Clsa Jan07 2013 PDF

Morning Notes
India
Morning meeting notes from CLSA India Monday, 07 January 2013

Turnover Highlights BSE 200 Movers and Shakers
Price (Rs) Chg (%) Vol ($m)YTD chg (%) Price (Rs) Chg (%) YTD chg (%)
Cairn 337 2.9 28.5 5.7 Top Gainers
RCOM 81 2.3 25.2 9.1 IFCI 38 11.4 13.9
ONGC 285 1.8 43.2 6.3 Gujarat State Fert. 71 6.1 6.5
BHEL 243 1.7 16.7 6.4 Alok Industries 12 6.1 9.0
TCS 1,299 1.5 63.4 3.5 TVS Motor 45 5.8 8.1
ICICI Bank 1,182 0.9 53.0 3.9 HPCL 314 5.3 7.9
NTPC 159 0.9 4.6 1.6 Wockhardt 1,637 5.0 4.1
SBI 2,487 0.6 74.4 4.2 Patel Engineering 87 4.8 9.0
Infosys 2,350 0.5 48.9 1.3 GSPL 81 4.5 5.3
HUL 535 0.4 11.9 1.9 Financial Tech. 1,170 4.3 3.6
Grasim 3,190 0.4 3.6 0.6 Century Textiles 449 3.9 8.2
Rel. Infra. 547 0.2 16.2 5.1 IOC 281 3.5 4.2
Sun Pharma 735 0.2 7.3 (0.1) Shipping Corp 57 3.5 6.1
SAIL 95 0.2 5.3 5.1 Kirloskar Brothers 161 3.4 3.6
Maruti 1,545 0.1 10.9 3.7 ABB India 726 2.9 3.6
Reliance 862 0.1 52.8 2.7 Top Losers
Hero Honda 1,888 0.0 6.1 (5.0) HCC 20 (3.2) 10.0
Jaiprakash 101 (0.1) 19.0 4.2 Glenmark 525 (2.4) (0.8)
Bharti 327 (0.3) 20.2 3.1 Federal Bank 527 (2.0) (2.1)
Ranbaxy 514 (0.4) 7.8 2.3 Tata Steel 434 (2.0) 1.2
ITC 282 (0.4) 32.3 (1.5) Ashok Leyland 27 (1.8) (1.1)
DLF 238 (0.5) 24.0 3.1 Jindal Steel & Power 458 (1.8) 2.2
L&T 1,628 (0.5) 33.2 1.3 Sterlite Industries 120 (1.8) 2.8
HDFC Bank 679 (0.6) 34.7 0.1 Zee Entertainment 227 (1.8) 2.9
Tata Motors 315 (0.8) 56.7 0.9 Voltas 107 (1.8) 0.9
HDFC 838 (0.9) 33.1 1.1 Praj Industries 49 (1.6) 2.3
Hindalco 133 (1.4) 15.3 1.6 Hindustan Zinc 140 (1.5) 2.8
Zee 227 (1.8) 7.7 2.9 Lakshmi M/c Works 2,264 (1.5) 0.7
Sterlite 120 (1.8) 13.9 2.8 Spicejet 47 (1.5) 5.9
Tata Steel 434 (2.0) 32.6 1.2 Adani Enterprises 277 (1.4) 2.0

Indices
Last close % Chg % YTD
Sensex 19,784 0.1 1.8
Nifty 6,016 0.1 1.9
CNX Midcap 8,747 0.6 2.8
Nasdaq 3,102 0.0 2.7
DJIA 13,435 0.3 2.5
Volumes
US$ m % Chg
BSE 458 (4.1)
NSE 2,287 1.1
Total 2,745 0.2
ADR/GDR (US$)
Lat est % Chg % P rem
Dr Reddy's 34.2 (0.7) (0.4)
HDFC Bank 41.1 0.5 11.1
ICICI Bank 45.0 0.1 4.8
ITC 5.1 (1.2) 0.2
Infosys 42.7 (1.8) 0.0
Ranbaxy 9.6 (0.6) 3.2
Reliance 31.6 (0.6) 0.9
Wipro 8.9 (1.0) 22.0
SBI 92.2 0.8 2.1
Tata Motors 28.8 (1.6) 0.7
Net In/Outflows (US$m)
2- Jan M TD YTD
FIIs 264.5 405 405
Dom MFs (55.7) (6) (6)
Currencies
Closing Chg
Rs/US$ 55.08 0.37
US$/EUR 1.31 (0.00)
US$/JPY 88.03 (0.12)
Bond Markets
Closing Chg
10 yr bond 7.93 (0.04)
Interbank call 8.10 0.30
Commodities
Lat est % Chg % Chg 1 m
Brent (US$/bbl) 111.3 (0.0) 4.1
Gold (US$/oz) 1,660 0.3 (2.6)
Cu (US$/MT) 8,026 (1.4) (0.8)
Al (US$/MT) 2,060 (2.6) (1.6)
Sensex
10000
12000
14000
16000
18000
20000
22000
0
50
100
150
200
250
300
350
400
450
500
Jan11 May11 Sep11 Jan12 May12 Sep12
Volumes (Rsbn) Sensex
Whats inside
Main reason for writing Rec. Target price %
Cairn India Company update BUY 425 +26
Maruti Suzuki Company update BUY (SELL) 1915 (1290) +24
India Pharma Sector Outlook - - -
Valuation Matrix - - - -
Reco/target price in brackets indicate previous reco and target price (only when changed).
News headlines: Corporate
UCO Bank has sought Rs8bn capital from Centre to maintain capital
adequacy ratio at 8%. (ET)
Mahindra & Mahindra has forayed into the motorcycle segment with two
110 cc models- Centuro and Pantero. (ET)

BSNL is set to buy telecom gear worth Rs4bn from Huawei to upgrade its
landline network. (ET)

Air India will gain Rs5bn a year from higher discounts on jet fuel as the
airline has agreed to the oil ministry's demand of clearing past bills of
Rs42.35bn by April 2014 and buy 80% of its fuel from Indian Oil
Corporation . (ET)

News headlines: Economic and political
Eyeing the elections in 2HCY13, Delhi Government has approved
regularisation of over 200 unauthorised colonies in the city. (FE)
As per a survey of industry body PHDCCI, over a third of corporates expect
Indian economy to grow at a rate of 6-7.5% in 2013-14. (FE)
Gross direct tax collections for April-Dec 2012 of Rs0.428m was up 8%
YoY, however lower than the targeted 15% YoY growth. (BL)
Prepared for EV: bindushree.joshi@kotak.com

Morning Notes - India

Please see important notice on last page Page 2 of 3
Find CLSA research on Bloomberg, Thomson Reuters, CapIQ and themarkets.com - and profit from our evalu@tor proprietary database at clsa.com

Maharashtra and Delhi NCR region have cornered over 50% of the FDI
inflows into the country since April 2000. (BL)
Companies have raised Rs350bn via non-convertible debentures in 2012
up 300% YoY. (FE)
In 2QFY13, US$3.8bn was repatriated by way of profits made by foreign
firms on their India investments, up 44% QoQ. This amounted to ~2% of
GDP in 2QFY13. (FE)
The foreign investments into Indian markets through 'Participatory Notes',
rose to an 8-month high of ~US$32bn in October 2012. (FE)
News headlines: Corporate
UK-based garment retailer T.M.Lewin plans to enter India with 50 new
stores in next 5 years. (ET)
Shriram Life Insurance Ltd plans to expand in North India. It plans to
add 50 new branches in North India over its current base of 208 offices
nationwide. (BL)

Coal India has achieved 93% of its output target during April-November
2012. This is 6.4% growth c.f. last year. (BL)

Housing and Urban Development Corporation (HUDCO) plans to raise
Rs7.5bn through tax-free bonds with an option to retain over subscription
up to shelf limit of Rs50bn. (FE)

Airbus has bagged a deal worth around Rs80bn to supply 6 mid-air
refuelling tanker aircraft to the Indian Air Force. (FE)

Indraprastha Gas Limited has revised price of compressed natural gas
(CNG) by ~4% (Rs1.55-1.80/kg ) in the Delhi NCR region. (BL)


Morning Notes - India

Page 3 of 3

Key to CLSA investment rankings: BUY: Total return expected to exceed market return AND provide 20% or greater absolute
return; O-PF: Total return expected to be greater than market return but less than 20% absolute return; U-PF: Total return
expected to be less than market return but expected to provide a positive absolute return; SELL: Total return expected to be less
than market return AND to provide a negative absolute return. For relative performance, we benchmark the 12-month total return
(including dividends) for the stock against the 12-month forecast return (including dividends) for the local market where the stock
is traded.

2012 CLSA Asia-Pacific Markets (CLSA). Note: In the interests of timeliness, this document has not been edited.
The analyst/s who compiled this publication/communication hereby state/s and confirm/s that the contents hereof truly reflect
his/her/their views and opinions on the subject matter and that the analyst/s has/have not been placed under any undue influence,
intervention or pressure by any person/s in compiling such publication/ communication.
The CLSA Group, CLSA's analysts and/or their associates do and from time to time seek to establish business or financial relationships
with companies covered in their research reports. As a result, investors should be aware that CLSA and/or such individuals may have
one or more conflicts of interests that could affect the objectivity of this report. Regulations or market practice of some
jurisdictions/markets prescribe certain disclosures to be made for certain actual, potential or perceived conflicts of interests relating to
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position of the CLSA Group only and do not reflect those of Credit Agricole Corporate & Investment Bank and/or its affiliates. If
investors have any difficulty accessing this website, please contact webadmin@clsa.com or (852) 2600 8111. If you require disclosure
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IMPORTANT: The content of this report is subject to and should be read in conjunction with the disclaimer and CLSA's Legal and
Regulatory Notices as set out at www.clsa.com/disclaimer.html, a hard copy of which may be obtained on request from CLSA Publications
or CLSA Compliance Group, 18/F, One Pacific Place, 88 Queensway, Hong Kong, telephone (852) 2600 8888. 27/04/2012
Cairn India
Rs337.40 - BUY
Financials
Year to 31 March 11A 12A 13CL 14CL 15CL
Revenue (Rsm) 108,977 180,672 250,309 252,078 299,570
Ebitda (Rsm) 83,590 106,074 139,319 123,678 147,765
Net profit (Rsm) 63,344 79,377 117,887 93,819 113,600
NP forecast change (%) - - 15.3 (4.9) 3.7
EPS (Rs) 33.3 41.7 61.7 48.9 59.1
CL/consensus (44) (EPS%) - - 108 94 119
Net cash/equity (%) 7.2 16.3 26.9 27.8 30.1
PE (x) 10.1 8.1 5.5 6.9 5.7
Dividend yield (%) - - 3.6 3.0 3.6
EV/Ebitda (x) 6.9 5.0 3.4 3.6 2.7
Source: CLSA Asia-Pacific Markets
Vikash Kumar Jain
vikash.jain@clsa.com
(91) 2266505015
7 January 2013
India
Petro/Chems
Reuters CAIL.BO
Bloomberg CAIR IB
Priced on 4 January 2013
India Sensex @ 19,784.1
12M hi/lo Rs400.95/296.10
12M price target Rs425.00
% potential +26%
Shares in issue 1,907.4m
Free float (est.) 30.9%
Market cap US$11,731m
3M average daily volume
Rs1,203.6m (US$22.2m)
Major shareholders
Vedanta group 58.8%
Cairn Energy Plc 10.3%
Stock performance (%)
1M 3M 12M
Absolute 1.3 3.5 (0.4)
Relative (0.7) (0.9) (20.1)
Abs (US$) 1.0 (2.5) (4.1)
0
50
100
150
240
276
311
347
382
418
Jan-11 Jul-11 Jan-12 Jul-12
Cairn India (LHS)
Rel to Sensex (RHS)
(Rs) (%)
Source: Bloomberg
www.clsa.com
C
o
m
p
a
n
y

u
p
d
a
t
e
Good start to 2013
The government has approved a policy to allow exploration in producing
blocks. This is a crucial approval for Cairn as it improves visibility of
670mboe of exploration and development upside and its plan to achieve
the ultimate peak of 300kbpd from its Rajasthan block. We tweak our EPS
and production estimates but maintain our Rs425 target and continue to
rate Cairn as our top pick in the sector. The stock is building in
US$80/bbl on long term Brent and we see rise in production, higher
exploration intensity and announcement of new CEO as triggers for 2013.
Significant regulatory approval for Cairn
The Petroleum Minister has announced an approval to exploration in
producing blocks. As per media articles, this policy will ring fence cost
recovery and limit it to only successful exploration capex. This approval will
remove the doubt on development of 19 discoveries in Cairns Rajasthan
block where no development plan has so far been filed. Over and above the
140mboe of recoverable reserves from discoveries, Cairn India also estimates
another 530mboe of risked exploration upside from further exploration in this
block and the company has identified over 100 exploration prospects.
Improved visibility of 300kbpd potential Rajasthan production
Concurrently, this should allow Cairn to give a clearer roadmap to its
announced 300kbpd potential peak from Rajasthan block. We were expecting
this approval only towards the end of 2013 and an early approval will allow
Cairn India to bring some of the key discoveries (Barmer Hill, Vijaya Vandana)
to production before what we had envisaged. We now build in production from
these discovered blocks from FY15 and from further exploration in FY17.
Share sale by Cairn Energy and slow Bhagyam ramp up are concerns
Recent media reports have indicated possibility of slower Bhagyam ramp up
and we delay our 40kbpd peak by six months to Nov13. We also lower our
estimate of ultimate peak of Bhagyam to 50kbpd and that of the block to
~260kbpd (cf. 270). These changes along with higher FY13 crude price and
weaker INR leads to +15% in FY13 and -4/+4% change in FY14/15 EPS.
Scepticism around Bhagyam till it achieves its approved peak in 2H2013 and
risk of more share sale by Cairn Energy (end Mar13) are near term concerns.
Maintain BUY; Cairn remains our top pick
We estimate that Cairn is building in US$80/bbl long term Brent. Rise in
Rajasthan production after one year of stagnation, clearer roadmap to
potential peak of 300kbpd, start of exploration in its Rajasthan block and a
known professional with no Vedanta linkage as the new CEO of Cairn are all
triggers for 2013. We maintain BUY with 26% upside and >3% dividend yield.
Good start to 2013 Cairn India - BUY
7 January 2013 vikash.jain@clsa.com 2
Figure 1
Break up of Cairn India operated Rajasthan block into fields under development, discovered fields and exploration
Source: Cairn India, media articles, CLSA Asia-Pacific Markets
Figure 2
Cairns estimate: Rajasthan 2P+2C recoverable resources from ex-MBA discoveries
Source: Cairn India, CLSA Asia-Pacific Markets
Rajasthan block
(RJ-ON-90/1)
Cairn - 70% (operator)
ONGC - 30%
DA1 (MARS fields)
five discoveries
1. Mangala,
2. Aishwariya,
3. Raageshwari,
4. Raageshwari
deep
5. Saraswati
25 discoveries made to date
MBA peak production of 235kbpd
(current approved peak of
200kbpd) after approval of
revised FDPs for Bhagyam and
Aishwariya
Additional development potential: 20-40kbpd
Exploration potential: up to 100kbpd
No development plan
filed for 16 discoveries
Yet to be found
(exploration potential)
six discoveries
under development
Development plan submitted but
approval awaited for three
discoveries (DA3)
Over 100 exploration
prospects identified
DA2
1 discovery:
Bhagyam
Need government approvals.
ONGC and Cairn have already started
this process
Sustained peak production from
Rajasthan block of 300kbpd
84
86
152 152
178
0
20
40
60
80
100
120
140
160
180
200
Dec 07 Mar 09 Mar 10 Mar 11 Mar 12
(mboe)
Cairns estimate of
developmental upside
from non-MBA discoveries
has more than doubled in
the past three years
Figure 3
Details of in place and recoverable resource estimates from non-MBA discoveries
In-place resources
(best estimate)
Recoverable resource
(2P+2C)
Recovery rate
(%)
Oil
(m bbl)
Gas
(bcf)
Oil +
gas
(m boe)
Oil
(m bbl)
Gas
(bcf)
Oil +
gas
(m boe)
Oil Gas Oil +
gas
Approved
development
Saraswati 14 - 14 2 - 2 12 - 12
Raageshwari Shallow 56 10 57 4 8 6 8 80 10
Raageshwari Deep - 429 72 - 185 31 - 43 43
Total 70 439 143 6 193 38 9 44 27
Discoveries without development plan
MBA (Barmer Hill) 763 - 763 80 - 80 10 - 10
Vijaya & Vandana 590 - 590 10 - 10 2 - 2
Kaameshwari 63 - 63 9 - 9 15 - 15
Guda & Guda South 51 - 51 7 - 7 14 - 14
Tukaram 52 - 52 6 - 6 11 - 11
N-E 23 - 23 4 - 4 18 - 18
Tukaram Deep - 38 6 - 23 4 - 62 62
Kaameshwari West 4 20 8 1 14 3 15 70 38
GS-V - 16 3 0 14 3 - 87 95
Mangala North 23 - 23 3 - 3 12 - 12
N-I 12 4 13 3 2 3 24 54 26
Shakti North 23 - 23 2 - 2 7 - 7
Shakti South 23 - 23 2 - 2 7 - 7
Bhagyam South 5 - 5 1 - 1 13 - 13
NC West 1 5 2 0 3 1 16 57 34
NP 27 - 27 1 - 1 4 - 4
Saraswati Crest 4 - 4 1 - 1 15 - 15
Tukaram Southeast 12 - 12 1 - 1 11 - 11
N-I North - 2 0 - 1 0 - 76 76
Shakti NE 3 - 3 0 - 0 7 - 7
Total 1,680 84 1,694 130 57 140 8 68 8
Discoveries ex MBA 1,750 522 1,837 136 250 178 8 48 10
Source: Vedanta, D&M, Cairn India, CLSA Asia-Pacific Markets
Nearly 140mboe from
discoveries with no
development plan
Figure 4
Estimate of risked exploration upside from Rajasthan block
Figure 5
Details of reservoirs and geological age of discoveries in Rajasthan block
Figure 6
Build up of Rajasthan production
35
250
530
0
100
200
300
400
500
600
2006 2010 2012
(mboe)
174
191
224
256
265
262
260 260 260 261
255
235
220
0
50
100
150
200
250
300
FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY22 FY23 FY24 FY25
Mangala Bhagyam Aishwariya EOR Others Exploration
Cairn increased its in-
place estimate by 24% to
3.1bn boe in 2012, with a
more than doubling of the
exploration upside
to 530m boe
Discoveries made so far
have already identified
seven different reservoirs
in the block, which have
distinct characteristics
and geological age
We assume Cairns
sustainable peak
production of ~260kbpd
as compared to
managements guidance
of 300kbpd
Figure 7
Details of key changes in our estimates
FY13 FY14 FY15 FY16 FY17 CLSA comments
Production (kbpd)
Mangala 149 150 150 141 125 No change
Bhagyam 25
(27)
31
(47)
40
(60)
50
(60)
48
(57)
Delayed ramp up
by six months and
also lowered our
ultimate peak by
10kbpd
Aishwariya -
(1)
9
(10)
22 25 25 Delayed start of
Aishwariya by two
months
EOR - - - 10 25 No change
non-MBA - - 12
(0)
30
(10)
33
(24)
With approval to
explore, expect
non-MBA fields to
be bought into
production earlier
Exploration - - - - 10
(0)
Production from
fresh exploration
also brought
forward by one
year
Rajasthan production 174
(177)
191
(207)
224
(232)
256
(246)
265
(256)
Peak production
of 265kbpd vs
Cairns estimate
of 300kbpd
Macro assumptions
Brent crude price 110
(100)
100 101 104 107 Higher FY13 Brent
price
INR/US$ 54.5
(53.3)
55.5
(53.0)
56.5
(53.0)
53.0 53.0 Weaker INR for
FY13-15
New EPS 61.7 48.9 59.1 63.1 47.6
Old EPS 53.5 51.4 57.0 58.2 43.3
Change in EPS (%) 15.3 (4.9) 3.7 8.5 9.8
Source: CLSA Asia-Pacific Markets , Note: Figures in brackets indicate our earlier estimates
Figure 8
Build up of production from MBA fields
125
150 150 150 150
40
40 40
60
50
10
10
20
25
25
175
200
210
235
225
0
50
100
150
200
250
FDP Recently
approved peak
Cairn 2010
guidance
CLSA 2012 CLSA 2013
Mangala Bhagyam Aishwarya
Rajasthan peak MBA
production (kbpd)
We have lowered our
production estimate for
Bhagyam and also build in
a slower ramp up
schedule
Lower FY14 EPS estimate
but higher estimate for
other years
We have lowered our
estimated peak
production of Bhagyam to
50kbpd from 60kbpd
Figure 9
Brent crude spot, futures and our forecast price
Source: Bloomberg, CLSA Asia-Pacific Markets
Figure 10
Cairns consolidated EPS: Breakdown
Source: Cairn, CLSA Asia-Pacific Markets
Figure 11
Cairns consolidated cash EPS: Breakdown
Source: Cairn, CLSA Asia-Pacific Markets
0
20
40
60
80
100
120
140
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Brent (US$/bbl)
IPE Brent Futures
CLSA oil team forecast
5.5
33.4
41.7
61.7
48.9
59.1
63.1
47.6
41.0 41.1
46.4
0
10
20
30
40
50
60
70
FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20
EOR Other Rajasthan Exploration Rajasthan
Cairn consol earnings
build-up (Rs/sh)
4.3
35.4
47.9
66.1
58.6
70.1
71.2
67.9
60.7
61.8
66.0
0
10
20
30
40
50
60
70
80
90
FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20
EOR Other Rajasthan Exploration Rajasthan
Cairn consol cash earnings build-up (Rs/sh)
The Brent futures curve
is not very different from
our crude price estimate
As governments sharing
rises and seven-year tax
holiday ends in FY16, we
expect EPS to decline and
settle at Rs40-47 level
Cairns cash EPS is much
less volatile
Figure12
Sensitivity of Cairns Mar14 DCF value to long-term Brent and rupee assumption
(Rs/sh) Long term Brent price (US$/bbl)
50 60 70 80 90 100 110 120 130 140 150 160
R
u
p
e
e
/
U
S
$
45 152 200 247 291 336 381 421 459 506 543 631 152
46 154 204 251 296 342 388 429 468 515 554 643 154
47 156 207 255 302 348 395 437 477 525 565 656 156
48 158 210 259 307 354 402 445 486 535 575 669 158
49 160 213 263 312 360 409 453 494 545 586 681 160
50 162 216 267 317 366 417 461 503 555 597 694 162
51 164 219 271 322 372 424 469 512 565 608 707 164
52 166 222 275 327 378 431 477 521 575 618 719 166
53 168 225 280 332 384 438 485 530 585 629 732 168
54 170 228 284 337 391 445 493 539 594 640 745 170
55 172 231 288 342 397 452 501 547 604 650 757 172
56 175 235 292 348 403 459 509 556 614 661 770 175
57 177 238 296 353 409 466 517 565 624 672 783 177
58 179 241 300 358 415 473 525 574 634 683 795 179
59 181 244 304 363 421 480 533 583 644 693 808 181
60 183 247 308 368 427 488 541 592 654 704 821 183
Figure 13
Key triggers for Cairn Indias core business and the stock
Date Event and our comments
4QFY13 q Approval to explore in Rajasthan received
q Clearer production guidance given by management
q Pipeline debottlenecking complete
1HFY14 q Aishwariya start and ramp up to peak 10kbpd production
q Announcement of new CEO
q Development of hitherto undeveloped Rajasthan discoveries begins
q Exploration in Rajasthan intensifies as Cairn gets its third rig
q Appraisal wells in KG onshore block
2HFY14 q Ramp up to approved peak of 200kbpd..
q .. as Bhagyam ramps up to approved peak of 40kbpd
q revised FDP filing for Aishwariya
q Phase 2 exploration well in Sri Lanka
q FDP filing for non-MBA discoveries
1HFY15 q Production from non-MBA fields begin
q Filing of revised FDP for Bhagyam
q Approval of revised FDP of Aishwariya,
q filing of Mangala ASP EOR FDP
2HFY15 q Aishwariya reaches peak production of 25kbpd
q Approval of revised FDP of Bhagyam
q filing of first EOR FDP for Bhagyam
1HFY16 q filing of first FDPs from new exploration areas
q Bhagyam achieves full peak of 50kbpd
q start of EOR production from Mangala
2HFY16 q Start of EOR production from Bhagyam,
Cairn India has several
triggers over the
coming months
Cairn is currently
discounting US$80/bbl
long-term Brent
This is below long-term
curve. . .
. . . indicating there is
adequate cushion to a
temporary correction
in crude
Figure 14
Cairn Indias Mar13 end DCF-based fair value
2P
STOIIP
(m
boe)
Recover
y factor
(%)
Gross
resource
s (m
boe)
Productio
n to Mar
2013
Mar 2013
gross
resource
s (m
boe)
Cairn
share
(%)
Unrisked
Cairn
resources
(m boe)
Risk
weigh
t (%)
Risked Cairn
resources
(m boe)
EV/bo
e
(US$)
EV
(USbn
)
Cairn
value
(Rs/sh)
Core production assets
Rajasthan 2,249 36 808 (220) 588 70 411 100 411 20.0 8.2 227
Mangala 1,283 43 546 (195) 351 70 246 100 246 20.6 5.1 140
Bhagyam 553 31 169 (22) 147 70 103 100 103 20.2 2.1 57
Aishwarya 335 24 81 (3) 77 70 54 100 54 18.6 1.0 28
Saras/Raag 78 15 12 0 12 70 8 100 8 9.2 0.1 2
Legacy fields 872 48 419 (366) 53 25 13 100 13 8.8 0.1 3
Ravva 690 52 358 (313) 45 23 10 100 10 8.1 0.1 2
Cambay 182 33 61 (53) 8 40 3 100 3 11.2 0.0 1
Total 3,121 39 1,226 (586) 641 66 425 100 425 19.6 8.3 230
Development upside
Rajasthan 1,788 25 455 0 455 70 319 100 319 9.5 3.0 84
MBA EOR 14 308 0 308 70 216 100 216 9.2 2.0 55
Barmer Hill 809 12 97 0 97 70 68 100 68 10.1 0.7 19
Vijaya, Vandana 601 2 12 0 12 70 8 100 8 9.6 0.1 2
Other fields 379 10 38 0 38 70 27 100 27 10.4 0.3 8
Other blocks 550 10 55 0 55 49 27 100 27 11.6 0.3 9
KG-DWN-98/2 0 0 0 0 0 0 0 0 0.0 0
KG-ONN 550 10 55 0 55 49 27 100 27 11.6 0.3 9
Total 2,338 22 510 0 510 68 346 100 346 9.7 3.3 92
Exploration upside
Raj crude 632 0 632 70 442 38 170 4.6 0.8 21
Raj crude upside 381 0 381 70 267 76 203 2.6 0.5 14
Condensate 282 0 282 100 282 17 48 5.7 0.3 7
Natural gas 1,622 0 1,622 96 1,564 24 382 1.0 0.4 11
Total 2,916 0 2,916 88 2,555 31 803 2.4 2.0 54
Summary
Current core assets 641 66 425 100 425 19.6 8.3 230
Development upside 510 68 346 100 346 9.7 3.3 92
Exploration upsides 2,916 88 2,555 31 803 2.4 2.0 54
Net cash (debt) 2.9 81
Corporate (0.7) (19)
Total 4,067 82 3,325 47 1,573 10.1 15.9 438
STOIIP: Stock tank oil initially in place. Source: CLSA Asia-Pacific Markets
Summary financials
Summary P&L forecast (Rsm)
Revenue 108,977 180,672 250,309 252,078 299,570
Op Ebitda 83,590 106,074 139,319 123,678 147,765
Op Ebit 71,660 91,671 115,096 99,244 119,232
Interest income 0 0 0 0 0
Interest expense (2,909) (2,258) (573) (50) (50)
Other items 149 (5,178) 11,352 8,649 11,473
Profit before tax 68,900 84,235 125,875 107,842 130,656
Taxation (5,556) (4,857) (7,987) (14,024) (17,056)
Minorities/Pref divs 0 0 0 0 0
Net profit 63,344 79,377 117,887 93,819 113,600
Summary cashflow forecast (Rsm)
Operating profit 71,660 91,671 115,096 99,244 119,232
Operating adjustments - - - - -
Depreciation/amortisation 11,930 14,403 24,223 24,434 28,533
Working capital changes (7,614) (16,307) (17,938) (6,912) (9,530)
Net interest/taxes/other (5,509) 2,454 (6,183) (14,024) (17,056)
Net operating cashflow 70,468 92,221 115,199 102,742 121,180
Capital expenditure (34,168) (29,001) (47,458) (59,592) (70,762)
Free cashflow 36,300 63,220 67,741 43,151 50,418
Acq/inv/disposals 105 0 0 0 0
Int, invt & associate div (1,621) (13,622) 5,304 8,599 11,423
Net investing cashflow (35,683) (42,623) (42,154) (50,993) (59,338)
Increase in loans (7,225) (14,282) (12,500) - -
Dividends 0 0 0 (26,714) (22,309)
Net equity raised/other 1,714 308 2,596 778 1,240
Net financing cashflow (5,511) (13,974) (9,904) (25,936) (21,069)
Incr/(decr) in net cash 29,274 35,624 63,141 25,813 40,772
Exch rate movements 205 - - - -
Opening cash 26,313 55,792 91,416 154,557 180,370
Closing cash 55,792 91,416 154,557 180,370 221,143
Summary balance sheet forecast (Rsm)
Cash & equivalents 55,792 91,416 154,557 180,370 221,143
Debtors 14,829 14,968 20,738 20,884 24,819
Inventories 3,277 1,361 1,885 1,898 2,256
Other current assets 16,655 37,747 52,982 60,858 70,170
Fixed assets 119,904 134,502 157,737 192,894 235,123
Intangible assets 253,193 253,193 253,193 253,193 253,193
Other term assets 943 1,245 1,245 1,245 1,245
Total assets 464,592 534,432 642,337 711,344 807,949
Short-term debt 0 0 0 0 0
Creditors 12,638 12,328 15,919 17,043 21,117
Other current liabs 3,105 1,206 27,920 23,515 28,033
Long-term debt/CBs 26,782 12,500 0 0 0
Provisions/other LT liabs 19,135 25,477 22,977 22,977 22,977
Minorities/other equity 555 555 555 555 555
Shareholder funds 402,378 482,366 574,966 647,253 735,267
Total liabs & equity 464,592 534,432 642,337 711,344 807,949
Ratio analysis
Revenue growth (% YoY) 381.6 65.8 38.5 0.7 18.8
Ebitda growth (% YoY) 973.3 26.9 31.3 (11.2) 19.5
Ebitda margin (%) 76.7 58.7 55.7 49.1 49.3
Net profit margin (%) 58.1 43.9 47.1 37.2 37.9
Dividend payout (%) - - 19.5 20.4 20.3
Effective tax rate (%) 8.1 5.8 6.3 13.0 13.1
Ebitda/net int exp (x) 28.7 47.0 243.0 2,473.6 2,955.3
Net debt/equity (%) (7.2) (16.3) (26.9) (27.8) (30.1)
ROE (%) 17.1 17.9 22.3 15.4 16.4
ROIC (%) 17.6 21.0 24.7 18.5 20.2
EVA/IC (%) 6.1 9.4 13.1 7.1 8.8
Companies mentioned
Cairn India (CAIR - RS337.40 - BUY)
Recommendation history of Cairn India Ltd CAIR IB
Date Rec Target Date Rec Target
10 July 2012 BUY 425.00 29 November 2010 O-PF 325.00
19 March 2012 BUY 420.00 16 August 2010 U-PF 320.00
24 February 2012 BUY 460.00 28 July 2010 O-PF 350.00
05 January 2012 BUY 410.00 24 April 2010 O-PF 325.00
27 July 2011 O-PF 335.00 24 March 2010 O-PF 310.00
28 March 2011 O-PF 395.00 29 January 2010 O-PF 275.00
10 February 2011 O-PF 350.00
Key to CLSA investment rankings: BUY: Total return expected to exceed market return AND provide 20% or greater absolute return; O-PF: Total
return expected to be greater than market return but less than 20% absolute return; U-PF: Total return expected to be less than market return but
expected to provide a positive absolute return; SELL: Total return expected to be less than market return AND to provide a negative absolute return. For
relative performance, we benchmark the 12-month total return (including dividends) for the stock against the 12-month forecast return (including
dividends) for the local market where the stock is traded.
The analyst/s who compiled this publication/communication hereby state/s and confirm/s that the contents hereof truly reflect his/her/their views and
opinions on the subject matter and that the analyst/s has/have not been placed under any undue influence, intervention or pressure by any person/s in
compiling such publication/ communication.
The CLSA Group, CLSA's analysts and/or their associates do and from time to time seek to establish business or financial relationships with companies
covered in their research reports. As a result, investors should be aware that CLSA and/or such individuals may have one or more conflicts of interests
that could affect the objectivity of this report. Regulations or market practice of some jurisdictions/markets prescribe certain disclosures to be made for
certain actual, potential or perceived conflicts of interests relating to research report and such details are available at
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18/F, One Pacific Place, 88 Queensway, Hong Kong, telephone (852) 2600 8888. 01/01/2013
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Vikash Jain
Other analysts
No coverage
BUY
U-PF
O-PF
SELL
Maruti Suzuki
Rs1,544.00 - BUY
Financials
Revenue (Rsm) 362,997 348,778 426,864 510,598 637,661
Rev forecast change (%) - - (3.1) (2.6) 1.9
Net profit (Rsm) 22,886 16,352 18,870 26,435 36,435
NP forecast change (%) - - (6.1) 10.5 17.1
EPS (Rs) 79.2 56.6 65.3 91.5 126.1
CL/consensus (41) (EPS%) - - 97 94 107
EPS growth (% YoY) (8.7) (28.6) 15.4 40.1 37.8
PE (x) 19.5 27.3 23.6 16.9 12.2
Dividend yield (%) 0.6 0.6 0.6 0.8 1.1
ROE (%) 17.8 11.3 11.8 14.7 17.6
Net debt/equity (%) (44.8) (39.2) (34.0) (33.1) (40.8)
Abhijeet Naik
abhijeet.naik@clsa.com
(91) 2266505060
Nitij Mangal
(91) 2266505064
5 January 2013
India
Autos
Reuters MRTI.BO
Bloomberg MSIL IB
Priced on 4 January 2013
India Sensex @ 19,784.1
12M hi/lo Rs1,567.80/927.10
12M price target Rs1,915.00
% potential +24%
Shares in issue 289.0m
Free float (est.) 45.8%
Market cap US$8,186m
3M average daily volume
Rs1,055.5m (US$19.5m)
Major shareholders
Suzuki Motors 54.2%
FIIs 20.3%
Stock performance (%)
1M 3M 12M
Absolute 4.4 11.0 62.8
Relative 2.1 6.9 30.7
Abs (US$) 5.0 6.4 58.6
0
50
100
150
910
1,090
1,270
1,450
1,630
Jan-11 Jul-11 Jan-12 Jul-12
Maruti Suzuki (LHS)
Rel to Sensex (RHS)
(Rs) (%)
Source: Bloomberg
www.clsa.com
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Smoother drive
After 3 years of gloom, Marutis earnings outlook is finally improving. PV
demand should gradually recover over FY14-15 with improving GDP growth
and falling interest rates. A renewed focus on exports and launch of a new
compact SUV will boost volume growth further. We expect Marutis EBITDA
margins to recover to near-10% by FY15 driven by a weakening Yen,
improving product-mix and rising localization. Earnings sensitivity to the Yen
will drop as localization rises and exports pick up, which is a positive for
multiples. We upgrade FY14-15 EPS by 11-17%, mainly due to the weaker
Yen. We upgrade Maruti from SELL to BUY with a target price of Rs1915.
Improving volume outlook; rising focus on high-growth SUV segment
Indias GDP growth has bottomed in recent quarters and CLSAs economics team
expects a gradual improvement in growth from 5.5% in FY13 to 6.5% in FY15.
Easing inflation is expected to drive a 100bps cut in interest rates by RBI in 2013.
PV industry growth has historically improved in periods of rising GDP growth and
falling interest rates and we expect demand to start recovering by mid-FY14. We
forecast PV growth to improve to 13% Cagr over FY13-15 from 5% Cagr over
FY11-13. Maruti is increasing its focus on the high-growth SUV market and will
launch a new compact SUV in FY15, which will boost volume growth higher.
Renewed exports focus to boost revenue growth further
Maruti has increased its focus on exports and is targeting to increase the share of
exports in volumes from 11% in FY13 to 15% by FY16-17. This will be achieved
by entering new markets, launching more products in exports markets and
increasing penetration in Africa. New export revenue streams like the Ertiga kit
exports to Indonesia and petrol engine sales to other Suzuki subsidiaries will also
boost export revenues further and is a good strategic move.
Margin recovery on the anvil; weaker Yen is a big positive
We believe that Marutis EBITDA margins will improve to near-10% levels by FY15
driven by a weaker Yen, operating leverage benefits, improving product-mix
(rising diesel car share) and rising localization at vendors. CLSAs economics team
expects the recent Yen weakness vs. INR (10% from 2Q levels) to sustain.
Falling Yen sensitivity should improve multiples
Earnings sensitivity to the Yen should drop over FY14-16 as exports pick up
(offering a natural hedge to the Yen imports) and localization at vendors
improves. This should reduce earnings volatility. The exports and UV-segment
focus will bring diversification benefits and improves growth outlook. All this is
supportive of higher multiples for Maruti. The SPIL merger is another positive and
will boost EPS by 1-6% over FY13-15. Maruti offers strong 39% earnings Cagr
over FY13-15 and valuations at 12x FY15 P/E are reasonable despite the stock
price rally since Sep-12. Upgrade to BUY with a TP of Rs1915 at 15x FY15 P/E.
Smoother drive Maruti Suzuki - BUY
5 January 2013 abhijeet.naik@clsa.com 2
Our BUY recommendation is based on:
#1: Strong revenue growth outlook
We forecast Marutis volumes to rise at 16% Cagr and revenues to rise at
22% Cagr over FY13-15. This growth will be driven by:
a) Passenger vehicle (PV) industry growth set to recover supported
by improving macros: Indias GDP growth seems to have bottomed at
~5.3% in recent quarters and our economics team expects growth to
improve from 5.5% in FY13 to 6.0% in FY14 and further to 6.5% in FY15.
CLSAs economics team also expects the RBI to cut interest rates by
100bps by 2013. Historically, PV industry growth has accelerated in
periods of improving GDP growth and declining interest rates and we
expect Indias PV demand to start recovering by mid-FY14. Our estimates
build in PV industry growth improving from 6% in FY13 to 12% in FY14
and further to 14% in FY15.
Figure 1
PV industry growth has accelerated in periods of improving GDP growth
Source: SIAM, Bloomberg, CLSA Asia-Pacific Markets
Figure 2
CLSAs economic team expects another 100bps cut in repo rate from 8% currently
6.5
5.5
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FY91 FY93 FY95 FY97 FY99 FY01 FY03 FY05 FY07 FY09 FY11 13CL 15CL
GDP growth (%, LHS) PV industry volume growth (%, RHS)
7.50
7.75
5.00 5.00
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8.50
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FY07 FY08 FY09 FY10 FY11 FY12 13CL 14CL 15CL
Repo rate (%, year-end)
PV demand should
gradually recover over
FY14-15 with improving
GDP growth and falling
interest rates.
GDP growth is expected
to improve from 5.5% in
FY13 to 6.0-6.5% in
FY14-15
Easing inflation is
expected to drive a
100bps cut in interest
rates by RBI in 2013
Figure 3
Strong inverse correlation between car industry growth and ownership cost
Source: SIAM, CLSA Asia-Pacific Markets
Figure 4
Indias passenger vehicle (PV) industry forecasts
Volumes ('000 units) FY10 FY11 FY12 FY13CL FY14CL FY15CL
Maruti 871 1,133 1,006 1,045 1,185 1,388
Hyundai 315 359 389 398 437 503
Tata Motors 286 352 373 357 372 404
M&M 156 181 246 313 369 408
Toyota 64 84 160 174 182 196
Others 259 411 449 489 577 659
PV Industry volumes 1,951 2,521 2,623 2,775 3,122 3,558
YoY growth (%) 25.6 29.2 4.0 5.8 12.5 14.0
.
Car industry: YoY growth (%) 26.5 30.9 2.6 (2.0) 10.3 12.2
UV industry: YoY growth (%) 20.8 19.1 13.8 53.5 21.1 20.4
UVs as % of PV volumes (%) 14.0 12.9 14.1 20.4 22.0 23.2
.
Market share (%)
Maruti 44.6 44.9 38.4 37.7 37.9 39.0
Hyundai 16.1 14.3 14.8 14.3 14.0 14.1
Tata Motors 14.7 14.0 14.2 12.9 11.9 11.4
M&M 8.0 7.2 9.4 11.3 11.8 11.5
Toyota 3.3 3.3 6.1 6.3 5.8 5.5
Others 13.3 16.3 17.1 17.6 18.5 18.5
b) Renewed exports focus: Maruti has increased its focus on exports
markets in an attempt to 1) Boost revenues amidst a domestic slowdown;
and 2) Create a natural hedge for the Yen-denominated imports. Maruti is
targeting to increase exports share in volumes from 11% in FY13 to 15%
by FY16-17. This will be achieved by entering new markets, launching
more products in exports markets and increasing penetration in Africa.
New export revenue streams like the Ertiga kit exports to Indonesia and
petrol engine sales to other Suzuki subsidiaries will also boost export
revenues further and is a good strategic move. Maruti has started selling
petrol engines to Suzukis Hungary plant recently and is in talks with
(32)
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YoY change in monthly cost of onwership (%, LHS)
Car industry growth rate (%, RHS)
Maruti has increased focus
on exports to provide
revenue diversification and
a natural currency hedge
With the car ownership
cost growth coming off we
see potential for an
improvement in industry
growth by FY14
However, we remain
sceptical of a spike in
growth to 20%+ levels
since historically that has
happened only when car
ownership costs have
declined in absolute terms,
which is not the case now
We expect PV industry
volumes to grow at 13-
14% over FY14-15
Suzukis Pakistan subsidiary for sale of cars going forward. We expect
Marutis export volumes to rise at 23% Cagr over FY13-15.
Figure 5
We expect Marutis export volumes to grow at 23% Cagr over FY13-15
Source: Company, CLSA Asia-Pacific Markets
Figure 6
Share of exports in volumes will rise over FY13-15
c) New compact SUV launch in FY15: Maruti is focused on targeting the
fast growing urban compact SUV market. It will launch a new compact
SUV by early-FY15, which will bring incremental volumes without
cannibalizing on any existing models. We expect more launches in this
space by Maruti in coming years. The urban affordable SUV market is
booming in India and we see a decent likelihood of Marutis product
becoming a success like the Ertiga. Our estimates build in 60K units of
this new SUV in FY15.
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105
140
175
210
Maruti: Export volumes ('K units, LHS) YoY growth (%, RHS)
5.8
6.9
8.8
14.5
10.9
11.2
10.7
11.2
12.0
0
2
4
6
8
10
12
14
16
Maruti: Export volumes as % of total
Maruti is focusing on
entering new markets,
launching more products in
exports markets and
increasing penetration in
Africa
New export revenue
streams such as Ertiga kit
sales to Suzuki Indonesia
and petrol engine sales to
other Suzuki subs will also
boost export revenues
Maruti is aiming to
increase exports to 15%
of net sales by FY16-17
and there could be upside
to our export volume
estimates
Maruti is targeting the fast
growing urban compact
SUV segment
Figure 7 Figure 8
UV industry volumes grew strong 56% YoY in YTD-FY13 Share of UVs in total PV industry volumes is rising
Source: SIAM, CLSA Asia-Pacific Markets Source: SIAM, CLSA Asia-Pacific Markets
Figure 9 Figure 10
Marutis UV sales have risen sharply with Ertiga launch Mkt share in UVs is up from 2% in FY12 to 15% in FY13
Source: SIAM, CLSA Asia-Pacific Markets Source: SIAM, CLSA Asia-Pacific Markets
#2: Strong recovery in margins ahead
We expect Marutis EBITDA margins to improve from 6.8% in 1HFY13 to 8.3%
in 2HFY13, 9.0% in FY14 and further to 9.5% in FY15. This will be driven by:
a) Weakening Yen: The Yen has weakened by 10% vs. the INR since 2Q
and CLSAs economics team expects this to sustain over FY14-15. They
forecast the Yen-USD rate to settle at 90 in FY14 and FY15 vs. the spot
rate of 88.
Marutis direct Yen imports, indirect Yen imports (via vendors) and royalty
payments to Suzuki together account for ~28% of its net sales. A weaker
Yen Vs INR is positive for Marutis margins and earnings. We estimate that
every 1% Yen weakness Vs INR can boost Marutis EPS by ~3%
everything else remaining unchanged.
However, we believe that it is very unlikely that the actual EPS benefit will
be as high as that implied by above thumb rule since part of the benefit
will be eaten away by forward covers and part will also be passed on to
customers to increase sales. The latter is quite likely as the Yen weakness
gives Maruti a cost edge over players like Hyundai, which would have a
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3mma yoy growth (RHS)
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UVs as % of PV industry volumes
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Maruti: UV volumes (K units)
1.9
2.6
0.8
1.8
16.1
15.5
14.6
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2
4
6
8
10
12
14
16
18
1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13
Maruti - Domestic UV market share (%)
We expect Marutis Ebitda
margins to improve to
9.0% in FY14 and further
to 9.5% by FY15
Weaker Yen Vs INR is
positive for Marutis
margins given Yen-
denominated imports and
royalty payments
KRW component in costs, and we expect Maruti to use this advantage to
boost sales.
Prior to the recent Yen weakness, Maruti had hedged 25% of its USD-Yen
exposure for 2HFY13 while its USD-INR position was largely un-hedged.
There were no material hedges for FY14. We understand that Maruti has
started taking forward covers post the recent Yen weakness, though the
exact extent is not clear as of now.
We believe that there will be a meaningful boost to Marutis margins from
the Yen weakness. We expect the benefits of the Yen weakness to flow
through Marutis financials over 4QFY13 and 1QFY14.
Figure 11 Figure 12
CLSA expects Yen/USD to settle at 90 in FY14/15 CLSA expects the weakness in Yen to sustain in FY14-15
Source: Bloomberg, CLSA Asia-Pacific Markets Source: Bloomberg, CLSA Asia-Pacific Markets
b) Operating leverage benefits: The strong 16% volume Cagr over FY13-
15 will drive operating leverage benefits as Marutis fixed costs will be
spread over a larger volume base, even accounting for the expected rise
in staff costs to 2.5% of sales by FY15 from 2.4% in FY13.
Figure 13
Marutis fixed costs/Sales will decline 40bps over FY14-15
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2009 2010 2011 2012 2013F 2014F
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JPY-INR rate JPY-INR qtr-end spot
Yen has weakened by 10%
vs. the INR from 2Q level
6.6
5.2
5.4
6.1
5.9
5.9
5.5
3
4
5
6
7
FY09 FY10 FY11 FY12 13CL 14CL 15CL
Maruti: Fixed costs as % of net sales
Strong top-line growth
will drive operating
leverage benefits
c) Improving product mix: Share of the more profitable diesel cars in
overall sales mix will rise from 36% in 1HFY13 to 40% in 2H and further
to 42% in FY15. This will improve blended ASPs and will also improve
EBITDA margins given the higher profitability of diesel cars vs. petrol
cars.
Figure 14 Figure 15
Marutis diesel engine capacity will rise over FY14-15 Diesel sales will rise from 36% in 1H to 42% by FY15
Source: Company, CLSA Asia-Pacific Markets Source: Company, CLSA Asia-Pacific Markets
d) Rising localization at vendors: Maruti is focused on reducing its level of
indirect imports via vendors gradually from 13% in FY13 to 7% by FY16
translating to ~2% drop each year. We believe that these savings will
become meaningful by FY15 and will drive further margin improvement
for Maruti in coming years.
Figure 16
Maruti is targeting to cut vendor imports from 13% of sales now to 7% by FY16
e) Worst phase of competition is behind: The overall competitive
environment has eased for Maruti post the high competition years of FY11
and FY12. The new small cars that were launched in FY11 and FY12 have
all stabilized in terms of volumes and are not gaining any more share on
an incremental basis. Marutis market share, too, has stabilized in recent
quarters. There will be an increase in competition for the Swift and the
DZire over FY14-15 once Hyundai and Honda launch their diesel cars but
275
400
475
663
0
100
200
300
400
500
600
700
FY12 FY13 FY14 FY15
Maruti: Diesel engine capacity (K units)
35.9
40.1
39.6
41.5
30
32
34
36
38
40
42
44
1H13 2H13CL FY14CL FY15CL
Diesel vehicle sales as % of total domestic volumes
13%
7%
0%
2%
4%
6%
8%
10%
12%
14%
FY13 FY16 target
Maruti's indirect imports as % of sales
Share of the more
profitable diesel cars in
overall sales mix will rise
from 36% in 1HFY13 to
40% in 2H and further to
42% in FY15
Competitive environment
for Maruti has eased
Higher localization will
drive further margin
improvement and will
reduce earnings
sensitivity to Yen
we dont view this as being as acute as the competition Maruti faced in
the FY11-12 period. Overall, we believe that the worst phase of
competition is behind Maruti.
Figure 17 Figure 18
Mkt share of new small car entrants has stabilized* Marutis small car share has settled at ~46% level
*Combined market share of Ford, GM, Honda, Nissan, Toyota and VW.
Figure 19
Overall, we expect Ebitda margins to improve to 9.0% by FY14 and 9.5% by FY15
#3: Strong earnings growth & improving cash flows
Maruti offers strong earnings growth and improving cash flows over FY13-15.
a) Strong earnings growth: We see Maruti delivering 39% EPS Cagr over
FY13-15, which will be the highest in the large-cap auto space. This will
be a sharp improvement from the -9% EPS Cagr that Maruti delivered
over FY10-13. Earnings growth will get a further boost once the SPIL
merger is completed (expected by end-FY13). We estimate a 1-6% EPS
accretion from the SPIL merger over FY13-15.
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Combined market share of new entrants in small
car segment
5
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Maruti's market share in small cars
9.7
13.4
9.9
7.3
6.8
7.6
9.0
9.5
0
2
4
6
8
10
12
14
16
FY09 FY10 FY11 FY12 1HFY13 13CL 14CL 15CL
Maruti: Ebitda margin (%)
Maruti offers strong 39%
EPS Cagr over FY13-15
Weaker yen, operating
leverage benefits and
higher localization will
boost Marutis Ebitda
margins over FY14-15
Figure 20
Marutis EPS will grow at a robust 39% Cagr over FY13-15
Figure 21
Maruti offers the best EPS growth among large cap auto stocks
Figure 22
SPIL merger will be EPS accretive to the extent of 1-3% over FY14-15
FY13CL FY14CL FY15CL
Maruti's current EPS (Rs) 65.3 91.5 126.1
Maruti's EPS post SPIL merger (Rs) 68.9 94.3 127.7
% change 5.6% 3.1% 1.3%
b) Improving return ratios and cash flows: Marutis ROEs will improve
from 11% in FY12 to 18% in FY15. Marutis free cash generation had
dropped sharply in recent years but recover to healthy levels by FY15 as
profitability improves. FCF/share in FY13 will be Rs112, which translates
to 7% FCF yield.
54
59
47
87
79
57
65
91
126
(30)
(15)
0
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30
45
60
75
90
0
20
40
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80
100
120
140
EPS (Rs, LHS) YoY growth (%, RHS)
FY10-13 EPS
Cagr: -9%
FY13-15 EPS
Cagr: +39%
39%
35%
19%
13% 13%
11%
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
Maruti Ashok Ley Tata Motors Bajaj Hero M&M
FY13-15 EPS growth
Marutis EPS growth will
improve sharply over
FY13-15 after declining at
9% Cagr over FY10-13
Figure 23 Figure 24
RoEs will improve to respectable 15-18% over FY14-15 Free cash flow will also rise sharply over FY14-15
Source: Company, CLSA Asia-Pacific Markets Source: Company, CLSA Asia-Pacific Markets
#4: Marutis multiples should improve
We see a case for Marutis valuation multiples to improve in coming years.
This will be driven by:
a) Falling earnings sensitivity to the Yen: Sensitivity of Marutis earnings
to the Yen should drop over FY14-16 as share of exports rises (offering a
natural hedge to the Yen imports) and localization at vendors improves.
This should reduce earnings volatility.
b) Revenue diversification to improve: Marutis rising focus on exports
and SUVs will incrementally diversify its revenues away from the domestic
passenger car market. This will provide some buffer to earnings in case
the passenger car market slows or if Maruti loses market share in cars.
c) Improving cash flow profile: We see Marutis free cash generation to
improve to healthy levels by FY15 as profitability improves.
d) Lower depreciation in SPIL and Manesar-A plant will boost EPS
post-FY15: Earnings growth post-FY15 will get a boost due to lower
depreciation rate at SPIL and the Manesar-A plant. This provides a case
for a slightly higher multiple on FY15 earnings.
All this is supportive of higher multiples for Maruti. As a result, we have
increased our target multiple for Maruti from 13.5x to 15.0x, which is now in-
line with its historical average multiple.
25.4
22.5
14.3
23.6
17.8
11.3
11.8
14.7
17.6
0
5
10
15
20
25
30
RoE (%)
10.2
6.4
1.5
21.3
12.8
4.5
0.2
9.7
32.5
0
5
10
15
20
25
30
35
Free cash flow (Rs bn)
Falling EPS sensitivity to
Yen, revenue diversification
and improving cash flow
profile provide a case for
higher multiples
We have increased our
target multiple from
13.5x to 15.0x
Figure 25
Maruti has historically traded at average 15x 1yr-forward earnings
Source: Evaluator, CLSA Asia-Pacific Markets
Factors that could go against our call
1. Economic slowdown worsens in India resulting in car industry growth
remaining lacklustre.
2. Diesel car launches from Hyundai/Honda are highly successful and make a
meaningful dent to Swift/DZire volumes.
Figure 26
Models with diesel variants (Swift/Dzire/Etriga/Ritz) contribute ~65% of Ebitda
3. Yen starts appreciating again.
4. Sharp hike in diesel prices resulting in falling demand for Marutis diesel
cars. However, this should logically improve demand for Marutis petrol
cars to some extent, which would offer some buffer. However, this might
also result in demand postponement instead of a shift in demand to petrol
vehicles.
-1sd11.1x
avg15.1x
+1sd19.1x
6.4
8.4
10.4
12.4
14.4
16.4
18.4
20.4
22.4
Jan03 Jan04 Jan05 Jan06 Jan07 Jan08 Jan09 Jan10 Jan11 Jan12
Maruti Suzuki- Price to Earnings Ratio
Source: CLSA Evalu@tor
Swift
25%
Dzire
24%
Ertiga
11%
Alto
10%
Ritz
5%
WagonR
5%
Others domestic
3%
Exports
6%
Spare
parts/Others
11%
Maruti: Ebitda breakup (FY14)
Figure 27
Maruti: Change in estimates
New Old % change
13CL 14CL 15CL 13CL 14CL 15CL 13CL 14CL 15CL
Volumes ('000 units) 1,170 1,335 1,578 1,210 1,363 1,567 (3.3) (2.1) 0.7
Revenues (Rs mn) 426,864 510,598 637,661 440,473 524,142 625,875 (3.1) (2.6) 1.9
Ebitda (Rs mn) 33,275 46,948 61,888 34,523 43,255 54,849 (3.6) 8.5 12.8
Ebitda margin (%) 7.6 9.0 9.5 7.7 8.1 8.6 (5 bps) 91 bps 92 bps
EPS (Rs) 65.3 91.5 126.1 69.6 82.8 107.6 (6.1) 10.5 17.1
Figure 28
Maruti: Volume assumptions
Volumes ('000) FY10 FY11 FY12 FY13CL FY14CL FY15CL
Domestic 871 1,133 1,006 1,045 1,185 1,388
Exports 148 138 127 125 150 190
Total 1,018 1,271 1,134 1,170 1,335 1,578
.
YoY growth (%)
Domestic 20.6 30.1 (11.2) 3.9 13.3 17.1
Exports 110.8 (6.3) (7.9) (1.9) 20.0 26.7
Total 28.6 24.8 (10.8) 3.2 14.1 18.2
Figure 29
Maruti: Volume breakup
('000 units) FY12 13CL 14CL 15CL
Domestic diesel car volumes 243 399 469 575
Domestic petrol car volumes 763 646 716 812
Total domestic volumes 1,006 1,045 1,185 1,388
.
YoY growth (%)
Diesel cars (1.0) 64.1 17.3 22.8
Petrol cars (14.0) (15.4) 10.9 13.4
Total (11.2) 3.9 13.3 17.1
.
Diesel capacity ('000 units) 275 400 475 663
Diesel capacity utilization (%) 88 100 99 87
We have cut our FY14-15
domestic volumes but are
now building higher
exports and additional
volumes from new compact
SUV in FY15
This has resulted in our
FY14-15 volume estimates
staying almost unchanged
vs. earlier
Figure 30
Maruti: Financial snapshot
(Rs bn) FY10 FY11 FY12 FY13CL FY14CL FY15CL
Net sales 291 363 349 427 511 638
EBITDA 40 37 26 33 47 62
PBT 36 31 21 24 35 48
PAT 25 23 16 19 26 36
Diluted EPS (Rs) 86.8 79.2 56.6 65.3 91.5 126.1
.
Networth 120 140 155 171 195 226
Gross debt 8 3 12 11 11 11
Current liabilities 36 41 56 62 70 84
Total liabilities 164 184 223 243 276 321
Fixed assets 54 70 81 100 119 127
Cash 1 25 24 5 6 4
Other assets 109 90 117 138 150 190
Total assets 164 184 223 243 276 321
.
Operating cash flow 33 37 26 33 45 60
Capex (12) (24) (22) (33) (36) (28)
Free cash flow 21 13 4 0 10 32
.
Ratios (%)
Sales growth 42.3 24.7 (3.9) 22.4 19.6 24.9
Ebitda growth 96.9 (7.7) (28.4) 26.9 41.1 31.8
EPS growth 85.4 (8.7) (28.6) 15.4 40.1 37.8
Ebitda margin 13.4 9.9 7.3 7.6 9.0 9.5
Net debt/ Equity (51.3) (49.8) (44.8) (39.1) (37.6) (44.7)
RoAE 23.6 17.8 11.3 11.8 14.7 17.6
RoACE 33.5 24.8 15.2 15.9 21.1 24.3
Summary financials
Summary P&L forecast (Rsm)
Revenue 362,997 348,778 426,864 510,598 637,661
Op Ebitda 29,240 18,037 23,339 35,424 48,340
Op Ebit 19,105 6,653 9,378 19,192 28,836
Interest income 0 0 0 0 0
Interest expense (244) (552) (1,513) (1,578) (1,675)
Other items 12,227 15,361 15,978 17,781 21,292
Profit before tax 31,088 21,462 23,843 35,395 48,454
Taxation (8,202) (5,110) (4,973) (8,960) (12,018)
Minorities/Pref divs 0 0 0 0 0
Net profit 22,886 16,352 18,870 26,435 36,435
Summary cashflow forecast (Rsm)
Operating profit 19,105 6,653 9,378 19,192 28,836
Operating adjustments 0 0 0 0 0
Depreciation/amortisation 10,135 11,384 13,962 16,232 19,504
Working capital changes 3,384 (2,430) (69) 2,129 4,055
Net interest/taxes/other 3,882 10,671 9,473 7,922 7,603
Net operating cashflow 36,506 26,278 32,744 45,475 59,998
Capital expenditure (23,720) (21,798) (32,500) (35,750) (27,500)
Free cashflow 12,786 4,480 244 9,725 32,498
Acq/inv/disposals (8,868) (4,527) 0 0 0
Int, invt & associate div 0 0 0 0 0
Net investing cashflow (32,588) (26,325) (32,500) (35,750) (27,500)
Increase in loans (5,121) 9,276 (1,586) 0 0
Dividends (2,518) (2,518) (2,659) (3,656) (4,985)
Net equity raised/other 0 0 0 0 0
Net financing cashflow (7,639) 6,758 (4,245) (3,656) (4,985)
Incr/(decr) in net cash (3,721) 6,711 (4,001) 6,070 27,512
Exch rate movements 0 0 0 0 0
Opening cash 68,912 65,191 71,902 67,901 73,971
Closing cash 65,191 71,902 67,901 73,971 101,483
Summary balance sheet forecast (Rsm)
Cash & equivalents 65,191 71,902 67,901 73,971 101,483
Debtors 8,933 9,376 11,475 13,726 17,142
Inventories 14,150 17,965 21,728 25,993 32,463
Other current assets 1,673 4,027 4,027 4,027 4,027
Fixed assets 69,580 81,321 99,859 119,377 127,374
Intangible assets 0 0 0 0 0
Other term assets 13,722 24,498 24,498 24,498 24,498
Total assets 184,210 223,022 243,422 275,525 320,920
Short-term debt 312 10,783 10,783 10,783 10,783
Creditors 29,533 33,499 39,955 47,020 58,746
Other current liabs 11,265 22,257 21,595 23,175 25,390
Long-term debt/CBs 2,781 1,586 0 0 0
Provisions/other LT liabs 1,644 3,023 3,004 3,683 3,687
Minorities/other equity 0 0 0 0 0
Shareholder funds 138,675 151,874 168,085 190,864 222,314
Total liabs & equity 184,210 223,022 243,422 275,525 320,920
Ratio analysis
Revenue growth (% YoY) 24.7 (3.9) 22.4 19.6 24.9
Ebitda growth (% YoY) (15.1) (38.3) 29.4 51.8 36.5
Ebitda margin (%) 8.1 5.2 5.5 6.9 7.6
Net profit margin (%) 6.3 4.7 4.4 5.2 5.7
Dividend payout (%) 11.0 15.4 14.1 13.8 13.7
Effective tax rate (%) 26.4 23.8 20.9 25.3 24.8
Ebitda/net int exp (x) 119.8 32.7 15.4 22.5 28.9
Net debt/equity (%) (44.8) (39.2) (34.0) (33.1) (40.8)
ROE (%) 17.8 11.3 11.8 14.7 17.6
ROIC (%) 23.0 6.8 8.2 13.2 18.2
EVA/IC (%) 11.7 (4.5) (3.3) 1.9 6.8
Companies mentioned
Maruti Suzuki (MSIL - RS1,544.00 - BUY)
Recommendation history of Maruti Suzuki India Ltd MSIL IB
Date Rec Target Date Rec Target
23 October 2012 SELL 1,270.00 22 August 2011 U-PF 1,210.00
08 August 2012 U-PF 1,140.00 17 June 2011 U-PF 1,265.00
30 July 2012 U-PF 1,125.00 07 April 2011 O-PF 1,430.00
12 June 2012 U-PF 1,140.00 24 September 2010 O-PF 1,650.00
29 April 2012 SELL 1,300.00 24 July 2010 U-PF 1,215.00
24 January 2012 SELL 1,035.00 27 April 2010 U-PF 1,300.00
04 December 2011 U-PF 890.00 26 April 2010 U-PF 1,400.00
31 October 2011 U-PF 1,040.00 22 April 2010 U-PF 1,440.00
13 October 2011 U-PF 1,075.00
1,000
1,200
1,400
1,600
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May 10 Sep 10 Jan 11 May 11 Sep 11 Jan 12 May 12 Sep 12 Jan 13
Abhijeet Naik
Other analysts
No coverage
BUY
U-PF
O-PF
SELL
India Pharma
Sector outlook
Market wise opportunity for Indian pharma companies
Market
Growth resilient barring policy changes India Chronic therapy segments
Reasonable opportunity till 2016 US
Select branded markets attractive RoW
Niche product pipeline
Distribution set up
Opportunity Critical success factor
Hemant Bakhru
hemant.bakhru@clsa.com
(91) 2266505063
7 January 2013
India
Healthcare
BUY
Lupin (LPC IN)
O-PF
Sun Pharma (SUNP IN)
IPCA (IPCA IN)
Cipla (CIPLA IN)
Cadila (CDH IN)
Dr. Reddys (DRRD IN)
Torrent Pharma (TRP IN)
U-PF
GSK India (GLXO IN)
Biocon (BIOS IN)
SELL
Ranbaxy (RBXY IN)
www.clsa.com
Outlook strong
Earnings growth prospects of Indian pharma companies remain resilient
barring risk from policy changes. Reasonably strong opportunity in the US
generics till 2016 and rising domestic demand will provide strong cash
flows that Indian pharma companies are likely to deploy in accessing new
markets or enhancing scale in existing ones. With strong earnings growth
and improving RoCEs, we expect valuations to sustain at current levels
and prefer Lupin and Sun Pharma.
Strong cash flows from US generics
q With a strong wave of patent expirations in the US going up to 2016, we see
substantial earnings accretion for most of the Indian pharma companies.
q Considering that most of the Indian companies currently have a small absolute size
in the US market, scope of growth does not reduce dramatically with reduction in
patent expiration wave.
q Recently implemented GDUFA is likely to enhance ANDA approval rate resulting in
uptick in US business growth for most companies.
q Lupin and Cadila are best positioned to grow off their small base in the US though
growth might be slower for larger companies like Dr Reddys.
to fuel further acquisitions by Indian pharma
q Increasing cash flows from the US business will drive acquisitions by Indian
companies to gain market access or enhance scale of operations.
q Number of acquisitions is already increasing and we see size of acquisitions also
getting bigger.
Demand resilient, policy risk behind?
q We believe that the growth drivers (improving healthcare access and increasing
affordability) continue to be intact and expect domestic pharma demand to be
reasonably resilient over the coming years.
q While pharma policy risk is not completely behind us, there is a general consensus
that a harsh policy (cost plus) will hurt industry drastically, hence unlikely to be a
final outcome.
q We do not see increasing competition from MNCs as disrupting market growth as
number of their launches remains much lower than local Indian pharma
companies.
Strong earnings growth to help sustain valuations
q We expect that current valuations are likely to sustain in light of strong earnings
growth that most of leading pharma companies will deliver over the coming years.
q We expect sustained 17-20% earnings growth in case of Lupin, Cadila and Sun
Pharma over the coming years.
q While we expect improvement in RoCEs of most pharma companies, RoE might
come under pressure due to reducing financial leverage.
Outlook strong India Pharma
7 January 2013 hemant.bakhru@clsa.com 2
Extensive niche pipeline critical for US business
India pharma companies with strong and well spread out product pipeline are
well positioned to grow in the US. Apart from the usual patent challenges to
building a pipeline in the USA, companies are also targeting segments where
they expect limited competition due to greater complexity. Oral
contraceptives, inhalers, transdermals, ophthalmics and biosimilars have
proven difficult to enter due to complex formulations and the greater
investment and marketing efforts required. A strong financial position gives
these firms the capacity to both invest more in R&D and undertake
acquisitions to add capabilities or achieve scale, rather than for the traditional
purpose of market entry. Due to their geographical exposure and pipeline in
the USA, Sun Pharma, Lupin and Cadila are better positioned to tap these
new segments.
Figure 1
US pharmaceutical patent expirations
Source: Companies, IMS Health, CLSA Asia-Pacific Markets
Figure 2
Opportunity in complex generic segments in the US market
Simple oral formulations are not growing, as the segment has been largely
tapped out. Most simple oral products have gone or are about to go off patent
over the next two to three years and innovator companies are unable to
replenish their pipeline of novel oral chemical compounds. However, we
0 5 10 15 20 25 30 35 40
2011
2012
2013
2014
2015
2016
2017
2018
(US$ bn)
Reduction in opportunity
0 5 10 15 20 25
Topical
Oral contraceptives
Transdermals
Ophthalmics
Inhalers
Injectables
Controlled release
(US$bn)
Most companies
Sun Pharma, Cadila
Cipla, Sun Pharma
Sun Pharma, Lupin
Cadila, Sun Pharma
Sun, Lupin, Glenmark
Indian generics
Strong opportunity till
2016
Sun Pharma, Lupin and
Cadila working towards
complex generics
Complex segments offer
longer-term growth
Cadila better positioned
to tap these segments
Novel formulations or
biosimilars could continue
to deliver growth
believe complex formulations still offer long-term growth prospects. Complex
formulations involve novel delivery mechanisms or larger, complex molecules
like biologics (biosimilars) that are difficult to replicate.
Emerging markets offer meaningful opportunities
Emerging markets are expected to nearly double their spending on
pharmaceutical products from US$151bn in 2010 to US$285-315bn by 2015
led by strong economic growth and government commitment to expanding
healthcare access. Leading Indian pharma companies are scaling up in larger
branded generic markets such as China, Brazil, Mexico, Venezuela, Russia and
South Africa.
Figure 3
Steady growth from emerging markets
Figure 4
Exposure to fast-growing pharma markets (% of total revenue)
Source: Companies
0
5
10
15
20
25
30
Mexico Russia Brazil South Africa India China
0
5
10
15
20
25 Market size (LHS)
5Y growth expectation
(US$m) (%)
Brazil
Japan
Romania
Russia
South Africa
Venezuela
Dr Reddy's Lupin Cipla Ranbaxy Torrent
2%
14%
11%
3% 6%
5%
4%
16%
Few companies have
sizeable exposure to key
emerging markets
Branded generics
offer steady long-
term growth
Pharma spend will
grow fastest in
emerging markets
Balance-sheet strength favours acquisitions
With most Indian companies likely to be in a net cash position soon, we
expect increased M&A momentum. We expect Indian companies to buy small
to medium-sized companies/brands in international markets where valuations
are reasonable.
Figure 5
Net debt to equity
Figure 6
Characteristics of global generics deal
Historically, Indian companies have made acquisitions more to enter new
markets than to enhance their therapeutic range or expertise. Lately we have
witnessed acquisitions that provide access to specific therapeutic segments
that the acquiring company might find difficult or time-consuming to replicate
on its own. For example, Dr Reddys purchase of Germanys Betapharm,
Cadila buying Nikkho in Brazil and Lupin buying Kyowa in Japan were all
market-entry acquisitions, whereas Sun Pharma bought Able Labs and Cadila
recently purchased Nesher Pharma to add to their capabilities.
(60)
(40)
(20)
0
20
40
60
80
100
FY08 FY09 FY10 FY11 FY12 FY13CL FY14CL FY15CL
Sun Pharma Ranbaxy Cipla
Dr Reddy's Cadila Lupin
(%)
Global pharma deals likely to
converge as innovators target
generics pie
generics pie
With stronger balance sheets,
Indian generics have ability to
go for larger acquisitions
Global pharma
Global pharma
US$10-50bn size, scale
acquisitions, R&D and
marketing synergies
marketing synergies
Global generics
Global generics
US$1-5bn size;
scale and market access
US$1-5bn size;
Indian generics
Indian generics
Mostly < US$500m size,
usually market-entry
acquisitions
acquisitions
generics pie
generics pie
Global pharma
Global pharma
marketing synergies
marketing synergies
Global generics
Global generics
US$1-5bn size;
US$1-5bn size;
Indian generics
Indian generics
acquisitions
acquisitions
Global pharma
Global pharma
marketing synergies
marketing synergies
Global generics
Global generics
US$1-5bn size;
US$1-5bn size;
Indian generics
Indian generics
acquisitions
acquisitions
Indian pharma likely to
Indian companies have
frequently acquired to
enter new markets
Low gearing and
upcoming cash flows are
enabling factors for
acquisitions
Figure 7
Recent M&A by Indian pharma companies
Acquirer Target Date Deal
size
Sales Purpose
(US$m) multiple
(x)
Cadila Healthcare Nesher Pharma Jun 11 60 - Entry into controlled
substances
Cadila Healthcare Biochem Dec 11 70 1.3 Adding scale to India
business
Dr. Reddy's Octoplus Oct 12 35 5.7 Technology platform
Lupin I'rom Nov 11 41 0.6 Scaling up Japan
Sun Pharma DUSA Pharma Nov 12 230 5.0 Technology platform
Sun Pharma URL generic
portfolio
Dec 12 90 0.8 Scaling up US generics
portfolio
Source: Companies, CLSA Asia-Pacific Markets
Figure 8
Chronic therapies continue to outpace acute therapy segments
Figure 9
Positioning in India business
Source: Companies, CLSA Asia-Pacific Markets
1.3
2.9
2005 2010 2015
6.6
3.8
6.4
9.6
G
r
o
w
t
h

(
%
)
5
10
15
US$ bn
Chronic therapy
Acute therapy
0
10
20
30
40
50
60
70
80
0 10 20 30 40 50
Ranbaxy
Dr Reddy's
Lupin
Sun Pharma
Cipla
Torrent
Cadila
IPCA
(% of chronic)
(% of domestic revenues)
Chronic therapies
becoming greater
proportion of the total
market by value
Figure 10
Chronic therapy share across key markets
Source: IMS Health, CLSA Asia-Pacific Markets
Figure11
Changes in target prices and recommendations
Previous
target
New
target
Basis of target
Previous
reco
New
reco
Biocon
252 295 14x one year forward U-PF U-PF
Cadila
960 975 20x one year forward O-PF O-PF
Cipla
Divis
- - - N-R N-R
Dr Reddys
1,900 2,103 18x one year forward O-PF O-PF
Glaxo
2,115 2,200 22x one year forward U-PF U-PF
IPCA
Lupin
690 725 19x one year forward BUY BUY
Ranbaxy 423 463
Sum of parts with
18x to core business SELL SELL
Sun Pharma
Torrent
0 20 40 60 80 100
India
China
Japan
UK
US
Chronic Acute
(%)
Share of chronic therapies
in India will increase to
over 50% by 2020
We prefer Lupin and Sun
Figure12
Changes in earnings estimates
(Rs/ share) FY13 EPS FY14 EPS
old new old new
Biocon 17.4 17.4 19.3 19.3
Cadila 36.4 33.4 46.0 47.0
Cipla 19.1 19.5 20.9 21.6
Divis 49.7 50.0 59.0 58.6
Dr. Reddys 100.2 100.2 106.0 106.0
Glaxo 76.4 70.3 93.9 90.0
IPCA 28.8 26.4 35.8 35.7
Lupin 26.5 27.2 32.7 32.8
Ranbaxy 32.3 25.3 25.1 28.8
Sun Pharma 24.9 25.1 32.8 32.8
Torrent 46.5 46.5 54.6 54.6
Figure 13
Valuations
EPS (Rs/ share) PE (x)
FY13 FY14 FY15 FY13 FY14 FY15
Sun Pharma 28.7 32.8 38.3 25.6 22.4 19.2
Ranbaxy 28.5 23.5 39.3 18.0 21.9 13.1
Cipla 19.5 21.6 24.3 21.3 19.3 17.1
Dr Reddy's 100.2 106.0 120.9 18.9 17.8 15.6
Cadila 39.0 46.9 57.8 22.9 19.0 15.4
Lupin 27.2 32.7 38.7 22.2 18.5 15.6
Ipca 31.7 35.7 40.8 16.0 14.2 12.4
Torrent Pharma 47.4 54.6 62.3 15.3 13.3 11.7
GSK India 76.4 90.0 102.9 28.3 24.0 21.0
Divi's Labs 50.0 58.6 68.6 22.2 18.9 16.2
Biocon 17.4 19.3 21.6 16.7 15.1 13.5
Figure 14
India Pharma sector EV/ Sales (x)
2.8x
3.0x
3.2x
3.4x
3.6x
3.8x
4.0x
4.2x
Jan11 Mar11May11 Jul11 Sep11 Nov11 Jan12 Mar12 May12 Jul12 Sep12 Nov12
Valuations for the sector
have moved up to median
levels
We have revised our
estimates based on new
launches, market share
trends and margin trends
Figure 15
Performance of key pharma names
Companies mentioned
Cadila (CDH - RS897.6 - OUTPERFORM)
Lupin (LPC - RS614.5 - BUY)
Sun Pharma (SUNP - RS739.5 - OUTPERFORM)
0 20 40 60 80
Biocon
Ranbaxy
Dr. Reddy's
Sensex
Cipla
Cadila Healthcare
Torrent
Lupin
BSE Healthcare Index
Sun Pharma
Ipca
6 month
1 year
(%)
IPCA have been strongest
performers while Ranbaxy
and Biocon have been
laggards
Coverage universe
Board Line : (9122)-66505050
Div Yield Perf
FY12 FY13 FY14
FY12-14
Cagr
FY12 FY13 FY14 FY12 FY13 FY12 FY13 FY12 FY13 FY14 FY13 FY14 1m 3m 1y
Autos 55,261 125 3.5 13.4 14.0 12.1 8.9 7.7 4.1 3.3 35.3 26.3 24.8 1.4 1.4 6.9 12.8 44.5
Abhijeet Naik Dir-5060
Tata Motors 315 16,870 55 39.9 35.1 40.8 1.0 7.9 9.0 7.7 5.4 4.5 3.0 2.3 48.4 29.0 26.0 0.6 0.3 12 12 55 O-PF 300
M & M 941 10,512 21 42.7 52.9 58.9 17.4 22.0 17.8 16.0 14.5 11.5 4.4 3.7 23.3 24.4 23.1 1.6 1.9 0 8 44 O-PF 980
Bajaj Auto 2,206 11,609 14 106.9 104.7 123.6 7.5 20.6 21.1 17.8 19.1 17.7 10.6 8.4 56.5 44.6 42.1 2.0 2.3 14 26 52 SELL 1,610
Maruti 1,545 8,122 19 56.6 65.3 91.5 27.1 27.3 23.7 16.9 21.5 16.7 2.9 2.7 11.3 11.8 14.7 0.6 0.8 2 11 62 BUY 1,915
Hero Honda 1,888 6,858 12 119.1 110.5 106.5 (5.4) 15.9 17.1 17.7 9.9 14.7 8.8 6.9 65.6 45.3 35.5 2.4 2.4 3 4 9 SELL 1,700
Ashok Leyland 27 1,290 4 2.1 1.7 2.0 (2.6) 12.6 15.3 13.2 8.1 8.5 1.7 1.6 13.8 10.8 12.0 3.8 3.8 (5) 8 14 BUY 32
Banks/Financials 167,824 399 15.7 14.0 12.3 10.4 2.1 1.9 16.5 16.2 16.7 1.7 2.0 4.4 12.2 46.8
Aashish Agarwal Dir-5075
State Bank 2,487 30,354 101 228.6 254.9 301.5 14.8 10.9 9.8 8.2 1.6 1.4 12.8 16.2 15.1 1.7 2.0 7.4 6.3 49.0 BUY 2,350
ICICI Bank 1,182 24,730 57 56.1 69.9 83.8 22.2 21.1 16.9 14.1 2.3 2.1 9.7 11.2 12.8 1.8 2.1 4.5 10.8 58.7 BUY 1,280
HDFC Bank 679 29,263 29 22.0 27.7 34.3 24.7 30.9 24.6 19.8 5.3 4.6 18.7 20.0 21.2 0.8 1.0 (2.0) 9.2 50.6 BUY 715
HDFC 838 23,491 57 27.9 31.8 37.9 16.5 30.0 26.4 22.1 6.8 5.3 21.7 22.7 22.4 1.5 1.8 (0.0) 11.7 25.3 BUY 890
Axis Bank 1,379 10,714 43 102.7 118.2 141.9 17.6 13.4 11.7 9.7 2.5 2.1 20.3 19.7 20.1 1.4 1.6 3.8 20.6 61.8 BUY 1,330
Indusind Bank 431 4,091 8 17.2 21.4 26.8 24.8 25.1 20.1 16.1 4.3 3.6 18.3 19.5 20.8 - - 4.7 16.7 76.8 BUY 415
PNB 908 5,603 12 148.9 149.7 168.3 6.3 6.1 6.1 5.4 1.1 1.0 19.8 17.0 16.7 2.9 3.2 10.6 10.9 11.5 U-PF 760
Power Finance 212 5,086 9 24.6 28.6 33.2 16.2 8.6 7.4 6.4 1.3 1.2 16.9 17.1 17.6 3.5 4.1 7.2 8.1 45.1 U-PF 190
REC 266 4,779 8 28.5 32.5 38.8 16.6 9.3 8.2 6.9 1.8 1.6 20.5 20.3 21.2 3.7 4.4 11.8 16.8 65.6 U-PF 215
Bank of Baroda 884 6,298 10 121.8 117.8 136.5 5.9 7.3 7.5 6.5 1.3 1.2 20.6 16.5 16.7 2.1 2.5 10.8 11.3 26.3 O-PF 830
Canara Bank 526 4,240 8 74.1 77.2 87.7 8.8 7.1 6.8 6.0 1.0 0.9 15.4 14.2 14.4 2.2 2.5 9.5 23.7 39.1 U-PF 425
IDFC 184 5,055 19 10.5 12.1 14.1 16.2 17.6 15.2 13.0 2.3 2.0 13.7 14.1 14.8 1.4 1.7 4.6 15.3 87.4 BUY 190
Bank of India 365 3,805 6 47.8 52.3 57.3 9.6 7.6 7.0 6.4 1.0 0.9 14.0 13.6 13.4 2.2 2.4 24.2 22.8 25.0 U-PF 290
Union Bank 278 2,783 8 33.3 38.8 42.9 13.5 8.4 7.2 6.5 1.1 1.0 13.2 14.0 14.1 2.8 3.1 10.1 38.7 63.2 O-PF 240
OBC 354 1,878 5 39.1 53.8 61.5 25.4 9.0 6.6 5.8 0.7 0.7 9.9 12.5 13.0 3.0 3.5 2.2 21.8 64.0 SELL 280
Corp. Bank 486 1,310 1 101.7 96.2 109.7 3.9 4.8 5.1 4.4 0.9 0.8 19.5 16.4 16.7 4.0 4.5 13.5 16.7 34.8 U-PF 405
Yes Bank 489 3,181 19 27.9 32.3 37.8 16.4 17.5 15.1 12.9 3.7 3.1 23.1 22.1 21.6 1.1 1.3 7.4 24.3 94.6 O-PF 430
J&K Bank 1,320 1,164 0 165.7 196.8 221.2 15.6 8.0 6.7 Na 1.6 1.3 21.2 21.4 20.5 3.0 3.4 (5.9) 29.3 94.5 BUY 1,480
Cement 29,610 35 19.7 19.7 15.9 13.8 10.4 8.5 3.2 2.8 17.1 18.6 18.6 1.1 1.3 1.9 0.5 51.8
Vivek Maheshwari Dir-5053
UltraTech Cement 2,042 10,183 8 87.3 110.5 126.6 20.4 23.4 18.5 16.1 14.4 11.7 4.4 3.6 20.4 21.3 20.2 0.4 0.5 4.1 3.6 78.8 BUY 2,450
Ambuja Cements 206 5,779 9 8.6 11.7 13.5 25.3 23.9 17.6 15.2 13.7 10.2 3.8 3.5 16.8 20.8 21.8 2.4 3.0 (0.1) (4.7) 34.9 O-PF 225
Grasim 3,190 5,323 5 280.1 303.2 334.2 9.2 11.4 10.5 9.5 5.5 5.0 1.8 1.5 16.5 15.6 15.2 0.7 0.7 (1.8) (5.1) 31.4 O-PF 4,000
ACC 1,435 4,900 8 61.6 78.9 96.1 24.9 23.3 18.2 14.9 13.2 9.9 3.8 3.4 17.0 19.7 21.3 1.7 2.3 1.4 (1.6) 30.2 BUY 1,750
Shree Cement 4,596 2,913 3 148.3 236.0 272.3 35.5 31.0 19.5 16.9 10.9 8.7 6.7 5.1 23.8 29.7 26.5 0.4 0.4 6.9 18.6 120.4 BUY 5,000
India Cement 92 512 3 9.3 11.0 14.7 25.5 9.8 8.3 6.2 7.6 5.9 0.7 0.6 7.0 7.9 9.8 2.2 2.2 0.7 (1.7) 32.8 O-PF 110
Cap goods & infra. 46,252 129 3.6 15.8 14.9 14.7 11.5 11.0 2.7 2.4 18.7 17.3 15.3 1.3 1.4 (1.4) (1.8) 24.6
Rajesh Panjwani Dir-852 26008271
BHEL 243 10,810 18 28.8 27.5 21.6 (13.4) 8.4 8.8 11.3 5.8 6.3 2.3 2.0 30.9 24.3 16.6 2.6 2.6 (0.1) (8.0) (3.2) SELL 210
Crompton 124 1,448 6 5.9 4.5 8.1 17.8 21.2 27.5 15.3 10.6 14.5 2.2 2.1 10.9 7.8 12.9 1.3 1.5 4.5 (10.9) (2.1) SELL 100
Suzlon 18 595 8 0.9 2.4 3.3 NA 20.2 7.6 5.6 6.5 4.9 0.4 0.4 2.5 6.2 7.9 - - (1.6) 4.8 0.3 SELL 19
L&T 1,628 18,210 43 76.8 80.7 90.8 8.7 21.2 20.2 17.9 15.5 15.5 3.4 3.0 17.2 15.8 15.9 1.1 1.1 (2.8) (1.3) 50.4 U-PF 1,665
Jaiprakash Associates 101 3,959 32 4.8 6.6 7.9 27.8 20.9 15.4 12.8 13.6 10.9 1.9 1.9 9.2 12.1 12.5 0.2 0.4 (3.9) 13.9 94.8 N-R -
Adani Ports 138 5,011 3 5.9 7.5 8.0 16.8 23.4 18.2 17.1 19.7 15.2 5.3 4.2 24.7 25.7 22.3 0.8 0.9 (0.1) 7.3 8.0 O-PF 130
Jain Irrigation 79 640 4 6.5 6.9 9.1 18.6 12.2 11.4 8.7 7.6 7.5 1.7 1.5 15.8 14.8 17.0 1.3 1.3 8.0 11.7 (12.7) BUY 150
IRB 133 801 9 14.9 14.4 14.0 (3.2) 8.9 9.2 9.5 7.0 6.8 1.5 1.2 18.8 14.3 11.4 1.1 1.1 (6.4) (15.5) 5.9 O-PF 140
Aditya Bhartia Dir-5077
ABB India 726 2,797 1 9.7 13.7 17.7 34.9 74.6 52.8 41.0 48.2 33.9 6.0 5.5 8.2 10.9 12.8 0.3 0.3 1.2 (8.2) 24.3 SELL 600
Thermax 617 1,337 1 33.9 28.0 31.1 (4.1) 18.2 22.0 19.8 11.4 12.9 4.5 3.9 27.4 19.1 18.5 1.1 1.1 1.4 6.4 47.0 SELL 525
Voltas 107 643 4 4.9 8.3 8.7 33.4 21.8 12.9 12.3 10.7 11.6 2.4 2.1 11.4 17.3 16.1 1.6 1.8 (5.3) (11.6) 38.9 U-PF 115
EV/ Ebitda
Name
Price
(Rs)
Mkt Cap
(US$m)
3m Avg
T/O
(US$m)
P/E Normalized EPS RoAE P/B
Target
Price
Rec
Coverage universe
Board Line : (9122)-66505050
Div Yield Perf
FY12 FY13 FY14
FY12-14
Cagr
EV/ Ebitda
Name
Price
(Rs)
Mkt Cap
(US$m)
3m Avg
T/O
(US$m)
Target
Price
Rec
Consumer 97,015 208 22.3 44.1 35.0 29.4 31.0 24.6 14.6 12.6 36.2 38.6 38.0 1.7 1.7 (2.0) 5.5 46.3
Vivek Maheshwari Dir-5053
ITC 282 40,470 30 7.9 9.4 11.0 18.3 35.8 29.9 25.6 25.3 20.6 11.8 10.4 35.5 36.7 37.8 1.9 2.2 (6.3) 2.4 40.0 O-PF 330
HUL 535 21,028 20 12.4 15.7 17.8 19.7 43.0 34.1 30.0 46.2 30.2 39.2 33.0 75.6 105.1 94.0 3.0 2.0 0.8 (4.0) 37.2 O-PF 585
Nestle India 4,876 8,551 2 107.1 115.2 133.9 11.8 45.5 42.3 36.4 29.8 26.0 33.7 24.6 87.6 67.2 58.3 1.1 1.2 1.0 6.0 18.2 SELL 4,000
United Spirits 1,938 4,611 126 18.3 23.0 47.9 62.0 106.2 84.4 40.5 29.1 24.8 5.6 5.3 5.4 6.5 10.5 0.1 0.1 1.1 53.7 267.8 SELL 1,900
GSK Consumers 3,841 2,938 2 91.5 112.5 131.4 19.8 42.0 34.1 29.2 34.0 28.9 13.4 11.2 34.9 35.8 35.1 1.2 1.5 2.2 28.7 53.3 BUY 3,600
Godrej Consumer 725 4,488 2 16.7 20.9 25.4 23.5 43.5 34.8 28.6 30.1 24.6 8.8 7.6 25.0 23.5 24.7 1.0 1.2 1.6 4.3 88.5 O-PF 675
Colgate 1,524 3,770 3 32.8 39.2 43.6 15.3 46.4 38.9 34.9 40.0 32.9 47.6 39.7 109.0 111.2 105.1 1.8 2.1 7.6 22.8 54.8 SELL 1,250
Dabur 128 4,058 3 3.7 4.3 5.1 17.1 34.6 29.7 25.2 25.8 21.7 13.0 10.4 41.5 38.9 36.7 1.3 1.3 (1.6) (3.7) 29.3 U-PF 130
Marico 225 2,636 1 5.2 6.2 7.6 21.4 43.6 36.0 29.6 31.3 23.5 12.7 7.3 30.8 25.8 22.4 0.4 0.4 2.1 10.7 48.6 O-PF 250
Metals & Mining 35,173 85 11.6 10.2 9.2 8.2 5.9 5.8 1.0 0.9 10.9 10.0 10.3 1.5 1.5 9.3 10.3 22.0
Abhijeet Naik Dir-5060
Coal India 364 41,799 12 23.3 27.0 29.2 12.0 15.6 13.5 12.5 11.0 8.9 5.7 4.7 39.8 38.2 34.6 3.2 3.5 0.2 0.1 Na O-PF 400
SAIL 95 7,160 5 7.7 7.7 7.7 (0.1) 12.3 12.3 12.4 9.5 10.5 1.0 0.9 8.3 7.8 7.4 2.1 2.1 15.7 10.6 13.0 SELL 60
Sterlite 120 7,336 12 15.8 14.9 17.5 5.3 7.6 8.1 6.9 3.2 3.3 0.9 0.8 12.4 10.6 11.4 1.7 1.7 6.2 18.9 27.1 SELL 84
Tata Steel 434 7,658 31 20.9 15.8 29.7 19.3 20.8 27.4 14.6 7.4 7.8 1.0 1.0 5.2 3.6 6.6 2.8 2.8 10.0 5.6 19.5 SELL 325
Hindalco 133 4,616 15 21.2 15.3 17.1 (10.2) 6.3 8.7 7.8 6.5 8.3 0.8 0.7 14.4 9.5 9.5 1.5 1.5 7.1 6.0 12.4 SELL 105
Sesa Goa 202 3,189 6 20.7 36.1 36.7 33.0 9.7 5.6 5.5 4.3 3.3 1.0 0.8 16.6 16.2 14.2 0.2 0.2 7.4 17.2 21.7 SELL 140
JSW Steel 828 3,359 14 41.9 51.8 59.3 19.0 19.8 16.0 13.9 6.6 6.2 1.1 1.1 5.6 6.7 7.3 1.5 1.5 8.0 12.1 45.3 SELL 615
Bhushan Steel 480 1,855 1 48.2 37.6 45.7 (2.7) 10.0 12.8 10.5 11.0 11.2 1.5 1.3 17.3 11.0 11.9 0.1 0.1 6.8 (3.4) 44.6 O-PF 500
Oil & Gas 143,839 111 11.7 11.3 10.3 9.1 5.4 5.7 1.5 1.4 14.2 14.1 14.6 2.1 2.3 4.6 0.6 13.1
Vikash Jain Dir-5015
Reliance Ind. 862 51,336 48 60.2 62.4 65.3 4.1 14.3 13.8 13.2 8.6 8.7 1.6 1.6 12.2 11.6 11.2 1.0 1.1 3.3 0.5 20.6 O-PF 850
ONGC 285 44,322 15 32.9 31.5 34.7 2.7 8.7 9.0 8.2 3.5 3.8 1.8 1.6 22.4 18.6 18.0 3.2 3.2 6.3 (0.8) 11.1 O-PF 300
IOC 281 12,417 2 17.4 24.0 32.6 36.8 16.2 11.7 8.6 5.4 7.9 1.1 1.1 7.2 9.3 11.8 2.1 3.2 6.4 8.5 9.7 U-PF 260
Gail 371 8,564 6 28.8 30.7 31.1 3.9 12.9 12.1 11.9 7.9 8.8 2.2 2.0 17.9 17.0 15.6 2.7 2.7 5.2 (5.6) (3.1) O-PF 390
Cairn India 337 11,713 22 7.9 34.0 43.3 134.8 42.9 9.9 7.8 0.3 (0.4) 0.0 0.0 4.4 17.2 18.4 - 0.3 1.2 3.4 (0.3) 0.3 BUY
Oil India 482 5,269 1 57.3 58.5 71.6 11.8 8.4 8.2 6.7 3.0 3.2 1.6 1.5 20.7 18.6 20.0 3.7 3.7 7.1 (1.7) 7.6 BUY 620
BPCL 374 4,919 5 10.8 14.0 30.7 68.5 34.6 26.6 12.2 6.7 8.4 1.7 1.6 5.0 6.2 12.7 0.8 1.6 4.4 4.9 57.1 BUY 450
HPCL 314 1,933 4 26.9 20.5 41.8 24.6 11.7 15.3 7.5 4.6 9.2 0.8 0.8 7.1 5.2 10.1 2.2 4.1 8.2 (0.7) 29.7 U-PF 300
Petronet LNG 163 2,226 4 14.1 15.9 12.8 (4.9) 11.6 10.3 12.8 8.0 7.2 3.5 2.8 34.1 30.0 20.2 2.1 2.1 0.2 2.3 1.9 O-PF 180
Gujarat Petronet 81 827 1 9.3 4.5 4.6 (29.3) 8.7 17.9 17.4 5.2 8.6 1.8 1.7 23.3 9.9 9.5 1.2 1.2 4.6 (1.5) 8.8 U-PF 65
Aban Offshore 396 314 4 - - - #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! 0.9 (15.8) 12.3 - -
Pharmaceuticals 47,283 76 40.7 35.2 22.5 19.4 19.2 14.9 5.9 4.9 16.0 23.8 23.1 1.0 1.2 2.9 7.8 30.7
Hemant Bakhru Dir-5063
Sun Pharma 735 13,827 11 25.0 24.9 32.8 14.7 29.4 29.6 22.4 22.0 15.6 6.3 5.4 23.9 19.6 22.0 0.7 0.9 5.0 7.7 47.0 O-PF 790
Dr Reddy's 1,889 5,834 11 84.3 100.2 106.0 12.1 22.4 18.9 17.8 16.6 14.7 5.6 4.5 27.6 26.3 22.8 0.9 0.9 2.7 11.3 17.7 O-PF 1,900
Cipla 416 6,078 14 14.3 19.1 20.9 21.2 29.2 21.7 19.9 22.0 16.6 4.4 3.7 16.0 18.6 17.4 0.6 0.7 1.3 14.2 23.9 O-PF 445
Ranbaxy 514 3,957 7 (43.6) 30.5 28.4 NA (11.8) 16.9 18.1 13.8 10.9 7.0 5.4 (38.3) 36.0 26.8 1.5 1.4 1.5 (2.8) 16.9 SELL 423
Glaxosmithkline 2,160 3,328 1 57.1 80.8 97.5 30.7 37.9 26.7 22.2 20.6 18.3 9.2 8.3 24.6 32.6 35.0 2.5 2.9 5.4 11.2 10.3 U-PF 2,115
Lupin Ltd 605 4,920 9 19.4 26.5 32.7 30.0 31.2 22.8 18.5 23.0 15.8 6.7 5.4 23.8 26.4 26.3 0.8 1.1 0.9 6.4 35.9 BUY 690
Cadila Healthcare 891 3,317 2 31.9 39.4 46.0 20.2 27.9 22.6 19.3 21.2 17.1 7.1 5.7 27.5 28.1 26.7 1.0 1.1 4.9 8.7 29.6 O-PF 960
Torrent Pharma 727 1,119 1 33.6 46.5 54.6 27.5 21.7 15.6 13.3 15.2 12.6 5.2 4.1 25.6 29.3 27.7 1.3 1.5 5.0 5.1 37.5 O-PF 761
Divis Laboratories 1,110 2,681 8 40.2 49.7 59.0 21.1 27.6 22.3 18.8 20.8 16.6 6.9 5.6 27.1 27.7 26.6 1.1 1.1 (6.0) 1.3 42.9 N-R Na
Biocon Ltd 292 1,061 3 16.9 17.4 19.3 6.8 17.2 16.7 15.1 9.9 9.9 2.6 2.3 15.7 14.6 14.9 2.1 2.6 1.8 6.6 8.4 U-PF 252
Ipca Laboratories 507 1,163 2 22.0 28.8 35.8 27.5 23.0 17.6 14.2 14.7 11.0 5.1 4.1 24.0 25.8 25.7 0.7 0.8 9.4 14.4 78.4 O-PF 500
Coverage universe
Board Line : (9122)-66505050
Div Yield Perf
FY12 FY13 FY14
FY12-14
Cagr
EV/ Ebitda
Name
Price
(Rs)
Mkt Cap
(US$m)
3m Avg
T/O
(US$m)
Target
Price
Rec
Power 57,798 62 11.8 15.0 13.6 12.6 12.2 10.9 1.8 1.7 12.1 12.4 12.7 2.0 2.2 1.6 0.9 9.1
Rajesh Panjwani Dir-852 26008271
NTPC 159 23,833 8 11.2 12.5 13.0 7.7 14.2 12.7 12.3 12.6 10.9 1.8 1.6 13.1 13.5 12.9 2.6 2.9 (0.6) (7.1) 1.1 O-PF 190
Abhishek Tyagi Dir-5055
Jindal Steel & Power Lt 458 7,785 17 42.2 42.5 39.3 (3.5) 10.8 10.8 11.7 8.8 8.5 2.4 2.0 24.6 20.2 15.9 0.3 0.3 11.7 9.9 (1.9) SELL 350
NHPC 25 5,627 6 1.7 1.7 1.9 7.2 15.2 14.5 13.2 10.2 9.9 1.1 1.0 7.4 7.3 7.7 2.8 3.0 6.6 24.8 35.6 U-PF 18
PowerGrid 115 9,681 7 7.0 8.2 9.4 15.7 16.4 14.0 12.2 12.4 11.2 2.3 2.1 14.5 15.4 16.0 2.2 2.4 (3.2) (2.7) 15.1 O-PF 130
Tata Power 110 4,757 6 3.0 6.1 6.6 48.0 36.7 18.1 16.8 11.1 9.2 2.3 2.1 5.9 12.3 11.9 1.1 1.1 0.4 6.0 20.0 O-PF 113
Adani Power 63 2,727 4 (0.4) (4.1) 2.2 NA NA (15.4) 28.1 38.0 46.9 2.5 2.5 (1.5) (16.2) 8.5 - - 7.9 17.2 (2.9) SELL 40
JSW Energy Ltd 68 2,030 2 2.0 4.7 6.1 73.0 33.6 14.4 11.2 14.1 8.1 2.0 1.8 5.8 12.9 15.0 1.7 3.1 - 10.3 72.3 SELL 51
CESC 314 715 5 44.1 43.4 45.9 2.0 7.1 7.3 6.8 5.8 5.6 0.9 0.8 14.0 12.2 11.7 1.5 1.7 (3.5) (5.3) 45.8 SELL 280
Software 147,275 325 9.9 19.8 16.4 15.3 13.5 10.9 5.1 4.1 28.9 27.9 24.9 1.5 2.3 1.8 (0.8) 11.2
Nimish Joshi Dir-5054
TCS 1,299 46,254 25 54.4 70.2 76.0 18.2 23.9 18.5 17.1 16.8 13.1 7.8 5.9 36.8 36.5 31.8 1.4 2.7 2.8 (0.4) 11.5 SELL 1,140
Infosys 2,350 24,542 49 145.5 161.1 172.8 9.0 16.1 14.6 13.6 10.6 9.0 4.0 3.3 28.0 24.9 22.5 1.7 2.1 1.2 (7.0) (16.8) U-PF 2,355
Accenture Ltd (US$) 69 48,179 212 3.3 3.8 4.2 12.1 20.8 18.3 16.5 10.5 9.3 10.8 8.5 62.0 54.3 46.8 1.7 1.8 (0.4) (2.2) 33.5 O-PF 70
Wipro 404 18,081 11 22.7 26.1 27.4 9.9 17.8 15.5 14.7 12.6 10.5 3.5 3.0 21.8 20.8 18.8 2.0 2.0 6.2 8.1 (0.8) U-PF 350
HCL Tech. 634 8,011 13 32.5 42.2 46.1 19.1 19.5 15.0 13.8 11.5 8.8 4.4 3.6 25.2 27.0 24.3 0.9 0.9 3.3 10.5 52.8 U-PF 580
eClerx 688 370 0 51.8 56.9 67.8 14.3 13.3 12.1 10.1 9.1 7.0 6.0 4.8 52.8 44.9 43.3 2.9 2.9 (5.8) (12.3) (3.3) O-PF 815
Telecom 33,857 51 (19.5) 32.6 120.4 46.8 8.4 8.4 1.7 1.7 1.7 1.4 3.5 0.3 0.2 4.4 24.3 5.4
Deepti Chaturvedi Dir-5066
Bharti 327 22,588 27 11.2 9.9 15.4 17.2 29.2 33.0 21.2 8.2 7.4 2.5 2.3 8.6 7.2 10.3 0.4 0.4 1.4 23.0 (1.2) U-PF 300
Reliance Communicatio 81 3,028 18 4.5 4.4 4.8 3.1 17.9 18.4 16.9 8.4 8.1 0.5 0.4 2.4 2.4 2.6 - - 9.4 30.5 3.4 SELL 54
Idea Cellular 110 6,612 4 2.2 2.8 3.2 20.9 50.8 39.6 34.7 10.0 8.4 2.8 2.6 5.7 6.9 7.3 - - 13.1 34.2 34.4 SELL 78
Tata Communications 253 1,309 1 6.0 6.8 7.4 11.0 42.0 37.0 34.1 8.6 7.9 1.0 1.0 2.4 2.7 2.8 1.0 - 8.6 1.6 17.8 U-PF 250
MTNL 28 320 1 (65.2) (67.7) (66.2) 0.7 (0.4) (0.4) (0.4) (5.5) (6.4) 0.3 (0.4) (89.5) ##### 109.4 - - (1.4) (7.9) 5.9 SELL 21
Media 10,460 27 17.6 29.0 26.8 24.5 16.3 14.7 6.3 5.7 19.5 19.2 22.0 1.5 1.6 4.8 12.3 49.3
Deepti Chaturvedi Dir-5066
Sun TV 439 3,148 9 17.6 17.8 19.9 6.5 25.0 24.7 22.0 11.9 11.3 6.6 6.1 28.0 25.7 26.1 2.6 2.6 4.7 23.9 57.8 O-PF 433
Zee Entertainment 227 3,960 10 6.1 7.3 8.7 19.2 37.0 31.0 26.0 28.8 23.4 6.4 5.7 18.2 19.4 20.3 0.9 1.1 8.3 13.3 95.1 BUY 230
Dish TV 78 1,513 7 (1.3) (0.9) 1.0 NA (62.4) (91.8) 77.8 18.8 14.6 (88.6) (64.6) 468.3 81.4 (142.0) - - (3.6) (3.6) 32.3 O-PF 88
Jagran Prakashan 108 623 0 5.6 5.2 6.0 3.2 19.2 20.7 18.0 12.7 13.1 4.5 4.3 24.4 21.3 23.0 3.2 3.2 8.0 10.4 14.3 U-PF 100
HT Media 101 433 0 7.0 6.5 7.3 1.8 14.4 15.6 13.9 9.1 9.9 1.6 1.5 12.0 10.1 10.3 0.5 0.5 (2.3) (1.0) (14.7) O-PF 105
DB Corp 235 783 0 11.0 11.1 14.1 13.0 21.3 21.2 16.7 13.0 11.8 4.5 4.1 22.6 20.2 22.9 2.1 2.1 7 12 O-PF 233
Real estate 15,300 100 8.7 18.9 19.8 16.0 15.7 14.3 1.3 1.2 7.1 6.4 7.4 0.7 0.9 5.1 6.3 44.7
Mahesh Nandurkar, CFA Dir-5079
DLF 238 7,346 31 7.2 8.6 10.1 18.5 33.0 27.6 23.5 16.8 14.9 1.6 1.5 4.9 5.6 6.2 0.8 1.1 8.0 (1.7) 34.6 SELL 180
Unitech 36 1,707 23 0.9 1.0 1.2 13.9 39.3 36.3 30.3 44.8 37.3 0.8 0.8 2.0 2.1 2.5 - 0.1 2.4 40.5 78.2 U-PF 28
Oberoi Realty 300 1,791 1 14.1 13.5 21.3 22.7 21.3 22.2 14.1 17.7 16.4 2.6 2.4 13.2 11.3 15.8 0.7 0.7 1.0 11.2 42.4 O-PF 308
Godrej Properties 651 924 1 12.5 16.7 26.2 44.5 51.9 39.1 24.9 33.8 25.2 3.5 3.3 8.3 8.7 12.7 - - (1.3) 10.4 4.0 U-PF 609
JP Infratech 56 1,421 1 9.3 5.8 7.2 (11.7) 6.1 9.7 7.8 8.7 9.1 1.4 1.2 24.5 13.2 15.0 1.5 2.6 9.5 8.9 45.3 BUY 60
HDIL 118 902 38 19.4 16.4 17.5 (5.2) 6.1 7.2 6.8 9.3 9.7 0.5 0.5 8.2 6.5 6.4 - - 1.1 9.1 108.6 SELL 66
Anant Raj 97 520 5 4.1 7.5 9.2 50.4 23.7 12.9 10.5 23.5 12.2 0.7 0.7 3.2 5.6 6.5 - - (1.2) 20.7 122.5 BUY 116
Abhinav Sinha Dir-5069
Sobha Developers 386 688 1 21.0 25.0 32.0 23.4 18.4 15.4 12.1 10.6 9.0 1.9 1.7 10.7 11.7 13.7 1.6 1.8 4.5 (0.6) 86.7 BUY 450
Coverage universe
Board Line : (9122)-66505050
Div Yield Perf
FY12 FY13 FY14
FY12-14
Cagr
EV/ Ebitda
Name
Price
(Rs)
Mkt Cap
(US$m)
3m Avg
T/O
(US$m)
Target
Price
Rec
Education 316 2 6.6 4.2 3.6 3.7 3.1 2.5 0.5 0.5 12.8 13.4 11.5 1.4 1.4 (6.3) (17.3) (27.3)
Nimish Joshi Dir-5054
Educomp 145 316 2 34.4 40.8 39.1 6.6 4.2 3.6 3.7 3.1 2.5 0.5 0.5 12.8 13.4 11.5 1.4 1.4 (6.3) (17.3) (27.3) SELL 210
Others 16,892 119 29.7 28.6 21.7 17.3 13.7 10.9 5.2 4.1 19.0 21.1 21.9 1.5 1.9 (1.1) 2.4 49.2
Titan 285 4,610 9 6.8 8.0 9.2 16.6 42.2 35.8 31.1 29.3 24.2 17.5 12.8 48.5 41.4 37.9 1.8 2.5 (7.1) 6.2 63.8 SELL 210
Havells 637 1,445 3 29.6 39.6 47.5 26.6 21.5 16.1 13.4 13.3 10.4 8.3 5.9 46.0 43.0 37.7 1.2 1.4 5.4 (1.1) 54.6 BUY 700
Bharat Forge 263 1,112 2 17.7 18.6 24.1 16.6 14.8 14.1 10.9 8.2 7.7 2.8 2.5 19.9 18.5 20.9 1.9 2.3 0.7 (15.2) 1.0 SELL 259
Apollo Tyres 90 821 6 8.7 11.3 13.6 24.9 10.3 7.9 6.6 6.2 4.8 1.6 1.3 15.6 18.4 18.6 0.8 0.9 3.6 (0.2) 42.9 BUY 110
Jubilant 1,321 1,566 8 16.3 24.0 34.6 45.7 81.0 55.0 38.2 44.7 31.1 28.4 19.3 43.0 42.2 41.5 0.2 0.2 1.2 0.5 75.8 O-PF 1,380
Exide Industries 142 2,201 5 5.4 6.9 8.1 22.4 26.2 20.5 17.5 17.6 13.5 4.0 3.6 15.9 18.3 19.2 1.8 2.1 (3.9) (6.3) 22.7 U-PF 132
Vikash Jain Dir-5015
SR Sugars 33 398 5 0.0 1.7 4.2 1,088.0 1,090.8 19.0 7.7 7.1 6.2 1.9 0.9 0.2 6.6 11.6 3.1 3.1 (4.4) (9.3) 23.0 BUY 45
Balrampur Chini 51 228 1 (1.3) 2.5 2.6 NA (38.3) 20.3 19.4 11.7 10.4 1.1 1.1 (2.7) 5.3 5.4 1.5 1.9 (15.8) (23.4) 31.7 O-PF 66
CLSA Universe 925,053 1,861 13.8 18.1 16.7 14.4 10.5 9.9 2.8 2.5 16.4 15.7 16.2 1.4 1.5 2.8 5.1 29.5
Sensex 19,821 1,108 1,191 1,349 10.3 17.9 16.6 14.7 10.5 9.8 3.0 2.6 17.9 16.8 16.9 1.6 1.7 2.0 4.7 24.9
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practice of some jurisdictions/markets prescribe certain disclosures to be made for certain actual, potential or perceived conflicts of interests relating to research report and such details are available at www.clsa.com/member/research_disclosures/. Disclosures therein include the position of the CLSA Group only and do not reflect those of Credit Agricole Corporate &
Investment Bank and/or its affiliates. If investors have any difficulty accessing this website, please contact webadmin@clsa.comor (852) 2600 8111. If you require disclosure information on previous dates, please contact compliance_hk@clsa.com
Key to CLSA investment rankings: BUY = Expected to outperform the local market by >10%; O-PF = Expected to outperform the local market by 0-10%; U-PF = Expected to underperform the local market by 0-10%;
SELL = Expected to underperform the local market by >10%. Performance is defined as 12-month total return (including dividends).
IMPORTANT: The content of this report is subject to and should be read in conjunction with the disclaimer and CLSA's Legal and Regulatory Notices as set out at www.clsa.com/disclaimer.html, a hard copy of which may be obtained on request from CLSA Publications or CLSA Compliance Group, 18/F, One Pacific Place, 88 Queensway, Hong Kong, telephone (852) 2600
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