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Morning Update January 21, 2015

Domestic Closing Points (%)Change

SENSEX 28,785 522.66 1.85
WHAT IS INSIDE
BSE MIDCAP 10,728 46.79 0.44
Corporate News
BSE SMALLCAP 11,446 46.41 0.41
Oberoi Realty 3QF15 result review
NIFTY 8,696 144.90 1.69
HUL 3QF15 result review
Global Indices Closing Points (%)Change Mindtree 3QF15 result review
DOW 17,515 3.66 0.02 What to Watch
NASDAQ 4,655 20.46 0.44 Market Commentary
FTSE 6,620 34.57 0.52 Bulk Deals
DAX 10,257 14.78 0.14
CAC 40 4,446 51.09 1.16
SGX 8,740 31.00 0.36
CORPORATE NEWS
HANG SENG 24,215 263.59 1.10 Mahindra completes 51% stake acquisition in Peugeot Motocycles [ET]
NIKKEI 17,292 (73.93) (0.43) Mahindra Two Wheelers today completed the 28 million euro acquisition of 51
KOSPI 1,911 (7.77) (0.41) per cent stake in Peugeot Motocycles (PMTC), a part of the euro 54bn France-
based PSA Group. Under the terms of the agreement, Mahindra Two Wheelers
Cash (Rs mn) Buy Value Sell Value Net Value Ltd (MTWL) has infused euro 15mn into PMTC to finance projects implemented
FII 47,960 35,204 12,756 through the strategic partnership and has also bought shares held by PSA
DII 15,177 22,793 (7,616) which would allow MTWL to take a 51 per cent stake in PMTC.

Government sets up panel on UMPP bids; group to meet this week [ET]
TOP Gainers Price (Rs) (%)Change
Government has set up an expert panel to analyse the methodology adopted in
HDFC 1,252 5.9 the bidding process for ultra-mega power projects in Odisha and Tamil Nadu,
SESA STERLITE 204 5.7 which received tepid response from the private sector. The group will soon
TATA STEEL 402 4.5 submit its report after examining the bidding documents to determine if the
AXIS BANK 551 4.2 methodology adopted at the time of tendering for Odisha and Tamil Nadu
TATA MOTORS 559 3.8 UMPPs was fair, Power, Coal and Renewable Energy Minister Piyush Goyal
said today. The first meeting of the group is scheduled for Friday, sources said,
TOP Losers Price (Rs) (%)Change adding that the reason for scrapping the bids for these two UMPPs as well as
reviewing the standard bidding documents by the government is the lacklustre
GAIL INDIA 431 (2.1)
response by the private companies.
TATA POWER 82 (0.9)
MARUTI SUZUKI 3,606 (0.6) Kotak Mahindra launches social savings bank account [ET]
DR REDDY'S 3,306 (0.5) Kotak Mahindra Bank today launched Jifi Saver, a social savings bank account
M&M 1,325 (0.5) which can be seamlessly managed via Twitter and Facebook,in this region.
Developed for today's tech savvy and socially connected consumers with an
Advances Declines Unchanged active digital life, Jifi saver will take care of their needs such as online
NSE 859 683 74 shopping, on-the-go transactions and financial planning, Deepak Sharma,
BSE 1,552 1,419 120
Executive Vice President, Digital Services, Kotak Mahindra Bank, told reporters
here.
Daily Sectoral Index Change (%)
Quality of coal will determine each blocks floor price [ET]
S&P BSE CONSUMER Floor prices for coal blocks that will be auctioned to steel, sponge iron, cement
S&P BSE POWER and captive power companies will vary from Rs150 to possibly about Rs500-
600 per tonne, said several officials aware of preparations currently under way
S&P BSE IT
ahead of bids being sought. The floor price will be different for each block and
S&P BSE HEALTHCARE will be a factor of the quality of coal, rising in line with the energy content.
S&P BSE CAPITAL GOODS Although the auction methodology only mentions that the floor price will not be
less than Rs150 per tonne, it does not give any indication on the upper limit.
S&P BSE India Infrastructure

S&P BSE PSU No final plan yet for Kesoram business restructuring [BS]
S&P BSE TECK B K Birla flagship company Kesoram Industries, which is working on a
restructuring plan to come out of a financial mess, is yet to arrive at any 'firm'
S&P BSE AUTO
decision. "Business restructuring discussion at the 'committee level' is going
S&P BSE REALTY on. No final decision has been taken," Kesoram Secretary Gautam Ganguli
S&P BSE OIL & GAS said. He was reacting to rumours that Kesoram may hive off its Uttarakhand
unit, the main unit among the Birla Tyres production facilities in the country.
S&P BSE FMCG
Sources said the restructuring committee comprising two independent directors
S&P BSE BANKEX and company vice-chairperson Manjushree Khaitan was likely to arrive at a
S&P BSE METAL decision in next two to three months.
(0.5) 0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5

SBICAP Research on Bloomberg SBICAP <GO>, www.securities.com 21 January 2015 | 1

 Morning Update

Oberoi Realty 3QF15 result review | TP Rs238 (-15%) | Rating: HOLD (Unchanged)
[Amit Agarwal Ph: 91-22-4227 3330, Sarika Thorat Ph: 91-22-4227 3363]

Mulund project to drive sales volume growth

Oberoi Realtys 3QF15 results came above SSLe on the back of improvement in realization of revenues from Exquisite and the
companys hospitality wing. We believe the strong growth in sales volumes, partially aided by the launch of two new projects, is a
positive. We maintain our target price at Rs238, based on a discount of 15% to our F15e NAV of Rs280, and maintain HOLD. We
anticipate revisiting our estimates post our interaction with the companys management.

Revenues grow 17% QoQ to Rs2,171mn; net profit increases by 16% QoQ: Exquisite was the sole contributor to Oberois
revenue in 3QF15. Further revenues from the companys hospitality business increased by 14% QoQ to Rs327mn due to increase
in room rates. EBITDA margin declined to 58% in 3QF15 from 60% in 2QF15 on increase in other expenses by 43% QoQ. Increase
in other expenses was primarily driven by Prismas marketing expenses (for its launch). Net profit growth was partially aided by low
interest expenses due to capitalization of interest expense.

Sales volume increases sharply to 147,941 sq ft, aided by new launch: During 3QF15, Oberoi Realty sold a total of 147,941 sq
ft (sharp increase compared to 41,155 sq ft sold in 2QF15 and 28,350 sq ft in 3QF14). Sales during the quarter comprised sales of
50,050 sq ft in Exquisite, 25,180 sq ft in Esquire and 72,711 million sq ft in Prisma.

Mulund project launched in January 2015; Borivali project to be launched in 1QF16: Oberoi has launched its Mulund project
(its two projects are named Eternia and Enigma), in January 2015. The project has sold 300 units, with a saleable area of 0.62
million sq ft having a total value of Rs8.5bn. The project is expected to have a total area of 3.2mn sq ft of saleable area with 1600
apartments. It was launched at ~Rs12,500, which is ~20% premium compared to other newly launched projects. The company is
in the process of getting approvals for its Borivali project, which is expected to be launched in 1QF16, with total saleable area is 4.5
million sq ft.

Current gross debt of approximately Rs8.4bn: Oberoi Realty has primarily raised a debt to fund its Borivali land parcel
acquisition (worth Rs11.5bn). Oberoi Realty has already expended Rs1.1bn, as of 3QF15 for its Worli project, against an
anticipated total spend of Rs1.8bn.

Maintain HOLD: We maintain our target price at Rs238 and HOLD on the stock, based on a discount of 15% to our F15e NAV of
Rs280. We retain our discount to NAV to reflect continued weakness in the Mumbai property market. The key trigger for the stock
will be consistent improvement in sales leading to improvement in cash flows. We anticipate revisiting our estimates post our
interaction with the companys management.

SBICAP Securities Ltd 21 January 2015 | 2

 Morning Update

HUL 3QF15 result review | TP Rs650 (-10%) | Rating SELL (Unchanged)

[Sagarika Mukherjee Ph: 91-22-4227 3386]

Consumer sentiment slips further

HUL reported disappointing results as volume growth slipped below 5% (1HF15) to 3% in 3QF15. Both the core categories (S&D
and PP) reported slowdown in the premium categories indicating down trading and hence a squeeze on net realization. Top line
was also affected by phasing out of excise duty benefits, a large chunk of which has flown through this quarter. Net sales stood at
Rs77bn, (+7.6% YoY) missing SSLe by 2.4%. During the quarter, adjusted PAT de-grew by 10% YoY to Rs9.3bn and was 13%
below SSLe/consensus. Gross margin expanded by 117bps and we believe most of the benefits will flow through in the next
quarter if further price cuts are not undertaken. Ad-spends grew modestly by 5% in line with the trend seen in 1HF15 marking
weak consumer sentiment. EBITDA was at Rs13.3bn (+8.5% YoY) 5.2% below SSLe one-off provisions (Rs385mn) in employee
expenses and higher other expenses. EBITDA margin was at 17.1% up marginally by 10bps. There was an exceptional income of
Rs4bn due to surplus from property sale during the quarter.

We have revised our estimates by -2%/+8.7% for F15e/F16e to align with 9MF15 trend in revenue generation and the future benefit
of fall in crude oil/PFAD prices. We maintain our TP at Rs650 (37x F17e EPS of Rs25.6) and SELL rating on the stock.

HUL reacting promptly to fall in commodity prices to fight competition: HUL initiated price cuts almost immediately in core
categories like S&D by almost 5% in this quarter in order to fend off competition from small competitors especially in economy
brands like Wheel, Breeze and Lifebuoy. We believe the price cuts could be as deep as 10% in some brands. Top line was also
impacted by phasing out of excise duty benefits in soaps, shampoos and oral care segment by about 120bps. EBIT impact was
around 40bps (lower due to MODVAT credit) and PAT level impact was around 400bps. We believe that most of the adverse
impact will be in base by 2QF16.The sales was also impacted by black-out periods due to flushing out of high cost inventory. We
believe there will be more such periods as price cuts prompted by fall in raw material prices will occur in subsequent quarters as
well.

HUVR ready to pass on benefits to end consumer in price elastic categories: We believe that although fall in raw material
inflation will be across the board, the benefits will be passed onto only price sensitive brands/categories in order to generate
volume upsides, while some premium brands could see freebies to generate trials and eventually upgradation.

Maintain SELL rating with TP of Rs650: We have revised our estimates by -2%/+8.7% for F15e/F16e to align with 9MF15 trend
in revenue generation and the future benefit of fall in crude oil/PFAD prices. We maintain our TP at Rs650 (37x F17e EPS of
Rs25.6) and SELL rating on the stock.

SBICAP Securities Ltd 21 January 2015 | 3

 Morning Update

Mindtree 3QF15 result review I TP Rs1,240 (-12%) I Rating SELL (Downgrade)

[Dipesh Mehta Ph: 91-22-4227 3311, Neerav Dalal Ph: 91-22-4227 3458]

Inline quarter; expensive valuations lead to downgrade

Mindtree reported a steady set of numbers for 3QF15, with revenues and margins coming a tad lower and slightly ahead of
expectations, respectively. Revenue grew 0.4% QoQ to US$147.7mn (SSLe of US$148.5mn). Fee revenue grew 0.6% QoQ, driven
by 2.1% improvement in blended realization and 1.5% decline in volumes. EBIT margin improved 50bps QoQ to 17.6%, with the
adverse impact of wage hike (for ~15% of employees) negated by benefits from rupee depreciation and operating efficiencies. Net
profit grew 2.5% QoQ to Rs1,408mn (SSLe of Rs1,373mn). Though Mindtree remains one of the best performing mid-cap IT
companies, we believe that the valuations are stretched (close to its historic mean + 2SD) and thus downgrade stock to SELL with
a TP of Rs1,240 at 15x Dec16e earnings (earlier 14x).

Seasonal blip, momentum intact: In Q3, Mindtree signed deals totaling US$152mn TCV (US$615mn on TTM basis vs.
US$602mn QoQ), with TCV from new deals contributing US$46mn. Going ahead, the management expects Q4 to be a stronger
quarter due to a) better volume growth in Q4 vs. seasonally weak Q3 and b) more than one month revenues from Discoverture.
The company is witnessing strong traction in BFSI, Hitech and Retail/CPG verticals. Digital continues to be Mindtrees key growth
driver and its average deal size of digital deals has grown by 15% YoY. The top client continues to ramp up faster than company
average. Except for a top client, where an IMTS project was completed and work shifted to a local vendor, other clients are seeing
a steady ramp up. IMTS is also expected to return to growth in Q4.

Margins expected to remain steady: The management expects Q4 EBITDA margins to be similar to the 9MF15 margin of 20.1%.
The margin profile is expected to be around the same levels, with the benefits from higher fresher addition and operational
efficiencies to be ploughed back into the business.

Acquisition to strengthen Insurance practice: Mindtree has acquired Discoverture Solutions LLC for US$15mn + earnout in an
all cash deal. The company offers package implementation service of P&C insurance platform, mainly Duck Creek (~80% of
revenues). The company would add ~300 employees (~230 in India) and 15 marquee clients. The company has quarterly
annualized revenue run rate of US$14mn and has been growing at 2025% YoY and operates at margins similar to Mindtree
margins.

Conference call highlights: (a) Outstanding hedge position at US$39mn at average rate of Rs63.1, (b) DSOs decreased to 70
days vs. 72 days QoQ, (c) headcount increased by 305 employees to 13,323 (gross 1,016), (d) attrition rate rose to 18.1% vs.
15.7% QoQ on LTM basis and (e) 400 campus hires in Q4 and 2,000 in F16e.

Valuation: The stock currently trades at 19.3x/16.5x F16e/F17e EPS. We have tweaked our estimates to factor in 9M
performance, Discoverture acquisition and foreign exchange rate movement. Considering the recent run-up in stock price
(16.7%/45.3% in the last 1M/3M), we believe that the valuations look stretched and find INFY/WPRO/HCLTs valuations more
attractive. We downgrade the stock to SELL with a target price of Rs1,240 at 15x Dec16e earnings.

SBICAP Securities Ltd 21 January 2015 | 4

 Morning Update

WHAT TO WATCH
Median of 23 analysts est. shows ITC 3Q net income may climb to 26.7b rupees vs 23.85b a yr earlier
India Dec. crude oil imports +6% Y/y to 16.72m tons
India FY15 GDP growth will be ~5.5%: Finance Ministry Official
No transfer of food, fertilizer subsidy via banks now: Jaitley
India started 115m bank accounts under financial inclusion plan, banking secretary Hasmukh Adhia says
India focused U.S. ETFs lead net inflows on Jan. 16
Global funds +12.8b rupees of local stocks; domestic funds -7.62b rupees yday: Provisional data from exchanges.
Sony probed India business for alleged fraud, E-Mails Show

MONEY MARKET
US$/INR: pivot 61.7654; support 61.6258; resistance 61.8458
EUR/INR: pivot 71.5746; support 71.4425; resistance 71.6683
US$/INR: 14-day RSI 32.6531
1-Mo US$/INR NDF 62.05
3-Mo US$/INR NDF 62.65
Brent crude +0.7% to 48.34 per barrel
Gold +0.2% to US$ 1,293.73 per troy ounce
Call money rate 7.50%
One year swap rate 7.55%
Yield on 8.4% bonds maturing July 2024 at 7.72%

MARKET COMMENTARY
The Sensex and Nifty extended their four-day winning streak as the Sensex surged 523 points, while the Nifty soared 145
points to close at life-time highs. Metal stocks managed to rally strongly on China GDP data.
Major gainers were HDFC (+5.9%), SSLT (+5.7%), Tata Steel (+4.5%), Axis Bank (+4.2%) and Tata Motors (+3.8%)
Major Losers were GAIL (-2.1%), Tata Power (-0.9%), Maruti Suzuki (-0.6%), Dr Reddys (-0.5%) and M&M (-0.5%)
Metal stocks were in the limelight following the steady fourth quarter China GDP data. Sesa Sterlite soared 5.5% to Rs204.
Tata Steel rallied 4.7% to Rs403. Hindalco spurted over 3% to Rs145. NMDC and Jindal Steel advanced around 2.5% each to
reach Rs141 and Rs155, respectively.
Major blocks were seen in Britannia Industries, Tech Mahindra, Petronet LNG and Cox&Kings.

ECONOMY
12pm: New Delhi. Coal Secretary Anil Swarup will hold a press conference on coal blocks auctioning/allocation
New Delhi. STAI seminar on a Use of B Heavy Molasses or Alternative Feed Stocks for Maximizing Ethanol Production
Source: Bloomberg

MARKET TECHNICAL
Support 3 Support 2 Support 1 Closing Price Resistance 1 Resistance 2 Resistance 3

8477 8526 8611 8696 8744 8793 8878

Bulk Deals

NSE
Company Name Client Name BUY/SELL Quantity Price (Rs)
None

BSE
STAR MORGAN STANLEY ASIA (SINGAPORE) PTE SELL 375,721 943.51
Source: NSE & BSE

SBICAP Securities Ltd 21 January 2015 | 5

 Morning Update

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 Morning Update

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