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INSTITUTIONAL RESEARCH

India Strategy
Is India losing the plot ?

"If I were asked under what sky the human mind has most fully developed some of its choicest gifts, has most deeply pondered over the greatest problems of life, and has found solutions of some of them which well deserve the attention even of those who have studied Plato and Kant, I should point to India. Max Muller

Team Research, HDFC securities hdfcsec-research@hdfcsec.com +91-22-6171-7330 5 July 2013

INDIA STRATEGY

Contents
Prologue ... 3 Economic growth : stuck in a rut ... 4 Fisc (barely) under control, but rates will not fall easily ... 5 Reforms are on, but 6 Consumption is sagging .. 7 Capex cycle is critical, wont revive soon .... 8 CAD = volatility in asset markets ... 9 Portfolio stance & top picks.... 10 Top picks : Valuation summary .. 14 Top picks : company profiles ICICI Bank .. . 16 LIC Housing Finance..... 17 Ambuja Cement ... 18 Bharti Airtel .... 19 BPCL ....... 20 Cairn India 22 HCL Tech. 23 ITC .... 24 Lupin 25 Navneet Publications ... 26 NTPC .... 27 Pidilite Industries ... 28 Power Grid ... 29 Shree Cement ...... 30
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INDIA STRATEGY

Prologue
India vs. India
India is slowly, but surely, straining its tryst with destiny. The countrys macros are increasingly dependent on capricious global fund flows and commodity prices. For some time now, investors have been hoping to see an internal evolution (even if gradual) that may meet Indias myriad structural challenges, ranging from falling self sufficiency in energy and stagnating manufacturing competitiveness to fiscal discipline and stumbles on policy and governance. Their hopes have been met only half way, given the political uncertainties of an election year and the emerging possibility of a fragmented mandate.
Meanwhile, global liquidity may not continue to gush with the momentum of the past few years. Despite credible arguments on both sides of the argument, the post-crisis easy money era may well be on its last legs. We recognize that Indias macros and markets are now uncomfortably dependent on global liquidity, given the slowdown in domestic flows and ebbing retail investor confidence. The recent crack in the Rupee is but one indicator. We dont foresee a major crack in the stock market, with valuations at affordable levels. But volatility will remain high, for sure. Our India strategy is cautious, and derives from six key observations : Economic growth is stuck in a rut, needs big levers to recover The fisc may be contained, interest rate cuts will be back ended Reforms will continue, but may not be meaningful Consumption is poised to sag, even as valuations are flattering Investment cycle revival is crucial, but is not happening soon Macro imbalances imply increased volatility in asset markets Historically, such sluggish phases in the economy have known to lead on to a bottom. But in this case, the classic ingredients for a bottom are yet to fully show up : an extended period of indifferent economic growth, investor disillusionment and capitulation. As elections close in and the economy rambles on, we may yet see fundamental events that set the direction for a durable change in economic or political trajectory. Till then, there is volatile drift, but no direction for sure. India is struggling with its most consistent enemy : India !
Dipen Sheth, Head of Research dipen.sheth@hdfcsec.com +91-22-6171-7339 Sameer Narang, Economist sameer.narang@hdfcsec.com +91-22-6171-7327

TOP PICKS ICICI Bank, LIC Housing Finance, Ambuja Cement, Bharti Airtel, BPCL, Cairn India, HCL Tech, ITC, Lupin, Navneet Publications, NTPC, Pidilite, Power Grid, Shree Cement
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INDIA STRATEGY

Economic growth : stuck in a rut


Indias economic growth is stuck in the midst of an investment and (milder) consumption slowdown. We feel the recent years may well represent a lost opportunity.
Genesis of the slowdown : A weak-kneed government overextended its post-Lehman stimulus over FY11-13, succumbing to populist and coalition pressures. Consumption took off, and inflated the sails of the economy for a while. Soon enough, clear (and familiar) gaps emerged, whether on policy, supply-side capability or governance. Inflation and fiscal slippage shot up. Interest rates rose : In response, a vigilant central bank (rightly) ratcheted up interest rates. Global rating agencies threatened to cut sovereign ratings in the face of rising trade imbalances and a persistent fiscal deficit. With a forced fiscal squeeze, government consumption has slowed down as well. For FY13, real GDP growth fell to a decade low of 5.0%, cracking over 500 bps over the 9 quarters to Mar-13. Even so, government remained in a funk, guiding for 6.2-6.7% growth in FY14. Our FY14 estimate is lower at 5.8% YoY (6.2% earlier). We think an upward trajectory from this soft base will depend on global external providence rather than internal initiatives or revival. Meanwhile, the rain gods are kind (so far) in FY14. Agriculture can recover to 4% YoY in FY14 on a weak base. Industry is struggling (we expect it to grow 2.9%, again on a dismal base of 1.1%). Despite a decent monsoon, we expect services growth to stagnate at ~7% in FY14 as discretionary demand remains poor and key subcomponents struggle. We dont think a revival in economic growth is likely unless the capex cycle revives. Unfortunately, this is not likely to happen soon given low business confidence. Yearly GDP growth
Agriculture 9.3% 8.6% 6.7% 6.2% 5.0% 5.8% Industry Services

2008-09

2009-10

2010-11

2011-12

2012-13

Quarterly GDP growth


Services Industry Agriculture

Source : CSO

Mar-08 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 Sep-09 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 Jun-11 Sep-11 Dec-11 Mar-12 Jun-12 Sep-12 Dec-12 Mar-13

8.6% 7.9% 7.7% 5.8% 5.9% 7.5% 9.8% 7.4% 8.6% 9.7% 8.9% 9.3% 10.1% 7.5% 6.5% 6.0% 5.1% 5.4% 5.2% 4.7% 4.8%

2013-14f

INDIA STRATEGY

Fisc (barely) under control, but rates will not fall easily
While the headline numbers suggest that the fiscal deficit has been admirably contained at ~4.8%, Rupee depreciation, revenue shortfalls, election year compulsions and (now) the Food Security Bill threaten the fiscal balance over the medium term.
Subsidy strain : Our estimate is that the total under-recovery by PSU oil refiners has already shot up by ~Rs 300bn on an annualized basis. This is among the reasons why government has been quick to revise gas prices upwards, increasing pro-forma profits for ONGC and OIL (which can now be tapped, as it were, to foot the rising under-recovery bill). An eye on elections : We think Governments hurry to push through the Food Subsidy Bill is driven by election considerations more than noble intent. This measure can structurally weaken government finances over the medium term (though not in FY14E). The poor record of the existing PDS program does not inspire. We estimate a virtual doubling of the food subsidy (Rs 900bn now) in 34 years if the stated FSB measures are executed as per plan. The inflation conundrum : Meanwhile, WPI inflation is at a 43month low at 4.7% (May-13), with sluggishness in real demand. However, the wedge between Consumer Inflation (over 9%) and WPI has widened. Food inflation has fallen, but cereal prices are running high. This is likely to come off a bit, given a good monsoon and a high base. We think WPI will inch up slightly owing to rupee depreciation. A cut of 25-50 bps in policy rates is possible, though the weak Rupee means that this could be back-ended in FY14. Fiscal deficit
FY13RE
-5.2

-1.0% -2.0% -3.0% -4.0% -5.0% -6.0% -7.0%

-2.5 -3.9 -4.0 -3.3 -4.7 -6.0 -6.4 -5.7 -4.8

Source : Budget documents

WPI
12% 10% 8% 6% 4% 2% 0% -2% % YoY

Source : Economic Advisor

Jul-08 Sep-08 Nov-08 Jan-09 Mar-09 May-09 Jul-09 Sep-09 Nov-09 Jan-10 Mar-10 May-10 Jul-10 Sep-10 Nov-10 Jan-11 Mar-11 May-11 Jul-11 Sep-11 Nov-11 Jan-12 Mar-12 May-12 Jul-12 Sep-12 Nov-12 Jan-13 Mar-13 May-13

FY14BE

FY05

FY06

FY07

FY08

FY10

FY11

FY09

FY12

INDIA STRATEGY

Reforms are on, but


Twenty two years after revolutionary and market-oriented reforms were unleashed by the current Prime Minister (then an energetic and empowered Finance Minister), India ranks 132nd on the list of business-friendly countries and 95th on Transparency Internationals corruption index. Several headline reforms notwithstanding, much more remains to be done. As ever, the devil is in the implementation details. And it is here that government seems to be sadly lacking.
For example, the potentially game changing diesel decontrol measure has been rolled out. But under-recovery on diesel has actually risen over the last few months, aided by the weak Rupee. Government is simply unable (and clearly unwilling) to take a corresponding diesel price hike in the face of this currency shock. No price rise for urea is foreseeable, despite the currency hit. Or after the gas price hike, for that matter. This will lead to higher subsidy funding requirements for urea and complex fertilisers, further aggravating the fiscal deficit and leading to extended balance sheets for fertiliser manufacturers who rely on government subsidy. State-owned power distribution utilities continue to bleed with no operational revamps, continuing to draw loss funding from PSU banks. With pass through of higher (imported) coal prices for certain new power capacities, these utilities will bleed even more since end-user tariff hikes will be difficult to push through. New generation projects are stuck in various stages of implementation or embroiled in disputes on pricing. Bharat Nirmaan : This high decibel (and well-funded) campaign proudly proclaims governments efforts to build India but infrastructure bottlenecks are visible all over, ranging from urban transport, water supply and railways to roads, ports and airports. Legislation for land acquisition is not happening, land titles continue to be notoriously unreliable and rent control persists across the country. The real estate market continues to be opaque and is used to launder large sums of un-accounted money. Environmental clearances remain stuck even as Coal India (the worlds largest coal miner, sitting on the worlds largest coal reserves) is unable to meaningfully increase output despite sitting on over $10bn of cash. The recently constituted Cabinet Committee on Investments has yet to achieve much by way of clearing mega projects. Several crucial reforms or executive measures like the uniform Goods & Service Tax, Direct Tax Code, telecom spectrum auctions, aviation reforms and diesel pricing are still to see light of day. Crony capitalism : Meanwhile, several instances of alleged misgovernance ranging from coal mine allocations, telecom spectrum pricing and illegal commissions in government procurements are yet to be resolved satisfactorily.

INDIA STRATEGY

Consumption is sagging
We think the writing on the wall suggests that a sag in consumption growth is in the offing. This is likely to lead to a moderation in a hitherto resilient component of the economy. Mild respite will accrue from a decent monsoon, moderating inflation and demographics.
Private final consumption expenditure (PFCE) growth fell by over 700 bps YoY to just 3.8% in 4QFY13. Discretionary demand is showing early signs of cracking if auto volumes are any indicator. The Consumer Durables sub-category within IIP de-grew 8.6% in Apr-13 (the fifth consecutive month of de-growth). Our volume growth estimates for most FMCG cos are being tapered down even as this note goes into print. A good monsoon and impending pre-election spending by government could translate into buoyant consumption in rural India, but urban consumption pain continues with stagnating services growth, high consumer inflation, falling consumer confidence and poor job creation in urban centres. PFCE
9.5 8.3 9.8 9.3 10.0 7.8 6.7 6.6 5.9 9.2 7.3 6.3 11.0 10.3 7.0 5.5 6.6 6.3 9.2 11.0 4.3 3.5 4.2 3.8
% YoY

Source : CSO

IIP
% YoY

25% 20% 15% 10% 5% 0% -5% -10%

Source : CSO

Oct-06 Jan-07 Apr-07 Jul-07 Oct-07 Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13

Mar-06 Jun-06 Sep-06 Dec-06 Mar-07 Jun-07 Sep-07 Dec-07 Mar-08 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 Sep-09 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 Jun-11 Sep-11 Dec-11 Mar-12 Jun-12 Sep-12 Dec-12 Mar-13

12% 11% 10% 9% 8% 7% 6% 5% 4% 3% 2%

8.0 7.1

7.4 7.9

10.9

INDIA STRATEGY

Capex cycle is critical, wont revive soon


From a peak of 38.0% % of GDP in FY08, capital formation has fallen to 34.0% in FY13. The changing composition merits a closer look. Indian households are still decent savers, but their savings are increasingly tilted towards gold and real estate. Financial savings have fallen to 7.8%, (-) 150bps YoY, disincentivised by negative real interest rates.
Why is the capex cycle important ? Given the multi-dimensional infrastructural bottlenecks that India faces, it is imperative that the capex cycle is revived soon. It is only via an investment-led stimulus that growth can claw back to the 8-9% territory. For businesses, low capacity utilisation and an uncertain political environment imply that new investments into capacity are unlikely to take off meaningfully. When faced with fiscal pressures in FY13, government has quietly chosen to cut back on plan expenditure. This has further exacerbated the sluggishness in the investment cycle. Governments own capital spending could have provided a push to the capex cycle, but sadly, that has not happened despite ample opportunity in sectors like railways, highways, irrigation, urban infrastructure and healthcare. We do not see a material uptick in the investment cycle in the foreseeable future, especially as elections approach (May-14). This has less to do with high interest rates and more to do with the poor quality of the investment environment, itself a function of government policy and governance. Plan & non-plan expenses
20,000 15,000 10,000 5,000 Rs bn

FY11

FY12

FY13

FY14BE

Non-plan

Plan

Total

Source : Budget documents

% YoY

Real GFCF

Nominal GFCF

30% 25% 20% 15% 10% 5% 0% -5%

Source : CSO

Jun-05 Sep-05 Dec-05 Mar-06 Jun-06 Sep-06 Dec-06 Mar-07 Jun-07 Sep-07 Dec-07 Mar-08 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 Sep-09 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 Jun-11 Sep-11 Dec-11 Mar-12 Jun-12 Sep-12 Dec-12 Mar-13

INDIA STRATEGY

CAD = volatility in asset markets


Indias Current Account Deficit (CAD, which is the trade deficit adjusted for invisibles like software and expat remittances) shows no signs of mending its basic structural deficiency : the country continues to remain a disproportionately large importer of fossil fuels like oil and gas, and (now) gold. With India continuing to attract global investor interest, capital inflows have historically plugged this gap. But things are changing.
Easy money on the way out ? Recent concerns over a receding tide of global liquidity (aka the Feds stated intent to taper asset purchases, howsoever unclear) have meant that (at least a part of) these inflows can reverse on a dime (or Rupee, sadly). This creates a feedback loop. As foreign capital flows out, it drags down the currency, which triggers a bigger rush for the exit door. Not surprisingly, bond and stock markets in India have recently borne the brunt of significantly higher volatility. We think this will persist, given the waxing and waning of global liquidity. CAD : a structural challenge for India
% of GDP 2.3 3.0% 1.2 2.0% 0.7 1.0% 0.0% -1.0% -0.4 -0.6 -2.0% -1.2 -1.0 -1.4 -3.0% -2.4 -2.6 -2.8 -4.0% -4.2 -5.0% -4.8 -4.5 -6.0%

Source : RBI

Trade deficit : linked to poor manufacturing competitiveness


US$ mn

0 -5,000 -10,000 -15,000 -20,000 -25,000

May-05

May-06

May-07

May-08

May-09

May-10

May-11

May-12

Source : DGCIS

May-13

As consumer inflation persisted and real interest rates stayed negative, Indian households increasingly diverted savings to their centuries-old cultural preference : gold. Government has tried plugging this demand via import duties and trade restrictions. Jewellery demand will persist even if investment demand (~37% of total gold demand in FY13) falls in the wake of falling gold prices. Gold and oil will continue to be key variables in Indias CAD.

Nov-05

Nov-06

Nov-07

Nov-08

Nov-09

Nov-10

Nov-11

Nov-12

FY14E

FY01

FY02

FY03

FY04

FY05

FY06

FY07

FY08

FY09

FY10

FY11

FY12

FY13

INDIA STRATEGY

PORTFOLIO STANCE & TOP PICKS


PORTFOLIO STANCE
Our portfolio stance is mostly defensive, but it does contain a bit of room for beta play. We prefer to wait on the sidelines for a crack in Autos, Media, Capital goods, Infrastructure and Real Estate given our cautious view on Consumer Discretionary sectors, the capex cycle and volatility in asset markets (including real estate).

Oil & Gas


Value creation is challenging, given the endless regulatory knots that bedevil the sector. What the government gives with one hand to ONGC and OIL (gas price hikes) it can take away with the other (increased under-recovery sharing). Under the circumstances, we think a private sector upstream stories are advisable.
CAIRN is a pure play in this regard. Hence we prefer it to Reliance, whose fortunes are currently more levered to refining (despite the gas price hike). Current valuations do not seem to factor in exploration upsides (more than likely to accrue as the company scales up an aggressive exploration foray in Rajasthan), while rupee earnings should rise as the USD appreciates and crude remains high. Our SoTP is Rs 414/sh based on an EV of $7.44/boe for the existing Rajasthan asset and Rs 83/sh of cash. Dividend yield of ~4% only adds to our comfort, even as Cairns exit (holds 10%) persists as a near term overhang. BPCL, in our view, has been unfairly punished on concerns regarding higher under-recoveries (and bloating debt) in the wake of the rising dollar. The recent crack represents a good entry point to capitalize on its upstream story, rapidly maturing in Mozambique. Refining spreads and upstream value are both dollar denominated, something that the bears in BPCL are obviously ignoring at their own peril. Our SoTP of Rs 493/sh assumes only Rs 182 for the Mozambique asset and Rs 52 for the Brazil asset, both of which should soon face upside risk. 10

Financials
Given the sluggish macros, continued pains in asset quality and only a back ended possibility of a cut in interest rates, we are cautious on PSU banks despite relatively attractive valuations. Instead, we prefer private banks and mortgage lenders despite their relatively higher valuations.
We are believers in the continuing structural changes in ICICI Banks business. Key drivers are in place : high and stable CASA, measured opex structure and controlled asset quality. Managements focus on profit growth vs balance sheet growth makes us positive on the stock. Our SoTP is Rs 1,318. LIC Housing Finance stands out for its specialisation, growth visibility and safety. With improving affordability and low mortgage penetration, LICHFs business enjoys sustainable tailwinds, which its brand strength capitalises on. Incremental spreads are better than overall spreads, indicating that NIMs are mending. Asset quality is not a concern, provisioning should fall. Our TP at 2x FY14E ABV is Rs 287.

INDIA STRATEGY

TOP PICKScontd
IT Services, Pharma
With a weak rupee, we think dollar-oriented revenues and earnings will remain robust. Hence we continue to back IT Services and Pharma (despite increasing signs of regulatory headwinds building up in both sectors). India has traditionally enjoyed a clear competitive edge in these industry segments. Also they are characterized by high corporate governance standards, skill-based competitive moats, relatively lower capital intensity, clean cash flows and reasonable dividend payouts. Valuations look compelling in IT services. This is owing to the proximity of the US Immigration Bill, which we feel is a formidable (but surmountable) hurdle.
HCL Techs growth rates have surged past those of peers, driven by its focus on ramping up Infrastructure Managed Services and building non-linearity in its business model by taking up outcomebased and fixed price contracts. Our interactions with IT majors suggest that IMS momentum take time to build, hence HCL Tech will enjoy early mover advantages for some time. At under 11x FY15E (Jun) EPS, it remains a clean and compelling BUY. Post the Rupee weakness, the pharma terrain (barring a few exceptions) looks so attractive that outperformance, rather than absolute returns, is the criterion. Here, we feel that Lupin offers the most dependable US revenue growth visibility given its strong launch pipe, excellent regulatory compliance and recent spate of product approvals (22 over the last year). Expect a rerating from current valuation of ~21x FY15E EPS, as currency and business tailwinds converge.

FMCG
Consumption is showing initial signs of tiring, which makes the high valutions in FMCG look vulnerable. We think open offers by multinational parents of GlaxoSmithKline Consumer and HUL represent several years of growth premium which may not play out as hoped for, in the medium term. Volume growth is slated to ease off in most FMCG categories over FY14/15E. Under the circumstances, it is imperative to identify a category where lower volume growth is more than made up by pricing power. Marketshare skew is our tool for this purpose.
ITC is the obvious choice here, since it is the undisputed cigarette leader. A fat and specific (rather than ad valorem) duty structure on cigarettes makes even small price changes translate to disproportionate EBIT growth. ITCs rapidly maturing FMCG portfolio, particularly foods, only adds to our confidence. We believe cigarettes will continue to witness structural changes in India over the longer term (driven by demographics, uptrading from beedis and the chewing tobacco ban). BUY with a TP of Rs 350 (25x FY15E EPS). Pidilite is a niche category leader with a very robust new product development record. Known mostly as the owner of the adhesive brand Fevicol, the company is posting consistently high growth rates in waterproofing and construction chemicals (both are large under-penetrated, unorganised categories in India). Hence, we are not fighting shy of assigning a high multiple (25x) to its FY15E EPS. Our TP is Rs 320. 11

INDIA STRATEGY

TOP PICKScontd
Cement
Cement offers a domestically shielded commodity play owing to the large under-penetration of housing in India. While cement demand and pricing does get partly influenced by infrastructure spending, the underlying secular demand provided by housing remains robust in India. Even so, there are regional imbalances.
We like Ambuja Cement for its efficient operations, strong (75%) exposure to North and West (likely to gain demand disproportionately post a good monsoon), cash richness with accelerating cash flows and sustainable valuation premium. ACEM trades at 10.1/7.7x CY13/CY14 EBITDA and USD 144/t. The stock remains our preferred large cap pick given its favorable regional exposure, despite continued weakness in its key markets of North and West. We have a TP of Rs 213 (9x FY15 EV/EBITDA, US$ 160/t). Shree Cement has embarked on a new regional foray in East India. From a capacity of 13.5 mTPA as at Jun-12, Shree Cement will have ~21.5 mTPA by Jun-15 with no dilution (in line with its remarkable history of being a continuous and consistent compounder of capital). Execution challenges are visible (and likely to be met), while its regional exposure avoids the vulnerable prices of South completely. SRCM trades at 7.0/5.6x FY14/15 EV/EBITDA and US$94/t on FY15 exit capacity (21.5mTPA). We have a TP of Rs 5,280 (7x FY15 EV/EBITDA for cement, US$ 115/t and 4.5x FY15 EV/EBITDA for power).

Power
Multiple pain points are visible in competitive bidding based power projects ranging from project cost, time over-runs, environmental clearance delays for mining, disputes over pass through of higher (imported) coal prices, fuel shortages (coal/gas) and falling merchant power prices. Hence, we prefer utilities with regulated returns that offer clearer visibility.
NTPC offers the prospect of stable, regulated returns in turbulent times. We remain positive on the stock as valuation at 1.4x one year forward P/B provides comfort. Concerns regarding coal availability are factored in. However, the possible upsides from higher domestic coal availability and/or favourable changes in regulations/policy are being ignored. Our TP is Rs 185/sh is based on 1.7x FY15E standalone BV, a 30% discount to average long term multiple. Powergrid Corp is also a preferred stock in the power space, as along with a stable and inherently less risky business model, the company continues to deliver on execution. Valuation at 1.7x FY14E BV is attractive. PGCIL remains on track to meet our full year capex estimate of Rs 200bn in FY14. Our TP of Rs 138 is based on 1.9x FY15E BVPS. Equity dilution/govt. stake sale are overhangs.

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INDIA STRATEGY

TOP PICKScontd
Telecom
After years of internecine competition, suffocating regulation and alleged mis-governance, telecom is waking up to better times. Auction discovered spectrum prices are likely to fall, directly driving RoCEs in the business, while pricing can only improve from a battered base and high affordability as competition recedes. The impending entry of Reliances Jio Infocomm does provide a concern.
Bharti Airtel is well poised to benefit from industry tailwinds (rising tariffs, declining spectrum charges) in its domestic business. Our estimates indicate high senstivity to RPM assumptions. Ex spectrum payouts, FCF yields look attractive at 7.5% over FY14-15E. Despite missing guidance, the Africa business is on a steady growth path. The weak rupee is a concern, but the impact is ~Rs 2/sh for every rupee rise in the USD. Our DCF-based TP is Rs 363 (incl. regulatory impact of Rs 57).

Education
Indias education challenge is well documented, but several regulatory hurdles remain in the way of a meaningful and scalable build-out of a bricks-and-mortar private education model. The high cost of real estate is an additional hurdle for new entrants.
Navneet Publications is a relatively hidden gem in the Education space with an intelligent and appropriate business model that capitalizes on known soft spots in education : the need for high quality textbooks and the absence of regulation in supplementary literature. For over 50 years, this supplementary, guide and workbook publisher has built a strong customer franchise in the two prosperous states of Gujarat and Maharashtra. We think it is on the cusp of bigger things. Our TP of Rs 88/sh assigns 14x to FY15E earnings, given the high return ratios and changes playing out in the business.

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INDIA STRATEGY

Top picks : Valuation summary


FINANCIALS BANKS / NBFCs
COMPANY ICICI Bank * LIC Housing Finance CMP (Rs) 1,064 236 TP (Rs) 1,318 287 Reco BUY BUY Mkt cap (Rs bn) 1,227 119 FY13 447.9 122.9 (Adj) BVPS FY14E 503.7 143.6 FY15E 565.7 168.9 FY13 2.0 1.9 P/(Adj)BV (x) FY14E 1.7 1.6 FY15E 1.5 1.4 FY13 14.7 16.8 RoE (%) FY14E 15.3 19.2 FY15E 16.0 20.0 FY13 1.67 1.47 RoA (%) FY14E 1.77 1.58 FY15E 1.85 1.58

OTHERS
COMPANY Ambuja Cement # Bharti BPCL Cairn India HCL Tech ** ITC Lupin Navneet Publications NTPC Pidilite Power Grid Shree Cement ** CMP (Rs) 189 301 367 294 800 339 851 60 144 269 108 4,554 TP (Rs) 213 363 593 414 881 350 893 88 185 320 138 5,280 BUY BUY BUY BUY BUY BUY BUY BUY BUY BUY BUY BUY Reco Mkt cap (Rs bn) 290 1,144 265 561 561 2,665 381 14 1,188 138 498 159 Core EPS (Rs/sh) FY13 10.2 5.4 36.5 63.1 55.9 9.6 29.4 4.5 11.1 8.3 8.4 260.6 FY14E 10.2 10.1 47.2 60.4 68.0 11.6 34.8 5.4 11.8 10.4 10.3 349.6 FY15E 13.5 15.8 49.1 58.6 73.4 14.0 40.2 6.3 12.1 12.7 11.5 420.8 FY13 18.5 55.8 5.5 4.6 14.3 35.2 29.0 13.2 13.0 32.5 12.8 17.5 Adj PER (x) FY14E 18.5 29.9 4.3 4.9 11.8 29.2 24.4 11.1 12.2 25.9 10.4 13.0 FY15E 13.9 19.1 4.1 5.0 10.9 24.2 21.1 9.4 11.9 21.1 9.4 10.8 FY13 10.0 7.3 4.4 3.1 9.4 23.0 15.5 8.3 9.4 22.7 10.6 9.1 EV/EBITDA (x) FY14E 9.8 6.1 3.4 2.4 7.6 19.0 12.7 7.0 9.7 17.7 9.2 7.0 FY15E 7.4 4.9 3.2 2.3 6.7 15.7 10.8 5.9 9.3 14.1 8.3 5.7 FY13 18.7 4.3 16.8 25.1 32.7 37.8 28.5 27.7 12.1 29.0 15.6 28.8 RoE (%) FY14E 16.8 7.5 19.1 22.2 32.2 40.7 26.6 28.4 12.0 30.1 17.1 29.5 FY15E 19.6 10.2 17.3 18.5 28.6 44.0 25.3 28.7 11.4 30.3 16.9 27.2

* Adjusted for embedded value # Dec year end ** June year end

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INDIA STRATEGY

Top picks : Company Profiles

15

TOP PICKS

ICICI Bank
BUY

5 JUL 2013

INDUSTRY CMP (as on 4 Jul 13) Target Price


Nifty Sensex KEY STOCK DATA Bloomberg No. of Shares (mn) MCap (Rs bn)/(US$ mn) 6m avg traded value (Rsmn) STOCK PERFORMANCE (%) 52 Week high / low 3M Absolute (%) Relative (%) Promoters FIs & Local MFs FIIs Public & Others Source : BSE Darpin Shah darpin.shah@hdfcsec.com +91 -22- 6171-7328 Vishal Modi Vishal.modi@hdfcsec.com +91 -22- 6171-7324 5.4 0.6

BANKS Rs 1,064 Rs 1,318


5,837 19,411 ICICIBC IN 1,154
1,228/20,415

Levers in place
ICICI Bank (ICICIBC) has put key business drivers in place : better NIM (stable CASA), a measured opex structure and controlled loan loss provisions. Managements continued focus on profit growth vs balance sheet growth makes us positive on the stock. High CRAR, coupled with capital repatriation from subsidiaries and large branch network, offers headroom for sustainable, granular and steady growth. ICICBC trades at 1.7x FY14E ABV. Maintain BUY with SOTP of Rs 1,318/sh.
Drivers in place : Over the past few years, ICICIBC has put in place crucial building blocks for quality profit growth. It has managed to improve (and now sustain) its CASA proportion at ~40% (hence NIMs have improved to ~3.3%). The bank has improved asset quality with reduction in the unsecured portfolio and tilting asset mix towards the corporate segment. Further, it has expanded branch network ~3x since 1QFY08 and is wellcapitalized (CRAR is ~18.7%, Tier I is 12.8%). Profitable growth : We expect ICICIBC to deliver ~16% loan book CAGR over FY13-15E, driven by both corporate and retail segments. With stable CASA (and NIMs), controlled opex and asset quality in check (credit cost ~75bps) we expect PAT CAGR to touch 18%. Improvement in return ratios : We think ICICI Banks improved core earnings (driven by balance sheet growth, stable margins and better asset quality) can drive RoA to ~1.8% and RoE to ~15% in the core business (FY14E). Capital repatriation : We believe capital repatriation from foreign subsidiaries is a long term positive. Over the last couple of quarters, the bank has repatriated $100mn from UK sub and CAD $75mn from Canada sub (May 2013). Despite this repatriation, both the subs remain highly capitalized (UK 30.8% and Canada 33.2%). View & SOTP : ICICIBC is well set for sustained, steady and quality growth. Capital repatriation from foreign subsidiaries will unleash headroom. The stock trades at 1.7x FY14E ABV net of embedded value. We have a BUY rating with SOTP of Rs 1,318.
(Rs mn) FY12 FY13 FY14E FY15E Net Interest Income 107,342 138,664 166,560 193,010 103,865 131,992 160,000 185,105 PPOP 64,653 83,255 98,625 115,839 PAT 56.1 72.2 85.3 99.9 EPS (Rs) 12.8 14.7 15.3 16.0 Core ROAE (%) 1.49 1.67 1.77 1.85 Core ROAA (%) Adj. BVPS (core) 393.6 447.9 503.7 565.7 2.28 1.97 1.70 1.46 P/ABV (x) # P/E (x) 16.0 12.3 10.0 8.3
# Adjusted for embedded value

3,864

Rs 1,238/867 6M (10.0) (8.2) 12M 17.8 6.7 24.13 37.94 37.93

SHAREHOLDING PATTERN (%)

FINANCIAL SUMMARY

HDFC securities Institutional Research is also available on Bloomberg HSLB <GO> & Thomson Reuters

LIC Housing Finance


INDUSTRY CMP (as 4 Jul 13) Target Price
Nifty Sensex KEY STOCK DATA Bloomberg No. of Shares (mn) MCap (Rs bn)/(US$ mn) 6m avg traded value (Rsmn) STOCK PERFORMANCE (%) 52 Week high / low 3M Absolute (%) Relative (%) Promoters FIs & Local MFs FIIs Public & Others Source : BSE Rs 300/209 6M 12M (14.0) (25.2) 40.31 12.38 32.45 14.86 LICHF IN 505
119/1,980

TOP PICKS

5 JUL 2013

BUY

NBFCs Rs 236 Rs 287


5,837 19,411

Margins on the mend


With improving affordability and low penetration of mortgages, we see LIC Housing Finance sustaining a loan book growth of 22% CAGR over FY13-15E. As growth bottoms out, asset quality is not likely to see deterioration. Moreover, the wedge between incremental and overall spread implies headroom for margin expansion. Lower bond yields (40bps lower from 4QFY13 levels) will lead to decline in cost of funds. We see 20bps improvement in NIMs in FY14E. Maintain BUY with a revised TP of Rs 287 (18% upside, 2x FY14E ABV).
Loan growth to sustain: Improving affordability and low penetration have helped LICHF to grow its loan book at 23% CAGR over FY11-13. With a similar trend playing out, we expect LICHFs loan book to grow at 22% CAGR over FY13-15E. Margins to increase: However, owing to rising interest rates, NII growth was much lower at 5.9% CAGR over FY11-13. Hence, NIMs had fallen to 2.2% in FY13 (from 3.0% in FY11). LICHF has reduced the proportion of higher cost bank borrowing in its funding mix to 30% in FY13 (34% in FY12). In a falling interest rate regime and with an incremental spread of 1.6% in FY13 (compared with overall spread of 1.4%), we expect NII to grow at 29% CAGR over FY13-15E. Provisions to fall: LICHF had seen a jump in provisioning in FY11 and FY12 on account of higher regulatory provisioning and an increase in NPAs in developer portfolio. Provisioning increased to 0.5/0.3% in FY11/12 before falling to 0.1% in FY13. With asset quality holding up, we expect provisions at 0.12% in FY14/15E. At CMP, LICHF is trading at 1.6x FY14E ABV of Rs 144. With a PAT CAGR of 27% over FY13-15E, we have a BUY rating on the stock with a TP of Rs 287 (2x FY14E ABV).

755

Valuation & View

6.4 (20.1) 1.6 (18.2)

SHAREHOLDING PATTERN (%)

FINANCIAL SUMMARY
(Rs mn) Net Interest Income PPOP PAT EPS (Rs) ROAE (%) ROAA (%) Adj. BVPS (Rs) P/ABV (x) P/E (x) FY12 14,020 13,870 9,142 18.1 18.6 1.6 110.8 2.1 13.0 FY13 15,448 14,524 10,232 20.3 16.8 1.5 122.9 1.9 11.6 FY14E 20,866 19,225 13,485 26.7 19.2 1.6 143.6 1.6 8.8 FY15E 25,652 23,318 16,388 32.5 20.0 1.6 168.9 1.4 7.3

Sameer Narang sameer.narang@hdfcsec.com +91 -22- 6171-7327 Darpin Shah darpin.shah@hdfcsec.com +91 -22- 6171-7328

HDFC securities Institutional Research is also available on Bloomberg HSLB <GO> & Thomson Reuters

Ambuja Cement
INDUSTRY CMP (as 4 Jul 13) Target Price
Nifty Sensex KEY STOCK DATA Bloomberg No. of Shares (mn) MCap (Rs bn)/(US$ mn) 6m avg traded value (Rsmn) STOCK PERFORMANCE (%) 52 Week high / low 3M Absolute (%) Relative (%) Promoters FIs & Local MFs FIIs Public & Others Source : BSE 12.6 7.7 Rs 223/162 6M (8.5) (6.6) 12M 7.7 (3.4) 50.59 8.55 30.07 10.79 ACEM IN 1,544
291/48,43

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5 JUL 2013

BUY

CEMENT Rs 189 Rs 213


5,837 19,411

Leader deserves premium


Ambuja Cements is our preferred pick in the large cap cement space given its favorable regional exposure (75% dispatches to North and West), attractive return ratios (CY13E core RoCE at 25% vs 20% for UltraTech) and accelerating free cash flows (Dec-12 net cash Rs 37.8bn, OCF of Rs 38bn in CY13-14E). Its operational performance has been lacklustre recently (EBITDA/t ~Rs 860 in Oct-March 2013 vs Rs 1,031 YoY) driven by weak pricing across North and West. However, we expect a solid recovery in 2HFY13 led by good monsoons being witnessed in some of the regions which faced a drought (large parts of Maharashtra and Gujarat).
Geared to attractive regions of North and West: We expect both the regions to register strong utilization trends in FY14-15. This will drive pricing power for the companies operating in this region. Ambuja has a 75% exposure to these two regions, and is virtually absent in South. Favourable operating metrics and return ratios: Its trailing 8 quarters cost/tonne of Rs 3,358/t compares favorably with large cap peers (ACC/UltraTech at ~Rs3,500/t). Its return ratios are better than peers (RoE/RoIC) at 17/25% vs UTCLs 17/20%).

Valuations and view


ACEM trades at 10.1/7.7x CY13/CY14 EBITDA and USD 144/t. The stock remains our preferred large cap pick given its favorable regional exposure, despite continued weakness in its key markets of North and West. Much of the demand weakness is temporary in our view and both regions should see healthy bounce-back, likely post monsoon. We have a TP of Rs 213 (9x FY15 EV/EBITDA, US$ 160/t). Key risks include continued delay in announcement of capex (Nagaur, Rajasthan) and commissioning of large capacities in North and West in FY14 (ABG 5.8mTPA expected to become operational in August 2013 and Shree Cement ~4 mTPA by September 2014). FINANCIAL SUMMARY
YE Dec (Rs mn) Net Sales Growth (%) EBIDTA EBIDTA margin (%) Net profit EPS (Rs.) P/E (x) EV/EBITDA RoE (%) EV/T (US$) CY11 85,043 15.1 19,979 23.5 12,531 7.7 20.1 11.3 15.4 159.9 CY12 CY13E CY14E 96,749 107,066 126,817 13.8 10.7 18.4 25,143 25,041 31,644 26.0 23.4 25.0 15,762 15,730 20,881 10.2 10.2 13.5 19.6 18.4 13.9 11.1 10.1 7.7 18.7 16.8 19.6 153.5 149.4 143.7

485

SHAREHOLDING PATTERN (%)

Ankur Kulshrestha ankur.kulshrestha@hdfcsec.com +91 -22- 6171-7346

HDFC securities Institutional Research is also available on Bloomberg HSLB <GO> & Thomson Reuters

Bharti Airtel
BUY
INDUSTRY CMP (as on 4 Jul 13) Target Price
Nifty Sensex KEY STOCK DATA Bloomberg No. of Shares (mn) MCap (Rs bn)/(US$ mn) 6m avg traded value (Rsmn) STOCK PERFORMANCE (%) 52 Week high / low 3M Absolute (%) Relative (%) Promoters FIs & Local MFs FIIs Public & Others Source : BSE 10.1 5.2 Rs 371/216 6M (7.9) (6.0) 12M (7.9) (19.0) 68.55 8.59 17.24 5.62 BHARTI IN 3,997
1,204/20,020

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5 JUL 2013

TELECOM Rs 301 Rs 363


5,837 19,411

The road to recovery


Bharti is well poised to benefit from industry tailwinds (rising tariffs, declining spectrum charges) in its domestic business. The new TRAI chairmans balanced approach can lead to a meaningful reduction in spectrum reserve price. Despite missing guidance, the Africa business is on a steady growth path. Bharti has a relatively strong balance sheet, a tangible advantage. The recent fund infusion of Rs 67bn strengthens this belief. The weak rupee is a concern, but the impact is ~Rs 2/sh for every rupee rise in the USD. BUY with a DCF-based TP of Rs 363 (incl. regulatory impact of Rs 57). Worst is over
After years of cash burn, Bhartis Indian challengers have to cope with stressed financials, unwilling banks, adverse regulation, declining RMS and rising costs. Aggression from Bharti is forcing them to compete rationally. Bhartis revenue market share dipped 280bps to 29.9% over FY10-12, as it resisted the temptation to compromise on margins. However, its margin sacrifice since 1QFY13 (down 350bps) has enabled it to regain RMS (30.5%) pushing challengers with stretched financials to reconsider their strategy. This is leading to positive changes in the industry : lower channel margins, reduced churn and a real prospect of RPM hikes.

RPM, volume and reserve price sensitivity

1,645

1p (or 2.8%) increase in RPM (coupled with 1.4% decline in minutes) improves Bhartis earnings by 6% in FY15E. We have assumed a 25% reduction in reserve price. Additional 25% reduction in spectrum reserve price would add Rs 18/share to TP (6% of CMP).

Valuation and view

SHAREHOLDING PATTERN (%)

We estimate avg. FCF yield for Bharti at a healthy 7.5% (ex spectrum payouts) over FY14-15E. Valuations look attractive at 6.1/4.9x FY14/15E on EV/EBITDA basis. Our DCF-based TP is Rs 363, including regulatory impact of Rs 57.

FINANCIAL SUMMARY
(Rs mn) Net Sales Growth (%) EBIDTA EBIDTA margin (%) Net profit EPS (Rs.) P/E (x) EV/EBITDA RoE (%) FY12 FY13 FY14E FY15E 715,058 797,729 894,963 980,737 20.0 11.6 12.2 9.6 237,123 246,204 281,454 320,697 33.2 30.9 31.4 32.7 42,593 20,504 40,211 63,042 11.2 5.4 10.1 15.8 26.9 55.8 30.0 19.1 7.6 7.3 6.1 4.9 9.1 4.3 7.5 10.2

Himanshu Shah himanshu.shah@hdfcsec.com +91 -22- 6171-7325

HDFC securities Institutional Research is also available on Bloomberg HSLB <GO> & Thomson Reuters

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BPCL

5 JUL 2013

BUY

INDUSTRY CMP (as on 4 Jul 13) Target Price


Nifty Sensex KEY STOCK DATA Bloomberg No. of Shares (mn) MCap (Rs bn)/(US$ mn)

OIL & GAS Rs 367 Rs 593


5,837 19,411 BPCL IN 723
265/4,409

E&P upside + OMC re-rating


OMCs have cracked under the weight of a rapidly depreciating INR (resulting in a ballooning of under-recoveries; our est is Rs 1.2 trn at USD/INR ~Rs 59). Furthermore, the switch in refinery transfer prices from trade parity to export-parity is another concern. We believe such a move would render almost all PSU refiners unviable, and is hence unlikely. Our SoTP for BPCL is Rs 593/sh.
We do not believe that export-parity pricing will be implemented for refinery transfer pricing. This can reduce GRMs by ~$2.5/bbl and renders all the PSU refiners unviable. We have modeled for refining margins of US$ 4/bbl for BPCL in FY14/15E (against US$ 5/bbl in FY13). There are concerns on non-implementation of diesel decontrol given state elections in endCY13 and central election in H1CY14. We believe that weakening INR (and hence higher deficit) will force government to keep increasing diesel prices. However, non-implementation in the days leading up to elections is a real hurdle. OMCs have never shared under-recovery burden in subsidised petroleum products such as diesel, LPG and SKO barring the years of significant inventory gain (in a rising crude price scenario). Owing to lower under recovery (Rs 1.2 trn in FY14 against Rs 1.6 trn in FY13) and early receipt of compensation from government, we are factoring a decrease in BPCL's interest costs by Rs 3bn YoY in FY14E. Bulk diesel deregulation, increase in diesel prices by 50 paisa per month, capping of LPG cylinders number to 9 per households/year and the pilot project for direct cash transfer for LPG are structural positives. These will culminate in lower under recovery in future. However, investors remain skeptical. We anticipate a re-rating of OMCs once more visibility emerges on these fronts. BPCLs Mumbai and Kochi refinery are west coast refineries. Hence transit time from crude sources (Middle East, Africa) is lesser than peers. This reduces working capital and hence boosts RoE. It also reduces crude and currency volatility risk. 90% pass through of octroi for Mumbai refinery sales adds Rs 14 bn annually to BPCLs EBIDTA. We expect the market to ascribe full value to BPCLs Mozambique gas asset on the final investment decision, when bankers will commit to fund the project of US$ 25bn (upstream development and two LNG trains of 5 mmt each). Exploration and appraisal results from BPCL's Brazilian assets will be available in a year, which should lead to better estimation of recoverable oil reserves (current estimates exceed 1bn barrels) and would unlock value.

6m avg traded value (Rsmn) STOCK PERFORMANCE (%) 52 Week high / low 3M Absolute (%) Relative (%) Promoters FIs & Local MFs FIIs Public & Others Source : BSE (0.8) (5.7)

517

Rs 449/315 6M (2.0) (0.1) 12M (2.7) (13.9)

SHAREHOLDING PATTERN (%) 54.93 17.45 10.36 17.26

Aishwarya Deepak, CFA aishwarya.deepak@hdfcsec.com +91 -22- 6171-7322

HDFC securities Institutional Research is also available on Bloomberg HSLB <GO> & Thomson Reuters

SOTP for BPCL


Particulars Refining income Mumbai refinery (in mmt) Kochi refinery (in mmt) Total refining thruput GRM Cost/bbl Refining EBITDA Refining EBITDA Marketing business Domestic sales in mmt Margins per ton of Rs 1,180 Marketing EBITDA Numaligar refinery of 3 mmt (61.65% stake) (2.4 mmt thruput and $5.5NRM) E & P value for Mozambique (PTT Exploration bought 8.5% stake for $1.9bn) E&P value at Brazil (assuming oil reserve of 200 mmboe @$2.8/bbl) Bina refinery of 6 mmt (49% stake) ( 6 mmt thruput and $5 NRM) Traded investments (30% discount to market price) Debt as on 31st Mar-13 Standalone book BPRL debt (E&P arm) BORL debt (Bina debt) NRL debt Value per share mmt 13.70 10.60 24.30 4.00 1.50 2.50 Rs mn Multiple Value/sh

$ $ $

26,273

5.0

182

34.97 41,260 3,340 131,882 37,800 5,937 53,887 (90,080) (26,000) (60,000) (2,565) 5.0 5.0 1.0 1.0 5.0 1.0 1.0 1.0 1.0 1.0 285 23 182 52 41 75 (125) (36) (83) (4) 593

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Cairn India
BUY

5 JUL 2013

INDUSTRY CMP (as on 4 Jul 13) Target Price


Nifty Sensex KEY STOCK DATA Bloomberg No. of Shares (mn) MCap (Rs bn)/(US$ mn)

OIL & GAS Rs 294 Rs 414


5,837 19,411 CAIR IN 1,910
561/9,324

Exploration upsides
Cairn India is poised to gain from INR depreciation. The current weakness in the stock reflects near term concerns over oil prices and lack of confidence on volume increase. Considering its past production record, we believe production rampup from Cairns Rajasthan fields is attainable even if it is delayed due to the inherent nature of the business. Co intends to step up exploration activity, which can lead to ~65% reserve accretion and ~50% upside to production volumes. With a cash rich balance sheet and 4% dividend yield, our TP is Rs 414/sh. This can rise materially if exploration upsides fructify. Cairn plcs anticipated exit (holds 10.3%) is an overhang.
Cairn India is currently producing 175 kbpd from Rajasthan fields. Management guides for an exit rate of 200-215 kbpd by Mar-14. Increase in production will be primarily from Bhagyam and Aishwariya fields.
Gross mboe model 1,061 66 11 695

6m avg traded value (Rsmn) STOCK PERFORMANCE (%) 52 Week high / low 3M Absolute (%) Relative (%) Promoters FIs & Local MFs FIIs Public & Others Source : BSE

835

Rs 367/268 6M 12M (6.8) (18.0) 58.77 11.76 14.33 15.14

1.4 (12.9) (3.5) (11.1)

SHAREHOLDING PATTERN (%)

Company has an aggressive exploration program for the next three years. It has indicated exploration potential of 695 mmboe (65% of current recoverable reserves). The new reserves should help to improve production from 215 kbpd to 300 kbpd in future. Cairn Indias NPV increases by Rs 6.7/sh with INR depreciation by Rs 1 (vs USD), while NPV decreases by Rs 3.9/sh for every dollar decline in crude price. Our target price of Rs 414 assumes Brent crude at $100/bbl, INR/USD at 59 (includes exploration upside Rs 80/sh, cash Rs 83/share). We value Cairns Rajasthan assets on NPV basis (applying 12.5% discount rate) at Rs 244/sh. This implies EV/BoE of $7.44/bbl. Furthermore, we value 695 mmboe exploration upside at Rs 80/sh (50% discount to Rajasthan implied EV/BoE). Management has guided for 20% dividend payout. At the declared dividend of Rs 11.5/sh for FY13, Cairn India offers a dividend yield of ~4%. Our SOTP is Rs 414.
Implied EV/BOE $7.44 $2.15 $6.13 $3.72 Value per share 244 4 2 83 80 414

Aishwarya Deepak, CFA aishwarya.deepak@hdfcsec.com +91 -22- 6171-7322

VALUATION Rajasthan MBA Field Ravva Field Cambay Field Cash at end-FY13 Rajasthan exploration upside Total value

Working Interest NPV for own share 70.00% 7,896 22.50% 141 40.00% 66 70.00% 2,587

HDFC securities Institutional Research is also available on Bloomberg HSLB <GO> & Thomson Reuters

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HCL Tech
BUY

5 JUL 2013

INDUSTRY CMP (as on 4 Jul 13) Target Price


Nifty Sensex KEY STOCK DATA Bloomberg No. of Shares (mn) MCap (Rs bn)/(US$ mn)

IT SERVICES Rs 800 Rs 881


5,837 19,411 HCLT IN 697 557/9,269 1,210

Ahead of the pack

6m avg traded value (Rsmn) STOCK PERFORMANCE (%) 52 Week high / low 3M Absolute (%) Relative (%) Promoters FIs & Local MFs FIIs Public & Others Source : BSE 7.6 2.7

Rs 810/471 6M 26.1 28.0 12M 65.4 54.3 61.99 6.56 24.32 7.13

Over the last three years, HCL Tech has achieved an impressive ramp up of its Infrastructure Managed Services (IMS) portfolio ahead of industry peers. An improvement in utilisation, non-linearity and increased contribution of fixed projects to the revenue mix and currency tailwinds have aided the margin expansion of ~500 bps over two years. We think revenue momentum is likely to persist, given the well balanced service mix as well as vertical mix. Valuations are compelling (10x on FY15E). Strong return ratios (ROE ~33%) and improving cash conversion (OCF/PAT > 1 for 3QFY13) are other positives. BUY with a TP of Rs 881 (12x FY15E EPS).
Strong competence in IMS : HCL Tech derives the highest proportion of revenues from Infrastructure Managed Services (~30% of revenues) in its peerset. IMS is an underpenetrated service line and offers scope for robust growth over the next three years. We have modeled IMS revenues to grow by 35/23/17% for FY13E/14E/15E (June yr-end). Scope for Non-linearity to aid margins : IMS also offers scope for non-linearity as projects are predominantly delivered on a fixed price basis. HCL Tech derives ~53% of revenues from fixed price projects. IMS EBIDTA margins have

expanded by ~400bps YoY (in 3QFY13) aided by non-linearity. Well-balanced service mix : HCL Techs service mix comprises Enterprise Apps ~19%, IMS ~30%, Engineering design services ~17%, ADM ~29.7% and BPO ~4.3%. It is present across both Run the business and Change the Business segments. Hence it has higher revenue predictability vs peerset. Favorable pricing enables market share gains : HCL Techs lower pricing has enabled higher new deal wins in the re-bid market. We model 13/11.5% USD revenue growth for FY14/15E. View : Dividend payout ratio of ~31% is another positive. BUY, our TP is Rs 881 (12x FY15E EPS). FINANCIAL SUMMARY
YE Jun (Rs mn) Net Sales Growth (%) EBITDA EBIDTA Margin(%) PAT Diluted EPS (Rs) P/E (x) EV / EBITDA (x) RoE (%) FY12 209,630 32.2 39,896 19.0 25,013 35.7 22.4 13.9 26.1 FY13 256,668 22.4 57,218 22.3 39,278 55.9 14.3 9.6 32.7 FY14E 310,155 20.8 68,241 22.0 47,796 68.0 11.7 7.7 32.2 FY15E 339,353 9.4 73,340 21.6 51,596 73.4 10.9 6.8 28.6

SHAREHOLDING PATTERN (%)

Madhu Babu madhu.babu@hdfcsec.com +91 -22- 6171-7316

Avg. USD exchange rate assumption is Rs 59/58 for FY14/15

HDFC securities Institutional Research is also available on Bloomberg HSLB <GO> & Thomson Reuters

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5 JUL 2013

ITC
BUY

INDUSTRY CMP (as on 4 Jul 13) Target Price


Nifty Sensex KEY STOCK DATA Bloomberg No. of Shares (mn) MCap (Rs bn)/(US$ mn) 6m avg traded value (Rsmn) STOCK PERFORMANCE (%) 52 Week high / low 3M Absolute (%) Relative (%) Promoters FIs & Local MFs FIIs Public & Others Source : BSE 13.1 8.3

FMCG Rs 339 Rs 350


5,837 19,411 ITC IN 7,902
2,678/44,529

EBIT growth resilient


Despite regulatory headwinds, we retain faith in ITCs ability to maintain resilient volumes and robust EBIT growth in cigarettes. Volume decline (~4%) notwithstanding in FY14E, we expect ~15% EBIT growth in cigarettes. The specific excise duty structure in cigarettes helps ITC earn disproportionately higher EBIT growth with relatively small price hikes. We believe cigarettes will continue to witness structural changes in India over the longer term (driven by demographics, uptrading from beedis and the chewing tobacco ban). FMCG business achieved breakeven in 4QFY13 and will open up further growth opportunities. BUY with a TP of Rs 350 (25x FY15E EPS). Cigarette EBIT growth to remain resilient
ITCs cigarette business was hit by 18% excise hike and ~300bps jump in blended VAT rates. In response ITC effected ~18% price hike, sufficient to absorb the tax increases. Given strong price inelasticity in cigarettes, volume drops are limited when prices are raised. Volume decline (~4%) notwithstanding in FY14E, we expect EBIT growth (~15%) in cigarettes to continue. Launch of the 64mm category can provide a much-needed volume push. Co also enjoys the advantage of very little commodity inflation in its key raw materials of tobacco and paper.

FMCG growing fast, at breakeven

2398

Rs 356/220 6M 20.0 21.9 12M 37.7 26.5 33.45 19.68 46.87

FMCG achieved breakeven in 4QFY13 as guided by the management. The food sub-segment is shining, which is reflected in 13% market share in noodles (in 3 years of launch), leadership in the mass market wheatflour category (Aashirwad) as also in premium cream biscuits (Dark Fantasy). We are enthused by ITCs plans to enter new categories (dairy, chocolates, personal products) and feel it is likely to create top-class product niches in most segments it enters. BUY with SOTP-based one year TP of Rs 350. This implies 25x FY15E EPS.
FY12 FY13 FY14E FY15E 265,518 316,275 374,231 446,738 17.6 19.1 18.3 19.4 92,098 111,743 135,289 163,798 34.7 35.3 36.2 36.7 62,581 76,081 91,601 110,656 8.0 9.6 11.6 14.0 42.6 35.2 29.2 24.2 27.9 23.1 19.1 15.8 35.6 37.8 40.7 44.0

Valuation

SHAREHOLDING PATTERN (%)

FINANCIAL SUMMARY
(Rs mn) Net Sales Growth (%) EBIDTA (in Rs Mn) EBIDTA margin (%) Net profit EPS (Rs.) P/E (x) EV/EBITDA RoE (%)

Harsh Mehta harsh.mehta@hdfcsec.com +91 -22- 6171-7329

HDFC securities Institutional Research is also available on Bloomberg HSLB <GO> & Thomson Reuters

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Lupin Labs

5 JUL 2013

BUY

INDUSTRY CMP (as 4 Jul 13) Target Price


Nifty Sensex KEY STOCK DATA Bloomberg No. of Shares (mn) MCap (Rs bn)/(US$ mn) 6m avg traded value (Rsmn) STOCK PERFORMANCE (%) 52 Week high / low 3M Absolute (%) Relative (%) Promoters FIs & Local MFs FIIs Public & Others Source : BSE 35.2 30.3

PHARMA Rs 851 Rs 893


5,837 19,411 LPC IN 448
381/6,334

Poised for higher traction


Lupin is our preferred pick in the pharma space given its robust product pipeline for the US, attractive return ratios and steady growth in domestic formulations (in spite of higher base and implementation of the new pharma policy). Management has set an inspirational target of USD 5bn sales to be achieved over the next five years, which translates into a CAGR of 23% for FY13-18. Management has also indicated an NPM of 20% at the end of the five years or logging CAGR of 36% in PAT. Though the set target seems stretched, we expect Lupin to post ~18% CAGR in Net Sales and PAT over FY13-15E.
Domestic formulations rock steady : (25% of top line) Lupins strong product portfolio in the domestic market has led to an impressive double digit growth for the last eight years. With ~60% contribution from chronic segment, we expect the segment to log 19% CAGR over the next two years. US to deliver robust growth : (40% of top line) Lupin has received 22 product approvals over last one year against its earlier average of <10, product basket has also tilted towards lower competitive areas like OCs. We expect US generics to register 40% CAGR and overall US sales are expected to post 28% CAGR due to lower growth in the Branded segment.

Valuations and view


Lupin trades at 21x FY15E EPS. Given the impressive product basket in US and the steady domestic formulations growth, we expect Lupin to trade at a higher multiple of 22x. Overall we expect Net Sales to post a CAGR of 18% and 17.5% CAGR in PAT. We have a TP of Rs 893 (22x FY15 EPS). Key risks include delay in incremental approvals, higher competition in the US markets and higher impact due to the pharma policy in the domestic market.

660

Rs 854/496 6M 40.7 42.6 12M 58.2 47.1 46.84 14.33 28.80 10.03

SHAREHOLDING PATTERN (%)

FINANCIAL SUMMARY
YE Mar (Rs mn) Net Sales Growth (%) EBIDTA EBIDTA margin (%) Net profit EPS (Rs.) P/E (x) EV/EBITDA RoE (%) FY12 68,204 20.8 14,447 20.4 7,717 17.3 30.6 17.2 23.8 FY13 FY14E FY15E 94,116 113,713 131,378 39.5 19.6 14.4 22,200 27,419 31,488 23.5 23.8 23.6 13,142 15,549 18,102 29.4 34.8 40.5 25.5 24.4 21.0 15.4 13.9 11.9 28.5 26.6 25.5

Meeta Shetty, CFA meeta.shetty@hdfcsec.com +91 -22- 6171-7338

HDFC securities Institutional Research is also available on Bloomberg HSLB <GO> & Thomson Reuters

Navneet Publications
INDUSTRY PUBLICATIONS Rs 60 CMP (as on 4 Jul 13) Target Price Rs 88
Nifty Sensex KEY STOCK DATA Bloomberg No. of Shares (mn) MCap (Rs bn)/(US$ mn) 6m avg traded value (Rsmn) STOCK PERFORMANCE (%) 52 Week high / low 3M Absolute (%) Relative (%) Promoters FIs & Local MFs FIIs Public & Others Source : BSE (5.2) 6M (9.3) (0.3) (11.2) Rs 71/53 12M 4.4 (6.8) 61.80 9.82 6.36 22.02 NPI IN 238
14/236

TOP PICKS

5 JUL 2013

BUY

Hidden gem

5,837 19,411

Navneet Publications (NPL) is a leader in supplementary education books for 50+ years in two prosperous states of India (Gujarat and Maharashtra). NPL has posted modest earnings growth of 11% CAGR over FY09-12. Nevertheless, it is poised for strong earnings CAGR of 19% over FY13-15E (11% over FY09-12 and 38% in FY13) with multiple growth levers in its publication business. Its stationery segment, too, is likely to be helped by currency tailwinds. The company has clean cash flows, consistent dividend payout. BUY with a TP of Rs 88, based on 14x FY15E EPS which is justified given Navneet's high return ratios.
Publication segment - Multiple growth levers: NPLs publication segment accounts for 57-58% of revenue, 75-80% of EBITDA and EBIT. It enjoys ~30/27% EBITDA/EBIT margins and ROCE of 3335%. Maharashtra state contributes 55% of segment revenue and Gujarat rest 45%.

SHAREHOLDING PATTERN (%)

Stationery segment on road to recovery: Stationery contributes 42-43% of revenue and 20-25% of EBITDA and EBIT with single digit RoCEs. It has been a drag for over 3-4 years until FY12 with revenues averaging ~Rs2.4bn and EBIT of ~Rs 250mn (10% margin). However, led by strong export orders from large retail chains in developed markets, the segment registered strong 28% YoY revenue growth to Rs 3.26bn and 71% EBIT growth to Rs 441mn (13.5%). Exports doubled (~35% of segment) in FY13. Outlook and Valuations: With robust earnings CAGR of 19%, expanding ROE, dividend yield of 3% (~50% payout), NPL is trading at attractive P/E of 11.1x/9.4x FY14/15E EPS. BUY with a TP of Rs 88 (14x FY15E EPS). FINANCIAL SUMMARY
(Rs mn) Net Sales Growth (%) EBIDTA EBIDTA margin (%) Net profit EPS (Rs.) P/E (x) EV/EBITDA RoE (%) FY12 6,189 12.9 1,313 21.2 768 3.3 18.2 11.8 22.5 FY13 8,057 30.2 1,913 23.7 1,080 4.5 13.2 8.2 27.7 FY14E 9,269 15.0 2,245 24.2 1,287 5.4 11.1 7.0 28.4 FY15E 10,660 15.0 2,640 24.8 1,519 6.3 9.4 5.9 28.7

Himanshu Shah himanshu.shah@hdfcsec.com +91 -22- 6171-7325

NPLs core publications business is poised for strong growth over FY14-15E driven by syllabus change, common curriculum evolution, expansion in Andhra Pradesh and Delhi-NCR, government orders for supplementary books and traction in its digital learning (e-sense) business. E-sense enjoys high operating leverage and achieved EBIDTA break even in FY13. HDFC securities Institutional Research is also available on Bloomberg HSLB <GO> & Thomson Reuters

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NTPC
BUY

5 JUL 2013

INDUSTRY CMP (as on 4 Jul 13) Target Price


Nifty Sensex KEY STOCK DATA Bloomberg No. of Shares (mn) MCap (Rs bn)/(US$ mn) 6m avg traded value (Rsmn) STOCK PERFORMANCE (%) 52 Week high / low 3M Absolute (%) Relative (%) Promoters FIs & Local MFs FIIs Public & Others Source : BSE (0.5) (5.4)

POWER Rs 144 Rs 185


5,837 19,411 NTPC IN 8,245
1,188/19,753

Concerns priced in
NTPC offers the prospect of stable, regulated returns in turbulent times. We remain positive on the stock as valuation at 1.4x one year forward P/B provides comfort. Concerns regarding coal availability are factored in. However, the possible upsides from higher domestic coal availability and/or favourable changes in regulations/policy are being ignored. At CMP, NTPC is valued at 2.1x FY14E regulated equity of Rs 360 bn (adjusted for cash, investments and CWIP) which is at the lower end of its trading range. Our TP is Rs 185/sh is based on 1.7x FY15E standalone BV, a 30% discount to average long term multiple.
We are positive on NTPC given (1) 62% (5.7GW) of capacity to be added in 12th Five Year Plan is being added in FY13 and FY14 lending high visibility to capacity addition and (2) Current valuations ignore the possibility of improved fuel availability in the medium to long term through companys captive mines and/or from Coal India. NTPC has been reallocated three captive coal blocks expected to start production from FY1617. NTPC's earnings are less volatile as it is able to earn at least 15.5% RoE under the regulated utility model, unlike private players which need to tie up power through a bidding route. NTPC is able to make higher than regulated RoE due to its efficient operations and incentives based on plant availability. Reported RoEs are lower as capital is stuck in CWIP. CERC will be coming up with its tariff regulations for 2014-19, by Mar 14. We expect the regulator to take a favourable stance towards developers given the current stress in the power sector. However, pending finalisation we see near term sentimental overhang. NTPC is trading at 1.4x one year forward book value (40% discount to historical average). Lower coal availability due to company's inability to secure imported coal remains the key risk as it lowers plant availability and, in turn, RoEs. FINANCIAL SUMMARY
(Rs bn) Net sales Growth (%) EBITDA EBITDA Margin (%) Adj. net profit Adj. EPS P/E EV/EBITDA P/B RoE (%) FY12 620.5 11.3 140.5 22.6 83.3 10.1 14.3 11.3 1.6 11.8 FY13 656.7 5.8 171.1 26.1 89.2 10.8 13.3 9.4 1.5 11.6 FY14E 739.7 12.6 163.8 22.1 97.1 11.8 12.2 9.7 1.4 11.7 FY15E 768.2 3.8 174.7 22.7 99.7 12.1 11.9 9.3 1.3 11.3

977

Rs 178/136 6M (9.3) (7.5) 12M (10.5) (21.6) 75.00 10.47 9.37 5.16

SHAREHOLDING PATTERN (%)

Abhinav Sharma abhinav.sharma@hdfcsec.com +91 -22- 6171-7331

HDFC securities Institutional Research is also available on Bloomberg HSLB <GO> & Thomson Reuters

Pidilite Industries
INDUSTRY CMP (as on 4 Jul 13) Target Price
Nifty Sensex KEY STOCK DATA Bloomberg No. of Shares (mn) MCap (Rs bn)/(US$ mn) 6m avg traded value (Rsmn) STOCK PERFORMANCE (%) 52 Week high / low 3M Absolute (%) Relative (%) Promoters FIs & Local MFs FIIs Public & Others Source : BSE 2.4 (2.5) Rs 297/154 6M 16.1 18.0 12M 61.3 50.2 70.06 5.64 13.61 10.69 PIDI IN 513
138/2,293

TOP PICKS

5 JUL 2013

BUY

FMCG Rs 269 Rs 320


5,837 19,411

Glued to the consumer


Pidilite Industries has a wide portfolio of niche products, and is best known for its popular white adhesive Fevicol. It is a market leader in most of its product categories. We like Pidilite especially because its products enjoy strong brand recall and low competitive intensity. The cos improving product mix, R&D (product development) capability and distribution network are key positives. It has consistently identified and met emerging consumer needs. BUY with a TP of Rs 320 (25x FY15E). Fevicol bonds with the consumer

A third of capital employed is sub-optimal

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Uncertainty prevails with regard to Pidilites synthetic elastomer plant (capital employed Rs 3.6bn, 20% of TCE). The company has decided to explore induction of a strategic partner for the project. We think that any decision to further invest in this plant is likely to be return dilutive and poses significant risk. Also, global subsidiaries (capital employed Rs 2.76bn) continue to remain EPS dilutive.

Valuations will sustain

SHAREHOLDING PATTERN (%)

Pidilite dominates the white glue segment with ~70% market share of the organized adhesive market with its Fevicol brand (~33% of FY13 revenue). With competition mainly from small regional players, Fevicol commands a price premium (8-10%). With a five year CAGR of 25%, construction chemicals contribute ~18% to sales. Dr Fixit accounts for 80% of segment revenues (with ROFF as the secondary brand). Applications span a wide range : waterproofing, sealing, flooring, concrete treatment & plastering. We think this segment will persist as the key growth driver in the medium term, given emerging needs.

With core domestic business set for sustainable growth (est. 18% revenue CAGR over FY13-15E) and consistently superior return ratios (domestic ROCE ~50%+), we believe valuations will sustain. BUY TP of Rs 320 (25x FY15E EPS).
FY12 31,266 17.7 4,926 15.8 3,244 6.4 42.0 27.6 27.7 FY13 36,781 17.6 6,005 16.3 4,240 8.3 32.5 22.7 29.0 FY14E 43,000 16.9 7,589 17.7 5,332 10.4 25.9 17.7 30.1 FY15E 50,934 18.5 9,346 18.4 6,531 12.7 21.1 14.1 30.3

FINANCIAL SUMMARY
(Rs mn) Net Sales Growth (%) EBIDTA (in Rs Mn) EBIDTA margin (%) Net profit EPS (Rs.) P/E (x) EV/EBITDA RoE (%)

Dr Fixit : the next Fevicol

Harsh Mehta harsh.mehta@hdfcsec.com +91 -22- 6171-7329

HDFC securities Institutional Research is also available on Bloomberg HSLB <GO> & Thomson Reuters

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Powergrid
BUY

5 JUL 2013

INDUSTRY CMP (as on 4 Jul 13) Target Price


Nifty Sensex KEY STOCK DATA Bloomberg No. of Shares (mn) MCap (Rs bn)/(US$ mn) 6m avg traded value (Rsmn) STOCK PERFORMANCE (%) 52 Week high / low 3M Absolute (%) Relative (%) Promoters FIs & Local MFs FIIs Public & Others Source : BSE 3.0 (1.9)

POWER Rs 108 Rs 138


5,837 19,411 PWGR IN 4,630
498/8,288

Stability and capability


PGCIL is another preferred stock in the power utilities space, as along with a stable and inherently less risky business model, the company also continues to deliver on execution. Valuation at 1.7x FY14E BV is attractive. PGCIL remains on track to meet our full year capex estimate of Rs 200bn in FY14. We expect the company to commission assets of Rs 160bn in FY14/15E. Our TP of Rs 138 is based on 1.9x FY15E BVPS. Equity dilution/govt. stake sale are overhangs.
PGCILs earnings remain insulated from currency fluctuations and fuel risks as the company has a regulated business model with no variable costs. We see PGCIL as an ideal defensive stock in the current volatile macro scenario. Management has been clear in its communication to investors and the company has been meeting the stated targets. The company has been able to ramp up its capex and commissioning significantly and has not disappointed on execution. Capex plan of Rs 1tn in 12th FYP remains on track. PGCIL has approved investments worth Rs 900bn and has placed orders for Rs 840bn of projects. Equity dilution/OFS remains the only overhang on the stock. It is no secret that its rapid growth has led to equity funding strains, due to which the company has had to invest less than normative 30% equity in some of its projects. We believe that the earlier the company goes for dilution, the better it is for long term investors. CERCs upcoming tariff regulations should not impact Powergrid in a meaningful manner unless the regulator reduces regulated RoE, which seems very unlikely to us. We recommend BUYing Powergrid with a TP of Rs 138/sh. At CMP it trades at 1.7x FY14E BV which we believe is attractive, given company steady cash flows and execution pedigree. FINANCIAL SUMMARY
(Rs bn) Net sales Growth (%) EBITDA EBITDA Margin (%) Adj. net profit Adj. EPS P/E EV/EBITDA P/B RoE (%) FY12 100.4 19.6 83.8 83.5 32.7 7.1 15.6 12.2 2.2 14.6 FY13 125.3 24.8 107.1 85.5 38.8 8.4 13.1 10.7 1.9 15.6 FY14E 157.3 25.6 137.3 87.3 47.8 10.3 10.7 9.2 1.7 17.1 FY15E 186.8 18.8 163.0 87.3 53.3 11.5 9.6 8.4 1.5 16.9

389 Rs 125/95

6M (6.4) (4.5)

12M (4.7) (15.9) 69.42 7.78 14.09 8.71

SHAREHOLDING PATTERN (%)

Abhinav Sharma abhinav.sharma@hdfcsec.com +91 -22- 6171-7331

HDFC securities Institutional Research is also available on Bloomberg HSLB <GO> & Thomson Reuters

Shree Cement
INDUSTRY CMP (as 4 Jul 13) Target Price
Nifty Sensex KEY STOCK DATA Bloomberg No. of Shares (mn) MCap (Rs bn)/(US$ mn) 6m avg traded value (Rsmn) STOCK PERFORMANCE (%) 52 Week high / low 3M Absolute (%) Relative (%) Promoters FIs & Local MFs FIIs Public & Others Source : BSE 12.7 7.8 Rs 5,384/2,790 6M (0.9) 1.0 12M (48.5) 37.3 64.79 5.64 7.77 21.80 SRCM IN 35
159/2,638

TOP PICKS

5 JUL 2013

BUY

CEMENT Rs 4,554 Rs 5,280


5,837 19,411

Capital compounder
From a capacity of 13.5 mTPA as at Jun-12, Shree Cement will have ~21.5 mTPA by Jun-15 with no dilution (in line with its remarkable history of being a continuous and consistent compounder of capital). This capacity will be spread across North (17.5 mTPA in Ras and Beawar, Rajasthan) and East (4 mTPA in Aurangabad, Bihar and Raipur, Chhatisgarh). We expect a 12% volume CAGR over FY13-15E (Shree follows June year end).
Driven by higher utilizations in North, pricing should be strong for key players in the region over FY14-15E. We expect EBITDA CAGR of 20% for FY13-15E driven by ~12% volume CAGR and 7% pricing improvement. SRCM trades at 7.0/5.6x FY14/15 EV/EBITDA and US$94/t on FY15E exit capacity. Best in class metrics and return ratios : Trailing 8 quarter cement EBITDA at Rs 1,070/t despite weakness in Oct 12 to Mar-13 period underlines Shrees strong operational efficiencies (implied cement cost/t at Rs 2,600/t). Further, the co has been a consistent leader in capex and operational efficiencies. With an expected Rs 2.5bn in EBITDA in FY13, merchant power capacity (400MW) provides a meaningful diversification. We value this at 4.5x FY15 EV/EBITDA (Rs 10bn).

Valuations and view


SRCM trades at 7.0/5.6x FY14/15 EV/EBITDA and US$94/t on FY15 exit capacity (21.5mTPA). We have a TP of Rs 5,280 (7x FY15 EV/EBITDA for cement, US$ 115/t and 4.5x FY15 EV/EBITDA for power). Key risks include longer commissioning time in East (its record in North is impeccable).

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FINANCIAL SUMMARY
YE Jun (Rs mn) Net Sales Growth (%) EBIDTA EBIDTA margin (%) Net profit FY12* 58,981 70.8 16,940 28.7 5,438 FY13 56,359 (4.4) 15,951 28.3 9,261 FY14E 67,004 18.9 19,805 29.6 12,186 349.8 13.0 7.0 29.4 109.3 FY15E 78,239 16.8 23,197 29.6 14,520 421.1 10.8 5.6 27.1 93.5

SHAREHOLDING PATTERN (%)

Ankur Kulshrestha ankur.kulshrestha@hdfcsec.com +91 -22- 6171-7346

EPS (Rs.) 177.5 265.8 P/E (x) 25.6 17.5 EV/EBITDA 8.8 9.0 RoE (%) 21.0 29.3 Source: Company, HDFC sec Inst Research EV/T (US$) 166.3 141.2 * 15 Month period ending June 2012

HDFC securities Institutional Research is also available on Bloomberg HSLB <GO> & Thomson Reuters

INDIA STRATEGY

Rating Definitions BUY NEUTRAL SELL : : : Where the stock is expected to deliver more than 10% returns over the next 12 month period Where the stock is expected to deliver (-)10% to 10% returns over the next 12 month period Where the stock is expected to deliver less than (-)10% returns over the next 12 month period

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