business and has also evolved as the largest player in the rail freight business as well as the coldstorage business. The proposed capex for all the three segments will strengthen its presence in each of the segmentsand increase its pan-India presence. We expect its revenues and net profit to grow at 20% and 16% CAGRrespectively over FY13-15.

Max India � Max India is a unique investment opportunity providing direct exposure to two sunrise industries of insuranceand healthcare services. Max New York Life, its life insurance subsidiary, is among the leading private sectorplayers, has gained the critical mass and enjoys some of the best operating parameters in the industry. As theinsurance sector is showing signs of stablisation, the company’s favourable product mix and a strong distributionchannel will result in a healthy growth in the annual premium equivalent. The company has turned profitable ona consolidated basis and has announced dividend in past couple of years.

Ratnamani Metals � Ratnamani Metals & Tubes is the largest stainless steel tube and pipe maker in India. In spite of the challenging businessenvironment due to increasing competition, the stock is attractively valued. The management has maintained a strongoutlook on the potential opportunities in the oil & gas sector and inter-connection of the rivers across the country.

Supreme Ind � Supreme Industries is a leading manufacturer of plastic products with a significant presence across piping, packaging,industrial and consumer segments. The management has guided for a volume growth of 12-15% and OPM of12.5-13.5% for FY15.The company is witnessing traction in the composite cylinder and bathroom fitting businessesalong with a gradual pick-up in pipes and other CPVC products. PVC prices are also expected to stabilise in thenext few months. We have a Hold rating with a price target of Rs620 (valuation of 18X FY17E largely factors inmost of the positives including revival of plastic volumes.

Technocraft Ind � Technocraft Industries India Ltd (TIIL; a diversified player with interests in drum closures, scaffoldings, yarn andgarments) is the second largest player globally in the drum closure manufacturing space (market share of 35%).While drum closure business (the cash cow with high margin and return ratios) is expected to grow steadily, thescaffolding & formwork business is set to grow above 20% annually for the next couple of years. The financialhealth is expected to improve steadily with a leaner balance sheet, healthy return ratios and cash flow; however,the stock is attractively trading at 5x FY16E earnings and 2x FY16E EBITDA. We remain positive on the stock.

United Phos � A leading global producer of crop protection products, intermediates, specialty chemicals and other industrialchemicals, United Phosphorus has presence across value-added agricultural inputs ranging from seeds to cropprotection products and post-harvest activities. A diversified geography and the recent acquisition of DVA AgroBrazil will help the company to have a strong presence in the Brazilian market and aid in inorganic growth. Itsrevenues are likely to grow at 12-15% and EBIDTA margin is expected to remain at 18-20% in FY15. It has alsostarted to focus on premium products in agro-chemicals and will slowly stop selling commodities and low-marginproducts.


sharekhan valueguide 1 february 2015sharekhan valueguide 3 february 2015 the stock market began the...

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