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Rainbow
Research Team
research@bricssecurities.com
 
Stock markets have once again proved ‘Expect the Unexpected’ – rallying almost 50% from their 2009 lows in 38 trading sessions. That’s no mean feat and the scepticism surrounding the recent rise makes us believe that markets are ready to surprise the bears by rallying further in coming days.The uncertainty on the outcome of elections is providing a necessary 
Rainbow
, ,threat for the stocks we have selected in BRICS Rainbow.
We have recommended stocks:
that offer at least 25% or more in terms of absolute return – we expectthis even in the case of an unstable government – albeit with a nearterm downside
where growth is driven by factors that are largely independent ofgovernment action
 
CadilaHealthcareDishmanPharmaceuticalHT MediaICICI BankKotakMahindra BankMphasisPetronetLNG
Rainbow
Company CMPReasons to BUY…
Cadila Healthcare
322
Rare business model spanning CRAMS, formulation sales
CRAMS revenue gaining traction; formulation business growth steady
Valuation reflects volatile earnings, not adjusting for new reality. Rerating likely
11x FY10E valuation at steep discount to peers
Dishman Pharmaceutical
117
Projects under execution to deliver revenue and earnings CAGR of 20% and 36% over FY08-FY11E
Profits could be higher if development pipeline materialises
Margin improvement is sustainable as capacity utilization improves to 80% in FY11E from 65% in FY0
5.6x FY10E valuation at historical low, steep discount to peers
 
Strategy implementation remains weak but valuations are compelling
Valuations unchallenging at 6.5x FY10E EV/EBIDTA
ICICI Bank 
558
New management is focused on corporate banking. If implemented well, it can significantly reduce perceived risk from ICICI Bank’s operations
Change in corporate strategy will have interesting implications for the banking sector in India
Rerating likely
Kotak Mahindra Bank 
483
Over-capitalized balance sheet; no capital raising till FY12
Down cycle used to consolidate securities business. This will allow Kotak to capitalise on market upturn in a non-linear manner
Subsidiaries are coming of age
Best play on the Indian financial services space
Mphasis
249
With 55% of revenue coming from HP/EDS, HP’s core business shows gain in market share despite weak macro
Pricing is defendable while ramp-ups are relatively more stable from HP/EDS business
Recent headcount adds indicate near-term growth visibility
Valuation at 6.9x FY10E does not capture revenue visibility
Petronet LNG
57
Capacity increase will enable revenue to double by FY11E
India gas deficient despite Reliance’s KG Basin gas supply
Extremely adverse modelling assumptions leave room for significant upside
DCF target implies 69% upside despite negative assumptions
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