Result Preview - 3QFY2013

3QFY2013 Results Preview | January 3, 2013
Table of Contents
Strategy 3QFY2013 Sectoral Outlook Automobile Banking Capital Goods Cement FMCG Infrastructure Information Technology Media Metals Oil & Gas Pharmaceutical Power Telecom Watch Stock Watch 11 14 19 21 23 25 28 31 32 35 38 41 43 46 2-9
Note: Stock prices as on September 28, 2012 Refer to important Disclosures at the end of the report
Strategy
3QFY2013 earnings to show early signs of recovery
Earnings to recover
For 3QFY2013, we expect Sensex companies to report an earnings growth of 11.0% yoy as compared to 5.8% yoy in 2QFY2013. Our overall coverage companies (152 companies) are expected to report earnings growth of 10.0% yoy as compared to 8.8% yoy in 2QFY2013. On a sequential basis, the earnings performance for Sensex as well as our coverage companies is likely to improve by 3.9% qoq and 3.7% qoq respectively. The growth in earnings is likely to be driven by oil and gas, BFSI and metals sector stocks.
Margin pressure moderating sequentially

On a yoy basis, for Sensex companies a margin contraction of 110bp yoy is expected due to the decline in past quarters and similarly for our coverage companies we expect a contraction of 109bp yoy. But on a sequential basis margins are expected to decline only marginally by 6bp qoq for Sensex companies and 15bp qoq for our coverage companies.
Outlook and Valuation

We expect the Sensex EPS to report a 7.9% growth to `1,213 in FY2013E. In FY2014E, we expect a more robust 14.2% growth to `1,385. We arrive at our 12 month Sensex target of 22,100, with a target multiple of 16x FY2014E earnings based on the five-year average one-year forward P/E ratio. The target implies an upside of 13.8% from the present levels. Going forward, we believe that there are possibilities for further upsides arising out of improvement in the outlook for earnings growth and rollover to FY2015 earnings.
Slowdown in revenue continues

The revenue performance is expected to remain subdued, largely echoing the slower pace of economic growth and is likely to decelerate slightly as compared to the previous quarter. We expect top-line growth for Sensex companies to come in at 10.3% yoy as compared to 11.7% yoy growth as in 2QFY2013. For our coverage universe, we expect a 10.4% yoy growth in revenue as compared to 12.1% yoy growth in 2QFY2013. The growth on the revenue front is expected to be propelled by automobile, metals and oil & gas sector stocks.
Exhibit 1: 3QFY2013 Angel coverage performance estimates

Sector Agriculture Auto Auto Anc. Banks - Large private Banks - Small private Banks - Large PSU Banks - Mid PSU Banks - Housing finance Capital Goods Cement FMCG Infrastructure IT Media Metals Midcap Mining Oil & Gas Pharmaceuticals Power Telecom Coverage Universe Source: Company, Angel Research Refer to important Disclosures at the end of the report Net Sales (%, yoy) (%, qoq) 16.1 12.9 26.9 19.6 17.6 5.7 5.8 20.2 7.4 13.8 15.8 11.0 14.0 10.2 11.2 10.9 5.5 7.0 2.0 8.6 8.9 10.4 11.4 14.4 4.5 5.5 6.1 4.7 4.7 3.2 11.2 9.7 5.2 18.8 1.9 7.9 7.8 8.1 11.1 (0.1) (4.6) 3.6 1.0 5.7 Net Profit Profit (%, yoy) (%, qoq) 50.9 (2.3) 5.8 22.5 16.1 1.5 4.6 9.8 (1.6) 8.2 11.0 14.1 7.9 12.2 14.4 34.3 (5.8) 27.0 (1.6) 22.7 (7.3) 10.0 15.9 25.2 12.2 12.5 4.8 (0.1) 9.1 1.4 17.6 (2.0) 2.0 24.1 (4.8) 15.0 27.0 (12.5) 24.1 (8.3) (13.5) (15.4) 21.9 3.7 Operating Margins (bps, yoy) (bps, qoq) 305.8 (123.5) (72.3) 8.5 (300.9) (286.5) (257.6) (40.1) (68.6) (36.6) (105.6) 148.9 (147.8) 20.5 (21.0) 29.4 (568.8) (129.0) (314.2) 401.2 (42.8) (108.8) 220.0 51.6 87.5 102.1 90.6 68.3 (49.7) 67.7 62.4 (226.3) (59.5) (23.8) (74.5) 283.5 23.8 (30.8) 727.9 (22.9) (207.9) (365.0) 23.5 (14.7)
Strategy
Exhibit 2: 3QFY2013 Sensex performance estimates
Net Sales Sector Auto (5) Finance (4) Capital Goods (1) FMCG (2) Infrastructure (1) IT (3) Metals (4) Mining (1) Oil & Gas (3) Pharma (3) Power (2) Telecom (1) Sensex (30) Source: Company, Angel Research (%, yoy) 14.2 10.4 5.3 13.9 12.8 13.4 12.8 5.5 5.9 7.3 12.8 10.5 10.3 (%, qoq) 16.3 4.2 6.8 3.2 19.7 2.0 10.2 11.1 (0.2) (7.5) 4.1 0.7 6.0 Net Profit Profit (%, yoy) (2.0) 16.6 (0.5) 4.9 21.6 5.9 59.5 (5.8) 21.6 (8.5) 18.0 (10.0) 11.0 (%, qoq) 28.3 3.7 11.8 (2.0) 17.0 (5.2) 68.3 24.1 (9.5) (18.0) (8.9) 26.2 3.9 Operating Margins (bps, yoy) (140.8) (181.6) (43.3) (231.7) 160.5 (267.7) 78.3 (568.8) (185.4) (431.0) 534.9 (75.6) (110.3) (bps, qoq) 55.1 81.7 102.6 (141.9) 54.2 (48.4) 22.0 727.9 (31.9) (374.5) (117.8) 18.2 (6.0)
Exhibit 3: Sector-wise contribution to Sensex growth

Sector Weights Weights Auto (5) Finance (4) Capital Goods (1) FMCG (2) Infrastructure (1) IT (3) Metals (4) Mining (1) Oil & Gas (3) Pharma (3) Power (2) Telecom (1) Sensex (30) Source: Angel Research 9.9 27.2 1.2 13.5 5.6 13.4 4.6 1.4 13.1 4.5 2.7 2.7 100.0 Net Sales (%, yoy) 25.0 6.4 1.4 4.1 4.4 10.7 16.8 2.1 16.5 1.2 6.9 4.7 100.0 Net Profit (%, yoy) Profit (2.3) 25.0 (0.1) 2.4 3.7 8.0 23.5 (4.8) 39.9 (2.5) 9.3 (2.0) 100.0
Sectoral Analysis
Automobile - Tata Motors to weigh on earnings performance
We expect our coverage automobile universe excluding Tata Motors to report a strong 16.4% yoy earnings growth. Tata Motor's performance is expected to weigh on the sector due to weak standalone performance and high base effect at JaguarLand Rover (JLR). We expect Maruti Suzuki and Mahindra and Mahindra to be the core growth drivers of our coverage universe in 3QFY2013. Maruti Suzuki is expected to register an strong
Refer to important Disclosures at the end of the report
bottom-line growth on account of the low base of last year and sharp revival in volumes post the Manesar strike while Mahindra and Mahindra is likely to witness a strong bottom-line growth driven by growth in volumes and improvement in realization.
Banking - Private Banks to outperform PSU peers

We expect private banks to continue outperforming their PSU peers on the earnings front. Amongst our coverage private banks, we expect larger ones to report a strong performance with an earnings growth of 22.5% yoy, while small private banks can be expected to report healthy 16.1% yoy growth in earnings.
3
Strategy
Dragged by relatively higher asset quality pressures, PSU banks are likely to report a muted earnings performance. Large PSU banks are expected to report a marginal earnings growth of 1.5% yoy, while bottom-line performance of mid-sized PSU banks is expected to be moderate at 4.6% yoy.
IT - Mixed earnings performance

We expect our coverage IT companies to report a mixed performance during the quarter. Overall, we expect a moderate 7.9% yoy earnings growth for our coverage IT companies and we expect Sensex IT companies to report a lower 5.9% yoy growth in earnings. On a sequential basis, both coverage and Sensex IT companies are expected to report a decline in earnings. This can be mainly attributed to the impact of INR appreciation as well as moderate volume growth owing to holiday season at the client sites particularly for the major IT players.
Cement - Higher realizations to drive top-line performance

We expect our cement universe to report a 13.8% yoy improvement in revenues driven by higher realization. Owing to margin pressures on account of higher costs towards raw materials, freight and power, earnings growth is expected to be modest at 8.2% yoy.
Metals and mining - Tata Steel to drive earnings growth

Our coverage metal companies are expected to post a moderate bottom-line growth (14.4% yoy) aided by exceptional earnings growth for Tata Steel mainly due to a low base effect. Excluding Tata Steel however, earnings of our coverage metals companies are likely to contract by 5.6% yoy. Coal India, the only mining company in the Sensex is likely to report a decline in earnings as margins are expected to contract mainly due to higher staff costs and lower e-auction realization.
FMCG - Mixed earnings performance

We expect our coverage FMCG companies to report a mixed earnings performance. The major FMCG players HUL and ITC (the only FMCG companies in the Sensex) are expected to report subdued earnings during the quarter resulting in an overall moderate earnings growth of 11.0% yoy. On the revenue front almost all FMCG companies in our coverage are expected to clock double-digit growth. Overall, for our coverage FMCG companies we expect a healthy 15.8% yoy growth in revenues. Operating margins are expected to contract by 106bp yoy for our coverage companies mainly due to increase in raw material costs.
Oil and gas - Mixed earnings performance

Our coverage oil and gas companies are expected to post a mixed performance on the earnings front. Amongst our coverage oil & gas companies, Cairn India is expected to report a robust bottom-line performance (52.3% yoy) aided by strong revenue growth led by higher volumes.
Infrastructure - Pain at the earnings level continues

The infrastructure sector continues to face challenges such as high interest rates, inflationary cost pressures and slowdown in order inflow. We expect slowdown in execution during 3QFY2013 to result in a moderate top-line performance for our coverage infrastructure companies. We expect our coverage infrastructure companies to report a 14.1% yoy growth in earnings. However, excluding the performance of L&T, earnings for our coverage infrastructure companies are likely to decelerate to 1.6% yoy. L&T, the only infrastructure company in the Sensex, is expected to report a robust 21.6% yoy growth in earnings since we expect its strong order book to result in healthy revenue performance.
Pharmaceuticals - Flat performance but positive outlook continues

We expect our coverage pharmaceutical companies to report a 1.6% yoy decline in bottom-line as revenue growth is likely to be muted (2.0% yoy) and margins are expected to decline (by 314bp yoy). Excluding the negative earnings performance of major players like Ranbaxy and Dr. Reddy's however, earnings growth for our coverage pharma companies remains healthy at 17.3% yoy.
Power and Telecom - Negative headwinds persist

The power sector continues to face headwinds such as fuel shortage, delay in land acquisition and environmental clearances among others while for the telecom sector policy uncertainty persists regarding one-time spectrum fee, exact payout towards spectrum renewals, spectrum re-farming and excess charge as pan India reserve price remains undiscovered. Amongst our coverage companies, we expect power companies to report earnings growth of 22.7% yoy mainly on account of a low base effect while telecom companies are expected to post a contraction of 7.3% yoy in earnings.
4
Capital goods - Challenging environment to weigh on earnings growth

We expect our coverage capital goods companies to report a moderate cumulative top-line growth of 7.4% yoy. On the bottom-line front however we expect most of the capital goods companies in our coverage universe to post a de-growth resulting in a 1.6% yoy decline in overall earnings growth mainly due to margin pressure.
Strategy
Exhibit 4: Sensex companies' performance estimates
Net Sales (` cr) (` Sector Bajaj Auto Bharti Airtel BHEL Cipla Coal India Dr. Reddy HDFC HDFC Bank Hero Moto Corp Hindalco HUL ICICI Bank Infosys ITC Jindal Steel Gail India L&T M&M Maruti Suzuki NTPC ONGC RIL SBI Sterlite Sun Pharma Tata Motors Tata Power Tata Steel TCS Wipro Total Sensex# Source: Company, Angel Research; Note: # based on free-float adjusted basis Weight Weight (%) 1.7 2.7 1.2 1.3 1.4 1.4 7.9 8.1 1.1 1.0 3.5 7.7 7.2 10.0 1.0 1.1 5.6 2.7 1.3 1.6 3.5 8.6 3.6 1.0 1.8 3.2 1.1 1.6 4.7 1.5 100.0 3QFY2013E 5,255 20,415 11,110 2,024 16,190 2,700 1,780 5,496 6,141 7,199 6,591 5,575 9,961 7,131 3,742 11,986 15,790 10,915 10,938 16,712 19,294 89,981 14,819 11,288 2,383 48,794 8,085 38,228 15,926 10,974 437,421 3QFY2012 4,840 18,477 10,548 1,711 15,349 2,769 1,460 4,536 5,984 6,590 5,853 4,604 9,298 6,195 3,652 11,260 13,999 8,278 7,527 15,332 18,124 85,135 14,462 10,246 2,145 45,199 6,660 33,103 13,204 9,997 396,537 % chg 8.6 10.5 5.3 18.3 5.5 (2.5) 21.9 21.2 2.6 9.2 12.6 21.1 7.1 15.1 2.5 6.4 12.8 31.8 45.3 9.0 6.5 5.7 2.5 10.2 11.1 8.0 21.4 15.5 20.6 9.8 10.3 11.0 3QFY2013E 810 910 1,425 404 3,808 339 1,162 1,860 602 404 790 2,024 2,157 1,798 490 1,147 1,020 876 474 2,592 4,843 5,108 3,587 1,524 584 2,865 422 683 3,367 1,585 49,659 Net Profit (` cr) Profit (` 3QFY2012 854 1,011 1,432 270 4,043 513 981 1,430 613 451 766 1,728 2,372 1,701 751 1,091 839 662 206 2,130 3,599 4,440 3,263 1,345 668 3,406 425 (603) 2,887 1,456 44,730 % chg (5.1) (10.0) (0.5) 49.7 (5.8) (33.9) 18.5 30.1 (1.8) (10.4) 3.1 17.1 (9.1) 5.7 (34.8) 5.1 21.6 32.3 130.5 21.7 34.6 15.0 9.9 13.3 (12.6) (15.9) (0.5) 213.3 16.7 8.8 11.0 11.7
Strategy
Paving Reforms - Paving the way for an improvement in economic outlook:
Since September 2012, the government has taken a number of positive policy steps in the areas of structural reforms, fiscal consolidation and investment revival. The slew of reform measures announced has led to a renewal in investor sentiments and business confidence.
Exhibit 5: The Reform Report Card

Reforms Diesel prices raised by `5/litre and cap on subsidized LPG cylinders FDI in multi-brand retail (up to 51%) Major likely implications Curtail subsidy burden on petroleum and narrow fiscal deficit Attract long term capital inflows. Boost investment. Improve supply chain efficiency and thereby positively impact inflation Attract long term capital inflows. Boost investment Status Approved by CCEA Approved by CCEA. Final decision to allow it rests with respective States. Approved by CCEA Parliamentary approval required No No
FDI in civil aviation (up to 49%), broadcasting (up to 74%) and power exchanges (up to 49%) FDI in insurance (up to 49%) and pension sector (up to 49%)
No
Attract long term capital inflows. Boost investment. Improve supply chain efficiency and thereby positively impact inflation Achieve financial turnaround of power distribution companies Greater autonomy to regulator and likely to result in allowing new products like options Speed up acquisition and enable determination of economic feasibility of project in early stages. Expected to drive up land cost and thus escalate project cost. Improve corporate governance through greater accountability and transparency To incentivize setting up and expansion of plants . Lower dependence on urea imports Likely to expedite clearances from various ministries thus reviving investment and growth but implementation remains key. Likely to reduce leakages in the distribution system, bring down administrative costs on subsidies and circumvent misappropriation of welfare benefits but identifying beneficiaries and financial inclusion are key for implementation To meet the budgeted disinvestment target of `30,000cr and narrow the fiscal deficit
Bill deferred for consideration in parliament until the next session
Yes
State Electricity Boards debt restructuring
Approved by CCEA. State governments to finalize the restructuring plans. Approved by Union Cabinet and deferred for consideration until the next parliamentary session Approved by Union Cabinet and deferred for consideration until the next parliamentary session Cleared by Lok Sabha, pending clearance in Rajya Sabha Approved by CCEA Approved by CCEA
No
Forward Contracts Amendment Bill
(Regulation)
Yes
Land acquisition and rehabilitation and resettlement bill - Stipulates 80% landowners consent for private projects, 70% for PPPs and no consent for public projects. Companies Bill 2011 Urea policy Cabinet Committee on Investment (inter-ministerial body for projects above `1,000cr) Direct Cash Transfer - Transfer of subsidy directly to beneficiaries' bank account to be linked with their unique identity number (Aadhar card)
Yes
Yes No No
To be rolled out for scholarships, pensions, NREGA wages etc in 20 districts from January 2013, cover total 43 districts by March 2013, 18 states from April 2013 and the remaining states by April 2014 Divested stake in Hindustan Copper and NMDC. CCEA has approved stake sale in NALCO, SAIL, NTPC, RINL, BHEL, Oil India, MMTC and HAL and RCF Cleared by parliament. RBI to finalize guidelines for issue of bank licenses Decision on scheme taken by the commerce ministry
No
Disinvestment in blue-chip PSUs
No
Banking laws (amendment)
Expected to pave the way for issuance of the new bank licenses for private players Likely to boost export growth, support the trade balance and INR but impact is likely to be limited by weak external demand
Cleared
Extend 2% interest subvention on loans for labor-intensive export industries and engineering sector until March 2014
No
Strategy
So far, the government has decisively moved in the right direction as evident from some of the politically difficult but economically beneficial policy measures. We believe that further positive actions by the government such as implementing GST and DTC, alleviating constraints in mining and power sector to remove supply-side bottlenecks, clearing hurdles for land acquisition and expediting investments are likely to augur positively for market sentiment. In the medium term, we believe that these measures are likely to pave the way for a better economic outlook thereby having a positive impact on the earnings growth trajectory for corporates. Recovery in services sector growth during the quarter to 7.2% yoy as compared to 6.9% in the previous quarter supported the overall headline growth print as industry and agriculture reported modest growth performance. Industrial growth decelerated to 2.8% yoy as compared to 3.6% in the previous quarter and 3.7% in 2QFY2012 as manufacturing activity continued to remain muted. Agricultural growth reported a subdued growth of 1.2% yoy owing to a decline in kharif production due to late revival of monsoon and this impact is likely to play out further in the next quarter. We believe that growth for FY2013 has likely bottomed out in the second quarter. Overall, there is an improvement in the outlook for global growth going ahead, as policymakers take positive steps to support the recovery and reduce tail-risk scenarios. In addition, with key domestic policy measures being taken to stimulate growth in the economy we expect 5.7% yoy real GDP growth for FY2013. Also, positive catalysts to the outlook for FY2014 improving are likely to lead to a pick-up in growth and we expect the economy to move closer to 6.3% yoy growth.
GDP growth expected to improve in FY2014

Growth in consumption as well as investment has moderated and exports remain tepid due to weak global demand. Real GDP growth for 2QFY2013 came in line with expectations at 5.3% yoy, decelerating from 5.5% yoy growth in 1QFY2013 and 6.7% yoy growth in the corresponding quarter of the previous year.
Exhibit 6: Moderation in GDP growth

(%) 12.0 9.8 10.0 8.0 5.8 6.0 4.0 2.0 0.0
1QFY2009 2QFY2009 3QFY2009 4QFY2009 1QFY2010 2QFY2010 3QFY2010 4QFY2010 1QFY2011 2QFY2011 3QFY2011 4QFY2011 1QFY2012 2QFY2012 3QFY2012 4QFY2012 1QFY2013 2QFY2013
Exhibit 7: Contribution to demand-side GDP

120.0 100.0
Real GDP
11.2 8.5 5.7 3.5 9.0 7.5 8.5 9.2 7.6 8.2 8.0 6.7 6.1 5.3 5.5 5.3
80.0 60.0 40.0 20.0 0.0
1QFY11
2QFY11
3QFY11
4QFY11
1QFY12
2QFY12
3QFY12
4QFY12
1QFY13
(20.0)
Pvt final consumtion expend. Changes in stocks Discrepancies
Govt final consumption expend. Valuables
Gross fixed capital formation Net exports
Source: MOSPI, Angel Research
Source: MOSPI, Angel Research
Exhibit 8: Moderating core inflation

(%) 12.0
Exhibit 9: Easing commodity prices

320 310 130 120 110 100 90 80 70 May-12 Jun-12 Jul-12 Aug-12 Sep-12 Oct-12 Nov-12 Dec-12 CRB commodity index Indian crude basket (USD/bbl) - (RHS)
Core Inflation
WPI Inflation
10.0 8.0 6.0 4.0 2.0 0.0

Apr-11 May-11 Jun-11 Aug-11 Dec-11 Feb-12 Sep-11 Jan-12 Mar-12 Apr-12 May-12 Jun-12 Aug-12 Jul-11 Nov-11 Sep-12 Oct-11 Jul-12 Oct-12 Nov-12
7.2
300 290
4.5
280 270 260 Apr-12
Source: Office of Economic Advisor, Angel Research
Source: Bloomberg, Angel Research
2QFY13
Strategy
Window for monetary policy easing opens in 4QFY2013
Headline WPI inflation moderated for the second consecutive month and came in at 7.2% yoy for the month of November 2012 as compared to 7.5% yoy during October 2012 and a higher 9.5% yoy in November 2011. Deceleration in the headline print can be attributed to softening commodity prices and the lagged impact of rupee appreciation resulting in moderation in inflation of manufactured products. Core (manufactured non-food) inflation for the month of November edged to a two-year low of 4.5% yoy, well within the Reserve Bank of India (RBI)'s comfort level. We believe that easing of the core component is likely to give some respite as far as interest rates are concerned. However, Consumer Price Index inflation has accelerated to almost double-digits at 9.9% yoy in November 2012. In its recent December policy review the RBI has treaded cautiously as prices continue to remain elevated despite easing pressures. On a positive note, the RBI's policy stance has increasingly shifted towards supporting growth rather than focusing purely on inflation management. The RBI has also reiterated its guidance on policy easing in the fourth quarter of the fiscal year. We believe that going ahead; softening commodity prices along with a high base lend a positive bias on bringing down headline inflation, thus opening the window for reduction in monetary policy rate. We expect the RBI to ease the repo rate by 50bp in 4QFY2013. previous year. Merchandise imports too declined but by a lower 4.8% during the quarter as against an increase of 38.1% in Q2 of 2011-12. The sharper decline in exports as compared to imports has led to widening of the trade deficit to USD48.3bn during 2QFY2013 from USD44.5bn during the corresponding quarter of the previous year. In the April - September period, the CAD increased to USD38.7bn as compared to USD36.3bn in the corresponding period of the previous year. The CAD as a percentage of GDP also marked an increase during the first half of the fiscal year to 4.6% from 4.0% in the corresponding period of the previous year. As far as narrowing the fiscal deficit is concerned, various proactive measures taken by the government to rein the deficit include hike in diesel prices, capping supply of subsidized LPG cylinders to households, kick-starting the disinvestment program and auctioning of telecom spectrum. We believe that despite these steps, the government is likely to fall short of meeting its revised fiscal deficit target of 5.3% of GDP owing to slowing revenues due to slowdown of growth in the economy and a burgeoning subsidy burden. The fiscal deficit has already reached 80.4% of the budgeted estimate (BE) in the April - November 2012 period. Political will to continue the process of fiscal consolidation remains key as the threat of sovereign ratings downgrade still lingers. Also going ahead, a fiscal deficit in FY2014 at 4.8% of GDP as indicated by the Finance Minister seems optimistic since the risks of a populist budget prevail as we come closer to elections in 9 states in 2013 and the 2014 general election. On a positive note though, key triggers to watch out for in respect of fiscal consolidation in the medium-term include a) direct cash transfers, b) increase in diesel prices, c) impact of shale on global oil and gas prices and d) revenue buoyancy on account of anticipated improvement in GDP and corporate earnings growth.
Current account and fiscal deficit key risks

India's Current Account Deficit (CAD) for 2QFY2013 surged to a record high of 5.4% of GDP It stood at USD22.3bn as . compared to USD18.9bn (4.2% of GDP) in the corresponding period of the previous year on account of a large trade deficit. In 1QFY2013, the CAD had narrowed to USD16.6bn ie 3.9% of GDP . Merchandise exports declined dramatically by 12.2% during 2QFY2013 as against growth of 45.3% in the same quarter of
Exhibit 10: Fiscal deficit crosses 80% of budgeted estimate

FY2013 BE (` cr) Revenue Receipts Non-Debt Capital Receipts Total Receipts Total Expenditure Fiscal Deficit Source: CGA, Angel Research 935,685 41,650 977,335 1,490,925 513,590 Up to November 2012 (` cr) 445,819 8,900 454,719 867,645 412,926 Share of actuals to BE (%) 47.6 21.4 46.5 58.2 80.4
Strategy
We expect the Sensex EPS to report a 7.9% growth to `1,213 in FY2013E. In FY2014E, we expect a more robust 14.2% growth to `1,385. We arrive at our 12 month Sensex target of 22,100, with a target multiple of 16x FY2014E earnings based on the five-year average one-year forward P/E ratio. The target implies an upside of 13.8% from the present levels. Going forward, we believe that there are possibilities for further upsides arising out of improvement in the outlook for earnings growth and rollover to FY2015 earnings.
Exhibit 11: Sensex EPS growth over FY2012-14E

(`)
1,500 1,300
7.9% growth
14.2 row %g th
Exhibit 12: Sensex one year forward P/E

30.0 Sensex 1 year forward P/E 15 year Avg 5 year Avg 25.0
1,385
1,100 1,124 900
1,213
20.0
15.0
700 500 300 FY2012 FY2013E FY2014E

10.0
5.0 Dec-00
Dec-02
Dec-04
Dec-06
Dec-08
Dec-10
Dec-12
Source: Angel Research
3QFY2013 Sectoral Outlook
10
Automobile
Muted festival demand
The domestic automotive industry failed to recover during 3QFY2013 as demand across the segments (excl. utility vehicles and light commercial vehicles) faded out post the festival season. The total industry volumes saw a modest growth of 4.8% YTD in FY2013, due to continued weakness in the medium and heavy commercial vehicle (MHCV, down 16.3% yoy), tractor and passenger car (PC, flat yoy) segments. Nonetheless, the utility vehicle (UV) and light commercial vehicle (LCV) segments sustained their growth momentum, reporting a strong growth of 37% and 17% respectively in YTD FY2013. Going ahead, we expect the demand to remain under pressure in 4QFY2013; however, an expected easing of interest rates going ahead is likely to revive demand in FY2014. however, other heavyweights like Hero MotoCorp (HMCL) and MM underperformed the auto index. TTMT, BJAUT and MSIL were the major gainers during the quarter, with absolute gains of ~17%, ~16% and ~10% respectively. Bharat Forge declined ~17% on account of sluggish CV volumes and Exide Industries was down ~6% on posting weak results for 2QFY2013.
Exhibit 1: 3QFY2013 - Stock price performance

Tata Motors Maruti Suzuki MM Hero MotoCorp Exide Industries Cummins India Bharat Forge(27.1) Bajaj Auto Bosch Ashok Leyland (30.0) (20.0) (10.0) 0.0 (2.1) 2.3 10.0 (8.7) (15.9) (6.2) (7.9) 1.9 (17.3) 6.6 16.3 7.6 12.1 20.0 (2.2) 7.6 1.0 0.6 10.3 7.1 16.8
Margin pressures to impact profitability yet again

For 3QFY2013, we expect automotive OEMs in our coverage universe to register a strong revenue growth of ~13% yoy (and 14% qoq) on the back of improvement in net average realization, mainly due to superior product-mix at Maruti Suzuki (MSIL) and Mahindra and Mahindra (MM) and favorable currency movement - the INR depreciated by ~9% yoy and ~6% yoy vs the GBP and the USD respectively. However, volumes were up by only ~3% yoy on muted festival demand. On a sequential basis, the top-line growth is likely to be driven by a volume growth of ~12% qoq as volumes benefitted on account of festival buying, new launches and restoration of operations at MSIL. Excluding Tata Motors (TTMT) which is expected to register a modest growth of ~8% yoy on weak standalone performance, our coverage universe is likely to report a robust revenue growth of ~20% yoy. We estimate EBITDA margins to remain under pressure and witness a contraction of ~130bp yoy during the quarter. We therefore expect net profit to register a decline of ~2% yoy for the quarter. Nonetheless, the net profit of our coverage universe excluding TTMT is expected to report a strong ~16% yoy growth. TTMT's performance would weigh on the sector due to weak standalone performance and high base effect at Jaguar- Land Rover (JLR). We expect MSIL and MM to be the core growth drivers of our coverage universe in 3QFY2013. MSIL is expected to register an ~131% yoy growth in its bottom-line on account of the low base of last year and sharp revival in volumes post the Manesar strike. MM on the other hand is likely to witness a strong bottom-line growth of ~32% yoy, driven by an ~11% yoy growth in volumes and improvement in net average realization.
Relative to Auto index (%)
Absolute
CV growth slows down on sharp decline in MHCV sales

The commercial vehicle (CV) segment witnessed further slowdown in 3QFY2013 (grew by 2.7% yoy YTD in FY2013) as MHCV sales reported a decline of 16.3% yoy on account of slowdown in economic activity and softening of freight rates. The segment continues to perform poorly despite record discounts and attractive finance schemes on offer. We believe that the demand for MHCVs is likely to remain weak going ahead led by slowdown in industrial activity which has led to lower availability of cargo. Nonetheless, LCV volumes continue to witness strong traction (17% yoy growth YTD in FY2013) due to the structural factors such as proliferation of the hub and spoke model and new product launches. We expect the LCV segment to sustain its momentum going ahead and register a strong volume CAGR of 15-16% over the next two years. We expect the CV manufacturers to register a sluggish performance in 3QFY2013 as a sharp decline in MHCV volumes will negatively impact the performance of TTMT (standalone) and Ashok Leyland (AL). On a standalone basis, we expect TTMT to register a decline of ~12% yoy in its revenues as total volumes witnessed a decline of ~10% yoy. Further, net average realizations and operating margins are also expected to remain under pressure on account of higher discounts. Nonetheless driven by JLR, TTMT's consolidated revenue is expected to register a healthy growth of ~8% yoy. We expect JLR to register a strong revenue growth of ~19% yoy (~10% in GBP terms) driven by incremental volumes from Evoque and Freelander on easing capacity constraints at the Halewood plant. Nonetheless, the bottom-line is expected to decline ~16% yoy mainly due to weak standalone performance and high base effect at JLR.
11
Auto index outperforms the Sensex

The BSE Auto index outperformed the Sensex during 3QFY2013, registering absolute gains of 9.7%. The outperformance was led by index heavyweights, TTMT and Bajaj Auto (BJAUT);
Automobile
We expect AL's top-line to register a de-growth of ~14% yoy (~25% qoq) largely due to higher discounts and increasing contribution of the lower priced Dost (~36% of total volumes vs 29% in 2QFY2013). We estimate EBITDA margins to decline by 180bp qoq on account of adverse product-mix and higher discounts which are likely to drag down the bottom-line by ~39% yoy (down ~70% qoq). sequentially on account of favorable product-mix and currency movement and operating leverage benefits. Hence, the bottom-line is expected to surge ~131% yoy, although on a lower base.
Growth in 2W sales remains muted

The 2W industry registered a muted growth during the quarter leading to a 4% yoy growth YTD in FY2013. While the industry witnessed an improvement in sales at the beginning of the festival season; the momentum was short lived and demand flattened out by the end of the festival period. The motorcycle segment continues to be the most impacted (flat YTD FY2013) with weak sales across segments (excl. 110cc-125cc segment). While the sales of 75cc-110cc segment witnessed a decline of 2% yoy; the 125cc-150cc segment registered a sharp decline of 22.5% yoy. However the 110cc-125cc segment registered a strong growth of 32.6% yoy led by new launches (Discover 125ST, Ignitor, Phoenix and Hayate) and availability of additional capacity at Honda Motorcycle and Scooter India (HMSI). The scooters segment on the other hand, maintained its momentum and registered a strong growth of 20% yoy YTD in FY2013. Going ahead, we expect the near-term environment to remain challenging for the 2W industry as demand remains weak due to macro-economic concerns and sharp increase in fuel prices. During the quarter, HMCL posted an ~1% yoy (up ~18% qoq) decline in volumes due to subdued demand in domestic markets. However, we expect net average realization to improve ~4% yoy leading to an ~3% yoy growth in the top-line. We expect operating margins to remain under pressure (down by ~50bp yoy) mainly due to increase in promotional activity. As a result, the bottom-line is expected to post a decline of ~2% yoy (up strongly by ~36 qoq). For Bajaj Auto (BJAUT), we expect the top-line to report an ~9% yoy growth driven by ~5% and ~4% yoy growth in volumes and net average realization respectively. The volume growth during the quarter was led by the new launches (Discover 125ST and Pulsar 200NS) and revival in exports volumes. On the operating front, we expect margins to remain under pressure and contract by ~110bp yoy. As a result, the bottom-line is likely to decline by ~5% yoy. Exhibit 4: BJAUT, HMCL and TVSL Quarterly volumes
Segment
BJAUT BJAUT Motorcycles Three-wheelers
Exhibit 2: TTMT and AL Quarterly volumes

Segment
TTMT Total CV Total PV Exports (incl. above) AL
3QFY2013 3QFY2012 % chg 9MFY2013 9MFY2012 % chg

203,852 149,510 54,342 11,654 22,666 227,110 (10.2) 143,617 83,493 14,135 23,215 4.1 (34.9) (17.6) (2.4) 613,716 424,811 188,905 39,403 80,084 626,580 414,057 (2.1) 2.6
212,523 (11.1) 45,213 (12.9) 66,361 20.7
Source: Company; Angel Research
Festival buying and strong momentum in UV sales boost PV growth

Passenger vehicle (PV) sales recovered during the quarter led by festival demand and strong momentum in UV sales. Although the festival cheer was muted compared to last year, the growth can be considered strong in view of the current economic environment. The domestic PV volumes registered a healthy growth of ~10% yoy YTD in FY2013 (~7% yoy growth in 1HFY2013) backed by an ~62% yoy growth in the UV sales on account of new launches like Ertiga, Duster and XUV5OO. However, despite higher discounts in the PC segment, sales remained muted due to sluggish demand for petrol cars. Going ahead, we expect PC sales to remain lackluster as we do not expect a major revival in petrol car sales in the near term. Nonetheless, we expect UV sales to sustain the growth momentum leading to a 10-12% volume CAGR in PV sales over FY2012-14. We expect MSIL to post a strong performance in 3QFY2013 (on a low base of last year due to the strike at Manesar plant) driven by ramp up in production at the Manesar plant post the strike in August 2012. We expect the top-line to register a strong growth of ~45% yoy (~36% qoq) driven by ~28% (~33% qoq) and ~14% yoy (~2% qoq) growth in volumes and net average realization respectively. We expect EBITDA margins to improve by ~140bp
Exhibit 3: MSIL and MM Quarterly volumes

Segment
MSIL Domestic Exports MM Automotive - exports Tractor - domestic Tractor - exports

1,127,741 986,263 141,478 1,075,441 946,749 128,692 380,912 1,589,276 530,031 520,740 9,291 68,881 4.9 3,255,920 3,332,393 4.2 2,897,410 2,937,157 9.9 358,510 395,236 (2.3) (1.4) (9.3) (4.1) (2.5) (8.8) (9.1) 6.6

306,118 274,694 31,424 211,678 6,500 62,341 2,459 239,528 211,803 27,725 190,838 117,402 7,587 62,009 3,840 27.8 29.7 13.3 10.9 19.6 (14.3) 0.5 (36.0) 832,390 747,912 84,478 588,362 389,454 24,690 165,699 8,519 773,361 684,892 88,469 531,809 327,897 20,543 173,519 7.6 9.2 (4.5) 10.6 18.8 20.2 (4.5)
Exports (incl. above) 376,222 HMCL TVSL Two-wheelers Three-wheelers Exports (incl. above) 1,573,135 518,146 504,894 13,252 58,894
(1.2) 1,182,152 1,232,410 (1.0) 4,546,230 4,663,168 (2.2) 1,523,305 1,670,391 (3.0) 1,488,761 1,637,993 42.6 (14.5) 34,544 179,667 32,398
Automotive - domestic140,378
9,850 (13.5)
Source: Company; Angel Research Refer to important Disclosures at the end of the report
231,182 (22.3)
Source: Company; Angel Research
12
Automobile
Auto ancillaries
We expect auto ancillary companies to report a mixed performance for 3QFY2013. With an up-tick in OEM demand led by festival buying and gradual recovery in replacement demand, primarily in batteries and tyres, the top-line of our coverage universe (ex. Bharat Forge) is expected to post a healthy growth. However, likely margin pressures due to an unfavorable currency and a slightly adverse product-mix (higher share of OEMs) will negatively impact the bottom-line. We expect Apollo Tyres (APTY) and Exide Industries (EXID) to outperform in 3QFY2013 driven by healthy demand and falling raw-material prices. We expect APTY to register a healthy growth of ~10% yoy in consolidated revenues driven by ~11% and ~12% yoy growth in domestic and South Africa revenues respectively. European operations are expected to register a modest growth led by an uncertain macro-economic environment. We expect the consolidated margins to improve 140bp yoy to 11.5% primarily on account of a sharp decline in rubber prices (down ~15% yoy). On the back of the improved operating performance, the adjusted net profit is expected to grow strongly by ~30% yoy. For Bharat Forge (BHFC), we expect the standalone volumes to decline sharply by ~17% yoy led by sharp deceleration in MHCV sales and slowdown in Europe. However, strong realization growth, due to increasing share of machining component and favorable forex movement, is expected to restrict the decline in net sales to ~7% yoy. We expect the bottom-line to decline by ~14% yoy as we expect operating margins to contract by ~210bp yoy on account of reduced operating leverage. Exhibit 5: Quarterly estimates Automobile
Company AL BJAUT HMCL^ MSIL MM TTMT* TVSL CMP (`) 27 2,131 1,898 1,489 930 312 42 Net Sales 3QFY13E 2,423 5,255 6,141 10,938 10,915 48,794 1,793 (14.4) 8.6 2.6 45.3 31.8 8.0 3.6 OPM (%) chg bp 109 (108) (50) 232 (10) (225) (1) 8.3 18.7 11.7 7.5 12.1 12.8 6.5 Profit Net Profit 3QFY13E 41 810 602 474 876 2,865 59 (38.8) (5.1) (1.8) 130.7 32.3 (15.9) 4.2 (` EPS (`) % chg (38.8) (5.1) (1.8) 130.7 31.9 (15.9) 4.2 0.2 28.0 30.1 16.4 14.8 9.0 1.2 (` EPS (`) FY12 2.1 106.5 108.3 50.6 46.7 36.1 5.2 FY13E 2.1 110.4 118.2 67.3 54.4 35.5 4.6 FY14E 2.8 126.5 130.0 94.6 62.1 42.7 5.8 FY12 12.8 20.0 17.5 29.5 19.9 8.7 8.0 P/E (x) FY13E 12.8 19.3 16.1 22.1 17.1 8.8 9.2 FY14E 9.6 16.8 14.6 15.7 15.0 7.4 7.2 % chg 3QFY13E % chg 3QFY13E (`) (` 31 2,014 998 337 46 Buy Neutral Accum. Neutral Accum. Accum. Accum.
We expect Bosch (BOS) to post an ~8% yoy growth for the quarter due to weak MHCV volumes, the major driver of the company's revenues. We expect EBITDA margins to decline sharply by ~220bp yoy led by raw-material cost pressures (due to INR depreciation) and lower operating leverage. Hence, the net profit is expected to decline by ~29% yoy during the quarter. EXID is likely to witness a strong revenue growth of ~28% yoy led by healthy demand from the automotive OEMs as well as replacement markets and continued traction in the inverter battery sales. We expect EBITDA margins to improve by ~110bp qoq due to price hikes taken in 2QFY2013 (~5% across the replacement segment). Hence net profit is expected to jump ~31% yoy. We expect Motherson Sumi Systems to continue to post improvement in its operating performance driven by improving utilization levels at the domestic level and on the Samvardhana Motherson Reflectec front. Led by consolidation of Peguform operations, the top-line and bottom-line are expected to post an ~61% and ~127% yoy growth, respectively.
Outlook
We believe the long-term structural growth drivers of the domestic automotive industry such as GDP growth (leading to increasing affluence of rural and urban consumers), favorable demographics, low penetration levels, entry of global players and easy availability of finance are intact, which should support a 10-12% CAGR in auto volumes over FY2012-14E. As such, we prefer stocks that have strong fundamentals, high exposure to rural and export markets and commanding superior pricing power. We remain positive on Ashok Leyland, Hero MotoCorp, We Leyland, Tata Mahindra and Mahindra and Tata Motors. (` cr) `
Target Target Reco.
Source: Company, Angel Research; Note: Price as on December 31, 2012; * Consolidated numbers; ^ OPM adjusted for royalty payment
Exhibit 6: Quarterly estimates Auto Ancillary

Company Apollo Tyres* Bharat Forge& Bosch# Exide Industries CMP (`) 89 252 9,476 144 Net Sales 3QFY13E 3,559 856 2,112 1,593 365 6,068 10.3 (7.0) 8.2 27.5 5.4 60.9 OPM (%) chg bp 140 (211) (219) 27 (259) 76 11.5 23.3 15.3 13.5 15.5 7.4 Net Profit Profit 3QFY13E 166 89 199 137 39 127 29.6 (13.7) (29.0) 31.4 (9.9) 127.3 EPS (`) (` % chg 29.6 (13.7) (29.0) 31.4 (9.9) 124.7 3.3 3.8 63.5 1.6 23.3 3.2 EPS (`) (` FY12 8.1 17.6 319.3 5.4 101.9 4.3 FY13E 12.5 18.7 396.2 7.2 127.7 8.0 FY14E 14.8 23.1 455.7 9.0 150.6 10.6 FY12 10.9 14.3 29.7 26.5 16.7 45.6 P/E (x) FY13E 7.1 13.5 23.9 20.1 13.3 24.6 FY14E 6.0 10.9 20.8 16.1 11.3 18.7 Target Target (` (`) 96 278 155 1,807 % chg 3QFY13E % chg 3QFY13E
(` cr) `
Reco. Accum. Accum. Neutral Accum. Accum. Neutral
FAG Bearings# 1,700 Motherson Sumi* 198
Source: Company, Angel Research; Note: Price as on December 31, 2012, * Consolidated numbers; # December ending; & Full year EPS is consolidated
Yaresh Kothari Analyst - Yaresh Kothari

13
Banking
Banking stocks outperform broader markets on liquidity and rate cut hopes
Banking stocks under our coverage outperformed the broader market during 3QFY2013, with more than half of them generating sequential returns higher than 10%. The rally was largely driven by liquidity and rate cut hopes fueled by moderation in inflation levels. Though the economic growth environment remains challenging and in spite of inflation having moderated in the last two consecutive months, the RBI restrained from any policy rate cuts during the quarter. However, the central bank's stance now indicates increasing concern to address growth rather than pure concentration on inflation management, as it had been doing till now. At the shorter end of the interest rate curve, a slight moderation in three-month CD and CP rates rates should lead to easier and cheaper access to short term funding. Even at the longer end of the yield curve, despite the recent increase in term deposit rates by a few banks, many others have sequentially lower term deposit rates, which would ease costs of deposits to some extent. Though Private banks are expected to report a healthy earnings performance with a 21.7% yoy growth, the overall bottom-line performance is expected to be moderate at 8.1%, largely dragged by subdued performance of PSU banks (2.5% yoy). Dissecting private banks performance, the larger ones (22.5% yoy) are expected to comfortably outperform smaller ones (16.1% yoy). Within PSU banks, mid PSUs and large-PSUs are expected to report a muted performance with growth of 4.6% and 1.5% yoy, respectively.
Credit growth outlook remains challenging; Deposits growth moderates

Credit growth for the banking system as of December 14, 2012 stood at 16.3% yoy. On an incremental basis, the FY2013 YTD net credit off-take is lower by 21% yoy, but the situation is slightly better as regards incremental credit off-take reported till date in 3QFY2013 (higher by ~`32,000cr, which though in context of annual credit off-take is not a significant number). The slight improvement in credit off-take is partially due to renewed focus amongst banks to shore up retail assets by lowering their spreads, as a tough economic growth environment and elevated interest servicing costs have resulted in weak incremental credit demand from corporates except for working capital needs. The RBI has also revised downwards this year's credit growth projection to 16%, from 17% projected earlier. However in our view, credit growth by the year end could fall even lower to 14-15%, as the pipeline for banks, as indicated by their managements, remains thin, largely comprising of existing sanctions. Deposit growth also continues to remain moderate at 13.3% yoy as of December 14, 2012. Even on an incremental basis, the FY2013 YTD deposit mobilization is higher by 12.1% yoy.
Exhibit 1: 3QFY2013 stock performance

(%) Jammu & Kashmir Bank (JKBK) Union Bank of India (UNBK) United Bank of India (UTDBK) Yes Bank (YESBK) Federal Bank (FEDBK) Bank of Maharashtra (BOM) South Indian Bank (SIB) Axis Bank (AXSB) Syndicate Bank (SYNDBK) Oriental Bank of Commerce (OBC) Allahabad Bank (ALBK) Canara Bank (CANBK) IDBI Bank (IDBIBK) Vijaya Bank (VIJBK) Corporation Bank (CRPBK) Bank of India (BOI) Indian Overseas Bank (IOB) Bank of Baroda (BOB) Dena Bank (DENABK) HDFC Bank (HDFCBK) ICICI Bank (ICICIBK) Central Bank of India (CNTBK) HDFC State Bank of India (SBI) Andhra Bank (ANDBK) Punjab National Bank (PNB) LIC Housing Finance (LICHF) Indian Bank (INDBK) UCO Bank (UCOBK) Source: Bloomberg, Angel Research Returns (qoq) 38.8 32.0 25.9 21.5 20.4 20.0 19.6 19.4 17.9 16.0 15.8 15.2 11.4 10.8 10.4 10.2 9.4 8.6 8.2 7.9 7.5 7.2 7.0 6.5 4.7 3.7 3.4 3.1 2.5 Returns (yoy) 91.6 61.5 72.9 94.3 59.8 57.0 35.3 67.9 87.4 78.4 48.0 36.3 43.0 37.8 31.7 28.8 16.8 30.2 134.9 59.0 66.3 27.4 27.1 47.3 47.4 11.6 31.6 7.8 73.0
Exhibit 2: Deposits growth remains moderate

30.00 25.00 20.00 15.00 10.00 5.00 0.00
Credit growth (%)
Deposit growth (%)
Feb-09
May-09
Feb-10
Nov-09
Nov-08
Aug-10
Feb-11
Nov-10
Aug-09
May-10
Aug-11
Feb-12
May-12
May-11
Source: RBI, Angel Research
Exhibit 3: Average LAF borrowings higher sequentially

(` bn) (500) (1,000) (1,500) (2,000) (2,500)
Jun-12 Aug-12 Mar-12 May-12 Nov-12 Dec-12 Feb-12 Jan-12 Sep-12 Apr-12 Oct-12 Jul-12
14
Nov-12
Nov-11
Aug-12
Banking
The deposit rate cuts have made the real interest rates for depositors even more negative (considering persisting CPI inflation levels at around 10%), which is likely to result in moderate deposit growth going ahead as well. Diesel and LPG price revisions, hikes in electricity tariffs, agricultural bottlenecks and increase in MSPs of agriculture products, are yet to fully reflect in generalized inflation and therefore pose significant upside risks to overall inflation expectation and resultant outlook for savings and deposit mobilization. Bank and Bank of India, have recently increased their peak term deposits rates (1-3 year tenure) by 25-35bp, respectively. Unlike in the last quarter, where a 25bp CRR cut in the September policy review prompted banks like SBI, State Bank of Bikaner and Jaipur and State Bank of Mysore to reduce base rates by 25bp, there was no base rate reduction in 3QFY2013 induced after 25bp CRR cut, as banks await the RBI to reduce policy rates. HDFC bank has become the first bank to reduce its base rate by 10bp with effect from December 31, 2012 ahead of RBI's monetary policy review due on January 29, 2013, which in our view, is to manage its ALM. Short-term borrowing rates have eased further in 3QFY2013, though at a decelerating pace compared to last quarter, as reflected in the slight correction in the three-month CD and CP rates. Easier and cheaper access to short-term funding, in our view, should support margins to some extent. Amongst our coverage universe, only SBI and OBC had reduced their base rates by 25bp and 10bp, respectively in the previous quarter and accordingly on an average basis their base rates were lower by 22bp and 5bp qoq, respectively. On the deposits front, Vijaya Bank, Central Bank, J&K Bank and South Indian Bank have reduced their retail term deposit rates (1-3 year tenure) by 50-65bp, highest within our coverage universe.
Margins to find respite in reduced term deposit rates, even as CASA accretion remains modest
In 3QFY2013, 15 out of 27 banks under our coverage reduced their retail term deposit rates (1-3 year tenure) by 25-65bp. Amongst the banks which resorted to lowering term deposit rates during the quarter, 9 had also reduced rates by 25-45bp during the previous quarter, thereby implying a total reduction of 50-110bp for these banks in the span of past six months. Reduction in deposit rates, in our view, was driven by lower incremental credit growth emanating from weak macro fundamentals. Deposit growth has moderated on account of reduced rates (term deposits) and slow economic growth (CASA accretion), thereby leading to tight liquidity conditions. In response to it and to manage their ALM, Dena Bank, Federal
Exhibit 4: 2QFY2013 and 3QFY2013 Lending and deposit rates

Avg. Avg. Base rates (%) Bank 2QFY13 3QFY13 BP change 2QFY13 14.74 14.75 15.75 17.75 14.75 14.60 14.75 14.75 14.75 14.75 14.75 15.00 14.75 15.50 14.00 14.75 15.00 18.50 15.00 15.00 15.00 15.00 17.75 15.00 19.00 19.75 18.30 SBI 9.97 9.75 (22) OBC 10.45 10.40 (5) DENABK 10.45 10.45 FEDBK 10.45 10.45 VIJBK 10.45 10.45 UTDBK 10.45 10.45 ALBK 10.50 10.50 ANDBK 10.50 10.50 BOB 10.50 10.50 BOI 10.50 10.50 CANBK 10.50 10.50 CNTBK 10.50 10.50 INDBK 10.50 10.50 IOB 10.50 10.50 PNB 10.50 10.50 SYNDBK 10.50 10.50 UCOBK 10.50 10.50 ICICIBK 9.75 9.75 IDBI 10.50 10.50 CRPBK 10.50 10.50 UNBK 10.50 10.50 BOM 10.50 10.50 AXSB 10.00 10.00 JKBK 10.50 10.50 SIB 10.50 10.50 YESBK 10.50 10.50 HDFCBK 9.80 9.80 Source: Company, Angel Research; Note: *1-3 year maturity bucket Refer to important Disclosures at the end of the report Avg. Avg. BPLR rates (%) 3QFY13 14.50 14.75 15.75 17.75 14.75 14.60 14.75 14.75 14.75 14.75 14.75 15.00 14.75 15.50 14.00 14.75 15.00 18.50 15.00 15.00 15.00 15.00 17.75 15.00 19.00 19.75 18.30 BP change (24) 2QFY13 8.50 9.10 9.00 9.00 9.75 9.00 9.25 9.00 9.00 9.35 8.50 9.30 9.25 9.25 9.00 9.05 9.10 8.75 9.25 9.00 9.25 9.30 9.00 9.00 9.50 9.60 8.75 FD rates* (%) 3QFY13 8.50 9.00 9.10 9.00 9.10 8.75 9.00 9.00 9.00 9.25 8.50 8.75 9.00 9.00 9.00 8.75 9.10 8.75 9.00 8.75 9.00 9.25 9.00 8.50 9.00 9.25 8.75 BP change (10) 10 (65) (25) (25) (10) (55) (25) (25) (30) (25) (25) (25) (5) (50) (50) (35) -
15
Banking
Exhibit 5: Gross NPA trends (%) Private vs. PSU
3.76 3.60 3.30 3.00 2.70 2.40 2.10 1.80 1.50
1QFY11 2QFY11 3QFY11 4QFY11 1QFY12 2QFY12 3QFY12 4QFY12 1QFY13 2QFY13
Exhibit 6: Net NPA trends (%) Private vs. PSU

3.34
2.20 2.00 1.80 1.60 1.40 1.20 1.00 0.80 0.60 0.40 0.20 2.04 1.73 1.47 1.12 1.13 1.07 1.09 1.16 1.56 1.50
2.80
2.85 2.70 2.57 2.36 2.33 2.45 2.27 2.24
3.02
2.98
2.34
2.42
2.35
2.17
2.01
2.05
2.06
0.92
0.79
0.69
3QFY11
0.56
4QFY11
0.56
1QFY12
0.54
2QFY12
0.54
3QFY12
0.46
4QFY12
0.49
1QFY13
0.54
2QFY13
1QFY11
Pvt Banks
PSU Banks
2QFY11
Pvt Banks
PSU Banks
Source: Company, Angel Research
Exhibit 7: Gross NPA trend (%) for the banking industry

4.00 3.42 3.50 3.00 2.47 2.50 2.00 1.50
2QFY11 3QFY11 4QFY11 1QFY12 2QFY12 3QFY12 4QFY12 1QFY13 2QFY13
Exhibit 8: Net NPA trend (%) for the banking industry

1.80 1.70 1.60 1.50 1.40 1.30 1.20 1.10 1.00 0.90
2QFY11 3QFY11 4QFY11 1QFY12 2QFY12 3QFY12 4QFY12 1QFY13 2QFY13
1.74
3.09 2.73 2.40 2.28 2.43 2.85 2.80
1.49 1.36 1.28 1.30
1.07 1.00 0.99
1.04
Large private banks expected to post healthy earnings performance

Overall, we expect private banks to post strong 22.5% yoy growth in their net interest income, while PSU banks are expected to register subdued growth of 4.5% yoy. On the pre-provisioning profit front, PSU banks are expected to post almost flat performance; whereas private banks are expected to report healthy growth of 18.8% yoy. Large private banks are expected to post healthy earnings growth of 22.5% yoy, on account of relatively lower increases in provisioning expenses, while PSU banks are expected to report muted bottom-line growth of 2.5% yoy.
Asset quality concerns unlikely to abate in near term

Asset quality concerns, which had made FY2012 a challenging year for the banking sector (specifically for the nationalized ones), continue to plague the sector fundamentals with increased intensity in 2QFY2013, than in 1QFY2013. Slippages for the entire banking sector surged in 2QFY2013, leading to increased reversal of interest income, which in a way limited their ability/willingness to make provisions, thereby leading to lower PCR. NPA ratios for PSU banks have trended northwards every quarter since the beginning of FY2012, as they have found themselves to be relatively more exposed to overleveraged companies in sensitive sectors, whose financials have borne the most severe brunt of slowing economic growth environment and persisting burden of elevated interest servicing costs.
Slippages for the banking sector have increased significantly every quarter over the past few quarters and can be expected to remain in spotlight even during 3QFY2013, as mid-corporate and SME segments continue to remain vulnerable to becoming NPAs considering slowing growth environment and expectations of relatively slower and delayed downward movement in interest rates, in our view. Suzlon could be a chunky common addition to the restructuring book of many banks such as SBI, IDBI Bank, BOB, IOB and few others, this time around, as its case has been referred to CDR earlier during the quarter. If it is not approved under CDR, it is most likely to be an addition to the slippage book of these banks. On the discom restructuring front, OBC and Andhra Bank have stated that their exposure to Punjab SEB and Tamil Nadu SEB, respectively is most likely to be restructured in this quarter (which is included in amounts mentioned above). However, the developments on CCEA approved discom bailout package are still not noticeable, and hence the magnitude of SEB restructuring this time around is likely to be limited to bank/facility specific. CDR referrals have also risen significantly over the last five quarters, closely tracking the weakening economic growth environment, and hence fresh approvals of `19,000cr through the CDR route in 2QFY2013 and the pending approvals of ~`31,000cr under the CDR mechanism are likely to lead to further fattening of restructuring books for the banking industry. Private banks have not been sparred of asset quality pressures,
16
Banking
though they have faced relatively much lower pressures than their PSU peers and have managed to keep most of their asset quality largely intact until now in a challenging economic environment. Even going ahead, private banks can be expected to outperform their nationalized counterparts on the asset quality front.
Exhibit 11: Corporate and G-Sec bond yields

(%) 10.0 9.5 9.0 8.5
Exhibit 9: CDR snapshot

Referred (` No. of cases Add. (` cr) FY10 FY11 1QFY12 2QFY12 3QFY12 4QFY12 FY12 1QFY13 2QFY13 1HFY13 31 49 18 18 23 28 87 41 33 74 20,175 22,614 4,595 21,095 19,187 23,012 67,889 20,528 18,907 39,435 245,928 Approved No. of cases 31 27 10 7 17 16 50 17 18 35 327 (` Add. (` cr) 17,763 6,615 8,141 2,095 21,364 8,001 39,601 17,957 18,925 36,882 187,394
8.0
9.24 8.98
9.26 9.06
9.26
9.25 9.06
7.99 8.02
8.01
8.18 8.03
9.10
7.93
8.15
7.5 7.0
AAA 1 Yr
AAA 3 Yr
AAA 5 Yr
AAA 10 Yr
Gsec 1Yr
Gsec 3Yr
Gsec 5Yr Gsec 10Yr
28-Sep-12
31-Dec-12
Exhibit 12: 10-year G-sec yields movement

8.3 8.2 8.2 8.1 8.1 8.0
1-Oct-12 8-Oct-12 15-Oct-12 22-Oct-12 29-Oct-12 5-Nov-12 12-Nov-12 19-Nov-12 26-Nov-12 3-Dec-12 10-Dec-12 17-Dec-12 24-Dec-12 31-Dec-12
Outstanding 466 Source: CDR Cell, Angel Research
Exhibit 10: Industry-wise exposure to CDR

Industry Iron & Steel Infrastructure Construction Textiles Telecom Fertilizers NBFC Sugar Cements Ship-Breaking/Ship Building Petrochemicals Power Refineries Pharmaceuticals Others Total Source: CDR Cell, Angel Research No. 39 15 5 62 10 8 7 26 11 3 3 11 1 9 111 327 Agg. (` Agg. Debt (` cr) 44,343 18,154 14,182 13,715 9,886 8,455 7,247 6,733 6,595 6,213 5,493 5,006 4,874 3,557 3,349 29,592 187,394 Debt in % 23.7 9.7 7.6 7.3 5.3 4.5 3.9 3.6 3.5 3.3 2.9 2.7 2.6 1.9 1.8 15.8 100.0
Other (Jewellery, Liquor, edible oil etc.)6
inflation management and reduced CRR slightly by 25bp, which led the yields to soar to 8.22%. During November, yields remained largely range-bound and reacted to an unexpected and slight easing in headline WPI inflation for October, as rate cut hopes in December policy review started gaining ground. In December, yields edged lower in the first half of the month on higher rate cut expectations after headline WPI inflation moderated for the second straight month. In its policy meeting, the RBI maintained status quo on rates, but the stance has increasingly shifted towards supporting growth rather than focusing purely on inflation management, which led the yield to trend even more downwards. Overall, the 10-year bonds ended the quarter slightly lower sequentially at 8.05% (8.15% as of September 30, 2012) and hence the treasury gains/losses for the banking sector are expected to be moderate during 3QFY2013.
Outlook and valuation

A decelerating economic growth environment, policy woes in select sectors and elevated inflation and interest rates point towards further economic stress and are not suggesting any conclusive trigger for improvement in asset quality in the near-term. Hence, we continue to prefer private banks, given their stronger capital adequacy and growth prospects as well as cyclically better asset quality profile, with Yes Bank, Axis Bank and ICICI Bank being our top picks. In the backdrop of the near-term environment, in our view, the larger PSU banks like BOB and SBI are better placed.
17
Bond yields lower sequentially, leading to moderate treasury gains

During the quarter, the yields on Indian 10-year benchmark bond remained largely range bound, as monetary policy expectations and actual outcome largely drove the momentum in yields. After a higher-than-expected reading of September monthly WPI inflation, the hopes of a policy rate cut faded and the 10-year G-sec yields rose slightly to 8.17%. As expected, the RBI maintained its policy rates, reiterating its stance on
8.05
Banking
While PSU bank valuations around three-four months back offered bottom-fishing opportunities, after the recent surge in several of these stocks, further upsides in our view would have to be driven by catalysts such as lower re-pricing of high-cost deposits (relative benefit for low CASA banks) and higher recoveries (relative benefit for banks that have experienced maximum asset quality pain, and importantly, also provided for it already). Screening for these criteria, as well as Tier 1 capital adequacy and trailing adjusted valuations, in our view, PSU banks that would stand to gain most from an eventual cyclical turn-around include Bank of India among the largecaps as well as Indian Bank, Corporation Bank and United Bank amongst the mid-caps. Of these Bank of India/United Bank is going through/expected to go through management change, hence we would have a relook at them post results.
Exhibit 13: PSU banks price band (P/ABV)*

1.8 1.5 1.2 0.9 0.6 0.3
Dec-06 Dec-04 Aug-05 Aug-07 Dec-08 Aug-09 Apr-04 Dec-10 Aug-11 Apr-06 Dec-12 Apr-08 Apr-10 Apr-12
Exhibit 14: Large Private banks price band (P/ABV)

4 3.5 3 2.5 2 1.5 1 0.5
Dec-04 Dec-06 Dec-08 Dec-10 Aug-05 Aug-07 Aug-09 Aug-11 Dec-12 Apr-04 Apr-06 Apr-08 Apr-10 Apr-12
Source:C-line, Angel Research, Note:* For PSU banks , excl. SBI and IDBI
Source:C-line, Angel Research
Exhibit 15: Quarterly estimates

Company CMP (`) AXSB HDFCBK ICICIBK SIB YESBK BOB BOI BOM CANBK CENTBK CRPBK INDBK PNB SBI SYNBK UNBK UTDBK HDFC LICHF 1,357 679 1,137 27 464 867 343 60 496 84 462 198 871 2,384 128 274 80 828 291 Operating Income 3QFY13E 4,136 5,496 5,575 396 831 3,838 3,151 903 2,821 1,815 1,231 1,473 4,888 14,819 1,725 2,506 818 1,780 432 % chg 15.8 21.2 21.1 19.0 30.1 0.9 7.9 13.6 4.6 18.2 (5.5) 1.5 8.9 2.5 10.2 5.6 (1.5) 21.9 13.8 Profit Net Profit 3QFY13E 1,334 1,860 2,024 120 308 978 507 153 634 349 382 423 1,145 3,587 383 573 147 1,162 251 % chg 21.0 30.1 17.1 17.7 21.1 (24.2) (29.1) 12.6 (27.6) 207.8 (5.1) (19.6) (0.4) 9.9 13.4 190.9 (35.1) 18.5 (17.8) FY12 102.7 22.0 56.1 3.5 27.7 121.4 46.6 6.2 74.1 5.2 106.4 39.6 144.0 174.5 21.8 32.2 15.1 27.9 18.1 (` EPS (`) FY13E 118.2 28.7 69.1 3.5 35.0 109.6 41.6 9.3 64.7 16.8 105.0 41.3 138.9 224.3 28.0 40.8 15.1 31.5 20.3 FY14E 139.1 35.9 82.9 3.9 42.2 137.7 64.0 12.0 80.4 21.4 99.8 43.1 164.5 BVPS (` Adj BVPS (`) FY12 551.5 127.5 524.0 17.8 132.5 666.3 324.1 63.8 448.1 85.6 542.3 210.4 734.2 FY13E 631.9 149.7 569.1 20.9 161.6 743.7 332.7 70.7 481.0 94.2 603.6 247.0 793.3 FY14E 738.1 177.5 621.7 23.7 196.9 858.4 391.2 79.8 542.8 115.9 688.8 280.2 933.1 FY12 13.2 30.8 20.3 7.7 16.8 7.1 7.4 9.6 6.7 15.9 4.3 5.0 6.1 13.7 5.9 8.5 5.3 29.7 16.1 P/E (x) FY13E 11.5 23.7 16.4 7.8 13.3 7.9 8.2 6.5 7.7 5.0 4.4 4.8 6.3 10.6 4.6 6.7 5.3 26.3 14.3 FY14E 9.8 18.9 13.7 6.9 11.0 6.3 5.4 5.0 6.2 3.9 4.6 4.6 5.3 9.3 4.7 5.9 3.7 21.9 10.7 P/ABV P/ABV (x) FY12 FY13E FY14E 2.5 5.3 2.2 1.5 3.5 1.3 1.1 0.9 1.1 1.0 0.9 0.9 1.2 2.0 1.0 1.3 0.7 6.4 2.6 2.1 4.5 2.0 1.3 2.9 1.2 1.0 0.8 1.0 0.9 0.8 0.8 1.1 1.8 0.8 1.1 0.7 5.3 2.3 Target (`)
(` ( ` cr)
Reco.
1.8 1,587 3.8
Buy
- Neutral Buy Buy Buy
1.8 1,320 1.1 2.4 1.0 0.9 0.8 0.9 0.7 0.7 0.7 0.9 32 541
- Neutral - Neutral 64 Accum. - Neutral - Neutral 534 231 Buy Buy
933 Accum.
257.3 1,200.1 1,319.4 1,548.6 27.2 46.8 21.6 37.8 27.3 133.5 217.3 109.0 128.8 112.2 155.1 246.3 121.4 157.7 127.8 175.9 285.6 139.1 176.9 149.2
1.5 2,600 Accum. 0.7 1.0 0.6 4.7 2.0 141 Accum. - Neutral 90 Accum. - Neutral 328 Accum.
Source: Company, Angel Research; Note: Price as on December 31, 2012
Vaibhav Agrawal/ l/Sourabh Taparia Analyst - Vaibhav Agrawal/ Sourabh Taparia

18
Capital Goods
We expect companies in our capital goods (CG) universe to post a moderate cumulative top-line growth of 7.4%. However, on the bottom-line front, the picture is mixed, with many companies in our coverage universe posting a flat yoy growth or decline mainly on account of margin pressure and, in some cases, due to higher interest cost. 29.5% yoy to `18cr aided by a lower base. We maintain our Accumulate recommendation on the stock with a target price of `51.
KEC International (CMP/TP: `67/78) (Rating: Buy)

For 3QFY2013, KEC International (KEC) is expected to register a strong top-line growth of 18% yoy to `1,722cr on the back of strong execution of its robust order book. However, on the EBITDA front, the company's margin is expected to contract by ~146bp yoy to 6.3% on account of low margin orders in new segments. We expect PAT to decline by 26.9% to `33cr on account of margin pressure and elevated interest cost. We recommend Buy on the stock with a target price of `78.
ABB (CMP/TP: `700/573) (Rating: Sell)

For 4QCY2012, we expect ABB India (ABB) to post a top-line growth of 4.9% yoy to `2,307cr. ABB's margin is expected to remain under pressure, coming in at 5.6%, due to low margin orders of power systems and the process automation segment. Consequently, ABB's bottom-line is expected to be flat yoy at `63cr. On account of high valuations, we maintain our Sell recommendation on the stock with a target price of `573.
Thermax (CMP/TP: `614) (Rating: Neutral)

For 3QFY2013, we expect Thermax to report a top-line of `1,295cr, as weak order inflows since the last couple of quarters will keep the company's revenue growth subdued. The company's EBITDA margin is likely to compress by 57bp yoy to 10.1%. Falling revenue and margin contraction are expected to result in a yoy fall of 9.1% in the PAT to `87cr. We maintain our Neutral rating on the stock.
BHEL (CMP/TP: `228/-) (Rating: Neutral)

We expect Bharat Heavy Electricals (BHEL) to post a subdued top-line growth of 5.3% yoy to `11,110cr for 3QFY2013 as industrial slowdown continues to delay execution. On the EBITDA front, the company's margin is expected to be flat at 17.8%. Consequently, we expect PAT to come in flat yoy at `1,425cr. We maintain our Neutral recommendation on the stock as we year. expect tepid order flow to continue for the rest of the year.
Cabinet nod for setting up CCI

The Union Cabinet has cleared a proposal to set up a Cabinet Committee on Investment (CCI) which will accord single window approval to investments, particularly above `1,000cr. The committee will be chaired by the Prime Minister and is expected to set timelines for regulatory and administrative clearances from various individual ministries. The setting up of the CCI is a positive development as it is expected to fast track large projects which are facing delays due to requirement of multiple clearances from different government agencies. Capital Goods Index underperformed the Sensex: After outperforming the Sensex in 2QFY2013, the BSE Capital Goods index posted a qoq decline, underperforming the Sensex by 4.7%. The weak industrial capex and problems in the power sector continue to remain an overhang on capital goods stocks. In our CG coverage universe, only Thermax outperformed the sensex, aided by bagging a `503cr EPC order for captive power plant. Rest of the CG stocks posted a qoq decline due to tepid order intake and continued margin pressure. Though project awarding in the T&D space (primarily by PGCIL) has been a silver lining, other sub sectors, especially power, have disappointed. We believe if the government tackles power sector challenges such as inadequate fuel supplies, delay in land acquisitions and environmental clearance, the investment activity can revive in medium to long term.
BGR Energy (CMP/TP: `262/-) (Rating: Neutral)

We expect BGR Energy's (BGR) top-line to grow by 12% yoy to `900cr. However, the EBITDA margin is expected to contract by 244bp yoy to 13.9%. Interest cost is expected to remain high (owing to elevated interest rate scenario and enhanced working capital requirements), which is likely to drag the bottom-line slightly down by 1.0% yoy to `54cr. We recommend Neutral on the stock.
Crompton Greaves (CMP/TP: `116/135) (Rating: Buy)

For 3QFY2013, we project Crompton Greaves to report a modest top-line growth of 13% yoy to `3,422cr. Weak capex cycle along with strained consumer sentiment is also likely to impact the company's growth. On the EBITDA front, the company's margin is expected at 5.0% due to restructuring losses. Though we expect a modest revenue growth, however, due to stress on margins, we expect the company's PAT to fall by 3.9% yoy to `74cr. We recommend Buy on the stock with a target price of `135.
Jyoti Structures (CMP/TP: `45/51) (Rating: Accum)

For 3QFY2013, we expect Jyoti Structures to report a subdued top-line growth of 5.0% yoy to `617cr. On the EBITDA front, the company margin is likely to be flat yoy at 10.5%. However, the company's PAT is expected to increase by a robust
19
Capital Goods
Exhibit 1: 3QFY2013 - Sensex vs CG stocks
(%) 15.0 10.0 5.0 (1.5) (5.0) (5.7) (10.0) (15.0) (11.7) ABB BHEL CG Thermax BGR KEC Jyoti BSE CG Index SENSEX (9.3) (7.6) (6.2) (5.3) 10.0 3.2
tandem, the BTG market will further witness a dry spell as most of the planned orders have already been awarded and new orders are in the preliminary stages of discussions, which are likely to witness delay in finalizations due to ongoing headwinds (such as fuel crisis, constraints in land acquisition and poor health of SEBs). T&D space in a better shape; although concerns loom: While T&D capex is on an uptick, given the strong traction in ordering from PGCIL, land acquisition and forest clearances (RoW) entail execution risks, which have led to slower-than-expected growth in T&D infrastructure historically. Overall, the outlook remains challenging: A handful of positives, especially in the T&D space, do very little to warrant a change in our pessimistic view. Against the backdrop of economic slowdown, we believe the overall picture remains gloomy for market leaders (read BHEL, BGR and ABB, among others). We believe it will take a while for the sector to witness dramatic improvements, while the government is initiating its efforts to resolve the key issues in the power sector. Given this, we expect the slowdown to continue for the next couple of quarters. Therefore, companies catering to the power sector will witness a high degree of discomfort unless core concerns soothe. Valuations: We prefer companies with strong growth visibility and diversified revenue streams. We follow a stock- specific stockapproach, with Crompton Greaves, KEC and Jyoti Structures being our preferred picks. In the BTG space, we continue to maintain our negative stance, owing to concerns of heightened competition and slowing of order inflows.
Exhibit 2: Growth in order inflow yoy (2QFY2013)

(33) (24) (10) 14
uptick in order intake yoy across T&D space
ABB decline in order intake yoy across BTG space BHEL Thermax CG 23 10 KEC Jyoti 10 20 30 40
(40)
(30)
(20)
(10)
Source: Industry data, Angel Research

BTG space continues to reel under pressure
Investments across various sectors have substantially decelerated owing to the deteriorating macro environment. The investment cycle is expected to remain in a downturn for the next few quarters, as not many orders are expected to be finalized. In

Company ABB BHEL BGR Energy Crompton Jyoti Structures KEC Int. Thermax CMP 700 228 262 116 45 67 614 Net Sales 2,307 11,110 900 3,422 617 1,722 1,295 4.9 5.3 12.0 13.0 5.0 18.0 2.0 OPM (%) 5.6 17.8 13.9 5.0 10.5 6.3 10.1 69 (11) (244) (103) 37 (146) (57) Profit Net Profit 63 1,425 54 74 18 33 87 (1.0) (0.5) (1.0) (3.9) 29.5 (26.9) (9.1) (` EPS (`) % chg (1.0) (0.5) (0.9) (3.9) 29.5 (61.6) (9.1) FY12 8.7 29.0 31.1 5.8 11.2 8.1 33.9 3.0 5.8 7.5 1.2 2.2 1.3 7.3 (` EPS (`) FY13E 8.7 24.6 24.6 4.3 9.2 5.4 28.3 FY14E 22.1 21.8 26.8 7.8 11.7 8.8 30.9 FY12 80.5 7.9 8.4 19.9 4.0 8.2 18.1 P/E (x) FY13E 80.6 9.3 10.7 27.0 4.9 12.4 21.7 FY14E 31.7 10.5 9.8 14.9 3.8 7.6 19.9 arg Target (` (`) 573 135 51 78 (`) 3QFY13E % chg 3QFY13E chg bp 3QFY13E % chg 3QFY13E
( ` cr)
Reco. Sell Neutral Neutral Buy Accum. Buy Neutral
Source: Company; Angel Research; Note: Price as on December 31, 2012; * December year ending
Patil Analyst - Amit Patil

20
Cement
Cement demand muted post monsoon
Cement demand in the country failed to pick up at desired pace during 3QFY2013 post monsoon. The slow pick-up can be attributed majorly to the overall slowdown in the economy. The RBI has restrained from reducing interest rates (repo and reverse repo) despite the ~5% GDP growth reported for 1HFY2013 as the inflationary situation has failed to abate. The prevailing high interest rates in the economy are a major dampener for the real estate activity in the country which is affecting cement demand. However, on a positive note, the RBI has signaled the possibility of monetary policy easing in 4QFY2013, which should aid healthy pick-up in cement demand during FY2014. Besides the overall economic slowdown, the construction activity during the quarter was also affected due to the occurrence of the festive season which resulted in labor going on leave. Unavailability of sand due to ban on sand mining too affected construction activity in certain regions. Construction activity is expected to pick-up in mid-January post Makara Sankaranthi. calendar year accounting pushing up the supply to meet the yearly target. Cement makers increased the prices by `5-10/ bag in Gujarat and Kerala in the fourth week of December.
Exhibit 2: Regionwise prevailing cement prices

Region South North West East Central Prices (` Prevailing Prices (`/50kg bag) `245-330 `250-285 `275-310 `250-330 `245-295
Source: Industry, Angel Research; Note refers to prices in the trade segment
Imported coal prices down 27.1% yoy

With the country facing huge domestic coal shortage cement makers continue to be hugely reliant on imported coal. The continuous fall in imported coal prices in the last few quarters augurs well for cement companies. During 3QFY2013, average prices of New Castle Mckloksey 6,700kc coal decreased by 27.1% yoy and 3.5% qoq to US$83 per tonne. In rupee terms, coal prices were down by 22.5% yoy and 5.2% qoq to `4,492 per tonne.
Exhibit 1: Key policy rates

(%) 9.00 8.00 8.00 7.00 7.00 6.00 5.00 4.00
Dec-11 Sep-12 Jan-12 Feb-12 Oct-12 Nov-12 Mar-12 May-12 Aug-12 Dec-12 Apr-12 Jun-12 Jul-12
Repo rate
Reverse Repo rate
CRR
Exhibit 3: New Castle Mckloksey Prices

250 continuous decline in coal prices 200 150 9000 8000 7000 6000 5000 4000 3000 50 0 2000 1000 0
4.25
100
Dec-05
Dec-06
Dec-07
Dec-08
Dec-09
Dec-10
Jun-06
Dec-11
Jun-07
Cement prices witness correction

After witnessing a marginal pick-up in the beginning, cement prices declined for the rest of the quarter due to low demand. There were a few attempts by cement companies to push up prices but they failed in the wake of low demand. Prices recovered in the month of October across regions in the range of `5-40 per 50kg bag on hopes of demand pick-up during the quarter. The price rise was highest in the northern and central regions. In the south, Hyderabad witnessed strong price recovery after prices in the area having declined steeply in the month of August and September. However, the price recovery (pan India) did not last long; prices started to decline since late October (by `5 to `20 per bag), which is to an extent attributable to the occurrence of Diwali in mid-November. With demand failing to pick-up, prices slid further in the month of November and December (cumulative decline of `5-30 per 50kg per bag) with companies following
USD/tonne (LHS)
INR (RHS)
Key developments
know-how ACC and Ambuja to pay technology and know-how fees to Holcim: During 3QFY2013, the Board of Directors of ACC and Ambuja Cements have approved payment of an amount equivalent to 1% of the companies' net sales to the promoter group Holcim towards technology and know-how fees w.e.f January 1, 2013. An approval of the shareholders in the AGM is required, for the decision to take effect. Both the companies already pay a certain amount towards technical and training fees to Holcim (ACC 0.6% of CY2011 net sales; Ambuja 0.8% of CY2011 net sales) and the new payment is expected to be inclusive of those payments. Hence the payment is not expected to have a major impact on the companies earnigs. Ambuja Cements announces capacity addition: During the quarter Ambuja Cements announced capacity expansion of its
21
Dec-12
Jun-08
Jun-09
Jun-10
Jun-11
Jun-12
Cement
Sankrail grinding unit in West Bengal to 2.4 mn tonne at an investment of `325cr. Cement is expected to post the highest top-line growth of 21.0%. Amongst the large caps, Ambuja Cements is expected to post the highest top-line growth of 18.2%.
Cement stocks - Performance on the bourses

During 3QFY2013 large-cap cement stocks ACC, Ambuja and Ultratech underperformed the Sensex which rose by 3.5% yoy. However, mid-cap cement stocks JK Lakshmi Cement, Madras Cements and Shree Cement outperformed the Sensex by posting absolute returns of 41.4%, 27.5% and 17.6% respectively. Exhibit 4: Sensex vs. cement stocks (3QFY2013)
Cement majors Sensex ACC Ambuja India Cements JK Lakshmi Cement Madras Cements Shree Cements Ultratech Source: BSE, Angel Research Abs. Return (%) 3.5 (2.7) (0.5) (4.4) 41.4 27.5 17.6 0.7 Relative to Sensex (%) (6.2) (4.0) (8.0) 37.8 24.0 14.1 (2.8)
Margins to remain under pressure

Despite a better yoy realization, we expect most of the companies to face margin pressure on account of higher costs. Most of the costs, ie raw material, freight and power costs have gone up on a yoy basis. However, Ambuja Cements is expected to post a 250bp yoy expansion in OPM on account of a low base.
Exhibit 6: OPM performance in 3QFY2013E

Company ACC Ambuja Ultratech India Cements Madras Cements JK Lakshmi Shree Cement 3QFY2013E 3QFY2012 17.7 21.8 19.2 20.2 26.2 21.1 27.7 17.7 19.3 21.3 19.3 28.0 21.5 26.4 yoy 6 250 (209) 96 (177) (148) 128 2QFY2013 19.0 24.1 22.0 13.7 31.4 23.0 33.0 qoq (128) (226) (278) 656 (518) (300) (531)
3QFY2013 expectations
Top-line to grow by 13.2% yoy
We expect our cement universe to report a 13.2% yoy improvement in the top-line, driven more by higher realization. Amongst the companies under our coverage, JK Lakshmi

In our view, the cement sector's valuations in terms of EV/sales and EV/tonne are ahead of the cycle when compared to utilization levels and are almost 40% more expensive than historical valuations during periods of similar utilization levels. Hence, we maintain our Neutral view on the sector.
Exhibit 5: 3QFY2013E top-line performance

25.0 21.0 20.0 15.0
(%)
Exhibit 7: One-year forward EV/sales vs. utilization

3.0 2.5 2.0 1.5 95.0 90.0 85.0 80.0 75.0 70.0
Apr-01 Apr-02 Apr-03 Apr-04 Apr-05 Apr-06 Apr-07 Apr-08 Apr-09 Apr-10 Apr-11 Oct-01 Oct-02 Oct-03 Oct-04 Oct-05 Oct-06 Oct-07 Oct-08 Oct-09 Oct-10 Oct-11 Apr-12 Oct-12
18.2 12.9 10.6
17.4
11.2
1.0 0.5
10.0 5.0 0.0 ACC Ambuja Ultratech India Cements Madras Cements JK Lakshmi Shree Cement 3.4
0.0
EV/Sales(x) -LHS
Utilization 1yr fwd(%) -RHS
Source: Bloomberg, Angel Research (` cr)

OPM (%) chg bp 6 250 96 (37) (177) 128 (209) 17.7 21.8 20.2 21.1 26.2 27.7 19.2 Profit Net Profit 3QFY13E 289 353 41 54 77 182 532 19.2 16.9 (41.4) 9.1 0.8 207.7 (13.6) (` EPS (`) % chg 19.2 16.9 (41.4) 9.1 0.8 207.7 (13.6) FY12 70.5 8.2 9.7 12.1 16.2 180.9 89.3 15.4 2.3 1.3 4.4 3.3 52.0 19.4 (` EPS (`) FY13E 77.0 11.2 8.6 21.6 18.3 240.7 101.5 FY14E 80.3 12.6 10.8 23.1 18.7 260.7 119.0 FY12 20.3 24.6 9.4 13.3 15.1 25.7 22.2 P/E (x) FY13E 18.6 18.0 10.6 7.5 13.4 19.3 19.5 FY14E 17.8 15.9 8.4 7.0 13.1 17.8 16.7 arg Target (`) Neutral Neutral Neutral Neutral Neutral Neutral Neutral Reco. % chg 3QFY13E

Company ACC^ Ambuja^ India Cem. J K Lakshmi CMP (`) 1,429 201 91 161 Net Sales 3QFY13E 2,768 2,753 976 531 870 1,400 5,158 10.6 18.2 3.4 21.0 17.4 11.2 12.9 % chg 3QFY13E
Madras Cem. 245 Shree Cem.* 4,651 UltraTech 1,982
Source: Company, Angel Research; Note: Price as on December 31, 2012; ^December year ending; *June year ending
Analyst - V Srinivasan
22
FMCG
Poor macro -economic indicators keep consumer sentiments low
Consumer sentiments continue to remain weak due to low GDP growth and high inflation persisting in the country. Weak consumer sentiments were reflected in the modest volume growth posted by FMCG companies in 2QFY2013. However, the outlook for the Indian economy has improved over the past few months post the reform measures announced by the Union Government which augurs well for the consumer sector.
Key developments during the quarter

Packaging Standard Packaging rules: The standard packaging rules 2011 came into effect from November 1, 2012, with the notified amendments. Some of the commodities which come under standard packaging rules are baby food (Nestle), weaning food, biscuits (Britannia, ITC), bread (Britannia, HUL), coffee (Nestle, HUL), tea (HUL, TGBL), edible oils, milk powder (Nestle), detergent powder (HUL), soaps (HUL, ITC, GCPL), paints (Asian Paints) etc. These rules exempt sub `10 packs from weight restrictions. Diageo acquires stake in United Spirits: After months of negotiations Diageo and UB Holding (UBH) finally entered into a deal by which Diageo would acquire a maximum of 53.4% stake in USL. UBH which would cease to be the promoter of USL would continue to be a shareholder in the company with a 13.4% stake. As per the deal Diageo would first acquire a 27.4% stake through purchase from promoters and preferential allotment at a price `1,440/share, and follow it up with a mandatory open offer of 26%, which if fully subscribed, would take Diageo's stake in USL to 53.4%. Dr Vijay Mallya would continue to be the Chairman of USL. USL's stock price has surged since the announcement of the deal and it is unlikely that the open offer will go through at the current offer price of `1,440/share. In that scenario Diageo will have to settle for a 27.4% stake in the company. Diageo's management has indicated that it would not revise the open offer price currently and would settle for 27-30% stake in USL. GSK Consumer open offer: GSK group, the promoter of GSK Consumer Healthcare (GSK Consumer) has decided to make a voluntary open offer to buy 31.84% stake in the latter. The open offer, which is priced at `3,900/share (at 28% premium to the price as on November 23 2012, the last trading day prior to offer), if fully accepted, would take GSK group's stake in GSK Consumer to 75% from the current holding of 43%. The total value of the deal involving 1.34cr shares is `5,222cr. This transaction is part of the global strategic move by the GSK group to increase stake in its foreign associates. The GSK group has also decided to increase its stake in GSK Consumer (Nigeria) from 46.4% to 80%. The open offer has been planned by the GSK group to be made in the month of January. Currently the stock is trading at a discount of 2% to the open offer price.
Raw-material price trend mixed

Average prices of agri commodities were on an upward trend during 3QFY2013. Wheat and Sugar prices were up by 34.8% yoy and 16.7% yoy respectively and are expected to result in higher input costs for biscuit makers such as Britannia and ITC. Domestic tea prices too were higher by 21.7% yoy and are a negative for companies like HUL and Tata Global Beverages (TGBL). Among other raw materials, while copra prices were down by 23.5% yoy, palm oil prices too were down by 27.1% on a yoy basis. Lower prices of copra, a key raw material in the manufacture of coconut oil, are expected to result in healthy operating margins for Marico. Reduction in palm oil prices is favorable for soap manufacturers such as Hindustan Unilever (HUL) and Godrej Consumer Products (GCPL).
Exhibit 1: Input cost trend during 3QFY2013

Prices 3QFY13 Prices Wheat (`/quintal) Barley (`/quintal) Sugar (`/ quintal) Tea (`/kg) Coffee (US $/10 tonne) Cocoa (US$/MT) Milk Liquid (`/ltr) Palm Oil (MYR/tonne) Copra (`/quintal) Safflower (`/ quintal) Soyabean Oil (`/10kg) Groundnt Oil (`/MT) Rice Bran Oil (`/MT) Crude (US$/ barrel) Caustic Soda (`/kg) Soda Ash (`/kg) 1,580 1,312 3,587 125 1,961 2,433 27 2,196 4,190 4,142 668 116,984 5,000 110 2,057 1,143 yoy (%) 34.8 12.1 16.7 21.7 1.7 2.1 (6.1) (27.1) (23.5) 49.2 6.2 32.9 (4.0) 1.0 22.8 17.1 qoq (%) 9.8 1.8 0.5 (6.0) (6.4) (0.2) (2.7) (22.8) 0.4 5.7 (10.8) (2.5) 0.0 0.6 0.9 (0.1)
Performance on the bourses

The BSE FMCG Index outperformed the Sensex by 4.7% and posted an absolute return of 7.2% during the quarter. Among the stocks under our coverage USL gained the most due to the Diageo deal, posting returns of 52.9%. GSK Consumer too posted a strong 27.8% return due to the open offer.
23
Source: Bloomberg, C-Line, Angel Research
FMCG
Exhibit 2: FMCG stocks performance on bourses (3QFY2013)
United Spirits TGBL Nestle Marico ITC HUL GSK Consumer GCPL Dabur India Colgate Palmolive Britannia Asian Paints (10) 0 5.5 (3.6) 27.8 8.1 0.5 29.9 4.9 12.3 10 20 (%) 30 40 50 60
(%)
Exhibit 3: Top-line growth in 3QFY2013E

25.0 20.3 20.0 15.0 10.0 5.0 Britannia HUL Colgate Dabur GSK Cons. Asian Paints GCPL Marico Nestle TGBL USL ITC
52.9 11.9 14.1 9.4
22.9 18.6 14.3 13.8 18.6 15.1 12.6
21.2 19.6 17.7
6.5
We expect 3QFY2013 to be a reasonably strong quarter for our FMCG universe with top-line and bottom-line growth coming in at 15.8% and 11.0% respectively. On the top-line front, our FMCG universe is expected to grow by 15.0% yoy. The occurrence of the festive season in the quarter is expected to boost performance of companies such as Asian Paints and United Spirits. Both the companies are expected to post a top-line growth of 20.3% and 17.7% respectively. Similarly, the integration of Darling group companies in phase II geographies in the consolidated accounts is expected to boost the revenue of GCPL which is expected to post a healthy top-line growth of 22.9%. Sensex companies ITC and HUL are expected to post top-line growths of 15.1% and 12.6% respectively. Despite the weak consumer sentiments, companies have adopted selective price increases during the quarter to protect margins. During the quarter, ITC had increased the prices of Goldflake cigarettes by ~6-7%.
On the operating front, most of the companies are expected to post a decrease in OPMs due to increase in raw material and fuel costs. However, Marico is expected to post a 344bp yoy expansion in OPM due to lower copra prices. Thus we expect the FMCG universe to post an operating profit growth of 9.6% yoy.

Consumption in many categories with potential for high growth rates is still very low in urban India. In rural India, penetration of these products is even lower. With rising income levels and changing consumer behavior in the country, consumer spending on branded FMCG products is set to rise. Also, growth in modern retail (currently contributing ~6% to FMCG sales) offers scope for further growth. The FMCG Index continued to outperform the broader market in the past quarter and most of the stocks are trading at close to all-time-high valuations. While the long-term consumption story for the FMCG industry remains intact, we believe the current lofty valuations are unjustified. Thus, we remain Neutral on the sector. But, considering the cheap valuations, we recommend Buy on Britannia.
(` cr) `

Company CMP (`) Asian Paints^ 4,420 Britannia Colgate GCPL GSK Con.* HUL ITC Marico ^ Nestle * TGBL^ 499 1,567 722 3,825 525 287 218 4,990 160 Net Sales 3QFY13E 3,079 1,480 787 1,654 1,652 714 6,591 7,131 1,283 2,338 1,910 2,300 20.3 18.6 14.3 13.8 22.9 18.6 12.6 15.1 21.2 19.6 6.5 17.7 OPM (%) chg bp (64) (114) (46) 135 (374) 47 (238) (249) 344 (99) (121) 377 14.9 5.4 21.0 16.6 16.0 10.7 12.8 35.1 15.0 20.1 8.5 13.2 Profit Net Profit 3QFY13E 297.6 57.7 126.1 219.3 173.8 76.5 790.1 1,798 129.7 292.4 110.2 88.6 15.8 6.8 7.7 26.9 4.0 29.4 3.1 5.7 54.2 26.7 32.3 88.4 (` EPS (`) % chg 15.8 6.8 7.7 26.9 4.0 29.4 3.1 5.7 54.2 26.7 32.3 88.4 FY12 103.1 15.6 32.8 3.7 16.1 86.0 11.9 7.9 5.2 99.7 5.4 12.6 31.0 4.8 9.3 1.3 5.1 18.2 3.7 2.3 2.1 30.3 1.8 6.8 (` EPS (`) FY13E 117.1 18.3 36.4 4.7 20.3 101.2 14.7 9.1 6.4 113.0 6.9 26.0 FY14E 141.5 24.7 42.5 5.4 25.4 118.3 17.0 10.8 8.1 142.5 8.2 45.3 FY12 42.9 31.9 47.7 34.8 44.9 44.5 44.1 36.4 42.0 50.0 29.7 98.3 P/E (x) FY13E 37.7 27.3 43.1 27.7 35.6 37.8 35.6 31.4 33.9 44.2 23.1 47.9 FY14E 31.2 20.2 36.9 23.8 28.4 32.3 30.8 26.6 26.9 35.0 19.6 27.4 arg Target (`) 584 % chg 3QFY13E % chg 3QFY13E
Reco. Neutral Buy Neutral Neutral Neutral Neutral Neutral Neutral Neutral Neutral Neutral Neutral
Dabur India^ 129
United Spirits# 1,242
Source: Company, Angel Research; Note: Price as on December 31, 2012; * December year ending; ^Consolidated; #Quaterly numbers pertains to standalone financials
Analyst - V Srinivasan
24
Infrastructure
For 3QFY2012, we expect our coverage universe to report a subdued top-line growth of 12.8% yoy on the back of slowdown in execution. The slowdown in execution pace has been due to: 1) a challenging macro environment; 2) policy paralysis; 3) stretched working capital; and 4) delays in payments from clients. EBITDAM is expected to come in at 23.0% (19.6%), registering a growth of 341bp yoy. On the back of healthy execution we expect earnings to come at `54cr for 3QFY2013.
CCCL (CMP/TP: `13/-) (Rating: Neutral)

Consolidated Construction Consortium (CCCL) is expected to post a decent set of numbers for 3QFY2013. We expect the top-line to register a growth of 10.0% yoy to `491cr, given the pickup in execution across projects. On the EBITDA front, we expect the company to continue its dismal performance; however, owing to the low base of 3QFY2012, its EBITDAM is expected to register an improvement of 162bp yoy to 6.2%. On the bottom-line front, the company is expected to post a profit of `3cr for 3QFY2013 vs. a loss of `3cr in 3QFY2012.
Exhibit 1: Average yoy revenue growth (%)

25.0 19.9 20.0 15.0 10.0 5.0 1QFY12 2QFY12 3QFY12 4QFY12 1QFY13 2QFY13 3QFY13E 13.8 16.9 17.3 13.1 10.4 12.8
IRB (CMP/TP: `128/`164) (Rating: Buy)

We expect IRB Infrastructure Developers (IRB) to post a mixed performance on a quarterly basis. We expect a revenue growth of 24.8% yoy for 3QFY2013 on the back of healthy execution pace in under construction BOT projects, leading to EPC (C&EPC) revenues of `600cr (14.1%) for the quarter. The BOT segment is expected to report a healthy 30.0% yoy growth to `330cr, leading to an overall top-line of `930cr. We expect blended EBITDA margin at 44.0%, a dip of 184bp yoy. Depreciation for the quarter is expected to witness a yoy jump of 52.9%, owing to completion of the Surat-Dahisar project. We project a net profit before tax and after tax (post minority interest) at `178cr 136cr, respectively, and `136cr, respectively, after factoring a blended tax rate of quarter. 25% for the quarter.
Avg. revenue growth yoy (%)
Source: Company, Angel Research; Note: For our analysis, we have selected 10 companies, as detailed in Exhibit 6
During 3QFY2013, there has been no respite from the several headwinds (such as high interest and inflationary cost pressures and slowdown in order inflows) faced by the sector. Thus, dull revenue performance along with pressure on EBITDAM and high interest cost will result in muted performance on the earnings front. Against this backdrop, we expect a muted performance on the earnings front for most of the companies under our coverage universe. Excluding the performance of L&T, earnings for our coverage companies are likely to decelerate to 1.6% yoy.
Exhibit 2: Average yoy earnings growth (%)

20.0 15.0 10.0 5.0 (5.0) (10.0) 1QFY12 2QFY12 3QFY12 4QFY12 1QFY13 2QFY13 3QFY13E (6.6) 6.9 7.4 (1.6) 14.1
ITNL (CMP/TP: `200/`225) (Rating: Accumulate)

We expect IL&FS Transportation Networks (ITNL) to post a strong set of numbers for 3QFY2013 on account of higher number of projects in hand. The company's revenue is expected to grow strongly by 24.2% yoy to `1,575cr, led by under-construction road BOT projects. We expect the company to register an EBITDAM of 28.0%, down 503bp qoq, owing to higher contribution of the comparatively low-margin E&C segment. Strong revenue growth is expected to reflect in the company's earnings, which are expected to surge by 22.5% yoy to `108cr.
5.8 2.0
Avg. Earnings growth yoy (%)
Source: Company, Angel Research; Note: For our analysis, we have selected 10 companies, as detailed in Exhibit 6
IVRCL (CMP/TP: `46/-) (Rating: Neutral)

We expect IVRCL to continue to post a poor performance. On the revenue front, IVRCL is expected to post a yoy decline of 11.9% to `1,059cr in 2QFY2013 mainly on account of lower-than-expected execution. On the EBITDA margin front, we expect an expansion of 62bp yoy to 8.5%. On the earnings front, we expect a loss of `13cr for the quarter against a profit of `7cr in 3QFY2012, primarily on account of slowdown in quarter. execution and higher interest costs for the quarter.
25
ABL (CMP/TP: `204/`286) (Rating: Buy)
Ashoka Buildcon (ABL) is expected to post a robust growth of 47.8% yoy on the consolidated revenue front to `522cr on the back of under-construction captive road BOT projects, which will drive its E&C revenue. The E&C segment will continue to dominate the company's revenue by contributing `405cr (77.7%), while the BOT segment's share is expected to be `117cr.
Infrastructure
JAL (CMP/TP: `97/-) (Rating: Neutral)
We expect Jaiprakash Associates (JAL) to post modest top-line growth of 13.3% yoy to `3,288cr for the quarter. We expect C&EPC revenue to growth 12.4% yoy to `1,390cr. On the cement front, we expect JAL to post revenue of `1,663cr - volume of 4.0mt with realization of `4,158/tonne for the quarter. We expect the company to post blended EBITDA margin of 25.9%, registering a decline of 136bp for the quarter. The bottom line 144cr, is expected to be at `144cr, registering a yoy decline of 29.7% quarter. for the quarter. EBITDA margin to expand by 39bp yoy to 8.7%. The 28cr, bottom-line is expected to be at `28cr, registering a growth of yoy. better-than-than-expected 32.8% yoy. This is mainly on account of a better-than-expected performance at the operating level.
Interest cost continues to dent profitability

Consistent hike in repo rates by the Reserve Bank of India (RBI) in the past (to contain inflation) had accentuated the already high interest cost for companies in the sector. High interest cost (owing to a high interest rate regime and increased debt levels) has resulted in a decline in the bottom-line of most companies under our coverage. In the recent mid-quarter monetary policy mid-quarter review, review, the RBI has left the repo as well as the CRR unchanged. However, going forward, on account of moderating inflationary pressures, there is a high possibility of rate cuts in the next few months.
L&T (CMP/TP: `1,606/`1,748) (Rating: Accumulate)

For 3QFY2013, we expect Larsen & Toubro (L&T) to report a revenue of `15,790cr, registering a 12.8% yoy growth, for 3QFY2013. This growth can be attributed to the company's large order book (~`1.6trillion). On the EBITDA front, we expect the company's margin to witness an expansion of 161bp yoy to 11.2%. We project the net profit to come in at `1,020cr, 1,020cr, registering a yoy growth of 21.6%. This is mainly due to healthy revenue growth and better-than-expected operating performance. We believe the company would end the quarter with a total order inflow of `18,000cr (`17,127cr) for the quarter, which is in-line with the management's guidance of 15-20% growth in the order book.
Exhibit 3: Interest cost as a % of sales for E&C companies

18.0 16.0 14.0 12.0 10.0 8.0 6.0 4.0 2.0 0.0 JAL IVRCL NCC CCCL Simplex In. Sadbhav L&T
NCC (CMP/TP: `58/-) (Rating: Neutral)

We expect Nagarjuna Construction (NCC) to post a decent set of numbers for 3QFY2013. On the top-line front, NCC is expected to post a revenue of `1,427cr, indicating a growth of 12.9% yoy. EBITDA margin is expected to witness an increase of 226bp yoy to 8.4% for the quarter. On the earnings front, we expect a profit of `11cr against a loss of `9cr in 3QFY2012. This would be primarily on account of pick up in execution pace during the quarter. We expect the interest cost to jump by 63.6% to `116cr owing to an elongated working capital cycle.
2QFY13
2QFY12
1QFY13
Order inflow remains muted

Order inflows for companies under our coverage have largely been disappointing for the last couple of quarters. Moreover, the road sector which witnessed robust awarding of projects in FY2012 has also seen a significant slowdown in awarding of projects. In 1HFY2013 the awarding in the road sector amounted to 560kms only. Also, infrastructure companies are bidding very cautiously for road projects and are looking to get EPC (engineering, procurement and construction) contracts. The main reasons for companies going slow on road BOT projects are: 1) high interest cost and tough business environment; 2) difficulties in achieving financial closure; 3) banks turning cautious against lending for road projects and demanding higher equity contribution. For 2QFY2013, Sadbhav and L&T showed positive growth. Most players witnessed a decline in order inflow for the quarter owing to policy paralysis at the government's end, delays arising due to land acquisition and environment clearance issues.
SEL (CMP/TP: `135/`168) (Rating: Buy)

We expect a subdued performance from Sadbhav Engineering (SEL) for 3QFY2013. On the top-line front, SEL is expected to report a muted revenue growth of 4% yoy to `753cr. EBITDA margin is expected to witness a dip of 10bp yoy to 10.3%. On the earnings front, the company is expected to post a dip of 38cr. 9.8% yoy to `38cr.
Simplex Infra (CMP/TP: `255/`251) (Rating: Neutral)

Simplex Infra is expected to post a decent performance on the revenue front, as we expect the top-line to register a 12.5% yoy growth to `1,795cr for 3QFY2013. We expect the company's
26
Infrastructure
Exhibit 4: Order inflow yoy growth trend during 2QFY2013 (%)
(46) Simplex In.

There has been no respite for infrastructure companies from persistent headwinds faced by the industry - high interest rates and slower-than-anticipated revival in industrial capex. Further, a stretched balance sheet and working capital on the back of investment in subsidiaries and delays in payment from clients continues to pose a problem. However, infrastructure stocks have seen some positive movement during the quarter. The Union Cabinet has cleared a proposal to set up a Cabinet Committee on Investment (CCI) to fast-track clearances of large investments, particularly above `1,000cr. The committee will be chaired by the Prime Minister and is expected to set timelines for regulatory and administrative clearances from various individual ministries. We believe that although interest rate cuts and increasing investment in the sector remain key triggers for infrastructure stocks, removal of bottlenecks such as delays in environmental clearances and land-acquisition issues are also of prime importance for the execution pace to pick up. We prefer to remain selective: We believe that stock-specific approach would yield higher returns given the disparity among these companies and changing dynamics affecting them positively/negatively. Hence, we remain positive on companies having 1) a comfortable leverage position; 2) superior return ratios and 3) less dependence on capital markets for raising equity for funding projects. Hence, we recommend L&T, ITNL L&T, sector. and SEL as our top picks in the sector.
(70)
NCC
30
L&T
294
Sadbhav
(78) (100) (50) 50 100 150
IVRCL
Order backlog remains decent

Despite sluggish order inflow during 1HFY2013, the order book remained decent for companies under our coverage universe. A slowdown in execution pace has also kept the company's order book at higher levels. This order backlog gives comfort for growth over the next couple of years. For few companies such as NCC, IVRCL and SEL, the order book has been boosted by captive orders during FY2012.
Exhibit 5: Decent order book provides revenue visibility

30.0 25.0 20.0 15.0 10.0 5.0 0.0 Simplex In. Sadbhav L&T IVRCL NCC 2.4 3.4 3.0 3.0 2.0 1.0 0.0 3.4 4.0 5.0 5.0
Order book growth yoy (%), LHS
OB/Sales (x), RHS

Company ABL^ CCCL IRB Infra^ ITNL^ IVRCL* JAL L&T NCC SEL Simplex In. CMP (`) 204 13 128 200 46 97 1,606 58 134 255 Net Sales 3QFY13E 522 491 930 1,575 1,059 3,288 15,790 1,427 753 1,795 47.8 10.0 24.8 24.2 (11.9) 13.3 12.8 12.9 4.0 12.5 OPM (%) chg bp 341 162 (183) 272 62 (136) 161 226 (10) 39 23.0 6.2 44.0 28.0 8.5 25.9 11.2 8.4 10.3 8.7 Profit Net Profit 3QFY13E 54 3 136 108 (13) 144 1,020 11 38 28 176.9 3.6 22.5 (29.7) 21.6 (9.8) 32.8 (` EPS (`) % chg 176.9 3.6 22.5 12.5 21.6 (9.8) 32.8 10.3 0.2 4.1 5.5 (0.5) 0.7 16.6 0.4 2.5 5.7 (` EPS (`) FY12 23.7 (0.5) 14.9 25.6 0.6 4.8 72.8 1.4 9.3 18.1 FY13E 27.0 0.9 16.8 26.3 0.3 3.7 73.8 3.1 7.2 23.2 FY14E 31.6 1.6 17.8 29.0 3.4 4.6 85.5 4.1 8.7 31.3 FY12 8.6 8.6 7.8 77.4 20.1 22.1 41.2 14.4 14.1 P/E (x) FY13E 7.5 14.1 7.6 7.6 147.9 26.5 21.8 18.6 18.6 11.0 FY14E 6.4 8.3 7.2 6.9 13.4 21.3 18.8 14.0 15.4 8.1 arg Target (`) 286 164 225 1,748 168 % chg 3QFY13E % chg 3QFY13E
(` cr) `
Reco. Buy Neutral Buy Accum. Neutral Neutral Accum. Neutral Buy Neutral
Source: Company, Angel Research; Note: Price as on December 31, 2012, Target prices are based on SOTP methodology; ^Consolidated numbers; *FY2013 figures are for 9 months
Analyst: Viral Shah

27
Information Technology
Mixed economic data indicates flat CY2013 IT budgets
The Indian IT services industry is likely to touch ~US$98bn in FY2013 according to Nasscom, close to 6x of where it was in FY2004, a CAGR of 13% over the past five years. Gartner's current US dollar growth forecast for the overall global IT spending in 2012 has been revised up slightly from 2.5% last quarter to 3.0% now but in constant US dollar terms, the forecast growth for overall IT spending in 2012 is unchanged at 5.2%. While the challenges facing global economic growth persist - the eurozone crisis, weaker US recovery and a slowdown in China - the outlook has at least stabilized. Also, according to IDC, a market research firm, the global IT spending is expected to grow by 6% in 2012 in constant currency, slightly down on last year's pace of 7% growth. Economic indicators: The US' real GDP grew by 2.0% in 3QCY2012, up from 1.3% in 2QCY2012. US corporate profits for 3QCY2012 increased by 17.9% on a yoy basis, compared to 14.5% in 2QCY2012. For November 2012, data points for the US economy have become mixed. For instance, 1) non-manufacturing index inched up to 54.7 from 54.2 in October 2012; 2) unemployment rate stood at 7.7% as against 7.9% in October 2012; 3) industrial production came in at 1.1% mom as against a decline of 0.7% in October 2012; 4) manufacturing index declined to 49.5 as against 51.7 in October 2012; 5) retail sales grew by 0.3% as against -0.3% in October 2012; and 6) factory orders grew by 0.8% mom as against 4.5% in October 2012. These mixed economic data points from the US coupled with an unsteady economic situation in Europe have created an uncertain macro-environment over the past few quarters and companies are facing some challenges in the near term due to financial turmoil and global uncertainties. Tech numbers: The recent quarterly numbers from Oracle and Accenture gave mixed signals for the Indian IT sector going into CY2013. While Oracle's new license sales and cloud revenue registered a robust growth, Accenture's consulting bookings were soft yoy, implying pressure on discretionary spending. Oracle posted a strong license revenue growth of 18% yoy coupled with a decent guidance of 4-14% in new license sales, which indicated positive signals for revival in the discretionary spending in CY2013. However, Accenture's consulting revenues declined by 3% qoq and outsourcing revenue grew at a moderate pace of 13% yoy compared with an 18% yoy growth in the previous quarter. While the company maintained its FY2013 business outlook of 5-8% revenue growth in local currency terms, softness in discretionary spending is likely to continue in the near term. Also, Cognizant in its 8K filing indicated at a growth of 16% in CY2013 (based on incentive programs) against a guidance of 20% in 2012, which raised
eyebrows for the sector's demand health in 2013. Overall, we believe that the IT budgets are expected to remain flattish in CY2013. Our take: Given the current uncertain environment, we expect volume growth of tier-I Indian IT companies to scale down to sub-12% in FY2013. The BFSI industry, from which IT companies derive maximum revenue, is expected to be a laggard in terms of growth. A weak performance from these accounts due to weaker-than-anticipated acceleration implies industry-wide slowdown in IT spending. The IT spend now is driven by trends such as increased offshoring of work from Europe and vendor consolidation. Market share gains in the renewal deal pipeline will be a key differentiator of volume growth across players in our view. Management commentary within the sector provide a mixed outlook for 2013 IT budgets as of now. Early comments from managements indicate that IT budgets will remain flattish in CY2013.
Exhibit 1: Relative performance to the Sensex

(11.3) 18.0 2.5 (30.2) (7.1) (%) (6.3) (9.1) 6.5 3.1 (3.6) (11.1) (5.4) (40.0) (32.0) (24.0) (16.0) (8.0) 0.0 8.0 16.0 24.0 KPIT Cummins Persistent Mindtree Hexaware Mphasis Mahindra Satyam Tech Mahindra HCL Tech Wipro TCS Infosys BSE IT Index
Cyclically a weak quarter with decent volume growth

Traditionally, 3Q is a weak quarter for IT companies as the number of working days is less compared to other quarters, due to the holiday season at the client sites. We expect 3QFY2013 volume growth to be impacted slightly because of Hurricane Sandy in the US and furloughs seen in the banking and financial services space. For 3QFY2013, we expect volume growth to be in the range of 2.0-3.0% qoq for tier-I IT companies, with TCS leading the pack. Pricing is expected to remain stable. For tier-II companies, we expect growth to be modest at 1.0-8.0% qoq, with Tech
Exhibit 2: Trend in volume growth (qoq) Tier-I

6 4.9 4 3.1
(%)
5.3 3.8
5.0 4.5
3.2 1.8
3.3 2.7 2.0 0.8 1.8 0.8
3.0 2.2 2.0 2.3
0.2 0
(2) 3QFY12
(1.5) 4QFY12 1QFY13 2QFY13 3QFY13E
Infosys
TCS
HCL Tech
Wipro*
Source: Company, Angel Research; Note: *For the IT services segment
28
Mahindra leading the pack aided by revenues flowing from acquisition of Hutchison Global Services and Comviva. For 3QFY2013, in INR terms, revenue growth is expected to be in the range of 1.0-2.2% qoq for tier-I IT companies, marginally lower than USD revenue growth, due to appreciation of INR against the USD on a qoq basis, with average USD/INR rate at 54.1 for 3QFY2013 as against 55.1 in 2QFY2013.
USD revenue to grow, albeit at a slower pace

The cross-currency movement, which negatively impacted USD revenue during 1QFY2013, has turned a boon for Indian IT companies since 2QFY2013. This quarter, again, we expect tier-I IT companies to derive ~20-40bp qoq benefit from favorable cross currency movement. For 3QFY2013, on the back of fair volume growth, stable pricing, and marginally positive cross-currency movement, we expect USD revenue of tier-I IT companies to grow moderately by 2.2-3.2% qoq, with TCS leading the pack.
Exhibit 5: Trend in INR revenue growth (qoq) - Tier-I

16 12 8 5.1
(%)
14.8 13.5 12.8 11.4
13.5 12.1 8.6 9.5
4 0 3QFY12 (4) 0.4 (0.6) (0.2) 4QFY12 (4.8) (8)
2.5
2.9 0.7 1.0
2.0
1.2
2.2
1QFY13
2QFY13
3QFY13E
Exhibit 3: Trend in USD revenue growth (qoq) - Tier-I

6 5 4 3
(%)
Infosys
TCS
HCL Tech
Wipro*
4.6 3.4 2.4 2.2 2.0 2.4 2.5 2.0 3.0 3.0 3.2 2.6 1.7 2.4 3.2 2.2 2.6
2 1 0 (1) (2)
For tier-II IT companies, INR revenue growth is expected to be at (2.4)-7.6% qoq, with Tech Mahindra leading the pack.
Operating margins to decline

3QFY12 4QFY12 1QFY13 (1.1) (1.9) Infosys (1.4) 2QFY13 3QFY13E
TCS
HCL Tech
Wipro*
For tier-II IT companies, USD revenue growth is expected to be (1.3)-8.4% qoq, with Tech Mahindra leading the pack aided by inorganic growth from the two acquisitions done recently while Hexaware is expected to be at the bottom with its management indicating a client specific issue.
We expect the EBITDA margin of Infosys to decline by 97bp qoq to 28.1%, because of moderate wage hike of 6% to the offshore employee base and 2-3% to the onsite employee base. The EBITDA margin of HCL Tech is also expected to decline by 179bp qoq to 20.4%, due to wage hikes given during the quarter. TCS and Wipro (IT services) are expected to post a moderate decline of 28bp qoq and 46bp qoq in their EBITDA margin to 28.2% and 23.3%, respectively, on account of lower working days in the quarter. Exhibit 6: EBITDA margin profile Tier-I
35 31.0 33.7 32.6 30.6 29.1 31.0 29.1
(%)
Exhibit 4: Trend in USD revenue growth (qoq) - Tier-II

10 8 6 4
(%)
8.4
30 29.5
29.1 24.0
28.4 23.7 22.2
28.2 28.1 23.3
25 23.2 23.9 23.8 18.4 17.1 18.5 15 2QFY12 3QFY12 4QFY12
2 0 4QFY12 (2) (4) 1QFY13 2QFY13
1.6
2.2 0.8 1.1
20
22.0
20.4
3QFY13E (1.3)
1QFY13
2QFY13
3QFY13E
Infosys
TCS
HCL Tech
Wipro*
Tech Mahindra
Mahindra Satyam
Mphasis
MindTree
Persistent
Hexaware
Source: Company, Angel Research; Note: *For IT services segment
INR revenue growth to be muted

After almost a year of volatile sessions seen in terms of currency, 3QFY2013 saw some stability in the currency movement. On an average basis, the INR appreciated by ~1.8% qoq during 3QFY2013. This will negatively impact the INR revenue growth and can trim down the operating margins of IT players by 50-70bp qoq.
For tier-II IT companies under our coverage (excluding KPIT Cummins and Persistent Systems), we expect EBITDA margin to decline on a qoq basis due to INR appreciation during the quarter. The EBITDA margin of Hexaware is expected to decline by ~520bp qoq to 16.4% due to a client specific issue (involving one of its clients) cited by the management. The EBITDA margin of Tech Mahindra is expected to decline by 136bp qoq to 19.3% as the two acquisitions done by the company have lower margin profile as compared to the company's current average operating margin.
29
Earnings growth to be a mixed bag
On the back of INR appreciation and moderate volume growth, profitability of tier-I companies such as TCS and Wipro is expected to decline by 4.1% and 2.0% qoq, respectively. Infosys and HCL Tech will have higher impact on their profitability due to additional negative impact of wage hikes; profitability is expected to go down by 9.0% and 9.5% qoq, respectively. Amongst mid-tier IT companies, earnings growth is expected to be a mixed bag. Tech Mahindra is expected to post a 5.7% qoq growth in its net profit aided by couple of acquisitions. Hexaware is expected to report an enormous hit of 28.5% qoq on its net profit due to a sudden project closure at one of its top clients. Persistent Systems and MindTree are expected to see a qoq increase in their net profits on account of forex gains. In case of KPIT Cummins, the profitability is expected to go up by 41% qoq to `57cr on the back of higher other income qoq and lower tax rate coupled with decent volume growth. outperform peers and show better revenue growth and greater margin control. We expect that growth in FY2013 will be largely led by market share shifts with competitive intensity increasing. Temporary suspension of work happening at key BFSI accounts which are the highest contributor to Indian IT revenues and reduced discretionary spending are concern areas going ahead. Management commentary within the sector has provided a mixed outlook for 2013 IT budgets as of now. Early comments from the management indicate that IT budgets will remain flattish in CY2013. We do not expect the flow business to see material acceleration in FY2014, with it likely to be held back by the impending fiscal cliff in the US, which would impact client decision making and cause softness in discretionary spending from large revenue contributors such as BFSI and telecom clients. After a year of growing faster than the tier-I IT companies, India's mid-sized IT companies might have a tougher and slower year ahead as companies wait for economic revival in their largest market - the US. Factors such as demand pressures, limited pricing power, high client concentration and limited bench sizes could restrict profits of mid-tier firms in the coming quarters. We remain cautiously optimistic on the IT sector, as post a mixed 1HFY2013, managements have given a mixed commentary for IT budgets in CY2013, which are at best expected to remain flattish. We expect TCS and HCL Tech to lead growth in the tier-I IT pack in FY2013. TCS is currently trading at 18.1x FY2013E EPS and 16.4x FY2014E EPS, owing to better revenue visibility than its peers and operational exuberance we recommend Buy rating on the stock with a target price of `1,448. We have a Buy rating on HCL Tech with a target price of `725. Further, we recommend an Accumulate rating on Wipro with a target price of `421. Among mid-caps, we like Tech Mahindra due to the inorganic growth it would witness post the two acquisitions done recently; we recommend Buy on it with a target price of `1,087.

For FY2013, Nasscom estimates that industry growth is likely to be closer to the lower end of its initial 11-14% guidance. While the global macro data have been steady, we believe that the demand environment for the IT sector remains mixed at best. We believe FY2013 might be different in terms of growth rates of tier-I IT companies, as companies will have divergent growth rates with TCS and HCL Tech growing higher than the industry's average (in mid teens) and Infosys growing in mid single digits. The IT spend now is driven due to trends such as increased offshoring of work from Europe and vendor consolidation. Market share gains in the renewal deal pipeline will be a key differentiator of volume growth across players in our view. Market share gain focused players, with the current business momentum (HCL Tech, TCS and Cognizant), are expected to

Company TCS Infosys Wipro HCL Tech* Mah. Satyam Mphasis^ Hexaware Mindtree Persistent Infotech Entp. CMP (`) 1,259 2,319 394 619 107 383 85 682 512 179 Net Sales 3QFY13E 15,926 9,961 10,974 6,161 1,755 1,942 1,353 496 593 329 565 486 2.0 1.0 3.0 1.2 7.6 0.2 3.6 (2.4) (0.5) 0.5 (0.3) 1.8 OPM (%) chg bp (28) (97) (26) (179) (136) (166) (114) (520) (117) (2) 55 61 28.2 28.1 19.8 20.4 19.3 19.9 19.5 16.4 21.0 27.2 17.2 19.3 Profit Net Profit 3QFY13E 3,367 2,157 1,585 801 313 277 195 60 75 52 57 60 (4.1) (9.0) (2.0) (9.5) 5.7 (0.5) (6.8) (28.5) 4.2 15.8 41.3 19.5 (` EPS (`) % chg (4.1) (9.0) (2.0) (9.5) 5.7 (0.5) (6.8) (28.5) 4.2 15.8 41.3 19.5 FY12 54.3 145.5 22.7 36.0 88.2 10.2 37.7 8.9 53.7 35.4 8.0 14.5 17.2 37.8 6.5 11.4 23.6 2.4 9.3 2.0 18.3 12.9 6.3 5.4 (` EPS (`) FY13E 69.6 157.6 26.1 45.0 94.1 9.9 35.4 10.7 75.4 48.0 11.3 19.1 FY14E 76.5 166.0 28.1 50.0 106.4 10.8 37.7 10.7 78.1 53.9 13.0 21.2 FY12 23.2 15.9 17.4 17.2 10.6 10.5 10.2 9.5 12.7 14.4 13.7 12.4 P/E (x) FY13E 18.1 14.7 15.1 13.8 9.9 10.8 10.8 7.9 9.0 10.7 9.8 9.4 FY14E 16.4 14.0 14.0 12.4 8.8 9.9 10.2 7.9 8.7 9.5 8.5 8.5 arg Target (`) 1,448 2,490 421 725 1,087 119 118 781 539 130 191 % chg 3QFY13E % chg 3QFY13E
(` cr) `
Reco. Buy Accum. Accum. Buy Buy Accum. Neutral Buy Accum. Accum. Buy Accum.
Tech Mahindra 931
KPIT Cummins 110
Source: Company, Angel Research; Note: Price as on December 31, 2012; *June ending so 2QFY2013 estimates; ^October ending so 1QFY2013 estimates; #December ending so 4QCY2012 estimates; Change is on a qoq basis
Analyst - Ankita Somani

30
Media
Healthy top-line growth
For 3QFY2013, we expect our Media universe to post a cumulative top-line growth of 10% yoy. The revenue growth of print media companies for the quarter would primarily be aided by uptick in advertisement revenues due to festive season. Sun TV Network (Sun TV)'s agreement with Arasu Cable as well as uptick in advertisement revenues from FMCG companies is expected to bolster the former's top-line performance. PVR is also expected to post a healthy revenue growth on the back of robust seat additions and many successful releases during the quarter. Exhibit 1: Newsprint prices up in INR terms
800 750 700
USD/tonne
PVR acquires 69% stake in Cinemax at `395cr

PVR has signed an agreement to buy the entire 69.27% promoter's stake in Cinemax India for `203.6 per share. The total deal is valued at `395cr. The deal will be financed by a combination of debt and equity. The promoters will infuse `25cr, PE firm Multiples will contribute `153cr and L Capital will invest `82.3cr and the balance will be financed by debt. After the deal, the promoters' holding in PVR will stand at 32% while Multiples and L Capital will hold 15.8% each. PVR's Board also approved purchase of up to 26% stake in Cinemax India from public shareholders through open offer under SEBI regulations. PVR currently has 213 screens while Cinemax India has 138 screens. This deal makes PVR the biggest player in the multiplex business with 350 plus screens. Meanwhile, PVR is also continuing its organic expansion with it opening new multiplexes at Phoenix Market City Mall in Mumbai and Orion Mall in Bangalore, during the quarter.
Newsprint prices down qoq in INR terms
40,000 35,000 30,000 25,000 20,000 15,000 Dec-12

INR/tonne
650 600 550 500 450 400 Dec-05 Dec-06 Dec-07 Dec-08 USD/tonne Dec-09 Dec-10 Dec-11
Performance on the bourses Exhibit 2: Relative performance to Sensex during 3QFY2013

35.0 29.6 30.0 25.0 20.0 15.0 10.0 5.0 DBCORP HTMEDIA JAGRAN PVR SUNTV SENSEX 3.2 14.4 13.4 14.7 19.0
INR/tonne
During 3QFY2013, the average newsprint prices have remained flat at $620. In INR terms, the newsprint prices have posted a slight decline of 1.9% qoq to ~ `33,656 due to 1.9% qoq appreciation of INR v/s USD. However, newsprint prices are up by 6.6% yoy in INR terms, on account of yoy depreciation in INR v/s USD.
Key developments during the quarter

Sun TV buys Hyderabad franchise
Sun TV has bought the Indian Premier League (IPL) Hyderabad franchise for `85.05cr per year, valuing the franchise at `425cr for a 5-year contract period. The BCCI had set a base price of `300cr for a 10-year contract for the new IPL team to replace Deccan Chargers. Sun TV has named its team as Sun Risers. The acquisition of the IPL team will be funded through internal accruals. The company expects the acquisition to enhance the brand image of Sun TV.
Source: TRAI, Angel Research
Outlook and valuation: Print media stocks had underperformed the Sensex in the last few quarters due to margin pressure. However they have posted impressive gains in 3QFY2013, outperforming the Sensex on expectations of uptick in advertising revenues (on account of the festive season) and on increased optimism of economic recovery. However, we believe, the print media stocks are still trading at cheaper valuations, considering the structural positives of print business (high brand loyalty and significant entry barriers). Hence, we maintain Buy on DBCorp and Jagran Prakashan and Accumulate on HTMedia.

Company Jagran D B Corp HT Media PVR Sun TV CMP (`) 105 229 107 282 427 Net Sales 3QFY13E 344 438 535 186 477 8 11 3 37 12 OPM (%) chg bp 9 2 8 12 36 87 104 80 34 377 Profit Net Profit 3QFY13E 52 60 49 15 185 26 8 3 63 10 (` EPS (`) % chg 26 7 3 65 7 FY12 5.6 11.0 7.0 11.6 17.6 1.6 3.3 2.1 5.5 4.6 (` EPS (`) FY13E 6.4 11.6 7.4 17.6 17.6 FY14E 7.3 14.4 8.3 19.6 19.1 FY12 18.6 20.8 15.2 24.4 24.3 P/E (x) FY13E 16.4 19.8 14.6 16.0 24.3 FY14E 14.5 15.9 13.0 14.4 22.4 arg Target (`) 126 264 121 % chg 3QFY13E % chg 3QFY13E
(` cr) `
Reco. Buy Buy Accum. Neutral Neutral
Source: Company, Angel Research; Note: Price as on December 31, 2012
Analyst - Amit Patil Patil

31
Metals
In our view, steel companies' profitability is expected to improve yoy during 3QFY2013 on the back of decreasing prices of key inputs, mainly coking coal. During 3QFY2013, global steel prices rose on the back of improvement in economic data in China. Steel prices in the US and China increased during the month of November and December after a steep fall the month of October. Steel prices in India also rose during December after witnessing a fall during October and November. For 4QFY2013, coking coal contract prices have settled to US$165/tonne, compared to US$170/tonne for 3QFY2013. Iron ore contract prices for 4QFY2013 are expected to increase as spot iron ore prices have increased sharply during 3QFY2013. Looking ahead, although we expect steel consumption to pick up, concerns on account of slowdown in the capex cycle, high interest rates and slowdown in construction demand remain. After a steep decline in base metal prices during 2QFY2013, prices rebounded during the November - December period. Going forward, we do not expect base metal prices to spike meaningfully due to subdued outlook of the Eurozone. The BSE Metal Index posted a positive return of 5.2% in 3QFY2013. Prices of steel stocks under coverage increased during 3QFY2013 on the back of positive news of demand recovery in China, higher domestic HRC prices and opening of the category A mines in Karnataka. Stock prices of SAIL, Tata Steel and JSW Steel increased by 6.1%, 6.9% and 7.3% respectively. On the non-ferrous side, Hindalco Industries (Hindalco)'s stock price increased by 8.1% after the MoEF granted stage 1 clearance to its Mahan coal block and Sterlite Industries (Sterlite)' stock prices also rose by 17.2%. On the other hand NMDC recorded a substantial fall in its stock performance of 14.9% after it reported a weaker off-take in volumes due to infrastructural issues and also due to the overhang of the divestment of 10% stake by the Government of India. However the divestment was a success due to lower price set by the government.
Key events
Government of India divests 10% stake in NMDC
During 3QFY2013 the Government of India divested 10% stake in NMDC comprising 36.1mn shares. The shares were divested through the Offer for Sale (OFS) route with a floor price of `147. The issue was subscribed 1.7x times, which in our view, was due to attractive valuation (3.6x FY2014 EV/EBITDA).
Supreme Court order banning mining in Goa

During 3QFY2013 the Supreme Court (SC) ordered a blanket ban on the extraction and transportation of iron ore in Goa and formed a Centrally Empowered Committee (CEC) to examine the irregularities in this sector. The Ministry of Environment and Forests (MoEF), following the Supreme Court's ban, also suspended environmental clearance on 93 mining leases in Goa. The next hearing of the Supreme Court on this matter is scheduled on January 8, 2013.
VAL shuts refinery on bauxite shortage

Sterlite's associate Vedanta Aluminium (VAL; in which Sterlite holds 29.5% stake) shut down its alumina refinery at Langigarh in Odisha during the quarter due to lack of bauxite to produce alumina. The company has been disallowed to mine bauxite from its mines; other private miners in Odisha also shut down operations, leading VAL to take the decision. The Supreme Court is expected to take a final decision on Niyamgiri bauxite mine in its hearing scheduled on January 11, 2013.
Ferrous sector
During 3QFY2013, global steel prices rose, led by rise in spot iron ore prices. Steel prices in the US and China increased during the month of November and December after a steep fall the month of October. Steel prices in India also rose during December after witnessing a fall during October and November.
Exhibit 1: Metal stocks performance 3QFY2013

NMDC Nalco COAL HZL MOIL BSE Metal Index SAIL Tata Steel JSW Hindalco Sesa Sterlite (20.0) (10.0) 0.0 (%) 10.0 20.0
Exhibit 2: Global HRC price rose in December

800 750
(US$/tonne)
4000 3950 3900 3850 3800 3750 3700 3650 3600

Mar-12 Mar-12 Apr-12 May-12 Jan-12 May-12 Jan-12 Feb -12 Jun-12 Jul-12 Jul-12 Aug-12 Sep-12 Oct-12 Oct-12 Nov-12 Dec-12 Dec-12 (Yuan/tonne)
700 650 600 550 500
USA HRC/tonne
China HRC/tonne (RHS)
32
Metals
Exhibit 3: Domestic HRC prices rose in december
39,000 37,000 35,000
(`/tonne)
subsequently suspension of environment clearances of all the 93 mining leases by the MoEF .
Exhibit 5: Indian iron ore exports to China down

6 5
33,000 31,000
(mn tonnes)
29,000 27,000 25,000

Sep-12 Nov-11 Mar-12 May-12 Nov-10 Mar-11 May-11 Nov-12 Sep-10 Sep-11 Jul-11 Jan-11 Jan-12 Jul-10 Jul-12
4 3 2 1 0
Feb-12
Aug-12
Sep-12
Jul-12
Oct-12
Nov-11
Dec-11
Mar-12
Iron ore price rises; coking coal flat

Iron ore prices rose during 3QFY2013 on the back of higher demand from China. Declining supplies from India were more than offset by rising exports from Australia. Australia exported 60.7 mn tonne (14.9% yoy rise in October - November 2012). During the quarter, average spot iron ore prices for 63.5% Fe grade (CFR, China) increased by 6.6% qoq to US$145/tonne (down 9.9% yoy). Hence, iron ore contract prices for 4QFY2013 are likely to rise on a qoq basis. Domestic iron ore prices have remained firm on account of mining ban in Karnataka and government's stricter stance on illegal mining in the mineral-rich states of Odisha and Goa. Media reports suggest that quarterly coking coal contract price for January-March quarter have been signed at US$165/tonne which is likely to be a benchmark for other contracts.
Steel imports on a rise

Steel imports have continued to rise over the past one year. Indian steel players continue to face threat of higher steel imports from FTA countries (which attract lower import duty). During April- November 2012, steel imports by India have increased by 32.5% yoy to 6.1mn tonne.
Exhibit 6: Production and consumption - steel

7,000 6,000 5,000 900 800 700 600 500 400 300 200 100 0 (100) (200)
May-12
(000 tonnes)
4,000 3,000 2,000 1,000 0
Exhibit 4: Iron ore prices and inventory in China

250 200
(US $/tonne)
Feb-11
Mar-11
May-11
Aug-11
Dec-11
Feb-12
Mar-12
May-12
Sep-11
Jan-11
Apr-11
Jul-11
Aug-12
Nov-11
Sep-12
Jun-11
Apr-12
Jan-12
Jun-12
Jul-12
100
(mn tonnes)
Net production
Real consumption
Net imports - RHS
80 150 60 100 40 50 0 Dec-09 20 0 May-10 Oct-10 Mar-11 Aug-11 Jan-12 Jun-12 Nov-12 Indian Iron ore prices (LHS) Iron ore inventory (RHS)
Outlook
Margins to expand on a yoy basis
Current international iron ore prices are in the range of US$130-140/tonne (slightly above marginal cost of production for several Chinese iron ore miners). Hence, we do not expect any further meaningful downside from the current price levels. Contracted coking coal prices have declined gradually over the past one year. A decline in coking coal prices is expected to benefit Indian steelmakers, although INR depreciation would partially offset the decline in the price of coking coal. According to World Steel, global crude steel production for October increased by 1.3% to 126mn tonne, whereas for November it increased by 5.1% yoy to 122mn tonne. Global capacity utilization levels during October and November stood at 76.5% and 76.1%, respectively.
33
Iron ore exports from India continued to decline

As per Federation of Indian Mineral Industries (FIMI), iron ore exports from India had declined by 38.5% yoy to 62mn tonne during FY2012 on account of export ban in Karnataka, stringent measures in issuing export permits in Odisha, a sharp decline in international iron ore price and increased export duty. Further, as per FIMI, total iron ore exports during FY2013 are estimated to decline by 75.8% to 15mn tonne due to ban on mining imposed by the Goa government and
Nov-12
Oct-11
Oct-12
120
(000 tonnes)
Nov-12
Oct-11
Jan-12
Apr-12
Jun-12
Metals
3QFY2013 expectations: For 3QFY2013, on a yoy basis, we expect net sales to increase, aided by higher realization. Thus, we expect the top-line of steel companies under our coverage to grow by 2-16% yoy. Also, due to lower raw-material costs, margins of steel companies are likely to improve on a yoy basis. For SAIL, we expect net sales to grow by 10.7% yoy; however, its EBITDA is expected to decline by 14.4% yoy due to higher staff costs and other expenditure. For Coal India, we expect the top-line to grow by 5.5% yoy due to higher volumes; however, its PAT is expected to decline by 5.8% yoy mainly due to higher staff costs and lower e-auction realizations. NMDC's PAT is expected to decline by 5.0% yoy due to lower sales volumes. Tata We remain positive on NMDC and Tata Steel. zinc inventories rose by 10.6%, and 48.7%, respectively while copper inventory declined by 39.6%.
Exhibit 8: Inventory chart

180 160 140 120 100 80 60 40 20 0 Jul-11 Sep-11 Nov-11 Jan-12 Mar-12 May-12 Jul-12 Sep-12 Nov-12
Copper
Aluminium
Zinc
Source: Bloomberg, Angel Research; Note: Base = 100
Non-ferrous sector
During the quarter, base metal prices declined in October 2012. Nevertheless, the prices rebounded in the November-December period. Domestic aluminium companies continued to suffer on account of low aluminium prices coupled with higher coal costs. On a sequential basis, average copper, aluminium and zinc prices increased by 2.8%, 5.1% and 3.2%, respectively after declining over the past one year. However, on a yoy basis, average copper, and zinc prices increased by 5.2% and 2.0%, respectively, where as aluminium prices declined 4.6%
Outlook
Non-ferrous companies are expected to face a double whammy of declining product prices coupled with higher input costs during FY2013. Base metal prices have declined steeply over the past one year and hence realizations for companies are expected to decline during FY2013 (partially offset by INR depreciation against the USD). Further, although several aluminium companies (globally) have announced production cuts, we are yet to see any meaningful decline in production. Thus, lower realizations coupled with higher prices of key inputs such as imported coal, caustic soda, CP pitch and petroleum coke are expected to hit margins of non-ferrous companies during FY2013 in our view. We expect non-ferrous companies to report a lower top-line on a yoy basis, owing to a decline in LME prices. Further, we expect Aluminium companies margins to remain under pressure while there could be some improvements for other non-ferrous players. We have a Neutral stance on the non-ferrous sector. sector.
Exhibit 7: Average base metal prices (US$/tonne)

3QFY13 Copper Aluminium Zinc 7,924 2,017 1,945 3QFY12 7,530 2,115 1,906 yoy % 5.2 (4.6) 2.0 2QFY13 7,710 1,920 1,884 qoq % 2.8 5.1 3.2
On a qoq basis, inventory levels at the LME warehouse for copper, aluminium and zinc increased by 4.3%, 5.1% and 18.1%, respectively. However, on a yoy basis, Aluminium and

Company Coal India Hindalco Hind. Zinc JSW Steel MOIL Nalco NMDC SAIL Sterlite Inds Tata Steel CMP (`) 355 131 136 812 265 49 165 91 117 428 Net Sales 3QFY13E 16,190 7,199 3,044 8,531 268 1,657 2,162 11,730 11,288 38,228 5.5 9.2 10.8 8.5 11.8 15.9 (23.4) 10.7 10.2 15.5 OPM (%) chg bp (569) (412) 218 162 (291) (48) (134) (310) 21 285 31.0 6.7 53.2 17.3 42.8 2.8 78.8 10.6 22.8 8.0 Profit Net Profit 3QFY13E 3,808 404 1,685 451 110 63 1,518 716 1,524 683 (5.8) (10.4) 31.6 (32.5) 8.5 22.5 (18.3) (34.9) 13.3 (` EPS (`) % chg (5.8) (10.4) 31.6 (32.5) 8.5 22.5 (18.3) (34.9) 13.3 6.0 2.1 4.0 19.0 6.5 0.2 3.8 1.7 3.1 (` EPS (`) FY12 23.4 17.7 13.1 55.9 25.6 3.4 18.3 8.6 15.5 20.9 FY13E 24.7 15.0 14.9 78.6 25.8 2.0 18.5 6.8 16.8 22.0 FY14E 27.2 15.6 16.4 90.1 28.1 3.2 20.6 7.4 17.9 44.5 FY12 15.2 7.7 10.4 14.5 10.3 14.5 9.0 10.6 7.5 20.5 P/E (x) FY13E 14.4 8.7 9.1 10.3 10.2 24.8 8.9 13.4 7.0 19.4 FY14E 13.1 8.4 8.3 9.0 9.4 15.4 8.0 12.3 6.5 9.6 arg Target (`) 44 198 463 % chg 3QFY13E % chg 3QFY13E
cr ( ` cr )
Reco. Neutral Neutral Neutral Neutral Reduce Buy Neutral Neutral Accum.
145 Accumulate
Source: Company, Angel Research; Note: Price as on December 31, 2012; EPS calculation based on fully diluted equity; Denotes consolidated numbers
Analyst : Bhavesh Chauhan / Vinay Rachh

34
Oil & Gas

During 3QFY2013, the price of Brent crude oil remained in the range of US$108-117. Overall, average Brent crude oil was flattish during 3QFY2013. Further, the WTI (West Texas Intermediate) crude oil price also remained flat, broadly reflecting a flattish move in the price of Brent crude. Average Henry Hub natural gas price increased by 17.2% qoq after falling steeply over the past one year. Further, the Asian spot LNG price remained firm on account of demand-supply mismatch in Asia. Prices of petrochemical products, on the other hand, increased by 7.1% on a qoq basis during 3QFY2013. During September and October 2012, the Indian crude oil basket for oil prices stood at US$112/bbl and US$110/bbl, respectively. Rise in international crude oil prices coupled with INR depreciation against the USD resulted in higher under-recoveries for oil marketing companies (OMCs) on account of selling diesel, kerosene and domestic LPG at subsidized rates. During the first half of December 2012, OMCs continued to lose `411cr per day. OMCs continued to lose `9.3/liter, `30.1/liter and `521/cylinder on diesel, kerosene and domestic LPG, respectively. countries raised their production by 70,000bbl/day and 75,000bbl/day respectively while on the other side the oil demand also increased due to winter in Europe, USA and other OECD countries.
Petrochemical prices rose modestly qoq in 3QFY2013

Average prices of petrochemical products increased modestly on a qoq basis during 3QFY2013 as the INR depreciated against the USD.
Exhibit 3: Petchem prices increased qoq in 3QFY13

110 100 90 80
(`/kg)
70 60 50 40 30 Nov-09 Mar-10 Jul-10 Nov-10 Mar-11 Jul-11 Nov-11 Mar-12 Jul-12 Nov-12
PTA
MEG
CHIPS
POY
Source: Industry sources, Angel Research
Exhibit 1: Indian crude basket trend

128 124 120 116
(US$/bbl)
Oil supply across the world continued to improve in 3QFY2013 on account of higher production from both, OPEC and nonOPEC countries.
112 108 104 100 96 92 88 84 80 Dec-11 Feb-12 Apr-12 Jun-12 Aug-12 Oct-12
Exhibit 4: World oil supply improved in 3QFY2013

93 92 92
(mnbpd)
91 91 90 90
Source: PPAC, Angel Research
Brent crude remained volatile during 3QFY2013

Brent crude oil price remained in a broad range of US$108-117 during 3QFY2013 as both OPEC and non-OPEC
89 Jan-12 Mar-12 May-12 Jul-12 Sep-12 Nov-12
Total oil supply - Monthly
Exhibit 2: Crude oil remained volatile during 3QFY2013

130 125 120
(US $ /barrel)
US gas prices rise; Asian gas prices remain firm

The average Henry Hub natural gas price increased by 17.2% qoq during 3QFY2013 following a 25.6% qoq increase during 2QFY2013. Further, Asian spot LNG prices continued to remain firm on account of higher demand in Asia.
115 110 105 100 95 90 85 Dec-11 Feb-12 Apr-12 Jun-12 Aug-12 Oct-12 Dec-12
Source: PPAC, Angel Research
35
Oil & Gas

Exhibit 5: US gas prices rose in 3QFY2013
5.5
Key developments
ONGC sells 26% stake in KG basin
(US $/mmbtu)
4.5
3.5
2.5
1.5
Feb-12 May-12 Dec-11 Aug-12 Jan-12 Sep-12 Jul-12 Oct-12 Mar-12 Nov-12 Dec-12 Apr-12 Jun-12
During 3QFY2013, Japan's largest oil company Inpex Corp. acquired a 26% stake in ONGC's KG DWN- 2004/6 block located in deepwaters of KG Basin in the Bay of Bengal. ONGC continued to remain an operator in the block with 34% stake. The block covers an area of 10,907 sq km and has a depth of approximately 3,000 meters.
Henry Hub Natural Gas Spot Price
OVL buys stake in Kazakh oilfield for US$5bn

ONGC's overseas acquisition arm, ONGC Videsh (OVL) in 3QFY2013 announced that it will invest `27,800cr (US$5bn) for an 8.4% stake in an oilfield in Kazakhstan. ONGC stated that there are huge upsides in the investment. The field will start production in 1HCY2013. ONGC would buy ConocoPhillips' entire stake in the shallow-water Kashagan field, where Total, Shell, ExxonMobil and KazMunaiGaz hold 16.8% stake while Inpex holds 7.6% stake. In the first phase of the field's development, OVL is expected to get 1mn tonne of oil per year for 25 years, with a peak of 1.6mn tonne (the field's total output -18.5mn tonne per year).
Exhibit 6: Asian LNG prices remain firm

20 17
(US$/mmbtu)
14 11 8 5
Aug-06
Aug-07
Aug-08
Aug-09
Aug-10
Aug-11
Nov-06
May-07
Nov-07
May-08
Nov-08
May-09
Nov-09
May-10
Nov-10
May-11
Nov-11
LNG price
May-12
Aug-12
Feb-07
Feb-08
Feb-09
Feb-10
Feb-11
Feb-12
Exhibit 7: Crude inventory remained flat in 3QFY2013

400 380
Government disallows RIL's US$1bn expense on KG-D6

The Government of India during 3QFY2013 stated that it would not allow US$1bn expense of Reliance Industries (RIL) on the KG-D6 gas fields for not implementing the approved field development plan. However, RIL initiated arbitration proceedings where the company and the government appointed arbitrators would decide on the issue; the issue as of yet has not been resolved.
(000 bbls)
360 340 320 300
Aug-12
Sep-12
Oct-12
Nov-12
Mar-12
May-12
Dec-12
Feb-12
Jun-12
Jan-12
Apr-12
Jul-12
BG group sells its stake in Gujarat Gas

During 3QFY2013, the promoters of Gujarat Gas, BG group, sold their 65.12% stake in the company for `2,464cr to Gujarat State Petroleum Corporation (GSPC) implying a price of `295/share.
DOE crude oil inventory
Exhibit 8: Motor gasoline inventory rose in 3QFY2013

240 230 220
(000 bbls)
210 200 190 180 170

Jun-12 Mar-12 Aug-12 Jan-12 Apr-12 May-12 Nov-12 Dec-12 Feb-12 Sep-12 Oct-12 Jul-12
PNGRB rejects RIL's demand to prematurely raise KG D6 natural gas price

The Petroleum and Natural Gas Regulatory Board (PNGRB) rejected the demand by RIL to hike gas prices before April 2014. It stated that the price of natural gas was fixed by the Empowered Group of Ministers (EGoM) for a mutually agreed period of five years and any premature revision at this stage will put a huge financial burden on the government. PNGRB also rejected RIL's demand that KG-D6 gas price should be tripled from April 2014 from the current price of US$4.20/mmbtu.
DOE motor gasoline inventory
36
Oil & Gas

Lackluster 3QFY2013 performance by oil & gas stocks
During 3QFY2013, the BSE Oil and Gas Index recorded a fall of 1.1%, due to regulatory overhang which pushed down many stocks. GAIL's stock fell by 6.4% during 3QFY2013 after rising steeply over the past several months. ONGC's stock also posted a 3.8% decline due to fears that the subsidy burden on the upstream companies would rise in this year. RIL however, rose marginally by 1.1% due to the ongoing buy-back program.
For 3QFY2013, we expect mixed profitability performance for our coverage companies. For RIL, we expect the top-line to increase by 5.7% yoy on account of higher prices of petrochemicals. However, its operating profit is expected to decrease by 0.8% yoy mainly due to decline in production from the KG D6 block. Nevertheless, its PAT is expected to increase by 15.0% yoy mainly due to increase in other income. For ONGC, we expect net sales to increase by 6.5% yoy while its operating profit is expected to decrease by 10.1% yoy due to higher employees cost. GAIL is expected to report a top-line growth of 6.4% yoy on account of increase in volume. Its net profit is expected to increase by only 5.1% yoy due to higher top-line growth.
Exhibit 9: 3QFY2013 stock performance

2.0 1.0 0.0 (1.0)
(%)
(2.0) (3.0) (4.0) (5.0) (6.0) (7.0) RIL BSE O&G Index Cairn ONGC GAIL
Cairn India's net sales are expected to increase by 47.8% yoy mainly on account of increase in volumes; its operating income is also expected to increase by 40.2% yoy. Its bottom-line is expected to increase by 52.3% mainly due to increase in operating income.

Company Cairn India GAIL ONGC^ RIL^ CMP (`) 319 356 267 839 Net Sales 3QFY13E 4,576 11,986 19,294 89,981 47.8 6.4 6.5 5.7 OPM (%) chg bp (419) (7) (946) (53) 78.0 15.6 51.5 8.0 Net Profit Profit 3QFY13E 2,986 1,147 4,843 5,108 52.3 5.1 34.6 15.0 EPS (`) (` % chg 52.3 5.1 34.6 15.0 18.1 9.0 5.7 15.6 EPS (`) (` FY12 42.2 28.8 32.9 67.2 FY13E 61.1 34.0 28.6 60.0 FY14E 56.8 35.3 30.5 63.3 FY12 7.6 12.4 8.1 12.5 P/E (x) FY13E 5.2 10.5 9.3 14.0 FY14E 5.6 10.1 8.7 13.3 Target arg (`) 382 312 % chg 3QFY13E % chg 3QFY13E
(` cr) `
Reco. Buy Neutral Buy Neutral
Source: Company, Angel Research; Note: Price as on December 31, 2012; ^Standalone numbers for the quarter and consolidated numbers for the full year
Analyst : Bhavesh Chauhan / Vinay Rachh

37
Pharmaceutical
Pharma sector continues its outperformance
During 3QFY2013, the BSE healthcare (HC) index continued its outperformance. The HC index rose by 7.6% as against a 3.2% rise in the Sensex. Manufacturers would be free to fix any price for their products equal to or below the CP The CPs would be fixed on dosage . basis, such as per tablet / capsule / standard injection volume as listed in NLEM-2011. The methodology of fixing a ceiling price for NLEM medicines, is of adopting the Simple Average Price of all the brands having market share (on the basis of Moving Annual Turnover) more than and equal to 1% of the total market turnover of that medicine. Pricing of the Drug: The CP will be fixed on the basis of readily monitorable Market Based Data (MBD) available with the pharmaceuticals market data specializing company - IMS Health (IMS). As the IMS data gives stockist level prices, in order to arrive at the CP (which will be the maximum retail price) the IMS price will be further increased by 16%. The CP for a drug listed in the NLEM would be the simple average of prices as calculated on the basis of IMS data six months prior to the date of announcement of the new National Pharmaceutical Pricing Policy ie the "Appointed Date" for bringing the new policy into effect. The prices of these NLEM-2011 medicines will be allowed an annual increase as per the Wholesale Price Index as notified by the Department of Industrial Policy & Promotion. Non-price Control Drugs: Under the existing price control regime, the prices of Non-Scheduled drugs are monitored, and in case the prices of such drugs increase by more than 10% in a year, subject to certain criteria, government fixes the prices of such medicines from time to time. In the proposed policy, all essential drugs are under price control. It would follow that non-essential drugs should not be under a controlled regime and their prices should be fixed by market forces. However, in order to keep a check on overall drug prices, it is proposed that prices of such drugs be monitored on a regular basis, and where such price increase is of above 10% per annum, the government would be empowered to have the price of these drugs reduced to below this limit, for the next 12 months. Imported Drugs: The CP determined for drugs falling under the span of control as in 4(iv) above shall also be applicable to such drugs that are imported. There will be no separate determination of CP for imported drugs falling under the span of control. Overlap drugs between DPCO 1995 and NLEM-2011: The prices of medicines which are a part of DPCO 1995 but not in NLEM-2011 would be frozen for one year and thereafter a maximum increase of 10% per annum, as in case of other non-NLEM medicines, will be allowed.
38
Exhibit 1: BSE HC Index vs. the Sensex

16.0 13.0 10.0
(%)
7.0 4.0 1.0 (2.0) (5.0) 3QFY2012 4QFY2012 1QFY2013

BSE HC Sensex
2QFY2013
3QFY2013
Source: C-line, Angel Research
The upward rally in the pharma sector during the quarter was driven by mid-caps as well as large caps. The highest gainers were Aurobindo Pharmaceuticals and Dishman Pharmaceuticals which rose by 31.4% and 17.7% respectively. Among the large caps, Dr. Reddy's , Cipla and Glaxosmithkline Pharmaceuticals rose by 11.1%, 8.9% and 8.4% respectively, whereas other large caps Sun Pharma and Cadila Healthcare on the other hand rose by 6.2% and 6.0% respectively. Lupin, another large cap, rose only by 2.4% during the period. Amongst the losers, Ranbaxy Laboratories lost around 6.8% during the quarter. Among the mid caps and small caps, Aurobindo Pharma and Ipca Laboratories were up by 31.4% and 11.0% respectively. Aurobindo Pharma rose after the company announced that it expects USFDA issues regarding its facilities to resolve in future. Amongst the MNC pack, while Glaxo Smithkline Pharmaceuticals gave healthy returns, Sanofi India was down by 1.6%.
Key developments
NATIONAL PHARMACEUTICALS PRICING POLICY, 2012 (NPPP-2012)
After years of deliberation on the contentious issue of price control of essential and life saving medicines, the Government of India has finally approved and released the new drug pricing policy 2012. Principles of the New Drug Pricing Policy: According to the new Pricing Policy: policy, the government will bring prices of 348 essential drugs (all formulations) mentioned in the National List of Essential Medicines (NLEM) under control against the current practice of controlling prices of 74 bulk drugs and their formulations. The formulations will be priced only by fixing a Ceiling Price (CP).
Pharmaceutical
Patented Drugs: Pricing of patented drugs would be taken based on the recommendations of a separate Committee. Exemptions: Indigenously developed and manufactured new drugs with patent (either process or product patent) and formulation involving a new delivery system developed through indigenous R&D would be eligible for exemption from price control for a period of 5 years. Conclusion: The proposed policy has recommended that the retail price of the essential 348 drugs will be fixed at weighted average price of brands that have more than 1% market share. We believe that the policy in its current form is positive, as it is based on average price mechanism and thus follows competition. Given the price competition, the policy is unlikely to have any major negative implication for the sector. However amongst the domestic and MNC players, the latter would be impacted the most, as they mostly price their products much higher than the competition and then derive their 100% of the sales from domestic markets. Domestic companies not having a huge exposure to the domestic market, would be insulated to a large extent, as pricing is not the key driver for their growth. Their products are therefore competitively priced. Thus, we maintain our recommendations on the sector and our top picks Lupin, are Lupin, Aurobindo Pharma and Dishman Pharmaceuticals & Chemicals. Sun Pharmaceutical Industries: Buys URL's Generic Business: Sun Pharmaceuticals' US subsidiary Caraco Pharmaceutical Laboratories agreed to buy the generic business of URL Pharma Inc., a company that Takeda Pharmaceuticals USA Inc. acquired in April. The valuation of the transaction was not disclosed. URL Pharma's leading product is Colcrys, a colchicine brand, and its variants, used to treat and prevent gout flares. The net sales figure for Colcrys in calendar year 2011 was more than $430 million. These products have, however, not been included in the Sun Pharma deal. Upon completion of the purchase, the generic assets of URL Pharma will be owned and managed by Caraco. The deal is subject to regulatory approvals. URL Pharma's 2011 calendar year revenue was nearly $600 million, according to an earlier release. Sun Pharma's deal includes URL Pharma's generic business excluding Colcrys, the gout treatment business, which was at least $430 million in calendar year 2011. The deal is unlikely to put pressure on Sun Pharma's balance sheet as it is non-Colcrys and hence its size should be low. On the P&L front, the net profit should be augmented by 2.3%, as per rough estimate. Thus we maintain our Neutral stance on the stock.
3QFY2013 result expectations

The Indian pharma sector is expected to post lackluster numbers for 3QFY2013 on the sales front. We expect our coverage universe to register a 2.0% yoy flat top-line growth. The muted top-line growth during the period would be on account of last corresponding period's base. On the operating front, the margins are expected to decline by 314bp. This along with higher taxation is expected to lead the companies in our coverage universe to post a dip of 1.6% in net profit during the period. Amongst large caps, Sun Pharma is expected to post an 11.1% yoy sales growth. Cipla is expected to post a net sales growth of 18.3%. Other players, namely Lupin and Cadila Healthcare are expected to report a growth of 17.2% and 15.3%, respectively. DRL and Ranbaxy Laboratories on the other hand are expected to post a decline in their top-line by around 2.5% and 32.5% respectively. Amongst small caps, Indoco Remedies is expected to post a 30.8% yoy growth. Amongst the MNC pack, Sanofi India is likely to post a 15.1% yoy growth in net sales, while Glaxo Smithkline Pharmaceuticals is expected to post a 20.1% yoy growth in sales.
Exhibit 2: Sales growth and OPM for 3QFY2013

45.0 35.0 25.0 15.0 5.0 (5.0) (15.0) (25.0) (35.0) Sun Pharma Lupin Cipla
Sales growth
40.6 20.5 24.9 18.3 9.3 (2.5) 20.7
17.2 11.1
(32.5) Ranbaxy
OPM
DRL
Among large caps, Cipla and Lupin to outperform

Among the large caps in our coverage universe, for 3QFY2013, Sun Pharma is likely to clock 11.1% yoy growth on the sales front, led by both - exports and domestic sales. Operating profit margins (OPM) would decline by 430bp with margins likely to be around 40.6%. After factoring in a higher tax outgo the net profit is expected to de-grow by 12.6% yoy during the quarter. Lupin, on the other hand, is expected to register a growth of 17.2%. The OPM is expected to expand by 110bp during the period. Inspite of the same, the net profit is expected to increase by 10.1% in 3QFY2013, on the back of higher tax outgo. DRL is expected to post a top-line de-growth of 2.5% to `2,700cr, on the back of base impact. The company is expected to see
39
Pharmaceutical
strong traction in its Indian and Russian formulation businesses as well. The company is expected to post an OPM of 20.7%, down from 31.4%. On the net profit front, the company is expected to post a net profit of `339cr, a de-growth of 33.9% over the last corresponding period. Cipla is expected to post a net sales growth of 18.3% to `2,024cr, driven mainly by the domestic performance. On the operating front, the OPM (excluding technical know-how fees) is expected to come in at 24.9%, up by 470bp from the last corresponding period. This will aid the net profit to increase by 49.7% yoy to `404cr. Ranbaxy is expected to post a decline of 32.5% with sales at `2,525cr during 4QCY2012. Its OPM is expected to be at 9.3% vs 21.6% in 4QCY2011. However, the net profit is likely to come in at `274cr, vs `428cr during the last corresponding period. Cadila is expected to post yet another strong quarter with a 15.3% growth in net sales to `1,559cr on the back of robust growth on the exports front. On the OPM front, we expect the company's OPM to expand by 80bp yoy to 17.9% on the back of a favourable product mix. Net profit is expected to increase by 21.7% yoy to `182cr. Aurobindo Pharma is expected to post a net sales growth of 10.1% yoy. The margins are likely to expand by 17.0% vs 13.5%, which will lead to a net profit of `152cr vs a net loss of `28.5cr. Indoco Remedies is expected to report a top-line growth of 30.8% to `185cr. The OPM is expected to expand by 350bp yoy to 16.4%, driven by growth in domestic formulation sales. As a result, net profit is expected to increase by 124.0% yoy to `18.5cr on back of improvement of OPM.

With an expected CAGR of ~20% in earnings over FY2012-14E for our universe of pharma stocks, we remain overweight on the sector maintaining a positive future outlook and earnings growth. Though the stocks have witness a good upsides, in near time, leavening little upsides for stocks in near time. However, given the opportunities, in the sector we maintain our long-term buy on the stocks. Given, the opportunities, in the generic segment; we prefer Lupin, Cadila Healthcare, Aurobindo Pharma and Indoco Remedies. In the contract research and manufacturing services (CRAMS) space, though it's currently witnessing some pressure, there have been indications of gradual recovery and ramp up from most of the CRAMS players. Thereby, with the valuations rendering attractive, we recommend Dishman Pharma in this segment from a long term perspective.
Mid caps to report robust numbers

We estimate Ipca Laboratories' top-line to grow by 21.5% to `731cr for 3QFY2013. The OPM is expected to decline by 300bp yoy to 20.0%. This will lead the adjusted net profit to de-grow by 10.6% yoy.

Company Alembic Pharma Aurobindo Cadila Cipla Dishman Dr. Reddys Glaxo# Indoco Rem. Ipca Lab. Lupin Ranbaxy Lab# Sanofi India# Sun Pharma CMP (`) 72 189 901 414 116 1829 2166 64 519 613 503 2291 736 Net Sales 3QFY13E 426 1,392 1,559 2,024 315 2,700 680 185 731 2,100 2,525 389 2,383 11.7 10.1 15.3 18.3 18.7 (2.5) 20.1 30.8 21.5 17.2 (32.5) 15.1 11.1 OPM (%) chg bp (420) 350 80 470 (270) (1,070) (330) 350 (300) 110 810.0 (430) 13.6 17.0 17.9 24.9 20.2 20.7 26.8 16.4 20.0 20.5 19.8 40.6 Net Profit Profit 3QFY13E 29 152 182 404 24 339 132 19 93 259 274 59 584 (34.8) 21.7 49.7 41.8 (33.9) (10.2) 124.0 (10.6) 10.1 (36.1) 64.7 (12.6) EPS (`) (` % chg (34.8) 21.7 49.7 41.8 (33.9) (10.2) 124.0 (10.6) 10.1 (36.1) 64.7 (12.6) FY12 6.9 4.9 31.7 14.3 7.0 88.8 69.8 5.0 21.8 19.4 14.2 83.2 23.1 1.5 5.2 8.9 5.0 2.9 20.0 15.6 2.0 7.4 5.8 6.5 25.9 5.6 EPS (`) (` FY13E 6.6 12.4 32.7 20.2 10.4 83.7 76.0 7.4 29.9 26.1 37.3 82.9 26.7 FY14E 9.1 14.0 44.8 21.6 14.5 92.9 82.4 8.9 37.3 31.1 32.1 87.8 29.1 FY12 10.5 38.6 28.4 29.0 16.5 20.6 31.0 12.8 23.8 31.6 35.4 27.5 31.8 P/E (x) FY13E 11.0 15.3 27.5 20.5 11.1 21.8 28.5 8.6 17.4 23.5 13.5 27.6 27.5 FY14E 7.9 13.5 20.1 19.2 8.0 19.7 26.3 7.2 13.9 19.7 15.7 26.1 25.3 Target arg (`) 91 208 145 89 655 % chg 3QFY13E % chg 3QFY13E
(` cr) `
Reco. Buy Accum. Neutral Neutral Buy Neutral Neutral Buy Neutral Accum. Neutral Neutral Neutral
9.3 (1,229.3)
Source: Company, Angel Research; Note: Price as on December 31, 2012; Our numbers do not include MTM on foreign debt. # 4QCY2012
Kour Analyst: Sarabjit Kour Nangra

40
Power
All-India power generation highlights
During April-November 2012, the overall power generation in India rose by 4.6% yoy to 607BU; aided by a 13.7% yoy increase in installed capacity to 210,937MW. During this period, thermal power generation grew by 9.0% yoy to 495BU while hydro power generation declined by14.5% yoy to 86.0BU. The decline in hydro power generation is due to decline of water in reservoirs feeding hydroelectric stations. Nuclear power generation posted a growth of 3.7% yoy to 22.0BU. Exhibit 1: Operational Performance (PLF)
(MW) 100.0 90.0 80.0 70.0 60.0 50.0 40.0 30.0 20.0 10.0 0.0 NTPC GIPCL All India PLF
per tonne. In rupee terms, the coal prices were down by 22.5% yoy and 5.2% qoq to `4,492 per tonne. The continuous fall in imported coal prices in the last few quarters augurs well for power companies as the shortage of domestic coal has forced them to import more coal. Exhibit 2: Global coal prices
250 continuous decline in coal prices 200 150 100 50 0 9000 8000 7000 6000 5000 4000 3000 2000 1000 0
Dec-09
Dec-05
Dec-10
Dec-06
Dec-11
Jun-09
Dec-07
Dec-08
USD/tonne (LHS)
INR (RHS)
Source: CEA, Angel Research
Capacity addition
During 8MFY2013, 9,839 MW of capacity was added compared to targeted capacity of 9862 MW. The bulk of the capacity addition (~5565MW) was done by private companies. During the last few years, private power companies have made robust capacity additions. The Planning Commission has set a power capacity addition target of 88,425MW for the current Five-Year Plan period ending March, 2017 to bridge the widening demand-supply gap for electricity. However, we believe the target is over-ambitious in the wake of multiple headwinds facing the power sector such as domestic fuel availability issues, land acquisition delays etc.
8MFY2013
8MFY2012
Source: CEA, Angel Research
The all India plant load factor (PLF) of thermal power plants during April-November 2012 stood at 69.2% vs 71.6% in corresponding period last year due to fuel availability constraints. NTPC's PLF declined from 88.2% in 8MFY2012 to 84.6% in 8MFY2013. However, its PLF was much better than all India PLF of 69.2% during the same period. GIPCL reported a better operational performance with its PLF improving to 88.0% in 8MFY2013 compared to 70.7% in 8MFY2012
Generation for companies under coverage:

During 8MFY2013, NTPC's power generation increased by 5.8% yoy to 1505.7BU while GIPCL's generation (excluding 145MW Baroda Plant) rose by 12.3% yoy to 27.5BU.
Exhibit 3: Generation capacity addition: Targeted vs achieved

(MW) 25,000 20,000 15,000 60.0 10,000 40.0 5,000 0 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 8MFY13 Target (T) LHS Achievement (A) LHS A as a % of T (RHS) (%) 120.0 100.0 80.0
Fuel availability position

As on 26th December 2012, 34 thermal power stations have coal stocks for less than seven days which includes 22 power stations having coal stocks for less than 4 days. The western region is worst affected with 14 stations having coal stocks for less than seven days. The main reason for lower coal stocks can be attributed to lower domestic production as well as transportation constraints.
Dec-12
20.0 0.0
Jun-10
Jun-06
Jun-11
Jun-07
Source:CEA, Angel Research
Transmission lines and substations

As of August 2012, 8,842 circuit kilometers (ckm) were added to the transmission lines, as against the targeted 11,428ckm. In the same period, total addition to the transmission sub-station category was 41,405MVA, as against the targeted 17,730MVA.
Imported coal prices down 27.1% yoy

During 3QFY2013, average prices of New Castle Mckloksey 6,700kc coal decreased by 27.1% yoy and 3.5% qoq to US$83.0
Jun-08
Jun-12
41
Power
Power-deficit situation
The country continues to face power deficit due to the domestic fuel shortage, land acquisition delays and deficiencies in the T&D system. India's overall and peak power-deficit levels during 8MFY2013 stood at 8.6% and 9.0% respectively, as against 7.4% and 10.6% reported in 8MFY2012.
Company
NTPC is expected to sign the new FSA within a month after resolving most of the issues with CIL. Due to differences over penalty, imported coal mechanism, domestic coal quality, among others, NTPC had refused to sign the new FSA. However most of these issues have been ironed out. CIL has revised its penalty and promised to supply higher quality coal to NTPC. The new FSA are likely to be signed as soon as NTPC and CIL work out a mechanism that will allow CIL to supply coal under the combination of old and new FSA. During the quarter, NTPC commissioned unit 3 of 500MW of Indira Gandhi STPP at Jhajjar of Aravali Power Company, a joint venture of NTPC, Haryana Power Generation Corporation and Indraprastha Power Generation Co. With this the total capacity of NTPC group stands at 39,674MW.
Exhibit 4: India - Power-deficit scenario

(%) 20.0 16.0 12.2 12.0 8.0 8.8 4.0 0.0
FY2003 FY2004 FY2005 FY2006 FY2007 FY2008 FY2009 FY2010 FY2011 8MFY2013 FY 2012
16.6 11.2 11.7 12.3 13.8 12.0 12.7 9.8 9.6 9.9 11.0 10.1 8.5 10.6 9 8.5 8.6
7.1
7.3
8.4
Overall
Peak
Source:CEA, Angel Research
Exhibit 6: Performance on the bourses in 3QFY2013

(%) 4.0 2.0 (2.0) (4.0) (6.0) (8.0) (8.1) (10.0) NTPC GIPCL BSE Power SENSEX (2.5) (3.4) 3.2
Exhibit 5: Region-wise power deficit (8MFY2013)

Region (%) Northern Western Southern Eastern Northeastern All India Source: CEA, Angel Research Overall (9.3) (3.3) (14.9) (4.8) (7.6) (8.6) Peak (8.9) (1.5) (15.3) (7.4) (6.7) (9.0)
Source: BSE, Angel Research
Key developments
Sector
The Union Cabinet has cleared a proposal to set up a Cabinet Committee on Investment (CCI) which will accord single window approval to investments, particularly above `1,000cr. The committee will be chaired by the Prime Minister and is expected to set timelines for regulatory and administrative clearances from various individual ministries. The setting up CCI is a positive development as it is expected to fast track large projects which are facing delays due to requirement of multiple clearances from different government agencies.
Outlook: The power sector is currently facing many headwinds such as fuel shortage, delay in land acquisition and environmental clearances among others which is reflected in the underperformance of BSE power index to Sensex. The government has shown its intent on reforms with restructuring plans for SEBs and setting up of Cabinet Committee on Investment to fast track projects. If the government continues with measures such as Captive Coal Allocation Policy and Land Acquisition Policy, it will be positive for the sector in the medium to long term. We maintain our Accumulate view on GIPCL and remain Neutral on NTPC.

Company GIPCL NTPC CMP (`) 69 156 Net Sales 3QFY13E 361 16,712 (7.0) 9.0 OPM (%) chg bp 659 398 30.9 22.6 Profit Net Profit 3QFY13E 34 2,592 101.3 21.7 (` EPS (`) % chg 101.3 21.7 FY12 8.4 11.5 2.2 3.1 (` EPS (`) FY13E 5.4 12.0 FY14E 11.5 13.4 FY12 8.2 14.3 P/E (x) FY13E 12.8 13.0 FY14E 6.0 11.7 arg Target (`) 78 % chg 3QFY13E % chg 1QFY13E
(` cr) `
Reco. Accum. Neutral
Source: Company, Angel Research; Note: Price as on December 31, 2012; * Consolidated; #Quaterly numbers pertains to standalone financials
V. Patil Analyst - V. Srinivasan / Amit Patil

42
Telecom
During February 2012, in a major blow to various telecom players, the Supreme Court, in its judgment for the 2G case, cancelled 122 licenses given to telecom firms since January 2008. After this move, as expected, some telecom players (DB Etisalat and S Tel) stated their intentions to shut down operations in India. For companies under our coverage - Bharti Airtel (Bharti) and Reliance Communications (RCom), none of the licenses were canceled, as all of their licenses were issued before 2008. Post this, the Telecom Regulatory Authority of India (TRAI) came out with its recommendation on spectrum auction during April 2012 and recommended a reserve price of ~`18,000cr for 5MHz pan India 1800MHz band. However, broader discussions in the market pointed that the reserve price set by TRAI is high. Thus the cabinet finally decided for a reserve price of `14,000cr for 5MHZ pan India 1800MHz band (22% lower than the TRAI's recommendation) but that too yielded a lackadaisical auction. The recently conducted 2G auction ended in just two days and fetched the government just `9,400cr. Not only that, the CDMA auctions could not happen at all as none of the companies participated in it. Delhi, Mumbai, Karnataka and Rajasthan circles, which accounted for 51% of reserve price, did not receive any bid. Keeping this in notice, the Cabinet approved a 30% cut in the reserve price of mobile phone airwaves in the aforesaid four circles which turned out to be positive for the incumbent players whose license renewals are scheduled to come up from 2014. The cabinet also approved a ministerial panel's proposal to set the auction's reserve price of more efficient 900MHz band airwaves at twice that of the basic phone airwaves in the 1800MHz band. The government aims to conduct the next auction during the current fiscal year ending in March. All these events have led to consolidation in the overcrowded telecom industry, and the total number of players operating in the industry has come down from 15 to 7-8. Decisions regarding one-time excess spectrum fee and modalities of spectrum refarming are yet to be made, which in our view, will continue to be an overhang on the sector. The recent set of developments again advocate the challenging regulatory outlook for industry players.
MNP recording a secular trend

Since the launch of mobile number portability (MNP) last year, a secular trend is emerging, in which incumbents such as Bharti, Vodafone and Idea Cellular (Idea) are proving to be net gainers in the mentioned pecking order; whereas, the highest net loser has been RCom, both for its GSM and CDMA subscriber base. In addition, because of 122 license cancellations announced in February 2012, some of the operators have stated their intentions to shut down operations in India (S Tel, DB Etisalat) which is leading to subscribers churning happening in favor of incumbent players. Until October 2012, the Indian mobile market witnessed ~75.1mn users opting for MNP which is 8.3% , of the total subscriber base.
Exhibit 2: Trend in churn due to MNP

85 7.6 75 6.4 65
(mn)
8.3 7.1 75.1 69.8 64.9 59.3 54.3 5.8
9.0 8.0 7.0 6.0 5.0 4.0 3.0

(%)
5.4 55 45 35 25 50.2
May-12 Jun-12 Jul-12 Total subscribers opting for MNP (mn)
Aug-12
2.0 Sep-12 Oct-12 Share in total subscriber base (%)
VLR data points favorable for tier-I companies

As per the recent visitor location register (VLR) data released for October 2012, of the total 909mn subscribers, 77.85%, ie 707mn subscribers were active subscribers on the date of peak VLR. Service-provider wise, Idea leads the tally with a share of 95.4%, followed by Bharti with 91.7%, Vodafone with 90.9% and RCom with 76.9%, whereas MTNL stood at the bottom with 39.5%. RCom has shown substantial improvement in its peak VLR data from 66.6% in June 2012 to 76.9% in October 2012 as the company removed inactive customers (subscribers who have not had any usage in the last 60 days) from its subscriber base, focusing on the quality of its subscribers.
Exhibit 1: Stock return analysis of leading Indian TSPs

30 25 20 15
(%)
Exhibit 3: VLR data of incumbents

100 90.5 90 91.7 89.2 90.9 92.8 95.4
26.1 23.2 19.6 16.4
80
76.0
76.9
10 5 0 (5) (10) (7.7) Bharti Idea RCom 5.5
(%)
70 61.1 60 53.4 50 Bharti Vodafone Idea Rcom BSNL Aircel 53.9 58.6
Chg. (3 months)
Chg. (1 year)
Jul-12
Aug-12
Sep-12
Oct-12
Source: Bloomberg, Angel Research Refer to important Disclosures at the end of the report
43
Telecom
Exhibit 4: Active subscribers (October 2012)
Active subscribers (mn) Bharti Vodafone Idea RCom BSNL Aircel MTNL 171.0 139.2 110.3 104.1 51.9 40.8 2.0 Active subscribers' market share (%) 24.17 19.68 15.60 14.71 7.34 5.77 0.29 Active subscribers' Reported subscribers' market share (%) market share - July 2012 (%) 24.28 19.64 15.52 14.63 7.19 5.42 0.29 20.52 16.85 12.73 14.89 10.60 7.35 0.56
RMS vs. SMS

As per the revenue market share (RMS) data for 2QFY2013, Bharti leads at 31.6% with a subscriber market share (SMS) of 20.3%, whereas Idea has its RMS and SMS at 14.6% and 12.6%, respectively. RMS for Bharti and Idea is higher than SMS, which indicates that the quality of subscribers added by these companies is good. On the contrary, in case of RCom, SMS is at 14.9%, which is much ahead of RMS that is only at 7.7%. This is evident from the ARPU profile of these companies; also, RCom has peak VLR of merely 76.9% (in October 2012) as compared to its peers Bharti, Idea and Vodafone - the peak VLR of these vary from 91-96% (for September 2012). However, the current step by RCom to remove inactive customers from its subscriber base has led to some improvement in its overall average revenue per user (ARPU) profile and the same will reduce the difference between its RMS and SMS. Amongst unlisted companies, Vodafone is also part of the Bharti-Idea clan with higher RMS at 22.0% and SMS at 16.7%, whereas incumbents such as BSNL and Aircel are part of RCom's clan with SMS higher than RMS.
to 85.3mn. The company has already announced its plans to shut down operations in Jammu & Kashmir, North-East and Assam circles. Tata Teleservices was followed by Uninor and RCom whose subscriber base declined by 1.1mn and 0.5mn, taking their wireless customer base to 41.0mn and 134mn respectively. TRAI indicated that during October, the share of urban wireless subscribers has decreased from 63.06% to 62.68% whereas share of rural wireless subscribers has increased from 36.94% to 37.32%. The overall wireless teledensity in the country has reached 74.21% at the end of October 2012. DB Etisalat, S Tel and Loop (except Mumbai) have already decided to shut shop in India while Uninor has scaled down its operations to nine circles. We believe this decline has been led by a general slowdown in incremental gross additions and aggressive churn policy by a few operators in response to stringent norms for allocation of new number series.
Exhibit 6: Total subscriber base

Company (mn) Bharti RCom Vodafone BSNL Idea TTSL Aircel MTNL Loop Mobile HFCL Shyam Telelink S Tel Uninor May-12 June-12 May-12 June-12 185.3 154.1 152.5 94.7 116.0 81.4 64.4 5.3 3.3 1.5 16.3 3.4 45.1 6.2 1.7 187.3 154.6 153.7 94.7 117.2 93.2 64.9 5.3 3.2 1.5 16.5 45.6 5.6 July-12 July-12 188.8 134.1 154.9 94.7 117.6 88.9 65.2 5.2 3.0 1.5 16.7 44.5 5.2 Aug-12 Aug-12 186.9 134.6 153.4 96.3 116.0 90.4 66.0 5.1 3.1 1.6 16.8 42.1 4.8 917.0 Sept-12 Sept-12 185.9 134.9 152.7 96.3 115.5 90.6 66.6 5.1 3.0 1.6 16.6 42.1 4.5 915.4 Oct-12 Oct-12 186.4 134.1 153.1 96.3 115.7 85.3 66.8 5.1 3.0 1.6 15.7 41.0 4.4 908.6
Exhibit 5: RMS vs SMS of incumbents (as of 2QFY2013)

35 30 25 20.3 20
(%)
31.6
22.0 16.7 14.6 12.6 7.7 6.9 4.9
Videocon
14.9 10.5 7.3
15 10 5 0 Bharti Vodafone
DB Etisalat
Total 931.1 943.2 920.3 Source: COAI, AUSPI, Angel Research
Idea RMS
Rcom SMS
BSNL
Aircel
MOUs to improve
In 2QFY2013, Bharti (excluding Africa) as well as Idea posted a decline in minutes of usage (MOU) due to seasonal slowdown seen in 2Q as well as increased proportion of rural subscribers. For 3QFY2013, we expect the overall MOU profile for Bharti (excluding Africa), Idea and RCom to increase by 3.0%, 1.5% and 1.5% qoq to 429min, 364min and 240min, respectively. This is because 3Q is a seasonally good quarter in terms of MOU for telecom players due to the festive season falling in the quarter and on account of the low base effect of 2Q (which tends to be a weak quarter).
44
Subdued momentum in net subscriber addition

The Indian mobile subscriber base fell to 908.6mn in October 2012 from 920.3mn in July 2012, continuing the declining momentum in subscriber base from June 2012. This is due to large-scale disconnection by some of the service providers. The highest dip of over 5mn from August to October 2012 was in the subscriber base of Tata Teleservices, reducing its user base
Telecom
Exhibit 7: Trend in MOU per month per subscriber
450 400 350
(min)
Exhibit 9: Trend in ARPU per month

200 180
(`/month)
423
419
431
433
417
429
183
187
189
185 177
184
364
369
379
379 359 364
160 140 120
160 155
160
156 148
151
300 250 200 2QFY12 3QFY12 4QFY12 1QFY13 2QFY13 3QFY13E 236 240
227
224
227
228
100 102 80 2QFY12 3QFY12 4QFY12 101 100 98 1QFY13 101 2QFY13 103 3QFY13E
Bharti (ex-Africa)
Idea
RCom
Bharti (ex-Africa)
Idea
RCom
ARPM to remain flat

Average revenue per minute (ARPM), which has been seeing a declining trend since the past couple of quarters, saw some stability during 2QFY2012 because of discontinuation of freebies and lucrative offers by telecom operators. During 3QFY2013, we expect ARPM to remain almost stable on a qoq basis for Bharti, Idea as well as RCom at `0.43/min, `0.41/min and `0.43/min, respectively.

For 3QFY2013, we expect revenue growth to be modest on the back of increase in MOU, a slight inch up in VAS share and flat voice ARPM. Amongst the top three operators, we expect Bharti and Idea to post a revenue growth of 0.7% and 2.6% qoq, respectively. On the EBITDA margin front, we expect the margin of Bharti to grow by 18bp qoq to 31.5% led by some improvement in domestic KPIs. The EBITDA margins of Idea and RCom are expected to increase by 29bp and 46bp qoq to 27.1% and 31.9%, respectively. Industry dynamics are currently pointing towards a possible consolidation in the near term. During the past two months, policy uncertainty regarding one-time spectrum fee and 2G auction were partially addressed but exact payout towards spectrum renewals, spectrum re-farming and excess charge remains uncertain as pan India reserve price remains undiscovered. In our view, telecom industry can improve structurally only after data revenues start picking up which still looks far. Telecom stocks are currently trading at close-to-moderate valuations, which we believe, is justified given the low business returns and partially uncertain environment which might pose huge risk to the overall profitability of these companies. We are currently neutral on the telecom sector and will refrain from taking any call till financial clarity on the stocks emerges. Bharti continues to be our preferred pick amongst telcos due to its low-cost integrated model (owned tower infrastructure), potential opportunity to scale up in Africa, established leadership in revenue and subscriber market share, relatively better KPIs and upside in stock price on account of listing of Bharti Infratel.
Exhibit 8: Trend in ARPM

0.46 0.45 0.45 0.44 0.44 0.43 0.42 0.43 0.42 0.41 0.40 2QFY12 3QFY12 4QFY12 1QFY13 2QFY13 3QFY13E 0.41 0.41 0.43 0.43 0.43 0.43 0.43
0.44
(`/min)
0.45 0.43
0.43
Bharti (ex-Africa)
Idea
RCom
ARPU to improve
For 3QFY2013, we expect the combination of increase in MOU and stable ARPM to push up the APRU of Bharti (excluding Africa), Idea as well as RCom by 3.5%, 1.7% and 1.9% qoq to `184/month, `151/month and `103/month, respectively.

Company Bharti Idea Rcom CMP (`) 317 104 74 Net Sales 3QFY13E 20,415 5,453 5,225 0.7 2.6 0.4 OPM (%) chg bp 18 29 46 31.5 27.1 31.9 Net Profit Profit 3QFY13E 910 251 135 26.2 4.7 31.8 EPS (`) (` % chg 26.2 4.7 31.8 2.4 0.8 0.7 EPS (`) (` FY12 11.2 2.2 4.5 FY13E 8.6 3.1 2.9 FY14E 11.8 4.7 4.0 FY12 28.2 47.3 16.4 P/E (x) FY13E 37.0 33.0 25.2 FY14E 26.8 22.3 18.5 Target rge (`) 350 % chg 3QFY13E % chg 3QFY13E
(` cr) `
Reco. Accum. Neutral Neutral
Source: Company, Angel Research; Note: Price as on December 31, 2012; Change is on a qoq basis
Analyst - Ankita Somani

45
Stock Watch
46
Watch Stock Watch | January 3, 2013

Company Name Reco CMP (`) 150 130 238 89 27 365 2,131 252 9,476 105 144 1,700 1,898 121 930 1,489 198 30 312 42 170 118 1,357 867 343 60 496 84 462 115 538 828 679 1,137 111 198 86 Target Price (`) 170 270 96 31 278 163 155 1,807 2,014 165 998 35 337 46 187 1,587 64 534 132 1,320 119 231 90 Mkt Cap (` cr) 2,910 6,006 4,070 4,481 7,171 552 61,664 5,876 29,752 360 12,232 2,824 37,908 497 57,100 43,017 11,625 178 83,262 1,986 8,495 6,595 57,944 33,945 19,672 3,541 21,951 6,161 6,841 4,013 9,203 127,660 160,744 130,755 14,242 8,516 6,826 Sales (` cr) FY13E FY14E 1,466 8,421 2,911 13,713 14,226 1,103 21,186 6,754 9,973 4,989 6,229 1,715 24,743 7,517 40,035 43,384 24,285 1,286 190,883 7,298 6,403 4,706 15,903 15,284 12,568 3,576 10,828 7,252 4,835 3,125 2,682 7,336 21,615 22,219 7,990 5,902 7,063 1,686 9,263 3,321 15,341 16,256 1,240 23,828 7,565 11,320 5,634 7,200 1,939 27,966 8,329 46,272 51,903 27,317 1,479 217,164 8,123 7,186 5,444 18,707 18,032 14,758 3,893 12,005 8,236 5,570 3,457 2,968 8,802 26,671 26,447 9,279 6,563 8,308 OPM (%) FY13E FY14E 14.8 16.5 16.1 11.2 9.4 11.0 18.7 15.5 17.8 8.2 14.8 17.6 14.8 6.6 11.5 7.3 6.7 9.4 12.8 6.1 2.7 2.9 3.1 2.5 2.2 3.1 2.1 2.5 2.0 2.7 3.3 3.5 4.4 2.9 1.8 3.2 2.3 14.8 16.5 16.2 11.2 10.0 11.3 19.0 15.7 18.0 8.5 15.8 18.4 15.2 6.6 11.6 8.6 7.2 9.7 13.1 6.4 2.8 3.0 3.2 2.6 2.4 3.1 2.2 2.6 2.2 2.8 3.2 3.5 4.5 3.0 2.1 3.2 2.5 EPS (`) FY13E FY14E 7.0 15.0 17.3 12.5 2.1 39.1 110.4 18.7 396.2 27.1 7.2 127.7 118.2 37.2 54.4 67.3 8.0 2.6 35.5 4.6 30.5 21.4 118.2 109.6 41.6 9.3 64.7 16.8 105.0 26.2 48.6 31.5 28.7 69.1 16.8 41.3 12.6 8.1 17.0 19.8 14.8 2.8 45.0 126.5 23.1 455.7 40.8 9.0 150.6 130.0 41.3 62.1 94.6 10.6 5.1 42.7 5.8 33.6 22.4 139.1 137.7 64.0 12.0 80.4 21.4 99.8 24.2 51.7 37.8 35.9 82.9 22.1 43.1 20.4 PER (x) FY13E FY14E 21.4 8.7 13.8 7.1 12.8 9.3 19.3 13.5 23.9 3.9 20.1 13.3 16.1 3.2 17.1 22.1 24.6 11.5 8.8 9.2 5.6 5.5 11.5 7.9 8.2 6.5 7.7 5.0 4.4 4.4 11.1 26.3 23.7 16.4 6.6 4.8 6.8 18.5 7.7 12.0 6.0 9.6 8.1 16.8 10.9 20.8 2.6 16.1 11.3 14.6 2.9 15.0 15.7 18.7 5.9 7.4 7.2 5.1 5.3 9.8 6.3 5.4 5.0 6.2 3.9 4.6 4.7 10.4 21.9 18.9 13.7 5.1 4.6 4.2 P/BV (x) FY13E FY14E 4.5 1.3 3.8 1.3 2.3 1.7 8.1 2.3 4.5 0.5 3.5 2.6 6.9 0.6 3.8 2.5 5.2 0.6 2.3 1.5 0.8 0.9 2.1 1.2 1.0 0.8 1.0 0.9 0.8 0.8 1.4 5.3 4.5 2.0 0.8 0.8 0.6 3.9 1.1 3.0 1.1 2.0 1.6 6.4 2.0 3.8 0.4 3.0 2.2 5.5 0.5 3.2 2.2 4.2 0.6 1.8 1.3 0.7 0.8 1.8 1.0 0.9 0.8 0.9 0.7 0.7 0.7 1.3 4.7 3.8 1.8 0.7 0.7 0.6 RoE (%) FY13E FY14E 22.6 15.6 31.1 20.2 12.9 19.5 46.7 18.5 18.8 13.2 18.5 21.7 48.3 18.8 24.2 12.1 22.9 5.6 30.2 17.4 14.9 15.1 20.3 15.5 11.6 14.0 13.2 13.1 17.5 19.6 13.8 34.8 20.7 14.2 11.7 18.4 9.0 22.5 15.5 27.6 19.9 16.0 22.8 42.4 19.7 18.2 17.2 19.9 21.1 41.8 17.8 23.2 15.1 24.7 10.3 27.6 19.4 14.6 14.2 20.3 17.1 15.9 16.1 14.7 14.8 14.8 15.6 13.2 32.1 22.0 15.6 13.9 16.8 13.3 EV/Sales (x) FY13E FY14E 2.1 0.8 1.3 0.5 0.6 0.5 2.5 1.0 2.6 0.3 1.7 1.4 1.2 0.3 1.2 0.8 0.6 0.4 0.5 0.2 1.8 0.7 1.1 0.4 0.5 0.4 2.2 0.9 2.2 0.2 1.4 1.2 1.1 0.3 1.0 0.7 0.6 0.4 0.4 0.2 -
Agri / Agri Chemical Rallis Neutral United Phosphorus Buy Auto & Auto Ancillary Amara Raja Batteries Accumulate Apollo Tyres Accumulate Ashok Leyland Buy Automotive Axle Neutral Bajaj Auto Neutral Bharat Forge Accumulate Bosch India Neutral CEAT Buy Exide Industries Accumulate FAG Bearings Accumulate Hero Motocorp Accumulate JK Tyre Buy Mahindra and Mahindra Accumulate Maruti Neutral Motherson Sumi Neutral Subros Buy Tata Motors Accumulate TVS Motor Accumulate Financials Allahabad Bank Accumulate Andhra Bank Neutral Axis Bank Buy Bank of Baroda Neutral Bank of India Neutral Bank of Maharashtra Accumulate Canara Bank Neutral Central Bank Neutral Corporation Bank Buy Dena Bank Accumulate Federal Bank Neutral HDFC Neutral HDFC Bank Neutral ICICI Bank Buy IDBI Bank Accumulate Indian Bank Buy IOB Accumulate
Please refer to important disclosures at the end of this report.
47

Company Name J & K Bank LIC Housing Finance Oriental Bank Punjab Natl.Bank South Ind.Bank St Bk of India Syndicate Bank UCO Bank Union Bank United Bank Vijaya Bank Yes Bank Capital Goods ABB* BGR Energy BHEL Blue Star Crompton Greaves Jyoti Structures KEC International LMW Thermax Cement ACC Ambuja Cements India Cements J K Lakshmi Cements Madras Cements Shree Cements UltraTech Cement Construction Ashoka Buildcon Consolidated Co IRB Infra ITNL IVRCL Infra Buy Neutral Buy Accumulate Neutral 204 13 128 200 46 286 164 225 1,072 238 4,246 3,879 1,399 2,032 2,262 3,843 6,564 4,249 2,311 2,522 4,212 7,054 6,897 22.4 5.9 43.1 27.2 7.8 22.4 6.3 43.6 27.4 8.2 27.0 0.9 16.8 26.3 0.3 31.6 1.6 17.8 29.0 3.4 7.5 14.1 7.6 7.6 147.9 6.4 8.3 7.2 6.9 13.4 0.9 0.4 1.3 1.2 0.6 0.8 0.4 1.1 1.1 0.6 13.0 2.7 18.3 17.0 0.4 13.4 4.5 17.0 16.3 4.4 1.9 0.4 3.2 2.7 0.9 2.2 0.4 3.5 2.8 0.6 Neutral Neutral Neutral Neutral Neutral Neutral Neutral 1,429 201 91 161 245 4,651 1,982 26,836 30,975 2,788 1,973 5,830 16,204 54,343 11,012 10,210 4,293 2,171 3,814 5,701 21,277 12,333 11,811 4,666 2,544 4,045 6,210 23,939 21.1 26.0 17.7 22.5 28.8 29.7 22.3 20.9 25.7 18.1 22.5 27.1 28.1 23.2 77.0 11.2 8.6 21.6 18.3 240.7 101.5 80.3 12.6 10.8 23.1 18.7 260.7 119.0 18.6 18.0 10.6 7.5 13.4 19.3 19.5 17.8 15.9 8.4 7.0 13.1 17.8 16.7 3.5 3.9 0.8 1.4 2.4 4.7 3.6 3.2 3.4 0.7 1.2 2.1 3.8 3.0 19.5 20.3 7.5 19.0 19.4 27.1 19.8 18.7 20.7 9.0 17.8 17.0 23.6 19.8 2.1 2.6 1.1 1.0 2.2 2.3 2.5 1.8 2.2 0.9 1.2 1.9 1.9 2.3 Sell Neutral Neutral Buy Buy Accumulate Buy Reduce Neutral 700 262 228 179 116 45 67 2,237 614 573 224 135 51 78 1,992 14,842 1,891 55,903 1,610 7,435 369 1,725 2,520 7,320 7,790 3,567 47,801 2,538 12,320 2,794 6,909 2,369 5,552 9,653 4,357 43,757 2,681 14,390 3,048 7,907 2,727 5,767 4.5 11.8 18.5 4.6 5.5 10.6 6.2 11.7 9.3 7.8 10.9 18.0 5.7 7.2 10.6 7.2 11.7 10.2 8.7 24.6 24.6 7.3 4.3 9.2 5.4 143.4 28.3 22.1 26.8 21.8 11.3 7.8 11.7 8.8 166.0 30.9 80.5 10.7 9.3 24.4 27.0 4.9 12.4 15.6 21.7 31.7 9.8 10.5 15.9 14.9 3.8 7.6 13.5 19.9 5.6 1.5 2.8 3.6 2.0 0.5 1.5 2.6 3.9 4.9 1.4 2.4 3.0 1.8 0.5 1.3 2.4 3.4 7.1 30.7 33.5 15.6 7.4 11.9 17.0 17.4 19.3 16.5 26.3 24.5 20.7 12.6 13.5 23.6 18.4 18.4 1.9 1.0 1.0 0.7 0.6 0.3 0.4 0.6 1.2 1.5 0.9 1.1 0.6 0.6 0.3 0.4 0.4 1.1 Reco CMP (`) 291 349 871 27 128 79 274 80 62 464 Target Price (`) 1,409 328 369 933 32 2,600 141 90 66 541 Mkt Cap (` cr) 6,289 14,703 10,175 29,554 3,635 159,960 7,714 5,235 15,096 2,901 3,087 16,579 Sales (` cr) FY13E FY14E 2,830 1,799 6,330 19,688 1,560 60,677 6,810 5,235 9,963 3,498 2,333 3,292 2,910 2,255 7,105 22,497 1,755 69,712 7,807 6,086 11,536 3,858 2,728 4,243 OPM (%) FY13E FY14E 3.6 2.3 2.6 3.2 2.8 3.3 3.0 2.3 2.8 2.5 1.9 2.8 3.6 2.4 2.7 3.3 2.7 3.3 3.0 2.4 2.9 2.7 2.1 3.0 EPS (`) FY13E FY14E 234.8 20.3 58.4 138.9 3.5 224.3 28.0 12.0 40.8 15.1 7.3 35.0 197.4 27.3 65.1 164.5 3.9 257.3 27.2 14.9 46.8 21.6 10.4 42.2 PER (x) FY13E FY14E 5.5 14.3 6.0 6.3 7.8 10.6 4.6 6.6 6.7 5.3 8.5 13.3 6.6 10.7 5.4 5.3 6.9 9.3 4.7 5.3 5.9 3.7 6.0 11.0 P/BV (x) FY13E FY14E 1.3 2.3 0.9 1.1 1.3 1.8 0.8 1.1 1.1 0.7 0.8 2.9 1.1 2.0 0.8 0.9 1.1 1.5 0.7 0.9 1.0 0.6 0.8 2.4 RoE (%) FY13E FY14E 25.1 16.9 14.5 16.7 19.2 17.6 19.4 12.0 16.2 12.5 9.3 23.8 18.0 19.7 14.4 17.3 17.1 17.7 16.4 13.5 16.4 16.1 12.1 23.5 EV/Sales (x) FY13E FY14E -
Accumulate 1,297 Accumulate Accumulate Accumulate Buy Accumulate Neutral Neutral Accumulate Accumulate Buy
Accumulate 2,384
48

Company Name Jaiprakash Asso. Larsen & Toubro Nagarjuna Const. Punj Lloyd Sadbhav Engg. Simplex Infra FMCG Asian Paints Britannia Colgate Dabur India GlaxoSmith Con* Godrej Consumer HUL ITC Marico Nestle* Tata Global IT HCL Tech Hexaware Infosys Infotech Enterprises KPIT Cummins Mahindra Satyam Mindtree Mphasis NIIT Persistent TCS Tech Mahindra Wipro Media D B Corp HT Media Jagran Prakashan PVR Sun TV Network Buy Accumulate Buy Neutral Neutral 229 107 105 282 427 264 121 126 4,205 2,518 3,324 816 16,837 1,581 2,111 1,503 682 1,942 1,784 2,272 1,681 786 2,237 23.3 15.0 23.1 17.3 77.2 25.0 15.1 23.1 16.9 75.5 11.6 7.4 6.4 17.6 17.6 14.4 8.3 7.3 19.6 19.1 19.8 14.6 16.4 16.0 24.3 15.9 13.0 14.5 14.4 22.4 3.8 1.6 4.1 1.9 5.1 3.3 1.4 3.6 1.7 4.6 21.0 11.3 25.8 14.9 25.8 22.3 11.4 26.5 14.5 25.2 2.6 0.8 2.4 1.5 7.0 2.2 0.7 2.1 1.3 5.9 Buy Buy Accumulate Buy Accumulate Accumulate Neutral Buy Accumulate Buy Buy Accumulate 619 85 179 110 107 682 383 28 512 1,259 931 394 725 118 2,490 191 130 119 781 36 539 1,448 1,087 421 43,011 2,522 133,137 2,001 2,115 12,582 2,804 8,052 469 2,048 246,326 11,899 97,108 24,453 1,941 39,353 1,900 2,221 7,670 2,339 5,531 1,048 1,277 61,905 6,671 43,231 27,269 2,118 41,700 2,064 2,390 8,308 2,502 5,874 1,161 1,398 67,316 7,290 47,241 19.8 20.8 29.1 18.2 16.1 20.3 20.9 17.6 9.1 26.8 28.7 19.8 20.0 18.7 19.0 29.2 17.8 15.9 19.3 18.4 17.5 10.9 25.2 28.4 19.0 20.0 45.0 10.7 157.6 19.1 11.3 9.9 75.4 35.4 4.1 48.0 69.6 94.1 26.1 50.0 10.7 166.0 21.2 13.0 10.8 78.1 37.7 6.2 53.9 76.5 106.4 28.1 13.8 7.9 14.7 9.4 9.8 10.8 9.0 10.8 6.9 10.7 18.1 9.9 15.1 12.4 7.9 14.0 8.5 8.5 9.9 8.7 10.2 4.6 9.5 16.4 8.8 14.0 3.3 2.0 3.5 1.4 2.2 3.0 2.2 1.6 0.7 2.0 5.9 2.4 2.9 2.8 1.7 3.1 1.2 1.7 2.3 1.8 1.4 0.6 1.7 4.8 1.9 2.5 24.4 25.3 23.9 15.2 21.9 28.0 24.6 14.7 10.3 19.0 32.6 24.0 19.3 22.6 22.0 22.5 14.6 20.9 23.5 20.3 13.5 14.1 17.9 29.2 21.6 17.9 1.7 1.0 2.8 0.7 0.9 1.2 0.9 0.9 0.3 1.3 3.8 1.8 1.9 1.4 0.9 2.6 0.6 0.8 1.1 0.8 0.8 0.2 1.1 3.4 1.6 1.6 Neutral Buy Neutral Neutral Neutral Neutral Neutral Neutral Neutral Neutral Neutral 4,420 499 1,567 129 3,825 722 525 287 218 4,990 160 584 42,399 5,967 21,310 22,440 16,086 24,568 113,438 225,949 14,068 48,115 9,891 11,198 5,627 3,146 6,124 3,084 6,355 25,350 28,787 4,840 8,487 7,207 13,184 6,581 3,573 7,101 3,617 7,548 28,974 33,554 5,643 10,081 7,927 15.4 4.9 20.5 17.0 15.3 16.7 13.3 35.7 13.6 21.2 9.1 15.7 5.7 21.4 16.8 15.5 17.4 13.5 36.1 13.6 22.1 9.5 117.1 18.3 36.4 4.7 101.2 20.3 14.7 9.1 6.4 113.0 6.9 141.5 24.7 42.5 5.4 118.3 25.4 17.0 10.8 8.1 142.5 8.2 37.7 27.3 43.1 27.7 37.8 35.6 35.6 31.4 33.9 44.2 23.1 31.2 20.2 36.9 23.8 32.3 28.4 30.8 26.6 26.9 35.0 19.6 12.4 10.0 39.8 11.7 11.5 7.5 28.2 10.3 6.7 26.5 2.4 9.8 7.6 33.4 9.1 9.3 6.2 19.9 8.6 5.4 18.2 2.3 36.4 39.1 101.9 44.5 33.5 23.2 84.5 35.1 26.3 70.5 8.9 35.0 42.7 98.5 41.4 31.9 25.1 75.8 35.1 23.3 61.6 9.8 3.7 1.0 6.6 3.7 4.9 4.1 4.3 7.5 3.0 5.7 1.3 3.1 0.8 5.8 3.1 4.1 3.4 3.7 6.4 2.5 4.7 1.2 Reco Neutral Neutral Neutral Buy Neutral CMP (`) 97 58 60 134 255 Target Price (`) 1,748 168 Mkt Cap (` cr) 20,902 98,748 1,479 1,996 2,015 1,261 Sales (` cr) FY13E FY14E 13,842 61,031 5,947 11,892 2,344 6,882 15,863 69,753 6,569 13,116 2,804 8,032 OPM (%) FY13E FY14E 26.9 11.2 8.5 9.0 10.6 9.1 26.4 11.6 8.6 9.0 10.7 9.1 EPS (`) FY13E FY14E 3.7 73.8 3.1 1.8 7.2 23.2 4.6 85.5 4.1 3.2 8.7 31.3 PER (x) FY13E FY14E 26.5 21.8 18.6 33.2 18.6 11.0 21.3 18.8 14.0 18.7 15.4 8.1 P/BV (x) FY13E FY14E 1.6 3.5 0.6 0.7 2.2 1.0 1.5 3.0 0.6 0.7 2.0 0.9 RoE (%) FY13E FY14E 6.2 13.5 3.3 2.5 13.0 9.1 7.3 14.1 4.2 3.7 13.5 11.2 EV/Sales (x) FY13E FY14E 3.0 1.8 0.7 0.6 1.2 0.5 2.7 1.6 0.6 0.5 1.1 0.5
Accumulate 1,606
Accumulate 2,319
49

Company Name Metal Bhushan Steel Coal India Electrosteel Castings Hind. Zinc Hindalco JSW Steel MOIL Monnet Ispat Nalco NMDC SAIL Sesa Goa Sterlite Inds Tata Steel Sarda Prakash Industries Godawari Power Oil & Gas Cairn India GAIL ONGC Reliance Industries Gujarat Gas* Indraprastha Gas Petronet LNG Gujarat State Petronet Pharmaceuticals Alembic Pharma Aurobindo Pharma Cadila Healthcare Cipla Dr Reddy's Dishman Pharma GSK Pharma* Indoco Remedies Ipca labs Lupin Ranbaxy* Sanofi India* Sun Pharma Reco CMP (`) 481 355 26 136 131 812 265 280 49 165 91 195 117 428 132 49 118 319 356 267 839 305 249 157 77 Target Price (`) 29 145 344 44 198 463 153 73 143 382 312 183 91 208 145 89 655 Mkt Cap (` cr) 10,206 224,263 891 57,485 25,004 18,117 4,446 1,803 12,654 65,457 37,423 16,969 39,202 41,597 471 660 375 60,926 45,170 228,731 274,768 3,907 3,484 11,790 4,324 1,363 5,511 18,442 33,249 31,041 932 18,344 588 6,547 27,440 21,240 5,275 76,049 Sales (` cr) FY13E FY14E 11,307 66,666 1,984 12,446 79,148 39,586 941 2,501 6,898 11,209 47,252 4,551 43,185 145,725 1,442 2,694 2,342 17,567 46,652 147,139 362,700 3,128 3,213 30,077 1,079 1,624 5,463 6,148 8,151 10,696 1,280 2,651 685 2,850 8,426 12,046 1,482 9,902 14,287 70,292 2,074 13,538 89,258 41,459 1,018 3,264 7,841 12,525 60,351 6,640 45,442 154,108 1,494 2,906 2,470 17,643 54,142 154,821 380,031 3,707 3,643 33,570 1,034 1,855 6,279 7,386 9,130 11,662 1,536 2,993 837 3,474 10,082 11,980 1,682 12,313 OPM (%) FY13E FY14E 29.5 25.7 10.6 52.3 9.4 17.6 47.3 22.2 9.9 78.4 14.2 32.8 23.3 8.3 17.6 14.6 13.7 76.2 15.7 33.9 7.9 13.2 23.3 6.6 91.8 14.2 15.0 18.6 25.8 20.7 20.2 31.7 15.2 21.0 19.7 16.0 17.5 42.6 29.1 27.3 11.6 52.9 9.0 17.0 48.3 24.6 14.7 78.3 14.8 34.4 23.7 9.5 17.2 16.6 15.3 72.3 15.7 33.7 8.0 11.7 23.5 6.3 91.9 15.6 15.0 19.6 24.8 21.0 20.2 31.2 15.2 21.0 20.0 15.8 16.6 42.6 EPS (`) FY13E FY14E 45.1 24.7 0.8 14.9 15.0 78.6 25.8 41.8 2.0 18.5 6.8 33.7 16.8 22.0 27.2 16.4 27.7 61.1 34.0 28.6 60.0 22.8 24.3 15.1 8.8 6.6 12.4 32.7 20.2 83.7 10.4 76.0 7.4 29.9 26.1 37.3 82.9 26.7 51.0 27.2 2.0 16.4 15.6 90.1 28.1 55.2 3.2 20.6 7.4 39.3 17.9 44.5 28.7 20.8 33.8 56.8 35.3 30.5 63.3 23.5 25.7 15.3 8.4 9.1 14.0 44.8 21.6 92.9 14.5 82.4 8.9 37.3 31.1 32.1 87.8 29.1 PER (x) FY13E FY14E 10.7 14.4 30.8 9.1 8.7 10.3 10.2 6.7 24.8 8.9 13.4 5.8 7.0 19.4 4.8 3.0 4.3 5.2 10.5 9.3 14.0 13.4 10.2 10.4 8.8 11.0 15.3 27.5 20.5 21.8 11.1 28.5 8.6 17.4 23.5 13.5 27.6 27.5 9.4 13.1 12.7 8.3 8.4 9.0 9.4 5.1 15.4 8.0 12.3 5.0 6.5 9.6 4.6 2.4 3.5 5.6 10.1 8.7 13.3 12.9 9.7 10.3 9.2 7.9 13.5 20.1 19.2 19.7 8.0 26.3 7.2 13.9 19.7 15.7 26.1 25.3 P/BV (x) FY13E FY14E 1.2 4.3 0.5 1.8 0.7 1.0 1.6 0.7 1.1 2.2 0.9 1.0 0.8 0.9 0.5 0.3 0.4 1.1 1.8 1.5 1.3 4.0 2.3 2.6 1.5 2.7 2.0 6.0 3.7 4.5 0.9 8.2 1.3 4.2 5.5 5.2 4.3 5.2 1.1 3.5 0.2 1.5 0.7 0.9 1.4 0.6 1.0 1.8 0.8 0.8 0.7 0.9 0.5 0.3 0.4 0.9 1.6 1.4 1.2 3.6 2.0 2.2 1.3 2.1 1.7 4.8 3.1 3.8 0.8 7.3 1.1 3.3 4.4 4.2 3.5 4.5 RoE (%) FY13E FY14E 12.2 33.1 1.7 21.4 8.8 10.2 16.7 11.3 4.3 27.0 9.4 18.3 11.6 4.9 11.5 11.4 10.9 22.0 18.5 18.3 11.0 33.2 25.0 28.4 17.9 27.9 18.8 23.7 18.8 22.4 8.7 20.1 16.4 26.7 25.8 45.3 16.3 20.7 12.2 29.1 4.0 19.7 8.4 10.7 16.2 13.4 6.8 24.6 10.6 18.3 11.2 9.3 11.0 12.8 11.4 17.5 16.8 17.2 10.6 29.2 22.1 23.1 15.0 29.9 17.8 26.6 17.2 20.8 11.0 26.3 17.0 26.4 24.7 29.7 14.8 19.1 EV/Sales (x) FY13E FY14E 3.0 2.4 0.6 2.7 0.7 0.9 2.4 1.8 1.4 3.9 1.2 4.4 0.9 0.6 0.7 0.5 0.6 2.6 0.7 1.3 0.7 1.1 1.2 0.4 3.7 1.0 1.6 3.4 3.9 3.2 1.4 6.1 1.0 2.5 3.4 1.8 3.4 7.0 2.3 2.1 0.6 2.1 0.6 0.8 2.0 1.3 1.3 3.3 1.0 3.0 0.8 0.5 0.6 0.3 0.5 2.2 0.5 1.2 0.7 0.9 1.0 0.4 3.8 0.8 1.4 2.8 3.3 2.8 1.2 5.3 0.9 2.0 2.8 1.7 2.9 5.5
Neutral Neutral Accumulate Accumulate Neutral Neutral Neutral Buy Reduce Buy Neutral Neutral Neutral Accumulate Buy Buy Buy Buy Neutral Buy Neutral Neutral Neutral Buy Neutral
Buy 72 Accumulate 189 Neutral 901 Neutral 414 Neutral 1,829 Buy 116 Neutral 2,166 Buy 64 Neutral 519 Accumulate 613 Neutral 503 Neutral 2,291 Neutral 736
50

Company Name Power GIPCL NTPC Real Estate Anant Raj DLF HDIL MLIFE Telecom Bharti Airtel Idea Cellular Rcom Others Abbott India Bajaj Electricals Cera Sanitaryware Cravatex CRISIL Finolex Cables Force Motors Goodyear India Greenply Industries Hitachi Honeywell Automation Styrolution ABS India ITD Cementation* Jyothy Laboratories MCX MRF Page Industries Relaxo Footwears Sintex Industries Siyaram Silk Mills SpiceJet TAJ GVK Tata Sponge Iron TTK Healthcare TVS Srichakra United Spirits Vesuvius India S. Kumars Nationwide Reco CMP (`) 69 156 90 231 111 407 317 104 74 Target Price (`) 78 350 1,590 545 61 537 334 933 79 366 108 384 643 322 Mkt Cap (` cr) 1,041 129,000 2,650 39,153 4,670 1,663 120,306 34,344 15,233 3,156 2,083 513 113 7,611 878 609 842 770 343 2,441 1,301 275 2,620 7,508 5,432 3,829 965 1,954 282 2,131 442 475 422 203 24,843 676 391 Sales (` cr) FY13E FY14E 1,523 72,809 657 9,878 2,441 813 80,353 21,797 21,032 1,629 3,497 427 272 982 2,304 2,318 1,494 1,925 873 1,809 1,059 1,455 1,228 553 13,030 836 1,019 4,751 1,043 5,720 300 750 374 1,461 10,289 560 6,765 1,568 81,951 875 12,033 3,344 901 86,654 23,142 22,084 1,886 3,968 528 308 1,136 2,552 2,700 1,607 2,235 989 2,117 1,116 1,630 1,443 624 14,405 1,023 1,208 5,189 1,149 6,599 319 803 425 1,625 11,421 611 7,393 OPM (%) FY13E FY14E 30.3 23.0 52.0 44.7 55.1 26.2 30.9 26.9 31.8 11.8 6.6 15.7 7.2 34.3 9.9 5.0 6.4 10.6 4.4 5.5 8.5 12.4 9.0 65.3 10.3 20.2 11.0 16.3 12.3 5.3 35.8 18.6 7.9 6.9 12.8 16.1 18.1 30.3 23.7 56.1 46.1 48.2 26.6 31.3 27.7 30.2 13.3 7.6 14.6 7.3 34.3 9.1 5.7 7.8 10.9 6.5 7.5 9.5 12.6 10.9 66.3 10.6 20.6 12.5 16.6 12.9 6.8 36.2 18.4 9.5 8.2 12.8 17.0 18.0 EPS (`) FY13E FY14E 5.4 12.0 8.4 9.6 22.7 32.0 8.6 3.1 2.9 60.8 9.8 30.0 37.5 34.3 8.2 45.0 23.9 29.6 6.4 84.8 36.0 29.8 3.9 62.5 1,418.1 105.6 47.0 13.6 65.7 3.6 7.9 65.4 24.1 24.6 26.0 24.7 6.4 11.5 13.4 12.7 13.4 26.6 37.0 11.8 4.7 4.0 79.5 15.5 34.0 45.4 40.0 10.1 67.0 33.0 44.1 12.2 135.3 42.0 40.5 6.4 72.0 1,677.0 133.4 66.7 15.8 73.3 5.4 9.1 69.1 32.7 53.7 45.3 28.8 7.5 PER (x) FY13E FY14E 12.8 13.0 10.7 24.1 4.9 12.7 37.0 33.0 25.2 24.4 21.3 13.5 11.7 31.6 7.0 10.4 15.3 10.8 23.6 32.5 20.6 8.0 41.8 23.6 9.0 32.5 17.1 4.8 4.6 12.2 8.9 4.7 22.6 10.8 73.1 13.5 2.0 6.0 11.7 7.1 17.2 4.2 11.0 26.8 22.3 18.5 18.7 13.5 11.9 9.7 27.1 5.7 7.0 11.1 7.2 12.3 20.4 17.6 5.9 25.4 20.4 7.6 25.7 12.1 4.1 4.1 8.2 7.7 4.5 16.6 4.9 41.9 11.6 1.7 P/BV (x) FY13E FY14E 0.7 1.6 0.7 1.5 0.4 1.3 2.3 2.4 0.4 5.0 2.7 3.0 2.8 14.3 1.0 0.5 2.4 1.8 1.9 3.5 3.0 0.6 4.1 6.5 1.6 16.5 4.2 0.6 0.9 17.7 1.2 0.7 4.1 1.4 3.3 2.0 0.1 0.6 1.4 0.6 1.5 0.4 1.2 2.1 2.2 0.4 4.2 2.3 2.4 2.2 11.4 0.8 0.5 2.1 1.4 1.7 3.0 2.6 0.6 3.8 5.6 1.3 11.7 3.2 0.6 0.7 5.6 1.1 0.6 3.4 1.1 3.1 1.8 0.1 RoE (%) FY13E FY14E 5.6 12.5 6.3 6.4 8.8 10.4 6.1 7.4 1.6 22.0 12.7 24.6 23.7 50.9 13.7 5.0 16.5 16.8 8.3 11.3 15.4 8.1 10.1 27.5 19.1 59.3 28.2 12.9 21.0 13.9 16.5 19.7 12.9 5.8 15.8 6.1 11.3 12.9 8.9 8.7 9.4 11.0 7.8 9.8 2.2 24.4 17.4 22.5 22.7 46.9 14.7 7.0 20.1 21.0 14.4 16.0 16.0 9.8 15.6 27.4 18.7 53.2 30.1 13.2 19.6 14.4 15.3 22.5 24.8 7.6 16.2 6.7 EV/Sales (x) FY13E FY14E 1.1 2.4 5.3 6.5 3.8 2.4 2.3 2.0 2.4 1.7 0.6 1.3 0.5 7.3 0.3 0.2 0.4 0.7 0.5 1.2 1.3 0.6 2.6 10.6 0.5 4.6 1.1 0.8 0.5 0.5 1.8 0.2 1.0 0.4 2.8 1.1 0.6 1.0 2.3 4.0 5.3 2.8 2.1 2.0 1.9 2.2 1.4 0.5 1.1 0.5 6.2 0.3 0.2 0.3 0.6 0.4 1.0 1.2 0.6 2.2 8.9 0.5 3.8 0.9 0.6 0.5 0.4 1.5 0.1 0.8 0.3 2.5 1.0 0.6
Accumulate Neutral Neutral Neutral Neutral Neutral Accumulate Neutral Neutral
Accumulate 1,485 Neutral 209 Neutral 406 Buy 439 Neutral 1,084 Accumulate 57 Accumulate 467 Neutral 365 Neutral 319 Neutral 150 Neutral 2,761 Neutral 740 Buy 239 Neutral 162 Neutral 1,472 Neutral 12,807 Neutral 3,433 Buy 804 Buy 65 Buy 301 Neutral 44 Buy 71 Buy 309 Buy 544 Buy 265 Neutral 1,899 Neutral 333 Neutral 13
Source: Company, Angel Research, Note: *December year end; #September year end; &October year end; ^June year end; Price as on December 31, 2012
51
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Ratings (Returns) :
Buy (> 15%) Reduce (-5% to -15%)
Accumulate (5% to 15%) Sell (< -15%)
Neutral (-5 to 5%)
52

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Research Team Fundamental: Sarabjit Kour Nangra Vaibhav Agrawal Bhavesh Chauhan Viral Shah Sharan Lillaney V Srinivasan Yaresh Kothari Ankita Somani Sourabh Taparia Bhupali Gursale Vinay Rachh Amit Patil Shareen Batatawala Twinkle Gosar Tejashwini Kumari Technicals: Shardul Kulkarni Sameet Chavan Sacchitanand Uttekar Derivatives: Siddarth Bhamre Institutional Sales Team: Mayuresh Joshi Hiten Sampat Meenakshi Chavan Gaurang Tisani Akshay Shah Production Team: Tejas Vahalia Dilip Patel Research Editor Production tejas.vahalia@angelbroking.com dilipm.patel@angelbroking.com VP - Institutional Sales Sr. A.V.P- Institution sales Dealer Dealer Sr. Executive mayuresh.joshi@angelbroking.com hiten.sampat@angelbroking.com meenakshis.chavan@angelbroking.com gaurangp.tisani@angelbroking.com akshayr.shah@angelbroking.com Head - Derivatives siddarth.bhamre@angelbroking.com Sr. Technical Analyst Technical Analyst Technical Analyst shardul.kulkarni@angelbroking.com sameet.chavan@angelbroking.com sacchitanand.uttekar@angelbroking.com VP-Research, Pharmaceutical VP-Research, Banking Sr. Analyst (Metals & Mining) Sr. Analyst (Infrastructure) Analyst (Mid-cap) Analyst (Cement, FMCG) Analyst (Automobile) Analyst (IT, Telecom) Analyst (Banking) Economist Research Associate Research Associate Research Associate Research Associate Research Associate sarabjit@angelbroking.com vaibhav.agrawal@angelbroking.com bhaveshu.chauhan@angelbroking.com viralk.shah@angelbroking.com sharanb.lillaney@angelbroking.com v.srinivasan@angelbroking.com yareshb.kothari@angelbroking.com ankita.somani@angelbroking.com sourabh.taparia@angelbroking.com bhupali.gursale@angelbroking.com vinay.rachh@angelbroking.com amit.patil@angelbroking.com shareen.batatawala@angelbroking.com gosar.twinkle@angelbroking.com tejashwini.kumari@angelbroking.com
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3QFY2013 Results Preview | January 3, 2013

3QFY2013 Results Preview | January 3, 2013

Margin pressure moderating sequentially

Outlook and Valuation

Slowdown in revenue continues

Exhibit 1: 3QFY2013 Angel coverage performance estimates

3QFY2013 Results Preview | January 3, 2013

Exhibit 3: Sector-wise contribution to Sensex growth

Banking - Private Banks to outperform PSU peers

3QFY2013 Results Preview | January 3, 2013

IT - Mixed earnings performance

Cement - Higher realizations to drive top-line performance

Metals and mining - Tata Steel to drive earnings growth

FMCG - Mixed earnings performance

Oil and gas - Mixed earnings performance

Infrastructure - Pain at the earnings level continues

Pharmaceuticals - Flat performance but positive outlook continues

Power and Telecom - Negative headwinds persist

Capital goods - Challenging environment to weigh on earnings growth

3QFY2013 Results Preview | January 3, 2013

Refer to important Disclosures at the end of the report

3QFY2013 Results Preview | January 3, 2013

Exhibit 5: The Reform Report Card

Bill deferred for consideration in parliament until the next session

State Electricity Boards debt restructuring

Forward Contracts Amendment Bill

Disinvestment in blue-chip PSUs

Banking laws (amendment)

Refer to important Disclosures at the end of the report

3QFY2013 Results Preview | January 3, 2013

GDP growth expected to improve in FY2014

Exhibit 6: Moderation in GDP growth

Exhibit 7: Contribution to demand-side GDP

80.0 60.0 40.0 20.0 0.0

Pvt final consumtion expend. Changes in stocks Discrepancies

Govt final consumption expend. Valuables

Gross fixed capital formation Net exports

Source: MOSPI, Angel Research

Source: MOSPI, Angel Research

Exhibit 8: Moderating core inflation

Exhibit 9: Easing commodity prices

10.0 8.0 6.0 4.0 2.0 0.0

Source: Office of Economic Advisor, Angel Research

Source: Bloomberg, Angel Research

Refer to important Disclosures at the end of the report

3QFY2013 Results Preview | January 3, 2013

Current account and fiscal deficit key risks

Exhibit 10: Fiscal deficit crosses 80% of budgeted estimate

Refer to important Disclosures at the end of the report

3QFY2013 Results Preview | January 3, 2013

Exhibit 11: Sensex EPS growth over FY2012-14E

Exhibit 12: Sensex one year forward P/E

1,100 1,124 900

700 500 300 FY2012 FY2013E FY2014E

Source: Angel Research

Source: Angel Research

Refer to important Disclosures at the end of the report

3QFY2013 Results Preview | January 3, 2013

3QFY2013 Sectoral Outlook

Refer to important Disclosures at the end of the report

3QFY2013 Results Preview | January 3, 2013

Exhibit 1: 3QFY2013 - Stock price performance

Margin pressures to impact profitability yet again

Relative to Auto index (%)