Quarterly Earnings Preview Q3 - FY12: Saturday, January 07, 2012

QUARTERLY EARNINGS PREVIEW / Q3 -FY12 Saturday, January 07, 2012
QUARTERLY EARNINGS PREVIEW Q3 - FY12
Unicon Research, Unicon Financial Intermediaries Pvt. Ltd. Email: research@unicon.in
Executive Summary
The market scenario worsened in the third quarter with domestic concerns emerging over and above the Euro crisis. The markets fell by ~4% in the quarter ended December 2011 but tested its low several times during this period due to higher volatility. Negative news flow from Euro zone like reduction in euro-region growth forecast for next year by more than half (1.5% this year and 0.5% in 2012) by European Commission led to the fear of recession, making global investor more risk averse. However, US economy data showed signs of relief, with increase in consumer spending, improvement in manufacturing and homebuilding numbers combined with fewer job losses. This was reflected in the US equity markets which showed a strong recovery gaining more than ~15% during this period. High and persistent inflation (over 9%), high interest rates, slower pace of investment related policy reforms and stiffness related to regulatory issue (mining & land acquisition) in combination with weak global economy has been putting pressure on domestic growth (revised GDP growth to 7.6% from 8%). This has been reflected in IIP numbers which have been slowing down over the last few months. Moreover, weakness in INR has resulted in a higher current account deficit making global investor more cautious. On the positive note, the biggest worry for the markets in 2011 - rising inflation resulting in a series of rate hikes has peaked out. Moderation in demand (lower GDP) and commodity prices leveling off (declining primary articles & food inflation) is expected to ease inflation going forward. This is expected to reverse the interest rate cycle in 2012. With key reforms expected to take place at a faster pace, the economic cycle should be favorable. The interest sensitive sectors which are presently trading at compelling valuations would take the lead and take markets upward is what is being envisaged. The sectors which would support them would be Pharma and Agriculture sector. As a theme, companies with higher exposure to rural economy would be in an advantageous position compared to their peers.
Table of Content
Sr. No. I 1 2 II 1 III 1 2 3 4 5 6 7 IV 1 2 3 4 5 6 7 8 9 10 V 1 2 3 4 VI 1 2 3 4 5 6 7 8 9 10 Sector / Company Name Power BGR ENERGY SYSTEMS LTD KEC INTERNATIONAL LTD Auto and Auto Ancillary TATA MOTORS LTD Metal and Mining JSW STEEL LTD TATA STEEL LTD BHUSHAN STEEL LTD HINDALCO INDUSTRIES LTD NMDC LTD VISA STEEL LTD ADHUNIK METALIKS LTD Banking & Finance UNION BANK OF INDIA DEVELOPMENT CREDIT BANK LTD HDFC BANK LIMITED IDBI BANK LTD AXIS BANK LTD ALLAHABAD BANK YES BANK LTD INDUSIND BANK LTD CORPORATION BANK INDIAN BANK Media JAGRAN PRAKASHAN LTD D.B. CORP LTD HT MEDIA LTD ZEE ENTERTAINMENT ENTERPRISE Pharmaceuticals APOLLO HOSPITALS ENTERPRISE LUPIN LTD GLENMARK PHARMACEUTICALS LTD DIVI'S LABORATORIES LTD SUN PHARMACEUTICAL INDUS FORTIS HEALTHCARE INDIA LTD RANBAXY LABORATORIES LTD OPTO CIRCUITS INDIA LTD BIOCON LTD ELDER PHARMACEUTICALS LTD Hold Accumulate Buy Accumulate Accumulate Hold Hold Buy Buy Buy 571 443 291 770 500 95 439 201 269 349 718 / 432 494 / 363 369 / 241 843 / 582 603 / 392 176 / 76 605 / 366 310 / 183 413 / 240 435 / 328 Buy Buy Accumulate Hold 93 184 119 116 135 / 90 298 / 170 182 / 105 146 / 106 Buy Buy Accumulate Buy Buy Buy Buy Accumulate Buy Buy 168 35 453 83 854 132 250 241 359 185 360 / 155 66 / 30 520 / 396 158 / 77 1461 / 784 240 / 113 341 / 231 292 / 181 658 / 335 254 / 166 Accumulate Buy Buy Buy Buy Buy Buy 570 363 332 118 172 58 38 1103 / 462 737 / 332 530 / 297 252 / 111 305 / 136 65 / 39 113 / 31 Hold 204 261 / 138 Buy Buy 187 41 685 / 172 102 / 31 Rating CMP 52 Week H / L
Sr. No. VII 1 2 VIII 1 2 3 IX 1 2 3 X 1 2 3 4 5 6 7 8 XI 1 XII 1 2
Sector / Company Name Food Processing SHREE RENUKA SUGARS LTD REI AGRO LTD Fertiliser CHAMBAL FERTILIZERS & CHEM DEEPAK FERTILIZERS & PETRO COROMANDEL INTERNATIONAL LTD Agri Chem RALLIS INDIA LTD UNITED PHOSPHORUS LTD TATA CHEMICALS LTD IT TATA CONSULTANCY SVCS LTD INFOSYS LTD HCL TECHNOLOGIES LTD ROLTA INDIA LTD PERSISTENT SYSTEMS LTD KPIT CUMMINS INFOSYSTEMS LTD HEXAWARE TECHNOLOGIES LTD SATYAM COMPUTER SERVICES LTD Shipping & Logistics MUNDRA PORT AND SEZ LTD Glass Packaging PIRAMAL GLASS LTD HSIL LTD
Rating
CMP
52 Week H / L
Buy Buy
26 16
102 / 23 30 / 14
Buy Buy Buy
79 126 282
119 / 66 189 / 118 376 / 215
Buy Buy Buy
120 133 310
187 / 113 172 / 120 394 / 287
Hold Hold Accumulate Buy Accumulate Accumulate Buy Accumulate
1169 2832 418 62 317 150 80 68
1247 / 902 3495 / 2162 526 / 358 171 / 50 451 / 281 199 / 132 94 / 46 94 / 54
Buy
128
170 / 110
Buy Buy
90 122
156 / 79 246 / 106
* Most of the stocks are rated on 12-18 months basis, though in the near term valuation remain rich.
Power
BGR Energy Systems Ltd (BGR)
CMP: INR 187 Particulars Revenue from Operations Operating Expenses EBITDA EBITDA (%) Reported PAT PAT (%) EPS Q3FY12E 8,223 7,228 995 12.1 469 5.7 6.5 Q3FY11 12,569 11,097 1,472 11.7 876 7.0 12.1 Q2FY12 7,715 6,613 1,102 14.3 514 6.7 7.1 YoY(%) -34.6 -34.9 -32.4 39 bps -46.4 -126 bps -46.4 QoQ(%) Bloomberg* 6.6 9.3 -9.7 -218 bps -8.6 -95 bps -8.6 10,364 9,146 1,218 11.8 537 5.2 7.4 BUY (INR in Mn) Dev (%) -20.7 -21.0 -18.3 35 bps -12.6 52 bps -12.6
Market Cap: 13,523

* S ta nda lo ne F ina nc ia ls
P/E (FY13E): 4.8x
Valuation & Outlook BGR continues to face challenging times due to stiff competition in power sector. Its current order book stands at INR 90bn while its greenfield capex stands at INR 44bn. Aggressive bidding and import of supercritical technology would shrink margins for the company. Macro economic concerns like coal price hike and increase in funding cost would continue to impact the sector growth. Stock is trading at a PER of 4.8x its FY13E earnings. We upgrade BGR to BUY with a reduced price target of INR 240.
KEC International Ltd

CMP: INR 38 Particulars Revenue from Operations Operating Expenses EBITDA EBITDA (%) Reported PAT PAT (%) EPS Q3FY12E 11,672 10,812 860 7.4 349 3.0 1.4 Q3FY11 10,710 9,464 1,246 11.6 580 5.4 2.3 Q2FY12 12,632 11,726 906 7.2 212 1.7 0.8 YoY(%) 9.0 14.2 -31.0 -427 bps -39.8 -242 bps -39.8 QoQ(%) Bloomberg* -7.6 -7.8 -5.1 20 bps 64.5 131 bps 64.5 12,933 11,536 1,397 10.8 571 4.4 2.2 BUY (INR in Mn) Dev (%) -9.8 -6.3 -38.5 -344 bps -38.9 -143 bps -38.9
Market Cap: 14,650

* C o ns o lida te d F ina nc ia ls
P/E (FY13E): 3.9x
Valuation & Outlook KEC holds a healthy order book of INR 90bn, diversified across continents. Hence, macro economic concerns like reduced availability of coal and increase in interest rate would not dent the topline growth of the company. Margin for new segments like cable, railways & telecom are expected to pick up in FY13. Domestic order book is also expected to pick in Q4 FY12. Any improvement in sector outlook could act as a trigger for the stock and hence we recommend BUY with a revised price target of INR 48, showing an upside potential of ~26% from current valuation of 3.9x FY13E earnings.
Auto & Auto Ancillaries

Tata Motors Ltd
CMP: INR 203 Particulars Revenue from Operations Operating Expenses EBITDA EBITDA (%) Reported PAT PAT (%) EPS Q3FY12E 406,525 352,770 53,755 13.2 30,345 7.5 11.3 Q3FY11 316,852 271,966 44,886 14.2 24,244 7.7 9.0 Q2FY12 361,975 316,936 45,039 12.4 18,773 5.2 7.0 YoY(%) 28.3 29.7 19.8 -94.3 25.2 -18.7 25.2 QoQ(%) Bloomberg* 12.3 11.3 19.4 78 bps 61.6 228 bps 61.6 384,472 339,587 44,885 11.7 24,513 6.4 8 HOLD (INR in Mn) Dev (%) 6 4 20 155 bps 24 109 bps 45
Market Cap: 547,070

P/E (FY13E): 6.7x
Valuation & Outlook The company is expected to deliver good sets of consolidated numbers on the back of Favorable currency movement (~8 % rupee depreciation during the quarter) as we anticipate better performance by the foreign subsidiary JLR( contributes ~60% of the top line). The higher inflationary scenario has slowed down the industry growth at the domestic front; however we expect some better performance by the MHCV segment of the company at its domestic market. We expect over all business to post better performance, along with minor contraction at the EBITDA level, but PAT would be at higher side compared to the previous quarter.
Metal
The metal sector continues to witness slowdown due to global crisis. In Q2FY12 the sector faced challenges on raw material front which got resolved to certain extent in Q3. However Q3FY12 has faced demand constraints in the high interest rate regime with slow down in infrastructure, realty and auto sector (demand driver for the metal industry). This has resulted in some price softening of metals. Majority of the players in the industry expects better results compared to Q2FY12 which generally is a slow quarter. In addition the recent rupee depreciation (8% in Q3) has further increased the imported coal cost off setting the minor price decrease in coking coal & Iron Ore prices. In addition to this the entire metal industry has taken steps to restructure the product line towards the high end value added products(change in product mix) along with the optimum utilization of the resources available (change in the raw material mix like higher use of iron ore fines and technology up gradation). We believe metal industry would start performing once there would be some positive developments in the infrastructure, realty and Auto with interest rates moderating in the next fiscal. Going forward his would result in both demand and price stabilization leading to re-rating of the price multiples.
JSW Steel
CMP: INR 569 Particulars Revenue from Operations Operating Expenses EBITDA EBITDA (%) Reported PAT PAT (%) EPS Q3FY12E 78,250 68,010 10,240 13.1 1,865 2.4 8.4 Q3FY11 60,026 49,862 10,164 16.9 2,917 4.9 13.1 Q2FY12 81,443 67,505 13,938 17.1 (6,693) (8.2) -30.0 YoY(%) 30.4 36.4 0.7 -384.7 -36.1 -248 bps -36.1 ACCUMULATE (INR in Mn) QoQ(%) Bloomberg* -3.9 0.7 -26.5 -403 bps -127.9 1060 bps -127.9 79,249 68,709 10,540 13.3 2,076 2.6 9 Dev (%) (1) (1) (3) -21 bps (10) -24 bps (10)
Market Cap: 126,853

P/E (FY13E): 6.5x
Valuation & Outlook JSW Steel performance during the quarter is expected to be better then the previous one as company was able to maintain the capacity utilization of 50-55% during the November-December month on the back of improved supply of iron ore from NMDC. The cost of iron ore at e-auction remained at higher end (~INR 3400/ton) which is expected to contract the EBITDA margin of the company during the quarter. In addition, rupee depreciation by ~8% during the quarter has made coking coal further costlier for the company. However, companys US and Chile operation are expected to support the numbers of the company.
TATA Steel
CMP: INR 363 Particulars Revenue from Operations Operating Expenses EBITDA EBITDA (%) Reported PAT PAT (%) EPS Q3FY12E 296,525 273,100 26,385 8.9 6,455 2.2 6.7 Q3FY11 290,895 256,648 34,246 11.8 10,030 3.4 10.5 Q2FY12 327,979 300,479 27,500 8.4 2,124 0.6 2.2 YoY(%) 1.9 6.4 -23.0 -287.5 -35.6 -127 bps -35.6 QoQ(%) Bloomberg* -9.6 -9.1 -4.1 51 bps 203.9 153 bps 203.9 303,068 276,959 26,109 8.6 6,281 2.1 7 BUY (INR in Mn) Dev (%) (2) (1) 1 28 bps 3 10 bps 3
Market Cap: 348,195

P/E (FY13E): 6.x
Valuation & Outlook The companys domestic operation is expected to be stable whereas the European operation is likely to see a drop in sales volume coupled with lower realization due to the ongoing economic crisis in Europe. However significant increase in the input cost due to controversy related to iron ore mining would have comparatively minor impact on its domestic operation as it is majorly backward integrated. We expect that there will be no significant improvement in SE Asian operations. At CMP the stock is trading at EV/EBITDA of 5x FY13e and we recommend BUY with a target price of INR 450.
Bhushan Steel
CMP: INR 331 Particulars Revenue from Operations Operating Expenses EBITDA EBITDA (%) Reported PAT PAT (%) EPS Q3FY12E 26,355 18,976 7,379 28.0 1,805 6.8 8.5 Q3FY11 19,427 14,052 5,376 27.7 2,804 14.4 13.2 Q2FY12 24,654 17,443 7,211 29.2 2,069 8.4 9.7 YoY(%) 35.7 35.0 37.3 32.8 -35.6 -758 bps -35.6 QoQ(%) Bloomberg* 6.9 8.8 2.3 -125 bps -12.8 -154 bps -12.8 25,526 18,307 7,219 28.3 1,858 7.3 9 BUY (INR in Mn) Dev (%) 3 4 2 -28 bps (3) -43 bps (3)
Market Cap: 70,291

P/E (FY13E): 6.5x
Valuation & Outlook In Q3FY12 we expect companys volume to be flat on the back of slowdown in the overall demand and we expect some restricted topline growth as the product portfolio is skewed more towards the high end product. However with higher raw material cost with flat realization continue to put pressure on the EBITDA margin of the company.
Hindalco
CMP: INR 118 Particulars Revenue from Operations Operating Expenses EBITDA EBITDA (%) Reported PAT PAT (%) EPS Q3FY12E 57,845 52,350 5,495 9.5 4,865 8.4 2.5 Q3FY11 59,746 52,345 7,401 12.4 4,603 7.7 2.4 Q2FY12 62,719 56,026 6,692 10.7 5,025 8.0 2.6 YoY(%) -3.2 0.0 -25.8 -288.8 5.7 71 bps 5.7 QoQ(%) Bloomberg* -7.8 -6.6 -17.9 -117 bps -3.2 40 bps -3.2 84,331 77,804 6,527 7.7 4,996 5.9 3 BUY (INR in Mn) Dev (%) (31) (33) (16) 176 bps (3) 249 bps (3)
Market Cap: 225,909

P/E (FY13E): 7.x
Valuation & Outlook During the quarter, the metal prices at LME shown some major contraction and prices of Aluminum and Copper declined sharply to US$2,100 and US$ 7,500 respectively. However the current rupee depreciation has resulted in increased contribution from the Novelis and partially offset the lower realization of its product line. The effect of recent increase in TcRc is not being considered in the quarter as its effect will be visible only in FY13. However increase input cost like higher coal price would expect to take toll on the operating margin of the company.
NMDC
CMP: INR 174 Particulars Revenue from Operations Operating Expenses EBITDA EBITDA (%) Reported PAT PAT (%) EPS Q3FY12E 33,650 7,403 26,247 78.0 29,035 71.3 7.3 Q3FY11 26,212 6,053 20,159 76.9 15,180 57.9 3.8 Q2FY12 30,623 6,270 24,354 79.5 19,632 64.1 5.0 YoY(%) 28.4 22.3 30.2 109.3 91.3 1339 bps 91.3 QoQ(%) Bloomberg* 9.9 18.1 7.8 -153 bps 47.9 719 bps 47.9 NA NA NA NA NA NA NA BUY (INR in Mn) Dev (%) NA NA NA NA NA NA NA
Market Cap: 689,861

P/E (FY13E): 8.x
Valuation & Outlook In Q3FY12, we expect company to post higher volume on the back of the ongoing mining controversy at the Karnataka region. Due to the short supply of iron ore in the market and NMDC being the sole provider at the Karnataka region to bridge the demand supply gap, the company was able to command higher realization for iron ore. Though there are some slow down in the over all demand for the steel industry, the demand driver for the company we expect some good sets of number at Q3FY12.
Visa Steel
CMP: INR 58 Particulars Revenue from Operations Operating Expenses EBITDA EBITDA (%) Reported PAT PAT (%) EPS Q3FY12E 3,255 2,799 456 14.0 62 1.9 0.6 Q3FY11 3,469 3,002 467 13.5 103 3.0 0.9 Q2FY12 2,469 2,364 105 4.3 (382) (15.5) -3.5 YoY(%) -6.2 -6.8 -2.4 54.7 -39.9 -107 bps -39.9 QoQ(%) Bloomberg* 31.8 18.4 332.4 974 bps -116.2 1737 bps -116.2 NA NA NA NA NA NA NA BUY (INR in Mn) Dev (%) NA NA NA NA NA NA NA
Market Cap: 6,353

P/E (FY13E): 5.4x
Valuation & Outlook In Q3FY12, there was some supply side revival at the Iron ore front which has resulted in higher production compared to the previous quarter. However the concern related to sky rocketing coal price along with supply constraint were expected to hamper the profitability of the company. Again the recent slow down in the steel demand has adversely affected Visas initiation towards high end product like rolled products and Ferro chrome. Considering this we dont expect the company to deliver good sets of number in the Q3FY12 though it would be little better from Q2FY12. At CMP of INR 58 stock is trading at EV/EBITDA of 6x its FY13e. We remain positive on the stock with a price target of INR 75.
Adhunik Metaliks
CMP: INR 38 Particulars Revenue from Operations Operating Expenses EBITDA EBITDA (%) Reported PAT PAT (%) EPS Q3FY12E 4,720 3,820 900 19.1 490 10.4 4.0 Q3FY11 4,405 2,939 1,467 33.3 541 12.3 4.4 Q2FY12 4,576 3,771 805 17.6 (55) (1.2) -0.4 YoY(%) 7.1 30.0 -38.6 -1422.2 -9.4 -190 bps -9.4 QoQ(%) Bloomberg* 3.1 1.3 11.8 147 bps -987.4 1159 bps -987.4 4,968 3,674 1,294 26.0 148 3.0 3 BUY (INR in Mn) Dev (%) (5) 4 (30) -698 bps 232 741 bps 24
Market Cap: 4,693

P/E (FY13E): 2.6x
Valuation & Outlook Adhunik Metaliks major concentration on the mining division would help the company to grow further. The current slowdown in the steel industry would continue to affect the mining business of the company(with lower realisation), but due to increased volume at OMML(mining Business) we expect company's over all performance would be inline with the industry. However the mining operation at the captive iron ore mine which would have reduced the operating cost of the steel making business has been delayed and now we expect the full benefit of the same would be visible in FY13. Moreover we expect some good sets number in Q3 as companys plants were fully operational during quarter unlike shut down in Q2. At CMP the stock is trading at EV/EBITDA of 4x of its FY13e. Considering all these aspect we remain positive on the stock with a price target of INR 55.
10
Banking
The banking sector continues to reel under pressures of adverse economic cycle. Q2FY12 witnessed continuous downgrade of banking stocks due to concerns on global slowdown, asset quality and lower credit growth. Private sector banks performed better than PSU banks in terms of gaining market share and reporting strong bottom-line numbers. The PSU bottomline numbers were relatively subdued due to higher provisioning for bad loans (mainly due to system based recognition). We expect Q3FY12 results to be a mirror reflection of Q2FY12. Similarly in next few quarters we expect asset quality side pressures to continue, with rising delinquencies and higher slippages (however most of these are manageable). Net interest margin is likely to be under pressure in near term due to rise in cost of funds, saving rate deregulations & ALM mismatch. However, Indian banks are better capitalized and less exposed to unsecured segment than their global counterparts. We believe the 28% correction in bank nifty since April 2011 has priced in all the near term challenges and expected dip in earnings. The outlook for the banking sector is neutral in the short term on the back of probable credit growth slowdown and expected margin pressures. However, in long term with reversal of economic cycle and peaking off interest rates the banking sector is expected to outperform the index. Hence, we recommend YES Bank, Allahabad Bank & Development Credit Bank along with some of the large cap banks like SBI, ICICI bank at the current valuation.
Union Bank of India

CMP: 170 Particulars Interest Income Interest Expense Net Interest Income Operating Profit Operating Profit Margin Reported PAT PAT Margin EPS Market Cap: 89,137
Buy (INR in Mn) Q3FY12E 54,171 36,217 17,954 13,260 22.3 3,305 5.6 5.2 Q3FY11 41,995 25,836 16,158 12,611 26.9 5,796 12.4 11.5 Q2FY12 51,104 34,492 16,612 12,051 21.5 3,525 6.3 5.6 YoY(%) 29.0 40.2 11.1 5.1 -17 bps -43.0 -679 bps -54.7 QoQ(%) Bloomberg* 6.0 5.0 8.1 10.0 4 bps -6.2 -72 bps -6.3 NA NA NA NA NA NA NA NA Dev (%) NA NA NA NA NA NA NA NA
P/BV (FY12E): 0.6x
Valuation & Outlook Union Bank of India is expected to grow deposits & credit ~14% & ~17% in FY12E respectively and fee-based income in line with the loan-book. Going forward margins are likely to witness some pressure, on back of rising costs. On the other hand, we expect slippages to remain elevated in the coming few quarters. However, with banks focus on recovery process the NPAs are likely to fall going ahead. We have Buy rating on the stock for target price of INR 250.
11
Development Credit Bank

Buy (INR in Mn) Q3FY12E 1,848 1,224 623 222 10.7 139 6.7 0.7 Q3FY11 1,402 909 493 206 12.4 81 4.9 0.4 Q2FY12 1,785 1,194 591 209 10.4 133 6.6 0.7 YoY(%) 31.8 34.7 26.4 7.8 -175 bps 71.6 181 bps 70.7 QoQ(%) Bloomberg* 3.5 2.5 5.4 6.2 27 bps 4.5 8 bps 4.5 NA NA NA NA NA NA NA NA Dev (%) NA NA NA NA NA NA NA NA
P/BV (FY12E): 0.9x
Valuation & Outlook DCB has revamped itself since FY09 and with change in management and business strategy we believe DCB to run on growth trajectory going forward. We believe that with thrust on improving NIMs, CASA ratio, better core operating income and return ratios, DCB would be one of the fastest growing Indian banks over next few years. We expect DCB to control its incremental slippages and maintain NIM in the range of ~3.3% levels by FY13E. At the CMP stock trades at 1.2x & 1.1x its FY12E & FY13 book value respectively. We expect return ratios to improve from hereon for the bank i.e. RoE to reach to 9.8% in FY13E from 3.5% in FY11. Thus, we value the bank's business at 1.6x FY13E P/BV, thereby evaluating it at INR 64.
HDFC Bank
CMP: 451 Particulars Interest Income Interest Expense Net Interest Income Operating Profit Operating Profit Margin Reported PAT PAT Margin EPS Market Cap: 1,054,579
Accumulate (INR in Mn) Q3FY12E 73,895 43,392 30,503 22,391 25.7 12,607 14.5 27.0 Q3FY11 52,300 24,533 27,767 20,727 32.6 10,878 17.1 23.4 Q2FY12 67,177 37,732 29,445 21,258 26.8 11,994 15.1 25.7 YoY(%) 41.3 76.9 9.9 8.0 -689 bps 15.9 -264 bps 15.1 QoQ(%) Bloomberg* 10.0 15.0 3.6 5.3 -110 bps 5.1 -66 bps 5.1 NA NA NA NA NA NA NA NA Dev (%) NA NA NA NA NA NA NA NA
P/BV (FY12E): 3.1x
Outlook & Valuation Going forward, HDFC Bank is expected to keep ~22% of credit growth & also expected to maintain the CASA ratio at ~48%. On the back of continuous growth momentum, strong business & credit growth, improvement in asset quality & strong capital adequacy, HDFC bank commands a premium in its valuations. At the CMP stock trades at 3x its FY13E book value. We have Accumulate rating on the stock for a target price of INR 513.
12
IDBI Bank
* S ta nda lo ne Fina nc ia ls
Buy (INR in Mn) Q3FY12E 62,192 49,248 12,944 11,636 17.3 6,080 9.0 6.2 Q3FY11 471,123 35,083 12,040 11,345 22.0 4,541 8.8 4.6 Q2FY12 58,123 46,903 11,220 10,065 16.0 5,159 8.2 5.2 YoY(%) -86.8 40.4 7.5 2.6 -472 bps 33.9 23 bps 34.1 QoQ(%) Bloomberg* 7.0 5.0 15.4 15.6 127 bps 17.9 83 bps 17.9 NA NA NA NA NA NA NA NA Dev (%) NA NA NA NA NA NA NA NA
P/BV (FY12E): 0.5x
Valuation & Outlook The management has maintained its strategy of slower loan book growth, in favour of a higher CASA share and higher NIMs & indicated to take branch network to about 1050 by end of FY12. In wake of lower NIMs, the bank has indicated a strategy of lower advances growth (~15% for FY12) to concentrate on increasing the percentage of low-cost CASA deposits and consciously shifting focus from large corporate lending to retail and MSME lending to bring in higher-yielding loans. In next few quarters bank is likely to face challenges on the asset quality front, due to slow recovery, higher slippages. Given the disappointment on key metrics asset quality, lower loan & deposit growth, though we maintain our rating of Buy, we downgrade our target to INR 120 from INR 193.
Axis Bank
Buy (INR in Mn) Q3FY12E 56,453 34,321 22,131 18,843 27.2 9,862 14.2 23.9 Q3FY11 38,383 21,052 21,052 16,585 33.3 8,914 17.9 21.8 Q2FY12 52,760 32,687 20,073 17,756 27.3 9,203 14.1 22.3 YoY(%) 47.1 63.0 5.1 13.6 -607 bps 10.6 -365 bps 9.9 QoQ(%) Bloomberg* 7.0 5.0 10.3 6.1 -8 bps 7.2 9 bps 7.1 NA NA NA NA NA NA NA NA Dev (%) NA NA NA NA NA NA NA NA
P/BV (FY12E): 1.4x
Outlook & valuation Axis bank (Axis) is targeting a credit growth of ~25% in FY12; on back of branch expansion, also the cost-income ratio is expected to gradually move up to 44-45%. Going ahead NIMs are likely to fall marginally on back of rising costs. We remain positive on the bank, owing to its attractive CASA franchise, rapid branch expansion, and multiple sources of sustainable fee income, strong growth outlook. We have Buy rating on the stock for a target price of INR 1349.
13
Allahabad Bank
Buy (INR in Mn) Q3FY12E 40,101 26,652 13,449 9,612 22.2 4,818 11.1 10.1 Q3FY11 28,555 18,038 10,516 7,884 25.3 4,158 13.4 9.3 Q2FY12 38,933 29,614 13,182 9,493 22.6 4,880 11.6 10.3 YoY(%) 40.4 47.8 27.9 21.9 -314 bps 15.9 -224 bps 8.7 QoQ(%) Bloomberg* 3.0 -10.0 2.0 1.3 -40 bps -1.3 -49 bps -1.3 NA NA NA NA NA NA NA NA Dev (%) NA NA NA NA NA NA NA NA
P/BV (FY12E): 0.6x
Outook & Valuation Allahabad Bank is in a strong growth trajectory with strong distribution network and vast customer base in CASA-rich states. This provides significant business opportunities in the current rising interest rate scenario. We believe maintaining margins would be a challenge for the bank on back of rising costs. Also, maintaining asset quality would be a key challenge for the bank going ahead, but cheap valuations offer a good buying opportunity. We maintain the target price of INR 220.
YES Bank
Buy (INR in Mn) Q3FY12E 15,250 10,741 4,509 4,191 24.0 2,459 14.1 7.0 Q3FY11 11,262 8,030 3,232 3,113 24.2 1,911 14.8 5.5 Q2FY12 14,387 10,530 3,856 3,859 23.4 2,350 14.2 6.7 YoY(%) 35.4 33.8 39.5 34.6 -22 bps 28.7 -78 bps 27.2 QoQ(%) Bloomberg* 6.0 2.0 16.9 8.6 60 bps 4.6 -16 bps 4.8 NA NA NA NA NA NA NA NA Dev (%) NA NA NA NA NA NA NA NA
P/BV (FY12E): 1.4x
Valuation & Outlook YES Bank is expected to register strong business growth of CAGR 17% along with CAGR 21% growth in profitability during FY1214E. This will help the bank to achieve margins ~3% in FY13 wiht strong asset quality. Additionally the bank is expanding ~125 branches every year, which would help to improve its CASA ratio to 15% in FY13E. We remain positive on long term prospects of the bank. At the CMP stock trades at 1.3x of its FY13E book value. We maintain BUY rating on the stock for target price of INR 345.
14
Indusind Bank
Accumulate (INR in Mn) Q3FY12E 14,695 9,951 4,743 3,741 21.7 2,183 12.7 4.7 Q3FY11 9,149 5,519 3,630 2,912 26.2 1,539 13.9 3.3 Q2FY12 13,239 9,047 4,192 3,330 21.3 1,931 12.4 4.1 YoY(%) 60.6 80.3 30.7 28.5 -447 bps 41.8 -116 bps 41.4 QoQ(%) Bloomberg* 11.0 10.0 13.1 12.3 44 bps 13.1 34 bps 13.0 NA NA NA NA NA NA NA NA Dev (%) NA NA NA NA NA NA NA NA
P/BV (FY12E): 2.1x
Valuation & Outlook Indusind Bank is planning to increase CASA ratio ~28% by expanding its branch network thereby increasing its NIMs ~3.5% further in FY12. Expanding its product suite and services by bank is expected to deliver healthy bottomline growth in FY12. In comparison to its peerset, Indusind is trading at higher valuations and hence we maintain an Accumulate rating on the stock with a reduce price target of INR 288.
Corporation Bank
Buy (INR in Mn) Q3FY12E 32,453 24,410 8,043 7,577 20.6 4,205 19.5 28.4 Q3FY11 24,713 16,289 8,424 7,369 26.9 3,824 21.5 26.7 Q2FY12 30,907 23,471 7,436 7,001 20.1 4,011 19.0 27.1 YoY(%) 31.3 49.9 -4.5 2.8 -630 bps 10.0 -200 bps 6.4 QoQ(%) Bloomberg* 5.0 4.0 8.2 8.2 50 bps 4.8 50 bps 4.8 NA NA NA NA NA NA NA NA Dev (%) NA NA NA NA NA NA NA NA
P/BV (FY12E): 0.6x
Valuation & Outlook Corporation Bank is improving interms of its business. Bank is expecting deposit & credit to grew by ~20% & ~21% in FY12 respectively. However, margin improvement is going to be a challenge on back of rising costs. Further, asset quality pressures are likely to increase in coming quarters. We have Buy rating on the stock for target price of INR 520.
15
Indian Bank
Buy (INR in Mn) Q3FY12E 34,293 21,274 13,020 10,891 28.4 5,743 15.0 13.4 Q3FY11 23,919 13,542 10,377 8,119 30.8 4,913 18.6 11.4 Q2FY12 30,348 18,994 11,354 9,209 27.3 4,687 13.9 10.9 YoY(%) 43.4 57.1 25.5 34.1 -239 bps 16.9 -365 bps 16.9 QoQ(%) Bloomberg* 13.0 12.0 14.7 18.3 109 bps 22.5 108 bps 22.5 NA NA NA NA NA NA NA NA Dev (%) NA NA NA NA NA NA NA NA
P/BV (FY12E): 0.7x
Outook & Valuation Indian Banks loan book is skewed towards high yielding segments such as SME, retail and agriculture, which form about ~40% of the banks advances. As a result, despite having a moderate CASA ratio of ~30%, the banks NIMs are the highest amongst its peer set at around 3.7% as compared to ~3.1% for its peers. Higher NIMs coupled with sound asset quality and cost efficiencies has led to superior ROAs for the bank ~1.7%. Managements strategy of moderating growth with focus on margins & asset quality would be positive for the bank from long term perspective. We have BUY rating on the stock for target price of INR 275.
16
Media and Entertainment

The macro economic environment has resulted in a slowdown in the advertisement spend, which is expected to hurt growth prospects of most of the media companies. Broadcasters revenue is expected to remain muted in 3QFY12. However, subscription revenue would continue to maintain its growth momentum (on account of increasing digitization). Print media companies are outperform broadcasters in terms of revenue growth (due to large component of local advertising) however would face margin pressures due to rupee depreciation. Production, distribution and multiplex companies are expected to show good numbers on the back of good content flow during the quarter.
Jagran Prakashan Ltd

CMP: INR 93 Particulars Revenue Operating Expenses EBITDA EBITDA (%) Reported PAT PAT (%) EPS Market Cap: 29,413 Q3FY12E 3,106 2,348 758 24 439 14 1.4 Q3FY11 2,860 1,963 897 31 526 18 1.8 Q2FY12 3,054 2,402 653 21 458 15 1.4 YoY(%) 8.6 19.6 -15.6 -698 bps -16.6 -426 bps -24.6 QoQ(%) Bloomberg 1.7 -2.2 16.2 304 bps -4.1 -86 bps -4.1 3,247 2,322 925 28 549 17 1.7 BUY (INR in Mn) Dev (%) -4.3 1.1 -18.06 -409 bps -20.1 -279 bps -20.1
P/E (FY13E): 12.4x
Valuation & Outlook Dainik Jagran the flagship newspaper of Jagran Prakashan Ltd (JPL) maintained its overall leadership in Q3 2011. The company registered a growth of ~0.4% in Q3 2011 IRS survey in terms of Average Issue Readership (AIR). JPL has maintained its leadership position in the UP market and has focused in developing its existing territories like Bihar and Uttaranchal. These territories would continue to fuel growth going forward. However, the higher newsprint consumption would put pressure on the company margins. We maintain BUY rating on the stock with a target price of INR 130.
DB Corp Ltd
CMP: INR 184 Particulars Revenue Operating Expenses EBITDA EBITDA (%) Reported PAT PAT (%) EPS Market Cap: 33,727
BUY (INR in Mn) Q3FY12E 3,859 2,961 898 22 458 12 2.5 Q3FY11 3,444 2,296 1,148 33 659 19 3.6 Q2FY12 3,449 2,678 771 22 403 12 2.2 YoY(%) 12.0 28.9 -21.8 -1113 bps -30.5 -728 bps -30.5 QoQ(%) Bloomberg 11.9 10.6 16.4 -16 bps 13.8 20 bps 13.8 3,842 2,701 1,142 30 630 16 3.4 Dev (%) 0.4 9.6 -21.34 -751 bps -27.3 -452 bps -27.3
P/E (FY13E): 12.3x
Valuation & Outlook DB Corp's flagship Hindi daily Dainik Bhaskar (DB) demonstrated steady performance and maintained its second position. It registered 5% increase in its Average Issue Readership in Q3 2011 from 14.2 mn to 14.9 mn in Q2 2011. It maintained its dominant position in Madhya Pradesh and Chattisgarh registering a growth of 2% and 8% respectively. Moreover, the company is getting strong traction in Jharkhand (Ranchi edition) which is expected to add to revenue going forward. However, margins are expected to be in pressure due to higher print order. At CMP the stock trades at PE multiple of 16x and 12.3x for FY12E anf FY13E respectively. We maintain BUY on the stock with a target price of INR 235. Unicon Research, Unicon Financial Intermediaries Pvt. Ltd. Email: research@unicon.in 17
HT Media Ltd
ACCUMULATE (INR in Mn) Q3FY12E 5,285 4,376 909 17 504 10 2.1 Q3FY11 4,651 3,767 883 19 478 10 2.0 Q2FY12 4,931 4,219 713 14 438 9 1.9 YoY(%) 13.6 16.2 2.9 -179 bps 5.4 -75 bps 5.4 QoQ(%) Bloomberg 7.2 3.7 27.6 275 bps 14.9 64 bps 14.9 5,261 4,273 988 19 547 10 2.3 Dev (%) 0.5 2.4 -7.99 -158 bps -7.9 -87 bps -7.9
P/E (FY13E): 13.2x
Valuation & Outlook HT Media Ltd. registered a steady performance in IRS Q3 2011. In its Hindi segment, the company registered a AIR growth of 0.4% in Q3 2011. HTMLs flagship English daily, Hindustan Times showed flattish numbers in Q3 2011 AIR holding its leadership position in Delhi. In the Hindi segment, Hindustan maintained its leadership in Bihar and Jharkhand while posting a steady increase in its readership in Uttar Pradesh. The company can face margins pressure given increased newsprint prices and forex fluctuations. Moreover, other business verticals ( radio & Burda JV) are expected deliver strong performance. We maintain accumulate rating on the stock with a price target of INR 140
Zee Entertainment Enterprises Ltd

HOLD (INR in Mn) Q3FY12E 7,215 5,310 1,905 26 1,475 20 1.5 Q3FY11 8,249 6,008 2,241 27 1,509 18 1.5 Q2FY12 7,184 5,108 2,076 29 1,560 22 1.6 YoY(%) -12.5 -11.6 -15.0 -77 bps -2.2 216 bps -1.0 QoQ(%) Bloomberg 0.4 4.0 -8.2 -249 bps -5.4 -127 bps -4.3 7,537 5,502 2,035 27 1,503 20 1.6 Dev (%) -4.3 -3.5 -6.41 -60 bps -1.8 52 bps -1.8
P/E (FY13E): 17.4x
Valuation & Outlook Zee Entertainment Enterprises Ltd (ZEEL) ad revenue growth is expected to remain muted in FY12, on account of reduction in ad spend and decline in its flagship channel (Zee TV) rating. Zee TV has moved to the No.4 slot behind Star, Colors and Sony. However, the subscription revenue is expected to grow largely, driven by increasing digitilization through DTH and cable. The Star-Zee distribution JV - Media Pro would also boost the subscription revenues for the company. At the CMP stock trades at 19.4x and 17.4x for FY12E and FY13E respectively. We maintain HOLD on the stock with a target price of 120
18
Pharma - Sector
Pharmaceutical sector is expected to observe strong traction in this quarter backed by major players posting double digit growth. With October-December quarter having a seasonal splurge of infections, the Anti infective segment is expected to do well in the quarter. Also other segments like Respiratory, Anti diabetics, CNS are expected to perform well in the quarter. The recent depreciation in INR has given an added advantage to the Indian Pharma sector as the major companies are expected to boost their export sales. Indian generic companies accounted for 19.7% market share in October 2011, compared with 16.4% in the same period in 2010 in the US generic market. Major Indian generic companies like Sun Pharma, Lupin, Dr. Reddy's are expected to benefit from the huge opportunities emerging the US market, as drugs worth USD 55 bn are going off patent. We expect the sector to keep up its outperformance in the coming quarter and remain positive on sun Pharma, Lupin, Dr. Reddy's. Other major picks from the industry are Biocon, Opto circuits.
Apollo Hospitals Enterprise Ltd

CMP: INR 571 Particulars Revenue from Operations Operating Expenses EBITDA EBITDA (%) Reported PAT PAT (%) EPS Market Cap: 75,070
HOLD (INR in Mn) Q3FY12E 7,090 5,892 1,198 16.9 560 7.9 4.3 Q3FY11 6,009 5,066 943 15.7 458 7.6 3.7 Q2FY12 6,998 5,800 1,198 17.1 558 8.0 4.2 YoY(%) 18.0 16.3 27.1 121 bps 22.3 28 bps 15.1 QoQ(%) Bloomberg* 1.3 1.6 0.1 -21 bps 0.5 -7 bps 0.5 NA NA NA NA NA NA NA Dev (%) NA NA NA NA NA NA NA
P/E (FY13E): 21.9x
Valuation & Outlook Apollo Hospitals Ltd. (Apollo) is expected to grow at a CAGR of 19.1% in FY12-13E. Introduction of technologies like Robotics for high-end surgeries for Cardiothoracic,Urology, Laparoscopy and Gynecology in last quarter is expected to reduce its ALOS (Average length of staying) and increase ARPOB (Average revenue per operating bed) from the current levels of 4.84 days and INR 19809/day respectively. Apollo has added 500 beds in H1FY12 and is expected to add around 700 beds next year. Currently the occupancy rate is at 72%. Apollo is expected to deliver a healthy growth in its low margin Pharmacy segment, which would affect the margin performance. The company has steadily focussed on cost rationalisation of the pharmacy vertical and was able to reduce losses over a period of time. These factors shall help Apollo to improve its growth trend in coming quarter. Currently the stock is trading at P/E of 21.9x FY13E earnings. We recommend HOLD with the target price of INR 600.
19
Lupin Ltd
ACCUMULATE (INR in Mn) Q3FY12E 16,960 13,669 3,290 19.4 2,476 14.6 5.5 Q3FY11 15,102 12,543 2,559 16.9 2,240 14.8 5.0 Q2FY12 17,417 13,684 3,733 21.4 2,669 15.3 6.0 YoY(%) 12.3 9.0 28.6 245 bps 10.5 -23 bps 10.3 QoQ(%) Bloomberg* -2.6 -0.1 -11.9 -203 bps -7.2 -72 bps -7.2 17,350 13,813 3,537 20.4 2,520 14.5 5.8 Dev (%) -2.3 -1.0 -7.0 -99 bps -1.7 8 bps -3.9
P/E (FY13E): 16.5x
Valuation & Outlook With the expected launch of Oral contraceptive along with 5 other product in the coming quarter of FY12, Lupin is expected to sustain the current growth trend. Lupin recently acquired I'rom Pharma a speciallty injectibles company in Japan with the revenue of USD 68mn. Lupin has also entered into a strategic alliance with IH to help in registration of generics in Japan. This development is expected give traction to the Japanese business segment of Lupin and help the revenue from ROW market grow at a CAGR of 16.5% (FY11-13E). We expect Lupin to deliver healthy set of numbers in Q3FY12E with EBITDA margins expected at around 21.5%. Currently the stock is trading at 16.5x FY13E earnings. We recommend ACCUMULATE with the price target of INR 520
Glenmark Ltd
BUY (INR in Mn) Q3FY12E 9,754 7,930 1,824 18.7 1,434 14.7 5.3 Q3FY11 7,585 6,188 1,397 18.4 1,096 14.4 4.0 Q2FY12 10,557 8,301 2,256 21.4 1,875 17.8 6.9 YoY(%) 28.6 28.2 30.6 28 bps 30.9 26 bps 33.0 QoQ(%) Bloomberg* -7.6 -4.5 -19.1 -267 bps -23.5 -306 bps -23.5 9,377 7,274 2,103 22.4 1,407 15.0 5.9 Dev (%) 4.0 9.0 -13.3 -373 bps 1.9 -30 bps -10.5
P/E (FY13E): 13.1x
Valuation & Outlook With a consistent growth in its specialty formulation business and a strong performance expected from US generic business, we expect Glenmark to come up with strong numbers in Q3FY12E. Recently the company has also recieved a nod from DCGI for phase III trials of diarrhoea drug. Glenmark also launched generic Malarone in Q3FY12 which is expected to give boost to the revenue by USD 3mn. The expected launch of FTF (First to file) products and increased traction in existing products in US market is expected to ramp up the revenue. Currently Glenmark is trading at 13.1x FY13E earnings. We recommend BUY with the target price of INR 385
20
Divi's Laboratories
ACCUMULATE (INR in Mn) Q3FY12E 4,159 2,566 1,593 38.3 1,231 29.6 9.3 Q3FY11 3,139 1,904 1,235 39.3 1,016 32.4 7.7 Q2FY12 3,661 2,279 1,382 37.8 1,061 29.0 8.0 YoY(%) 32.5 34.8 29.0 -104 bps 21.2 -276 bps 21.2 QoQ(%) Bloomberg* 0.1 0.1 0.2 55 bps 0.2 63 bps 0.2 3,903 2,520 1,383 35.4 1,161 29.8 9.5 Dev (%) 6.6 1.9 15.2 286 bps 6.0 -15 bps -2.0
P/E (FY13E): 16.6x
Valuation & Outlook Divis laboratories is expected to maintain the strong revenue growth trend going forward in Q3FY12, with expected increase in revenue from high margin Carotenoids business and optimum utilization of Vizag manufacturing unit. Also the recent fall in rupee should boost revenues and profits of the company in the quarter as it derives more than 90% of the revenue from exports. Currently the stock is trading at 16.6x its FY13E earnings. We recommend ACCUMULATE with the target price of INR 910
Sun Pharmaceuticals Ltd

ACCUMULATE (INR in Mn) Q3FY12E 19,421 11,730 7,691 39.6 6,176 31.8 6.0 Q3FY11 16,011 12,410 3,601 22.5 3,502 21.9 3.4 Q2FY12 18,946 11,106 7,840 41.4 5,977 31.5 5.8 YoY(%) 21.3 -5.5 113.6 1711 bps 76.4 993 bps 75.3 QoQ(%) Bloomberg* 2.5 5.6 -1.9 -178 bps 3.3 25 bps 3.3 18,835 12,591 6,244 33.2 4,930 26.2 4.8 Dev (%) 3.1 -6.8 23.2 645 bps 25.3 562 bps 24.6
P/E (FY13E): 20.2x
Valuation & Outlook Sun Pharma has a leader position in the Chronic business segment. The company has significant FTF (first to file) opportunities lined up which can generate a meaningful contribution to the revenue. Resolutions of issues with Caraco would be an added advantage. Sun Pharma is increasing its concentration in emerging market which would lead to a healthy growth. Currently the stock is trading at 20.2x FY13E earnings. We recommend ACCUMULATE with the target price of INR 552
21
Fortis Healthcare (India ) Ltd.

HOLD (INR in Mn) Q3FY12E 6,314 5,797 518 8.2 76 1.2 0.2 Q3FY11 3,714 3,445 270 7.3 345 9.3 0.9 Q2FY12 6,101 5,615 486 8.0 (126) (2.1) -0.3 YoY(%) 70.0 68.3 91.9 94 bps -78.0 -809 bps -79.5 QoQ(%) Bloomberg* 3.5 3.2 6.5 23 bps -160.2 326 bps -160.2 NA NA NA NA NA NA NA Dev (%) NA NA NA NA NA NA NA
P/E (FY13E): 41.9x
Valuation & Outlook Fortis recently announced the closure of overseas acquisition for USD 665 mn to be funded by raising USD 175mn fresh debt, which is expected to raise its DER to 1.5x. Fortis is expected to maintain its growth trend of 25% CAGR in FY12-13E. However the profits would remain subdued as the company is concerntrating on the planned expansion which would lead to higher interest obligations. Currently the stock is trading at 41.9x FY13E earnings. We recommend HOLD with the target price of INR 102.
Ranbaxy Ltd
HOLD (INR in Mn) Q4CY11E 24,132 21,646 2,486 10.3 (7,630) (31.6) -18.1 Q4CY10 20,981 18,598 2,383 11.4 (975) (4.6) 9.0 Q3CY11 20,228 19,215 1,013 5.0 (4,646) (23.0) -11.0 YoY(%) 15.0 16.4 4.3 -106 bps 682.7 -2697 bps -301.3 QoQ(%) Bloomberg* 19.3 12.7 145.3 529 bps 64.2 -865 bps 64.2 25,750 20,699 5,051 19.6 2,897 11.3 6.1 Dev (%) -6.3 4.6 -50.8 -931 bps -363.4 -4287 bps -399.1
P/E (CY12E): 32.6x
Valuation & Outlook Ranbaxy is expected to have a 15% sales growth (YoY) mainly driven by the launch of generic Lipitor and Cadeut in the quarter (Combined sales of USD 90mn). However Ranbaxy is expected to make provision for the penalty of USD 500 mn to USFDA towards the settlement of the manufacturing issue. Also the company is expected to report forex losses of around INR 3 bn during the quarter. Currently the stock is trading at 32.6x CY12E earnings. We recommend HOLD with the revised target price of INR 465
22
Opto Circuits Ltd

BUY (INR in Mn) Q3FY12E 5,630 4,172 1,458 25.9 1,256 22.3 6.7 Q3FY11 4,177 3,102 1,075 25.7 957 22.9 5.2 Q2FY12 5,620 4,183 1,437 25.6 1,211 21.5 6.5 YoY(%) 34.8 34.5 35.7 16 bps 31.2 -61 bps 28.9 QoQ(%) Bloomberg* 0.2 -0.3 1.4 32 bps 3.7 76 bps 3.7 5,821 4,293 1,528 26.2 1,039 17.8 5.8 Dev (%) -3.3 -2.8 -4.5 -34 bps 20.9 446 bps 16.1
EV/EBITDA FY13E :6.3x
Valuation & Outlook Opto Circuits Ltd (Opto) is expected to report a healthy set of numbers backed by the growth in Invasive segment. Also a large number of contracts earned by Opto in previous quarter are expected to boost the sales. After restructuring of its Cardiac Science business we see a significant jump in the revenue. The company is looking at increasing its presence globally with major focus on the emerging markets. Currently the stock is trading at 6.3x EV/EBITDA of FY13E. We recommend a BUY rating with the target price of INR 330
Biocon Ltd
BUY (INR in Mn) Q3FY12E 5,211 3,820 1,391 26.7 896 17.2 4.6 Q3FY11 7,298 6,003 1,295 17.7 1,008 13.8 5.2 Q2FY12 5,084 3,750 1,334 26.2 857 16.9 4.3 YoY(%) -28.6 -36.4 7.5 896 bps -11.0 339 bps -11.0 QoQ(%) Bloomberg* 2.5 1.9 4.3 46 bps 4.6 34 bps 6.8 5,554 3,858 1,696 30.5 1,000 18.0 5.2 Dev (%) -6.2 -1.0 -17.9 -383 bps -10.4 -81 bps -11.0
P/E (FY13E): 11.2x
Valuation & Outlook Biocon is expected to ramp up its revenue going forward in Q3FY12, with expected increase in licensing income and contribution from other revenue boosters like Fidaxomicin & Insupen which it launched in October 2011. The branded formulation business is expected to drive the revenue growth in Q3FY12. Also the rupee depreciation in the current quarter can add significantly to its revenue. We maintain our positive stance on the company and maintain BUY rating at the CMP of INR 269 valuing the stock at ~17.4x its FY13E earnings with the target price of INR 420
23
Elder Pharmaceuticals Ltd.

BUY (INR in Mn) Q3FY12E 3,357 2,794 563 16.8 201 6.0 9.8 Q3FY11 2,517 2,087 430 17.1 136 5.4 6.6 Q2FY12 3,315 2,765 550 16.6 194 5.8 9.4 YoY(%) 33.4 33.9 30.8 -33 bps 47.2 56 bps 47.2 QoQ(%) Bloomberg* 1.3 1.1 2.3 17 bps 3.7 14 bps 3.8 NA NA NA NA NA NA NA Dev (%) NA NA NA NA NA NA NA
P/E (FY13E): 5.4x
Valuation & Outlook Elder has been a strong player in branded formulation space. The company has some strong brands like Shelcal, Eldervit, Chymoral in its product basket. Most of its brands have a dominant market share in its respective segments. The company has major business operations in the domestic market which acts as a shield from the recent INR/USD volitality. There are concerns related to its high DER of 1.4x, however we expect the recent acquisition of Neutrahealth & inclusion of revenue from Biomeda, the Bulgarian subsidiary, to give boost to the revenue in the coming quarters. Currently the stock is trading at 5.4x its FY13E earnings. We recommend a BUY rating with the target price of INR 420.
24
Food Processing
Shree Renuka Sugars Ltd (SHRS)
CMP: INR 26 Particulars Revenue from Operations Operating Expenses EBITDA EBITDA (%) Reported PAT PAT (%) EPS Q3FY12E 14,987 12,665 2,323 15.5 (2,293) (15.3) -3.4 Q3FY11 11,014 10,028 986 9.0 304 2.8 0.5 Q2FY12 11,273 10,754 519 4.6 (573) (5.1) -0.9 YoY(%) 36.1 26.3 135.5 654 bps -854.3 -1806 bps NA QoQ(%) Bloomberg* 32.9 17.8 347.5 1089 bps 300.2 -1022 bps NA 15,127 NA NA NA -2,493 -16.5 -3.7 BUY (INR in Mn) Dev (%) -0.9 NA NA NA -8.0 118 bps -8.0
Market Cap: 36,720

* C o ns o lida te d F ina nc ia ls , S Y- S ugar Ye a r
P/E (SY12E): 4.2x
Valuation & Outlook Shree Renuka Sugars (SHRS) would benefit from stable sugar prices, around INR 33-35 per kg, in domestic markets. In global markets, higher realisation of sugar and ethanol would contribute to SHRS' topline growth. Brazilian & Indian operations are expected to show traction on the back of healthy volumes this season. Reduction in debt and company's vision towards further debt reduction would improve margins going forward. At CMP of INR 26, the stock is trading at 4.2x its SY12E earnings. We recommend BUY rating on the stock with a reduced price target of INR 34.
REI Agro
CMP: INR 16 Particulars Revenue from Operations Operating Expenses EBITDA EBITDA (%) Reported PAT PAT (%) EPS Q3FY12E 9,540 7,546 1,994 20.9 643 6.7 0.7 Q3FY11 9,602 7,617 1,985 20.7 814 8.5 0.8 Q2FY12 9,016 7,059 1,957 21.7 529 5.9 0.6 YoY(%) -0.6 -0.9 0.5 23 bps -21.0 -174 bps -21.0 QoQ(%) Bloomberg* 5.8 6.9 1.9 -80 bps 21.4 87 bps 21.4 NA NA NA NA NA NA NA BUY (INR in Mn) Dev (%) NA NA NA NA NA NA NA
Market Cap: 23,470

P/E (FY13E): 4.8x
Valuation & Outlook Basmati industry is set to post a strong growth trajectory on account of rapid increase in production, healthy demand in international markets and possibility of realisation improvement. REI Agro, the leader in Basmati processing, is positioning itself to capitalize the growth opportunity by increasing the utilisation rate, improving its head rice yield and better positioning of its brands. The impact of higher interest cost would be partially offset by reduction in working capital requirment. Stock is trading at 4.8x its FY13E earnings. We recommend BUY rating on the stock with a reduced price target of INR 21.
25
Fertiliser
Fertiliser sales spured in H1FY12 despite drop in fertiliser volumes. Rise in fertiliser prices and weakening of Indian rupee evaded the fall in DAP(Di-Ammonium Phosphate), MOP(Muriate of Potash) and NPK fertiliser volumes. Urea sales increased by 11% to 14mn mt while complex fertiliser sales fell by 19% 12.5mn mt in the period. We expect continuation of shift in demand of DAP and MOP fertilisers to govt subsidized urea despite some respite provided by NBS (Nutrient based subsidy) for imported fertilisers. Shortage in gas supply due to reduction in KG basin supply and delay in implementation of gas grid continue to restrict the sector growth. We expect fertiliser companies to maintain their margins as they are able to pass on the rise in raw material prices to the farmers. However, increase in realisation is expected to hamper growth in sales volume.
Chambal Fertilisers
CMP: INR 80 Particulars Revenue from Operations Operating Expenses EBITDA EBITDA (%) Reported PAT PAT (%) EPS Q3FY12E 12,032 10,651 1,382 11.5 789 6.6 1.9 Q3FY11 13,588 11,290 2,299 16.9 1,074 7.9 2.6 Q2FY12 16,423 14,523 1,900 11.6 917 5.6 2.2 YoY(%) -11.5 -5.7 -39.9 -543 bps -26.6 -135 bps -26.6 QoQ(%) Bloomberg* -26.7 -26.7 -27.3 -8 bps -14.0 97 bps -14.0 15,728 NA NA NA 817 5.2 2.0 BUY (INR in Mn) Dev (%) -23.5 NA NA NA -3.5 136 bps -3.5
Market Cap: 38,240

P/E (FY13E): 9.1x
Valuation & Outlook Chambal Fertilisers would continue to gain from strong growth in Urea consumption. Withdrawal of shipping business demerger proposal would continue to dent the margins for the company. Losses in textile division would also affect the margins of the company. However, change in Urea investment policy provides opportunity for expansion. Besides, possible decontrol of urea prices could trigger the sector growth. Stock is trading at 9.1x its FY13E earnings. We recommend BUY on the stock with a price target of INR 98.
26
Deepak Fertilisers & Petrochemicals Ltd.

CMP: INR 126 Particulars Revenue from Operations Operating Expenses EBITDA EBITDA (%) Reported PAT PAT (%) EPS Q3FY12E 4,379 3,672 707 16.1 359 8.2 4.1 Q3FY11 4,107 3,341 766 18.7 414 10.1 4.7 Q2FY12 5,772 4,793 979 17.0 539 9.3 6.1 YoY(%) 6.6 9.9 -7.8 -251 bps -13.3 -188 bps -13.3 QoQ(%) Bloomberg* -24.1 -23.4 -27.8 -82 bps -33.3 -113 bps -33.3 4,337 3,630 707 16.3 392 9.0 4.4 BUY (INR in Mn) Dev (%) 1.0 1.2 -0.1 -16 bps -8.3 -83 bps -8.3
Market Cap: 11,114

P/E (FY13E): 4.9x
Valuation & Outlook Lack of competition, switching of major mining & infrastructure players to technical grade AN (from fertiliser grade AN) and strong growth in infrastructure in Southeast Asia (especially India in 12th Five Year Plan) would support TAN growth. Healthy performance by chemical segment provides strong revenue visibility for the company. Contribution from bentonite sulphur is expected to rise gradually till FY13. Stock is trading at 4.9x its FY13E earnings. We maintain BUY rating on the stock with a price target of INR 155.
Coromandel International Ltd.

CMP: INR 279 Particulars Revenue from Operations Operating Expenses EBITDA EBITDA (%) Reported PAT PAT (%) EPS Q3FY12E 25,149 21,890 3,259 13.0 1,836 7.3 6.5 Q3FY11 20,570 18,219 2,351 11.4 1,505 7.3 5.3 Q2FY12 27,241 23,913 3,327 12.2 2,824 10.4 10.0 YoY(%) 22.3 20.2 38.6 153 bps 22.0 -1 bps NA QoQ(%) Bloomberg* -7.7 -8.5 -2.1 74 bps -35.0 -307 bps -35.0 26,219 22,797 3,422 13.1 1,989 7.6 7.1 BUY (INR in Mn) Dev (%) -4.1 -4.0 -4.8 -9 bps -7.7 -29 bps -7.7
Market Cap: 86,870

P/E (FY13E): 9.2x
Valuation & Outlook Coromandel's (CRIN) acquisition of Gujarat based agrochemical company Sabero Organics would strengthen its topline growth. Sabero has a wide portfolio of 8-9 products across various categories like insecticide, herbicide and fungicide. Strong synergy benefits are expected from this acquisition going forward. The company would also gain from strong consumption of agrochemical in CY11. CRIN is also expected to increase its manufacturing capacity of P & K type fertilisers (through its subsidiaries) in FY13. Stock is trading at 9.2x its FY13E earnings. We maintain BUY rating on the stock with a reduced price target of INR 343.
27
Agrochemical Sector
Indian agrochemical industry is the fourth largest market in the world with a total estimated market size of USD 1.4bn, after the United States, Japan, and China. Of this, ~50% market share is held by MNCs and the rest by Indian companies who are largely into off-patent generic formulations. This industry (USD 1.4bn in size) is expected to grow at 12-15% compared to 3.6% expected from global market (USD 43bn) till 2014 (Domestic industry grew by 11% in 2009). 40 ingredients are going off-patent by 2013, which will throw up opportunities for existing established players. Indian agrochemical market is dominated by Insecticides with 58% market share, followed by herbicides and fungicides with 21% and 19% share respectively. Nearly 50% of the total pesticide produced is consumed by only two crops i.e. paddy and cotton.
Rallis India Ltd. (RALI)

CMP: INR 121 Particulars Revenue from Operations Operating Expenses EBITDA EBITDA (%) Reported PAT PAT (%) EPS Q3FY12E 3,774 3,090 683 18.1 377 10.0 1.9 Q3FY11 2,714 2,201 512 18.9 337 12.4 1.7 Q2FY12 4,365 3,356 1,009 23.1 619 14.2 3.2 YoY(%) 39.1 40.4 33.5 -76 bps 11.8 -243 bps 11.8 QoQ(%) Bloomberg* -13.5 -7.9 -32.3 -501 bps -39.1 -419 bps -39.1 3,279 2,627 652 19.9 342 10.4 1.8 BUY (INR in Mn) Dev (%) 15.1 17.6 4.8 -177 bps 10.2 -45 bps 10.2
Market Cap: 23,531

P/E (FY13E): 11.4x
Valuation & Outlook Rallis is expected to register ~28% growth in topline and bottomline till FY13. It has strengthened its grip on the seed business by acquisition of Metahelix Life Sciences a seed research company having 13 products in market and 17 products in pipeline. Rallis is poised for strong growth on account of commissioning of Dahej facility, strong product mix, ability to launch new products successfully, strong distribution channel and contract manufacturing alliance with several multinational agrochemical companies. Stock is trading at 11.4x its FY13E earnings. We recommend BUY rating on the stock with a price target of INR 155.
28
Tata Chemicals
CMP: INR 314 Particulars Revenue from Operations Operating Expenses EBITDA EBITDA (%) Reported PAT PAT (%) EPS Q3FY12E 18,459 15,913 2,546 13.8 1,359 7.4 5.3 Q3FY11 28,909 24,495 4,414 15.3 2,087 7.2 8.2 Q2FY12 35,710 28,969 6,740 18.9 3,453 9.7 13.6 YoY(%) -36.1 -35.0 -42.3 -148 bps -34.9 14 bps -34.9 QoQ(%) Bloomberg* -48.3 -45.1 -62.2 -508 bps -60.6 -231 bps -60.6 23,550 NA NA NA 1,860 7.9 7.3 BUY (INR in Mn) Dev (%) -21.6 NA NA NA -27.0 -54 bps -27.0
Market Cap: 80,899

P/E (FY13E): 8.7x
Valuation & Outlook Tata Chemicals' (TTCH) soda ash business in US and fertiliser segment in India continue to provide stable outlook for earnings. Exports from India would benefit on account of INR/USD depreciation. Healthy contributions from Rallis India and EPM Mining Ventures would continue to strengthen the performance of the company. TTCH's capex in highly profitable Gabon urea unit provides strong visibility for future growth. Stock is trading at 8.7x its FY13E earnings. We recommend BUY rating on the stock with a long term target of INR 387.
United Phosphorus
CMP: INR 132 Particulars Revenue from Operations Operating Expenses EBITDA EBITDA (%) Reported PAT PAT (%) EPS Q3FY12E 17,663 14,193 3,470 19.6 1,732 9.8 3.7 Q3FY11 12,221 10,007 2,215 18.1 827 6.8 1.8 Q2FY12 17,757 15,616 2,141 12.1 519 2.9 1.1 YoY(%) 44.5 41.8 56.7 152 bps 109.4 304 bps 109.4 QoQ(%) Bloomberg* -0.5 -9.1 62.0 759 bps 233.6 688 bps 233.6 17,312 13,744 3,568 20.6 1,851 10.7 4.0 BUY (INR in Mn) Dev (%) 2.0 3.3 -2.7 -96 bps -6.4 -89 bps -6.4
Market Cap: 64,000

P/E (FY13E): 8.1x
Valuation & Outlook UPL's (United Phosphorus) is one of the largest generic players in the global agrochemical market and it is well positioned to capture the growth in Indian and Brazilian markets. UPL's recent acquisition of 50% stake in Sipcam Isagro Brazil provide immense opportunity to expand its international operations. The management expects 25-30% topline growth in FY12. Slowdown in global economy wouldn't affect the consumption of agrochemicals. UPL is currently trading at 8.1x its FY13E earnings. We recommend BUY on the stock with a reduced price target of INR 172.
29
Information Technology
The depreciation of the INR by ~8% in the last quarter will have a positive impact on the IT sector earnings, as 1% rupee depreciation positively impacts the operating margin by 30-40bps (subject to individual cos hedging policy). US has witnessed strong corporate profitability for CYFY11 but the macro environment is still uncertain even though there were signs of improvement in the US economy. The deal pipeline was moderate for the quarter and there are no visible signs of possible cuts in IT budget spending for CY12. However, deterioration of economic environment primarily in Europe could lead to a delay in decision making by companies specifically for larger longer term contracts. The second half of the financial year tends to be slower as compared to the first half and we expect a flattish performance by IT companies over the next few quarters. IT sector is entering a consolidation phase with bigger players like TCS and Infosys looking to maintain their moderate growth of 15-18% over the next few years and retain their key clients. The sector is expected to be an outperformer in the short term (due to weak INR against USD), but we remain Neutral on IT sector for the medium term, as long as the INR/USD remains close to the 50 levels. In this space we recommend HCL, Rolta and Persistent Systems.
Tata Consultancy Services (TCS)

CMP: INR 1169 Particulars Revenue from Operations Operating Expenses EBITDA EBITDA (%) Reported PAT PAT (%) EPS Market Cap: 2,291,783
HOLD (INR in Mn) Q3FY12E 131,154 90,256 40,898 31.2 28,787 21.9 14.7 Q3FY11 96,630 67,630 29,000 30.0 23,970 24.8 12.1 Q2FY12 116,335 82,494 33,841 29.1 23,010 19.8 12.5 YoY(%) 35.7 33.5 41.0 117 bps 20.1 -12 bps 21.6 QoQ(%) Bloomberg* 12.7 9.4 20.9 209 bps 25.1 217 bps 18.0 126,847 88,125 38,722 30.5 28,927 22.8 13.8 Dev (%) 3.3 2.4 5.3 66 bps (0.5) -86 bps 6.2
P/E (FY13E): 18.7x
Valuation & Outlook Global economic conditions will continue to be a concern for TCS as majority of the revenue is generated from US and Europe. However compared to its peers, TCS has lower exposure in the region. Management has indicated confidence in offshore IT service demand in an uncertain economic environment which strengthens our confidence in this stock. The company showed strong volume growth in the previous quarter when compared with its peers. Good double digit growth in service verticals like BFSI, Retail & Distribution, etc. as well as expansion in emerging markets could improve bottom-line margins going forward. At CMP the stock is trading at 18.7x its FY13E earnings. We recommend HOLD rating on this stock and increase our price target to INR 1280.
30
Infosys Ltd
CMP: INR 2831 Particulars Revenue from Operations Operating Expenses EBITDA EBITDA (%) Reported PAT PAT (%) EPS Market Cap: 1,625,359
HOLD (INR in Mn) Q3FY12E 90,520 60,755 29,765 32.9 21,906 24.2 38.2 Q3FY11 71,060 49,590 21,470 30.2 17,800 25.0 31.2 Q2FY12 80,990 47,440 22,810 28.2 19,060 23.5 33.4 YoY(%) 27.4 22.5 38.6 267 bps 23.1 -85 bps 22.3 QoQ(%) Bloomberg* 11.8 28.1 30.5 472 bps 14.9 67 bps 14.4 89,157 60,507 28,651 32.1 21,733 24.4 38.1 Dev (%) 1.5 0.4 3.7 75 bps 0.8 -18 bps 0.1
P/E (FY13E): 17.2x
Valuation & Outlook Infosys delivered a good set of numbers in Q2FY12, where it beat its guidance both on the revenue and EPS front. The company had improved its FY12 INR guidance at the start of the quarter mainly due to the sharp depreciation of the INR against the USD in the second half of CY11, but subsequently indicated that the revenue and EPS would be closer the lower end of the guidance towards the end of Q3FY12. The company is best placed of all IT companies to benefit from the INR depreciation against the USD, due to the hedging policy adopted by the company. We believe that moving forward, the economic environment in the US and Europe will have a significant impact on the revenue. The volume growth should remain stable and weakness in the INR should have a positive impact on the Q3FY12 margins. The company is developing other verticals which will substantiate revenue going forward. At CMP the stock is trading at 17.2x its FY13E earnings. We recommend a HOLD on the stock at CMP with a price target of 3100.
HCL Technologies
* C o ns o lida te d F ina nc ia ls (Ye a r e nde d J une )
ACCUMULATE (INR in Mn) Q2FY12E 51,371 42,906 8,465 16.5 5,394 10.5 7.8 Q2FY11 38,884 32,537 6,347 16.3 3,997 10.3 5.9 Q1FY12 46,513 38,564 7,949 17.1 4,968 10.7 6.8 YoY(%) 32.1 31.9 33.4 16 bps 35.0 22 bps 32.3 QoQ(%) Bloomberg* 10.4 11.3 6.5 -61 bps 8.6 -18 bps 14.8 49,574 41,044 8,530 17.2 5,233 10.6 7.7 Dev (%) 3.5 4.3 (0.8) -73 bps 3.0 -6 bps 1.8
P/E (FY13E): 11.3x
Valuation & Outlook HCLT has adopted a fairly aggressive strategy in increasing its market share and thus has been able to show improved volume growth over the last few quarters. This growth momentum may moderate to a certain extent going forward. The company is expected to witness strong revenues due to increased market share over the next two years. At CMP the stock is trading at P/E of 11.3x FY13E earnings which is at a discount as compared to its peers. We believe the stock has a potential upside of ~19% and hence recommend a ACCUMULATE on the stock and maintain our price target of INR 495.
31
Rolta India Ltd.

* C o ns o lida te d F ina nc ia ls (Ye a r e nde d J une )
BUY (INR in Mn) Q2FY12E 4,997 3,090 1,907 38.2 647 12.9 4.0 Q2FY11 4,412 2,672 1,739 39.4 1,542 34.9 4.8 Q1FY12 4,858 3,069 1,790 36.8 622 12.8 3.9 YoY(%) 13.3 15.6 9.6 -126 bps -58.1 -2201 bps -16.5 QoQ(%) Bloomberg* 2.9 0.7 6.6 132 bps 4.0 14 bps 2.8 NA NA NA NA NA NA NA Dev (%) NA NA NA NA NA NA NA
P/E (FY13E): 2.8x
Valuation & Outlook Rolta would benefit from increased IP-based revenue due to strategic acquisitions made by the company over the last 3 years. Currently IP-based revenue contributes 15% of the total revenue which is expected to increase to more than 20% over next 2-3 years. The potential deals with the India Defense, which contributed to ~25% of the companys revenue for FY11could boost revenue in the next few quarters. The company has strong order book and robust deal pipe line and we expect revenue growth for FY12 to remain on track. We believe that the company would repay FCCB loans through internal accruals and ECB funding in March 2012 and at CMP, the stock is at a relatively cheaper valuation of 2.8x FY13E as compared to its peers in the mid cap IT space. We recommend a BUY on the stock and maintain our price target of INR 105.
Persistent Systems Ltd (PSL)

ACCUMULATE (INR in Mn) Q3FY12E 2,565 2,065 500 19.5 326 12.7 8.1 Q3FY11 1,949 1,522 428 21.9 362 18.6 9.1 Q2FY12 2,382 1,936 446 18.7 324 13.6 8.1 YoY(%) 31.6 35.7 16.9 -244 bps -10.2 -590 bps -10.2 QoQ(%) Bloomberg* 7.7 6.7 12.2 77 bps 0.4 -92 bps 0.5 2,591 2,062 529 20.4 322 12.4 8.0 Dev (%) (1.0) 0.2 (5.7) -92 bps 1.2 27 bps 1.2
P/E (FY13E): 8.5x
Valuation & Outlook In the quarter, PSL revised its FY12 revenue guidance from USD 220mn to USD 205-210 mn and PAT guidance from INR 1250-1350 mn from INR 1396 mn and this has been factored into the estimates due to the global economic slowdown. The company would continue to focus on its core OPD business in which it has a leadership position, as well as generate greater revenue from the higher margin IP services business due to the investments made in this segment. The strategy to focus on sales and an alignment with larger companies like IBM and Cisco would enable the company to further expand its client base. The niche services provided to large clients will enable the company to trade at a premium as compared to its peers. At CMP of INR 318 the stock trades at 8.5x FY13E. We recommend an ACCUMULATE on the stock with a price target of 381.
32
KPIT Cummins Infosystems Ltd.

ACCUMULATE (INR in Mn) Q3FY12E 3,671 2,300 620 16.9 389 10.6 4.4 Q3FY11 2,737 2,352 385 14.1 251 9.2 3.1 Q2FY12 3,250 1,792 444 13.6 336 10.3 4.0 YoY(%) 34.1 -2.2 60.8 281 bps 54.7 141 bps 44.8 QoQ(%) Bloomberg* 12.9 28.3 39.8 324 bps 15.7 25 bps 9.9 3,408 NA NA NA 302 8.9 4.3 Dev (%) 7.2 NA NA NA 22.4 174 bps 2.7
P/E (FY13E): 8.3x
Valuation & Outlook The global environment and specifically the situation in the US will have a significant impact on the top and bottom line of the company (as it contributes to 68.14% of revenue). However the company has a strong order flows in the pipeline, with good probability of conversion. The company has maintained its top line and bottom line guidance of ~25-27% growth YoY. At CMP the stock is trading at 8.3x FY13E earnings. We see a potential upside of ~19.5% from current levels and recommend a ACCUMULATE on the stock and maintain our price target if INR 178.
Hexaware Technologies Ltd (HTL)

* C o ns o lida te d F ina nc ia ls (Ye a r e nded De c e mbe r)
BUY (INR in Mn) Q4FY11E 4,068 3,141 927 22.8 696 17.1 2.4 Q4FY10 2,996 2,651 345 11.5 396 13.2 2.7 Q3FY11 3,660 2,974 686 18.7 646 17.7 2.2 YoY(%) 35.8 18.5 168.7 1127 bps 75.7 388 bps -11.0 QoQ(%) Bloomberg* 11.1 5.6 35.1 404 bps 7.7 -55 bps 10.1 3,413 2,958 455 13.3 537 15.7 1.8 Dev (%) 16.1 5.8 50.9 946 bps 22.8 137 bps 24.3
P/E (FY13E): 9.1x
Valuation & Outlook HTL has delivered strong results over the last few quarters and the management is upbeat about the future prospects of the company moving ahead, by giving improved revenue guidance. The company has won some large deals over the last few quarters and we are optimistic about future wins for deals currently in the pipeline. With large deals wins in the quarter, HTL has also seen a drop in attrition levels by 330 bps to 14.7% which is a positive sign for the company. At CMP the stock is trading at P/ E 9.1x FY12E earnings. We believe the stock can see a potential upside of 35% and recommend a BUY on the stock and maintain our price target of INR 107.
33
Mahindra Satyam
ACCUMULATE (INR in Mn) Q3FY12E 16,856 14,384 2,472 14.7 1,886 11.2 1.6 Q3FY11 12,793 11,579 1,214 9.5 975 7.6 0.8 Q2FY12 15,777 13,360 2,417 15.3 2,382 15.1 2.0 YoY(%) 31.8 24.2 103.6 518 bps 93.4 357 bps 93.4 QoQ(%) Bloomberg* 6.8 7.7 2.3 -65 bps -20.8 -391 bps -19.9 16,400 14,215 2,185 13.3 1,846 11.3 1.6 Dev (%) 2.7 1.2 11.6 134 bps 2.1 -7 bps 0.8
P/E (FY13E): 8.8x
Valuation & Outlook Mahindra Satyam has been showing continued improvement in its revenue and margins over the last few quarters and the company is now competing for larger deals against its bigger peers. We believe that the company is well on its way to increasing client confidence since the problems the company faced in 2009. At CMP the stock is trading at 8.8x FY13E earnings. We recommend a ACCUMULATE on the stock with a target price of INR 80.
Shipping & Logistics

Mundra Port
CMP: INR 123 Particulars Revenue from Operations Operating Expenses EBITDA EBITDA (%) Reported PAT PAT (%) EPS Q3FY12E 6,529 2,014 4,515 69.2 3,122 47.8 1.6 Q3FY11 4,508 1,410 3,098 68.7 2,285 50.7 1.1 Q2FY12 6,197 2,230 3,967 64.0 2,734 44.1 1.4 YoY(%) 44.8 42.8 45.7 43 bps 36.6 -287 bps 36.6 QoQ(%) Bloomberg* 5.3 -9.7 13.8 514 bps 14.2 369 bps 14.2 6,479 1,790 4,689 72.4 3,318 51.2 1.7 BUY (INR in Mn) Dev (%) 0.8 12.5 -3.7 -322 bps -5.9 -340 bps -5.9
Market Cap: 320,140

P/E (FY13E): 16.2x
Valuation & Outlook Mundra Port (MPL) is expected to post strong growth in bulk and crude cargo volumes due to increase in coal requirements by Ultra Mega Power Projects and rise in refining capacities of IOC & HPCL Mittal Energy Ltd. Cargo traffic is expected to rise post revision of long term contracts of leading domestic players. The company has acquired Abbot Point Coal Terminal which would boost its revenues going forward. Stock is trading at 16.2x its FY13E earnings. We upgrade BUY rating on the stock with a revised price target of INR 156.
34
Glass Packaging
The World Packaging Organization estimates the global packaging industry to have revenues of USD 425 bn, with a ten year historical CAGR growth of ~3.1% and is expected to grow to USD 597 bn by 2014. The industry is projected to grow at ~3.5% CAGR in the next five years mainly driven by growth in emerging markets. Indian Container glass Market is estimated at INR 30 bn accounting for 12% of packaging industry and is expected to grow at 10% - 12% per annum going forward. The glass industry has witnessed raw material price incresae which can affect the companies margisn for next few quarters. However, the long term consumption is expected to drive the growth.
Piramal Glass Ltd.

CMP: INR 90 Particulars Revenue from Operations Operating Expenses EBITDA EBITDA (%) Reported PAT PAT (%) EPS Q3FY12E 3,348 2,585 763 22.8 235 6.8 2.9 Q3FY11 3,170 2,389 780 24.6 231 7.3 2.9 Q2FY12 3,298 2,501 796 24.1 230 7.0 2.8 YoY(%) 5.6 8.2 -2.2 -183 bps 1.5 -46 bps 1.5 QoQ(%) Bloomberg* 1.5 3.3 -4.2 -135 bps 2.3 -13 bps 2.3 NA NA NA NA NA NA NA BUY (INR in Mn) Dev (%) NA NA NA NA NA NA NA
Market Cap: 7,283

P/E (FY13E): 5.1x
Valuation & Outlook The company has been steadily shifting its product mix from low margin commodity business to high yield specialized business of C&P. The company is expected to witness some margin pressure in the 3QFY12 due to increase in raw material prices. At the CMP of ~INR90, the stock trades at ~8.0x and 5.1x of its FY12E and FY13E earning respectively. We have valued the company at ~8x of it FY13E earnings. We maintain our BUY rating on the stock with a target price of INR143.
HSIL
CMP: INR 122 Particulars Revenue from Operations Operating Expenses EBITDA EBITDA (%) Reported PAT PAT (%) EPS Q3FY12E 3,313 2,713 600 18.1 241 7.3 3.7 Q3FY11 2,812 2,188 624 22.2 276 9.8 4.2 Q2FY12 2,991 2,438 553 18.5 230 7.7 3.5 YoY(%) 17.8 24.0 -3.9 -408 bps -12.6 -252 bps -12.6 QoQ(%) Bloomberg* 10.8 11.3 8.6 -36 bps 4.8 -40 bps 4.8 NA NA NA NA NA NA NA BUY (INR in Mn) Dev (%) NA NA NA NA NA NA NA
Market Cap: 8,045
P/E (FY13E): 5.3x
Valuation & Outlook The company has implemented price hike of ~6-7% in the November in its building product division. The company is expected to post robust growth in revenue in for the 3QFY12. But is expected to witness margin pressure because of raw material price. At CMP the stock trades at a PE multiple of 8x and 5.3x in FY12E and FY13E respectively. We maintain a BUY on the stock with target price of 240. Unicon Research, Unicon Financial Intermediaries Pvt. Ltd. Email: research@unicon.in 35
QUARTERLY EARNINGS PREVIEW / Q3 -FY12 Saturday, January 07, 2012 Unicon Investment Ranking Methodology
Rating Return Range Buy >= 20% Accumulate 10% to 20% Hold -10% to 10% Reduce -10% to -20% Sell <= -20%
Disclaimer
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Quarterly Earnings Preview Q3 - FY12: Saturday, January 07, 2012

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Quarterly Earnings Preview Q3 - FY12: Saturday, January 07, 2012

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QUARTERLY EARNINGS PREVIEW / Q3 -FY12 Saturday, January 07, 2012