India Strategy & Top Ideas: Investment Argument, Financials & Valuation Discussion

Prabhudas Lilladher
Click to edit Master titleSeptember 2012 style
India Strategy & Top Ideas

Investment Argument, Financials & Valuation discussion
Ajay Bodke AjayBodke@plindia.com +91-22-66322210
Prabhudas Lilladher Pvt. Ltd. and/or its associates (the 'Firm') does and/or seeks to do business with companies covered in its research reports. As a result investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of the report. Investors should consider this report as only a single factor in making their investment decision. Please refer to important disclosures and disclaimers at the end of the report.
Prabhudas Lilladher
Contents
Page No. 4 5 6 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 Top Pick Summary Large-Caps Coal India Infosys HDFC ICICI Bank Cairn India Power Grid Corporation Axis Bank Ranbaxy Laboratories Mid-Caps Petronet LNG YES Bank Motherson Sumi Systems Torrent Pharmaceuticals IPCA Voltas Amara Raja Batteries NIIT Technologies Persistent Systems KEC International Page No. 23 25 28 30 32 34 37 39 41
Global Economy Mixed signals continue to emanate from the US economy What Mario Draghi has proposed, Will the German Constitutional Court dispose? Chinese economy: Slowdown continues, Massive pump priming announced Indian economy Languishing GDP growth August brings cheer on the monsoon front Shome panel recommendations on GAAR Fusillade of exposes from the national auditor (CAG) stuns the nation Worries over macro-economic stability & growth sustainability singe Indian economy Markets Global Equity Markets Performance Indian Equities Sector Performance India: Marketcap-wise Performance Global Currency Movement India: FII/DII Equity Flows Global Agricultural Commodities Global Industrial Commodities Nifty Valuation Nifty Valuations: Historic Trends Indian Markets
(Prices as on September 10, 2012)
46 49 52 55 57 59 62 64 66 68
September 10, 2012
Prabhudas Lilladher
GLOBAL ECONOMY
September 10, 2012
Prabhudas Lilladher
Mixed signals continue to emanate from the US economy

Retail sales are estimated to grow at 0.9% in Aug12 following a 0.8% advance in July12. However rising food & fuel prices and stubbornly high unemployment rate is expected to act as a dampener for continuing the buoyancy in 2HCY12 ISM index of non-manufacturing activity (i.e. services firms which contribute 70% of US GDP) grew to 53.7 in Aug12 vis--vis 52.6 in July12 due to a jump in hiring. It is 32 straight month of growth for services sector Strength in services offset by weakness in manufacturing. ISM index of manufacturing activity shrank in Aug12 to 49.6 from 49.8 in July12- the lowest reading in three years due to a fall in new orders, production and employment Construction spending dropped by 0.9% in July12 (the first decline since March12) verses an estimated growth of 0.4% and a growth of 0.4% in June12 due to both public and private sector cutting back on investments All eyes on the US FOMC meeting on 12th and 13th Sept12 where the Fed is expected to announce third round of unsterilized asset purchases (QE3) and possibly indicate that federal funds rate would continue to remain at near-zero levels beyond late 2014 U.S. GDP is expected to grow at 2% in 3QCY12 following 1.7% growth in 2QCY12, 2% in 1QCY12 and 4.1% in 4QCY11
Sharp slowdown in job growth in Aug12. Non-farm payrolls grew by 96000 sharply lower than consensus estimates of 125000 and 141000 jobs added in July12 (The average for 1QCY12 and 2 QCY12 is 226000 and 76000 respectively) Unemployment rate falls to 8.1% against expected 8.3% and down from 8.3% in July12. Unemployment above 8% for 43rd consecutive month, holding an ominous portend for President Obamas reelection prospects in November Broader gauge of jobless rate measured by percentage of Americans who are either unemployed or are working part-time as they could not find full-time employment or have given up hope and not looking for jobs has fallen to 14.7% in Aug12 from 15% in July12 The participation rate i.e. the labor force as a percentage of the population as a whole has fallen to 63.5%- the lowest since Sept81 Uncertainly related to Euro debt crisis, US fiscal policy & fiscal cliff, November polls holding back executives from fresh hiring University of Michigans (UM) Aug12 Consumer sentiment gauge at 3-month high at 74.3. Consumption was bolstered by price discounts, low interest rates & success in trimming debt UMs gauge of Consumer Expectations in Aug12 fell to 65.1 from 65.5 last month- its lowest level since Dec 01 due to belief that financial situation today is worse than five-years ago and no wage gain expected over next year In Aug12, Conference Boards Consumer Confidence Index hits its lowest level since Nov 11 partly due to higher petrol prices
September 10, 2012
Prabhudas Lilladher
What Mario Draghi has proposed, Will the German Constitutional Court dispose?
Program to help lower sovereign debt yields of stricken nations but would impose a painful austerity program on already battered nations with record-high double digit unemployment rates and spike-up social strife Draghi justifies that the program does not violate ECBs mandate as it would be buying in secondary markets and not funding governments directly in primary markets Bond yields fall, equities look up and euro strengthens in the wake of Draghis announcement. But it remains whether the citizenry in Spain & Italy will react to the strict conditionality in a manner similar to that in Greece Global markets are watching with trepidation at the ruling of the German Constitutional Court expected this week on whether to grant temporary injunction to petitioner and disallow the German President from signing into law the EUs permanent 500-billion-euro rescue fund European Stability Mechanism (ESM) and European Fiscal Pact- both of which have already been approved by a twothirds majority by the German Parliament in end-June12. If the Court were to throw out the petitioners plea, the German President can then sign the ESM and European fiscal pact immediately. ESM was to come into effect from July 1, 2012. If the Court were to grant temporary injection, it would inject turmoil in the markets. Markets believe that ESM is more-or-less similar to the current temporary rescue fund of EU European Financial and Stability Fund (EFSF) and the Court had last year approved EFSF An injunction would strengthen the worries that the Court may be inclined to finally rule that ESM and European Fiscal Pact are incompatible with Germans Basic Law. (Basic Law demands that Germany cannot surrender its budgetary sovereignty without necessary democratic backing) 5
The composite PMI for euro-zone rose fell to 46.3 in Aug12 from 46.5 in July12 indicating a continued contraction in business activity in the crisis-ridden region due to sharp declines in new orders for both manufacturing & services sectors and further job losses PMI for services fell to 47.2 from 47.9 in July12 seventh straight month of contraction Despite cutting prices, manufacturing PMI in Aug12 was at 45.1 (thirteenth straight month of contraction) above July12s three-year low of 44.0. Germany- Europes manufacturing powerhouse saw sixth consecutive month of contraction at 44.7 Spain & Italy see severe decline in economic activity while Germany & France witness modest downturns Unemployment rate in Euro zone remained at record high at 11.3% in July12 (same as June12). Spain at 25% and Austria at 4.5% recorded the highest and the lowest rates in the 17 member zone. Under 25-age group jobless rate hovers above 50% in Spain and Greece Euro-zone GDP is expected to contract between 0.2 to 0.5% in 3QCY12 on the back of 0.2% contraction in 2QCY12 confirming a recession Mario Draghi announced ECBs unlimited bond buying program for debt-stricken members, targeting shorter end maturities between 1 and 3 years, renouncing ECBs seniority (i.e. bonds purchased by it will be on a par with other lenders) and confirming that bond buying would be sterilized (to allay apprehensions of flare-up in money supply & inflation amongst hawks like Germanys Bundesbank), purchases to be revealed on a weekly and monthly basis Most importantly, strict & effective conditionality attached i.e. any country wanting to be rescued must first submit to outside oversight on fiscal matters
September 10, 2012
Prabhudas Lilladher

Chinese economy: Slowdown continues, Massive pump priming announced
Chinas HSBC manufacturing PMI fell to 47.6 in Aug12 - its lowest level since Mar09 while its services PMI fell to 52.0 in Aug12 from 53.1 in July12 Contraction in manufacturing expected to feed into slowly growing services sector (that account for 43% of GDP) Curbs in real estate sector and slowdown in Chinas export markets have weighed heavily on growth Retail sales were up by 13.2% in Aug12 in line with estimates. Inflation perked up to 2% from July12s 30-month low of 1.8% and with rising house prices will limit scope for further rate cuts GDP in 2QCY12 had grown at three-year low of 7.8% and the trend is expected to continue in 3QCY12 with growth lower at 7.4% Central Bank has cut interest rates twice since June12, trimmed reserve requirements thrice by 0.5% each since Nov11, loosened bank lending norms, given a push to some high profile investment projects and sought to cut red tape and bureaucratic hurdles for businesses Government has unveiled a US $150 billion program to push 60 large infrastructure projects to kick-start growth. This program is roughly a fourth in size to that launched after the Lehman crisis
September 10, 2012
Prabhudas Lilladher
INDIAN ECONOMY
September 10, 2012
Prabhudas Lilladher
Languishing GDP growth
Indias GDP growth in 1QFY13 languished at near three-year lows and grew at 5.5% as against 5.3% in 4QFY12. Agriculture grew at 2.9% (vis--vis 3.7% yoy), manufacturing at anemic 0.2% (vis--vis a robust 7.3% yoy) and most concerning was the hitherto growth engine of services growth which grew at decade-low of just 6.9% vis--vis 10% in 1QFY12
In ominous sign of slowing consumption, Indias real private final consumption has slowed down to a 29-month low at 4% yoy
Gross fixed capital formation has come to a virtual standstill and grown at a paltry 0.4% Investment rate (Gross fixed capital formation/GDP) fell to 29.9% in 1QFY13 from 31.2% in 1QFY12
With no revival in sight for capital expenditure cycle, slowing consumption, weak (although lately reviving) monsoons and synchronized global slowdown impacting exports, we expect Indias GDP to grow between 5.25% to 5.75% in FY13
Marking a year of uninterrupted monthly growth, Indias services sector PMI in Aug12 grew to 55.0 from 54.2 in July12 possibly reducing hopes of a rate cut from RBI in its meeting scheduled later in Sept12. New business Index at 55.9 (54.7 in July12) rose to a six-monthly high and index measuring future business expectations also grew at the fastest pace since April12. Indias manufacturing PMI in Aug12 fell to a nine-month low of 52.8 from 52.9 in July12. Slowing exports and major power outages in the early part of Aug12 were responsible for this fall
September 10, 2012
Prabhudas Lilladher
August brings cheer on the monsoon front
Indias monsoon deficiency came down to just 9% due to a surplus rain in August. This contrasts with a whopping 31% deficiency in June and 13% in July that had prompted the government to roll out some emergency drought relief measures 26 out of 36 meteorological divisions have received excess or normal monsoons with nine sub-divisions receiving deficient (deficiency ranges from 28% to 60%) and one (Saurashtra & Kutch) receiving scanty rainfall The grain bowl states of Northwest India (Punjab, Haryana etc) have received heavy rains in the last fortnight and the regions deficiency has reduced to just 13% Improvement in moisture content in soil and adequate filling in of major reservoirs will help a better winter (rabi) crop especially in wheat growing Northwestern States and alleviate concerns on drinking water problems over next one year WPI inflation for Aug12 to be announced by RBI on Sept 14, 2012 is expected to inch-up to 7% vis--vis 6.9% in July12 although core inflation is expected to continue to remain around 5% due to limited pricing power among producers. Any hike in diesel prices expected to be announced next week would feed into inflation going forward. A 10% hike in diesel prices would add nearly 0.8% to WPI inflation
September 10, 2012
Prabhudas Lilladher

Shome panel recommendations on GAAR
The Prime Minister appointed Parthasarathi Shome Committee set up to address investor concerns on GAAR has proposed a deferral of the controversial tax proposal by three years from FY14 till FY17 GAAR was aimed at investors and companies routing money through tax havens
GAAR to be applicable only if the tax threshold is above Rs 30 million

Abolition of capital gains tax on sale of listed securities by both resident and non-resident investors Increase in STT to make good loss from abolition of capital gains tax on listed securities No invocation of GAAR provisions to examine genuineness of residency of entities routing money through Mauritius which happens to be the most preferred route for investment by non-residents in India. India has a double taxation avoidance agreement with Mauritius which has no capital gains tax Recommendation on so-called indirect transfers or overseas deals in which some or all of underlying assets are Indian will be made public by Sept-end. Government in its last Budget had passed a tax amendment bringing such deals under the ambit of taxation with retrospective effect affecting many deals including Vodafone Plcs purchase of an overseas firm having substantial underlying telecom assets in India from Hutchison
September 10, 2012
10
Prabhudas Lilladher
Fusillade of exposes from the national auditor (CAG) stuns the nation
CAG estimated a presumptive loss of Rs 29000 crores (US$ 5.27 billion) to the government by allowing Reliance Power to divert excess coal from its Sasan plant (tariff Rs 1.196/unit) to Chitrangi plant (tariff Rs 2.450 for MP and Rs 3.702 for UP) after the award of Sasan project A presumptive loss of Rs 24000 crores (US$ 4.36 billion) (the estimated market value) to the government due to award of 239 acres of land for building terminal at throwaway rate of Rs 100 per annum and allowing the Delhi airport operator to charge user development fee after signing the initial agreement Supreme Court appointed Justice Shah Commission in its final report submitted to the Parliament has concluded that illegal mining to the tune of Rs 35000 crores (US$ 6.36 billion) took place in the State of Goa over the last ten years and has blamed several top politicians and bureaucrats for not taking action. It has recommended closing down of several mines and asked the State government to verify clearances as it found dubious environmental clearances granted to many mines According to another CAG report failure to complete 16 hydroelectric projects on time resulted in cost overruns of Rs 14700 crores (US$ 2.67 billion), missing of 10-year power generation target of 11813 MW and actual generation of a measly 1150 MW, a loss of Rs 10000 crores (US$ 1.81 billion) caused by the Power Ministry by not following proper procedures and trying to help private companies at the cost of the exchequer
The monsoon session saw a complete washout amidst a fusillade of CAG reports that galvanized the Opposition which targeted the government and did not allow the Parliament to function. Only 4 bills were passed as against 30 listed for debate amidst acrimonious scenes over an alleged scam dubbed as Coalgate Indias national auditor CAG has in its report to the Parliament has estimated a presumptive loss of Rs 186000 crores (nearly US $ 33.81 billion) to the public exchequer due to nonadoption of transparent competitive bidding route by the government in allocation of 44 billion tons of coal through 194 mining concessions to private sector companies The Opposition has demanded cancelation of all coal mine allotments and resignation of the Prime Minister who was holding the charge of Coal Ministry when the allotments took place The federal investigator (CBI) has already filed five cases against companies alleging misrepresentation of facts, fraud, forgery and criminal conspiracy between the concessionaires and some politicians and bureaucrats. It is examining some more cases too Coalgate dwarfs the previous record of 2G telecom scam where the national auditor had estimated a presumptive loss of Rs 176000 crores (US$ 32 billion)
September 10, 2012
11
Prabhudas Lilladher
Worries over macro-economic stability & growth sustainability singe Indian economy
We expect a large slippage in fiscal deficit of atleast 1% to 6.1% from a budgeted target of 5.1% entailing a large Rs 100000 crores of additional gross borrowing. This would put further pressure on the governments already humungous gross borrowing program of Rs 570000 crores and constrain RBIs pace and extent of interest rate reduction over the next few quarters We expect the current account deficit in FY13 to decrease to 3.5% of GDP (from 4.2% in FY12) based on lesser gold imports and sharp fall in rupee (from Rs 45 to Rs 55 per US$ over last 12-15 months) against most global currencies benefiting India terms of trade positively especially vis--vis other competing exporting powerhouse China Global crude oil prices unfortunately have shown tremendous resilience even in the wake of anemic global growth. This could possibly be due to surge in global systemic liquidity in the wake of mammoth bond buying programs unveiled by various Central Banks. After plunging from US$ 125/barrel in March12 to a low of US$ 90/barrel in June12, Brent Crude firmed up to US$ 113/barrel since start of Aug12 In the wake of toxic political discourse no meaningful reforms have happened over past several years. The government must utilize the eight-week window between the end of monsoon session and elections in the politically crucial state of Gujarat in Nov12 to push through reforms
The plunge in investor sentiment is symptomatic of the general sense of drift in decision-making in the government and its inability to push through reforms and improve macroeconomic stability If the government is serious about avoiding a downgrade in Indias credit rating it needs to urgently spell out a credible and transparent fiscal consolidation plan over the medium term Control of gargantuan amounts of wasteful subsidies towards various interest groups need to be curtailed and an immediate beginning needs to be made by atleast hiking diesel, kerosene and LPG prices if not partially de-controlling them. The last hike was done in June 2011 and the prices have since then soared by 28%. Prices of petrol which is decontrolled on paper by the government must be allowed to be hiked by the Oil marketing companies (OMC) to immediately stop their hemorrhaging OMCs are losing nearly Rs 551 crores per day due to losses incurred by selling various auto & cooking fuels below cost. Losses on various fuels are diesel Rs 17/liter, kerosene Rs 32.7/liter and domestic LPG Rs 337 per cylinder. At current prices total under-recoveries are estimated to cross Rs 200000 crores (US$ 36 billion) in FY13 if there is no price hike Government needs to aggressively pursue its ambitious disinvestment target of Rs 30000 crores and target from auction of 2G spectrum of Rs 40000 crores
September 10, 2012
12
Prabhudas Lilladher

Global Equity Markets Performance

Month-on-Month
4.0% 3.0% 2.0% 1.0% 0.0% -1.0% -2.0% -3.0% -4.0% -5.0% 2.7%
1.1%
MoM: US equities continued to lead, India returns 0.5% while Hong Kong is the worst performer CYTD: India fairs the best among emerging markets YoY: US performance towers over other markets
0.0%
-0.1%
-0.2%
-0.4%
-0.5%
-0.5%
-3.9%
Russia Brazil
Indonesia
S.Korea
Japan
India
FTSE
S&P
Source: Bloomberg, PL Research
Calendar Year-to-date
4.0% 2.0% 0.0% -2.0% -4.0% -6.0% -8.0% -10.0% -12.0% -14.0% -16.0%
2.1%
Year-on-Year
1.7%
-0.1%
25.0%
0.6%
20.8%
20.0%
15.0%
-2.7%
10.0% -6.6% -10.1% -14.2%

FTSE Brazil
-6.8%
8.2%
5.0%
0.0%
1.2%
2.4%
1.9%
1.1% -1.3%
-5.0% -10.0%
S&P Hong Kong
-3.5%
FTSE Hong Kong
-6.5%
Russia Brazil Indonesia S.Korea Japan India
Russia
Indonesia
S.Korea
Japan
S&P
India
September 10, 2012
Hong Kong
13
Prabhudas Lilladher
Indian Equities Sector Performance

Month-on-Month
15.0%
10.0%
MoM: IT, FMCG, Healthcare relatively outperform while Realty, Metals, Banks and Capital Goods relatively underperform
9.9% 4.8%
1.7%
5.0%
0.0%
1.5% -1.9%
-5.0%
-10.0%
-3.9% -2.7%
-6.2% -6.2%
-15.0%
-7.9% -9.2%
25.0% 20.0% 15.0% 10.0% 5.0% 0.0% -5.0% -10.0% -15.0% -20.0%
19.4%
Year-on-Year
40.0% 30.0% 20.0% 10.0% 0.0% -10.0% -20.0% -30.0%
33.7% 23.1%
14.4% 4.2%
-1.3%
15.9% 5.4%
-6.1%
-1.8%
-9.2%
-5.9% -5.9% -14.2% -13.0%
-7.1%
-6.9% -17.0% -26.4% -26.4% -25.3%

-16.9%
September 10, 2012
14
Prabhudas Lilladher
India: Marketcap-wise Performance

Month-on-Month
0.0% -0.5%
-1.0%
Large-Caps outperform Mid-Caps and Small Caps over all the periods
-1.5%
-2.0% -2.5%
-1.0%
-1.0%
-1.0%
-3.0%
-3.5%
-2.9% BSE Small Cap BSE Midcap BSE500 BSE100
1.0% 0.5% 0.0% -0.5% -1.0% -1.5% -2.0%
-2.5% -3.0% BSE Small Cap -2.6% BSE Midcap BSE500 BSE100
Year-on-Year
2.0% 0.4% 0.0% -2.0% 0.0% -4.0% -6.0%
-1.1%
0.2%
-1.4%
-8.0% -10.0%
-12.0% -14.0% -12.9% BSE Small Cap
-6.9%
BSE Midcap
BSE500
BSE100
September 10, 2012
15
Prabhudas Lilladher
Global Currency Movement

Month-on-Month
1.9%
1.8%
1.0%
2.0% 1.0%
1.2%
Falling commodity prices hit currencies of commodity exporting countries like Australia, Russia, Indonesia, Brazil
3.0%
2.2%
0.4%
0.3%
0.0%
-0.3%
-0.4%
-0.5%
-0.5%
-0.5%
-1.0%
-0.4%
-3.0%
5.1%
Year-on-Year
-10.0%
2.5%
-8.2%
6.0% 4.0% 2.0% 0.0% -2.0% -4.0% -6.0% -8.0% -10.0% -12.0%
0.0%
-0.2% -2.4% -0.1% -0.6% -3.8%
-5.0%
-9.0% -8.2%
-18.2%
-8.6%
1.6%
5.0%
-17.0%
0.7%
0.6%
1.5%
-1.7%
-1.4%
-2.0%
-1.2%
-0.5%
-1.1%
-1.2%
-0.7%
-4.0%
-1.7%
-4.6%
-15.0%
-20.0%
September 10, 2012
-10.7%
-5.3%
-5.4%
-7.4%
-10.0%
-5.2%
-2.8%
-2.7%
16
Prabhudas Lilladher
India: FII/DII Equity Flows

DII (CYTD net cash market, Rs -253.3 bn)
FII (CYTD) net cash market, Rs 533.2 bn)
Heavy FII inflows (~Rs411bn) 300.0 DII's sell (~Rs221bn)

200.0 100.0
0.0 -100.0 -200.0 Jan-12 Feb-12 Mar-12 Apr-12 May-12 Jun-12
FII's net buying at Rs ~141.1 bn in JulAug'12 , DII's net sells Rs 59.2 bn
Jul-12 Aug-12 Sep-12
India acts as a magnet for FIIs flows: Not-so-expensive valuations, lower-than-before though mid-single digit expected GDP growth amidst global turmoil severely impacting other large economies Net Selling by DIIs continues unabated
17
September 10, 2012
Prabhudas Lilladher
Global Agricultural Commodities

Month-on-Month Performance
Palm Oil Sugar Corn Soya
Performance of Global Agricultural Commodities

140 130 120 110 100 90 80 70 60 50
14-Sep-11 5-Oct-11 26-Oct-11
Rice Wheat
15%
10% 10%
5% 0% Sharp spike post mid June

8-Feb-12
29-Feb-12
-5%
-2%
-2%
-1%
18-Jan-12
21-Mar-12
7-Dec-11
28-Dec-11
13-Jun-12
25-Jul-12
23-May-12
16-Nov-11
15-Aug-12
11-Apr-12
2-May-12
5-Sep-12
4-Jul-12
-10% -10%
-15% -14% Sugar Rice Palm Oil Wheat Corn Soya
*Price in US$
Soya, Corn, Wheat lead global agricultural commodities rally over the year MoM: Sugar comes off on fears of glut
September 10, 2012
18
Prabhudas Lilladher

Global Industrial Commodities

Month-on-Month
12%
10%
MoM: Lead leads global industrial commodites YoY: Thermal Coal falls the most, Brent Crude defies other falling commodities
10%
8% 7%
9%
6% 6%
4%
2%
0%
1%
1%
Thermal Coal Brent crude
Copper
Nickel
Aluminium
Lead
*Price in US$
10.0% 5.0%
0.0%
Year-on-Year
6.3%
7.2%
5% 0%
-5%
0%
3.2%
-10% -5.0%
-10.0% -3.6% -15% -20%
-9% -14% -15%
-15.0%
-20.0%
-14.2%
Thermal Coal Brent crude Copper Nickel
-13.9%
Aluminium Lead
-25%
-30% -27% Thermal Coal Brent crude
-24% Copper Nickel Aluminium Lead
*Price in US$
*Price in US$
September 10, 2012
19
Prabhudas Lilladher
Banking & Fin. PER (x) PAT Growth (%) Technology PER (x) PAT Growth (%) Oil & Gas PER (x) PAT Growth (%) FMCG PER (x) PAT Growth (%) Eng. & Power PER (x) PAT Growth (%) Auto PER (x) PAT Growth (%) Metals PER (x) PAT Growth (%) Pharma PER (x) PAT Growth (%)
Nifty Valuation
FY11 16.6 26.8 FY12 13.1 26.8 FY13E 11.1 17.7 FY14E 9.6 15.6 Cement PER (x) PAT Growth (%) Telecom PER (x) PAT Growth (%) Real Estate PER (x) PAT Growth (%) Nifty as on Sep 10 45.1 27.2 36.2 24.6 30.8 17.7 25.8 19.2 EPS (Rs) - Free Float Growth (%) PER (x) EPS (Rs) - Free Float Nifty Cons. Var. (PLe v/s Cons.) (%) Weightage (%) 2.7% FY11 18.3 (23.6) 1.9% 16.3 (37.9) 0.4% 22.3 (15.0) 5,363 337.8 16.6 15.9 339.6 0.6 15.8 385.3 13.4 13.9 439.4 14.0 12.2 28.0 (20.5) 27.4 2.2 22.0 24.6 21.7 (25.1) 11.7 86.5 9.1 28.2 FY12 16.6 10.3 FY13E 13.7 20.8 FY14E 11.9 14.9
Weightage (%) 27.2%
13.4% 24.6 16.9 13.2% 11.9 30.6 12.8% 10.6 12.2 10.8 (1.6) 9.8 9.3 20.1 22.3 17.0 18.5 14.9 13.9
9.8% 15.6 11.0 8.1% 13.0 90.0 6.0% 10.8 27.3 4.5% 32.5 44.9 24.3 33.9 20.2 20.3 21.9 (7.8) 11.5 (5.9) 10.2 13.2 8.7 16.6 10.7 21.3 10.4 3.5 8.9 17.1 16.0 (2.6) 14.4 11.1 13.0 11.0
337.8 -
339.6 -
394.5 (2.3)
449.4 (2.2)
Sensex as on Sep 10 EPS (Rs) - Free Float Growth (%) PER (x) Sensex Cons. Var. (PLe v/s Cons.) (%)
17,767 1,109.6 9.5 16.0 1,109.6 1,100.9 (0.8) 16.1 1,100.9 1,212.5 10.1 14.7 1,250.2 (3.0) 1,391.3 14.7 12.8 1,412.6 (1.5)
September 10, 2012
20
Prabhudas Lilladher
Nifty 1 year forward P/E
30.0 25.0
Nifty Valuations: Historic Trends

MSCI India Premium to MSCI Asia (ExJapan)
100%
80% 60%
Average 12.8
20.0
15.0
10 year Avg. 33%
40% 20% 0%
-20%
10.0
5.0
Jun-02
Jun-03
Jun-04
Jun-05
Dec-05
Dec-06
Jun-07
Dec-07
Jun-08
Dec-08
Jun-09
Dec-09
Jun-10
Jun-11
Dec-11
Jun-12
Jun-02
Dec-03
Jun-04
Dec-04
Jun-05
Dec-05
Dec-06
Jun-07
Jun-08
Dec-08
Jun-09
Dec-09
Jun-10
Dec-10
Dec-11
Dec-02
Dec-03
Dec-04
Dec-10
Dec-02
Dec-07
After showing an anemic growth of 0.6% in FY12 (Rs 339.6) over FY 11 (Rs 337.8), we expect free float Nifty EPS to rise 13.4% to Rs 385.3 in FY13 and 14.0% to Rs 439.4 in FY14. At 5,363 levels as on September 10, 2012, Nifty is trading at 13.9x FY13E earnings and 12.2x FY14E earnings. The last ten-year average for Niftys one year forward multiple is 12.8x. Thus, Nifty is currently trading at 13.0x i.e. at a marginal premium of 1.6% to its ten-year average of one-year forward multiple (based on Sept.13 Nifty estimated EPS of Rs 412.4) limiting further scope for upside on an expansion of PE basis. A sustainable up move from the current levels, in our view, would depend entirely on strong measures to kick-start reforms. MSCI India is currently trading at a premium of 37% to MSCI Asia (ex-Japan). Last ten-years-average premium at which India has traded is 33%.
September 10, 2012
21
Jun-12
Jun-06
Jun-03
Jun-06
Jun-11
Prabhudas Lilladher
Indian Markets
Despite the macro-economic concerns, rapidly slowing growth and no movement on reforms from the Central government; FIIs have poured in Rs533.2 billion in India since 1st January 2012 as we expect Indias GDP to grow between 5.25% to 5.75% GDP growth in FY13. This contrasts against a contacting Europe, slowing US which is also facing a massive and disruptive fiscal cliff, global slowdown in demand for commodities affecting commodity-exportpowerhouses like Australia, Brazil, Russia, South Africa, Nigeria & Gulf countries; and China which would be hard hit by slowdown in its export markets, massive mal-investment risks in infrastructure haunting its banking system, slump in housing market and once-in-a-decade change in its highest decision making body of Communist Politburo, President & Prime Minister In the wake of ECBs bond-buying program, hopes are building up that the Fed will do an encore and unveil QE3, adding to the global glut in liquidity. This is benefiting risk-on trade and equities have lately surged and bond yields of troubled European countries have retreated whilst those of safe haven countries like Germany and US have risen As Indian valuations are not-too-expensive from historical perspective, we believe, the markets would find support at 5000 levels despite plethora of problems dogging the economy with continuing gush of FII flows providing a cushion. On the upside markets could move to 5500-5600 levels. Any decisive breach above these levels would depend on the government getting its act together and acting in a decisive and focused manner to push reforms and jolting investors out of a feeling of ennui towards the Indian economy.
September 10, 2012
22
Prabhudas Lilladher
Top Pick Summary

CMP (Rs.) TP (Rs) Upside Mcap (Rs bn) Revenue Growth (%) 2013E 2014E Earnings Growth (%) 2013E 2014E RoE (%) 2013E 2014E PER (x) 2013E 2014E P/BV (x) 2013E 2014E 367 2,512 741 934 340 122 953 560 390 2,850 800 1,100 403 133 1,350 625 6.3% 13.4% 7.9% 17.7% 18.6% 9.1% 41.7% 11.6% 2,316.2 1,437.1 1,094.7 1,079.3 652.2 564.6 393.8 235.2 8.0 14.5 25.0 22.3 39.4 30.3 19.5 32.5 8.4 12.2 19.2 17.6 10.1 18.2 21.7 (17.7) 8.6 15.2 15.7 21.5 24.6 20.6 10.6 115.5 15.1 14.2 17.2 15.9 (4.9) 12.9 17.5 (48.3) 34.7 25.8 22.4 12.4 19.0 14.3 19.5 46.1 31.7 24.3 21.5 13.2 15.9 14.9 19.4 17.8 14.5 15.0 23.0 13.7 6.6 14.4 8.4 9.7 12.6 13.1 19.6 11.9 6.9 12.7 7.1 18.7 4.5 3.5 4.5 1.6 1.2 2.0 1.5 3.6 3.6 2.9 4.0 1.5 1.0 1.7 1.3 3.1
Large Cap Coal India Infosys HDFC ICICI Bank Cairn India Power Grid Corporation Axis Bank Ranbaxy Laboratories Mid-Caps Petronet LNG YES Bank Motherson Sumi Systems Torrent Pharmaceuticals IPCA Voltas Amara Raja Batteries NIIT Technologies Persistent Systems KEC International 162 333 198 696 444 112 388 285 388 57 176 450 218 879 559 127 417 350 460 70 8.9% 35.1% 9.9% 26.3% 25.8% 13.5% 7.4% 23.0% 18.6% 23.5% 121.4 117.6 77.7 58.9 56.0 37.0 33.2 17.0 15.5 14.7 45.9 31.0 77.1 21.2 16.6 (4.8) 18.0 21.0 17.9 15.2 28.8 25.3 15.3 16.0 17.1 11.5 12.6 14.6 13.8 15.3 (3.3) 20.8 57.4 45.6 40.8 274.3 29.4 17.2 27.5 19.1 (2.1) 24.3 15.8 19.0 29.4 16.4 16.4 18.5 12.6 25.4 26.7 22.7 29.2 30.8 27.6 17.1 29.6 22.8 19.6 18.3 21.9 23.1 27.1 29.1 28.5 16.9 27.1 22.9 18.5 19.2 11.6 10.0 12.6 14.1 14.4 13.4 11.9 7.4 8.6 6.6 11.9 8.0 10.9 11.9 11.1 11.5 10.2 6.2 7.6 5.3 2.8 2.1 3.3 3.9 3.6 2.1 3.1 1.6 1.5 1.1 2.4 1.7 2.7 3.1 2.8 1.8 2.5 1.3 1.3 0.9
September 10, 2012
23
Prabhudas Lilladher
LARGE CAP
September 10, 2012
24
Prabhudas Coal India Lilladher CMP: Rs367 TP: Rs390

Price pooling and revised penalty to come only if it is not earnings dilutive: The last Board meeting on July 31, 2012 turned inconclusive owing to apprehensions of the board associated with price pooling and revised penalty. This clearly vindicates the candid investor-friendly policy of the Board. We believe that price pooling should be mechanized in a manner that it does not raise risks for pricing of its coal. However, we were surprised on the revision of penalty since it was nowhere considered in PMOs latest directive. Nevertheless, we are confident that Coal India would be able to meet its trigger levels of 65%, underscoring the risk of penalty. Concerns overdone on FSA deadlock and cut in e-auction volumes: Management guided that increased supplies to power sector would lessen its e-auction quantity from the existing 10% to 7% of the total quantity by the end of FY17. However, we do not see any concerns on E-auction volumes in the next 2-3 years, given the logistic bottlenecks and FSA deadlock. Incremental risks to earnings associated with Presidential directive were alleviated by the Board in the form of putting insignificant penalties in new model FSAs. Valuations in attractive territory: Thanks to 6% volume growth and nominal 3% increase in flat realisations, we expect CILs earnings to grow at a CAGR of 15% during FY12-14, despite sharp increase in the wage cost. We value the stock at Rs390, P/E of 12.5x FY13E operational EPS of Rs23.1 and cash per share of Rs102. We believe that valuations are justified, given the sustainable RoEs in excess of 30%. Risks: Key risks to our recommendation remains. 1) Lower-than-expected growth in sales volumes and 2) approval of MMDRA act.
Rating: BUY
Key Financials (Rs m) Y/e March Revenue (Rs m) Growth (%) EBITDA (Rs m) PAT (Rs m) EPS (Rs) Growth (%) Net DPS (Rs) FY10 446,153 15.0 105,360 96,580 15.3 369.2 3.5 FY11 502,293 12.6 134,776 108,957 17.3 12.8 3.9
MCap: Rs2,316.2bn
FY12 624,154 24.3 156,387 147,263 23.3 35.2 10.0 FY13E 673,786 8.0 174,485 159,870 25.3 8.6 5.6 FY14E 730,219 8.4 196,491 183,980 29.1 15.1 6.5
Source: Company Data, PL Research Profitability & valuation Y/e March EBITDA margin (%) RoE (%) RoCE (%) EV / sales (x) EV / EBITDA (x) PER (x) P / BV (x) Net dividend yield (%) FY10 23.6 43.1 37.6 4.4 18.5 24.0 9.0 1.0 FY11 26.8 36.9 33.3 3.7 13.9 21.3 7.0 1.1 FY12 25.1 39.9 36.7 2.9 11.5 15.7 5.7 2.7 FY13E 25.9 34.7 32.2 2.5 9.6 14.5 4.5 1.5 FY14E 26.9 31.7 29.7 2.1 7.9 12.6 3.6 1.8
Source: Company Data, PL Research Stock Performance (%) Absolute Relative to Sensex 1M 5.2 4.0 6M 9.1 7.6 12M (3.8) (9.1)
September 10, 2012
25
Prabhudas Lilladher
Y/e March Raw coal prod (mn tn) Coal despatches (mn tn) Vol sold under FSA/MoU (mn tn) Vol sold under E-auction (mn tn) Beneficiated coal vol (mn tn) Vol sold to power utilities (mn tn) Real. / tonne (Rs) Total cost per tonne (Rs) Cash cost per tonne (Rs) Employee cost / tonne (Rs) EBITDA / tonne (Rs) OBR adj / tonne (Rs) Source: Company Data, PL Research
Figures in (Rs m) PAT Interest income Interest income adjusted for tax
Operating Metrics
Coal India
FY09 403.7 399.9 330.5 48.9 14.9 295.5 964.4 746.6 682.9 355.5 61.5 41.2 FY10 431.3 415.2 352.2 43.1 14.6 298.0 1,070.1 945.5 793.7 437.1 253.7 53.9 FY11 431.3 423.7 356.2 47.7 15.5 304.2 1,170.3 833.3 731.3 386.2 318.1 70.8 FY12 432.2 432.2 362.1 50.9 16.9 312.0 1,427.5 867.5 806.1 438.9 361.8 60.7 FY13E 459.1 459.1 386.3 51.3 16.9 337.0 1,449.2 1,082.3 971.6 584.3 380.0 84.8 FY14E 482.1 482.1 409.0 45.4 21.7 370.0 1,492.0 1,087.5 978.3 575.1 407.5 80.5
Core PAT including OBR adjustment (Rs mn) Core EPS P/E Valuation per share on Core EPS Net cash per share Price target
FY13 146,422 23.2 12.5 290 100 390
FY12 147,263 50,001 33,778 138,439 23,052 15,573 122,866 19.5
FY13 159,867 56,869 38,418 146,422 35,994 24,316 122,106 19.3 14.7 285 100 385 118.8 3.2 28.0 24,973
FY14 183,978 61,725 41,698 169,291 38,070 25,718 143,573 22.7 12.0 273 118 391 142.1 2.7 25.8 27,011
Pure mining profit including OBR adjustment 26% share of pure mining profit (before tax benefit) Amount adjusted for tax Operational PAT after 26% profit sharing Operational EPS adjusted for 26% profit sharing and OBR adj P/E Valuation per share on operational EPS Net Cash per share Price target Book value P/BV at our target RoE (%) OBR adjustment (Tax adjusted)
79
96.1
24,954
September 10, 2012
26
Prabhudas Lilladher
Income Statement (Rs m) Y/e March Net Revenue Direct Expenses % of Net Sales Employee Cost % of Net Sales SG&A Expenses % of Net Sales Other Expenses % of Net Sales EBITDA Margin (%) Depreciation PBIT Interest Expenses PBT Total tax Effective Tax rate (%) PAT Extraordinary Gain/(Loss) Adjusted PAT
Financials
Coal India
Balance Sheet (Rs m)
FY10 446,153 59,994 13.4 166,555 37.3 0.0 114,243 25.6 105,360 23.6 13,138 92,066 886 139,649 43,425 31.1 96,224 (356) 96,580
FY11 502,293 58,073 11.6 189,318 37.7 0.0 120,125 23.9 134,776 26.8 17,654 117,122 737 164,531 55,959 34.0 108,639 (385) 108,957
FY12 624,154 71,355 11.4 252,536 40.5 0.0 143,876 23.1 156,387 25.1 19,402 136,986 540 212,549 64,790 30.5 147,882 496 147,263
FY13E 673,786 83,142 12.3 264,059 39.2 0.0 152,100 22.6 174,485 25.9 21,161 153,323 583 231,696 71,826 31.0 159,870 159,870
FY14E 730,219 91,693 12.6 276,628 37.9 0.0 165,407 22.7 196,491 26.9 19,172 177,319 632 262,829 78,849 30.0 183,980 183,980
Y/e March Share Capital Reserves & Surplus Shareholder's Fund Preference Share Capital Total Debt Other Liabilities(net) Deferred Tax Liability Total Liabilities Gross Block Less: Depreciation Net Block Capital Work in Progress Cash & Cash Equivalent Total Current Assets Total Current Liabilities Net Current Assets Other Assets Total Assets
FY10 63,164 194,789 257,952 19,631 15,010 292,594 349,453 229,099 120,354 22,107 403,603 543,248 415,557 127,691 9,620 292,594
FY11 63,164 270,008 333,172 15,536 16,540 365,247 367,211 238,782 128,429 22,181 469,260 643,960 448,725 195,235 8,766 365,247
FY12 63,164 341,368 404,531 14,536 20,411 439,478 404,809 258,184 146,626 26,311 538,041 722,086 474,948 247,138 8,766 439,478
FY13E 63,164 453,277 516,440 13,536 24,789 554,765 441,646 279,345 162,301 31,311 657,226 848,952 507,202 341,750 8,766 554,765
FY14E 63,164 582,063 645,227 12,536 29,448 687,211 493,574 298,517 195,057 26,311 791,447 991,631 545,191 446,439 8,766 687,211
Source: Company Data, PL Research
September 10, 2012
27
Prabhudas Infosys Lilladher CMP: Rs2,512
TP: Rs2,850
Rating: BUY
MCap: Rs1,437.1bn
FY12 337,340 22.7 107,160 83,160 145.4 21.9 31.5 FY13E 386,420 14.5 124,780 95,821 167.5 15.2 37.9 FY14E 433,711 12.2 139,119 109,463 191.4 14.2 44.9
Weak Q1FY13 Trouble bottoming out: Top clients ramp-down which troubled Infosys through H2FY11 are bottoming out. The consistent underperformance from top clients is reaching a nadir. We expect ramp-down to spill over in H1FY13. We are factoring 1% negative impact due to the same in Q2FY13.
New pricing strategy to boost volume growth: Infosys reported one of the sharpest declines in realization, since the Lehman crisis. The realization dip in Q1FY13 was attributed to multiple reasons like cross-currency (0.7%), revenue write-back (0.9%) and portfolio shift (~0.4%). On a like-to-like business comparison, pricing for Infosys declined by ~1.7% QoQ compared to TCS 1.06% QoQ. We expect weakness in pricing environment to persist because of two reasons: 1) Aggressive marketing to grab the market share 2) Commoditized businesses have no nuances to offer to clients. However, the pricing cut may or may not always be accompanied by volume growth. Attributing realization dip to one particular reason is tough as there are multiple moving parts to its calculation. We expect volume growth to pick-up in H2FY13 (despite being seasonally weak quarter) as the new strategy (for both vendor consolidation and new projects) would drive the growth for the company post Q2FY13.
Strong client addition Not captured in performance: Infosys added highest number of clients among the peers over the last four quarters. However, the quarterly performance didnt add-up to the same. We expect ramp-up of projects from the client win to result in a positive surprise. We expect the ramp-up to start driving the growth for the company. Event Risk Cannot be ruled out: The month of August will witness the trial of Jay Palmer case. Any verdict against Infosys could result in further downside risk to the stock price. However, the language of the verdict remains the key as it will clarify the doubt over deliberation. Trough valuation to restrict further derating: Infosys is currently trading at 13.1x FY14E earnings estimate, a trough valuation at which it traded post Lehman crisis. Retain BUY due to valuation comfort, with a target price of Rs2,850.
Source: Company Data, PL Research Stock Performance (%) Absolute Relative to Sensex 1M 8.6 7.4 6M (11.6) (13.1) 12M 10.9 5.6
September 10, 2012
28
Prabhudas Lilladher
Financials
Infosys
FY10 227,420 120,710 53.1 0.0 28,100 12.4 0.0 78,610 34.6 9,050 69,560 78,990 16,810 21.3 62,660 62,660
FY11 275,010 150,540 54.7 0.0 34,830 12.7 0.0 89,640 32.6 8,620 81,020 93,130 24,900 26.7 68,230 68,230
FY12 337,340 188,710 55.9 0.0 41,470 12.3 0.0 107,160 31.8 9,370 97,790 116,830 33,670 28.8 83,160 83,160
FY13E 386,420 214,137 55.4 0.0 47,503 12.3 0.0 124,780 32.3 11,913 112,867 133,085 37,264 28.0 95,821 95,821
FY14E 433,711 241,319 55.6 0.0 53,273 12.3 0.0 139,119 32.1 13,129 125,990 147,923 38,460 26.0 109,463 109,463
FY10 2,860 230,490 230,490 78,390 28,930 49,460 4,090 142,680 182,370 44,550 137,820 2,000 230,490
FY11 2,860 239,350 273,030 3,190 276,220 80,980 32,540 48,440 168,760 234,790 36,410 198,380 27,300 276,220
FY12 2,860 300,860 334,610 1,090 120 335,820 90,300 36,210 54,090 209,680 298,690 47,660 251,030 26,930 335,820
FY13E 2,860 374,976 408,726 1,090 120 409,936 106,916 46,153 60,763 270,842 370,823 52,350 318,473 26,930 409,936
FY14E 2,860 458,736 492,486 1,090 120 493,696 124,698 57,376 67,322 341,447 452,343 56,669 395,674 26,930 493,696
September 10, 2012
29
Prabhudas HDFC Lilladher CMP: Rs741
TP: Rs800
Rating: BUY
Key Financials (Rs m) Y/e March Net interest income Growth (%) PPP PAT EPS (Rs) Growth (%) Net DPS (Rs) FY10 32,771 12.3 39,740 28,265 19.7 22.7 7.2 FY11 41,335 26.1 49,370 35,350 24.1 22.4 9.0
MCap: Rs1,135.3bn
FY12 49,765 20.4 57,456 41,226 27.9 15.8 11.0 FY13E 62,220 25.0 69,542 49,462 32.3 15.7 13.2 FY14E 74,155 19.2 81,570 57,975 37.8 17.2 15.5
Consistent growth with limited or no asset quality risks: HDFC has been delivering 20% plus PAT growth consistently. Coupled with this, HDFC has excellent track record in maintaining robust asset quality. High ROEs to sustain; mortgage valuation extremely reasonable: Though reported ROEs are at 21-22%, ROEs adjusted for subsidiary investments and also interest on zero coupon bonds is +24-25% which we expect will sustain. We envisage no regulatory or asset quality risks for the bank, plus the large de-rating on the stock relating to technical factors (secondary sale by strategic investors). We believe mortgage business valuations is extremely reasonable at <3.0x 1-yr fwd book. IFRS accounting to address accounting concerns if any: ZCB issuance has been in line with investments in subsidiaries (not consolidated) and we see limited impact from reserve accounting for ZCB interests. Moreover, HDFC is moving to IFRS accounting from Q2FY13 and that would address investor concerns, if any. Consolidated ROEs remain at ~22-23% even after factoring in ZCB interests.
Source: Company Data, PL Research Profitability & valuation Y/e March NIM (%) RoE (%) RoA (%) P / BV (x) P / ABV (x) PE (x) Net dividend yield (%) FY10 121.3 20.0 2.6 7.0 7.0 37.6 1.0 FY11 119.4 21.7 2.8 6.3 6.3 30.8 1.2 FY12 115.5 22.7 2.7 5.8 5.8 26.6 1.5 FY13E 111.8 22.4 2.7 4.5 4.5 23.0 1.8 FY14E 110.0 21.5 2.7 4.0 4.0 19.6 2.1
Source: Company Data, PL Research Stock Performance (%) Absolute Relative to Sensex 1M 7.4 6.2 6M 8.9 7.4 12M 12.0 6.7
September 10, 2012
30
Prabhudas Lilladher
Income Statement (Rs m) Y/e March Int. Inc. / Operating Inc. Interest Expenses Net interest income Growth (%) Non interest income Growth (%) Net operating income Expenditure Employees Other expenses Depreciation Total expenditure PPP Growth (%) Provision Other income Exchange Gain / (Loss) Profit before tax Tax Effective tax rate (%) PAT Growth (%)
Financials
HDFC
FY10 103,402 70,631 32,771 12.3 10,206 53.2 42,978 1,467 1,771 3,238 39,740 21.6 580 39,160 10,895 27.8 28,265 23.8
FY11 116,934 75,599 41,335 26.1 11,847 16.1 53,181 1,755 2,056 3,812 49,370 24.2 700 48,670 13,320 27.4 35,350 25.1
FY12 161,333 111,568 49,765 20.4 12,210 3.1 61,975 2,058 2,461 4,519 57,456 16.4 800 56,656 15,430 27.2 41,226 16.6
FY13E 188,615 126,395 62,220 25.0 12,554 2.8 74,775 2,367 2,865 5,232 69,542 21.0 880 68,662 19,201 28.0 49,462 20.0
FY14E 226,627 152,472 74,155 19.2 13,476 7.3 87,631 2,722 3,339 6,061 81,570 17.3 968 80,602 22,628 28.1 57,975 17.2
Y/e March Sources of funds Equity Reserves & Surplus Networth Growth (%) Loan funds Growth (%) Others Minority Interest Deferred tax liability Total Application of funds Net fixed assets Advances Growth (%) Net current assets Investments Growth (%) Other Assets Total
FY10 2,871 142,446 151,977 15.7 734,842 14.0 230,811 48,030 1,165,659 2,221 979,670 15.0 113,884 13,201 1.0 56,684 1,165,659
FY11 2,934 163,572 173,165 13.9 907,854 23.5 246,251 67,751 1,395,021 2,340 1,171,266 19.6 121,537 20,955 58.7 78,923 1,395,021
FY12 2,954 180,563 190,176 9.8 1,028,347 13.3 362,928 93,749 1,675,199 2,340 1,408,746 20.3 112,350 39,205 87.1 112,559 1,675,199
FY13E 3,063 242,550 252,273 32.7 1,208,347 17.5 422,928 93,749 1,977,297 2,325 1,684,892 19.6 140,729 22,949 (41.5) 126,403 1,977,297
FY14E 3,063 276,831 286,554 13.6 1,413,347 17.0 552,928 93,749 2,346,578 2,295 2,025,259 20.2 153,642 22,949 142,432 2,346,578
September 10, 2012
31
Prabhudas ICICI Bank Lilladher CMP: Rs934 TP: Rs1,100

Core growth, key to banks ROE expansion, sees pick-up: Bank seems to be coming out of the consolidation phase set in the aftermath of the global economic crisis. The banks Q1FY13 loan growth and margin performances has surprised us positively and inspires confidence of improving core growth trends and sustenance of robust asset quality in FY13.
Rating: BUY
Key Financials (Rs m) Y/e March Net interest income Growth (%) Operating profit PAT EPS (Rs) Growth (%) Net DPS (Rs) FY10 81,141 -3.0 97,319 40,248 36.1 6.9 12.0 FY11 90,169 11.1 90,476 51,514 44.7 23.9 14.0
MCap: Rs1,079.3bn
FY12 107,342 19.0 103,865 64,653 56.0 25.1 14.0 FY13E 131,311 22.3 129,986 78,535 68.0 21.5 17.0 FY14E 154,445 17.6 154,013 91,008 78.8 15.9 19.7
Lending business return ratios converging to industry levels: Low return ratios has been the primary reason for relatively low valuations for ICICIs lending business. ROAs have inched up from ~1.0% in FY09 to ~1.5% in FY12 and we expect margin expansion to drive ROAs to ~1.6%. Core lending business ROEs is expected to improve from 11% in FY10 to 15.516% in FY14 driving lower valuation discount to peers.
Asset quality performance comforting; CDR pipeline extremely limited: Gross NPAs have inched up marginally but slippages levels seem reasonable and credit costs at ~70bps is in line with management guidance and lower than our expectations for FY13. Current restructuring pipeline is also extremely low providing comfort. Valuations: Current valuations are trading at 1.6x FY13 book. Improving ROEs, pending growth in balance sheet could imply better multiples. We have a Mar 13-target price of Rs 1,100 per share, implying FY13 P/B of 1.95x.
Source: Company Data, PL Research Profitability & valuation Y/e March NIM (%) RoAE (%) RoAA (%) P / BV (x) P / ABV (x) PE (x) Net dividend yield (%) FY10 119.9 8.0 1.1 2.0 2.1 25.9 1.3 FY11 100.3 9.7 1.3 2.0 2.0 20.9 1.5 FY12 96.8 11.2 1.5 1.8 1.8 16.7 1.5 FY13E 99.0 12.4 1.6 1.6 1.6 13.7 1.8 FY14E 99.7 13.2 1.6 1.5 1.5 11.9 2.1
Source: Company Data, PL Research Stock Performance (%) Absolute Relative to Sensex 1M (2.1) (3.3) 6M 2.2 0.7 12M 4.2 (1.2)
September 10, 2012
32
Prabhudas Lilladher
Income Statement (Rs m) Y/e March Int. Earned from Adv. Int. Earned from Invt. Others Total Interest Income Interest expense NII Growth (%) Treasury Income NTNII Non Interest Income Total Income Growth (%) Operating Expense Operating Profit Growth (%) NPA Provisions Investment Provisions Total Provisions PBT Tax Provisions Effective Tax Rate (%) PAT Growth (%)
Financials
ICICI Bank
Balance Sheet (Rs m) FY10 10 1,115 11,149 516,184 477,773 2,020,826 (7.4) 842,818 41.7 3,634,656 1,812,056 (17.0) 1,208,928 3,634,655 FY11 10 1,152 11,518 550,909 526,836 2,256,021 11.6 1,016,465 45.1 4,062,336 2,163,659 19.4 1,346,859 4,062,336 FY12 10 1,155 11,552 604,052 585,444 2,555,000 13.3 1,110,194 43.5 4,736,471 2,537,277 17.3 1,595,600 4,736,471 FY13E 10 1,155 11,552 659,603 638,428 2,995,777 17.3 1,304,715 43.6 5,272,929 2,917,868 15.0 1,702,078 5,272,929 FY14E 10 1,155 11,552 723,976 698,671 3,560,326 18.8 1,554,147 43.7 6,132,489 3,399,316 16.5 1,962,952 6,132,489
FY10 173,727 64,663 257,067 175,926 81,141 (3.0) 8,662 66,115 74,777 331,844 (14.2) 58,598 97,319 9.0 43,722 (27) 43,969 53,351 13,103 24.6 40,248 7.1
FY11 164,248 79,052 259,740 169,571 90,169 11.1 (2,023) 68,501 66,479 326,219 (1.7) 66,172 90,476 (7.0) 19,769 2,038 22,868 67,607 16,093 23.8 51,514 28.0
FY12 221,299 96,840 335,427 228,085 107,342 19.0 (757) 75,784 75,028 410,454 25.8 78,504 103,865 14.8 9,932 4,132 15,891 87,973 23,321 26.5 64,653 25.5
FY13E 259,119 113,373 391,508 260,197 131,311 22.3 4,000 85,627 89,627 481,135 17.2 90,953 129,986 25.1 21,404 1,000 22,404 107,582 29,047 27.0 78,535 21.5
FY14E 293,749 127,783 443,271 288,827 154,445 17.6 4,500 99,584 104,084 547,355 13.8 104,515 154,013 18.5 28,345 1,000 29,345 124,668 33,660 27.0 91,008 15.9
Y/e March Par Value No. of equity shares Equity Networth Adj. Networth Deposits Growth (%) Low Cost deposits % of total deposits Total Liabilities Net Advances Growth (%) Investments Total Assets
September 10, 2012
33
Prabhudas Cairn India Lilladher CMP: Rs340 TP: Rs403

Exploratory upsides yet to be priced in: Cairn upgraded its estimate of gross risked prospective resources to 530m boe from 250m boe in April 2012. However, as exploration period for the Rajasthan block expired in 2005, street has not accorded value to the exploratory upsides. As per news reports, DGH will soon convene a Management Committee meeting of the Block. We don`t see any reason why the extension in the exploration period will not be granted, and thus, we expect the news flows on exploratory upside to be positive, going ahead. It must be noted here that under the clause b (4) of the exploration policy, if the exploration period expires, there is a provision to carry out the work programme further. Some examples where extensions have been granted are GSPC Blocks, CB-ONN/2005/1 & CB/ON/2, Essar Block CB-ON/3 and HOEC Block CB-ON/7. We ascribe a value of Rs88/share (to 530m boe at 40% discount to MBA implied EV/boe). Strong business fundamentals: Strong production volumes growth (~50% over next two years) backed up by a strong reserve base (1.7bn boe) along with high FCF yields (~ 10% at current market price) makes Cairn India a strong fundamental investment idea. We believe, increased capex to increase production is likely to defer peak government profit share. Moreover, targeted production increase to 300kbpd is likely to provide further growth visibility over the current estimated peak output of 240kbpd, which might lead investors to value Cairn as a growing concern. Likely announcement of the special dividend post the reorganization is another near-term trigger for the investors. Rupee hedge: With crude oil increasingly being treated as a financial asset, there is a strong negative correlation between dollar index and crude oil prices. At times of correction in crude, weakness in rupee is likely to support earnings. We estimate crude oil prices to average at US$100/bbls and US$105/bbls for FY13 and FY14, respectively, with OPEC playing the balancing act in case of demand declines.
Rating: Accumulate
Key Financials (Rs m) Y/e March Revenue (Rs m) Growth (%) EBITDA (Rs m) PAT (Rs m) EPS (Rs) Growth (%) Net DPS (Rs) FY10 16,230 13.3 9,874 7,901 4.1 (7.1) 0.0 FY11 102,779 533.3 84,117 63,344 32.4 696.0 0.0
MCap: Rs652.2bn
FY12 118,607 15.4 95,533 79,377 41.4 27.9 0.0 FY13E 165,300 39.4 124,700 98,898 51.6 24.6 10.3 FY14E 181,923 10.1 132,701 94,041 49.0 (4.9) 9.8
Source: Company Data, PL Research Stock Performance (%) Absolute Relative to Sensex 1M 4.8 3.6 6M (9.4) (10.9) 12M 19.7 14.3
September 10, 2012
34
Prabhudas Lilladher
Operating Metrics
Cairn India
SOTP (Rs m)
105.0 419 423 427 432 436 440 445 110.0 428 433 437 442 446 451 455 Particulars Rajasthan Block RJ-ON-90/1(MBA block) Value per share RJ-ON-90/1(MBA EOR) Value per share RJ-ON-90/1(Barmer Hill) Value per share RJ-ON-90/1(Southern fields) Value per share RJ-ON-90/1(Other fields) Value per share Value of Rajasthan Block Value per share CB-OS-2 Value per share Ravva Value per share Exploratory porfolio upsides Value per share Total Net debt Value per share Corporate expenditure Value per share Equity value Equity value per share (Rs/share) Equity shares (mn) Source: PL Research FY2013 339,845 178.2 72,139 37.8 31,483 16.5 12,667 6.6 59,112 31.0 515,246 270.1 3,116 1.6 15,575 8.2 191,090 100.2 725,027 (63,513) (33.3) 20,559 10.8 767,981 403 1,907 Crude Oil Prices (US$ / bbl) 85.0 380 384 388 392 396 400 403 90.0 391 395 399 403 406 410 413 95.0 401 405 409 412 416 420 423 100.0 410 414 418 421 426 430 434
Target Price Sensitivity with Crude and Exchange Rate

80.0 45.0 Exchange Rate (Rs / US$) 46.0 47.0 48.0 49.0 50.0 51.0 Source: PL Research 368 372 376 380 384 388 392
Target Price Sensitivity with Crude and Discount Rate

Crude Oil Prices (US$ / bbl) 80.0 85.0 90.0 95.0 100.0 105.0 110.0
10.5%
11.0% Discount Rate 11.5% 12.0% 12.5% 13.0% 13.5% Source: PL Research
389
386 383 380 378 375 373
401
398 395 392 389 387 384
412
409 406 403 400 397 394
423
419 416 412 409 406 403
432
429 425 421 418 415 412
443
439 435 432 428 425 421
454
450 446 442 438 434 431
September 10, 2012
35
Prabhudas Lilladher
Financials
Cairn India
FY10 16,230 3,882 23.9 1,102 6.8 1,372 8.5 0.0 9,874 60.8 3,866 6,008 148 9,937 2,036 20.5 7,901 7,901
FY11 102,779 14,907 14.5 1,105 1.1 2,651 2.6 0.0 84,117 81.8 13,596 70,521 2,909 68,900 5,556 8.1 63,344 63,344
FY12 118,607 20,277 17.1 889 0.7 1,908 1.6 0.0 95,533 80.5 17,391 78,141 2,258 84,235 4,857 5.8 79,377 79,377
FY13E 165,300 37,803 22.9 889 0.5 1,908 1.2 0.0 124,700 75.4 18,044 106,657 2,253 111,014 12,115 10.9 98,898 98,898
FY14E 181,923 46,425 25.5 889 0.5 1,908 1.0 0.0 132,701 72.9 22,744 109,957 117,876 23,835 20.2 94,041 94,041
FY10 19,434 319,250 338,683 34,007 4,453 377,144 2,228 958 1,270 26,418 23,734 14,806 8,928 349,822 377,144
FY11 19,574 382,416 401,990 26,782 5,612 434,384 66,539 7,304 59,236 55,792 79,608 29,266 50,343 313,861 434,384
FY12 19,184 463,737 482,921 12,518 6,738 502,177 73,639 14,346 59,294 88,491 128,382 32,255 96,127 328,401 502,177
FY13E 19,184 538,112 557,296 12,518 7,196 577,010 77,189 21,451 55,738 151,234 201,973 43,371 158,602 344,315 577,010
FY14E 19,184 610,148 629,332 7,673 637,005 80,739 28,883 51,856 199,604 254,535 46,984 207,551 359,243 637,005
September 10, 2012
36
Prabhudas Power Grid Corporation Lilladher CMP: Rs122 TP: Rs133 Rating: BUY
Increasing capitalization to drive earnings: We expect capitalization to increase to Rs167bn in FY17E from Rs71bn in FY11 and regulated equity base to increase by 2.6x to Rs435bn in FY17, resulting in earnings CAGR of 16% over FY12-17E. The CWIP in balance sheet has also increased 2x to Rs266bn in FY11 from Rs132bn in FY09, indicating higher capitalization over the next few years. The management highlighted that it is highly focused on execution and ambitiously looking at reducing CWIP in FY13 despite huge capex plans of Rs200bn in FY13. This effectively means that the management is indicating capitalization numbers of ~Rs200-210bn for FY13. PWGR reported capitalization of Rs40.72bn for Q1FY13 . It has further capitalized assets worth Rs10bn in July till date taking the total capitalization to Rs50bn. The management had earlier indicated capitalization of ~Rs200bn for FY13 and sounded confident and on track to achieve the same.
MCap: Rs564.6bn
FY12 100,353 19.6 83,824 32,549 7.0 20.5 2.1 FY13E 130,810 30.3 114,393 39,262 8.5 20.6 2.5 FY14E 154,574 18.2 136,844 48,680 9.6 12.9 2.9
Trying to address investor concerns: PWGR, in its analyst meet, highlighted most common concerns raised by the investors and put forward its point of view on the same: (1) Dilution (it highlighted that PWGR can avoid dilution by tweaking D:E ratio and working with lower than prescribed D:E ratio of 70:30 for 1-2 years) (2) Risk of lower RoE by regulator for next tariff period (it highlighted that historically RoE for tariff period has been decided based on prevailing SBI PLR in order period and current high PLR does not suggest a case for lowering RoE in next tariff period) (3) Delay by IPP (it highlighted that it has checks and balance at various stages to ensure synchronized commissioning of line with generation and regulatory support in case of unintentional delay beyond PWG control. (4) plans after XII plan capex (it tried to give a flavour of likely capex in XIII and size and areas of opportunities in XIII plan)
Relative a better bet: We believe PWGR remains the safest play in the Power Utilities space which has been facing multiple issue of coal shortage, deteriorating SEB finances etc. PWGR is immune to fuel risk and faces relatively moderate land acquisition issues as compared to IPPs. We expect the company to deliver 16% EPS growth over FY12-17E with core RoEs of ~17.6% over the same period.
September 10, 2012
37
Prabhudas Lilladher
Financials
Power Grid Corporation
FY10 71,275 5,074 7.1 7,267 10.2 0.0 0.0 58,933 82.7 19,815 39,118 15,432 26,261 5,854 22.3 20,407 20,629
FY11 83,887 5,857 7.0 7,459 8.9 0.0 0.0 70,572 84.1 21,610 48,961 17,339 38,247 11,278 29.5 26,969 27,009
FY12 100,353 8,100 8.1 8,430 8.4 0.0 0.0 83,824 83.5 25,725 58,099 19,432 45,975 13,426 29.2 32,549 32,549
FY13E 130,810 6,831 5.2 9,586 7.3 0.0 0.0 114,393 87.4 37,461 76,932 31,195 52,350 13,087 25.0 39,262 39,262
FY14E 154,574 7,378 4.8 10,353 6.7 0.0 0.0 136,844 88.5 44,361 92,483 36,515 64,907 16,227 25.0 48,680 48,680
FY10 42,088 141,455 183,543 344,168 7,035 534,746 432,022 111,410 320,612 204,222 47,309 96,273 100,929 (4,656) 36 534,747
FY11 46,297 190,847 237,144 408,828 11,467 657,438 503,518 131,278 372,240 266,246 50,452 105,171 99,893 5,279 22 657,438
FY12 46,297 216,343 262,592 522,009 16,009 800,610 634,362 157,003 477,359 281,099 36,213 137,691 121,502 16,189 13,119 800,610
FY13E 46,297 239,320 285,617 662,009 16,009 963,635 814,362 194,464 619,898 301,099 58,584 162,953 131,836 31,117 (24) 963,635
FY14E 50,841 318,830 369,672 772,009 16,009 1,157,689 964,362 238,824 725,538 351,099 120,215 215,053 144,220 70,832 (24) 1,157,689
September 10, 2012
38
Prabhudas Axis Bank Lilladher CMP: Rs953 TP: Rs1,350

Valuation discount on asset quality concerns seems exaggerated: We believe the street is assigning discount valuations to AXIS v/s peers, given the latter's high exposure to SME book (~20%). However, asset quality trends exhibits much better underwriting standards at the bank as against the PSUs. Though asset quality concern arising from the relatively unseasoned power exposure remain, low CDR pipeline and strong asset quality show in H2FY13, imply limited negative surprise on asset quality in the near term. High return ratios to sustain: Axis Banks ROAs improved significantly between FY08-11, driven by improving margins and strong fee income growth. Though the fee income has shown signs of moderation, we expect the ROAs to sustain at >1.5% led by stable growth in core income, stable opex and manageable asset quality. Valuations: Current valuations are trading at 1.65x FY13 book. Though restructuring and rating data suggest some inchup in asset quality stress, we believe stress levels are manageable (net slippages of <1%).We have a Sep-13 target of Rs 1,350 per share, implying FY13 P/B of 2.1x.
Rating: BUY
Key Financials (Rs m) Y/e March Net interest income Growth (%) Operating profit PAT EPS (Rs) Growth (%) Net DPS (Rs) FY10 50,064 36.0 52,092 24,791 61.2 21.2 12.0 FY11 65,630 31.1 64,157 33,884 82.5 34.9 14.0
MCap: Rs404.8bn
FY12 80,177 22.2 74,309 42,422 102.7 24.4 16.0 FY13E 95,816 19.5 88,481 48,253 113.6 10.6 17.0 FY14E 116,627 21.7 105,147 56,690 133.5 17.5 18.0
Source: Company Data, PL Research Stock Performance (%) Absolute Relative to Sensex 1M (10.9) (12.1) 6M (21.5) (23.0) 12M (13.6) (19.0)
September 10, 2012
39
Prabhudas Lilladher
Financials
Axis Bank
FY10 79,866 34,283 116,391 66,326 50,064 36.0 7,100 32,552 39,652 156,043 13.5 37,624 52,092 39.9 14,126 (222) 13,888 38,204 13,413 35.1 24,791 36.7
FY11 104,031 44,387 151,548 85,918 65,630 31.1 3,593 42,728 46,321 197,869 26.8 47,794 64,157 23.2 11,363 993 12,800 51,356 17,472 34.0 33,884 36.7
FY12 153,794 63,943 219,946 139,769 80,177 22.2 931 53,271 54,202 274,149 38.6 60,071 74,309 15.8 10,996 581 11,430 62,878 20,456 32.5 42,422 25.2
FY13E 184,661 78,770 265,887 170,071 95,816 19.5 3,500 62,164 65,664 331,551 20.9 72,998 88,481 19.1 17,560 (600) 16,960 71,521 23,268 32.5 48,253 13.7
FY14E 212,732 94,444 309,926 193,299 116,627 21.7 4,500 72,632 77,132 387,057 16.7 88,612 105,147 18.8 21,120 21,120 84,027 27,337 32.5 56,690 17.5
FY10 10 405 4,052 160,444 156,254 1,412,787 20.4 660,241 46.7 1,806,419 1,043,431 27.9 559,748 1,806,419
FY11 10 411 4,105 189,988 185,884 1,892,376 33.9 777,673 41.1 2,427,129 1,424,076 36.5 719,916 2,427,129
FY12 10 413 4,132 228,085 223,359 2,201,043 16.3 914,220 41.5 2,856,278 1,697,595 19.2 931,921 2,856,278
FY13E 10 425 4,248 268,005 261,604 2,572,533 16.9 1,067,601 41.5 3,349,551 1,994,675 17.5 1,091,030 3,349,551
FY14E 10 425 4,248 315,750 307,279 3,048,772 18.5 1,268,289 41.6 3,972,444 2,373,663 19.0 1,289,300 3,972,444
September 10, 2012
40
Prabhudas Ranbaxy Laboratories Lilladher CMP: Rs560 TP: Rs625 Rating: BUY
India's largest pharmaceutical company with presence in 23 of the top 25 pharmaceutical markets of the world Global footprint in 46 countries, world-class manufacturing facilities in 7 countries and serves customers in over 125 countries Focus on Anti-infective, Urology, Respiratory, Anti- inflammatory and Metabolic disorders segments (acute segment contributes >70% to overall domestic business) Became subsidiary of Daiichi Sankyo (DS), one of the largest pharmaceuticals companies in Japan, in 2008 (acquired Ranbaxy stake for US$ 4 bn, at price of Rs 735 per share) Pursuing Hybrid business model In talks with USFDA to resolve issues surrounding its Dewas and Paonta Sahib facilities (created US$ 500 mn provision towards settlement with DOJ) Entered into Vaccines/Biotech space with Biovel acquisition in 2010 in India. Focusing on Hybrid model by launching Daiichi pipeline products in key strategic markets (including India, Romania, Spain, Mexico)
Profitability & valuation Y/e Dec EBITDA margin (%) RoE (%) RoCE (%) EV / sales (x) EV / EBITDA (x) PER (x) P / BV (x) Net dividend yield (%) CY09 11.6 3.6 2.5 3.3 28.6 159.8 5.6 0.0 CY10 20.8 19.0 10.8 2.7 13.2 25.4 4.2 0.4 Key Financials (Rs m) Y/e Dec Revenue (Rs m) Growth (%) EBITDA (Rs m) PAT (Rs m) EPS (Rs) Growth (%) Net DPS (Rs) CY09 77,902 10.1 9,056 1,472 3.5 (74.1) 0.0 CY10 89,608 15.0 18,652 9,267 22.1 529.6 2.0
MCap: Rs236.3bn
CY11 101,614 13.4 16,190 11,300 26.9 21.9 0.0 CY12E 134,668 32.5 36,047 24,471 58.0 115.5 5.0 CY13E 110,766 (17.7) 18,798 12,645 30.0 (48.3) 5.0
CY11 15.9 23.4 12.9 2.5 15.4 20.8 5.8 0.0
CY12E 26.8 46.1 26.9 1.8 6.8 9.7 3.6 0.9
CY13E 17.0 17.8 13.3 2.1 12.2 18.7 3.1 0.9
Recently received USFDA clearance for its Mohali facility
September 10, 2012
41
Prabhudas Lilladher
Background
USFDA issues in detailwhere does it stand?
USFDA finds cGMP violations at Paonta Sahib facility (issues warning letter on 15th June 2006) Daiichi Sankyo (DS) acquires Ranbaxy in US$ 4.6 bn deal Jun 2008 Post DS deal, USFDA alleges Ranbaxy of falsification of data wrt Paonta Sahib facility & cGMP violations at Dewas facility (both facility received import alert; more than 30 products of Dewas banned by USFDA) All manufacturing for the US done from high cost manufacturing unit at Ohm (located in the US); no significant launches in to US due to want to space The company could not achieve that targeted revenues of US$ 800 mn from the US (base biz) by 2011 on account of the above (base revenues from US stands at US$ 90 mn 100 mn per quarter); with low EBITDA margins (Single Digit) .
Current Status Consent decree signed with the USFDA and provided US$ 500 mn in Dec11 quarter (taken in P&L) Contours of the consent decree (CD) - Summary Ranbaxy must comply in detail with the data integrity issues provided by the USFDA before the USFDA starts resuming drug applications from 1) Pantos Sahib, 2) Dewas Facility The CD will address the outstanding cGMP and Data integrity issues at Paonta Sahib units Ranbaxy has agreed to relinquish any 180-day exclusivity that it might have for three pending generic application and any 180 day marketing exclusivity that it may have for several additional generic application RBXY must hire a 3rd party expert to conduct a thorough internal review at these facilities and audit applications containing data from the affected facilities Implement procedures and controls sufficient to ensure data integrity and withdraw any application found to contain untrue statement of material fact that could affect approval The decree also permits FDA to order additional Ranbaxy facilities to be covered by the decree if the agency discovers through an inspection that the facility is not operating in compliance with the law / practices
Penalties Ranbaxy will have to pay US$ 15,000 a day for violation of the decree at these facilities and additional sum of US$ 15,000 for each violation If RBXY distributes any drug from these facilities covered by the decree, it shall pay liquidated damages = twice the retail value of such drug If any statements submitted is found untrue, it would have to pay US$ 3 mn as liquidity charges Already provided US$ 500 mn towards DOJ for Dewas and Paonta Sahib, could be asked to provide more in case of violations / further investigation
September 10, 2012
42
Prabhudas Lilladher

Why do we feel now is a good entry point
Ranbaxy has already provided US$ 500 mn as a provision towards penalties (with respect to DOJ, USFDA issues) in Dec11 quarter in its P&L statement. It has signed the consent decree with the USFDA and is currently working with the USFDA to get all outstanding issues sorted It has also appointed a third party consultant for the same The 2011 annual report clearly exhibits the managements confidence in the prospects of the business (some excerpts from 2011 annual report) Since 2009 Ranbaxy has been taking systematic corrective steps to upgrade and enhance the quality of RBXYs business and manufacturing processes Regulatory issues are now almost through, RBXY has strengthened its processes, restructured its businesses and Ranbaxy today has a new face You will see RBXY becoming more focused in execution of our global strategy and our thrust will be built upon Ranbaxys global strengths in marketing, manufacturing and research activities Clear strategy has now emerged and it is the time to unleash RBXY + DS true potential Apart from these, the annual report clearly provides a distinct direction / strategy to each of its businesses and a lot more emphasis seems to be given to the HYBRID business model It also talks about sustaining growth in the longer term with newer areas of business namely, Bio-technology and Vaccines to be the vehicle of growth in the longer term (thru Zenotech & RBXY Biologics) Considering the above, we do get a sense that the worst is behind Ranbaxy and things are moving in the right direction. This presentation is made as an attempt to quantify (using various assumptions & sensitivity analysis) various benefits that Dewas & Paonta could bring apart from impact of synergies from the much talked HYBRID business model.
September 10, 2012
43
Prabhudas Lilladher
Income Statement (Rs m) Y/e Dec Net Revenue Direct Expenses % of Net Sales Employee Cost % of Net Sales SG&A Expenses % of Net Sales Other Expenses % of Net Sales EBITDA Margin (%) Depreciation PBIT Interest Expenses PBT Total tax Effective Tax rate (%) PAT Extraordinary Gain/(Loss) Adjusted PAT
Financials
CY09 77,902 35,371 45.4 14,175 18.2 19,300 24.8 0.0 9,056 11.6 2,676 6,379 710 10,098 6,991 69.2 2,965 1,493 1,472
CY10 89,608 35,500 39.6 15,060 16.8 20,396 22.8 0.0 18,652 20.8 5,533 13,120 614 20,688 5,849 28.3 14,968 5,700 9,267
CY11 101,614 39,894 39.3 16,449 16.2 29,082 28.6 0.0 16,190 15.9 3,940 12,250 768 (26,865) 1,969 (7.3) (28,997) (40,297) 11,300
CY12E 134,668 54,005 40.1 15,932 11.8 28,683 21.3 0.0 36,047 26.8 4,152 31,895 621 36,712 8,444 23.0 27,918 3,447 24,471
CY13E 110,766 46,137 41.7 19,065 17.2 26,766 24.2 0.0 18,798 17.0 4,557 14,241 348 16,616 3,822 23.0 12,645 12,645
Y/e Dec Share Capital Reserves & Surplus Shareholder's Fund Preference Share Capital Total Debt Other Liabilities(net) Deferred Tax Liability Total Liabilities Gross Block Less: Depreciation Net Block Capital Work in Progress Cash & Cash Equivalent Total Current Assets Total Current Liabilities Net Current Assets Other Assets Total Assets
CY09 2,102 4,010 41,677 36,295 2,290 (4,746) 75,517 62,786 17,880 44,905 6,231 17,824 60,086 41,112 18,974 75,517
CY10 2,105 19,123 56,047 43,348 646 (227) 99,814 67,050 21,571 45,479 3,818 37,629 86,931 41,398 45,533 99,814
CY11 2,110 3,220 40,359 44,907 810 (375) 85,701 73,266 24,680 48,587 2,641 31,663 104,582 82,757 21,826 11,666 85,701
CY12E 2,110 28,723 65,863 34,907 810 (375) 101,204 79,308 28,832 50,475 500 28,110 105,651 56,404 49,247 101,204
CY13E 2,110 38,951 76,091 17,407 810 (375) 93,933 86,166 33,389 52,776 500 24,474 86,434 46,760 39,674 93,933
September 10, 2012
44
Prabhudas Lilladher
MID-CAP
September 10, 2012
45
Prabhudas Petronet LNG Lilladher CMP: Rs162 TP: Rs176

Concerns over potential regulation overblown: Currently, there is no regulation for LNG terminals in India. However, our analysis of the various regulations across geographies highlights the fact that some of the concerns over the potential third-party access of new LNG terminals or expanded capacity is exaggerated. International countries have increasingly been more liberal towards regulation of the LNG terminals. Dwindling domestic production unlikely to lower LNG intake capacity: Likely take-or-pay agreement for all the incremental Dahej expansion would reflect Dahej terminals first-mover advantage in a scenario of tighter domestic gas supplies. This, coupled with opening of newer demand centres on account of newer pipelines, likely reforms in key user industries (led by fertilizer) and likely upward revision of the domestic gas prices would put to rest concerns over utilization of the upcoming incremental capacity at Dahej. Outlook: PLNGs utility nature of business (stable regasification margins and term contracts), low regulatory risks and expanding volumes on account of strong demand estimates, hold it in good stead. We believe that the concerns over the regulatory intervention on the marketing margin front as well as PNGRB regulating regasification charges are exaggerated. We recommend BUY on the stock with target of Rs176/share.
Rating: BUY
Key Financials (Rs m) Y/e March Revenue (Rs m) Growth (%) EBITDA (Rs m) PAT (Rs m) EPS (Rs) Growth (%) Net DPS (Rs) FY10 106,491 26.3 8,465 4,045 5.4 (22.0) 1.8 FY11 131,973 23.9 12,161 6,195 8.3 53.1 2.0
MCap: Rs121.4bn
FY12 227,039 72.0 18,373 10,795 14.4 74.3 2.5 FY13E 331,151 45.9 18,107 10,444 13.9 (3.3) 2.9 FY14E 426,576 28.8 20,768 10,229 13.6 (2.1) 3.3
Source: Company Data, PL Research Stock Performance (%) Absolute Relative to Sensex 1M 7.2 6.0 6M (2.0) (3.5) 12M (7.0) (12.4)
September 10, 2012
46
Prabhudas Lilladher
Y/e March Installed capacity (TBTU) Total volumes processed (TBTU) Fixed contract (Rasgas)
Operating Metrics
Petronet LNG
FY09 331 325 252 69 6.4 98.2% 29.2 28.1 FY10 586 405 252 29 104 15.2 7.9 69.1% 30.6 21.2 FY11E 586 442 252 126 36 25.0 8.7 75.4% 32.2 27.7 FY12E 586 524 251 125 105 40.0 10.3 89.3% 33.8 36.5 FY13E 586 575 252 125 155 40.0 11.3 98.1% 35.5 35.4 FY14E 663 616 252 125 196 40.0 12.1 93.0% 36.8 35.8
Fixed contract (Rasgas Tranche 'A') Spot/medium term contracts Tolling Volumes Total Volumes processed (MMTPA) Effective capacity utilisation Regasification charges (Rs per mmbtu) EBDITA per TBTU (Rs) Source: Company Data, PL Research
R-LNG volumes
Contracted LNG Sales in TBTUs Spot cargo & Tolling volumes sales in TBTUs (Incl. RGPPL Gas) 120.0 100.0 80.0 60.0 40.0 20.0 0.0
100.0 98.9 98.2 96.0
Netback / TBTU
60.0 48.7 50.0
93.5
(Rs / TBTU)
90.8
90.3
89.5
89.7
90.2
40.0 28.6 28.4 30.0
TBTUs
65.0
62.7
62.0 51.8
25.3 20.4
25.2
22.1
26.0
28.9 30.3 30.1 29.1
32.1
36.7 38.4
38.6 32.7
43.1
44.9
46.7
41.5
36.1
30.2
20.0
26.9
31.0
20.0 10.0
-
1.0
5.7
10.1
Q1FY09
Q2FY09
Q4FY09
Q1FY10
Q2FY10
Q4FY10
Q1FY11
Q2FY11
Q3FY11
Q4FY11
Q1FY12
Q3FY12
Q4FY12
Q2FY10
Q1FY11
Q4FY11
Q1FY10
Q3FY10
Q4FY10
Q2FY11
Q3FY11
Q1FY12
Q2FY12
Q3FY12
Q4FY12
Q1FY13
September 10, 2012
47
Q1FY13
Q3FY09
Q3FY10
Q2FY12
Prabhudas Lilladher
Financials
Petronet LNG
FY10 106,491 96,648 90.8 204 0.2 0.0 1,174 1.1 8,465 7.9 1,609 6,856 1,839 5,995 1,950 32.5 4,045 4,045
FY11 131,973 118,012 89.4 306 0.2 0.0 1,494 1.1 12,161 9.2 1,847 10,315 1,931 9,063 2,868 31.6 6,195 6,195
FY12 227,039 205,867 90.7 298 0.1 0.0 2,501 1.1 18,373 8.1 1,842 16,531 1,609 15,771 4,975 31.5 10,795 10,795
FY13E 331,151 309,701 93.5 467 0.1 0.0 2,876 0.9 18,107 5.5 1,842 16,265 1,626 15,639 5,195 33.2 10,444 10,444
FY14E 426,576 401,666 94.2 547 0.1 0.0 3,595 0.8 20,768 4.9 3,114 17,654 3,737 15,317 5,088 33.2 10,229 10,229
FY10 7,500 14,849 22,349 24,998 3,262 50,609 35,495 6,667 28,829 13,184 8,791 12,216 9,006 3,211 50,609
FY11 7,500 19,302 26,802 29,891 3,480 60,173 35,537 8,513 27,024 20,122 13,224 15,816 14,439 1,377 60,173
FY12 7,500 27,698 35,198 30,340 3,630 69,168 35,568 10,353 25,215 32,900 11,238 32,597 22,943 9,654 69,168
FY13E 7,500 35,636 43,136 43,069 4,046 90,250 35,568 12,196 23,372 49,050 15,256 45,866 29,437 16,429 90,250
FY14E 7,500 42,983 50,483 50,524 4,453 105,459 90,268 15,310 74,958 7,000 20,510 59,602 37,500 22,102 105,459
September 10, 2012
48
Prabhudas YES Bank Lilladher CMP: Rs333 TP: Rs450

Beneficiary of a moderating rate cycle: Yes Bank is a wholesale fund bank and margins have been under pressure due to high rates. With RBI delivering a surprise ~50bps cut and wholesale rates cooling off, we believe margins will inch up for Yes in FY13. Asset quality continues to remain robust: Delinquency and credit costs continue to remain low and Yes banks involvement in CDR cases seem very low and hence, asset quality will continue to surprise positively. We, thus, believe market expectations of 60-70bps credit costs in FY13 may not materialize leading to positive earnings surprise. SA momentum strong: Liability franchise has been a weak point for Yes but the SA de-regulation was a shot in the arm. Liability franchise build-up on expected lines with Rs5bn SA accretion QoQ in Q1FY13. Valuations and stock view: Robust asset quality and improving liability franchise will lead to further re-rating. We build in just 2% accretion to CASA every year and ~6070bps of credit costs over FY13/14 which leaves scope for further earnings surprise. The stock is trading at 2.1x FY13 book, we believe valuations are very reasonable. We expect a PT of Rs450/share over next 6-12mnts.
Rating: BUY
Key Financials (Rs m) Y/e March Net interest income Growth (%) Operating profit PAT EPS (Rs) Growth (%) Net DPS (Rs) FY10 7,879 54.7 8,633 4,778 14.1 37.4 1.5 FY11 12,469 58.3 11,904 7,271 20.9 48.9 2.5
MCap: Rs117.6bn
FY12 16,156 29.6 15,417 9,784 27.7 32.1 2.5 FY13E 21,172 31.0 20,152 11,805 33.4 20.8 3.5 FY14E 26,521 25.3 25,348 14,671 41.6 24.3 4.5
Source: Company Data, PL Research Stock Performance (%) Absolute Relative to Sensex 1M (6.6) (7.8) 6M (9.1) (10.6) 12M 13.3 8.0
September 10, 2012
49
Prabhudas Lilladher
1.75%
1.70% 1.65% 1.60% 1.55% 1.50% 1.45% 2009 2010
Operating Metrics
YES Bank
Credit costs continues to remain low
ROE (RHS) ROA
Returns to sustain at high levels

23.5% 23.0% 22.5% 22.0% 21.5% 21.0% 20.5% 20.0% 19.5% 19.0% 18.5%
2014E
0.90%
0.80% 0.70%
0.60%
0.50% 0.40%
0.30% 0.20%
0.10% 0.00%
2011
2012
2013E
4Q10
1Q11
2Q11
3Q11
4Q11
1Q12
2Q12
3Q12
4Q12
Price to Book
6.00
5.00 4.00 3.00 2.00 1.00 0.00
RoE, combination of stable margin, low opex and credit costs

RoE Decomposition Net Interest Income/Assets Fees/Assets Investment profits/Assets Net revenues/Assets Operating Expense/Assets Provisions/Assets Taxes/Assets Total Costs/Assets ROA Equity/Assets ROE RORWA FY10 FY11 FY12E FY13E FY14E
+1 Std Avg. -1 Std
2.79% 1.69% 0.35% 4.82% -1.77% -0.48% -0.88% -3.13% 1.69% 8.34% 20.3% 2.17%
2.72% 1.46% -0.10% 4.08% -1.48% -0.21% -0.80% -2.49% 1.58% 7.50% 21.1% 2.12%
2.67% 1.36% 0.06% 4.09% -1.54% -0.15% -0.78% -2.47% 1.62% 7.00% 23.1% 2.05%
2.77% 1.41% 0.10% 4.28% -1.65% -0.34% -0.75% -2.74% 1.54% 6.79% 22.7% 2.06%
2.88% 1.54% 0.11% 4.53% -1.78% -0.39% -0.77% -2.94% 1.59% 6.90% 23.1% 2.07%
Jul-05
Jul-06
Jul-07
Jul-08
Jul-09
Jul-10
Nov-05
Nov-08
Nov-09
Nov-10
Jul-11
Mar-06
Mar-07
Mar-08
Mar-11
Mar-09
Mar-10
Nov-11
Nov-06
Nov-07
September 10, 2012
50
Prabhudas Lilladher
Financials
YES Bank
FY10 17,715 5,859 23,696 15,817 7,879 54.7 986 4,769 5,755 29,451 20.8 5,001 8,633 63.6 1,264 154 1,368 7,265 2,487 34.2 4,778 57.2
FY11 29,891 10,273 40,417 27,948 12,469 58.3 (464) 6,696 6,233 46,650 58.4 6,798 11,904 37.9 914 (72) 982 10,922 3,650 33.4 7,271 52.2
FY12 44,268 18,470 63,074 46,917 16,156 29.6 379 8,207 8,586 71,659 53.6 9,325 15,417 29.5 523 160 902 14,514 4,730 32.6 9,784 34.6
FY13E 51,134 24,913 76,483 55,311 21,172 31.0 800 10,772 11,572 88,056 22.9 12,593 20,152 30.7 2,631 2,631 17,521 5,716 32.6 11,805 20.7
FY14E 61,244 28,211 89,917 63,396 26,521 25.3 1,000 14,227 15,227 105,144 19.4 16,400 25,348 25.8 3,574 3,574 21,774 7,103 32.6 14,671 24.3
FY10 10 340 3,397 30,895 30,765 267,985 65.7 28,180 10.5 363,823 221,930 78.9 102,099 363,823
FY11 10 347 3,471 37,941 37,849 459,389 71.4 47,509 10.3 590,070 343,636 54.8 188,288 590,070
FY12 10 353 3,530 46,766 46,592 491,517 7.0 73,921 15.0 736,621 379,886 10.5 277,573 736,621
FY13E 10 353 3,530 57,126 56,793 629,884 28.2 113,379 18.0 890,364 455,864 20.0 336,986 890,364
FY14E 10 353 3,530 69,939 69,368 760,552 20.7 152,110 20.0 1,070,678 578,947 27.0 374,528 1,070,678
September 10, 2012
51
Prabhudas Motherson Sumi Lilladher CMP: Rs198 TP: Rs218

Diversified business model: With over 120 manufacturing locations spread across 25 countries, Motherson Sumi Systems (MSSL) has established a strong presence globally across various product lines of the automotive component industry such as wiring harnesses, polymer processing, rear-view vision systems and integrated modules. With the acquisition of Peguform, the management is confident of reaching revenue of US$5bn in 2015 as against US$2.9bn currently. Revenue potential of 150m from SMRs second plant at Hungary: SMR has shown consistent improvement in performance and has recorded the highest ever annual sales of 860m, registering a growth in sales of 14%. SMR has started commercial production and supplies from its second plant in Hungary to support German OEMs. The plant has an installed capacity of 6m mirrors per annum and sale potential of 150m per annum. SMR is setting up new facilities in Brazil, Thailand, China and Pune (India) for mirror manufacturing and vertical integration, where production will commence in the coming year. Samvardhana Motherson Peguforms (SMP's) top-line last year was 1.67bn: With annual sales of 1.67bn, SMP is now the largest subsidiary of MSSL on a full-year basis. Peguforms capex was at 32m for five months (Nov11 to Mar12). Debt on the books of Peguform is at 392m i.e. Rs27bn including 193m debt taken for acquisition by MSSL and Samvardhana Motherson Finance as of March 31, 2012. We have built in revenues at 2.0bn and EBITDA margin of 4.0% for Peguform in FY13E. SMRs and SMPs new orders of 1.3bn each to improve visibility: MSSL has won orders to the tune of 1.3bn (US$1.6bn) for Peguform; this is a very positive development as Peguforms quarterly run-rate is 470m. At SMR, similar kind of order to the tune of 1.35bn has been won. Both the above orders would be executed from FY15 onwards.
Systems
Rating: Accumulate
Key Financials (Rs m) Y/e March Revenue (Rs m) Growth (%) EBITDA (Rs m) PAT (Rs m) EPS (Rs) Growth (%) Net DPS (Rs) FY10 69,240 166.8 6,301 2,210 5.9 11.2 2.1 FY11 83,711 20.9 8,887 3,333 8.6 46.0 2.7 FY12 149,076 78.1 10,745 3,915 10.0 16.1 3.2 FY13E 264,047 77.1 18,492 6,163 15.7 57.4 3.5 FY14E 304,456 15.3 23,194 7,139 18.2 15.8 3.8
MCap: Rs77.7bn
Source: Company Data, PL Research Stock Performance (%) Absolute Relative to Sensex 1M 15.5 14.3 6M 9.0 7.5 12M (1.8) (7.2)
Valuations attractive; Maintain Accumulate: We expect better times ahead for MSSL, with the execution of new order book at SMR and improvement in margins at Peguform over the next one year. At the CMP, the stock is trading at 12.6x FY13E and 10.9x FY14E earnings, which in our view, is attractive, given the 35.0% CAGR in earnings for FY12-FY14E.
September 10, 2012
52
Prabhudas Lilladher
Our assumptions
Our Assumptions
Motherson Sumi Systems
Revenues (Rs m) EBITDA (Rs m) FY14E 49,033 85,480 FY12 5,770 2,669 FY13E 7,034 3,864 FY14E 8,142 4,958 EBITDA Margin (%) FY12 16.1% 4.7% FY13E 16.7% 5.5% FY14E 16.6% 5.8%
Y/e March FY12 MSSL - Standalone SMR 35,874 56,652 FY13E 42,104 70,250
SMP
45,279
137,904
151,694
891
5,516
7,585
2.0%
4.0%
5.0%
1 Yr Fwd P/E chart

350 300
250 16x 12x 20x
200
150
8x
100 50
Apr-08 Jun-08 Aug-08 Oct-08 Dec-08 Feb-09 Apr-09 Jun-09 Aug-09 Oct-09 Dec-09 Feb-10 Apr-10 Jun-10 Aug-10 Oct-10 Dec-10 Feb-11 Apr-11 Jun-11 Aug-11 Oct-11 Dec-11 Feb-12 Apr-12 Jun-12 Aug-12
Source: Company Data, Bloomberg, PL Research
September 10, 2012
53
Prabhudas Lilladher
Financials
Motherson Sumi Systems
FY10 69,240 41,659 60.2 11,319 16.3 0.0 9,961 14.4 6,301 9.1 2,600 3,701 635 3,429 1,094 31.9 2,210 2,210
FY11 83,711 51,454 61.5 12,588 15.0 0.0 10,782 12.9 8,887 10.6 2,465 6,422 576 6,313 1,883 29.8 3,333 3,333
FY12 149,076 95,434 64.0 23,170 15.5 0.0 19,727 13.2 10,745 7.2 3,796 6,949 1,649 4,117 2,153 52.3 2,597 (1,318) 3,915
FY13E 264,047 171,102 64.8 43,559 16.5 0.0 30,893 11.7 18,492 7.0 7,265 11,227 2,850 6,508 3,254 50.0 4,154 (2,009) 6,163
FY14E 304,456 196,983 64.7 49,876 16.4 0.0 34,403 11.3 23,194 7.6 7,926 15,268 3,350 12,078 6,039 50.0 7,139 7,139
FY10 375 11,275 11,649 8,179 2,027 40 21,896 31,821 17,273 14,548 1,808 3,901 20,971 15,921 5,051 18 21,896
FY11 387 15,700 16,087 12,634 2,276 256 31,253 38,195 20,550 17,645 3,921 4,001 29,095 19,876 9,219 31,254
FY12 392 18,325 18,717 46,023 5,027 602 70,369 94,323 47,401 46,922 4,444 5,495 67,339 49,274 18,065 70,369
FY13E 392 23,102 23,493 48,332 5,178 602 77,605 102,323 54,666 47,657 4,444 2,713 105,446 80,880 24,566 77,605
FY14E 392 28,739 29,130 46,142 5,333 602 81,208 109,323 62,592 46,731 4,444 4,931 122,417 93,323 29,095 81,208
September 10, 2012
54
Prabhudas Torrent Lilladher CMP: Rs696
Pharmaceutical
TP: Rs879 Rating: BUY
Key Financials (Rs m) Y/e March Revenue (Rs m) Growth (%) EBITDA (Rs m) PAT (Rs m) EPS (Rs) Growth (%) Net DPS (Rs) FY10 19,040 16.8 4,096 2,312 27.3 25.5 0.0 FY11 22,049 15.8 3,876 2,702 31.9 16.9 0.0 FY12 26,959 22.3 5,006 2,863 33.8 6.0 0.0 FY13E 32,687 21.2 6,156 4,168 49.3 45.6 0.0 FY14E 37,924 16.0 7,309 4,960 58.6 19.0 0.0
MCap: Rs58.9bn
Torrent pharma has a successful track record of consistently delivering profitable growth: It is one of the better managed companies in the Indian pharma space with high standard of corporate governance. Companys international formulation business is expected to lead the performance of the company in the medium term.
It is a play on highly profitable and fast growing lifestyle segments in domestic formulation business: Torrent derives its strength from being leader in some of the lucrative and fastest growing chronic therapy segments of CVS and CNS. It has consistently maintained its leadership in these therapeutic segments with strong brands and new product launches. It has one of the most profitable domestic formulation business among its peers and even compared to larger counterparts. We believe that the recent slowdown in domestic formulation business is transitory and the management has taken corrective measures to address the slowdown. Expect growth to come back on track from 2HFY13 onwards.
Torrents international business is on strong footing and expected to lead the performance: The companys investment in international business have started paying off and we expect profit margins to expand as operations scale-up. Healthy revenue growth expected in markets like US, Europe and Brazil and entry into some of the largest branded generics markets like Mexico, will drive revenue growth and increase profitability. Next phase of growth will be led by regulated markets (ex-Germany). Expect revenue from regulated markets (Ex-Germany) to grow at a CAGR of 34% over FY12-14, led by US market. Outlook and Valuation: We expect strong EPS CAGR of 24% over FY12-14 led by 24% CAGR in international business. The company has strong balance sheet with lean working capital and zero net debt. Expect RoCE to remain above 25% over next 2 years and free cash-flow generation of Rs6b during the same period. The stock is trading at 14.1xFY13E and 11.9xFY14E earnings which is at significant discount to large cap and some of the midcap companies in the sector. September 10, 2012
55
Prabhudas Lilladher
Financials
Torrent Pharmaceutical
FY10 19,040 5,984 31.4 3,162 16.6 2,466 13.0 3,333 17.5 4,096 21.5 661 3,435 251 2,944 632 21.5 2,312 2,312
FY11 22,049 7,347 33.3 3,895 17.7 2,894 13.1 4,037 18.3 3,876 17.6 626 3,251 387 3,427 725 21.2 2,702 2,702
FY12 26,959 9,201 34.1 5,337 19.8 3,372 12.5 4,043 15.0 5,006 18.6 817 4,189 395 3,586 723 20.2 2,863 2,863
FY13E 32,687 10,528 32.2 6,511 19.9 4,463 13.7 5,028 15.4 6,156 18.8 932 5,224 371 5,413 1,245 23.0 4,168 4,168
FY14E 37,924 12,224 32.2 7,553 19.9 4,999 13.2 5,838 15.4 7,309 19.3 1,112 6,196 371 6,441 1,482 23.0 4,960 4,960
FY10 423 7,459 8,310 5,224 499 14,033 8,129 2,718 5,411 1,098 5,295 11,607 5,496 6,111 14,033
FY11 423 9,373 10,224 5,721 16 480 16,440 9,643 3,287 6,355 2,186 6,248 15,346 8,907 6,439 16,440
FY12 423 11,087 11,938 4,640 35 514 17,127 11,991 4,022 7,969 1,650 7,983 19,620 13,352 6,268 17,127
FY13E 423 14,296 15,148 4,640 514 20,302 14,641 4,954 9,687 1,500 9,115 23,830 15,956 7,874 20,302
FY14E 423 18,115 18,967 4,640 514 24,121 17,141 6,067 11,074 1,500 10,945 28,832 18,526 10,306 24,121
September 10, 2012
56
Prabhudas IPCA Lab Lilladher CMP: Rs444 TP: Rs559

IPCA Labs is one of the better managed mid-cap pharma companies: Consistent improvement in profitability along with strong growth in business. Both of the key business segments of the company viz. international formulation business and domestic formulation business are likely to do well over next couple of years.
Rating: BUY
MCap: Rs56.0bn
FY12 23,587 24.3 5,135 2,762 21.9 4.7 0.0 FY13E 27,495 16.6 6,351 3,890 30.8 40.8 0.0 FY14E 32,198 17.1 7,784 5,033 39.9 29.4 0.0
International business to grow on the back of strong revenue ramp-up: In US post the recent USFDA approval for companys Indore SEZ which eliminates supply constraint faced by the company. Expect 31% revenue CAGR in US over FY12-14. Further, institutional business is scaling up rapidly with revenue expected to move up from Rs1.22b in FY11 to Rs4b in FY14. IPCA is set to become one of the largest players globally in antimalaria tender business and this is the most profitable business for the company. Branded formulation exports are likely to grow at 25% CAGR led by increasing geographic penetration and new product launches.
Domestic formulation business to outperform the industry: The company has consistently outperformed the industry in the past, led by rising share of chronic segments, product selection, increase in the field force and brand building activity. The contribution from fast growing and lucrative chronic therapeutic segments is on rise. It currently contributes 65% to domestic formulation business. The performance in FY12 was impacted by lower incidence of Malaria, high attrition in the field force and restructuring of marketing divisions. However the management has taken corrective measures and growth of this business should be robust going forward. Outlook and Valuations: We expect strong earnings CAGR of 35% over FY12-14 led by robust topline growth of 17% over the same period. Despite Rs5b capex planned over next 2 years, the company is likely to sustain healthy return rations and low gearing. Expect RoCE to remain above 25% for next 2 years with free cash-flow generation of Rs3.3b. The stock is trading at 14.4xFY13E & 11.1xFY14E earnings which is at significant discount to large cap and some of the mid-cap companies in the sector. September 10, 2012
57
Prabhudas Lilladher
Financials
IPCA Lab
FY10 15,622 7,199 46.1 2,207 14.1 2,497 16.0 383 2.5 3,335 21.3 467 2,868 264 2,692 627 23.3 2,083 2,083
FY11 18,969 8,695 45.8 2,663 14.0 3,438 18.1 413 2.2 3,761 19.8 558 3,203 314 3,407 784 23.0 2,628 2,628
FY12 23,587 10,288 43.6 3,355 14.2 4,115 17.4 694 2.9 5,135 21.8 671 4,464 413 3,643 881 24.2 2,762 2,762
FY13E 27,495 11,861 43.1 4,026 14.6 4,448 16.2 809 2.9 6,351 23.1 843 5,508 426 5,187 1,297 25.0 3,890 3,890
FY14E 32,198 13,947 43.3 4,630 14.4 4,891 15.2 947 2.9 7,784 24.2 1,002 6,782 426 6,536 1,503 23.0 5,033 5,033
FY10 250 8,399 8,649 4,545 (6) 793 13,981 8,812 2,433 6,379 383 433 8,992 2,097 6,895 13,981
FY11 251 10,265 10,516 5,308 (7) 807 16,625 9,884 2,892 6,992 1,132 512 10,586 2,493 8,093 16,625
FY12 252 12,288 12,540 5,326 932 18,798 12,890 3,563 9,326 1,132 462 12,475 4,475 7,999 18,798
FY13E 252 15,400 15,652 5,326 1,191 22,169 15,690 4,407 11,283 1,132 602 14,697 5,283 9,414 22,169
FY14E 252 19,426 19,678 5,326 1,322 26,326 18,190 5,409 12,781 1,132 1,527 18,257 6,184 12,073 26,326
September 10, 2012
58
Prabhudas Voltas Lilladher CMP: Rs112
TP: Rs127
Rating: Accumulate
Key Financials (Rs m) Y/e March Revenue (Rs m) Growth (%) EBITDA (Rs m) PAT (Rs m) EPS (Rs) Growth (%) Net DPS (Rs) FY10 48,058 11.1 4,591 3,595 10.9 57.4 2.7 FY11 51,768 7.7 4,408 3,114 9.4 (13.4) 2.5
MCap: Rs37.1bn
FY12 51,857 0.2 3,365 737 2.2 (76.3) 1.6 FY13E 49,363 (4.8) 3,067 2,768 8.3 274.3 2.1 FY14E 55,016 11.5 3,761 3,231 9.7 16.4 2.4
Some green shoots in ordering environment: The quarter with flattish growth on order book at Rs45.74bn. The domestic market contributed Rs 21.93bn (~up by 14% YoY) and Export market contributed ~Rs 23.81bn (down by 10% YoY) to overall order book. The orders received in this quarter stood at ~Rs7.69bn (up by 2.8x YoY). The company has started to see some green shoots in markets like Saudi Arabia, Abu Dhabi and Muscat and Qatar. In Abu Dhabi, the main contractor for the airport order has been formalized and soon the sub-contractors would be appointed by October. Also, there has been US$4.6 billion worth infusion into ALDAR, the primary real estate developer in Abu Dhabi. Also few tenders are in the process of being funded in Qatar for the upcoming FIFA 2022 and are expected to be released from Q3 onwards. In domestic markets, the growth continued due to increased focus on urban infrastructure and industry like metals and automotives, and the expansion of scope of work on existing projects, such as the Chennai Metro. Gaining market share in UCP: Voltas saw 15% volume growth in Airconditioners ahead of Industry which reported de-growth of 5%. Our overall growth has been supported by a strong advertising campaign based on well researched consumer insights, culminating in the all-weather proposition. The extended summer and delayed onset of monsoon also helped volumes. Voltas has emerged as the market leader in the Room AC segment in May 2012 across multi-brand outlets with an 18.3% share (independently reported by GfK Nielsen) which was further improved to 19.1% in June widening the earlier lead of 60 bps over the nearest competitor in May to 280 bps in June. Outlook and Valuation: The stock is trading at 11.1x FY14E earnings. We believe that the worst might be behind us, given the pain on Sidra project already been accounted for and RIEs likely to break even in FY13. The outlook on orders look bright given the increased reach in terms of geography in international markets and business segments in the domestic market.. We believe that a lot of pessimism related to order flow is in the price and hence, downside seems to be limited. September 10, 2012
Source: Company Data, PL Research Stock Performance (%) Absolute Relative to Sensex 1M 6.4 5.2 6M (3.6) (5.1) 12M (8.5) (13.8)
59
Prabhudas Lilladher
Y/e March Revenues
Operating Metrics
Voltas
FY08 17,449 19.7 5,535 28.0 8,259 30.8 895 9.4 108 104.3 32,029 FY09 27,668 58.6 5,422 (2.0) 9,223 11.7 1,039 16.1 93 (14.3) 43,259 FY10E 31,134 12.5 4,680 (13.7) 11,870 28.7 391 (62.4) 18 (81.1) 48,058 FY11E 30,411 (2.3) 5,638 20.5 15,608 31.5 126 (67.7) 15 (14.3) 51,768 FY12E 31,832 4.7 4,121 (26.9) 15,388 (1.4) 427 238.5 17 10.0 51,770 FY13E 27,447 (13.8) 4,533 10.0 17,696 15.0 491 15.0 35 10.0 50,133 FY14E 29,880 8.9 5,213 15.0 20,351 15.0 565 15.0 107 10.0 55,901
Electro-mechanical projects & services YoY gr. (%) Engineering products & services YoY gr. (%) Unitary Cooling products YoY gr. (%) Others YoY gr. (%) Inter-segmental YoY gr. (%) Total EBIT Margin (%) Electro-mechanical projects & services Engineering products & services Unitary Cooling products Others Total Source: Company Data, PL Research
6.7 20.5 6.7 11.4 9.7
7.7 11.6 6.0 8.7 8.5
9.9 16.4 10.1 18.4 10.7
7.9 18.3 10.2 12.6 9.7
5.4 16.7 8.4 57.5 7.6
6.0 18.0 8.7 10.5 8.1
6.5 17.0 9.0 10.5 8.4
September 10, 2012
60
Prabhudas Lilladher
Financials
Voltas
FY10 48,058 32,992 68.7 5,357 11.1 0.0 5,118 10.7 4,591 9.6 214 4,377 98 5,067 1,472 29.1 3,595 3,595
FY11 51,768 36,808 71.1 5,563 10.7 0.0 4,990 9.6 4,408 8.5 210 4,198 165 4,843 1,729 35.7 3,114 3,114
FY12 51,857 37,800 72.9 5,995 11.6 0.0 4,698 9.1 3,365 6.5 340 3,025 314 2,191 571 26.1 737 737
FY13E 49,363 35,048 71.0 6,072 12.3 0.0 5,177 10.5 3,067 6.2 329 2,738 280 3,844 1,076 28.0 2,768 2,768
FY14E 55,016 39,612 72.0 7,317 13.3 0.0 4,326 7.9 3,761 6.8 400 3,361 301 4,488 1,257 28.0 3,231 3,231
FY10 331 10,521 10,852 352 139 11,342 3,890 1,821 2,069 193 7,028 28,250 22,477 5,773 968 11,342
FY11 331 13,286 13,617 1,381 218 18 15,233 4,410 1,987 2,422 36 7,593 35,309 26,232 9,077 1,085 15,233
FY12 331 14,448 14,761 2,252 170 19 17,202 4,199 2,194 2,004 46 5,826 35,268 24,383 10,885 1,151 17,202
FY13E 332 16,406 17,537 2,153 187 19,876 4,699 2,523 2,175 46 8,434 34,115 21,571 12,544 1,966 19,877
FY14E 333 18,692 20,686 2,153 206 23,044 4,999 2,923 2,075 46 10,392 38,807 24,078 14,729 2,847 23,044
September 10, 2012
61
Prabhudas Amara Raja Batteries Lilladher CMP: Rs388 TP: Rs417 Rating: Accumulate
Fundamentals intact for the battery industry: We believe that the fundamentals of the battery industry remains strong and we continue to remain positive on both the battery companies. Post >25% YoY growth in FY10 and FY11 each, we expect strong traction in high margin replacement segment (with sufficient pass-on ability). Shift of shares from unorganized to organized within the replacement market due to obligation on Exide/ARBL to procure a worn-out battery (source of lead for unorganized segment) for every new battery sold. Shift to VRLA technology in two-wheeler batteries is difficult to manufacture for the unorganized players Automotive Segment: 65% of automotive business comes from the replacement market in terms of volume and about 35% comes from OEMs. In revenue terms, it would be around 28% OEMs and the balance comes from the replacement markets. The replacement market includes two brand sales which are Amaron and Power Zone as well as some private label opportunities. Industrial Battery segment volumes up 15%: Industrial segment registered a volume growth of 15%+ amidst very competitive market conditions. AMRJ has gained market share in the both the segments of Telecom and UPS. AMRJ has increased its market share to ~33% currently in UPS segment at the cost of the importers in the unorganized market. With China levying a 17.5% export tax on lead and lead products and rupee depreciating, it is unviable for the traders to import the UPS batteries. This, together with higher demand in the commercial UPS segment, augurs well for AMRJ. Telecom vertical to grow at 68% CAGR over next three years: Overall, the Telecom Operators and Service Providers have shifted to one-on-one negotiations with reliable vendors as against the earlier followed norm of reverse auction mechanism, where the lowest bidders used to get the orders. Outlook & Valuation: AMRJ has maintained a strong balance sheet, with the return ratios in excess of 24% for the past few years. We expect revenues to grow at a CAGR of 15.1% and net profit to grow at a CAGR of 22.2% for FY12-FY14E period. The stock is currently trading at 11.9x its FY13E EPS and 10.2x FY14E EPS, which in our view is attractive. We maintain our Accumulate rating on the stock. Our revised Target Price of Rs417 is based on 11.0x FY14E EPS (~26% discount to 15x FY14E earnings target multiple for Exide).
Key Financials (Rs m) Y/e March Revenue (Rs m) Growth (%) EBITDA (Rs m) PAT (Rs m) EPS (Rs) Growth (%) Net DPS (Rs) FY10 14,666 11.1 2,895 1,550 18.1 92.6 2.9 FY11 17,634 20.2 2,597 1,474 17.3 (4.9) 2.6
MCap: Rs33.2bn
FY12 23,711 34.5 3,578 2,152 25.2 46.0 3.8 FY13E 27,990 18.0 4,608 2,784 32.6 29.4 4.4 FY14E 31,510 12.6 5,300 3,241 37.9 16.4 4.8
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Prabhudas Lilladher
Income Statement (Rs m) Y/e March Net Revenue Direct Expenses % of Net Sales Employee Cost % of Net Sales SG&A Expenses % of Net Sales Other Expenses % of Net Sales EBITDA Margin (%) Depreciation PBIT Interest Expenses PBT Total tax Effective Tax rate (%) PAT Extraordinary Gain/(Loss) Adjusted PAT Operating Metrics Industrial Revenues Automotive Revenues Lead Prices ($/ tonne) Lead & Lead Alloys
Financials
Amara Raja Batteries
FY10 14,666 9,383 64.0 624 4.3 1,705 11.6 60 0.4 2,895 19.7 429 2,466 68 2,426 876 36.1 1,670 1,550 8,221 9,458 2,000 6,969
FY11 17,634 12,230 69.4 885 5.0 1,851 10.5 72 0.4 2,597 14.7 417 2,180 30 2,204 724 32.9 1,480 1,474 9,689 11,313 2,400 9,313
FY12 23,711 16,735 70.6 1,003 4.2 2,347 9.9 47 0.2 3,578 15.1 465 3,113 41 3,187 1,035 32.5 2,152 2,152 11,275 13,254 2,400 12,760
FY13E 27,990 19,393 69.3 1,176 4.2 2,757 9.9 56 0.2 4,608 16.5 614 3,994 25 4,149 1,365 32.9 2,784 2,784 12,930 15,060 2,300 15,220
FY14E 31,510 21,735 69.0 1,323 4.2 3,088 9.8 63 0.2 5,300 16.8 652 4,648 25 4,823 1,582 32.8 3,241 3,241 14,543 16,967 2,350 16,889
FY10 171 5,266 5,436 913 216 6,566 5,040 1,887 3,153 100 785 6,342 3,191 3,152 6,566
FY11 171 6,288 6,459 950 205 7,615 5,713 2,304 3,409 117 563 7,419 3,491 3,928 7,615
FY12 171 8,064 8,235 841 205 9,280 6,512 2,769 3,743 117 2,461 9,479 4,220 5,259 9,280
FY13E 171 10,411 10,582 691 205 11,477 8,766 3,382 5,384 117 2,587 10,788 4,972 5,816 11,477
FY14E 171 13,175 13,346 541 205 14,091 9,320 4,035 5,285 117 4,340 13,749 5,221 8,528 14,091
September 10, 2012
63
Prabhudas NIIT Technologies Lilladher CMP: Rs285 TP: Rs350 Rating: BUY
TTL Size & agility and room for positive surprise: The company has a niche presence in Travel, Transportation & Logistic (38% revenue). A specialized presence in the segments and small size gives room for strong growth. It is rated as one of the most preferred vendor in the space. We are factoring in modest growth expectation of 2.8% CQGR over the next five quarters, despite reporting strong growth of 9% CQGR over the last 12 quarters. Insurance IP led growth in non-life market: NIIT Tech derives ~36% of revenue from BFSI sector, led by 27% from Insurance. The companys IP (ROOM Solution) in general insurance gives them unique capability to drive growth ahead of peers. The revenue growth has been steady at 6.5% CQGR over the last seven quarters. We expect stronger growth for Insurance than overall growth, yielding positive surprise on operating margin. Order book strength to give revenue visibility and margin stability: Order book to be executable over next 12 months grew by 20% YoY to $240m (@cc $254m, 27% YoY). The strong growth in order book led by fresh order intake ($83m) improves the revenue visibility for the company for FY13. Moreover, the management highlighted limited scope of pricing discussion on existing order book. Hence, we see stable margin performance with steady revenue growth beating NASSCOM growth outlook of 11-14% YoY growth. Valuation and Recommendation BUY with Target Price Rs 350: NIIT Tech is a unique IT services provider for TTL and Insurance sector (non-life) with a 28-year heritage. NIIT Tech is best positioned in the niche IT space to meet or exceed our above consensus forward estimates and grows faster than peers. With a P/E multiple of 6.5x, is at steep discount compared to the peer group, moreover with a predicted EPS growth CAGR of 16%, the valuation looks compelling.
Key Financials (Rs m) Y/e March Revenue (Rs m) Growth (%) EBITDA (Rs m) PAT (Rs m) EPS (Rs) Growth (%) Net DPS (Rs) FY10 9,138 (6.8) 1,889 1,263 21.5 9.9 8.3 FY11 12,323 34.9 2,404 1,821 30.7 43.0 8.2
MCap: Rs17.0bn
FY12 15,764 27.9 2,683 1,956 32.8 6.8 8.6 FY13E 19,080 21.0 3,079 2,293 38.4 17.2 11.0 FY14E 21,874 14.6 3,549 2,716 45.5 18.5 12.0
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Prabhudas Lilladher
Financials
NIIT Technologies
FY10 9,138 7,249 79.3 0.0 0.0 0.0 1,889 20.7 360 1,529 1,420 144 10.1 1,263 1,263
FY11 12,323 7,768 63.0 0.0 2,151 17.5 0.0 2,404 19.5 315 2,089 2,178 324 14.9 1,821 1,821
FY12 15,764 9,876 62.6 0.0 3,205 20.3 0.0 2,683 17.0 364 2,319 2,601 637 24.5 1,956 1,956
FY13E 19,080 11,981 62.8 0.0 4,021 21.1 0.0 3,079 16.1 458 2,620 3,109 808 26.0 2,293 2,293
FY14E 21,874 13,952 63.8 0.0 4,373 20.0 0.0 3,549 16.2 480 3,069 3,632 908 25.0 2,716 2,716
FY10 588 5,210 5,798 217 28 6,043 4,559 2,706 1,853 1,287 1,895 4,531 2,200 2,330 107 6,043
FY11 593 6,885 7,478 110 43 7,631 4,633 2,740 1,893 1,437 1,637 6,223 2,508 3,716 143 7,631
FY12 596 8,626 9,222 126 9,348 6,687 2,455 4,231 2 2,771 7,877 3,914 3,963 602 9,348
FY13E 596 10,273 10,869 126 10,995 7,641 2,914 4,727 3 3,489 9,929 4,814 5,114 602 10,995
FY14E 596 12,284 12,880 126 13,006 8,734 3,394 5,340 3 4,372 11,812 5,301 6,512 602 13,006
September 10, 2012
65
Prabhudas Persistent Systems Lilladher CMP: Rs388 TP: Rs460 Rating: BUY
Ramp-down from clients are bottoming out: Persistent witnessed rampdown from top clients due to end of projects and M&A activity (of clients). Top clients, whose projects got shelved after acquisition, are already captured in quarterly run-rate. Moreover, due to project completion with other top-client, we may see some spill-over in Q2FY13. Nevertheless, the company is working with the same client on other projects to back-fill the gap. Hence, we expect it to recoup some of the negative impact. New deal wins to offset deceleration: The management is very confident of demand environment. The company has signed a large deal (end of lifecycle) with one of the top clients. Also, new engagements with clients (acquired from Openwave location based service product) are likely to pick-up.
MCap: Rs15.5bn
FY12 10,003 28.9 2,324 1,418 35.4 1.6 2.4 FY13E 11,795 17.9 2,929 1,807 45.2 27.5 3.3 FY14E 13,420 13.8 3,224 2,035 50.9 12.6 3.8
Growth outlook strong, margin to see uptick in H2FY13: The management is confident of improving the growth rate and achieving better than NASSCOM guidance of 11-14% YoY growth, but didnt quantify the guidance. The margin outlook for Q2FY13 continues to be weak due to wage hike (Offshore: 9.9%) and full impact of S&M investment, which is in line with our hypothesis. However, the management is confident of recouping the margin in H2FY13. We expect margin performance in H2FY13 to get boosted by revenue growth from IP, cost absorption of wage hike and replacing attrition employees with the fresher (Fresher addition: 1350).
Improving free cash flow conversion: As the company comes out of the investment phase, FCF conversion is likely to improve. The earlier guidance of Rs115cr included some expansion (land deal) that is likely to be postponed. Hence, we expect FY13 FCF/EBITDA conversion to 67% (FY12: 7.4%, FY11:55%). Valuation and Recommendation BUY with a revised target price of Rs460: We believe the option value of IP sales along with success of Sell with Partner could spin a positive surprise. Currently, Persistent is traded at 8.6x FY13E earnings estimate with 20% earnings CAGR (FY12-14E). September 10, 2012
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Prabhudas Lilladher
Financials
Persistent Systems
FY10 6,012 860 14.3 3,687 61.3 0.0 0.0 1,464 24.3 335 1,128 1,241 91 7.3 1,150 1,150
FY11 7,758 849 10.9 5,327 68.7 0.0 0.0 1,583 20.4 424 1,159 1,504 108 7.2 1,396 1,396
FY12 10,003 394 3.9 7,285 72.8 0.0 0.0 2,324 23.2 611 1,713 1,969 551 28.0 1,418 1,418
FY13E 11,795 480 4.1 8,387 71.1 0.0 0.0 2,929 24.8 674 2,255 0 2,459 652 26.5 1,807 1,807
FY14E 13,420 517 3.9 9,679 72.1 0.0 0.0 3,224 24.0 740 2,484 0 2,768 734 26.5 2,035 2,035
FY10 400 6,003 6,435 6,435 3,715 1,881 1,834 485 3,479 4,258 1,710 2,548 7 6,435
FY11 400 7,066 7,501 7,501 4,543 2,281 2,261 605 3,500 3,677 1,602 2,075 60 7,501
FY12 400 8,005 8,405 77 8,483 6,036 2,838 3,197 528 3,413 4,124 1,660 2,464 256 8,483
FY13E 400 9,681 10,081 77 10,158 6,743 3,513 3,231 528 4,745 5,924 1,818 4,106 256 10,158
FY14E 400 11,565 11,965 77 12,042 7,549 4,253 3,296 528 6,473 8,133 2,208 5,925 256 12,042
September 10, 2012
67
Prabhudas KEC International Lilladher CMP: Rs57 TP: Rs70

Diversified order book: Order book for the company stood at Rs92bn, up 16% YoY. Transmission line contributed 69.9% of the order book, Power systems contributed 17.9% and other initiatives like Railways, Water etc. contributed 12.2%. The order inflow for the quarter stood at Rs20bn (up 51% YoY); this is the third consecutive quarter with strong inflows. 24% of the total order inflows came from its new business initiatives like power system, cable, telecom and water segments. Transmission segment got the biggest order worth Rs4bn from Kazakhastan. It managed to get orders across segments and geographies. The diversified nature of order book in across customers base and geographies gives it flexibility to cushion the impact slowdown and make the most of up cycle. New initiatives bearing fruits: KEC has taken up various new initiative over the few years by getting into new business like substation segment, water business, Balance of Plant and railways. KEC has also entered in the CIS region by securing the largest ever order of Rs9.42bn from Kazakhstan. This order gives KEC an entry into 1150kV to 110kV sub-station at the entire range. This new initiatives will secure the future growth of the company as KEC has ambition to scale up each of this new business to ~Rs5-10bn in 3-4 years time. The contribution of orders from this new business increased to 30% from ~21% at the start of FY11. SAE tower: KEC acquired SAE tower in Sep 2010. The company has been able to scale up the operation of SAE successfully, with revenue of Rs9.1bn and order book of Rs7.5bn in FY12. It has also been able to maintain EBITDA margin for SAE above 13%. SAE enjoys highest markets share in Brazil, United States and Mexico. It will help KEC to scale up its presence in this markets with high entry barriers successfully.
Rating: BUY
MCap: Rs14.7bn
FY12 58,147 30.0 4,713 1,863 7.2 (9.4) 1.8 FY13E 66,987 15.2 5,579 2,218 8.6 19.1 1.3 FY14E 77,234 15.3 6,699 2,781 10.8 25.4 1.6
Source: Company Data, PL Research Stock Performance (%) Absolute Relative to Sensex 1M 0.5 (0.7) 6M (9.7) (11.2) 12M (7.0) (12.3)
Valuation: We believe that strong order book, huge pipe line of orders and ability to win orders in the current environment gives comfort on revenue visibility. We expect the stock to post earnings CAGR of 15.5% over FY1214E. Improved working capital and debt management will help continue to outperform.
September 10, 2012
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Prabhudas Lilladher
Order Book Trend
Operating Metrics
KEC International
Sales Breakup
Order Book Order Inflow Transmission Power systems Cables Railways Telecom+Water SAE
100,000
80,000
80,000 70,000
60,000 50,000 40,000
(Rs m)
40,000
(Rs m)
60,000
30,000 20,000
10,000 -
20,000
-
FY09
FY10
FY11
FY12
FY13e
FY14e
FY11
FY12E
FY13E
FY14E
EBITDA Margin Trend

12.0%
11.6%
11.5%
11.0%
10.5%
10.0%
10.4%
10.3%
9.5%
9.0%
8.9%
8.5%
8.5%
8.0% FY09 FY10 FY11
8.1%
FY12 FY13E FY14E
September 10, 2012
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Prabhudas Lilladher
Financials
KEC International
FY10 39,072 20,127 51.5 1,689 4.3 3,616 9.3 9,582 24.5 4,059 10.4 270 3,788 865 2,934 1,037 35.3 1,897 1,897
FY11 44,742 22,552 50.4 2,833 6.3 4,926 11.0 9,806 21.9 4,625 10.3 408 4,217 1,075 3,168 1,111 35.1 2,057 2,057
FY12 58,147 31,498 54.2 4,274 7.3 5,987 10.3 11,675 20.1 4,713 8.1 479 4,234 1,597 3,253 1,150 35.4 2,103 240 1,863
FY13E 66,987 36,159 54.0 4,019 6.0 7,631 11.4 13,598 20.3 5,579 8.3 489 5,090 1,770 3,360 1,142 34.0 2,218 2,218
FY14E 77,234 41,347 53.5 4,634 6.0 9,107 11.8 15,447 20.0 6,699 8.7 564 6,134 1,979 4,214 1,432 34.0 2,781 2,781
FY10 514 7,356 7,869 7,867 461 16,198 5,839 920 4,919 383 700 26,774 17,776 8,998 1,896 16,198
FY11 514 8,952 9,462 13,490 497 23,448 7,746 1,544 6,203 278 1,540 37,138 24,796 12,342 4,626 23,448
FY12 514 10,564 11,082 11,139 513 22,733 8,289 1,863 6,426 1,122 2,029 43,085 32,779 10,306 4,880 22,734
FY13E 514 12,188 13,170 14,360 513 28,043 9,789 2,352 7,437 1,122 4,068 48,178 33,574 14,604 4,880 28,043
FY14E 514 14,561 15,736 16,000 513 32,249 11,289 2,917 8,372 1,122 5,849 56,420 38,545 17,874 4,880 32,249
September 10, 2012
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Prabhudas Lilladher
Disclaimer
Prabhudas Lilladher Pvt. Ltd. 3rd Floor, Sadhana House, 570, P. B. Marg, Worli, Mumbai 400 018, India. Tel: (91 22) 6632 2222 Fax: (91 22) 6632 2209 Rating Distribution of Research Coverage
60%
% of Total Coverage
53.3%
50% 40%
30% 20%
24.0%
22.0%
10% 0%
BUY Accumulate Reduce
0.7%
Sell
PLs Recommendation Nomenclature BUY Reduce Trading Buy Not Rated (NR) : Over 15% Outperformance to Sensex over 12-months : Underperformance to Sensex over 12-months : Over 10% absolute upside in 1-month : No specific call on the stock Accumulate Sell Trading Sell Under Review (UR) : : : : Outperformance to Sensex over 12-months Over 15% underperformance to Sensex over 12-months Over 10% absolute decline in 1-month Rating likely to change shortly
This document has been prepared by the Research Division of Prabhudas Lilladher Pvt. Ltd. Mumbai, India (PL) and is meant for use by the recipient only as information and is not for circulation. This document is not to be reported or copied or made available to others without prior permission of PL. It should not be considered or taken as an offer to sell or a solicitation to buy or sell any security. The information contained in this report has been obtained from sources that are considered to be reliable. However, PL has not independently verified the accuracy or completeness of the same. Neither PL nor any of its affiliates, its directors or its employees accept any responsibility of whatsoever nature for the information, statements and opinion given, made available or expressed herein or for any omission therein. Recipients of this report should be aware that past performance is not necessarily a guide to future performance and value of investments can go down as well. The suitability or otherwise of any investments will depend upon the recipient's particular circumstances and, in case of doubt, advice should be sought from an independent expert/advisor. Either PL or its affiliates or its directors or its employees or its representatives or its clients or their relatives may have position(s), make market, act as principal or engage in transactions of securities of companies referred to in this report and they may have used the research material prior to publication. We may from time to time solicit or perform investment banking or other services for any company mentioned in this document.
September 10, 2012
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India Strategy & Top Ideas: Investment Argument, Financials & Valuation Discussion

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India Strategy & Top Ideas: Investment Argument, Financials & Valuation Discussion

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Prabhudas Lilladher

Click to edit Master titleSeptember 2012 style

India Strategy & Top Ideas

September 10, 2012

September 10, 2012

Mixed signals continue to emanate from the US economy

September 10, 2012

September 10, 2012

Chinese economy: Slowdown continues, Massive pump priming announced

September 10, 2012

September 10, 2012

Languishing GDP growth

September 10, 2012

August brings cheer on the monsoon front

September 10, 2012

Shome panel recommendations on GAAR

GAAR to be applicable only if the tax threshold is above Rs 30 million

September 10, 2012

September 10, 2012

September 10, 2012

Global Equity Markets Performance

Source: Bloomberg, PL Research

10.0% -6.6% -10.1% -14.2%

Source: Bloomberg, PL Research

Source: Bloomberg, PL Research

September 10, 2012

Indian Equities Sector Performance

Source: Bloomberg, PL Research

-5.9% -5.9% -14.2% -13.0%

-6.9% -17.0% -26.4% -26.4% -25.3%

Source: Bloomberg, PL Research

Source: Bloomberg, PL Research

September 10, 2012

India: Marketcap-wise Performance

-2.9% BSE Small Cap BSE Midcap BSE500 BSE100

Source: Bloomberg, PL Research

Source: Bloomberg, PL Research

Source: Bloomberg, PL Research

September 10, 2012

Global Currency Movement

Source: Bloomberg, PL Research

Source: Bloomberg, PL Research

Source: Bloomberg, PL Research

September 10, 2012

India: FII/DII Equity Flows

FII (CYTD) net cash market, Rs 533.2 bn)

Heavy FII inflows (~Rs411bn) 300.0 DII's sell (~Rs221bn)

FII's net buying at Rs ~141.1 bn in JulAug'12 , DII's net sells Rs 59.2 bn

Jul-12 Aug-12 Sep-12

September 10, 2012

Global Agricultural Commodities

Performance of Global Agricultural Commodities

5% 0% Sharp spike post mid June

Source: Bloomberg, PL Research

Source: Bloomberg, PL Research

September 10, 2012

Global Industrial Commodities

Thermal Coal Brent crude

Source: Bloomberg, PL Research

-9% -14% -15%

-24% Copper Nickel Aluminium Lead

Source: Bloomberg, PL Research