ValueGuide July 13

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6uIde
JuIy 2013
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6uIde

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July 2013 Sharekhan ValueGuide 2
Sharekhan ValueGuide July 2013 3
The rupee crossed the
psychological mark of 60
against the dollar last
month. The local
currencys fall to an all-
time low was largely
driven by the
strengthening of the US
Dollar against all the other major currencies. But the currencies of
countries with relatively a high current account deficit, like India, South
Africa and Mexico, were among the worst affected globally.
REGULAR FEATURES
Report Card 4
Earnings Guide I
TECHNICALS
Sensex 29
Stock Updates 14
Sharekhan Special 24
Sector Updates 27
Viewpoint 28
From Sharekhans Desk
EQUITY
06
The R factor
FUNDAMENTALS
DERIVATIVES
View 30
TECHNICALS
Crude Oil 31
Gold 32
Silver 32
FUNDAMENTALS
Copper 32
Lead 32
Zinc 33
Gold 34
Silver 34
Crude Oil 34
Copper 35
Nickel 35
Turmeric 35
TECHNICALS
FUNDAMENTALS
USD-INR 37
EUR-INR 37
GBP-INR 37
JPY-INR 37
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COMMODITY
CURRENCY
PMS DESK
ProPrime - Top Equity 38
ProPrime - Diversified Equity 39
ProTech - Diversified 40
ProTech - Nifty Thrifty 41
ProTech - Trailing Stops 42
MUTUAL FUNDS DESK
Top MF Picks (equity) 45
Top SIP Fund Picks 46
RESEARCH BASED EQUITY PRODUCTS
Market Outlook 07
Top Picks basket 10
INR-GBP 36
INR-JPY 36
ADVISORY DESK
MID Trades 43
INR-USD 36
INR-EUR 36
Derivative Ideas 43
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CONTENTS
REPORT CARD EQUITY FUNDAMENTALS
STOCK IDEAS STANDING (AS ON JULY 04, 2013)
COMPANY CURRENT PRICE AS ON PRICE 52 WEEK ABSOLUTE PERFORMANCE RELATIVE TO SENSEX
RECO 04-JUL-13 TARGET HIGH LOW 1M 3M 6M 12M 1M 3M 6M 12M
AUTOMOBILES
Apollo Tyres Hold 60.9 ** 102.5 54.6 -32.3 -26.8 -32.0 -20.4 -32.0 -30.7 -31.4 -29.6
Ashok Leyland Hold 18.6 24.0 29.0 18.4 -18.7 -12.8 -28.1 -20.8 -18.4 -17.5 -27.5 -29.9
Bajaj Auto Hold 1876.6 2028.0 2229.0 1423.1 8.7 14.8 -12.9 24.9 9.1 8.6 -12.1 10.5
M&M Buy 982.1 1129.0 1026.5 675.1 -0.5 15.8 4.3 39.0 -0.1 9.5 5.3 23.0
Maruti Suzuki Buy 1557.4 1950.0 1777.0 1074.3 0.7 18.8 0.8 28.3 1.1 12.3 1.7 13.5
BSE Auto Index 10816.1 11868.6 8762.4 -1.5 12.1 -6.3 16.7 -1.1 6.0 -5.4 3.3
BANKS & FINANCE
Allahabad Bank Hold 88.2 155.0 191.1 85.6 -25.3 -28.8 -49.7 -38.9 -25.0 -32.7 -49.3 -46.0
Andhra Bank Hold 82.7 112.0 130.0 78.0 -5.1 -13.4 -34.7 -30.1 -4.7 -18.1 -34.1 -38.2
Axis (UTI) Bank Buy 1265.0 1650.0 1549.9 926.9 -9.4 1.7 -8.3 21.5 -9.0 -3.8 -7.5 7.5
Bajaj Finserv Hold 635.2 826.0 984.0 613.0 -4.9 -15.9 -31.6 -6.7 -4.5 -20.5 -31.0 -17.4
Bank of Baroda Hold 546.6 820.0 899.7 534.5 -14.3 -13.8 -36.1 -22.7 -14.0 -18.5 -35.5 -31.6
Bank of India Hold 224.6 376.0 393.0 215.1 -19.5 -23.7 -36.0 -34.0 -19.2 -27.9 -35.5 -41.6
CanFin Homes Buy 136.2 220.0 187.9 99.0 -5.2 -3.5 -24.9 26.5 -4.8 -8.7 -24.2 11.9
Capital First Buy 153.2 230.0 235.0 109.5 -1.3 6.9 -26.4 0.0 -0.9 1.0 -25.7 -11.6
Corp Bank Buy 349.2 500.0 495.3 337.0 -9.4 -5.5 -24.6 -14.0 -9.1 -10.6 -24.0 -23.9
Federal Bank Buy 400.5 545.0 571.0 390.0 -12.5 -15.6 -24.0 -9.4 -12.1 -20.2 -23.3 -19.9
HDFC Hold 852.1 910.0 931.4 631.3 1.2 9.1 3.2 28.0 1.7 3.2 4.2 13.2
HDFC Bank Hold 655.2 712.0 727.3 505.1 -3.3 7.2 -2.8 14.3 -2.9 1.4 -1.9 1.1
ICICI Bank Buy 1063.7 1320.0 1238.4 866.8 -6.5 7.2 -8.5 19.8 -6.2 1.4 -7.7 6.0
IDBI Bank Hold 71.4 105.0 118.4 66.3 -8.9 -14.2 -38.8 -24.8 -8.5 -18.9 -38.2 -33.5
Punjab National Bank Buy 620.1 998.0 922.1 604.1 -15.4 -10.3 -29.2 -24.0 -15.0 -15.2 -28.5 -32.7
SBI Buy 1900.0 2450.0 2551.7 1815.2 -6.3 -6.3 -22.1 -12.9 -5.9 -11.4 -21.4 -23.0
Union Bank of India Buy 173.4 295.0 288.0 150.1 -17.8 -18.7 -35.1 -15.0 -17.4 -23.2 -34.5 -24.8
Yes Bank Buy 470.2 600.0 547.7 285.0 -4.5 11.5 -2.7 37.6 -4.1 5.4 -1.8 21.8
BSE Bank Index 13006.9 15335.9 11277.1 -6.9 3.0 -10.3 8.8 -6.5 -2.6 -9.5 -3.7
CONSUMER GOODS
Bajaj Corp Buy 251.4 303.0 284.0 119.2 -9.5 7.0 9.0 113.8 -9.1 1.2 10.0 89.1
GSK Consumers Hold 5582.2 ** 6347.8 2179.0 -5.0 33.9 46.9 108.7 -4.6 26.6 48.2 84.6
Godrej Consumer Products Hold 807.9 845.0 965.0 563.7 -8.9 4.0 11.9 40.3 -8.6 -1.7 12.9 24.1
Hindustan Unilever Hold 601.4 ** 632.0 431.6 1.8 27.9 12.5 40.5 2.2 21.0 13.5 24.3
ITC Hold 338.9 342.0 355.9 220.3 0.5 14.9 21.8 39.8 0.9 8.6 22.9 23.7
Jyothy Laboratories Buy 180.6 254.0 211.3 115.5 -10.9 13.4 9.1 53.3 -10.6 7.2 10.1 35.6
Marico Hold 208.7 241.0 251.7 180.3 -10.3 -3.8 -6.9 15.3 -10.0 -9.1 -6.1 2.0
Mcleod Russel India Buy 282.5 405.0 387.0 263.0 -7.0 -14.7 -21.2 -7.3 -6.6 -19.3 -20.5 -18.0
TGBL (Tata Tea) Hold 143.5 168.0 181.7 110.0 -2.7 14.5 -11.1 24.8 -2.3 8.3 -10.3 10.4
Zydus Wellness Buy 655.0 741.0 755.0 336.0 8.9 55.3 30.8 65.5 9.3 46.9 32.0 46.4
BSE FMCG Index 6785.4 6942.0 4832.4 0.3 17.5 16.4 42.8 0.7 11.1 17.4 26.3
IT / IT SERVICES
CMC Buy 1319.5 1650.0 1523.0 824.0 10.7 -6.3 9.3 55.6 11.1 -11.4 10.3 37.7
HCL Technologies Buy 799.8 900.0 810.0 471.5 8.7 7.9 26.8 68.0 9.2 2.0 28.0 48.6
Infosys Hold 2468.0 ** 3010.0 2060.6 -1.1 -13.3 6.3 1.3 -0.7 -18.0 7.2 -10.4
NIIT Technologies Hold 264.9 305.0 324.9 238.6 3.9 -1.7 8.7 -4.5 4.3 -7.1 9.7 -15.5
Persistent Systems Buy 492.3 600.0 591.0 363.6 -5.1 -8.9 -7.0 26.9 -4.7 -13.9 -6.2 12.3
Tata Consultancy Services BUY 1538.3 1650.0 1598.0 1055.0 5.9 2.9 19.7 25.2 6.3 -2.7 20.8 10.8
Wipro Reduce 349.7 ** 418.3 263.1 7.2 -10.7 -1.0 1.2 7.6 -15.5 -0.1 -10.4
BSE IT Index 6244.4 7069.4 5134.1 2.8 -6.6 8.9 11.4 3.2 -11.6 9.8 -1.5
CAPITAL GOODS / POWER
Bharat Heavy Electricals Hold 174.8 240.0 272.5 162.1 -10.5 -1.9 -27.3 -22.9 -10.2 -7.2 -26.6 -31.8
CESC Hold 358.4 385.0 368.0 252.5 8.9 32.7 14.0 21.6 9.3 25.4 15.0 7.6
Crompton Greaves Hold 88.4 105.0 143.6 71.7 -2.6 -3.0 -28.8 -30.9 -2.2 -8.3 -28.2 -38.9
Greaves Cotton Buy 60.1 95.0 87.6 59.0 -10.4 -10.4 -24.9 -11.7 -10.0 -15.3 -24.2 -21.9
Kalpataru Power Transmission Buy 65.7 115.0 106.9 64.0 -9.4 -15.7 -33.0 -18.2 -9.1 -20.3 -32.4 -27.6
PTC India Buy 49.4 75.0 81.3 44.7 -12.7 -19.9 -36.8 -21.4 -12.3 -24.3 -36.2 -30.5
Thermax Reduce 593.5 553.0 691.0 462.7 2.3 3.6 -3.8 19.7 2.7 -2.0 -2.9 5.9
V-Guard Industries Hold 472.0 508.0 590.5 248.0 -0.8 7.6 -6.1 89.8 -0.4 1.7 -5.3 67.9
BSE Power Index 1619.6 2113.7 1534.7 -7.1 -2.2 -19.5 -17.9 -6.8 -7.5 -18.8 -27.4
BSE Capital Goods Index 9077.9 11408.6 8671.0 -3.3 1.1 -18.0 -9.5 -2.9 -4.4 -17.3 -20.0
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REPORT CARD EQUITY FUNDAMENTALS
STOCK IDEAS STANDING (AS ON JULY 04, 2013)
COMPANY CURRENT PRICE AS ON PRICE 52 WEEK ABSOLUTE PERFORMANCE RELATIVE TO SENSEX
RECO 04-JUL-13 TARGET HIGH LOW 1M 3M 6M 12M 1M 3M 6M 12M
In Top Picks basket ** Price target under review
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INFRASTRUCTURE / REAL ESTATE
Gayatri Projects Buy 65.6 275.0 130.6 64.0 -12.6 -10.6 -46.0 -35.5 -12.2 -15.5 -45.5 -42.9
ITNL Buy 143.7 302.0 228.9 141.1 -17.4 -22.3 -32.6 -20.4 -17.1 -26.6 -32.0 -29.5
IRB Infra Buy 95.3 175.0 161.4 85.6 -18.0 -15.7 -27.0 -26.6 -17.7 -20.3 -26.3 -35.1
Jaiprakash Associates Buy 52.4 95.0 106.8 48.5 -20.8 -17.8 -48.1 -32.1 -20.5 -22.3 -47.7 -39.9
Larsen & Toubro Buy 1402.2 1790.0 1720.0 1307.3 -0.5 3.0 -13.9 -0.1 -0.1 -2.7 -13.1 -11.6
Mahindra Lifespace Developers Buy 421.6 460.0 453.8 313.2 7.5 8.0 0.3 29.2 7.9 2.1 1.2 14.3
Orbit Corporation Buy 17.1 48.0 65.8 13.0 -1.4 -29.3 -70.2 -70.8 -1.0 -33.1 -69.9 -74.1
Pratibha Industries Buy 28.0 65.0 59.0 25.0 -22.6 -29.5 -50.1 -45.7 -22.3 -33.3 -49.7 -52.0
Punj Lloyd Hold 32.4 53.0 64.1 31.3 -25.9 -38.6 -47.2 -40.3 -25.6 -41.9 -46.7 -47.2
Unity Infraprojects Buy 25.5 57.0 53.4 23.2 -12.2 -12.2 -44.8 -44.9 -11.9 -17.0 -44.3 -51.2
CNX Infra Index 2268.8 2684.7 2151.9 -3.4 3.7 -14.0 -7.4 -3.0 -2.0 -13.2 -18.1
BSE Real Estate Index 1510.9 2326.8 1431.4 -9.7 -14.6 -31.0 -14.1 -9.3 -19.3 -30.4 -24.0
OIL & GAS
GAIL Hold 333.8 390.0 397.2 276.2 7.3 6.9 -9.0 -5.4 7.7 1.1 -8.2 -16.3
Oil India Buy 567.9 650.0 629.9 432.0 -2.6 9.4 23.1 19.6 -2.3 3.4 24.2 5.8
Reliance Ind Buy 861.7 1010.0 955.0 682.4 10.4 13.5 1.1 18.7 10.9 7.3 2.0 5.0
Selan Exploration Technology Buy 243.6 365.0 351.0 197.4 -6.2 -3.5 -21.5 -13.4 -5.8 -8.8 -20.8 -23.4
BSE Oil and Gas Index 8785.4 9890.9 7825.6 3.7 6.7 0.2 10.6 4.1 0.9 1.1 -2.1
PHARMACEUTICALS
Aurobindo Pharma Buy 185.0 267.0 204.9 99.7 -0.3 13.8 -7.8 63.2 0.1 7.6 -6.9 44.4
Cipla Buy 394.6 490.0 435.0 314.4
Cadila Healthcare Buy 781.9 906.0 975.0 714.2 -3.0 4.0 -11.3 4.5 -2.7 -1.6 -10.5 -7.5
Dishman Pharma Buy 54.9 130.0 124.5 53.6 -24.8 -17.6 -53.9 -18.5 -24.5 -22.1 -53.5 -27.9
Divi's Labs Buy 962.7 1262.0 1234.4 924.5 -0.3 -3.4 -13.3 -5.5 0.1 -8.6 -12.5 -16.4
Glenmark Pharmaceuticals Buy 575.1 600.0 610.0 360.4 -3.7 23.3 9.6 52.3 -3.3 16.6 10.6 34.7
Ipca Laboratories Hold 684.8 675.0 701.7 355.2 12.1 32.6 35.1 91.2 12.6 25.4 36.3 69.2
Lupin Buy 850.7 810.0 855.0 496.4 10.6 35.2 40.7 59.2 11.0 27.8 42.0 40.8
Sun Pharma Buy 1030.7 1120.0 1116.6 580.0 1.2 19.9 40.2 63.7 1.6 13.3 41.4 44.8
Torrent Pharma Hold 835.0 890.0 863.9 597.7 2.4 22.3 18.3 40.5 2.9 15.6 19.4 24.3
BSE Health Care Index 9070.9 9223.1 6882.7 1.1 10.6 10.7 32.3 1.5 4.6 11.7 17.0
AGRI-INPUTS
Tata Chemicals Buy 272.0 380.0 381.5 260.3 -10.0 -12.7 -25.4 -11.1 -9.7 -17.4 -24.8 -21.4
United Phosphorus Buy 134.7 180.0 167.5 101.6 -16.0 14.4 1.0 8.1 -15.7 8.1 1.9 -4.4
BUILDING MATERIALS
Grasim Hold 2797.0 3300.0 3511.0 2566.2 1.7 2.6 -12.3 5.2 2.1 -3.0 -11.5 -6.9
India Cements Hold 56.3 95.0 104.7 52.3 -17.4 -30.0 -38.6 -33.0 -17.1 -33.8 -38.0 -40.7
Madras Cements Hold 213.2 250.0 273.5 151.2 -5.1 -11.6 -11.1 37.7 -4.7 -16.4 -10.3 21.9
Shree Cement Hold 4554.0 4660.0 5384.4 2790.0 -4.3 12.9 -0.8 49.0 -4.0 6.7 0.1 31.8
UltraTech Cement Hold 1907.0 2100.0 2154.2 1510.8 2.1 9.4 -6.6 24.6 2.5 3.4 -5.8 10.3
DISCRETIONARY CONSUMPTION
Eros International Media Buy 130.5 240.0 235.1 126.3 -19.9 -23.7 -37.0 -25.6 -19.6 -27.8 -36.4 -34.1
Indian Hotel Company Hold 48.7 61.0 71.8 46.1 -5.9 -11.9 -26.3 -20.5 -5.5 -16.7 -25.7 -29.7
KKCL Buy 753.4 810.0 903.2 485.4 -15.0 8.8 4.7 38.0 -14.7 2.9 5.6 22.1
Raymond Buy 241.0 477.0 488.9 227.9 -12.8 -9.5 -46.6 -41.0 -12.5 -14.4 -46.2 -47.8
Relaxo Footwear Buy 793.0 845.0 918.0 426.8 17.4 43.3 -1.9 49.4 17.9 35.5 -1.0 32.2
Speciality Restaurants Buy 151.2 230.0 226.3 141.3 -12.5 -9.6 -20.8 -30.7 -12.2 -14.5 -20.0 -38.7
Zee Entertainment Buy 241.7 280.0 255.2 140.0 1.2 16.4 6.5 63.9 1.6 10.0 7.4 45.0
DIVERSIFIED / MISCELLANEOUS
Aditya Birla Nuvo Buy 1026.0 1254.0 1191.0 737.3 -1.4 5.7 -8.5 27.5 -1.0 -0.1 -7.7 12.8
Bajaj Holdings Buy 770.5 1334.0 1058.3 730.0 -14.0 -12.5 -23.0 -0.6 -13.7 -17.3 -22.3 -12.1
Bharti Airtel Hold 301.2 340.0 370.6 215.8 -1.0 10.4 -7.6 -7.2 -0.6 4.4 -6.8 -17.9
Bharat Electronics Hold 1248.2 1485.0 1399.5 1105.3 -5.9 5.8 -4.8 -7.3 -5.5 0.0 -4.0 -18.0
Gateway Distriparks Buy 105.0 163.0 150.7 100.0 -12.8 -12.9 -22.0 -22.6 -12.5 -17.6 -21.3 -31.5
Max India Buy 209.4 296.0 273.0 173.1 1.1 -4.8 -16.7 13.8 1.5 -10.0 -16.0 0.7
Ratnamani Metals and Tubes Hold 144.0 170.0 162.1 101.0 -4.0 16.7 0.3 33.2 -3.6 10.3 1.2 17.8
Sintex Industries Buy 39.4 89.0 75.6 36.6 -18.8 -15.2 -43.9 -40.5 -18.5 -19.8 -43.4 -47.4
BSE500 Index 7182.3 7792.7 6407.8 -2.6 3.4 -6.4 8.1 -2.2 -2.3 -5.6 -4.3
CNX500 Index 4517.7 4877.7 3996.4 -2.6 3.9 -5.9 9.0 -2.2 -1.8 -5.1 -3.6
CNXMCAP Index 7359.8 8859.4 6996.9 -5.7 0.1 -15.1 0.0 -5.3 -5.4 -14.4 -11.5
The R factor
FROM SHAREKHANS DESK
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The rupee crossed the psychological mark of 60 against the dollar last month. The local
currencys fall to an all-time low was largely driven by the strengthening of the US Dollar
against all the other major currencies. But the currencies of countries with relatively a high
current account deficit, like India, South Africa and Mexico, were among the worst affected
globally. On the other hand, the currencies of countries with a current account surplus, like
Indonesia and Singapore, managed to sail through with a limited damage.
The strengthening of the US Dollar was triggered by the US Federal Reserves indication
that it might slow its bond purchases this year and withdraw the economic stimulus
altogether by the next year, as the recovery in the US economy gathers steam. The change
in the stance of the US Federal Reserve came as a surprise to traders and led to a scramble
to unwind the US Dollar carry trades. Consequently, the bond and equity markets globally
suffered unexpected and sharp moves during the initial phase of the knee-jerk reaction.
Experts believe the transition process of adjusting to the potential withdrawal of easy
liquidity could continue further but at a more measured pace now.
As if this were not enough, the negative cues from the slowing Chinese economy and the re-
emergence of tremors in Europe (the resignation of the finance minister in Portugal and the
International Monetary Funds growing tough stance on Greece) added to the uncertainty
in the equation. The sudden change in the global environment and its fall-out on the rupee
and the withdrawal of close to $7.5 billion from Indias debt market galvanised the
government into taking some corrective actions.
After a gap of several months, the government has reached a positive decision on some long-
pending tough issues. It has cleared the new gas pricing formula that could nearly double the
price of natural gas from $4.2mbtu to $8-8.5mbtu with effect from April 2014. The move is
expected to encourage investments in the domestic oil & gas exploration sector and hopefully
reduce the countrys dependence on imported gas. The government is also set to put a regulator
in place for the real estate sector, hike the foreign direct investment limit in some sectors and
address the coal supply issue for the power sector. Hopefully, the pressure on the rupee and
the economy would be a reminder to the government to limit its tendencies to announce huge
giveaways under social spending schemes in the run-up to the elections, though the government
has pushed the Food Security Bill through an ordinance.
On the macro-economy front, the depreciation in the rupee is eating into some of the
macro gains, such as moderation of inflation, and would be a cause for concern for the
central bank. Inflation has moderated to the Reserve Bank of India (RBI)s comfort level
it slipped to a 43-month low of 4.70% in May from 4.89% in April this year. However, the
RBI maintained its cautious stance at its policy meet in June and slowed the pace of monetary
easing. The global uncertainties and the rupees depreciation-led pressure on inflation would
only lead to further delays in the much awaited policy rate cuts and other measures to
improve liquidity domestically.
The Indian companies are all set to announce their results for the first quarter of FY2014.
We expect a lot of volatility ahead in view of the result announcements locally and the
rising uncertainty globally. In the days ahead the market is expected to take its cue from
the result announcements, the governments policy actions, the monsoons progress, the
crude oil prices, the USAs data announcements and the global markets. For a detailed view
of the equity market please read our Market Outlook report, Its more global than local
this time around, on page 7.
Its more global than local this time around
MARKET OUTLOOK JULY 05, 2013
Volatility picks up as Ben pulls the plug and cues turn
negative in China, Europe: The unexpected move by
the US Federal Reserve to begin tapering of the
monetary stimulus under the quantitative easing (QE)
programme jolted the financial markets globally. As
part of the knee-jerk reaction to the Feds statement a
scramble began for unwinding of the leveraged dollar
carry trades which perked up the bond yields,
strengthened the dollar and led to the withdrawal of
money from risky assets. India also suffered its share
of collateral damage with the sudden outflow of $7.5
billion from the Indian debt market and the freefall of
the rupee beyond the important psychological barrier
of Rs60 to the dollar. The deterioration in the Chinese
economic data and the re-emergence of issues in some
of the troubled European nations added to the
uncertainty in the equation.
Rupee dives but creates room for radical policy moves:
The global uncertainty and the steep depreciation in
the rupee have galvanised the government into taking
policy decisions on some pending critical issues. The
cabinet committee has approved the new gas price
formula that makes investment in oil & gas exploration
much more attractive, taken steps to address the
availability of coal for the power sector and is looking
at hiking foreign direct investment (FDI) limits in
certain sectors. Therefore, by hiding behind the
compelling circumstances and due to the growing
differences within the opposition parties the
government may be able to push some pending bills in
the forthcoming parliamentary session. Though the
government has passed the food bill ordinance,
hopefully the pressure on the rupee would act as a grim
reminder to the government to maintain fiscal prudence
rather than focus on giveaways under social schemes
during the election year.
RBI to retain cautious monetary stance; corporate
earnings to remain muted: Despite the moderation in
the inflation rate, the Reserve Bank of India (RBI) is
MARKET OUTLOOK
EQUITY FUNDAMENTALS
SENSEX ONE-YEAR FORWARD P/E BAND
Source: Bloomberg, Sharekhan research
likely to retain its cautious view in the light of the
inflationary pressures resulting from the rupees
depreciation. We do not expect it to cut the key policy
rates or take any measure to ease liquidity during the
policy review meet at the end of July. Thus, the cyclical
uptick in the economy could be more sluggish than
expected or get delayed due to the uncertainty caused
by external factors. The earnings season would be
rather lacklustre with the expectations of a marginal
decline in the cumulative earnings of the Sensex in Q1
of FY2014 and the growing risk of further downgrades
in the FY2014 earnings estimates.
Nifty likely to fluctuate in a broader range: The global
events pushed the market towards the lower end of its
multi-month trading range of 5600-6100; however, the
benchmark indices are stabilsing after the initial knee-
jerk reaction. In the immediate term, the continued
pressure on the rupee remains the key risk to inflation,
might delay monetary easing by the RBI and put further
stress on already stretched corporate balance sheets.
However, the valuation is quite reasonable with a one-
year forward price/earnings (PE) multiple of 13.8x,
which is at 5% discount to the long-term average
valuation of the Sensex. Consequently, the benchmark
indices are likely to consolidate within a broad range
though with increase in volatility.
7.0
12.0
17.0
22.0
27.0
Jun-01 Jun-03 Jun-05 Jun-07 Jun-09 Jun-11 Jun-13
PER +1 sd Avg PER -1 sd
MARKET OUTLOOK
EQUITY FUNDAMENTALS
TRADE BALANCE INDIA
Source: Bloomberg, Sharekhan Research
DEBT FUNDS REDEMPTIONS
Macro issues intensify with rupees depreciation
The sharp depreciation in the rupee (due to taper talk by
the US Fed) has brought Indias macro-economic concerns
to the fore. The current account deficit (CAD; 4.8% of
the gross domestic product [GDP] in FY2013) has been
running high and weakness in the domestic currency will
further push up the twin deficits. Inflation has shown
significant moderation in the past several months but could
rise again due to imported inflation since Indias imports
are significantly higher (30% of the GDP). If the situation
persists, the GDP growth estimate, pegged at 6% for
FY2014, may face downward revision as slowdown in
investments and higher interest rates may constrain
recovery.
continue even after the replacement of Ben Bernanke in
January 2014. But the bouts of surprises from the euro
zone and China will keep the global markets edgy and
increase risk aversion. The outflows from the equity
segment in India have been lower than those seen by the
other markets, but if the global uncertainty continues it
could affect the inflows to the Indian stock market.
...but opportunity for firmer actions from government
Under compelling circumstances the government has been
able to fast-track certain long pending proposals (coal
linkages, fuel pass-through, gas price hike, FDI in
telecommunications sector etc). In addition, the
government has formed special committees headed by Anil
Swarup to resolve stalled projects worth Rs7 lakh crore
to revive growth. While one would assume the government
would go slow on reforms in an election year, the
government could actually surprise all by passing the key
reforms, like the land acquisition bill and FDI in insurance,
given the urgency on the CAD front. Also, given the split
in the opposition forces (Bharatiya Janata Party-Janata
Dal United split), resistance will be diluted and the
longevity of the government (till May 2014) will increase
which will give the government time to patch up later.
Global volatility a key concern for the markets
The mere indication of tapering of QE has unnerved the
global markets leading to the unwinding of carry trades
in dollar, a rise in bond yields and redemptions from the
emerging market funds. Also, Chinas economy is growing
at a lower than expected rate and the recent tightening by
Peoples Bank of China has further weakened market
sentiment. After the recent turbulence in the global markets
the Fed has become dovish. The stance is expected to
NET FII EQUITY INVESTMENT ($ MN)
FISCAL DEFICIT TO GDP (%)
-25
-20
-15
-10
-5
0
May-09 May-10 May-11 May-12 May-13
-50.0
-30.0
-10.0
10.0
30.0
50.0
70.0
Trade balance-LHS ($bn) Imports grow th (YoY,%)
Exports grow th (YoY,%)
-300
-200
-100
0
100
200
300
400
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-6,000
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0
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6,000
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84
86
88
90
92
94
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98
100
102
104
FII f low s in indian debt ($ mn) - LHS INRUSD Currency
MARKET OUTLOOK
EQUITY FUNDAMENTALS
BRENT CRUDE ($/BBL)
RBI to hold back ammunitionmonsoon and commodity prices
among the key monitorables
The prices of commodities (crude oil) have corrected by
8-10% in the year till date (YTD) and are expected to
remain soft due to the slower growth in China, India etc.
This along with some moderation in gold imports could
provide some relief on the CAD front but the same will
not be enough to trigger further rate cuts by the RBI. The
apex bank has clearly articulated that the room for further
rate cuts is limited due to the global uncertainty and the
lingering concern on inflation (due to high food inflation
and the local currencys depreciation). It seems the food
inflation could ease going ahead as the hike in the
minimum support price was lower than expected and the
monsoon is largely favourable.
Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or
having a position in the companies mentioned in the article.
For detailed report, please visit the Research section of our website, sharekhan.com.
improvement in certain sectors which will hit harder
because of the declining revenues. However the export-
oriented companies may deliver relatively better results.
The Sensex consensus earnings estimate for FY2014 has
undergone downward revisions in the past couple of
months and the benchmark index earnings are now
expected to grow in single digits.
VARIANCE OF ACTUAL RAINFALL FROM LPA
Corporate earnings growth to be muted
The corporate earnings season (Q1FY2014) has begun,
but there is not much of fuss around as the earnings growth
is likely to show a decline on a year-on-year basis. The
weakening of the local currency is likely to reflect in the
earnings of the companies especially the ones having a
higher foreign exchange debt. It will also halt the margin
SENSEX ONE-YEAR FORWARD P/E BAND
FY2014 CONSENSUS EARNINGS ESTIMATE OF SENSEX
Nifty likely to fluctuate in a broader range
The global events have pushed the market towards the
lower end of its multi-month trading range of 5600-6100.
However, the benchmark indices are stabilsing after the
initial knee-jerk reaction to the Feds taper talk. In the
immediate term, the continued pressure on the rupee
remains the key risk as it would stoke inflation, delay the
RBIs monetary easing and put further stress on the already
stretched corporate balance sheets. However, the valuation
is quite reasonable with a one-year forward price/earnings
(PE) multiple of 13.8x, which is at 5% discount to the
long-term average valuation of the Sensex. Consequently,
the benchmark indices are likely to consolidate within a
broad range though with increase in volatility.
95
100
105
110
115
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-60.0%
-40.0%
-20.0%
0.0%
20.0%
40.0%
60.0%
80.0%
100.0%
120.0%
140.0%
Country
as a
whole
Northwest
India
Central
India
South
Peninsula
East &
northeast
India
7.0
12.0
17.0
22.0
27.0
Jun-01 Jun-03 Jun-05 Jun-07 Jun-09 Jun-11 Jun-13
PER +1 sd Avg PER -1 sd
1400
1420
1440
1460
1480
1500
1
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A
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8
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Sharekhan Top Picks
SHAREKHAN TOP PICKS
It was another month of outperformance by the Top Picks basket,
which appreciated by 0.7% in June 2013 despite a volatile equity
market. In comparison, the benchmark indices, the Nifty and the
Sensex, declined by 1.4% and 0.8% respectively and the CNX Mid-
cap Index slid by close to 4% in the same period.
The three stocks that boosted the performance of Top Picks are
Reliance Industries (which surged by over 10% in the month on
the back of a gas price hike), NIIT Technologies (which rose by
8.1% due to the weakness in the rupee) and Zee Entertainment
Enterprises (which climbed up by 8.9% despite the overhang of the
revision in the norms for advertisements per hour by the Telecom
Regulatory Authority of India). On the other hand, the three banks
in the Top Picks basket pulled down its overall returns.
* CMP as on July 01, 2013
NAME CMP* PER ROE (%) PRICE UPSIDE
(RS) FY13 FY14E FY15E FY13 FY14E FY15E TARGET (%)
Bajaj Corp 249 22.0 18.0 14.1 36.7 38.8 41.5 303 22
Divis Laboratories 991 22.3 17.7 15.0 23.6 26.2 25.8 1,262 27
HCL Technologies 759 13.6 12.4 11.4 34.7 29.9 26.3 900 19
HDFC Bank 667 23.6 19.3 15.4 20.3 20.9 22.2 712 7
ICICI Bank 1,070 14.8 13.2 11.1 13.1 13.5 14.7 1,320 23
Larsen & Toubro 1,450 18.5 16.4 14.4 17.7 17.3 17.4 1,790 23
Oil India 581 9.7 9.3 8.0 19.4 18.5 19.0 650 12
Reliance Industries 883 13.7 13.7 11.9 10.7 9.6 10.0 1,010 14
SBI 2,015 9.8 9.2 7.8 15.4 14.3 15.0 2,450 22
Sun Pharma 1,004 34.5 28.9 23.3 25.4 22.5 22.3 1,120 12
Zee Entertainment Enterprises 247 33.4 29.8 23.3 19.5 19.3 21.4 280 13
ABSOLUTE OUTPERFORMANCE CONSTANTLY BEATING NIFTY AND SENSEX (CUMULATIVE RETURNS IN %)
SHAREKHAN TOP PICKS
EQUITY FUNDAMENTALS
This month also we are making a lone change in the portfolio. We
are replacing NIIT Technologies with Divis Laboratories. The idea
is to reduce the weightage of the information technology services
sector in the portfolio (due to the immigration issues in the USA
and the expectations of margin pressure following a salary hike in
Q1FY2014) and increase the exposure to another export-driven
sector, pharmaceuticals. Divis Laboratories has a relatively high
proportion of revenues coming from exports and would be among
the key beneficiaries of the weakness in the rupee. The core business
is also expected to pick up after the Q4FY2013 numbers, which
were lower than expected.
-40.0%
-20.0%
0.0%
20.0%
40.0%
60.0%
80.0%
100.0%
120.0%
140.0%
160.0%
180.0%
YTD
CY2013
CY2012 CY2011 CY2010 CY2009 Since
inception
(Jan
2009)
Sharekhan (Top Picks) Sensex Nif ty
100.0%
120.0%
140.0%
160.0%
180.0%
200.0%
220.0%
240.0%
260.0%
280.0%
J
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NAME CMP PER ROE (%) PRICE UPSIDE
BAJAJ CORP 249 22.0 18.0 14.1 36.7 38.8 41.5 303 22
Remarks: Bajaj Corp is the third largest player in the hair oil segment and has emerged as the dominant player in the premium light hair oil (LHO)
category with its Almond Drops hair oil.
With consumers upgrading to the LHO category, we expect the strong volume growth momentum to continue in the coming quarters.
With the prices of the key inputs stabilising, we expect the GPM to improve in the coming quarters.
The companys thrust on enhancing the distribution reach in rural India and improving the market share every year has helped it clock
a good sales volume growth in the past few quarters. Any initiative to expand its limited product portfolio or strengthen its core business
would be a key upside trigger for the stock.
At the CMP, the stock is trading at 18x its FY2014E EPS of Rs13.8 and 14.1x its FY2015E EPS of Rs17.6.
DIVIS LABORATORIES 991 22.3 17.7 15.0 23.6 26.2 25.8 1,262 27
Remarks: Despite a weaker performance in Q4FY2013, we are confident of Divis Laboratories growth potential. Its recent performance was
affected by the expansion process and the switching of production to new facilities which partly disrupted supplies. The growth will
bounce back on normalisation of supplies by the end of Q1FY2014.
It will benefit from the rupees depreciation against major other currencies, thanks to its debt-free balance sheet and the fact that nearly
90% of its revenues come from the export market (mainly the USA and Europe).
The new DSN SEZ facility at Vishakhapatnam that started in June 2011 augurs well for the company as it would improve the economies
of scale and lead to tax benefits. A near debt-free balance sheet and strong cash flow are likely to help build a war chest for pursuing
strategic investments and exploit the growth opportunities in niche segments, like oncology and steroids for contraceptives.
The stock is currently trading at 17.7x and 15.0x estimated earnings for FY2014 and FY2015 respectively. We have a Buy
recommendation on the stock with a price target of Rs1,262, which implies 19x FY2015E earnings.
HCL TECHNOLOGIES 759 13.6 12.4 11.4 34.7 29.9 26.3 900 19
Remarks: HCL Tech is an IT services company providing software-led IT solutions, remote infrastructure management services and BPO services.
The company has a leading position in remote infrastructure management services which has helped it win large IT outsourcing
contracts. Through the Axon PLC acquisition, the company has gained a strong SAP consulting footing.
In the current environment, we believe HCL Tech is well placed in terms of its business strategy of consciously targeting the re-bid
market. The results of the same are evident in its consistent outperformance in terms of volume and revenue growth. The company
has allayed the apprehensions on the margin front by consistently improving its margins despite head winds.
The management acknowledged the potential threat of the impending US immigration bill and expressed concern over the outplacement
clause in the current form (we, therefore, hope for some dilution in the final bill). Nevertheless, among the top four IT companies, HCL
Tech is relatively better placed, as around 50% of its total workforce in the USA holds the H1-L1 visa against a higher percentage of
such visa holders for TCS, Infosys and Wipro.
The management continues to see EBIT margin corridor of 19-20% for the coming quarter. However, with the rupee depreciating consistently,
the margin could improve further, if the rupee stays at 57-58 a dollar over the coming quarters. Among the top 4 IT companies HCL Tech
has shown the highest sensitivity to the rupees depreciation in terms of margin improvement in the last seven quarters.
In view of its better earnings predictability compared with its peers, stable margins and sustainable momentum in the IMS vertical, we
recommend a Buy on it with a price target of Rs900.
HDFC BANK 667 23.6 19.3 15.4 20.3 20.9 22.2 712 7
Remarks: HDFC Bank is expected to continue its strong growth in advances due to a strong presence in the retail segment. While the credit
demand has moderated in the corporate segment, it remains reasonably strong in the retail segment which will benefit the bank.
The bank has the highest current and savings account (CASA) ratio in the sector with a stable net interest margin (NIM; at 4.5%
levels). Any reduction in the policy rates by the central bank would improve the credit demand and be positive from the margin
perspective.
HDFC Banks asset quality is among the best in the sector and the bank is expected to maintain the same due to its strong credit origination
practices and marginal exposure to the troubled segments. Further, the higher provisions provide comfort on asset quality front.
We expect HDFC Bank to deliver earnings CAGR of 23.8% over FY2013-15 leading to RoE and RoA of 22.2% and 1.8% respectively.
We believe the bank will continue to command a premium over its peers due to a strong and consistent growth. We have a price target
of Rs712 for the stock.
SHAREKHAN TOP PICKS
EQUITY FUNDAMENTALS
ICICI BANK 1,070 14.8 13.2 11.1 13.1 13.5 14.7 1,320 23
Remarks: ICICI Bank continues to report a strong growth in earnings led by a growth in advances and expansion in margins (2.9% in FY2013).
We expect its advances to grow at 19.5% CAGR over FY2013-15. This should lead to an 18% CAGR growth in the net interest income
(NII) in the same period.
ICICI Banks asset quality has shown a turnaround as its non-performing assets (NPAs) have continued to decline over the last eleven
quarters led by contraction in slippages. This has led to a sharp reduction in the provisions and an increase in the profitability. Going
forward, we expect the NPAs to decline further which will lead to lower NPA provisions and hence aid the profit growth.
Led by a pick-up in the business growth and an improvement in the margins, the RoE is likely to expand to 14.7% by FY2015 while the
RoA is likely to improve to 1.7%. This would be driven by a 15.7% growth (CAGR) in the profit over FY2013-15.
The stock trades at 1.5x FY2015E BV. Moreover, given the improvement in the profitability led by lower NPA provisions, a healthy
growth in the core income and improved operating metrics, we recommend Buy with a price target of Rs1,320.
LARSEN & TOUBRO 1,450 18.5 16.4 14.4 17.7 17.3 17.4 1,790 23
Remarks: Larsen & Toubro (L&T), the largest engineering and construction company in India, is a direct beneficiary of the strong domestic
infrastructure development and industrial capex boom.
L&T continues to impress us with its good execution skills, reporting decent numbers throughout despite the slowdown in the industrial
capex cycle. Also, we have seen order inflow traction in recent quarters which enhances the revenue visibility.
Despite challenges like deferral of award decisions and stiff competition, the company has given a robust guidance of ~15% growth in
the future.
A sound execution track record, a healthy order book and a strong performance of its subsidiaries reinforce our faith in L&T.
At the CMP, the stock is trading at 14.4x its FY2015E stand-alone earnings.
OIL INDIA 581 9.7 9.3 8.0 19.4 18.5 19.0 650 12
Remarks: Oil India Ltd (OIL) has several hydrocarbon discoveries across reserves in Rajasthan and the north-eastern region of India. The total
1P (proven) and 2P (proven and probable) reserves of the company stood at 473 million barrels (mmbbls) and 941mmbbls in March
2012. In addition to the huge oil reserves, the companys reserve-replacement ratio (RRR) is quite healthy at 1.23x, which implies a
comfortable level of accretion of oil reserves through new discoveries.
The recent move by the CCEA to increase gas price to $8.4/mmbtu from $4.2/mmbtu and the partial deregulation of diesel price augur
well for the company. However, the company may not be able to capture the full benefit of the increase in the gas price because of a
likely increase in the subsidy/royalty burden. Overall, the move is positive for the company and will provide earnings growth over the
longer run.
The key risks remain any adverse movement in the price of crude oil and a failure to properly utilise the huge cash.
We remain bullish on OIL because its huge reserves and healthy RRR would provide a reasonably stable revenue growth outlook. Its
stock is also available at an attractive valuation and is likely to see a re-rating on account of the partial deregulation of diesel prices.
The fair value works out to Rs650 per share (based on the average fair value arrived at using the DCF, PE and EV/EBIDTA valuation
methods).
RELIANCE INDUSTRIES 883 13.7 13.7 11.9 10.7 9.6 10.0 1,010 14
Remarks: Reliance Industries Ltd (RIL) has a strong presence in the refining, petrochemical and upstream exploration businesses. The refining
division of the company is the highest contributor to the companys earnings and is operating efficiently with a better gross refining
margin (GRM) compared with its peers in the domestic market due to the ability of its plant to refine more of heavier crude. However,
the gas production from the Krishna-Godavari-D6 field has fallen significantly in the past one year. With the government approval for
additional capex, we believe production will improve going ahead.
In case of the upstream exploration business, RIL has got the nod for further investments in exploration at the Krishna-Godavari basin,
which augurs well for the company and could address the issue of falling gas output.
Further, the CCEA has approved a new gas pricing formula, which increases the price of gas to $8.4/mmbtu from $4.2/mmbtu and
augurs well for the company. This could provide further upside to the companys earnings.
The key concerns remain in terms of a lower than expected GRM, profitability of the petrochemical division and the companys inability
to address the issue of falling gas output in the near term.
At the CMP the stock is trading at a PE of 11.9x its FY2015E EPS.
SHAREKHAN TOP PICKS
EQUITY FUNDAMENTALS
SBI 2,015 9.8 9.2 7.8 15.4 14.3 15.0 2,450 22
Remarks: SBI stands to benefit the most from an economic recovery, which will boost the growth in its advances and improve its asset quality.
The banks operational performance has improved led by a strong focus on the NIM, asset quality etc. The NIM came off in Q4FY2013
(due to an expansion in the low-risk segments) but remained at healthy levels (3.34%).
The proportion of the low-cost deposits (CASA ratio at 46.5%) is among the highest in the sector and remains the key strength of the
bank. Given the strong presences across the length and breadth of the country (14,816 branches) we expect the bank to maintain its
strong liability base which will support its margins.
The bank has recognised its asset quality problems upfront compared with the other banks and has resorted to limited restructuring.
Therefore, we believe the asset quality pressures will come off in the coming quarters which will boost its earnings.
The capital adequacy ratio (CAR) of the bank is healthy (tier-I CAR at 9.5%) and will support the growth in the business. The bank is
expected to maintain its RoE and RoA at 15.0% and 0.9% respectively in FY2015. We have a positive outlook on SBI with a price
target of Rs2,450.
SUN PHARMA 1,004 34.5 28.9 23.3 25.4 22.5 22.3 1,120 12
Remarks: The combination of Sun Pharma, Taro Pharma, Dusa Pharma and the generic business of URL Pharma offers an excellent business
model for Sun Pharma, as has been reflected in the 40% Y-o-Y revenue growth and 39% Y-o-Y profit growth in FY2013.
Though a $550-million provision related to Protonix case would erode the cash balance by 55% in FY2014, but we believe Sun
Pharma is in a comfortable cash position. The rupees depreciation against the dollar is set to positively affect Sun Pharma.
Though Taro Pharma may not show a similar performance in the next quarter, but we expect a better performance from Sun Pharma
going forward mainly driven by (1) the resumption of sales from the US-based subsidiary, Caraco Pharma, post-USFDA clearance; (2)
the contribution from the newly acquired Dusa Pharma and URL Pharma in the USA; and (3) the launch of key products in the USA and
the emerging markets including India. We expect 18% and 21% revenue and PAT growth (CAGR) respectively over FY2012-15 on an
organic basis. With a strong cash balance, Sun Pharma is well positioned to capitalise on the growth opportunities and inorganic
initiatives. Its debt-free balance sheet insulates it from the negative impact of the volatility in the currency market.
At the CMP, Sun Pharma is trading at 28.9x and 23.3x FY2014E EPS and FY2015E EPS respectively. We maintain our Buy
recommendation on the stock, with a price target of Rs1,120, which implies 26x FY2015E EPS.
ZEE ENTERTAINMENT 247 33.4 29.8 23.3 19.5 19.3 21.4 280 13
Remarks: Among the key stakeholders of the domestic TV industry, we expect the broadcasters to be the prime beneficiary of the mandatory
digitisation process initiated by the government. The broadcasters would benefit from higher subscription revenues at the least incremental
capex as the subscriber declaration improves in the cable industry.
On completion of 20 years of operations, ZEEL has issued redeemable preference shares (RPS) aggregating Rs2,000 crore (6%
preference dividend) for eight years. The RPS will be issued at a ratio of 21 RPSs for every equity share. The RPS will be redeemable
from the fourth year till the eighth year.
ZEELs management acknowledged that the recent TRAI recommendation of capping the advertisement time at 12 minutes per hour
would have an adverse impact on its advertisement volume. The company will take adequate hikes in the advertisement rates in order
to negate the impact of reduced volumes. Thus, we expect a very minimal impact on the blended advertisement growth in FY2014 and
FY2015.
We believe ZEEL will be the major beneficiary of the digitisation process in the years to come which coupled with a strong balance
sheet and high return ratios makes it a compelling long-term growth story. We maintain our Buy rating on ZEEL with a price target of
Rs280.
SHAREKHAN TOP PICKS
EQUITY FUNDAMENTALS
Price target reduced to Rs240
COMPANY DETAILS
Price target: Rs240
Market cap: Rs1,498 cr
52 week high/low: Rs235/153
NSE volume (no. of shares): 2.9 lakh
BSE code: 533261
NSE code: EROSMEDIA
Sharekhan code: EROSMEDIA
Free float (no. of shares): 2.3 cr
(%) 1m 3m 6m 12m
Absolute -6.2 -6.5 -22.8 0.6
Relative to Sensex -7.9 -11.4 -25.1 -19.0
PRICE PERFORMANCE
BUY CMP: RS163 JUNE 3, 2013
EROS INTERNATIONAL MEDIA
RESULT HIGHLIGHTS
Ahead of expectations: In Q4FY2013 Eros International Media Ltd (EIML)s performance
was ahead of our expectations, with a better than expected growth in both the top line and
the bottom line on a Y-o-Y basis.
The consolidated revenues rose by 2.6% YoY to Rs212.3 crore (ahead of our expectation
of Rs169 crore). In Q4FY2013, the EBITDA margin (including amortisation) of the
company stood at 19.6%, up 310 basis points YoY (but lower than our estimate of
22.6%). The management expects the margin to improve in FY2014 on account of an
improvement in the monetisation of TV syndications and big movie releases.
On the back of a better than estimated top line performance, the net income of the
company grew by 7% YoY to Rs31.8 crore in Q4FY2013. In FY2013 the net income
rose by 5% YoY to Rs154.6 crore.
Valuation: In view of the fact that the company has gone slow on acquisitions of Super
A category movies, we have reduced our earnings estimates for FY2015 by 7% and kept
our estimate for FY2014 intact. Consequently, we have reduced our price target for the
company to Rs240. We expect EIMLs earnings to grow at a CAGR of 17% over FY2013-
15. At the current market price of Rs163 the stock trades at 8.4x and 7x FY2014E and
FY2015E earnings respectively. We maintain our Buy rating on the stock with a revised
price target of Rs240.
SHAREHOLDING PATTERN
Sharekhan Limited, its analyst or dependant(s) of the analyst might be
holding or having a postition in the companies mentioned in the article.
Norwest Venture Partners to invest in
Snowman Logistics
COMPANY DETAILS
Price target: Rs163
NSE volume (no. of shares): 99,048
BSE code: 532622
NSE code: GDL
Sharekhan code: GDL
(%) 1m 3m 6m 12m
Absolute -9.4 -7.4 -14.6 -12.9
PRICE PERFORMANCE
GATEWAY DISTRIPARKS
Norwest Venture Partners to invest Rs60 crore in Snowman Logistics; GDL to remain
promoter: Gateway Distriparks Ltd (GDL) and its subsidiary, Snowman Logistics Ltd
(SLL), have today executed a share subscription agreement with Norwest Venture
Partners (NVP), pursuant to which NVP will invest Rs60 crore (1.7 crore shares at
Rs35/share) in SLL by subscribing to SLLs equity shares.
Along with it GDL will acquire 5% shareholding in SLL from IFC for a total
consideration of Rs18 crore (GDLs acquisition at Rs35/share). Following the completion
of GDLs acquisition and NVPs investment, NVP will hold 14.3% stake in SLL. The
shareholding of GDL will come down from 53% to close to 51%.
Valuation at 16x FY2013 EBITDApremium for growth: The price paid for the above
two transactions at Rs35 per share values SLL at Rs420 crore, which is at a multiple of
16x FY2013 EBITDA. The higher valuation is owing to SLLs robust growth trajectory
in the near future.
Volume and realisation to improve return ratios: The company recently opened 5,500
pellets in Kolkata and is expected to augment new capacities in Chandigarh and Surat
in a few weeks. The company has a return on equity of 10% currently, which is slated
to increase to 16% over the next two years. We believe an increase in the capacities
along with a higher realisation will lead to better return ratios.
Outlook and valuation: We maintain our Buy recommendation on GDL with a price
target of Rs163.
Promoters
74%
Institutions
3%
Foreign
10%
Non-promoter
corporate
6%
Public &
Others
7%
Public &
others
16%
Institutions
17%
FII
26%
Promoters
41%
STOCK UPDATE
EQUITY FUNDAMENTALS
STOCK UPDATE
EQUITY FUNDAMENTALS
Management interaction note
COMPANY DETAILS
Price target: Rs845
BSE code: 532424
NSE code: GODREJCP
Sharekhan code: GODREJCP
(%) 1m 3m 6m 12m
Absolute -9.1 6.5 9.0 43.3
Relative to Sensex -4.8 4.4 9.3 23.4
PRICE PERFORMANCE
HOLD CMP: RS761 JUNE 20, 2013
GODREJ CONSUMER PRODUCTS
KEY POINTS
Maintain steady growth in the domestic market: With no signs of slowdown in the key
categories in the domestic market, GCPL expects to achieve a steady revenue growth in
the stand-alone business in the coming quarters. We expect GCPLs revenues at the
stand-alone level to grow by around 20% in FY2014.
Lower raw material prices to aid profitability: The company would benefit from the
decline in the key input prices as it will help in improving the GPM in the coming
quarters. However, if the rupee remains weak against the dollar and there are purchases
of key inputs in dollar terms in the coming quarters, it would negate the impact of the
softening of the commodity prices to some extent.
International business likely to see margin improvement on Y-o-Y basis: The management
believes the margin picture should improve in FY2014. The Indonesian business is expected
to remain in the range of 18-20% in the coming quarters. We expect the Latin American
margin to improve to high single digits in FY2014. The African business is expected to
see a gradual improvement in the coming quarters. Overall, we believe the international
business would see a Y-o-Y improvement in the OPM in FY2014.
Outlook and valuation: We like GCPL on account of its strong focus on driving growth
in the domestic and international markets by keeping the balance sheet lean to drive
future inorganic growth initiatives. We believe the company has a strong potential to
achieve top line and bottom line growth of above 20% (CAGR) over the next two
years. At the current market price, the stock is trading at 30.0x its FY2014E EPS of
Rs25.7 and 23.7x its FY2015E EPS of Rs32.5. We maintain our Hold recommendation
on the stock with a price target of Rs845.
Promoters
64%
Foreign &
Institutions
28%
Others
8%
Upgraded to Buy with increased price target of Rs900
COMPANY DETAILS
Price target: Rs900
BSE code: 532281
NSE code: HCLTECH
Sharekhan code: HCLTECH
(%) 1m 3m 6m 12m
Absolute 7.8 -1.7 23.3 62.2
Relative to Sensex 12.5 -1.9 21.7 39.8
PRICE PERFORMANCE
HCL TECHNOLOGIES
We recently interacted with Sanjay Mendiratta, head-Investor relations, HCL Technologies
(HCL Tech), to gain an insight into the current state of the companys business as well as
the concerns over and the impact of the impending US immigration bill. HCL Tech is now
participating in and getting invited to big-ticket deals of size in the $400-500-million range.
The infrastructure management services (IMS) vertical will continue to drive the incremental
growth going ahead,
On the margin side, the management continues to see EBIT margin corridor of 19-20% for
the coming quarter.
It acknowledged the potential threat of the impending US immigration bill and expressed
concern over the outplacement clause in the current form (we hope for some dilution in the
final bill). Nevertheless, among the top four IT companies, HCL Tech is relatively better
placed, as around 50% of its total workforce in the USA holds an H1-L1 visa against a
higher percentage of H1-L1 visa holders in Tata Consultancy Services, Infosys and Wipro.
Valuation: We see further upgrades driven by the higher sensitivity of HCL Techs EBIT
margin to the rupees depreciation. At the current market price of Rs779, the stock trades
at 12.7x and 11.7x earnings for FY2014E and FY2015E, though we currently maintain
our estimates (we will revisit our estimates after the announcement of the Q4FY2013
results). We expect a potential earnings upside post-currency reset. Hence, we have upgraded
our rating on HCL Tech from Hold to Buy with an increased price target of Rs900 per
share.
Promoters
61%
Foreign
26%
Institutions
7%
Non-promoter
corporate
3%
Public & Others
3%
STOCK UPDATE
EQUITY FUNDAMENTALS
Book some profits, hold from long-term perspective
COMPANY DETAILS
Price target: Rs600
BSE code: 500696
NSE code: HINDUNILVR
Sharekhan code: HINDUNILVR
(%) 1m 3m 6m 12m
Absolute -0.4 27.2 9.8 31.0
Relative to Sensex 5.3 27.7 13.1 18.0
PRICE PERFORMANCE
HINDUSTAN UNILEVER
KEY POINTS
Unilevers $5.4-billion open offer commences: Unilever PLCs voluntary open offer to
acquire 48.7 crore shares of HUL at a price of Rs606 per share commenced on June 21,
2013 and will end on July 4, 2013. With this, Unilever is planning to increase its stake
in HUL to 75% from 52.48% currently.
Advise investors to partially book profits: After the announcement of the open offer,
the stock price had a strong run-up and is currently trading at ~32x its FY2015E
earnings. Hence, we advise investors to take home some profits at the current level.
From the tax perspective, it is advisable to sell the share in the open market rather than
tendering to the open offer.
Hold for the long term: Though there is a near-term concern over the moderating
volume growth, but we believe the long-term growth story of HUL is intact. Further,
after the open offer there will be some reduction in the free float, thus the supply
constraints will keep the long-term investors interest in the company intact and the
company will hold onto its premium valuation. Also, the anecdotal evidence suggests
that a front-line company with lesser free float has always traded at premium valuations.
The stock price of GSK Consumers had moved up significantly by almost 50% after
the closure of its open offer. Hence, looking at the long-term potential of HUL with
superior management bandwidth, we maintain our Hold rating on the stock from a
long-term perspective. At the current market price, the stock trades at 35.1x its FY2014E
EPS of Rs16.6 and 31.8x its FY2015E EPS of Rs18.4.
Promoters
53%
Domestic
Institutions
8%
FIIs
22%
Others
17%
Annual report review
COMPANY DETAILS
Price target: Rs1,320
52 week high/low: Rs1,237/808
BSE code: 532174
NSE code: ICICIBANK
Sharekhan code: ICICIBANK
(%) 1m 3m 6m 12m
Absolute -2.5 -0.2 1.4 37.1
PRICE PERFORMANCE
BUY CMP: RS1,076 JUNE 11, 2013
ICICI BANK
KEY POINTS
Going strong: ICICI Banks annual report for FY2013 highlights the structural initiatives
driving the improvement in the banks profitability and asset quality. As per the report,
unsecured lending has come down significantly though the shortfall in PSL has increased.
We expect the banks earnings to grow at a CAGR of 15.7% (over FY2013-15) leading
to the expansion in the RoE to 14.7% by FY2015. We maintain our Buy rating on the
stock with an SOTP based price target of Rs1,320.
Proportion of unsecured loans dips to 14% from 21% in FY2011: During FY2013, the
proportion of the banks unsecured loan book declined to 14.1% from 15.1% in FY2012
and 21.1% in FY2011. The advances to the sensitive sectors grew by 13.7% YoY
compared with the 14.4% growth in the overall book. The growth in the real estate
book was driven by residential mortgages.
Improvement in asset quality continues: The asset quality of the bank improved in
FY2013 as the gross non-performing assets (NPAs) from the retail segment declined
significantly during the fiscal. However, the NPAs have slightly increased in sectors
like services, iron & steel and construction.
Valuations: We expect the banks earnings to grow at a CAGR of 15.7 % YoY over
F2013-15 leading to an RoE of 14.7% by FY2015. Currently, the stock is trading at
1.6x FY2015E book value. We maintain our Buy rating on the stock with an SOTP-
based price target of Rs1,320.
MF & FI
24%
Foreign
38%
Public &
others
38%
STOCK UPDATE
EQUITY FUNDAMENTALS
Environment ministry clears 3 road projects
COMPANY DETAILS
Price target: Rs302
BSE code: 533177
NSE code: IL&FSTRANS
Sharekhan code: IL&FSTRANS
(%) 1m 3m 6m 12m
Absolute 0.7 -12.1 -14.3 -6.0
Relative to Sensex 4.7 -10.3 -13.3 -17.1
PRICE PERFORMANCE
IL&FS TRANSPORTATION NETWORKS
KEY POINTS
Receives nod to commence work on 3 road projects: IL&FS Transportation Networks Ltd
(ITNL) has informed the Bombay Stock Exchange that concession agreements have been
signed with the concerned authorities for the following projects:
1. The Kiratpur-Ner Chowk section of National Highway (NH)21 of 90.175km in Punjab
and Himachal Pradesh
2. The Beawar-Gomti section of NH8 of 88km of the total 116km (capacity augmentation)
in Rajasthan
3. The Sikar-Bikaner section of NH11 of 237.57km in Rajasthan
The commencement of work on the aforesaid projects was pending receipt of clearance
from the forest department.
Moreover, the Forest Advisory Committee of the environment & forest ministry at a meeting
held on June 10, 2013 cleared the proposal to commence work on all the aforesaid projects.
The development is positive for ITNL.
Outlook: We are confident of ITNLs ability to achieve faster clearances for its road projects
and a financial closure thereafter. Considering the strong order backlog, an expected pick-
up in project execution and a healthy new project award pipeline of National Highways
Authority of India (NHAI), we remain positive on ITNLs financial performance going
ahead. Moreover, we expect ITNL to be among the key gainers of the easing of competitive
pressure in the large NHAI projects. We maintain our SOTP based price target of Rs302
and Buy rating on the stock.
Promoters
72%
Institutions
4%
FII
4%
Public &
others
20%
Price target revised to Rs675
COMPANY DETAILS
Price target: Rs675
BSE code: 524494
NSE code: IPCALAB
Sharekhan code: IPCALAB
(%) 1m 3m 6m 12m
Absolute 14.9 30.3 38.8 99.4
PRICE PERFORMANCE
IPCA LABORATORIES
KEY POINTS
Marginal impact of DPCO 2013 for Ipca: As per notifications issued recently under
Drug price Control Order (DPCO) 2013 prescribing the ceiling price for 150 drugs, we
believe the incremental impact for Ipca Laboratories (Ipca) under the new drug pricing
policy would be virtually neutralised, as price erosion in some of products would be
materially compensated by the scope to increase the price of the other products. However,
a slow offtake by traders and stockists would hamper sales in the domestic market for
the next two to three months. The domestic formulation business contributes nearly
32% of the net revenues of Ipca.
Depreciating rupee to benefit exports: Exports constitute nearly 63% of the net revenues
of Ipca and the company has a practice to cover 30-40% of receivables through forward
contracts. Besides, the uncovered portion of exports is also naturally hedged partly by
way of raw material imports, which constitute nearly 28% of the exports. However, as
the company has nearly $70 million of foreign debts outstanding and $17 million of
the same is payable in FY2014, forex loss is bound to accrue; though the same would
be materially compensated by the gains on exports.
We upgrade price target to Rs675 on roll-over of valuation: Owing to a better visibility
of its earnings, we have rolled over our valuation to the earnings estimate for FY2015
(from 14x average earnings of FY2014 and FY2015). Accordingly, our price target
stands revised up by 10% to Rs675 (14x FY2015E earnings per share). However, we
maintain our Hold rating on the stock.
Foreign
21%
Promoters
46%
Institutions
16%
Non-promoter
corporate
6%
Public and
others
11%
STOCK UPDATE
EQUITY FUNDAMENTALS
M&M to consolidate automotive component business
COMPANY DETAILS
BSE code: 500520
NSE code: M&M
Sharekhan code: M&M
(%) 1m 3m 6m 12m
Absolute -3.4 1.5 -0.3 37.5
PRICE PERFORMANCE
MAHINDRA & MAHINDRA
Mahindra Systech to consolidate auto component business: Mahindra and Mahindra
(M&M) entered into an agreement with CIE Automotive (CIE) to form a consolidated
company that would merge the automotive (auto) component business of M&M (held
under the Systech Group, which contains five companies [Mahindra Forgings, Mahindra
Ugine Steel, Mahindra Composites, Mahindra Hinoday and Mahindra Gears]), and
the forging business of CIE in Spain and Lithuania.
The business would be merged under Mahindra Forging, which would be rechristened
as Mahindra CIE. M&M would hold a 20% stake in Mahindra CIE while CIE would
hold about 51% of the merged entity.
Mahindra to sell stake in Systech business; to pick up 13.5% stake in CIE: As part of
the agreement, M&M would sell its stake in Mahindra Forgings (52.65% stake for
Rs393.08 crore), Mahindra Hinoday (64.96% stake for Rs268.96 crore) and Mahindra
Composites (30.38% stake for Rs10.01crore). Also, M&M would invest Rs340 crore
(paid on account of acquiring other partners stake in Mahindra Ugine Steel), which
would form the consideration for the deal.
M&M would invest Rs740 crore to get a stake of 13.5% in CIE. It would invest the
sum at price of Euro 6 a share as against the current price of Euro 5.57 a share.
Valuation: Mahindra CIE would emerge as a strong alliance in the auto component space.
With complementary product segments and markets, the deal is a win-win situation for
M&M and CIE.
We are maintaining our stand-alone estimate for M&M. We have marginally increased
our price target accounting for additional investment in CIE (valued at the investment
cost). Our price target stands revised at Rs1,129 per share. We maintain our Buy
recommendation on the stock.
Institutions
16%
Foreign
38%
Promoters
25%
Public & Others
14%
Bodies
corporate
7%
Upgraded to Buy
COMPANY DETAILS
Price target: Rs600
BSE code: 533179
NSE code: PERSISTENT
Sharekhan code: PERSISTENT
(%) 1m 3m 6m 12m
Absolute -6.1 -12.5 3.0 44.9
Relative to Sensex -2.4 -10.7 4.2 27.7
PRICE PERFORMANCE
PERSISTENT SYSTEMS
We recently interacted with Rohit Kamat, chief financial officer of Persistent Systems Ltd
(PSL), to discuss the current state of the business and concerns around the US immigration
bill. Overall, the management expects H2FY2014 to be better than H1FY2014 on account
of revenue acceleration from the HP Client Automation (HPCA) deal (IP-led revenues).
The EBITDA margin is expected to decline sequentially in Q1FY2014 (in line with the
earlier commentary) on account of an onsite wage hike (2%) and visa costs (approximately
$1 million) coupled with initial knowledge transfer cost of HPCA. The depreciation in the
rupee is unlikely to negate the margin head winds in the current quarter as the currency
benefits were only for one month (June 2013). On the impending US immigration bill, the
management expects a potential negative impact of 100-150 basis points on the margin in
FY2015 (PSL will be relatively less affected by the impending bill among the Indian IT
companies).
Valuation: We maintain our positive stance on PSLs business model. Further, given its
highest offshore revenues among the Indian IT companies, there will be materially lower
impact on the margin from the impending US immigration bill. At the current market price
of Rs506, the stock trades at 9.7x and 8.5x earnings estimates for FY2014 and FY2015
(based on USD/INR of Rs54 and Rs53.5 respectively). Given the room for potential upgrades
from the consistent depreciation in the rupee coupled with the recent correction in the
stock (it has corrected 12% in the last three months), we have upgraded our rating on PSL
to Buy from Hold with a price target of Rs600.
Promoters
39%
Non-promoter
corporate
2%
Institutions
17%
Foreign
18%
Public & Others
24%
STOCK UPDATE
EQUITY FUNDAMENTALS
Muted execution and higher interest
expenditure dent earnings
COMPANY DETAILS
Price target: Rs65
Market cap: Rs364 cr
BSE code: 532718
NSE code: PRATIBHA
Sharekhan code: PRATIBHA
(%) 1m 3m 6m 12m
Absolute -10.8 -11.0 -28.8 -4.2
PRICE PERFORMANCE
PRATIBHA INDUSTRIES
RESULT HIGHLIGHTS
Muted revenue growth of 5% due to lower project execution: In Q4FY2013 the
consolidated revenues of Pratibha Industries Ltd (PIL) saw a muted growth of 5% YoY
to Rs541 crore, which was much lower than our expectation. The subdued growth was
led by a lower execution across the projects.
Margin contracts by 87 basis points: The OPM contracted by 87 basis points YoY to
12.7% vs 13.6% in Q4FY2012 (75 basis points higher than expected). An increase of
438 basis points YoY and 208 basis points YoY in the other expenditure and employee
expenses respectively eroded the margin.
Muted earnings growth led by higher interest expenses: The reported net profit during
the quarter stood at Rs18.3 crore (lower than our expectation), registering a decline of
32.3% YoY. The interest expenses for the quarter increased by 70% YoY to Rs46.6
crore while the effective tax rate stood at 30.1% (as against 27.4% in Q4FY2012),
which led to a decline in the profit after tax.
Valuation: Maintain Buy with a price target of Rs65: We continue to like PIL given its
presence in the high-margin water segment, well-diversified order book and better than
industry OPM. The stock currently trades at 3.6x and 2.7x its FY2014E and FY2015E
earnings respectively. Hence, we maintain our Buy recommendation on the stock with a
FII
16%
Institutions
6%
Public &
others
27%
Promoters
51%
COMPANY DETAILS
Price target: Rs477
BSE code: 500330
NSE code: RAYMOND
Sharekhan code: RAYMOND
(%) 1m 3m 6m 12m
Absolute -13.5 -6.4 -43.3 -27.3
PRICE PERFORMANCE
RAYMOND
KEY POINTS
Disappointing performance; inventory overhang and one-offs mar profitability during
the year: In FY2013, Raymonds consolidated revenues grew by 11.7% YoY to Rs4,069.16
crore on account of a decent growth in all its segments especially the garment and tools
& hardware segments. The operating performance, however, was dented by inventory
overhang issues. Consequently, the OPM declined by about 330 basis points YoY to
9.1% in FY2013. The weak operating performance coupled with exceptional expenses
caused the companys reported PAT to decline by 81.6% YoY to Rs28.7 crore.
Efficient working capital management results in improved cash flow: The companys
efforts to liquidate inventory bore fruits in the form of improved cash flow and operating
cash cycle even though the same pressurised the margin and profitability. The operating
cash cycle improved to 104 days from 114 days in FY2012.
Business outlook: Going forward, the management expects the FY2014 performance
to be better than the FY2013 one, largely owing to two key reasons: (a) strong cost
management and inventory rationalisation process will bear fruits, and (b) the revival
of consumer discretionary demand will drive the volumes and hence the growth.
Maintain our positive stance: We believe Raymonds efforts towards cost rationalisation
through supply chain initiatives, inventory liquidation and a favourable consumer
demand are likely to result in better margins going forward. The company enjoys strong
brand equity and we expect it to report better profitability in FY2014. We maintain
our positive stance on the stock. Currently, we have a Buy rating on Raymond with a
Promoters
42%
Foreign
14%
Institutions
16%
Non-promoter
corporate
7%
Public &
Others
21%
STOCK UPDATE
EQUITY FUNDAMENTALS
Refining margin to correct; petchem margin to
improve in the quarter coming ahead
COMPANY DETAILS
BSE code: 500325
NSE code: RELIANCE
Sharekhan code: RELIANCE
(%) 1m 3m 6m 12m
Absolute -0.5 1.9 0.2 14.0
Relative to Sensex 4.3 -0.1 0.5 -1.8
PRICE PERFORMANCE
BUY CMP:RS799 JUNE 20, 2013
RELIANCE INDUSTRIES
KEY POINTS
Singapore complex GRM corrected in April-June 2013: The Singapore complex GRM
corrected in the past couple of months by around $1.5-2/barrel on account of weakness
in the product cracks, particularly gasoil (16%) and gasoline (~19%), compared with the
average crack for Q4FY2013. Reliance Industries Ltd (RIL) reported an impressive GRM
of $10.1/barrel during Q4FY2013 but looking at the recent correction in the product
cracks, we believe the company is expected to post a decline in the GRM in Q1FY2014
QoQ. However, the average GRM for Q1FY2014 is expected to remain higher YoY.
Petchem margin to improve with increase in product prices and decline in feedstock:
On the positive side, the petrochemical (petchem) business is expected to witness an
expansion in the margin. The expansion in the margin is on account of lower feedstock
prices and an increase in the prices of most of the end products. During Q4FY2013,
the company posted an EBIT margin of 8.6%, which we believe will improve in
Q1FY2014 on account of a recent increase in the margin of most of the products and
lower feedstock prices.
Outlook: Given the recent correction in the GRM, we believe the near-term environment
for its refining business remains challenging. However, a recent improvement in its petchem
margin, a healthy ramp-up in the US shale gas and a likely revision in the prices of gas
from March 2014 are providing visibility of earnings growth going ahead. Further, any
approval for further development of the KG-D6 block could be positive for RIL. Hence,
we maintain our Buy recommendation on the stock with a price target of Rs1,010.
Promoters
45%
Bodies
Corporate
5%
Institutions
29%
Others
21%
Budget for development activities approved; retain Buy
COMPANY DETAILS
Price target: Rs365
BSE code: 530075
NSE code: SELAN
Sharekhan code: SELAN
(%) 1m 3m 6m 12m
Absolute 7.5 -3.1 -9.9 1.5
Relative to Sensex 9.4 -3.8 -10.7 -14.6
PRICE PERFORMANCE
SELAN EXPLORATION TECHNOLOGY
RESULT HIGHLIGHTS
The quarterly performance remained subdued...: In Q4FY2013, the net revenues
(adjusted for the petroleum profit) of Selan Exploration Technology (Selan) declined
by 12-13% YoY due to lower both volume and realisation. We believe a delay in
obtaining the regulatory approval for developing its wells resulted in the subdued
production. The adjusted PAT stood at Rs8.2 crore in Q4FY2013, down 14% and
32% YoY and QoQ respectively due to a higher tax outgo.
...but received approval for development activities: During Q3FY2013, the company
had received approvals from the Directorate General of Hydrocarbons (DGH) for
developing five wells. Recently, during May 2013 the company received the approval
for the proposed FY2014 budget (worth Rs57 crore) for development activities in
three (Lohar, Indrora and Karjisan) fields. The approvals would be helpful for the
company to lift the production in future. We believe that after two years there are
positive developments on the approval side which would be a key driver of growth for
the company; therefore, we remain positive on Selan.
View and valuationretain Buy recommendation: The company is expected to receive
the approval for the proposed budget for developing five wells in Q1FY2014. We
expect the development work to progress soon and the incremental production to reflect
in future. However, it depends on the execution ability of the company. Hence, we
remain positive on the stock with a Buy recommendation on the stock with a price
target of Rs365 (3.5x EV/EBITDA FY2015E).
Promoters
42.2%
Others
57.6%
Foreign
0.1%
Institutions
0.2%
STOCK UPDATE
EQUITY FUNDAMENTALS
Annual report review - Price target revised to Rs2,450
COMPANY DETAILS
52 week high/low: Rs2,550/1,816
BSE code: 500112
NSE code: SBIN
Sharekhan code: SBIN
(%) 1m 3m 6m 12m
Absolute -7.7 -4.7 -14.8 -7.9
PRICE PERFORMANCE
JUNE 25, 2013 CMP: RS1,915 BUY
STATE BANK OF INDIA
The annual report of State Bank of India (SBI) points to stress on margin due to an increase
in the term deposits and the banks focus on derisking the loan book. We expect the asset
quality pressures to persist for the next few quarters due to a rise in the restructured loans
and a recovery in the economy will be the key to a decline in the NPAs. We have revised
our estimates downwards leading to a revision in our SOTP based price target to Rs2,450.
We maintain Buy rating on the stock.
KEY POINTS
Margin likely to decline: SBIs reported NIM (global) declined to 3.34% in FY2013,
largely driven by a decline in the yields on advances. During FY2013, the deposit
accretion was largely towards the longer tenure; hence, the cost of funds may remain
sticky. In addition, the bank is likely to focus on derisking the book while pressure on
the lending rates remains which will affect the NIM in FY2014.
Proportion of secured advances rises to 82.6%: SBIs proportion of secured advances
has gradually risen from 78.5% in FY2010 to 82.6% in FY2013. About 87% of the
banks large corporate book was within the investment grade. However, the advances
to the sensitive sectors grew by 28.7% YoY.
Asset quality pressure remains: The banks gross and net NPAs increased from FY2012
levels led by a sharp rise in the slippages. The restructured loans expanded sharply led
by an economic slowdown and rising stress across sectors. Going ahead, given the
rising pipeline of restructured loans and corporate debt restructuring cases, the pressure
on the banks asset quality may remain.
Promoter
62%
Foreign
11%
MF & FI
16%
Public &
others
11%
Upgraded to Buy post-correction with
revised price target of Rs1,120
COMPANY DETAILS
52 week high/low: Rs1,085/575
BSE code: 524715
NSE code: SUNPHARMA
Sharekhan code: SUNPHARMA
(%) 1m 3m 6m 12m
Absolute 2.9 18.5 35.1 70.2
PRICE PERFORMANCE
SUN PHARMACEUTICAL INDUSTRIES
KEY POINTS
Sun Pharma to pay $550 million to settle patent litigation case on Protonix: Sun
Pharmaceutical Industries (Sun Pharma) together with its subsidiaries has settled an
ongoing litigation pending in the United States District Court, District of New Jersey
regarding its subsidiarys generic pantoprazole (reference brand Protonix). As per the
agreement, Sun Pharma, Wyeth (now a division of Pfizer Inc.) and Altana Pharma AG
(Altana; now known as Takeda GmbH) have dismissed all their claims. Sun Pharma
will pay a lump sum $550 million as a part of this settlement. The company had launched
generic pantaprazole in January 30, 2008 at risk pending patent infringement litigation
by Wyeth and Altana.
Cash balance to shrink by nearly 55%; constraints for big acquisitions: Though Sun
Pharma would be comfortably able to pay the settlement amount of Rs3,190 crore, but
we estimate the consolidated cash balance (excluding cash on the book of Taro
Pharmaceutical Industries) would reduce by 55%. We estimate the other income would
reduce by 37% YoY to Rs235 crore in FY2014. As a result, our EPS estimates for
FY2014 and FY2015 get reduced by 5.6% and 2.7% respectively.
A major overhang removed; stock upgraded to Buy with revised price target of Rs1,120:
We believe a major overhang will disappear for Sun Pharma, limiting the downside for
the stock. We have marginally reduced our price target for Sun Pharma by 2.7% to
Rs1,120 (which implies 26x FY2015E EPS). However, a deep correction in the price
comforts us to upgrade the rating on the stock to Buy.
Promoters
64%
Institutions
3%
Non-promoter corporate
5%
Public and others
5%
Foreign
23%
STOCK UPDATE
EQUITY FUNDAMENTALS
TCS reiterates FY2014 will be better than FY2013
COMPANY DETAILS
52 week high/low: Rs1,598/1,176
BSE code: 532540
NSE code: TCS
Sharekhan code: TCS
(%) 1m 3m 6m 12m
Absolute 1.7 -3.3 24.5 23.7
Relative to Sensex 6.1 -1.4 25.0 5.9
PRICE PERFORMANCE
BUY CMP: RS1,468 JUNE 12, 2013
TATA CONSULTANCY SERVICES
We recently attended the pre-quarter analyst meet of Tata Consultancy Services (TCS).
The management maintained its positive stance on the demand environment and reiterated
that FY2014 would be better than FY2013. The incremental growth would be led by an
uptick in the revenues of the BFSI vertical (43.5% of total revenues) and the improving
traction in the new deals coupled with the revenues from the ALTI acquisition (the financials
would be consolidated by Q2FY2014E). The management expects the margins to gain
from the rupees depreciation. However, it indicated that it would continue to invest in the
selling, general and administrative activities to strengthen the companys growth engine.
On the flip side, the management acknowledged the potential structural negative of the US
immigration bill, specifically the outplacement clause.
Valuation
At the current market price of Rs1,468, the stock trades at 18x and 16x FY2014E and
FY2015E earnings. Currently, our earnings estimates for FY2014 and FY2015 stand at
Rs81.6 and Rs90.4 based on the dollar/rupee exchange rate of Rs54.5 and Rs53.5
respectively. Given the consistency in the rupees depreciation vis--vis the dollar, there is
also a likelihood of further upgrade in the earning estimates for TCS in particular and the
IT sector in general. However, the impending US immigration bill will continue to be an
overhang on the sector. We maintain our Buy rating on the stock with a price target of
Rs1,650.
Foreign
16%
Institutions
5%
Promoters
75%
Public & Others
4%
COMPANY DETAILS
Price target: Rs180
BSE code: 512070
NSE code: UNITEDPHOS
Sharekhan code: UNITEDPHOS
(%) 1m 3m 6m 12m
Absolute -13.4 16.0 9.4 9.8
Relative to Sensex -8.7 14.0 10.9 -3.0
PRICE PERFORMANCE
UNITED PHOSPHORUS
KEY POINTS
Latin American and North American markets are key revenue drivers, domestic market
remains dull: The 20% growth in the revenues of United Phosphorous Ltd (UPL) in
FY2013 was mainly driven by the good performance of the North American and
Brazilian markets. UPL has maintained its 50% market share in wheat herbicides by
launching seven products in the last four years. The company successfully launched a
new insecticide (Ulala) and a new fungicide (Atabron) during the year. In a major shift
in its focus, the company has started to lay more emphasis on premium products in
order to maintain its margin and minimise the operational risk from the commodity
agro-chemical products.
Debt/equity ratio goes up in FY2013: The debt/equity ratio increased sharply from 0.37x
in FY2012 to 0.51x in FY2013 on account of a decline in the net worth (UPL bought
back shares worth of Rs223.5 crore in FY2013) and an increase in the long-term debt.
Outlook and valuation: The companys management believes that going ahead the
revenue growth will be driven by the companys ability to generate more cash through
manufacture of its low-cost, high-quality products that are present in 90% of the worlds
agro-chemical markets. The management is aiming for a double-digit growth in the
coming year and will maintain the EBIDTA margin at the current level. We expect the
top line and the bottom line of UPL to grow at a CAGR of 10% and 11.3% respectively
over the next two years. This growth will be achieved on the back of a good operating
performance by most of the geographies and DVA Agro. We maintain our Buy rating
on the stock with a price target of Rs180.
Promoter
29%
MF & FI
16%
Foreign
32%
Public &
others
23%
STOCK UPDATE
EQUITY FUNDAMENTALS
New advertising directive to hit ad volumes,
phased rates hikes to counter the move
COMPANY DETAILS
Price target: Rs280
BSE code: 505537
NSE code: ZEEL
Sharekhan code: ZEEL
(%) 1m 3m 6m 12m
Absolute -7.2 12.5 2.6 70.6
Relative to Sensex -0.3 12.6 5.6 51.3
PRICE PERFORMANCE
BUY CMP:RS235 JUNE 21, 2013
ZEE ENTERTAINMENT ENTERPRISES
In the wake of two recent events1) recommendation of the Telecom Regulatory Authority
of India (TRAI) to cap advertisement time at 12 minutes an hour from October 1, 2013
and the 2) withdrawal by broadcasters of the rating system provided by TAM Media
Researchthe television broadcasting industry is gearing up to find a solution to both the
issues.
ZEELs management indicates plan to negate impact through advertisement rate hikes
in phased manner: The company is planning to increase the advertisement rates in a
phased manner (already increased in some daily soaps and channels) and rate re-
negotiations have already started. However, the extent of the increase will gather
momentum through July-October 2013. Currently, ZEELs advertisement time per
hour is around 15.5-16 minutes. Thus, there will be a minimal impact on the blended
advertisement revenue growth in FY2014 and FY2015; we have built in a 17.5%
compounded annual growth rate in the advertisement revenues for FY2013-15.
Valuation: Overall, our discussion with ZEELs management on both the issues have
allayed our concerns that the two events mentioned above could affect the companys
advertisement growth trajectory over FY2013-15, though there could be some marginal
impact on the companys advertisement growth in Q3FY2013 (given the time gap in
the volume drop and the rates hikes in that particular quarter). At the current market
price of Rs235, the stock trades at 22x FY2015 earnings estimate. We maintain our
positive stance and Buy rating on the stock with a price target of Rs280.
Price target revised to Rs57
COMPANY DETAILS
Price target: Rs57
BSE code: 532746
NSE code: UNITY
Sharekhan code: UNITY
(%) 1m 3m 6m 12m
Absolute -5.1 -0.9 -36.8 -25.5
PRICE PERFORMANCE
UNITY INFRAPROJECTS
RESULT HIGHLIGHTS
Operating performance lower than estimated: In Q4FY2013, the net sales of Unity
Infraprojects (Unity) declined by 3.5% YoY to Rs692 crore, which is marginally lower
than our expectation. On the operational front, the OPM contracted by 192 basis
points YoY and 333 basis points QoQ to 10.6%, which is much lower than our
expectation. Thus, the operating profit declined by 4.5% QoQ.
Contraction in margin leads to decline in PAT: The muted top line performance and
the contraction in the OPM resulted in a 23.4% decline in the PAT to Rs29.8 crore
(which is lower than our expectation).
However, healthy order book provides revenue visibility: As of May 2013, for FY2013
Unity has bagged fresh orders worth Rs1,289 crore, which is lower than our expectation.
This along with the orders worth Rs3,019 crore secured in FY2012 take the total order
book to Rs3,838 crore as of May 2013, which is 1.9x its FY2013 revenues. Thus, there
is a good revenue visibility for the company over the next two years.
Revenues and earnings for FY2014 and FY2015 revised downwards: We have revised
downwards our revenue and earnings estimates for FY2014 and FY2015 to factor in
the slower project receivables which will hamper the execution of the order book.
Maintain Buy with a revised price target of Rs57: We maintain our Buy recommendation
on the stock with a revised price target of Rs57.
Promoters
63%
Institutions
6%
FII
2%
Public &
others
29%
Foreign
42% Promoters
44%
Public & Others
2%
Institutions
9%
Non-promoter
corporate
3%
Currency impact
SHAREKHAN SPECIAL JUNE 26, 2013
Currency risk perks up; exporters to outperform
Indias aggregate external borrowing of around $112 billion (as of
December 2012) is largely denominated in the dollar and a steep
depreciation of close to 11% in the rupee against the greenback
within a short time will have an adverse impact on corporate
earnings. The capital intensive sectors (telecommunications
[telecom], power), companies with a high amount of foreign debt
(Bharti Airtel, Tata Motors, Tata Chemicals and Godrej Consumer
among others) and businesses dependent on imports for the key
raw materials (oil marketing companies, metal companies, industrial
companies) would be among the worst affected. However, the
depreciation in the rupee would boost the financial performance of
the export-oriented sectors such as information technology (IT)
services, pharmaceuticals (pharma) and textiles. In this note, we
have attempted to analyse the impact of the local currencys
depreciation on the sectors and companies under our active coverage.
Rupees depreciation: panic sets in
Led by the announcement of the tapering of the US monetary
stimulus (the third round of quantitative easing [QE3]), an uptick
in the US bond yields and the anticipation of a reversal of fund
flows amidst a burgeoning current account deficit, the rupee touched
its all-time low (60.5) against the dollar today. Further, the
expectation of a slower growth in China and the other emerging
markets (EMs) has led to a flight of capital which has also
strengthened the dollar. In the past week itself, along with the
relentless selling of Indian equities the foreign institutional investors
(FIIs) have sold $5 billion worth of bonds in the Indian debt market.
This trend is contrary to the trend seen in the past several months
when the net flows into equities stood at about $5 billion.
Consequently, the domestic currency has depreciated by about 11%
against the dollar since the beginning of May this year and has
been one of worst performing currencies in the EM universe.
In view of the risk-off sentiment globally and the macro-economic
concerns relating to the Indian economy, the pressure on the rupee
has increased. Though the macro-economic concerns remain (a
weak economic recovery, the widening twin deficits), but it is the
global developments that are pushing the rupee into an oversold
zone. While uncertainty continues at a global level, the monsoons
trend and the easing of the crude oil prices are likely to give some
downside support. However, the passage of the foreign direct
investment (FDI) bills under compelling circumstances would be
key thing to watch for going ahead.
EQUITY FUNDAMENTALS
SHAREKHAN SPECIAL
Macro implications: monetary easing and recovery may be collateral
damage
Given Indias large volume of imports, fragile balance of payments
position and limited foreign exchange (forex) reserves, the
depreciation in the currency will aggravate the challenges facing
the economy in terms of a rise in the twin deficits and inflation.
The Reserve Bank of India (RBI), which maintained a status quo at
its recent policy review meeting, is likely to continue its hawkish
stance under these circumstances which will undermine the recovery
in the economy. Though the RBI and the government tried to calm
the markets nerves by intervening and promising action but the
market is sceptical of their ability to manage the crisis.ons.
PERFORMANCE OF OTHER CURRENCIES VS DOLLAR (%)
Source: Bloomberg
10 YEARS US BOND YIELDS (%)
Source: Bloomberg
CURRENT ACCOUNT DEFICIT
Source: Bloomberg
FII DEBT POSITION ($ MN)
Source: Bloomberg
94
97
100
103
106
109
112
A pr - 13 May - 13 Jun- 13
INR EURO JPY
Br az lian Real Indones ian Rupiah Kor ean Won
1.5
1.7
1.9
2.1
2.3
2.5
2.7
Apr-13 May-13 Jun-13
-35.0
-30.0
-25.0
-20.0
-15.0
-10.0
-5.0
0.0
5.0
Dec-08 Dec-09 Dec-10 Dec-11 Dec-12
-6.0
-5.0
-4.0
-3.0
-2.0
-1.0
CAD ($ bn) CAD / GDP (%)
0
1,000
2,000
3,000
4,000
5,000
6,000
Mar-13 Apr-13 May-13 Jun-13
EQUITY FUNDAMENTALS
SHAREKHAN SPECIAL
Q1FY2014 Banking earnings preview
SHAREKHAN SPECIAL JULY 04, 2013
KEY POINTS
Divergence continues in earnings performance of private and
public sector banks: For Q1FY2014 Sharekhans banking
universe is expected to report a flattish growth in earnings (up
1.3% year on year [YoY]) due to a weak earnings performance
of the public sector banks (PSBs; down 9.6% YoY). On the
contrary, the private sector banks are expected to report a
healthy growth in their earnings (up 22% YoY). Higher
provisions and a subdued net interest income (NII) growth will
continue to affect the earnings of the PSBs.
Core performance remains weak: Led by a slower loan growth
and subdued margins the NII of our banking universe is expected
to grow by 9.8% YoY. The NII growth for the PSBs is likely to
be modest (up 5.3% YoY). However, a strong growth in the
treasury income (due to the softening of bond yields) will offset
a slower growth in the fee income and cushion the overall
earnings.
Asset quality pressure persists: We expect the asset quality
pressure to continue for the PSBs as the macro-economic
environment remains worrisome. The outstanding restructured
loans are expected to inch up for both private banks and PSBs
as corporate debt restructuring (CDR) pipeline continues to soar
and stress remains in many sectors. But we expect the private
SECTOR-WISE IMPACT OF RUPEES DEPRECIATION
Sector Impact Comments
Auto Negative The rupees depreciation against both the dollar and the yen would have a negative implication for the auto sector as most of the auto
companies are net importers of raw materials which are denominated in either the dollar or the yen
Agri-inputs Negative It will affect the overseas debt of most of the companies under our coverage
Capital goods Negative The rupees depreciation would have a neutral to negative impact on most capital goods companies having foreign debt which would
eventually translate into marked-to-market (MTM) losses
Cement Negative The impact would be negative on the cement sector as most of the cement companies need to procures part of their coal requirement via
imports; hence the rupees depreciation against the dollar will increase the cost of coal and pressurise their margin
IT Positive The depreciating rupee will have a positive impact on the IT sector; traditionally for every 1% fall in the rupee the earnings before interest
and tax (EBIT) margin of IT companies gain 30-40 basis points without considering the amount re-invested in business
FMCG Neutral The rupees depreciation is unlikely to have any significant impact on the opeating profit margin (OPM) of the fast moving consumer
goods (FMCG) companies; besides, most of the FMCG companies export numerous products to international markets which becomes
a natural hedge for them
Oil & gas (upstream) Positive The impact of the rupees depreciation on oil exploration companies will be positive as their realisation is in dollar terms; hence, the move
will result in better realisation and profitability for private oil exploration companies like RIL and Cairn India
Oil & gas (OMC) Negative The rupees depreciation will have a negative impact on the oil marketing companies (OMCs) like IOC, HPCL and BPCL, as it will
increase the overall under-recovery and working capital requirement of the OMC
Oil & gas (refining) Positive The rupees depreciation will have a positive impact on the refining industry. It will boost their gross refining margin as their
realisation is in dollars and expenditure is in rupees.
Pharma Positive As exports constitute a substantial portion of business for most pharma players (65% for our pharma universe on an aggregated basis),
the rupees depreciation against major international currencies is generally beneficial for the sector
Power Negative The rupees depreciation would have a negative impact due to coal imports and foreign debt could also result in MTM losses
Retail (multi-brand) Neutral Retailing is domestic in nature; the forex exposure is limited to the extent of certain raw materials being imported by the players;
companies have undertaken hedging to maintain their margins
Retail (specialist jewellery retailers) Negative The tightening of gold import norms by the government has brought 100% financing on all consumption including gold on lease; this along
with the depreciating currency has affected the demand
Telecom Negative High foreign debts could result in MTM losses
Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a position in the companies mentioned in the article.
banks to maintain the edge over the PSBs in terms of asset
quality. The provision expenses will remain elevated due to a
higher provision requirement for restructured loans.
Outlook: Given the weak macro-economic environment, the
operating performance of the banks is likely to suffer though
the private banks are expected to perform relatively better. Asset
quality pressures are likely to continue for a couple of quarters
which will keep the cost of credit high. Also, the rising pressure
on the current account deficit implies cautious monetary easing
by the Reserve Bank of India (RBI). However, the banking stocks
have corrected sharply and partly reflect the macro-economic
and regulatory concerns. We prefer ICICI Bank (a strong
operating performance), Federal Bank (attractive valuation) and
Yes Bank among the private banks. In the PSB space we prefer
State Bank of India (SBI; attractive valuation).
EQUITY FUNDAMENTALS
SHAREKHAN SPECIAL
Monthly economy review
SHAREKHAN SPECIAL JUNE 27, 2013
Economy: headline inflation declines to RBIs comfort zone but CAD
worries remain
In April 2013 the Index of Industrial Production (IIP) grew by
2.0%. The growth was lower than expected largely because of
a sequentially slower growth in the manufacturing and electricity
segments. However, the March IIP growth has been revised
upwards to 3.4% (from the provisional estimate of 2.5%). Based
on the three-monthly moving average, the IIP growth for April
2013 stands at 1.9% as against 0.1% in April 2012.
The Wholesale Price Index (WPI)-based inflation continues to
surprise positively as it slipped to a 43-month low of 4.70%
(4.89% in April 2013) in May this year. The month-on-month
(M-o-M) decline of 19 basis points in inflation can be attributed
to a drop in the prices of manufactured products and fuels. The
inflation rate for March 2013 has been revised downwards to
5.65% from 5.96% as per the provisional estimate.
Indias trade deficit worsened to $20.1 billion in May 2013
from $17.8 billion in April 2013. The trade deficit rose by 18.8%
year on year (YoY) and 13.2% month on month (MoM) in
May 2013 as gold imports surged 90% YoY to $8.4 billion.
Exports contracted by 1.1% YoY, for the first time in five
months, to $24.5 billion while imports increased by 7.0% YoY
(up 11.0% in April 2013) to $44.6 billion.
As expected, the Reserve Bank of India (RBI) maintained status
quo on the key policy rates (repo rates at 7.25%, cash reserve
ratio [CRR] at 4%) in its mid quarter policy review meeting. In
view of the uncertainty in the global economy (particularly the
US economy) and Indias high current account deficit (CAD),
the RBI refrained from easing its monetary policy. The apex
bank also stressed the need to contain the CAD at sustainable
levels (2.5% of the gross domestic product [GDP]) and achieve
a sustainable decline in inflation for monetary easing. Given
the RBIs discomfort over food inflation and CAD, we expect
the central bank to remain cautious about monetary easing in
the near term.
Banking: RBI turns cautious on monetary easing, banks under
pressure to reduce lending rates
The credit offtake slowed down to 13.7% YoY (as of June 14,
2013), which was lower than the 14.6% Y-o-Y growth recorded
in the previous month (on May 17, 2013). Moreover, it was
below the RBIs projection of 15.0% for FY2014.
The deposits grew by 13.6% YoY (as of June 14, 2013). The
growth in the deposits remained subdued due to the competitive
returns offered by the other instruments. The RBI has targeted
the FY2014 deposit growth at 14.0%.
A slower growth in the deposits compared with the advances
remains a concern for banks. The credit/deposit ratio for the
banks remains at an elevated level of 77.1% (as of June 14,
2013).
The yield on the government securities (G-Secs; of ten-year
maturity) stood at 7.59% on June 26, 2013 and was higher
than the average of 7.44% maintained in May 2013. Moreover,
the five-year and ten-year G-Sec yields declined by 57 and 47
basis points respectively on an M-o-M basis.
Equity market: FIIs and domestic mutual funds turn net sellers
During the month-to-date (MTD) period of June 2013 (June 3-24,
2013), the foreign institutional investors (FIIs) and the domestic
mutual funds were net sellers of equities. This was largely due to
indications by the US Fed regarding the withdrawl of monetary
stimulus, rise in the US bond yields and weaking of the domestic
currency. For the MTD period the FIIs sold equities worth Rs9,125.5
crore while the mutual funds sold equities worth Rs531.5 crore.
Also, there was a sharp reversal in debt flows as ~$5 billion of
outflows took place in the past two to three weeks alone.
Banking stocks underperform in June 2013
In the last one month, the BSE Bankex has declined by 12.2% as
compared with a decline of 5.3% in the Sensex. The
underperformance of banking stocks was due to the RBIs hawkish
stance on monetary easing and the weakening of the domestic macro-
economic environment partly contributed by recent global
developments. Also, the outflows by the FIIs led to a correction in
the private banking stocks.
BANKING SECTORS PERFORMANCE (AS ON DATE)
Company Absolute Relative
1M 3M 1M 3M
IndusInd Bank -8.3 14.5 -3.2 14.7
State Bank of India -9.9 -5.5 -4.9 -5.4
Hdfc Bank -10.4 2.4 -5.3 2.5
Federal Bank -10.8 -17.5 -5.7 -17.3
Yes Bank -11.4 6.6 -6.4 6.7
Kotak Mahindra Bank -11.8 7.6 -6.8 7.8
Icici Bank -13.3 2.3 -8.4 2.4
Axis Bank -14.3 -3.4 -9.5 -3.3
Punjab National Bank -15.3 -6.4 -10.5 -6.2
Bank of Baroda -15.3 -11.6 -10.6 -11.5
Union Bank of India -17.8 -11.1 -13.1 -11.0
Idbi Bank -19.1 -13.7 -14.5 -13.5
Canara Bank -19.2 -4.9 -14.7 -4.8
Bank of India -22.8 -20.4 -18.5 -20.2
Bankex Index -12.2 0.0 -7.3 0.1
Sensex Index -5.3 -0.1 0.0 0.0
M - month
EQUITY FUNDAMENTALS SECTOR UPDATE
Prices of key inputs remain stable; freebies galore
FMCG JUNE 14, 2013
Key points
Prices of key inputs stabilising: The prices of the key inputs for the
FMCG industry, such as palm oil, copra, kardi oil, coffee and
HDPE, have corrected from their highs and seen some downward
momentum in recent months. If the prices of these raw materials
continue to see a downward trend, then it will be positive for the
FMCG companies, as they can continue to focus on improving
their sales volume in a tough environment where consumer senti-
ment has been dampened by sustained inflationary pressures.
Promotional add-ons and freebies with new offerings: Our chan-
nel checks suggest that the FMCG companies including Hindustan
Unilever Ltd (HUL), P&G India, Marico and Britannia Indus-
tries have opted for promotional add-ons/freebies to lure con-
sumers into buying their products. We have seen higher offers
on soaps, detergents and shampoos, which are highly competi-
tive categories in the domestic market.
Sustained focus on new product addition: Against the backdrop
of dampened consumer sentiment, the FMCG companies have
remained aggressive in introducing new products in the domes-
tic market. The companies have maintained their thrust on en-
tering the low-penetrated premium categories which could be
one of the key drivers of their growth in the long run. A large
Tough environment; be selective
REAL ESTATE JUNE 3, 2013
The key takeaways from the recent results and our interaction with
some of the real estate players are as follows:
Stress is visible: Till recently, most large real estate companies were
putting up a brave face and did not acknowledge the extent of the
slowdown and the stress on their books. However, the skeletons
have started tumbling out of the cupboard and the stress is visible
not only in the financial performance but also in the management
commentary of the real estate companies like HDIL (cancellation
of airport project; weak TDR market), Hubtown (credit rating
downgrade; slow moving projects), Unitech (debt issues; delay in
completion of specific projects) and several other real estate com-
panies with stretched balance sheets and cash flow issues.
Strong getting stronger: As stated in our real estate switch idea
report dated January 6, 2012, the stronger players have not only
remained unscathed but have actually consolidated their posi-
tion and emerged stronger than before. The companies with re-
puted brand and strong balance sheet identified by us, like Oberoi
Realty, Mahindra Lifespace Developers (MLD) and Phoenix
Mills, have shown resilience and distinctly outperformed the real
estate index.
Environment to remain tough; quality would continue to attract
premium: The real estate market is not likely to recover soon. In
number of new products were seen in the domestic personal care
segment during our channel checks. HUL appears to have been
very aggressive in launching new products in the domestic mar-
ket in recent months. The products have been launched largely in
the premium personal care segment.
Outlook and view: With the inflationary pressures moderating,
we could see an improvement in the sales of the FMCG compa-
nies in the coming quarters. However, a substantial improve-
ment in the volume growth of the FMCG companies could be
seen from the second quarter of FY2014. The monsoon has be-
gun on a positive note and a normal monsoon would further
help in trimming down the inflationary pressures in the coming
months. Having said that, the sharp depreciation in the rupee
against the dollar in the recent past would act as a dampener for
the FMCG companies, which have a large amount of dollar-de-
nominated debt on their books and also import large quantities
of the key inputs in dollars. Remaining selective while selecting
stocks, we prefer ITC in the large-cap space and Bajaj Corp and
Jyothy Laboratories in the mid-cap space.
fact it could turn worse in the run up to the general elections (and
the assembly elections in six states by the end of 2013). The banks
are already struggling with deterioration in the asset quality and
would offer limited support to the real estate sector in general
and the weaker players in particular. Thus, we believe that the
large players with strong brand, healthy balance sheet and return
ratios would continue to outperform. The weaker real estate
counters would offer periodic momentum-driven rallies that could
be used to bail out of them (number of such opportunities were
available in 2012).
Certain pockets of strength: Though the absorption rate in the
larger towns is better than tier I and II cities, there are certain
cities like Bangalore, Pune and parts of NCR (Gurgaon or Greater
Noida) that have showed strength. These places have large mi-
grating and middle class population that supports actual user
demand, which is reflected in the financial performance of the
real estate companies with operations focused in these particular
areas/cities like Prestige Estate, Purvanakara among others. We
do not have active rating on any of the Bangalore-based real
estate companies as of now.
EQUITY FUNDAMENTALS
New regulation alters business model
TITAN INDUSTRIES
VIEWPOINT JUNE 13, 2013 CMP: RS214
The recent months have witnessed Indias CAD situation worsen
on account of the countrys rising gold import bill. Consequently,
to ameliorate the countrys worsening CAD, the RBI has tightened
the gold import norms for jewellery players.
As per the new norms
All imports of gold for domestic consumption, either through
banks, nominated agencies or directly, can be made only with
100% cash margin.
Credit of any kind from suppliers or bullion banks for import
of gold for domestic use is prohibited. This also affects import
of gold through all non-consignment routes like gold on lease.
Funding dynamics change...
The gold on lease model allowed Titan Industries (Titan) to finance
its inventory requirements at low interest rates (3-4%). After this
notification, the business model would be altered significantly,
whereby all jewellers using the lease model would be required to
pay upfront for the gold inventory.
having a postition in the companies mentioned in the article.
Banking on Bangalore market
PURAVANKARA PROJECTS
VIEWPOINT JUNE 19, 2013 CMP: RS83
We recently met the management of Puravankara Projects Ltd (PPL)
represented by Jackbastian Nazareth (group chief executive officer)
and Anil Kumar (chief financial officer) to update ourselves on the
latest developments in PPL.
Key points
Bangalore market still upbeat: The management is still upbeat
on the growth prospects of the Bangalore real estate market,
which on an average consumes 35,000 units per year. Provident
is a commendable brand in Bangalore. With the brand and in-
house capabilities of developing 7 million square feet (msf) per
annum PPL is confident of successful launches and delivery of
projects in Bangalore.
Sales target for FY2014 at 4.5msf: PPL had given a guidance of
3msf for FY2013 which it over achieved by selling 3.96msf
(provident share 1.83msf). That is a growth of 62% YoY. For
FY2014, PPL has set a target of 4.5msf, which comprises 0.52msf
of completed projects, 1.06msf due for completion in FY2014,
1.92msf of ongoing projects and 1msf of new projects.
Provident branda huge success: PPL has been able to sell 7,000
units and deliver 3,000 units through the Provident brand since
its inception. The Provident brand is expected to broad base
the companys reach in the newer markets.
having a postition in the companies mentioned in the article.
VIEWPOINT
To reduce debt to Rs10,00 crore by FY2015: PPL had gross
debt of Rs1,766 crore as on March 31, 2013. It retired Rs176
crore of debt, bringing down the gross debt to Rs1,590 crore.
Further, the promoters raised Rs115 crore through an offer for
sale. The company is further planning to bring down the debt
to Rs1,000 crore by FY2015.
Surplus cash flow position in March 2013: PPL has a
comfortable cash flow position as of March 2013. It has an
inventory of Rs7,964 crore which along with the balance
collections to be received (of Rs1,051 crore) will more than
help in funding the balance cost of the ongoing projects. We
believe that a robust increase in the sales coupled with the efforts
to reduce the gross debt will help the company to manage the
surplus cash position.
Outlook: Overall, considering the successful launches, and focus
on execution and debt reduction, we believe the company is
venturing in the right direction. We do not have an active
coverage on the stock as of now but we are positive on the long
term growth prospects of the company.
...resulting in significant dilution of returns ratio
Under the gold on lease model, Titans inventory days were in the
range of 120-130 days while the companys payable days were
around 180 days. This model was one of the major reasons which
enabled the company to report RoCE in excess of 40%.
Consequently, after the RBIs notification disallowing the gold on
lease model, the return ratios are likely to be negatively affected.
We estimate 9-10% EPS impact
We estimate the companys EPS estimates to decline by 9-10% in
both FY2014 and FY2015. Given the regulatory changes and risk,
the stock has undergone a de-rating. Thus, we expect the stock to
consolidate at the current levels.
Final leg up
The Sensex has taken support around the 78.6 % retracment
level of the previous rally from 18144 to 20444 and closed
above the 20-daily moving average (DMA), ie 19101, which
will be a very crucial support going forward.
The momentum indicator is trading in the positive zone and
around the zero line.
The key supports would be around 19319 and 19101 while
resistance would be around 19700.
In the short term, the index is expected continue to bounce till
19700.
The Sensex is trading above the 20-weekly moving average
(WMA), ie 19281, which is a bullish sign for the market in the
medium term.
The leg on the upside as wave Z is in process and is expected to
move up till 21110.
On the weekly charts, the momentum indicator has given a
negative crossover, trading around the zero line.
As the index has been trending up, it is expected to continue
the positive momentum and the strategy should be to buy on
declines with reversal around the 40-WMA, ie 19064.
The key supports would be around 19281 and 19064 while
resistance would be around 20444.
According to the Elliott wave theory, the index has completed
the pull-back as W-X-Y-X and a new move on the upside has
started as wave Z, which can move up till 21110.
The Sensex is expected to form a triple top around the all-time
high, ie 21207, which is a crucial resistance going forward.
The Sensex has been forming higher tops and higher bottoms
trading above the 20-monthly moving average (MMA), ie
18101, which will act as a very crucial support going forward.
But if the index closes below this level then the previous swing
low can be retested, ie 15135.
The Sensex is trading above the 20-MMA, ie 18261, and is
expected to form a positive close on the quarterly charts.
Sensex: Daily view
Sensex: Weekly view
Sensex: Monthly view
Trend Trend reversal Support Resistance Target
Up 18900 18900 21200 21200
Medium term
Trend Trend reversal Support Resistance Target
Up 18690 18690 19560 19560
Short term
TREND & VIEW
EQUITY TECHNICALS
4
February
11 18 25 4
March
11 18 25 1
April
8 15 22 29 6
May
13 20 27 3
June
10 17 24 1
July
8 15 2
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Derivative view: Bulls high on spirit
Two-month winning streak of the market has come to an end, as
once again bulls have had to bear the brunt of weak domestic and
global cues. Statement from the US Federal Reserve Chairman Ben
Bernanke with regards to the withdrawal of quantitative easing by
the end of 2014 had a negative spiraling effect across instruments
(viz equity, currency, commodity, bond) around the globe. The
widening of the current account deficit because of a fall in the rupee
to an all-time low below 61, status quo maintained on the key rate
by the Reserve Bank of India (RBI) in its monetary policy meeting
and the slowing down of the Chinese economy are several other factors
that helped bears to deepen the cuts. The Government of Indias move
to hike the prices of natural gas, petrol and diesel axed the downside
for the month and led to a sharp recovery in the market. June 2013
concluded on a negative note with a loss of 2.40% in spite of a sharp
pull-back in the market in the last two days of the month.
MARKET WIDE VS NIFTY ROLL-OVER
MONTHLY VIEW
EQUITY DERIVATIVES
The results season would kick in from the second week of July which,
in turn, would fuel an upward move in the IV in the days to come.
Fund flows from the foreign institutional investors, timely steps from
the government to bring down the current account deficit and
anticipation of a rate cut by the central bank at its July 30 meeting
along with an expected spike in the IV would help the Nifty surpass
the current months higher break-even point (5918) for a Straddle
and climb higher. In the current scenario to cash in on the opportunity
we suggest forming a Ratio Call Spread strategy in the Nifty with a
favourable risk/reward ratio.
Top five stock options with the highest OI in the current series
View
STOCK OPTIONS (SHAREKHAN SCRIP CODE) OPEN INTEREST (RS CR)
SBIN 999.51
INFY 623.63
MCDOWELL-N 617.63
RELIANCE 614.31
HINDUNILVR 529.77
A ratio call spread is created when the market/a stock is expected to
move in an upward direction. The ratio call spread is constructed by
buying slightly out-of-the-money call options and selling higher out-
of-the-money call options twice the quantity of the call options pur-
chased. It is a limited profit, unlimited loss strategy with a very
favourable risk/reward ratio among the spreads.
Strategy for the month: Ratio Call Spread
FORMATION
TYPE BUY/SELL STRIKE PREMIUM OUTFLOW
CE Buy 6000 43.00
CE Sell 6100 20.00 3.00
CE Sell 6100 20.00
PAY-OFF DIAGRAM
STOCK FUTURES (SHAREKHAN SCRIP CODE) OPEN INTEREST (RS CR)
MCDOWELL-N 1809.54
TCS 1320.91
SBIN 1162.79
HINDUNILVR 733.51
TATAMOTORS 730.87
Top five stock futures with the highest OI in the current series
With all eyes on the RBIs monetary policy meeting scheduled for
later this month (July 30, 2013), the July series commenced on a
positive note. The series started the month with Rs7,269 crore in
Nifty futures vs Rs11,371 crore in the previous month; Rs23,983
crore in stock futures vs Rs28,534 crore in the previous month;
Rs56,133 crore in index options vs Rs58,886 crore in the previous
month; and Rs2,919 crore in stock options vs Rs3,306 crore in the
previous month. The roll-over in the Nifty stood at 47.24%, which
is significantly lower than the previous months roll-over of 56.94%
and also below the three-month and six-month average roll-overs of
58.99% and 59.57% respectively. The roll-over for the Nifty in the
July series has happened majorily on the short side as the roll-over
cost has continuously decreased. The market-wide roll-over stood at
77.31%, which is marginally lower compared with the previous
months roll-over of 79.67% and the three-month and six-month
average roll-overs of 79.57% and 80.62% respectively.
On the options front, strikes of calls 5900 and 6000 have a combined
open interest (OI) of 1.17 crore shares whereas strikes of puts 5700
and 5600 have a combined OI of 1.34 crore shares followed by easing
of the implied volatility (IV) from the levels of 21 and increase in the
put/call ratio to 1.14 levels. From the above data points we have
conclude that the ongoing momentum would sustain in the market.
Strategy note
The strategy has an initial outflow of 3.00 points, which is Rs3,000
(3.00*100), and a maximum profit potential of 97.00 points, which
is Rs9,700 (97*100). There are two break-even points in the strategy.
The higher break-even point for the strategy is 6197 and the lower
break-even point for the strategy is 6003. The maximum profit will
be achieved if the Nifty expires at 6100. The maximum loss would
be incurred above 6197 (which is the higher break-even point for the
strategy). If the Nifty breaches 6197, it will be advisable to close the
strategy, as the strategy would get converted into short futures.
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Commodities: Facing downside pressure of rising yields, Chinas credit crunch, tepid manufacturing and dollars strength
Key points
US GDP expanded at an annual rate of 1.8% during Q1FY2014
US GDP down from the prior report of a 2.4% growth
ADP says the USA added 188,000 jobs in June 2013; 16,000 jobs
were forecast
US house prices climb 7.4% in a year through April 2013
Orders for US durable goods rose 3.6% as against the forecast of 3%
Feds Fisher cautions against overreacting to Feds tapering stance
Fed seen by economists trimming QE in September 2014 end
The US Fed narrows GDP forecast; inflation forecast drops a half
The US GDP growth seen at 2.3-2.6%; prior estimate 2.3-2.8%
In the USA small-business optimism rises to year high in May 2013
IMF sees Fed QE through 2013, warns of exit plan challenges
European central bankers adopt ultra-easy policies to contain surge
in yields
IMF sees deeper recession in Italy, criticises governments tax plans
In euro area unemployment rate rises to record 12.2%
Greece back in focus; Portugal undergoing political uncertainties
German industrial production increases most in a year
China may see economic rebound by year-end, Deutsche Bank
says
China faced credit crunch in June 2013 as leaders sought economic
restructuring
World Bank cuts China's economic growth forecast to 7.7% from 8.4%
Chinas export growth plummets as global weakness exposed
Manufacturing in China, much of Asia weakens in June
Moodys says rupees fall affects Indias credit profile
Egypts military-appointed government faces protest
Iranians celebrate Rohanis surprise win as reason for hope
Rohani pledges to make Iran nuclear programme more transparent
COMMODITY PRICES IN JUNE 2013 (IN $)
Commodity High Low Close Mon chg %
Copper 7500.0 6602.0 6750.0 -7.6
Zinc 1970.0 1812.0 1853.0 -3.8
Lead 2259.3 1986.0 2051.0 -6.8
Gold 1423.7 1180.6 1234.5 -11.0
Silver 23.0 18.2 19.7 -11.7
Crude oil 99.2 91.5 96.6 5.0
MONTHLY CHANGE IN SHFE STOCKS (MAY-JUN 2013)
Copper Lead Zinc
Change (in tonne) 3176 -6019 -15099
30-May-13 179317 120940 292541
Change (in %) 1.77 -4.98 -5.16
MONTHLY CHANGE IN DOE CRUDE STOCKS (MAY-JUN 2013)
Crude oil Dist. Gasoline
Change in (000' bbls) 2854 -85 3179
31-May-13 391285 123274 218797
Change in (%) 0.73 -0.07 1.45
Refinary utlisation rate was at 90.2% in the last week of June.
MONTHLY CHANGE IN LME STOCKS (MAY-JUN 2013)
Copper Lead Zinc
Change (in tonne) 57325 -21175 -25350
31-May-13 608450 219475 1086825
Change (in %) 9.42 -9.65 -2.33
NoteLME: London Metal Exchange , SHFE: Shanghai Futures Exchange, DOE: Department of Energy (US)
Macro-economy
Crude oil: Geopolitical risk premium the main driver
Key points
OPEC June output falls in survey on African producer cuts
Obama to seek keystone rejection if emissions rise
Oil rallies on Egypt, Syria, the US demand speculation
Chinas oil imports are contracting for the first time since 2009
Chinas crude output increases to 17.72mn ton in May
Chinas diesel imports drop 75% in May, customs data shows
Saudi Arabia pumped 9.47mbpd in June, up 120,000 barrels MoM
Oil shipment through Suez Canal in focus; daily volume 4mbpd
The US refineries operated at 92.2%; the highest level since August
The US refinery utilisation rate peaks in June and July
Crude oil prices rallied last month after falling below $92. The major factor influencing the prices is geopolitical risk premium as Egypt
and Syria remain in focus. Ironically, none of these countries is a major producer; however, speculators are bidding the prices higher citing
the possible risk to supplies should the Syrian civil war contagion spread to the Middle-East region and oil flow across the Suez Canal stop
altogether. Much awaited improvement in the oil demand in the US materialised in the last days of June due to it being the driving season.
However, oil prices are well ahead of their fundamentals despite the expected seasonal strength. Traders have stopped looking at the
Chinese demand scenario. Similarly, dismal demand in Europe is being ignored. For now bulls are in the driving seat and would look for
every possible reason to bid up the prices. We look for a range of $97-104 and remain bearish on the counter.
WTI NYMEX crude oil CMP: $101.80
MONTHLY VIEW COMMODITY FUNDAMENTALS
MONTHLY VIEW
Gold CMP: $1,242 (spot)
Bullion: Downside pressure to continue
Silver CMP: $19.10 (spot)
Silver dutifully followed gold as the white metal fell over 11% last month. Weakness in the base metals complex is adding to the downside
pressure. The metal can fall to as low as $15 in the near term. Crucial support is noted around $18 while supply hurdle is at $21.
Copper CMP: Rs417 (August contract)
Base metals : Likely to move higher on bargain buying, US data
Key points
Aurubis says scrap copper supply is still meagre in Europe
Chinas copper imports rebound from two-year low on arbitrage
Refined copper surplus was about 104,000 ton in March: ICSG
Refined zinc consumption exceeded output in April, ILZSG says
Refined lead demand exceeded output in April, Study Group says
Copper spread tightens; can support the prices
UBS says about 61,000 ton of copper lost due to Grasberg closure
China imported 232,155 metric ton of copper in May
Base metals complex oversold; can rebound on the US housing and auto sales data
Copper cancelled tonnage ratio in Asia at a record high as prices decline
Base metals suffered in June as rising yields, Chinas credit crunch, the possibility of the US Federal Reserve curtailing stimulus and
subdued manufacturing data weighed on the complex. Many a time the complex suffered even on positive US data as the data gave rise
to stimulus removal fear. However, we think that the complex is heavily oversold and is due for a sharp recovery barring further bearish
developments. The complex seems to have priced in most of the bearish developments. The revival of the US housing and auto sectors,
high cancelled tonnage ratios as seen in most of the metals, and stabilising Europe should lead to higher prices. Tightening London Metal
Exchange (LME) cash-to-three month spread in copper is a bullish development. We look for a range of Rs408 to Rs440 for the metal in
the near term.
Lead CMP: Rs123.00 (July contract)
Refined lead output fell to 888,200 tonne in April vs demand of 908,200 tonne, International Lead and Zinc Study Group (ILZSG) said
in a report. Seasonally strong demand period for the metal starts from August. The heavy metal is likely to get support from falling
inventories at both Shanghai Futures Exchange (SHFE) and LME warehouses. The downside should be limited to Rs118 in the near term.
The metal can rise to Rs128 in the near term and to Rs135 in the medium term.
Gold prices fell 11% last month as liquidation and fresh selling continued. Gold market is currently facing quite a few negative factors:
rising dollar, falling rupee, rising real interest rates as the US Federal Reserve prepares to curtail the stimulus, lack of safe-haven demand
due to reduced bad news flow out of Europe and steady risk assets, and subdued physical buying interest as prices are yet to stabilise. The
last quarter was the worst on record for the yellow metal. Still, the metal can draw some support from debt related issues in Greece and
political uncertainties in Portugal. Further support can come from geopolitical concerns should the situation in Egypt and Syria get out of
control. GFMS expects gold prices to trade in the $1,100-1,400 range. We look for a range of $1,150-1,325 in the near term and maintain
our bearish bias.
Key points
India urges resisting gold as curbs fail to stem currency slump
Gold import may dip to a third, thanks to RBI curbs, a weak rupee
CME raises margins for gold as prices fall to the lowest since 2010
Gold-silver ratio jumps to the highest level since August 2010
Gold prices are heading towards $1,000: Nouriel Roubini
Further ETP outflows possible as gold remains under pressure
European central bankers stance can support bullions to some extent
Greece, Portugal issues supportive for bullions
Physical buying remains tepid despite a sharp decline in gold prices
Gold posts worst quarter since 1974 as prices tumble 23%
GFMS: Gold faces "multi-year bear market," starting from 2013
COMMODITY FUNDAMENTALS
Zinc CMP: Rs110.20 (July contract)
Refined zinc output fell to 1.09 million tonne in April vs consumption of 1.1million tonne, ILZSG said in a report. Chinas refined zinc
imports improved in May. We look for a range of Rs109 to Rs115 in the near term.
Major economic events in July 2013
CMP as on July 04, 2013
MONTHLY VIEW COMMODITY FUNDAMENTALS
Date Region Event Forecast Actual Prior Impact
01/07/2013 Euro zone PMI Manufacturing 48.8 48.8 48.7 In line with forecast; no major impact
01/07/2013 USA ISM Manufacturing 50.2 50.9 49 Higher than forecast supportive for industrial commodities, data above 50 levels
showing expansion mode in manufacturing activity
01/07/2013 UK PMI Manufacturing 51.4 52.5 51.3 Supportive for GBP but the currency is falling on BoE's dovish outlook, supportive
for industrials
01/07/2013 China Manufacturing PMI 50 50.1 50.8 Somewhat supportive for industrials, though slowing growth is evident
02/07/2013 USA Factory orders 1.80% 2.10% 1.00% Supportive for industrials
03/07/2013 Euro zone Euro zone retail sales (MoM) 0.30% 1.00% -0.20% Supportive for industrials, however European data patchy
03/07/2013 USZ Trade balance -$40.0B ($45) -$40.3B US GDP growth to be adjusted lower on higher deficit
04/07/2013 Euro zone ECB announces interest rates 0.50% 0.50% 0.50% In line with the forecast, however ECB's stance of low rates for extended period
bullish for risk assets
04/07/2013 UK BoE asset purchase target 375B 375B 375B No change, however BoE's guidance is dovish, thus bullish for risk assets
and bearish for pound
05/07/2013 USA Change in non-farm payrolls 167K 195K 175K Bullish for dollar, industrials; bearish for yen, pound, euro, bullions; though jump in
part time employment suggests that the data not as robust as it seems
05/07/2013 USA Unemployment rate 7.50% 7.60% 7.60% Up on increased participation, no major impact seen
09/07/2013 UK Trade balance non-EU GBP/mn -- -- -3414 Crucial for pound
09/07/2013 China CPI YoY -- -- 2.10% Lower than forecast will be supportive, it would increase the probability of more easing
10/07/2013 China Trade balance (USD) -- -- $20.43B Crucial for industrial commodities, both import and export figures need to be analysed
to gauge the health of economy
11/07/2013 USA Import Price Index (YoY) -- -- -1.90% Falling import price index would be bearish for bullions
11/07/2013 Japan Machine orders YOY% -- -- -1.10% Important for yen and industrial commodities
11/07/2013 Japan BoJ target rate -- -- -- No change expected.
12/07/2013 Euro zone Euro zone ind. prod. sa (MoM) -- -- 0.40% Important for industrial commodities and euro
12/07/2013 USA PPI ex food & energy (MoM) -- -- 0.10% Important for USD and other asset classes
12/07/2013 USA U. of Michigan Confidence -- -- -- Higher than expected data would weigh on gold
15/07/2013 USA Retail sales ex auto & gas -- -- 0.30% Bullish data would be supportive for dollar, industrials but bearish for bullions
15/07/2013 China Real GDP (QoQ) -- -- 1.60% Crucial for industrial commodities
15/07/2013 China Industrial production (YoY) -- -- 9.20% Crucial for industrial commodities
16/07/2013 Euro zone CPI MoM -- -- 0.10% Important for euro, lower inflation would give room to ease further and weigh on euro
16/07/2013 Euro zone Euro zone trade balance -- -- 14.9B Larger surplus would be positive for euro
16/07/2013 Euro Zone ZEW Survey (econ. sentiment) -- -- 30.6 Important for euro and industrials
16/07/2013 USA CPI MoM -- -- 0.10% Lower figure would weigh on bullions
16/07/2013 USA Industrial production -- -- 0.00% Bullish data would support industrials and dollar
17/07/2013 USA Housing starts -- -- 914K Bullish data would support industrials and dollar, and would be bearish for bullions
23/07/2013 Euro zone Euro Zone Consumer Confidence -- -- -- Shows investors confidence in the market, higher than forecast supportive for euro
24/07/2013 USA New home sales -- -- 476K Important for industrial commodities, especially for copper and aluminium
24/07/2013 Japan Merchnds trade balance total -- -- -993.9B Important for yen
25/07/2013 Euro zone Euro zone M3 s.a. (YoY) -- -- -- Important for euro
25/07/2013 USA Durables ex transportation -- -- 0.70% Better than expected data to be bearish for gold
25/07/2013 UK GDP (QoQ) -- -- -- Important for industrials and GBP
27/07/2013 China Industrial profits YTD YoY -- -- -- Higher than forecast supportive for industrial commodities
30/07/2013 Euro zone Business Climate Indicator -- -- -- Important for euro and industrials
30/07/2013 USA Consumer confidence -- -- 81.4 Bearish data would be negative for industrial commodities; supportive for gold
31/07/2013 Euro zone Euro zone unemployment rate -- -- -- Crucial for euro
31/07/2013 USA GDP QoQ (annualised) -- -- -- Growth expected to trail the forecast, can weigh on dollar and support gold
31/07/2013 USA FOMC rate decision -- -- 0.25% No change expected in the rate in the near future, but the focus would be on signals
to roll back stimulus
Buy gold on dips
After a near vertical fall in April, gold had taken support near
the long-term rising trendline. It consolidated there for several
weeks and the move took the form of a triangular pattern.
The pattern broke out on the downside and the price tumbled
sharply. It has achieved the equality target and started moving
higher.The daily momentum indicator is showing a positive
divergence and triggered a bullish crossover.
In a remote case, the yellow metal can fall till $1,150 (the 61.8%
retracement mark).
Buying on dips would be the strategy from a medium-term
perspective.
The key levels on the upside are $1,350 and $1,380.
Silver has channel supports
Silver has been falling in a channelised manner for the last sev-
eral months. It has formed a channel within a channel.
On the downside, the white metal cracked through multiple
previous lows and reached the lower end of both the channels.
It has achieved the medium-term equality target on the
downside.
The daily momentum indicator is showing a positive divergence
and has triggered a bullish crossover.
Thus, unless the recent low of $18.19 breaks, the white metal
is expected to show a decent recovery.
The key level on the upside is $21.50.
Trend Trend Supports Resistances Target
reversal
Up $18.19 $18.75/18.30 $20.60/21.37 $21.50
Crude oil was oscillating about its crucial weekly moving
averages for the past few months.
However, it took off from there last week and is heading towards
a medium-term falling trend line ($104).
Structurally, it seems to be forming a larger distribution triangle.
The weekly momentum indicator has also taken the form of a
distribution triangle.
One can start initiating short positions near $104 with reversal
above $110.60.
In the short to medium term the targets on the downside will be
$95 and $87.
reversal
Down $110.60 $96/91.26 $104/108.25 $95 /87
reversal
Up $1,150 $1,200/1,180 $1,300/1,321 $1,350/
$1,380
TREND & VIEW COMMODITY TECHNICALS
Crude oil sees larger distribution

August September November 2013 February April May June July August
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
21.50
18.19
SILVER [CASH] (19.3800, 19.8900, 19.3200, 19.6900, +0.37000)
-10
-5
0
5
10 KST (-6.61429)

J J A S O N D 2011 A M J J A S O N D 2012 A M J J A S O N D 2013 A M J J A S O N
65
70
75
80
85
90
95
100
105
110
115
120
95
104
87
110.6
LIGHT CRUDE CONTINUOUS 1000 BARRELS [NYMEX] (96.5800, 102.180, 96.0700, 101.240, +4.68000)
-10
0
10
20 KST (4.52132)

Jul Aug Sep Oct Nov Dec 2013 Feb Mar Apr May Jun Jul Aug
1150
1200
1250
1300
1350
1400
1450
1500
1550
1600
1650
1700
1750
1800
1850
1380
1350
1150
-10
-5
0
KST (-5.14116)
reversal
Down $3.316 $2.98/2.72 $3.23/3.30 $2.58
Fresh opportunity for bears in nickel
MCX nickel had formed a multi-month head-and-shoulders
pattern in the past few months. It had broken out on the down-
side from the neckline.
On the way down nickel had broken from a bearish flag pat-
tern and achieved the conservative as well as the aggressive flag
targets.
Since then it has done a channelised pull-back and retested the
neckline. It has once again formed a bearish flag pattern. Thus,
this is an opportunity to initiate fresh short positions.
The base metal is set for a significant decline. The conservative
head-and-shoulders target is Rs690.
The reversal of the bearish view can be placed above Rs875.
reversal
Down Rs875 Rs805/750 Rs850/865 Rs690
Turmeric poised for a fall
NCDEX turmeric had formed a multi-month wedge pattern in
the past few months.
Near the top of the pattern increased volume activity suggests
that distribution has taken place.
Thus, turmeric has tumbled down from the wedge pattern.
It has broken out on the downside from the wedge pattern.
It recently formed a short-term bounce and resumed the
downtrend. In the short term and medium term, the momen-
tum indicators are in line with the bearish expectations.
The targets on the downside are Rs5,220 and Rs4,856.
The reversal can be pegged at Rs6,200.
reversal
Down Rs6,200 Rs5,510/5,000 Rs6,000/6,166 Rs5,220/
Rs4,856
Downside potential intact in copper
In the past few months copper had formed a multi-month tri-
angle where the last leg made a throw-over of the pattern. The
triangle was formed in the right shoulder of a larger head-and-
shoulders pattern.
Thus, the red metal is in for a significant decline.
Copper has broken the lower end of the triangular pattern as
well as the neckline of the head-and-shoulders pattern.
After retesting the neckline it has started the next leg down.
The target on the downside will be the equality target, ie $2.58.
The reversal can be trailed to $3.316.
TREND & VIEW COMMODITY TECHNICALS

J J A S O N 2010 A M J A S O N 2011 A M J A S O D 2012 A M J A S O D 2013 A M J J A S O N
2.5
3.0
3.5
4.0
4.5
5.0
3.316
2.58
HGCOPPER CONTINUOUS 25000 LBS [COMEX] (3.04500, 3.17900, 3.03300, 3.17450, +0.11700)
-10
0
10
20
KST (-6.26478)

er October November December 2013 February March April May June July Aug
700
750
800
850
900
950
1000
1050
875
690
NICKEL 1 KG- 1 MONTH (838.000, 846.900, 837.200, 837.900, +0.90002)
-5
0
KST (0.04063)

eptember November December 2013 February March April May June July
10000
30000
4500
5000
5500
6000
6500
7000
7500
6200
5220
4856
TURMERIC QUINTAL - 1 MONTH (6,010.00, 6,012.00, 5,784.00, 5,784.00, -240.000)
-5
0
5
10
15
20 KST (3.31413)
Currencies: Rupee hammered by broad-based dollar strength
Key points
Indian Rupee fell to a new life-time low against the US Dollar
RBI not targeting any exchange rate: RBI Governor D. Subbarao
RBI may hike rates if rupees downtrend continues
UK economy showing signs of life, BoE adopts a dovish stance
Euro zone economic activity shrinks further in June
Fed likely to taper its QE programme in late 2013
CURRENCY LEVELS IN JUNE 2013 (IN RS)
Currency High Low Close Monthly chg (%)
INR-USD 60.18 56.25 59.86 -5.57
INR-EUR 79.62 72.37 78.26 -7.55
INR-GBP 93.00 84.59 92.32 -8.47
INR-JPY 62.35 55.10 61.37 -6.37
INR-USD CMP: Rs60.18 (SPOT)
The rupee fell by more than 7% in June this year against the US Dollar after a rout in bond markets triggered by concerns of US Federal
Reserve (Fed) tapering its quantitative easing (QE) programme in late 2013 saw the foreign institutional investors pulling out more than
$5.5 billion from the Indian debt market. In its policy meet last month, the Fed had appeared more willing to reduce the size of its monthly
bond purchases rather than increase it. Meanwhile, the Indian government and the Reserve Bank of India (RBI) were mere spectators as the
rupee made a new life-time low of 60.72 per US Dollar. The current account deficit (CAD) for Q4FY2013 fell to 3.6% of the gross domestic
product (GDP); however the CAD may rise sharply for the ongoing quarter. Gold imports may not fall substantially ahead as a high
Consumer Price Index shall ensure demand for the yellow metal. We do not see any major reform being initiated in India in this year to stem
the fall in the rupee while concerns of asset bubbles will push the Fed to taper its QE in 2013. The RBI may hike the interest rates if the rupee
continues to depreciate and goes beyond the 62.00 level. We see the USD-INR in the 59.00-62.00 range in the month ahead.
INR-GBP CMP: Rs90.77 (SPOT)
The GBP-USD ended a mere 0.08% higher after the positive effect of strength in the UK economic data were weighed down by concerns
of the Fed tapering its QE programme in 2013. Resilience in the GBP-USD pair coupled with a sharp rise in the USD-INR pushed the
pound to a new high of 93.46 against the rupee. The UK manufacturing and service sector activity in June rose at the fastest pace in two
years which reduced the necessity for fresh stimulus measures from Bank of England (BoE). However, the central bank in its dovish
forward guidance noted that higher market interest rates are weighing on its economic outlook. This is evident from the fact that the
recent strength in the UK economy lacks support from business investments or net exports. The GBP-USD is likely to trade in the 1.5-1.55
range with occasional fall on broad-based dollar strength. We see the GBP-INR in the 94.62-89.87 range in the month ahead.
INR-JPY CMP: Rs60.20 (SPOT)
The yen remained volatile in the 94-100 range against the US Dollar in June, tracking the rise in the US benchmark bond yields. On the
other hand, the Japanese government bond yields stabilised after torrid moves in May which had seen a sharp appreciation in the yen. We
expect the USD-JPY to continue to trade in the 100-94 range as Bank of Japan will maintain its monetary policy for the remaining part
of 2013 while expectations of the Fed tapering its QE programme will persist. Meanwhile, the crisis in the euro zone and the slowdown
in China will see strength in the yen via the unwinding of carry trades. We see the JPY-INR in the 61.60-58.99 range.
June 2013 contract price movement June 2013 contract price movement
CMP as on July 03, 2013
The single currency continued to defy weak macro-economic indicators rising to 1.34 levels in June against the US Dollar. Accordingly,
the EUR-INR pair hit a new life-time high of 79.45. The euro zone economies shall continue to shrink for the remaining part of 2013 as
political uncertainty in Portugal, Greece and Italy are taking center stage erasing any probability of pro-growth structural reforms.
Moreover, the sustained strength in the euro above 1.3 levels against the US Dollar makes the European Union exports less competitive.
We thus expect European Central Bank to eventually adopt a dovish stance in order to weaken the euro. As it is, the currency would see
a sharp depreciation if the Fed unwinds its QE programme. We see the EUR-USD in the 1.26-1.32 range. The EUR-INR is likely to trade
in the 80.50-76.21 range in the month ahead.
MONTHLY VIEW CURRENCY FUNDAMENTALS
INR-EUR CMP: Rs77.64 (SPOT)
56.0
57.0
58.0
59.0
60.0
61.0
3
0
-
M
a
y
-
1
3
1
-
J
u
n
-
1
3
3
-
J
u
n
-
1
3
5
-
J
u
n
-
1
3
7
-
J
u
n
-
1
3
9
-
J
u
n
-
1
3
1
1
-
J
u
n
-
1
3
1
3
-
J
u
n
-
1
3
1
5
-
J
u
n
-
1
3
1
7
-
J
u
n
-
1
3
1
9
-
J
u
n
-
1
3
2
1
-
J
u
n
-
1
3
2
3
-
J
u
n
-
1
3
2
5
-
J
u
n
-
1
3
55
56
57
58
59
60
61
62
63
USDINR JPYINR
73
74
75
76
77
78
79
3
0
-
M
a
y
-
1
3
1
-
J
u
n
-
1
3
3
-
J
u
n
-
1
3
5
-
J
u
n
-
1
3
7
-
J
u
n
-
1
3
9
-
J
u
n
-
1
3
1
1
-
J
u
n
-
1
3
1
3
-
J
u
n
-
1
3
1
5
-
J
u
n
-
1
3
1
7
-
J
u
n
-
1
3
1
9
-
J
u
n
-
1
3
2
1
-
J
u
n
-
1
3
2
3
-
J
u
n
-
1
3
2
5
-
J
u
n
-
1
3
85.5
86.5
87.5
88.5
89.5
90.5
91.5
92.5
EURINR GBPINR
GBP-INR: CUSHION FOR BULLS
The GBP-INR in its previous fall had taken support near a long-
term rising trendline (blue line in the chart).
From there bulls regained strength, as a result of which we
witnessed a strong rally. The price on the way up crossed a
crucial resistance level where it had faced resistance several times
before; however it fell just short of the equality target.
Currently, the price has fallen back to retest the level, which will
now act as a support. Thus 89.50 and 88.40 are the key levels on
the downside where a fresh round of buying can be seen.
The level of 86.90 will act as reversal on a closing basis and the
target remains 93.85.
Currency View Reversal Supports Resistances Target
USD-INR Up 57.80 59/58.70 60.76/62.50 63.30
GBP-INR Up 86.90 89.50/88.40 92.17/93.47 93.85
EUR-INR Up 75.00 76.39/76.00 79.46/80.00 80.70
JPY-INR Up 0.5660 0.5865/0.5745 0.6120/0.6243 0.6265-0.6490
EUR-INR: Bulls gathering strength
In case of the EUR-INR a short-term correction had found
support near the medium-term rising trendline.
From there the price took off sharply. The momentum on the
way up was so sharp that the price crossed the upper end of the
long-term rising channel. For the last few week the price has
been consolidating before it starts the next leg up.
This has allowed the momentum indicator to reach the
equilibrium line from where it can start a fresh cycle on the
upside. From a short-term perspective, the price can come down
till 76.00 where fresh longs can be added with reversal below
75.00 on a closing basis.
The target on the upside will be 80.70, ie the upper end of the
medium-term rising channel.
JPY-INR: Sub-division on the way up
As can be seen from the adjacent chart, the JPY-INR had fallen
down significantly. It achieved the equality target on the
downside. Recently the JPY-INR formed an ending diagonal,
which marked the end of the fall.
It has broken out from the bullish pattern as well as from the
medium-term falling channel. Thus, the trend has turned bullish
from a medium-term perspective. However, the pull-back is
breaking up into lower-degree waves.
A minor degree correction till 0.5865-0.5745 is expected before
the price starts moving higher. The key levels on the upside will
be 0.6265-0.6490.
The reversal can be pegged at 0.5660 on a closing basis.
TREND & VIEW
USD-INR: Pit stop
Since the break-out from an ending diagonal in May, the USD-
INR has rallied smartly.
On the way up it has crossed multiple resistances.
It has achieved the conservative equality target on the upside,
ie 60.57.
Since then it has entered correction mode. From a short-term
perspective, the price can come down till 59-58.70.
In that region one can look for initiating fresh long positions
with reversal below 57.80 on a closing basis.
Our aggressive equality target on the upside is 63.30.
CURRENCY TECHNICALS

Jun Jul Aug Sep Oct Nov Dec 2013 Feb Mar Apr May Jun Jul Aug
51.0
51.5
52.0
52.5
53.0
53.5
54.0
54.5
55.0
55.5
56.0
56.5
57.0
57.5
58.0
58.5
59.0
59.5
60.0
60.5
61.0
61.5
62.0
62.5
63.0
63.5
64.0
64.5
57.80
63.30
59
58.70
USDINR - INDIAN RUPEE (60.0300, 60.3940, 59.9000, 60.0600, -0.15100)
20
30
40
50
60
70
80
Relative Strength Index (65.4404)
August September November 2013 February April May June July Augu
79.5
80.0
80.5
81.0
81.5
82.0
82.5
83.0
83.5
84.0
84.5
85.0
85.5
86.0
86.5
87.0
87.5
88.0
88.5
89.0
89.5
90.0
90.5
91.0
91.5
92.0
92.5
93.0
93.5
94.0
94.5
95.0
95.5
0.0%
23.6%
38.2%
50.0%
61.8%
100.0%
89.50
93.85
88.40
86.90
GBPINR (92.0020, 92.0900, 90.3900, 90.5100, -1.48000)
0
5 KST (-0.05144)

gust September November 2013 February April May June July August
63.0
63.5
64.0
64.5
65.0
65.5
66.0
66.5
67.0
67.5
68.0
68.5
69.0
69.5
70.0
70.5
71.0
71.5
72.0
72.5
73.0
73.5
74.0
74.5
75.0
75.5
76.0
76.5
77.0
77.5
78.0
78.5
79.0
79.5
80.0
80.5
81.0
81.5
82.0
76.00
80.70
75.00
EURINR (78.3100, 78.5120, 77.4670, 77.5550, -0.77300)
0
5 KST (0.27730)

August September November 2013 February April May June July August
0.51
0.52
0.53
0.54
0.55
0.56
0.57
0.58
0.59
0.60
0.61
0.62
0.63
0.64
0.65
0.66
0.67
0.68
0.69
0.70
0.71
0.72
0.73
0.74
0.0%
23.6%
38.2%
50.0%
61.8%
100.0%
0.6265
0.5865
0.6490
0.5745
0.5660
JPYINR (0.60250, 0.60570, 0.59930, 0.60020, -0.00230)
-0.01
0.00
0.01
MACD (0.007586)
We are pleased to introduce you to Sharekhans Portfolio
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your investment portfolio so that you stop worrying about
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We have a wide range of strategies that you can choose from.
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Portfolio Management Service
INVESTMENT STRATEGY
Disciplined investment decisions are taken in specific stocks based on thorough
fundamental research.
Investments are made primarily in the Nifty Fifty or the BSE 100 scrips.
Attempts to have an exposure of minimum of 70% in the Nifty Fifty stocks and
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Endeavours to create a core portfolio of blue-chip companies with a proven track
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Fund Manager: Gaurav Dua
FUND OBJECTIVE
A good return on money through long-term investing in quality companies
PRICING
Minimum investment of Rs25 lakh
Charges
2% per annum; AMC fee charged every quarter
0.5% brokerage
20% profit sharing after the 12% hurdle is crossed at the end of
every fiscal
PROPRIME - TOP EQUITY
OVERVIEW
The ProPrimeTop Equity PMS strategy is suitable for the long-term investors looking
to create an equity portfolio through disciplined investments that will lead to a growth
in the portfolios value with low to medium risk.
Top 10 stocks
Bank of Baroda
BHEL
Cipla
HDFC Bank
Larsen & Toubro
Oil India
Reliance Communications
Reliance Industries
State Bank of India
Zee Entertainment Enterprises
Product performance
as on June 30, 2013
(In %) Scheme Sensex Nifty
1 month -3.4 -1.8 -2.4
3 month 2.3 3.0 2.8
Since inception* -7.2 7.8 8.3
Best month 11.8 11.2 12.4
Worst month -10.6 -8.9 -9.3
Best quarter 12.7 12.6 14.5
Worst quarter -12.9 -12.7 -12.5
*16-June-11
Disclaimer: Returns are based on a clients
returns since inception and may be different from
those depicted in the risk disclosure document.
We have the following strategies on offer:
ProPrime (based on fundamental research)
Top Equity Diversified Equity
ProTech (based on technical analysis)
Nifty Thrifty Diversified
Trailing Stoploss
PMS FUNDS PMS DESK
INVESTMENT STRATEGY
Disciplined investment decisions are taken in specific stocks based on thorough
fundamental research.
A balanced mix of value and growth stocks (mid-cap and small-cap) is created
that represents investment opportunities across sectors and market capitalisation.
Invests in quality value and growth stocks with good earnings visibility and healthy
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The fund manager, with the help of extensive, in-house, superior research,
identifies fundamentally sound companies to invest in.
The fund manager strives to capture the short-term trading opportunities to
maximise the potential of the swings in specific stocks.
FUND OBJECTIVE
A good return on money through long-term investing regardless of short-term volatility
PRICING
Charges
2.5% per annum; AMC fee charged every quarter
0.5% brokerage
20% profit sharing after the 15% hurdle is crossed at the end of every fiscal
PROPRIME - DIVERSIFIED EQUITY
OVERVIEW
The ProPrimeDiversified Equity PMS strategy is suitable for long-term investors
looking to create an equity portfolio through disciplined investments that will lead to a
growth in the portfolios value with medium to high risk.
Top 10 stocks
Bank of Baroda
BHEL
Cipla
Federal Bank
ITNL
Power Finance Corporation
Reliance Industries
Reliance Infrastructure
Southern Petrochemicals
Sterlite Industries (India)
Product performance
as on June 30, 2013
(In %) Scheme S&P CNX 500
1 month -7.2 -3.6
3 month -6.5 1.6
Since inception* 156.5 233.3
Best month 50.9 34.4
Worst month -23.2 -27.2
Best quarter 71.1 51.2
Worst quarter -28.5 -28.6
*27-Aug-04
FUND MANAGERS VIEW
The market experienced immense volatility throughout the last month on account of
a huge fall in the rupee against the dollar. The local currency even broke the
psychological level of 60 on its way down, causing the foreign institutional investors
to push the sell button in the debt and equity markets. No doubt debt funds saw a
larger outflow compared with equity funds, but sentimentally the trigger was enough
to bring down specific companies as against the benchmark indices in the equity
market.
Even globally, the situation worsened on account of a slowdown in China and the
reappearance of the economic crisis in Europe. But too a large extent, the situation
was seen as manageable by the global political leaders and we did not see any risk of
another panic sale in our stock market.
Looking at India, certain positive developments have taken place recently which will
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the current account deficit while the declining interest rates and softening commodity
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financial year.
In the ProPrime Diversified Equity we booked profit on Britannia Industries and
Torrent Pharmaceuticals, and consolidated our position in Power Finance Corporation,
Bank of Baroda, Allahabad Bank and Cipla aggressively. This strategy of ours will
play extremely well once the market starts realising the true potential of these
companies.
We expect the market to stabilise well before the general election due next year and
see a sustainable rally after the election on the back of continued reforms, falling
interest rates, softening prices of commodities including crude and gold, and improved
corporate earnings.
Fund Manager: Suhas Samant
PMS FUNDS PMS DESK
INVESTMENT STRATEGY
This strategy has the potential to generate profits irrespective of the market
direction by going long or short on specific indices and stocks.
It invests in the Nifty and the Bank Nifty indices (via futures) and 10 stock futures.
An automated basic back-testing model is used to predict the market direction
for each of the indices and stocks which then decides the strategy to be deployed
in terms of going long or short.
The portfolio is not leveraged, ie its exposure will never exceed its value.
Fund Manager: Abhinay Jain
FUND OBJECTIVE
Absolute returns irrespective of market conditions through a long-short strategy followed in multiple investments
PRICING
Charges
AMC fees: 0%
Brokerage: 0.05%
Profit sharing: Flat 20% charged on a quarterly basis
PROTECH - DIVERSIFIED
OVERVIEW
The ProTechDiversified PMS strategy is suitable for long-term investors who desire
to profit from both bullish and bearish market conditions. The strategy involves
going long (buying) or going short (selling without holding) on certain investment
classes by predicting the market direction based on a back-tested automated model.
Product performance
as on June 30, 2013
1 month 0.5 -1.8 -2.4
3 month 3.6 3.0 2.8
FY12-13 2.3 8.2 7.3
FY11-12 8.8 -10.5 -9.2
FY10-11 9.8 10.9 15.3
FY09-10 - - -
Since inception* 26.5 15.2 15.5
Best month 11.4 11.2 12.4
Worst month -8.1 -10.6 -10.3
Worst quarter -3.5 -12.7 -12.5
*16-May-2010
FUND MANAGERS VIEW
The last month started on an extremely pessimistic note and saw the market getting
hammered out of shape without any sign of relief except in the last two days of the
month when the market rallied by a good 4% and narrowed down the months loss
to 2.4%. We have entered the July series on the back of strong momentum and
healthy participation from almost all the sectors. There is certainly hope for bulls.
The month has started on a positive note and should build on the momentum carried
from the previous series. Position-wise, the market is very light as roll-overs were the
lowest in the last month as compared with that in the last 12-18 months. This indicates
no major supply is likely to come at higher levels and the Nifty can retrace right up to
6100 or beyond. July is more likely to be a stock-oriented month rather than index-
oriented, so one should watch out for action in the mid-cap space. Most of the mid-
cap stocks were hammered very badly in the June series and are bouncing from an
extremely oversold territory with the shorts still to be covered. The key levels to
watch out for in the July series for trend reversal lie in the 5700-5750 range whereas
resistance may come around 5900-6100 levels.
The net asset value of ProTech Diversified increased by 0.46% in June this year. The
scheme has delivered close to 3.57% returns for the quarter ending June 2013. The
March quarter was not so good and the fund incurred a loss of 3.5%, the worst
quarterly loss in three years. But we are back on track and have recovered the losses
suffered in the previous quarter. We expect the scheme to deliver a strong performance
in the coming quarters as the market is resuming it trending behaviour with increased
volatility.
*Traded stocks
Investments in*
Apollo Tyres
Bank Nifty
Century Textiles
IDBI Bank
JP Associates
LIC Housing Finance
Nifty
Punj Loyd
Reliance Capital
Tata Motors
Tata Steel
Yes Bank
PMS FUNDS PMS DESK
Fund Manager: Rohit Shrivastava
FUND OBJECTIVE
Absolute returns irrespective of market conditions.
PRICING
Charges
AMC fees: 0%
Brokerage: 0.05%
PROTECH - NIFTY THRIFTY
OVERVIEW
The ProTechNifty Thrifty PMS strategy is suitable for long-term investors who
desire to profit from both bullish and bearish market conditions. The strategy in-
volves going long (buying) or going short (selling without holding) on Nifty futures
by predicting the market direction based on a back-tested automated model.
Product performance
as on June 30, 2013
1 month 2.8 -1.8 -2.4
3 month 0.2 3.0 2.8
FY12-13 3.7 8.2 7.3
FY11-12 13.1 -10.5 -9.2
FY10-11 9.2 10.9 11.1
FY09-10 14.7 80.5 73.8
Since inception* 154.1 91.6 93.4
Best month 28.9 28.3 28.1
Worst month -17.1 -23.9 -26.4
Worst quarter -11.7 -25.0 -24.5
*01-Feb-2006
FUND MANAGERS VIEW
June 2013 was a good month with the ProTech Nifty Thrifty giving 2.8% returns
but the June quarter was narrow as trends remained volatile. We recently witnessed
the trends reverse very fast. Such rapid reversal of trends often takes a lot of the
returns made from a previous trend off the table. The Nifty itself is in a narrow range
where the standard deviation is at a multi-year low on a weekly time frame. Trend-
following systems need bigger trading ranges for optimal performance.
Our view of the market remains positive in the short term but negative in the medium
term. The range of 5500-6100 seen for the last six months should break going ahead
and widen in favour of bigger moves with more downside potential.
Investments in
Nifty Index
INVESTMENT STRATEGY
The strategy has the potential to generate profits irrespective of the market
direction by going long or short on Nifty futures.
An automated basic back-testing model is used to predict the market direction
for the Nifty which then decides the strategy to be deployed in terms of going
long or short.
The portfolio is not leveraged, ie its exposure never exceeds its value.
PMS FUNDS PMS DESK
Fund Manager: Rohit Shrivastava
FUND OBJECTIVE
Absolute returns irrespective of market conditions.
PRICING
Charges
AMC fees: 0%
Brokerage: 0.05%
PROTECH - TRAILING STOPS
Product performance
as on June 30, 2013
1 month -1.1 -1.8 -2.4
3 month -1.2 3.0 2.8
FY12-13 14.9 8.2 7.3
FY11-12 29.0 -6.1 -4.6
FY10-11 - - -
FY09-10 - - -
Since Inception* 46.5 4.7 5.2
Best month 9.1 11.3 12.4
Worst month -4.4 -8.9 -9.3
Worst quarter -1.2 -12.7 -12.5
*09th May 2011
FUND MANAGERS VIEW
June 2013 was negative for ProTech Trailing Stops in terms of returns. But over the
last two quarters we have managed to keep the funds capital intact in what has been
a very difficult market for its lack of trend from an index perspective. Stocks did
exhibit small moves but as we keep our eye on the index as well while strategising,
we were pushed back after every move by the volatility and over-night gaps. We
hope to take a more aggressive stance on the market as it eventually breaks out of the
last six months trading range. That should see us get rewarded for our patience. This
has been the slowest period for the funds returns since its inception.
Our view of the market remains positive in the short term but negative in the medium
term. The range of 5500-6100 seen for the last six months should break and widen in
favour of bigger moves with more downside potential.
Investments in
Nifty Index
Stock futures
INVESTMENT STRATEGY
This strategy spots the winning trades based on technical analysis vs time frame-
based portfolios, basically the momentum calls.
A risk model has been developed for stock portfolio allocation that reduces the
risk and portfolio volatility through staggered building of positions.
It is non-leveragedthe exposure will never exceed the value of the portfolio.
OVERVIEW
Our ProTechTrailing Stops PMS strategy is ideal for Traders and Investors look-
ing for Regular Income from trading and desire to make profits in both bullish and
bearish market conditions. It is designed to payout book profits on monthly basis.*
It is also for those investors who are looking for better income than Fixed Income
or Deposits. This strategy involves going Long (buying) or Short (selling without
holding) on stock futures.
* Terms and conditions apply
PMS FUNDS PMS DESK
Advisory Products & Services
The Advisory Desk is a central desk consisting of a Mumbai-based expert team
that runs various sample model portfolios (for illustrative purposes only) for clients
of all profiles, be they traders or investors. For investors, it has the Portfolio
Doctor service under which it reviews an existing portfolio on various parameters
and suggests changes to improve its performance. For traders, it has four products
in all: MID Intraday, MID Swing, MID Option and MID Delivery.
All MID products are different from Sharekhans research-based technical and
fundamental offerings as these essentially try to capture trading opportunities in
liquid stocks where momentum is expected before or after some event including the
announcement of results or where some news/event is probable. These calls are
rolled out by the Advisory Desk based on the market pulse and before generating an
MID call, all market news on the stock as well as its technical and derivative indicators are thoroughly checked.
Advisory products are ideal for those who do not have time to either monitor the market tick by tick or shift through pages of research for
data or pour over complex charts to catch a trend. However, all these products require perfect discipline and money management.
MONTHLY PERFORMANCE
MID TRADES
There are four different types of MID calls.
MID Swing: These are positional long/short ideas based on fun-
damental rationales/events/news as well as technical checks.
These ideas come with proper stop losses and probable targets.
MID Delivery: This is a long-only cash market delivery product
where ideas are generated based on the market pulse (and not
fundamental research). These ideas come with proper stop losses
and probable targets for a maximum period of one month.
For more details on any of the Advisory Desk products write to us at info@sharekhan.com
READY FOR ROARING ADVICE
#Please note there may be some deviation in the actual performance reported in TradeTiger due to a difference in the method of closure of an idea in a particular month.
N
E
W
Portfolio Doctor evaluates an existing portfolio on various parameters and suggests recommendations on a
regular basis to improve its performance. It is targeted at long-term investors with a portfolio value of more
than Rs10 lakh. The Portfolio Doctor service involves three simple steps:
analysis of an existing portfolio, realignment of the portfolio with Sharekhans
creation of a Model Portfolio. recommendations
FOR INVESTORS
PORTFOLIO DOCTOR
FOR TRADERS
DERIVATIVE IDEA
Derivative Idea is generated by the Sharekhan Derivatives Research
Desk based on the analysis of open interest, implied volatility and
put-call ratio. It is a leveraged product and ideal for aggressive
traders. Calls in Derivative Idea are accompanied by proper stop
loss, targets, time frame and quantity to execute.
MID Options: These are directional calls in the options seg-
ment based on the analysis of the open interest and the put-call
ratio in the market. These too come with proper stop losses and
probable targets.
MID Intraday: These are long/short ideas based on fund flow
and technical levels. As is apparent from the name, these calls
are meant for intra-day trading. All MID Intraday calls are ac-
companied by proper stop losses and probable targets.
Derivative Ideas performance#
Ticket size (Rs) 300,000
Month June 2013 YTD FY14
No. of calls 47 98
Profit and loss (Rs) 26,213 34,166
Returns (%) 8.74 11.39
ADVISORY DESK
MID performance#
Product MID Intraday MID Swing MID Delivery MID Option
Month June 2013 YTD FY14 June 2013 YTD FY14 June 2013 YTD FY14 June 2013 YTD FY14
No. of calls 76 186 7 27 22 71 31 78
Profit booked 46 110 3 13 11 38 19 43
Stop loss hit 30 76 4 14 11 33 12 35
Strike rate (%) 61 59 43 48 50 54 61 55
Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a postition in the mutual funds mentioned in the article.
Every individual has a different investment requirement, which depends on his financial goals and risk-taking capacities. We at Sharekhan
first understand the individuals investment objectives and risk-taking capacity, and then recommend a suitable portfolio. So, we suggest
that you get in touch with our Mutual Fund Advisor before investing in the best funds.
MF PICKS
SHAREKHANS TOP MUTUAL FUND PICKS (EQUITY) JUNE 13, 2013
MUTUAL FUNDS DESK
Data as on June 04, 2013
Scheme name Star NAV (Rs) Returns (%)
rating Absolute Compounded annualised
6 months 1 year 3 years 5 years Since inception
Large-cap funds
ICICI Prudential Focused Bluechip Equity Fund - Ret 18.4 0.2 22.2 9.0 13.4 12.9
UTI Wealth Builder Fund - Series II 21.8 -7.0 7.8 8.7 -- 19.1
Birla Sun Life Top 100 Fund 25.2 -1.4 22.6 7.3 8.6 12.9
Franklin India Bluechip 233.6 -0.1 19.8 6.9 10.1 24.3
UTI Top 100 Fund 31.0 -1.9 21.1 6.1 5.4 11.5
Indices
BSE Sensex 19,545.8 1.0 22.2 4.5 4.7 16.5
Mid-cap funds
SBI Emerg Buss Fund 56.4 -3.7 27.3 16.9 12.3 22.0
IDFC Premier Equity Fund - Reg 38.7 -2.3 22.2 11.3 14.0 19.3
HDFC Mid-Cap Opportunities Fund 18.0 -1.6 18.5 9.6 14.0 10.4
UTI Mid Cap Fund 34.2 -3.8 18.7 4.9 9.0 15.5
Reliance Long Term Equity Fund 15.4 -10.2 11.7 2.0 6.1 6.9
Indices
BSE MID CAP 6,412.4 -8.3 10.4 -2.4 0.1 21.3
Multi-cap funds
UTI Opportunities Fund 31.7 -1.4 20.2 10.2 13.2 15.8
UTI Equity Fund 62.3 0.6 22.7 8.9 10.5 11.0
Franklin India Prima Plus 247.2 -1.1 21.8 8.1 9.3 18.7
Canara Robeco Equity Diversified 61.5 -2.3 18.7 6.5 12.0 20.5
Templeton India Growth Fund 121.9 1.0 22.9 3.2 6.9 16.9
Indices
BSE 500 7,398.2 -1.5 19.7 2.6 4.0 15.0
Tax saving funds
Axis Long Term Equity Fund 15.1 2.1 28.0 11.6 -- 12.8
Franklin India Taxshield 237.7 -0.4 20.4 8.9 10.4 25.1
IDFC Tax Advantage (ELSS) Fund - Reg 21.7 -2.6 24.8 6.6 -- 19.0
Canara Robeco Equity Taxsaver 28.8 -2.2 18.3 6.3 -- 27.7
Birla Sun Life Tax Plan 14.8 -0.9 23.0 5.8 5.2 6.1
Indices
CNX500 4,652.6 -1.0 20.8 3.0 4.6 8.5
Thematic funds
Canara Robeco FORCE Fund - Reg 16.2 0.6 31.5 10.7 -- 13.8
Franklin Build India Fund 13.2 -0.1 19.8 6.9 10.1 24.3
ICICI Prudential Service Industries Fund 19.7 3.4 29.1 6.8 4.3 9.4
Sundaram Rural India Fund - Reg 16.1 -5.6 21.1 6.1 3.8 7.0
Birla Sun Life Special Situations Fund 9.5 -4.5 18.8 0.4 2.0 -0.9
Indices
S&P Nifty (CNX Nifty) 5,919.5 0.5 22.1 4.8 5.2 14.2
Balanced funds
ICICI Prudential Balanced 56.1 2.3 20.3 10.7 9.2 13.5
HDFC Balanced Fund 62.6 -0.7 12.6 8.4 12.8 15.5
FT India Balanced Fund 56.1 3.3 20.7 7.6 8.5 13.6
Birla Sun Life 95 345.7 1.1 20.0 7.3 11.2 21.3
HDFC Prudence Fund 232.4 -1.1 13.3 6.8 13.3 19.3
Indices
Crisil Balanced Fund Index -- 3.3 19.2 6.5 7.1 13.0
MF PICKS
SHAREKHANS TOP SIP FUND PICKS MAY 9, 2013
MUTUAL FUNDS DESK
Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a postition in the mutual funds mentioned in the article.
Every individual has a different investment requirement, which depends on his financial goals and risk-taking capacities. We at Sharekhan
first understand the individuals investment objectives and risk-taking capacity, and then recommend a suitable portfolio. So, we suggest
that you get in touch with our Mutual Fund Advisor before investing in the best funds.
June 13, 2013
Investment period 1 year 3 years 5 years
Total amount invested (Rs) 12,000 36,000 60,000
Funds would have grown to (Rs) NAV Present Avg. annual Present Avg. annual Present Avg. annual
value (Rs) return (%) value (Rs) return (%) value (Rs) return (%)
Large-cap funds
Birla Sun Life Frontline Equity Fund - Plan A 98.9 12,662.8 6.0 40,654.9 4.3 81,810.1 6.5
ICICI Prudential Focused Bluechip Equity Fund-Ret 18.4 12,517.8 4.7 40,107.9 3.8 84,258.4 7.1
Birla Sun Life Top 100 Fund 25.2 12,380.3 3.5 39,811.3 3.5 78,712.7 5.7
Franklin India Bluechip 233.6 12,392.0 3.6 39,132.7 2.9 79,674.3 5.9
UTI Top 100 Fund 31.0 12,348.8 3.2 38,912.7 2.7 74,403.0 4.5
BSE Sensex 19,545.8 12,501.5 4.56 38,604.9 2.4 73,673.9 4.3
Multi-cap funds
UTI Equity Fund 62.3 12,527.5 4.8 40,469.2 4.1 82,630.6 6.7
UTI Opportunities Fund 31.7 12,419.9 3.8 40,460.3 4.1 85,019.8 7.3
Franklin India Prima Plus 247.2 12,460.5 4.2 39,852.6 3.5 80,193.6 6.1
Canara Robeco Equity Diversified 61.5 12,270.3 2.5 39,527.3 3.3 82,902.7 6.8
Templeton India Growth Fund 121.9 12,473.8 4.3 38,291.8 2.1 76,777.9 5.1
BSE 500 7,398.2 12,352.1 3.20 37,716.9 1.6 72,780.1 4.0
Mid-cap funds
SBI Emerg Buss Fund 56.4 12,443.1 4.0 44,510.3 7.5 104,317.5 11.9
Franklin India Prima Fund 321.8 12,774.7 7.1 41,572.8 5.1 87,393.2 7.9
IDFC Premier Equity Fund - Reg 38.7 12,602.0 5.5 41,329.4 4.8 91,743.7 9.0
HDFC Mid-Cap Opportunities Fund 18.0 12,321.5 2.9 40,209.5 3.9 89,936.5 8.6
UTI Mid Cap Fund 34.2 12,418.5 3.8 38,913.1 2.7 81,912.9 6.5
BSE Midcap 6,412.4 11,838.0 -1.47 34,768.8 -1.2 67,440.2 2.4
Tax saving funds
HSBC Tax Saver Equity Fund 16.4 12,607.2 5.5 40,642.0 4.2 80,051.1 6.0
Franklin India Taxshield 237.7 12,448.1 4.1 40,092.5 3.8 82,639.8 6.7
Tata Tax Saving Fund - Plan A 45.6 12,489.7 4.5 39,457.1 3.2 78,223.2 5.5
Birla Sun Life Tax Plan 14.8 12,435.8 4.0 39,206.4 3.0 75,400.5 4.8
Birla Sun Life Tax Relief 96 11.5 12,460.3 4.2 38,241.6 2.1 74,264.8 4.4
CNX Nifty 5,919.5 12,489.4 4.5 38,765.9 2.6 74,019.2 4.4
Sharekhan ValueGuide
July 2013
47
Prices as on July 04, 2013
FY13 FY14E FY15E FY13 FY14E FY15E FY13 FY14E FY15E FY15/FY13 FY13 FY14E FY15E FY14E FY15E FY14E FY15E (Rs)
EQUITY FUNDAMENTALS
EARNINGS GUIDE
Sharekhan Earnings Guide
Company CMP Sales Net profit EPS (%) EPS PE (x) RoCE (%) RoNW (%) DPS Div
(Rs) growth yield
(%)
@Stand-alone financials **June ending company
Note: For Grasim and Apollo Tyres we have shifted our estimates to consolidated
AUTOMOBILES
Apollo Tyres 60.9 12,794.6 14,104.3 15,417.6 596.9 732.1 786.3 11.9 14.5 15.6 14% 5.1 4.2 3.9 19.0 18.2 18.0 16.3 0.5 0.8
Ashok Leyland 18.6 12,438.2 13,661.8 16,144.0 148.2 198.9 603.0 0.6 0.7 2.3 96% 30.9 26.5 8.1 5.9 11.2 4.5 12.9 0.6 3.2
Bajaj Auto 1,876.6 19,997.3 22,631.5 26,854.9 3,043.6 3,588.7 4,190.1 105.2 124.1 144.9 17% 17.8 15.1 13.0 45.5 43.8 36.0 33.7 45.0 2.4
M&M 982.1 40,441.2 46,828.1 54,635.8 3,262.2 3,338.9 3,790.8 53.1 54.4 61.7 8% 18.5 18.1 15.9 24.0 24.1 19.8 19.4 13.0 1.3
Maruti Suzuki 1,557.4 42,850.5 50,086.4 58,777.2 2,300.0 3,533.2 3,936.9 79.6 117.0 130.3 28% 19.6 13.3 12.0 20.6 20.5 16.6 16.3 7.5 0.5
BANKS & FINANCE
Allahabad Bank 88.2 6,343.3 7,587.2 9,047.9 1,185.2 1,772.6 2,243.3 23.7 35.4 44.9 38% 3.7 2.5 2.0 - - 14.7 16.5 6.0 6.8
Andhra Bank 82.7 4,804.3 5,281.3 6,172.3 1,289.2 1,281.2 1,506.2 23.0 22.9 26.9 8% 3.6 3.6 3.1 - - 14.4 15.1 5.0 6.0
Axis (UTI) Bank 1,265.0 16,217.4 19,482.2 22,595.5 5,179.4 6,702.2 7,811.1 110.7 143.2 166.9 23% 11.4 8.8 7.6 - - 18.7 18.7 18.0 1.4
Bajaj Finserv 635.2 5,072.4 - - 1,573.6 - - 103.0 - - - 6.2 - - - - - - 1.5 0.2
Bank of Baroda 546.6 14,945.9 17,019.3 20,224.3 4,480.7 4,970.1 5,831.1 106.0 117.6 138.0 14% 5.2 4.6 4.0 - - 14.7 15.3 21.5 3.9
Bank of India 224.6 12,790.0 14,852.4 17,283.9 2,749.3 3,964.4 4,554.2 46.1 66.4 76.3 29% 4.9 3.4 2.9 - - 15.6 15.9 10.0 4.5
CanFin Homes 136.2 109.5 137.7 162.4 54.1 68.2 81.7 26.4 33.3 39.9 23% 5.2 4.1 3.4 - - 16.2 17.0 4.0 2.9
Capital First 153.2 253.7 352.8 468.3 63.1 89.2 125.3 9.0 12.7 17.8 41% 17.1 12.1 8.6 - - 8.9 11.5 1.5 1.0
Corp Bank 349.2 5,033.8 5,809.3 6,998.8 1,434.8 1,624.5 2,034.5 93.8 106.2 133.0 19% 3.7 3.3 2.6 - - 15.9 17.6 19.0 5.4
Federal Bank 400.5 2,639.1 3,136.4 3,711.9 838.2 910.4 1,099.5 49.0 53.2 64.3 15% 8.2 7.5 6.2 - - 13.6 14.7 9.0 2.3
HDFC 852.1 5,927.5 7,281.7 8,882.2 4,848.3 5,851.5 6,926.0 31.3 38.0 45.0 20% 27.2 22.4 18.9 - - 20.8 19.9 12.5 1.5
HDFC Bank 655.2 22,663.7 27,281.1 33,089.3 6,726.2 8,205.5 10,301.2 28.3 34.5 43.3 24% 23.2 19.0 15.1 - - 20.9 22.2 5.5 0.8
ICICI Bank 1,063.7 22,212.1 26,153.0 30,448.1 8,326.2 9,349.8 11,144.9 72.2 81.2 96.8 16% 14.7 13.1 11.0 - - 13.5 14.7 20.0 1.9
IDBI Bank 71.4 8,592.6 8,960.6 10,336.3 1,882.1 2,140.5 2,553.1 14.1 16.7 20.0 19% 5.1 4.3 3.6 - - 9.7 10.7 3.5 4.9
Punjab National Bank 620.1 19,072.4 21,726.1 25,592.0 4,747.7 5,254.8 6,449.6 134.3 148.7 182.5 17% 4.6 4.2 3.4 - - 15.1 16.3 27.0 4.4
SBI 1,900.0 60,366.1 68,222.0 78,998.7 14,105.0 15,011.8 17,600.7 206.2 219.5 257.3 12% 9.2 8.7 7.4 - - 14.3 15.0 41.5 2.2
Union Bank of India 173.4 10,094.9 11,865.6 13,520.8 2,158.5 2,773.9 3,144.8 36.2 46.5 52.7 21% 4.8 3.7 3.3 - - 15.2 15.3 8.0 4.6
Yes Bank 470.2 3,476.2 4,110.2 5,351.0 1,300.7 1,312.9 1,757.4 36.3 33.3 44.6 11% 13.0 14.1 10.5 - - 18.0 18.6 6.0 1.3
CONSUMER GOODS
Bajaj Corp 251.4 606.7 749.1 919.2 167.4 203.3 261.1 11.3 13.8 17.7 25% 22.2 18.2 14.2 48.7 52.2 38.7 41.6 6.5 2.6
GSK Consumers 5,582.2 3,079.4 3,638.4 4,244.8 436.8 524.4 602.6 103.9 124.7 143.3 17% 53.7 44.8 39.0 53.9 52.5 35.3 34.4 45.0 0.8
GCPL 807.9 6,390.8 7,867.9 9,641.9 742.3 949.2 1,208.8 20.4 25.7 32.5 26% 39.6 31.4 24.9 22.0 26.4 26.0 27.2 5.0 0.6
Hindustan Unilever 601.4 26,317.2 30,866.8 35,455.3 3,232.7 3,599.8 3,970.1 14.9 16.6 18.4 11% 40.4 36.2 32.7 132.0 102.7 98.6 73.3 6.0 1.0
ITC 338.9 29,901.3 34,719.9 40,863.8 7,418.4 8,917.6 10,799.2 9.4 11.4 13.7 21% 36.0 29.7 24.7 46.0 45.6 36.8 36.7 5.3 1.5
Jyothy Laboratories 185.0 1,106.0 1,372.5 1,691.5 129.7 196.8 252.9 1.2 4.2 8.3 163% 154.2 44.0 22.3 10.8 17.0 10.8 20.3 2.5 1.4
Marico 208.7 4,596.2 5,278.8 6,168.2 370.3 451.8 554.3 5.7 7.0 8.6 23% 36.6 29.8 24.3 22.1 24.1 20.7 21.1 1.0 0.5
Mcleod Russel India 282.5 1,629.5 1,876.2 2,128.8 274.2 370.0 440.9 25.1 33.8 40.3 27% 11.3 8.4 7.0 20.7 21.4 18.2 18.9 7.0 2.5
TGBL (Tata Tea)^ 143.5 7,351.0 8,318.3 9,411.3 391.5 452.6 518.7 6.3 7.3 8.4 15% 22.8 19.7 17.1 10.8 11.9 9.1 9.8 2.2 1.5
Zydus Wellness 655.0 388.0 456.8 539.8 99.1 112.1 138.0 25.4 28.7 35.3 18% 25.8 22.8 18.6 40.5 38.0 37.6 35.1 6.0 0.9
IT / IT SERVICES
CMC 1,319.5 1,927.6 2,311.2 2,812.0 230.3 289.7 358.7 76.0 95.6 118.5 25% 17.4 13.8 11.1 35.1 34.7 27.3 27.0 17.5 1.3
HCL Technologies** 799.8 25,339.1 28.177.4 31,207.4 3,906.3 4,298.0 4,675.1 55.8 61.4 66.8 9% 14.3 13.0 12.0 34.6 30.9 29.9 26.3 12.0 1.5
Infosys 2,468.0 40,352.0 43,323.8 47,166.5 9,421.0 9,889.1 11,041.2 164.7 172.9 193.0 8% 15.0 14.3 12.8 31.8 30.2 23.8 22.5 42.0 1.7
NIIT Technologies 264.9 2,021.4 2,338.6 2,648.0 213.2 249.9 278.7 35.4 41.5 46.3 14% 7.5 6.4 5.7 28.7 27.3 20.8 20.0 8.5 3.2
Persistent Systems 492.3 1,294.5 1,485.9 1,653.5 187.7 206.4 238.0 46.9 51.6 59.5 13% 10.5 9.5 8.3 26.9 26.4 19.1 18.8 9.0 1.8
TCS 1,538.3 62,989.5 72,452.1 81,993.3 13,941.4 15,968.3 17,699.5 71.2 81.6 90.4 13% 21.6 18.9 17.0 39.1 35.8 30.6 27.9 22.0 1.4
Wipro 349.7 37,425.6 40,222.3 43,289.3 6,136.2 6,516.6 6,839.4 24.9 26.5 27.8 6% 14.0 13.2 12.6 17.8 17.5 20.4 19.0 7.0 2.0
CAPITAL GOODS / POWER
Bharat Heavy Electricals 174.8 47,617.7 39,196.7 39,027.8 6,614.7 4,664.8 4,849.3 27.0 19.1 19.8 -14% 6.5 9.2 8.8 20.0 19.8 13.8 12.9 5.4 3.1
CESC 358.4 5,317.0 5,850.1 6,234.4 618.0 645.1 666.6 49.2 51.4 53.1 4% 7.3 7.0 6.8 8.6 8.3 9.6 9.2 7.0 2.0
Crompton Greaves 88.4 12,094.4 13,407.1 15,040.1 84.6 301.3 565.6 1.3 4.7 8.8 160% 68.0 18.8 10.0 10.2 16.1 7.9 13.5 0.4 0.5
Greaves Cotton^ 60.1 1,873.3 2,135.6 2,413.2 155.6 168.3 193.8 6.4 6.9 7.9 11% 9.4 8.7 7.6 28.6 28.0 19.6 19.5 1.6 2.7
Kalpataru Power 65.7 6,085.0 7,013.9 7,804.6 129.5 177.0 206.3 8.4 11.5 13.4 26% 7.8 5.7 4.9 11.3 11.1 8.6 9.1 1.5 2.3
PTC India 49.4 8,857.0 10,927.0 12,952.0 129.0 153.6 171.5 4.3 5.2 5.8 16% 11.5 9.5 8.5 8.9 9.5 6.3 6.8 1.6 3.2
Thermax 593.5 4,690.9 5,138.0 5,600.5 349.9 367.7 411.7 29.4 30.9 34.6 8% 20.2 19.2 17.2 26.2 25.7 17.2 16.9 7.0 1.2
V-Guard Industries 472.0 1,360.2 1,699.4 2,079.0 62.9 83.8 104.6 21.1 28.1 35.0 29% 22.4 16.8 13.5 29.4 30.5 30.1 31.1 3.5 0.7
July 2013 48
Company CMP Sales Net profit EPS (%) EPS PE (x) RoCE (%) RoNW (%) DPS Div
(Rs) growth yield
(%) FY13 FY14E FY15E FY13 FY14E FY15E FY13 FY14E FY15E FY15/FY13 FY13 FY14E FY15E FY14E FY15E FY14E FY15E (Rs)
EQUITY FUNDAMENTALS EARNINGS GUIDE
#UltraTech numbers are post merger of Samruddhi Cement. *FY2012 is of 15 months, ending June 2012 as company has changed reporting year from FY to June end
INFRASTRUCTURE / REAL ESTATE
Gayatri Projects 65.6 2,022.2 2,310.3 2,958.4 73.3 106.0 128.4 24.3 35.1 42.5 32% 2.7 1.9 1.5 14.5 14.6 15.3 16.1 3.0 4.6
ITNL 143.7 6,644.9 7,333.9 7,819.7 520.2 571.2 616.1 26.8 29.4 31.7 9% 5.4 4.9 4.5 10.5 10.7 14.8 13.9 4.0 2.8
IRB Infra 95.3 3,687.2 4,642.6 5,454.5 556.7 601.2 673.3 16.7 18.1 20.3 10% 5.7 5.3 4.7 12.8 12.8 17.3 17.0 4.0 4.2
Jaiprakash Associates 52.4 13,208.7 15,209.5 17,420.5 501.0 717.0 921.0 2.4 3.4 4.3 34% 21.8 15.4 12.2 10.4 11.2 7.0 8.4 1.8 3.4
Larsen & Toubro 1,402.2 72,810.0 80,079.4 89,405.6 6,033.6 6,447.4 7,406.9 98.3 105.0 120.7 11% 14.3 13.3 11.6 10.9 10.8 16.3 16.2 12.3 0.9
Mahindra Lifespace@ 421.6 351.5 361.1 519.5 97.5 97.4 116.6 23.9 23.9 28.5 9% 17.7 17.7 14.8 9.3 11.1 8.0 9.0 6.0 1.4
Orbit Corporation 17.1 299.0 406.7 - 7.5 24.0 - 0.7 2.1 - - 25.8 8.1 - 8.6 - 2.3 - 0.0 0.0
Pratibha Industries 28.0 2,157.5 2,816.7 3,366.8 82.7 114.9 151.4 8.2 10.1 13.3 28% 3.4 2.8 2.1 16.2 17.8 16.0 17.4 0.6 2.1
Punj Lloyd 32.4 11,408.2 12,615.5 14,064.3 (7.2) 93.9 175.4 -7.4 2.8 5.3 - -4.4 11.5 6.1 10.3 11.6 2.7 5.3 0.0 0.0
Unity Infraprojects 25.5 2,039.8 2,206.4 2,396.8 92.6 93.2 114.7 12.5 12.6 15.5 11% 2.0 2.0 1.6 15.5 15.5 10.6 11.8 0.2 0.8
OIL & GAS
GAIL 333.8 47,522.7 49,515.7 53,491.7 4,022.2 3,819.2 4,428.3 31.7 30.1 34.9 5% 10.5 11.1 9.6 14.1 14.6 15.1 16.0 5.6 1.7
Oil India Ltd 567.9 9,948.0 10,360.0 11,858.0 3,588.0 3,773.0 4,368.0 60.0 62.8 72.7 10% 9.5 9.0 7.8 25.5 26.7 18.5 18.9 19.0 3.3
Reliance Ind 861.7 397,062.0 370,779.6 395,722.9 20,879.0 20,789.3 23,861.1 64.7 64.4 73.9 7% 13.3 13.4 11.7 9.8 10.3 9.6 10.0 8.5 1.0
Selan Exploration 243.6 97.1 128.6 166.5 45.8 60.0 77.2 27.2 35.7 45.9 30% 9.0 6.8 5.3 28.7 30.6 22.5 23.6 5.0 2.1
PHARMACEUTICALS
Aurobindo Pharma 187.0 5,855.3 6,965.0 7,950.6 457.3 569.7 727.7 15.7 19.6 25.0 26% 11.9 9.6 7.5 13.6 16.0 20.0 21.2 1.5 0.8
Cipla 376.0 8,279.3 9,306.8 10,514.6 1,544.9 1,663.0 1,946.9 18.7 20.7 24.2 14% 20.1 18.2 15.5 20.8 22.1 17.1 17.3 2.0 0.5
Cadila Healthcare 781.9 6,358.1 7,302.3 8,694.1 655.2 925.9 1,257.3 32.0 45.2 61.4 39% 24.4 17.3 12.7 20.2 24.0 24.1 25.2 7.5 1.0
Dishman Pharma 54.9 1,267.6 1,392.2 1,576.7 100.3 116.1 171.1 12.4 14.4 21.2 31% 4.4 3.8 2.6 11.5 14.5 10.2 13.3 1.2 2.2
Divi's Labs 962.7 2,139.9 2,568.7 3,205.5 590.6 743.1 882.7 44.5 56.0 66.5 22% 21.6 17.2 14.5 32.3 32.1 26.2 25.9 15.0 1.6
Glenmark Pharma 575.1 5,012.4 6,062.1 7,071.8 614.8 815.9 1,062.2 22.7 30.1 39.2 31% 25.3 19.1 14.7 21.9 25.8 23.3 23.6 2.0 0.3
Ipca Laboratories 684.8 2,738.8 3,220.7 3,729.8 394.7 500.4 607.9 31.3 39.7 48.2 24% 21.9 17.3 14.2 29.0 28.4 28.1 26.7 2.0 0.3
Lupin 850.7 9,461.6 11,639.2 13,745.7 1,314.2 1,616.0 2,008.1 29.4 36.1 44.9 24% 29.0 23.6 19.0 31.6 32.9 24.5 23.9 4.0 0.5
Sun Pharma 1,030.7 11,238.9 13,364.3 15,685.9 3,008.1 3,599.4 4,459.9 29.0 34.8 43.1 22% 35.5 29.7 23.9 32.1 31.8 22.5 22.3 5.0 0.5
Torrent Pharma 835.0 3,054.0 3,709.5 4,351.3 470.0 593.4 684.7 55.6 70.1 80.9 21% 15.0 11.9 10.3 35.2 33.3 35.2 30.2 23.0 2.8
AGRI-INPUTS
Tata Chemicals 272.0 14,718.6 15,288.1 16,329.9 652.5 778.3 852.6 25.6 30.5 33.5 14% 10.6 8.9 8.1 13.2 13.7 10.5 10.7 10.0 3.7
United Phosphorus 134.7 9,194.5 10,416.3 11,126.8 777.5 906.7 962.4 17.5 20.7 22.0 12% 7.7 6.5 6.1 16.9 16.3 17.0 15.7 2.5 1.9
BUILDING MATERIALS
Grasim 2,797.0 27,640.0 31,127.0 34,535.0 2,500.0 3,040.0 3,353.0 272.7 331.6 365.7 16% 10.3 8.4 7.6 19.0 18.4 12.6 11.9 22.5 0.8
India Cements 56.3 4,597.0 4,893.0 5,243.0 184.0 232.0 289.0 6.0 7.5 9.4 25% 9.4 7.5 6.0 6.0 7.0 5.0 7.0 2.0 3.6
Madras Cements 213.2 3,789.0 4,114.0 4,450.0 404.0 409.0 481.0 17.0 17.2 20.2 9% 12.5 12.4 10.6 9.0 10.0 16.0 16.0 2.5 1.2
Shree Cement* 4,554.0 5,735.0 6,138.0 6,839.0 902.0 915.0 1,059.0 258.9 262.6 304.1 8% 17.6 17.3 15.0 22.0 22.0 23.0 21.0 8.0 0.2
UltraTech Cement 1,907.0 20,174.9 22,773.7 25,227.4 2,655.4 3,005.7 3,220.0 96.9 109.7 117.5 10% 19.7 17.4 16.2 22.5 21.4 16.6 15.3 8.0 0.4
DISCRETIONARY CONSUMPTION
Eros Intnl Media 130.5 1,067.9 1,265.1 1,455.7 154.6 178.9 212.2 16.8 19.5 23.1 17% 7.8 6.7 5.6 16.6 17.5 16.6 16.9 1.5 1.1
Indian Hotel Co 48.7 3,743.4 3,968.1 4,449.8 0.2 19.5 75.5 0.0 0.2 0.9 - - 243.5 54.1 2.7 2.6 0.9 3.8 0.8 1.6
KKCL 753.4 303.0 358.3 413.6 53.0 62.5 72.3 43.0 50.7 58.7 17% 17.5 14.9 12.8 30.5 31.9 23.4 24.5 17.5 2.3
Raymond 241.0 4,069.0 4,792.0 5,437.0 40.7 106.3 171.0 6.6 17.3 27.9 106% 36.5 13.9 8.6 11.1 13.4 7.4 11.0 1.0 0.4
Relaxo Footwear 793.0 1,009.8 1,196.8 1,420.9 44.8 52.2 64.1 37.3 43.5 53.4 20% 21.3 18.2 14.9 23.7 25.2 17.8 19.7 2.0 0.3
Speciality Restaurants 151.2 226.9 293.8 387.3 23.4 33.4 53.9 5.0 7.1 11.5 52% 30.2 21.3 13.1 15.4 22.3 11.0 15.7 1.0 0.7
Zee Entertainment 241.7 3,699.6 4,283.8 5,166.3 713.0 799.0 1,017.9 7.4 8.3 10.6 20% 32.7 29.1 22.8 27.7 30.4 19.3 21.4 2.0 0.8
DIVERSIFIED / MISCELLANEOUS
Aditya Birla Nuvo 1,026.0 9,595.2 10,490.5 11,366.1 423.1 571.5 620.3 32.5 44.0 47.7 21% 31.6 23.3 21.5 9.7 9.5 7.9 7.9 6.5 0.6
Bajaj Holdings 770.5 336.9 - - 1,856.4 - - 166.8 - - - 4.6 - - - - - - 25.0 3.2
Bharti Airtel 301.2 80,459.0 85,457.0 93,831.0 2,516.0 4,359.0 5,918.0 6.6 11.5 15.6 54% 45.6 26.2 19.3 8.6 9.8 7.8 9.4 1.0 0.3
Bharat Electronics 1,248.2 6,103.9 6,126.7 6,527.0 889.9 862.4 988.6 111.2 107.9 123.6 5% 11.2 11.6 10.1 14.6 14.5 11.1 11.0 22.3 1.8
Gateway Distriparks 105.0 925.0 1,156.0 1,355.0 126.0 148.0 180.0 11.6 13.6 16.6 20% 9.1 7.7 6.3 17.8 20.0 18.6 21.3 6.0 5.7
Max India 209.4 10,624.0 - - 784.1 - - 29.5 - - - - - - - - - - 12.2 5.7
Ratnamani Metals 144.0 1,201.0 1,286.0 1,388.0 136.0 137.0 158.0 29.3 29.5 34.0 8% 4.9 4.9 4.2 23.4 22.2 19.5 19.2 4.0 2.8
Sintex Industries 39.4 5,107.6 5,926.7 6,817.8 389.0 425.4 493.5 11.9 13.0 15.1 13% 3.3 3.0 2.6 11.7 12.4 12.2 12.4 0.7 1.8
July 2013
49
Remarks
Automobiles
Apollo Tyres Apollo Tyres is the market leader in truck and bus tyre segments with a 28% market share. The demand is
expected to remain subdued in the near term, given the sluggishness in the domestic OEM and the European
operations. The margins may improve due to softening of raw material prices. The company is planning to acquire
100% stake in US-based Cooper Tyres, which is 2.5x its size. Since the acquisition is debt funded it would put
substantial stress on the balance sheet. Further, any adverse movement in raw material prices and slowdown in
the global economy would exert pressure on the cash flows. We have kept the price target for the stock under
review.
Ashok Leyland Ashok Leyland, the second largest commercial vehicle (CV) manufacturer in India, is a pure CV play. The new
greenfield facility in Pantnagar in Uttaranchal has provided strategic cost and diversification benefits. The company
has ventured into LCV space with the launch of Dost together with Nissan and is witnessing significant ramp-up
in volumes. It has also entered into construction equipment space in JV with John Deere.
Bajaj Auto Bajaj Auto is a leading two-wheeler maker. It is moving up the value chain by concentrating on the executive and
premium motorcycle segments. The launch of the new Pulsar and the KTM range would help it maintain its
leadership in the premium bike segment as well as its domestic volume growth. Exports remain the key for the
company to drive the overall volumes.
M&M M&M is a leading maker of tractors and utility vehicles in India. Though the automotive demand may moderate
due to moderation in the UV demand and increasing competition, but the tractor demand would recover on the
back of a normal monsoon and better crop realisation. Associating with world majors in passenger cars and
commercial vehicles has helped it diversify into various automobile segments. The value of its subsidiaries adds to
its sum-of-the-parts valuation. Higher farm incomes, strong rural positioning, lower vulnerability to interest rates
make M&M a proxy play on food inflation.
Maruti Suzuki Maruti Suzuki is Indias largest small carmaker. Though the diesel demand is witnessing pressure due to a hike in
diesel prices, but the petrol segment is witnessing recovery due to narrowing differential between petrol and diesel
prices. Recently the company successfully diversified into the MPV segment with the launch of Ertiga. Suzuki of
Japan has also identified India as a manufacturing hub for small cars for its worldwide markets. With the merger
of SPIL, the diesel engine manufacturing arm of the Suzuki group, we expect synergistic benefits for Maruti.
Banks & Finance
Allahabad Bank With a wide network of over 2,200 branches spread across India, Allahabad Bank enjoys a strong hold in north
and east India. However, the bank has been recently plagued with severe asset quality issues and has the highest
amount of stressed loans among its public peers.
Andhra Bank Andhra Bank, with a wide network of over 1,800 branches across the country, has a strong presence in south
India especially in Andhra Pradesh. Though it is trading at an attractive valuation, the concerns on asset quality
front and political situation within the state could affect its operations.
Axis Bank Axis bank continues to grow faster than the industry rate and is diversifying its book in favour of retail. Notably,
the bank has maintained a delicate balance between balance sheet growth and profitability. Besides the core
banking business, the bank has forayed into the asset management business and acquired the securities and
investment banking business of Enam Securities. We expect the earnings growth to remain strong driven by a
healthy operating performance.
Bajaj Finserv Bajaj Finserv is actively present in businesses such as vehicle finance, consumer finance, distribution etc, with
insurance being the dominant contributor to its revenues. It is one of the few top players in the fast-growing life
insurance segment and also has a sizeable presence in the general insurance segment. Its consumer finance business
(Bajaj Finance) has shown a robust performance and is likely to boost the earning of Bajaj Finserv.
Bank of Baroda Bank of Baroda is among the top public sector undertaking (PSU) banks having a sizeable overseas presence (100
offices in 24 countries) and a strong domestic network of over 4,200 branches across the country. It has a stronghold
in the western and eastern parts of India. The banks performance metrics remain superior to other PSU banks
though recent deterioration in asset quality raises concern.
Bank of India Bank of India has a network of over 4,000 branches, spread across the country and abroad, along with a diversified
product and services portfolio, and steadily growing assets. The operating performance has weakened due to margin
deteriorations. Further, the rising stress on asset quality and cautious growth outlook could impact the earnings growth.
CanFin Homes CanFin Homes is a housing finance company sponsored by Canara Bank. It was set up in 1987. It offers a range of
products on housing, such as loans for home purchase, home construction, home improvement/extension and site
purchase as well as non-housing finance. The company has 69 branches of which 65% are based in south India. The
company has a loan book of over Rs4,000 crore. The companys renewed focus on growth and the recent aggressive
expansion of its branch network have put it on a high growth path for the next few years. We believe the operational
performance and return ratios of CanFin are improving, which should lead to a re-rating of the stock.
EQUITY FUNDAMENTALS
EARNINGS GUIDE
July 2013 50
Remarks
Capital First Capital First (the erstwhile Future Capital Holdings) has been acquired by the global private equity firm Warburg
Pincus (70.3% stake). The present management has taken several initiatives to tap the high-growth retail product
segments like gold loans, loan against property, and loan against shares. It has a strong capital adequacy ratio and
a sound asset quality. Its loan book is expected to more than double to over Rs10,000 crore in the next three
years. We believe the change in the ownership, the capital infusion and the ability to aggressively grow its loan
book in the retail and the small and medium enterprise segments could result in the re-rating of the stock.
Corp Bank Corporation Bank is a mid-sized PSU bank having a relatively higher presence in South India. The bank is predominantly
exposed to the corporate segment constituting ~50% of its book. Due to a higher dependence on wholesale business
and low current and savings account ratio, the margins operational performance lags to its peers.
Federal Bank Federal Bank is the fifth largest private sector bank in India in terms of asset size and has traditionally been a
strong player in south India, especially Kerala. Under the new management, the bank has taken several initiatives,
which would improve the quality of earnings and asset book.
HDFC HDFC is among the top mortgage lenders providing housing loans to individuals, corporates and developers. It
has interests in banking, asset management and insurance through its key subsidiaries. As these subsidiaries are
growing faster than HDFC, the value contributed by them would be significantly higher going forward.
HDFC Bank HDFC Bank was established in 1994 as part of the liberalisation of the Indian banking industry by the Reserve
Bank of India (RBI). It was one of the first banks to receive an in-principle approval from the RBI to set up a
private sector bank. Its relatively high margins (compared with its peers), strong branch network and better asset
quality make HDFC Bank a safe bet.
ICICI Bank ICICI Bank is Indias largest private sector bank with a network of over 3,000 branches in India and a presence in
around 18 countries. The bank has once again entered an expansionary mode after making a conscious effort to
contract its advances book due to asset quality concerns. The bank offers substantial value unlocking opportunities
from the insurance and securities businesses.
IDBI Bank IDBI Bank is one of leading public sector banks of India. The bank is gradually working towards improving its
liability base and expanding the retail book, which is likely to reflect in the form of better margins and return ratios.
Due to rising asset quality risks and slower business growth, the stock is likely to underperform in the near term.
PNB Punjab National Bank has one of the best deposit mixes in the banking space, with low-cost deposits constituting
around 38% of its total deposits. This helps it to maintain one of the highest margins in the sector. A strong
liability franchise and technology focus will help the bank to increase its core lending operations and fee income
related-businesses. In view of the weakness in economy and relatively higher exposure to troubled sectors, the
asset quality has come under stress.
SBI State Bank of India is the largest bank of India with loan assets of over Rs10 lakh crore. The loan growth for
FY2013 was above industry average while the core operating performance was largely stable. The successful
merger of the associate banks and value unlocking from insurance business could provide further upside for the
parent bank. The asset quality of the bank would remain a key monitorable in the near term.
UBI Union Bank has a strong branch network and an all-India presence. The bank aspires to become the largest retail
bank. Hence, it has ramped up its manpower and infrastructure. Though the earnings growth has come under
pressure but the asset quality has shown some improvement in the recent quarters which is positive for the bank.
Yes Bank Yes Bank, a new generation private bank, started its operations in November 2004 and is the only greenfield bank approved
by the RBI in the last decade. The bank is promoted by Rana Kapoor and Ashok Kapur. Yes Bank follows a unique business
model based on knowledge banking, which offers product depth and a sustainable competitive edge over established banking
players. Despite the adverse environment, the Bank has maintained a strong growth and impeccable asset quality.
Consumer goods
Bajaj Corp Bajaj Corp is the third largest player in the hair oil segment and has emerged as the dominant player in the
premium light hair oil (LHO) category with its Almond Drops hair oil. With its strong brand positioning, distribution
strength and healthy balance sheet, it is well poised to ride on the strong consumer demand emerging due to the
rising disposable income and growing aspirations of the Indians. Any initiative to expand its limited product
portfolio or strengthen its core business would be the key upside trigger for the stock.
GSK Consumers GSK is a leading player in the MFD segment with a close to 70% share in the domestic market. Judicious new launches
and brand extensions, and the expansion of its distribution reach have helped GSK to stay ahead of the competition
and maintain its pricing power over the years. In a bid to de-risk its business model, GSK has expanded its product
portfolio by entering into new categories such as biscuits, noodles, energy bars, sports drinks and oats in the recent
years. With cash balance of close to Rs1,500 crore the company can invest in growth initiatives as well as reward its
investors with a healthy dividend payment. The recent open offer by the promoter acted as an additional trigger for
the stock, which remained firm on the bourses. We maintain a Hold recommendation on the stock.
July 2013
51
Remarks
EQUITY FUNDAMENTALS
EARNINGS GUIDE
GCPL Godrej Consumer Products Ltd (GCPL) is a major player in personal wash, hair colour and household insecticide
market segments in India. The recent acquisitions of Darling Group, Tura, Megasari and Latin American companies
have helped the company to expand its geographic footprint. We believe the decent sales volume growth in the
domestic business coupled with a strong growth in the Indonesian, African and Argentine businesses would help
GCPL to achieve an above 20% CAGR top line and bottom line growth over FY2013-15.
HUL HUL is Indias largest FMCG company. It would achieve around 17% Y-o-Y top line growth driven by a mix of
sales volume and a price-led growth. However, the subdued volume growth is likely to sustain the pressure on the
profitability in the near term. Overall, we expect HULs bottom line to grow at a CAGR of 10% over FY2013-15.
In the long term, HUL will be one of the key beneficiaries of the Indian consumerism story.
ITC ITC has a strategy of effectively utilising the excess cash generated from its cash cow, the cigarette business, to
strengthen and enhance its other non-cigarette businesses. This would nurture the growth of these businesses some
of which are at a nascent stage. Thus, we believe the company will deliver a sustained and steady growth in
coming years.
Jyothy Labs Jyothy Laboratories Ltd (JLL) is the market leader in the fabric whitener segment in India. With the successful
integration of Henkel and the induction of a new management team led by Mr S Raghunanadan, JLL is transforming
itself from a one-brand wonder to an aggressive FMCG player. We expect JLLs top line to grow at a CAGR of
close to 25% and a strong improvement in the OPM would help the company to achieve an exponential growth in
bottom line over FY2013-16. We have Buy rating on the stock with a price target of Rs 254.
Marico Marico is among Indias leading FMCG companies. Its core brands, Parachute and Saffola, have a strong footing
in the market. It follows a three-pronged strategy which hinges on expansion of its existing brands, launch of new
product categories (especially in the beauty and wellness space) and growth through acquisitions. While the domestic
product portfolio is likely to achieve a steady growth in volumes, the international business is expected to post a
robust growth on the back of an increase in distribution to neighbouring countries and extension of its international
product portfolio over the long run.
Mcleod Russel Mcleod Russel is the worlds largest tea producer with an annual tea production of close to 100 million kg. With
tea estates in India and Africa, it is well poised to take advantage of the current favourable global demand-supply
scenario. With the expectations of a substantial improvement in its sales realisation and a volume growth in mid
to high single digits (in the domestic market and the international subsidiaries), the companys consolidated top
line and earnings are expected to grow at CAGR of 14.3% and 27.0% respectively over FY2013-15.
TGBL Over the past few years, TGBL (formerly Tata Tea) has transformed its focus from being a mere tea and coffee
company to a complete beverage maker. The recent addition of Mount Everest mineral water to its product
portfolio and its tie-up with Pepsico Inc to make a mark in the non-carbonated beverage space are likely to be the
new growth drivers in the long run. Also, its JV with Starbucks would help it to explore opportunities in the coffee
retailing space. Its intention to acquire companies in the USA, Europe and Russia also augurs well and will
enhance its geographical footprint.
Zydus Wellness Zydus Wellness owns three high-growth brands, Nutralite, Sugar Free and Ever Yuth, in the niche health and
wellness segment. The company focuses on rampant growth by increasing the distribution of the existing products,
scaling up the existing product portfolio through variants and new product launches leveraging the three brands.
We expect the top line and bottom line of Zydus Wellness to grow at a CAGR of 18% each over FY2013-15.
IT/IT services
CMC Over the years, CMC has gradually transformed itself from a low-margin equipment provider into a well-diversified
IT services and solutions provider. Its joint-go-to-market strategy with TCS is also playing a big role in the business
transformation, with CMC gaining a strong traction in the international markets. We believe CMC has already set
the stage for the next level of growth and is likely to witness a much stronger growth in the coming years.
HCL Tech HCL Tech is one of the leading Indian IT service vendors. It has performed better than its peers in terms of
financial performance in the past few quarters on the back of a ramp-up in business from the large deals bagged
earlier and strong momentum in the IMS space. It continues to demonstrate a strong growth visibility with a
robust backlog of deals and successful execution with market share gain strategy through vendor churns/
consolidation. We remain positive on the company in view of its order wins and superior earnings visibility. HCL
Tech remains the least affected by the impending US immigration bill as compared with its large-cap peers.
Infosys Infosys is India's premier IT and IT-enabled Services Company. The March 2013 quarterly results highlight Infosys
structural issues. The companys margins and earnings quality has deteriorated significantly in the last couple of years.
We remain skeptical of the secular revival in growth in the near term and given the weak outlook given by the
management and discretionary services heavy business model.
July 2013 52
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NIIT Tech With its strong domain expertise in a few niche verticals and competitive advantage in terms of significant
contribution from its non-linear initiatives, NIIT Tech is well placed to benefit from the overall improvement in
the demand environment. The two significant pain points for the company, the GIS business and the insurance
business, showed some green shoots in the March 2013 quarter. NIIT Tech has a robust deal pipeline led by its
government vertical which comforts us on the revenue visibility front. Improvement in the margin trajectory
remains the key to re-rating of the stock.
Persistent Persistent Systems has proven expertise in the OPD space, a strong presence in the newer technologies, strength to
improve its IP base and the best-in-the-class margin profile which set it apart from the other mid-cap IT companies.
The IP-led revenue strategy of the company has started to bear fruits. Going forward, the management is aiming
to earn 25% of its revenues from the non-linear space in FY2014E. This, we believe, will differentiate the company
from the rest and help improve its margin in the coming years.
TCS TCS pioneered the IT services outsourcing business in India and is the largest IT service firm in the country. It is
a leader in most service offerings and has further consolidated its leadership through the inorganic route. TCS
with a strong base is well placed to garner incremental deals across sectors. Its consistent quarterly performance
(better than peers) coupled with the higher predictability of its earnings would keep it the Streets favourite
counter in the IT space.
Wipro Wipro is one of the leading Indian IT service companies. It has lagged the other IT biggies in terms of performance.
In the medium term we expect Wipro to demonstrate a relatively weaker earnings growth as it gets back on its feet
post-organisational restructuring. Post the de-merger of the non-core business Wipro is now a pure IT products
and services play.
Capital goods/Power
BHEL BHEL, Indias biggest power equipment manufacturer, has been the prime beneficiary of the multi-fold increase in
the investments made in the domestic power sector over the last few years. However, the order inflow has been
showing signs of slowing down which would remain a major concern for the company. The key challenge before
the company now would be to maintain a robust order inflow and maintain margin amid rising competition and
lower order inflow. The current order book of Rs115,000 crore stands at around 2.3x FY2013 sales.
CESC CESC is the power distributor in Kolkata and Howrah (backed by 1,225MW of power generation capacity) which
is a strong cash generating business. Further, it is adding 1,200MW of generation capacity which would be on
stream by FY2015. Moreover, CESC has a high degree of integrated status among peers. Despite that, the stock is
currently one of the cheapest in the Indian utility space, trading at significant discount to its book value primarily
on account of the concerns related to the losses from its retail business, Spencers. However, the retail business has
started exhibiting a store-level profit since FY2011, which is a sign of revival as per the management. Again, the
acquisition of a majority stake in First Source by CESC is an unrelated diversification (also BPO is not a high-
growth area in our view) in a time where the company itself needs large cash to fund projects in the core area
(power). Therefore, we recommend a Hold on it with a price target of Rs385.
Crompton Greaves Crompton Greaves key businessesindustrial and power systemshold a high potential in view of the investment
opportunities in the power transmission and distribution sector. Its consumer products segment is expected to
witness a high growth. Though the domestic operations remain relatively stable, the international operations went
through a restructuring. This has been the major disappointment in the last few quarters adding to the woes of
investors. On a positive note, the restructuring in Belgium is over.Now, the key thing to watch out for is the
stabilisation of its Hungarian operations. Nevertheless, the stock should remain under pressure for some time.
Greaves Cotton Greaves Cotton is a mid-sized and well-diversified engineering company. Its core competencies are in diesel/petrol
engines, power gensets, agro engines and pumpsets (engine segment) and construction equipment (infrastructure
equipment segment). The engine business accounts for ~85% of its revenue while the rest comes from infrastructure
equipment. GCL is witnessing improved revenues and margins on the back of a better outlook for the key user
industries. The foray in the mini tractor segment and international markets would open new growth avenues for
GCL. We maintain our Buy recommendation on the stock. Our price target remains unchanged at Rs95.
Kalpataru Kalpataru Power is a leading EPC player in the transmission & distribution space in India. Opportunities in this
space are likely to grow significantly, thereby providing healthy growth visibility (also current order book is 2x its
FY2013 sales). The OPM of the stand-alone business is likely to remain around 10%. JMC Projects (subsidiary)
is experiencing margin pressure which would affect the overall margin and return ratios of the company. However,
on low valuation, we retain our Buy rating with a price target of Rs115.
PTC India PTC India is a leading power trading company in India with a market share of 39% in FY2013 in the short-term
trading market. In the last few years, the company has made substantial investments in areas like power project
financing, coal trading and power tolling which have growth potential in the future. While the poor financial
health of the state electricity boards (SEBs) has elongated its working capital cycle, the recent policy push for the
SEB debt restructuring programme has eased the payment delay concerns to some extent. The recent depreciation
in the rupee against the dollar could affect its margin to some extent; hence it needs to be watched closely.
Nevertheless, its valuation continues to look attractive on an SOTP basis.
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Thermax The energy and environment businesses of Thermax are direct beneficiaries of the continuous rise in India Incs
capex. Thermax group book stands at Rs4878 crore, which is 1x its FY2013 consolidated revenues. However,
given the current environment and the cautious tone of the management on the margin and outlook, we have
lowered our price target to Rs553 and downgraded the rating to Reduce.
V Guard Ind V-Guard is an established brand in the electrical and household goods space, particularly in South India. Over the
years, it has successfully ramped up its operation and network to become a multi-product company. It has recently
also forayed into non-south India and is particularly focusing on the tier-II and III cities where there is a lot of
pent-up demand for its products. We expect a CAGR of 29% in its earnings over FY2013-15.
Infrastructure/Real estate
Gayatri Proj Gayatri Projects is a Hyderabad-based infrastructure company with a very strong presence in irrigation, road and
industrial construction businesses. The order book stands at Rs8,036 crore, which is 4.0x its FY2013 revenues. It
is also expanding its power and road BOT portfolio and plans to unlock value by offloading stake to private
equity. The company has potential to transform itself into a bigger player and we expect its net profit to grow at
a CAGR of 32% over FY2013-15.
IL&FS Trans ITNL is Indias largest player in the BOT road segment with a pan-India presence and a diverse project portfolio.
The fair mix of annuity and toll projects, and state and NHAI projects along with the geographical diversification
across 12 states reduce the risk to a large extent and provide comfort. Further, a strong pedigree along with the
outsourcing of civil construction activity helps ITNL to scale up its portfolio faster. Thus, it is well equipped to
capitalise on the huge and growing opportunity in the road infrastructure sector.
IRB Infra IRB is the largest toll road BOT player in India and the second largest BOT operator in the country with all its
projects being toll based. It has an integrated business model with an in-house construction arm which provides a
competitive advantage in bidding for the larger projects and captures the entire value from the BOT asset. Further,
it has a profitable portfolio as majority of its operational projects have become debt-free and it has presence in
high-growth corridors which provides healthy cash flow. Thus, IRB is well poised to benefit from the huge
opportunity in the road development projects on the back of its proven execution capability and the scale of its
operations.
Jaiprakash Asso Jaiprakash Associates, Indias leading cement and construction company, is all set to reap the benefits of Indias
infrastructure spending. The company has also monetised very well on the real estate properties of Yamuna
Expressway. The marked improvement in the macro environment has improved accessibility to capital and thus
eased the concerns of liquidity to some extent. However, higher leverage could act as drag on the valuation.
L&T Larsen & Toubro, being the largest engineering and construction company in India, is a direct beneficiary of the
domestic infrastructure capex cycle. Strong potential from its international business, its sound execution track record,
bulging order book and strong performance of subsidiaries further reinforce our faith in it. There also lies a great
growth potential in some of its new initiatives.
Mahindra Lifespace Mahindra Lifespace is the first in India to own two integrated business cities (IBC; a combination of SEZ and
domestic area): one in Chennai and the other in Jaipur. Both have become operational. It has acquired land at
Pune and Chennai to come up with two more IBCs. Apart from this, it has 4.42mn sq ft of residential and
commercial projects under construction across various cities and an additional land bank of 18.52mn sq ft for
future development. Consequently, its stand-alone net profit should grow at a CAGR of 9% over FY2013-15.
Orbit Corp Given its unique business model, Orbit is expected to cash on in the massive re-development opportunities in
southern and central Mumbai. Given its presence in the luxury segment, which is less price sensitive, it will be able
to revive faster once the real estate industry recovers.
Pratibha Ind Pratibha Industries is a dominant player in water & irrigation and urban infrastructure segments. It has also
diversified into other high-margin areas like road BOT, power and oil & gas. The current order book stands at
Rs6,899 crore, which is 3.2x its FY2013 revenues. Given the governments thrust on developing these segments,
we expect the net profit to grow at a CAGR of 35% over FY2013-15. The company is looking at expanding into
the structural manufacturing business instead of the HSAW pipe manufacturing business (which has been an
overhang for the past one year). This will improve the balance sheet and profitability.
Punj Lloyd Punj Lloyd is the second largest EPC player in the country (first being Larsen & Toubro) with a global presence.
However, since FY2009, the profitability has come under severe pressure due to cost overruns/ liquidated damages
in some of Simon Carves (subsidiary) projects. Thus it has put Simon Carves under administration. Further
Libyan projects will take another few quarters to begin execution. Therefore, the successful execution of its
projects along with debt reduction and working capital management will drive its growth as it enjoys a robust
order book.
July 2013 54
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Unity Infra With a well-diversified order book, Unity Infrastructure is expected to be the key beneficiary of the governments
thrust on infrastructure spending. The order book remains strong at Rs3,838 crore, which is 1.9x its FY2013
revenues. We expect its net profit to post a CAGR of 11% on the back of a strong order book during FY2013-15.
Further, it has recently forayed into the road BOT segment and has three BOT projects under its kitty.
Oil & gas
GAIL GAIL India, a leading gas transmission company, is aggressively expanding its pipeline network and plans to
invest more than Rs11,000 crore over FY2014-16 in a phased manner to expand its gas pipeline and expand the
trading business. On account of lower domestic gas production, we expect a subdued performance from its core
gas transmission business in the next couple of years. However, the LNG trading business is likely to see an uptick
in the same period. Though the long-term outlook is positive, currently the stock is facing pressure as expected
administered price mechanism (APM) gas price revision would impact the margin of its petchem business. Hence,
we maintain a Hold rating on the stock.
Oil India Oil India has several hydrocarbon discoveries across reserves in Rajasthan and the north-eastern region of India.
The total 1P (proven) and 2P (proven and probable) reserves of the company stood at 473 million barrels (mmbbls)
and 941mmbbls respectively as on March 2012. In addition to the huge oil reserves, the companys reserve-
replacement ratio is quite healthy at 1.23x, which implies a comfortable level of accretion of oil reserves through
new discoveries. Further, it has cash of around Rs10,935 crore (Rs182 per share) as on March 2012 and offers
healthy dividend pay-out (dividend yield of 4.3%), which provides comfort to investors. Further, the recent policy
reforms in terms of a partial de-regulation of diesel and a likely revision in gas prices augurs well for the company.
Reliance Ind RIL holds a great promise in E&P business with gas production from the KG basin. Further, a likely revision in the
natural gas prices will be a positive trigger for the company. In the refining space, we expect RILs GRM to pick up
with a likely improvement in the light-heavy crude oil price differential. The company is likely to fetch a premium over
Singapore Complex GRM due to its superior refinery complexity and captive use of KG-D6 gas. We expect the
petrochem margins to be maintained in the medium term on an uptick in the domestic demand. Currently, the decline
in gas output from the KG-D6 basin is weighing on the stock price.
Selan Exploration Selan is an oil exploration & production company with five oil fields in the oil-rich Cambay Basin of Gujarat. The
initiatives taken to monetise the oil reserves in its Bakrol and Lohar oil fields are likely to improve production.
Further, it intends to explore its next field, Indrora, which is the most prolific one with significant reserves. Based
on this, we expect it to ramp up production significantly, subject to approval for the new wells. We expect
production ramp-up in FY2014 and hence we expect the earnings estimates to grow by 23% (CAGR over FY2013-
15). Therefore, we retain our Buy rating on the stock with price target of Rs365.
Pharmaceuticals
Aurobindo Pharma Aurobindo Pharma is set to rebound on the back of the US Food and Drug Administration (USFDA) clearing two
of its manufacturing facilities (including one greenfield facility) and removing import-alert on Unit-VI facility,
which will help Aurobindo Pharma to ramp-up its product list in the USA, thanks to a strong product pipeline
built over a period. With the expected increase in the export-led business after resolution of the USFDA issues, the
favourable tilt in the revenue mix is likely to boost the margin, resulting in a relatively much better growth in
earnings as compared with revenues. We expect the revenues and net profit to grow at a CAGR of 17% and 26%
over FY2013-15 respectively.
Cadila Cadilas improving performance in the US generic vertical and emerging markets along with steady progress in the
CRAMS space (through JVs) will help it achieve its target of generating revenues of $3 billion by 2015. It acquired
three entities in FY2012, namely Nesher Pharma (USA), Bremer Pharma (Germany) and Biochem Pharma (India)
which should supplement the growth. It has got USFDAs clearance for its Moraiya plant, which removes one of
the vital concerns for the company. Recently, it got DCGI approval for its first new chemical entity called Lipaglyn
to treat type-II diabetes; this will add value to its R&D pipeline.
Cipla Cipla has brought about a paradigm shift in its business strategy. To revive growth, it has (1) enhanced focus on
technology intensive products in the inhalation and nasal spray segments; (2) established front-end presence in the
key markets like the USA and Europe; (3) developed an appetite for inorganic expansions; (4) decided to tap the
FTF opportunities through collaboration with major generic players in the regulated markets and (5) invested in
future growth areas like biosimilars. Besides, Ciplas base business growth would be fast-tracked in the quarters
ahead because of (1) the optimisation of the Indore formulation plants and consolidation of Cipla Medpro in
Q3FY2014. We expect 13% and 12% revenue and profit CAGR respectively over FY2013-15. We initiate coverage
on Cipla with Buy rating and a price target of Rs490.
Dishman Pharma Dishman Pharmaceutical and Chemicals is a key player engaged in CRAMS and specialty chemical businesses. The
company has invested heavily over the past four years (over Rs1,000 crore capex during FY08-11) to establish a
strong foothold in the CRAMS, API and vitamin-D businesses. After witnessing four years of sluggish performance
due to a global slowdown (that affected the CRAMS business) and heavy capex (that resulted in a sharp rise in the
fixed costs), the company is all set to record a strong operating performance on the back of enhanced capacities, the
up cycle in the CRAMS business and a substantial reduction in the debt/equity ratio due to stronger free cash flow.
July 2013
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Divis Labs Despite a weaker performance in Q4FY2013, we are confident of Divis Laboratories growth potential. The new
DSN SEZ facility at Vishakhapatnam that started in June 2011 augurs well for the company as it would improve
economies of scale and lead to tax benefits. A near debt-free balance sheet and strong cash flow are likely to help
build a war chest for pursuing strategic investments (biosimilars) and exploit the growth opportunities in niche
segments, like oncology and steroids for contraceptives.
Glenmark Pharma Glenmark exhibited an impressive operating performance during FY2013 in the core business on key generic
launches, but for higher research and development expenses and tax payments, which restricted profit growth.
Through the successful development and out-licencing of six molecules in a short span of eight years, Glenmark
has become Indias best play on research-led innovation. It has built a pipeline of 14 molecules and clinched six
out-licencing deals worth $1,672 million (active deals worth $938). It has received $200 million as initial milestone
payment. Its core business has seen stupendous success due to its focus on niche specialties.
Ipca Lab Ipca has successfully capitalised on its inherent strength in producing low-cost drugs to tap the export markets. Its
ongoing efforts in the branded formulations business in the emerging economies, the revival in the UK operations,
the pan-European initiatives, the likely approval of one additional product under institutional business and a
significant scale-up in the US business will drive its formulation exports. It has received USFDAs approval for the
Indore SEZ (US supplies expected in H2FY2014) which would help ramp up the sales in the USA.
Lupin The expected ramp-up in the launch of oral contraceptives, ophthalmic products and a robust pipeline of new
launches in the domestic and overseas markets provide strong growth visibility for Lupin. Further, with an expanded
field force and therapy focused marketing division, its formulation business in the domestic market has been
performing better than the industry. The deal with Eli-Lilly to distribute human insulin would open an incremental
revenue stream for Lupin in the Indian market.
Sun Pharma The combination of Sun Pharma, Taro, Dusa Pharma and generic business of URL Pharma offers an excellent
business model for Sun Pharma, as has been reflected in the 40% Y-o-Y revenue and 39% profit growth in
FY2013. Though Taro may not show a similar performance in the next quarter, but we expect a better performance
from Sun Pharma going forward mainly driven by (1) the resumption of sales from the US-based subsidiary
Caraco Pharma post-USFDA clearance, (2) contribution from the newly acquired Dusa Pharma and URL Pharma
in the USA and (3) launch of key products in the USA and emerging markets including India. We expect 18% and
22% revenue and PAT CAGR respectively over FY2012-15 on an organic basis. With a strong cash balance, Sun
Pharma is well positioned to capitalise on the growth opportunities and inorganic initiatives. Its debt-free balance
sheet insulates it from the negative impact of volatile currency.
Torrent Pharma A well-known name in the domestic formulation market, Torrent has been investing in expanding its international
presence. With the investment phase now over, Torrent should start gaining from its international operations in
USA, Russia and Brazil. The impending turnaround of its German acquisition, Heumann, will also drive its profitability.
However, the imposition of new tax (Budget 2013) on partnership-based units in Sikkim would be a drag on earnings.
Agri-Inputs
Tata Chemicals With a total capacity of 5.5mmtpa Tata Chemicals is the second largest soda ash producer in the world. It has
purchased 25% stake in a urea-ammonia greenfield project at Goban with investment of $290 million. Further
changes in urea policy are likely to benefit it further. Soda prices are likely to improve from the current levels
because lower cost Chinese players are also finding it tough to break even at current price. So the company
believes that the price of soda may improve from here. Demand for soda ash in India and North America remains
strong.
United Phos A leading global producer of crop protection products, intermediates, specialty chemicals and other industrial
chemicals, United Phosphorus has presence across value-added agricultural inputs ranging from seeds to crop
protection products and post-harvest activities. A diversified geography and the recent acquisition of DVA Agro
Brazil will help the company to have a strong presence in the Brazilian market and aid in inorganic growth. Its
revenues are likely to grow at 12-15% in FY2014 and EBIDTA margin is expected to remain at 18-20%. It has
also started to focus on premium products in agro-chemicals and will slowly stop selling commodities and low-
margin products.
Building materials
Grasim Grasim is better placed compared with the other large players in the cement space due to its strong balance sheet,
comfortable debt/equity ratio (0.33x FY2012), attractive valuation and diversified business. The demand for VSF
products remains strong in the global market and Grasim being a leading domestic player is well placed to capture
the incremental demand. The company is in the process of adding another 120,000 tonne capacity in VSF by
FY2013 at an investment of Rs1,690 crore.
July 2013 56
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India Cements India Cements installed capacity has got enhanced to 16MTPA which will result in volume growth and drive the
earnings of the company. The company is also setting up a 100MW captive power plant, which is expected to
come on stream by FY2013 and benefit the company in terms of coast saving. Further we believe avg. cement
realisation of the company in FY2014 to remain higher as compared to average realisation of FY2013.
Madras Cement Madras Cement, one of the most cost-efficient cement producers in India, will benefit from the capacity addition
carried out ahead of its peers in the southern region. The 3mtpa expansion will provide the much-needed volume
growth in the future. The regional demand remains lacklustre but on account of the improvement in the realisation
due to supply discipline and a likely change in the market mix its profitability will improve (marginally) in FY2014.
Shree Cement Shree Cements cement grinding capacity has grown to 13.5mtpa which will support its volume growth in the
coming years. It has set up 300MW power plant entirely for merchant sale which is expected to support its
revenue growth going ahead. Thus, a volume growth of the cement division and the additional revenue accruing
from the sale of surplus power will drive the earnings of the company.
UltraTech Cement UltraTech is Indias largest cement company with approximately 52 million tonne cement capacity. It has benefited
from an improvement in its market mix. Further, the ramping-up of the new capacity and savings accruing from
the new captive power plants will improve the companys cost efficiency.
Discretionary consumption
Eros Intl Media Eros is one of the largest integrated film studios in India with multi-platform revenue streams and a well-established
distribution network across the globe. With its proven track record, an impressive movie slate and its HBO
alliance coming into foray, we believe Eros is well poised to gain from the rising discretionary spending on film
entertainment driven by the countrys favourable demographics. Thus, EIML is a compelling value play on the
Indian media and entertainment industry.
Indian Hotels Co Indian Hotels is the largest hotelier in India with a vast portfolio of hotel properties around the globe. Over the long
term the company would benefit from the increase in tourism and corporate travel in India. Also, a turnaround in
profitability of its overseas properties would boost its earnings.
KKCL Kewal Kiran Clothing is a branded apparel play with four brands in its kitty. Killer, its flagship denim brand, has
created a niche space in the minds of consumers. With a gross market turnover of over Rs300 crore, Killer is ahead
of its rival, Spykar. A strong brand profile, a disciplined management and a consistent track record coupled with
a robust balance sheet position put it in a sweet spot.
Raymond Raymond is present in the fast-growing discretionary & lifestyle category of branded textiles and apparels. With
the growing income, rise in aspirations to lead a luxurious life, greater discretionary spending and favourable
demographics, the segment of branded apparels & fabrics presents a good growth opportunity and Raymond with
its brands and superior distribution set-up is very well geared to encash the same. Any development with regard to
the Thane land in the form of either joint development or disposal would lead to value unlocking and provide
significant cash to the company.
Relaxo Footwear Relaxo is present in the fast-growing footwear category, wherein it caters to customers with its four top-of-the-
mind-recall brands, viz, Hawaii, Sparx, Flite and Schoolmate. It has emerged as an attractive investment opportunity
due to its growing scale, strong brand positioning and healthy financial performance. Currently we have a BUY
with a price target of Rs845.
Speciality Rest. Speciality Restaurants is a leading player in the fine-dining space with a portfolio of well-established brands such
as Mainland China and Oh! Calcutta in its kitty. The company is a good proxy on the Indian consumption story
as several factors such as demographics, increasing disposable income and the trend of nuclear families are playing
in its favour.
Zee Entertainment Zee Entertainment Enterprises, part of the Essel group, is one of India's leading TV media and entertainment
companies. It has a bouquet of 32 channels across Hindi, regional, sports and lifestyle genres. It is best placed to benefit
from the digital addressable system regime rolled out by the government. The recent regulatory change of capping the
advertising time on TV to 12 minutes per hour remains a neutral development for the company as it will be able to
increase its advertisement rates to negate the fall in advertisement volumes.
Diversified/Miscellaneous
Aditya Birla Nuvo We like the strong positioning that ABNs businesses enjoy in their respective fields. ABN is amongst the top five
players in the insurance, asset management and telecom (Idea Cellular is the fastest growing telecom company, third
in ranking) segments. Madura Garments, with its marquee brands, and consistent and resilient growth, is a profitable
set-up. We believe in the improving macro environment ABN would be well placed to grow.
July 2013
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Remarks Remarks
Bajaj Holdings Bharti Airtel is the leader in the Indian mobile telephony space. With the regulatory overhang receding and the industry
as well as the company focusing on the quality of revenues rather than volume, better times can be expected ahead
for the sector and hence the company. The African business is facing headwinds and thus its performance remains a
key monitorable.Overall, we maintain a cautiously optimistic view on the company.
Bharti Airtel Bharti Airtel is the leader in the Indian mobile telephony space. With the regulatory overhang receding and the industry
as well as the company focusing on the quality of revenues rather than volume, better times can be expected ahead
for the sector and hence the company. The African business is facing headwinds and thus its performance remains a
key monitorable.Overall, we maintain a cautiously optimistic view on the company.
BEL Bharat Electronics, a PSU manufacturing electronic, communication and defence equipment, is benefiting from the
enhanced budgetary outlay for strengthening and modernising the countrys security. The growth in revenue is also
expected to be aided by the civilian and export orders. The companys current order book of around Rs25,000 crore
provides revenue visibility for the next three to four years. The huge cash reserve would also support the stock.
GDL With its dominant presence in the container freight station segment and recent forays into the rail freight and cold
chain businesses, GDL has evolved as an integrated logistic player. Its CFS business is a cash cow while its investments
in the rail and cold storage businesses have started bearing fruits. It is one of the largest players in the CFS business
and has also evolved as the largest player in the rail freight business as well as the cold storage business. The
proposed capex for all the three segments will strengthen its presence in each of the segments and increase its pan-
India presence. We expect GDLs revenue and net profit to grow at 17% and 6% CAGR respectively over FY2012-14.
Max India Max India is a unique investment opportunity providing direct exposure to two sunrise industries of insurance
and healthcare services. Max New York Life, its life insurance subsidiary, is among the leading private sector
players, has gained the critical mass and enjoys some of the best operating parameters in the industry. With
insurance penetration picking up in India and with the company entering into a tie-up with Axis Bank, we expect
to see a healthy growth in the companys annual premium equivalent going ahead. As the company has turned
profitable on a consolidated basis and has a treasury corpus of Rs409 crore, it has announced a dividend of 610%
in FY13 and will continue to pay dividends in the future.
Ratnamani Metals Ratnamani Metals is the largest stainless steel tube and pipe maker in India. In spite of the challenging business
environment due to increasing competition, the stock is attractively valued. The management has maintained a
strong outlook on the potential opportunities in the oil & gas sector. We expect a subdued revenue performance
in FY2013. However, we expect the EBITDA margin to inch up by close to 400 basis points which should result
in a healthy growth in profits in FY2013.
Sintex Industries A key player in the plastic specialties space, Sintex Industries has a diverse business model with presence in
construction, prefabs, custom moulding and textile businesses. However, a challenging economic environment has
slowed down the growth of its monolithic business leading to a low order book.

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