DOLAT CAPITAL

Petrichor*...
(scent of the first rain)

India Research

...Time To Sow the Seed(s)...!!!
Winning Ideas

*(pronounced /p[trhkYr/; from Greek petros “stone” + ichor “the fluid that is supposed to flow in the veins of the gods in Greek mythology”) is the name of the scent of rain on dry earth.
The term was coined in 1964 by two Australian researchers, Bear and Thomas, for an article in the journal ‘Nature’. In the article, the authors describe how the smell derives from oil exuded by certain plants during dry periods, whereupon it is adsorbed by clay-based soils and rocks. During rain, the oil is released into the air along with another compound, geosmin, producing the distinctive scent.

Dolat Research Dolat

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Valuation Snapshot
Company Name CMP Target M Cap Net Sales OPM (%) Net Profit EPS (Rs) P/E (x) ROANW (%) ROACE (%)

(Rs mn) Ahluwalia Contracts Biocon Cadila Healthcare CMC Container Corp Of Ind Ltd Coromandel Fertilisers Dish TV Dishman Pharma Dredging Corporation of India Engineers India Ltd GSK Pharma HDFC Bank IGL Indusind Bank Manappuram General Finance Maruti Suzuki India Ltd. Mundra Port & Sez Ltd Nestle India* OFSS Page Industries Patel Engg Power Fin Corp Ltd. Rallis India Ltd Rural Elec Corp. Ltd. Skumars Nationwide (SKNL) Tata Steel Limited TIL Torrent Power Zee News Limited SOTP (Rs) Financial Technologies MCX NBHC MCX Sx Other Ventures Total Note * -CY, ** DCF Valuation Note: - For Banks/FI and NBFC Net Sales - NII OPM - NIM RoACE - RoAA

(Rs) 83 200 345 638 940 178 39 181 485 1011 1207 1456 137 83 273 1059 611 1700 1211 508 379 189 544 158 45 405 198 140 40 CMP (Rs) 1,340

(Rs) 108 244 418 885 1181 224 69 272 632 1347 1711 180 94 346 846 487 1950 1561 612 493 236 670 182 65 335 300 171 51 Target (Rs) 1,725

(Rs bn) FY09E FY10E FY11E FY09E 5.2 11574 14517 19478 11.0 40.0 16165 20488 23728 20.5 47.1 29274 34575 41149 20.7 9.7 9398 10105 11184 16.5 122.2 34133 39048 46358 25.9 25.0 93750 53774 66120 7.0 50.8 7376 12014 17661 (20.3) 14.7 10671 12648 15318 24.9 13.6 8660 9938 11789 11.5 56.8 15324 21077 30669 20.2 102.2 16807 18621 20724 35.6 657.5 74211 88010 105359 4.9 19.2 8528 10875 13275 35.5 29.4 4590 5990 7828 1.9 9.0 1527 2275 3513 14.2 306.3 208525 232095 254918 8.8 244.8 11949 14525 21786 61.4 163.9 43242 52766 61571 20.0 101.4 29276 33986 40276 32.6 5.7 2546 3200 3904 20.0 22.6 22230 29461 38633 16.1 216.5 22593 25878 30570 3.9 6.5 8523 10042 11610 15.9 135.9 17680 21440 25867 3.8 11.0 21940 29658 36067 20.5 349.0 1444799 930394 959136 13.8 1.9 10498 9841 10974 9.9 66.1 43157 53527 66699 15.6 9.6 5216 6180 7150 17.0 M Cap EPS (Rs bn) FY11E 61.5 54.5 56.9 6.8 Rs / Share 817.0 444.0 90.0 312.0 62.0 1,725.0

FY10E 11.4 20.0 21.1 18.3 26.6 11.0 1.6 24.8 17.5 17.1 35.7 4.6 32.8 2.1 13.1 10.3 67.1 20.9 28.6 20.7 14.6 3.6 17.3 3.6 22.8 13.4 9.8 17.0 17.0

FY11E 11.3 20.4 21.5 19.5 27.6 10.6 10.9 24.3 19.7 16.3 36.1 4.5 29.1 2.3 13.2 10.2 72.3 20.9 30.0 22.1 13.5 3.4 18.2 3.5 23.8 15.7 10.1 20.2 17.6

FY09E 594 2403 3459 1161 7396 5593 (3871) 1461 881 3445 4483 22449 1725 1483 481 12187 4325 5340 7365 316 1638 19796 712 12719 1646 94759 447 3992 445

FY10E 671 2932 4184 1345 8258 3551 (2925) 1799 1277 3243 5081 28153 1866 1923 712 15908 6062 6665 8047 421 1955 18868 927 14300 2194 32680 359 4007 475

FY11E FY09E FY10E 975 9.5 10.7 3481 12.0 14.7 5185 25.4 30.7 1675 76.7 88.8 10234 56.9 63.5 4478 28.6 25.4 (1830) (4.1) (3.1) 2210 18.0 22.1 1768 31.5 45.6 3911 61.4 57.8 5735 52.9 60.0 35570 52.8 62.3 2038 12.3 13.3 2510 4.2 5.4 1158 17.4 21.5 17461 42.2 55.0 11217 10.8 15.1 8138 58.6 70.2 9331 87.9 96.1 569 28.4 37.8 2500 27.5 32.8 22651 17.2 16.4 1146 59.5 77.3 17196 14.8 16.7 3156 7.4 9.0 52980 109.8 37.9 428 44.6 35.9 7745 8.4 8.5 631 1.9 2.0

FY11E 15.5 17.4 38.0 110.6 78.7 32.0 (1.9) 27.2 63.2 69.6 67.7 78.8 14.6 7.1 35.0 60.4 28.0 84.4 111.5 51.0 41.9 19.7 95.7 20.0 13.0 61.4 42.7 16.4 2.6

FY09E FY10E FY11E FY09E FY10E FY11E FY09E FY10E FY11E 8.8 7.8 5.3 39 32 34 43 38 42 16.6 13.6 11.5 16 17 17 13 14 15 13.6 11.2 9.1 26 29 28 22 21 21 8.3 7.2 5.8 32 29 28 36 34 32 16.5 14.8 11.9 21 20 20 26 24 25 6.2 7.0 5.6 53 24 24 5 7 6 0.0 0.0 0.0 10.1 8.2 6.7 23 23 23 15 16 17 15.4 10.6 7.7 7 10 12 8 11 13 16.5 17.5 14.5 27 22 22 45 36 36 22.8 20.1 17.8 31 32 33 41 41 43 27.6 23.4 18.5 17 16 16 1 1 1 11.1 10.3 9.4 27 25 24 39 37 35 19.9 15.3 11.7 10 11 14 1 1 1 15.7 12.7 7.8 33 22 26 8 7 9 25.1 19.3 17.5 15 15 14 19 19 18 56.6 40.4 21.8 16 19 28 11 14 20 30.7 24.6 20.1 120 127 126 221 287 314 13.8 12.6 10.9 23 21 20 29 23 24 17.9 13.4 10.0 39 45 50 41 45 50 13.8 11.6 9.0 18 18 19 13 14 15 11.0 11.5 9.6 19 16 18 4 3 3 9.1 7.0 5.7 24 28 32 30 34 36 10.7 9.5 7.9 22 22 22 3 2 2 6.1 5.0 3.5 12 10 11 14 14 16 3.7 10.7 6.6 27 9 13 17 8 11 4.4 5.5 4.6 21 16 17 25 21 23 16.6 16.5 8.5 13 12 21 9 11 16 21.5 20.2 15.2 18 16 18 25 20 22

DOLAT CAPITAL

DOLAT CAPITAL

Index
S.N. Contents
Strategy Summary 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 Ahluwalia Contracts (India) Ltd. Biocon Ltd. Cadila Healthcare Ltd. CMC Ltd. Container Corporation of India Ltd. Coromandel Fertilisers Ltd. Dish TV India Ltd. Dishman Pharma & Chemicals Ltd. Dredging Corporation of India Ltd. Engineers India Ltd. Financial Technologies India Ltd. GlaxoSmithkline Pharmaceuticals Ltd. HDFC Bank Indraprastha Gas Ltd. IndusInd Bank Ltd. Manappuram General Finance & Leasing Ltd. Maruti Suzuki India Ltd. Mundra Port and Special Economic Zone Ltd. Nestle India Ltd. Oracle Financial Services Software Ltd. Page Industries Ltd. Patel Engineering Ltd. Power Finance Corporation Ltd. Rallis India Ltd. Rural Electrification Corporation Ltd. S.Kumars Nationwide Ltd. Tata Steel Ltd. TIL Ltd. Torrent Power Ltd. Zee News Ltd.

Pg. No.
5 13 23 25 27 29 31 33 35 37 39 41 43 45 47 49 51 53 55 57 59 61 63 65 67 69 71 73 75 77 79 81

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Petrichor*...
...Time To Sow the Seed(s)...!!!
The mood certainly is to join the joyride till it lasts. The extent of demand destruction in the developed world has not yet been fully complemented by shrinkages of the money cycle and therefore the economics would remain in a steady state for some time with slightly lower level of activity than the earlier average before it resumes its upwards journey. We feel the decoupling theory would be under a systemic short-term challenge. One can safely imagine an extended period of tug-of-war on currency front to cause frequent flight of capital back and forth across multiple asset classes – making uncertainty the only reality in the interim. The election results and the build up to budget have created a captive environment to attract global capital waiting for a stable yet high growth opportunity. The businesses globally depend on India for customized value addition more than mass cost reduction – something which can turn to India’s advantage as and when the global trade resumes its base buoyancy. We feel more money would be made outside the index, than within, over the next three years, as the India story starts gathering momentum both in terms of performance as well as flavor (they are interlinked…aren’t they?). This piece is an attempt to handpick few ideas under following themes which would be integral to the long term India story. The themes that we like are Domestic Consumption, Investment Super Cycle, Evergreen Revolution, Outsourcing.

Relief… a Reality …or Illusion…?
The world has been witnessing a relief rally on the back of successive sovereign stimuli over the last 9 months. The illusion is almost like an enjoyable dream. The mood certainly is to join the joyride till it lasts. The truth about dreams is that they exist when one is in a state of denial, the longer they persist the harder is the landing to reality and concurrently they all bring you to a new dawn. The extent of demand destruction in the developed world has not yet been fully complemented by shrinkages of the money cycle – a pending event waiting to happen anytime. The global trade, which also includes an Exim cascade, is nearing the end of the downward spiral – with near completion of the supply destruction stage. The economics would remain in a steady state for some time with slightly lower level of activity than the earlier average before it resumes its upwards journey.

The (de)coupling parable
We are all in an environment where money moves at a click of a button. What we have recently witnessed in most of the nonUS markets is a rally triggered by Dollar-Carry-Trade. The global capital flows are driven by the undercurrents on the currency call. There has been rhetoric of de-coupling of emerging markets from the developed world. We feel the decoupling theory would be under a systemic short-term challenge. The intertwined exim relations coupled with the dominance of developed markets spending in deciding sizeable share of emerging market GDP would still be a latent driver of global growth. The sheer size difference means that a suppressed growth of the developed world needs a concurrent growth in excess of 8% for next three years of the emerging markets– a distinct reality in an interdependent world. One can safely imagine an extended period of tug-of-war on currency front to cause frequent flight of capital back and forth across multiple asset classes – making uncertainty the only reality in the interim.

India - The Refreshing Climate Change
From a scorching-summer-heat to a soothing-drizzle…market is adjusting to the new season change. The fear-sweat has given way to the joy-raindrops of optimism. The election results and the build up to budget have created a captive environment to attract global capital waiting for a stable yet high growth opportunity. India has benefited from the fact that it is a small participant in global trade. The businesses globally depend on India for customized value addition more than mass cost reduction – something which can turn to India’s advantage as and when the global trade resumes its base buoyancy.
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As things stand today, the India story has following defining elements – a. Size – sheer size in terms of numbers and quality b. Well diversified steady growth macroeconomics c. Proven political infrastructure under constant media surveillance d. Well defined micro infrastructure of bureaucracy, law, science, and education e. Evolving yet vibrant refined financial markets and entrepreneur culture f. Benefit in hindsight for a late follower of open economy with shortest path of execution through migration of learnings from other evolved economies India’s social-politico-economic roadmap was charted almost 210-yrs back and the cost of sounding bit patriotic, we feel mandate-2009 completes an important leg in India’s evolution into a supra-economic power. (Refer Fig. I (Page 10) & II (Page
11) for our belief on the long term India story)

“If I was a young person and I could live anywhere in the world and decide what type of education I wanted to get and where I should go? I would focus on infrastructure and real estate development and other things in India. India was slow moving towards the capitalist model and the government has not been as strong as it should be. People in developed countries want laissez faire governments. We want government to have infrastructure and laws and such but we don’t want the interfering stuff. We want markets, and entrepreneurs, and business and investments to drive our economy. That’s not true in emerging countries. They don’t have the infrastructure and they don’t have the rules and regulations. The Government needs to step in and get the country going and then once things are really moving they can let free markets drive the economy. India has been slow moving towards this. But they’re starting to realize that they need infrastructure and foreign direct investment. They’re the people who most want to be like Americans in the world. The Chinese do not. Chinese want to top us but they don’t want to be like us per say. In India, where I visited for several weeks a few years ago, they want to be just like us. They want to be movie stars and watch soap opera’s and they want to have a big house and own flat screen TV’s. I think that India is the choicest single country in the world that is large enough to have scale, extend the product ...and it’s starting to emerge on a ... let’s call it a 20 year lag to China and it has demographics much longer. “
-

Harry Dent

Author of the Book The Great Depression Ahead 2008

What It Means For Indian Equities
Economy – Certainly, in a trickiest of the positions. The base level activity is certainly improved – as can be seen from dispatch numbers of cement, steel and two wheelers. The fiscal impetus in terms of lower duties and softer taxes is panning out its results. Though, the cost for the same (fisc. Deficit at ~ 12%) is still to bite. The forthcoming budget would be first strong statement of the new government to highlight its preferences. As things stand today, the global softness on commodities and concurrent currency strength is making inflation-control a secondary priority to growth and infrastructure. One should expect a softer monetary regime with range bound interest rates. Monsoon is turning a critical lever to current fiscal performance. Fundamentals – Corporate performances and tax collection numbers are suggesting that the India Inc. has already seen its worst period. One must not forget that as the dispatches and hence production scale up (albeit slowly), system inventory filling would more than offset the existing pricing power (nobody knows China’s response as yet on how is it going to fill up its volume gap with falling US consumption). Sustenance of domestic demand revival remains key to future performance. CDR exercises and Capital restructuring can gain momentum in mid-term.

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Sentiments – Certainly mixed. The single side run of ~ 6-weeks has raised more question marks than beliefs? With the end of slog-overs, the mood is that of consolidation. While most of the business confidence indices have suggested bottoming out of the economy, corporate earnings cycle is yet to shape up. The paradox of too much too soon along with the long term India opportunity is balancing it. The corporates too are queuing up for the fund raising spree. The initial response from institutions was akin to the groom parade operah of a sex bomb on one of the frontline channel!!. Though, off late there is visible softness in the activity as witnessed by scaled down targets of some of the MF NFOs and the nixed QIPs of some of the perennial fund raisers. There exists a latent aggression to exploit investment opportunities – though the ability and willingness (along with quantum of commitment) is on a slow slide. The expected tight-ropewalk of the annual budgetary exercise is playing its weight thus far. Any surprises on this front would take the lid off to create a new wave of optimism. Liquidity – We all have learnt the hard way in these 12-months cycle that liquidity is material representation of the confidence of trade participants (across all trades). The same investor who had questioned validity of a buy call on a stock (6-months back) is seen buying the same stock at 2-3x the price prevalent at the bottom. Impact costs (in inverse) are now embedded in valuations. The domestic monies at the periphery are ~ USD3 bn. The breadth of the markets is widening by the day with increased interest from all segments (retail, HNI, etc.). The short-term would pan out at the mercy of global capital flows. The markets might get a shot in the arm if the government opts for a special disclosure scheme (akin to VDIS ’98) that can open a new harmonized money-flow into the system.

What are the market levels then?
On valuations, the market is now trading near the long-term historic PER mean. History suggests that this the valuations can stretch at best to a variance of 2-z (sigma) when exuberance trades at the edge of rationality. Any slip in towards irrationality can cause a further stretch to the same (albeit with a higher risk).
4 3.5 3 2.5 2 1.5 1 0.5 0 -0.5 -1 -1.5 -2 -2.5 -3 May-94 May-99 May-04 Sep-92 Sep-97 Sep-02 Sep-07 May-09 Mar-95 Mar-00 Nov-91 Nov-96 Nov-01 Mar-05 Nov-06 Jul-93 Jul-98 Jul-03 Jan-91 Jan-96 Jan-01 Jan-06 Jul-08

Source : Bloomberg, Dolat Research

Market is a bazaar which works on demand and supply. The ticker represents the tilt of trade in terms of choice and compulsions with both buyers and sellers. The market was imbalanced in favour of buyer not long back. Although, the changed sentiments, improved risk appetite, the “left out” feeling and scarcity of quality options (for global money) has certainly shifted the buyer psyche from choice to compulsion. Higher the compulsion, higher is the price (PER). The interest rate cycle, and expected risk premium of the market being where it is one can expect the markets to trade at an earnings-yield range of about 5.5%-8.5% (PER band of ~11x-18x). The market seems to have already discounted a flat FY10 (a high single digit earning growth at max) and the current optimism is based on FY11 estimation of a higher teen earnings growth. In terms of GARP (growth at reasonable price) valuations the recent market momentum has factored in the time adjusted undervaluation.
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One must not forget though that the indices are dynamic representation of markets at a given point in time. Our broader call is that the indices in 1992, 1996, 2000, 2004 and 2008 were different. The 2012 indices composition too would be different. We feel more money would be made outside the index than within over the next three years, as the India story starts gathering momentum both in terms of performance as well as flavor (they are interlinked…aren’t they?).

How Does One Play This?
As a conscious effort we are avoiding short term calls here as we firmly believe India is a steady performer. Further, mapping the market cycle theory to our current state of the market, we feel we are close to completion of the decline phase and set to enter the accumulation phase. The base premise here is that over a medium term one must prepare to witness a significant low than the current levels. The portfolio there fore needs following structural adjustments a. With a near-90% run in 13-weeks, certainly, time to blend mid-term aggression with safety b. In the short-term action would remain confined to liquid stocks although with a trading tilt than investment. One should slowly increase the investment tilt in the portfolio over period. c. The mid-cap space would still continue to witness participation – though one should stick to the theme of quality as much as possible

Themes We Like
Our DNA is that of an India-Bull (!). We have already highlighted the long-term theme on the India story. We feel as we move into a constructive phase of India story, one need to take a re-look at themes that are set to pan out to enable India reach its ultimate destiny.

Domestic Consumption
We had highlighted the “Access” theme in our strategy report in October 2007. The evolution of the story today makes us to revisit the same theme with some modification. We foresee domestic consumption as a key growth driver for India. In fact, after China, India provides the largest denominator, when it comes to consumption. The evolving income levels and widening prosperity matrices favor corporates that have built businesses, brands that reach the numbers. The obvious segments to play are BFSI, Consumer Non-Durables, Pharma, Media, Gas Transportation, Textile Retail and Logistics (as a second Derivative). We like HDFC Bank, Hindustan Unilever/ Nestle, GSK Pharma, Zee News, IGL, CONCOR, and S K N L. We also like financial services space (Kotak Bank and India Infoline) #.

Investment Super Cycle
The quotes of Mr. Dent referred earlier are being seriously addressed by a single-minded focus on correcting this ignored segment. Each segment of the infrastructure is being reinforced with a dedicated focus with already committed expenditure to the tune of USD800 bn+ over the next three years. Each of the constituents in this value chain is set to participate in the monetization opportunity. We like PFC/ REC (a preferred intersection of power and finance), Patel Engineering, Ahluwalia Contracts (both in contracting space), TIL (material Handling), Dredging Corporation (port infrastructure), Engineers India (Niche Design Participant), Torrent Power (a new generation private power utility) and CMC (e-governance) on this front.

Evergreen Revolution
Since the green revolution of 70’s, there have been hardly any incremental investments in agri-productivity. The sector forms ~17% of GDP, but accounts for 50%+ domestic consumption. The falling land holding per capita is increasing pressure on improving yields. Empowering farmer with better cash in such a scenario would continue to be the central theme of agrireforms. The recent experience of global meltdown, the concurrent solidarity displayed by the rural segment (both in production as well as consumption) and the recent concentration of the ruling party’s vote share align to fortify the relevance of this sector in prioritization of policies. Micronutrients, fertilizers, seeds, water, farm equipments, processing, trade monetizing as well as trade finance are areas which would undergo strong reorganization – in favour of all the stakeholders of the supply chain. The increased area under irrigation and resultant need towards yields optimization augurs well for overall demand for each of the constituent. One should not get surprised if some of these participants get index representation incoming years. We like – Corromondel Fertilisers (Fertilizers), Rallis (Agrochem), FT (monetization facilitator of agri-trade value chain) and Jain Irrigation (micro-irrigation in this space). Although, we have avoided coverage of Jain in this piece due to our concerns on valuations at this point in time.
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Outsourcing/ Exports
The stronger currency does provide an interim drag for the export centric stories. We prefer companies which have garnered a critical space in their customer value chain and are at the edge of innovation. We are against business model that are resting of a foreign front end that is in combat with the industry goliaths. The non-conflicting business models with an adequate back end capability are key to success here. We like Cadilla, Dishman and OFSS in this space.

Stand-alone Businesses
We have three unique candidates here Gold Finance – Manappuram General Finance and Leasing (MGFL) is a unique business model with a distinctive process of asset verification, customer selection and pricing strategies, which offer higher margins and return ratios with virtually ‘Zero’ NPAs. Innerwear Brand – Page Industries is a brand licensee of Jockey with an asset light model. Well integrated to leverage on the association with Jockey International to right-price the product designed correctly on comfort, quality, fashion (in sports wear), and affordability without compromising on the brand value. New Age Bank with change of guard - Indus Ind Bank is undergoing a strong character change under the new guard. The new management is fiercely operating towards a goal of reaching the Top-3 slot among its peers across business lines. The management model and the focus makes it a serious tranformation bet in the banking sector.

Dark Horse
We have three themes here – Dish TV – The segment displays traits of what we have witnessed in telecom. Might just be right this time - with timely availability of finance (Rights issue), Dish TV should regain its aggression in the competitive DTH scenario of five players. The company is set to achieve positive EBIDTA in FY10 and is set to corner incremental market share of ~ 20-25%. At worst you make money if it gets sold (!). Biocon – The option value of the R&D card on Oral insulin is long pending its due monetization. The outsourcing model (CRAM) provides the near term cash flow relief. The management approach of guided aggression too is favorable. Retail Companies – The key variables consumption, capital, labour and rentals have bottomed out and are on the path of revival. As of now options are limited. We have short-listed Vishal Retail as a possible candidate (though not covered in this report).

Top Sell Ideas
In an accumulation phase it can be suicidal to short any stocks. The word SELL here is with a connotation of “don’t-own” or “get-rid-off”. Following are some of the stocks with this flavour – TATA Steel – Steel outlook yet to look up with lower industry level utilizations and weaker demand outlook from user industries. The high leverage on the Corus acquisition biting in difficult times. Valuations are richer when the product prices are yet to recover – a paradox unfavorable on risks. Maruti - The company would continue to benefit from the growth in the Indian auto industry, however, increased level of competition in the compact car segment would result in loss in market share from current 70%+ levels. Mundra Port – Though we remain positive on the growth prospects on the back of its strategic positioning in emerging India logistics and industrial scenario the short term outlook is weak for the SEZ business with a slower industrial capex cycle. The recent run up in the stock price has taken the valuation beyond fair value assessed by us of Rs 487.

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Fig. I - India - Forces of Global Emergence External Factors
1. Econo-Liberal Supremacy - Different Eras

2. The Global Wealth Line - 1000 years of Wealth Transition

“ For five hundred years the epicentre of maritime trade moved steadily west. In the 15th century, Venice (and soon after Genoa) was at the crossroads of trade, followed by Antwerp and Amsterdam in the 16th and 17th Centuries, and London in 18th century. By 19th Century steamships carried the Westline across the Atlantic to North America and in the twentieth century the growth centre of maritime commerce took another giant step towards west across the pacific to Japan and South Korea. So finally, in 2003, the growth centre of maritime trade has shifted to China.” - Martin Stopford, Managing Director, Clarksons Research “Historically, it has been observed that the nations that have industrialised later have grown at a faster pace and in a

shorter time frame. Western Europe grew with a growth rate of 1-2% over an extended two centuries and half. Subsequently, as the maritime epicentre shifted to North America, the growth rates inched to 3-4% in the late 19th and first half of 20th century. Japan grew with 7-8% in its growth phase in 1950s-60s. The emerging Asian tigers grew by 9-10% in 1980s till mid-90s. China is growing by 13% since 1990.” – ( Prof.Sabestian Morris – IIM Ahmedabad).”

3. Econo-Religious Factors of Global Leadership

Addapted from “India in the World Economy I-CUE Analysis” by i-maritime Research

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Fig. II - India - Forces of Global Emergence Internal Forces
India’s social reforms started at the beginning of the 19th Century and were followed by political and economic reforms. The earlier social and political reformcycles took around 90 years and currently India is passing through the economic reformcycle. Within a reformcycle, first 30 years could be termed as initiation (I) phase, next 30 year as the growth (G) phase and final 30 years as consolidation (C) phase. .

Major events of various reform processes are enlisted as under....

Addapted from “India in the World Economy I-CUE Analysis” by i-maritime Research

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Petrichor......Time To Sow the Seed(s)...!!!
As of now, everybody seems to be enjoying the joyride. The election results and the build up to budget have created a captive environment to attract global capital waiting for a stable yet high growth opportunity. We feel more money would be made outside the index, than within, over the next three years, as the India story starts gathering momentum both in terms of performance as well as flavor (they are interlinked…aren’t they?). This piece is an attempt to handpick few ideas under following themes which would be integral to the long term India story. The themes that we like are Domestic Consumption, Investment Super Cycle, Evergreen Revolution, and Outsourcing.

Sr. Company Name No. 1 Ahluwalia Contracts (India) Ltd.

Market Cap Rs.5.2bn

CMP (Rs.) 83

Target (Rs.) 108

High Performance - Delivered...!!!
Ahluwalia Contracts India Ltd. (ACIL) is a premium player in contracting and caters to industrial, real estate and infrastructure segment. A healthy order book of Rs41.5 bn provides a revenue visibility of 3.6 years. Increased contribution from Government Contracts (32% of order book) enhances certainty in the order book. ACIL has been awarded the time critical Commonwealth Projects which exhibits its quality and timely execution skills. With proven execution skills, strong promoter pedigree and sound financials along with positive free cash flows, we believe that ACIL is attractively placed. We recommend a BUY with a 12 months price target of Rs108 which discounts its FY11E EPS of Rs15.5 by 7x.
Year Net Sales FY08 8,801 FY09E 11,575 FY10E 14,517 FY11E 19,478 Figure in Rs mn % growth 31.5 31.5 25.4 34.2 EBITDA 1,063 1,278 1,656 2,208 OPM% 12.1 11.0 11.4 11.3 PAT 516 594 671 976 % growth 65.6 15.0 13.0 45.4 EPS(Rs.) 8.2 9.5 10.7 15.5 PER(x) EV/EBITDA(x) ROANW(%) ROACE(%) 10.1 4.3 50.9 57.0 8.8 4.1 39.3 42.7 7.8 2.8 32.1 38.2 5.3 1.7 34.1 42.1

2

Biocon Ltd.

Rs. 40bn

200

244

Clinical Gains...!!!
Biocon has increased its focus from statins to branded biotech formulations and contract research services. We estimate Biopharma division to grow at 15% CAGR over FY09-11E with increasing contribution from domestic branded formulations and ramp up in bulk supplies for products going off patent.The company stands as a beneficiary in the event of, ‘Biogenerics’ opening up in key regulated markets. We estimate 33% revenue growth in its CRO segment over FY09- 11E with the BMS deal yet to realise its full potential. Possible outlicensing deal for its product(s) Oral insulin IN105 (Phase III) and antibody T1h (to initiate Phase III shortly) are triggers ahead.
Year Net Sales % growth EBIDTA FY08 10576 7.3 3024 FY09P 16165 52.8 3312 FY10E 20488 26.7 4105 FY11E 23728 15.8 4845 Figure in Rs mn,* Excl. forex exceptional items OPM % Adj.PAT* 28.6 2245 20.5 2403 20.0 2933 20.4 3482 % growth Adj.EPS(Rs.) % growth PER (x) ROANW % ROACE % 12.1 11.2 12.1 17.8 15.2 13.6 7.0 12.0 7.0 16.6 15.6 13.1 22.0 14.7 22.0 13.6 16.6 14.4 18.7 17.4 18.7 11.5 17.0 15.1

3

Cadila Healthcare Ltd.

Rs.47bn

345

418

Prism Of Growth…!!!
Cadila Healthcare (CHL) has an interesting business model with thrust on export formulations and contract manufacturing, well complemented with a strong domestic franchise. Strategic acquisitions and front end tie ups has been key to CHL’s growth trajectory in export formulations. The company through JV’s has positioned itself as a preferred contract manufacturer. Sustained cash flows from its flagship segment - domestic formulations (44% sales) permits it to augment international operations. Possible outlicensing of candidates currently in advanced stages of its NME pipeline, is a latent trigger. We recommend “Accumulate” with target price of 418 (11x FY11E EPS).
Year Net Sales# % growth EBIDTA OPM % Adj.PAT* % growth Adj.EPS(Rs.) % growth PER (x) 19.1 13.6 11.2 9.1 projected. ROANW % ROACE % 26.7 25.6 28.4 27.5 20.8 21.8 20.5 20.9 FY08 FY09P FY10E FY11E Figure in Rs mn, # 23,230 29,275 34,575 41,149 Includes other 27.0 26.0 18.1 19.0 operating 4,582 19.7 2,466 6.0 18.1 6.0 6,058 20.7 3,460 40.3 25.4 40.3 7,295 21.1 4,185 21.0 30.7 21.0 8,847 21.5 5,185 23.9 38.0 23.9 income,* Excl. forex exceptional items, P=Balance Sheet figures are

24 June 2009

13

DOLAT CAPITAL
Sr. Company Name No. 4 CMC Ltd. Market Cap CMP (Rs.) 638 Target (Rs.) 885

Rs.9.7bn

Out of the Cocoon...!!!
CMC is an IT Solutions and Services company with a predominant domestic focus. CMC has been immune to all the slowdown in the Global IT services outsourcing market. Apart from the domestic focus, another factor which favors CMC is its presence in the ITES led domestic governance projects, which are turnkey in nature and give CMC an assured revenue stream. With the government spending on governance not slowing down, we believe that CMC will be a direct beneficiary of these new opportunities and are positive on CMC. At CMP of Rs. 638, CMC is trading at 7.2xFY10E EPS and 5.8xFY11E EPS. We initiate coverage on the stock with a Buy rating and a target price of Rs.

885 (8xFY11E EPS) over a 12-18 month period.
Year FY08 FY09 FY10E FY11E Figure in Rs mn Net Sales % growth 10,647 9,398 10,106 11,184 (1.4) (11.7) 7.5 10.7 EBITDA 1,310 1,547 1,853 2,183 OPM% 12.3 16.5 18.3 19.5 PAT % growth 923 1,161 1,345 1,675 33.2 25.8 15.8 24.6 EPS(Rs.) 60.9 76.7 88.8 110.6 % growth 33.2 25.8 15.8 24.6 PER(x) 10.5 8.3 7.2 5.8 ROANW(%) 33.5 32.3 28.9 28.0 ROACE(%) 41.2 36.4 33.9 31.9

5

Container Corporation of India Ltd.

Rs. 122.2bn

940

1181

Material Life Line...!!!
Container Corporation of India (CONCOR) is the largest container operator with 57 terminals across the country transporting containerized products including engineering goods, automobiles, agri commodities etc. On financials CONCOR has a track record of consistent earnings growth (CAGR 14% over 5 years), high return on equity (ROE) and near monopoly status in business. It is debt free and has Rs135 per share cash on books. At a CMP of Rs940 we recommend a BUY on the stock with a 12 - 18 months price target of Rs1181 (15x FY11E EPS)
Year FY08 FY09E FY10E FY11E Figure in Rs mn Net Sales % growth 33,473 34,133 39,048 46,358 9.5 2.0 14.4 18.7 EBITDA 8,904 8,832 10,368 12,797 OPM% 26.6 25.9 26.6 27.6 PAT % growth 7,505 7,397 8,258 10,234 7.8 (1.4) 11.6 23.9 EPS(Rs.) 115.5 56.9 63.5 78.7 % growth 7.8 (50.7) 11.6 23.9 PER(x) 8.1 16.5 14.8 11.9 ROANW(%) 25.8 20.9 19.5 20.3 ROACE(%) 30.9 25.5 23.9 24.9

6

Coromandel Fertilisers Ltd.

Rs.25.9bn

179

224

Fertile Connections...!!!
Coromandel Fertiliser Ltd (CFL) is the leading manufacturer of a wide range of farm inputs and is the second largest manufacturer of Phosphatic fertilizers. The company is diversifying its revenue base towards the non-subsidy farm business by entering into high margin segments of specialty nutrients and pesticides. Presence in the niche area of complex fertilisers and an assured supply of key raw materials differentiates CFL from its peers. Foray into rural markets and increasing exposure to non-subsidy business would augur well for the company. At CMP of Rs 179, CFL trades at a P/E of 5.6x FY11E EPS of Rs.32. We recommend a BUY with a price target of Rs 224 (7x FY11E EPS).
Year FY08 FY09E FY10E FY11E Net Sales 37,573 93,750 53,774 66,120 % growth 181.8 149.5 (42.6) 23.0 EBITDA 4,128 6,520 5,929 6,977 OPM% 11.0 7.0 11.0 10.6 PAT % growth 2,101 4,008* 3,551 4,479 214.7 90.8 (11.4) 26.1 EPS(Rs.) 15.0 28.6* 25.4 32.0 % growth 194.9 90.8 (11.4) 26.1 PER(x) 11.9 6.2 7.0 5.6 ROANW(%) 31.2 52.8 23.8 23.9 ROACE(%) 26.5 30.6 19.0 23.6

Figure in Rs mn, * Adjusted PAT / EPS / PER

24 June 2009

14

DOLAT CAPITAL
Sr. Company Name No. 7 Dish TV India Ltd. Market Cap CMP (Rs.) 39 Target (Rs.) 69

Rs.36.9bn

Wish for More...!!!
Dish TV offers an opportunity to participate in high growth Indian M&E space with annuity like revenue flow with staggered capex commitment over a period of time. The recent staggered rights issue of Rs 11 bn has eased the financial burden on the company and is poised to garner incremental market share of 20%. Further the ease of competition aggression and cheap STBs would lead to lower customer acquisition cost. We value Dish TV on DCF for its predictability of revenue streams. We initiate coverage on the stock with DCF based 12 month price target of Rs 69.

8

Dishman Pharma & Chemicals Ltd.

Rs.14.7bn

181

272

Perfect Recipe...!!!
Dishman Pharma has a de-risked CRAMS model. It’s focus on APIs and intermediates and not on formulations does not pose any competition to its customers. The company has successfully signed agreements with several reputed innovator companies based in EU and US. Through Joint Ventures, it has marked its entry in various geographies. Its strategy to synergize operations and leverage on key capabilities enables it to consolidate its position globally.

Year FY08 FY09P FY10E FY11E

Net Sales# 8,044 10,671 12,649 15,318

% growth 36.0 32.7 18.5 21.1

EBIDTA 1,542 2,662 3,131 3,715

OPM % Adj.PAT* 19.2 24.9 24.8 24.3 818 1,462 1,800 2,211

% growth FDEPS(Rs.) % growth PER (x) ROANW % ROACE % 0.6 78.6 23.1 22.8 10.1 18.0 22.1 27.2 0.6 78.6 23.1 22.8 18.0 10.1 8.2 6.7 27.3 23.2 23.1 22.9 10.8 15.1 16.1 17.1

Figure in Rs mn, # Includes other operating income, *Excl. forex exceptional items., P=Balance Sheet figures are projected.

9

Dredging Corporation of India Ltd.

Rs.13.6bn

485

632

Mint-in-the-Silt...!!!
Dredging Corporation India Limited (DCIL) is blessed with an enviable situation of being an exclusive local participant in a blow-out opportunity in the space of Indian Maritime Infrastructure. DCIL is also adding to its repertoire of necessary skill-sets that widen its operating canvass. The right-of first refusal on existing dredging contracts and a multiplier on the current space (post completion of maritime upgrade) stands a business advantage further. The strong PSU disinvestment undercurrent works as an additional sweetener. We reiterate our Buy recommendation with a price target of Rs.632 (10x FY11E EPS)over the next 12 months.
Year FY08 FY09E FY10E FY11E Figure in Rs mn Net Sales % growth 7,053 8,661 9,938 11,790 23.1 22.8 14.8 18.6 EBITDA 1,276 993 1742 2,317 OPM% 18.1 11.5 17.5 19.7 PAT % growth 1,548 881 1,277 1,769 (18.0) (43.1) 44.9 38.5 EPS(Rs.) 55.3 31.5 45.6 63.2 % growth (19.7) (43.1) 44.9 38.5 PER(x) 8.8 15.4 10.6 7.7 ROANW(%) 13.1 7.1 9.9 12.4 ROACE(%) 12.6 7.8 10.7 12.7

24 June 2009

15

DOLAT CAPITAL
Sr. Company Name No. 10 Engineers India Ltd.(EIL)
Making of a Butterfly...!!!
EIL, a globally competent GOI undertaking takes pride in providing high end Project Management Consultancy (PMC) services to the downstream PSU hydrocarbon companies. With an extension of EPC services through its Lump Sum Turnkey (LSTK) arm, EIL has earned the status of a ‘Total Solution Provider’. Scalability through LSTK without loosing focus on high margin PMC, an asset light model with a positive free cash flow and surplus cash position makes EIL even more attractive. We like the business model of the company and expect it to be one of the beneficiaries of the divestment.
Year FY08 FY09 FY10E FY11E Net Sales 7,377.5 15,324.6 21,077.8 30,669.3 % Growth 29.2 107.7 37.5 45.5 EBIDTA 1,727.1 3,100.0 3,599.9 4,999.2 OPM % 23.4 20.2 17.1 16.3 PAT 1,946.0 3,445.3 3,243.7 3,911.1 % Growth EPS (Rs.) 36.1 77.0 (5.9) 20.6 34.7 61.4 57.8 69.6 % Growth 36.1 77.0 (5.9) 20.6 PER (x) ROANW (%) 29.2 16.5 17.5 14.5 17.8 27.3 21.7 22.0 ROACE (%) 29.7 44.6 35.5 35.6

Market Cap

CMP (Rs.) 1011

Target (Rs.) Unrated

Rs.56.8bn

Figure in Rs.mn

11 Financial Technologies India Ltd.(FT)
U Trade I Mint…!!!

Rs.61.5bn

1340

1725

Financial Technologies (FT) started its business with the vision of dominating the global transaction market and its transaction engine is its USP. FT is a transaction centric business wherein the transactions drive each and every component of the business across asset classes back ended by superior products which provide faster, efficient, secure and a convenient mechanism to drive these transactions. The emphasis is on providing services with Finance as the core domain, convenience as the tool and disintermediation as the envelope covering FT’ services. As India picks up the pieces in the downturn and the markets stabilize, FT will be at the core of most of the transactions that happen in any market in India. We are positive on the stock and initiate coverage on the company with a ‘Buy’ rating and a price target of Rs. 1725 valued on SOTP method.

12 GlaxoSmithkline Pharmaceuticals Ltd.
Chill Pill...!!!

Rs.102.2bn

1207

1347

GSK Pharma is our preferred pick in the MNC Pharma space on the back of parents’ strong commitment towards introducing high value patented products through Glaxo India in the domestic market. Lower dependency on price controlled products, new product launches with minimal generic competition and moderate pricing ensures revenue visibility. Healthy cash per share and a reasonable dividend yield, serves as a classic addition to the defensive portfolio.
Year CY07 CY08 CY09E CY10E Net Sales# 15,962 16,807 18,621 20,724 % growth 2.8 5.3 10.8 11.3 EBIDTA 5,521 5,980 6,646 7,478 OPM % 34.6 35.6 35.7 36.1 PAT* % growth 3,968 4,484 5,081 5,736 9.7 13.0 13.3 12.9 EPS(Rs.)* % growth 46.8 52.9 60.0 67.7 9.7 13.0 13.3 12.9 PER (x) ROANW % 25.8 22.8 20.1 17.8 31.1 30.9 31.8 33.1 ROACE % 42.5 40.6 41.2 42.8

Figure in Rs mn, # Includes other operating income,* Adjusted.

24 June 2009

16

DOLAT CAPITAL
Sr. Company Name No. 13 HDFC Bank
All Weather Stock…!!!
HDFC Bank is now well entrenched to sustain a strong 20% plus earnings growth rate. The bank has scaled down the unsecured retail assets book of the erstwhile CBoP, thus looking to curb its slippages. Benefits of its merger with CBoP will start reflecting in its improved branch productivity and a drop in cost to income ratio over the next few years. Additionally the bank is well capitalized to sustain this growth over the next few years . Despite rising slippages, HDFC Bank’s asset quality remains one of the best in class with the additional credit of lowest restructured loans amongst other banks. At CMP the stock trades at 18.5x FY11E EPS of Rs 78.8, 2.8x FY11E Book Value and 3.0x FY10E Adj. book value. We maintain a Accumulate on the stock with a revised price target of Rs 1711 (3.25x FY11E book value).
Year FY08 FY09 FY10E* FY11E* Figure in Rs.bn NII Growth(%) Net Profit Growth(%) 52.3 40.9 15.9 39.3 74.2 42.0 22.4 41.2 88.0 18.6 28.2 25.4 105.4 19.7 35.6 26.3 NIM(%) EPS(Rs) PER(x) 4.9 44.9 32.5 4.9 52.8 27.6 4.6 62.3 23.4 4.5 78.8 18.5 P/BV(x) P/ABV(x) 4.5 4.6 4.2 4.4 3.1 3.3 2.8 3.0 RoANW(%) 17.7 17.2 15.8 15.9 RoAA(%) 1.4 1.4 1.4 1.4

Market Cap Rs.657.5bn

CMP (Rs.) 1456

Target (Rs.) 1711

14 Indraprastha Gas Ltd.(IGL)
Ready for Common- “Wealth”...!!!

Rs.19.2bn

137

180

The green fuel culture with inbuilt cost economics is driving the City Gas Distribution (CGD) projects. Indraprastha Gas Ltd’s (IGL) business model has a location advantage of catering to the high growth National Capital Region (NCR), home to the largest number of four wheelers and expanding residential population. The expansion phase undertaken by IGL to capture new demand from commonwealth games, increasing conversion of private vehicles to CNG would keep IGL on growth trajectory. The promoter (GAIL) strength ensures availability of gas on a priority basis to IGL. IGL has witnessed some operating margin pressure in FY09 due to additional gas requirements beyond allocated quota but IGL has raised the selling price of CNG to counter it. We reiterate our BUY recommendation with a revised DCF based price target of Rs. 180 at which it would trade at 12.4x FY11E earnings.
Year FY08 FY09P FY10E FY11E Net Sales % Growth 7,060 8,528 10,875 13,275 15.0 20.8 27.5 22.1 EBIDTA 3,070 3,044 3,582 3,883 OPM % 43.1 35.5 32.8 29.1 PAT 1,745 1,725 1,866 2,038 NPM % 24.5 20.1 17.1 15.3 EPS (Rs.) 12.5 12.3 13.3 14.6 PER (x) EV/EBIDTA (x) ROANW(%) 11.0 11.1 10.3 9.4 5.8 5.9 4.9 4.1 33.4 27.4 25.4 24.2 ROACE (%) 47.0 39.0 36.9 35.2

Figure in Rs.mn, P=Balance Sheet Nos. are Projected.

15 IndusInd Bank Ltd. New wine in a new bottle…!!!

Rs.29.4bn

83

94

IndusInd Bank is in restructuring mode after a change in the top level management. The bank historically was characterized by low business growth and profitability. However, the restructuring efforts have started showing results with improved performance in the various business segments – profitability, NIMs and business growth. We believe the stock is yet to completely re-rate with the change in business performance. At CMP, the stock trades at 11.7x FY11E EPS of Rs 7.1, 1.8x FY11E book value of Rs 47 and 2.3x FY11E adjusted book value of Rs 35.5. We recommend Accumulate with a target price of Rs 94 (2x FY11E book value) over the next 12 months.
Year FY08 FY09E FY10E FY11E Figure in Rs.mn NII 3,008.0 4,590.3 5,990.7 7,828.6 % chg NIM (%) 10.8 52.6 30.5 30.7 1.5 1.9 2.1 2.3 Net Profit 750.5 1,483.4 1,923.4 2,510.8 % chg EPS (Rs) 11.6 97.7 29.7 30.5 2.3 4.2 5.4 7.1 P/E (x) 35.4 19.9 15.3 11.7 P/BV (x) 2.4 2.2 2.0 1.8 P/ABV (x) RoANW (%) RoAA (%) 3.2 2.5 2.4 2.3 6.2 10.0 11.4 13.7 0.3 0.6 0.6 0.7

24 June 2009

17

DOLAT CAPITAL
Sr. Company Name No. Market Cap CMP (Rs.) 273 Target (Rs.) 346

16 Manappuram General Finance & Leasing Rs.9.03bn
Midas Touch...!!!

Manappuram General Finance and Leasing (MGFL) is a unique business model with a focus on low ticket borrowers. It has adopted a distinctive process of asset verification, customer selection and pricing strategies, which offer higher margins and return ratios with virtually ‘Zero’ NPAs. The securitisation of loans with banks/ FIs, recent capital infusion and the merger with the group company (MFTL) is expected to enhance the merged entity’s loan book as well as the balance sheet size. At CMP, the stock trades at 8x FY11E EPS of Rs 35; 1.8x FY11E book value and 1.8x FY11E adj. book value. We recommend a BUY on the stock with a revised target price of Rs 346 (2.3x FY11BV) for the next 12months.
Year (Rs.mn) FY09E* FY10E* FY11E* NII 1,527.1 2,275.1 3,513.3 % chg 77.7 49.0 54.4 Net Profit 481.0 712.2 1,158.5 % chg 70.0 48.1 62.7 NIM (%) EPS (Rs) 14.2 13.1 13.2 17.4 21.5 35.0 PER (x) 15.7 12.7 7.8 P/BV (x) 3.1 2.3 1.8 P/ABV (x) RoANW (%) RoAA (%) 3.1 2.3 1.8 33.2 22.1 25.6 8.4 7.3 8.5

Note: - * - Fully Diluted and post merger

17 Maruti Suzuki India Ltd. Impending Traffic...!!!

Rs.306.3bn

1060

846

MSIL’s dominance in the Indian passenger car market with more than 50% market share can be ascribed to its ability to repeatedly introduce new models encompassing its core philosophy of value for money in a relatively benign competitive landscape. Although, we believe that the company would continue to benefit from the growth in the Indian auto industry, however, increased level of competition in the compact car segment would result in loss of market share from current 70%+ levels. Furthermore, possibility of expansion in working capital cycle along with shift in operating model by undertaking higher development efforts by MSIL, act as potential valuation dampeners. We expect the company to trade below the top end of its 1 Yr forward PER band. At CMP, the stock is trading at 17.5x FY11E EPS. We recommend a SELL with a price target of Rs 846 (14x FY11E).
Year FY08 FY09 FY10E FY11E Figure in Rs mn Net Sales % growth 184,957 208,525 232,095 254,918 26.2 12.7 11.3 9.8 EBITDA 28,028 18,321 24,021 26,119 OPM% 15.2 8.8 10.3 10.2 PAT % growth 17,308 12,187 15,908 17,461 10.8 -29.6 30.5 9.8 EPS(Rs.) 59.9 42.2 55.0 60.4 % growth 10.8 -29.5 30.3 9.8 PER(x) 17.7 25.1 19.3 17.5 ROANW(%) 22.7 14.7 14.5 13.8 ROACE(%) 29.5 18.5 18.7 18.0

18 Mundra Port and Special Economic Zone Ltd. Rs.245bn
Above Sea Level...!!!

611

487

Mundra Port offers a rare model of an all weather private port with an integrated SEZ. The business model is blessed with strategic location, futuristic infrastructure, a diversified cargo mix and contemporary hinterland connectivity. We remain positive on the growth prospects of port operation on the back of its strategic positioning in emerging India logistics and industrial scenario. Outlook for SEZ business looks bleak for at least the next two quarters on account of current slowdown in the economy. However, the recent run up in the stock price has taken the valuation beyond fair value assessed by us and therefore we recommend a SELL on the stock with a revised target price of Rs 487.
Year Net Sales % growth FY08 8,182 41.1 FY09P 11,949 46.0 FY10E 14,526 21.6 FY11E 21,786 50.0 Figure in Rs mn EBITDA 5,354 7,340 9,749 15,761 OPM% 65.4 61.4 67.1 72.3 PAT % growth 2,134 13.9 4,325 102.7 6,062 40.2 11,217 85.0 EPS(Rs.) 5.1 10.8 15.1 28.0 % growth -2.6 113.0 40.2 85.0 PER(x) 114.7 56.6 40.4 21.8 ROANW(%) 12.7 15.5 18.7 27.8 ROACE(%) 11.3 11.0 13.6 20.2

24 June 2009

18

DOLAT CAPITAL
Sr. Company Name No. 19 Nestle India Ltd.
Lap it up...!!!
Low penetration, market leadership and broad yet focused product profile makes Nestle the best investment proposition in FMCG sector. Superior financials in terms of earning growth, highest ROE and 75% dividend payout are compelling argument for higher valuation. At CMP, it quotes at 24.6x its CY09E EPS. Top tier valuation is justified for Nestle due to strong brands in under-penetrated product lines and superior financial management. We recommend Accumulate on the stock with a 12 month price target of Rs 1950 (23x CY10 EPS).
Year CY07 CY08 CY09E CY10E Figure in Rs mn Net Sales 35,044 43,242 52,766 61,571 % growth 23.4 22.0 16.6 EBIDTA 6,963 8,637 11,029 12,879 OPM % 19.9 20.0 20.9 20.9 PAT 4,138 5,341 6,665 8,138 % growth 29.1 24.8 22.1 EPS(Rs.) 44.7 58.6 70.2 84.4 % growth 31.0 19.9 20.2 PER (x) ROANW % 39.6 30.7 24.6 20.1 102.5 119.8 126.9 125.9 ROACE % 174.6 220.7 287.2 314.4

Market Cap

CMP (Rs.) 1700

Target (Rs.) 1950

Rs.163.9bn

20 Oracle Financial Services Software
Bank on IT...!!!

Rs.101.4bn

1211

1561

Oracle Financial Services Software Ltd. (OFSS) is a leader in the Core Banking Solutions space and even in the current financial scenario they have been able to deliver consistent performance. With Regulation and Compliance related concerns coming to the fore, banks are looking for core banking capabilities. OFSS with its leadership position is able to address this market. The Oracle muscle is opening up new geographies and new customers and OFSS is tapping these opportunities which Oracle generates. Even in this tough environment OFSS has been able to add new customers for their core banking solution which provides the visibility for their product portfolio going forward. At CMP the stock is trading at 12.6xFY10E, and 10.9xFY11E. We maintain our ‘BUY’ rating on the stock with a price target of Rs. 1561 over a 12 month period.
Year FY08 FY09 FY10E FY11E Figure in Rs mn Net Sales % growth 23,802 29,276 33,987 40,277 15.5 23.0 16.1 18.5 EBITDA 5,312 9,544 9,730 12,083 OPM% 22.3 32.6 28.6 30.0 PAT % growth 4,156 7,365 8,048 9,332 11.6 77.2 9.3 16.0 EPS(Rs.) 49.6 87.9 96.1 111.5 % growth 11.0 77.2 9.3 16.1 PER(x) 24.4 13.8 12.6 10.9 ROANW(%) 16.0 23.4 20.6 19.5 ROACE(%) 17.8 28.6 23.1 23.5

21 Page Industries Ltd.
Comfort Fit...!!!

Rs.5.7bn

508

612

Page Industries Ltd. (PIL) is the sole licensee for the “Jockey” brand in India. Strong brand image, pan India presence in the premium segment and wide acceptance among its target customers makes PIL well poised to capture the growth in volumes and value. We recommend an ACCUMULATE rating on the stock with a price target of Rs.612 (12xFY11E) over a 12 month period.
Year FY08 FY09 FY10E FY11E Figure in Rs mn Net Sales 1,925 2,547 3,200 3,905 % growth 41.5 32.3 25.7 22.0 EBITDA 364 509 661 862 OPM% 18.9 20.0 20.7 22.1 PAT 240 316 422 569 % growth EPS(Rs.) 39.0 31.9 33.4 34.9 21.5 28.4 37.8 51.0 % growth 39.0 32.0 33.3 34.9 PER(x) 23.6 17.9 13.4 10.0 ROANW(%) 33.0 38.6 44.5 50.1 ROACE(%) 35.4 40.5 44.6 49.6

24 June 2009

19

DOLAT CAPITAL
Sr. Company Name No. 22 Patel Engineering Ltd.(PEL)
First Amongst Others...!!!
PEL is the market leader with a 22% share in the high margin and high entry barrier Hydropower sector. It enjoys the distinction of bieng the only Indian company with an experience and technology in niche high margin segments of RCC, Microtunneling & Double Lake Tapping. Real estate foray will monetize the low cost land bank which would provide capital for new ventures in the Power sector. PEL has decent revenue visibility on account of a strong order book. However, margins are expected to remain subdued. We recommend a BUY on the stock with a price target of Rs.493 (SOTP – 10x FY11E EPS of Rs 42 = Rs 420 + 1.75x on land BV per share = Rs 73).
Year FY08 FY09E FY10E FY11E Figure in Rs mn Net Sales % growth EBITDA 15,073 22,230 29,461 38,633 28.6 47.5 32.5 31.1 2,740 3,575 4,292 5,216 OPM% 18.2 16.1 14.6 13.5 PAT % growth 1,519 1,639 1,956 2,500 33.1 7.9 19.3 27.8 EPS(Rs.) 25.5 27.5 32.8 41.9 PER(x) EV/EBITDA(x) ROANW(%) ROACE(%) 14.9 13.8 11.6 9.0 10.8 8.8 7.2 6.1 19.6 17.7 17.9 19.1 13.0 13.1 13.5 15.3

Market Cap Rs.22.6bn

CMP (Rs.) 379

Target (Rs.) 493

23 Power Finance Corporation Ltd.
‘Power’ful Business…!!!

Rs.216.5bn

189

236

Power Finance Corporation (PFC) is a leader in the power financing space and a direct play on India’s growing energy needs - identified as core to India’s economic growth. The company’s strong credit/ project appraisal techniques have mitigated the asset quality concerns thus enabling PFC to have a clean and healthy asset book. A favorable 3 year reset clause on the loan book aid’s PFC to maintain its spreads (2%) and margins (3.6%) in the coming years. At CMP, the stock trades at 9.6x FY11E EPS of Rs 19.7; 1.6x FY11E book value of Rs 118 and 1.6x FY10E adj. book value of Rs 118. We recommend a Buy on the stock with a target price of Rs 236 (2xFY11E BV)
Year FY08 FY09E FY10E FY11E Figure in Rs.bn NII 17.0 22.6 25.9 30.6 Chg (%) 18.8 32.8 14.5 18.1 Net profit 12.1 19.8 18.9 22.7 Chg (%) 22.5 63.9 (4.7) 20.1 NIM (%) EPS (Rs) 3.6 3.9 3.6 3.4 10.5 17.2 16.4 19.7 PE (x) 17.9 10.9 11.5 9.6 P/ BV (x) P/ ABV (x) 2.3 1.9 1.8 1.6 2.3 1.9 1.8 1.6 RoANW (%) RoAA (%) 13.5 19.0 16.1 17.8 2.6 3.5 2.7 2.6

24 Rallis India Ltd.
Harvesting Growth..!!!

Rs.6.5bn

544

670

Rallis redefined its DNA as a focused agrochemical player with complementary strengths in both manufacturing and distribution. Its business model rests on a strong USP of its ‘Farmer Connect’ and multiple relationships with global innovators. It has carefully turned around its manufacturing investments into a complementary global outsourcing model to provide predictable business growth. We recommend ‘Accumulate’ on the stock with a target price of Rs. 670 (7x FY11E EPS).

Year FY08* FY09 FY10E FY11E

Net Sales# 6,922 8,523 10,042 11,611

% growth 7.6 23.1 17.8 15.6

EBIDTA 812 1,354 1,738 2,115

OPM % 11.7 15.9 17.3 18.2

PAT 496 713 927 1,146

% growth 13.3 43.7 30.0 23.7

EPS(Rs.) % growth PER (x) 41.4 59.5 77.3 95.7 13.3 43.7 30.0 23.7 13.1 9.1 7.0 5.7

ROANW % ROACE % 19.1 23.7 27.7 31.6 21.4 29.5 34.4 35.9

Figure in Rs mn, # Incl. Other Operating Income,* Excl. extraordinary items

24 June 2009

20

DOLAT CAPITAL
Sr. Company Name No. 25 Rural Electrification Corporation Ltd.
Lighting the Last Mile…!!!
Rural Electrification Corporation (REC) offers an attractive opportunity to play the buoyancy in the power sector. The company is one of the few financial institutions specializing in power financing. We believe that REC will continue to deliver steady earnings growth (16% CAGR between FY09- FY11) and high profitability as its business prospects remain strong. In the near term, loans for generation projects will likely drive growth. We also expect the share of private sector and transmission projects to move up over long term. At CMP, the stock trades at 7.9x FY11E EPS of Rs 20; 1.6x FY11E book value of Rs 97 and 1.6x FY10E adj. book value of Rs 96. We recommend an Accumulate rating with a target price of Rs. 182 (1.9x FY11E BV)
Year FY08 FY09E FY10E FY11E Figure in Rs.bn NII 13.1 17.7 21.4 25.9 Chg (%) 55.2 35.0 21.3 20.6 Net profit 8.6 12.7 14.3 17.2 Chg (%) 30.3 47.9 12.4 20.2 NIM (%) EPS (Rs) 3.6 3.8 3.6 3.5 10.0 14.8 16.7 20.0 PE (x) 15.8 10.7 9.5 7.9 P/ BV (x) P/ ABV (x) 2.5 2.2 1.9 1.6 2.6 2.2 1.9 1.6 RoANW (%) RoAA (%) 18.3 22.0 21.5 22.3 2.3 2.8 2.4 2.3

Market Cap

CMP (Rs.) 158

Target (Rs.) 182

Rs.135.9bn

26 S.Kumars Nationwide Ltd.
Tailor Made Profits...!!!

Rs.11bn

45

65

Skumars Nationwide (SKNL) is one of the largest integrated textile manufacturers with a strong focus on brand and distribution. It has grown at a CAGR of ~35% (FY06-09E). We feel this growth is sustainable to a certain extent given the fact that the company has experience, strong brand, scalability and strong distribution network. We initiate coverage with a BUY recommendation on the stock with a target price of Rs.65 (5xFY11E) over a period of 12~18 months.
Year FY08 FY09E FY10E FY11E Figure in Rs mn Net Sales 17,486 21,940 29,658 36,067 % growth 42.2 25.5 35.2 21.6 EBITDA 3,835 4,489 6,757 8,594 OPM% 21.9 20.5 22.8 23.8 PAT 2,056 1,647 2,195 3,156 % growth FDEPS(Rs.) 66.4 (19.9) 33.3 43.8 9.5 7.4 9.0 13.0 % growth 48.9 (22.8) 22.5 43.8 PER(x) 4.7 6.1 5.0 3.5 ROANW(%) ROACE(%) 26.4 11.5 9.8 11.2 16.8 13.5 14.0 15.8

27 Tata Steel Ltd.
Off the Cliff...!!!

Rs.349bn

405

335

The financial crisis in the world had a the destructive effect on steel demand and the steel consumption is expected to decline by 15% in 2009 as per WSA. Europe is expected to be amongst the last to recover out of the recessionary trends. Tata Steel performance will remain under pressure with its 64% of its volumes exposed to developed markets. High leverage and high fixed cost will lead to earnings drop by 66% to Rs 32.68 bn in FY10. We initiate the coverage with a SELL recommendation on Tata Steel with a price target of Rs335 (6x FY10 EV/EBITDA)
Year FY08 FY09E FY10E FY11E Figure in Rs mn Net Sales 1,315,359 1,444,800 930,394 959,136 % growth 421.7 9.8 (35.6) 3.1 EBITDA 180,035 199,292 124,769 150,280 OPM% 13.7 13.8 13.4 15.7 PAT 123,603 32,680 52,981 EPS 84.6 37.9 61.4 % growth 198.9 (23.3) (65.5) 62.1 PER(x) EV/EBITDA 4.8 3.7 10.7 6.6 6.0 4.3 6.5 5.1 ROANW(%) 50.6 26.8 8.7 13.0 ROACE(%) 21.5 16.6 8.3 10.7

94,759 109.8

24 June 2009

21

DOLAT CAPITAL
Sr. Company Name No. 28 TIL Ltd.
Taking Fresh Guard...!!!
The Material Handling and Construction Equipment (MHCE) industry is expected to touch Rs 300 bn by 2011. Political stability with a strong mandate would translate into increased thrust on infrastructure development inorder to drive overall economic growth. TIL, with an extensive product offering, is an ideal candidate to play the large opportunity in the infrastructure space. The company has re-enforced its focus on the high margin Material Handling Solutions (MHS) segment by way of undertaking its earlier deferred capex plans in a phased manner and carving out its agency businesses into a separate subsidiary. We recommend a BUY on the stock with a price target of Rs 300 (7x FY11E Consol EPS).
Year FY08 FY09P FY10E FY11E Net Sales 10,579 10,499 9,842 10,975 Growth-% 37.8 -0.8 -6.3 11.5 EBITDA 870 1,041 960 1,112 OPM% 8.2 9.9 9.8 10.1 Net Profit 431 447 360 429 Growth-% EPS (Rs) 84.8 43.0 3.7 44.6 -19.6 35.9 19.2 42.7 Growth-% 79.3 3.7 -19.6 19.2 PER (X) ROANW-% ROACE-% 4.6 30.0 34.2 4.4 21.4 24.7 5.5 16.3 21.2 4.6 17.4 23.2

Market Cap Rs.1.9bn

CMP (Rs.) 198

Target (Rs.) 300

Figure in Rs mn, Consolidated

29 Torrent Power Ltd.
New-GEN-Utility...!!!

Rs.66.1bn

140

171

Torrent Power’s presence across the value chain in generation, transmission and distribution in the high growth regions of Gujarat makes it best placed to tap the economic growth. With capacity expansion increasing internal sourcing and hence improved profitability we feel, TPL is on a high growth trajectory. As interaction with the management is extremely difficult, based on our analysis, we feel that Torrent’s expertise in reducing transmission losses can multiply its growth prospects. At CMP of Rs140, the stock is trading at a P/B of 1.7xFY11E and P/E of 8.5xFY11E. We initiate coverage with a ‘BUY’ recommendation with a price target of Rs171 at which it would be trading 2xFY11E BV.
Year FY08 (12M) FY09P FY10E FY11E Figure in Rs mn Net sales % growth 36,183 43,158 53,528 66,699 160.7 19.3 24.0 24.6 EBIDTA 4,806 6,733 9,105 13,473 OPM% 13.3 15.6 17.0 20.2 PAT % growth EPS(Rs) % growth 2,105 3,992 4,007 7,745 193.4 89.6 0.4 93.3 4.5 8.4 8.5 16.4 193.4 89.6 0.4 93.3 PER(x) 31.4 16.6 16.5 8.5 BV 61.2 66.9 73.0 84.8 P/BV(x) ROANW(%) ROACE(%) 2.3 2.1 1.9 1.7 7.5 13.2 12.1 20.8 8.3 9.3 10.8 15.5

30 Zee News Ltd.
Bouquet of Entertainment...!!!

Rs.9.6bn

40

51

ZEE News offers an opportunity to play at resurgent regional TV entertainment. We continue to remain positive on the sound fundamentals of the company (a perfect recipe of entertainment and current affairs in regional languages to counter the slowdown). However in the short term the company may face pressure on account of slow down in the media sector altogether. Company’s increased debt position to Rs 2 bn (Q4FY09) from ~ Rs 1 bn (Q3FY09) and high cost of debt (~15%) remains a cause of worry for future downward revision of our price target. Considering losses of new channels, we believe Mcap/Sales portray a better valuation methodology. In the interim, we maintain BUY with price target of Rs 51 (2x FY10E sales).
Year Net Sales FY08 3,671 FY09P 5,216 FY10E 6,180 FY11E 7,150 Figure in Rs mn % growth 52.6 42.1 18.5 15.7 EBIDTA 704 888 1,049 1,260 OPM % 19.2 17.0 17.0 17.6 PAT 395 445 475 631 % growth 429.0 12.6 6.7 32.8 EPS(Rs.) 1.6 1.9 2.0 2.6 % growth 429.0 12.6 6.7 32.8 PER (x) ROANW % 24.3 19.3 21.5 18.0 20.2 16.2 15.2 18.1 ROACE % 30.2 24.6 20.0 22.2

24 June 2009

22

Ahluwalia Contracts (India) Ltd.
CMP: Rs 83 Target Price: Rs 108
High Performance - Delivered...!!!

DOLAT CAPITAL Construction / Buy

Ahluwalia Contracts India Ltd. (ACIL) is a premium player in contracting and caters to industrial, real estate and infrastructure segment. A healthy order book of Rs41.5 bn provides a revenue visibility of 3.6 years. Increased contribution from Government Contracts (32% of order book) enhances certainty in the order book. ACIL has been awarded the time critical Commonwealth Projects which exhibits its quality and timely execution skills. With proven execution skills, strong promoter pedigree and sound financials along with positive free cash flows, we believe that ACIL is attractively placed. We recommend a BUY with a 12 months price target of Rs108 which discounts its FY11E EPS of Rs15.5 by 7x.
Analyst: Sameer Panke Tel : +9122 4096 9757 Email: sameer@dolatcapital.com Associate : Manpreet Singh Tel : +9122 4096 9720 Email: manpreet@dolatcapital.com BSE Sensex NSE Nifty Scrip Details Equity Face Value Market Cap 52 week High/Low 1-Month Avg. Volume BSE Code NSE Symbol Bloomberg Code Reuters Code Rs.125.5mn Rs.2/Rs5.2bn US$107.7mn Rs.155/25.2 243900 532811 AHLU IN AHLU.BO 14423 4293

Investment Rationale
Strong experience in execution and association with reputed clients to give an edge
ACIL has a proven track record in executing private and government projects. The company, in the past and currently, is associated with landmark projects like IFCI Tower - New Delhi, ITC Grand Central - Mumbai, Regional Headquarter of ADB, SEBI Headquarter etc with quality focused blue-chip clients like DMRC, CPWD, NBCC, PSBs etc. We believe that the goodwill which it commands places ACIL in an ideal position.

Huge opportunity in the infrastructure segment
ACIL is actively bidding for Urban Infrastructure Projects (especially projects under the JNNURM scheme) and is currently associated with projects like Metro Rail in Mumbai, Delhi and Bangalore, Airport development in Ranchi etc. Under the JNNURM scheme, projects worth Rs692 bn are to be allocated over the next 3 years thereby providing ACIL a substantial opportunity landscape in the Urban Infrastructure space.

Business Group - Indian Private Shareholding Pattern as on Mar’09(%) Promoter MF/Banks/FIs FIIs Corporate Bodies Public / Others 74.53 2.74 4.93 13.22 4.58

Healthy order book position to enhance revenue visibility
ACIL has a current order book of Rs41.5 bn (3.6x FY09E sales) catering to residential, commercial retail, hospitality and healthcare segment. The company is currently executing time critical commonwealth projects worth Rs8.9 bn (~21% of order book) thereby exhibiting its credibility of timely execution. Going forward, the company will increase focus on Infrastructure and Government projects which would perk up the order book quality. ACIL, currently, has an order pipeline of Rs10 bn.

Ahluw alia relative to BSE Sensex 120 100 80 60 40 20 0 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 Ahluw alia BSE Sensex

Out of woods.....poised for high growth
The Company has recently received its long pending payment from Emaar MGF for the Commonwealth Games Village Project which has addressed the short term concerns, thereby infusing sufficient liquidity in the project and ramping up the execution. We expect ACIL to clock a revenue and net profit CAGR of 30.3%and 23.6% respectively between FY09E and 11E.The company has been generating positive free cash flows for the last 2 years and is expected to continue with the cash flow generation in the next 2 years.

Valuations
At CMP, the stock trades at 7.8x its FY10E earning and 5.3x its FY11E earning. We recommend a BUY with a 12 months price target of Rs108 which discounts its FY11E EPS of Rs15.5 by 7x.

Financials
Year FY08 FY09E FY10E FY11E Figure in Rs mn Net Sales 8,801 11,575 14,517 19,478 % growth 31.5 31.5 25.4 34.2 EBITDA 1,063 1,278 1,656 2,208 OPM% 12.1 11.0 11.4 11.3 PAT 516 594 671 976 % growth 65.6 15.0 13.0 45.4 EPS(Rs.) 8.2 9.5 10.7 15.5 PER(x) EV/EBITDA(x) ROANW(%) ROACE(%) 10.1 8.8 7.8 5.3 4.3 4.1 2.8 1.7 50.9 39.3 32.1 34.1 57.0 42.7 38.2 42.1

24 June 2009

Ahluwalia Contracts (India) Ltd.

23

DOLAT CAPITAL
INCOME STATEMENT Particulars Net Sales Other income Total Income Total Expenditure Raw Material Employee Expenses Other Construction Expenses Administrative Expenses Provisions & Write Offs Other Expenses EBIDTA (Excl. Other Income) EBIDTA (Incl. Other Income) Interest Gross Profit Depreciation Profit Before Tax & EO Items Extra Ordinary Exps/(Income) Profit Before Tax Tax Net Profit Minority Interest Net Profit BALANCE SHEET Particulars Sources of Funds Equity Capital Preference Capital Share Premium Other Reserves (excl Share Premium & Rev Res) Net Worth Revaluation reserve Secured Loans Unsecured Loans Loan Funds Deferred Tax Liability (Net of Deffered Tax Assets) Total Capital Employed Applications of Funds Gross Block Less: Accumulated Depreciation Net Block Capital Work in Progress Investments Deferred Tax Assets (Net) Current Assets, Loans & Advances Inventories Sundry Debtors Cash and Bank Balance Loans and Advances Other Current Assets sub total Less : Current Liabilities & Provisions Current Liabilities Provisions sub total Net Current Assets Misc Expenses Total Assets CASH FLOW Particulars Profit before tax and extra ordinary items Depreciation & w.o. Net Interest Exp Direct taxes paid Change in Working Capital (Non Cash) Other (A) Cash Flow from Operating Activities Capex {Inc./ (Dec.) in Fixed Assets n WIP} Free Cash Flow Inc./ (Dec.) in Investments Other (B) Cash Flow from Investing Activities Issue of Equity/ Preference Inc./(Dec.) in Debt Interest exp net Dividend Paid (Incl. Tax) Other (C) Cash Flow from Financing Net Change in Cash Opening Cash balances Closing Cash balances E-estimates (123.4) 448.0 716.8 1,164.8 349.5 (67.9) 1,164.8 1,096.9 (97.7) 670.3 1,096.9 1,767.2 (115.7) 1,076.5 1,767.2 2,843.7 Mar’08 781.4 228.0 37.5 (291.3) 447.0 (6.1) 1,196.5 (668.1) 528.3 0.0 43.0 (625.1) 0.0 (27.4) (73.9) (22.0) Mar’09E 861.3 354.7 133.3 (267.4) (1,078.6) 24.9 28.3 (445.8) (417.4) 0.0 0.0 (445.8) 0.0 534.2 (133.3) (51.4) Mar’10E 1,079.0 435.5 162.7 (407.9) (101.4) 0.0 1,168.0 (400.0) 768.0 0.0 0.0 (400.0) 0.0 116.4 (162.7) (51.4) Mar’11E 1,565.7 503.5 172.5 (590.0) (59.5) 0.0 1,592.2 (400.0) 1,192.2 0.0 0.0 (400.0) 0.0 108.2 (172.5) (51.4) 3,871.4 113.2 3,984.6 526.5 0.4 1,777.6 5,138.6 167.9 5,306.6 1,537.1 0.4 2,879.2 6,672.8 197.3 6,870.1 2,308.8 0.3 3,615.4 8,791.7 242.9 9,034.6 3,444.8 0.3 4,647.9 755.2 2,260.7 1,164.8 277.7 52.7 4,511.1 1,560.9 3,767.7 1,096.9 347.1 71.2 6,843.7 1,959.3 4,922.5 1,767.2 433.8 96.1 9,178.8 2,623.3 6,340.4 2,843.7 542.3 129.7 12,479.4 1,811.6 707.5 1,104.1 104.2 42.4 2,361.6 1,062.2 1,299.3 0.0 42.4 2,761.6 1,497.7 1,263.9 0.0 42.4 3,161.6 2,001.2 1,160.4 0.0 42.4 (E) Valuation Ratios CMP (Rs.) P/E (x) Market Cap. (Rs. Mn.) MCap/ Sales (x) EV (Rs. Mn.) EV/Sales (x) EV/EBDITA (x) P/BV (x) Dividend Yield (%) E-estimates 83.0 10.1 5,209.3 0.6 4,609.7 0.5 4.3 4.2 0.84 83.0 8.8 5,209.5 0.5 5,212.0 0.5 4.1 2.9 0.84 83.0 7.8 5,209.5 0.4 4,658.1 0.3 2.8 2.2 0.84 83.0 5.3 5,209.5 0.3 3,689.8 0.2 1.7 1.6 0.84 16.0 1,100.5 1,242.0 8.0 555.7 9.5 565.2 (37.6) 1,777.6 16.0 1,638.2 1,779.8 0.0 1,090.0 9.5 1,099.5 0.0 2,879.2 16.0 2,258.0 2,399.5 0.0 1,206.3 9.5 1,215.8 0.0 3,615.4 16.0 3,182.3 3,323.9 0.0 1,314.5 9.5 1,324.0 0.0 4,647.9 (D) Measures of Investment EPS (Rs.) (excl EO) EPS (Rs.) CEPS (Rs.) DPS (Rs.) Dividend Payout (%) Profit Ploughback (%) Book Value (Rs.) RoANW (%) RoACE (%) RoAIC (%) (Excl Cash & Invest.) 8.2 8.2 11.9 0.7 8.5 91.5 19.8 50.9 57.0 151.2 9.5 9.5 15.1 0.7 7.4 92.6 28.4 39.3 42.7 84.6 10.7 10.7 17.6 0.7 6.5 93.5 38.2 32.1 38.2 68.4 15.5 15.5 23.6 0.7 4.5 95.5 53.0 34.1 42.1 95.2 125.5 125.5 125.5 125.5 Mar’08 Mar’09E Mar’10E Mar’11E 516.4 594.0 671.2 975.7 781.4 265.1 516.4 861.3 267.4 594.0 1,079.0 407.9 671.2 1,565.7 590.0 975.7 (C) Measures of Financial Status Debt / Equity (x) Interest Coverage (x) Average Cost Of Debt (%) Debtors Period (days) Closing stock (days) Inventory Turnover Ratio (x) Fixed Assets Turnover (x) Working Capital Turnover (x) Non Cash Working Capital (Rs Mn) 0.5 9.5 20.4 93.8 14.4 11.7 4.9 16.7 (638.4) 0.6 10.1 16.0 118.8 15.2 7.4 4.9 7.5 440.2 0.5 10.3 14.1 123.8 13.4 7.4 5.3 6.3 541.6 0.4 13.0 13.6 118.8 12.2 7.4 6.2 5.7 601.1 183.7 1,062.7 1,127.5 118.1 1,009.4 228.0 781.4 241.8 1,278.1 1,349.4 133.3 1,216.1 354.7 861.3 306.2 1,655.5 1,677.2 162.7 1,514.5 435.5 1,079.0 424.5 2,207.9 2,241.7 172.5 2,069.2 503.5 1,565.7 (B) As Percentage of Net Sales Raw Material Employee Expenses Other Construction Expenses Administrative Expenses Provisions & Write Offs Other Expenses 48.7 4.4 30.9 1.8 0.0 2.1 49.5 5.2 30.4 1.8 0.0 2.1 50.0 5.2 29.5 1.8 0.0 2.1 50.6 4.8 29.2 1.9 0.0 2.2 Mar’08 8,800.9 64.8 8,865.8 7,738.2 4,289.4 385.2 2,722.4 157.5 Mar’09E 11,574.6 71.3 11,645.9 10,296.5 5,731.8 599.0 3,517.6 206.3 Mar’10E 14,517.3 21.7 14,539.1 12,861.9 7,260.0 748.8 4,288.2 258.7 Rs.mn Mar’11E 19,478.3 33.8 19,512.1 17,270.4 9,865.5 936.0 5,678.0 366.4 IMPORTANT RATIOS Particulars (A) Measures of Performance (%) Contribution Margin EBIDTA Margin (excl. O.I.) EBIDTA Margin (incl. O.I.) Interest / Sales Gross Profit Margin Tax/PBT Net Profit Margin 12.1 12.8 1.3 11.5 33.9 5.9 11.0 11.7 1.2 10.5 31.0 5.1 11.4 11.6 1.1 10.4 37.8 4.6 11.3 11.5 0.9 10.6 37.7 5.0 Mar’08 Mar’09E Mar’10E Mar’11E

24 June 2009

Ahluwalia Contracts (India) Ltd.

24

Biocon Ltd.
CMP: Rs 200 Target Price: Rs 244
Clinical Gains...!!!

DOLAT CAPITAL Pharmaceuticals / Accumulate

Biocon has increased its focus from statins to branded biotech formulations and contract research services. We estimate Biopharma division to grow at 15% CAGR over FY09-11E with increasing contribution from domestic branded formulations and ramp up in bulk supplies for products going off patent.The company stands as a beneficiary in the event of, ‘Biogenerics’ opening up in key regulated markets. We estimate 33% revenue growth in its CRO segment over FY09- 11E with the BMS deal yet to realise its full potential. Possible outlicensing deal for its product(s) Oral insulin IN105 (Phase III) and antibody T1h (to initiate Phase III shortly) are triggers ahead.
Analyst: Bhavin Shah Tel : +9122 4096 9731 Email: bhavin@dolatcapital.com BSE Sensex NSE Nifty Scrip Details Equity Face Value Market Cap 52 week High/Low 1-Month Avg. Volume BSE Code NSE Symbol Bloomberg Code Reuters Code Rs.1000mn Rs.5/Rs.40bn US$818mn Rs.242/86 1579507 532523 BIOCON BIOS IN BION.BO 14423 4293

Investment Rationale
Risk Adjusted Growth Strategy
Biocon is the only company which has made remarkable progress in the Indian Biotech industry with Oncology and Diabetes as its focus areas. Over the years, the company has entered into strategic alliances, bought out IPR’s in the diabetic space. With a backend laboratory in place, these initiatives have resulted in minimizing costs and speedier commercialisation. Its R&D subsidiaries have further consolidated their standing having partnered with global biotech majors in areas of complex research and development.

Biopharma: To Provide Long Term Stability
Biocon was synonymous with ‘Statins’. The emphasis on this segment is reducing with concurrent focus on Biopharma business which includes insulin, immunosuppressants, monoclonal antibodies (MAb’s) and other products. We expect statins contribution to lower down in the near term with higher growth in the insulin, immunosuppressant segments. Positive developments on novel insulin delivery mechanisms and monoclonal antibodies would attract a huge premium by way of outlicensing deals. Biocon is also gearing up its development pipeline and registrations, considering higher probablity of ‘Biogenerics’ opening up in key regulated markets. We expect Biopharma division to grow at 15% CAGR over FY0911E.

Business Group - Indian Private Shareholding Pattern as on Mar’09(%) Promoter MF/Banks/FIs FIIs Corporate Bodies Public / Others 60.9 11.0 6.0 1.3 20.8

120 110 100

Biocon relative to BSE Sensex

Contract research services: Poised For Growth...
With the BMS deal yet to realise its full potential and operations being ramped up in Clinigene, we estimate 33% revenue growth over FY09- 11E. Revenue contribution is estimated to increase from ~17% in FY08 to 25% in FY11E.

Valuations
90 80 70 60 Jun-08

Biocon has managed to maintain its core operational performance despite several uncertainties experienced in the global meltdown. We believe the positive progress in its R&D pipeline and the latent opportunity in biogenerics is yet to be factored in.

Oct-08 Biocon

Feb-09

Jun-09

BSE Sensex

At CMP of Rs.200, the stock trades at 13.6x FY10E and 11.5x FY11E earnings. We recommend “Accumulate” on the stock with target price of Rs.244 (14x FY11E).

Financials
Year FY08 FY09P FY10E FY11E Net Sales# 10576 16165 20488 23728 % growth 7.3 52.8 26.7 15.8 EBIDTA 3024 3312 4105 4845 OPM % Adj.PAT* 28.6 20.5 20.0 20.4 2245 2403 2933 3482 % growth Adj.EPS(Rs.) % growth PER (x) ROANW % ROACE % 12.1 7.0 22.0 18.7 11.2 12.0 14.7 17.4 12.1 7.0 22.0 18.7 17.8 16.6 13.6 11.5 15.2 15.6 16.6 17.0 13.6 13.1 14.4 15.1

Figure in Rs mn,* Excl. forex exceptional items,P = Balance Sheet figures are projected.

24 June 2009

Biocon Ltd.

25

DOLAT CAPITAL
INCOME STATEMENT Particulars Net Sales Other income Total Income Total Expenditure Operating Profit (excl. Other Income) Operating Profit (incl. Other Income) Interest Gross Profit Depreciation Profit Before Tax & EO Items Extra Ordinary Exps/(Income) Profit Before Tax Tax Net Profit Minority Interest Net Profit After Minority Interest Net Profit After Minority Interest (w/o EOI) BALANCE SHEET Particulars Sources of Funds Equity Capital Preference Capital Reserves (excl Rev Res) Net Worth Revaluation reserve Secured Loans Unsecured Loans Loan Funds Deferred Tax Liability Total Capital Employed Applications of Funds Gross Block Less: Accumulated Depreciation Net Block Capital Work in Progress Intangibles Investments Current Assets, Loans & Advances Inventories Sundry Debtors Cash and Bank Balance Loans and Advances Other Current Assets sub total Less : Current Liabilities & Provisions Current Liabilities Provisions sub total Net Current Assets Misc Expenses Total Assets E-estimates 2,300.3 704.9 3,005.2 2,341.2 0.0 17,783.8 2,923.3 1,448.3 4,371.6 3,624.0 0.0 21,144.0 3,395.6 1,607.7 5,003.3 5,968.0 0.0 23,916.1 3,518.9 1,743.3 5,262.1 8,438.5 0.0 26,794.7 1,789.8 2,591.3 96.2 869.2 0.0 5,346.4 3,192.0 3,671.0 117.6 1,015.0 0.0 7,995.6 10,971.3 13,700.6 4,209.9 4,827.3 419.1 1,515.0 4,875.7 5,785.8 724.2 2,315.0 11,547.9 2,511.1 9,036.8 1,382.1 276.0 4,747.7 16,958.6 3,613.6 13,345.0 0.0 499.0 3,676.0 499.0 4,176.0 499.0 4,976.0 18,158.6 4,885.5 13,273.1 19,158.6 6,277.4 12,881.2 1,350.4 1,200.1 2,550.6 465.0 17,783.8 3,983.0 1,275.0 5,258.0 465.0 21,144.0 4,483.0 1,275.0 5,758.0 506.5 23,916.1 5,033.0 775.0 5,808.0 555.2 26,794.7 (D) Valuation Ratios Market Price - Average (Rs.) Price / Earnings Ratio - Average (x) Average Market Cap. (Rs. Cr.) Market Capitalisation to Sales (x) Enterprise Value (Rs. Cr.) EV/Sales (x) EV/EBDITA (x) Market Price to Book Value (x) Dividend Yield (%) E-estimates 200.0 17.8 40,000.0 3.8 42,454.4 4.0 12.7 2.7 2.5 200.0 16.6 40,000.0 2.5 45,140.4 2.8 11.6 2.6 1.5 200.0 13.6 40,000.0 2.0 45,338.9 2.2 9.6 2.3 1.5 200.0 11.5 40,000.0 1.7 45,083.8 1.9 8.3 2.0 1.5 500.0 0.0 14,268.3 14,768.3 1,000.0 0.0 14,421.0 15,421.0 1,000.0 0.0 16,651.6 17,651.6 1,000.0 0.0 19,431.5 20,431.5 Mar’08 Mar’09P Mar’10E Mar’11E Mar’08 10,575.8 326.2 10,902.0 7,552.0 3,023.8 3,350.0 101.8 3,248.2 939.2 2,309.0 -2,393.7 4,702.7 128.9 4,573.8 65.0 4,638.8 2,245.1 Mar’09 16,165.1 567.1 16,732.2 12,853.1 3,312.0 3,879.1 176.6 3,702.5 1,102.5 2,600.0 1,471.9 1,128.1 118.3 1,009.8 -78.6 931.2 2,403.1 3,170.2 207.7 2,962.6 -30.0 2,932.6 2,932.6 3,755.1 243.3 3,511.9 -30.0 3,481.9 3,481.9 Mar’10E 20,488.0 600.0 21,088.0 16,382.5 4,105.5 4,705.5 263.3 4,442.2 1,271.9 3,170.2 Rs.mn Mar’11E 23,728.2 600.0 24,328.2 18,883.5 4,844.7 5,444.7 297.7 5,147.1 1,391.9 3,755.1 (B) Measures of Financial Status Debt / Equity (x) Interest Coverage (x) Average Cost Of Debt (%) Debtors Period (days) Closing stock (days) Inventory Turnover Ratio (x) Fixed Assets Turnover (x) Working Capital Turnover (x) (C) Measures of Investment Earnings Per Share (Rs.) (excl EO) Earnings Per Share (Rs.) Cash Earnings Per Share (Rs.) Dividend Per Share (Rs.) Dividend Payout (%) Profit Ploughback (%) Book Value (Rs.) Return on Avg. Net Worth (%) Return on Avg. Cap. Employed (%) 11.2 23.2 27.9 5.0 21.6 78.4 73.8 15.2 13.6 12.0 4.7 10.2 3.0 64.4 35.6 77.1 15.6 13.1 16.0 14.7 14.7 21.0 3.0 20.5 79.5 88.3 16.6 14.4 17.8 17.4 17.4 24.4 3.0 17.2 82.8 102.2 17.0 15.1 19.2 0.2 32.9 4.0 89.4 61.8 5.9 1.2 4.5 0.3 22.0 3.4 82.9 72.1 5.1 1.2 4.5 0.3 17.9 4.6 86.0 75.0 4.9 1.5 3.4 0.3 18.3 5.1 89.0 75.0 4.9 1.8 2.8 IMPORTANT RATIOS Particulars (A) Measures of Performance (%) Operating Profit Margin (excl. O.I.) Operating Profit Margin (incl. O.I.) Interest / Sales Gross Profit Margin Tax/PBT Net Profit Margin 28.6 31.7 1.0 30.7 2.7 21.2 20.5 24.0 1.1 22.9 10.5 14.9 20.0 23.0 1.3 21.7 6.6 14.3 20.4 22.9 1.3 21.7 6.5 14.7 Mar’08 Mar’09P Mar’10E Mar’11E

Return on Cap. Employed (%) (Excl Cash & Invest.) 18.6

24 June 2009

Biocon Ltd.

26

Cadila Healthcare Ltd.(CHL)
CMP: Rs 345 Target Price: Rs 418
Prism Of Growth…!!!

DOLAT CAPITAL Pharmaceuticals / Accumulate

Cadila Healthcare (CHL) has an interesting business model with thrust on export formulations and contract manufacturing, well complemented with a strong domestic franchise. Strategic acquisitions and front end tie ups has been key to CHL’s growth trajectory in export formulations. The company through JV’s has positioned itself as a preferred contract manufacturer. Sustained cash flows from its flagship segment - domestic formulations (44% sales) permits it to augment international operations. Possible outlicensing of candidates currently in advanced stages of its NME pipeline, is a latent trigger. We recommend “Accumulate” with target price of 418 (11x FY11E EPS).
Analyst: Bhavin Shah Tel : +9122 4096 9731 Email: bhavin@dolatcapital.com BSE Sensex NSE Nifty Scrip Details Equity Face Value Market Cap 52 week High/Low 1-Month Avg. Volume BSE Code NSE Symbol Bloomberg Code Reuters Code Business Group - Cadila Shareholding Pattern as on Mar’09(%) Promoter MF/Banks/FIs FIIs Corporate Bodies Public / Others 74.6 15..2 2.2 0.6 7.3 Rs.682mn Rs.5/Rs.47bn US$962mn Rs.360/222 87536 532321 CADILAHC CDHIN CADI.BO 14423 4293

Investment Rationale
International Formulations: Two Fold Focus
Strategic acquisitions has been a key enabler for CHL to consolidate and expand its footprint in key regulated and emerging markets. Through its distribution tie ups, complex product filings and cost competencies (backended domestic manufacturing), it has achieved 60% growth over FY07-09 in its export formulations business. We estimate 29% revenue growth over FY09-11E on the back of ramp up in product filings and newer acquisitions (Japan, Spain, South Africa) which are yet to realise their full earnings potential.

CRAMS - Sharing The Risk
The Nycomed JV (formerly Altana JV) for manufacturing pantoprazole (Protonix®) intermediates has been one of the most profitable contracts signed within the domestic industry (68% net margins – FY09). We believe decline in profitability due to early genericisation of pantoprazole, will be duly arrested with commencement of Hospira JV (manufacturing oncology injectables) - estimated to contribute Rs. 500mn & 1000mn during FY10E and FY11E.Also, the scope of Nycomed JV is being expanded to 17 API’s (phase wise over FY11E).

Domestic Formulation business: Cash COW!
This is the flagship segment of the company where it owns 3.6% share of the domestic pharma industry. It has a leading position in key therapies - CVS, Gastro, Women health care and Respiratory (58% of the portfolio). We estimate 12% CAGR over FY09-11E to Rs.16.3bn with increasing contribution from new product launches. Strong cash flow from this division further enables CHL to fund its international expansion plans.

Cadila relative to BSE Sensex 180 170 160 150 140 130 120 110 100 90 80 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 Cadila BSE Sensex

Research Focus – Investing for the future
A strong discovery platform and development engine to support early stage clinical development has been yielding remarkable results with 6 IND’s, addressing key therapeutic areas of metabolic disorders and inflammation.CHL has also forged strategic alliances with pharma majors like EliLilly etc. in joint drug discovery and development programmes, creating long term value inflexion points. Monetisation of late stage candidates in its NME pipeline remains a latent trigger.

Valuations
With impact of Pantoprazole expected to be fully offset by the Hospira JV as well as strong growth in the Regulated and Emerging markets, CHL is poised to achieve adjusted earnings CAGR of 22.4% through FY09-11E. Out licensing of R&D molecules as well as inorganic growth over this period may provide further upside to our estimates. We recommend “Accumulate” on the stock with target price of 418 (11x FY11E EPS).

Financials
Year FY08 FY09P FY10E FY11E Net Sales# 23,230 29,275 34,575 41,149 % growth 27.0 26.0 18.1 19.0 EBIDTA 4,582 6,058 7,295 8,847 OPM % Adj.PAT* 19.7 20.7 21.1 21.5 2,466 3,460 4,185 5,185 % growth Adj.EPS(Rs.) % growth PER (x) 6.0 40.3 21.0 23.9 18.1 25.4 30.7 38.0 6.0 40.3 21.0 23.9 19.1 13.6 11.2 9.1 ROANW % ROACE % 26.7 25.6 28.4 27.5 20.8 21.8 20.5 20.9

Figure in Rs mn, # Includes other operating income,* Excl. forex exceptional items, P=Balance Sheet figures are projected.

24 June 2009

Cadila Healthcare Ltd.

27

DOLAT CAPITAL
INCOME STATEMENT Particulars Net Sales Operating Income Income From Operations Non Operating Income Total Income Total Expenditure Raw Material Employee Expenses Other Expenses EBIDTA (Excl. Other Income) EBIDTA (Incl. Other Income) Interest Gross Profit Depreciation Profit Before Tax & EO Items Exceptional Items Profit Before Tax Tax Reported Net Profit Adjustments on consolidation Net Profit Extraordinary & Forex Items Adjusted Net Profit BALANCE SHEET Particulars Sources of Funds Equity Capital Preference Capital Share Premium Other Reserves Net Worth Revaluation reserve Secured Loans Unsecured Loans Loan Funds Deferred Tax Liability Minority Interest Total Capital Employed Applications of Funds Gross Block Less: Accumulated Depreciation Net Block Capital Work in Progress Investments Current Assets, Loans & Advances Inventories Sundry Debtors Cash and Bank Balance Loans and Advances Other Current Assets sub total Less : Current Liabilities & Provisions Current Liabilities Provisions sub total Net Current Assets Misc Expenses Total Assets CASH FLOW Particulars Profit before tax and extra ordinary items Depreciation & w.o. Net Interest Exp Direct taxes paid Change in Working Capital (Non Cash) Other (A) Cash Flow from Operating Activities Capex {Inc./ (Dec.) in Fixed Assets n WIP} Free Cash Flow (Inc)/ Dec. in Investments Others (Bal Fig) (B) Cash Flow from Investing Activities Issue of Equity/ Preference Inc./(Dec.) in Debt Interest exp net Dividend Paid (Incl. Tax) Others (C) Cash Flow from Financing Net Change in Cash Opening Cash balances Closing Cash balances E-estimates 2,783.3 (64.0) 990.0 926.0 2,184.4 1,914.4 926.0 2,840.4 (241.9) 1,770.9 2,840.4 4,611.3 (334.6) 2,280.2 4,611.3 6,891.5 Mar’08 3,302.3 968.7 330.7 (613.6) (1,811.0) (113.8) 2,063.3 (5,768.0) (3,704.7) 7.0 850.4 (4,910.6) 0.0 3,842.0 (330.7) (728.0) Mar’09E 3,938.4 1,118.2 1,204.8 (665.8) (2,012.8) (242.0) 3,340.8 (3,050.0) 290.8 (500.0) (60.8) (3,610.8) 54.0 4,027.0 (1,204.8) (691.8) Mar’10E 5,043.3 1,378.8 973.3 (857.4) (2,649.6) (1.0) 3,887.4 (2,000.0) 1,887.4 (46.0) 171.5 (1,874.5) 0.0 1,500.0 (973.3) (768.6) Mar’11E 6,248.6 1,648.1 1,050.3 (1,062.3) (3,382.5) (1.0) 4,501.3 (1,900.0) 2,601.3 (200.0) 213.5 (1,886.6) 0.0 1,100.0 (1,050.3) (384.3) 4,138.0 913.0 5,051.0 6,172.0 0.0 20,427.0 5,285.3 1,604.8 6,890.1 10,099.2 0.0 26,786.0 6,145.9 2,373.4 8,519.3 14,519.8 0.0 31,873.8 7,214.8 2,757.7 9,972.4 20,182.5 0.0 37,988.3 4,729.0 3,555.0 926.0 2,013.0 0.0 11,223.0 6,430.6 4,705.3 2,840.4 3,013.0 0.0 16,989.3 7,885.0 6,029.7 4,611.3 4,513.0 0.0 23,039.1 9,731.0 7,519.4 6,891.5 6,013.0 0.0 30,154.9 19,118.0 6,518.0 12,600.0 1,401.0 254.0 22,869.0 7,636.2 15,232.8 700.0 754.0 25,069.0 9,015.0 16,054.0 500.0 800.0 27,469.0 10,663.1 16,805.9 0.0 1,000.0 6,402.0 1,975.0 8,377.0 1,234.0 194.0 20,427.0 10,432.0 1,972.0 12,404.0 1,367.2 0.0 26,786.0 11,932.0 1,972.0 13,904.0 1,538.6 0.0 31,873.8 13,032.0 1,972.0 15,004.0 1,751.1 0.0 37,988.3 (E) Valuation Ratios CMP (Rs.) P/E (x) Market Cap. (Rs. Mn.) MCap/ Sales (x) EV (Rs. Mn.) EV/Sales (x) EV/EBDITA (x) P/BV (x) Dividend Yield (%) E-estimates 345.0 19.1 43,332.0 1.9 50,783.0 2.2 11.1 4.1 1.3 345.0 13.6 47,058.0 1.6 56,621.6 1.9 9.3 3.6 1.3 345.0 11.2 47,058.0 1.4 56,350.7 1.6 7.7 2.9 1.4 345.0 9.1 47,058.0 1.1 55,170.5 1.3 6.2 2.2 1.4 628.0 0.0 2,247.0 7,747.0 10,622.0 682.0 0.0 2,247.0 10,085.8 13,014.8 682.0 0.0 2,247.0 13,502.2 16,431.2 682.0 0.0 2,247.0 18,304.2 21,233.2 Mar’08 Mar’09P Mar’10E Mar’11E Mar’08 22,660.9 568.8 23,229.7 19.5 23,249.2 18,647.5 7,902.3 2,766.1 7,979.1 4,582.2 4,601.7 330.7 4,271.0 968.7 3,302.3 68.7 3,233.6 613.6 2,620.0 45.1 2,574.9 (109.0) 2,465.9 Mar’09 28,624.0 650.9 29,274.9 203.6 29,478.5 23,217.1 9,565.9 3,520.8 10,130.4 6,057.8 6,261.4 1,204.8 5,056.6 1,118.2 3,938.4 241.0 3,697.4 665.8 3,031.6 1.0 3,030.6 429.0 3,459.6 Mar’10E 33,859.3 716.0 34,575.3 100.0 34,675.3 27,279.9 11,306.1 4,079.9 11,893.9 7,295.4 7,395.4 973.3 6,422.1 1,378.8 5,043.3 0.0 5,043.3 857.4 4,185.9 1.0 4,184.9 0.0 4,184.9 Rs.mn Mar’11E 40,361.5 787.6 41,149.1 100.0 41,249.1 32,302.0 13,455.7 4,732.1 14,114.1 8,847.1 8,947.1 1,050.3 7,896.8 1,648.1 6,248.6 0.0 6,248.6 1,062.3 5,186.4 1.0 5,185.4 0.0 5,185.4 (C) Measures of Financial Status Debt / Equity (x) Interest Coverage (x) Average Cost Of Debt (%) Debtors Period (days) Closing stock (days) Inventory Turnover Ratio (x) Fixed Assets Turnover (x) Working Capital Turnover (x) Non Cash Working Capital (Rs Mn) (D) Measures of Investment Adj. EPS (Rs.) (excl EO) EPS (Rs.) CEPS (Rs.) DPS (Rs.) Dividend Payout (%) Profit Ploughback (%) Book Value (Rs.) RoANW (%) RoACE (%) RoAIC (%) (Excl Cash & Invest.) 0.8 13.9 5.1 57.3 76.2 4.8 1.2 3.7 5,246.0 1.0 5.2 9.7 60.0 82.0 4.5 1.3 2.8 7,258.8 0.8 7.6 7.4 65.0 85.0 4.3 1.4 2.3 9,908.5 0.7 8.5 7.3 68.0 88.0 4.1 1.5 2.0 13,290.9 (B) As Percentage of Net Sales Raw Material Employee Expenses R&D Expenses Other Expenses 34.9 12.2 0.0 35.2 33.4 12.3 0.0 35.4 33.4 12.0 0.0 35.1 33.3 11.7 0.0 35.0 IMPORTANT RATIOS Particulars (A) Measures of Performance (%) Contribution Margin EBIDTA Margin (excl. O.I.) EBIDTA Margin (incl. O.I.) Interest / Sales Gross Profit Margin Tax/PBT Net Profit Margin Mar’08 Mar’09P Mar’10E Mar’11E

19.7 19.8 1.5 18.4 19.0 10.6

20.7 21.2 4.2 17.2 18.0 11.7

21.1 21.3 2.9 18.5 17.0 12.1

21.5 21.7 2.6 19.1 17.0 12.6

18.1 18.9 27.3 4.5 23.8 76.2 84.6 26.7 20.8 22.0

25.4 22.2 33.6 4.5 20.3 79.7 95.4 25.6 21.8 23.7

30.7 30.7 40.8 5.0 16.3 83.7 120.5 28.4 20.5 23.5

38.0 38.0 50.1 5.0 13.2 86.8 155.7 27.5 20.9 25.0

24 June 2009

Cadila Healthcare Ltd.

28

CMC Ltd.
CMP: Rs 638 Target Price: Rs 885
Out of the Cocoon...!!!

DOLAT CAPITAL

IT / Buy

CMC is an IT Solutions and Services company with a predominant domestic focus. CMC has been immune to all the slowdown in the Global IT services outsourcing market. Apart from the domestic focus, another factor which favors CMC is its presence in the ITES led domestic governance projects, which are turnkey in nature and give CMC an assured revenue stream. With the government spending on governance not slowing down, we believe that CMC will be a direct beneficiary of these new opportunities and are positive on CMC. At CMP of Rs. 638, CMC is trading at 7.2xFY10E EPS and 5.8xFY11E EPS. We initiate coverage on the stock with a Buy rating and a target price of Rs.

885 (8xFY11E EPS) over a 12-18 month period.
Analyst: Indrajeet Kelkar Tel : +9122 4096 9751 Email: indrajeet@dolatcapital.com BSE Sensex NSE Nifty Scrip Details Equity Face Value Market Cap 52 week High/Low 1-Month Avg. Volume BSE Code NSE Symbol Bloomberg Code Reuters Code Business Group - Tata Shareholding Pattern as on Mar’09(%) Promoter MF/Banks/FIs FIIs Corporate Bodies Public / Others 51.1 24.1 13.0 1.4 10.3 Rs.151.5 mn Rs.10/Rs.9.7bn US$201mn Rs.774/250 61673 517326 CMC CMCIN CMC.BO 14423 4293

Investment Rationale
Domestic focus increases immunity CMC generates ~69% of their revenues from the Indian IT services market. With outsourcing facing a slowdown, the domestic focus is helping CMC. New projects are opening up in the e-Governance space. CMC has expertise in this area and with TCS’s help it is likely to benefit from these opportunities. Apart from the e-Governance space there is a slew of domestic projects in the SI and ITES space, where CMC can focus on to generate higher revenues. TCS brings Business Focus CMC had a major problem earlier with the inability to prioritize in terms of revenues and profitability. Also CMC was doing too many things and losing focus. With Tata Sons taking over CMC, the earlier missing business focus has come in and the hitherto untapped potential is being realized. CMC has now changed their focus to the ‘Solutions’ approach. The marketing focus has also changed and TCS has been showcasing CMC’s capabilities in a ‘Joint Go To Market’ strategy which has resulted in client wins across the globe Moving out of the Low margin equipment business CMC has shifted their focus from the lower margin equipment business to the higher margin SI and ITES business. CMC will take up equipment business only when this results in up selling of their solutions business. CMC is focusing on operating efficiencies and this has resulted in higher operating margins. CMC is also using TCS’s internal tools which have helped them improve utilization. Financials & Valuations There remains lumpiness in CMC’s revenues with the low margin equipment business contribution being a part of revenues. But with improved focus on the longer duration ITES and SI projects, we expect this to get resolved. We also expect CMC to improve their margins as the internal efficiencies that TCS has built in have started to kick in. At CMP, the stock is available at 7.2xFY10E EPS and 5.8xFY11E EPS. The domestic focus, as well as the new opportunities arising out of the governance space and TCS as the backbone, makes us positive on the stock. We initiate coverage on the stock with a Buy rating and a target price of Rs. 885 (8xFY11E EPS) over a 12-18 month period.

CMC relative to BSE Sensex 120 110 100 90 80 70 60 50 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09
CMC BSE Sensex

Financials
Year FY08 FY09 FY10E FY11E Figure in Rs mn Net Sales % growth 10,647 9,398 10,106 11,184 (1.4) (11.7) 7.5 10.7 EBITDA 1,310 1,547 1,853 2,183 OPM% 12.3 16.5 18.3 19.5 PAT % growth 923 1,161 1,345 1,675 33.2 25.8 15.8 24.6 EPS(Rs.) 60.9 76.7 88.8 110.6 % growth 33.2 25.8 15.8 24.6 PER(x) 10.5 8.3 7.2 5.8 ROANW(%) 33.5 32.3 28.9 28.0 ROACE(%) 41.2 36.4 33.9 31.9

24 June 2009

CMC Ltd.

29

DOLAT CAPITAL
INCOME STATEMENT Particulars Net Sales Other Operational Income Total Income Total Expenditure Raw Material Employee Expenses Power, Oil & Fuel Selling & Administrative Expenses Provisions & Write Offs Other Expenses EBIDTA (Excl. Other Income) Other Income EBIDTA (Incl. Other Income) Interest Gross Profit Depreciation Profit Before Tax & EO Items Extra Ordinary Exps/(Income) Profit Before Tax Tax Net Profit Extraordinary Items Net Profit BALANCE SHEET Particulars Sources of Funds Equity Capital Preference Capital Share Premium Other Reserves (excl Share Premium & Rev Res) Net Worth Revaluation reserve Secured Loans Unsecured Loans Loan Funds Deferred Tax Liability (Net of Deffered Tax Assets) Total Capital Employed Applications of Funds Gross Block Less: Accumulated Depreciation Net Block Capital Work in Progress Goodwill Deferred Tax Asset Investments Current Assets, Loans & Advances Inventories Sundry Debtors Cash and Bank Balance Loans and Advances Unbilled Revenues sub total Less : Current Liabilities & Provisions Current Liabilities Provisions sub total Net Current Assets Misc Expenses Total Assets CASH FLOW Particulars Mar’08 Profit before tax and extra ordinary items 1,233.6 Depreciation & w.o. 79.1 Net Interest Exp (3.1) Direct taxes paid (310.2) Change in Working Capital (Non Cash) 89.9 Other 885.8 (A) Cash Flow from Operating Activities 1,975.0 Capex {Inc./ (Dec.) in Fixed Assets n WIP} (23.6) Free Cash Flow 1,951.4 Inc./ (Dec.) in Investments 0.0 Other (64.8) (B) Cash Flow from Investing Activities (88.4) Issue of Equity/ Preference 0.0 Inc./(Dec.) in Debt 111.8 Interest exp net 3.1 Dividend Paid (Incl. Tax) (194.3) Other 45.8 (C) Cash Flow from Financing (33.6) Net Change in Cash 1,853.0 Opening Cash balances 537.7 Add: Transitional Provision as per AS15 not affecting CF30.3 Exchange Difference (0.3) Closing Cash balances 513.4 E-estimates Mar’09 1,438.2 93.4 15.1 (276.7) (881.1) 120.5 509.4 (133.1) 376.3 0.0 13.8 (119.3) 0.0 207.8 (15.1) (265.0) 74.4 2.1 392.2 513.4 2.3 424.9 Mar’10E 1,724.4 103.4 24.9 (379.4) 1,170.9 2,644.1 (200.0) 2,444.1 0.0 (200.0) 0.0 0.0 (24.9) (176.6) (201.5) 2,242.6 424.9 0.0 0.0 2,667.5 Mar’11E 2,043.2 115.4 24.9 (367.8) (34.3) 1,781.3 (200.0) 1,581.3 0.0 (200.0) 0.0 0.0 (24.9) (176.6) (201.5) 1,379.8 2,667.5 0.0 0.0 4,047.4 Mar’08 151.5 0.0 2,975.7 3,127.2 0.0 289.3 289.3 0.0 3,416.5 Mar’09 151.5 0.0 3,921.4 4,072.9 0.0 497.2 497.2 0.0 4,570.1 Mar’10E 151.5 0.0 5,089.8 5,241.3 0.0 497.2 497.2 0.0 5,738.5 Mar’11E 151.5 0.0 6,588.6 6,740.1 0.0 497.2 497.2 0.0 7,237.2 Mar’08 10,647.4 119.0 10,766.3 9,456.8 3,766.0 2,371.2 3,319.6 Mar’09 9,398.3 279.9 9,678.2 8,131.5 2,228.9 2,627.8 3,274.7 Mar’10E 10,105.8 155.4 10,261.2 8,488.6 2,094.9 2,881.4 3,512.4 Rs.mn Mar’11E 11,184.3 202.0 11,386.4 9,283.0 2,125.0 3,355.3 3,802.7 IMPORTANT RATIOS Particulars (A) Measures of Performance (%) Contribution Margin EBIDTA Margin (excl. O.I.) EBIDTA Margin (incl. O.I.) Interest / Sales Gross Profit Margin Tax/PBT Net Profit Margin (B) As Percentage of Net Sales Raw Material Employee Expenses Power, Oil & Fuel Selling & Administrative Expenses Provisions & Write Offs Other Expenses (C) Measures of Financial Status Debt / Equity (x) Interest Coverage (x) Average Cost Of Debt (%) 1,345.0 1,675.4 Debtors Period (days) Closing stock (days) Inventory Turnover Ratio (x) Fixed Assets Turnover (x) Working Capital Turnover (x) Non Cash Working Capital (Rs Mn) (D) Measures of Investment EPS (Rs.) (excl EO) EPS (Rs.) CEPS (Rs.) DPS (Rs.) Dividend Payout (%) Profit Ploughback (%) Book Value (Rs.) RoANW (%) RoACE (%) 1,475.4 789.8 685.6 162.7 3.4 40.5 956.3 198.7 2,284.8 513.4 976.6 1,088.3 5,061.8 2,865.9 627.9 3,493.8 1,568.0 0.0 3,416.5 1,622.5 801.4 821.1 148.7 3.4 37.5 1,198.8 153.8 2,573.3 424.9 1,493.1 900.2 5,545.3 2,546.0 638.8 3,184.7 2,360.6 0.0 4,570.1 1,822.5 904.8 917.8 148.7 3.4 37.5 1,198.8 189.4 2,249.0 2,667.5 815.3 945.3 6,866.5 2,731.5 702.6 3,434.1 3,432.4 0.0 5,738.5 2,022.5 1,020.1 1,002.4 148.7 3.4 37.5 1,198.8 210.1 2,495.6 4,047.4 904.7 992.5 8,650.3 3,031.0 772.9 3,803.9 4,846.5 0.0 7,237.2 RoAIC (%) (Excl Cash & Invest.) (E) Valuation Ratios CMP (Rs.) P/E (x) Market Cap. (Rs. Mn.) MCap/ Sales (x) EV (Rs. Mn.) EV/Sales (x) EV/EBDITA (x) P/BV (x) Dividend Yield (%) E-estimates 638.0 10.5 9,665.7 0.9 9,441.6 0.9 7.2 3.1 1.7 638.0 8.3 9,665.7 1.0 9,737.9 1.0 6.3 2.4 2.4 638.0 7.2 9,665.7 1.0 7,495.3 0.7 4.2 1.8 1.6 638.0 5.8 9,665.7 0.9 6,115.5 0.5 2.9 1.4 1.6 60.9 60.9 66.2 11.0 18.0 82.0 206.4 33.5 41.2 49.9 76.7 76.7 82.8 15.0 19.6 80.4 268.8 32.3 36.4 41.2 88.8 88.8 95.6 10.0 11.3 88.7 346.0 28.9 33.9 48.5 110.6 110.6 118.2 10.0 9.0 91.0 444.9 28.0 31.9 66.1 0.1 (416.0) (1.3) 78.3 6.8 53.6 7.2 6.8 1,054.6 0.1 102.2 3.8 99.9 6.0 61.1 5.8 4.0 1,935.7 0.1 74.5 5.0 81.2 6.8 53.4 5.5 2.9 764.8 0.1 87.8 5.0 81.4 6.9 53.2 5.5 2.3 799.1 35.4 22.3 0.0 31.2 0.0 0.0 23.7 28.0 0.0 34.8 0.0 34.8 20.7 28.5 0.0 34.8 0.0 34.8 19.0 30.0 0.0 34.0 0.0 34.0 12.3 12.2 (0.0) 12.2 25.1 8.6 16.5 16.0 0.2 15.8 19.2 12.0 17.5 18.1 0.2 17.8 22.0 13.1 18.8 19.2 0.2 19.0 18.0 14.7 Mar’08 Mar’09 Mar’10E Mar’11E

1,309.5 0.0 1,309.5 (3.1) 1,312.7 79.1 1,233.6 0.0 1,233.6 310.2 923.4 923.4

1,546.8 0.0 1,546.8 15.1 1,531.6 93.4 1,438.2 0.0 1,438.2 276.7 1,161.5 0.0 1,161.5

1,772.6 80.0 1,852.6 24.9 1,827.8 103.4 1,724.4 0.0 1,724.4 379.4 1,345.0

2,103.4 80.0 2,183.4 24.9 2,158.5 115.4 2,043.2 2,043.2 367.8 1,675.4

24 June 2009

CMC Ltd.

30

Container Corporation of India Ltd.
CMP: Rs 940 Target Price: Rs 1181
Material Life Line...!!!

DOLAT CAPITAL Logistics / BUY

Container Corporation of India (CONCOR) is the largest container operator with 57 terminals across the country transporting containerized products including engineering goods, automobiles, agri commodities etc. On financials CONCOR has a track record of consistent earnings growth (CAGR 14% over 5 years), high return on equity (ROE) and near monopoly status in business. It is debt free and has Rs135 per share cash on books. At a CMP of Rs940 we recommend a BUY on the stock with a 12 - 18 months price target of Rs1181 (15x FY11E EPS)
Analyst: Nadeem Parkar Tel : +9122 4096 9736 Email: nadeem@dolatcapital.com BSE Sensex NSE Nifty Scrip Details Equity Face Value Market Cap Rs.1299mn Rs.10/14423 4293

Investment Rationale
Growth in Containarised Cargo
The EXIM cargo across major ports has grown at a CAGR of 10.5% over 5 years. The containerized cargo has grown faster at 13% CAGR during the same period. Containerized cargo accounts 20% of the total EXIM tonnage compared to 10% a decade ago. The forecasted CAGR of containerised cargo is 14% over FY08-10. The other major opportunity is the increase in the percentage of domestic cargo movement by rail which is 40% of the current volumes of 800 MT. CONCOR being an early established participant in the container rail space is a strategic player in an emerging sector and will benefit the most from the volume growth due to its massive infrastructure and reach.

Rs.122.2bn US$2498.6mn 52 week High/Low Rs.1090/540 1-Month Avg. Volume (Daily) 92316 BSE Code 531344 NSE Symbol CONCOR Bloomberg Code CCRI IN Reuters Code CCRI.BO Business Group - Govt. of India Shareholding Pattern as on Mar’09(%) Promoter MF/Banks/FIs FIIs Corporate Bodies Public / Others 63.1 8.4 26.0 1.0 1.6

Infrastructure advantage
For container shipping lines and consolidators infrastructure; reach and service levels are the key parameters for selection of service providers for hinterland connectivity. CONCOR with 57 Internal Container Depots (ICD’s) at strategic locations across India; 180 rakes/ trains has the reach and infrastructure allowing it to pitch in for more volumes from the shippers.

Competitive concerns diluted
CONCOR has 85% market share which it is likely to retain for sometime. Availability of vast stretches of land at strategic locations is not only expensive but also time consuming. Concor’s large scale infrastructure and relationship with major shipping lines dilutes competitive concerns for CONCOR.

Cocor relative to BSE Sensex 170 160 150 140 130 120 110 100 90 80 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09
Concor BSE Sensex

Valuations
CONCOR has a strong balance sheet with zero debt and Rs135 per share cash on books, higher return on shareholder equity. It plans to utilize the cash for a capex of Rs10 bn over two years. Also with a probable verdict of disinvestment of government stake in public sector companies, CONCOR with 63% government holding becomes a potential candidate. At CMP, of Rs.940 the stock trades 11.9x its FY11E earnings (EPS 78.7) we recommend BUY on the stock with a 12 - 18 months price target of Rs1181 (15x FY11E EPS)

Financials
Year FY08 FY09P FY10E FY11E Figure in Rs mn Net Sales % growth 33,473 34,133 39,048 46,358 9.5 2.0 14.4 18.7 EBITDA 8,904 8,832 10,368 12,797 OPM% 26.6 25.9 26.6 27.6 PAT % growth 7,505 7,397 8,258 10,234 7.8 (1.4) 11.6 23.9 EPS(Rs.) 115.5 56.9 63.5 78.7 % growth 7.8 (50.7) 11.6 23.9 PER(x) 8.1 16.5 14.8 11.9 ROANW(%) 25.8 20.9 19.5 20.3 ROACE(%) 30.9 25.5 23.9 24.9

24 June 2009

CONCOR

31

DOLAT CAPITAL
INCOME STATEMENT Particulars Net Sales Other Income Total Income Total Expenditure Raw Material / Terminal and Other Service Charges (Accretion) / Deceration to stock Employee Expenses Power, Oil & Fuel Selling & Administrative Expenses Provisions & Write Offs Other Expenses EBIDTA (Excl. Other Income) EBIDTA (Incl. Other Income) Interest Gross Profit Depreciation Profit Before Tax & EO Items Extra Ordinary Exps/(Income) Profit Before Tax Tax Net Profit BALANCE SHEET Particulars Sources of Funds Equity Capital Preference Capital Share Premium Other Reserves Net Worth Revaluation reserve Secured Loans Unsecured Loans Loan Funds Deferred Tax Liability Total Capital Employed Applications of Funds Gross Block Less: Accumulated Depreciation Net Block Capital Work in Progress Investments Current Assets, Loans & Advances Inventories Sundry Debtors Cash and Bank Balance Loans and Advances Other Current Assets sub total Less : Current Liabilities & Provisions Current Liabilities Provisions sub total Net Current Assets Misc Expenses Total Assets CASH FLOW Particulars Profit before tax and extra ordinary items Depreciation & w.o. Net Interest Exp Direct taxes paid Change in Working Capital (Non Cash) Other (A) Cash Flow from Operating Activities Capex {Inc./ (Dec.) in Fixed Assets n WIP} Free Cash Flow Inc./ (Dec.) in Investments Other (B) Cash Flow from Investing Activities Issue of Equity/ Preference Inc./(Dec.) in Debt Interest exp net Dividend Paid (Incl. Tax) Other (C) Cash Flow from Financing Net Change in Cash Opening Cash balances Closing Cash balances E-estimates (1,904.3) 4,536.2 10,625.9 15,215.0 (448.8) 3,024.0 15,215.0 18,412.9 (1,098.7) 2,574.1 18,412.9 21,178.0 (1,098.7) 5,704.8 21,178.0 27,093.0 (2,118.0) 0.0 0.0 0.0 (1,904.3) (5,155.4) 649.9 0.0 0.0 (1,098.7) (6,170.9) 0.0 0.0 0.0 (1,098.7) (5,188.0) 0.0 0.0 0.0 (1,098.7) 8,558.5 (1,881.4) 6,677.1 (236.6) 8,628.1 (5,000.0) 3,628.1 (155.4) 9,843.6 (6,000.0) 3,843.6 (170.9) 11,991.5 (5,000.0) 6,991.5 (188.0) Mar’08 9,485.0 1,063.4 0.0 (1,979.8) (10.1) Mar’09E 9,483.0 1,267.3 0.0 (2,086.3) (36.0) Mar’10E 10,587.4 1,537.3 0.0 (2,329.2) 48.1 Mar’11E 13,120.6 1,762.3 0.0 (2,886.5) (4.9) 4,143.7 1,227.3 5,371.0 13,650.1 0.0 33,575.8 40,697.7 48,048.3 57,393.8 4,382.2 1,024.0 5,406.2 16,884.0 4,752.2 1,171.5 5,923.6 19,601.0 5,225.9 1,390.7 6,616.7 25,520.9 48.1 137.3 15,215.0 3,002.4 618.3 19,021.1 46.8 140.3 18,412.9 3,072.0 618.3 22,290.2 53.5 160.5 21,178.0 3,514.4 618.3 25,524.6 63.5 190.5 27,093.0 4,172.2 618.3 32,137.5 22,442.2 5,790.9 16,651.3 1,720.8 1,553.6 28,163.0 7,058.2 21,104.8 1,000.0 1,709.0 34,163.0 8,595.6 25,567.4 1,000.0 1,879.9 39,163.0 10,357.9 28,805.1 1,000.0 2,067.8 (E) Valuation Ratios CMP (Rs.) P/E (x) Market Cap. (Rs. Mn.) MCap/ Sales (x) EV (Rs. Mn.) EV/Sales (x) EV/EBDITA (x) P/BV (x) Dividend Yield (%) Earnings Yield MCap/ Operating Profit (x) E-estimates 940.0 8.1 61,090.6 1.8 45,875.6 1.4 5.2 1.9 2.8 12.3 6.9 940.0 16.5 122,183.1 3.6 103,770.2 3.0 11.7 3.2 0.8 6.1 13.8 940.0 14.8 122,183.1 3.1 101,005.1 2.6 9.7 2.7 0.8 6.8 11.8 940.0 11.9 122,183.1 2.6 95,090.1 2.1 7.4 2.2 0.8 8.4 9.5 649.9 0.0 0.0 31,189.3 31,839.2 0.0 0.0 0.0 0.0 1,736.8 33,576.0 0.0 1,910.5 40,697.7 0.0 2,101.5 48,048.3 0.0 2,311.7 57,393.8 37,487.4 38,787.2 44,646.9 45,946.7 53,782.3 55,082.1 1,299.8 1,299.8 1,299.8 Mar’08 Mar’09E Mar’10E Mar’11E Mar’08 33,473.0 1,644.7 35,117.7 24,569.3 22,923.9 0.0 550.0 161.6 912.3 0.6 20.9 8,903.7 10,548.4 0.0 10,548.4 1,063.4 9,485.0 0.0 9,485.0 1,979.8 7,505.2 Mar’09E 34,133.2 1,918.2 36,051.4 25,301.0 23,606.1 0.0 653.5 170.7 853.3 0.3 17.1 8,832.1 10,750.4 0.0 10,750.4 1,267.3 9,483.0 0.0 9,483.0 2,086.3 7,396.8 Mar’10E 39,048.4 1,757.2 40,805.5 28,680.8 26,825.6 0.0 663.8 195.2 976.2 0.4 19.5 10,367.6 12,124.7 0.0 12,124.7 1,537.3 10,587.4 0.0 10,587.4 2,329.2 8,258.2 Rs.mn Mar’11E 46,358.2 2,086.1 48,444.3 33,561.4 31,358.9 0.0 788.1 231.8 1,159.0 0.5 23.2 12,796.8 14,882.9 0.0 14,882.9 1,762.3 13,120.6 0.0 13,120.6 2,886.5 10,234.1 (C) Measures of Financial Status Debt / Equity (x) Depriciation / Gross Block Debtors Period (days) Closing stock (days) Inventory Turnover Ratio (x) Fixed Assets Turnover (x) Working Capital Turnover (x) Non Cash Working Capital (Rs Mn) (D) Measures of Investment EPS (Rs.) (excl EO) EPS (Rs.) CEPS (Rs.) DPS (Rs.) Dividend Payout (%) Profit Ploughback (%) Book Value (Rs.) RoANW (%) RoACE (%) RoAIC (%) (Excl Cash & Invest.) 115.5 115.5 131.8 26.0 22.5 77.5 489.9 25.8 30.9 53.2 56.9 56.9 66.7 7.5 13.2 86.8 298.4 20.9 25.5 46.7 63.5 63.5 75.4 7.5 11.8 88.2 353.5 19.5 23.9 43.1 78.7 78.7 92.3 7.5 9.5 90.5 423.8 20.3 24.9 45.9 0.0 4.7 1.5 0.5 695.9 1.5 2.5 (1,564.9) 0.0 4.5 1.5 0.5 730.0 1.2 2.0 (1,528.9) 0.0 4.5 1.5 0.5 730.0 1.2 2.0 (1,572.7) 0.0 4.5 1.5 0.5 730.0 1.2 1.8 (1,561.3) (B) As Percentage of Net Sales Raw Material Employee Expenses Power, Oil & Fuel Selling & Administrative Expenses Provisions & Write Offs Other Expenses 68.5 1.6 0.5 2.7 0.0 0.1 69.2 1.9 0.5 2.5 0.0 0.1 68.7 1.7 0.5 2.5 0.0 0.1 67.7 1.7 0.5 2.5 0.0 0.1 IMPORTANT RATIOS Particulars (A) Measures of Performance (%) Contribution Margin EBIDTA Margin (excl. O.I.) EBIDTA Margin (incl. O.I.) Interest / Sales Gross Profit Margin Tax/PBT Net Profit Margin 26.6 30.0 0.0 30.0 20.9 21.4 25.9 29.8 0.0 29.8 22.0 20.5 26.5 29.7 0.0 29.7 22.0 20.2 27.5 30.7 0.0 30.7 22.0 21.1 Mar’08 Mar’09E Mar’10E Mar’11E

24 June 2009

CONCOR

32

Coromandel Fertilisers Ltd.
CMP: Rs 179 Target Price: Rs 224
Fertile Connections...!!!

DOLAT CAPITAL Fertiliser / Buy

Coromandel Fertiliser Ltd (CFL) is the leading manufacturer of a wide range of farm inputs and is the second largest manufacturer of Phosphatic fertilizers. The company is diversifying its revenue base towards the non-subsidy farm business by entering into high margin segments of specialty nutrients and pesticides. Presence in the niche area of complex fertilisers and an assured supply of key raw materials differentiates CFL from its peers. Foray into rural markets and increasing exposure to non-subsidy business would augur well for the company. At CMP of Rs 179, CFL trades at a P/E of 5.6x FY11E EPS of Rs.32. We recommend a BUY with a price target of Rs 224 (7x FY11E EPS).
Analyst: Ritesh Poladia Tel : +9122 4096 9753 Email: ritesh@dolatcapital.com Associate : Neha Sarwal Tel : +9122 4096 9740 Email: neha@dolatcapital.com BSE Sensex NSE Nifty Scrip Details Equity Face Value Market Cap 52 week High/Low 1-Month Avg. Volume BSE Code NSE Symbol Bloomberg Code Reuters Code Rs.280mn Rs.2/Rs.25.9bn US$529.3mn Rs.232/73 189391 506395 COROMNFERT CRFTIN CORF.BO 14423 4293

Investment Rationale
Revision in policy to benefit complex fertiliser manufacturers
Coromandel fertiliser (CFL) stands to differentiate from other fertiliser players by catering to the non-nitrogenous fertilizer segment where in the demand growth is higher and Government control is lower in comparison to Urea segment. Also, the current government policy has brought all the subsidized prices of NPK (Nitrogen,Phosphorous and Potash) at a fixed level, thereby encouraging farmers to ensure a balanced consumption of nutrients. This would boost the use of nonurea fertilizers.

Established raw material linkages
CFL’s strategic tie-ups with companies in South Africa and Tunisia ensure availability of key raw materials including Rock Phosphate, Sulphur and Phosphoric Acid at competitive prices. The company is also spreading its wings to West Asian Countries and is in talks to set-up an Urea and Ammonia manufacturing plant. This will help the company increase its share in Nitrogen segment.

Business Group - Murugappa Group Shareholding Pattern as on Mar’09(%) Promoter MF/Banks/FIs FIIs Corporate Bodies Public / Others 64.3 9.7 2.9 1.8 21.4

Leveraging its strong Brand Equity
CFL has a strong hold in the southern market and is trying to leverage it by focusing on brand building and expanding its retail reach. It has increased its retail network from 20 centres in FY08 to 400 centres in FY09.These centres are on rental basis and would focus on marketing of farm inputs. In short term it can drag down the return ratios but would be a fruitful investment over the longer period.

Focus on non-subsidy business
Coromanfert relative to Sensex 200 180 160 140 120 100 80 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 Coromanfert BSE Sensex

CFL plans to diversify its business by focussing on pesticide and speciality nutrient segments like Water Soluble Fertilisers and Micro-Nutrients. This segment has shown an increase in revenues @ 34% CAGR from FY06- FY08. Increased share from this segment will enhance the overall revenues for the company.

Valuation
Increased impetus to complex fertilizer manufacturers by way of policy amendment along with better visibility of raw material supplies instills confidence in core business. Furthermore, focus on higher margin non fertilizer businesses enable the company to reduce vulnerability to controlled sector exposure.CFL has been a consistent dividend paying company with the current dividend yield of 5.6% in FY09. At CMP of Rs 179, CFL trades at a P/E of 5.6x FY11E EPS. We recommend a BUY with a price target of Rs 224 (7x FY11E EPS).

Financials
Year FY08 FY09E FY10E FY11E Net Sales 37,573 93,750 53,774 66,120 % growth 181.8 149.5 (42.6) 23.0 EBITDA 4,128 6,520 5,929 6,977 OPM% 11.0 7.0 11.0 10.6 PAT % growth 2,101 4,008* 3,551 4,479 214.7 90.8 (11.4) 26.1 EPS(Rs.) 15.0 28.6* 25.4 32.0 % growth 194.9 90.8 (11.4) 26.1 PER(x) 11.9 6.2 7.0 5.6 ROANW(%) 31.2 52.8 23.8 23.9 ROACE(%) 26.5 30.6 19.0 23.6

Figure in Rs mn, * Adjusted PAT / EPS / PER

24 June 2009

Coromandel Fertilisers Ltd.

33

DOLAT CAPITAL
INCOME STATEMENT Particulars Net Sales Other income Total Income Total Expenditure Raw Material Employee Expenses Power, Oil & Fuel Selling & Administrative Expenses Provisions & Write Offs Other Expenses EBIDTA (Excl. Other Income) EBIDTA (Incl. Other Income) Interest Gross Profit Depreciation Profit Before Tax & EO Items Extra Ordinary Exps/(Income) Profit Before Tax Tax Net Profit Minority Interest Net Profit BALANCE SHEET Particulars Sources of Funds Equity Capital Preference Capital Share Premium Other Reserves Net Worth Revaluation reserve Secured Loans Unsecured Loans Loan Funds Deferred Tax Liability Total Capital Employed Applications of Funds Gross Block Less: Accumulated Depreciation Net Block Capital Work in Progress Investments Current Assets, Loans & Advances Inventories Sundry Debtors Cash and Bank Balance Loans and Advances Other Current Assets sub total Less : Current Liabilities & Provisions Current Liabilities Provisions sub total Net Current Assets Misc Expenses Total Assets CASH FLOW Particulars Profit before tax and extra ordinary items Depreciation & w.o. Net Interest Exp Direct taxes paid Change in Working Capital (Non Cash) Other (A) Cash Flow from Operating Activities Capex {Inc./ (Dec.) in Fixed Assets n WIP} Free Cash Flow Inc./ (Dec.) in Investments Other (B) Cash Flow from Investing Activities Issue of Equity/ Preference Inc./(Dec.) in Debt Interest exp net Dividend Paid (Incl. Tax) Other (C) Cash Flow from Financing Net Change in Cash Opening Cash balances Closing Cash balances E-estimates 3,745.4 (1,538.3) 1,695.4 663.3 8,450.3 (141.6) 663.3 521.7 (7,918.2) 1,066.4 521.7 1,588.1 (3,738.2) (204.9) 1,588.1 1,383.2 (5,411.6) 25.7 4,528.5 (698.5) (110.4) (6,091.6) 0.0 9,653.9 (876.2) (327.4) (1,100.0) 0.0 (7,000.0) (760.5) (157.7) (100.0) 0.0 (3,000.0) (580.5) (157.7) 127.8 (4,018.4) (3,890.6) (1,393.1) Mar’08 3,339.4 522.1 698.5 (1,238.4) (3,193.7) Mar’09E 7,147.6 562.1 876.2 (3,139.6) (9,532.6) 1,585.9 (2,500.4) (91.6) (2,592.0) (6,000.0) 10,084.6 (100.0) 9,984.6 (1,000.0) 3,633.3 (100.0) 3,533.3 0.0 Mar’10E 5,300.3 567.0 760.5 (1,749.1) 5,205.8 Mar’11E 6,684.6 572.0 580.5 (2,205.9) (1,997.8) 18,801.4 33,721.8 30,115.4 31,436.4 7,323.4 1,036.9 8,360.3 7,890.9 12,307.3 1,451.7 13,759.0 17,281.9 9,743.9 1,306.5 11,050.4 13,142.4 11,260.6 1,371.8 12,632.4 14,935.4 16,251.2 31,040.8 24,192.9 27,567.8 8,648.7 999.1 663.3 5,940.1 12,842.5 11,439.6 521.7 6,237.1 11,049.5 5,006.4 1,588.1 6,548.9 13,586.3 5,721.9 1,383.2 6,876.4 11,311.0 4,017.1 7,293.9 108.4 3,508.2 11,411.0 4,579.2 6,831.8 100.0 9,508.2 11,511.0 5,146.2 6,364.8 100.0 10,508.2 11,611.0 5,718.2 5,892.8 100.0 10,508.2 5,122.7 4,899.0 10,021.7 824.7 18,801.4 14,776.5 4,899.0 19,675.6 824.7 33,721.8 7,776.5 4,899.0 12,675.6 824.7 30,115.4 4,776.5 4,899.0 9,675.6 824.7 31,436.4 600.6 7,074.6 7,955.0 600.6 12,341.2 13,221.6 600.6 15,734.7 16,615.1 600.6 20,055.7 20,936.1 (D) Measures of Investment EPS (Rs.) (excl EO) EPS (Rs.) CEPS (Rs.) DPS (Rs.) Dividend Payout (%) Profit Ploughback (%) Book Value (Rs.) RoANW (%) RoACE (%) RoAIC (%) (Excl Cash & Invest.) (E) Valuation Ratios CMP (Rs.) P/E (x) Market Cap. (Rs. Mn.) MCap/ Sales (x) EV (Rs. Mn.) EV/Sales (x) EV/EBDITA (x) P/BV (x) Dividend Yield (%) E-estimates 179 11.9 24,971.6 0.7 34,330.0 0.9 8.3 3.1 2.0 179 4.5 24,972.2 0.3 44,126.0 0.5 6.8 1.9 5.6 179 7.0 24,972.2 0.5 36,059.6 0.7 6.1 1.5 2.8 179 5.6 24,972.2 0.4 33,264.5 0.5 4.8 1.2 2.8 15.0 15.0 18.7 3.5 23.3 76.7 56.9 31.2 26.5 28.7 28.6 40.0 44.0 10.0 25.0 75.0 94.5 52.8 30.6 31.3 25.4 25.4 29.4 5.0 19.7 80.3 118.8 23.8 19.0 19.6 32.0 32.0 36.1 5.0 15.6 84.4 149.7 23.9 23.6 24.8 279.8 279.8 279.8 279.8 Mar’08 Mar’09E Mar’10E Mar’11E 2,101.0 5,593.9 3,551.2 4,478.7 3,339.4 1,238.4 2,101.0 Mar’08 37,573.4 432.1 38,005.5 33,445.6 28,840.6 977.2 661.8 1,806.0 180.9 979.1 4,127.8 4,559.9 698.5 3,861.4 522.1 3,339.4 Mar’09 93,750.0 2,066.2 95,816.2 87,230.3 79,288.2 1,334.8 1,406.3 2,925.3 387.7 1,888.1 6,519.7 8,585.9 876.2 7,709.7 562.1 7,147.6 (1,585.9) 8,733.5 3,139.6 5,593.9 5,300.3 1,749.1 3,551.2 6,684.6 2,205.9 4,478.7 (C) Measures of Financial Status Debt / Equity (x) Interest Coverage (x) Average Cost Of Debt (%) Debtors Period (days) Closing stock (days) Inventory Turnover Ratio (x) Fixed Assets Turnover (x) Working Capital Turnover (x) Non Cash Working Capital (Rs Mn) 1.3 6.5 9.0 9.7 84.0 4.3 3.3 4.8 7,227.6 1.5 9.8 5.9 44.5 50.0 7.3 8.2 5.4 16,760.2 0.8 8.7 6.0 34.0 75.0 4.9 4.7 4.1 11,554.3 0.5 13.5 6.0 31.6 75.0 4.9 5.7 4.4 13,552.2 Mar’10E 53,774.0 699.1 54,473.1 47,845.2 41,055.8 1,451.9 1,215.9 2,362.9 133.6 1,625.0 5,928.8 6,627.9 760.5 5,867.4 567.0 5,300.3 Rs.mn Mar’11E 66,120.0 859.6 66,979.6 59,142.5 51,758.5 1,520.8 1,369.7 2,533.4 126.1 1,833.9 6,977.5 7,837.0 580.5 7,256.5 572.0 6,684.6 (B) As Percentage of Net Sales Raw Material Employee Expenses Power, Oil & Fuel Selling & Administrative Expenses Provisions & Write Offs Other Expenses 76.8 2.6 1.8 4.8 0.5 2.6 84.6 1.4 1.5 3.1 0.4 2.0 76.3 2.7 2.3 4.4 0.2 11.0 78.3 2.3 2.1 3.8 0.2 10.5 IMPORTANT RATIOS Particulars (A) Measures of Performance (%) Contribution Margin EBIDTA Margin (excl. O.I.) EBIDTA Margin (incl. O.I.) Interest / Sales Gross Profit Margin Tax/PBT Net Profit Margin 11.0 12.0 1.9 10.2 37.1 5.5 7.0 9.0 0.9 8.0 35.9 5.8 11.0 12.2 1.4 10.8 33.0 6.5 10.6 11.7 0.9 10.8 33.0 6.7 Mar’08 Mar’09E Mar’10E Mar’11E

24 June 2009

Coromandel Fertilisers Ltd.

34

Dish TV India Ltd.
CMP: Rs 39 Target Price: Rs 69
Wish for More...!!!

DOLAT CAPITAL Media / Buy

Dish TV offers an opportunity to participate in high growth Indian M&E space with annuity like revenue flow with staggered capex commitment over a period of time. The recent staggered rights issue of Rs 11 bn has eased the financial burden on the company and is poised to garner incremental market share of 20%. Further the ease of competition aggression and cheap STBs would lead to lower customer acquisition cost. We value Dish TV on DCF for its predictability of revenue streams. We initiate coverage on the stock with DCF based 12 month price target of Rs 69.
Analyst: Ritesh Poladia Tel : +9122 4096 9753 Email: ritesh@dolatcapital.com Associate : Namrata Sharma Tel : +9122 4096 9726 Email: namrata@dolatcapital.com BSE Sensex NSE Nifty Scrip Details Equity Face Value Market Cap 52 week High/Low 1-Month Avg. Volume BSE Code NSE Symbol Bloomberg Code Reuters Code Rs.946.4mn Re.1/Rs.36.9bn US$754.8mn Rs.60/11.75 16207328 532839 DISHTV DSTV IN DITV.BO 14423 4293

Investment rationale
DTH: Macro factors getting favorable Play on Indian M&E in a Telecom way: Higher capital outlay with visible revenue stream
DTH offers a play on Indian media space akin to telecom economics – higher capital outlay at one go (Subscription acquisition cost of ~ Rs 3000) and annuity kind of revenue flow (ARPU: Rs 200 and growing). With telecom subscriber growth hits plateau, DTH becomes an exciting opportunity.

Media bargaining power: tilting towards Access player
Initially broadcasters squeezed DTH player on content cost, which is getting reversed. DTH Subscriber base of already ~ 10 mn (current growth rate at 80%), the bargaining power has certainly shifted towards DTH and other access players. We believe, the pressure on content cost has eased for the DTH player and has an opportunity to earn carriage fees from new broadcasters.

Dish TV: Best in place – funding done for 10 mn subscribers
The company has grappled for fund raising in recent past which has been considerably eased with staggered rights issue of Rs 11 Bn. Assuming subscriber acquisition cost of Rs 3000, the company is set to achieve 10 mn mark by 2012 (24% CAGR of FY09-12). Current gross subscriber base stands at 5.2 million and the company is garnering 20% share of incremental subscribers.

Business Group - Subhash Chandra Shareholding Pattern as on Mar’09(%) Promoter MF/Banks/FIs FIIs Corporate Bodies Public / Others 57.9 7.8 11.9 5.4 17.0

Valuations
At CMP, the stock quotes at 3.4x FY10E EV/Sales. We value Dish TV on DCF for its predictability of revenue streams. We initiate coverage on the stock with DCF based 12 month price target of Rs 69. Key points to watch for:

DishTV relative to BSE Sensex 140 130 120 110 100 90 80 70 60 50 40 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 Dish TV BSE Sensex

Excessive promotional activities Last year, industry has witnessed 3 new players in DTH with heightened promotional activities, which has increased subscriber acquisition cost from Rs 2000-2500 to Rs 3000. Alternate technology poses biggest threat 3G and Mobile TV though at nascent stage poses biggest risk as they provide truly personalized experience. Any technology breakthrough in cable or IPTV will offer many choices to customers.

24 June 2009

Dish TV India Ltd.

35

DOLAT CAPITAL
INCOME STATEMENT Particulars Net Sales Other income Total Income Total Expenditure EBIDTA (Excl. Other Income) EBIDTA (Incl. Other Income) Interest Gross Profit Depreciation Profit Before Tax & EO Items Profit Before Tax Tax Net Profit BALANCE SHEET Particulars Sources of Funds Equity Capital Share Premium Net Worth Loan Funds Total Capital Employed Applications of Funds Gross Block Less: Accumulated Depreciation Net Block Capital Work in Progress Investments Current Assets, Loans & Advances Inventories Sundry Debtors Cash and Bank Balance Loans and Advances sub total Less : Current Liabilities & Provisions Current Liabilities Provisions sub total Net Current Assets Misc Expenses/ P&L Bal Total Assets CASH FLOW Particulars Profit before tax and extra ordinary items Depreciation & w.o. Net Interest Exp Direct taxes paid Change in Working Capital (Non Cash) (A) Cash Flow from Operating Activities Capex {Inc./ (Dec.) in Fixed Assets n WIP} Free Cash Flow Inc./ (Dec.) in Investments (B) Cash Flow from Investing Activities Issue of Equity/ Preference Inc./(Dec.) in Debt Interest exp net Dividend Paid (Incl. Tax) (C) Cash Flow from Financing Net Change in Cash Opening Cash balances Closing Cash balances E-estimates, P=Balance Sheet Nos. are Projected. Mar’07 (2,516.3) 575.3 117.8 (2.5) 6,053.1 4,227.4 (6,103.3) (1,875.9) 124.2 (5,979.1) (1,027.5) 1,667.2 (117.8) 0.0 522.0 (1,229.8) 59.4 113.3 Mar’08 (4,126.2) 1,490.5 513.2 (6.4) 1,776.0 (352.8) (2,563.5) (2,916.3) 0.0 (2,563.5) 0.0 3,515.2 (513.2) 0.0 3,002.0 85.7 113.3 199.4 Mar’09P (4,366.7) 2,154.0 726.0 494.7 4,859.8 3,868.9 (4,761.0) (892.2) 0.0 (4,761.0) 3,070.1 417.6 (726.8) 0.0 2,760.8 1,868.6 199.4 2,068.0 Mar’10E (3,299.6) 3,244.1 390.0 373.8 850.0 1,558.4 (5,796.0) (4237.6) 0.0 (5,796.0) 4,083.0 3,316.1 (390.0) 0.0 7,009.2 2,771.5 2,068.1 4,839.6 Mar’11E (2064.5) 4,172.3 180.0 233.9 525.8 3,047.0 (4,657.5) (1610.0) 0.0 (4,657.0) 4,083.0 0.0 (180.0) 0.0 3,903.0 2,293.0 4,839.6 7,132.6 8,577.0 18.9 8,595.9 (6,211.2) 823.0 2,179.2 11,340.8 35.3 11,376.1 (7,901.1) 4,955.0 5,694.5 16,878.5 38.9 16,917.4 (10,892.2) 8,826.9 9,182.2 18,558.5 42.8 18,601.7 (8,970.7) 11,752.7 16,581.3 20,058.5 47.0 20,105.6 (7,203.5) 13,583.3 20,664.3 DCF Model Particulars PAT Depreciation Interest(1-T) Capex Free Cash Flow Add: Deferred Tax Total Free Cash Flow 100 Discount Rate PV of Free Cash Flow Cumulative Cash Flow Assumed Terminal Year (n) Cash Flow at N+1 Growth Rate (Post 2020) WACC (%) Terminal Value Discounted Terminal Value Present Value of Firm till Terminal Year Total Discounted Value of Firm Less: Current net Debt of the Firm Present Value of Equity No. of Equity Shares (Mn) Fair Value of Equity Shares (Rs) E-estimates 0 Mar’07 (2,519) 575 118 6,103 (1,775) Mar’08 (4,133) 1,490 514 2,564 (1,776) (1,340) Mar’09 Mar’10E Mar’11E (3,872) 2,154 645 4,761 (4,860) (975) 0 (975) 114 1 (852) (852) (2,926) 3,244 346 5,796 (850) (4,282) 0 (4,282) 131 1 (3,273) (4,125) (1,831) 4,172 160 4,658 (526) (1,630) 0 (1,630) 150 1 (1,090) (5,214) Mar’12E 492 4,877 160 4,425 (363) 1,467 0 1,467 171 1 857 (4,357) ..... Mar’20E 2,021 28,906 2 14 233,492 46,566 27,320 73,887 9,000 64,887 946 69 29,180 840 70 1,500 250 28,340 0 28,340 501 0 5,652 27,320 11.4 390.6 113.3 1,869.4 2,384.7 47.1 384.4 199.4 2,844.2 3,475.1 101.0 727.5 2,068.1 3,128.6 6,025.6 164.5 1,184.9 4,839.6 3,441.4 9630.5 241.9 1,741.9 7,132.6 3,785.6 12,902.1 6,170.2 673.7 5,496.5 1,126.4 944.5 8,480.4 2,164.1 6,316.3 1,379.8 944.5 14621.1 4,318.2 10,302.9 0.0 944.5 20,417 7,562.2 12,854.8 0.0 944.5 25,074.6 11,734.6 13,340.0 0.0 944.5 (E) Valuation Ratios CMP (Rs.) Market Cap. (Rs. Mn.) MCap/ Sales (x) EV (Rs. Mn.) EV/Sales (x) EV/EBDITA (x) P/BV (x) 39.0 16700.0 8.75 18,338.3 9.6 (9.8) 39.0 39.0 16,700.0 4.0 21,767.5 5.2 (10.1) 39.0 39.0 36,909.6 5.0 40,525.3 5.4 (27.0) 10.5 39.0 36,909.6 3.1 41,069.9 3.4 218.6 4.8 39.0 36,909.6 2.1 38,776.9 2.7 20.1 3.1 428.2 0.0 428.2 1,751.0 2,179.2 428.2 0.0 428.2 5,266.3 5,694.5 946.4 2,551.9 3,498.3 5,683.9 9,182.2 946.4 6,634.9 7,581.3 9,000.0 16,581.3 946.4 10,717.9 11,664.3 9,000.0 20,664.3 (D) Measures of Investment EPS (Rs.) (excl EO) EPS (Rs.) CEPS (Rs.) Book Value (Rs.) RoANW (%) RoACE (%) RoAIC (%) (Excl Cash & Invest.) (5.9) (5.9) (4.5) 1.0 (89.8) (64.4) (65.9) (9.7) (9.7) (6.2) 1.0 (965.0) (91.8) (95.6) (4.0) (4.0) (1.8) 3.7 (197.0) (48.8) (57.7) (3.0) (3.0) 0.3 8.0 (52.8) (22.6) (30.8) (1.9) (1.9) 2.4 12.3 (19.0) (10.1) (14.9) Mar’07 Mar’08 Mar’09P Mar’10E Mar’11E Mar’07 1,909.2 34.0 1,943.1 3,766.3 (1,857.2) (1,823.2) 117.8 (1,941.0) 575.3 (2,516.3) (2,516.3) 2.5 (2,518.8) Mar’08 4,127.4 29.7 4,157.2 6,279.6 (2,152.2) (2,122.4) 513.2 (2,635.7) 1,490.5 (4,126.2) (4,126.2) 6.4 (4,132.5) Mar’09P 7,376.0 13.6 7,389.6 8,875.4 (1,499.3) (1,485.7) 726.8 (2,212.6) 2,154.1 (4,366.7) (4,366.7) (494.7) (3,871.9) Mar’10E 12,014.1 146.6 12,160.8 11,826.3 187.8 334.4 390.0 (55.5) 3,244.1 (3,299.6) (3,299.6) (373.8) (2,925.7) Rs.mn Mar’11E 17,661.3 360.0 18,021.4 15,733.5 1,927.8 2,287.8 180.0 2,107.8 4,172.3 (2,064.5) (2,064.5) (233.9) (1,830.6) (C) Measures of Financial Status Debt / Equity (x) Interest Coverage (x) Average Cost Of Debt (%) Debtors Period (days) Closing stock (days) Fixed Assets Turnover (x) Working Capital Turnover (x) 4.1 (15.5) 12.8 74.7 2.2 0.3 (0.3) 12.3 (4.1) 14.6 34.0 4.2 0.5 (0.5) 1.6 (2.2) 13.2 36.0 5.0 0.5 (0.7) 1.2 0.8 5.3 36.0 5.0 0.6 (1.3) 0.8 12.7 2.0 36.0 5.0 0.7 (2.4) IMPORTANT RATIOS Particulars (A) Measures of Performance (%) Contribution Margin EBIDTA Margin (excl. O.I.) EBIDTA Margin (incl. O.I.) Interest / Sales Gross Profit Margin Tax/PBT Net Profit Margin (97.3) (93.8) 6.2 (99.9) (0.1) (129.6) (52.1) (51.1) 12.4 (63.4) (0.2) (99.4) (20.3) (20.1) 9.8 (29.9) 11.3 (52.4) 1.5 2.7 3.2 (0.5) 11.3 (24.0) 10.9 12.7 1.0 11.7 11.3 (10.1) Mar’07 Mar’08 Mar’09P Mar’10E Mar’11E

E-estimates, P=Balance Sheet Nos. are Projected.

Inc in Non-Cash Working Capital (6,053)

24 June 2009

Dish TV India Ltd.

36

Dishman Pharma & Chemicals Ltd.
CMP: Rs 181 Target Price: Rs 272
Perfect Recipe...!!!

DOLAT CAPITAL

Pharmaceuticals / Buy

Dishman Pharma has a de-risked CRAMS model. It’s focus on APIs and intermediates and not on formulations does not pose any competition to its customers. The company has successfully signed agreements with several reputed innovator companies based in EU and US. Through Joint Ventures, it has marked its entry in various geographies. Its strategy to synergize operations and leverage on key capabilities enables it to consolidate its position globally.
Analyst: Bhavin Shah Tel : +9122 4096 9731 Email: bhavin@dolatcapital.com BSE Sensex NSE Nifty Scrip Details Equity Face Value Market Cap 52 week High/Low 1-Month Avg. Volume BSE Code NSE Symbol Bloomberg Code Reuters Code Rs.163mn Rs.2/Rs.14.7bn US$301mn Rs.332/87 72113 532523 DISHMAN DISH IN DISH.BO 14423 4293

Investment Rationale
CRAMS a US$3 billion Opportunity
The Indian contract manufacturing market estimated at $869mn (2007) is poised to grow at 42% CAGR to touch $2.46bn by 2010. Big pharma products going off patent, slowdown in NDA’s, rising costs towards drug development and consequently lower R&D productivity have led to adoption of severe cost cutting measures.

Playing its Cards well
The company has been investing aggressively to equip itself with strong technology platforms both onshore and globally. Strategic acquisitions and tie-ups entered into over the years have created a strong base for Dishman in the CRAMS domain. Dishman has entered into several JV’s which provides it access to markets other than EU and US, and enables it to bring forth its technological prowess.

Robust Active Pipeline assures traction in earnings over the long term
Dishman Pharma has long term contracts with Astrazeneca, GSK, Johnson & Merck. Non-Solvay CRAMS revenue contribute ~78% to the CRAMS segment. Dishman has order book of about US$100mn to be executed in FY10E. It is also in midst of negotiations of signing more agreements - Takeda (key intermediates) and Novartis (oncology products).

Business Group - Indian Private Shareholding Pattern as on Mar’09(%) Promoter MF/Banks/FIs FIIs Corporate Bodies Public / Others 60.8 17.4 10.4 8.6 2.9

Recent Strategic Bets
Dishman’s Chinese plant is built as per USFDA standards and is expected to start production by July’09E which will be utilised towards supplying few products for Astrazeneca and other Big pharma companies. The fine chemicals and vitamin facility (acquired from Solvay - the only one in the world to have all four known Vitamin analogues) is estimated to contribute Rs.1580mn during FY11E.

Dishman relative to Sensex 130 120 110 100 90 80 70 60 50 40 30 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 Dishman BSE Sensex

Valuations
Dishman has maintained its growth momentum despite the credit crunch and inventory destocking issues affecting most CRAMS players. We expect capacity utilizations to improve with products in its pipeline nearing commercialisation which in turn enhances revenue visibility. We expect Dishman to record 20% revenue and 23% adjusted earnings CAGR for FY09-11E with ramp up in base business and steady growth in Carbogen Amcis. Possibility of signing additional CRAMS contracts remains a latent trigger. At CMP of Rs.181/- the stock trades at 8.2x FY10E and 6.7x FY11E earnings. We recommend a BUY on the stock with price target of Rs.272/- (10x FY11E FDEPS) over a 12 month horizon.

Financials
Year FY08 FY09P FY10E FY11E Net Sales# 8,044 10,671 12,649 15,318 % growth 36.0 32.7 18.5 21.1 EBIDTA 1,542 2,662 3,131 3,715 OPM % Adj.PAT* 19.2 24.9 24.8 24.3 818 1,462 1,800 2,211 % growth FDEPS(Rs.) % growth PER (x) ROANW % ROACE % 0.6 78.6 23.1 22.8 10.1 18.0 22.1 27.2 0.6 78.6 23.1 22.8 18.0 10.1 8.2 6.7 27.3 23.2 23.1 22.9 10.8 15.1 16.1 17.1

Figure in Rs mn, # Includes other operating income, *Excl. forex exceptional items., P=Balance Sheet figures are projected.

24 June 2009

Dishman Pharma

37

DOLAT CAPITAL
INCOME STATEMENT Particulars Net Sales Other Operating Income Income From Operations Other Income Total Income Total Opex Operating Profit (excl. Other Income) Operating Profit (incl. Other Income) Interest Gross Profit Depreciation Profit Before Tax & EO Items Exceptional Items Forex Gain/Loss Profit Before Tax Tax Net Profit Adjusted Net Profit BALANCE SHEET Particulars Sources of Funds Equity Capital Preference Capital Reserves (excl Rev Res) Net Worth Revaluation reserve Secured Loans Unsecured Loans Loan Funds Deferred Tax Liability/(Asset) Total Capital Employed Applications of Funds Gross Block Less: Accumulated Depreciation Net Block Capital Work in Progress Investments Current Assets, Loans & Advances Inventories Sundry Debtors Cash and Bank Balance Loans and Advances Other Current Assets sub total Less : Current Liabilities & Provisions Current Liabilities Provisions sub total Net Current Assets Misc Expenses Total Assets E-estimates 1,959.1 513.2 2,472.3 4,114.7 6.4 12,463.7 2,065.7 596.8 2,662.5 4,286.0 6.4 14,380.8 2,588.8 743.2 3,332.0 5,946.0 6.4 16,335.5 3,137.4 889.6 4,027.0 7,697.5 6.4 18,500.0 3,047.3 2,041.8 371.0 1,126.9 0.0 6,587.0 3,098.5 1,623.0 400.0 1,826.9 0.0 6,948.5 4,142.1 2,071.1 537.9 2,526.9 0.0 9,278.0 5,438.1 2,509.9 449.5 3,326.9 0.0 11,724.4 7,800.6 1,117.8 6,682.9 1,484.7 175.0 10,585.4 1,746.9 8,838.5 1,000.0 250.0 12,085.4 2,502.2 9,583.1 500.0 300.0 13,285.4 3,339.2 9,946.1 500.0 350.0 159.4 0.0 5,498.6 5,658.0 76.8 5,796.2 783.6 6,579.8 149.2 12,463.7 161.4 0.0 6,793.0 6,954.4 76.9 5,296.2 1,904.1 7,200.3 149.2 14,380.8 162.6 0.0 8,446.4 8,609.1 76.9 5,396.2 2,104.1 7,500.3 149.2 16,335.5 162.6 0.0 10,511.0 10,673.6 76.9 5,296.2 2,304.1 7,600.3 149.2 18,500.0 (D) Valuation Ratios Market Price - Average Price / Earnings Ratio (x) Market Cap. (Rs. mn.) Market Capitalisation to Sales (x) Enterprise Value (Rs. mn.) EV/Sales (x) EV/EBDITA (x) Market Price to Book Value (x) Dividend Yield (%) E-estimates 181.0 18.0 14718.7 1.8 20,927.5 2.6 12.9 2.5 0.56 181.0 10.1 14718.7 1.4 21,519.0 2.0 8.1 2.1 0.66 181.0 8.2 14718.7 1.2 21,681.1 1.7 6.7 1.7 0.83 181.0 6.7 14718.7 1.0 21,869.5 1.4 5.7 1.4 0.93 Mar’08 Mar’09P Mar’10E Mar’11E Mar’08 8,030.8 13.6 8,044.4 84.4 8,128.8 6,502.1 1,542.3 1,626.8 305.0 1,321.8 471.9 849.9 18.1 -378.6 1,210.4 13.3 1,197.1 818.5 Mar’09 10,623.6 47.6 10,671.2 0.0 10,671.2 8,009.0 2,662.2 2,662.2 458.5 2,203.7 629.1 1,574.6 5.5 0.0 1,569.1 107.2 1,461.9 1,461.9 Mar’10E 12,598.9 50.0 12,648.9 100.0 12,748.9 9,518.3 3,130.6 3,230.6 540.0 2,690.6 755.3 1,935.3 0.0 0.0 1,935.3 135.5 1,799.8 1,799.8 Rs.mn Mar’11E 15,268.5 50.0 15,318.5 100.0 15,418.5 11,603.7 3,714.7 3,814.7 600.4 3,214.3 837.0 2,377.3 0.0 0.0 2,377.3 166.4 2,210.9 2,210.9 (C) Measures of Investment Earnings Per Share (Rs.) (excl EO) Earnings Per Share (Rs.) Cash Earnings Per Share (Rs.) Dividend Per Share (Rs.) Dividend Payout (%) Profit Ploughback (%) Book Value (Rs.) Return on Avg. Net Worth (%) Return on Avg. Cap. Employed (%) Return on Cap. Employed (%) 10.1 14.7 20.5 1.0 6.9 93.1 71.0 27.3 10.8 9.0 18.0 18.0 25.7 1.2 6.7 93.3 86.2 23.2 15.1 14.8 22.1 22.1 31.4 1.5 6.8 93.2 105.9 23.1 16.1 15.3 27.2 27.2 37.5 1.5 5.5 94.5 131.3 22.9 17.1 16.3 (B) Measures of Financial Status Debt / Equity (x) Interest Coverage (x) Average Cost Of Debt (%) Debtors Period (days) Closing stock (days) Inventory Turnover Ratio (x) Fixed Assets Turnover (x) Working Capital Turnover (x) 1.2 5.3 5.0 92.8 138.5 2.6 1.2 2.0 1.0 5.8 6.7 55.8 106.5 3.4 1.2 2.5 0.9 6.0 7.3 60.0 120.0 3.0 1.3 2.1 0.7 6.4 8.0 60.0 130.0 2.8 1.5 2.0 IMPORTANT RATIOS Particulars (A) Measures of Performance (%) Operating Profit Margin (excl. O.I.) Operating Profit Margin (incl. O.I.) Interest / Sales Gross Profit Margin Tax/PBT Net Profit Margin 19.2 20.2 3.8 16.4 1.1 14.9 24.9 24.9 4.3 20.7 6.8 13.7 24.8 25.5 4.3 21.3 7.0 14.2 24.3 24.9 3.9 21.0 7.0 14.4 Mar’08 Mar’09P Mar’10E Mar’11E

24 June 2009

Dishman Pharma

38

Dredging Corporation of India Ltd.
CMP: Rs 485 Target Price: Rs 632
Mint-in-the-Silt...!!!

DOLAT CAPITAL Dredging / Buy

Dredging Corporation India Limited (DCIL) is blessed with an enviable situation of being an exclusive local participant in a blow-out opportunity in the space of Indian Maritime Infrastructure. DCIL is also adding to its repertoire of necessary skill-sets that widen its operating canvass. The right-of first refusal on existing dredging contracts and a multiplier on the current space (post completion of maritime upgrade) stands a business advantage further. The strong PSU disinvestment undercurrent works as an additional sweetener. We reiterate our Buy recommendation with a price target of Rs.632 (10x FY11E EPS)over the next 12 months.
Analyst: Kapil Yadav Tel : +9122 4096 9735 Email: kapil@dolatcapital.com BSE Sensex NSE Nifty Scrip Details Equity Face Value Market Cap 52 week High/Low Month Avg. Volume BSE Code NSE Symbol Bloomberg Code Reuters Code Rs.280mn Rs.10/Rs.13.6bn US$277.7mn Rs.650/180 94368 523618 DREDGECORP DCILIN DRDG.BO 14423 4293

Investment Rationale
Dredging – a mission critical national mega-expenditure
India has been witnessing inadequate port facilities as a bottleneck to its exim growth. The national policy on infrastructure has identified development of existing and new ports as an immediate priority. The modernisation efforts by Govt are being complemented by some large ticket private sector investments in several large Greenfield projects like Dhamra, Rewas, Machlipatnam, Dahej and Gangavaram. The 11th plan highlights total capital dredging requirement of major ports and Sethusamudram project estimates at ~298.28mn cu mtr. Concurrently, the maintenance dredging activity is projected at 380.06mn cu mtr.

DCIL at a pole position to play the opportunity
DCIL is the dominant player in dredging with ~80% market share of the maintenance dredging industry. It enjoys assured business from the major ports like JNPT and Kolkata (~40% of its revenue) and has long term contracts with established ports. It also stands to benefit from its “right of first refusal” clause with the port trust authorities over foreign players. The current domain expertise also puts it in an enviable position in securing bids with its ability to quickly mobilize fleets.

Business Group - Govt. of India Shareholding Pattern as on Mar’09(%) Promoter MF/Banks/FIs FIIs Corporate Bodies Public / Others 78.6 9.9 3.5 3.5 4.7

Well-geared to complement the business prospects
Currently, the company is operating at 93% capacity utilization which limits growth in medium term. Considering the expected demand growth, the company plans to acquire two dredgers one for maintenance and the other one for capital dredging work with a capital investment of Rs~13.5bn. This would increase the capacity by 15% to 91.49 cu mtr by FY11. We believe that this would help maintain its market share going ahead.

Dredging relative to Sensex 120 110 100 90 80 70 60 50 40 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 Dredging BSE Sensex

Sethusamudram: a defining development opportunity
Completion of Rs270bn Sethusamudram is on government’s priority list. DCIL is an equity participant in this SPV. The project is a landmark to establish DCI’s credentials in the Capital Dredging segment (a weaker territory till date) and enable its business

model migration into this space. This migration coupled with its priority right on maintenance provides long term sustainability to DCIL’s business.

Valuation
DCIL is an exclusive domestic particiant in an emerging space of Indian maritime sector. Its tryst with Sethusamudram project would enable DCIL to righteously enhance its capcity when India is set to expand its maritime infrastructure. DCIL is set to witness change in its growth profile in the coming years (profit CAGR of 42% till FY11E). DCIL would trade at a premium valuation on account of its virtual monopoly in a high-growth segment, tempting valuations and a possible trigger of disinvestment (which means improved liquidity and enhanced price realisation mechanism). We reiterate our Buy recommendation with a price target of Rs.632 (10x FY11E EPS).
OPM% 18.1 11.5 17.5 19.7 PAT % growth 1,548 881 1,277 1,769 (18.0) (43.1) 44.9 38.5 EPS(Rs.) 55.3 31.5 45.6 63.2 % growth (19.7) (43.1) 44.9 38.5 PER(x) 8.8 15.4 10.6 7.7 ROANW(%) 13.1 7.1 9.9 12.4 ROACE(%) 12.6 7.8 10.7 12.7

Financials
Year FY08 FY09E FY10E FY11E Figure in Rs mn Net Sales % growth 7,053 8,661 9,938 11,790 23.1 22.8 14.8 18.6 EBITDA 1,276 993 1742 2,317

24 June 2009

Dredging Corporation of India Ltd.

39

DOLAT CAPITAL
INCOME STATEMENT Particulars Net Sales Other income Total Income Total Expenditure EBIDTA (Excl. Other Income) EBIDTA (Incl. Other Income) Interest Gross Profit Depreciation Profit Before Tax & EO Items Profit Before Tax Tax Net Profit Mar’08 7,052.9 661.5 7,714.4 5,776.6 1,276.4 1,937.8 13.0 1,924.8 417.3 1,507.5 1,507.5 170.1 1,548.0 Mar’09E 8,660.7 515.7 9,176.4 7,667.9 992.8 1,508.5 13.7 1,494.9 504.9 990.0 990.0 108.9 881.1 Mar’10E 9,938.3 491.5 10,429.8 8,196.6 1,741.6 2,233.1 95.2 2,137.9 703.3 1,434.7 1,434.7 157.8 1,276.9 Rs.mn Mar’11E 11,789.5 461.5 12,251.0 9,472.0 2,317.5 2,779.0 28.6 2,750.4 762.8 1,987.7 1,987.7 218.6 1,769.0

IMPORTANT RATIOS Particulars (A) Measures of Performance (%) Contribution Margin EBIDTA Margin (excl. O.I.) EBIDTA Margin (incl. O.I.) Interest / Sales Gross Profit Margin Tax/PBT Dep/Grossblock Net Profit Margin (B) As Percentage of Net Sales Spares & Stores Employee Expenses Repairs & Maintenance Fuel and Lubricant 7.8 6.4 8.7 28.7 0.8 21.7 0.7 7.1 10.5 7.1 11.0 24.0 1.0 25.5 1.0 8.0 8.0 6.7 8.7 26.0 1.0 25.6 1.0 8.0 8.0 6.0 9.0 26.0 1.0 25.6 1.0 8.0 18.1 25.1 0.2 25.0 11.3 4.5 20.1 11.5 16.4 0.2 16.3 11.0 5.0 9.6 17.5 21.4 1.0 20.5 11.0 5.0 12.2 19.7 22.7 0.2 22.5 11.0 5.0 14.4 Mar’08 Mar’09 Mar’10E Mar’11E

BALANCE SHEET Particulars Sources of Funds Equity Capital General reserve Tonnage tax Net Worth Secured Loans Unsecured Loans Loan Funds Total Capital Employed 165.3 165.3 12,553.2 280.0 7,002.7 1,170.0 12,387.8 280.0 7,402.8 693.0 12,311.0 0.0 227.6 227.6 13,098.6 280.0 8,198.8 1,004.3 13,418.3 0.0 1,586.8 1,586.8 15,565.1 280.0 9,486.9 1,391.4 15,093.5 0.0 476.0 476.0 16,129.5 Mar’08 Mar’09E Mar’10E Mar’11E

Insurance Other operational exp Provisions Admin exp (C) Measures of Financial Status Debt / Equity (x) Interest Coverage (x) Average Cost Of Debt (%) Debtors Period (days) Closing stock (days) Inventory Turnover Ratio (x)

0.0 149.0 5.6 153.5 15.3 23.9 0.8 1.1 3,901.9

0.0 110.5 6.0 154.0 15.0 24.3 0.9 1.3 5,744.0

0.1 23.5 6.0 154.0 15.0 24.3 0.7 1.3 6,628.7

0.0 97.3 6.0 154.0 15.0 24.3 0.8 1.4 7,911.0

Applications of Funds Gross Block Less: Accumulated Depreciation Net Block Capital Work in Progress Investments Current Assets, Loans & Advances Inventories Sundry Debtors Cash and Bank Balance Loans and Advances Other Current Assets sub total Less : Current Liabilities & Provisions Current Liabilities Provisions sub total Net Current Assets Total Assets 1,982.3 318.1 2,300.4 6,636.0 12,553.2 1,559.0 258.0 1,817.0 6,798.9 13,098.6 1,788.9 258.6 2,047.5 7,905.8 15,565.1 2,122.1 259.3 2,381.4 8,328.5 16,129.5 295.6 2,965.9 2,734.1 1,595.5 1,345.2 8,936.4 355.9 3,654.1 1,054.9 1,905.4 1,645.5 8,615.9 408.4 4,193.1 1,277.0 2,186.5 1,888.3 9,953.3 484.5 4,974.2 417.4 2,593.7 2,240.0 10,709.9 9,235.7 5,918.7 3,317.0 2,355.2 245.0 10,098.1 6,423.6 3,674.5 2,380.2 245.0 14,065.1 7,126.8 6,938.3 476.0 245.0 15,255.2 7,889.6 7,365.6 190.4 245.0

Fixed Assets Turnover (x) Working Capital Turnover (x) Non Cash Working Capital (Rs Mn) (D) Measures of Investment EPS (Rs.) (excl EO) EPS (Rs.) CEPS (Rs.) DPS (Rs.) Dividend Payout (%) Profit Ploughback (%) Book Value (Rs.) RoANW (%) RoACE (%) RoAIC (%) (Excl Cash & Invest.) (E) Valuation Ratios CMP (Rs.) P/E (x) Market Cap. (Rs. Mn.)

55.3 55.3 70.2 15.0 27.1 72.9 442.4 13.1 12.6 17.4

31.5 31.5 49.5 15.0 47.7 52.3 439.7 7.1 7.8 9.2

45.6 45.6 70.7 15.0 32.9 67.1 479.2 9.9 10.7 11.6

63.2 63.2 90.4 15.0 23.7 76.3 539.1 12.4 12.7 13.4

485.0 8.8 13,580.0 1.9 11,011.2 1.6 8.6 1.1 3.1

485.0 15.4 13,580.0 1.6 12,752.7 1.5 12.8 1.1 3.1

485.0 10.6 13,580.0 1.4 13,889.8 1.4 8.0 1.0 3.1

485.0 7.7 13,580.0 1.2 13,638.6 1.2 5.9 0.9 3.1

CASH FLOW Particulars Profit before tax and extra ordinary items Depreciation & w.o. Net Interest Exp Direct taxes paid Change in Working Capital (Non Cash) Other (A) Cash Flow from Operating Activities Capex {Inc./ (Dec.) in Fixed Assets n WIP} Free Cash Flow Inc./ (Dec.) in Investments Other (B) Cash Flow from Investing Activities Inc./(Dec.) in Debt Interest exp net Dividend Paid (Incl. Tax) (C) Cash Flow from Financing Net Change in Cash Opening Cash & Cash equivalent Closing Cash & Cash equivalent E-estimates Mar’08 1,507.8 417.3 (342.9) 669.9 (1,402.9) (13.8) 835.4 (1,687.9) (852.5) (100.0) 377.9 (1,410.0) (136.2) 0.0 (540.5) (676.8) (1,251.4) 3,985.5 2,734.1 (887.5) 62.3 0.0 (480.9) (418.6) (1,679.2) 2,734.1 1,054.9 Mar’09E 990.0 504.9 13.7 (108.9) (1,842.1) 69.3 (373.1) (887.5) (1,260.6) 0.0 Mar’10E 1,434.7 703.3 95.2 (157.8) (884.8) 0.0 1,190.6 (2,062.9) (872.3) 0.0 216.1 (1,846.8) 1,359.2 0.0 (480.9) 878.3 222.1 1,054.9 1,277.0 Mar’11E 1,987.7 762.8 28.6 (218.6) (1,282.3) 0.0 1,278.0 (904.5) 373.6 0.0 0.5 (904.0) (1,110.8) 0.0 (480.9) (1,233.7) (859.6) 1,277.0 417.4

MCap/ Sales (x) EV (Rs. Mn.) EV/Sales (x) EV/EBDITA (x) P/BV (x) Dividend Yield (%) E-estimates

24 June 2009

Dredging Corporation of India Ltd.

40

Engineers India Ltd. (EIL)
CMP: Rs 1011
Making of a Butterfly...!!!

DOLAT CAPITAL Engineering / Unrated

EIL, a globally competent GOI undertaking takes pride in providing high end Project Management Consultancy (PMC) services to the downstream PSU hydrocarbon companies. With an extension of EPC services through its Lump Sum Turnkey (LSTK) arm, EIL has earned the status of a ‘Total Solution Provider’. Scalability through LSTK without loosing focus on high margin PMC, an asset light model with a positive free cash flow and surplus cash position makes EIL even more attractive. We like the business model of the company and expect it to be one of the beneficiaries of the divestment.
Analyst: Sameer Panke Tel : +9122 4096 9757 Email: sameer@dolatcapital.com Associate : Bindal Totlani Tel : +9122 4096 9724 Email: bindal@dolatcapital.com BSE Sensex NSE Nifty Scrip Details Equity Face Value Market Cap 52 week High/Low 1-Month Avg. Volume BSE Code NSE Symbol Bloomberg Code Reuters Code Rs.561.6mn Rs.10/Rs.56.8bn US$1169.1mn Rs.1067/300 47286 532178 ENGINERSIN ENGR IN ENGI.BO 14423 4293

Investment Rationale
Niche player focused on Hydrocarbons
EIL had secured domestic order inflow of 13% out of the total outlay of Rs 366 billion by the downstream PSU Petroleum and Natural Gas (PNG) companies during the 10th five year plan. In the 11th plan this budgeted outlay has nearly doubled to Rs 626 billion. Of this, EIL has already captured 12% share in FY08 & FY09. We expect this share to grow to 37% by the end FY12 at a CAGR of 18% on the back of doubling of the opportunity pie and increased LSTK focus by the company.

Enhancing Core Competencies
EIL has profound experience in complying with international standards such as ASME (American Standard of Mechanical Engineering) codes and practices used in designing of hydrocarbon plants. Being an expert in delivering high end technical services such as ‘Detailed Engineering Design’, the company is truly a globally competent engineering consultancy enterprise. EIL has successfully delivered these services through a pool of its skilled professionals, innovative tools and use of collaborative techniques. EIL is an infrastructure play with its domain expertise in engineering.

Business Model altered to track growth
LSTK focused - With sudden spurt in LSTK revenue share from 16% in FY08 to 46% in FY09; the revenue has grown by ~ 108%. This stupendous growth corresponds to margin dilution due to low EBIT margins of ~ 4.4% in LSTK business but indicates ROCE protection since there is lower additional capital required for incremental LSTK revenues. We expect Rs 75 billion of total current order book (OB), to grow to Rs ~ 123 billion by FY11. LSTK segment will occupy major share of 63% in FY11 OB. This will enhance the LSTK revenue share to 61% in FY11. Adjacent diversification- EIL believes that basic engineering is same for all the areas/ sectors and hence is well poised to foray into high margin sectors such as Nuclear Power, Solar Power and unexplored areas of Water with minimum incremental costs. Currently, 90% of EIL’s business comes from PSU PNG companies.

Business Group - Govt. of India Shareholding Pattern as on Mar’09(%) Promoter MF/Banks/FIs FIIs Corporate Bodies Public / Others 90.4 4.5 1.6 0.4 3.0

200 180 160 140 120 100

EIL relative to BSE Sensex

Earning estimates revised upwards post Q4FY09 results
We have revised salary expenditure estimates for FY10 and FY11 downwards by 21% and 30% respectively to take cognizance of the write back of Rs 602 mn towards higher employee expense provision in FY08. This has resulted in an upward revision in EPS by ~ Rs 3 each in FY10 and FY11 to Rs 57.8 and Rs 69.6 respectively.

Risks and Concerns
Slowdown in order inflow due to drying up of investments in hydrocarbon might hamper scalability. Margin dilution expected due to rise in LSTK’s share in total revenue.

80 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 EIL BSE Sensex

Valuations
We have revised the fair price to Rs 895/- per share (PMC-Rs 540 + LSTK-Rs 92+ Cash per share of FY09E – Rs 263) from Rs 830/- by assigning respective earning multiples to segmental Core EPS of FY11E (PMC 15x and LSTK 9x) and adding cash per share.
OPM % 23.4 20.2 17.1 16.3 PAT 1,946.0 3,445.3 3,243.7 3,911.1 % Growth EPS (Rs.) 36.1 77.0 (5.9) 20.6 34.7 61.4 57.8 69.6 % Growth 36.1 77.0 (5.9) 20.6 PER (x) ROANW (%) 29.2 16.5 17.5 14.5 17.8 27.3 21.7 22.0 ROACE (%) 29.7 44.6 35.5 35.6

Financials
Year FY08 FY09 FY10E FY11E Net Sales 7,377.5 15,324.6 21,077.8 30,669.3 % Growth 29.2 107.7 37.5 45.5 EBIDTA 1,727.1 3,100.0 3,599.9 4,999.2

Figure in Rs.mn

24 June 2009

Engineers India Ltd.

41

DOLAT CAPITAL
INCOME STATEMENT Particulars Net Sales Other income Total Income Total Expenditure Raw Material Employee Expenses Selling & Administrative Expenses Other Expenses EBIDTA (Excl. Other Income) EBIDTA (Incl. Other Income) Interest Gross Profit Depreciation Profit Before Tax & EO Items Extra Ordinary Exps/(Income) Profit Before Tax Tax Net Profit BALANCE SHEET Particulars Sources of Funds Equity Capital Preference Capital Share Premium Net Worth Secured Loans Unsecured Loans Loan Funds Deferred Tax Liability Total Capital Employed Applications of Funds Gross Block Less: Accumulated Depreciation Net Block Capital Work in Progress Investments Current Assets, Loans & Advances Inventories Sundry Debtors Cash and Bank Balance Loans and Advances Other Current Assets sub total Less : Current Liabilities & Provisions Current Liabilities Provisions sub total Net Current Assets Misc Expenses Total Assets CASH FLOW Particulars Profit before tax and extra ordinary items Depreciation & w.o. Net Interest Exp Direct taxes paid Change in Working Capital (Non Cash) Other (A) Cash Flow from Operating Activities Capex {Inc./ (Dec.) in Fixed Assets n WIP} Free Cash Flow Inc./ (Dec.) in Investments Other (B) Cash Flow from Investing Activities Issue of Equity/ Preference Inc./(Dec.) in Debt Interest exp net Dividend Paid (Incl. Tax) Other (C) Cash Flow from Financing Net Change in Cash Opening Cash balances Closing Cash balances E-estimates Mar’08 2,963.0 104.3 15.5 (992.8) 2,239.5 (1,207.0) 3,122.6 (155.3) 2,967.2 (94.5) 895.8 646.0 0.0 0.0 (15.5) (720.6) 79.1 (657.0) 3,111.6 9,414.2 12,525.8 (1,215.0) 2,245.7 12,525.8 14,771.5 (812.2) 1,339.7 14,771.5 16,111.2 (143.2) 2,200.7 16,111.2 18,311.9 (104.5) 3.0 0.0 (2.5) (1,215.4) (400.0) 0.0 0.0 (23.8) (788.4) (500.0) 0.0 750.0 (104.8) (788.4) 3,565.2 (204.5) 3,360.7 100.0 2,551.9 (400.0) 2,151.9 0.0 2,843.9 (500.0) 2,343.9 0.0 Mar’09P 5,204.7 108.1 2.5 (1,759.3) 9.2 Mar’10E 4,959.2 158.8 23.8 (1,715.6) (874.3) Mar’11E 6,011.6 200.0 104.8 (2,100.5) (1,372.0) 7,973.4 1,671.9 9,645.3 8,585.6 4.0 10,561.3 9,219.1 2,909.1 12,128.2 10,822.1 0.0 12,790.2 11,875.6 2,648.2 14,523.8 13,036.2 0.0 15,245.5 14,561.0 2,834.1 17,395.1 16,608.8 0.0 19,118.2 8.4 1,765.5 12,525.8 1,816.7 2,114.6 18,231.0 293.9 4,000.0 14,771.5 1,512.7 2,372.2 22,950.3 404.2 6,929.7 16,111.2 1,763.0 2,351.8 27,560.0 588.2 10,923.3 18,311.9 1,801.9 2,378.6 34,004.0 (E) Valuation Ratios CMP (Rs.) P/E (x) Market Cap. (Rs. Mn.) MCap/ Sales (x) EV (Rs. Mn.) EV/Sales (x) EV/EBDITA (x) P/BV (x) Dividend Yield (%) E-estimates 1,011.0 29.2 56,773.9 7.7 44,248.1 6.0 25.6 4.9 1.1 1,011.0 16.5 56,773.9 3.7 42,002.4 2.7 13.5 4.1 1.8 1,011.0 17.5 56,773.9 2.7 40,662.7 1.9 11.3 3.5 1.2 1,011.0 14.5 56,773.9 1.9 39,212.0 1.3 7.8 2.9 1.2 1,581.3 1,112.4 468.9 34.7 1,468.1 1,820.5 1,220.5 600.0 0.0 1,368.1 2,220.5 1,379.3 841.2 0.0 1,368.1 2,720.5 1,579.2 1,141.3 0.0 1,368.1 92.0 11,520.5 0.0 0.0 0.0 (959.2) 10,561.3 95.0 13,096.8 13,753.4 0.0 0.0 0.0 (963.2) 12,790.2 95.0 15,552.1 16,208.6 0.0 0.0 0.0 (963.2) 15,245.5 95.0 18,674.8 19,331.4 750.0 0.0 750.0 (963.2) 19,118.2 (D) Measures of Investment EPS (Rs.) (excl EO) EPS (Rs.) CEPS (Rs.) DPS (Rs.) Dividend Payout (%) Profit Ploughback (%) Book Value (Rs.) RoANW (%) RoACE (%) RoAIC (%) (Excl Cash & Invest.) 35.1 34.7 36.5 11.0 31.7 68.3 205.2 17.8 29.7 (315.5) 61.4 61.4 63.3 18.5 30.2 69.8 244.9 27.3 44.6 (263.9) 57.8 57.8 60.6 12.0 20.8 79.2 288.6 21.7 35.5 (350.0) 69.6 69.6 73.2 12.0 17.2 82.8 344.2 22.0 35.6 (20,538.6) Other Reserves (excl Share Premium & Rev Res) 10,866.9 561.6 561.6 561.6 561.6 Mar’08 Mar’09P Mar’10E Mar’11E Mar’08 7,377.5 1,355.7 8,733.2 5,650.4 920.3 3,259.4 363.9 1,106.8 1,727.1 3,082.9 15.5 3,067.4 104.3 2,963.0 24.2 2,938.8 992.8 1,946.0 Mar’09 15,324.6 2,215.3 17,539.9 12,224.6 6,853.3 3,869.3 0.0 1,502.1 3,100.0 5,315.3 2.5 5,312.8 108.1 5,204.7 0.0 5,204.7 1,759.3 3,445.3 Mar’10E 21,077.8 1,541.9 22,619.7 17,477.9 10,616.8 4,217.5 1,038.6 1,605.0 3,599.9 5,141.8 23.8 5,118.0 158.8 4,959.2 0.0 4,959.2 1,715.6 3,243.7 6,011.6 2,100.5 3,911.1 (C) Measures of Financial Status Debt / Equity (x) Interest Coverage (x) Average Cost Of Debt (%) Debtors Period (days) Closing stock (days) Inventory Turnover Ratio (x) Fixed Assets Turnover (x) Working Capital Turnover (x) Non Cash Working Capital (Rs Mn) 0.0 198.8 0.0 87.3 0.4 879.2 4.7 0.9 (3,940.2) 0.0 2,143.3 0.0 95.3 7.0 52.1 8.4 1.4 (3,949.4) 0.0 215.9 0.0 120.0 7.0 52.1 9.5 1.6 (3,075.1) 0.0 60.3 27.9 130.0 7.0 52.1 11.3 1.8 (1,703.1) Rs.mn Mar’11E 30,669.3 1,317.1 31,986.4 25,670.1 16,654.8 4,597.1 1,636.2 2,781.9 4,999.2 6,316.4 104.8 6,211.6 200.0 6,011.6 (B) As Percentage of Net Sales Raw Material Employee Expenses Power, Oil & Fuel Selling & Administrative Expenses Provisions & Write Offs Other Expenses 12.5 44.2 0.0 4.9 0.0 15.0 44.7 25.2 0.0 5.0 0.0 15.0 50.4 20.0 0.0 4.9 0.0 7.6 54.3 15.0 0.0 5.3 0.0 9.1 IMPORTANT RATIOS Particulars (A) Measures of Performance (%) Contribution Margin EBIDTA Margin (excl. O.I.) EBIDTA Margin (incl. O.I.) Interest / Sales Gross Profit Margin Tax/PBT Net Profit Margin 23.4 41.8 0.2 41.6 33.8 26.4 20.2 34.7 0.0 34.7 33.8 22.5 17.1 24.4 0.1 24.3 34.6 15.4 16.3 20.6 0.3 20.3 34.9 12.8 Mar’08 Mar’09P Mar’10E Mar’11E

24 June 2009

Engineers India Ltd.

42

Financial Technologies India Ltd.(FT)
CMP: Rs 1340 Target Price: Rs 1725
U Trade I Mint…!!!

DOLAT CAPITAL IT / Buy

Financial Technologies (FT) started its business with the vision of dominating the global transaction market and its transaction engine is its USP. FT is a transaction centric business wherein the transactions drive each and every component of the business across asset classes back ended by superior products which provide faster, efficient, secure and a convenient mechanism to drive these transactions. The emphasis is on providing services with Finance as the core domain, convenience as the tool and disintermediation as the envelope covering FT’ services. As India picks up the pieces in the downturn and the markets stabilize, FT will be at the core of most of the transactions that happen in any market in India. We are positive on the stock and initiate coverage on the company with a ‘Buy’ rating and a price target of Rs. 1725 valued on SOTP method.
Analyst: Indrajeet Kelkar Tel : +9122 4096 9751 Email: indrajeet@dolatcapital.com BSE Sensex NSE Nifty Scrip Details Rs.91.8mn Rs.2/Rs.61.5bn US$1257.4mn 52 week High/Low Rs.1900/404 1-Month Avg. Volume (Daily) 288827 BSE Code 526881 NSE Symbol FINANTECH Bloomberg Code FTECH IN Reuters Code FITE.BO Business Group - Indian Private Shareholding Pattern as on Mar’09(%) Promoter MF/Banks/FIs FIIs Corporate Bodies Public / Others 45.6 6.8 24.7 3.6 19.3 Equity Face Value Market Cap 14423 4293

Investment Rationale
Transaction at the Core
FT is an IT products company which creates an interface through their flagship product ODIN which facilitates transaction processing across different asset classes, making things faster, transparent and live. FT has sold 360000 ODIN licenses so far and is the market leader in the commodities and equities segment (85% market share). The Brokerage solutions business contributes ~70% of the revenues, and this core business will drive and be driven by the new ventures that FT has started.

Exchange Business - Kernel of convenience and surveillance
The exchange business operates around the core transaction engine and enables FT to address different asset classes. MCX is the largest commodity exchange with over an 80% of the market share of the US$1.1 trillion Indian commodities market. MCX is the primary driver for FT’s core IT products business and this emulates the transaction centric business that FT has been driving. With ODIN as the front end for the commodities exchange it derives the benefits of any rise in the commodities market. With an average daily turnover of Rs. 138.7bn MCX compliments the transaction centric approach that FT has created. We expect commodity volumes to pick up going forward and this will drive MCX growth.

Leveraging proven expertise into newer domains
FT is replicating the MCX success in other exchange ventures. The MCX experience has allowed FT to drive new geographies and create new markets and MCX-SX is one such venture. MCX-SX is currently operates in the currency futures business with plans to operate as the third National Exchange apart from BSE and NSE in the equities market. With FT’s presence in the brokerage solutions segment, SEBI approval for the third equities exchange will increase trading volumes, effectively assuring a new revenue stream for FT.

FT relativet to BSE Sensex 150 130 110 90 70 50 30 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 FT BSE Sensex

NBHC - Monetization of the Agricultural Value chain
NBHC is a commodity and warehouse management solution which creates an opportunity for futures trading in agricultural commodities. With 4000 connected warehouses and a storage capacity of 1.64mn MT, NBHC offers farmers an opportunity to bring liquidity to the agricultural produce. The produce can be stored in NBHC warehouses and used as collateral for bank loans. NBHC gets 25bps from the farmer and 75bps from the bank for these services. The market is in a nascent stage and we can expect multifold growth in this business going forward.

Valuations
FT offers an IT products company which creates value through ventures driven by the core transaction engine. The different exchange ventures drive FT’s growth. We are positive on the stock and initiate coverage on the company with a ‘Buy’ rating and a price target of Rs. 1725 valued on SOTP basis.

24 June 2009

Financial Technologies India Ltd.

43

DOLAT CAPITAL
INCOME STATEMENT Particulars Net Sales Other Operational Income Total Income Total Expenditure Raw Material Selling & Administrative Expenses EBIDTA (Excl. Other Income) EBIDTA (Incl. Other Income) Other Income Interest Gross Profit Depreciation Profit Before Tax Tax Net Profit Minority Interest Net Profit BALANCE SHEET Particulars Sources of Funds Equity Capital Preference Capital Share Premium Other Reserves Net Worth Secured Loans Unsecured Loans Loan Funds Deferred Tax Liability Total Capital Employed Applications of Funds Gross Block Less: Accumulated Depreciation Net Block Capital Work in Progress Investments Deferred Tax Asset Current Assets, Loans & Advances Inventories Sundry Debtors Cash and Bank Balance Loans and Advances Other Current Assets sub total Less : Current Liabilities & Provisions Current Liabilities Provisions sub total Net Current Assets Misc Expenses Total Assets CASH FLOW Particulars Profit before tax and extra ordinary items Depreciation & w.o. Net Interest Exp Direct taxes paid Change in Working Capital (Non Cash) Other (A) Cash Flow from Operating Activities Capex {Inc./ (Dec.) in Fixed Assets n WIP} Free Cash Flow Inc./ (Dec.) in Investments Other (B) Cash Flow from Investing Activities Issue of Equity/ Preference Inc./(Dec.) in Debt Interest exp net Dividend Paid (Incl. Tax) Other (C) Cash Flow from Financing Net Change in Cash Opening Cash balances Closing Cash balances E-estimates Mar’08 12,415.4 23.5 109.3 (2,802.9) 331.0 (9,891.8) 184.6 (1,400.9) (1,216.3) (9,599.4) 7,100.6 (3,899.7) 3.6 (349.7) (109.3) (1,070.5) 4,786.7 3,260.8 (454.3) 1,815.2 3,520.1 313.1 3,017.8 3,520.1 6,537.9 (536.8) 735.4 6,537.9 7,273.3 (536.8) 1,319.9 7,273.3 8,593.3 (807.9) 0.0 850.5 (0.6) (536.8) (1,300.0) 0.0 0.0 0.0 (536.8) (1,200.0) 0.0 0.0 0.0 (536.8) 3,512.6 (807.9) 2,704.7 0.0 2,572.2 (1,300.0) 1,272.2 0.0 3,056.7 (1,200.0) 1,856.7 0.0 Mar’09E 4,081.8 103.8 0.6 (801.9) 128.3 Mar’10E 2,714.5 183.3 0.0 (569.1) 243.5 Mar’11E 3,162.8 246.9 0.0 (663.8) 310.9 600.8 666.6 1,267.4 2,861.4 0.0 18,688.3 1,154.5 866.6 2,021.1 5,750.9 0.0 22,281.9 1,399.4 1,126.6 2,526.0 6,242.8 0.0 23,890.5 1,804.0 1,464.6 3,268.6 7,251.9 0.0 25,852.7 0.4 189.6 3,520.1 416.2 2.5 4,128.9 0.0 461.8 6,537.9 769.7 2.6 7,772.0 0.0 559.8 7,273.3 932.9 2.8 8,768.8 0.0 721.6 8,593.3 1,202.7 2.9 10,520.5 (E) Valuation Ratios CMP (Rs.) P/E (x) Market Cap. (Rs. Mn.) MCap/ Sales (x) EV (Rs. Mn.) EV/Sales (x) EV/EBDITA (x) P/BV (x) Dividend Yield (%) E-estimates 1,340.1 6.4 61,488.7 44.7 61,963.0 45.0 138.0 4.2 0.7 1,340.1 18.7 61,488.7 21.9 59,795.8 21.3 44.8 3.5 0.4 1,340.1 28.7 61,488.7 18.1 59,060.3 17.3 34.8 3.2 0.4 1,340.1 24.6 61,488.7 14.0 57,740.4 13.2 26.1 2.9 0.4 458.0 77.5 380.5 1,692.1 13,743.3 11.0 1,958.0 181.3 1,776.7 1,000.0 13,743.3 11.0 3,458.0 364.6 3,093.5 800.0 13,743.3 11.0 4,658.0 611.4 4,046.6 800.0 13,743.3 11.0 0.0 14,602.0 14,693.8 3,994.5 3,994.5 0.0 18,688.3 0.0 17,345.1 17,436.9 4,845.0 4,845.0 0.0 22,281.9 0.0 18,953.7 19,045.5 4,845.0 4,845.0 0.0 23,890.5 0.0 20,915.9 21,007.7 4,845.0 4,845.0 0.0 25,852.7 (D) Measures of Investment EPS (Rs.) (excl EO) EPS (Rs.) CEPS (Rs.) DPS (Rs.) Dividend Payout (%) Profit Ploughback (%) Book Value (Rs.) RoANW (%) RoACE (%) RoAIC (%) (Excl Cash & Invest.) 209.5 209.5 210.0 10.0 4.8 95.2 320.2 115.3 100.1 127.3 71.5 71.5 73.7 5.0 7.0 93.0 380.0 20.4 19.9 26.4 46.8 46.8 50.8 5.0 10.7 89.3 415.1 11.8 11.8 16.8 54.5 54.5 59.8 5.0 9.2 90.8 457.8 12.5 12.7 18.7 91.8 91.8 91.8 91.8 Mar’08 Mar’09E Mar’10E Mar’11E 9,612.5 3,279.9 2,145.4 2,499.0 (C) Measures of Financial Status Debt / Equity (x) Interest Coverage (x) Average Cost Of Debt (%) Debtors Period (days) Closing stock (days) Inventory Turnover Ratio (x) Fixed Assets Turnover (x) Working Capital Turnover (x) Non Cash Working Capital (Rs Mn) 0.3 50.3 0.1 3.0 0.5 (658.7) 0.3 60.0 0.0 1.4 0.5 (787.0) 0.3 60.0 0.0 1.0 0.5 (1,030.5) 0.2 60.0 0.0 0.9 0.6 (1,341.4) Mar’08 1,375.6 0.0 1,375.6 926.5 45.4 881.1 449.1 12,548.3 12,099.2 109.3 12,439.0 23.5 12,415.4 2,802.9 9,612.5 Mar’09E 2,809.2 0.0 2,809.2 1,474.8 119.9 1,354.9 1,334.4 4,186.2 2,851.8 0.6 4,185.6 103.8 4,081.8 801.9 3,279.9 Mar’10E 3,405.2 0.0 3,405.2 1,707.4 113.4 1,594.1 1,697.8 2,897.8 1,200.0 0.0 2,897.8 183.3 2,714.5 569.1 2,145.4 Rs.mn Mar’11E 4,389.8 0.0 4,389.8 2,180.1 146.3 2,033.8 2,209.7 3,409.7 1,200.0 0.0 3,409.7 246.9 3,162.8 663.8 2,499.0 (B) As Percentage of Net Sales Raw Material Employee Expenses Power, Oil & Fuel Selling & Administrative Expenses Provisions & Write Offs Other Expenses 3.3 0.0 0.0 64.1 0.0 0.0 4.3 0.0 0.0 48.2 0.0 0.0 3.3 0.0 0.0 46.8 0.0 0.0 3.3 0.0 0.0 46.3 0.0 0.0 IMPORTANT RATIOS Particulars (A) Measures of Performance (%) Contribution Margin EBIDTA Margin (excl. O.I.) EBIDTA Margin (incl. O.I.) Interest / Sales Gross Profit Margin Tax/PBT Net Profit Margin 32.6 912.2 7.9 904.3 22.6 698.8 47.5 149.0 0.0 149.0 19.6 116.8 49.9 85.1 0.0 85.1 21.0 63.0 50.3 77.7 0.0 77.7 21.0 56.9 Mar’08 Mar’09 Mar’10E Mar’11E

24 June 2009

Financial Technologies India Ltd.

44

GlaxoSmithkline Pharmaceuticals Ltd.
CMP: Rs 1207 Target Price: Rs 1347
Chill Pill...!!!

DOLAT CAPITAL

Pharmaceuticals / Accumulate

GSK Pharma is our preferred pick in the MNC Pharma space on the back of parents’ strong commitment towards introducing high value patented products through Glaxo India in the domestic market. Lower dependency on price controlled products, new product launches with minimal generic competition and moderate pricing ensures revenue visibility. Healthy cash per share and a reasonable dividend yield, serves as a classic addition to the defensive portfolio.
Analyst: Bhavin Shah Tel : +9122 4096 9731 Email: bhavin@dolatcapital.com BSE Sensex NSE Nifty Scrip Details Equity Face Value Market Cap 52 week High/Low 1-Month Avg. Volume BSE Code NSE Symbol Bloomberg Code Reuters Code Rs.847mn Rs.10/Rs.102.2bn US$2091mn Rs.1299/930 5954 500660 GLAXO GLXO IN GLAX.BO 14423 4293

Investment Rationale
GSK India beneficiary of its parent’s commitment
GSK Plc has firm commitments towards launching patented products in India through the listed entity. The parent has one of the strongest pipelines with 83 products in the mid-to-late stage. Glaxo India emerges as a clear beneficiary on back of access to parents enriching pipeline which is skewed towards India specific diseases and is exposed to minimal generic competition.

Focus on Priority products and brand building initiatives
Glaxo’s well structured product mix favouring minimal DPCO exposure at 27% and the balance arising from priority brands has consequently boosted topline growth and ensured margin expansion. The company’s strong sales and marketing capabilities has made it a preferred partner of choice for global big pharma companies towards product licensing arrangements.

Business Group - MNC Associate Shareholding Pattern as on Mar’09(%) Promoter MF/Banks/FIs FIIs Corporate Bodies Public / Others 50.7 17.4 14.8 1.1 16.1

CY08 – Green flags for new product launches
GSK kicked off CY08 with several new product launches of the parent’s shelf namely Infanrix/Boostrix (Triple combination vaccine), Rotarix (Rotavirus vaccine) and Tykerb (breast cancer drug). The trend continues to sustain with Cervarix (cervical cancer vaccine) launched early CY09. We believe moderate pricing and significant domestic potential for these drugs ensures gradual scalability. Anticipated product launches during the remaining course of the year include Mycamine (in-licensed product from Astellas), Eltrombopag (platelet aggregator) - recently approved in the US and few other branded generic products.

GSK Pharma relative to Sensex 250 200 150 100 50 0 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 GSK Pharma BSE Sensex

Healthy Cash position
GSK currently has cash and cash equivalents of Rs.16.6bn translating to Rs.196 per share. Management is evaluating various options including brand acquisitions, share buyback or high dividend payouts to deploy surplus cash.

Valuations
Gradual scale up in revenues from new product launches would result in 11% revenue and 13% earnings growth over CY08-10E. The company remains fairly insulated from the global credit environment being a focused domestic pharma play with strong liquidity in the balance sheet. Healthy cash per share and a reasonable dividend yield, serves as a classic addition to the defensive portfolio. At CMP of 1207/- the stock trades at 20.1x CY09E and 17.8x CY10E earnings. We recommend “Accumulate” on the stock with a target price of 1347/- (17x CY10E earnings and cash of 196/- per share).
OPM % 34.6 35.6 35.7 36.1 PAT* % growth 3,968 4,484 5,081 5,736 9.7 13.0 13.3 12.9 EPS(Rs.)* % growth 46.8 52.9 60.0 67.7 9.7 13.0 13.3 12.9 PER (x) ROANW % 25.8 22.8 20.1 17.8 31.1 30.9 31.8 33.1 ROACE % 42.5 40.6 41.2 42.8

Financials
Year CY07 CY08 CY09E CY10E Net Sales# 15,962 16,807 18,621 20,724 % growth 2.8 5.3 10.8 11.3 EBIDTA 5,521 5,980 6,646 7,478

Figure in Rs mn, # Includes other operating income,* Adjusted.

24 June 2009

GlaxoSmithkline Pharmaceuticals Ltd.

45

DOLAT CAPITAL
INCOME STATEMENT Particulars Net Sales Operating Income Income From Operations Other income Total Income Total Expenditure Operating Profit (excl. Other Income) Operating Profit (incl. Other Income) Interest Gross Profit Depreciation Profit Before Tax & EO Items Extra Ordinary Exps/(Income) Profit Before Tax Tax Net Profit Adjusted Net Profit BALANCE SHEET Particulars Sources of Funds Equity Capital Preference Capital Reserves (excl Rev Res) Net Worth Revaluation reserve Secured Loans Unsecured Loans Loan Funds Deferred Tax Liability Minority Interest Total Capital Employed Applications of Funds Gross Block Less: Accumulated Depreciation Net Block Capital Work in Progress GOODWILL Investments Current Assets, Loans & Advances Inventories Sundry Debtors Cash and Bank Balance Loans and Advances Other Current Assets sub total Less : Current Liabilities & Provisions Current Liabilities Provisions sub total Net Current Assets Misc Expenses Total Assets E-estimates 2,447.7 3,925.5 6,373.2 -796.8 0.0 13,465.4 2,716.0 4,545.1 7,261.1 6,649.2 0.0 15,171.5 3,022.8 4,863.9 7,886.7 7,681.0 0.0 16,288.5 3,274.1 5,162.1 8,436.2 9,170.9 0.0 17,861.9 2,059.6 377.7 1,549.9 1,309.9 279.2 5,576.4 2,283.8 579.4 9,065.4 1,541.8 439.9 13,910.3 2,520.7 655.4 10,238.0 1,691.8 461.9 15,567.8 2,805.7 785.6 11,639.0 1,891.8 484.9 17,607.1 2,667.1 1,792.4 874.7 54.3 0.0 13,333.2 2,821.5 1,917.5 904.0 99.5 0.0 7,518.7 3,071.0 2,081.8 989.2 99.5 0.0 7,518.7 3,320.5 2,247.8 1,072.7 99.5 0.0 7,518.7 0.0 57.7 57.7 -201.4 0.0 13,465.4 0.0 56.5 56.5 -296.0 0.0 15,171.5 0.0 56.5 56.5 -296.0 0.0 16,288.5 0.0 56.5 56.5 -296.0 0.0 17,861.9 (D) Valuation Ratios Market Price - Average (Rs.) Price / Earnings Ratio - Average (x) Average Market Cap. (Rs. Mn.) Market Capitalisation to Sales (x) Enterprise Value (Rs. Mn.) EV/Sales (x) EV/EBDITA (x) Market Price to Book Value (x) Dividend Yield (%) E-estimates 1,207.0 25.8 102,236.5 6.5 100,744.2 6.3 16.2 7.5 3.0 1,207.0 22.8 102,236.5 6.2 93,227.6 5.5 13.4 6.6 3.3 1,207.0 20.1 102,236.5 5.6 92,055.0 4.9 11.6 6.2 3.3 1,207.0 17.8 102,236.5 5.0 90,654.0 4.4 10.2 5.0 3.5 847.0 0.0 12,762.1 13,609.2 847.0 0.0 14,563.9 15,410.9 847.0 0.0 15,680.9 16,528.0 847.0 0.0 17,254.3 18,101.4 Dec’07 Dec’08 Dec’09E Dec’10E Dec’07 15,771.4 190.3 15,961.7 708.1 16,669.8 10,440.8 5,520.9 6,229.0 0.0 6,229.0 161.6 6,067.4 (1,408.7) 7,476.1 2,099.5 5,376.6 3,967.9 Dec’08 16,604.1 202.7 16,806.8 982.8 17,789.6 10,827.2 5,979.6 6,962.4 0.0 6,962.4 163.4 6,799.0 (1,282.1) 8,081.1 2,315.4 5,765.7 4483.6 Dec’09E 18,401.4 220.0 18,621.4 1,275.3 19,896.7 11,975.2 6,646.2 7,921.5 0.0 7,921.5 164.3 7,757.2 0.0 7,757.2 2,676.2 5,081.0 5,081.0 Rs.mn Dec’10E 20,482.0 242.0 20,724.0 1,444.2 22,168.1 13,245.6 7,478.4 8,922.5 0.0 8,922.5 166.0 8,756.5 0.0 8,756.5 3,021.0 5,735.5 5,735.5 (B) Measures of Financial Status Debt / Equity (x) Interest Coverage (x) Average Cost Of Debt (%) Debtors Period (days) Closing stock (days) Inventory Turnover Ratio (x) Fixed Assets Turnover (x) Working Capital Turnover (x) (C) Measures of Investment Earnings Per Share (Rs.) (excl EO) Earnings Per Share (Rs.) Cash Earnings Per Share (Rs.) Dividend Per Share (Rs.) Dividend Payout (%) Profit Ploughback (%) Book Value (Rs.) Return on Avg. Net Worth (%) Return on Avg. Cap. Employed (%) 46.8 63.5 65.4 36.0 56.7 43.3 160.7 31.1 42.5 52.9 68.1 70.0 40.0 58.8 41.2 181.9 30.9 40.6 (411.0) 60.0 60.0 61.9 40.0 66.7 33.3 195.1 31.8 41.2 (450.0) 67.7 67.7 69.7 42.0 62.0 38.0 213.7 33.1 42.8 (529.1) 0.0 0.0 0.0 8.7 37.0 7.7 18.0 (19.8) 0.0 0.0 0.0 12.7 35.6 7.3 18.4 2.5 0.0 0.0 0.0 13.0 37.5 7.3 18.6 2.4 0.0 0.0 0.0 14.0 37.5 7.3 19.1 2.2 IMPORTANT RATIOS Particulars (A) Measures of Performance (%) Operating Profit Margin (excl. O.I.) Operating Profit Margin (incl. O.I.) Interest / Sales Gross Profit Margin Tax/PBT Net Profit Margin 34.6 39.0 0.0 39.0 28.1 33.7 35.6 41.4 0.0 41.4 28.7 34.3 35.7 42.5 0.0 42.5 34.5 27.3 36.1 43.1 0.0 43.1 34.5 27.7 Dec’07 Dec’08 Dec’09E Dec’10E

Return on Avg. Cap. Employed (%) (Excl Cash & Invest.) (762.5)

24 June 2009

GlaxoSmithkline Pharmaceuticals Ltd.

46

HDFC Bank
CMP: Rs 1456 Target Price: Rs 1711
All Weather Stock…!!!

DOLAT CAPITAL Banking / Accumulate

HDFC Bank is now well entrenched to sustain a strong 20% plus earnings growth rate. The bank has scaled down the unsecured retail assets book of the erstwhile CBoP, thus looking to curb its slippages. Benefits of its merger with CBoP will start reflecting in its improved branch productivity and a drop in cost to income ratio over the next few years. Additionally the bank is well capitalized to sustain this growth over the next few years . Despite rising slippages, HDFC Bank’s asset quality remains one of the best in class with the additional credit of lowest restructured loans amongst other banks. At CMP the stock trades at 18.5x FY11E EPS of Rs 78.8, 2.8x FY11E Book Value and 3.0x FY10E Adj. book value. We maintain a Accumulate on the stock with a revised price target of Rs 1711 (3.25x FY11E book value).
Analyst: Darpin Shah Tel : +9122 4096 9754 Email: darpin@dolatcapital.com Associate : Jaynee Shah Tel : +9122 4096 9723 Email: jaynee@dolatcapital.com BSE Sensex NSE Nifty Scrip Details Equity Face Value Market Cap 52 week High/Low 1-Month Avg. Volume BSE Code NSE Symbol Bloomberg Code Reuters Code Business Group - HDFC Shareholding Pattern as on Mar’09(%) Promoter MF/Banks/FIs FIIs Corporate Bodies Public / Others 19.4 13.9 25.7 8.8 32.3 Rs. 4,516mn Rs.10/Rs. 657.5bn US$13445.9mn Rs.1580/774 1582147 500180 HDFCBANK HDFCB IN HDBK.BO 14423 4293

Investment Rationale
Well poised for a strong traction in earnings
Migration to Basel-II has lowered risk weight on rated corporate loans and lowering of risk weights on some asset segments by the central bank in the past few months has resulted in large capital release for HDFC Bank. Tier-one CAR has jumped from 8.80% in September 2008 to 10.60% in March-2009. Additionally the bank is expected to receive capital in the form of a likely conversion of warrant by its parent HDFC. This high-capital adequacy gives the bank enough capital to sustain growth for multiple years. We expect the bank to record a 23% CAGR in its loan book over FY09-FY11E.

Asset quality remains comfortable despite rising delinquencies
Delinquencies have moved up sharply in the last few quarters on account of rising slippages in its unsecured retail loan portfolio of e CBoP (Rs 10.1bn of fresh additions from eCBoP’s book). As a result, the bank has been running down the risky assets from eCBoP’s portfolio. The bank has already bought provisioning standards on the retail book of eCBoP (which was witnessing some stress) and corporate book mismatches in line with its exacting standards, and now only needs incremental NPL provisioning. Consequently, HDFC Bank’s asset quality though continues to be robust and at just 0.4% of loans, it has one of the lowest restructured assets among the banks in FY09. However, we expect gross NPL’s at 3% for FY10e and 3.7% for FY11e with provision coverage of ~70%.

Strong liability franchise to aid margins
Owing to its high CASA levels and a low quantum of bulk deposits, HDFC Bank is likely to retain a good pricing power despite rate cuts. It would also be a beneficiary of fresh branch licenses that should help the bank further capitalize on its customer base and liability franchise. The bank’s focus on retail assets at a time when most banks are exiting this space, should also enable it to sustain its margins.

150 140 130 120 110 100 90

HDFC Bank relative to Sensex

Valuations
HDFC Bank trades at a premium compared to its peers, which in our view is justified in view of the bank’s strong business model along with high core profitability. The bank has strived to build in place superior systems and processes which along with a robust deposit franchise will help it withstand earning pressures better than its peers. At CMP the stock trades at 18.5x FY11E EPS of Rs 78.8, 2.8x FY11E Book Value and 3.0x FY11E Adj. book value. We maintain a Accumulate on the stock with a revised price target of Rs 1711 (3.25x FY11E book value).

80 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 HDBK BSE Sensex

Financials
Year FY08 FY09 FY10E* FY11E* Figure in Rs.bn NII Growth(%) Net Profit Growth(%) 52.3 40.9 15.9 39.3 74.2 42.0 22.4 41.2 88.0 18.6 28.2 25.4 105.4 19.7 35.6 26.3 NIM(%) EPS(Rs) PER(x) 4.9 44.9 32.5 4.9 52.8 27.6 4.6 62.3 23.4 4.5 78.8 18.5 P/BV(x) P/ABV(x) 4.5 4.6 4.2 4.4 3.1 3.3 2.8 3.0 RoANW(%) 17.7 17.2 15.8 15.9 RoAA(%) 1.4 1.4 1.4 1.4

24 June 2009

HDFC Bank

47

DOLAT CAPITAL
INCOME STATEMENT Particulars Interest Income Interest Expenses Net Interest Income Other Income Operating Income Operating Expenses Operating Profit Provisions and Contengencies Profit before Tax Provision for Tax Profit after Tax BALANCE SHEET Particulars Sources of Funds Equity Capital Reserver & Surplus Net Worth Deposits Borrowings Other Liabilities Total Liabilities Application of Funds Cash & Balance with RBI Bal. with Banks/ Short Notice Advances Investments Fixed Assets Other Assets Total Assets E-estimates 125,532 22,252 634,269 493,935 11,751 44,027 1,331,766 135,272 39,794 988,830 588,175 17,067 63,568 1,832,708 142,432 44,910 1,211,317 721,922 20,624 74,734 2,215,940 148,690 49,099 1,514,147 897,293 22,192 79,286 2,710,706 3,544 111,428 114,972 1,007,686 45,949 163,158 1,331,766 4,254 142,209 146,463 1,428,116 26,858 227,206 1,832,708 4,516 204,332 208,848 1,733,854 37,211 235,962 2,215,940 4,516 233,280 237,796 2,155,214 45,448 272,183 2,710,706 Growth (%) Net Interest Income Other Income Operating Profit Net Profit Credit Deposit C/D ratio Investment / Deposit Ratio Asset Quality NPAs as % to Net Advances (%) Dividend DPS (Rs) Capital Adequacy (%) CAR Efficiency Avg. Business per Employee (Rs cr) Avg Profit per Employee (Rs lakh) E-estimates 3.7 3.6 3.9 3.6 4.3 4.1 4.6 4.4 13.6 15.7 14.8 13.1 8.5 10.0 11.5 13.0 0.4 0.6 1.0 1.2 40.9 50.6 34.2 39.3 35.1 47.5 62.9 49.0 42.0 44.1 37.5 41.2 55.9 41.7 69.2 41.2 18.6 20.1 13.9 25.4 22.5 21.4 69.9 41.6 19.7 18.3 19.4 26.3 25.0 24.3 70.3 41.6 Mar’08 Mar’09 Mar’10E Mar’11E Mar’08 101,150 48,871 52,279 22,831 75,110 37,456 37,654 14,843 22,811 6,909 15,902 Mar’09 163,323 89,111 74,212 32,906 107,118 55,328 51,790 18,791 32,999 10,549 22,449 Mar’10E 185,611 97,601 88,010 39,514 127,524 68,541 58,983 17,884 41,100 12,946 28,153 Rs.mn Mar’11E 219,158 113,799 105,359 46,752 152,112 81,668 70,443 18,893 51,551 15,981 35,570 Profitability (%) RoANW RoAA Cost / Income Ratio Cost / Avg. Earning Assets Avg. yield on Advances Avg. yield on Investments Avg. cost on Deposits Spread Net Interest Margin 17.7 1.4 49.9 3.5 12.6 7.2 5.2 4.0 4.9 17.2 1.4 51.7 3.7 15.0 7.4 6.6 3.8 4.9 15.8 1.4 53.7 3.6 12.5 7.0 5.7 3.6 4.6 15.9 1.4 53.7 3.5 11.8 7.0 5.4 3.6 4.5 IMPORTANT RATIOS Particulars Valuation EPS (Rs) Book Value (Rs) Adj. Book Value (Rs) P/E (x) P/BV (x) P/ABV (x) 44.9 324.4 316.6 32.5 4.5 4.6 52.8 344.3 329.6 27.6 4.2 4.4 62.3 462.5 437.0 23.4 3.1 3.3 78.8 526.6 486.3 18.5 2.8 3.0 Mar’08 Mar’09 Mar’10E Mar’11E

24 June 2009

HDFC Bank

48

Indraprastha Gas Ltd.(IGL)
CMP: Rs 137 Target Price: Rs 180
Ready for Common- “Wealth”...!!!

DOLAT CAPITAL

Oil & Gas / Buy

The green fuel culture with inbuilt cost economics is driving the City Gas Distribution (CGD) projects. Indraprastha Gas Ltd’s (IGL) business model has a location advantage of catering to the high growth National Capital Region (NCR), home to the largest number of four wheelers and expanding residential population. The expansion phase undertaken by IGL to capture new demand from commonwealth games, increasing conversion of private vehicles to CNG would keep IGL on growth trajectory. The promoter (GAIL) strength ensures availability of gas on a priority basis to IGL. IGL has witnessed some operating margin pressure in FY09 due to additional gas requirements beyond allocated quota but IGL has raised the selling price of CNG to counter it. We reiterate our BUY recommendation with a DCF based price target of Rs. 180 at which it would trade at 12.4x FY11E earnings.
Analyst: Priyank Chandra Tel : +9122 4096 9737 Email: priyank@dolatcapital.com BSE Sensex NSE Nifty Scrip Details Equity Face Value Market Cap 52 week High/Low 1-Month Avg. Volume (Daily) BSE Code NSE Symbol Bloomberg Code Reuters Code Rs.1400mn Rs.10/Rs.19.2bn US$392.2mn Rs.153/92 592700 532514 IGL IGL IN IGAS.BO 14423 4293

Investment Rationale
Monopoly Play on Future Fuel in NCR (Delhi) NCR is the pioneer in delivering Green Fuel culture in the country. Indraprastha Gas Ltd. (IGL) is the exclusive supplier of CNG (for transport) and PNG (for household and commercial) for this region. The marketing exclusivity extension from 2010 till 2012 would enable IGL to strengthen its distribution network across the region. IGL being incumbent retains the network access premium and benefits from latent relative fuel economy of CNG. Enviable User Economics The usage of CNG as transport fuel offers unprecedented savings (~67% v/s. petrol and ~40% v/s. diesel). The regulatory compliance of the green fuel for public transport further strengthens the case for sustainable demand scenario. Future revenue growth triggers would come in from better institutional spread, and conversion of private vehicles to CNG owing to fuel economics. Visible Growth – both in depth and breadth IGL plans to increase its compression capacity at its existing CNG stations and plans to add another 35 stations by 2010. IGL added 18 stations in FY09. It is also expanding its pipeline network to fully cover New Delhi along with the extended areas of Noida, Greater Noida and Ghaziabad. The NCR region is at its inflexion with the onset of Commonwealth 2010. Not only is it expected to benefit from the demand for public transport in form of buses and radio taxis, but also from the new residential development around the proposed Metro. Limited Risk Business Model IGL is a beneficiary of a promoter pedigree like GAIL – which is the key driver of the gas economy in India. GAIL, (which owns 22.5% of IGL), is its sole supplier. IGL has witnessed some operating margin pressure in FY09 due to additional gas requirements over and above the allocated quota. To counter the same up to some extent, IGL has raised the selling price of CNG. The selling price of CNG in NCR is cheapest in the country. The last mile exclusivity (coupled with relative fuel economy in the entire fuel chain) also makes the model blessed with sufficient pricing power.

Business Group - Govt. of India Shareholding Pattern as on Mar’08(%) Promoter MF/Banks/FIs FIIs Corporate Bodies Public / Others 45.0 23.2 17.2 4.5 10.1

190 170 150 130 110 90

IGL relative to BSE Sensex

Valuation
IGL would benefit from three key factors in its business model – an enabler of energy economy (with adequate pricing power), a facilitator of green fuel culture and an exclusive supplier (incumbent) in a high growth region. These positives weigh-in both in its cash generation capacities, as well as the access premium. IGL is a debt free company and generates enough internal accruals to fund its future expansions. We reiterate our BUY recommendation with a DCF based price target of Rs.180 at which it would trade at 12.4x FY11E earnings.

70 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 IGL BSE Sensex

Financials
Year FY08 FY09P FY10E FY11E Net Sales % Growth 7,060 8,528 10,875 13,275 15.0 20.8 27.5 22.1 EBIDTA 3,070 3,044 3,582 3,883 OPM % 43.1 35.5 32.8 29.1 PAT 1,745 1,725 1,866 2,038 NPM % 24.5 20.1 17.1 15.3 EPS (Rs.) 12.5 12.3 13.3 14.6 PER (x) EV/EBIDTA (x) ROANW(%) 11.0 11.1 10.3 9.4 5.8 5.9 4.9 4.1 33.4 27.4 25.4 24.2 ROACE (%) 47.0 39.0 36.9 35.2

Figure in Rs.mn, P=Balance Sheet Nos. are Projected.

24 June 2009

Indraprastha Gas Ltd.

49

DOLAT CAPITAL
INCOME STATEMENT Particulars Net Sales Other Operating Income Total Income Total Expenditure Raw Material Employee Expenses Power, Oil & Fuel Selling & Administrative Expenses Provisions & Write Offs Other Expenses Other Income EBIDTA (Excl. Other Income) EBIDTA (Incl. Other Income) Interest Gross Profit Depreciation Profit Before Tax & EO Items Extra Ordinary Exps/(Income) Profit Before Tax Tax Net Profit Minority Interest Net Profit BALANCE SHEET Particulars Sources of Funds Equity Capital Other Reserves Net Worth Revaluation reserve Secured Loans Unsecured Loans Loan Funds Deferred Tax Liability Total Capital Employed Applications of Funds Gross Block Less: Accumulated Depreciation Net Block Capital Work in Progress Investments Current Assets, Loans & Advances Inventories Sundry Debtors Cash and Bank Balance Loans and Advances Other Current Assets sub total Less : Current Liabilities & Provisions Current Liabilities Provisions sub total Net Current Assets Misc Expenses Total Assets CASH FLOW Particulars Depreciation & w.o. Net Interest Exp Direct taxes paid Change in Working Capital (Non Cash) Other (A) Cash Flow from Operating Activities Capex {Inc./ (Dec.) in Fixed Assets n WIP} Free Cash Flow Inc./ (Dec.) in Investments Other (B) Cash Flow from Investing Activities Issue of Equity/ Preference Inc./(Dec.) in Debt Interest exp net Dividend Paid (Incl. Tax) Other (C) Cash Flow from Financing Net Change in Cash Opening Cash balances Closing Cash balances E-estimates (476.9) 994.4 404.5 1,398.9 (643.9) (5.4) 1,398.9 1,393.5 (806.5) 373.6 1,393.5 1,767.0 (929.3) 1,721.2 1,767.0 3,488.2 Mar’08 625.8 0.0 (954.1) (93.8) (157.0) 2,029.8 (854.6) 1,175.2 188.0 108.1 (558.4) 0.0 14.5 0.0 (491.4) (1,735.9) 0.0 11.3 0.0 (655.2) (1,971.7) 0.0 12.5 0.0 (819.0) (508.6) 0.0 12.5 0.0 (941.8) Mar’09 2,588.6 674.3 0.0 (863.9) (85.3) 60.7 2,374.5 (1,790.3) 584.1 54.4 Mar’10E 2,871.2 944.6 0.0 (1,004.9) 269.4 71.4 3,151.7 (1,920.0) 1,231.7 (51.7) Mar’11E 3,135.2 1,028.6 0.0 (1,097.3) 64.0 28.6 3,159.1 (400.0) 2,759.1 (108.6) Profit before tax and extra ordinary items 2,609.0 6,071.4 7,212.9 8,344.2 9,481.3 788.4 673.2 1,461.5 817.6 1,012.8 680.2 1,693.0 897.5 1,463.7 851.0 2,314.7 1,001.6 1,923.5 980.8 2,904.3 2,658.8 229.2 226.4 1,398.9 406.5 18.1 2,279.1 292.0 280.4 1,393.5 606.5 18.1 2,590.5 387.3 387.3 1,767.0 756.5 18.1 3,316.3 491.0 509.2 3,488.2 1,056.5 18.1 5,563.0 6,680.1 3,104.2 3,575.8 589.7 1,088.4 8,380.1 3,778.6 4,601.5 680.0 1,034.0 10,380.1 4,723.2 5,656.9 600.0 1,085.7 11,180.1 5,751.7 5,428.3 200.0 1,194.2 68.3 68.3 238.5 6,071.4 0.0 79.6 79.6 299.2 7,212.9 0.0 92.1 92.1 370.6 8,344.2 0.0 104.6 104.6 399.2 9,481.3 1,400.0 4,364.6 5,764.6 1,400.0 5,434.2 6,834.2 1,400.0 6,481.5 7,881.5 1,400.0 7,577.6 8,977.6 (D) Measures of Investment EPS (Rs.) (excl EO) EPS (Rs.) CEPS (Rs.) DPS (Rs.) Dividend Payout (%) Profit Ploughback (%) Book Value (Rs.) RoANW (%) RoACE (%) RoAIC (%) (Excl Cash & Invest.) (E) Valuation Ratios CMP (Rs.) P/E (x) Market Cap. (Rs. Mn.) MCap/ Sales (x) EV (Rs. Mn.) EV/Sales (x) EV/EBDITA (x) P/BV (x) Dividend Yield (%) E-estimates 137.0 11.0 19,180.0 2.7 17,849.5 2.5 5.8 3.3 2.9 137.0 11.1 19,180.0 2.2 17,866.1 2.1 5.9 2.8 2.9 137.0 10.3 19,180.0 1.8 17,505.0 1.6 4.9 2.4 3.6 137.0 9.4 19,180.0 1.4 15,796.3 1.2 4.1 2.1 4.2 12.5 12.5 16.9 4.0 32.1 67.9 41.2 33.4 47.0 56.1 12.3 12.3 17.1 4.0 32.5 67.5 48.8 27.4 39.0 49.3 13.3 13.3 20.1 5.0 37.5 62.5 56.3 25.4 36.9 46.3 14.6 14.6 21.9 5.8 39.5 60.5 64.1 24.2 35.2 49.9 Mar’08 Mar’09 Mar’10E Mar’11E 1,744.6 1,724.7 1,866.3 2,037.9 Mar’08 7,059.8 69.6 7,129.3 4,059.4 3,198.5 152.6 90.1 452.6 13.2 152.5 164.8 3,069.9 3,234.7 0.0 3,234.7 625.8 2,609.0 0.0 2,609.0 864.4 1,744.6 Mar’09 8,527.7 43.5 8,571.2 5,527.0 4,107.7 235.3 0.0 0.0 0.0 1,184.0 218.7 3,044.3 3,262.9 0.0 3,262.9 674.3 2,588.6 0.0 2,588.6 863.9 1,724.7 Mar’10E 10,874.7 45.7 10,920.4 7,338.4 5,871.0 282.7 141.4 771.4 21.7 250.1 233.8 3,582.0 3,815.8 0.0 3,815.8 944.6 2,871.2 0.0 2,871.2 1,004.9 1,866.3 Rs.mn Mar’11E 13,274.8 48.0 13,322.8 9,439.6 7,631.1 331.9 172.6 965.6 26.5 312.0 280.6 3,883.2 4,163.8 0.0 4,163.8 1,028.6 3,135.2 0.0 3,135.2 1,097.3 2,037.9 (C) Measures of Financial Status Debt / Equity (x) Interest Coverage (x) Average Cost Of Debt (%) Debtors Period (days) Closing stock (days) Inventory Turnover Ratio (x) Fixed Assets Turnover (x) Working Capital Turnover (x) Non Cash Working Capital (Rs Mn) 0.0 0.0 11.7 11.8 30.8 1.1 8.6 (581.3) 0.0 0.0 12.0 12.5 29.2 1.0 9.5 (496.0) 0.0 0.0 13.0 13.0 28.1 1.0 10.9 (765.4) 0.0 0.0 14.0 13.5 27.0 1.2 5.0 (829.5) (B) As Percentage of Net Sales Raw Material Employee Expenses Power, Oil & Fuel Selling & Administrative Expenses Provisions & Write Offs Other Expenses 45.3 2.2 1.3 6.4 0.2 2.2 48.2 2.8 0.0 0.0 0.0 13.9 54.0 2.6 1.3 7.1 0.2 2.3 57.5 2.5 1.3 7.3 0.2 2.4 IMPORTANT RATIOS Particulars (A) Measures of Performance (%) Contribution Margin EBIDTA Margin (excl. O.I.) EBIDTA Margin (incl. O.I.) Interest / Sales Gross Profit Margin Tax/PBT Net Profit Margin 43.1 45.4 0.0 45.4 33.1 24.5 35.5 38.1 0.0 38.1 35.0 20.1 32.8 34.9 0.0 34.9 35.0 17.1 29.1 31.3 0.0 31.3 35.0 15.3 Mar’08 Mar’09 Mar’10E Mar’11E

24 June 2009

Indraprastha Gas Ltd.

50

IndusInd Bank Ltd.
CMP: Rs 83 Target Price: Rs 94
New wine in a new bottle…!!!

DOLAT CAPITAL Banking / Accumulate

IndusInd Bank is in restructuring mode after a change in the top level management. The bank historically was characterized by low business growth and profitability. However, the restructuring efforts have started showing results with improved performance in the various business segments – profitability, NIMs and business growth. We believe the stock is yet to completely re-rate with the change in business performance. At CMP, the stock trades at 11.7x FY11E EPS of Rs 7.1, 1.8x FY11E book value of Rs 47 and 2.3x FY11E adjusted book value of Rs 35.5. We recommend Accumulate with a target price of Rs 94 (2x FY11E book value) over the next 12 months.
Analyst: Darpin Shah Tel : +9122 4096 9754 Email: darpin@dolatcapital.com Associate : Jaynee Shah Tel : +9122 4096 9724 Email: jaynee@dolatcapital.com BSE Sensex NSE Nifty Scrip Details Equity Face Value Market Cap Rs. 3552 mn Rs.10/Rs.29.4bn US$ 602mn 52 week High/Low Rs.91.3/26 1-Month Avg. Volume (Daily) 3767127 BSE Code 532187 NSE Symbol INDUSINDBK Bloomberg Code IIB IN Reuters Code INBK.BO 14423 4293

Investment Rationale
Change of guard to augur well for business growth IndusInd bank has roped in a new management with a clear focus on profitability, productivity and efficiency. The new management aims to reposition the bank as a top 3 performer – in terms of RoE, RoA, NIM, Asset Quality and efficiency amongst the new private banking space. The management has created separate business units to cater to the needs of specific customers and increase the client base. Additionally, effort has been made to increase per branch productivity and efficiency with a focus on cost reduction. The bank has licenses for 30 branches from RBI and intends to apply for additional licenses. This, in our opinion, would entail higher CASA and consequently stronger NIM’s. We expect the bank’s core earnings to register a 31% CAGR during FY09-FY11e. Improvement in core operations The restructuring process has started showing results in the bank’s performance with core earnings growing 53%, NIMs improving to 1.9% (1.5% in FY08) and net profit growing by 98% in FY09. Further, the C/I ratio has improved to ~60% (67% in FY08). Going forward, we expect the bank’s core earnings to grow by a 31% CAGR driven by business growth of 22.2% CAGR and NIMs improving to 2.3%. Net profit is expected to grow by 30% CAGR after factoring higher slippages and also increasing the coverage ratio to 48.5% (30% in FY09). The RoE and RoA improve to 13.7% and 0.7% in FY 11e respectively. Factoring in asset quality deterioration but no major worries The bank has been saddled with poor asset quality historically. However post the turnaround in its strategy, the bank has been able to improve its gross NPL’s and net NPLs to 1.6% and 1.1% respectively (3.1% and 2.3% in FY08) with a coverage ratio of 30%. We factor in increased slippages for the bank (gross NPL’s at 3.3% in FY10E and net NPL’s at 1.7% in FY10E) and consequently build in higher provisions in our estimates. Valuation We believe that the bank will continue to reap the fruits of its turnaround strategy and record an impressive growth on the business and operational front. We believe the stock is yet to completely re-rate with the change in the business performance.
At CMP, the stock trades at 11.7x FY11E EPS of Rs 7.1, 1.8x FY11E book value of Rs 47and 2.3x FY11E adjusted book value of Rs 35.5. We recommend Accumulate with a target price of Rs 94 (2xFY11E book value) over the next 12 months.
Net Profit 750.5 1,483.4 1,923.4 2,510.8 % chg EPS (Rs) 11.6 97.7 29.7 30.5 2.3 4.2 5.4 7.1 P/E (x) 35.4 19.9 15.3 11.7 P/BV (x) 2.4 2.2 2.0 1.8 P/ABV (x) RoANW (%) RoAA (%) 3.2 2.5 2.4 2.3 6.2 10.0 11.4 13.7 0.3 0.6 0.6 0.7

Business Group - Hinduja Shareholding Pattern as on Mar’09(%) Promoter MF/Banks/FIs FIIs Corporate Bodies Public / Others 25.6 1.0 18.7 14.7 40.0

IndustInd relative to BSE Senses 140 130 120 110 100 90 80 70 60 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 IndustInd BSE Sensex

Financials
Year FY08 FY09E FY10E FY11E Figure in Rs.mn NII 3,008.0 4,590.3 5,990.7 7,828.6 % chg NIM (%) 10.8 52.6 30.5 30.7 1.5 1.9 2.1 2.3

24 June 2009

IndusInd Bank Ltd.

51

DOLAT CAPITAL
INCOME STATEMENT Particulars Interest Income Interest Expenses Net Interest Income Other Income Operating Income Operating Expenses Operating Profit Provisions and Contengencies Profit before Tax Provision for Tax Profit after Tax BALANCE SHEET Particulars Sources of Funds Equity Capital Reserver & Surplus Net Worth Deposits Borrowings Other Liabilities Total Liabilities Application of Funds Cash & Balance with RBI Bal. with Banks/ Short Notice Advances Investments Fixed Assets Other Assets Total Assets E-estimates 15,263 6,518 127,953 66,297 6,251 10,337 232,619 11,884 7,329 157,706 80,834 6,232 12,138 276,123 14,390 7,799 192,402 97,484 7,816 12,757 332,648 17,364 8,269 237,616 116,346 8,533 13,322 401,451 3,205 10,292 13,497 190,374 10,954 17,793 232,619 3,563 12,601 16,164 221,103 18,565 20,291 276,123 3,552 13,925 17,477 269,637 21,964 23,570 332,648 3,552 15,716 19,268 328,218 26,478 27,486 401,451 Growth (%) Net Interest Income Other Income Operating Profit Net Profit Credit Deposit C/D ratio Investment / Deposit Ratio Asset Quality NPAs as % to Net Advances (%) Dividend DPS (Rs) Capital Adequacy (%) CAR Efficiency Avg. Business per Employee (Rs cr) Avg Profit per Employee (Rs lakh) E-estimates 10.6 2.5 8.2 2.6 8.6 3.5 8.7 3.8 11.9 12.3 11.7 11.2 0.6 1.2 1.5 1.8 3.1 1.6 2.6 3.3 10.8 21.9 14.3 11.6 15.4 7.9 67.2 34.8 52.6 53.3 87.7 97.7 23.3 16.1 71.3 36.6 30.5 10.8 23.4 29.7 22.0 22.0 71.4 36.2 30.7 10.5 23.0 30.5 23.5 21.7 72.4 35.4 Mar’08 Mar’09 Mar’10E Mar’11E Mar’08 18,807 15,799 3,008 2,976 5,984 4,022 1,962 819 1,143 392 750 Mar’09 23,095 18,504 4,590 4,562 9,153 5,470 3,682 1,408 2,275 792 1,483 Mar’10E 27,237 21,246 5,991 5,054 11,044 6,501 4,543 1,672 2,871 947 1,923 Rs.mn Mar’11E 31,523 23,694 7,829 5,582 13,411 7,824 5,587 1,839 3,747 1,237 2,511 Profitability (%) RoANW RoAA Cost / Income Ratio Cost / Avg. Earning Assets Avg. yield on Advances Avg. yield on Investments Avg. cost on Deposits Spread Net Interest Margin 6.2 0.3 67.2 2.0 11.9 6.4 7.6 0.9 1.5 10.0 0.6 59.8 2.3 12.6 6.6 8.2 1.4 1.9 11.4 0.6 58.9 2.3 11.9 6.7 7.6 1.6 2.1 13.7 0.7 58.3 2.3 11.1 6.7 6.9 1.8 2.3 IMPORTANT RATIOS Particulars Valuation EPS (Rs) Book Value (Rs) Adj. Book Value (Rs) P/E (x) P/BV (x) P/ABV (x) 2.3 34.7 25.6 35.4 2.4 3.2 4.2 38.6 33.6 19.9 2.2 2.5 5.4 42.1 34.3 15.3 2.0 2.4 7.1 46.9 35.5 11.7 1.8 2.3 Mar’08 Mar’09 Mar’10E Mar’11E

24 June 2009

IndusInd Bank Ltd.

52

Manappuram General Finance & Leasing
CMP: Rs 273 Target Price: Rs 346
Midas Touch...!!!

DOLAT CAPITAL

Financial Institution / BUY

Manappuram General Finance and Leasing (MGFL) is a unique business model with a focus on low ticket borrowers. It has adopted a distinctive process of asset verification, customer selection and pricing strategies, which offer higher margins and return ratios with virtually ‘Zero’ NPAs. The securitisation of loans with banks/ FIs, recent capital infusion and the merger with the group company (MFTL) is expected to enhance the merged entity’s loan book as well as the balance sheet size. At CMP, the stock trades at 8x FY11E EPS of Rs 35; 1.8x FY11E book value and 1.8x FY11E adj. book value. We recommend a BUY on the stock with a revised target price of Rs 346 (2.3x FY11BV) for the next 12months.
Analyst: Darpin Shah Tel : +9122 4096 9754 Email: darpin@dolatcapital.com Associate : Jaynee Shah Tel : +9122 4096 9723 Email: jaynee@dolatcapital.com BSE Sensex NSE Nifty Scrip Details Equity Face Value Market Cap 52 week High/Low 1-Month Avg. Volume BSE Code NSE Symbol Bloomberg Code Reuters Code Rs.331.4mn Rs.10/Rs.9.03bn US$184.9mn Rs.293/97 21367 531213 MGFLIN MGFL.BO 14423 4293

Investment Rationale
Unique financing model
MGFL has a unique model of financing where the focus is on financing the borrower based on asset security rather than the cash flow capability. The model is categorized by multiple disparate assets (sub-Rs.20K) with a focus on financing low ticket borrowers with virtually no finance records. The process has evolved through the years and offers modular scalability to the business. The unique process of asset (Household Used Jewellery - HUJ) verification, customer selection (emotional involvement with asset) and pricing strategies (value and rate) offer a unique business with high customer relevance, higher margins, better return ratios and also virtually clean Balance Sheet.

Building blocks in place for future growth
The model is also blessed with regulatory provisions which allow MGFL for securitising its loan book with banks (which fall under the core sector category for these banks). To adapt the regulatory compliance of maintaining CAR, MGFL has merged itself with one of the promoter group companies – Manappuram Finance Tamil Nadu Ltd (MFTL). MFTL is also engaged in the similar business (AUM of ~ Rs 2.9bn and a balance sheet size of Rs1.34bn - Dec 2008) and has raised capital of the tune of Rs 240mn in 2007 and Rs 324mn in 2008. The process will enhance the merged entity’s AUM to Rs 31.9bn and have a balance sheet size to Rs 15.6bn in FY11E.

Business Group - Indian Private Shareholding Pattern as on Mar’09(%) Promoter MF/Banks/FIs FIIs Corporate Bodies Public / Others 30.4 0.9 3.1 0.1 65.5

Enviable financial parameters
MGFL is a ‘Specimen Case’ in NBFC segment - NIMs in excess of 13%, a committed flow from banks for extension of their priority sector commitments and a virtually zero NPA balance sheet. The model gains further strength with the fact that with the recent capital infusion and the proposed business restructuring adds a growth angle to an already exciting story. Not to forget the fact that the Rs.12bn book is back-ended with 11T gold equivalent HUJ items (worth Rs 13.5bn).

210 190 170 150 130 110 90 70

MGFL relative to Sensex

Impervious business model
MGFL is the only listed NBFC and its entire portfolio comprises of gold lending in India. In an environment of uncertainty, reliance on gold as a security increases, thus providing a safe haven for the lender as well as enhancing short term liquidity for customer. Further the target audience at the bottom of the pyramid offers uniform stratum with specific location flair (something which MGFL has already engrained in its processes).The increased relevance of gold in global ecosystem further enhances the value proposition of a business that finances against the yellow metal.

50 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 MGFL BSE Sensex

Valuation
At CMP, the stock trades at 7.8x FY11E EPS of Rs 35; 1.8x FY11E book value and 1.8x FY11E adj. book value. We recommend a BUY on the stock with a revised target price of Rs 346 (2.3x FY11BV) for the next 12months.

Financials
Year (Rs.mn) FY09E* FY10E* FY11E* NII 1,527.1 2,275.1 3,513.3 % chg 77.7 49.0 54.4 Net Profit 481.0 712.2 1,158.5 % chg 70.0 48.1 62.7 NIM (%) EPS (Rs) 14.2 13.1 13.2 17.4 21.5 35.0 PER (x) 15.7 12.7 7.8 P/BV (x) 3.1 2.3 1.8 P/ABV (x) RoANW (%) RoAA (%) 3.1 2.3 1.8 33.2 22.1 25.6 8.4 7.3 8.5

Note: - * - Fully Diluted and post merger

24 June 2009

MGFL

53

DOLAT CAPITAL
INCOME STATEMENT Particulars Interest Income Interest Expenses Net Interest Income Other Income Operating Income Operating Expenses Operating Profit Provisions and Contengencies Profit before Tax Provision for Tax Profit after Tax BALANCE SHEET Particulars Sources of Funds Equity Capital Pref Shares Reserver & Surplus Net Worth Loan Funds - Secured Fund - Unsecured Fund Deferred Tax Liability Total Liabilities Application of Funds Goodwill Net Fixed Assets Total Investments Loans and Advances Total Current Assets Total Current Liabilities Net Current Assets Total Assets E-estimates 0.0 334.8 21.9 5,875.4 2,176.1 375.5 1,800.6 8,032.7 0.0 470.1 19.7 7,962.5 3,474.7 426.1 3,048.6 11,500.9 0.0 591.8 18.2 11,255.1 4,299.6 533.9 3,765.7 15,630.8 275.9 150.0 2,033.7 2,459.6 5,571.8 4,976.6 595.2 1.2 8,032.7 331.4 0.0 3,655.4 3,986.8 7,512.9 6,318.4 1,194.5 1.2 11,500.9 331.4 0.0 4,734.5 5,065.9 10,563.8 8,894.2 1,669.6 1.2 15,630.8 Growth (%) Net Interest Income Other Income Operating Profit Net Profit Credit Funds Asset Quality NPAs as % to Net Advances (%) Dividend DPS (Rs) E-estimates 2.5 2.8 3.0 0.2 0.2 0.2 77.7 77.9 74.4 70.0 158.3 158.3 49.0 35.3 51.7 48.1 35.5 34.8 54.4 25.6 61.9 62.7 41.4 40.6 Mar’09E Mar’10E Mar’11E Mar’09E 1,931.0 403.9 1,527.1 52.7 1,579.7 761.3 818.4 88.4 730.0 249.1 481.0 Mar’10E 2,937.5 662.4 2,275.1 71.3 2,346.4 1,105.0 1,241.4 159.9 1,081.5 369.3 712.2 Rs.mn Mar’11E 4,416.2 902.9 3,513.3 89.5 3,602.9 1,593.0 2,009.9 249.9 1,759.9 601.4 1,158.5 Profitability (%) RoANW RoAA Leverage Cost / Income Ratio Cost / Assets Avg. yield on Advances Avg. cost on Deposits Spread Net Interest Margin 33.2 8.4 4.0 24.5 9.5 18.0 10.5 7.5 14.2 22.1 7.3 3.0 23.9 9.6 16.9 10.1 6.7 13.1 25.6 8.5 3.0 22.4 10.2 16.6 10.0 6.6 13.2 IMPORTANT RATIOS Particulars Valuation EPS (Rs) Book Value (Rs) Adj. Book Value (Rs) P/E (x) P/BV (x) P/ABV (x) 17.4 89.1 88.8 15.7 3.1 3.1 21.5 120.3 119.8 12.7 2.3 2.3 35.0 152.9 152.1 7.8 1.8 1.8 Mar’09E Mar’10E Mar’11E

24 June 2009

MGFL

54

Maruti Suzuki India Ltd.
CMP: Rs 1060 Target Price: Rs 846
Impending Traffic...!!!

DOLAT CAPITAL Automobile / Sell

MSIL’s dominance in the Indian passenger car market with more than 50% market share can be ascribed to its ability to repeatedly introduce new models encompassing its core philosophy of value for money in a relatively benign competitive landscape. Although, we believe that the company would continue to benefit from the growth in the Indian auto industry, however, increased level of competition in the compact car segment would result in loss of market share from current 70%+ levels. Furthermore, possibility of expansion in working capital cycle along with shift in operating model by undertaking higher development efforts by MSIL, act as potential valuation dampeners. We expect the company to trade below the top end of its 1 Yr forward PER band. At CMP, the stock is trading at 17.5x FY11E EPS. We recommend a SELL with a price target of Rs 846 (14x FY11E).
Analyst: Navin Matta Tel : +9122 4096 9752 Email: navin@dolatcapital.com Associate : Harshal Patil Tel : +9122 4096 9725 Email: harshal@dolatcapital.com BSE Sensex NSE Nifty Scrip Details Equity Face Value Market Cap 52 week High/Low 1-Month Avg. Volume BSE Code NSE Symbol Bloomberg Code Reuters Code Rs 1,445 mn Rs.5/Rs 306.3bn US$ 6,256 mn Rs.1,120/428 966668 532500 MARUTI MSILIN MRTI.BO 14423 4293

Rationale
Compact car segment to witness increased competition
India being pegged as a small car hub is likely to witness several new launches in the segment over the next two to three years. Most global auto majors including Toyota, Ford, Volkswagen and Honda in addition to the ultra low cost car category are targeting the fast growing compact car segment, with high level of localization thereby ensuring competitive price points. Although MSIL holds distinct advantages through its extensive sales and dealer network and well entrenched rural reach, we believe its 70%+ market share in the compact car segment would be dented by the elevated level of competition. Notwithstanding the growth potential in the Indian automobile market, 30-40% increase in capacity addition would put pressure on the market leader.

Increase in SKU’s to stretch working capital cycle
MSIL’s strategy of expanding its product portfolio with frequent new model/variant launches has enabled its volumes to outpace industry growth rate. However, the wide product range poses a challenge of maintaining higher number of SKU’s, both at the company and the dealer level, therefore translating into expansion in MSIL’s working capital cycle. In view of increasing number of choices for the customer, we believe higher waiting period for MSIL’s vehicles would eventually result in loss of sales.

Business Group - MNC Associate Shareholding Pattern as on Mar’09(%) Promoter MF/Banks/FIs FIIs Corporate Bodies Public / Others 54.2 21.7 19.4 2.3 2.5

Unfavorable shift in operating model
In the context of shortening product life cycles and higher product development expenses, we firmly believe that companies adopting a lower operating leverage model are better placed compared to those having a higher fixed costs structure. The key benefits lie in lowering the dependence on success of new launches as well as ability to shrink time to market for new model/variant launches. MSIL’s increased involvement in development efforts towards the recently launched A-star signals an a shift towards a higher fixed cost model.

180 160 140 120 100 80

Maruti relative to BSE Sensex

Valuation and View
MSIL’s stock price has increased by 90% YTD primarily on the back of stronger than expected volume growth over the past six months along with improvement in overall economic scenario. However, we believe MSIL’s current valuations disregard the adverse effect on the company’s volume growth in the context of increased competition and possible sunset clause on stimulus package announced in Dec’08. We expect the company to trade below the top end of its 1 Yr forward PER band. At CMP, the stock is trading at 17.5x FY11E EPS. We recommend a SELL with a price target of Rs 846 (14x FY11E).
OPM% 15.2 8.8 10.3 10.2 PAT % growth 17,308 12,187 15,908 17,461 10.8 -29.6 30.5 9.8 EPS(Rs.) 59.9 42.2 55.0 60.4 % growth 10.8 -29.5 30.3 9.8 PER(x) 17.7 25.1 19.3 17.5 ROANW(%) 22.7 14.7 14.5 13.8 ROACE(%) 29.5 18.5 18.7 18.0

60 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 Maruti BSE Sensex

Financials
Year FY08 FY09 FY10E FY11E Figure in Rs mn Net Sales % growth 184,957 208,525 232,095 254,918 26.2 12.7 11.3 9.8 EBITDA 28,028 18,321 24,021 26,119

24 June 2009

Maruti Suzuki India Ltd.

55

DOLAT CAPITAL
INCOME STATEMENT Particulars Net Sales Income from services Other Operating income Total Income Net Raw Material Cost Power & Fuel Employee Cost Other Mfg exp Selling & Distribution & Admin exp Other Expenses Total Expenditure Operating Profit Other income Interest Gross Profit Depreciation Profit Before Tax & EO Items Extra Ordinary Exps/(Income) Profit Before Tax Tax Net Profit EPS BALANCE SHEET Particulars Sources of Funds Equity Capital Preference Capital Application Money Share Premium Account Reserves (excl Rev Res) Net Worth Revaluation reserve Total Reserves Secured Loans Unsecured Loans Total Loan Funds Deferred Tax Liability Total Capital Employed Applications of Funds Gross Block Less: Accumulated Depreciation Net Block Capital Work in Progress Investments Current Assets, Loans & Advances Inventories Sundry Debtors Cash and Bank Balance Loans and Advances Other Current Assets sub total Less : Current Liabilities & Provisions Current Liabilities Provisions sub total Net Current Assets Misc Expenses Deferred Tax Asset Total Assets E-estimates CASH FLOW Particulars Profit before tax. Depreciation & w.o. Net Interest Exp Direct taxes paid Change in Working Capital (Non Cash) Other (A) Cash Flow from Operating Activities Capex {Inc./ (Dec.) in Fixed Assets n WIP} Free Cash Flow Inc./ (Dec.) in Investments Other (B) Cash Flow from Investing Activities Issue of Equity/ Preference Inc./(Dec.) in Debt Interest exp net Dividend Paid (Incl. Tax) Other (C) Cash Flow from Financing Net Change in Cash Opening Cash balances Closing Cash balances E-estimates Mar’08 25030 5682 (812) (8647) (83) (2866) 18304 (16930) 1374 (16843) 3158 (30615) 0 3365 (743) (1299) 1323 (10988) 14228 3240 Mar’09P 16759 7065 510 (4571) (1216) 18547 (13637) 4910 4807 (8830) 0 (1001) (510) (1178) 85 (2604) 7113 3240 10497 Mar’10E 22095 8335 480 (6187) (1132) 23591 (18000) 5591 (4000) (22000) 0 0 (480) (1347) 89 (1737) (147) 10497 10515 Mar’11E 24252 9641 480 (6791) (2686) 24896 (18000) 6896 (4000) (22000) 0 0 (480) (1347) 94 (1733) 1163 10515 11843 72,853 39,888 32,965 7,363 51,807 10,380 6,555 3,240 10,403 331 30,909 24,492 3,695 28,187 2,722 996 95,853 88,853 46,953 41,900 5,000 47,000 13,350 7,809 10,497 11,963 381 44,000 28,925 3,880 32,805 11,195 1,046 106,140 106,853 55,288 51,565 5,000 51,000 15,512 8,696 10,515 13,160 419 48,302 31,883 4,074 35,956 12,345 1,098 121,008 126,853 64,929 61,924 3,000 55,000 18,226 10,235 11,843 14,476 461 55,240 34,604 4,277 38,881 16,360 1,153 137,437 Mar’08 1,445 Mar’09P 1,445 Mar’10E 1,445 0 0 4,241 104,348 110,034 104,348 1 8,000 8,001 2,973 121,008 Mar’11E 1,445 0 0 4,241 120,628 126,314 120,628 1 8,000 8,001 3,122 137,437 Mar’08 178,603 759 5,595 184,957 136,468 1,473 3,562 6,386 5,602 3,439 156,929 28,028 3,281 596 30,712 5,682 25,031 25,031 7,722 17,308 60 Mar’09 203,583 971 3,972 208,525 162,427 4,711 Mar’10E 226,720 1,165 4,210 232,095 176,321 2,697 5,141 9,710 9,098 5,107 208,074 24,021 6,889 480 30,430 8,335 22,095 0 22,095 6,187 15,908 55 Rs.mn Mar’11E 249,057 1,398 4,463 254,918 194,312 2,840 5,454 10,733 9,973 5,487 228,799 26,119 8,254 480 33,893 9,641 24,252 0 24,252 6,791 17,461 60 IMPORTANT RATIOS Particulars (A) Cost Analysis (%) Excise/Gross Sales Net Raw Material Cost/net sales Power & Fuel/net sales Employee Cost/net sales Other Mfg exp/net sales Selling & Distribution & Admin exp/net sales Other Expenses/net sales (B) Operational Performance (%) Operating Profit Margin (excl. O.I.) Operating Profit Margin (incl. O.I.) Other Income/net sales Interest / Sales Dep/Gross Block Gross Profit Margin Tax/PBT Net Profit Margin (C) Financial Performance Average Cost Of Debt (%) Debtors Period (days) Closing stock (days) Fixed Assets Turnover (x) Creditors Period (days) Working Capital Turnover (days) Non-Cash Working Capital Current Ratio (x) (D) Other Ratios Debt / Equity (x) Interest Coverage (x) 78,468 1 9,001 9,002 2,697 95,853 89,621 1 8,000 8,001 2,832 106,140 ROANW (%) ROACE (%) (E) Per Share Data Earnings Per Share (Rs.) Cash Earnings Per Share (Rs.) Dividend Per Share (Rs.) Dividend Payout (%) Profit Ploughback (%) Book Value (Rs.) (F) Valuation Ratios Market Price (Rs.) Price / Earnings Ratio (x) Market Cap. (Rs. mn.) Market Cap/Sales (x) Enterprise Value (Rs. mn.) EV/Sales (x) EV/EBDITA (x) E-estimates 1060 17.7 306,340.0 1.7 312,102.0 1.7 11.1 1060 25.1 306,340.0 1.5 303,844.0 1.5 16.6 1060 19.3 306,340.0 1.4 303,826.8 1.3 12.6 1060 17.5 306,340.0 1.2 302,498.7 1.2 11.6 59.9 79.6 5.0 1.0 99.1 291.2 42.2 66.6 3.5 1.0 99.0 329.8 55.0 83.9 4.0 1.0 99.1 380.7 60.4 93.8 4.0 1.0 99.1 437.1 0.1 52.5 22.7 29.5 0.1 47.7 14.7 18.5 0.1 64.4 14.5 18.7 0.1 71.6 13.8 18.0 7.8 13.4 26.3 5.4 65.5 (25.9) (518.0) 1.1 6.0 14.0 30.0 4.9 65.0 (21.0) 697.8 1.3 6.0 14.0 30.0 4.4 66.0 (22.0) 1,830.0 1.3 6.0 15.0 32.0 4.0 65.0 (18.0) 4,516.2 1.4 15.2 16.9 1.8 0.3 7.8 16.6 30.9 9.4 8.8 11.7 2.9 0.2 8.0 11.4 27.3 5.8 10.3 13.3 3.0 0.2 7.8 13.4 28.0 6.9 10.2 13.5 3.2 0.2 7.6 13.6 28.0 6.8 14.7 76.4 0.8 2.0 3.5 3.0 1.9 11.8 79.8 0.0 2.3 0.0 0.0 11.3 9.3 77.8 1.2 2.3 4.2 3.9 2.3 9.1 78.0 1.1 2.2 4.2 3.9 2.2 Mar’08 Mar’09P Mar’10E Mar’11E

23,067 190,205 18,321 6,013 510 23,824 7,065 16,759 0 16,759 4,571 12,187 42

4,241 78,468 84,154

4,241 89,621 95,307

24 June 2009

Maruti Suzuki India Ltd.

56

Mundra Port and Special Economic Zone Ltd.
CMP: Rs 611 Target Price: Rs 487
Above Sea Level...!!!

DOLAT CAPITAL

Infrastructure and Port / Sell

Mundra Port offers a rare model of an all weather private port with an integrated SEZ. The business model is blessed with strategic location, futuristic infrastructure, a diversified cargo mix and contemporary hinterland connectivity. We remain positive on the growth prospects of port operation on the back of its strategic positioning in emerging India logistics and industrial scenario. Outlook for SEZ business looks bleak for at least the next two quarters on account of current slowdown in the economy. However, the recent run up in the stock price has taken the valuation beyond fair value assessed by us and therefore we recommend a SELL on the stock with a revised target price of Rs 487.
Analyst: Kapil Yadav Tel : +9122 4096 9735 Email: kapil@dolatcapital.com BSE Sensex NSE Nifty Scrip Details Equity Face Value Market Cap 52 week High/Low 1-Month Avg. Volume BSE Code NSE Symbol Bloomberg Code Reuters Code Rs.4006.8mn Rs.10/Rs.245bn US$5006mn Rs.705/250 1055797 532921 MUNDRAPORT MSEZ IN MPSE.BO 14423 4293

Rationale
Strategic Location-Quick evacuation of cargo
MPSEZ is an all weather port, with its deep draft (17mt-32mt) and a location on western coast which offers better rail connectivity (it has a 218km distance advantage over the competing ports in the northern hinterland with lower transportation costs). The futuristic infrastructure at port offers quicker turnaround time (reduced cost for shipping lines). Its berths are capable of handling post Panamax and 5th generation container vessels (8000 TEUs).

Long term agreement providing- future growth
MPSEZ has a balanced mix when it comes to type of cargo, shippers, shipping lines as well as Logistics players. The long term agreements range from IOC, GGSRL (for single point mooring facility for crude oil), to Tata power and Adani Power (more than 50% of the estimated coal traffic tied up with these two power plants). Apart from this it also gets direct access to the northern exim belt for other aggregated cargo (Containerized). This balance provides the much needed visibility and stability to MPSEZ’s future cash flows.

Business Group - Adani Group Shareholding Pattern as on Mar’09(%) Promoter MF/Banks/FIs FIIs Corporate Bodies Public / Others 81.2 2.8 6.5 1.2 8.4

SEZ – distinction to the business model; but near term outlook is subdued MPSEZ could not lease any additional land in the last 6 months. The near term outlook for the SEZ business remain subdued unless economic recovery happens at accelerated pace. We have moderated our outlook for SEZ business for FY10 and estimated a fresh lease of land of 250 acres against earlier estimate of 300 acres. We have valued the SEZ at Rs 46/- per share in its current state.
Increased capacity expansion and new services to provide next leg of growth MPSEZ has been developed with detailed planning. The Phase-I is already complete. With building blocks in place (in terms of infrastructure (operative and logistic), alliances, trade history and business learning), MPSEZ stands to benefit from increased momentum in the trade velocity with minimal incremental investments. But the liquidity crunch has forced private sector companies to pushback and/or cancels investments. This will have an impact not only on trade volumes as economic activities contracts, but will also hurt demand for land.

Mundra relative to Sensex 110 100 90 80 70 60 50 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 Mundra BSE Sensex

Valuation
We expect the revenues of MPSEZ to grow at CAGR of 35% and PAT to grow at a CAGR of 61% for the next two years. This is primarily due to additional contribution from coal terminal and increase in cargo handling at all its facilities like bulk container and liquid cargo from 35.7mt to 50mt from FY09-FY11. The SEZ business looks bleak for at least the next two quarters due to slow down in the economy. We have revised our earning estimates upward by increasing port volume for next two years. However, the recent run up in the stock price has taken the valuation beyond fair value assessed by us and therefore we recommend a SELL on the stock with a revised target price of Rs. 487.
OPM% 65.4 61.4 67.1 72.3 PAT % growth 2,134 13.9 4,325 102.7 6,062 40.2 11,217 85.0 EPS(Rs.) 5.1 10.8 15.1 28.0 % growth -2.6 113.0 40.2 85.0 PER(x) 114.7 56.6 40.4 21.8 ROANW(%) 12.7 15.5 18.7 27.8 ROACE(%) 11.3 11.0 13.6 20.2

Financials
Year Net Sales % growth FY08 8,182 41.1 FY09P 11,949 46.0 FY10E 14,526 21.6 FY11E 21,786 50.0 Figure in Rs mn EBITDA 5,354 7,340 9,749 15,761

24 June 2009

Mundra Port and Special Economic Zone Ltd.

57

DOLAT CAPITAL
INCOME STATEMENT Particulars Net Sales Other income Total Income Total Expenditure Operating Expense Employee Expenses Selling & Administrative Expenses EBIDTA (Excl. Other Income) EBIDTA (Incl. Other Income) Interest Gross Profit Depreciation Profit Before Tax & EO Items Profit Before Tax Tax Net Profit BALANCE SHEET Particulars Sources of Funds Equity Capital Preference Capital Share Premium Other Reserves Amount Received under long term Infra Net Worth Revaluation reserve Secured Loans Unsecured Loans Loan Funds Deferred Tax Liability Total Capital Employed Applications of Funds Gross Block Less: Accumulated Depreciation Net Block Capital Work in Progress Investments Current Assets, Loans & Advances Inventories Sundry Debtors Cash and Bank Balance Loans and Advances Other Current Assets sub total Less : Current Liabilities & Provisions Current Liabilities Provisions sub total Net Current Assets Misc Expenses Total Assets CASH FLOW Particulars Profit before tax and extra ordinary items Depreciation & w.o. Net Interest Exp Direct taxes paid Change in Working Capital (Non Cash) Other (A) Cash Flow from Operating Activities Capex {Inc./ (Dec.) in Fixed Assets n WIP} Free Cash Flow Inc./ (Dec.) in Investments Other (B) Cash Flow from Investing Activities Issue of Equity/ Preference Inc./(Dec.) in Debt Interest exp net Dividend Paid (Incl. Tax) Other (C) Cash Flow from Financing Net Change in Cash Opening Cash & Cash equivalent Closing Cash & Cash equivalent E-estimates, P=Balance Sheet Nos. are Projected. Mar’08 3668.2 1006.4 1138.6 (43.2) 290.8 (869.3) 5191.5 (9502.6) (4311.0) (1983.7) 266.8 (11219.5) 17710.0 6228.9 (1278.2) 0.0 (615.6) 22045.2 16017.3 326.7 16344.0 1750.5 5419.8 8895.6 14315.5 (3104.4) (750.2) 14315.5 13565.2 (1458.2) 3898.0 13565.2 17463.2 (3248.7) 0.0 3898.2 (1459.5) (688.2) (6379.7) 0.0 (507.2) (1909.0) (688.2) (7895.5) 0.0 1244.7 (2014.8) (688.2) Mar’09P 4858.3 1467.9 1459.5 (533.4) (809.6) 475.2 6917.9 (952.3) 5965.6 (2296.4) Mar’10E 6779.4 1506.6 1909.0 (717.3) (560.8) (183.1) 8733.8 (3576.7) 5157.1 (2803.0) Mar’11E 12571.2 1621.2 2014.8 (1354.1) (1744.6) 143.5 13251.8 (4305.1) 8946.7 (3590.5) 2554.3 950.9 3735.1 10244.4 0.0 53777.7 3726.8 808.7 4535.5 16473.9 0.0 61557.8 3873.8 830.1 4703.9 16284.4 0.0 66241.4 4787.1 948.4 5735.5 21927.0 0.0 78158.4 184.7 2963.4 8895.6 1484.5 451.4 13979.5 273.9 4364.1 14315.5 1514.2 541.7 21009.4 310.0 4918.6 13565.2 1544.5 650.0 20988.3 482.7 7361.3 17463.2 1575.4 780.0 27662.5 32016.7 3598.4 28418.3 4058.3 10826.6 36969.0 5066.3 31902.7 58.3 13123.0 37665.7 6572.9 31092.7 2938.3 15926.0 40529.1 8194.1 32335.0 4380.0 19516.5 4006.8 28.1 18952.4 3137.8 6811.0 26125.1 0.0 18847.7 219.8 19067.5 1774.2 53777.7 4006.8 28.1 18952.4 6774.6 6470.4 29761.9 0.0 22743.6 222.0 22965.6 2359.9 61557.8 4006.8 28.1 18952.4 12148.6 6146.9 35135.9 0.0 22234.2 224.2 22458.4 2500.3 66241.4 4006.8 28.1 18952.4 22677.5 5839.5 45664.7 0.0 23477.8 225.3 23703.1 2951.1 78158.4 (E) Valuation Ratios CMP (Rs.) P/E (x) Market Cap. (Rs. Mn.) MCap/ Sales (x) EV (Rs. Mn.) EV/Sales (x) EV/EBDITA (x) P/BV (x) Dividend Yield (%) E-estimates, P=Balance Sheet Nos. are Projected. 611.0 114.7 244814.9 29.9 254986.7 31.2 47.6 9.4 0.25 611.0 56.6 244814.9 20.5 253465.0 21.2 34.5 8.2 0.25 611.0 40.4 244814.9 16.9 253708.0 17.5 26.0 7.0 0.25 611.0 21.8 244814.9 11.2 251054.8 11.5 15.9 5.4 0.25 (D) Measures of Investment EPS (Rs.) (excl EO) EPS (Rs.) CEPS (Rs.) DPS (Rs.) Dividend Payout (%) Profit Ploughback (%) Book Value (Rs.) RoANW (%) RoACE (%) RoAIC (%) (Excl Cash & Invest.) 5.1 5.3 7.8 1.5 28.2 71.8 65.2 12.7 11.3 12.8 10.8 10.8 14.5 1.5 13.9 86.1 74.3 15.5 11.0 13.7 15.1 15.1 18.9 1.5 9.9 90.1 87.7 18.7 13.6 17.4 28.0 28.0 32.0 1.5 5.4 94.6 114.0 27.8 20.2 25.7 Mar’08 Mar’09P Mar’10E Mar’11E Mar’08 8,182.1 279.0 8,461.1 2,828.0 1,616.8 266.1 726.1 5,354.1 5,633.1 1,062.2 4,570.9 1,006.4 3,564.6 3,668.2 1,534.1 2,134.1 Mar’09P 11,949.3 446.0 12,395.2 4,609.5 3,194.9 403.8 1,010.9 7,339.8 7,785.7 1,459.5 6,326.3 1,467.9 4,858.3 4,858.3 533.4 4,325.0 Mar’10E 14,525.8 446.0 14,971.8 4,776.8 3,271.1 393.7 1,112.0 9,749.1 10,195.0 1,909.0 8,286.0 1,506.6 6,779.4 6,779.4 717.3 6,062.1 Rs.mn Mar’11E 21,786.2 446.0 22,232.2 6,025.1 4,325.6 476.3 1,223.2 15,761.1 16,207.1 2,014.8 14,192.3 1,621.2 12,571.2 12,571.2 1,354.1 11,217.0 (C) Measures of Financial Status Debt / Equity (x) Interest Coverage (x) Average Cost Of Debt (%) Debtors Period (days) Closing stock (days) Inventory Turnover Ratio (x) Fixed Assets Turnover (x) Working Capital Turnover (x) Non Cash Working Capital (Rs Mn) 0.7 5.3 6.7 132.2 8.2 44.3 0.3 0.8 1348.8 0.8 5.3 7.5 133.3 8.4 43.6 0.3 0.7 2158.4 0.6 5.3 8.0 123.6 7.8 46.9 0.4 0.9 2719.2 0.5 8.0 8.0 123.3 8.1 45.1 0.5 1.0 4463.8 IMPORTANT RATIOS Particulars (A) Measures of Performance (%) EBIDTA Margin (excl. O.I.) EBIDTA Margin (incl. O.I.) Interest / Sales Gross Profit Margin Tax/PBT Dep/Grossblock Net Profit Margin 65.4 66.6 13.0 54.0 41.8 3.1 25.2 61.4 62.8 12.2 51.0 11.0 4.0 34.9 67.1 68.1 13.1 55.3 10.6 4.0 40.5 72.3 72.9 9.2 63.8 10.8 4.0 50.5 Mar’08 Mar’09P Mar’10E Mar’11E

24 June 2009

Mundra Port and Special Economic Zone Ltd.

58

Nestle India Ltd.
CMP: Rs 1700 Target Price: Rs 1950
Lap it up...!!!

DOLAT CAPITAL FMCG / Accumulate

Low penetration, market leadership and broad yet focused product profile makes Nestle the best investment proposition in FMCG sector. Superior financials in terms of earning growth, highest ROE and 75% dividend payout are compelling argument for higher valuation. At CMP, it quotes at 24.6x its CY09E EPS. Top tier valuation is justified for Nestle due to strong brands in under-penetrated product lines and superior financial management. We recommend Accumulate on the stock with a 12 month price target of Rs 1950 (23x CY10 EPS).
Analyst: Ritesh Poladia Tel : +9122 4096 9753 Email: ritesh@dolatcapital.com Associate : Namrata Sharma Tel : +9122 4096 9726 Email: namrata@dolatcapital.com BSE Sensex NSE Nifty Scrip Details Equity Face Value Market Cap 52 week High/Low 1-Month Avg. Volume BSE Code NSE Symbol Bloomberg Code Reuters Code Rs.964.2mn Rs.10/Rs.163.9bn US$3351.8mn Rs.1855/1220 44265 500790 NESTLE NEST IN NEST.BO 14423 4293

Investment Rationale
Low penetration and market leadership makes healthy investment recipe
Nestle is either no.1 or no.2 player in various product profile (milk products, beverages, prepared dishes and chocolates) with low to medium penetration level. This augurs well for Nestle’s revenue growth potential vis-à-vis other MNC FMCG companies (with saturated product penetration level). Nestle can effectively shield from new competition (mostly from ITC) owing to low penetration level, as competition in low penetration product generally increases the market size rather than fighting for market share.

Vertical expansion of well balanced portfolio of matured and new brands
Nestle has remained very judicious in launching new brands/ product profile. It has also withdrawn some of the products like Water and premium confectionery brands.

Meanwhile, the company has maintained its growth in the existing product profile with innovations and renovations. It has thus maintained its leadership position or maintained strong No. 2 position. Superior financials
Nestle has delivered 20% CAGR revenue and profit growth over CY05-08. With dividend payout ratio of 75%, the company enjoys high ROE of 120% and ROIC of 220%. The company has declared dividend of Rs 42.5 for CY08 and has paid interim dividend of Rs 9.

Business Group - MNC Associate Shareholding Pattern as on Mar’09(%) Promoter MF/Banks/FIs FIIs Corporate Bodies Public / Others 61.9 11.9 8.0 1.7 16.6

Nestle relative to BSE Sensex 180 170 160 150 140 130 120 110 100 90 80 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 Nestle BSE Sensex

Valuations Low penetration, market leadership and broad yet focused product profile makes Nestle the best investment proposition in FMCG sector. Superior financials in terms of earning growth, highest ROE and 75% dividend payout are compelling argument for higher valuation. At CMP, it quotes at 24.6x its CY09E EPS. Top tier valuation is justified for Nestle due to strong brands in under-penetrated product lines and superior financial management. We recommend Accumulate on the stock with a 12 month price target of Rs 1950 (23x CY10 EPS).

Financials
Year CY07 CY08 CY09E CY10E Figure in Rs mn Net Sales 35,044 43,242 52,766 61,571 % growth 23.4 22.0 16.6 EBIDTA 6,963 8,637 11,029 12,879 OPM % 19.9 20.0 20.9 20.9 PAT 4,138 5,341 6,665 8,138 % growth 29.1 24.8 22.1 EPS(Rs.) 44.7 58.6 70.2 84.4 % growth 31.0 19.9 20.2 PER (x) ROANW % 39.6 30.7 24.6 20.1 102.5 119.8 126.9 125.9 ROACE % 174.6 220.7 287.2 314.4

24 June 2009

Nestle India Ltd.

59

DOLAT CAPITAL
INCOME STATEMENT Particulars Net Sales Other income Total Income Total Expenditure Raw Material Employee Expenses Power, Oil & Fuel Selling & Administrative Expenses Provisions & Write Offs Other Expenses EBIDTA (Excl. Other Income) EBIDTA (Incl. Other Income) Interest Gross Profit Depreciation Profit Before Tax & EO Items Extra Ordinary Exps/(Income) Profit Before Tax Tax Net Profit BALANCE SHEET Particulars Sources of Funds Equity Capital Other Reserves Net Worth Secured Loans Loan Funds Deferred Tax Liability Total Capital Employed Applications of Funds Gross Block Less: Accumulated Depreciation Net Block Capital Work in Progress Investments Current Assets, Loans & Advances Inventories Sundry Debtors Cash and Bank Balance Loans and Advances Other Current Assets sub total Less : Current Liabilities & Provisions Current Liabilities Provisions sub total Net Current Assets Total Assets CASH FLOW Particulars Depreciation & w.o. Net Interest Exp Direct taxes paid Change in Working Capital (Non Cash) Other (A) Cash Flow from Operating Activities Free Cash Flow Inc./ (Dec.) in Investments Other (B) Cash Flow from Investing Activities Issue of Equity/ Preference Inc./(Dec.) in Debt Interest exp net Dividend Paid (Incl. Tax) Other (C) Cash Flow from Financing Net Change in Cash Opening Cash balances Closing Cash balances E-estimates (1,927.4) 0.0 (134.0) (8.5) (3,585.8) (277.6) (4,005.9) (386.0) 763.6 377.6 (2,010.4) 0.0 (20.5) (16.4) (4,782.0) (365.0) (5,183.9) 1,614.8 377.6 1,936.9 (5,640.6) 321.1 1,936.9 2,152.7 (6,767.1) 1,644.6 2,152.7 3,797.4 (200.0) 0.0 0.0 (14.7) (5,625.9) 0.0 0.0 0.0 (16.1) (6,751.0) 5,547.3 3,977.8 (357.8) 8,809.1 (2,605.5) 6,203.6 595.0 6,161.7 (200.0) 5,961.7 0.0 8,411.8 0.0 8,411.8 0.0 Capex {Inc./ (Dec.) in Fixed Assets n WIP} (1,569.5) Dec’07 747.4 8.5 (2,148.0) 478.2 Dec’08 8,036.3 923.6 16.4 (2,387.4) 2,220.3 Dec’09E 10,280.7 997.1 14.7 (3,510.5) (1,620.3) Dec’10E 12,146.6 997.1 16.1 (4,008.4) (739.6) 4,599.7 4,977.9 9,577.7 (3,199.2) 4,499.9 5,066.5 6,773.2 11,839.7 (3,860.1) 5,110.5 6,558.9 6,773.2 13,332.0 (2,024.0) 6,149.5 7,347.0 6,773.2 14,120.2 360.3 7,536.7 6,378.5 7,979.5 11,308.0 14,480.5 4,012.2 534.9 377.6 1,453.9 4,349.1 455.9 1,936.9 1,237.6 6,071.7 867.4 2,152.7 2,216.2 7,084.9 1,012.1 3,797.4 2,586.0 (E) Valuation Ratios CMP (Rs.) P/E (x) Market Cap. (Rs. Mn.) MCap/ Sales (x) EV (Rs. Mn.) EV/Sales (x) EV/EBDITA (x) P/BV (x) Dividend Yield (%) E-estimates 1,700 39.6 163,906.7 4.7 163,557.8 4.7 23.5 39.2 1.9 1,700 30.7 163,906.7 3.8 161,978.0 3.8 18.8 34.6 2.5 1,700 24.6 163,906.7 3.1 161,762.1 3.1 14.7 28.4 2.9 1,700 20.1 163,906.7 2.7 160,117.5 2.6 12.4 22.9 3.5 11,797.7 5,779.6 6,018.1 737.0 944.0 14,048.5 6,518.5 7,529.9 1,091.7 349.0 15,340.1 7,515.6 7,824.5 0.0 349.0 15,340.1 8,512.8 6,827.4 0.0 349.0 964.2 3,220.1 4,184.2 28.7 28.7 287.0 4,499.9 964.2 3,769.3 4,733.5 8.2 8.2 368.8 5,110.5 964.2 4,808.4 5,772.5 8.2 8.2 368.8 6,149.5 964.2 6,195.5 7,159.7 8.2 8.2 368.8 7,536.7 Dec’07 Dec’08 Dec’09E Dec’10E Dec’07 35,043.5 254.4 35,297.9 28,080.8 17,522.7 2,694.4 1,239.4 3,330.4 0.0 3,293.8 6,962.8 7,217.2 8.5 7,208.6 747.4 6,461.2 175.0 6,286.1 2,148.0 4,138.1 Dec’08 43,242.5 338.9 43,581.3 34,605.0 21,041.2 3,145.8 1,597.6 1,943.6 0.0 6,876.9 8,637.4 8,976.3 16.4 8,959.9 923.6 8,036.3 308.0 7,728.3 2,387.4 5,340.8 Dec’09E 52,766.2 263.8 53,030.0 41,737.5 25,007.7 3,838.8 12,890.9 11,028.7 11,292.5 14.7 11,277.8 997.1 10,280.7 105.3 10,175.4 3,510.5 6,664.9 Rs.mn Dec’10E 61,571.6 280.0 60,893.1 48,691.8 28,035.9 4,758.3 15,897.6 12,879.8 13,159.8 16.1 13,143.7 997.1 12,146.6 12,146.6 4,008.4 8,138.2 (C) Measures of Financial Status Debt / Equity (x) Interest Coverage (x) Average Cost Of Debt (%) Debtors Period (days) Closing stock (days) Inventory Turnover Ratio (x) Fixed Assets Turnover (x) Working Capital Turnover (x) Non Cash Working Capital (Rs Mn) (D) Measures of Investment EPS (Rs.) (excl EO) EPS (Rs.) CEPS (Rs.) DPS (Rs.) Dividend Payout (%) Profit Ploughback (%) Book Value (Rs.) RoANW (%) RoACE (%) RoAIC (%) (Excl Cash & Invest.) 44.7 42.9 50.7 33.0 76.9 23.1 43.4 102.5 151.3 174.6 58.6 55.4 65.0 42.5 76.7 23.3 49.1 119.8 167.6 220.7 70.2 69.1 79.5 50.0 72.3 27.7 59.9 126.9 182.9 287.2 84.4 84.4 94.7 60.0 71.1 28.9 74.3 125.9 177.7 314.4 0.0 844.6 8.9 5.6 41.8 8.7 3.0 (11.0) (3,576.8) 0.0 546.3 89.1 3.8 36.7 9.9 3.1 (11.2) (5,797.0) 0.0 768.2 179.8 6.0 42.0 8.7 3.4 (26.1) (4,176.7) 0.0 816.8 197.0 6.0 42.0 8.7 4.0 (170.9) (3,437.1) (B) As Percentage of Net Sales Raw Material Employee Expenses Power, Oil & Fuel Selling & Administrative Expenses Provisions & Write Offs Other Expenses 50.0 7.7 3.5 9.5 0.0 9.4 48.7 7.3 3.7 4.5 0.0 15.9 47.4 7.3 0.0 0.0 0.0 24.4 45.5 7.7 0.0 0.0 0.0 25.8 IMPORTANT RATIOS Particulars (A) Measures of Performance (%) Contribution Margin EBIDTA Margin (excl. O.I.) EBIDTA Margin (incl. O.I.) Interest / Sales Gross Profit Margin Tax/PBT Net Profit Margin 19.9 20.4 0.0 20.4 34.2 11.7 20.0 20.6 0.0 20.6 30.9 12.3 20.9 21.3 0.0 21.3 34.5 12.6 20.9 21.3 0.0 21.3 33.0 13.2 Dec’07 Dec’08 Dec’09E Dec’10E

Profit before tax and extra ordinary items 6,461.2

24 June 2009

Nestle India Ltd.

60

Oracle Financial Services Software Ltd.
CMP: Rs 1211 Target Price: Rs 1561
Bank on IT...!!!

DOLAT CAPITAL IT / Buy

Oracle Financial Services Software Ltd. (OFSS) is a leader in the Core Banking Solutions space and even in the current financial scenario they have been able to deliver consistent performance. With Regulation and Compliance related concerns coming to the fore, banks are looking for core banking capabilities. OFSS with its leadership position is able to address this market. The Oracle muscle is opening up new geographies and new customers and OFSS is tapping these opportunities which Oracle generates. Even in this tough environment OFSS has been able to add new customers for their core banking solution which provides the visibility for their product portfolio going forward. At CMP the stock is trading at 12.6xFY10E, and 10.9xFY11E. We maintain our ‘BUY’ rating on the stock with a price target of Rs. 1561 over a 12 month period.
Analyst: Indrajeet Kelkar Tel : +9122 4096 9751 Email: indrajeet@dolatcapital.com BSE Sensex NSE Nifty Scrip Details Equity Face Value Market Cap 52 week High/Low 1-Month Avg. Volume BSE Code NSE Symbol Bloomberg Code Reuters Code Rs418.8 mn Rs.5/Rs.101.4 bn US$2.1 bn Rs.1569/405 95730 532466 OFSS OFSSIN ORCL.BO 14423 4293

Investment Rationale
Quality Play in IT Products space
OFSS has been an IT product driven company since inception. Products like Flexcube (Integrated Banking Solutions) and Reveleus (BI product) – account for ~55% sales, with the rest of the revenues coming from the services space. These products are core to the product and vertical focus strategy of ‘Oracle’. OFSS’s product offers a right-complement to the requirement of large banks currently looking at technology upgrades of their core banking systems through third party applications.

Oracle Pedigree brings Focus and Broader Canvas
The OFSS and Oracle combine is well poised to participate in newer opportunities arising in the Core Banking area. The transition towards being an Oracle entity is now complete and OFSS is now reaping the benefits of the Oracle parenthood. This has led to addition of new customers and geographies as well as reduction in costs which has led to higher margins and reduced cash flow cycle. Oracle is also bundling the Reveleus product with Oracle’s Hyperion and this has resulted in improved sales of the Reveleus solution. The Oracle ownership has already increased the product sales canvas to Tier I banks in Europe, USA, and Japan.

Business Group - MNC Associate Shareholding Pattern as on Mar’09(%) Promoter MF/Banks/FIs FIIs Corporate Bodies Public / Others 80.6 2.1 0.5 1.1 15.8

Products driven growth strategy
OFSS has a clear focus on the higher margin products business and is seeing growth from this domain with Regulations and Compliance related issues driving the core banking implementation space. OFSS will target the services business but the focus will be on margin expansion rather than on topline growth. OFSS is looking at margin improvement in the existing services business and is targeting higher utilization and has implemented different cost control measures.

OFSS relative to BSE Sensex 140 130 120 110 100 90 80 70 60 50 40 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 OFSS BSE Sensex

Surfing the Subprime Wave
The deal pipeline is robust for OFSS and even in the wake of the global financial crisis, OFSS has signed 26 new customers in Q4FY09, with 23 customers in the products business. This signifies the demand for core banking solutions, which has become a necessity rather than a luxury. OFSS has a tank size of $120mn which indicates their revenue visibility. OFSS is poised to take advantage of these opportunities and with their quality products will be able to ride this wave.

Financials and Valuations
OFSS has been delivering consistent performance and we feel the stock offers a growth opportunity to ride on a product driven company backed by well-thought out penetration strategy and renewed vigor on the back of change in management. We maintain our BUY recommendation on the stock with a target price of Rs. 1561 (14x FY11E EPS) over a 12 month period.

Financials
Year FY08 FY09 FY10E FY11E Figure in Rs mn Net Sales % growth 23,802 29,276 33,987 40,277 15.5 23.0 16.1 18.5 EBITDA 5,312 9,544 9,730 12,083 OPM% 22.3 32.6 28.6 30.0 PAT % growth 4,156 7,365 8,048 9,332 11.6 77.2 9.3 16.0 EPS(Rs.) 49.6 87.9 96.1 111.5 % growth 11.0 77.2 9.3 16.1 PER(x) 24.4 13.8 12.6 10.9 ROANW(%) 16.0 23.4 20.6 19.5 ROACE(%) 17.8 28.6 23.1 23.5

24 June 2009

OFSS

61

DOLAT CAPITAL
INCOME STATEMENT Particulars Net Sales Other Operational Income Total Income Total Expenditure Employee Expenses Selling & Administrative Expenses EBIDTA (Excl. Other Income) EBIDTA (Incl. Other Income) Other Income Interest Gross Profit Depreciation Profit Before Tax & EO Items Extra Ordinary Exps/(Income) Profit Before Tax Tax Net Profit Minority Interest Net Profit BALANCE SHEET Particulars Sources of Funds Equity Capital Preference Capital Share Premium Net Worth Revaluation reserve Loan Funds Deferred Tax Liability Total Capital Employed Applications of Funds Gross Block Less: Accumulated Depreciation Net Block Capital Work in Progress Investments Deferred Tax Asset Current Assets, Loans & Advances Inventories Sundry Debtors Cash and Bank Balance Loans and Advances Other Current Assets sub total Less : Current Liabilities & Provisions Current Liabilities Provisions sub total Net Current Assets Misc Expenses Total Assets CASH FLOW Particulars Profit before tax and extra ordinary items Depreciation & w.o. Net Interest Exp Direct taxes paid Change in Working Capital (Non Cash) Other (A) Cash Flow from Operating Activities Capex {Inc./ (Dec.) in Fixed Assets n WIP} Free Cash Flow Inc./ (Dec.) in Investments Other (B) Cash Flow from Investing Activities Issue of Equity/ Preference Inc./(Dec.) in Debt Interest exp net Dividend Paid (Incl. Tax) Other (C) Cash Flow from Financing Effect of Exchange Difference Net Change in Cash Opening Cash balances Closing Cash balances E-estimates Mar’08 4,606.1 705.9 0.0 (441.7) (1,021.6) 57.3 3,906.0 (1,429.6) 2,476.4 4.2 (2,647.1) (4,072.5) 33.0 0.0 0.0 0.0 (19.4) 13.6 18.5 (134.3) 7,197.8 8,965.6 Mar’09 8,226.3 557.9 0.0 (835.4) (854.0) (727.1) 6,367.8 (664.3) 5,703.5 45.4 (4,219.1) (4,838.0) 0.1 0.0 0.0 0.0 (9.5) (9.4) 274.5 1,520.3 8,965.6 15,489.5 5,603.6 15,489.5 21,093.1 7,437.0 21,093.1 28,530.1 Mar’10E 9,054.5 676.0 0.0 (994.7) (1,620.2) 0.0 7,103.6 (1,500.0) 5,603.6 0.0 0.0 (1,500.0) 0.0 0.0 0.0 0.0 (12.0) 0.0 Mar’11E 11,255.0 828.0 0.0 (1,911.3) (2,122.7) 0.0 8,037.0 (600.0) 7,437.0 0.0 0.0 (600.0) 0.0 0.0 0.0 0.0 (12.0) 0.0 5,601.8 527.0 6,128.8 17,669.6 0.0 27,781.5 6,095.0 938.6 7,033.6 25,047.5 0.0 35,088.7 7,138.1 771.9 7,910.0 32,271.3 0.0 43,136.5 8,184.8 887.7 9,072.5 41,831.0 0.0 52,468.2 0.0 8,454.0 8,965.6 5,241.6 1,137.1 23,798.3 0.0 8,402.3 15,489.5 6,442.3 1,746.9 32,081.0 0.0 9,777.0 21,093.1 7,477.0 1,834.2 40,181.3 0.0 11,586.5 28,530.1 8,860.9 1,925.9 50,903.5 0.0 4.7 27,781.5 1,429.6 11,088.3 2,575.0 8,513.2 1,313.5 54.9 230.3 0.0 20.7 35,088.7 664.3 12,052.8 3,360.4 8,692.4 1,013.3 9.6 325.9 0.0 20.7 43,136.5 1,500.0 14,066.1 4,036.4 10,029.7 500.0 9.6 325.9 0.0 20.7 52,468.2 600.0 15,066.1 4,864.4 10,201.7 100.0 9.6 325.9 (E) Valuation Ratios CMP (Rs.) P/E (x) Market Cap. (Rs. Mn.) MCap/ Sales (x) EV (Rs. Mn.) EV/Sales (x) EV/EBDITA (x) P/BV (x) Dividend Yield (%) E-estimates 1,211.0 24.4 101,413.9 4.3 92,448.3 3.9 19.8 3.7 0.0 1,211.0 13.8 101,440.6 3.5 85,951.0 2.9 11.1 2.9 0.0 1,211.0 12.6 101,440.6 3.0 80,347.4 2.4 9.0 2.4 0.0 1,211.0 10.9 101,440.6 2.5 72,910.5 1.8 6.3 1.9 0.0 9,444.6 27,776.8 9,444.6 25,204.5 35,068.0 9,444.6 33,252.4 43,115.8 9,444.6 42,584.0 52,447.5 (D) Measures of Investment EPS (Rs.) (excl EO) EPS (Rs.) CEPS (Rs.) DPS (Rs.) Dividend Payout (%) Profit Ploughback (%) Book Value (Rs.) RoANW (%) RoACE (%) RoAIC (%) (Excl Cash & Invest.) 49.6 49.6 58.1 0.0 0.0 100.0 331.7 16.0 17.8 25.8 87.9 87.9 94.6 0.0 0.0 100.0 418.6 23.4 28.6 46.8 96.1 96.1 104.1 0.0 0.0 100.0 514.7 20.6 23.1 43.5 111.5 111.4 121.3 0.0 0.0 100.0 626.1 19.5 23.5 49.0 Other Reserves (excl Share Premium & Rev Res) 17,913.5 418.7 418.8 418.8 418.8 Mar’08 Mar’09 Mar’10E Mar’11E Mar’08 23,802.4 0.0 23,802.4 19,130.1 13,040.3 6,089.8 4,672.3 5,312.0 639.7 0.0 5,312.0 705.9 4,606.1 4.1 4,602.0 441.7 4,160.3 4.4 4,155.9 Mar’09 29,276.2 0.0 29,276.2 21,521.4 14,491.6 7,029.8 7,754.8 9,544.2 1,789.4 0.0 9,544.2 557.9 8,986.3 760.0 8,226.3 835.4 7,390.9 25.5 7,365.4 Mar’10E 33,986.6 0.0 33,986.6 25,036.1 18,366.1 6,670.0 8,950.5 9,730.5 780.0 0.0 9,730.5 676.0 9,054.5 12.0 9,042.5 994.7 8,047.8 0.0 8,047.8 Rs.mn Mar’11E 40,276.9 0.0 40,276.9 28,693.9 22,073.9 6,620.0 11,583.0 12,083.0 500.0 0.0 12,083.0 828.0 11,255.0 12.0 11,243.0 1,911.3 9,331.7 0.0 9,331.7 (C) Measures of Financial Status Debt / Equity (x) Interest Coverage (x) Average Cost Of Debt (%) Debtors Period (days) Closing stock (days) Inventory Turnover Ratio (x) Fixed Assets Turnover (x) Working Capital Turnover (x) Non Cash Working Capital (Rs Mn) 0.0 129.6 0.0 2.1 1.3 8,703.9 0.0 104.8 0.0 2.4 1.2 9,557.9 0.0 105.0 0.0 2.4 1.1 11,178.2 0.0 105.0 0.0 2.7 1.0 13,300.9 (B) As Percentage of Net Sales Raw Material Employee Expenses Power, Oil & Fuel Selling & Administrative Expenses Provisions & Write Offs Other Expenses 0.0 54.8 0.0 25.6 0.0 0.0 0.0 49.5 0.0 24.0 0.0 0.0 0.0 54.0 0.0 19.6 0.0 0.0 0.0 54.8 0.0 16.4 0.0 0.0 IMPORTANT RATIOS Particulars (A) Measures of Performance (%) Contribution Margin EBIDTA Margin (excl. O.I.) EBIDTA Margin (incl. O.I.) Interest / Sales Gross Profit Margin Tax/PBT Net Profit Margin 19.6 22.3 0.0 22.3 9.6 17.5 26.5 32.6 0.0 32.6 10.2 25.2 26.3 28.6 0.0 28.6 11.0 23.7 28.8 30.0 0.0 30.0 17.0 23.2 Mar’08 Mar’09 Mar’10E Mar’11E

24 June 2009

OFSS

62

Page Industries Ltd.
CMP: Rs 508 Target Price: Rs 612
Comfort Fit...!!!

DOLAT CAPITAL

Textiles / Accumulate

Page Industries Ltd. (PIL) is the sole licensee for the “Jockey” brand in India. Strong brand image, pan India presence in the premium segment and wide acceptance among its target customers makes PIL well poised to capture the growth in volumes and value. We recommend an ACCUMULATE rating on the stock with a price target of Rs.612 (12xFY11E) over a 12 month period.
Analyst: Ankit Babel Tel : +9122 4096 9732 Email: ankit@dolatcapital.com BSE Sensex NSE Nifty Scrip Details Equity Face Value Market Cap 52 week High/Low 1-Month Avg. Volume (Daily) BSE Code NSE Symbol Bloomberg Code Reuters Code Rs.111.5mn Rs.10/Rs.5.7bn US$115.9mn Rs.510/300 13316 532827 PAGEIND PAG IN PAGE.BO 14423 4293

Investment Rationale:
At pole position in niche segment Page Industries Ltd. (PIL) is the sole licensee for the “Jockey” brand in India and the largest licensee of Jockey International across the globe (excluding US & Europe). It pays 5% royalty for the use of the brand. Within a decade of its launch in India, it has emerged as the leading brand in the innerwear segment (premium category). Over the years it has carved its own position in the innerwear segment (~Rs.90 bn market growing @9-10%) with innovative offerings in many product lines. Established Value Positioning The strength of PIL’s business model lies in its alignment with Jockey. It is well poised to deliver a right combination of product-quality-price-utility matrix. Jockey as a brand is in the middle of the pyramid. While it commands a premium over existing local brands, it is positioned in the value for money (VFM) category with respect to other international brands. This is facilitated by adapting the global learnings of Jockey from its common knowledge platform (the prototypes, patterns, designs, technical assistance, advertisement models) of 43 licensees across the globe. Strong Distribution Channel PIL over the years has developed a supportive distribution strength enabling them to have a pan India presence. It has ~319 distributors catering to ~16k retail outlets in 1100 odd cities (largest amonst its peers in the premium segment). There is also an effort to add a complementary Exclusive Brand Outlets (EBOs) initiative (already at 46 outlets) to service the brand equity. Timely booster of Scalability PIL has accomplished its capacity augmentation from 56mn pcs to 74mn pcs p.a. The expansion is also timed to perfection to support the aggression in its recent marketing initiatives in terms of entry into Sportswear and Ladies innerwear. This provides PIL with a sales velocity of ~26% CAGR in its sales (FY09-11). Integrated in house operations would reduce the lead time for further expansions.

Business Group - Indian Private Shareholding Pattern as on Mar’09(%) Promoter MF/Banks/FIs FIIs Corporate Bodies Public / Others 67.0 14.4 13.6 3.1 2.0

Page Ind. relative to BSE Sensex 160 150 140 130 120 110 100 90 80 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 Page Ind. BSE Sensex

Valuation
PIL’s asset light business model is blessed with strong brand association, efficient production and established distribution presence. With no more incremental capex, we expect the return ratios to gain further momentum - something which we expect would reflect in valuations in the medium term. We recommend an ACCUMULATE rating on the stock with a target price of Rs.612 (12xFY11E) over a 12 month period.

Financials
Year FY08 FY09 FY10E FY11E Figure in Rs mn Net Sales % growth 1,925 2,547 3,200 3,905 41.5 32.3 25.7 22.0 EBITDA 364 509 661 862 OPM% 18.9 20.0 20.7 22.1 PAT % growth EPS(Rs.) % growth 240 316 422 569 39.0 31.9 33.4 34.9 21.5 28.4 37.8 51.0 39.0 32.0 33.3 34.9 PER(x) 23.6 17.9 13.4 10.0 ROANW(%) 33.0 38.6 44.5 50.1 ROACE(%) 35.4 40.5 44.6 49.6

24 June 2009

Page Industries Ltd.

63

India Research
INCOME STATEMENT Particulars Net Sales Other income Total Income Total Expenditure Raw Material Employee Expenses Manufacturing Expenses Selling & Administrative Expenses EBIDTA (Excl. Other Income) EBIDTA (Incl. Other Income) Interest Gross Profit Depreciation Profit Before Tax & EO Items Extra Ordinary Exps/(Income)/share in JV Profit Before Tax Tax Net Profit BALANCE SHEET Particulars Sources of Funds Equity Capital Preference Capital Share Premium Other Reserves Net Worth Revaluation reserve Secured Loans Unsecured Loans Loan Funds Deferred Tax Liability Total Capital Employed Applications of Funds Gross Block Less: Accumulated Depreciation Net Block Capital Work in Progress Investments Current Assets, Loans & Advances Inventories Sundry Debtors Cash and Bank Balance Loans and Advances Other Current Assets sub total Less : Current Liabilities & Provisions Current Liabilities Provisions sub total Net Current Assets Misc Expenses Total Assets CASH FLOW Particulars Profit before tax and extra ordinary items Depreciation & w.o. Net Interest Exp Direct taxes paid Change in Working Capital (Non Cash) Other (A) Cash Flow from Operating Activities Capex {Inc./ (Dec.) in Fixed Assets n WIP} Free Cash Flow (Inc)./ Dec. in Investments Other (B) Cash Flow from Investing Activities Issue of Equity/ Preference Inc./(Dec.) in Debt Interest exp net Dividend Paid (Incl. Tax) Other (C) Cash Flow from Financing Net Change in Cash Opening Cash balances Closing Cash balances E-estimates Mar’08 344.1 35.7 14.5 (107.2) (172.8) 7.3 121.6 (221.8) (100.2) (165.2) 22.0 (365.0) 0.0 118.8 (33.8) (130.5) (11.1) (56.7) (300.2) 301.9 1.7 Mar’09 468.4 73.3 (1.9) (151.6) (56.6) (0.1) 331.5 (305.1) 26.4 247.5 0.0 (57.6) 0.0 47.2 2.0 (189.6) (32.2) (172.7) 101.2 1.7 103.0 (151.0) 47.6 103.0 150.0 419.6 (23.3) 396.3 (197.7) 0.0 (221.0) 0.0 150.5 (40.0) (261.5) Mar’10E 611.5 80.0 40.0 (189.6) (122.3) 370.3 206.0 576.3 426.0 0.0 1,162.1 427.2 391.3 818.5 583.8 0.0 1,304.2 624.3 210.9 835.2 753.2 0.0 1,614.6 573.8 91.2 1.7 327.7 7.8 1,002.3 679.9 158.7 103.0 459.9 1.0 1,402.3 701.4 175.4 150.0 553.8 7.8 1,588.3 506.6 93.8 412.8 23.5 299.8 698.5 148.5 549.9 118.2 52.3 810.0 228.5 581.5 30.0 250.0 111.5 0.0 412.0 250.2 773.8 0.0 372.0 0.0 372.0 16.3 1,162.1 111.5 0.0 412.0 344.7 868.2 0.0 419.2 0.0 419.2 16.8 1,304.2 111.5 0.0 412.0 505.1 1,028.6 0.0 372.0 197.7 569.7 16.3 1,614.6 Mar’08 Mar’09 Mar’10E Mar’08 1924.9 44.8 1969.7 1561.2 643.3 301.5 309.8 306.6 363.7 408.5 26.7 381.8 36.1 345.6 0.0 345.6 105.9 239.7 468.6 152.1 316.5 Mar’09 2546.5 63.8 2610.3 2037.7 878.7 429.2 381.7 348.0 508.8 572.6 30.7 542.0 73.3 468.6 Mar’10E 3200.1 70.0 3270.1 2538.7 1046.0 510.0 511.0 471.6 661.5 731.5 40.0 691.5 80.0 611.5 0.0 611.5 189.6 421.9

DOLAT CAPITAL
Rs.mn Mar’11E 3904.8 90.0 3994.8 3043.2 1237.5 605.2 621.6 578.9 861.6 951.6 45.0 906.6 82.0 824.6 0.0 824.6 255.6 569.0 (C) Measures of Financial Status Debt / Equity (x) Interest Coverage (x) Average Cost Of Debt (%) Debtors days (average) Mar’11E 111.5 0.0 412.0 721.3 1,244.9 0.0 372.0 256.2 628.2 16.3 1,889.4 (D) Measures of Investment EPS (Rs.) (excl EO) EPS (Rs.) CEPS (Rs.) DPS (Rs.) Dividend Payout (%) Profit Ploughback (%) Book Value (Rs.) 860.0 310.5 549.5 30.0 350.0 823.8 214.0 250.0 692.3 7.8 1,987.8 748.7 279.1 1,027.8 960.0 0.0 1,889.4 (E) Valuation Ratios CMP (Rs.) P/E (x) Market Cap. (Rs. Mn.) MCap/ Sales (x) EV (Rs. Mn.) EV/Sales (x) EV/EBDITA (x) P/BV (x) Dividend Yield (%) E-estimates 508.0 23.6 5666 2.9 6036 3.1 16.6 7.3 2.0 508.0 17.9 5666 2.2 5982 2.3 11.8 6.5 3.3 508.0 13.4 5666 1.8 6086 1.9 9.2 5.5 4.1 508 10.0 5,666 1.5 6,044 1.5 7.0 4.6 5.5 RoANW (%) RoACE (%) RoAIC (%) (Excl Cash & Invest.) 21.5 21.5 24.7 10.0 46.5 53.5 69.4 33.0 35.4 41.4 28.4 28.4 35.0 17.0 59.9 40.1 77.8 38.6 40.5 42.3 37.8 37.8 45.0 20.8 55.0 45.0 92.2 44.5 44.6 48.9 51.0 51.0 58.4 28.1 55.0 45.0 111.6 50.1 49.6 56.0 Closing stock days (average) Inventory Turnover Ratio (x) Fixed Assets Turnover (x) Working Capital Turnover (x) Non Cash Working Capital (Rs Mn) Non Cash Working Capital Turnover (x) 0.5 15.3 8.6 13.9 88.9 3.4 3.8 4.5 424.2 4.54 0.5 18.7 7.8 17.9 89.8 3.7 3.6 4.4 480.8 5.30 0.6 18.3 8.1 19.0 78.8 4.6 4.0 4.2 603.2 5.31 0.5 21.1 7.5 18.2 71.3 4.7 4.5 4.1 710.0 5.50 (B) As Percentage of Net Sales Raw Material Employee Expenses Manufacturing Expenses Selling & Administrative Expenses 33.4 15.7 16.1 15.9 34.5 16.9 15.0 13.7 32.7 15.9 16.0 14.7 31.7 15.5 15.9 14.8 IMPORTANT RATIOS Particulars (A) Measures of Performance (%) Contribution Margin EBIDTA Margin (excl. O.I.) EBIDTA Margin (incl. O.I.) Interest / Sales Gross Profit Margin Tax/PBT Net Profit Margin 35.4 18.9 20.7 1.4 19.4 30.6 12.2 33.6 20.0 21.9 1.2 20.8 32.5 12.1 35.4 20.7 22.4 1.2 21.1 31.0 12.9 36.9 22.1 23.8 1.2 22.7 31.0 14.2 Mar’08 Mar’09 Mar’10E Mar’11E

Mar’11E 824.6 82.0 45.0 (255.6) (106.8) 589.2 (50.0) 539.2 (100.0) (150.0) 0.0 58.5 (45.0) (352.7) (339.2) 100.0 150.0 250.0

24 June 2009

Page Industries Ltd.

64

Patel Engineering Ltd. (PEL)
CMP: Rs 379 Target Price: Rs 493
First Amongst Others...!!!

DOLAT CAPITAL

Infrastructure / Buy

PEL is the market leader with a 22% share in the high margin and high entry barrier Hydropower sector. It enjoys the distinction of bieng the only Indian company with an experience and technology in niche high margin segments of RCC, Microtunneling & Double Lake Tapping. Real estate foray will monetize the low cost land bank which would provide capital for new ventures in the Power sector. PEL has decent revenue visibility on account of a strong order book. However, margins are expected to remain subdued. We recommend a BUY on the stock with a price target of Rs.493 (SOTP – 10x FY11E EPS of Rs 42 = Rs 420 + 1.75x on land BV per share = Rs 73).
Analyst: Sameer Panke Tel : +9122 4096 9757 Email: sameer@dolatcapital.com Associate : Manpreet Singh Tel : +9122 4096 9720 Email: manpreet@dolatcapital.com BSE Sensex NSE Nifty Scrip Details Equity Face Value Market Cap 52 week High/Low 1-Month Avg. Volume BSE Code NSE Symbol Bloomberg Code Reuters Code Rs.59.7mn Rs.1/Rs.22.6bn US$468mn Rs.470/103 386772 531120 PATELENG PEC IN PENG.BO 14423 4293

Investment Rationale
Amongst the selected few in the high entry barrier Hydropower sector Hydropower construction being a highly specialized activity requires huge experience with high technical and execution skills for complex projects in mountainous regions. PEL is the leader in the high margin Hydropower segment with a market share of ~22% with a six decade experience. Well poised to grab the huge opportunity with strong revenue visibility NHPC plans to add 5322 MW capacity in 11th five year plan with investments of Rs 346 bn which includes near term pending investments of Rs 98.5 bn to be made by Dec 2011. PEL has an order book of Rs 72 bn dominated by Hydro and Irrigation. PEL is pre-qualified for projects worth Rs110 bn and the Company expects order inflow of Rs 30 bn in the next 4 to 5 quarters. Technology leadership enhances value proposition PEL is the only experienced Indian company with technology in high margin and niche RCC (Roller Compacted Concrete), Microtunneling & Double Lake Tapping. However, these segments would form a small part of the order book (Rs 5 bn) and revenue. We expect overseas projects to add value going forward. Power generation & road annuity foray - Undergoing character change PEL is planning a 1200 MW Thermal Power project with a total capital cost of Rs 60 bn in 3 phases. PEL requires Rs 6.12 bn towards its 51% equity share for the same. It is acquiring mining assets in Indonesia. It owns 60% stake in 2 annuity road projects of Rs 10.4 bn and has a 100 MW hydropower plant as IPP. It is clearly moving up the value chain - From a Contractor to a Developer. Real estate – Sizable option value will relieve funding worries PEL has total land reserves of 1000 acres in Mumbai, Chennai, Bangalore and Hyderabad with developable area of 16.23 msf over the next 10 years. DTZ, an independent real estate research and valuation firm has valued the entire land bank at ~Rs 20 bn whose book value is Rs 2.5 bn.The entire land bank is in the company with 100% ownership. Key Risks Higher proportion of Irrigation revenues might erode margins. High dependence on NHPC for hydro order flow, exposure to cash strapped State Governments, current slowdown in real estate and nascent stage of power generation projects would make these forays revenue neutral for next 2 - 3 years. Move to normal tax rate from MAT and equity dilution will augment resources. Valuations We recommend a BUY on the stock with a price target of Rs.493 (SOTP – 10x FY11E EPS of Rs 42 = Rs 420 + 1.75x on land BV per share = Rs 73).
OPM% 18.2 16.1 14.6 13.5 PAT % growth 1,519 1,639 1,956 2,500 33.1 7.9 19.3 27.8 EPS(Rs.) 25.5 27.5 32.8 41.9 PER(x) EV/EBITDA(x) ROANW(%) ROACE(%) 14.9 13.8 11.6 9.0 10.8 8.8 7.2 6.1 19.6 17.7 17.9 19.1 13.0 13.1 13.5 15.3 2,740 3,575 4,292 5,216

Business Group - Indian Private Shareholding Pattern as on Mar’09(%) Promoter MF/Banks/FIs FIIs Corporate Bodies Public / Others 53.8 11.1 6.3 2.3 26.6

Patel Eng. relative to Sensex 110 100 90 80 70 60 50 40 30 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 Patel Eng. BSE Sensex

Financials (Consolidated)
Year FY08 FY09E FY10E FY11E Figure in Rs mn Net Sales % growth EBITDA 15,073 22,230 29,461 38,633 28.6 47.5 32.5 31.1

24 June 2009

Patel Engineering Ltd.

65

DOLAT CAPITAL
INCOME STATEMENT Particulars Net Sales Other income Total Income Total Expenditure Raw Material Employee Expenses Other Construction related cost Administrative Expenses Provisions & Write Offs Other Expenses EBIDTA (Excl. Other Income) EBIDTA (Incl. Other Income) Interest Gross Profit Depreciation Profit Before Tax & EO Items Extra Ordinary Exps/(Income) Profit Before Tax Tax Net Profit Minority Interest Net Profit BALANCE SHEET Particulars Sources of Funds Equity Capital Preference Capital Share Premium Other Reserves Net Worth Revaluation reserve Secured Loans Unsecured Loans Loan Funds Deferred Tax Liability Contractee Advance Minority Interest Total Capital Employed Applications of Funds Gross Block Less: Accumulated Depreciation Net Block Capital Work in Progress Investments Deferred Tax Assets Current Assets, Loans & Advances Inventories Sundry Debtors Cash and Bank Balance Loans and Advances Other Current Assets sub total Less : Current Liabilities & Provisions Current Liabilities Provisions sub total Net Current Assets Misc Expenses Total Assets CASH FLOW Particulars Profit before tax and extra ordinary items Depreciation & w.o. Net Interest Exp Direct taxes paid Change in Working Capital (Non Cash) Other (A) Cash Flow from Operating Activities Capex {Inc./ (Dec.) in Fixed Assets n WIP} Free Cash Flow Inc./ (Dec.) in Investments Other (B) Cash Flow from Investing Activities Issue of Equity/ Preference Inc./(Dec.) in Debt Interest exp net Dividend Paid (Incl. Tax) Other (C) Cash Flow from Financing Net Change in Cash Opening Cash balances Closing Cash balances E-estimates Mar’08 1,855.1 627.1 295.0 (227.0) (4,135.1) 850.0 (734.8) (4,822.7) (5,557.5) 1,353.2 (3,469.5) 0.0 6,344.3 (295.0) (10.1) 6,039.2 1,834.9 1,047.1 2,882.0 Mar’09E 2,084.6 732.7 808.8 (336.7) (3,780.0) (136.6) (627.1) (650.0) (1,277.1) 110.8 (539.2) (0.0) 690.7 (808.8) (10.1) (128.1) (1,294.4) 2,882.0 1,587.6 Mar’10E 2,488.0 1,072.7 777.4 (422.9) (1,826.9) (161.0) 1,927.1 (650.0) 1,277.1 50.0 (600.0) 0.0 (180.0) (777.4) (10.1) (967.4) 359.7 1,587.6 1,947.3 Mar’11E 3,143.9 1,255.9 864.8 (534.5) (3,644.9) (159.8) 925.4 (900.0) 25.4 50.0 (850.0) 0.0 163.9 (864.8) (10.1) (711.0) (635.5) 1,947.3 1,311.8 Mar’08 59.7 0.0 4,069.8 4,329.5 8,459.0 6,019.7 3,744.3 9,764.0 150.9 2,178.0 405.4 20,957.4 Mar’09E 59.7 0.0 4,069.8 5,892.3 10,021.7 6,460.5 3,994.3 10,454.7 185.7 2,178.0 405.4 23,245.5 Mar’10E 59.7 0.0 4,069.8 7,743.5 11,872.9 6,280.5 3,994.3 10,274.7 225.3 2,178.0 405.4 24,956.4 Mar’11E 59.7 0.0 4,069.8 10,139.2 14,268.6 6,444.4 3,994.3 10,438.7 265.2 2,178.0 405.4 27,555.9 Mar’08 15,072.7 36.9 15,109.6 12,332.3 1,030.8 1,113.7 9,243.1 944.8 0.0 0.0 2,740.4 2,777.2 295.0 2,482.2 627.1 1,855.1 0.0 1,855.1 227.0 1,628.1 109.1 1,519.1 Mar’09E 22,230.1 51.6 22,281.7 18,655.6 1,556.1 1,681.6 13,862.2 1,555.6 0.0 0.0 3,574.5 3,626.1 808.8 2,817.4 732.7 2,084.6 0.0 2,084.6 336.7 1,748.0 109.1 1,638.9 Mar’10E 29,461.0 46.5 29,507.4 25,169.5 2,356.9 2,180.9 18,569.5 2,062.3 0.0 0.0 4,291.5 4,338.0 777.4 3,560.6 1,072.7 2,488.0 0.0 2,488.0 422.9 2,065.0 109.1 1,955.9 Rs.mn Mar’11E 38,633.1 48.8 38,681.9 33,417.3 3,187.2 2,726.1 24,741.7 2,762.3 0.0 0.0 5,215.8 5,264.6 864.8 4,399.8 1,255.9 3,143.9 0.0 3,143.9 534.5 2,609.5 109.1 2,500.4 IMPORTANT RATIOS Particulars (A) Measures of Performance (%) Contribution Margin EBIDTA Margin (excl. O.I.) EBIDTA Margin (incl. O.I.) Interest / Sales Gross Profit Margin Tax/PBT Net Profit Margin (B) As Percentage of Net Sales Raw Material Employee Expenses Other Construction related cost Administrative Expenses Provisions & Write Offs Other Expenses (C) Measures of Financial Status Debt / Equity (x) Interest Coverage (x) Average Cost Of Debt (%) Debtors Period (days) Closing stock (days) Inventory Turnover Ratio (x) Fixed Assets Turnover (x) Working Capital Turnover (x) Non Cash Working Capital (Rs Mn) (D) Measures of Investment EPS (Rs.) (excl EO) EPS (Rs.) CEPS (Rs.) DPS (Rs.) Dividend Payout (%) Profit Ploughback (%) Book Value (Rs.) RoANW (%) RoACE (%) RoAIC (%) (Excl Cash & Invest.) (E) Valuation Ratios 6,151.6 1,801.0 4,350.6 2,351.8 360.8 0.0 8,148.0 4,617.5 2,882.0 4,701.5 10.9 20,359.8 6,465.2 23.3 6,488.6 13,871.3 22.9 20,957.4 8,503.4 2,533.7 5,969.7 650.0 250.0 0.0 13,703.5 7,917.6 1,587.6 5,500.0 10.0 28,718.7 12,247.7 114.1 12,361.8 16,356.9 19.0 23,245.5 9,153.4 3,606.4 5,547.0 650.0 200.0 0.0 18,160.9 10,493.0 1,947.3 5,500.0 10.0 36,111.1 17,453.6 114.1 17,567.7 18,543.4 16.0 24,956.4 9,803.4 4,862.3 4,941.1 900.0 150.0 0.0 23,814.9 13,759.7 1,311.8 5,500.0 10.0 44,396.4 22,729.6 114.1 22,843.6 21,552.8 12.0 27,555.9 CMP (Rs.) P/E (x) Market Cap. (Rs. Mn.) MCap/ Sales (x) EV (Rs. Mn.) EV/Sales (x) EV/EBDITA (x) P/BV (x) Dividend Yield (%) E-estimates 379.0 14.9 22,610.8 1.5 29,492.8 2.0 10.8 2.7 0.4 379.0 13.8 22,610.8 1.0 31,477.9 1.4 8.8 2.3 0.4 379.0 11.6 22,610.8 0.8 30,938.2 1.1 7.2 1.9 0.4 379.0 9.0 22,610.8 0.6 31,737.7 0.8 6.1 1.6 0.4 25.5 25.5 36.0 1.5 5.9 94.1 141.8 19.6 13.0 14.7 27.5 27.5 39.8 1.5 5.5 94.5 168.0 17.7 13.1 14.6 32.8 32.8 50.8 1.5 4.6 95.4 199.0 17.9 13.5 14.6 41.9 41.9 63.0 1.5 3.6 96.4 239.2 19.1 15.3 16.3 Mar’08 Mar’09E Mar’10E Mar’11E

18.2 18.4 2.0 16.5 12.2 10.1

16.1 16.3 3.6 12.7 16.2 7.4

14.6 14.7 2.6 12.1 17.0 6.6

13.5 13.6 2.2 11.4 17.0 6.5

6.8 7.4 61.3 6.3 0.0 0.0

7.0 7.6 62.4 7.0 0.0 0.0

8.0 7.4 63.0 7.0 0.0 0.0

8.3 7.1 64.0 7.2 0.0 0.0

1.2 9.4 4.5 111.8 197.3 1.8 2.5 1.1 10,989.3

1.0 4.5 8.0 130.0 225.0 1.6 2.6 1.4 14,769.2

0.9 5.6 7.5 130.0 225.0 1.6 3.2 1.6 16,596.1

0.7 6.1 8.4 130.0 225.0 1.6 3.9 1.8 20,241.0

24 June 2009

Patel Engineering Ltd.

66

Power Finance Corporation Ltd.
CMP: Rs 189 Target Price: Rs 236
‘Power’ful Business…!!!

DOLAT CAPITAL Financial Institution / Buy

Power Finance Corporation (PFC) is a leader in the power financing space and a direct play on India’s growing energy needs - identified as core to India’s economic growth. The company’s strong credit/ project appraisal techniques have mitigated the asset quality concerns thus enabling PFC to have a clean and healthy asset book. A favorable 3 year reset clause on the loan book aid’s PFC to maintain its spreads (2%) and margins (3.6%) in the coming years. At CMP, the stock trades at 9.6x FY11E EPS of Rs 19.7; 1.6x FY11E book value of Rs 118 and 1.6x FY10E adj. book value of Rs 118. We recommend a Buy on the stock with a target price of Rs 236 (2xFY11E BV)
Analyst: Darpin Shah Tel : +9122 4096 9754 Email: darpin@dolatcapital.com Associate : Jaynee Shah Tel : +9122 4096 9723 Email: jaynee@dolatcapital.com BSE Sensex NSE Nifty Scrip Details Equity Face Value Market Cap 52 week High/Low 1-Month Avg. Volume BSE Code NSE Symbol Bloomberg Code Reuters Code Rs.11478mn Rs.10/Rs.216.5bn US$4426.8mn Rs.277/86 1667609 532810 PFC POWF IN PWFC.BO 14423 4293

Investment Rationale
Growth opportunities remain substantial
PFC remains in a favorable position with the ongoing focus on infra spend. The company is the nodal agency for most government power schemes and has contributed ~26% of the total investments (Xth plan) in the power sector investments. Two key opportunities going forward could be the revised APDRP and UMPP’s. The massive capital investments in the power sector provide strong visibility to its core lending business. We expect the company’s loan book to grow at a CAGR of 24% to Rs 984bn by FY11E.

Prudent risk management practices minimizes asset quality concerns
Exposure to ailing state power utilities has not deterred PFC from keeping its asset book clean and healthy. The company’s positioning as a specialist institution providing power related financing and advisory work has helped the company to develop a sharp focus in credit/ project appraisal. PFC also secures its lending through Government guarantees, charge on assets and a built in escrow mechanism. This is evident from its low NPA ratio of 0.01% (FY09). However, we are factoring in a modest increase in gross NPA’s to 0.03% in FY10E and further to 0.05% in FY11E

Business Group - Govt. of India - FIs Shareholding Pattern as on Mar’09(%) Promoter MF/Banks/FIs FIIs Corporate Bodies Public / Others 89.8 3.2 4.0 0.9 2.1

Stable margins with favorable asset liability structure
PFC has around 60% of its loan book under the 3 year reset clause (20% under the 10 year reset clause). Moreover, on the liability side only 13% of its borrowings are floating. This has enabled the company to maintain its spreads and margins. Going forward, we expect the company to maintain its spreads at ~ 2% and the NIM at ~ 3.6% over FY09 - FY11E.

No regulatory constraints
PFC, unlike banks and other NBFC’s, is not bound to comply with the statutory reserve requirement norms. This aids their margins siginificantly. Furthermore, unlike most power utility companies, their return ratios are not capped. Thus, power finance companies, in our view offer the best of both- power and financial services sectors.

PFC relative to BSE Sensex 220 200 180 160 140 120 100 80 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 PFC BSE Sensex

Valuation
PFC offers a direct play on the high priority power sector. We believe, the company offers a distinct business model with a clear focus on high “Growth” sector with well managed “Quality”. The recent development of reversal of deferred tax liability would further aid the net worth of the company and enable it increase its leverage beyond the current levels.
At CMP, the stock trades at 9.6x FY11E EPS of Rs 19.7; 1.6x FY11E book value of Rs 118 and 1.6x FY11E adj. book value of Rs 118. We recommend a Buy on the stock with a Target Price of Rs 236 (2xFY11E BV)

Financials
Year FY08 FY09E FY10E FY11E Figure in Rs.bn NII 17.0 22.6 25.9 30.6 Chg (%) 18.8 32.8 14.5 18.1 Net profit 12.1 19.8 18.9 22.7 Chg (%) 22.5 63.9 (4.7) 20.1 NIM (%) EPS (Rs) 3.6 3.9 3.6 3.4 10.5 17.2 16.4 19.7 PE (x) 17.9 10.9 11.5 9.6 P/ BV (x) P/ ABV (x) 2.3 1.9 1.8 1.6 2.3 1.9 1.8 1.6 RoANW (%) RoAA (%) 13.5 19.0 16.1 17.8 2.6 3.5 2.7 2.6

24 June 2009

PFC

67

DOLAT CAPITAL
INCOME STATEMENT Particulars Operating Income Interest Income Interest Expenses Net Interest Income Other Income Operating Income Operating Expenses Operating Profit Provisions for Bad and Doubtful Debts Depriciation Profit before Tax Provision for Tax Profit after Tax Prior Period Adjustments Net Profit BALANCE SHEET Particulars Sources of Funds Equity Capital Reserver & Surplus Net Worth Loan Funds Interest subsidy from Govt Deferred Tax Asset / Liability Total Liabilities Application of Funds Fixed Assets & WIP Advances Investments Current Asstes Current Liabilities Net Current Assets Deferred Tax Asset / Liability Total Assets E-estimates 770 515,683 656 29,896 24,158 5,738 0 522,847 799 644,290 340 46,727 28,363 18,364 0 659,626 807 792,299 408 44,354 35,456 8,898 0 796,161 835 984,840 449 54,406 42,899 11,508 0 988,257 11,478 81,821 93,299 406,478 10,668 12,403 522,847 11,478 103,698 115,176 521,600 9,090 13,760 659,626 11,478 107,430 118,908 651,724 10,908 14,621 796,161 11,478 124,091 135,568 823,891 13,090 15,708 988,257 Mar’08 Mar’09E Mar’10E Mar’11E Growth (%) Net Interest Income Other Income Operating Profit Net Profit Advances Loan Funds Asset Quality Gross NPA % Net NPA % Dividend DPS (Rs) Efficiency Avg. Advances per Employee (Rs cr) Avg Profit per Employee (Rs lakh) E-estimates 154.5 355.0 185.6 504.3 219.0 568.6 259.4 601.7 3.5 4.0 4.3 4.5 0.0 0.0 0.0 0.0 0.1 0.0 0.1 0.0 17.7 22.5 17.5 21.0 13.3 63.9 24.9 28.3 26.7 (4.7) 23.0 24.9 20.8 20.1 24.3 26.4 18.8 32.8 14.5 18.1 Mar’08 50,502 47,809 30,795 17,013 (94) 19,613 1,840 17,773 (104) 45 17,833 5,809 12,024 52 12,076 Mar’09E 65,720 64,033 41,440 22,593 (2,249) 22,031 1,894 20,136 40 41 20,055 258 19,797 0 19,797 Mar’10E 78,277 73,984 48,106 25,878 (2,144) 28,027 2,517 25,509 215 49 25,245 6,377 18,868 0 18,868 Rs.mn Mar’11E 93,965 88,857 58,287 30,570 (1,697) 33,982 3,178 30,804 444 57 30,303 7,652 22,652 0 22,652 Profitability (%) RoANW RoAA Cost / Income Ratio (%) Cost / Assets (%) Avg. yield on Advances Avg. cost on Funds Spread Net Interest Margin 13.5 2.6 9.3 0.4 10.0 8.3 1.7 3.6 19.0 3.5 7.7 0.3 10.8 8.9 1.9 3.9 16.1 2.7 8.3 0.3 10.3 8.2 2.1 3.6 17.8 2.6 8.9 0.3 10.0 7.9 2.1 3.4 IMPORTANT RATIOS Particulars Valuation EPS (Rs) Book Value (Rs) Adj. Book Value (Rs) P/E (x) P/BV (x) P/ABV (x) 10.5 81.3 81.2 17.9 2.3 2.3 17.2 100.3 100.3 10.9 1.9 1.9 16.4 103.6 103.4 11.5 1.8 1.8 19.7 118.1 117.9 9.6 1.6 1.6 Mar’08 Mar’09 Mar’10E Mar’11E

24 June 2009

PFC

68

Rallis India Ltd.
CMP: Rs 544 Target Price: Rs 670
Harvesting Growth..!!!

DOLAT CAPITAL Agro Chemicals / Accumulate

Rallis redefined its DNA as a focused agrochemical player with complementary strengths in both manufacturing and distribution. Its business model rests on a strong USP of its ‘Farmer Connect’ and multiple relationships with global innovators. It has carefully turned around its manufacturing investments into a complementary global outsourcing model to provide predictable business growth. We recommend ‘Accumulate’ on the stock with a target price of Rs. 670 (7x FY11E EPS).
Analyst: Bhavin Shah Tel : +9122 4096 9731 Email: bhavin@dolatcapital.com BSE Sensex NSE Nifty Scrip Details Equity Face Value Market Cap 52 week High/Low 1-Month Avg. Volume BSE Code NSE Symbol Bloomberg Code Reuters Code Business Group - Tata Shareholding Pattern as on Mar’09(%) Promoter MF/Banks/FIs FIIs Corporate Bodies Public / Others 45.2 26.8 5.2 5.0 17.8 Rs.119.8mn Rs.10/Rs.6.5bn US$133.3mn Rs.705/30 29992 500355 RALLIS RALI IN RALL.BO 14423 4293

Investment Rationale
DNA Redefined
Rallis’ history leaves us with sequential management changes, assimilation of non profitable businesses and high borrowings. Subsequent to restructuring initiatives the overheads were significantly curtailed while proceeds from sale of non core assets and surplus land were effectively deployed towards retirement of debt. Successful implementation of various strategies altered the company’s profile to a focused agrochemical company with complementary strengths in both manufacturing and distribution.

Domestic Business: Farmer Connect - The core advantage....
Rallis’ forte is its century old association with the Indian farming community. Focused group discussions and regular interactions with farmers provides indepth market knowledge which it incorporates in its marketing and product avenues. Rallis has adopted a two pronged strategy to grow its domestic business – Product launches through Own (in-house research) and via Strategic alliances. Performance of new product launches are evaluated through its “Innovation turnover Index” tool benchmarked at 25% of sales. We estimate domestic operations to grow at 6% CAGR over FY09-11E to Rs. 6981mn driven by innovative product launches and dedicated co-marketing strategies.

Exports – Provides the new balance...
Rallis (I) relative to BSE Sensex 200 180 160 140 120 100 80 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 Rallis (I) BSE Sensex

Focus on International markets enables it to mitigate seasonal volatilities experienced in the domestic business. The ‘Apollo’ programme is a devised strategy aimed at realising high growth in exports through - supply contracts, registration based sales and entry into new geographies. The company has outlined phasewise investment of Rs.2bn towards new capacities at Dahej SEZ to capitalize on opportunities in Contract manufacturing. We expect these initiatives to catapult contribution from international business to 44% by FY11E from 21% - FY08 of total sales.

Valuation
Successful implementation of ‘DISHA’ programme has resulted in substantial improvement in the operational performance and consequently high return ratios. We estimate earnings growth at 22% CAGR (FY09-11E) to Rs.1146mn led by sustainable growth in the domestic business and increasing contribution from exports. Possible acquisition - complementing its adjacent verticals viz. distribution and manufacturing would add to the growth momentum. At CMP of Rs.544, the stock trades at attractive 7x FY10E and 5.7x FY11E earnings. We recommend ‘Accumulate’ on the stock with a target price of Rs. 670 (7x FY11E EPS).

Financials
Year FY08* FY09 FY10E FY11E Net Sales# 6,922 8,523 10,042 11,611 % growth 7.6 23.1 17.8 15.6 EBIDTA 812 1,354 1,738 2,115 OPM % 11.7 15.9 17.3 18.2 PAT 496 713 927 1,146 % growth 13.3 43.7 30.0 23.7 EPS(Rs.) % growth PER (x) 41.4 59.5 77.3 95.7 13.3 43.7 30.0 23.7 13.1 9.1 7.0 5.7 ROANW % ROACE % 19.1 23.7 27.7 31.6 21.4 29.5 34.4 35.9

Figure in Rs mn, # Incl. Other Operating Income,* Excl. extraordinary items

24 June 2009

Rallis India Ltd.

69

DOLAT CAPITAL
INCOME STATEMENT Particulars Net Sales Operating Income Income from Operations Non Operating Income Total Income Total Expenditure Raw Material Employee Expenses Other Operating Expenses Administrative Expenses EBIDTA (Excl. Other Income) EBIDTA (Incl. Other Income) Interest Gross Profit Depreciation Profit Before Tax & EO Items Extra Ordinary Exps/(Income) Profit Before Tax Tax Net Profit Minority Interest Net Profit after Minority Interest Adjusted Net Profit (EO) BALANCE SHEET Particulars Sources of Funds Equity Capital Preference Capital Share Premium Other Reserves Net Worth Revaluation reserve Secured Loans Unsecured Loans Loan Funds Deferred Tax Liability Total Capital Employed Applications of Funds Gross Block Less: Accumulated Depreciation Net Block Capital Work in Progress Investments Deferred Tax asset Current Assets, Loans & Advances Inventories Sundry Debtors Cash and Bank Balance Loans and Advances Other Current Assets sub total Less : Current Liabilities & Provisions Current Liabilities Provisions sub total Net Current Assets Misc Expenses Total Assets CASH FLOW Particulars Profit before tax and extra ordinary items Depreciation & w.o. Net Interest Exp Direct taxes paid Change in Working Capital (Non Cash) Other (A) Cash Flow from Operating Activities Capex {Inc./ (Dec.) in Fixed Assets n WIP} Free Cash Flow Inc./ (Dec.) in Investments Other (B) Cash Flow from Investing Activities Issue of Equity/ Preference Inc./(Dec.) in Debt Interest exp net Dividend Paid (Incl. Tax) Other (C) Cash Flow from Financing Net Change in Cash Opening Cash balances Closing Cash balances E-estimates (247.1) (153.7) 229.0 75.3 35.1 (3.8) 75.3 71.5 (1161.6) (8.2) 71.5 63.4 (4.1) 0.8 63.4 64.2 (432.9) 0.0 91.0 (36.6) (301.6) (1380.9) 0.0 366.6 (30.0) (301.6) (138.4) (880.0) 148.4 (114.5) (315.6) (1150.0) 0.0 500.0 (174.5) (329.6) Mar’08 602.2 200.7 36.6 (209.8) (930.8) 827.5 526.4 (195.1) 331.3 (237.9) Mar’09 1123.2 229.5 30.0 (347.2) 455.8 (149.3) 1342.0 (574.4) 767.6 (806.5) Mar’10E 1343.4 303.3 114.5 (416.5) (86.1) 33.3 1291.9 (1100.0) 191.9 961.6 1154.9 (1100.0) 54.9 (50.0) Mar’11E 1559.8 405.5 174.5 (413.3) (571.5) 1409.5 592.7 2002.2 1340.9 7.3 3514.3 1951.1 640.3 2591.4 881.3 71.3 4292.3 2383.0 943.5 3326.5 959.2 7.3 4172.1 2577.1 1114.1 3691.2 1531.5 7.3 5488.9 1454.5 1011.6 75.3 793.7 7.9 3343.1 1472.7 1143.7 71.5 773.6 11.3 3472.7 1883.0 1479.5 63.4 848.6 11.3 4285.7 2332.6 1866.1 64.2 948.6 11.3 5222.7 2960.4 1614.1 1346.3 132.5 555.1 132.3 3376.6 1790.7 1585.9 290.7 1361.6 101.6 4767.3 2094.0 2673.3 0.0 400.0 132.3 5867.3 2499.5 3367.8 0.0 450.0 132.3 373.5 65.4 438.9 0.0 3514.3 248.1 557.4 805.5 0.0 4292.3 388.5 565.4 953.9 0.0 4172.1 388.5 1065.4 1453.9 0.0 5488.9 119.8 880.0 0.0 2075.5 3075.4 119.8 880.0 0.0 2486.9 3486.8 119.8 0.0 0.0 3098.3 3218.2 3915.1 4035.0 119.8 0.0 (D) Measures of Investment EPS (Rs.) (excl EO) EPS (Rs.) CEPS (Rs.) DPS (Rs.) Dividend Payout (%) Profit Ploughback (%) Book Value (Rs.) Adj.RoANW (%) RoACE (%) RoAIC (%) (Excl Cash & Invest.) (E) Valuation Ratios CMP (Rs.) P/E (x) Market Cap. (Rs. Mn.) MCap/ Sales (x) EV (Rs. Mn.) EV/Sales (x) EV/EBDITA (x) P/BV (x) Dividend Yield (%) E-estimates 544.0 13.1 6519.7 1.0 6883.4 1.0 8.5 2.1 2.9 544.0 9.1 6519.7 0.8 7253.7 0.9 5.4 1.9 2.9 544.0 7.0 6519.7 0.7 7410.3 0.8 4.3 2.0 3.1 544.0 5.7 6519.7 0.6 7909.5 0.7 3.7 1.6 3.3 41.4 104.5 121.2 16.0 15.3 84.7 256.6 19.1 21.4 17.8 64.8 59.5 78.6 16.0 26.9 73.1 290.9 23.7 29.5 26.6 77.3 77.3 102.7 17.0 22.0 78.0 268.5 27.7 34.4 34.9 95.7 95.7 129.5 18.0 18.8 81.2 336.7 31.6 35.9 31.5 Mar’08 Mar’09 Mar’10E Mar’11E 1251.9 496.3 712.9 776.0 927.0 927.0 1146.4 1146.4 Mar’08 6710.7 210.8 6921.6 27.6 6949.2 6109.7 4084.4 599.4 444.7 981.1 811.9 839.5 36.6 802.9 200.7 602.2 (859.5) 1461.7 209.8 1251.9 Mar’09 8328.5 194.5 8523.0 29.1 8552.1 7169.5 5055.7 664.3 423.3 1026.2 1353.5 1382.6 30.0 1352.7 229.5 1123.2 63.1 1060.1 347.2 712.9 Mar’10E 9818.7 223.7 10042.3 23.0 10065.3 8304.1 5866.6 792.9 589.1 1055.5 1738.2 1761.2 114.5 1646.7 303.3 1343.4 0.0 1343.4 416.5 927.0 Rs.mn Mar’11E 11352.1 258.7 11610.8 25.0 11635.8 9496.1 6731.8 908.2 681.1 1174.9 2114.7 2139.7 174.5 1965.3 405.5 1559.8 0.0 1559.8 413.3 1146.4 (C) Measures of Financial Status Debt / Equity (x) Interest Coverage (x) Average Cost Of Debt (%) Debtors Period (days) Closing stock (days) Inventory Turnover Ratio (x) Fixed Assets Turnover (x) Working Capital Turnover (x) Non Cash Working Capital (Rs Mn) 0.1 22.9 9.3 55.0 79.1 4.6 2.3 5.0 1265.6 0.2 46.1 4.8 50.1 64.5 5.7 2.5 9.5 809.8 0.3 15.4 13.0 55.0 70.0 5.2 2.1 10.2 895.9 0.4 12.3 14.5 60.0 75.0 4.9 1.9 7.4 1467.4 (B) As Percentage of Net Sales Raw Material Employee Expenses Other Opearting Expenses Administrative Expenses Provisions & Write Offs Other Expenses 59.0 8.7 6.4 14.2 0.0 0.0 59.3 7.8 5.0 12.0 0.0 0.0 58.4 7.9 5.9 10.5 0.0 0.0 58.0 7.8 5.9 10.1 0.0 0.0 IMPORTANT RATIOS Particulars (A) Measures of Performance (%) Contribution Margin EBIDTA Margin (excl. O.I.) EBIDTA Margin (incl. O.I.) Interest / Sales Gross Profit Margin Tax/PBT Net Profit Margin 11.7 12.1 0.5 12.0 14.4 18.1 15.9 16.2 0.4 16.2 32.7 8.4 17.3 17.5 1.2 16.8 31.0 9.2 18.2 18.4 1.5 17.3 26.5 9.9 Mar’08 Mar’09 Mar’10E Mar’11E

24 June 2009

Rallis India Ltd.

70

Rural Electrification Corporation Ltd.
CMP: Rs 158 Target Price: Rs 182
Lighting the Last Mile…!!!

DOLAT CAPITAL

Financial Institution / Accmulate

Rural Electrification Corporation (REC) offers an attractive opportunity to play the buoyancy in the power sector. The company is one of the few financial institutions specializing in power financing. We believe that REC will continue to deliver steady earnings growth (16% CAGR between FY09- FY11) and high profitability as its business prospects remain strong. In the near term, loans for generation projects will likely drive growth. We also expect the share of private sector and transmission projects to move up over long term. At CMP, the stock trades at 7.9x FY11E EPS of Rs 20; 1.6x FY11E book value of Rs 97 and 1.6x FY10E adj. book value of Rs 96. We recommend an Accumulate rating with a target price of Rs. 182 (1.9x FY11E BV)
Analyst: Darpin Shah Tel : +9122 4096 9754 Email: darpin@dolatcapital.com Associate : Jaynee Shah Tel : +9122 4096 9723 Email: jaynee@dolatcapital.com BSE Sensex NSE Nifty Scrip Details Equity Face Value Market Cap 52 week High/Low 1-Month Avg. Volume BSE Code NSE Symbol Bloomberg Code Reuters Code Rs.8,587mn Rs.10/Rs.135.9bn US$2778.8mn Rs.167/53 1870765 532955 RECLTD RECLIN RURL.BO 14423 4293

Investment Rationale
Strong business traction expected
REC is one of the few financial institutions in India specializing in power financing and is expected to benefit significantly from the government’s thrust on addressing India’s power and infrastructure needs. We expect REC to deliver high loan growth (26% CAGR over FY09-FY11), primarily driven by the generation segment.

Diversification of the loan portfolio
REC was incorporated primarily as a sole financer for rural power projects. Gradually, the scope for financing power infrastructure for REC was widened to cover the entire range of power infrastructure and generation. Thereafter, REC’s loan book which was predominately tilted towards the T&D segment started shifting towards the generation segment as well. REC’s loan book currently stands at Rs 513bn and the company plans to grow at ~ 30% CAGR in the next couple of years with a focus on the generation segment.

Strong yields and low cost funds to sustain margins
REC has a major advantage of raising capital gain bonds, thus having lower cost of funds. This has helped the company to maintain healthy margins at around 3.6%. However, the proportion of these bonds has declined to 32% of the total borrowed funds from 45% levels in FY08, which indicates REC’s ability to pass on its funding costs to its borrowers. We expect NIM’s to remain stable at ~3.5% for FY09-FY11E.

Business Group - Govt. of India - FIs Shareholding Pattern as on Mar’09(%) Promoter MF/Banks/FIs FIIs Corporate Bodies Public / Others 81.8 8.3 3.4 1.5 4.9

Asset quality to remain stable
Over the past few years, REC has been able to improve asset quality. REC had a higher proportion of riskier T&D loan portfolio. However, with the diversification in the loan book over the last couple years, the company has reduced its gross NPL’s. Almost 99% of the company’s loan book is secured with ~ 98% recovery rate. However, as a prudential measure, the company follows the 180 day NPA recognition cycle and accordingly provides for the same. REC also has most of its loan book secured through an escrow mechanism. These strong risk management practices enable the company to maintain its impeccable asset quality.

REC relative to BSE Sensex 190 170 150 130 110 90 70 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 RECLTD BSE Sensex

Valuations
REC offers another play on India’s growing energy needs apart from PFC. The company has an edge over PFC in terms of cost of funds which remain the lowest in the industry and a better ROE. The recent disinvestment proposal will further enhance REC’s Book Value (and have lower impact on RoE’s). The Deferred Tax Liability reversal is expected to further enhance book value by ~ 11 / per share. At CMP, the stock trades at 7.9x FY11E EPS of Rs 20; 1.6x FY11E book value of Rs 97 and 1.6x FY10E adj. book value of Rs 96. We recommend an Accumulate rating with a target price of Rs. 182 (1.9x FY11E BV)

Financials
Year FY08 FY09E FY10E FY11E Figure in Rs.bn NII 13.1 17.7 21.4 25.9 Chg (%) 55.2 35.0 21.3 20.6 Net profit 8.6 12.7 14.3 17.2 Chg (%) 30.3 47.9 12.4 20.2 NIM (%) EPS (Rs) 3.6 3.8 3.6 3.5 10.0 14.8 16.7 20.0 PE (x) 15.8 10.7 9.5 7.9 P/ BV (x) P/ ABV (x) 2.5 2.2 1.9 1.6 2.6 2.2 1.9 1.6 RoANW (%) RoAA (%) 18.3 22.0 21.5 22.3 2.3 2.8 2.4 2.3

24 June 2009

REC Ltd.

71

DOLAT CAPITAL
INCOME STATEMENT Particulars Interest Income Interest Expenses Net Interest Income Other Income Operating Income Operating Expenses Operating Profit Provisions and Contengencies Depriciation Profit before Tax Provision for Tax Profit after Tax BALANCE SHEET Particulars Sources of Funds Equity Capital Reserver & Surplus Net Worth Loan Funds Deferred Tax Asset / Liability Total Liabilities Application of Funds Fixed Assets & WIP Advances Investments Current Asstes Current Liabilities Net Current Assets Deferred Tax Asset / Liability Total Assets E-estimates 779 393,165 11,474 23,725 24,468 (742) 0 404,676 942 513,810 10,060 24,201 28,207 (4,007) 0 520,806 1,082 653,817 10,563 36,669 31,227 5,442 0 670,905 1,237 820,073 11,355 37,693 44,255 (6,562) 0 826,103 Asset Quality NPAs as % to Net Advances (%) Dividend DPS (Rs) Efficiency Avg. Disbursement per Employee (Rs cr) Avg Profit per Employee (Rs lakh) E-estimates 50.8 107.2 63.9 150.1 82.2 190.0 103.4 220.3 3.0 4.5 4.9 5.3 0.6 0.0 0.1 0.1 8,587 45,090 53,677 342,828 8,171 404,676 8,587 53,289 61,876 449,360 9,570 520,806 8,587 62,718 71,304 589,416 10,185 670,905 8,587 74,639 83,226 731,915 10,962 826,103 Growth (%) Net Interest Income Other Income Operating Profit Net Profit Advances Loan Funds 55.2 (21.2) 32.1 30.3 22.5 13.2 35.0 9.1 42.0 47.9 30.7 31.1 21.3 (23.0) 12.6 12.4 27.2 31.2 20.6 (1.9) 20.4 20.2 25.4 24.2 Mar’08 Mar’09E Mar’10E Mar’11E Mar’08 33,605 20,511 13,094 1,594 14,866 1,322 13,544 400 14 13,130 4,523 8,601 Mar’09E 46,650 28,970 17,680 1,740 20,340 1,103 19,237 24 14 19,200 6,480 12,720 Mar’10E 57,798 36,357 21,440 1,340 23,169 1,502 21,667 141 21 21,505 7,204 14,301 Rs.mn Mar’11E 69,273 43,406 25,867 1,315 27,825 1,738 26,086 199 28 25,859 8,663 17,196 Profitability (%) RoANW RoAA Cost / Income Ratio (%) Cost / Assets (%) Avg. yield on Advances Avg. cost on Funds Spread Net Interest Margin 18.3 2.3 8.9 0.3 9.4 6.4 3.1 3.6 22.0 2.8 5.4 0.2 10.3 7.3 3.0 3.8 21.5 2.4 6.5 0.2 9.9 7.0 2.9 3.6 22.3 2.3 6.2 0.2 9.4 6.6 2.8 3.5 IMPORTANT RATIOS Particulars Valuation EPS (Rs) Book Value (Rs) Adj. Book Value (Rs) P/E (x) P/BV (x) P/ABV (x) 10.0 62.5 59.8 15.8 2.5 2.6 14.8 72.1 71.8 10.7 2.2 2.2 16.7 83.0 82.5 9.5 1.9 1.9 20.0 96.9 96.0 7.9 1.6 1.6 Mar’08 Mar’09 Mar’10E Mar’11E

24 June 2009

REC Ltd.

72

S.Kumars Nationwide Ltd.
CMP: Rs 45 Target Price: Rs 65
Tailor Made Profits...!!!

DOLAT CAPITAL Textiles / Buy

Skumars Nationwide (SKNL) is one of the largest integrated textile manufacturers with a strong focus on brand and distribution. It has grown at a CAGR of ~35% (FY06-09E). We feel this growth is sustainable to a certain extent given the fact that the company has experience, strong brand, scalability and strong distribution network. We initiate coverage with a BUY recommendation on the stock with a target price of Rs.65 (5xFY11E) over a period of 12~18 months.
Analyst: Ankit Babel Tel : +9122 4096 9732 Email: ankit@dolatcapital.com BSE Sensex NSE Nifty Scrip Details Equity Face Value Market Cap 52 week High/Low 1-Month Avg. Volume BSE Code NSE Symbol Bloomberg Code Reuters Code Rs.2436mn Rs.10/Rs.11bn US$225mn Rs.114/13 13293506 514304 SKUMARSYNF SKUM IN SKMK.BO 14423 4293

Investment Rationale
Strong Brand Image
SKNL caters to all the socio-economic group from economy to luxury segment. Its flagship brand “Skumars” (economy segment) has a strong heritage and is well recognized in the Indian hinterland and mainland. It is the market leader in the branded uniform and institutional work wear segment with ~30% market share. In the premium segment, SKNL’s “Reid & Taylor” brand has steadily gained market share (~18% in this segment) with strong brand appeal. The company is making efforts to build up newer brands – Belmonte, Carmichael House, Stephen Brothers and Balmoral. SKNL is on the verge of making its entry in the casual segment by launching a new brand in the premium category.

Established Distribution Channel
Over the years the company has developed a supportive distribution strength enabling it to have a pan India presence. It sells its products through ~30K retail outlets (a key differentiator matched by only a few players like Raymond) across India. This accompanied by strong relationship acts as an entry barrier for new entrants and smaller players. Through Brand House Retail (BHRL) - the de-merged arm of SKNL, it plans to increase its geographical reach by increasing the rollouts of EBOs (Exclusive brand outlets).

Business Group - Indian Private Shareholding Pattern as on Mar’09(%) Promoter MF/Banks/FIs FIIs Corporate Bodies Public / Others 46.9 0.4 25.3 16.9 10.5

Investment by GIC (Singapore) in Reid & Taylor (R&T)
GIC has acquired 25.4% stake in Reid & Taylor (74.6% subsidiary of SKNL) for Rs.9bn. valuing the subsidiary at Rs.35.4bn. This is a pure equity investment with no minimum guarantee or commitments attached to it. Company has already received Rs.7.9bn (remaining Rs.1.1bn would be received in FY10). Proceeds received would be used to pay off the debts under the CDR (corporate debt restructuring) scheme and capacity expansion in R&T.

S.Kumar Nat relative to Sensex 120 100 80 60 40 20 0 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 S.Kumar N BSE Sensex

Domestic focus
Domestic sales contribute over 98% of the total revenue (FY08) keeping the company insulated from the vagaries of international slowdown and currency fluctuations. SKNL has consciously avoided exports,with a strategy to tap the high margin domestic market. Even after expanding facilities focusing on exports; the share of exports is not expected to rise beyond 10% of total revenue in the near future.

Valuations
SKNL’s domestic focus coupled with its strong brands, design led approach and lean operations leave them well placed in the current environment. Increase in capacities, geographical reach and increase in share of high margin products will be prime growth drivers going forward. Coming out of the CDR scheme will provide autonomy in daily operations. At CMP, the stock is trading at a PER of 5x FY10E & 3.5x FY11E earnings. We inititate coverage with a BUY recommendaion on the stock with a target price of Rs.65 (5x FY11E) over a period of 12~18 months.
OPM% 21.9 20.5 22.8 23.8 PAT 2,056 1,647 2,195 3,156 % growth FDEPS(Rs.) 66.4 (19.9) 33.3 43.8 9.5 7.4 9.0 13.0 % growth 48.9 (22.8) 22.5 43.8 PER(x) 4.7 6.1 5.0 3.5 ROANW(%) ROACE(%) 26.4 11.5 9.8 11.2 16.8 13.5 14.0 15.8

Financials (Consolidated)
Year FY08 FY09E FY10E FY11E Figure in Rs mn Net Sales 17,486 21,940 29,658 36,067 % growth 42.2 25.5 35.2 21.6 EBITDA 3,835 4,489 6,757 8,594

24 June 2009

Skumars Nationwide Ltd. (SKNL)

73

DOLAT CAPITAL
INCOME STATEMENT Particulars Net Sales Other income Total Income Total Expenditure Raw Material Employee Expenses Manufacturing Expenses Selling & Administrative Expenses EBIDTA (Excl. Other Income) EBIDTA (Incl. Other Income) Interest Gross Profit Depreciation Profit Before Tax & EO Items Profit Before Tax Tax Net Profit Minority Interest Net Profit BALANCE SHEET Particulars Sources of Funds Equity Capital Preference Capital Other Reserves Net Worth Revaluation reserve Secured Loans Unsecured Loans Loan Funds Deferred Tax Liability Minority Interest Total Capital Employed Applications of Funds Gross Block Less: Accumulated Depreciation Net Block Capital Work in Progress Investments Current Assets, Loans & Advances Inventories Sundry Debtors Cash and Bank Balance Loans and Advances Other Current Assets sub total Less : Current Liabilities & Provisions Current Liabilities Provisions sub total Net Current Assets Total Assets CASH FLOW Particulars Profit before tax and extra ordinary items Depreciation & w.o. Net Interest Exp Direct taxes paid Change in Working Capital (Non Cash) Other (A) Cash Flow from Operating Activities Capex {Inc./ (Dec.) in Fixed Assets n WIP} Free Cash Flow Inc./ (Dec.) in Investments Other (B) Cash Flow from Investing Activities Issue of Equity/ Preference Inc./(Dec.) in Debt Interest exp net (C) Cash Flow from Financing Net Change in Cash Opening Cash balances Closing Cash balances E-estimates Mar’08 2,621.1 426.1 871.0 (297.1) (2,724.2) 118.8 1,015.7 (3,850.7) (2,835.0) 0.1 22.3 (3,828.2) 1,652.3 2,020.7 (893.3) 2,779.7 (32.9) 145.2 112.3 (4,648.8) 7,555.3 1,871.3 (1,195.3) 8,231.3 3,232.6 112.3 3,344.9 (3,350.0) 4,474.0 (316.7) (1,114.9) 3,042.4 193.8 3,344.9 3,538.7 (1,100.0) 1,394.7 645.8 (1,189.9) 850.6 2,373.3 3,538.7 5,912.0 (349.9) (2,282.8) (2,632.7) (2,365.9) 501.4 (3,350.0) (2,848.6) 0.0 2,622.7 (1,100.0) 1,522.7 0.0 Mar’09E 2,781.3 612.5 1,195.3 (859.9) (4,079.1) Mar’10E 4,287.9 1,534.0 1,114.9 (1,564.0) (4,871.3) Mar’11E 5,953.2 1,650.5 1,189.9 (2,198.9) (3,972.2) 1,520.2 777.7 2,297.8 14,513.5 23,745.9 3,525.4 21,825.1 35,186.7 4,055.4 26,890.2 42,173.0 4,661.9 33,235.6 48,073.2 3,525.4 4,055.4 4,661.9 5,794.5 8,013.9 112.3 2,890.5 0.0 16,811.3 6,410.2 9,022.5 3,344.9 4,465.2 2,107.7 25,350.5 8,483.6 12,115.6 3,538.7 4,805.3 2,002.4 30,945.6 10,237.3 14,747.2 5,912.0 5,103.9 1,897.2 37,897.6 5,616.9 1,801.9 3,815.0 5,403.7 13.7 10,303.5 2,321.5 7,981.9 3,000.0 2,379.6 15,153.5 3,750.3 11,403.2 1,500.0 2,379.6 17,253.5 5,295.5 11,957.9 500.0 2,379.6 23,745.9 2,153.5 1,697.9 5,794.5 9,645.9 108.6 11,821.0 2,129.3 13,950.3 41.2 274.6 35,186.7 803.8 42,173.0 1,402.0 48,073.2 (E) Valuation Ratios CMP (Rs.) P/E (x) Market Cap. (Rs. Mn.) MCap/ Sales (x) EV (Rs. Mn.) EV/Sales (x) EV/EBDITA (x) P/BV (x) Dividend Yield (%) E-estimates 45.0 4.7 9,691 0.6 23,529 1.3 6.1 1.0 0.0 45.0 6.1 10,053 0.5 22,529 1.0 5.0 0.5 0.0 45.0 5.0 10,962 0.4 22,928 0.8 3.4 0.4 0.0 45.0 3.5 10,962 0.3 21,201 0.6 2.5 0.4 0.0 15,821.5 15,821.5 15,504.8 15,504.8 16,150.6 16,150.6 2,233.9 0.0 16,748.0 18,981.9 108.6 2,436.0 0.0 23,319.9 25,755.9 108.6 2,436.0 0.0 27,976.0 30,412.0 108.6 (D) Measures of Investment EPS (Rs.) (excl EO) EPS (Rs.) CEPS (Rs.) Book Value (Rs.) RoANW (%) RoACE (%) RoAIC (%) (Excl Cash & Invest.) 9.5 9.5 11.5 44.8 26.4 16.8 16.9 7.4 7.4 10.1 85.0 11.5 13.5 14.3 9.0 9.0 15.3 105.7 9.8 14.0 15.3 13.0 13.0 19.7 124.8 11.2 15.8 17.7 Mar’08 Mar’09E Mar’10E Mar’11E 2,055.9 Mar’08 17,486.5 100.5 17,586.9 13,651.0 11,286.4 420.5 515.4 1,428.7 3,835.4 3,935.9 893.3 3,042.6 426.1 2,616.5 2,616.5 560.5 2,055.9 Mar’09E 21,940.0 100.0 22,040.0 17,450.9 14,121.4 567.3 1,037.0 1,725.3 4,489.0 4,589.0 1,195.3 3,393.7 612.5 2,781.3 2,781.3 859.9 1,921.4 274.6 1,646.7 Mar’10E 29,658.1 180.0 29,838.1 22,901.3 17,124.8 770.2 2,197.0 2,809.3 6,756.8 6,936.8 1,114.9 5,821.9 1,534.0 4,287.9 4,287.9 1,564.0 2,723.8 529.2 2,194.6 Rs.mn Mar’11E 36,067.0 200.0 36,267.0 27,473.3 20,166.9 923.9 2,780.0 3,602.4 8,593.7 8,793.7 1,189.9 7,603.7 1,650.5 5,953.2 5,953.2 2,198.9 3,754.4 598.3 3,156.1 (B) As Percentage of Net Sales Raw Material Employee Expenses Manufacturing Expenses Selling & Administrative Expenses (C) Measures of Financial Status Debt / Equity (x) Interest Coverage (x) Average Cost Of Debt (%) Debtors Period (days) Closing stock (days) Inventory Turnover Ratio (x) Fixed Assets Turnover (x) Working Capital Turnover (x) Non Cash Working Capital (Rs Mn) 1.4 4.4 6.9 167.3 121.0 3.0 3.1 1.2 14,401.2 0.8 3.8 8.0 150.1 106.6 3.4 2.1 1.0 18,480.3 0.6 6.2 7.1 149.1 104.4 3.5 2.0 1.1 23,351.5 0.5 7.4 7.5 149.2 103.6 3.5 2.1 1.1 27,323.7 64.5 2.4 2.9 8.2 64.4 2.6 4.7 7.9 57.7 2.6 7.4 9.5 55.9 2.6 7.7 10.0 IMPORTANT RATIOS Particulars (A) Measures of Performance (%) Contribution Margin EBIDTA Margin (excl. O.I.) EBIDTA Margin (incl. O.I.) Interest / Sales Gross Profit Margin Tax/PBT Net Profit Margin 30.5 21.9 22.4 5.1 17.3 21.4 11.7 28.8 20.5 20.8 5.4 15.4 30.9 7.5 32.7 22.8 23.2 3.8 19.5 36.5 7.4 31.9 23.8 24.2 3.3 21.0 36.9 8.7 Mar’08 Mar’09E Mar’10E Mar’11E

24 June 2009

Skumars Nationwide Ltd. (SKNL)

74

Tata Steel Ltd.
CMP: Rs 405 Target Price: Rs 335
Off the cliff!!!

DOLAT CAPITAL Metals / Sell

The financial crisis in the world had a the destructive effect on steel demand and the steel consumption is expected to decline by 15% in 2009 as per WSA. Europe is expected to be amongst the last to recover out of the recessionary trends. Tata Steel performance will remain under pressure with its 64% of its volumes exposed to developed markets. High leverage and high fixed cost will lead to earnings drop by 66% to Rs 32.68 bn in FY10. We initiate the coverage with a SELL recommendation on Tata Steel with a price target of Rs335 (6x FY10 EV/EBITDA)
Analyst: Ram Modi Tel : +9122 4096 9757 Email: ram@dolatcapital.com BSE Sensex NSE Nifty Scrip Details Equity Face Value Market Cap 52 week High/Low 1-Month Avg. Volume BSE Code NSE Symbol Bloomberg Code Reuters Code Business Group - Tata Shareholding Pattern as on Mar’09(%) Promoter MF/Banks/FIs FIIs Corporate Bodies Public / Others 34.0 24.8 13.2 3.3 24.7 Rs.8628mn Rs.10/Rs.349bn US$7146mn Rs.832/146 17706567 500470 TATASTEEL TATA IN TISC.BO 14423 4293

Rationale
Steel outlook weak with industry still operating at low capacity utilizations. Globally steel demand collapsed following the financial crisis in the world. The demand environment continues to remain challenging with the demand in user industry (Auto and Construction) remaining weak. We believe the price correction has been done, though volumes will continue to remain challenging over next year. With capacity utilization still running low at 72%, we expect upside in prices (Current prices of HR Coil at US$520/mt) to be capped as the restarting of steel capacities will increase supply.

Volumes at Corus to remain low with capacity utilisation at 64%.
Europe continues to face strong recessionary tailwinds resulting in weak demand for steel.Eurofer expects steel consumption in Europe to decline by 15% yoy in FY09 and recover modestly by 1.7% yoy in 2010. We expect realizations to remain weak as UK and Europe continue to be under recessionary trends. Volumes will remain at risk with withdrawl of offtake agreement at Teesside and weak demand . Carryover volumes of high cost coking coal (6.5 mn mt) combined with low realizations and high fixed cost will lead to low margins at Corus.We expect Corus to report an EBITDA/mt of US$40/mt in FY10 (Largely due to cost savings).

High leverage to continue to weigh on cash flows.
Tata Steel, on a consolidated basis, has a net debt of close to US$12bn as of December 2008. Although the company has obtained a relaxation in debt covenants for Corus for FY10, Tata Steel will have to infuse equity of US$200mn for proposed debt prepayment under the agreement with creditors.Interest coverage ratio for Corus remains a concern and will remain dependent on Tata Steel, India, for debt repayment in the near term.

Tata Steel relativet to Sensex 120 100 80 60 40 20 0 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 Tata Steel BSE Sensex

Volume growth of 22% in FY10 with integrated operations at Tata Steel India will still lead to earnings drop in FY10.
Tata Steel India operations will continue to benefit from its integrated operations. Increase in volumes by 22% will help to mitigate drop in realizations . We expect Tata Steel operations to report an EBITDA/mt to Rs 13600/mt due to low realisations (HRC at US$520/mt) and volume of 6 mn mt .Tata Steel India 3mtpa expansion is on track at its Jamshedpur plant and will contribute to earnings only in FY12.

Valuations
We value Tata Steel on EV/EBITDA basis with an high leverage balance sheet and challenging environment.We value Tata Steel on consolidated basis at 6x FY10 EV/EBITDA (15% discount to global average multiple for steel stocks). At our target price Tata Steel will trade at 8.8x FY10EPS and P/BV of 1.4x FY10 (Adj BV for goodwill).
OPM% 13.7 13.8 13.4 15.7 PAT 123,603 32,680 52,981 EPS 84.6 37.9 61.4 % growth 198.9 (23.3) (65.5) 62.1 PER(x) EV/EBITDA 4.8 3.7 10.7 6.6 6.0 4.3 6.5 5.1 ROANW(%) 50.6 26.8 8.7 13.0 ROACE(%) 21.5 16.6 8.3 10.7

Financials (Consolidated)
Year FY08 FY09E FY10E FY11E Figure in Rs mn Net Sales 1,315,359 1,444,800 930,394 959,136 % growth 421.7 9.8 (35.6) 3.1 EBITDA 180,035 199,292 124,769 150,280

94,759 109.8

24 June 2009

Tata Steel Ltd.

75

DOLAT CAPITAL
INCOME STATEMENT Particulars Net Sales Other income Total Income Total Expenditure EBIDTA (Excl. Other Income) EBIDTA (Incl. Other Income) Interest Gross Profit Depreciation Profit Before Tax & EO Items Extra Ordinary Exps/(Income) Profit Before Tax Tax Net Profit Minority Interest Net Profit BALANCE SHEET Particulars Sources of Funds Equity Capital Preference Capital Share Premium Other Reserves Net Worth Minority Interest Secured Loans Unsecured Loans Loan Funds Provision for Employee Separations Deferred Tax Liability Total Capital Employed Applications of Funds Gross Block Less: Accumulated Depreciation Net Block Capital Work in Progress Goodwill Investments Current Assets, Loans & Advances Inventories Sundry Debtors Cash and Bank Balance Loans and Advances Other Current Assets sub total Less : Current Liabilities & Provisions Current Liabilities Provisions sub total Net Current Assets Misc Expenses Total Assets CASH FLOW Particulars Profit before tax and extra ordinary items Depreciation & w.o. Net Interest Exp Direct taxes paid Change in Working Capital (Non Cash) Other (A) Cash Flow from Operating Activities Capex {Inc./ (Dec.) in Fixed Assets n WIP} Inc./ (Dec.) in Investments Other (B) Cash Flow from Investing Activities Issue of Equity/ Preference Inc./(Dec.) in Debt Interest exp net Dividend Paid (Incl. Tax) Other (C) Cash Flow from Financing Net Change in Cash Opening Cash balances Closing Cash balances E-estimates Mar’08 163,815 41,370 41,838 (26,867) (19,777) (66,176) 134,202 (79,935) (387,649) 5,631 (461,953) 103,578 169,753 (42,708) (9,478) (16,018) 205,127 (122,624) 164,941 42,316 (15,427) (6,524) 42,316 35,792 (46,500) 39,189 35,792 74,981 (68,472) 12,819 74,981 87,800 (1,038) 1,325 20,000 (34,679) (2,072) (60,000) 0 (5,928) (38,500) (2,072) (50,000) 0 (30,000) (36,400) (2,072) Mar’09E 122,285 44,223 34,679 (20,937) (60,709) (109,601) 9,941 8,962 (10,000) Mar’10E 41,816 46,453 38,500 (10,036) 38,328 (9,373) 145,688 (50,000) (10,000) Mar’11E 68,527 47,353 36,400 (16,447) 4,830 (9,372) 131,291 (40,000) (10,000) 263,939 64,576 328,515 286,152 1,038 921,514 285,828 27,724 313,552 340,337 1,556 964,748 109,794 22,274 132,068 341,198 1,556 979,156 123,722 25,479 149,202 349,187 1,556 989,792 230,643 186,963 42,316 154,744 0 614,667 257,293 201,876 35,792 158,928 0 653,889 165,687 130,255 74,981 102,343 0 473,266 170,805 134,279 87,800 105,505 0 498,389 962,294 631,106 331,187 88,962 180,500 33,674 1,022,294 643,612 378,681 20,000 180,500 43,674 1,042,294 690,065 352,228 50,000 180,500 53,674 1,062,294 737,419 324,875 70,000 180,500 63,674 7,301 54,900 63,921 215,792 341,914 8,327 354,152 181,775 535,928 10,801 24,544 921,514 8,628 54,900 63,919 238,374 365,821 9,992 374,152 181,775 555,928 8,463 24,544 964,748 8,628 175 118,644 260,060 387,507 10,892 370,000 180,000 550,000 6,213 24,544 979,156 8,628 175 118,644 302,046 429,493 11,792 350,000 170,000 520,000 3,963 24,544 989,792 (E) Valuation Ratios CMP (Rs.) P/E (x) Market Cap. (Rs. Mn.) MCap/ Sales (x) EV (Rs. Mn.) EV/Sales (x) EV/EBDITA (x) P/BV (x) Dividend Yield (%) E-estimates 405.0 4.8 591,389.1 0.4 1,076,673.2 0.8 6.0 1.8 4.0 405.0 3.7 349,434.0 0.2 859,577.1 0.6 4.3 1.9 2.5 405.0 10.7 349,434.0 0.4 813,560.8 0.9 6.5 1.7 2.5 405.0 6.6 349,434.0 0.4 769,841.9 0.8 5.1 1.4 2.5 Mar’08 Mar’09E Mar’10E Mar’11E Mar’08 1,315,359 5,742 1,321,101 1,135,324 180,035 185,777 41,838 143,940 41,370 102,570 (61,244) 163,815 40,493 123,321 (282) 123,603 Mar’09E 1,444,800 1,896 1,446,695 1,245,508 199,292 201,187 34,679 166,508 44,223 122,285 8,848 113,437 20,937 92,500 (2,259) 94,759 Mar’10E 930,394 2,000 932,394 805,625 124,769 126,769 38,500 88,269 46,453 41,816 0 41,816 10,036 31,780 (900) 32,680 Rs.mn Mar’11E 959,136 2,000 961,136 808,856 150,280 152,280 36,400 115,880 47,353 68,527 0 68,527 16,447 52,081 (900) 52,981 (B) Measures of Financial Status Net Debt / Equity (x) Interest Coverage (x) Average Cost Of Debt (%) Debtors Period (days) Closing stock (days) Inventory Turnover Ratio (x) Fixed Assets Turnover (x) Working Capital Turnover (x) Non Cash Working Capital (Rs Mn) (D) Measures of Investment EPS (Rs.) (excl EO) EPS (Rs.) CEPS (Rs.) DPS (Rs.) Dividend Payout (%) Profit Ploughback (%) Book Value (Rs.) RoANW (%) RoACE (%) RoAIC (%) (Excl Cash & Invest.) 42.7 84.6 113.0 16.0 18.9 81.1 221.1 50.6 21.5 24.2 120.1 109.8 161.1 10.0 9.1 90.9 214.8 26.8 16.6 17.4 37.9 37.9 91.7 10.0 26.4 73.6 239.9 8.7 8.3 8.8 61.4 61.4 116.3 10.0 16.3 83.7 288.6 13.0 10.7 11.6 1.4 4.4 7.8 51.9 64.0 5.7 1.4 4.6 243,835.9 1.4 5.8 6.2 51.0 65.0 5.6 1.4 4.2 304,544.8 1.2 3.3 7.0 51.1 65.0 5.6 0.9 2.7 266,217.1 1.0 4.2 7.0 51.1 65.0 5.6 0.9 2.7 261,387.3 IMPORTANT RATIOS Particulars (A) Measures of Performance (%) Contribution Margin EBIDTA Margin (excl. O.I.) EBIDTA Margin (incl. O.I.) Interest / Sales Gross Profit Margin Tax/PBT Net Profit Margin 100.0 13.7 14.1 3.2 10.9 24.7 9.4 100.0 13.8 13.9 2.4 11.5 18.5 6.6 100.0 13.4 13.6 4.1 9.5 24.0 3.5 100.0 15.7 15.8 3.8 12.1 24.0 5.5 Mar’08 Mar’09E Mar’10E Mar’11E

24 June 2009

Tata Steel Ltd.

76

TIL Ltd.
CMP: Rs 198 Target Price: Rs 300
Taking Fresh Guard...!!!

DOLAT CAPITAL Engineering Equipments / Buy

The Material Handling and Construction Equipment (MHCE) industry is expected to touch Rs 300 bn by 2011. Political stability with a strong mandate would translate into increased thrust on infrastructure development inorder to drive overall economic growth. TIL, with an extensive product offering, is an ideal candidate to play the large opportunity in the infrastructure space. The company has re-enforced its focus on the high margin Material Handling Solutions (MHS) segment by way of undertaking its earlier deferred capex plans in a phased manner and carving out its agency businesses into a separate subsidiary. We recommend a BUY on the stock with a price target of Rs 300 (7x FY11E Consol EPS).
Analyst: Navin Matta Tel : +9122 4096 9752 Email: navin@dolatcapital.com Associate : Harshal Patil Tel : +9122 4096 9725 Email: harshal@dolatcapital.com BSE Sensex NSE Nifty Scrip Details Rs.100.3 mn Rs.10/Rs 1.9bn US$ 40.54.mn 52 week High/Low Rs.408/70 1-Month Avg. Volume (Daily) 13949 BSE Code 505196 NSE Symbol TIL Bloomberg Code TILL IN Reuters Code TIL.BO Business Group - Indian Private Shareholding Pattern as on Mar’09(%) Promoter MF/Banks/FIs FIIs Corporate Bodies Public / Others 50.9 26.5 0.0 4.8 17.8 Equity Face Value Market Cap 14423 4293

Investment Rationale
TIL- an ideal candidate to play the revival in infrastructure activities: After a period of sharp slowdown in overall economic activity, the strong government mandate would act as a catalyst to restart infrastructure spending so as to drive overall economic growth. TIL with an extensive product range including manufacturing of cranes between the 5 to 100 tons range and Caterpillar dealership for Construction & Mining and Generator sets is an ideal candidate to play the large opportunity. Commissioning of MHS capex in phased manner to improve revenue potential: TIL has earlier announced a Rs 2 bn greenfield capex towards setting up a facility for MHS segment. However, initial delay on account of land acquisition which was subsequently followed by major slump in economic activities resulted in the company deferring the expansion plans. However, as per revised arrangement, TIL would undertake the capex in a phased manner. The first phase is likely to be commissioned by Q1FY11, which would have a revenue generating capacity of ~ Rs 2 bn (Asset/Turnover - 4x). Traction in Power Systems business to continue: Improvement in availability of gas in the coming years, would ensure strong growth for the company’s gas based gensets. TIL has received several orders from some of the oil companies for its gensets which are likely to continue in the future aswell. Between 200709 period, PSS segment grew by CAGR of 20%, which we expect to continue for the next few years. Higher level of value addition in the segment ensures better margins compared to the regular agency business. Construction and Mining segment set to turnaround: TIL’s CMS business was worst hit during the sharp demand meltdown as the company was burdened by high inventory levels. However, two quarters of de-stocking efforts with low production levels has enabled overall working capital to return to near normal levels. Going forward, the current government has spelt out its desire to bring in reforms in the coal sector so as to ramp up the power generation capacity of the country. TIL’s agency business is likely to be a key beneficiary as it hold Caterpillar dealership for the Northern and Eastern India, which is typically the coal mining belt.

TIL relative to BSE Sensex 120 100 80 60 40 20 0 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 TIL BSE Sensex

Valuation
Infrastructure development is likely to be one of the key themes for driving economic growth. TIL, which has a wide gamut of products in each of its business segments would stand to benefit from increase in infrastructure spending. Additionally, reduction in working capital and resumption of capex in a phased manner act as positives for the company. At CMP, the stock trades at 4.6x FY11 EPS. We believe, the revival in infrastructure spend would speed up order inflow for the company. We recommend a BUY on the stock with a price target of Rs 300 (7x FY11E Consol EPS).
OPM% 8.2 9.9 9.8 10.1 Net Profit 431 447 360 429 Growth-% EPS (Rs) 84.8 43.0 3.7 44.6 -19.6 35.9 19.2 42.7 Growth-% 79.3 3.7 -19.6 19.2 PER (X) ROANW-% ROACE-% 4.6 30.0 34.2 4.4 21.4 24.7 5.5 16.3 21.2 4.6 17.4 23.2

Financials (Consolidated)
Year FY08 FY09P FY10E FY11E Net Sales 10,579 10,499 9,842 10,975 Growth-% 37.8 -0.8 -6.3 11.5 EBITDA 870 1,041 960 1,112

Figure in Rs mn

24 June 2009

TIL Ltd.

77

DOLAT CAPITAL
INCOME STATEMENT Particulars Net Sales Total Expenditure Operating Profit Other income Operating Profit (incl. Other Income) Interest Gross Profit Depreciation Profit Before Tax & EO Items Profit Before Tax Tax Net Profit EPS Mar’08 10,578.8 9,708.7 870.1 82.5 952.6 168.1 784.5 127.5 657.0 657.0 225.9 431.1 43.0 Mar’09 10,498.5 9,457.8 1,040.7 5.4 1,046.1 227.6 818.5 165.5 653.0 653.0 205.8 447.2 44.6 Mar’10E 9,841.9 8,882.2 959.7 12.5 972.2 247.4 724.7 194.2 530.5 530.5 170.9 359.6 35.9 Rs.mn Mar’11E 10,974.7 9,863.2 1,111.6 15.0 1,126.6 263.2 863.3 227.5 635.8 635.8 207.1 428.7 42.7 (B) Operational Performance (%) Operating Profit Margin (excl. O.I.) Operating Profit Margin (incl. O.I.) Other Income/net sales BALANCE SHEET Particulars Sources of Funds Equity Capital Share Premium Account Reserves (excl Rev Res) Net Worth Revaluation reserve Total Reserves Secured Loans Unsecured Loans Total Loan Funds Deferred Tax Liability Total Capital Employed 100.3 87.8 1,539.7 1,727.8 73.5 1,613.2 750.0 125.1 875.1 33.5 2,709.9 100.3 87.8 1,946.8 2,134.9 73.5 2,020.3 1,100.0 30.0 1,130.0 36.8 3,375.2 100.3 87.8 2,256.2 2,444.3 73.5 2,329.7 1,250.0 80.0 1,330.0 40.5 3,888.3 100.3 87.8 2,634.7 2,822.9 73.5 2,708.3 1,350.0 80.0 1,430.0 44.5 4,370.9 (C) Other Ratios Debt / Equity (x) Applications of Funds Gross Block Less: Accumulated Depreciation Net Block Capital Work in Progress Investments Current Assets, Loans & Advances Inventories Sundry Debtors Cash and Bank Balance Loans and Advances Other Current Assets sub total Less : Current Liabilities & Provisions Current Liabilities Provisions sub total Net Current Assets Misc Expenses Deferred Tax Asset Total Assets 2,709.9 3,375.2 3,888.3 4,370.9 2,370.3 510.7 2,881.0 1,689.8 2,342.6 544.8 2,887.3 2,097.7 2,110.5 582.8 2,693.2 2,440.3 2,287.9 612.3 2,900.2 2,785.6 2,333.7 1,455.8 61.5 552.1 167.8 4,570.8 2,191.4 1,664.9 57.8 877.8 191.9 4,985.0 2,088.5 1,674.8 162.0 1,044.5 189.9 5,133.5 2,318.6 1,813.8 137.3 1,247.6 204.2 5,685.8 (E) Valuation Ratios Market Price (Rs.) Price / Earnings Ratio (x) Market Cap. (Rs. Mn.) Market Cap/Sales (x) Enterprise Value (Rs. MN.) EV/Sales (x) EV/EBDITA (x) Market Price to Book Value (x) Dividend Yield (%) CASH FLOW Particulars Net Profit Before tax Dep & w/o Change in Wcap Other op exp Cash Flow from Operating Act Changes in Investment Capex Others Cash Flow from Investing Act Procceds from Equity Issue Inc/Dec in Debt Dividend Paid Others Cash Flow from Fin Act Net change in Cash Cash at Beginning Cash at End E-estimates, P=Balance Sheet Nos. are Projected. Mar’08 657.0 127.5 (367.4) (49.9) 367.1 0.0 (313.0) (0.0) (313.0) 97.8 59.8 (34.1) (151.6) (28.0) 26.1 35.4 61.5 214.7 (4.9) 61.5 57.8 149.9 113.9 57.8 162.0 49.9 (15.0) 162.0 137.3 Mar’09P 653.0 165.5 (411.5) (205.8) 201.2 0.0 (424.2) 3.3 (420.8) 0.0 254.9 (40.1) Mar’10E 530.5 194.2 (238.4) (170.9) 315.4 0.0 (355.1) 3.7 (351.4) 0.0 200.0 (50.2) Mar’11E 635.8 227.5 (370.0) (207.1) 286.2 0.0 (355.1) 4.0 (351.0) 0.0 100.0 (50.2) E-estimates, P=Balance Sheet Nos. are Projected. 198.0 4.6 1,985.9 0.2 2,799.6 0.3 3.2 1.1 2.0 198.0 4.4 1,985.9 0.2 3,058.2 0.3 2.9 0.9 2.0 198.0 5.5 1,985.9 0.2 3,153.9 0.3 3.3 0.8 2.5 198.0 4.6 1,985.9 0.2 3,278.6 0.3 2.9 0.7 2.5 1,597.4 684.0 913.4 106.0 0.7 1,977.5 849.5 1,128.0 150.0 0.7 2,332.6 1,043.7 1,271.3 150.0 0.7 2,737.6 1,271.2 1,448.9 100.0 0.7 (D) Per Share Data Earnings Per Share (Rs.) Cash Earnings Per Share (Rs.) Dividend Per Share (Rs.) Dividend Payout (%) Profit Ploughback (%) Book Value (Rs.) 43.0 55.7 4.0 9.3 90.7 172.3 44.6 61.1 4.0 9.0 91.0 212.8 35.9 55.2 5.0 13.9 86.1 243.7 42.7 65.4 5.0 11.7 88.3 281.4 Interest Coverage (x) ROANW (%) ROACE (%) 0.5 5.7 30.0 34.2 0.5 4.6 21.4 24.7 0.5 3.9 16.3 21.2 0.5 4.3 17.4 23.2 (B) Financial Performance Average Cost Of Debt (%) Debtors Period (days) Closing stock (days) Fixed Assets Turnover (x) Current Ratio (x) 19.1 50.2 80.5 11.6 1.6 16.8 57.9 76.2 9.3 1.7 18.3 62.1 77.5 7.7 1.9 20.3 60.3 77.1 7.6 2.0 Mar’08 Mar’09P Mar’10E Mar’11E Interest / Sales Dep/Gross Block Gross Profit Margin Tax/PBT Net Profit Margin 8.2 9.0 0.8 1.6 8.0 7.4 34.4 4.1 9.9 10.0 0.1 2.2 8.4 7.8 31.5 4.3 9.8 9.9 0.1 2.5 8.3 7.4 32.2 3.7 10.1 10.3 0.1 2.4 8.3 7.9 32.6 3.9 IMPORTANT RATIOS Particulars (A) Cost Analysis (%) Excise/Gross Sales Net Raw Material Cost/net sales Direct Mfg Exp / Net Sales Power & Fuel/net sales Employee Cost/net sales Other Mfg exp/net sales Selling & Distribution & Admin exp/net sales Other Expenses/net sales 79.2 1.7 0.0 5.0 0.0 0.0 5.9 75.5 0.0 0.0 6.8 0.0 0.0 7.8 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Mar’08 Mar’09P Mar’10E Mar’11E

24 June 2009

TIL Ltd.

78

Torrent Power Ltd.
CMP: Rs 140 Target Price: Rs 171
New-GEN-Utility...!!!

DOLAT CAPITAL Utilities / Buy

Torrent Power’s presence across the value chain in generation, transmission and distribution in the high growth regions of Gujarat makes it best placed to tap the economic growth. With capacity expansion increasing internal sourcing and hence improved profitability we feel, TPL is on a high growth trajectory. As interaction with the management is extremely difficult, based on our analysis, we feel that Torrent’s expertise in reducing transmission losses can multiply its growth prospects. At CMP of Rs140, the stock is trading at a P/B of 1.7xFY11E and P/E of 8.5xFY11E. We initiate coverage with a ‘BUY’ recommendation with a price target of Rs171 at which it would be trading 2xFY11E BV.
Analyst: Sanjeev Patkar Tel : +9122 4096 9745 Email: sanjeev@dolatcapital.com Associate : Gracy Mittal Tel : +9122 4096 9722 Email: gracy@dolatcapital.com BSE Sensex NSE Nifty Scrip Details Equity Face Value Market Cap 52 week High/Low 1-Month Avg. Volume BSE Code NSE Symbol Bloomberg Code Reuters Code Business Group - Torrent Shareholding Pattern as on Mar’09(%) Promoter MF/Banks/FIs FIIs Corporate Bodies Public / Others 52.8 24.2 0.3 10.7 12.1 Rs.4724.5mn Rs.10/Rs.66.1bn US$1352.6mn Rs.177/50 1155927 532779 TORNTPOWER TPW IN TOPO.BO 14423 4293

Investment Rationale
Direct beneficiary of industrial & commercial growth in Gujarat
Torrent’s presence in the core business areas of Ahmedabad and Surat, which are witnessing higher growth than national GDP, makes it well placed to tap the increasing power demands of these areas and cash in on the opportunity. Despite economic slowdown hitting the key consumers in FY09E (77% of sales contributed by industrial customers), Torrent Power managed a revenue growth of 19%. With improved economic conditions kicking in, we feel that Torrent Power would be a key beneficiary of the investments in Gujarat as it is best placed to tap the increasing power requirement of the state.

Increased internal reliability as capacity more than triples
The company is expanding its capacity by 1147.5MW at ‘SUGEN’ which would be operational in FY10E; thereby taking the total operational capacity to 1647.5MW.This strengthens the business model of Torrent by increasing internal reliability as greater number of units would be contributed by its own generation business. In addition, the project has been awarded mega project status which makes it eligible for tax benefits. This is expected to improve the bottomline as the company would be able to avail lower tax rate going forward.

Gas availability to improve performance and margins
With KG basin gas coming in, 76% of the capacity would have increased fuel availability resulting in better capacity utilization. Higher generation is expected to improve margins as meeting the power requirements by in-house generation than purchase from a third party (GUVNL- Gujarat SEB) would result in better cost economics. As the project becomes operational in FY10E we expect it to contribute 25% of the requirement in the first year itself. Consequently, operating margins improve to 17% in FY10E and 20.2% in FY11E from 15.6% in FY09.

Torrent Pow er relativet to Sensex 170 160 150 140 130 120 110 100 90 80 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 Torrent Pow er Sensex

Aggressive growth strategy
With a proven track record of reducing transmission losses, Torrent Power is best suited for distribution business in various challenging areas. The company bagged Bhiwandi distribution business on the same grounds and reduced the T&D losses to ~27% from 44% in the very first year of operations. It has followed the ritual by bagging distribution licenses for Agra and Kanpur. With an approval for Dahej SEZ distribution and JV with Power Grid to augment transmission capacity in Gujarat, Torrent is going strong. We feel that TPL is poised for high growth on the back of its reputation and expertise in lowest T&D losses in the country and aggressive growth strategy. Valuations Catering to growing power demands of select economies, we expect TPL to grow at a CAGR of ~23% on the topline and ~54% on the bottomline between FY08 and FY11E. At CMP of Rs140, the stock is trading at a P/B of 1.7xFY11E and P/E of 8.5xFY11E. We initiate coverage with a ‘BUY’ recommendation with a price target of Rs171 at which it would be trading 2xFY11E BV.
OPM% 13.3 15.6 17.0 20.2 PAT % growth EPS(Rs) % growth 2,105 3,992 4,007 7,745 193.4 89.6 0.4 93.3 4.5 8.4 8.5 16.4 193.4 89.6 0.4 93.3 PER(x) 31.4 16.6 16.5 8.5 BV 61.2 66.9 73.0 84.8 P/BV(x) ROANW(%) ROACE(%) 2.3 2.1 1.9 1.7 7.5 13.2 12.1 20.8 8.3 9.3 10.8 15.5

Financials
Year FY08 (12M) FY09P FY10E FY11E Figure in Rs mn Net sales % growth 36,183 43,158 53,528 66,699 160.7 19.3 24.0 24.6 EBIDTA 4,806 6,733 9,105 13,473

24 June 2009

Torrent Power Ltd.

79

DOLAT CAPITAL
INCOME STATEMENT Particulars Net Sales Other income Total Income Total Expenditure EBIDTA (Excl. Other Income) EBIDTA (Incl. Other Income) Interest Gross Profit Depreciation Profit Before Tax & EO Items Profit Before Tax Tax Net Profit Mar’08 36,183.2 1,036.8 37,220.0 31,377.1 4,806.1 5,842.9 605.1 5,237.8 1,479.4 3,758.4 3,758.4 1,653.3 2,105.1 Mar’09P 43,157.9 1,460.0 44,617.9 36,425.4 6,732.5 8,192.6 1,558.6 6,634.0 1,871.9 4,762.0 4,762.0 770.0 3,992.0 Mar’10E 53,527.9 1,807.1 55,334.9 44,423.3 9,104.5 10,911.6 3,778.9 7,132.7 2,245.9 4,886.8 4,886.8 879.6 4,007.2 Rs.mn Mar’11E 66,699.1 2,197.4 68,896.5 53,226.4 13,472.7 15,670.1 3,912.1 11,758.0 2,312.6 9,445.4 9,445.4 1,700.2 7,745.3 (B) As Percentage of Net Sales Raw Material Employee Expenses Selling & Administrative Expenses 75.8 6.3 4.6 74.8 6.3 3.3 74.7 6.3 2.0 72.7 6.3 0.8 IMPORTANT RATIOS Particulars (A) Measures of Performance (%) Contribution Margin EBIDTA Margin (excl. O.I.) EBIDTA Margin (incl. O.I.) Interest / Sales Gross Profit Margin Tax/PBT Net Profit Margin 24.2 13.3 15.7 1.7 14.1 44.0 5.7 25.2 15.6 18.4 3.6 14.9 16.2 8.9 25.3 17.0 19.7 7.1 12.9 18.0 7.2 27.3 20.2 22.7 5.9 17.1 18.0 11.2 Mar’08 Mar’09E Mar’10E Mar’11E

BALANCE SHEET Particulars Sources of Funds Equity Capital Other Reserves Net Worth Revaluation reserve Secured Loans Unsecured Loans Loan Funds Service line & security deposits Deferred Tax Liability Total Capital Employed 24,760.0 612.5 25,372.5 3,346.8 927.3 58,544.2 39,964.6 551.3 40,515.8 4,016.2 927.3 77,082.8 41,921.0 496.1 42,417.1 4,819.4 927.3 82,665.4 42,671.0 446.5 43,117.5 5,783.3 927.3 89,892.7 4,724.5 24,173.1 28,897.6 4,724.5 26,899.0 31,623.5 4,724.5 29,777.2 34,501.7 4,724.5 35,340.2 40,064.7 Mar’08 Mar’09E Mar’10E Mar’11E

(C) Measures of Financial Status Debt / Equity (x) Interest Coverage (x) Average Cost Of Debt (%) Debtors Period (days) Closing stock (days) Inventory Turnover Ratio (x) Fixed Assets Turnover (x) Working Capital Turnover (x) Non Cash Working Capital (Rs Mn) 0.9 9.7 2.5 41.6 16.7 21.8 1.0 (17.5) (3,931.0) 1.3 5.3 3.5 40.0 17.0 21.5 1.0 7.5 2,280.6 1.2 2.9 8.0 40.0 17.0 21.5 1.0 4.8 3,675.0 1.1 4.0 8.0 40.0 17.0 21.5 1.3 3.4 4,181.5

(D) Measures of Investment EPS (Rs.) (excl EO) EPS (Rs.) 4.5 4.5 7.6 1.2 26.9 73.1 61.2 7.5 8.3 8.5 8.4 8.4 12.4 2.0 23.7 76.3 66.9 13.2 9.3 9.7 8.5 8.5 13.2 2.1 25.0 75.0 73.0 12.1 10.8 11.6 16.4 16.4 21.3 4.1 25.0 75.0 84.8 20.8 15.5 17.9

Applications of Funds Gross Block Less: Accumulated Depreciation Net Block Capital Work in Progress Investments Current Assets, Loans & Advances Inventories Sundry Debtors Cash and Bank Balance Loans and Advances Other Current Assets sub total Less : Current Liabilities & Provisions Current Liabilities Provisions sub total Net Current Assets Misc Expenses Total Assets 8,342.3 6,049.9 14,392.2 (2,072.2) 0.0 58,544.2 9,600.0 1,686.1 11,286.1 5,729.7 0.0 77,082.8 11,951.4 2,432.8 14,384.2 11,192.3 0.0 82,665.4 14,112.8 2,536.5 16,649.2 19,894.5 0.0 89,892.7 1,658.0 4,128.0 1,858.8 4,670.9 4.3 12,320.0 2,010.1 4,729.6 3,449.1 6,824.0 3.1 17,015.9 2,493.1 5,866.1 7,517.3 9,699.1 1.0 25,576.5 3,106.5 7,309.5 15,713.0 10,414.0 0.7 36,543.7 36,892.3 5,173.7 31,718.6 28,279.0 618.8 43,376.3 7,125.6 36,250.7 34,763.0 339.4 51,686.3 9,451.5 42,234.7 29,061.6 176.9 53,168.8 11,844.1 41,324.7 28,579.0 94.6

CEPS (Rs.) DPS (Rs.) Dividend Payout (%) Profit Ploughback (%) Book Value (Rs.) RoANW (%) RoACE (%) RoAIC (%) (Excl Cash & Invest.)

(E) Valuation Ratios CMP (Rs.) P/E (x) Market Cap. (Rs. Mn.) MCap/ Sales (x) EV (Rs. Mn.) EV/Sales (x) EV/EBDITA (x) P/BV (x) Dividend Yield (%) E-estimates 140.0 31.4 66,143.0 1.8 89,656.7 2.5 18.7 2.3 0.9 140.0 16.6 66,143.0 1.5 103,209.7 2.4 15.3 2.1 1.4 140.0 16.5 66,143.0 1.2 101,042.8 1.9 11.1 1.9 1.5 140.0 8.5 66,143.0 1.0 93,547.5 1.4 6.9 1.7 2.9

CASH FLOW Particulars Profit before tax and extra ordinary items Depreciation & w.o. Net Interest Exp Direct taxes paid Change in Working Capital (Non Cash) Other (A) Cash Flow from Operating Activities Capex {Inc./ (Dec.) in Fixed Assets n WIP} Free Cash Flow Inc./ (Dec.) in Investments Other (B) Cash Flow from Investing Activities Issue of Equity/ Preference Inc./(Dec.) in Debt Interest exp net Dividend Paid (Incl. Tax) Other (C) Cash Flow from Financing Net Change in Cash Opening Cash balances Closing Cash balances E-estimates Mar’08 3,758.4 1,479.4 392.3 (886.3) (395.2) 96.7 4,445.3 (12,971.3) (8,526.0) 400.2 88.6 (12,482.5) 0.0 9,101.0 (337.9) 0.0 720.0 9,483.1 1,445.9 412.9 1,858.8 12,318.6 1,590.4 1,858.8 3,449.1 (3,006.7) 4,068.1 3,449.1 7,517.3 (5,393.9) 8,195.7 7,517.3 15,713.0 1,211.0 (12,968.0) (11,757.0) 279.4 749.4 (11,939.2) 0.0 15,143.3 (1,558.6) (1,266.1) 8,637.6 (2,608.5) 6,029.1 162.5 883.2 (1,562.8) 0.0 1,901.3 (3,778.9) (1,129.0) 13,463.4 (1,000.0) 12,463.4 82.3 1,043.9 126.2 0.0 700.4 (3,912.1) (2,182.2) Mar’09E 4,762.0 1,871.9 1,558.6 (770.0) (6,211.6) Mar’10E 4,886.8 2,245.9 3,778.9 (879.6) (1,394.4) Mar’11E 9,445.4 2,312.6 3,912.1 (1,700.2) (506.5)

24 June 2009

Torrent Power Ltd.

80

Zee News Ltd.
CMP: Rs 40 Target Price: Rs 51
Bouquet of Entertainment...!!!

DOLAT CAPITAL Media / Buy

ZEE News offers an opportunity to play at resurgent regional TV entertainment. We continue to remain positive on the sound fundamentals of the company (a perfect recipe of entertainment and current affairs in regional languages to counter the slowdown). However in the short term the company may face pressure on account of slow down in the media sector altogether. Company’s increased debt position to Rs 2 bn (Q4FY09) from ~ Rs 1 bn (Q3FY09) and high cost of debt (~15%) remains a cause of worry for future downward revision of our price target. Considering losses of new channels, we believe Mcap/Sales portray a better valuation methodology. In the interim, we maintain BUY with price target of Rs 51 (2x FY10E sales).
Analyst: Ritesh Poladia Tel : +9122 4096 9753 Email: ritesh@dolatcapital.com Associate : Namrata Sharma Tel : +9122 4096 9726 Email: namrata@dolatcapital.com BSE Sensex NSE Nifty Scrip Details Equity Face Value Market Cap 52 week High/Low 1-Month Avg. Volume BSE Code NSE Symbol Bloomberg Code Reuters Code Rs.239.8mn Rs.1/Rs.9.6bn US$196.1mn Rs.56/25 2812687 532794 ZEENEWS ZEEN IN ZEEN.BO 14423 4293

Investment Rationale
Regional media gathering momentum: An exciting play on media at relatively low capital outlay. We find regional media an exciting way to participate in multi faced Indian M&E space at lower capital commitment. ‘Colors’ channel, a Hindi GEC, (relative share of Hindi GEC for CS 4+ yrs is 25.3%) was launched at a capital outlay of ~Rs8 bn, where as Tamil GEC (relative share of Tamil GEC for CS 4+ yrs is 14 %), was launched at a capital outlay of ~Rs1 bn. New offering’s: Genres as well as Languages Zee news has a strong news and entertainment channel bouquet, it has expanded its portfolio to regional movie channel (Zee Talkies: Marathi Movie channel) and has also added new languages (Zee Tamil, Zee 24 Gantalu and Zee News UP). Company is planning to launch another cinema channel in Telugu – ‘Zee Cinemalu’ this year. Its offering of full bouquet of regional channels would enable the company to enjoy the major share in regional advertisement without depending on any particular channel or regional language. Margin to remain stable despite new channel launches in near term The Q4FY09 and FY09 result clearly indicates that the company is in a comfortable position to maintain its margin despite of heightened activities pertaining to three new channels (Zee Tamil, Zee 24 Gantalu and Zee News UP). The company has reported losses of Rs 546 million in FY09 as compared to Rs 498 million in FY08 from the new channels. We have estimated loss of Rs 660 million in FY10 considering start up losses of Zee Cinemalu. Existing business to show robust growth going forward The existing business has been growing at a lucrative pace of 26% in terms of revenue to Rs 4.1bn in FY09. We expect it to grow at 13% 2Yr CAGR to Rs 5.29 bn in FY11 and maintain its margin at 36.7% in FY10. Valuation: ZEE News offers an opportunity to play the resurgent regional TV entertainment. At CMP, the stock is quoted at 1.6x its FY10E sales. We continue to remain positive on the sound fundamentals of the company (a perfect recipe of entertainment and current affairs in regional languages to counter the slowdown). However in the short term the company may face pressure on account of slow down in the media sector altogether. Company’s increased debt position to Rs 2 bn from ~ Rs 1 bn (Q3FY09) and high cost of debt (~15%) remains a cause of worry for future downward revision of our price target. Considering losses of new channels, we believe Mcap/ Sales portray a better valuation methodology. In the interim, we maintain BUY with price target of Rs 51 (2x FY10E sales).
OPM % 19.2 17.0 17.0 17.6 PAT 395 445 475 631 % growth 429.0 12.6 6.7 32.8 EPS(Rs.) 1.6 1.9 2.0 2.6 % growth 429.0 12.6 6.7 32.8 PER (x) ROANW % 24.3 19.3 21.5 18.0 20.2 16.2 15.2 18.1 ROACE % 30.2 24.6 20.0 22.2

Business Group - Subhash Chandra Shareholding Pattern as on Mar’09(%) Promoter MF/Banks/FIs FIIs Corporate Bodies Public / Others 54.1 24.1 6.9 5.7 9.3

Zee New s relative to Sensex 130 120 110 100 90 80 70 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 Zee New BSE Sensex

Financials
Year Net Sales FY08 3,671 FY09P 5,216 FY10E 6,180 FY11E 7,150 Figure in Rs mn % growth 52.6 42.1 18.5 15.7

EBIDTA 704 888 1,049 1,260

24 June 2009

Zee News Ltd.

81

DOLAT CAPITAL
INCOME STATEMENT Particulars Net Sales Other income Total Income Total Expenditure Raw Material/Programming Cost Other Expenses EBIDTA (Excl. Other Income) EBIDTA (Incl. Other Income) Interest Gross Profit Depreciation Profit Before Tax & EO Items Extra Ordinary Exps/(Income) Profit Before Tax Tax Net Profit Minority Interest Net Profit BALANCE SHEET Particulars Sources of Funds Equity Capital Preference Capital Share Premium Other Reserves (excl Share Premium & Rev Res) Net Worth Revaluation reserve Secured Loans Unsecured Loans Loan Funds Deferred Tax Liability (Net of Deffered Tax Assets) Total Capital Employed Applications of Funds Gross Block Less: Accumulated Depreciation Net Block Capital Work in Progress Investments Current Assets, Loans & Advances Inventories Sundry Debtors Cash and Bank Balance Loans and Advances Other Current Assets sub total Less : Current Liabilities & Provisions Current Liabilities Provisions sub total Net Current Assets Misc Expenses Total Assets CASH FLOW Particulars Profit before tax and extra ordinary items Depreciation & w.o. Net Interest Exp Direct taxes paid Change in Working Capital (Non Cash) Other (A) Cash Flow from Operating Activities Capex {Inc./ (Dec.) in Fixed Assets n WIP} Free Cash Flow Inc./ (Dec.) in Investments Other (B) Cash Flow from Investing Activities Issue of Equity/ Preference Inc./(Dec.) in Debt Interest exp net Dividend Paid (Incl. Tax) Other (C) Cash Flow from Financing Net Change in Cash Opening Cash balances Closing Cash balances E-estimates, P=Balance Sheet Nos. are Projected. (10.9) (152.7) 41.2 10.8 1,734.6 555.6 10.8 566.7 (290.0) 413.7 566.7 982.5 (280.0) 743.2 982.5 1,725.6 (112.4) 0.0 103.0 (5.8) (108.1) (750.0) 0.0 1,894.0 (159.4) 0.0 (100.0) 0.0 (10.0) (280.0) 0.0 0.0 0.0 0.0 (280.0) 0.0 (29.4) (112.4) (141.8) 0.0 (429.0) (750.0) (1,179.0) 0.0 803.7 (100.0) 703.7 0.0 1,023.2 0.0 1,023.2 0.0 Mar’08 633.2 75.7 5.8 (242.8) (501.3) Mar’09P 710.5 95.2 159.4 (263.7) (1,130.3) Mar’10E 709.1 130.0 280.0 (234.0) (81.4) Mar’11E 941.8 130.0 280.0 (310.8) (17.9) 2,369.8 4,711.0 5,178.1 5,809.1 979.0 121.4 1,100.4 1,525.1 1,428.3 222.6 1,650.9 3,211.4 1,693.3 237.6 1,930.8 3,708.5 1,943.8 240.0 2,183.8 4,469.5 10.0 1,400.0 10.8 504.8 700.0 2,625.6 15.0 2,000.6 566.7 530.0 1,750.0 4,862.3 30.0 2,370.4 982.5 556.5 1,700.0 5,639.4 35.3 2,742.5 1,725.6 600.0 1,550.0 6,653.4 (E) Valuation Ratios CMP (Rs.) P/E (x) Market Cap. (Rs. Mn.) MCap/ Sales (x) EV (Rs. Mn.) EV/Sales (x) EV/EBDITA (x) P/BV (x) Dividend Yield (%) E-estimates, P=Balance Sheet Nos. are Projected. 40.0 24.3 9,590.4 2.6 9,695.4 2.6 13.8 4.3 0.9 40.0 21.5 9,590.4 1.8 11,033.7 2.1 12.4 3.6 0.0 40.0 20.2 9,590.4 1.6 10,607.9 1.7 10.1 3.0 0.0 40.0 15.2 9,590.4 1.3 9,864.8 1.4 7.8 2.5 0.0 1,000.0 155.3 844.7 0.0 1,700.0 250.5 1,449.5 50.0 1,750.0 380.5 1,369.5 100.0 1,850.0 510.5 1,339.5 0.0 116.0 0.0 116.0 10.0 2,369.8 2,010.0 12.0 4,711.0 2,000.0 14.0 5,178.1 2,000.0 14.0 5,809.1 2,010.0 2,000.0 2,000.0 (D) Measures of Investment EPS (Rs.) (excl EO) EPS (Rs.) CEPS (Rs.) DPS (Rs.) Dividend Payout (%) Profit Ploughback (%) Book Value (Rs.) RoANW (%) RoACE (%) RoAIC (%) (Excl Cash & Invest.) 1.6 1.6 2.0 0.4 24.3 75.7 9.4 19.3 30.2 30.6 1.9 1.9 2.3 0.0 100.0 11.2 18.0 24.6 26.8 2.0 2.0 2.5 0.0 100.0 13.2 16.2 20.0 23.7 2.6 2.6 3.2 0.0 100.0 15.8 18.1 22.2 29.5 2,004.1 2,243.8 2,449.2 2,689.0 2,924.3 3,164.1 3,555.3 3,795.1 239.8 239.8 239.8 239.8 Mar’08 Mar’09P Mar’10E Mar’11E 395.2 445.1 475.1 631.0 (C) Measures of Financial Status Debt / Equity (x) Interest Coverage (x) Average Cost Of Debt (%) Debtors Period (days) Closing stock (days) Inventory Turnover Ratio (x) Fixed Assets Turnover (x) Working Capital Turnover (x) Non Cash Working Capital (Rs Mn) 0.1 123.2 9.0 139.2 1.0 367.1 3.7 2.4 1,514.4 0.7 6.1 15.0 140.0 1.1 347.6 3.1 1.6 2,644.7 0.6 4.0 14.0 140.0 1.8 206.2 3.5 1.7 2,726.1 0.5 4.8 14.0 140.0 1.8 202.8 3.9 1.6 2,743.9 2,966.7 703.9 714.7 5.8 708.9 75.7 633.2 (4.8) 638.0 242.8 395.2 Mar’08 3,670.6 10.8 3,681.4 2,966.7 Mar’09P 5,215.8 77.5 5,293.3 4,328.2 2,121.8 857.0 887.5 965.1 159.4 805.6 95.2 710.5 1.6 708.9 263.7 445.1 Mar’10E 6,180.0 70.2 6,250.2 5,131.1 2,650.5 0.0 1,048.9 1,119.1 280.0 839.1 130.0 709.1 0.0 709.1 234.0 475.1 Rs.mn Mar’11E 7,150.0 92.1 7,242.1 5,890.3 3,004.3 0.0 1,259.7 1,351.8 280.0 1,071.8 130.0 941.8 0.0 941.8 310.8 631.0 (B) As Percentage of Net Sales Raw Material Employee Expenses Power, Oil & Fuel Selling & Administrative Expenses Provisions & Write Offs Other Expenses 0.0 0.0 0.0 0.0 0.0 80.8 40.7 12.8 0.0 13.1 0.0 16.4 42.9 14.6 0.0 25.6 0.0 0.0 42.0 15.6 0.0 24.7 0.0 0.0 IMPORTANT RATIOS Particulars (A) Measures of Performance (%) Contribution Margin EBIDTA Margin (excl. O.I.) EBIDTA Margin (incl. O.I.) Interest / Sales Gross Profit Margin Tax/PBT Net Profit Margin 19.2 19.4 0.2 19.3 38.1 10.7 17.0 18.2 3.1 15.2 37.2 8.4 17.0 17.9 4.5 13.4 33.0 7.6 17.6 18.7 3.9 14.8 33.0 8.7 Mar’08 Mar’09P Mar’10E Mar’11E

24 June 2009

Zee News Ltd.

82

India Research

DOLAT CAPITAL

24 June 2009

Int en tio na lly Le ft B lan k

83

DOLAT CAPITAL

The ratings are based on the absolute upside of our target price from the current price. Upside > 25 % 15% - 25% 0% - 15% <0% Ratings Buy Accumulate Reduce Sell

DOLAT DOLAT TEAM
Sector / Tel. No. Tel. No.

Research
research@dolatcapital.com Sanjeev Patkar sanjeev@dolatcapital.com Ritesh Poladia ritesh@dolatcapital.com Darpin Shah darpin@dolatcapital.com Navin Matta navin@dolatcapital.com Sameer Panke sameer@dolatcapital.com Indrajeet Kelkar indrajeet@dolatcapital.com Bhavin Shah bhavin@dolatcapital.com Ram Modi ram@dolatcapital.com Kapil Yadav kapil@dolatcapital.com Priyank S. Chandra priyank@dolatcapital.com Nadeem Parkar nadeem@dolatcapital.com Ankit Babel ankit@dolatcapital.com Head of Research, Strategy +9122 4096 9745 Media, Entertainment, Consumer +9122 4096 9753 Banking, Finance, Insurance +9122 4096 9754 Auto, Auto Comp, Engineering +9122 4096 9752 Real Estate, Construction, Engineering +9122 4096 9757 IT, Retail +9122 4096 9751 Pharma, Healthcare, Agro Chemical +9122 4096 9731 Metals, Mining, Cement +9122 4096 9756 Hospitality, Maritime, Rail, Politics +9122 4096 9735 Telecom, Oil & Gas, Cables +9122 4096 9737 Logistics, Aviation +9122 4096 9736 Textile, Capital Goods, Engineering +9122 4096 9732

Sales
sales@dolatcapital.com Mayur Shah mayur@dolatcapital.com Vikram Babulkar vikram@dolatcapital.com R. Sriram rsriram@dolatcapital.com +9122 4096 9796 +9122 4096 9746 +9122 4096 9706

Equity Sales Traders
salestrading@dolatcapital.com Chandrakant Ware chandrakant@dolatcapital.com Jignesh Shahukar jignesh@dolatcapital.com P. Sridhar sridhar@dolatcapital.com Parthiv Dalal parthiv@dolatcapital.com +9122 4096 9797 +9122 4096 9707 +9122 4096 9727 +9122 4096 9728 +9122 4096 9705

Derivatives Team
Vijay Kanchan vijayk@dolatcapital.com +9122 4096 9704

Associates
Bindal J. Totlani bindal@dolatcapital.com Jaynee Shah jaynee@dolatcapital.com Harshal Patil harshal@dolatcapital.com Namrata Sharma namrata@dolatcapital.com Gracy Mittal gracy@dolatcapital.com Neha Sarwal neha@dolatcapital.com Manpreet Singh Sandhu manpreet@dolatcapital.com +9122 4096 9724 +9122 4096 9723 +9122 4096 9725 +9122 4096 9726 +9122 4096 9722 +9122 4096 9740 +9122 4096 9720

Derivatives Sales Traders
Chirag Makati chiragm@dolatcapital.com Mihir Thakar mihir@dolatcapital.com +9122 4096 9702-03 +9122 4096 9701

Quantitative Research
derivativesinfo@dolatcapital.com Prachi Save prachi@dolatcapital.com Sachin Mulay sachin@dolatcapital.com Derivatives Research +9122 4096 9733 Technicals +9122 4096 9720

Bloomberg Id
dolatcapital@bloomberg.net

Support Staff
Rajesh Shinde +9122 4096 9743 rajesh@dolatcapital.com Paresh Girkar +9122 4096 9742 pareshgirkar@dolatcapital.com

Board Lines Fax Lines

+9122 +9122 +9122 +9122

4096 2265 2265 2265

9700 9200 0410 1278

Dolat Capital Market Pvt. Ltd.
20, Rajabahadur Mansion, 1st Floor, Ambalal Doshi Marg, Fort, Mumbai - 400 001
This report contains a compilation of publicly available information, internally developed data and other sources believed to be reliable. While all reasonable care has been taken to ensure that the facts stated are accurate and the opinion given are fair and reasonable, we do not take any responsibility for inaccuracy or omission of any information and will not be liable for any loss or damage of any kind suffered by use of or reliance placed upon this information. For Pvt. Circulation & Research Purpose only.