Value

Value Guide
The
July 2013 For Private Circulation only www.sharekhan.com
Factor
Intelligent Investing Market Outlook Stock Updates Sector Updates Sharekhan Special Viewpoints Regular Features Report Card Earnings Guide Products & Services PMS Top Equity Picks MF Picks Advisory Traders Edge Technical view Commodities and Currencies F&O Insights
July 2013
Sharekhan ValueGuide
CONTENTS
From Sharekhans Desk

The R factor
The rupee crossed the psychological mark of 60 against the dollar last month. The local currencys fall to an alltime low was largely driven by the strengthening of the US Dollar against all the other major currencies. But the currencies of countries with relatively a high current account deficit, like India, South Africa and Mexico, were among the worst affected globally.
EQUITY FUNDAMENTALS Stock Updates Sharekhan Special Sector Updates Viewpoint 14 24 REGULAR FEATURES 27 Report Card 28 Earnings Guide
4 I
TECHNICALS Sensex ADVISORY DESK MID Trades COMMODITY
DERIVATIVES 29 View 43 Derivative Ideas
30 43
06 RESEARCH BASED EQUITY PRODUCTS Market Outlook Top Picks basket 07 10
PMS DESK ProPrime - Top Equity ProPrime - Diversified Equity ProTech - Diversified ProTech - Nifty Thrifty ProTech - Trailing Stops MUTUAL FUNDS DESK 38 39 40 41 42
FUNDAMENTALS Crude Oil Gold Silver TECHNICALS Gold Silver Crude Oil CURRENCY FUNDAMENTALS INR-USD INR-EUR
31 Copper 32 Lead 32 Zinc 34 Copper 34 Nickel 34 Turmeric
32 32 33 35 35 35
36 36
INR-GBP INR-JPY
36 36 37 37
Top MF Picks (equity) Top SIP Fund Picks
45 46
TECHNICALS USD-INR EUR-INR
37 GBP-INR 37 JPY-INR
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disclaimer
July 2013
REPORT CARD
STOCK IDEAS STANDING (AS ON JULY 04, 2013)
COMPANY CURRENT PRICE AS ON PRICE RECO 04-JUL-13 TARGET Hold Hold Hold Buy Buy 60.9 18.6 1876.6 982.1 1557.4 10816.1 88.2 82.7 1265.0 635.2 546.6 224.6 136.2 153.2 349.2 400.5 852.1 655.2 1063.7 71.4 620.1 1900.0 173.4 470.2 13006.9 251.4 5582.2 807.9 601.4 338.9 180.6 208.7 282.5 143.5 655.0 6785.4 1319.5 799.8 2468.0 264.9 492.3 1538.3 349.7 6244.4 174.8 358.4 88.4 60.1 65.7 49.4 593.5 472.0 1619.6 9077.9 ** 24.0 2028.0 1129.0 1950.0 52 WEEK HIGH LOW 102.5 29.0 2229.0 1026.5 1777.0 11868.6 54.6 18.4 1423.1 675.1 1074.3 8762.4
EQUITY
FUNDAMENTALS
ABSOLUTE PERFORMANCE 1M 3M 6M 12M -32.3 -18.7 8.7 -0.5 0.7 -1.5 -25.3 -5.1 -9.4 -4.9 -14.3 -19.5 -5.2 -1.3 -9.4 -12.5 1.2 -3.3 -6.5 -8.9 -15.4 -6.3 -17.8 -4.5 -6.9 -9.5 -5.0 -8.9 1.8 0.5 -10.9 -10.3 -7.0 -2.7 8.9 0.3 10.7 8.7 -1.1 3.9 -5.1 5.9 7.2 2.8 -10.5 8.9 -2.6 -10.4 -9.4 -12.7 2.3 -0.8 -7.1 -3.3 -26.8 -12.8 14.8 15.8 18.8 12.1 -28.8 -13.4 1.7 -15.9 -13.8 -23.7 -3.5 6.9 -5.5 -15.6 9.1 7.2 7.2 -14.2 -10.3 -6.3 -18.7 11.5 3.0 7.0 33.9 4.0 27.9 14.9 13.4 -3.8 -14.7 14.5 55.3 17.5 -6.3 7.9 -13.3 -1.7 -8.9 2.9 -10.7 -6.6 -1.9 32.7 -3.0 -10.4 -15.7 -19.9 3.6 7.6 -2.2 1.1 -32.0 -28.1 -12.9 4.3 0.8 -6.3 -49.7 -34.7 -8.3 -31.6 -36.1 -36.0 -24.9 -26.4 -24.6 -24.0 3.2 -2.8 -8.5 -38.8 -29.2 -22.1 -35.1 -2.7 -10.3 9.0 46.9 11.9 12.5 21.8 9.1 -6.9 -21.2 -11.1 30.8 16.4 9.3 26.8 6.3 8.7 -7.0 19.7 -1.0 8.9 -27.3 14.0 -28.8 -24.9 -33.0 -36.8 -3.8 -6.1 -19.5 -18.0 -20.4 -20.8 24.9 39.0 28.3 16.7 -38.9 -30.1 21.5 -6.7 -22.7 -34.0 26.5 0.0 -14.0 -9.4 28.0 14.3 19.8 -24.8 -24.0 -12.9 -15.0 37.6 8.8 113.8 108.7 40.3 40.5 39.8 53.3 15.3 -7.3 24.8 65.5 42.8 55.6 68.0 1.3 -4.5 26.9 25.2 1.2 11.4 -22.9 21.6 -30.9 -11.7 -18.2 -21.4 19.7 89.8 -17.9 -9.5
1M
RELATIVE TO SENSEX 3M 6M 12M -30.7 -17.5 8.6 9.5 12.3 6.0 -32.7 -18.1 -3.8 -20.5 -18.5 -27.9 -8.7 1.0 -10.6 -20.2 3.2 1.4 1.4 -18.9 -15.2 -11.4 -23.2 5.4 -2.6 1.2 26.6 -1.7 21.0 8.6 7.2 -9.1 -19.3 8.3 46.9 11.1 -11.4 2.0 -18.0 -7.1 -13.9 -2.7 -15.5 -11.6 -7.2 25.4 -8.3 -15.3 -20.3 -24.3 -2.0 1.7 -7.5 -4.4 -31.4 -27.5 -12.1 5.3 1.7 -5.4 -49.3 -34.1 -7.5 -31.0 -35.5 -35.5 -24.2 -25.7 -24.0 -23.3 4.2 -1.9 -7.7 -38.2 -28.5 -21.4 -34.5 -1.8 -9.5 10.0 48.2 12.9 13.5 22.9 10.1 -6.1 -20.5 -10.3 32.0 17.4 10.3 28.0 7.2 9.7 -6.2 20.8 -0.1 9.8 -26.6 15.0 -28.2 -24.2 -32.4 -36.2 -2.9 -5.3 -18.8 -17.3 -29.6 -29.9 10.5 23.0 13.5 3.3 -46.0 -38.2 7.5 -17.4 -31.6 -41.6 11.9 -11.6 -23.9 -19.9 13.2 1.1 6.0 -33.5 -32.7 -23.0 -24.8 21.8 -3.7 89.1 84.6 24.1 24.3 23.7 35.6 2.0 -18.0 10.4 46.4 26.3 37.7 48.6 -10.4 -15.5 12.3 10.8 -10.4 -1.5 -31.8 7.6 -38.9 -21.9 -27.6 -30.5 5.9 67.9 -27.4 -20.0
AUTOMOBILES
Apollo Tyres Ashok Leyland Bajaj Auto M&M Maruti Suzuki BSE Auto Index BANKS & FINANCE Allahabad Bank Andhra Bank Axis (UTI) Bank Bajaj Finserv Bank of Baroda Bank of India W CanFin Homes NE Capital First NEW Corp Bank Federal Bank HDFC HDFC Bank ICICI Bank IDBI Bank Punjab National Bank SBI Union Bank of India Yes Bank BSE Bank Index CONSUMER GOODS Bajaj Corp GSK Consumers Godrej Consumer Products Hindustan Unilever ITC Jyothy Laboratories NEW Marico Mcleod Russel India TGBL (Tata Tea) Zydus Wellness BSE FMCG Index IT / IT SERVICES CMC NEW HCL Technologies Infosys NIIT Technologies Persistent Systems NEW Tata Consultancy Services Wipro BSE IT Index CAPITAL GOODS / POWER Bharat Heavy Electricals CESC Crompton Greaves Greaves Cotton Kalpataru Power Transmission PTC India Thermax V-Guard Industries BSE Power Index BSE Capital Goods Index -32.0 -18.4 9.1 -0.1 1.1 -1.1 -25.0 -4.7 -9.0 -4.5 -14.0 -19.2 -4.8 -0.9 -9.1 -12.1 1.7 -2.9 -6.2 -8.5 -15.0 -5.9 -17.4 -4.1 -6.5 -9.1 -4.6 -8.6 2.2 0.9 -10.6 -10.0 -6.6 -2.3 9.3 0.7 11.1 9.2 -0.7 4.3 -4.7 6.3 7.6 3.2 -10.2 9.3 -2.2 -10.0 -9.1 -12.3 2.7 -0.4 -6.8 -2.9
Hold Hold Buy Hold Hold Hold Buy Buy Buy Buy Hold Hold Buy Hold Buy Buy Buy Buy
155.0 112.0 1650.0 826.0 820.0 376.0 220.0 230.0 500.0 545.0 910.0 712.0 1320.0 105.0 998.0 2450.0 295.0 600.0
191.1 85.6 130.0 78.0 1549.9 926.9 984.0 613.0 899.7 534.5 393.0 215.1 187.9 99.0 235.0 109.5 495.3 337.0 571.0 390.0 931.4 631.3 727.3 505.1 1238.4 866.8 118.4 66.3 922.1 604.1 2551.7 1815.2 288.0 150.1 547.7 285.0 15335.9 11277.1 284.0 6347.8 965.0 632.0 355.9 211.3 251.7 387.0 181.7 755.0 6942.0 1523.0 810.0 3010.0 324.9 591.0 1598.0 418.3 7069.4 272.5 368.0 143.6 87.6 106.9 81.3 691.0 590.5 2113.7 11408.6 119.2 2179.0 563.7 431.6 220.3 115.5 180.3 263.0 110.0 336.0 4832.4 824.0 471.5 2060.6 238.6 363.6 1055.0 263.1 5134.1 162.1 252.5 71.7 59.0 64.0 44.7 462.7 248.0 1534.7 8671.0
Buy Hold Hold Hold Hold Buy Hold Buy Hold Buy
303.0 ** 845.0 ** 342.0 254.0 241.0 405.0 168.0 741.0
Buy Buy Hold Hold Buy BUY Reduce
1650.0 900.0 ** 305.0 600.0 1650.0 **
Hold Hold Hold Buy Buy Buy Reduce Hold
240.0 385.0 105.0 95.0 115.0 75.0 553.0 508.0
July 2013
EQUITY
FUNDAMENTALS
REPORT CARD
STOCK IDEAS STANDING (AS ON JULY 04, 2013)

COMPANY INFRASTRUCTURE / REAL ESTATE Gayatri Projects ITNL IRB Infra Jaiprakash Associates Larsen & Toubro Mahindra Lifespace Developers Orbit Corporation Pratibha Industries Punj Lloyd Unity Infraprojects CNX Infra Index BSE Real Estate Index OIL & GAS GAIL Oil India Reliance Ind Selan Exploration Technology BSE Oil and Gas Index PHARMACEUTICALS Aurobindo Pharma NEW W NE Cipla Cadila Healthcare W Dishman Pharma NE Divi's Labs Glenmark Pharmaceuticals Ipca Laboratories Lupin Sun Pharma Torrent Pharma BSE Health Care Index AGRI-INPUTS Tata Chemicals United Phosphorus BUILDING MATERIALS Grasim India Cements Madras Cements Shree Cement UltraTech Cement DISCRETIONARY CONSUMPTION Eros International Media Indian Hotel Company KKCL Raymond Relaxo Footwear Speciality Restaurants NEW W Zee Entertainment NE DIVERSIFIED / MISCELLANEOUS Aditya Birla Nuvo Bajaj Holdings Bharti Airtel Bharat Electronics Gateway Distriparks Max India Ratnamani Metals and Tubes Sintex Industries BSE500 Index CNX500 Index CNXMCAP Index
In Top Picks basket
CURRENT PRICE AS ON PRICE RECO 04-JUL-13 TARGET Buy Buy Buy Buy Buy Buy Buy Buy Hold Buy 65.6 143.7 95.3 52.4 1402.2 421.6 17.1 28.0 32.4 25.5 2268.8 1510.9 333.8 567.9 861.7 243.6 8785.4 185.0 394.6 781.9 54.9 962.7 575.1 684.8 850.7 1030.7 835.0 9070.9 272.0 134.7 2797.0 56.3 213.2 4554.0 1907.0 130.5 48.7 753.4 241.0 793.0 151.2 241.7 1026.0 770.5 301.2 1248.2 105.0 209.4 144.0 39.4 7182.3 4517.7 7359.8 275.0 302.0 175.0 95.0 1790.0 460.0 48.0 65.0 53.0 57.0
52 WEEK HIGH LOW 130.6 228.9 161.4 106.8 1720.0 453.8 65.8 59.0 64.1 53.4 2684.7 2326.8 397.2 629.9 955.0 351.0 9890.9 204.9 435.0 975.0 124.5 1234.4 610.0 701.7 855.0 1116.6 863.9 9223.1 381.5 167.5 3511.0 104.7 273.5 5384.4 2154.2 235.1 71.8 903.2 488.9 918.0 226.3 255.2 1191.0 1058.3 370.6 1399.5 150.7 273.0 162.1 75.6 7792.7 4877.7 8859.4 64.0 141.1 85.6 48.5 1307.3 313.2 13.0 25.0 31.3 23.2 2151.9 1431.4 276.2 432.0 682.4 197.4 7825.6 99.7 314.4 714.2 53.6 924.5 360.4 355.2 496.4 580.0 597.7 6882.7 260.3 101.6 2566.2 52.3 151.2 2790.0 1510.8 126.3 46.1 485.4 227.9 426.8 141.3 140.0 737.3 730.0 215.8 1105.3 100.0 173.1 101.0 36.6 6407.8 3996.4 6996.9
ABSOLUTE PERFORMANCE 1M 3M 6M 12M -12.6 -17.4 -18.0 -20.8 -0.5 7.5 -1.4 -22.6 -25.9 -12.2 -3.4 -9.7 7.3 -2.6 10.4 -6.2 3.7 -0.3 -3.0 -24.8 -0.3 -3.7 12.1 10.6 1.2 2.4 1.1 -10.0 -16.0 1.7 -17.4 -5.1 -4.3 2.1 -19.9 -5.9 -15.0 -12.8 17.4 -12.5 1.2 -1.4 -14.0 -1.0 -5.9 -12.8 1.1 -4.0 -18.8 -2.6 -2.6 -5.7 -10.6 -22.3 -15.7 -17.8 3.0 8.0 -29.3 -29.5 -38.6 -12.2 3.7 -14.6 6.9 9.4 13.5 -3.5 6.7 13.8 4.0 -17.6 -3.4 23.3 32.6 35.2 19.9 22.3 10.6 -12.7 14.4 2.6 -30.0 -11.6 12.9 9.4 -23.7 -11.9 8.8 -9.5 43.3 -9.6 16.4 5.7 -12.5 10.4 5.8 -12.9 -4.8 16.7 -15.2 3.4 3.9 0.1 -46.0 -32.6 -27.0 -48.1 -13.9 0.3 -70.2 -50.1 -47.2 -44.8 -14.0 -31.0 -9.0 23.1 1.1 -21.5 0.2 -7.8 -11.3 -53.9 -13.3 9.6 35.1 40.7 40.2 18.3 10.7 -25.4 1.0 -12.3 -38.6 -11.1 -0.8 -6.6 -37.0 -26.3 4.7 -46.6 -1.9 -20.8 6.5 -8.5 -23.0 -7.6 -4.8 -22.0 -16.7 0.3 -43.9 -6.4 -5.9 -15.1 -35.5 -20.4 -26.6 -32.1 -0.1 29.2 -70.8 -45.7 -40.3 -44.9 -7.4 -14.1 -5.4 19.6 18.7 -13.4 10.6 63.2 4.5 -18.5 -5.5 52.3 91.2 59.2 63.7 40.5 32.3 -11.1 8.1 5.2 -33.0 37.7 49.0 24.6 -25.6 -20.5 38.0 -41.0 49.4 -30.7 63.9 27.5 -0.6 -7.2 -7.3 -22.6 13.8 33.2 -40.5 8.1 9.0 0.0
1M -12.2 -17.1 -17.7 -20.5 -0.1 7.9 -1.0 -22.3 -25.6 -11.9 -3.0 -9.3 7.7 -2.3 10.9 -5.8 4.1 0.1 -2.7 -24.5 0.1 -3.3 12.6 11.0 1.6 2.9 1.5 -9.7 -15.7 2.1 -17.1 -4.7 -4.0 2.5 -19.6 -5.5 -14.7 -12.5 17.9 -12.2 1.6 -1.0 -13.7 -0.6 -5.5 -12.5 1.5 -3.6 -18.5 -2.2 -2.2 -5.3
RELATIVE TO SENSEX 3M 6M 12M -15.5 -26.6 -20.3 -22.3 -2.7 2.1 -33.1 -33.3 -41.9 -17.0 -2.0 -19.3 1.1 3.4 7.3 -8.8 0.9 7.6 -1.6 -22.1 -8.6 16.6 25.4 27.8 13.3 15.6 4.6 -17.4 8.1 -3.0 -33.8 -16.4 6.7 3.4 -27.8 -16.7 2.9 -14.4 35.5 -14.5 10.0 -0.1 -17.3 4.4 0.0 -17.6 -10.0 10.3 -19.8 -2.3 -1.8 -5.4 -45.5 -32.0 -26.3 -47.7 -13.1 1.2 -69.9 -49.7 -46.7 -44.3 -13.2 -30.4 -8.2 24.2 2.0 -20.8 1.1 -6.9 -10.5 -53.5 -12.5 10.6 36.3 42.0 41.4 19.4 11.7 -24.8 1.9 -11.5 -38.0 -10.3 0.1 -5.8 -36.4 -25.7 5.6 -46.2 -1.0 -20.0 7.4 -7.7 -22.3 -6.8 -4.0 -21.3 -16.0 1.2 -43.4 -5.6 -5.1 -14.4 -42.9 -29.5 -35.1 -39.9 -11.6 14.3 -74.1 -52.0 -47.2 -51.2 -18.1 -24.0 -16.3 5.8 5.0 -23.4 -2.1 44.4 -7.5 -27.9 -16.4 34.7 69.2 40.8 44.8 24.3 17.0 -21.4 -4.4 -6.9 -40.7 21.9 31.8 10.3 -34.1 -29.7 22.1 -47.8 32.2 -38.7 45.0 12.8 -12.1 -17.9 -18.0 -31.5 0.7 17.8 -47.4 -4.3 -3.6 -11.5
Hold Buy Buy Buy
390.0 650.0 1010.0 365.0
Buy Buy Buy Buy Buy Buy Hold Buy Buy Hold
267.0 490.0 906.0 130.0 1262.0 600.0 675.0 810.0 1120.0 890.0
Buy Buy Hold Hold Hold Hold Hold Buy Hold Buy Buy Buy Buy Buy Buy Buy Hold Hold Buy Buy Hold Buy
380.0 180.0 3300.0 95.0 250.0 4660.0 2100.0 240.0 61.0 810.0 477.0 845.0 230.0 280.0 1254.0 1334.0 340.0 1485.0 163.0 296.0 170.0 89.0
** Price target under review
July 2013
FROM SHAREKHANS DESK
from sharekhans desk

July 2013
The R factor
The rupee crossed the psychological mark of 60 against the dollar last month. The local currencys fall to an all-time low was largely driven by the strengthening of the US Dollar against all the other major currencies. But the currencies of countries with relatively a high current account deficit, like India, South Africa and Mexico, were among the worst affected globally. On the other hand, the currencies of countries with a current account surplus, like Indonesia and Singapore, managed to sail through with a limited damage. The strengthening of the US Dollar was triggered by the US Federal Reserves indication that it might slow its bond purchases this year and withdraw the economic stimulus altogether by the next year, as the recovery in the US economy gathers steam. The change in the stance of the US Federal Reserve came as a surprise to traders and led to a scramble to unwind the US Dollar carry trades. Consequently, the bond and equity markets globally suffered unexpected and sharp moves during the initial phase of the knee-jerk reaction. Experts believe the transition process of adjusting to the potential withdrawal of easy liquidity could continue further but at a more measured pace now. As if this were not enough, the negative cues from the slowing Chinese economy and the reemergence of tremors in Europe (the resignation of the finance minister in Portugal and the International Monetary Funds growing tough stance on Greece) added to the uncertainty in the equation. The sudden change in the global environment and its fall-out on the rupee and the withdrawal of close to $7.5 billion from Indias debt market galvanised the government into taking some corrective actions. After a gap of several months, the government has reached a positive decision on some longpending tough issues. It has cleared the new gas pricing formula that could nearly double the price of natural gas from $4.2mbtu to $8-8.5mbtu with effect from April 2014. The move is expected to encourage investments in the domestic oil & gas exploration sector and hopefully reduce the countrys dependence on imported gas. The government is also set to put a regulator in place for the real estate sector, hike the foreign direct investment limit in some sectors and address the coal supply issue for the power sector. Hopefully, the pressure on the rupee and the economy would be a reminder to the government to limit its tendencies to announce huge giveaways under social spending schemes in the run-up to the elections, though the government has pushed the Food Security Bill through an ordinance. On the macro-economy front, the depreciation in the rupee is eating into some of the macro gains, such as moderation of inflation, and would be a cause for concern for the central bank. Inflation has moderated to the Reserve Bank of India (RBI)s comfort level it slipped to a 43-month low of 4.70% in May from 4.89% in April this year. However, the RBI maintained its cautious stance at its policy meet in June and slowed the pace of monetary easing. The global uncertainties and the rupees depreciation-led pressure on inflation would only lead to further delays in the much awaited policy rate cuts and other measures to improve liquidity domestically. The Indian companies are all set to announce their results for the first quarter of FY2014. We expect a lot of volatility ahead in view of the result announcements locally and the rising uncertainty globally. In the days ahead the market is expected to take its cue from the result announcements, the governments policy actions, the monsoons progress, the crude oil prices, the USAs data announcements and the global markets. For a detailed view of the equity market please read our Market Outlook report, Its more global than local this time around, on page 7.
EQUITY
FUNDAMENTALS
MARKET OUTLOOK
MARKET OUTLOOK
JULY 05, 2013
Its more global than local this time around

Volatility picks up as Ben pulls the plug and cues turn negative in China, Europe: The unexpected move by the US Federal Reserve to begin tapering of the monetary stimulus under the quantitative easing (QE) programme jolted the financial markets globally. As part of the knee-jerk reaction to the Feds statement a scramble began for unwinding of the leveraged dollar carry trades which perked up the bond yields, strengthened the dollar and led to the withdrawal of money from risky assets. India also suffered its share of collateral damage with the sudden outflow of $7.5 billion from the Indian debt market and the freefall of the rupee beyond the important psychological barrier of Rs60 to the dollar. The deterioration in the Chinese economic data and the re-emergence of issues in some of the troubled European nations added to the uncertainty in the equation. Rupee dives but creates room for radical policy moves: The global uncertainty and the steep depreciation in the rupee have galvanised the government into taking policy decisions on some pending critical issues. The cabinet committee has approved the new gas price formula that makes investment in oil & gas exploration much more attractive, taken steps to address the availability of coal for the power sector and is looking at hiking foreign direct investment (FDI) limits in certain sectors. Therefore, by hiding behind the compelling circumstances and due to the growing differences within the opposition parties the government may be able to push some pending bills in the forthcoming parliamentary session. Though the government has passed the food bill ordinance, hopefully the pressure on the rupee would act as a grim reminder to the government to maintain fiscal prudence rather than focus on giveaways under social schemes during the election year. RBI to retain cautious monetary stance; corporate earnings to remain muted: Despite the moderation in the inflation rate, the Reserve Bank of India (RBI) is likely to retain its cautious view in the light of the inflationary pressures resulting from the rupees depreciation. We do not expect it to cut the key policy rates or take any measure to ease liquidity during the policy review meet at the end of July. Thus, the cyclical uptick in the economy could be more sluggish than expected or get delayed due to the uncertainty caused by external factors. The earnings season would be rather lacklustre with the expectations of a marginal decline in the cumulative earnings of the Sensex in Q1 of FY2014 and the growing risk of further downgrades in the FY2014 earnings estimates. Nifty likely to fluctuate in a broader range: The global events pushed the market towards the lower end of its multi-month trading range of 5600-6100; however, the benchmark indices are stabilsing after the initial kneejerk reaction. In the immediate term, the continued pressure on the rupee remains the key risk to inflation, might delay monetary easing by the RBI and put further stress on already stretched corporate balance sheets. However, the valuation is quite reasonable with a oneyear forward price/earnings (PE) multiple of 13.8x, which is at 5% discount to the long-term average valuation of the Sensex. Consequently, the benchmark indices are likely to consolidate within a broad range though with increase in volatility.
SENSEX ONE-YEAR FORWARD P/E BAND
27.0
22.0 17.0 12.0 7.0 Jun-01
Jun-03 PER
Jun-05
Jun-07
Jun-09 Avg PER
Jun-11
Jun-13
+1 sd
-1 sd
Source: Bloomberg, Sharekhan research
July 2013
MARKET OUTLOOK
Macro issues intensify with rupees depreciation
EQUITY
FUNDAMENTALS
The sharp depreciation in the rupee (due to taper talk by the US Fed) has brought Indias macro-economic concerns to the fore. The current account deficit (CAD; 4.8% of the gross domestic product [GDP] in FY2013) has been running high and weakness in the domestic currency will further push up the twin deficits. Inflation has shown significant moderation in the past several months but could rise again due to imported inflation since Indias imports are significantly higher (30% of the GDP). If the situation persists, the GDP growth estimate, pegged at 6% for FY2014, may face downward revision as slowdown in investments and higher interest rates may constrain recovery.
TRADE BALANCE INDIA
0 70.0 -5 -10 -15 -10.0 -20 -25 May -09 -30.0 -50.0 May -13 50.0 30.0 10.0
continue even after the replacement of Ben Bernanke in January 2014. But the bouts of surprises from the euro zone and China will keep the global markets edgy and increase risk aversion. The outflows from the equity segment in India have been lower than those seen by the other markets, but if the global uncertainty continues it could affect the inflows to the Indian stock market.
NET FII EQUITY INVESTMENT ($ MN)
400 300 200 100 0 -100 -200 -300 Feb-12 Feb-13 Jun-12 Dec-11 Aug-12 Dec-12 Apr-12 Apr-13
Mar-12 Mar-13
Source: Bloomberg, Sharekhan Research
...but opportunity for firmer actions from government
May -10
May -11
May -12
Trade balanc e-LHS ($bn) Ex ports grow th (Y oY ,% )
Imports grow th (Y oY ,% )
Global volatility a key concern for the markets
The mere indication of tapering of QE has unnerved the global markets leading to the unwinding of carry trades in dollar, a rise in bond yields and redemptions from the emerging market funds. Also, Chinas economy is growing at a lower than expected rate and the recent tightening by Peoples Bank of China has further weakened market sentiment. After the recent turbulence in the global markets the Fed has become dovish. The stance is expected to
DEBT FUNDS REDEMPTIONS
6,000 4,000 2,000 0 -2,000 -4,000 -6,000 -8,000 6-May-13 16-May-13 26-May-13 5-Jun-13 15-Jun-13 25-Jun-13 6-Apr-13 16-Apr-13 26-Apr-13 5-Jul-13 104 102 100 98 96 94 92 90 88 86 84
Under compelling circumstances the government has been able to fast-track certain long pending proposals (coal linkages, fuel pass-through, gas price hike, FDI in telecommunications sector etc). In addition, the government has formed special committees headed by Anil Swarup to resolve stalled projects worth Rs7 lakh crore to revive growth. While one would assume the government would go slow on reforms in an election year, the government could actually surprise all by passing the key reforms, like the land acquisition bill and FDI in insurance, given the urgency on the CAD front. Also, given the split in the opposition forces (Bharatiya Janata Party-Janata Dal United split), resistance will be diluted and the longevity of the government (till May 2014) will increase which will give the government time to patch up later.
FISCAL DEFICIT TO GDP (%)
7.0 6.0 5.0 4.0 3.0 2.0 1.0 0.0 Mar-05 Mar-06 Mar-07 Mar-08 Mar-09 Mar-10 Mar-11
FII f low s in indian debt ($ mn) - LHS
INRUSD Currency
July 2013
Jun-13
Oct-12
EQUITY
FUNDAMENTALS
MARKET OUTLOOK
improvement in certain sectors which will hit harder because of the declining revenues. However the exportoriented companies may deliver relatively better results. The Sensex consensus earnings estimate for FY2014 has undergone downward revisions in the past couple of months and the benchmark index earnings are now expected to grow in single digits.
FY2014 CONSENSUS EARNINGS ESTIMATE OF SENSEX
RBI to hold back ammunitionmonsoon and commodity prices among the key monitorables
The prices of commodities (crude oil) have corrected by 8-10% in the year till date (YTD) and are expected to remain soft due to the slower growth in China, India etc. This along with some moderation in gold imports could provide some relief on the CAD front but the same will not be enough to trigger further rate cuts by the RBI. The apex bank has clearly articulated that the room for further rate cuts is limited due to the global uncertainty and the lingering concern on inflation (due to high food inflation and the local currencys depreciation). It seems the food inflation could ease going ahead as the hike in the minimum support price was lower than expected and the monsoon is largely favourable.
BRENT CRUDE ($/BBL)
115 110 105 100 95 Mar-13 Feb-13 Jan-13 May-13 Apr-13 Jun-13 Jul-13
1500 1480 1460 1440 1420 1400 6-May-13 13-May-13 20-May-13 27-May-13 3-Jun-13 10-Jun-13 17-Jun-13 24-Jun-13 15-Apr-13 22-Apr-13 29-Apr-13 1-Apr-13 8-Apr-13 1-Jul-13
Nifty likely to fluctuate in a broader range
VARIANCE OF ACTUAL RAINFALL FROM LPA
140.0% 120.0% 100.0% 80.0% 60.0% 40.0% 20.0% 0.0% -20.0% -40.0% -60.0% Country Northw est Central as a India India w hole South East & Peninsula northeast India
The global events have pushed the market towards the lower end of its multi-month trading range of 5600-6100. However, the benchmark indices are stabilsing after the initial knee-jerk reaction to the Feds taper talk. In the immediate term, the continued pressure on the rupee remains the key risk as it would stoke inflation, delay the RBIs monetary easing and put further stress on the already stretched corporate balance sheets. However, the valuation is quite reasonable with a one-year forward price/earnings (PE) multiple of 13.8x, which is at 5% discount to the long-term average valuation of the Sensex. Consequently, the benchmark indices are likely to consolidate within a broad range though with increase in volatility.
SENSEX ONE-YEAR FORWARD P/E BAND
27.0
22.0 17.0 12.0 7.0 Jun-01
Corporate earnings growth to be muted
The corporate earnings season (Q1FY2014) has begun, but there is not much of fuss around as the earnings growth is likely to show a decline on a year-on-year basis. The weakening of the local currency is likely to reflect in the earnings of the companies especially the ones having a higher foreign exchange debt. It will also halt the margin
Jun-03 PER
Jun-05
Jun-07
Jun-09 Avg PER
Jun-11
Jun-13
+1 sd
-1 sd

Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a position in the companies mentioned in the article.
For detailed report, please visit the Research section of our website, sharekhan.com.
July 2013
EQUITY
FUNDAMENTALS
SHAREKHAN TOP PICKS
SHAREKHAN TOP PICKS
Sharekhan Top Picks

It was another month of outperformance by the Top Picks basket, which appreciated by 0.7% in June 2013 despite a volatile equity market. In comparison, the benchmark indices, the Nifty and the Sensex, declined by 1.4% and 0.8% respectively and the CNX Midcap Index slid by close to 4% in the same period. The three stocks that boosted the performance of Top Picks are Reliance Industries (which surged by over 10% in the month on the back of a gas price hike), NIIT Technologies (which rose by 8.1% due to the weakness in the rupee) and Zee Entertainment Enterprises (which climbed up by 8.9% despite the overhang of the revision in the norms for advertisements per hour by the Telecom Regulatory Authority of India). On the other hand, the three banks in the Top Picks basket pulled down its overall returns. This month also we are making a lone change in the portfolio. We are replacing NIIT Technologies with Divis Laboratories. The idea is to reduce the weightage of the information technology services sector in the portfolio (due to the immigration issues in the USA and the expectations of margin pressure following a salary hike in Q1FY2014) and increase the exposure to another export-driven sector, pharmaceuticals. Divis Laboratories has a relatively high proportion of revenues coming from exports and would be among the key beneficiaries of the weakness in the rupee. The core business is also expected to pick up after the Q4FY2013 numbers, which were lower than expected.
ABSOLUTE OUTPERFORMANCE
180.0% 160.0% 140.0% 120.0% 100.0% 80.0% 60.0% 40.0% 20.0% 0.0% -20.0% -40.0%
CONSTANTLY BEATING NIFTY AND SENSEX (CUMULATIVE RETURNS IN %)

280.0% 260.0% 240.0% 220.0% 200.0% 180.0% 160.0% 140.0% 120.0% 100.0% Jun-09 Aug-09 Oct-09 Dec-09 Feb-10 Apr-10 Jun-10 Aug-10 Oct-10 Dec-10 Feb-11 Apr-11 Jun-11 Aug-11 Oct-11 Dec-11 Feb-12 Apr-12 Jun-12 Aug-12 Oct-12 Dec-12 Feb-13 Apr-13 Jun-13
Y TD CY 2013
CY 2012
CY 2011
CY 2010
CY 2009
Since inception (Jan 2009)
Sharekhan (Top Picks)
Sensex
Nif ty
NAME Bajaj Corp Divis Laboratories HCL Technologies HDFC Bank ICICI Bank Larsen & Toubro Oil India Reliance Industries SBI Sun Pharma Zee Entertainment Enterprises
* CMP as on July 01, 2013
CMP* (RS) 249 991 759 667 1,070 1,450 581 883 2,015 1,004 247
FY13 22.0 22.3 13.6 23.6 14.8 18.5 9.7 13.7 9.8 34.5 33.4
PER FY14E 18.0 17.7 12.4 19.3 13.2 16.4 9.3 13.7 9.2 28.9 29.8
FY15E 14.1 15.0 11.4 15.4 11.1 14.4 8.0 11.9 7.8 23.3 23.3
FY13 36.7 23.6 34.7 20.3 13.1 17.7 19.4 10.7 15.4 25.4 19.5
ROE (%) FY14E 38.8 26.2 29.9 20.9 13.5 17.3 18.5 9.6 14.3 22.5 19.3
FY15E 41.5 25.8 26.3 22.2 14.7 17.4 19.0 10.0 15.0 22.3 21.4
PRICE TARGET 303 1,262 900 712 1,320 1,790 650 1,010 2,450 1,120 280
UPSIDE (%) 22 27 19 7 23 23 12 14 22 12 13
July 2013
10
SHAREKHAN TOP PICKS

NAME CMP (RS) PER FY14E ROE (%) FY14E
EQUITY
FUNDAMENTALS
PRICE TARGET UPSIDE (%)
FY13
FY15E
FY13
FY15E
BAJAJ CORP Remarks:
249
22.0
18.0
14.1
36.7
38.8
41.5
303
22
Bajaj Corp is the third largest player in the hair oil segment and has emerged as the dominant player in the premium light hair oil (LHO) category with its Almond Drops hair oil. With consumers upgrading to the LHO category, we expect the strong volume growth momentum to continue in the coming quarters. With the prices of the key inputs stabilising, we expect the GPM to improve in the coming quarters. The companys thrust on enhancing the distribution reach in rural India and improving the market share every year has helped it clock a good sales volume growth in the past few quarters. Any initiative to expand its limited product portfolio or strengthen its core business would be a key upside trigger for the stock. At the CMP, the stock is trading at 18x its FY2014E EPS of Rs13.8 and 14.1x its FY2015E EPS of Rs17.6.
DIVIS LABORATORIES Remarks:
991
22.3
17.7
15.0
23.6
26.2
25.8
1,262
27
Despite a weaker performance in Q4FY2013, we are confident of Divis Laboratories growth potential. Its recent performance was affected by the expansion process and the switching of production to new facilities which partly disrupted supplies. The growth will bounce back on normalisation of supplies by the end of Q1FY2014. It will benefit from the rupees depreciation against major other currencies, thanks to its debt-free balance sheet and the fact that nearly 90% of its revenues come from the export market (mainly the USA and Europe). The new DSN SEZ facility at Vishakhapatnam that started in June 2011 augurs well for the company as it would improve the economies of scale and lead to tax benefits. A near debt-free balance sheet and strong cash flow are likely to help build a war chest for pursuing strategic investments and exploit the growth opportunities in niche segments, like oncology and steroids for contraceptives. The stock is currently trading at 17.7x and 15.0x estimated earnings for FY2014 and FY2015 respectively. We have a Buy recommendation on the stock with a price target of Rs1,262, which implies 19x FY2015E earnings.
HCL TECHNOLOGIES Remarks:
759
13.6
12.4
11.4
34.7
29.9
26.3
900
19
HCL Tech is an IT services company providing software-led IT solutions, remote infrastructure management services and BPO services. The company has a leading position in remote infrastructure management services which has helped it win large IT outsourcing contracts. Through the Axon PLC acquisition, the company has gained a strong SAP consulting footing. In the current environment, we believe HCL Tech is well placed in terms of its business strategy of consciously targeting the re-bid market. The results of the same are evident in its consistent outperformance in terms of volume and revenue growth. The company has allayed the apprehensions on the margin front by consistently improving its margins despite head winds. The management acknowledged the potential threat of the impending US immigration bill and expressed concern over the outplacement clause in the current form (we, therefore, hope for some dilution in the final bill). Nevertheless, among the top four IT companies, HCL Tech is relatively better placed, as around 50% of its total workforce in the USA holds the H1-L1 visa against a higher percentage of such visa holders for TCS, Infosys and Wipro. The management continues to see EBIT margin corridor of 19-20% for the coming quarter. However, with the rupee depreciating consistently, the margin could improve further, if the rupee stays at 57-58 a dollar over the coming quarters. Among the top 4 IT companies HCL Tech has shown the highest sensitivity to the rupees depreciation in terms of margin improvement in the last seven quarters. In view of its better earnings predictability compared with its peers, stable margins and sustainable momentum in the IMS vertical, we recommend a Buy on it with a price target of Rs900.
HDFC BANK Remarks:
667
23.6
19.3
15.4
20.3
20.9
22.2
712
HDFC Bank is expected to continue its strong growth in advances due to a strong presence in the retail segment. While the credit demand has moderated in the corporate segment, it remains reasonably strong in the retail segment which will benefit the bank. The bank has the highest current and savings account (CASA) ratio in the sector with a stable net interest margin (NIM; at 4.5% levels). Any reduction in the policy rates by the central bank would improve the credit demand and be positive from the margin perspective. HDFC Banks asset quality is among the best in the sector and the bank is expected to maintain the same due to its strong credit origination practices and marginal exposure to the troubled segments. Further, the higher provisions provide comfort on asset quality front. We expect HDFC Bank to deliver earnings CAGR of 23.8% over FY2013-15 leading to RoE and RoA of 22.2% and 1.8% respectively. We believe the bank will continue to command a premium over its peers due to a strong and consistent growth. We have a price target of Rs712 for the stock.
11
July 2013
EQUITY
NAME
FUNDAMENTALS
CMP (RS) PER FY14E ROE (%) FY14E
SHAREKHAN TOP PICKS

FY13
FY15E
FY13
FY15E
ICICI BANK Remarks:
1,070
14.8
13.2
11.1
13.1
13.5
14.7
1,320
23
ICICI Bank continues to report a strong growth in earnings led by a growth in advances and expansion in margins (2.9% in FY2013). We expect its advances to grow at 19.5% CAGR over FY2013-15. This should lead to an 18% CAGR growth in the net interest income (NII) in the same period. ICICI Banks asset quality has shown a turnaround as its non-performing assets (NPAs) have continued to decline over the last eleven quarters led by contraction in slippages. This has led to a sharp reduction in the provisions and an increase in the profitability. Going forward, we expect the NPAs to decline further which will lead to lower NPA provisions and hence aid the profit growth. Led by a pick-up in the business growth and an improvement in the margins, the RoE is likely to expand to 14.7% by FY2015 while the RoA is likely to improve to 1.7%. This would be driven by a 15.7% growth (CAGR) in the profit over FY2013-15. The stock trades at 1.5x FY2015E BV. Moreover, given the improvement in the profitability led by lower NPA provisions, a healthy growth in the core income and improved operating metrics, we recommend Buy with a price target of Rs1,320.
LARSEN & TOUBRO Remarks:
1,450
18.5
16.4
14.4
17.7
17.3
17.4
1,790
23
Larsen & Toubro (L&T), the largest engineering and construction company in India, is a direct beneficiary of the strong domestic infrastructure development and industrial capex boom. L&T continues to impress us with its good execution skills, reporting decent numbers throughout despite the slowdown in the industrial capex cycle. Also, we have seen order inflow traction in recent quarters which enhances the revenue visibility. Despite challenges like deferral of award decisions and stiff competition, the company has given a robust guidance of ~15% growth in the future. A sound execution track record, a healthy order book and a strong performance of its subsidiaries reinforce our faith in L&T. At the CMP, the stock is trading at 14.4x its FY2015E stand-alone earnings.
OIL INDIA Remarks:
581
9.7
9.3
8.0
19.4
18.5
19.0
650
12
Oil India Ltd (OIL) has several hydrocarbon discoveries across reserves in Rajasthan and the north-eastern region of India. The total 1P (proven) and 2P (proven and probable) reserves of the company stood at 473 million barrels (mmbbls) and 941mmbbls in March 2012. In addition to the huge oil reserves, the companys reserve-replacement ratio (RRR) is quite healthy at 1.23x, which implies a comfortable level of accretion of oil reserves through new discoveries. The recent move by the CCEA to increase gas price to $8.4/mmbtu from $4.2/mmbtu and the partial deregulation of diesel price augur well for the company. However, the company may not be able to capture the full benefit of the increase in the gas price because of a likely increase in the subsidy/royalty burden. Overall, the move is positive for the company and will provide earnings growth over the longer run. The key risks remain any adverse movement in the price of crude oil and a failure to properly utilise the huge cash. We remain bullish on OIL because its huge reserves and healthy RRR would provide a reasonably stable revenue growth outlook. Its stock is also available at an attractive valuation and is likely to see a re-rating on account of the partial deregulation of diesel prices. The fair value works out to Rs650 per share (based on the average fair value arrived at using the DCF, PE and EV/EBIDTA valuation methods).
RELIANCE INDUSTRIES Remarks:
883
13.7
13.7
11.9
10.7
9.6
10.0
1,010
14
Reliance Industries Ltd (RIL) has a strong presence in the refining, petrochemical and upstream exploration businesses. The refining division of the company is the highest contributor to the companys earnings and is operating efficiently with a better gross refining margin (GRM) compared with its peers in the domestic market due to the ability of its plant to refine more of heavier crude. However, the gas production from the Krishna-Godavari-D6 field has fallen significantly in the past one year. With the government approval for additional capex, we believe production will improve going ahead. In case of the upstream exploration business, RIL has got the nod for further investments in exploration at the Krishna-Godavari basin, which augurs well for the company and could address the issue of falling gas output. Further, the CCEA has approved a new gas pricing formula, which increases the price of gas to $8.4/mmbtu from $4.2/mmbtu and augurs well for the company. This could provide further upside to the companys earnings. The key concerns remain in terms of a lower than expected GRM, profitability of the petrochemical division and the companys inability to address the issue of falling gas output in the near term. At the CMP the stock is trading at a PE of 11.9x its FY2015E EPS.
July 2013
12
SHAREKHAN TOP PICKS

NAME CMP (RS) PER FY14E ROE (%) FY14E
EQUITY
FUNDAMENTALS
FY13
FY15E
FY13
FY15E
SBI Remarks:
2,015
9.8
9.2
7.8
15.4
14.3
15.0
2,450
22
SBI stands to benefit the most from an economic recovery, which will boost the growth in its advances and improve its asset quality. The banks operational performance has improved led by a strong focus on the NIM, asset quality etc. The NIM came off in Q4FY2013 (due to an expansion in the low-risk segments) but remained at healthy levels (3.34%). The proportion of the low-cost deposits (CASA ratio at 46.5%) is among the highest in the sector and remains the key strength of the bank. Given the strong presences across the length and breadth of the country (14,816 branches) we expect the bank to maintain its strong liability base which will support its margins. The bank has recognised its asset quality problems upfront compared with the other banks and has resorted to limited restructuring. Therefore, we believe the asset quality pressures will come off in the coming quarters which will boost its earnings. The capital adequacy ratio (CAR) of the bank is healthy (tier-I CAR at 9.5%) and will support the growth in the business. The bank is expected to maintain its RoE and RoA at 15.0% and 0.9% respectively in FY2015. We have a positive outlook on SBI with a price target of Rs2,450.
SUN PHARMA Remarks:
1,004
34.5
28.9
23.3
25.4
22.5
22.3
1,120
12
The combination of Sun Pharma, Taro Pharma, Dusa Pharma and the generic business of URL Pharma offers an excellent business model for Sun Pharma, as has been reflected in the 40% Y-o-Y revenue growth and 39% Y-o-Y profit growth in FY2013. Though a $550-million provision related to Protonix case would erode the cash balance by 55% in FY2014, but we believe Sun Pharma is in a comfortable cash position. The rupees depreciation against the dollar is set to positively affect Sun Pharma. Though Taro Pharma may not show a similar performance in the next quarter, but we expect a better performance from Sun Pharma going forward mainly driven by (1) the resumption of sales from the US-based subsidiary, Caraco Pharma, post-USFDA clearance; (2) the contribution from the newly acquired Dusa Pharma and URL Pharma in the USA; and (3) the launch of key products in the USA and the emerging markets including India. We expect 18% and 21% revenue and PAT growth (CAGR) respectively over FY2012-15 on an organic basis. With a strong cash balance, Sun Pharma is well positioned to capitalise on the growth opportunities and inorganic initiatives. Its debt-free balance sheet insulates it from the negative impact of the volatility in the currency market. At the CMP, Sun Pharma is trading at 28.9x and 23.3x FY2014E EPS and FY2015E EPS respectively. We maintain our Buy recommendation on the stock, with a price target of Rs1,120, which implies 26x FY2015E EPS.
ZEE ENTERTAINMENT Remarks:
247
33.4
29.8
23.3
19.5
19.3
21.4
280
13
Among the key stakeholders of the domestic TV industry, we expect the broadcasters to be the prime beneficiary of the mandatory digitisation process initiated by the government. The broadcasters would benefit from higher subscription revenues at the least incremental capex as the subscriber declaration improves in the cable industry. On completion of 20 years of operations, ZEEL has issued redeemable preference shares (RPS) aggregating Rs2,000 crore (6% preference dividend) for eight years. The RPS will be issued at a ratio of 21 RPSs for every equity share. The RPS will be redeemable from the fourth year till the eighth year. ZEELs management acknowledged that the recent TRAI recommendation of capping the advertisement time at 12 minutes per hour would have an adverse impact on its advertisement volume. The company will take adequate hikes in the advertisement rates in order to negate the impact of reduced volumes. Thus, we expect a very minimal impact on the blended advertisement growth in FY2014 and FY2015. We believe ZEEL will be the major beneficiary of the digitisation process in the years to come which coupled with a strong balance sheet and high return ratios makes it a compelling long-term growth story. We maintain our Buy rating on ZEEL with a price target of Rs280.
13
July 2013
STOCK UPDATE
EQUITY
FUNDAMENTALS
EROS INTERNATIONAL MEDIA

BUY
COMPANY DETAILS
Price target: Market cap: 52 week high/low: NSE volume (no. of shares): BSE code: NSE code: Sharekhan code: Free float (no. of shares): Rs240 Rs1,498 cr Rs235/153 2.9 lakh 533261 EROSMEDIA EROSMEDIA 2.3 cr
CMP: RS163 JUNE 3, 2013 Price target reduced to Rs240

RESULT HIGHLIGHTS
Ahead of expectations: In Q4FY2013 Eros International Media Ltd (EIML)s performance was ahead of our expectations, with a better than expected growth in both the top line and the bottom line on a Y-o-Y basis. The consolidated revenues rose by 2.6% YoY to Rs212.3 crore (ahead of our expectation of Rs169 crore). In Q4FY2013, the EBITDA margin (including amortisation) of the company stood at 19.6%, up 310 basis points YoY (but lower than our estimate of 22.6%). The management expects the margin to improve in FY2014 on account of an improvement in the monetisation of TV syndications and big movie releases. On the back of a better than estimated top line performance, the net income of the company grew by 7% YoY to Rs31.8 crore in Q4FY2013. In FY2013 the net income rose by 5% YoY to Rs154.6 crore. Valuation: In view of the fact that the company has gone slow on acquisitions of Super A category movies, we have reduced our earnings estimates for FY2015 by 7% and kept our estimate for FY2014 intact. Consequently, we have reduced our price target for the company to Rs240. We expect EIMLs earnings to grow at a CAGR of 17% over FY201315. At the current market price of Rs163 the stock trades at 8.4x and 7x FY2014E and FY2015E earnings respectively. We maintain our Buy rating on the stock with a revised price target of Rs240.
SHAREHOLDING PATTERN
Public & Others 7% Foreign 10% Institutions 3% Non-promoter corporate 6% Promoters 74%
PRICE PERFORMANCE
(%) Absolute Relative to Sensex 1m -6.2 -7.9 3m -6.5 -11.4 6m -22.8 -25.1 12m 0.6 -19.0
Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a postition in the companies mentioned in the article.
GATEWAY DISTRIPARKS
BUY
COMPANY DETAILS
Price target: Market cap: 52 week high/low: NSE volume (no. of shares): BSE code: NSE code: Sharekhan code: Free float (no. of shares): Rs163 Rs1,202 cr Rs150/110 99,048 532622 GDL GDL 6.4 cr
CMP: RS110 JUNE 18, 2013 Norwest Venture Partners to invest in Snowman Logistics
Norwest Venture Partners to invest Rs60 crore in Snowman Logistics; GDL to remain promoter: Gateway Distriparks Ltd (GDL) and its subsidiary, Snowman Logistics Ltd (SLL), have today executed a share subscription agreement with Norwest Venture Partners (NVP), pursuant to which NVP will invest Rs60 crore (1.7 crore shares at Rs35/share) in SLL by subscribing to SLLs equity shares. Along with it GDL will acquire 5% shareholding in SLL from IFC for a total consideration of Rs18 crore (GDLs acquisition at Rs35/share). Following the completion of GDLs acquisition and NVPs investment, NVP will hold 14.3% stake in SLL. The shareholding of GDL will come down from 53% to close to 51%. Valuation at 16x FY2013 EBITDApremium for growth: The price paid for the above two transactions at Rs35 per share values SLL at Rs420 crore, which is at a multiple of 16x FY2013 EBITDA. The higher valuation is owing to SLLs robust growth trajectory in the near future. Volume and realisation to improve return ratios: The company recently opened 5,500 pellets in Kolkata and is expected to augment new capacities in Chandigarh and Surat in a few weeks. The company has a return on equity of 10% currently, which is slated to increase to 16% over the next two years. We believe an increase in the capacities along with a higher realisation will lead to better return ratios. Outlook and valuation: We maintain our Buy recommendation on GDL with a price target of Rs163.
FII 26% Promoters 41%
Public & others 16%
Institutions 17%
PRICE PERFORMANCE
(%) Absolute Relative to Sensex 1m -9.4 -5.5 3m -7.4 -7.6 6m -14.6 -15.8 12m -12.9 -24.9
July 2013
14
EQUITY
FUNDAMENTALS
STOCK UPDATE
GODREJ CONSUMER PRODUCTS

HOLD
COMPANY DETAILS
Price target: Market cap: 52 week high/low: NSE volume (no. of shares): BSE code: NSE code: Sharekhan code: Free float (no. of shares): Rs845 Rs26,169 cr Rs936/550 1.8 lakh 532424 GODREJCP GODREJCP 12.4 cr
CMP: RS761 JUNE 20, 2013 Management interaction note

KEY POINTS
Maintain steady growth in the domestic market: With no signs of slowdown in the key categories in the domestic market, GCPL expects to achieve a steady revenue growth in the stand-alone business in the coming quarters. We expect GCPLs revenues at the stand-alone level to grow by around 20% in FY2014. Lower raw material prices to aid profitability: The company would benefit from the decline in the key input prices as it will help in improving the GPM in the coming quarters. However, if the rupee remains weak against the dollar and there are purchases of key inputs in dollar terms in the coming quarters, it would negate the impact of the softening of the commodity prices to some extent. International business likely to see margin improvement on Y-o-Y basis: The management believes the margin picture should improve in FY2014. The Indonesian business is expected to remain in the range of 18-20% in the coming quarters. We expect the Latin American margin to improve to high single digits in FY2014. The African business is expected to see a gradual improvement in the coming quarters. Overall, we believe the international business would see a Y-o-Y improvement in the OPM in FY2014. Outlook and valuation: We like GCPL on account of its strong focus on driving growth in the domestic and international markets by keeping the balance sheet lean to drive future inorganic growth initiatives. We believe the company has a strong potential to achieve top line and bottom line growth of above 20% (CAGR) over the next two years. At the current market price, the stock is trading at 30.0x its FY2014E EPS of Rs25.7 and 23.7x its FY2015E EPS of Rs32.5. We maintain our Hold recommendation on the stock with a price target of Rs845.
Others 8% Foreign & Institutions 28%
Promoters 64%
PRICE PERFORMANCE
(%) Absolute Relative to Sensex 1m -9.1 -4.8 3m 6.5 4.4 6m 9.0 9.3 12m 43.3 23.4
HCL TECHNOLOGIES
BUY
COMPANY DETAILS
Price target: Market cap: 52 week high/low: NSE volume (no. of shares): BSE code: NSE code: Sharekhan code: Free float (no. of shares): Rs900 Rs54,228 cr Rs809/454 15.3 lakh 532281 HCLTECH HCLTECH 26.5 cr
CMP: RS779
JUNE 18, 2013
Upgraded to Buy with increased price target of Rs900

We recently interacted with Sanjay Mendiratta, head-Investor relations, HCL Technologies (HCL Tech), to gain an insight into the current state of the companys business as well as the concerns over and the impact of the impending US immigration bill. HCL Tech is now participating in and getting invited to big-ticket deals of size in the $400-500-million range. The infrastructure management services (IMS) vertical will continue to drive the incremental growth going ahead, On the margin side, the management continues to see EBIT margin corridor of 19-20% for the coming quarter. It acknowledged the potential threat of the impending US immigration bill and expressed concern over the outplacement clause in the current form (we hope for some dilution in the final bill). Nevertheless, among the top four IT companies, HCL Tech is relatively better placed, as around 50% of its total workforce in the USA holds an H1-L1 visa against a higher percentage of H1-L1 visa holders in Tata Consultancy Services, Infosys and Wipro. Valuation: We see further upgrades driven by the higher sensitivity of HCL Techs EBIT margin to the rupees depreciation. At the current market price of Rs779, the stock trades at 12.7x and 11.7x earnings for FY2014E and FY2015E, though we currently maintain our estimates (we will revisit our estimates after the announcement of the Q4FY2013 results). We expect a potential earnings upside post-currency reset. Hence, we have upgraded our rating on HCL Tech from Hold to Buy with an increased price target of Rs900 per share.
Public & Others 3%
Foreign 26% Institutions 7%
Promoters 61%
Non-promoter corporate 3%
PRICE PERFORMANCE
(%) Absolute Relative to Sensex 1m 7.8 12.5 3m -1.7 -1.9 6m 23.3 21.7 12m 62.2 39.8
15
July 2013
STOCK UPDATE
EQUITY
FUNDAMENTALS
HINDUSTAN UNILEVER
HOLD
COMPANY DETAILS
Price target: Market cap: 52 week high/low: NSE volume (no. of shares): BSE code: NSE code: Sharekhan code: Free float (no. of shares): Rs600 Rs127,069 cr Rs598/432 26.0 lakh 500696 HINDUNILVR HINDUNILVR 102.8 cr
CMP: RS588
KEY POINTS
JUNE 25, 2013
Book some profits, hold from long-term perspective

Unilevers $5.4-billion open offer commences: Unilever PLCs voluntary open offer to acquire 48.7 crore shares of HUL at a price of Rs606 per share commenced on June 21, 2013 and will end on July 4, 2013. With this, Unilever is planning to increase its stake in HUL to 75% from 52.48% currently. Advise investors to partially book profits: After the announcement of the open offer, the stock price had a strong run-up and is currently trading at ~32x its FY2015E earnings. Hence, we advise investors to take home some profits at the current level. From the tax perspective, it is advisable to sell the share in the open market rather than tendering to the open offer. Hold for the long term: Though there is a near-term concern over the moderating volume growth, but we believe the long-term growth story of HUL is intact. Further, after the open offer there will be some reduction in the free float, thus the supply constraints will keep the long-term investors interest in the company intact and the company will hold onto its premium valuation. Also, the anecdotal evidence suggests that a front-line company with lesser free float has always traded at premium valuations. The stock price of GSK Consumers had moved up significantly by almost 50% after the closure of its open offer. Hence, looking at the long-term potential of HUL with superior management bandwidth, we maintain our Hold rating on the stock from a long-term perspective. At the current market price, the stock trades at 35.1x its FY2014E EPS of Rs16.6 and 31.8x its FY2015E EPS of Rs18.4.
Others 17% Promoters 53%
FIIs 22% Domestic Institutions 8%
PRICE PERFORMANCE
(%) Absolute Relative to Sensex 1m -0.4 5.3 3m 27.2 27.7 6m 9.8 13.1 12m 31.0 18.0
ICICI BANK
BUY
COMPANY DETAILS
Price target: Market cap: 52 week high/low: NSE volume (no. of shares): BSE code: NSE code: Sharekhan code: Free float (no. of shares): Rs1,320 Rs124,246 cr Rs1,237/808 29.7 lakh 532174 ICICIBANK ICICIBANK 115.4 cr
CMP: RS1,076 JUNE 11, 2013 Annual report review

KEY POINTS
Going strong: ICICI Banks annual report for FY2013 highlights the structural initiatives driving the improvement in the banks profitability and asset quality. As per the report, unsecured lending has come down significantly though the shortfall in PSL has increased. We expect the banks earnings to grow at a CAGR of 15.7% (over FY2013-15) leading to the expansion in the RoE to 14.7% by FY2015. We maintain our Buy rating on the stock with an SOTP based price target of Rs1,320. Proportion of unsecured loans dips to 14% from 21% in FY2011: During FY2013, the proportion of the banks unsecured loan book declined to 14.1% from 15.1% in FY2012 and 21.1% in FY2011. The advances to the sensitive sectors grew by 13.7% YoY compared with the 14.4% growth in the overall book. The growth in the real estate book was driven by residential mortgages. Improvement in asset quality continues: The asset quality of the bank improved in FY2013 as the gross non-performing assets (NPAs) from the retail segment declined significantly during the fiscal. However, the NPAs have slightly increased in sectors like services, iron & steel and construction.
Public & others 38%
Foreign 38%
MF & FI 24%
PRICE PERFORMANCE
(%) Absolute Relative to Sensex 1m -2.5 0.3 3m -0.2 0.3 6m 1.4 0.3 12m 37.1 15.7
Valuations: We expect the banks earnings to grow at a CAGR of 15.7 % YoY over F2013-15 leading to an RoE of 14.7% by FY2015. Currently, the stock is trading at 1.6x FY2015E book value. We maintain our Buy rating on the stock with an SOTPbased price target of Rs1,320.
July 2013
16
EQUITY
FUNDAMENTALS
STOCK UPDATE
IL&FS TRANSPORTATION NETWORKS

BUY
COMPANY DETAILS
Price target: Market cap: 52 week high/low: NSE volume (no. of shares): BSE code: NSE code: Sharekhan code: Free float (no. of shares): Rs302 Rs3,400 cr Rs227/157 65,352 533177 IL&FSTRANS IL&FSTRANS 5.4 cr
CMP: RS175 JUNE 14, 2013 Environment ministry clears 3 road projects
KEY POINTS
Receives nod to commence work on 3 road projects: IL&FS Transportation Networks Ltd (ITNL) has informed the Bombay Stock Exchange that concession agreements have been signed with the concerned authorities for the following projects: 1. The Kiratpur-Ner Chowk section of National Highway (NH)21 of 90.175km in Punjab and Himachal Pradesh 2. The Beawar-Gomti section of NH8 of 88km of the total 116km (capacity augmentation) in Rajasthan 3. The Sikar-Bikaner section of NH11 of 237.57km in Rajasthan The commencement of work on the aforesaid projects was pending receipt of clearance from the forest department. Moreover, the Forest Advisory Committee of the environment & forest ministry at a meeting held on June 10, 2013 cleared the proposal to commence work on all the aforesaid projects. The development is positive for ITNL. Outlook: We are confident of ITNLs ability to achieve faster clearances for its road projects and a financial closure thereafter. Considering the strong order backlog, an expected pickup in project execution and a healthy new project award pipeline of National Highways Authority of India (NHAI), we remain positive on ITNLs financial performance going ahead. Moreover, we expect ITNL to be among the key gainers of the easing of competitive pressure in the large NHAI projects. We maintain our SOTP based price target of Rs302 and Buy rating on the stock.
FII 4% Institutions 4% Public & others 20% Promoters 72%
PRICE PERFORMANCE
(%) Absolute Relative to Sensex 1m 0.7 4.7 3m -12.1 -10.3 6m -14.3 -13.3 12m -6.0 -17.1
IPCA LABORATORIES
HOLD
COMPANY DETAILS
Price target: Market cap: 52 week high/low: NSE volume (no. of shares): BSE code: NSE code: Sharekhan code: Free float (no. of shares): Rs675 Rs8,533 cr Rs701/339 1.6 lakh 524494 IPCALAB IPCALAB 6.8 cr
CMP: RS648 JUNE 24, 2013 Price target revised to Rs675

KEY POINTS
Marginal impact of DPCO 2013 for Ipca: As per notifications issued recently under Drug price Control Order (DPCO) 2013 prescribing the ceiling price for 150 drugs, we believe the incremental impact for Ipca Laboratories (Ipca) under the new drug pricing policy would be virtually neutralised, as price erosion in some of products would be materially compensated by the scope to increase the price of the other products. However, a slow offtake by traders and stockists would hamper sales in the domestic market for the next two to three months. The domestic formulation business contributes nearly 32% of the net revenues of Ipca. Depreciating rupee to benefit exports: Exports constitute nearly 63% of the net revenues of Ipca and the company has a practice to cover 30-40% of receivables through forward contracts. Besides, the uncovered portion of exports is also naturally hedged partly by way of raw material imports, which constitute nearly 28% of the exports. However, as the company has nearly $70 million of foreign debts outstanding and $17 million of the same is payable in FY2014, forex loss is bound to accrue; though the same would be materially compensated by the gains on exports. We upgrade price target to Rs675 on roll-over of valuation: Owing to a better visibility of its earnings, we have rolled over our valuation to the earnings estimate for FY2015 (from 14x average earnings of FY2014 and FY2015). Accordingly, our price target stands revised up by 10% to Rs675 (14x FY2015E earnings per share). However, we maintain our Hold rating on the stock.
Public and others 11% Non-promoter corporate 6% Institutions 16%
Promoters 46%
Foreign 21%
PRICE PERFORMANCE
(%) Absolute Relative to Sensex 1m 14.9 22.4 3m 30.3 29.5 6m 38.8 41.0 12m 99.4 77.8
17
July 2013
STOCK UPDATE
EQUITY
FUNDAMENTALS
MAHINDRA & MAHINDRA

BUY
COMPANY DETAILS
Price target: Market cap: 52 week high/low: NSE volume (no. of shares): BSE code: NSE code: Sharekhan code: Free float (no. of shares): Rs1,129 Rs60,747 cr Rs1026/675 11.5 lakh 500520 M&M M&M 45.9 cr
CMP: RS989
JUNE 17, 2013
M&M to consolidate automotive component business

Mahindra Systech to consolidate auto component business: Mahindra and Mahindra (M&M) entered into an agreement with CIE Automotive (CIE) to form a consolidated company that would merge the automotive (auto) component business of M&M (held under the Systech Group, which contains five companies [Mahindra Forgings, Mahindra Ugine Steel, Mahindra Composites, Mahindra Hinoday and Mahindra Gears]), and the forging business of CIE in Spain and Lithuania. The business would be merged under Mahindra Forging, which would be rechristened as Mahindra CIE. M&M would hold a 20% stake in Mahindra CIE while CIE would hold about 51% of the merged entity. Mahindra to sell stake in Systech business; to pick up 13.5% stake in CIE: As part of the agreement, M&M would sell its stake in Mahindra Forgings (52.65% stake for Rs393.08 crore), Mahindra Hinoday (64.96% stake for Rs268.96 crore) and Mahindra Composites (30.38% stake for Rs10.01crore). Also, M&M would invest Rs340 crore (paid on account of acquiring other partners stake in Mahindra Ugine Steel), which would form the consideration for the deal. M&M would invest Rs740 crore to get a stake of 13.5% in CIE. It would invest the sum at price of Euro 6 a share as against the current price of Euro 5.57 a share. Valuation: Mahindra CIE would emerge as a strong alliance in the auto component space. With complementary product segments and markets, the deal is a win-win situation for M&M and CIE. We are maintaining our stand-alone estimate for M&M. We have marginally increased our price target accounting for additional investment in CIE (valued at the investment cost). Our price target stands revised at Rs1,129 per share. We maintain our Buy recommendation on the stock.
Public & Others 14% Bodies corporate 7% Promoters 25%
Foreign 38%
Institutions 16%
PRICE PERFORMANCE
(%) Absolute Relative to Sensex 1m -3.4 0.5 3m 1.5 3.6 6m -0.3 0.9 12m 37.5 21.2
PERSISTENT SYSTEMS
BUY
COMPANY DETAILS
Price target: Market cap: 52 week high/low: NSE volume (no. of shares): BSE code: NSE code: Sharekhan code: Free float (no. of shares): Rs600 Rs2,024 cr Rs590/343 50,957 533179 PERSISTENT PERSISTENT 2.4 cr
CMP: RS506 JUNE 17, 2013 Upgraded to Buy

We recently interacted with Rohit Kamat, chief financial officer of Persistent Systems Ltd (PSL), to discuss the current state of the business and concerns around the US immigration bill. Overall, the management expects H2FY2014 to be better than H1FY2014 on account of revenue acceleration from the HP Client Automation (HPCA) deal (IP-led revenues). The EBITDA margin is expected to decline sequentially in Q1FY2014 (in line with the earlier commentary) on account of an onsite wage hike (2%) and visa costs (approximately $1 million) coupled with initial knowledge transfer cost of HPCA. The depreciation in the rupee is unlikely to negate the margin head winds in the current quarter as the currency benefits were only for one month (June 2013). On the impending US immigration bill, the management expects a potential negative impact of 100-150 basis points on the margin in FY2015 (PSL will be relatively less affected by the impending bill among the Indian IT companies). Valuation: We maintain our positive stance on PSLs business model. Further, given its highest offshore revenues among the Indian IT companies, there will be materially lower impact on the margin from the impending US immigration bill. At the current market price of Rs506, the stock trades at 9.7x and 8.5x earnings estimates for FY2014 and FY2015 (based on USD/INR of Rs54 and Rs53.5 respectively). Given the room for potential upgrades from the consistent depreciation in the rupee coupled with the recent correction in the stock (it has corrected 12% in the last three months), we have upgraded our rating on PSL to Buy from Hold with a price target of Rs600.
Public & Others 24% Foreign 18% Institutions 17% Promoters 39% Non-promoter corporate 2%
PRICE PERFORMANCE
(%) Absolute Relative to Sensex 1m -6.1 -2.4 3m -12.5 -10.7 6m 3.0 4.2 12m 44.9 27.7
July 2013
18
EQUITY
FUNDAMENTALS
STOCK UPDATE
PRATIBHA INDUSTRIES
BUY
COMPANY DETAILS
Price target: Market cap: 52 week high/low: NSE volume (no. of shares): BSE code: NSE code: Sharekhan code: Free float (no. of shares): Rs65 Rs364 cr Rs59/36 84,331 532718 PRATIBHA PRATIBHA 4.9 cr
CMP: RS36 JUNE 4, 2013 Muted execution and higher interest expenditure dent earnings
RESULT HIGHLIGHTS
Muted revenue growth of 5% due to lower project execution: In Q4FY2013 the consolidated revenues of Pratibha Industries Ltd (PIL) saw a muted growth of 5% YoY to Rs541 crore, which was much lower than our expectation. The subdued growth was led by a lower execution across the projects. Margin contracts by 87 basis points: The OPM contracted by 87 basis points YoY to 12.7% vs 13.6% in Q4FY2012 (75 basis points higher than expected). An increase of 438 basis points YoY and 208 basis points YoY in the other expenditure and employee expenses respectively eroded the margin. Muted earnings growth led by higher interest expenses: The reported net profit during the quarter stood at Rs18.3 crore (lower than our expectation), registering a decline of 32.3% YoY. The interest expenses for the quarter increased by 70% YoY to Rs46.6 crore while the effective tax rate stood at 30.1% (as against 27.4% in Q4FY2012), which led to a decline in the profit after tax.
FII 16% Institutions 6% Public & others 27%
Promoters 51%
PRICE PERFORMANCE
Valuation: Maintain Buy with a price target of Rs65: We continue to like PIL given its presence in the high-margin water segment, well-diversified order book and better than industry OPM. The stock currently trades at 3.6x and 2.7x its FY2014E and FY2015E earnings respectively. Hence, we maintain our Buy recommendation on the stock with a price target of Rs65.
RAYMOND
BUY
COMPANY DETAILS
Price target: Market cap: 52 week high/low: NSE volume (no. of shares): BSE code: NSE code: Sharekhan code: Free float (no. of shares): Rs477 Rs1,670 cr Rs489/245 4.5 lakh 500330 RAYMOND RAYMOND 3.6 cr
CMP: RS271 JUNE 19, 2013 Annual report review

KEY POINTS
Disappointing performance; inventory overhang and one-offs mar profitability during the year: In FY2013, Raymonds consolidated revenues grew by 11.7% YoY to Rs4,069.16 crore on account of a decent growth in all its segments especially the garment and tools & hardware segments. The operating performance, however, was dented by inventory overhang issues. Consequently, the OPM declined by about 330 basis points YoY to 9.1% in FY2013. The weak operating performance coupled with exceptional expenses caused the companys reported PAT to decline by 81.6% YoY to Rs28.7 crore. Efficient working capital management results in improved cash flow: The companys efforts to liquidate inventory bore fruits in the form of improved cash flow and operating cash cycle even though the same pressurised the margin and profitability. The operating cash cycle improved to 104 days from 114 days in FY2012. Business outlook: Going forward, the management expects the FY2014 performance to be better than the FY2013 one, largely owing to two key reasons: (a) strong cost management and inventory rationalisation process will bear fruits, and (b) the revival of consumer discretionary demand will drive the volumes and hence the growth. Maintain our positive stance: We believe Raymonds efforts towards cost rationalisation through supply chain initiatives, inventory liquidation and a favourable consumer demand are likely to result in better margins going forward. The company enjoys strong brand equity and we expect it to report better profitability in FY2014. We maintain our positive stance on the stock. Currently, we have a Buy rating on Raymond with a price target of Rs477.
Public & Others 21% Foreign 14% Institutions 16%
Promoters 42%
PRICE PERFORMANCE
19
July 2013
STOCK UPDATE
EQUITY
FUNDAMENTALS
RELIANCE INDUSTRIES
BUY
COMPANY DETAILS
Price target: Market cap: 52 week high/low: NSE volume (no. of shares): BSE code: NSE code: Sharekhan code: Free float (no. of shares): Rs1,010 Rs263,228 cr Rs955/704 31.5 lakh 500325 RELIANCE RELIANCE 179.6 cr
CMP:RS799 JUNE 20, 2013 Refining margin to correct; petchem margin to improve in the quarter coming ahead
KEY POINTS
Singapore complex GRM corrected in April-June 2013: The Singapore complex GRM corrected in the past couple of months by around $1.5-2/barrel on account of weakness in the product cracks, particularly gasoil (16%) and gasoline (~19%), compared with the average crack for Q4FY2013. Reliance Industries Ltd (RIL) reported an impressive GRM of $10.1/barrel during Q4FY2013 but looking at the recent correction in the product cracks, we believe the company is expected to post a decline in the GRM in Q1FY2014 QoQ. However, the average GRM for Q1FY2014 is expected to remain higher YoY. Petchem margin to improve with increase in product prices and decline in feedstock: On the positive side, the petrochemical (petchem) business is expected to witness an expansion in the margin. The expansion in the margin is on account of lower feedstock prices and an increase in the prices of most of the end products. During Q4FY2013, the company posted an EBIT margin of 8.6%, which we believe will improve in Q1FY2014 on account of a recent increase in the margin of most of the products and lower feedstock prices. Outlook: Given the recent correction in the GRM, we believe the near-term environment for its refining business remains challenging. However, a recent improvement in its petchem margin, a healthy ramp-up in the US shale gas and a likely revision in the prices of gas from March 2014 are providing visibility of earnings growth going ahead. Further, any approval for further development of the KG-D6 block could be positive for RIL. Hence, we maintain our Buy recommendation on the stock with a price target of Rs1,010.
Others 21% Bodies Corporate 5% Promoters 45%
Institutions 29%
PRICE PERFORMANCE
(%) Absolute Relative to Sensex 1m -0.5 4.3 3m 1.9 -0.1 6m 0.2 0.5 12m 14.0 -1.8
SELAN EXPLORATION TECHNOLOGY

BUY
COMPANY DETAILS
Price target: Market cap: 52 week high/low: NSE volume (no. of shares): BSE code: NSE code: Sharekhan code: Free float (no. of shares): Rs365 Rs450 cr Rs350/211 16,565 530075 SELAN SELAN 1.0 cr
CMP: RS265
RESULT HIGHLIGHTS
JUNE 10, 2013
Budget for development activities approved; retain Buy

The quarterly performance remained subdued...: In Q4FY2013, the net revenues (adjusted for the petroleum profit) of Selan Exploration Technology (Selan) declined by 12-13% YoY due to lower both volume and realisation. We believe a delay in obtaining the regulatory approval for developing its wells resulted in the subdued production. The adjusted PAT stood at Rs8.2 crore in Q4FY2013, down 14% and 32% YoY and QoQ respectively due to a higher tax outgo. ...but received approval for development activities: During Q3FY2013, the company had received approvals from the Directorate General of Hydrocarbons (DGH) for developing five wells. Recently, during May 2013 the company received the approval for the proposed FY2014 budget (worth Rs57 crore) for development activities in three (Lohar, Indrora and Karjisan) fields. The approvals would be helpful for the company to lift the production in future. We believe that after two years there are positive developments on the approval side which would be a key driver of growth for the company; therefore, we remain positive on Selan.
6m -9.9 12m 1.5 -14.6
Promoters 42.2% Others 57.6% Foreign 0.1% Institutions 0.2%
PRICE PERFORMANCE
(%) Absolute Relative to Sensex 1m 7.5 9.4 3m -3.1 -3.8
-10.7
View and valuationretain Buy recommendation: The company is expected to receive the approval for the proposed budget for developing five wells in Q1FY2014. We expect the development work to progress soon and the incremental production to reflect in future. However, it depends on the execution ability of the company. Hence, we remain positive on the stock with a Buy recommendation on the stock with a price target of Rs365 (3.5x EV/EBITDA FY2015E).
July 2013
20
EQUITY
FUNDAMENTALS
STOCK UPDATE
STATE BANK OF INDIA

JUNE 25, 2013
COMPANY DETAILS
Price target: Market cap: 52 week high/low: NSE volume (no. of shares): BSE code: NSE code: Sharekhan code: Free float (no. of shares): Rs2,450 Rs130,975 cr Rs2,550/1,816 20.0 lakh 500112 SBIN SBIN 25.8 cr
CMP: RS1,915
BUY
Annual report review - Price target revised to Rs2,450

The annual report of State Bank of India (SBI) points to stress on margin due to an increase in the term deposits and the banks focus on derisking the loan book. We expect the asset quality pressures to persist for the next few quarters due to a rise in the restructured loans and a recovery in the economy will be the key to a decline in the NPAs. We have revised our estimates downwards leading to a revision in our SOTP based price target to Rs2,450. We maintain Buy rating on the stock.
KEY POINTS
Margin likely to decline: SBIs reported NIM (global) declined to 3.34% in FY2013, largely driven by a decline in the yields on advances. During FY2013, the deposit accretion was largely towards the longer tenure; hence, the cost of funds may remain sticky. In addition, the bank is likely to focus on derisking the book while pressure on the lending rates remains which will affect the NIM in FY2014.
Public & others 11% MF & FI 16% Foreign 11% Promoter 62%
PRICE PERFORMANCE
Proportion of secured advances rises to 82.6%: SBIs proportion of secured advances has gradually risen from 78.5% in FY2010 to 82.6% in FY2013. About 87% of the banks large corporate book was within the investment grade. However, the advances to the sensitive sectors grew by 28.7% YoY. Asset quality pressure remains: The banks gross and net NPAs increased from FY2012 levels led by a sharp rise in the slippages. The restructured loans expanded sharply led by an economic slowdown and rising stress across sectors. Going ahead, given the rising pipeline of restructured loans and corporate debt restructuring cases, the pressure on the banks asset quality may remain.
SUN PHARMACEUTICAL INDUSTRIES

BUY
COMPANY DETAILS
Price target: Market cap: 52 week high/low: NSE volume (no. of shares): BSE code: NSE code: Sharekhan code: Free float (no. of shares): Rs1,120 Rs101,592 cr Rs1,085/575 9.6 lakh 524715 SUNPHARMA SUNPHARMA 37.6 cr
CMP: RS949 JUNE 13, 2013 Upgraded to Buy post-correction with revised price target of Rs1,120
KEY POINTS
Sun Pharma to pay $550 million to settle patent litigation case on Protonix: Sun Pharmaceutical Industries (Sun Pharma) together with its subsidiaries has settled an ongoing litigation pending in the United States District Court, District of New Jersey regarding its subsidiarys generic pantoprazole (reference brand Protonix). As per the agreement, Sun Pharma, Wyeth (now a division of Pfizer Inc.) and Altana Pharma AG (Altana; now known as Takeda GmbH) have dismissed all their claims. Sun Pharma will pay a lump sum $550 million as a part of this settlement. The company had launched generic pantaprazole in January 30, 2008 at risk pending patent infringement litigation by Wyeth and Altana. Cash balance to shrink by nearly 55%; constraints for big acquisitions: Though Sun Pharma would be comfortably able to pay the settlement amount of Rs3,190 crore, but we estimate the consolidated cash balance (excluding cash on the book of Taro Pharmaceutical Industries) would reduce by 55%. We estimate the other income would reduce by 37% YoY to Rs235 crore in FY2014. As a result, our EPS estimates for FY2014 and FY2015 get reduced by 5.6% and 2.7% respectively. A major overhang removed; stock upgraded to Buy with revised price target of Rs1,120: We believe a major overhang will disappear for Sun Pharma, limiting the downside for the stock. We have marginally reduced our price target for Sun Pharma by 2.7% to Rs1,120 (which implies 26x FY2015E EPS). However, a deep correction in the price comforts us to upgrade the rating on the stock to Buy.
Non-promoter corporate 5% Public and others Institutions 5% 3% Foreign 23% Promoters 64%
PRICE PERFORMANCE
(%) Absolute Relative to Sensex 1m 2.9 8.0 3m 18.5 21.0 6m 35.1 36.2 12m 70.2 48.3
21
July 2013
STOCK UPDATE
EQUITY
FUNDAMENTALS
TATA CONSULTANCY SERVICES

BUY
COMPANY DETAILS
Price target: Market cap: 52 week high/low: NSE volume (no. of shares): BSE code: NSE code: Sharekhan code: Free float (no. of shares): Rs1,650 Rs287,320 cr Rs1,598/1,176 14.1 lakh 532540 TCS TCS 51.0 cr
CMP: RS1,468 JUNE 12, 2013 TCS reiterates FY2014 will be better than FY2013
We recently attended the pre-quarter analyst meet of Tata Consultancy Services (TCS). The management maintained its positive stance on the demand environment and reiterated that FY2014 would be better than FY2013. The incremental growth would be led by an uptick in the revenues of the BFSI vertical (43.5% of total revenues) and the improving traction in the new deals coupled with the revenues from the ALTI acquisition (the financials would be consolidated by Q2FY2014E). The management expects the margins to gain from the rupees depreciation. However, it indicated that it would continue to invest in the selling, general and administrative activities to strengthen the companys growth engine. On the flip side, the management acknowledged the potential structural negative of the US immigration bill, specifically the outplacement clause.
Public & Others 4% Foreign 16% Institutions 5%
Valuation
At the current market price of Rs1,468, the stock trades at 18x and 16x FY2014E and FY2015E earnings. Currently, our earnings estimates for FY2014 and FY2015 stand at Rs81.6 and Rs90.4 based on the dollar/rupee exchange rate of Rs54.5 and Rs53.5 respectively. Given the consistency in the rupees depreciation vis--vis the dollar, there is also a likelihood of further upgrade in the earning estimates for TCS in particular and the IT sector in general. However, the impending US immigration bill will continue to be an overhang on the sector. We maintain our Buy rating on the stock with a price target of Rs1,650.
Promoters 75%
PRICE PERFORMANCE
(%) Absolute Relative to Sensex 1m 1.7 6.1 3m -3.3 -1.4 6m 24.5 25.0 12m 23.7 5.9
UNITED PHOSPHORUS
BUY
COMPANY DETAILS
Price target: Market cap: 52 week high/low: NSE volume (no. of shares): BSE code: NSE code: Sharekhan code: Free float (no. of shares): Rs180 Rs6,281 cr Rs171/105 15.7 lakh 512070 UNITEDPHOS UNITEDPHOS 32.8 cr
CMP: RS136 JUNE 28, 2013 Annual report review

KEY POINTS
Latin American and North American markets are key revenue drivers, domestic market remains dull: The 20% growth in the revenues of United Phosphorous Ltd (UPL) in FY2013 was mainly driven by the good performance of the North American and Brazilian markets. UPL has maintained its 50% market share in wheat herbicides by launching seven products in the last four years. The company successfully launched a new insecticide (Ulala) and a new fungicide (Atabron) during the year. In a major shift in its focus, the company has started to lay more emphasis on premium products in order to maintain its margin and minimise the operational risk from the commodity agro-chemical products. Debt/equity ratio goes up in FY2013: The debt/equity ratio increased sharply from 0.37x in FY2012 to 0.51x in FY2013 on account of a decline in the net worth (UPL bought back shares worth of Rs223.5 crore in FY2013) and an increase in the long-term debt. Outlook and valuation: The companys management believes that going ahead the revenue growth will be driven by the companys ability to generate more cash through manufacture of its low-cost, high-quality products that are present in 90% of the worlds agro-chemical markets. The management is aiming for a double-digit growth in the coming year and will maintain the EBIDTA margin at the current level. We expect the top line and the bottom line of UPL to grow at a CAGR of 10% and 11.3% respectively over the next two years. This growth will be achieved on the back of a good operating performance by most of the geographies and DVA Agro. We maintain our Buy rating on the stock with a price target of Rs180.
Public & others 23% Promoter 29%
Foreign 32%
MF & FI 16%
PRICE PERFORMANCE
(%) Absolute Relative to Sensex 1m -13.4 -8.7 3m 16.0 14.0 6m 9.4 10.9 12m 9.8 -3.0
July 2013
22
EQUITY
FUNDAMENTALS
STOCK UPDATE
UNITY INFRAPROJECTS
BUY
COMPANY DETAILS
Price target: Market cap: 52 week high/low: NSE volume (no. of shares): BSE code: NSE code: Sharekhan code: Free float (no. of shares): Rs57 Rs215 cr Rs52/26 1.7 lakh 532746 UNITY UNITY 2.8 cr
CMP: RS29 JUNE 5, 2013 Price target revised to Rs57

RESULT HIGHLIGHTS
Operating performance lower than estimated: In Q4FY2013, the net sales of Unity Infraprojects (Unity) declined by 3.5% YoY to Rs692 crore, which is marginally lower than our expectation. On the operational front, the OPM contracted by 192 basis points YoY and 333 basis points QoQ to 10.6%, which is much lower than our expectation. Thus, the operating profit declined by 4.5% QoQ. Contraction in margin leads to decline in PAT: The muted top line performance and the contraction in the OPM resulted in a 23.4% decline in the PAT to Rs29.8 crore (which is lower than our expectation). However, healthy order book provides revenue visibility: As of May 2013, for FY2013 Unity has bagged fresh orders worth Rs1,289 crore, which is lower than our expectation. This along with the orders worth Rs3,019 crore secured in FY2012 take the total order book to Rs3,838 crore as of May 2013, which is 1.9x its FY2013 revenues. Thus, there is a good revenue visibility for the company over the next two years. Revenues and earnings for FY2014 and FY2015 revised downwards: We have revised downwards our revenue and earnings estimates for FY2014 and FY2015 to factor in the slower project receivables which will hamper the execution of the order book. Maintain Buy with a revised price target of Rs57: We maintain our Buy recommendation on the stock with a revised price target of Rs57.
FII 2% Institutions 6% Public & others 29%
Promoters 63%
PRICE PERFORMANCE
ZEE ENTERTAINMENT ENTERPRISES

BUY
COMPANY DETAILS
Price target: Market cap: 52 week high/low: NSE volume (no. of shares): BSE code: NSE code: Sharekhan code: Free float (no. of shares): Rs280 Rs22,418 cr Rs255/134 27.1 lakh 505537 ZEEL ZEEL 54.0 cr
CMP:RS235 JUNE 21, 2013 New advertising directive to hit ad volumes, phased rates hikes to counter the move
In the wake of two recent events1) recommendation of the Telecom Regulatory Authority of India (TRAI) to cap advertisement time at 12 minutes an hour from October 1, 2013 and the 2) withdrawal by broadcasters of the rating system provided by TAM Media Researchthe television broadcasting industry is gearing up to find a solution to both the issues. ZEELs management indicates plan to negate impact through advertisement rate hikes in phased manner: The company is planning to increase the advertisement rates in a phased manner (already increased in some daily soaps and channels) and rate renegotiations have already started. However, the extent of the increase will gather momentum through July-October 2013. Currently, ZEELs advertisement time per hour is around 15.5-16 minutes. Thus, there will be a minimal impact on the blended advertisement revenue growth in FY2014 and FY2015; we have built in a 17.5% compounded annual growth rate in the advertisement revenues for FY2013-15. Valuation: Overall, our discussion with ZEELs management on both the issues have allayed our concerns that the two events mentioned above could affect the companys advertisement growth trajectory over FY2013-15, though there could be some marginal impact on the companys advertisement growth in Q3FY2013 (given the time gap in the volume drop and the rates hikes in that particular quarter). At the current market price of Rs235, the stock trades at 22x FY2015 earnings estimate. We maintain our positive stance and Buy rating on the stock with a price target of Rs280.
Public & Others 2% Foreign 42%
Promoters 44%
Institutions 9%
PRICE PERFORMANCE
(%) Absolute Relative to Sensex 1m -7.2 -0.3 3m 12.5 12.6 6m 2.6 5.6 12m 70.6 51.3
23
July 2013
SHAREKHAN SPECIAL
EQUITY
FUNDAMENTALS
SHAREKHAN SPECIAL Currency impact

Currency risk perks up; exporters to outperform
Indias aggregate external borrowing of around $112 billion (as of December 2012) is largely denominated in the dollar and a steep depreciation of close to 11% in the rupee against the greenback within a short time will have an adverse impact on corporate earnings. The capital intensive sectors (telecommunications [telecom], power), companies with a high amount of foreign debt (Bharti Airtel, Tata Motors, Tata Chemicals and Godrej Consumer among others) and businesses dependent on imports for the key raw materials (oil marketing companies, metal companies, industrial companies) would be among the worst affected. However, the depreciation in the rupee would boost the financial performance of the export-oriented sectors such as information technology (IT) services, pharmaceuticals (pharma) and textiles. In this note, we have attempted to analyse the impact of the local currencys depreciation on the sectors and companies under our active coverage.
10 YEARS US BOND YIELDS (%)
2.7 2.5 2.3 2.1 1.9 1.7 1.5 A pr-13
JUNE 26, 2013
May -13
Jun-13
Source: Bloomberg
Rupees depreciation: panic sets in

Led by the announcement of the tapering of the US monetary stimulus (the third round of quantitative easing [QE3]), an uptick in the US bond yields and the anticipation of a reversal of fund flows amidst a burgeoning current account deficit, the rupee touched its all-time low (60.5) against the dollar today. Further, the expectation of a slower growth in China and the other emerging markets (EMs) has led to a flight of capital which has also strengthened the dollar. In the past week itself, along with the relentless selling of Indian equities the foreign institutional investors (FIIs) have sold $5 billion worth of bonds in the Indian debt market. This trend is contrary to the trend seen in the past several months when the net flows into equities stood at about $5 billion. Consequently, the domestic currency has depreciated by about 11% against the dollar since the beginning of May this year and has been one of worst performing currencies in the EM universe. In view of the risk-off sentiment globally and the macro-economic concerns relating to the Indian economy, the pressure on the rupee has increased. Though the macro-economic concerns remain (a weak economic recovery, the widening twin deficits), but it is the global developments that are pushing the rupee into an oversold zone. While uncertainty continues at a global level, the monsoons trend and the easing of the crude oil prices are likely to give some downside support. However, the passage of the foreign direct investment (FDI) bills under compelling circumstances would be key thing to watch for going ahead.
PERFORMANCE OF OTHER CURRENCIES VS DOLLAR (%)
112 109 106 103 100 97 94 A pr-13 INR B r a z lia n Re a l
Macro implications: monetary easing and recovery may be collateral damage

Given Indias large volume of imports, fragile balance of payments position and limited foreign exchange (forex) reserves, the depreciation in the currency will aggravate the challenges facing the economy in terms of a rise in the twin deficits and inflation. The Reserve Bank of India (RBI), which maintained a status quo at its recent policy review meeting, is likely to continue its hawkish stance under these circumstances which will undermine the recovery in the economy. Though the RBI and the government tried to calm the markets nerves by intervening and promising action but the market is sceptical of their ability to manage the crisis.ons.
CURRENT ACCOUNT DEFICIT
5.0 0.0 -5.0 -10.0 -15.0 -20.0 -25.0 -30.0 -35.0 Dec -08 Dec -09 Dec -10 Dec -11 CA D / GDP (% )
Source: Bloomberg
-1.0 -2.0 -3.0 -4.0 -5.0 -6.0 Dec -12
CA D ($ bn)
FII DEBT POSITION ($ MN)

6,000 5,000 4,000 3,000 2,000
Ma y - 1 3 EURO In d o n e s ia n Ru p ia h JPY
Ju n - 1 3
1,000 0 Mar-13
Korean W on
Apr-13
May-13
Jun-13
Source: Bloomberg
Source: Bloomberg
July 2013
24
EQUITY
FUNDAMENTALS
SHAREKHAN SPECIAL
Comments The rupees depreciation against both the dollar and the yen would have a negative implication for the auto sector as most of the auto companies are net importers of raw materials which are denominated in either the dollar or the yen It will affect the overseas debt of most of the companies under our coverage The rupees depreciation would have a neutral to negative impact on most capital goods companies having foreign debt which would eventually translate into marked-to-market (MTM) losses The impact would be negative on the cement sector as most of the cement companies need to procures part of their coal requirement via imports; hence the rupees depreciation against the dollar will increase the cost of coal and pressurise their margin The depreciating rupee will have a positive impact on the IT sector; traditionally for every 1% fall in the rupee the earnings before interest and tax (EBIT) margin of IT companies gain 30-40 basis points without considering the amount re-invested in business The rupees depreciation is unlikely to have any significant impact on the opeating profit margin (OPM) of the fast moving consumer goods (FMCG) companies; besides, most of the FMCG companies export numerous products to international markets which becomes a natural hedge for them The impact of the rupees depreciation on oil exploration companies will be positive as their realisation is in dollar terms; hence, the move will result in better realisation and profitability for private oil exploration companies like RIL and Cairn India The rupees depreciation will have a negative impact on the oil marketing companies (OMCs) like IOC, HPCL and BPCL, as it will increase the overall under-recovery and working capital requirement of the OMC The rupees depreciation will have a positive impact on the refining industry. It will boost their gross refining margin as their realisation is in dollars and expenditure is in rupees. As exports constitute a substantial portion of business for most pharma players (65% for our pharma universe on an aggregated basis), the rupees depreciation against major international currencies is generally beneficial for the sector The rupees depreciation would have a negative impact due to coal imports and foreign debt could also result in MTM losses Retailing is domestic in nature; the forex exposure is limited to the extent of certain raw materials being imported by the players; companies have undertaken hedging to maintain their margins The tightening of gold import norms by the government has brought 100% financing on all consumption including gold on lease; this along with the depreciating currency has affected the demand High foreign debts could result in MTM losses
SECTOR-WISE IMPACT OF RUPEES DEPRECIATION

Sector Auto Agri-inputs Capital goods Cement IT FMCG Impact Negative Negative Negative Negative Positive Neutral
Oil & gas (upstream) Oil & gas (OMC) Oil & gas (refining) Pharma Power Retail (multi-brand) Retail (specialist jewellery retailers) Telecom
Positive Negative Positive Positive Negative Neutral Negative Negative
SHAREKHAN SPECIAL Q1FY2014 Banking earnings preview

KEY POINTS
Divergence continues in earnings performance of private and public sector banks: For Q1FY2014 Sharekhans banking universe is expected to report a flattish growth in earnings (up 1.3% year on year [YoY]) due to a weak earnings performance of the public sector banks (PSBs; down 9.6% YoY). On the contrary, the private sector banks are expected to report a healthy growth in their earnings (up 22% YoY). Higher provisions and a subdued net interest income (NII) growth will continue to affect the earnings of the PSBs. Core performance remains weak: Led by a slower loan growth and subdued margins the NII of our banking universe is expected to grow by 9.8% YoY. The NII growth for the PSBs is likely to be modest (up 5.3% YoY). However, a strong growth in the treasury income (due to the softening of bond yields) will offset a slower growth in the fee income and cushion the overall earnings. Asset quality pressure persists: We expect the asset quality pressure to continue for the PSBs as the macro-economic environment remains worrisome. The outstanding restructured loans are expected to inch up for both private banks and PSBs as corporate debt restructuring (CDR) pipeline continues to soar and stress remains in many sectors. But we expect the private
JULY 04, 2013
banks to maintain the edge over the PSBs in terms of asset quality. The provision expenses will remain elevated due to a higher provision requirement for restructured loans. Outlook: Given the weak macro-economic environment, the operating performance of the banks is likely to suffer though the private banks are expected to perform relatively better. Asset quality pressures are likely to continue for a couple of quarters which will keep the cost of credit high. Also, the rising pressure on the current account deficit implies cautious monetary easing by the Reserve Bank of India (RBI). However, the banking stocks have corrected sharply and partly reflect the macro-economic and regulatory concerns. We prefer ICICI Bank (a strong operating performance), Federal Bank (attractive valuation) and Yes Bank among the private banks. In the PSB space we prefer State Bank of India (SBI; attractive valuation).
25
July 2013
SHAREKHAN SPECIAL
EQUITY
FUNDAMENTALS
SHAREKHAN SPECIAL Monthly economy review

Economy: headline inflation declines to RBIs comfort zone but CAD worries remain
In April 2013 the Index of Industrial Production (IIP) grew by 2.0%. The growth was lower than expected largely because of a sequentially slower growth in the manufacturing and electricity segments. However, the March IIP growth has been revised upwards to 3.4% (from the provisional estimate of 2.5%). Based on the three-monthly moving average, the IIP growth for April 2013 stands at 1.9% as against 0.1% in April 2012. The Wholesale Price Index (WPI)-based inflation continues to surprise positively as it slipped to a 43-month low of 4.70% (4.89% in April 2013) in May this year. The month-on-month (M-o-M) decline of 19 basis points in inflation can be attributed to a drop in the prices of manufactured products and fuels. The inflation rate for March 2013 has been revised downwards to 5.65% from 5.96% as per the provisional estimate. Indias trade deficit worsened to $20.1 billion in May 2013 from $17.8 billion in April 2013. The trade deficit rose by 18.8% year on year (YoY) and 13.2% month on month (MoM) in May 2013 as gold imports surged 90% YoY to $8.4 billion. Exports contracted by 1.1% YoY, for the first time in five months, to $24.5 billion while imports increased by 7.0% YoY (up 11.0% in April 2013) to $44.6 billion. As expected, the Reserve Bank of India (RBI) maintained status quo on the key policy rates (repo rates at 7.25%, cash reserve ratio [CRR] at 4%) in its mid quarter policy review meeting. In view of the uncertainty in the global economy (particularly the US economy) and Indias high current account deficit (CAD), the RBI refrained from easing its monetary policy. The apex bank also stressed the need to contain the CAD at sustainable levels (2.5% of the gross domestic product [GDP]) and achieve a sustainable decline in inflation for monetary easing. Given the RBIs discomfort over food inflation and CAD, we expect the central bank to remain cautious about monetary easing in the near term.
JUNE 27, 2013

A slower growth in the deposits compared with the advances remains a concern for banks. The credit/deposit ratio for the banks remains at an elevated level of 77.1% (as of June 14, 2013). The yield on the government securities (G-Secs; of ten-year maturity) stood at 7.59% on June 26, 2013 and was higher than the average of 7.44% maintained in May 2013. Moreover, the five-year and ten-year G-Sec yields declined by 57 and 47 basis points respectively on an M-o-M basis.
Equity market: FIIs and domestic mutual funds turn net sellers
During the month-to-date (MTD) period of June 2013 (June 3-24, 2013), the foreign institutional investors (FIIs) and the domestic mutual funds were net sellers of equities. This was largely due to indications by the US Fed regarding the withdrawl of monetary stimulus, rise in the US bond yields and weaking of the domestic currency. For the MTD period the FIIs sold equities worth Rs9,125.5 crore while the mutual funds sold equities worth Rs531.5 crore. Also, there was a sharp reversal in debt flows as ~$5 billion of outflows took place in the past two to three weeks alone.
Banking stocks underperform in June 2013

In the last one month, the BSE Bankex has declined by 12.2% as compared with a decline of 5.3% in the Sensex. The underperformance of banking stocks was due to the RBIs hawkish stance on monetary easing and the weakening of the domestic macroeconomic environment partly contributed by recent global developments. Also, the outflows by the FIIs led to a correction in the private banking stocks.
BANKING SECTORS PERFORMANCE (AS ON DATE)
Company 1M IndusInd Bank State Bank of India Hdfc Bank Federal Bank Yes Bank Kotak Mahindra Bank Icici Bank Axis Bank Punjab National Bank Bank of Baroda Union Bank of India Idbi Bank Canara Bank Bank of India Bankex Index Sensex Index M - month -8.3 -9.9 -10.4 -10.8 -11.4 -11.8 -13.3 -14.3 -15.3 -15.3 -17.8 -19.1 -19.2 -22.8 -12.2 -5.3 Absolute 3M 14.5 -5.5 2.4 -17.5 6.6 7.6 2.3 -3.4 -6.4 -11.6 -11.1 -13.7 -4.9 -20.4 0.0 -0.1 Relative 1M -3.2 -4.9 -5.3 -5.7 -6.4 -6.8 -8.4 -9.5 -10.5 -10.6 -13.1 -14.5 -14.7 -18.5 -7.3 0.0 3M 14.7 -5.4 2.5 -17.3 6.7 7.8 2.4 -3.3 -6.2 -11.5 -11.0 -13.5 -4.8 -20.2 0.1 0.0
Banking: RBI turns cautious on monetary easing, banks under pressure to reduce lending rates
The credit offtake slowed down to 13.7% YoY (as of June 14, 2013), which was lower than the 14.6% Y-o-Y growth recorded in the previous month (on May 17, 2013). Moreover, it was below the RBIs projection of 15.0% for FY2014. The deposits grew by 13.6% YoY (as of June 14, 2013). The growth in the deposits remained subdued due to the competitive returns offered by the other instruments. The RBI has targeted the FY2014 deposit growth at 14.0%.
July 2013
26
EQUITY
FUNDAMENTALS
SECTOR UPDATE
FMCG
JUNE 14, 2013 Prices of key inputs remain stable; freebies galore
Key points
Prices of key inputs stabilising: The prices of the key inputs for the FMCG industry, such as palm oil, copra, kardi oil, coffee and HDPE, have corrected from their highs and seen some downward momentum in recent months. If the prices of these raw materials continue to see a downward trend, then it will be positive for the FMCG companies, as they can continue to focus on improving their sales volume in a tough environment where consumer sentiment has been dampened by sustained inflationary pressures. Promotional add-ons and freebies with new offerings: Our channel checks suggest that the FMCG companies including Hindustan Unilever Ltd (HUL), P&G India, Marico and Britannia Industries have opted for promotional add-ons/freebies to lure consumers into buying their products. We have seen higher offers on soaps, detergents and shampoos, which are highly competitive categories in the domestic market. Sustained focus on new product addition: Against the backdrop of dampened consumer sentiment, the FMCG companies have remained aggressive in introducing new products in the domestic market. The companies have maintained their thrust on entering the low-penetrated premium categories which could be one of the key drivers of their growth in the long run. A large
number of new products were seen in the domestic personal care segment during our channel checks. HUL appears to have been very aggressive in launching new products in the domestic market in recent months. The products have been launched largely in the premium personal care segment. Outlook and view: With the inflationary pressures moderating, we could see an improvement in the sales of the FMCG companies in the coming quarters. However, a substantial improvement in the volume growth of the FMCG companies could be seen from the second quarter of FY2014. The monsoon has begun on a positive note and a normal monsoon would further help in trimming down the inflationary pressures in the coming months. Having said that, the sharp depreciation in the rupee against the dollar in the recent past would act as a dampener for the FMCG companies, which have a large amount of dollar-denominated debt on their books and also import large quantities of the key inputs in dollars. Remaining selective while selecting stocks, we prefer ITC in the large-cap space and Bajaj Corp and Jyothy Laboratories in the mid-cap space.
REAL ESTATE Tough environment; be selective

The key takeaways from the recent results and our interaction with some of the real estate players are as follows: Stress is visible: Till recently, most large real estate companies were putting up a brave face and did not acknowledge the extent of the slowdown and the stress on their books. However, the skeletons have started tumbling out of the cupboard and the stress is visible not only in the financial performance but also in the management commentary of the real estate companies like HDIL (cancellation of airport project; weak TDR market), Hubtown (credit rating downgrade; slow moving projects), Unitech (debt issues; delay in completion of specific projects) and several other real estate companies with stretched balance sheets and cash flow issues. Strong getting stronger: As stated in our real estate switch idea report dated January 6, 2012, the stronger players have not only remained unscathed but have actually consolidated their position and emerged stronger than before. The companies with reputed brand and strong balance sheet identified by us, like Oberoi Realty, Mahindra Lifespace Developers (MLD) and Phoenix Mills, have shown resilience and distinctly outperformed the real estate index. Environment to remain tough; quality would continue to attract premium: The real estate market is not likely to recover soon. In
JUNE 3, 2013
fact it could turn worse in the run up to the general elections (and the assembly elections in six states by the end of 2013). The banks are already struggling with deterioration in the asset quality and would offer limited support to the real estate sector in general and the weaker players in particular. Thus, we believe that the large players with strong brand, healthy balance sheet and return ratios would continue to outperform. The weaker real estate counters would offer periodic momentum-driven rallies that could be used to bail out of them (number of such opportunities were available in 2012). Certain pockets of strength: Though the absorption rate in the larger towns is better than tier I and II cities, there are certain cities like Bangalore, Pune and parts of NCR (Gurgaon or Greater Noida) that have showed strength. These places have large migrating and middle class population that supports actual user demand, which is reflected in the financial performance of the real estate companies with operations focused in these particular areas/cities like Prestige Estate, Purvanakara among others. We do not have active rating on any of the Bangalore-based real estate companies as of now.
27
July 2013
VIEWPOINT
EQUITY
FUNDAMENTALS
PURAVANKARA PROJECTS
VIEWPOINT CMP: RS83
Banking on Bangalore market
We recently met the management of Puravankara Projects Ltd (PPL) represented by Jackbastian Nazareth (group chief executive officer) and Anil Kumar (chief financial officer) to update ourselves on the latest developments in PPL. To reduce debt to Rs10,00 crore by FY2015: PPL had gross debt of Rs1,766 crore as on March 31, 2013. It retired Rs176 crore of debt, bringing down the gross debt to Rs1,590 crore. Further, the promoters raised Rs115 crore through an offer for sale. The company is further planning to bring down the debt to Rs1,000 crore by FY2015. Surplus cash flow position in March 2013: PPL has a comfortable cash flow position as of March 2013. It has an inventory of Rs7,964 crore which along with the balance collections to be received (of Rs1,051 crore) will more than help in funding the balance cost of the ongoing projects. We believe that a robust increase in the sales coupled with the efforts to reduce the gross debt will help the company to manage the surplus cash position. Outlook: Overall, considering the successful launches, and focus on execution and debt reduction, we believe the company is venturing in the right direction. We do not have an active coverage on the stock as of now but we are positive on the long term growth prospects of the company.
For detailed report, please visit the Research section of our website, sharekhan.com. Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a postition in the companies mentioned in the article.
JUNE 19, 2013
Key points
Bangalore market still upbeat: The management is still upbeat on the growth prospects of the Bangalore real estate market, which on an average consumes 35,000 units per year. Provident is a commendable brand in Bangalore. With the brand and inhouse capabilities of developing 7 million square feet (msf) per annum PPL is confident of successful launches and delivery of projects in Bangalore. Sales target for FY2014 at 4.5msf: PPL had given a guidance of 3msf for FY2013 which it over achieved by selling 3.96msf (provident share 1.83msf). That is a growth of 62% YoY. For FY2014, PPL has set a target of 4.5msf, which comprises 0.52msf of completed projects, 1.06msf due for completion in FY2014, 1.92msf of ongoing projects and 1msf of new projects. Provident branda huge success: PPL has been able to sell 7,000 units and deliver 3,000 units through the Provident brand since its inception. The Provident brand is expected to broad base the companys reach in the newer markets.
TITAN INDUSTRIES
VIEWPOINT CMP: RS214
New regulation alters business model
The recent months have witnessed Indias CAD situation worsen on account of the countrys rising gold import bill. Consequently, to ameliorate the countrys worsening CAD, the RBI has tightened the gold import norms for jewellery players. As per the new norms All imports of gold for domestic consumption, either through banks, nominated agencies or directly, can be made only with 100% cash margin. Credit of any kind from suppliers or bullion banks for import of gold for domestic use is prohibited. This also affects import of gold through all non-consignment routes like gold on lease.
JUNE 13, 2013
...resulting in significant dilution of returns ratio

Under the gold on lease model, Titans inventory days were in the range of 120-130 days while the companys payable days were around 180 days. This model was one of the major reasons which enabled the company to report RoCE in excess of 40%. Consequently, after the RBIs notification disallowing the gold on lease model, the return ratios are likely to be negatively affected.
We estimate 9-10% EPS impact

We estimate the companys EPS estimates to decline by 9-10% in both FY2014 and FY2015. Given the regulatory changes and risk, the stock has undergone a de-rating. Thus, we expect the stock to consolidate at the current levels.
Funding dynamics change...

The gold on lease model allowed Titan Industries (Titan) to finance its inventory requirements at low interest rates (3-4%). After this notification, the business model would be altered significantly, whereby all jewellers using the lease model would be required to pay upfront for the gold inventory.
For detailed report, please visit the Research section of our website, sharekhan.com. Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a postition in the companies mentioned in the article.
July 2013
28
EQUITY
TECHNICALS
TREND & VIEW
Final leg up
Sensex: Daily view
The Sensex has taken support around the 78.6 % retracment level of the previous rally from 18144 to 20444 and closed above the 20-daily moving average (DMA), ie 19101, which will be a very crucial support going forward. The momentum indicator is trading in the positive zone and around the zero line. The key supports would be around 19319 and 19101 while resistance would be around 19700. In the short term, the index is expected continue to bounce till 19700.
Short term Trend Up Trend reversal 18690 Support 18690 Resistance 19560 Target 19560
4 11 February 18 25 4 March 11 18 25 1 April 8 15 22 29 6 May 13 20 27 3 June 10 17 24 1 July 8 15 2 20600 0.0% 20500 20400 20300 20200 20100 20000 23.6% 19900 19800 19700 38.2% 19600 19500 19400 50.0% 19300 19200 19100 61.8% 19000 18900 18800 18700 78.6% 18600 18500 18400 18300 100.0% 18200 18100 18000 KST (1.61734) 4 3 2 1 0 -1 -2 -3 -4
Sensex: Weekly view

Y A
21500
Z?
21000 20500 20000 19500 19000 18500
The Sensex is trading above the 20-weekly moving average (WMA), ie 19281, which is a bullish sign for the market in the medium term. The leg on the upside as wave Z is in process and is expected to move up till 21110. On the weekly charts, the momentum indicator has given a negative crossover, trading around the zero line. As the index has been trending up, it is expected to continue the positive momentum and the strategy should be to buy on declines with reversal around the 40-WMA, ie 19064. The key supports would be around 19281 and 19064 while resistance would be around 20444.
D 2010 M A M J J A S O N D 2011 M A
W X B
18000
X
17500
17000
W
16500
16000
Y Z
KST (-0.02951)
15500
15000
10 5 0 -5 -10 M J J A S O N D 2012 M A M J J A S O N D 2013 M A M J J A S
Sensex: Monthly view

According to the Elliott wave theory, the index has completed the pull-back as W-X-Y-X and a new move on the upside has started as wave Z, which can move up till 21110. The Sensex is expected to form a triple top around the all-time high, ie 21207, which is a crucial resistance going forward. The Sensex has been forming higher tops and higher bottoms trading above the 20-monthly moving average (MMA), ie 18101, which will act as a very crucial support going forward. But if the index closes below this level then the previous swing low can be retested, ie 15135. The Sensex is trading above the 20-MMA, ie 18261, and is expected to form a positive close on the quarterly charts.
Medium term Trend Up Trend reversal 18900 Support 18900 Resistance 21200 Target 21200
2006 2007 2008 2009
23000 22000 21000 20000 19000 18000 17000 16000 15000 14000 13000 12000 11000 10000
9000
8000
7000
KST (7.65957)
60 50 40 30 20 10 0 -10 -20 -30 -40 2011 2012 2013 2014
2010
29
July 2013
MONTHLY VIEW
EQUITY
DERIVATIVES
Derivative view: Bulls high on spirit

Two-month winning streak of the market has come to an end, as once again bulls have had to bear the brunt of weak domestic and global cues. Statement from the US Federal Reserve Chairman Ben Bernanke with regards to the withdrawal of quantitative easing by the end of 2014 had a negative spiraling effect across instruments (viz equity, currency, commodity, bond) around the globe. The widening of the current account deficit because of a fall in the rupee to an all-time low below 61, status quo maintained on the key rate by the Reserve Bank of India (RBI) in its monetary policy meeting and the slowing down of the Chinese economy are several other factors that helped bears to deepen the cuts. The Government of Indias move to hike the prices of natural gas, petrol and diesel axed the downside for the month and led to a sharp recovery in the market. June 2013 concluded on a negative note with a loss of 2.40% in spite of a sharp pull-back in the market in the last two days of the month.
MARKET WIDE VS NIFTY ROLL-OVER
Top five stock options with the highest OI in the current series
STOCK OPTIONS (SHAREKHAN SCRIP CODE) SBIN INFY MCDOWELL-N RELIANCE HINDUNILVR OPEN INTEREST (RS CR) 999.51 623.63 617.63 614.31 529.77
View
The results season would kick in from the second week of July which, in turn, would fuel an upward move in the IV in the days to come. Fund flows from the foreign institutional investors, timely steps from the government to bring down the current account deficit and anticipation of a rate cut by the central bank at its July 30 meeting along with an expected spike in the IV would help the Nifty surpass the current months higher break-even point (5918) for a Straddle and climb higher. In the current scenario to cash in on the opportunity we suggest forming a Ratio Call Spread strategy in the Nifty with a favourable risk/reward ratio.
Strategy for the month: Ratio Call Spread

A ratio call spread is created when the market/a stock is expected to move in an upward direction. The ratio call spread is constructed by buying slightly out-of-the-money call options and selling higher outof-the-money call options twice the quantity of the call options purchased. It is a limited profit, unlimited loss strategy with a very favourable risk/reward ratio among the spreads.
TYPE CE CE CE BUY/SELL Buy Sell Sell FORMATION STRIKE 6000 6100 6100 PREMIUM 43.00 20.00 20.00 OUTFLOW 3.00
With all eyes on the RBIs monetary policy meeting scheduled for later this month (July 30, 2013), the July series commenced on a positive note. The series started the month with Rs7,269 crore in Nifty futures vs Rs11,371 crore in the previous month; Rs23,983 crore in stock futures vs Rs28,534 crore in the previous month; Rs56,133 crore in index options vs Rs58,886 crore in the previous month; and Rs2,919 crore in stock options vs Rs3,306 crore in the previous month. The roll-over in the Nifty stood at 47.24%, which is significantly lower than the previous months roll-over of 56.94% and also below the three-month and six-month average roll-overs of 58.99% and 59.57% respectively. The roll-over for the Nifty in the July series has happened majorily on the short side as the roll-over cost has continuously decreased. The market-wide roll-over stood at 77.31%, which is marginally lower compared with the previous months roll-over of 79.67% and the three-month and six-month average roll-overs of 79.57% and 80.62% respectively. On the options front, strikes of calls 5900 and 6000 have a combined open interest (OI) of 1.17 crore shares whereas strikes of puts 5700 and 5600 have a combined OI of 1.34 crore shares followed by easing of the implied volatility (IV) from the levels of 21 and increase in the put/call ratio to 1.14 levels. From the above data points we have conclude that the ongoing momentum would sustain in the market. Top five stock futures with the highest OI in the current series
STOCK FUTURES (SHAREKHAN SCRIP CODE) MCDOWELL-N TCS SBIN HINDUNILVR TATAMOTORS OPEN INTEREST (RS CR) 1809.54 1320.91 1162.79 733.51 730.87
Strategy note
The strategy has an initial outflow of 3.00 points, which is Rs3,000 (3.00*100), and a maximum profit potential of 97.00 points, which is Rs9,700 (97*100). There are two break-even points in the strategy. The higher break-even point for the strategy is 6197 and the lower break-even point for the strategy is 6003. The maximum profit will be achieved if the Nifty expires at 6100. The maximum loss would be incurred above 6197 (which is the higher break-even point for the strategy). If the Nifty breaches 6197, it will be advisable to close the strategy, as the strategy would get converted into short futures.
PAY-OFF DIAGRAM
150 100
P R O F IT /L O S S
50 0 5 8 00 5 8 50 5 9 00 5 9 50 6 0 00 6 0 50 6 1 00 6 1 50 6 2 00 6 2 50 6 3 00 -50 -100 -150
July 2013
30
COMMODITY
FUNDAMENTALS
MONTHLY VIEW
Commodities: Facing downside pressure of rising yields, Chinas credit crunch, tepid manufacturing and dollars strength Macro-economy
Key points US GDP expanded at an annual rate of 1.8% during Q1FY2014 US GDP down from the prior report of a 2.4% growth ADP says the USA added 188,000 jobs in June 2013; 16,000 jobs were forecast US house prices climb 7.4% in a year through April 2013 Orders for US durable goods rose 3.6% as against the forecast of 3% Feds Fisher cautions against overreacting to Feds tapering stance Fed seen by economists trimming QE in September 2014 end The US Fed narrows GDP forecast; inflation forecast drops a half The US GDP growth seen at 2.3-2.6%; prior estimate 2.3-2.8% In the USA small-business optimism rises to year high in May 2013 IMF sees Fed QE through 2013, warns of exit plan challenges European central bankers adopt ultra-easy policies to contain surge in yields IMF sees deeper recession in Italy, criticises governments tax plans In euro area unemployment rate rises to record 12.2% Greece back in focus; Portugal undergoing political uncertainties German industrial production increases most in a year China may see economic rebound by year-end, Deutsche Bank says China faced credit crunch in June 2013 as leaders sought economic restructuring World Bank cuts China's economic growth forecast to 7.7% from 8.4% Chinas export growth plummets as global weakness exposed Manufacturing in China, much of Asia weakens in June Moodys says rupees fall affects Indias credit profile Egypts military-appointed government faces protest Iranians celebrate Rohanis surprise win as reason for hope Rohani pledges to make Iran nuclear programme more transparent
COMMODITY PRICES IN JUNE 2013 (IN $) Commodity Copper Zinc Lead Gold Silver Crude oil High 7500.0 1970.0 2259.3 1423.7 23.0 99.2 Low 6602.0 1812.0 1986.0 1180.6 18.2 91.5 Close 6750.0 1853.0 2051.0 1234.5 19.7 96.6 Mon chg % -7.6 -3.8 -6.8 -11.0 -11.7 5.0
MONTHLY CHANGE IN DOE CRUDE STOCKS (MAY-JUN 2013) Crude oil Change in (000' bbls) 31-May-13 Change in (%) 2854 391285 0.73 Dist. -85 123274 -0.07 Gasoline 3179 218797 1.45
Refinary utlisation rate was at 90.2% in the last week of June.
MONTHLY CHANGE IN SHFE STOCKS (MAY-JUN 2013) Copper Change (in tonne) 30-May-13 Change (in %) 3176 179317 1.77 Lead -6019 120940 -4.98 Zinc -15099 292541 -5.16
MONTHLY CHANGE IN LME STOCKS (MAY-JUN 2013) Copper Change (in tonne) 31-May-13 Change (in %) 57325 608450 9.42 Lead -21175 219475 -9.65 Zinc -25350 1086825 -2.33
NoteLME: London Metal Exchange , SHFE: Shanghai Futures Exchange, DOE: Department of Energy (US)
Crude oil: Geopolitical risk premium the main driver

Key points OPEC June output falls in survey on African producer cuts Obama to seek keystone rejection if emissions rise Oil rallies on Egypt, Syria, the US demand speculation Chinas oil imports are contracting for the first time since 2009 Chinas crude output increases to 17.72mn ton in May Chinas diesel imports drop 75% in May, customs data shows Saudi Arabia pumped 9.47mbpd in June, up 120,000 barrels MoM Oil shipment through Suez Canal in focus; daily volume 4mbpd The US refineries operated at 92.2%; the highest level since August The US refinery utilisation rate peaks in June and July
WTI NYMEX crude oil
CMP: $101.80
Crude oil prices rallied last month after falling below $92. The major factor influencing the prices is geopolitical risk premium as Egypt and Syria remain in focus. Ironically, none of these countries is a major producer; however, speculators are bidding the prices higher citing the possible risk to supplies should the Syrian civil war contagion spread to the Middle-East region and oil flow across the Suez Canal stop altogether. Much awaited improvement in the oil demand in the US materialised in the last days of June due to it being the driving season. However, oil prices are well ahead of their fundamentals despite the expected seasonal strength. Traders have stopped looking at the Chinese demand scenario. Similarly, dismal demand in Europe is being ignored. For now bulls are in the driving seat and would look for every possible reason to bid up the prices. We look for a range of $97-104 and remain bearish on the counter.
31
July 2013
MONTHLY VIEW
COMMODITY
FUNDAMENTALS
Bullion: Downside pressure to continue

Key points India urges resisting gold as curbs fail to stem currency slump Gold import may dip to a third, thanks to RBI curbs, a weak rupee CME raises margins for gold as prices fall to the lowest since 2010 Gold-silver ratio jumps to the highest level since August 2010 Gold prices are heading towards $1,000: Nouriel Roubini Further ETP outflows possible as gold remains under pressure European central bankers stance can support bullions to some extent Greece, Portugal issues supportive for bullions Physical buying remains tepid despite a sharp decline in gold prices Gold posts worst quarter since 1974 as prices tumble 23% GFMS: Gold faces "multi-year bear market," starting from 2013
Gold
CMP: $1,242 (spot)
Gold prices fell 11% last month as liquidation and fresh selling continued. Gold market is currently facing quite a few negative factors: rising dollar, falling rupee, rising real interest rates as the US Federal Reserve prepares to curtail the stimulus, lack of safe-haven demand due to reduced bad news flow out of Europe and steady risk assets, and subdued physical buying interest as prices are yet to stabilise. The last quarter was the worst on record for the yellow metal. Still, the metal can draw some support from debt related issues in Greece and political uncertainties in Portugal. Further support can come from geopolitical concerns should the situation in Egypt and Syria get out of control. GFMS expects gold prices to trade in the $1,100-1,400 range. We look for a range of $1,150-1,325 in the near term and maintain our bearish bias.
Silver
CMP: $19.10 (spot)
Silver dutifully followed gold as the white metal fell over 11% last month. Weakness in the base metals complex is adding to the downside pressure. The metal can fall to as low as $15 in the near term. Crucial support is noted around $18 while supply hurdle is at $21.
Base metals : Likely to move higher on bargain buying, US data

Key points Aurubis says scrap copper supply is still meagre in Europe Chinas copper imports rebound from two-year low on arbitrage Refined copper surplus was about 104,000 ton in March: ICSG Refined zinc consumption exceeded output in April, ILZSG says Refined lead demand exceeded output in April, Study Group says Copper spread tightens; can support the prices UBS says about 61,000 ton of copper lost due to Grasberg closure China imported 232,155 metric ton of copper in May Base metals complex oversold; can rebound on the US housing and auto sales data Copper cancelled tonnage ratio in Asia at a record high as prices decline
Copper
CMP: Rs417 (August contract)
Base metals suffered in June as rising yields, Chinas credit crunch, the possibility of the US Federal Reserve curtailing stimulus and subdued manufacturing data weighed on the complex. Many a time the complex suffered even on positive US data as the data gave rise to stimulus removal fear. However, we think that the complex is heavily oversold and is due for a sharp recovery barring further bearish developments. The complex seems to have priced in most of the bearish developments. The revival of the US housing and auto sectors, high cancelled tonnage ratios as seen in most of the metals, and stabilising Europe should lead to higher prices. Tightening London Metal Exchange (LME) cash-to-three month spread in copper is a bullish development. We look for a range of Rs408 to Rs440 for the metal in the near term.
Lead
CMP: Rs123.00 (July contract)
Refined lead output fell to 888,200 tonne in April vs demand of 908,200 tonne, International Lead and Zinc Study Group (ILZSG) said in a report. Seasonally strong demand period for the metal starts from August. The heavy metal is likely to get support from falling inventories at both Shanghai Futures Exchange (SHFE) and LME warehouses. The downside should be limited to Rs118 in the near term. The metal can rise to Rs128 in the near term and to Rs135 in the medium term.
July 2013
32
COMMODITY
FUNDAMENTALS
MONTHLY VIEW
Zinc
CMP: Rs110.20 (July contract)
Refined zinc output fell to 1.09 million tonne in April vs consumption of 1.1million tonne, ILZSG said in a report. Chinas refined zinc imports improved in May. We look for a range of Rs109 to Rs115 in the near term.
CMP as on July 04, 2013
Major economic events in July 2013

Date Region Event 01/07/2013 Euro zone PMI Manufacturing 01/07/2013 USA 01/07/2013 UK 01/07/2013 China 02/07/2013 USA 03/07/2013 USZ ISM Manufacturing PMI Manufacturing Manufacturing PMI Factory orders Trade balance Forecast 48.8 50.2 51.4 50 1.80% 0.30% -$40.0B 0.50% 375B 167K 7.50% ------------------------------Actual 48.8 50.9 52.5 50.1 2.10% 1.00% 0.50% 375B 195K 7.60% --Prior 48.7 49 51.3 50.8 1.00% -0.20% 0.50% 375B 175K 7.60% -3414 2.10% Impact In line with forecast; no major impact Higher than forecast supportive for industrial commodities, data above 50 levels showing expansion mode in manufacturing activity Supportive for GBP but the currency is falling on BoE's dovish outlook, supportive for industrials Somewhat supportive for industrials, though slowing growth is evident Supportive for industrials Supportive for industrials, however European data patchy US GDP growth to be adjusted lower on higher deficit In line with the forecast, however ECB's stance of low rates for extended period bullish for risk assets No change, however BoE's guidance is dovish, thus bullish for risk assets and bearish for pound Bullish for dollar, industrials; bearish for yen, pound, euro, bullions; though jump in part time employment suggests that the data not as robust as it seems Up on increased participation, no major impact seen Crucial for pound Lower than forecast will be supportive, it would increase the probability of more easing Crucial for industrial commodities, both import and export figures need to be analysed to gauge the health of economy Falling import price index would be bearish for bullions Important for yen and industrial commodities No change expected. Important for industrial commodities and euro Important for USD and other asset classes Higher than expected data would weigh on gold Bullish data would be supportive for dollar, industrials but bearish for bullions Crucial for industrial commodities Crucial for industrial commodities Important for euro, lower inflation would give room to ease further and weigh on euro Larger surplus would be positive for euro Important for euro and industrials Lower figure would weigh on bullions Bullish data would support industrials and dollar Bullish data would support industrials and dollar, and would be bearish for bullions Shows investors confidence in the market, higher than forecast supportive for euro Important for industrial commodities, especially for copper and aluminium Important for yen Important for euro Better than expected data to be bearish for gold Important for industrials and GBP Higher than forecast supportive for industrial commodities Important for euro and industrials Bearish data would be negative for industrial commodities; supportive for gold Crucial for euro Growth expected to trail the forecast, can weigh on dollar and support gold No change expected in the rate in the near future, but the focus would be on signals to roll back stimulus
03/07/2013 Euro zone Euro zone retail sales (MoM) 04/07/2013 Euro zone ECB announces interest rates 04/07/2013 UK 05/07/2013 USA 05/07/2013 USA 09/07/2013 UK 09/07/2013 China 10/07/2013 China 11/07/2013 USA 11/07/2013 Japan 11/07/2013 Japan 12/07/2013 USA 12/07/2013 USA 15/07/2013 USA 15/07/2013 China 15/07/2013 China BoE asset purchase target Change in non-farm payrolls Unemployment rate Trade balance non-EU GBP/mn CPI YoY Trade balance (USD) Import Price Index (YoY) Machine orders YOY% BoJ target rate PPI ex food & energy (MoM) U. of Michigan Confidence Retail sales ex auto & gas Real GDP (QoQ) Industrial production (YoY)
($45) -$40.3B
-- $20.43B ---------------------------1.90% -1.10% -0.40% 0.10% -0.30% 1.60% 9.20% 0.10% 14.9B 30.6 0.10% 0.00% 914K -476K -0.70% ---81.4 --0.25%
12/07/2013 Euro zone Euro zone ind. prod. sa (MoM)
16/07/2013 Euro zone CPI MoM 16/07/2013 Euro zone Euro zone trade balance 16/07/2013 Euro Zone ZEW Survey (econ. sentiment) 16/07/2013 USA 16/07/2013 USA 17/07/2013 USA 24/07/2013 USA 24/07/2013 Japan 25/07/2013 USA 25/07/2013 UK 27/07/2013 China 30/07/2013 USA 31/07/2013 USA 31/07/2013 USA CPI MoM Industrial production Housing starts New home sales Merchnds trade balance total Durables ex transportation GDP (QoQ) Industrial profits YTD YoY Consumer confidence GDP QoQ (annualised) FOMC rate decision
23/07/2013 Euro zone Euro Zone Consumer Confidence
-- -993.9B
25/07/2013 Euro zone Euro zone M3 s.a. (YoY)
30/07/2013 Euro zone Business Climate Indicator 31/07/2013 Euro zone Euro zone unemployment rate
33
July 2013
TREND & VIEW
COMMODITY
TECHNICALS
Buy gold on dips

After a near vertical fall in April, gold had taken support near the long-term rising trendline. It consolidated there for several weeks and the move took the form of a triangular pattern. The pattern broke out on the downside and the price tumbled sharply. It has achieved the equality target and started moving higher.The daily momentum indicator is showing a positive divergence and triggered a bullish crossover. In a remote case, the yellow metal can fall till $1,150 (the 61.8% retracement mark). Buying on dips would be the strategy from a medium-term perspective. The key levels on the upside are $1,350 and $1,380.
Trend Up Trend reversal $1,150 Supports $1,200/1,180 Resistances $1,300/1,321 Target
Jul Aug Sep Oct Nov Dec 2013 Feb Mar Apr May Jun KST (-5.14116) 0 -5 -10 1850 1800 1750 1700 1650 1600 1550 1500 1450 1400
1380
1350
1350
1300
1250
1200
1150
Jul Aug
1150
$1,350/ $1,380
Silver has channel supports

Silver has been falling in a channelised manner for the last several months. It has formed a channel within a channel. On the downside, the white metal cracked through multiple previous lows and reached the lower end of both the channels. It has achieved the medium-term equality target on the downside. The daily momentum indicator is showing a positive divergence and has triggered a bullish crossover. Thus, unless the recent low of $18.19 breaks, the white metal is expected to show a decent recovery. The key level on the upside is $21.50.
Trend Up Trend reversal $18.19 Supports $18.75/18.30 Resistances $20.60/21.37 Target
18.19
KST (-6.61429) 10 5 0 -5 -10 39 38 37 36 35 34 33 32 31 30 29 28 27 26 25 24 23 22
SILVER [CASH] (19.3800, 19.8900, 19.3200, 19.6900, +0.37000)
21.50
21 20 19 18 17
$21.50
Augus t
Septem ber
November
2013
February
April
May
June
July
August
Crude oil sees larger distribution

Crude oil was oscillating about its crucial weekly moving averages for the past few months. However, it took off from there last week and is heading towards a medium-term falling trend line ($104). Structurally, it seems to be forming a larger distribution triangle. The weekly momentum indicator has also taken the form of a distribution triangle. One can start initiating short positions near $104 with reversal above $110.60. In the short to medium term the targets on the downside will be $95 and $87.
Trend Down Trend reversal $110.60 Supports $96/91.26 Resistances $104/108.25 Target
J J A S O N D 2011 A M J J A S O N D 2012 A M J J A S O N D 2013 A M J J A S O N KST (4.52132) 20 10 0 -10 LIGHT CRUDE CONTINUOUS 1000 BARRELS [NYMEX] (96.5800, 102.180, 96.0700, 101.240, +4.68000) 120 115
110.6 104
110 105 100 95
95
90
87
85
80
75
70
65
$95 /87
July 2013
34
COMMODITY
TECHNICALS
TREND & VIEW
Downside potential intact in copper

In the past few months copper had formed a multi-month triangle where the last leg made a throw-over of the pattern. The triangle was formed in the right shoulder of a larger head-andshoulders pattern. Thus, the red metal is in for a significant decline. Copper has broken the lower end of the triangular pattern as well as the neckline of the head-and-shoulders pattern. After retesting the neckline it has started the next leg down. The target on the downside will be the equality target, ie $2.58. The reversal can be trailed to $3.316.
Trend Down Trend reversal $3.316 Supports $2.98/2.72 Resistances $3.23/3.30 Target $2.58
J J A S O N 2010 A M J A S O N 2011 A M J A S O D 2012 A M J A S O D 2013 KST (-6.26478) 20 10 0 -10 HG COPPER CONTINUOUS 25000 LBS [COMEX] (3.04500, 3.17900, 3.03300, 3.17450, +0.11700)
5.0
4.5
4.0
3.5
3.316
3.0
2.58
2.5
A M J J
A S O N
Fresh opportunity for bears in nickel

MCX nickel had formed a multi-month head-and-shoulders pattern in the past few months. It had broken out on the downside from the neckline. On the way down nickel had broken from a bearish flag pattern and achieved the conservative as well as the aggressive flag targets. Since then it has done a channelised pull-back and retested the neckline. It has once again formed a bearish flag pattern. Thus, this is an opportunity to initiate fresh short positions. The base metal is set for a significant decline. The conservative head-and-shoulders target is Rs690. The reversal of the bearish view can be placed above Rs875.
Trend Down Trend reversal Rs875 Supports Rs805/750 Resistances Rs850/865 Target
er October Novem ber Decem ber 2013 February March April May June KST (0.04063) 0 -5 NICKEL 1 KG - 1 MONTH (838.000, 846.900, 837.200, 837.900, +0.90002) 1050
1000
950
900
875
850
800
750
700
690
July
Aug
Rs690
Turmeric poised for a fall

NCDEX turmeric had formed a multi-month wedge pattern in the past few months. Near the top of the pattern increased volume activity suggests that distribution has taken place. Thus, turmeric has tumbled down from the wedge pattern. It has broken out on the downside from the wedge pattern. It recently formed a short-term bounce and resumed the downtrend. In the short term and medium term, the momentum indicators are in line with the bearish expectations. The targets on the downside are Rs5,220 and Rs4,856. The reversal can be pegged at Rs6,200.
Trend Down Trend reversal Rs6,200 Supports Rs5,510/5,000 Resistances Rs6,000/6,166 Target
30000 10000 KST (3.31413) 20 15 10 5 0 -5
TURMERIC QUINTAL - 1 MONTH (6,010.00, 6,012.00, 5,784.00, 5,784.00, -240.000) 7500
7000
6500
6200
6000
5500
5220
5000
4856
4500
Rs5,220/ Rs4,856
eptem ber
November Decem ber
2013
February
March
April
May
June
July
35
July 2013
MONTHLY VIEW
CURRENCY
FUNDAMENTALS
Currencies: Rupee hammered by broad-based dollar strength

Key points Indian Rupee fell to a new life-time low against the US Dollar RBI not targeting any exchange rate: RBI Governor D. Subbarao RBI may hike rates if rupees downtrend continues UK economy showing signs of life, BoE adopts a dovish stance Euro zone economic activity shrinks further in June Fed likely to taper its QE programme in late 2013
June 2013 contract price movement
USDINR 61.0 60.0 59.0 58.0 57.0 56.0 11-Jun-13 13-Jun-13 15-Jun-13 17-Jun-13 19-Jun-13 21-Jun-13 23-Jun-13 30-May-13 25-Jun-13 1-Jun-13 3-Jun-13 5-Jun-13 7-Jun-13 9-Jun-13 JPYINR 63 62 61 60 59 58 57 56 55
79 78 77 76 75 74 73 1-Jun-13 3-Jun-13 5-Jun-13 7-Jun-13 9-Jun-13 11-Jun-13 13-Jun-13 15-Jun-13 17-Jun-13 19-Jun-13 21-Jun-13 23-Jun-13 30-May-13 25-Jun-13
CURRENCY LEVELS IN JUNE 2013 (IN RS) Currency INR-USD INR-EUR INR-GBP INR-JPY High 60.18 79.62 93.00 62.35 Low 56.25 72.37 84.59 55.10 Close 59.86 78.26 92.32 61.37 Monthly chg (%) -5.57 -7.55 -8.47 -6.37
June 2013 contract price movement

EURINR GBPINR 92.5 91.5 90.5 89.5 88.5 87.5 86.5 85.5
INR-USD
CMP: Rs60.18 (SPOT)
The rupee fell by more than 7% in June this year against the US Dollar after a rout in bond markets triggered by concerns of US Federal Reserve (Fed) tapering its quantitative easing (QE) programme in late 2013 saw the foreign institutional investors pulling out more than $5.5 billion from the Indian debt market. In its policy meet last month, the Fed had appeared more willing to reduce the size of its monthly bond purchases rather than increase it. Meanwhile, the Indian government and the Reserve Bank of India (RBI) were mere spectators as the rupee made a new life-time low of 60.72 per US Dollar. The current account deficit (CAD) for Q4FY2013 fell to 3.6% of the gross domestic product (GDP); however the CAD may rise sharply for the ongoing quarter. Gold imports may not fall substantially ahead as a high Consumer Price Index shall ensure demand for the yellow metal. We do not see any major reform being initiated in India in this year to stem the fall in the rupee while concerns of asset bubbles will push the Fed to taper its QE in 2013. The RBI may hike the interest rates if the rupee continues to depreciate and goes beyond the 62.00 level. We see the USD-INR in the 59.00-62.00 range in the month ahead.
INR-GBP
CMP: Rs90.77 (SPOT)
The GBP-USD ended a mere 0.08% higher after the positive effect of strength in the UK economic data were weighed down by concerns of the Fed tapering its QE programme in 2013. Resilience in the GBP-USD pair coupled with a sharp rise in the USD-INR pushed the pound to a new high of 93.46 against the rupee. The UK manufacturing and service sector activity in June rose at the fastest pace in two years which reduced the necessity for fresh stimulus measures from Bank of England (BoE). However, the central bank in its dovish forward guidance noted that higher market interest rates are weighing on its economic outlook. This is evident from the fact that the recent strength in the UK economy lacks support from business investments or net exports. The GBP-USD is likely to trade in the 1.5-1.55 range with occasional fall on broad-based dollar strength. We see the GBP-INR in the 94.62-89.87 range in the month ahead.
INR-EUR
CMP: Rs77.64 (SPOT)
The single currency continued to defy weak macro-economic indicators rising to 1.34 levels in June against the US Dollar. Accordingly, the EUR-INR pair hit a new life-time high of 79.45. The euro zone economies shall continue to shrink for the remaining part of 2013 as political uncertainty in Portugal, Greece and Italy are taking center stage erasing any probability of pro-growth structural reforms. Moreover, the sustained strength in the euro above 1.3 levels against the US Dollar makes the European Union exports less competitive. We thus expect European Central Bank to eventually adopt a dovish stance in order to weaken the euro. As it is, the currency would see a sharp depreciation if the Fed unwinds its QE programme. We see the EUR-USD in the 1.26-1.32 range. The EUR-INR is likely to trade in the 80.50-76.21 range in the month ahead.
INR-JPY
CMP: Rs60.20 (SPOT)
The yen remained volatile in the 94-100 range against the US Dollar in June, tracking the rise in the US benchmark bond yields. On the other hand, the Japanese government bond yields stabilised after torrid moves in May which had seen a sharp appreciation in the yen. We expect the USD-JPY to continue to trade in the 100-94 range as Bank of Japan will maintain its monetary policy for the remaining part of 2013 while expectations of the Fed tapering its QE programme will persist. Meanwhile, the crisis in the euro zone and the slowdown in China will see strength in the yen via the unwinding of carry trades. We see the JPY-INR in the 61.60-58.99 range.
CMP as on July 03, 2013
July 2013
36
CURRENCY
TECHNICALS
TREND & VIEW
USD-INR: Pit stop

Since the break-out from an ending diagonal in May, the USDINR has rallied smartly. On the way up it has crossed multiple resistances. It has achieved the conservative equality target on the upside, ie 60.57. Since then it has entered correction mode. From a short-term perspective, the price can come down till 59-58.70. In that region one can look for initiating fresh long positions with reversal below 57.80 on a closing basis. Our aggressive equality target on the upside is 63.30.
Relative Strength Index (65.4404) 80 70 60 50 40 30 20 64.5 64.0
GBP-INR: CUSHION FOR BULLS

The GBP-INR in its previous fall had taken support near a longterm rising trendline (blue line in the chart). From there bulls regained strength, as a result of which we witnessed a strong rally. The price on the way up crossed a crucial resistance level where it had faced resistance several times before; however it fell just short of the equality target. Currently, the price has fallen back to retest the level, which will now act as a support. Thus 89.50 and 88.40 are the key levels on the downside where a fresh round of buying can be seen. The level of 86.90 will act as reversal on a closing basis and the target remains 93.85.
KST (-0.05144) 5 0
GBPINR (92.0020, 92.0900, 90.3900, 90.5100, -1.48000)
USDINR - INDIAN RUPEE (60.0300, 60.3940, 59.9000, 60.0600, -0.15100)
63.30
63.5 63.0 62.5 62.0 61.5 61.0 60.5 60.0 59.5 59.0 58.5 58.0 57.5 57.0 56.5 56.0 55.5 55.0 54.5 54.0 53.5 53.0 52.5 52.0 51.5 51.0
100.0% 61.8% 50.0% 38.2% 23.6% 0.0%
93.85
95.5 95.0 94.5 94.0 93.5 93.0 92.5 92.0 91.5 91.0 90.5 90.0 89.5 89.0 88.5 88.0 87.5 87.0 86.5 86.0 85.5 85.0 84.5 84.0 83.5 83.0 82.5 82.0 81.5 81.0 80.5 80.0 79.5
59 58.70 57.80
89.50 88.40
86.90
Jun
Jul
Aug
Sep
Oct
Nov
Dec
2013
Feb
Mar
Apr
May
Jun
Jul
Aug
Augus t
Septem ber
Novem ber
2013
February
April
May
June
July
Augu
EUR-INR: Bulls gathering strength

In case of the EUR-INR a short-term correction had found support near the medium-term rising trendline. From there the price took off sharply. The momentum on the way up was so sharp that the price crossed the upper end of the long-term rising channel. For the last few week the price has been consolidating before it starts the next leg up. This has allowed the momentum indicator to reach the equilibrium line from where it can start a fresh cycle on the upside. From a short-term perspective, the price can come down till 76.00 where fresh longs can be added with reversal below 75.00 on a closing basis. The target on the upside will be 80.70, ie the upper end of the medium-term rising channel.
KST (0.27730) 5 0
JPY-INR: Sub-division on the way up

As can be seen from the adjacent chart, the JPY-INR had fallen down significantly. It achieved the equality target on the downside. Recently the JPY-INR formed an ending diagonal, which marked the end of the fall. It has broken out from the bullish pattern as well as from the medium-term falling channel. Thus, the trend has turned bullish from a medium-term perspective. However, the pull-back is breaking up into lower-degree waves. A minor degree correction till 0.5865-0.5745 is expected before the price starts moving higher. The key levels on the upside will be 0.6265-0.6490. The reversal can be pegged at 0.5660 on a closing basis.
MACD (0.007586) 0.01 0.00 -0.01
EURINR (78.3100, 78.5120, 77.4670, 77.5550, -0.77300)
80.70
76.00 75.00
82.0 81.5 81.0 80.5 80.0 79.5 79.0 78.5 78.0 77.5 77.0 76.5 76.0 75.5 75.0 74.5 74.0 73.5 73.0 72.5 72.0 71.5 71.0 70.5 70.0 69.5 69.0 68.5 68.0 67.5 67.0 66.5 66.0 65.5 65.0 64.5 64.0 63.5 63.0
Augus t Septem ber
JPYINR (0.60250, 0.60570, 0.59930, 0.60020, -0.00230)
0.74 0.73 0.72 0.71 0.70 0.69 0.68 0.67 0.66
0.6490
0.65 0.64
0.6265
0.0%
0.63 0.62 0.61
23.6% 38.2% 50.0% 61.8%
0.60 0.59
0.5865 0.5745 0.5660
0.58 0.57 0.56 0.55 0.54
100.0%
0.53 0.52 0.51
Novem ber
2013
February
April
May
June
July
Augus t
gus t
Septem ber
Novem ber
2013
February
April
May
June
July
Augus t
Currency USD-INR GBP-INR EUR-INR JPY-INR
View Up Up Up Up
Reversal 57.80 86.90 75.00 0.5660
Supports 59/58.70 89.50/88.40 76.39/76.00 0.5865/0.5745
Resistances 60.76/62.50 92.17/93.47 79.46/80.00 0.6120/0.6243
Target 63.30 93.85 80.70 0.6265-0.6490
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July 2013
PMS FUNDS
PMS
DESK
Portfolio Management Service

We are pleased to introduce you to Sharekhans Portfolio Management Service (PMS) in which we completely manage your investment portfolio so that you stop worrying about the market volatility and focus your energy on things that you like to do! We have a wide range of strategies that you can choose from. Our strategies are based on fundamental research and technical analysis. We have the following strategies on offer:
ProPrime
(based on fundamental research)
Top Equity Nifty Thrifty Trailing Stoploss
Diversified Equity Diversified
ProTech (based on technical analysis)
PROPRIME - TOP EQUITY

OVERVIEW
The ProPrimeTop Equity PMS strategy is suitable for the long-term investors looking to create an equity portfolio through disciplined investments that will lead to a growth in the portfolios value with low to medium risk.
(In %) 1 month 3 month Since inception*
Product performance as on June 30, 2013

Scheme -3.4 2.3 -7.2 11.8 -10.6 12.7 -12.9 Sensex -1.8 3.0 7.8 11.2 -8.9 12.6 -12.7 Nifty -2.4 2.8 8.3 12.4 -9.3 14.5 -12.5
INVESTMENT STRATEGY
Disciplined investment decisions are taken in specific stocks based on thorough fundamental research. Investments are made primarily in the Nifty Fifty or the BSE 100 scrips. Attempts to have an exposure of minimum of 70% in the Nifty Fifty stocks and that of minimum of 90% in the BSE 100 stocks. Endeavours to create a core portfolio of blue-chip companies with a proven track record and have partial exposure to quality companies in the mid-cap space.
Best month Worst month Best quarter Worst quarter

*16-June-11
Disclaimer: Returns are based on a clients returns since inception and may be different from those depicted in the risk disclosure document.
PRICING
Minimum investment of Rs25 lakh Charges 2% per annum; AMC fee charged every quarter 0.5% brokerage 20% profit sharing after the 12% hurdle is crossed at the end of every fiscal
Top 10 stocks
Bank of Baroda BHEL Cipla HDFC Bank Larsen & Toubro Oil India Reliance Communications Reliance Industries State Bank of India
Fund Manager: Gaurav Dua

FUND OBJECTIVE
Zee Entertainment Enterprises
A good return on money through long-term investing in quality companies
July 2013
38
PMS
DESK
PMS FUNDS
PROPRIME - DIVERSIFIED EQUITY

OVERVIEW
The ProPrimeDiversified Equity PMS strategy is suitable for long-term investors looking to create an equity portfolio through disciplined investments that will lead to a growth in the portfolios value with medium to high risk.
INVESTMENT STRATEGY
Disciplined investment decisions are taken in specific stocks based on thorough fundamental research. A balanced mix of value and growth stocks (mid-cap and small-cap) is created that represents investment opportunities across sectors and market capitalisation. Invests in quality value and growth stocks with good earnings visibility and healthy balance sheet. The fund manager, with the help of extensive, in-house, superior research, identifies fundamentally sound companies to invest in. The fund manager strives to capture the short-term trading opportunities to maximise the potential of the swings in specific stocks.
(In %) 1 month 3 month

Scheme -7.2 -6.5 156.5 50.9 -23.2 71.1 -28.5 S&P CNX 500 -3.6 1.6 233.3 34.4 -27.2 51.2 -28.6
Since inception* Best month Worst month Best quarter Worst quarter
*27-Aug-04
PRICING
Minimum investment of Rs25 lakh Charges 2.5% per annum; AMC fee charged every quarter 0.5% brokerage 20% profit sharing after the 15% hurdle is crossed at the end of every fiscal
FUND MANAGERS VIEW

The market experienced immense volatility throughout the last month on account of a huge fall in the rupee against the dollar. The local currency even broke the psychological level of 60 on its way down, causing the foreign institutional investors to push the sell button in the debt and equity markets. No doubt debt funds saw a larger outflow compared with equity funds, but sentimentally the trigger was enough to bring down specific companies as against the benchmark indices in the equity market. Even globally, the situation worsened on account of a slowdown in China and the reappearance of the economic crisis in Europe. But too a large extent, the situation was seen as manageable by the global political leaders and we did not see any risk of another panic sale in our stock market. Looking at India, certain positive developments have taken place recently which will have a positive impact on the stock market. The fall in gold prices will bring down the current account deficit while the declining interest rates and softening commodity prices will improve the bottom line of Indian companies in the second half of the financial year. In the ProPrime Diversified Equity we booked profit on Britannia Industries and Torrent Pharmaceuticals, and consolidated our position in Power Finance Corporation, Bank of Baroda, Allahabad Bank and Cipla aggressively. This strategy of ours will play extremely well once the market starts realising the true potential of these companies. We expect the market to stabilise well before the general election due next year and see a sustainable rally after the election on the back of continued reforms, falling interest rates, softening prices of commodities including crude and gold, and improved corporate earnings.
Top 10 stocks
Bank of Baroda BHEL Cipla Federal Bank ITNL Power Finance Corporation Reliance Industries Reliance Infrastructure Southern Petrochemicals Sterlite Industries (India)
Fund Manager: Suhas Samant

FUND OBJECTIVE
A good return on money through long-term investing regardless of short-term volatility
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July 2013
PMS FUNDS
PMS
DESK
PROTECH - DIVERSIFIED
OVERVIEW
The ProTechDiversified PMS strategy is suitable for long-term investors who desire to profit from both bullish and bearish market conditions. The strategy involves going long (buying) or going short (selling without holding) on certain investment classes by predicting the market direction based on a back-tested automated model.
INVESTMENT STRATEGY
This strategy has the potential to generate profits irrespective of the market direction by going long or short on specific indices and stocks. It invests in the Nifty and the Bank Nifty indices (via futures) and 10 stock futures. An automated basic back-testing model is used to predict the market direction for each of the indices and stocks which then decides the strategy to be deployed in terms of going long or short. The portfolio is not leveraged, ie its exposure will never exceed its value.
(In %) 1 month 3 month FY12-13 FY11-12 FY10-11 FY09-10

Scheme 0.5 3.6 2.3 8.8 9.8 26.5 11.4 -8.1 6.3 -3.5 Sensex -1.8 3.0 8.2 -10.5 10.9 15.2 11.2 -10.6 12.6 -12.7 Nifty -2.4 2.8 7.3 -9.2 15.3 15.5 12.4 -10.3 14.5 -12.5
PRICING
Minimum investment of Rs25 lakh Charges AMC fees: Brokerage: Profit sharing: 0% 0.05% Flat 20% charged on a quarterly basis
Since inception* Best month Worst month Best quarter Worst quarter
*16-May-2010
FUND MANAGERS VIEW

The last month started on an extremely pessimistic note and saw the market getting hammered out of shape without any sign of relief except in the last two days of the month when the market rallied by a good 4% and narrowed down the months loss to 2.4%. We have entered the July series on the back of strong momentum and healthy participation from almost all the sectors. There is certainly hope for bulls. The month has started on a positive note and should build on the momentum carried from the previous series. Position-wise, the market is very light as roll-overs were the lowest in the last month as compared with that in the last 12-18 months. This indicates no major supply is likely to come at higher levels and the Nifty can retrace right up to 6100 or beyond. July is more likely to be a stock-oriented month rather than indexoriented, so one should watch out for action in the mid-cap space. Most of the midcap stocks were hammered very badly in the June series and are bouncing from an extremely oversold territory with the shorts still to be covered. The key levels to watch out for in the July series for trend reversal lie in the 5700-5750 range whereas resistance may come around 5900-6100 levels. The net asset value of ProTech Diversified increased by 0.46% in June this year. The scheme has delivered close to 3.57% returns for the quarter ending June 2013. The March quarter was not so good and the fund incurred a loss of 3.5%, the worst quarterly loss in three years. But we are back on track and have recovered the losses suffered in the previous quarter. We expect the scheme to deliver a strong performance in the coming quarters as the market is resuming it trending behaviour with increased volatility.
Investments in*
Apollo Tyres Bank Nifty Century Textiles IDBI Bank JP Associates LIC Housing Finance Nifty Punj Loyd Reliance Capital Tata Motors Tata Steel Yes Bank
Fund Manager: Abhinay Jain
*Traded stocks
FUND OBJECTIVE
Absolute returns irrespective of market conditions through a long-short strategy followed in multiple investments
July 2013
40
PMS
DESK
PMS FUNDS
PROTECH - NIFTY THRIFTY

OVERVIEW
The ProTechNifty Thrifty PMS strategy is suitable for long-term investors who desire to profit from both bullish and bearish market conditions. The strategy involves going long (buying) or going short (selling without holding) on Nifty futures by predicting the market direction based on a back-tested automated model.

(In %) 1 month 3 month FY12-13 FY11-12 FY10-11 FY09-10 Since inception* Scheme 2.8 0.2 3.7 13.1 9.2 14.7 154.1 28.9 -17.1 33.3 -11.7 Sensex -1.8 3.0 8.2 -10.5 10.9 80.5 91.6 28.3 -23.9 49.3 -25.0 Nifty -2.4 2.8 7.3 -9.2 11.1 73.8 93.4 28.1 -26.4 42.0 -24.5
INVESTMENT STRATEGY
The strategy has the potential to generate profits irrespective of the market direction by going long or short on Nifty futures. An automated basic back-testing model is used to predict the market direction for the Nifty which then decides the strategy to be deployed in terms of going long or short. The portfolio is not leveraged, ie its exposure never exceeds its value.
PRICING
Best month Worst month Best quarter Worst quarter
*01-Feb-2006
FUND MANAGERS VIEW

June 2013 was a good month with the ProTech Nifty Thrifty giving 2.8% returns but the June quarter was narrow as trends remained volatile. We recently witnessed the trends reverse very fast. Such rapid reversal of trends often takes a lot of the returns made from a previous trend off the table. The Nifty itself is in a narrow range where the standard deviation is at a multi-year low on a weekly time frame. Trendfollowing systems need bigger trading ranges for optimal performance. Our view of the market remains positive in the short term but negative in the medium term. The range of 5500-6100 seen for the last six months should break going ahead and widen in favour of bigger moves with more downside potential.
Investments in
Nifty Index
Fund Manager: Rohit Shrivastava
FUND OBJECTIVE
Absolute returns irrespective of market conditions.
41
July 2013
PMS FUNDS
PMS
DESK
PROTECH - TRAILING STOPS

OVERVIEW
Our ProTechTrailing Stops PMS strategy is ideal for Traders and Investors looking for Regular Income from trading and desire to make profits in both bullish and bearish market conditions. It is designed to payout book profits on monthly basis.* It is also for those investors who are looking for better income than Fixed Income or Deposits. This strategy involves going Long (buying) or Short (selling without holding) on stock futures. * Terms and conditions apply
(In %) 1 month

Scheme -1.1 -1.2 14.9 29.0 46.5 9.1 -4.4 9.9 -1.2 Sensex -1.8 3.0 8.2 -6.1 4.7 11.3 -8.9 12.6 -12.7 Nifty -2.4 2.8 7.3 -4.6 5.2 12.4 -9.3 14.5 -12.5
INVESTMENT STRATEGY
This strategy spots the winning trades based on technical analysis vs time framebased portfolios, basically the momentum calls. A risk model has been developed for stock portfolio allocation that reduces the risk and portfolio volatility through staggered building of positions. It is non-leveragedthe exposure will never exceed the value of the portfolio.
3 month FY12-13 FY11-12 FY10-11 FY09-10 Since Inception* Best month
PRICING
Worst month Best quarter Worst quarter

*09th May 2011
FUND MANAGERS VIEW

June 2013 was negative for ProTech Trailing Stops in terms of returns. But over the last two quarters we have managed to keep the funds capital intact in what has been a very difficult market for its lack of trend from an index perspective. Stocks did exhibit small moves but as we keep our eye on the index as well while strategising, we were pushed back after every move by the volatility and over-night gaps. We hope to take a more aggressive stance on the market as it eventually breaks out of the last six months trading range. That should see us get rewarded for our patience. This has been the slowest period for the funds returns since its inception. Our view of the market remains positive in the short term but negative in the medium term. The range of 5500-6100 seen for the last six months should break and widen in favour of bigger moves with more downside potential.
Investments in
Nifty Index Stock futures
Fund Manager: Rohit Shrivastava
FUND OBJECTIVE
Absolute returns irrespective of market conditions.
July 2013
42
ADVISORY
DESK
MONTHLY PERFORMANCE
Advisory Products & Services

The Advisory Desk is a central desk consisting of a Mumbai-based expert team that runs various sample model portfolios (for illustrative purposes only) for clients of all profiles, be they traders or investors. For investors, it has the Portfolio Doctor service under which it reviews an existing portfolio on various parameters and suggests changes to improve its performance. For traders, it has four products in all: MID Intraday, MID Swing, MID Option and MID Delivery. All MID products are different from Sharekhans research-based technical and fundamental offerings as these essentially try to capture trading opportunities in liquid stocks where momentum is expected before or after some event including the announcement of results or where some news/event is probable. These calls are rolled out by the Advisory Desk based on the market pulse and before generating an MID call, all market news on the stock as well as its technical and derivative indicators are thoroughly checked. Advisory products are ideal for those who do not have time to either monitor the market tick by tick or shift through pages of research for data or pour over complex charts to catch a trend. However, all these products require perfect discipline and money management.
FOR TRADERS MID TRADES

W NE
There are four different types of MID calls. MID Swing: These are positional long/short ideas based on fundamental rationales/events/news as well as technical checks. These ideas come with proper stop losses and probable targets. MID Delivery: This is a long-only cash market delivery product where ideas are generated based on the market pulse (and not fundamental research). These ideas come with proper stop losses and probable targets for a maximum period of one month. MID performance# Product Month No. of calls Profit booked Stop loss hit Strike rate (%) MID Intraday June 2013 YTD FY14 76 46 30 61 186 110 76 59 MID Swing
MID Options: These are directional calls in the options segment based on the analysis of the open interest and the put-call ratio in the market. These too come with proper stop losses and probable targets. MID Intraday: These are long/short ideas based on fund flow and technical levels. As is apparent from the name, these calls are meant for intra-day trading. All MID Intraday calls are accompanied by proper stop losses and probable targets.
MID Delivery June 2013 22 11 11 50 27 13 14 48 71 38 33 54
MID Option 31 19 12 61 78 43 35 55
June 2013 YTD FY14 7 3 4 43
YTD FY14 June 2013 YTD FY14
DERIVATIVE IDEA
Derivative Idea is generated by the Sharekhan Derivatives Research Desk based on the analysis of open interest, implied volatility and put-call ratio. It is a leveraged product and ideal for aggressive traders. Calls in Derivative Idea are accompanied by proper stop loss, targets, time frame and quantity to execute.
Derivative Ideas performance# Ticket size (Rs) Month No. of calls Profit and loss (Rs) Returns (%) June 2013 47 26,213 8.74 300,000 YTD FY14 98 34,166 11.39
FOR INVESTORS
PORTFOLIO DOCTOR Portfolio Doctor evaluates an existing portfolio on various parameters and suggests recommendations on a
regular basis to improve its performance. It is targeted at long-term investors with a portfolio value of more than Rs10 lakh. The Portfolio Doctor service involves three simple steps: analysis of an existing portfolio, realignment of the portfolio with Sharekhans creation of a Model Portfolio. recommendations
#Please note there may be some deviation in the actual performance reported in TradeTiger due to a difference in the method of closure of an idea in a particular month.
For more details on any of the Advisory Desk products write to us at info@sharekhan.com READY FOR ROARING ADVICE
43
July 2013
July 2013
44
MUTUAL FUNDS
DESK
MF PICKS
SHAREKHANS TOP MUTUAL FUND PICKS (EQUITY)

Scheme name Star rating NAV (Rs) Absolute 6 months 18.4 21.8 25.2 233.6 31.0 19,545.8 56.4 38.7 18.0 34.2 15.4 6,412.4 31.7 62.3 247.2 61.5 121.9 7,398.2 15.1 237.7 21.7 28.8 14.8 4,652.6 16.2 13.2 19.7 16.1 9.5 5,919.5 56.1 62.6 56.1 345.7 232.4 -0.2 -7.0 -1.4 -0.1 -1.9 1.0 -3.7 -2.3 -1.6 -3.8 -10.2 -8.3 -1.4 0.6 -1.1 -2.3 1.0 -1.5 2.1 -0.4 -2.6 -2.2 -0.9 -1.0 0.6 -0.1 3.4 -5.6 -4.5 0.5 2.3 -0.7 3.3 1.1 -1.1 3.3
JUNE 13, 2013

Data as on June 04, 2013
Returns (%) Compounded annualised 1 year 3 years 5 years 22.2 7.8 22.6 19.8 21.1 22.2 27.3 22.2 18.5 18.7 11.7 10.4 20.2 22.7 21.8 18.7 22.9 19.7 28.0 20.4 24.8 18.3 23.0 20.8 31.5 19.8 29.1 21.1 18.8 22.1 20.3 12.6 20.7 20.0 13.3 19.2 9.0 8.7 7.3 6.9 6.1 4.5 16.9 11.3 9.6 4.9 2.0 -2.4 10.2 8.9 8.1 6.5 3.2 2.6 11.6 8.9 6.6 6.3 5.8 3.0 10.7 6.9 6.8 6.1 0.4 4.8 10.7 8.4 7.6 7.3 6.8 6.5 13.4 -8.6 10.1 5.4 4.7 12.3 14.0 14.0 9.0 6.1 0.1 13.2 10.5 9.3 12.0 6.9 4.0 -10.4 --5.2 4.6 -10.1 4.3 3.8 2.0 5.2 9.2 12.8 8.5 11.2 13.3 7.1
Since inception 12.9 19.1 12.9 24.3 11.5 16.5 22.0 19.3 10.4 15.5 6.9 21.3 15.8 11.0 18.7 20.5 16.9 15.0 12.8 25.1 19.0 27.7 6.1 8.5 13.8 24.3 9.4 7.0 -0.9 14.2 13.5 15.5 13.6 21.3 19.3 13.0
Large-cap funds ICICI Prudential Focused Bluechip Equity Fund - Ret UTI Wealth Builder Fund - Series II Birla Sun Life Top 100 Fund Franklin India Bluechip UTI Top 100 Fund Indices BSE Sensex Mid-cap funds SBI Emerg Buss Fund IDFC Premier Equity Fund - Reg HDFC Mid-Cap Opportunities Fund UTI Mid Cap Fund Reliance Long Term Equity Fund Indices BSE MID CAP Multi-cap funds UTI Opportunities Fund UTI Equity Fund Franklin India Prima Plus Canara Robeco Equity Diversified Templeton India Growth Fund Indices BSE 500 Tax saving funds Axis Long Term Equity Fund Franklin India Taxshield IDFC Tax Advantage (ELSS) Fund - Reg Canara Robeco Equity Taxsaver Birla Sun Life Tax Plan Indices CNX500 Thematic funds Canara Robeco FORCE Fund - Reg Franklin Build India Fund ICICI Prudential Service Industries Fund Sundaram Rural India Fund - Reg Birla Sun Life Special Situations Fund Indices S&P Nifty (CNX Nifty) Balanced funds ICICI Prudential Balanced HDFC Balanced Fund FT India Balanced Fund Birla Sun Life 95 HDFC Prudence Fund Indices Crisil Balanced Fund Index
Every individual has a different investment requirement, which depends on his financial goals and risk-taking capacities. We at Sharekhan first understand the individuals investment objectives and risk-taking capacity, and then recommend a suitable portfolio. So, we suggest that you get in touch with our Mutual Fund Advisor before investing in the best funds.
Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a postition in the mutual funds mentioned in the article.
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July 2013
MF PICKS
MUTUAL FUNDS
DESK
SHAREKHANS TOP SIP FUND PICKS

Investment period Total amount invested (Rs) Funds would have grown to (Rs) Large-cap funds Birla Sun Life Frontline Equity Fund - Plan A ICICI Prudential Focused Bluechip Equity Fund-Ret Birla Sun Life Top 100 Fund Franklin India Bluechip UTI Top 100 Fund BSE Sensex Multi-cap funds UTI Equity Fund UTI Opportunities Fund Franklin India Prima Plus Canara Robeco Equity Diversified Templeton India Growth Fund BSE 500 Mid-cap funds SBI Emerg Buss Fund Franklin India Prima Fund IDFC Premier Equity Fund - Reg HDFC Mid-Cap Opportunities Fund UTI Mid Cap Fund BSE Midcap Tax saving funds HSBC Tax Saver Equity Fund Franklin India Taxshield Tata Tax Saving Fund - Plan A Birla Sun Life Tax Plan Birla Sun Life Tax Relief 96 CNX Nifty 16.4 237.7 45.6 14.8 11.5 5,919.5 12,607.2 12,448.1 12,489.7 12,435.8 12,460.3 12,489.4 5.5 4.1 4.5 4.0 4.2 4.5 40,642.0 40,092.5 39,457.1 39,206.4 38,241.6 38,765.9 4.2 3.8 3.2 3.0 2.1 2.6 56.4 321.8 38.7 18.0 34.2 6,412.4 12,443.1 12,774.7 12,602.0 12,321.5 12,418.5 11,838.0 4.0 7.1 5.5 2.9 3.8 -1.47 44,510.3 41,572.8 41,329.4 40,209.5 38,913.1 34,768.8 7.5 5.1 4.8 3.9 2.7 -1.2 62.3 31.7 247.2 61.5 121.9 7,398.2 12,527.5 12,419.9 12,460.5 12,270.3 12,473.8 12,352.1 4.8 3.8 4.2 2.5 4.3 3.20 40,469.2 40,460.3 39,852.6 39,527.3 38,291.8 37,716.9 4.1 4.1 3.5 3.3 2.1 1.6 98.9 18.4 25.2 233.6 31.0 19,545.8 12,662.8 12,517.8 12,380.3 12,392.0 12,348.8 12,501.5 6.0 4.7 3.5 3.6 3.2 4.56 40,654.9 40,107.9 39,811.3 39,132.7 38,912.7 38,604.9 4.3 3.8 3.5 2.9 2.7 2.4 NAV 1 year 12,000 Present Avg. annual value (Rs) return (%) 3 years 36,000 Present value (Rs) Avg. annual return (%)
MAY 9, 2013
June 13, 2013
5 years 60,000 Present Avg. annual value (Rs) return (%)
81,810.1 84,258.4 78,712.7 79,674.3 74,403.0 73,673.9
6.5 7.1 5.7 5.9 4.5 4.3
82,630.6 85,019.8 80,193.6 82,902.7 76,777.9 72,780.1
6.7 7.3 6.1 6.8 5.1 4.0
104,317.5 87,393.2 91,743.7 89,936.5 81,912.9 67,440.2
11.9 7.9 9.0 8.6 6.5 2.4
80,051.1 82,639.8 78,223.2 75,400.5 74,264.8 74,019.2
6.0 6.7 5.5 4.8 4.4 4.4
Every individual has a different investment requirement, which depends on his financial goals and risk-taking capacities. We at Sharekhan first understand the individuals investment objectives and risk-taking capacity, and then recommend a suitable portfolio. So, we suggest that you get in touch with our Mutual Fund Advisor before investing in the best funds.
Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a postition in the mutual funds mentioned in the article.
July 2013
46
EARNINGS GUIDE
EQUITY
FUNDAMENTALS
Prices as on July 04, 2013
Sharekhan Earnings Guide

Company CMP (Rs) FY13 Sales FY14E FY15E FY13 Net profit FY14E FY15E FY13 EPS FY14E (%) EPS growth FY15E FY15/FY13 PE (x) RoCE (%)
RoNW (%) FY15E
DPS
FY13 FY14E FY15E FY14E FY15E FY14E
Div yield (Rs) (%)
AUTOMOBILES
Apollo Tyres Ashok Leyland Bajaj Auto M&M Maruti Suzuki 60.9 18.6 1,876.6 982.1 1,557.4 12,794.6 12,438.2 19,997.3 40,441.2 42,850.5 14,104.3 13,661.8 22,631.5 46,828.1 50,086.4 15,417.6 16,144.0 26,854.9 54,635.8 58,777.2 596.9 148.2 3,043.6 3,262.2 2,300.0 732.1 198.9 3,588.7 3,338.9 3,533.2 786.3 603.0 4,190.1 3,790.8 3,936.9 11.9 0.6 105.2 53.1 79.6 14.5 0.7 124.1 54.4 117.0 15.6 2.3 144.9 61.7 130.3 14% 96% 17% 8% 28% 5.1 30.9 17.8 18.5 19.6 4.2 26.5 15.1 18.1 13.3 3.9 8.1 13.0 15.9 12.0 19.0 5.9 45.5 24.0 20.6 18.2 11.2 43.8 24.1 20.5 18.0 4.5 36.0 19.8 16.6 16.3 12.9 33.7 19.4 16.3 0.5 0.6 45.0 13.0 7.5 0.8 3.2 2.4 1.3 0.5
BANKS & FINANCE

Allahabad Bank Andhra Bank Axis (UTI) Bank Bajaj Finserv Bank of Baroda Bank of India CanFin Homes Capital First Corp Bank Federal Bank HDFC HDFC Bank ICICI Bank IDBI Bank Punjab National Bank SBI Union Bank of India Yes Bank 88.2 82.7 1,265.0 635.2 546.6 224.6 136.2 153.2 349.2 400.5 852.1 655.2 1,063.7 71.4 620.1 1,900.0 173.4 470.2 251.4 5,582.2 807.9 601.4 338.9 185.0 208.7 282.5 143.5 655.0 1,319.5 799.8 2,468.0 264.9 492.3 1,538.3 349.7 6,343.3 4,804.3 16,217.4 5,072.4 14,945.9 12,790.0 109.5 253.7 5,033.8 2,639.1 5,927.5 22,663.7 22,212.1 8,592.6 19,072.4 60,366.1 10,094.9 3,476.2 606.7 3,079.4 6,390.8 26,317.2 29,901.3 1,106.0 4,596.2 1,629.5 7,351.0 388.0 1,927.6 25,339.1 40,352.0 2,021.4 1,294.5 62,989.5 37,425.6 47,617.7 5,317.0 12,094.4 1,873.3 6,085.0 8,857.0 4,690.9 1,360.2 7,587.2 5,281.3 19,482.2 17,019.3 14,852.4 137.7 352.8 5,809.3 3,136.4 7,281.7 27,281.1 26,153.0 8,960.6 21,726.1 68,222.0 11,865.6 4,110.2 749.1 3,638.4 7,867.9 30,866.8 34,719.9 1,372.5 5,278.8 1,876.2 8,318.3 456.8 2,311.2 28.177.4 43,323.8 2,338.6 1,485.9 72,452.1 40,222.3 39,196.7 5,850.1 13,407.1 2,135.6 7,013.9 10,927.0 5,138.0 1,699.4 9,047.9 6,172.3 22,595.5 20,224.3 17,283.9 162.4 468.3 6,998.8 3,711.9 8,882.2 33,089.3 30,448.1 10,336.3 25,592.0 13,520.8 5,351.0 919.2 4,244.8 9,641.9 35,455.3 40,863.8 1,691.5 6,168.2 2,128.8 9,411.3 539.8 2,812.0 31,207.4 47,166.5 2,648.0 1,653.5 43,289.3 39,027.8 6,234.4 15,040.1 2,413.2 7,804.6 12,952.0 5,600.5 2,079.0 1,185.2 1,289.2 5,179.4 1,573.6 4,480.7 2,749.3 54.1 63.1 1,434.8 838.2 4,848.3 6,726.2 8,326.2 1,882.1 4,747.7 2,158.5 1,300.7 167.4 436.8 742.3 3,232.7 7,418.4 129.7 370.3 274.2 391.5 99.1 230.3 3,906.3 9,421.0 213.2 187.7 6,136.2 6,614.7 618.0 84.6 155.6 129.5 129.0 349.9 62.9 1,772.6 1,281.2 6,702.2 4,970.1 3,964.4 68.2 89.2 1,624.5 910.4 5,851.5 8,205.5 9,349.8 2,140.5 5,254.8 15,011.8 2,773.9 1,312.9 203.3 524.4 949.2 3,599.8 8,917.6 196.8 451.8 370.0 452.6 112.1 289.7 4,298.0 9,889.1 249.9 206.4 15,968.3 6,516.6 4,664.8 645.1 301.3 168.3 177.0 153.6 367.7 83.8 2,243.3 1,506.2 7,811.1 5,831.1 4,554.2 81.7 125.3 2,034.5 1,099.5 6,926.0 10,301.2 11,144.9 2,553.1 6,449.6 17,600.7 3,144.8 1,757.4 261.1 602.6 1,208.8 3,970.1 10,799.2 252.9 554.3 440.9 518.7 138.0 358.7 4,675.1 11,041.2 278.7 238.0 17,699.5 6,839.4 4,849.3 666.6 565.6 193.8 206.3 171.5 411.7 104.6 23.7 23.0 110.7 103.0 106.0 46.1 26.4 9.0 93.8 49.0 31.3 28.3 72.2 14.1 134.3 206.2 36.2 36.3 11.3 103.9 20.4 14.9 9.4 1.2 5.7 25.1 6.3 25.4 76.0 55.8 164.7 35.4 46.9 71.2 24.9 27.0 49.2 1.3 6.4 8.4 4.3 29.4 21.1 35.4 22.9 143.2 117.6 66.4 33.3 12.7 106.2 53.2 38.0 34.5 81.2 16.7 148.7 219.5 46.5 33.3 13.8 124.7 25.7 16.6 11.4 4.2 7.0 33.8 7.3 28.7 95.6 61.4 172.9 41.5 51.6 81.6 26.5 19.1 51.4 4.7 6.9 11.5 5.2 30.9 28.1 44.9 26.9 166.9 138.0 76.3 39.9 17.8 133.0 64.3 45.0 43.3 96.8 20.0 182.5 257.3 52.7 44.6 17.7 143.3 32.5 18.4 13.7 8.3 8.6 40.3 8.4 35.3 118.5 66.8 193.0 46.3 59.5 90.4 27.8 19.8 53.1 8.8 7.9 13.4 5.8 34.6 35.0 38% 8% 23% 14% 29% 23% 41% 19% 15% 20% 24% 16% 19% 17% 12% 21% 11% 25% 17% 26% 11% 21% 163% 23% 27% 15% 18% 25% 9% 8% 14% 13% 13% 6% -14% 4% 160% 11% 26% 16% 8% 29% 3.7 3.6 11.4 6.2 5.2 4.9 5.2 17.1 3.7 8.2 27.2 23.2 14.7 5.1 4.6 9.2 4.8 13.0 22.2 53.7 39.6 40.4 36.0 154.2 36.6 11.3 22.8 25.8 17.4 14.3 15.0 7.5 10.5 21.6 14.0 6.5 7.3 68.0 9.4 7.8 11.5 20.2 22.4 2.5 3.6 8.8 4.6 3.4 4.1 12.1 3.3 7.5 22.4 19.0 13.1 4.3 4.2 8.7 3.7 14.1 18.2 44.8 31.4 36.2 29.7 44.0 29.8 8.4 19.7 22.8 13.8 13.0 14.3 6.4 9.5 18.9 13.2 9.2 7.0 18.8 8.7 5.7 9.5 19.2 16.8 2.0 3.1 7.6 4.0 2.9 3.4 8.6 2.6 6.2 18.9 15.1 11.0 3.6 3.4 7.4 3.3 10.5 14.2 39.0 24.9 32.7 24.7 22.3 24.3 7.0 17.1 18.6 11.1 12.0 12.8 5.7 8.3 17.0 12.6 8.8 6.8 10.0 7.6 4.9 8.5 17.2 13.5 48.7 53.9 22.0 132.0 46.0 10.8 22.1 20.7 10.8 40.5 35.1 34.6 31.8 28.7 26.9 39.1 17.8 20.0 8.6 10.2 28.6 11.3 8.9 26.2 29.4 52.2 52.5 26.4 102.7 45.6 17.0 24.1 21.4 11.9 38.0 34.7 30.9 30.2 27.3 26.4 35.8 17.5 19.8 8.3 16.1 28.0 11.1 9.5 25.7 30.5 14.7 14.4 18.7 14.7 15.6 16.2 8.9 15.9 13.6 20.8 20.9 13.5 9.7 15.1 14.3 15.2 18.0 38.7 35.3 26.0 98.6 36.8 10.8 20.7 18.2 9.1 37.6 27.3 29.9 23.8 20.8 19.1 30.6 20.4 13.8 9.6 7.9 19.6 8.6 6.3 17.2 30.1 16.5 15.1 18.7 15.3 15.9 17.0 11.5 17.6 14.7 19.9 22.2 14.7 10.7 16.3 15.0 15.3 18.6 41.6 34.4 27.2 73.3 36.7 20.3 21.1 18.9 9.8 35.1 27.0 26.3 22.5 20.0 18.8 27.9 19.0 12.9 9.2 13.5 19.5 9.1 6.8 16.9 31.1 6.0 5.0 18.0 1.5 21.5 10.0 4.0 1.5 19.0 9.0 12.5 5.5 20.0 3.5 27.0 41.5 8.0 6.0 6.5 45.0 5.0 6.0 5.3 2.5 1.0 7.0 2.2 6.0 17.5 12.0 42.0 8.5 9.0 22.0 7.0 5.4 7.0 0.4 1.6 1.5 1.6 7.0 3.5 6.8 6.0 1.4 0.2 3.9 4.5 2.9 1.0 5.4 2.3 1.5 0.8 1.9 4.9 4.4 2.2 4.6 1.3 2.6 0.8 0.6 1.0 1.5 1.4 0.5 2.5 1.5 0.9 1.3 1.5 1.7 3.2 1.8 1.4 2.0 3.1 2.0 0.5 2.7 2.3 3.2 1.2 0.7
78,998.7 14,105.0
CONSUMER GOODS
Bajaj Corp GSK Consumers GCPL Hindustan Unilever ITC Jyothy Laboratories Marico Mcleod Russel India TGBL (Tata Tea)^ Zydus Wellness
IT / IT SERVICES
CMC HCL Technologies** Infosys NIIT Technologies Persistent Systems TCS Wipro
81,993.3 13,941.4
CAPITAL GOODS / POWER

Bharat Heavy Electricals 174.8 CESC Crompton Greaves Greaves Cotton^ Kalpataru Power PTC India Thermax V-Guard Industries
@Stand-alone financials
358.4 88.4 60.1 65.7 49.4 593.5 472.0
**June ending company
Note: For Grasim and Apollo Tyres we have shifted our estimates to consolidated
47
July 2013
EQUITY
Company CMP (Rs)
FUNDAMENTALS
Sales FY13 FY14E FY15E FY13 Net profit FY14E FY15E FY13 EPS FY14E (%) EPS growth FY15E FY15/FY13 PE (x) RoCE (%)
EARNINGS GUIDE
RoNW (%) FY15E DPS Div yield (Rs) (%)
FY13 FY14E FY15E FY14E FY15E FY14E
INFRASTRUCTURE / REAL ESTATE

Gayatri Projects ITNL IRB Infra Jaiprakash Associates Larsen & Toubro Mahindra Lifespace@ Orbit Corporation Pratibha Industries Punj Lloyd Unity Infraprojects 65.6 143.7 95.3 52.4 1,402.2 421.6 17.1 28.0 32.4 25.5 333.8 567.9 861.7 243.6 187.0 376.0 781.9 54.9 962.7 575.1 684.8 850.7 1,030.7 835.0 272.0 134.7 2,797.0 56.3 213.2 4,554.0 1,907.0 130.5 48.7 753.4 241.0 793.0 241.7 1,026.0 770.5 301.2 1,248.2 105.0 209.4 144.0 39.4 2,022.2 6,644.9 3,687.2 13,208.7 72,810.0 351.5 299.0 2,157.5 11,408.2 2,039.8 47,522.7 9,948.0 397,062.0 97.1 5,855.3 8,279.3 6,358.1 1,267.6 2,139.9 5,012.4 2,738.8 9,461.6 11,238.9 3,054.0 14,718.6 9,194.5 27,640.0 4,597.0 3,789.0 5,735.0 20,174.9 1,067.9 3,743.4 303.0 4,069.0 1,009.8 226.9 3,699.6 9,595.2 336.9 80,459.0 6,103.9 925.0 10,624.0 1,201.0 5,107.6 2,310.3 7,333.9 4,642.6 15,209.5 80,079.4 361.1 406.7 2,816.7 12,615.5 2,206.4 49,515.7 10,360.0 370,779.6 128.6 6,965.0 9,306.8 7,302.3 1,392.2 2,568.7 6,062.1 3,220.7 11,639.2 13,364.3 3,709.5 15,288.1 10,416.3 31,127.0 4,893.0 4,114.0 6,138.0 22,773.7 1,265.1 3,968.1 358.3 4,792.0 1,196.8 293.8 4,283.8 10,490.5 85,457.0 6,126.7 1,156.0 1,286.0 5,926.7 2,958.4 7,819.7 5,454.5 17,420.5 89,405.6 519.5 3,366.8 14,064.3 2,396.8 53,491.7 11,858.0 166.5 7,950.6 10,514.6 8,694.1 1,576.7 3,205.5 7,071.8 3,729.8 13,745.7 15,685.9 4,351.3 16,329.9 11,126.8 34,535.0 5,243.0 4,450.0 6,839.0 25,227.4 1,455.7 4,449.8 413.6 5,437.0 1,420.9 387.3 5,166.3 11,366.1 93,831.0 6,527.0 1,355.0 1,388.0 6,817.8 73.3 520.2 556.7 501.0 6,033.6 97.5 7.5 82.7 (7.2) 92.6 4,022.2 3,588.0 45.8 457.3 1,544.9 655.2 100.3 590.6 614.8 394.7 1,314.2 3,008.1 470.0 652.5 777.5 2,500.0 184.0 404.0 902.0 2,655.4 154.6 0.2 53.0 40.7 44.8 23.4 713.0 423.1 1,856.4 2,516.0 889.9 126.0 784.1 136.0 389.0 106.0 571.2 601.2 717.0 6,447.4 97.4 24.0 114.9 93.9 93.2 3,819.2 3,773.0 20,789.3 60.0 569.7 1,663.0 925.9 116.1 743.1 815.9 500.4 1,616.0 3,599.4 593.4 778.3 906.7 3,040.0 232.0 409.0 915.0 3,005.7 178.9 19.5 62.5 106.3 52.2 33.4 799.0 571.5 4,359.0 862.4 148.0 137.0 425.4 128.4 616.1 673.3 921.0 7,406.9 116.6 151.4 175.4 114.7 4,428.3 4,368.0 23,861.1 77.2 727.7 1,946.9 1,257.3 171.1 882.7 1,062.2 607.9 2,008.1 4,459.9 684.7 852.6 962.4 3,353.0 289.0 481.0 1,059.0 3,220.0 212.2 75.5 72.3 171.0 64.1 53.9 1,017.9 620.3 5,918.0 988.6 180.0 158.0 493.5 24.3 26.8 16.7 2.4 98.3 23.9 0.7 8.2 -7.4 12.5 31.7 60.0 64.7 27.2 15.7 18.7 32.0 12.4 44.5 22.7 31.3 29.4 29.0 55.6 25.6 17.5 272.7 6.0 17.0 258.9 96.9 16.8 0.0 43.0 6.6 37.3 5.0 7.4 32.5 166.8 6.6 111.2 11.6 29.5 29.3 11.9 35.1 29.4 18.1 3.4 105.0 23.9 2.1 10.1 2.8 12.6 30.1 62.8 64.4 35.7 19.6 20.7 45.2 14.4 56.0 30.1 39.7 36.1 34.8 70.1 30.5 20.7 331.6 7.5 17.2 262.6 109.7 19.5 0.2 50.7 17.3 43.5 7.1 8.3 44.0 11.5 107.9 13.6 29.5 13.0 42.5 31.7 20.3 4.3 120.7 28.5 13.3 5.3 15.5 34.9 72.7 73.9 45.9 25.0 24.2 61.4 21.2 66.5 39.2 48.2 44.9 43.1 80.9 33.5 22.0 365.7 9.4 20.2 304.1 117.5 23.1 0.9 58.7 27.9 53.4 11.5 10.6 47.7 15.6 123.6 16.6 34.0 15.1 32% 9% 10% 34% 11% 9% 28% 11% 5% 10% 7% 30% 26% 14% 39% 31% 22% 31% 24% 24% 22% 21% 14% 12% 16% 25% 9% 8% 10% 17% 17% 106% 20% 52% 20% 21% 54% 5% 20% 8% 13% 2.7 5.4 5.7 21.8 14.3 17.7 25.8 3.4 -4.4 2.0 10.5 9.5 13.3 9.0 11.9 20.1 24.4 4.4 21.6 25.3 21.9 29.0 35.5 15.0 10.6 7.7 10.3 9.4 12.5 17.6 19.7 7.8 17.5 36.5 21.3 30.2 32.7 31.6 4.6 45.6 11.2 9.1 4.9 3.3 1.9 4.9 5.3 15.4 13.3 17.7 8.1 2.8 11.5 2.0 11.1 9.0 13.4 6.8 9.6 18.2 17.3 3.8 17.2 19.1 17.3 23.6 29.7 11.9 8.9 6.5 8.4 7.5 12.4 17.3 17.4 6.7 243.5 14.9 13.9 18.2 21.3 29.1 23.3 26.2 11.6 7.7 4.9 3.0 1.5 4.5 4.7 12.2 11.6 14.8 2.1 6.1 1.6 9.6 7.8 11.7 5.3 7.5 15.5 12.7 2.6 14.5 14.7 14.2 19.0 23.9 10.3 8.1 6.1 7.6 6.0 10.6 15.0 16.2 5.6 54.1 12.8 8.6 14.9 13.1 22.8 21.5 19.3 10.1 6.3 4.2 2.6 14.5 10.5 12.8 10.4 10.9 9.3 8.6 16.2 10.3 15.5 14.1 25.5 9.8 28.7 13.6 20.8 20.2 11.5 32.3 21.9 29.0 31.6 32.1 35.2 13.2 16.9 19.0 6.0 9.0 22.0 22.5 16.6 2.7 30.5 11.1 23.7 15.4 27.7 9.7 8.6 14.6 17.8 23.4 11.7 14.6 10.7 12.8 11.2 10.8 11.1 17.8 11.6 15.5 14.6 26.7 10.3 30.6 16.0 22.1 24.0 14.5 32.1 25.8 28.4 32.9 31.8 33.3 13.7 16.3 18.4 7.0 10.0 22.0 21.4 17.5 2.6 31.9 13.4 25.2 22.3 30.4 9.5 9.8 14.5 20.0 22.2 12.4 15.3 14.8 17.3 7.0 16.3 8.0 2.3 16.0 2.7 10.6 15.1 18.5 9.6 22.5 20.0 17.1 24.1 10.2 26.2 23.3 28.1 24.5 22.5 35.2 10.5 17.0 12.6 5.0 16.0 23.0 16.6 16.6 0.9 23.4 7.4 17.8 11.0 19.3 7.9 7.8 11.1 18.6 19.5 12.2 16.1 13.9 17.0 8.4 16.2 9.0 17.4 5.3 11.8 16.0 18.9 10.0 23.6 21.2 17.3 25.2 13.3 25.9 23.6 26.7 23.9 22.3 30.2 10.7 15.7 11.9 7.0 16.0 21.0 15.3 16.9 3.8 24.5 11.0 19.7 15.7 21.4 7.9 9.4 11.0 21.3 19.2 12.4 3.0 4.0 4.0 1.8 12.3 6.0 0.0 0.6 0.0 0.2 5.6 19.0 8.5 5.0 1.5 2.0 7.5 1.2 15.0 2.0 2.0 4.0 5.0 23.0 10.0 2.5 22.5 2.0 2.5 8.0 8.0 1.5 0.8 17.5 1.0 2.0 1.0 2.0 6.5 25.0 1.0 22.3 6.0 12.2 4.0 0.7 4.6 2.8 4.2 3.4 0.9 1.4 0.0 2.1 0.0 0.8 1.7 3.3 1.0 2.1 0.8 0.5 1.0 2.2 1.6 0.3 0.3 0.5 0.5 2.8 3.7 1.9 0.8 3.6 1.2 0.2 0.4 1.1 1.6 2.3 0.4 0.3 0.7 0.8 0.6 3.2 0.3 1.8 5.7 5.7 2.8 1.8
OIL & GAS

GAIL Oil India Ltd Reliance Ind Selan Exploration
395,722.9 20,879.0
PHARMACEUTICALS
Aurobindo Pharma Cipla Cadila Healthcare Dishman Pharma Divi's Labs Glenmark Pharma Ipca Laboratories Lupin Sun Pharma Torrent Pharma
AGRI-INPUTS
Tata Chemicals United Phosphorus
BUILDING MATERIALS
Grasim India Cements Madras Cements Shree Cement* UltraTech Cement Eros Intnl Media Indian Hotel Co KKCL Raymond Relaxo Footwear Zee Entertainment Aditya Birla Nuvo Bajaj Holdings Bharti Airtel Bharat Electronics Gateway Distriparks Max India Ratnamani Metals Sintex Industries
DISCRETIONARY CONSUMPTION
Speciality Restaurants 151.2
DIVERSIFIED / MISCELLANEOUS
#UltraTech numbers are post merger of Samruddhi Cement.
*FY2012 is of 15 months, ending June 2012 as company has changed reporting year from FY to June end
48
July 2013
EARNINGS GUIDE
Remarks
EQUITY
FUNDAMENTALS
Automobiles Apollo Tyres Apollo Tyres is the market leader in truck and bus tyre segments with a 28% market share. The demand is expected to remain subdued in the near term, given the sluggishness in the domestic OEM and the European operations. The margins may improve due to softening of raw material prices. The company is planning to acquire 100% stake in US-based Cooper Tyres, which is 2.5x its size. Since the acquisition is debt funded it would put substantial stress on the balance sheet. Further, any adverse movement in raw material prices and slowdown in the global economy would exert pressure on the cash flows. We have kept the price target for the stock under review. Ashok Leyland, the second largest commercial vehicle (CV) manufacturer in India, is a pure CV play. The new greenfield facility in Pantnagar in Uttaranchal has provided strategic cost and diversification benefits. The company has ventured into LCV space with the launch of Dost together with Nissan and is witnessing significant ramp-up in volumes. It has also entered into construction equipment space in JV with John Deere. Bajaj Auto is a leading two-wheeler maker. It is moving up the value chain by concentrating on the executive and premium motorcycle segments. The launch of the new Pulsar and the KTM range would help it maintain its leadership in the premium bike segment as well as its domestic volume growth. Exports remain the key for the company to drive the overall volumes. M&M is a leading maker of tractors and utility vehicles in India. Though the automotive demand may moderate due to moderation in the UV demand and increasing competition, but the tractor demand would recover on the back of a normal monsoon and better crop realisation. Associating with world majors in passenger cars and commercial vehicles has helped it diversify into various automobile segments. The value of its subsidiaries adds to its sum-of-the-parts valuation. Higher farm incomes, strong rural positioning, lower vulnerability to interest rates make M&M a proxy play on food inflation. Maruti Suzuki is Indias largest small carmaker. Though the diesel demand is witnessing pressure due to a hike in diesel prices, but the petrol segment is witnessing recovery due to narrowing differential between petrol and diesel prices. Recently the company successfully diversified into the MPV segment with the launch of Ertiga. Suzuki of Japan has also identified India as a manufacturing hub for small cars for its worldwide markets. With the merger of SPIL, the diesel engine manufacturing arm of the Suzuki group, we expect synergistic benefits for Maruti. Banks & Finance Allahabad Bank With a wide network of over 2,200 branches spread across India, Allahabad Bank enjoys a strong hold in north and east India. However, the bank has been recently plagued with severe asset quality issues and has the highest amount of stressed loans among its public peers. Andhra Bank, with a wide network of over 1,800 branches across the country, has a strong presence in south India especially in Andhra Pradesh. Though it is trading at an attractive valuation, the concerns on asset quality front and political situation within the state could affect its operations. Axis bank continues to grow faster than the industry rate and is diversifying its book in favour of retail. Notably, the bank has maintained a delicate balance between balance sheet growth and profitability. Besides the core banking business, the bank has forayed into the asset management business and acquired the securities and investment banking business of Enam Securities. We expect the earnings growth to remain strong driven by a healthy operating performance. Bajaj Finserv is actively present in businesses such as vehicle finance, consumer finance, distribution etc, with insurance being the dominant contributor to its revenues. It is one of the few top players in the fast-growing life insurance segment and also has a sizeable presence in the general insurance segment. Its consumer finance business (Bajaj Finance) has shown a robust performance and is likely to boost the earning of Bajaj Finserv. Bank of Baroda is among the top public sector undertaking (PSU) banks having a sizeable overseas presence (100 offices in 24 countries) and a strong domestic network of over 4,200 branches across the country. It has a stronghold in the western and eastern parts of India. The banks performance metrics remain superior to other PSU banks though recent deterioration in asset quality raises concern. Bank of India has a network of over 4,000 branches, spread across the country and abroad, along with a diversified product and services portfolio, and steadily growing assets. The operating performance has weakened due to margin deteriorations. Further, the rising stress on asset quality and cautious growth outlook could impact the earnings growth. CanFin Homes is a housing finance company sponsored by Canara Bank. It was set up in 1987. It offers a range of products on housing, such as loans for home purchase, home construction, home improvement/extension and site purchase as well as non-housing finance. The company has 69 branches of which 65% are based in south India. The company has a loan book of over Rs4,000 crore. The companys renewed focus on growth and the recent aggressive expansion of its branch network have put it on a high growth path for the next few years. We believe the operational performance and return ratios of CanFin are improving, which should lead to a re-rating of the stock.
Ashok Leyland
Bajaj Auto
M&M
Maruti Suzuki
Andhra Bank
Axis Bank
Bajaj Finserv
Bank of Baroda
Bank of India
CanFin Homes
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Capital First
Capital First (the erstwhile Future Capital Holdings) has been acquired by the global private equity firm Warburg Pincus (70.3% stake). The present management has taken several initiatives to tap the high-growth retail product segments like gold loans, loan against property, and loan against shares. It has a strong capital adequacy ratio and a sound asset quality. Its loan book is expected to more than double to over Rs10,000 crore in the next three years. We believe the change in the ownership, the capital infusion and the ability to aggressively grow its loan book in the retail and the small and medium enterprise segments could result in the re-rating of the stock. Corporation Bank is a mid-sized PSU bank having a relatively higher presence in South India. The bank is predominantly exposed to the corporate segment constituting ~50% of its book. Due to a higher dependence on wholesale business and low current and savings account ratio, the margins operational performance lags to its peers. Federal Bank is the fifth largest private sector bank in India in terms of asset size and has traditionally been a strong player in south India, especially Kerala. Under the new management, the bank has taken several initiatives, which would improve the quality of earnings and asset book. HDFC is among the top mortgage lenders providing housing loans to individuals, corporates and developers. It has interests in banking, asset management and insurance through its key subsidiaries. As these subsidiaries are growing faster than HDFC, the value contributed by them would be significantly higher going forward. HDFC Bank was established in 1994 as part of the liberalisation of the Indian banking industry by the Reserve Bank of India (RBI). It was one of the first banks to receive an in-principle approval from the RBI to set up a private sector bank. Its relatively high margins (compared with its peers), strong branch network and better asset quality make HDFC Bank a safe bet. ICICI Bank is Indias largest private sector bank with a network of over 3,000 branches in India and a presence in around 18 countries. The bank has once again entered an expansionary mode after making a conscious effort to contract its advances book due to asset quality concerns. The bank offers substantial value unlocking opportunities from the insurance and securities businesses. IDBI Bank is one of leading public sector banks of India. The bank is gradually working towards improving its liability base and expanding the retail book, which is likely to reflect in the form of better margins and return ratios. Due to rising asset quality risks and slower business growth, the stock is likely to underperform in the near term. Punjab National Bank has one of the best deposit mixes in the banking space, with low-cost deposits constituting around 38% of its total deposits. This helps it to maintain one of the highest margins in the sector. A strong liability franchise and technology focus will help the bank to increase its core lending operations and fee income related-businesses. In view of the weakness in economy and relatively higher exposure to troubled sectors, the asset quality has come under stress. State Bank of India is the largest bank of India with loan assets of over Rs10 lakh crore. The loan growth for FY2013 was above industry average while the core operating performance was largely stable. The successful merger of the associate banks and value unlocking from insurance business could provide further upside for the parent bank. The asset quality of the bank would remain a key monitorable in the near term. Union Bank has a strong branch network and an all-India presence. The bank aspires to become the largest retail bank. Hence, it has ramped up its manpower and infrastructure. Though the earnings growth has come under pressure but the asset quality has shown some improvement in the recent quarters which is positive for the bank. Yes Bank, a new generation private bank, started its operations in November 2004 and is the only greenfield bank approved by the RBI in the last decade. The bank is promoted by Rana Kapoor and Ashok Kapur. Yes Bank follows a unique business model based on knowledge banking, which offers product depth and a sustainable competitive edge over established banking players. Despite the adverse environment, the Bank has maintained a strong growth and impeccable asset quality. Consumer goods Bajaj Corp is the third largest player in the hair oil segment and has emerged as the dominant player in the premium light hair oil (LHO) category with its Almond Drops hair oil. With its strong brand positioning, distribution strength and healthy balance sheet, it is well poised to ride on the strong consumer demand emerging due to the rising disposable income and growing aspirations of the Indians. Any initiative to expand its limited product portfolio or strengthen its core business would be the key upside trigger for the stock. GSK is a leading player in the MFD segment with a close to 70% share in the domestic market. Judicious new launches and brand extensions, and the expansion of its distribution reach have helped GSK to stay ahead of the competition and maintain its pricing power over the years. In a bid to de-risk its business model, GSK has expanded its product portfolio by entering into new categories such as biscuits, noodles, energy bars, sports drinks and oats in the recent years. With cash balance of close to Rs1,500 crore the company can invest in growth initiatives as well as reward its investors with a healthy dividend payment. The recent open offer by the promoter acted as an additional trigger for the stock, which remained firm on the bourses. We maintain a Hold recommendation on the stock.
Corp Bank
Federal Bank
HDFC
HDFC Bank
ICICI Bank
IDBI Bank
PNB
SBI
UBI
Yes Bank
Bajaj Corp
GSK Consumers
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GCPL
Godrej Consumer Products Ltd (GCPL) is a major player in personal wash, hair colour and household insecticide market segments in India. The recent acquisitions of Darling Group, Tura, Megasari and Latin American companies have helped the company to expand its geographic footprint. We believe the decent sales volume growth in the domestic business coupled with a strong growth in the Indonesian, African and Argentine businesses would help GCPL to achieve an above 20% CAGR top line and bottom line growth over FY2013-15. HUL is Indias largest FMCG company. It would achieve around 17% Y-o-Y top line growth driven by a mix of sales volume and a price-led growth. However, the subdued volume growth is likely to sustain the pressure on the profitability in the near term. Overall, we expect HULs bottom line to grow at a CAGR of 10% over FY2013-15. In the long term, HUL will be one of the key beneficiaries of the Indian consumerism story. ITC has a strategy of effectively utilising the excess cash generated from its cash cow, the cigarette business, to strengthen and enhance its other non-cigarette businesses. This would nurture the growth of these businesses some of which are at a nascent stage. Thus, we believe the company will deliver a sustained and steady growth in coming years. Jyothy Laboratories Ltd (JLL) is the market leader in the fabric whitener segment in India. With the successful integration of Henkel and the induction of a new management team led by Mr S Raghunanadan, JLL is transforming itself from a one-brand wonder to an aggressive FMCG player. We expect JLLs top line to grow at a CAGR of close to 25% and a strong improvement in the OPM would help the company to achieve an exponential growth in bottom line over FY2013-16. We have Buy rating on the stock with a price target of Rs 254. Marico is among Indias leading FMCG companies. Its core brands, Parachute and Saffola, have a strong footing in the market. It follows a three-pronged strategy which hinges on expansion of its existing brands, launch of new product categories (especially in the beauty and wellness space) and growth through acquisitions. While the domestic product portfolio is likely to achieve a steady growth in volumes, the international business is expected to post a robust growth on the back of an increase in distribution to neighbouring countries and extension of its international product portfolio over the long run. Mcleod Russel is the worlds largest tea producer with an annual tea production of close to 100 million kg. With tea estates in India and Africa, it is well poised to take advantage of the current favourable global demand-supply scenario. With the expectations of a substantial improvement in its sales realisation and a volume growth in mid to high single digits (in the domestic market and the international subsidiaries), the companys consolidated top line and earnings are expected to grow at CAGR of 14.3% and 27.0% respectively over FY2013-15. Over the past few years, TGBL (formerly Tata Tea) has transformed its focus from being a mere tea and coffee company to a complete beverage maker. The recent addition of Mount Everest mineral water to its product portfolio and its tie-up with Pepsico Inc to make a mark in the non-carbonated beverage space are likely to be the new growth drivers in the long run. Also, its JV with Starbucks would help it to explore opportunities in the coffee retailing space. Its intention to acquire companies in the USA, Europe and Russia also augurs well and will enhance its geographical footprint. Zydus Wellness owns three high-growth brands, Nutralite, Sugar Free and Ever Yuth, in the niche health and wellness segment. The company focuses on rampant growth by increasing the distribution of the existing products, scaling up the existing product portfolio through variants and new product launches leveraging the three brands. We expect the top line and bottom line of Zydus Wellness to grow at a CAGR of 18% each over FY2013-15. IT/IT services Over the years, CMC has gradually transformed itself from a low-margin equipment provider into a well-diversified IT services and solutions provider. Its joint-go-to-market strategy with TCS is also playing a big role in the business transformation, with CMC gaining a strong traction in the international markets. We believe CMC has already set the stage for the next level of growth and is likely to witness a much stronger growth in the coming years. HCL Tech is one of the leading Indian IT service vendors. It has performed better than its peers in terms of financial performance in the past few quarters on the back of a ramp-up in business from the large deals bagged earlier and strong momentum in the IMS space. It continues to demonstrate a strong growth visibility with a robust backlog of deals and successful execution with market share gain strategy through vendor churns/ consolidation. We remain positive on the company in view of its order wins and superior earnings visibility. HCL Tech remains the least affected by the impending US immigration bill as compared with its large-cap peers. Infosys is India's premier IT and IT-enabled Services Company. The March 2013 quarterly results highlight Infosys structural issues. The companys margins and earnings quality has deteriorated significantly in the last couple of years. We remain skeptical of the secular revival in growth in the near term and given the weak outlook given by the management and discretionary services heavy business model.
HUL
ITC
Jyothy Labs
Marico
Mcleod Russel
TGBL
Zydus Wellness
CMC
HCL Tech
Infosys
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NIIT Tech
With its strong domain expertise in a few niche verticals and competitive advantage in terms of significant contribution from its non-linear initiatives, NIIT Tech is well placed to benefit from the overall improvement in the demand environment. The two significant pain points for the company, the GIS business and the insurance business, showed some green shoots in the March 2013 quarter. NIIT Tech has a robust deal pipeline led by its government vertical which comforts us on the revenue visibility front. Improvement in the margin trajectory remains the key to re-rating of the stock. Persistent Systems has proven expertise in the OPD space, a strong presence in the newer technologies, strength to improve its IP base and the best-in-the-class margin profile which set it apart from the other mid-cap IT companies. The IP-led revenue strategy of the company has started to bear fruits. Going forward, the management is aiming to earn 25% of its revenues from the non-linear space in FY2014E. This, we believe, will differentiate the company from the rest and help improve its margin in the coming years. TCS pioneered the IT services outsourcing business in India and is the largest IT service firm in the country. It is a leader in most service offerings and has further consolidated its leadership through the inorganic route. TCS with a strong base is well placed to garner incremental deals across sectors. Its consistent quarterly performance (better than peers) coupled with the higher predictability of its earnings would keep it the Streets favourite counter in the IT space. Wipro is one of the leading Indian IT service companies. It has lagged the other IT biggies in terms of performance. In the medium term we expect Wipro to demonstrate a relatively weaker earnings growth as it gets back on its feet post-organisational restructuring. Post the de-merger of the non-core business Wipro is now a pure IT products and services play. Capital goods/Power BHEL, Indias biggest power equipment manufacturer, has been the prime beneficiary of the multi-fold increase in the investments made in the domestic power sector over the last few years. However, the order inflow has been showing signs of slowing down which would remain a major concern for the company. The key challenge before the company now would be to maintain a robust order inflow and maintain margin amid rising competition and lower order inflow. The current order book of Rs115,000 crore stands at around 2.3x FY2013 sales. CESC is the power distributor in Kolkata and Howrah (backed by 1,225MW of power generation capacity) which is a strong cash generating business. Further, it is adding 1,200MW of generation capacity which would be on stream by FY2015. Moreover, CESC has a high degree of integrated status among peers. Despite that, the stock is currently one of the cheapest in the Indian utility space, trading at significant discount to its book value primarily on account of the concerns related to the losses from its retail business, Spencers. However, the retail business has started exhibiting a store-level profit since FY2011, which is a sign of revival as per the management. Again, the acquisition of a majority stake in First Source by CESC is an unrelated diversification (also BPO is not a highgrowth area in our view) in a time where the company itself needs large cash to fund projects in the core area (power). Therefore, we recommend a Hold on it with a price target of Rs385. Crompton Greaves key businessesindustrial and power systemshold a high potential in view of the investment opportunities in the power transmission and distribution sector. Its consumer products segment is expected to witness a high growth. Though the domestic operations remain relatively stable, the international operations went through a restructuring. This has been the major disappointment in the last few quarters adding to the woes of investors. On a positive note, the restructuring in Belgium is over.Now, the key thing to watch out for is the stabilisation of its Hungarian operations. Nevertheless, the stock should remain under pressure for some time. Greaves Cotton is a mid-sized and well-diversified engineering company. Its core competencies are in diesel/petrol engines, power gensets, agro engines and pumpsets (engine segment) and construction equipment (infrastructure equipment segment). The engine business accounts for ~85% of its revenue while the rest comes from infrastructure equipment. GCL is witnessing improved revenues and margins on the back of a better outlook for the key user industries. The foray in the mini tractor segment and international markets would open new growth avenues for GCL. We maintain our Buy recommendation on the stock. Our price target remains unchanged at Rs95. Kalpataru Power is a leading EPC player in the transmission & distribution space in India. Opportunities in this space are likely to grow significantly, thereby providing healthy growth visibility (also current order book is 2x its FY2013 sales). The OPM of the stand-alone business is likely to remain around 10%. JMC Projects (subsidiary) is experiencing margin pressure which would affect the overall margin and return ratios of the company. However, on low valuation, we retain our Buy rating with a price target of Rs115. PTC India is a leading power trading company in India with a market share of 39% in FY2013 in the short-term trading market. In the last few years, the company has made substantial investments in areas like power project financing, coal trading and power tolling which have growth potential in the future. While the poor financial health of the state electricity boards (SEBs) has elongated its working capital cycle, the recent policy push for the SEB debt restructuring programme has eased the payment delay concerns to some extent. The recent depreciation in the rupee against the dollar could affect its margin to some extent; hence it needs to be watched closely. Nevertheless, its valuation continues to look attractive on an SOTP basis.
Persistent
TCS
Wipro
BHEL
CESC
Crompton Greaves
Greaves Cotton
Kalpataru
PTC India
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Thermax
The energy and environment businesses of Thermax are direct beneficiaries of the continuous rise in India Incs capex. Thermax group book stands at Rs4878 crore, which is 1x its FY2013 consolidated revenues. However, given the current environment and the cautious tone of the management on the margin and outlook, we have lowered our price target to Rs553 and downgraded the rating to Reduce. V-Guard is an established brand in the electrical and household goods space, particularly in South India. Over the years, it has successfully ramped up its operation and network to become a multi-product company. It has recently also forayed into non-south India and is particularly focusing on the tier-II and III cities where there is a lot of pent-up demand for its products. We expect a CAGR of 29% in its earnings over FY2013-15. Infrastructure/Real estate Gayatri Projects is a Hyderabad-based infrastructure company with a very strong presence in irrigation, road and industrial construction businesses. The order book stands at Rs8,036 crore, which is 4.0x its FY2013 revenues. It is also expanding its power and road BOT portfolio and plans to unlock value by offloading stake to private equity. The company has potential to transform itself into a bigger player and we expect its net profit to grow at a CAGR of 32% over FY2013-15. ITNL is Indias largest player in the BOT road segment with a pan-India presence and a diverse project portfolio. The fair mix of annuity and toll projects, and state and NHAI projects along with the geographical diversification across 12 states reduce the risk to a large extent and provide comfort. Further, a strong pedigree along with the outsourcing of civil construction activity helps ITNL to scale up its portfolio faster. Thus, it is well equipped to capitalise on the huge and growing opportunity in the road infrastructure sector. IRB is the largest toll road BOT player in India and the second largest BOT operator in the country with all its projects being toll based. It has an integrated business model with an in-house construction arm which provides a competitive advantage in bidding for the larger projects and captures the entire value from the BOT asset. Further, it has a profitable portfolio as majority of its operational projects have become debt-free and it has presence in high-growth corridors which provides healthy cash flow. Thus, IRB is well poised to benefit from the huge opportunity in the road development projects on the back of its proven execution capability and the scale of its operations. Jaiprakash Associates, Indias leading cement and construction company, is all set to reap the benefits of Indias infrastructure spending. The company has also monetised very well on the real estate properties of Yamuna Expressway. The marked improvement in the macro environment has improved accessibility to capital and thus eased the concerns of liquidity to some extent. However, higher leverage could act as drag on the valuation. Larsen & Toubro, being the largest engineering and construction company in India, is a direct beneficiary of the domestic infrastructure capex cycle. Strong potential from its international business, its sound execution track record, bulging order book and strong performance of subsidiaries further reinforce our faith in it. There also lies a great growth potential in some of its new initiatives. Mahindra Lifespace is the first in India to own two integrated business cities (IBC; a combination of SEZ and domestic area): one in Chennai and the other in Jaipur. Both have become operational. It has acquired land at Pune and Chennai to come up with two more IBCs. Apart from this, it has 4.42mn sq ft of residential and commercial projects under construction across various cities and an additional land bank of 18.52mn sq ft for future development. Consequently, its stand-alone net profit should grow at a CAGR of 9% over FY2013-15. Given its unique business model, Orbit is expected to cash on in the massive re-development opportunities in southern and central Mumbai. Given its presence in the luxury segment, which is less price sensitive, it will be able to revive faster once the real estate industry recovers. Pratibha Industries is a dominant player in water & irrigation and urban infrastructure segments. It has also diversified into other high-margin areas like road BOT, power and oil & gas. The current order book stands at Rs6,899 crore, which is 3.2x its FY2013 revenues. Given the governments thrust on developing these segments, we expect the net profit to grow at a CAGR of 35% over FY2013-15. The company is looking at expanding into the structural manufacturing business instead of the HSAW pipe manufacturing business (which has been an overhang for the past one year). This will improve the balance sheet and profitability. Punj Lloyd is the second largest EPC player in the country (first being Larsen & Toubro) with a global presence. However, since FY2009, the profitability has come under severe pressure due to cost overruns/ liquidated damages in some of Simon Carves (subsidiary) projects. Thus it has put Simon Carves under administration. Further Libyan projects will take another few quarters to begin execution. Therefore, the successful execution of its projects along with debt reduction and working capital management will drive its growth as it enjoys a robust order book.
V Guard Ind
Gayatri Proj
IL&FS Trans
IRB Infra
Jaiprakash Asso
L&T
Mahindra Lifespace
Orbit Corp
Pratibha Ind
Punj Lloyd
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Unity Infra
With a well-diversified order book, Unity Infrastructure is expected to be the key beneficiary of the governments thrust on infrastructure spending. The order book remains strong at Rs3,838 crore, which is 1.9x its FY2013 revenues. We expect its net profit to post a CAGR of 11% on the back of a strong order book during FY2013-15. Further, it has recently forayed into the road BOT segment and has three BOT projects under its kitty. Oil & gas GAIL India, a leading gas transmission company, is aggressively expanding its pipeline network and plans to invest more than Rs11,000 crore over FY2014-16 in a phased manner to expand its gas pipeline and expand the trading business. On account of lower domestic gas production, we expect a subdued performance from its core gas transmission business in the next couple of years. However, the LNG trading business is likely to see an uptick in the same period. Though the long-term outlook is positive, currently the stock is facing pressure as expected administered price mechanism (APM) gas price revision would impact the margin of its petchem business. Hence, we maintain a Hold rating on the stock. Oil India has several hydrocarbon discoveries across reserves in Rajasthan and the north-eastern region of India. The total 1P (proven) and 2P (proven and probable) reserves of the company stood at 473 million barrels (mmbbls) and 941mmbbls respectively as on March 2012. In addition to the huge oil reserves, the companys reservereplacement ratio is quite healthy at 1.23x, which implies a comfortable level of accretion of oil reserves through new discoveries. Further, it has cash of around Rs10,935 crore (Rs182 per share) as on March 2012 and offers healthy dividend pay-out (dividend yield of 4.3%), which provides comfort to investors. Further, the recent policy reforms in terms of a partial de-regulation of diesel and a likely revision in gas prices augurs well for the company. RIL holds a great promise in E&P business with gas production from the KG basin. Further, a likely revision in the natural gas prices will be a positive trigger for the company. In the refining space, we expect RILs GRM to pick up with a likely improvement in the light-heavy crude oil price differential. The company is likely to fetch a premium over Singapore Complex GRM due to its superior refinery complexity and captive use of KG-D6 gas. We expect the petrochem margins to be maintained in the medium term on an uptick in the domestic demand. Currently, the decline in gas output from the KG-D6 basin is weighing on the stock price. Selan is an oil exploration & production company with five oil fields in the oil-rich Cambay Basin of Gujarat. The initiatives taken to monetise the oil reserves in its Bakrol and Lohar oil fields are likely to improve production. Further, it intends to explore its next field, Indrora, which is the most prolific one with significant reserves. Based on this, we expect it to ramp up production significantly, subject to approval for the new wells. We expect production ramp-up in FY2014 and hence we expect the earnings estimates to grow by 23% (CAGR over FY201315). Therefore, we retain our Buy rating on the stock with price target of Rs365. Pharmaceuticals Aurobindo Pharma is set to rebound on the back of the US Food and Drug Administration (USFDA) clearing two of its manufacturing facilities (including one greenfield facility) and removing import-alert on Unit-VI facility, which will help Aurobindo Pharma to ramp-up its product list in the USA, thanks to a strong product pipeline built over a period. With the expected increase in the export-led business after resolution of the USFDA issues, the favourable tilt in the revenue mix is likely to boost the margin, resulting in a relatively much better growth in earnings as compared with revenues. We expect the revenues and net profit to grow at a CAGR of 17% and 26% over FY2013-15 respectively. Cadilas improving performance in the US generic vertical and emerging markets along with steady progress in the CRAMS space (through JVs) will help it achieve its target of generating revenues of $3 billion by 2015. It acquired three entities in FY2012, namely Nesher Pharma (USA), Bremer Pharma (Germany) and Biochem Pharma (India) which should supplement the growth. It has got USFDAs clearance for its Moraiya plant, which removes one of the vital concerns for the company. Recently, it got DCGI approval for its first new chemical entity called Lipaglyn to treat type-II diabetes; this will add value to its R&D pipeline. Cipla has brought about a paradigm shift in its business strategy. To revive growth, it has (1) enhanced focus on technology intensive products in the inhalation and nasal spray segments; (2) established front-end presence in the key markets like the USA and Europe; (3) developed an appetite for inorganic expansions; (4) decided to tap the FTF opportunities through collaboration with major generic players in the regulated markets and (5) invested in future growth areas like biosimilars. Besides, Ciplas base business growth would be fast-tracked in the quarters ahead because of (1) the optimisation of the Indore formulation plants and consolidation of Cipla Medpro in Q3FY2014. We expect 13% and 12% revenue and profit CAGR respectively over FY2013-15. We initiate coverage on Cipla with Buy rating and a price target of Rs490. Dishman Pharmaceutical and Chemicals is a key player engaged in CRAMS and specialty chemical businesses. The company has invested heavily over the past four years (over Rs1,000 crore capex during FY08-11) to establish a strong foothold in the CRAMS, API and vitamin-D businesses. After witnessing four years of sluggish performance due to a global slowdown (that affected the CRAMS business) and heavy capex (that resulted in a sharp rise in the fixed costs), the company is all set to record a strong operating performance on the back of enhanced capacities, the up cycle in the CRAMS business and a substantial reduction in the debt/equity ratio due to stronger free cash flow.
GAIL
Oil India
Reliance Ind
Selan Exploration
Aurobindo Pharma
Cadila
Cipla
Dishman Pharma
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Divis Labs
Despite a weaker performance in Q4FY2013, we are confident of Divis Laboratories growth potential. The new DSN SEZ facility at Vishakhapatnam that started in June 2011 augurs well for the company as it would improve economies of scale and lead to tax benefits. A near debt-free balance sheet and strong cash flow are likely to help build a war chest for pursuing strategic investments (biosimilars) and exploit the growth opportunities in niche segments, like oncology and steroids for contraceptives. Glenmark exhibited an impressive operating performance during FY2013 in the core business on key generic launches, but for higher research and development expenses and tax payments, which restricted profit growth. Through the successful development and out-licencing of six molecules in a short span of eight years, Glenmark has become Indias best play on research-led innovation. It has built a pipeline of 14 molecules and clinched six out-licencing deals worth $1,672 million (active deals worth $938). It has received $200 million as initial milestone payment. Its core business has seen stupendous success due to its focus on niche specialties. Ipca has successfully capitalised on its inherent strength in producing low-cost drugs to tap the export markets. Its ongoing efforts in the branded formulations business in the emerging economies, the revival in the UK operations, the pan-European initiatives, the likely approval of one additional product under institutional business and a significant scale-up in the US business will drive its formulation exports. It has received USFDAs approval for the Indore SEZ (US supplies expected in H2FY2014) which would help ramp up the sales in the USA. The expected ramp-up in the launch of oral contraceptives, ophthalmic products and a robust pipeline of new launches in the domestic and overseas markets provide strong growth visibility for Lupin. Further, with an expanded field force and therapy focused marketing division, its formulation business in the domestic market has been performing better than the industry. The deal with Eli-Lilly to distribute human insulin would open an incremental revenue stream for Lupin in the Indian market. The combination of Sun Pharma, Taro, Dusa Pharma and generic business of URL Pharma offers an excellent business model for Sun Pharma, as has been reflected in the 40% Y-o-Y revenue and 39% profit growth in FY2013. Though Taro may not show a similar performance in the next quarter, but we expect a better performance from Sun Pharma going forward mainly driven by (1) the resumption of sales from the US-based subsidiary Caraco Pharma post-USFDA clearance, (2) contribution from the newly acquired Dusa Pharma and URL Pharma in the USA and (3) launch of key products in the USA and emerging markets including India. We expect 18% and 22% revenue and PAT CAGR respectively over FY2012-15 on an organic basis. With a strong cash balance, Sun Pharma is well positioned to capitalise on the growth opportunities and inorganic initiatives. Its debt-free balance sheet insulates it from the negative impact of volatile currency. A well-known name in the domestic formulation market, Torrent has been investing in expanding its international presence. With the investment phase now over, Torrent should start gaining from its international operations in USA, Russia and Brazil. The impending turnaround of its German acquisition, Heumann, will also drive its profitability. However, the imposition of new tax (Budget 2013) on partnership-based units in Sikkim would be a drag on earnings. Agri-Inputs With a total capacity of 5.5mmtpa Tata Chemicals is the second largest soda ash producer in the world. It has purchased 25% stake in a urea-ammonia greenfield project at Goban with investment of $290 million. Further changes in urea policy are likely to benefit it further. Soda prices are likely to improve from the current levels because lower cost Chinese players are also finding it tough to break even at current price. So the company believes that the price of soda may improve from here. Demand for soda ash in India and North America remains strong. A leading global producer of crop protection products, intermediates, specialty chemicals and other industrial chemicals, United Phosphorus has presence across value-added agricultural inputs ranging from seeds to crop protection products and post-harvest activities. A diversified geography and the recent acquisition of DVA Agro Brazil will help the company to have a strong presence in the Brazilian market and aid in inorganic growth. Its revenues are likely to grow at 12-15% in FY2014 and EBIDTA margin is expected to remain at 18-20%. It has also started to focus on premium products in agro-chemicals and will slowly stop selling commodities and lowmargin products. Building materials Grasim is better placed compared with the other large players in the cement space due to its strong balance sheet, comfortable debt/equity ratio (0.33x FY2012), attractive valuation and diversified business. The demand for VSF products remains strong in the global market and Grasim being a leading domestic player is well placed to capture the incremental demand. The company is in the process of adding another 120,000 tonne capacity in VSF by FY2013 at an investment of Rs1,690 crore.
Glenmark Pharma
Ipca Lab
Lupin
Sun Pharma
Torrent Pharma
Tata Chemicals
United Phos
Grasim
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July 2013
EQUITY
FUNDAMENTALS
Remarks
EARNINGS GUIDE
India Cements
India Cements installed capacity has got enhanced to 16MTPA which will result in volume growth and drive the earnings of the company. The company is also setting up a 100MW captive power plant, which is expected to come on stream by FY2013 and benefit the company in terms of coast saving. Further we believe avg. cement realisation of the company in FY2014 to remain higher as compared to average realisation of FY2013. Madras Cement, one of the most cost-efficient cement producers in India, will benefit from the capacity addition carried out ahead of its peers in the southern region. The 3mtpa expansion will provide the much-needed volume growth in the future. The regional demand remains lacklustre but on account of the improvement in the realisation due to supply discipline and a likely change in the market mix its profitability will improve (marginally) in FY2014. Shree Cements cement grinding capacity has grown to 13.5mtpa which will support its volume growth in the coming years. It has set up 300MW power plant entirely for merchant sale which is expected to support its revenue growth going ahead. Thus, a volume growth of the cement division and the additional revenue accruing from the sale of surplus power will drive the earnings of the company. UltraTech is Indias largest cement company with approximately 52 million tonne cement capacity. It has benefited from an improvement in its market mix. Further, the ramping-up of the new capacity and savings accruing from the new captive power plants will improve the companys cost efficiency. Discretionary consumption Eros is one of the largest integrated film studios in India with multi-platform revenue streams and a well-established distribution network across the globe. With its proven track record, an impressive movie slate and its HBO alliance coming into foray, we believe Eros is well poised to gain from the rising discretionary spending on film entertainment driven by the countrys favourable demographics. Thus, EIML is a compelling value play on the Indian media and entertainment industry. Indian Hotels is the largest hotelier in India with a vast portfolio of hotel properties around the globe. Over the long term the company would benefit from the increase in tourism and corporate travel in India. Also, a turnaround in profitability of its overseas properties would boost its earnings. Kewal Kiran Clothing is a branded apparel play with four brands in its kitty. Killer, its flagship denim brand, has created a niche space in the minds of consumers. With a gross market turnover of over Rs300 crore, Killer is ahead of its rival, Spykar. A strong brand profile, a disciplined management and a consistent track record coupled with a robust balance sheet position put it in a sweet spot. Raymond is present in the fast-growing discretionary & lifestyle category of branded textiles and apparels. With the growing income, rise in aspirations to lead a luxurious life, greater discretionary spending and favourable demographics, the segment of branded apparels & fabrics presents a good growth opportunity and Raymond with its brands and superior distribution set-up is very well geared to encash the same. Any development with regard to the Thane land in the form of either joint development or disposal would lead to value unlocking and provide significant cash to the company. Relaxo is present in the fast-growing footwear category, wherein it caters to customers with its four top-of-themind-recall brands, viz, Hawaii, Sparx, Flite and Schoolmate. It has emerged as an attractive investment opportunity due to its growing scale, strong brand positioning and healthy financial performance. Currently we have a BUY with a price target of Rs845. Speciality Restaurants is a leading player in the fine-dining space with a portfolio of well-established brands such as Mainland China and Oh! Calcutta in its kitty. The company is a good proxy on the Indian consumption story as several factors such as demographics, increasing disposable income and the trend of nuclear families are playing in its favour. Zee Entertainment Enterprises, part of the Essel group, is one of India's leading TV media and entertainment companies. It has a bouquet of 32 channels across Hindi, regional, sports and lifestyle genres. It is best placed to benefit from the digital addressable system regime rolled out by the government. The recent regulatory change of capping the advertising time on TV to 12 minutes per hour remains a neutral development for the company as it will be able to increase its advertisement rates to negate the fall in advertisement volumes. Diversified/Miscellaneous We like the strong positioning that ABNs businesses enjoy in their respective fields. ABN is amongst the top five players in the insurance, asset management and telecom (Idea Cellular is the fastest growing telecom company, third in ranking) segments. Madura Garments, with its marquee brands, and consistent and resilient growth, is a profitable set-up. We believe in the improving macro environment ABN would be well placed to grow.
Madras Cement
Shree Cement
UltraTech Cement
Eros Intl Media
Indian Hotels Co
KKCL
Raymond
Relaxo Footwear
Speciality Rest.
Zee Entertainment
Aditya Birla Nuvo
56
July 2013
EARNINGS GUIDE
Remarks
EQUITY
FUNDAMENTALS
Bajaj Holdings
Bharti Airtel is the leader in the Indian mobile telephony space. With the regulatory overhang receding and the industry as well as the company focusing on the quality of revenues rather than volume, better times can be expected ahead for the sector and hence the company. The African business is facing headwinds and thus its performance remains a key monitorable.Overall, we maintain a cautiously optimistic view on the company. Bharti Airtel is the leader in the Indian mobile telephony space. With the regulatory overhang receding and the industry as well as the company focusing on the quality of revenues rather than volume, better times can be expected ahead for the sector and hence the company. The African business is facing headwinds and thus its performance remains a key monitorable.Overall, we maintain a cautiously optimistic view on the company. Bharat Electronics, a PSU manufacturing electronic, communication and defence equipment, is benefiting from the enhanced budgetary outlay for strengthening and modernising the countrys security. The growth in revenue is also expected to be aided by the civilian and export orders. The companys current order book of around Rs25,000 crore provides revenue visibility for the next three to four years. The huge cash reserve would also support the stock. With its dominant presence in the container freight station segment and recent forays into the rail freight and cold chain businesses, GDL has evolved as an integrated logistic player. Its CFS business is a cash cow while its investments in the rail and cold storage businesses have started bearing fruits. It is one of the largest players in the CFS business and has also evolved as the largest player in the rail freight business as well as the cold storage business. The proposed capex for all the three segments will strengthen its presence in each of the segments and increase its panIndia presence. We expect GDLs revenue and net profit to grow at 17% and 6% CAGR respectively over FY2012-14. Max India is a unique investment opportunity providing direct exposure to two sunrise industries of insurance and healthcare services. Max New York Life, its life insurance subsidiary, is among the leading private sector players, has gained the critical mass and enjoys some of the best operating parameters in the industry. With insurance penetration picking up in India and with the company entering into a tie-up with Axis Bank, we expect to see a healthy growth in the companys annual premium equivalent going ahead. As the company has turned profitable on a consolidated basis and has a treasury corpus of Rs409 crore, it has announced a dividend of 610% in FY13 and will continue to pay dividends in the future. Ratnamani Metals is the largest stainless steel tube and pipe maker in India. In spite of the challenging business environment due to increasing competition, the stock is attractively valued. The management has maintained a strong outlook on the potential opportunities in the oil & gas sector. We expect a subdued revenue performance in FY2013. However, we expect the EBITDA margin to inch up by close to 400 basis points which should result in a healthy growth in profits in FY2013. A key player in the plastic specialties space, Sintex Industries has a diverse business model with presence in construction, prefabs, custom moulding and textile businesses. However, a challenging economic environment has slowed down the growth of its monolithic business leading to a low order book.
Bharti Airtel
BEL
GDL
Max India
Ratnamani Metals
Sintex Industries
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TECHNICALS Sensex ADVISORY DESK MID Trades COMMODITY

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Hold Hold Hold Buy Buy Buy Reduce Hold

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Its more global than local this time around

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...but opportunity for firmer actions from government

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