Market Outlook

India Research
August 2, 2011

Dealers Diary
The key benchmark opened on a firm note tracing firm Asian stocks. US President Barack Obama's announcement of a framework agreement to lift the nation's debt ceiling and avert a sovereign default sparked a relief rally. The market breadth remained strong and indices floated well above the baseline in the morning session. With investors pocketing the earlier sessions gains, the indices slowly descended towards the baseline in early afternoon trade. The market was sharply off the day's high in afternoon trade. In addition, heavy sell-off was witnessed in the metal sector on the back of weak Chinese manufacturing data. Nonetheless, the market reversed its direction in the mid-afternoon session and stabilised in late trade with decent gains. The Sensex and Nifty closed down by 0.6% each. The mid-cap index remained flat, while the small-cap index closed down by 0.3%. Among the front runners, L&T, JP Associates, ONGC, Baja Auto and M&M gained 12%, while Jindal Steel, Sterlite Industries, BHEL, Cipla and HUL lost 0.42%. Among mid caps, Godfrey Phillips, TVS Motor, Manappuram Finance, Cox & Kings and Gujarat Mineral Development Corp. gained 610%, while Himadri Chemicals, Usha Martin, Bajaj Electricals, Bharat Forge and India Infoline lost 67%.

Domestic Indices BSE Sensex Nifty MID CAP SMALL CAP BSE HC BSE PSU BANKEX AUTO METAL OIL & GAS BSE IT Global Indices Dow Jones NASDAQ FTSE Nikkei Hang Seng Straits Times Shanghai Com Indian ADRs Infosys Wipro ICICI Bank HDFC Bank

Chg (%) 0.6% 0.6% 0.0% -0.3% 0.6% 0.2% 0.3% 0.8% -1.3% 0.5% 0.9% Chg (%) -0.1% -0.4% -0.7% 1.3% 1.0% 0.8% 0.1% Chg (%) 1.7% -1.0% 1.5% 0.8%

(Pts) 34.8 (1.5) (21.7) 35.9 12.5 69.1 43.5 50.4 (Pts) (10.8) (11.8) (40.8) 132.0 223.1 26.0 2.1 (Pts) 1.0 (0.1) 0.7 0.3

(Close) 5,517 6,914 8,284 6,457 8,320 8,828 8,843 5,886 (Close) 12,133 2,745 5,774 9,965 22,663 3,215 2,704 (Close) $63.3 $11.8 $47.3 $35.0

117.1 18,314

35.0 12,483 (175.5) 13,841

Markets Today
The trend deciding level for the day is 18,325 / 5,518 levels. If NIFTY trades above this level during the first half-an-hour of trade then we may witness a further rally up to 18,430 18,545 / 5,550 5,584 levels. However, if NIFTY trades below 18,325 / 5,518 levels for the first half-an-hour of trade then it may correct up to 18,209 18,104 / 5,485 5,453 levels.
Indices SENSEX NIFTY S2 18,104 5,453 S1 18,209 5,485 R1 18,430 5,550 R2 18,545 5,584

News Analysis
Auto sales numbers - July 2011 Cement numbers July 2011 MphasiS to acquire US-based Wyde 1QFY2012 Result Reviews Sun TV, GSK Consumer, Indraprastha Gas, KEC International, Goodyear India 1QFY2012 Result Preview DLF
Refer detailed news analysis on the following page

Advances / Declines Advances Declines Unchanged

BSE 1,204 1,646 125

NSE 582 891 46

Volumes (` cr) BSE 2,444 9,605

Net Inflows (July 29, 2011) ` cr Purch FII MFs 2,766 674

Sales 3.385 565

Net (619) 108

MTD 7,411 652

YTD 8,733 3,778 Open Interest 11,275 31,475 Losers

NSE

FII Derivatives (August 1, 2011) ` cr Index Futures Stock Futures Gainers / Losers Gainers Company Adani Enter. M&M Finance Ranbaxy Lab Idea Cellular Adani Power Price (`) 638 673 562 98 103 chg (%) 8.8 5.6 4.2 4.1 4.0 Company JSW Steel NALCO Bharat Forge India Infoline Crompton Greav. Price (`) 695 71 311 79 160 chg (%) (10.3) (5.6) (5.5) (5.5) (5.2) Sebi Registration No: INB 010996539
1

Purch 1,269 1,087

Sales 1,213 1,158

Net 57 (71)

Please refer to important disclosures at the end of this report

Market Outlook | India Research

Auto sales numbers - July 2011

Maruti Suzuki (Maruti) Maruti reported lower-than-expected volume numbers, registering a 25.3% yoy decline to 75,300 units. The overall passenger car segment was sluggish in July 2011. The companys volumes were impacted by the discontinuation of dispatches of old Swift as the company is planning to rollout the new version of Swift in August 2011. As a result, Swift volumes were meager 348 units as against 11,828 units in July 2010. Further, shifting of manufacturing of Swift Dzire from Manesar to Gurgaon also resulted in loss of 5,471 units of Dzire. Marutis domestic volumes in July 2011 declined by 26.2% yoy, whereas exports volume fell by 18.1% yoy. As per the new SIAM classification, volumes in the mini, compact and super compact segments declined by 15.6%, 56% and 64.4% yoy, respectively. Mahindra & Mahindra (M&M) M&M reported robust volume growth of 33.6% yoy (down 3.4% mom) in total sales to 56,351 units, aided by better-than-expected 43.6% yoy (11.4% mom) growth in automotive sales (39,633 units) and in-line 14.6% yoy growth (down 26.4% mom) in tractor sales (16,718 units). Within the automotive segment, the four-wheeler pick-up segment grew by an impressive 91% yoy (16.5% mom) as GIO and Maxximo continued to drive performance, passenger UV volumes grew by 29.9% yoy (7.8% mom) and Logan sales continued the strong momentum, registering growth of 116.8% yoy (7.9% mom). Exports during the month posted strong 78.2% yoy (27.5% mom) growth. In the tractors space, domestic sales reported a healthy 16% yoy (down 27.2% mom) increase in volumes to 15,699 units (15,925), while exports volumes declined marginally by 3.7% yoy (down 13.5% mom). Tata Motors (TML) TMLs total volumes registered a 6% yoy decline, led by a 39% yoy drop in passenger vehicles (PV) volumes. However, commercial vehicles witnessed better-than-expected 14% yoy growth to 40,798 units, driven by a 22% yoy jump in the LCV segment, while the M&HCV segment posted modest 4% yoy growth. In the PV segment, the company reported a total offtake of 18,294 units, significantly lower by 39% yoy. The decline in volumes was primarily because of a 64% yoy decline in Nano volumes to 3,260 units. Indica volumes posted a 32% yoy decline, while Indigo range of vehicles reported a 30% yoy drop during the month. Hero Honda (HH) HH reported in-line 14.8% yoy growth in sales volume to 491,036 units, led by momentum across all the product segments. On a sequential basis, however, volumes declined by 4.1%. New product launches and refreshed product ranges continued to drive the companys volume performance. TVS Motor (TVS) TVS reported healthy 15.5% yoy (5.2% mom) growth to 192,000 units, led by 15.6% yoy (5.5% mom) growth in two-wheelers. Motorcycle sales grew by 18.8% yoy (3.8% mom) to 72,500 units, while the scooter segment registered strong 23.9% yoy (12.9% mom) growth to 50,000 units. Three-wheeler sales posted modest 12.6% yoy (down 8.4% mom) growth, selling 3,500 units. Exports volume continued to see strong traction, registering 29.3% yoy (4.3% mom) growth to 27,500 units.

Cement numbers July 2011

ACCs dispatches for July 2011 stood at 2mn tonnes, up 28.2% yoy, on account of higher capacity (on a yoy basis) operational at Wadi and Chanda. Ambuja Cements (Ambuja) also posted healthy 13.9% dispatch growth during the month to 1.7mn tonnes. Growth in cement dispatches of both the companies has come on a low base. ACC and Ambuja are currently trading at US$111 and US$127 per tonne, respectively, on CY2012E capacity. We continue to remain Neutral on ACC and Ambuja.
August 2, 2011 2

Market Outlook | India Research

MphasiS to acquire US-based Wyde

MphasiS has signed a definite agreement to acquire 100% equity of US-based insurance software provider Wyde Corporation in an all-cash deal (as of April 2011, MphasiS had cash of US$422mn). Wyde is an insurance administration solution provider company and the creator of insurance platform Wynsure. It caters to all the segments of the insurance industry Life and Annuity (L&A), Disability, Health and Property and Casualty (P&C). The company did not disclose the consideration amount, however generally product companies are acquired at 2.54x sales. Wyde has annual sales of US$30mn (broad revenue break up 60% from L&A and 40% from P&C) with EBITDA margin of 18%. PAT margin of the company is also in the range of 17-18% as it gets aided by other income generated from US$22mn cash in its accounts. It is a debt-free company. Wyde has 25 clients 14 in the US, 2 in Canada and 9 in France, with 50% of its revenue coming from the top five clients. Post acquisition, Wyde, which has over 200 employees, would operate as a product business of MphasiS. This will aid the non-linear revenue of MphasiS. The stock is currently under review, though the broad estimates of the company remain almost unchanged given the relatively small size of the company acquired.

1QFY2012 Result Reviews Sun TV

Sun TV reported a dismal performance for 1QFY2011. The top line grew by 3.1% yoy and declined 1.4% qoq to `454cr. Operating margins declined by 111bp yoy due to high other expenditure and staff costs. The earnings for the quarter grew by 9.8% yoy to `187cr. The stock is currently under review.

GSK Consumer 2QCY2011

GSK Consumer reported its 2QCY2011 results. The companys net sales came in at `653cr (`537cr), growth of 21.6% yoy. Gross margin declined by 295bp yoy. OPM declined by 155bp yoy on account of high raw-material cost inflation and high ad spends. Employee expense decreased by 56bp yoy and other expenses came down by 222bp yoy. Tax rate declined by 71bp yoy. The company reported earnings growth of ~15% yoy to `82.5cr for the quarter. We maintain Reduce on the stock with a target price of under review.

Indraprastha Gas
Indraprastha Gas reported robust set of numbers for 1QFY2012. Net sales grew by 59.9% yoy to `536cr. However, raw-material costs increased by 80.0% yoy to `301cr. Hence, EBITDA grew by only 47.1% yoy to `158cr in 1QFY2012. EBITDA margin slipped by 258bp yoy to 29.5% in 1QFY2012. Further, interest expense stood at `9cr in 1QFY2012 compared to nil in 1QFY2011. Hence, net profit decreased by 39.6% yoy to `80cr. We maintain our Neutral view on the stock.

August 2, 2011

Market Outlook | India Research

KEC International
KEC International (KEC) posted a good set of results for 1QFY2012. The top line and bottom line grew strongly, but EBITDA margin was lower than our estimates. Revenue grew by 20.9% yoy to `1,023cr (est. `998cr), mainly on the back of strong execution. EBITDA margin for the quarter compressed by 60bp yoy to 9.4% (est. 10.5%), which led to modest EBITDA growth of 13.7% yoy to `96cr (`84cr). Other operating metrics viz., higher interest cost and depreciation cost rose by 25.7% and 35.3%, respectively; however, a relatively lower tax incidence (35.3% in 1QFY2011 vs. 46.6% in 1QFY2012) helped the bottom line to grow by 25.4% yoy to `33cr (`26cr). We are in the process of revising our financial estimates based on the insights provided by the management during the conference call. We maintain our Buy recommendation on the stock. Our target price is under review.

Goodyear India Ltd. 2QCY2011

Goodyear India announced its 2QCY2011 results. The companys top line grew by 18.3% to `389cr in 2QCY2011 from `329cr in 2QCY2010, in-line with our expectations, while EBITDA margin contracted by 310bp yoy to 6.5% due to increased raw-material cost and employee expenses. PAT dipped by 24.2% yoy to `15cr as compared to `19cr in the same quarter last year due to higher depreciation. We expect the companys margin to improve on the back of recent hikes in the prices of tyres and stability in rubber prices. We revise our target price to `426, with a target PE of 8x its CY2012E earnings, with a Buy rating on the stock.

1QFY2012 Result Preview DLF

DLF is scheduled to announce its 1QFY2012 results. The companys top line is expected to grow by 40.2% yoy to `2,796cr. On the operating front, we expect the companys margin to contract by 429bp yoy to around 45.8%. Net profit is expected to increase by 14.5% yoy to `488cr. The stock is currently trading at 16x FY2013E earnings. We maintain our Neutral view on the stock. However, we will revisit our estimates post the conference call.

Economic and Political News

Government makes e-payment mandatory for import duty of over `1lakh Land acquisition bill may come up in parliament's winter session Coffee exports up by 38% in AprilJuly on strong global demand Road Ministry plans to invest `2.64 lakh crore on highways

Corporate News
NHPC to invest `15K cr for developing two projects in Myanmar Jyoti Structures secures orders worth `438cr from MP Vidyut Vitran Companies Ltd. Suzlon board approves `5,000cr funding
Source: Economic Times, Business Standard, Business Line, Financial Express, Mint

August 2, 2011

Market Outlook | India Research

Events for the day Berger Paints Birla Capital Bombay Oxygen DLF Elecon Engr Gulf Oil Corp Mahindra Forg Mangalore Chem MMTC Monnet Ispat Oracle Fin Piramal Health PGCIL Radico Khaitan Sahara One Titagarh Wag United Brew Hldg. Whirlpool

Results Results Results Results Results Results Results Results Results Results Results Results Results Results Results Results Results Results

August 2, 2011

Market Outlook | India Research

Research Team Tel: 022-3935 7800 E-mail: research@angelbroking.com Website: www.angelbroking.com

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Ratings (Returns):

Buy (> 15%) Reduce (-5% to 15%)

Accumulate (5% to 15%) Sell (< -15%)

Neutral (-5 to 5%)

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August 2, 2011