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IIFL Initiating Dabur

IIFL Initiating Dabur

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The Front Page

• Market Front Page
Index Movements
Sensex Nifty BSE Smallcap CNX Midcap Nasdaq DJIA IBOV FTSE CAC Closing 15,185 4,524 7,467 6,058 2,394 12,084 66,795 5,723 4,661 % Chg 2.0 1.7 1.7 1.5 (2.2) (1.7) (1.4) (1.8) (2.1) US$m 1,216 3,079 10,673 Index 245 9,530 92 Latest 128 MTD 163 % YTD (25.1) (26.3) (44.1) (34.1) (9.7) (8.9) 4.6 (11.4) (17.0) % Chg 1.0 (4.4) (15.1) Stocks 18 4,633 173 YTD 1,555

June 12, 2008

What’s Inside: Ranbaxy (MP), Dabur India (MP), Gammon (BUY), GIPCL (BUY), Telecom, Events Calendar Corporate Front Page
ADR/GDR (US$)
HDFC Bank Reliance Infosys Satyam Wipro ICICI Bank SBI ITC Latest 80.6 102.5 44.9 25.3 12.7 32.6 62.2 4.6 Latest 877 136 2,900 7,989 Closing 42.9 66.5 83.8 % Chg (3.8) 1.5 (1.8) (3.0) (3.3) (4.5) 0.3 0.2 %Chg 0.4 3.9 0.3 (0.8) % Chg 0.0 (0.4) (0.5) Closing 8.3 8.0 % Prem (3.9) (2.9) 1.6 12.4 14.1 (5.7) 1.7 (2.1) %YTD 5.2 42.1 23.4 19.7 %YTD 8.8 14.3 6.4 bps Chg (2.0) 25.0

The Indian promoters of Ranbaxy, the Singh family, have agreed to sell their stake to Daiichi Sankyo Company Ltd of Japan in an all-cash deal valued at US$4.2bn (BS) The project to construct the first line of Mumbai Metro, being constructed by Reliance Infrastructure, has achieved financial closure (BS) The non-performing assets of State Bank of India are expected to decline by over Rs20bn by end-June 2008 (BS) Indian Bank plans to set up 100 new branches in the current financial year, of which 15 will be dedicated to micro-lending (BS) Gammon India’s overseas units have acquired stakes in two Italian firms (DNA) IOC is reducing discounts on diesel sales to industries and bulk clients to narrow losses from selling fuels below cost to retail buyers (Mint) Siemens has received two orders worth Rs1.6bn from Rashtriya Ispat Nigam Ltd (DNA) ONGC seeks Rs30bn tax rebate related to tax assessment for the year 2002-03 and 2003-04 (ET) Lupin Ltd has received approval from the US Food and Drug Administration to launch its generic version of hypertension drug Altace in the US (DNA) Telekom Malaysia will pay Rs150 per share for a less-than-15% stake in Idea Cellular, valuing the AV Birla Group company at Rs400bn (ET) PSL Ltd has won Rs19.3bn order to supply carbon steel pipes to state-run gas transporter GAIL (India) for its Vijaipur-Dadri-Bawana pipeline project (DNA) Unichem Laboratories has received the US Food and Drug Administration approval for sale of insomnia drug, Zaleplon, in capsule form (DNA) SpiceJet has projected Rs1bn loss in FY09 (ET) Essar Steel Holdings has raised its all-cash offer to buy Esmark by 10% to US$19 a share (BS) 3i Infotech has acquired a 51% stake in the Mumbai-based FinEng Solutions, with an option to acquire the remaining stake later (ET)

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Commodities
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Charts Front Page
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Sensex intraday
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15,250 15,200 15,150 15,100 15,050 15,000 09:55 11:35 13:15 14:55

• • •

Market Front Page
Top Movers BSE 200
Top Gainers Orchid Chemicals NIIT Bombay Dyeing United Breweries Deccan Chronicle Price (Rs) 261 135 723 176 109 Chg (%) 13.5 9.5 9.1 8.2 7.6 YTD (%) -8.8 -42.9 -4.5 -46.6 -50.4 Top Losers BPCL Max India Yes Bank JSW Steel Indiabulls Real Price Chg (%) (Rs) 273 152 137 1076 381 -4.0 -3.0 -3.0 -2.8 -2.5 YTD (%) -47.8 -41.9 -45.2 -18.4 -48.7

Economy Front Page
• • RBI has hiked repo rate by 25bps to 8% (ET) The Finance Ministry makes further modifications to area-based excise duty exemptions to units in Jammu & Kashmir, the North-East, Sikkim and Kutch (BL) Government notifies a committee to look into, among other things, the calculation of under-recovery on sale of petroleum products (BS) Reserve Bank of India has allowed additional amount of bonds to be sold through special market operations to ease the liquidity pressure on OMCs (BS) Department of Telecom has decided that service providers will be subject to spectrum-hoarding cess of 2.5% of the amount they bid for three spectrums for every quarter (ET) Indian Railways’s freight traffic up 10.2% YoY at 12.75m tonnes during April-May 2008 (ET) India added 6.28m GSM connections in May 2008 (Mint) Civil aviation minister Praful Patel has made a strong case for giving ATF declared-goods status in a meeting with the Prime Minister and the finance minister (FE) The state government has announced a three-month amnesty scheme for stamp duty payments (ET) The general insurance sector is likely to grow at ~18% in 2009 (ET)

• •

Volume spurts
Company Ranbaxy Labs Ltd Orchid Chemicals United Breweries Britannia Inds Television 18 Asian Paints Apollo Hospitals SCI Container Corp Kalpataru Power CMP 561 261 176 1478 258 1288 490 256 768 854 M.Cap 4,882 400 983 823 718 2,880 670 1,686 2,329 527 Vol. (in '000) 40,484 13,475 45 422 387 110 68 933 136 334 10D A.Vol (in '000) 7,670 2,772 11 110 102 30 19 363 53 133 % Chg 428 386 298 284 281 267 266 157 155 151

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FII - FII trades
Scrip Tata steel Sbi Grasim inds Allahabad bank Union bank Andhra bank 6/10/2008 Volume '000 411 310 92 6 1,100 6 Price 856 1,321 2,212 69 124 68 Prem % 5.0 3.5 0.5 1.0 4.5 2.5 6/11/2008 Volume '000 589 242 0.6 3,455 6 Price 876 1,357 2,258 69 68 Prem % 4.5 3.5 1.0 0.5 1.5

Results Front Page
Rs m ABG Shipyard NIIT Ltd NIIT Tech Shipping Corp Revenues 2,767 1,440 1,239 10,568 %YoY 43.3 33.9 40.6 21.7 PAT 461 282 546 2,487 %YoY 39.6 163.1 48.4 (12.6)

6 13.Quick Take Ranbaxy – MP Daiichi’s acquisition of Ranbaxy: a landmark deal in global pharma Daiichi Sankyo’s acquisition of Ranbaxy is the first case of a big innovator pharma company entering the generics market as an avenue for growth. products across the pharma value chain.6 8. The deal creates a global pharma major with presence across the pharma value chain and presents several synergies in driving growth and operational efficiencies.893 RBXY IN Price performance (%) Ranbaxy Laboratories Rel.6 6.7 38.9 49. beyond the open offer. However. the share price may retreat back to ~Rs500. Ranbaxy’s share prices may fall to the fundamentally-justified level of about Rs500. we find little upside from current levels. However. with big US and European pharma companies gradually warming to the idea of entering generics markets.7 6.5 36. More opportunity for inorganic growth: The near-US$800m cash infusion by Daiichi Sankyo would strengthen Ranbaxy’s balance sheet and the company can explore more inorganic growth opportunities.3 23. We believe both companies can extract significant value from the merger. We believe this deal is the first of many more to come.0 23.3 1.5 24.8 • Percent of outstanding shares tendered in the offer Synergies can add value to both companies: Synergies arising from the deal include a global presence.com (91 22) 6620 6648 .6 65. Daiichi’s Rs737/share offer is significantly above Ranbaxy’s standalone value and hence represents a great deal for shareholders. Pharmaceuticals 12 Jun 2008 CMP Market cap (US$ m) Bloomberg Rs561 4. Arbitrage opportunity – break-even points Post open offer stock price (Rs/share) 450 35% 40% 45% 50% 55% 60% 65% 607 583 565 551 541 532 525 475 618 596 580 568 558 550 544 500 629 610 595 584 575 568 562 525 641 623 610 600 592 586 580 550 652 636 625 616 609 604 599 575 663 650 640 632 626 621 617 • • Source: IIFL Research Dr Bino Pathiparampil bino@iiflcap.6 1Y 56.2 34. Post the open offer. Ranbaxy’s low-cost manufacturing base. little arbitrage left: The offer price is significantly above Ranbaxy’s standalone value and hence is a good opportunity for shareholders to cash out. We expect these synergies to play out over the next 2-3 years.6 3M 30.1 52Wk High/Low (Rs) Diluted o/s shares (m) Daily volume (US$ m) Dividend yield FY08ii (%) Free float (%) Shareholding pattern (%) Promoters FIIs Domestic MFs Others 561/335 373 93. to Sensex Sun Pharma Dr Reddy's Cipla 1M 16. and R&D outsourcing potential.9 9.6 4.9 26.9 16. Good deal for shareholders.8 18. since the stock has already run up significantly.

Though Novartis has a generics division.049 95. Ranbaxy’s low-cost high-quality manufacturing facilities will help Sankyo derive more value out of its existing products. to pick up 46. the immediate motive for Sankyo seems to be to secure a ready entry into about 40 new countries in which it had no presence and into generics markets in the developed countries.93 Percent of total 26.86 83.2m shares at Rs737 per share (total US$792m) in preferential issue. this may well be a beginning.226 1. to get warrants to buy 22. Total fund infusion of US$4. as it allows a company to allocate the same resources across more molecules or targets.4 8.437m). • New paradigm in global pharma: The coming together of Daiichi and Ranbaxy is a landmark in global pharma—an innovator company with successful brands has entered the generics business to be bin o@iif lcap. While similar deals may not follow immediately.5% • Figure 3: Investment from Sankyo Category Investment through preferential issue Price for promoters’ stake Share purchase in open offer Total fund infusion Source: IIFL Research. thus enhancing chances of blockbuster success in the highrisk. it was more the result of amalgamations over time and not a pre-meditated strategy to overcome the slowdown in its drug-innovation business.704 61.437 4. However.20 23. no R&D demerger: We believe there are several strategic synergies in the deal that can add value to both Ranbaxy and Daiichi.5% shares will be accepted in the offer and at close of the offer. post deal Source: IIFL Research.812 191. company reports Shares (m) 129.Ranbaxy . to pick up 20% in open offer at Rs737 per share (total US$1.455 present globally. Thus. The advantage of low-cost R&D extends beyond merely saving money.20 259. Ranbaxy has shelved plans to de-merge the R&D entity. there is hardly any arbitrage opportunity left in the stock. we expect the price to remain in the Rs560-570 range till the open offer closes. across all categories of pharmaceutical markets. and the large European and US pharma companies might follow suit.3% 9. Synergies abundant.11 Figure 2: Sankyo’s stake post deal Source From promoters From open offer From preferential issue Total Source: IIFL Research.566 Investment (US$ m) 792 2.455m by Sankyo to control 53. The tremendous growth potential of the combined entity in an increasingly genericised Japanese market is also a positive.5% of the final entity on fully-diluted basis. company reports Shares (m) 373. • Figure 1: Post-deal share-count Category Current shares outstanding Preferential issue to Daiichi Sankyo Warrants to Daiichi Sankyo FCCB dilution Stock options outstanding Total diluted shares.MP • Contours of the acquisition deal: Sankyo picks up 35% of currently outstanding shares from promoters at Rs737 (total US$2. we expect the shares to retreat to ~Rs500.com 2 . almost all the non-promoter shareholders will tender their shares in response to Daiichi’s open offer to acquire 20%.87 46. Shares have already run up. hardly any arbitrage: In our view.56 486. Sankyo would also be able to do significant parts of its R&D activities in India’s low-cost environment.7% 17.32m shares at Rs737 per share (unlikely to be exercised in the near term). Hence. In line with the new strategy.226m). high-reward drug development business.5% 53. and in the process creating the world’s 15th largest pharma company. only 34.15 46.80 34. company reports Investment (Rs m) 34.

the US$792m cash infusion by Daiichi Sankyo will strengthen Ranbaxy’s balance sheet. According to our analysis.MP Figure 3: Arbitrage opportunity – break-even prices Post open offer stock price 450 Percent of outstanding shares tendered in the offer 35% 40% 45% 50% 55% 60% 65% 607 583 565 551 541 532 525 475 618 596 580 568 558 550 544 500 629 610 595 584 575 568 562 525 641 623 610 600 592 586 580 550 652 636 625 616 609 604 599 575 663 650 640 632 626 621 617 Source: IIFL Research • Debt-free status. and 2) Daiichi Sankyo fully exercises all its warrants. Still.com 3 . at the revised exercise price of about Rs540 (reset from the earlier Rs716 following the change in management control). enabling the company to more aggressively pursue its inorganic growth strategy. bin o@iif lcap. free cash . since it is most likely to gain majority stake from the open offer. leading to non-conversion of FCCBs and Daiichi may not exercise its warrants. We do not share the company’s confidence in either of these—the stock price may retreat after the open offer. two conditions will have to be met for this to be true: 1) all FCCBs convert immediately after the deal closure.Ranbaxy .based on assumptions: Management projected the company will become debt-free and will have about US$700m cash in hand after the deal’s closure.

831 2.611 17.8 FY09ii 27.1 7.2 30.035 5. At its current PE of 19. Slowdown in revenue growth: We expect a significant slowdown in Dabur’s revenue growth.4 3M -1. We initiate coverage with a Market Performer and a 12-month target price of Rs95.2 50 40 30 20 10 0 Jan-08 Oct-07 Nov-07 Sep-07 Feb-08 Apr-08 24.3 2.0 4.com (91 22) 6620 6661 FY09E FY10E FY05 FY06 FY07 FY08 Debt/Equity (x) EV/EBITDA (x) Price/Book (x) Source: Company data. 1. Stock is fairly priced: At 19.5 18.312 5.3 -5.8 FY10ii 31.0 59.6 6.8 12. We have valued Dabur at 19x 1-year forward earnings.1 20.8 16.777 17.Dabur India Ltd – MP DABUR IN Rs 98 FMCG 12 Jun 2008 Initiation 12-mth Target price (Rs) 95 (-3%) Market cap (US$ m) 52Wk High/Low (Rs) Diluted o/s shares (m) Daily volume (US$ m) Dividend yield FY09ii (%) Free float (%) Shareholding pattern (%) Promoters FIIs Domestic Institutions Others Moderating growth Dabur’s portfolio of natural and herbal products enjoys premium positioning and pricing.com (91 22) 6620 6665 Arnab Mitra Arnab. With earnings set for a sharp slowdown over FY08-11ii. increased cost of agricultural inputs and investment in the retail venture are likely to put pressure on margins.7 1.3 . in-line with its five-year multiple.3 24.329 3. IIFL Research Price as at close of business on 11June 2008 May-08 Jul-07 43.8 22.8 9.7x on FY10ii.3 3.339 3.721 4.721 3.6 0.6 25.0 7.7 FY08 23.1 1.8 -1. as this translates to increasing packaging costs—which aggregated 16.831 3.0 4. We expect a slowdown in Dabur’s earnings CAGR.1 12.978 126/89 864 4.1 2.0 15.5 50.7 39.9 Stock movement 40 35 30 25 20 15 10 5 0 Jun-07 Volume Shares (m) Price (Rs) 140 120 100 80 60 40 20 0 Dabur’s growth is slowing down Earnings grow th (%) Financial summary Y/e 31 Mar Revenues (Rs m) EBITDA Margins (%) Pre-Exceptional PAT (Rs m) Reported PAT (Rs m) FY07A 20.7xFY10ii earnings.3 -12.7 FY11ii 35.4% of Dabur’s revenues in FY07.059 16.7 29.6 EPS (Rs) Growth (%) PER (x) ROE (%) Pragati Khadse Pragati.Mitra@iiflcap.6 44. but the company now faces the twin threats of a slowdown in its key product categories and mounting packaging costs.1 -0.6 17.3 11.2 7.8 16.431 17.6 9. We initiate coverage with Market Performer and a target price of Rs95.0 0.9 Price performance (%) Dabur Rel. from 15-25% during FY0508 to about 15% over FY08-11ii.4 12.3 11.2 0. which were the major growth drivers in the last few years. Investment in the retail business will add to margin pressures.5 6. the stock fully prices in the company’s growth prospects.8 43.2 0.2 5. The key challenges confronting Dabur are: 1) weak competitive position in high-growth categories.0 0.815. Further pressure points on margins could emerge from spiralling price of crude-oil.2 70.7 1Y -2.076 17. in our view.9 3.9 36. to Sensex Hindustan Unilever Marico Colgate India 1M -1. from 29% over FY05-08 to 15% over FY08-11ii.Khadse@iiflcap. Dabur is trading slightly higher than its past five years’ average multiple of 19x.035 5.7 -19.1 15. Restricted margin expansion: Subdued sales growth.8 26.312 4.9 19.4 -14. and 3) slowdown in key categories such as foods.1 17. 2) slowdown in categories in which the company is dominant.1 18. we believe the current price fully discounts Dabur’s earnings potential.9 17.

we discuss each of these arguments in detail: Consumer Care Division (CCD). international businesses and acquisition of Balsara’s oral-care and home-care portfolio.0 22. initiate with MP We initiate coverage on Dabur with a Market Performer recommendation and a target price of Rs95. though with growth picking up in FY11ii as retail sales kick in. Our Market Performer rating is predicated on: 1) slowing revenue growth.4 18. 6.0 12.4 International. which in our view at 19.0 15.3 Retail contribution kicking in 19.0 Source: IIFL Research 21.6 10.0 Figure 3: Revenue growth slowing down for Dabur 28.0 14.0 20.5 After strong growth over FY04-07.0 18. we expect Dabur’s revenue growth to hit a roadblock after FY09. Growth between FY05-07 was led by foods division.Dabur India Ltd – MP Dabur India Limited: company snapshot Figure 1: Consumer care division (CCD) is Dabur’s biggest revenue earner by far* (FY08 revenue mix) Consumer Health Division (CHD).0 25.5 It’s all in the price.Kh adse@iiflcap. c om 2 .8 16.0 10.3 (%) 25. 15.0 26.0 6. IIFL Research P r agat i. In the absence of any of the above growth drivers.0 20. 2) restricted margin expansion owing to increased agri inputs and retail investment. Below.4 Sales spurt driven by Balsara Source: Company.3 5. and 3) valuations.0 24.5 4. we expect the company’s sales growth to moderate from 15-25% experienced during FY05-08 to 14-15% during FY08-10.6 15.8 15.7 Reason #1: Moderating growth Others.6 15.0 FY05 FY06 FY07 FY08 FY09ii FY10ii FY11ii 17.7x FY10ii P/E fully discount the company’s growth potential.0 4. 76.1 14.0 10. Reasons for Dabur’s moderating sales growth over FY08-10 are detailed below: Source: IIFL Research Figure 2: CCD dominated by hair-care and oral-care products (%) Hair Care Oral Care Health Supplements Foods Digestives & Candies Home Care Baby Oils & Skin Care 0.0 16. 1.

5% in FY08. Driving growth in CCD (Consumer Care Division). both these categories are small. accounting for 12% of the company’s revenue growth over this period.2%) will need to plough in significant money to sustain growth. Dabur has strong brands such as Vatika and Amla. which is Dabur largest division (76% of sales. we expect Dabur to grow at c5% over FY08-11E. shampoos and oral care. a. in our view.Kh adse@iiflcap. Figure 5: Toothpastes –Large investments needed to gain market share FY08 Market size Category penetration Dabur's market share Dabur’s key brands Red. we believe. P r agat i.Dabur India Ltd – MP 1. making it the largest growth driver. In shampoos. given the following obstacles. Foods revenues registered a CAGR of 26% over FY05-08. Figure 7: Health supplements – Dabur’s market share faces increasing competition FY08 market size Dabur’s market share Dabur’s key brands Chyawanprash* Likewise. with unique herbal positioning and premium pricing. this category is now experiencing a slowdown. Competition in this segment has picked up significantly after highdecibel launches from competitors like Emami. these categories are growing between 14-18%. accounting for 23% of the company’s sales in FY08. c om 3 . where Dabur’s growth is the past has been driven by market share gains in the economy segment via the lowpriced Dabur Red and brands acquired from Balsara (Babool). However. Lack of dominant position in big categories Dabur has a weak competitive position in large categories such as hair oils. Hindustan Unilever and Procter & Gamble have upped the ante with product expansion and innovation backed by big marketing spends. Figure 6: Hair oils – expect growth to accelerate FY08 market size Category penetration 71% Dabur’s market share Dabur’s key brands Rs27bn Source: IIFL Research 17% Amla. we believe Dabur will need to make significant investments in order to grow/maintain its share in these categories. While. we reckon Dabur’s revenue growth will slow down from 24% in FY08 to 15-18% over FY08-11ii. 61% share) and digestives (market size Rs5bn. Figure 4: Shampoos . 32% share).increased reach. with Dabur’s growth having tapered down to 19. Shampoos segment has witnessed heightened competitive activity. which will grow faster than the plain coconut-oil category. Dabur being a distant number three in this category (share of 5. Foods . Vatika Category penetration 43% Dabur’s market share Dabur’s key brands Rs18bn Source: IIFL Research 5% Vatika b. Growth was driven primarily by Real fruit juices. Meswak Rs6bn 61% Source: IIFL Research. growing at 5-10% pa. * Ayurveda-based health supplement Rs25bn Source: IIFL Research 53% 10% 2. we expect revenue growth in health supplements to remain subdued in the 510% range over FY08-11E.Dabur has a small market share FY08 market size Hair oils form Dabur’s biggest product category by revenue. However. FY08) would be a challenge. only hair oil will see acceleration in revenue growth. Categories with dominant presence are small Dabur is the market leader in health supplements (market size Rs6bn. previously one of the company’s key growth drivers. distribution advantages have played out: We expect a slowdown in Dabur’s foods business. Among the large categories. from 12-13% over FY06-FY08 to c15% for the next three years. Babool. With category growth of low single digits. we reckon growth would be in line with the industry’s growth. Toothpowder sales could be under pressure with increasing number of consumers up-trading to toothpaste. in toothpastes.going forward. Overall.

6 44. Besides.8 15. and are available in smaller pack sizes (like soft drinks). FY06 FY07 FY08 FY09E FY10E Figure 11: EBITDA margin expansion has slowed down 200 160 120 80 40 0 FY05 Source: IIFL Research EBITDA Margin Expansion (bps) (LHS) EBITDA Margin (%. RHS) 17.5 15.0 FY06 FY07 FY08 P r agat i. 2) excise duty savings from manufacturing plants in backward areas. marginal shops and hotels. respectively).5 16.6 Figure 9: Fruit iuices . However. Coca Cola and Pepsi have a clear distribution advantage over Dabur. significantly lower than the 26% registered during FY05-08. Coolers.5 17.0 16. and 4) growth in high-margin categories such as foods and the international business division. backed by heavy promotional and advertising. driven by: 1) cost efficiencies after de-merger of the pharma business.3 11.5 18.Kh adse@iiflcap.highly underpenetrated category. c om 4 . Activ. given the strength of the incumbent players and Dabur’s lack of distribution reach in this category. Twist One major reason for the slowdown in the fruit-juices category was the launch of two significant brands in the fruit drinks category (Coca Cola and Pepsi launched their diluted fruit juices Minute Maid and Twister. as they already sell to eateries. These products are priced much lower than concentrated fruit juices such as Dabur’s Real.3 FY 06 FY 07 FY 08 24. Figure 10: Sharp slowdown in Dabur’s earnings growth Earnings grow th (%) 50 40 30 43. but Dabur has stiff competition Market size Category penetration 1% Dabur’s market share Dabur’s key brands 20 10 0 FY05 Source: IIFL Research Rs4bn 51% Real. 3) strong revenue growth after the merger with Balsara (FY06). We forecast Dabur’s food revenues will register a CAGR of 18% over FY08-11. Dabur has responded by launching its Twist fruit juice.0 15. we reckon it will be difficult for the company to replicate the success of its fruit juices Real and Activ.Dabur India Ltd – MP Figure 8: Foods growth has slowed down while its revenue share has increased Foods grow th (LHS) 60% 50% 40% 30% 20% 10% 0% FY 05 Source: IIFL Research Reason #2: Restricted margin expansion 12% 11% 10% 9% 8% 7% Revenue contribution (RHS) Dabur’s earnings registered 29% CAGR over FY05-08.

This would limit margin expansion.142. in our view.800. margin expansion seen in the last 4-5 years is highly unlikely to continue.0 90. they are expected to remain much higher than historical levels. Since the retail business is fully owned by Dabur.0 No.000.Dabur India Ltd – MP However. Figure 12: Packaging costs are now the biggest component of materials used for Dabur Packaging Material as % of Net Sales 17 16 15 14 13 12 11 10 9 8 15.0 200. to 13. P r agat i.0 % growth YoY FY04 FY05 FY06 FY07 157. Sharp increase in packaging costs: Packaging costs are a significant cost head for Dabur.8 16.0 1. Though Dabur is relatively insulated from inflationary pressures as compared to its peers. but does restrict margin expansion: Dabur’s key inputs are edible oils (coconut. Though most of the agricultural inputs are off from their recent peaks.0 12.5 FY10ii 712.0 28. chemicals and other agricultural inputs.7%.5 9. 3. margin expansion would be highly restricted in the existing inflationary input cost environment. honey.0 1. A changing product mix (higher sales of personal care products like shampoos and juices) and rising crude prices have led to a rise in packaging costs. Retail roll out costs will depress margins: Dabur has made an investment of Rs220m in FY08 in retailing and would invest another Rs350m in FY09.Kh adse@iiflcap. c om 5 .800.000.0 14.0 9. owing to the following reasons: 1. groundnut. etc).800.4 2. IIFL Research Figure 13: Packaging costs are the highest for Dabur (FY07) 18 15 12 9 6 3 0 HUL Colgate Dabur 8. As such. of stores Average store size (sq ft) Total retail space (sq ft) Sales/sq ft Source: Company data. Input cost inflation manageable. which would weigh down profitability to an extent. perfumes.000.6 16.800. Dabur’s product mix makes it particularly susceptible to increases in packaging costs compared to other consumer goods companies such as HUL and Colgate. mustard. HUL costs are for CY07. they accounted for 16% of the company’s sales in FY07. Figure 14: Retail business to have 120 stores by FY11 FY09ii Retail revenue (Rs m) 276. over FY08-11ii. Dabur has taken price hikes of 2-3% in FY08 and 4-5% YTD.0 216.600.0 50.000.4 Source: IIFL Research Source: IIFL Research. sugar. all losses in the gestation period will get consolidated in the parent.0 12. we expect a sharp moderation in earnings CAGR.0 1.5 120.8 FY11ii 2.4 Packing cost as % of sales 14 16.

059 14.6% 30.Dabur India Ltd – MP Figure 15: EBITDA margin and EPS under pressure FY09ii Including retail venture FY10ii FY11ii Figure 16: Dabur is trading above its last five years’ average P/E 40.6% 17.0 30.8 19.0 5.0 124. a visible and stable earnings CAGR of 15% over FY08-11ii would provide downside support to the stock.3 12.0 15.0 131.7 Dabur HUL* 14.4 14.4% 35. This is at a discount to the 25x multiple that we attribute to HUL. Further overhang of escalating packaging costs (16% of FY07 revenues) and retail investments are likely to weigh down on the stock price. * HUL data is for CY07. we believe Dabur’s stock price fully discounts its earnings potential.1 15. Dabur is trading at 19. However.0 25.4 6.4% 17.777 15.3 43. which slightly higher than its last five years’ historical average P/E.Kh adse@iiflcap.0 Average P/E =19. Source: IIFL Research Figure 18: A comparison of Dabur and HUL in key metrics Sales CAGR (FY 08-11) Earnings EBITDA CAGR margin (FY 08) (FY08-11) 14.2% 0. superior capital efficiencies and improving growth prospects.4% 24.7% 13.0 16.2 5.1 20.0 5.7x FY10ii P/E.076 14. except for PE.0 4.6% 17. with a target price of Rs95.629 15. We value Dabur on a P/E multiple of 19x 12-month forward earnings. With earnings set for a slowdown over FY08-11ii at 15%.0% 31.2 Source: IIFL Research.0 20.0 Oct-03 Oct-04 Oct-05 Oct-06 Oct-07 Jul-03 Jul-04 Jul-05 Jul-06 Jan-04 Jan-05 Jan-06 Jan-07 Jul-07 Apr-03 Apr-04 Apr-05 Apr-06 Apr-07 Jan-08 Apr-08 Source: IIFL Research Figure 17: Dabur’s P/E bands (Rs) 125 110 95 80 65 50 35 20 5 May-07 Oct-97 Dec-05 Nov-01 Nov-99 Dec-03 Feb-97 Feb-99 Mar-01 Jun-96 Jun-98 Aug-04 Sep-06 Apr-03 Apr-05 Jan-08 Jul-00 Jul-02 14x 10x 30x 24x 18x Reason #3: Valuations price in growth prospects We rate Dabur a Market Performer.9 14. compared to the 29% CAGR witnessed over FY05-08. presence in multiple categories.0 35.1% 17.971 14.8% 17.5% 22.6% Sales (Rs m) % growth YoY EBITDA margin (%) EPS (Rs) % growth YoY Source: IIFL Research 27.3 ROE (FY09) ROCE (FY09) Dividend PE PE Yield FY09 FY10 (FY09) 1.3 4.5% 43.6% 13. which we believe deserves a premium owing to its market leadership.0% 17.8 16.6% 17.0 15.3 Sales (Rs m) % growth YoY EBITDA margin (%) EPS (Rs) % growth YoY Excluding retail venture 27.014 14. c om 6 .0 10.4 5.7 3. which is based on March 2010ii P r agat i.6% 35.

Dabur India Ltd – MP Annexure: Retail foray in niche health and beauty segment Dabur entered the retail sector through its ‘newu’ format. beauty and consumer products. Source: Company. Coolers. Glucose Real. Nepal. Vatika Chyawanprash. Bangladesh. such as fruit juices. Twist Red. Dabur has set up manufacturing facilities in markets like Dubai. Meswak. ‘newu’ is operated by Dabur’s 100% subsidiary H&B Retail. taking the total investment in the retail venture to Rs1. with a product portfolio spanning personal care. locations and product composition on the basis of consumer feedback. Gulabari P r agat i. constantly tweaking store size. It acquired the oral-care and home-care portfolio of Balsara in FY06. The company will invest a further Rs350m. Bangladesh. Promise Lal Danth Manjan Hajmola. Hair Oil Health Supplements Foods Toothpaste Toothpowder Digestives Baby & Skin Care Source: IIFL Research Dabur Amla. Dabur has successfully diversified into categories beyond its traditional segments. The company is driving growth in its international markets by having dedicated management teams managing these businesses on the ground. Dabur has a highly successful international business (16% of sales in FY08) with presence in the Middle East.8% stake in the company.Kh adse@iiflcap. UAE. We estimate that in the retail venture.500sq ft. US and the UK. At present. 2.4bn by FY11. Rs630m and Rs200m in FY09. which holds 70. Investment of Rs220m made till FY08. respectively. offering health. Major shareholder in Dabur is the Burman family. Pudin Hara Lal Tail. Nigeria. IIFL Research Figure 20: A list of Dabur’s key segments and brands Segments Brands Key features of Dabur’s retail roadmap: 1. Besides Dabur. Management is targeting a breakeven by FY11. c om 7 . The company derives 86% of its revenue from herbal products. with an area between 1. Nigeria and Egypt to service these markets. Management is still working on the retail blueprint. four stores are in operation. Pakistan. Activ. Figure 19: NewU in pictures Company background Dabur is a leading consumer-goods company in India. Babool. Honey. Dabur spun off its pharma business into a separate entity in FY04.500-2. FY10 and FY11. without diluting its ‘herbal’ positioning. the Burman family has interests in life insurance (Aviva) and non-life insurance (with Liberty group and Sompo). healthcare and pharmaceuticals (ethnic and OTC) products. Dabur would make a loss of Rs113m in FY09 and Rs106m in FY10 respectively. Over the last few years.

Kh adse@iiflcap. c om 8 .Dabur India Ltd – MP Segments / Brands Segments / Brands Hair oils Red Dabur Amla Vatika Toothpastes Babool Meswak Promise Toothpowders Lal Danth Manjan Health supplements Chyawanprash Honey Glucose Digestives Hajmola Pudin Hara Foods Real Activ Twist Baby & skin care Lal Tail Gulabari P r agat i.

990 523 -674 248 -5 5. Going forward. FY08 on account of horizontal line.291 4.195 -168 339 3. Depr.Dabur India Ltd – MP Financial summary Interest costs will increase on account of high working capital and rental deposit requirements of retail business Income statement summary (Rs m) Y/e 31 Mar Revenue EBITDA EBIT FY07A 20.777 0 0 0 -1.135 FY09ii 4.990 -222 451 5. Press click on the Blue sale of old machines.582 4.477 FY10ii 4. Other Income Profit before tax Taxes Exceptional items Minorities and other Net profit -373 0 9 2.782 95 0 -193 -699 -1.308 -187 410 4.611 4.431 3.827 Other income increased significantly in [[[[[[[[[[[[[[To add more comments.076 5.083 -717 4. & amortization Tax paid Working capital ∆ Other operating items Operating cashflow Capital expenditure Free cash flow Equity raised Investments Debt financing/disposal Dividends paid Other items Net change in cash Source: Company data.831 -507 -10 1 3.809 FY08A 3.035 Cashflow summary (Rs m) Y/e 31 Mar Profit before tax FY07A 3.844 -176 373 4.227 3.157 5.874 Depreciation costs will increase as capex increases.059 4.195 343 -387 -1.827 559 -787 20 -5 5.498 3.615 -741 4. IIFL Research 290 -386 556 -1. andexpectthis box up or ctrl+shift we move other income down]]]]]]]]]]]] growth to return to normal level of 10%.761 0 0 0 -1.043 4.673 FY09ii 27.579 -111 5.819 990 2. c om 9 .395 0 0 0 -2.721 -674 0 -5 4.329 -582 0 -5 3.516 34 1.111 FY10ii 31.366 FY11ii 5.178 -1.094 3.312 -787 0 -5 5.844 364 -499 1.392 -1.696 -4 1. retail investment and the corporate centre will be major capex items.308 471 -582 512 -5 4.777 6.598 Net Interest expense -154 259 3.967 -4 2. A facility in RAK in UAE.Kh adse@iiflcap.440 108 1.703 -1.294 -5 2.768 FY11ii 35.090 FY08A 23.575 P r agat i.

7 43.478 3.201 100 4.8 -1.485 Debt position expected to remain fairly stable.9 49. IIFL Research P r agat i.212 0 1.602 Sundry debtors increased in FY08 because of an increase in receivables in international and foods business Intangible assets Other term assets Total assets 0 1.0 15.420 FY11ii 9.6 13.1 45.998 22.485 Short-term debt Sundry creditors Other current liabs 543 3.trade Other current assets Fixed assets FY07A 607 1.161 3.056 245 45 4.0 43.1 15.6 13.4 17.1 45.1 18.534 5.5 -37.1 39.471 FY09ii 4.180 14.387 2.2 40.9 16.3 13.628 14.0 17.5 -59.2 48.488 4.6 17.022 5.7 20.9 15.739 26.033 800 150 37 8.180 18.6 22.641 2.749 0 1.3 36.749 100 5.408 800 150 32 10.353 0 1.539 2.9 17.6 11.0 FY10ii 14.135 4.1 -0.5 -0.792 FY08A 2.005 11.890 3.6 38.4 17.807 3.3 15.115 2.6 14.5 13.1 16.0 48.809 3.5 -51.180 22.Kh adse@iiflcap.882 3.499 2.724 3. Retail investments to be made through internal accruals Long-term debt/CBs Other long-term liabs Minorities/other equity Net worth Total liabs & equity Ratio analysis Y/e 31 Mar FY07A 18.1 FY11ii 15.3 59.654 18.8 15.420 2.580 3.623 5.368 1.2 11.6 13.2 15.212 100 7.2 -22.Dabur India Ltd – MP Financial summary Balance sheet summary (Rs m) Y/e 31 Mar Cash & equivalents Sundry debtors Inventories .4 50.5 16.3 -1.8 FY09ii 14.624 893 1.226 FY10ii 6.2 Revenue growth (%) Op Ebitda growth (%) Op Ebit growth (%) Op Ebitda margin (%) Op Ebit margin (%) Net profit margin (%) Pick-up in sales growth in FY11 as retail sales contribution kicks in Dividend payout to stay stable at c46% Dividend payout (%) Tax rate (%) Net debt/equity (%) Net debt/op Ebitda (x) Return on equity (%) ROCE (%) Source: Company data.0 17.3 FY08A 15.7 0.1 13.2 13.8 45.796 11.145 1.530 800 150 41 6.180 26.1 19.201 0 1.571 1.9 45.6 14.859 800 150 28 13.954 2. c om 10 .353 100 6.9 11.

3 17.2 -17.7 ROE (%) Debt/Equity (x) EV/EBITDA (x) Price/Book (x) Source: Company.com (91 22) 6620 641 .889 9.577 1. Franco Tosi.Quick Take Gammon India .3 984 445 11.3 2.9 0.1 -5.5 11.1% in Franco Tosi Meccanica Spa. Alstom divested this company during its global restructuring in 2003. but our discussion with industry sources indicates that neither company has a large revenue or profit base. It also has capability for manufacturing storage pumps and accessories for hydroelectric power plants.2 23.2 0.250 1.8 • Jun-07 Jan-08 Oct-07 Sep-07 Nov-07 Feb-08 Apr-08 • Sadelmi is a balance-of-plant contractor for thermal power plants. incompatible with the company’s current business portfolio.1 3.5m.577 17.9 10.4 13. However. In our view.057 11.6 -23.4 -7.gupta@iiflcap.1 28.1 21. Stock movement 6 5 4 3 2 1 0 Volume Shares (m) Price (Rs) 1000 800 600 400 200 0 FY10ii 37. It was acquired by Italian power equipment major Ansldo in 1990.4 0.517 9.250 14.1 -0.1 26.5 1. It manufactures thermal and hydro turbines. Construction 12 Jun 2008 CMP Target price Market cap (US$ m) Bloomberg 52Wk High/Low (Rs) Diluted o/s shares (m) Daily volume (US$ m) Dividend yield FY08ii (%) Free float (%) Shareholding pattern (%) Promoters FIIs Domestic MFs Others Rs384 Rs514 796 GMON IN 777/371 89 1.361 9.7 0.1 11. mainly small-rating turbines up to 200MW.6 3.8 FY07A 18.765 12.043 1. to Sensex Nagarjuna IVRCL Infra HCC 1M -7.4 2.5 May-08 Jul-07 Franco Tosi Meccanica is descended from 125-year old Italian power equipment manufacturer.9 -21.2 18.4 1Y 0.1 68.9 0.8 26.2 2.ritolia@iiflcap. The company was set up in 1947 in Argentina and has executed projects in over 50 countries.991 9.4 0. prima facie. Financial summary Y/e 31 Mar Revenues (Rs m) EBITDA Margins (%) Pre-exceptional PAT (Rs m) Reported PAT (Rs m) EPS (Rs) Growth (%) PER (x) 33.6 -13. We wait for management commentary on whether the debt has recourse to Gammon India’s balance sheet. Both companies have similar histories—acquired and subsequently spun off by global majors. the Franco acquisition is.0 12.5 1.2 0.4 Price performance (%) Gammon Rel.0 -17.6 9.3 • • • Gopal Ritolia gopal. for EUR40m. Gammon has acquired these companies to gain prequalifications for power plant EPC contracts.4 27.4 989 989 11. The acquisition has been likely funded through debt raised by the offshore subsidiaries. IIFL Research FY06A 14.3 17.5 1. The company was acquired by ABB in 1989 and later sold to Alstom in 2000.com (91 22) 6620 6651 Anupam Gupta anupam.9 7. and 50% in Sadelmi Spa.9 31. Anslado subsequently sold the business and the manufacturing facilities in the northern Italy town of Legnano to the Casti group in 2000.2 18.9 3. The company has not disclosed financial details of the two companies.3 3.0 3M -9.7 35.0 -13.BUY Gammon acquires two Italian companies Gammon India has acquired stakes in two Italy-based companies through its offshore subsidiaries—75. for EUR7.8 FY09ii 29.5 34.6 2.3 21.0 FY08ii 22.

2 3M -12.8 33.2bn.1 10. the stock’s current valuation does not factor in this robust financial performance or progress on the planned capacity addition.1m provision for prior-period MAT. The stock is trading at 1x FY09ii BV.8 11.852 12.3 11.0 0.2 FY08ii 9.SLPP PLF at 96%: The highlight of the quarter was the 96% PLF of the SLPP-I unit. Adjusted for these onetime items. These valuations completely ignore the robust operational performance (core RoE ~20%) and progress on the capacity expansion programme.8 66.0 1.GIPCL – BUY GIP IN Rs88 Utilities 12 Jun 2008 Result update 12-mth Target price (Rs) 150 (71%) Market cap (US$ m) 52Wk High/Low (Rs) Diluted o/s shares (m) Daily volume (US$ m) Dividend yield FY08ii (%) Free float (%) Shareholding pattern (%) Promoters FIIs Domestic MFs Others On track Gujarat Industries Power Corporation Ltd’s (GIPCL) 4QFY08 performance was in line with our estimates.566 40% 1.7 1. 4QFY08 highlight .7 2. Management said the expansion project is proceeding on schedule and would be commissioned by December 2008. after adjusting for one-time items.0 3.852 1. We maintain our BUY rating.6x FY10ii BV. Cheapest utility in India: GIPCL has already spent Rs7.9 2.5 0.027 8.2 18.7 Price performance (%) GIPCL Rel. This strong operational performance enabled GIPCL to earn incentives and maintain PAT despite a drop in the treasury income.131 1.3 29.3 1Y 37. which would increase its capacity by 50%.829 7.2 11. However.7 11.9 5.5 0.4 14. which is 1.0 0.2bn till date. which implies 4% growth over the previous year. the company’s PLF averaged 85%.009 29% 1.8 10.3 FY06A 7. Construction of its 250MW plant SLPP-II is on schedule. and 11x FY09ii EPS. Adjusted PAT growth of 25%: GIPCL's reported PAT declined 87% YoY in 4QFY08.0 FY10ii 13.59/unit.4 16. For FY08. to Sensex NTPC Tata Power CESC 1M -9. 3) the fact that the year-ago quarter’s profit included a Rs325m tax write-back. as PLF rose to 89% from 75% in the year-ago period and average realisation increased 38% YoY to Rs2. PAT rose 25% YoY to Rs245m in the quarter. the company has already spent Rs7.9 Source: IIFL Research Harshavardhan Dole harsh. which offers downside support.9 11. 2) Rs109m provision for interest on a long-disputed debt.2 4.5 FY07A 7.2bn on its SLPP-II 250MW expansion. adjusted for which PAT was Rs196m. Maintain BUY. PLF of SLPP-I at all time high – 96% 100% 90% 80% 70% 60% 50% 1QFY07 2QFY07 3QFY07 4QFY07 1QFY08 2QFY08 3QFY08 4QFY08 40% 311 178/58 151 0.148 7.3 1.9 1.356 27% 1.0 8.8 -2.com (91 22) 6620 6660 Price as at close of business on 11 June 2008 .2 0.701 36% 1.6 6. but reduce the target price to Rs150. but this decline is due to: 1) Rs72.2 -10.5 -3.7 7. For FY08.2 13.182 1. At Rs88.5 6.0 -8.2 0.182 7.2 9.4 -4.4 1.4 20.1 FY09ii 9.6 7.208 1. the stock is trading at 1x FY09ii BV.2 126. adjusted PAT would work out to Rs1.1 -12. PLF of the two gas-based units was also higher at 89% (compared with 80% in the year-ago period) and 77% (50% a year ago).164 1.615 34% 1. 4QFY08 PAT rose 25%.4 -13.dole@iiflcap. compared with 80% in the previous year.0 Stock movement 14 12 10 8 6 4 2 0 Jun-07 Volume Shares (m) Price (Rs) 200 150 100 50 0 Jan-08 Oct-07 Sep-07 Nov-07 Apr-08 Jul-07 May-08 Feb-08 Financial summary Y/e 31 Mar Revenues (Rs m) EBITDA Margins (%) Pre-Exceptional PAT (Rs m) Reported PAT (Rs m) EPS (Rs) Growth (%) PER (x) ROE (%) Debt/Equity (x) EV/EBITDA (x) Price/Book (x) 11.2 56.

6 24.com 2 .3 24.7 (4.1) 37.208 (181) 1.3 5.7 24.797 634 63 696 221 113 363 118 245 (181) 64 151 22.1) 8.GIPCL – BUY Figure 1: Quarterly performance (Rs m) Net sales EBIDTA Other income PBIDT Depreciation Interest PBT Tax Adjusted PAT Extra ordinary income/ (exp) Reported PAT No.4 30. IIFL Research h a rsh .3 73.2 7.516 308 1.8) (25.2 5.564 239 2.9 (0.009 2.271 0 1.027 151 27.7) 3.annualised (Rs) Source: Company.0 8.595 324 1. IIFL Research Figure 3: 1st unit expected to be commissioned by end of December 2008 % chg 62.0 5.2 4QFY08 4QFY07 2.8) FY09ii 9.5 Figure 2: Average PLF for 4QFY08 was 89% against 75% YoY 1200 1000 800 600 400 200 1QFY07 2QFY07 3QFY07 4QFY07 1QFY08 2QFY08 3QFY08 4QFY08 0 Overall generation (LHS) (MU) Average PLF (RHS) 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Source: Company Source: Company.8) (87.5 32.720 610 36 647 232 150 264 68 196 325 521 151 35.7 1.2 23.dole@iif lcap.913 882 436 1.271 151 29.6 3.9 6.2 % Chg (3.9 72.9 3.0 5.7 8.6 5.6 7.7 (155. of shares (m) EBIDTA margin (%) PBIDT margin (%) EPS .656 258 2.4 FY08 9.5 37.803 883 404 1.356 2.

250 -586 347 665 -350 FY08ii 1.324 472 0 1.862 216 17 936 FY07A 1.598 1.475 898 311 701 665 3.356 2.378 425 -181 -411 FY09ii 1.700 294 519 665 2. PAT estimated to grow 56% in FY10ii Net profit FY06A 7.com 3 .956 3.829 FY08ii 9.692 139 1.148 FY07A 7.264 472 -605 2.483 882 301 -180 1.725 577 0 1.009 2.681 239 404 -181 1.107 -724 383 2.568 0 0 -2.657 1.166 -999 -1.GIPCL – BUY Financial summary Income statement summary (Rs m) Y/e 31 Mar Revenue EBITDA EBIT Treasury income to decline as cash deployed in expansion Interest income Interest expense Exceptional items Profit before tax Taxes Minorities and other With commissioning of SLPP-II.dole@iif lcap.059 2.775 145 436 0 1.512 56 2.324 1.140 311 0 1.516 883 308 371 -181 2.576 191 1.858 -2.262 2.564 1.869 425 0 0 FY10ii 2.483 301 0 1. & amortization Tax paid Working capital ∆ Other operating items Healthy operating cash flows Operating cashflow Capital expenditure Free cash flow Equity raised/ direct addition to reserves Capex towards SLPP-II Investments Debt financing/disposal Dividends paid Other items Net change in cash Source: Company data.615 2.884 -9.708 914 577 -938 1.202 1.614 0 -1.182 FY10ii 13.282 -4. IIFL Research FY06A 1.701 4.429 -1.444 0 0 7.507 0 2.335 308 0 1.852 Cashflow summary (Rs m) Y/e 31 Mar Profit before tax Depr.328 -7.566 3.027 FY09ii 9.143 425 0 0 h a rsh .145 188 625 17 1.

6 16.9 13.948 1.0 54.6 29.561 1.0 36.022 21.0 20.671 837 527 17.797 825 6.4 8.7 -15.071 811 636 13.0 6. IIFL Research FY06A 1.3 86.5 41.1 33.825 FY09ii 270 1.3 112.dole@iif lcap.093 860 1.9 20.4 28.206 791 6.184 2.1 FY08ii 22.897 1.4 15.1 27.3 29.357 18.4 48.1 36.8 -1.2 23.405 30.GIPCL – BUY Balance sheet summary (Rs m) Y/e 31 Mar Cash & equivalents Sundry debtors Inventories .3 15.779 30.950 Ratio analysis Y/e 31 Mar Revenue growth (%) Op Ebitda growth (%) Op Ebit growth (%) Op Ebitda margin (%) Op Ebit margin (%) Net profit margin (%) Dividend payout (%) Tax rate (%) Net debt/equity (%) Ongoing capex depresses the reported RoE Return on equity (%) Return on assets (%) Source: Company data.7 13.411 18.8 34.5 22.777 1.5 19.6 -1.4 18.500 712 12.0 19.3 3.trade Other current assets Fixed assets Other term assets Total assets Sundry creditors Other current liabs Long-term debt/CBs Adequately capitalised to fund ongoing expansion Net worth Total liabs & equity FY06A 1.com 4 .405 21.3 -1.668 442 5.958 1.0 -3.5 5.8 14.6 40.013 10.2 h a rsh .0 6.405 29.897 FY07A 681 1.0 12.1 22.607 18.806 12.5 11.674 12.9 FY10ii 52.6 5.141 2.2 26.950 2.825 2.018 712 14.609 806 533 25.5 108.9 35.031 1.184 FY10ii 270 1.0 FY07A 0.532 14.1 86.2 6.5 FY09ii -3.1 -20.3 13.226 850 24.116 1.7 9.948 FY08ii 270 1.778 12.262 18.427 11.207 29.7 3.242 1.

IIFL Research.06% 59.0 26.3 37.549 19.3% 14.4% 2. far in excess of most estimates.0% 5.8% 36.2 24.024 473.632 337.23% Aircel Bharti BPL Mobile BSNL Idea Cellular MTNL RCOM GSM Spice Comm Vodafone Total Source: COAI.Spice declines sharply Feb-08 Aircel Bharti BPL Mobile BSNL Idea Cellular MTNL RCOM GSM Spice Comm Vodafone Total Growth 251.172 6.4% 1.2 7.3% 4. Spice Communication witnessed an untimely 12% MoM drop in its monthly adds. Figure 1: Net subscriber addition by operator . marginally above our forecast of 456m.5m mark and looks capable of reaching there in June.266.4 45.7% 1.9% 0. Bharti. taking into account the drop in net adds in FY10 that the arrival of new competition. after a drop last quarter.0 64.5 47.685 824.171 7.411. • We estimate combined GSM+CDMA additions for May 2008 at 8.5% MoM in the eight established circles and by 25% in the three new circles. Source: COAI.Quick Take Telecom GSM adds up 1% in May 2008.067 1.3m.0% 25. Bharti. IIFL Research Figure 3: GSM subscriber base (m) Feb-08 10.252.331 -4.438 6.6 22. its subscriber base looks capable of going up by almost 14% in 1QFY09. should end up with 96m and 121m wireless subscribers by FY09 and FY10.900 342.8 1.788 1. • G.538 22.5% Mar-08 5. especially from RCOM. Vodafone and Idea continued to consolidate their position at the expense of BSNL.6m and 113m.1 42.7% Figure 2: Share of monthly net adds – Bharti inches up towards 40% Aircel Bharti BPL Mobile BSNL Idea Cellular MTNL RCOM GSM Spice Comm Vodafone Source: COAI.3 36.58% 6. Idea will reach 39m and 50m subscribers respectively by FY09 and FY10.6 185 Mar-08 10.3% 7. the subscriber base would exceed 460m by FY10.3% 2.558 1.4 7.2% 21. Aircel pulled back after a disappointing April.076 41.0 3.8% 0.464 1.1% 0.284 918.07% 2. Additions grew 3.4% Apr-08 5.3 36.3% 22. can cause.448 1.187 1.7 25.377 1. Bharti continued its march towards the 2.2 44.907 141.1m mark.659 6.3% 16.0% 35.1 3.14% -33.506 2.4% 25. even as the Modis look to exit the operation.349 134.7% 1.4 4.686 342.5 206 RCOM’s GSM adds assumed unchanged from April.5% May-08 447.654.V.569.3 7.7 1. IIFL Research 11 June 2008 • Idea raised its adds back up to the 1.385.93% -8.2% 2.679. and in line with the consistent messages given out by its leadership from time to time in the last few months.6% 4.871 108.281 1.2% Up by 18. At this rate.0 4.6% 5.7% 5.637. at its current rate.0 3.7 4.16% 0.4% 0.475 314.455.1% Mar-08 425.95% 1.3 34.5% 30.128.0% 0.4 66. At the current rate.547 18.2 59.6% 20.100. respectively.543 1.017 120.8% 16.994 66.3% 13.5% May-08 6. Spice disappoints In May 2008.022 2. Giri gvgiri@iiflcap.367 2.020 340.463 126.349 152.565.6% Apr-08 379.00% -11.8% 1.246 2.038.1 6. taking the total user base to 278m.com (91 22) 6620 6649 .9 3. in excess of our forecast of 38m and 47m.485.74% 1.501 17.2% 14.8% 37.713 19.0 1.1 193 Apr-08 11.7 4. At the rate seen in April. our forecasts are lower at 89.891 -15. However. raising its net adds by 18% MoM.314.4 1. Feb-08 4.8 199 May-08 11.6 62.686.

Berger Paints. GMR Inds Wednesday 4 Shasun Chem. Thursday 5 6 Friday Hindustan Oil Exploration. Financial Tech April IIP 13 WPI for 31st May 14 Godawari Power and Ispat 16 17 BPCL. SCI 12 KLG Systel. Indraprastha Gas. Peninsula Land WPI for 24th May Saturday 7 Divis Lab 9 Gokaldas Exports 10 GIPCL. Page Inds April Foreign Trade Tuesday 3 DLF. Sical Logistics 18 Aurobindo Pharma. Indian Hotels. GMDC. National Aluminium 11 NIIT Ltd. Karur Vysya. Dish TV 19 20 WPI for 7th June 21 23 Tata Power 24 Tata Chem 25 ONGC 26 Tata Steel 27 WPI for 14th June 28 30 .Events calendar – June 2008 Monday 2 Educomp.

India Infoline or any persons connected with it do not accept any liability arising from the use of this document. India Infoline or any of its connected persons including its directors or subsidiaries or associates or employees shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained. to the issuer company or its connected persons. and should not be construed as an offer or solicitation of an offer to buy/sell any securities. The recipients of this material should rely on their own judgment and take their own professional advice before acting on this information.BUY. This report is for the general information of the clients of IIFL. etc. but do not guarantee its accuracy or completeness. a division of India Infoline. The opinions expressed are our current opinions as of the date appearing in the material and may be subject to change from time to time without notice. This should not be reproduced or redistributed to any other person or in any form. © India Infoline Ltd 2008 This report is for the personal information of the authorised recipient and is not for public distribution. Investment Advisor. views and opinions expressed in this publication. We have exercised due diligence in checking the correctness and authenticity of the information contained herein. so far as it relates to current and historical information. India Infoline generally prohibits its analysts from having financial interest in the securities of any of the companies that the analysts cover. .Unitech Ltd . India Infoline and/or its affiliate companies may deal in the securities mentioned herein as a broker or for any other transaction as a Market Maker. Key to IIFL recommendations: BUY: Absolute return of > +10% SELL: Absolute return of < -10% Market Performer: Absolute return of -10% to +10% Published in 2008.

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