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Strategy
INDIA
FCCBs a few opportunities in the middle of difficulty. We highlight the recent
activity in the Indian FCCB space on the back of redemption concerns magnified by
the recent Rupee depreciation. While high yields reflect the plausible threat of
defaults and restructuring for weaker issuers, we draw attention to some mispricing
opportunities within the FCCB space which are offering high yields along with lower
risk due to relatively sound financials.

Current scenario weakness in the Rupee coincides with rising FCCB yields
Amidst global concerns on European sovereign debt, the INRs depreciation against the USD
has coincided with FCCB yields rising 5-7% since August. The extravagant issuance of foreign
convertibles in the 2006-08 period has become a cause for concern as more than ~70 FCCBs
are expected to mature in the next 12 months. Many of the issuers have seen frantic activity in
terms of board approvals for restructuring and refinancing of current outstanding obligations.
Considering that Indian stalwarts like ICICI, SBI and Reliance have seen CDS spreads shoot up
~200 bps since August, the possibility of raising cheap funds for the lower strata of corporate
India seems bleak.
Indias FCCB landscape FCCBs worth US$6 bn maturing by April 2013
Indian corporate houses have raised debt of US$13.6 bn through the FCCB route since January
2006 with more than half of the issuance coming between January 2007 and January 2008
(US$7.5 bn). While companies in Materials and Industrials have issued the largest amount of
FCCBs, it is interesting to observe that smaller Information Technology companies raised
~US$1.8 bn in the same period. Going forward, outstanding FCCBs will stand at US$9.8 bn.
Considering the redemption premiums offered by most of these zero-coupon convertibles, the
redemption value is estimated to be around US$12.2 bn. With only 13 out of the 119
securities trading above their conversion price and RBI regulatory prohibitions against
reduction of conversion price, the situation is definitely grim.
Scouring the FCCB space for opportunities
As the FCCB redemption worries take center stage, FCCBs for some of the prominent
companies are yielding 20-25% after diverging almost 10-15% from their year-to-date
average. Solvency of the universe of FCCB issuers is analyzed using quantitative screens
including Altman z-scores, leverage and interest coverage ratios. Using a generalized
convertible bond (CB) valuation methodology, the liquid securities in the FCCB space have
been valued in order to identify the magnitude of mispricing as well as the implied credit risk
premium for some of the issuers. Within our coverage universe, RCOM, JPA and Suzlon are
yielding more than ~20%. Although highly leveraged, debt-servicing capability for RCOM and
JPA remains reasonable considering their EBITDA-to-Interest paid ratio. As for those
companies not covered by us currently, we would like to highlight Everest Kanto Cylinders,
Rolta India, Firstsource Solutions and Videocon Industries as non-coverage companies
with high yields and a relatively stronger ability to pay their liabilities.



INDIA
November 08, 2011
BSE-30:17,560





INSIDE
Opportunities with
good risk-reward
balancepg03

FCCB yields show
strong relation to
USD-INR
fluctuationspg05












Saifullah Rais
saifullah.rais@kotak.com
Mumbai: +91-22-6634-1275
Kotak Institutional Equities
Research

Important disclosures appear
at the back


2 KOTAK INSTITUTIONAL EQUITIES RESEARCH
India Strategy
TABLE OF CONTENTS

FCCBsa few opportunities in the middle of difficulty...........................3
Appendix 1: The generalized convertible bond valuation model ...........17
Appendix 2: List of outstanding Indian FCCBs ......................................18






























The prices in this report are based on the market close of November 4, 2011.


KOTAK INSTITUTIONAL EQUITIES RESEARCH 3
Strategy India
FCCBSA FEW OPPORTUNITIES IN THE MIDDLE OF DIFFICULTY
We highlight the recent activity in the Indian FCCB space on the back of redemption concerns magnified by
the recent Rupee depreciation. While high yields reflect the plausible threat of defaults, restructuring and
discounted buybacks by weaker issuers, we draw attention to some mispricing opportunities within the FCCB
space. The report looks at (1) the current scenario for FCCB issuers in India, (2) Indias FCCB landscape and
(3) opportunities which provide a favorable risk-reward balance.
Overview
The recent INR depreciation along with a global reduction in risk appetite could not have
come at a worse time for Indian FCCB issuers. As conversion for many of the securities is
highly unlikely, Indian issuers could be facing redemptions to the tune of US$8.3 bn by the
end of FY2013E. RBI, up to the task as usual, has set down guidelines for restructuring,
refinancing and buybacks for these overseas borrowings. Even though the high yields are
probably incorporating such event risks (like default, restructuring or buybacks), there exist a
few opportunities where the risk-reward profile is quite favorable.
Cherry picking FCCBs with a favorable risk-reward balance. Exhibit 1 and Exhibit 2
consolidate our top picks in the Indian FCCB space. Exhibit 1 highlights the quality
parameters of the FCCB we have recommended while Exhibit 2 gives us the pricing and
valuation details of the FCCB. Within the coverage universe, RCOM and JPA provide
yields of ~20% maturing in CY2012E. While Altman z-scores (a quantitative measure of
solvency) for the aforementioned companies are low, cash balances and interest-coverage
ratios provide some sense of their ability to meet obligations. Considering that Reliance
Power paid its FCCB obligations (US$300 mn) in October, defaults from the group would
be highly unlikely. In the non-coverage space, Everest Kanto, Rolta India, Videocon
Industries and Firstsource Solutions are the companies which we are relatively
comfortable about. Everest Kanto makes up for its lack of institutional holding (9%)
through strong credit ratings (CRISIL) for banking facilities. A strong set of financials and a
reputed clientele (like Bajaj Auto and Tata Motors) highlight a solid business model.
Firstsource Solutions has already raised money through ECBs in order to pay its ECB and
FCCB obligations. Its strong financials, a good Altman z-score and an institutional holding
of 46% add to our belief that the risk-reward is favorable at current yields.
Exhibit 1: RCOM, JPA, Everest Kanto, Rolta, Videocon and Firstsource are our top recommendations
Our top recommendations in the FCCB space based on quantitative and qualitative analysis
Amount Institutional Solvency metrics Financial Ratios Maturity
outstanding Maturity holding Altman D/E Net debt (a) EBITDA multiple YTM
Company (US$ mn) date % of outstanding z-score (X) EBITDA Interest paid (b) (X) (%)
Coverage companies
Reliance Communications Ltd 925 1-Mar-12 48 1.0 1.0 4.1 6.1 1.1 24
Jaiprakash Associates Ltd 354 12-Sep-12 18 0.9 4.1 7.7 2.8 1.2 19
Non-coverage companies
Everest Kanto Cylinder Ltd 35 10-Oct-12 9 2.6 0.5 2.1 15.9 1.2 26
Rolta India Ltd 97 29-Jun-12 37 2.8 0.7 2.0 16.6 1.1 19
Videocon Industries Ltd 196 16-Dec-15 11 1.6 1.6 5.1 2.3 1.4 17
Firstsource Solutions Ltd 191 4-Dec-12 46 4.3 1.0 3.6 10.9 1.2 15
Notes:
(a) Net debt includes FCCB outstanding.
(b) Interest paid as per the cash flow statement for current reported year.
(c) Videocon is highlighted in red as data used is for a 15-month period due to fiscal year change from September 2009 to December 2010.
(d) Rolta is highlighted as financial ratios are calculated on FY2010 numbers as cash flow statement unavailable for 06/2011.
(e) Maturity multiple = Redemption premium / FCCB market price.

Source: Bloomberg, Kotak Institutional Equities



4 KOTAK INSTITUTIONAL EQUITIES RESEARCH
India Strategy
Exhibit 2: Largest mispricing for Videocon as per our generalized CB pricing model
Market prices, calculated fair values and other details for our top recommendations
Amount Prices Bond fair value (%) Upside Maturity
outstanding Maturity Stock (A) Conversion (B) Bond (C) Total Debt Option (C over D) A/B multiple YTM
Company (US$ mn) date (Rs) (Rs) (%) (D) value premium (%) (X) (X) (%)
Coverage companies
Reliance Communications Ltd 925 1-Mar-12 83 661 118.7 123 123 0 (3) 0.1 1.1 24
Jaiprakash Associates Ltd 354 12-Sep-12 79 165 126.2 133 132 0 (5) 0.5 1.2 19
Non-coverage companies
Everest Kanto Cylinder Ltd 35 10-Oct-12 61 271 115.0 127 127 0 (9) 0.2 1.2 26
Rolta India Ltd 97 29-Jun-12 80 369 123.3 128 128 0 (4) 0.2 1.1 19
Videocon Industries Ltd 196 16-Dec-15 176 240 69.8 102 63 38 (31) 0.7 1.4 17
Firstsource Solutions Ltd 191 4-Dec-12 11 92 118.8 122 122 0 (2) 0.1 1.2 15
Notes:
(a) Maturity multiple = Redemption premium / FCCB market price.

Source: Bloomberg, Kotak Institutional Equities
Current scenario
The global appetite for risk has reduced considerably since the US debt downgrade in
August. Amidst concerns that France maybe next in line for a credit downgrade after de-
ratings for Spain and Italy, the worst is not yet over. For the Indian FCCB space, the global
uncertainty has added to redemption pressures. Local issues like persistent inflation, upward
revision in the government borrowing program, depreciating INR (against the USD) and
comparatively stricter RBI regulations for restructuring outstanding overseas borrowing make
the terrain look gloomier. We highlight some of the recent developments.
Indian stalwarts saw CDS spreads shoot up ~200 bps as global risk appetite waned.
The 5-year credit default swap spreads for premier Indian companies like Reliance, SBI
and ICICI doubled since August, moving to ~400 bps (see Exhibit 3). Although these
spreads have come off their peaks, current levels indicate the rising element of risk
associated with emerging markets as investors worry about a double-dip recession for
the global economy. As can be seen in Exhibit 4, similar spikes in CDS spreads have been
witnessed across the different emerging markets, clearly implying a global phenomenon.
Exhibit 3: CDS spreads for top-tier Indian corporate houses were up ~200 bps since August
5-year CDS spreads for SBI, Reliance Industries and ICICI Bank (in bps)
0
300
600
900
1,200
1,500
1,800
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ICICI Bank (bps) Reliance Industries (bps) SBI (bps)

Source: Bloomberg, Kotak Institutional Equities



KOTAK INSTITUTIONAL EQUITIES RESEARCH 5
Strategy India
Exhibit 4: Average spreads shot up almost 150 bps post the US debt downgrade
5-year CDS spreads for some emerging market economies (in bps)
0
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400
600
800
1,000
1,200
1,400
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Russia Brazil Indonesia South Africa Thailand Korea China

Source: Bloomberg, Kotak Institutional Equities
INR depreciation coincides with rising FCCB yields. The contra-theoretical
appreciation of the US Dollar against other global currencies post the credit downgrade
saw INR depreciate ~10% against the greenback, taking the INR from 44.7 to lows of
50.3 in a span of three months. This could not have come at a worse time for Indian
FCCB issuers as ~90 FCCBs worth US$6 bn are expected to mature between November
2011 and April 2013. Although FCCB holders are insulated from USD-INR fluctuations
considering that most of the FCCBs issued are Dollar-denominated, there has been a
strong negative relationship between FCCB yields and USD-INR rates historically (see
Exhibit 5). Since August, the average yields for a basket of deep OTM convertibles have
moved from ~5-7% year-to-date levels to ~13-15% by October. With our expectations of a
weak INR in FY2013E (see Exhibit 6), yields are possibly mirroring the same. Exhibit 7 also
shows the strong negative correlation which exists between yields and the broader index.
Exhibit 5: Recent depreciation of INR against USD has coincided with rising FCCB YTMs
Comparison of USD-INR rate versus average FCCB yield of a basket of FCCBs for companies under coverage
39
41
43
45
47
49
51
53
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6
12
18
24
30
36
USD-INR [LHS] FCCB YTM (%) [RHS]

Notes:
(a) In order to capture implied credit risk premium through YTM, deep OTM convertible bonds are used for the
basket.
(b) Basket consists of: Bharat Forge, JPA, JSW Steel, RCOM, Sesa Goa, Sintex, Tata Power, Tata Steel and Welspun.
Source: Bloomberg, Kotak Institutional Equities



6 KOTAK INSTITUTIONAL EQUITIES RESEARCH
India Strategy
Exhibit 6: INR expected to remain weak in FY2013E, could spell further trouble for dollar-denominated FCCB obligations
USD/INR and other major currency exchange rates; appreciation/depreciation (%)
2010 2011 2012E 2013E 1QFY11 2QFY11 3QFY11 4QFY11 1QFY12 2QFY12 3QFY12E 4QFY12E
Average Rate
USD/INR 47.41 45.57 47.27 49.75 45.68 46.51 44.85 45.26 44.74 45.78 49.50 49.00
EUR/USD 1.41 1.32 1.38 1.28 1.27 1.29 1.36 1.37 1.44 1.41 1.35 1.30
Average depreciation (-)/appreciation (+)
USD/INR (3.0) 3.9 (3.7) (5.3) 0.5 (1.8) 3.6 (0.9) 1.2 (2.3) (8.1) 1.0
EUR/USD (0.7) (6.4) 4.0 (7.0) (8.0) 1.6 5.0 0.9 5.1 (1.9) (4.5) (3.7)

Source: Bloomberg, Kotak Institutional Equities estimates

Exhibit 7: Negative correlation between FCCB yields and Sensex Index of ~0.8
Comparison of Sensex index vs. average FCCB yield of a basket of FCCBs for companies under coverage
6,000
8,000
10,000
12,000
14,000
16,000
18,000
20,000
22,000
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25
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35
Sensex [LHS] FCCB YTM (%) [RHS]

Notes:
(a) In order to capture implied credit risk premium, we have considered deep OTM convertible bonds for the
basket
(b) Basket consists of: Bharat Forge, JPA, JSW Steel, RCOM, Sesa Goa, Sintex, Tata Power, Tata Steel and
Welspun
Source: Bloomberg, Kotak Institutional Equities
RBI allows refinancing or restructuring of current outstanding FCCBs. Considering
the expectations that redemption pressure could create havoc for the weaker Indian FCCB
issuers, the Indian central bank has been proactive in allowing refinancing and
restructuring options for these overseas borrowings under strict guidelines (circular dated
July 4, 2011). Some of the important terms and conditions set by the RBI:
The amount of fresh ECB/ FCCBs shall not exceed the outstanding redemption value at
maturity of the outstanding FCCBs.
ECB/ FCCB beyond US$500 mn for the purpose of redemption of the existing FCCB
will be considered under the approval route.
ECB/ FCCB availed of for the purpose of refinancing the existing outstanding FCCB will
be reckoned as part of the limit of US$500 mn available under the automatic route as
per the extant norms.
Restructuring of FCCBs involving change in the existing conversion price is not
permissible. Proposals for restructuring of FCCBs not involving change in conversion
price will, however, be considered under the approval route depending on the merits
of the proposal.


KOTAK INSTITUTIONAL EQUITIES RESEARCH 7
Strategy India
For buyback/ prepayment of FCCBs through the approval route, the RBI posted a
circular dated June 30, 2011 which permitted an FCCB buyback of up to US$100 mn
of the redemption value per company, out of their internal accruals with prior
approval of the Reserve Bank, subject to the following:
a) Redemption value of US$50 mn: minimum discount of 10% to face value
b) Redemption value of US$50-75 mn: minimum discount of 15% to face value
c) Redemption value of US$75-100 mn: minimum discount of 20% to face value
A flurry of restructuring and refinancing activity by some of the FCCB issuers.
Exhibit 8 shows the recent activity by some of the Indian FCCB issuers in response to the
upcoming redemptions. While Zenith Infotech recently defaulted on its US$33 mn FCCB
obligation which was due in September, many of the other issuers have been seen taking
proactive steps in order to meet the upcoming redemptions. In August, Firstsource
Solutions (FSOL) raised around US$180 mn from the international loan syndication market
in order to refinance its existing term loans. The credit agreement was signed by FSOLs
US subsidiary with a consortium of six financial institutions (Axis Bank, Canara Bank, ICICI
Bank, IOB, GE Capital USA and DBS Bank). Rolta India has also been considering a
combination of ECB credit and cash to pay off its obligation with US$97 mn worth of
FCCB maturing in June 2012. Although Moser Baers intention to raise US$125 mn of
fresh FCCBs to refinance previous obligations may not materialize considering its highly
leveraged balance sheet, other companies like Subex Ltd are taking the negotiation route
with their creditors (FCCB holders) to roll the maturity period of one of its FCCBs further
into the future. Reliance Powers FCCB principal payment of US$299.9 mn on the due
date shows that all is not lost in Corporate India and strong companies are still meeting
their obligations.
Exhibit 8: Zenith Infotech has been the most recent defaulter in the Indian FCCB space
Recent activity among FCCB issuers in response to upcoming redemptions
Amount
outstanding Maturity YTM
Short Name (US$ mn) date (%) Recent activity
Educomp Solutions Ltd 79 26-Jul-12 23 Board approval to restructure/may divest stake in schools to pay redemptions
Firstsource Solutions Ltd 191 4-Dec-12 15 Has raised US$180 mn long-term loan to meet upcoming obligations
Fortis Healthcare India Ltd 100 18-May-15 NA GIC picks up 6.24% stake as a result of FCCB conversion worth US$100 mn
43 21-Jun-12 NA Approval of fresh issuance of FCCBs worth US$125 mn for refinancing previous outstanding
46 21-Jun-12 NA
Reliance Power 17-Oct-11 NA Principal amount worth US$299.9 mn paid on due date
Rolta India Ltd 97 29-Jun-12 19 Considering a combination of ECB credit and cash to pay off its maturing FCCB obligations
60 9-Mar-12 92 Considering possible fund raising options to buyback the first tranche
39 9-Mar-12 71 Negotiation with bond holders to restructure the second tranche with a maturity date of 2015
211 12-Jun-12 24 Board approval for the issuance of equity shares or FCCBs, GDRs, IDRs or a combination of
36 12-Jun-12 23 instruments to an extant of Rs50 bn
121 11-Oct-12 26
21 11-Oct-12 23 Raised US$175 mn through an FCCB issue in April 2011 to complete the Repower acquisition
90 25-Jul-14 16
175 13-Apr-16 14 Has seen two rounds of restructuring in May 2009 and October 2010 already
Videocon Industries Ltd 196 16-Dec-15 17 FCCBs worth US$1 mn converted well below conversion price of Rs239.5265 (August 22, 2011)
33 21-Sep-11 NA Defaulted on its US$33 mn FCCB obligation. Due to the cross-default clause, all dues to
45 17-Aug-12 NA bondholders have become immediately payable as default value exceeds US$1 mn of debt
Moser Baer India Ltd
Suzlon Energy Ltd
Zenith Infotech Ltd
Subex Ltd

Source: BSE, NSE, various media articles






8 KOTAK INSTITUTIONAL EQUITIES RESEARCH
India Strategy
Indias FCCB landscape FCCBs worth US$6 bn maturing by April 2013
The bull markets of 2006-07 was a time where FCCB issuances were considered as long-
dated call options by overly optimistic investors and a source of cheaper credit for Indian
corporate houses. Since 2006, US$13.8 bn worth of FCCBs have been issued (see Exhibit 9)
with more than US$7 bn issuances in CY2007 alone. As we can see in Exhibit 10, the FCCB
route was followed across most sectors led by Materials and Industrials. Tata Steel, Tata
Motors, Suzlon, Jaiprakash Associates (JPA), Sterlite, Sesa Goa and Reliance Communication
(RCOM) are few of the high profile companies which have followed this route of financing.
Considering that ~60% of the FCCBs (69 out of 119) have their stock prices trading at less
than half their conversion price along with the recent RBI restrictions on reduction of
conversion prices, redemption obligations are weighing heavily on many of the smaller
Indian issuers. As many of these instruments are zero-coupon bonds, we estimate average
cumulative redemption at ~25% premium to the outstanding obligation (see Exhibit 11).
Exhibit 9: Since January 2006, FCCBs worth US$13.6 bn have been issued in the Indian space
Timeline of the issuance and maturity of Indian FCCBs
0
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Issued Oustanding FCCBs (US$ mn)

Source: Bloomberg, Kotak Institutional Equities

Exhibit 10: Materials and Industrials have been the biggest issuers of FCCBs in India
GICS sector-wise break-up of FCCB issuance, current outstanding and redemption
Amount of FCCBs (in US$ mn)
Sectors Issued Outstanding Redemption
Materials 3,508 2,431 2,744
Industrials 2,423 1,697 2,261
Consumer Discretionary 2,210 1,519 1,965
Information Technology 1,849 1,274 1,715
Telecommunication Services 1,471 1,271 1,664
Health Care 679 589 787
Utilities 530 530 582
Energy 402 400 403
Consumer Staples 398 363 410

Source: Bloomberg, Kotak Institutional Equities estimates



KOTAK INSTITUTIONAL EQUITIES RESEARCH 9
Strategy India
Exhibit 11: FCCBs worth US$6 bn maturing until end FY2013 with redemption estimates of US$8.3 bn
Amount outstanding and redemption estimated for FCCBs in India
0
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Oustanding FCCBs (US$ mn) Redemption value (US$ mn)

Source: Bloomberg, Kotak Institutional Equities estimates
The recent spurt in yields for many of the outstanding liquid FCCBs (see Exhibit 12) could
present some mispricing opportunities within the space. The likes of JPA and RCOM have
seen yields expand 8-10% at their peaks compared to their year-to-date averages. Tata
group companies like Tata Motors and Tata Steel (with their European exposure) have also
seen yields move up ~4% during the period.
Exhibit 12: Jaiprakash Associates and Reliance Communication have seen yields spike 8-10% from year-to-date average
FCCBs with the highest divergence of current yields from year-to-date average
Amount
outstanding Maturity Yield to maturity (%) FCCB prices
Short Name (US$ mn) date Average Current % change Average Current % change
GTL Infrastructure Ltd 228 29-Nov-12 45 121 76 92 61 (34)
Era Infra Engineering Ltd 40 25-Jan-12 18 42 24 135 137 2
Orchid Chemicals & Pharmaceuti 117 28-Feb-12 13 29 16 132 131 (1)
Prime Focus Ltd 55 13-Dec-12 22 37 15 108 102 (6)
Gitanjali Gems Ltd 84 25-Nov-11 6 20 14 139 141 1
Aksh Optifibre Ltd 20 8-Jan-13 311 324 14 25 26 4
Educomp Solutions Ltd 79 26-Jul-12 12 23 11 125 121 (3)
Subex Ltd 60 9-Mar-12 82 92 10 109 110 0
Geodesic Ltd 114 18-Jan-13 15 25 10 110 104 (5)
Reliance Communications Ltd 925 1-Mar-12 14 24 10 118 119 1
Jaiprakash Associates Ltd 354 12-Sep-12 11 19 8 130 127 (2)
Jaiprakash Power Ventures Ltd 200 13-Feb-15 9 16 7 96 79 (18)
Rolta India Ltd 97 29-Jun-12 12 19 7 124 124 0
Suzlon Energy Ltd 121 11-Oct-12 20 26 6 114 117 2
Gemini Communications Ltd 21 18-Jul-12 49 56 6 79 78 (1)
Shiv-Vani Oil & Gas Exploratio 80 17-Aug-15 9 15 6 90 74 (18)
Core Education & Technologies 67 7-May-15 7 13 6 100 84 (17)
Sesa Goa Ltd 217 31-Oct-14 4 9 6 105 89 (16)
Financial Technologies India L 91 21-Dec-11 8 13 6 142 145 2
Subex Ltd 39 9-Mar-12 66 71 5 109 110 1
Welspun Corp Ltd 150 17-Oct-14 7 12 5 96 84 (12)
Suzlon Energy Ltd 175 13-Apr-16 9 14 5 91 76 (17)
Suzlon Energy Ltd 36 12-Jun-12 18 23 5 133 136 2
Strides Arcolab Ltd 80 27-Jun-12 10 14 5 132 133 1
Man Industries India Ltd 44 23-May-12 12 17 5 131 134 3
Tulip Telecom Ltd 97 26-Aug-12 10 15 5 129 129 0
Suzlon Energy Ltd 21 11-Oct-12 19 23 4 132 134 2
Videocon Industries Ltd 196 16-Dec-15 13 17 4 81 71 (13)
Suzlon Energy Ltd 211 12-Jun-12 19 24 4 121 127 5

Source: Bloomberg, Kotak Institutional Equities



10 KOTAK INSTITUTIONAL EQUITIES RESEARCH
India Strategy
Scouring the FCCB space for a favorable risk-reward balance
The secular rise in yields across the FCCB space is an indication that investors are factoring a
higher probability of default for Indian issuers. This is definitely justified for the weaker
issuers as India has not been alien to high-profile defaults like Wockhardt and Cranes,
among others (see Exhibit 13).
Exhibit 13: Recent FCCB defaults amount to US$433 mn with Wockhardt being the largest, worth
US$110 mn
Indian convertible bonds which have defaulted in the recent past
FCCB Amount (US$ mn) Maturity Price changes in %
Company Issued Outstanding date 1-mo 3-mo 6-mo 1-yr
Wockhardt Ltd 110 110 25-Oct-09 7 0 27 20
Cranes Software International 58 58 18-Mar-11 4 (9) (31) (52)
Sancia Global Infraprojects Lt 50 50 13-Feb-13 3 65 62 (43)
Zenith Infotech Ltd 45 45 17-Aug-12 (69) (73) (75) (78)
Marksans Pharma Ltd 50 44 9-Nov-10 2 (19) (10) (42)
Aftek Ltd 35 34 25-Jun-10 33 10 8 (14)
Zenith Infotech Ltd 33 33 21-Sep-11 (69) (73) (75) (78)
JCT Ltd 35 30 8-Apr-11 9 (19) (33) (49)
Sakthi Sugars Ltd 40 30 31-May-11 6 (14) (26) (55)

Source: Bloomberg, Kotak Institutional Equities
In order to identify FCCBs with a favorable risk-reward basis, we use a generalized
convertible bond valuation model to identify the magnitude of mispricing. Along with this,
we use a variety of quantitative screens like Altman z-score, leverage and interest coverage
ratios which assist in analyzing the debt-paying ability of these issuers. We also divide the
universe of convertible bonds based on the stock prices premium/discount to the conversion
price. This helps bifurcate the FCCB space into securities which would behave either as debt
(deep out-of-the-money) or equity option (deep in-the-money) instruments. Given below are
some of the outputs of the screens which we have run on the universe of Indian
convertibles.
Mispricing calculated using a generalized convertible bond valuation model. We
build a 200-step binomial tree of stock prices which uses historical volatility to determine
the stock movement in every step from valuation to the maturity date. The risk-free rate
(5-year India government bond yield) is appended by a standard credit risk premium of
4% in our generalized valuation model and we assume no call and put features for
issuers and holders, respectively. Our default credit risk premium of 4% is taken by
considering the current CDS spreads of some of Indias AAA companies (like ICICI,
Reliance and SBI). Exhibit 14 shows the largest and the most prominent mispricing
candidates in the liquid FCCB space (please refer to the Appendix-1 for the basic
explanation of the valuation model).
Some of the companies which have been considering restructuring/buyback (like
Educomp and Subex) feature as large mispricing candidates due to event risks which
surround them. While deep in-the-money (ITM) securities like Core Education and
Gitanjali Gems seem to have been mispriced by ~32% and 8%, respectively, deep out-of-
the-money (OTM) FCCBs like Everest Kanto Cylinders and JPA maybe mispriced by 9%
and 5%, respectively. As the valuation model is sensitive to the credit risk premium
assumption, we also highlight the implied credit risk premium for deep out-of-the money
(OTM) FCCBs where the equity option premium is almost zero (see Exhibit 15). The reason
we look at only deep OTM FCCBs is to analyze the implied credit risk premium derived
from the market prices without any distortion to the yields because of the riskless equity
option premium. Suzlon and Orchid Chemicals FCCB prices are currently implying 21%
and 18% credit risk premium. RCOM and JPA are slightly lower at 10-15%.


KOTAK INSTITUTIONAL EQUITIES RESEARCH 11
Strategy India
Exhibit 14: Videocon, Core Education, Suzlon, Gitanjali Gems, Tata Motors, Everest Kanto Cylinders and JPA see large mispricing
Prominent liquid FCCBs with the largest mispricing compared to our generalized CB valuation methodology assuming a credit risk premium of 4%
Amount Prices Bond fair value (%) Upside Maturity
outstanding Maturity Stock (A) Conversion (B) Bond (C) Total Debt Option (C over D) A/B multiple YTM
Company (US$ mn) date (Rs) (Rs) (%) (D) value premium (%) (X) (X) (%)
Aksh Optifibre Ltd 20 8-Jan-13 6 60 25.0 121 121 0 (79) 0.1 5.6 324
GTL Infrastructure Ltd 228 29-Nov-12 10 53 59.4 123 123 0 (52) 0.2 2.4 121
Core Education & Technologies 67 7-May-15 280 272 82.5 121 54 67 (32) 1.0 1.2 13
Videocon Industries Ltd 196 16-Dec-15 176 240 69.8 102 63 38 (31) 0.7 1.4 17
Gemini Communications Ltd 21 18-Jul-12 22 42 75.7 102 100 2 (26) 0.5 1.4 56
Suzlon Energy Ltd 175 13-Apr-16 37 54 74.9 100 63 37 (25) 0.7 1.5 14
Subex Ltd 60 9-Mar-12 41 80 109.2 139 139 0 (21) 0.5 1.3 92
Prime Focus Ltd 55 13-Dec-12 61 111 100.4 126 122 3 (20) 0.6 1.4 37
Subex Ltd 39 9-Mar-12 41 656 108.9 131 131 0 (17) 0.1 1.2 71
Jaiprakash Power Ventures Ltd 200 13-Feb-15 36 86 77.3 92 84 8 (16) 0.4 1.4 16
Geodesic Ltd 114 18-Jan-13 60 302 102.7 119 119 0 (14) 0.2 1.3 25
Shiv-Vani Oil & Gas Exploratio 80 17-Aug-15 213 516 71.8 83 75 7 (13) 0.4 1.5 15
Suzlon Energy Ltd 21 11-Oct-12 37 77 133.0 150 150 0 (12) 0.5 1.2 23
Amtek Auto Ltd 7 30-Sep-14 126 148 98.9 111 56 55 (11) 0.9 1.0 6
Suzlon Energy Ltd 121 11-Oct-12 37 97 115.7 129 129 0 (10) 0.4 1.3 26
Everest Kanto Cylinder Ltd 35 10-Oct-12 61 271 115.0 127 127 0 (9) 0.2 1.2 26
Great Offshore Ltd 40 12-Oct-12 130 565 90.4 99 99 0 (8) 0.2 1.1 18
Suzlon Energy Ltd 36 12-Jun-12 37 77 134.7 146 146 0 (8) 0.5 1.1 23
Gitanjali Gems Ltd 84 25-Nov-11 356 220 139.8 152 52 99 (8) 1.6 1.0 20
Suzlon Energy Ltd 90 25-Jul-14 37 90 89.9 98 91 7 (8) 0.4 1.5 16
Pidilite Industries Ltd 37 7-Dec-12 168 102 130.0 140 61 80 (7) 1.6 1.1 6
Educomp Solutions Ltd 79 26-Jul-12 267 590 120.2 129 129 0 (7) 0.5 1.2 23
Era Infra Engineering Ltd 40 25-Jan-12 152 159 136.3 145 145 0 (6) 1.0 1.1 42
Suzlon Energy Ltd 211 12-Jun-12 37 97 126.7 135 135 0 (6) 0.4 1.1 24
Prakash Industries Ltd 60 30-Apr-15 45 230 75.1 80 77 2 (6) 0.2 1.3 14
Tata Motors Ltd 120 16-Oct-14 188 121 151.7 161 36 125 (6) 1.6 0.7 (8)
Orchid Chemicals & Pharmaceuti 117 28-Feb-12 187 348 130.4 137 137 0 (5) 0.5 1.1 29
Jaiprakash Associates Ltd 354 12-Sep-12 79 165 126.2 133 132 0 (5) 0.5 1.2 19
Notes:
(a) Companies highlighted in dark pink are ones currently looking at restructuring or refinancing their current obligations.
(b) Companies highlighted in pink look as lucrative mispricing candidates.
(c) The valuation model uses a credit risk premium of 4% for the universe of liquid Indian convertible bonds.
(d) Maturity multiple = Redemption premium / FCCB market price.

Source: Bloomberg, Kotak Institutional Equities estimates

Exhibit 15: Amidst the prominent issuers, Suzlon, RCOM and Educomp Solutions have the largest implied credit risk premium
Implied credit risk premium based on the FCCB market price using the generalized convertible bond valuation model for deep OTM FCCBs
Amount Prices Bond fair value (%) Upside Implied
outstanding Maturity Stock (A) Conversion (B) Bond (C) Total Debt Option (C over D) A/B credit risk YTM
Company (US$ mn) date (Rs) (Rs) (%) (D) value premium (%) (X) (%) (%)
Era Infra Engineering Ltd 40 25-Jan-12 152 159 136.3 145 145 0 (6) 1.0 33 42
Orchid Chemicals & Pharmac 117 28-Feb-12 187 348 130.4 137 137 0 (5) 0.5 21 29
Suzlon Energy Ltd 36 12-Jun-12 37 77 134.7 146 146 0 (8) 0.5 18 23
Suzlon Energy Ltd 21 11-Oct-12 37 77 133.0 150 150 0 (12) 0.5 18 23
Geodesic Ltd 114 18-Jan-13 60 302 102.7 119 119 0 (14) 0.2 16 25
Suzlon Energy Ltd 121 11-Oct-12 37 97 115.7 129 129 0 (10) 0.4 16 26
Everest Kanto Cylinder Ltd 35 10-Oct-12 61 271 115.0 127 127 0 (9) 0.2 15 26
Reliance Communications Ltd 925 1-Mar-12 83 661 118.7 123 123 0 (3) 0.1 15 24
Suzlon Energy Ltd 211 12-Jun-12 37 97 126.7 135 135 0 (6) 0.4 14 24
Great Offshore Ltd 40 12-Oct-12 130 565 90.4 99 99 0 (8) 0.2 14 18
Educomp Solutions Ltd 79 26-Jul-12 267 590 120.2 129 129 0 (7) 0.5 14 23
Rolta India Ltd 97 29-Jun-12 80 369 123.3 128 128 0 (4) 0.2 10 19
Jaiprakash Associates Ltd 354 12-Sep-12 79 165 126.2 133 132 0 (5) 0.5 10 19
Financial Technologies India L 91 21-Dec-11 733 2,363 144.2 145 145 0 (0) 0.3 8 13
Tulip Telecom Ltd 97 26-Aug-12 150 227 128.2 130 130 0 (2) 0.7 6 15
Firstsource Solutions Ltd 191 4-Dec-12 11 92 118.8 122 122 0 (2) 0.1 6 15
Hotel Leela Venture Ltd 42 25-Apr-12 40 72 137.2 138 138 0 (1) 0.6 6 14
Notes:
(a) The valuation uses a default credit risk premium of 4% for the universe of liquid Indian convertible bonds.
(b) We consider only deep out-of-the-money FCCBs to calculate implied credit risk premium in order to prevent equity option premium to distort YTMs.

Source: Bloomberg, Kotak Institutional Equities estimates



12 KOTAK INSTITUTIONAL EQUITIES RESEARCH
India Strategy
Coverage companies like RCOM, JPA and Suzlon yielding in excess of ~20%. FCCBs
of coverage companies like RCOM, Bharat Forge, Suzlon and JSW Steel will mature in
1HCY12 (see Exhibit 16). The cumulative outstanding obligation for the four companies is
US$1.4 bn. In terms of yields, Suzlon (23-26%) is offering the highest yields followed by
RCOM (24%) and JPA (19%). Considering our generalized FCCB valuation model,
Suzlons recent issuance of US$175 mn seems to have the highest mispricing in the
coverage universe considering the credit risk premium of 4%.
Exhibit 16: RCOM, Bharat Forge, Suzlon and JSW Steel see FCCBs worth US$1.4 bn mature in 1HCY12
FCCBs where issuers are under KIE coverage sorted as per their maturity date
Amount Solvency metrics Prices Bond fair value (%) Upside Maturity
outstanding Maturity Altman D/E Stock (A) Conversion (B) Bond (C) Total Debt Option (C over D) A/B multiple YTM
Company (US$ mn) date z-score (X) (Rs) (Rs) (%) (D) value premium (%) (X) (X) (%)
Reliance Communications Ltd 925 1-Mar-12 1.0 1.0 83 661 118.7 123 123 0 (3) 0.1 1.1 24
Bharat Forge Ltd 40 28-Apr-12 2.7 1.0 297 604 137.5 134 134 0 2 0.5 1.0 6
Suzlon Energy Ltd 211 12-Jun-12 1.4 1.9 37 97 126.7 135 135 0 (6) 0.4 1.1 24
Suzlon Energy Ltd 36 12-Jun-12 1.4 1.9 37 77 134.7 146 146 0 (8) 0.5 1.1 23
JSW Steel Ltd 274 28-Jun-12 1.5 1.4 712 953 134.5 132 131 1 2 0.7 1.1 9
Tata Motors Ltd 473 12-Jul-12 2.4 2.0 188 181 127.4 124 107 17 3 1.0 1.0 5
Tata Steel Ltd 382 5-Sep-12 2.2 1.7 467 731 119.4 112 112 0 6 0.6 1.0 5
Jaiprakash Associates Ltd 354 12-Sep-12 0.9 4.1 79 165 126.2 133 132 0 (5) 0.5 1.2 19
Suzlon Energy Ltd 121 11-Oct-12 1.4 1.9 37 97 115.7 129 129 0 (10) 0.4 1.3 26
Suzlon Energy Ltd 21 11-Oct-12 1.4 1.9 37 77 133.0 150 150 0 (12) 0.5 1.2 23
Sintex Industries Ltd 225 13-Mar-13 2.4 1.2 116 247 114.9 109 108 1 5 0.5 1.1 9
Bharat Forge Ltd 40 28-Apr-13 2.7 1.0 297 690 140.3 130 130 0 8 0.4 1.1 7
Suzlon Energy Ltd 90 25-Jul-14 1.4 1.9 37 90 89.9 98 91 7 (8) 0.4 1.5 16
Tata Motors Ltd 120 16-Oct-14 2.4 2.0 188 121 151.7 161 36 125 (6) 1.6 0.7 (8)
Welspun Corp Ltd 150 17-Oct-14 1.9 1.4 105 300 83.1 85 76 9 (2) 0.4 1.2 12
Larsen & Toubro Ltd 200 22-Oct-14 2.3 1.3 1,394 1,908 103.2 90 56 34 14 0.7 1.0 2
Sterlite Industries India Ltd 500 30-Oct-14 3.0 0.3 123 NA 88.1 78 78 0 13 1.1 9
Sesa Goa Ltd 217 31-Oct-14 9.3 0.1 210 347 88.4 92 64 28 (4) 0.6 1.1 9
Tata Power Co Ltd 300 21-Nov-14 1.3 1.9 103 146 97.1 87 63 24 11 0.7 1.1 6
Tata Steel Ltd 547 21-Nov-14 2.2 1.7 467 602 97.2 98 58 40 (1) 0.8 1.0 5
Suzlon Energy Ltd 175 13-Apr-16 1.4 1.9 37 54 74.9 100 63 37 (25) 0.7 1.5 14
Notes:
(a) Maturity multiple = Redemption premium / FCCB market price.

Source: Bloomberg, Kotak Institutional Equities
Rajesh Exports and Gitanjali Gems turn in-the-money (ITM) due to recent rally.
Exhibit 17 displays the in-the-money FCCBs in our universe of Indian convertible bonds. It
is quite interesting to observe the rallies witnessed by Gitanjali Gems (up 33%) and Rajesh
Exports (up 67%) in the past six months against broader market correction of 5% (see
Exhibit 18). Considering the significant premium over the conversion price for Gitanjali
Gems and Core Education, large numbers of FCCBs have been converted to equity in the
recent months.
Exhibit 17: Gitanjali Gems and Rajesh Exports gained 33% and 67%, respectively in the past six months as maturity date approaches
In-the-money (ITM) convertible bonds where stock price is above conversion price
Amount Prices Bond fair value (%) Upside Maturity
outstanding Maturity Stock (A) Conversion (B) Bond (C) Total Debt Option (C over D) A/B multiple YTM
Company (US$ mn) date (Rs) (Rs) (%) (D) value premium (%) (X) (X) (%)
Core Education & Technologies 0 12-May-12 280 83 270.6 281 1 280 (4) 3.4 0.5 (92)
Surana Industries Ltd 14 20-Jun-12 405 140 NA 2.9 NA NA
Rajesh Exports Ltd 24 21-Feb-12 146 67 NA 2.2 NA NA
Pidilite Industries Ltd 37 7-Dec-12 168 102 130.0 140 61 80 (7) 1.6 1.1 6
Gitanjali Gems Ltd 84 25-Nov-11 356 220 139.8 152 52 99 (8) 1.6 1.0 20
Tata Motors Ltd 120 16-Oct-14 188 121 151.7 161 36 125 (6) 1.6 0.7 (8)
Advanta India Ltd 50 13-Jul-16 395 282 NA 1.4 NA NA
Shrenuj & Co Ltd 0 23-Jan-12 68 50 NA 1.4 NA NA
Uflex Ltd 22 9-Mar-12 165 145 NA 128 86 42 1.1 NA NA
Man Industries India Ltd 44 23-May-12 120 115 133.2 139 128 10 (4) 1.0 1.1 17
Tata Motors Ltd 473 12-Jul-12 188 181 127.4 1.0 1.0 5
Core Education & Technologies 67 7-May-15 280 272 82.5 121 54 67 (32) 1.0 1.2 13
Notes:
(a) Maturity multiple = Redemption premium / FCCB market price.

Source: Bloomberg, Kotak Institutional Equities


KOTAK INSTITUTIONAL EQUITIES RESEARCH 13
Strategy India

Exhibit 18: Similar rallies prior to maturity period for Gitanjali Gems and Rajesh Exports
Price movement for Gitanjali Gems and Rajesh Exports in the past six months
200
240
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Gitanjali Gems (LHS) Rajesh Exports (RHS)

Source: Factset, Kotak Institutional Equities
FCCBs near conversion price could see market movement and option mispricing.
Considering the 6-month average annualized stock volatility of ~50% for the universe of
Indian FCCB issuers, we screen the stocks which are trading at a discount of 0-50% to
their conversion price (see Exhibit 19). Strides Acrolab, after gaining more than 40% in
the last two months, is trading only ~12% below its conversion price. Having a maturity
date of June 27, 2011, the recent momentum can easily take the stock price above its
FCCB conversion price thereby clearing the debt obligations of US$116 mn (considering
redemption value of 145.1% over face value of US$80 mn) through equivalent equity
dilution.
Exhibit 19: Possibility of a mispriced equity option premium highest for these securities
Convertible bonds where stock price is trading at a discount of 0-50% to conversion price
Amount Solvency metrics Prices Bond fair value (%) Upside Maturity
outstanding Maturity Altman D/E Stock (A) Conversion (B) Bond (C) Total Debt Option (C over D) A/B multiple YTM
Company (US$ mn) date z-score (X) (Rs) (Rs) (%) (D) value premium (%) (X) (X) (%)
Era Infra Engineering Ltd 40 25-Jan-12 2.4 1.8 152 159 136.3 145 145 0 (6) 1.0 1.1 42
Strides Arcolab Ltd 80 27-Jun-12 1.9 1.6 411 462 132.0 134 132 2 (2) 0.9 1.1 14
Amtek Auto Ltd 7 30-Sep-14 1.7 0.8 126 148 98.9 111 56 55 (11) 0.9 1.0 6
Tata Steel Ltd 547 21-Nov-14 2.2 1.7 467 602 97.2 98 58 40 (1) 0.8 1.0 5
JSW Steel Ltd 274 28-Jun-12 1.5 1.4 712 953 134.5 132 131 1 2 0.7 1.1 9
Videocon Industries Ltd 196 16-Dec-15 1.6 1.6 176 240 69.8 102 63 38 (31) 0.7 1.4 17
Larsen & Toubro Ltd 200 22-Oct-14 2.3 1.3 1,394 1,908 103.2 90 56 34 14 0.7 1.0 2
Tata Power Co Ltd 300 21-Nov-14 1.3 1.9 103 146 97.1 87 63 24 11 0.7 1.1 6
Suzlon Energy Ltd 175 13-Apr-16 1.4 1.9 37 54 74.9 100 63 37 (25) 0.7 1.5 14
Tulip Telecom Ltd 97 26-Aug-12 2.6 1.5 150 227 128.2 130 130 0 (2) 0.7 1.1 15
Tata Steel Ltd 382 5-Sep-12 2.2 1.7 467 731 119.4 112 112 0 6 0.6 1.0 5
Sesa Goa Ltd 217 31-Oct-14 9.3 0.1 210 347 88.4 92 64 28 (4) 0.6 1.1 9
Hotel Leela Venture Ltd 42 25-Apr-12 0.7 1.8 40 72 137.2 138 138 0 (1) 0.6 1.1 14
Prime Focus Ltd 55 13-Dec-12 2.4 1.3 61 111 100.4 126 122 3 (20) 0.6 1.4 37
Orchid Chemicals & Pharmac 117 28-Feb-12 1.4 1.8 187 348 130.4 137 137 0 (5) 0.5 1.1 29
Gemini Communications Ltd 21 18-Jul-12 2.6 1.9 22 42 75.7 102 100 2 (26) 0.5 1.4 56
Subex Ltd 60 9-Mar-12 3.6 2.6 41 80 109.2 139 139 0 (21) 0.5 1.3 92
REI Agro Ltd 105 13-Nov-14 1.8 1.7 22 47 93.8 91 74 17 3 0.5 1.1 7
Notes:
(a) Maturity multiple = Redemption premium / FCCB market price.

Source: Company, Kotak Institutional Equities



14 KOTAK INSTITUTIONAL EQUITIES RESEARCH
India Strategy
Deep OTM FCCBs should predominantly behave as debt instruments. Exhibit 20 lists
the set of liquid FCCB securities which are trading at huge discounts to the conversion
price (greater than 50%). We have highlighted some of the securities of interest like
RCOM, Firstsource Solutions, Rolta, Everest Kanto Cylinder, Welspun Corp and Jaiprakash
Associates which are providing strong yields in the range of 12-26% with most of the
maturities coming in CY2012E.
Exhibit 20: Deep OTM convertibles have equity option premium equal to zero for most of the securities maturing before CY2014E
Convertible bonds where stock price is trading at a discount greater than 50% to the conversion price
Amount Solvency metrics Prices Bond fair value (%) Upside Maturity
outstanding Maturity Altman D/E Stock (A) Conversion (B) Bond (C) Total Debt Option (C over D) A/B multiple YTM
Company (US$ mn) date z-score (X) (Rs) (Rs) (%) (D) value premium (%) (X) (X) (%)
Bharat Forge Ltd 40 28-Apr-12 2.7 1.0 297 604 137.5 134 134 0 2 0.5 1.0 6
Suzlon Energy Ltd 36 12-Jun-12 1.4 1.9 37 77 134.7 146 146 0 (8) 0.5 1.1 23
Suzlon Energy Ltd 21 11-Oct-12 1.4 1.9 37 77 133.0 150 150 0 (12) 0.5 1.2 23
Jaiprakash Associates Ltd 354 12-Sep-12 0.9 4.1 79 165 126.2 133 132 0 (5) 0.5 1.2 19
REI Agro Ltd 105 13-Nov-14 1.8 1.7 22 47 94.0 91 74 17 3 0.5 1.1 7
Sintex Industries Ltd 225 13-Mar-13 2.4 1.2 116 247 114.9 109 108 1 5 0.5 1.1 9
Educomp Solutions Ltd 79 26-Jul-12 2.9 0.7 267 590 120.2 129 129 0 (7) 0.5 1.2 23
Bharat Forge Ltd 40 28-Apr-13 2.7 1.0 297 690 140.3 130 130 0 8 0.4 1.1 7
Jaiprakash Power Ventures Ltd 200 13-Feb-15 0.8 2.6 36 86 77.3 92 84 8 (16) 0.4 1.4 16
Shiv-Vani Oil & Gas Exploratio 80 17-Aug-15 1.4 2.1 213 516 71.8 83 75 7 (13) 0.4 1.5 15
Suzlon Energy Ltd 90 25-Jul-14 1.4 1.9 37 90 89.9 98 91 7 (8) 0.4 1.5 16
Suzlon Energy Ltd 211 12-Jun-12 1.4 1.9 37 97 126.7 135 135 0 (6) 0.4 1.1 24
Suzlon Energy Ltd 121 11-Oct-12 1.4 1.9 37 97 115.7 129 129 0 (10) 0.4 1.3 26
Welspun Corp Ltd 150 17-Oct-14 1.9 1.4 105 300 83.1 85 76 9 (2) 0.4 1.2 12
Financial Technologies India L 91 21-Dec-11 2.5 0.7 733 2,363 144.2 145 145 0 (0) 0.3 1.0 13
Great Offshore Ltd 40 12-Oct-12 0.9 2.8 130 565 90.4 99 99 0 (8) 0.2 1.1 18
Everest Kanto Cylinder Ltd 35 10-Oct-12 2.6 0.5 61 271 115.0 127 127 0 (9) 0.2 1.2 26
Rolta India Ltd 97 29-Jun-12 2.8 0.7 80 369 123.3 128 128 0 (4) 0.2 1.1 19
Geodesic Ltd 114 18-Jan-13 3.1 0.5 60 302 102.7 119 119 0 (14) 0.2 1.3 25
Prakash Industries Ltd 60 30-Apr-15 2.5 0.4 45 230 75.1 80 77 2 (6) 0.2 1.3 14
GTL Infrastructure Ltd 228 29-Nov-12 0.7 3.0 10 53 59.4 123 123 0 (52) 0.2 2.4 121
Reliance Communications Ltd 925 1-Mar-12 1.0 1.0 83 661 118.7 123 123 0 (3) 0.1 1.1 24
Firstsource Solutions Ltd 191 4-Dec-12 4.3 1.0 11 92 118.8 122 122 0 (2) 0.1 1.2 15
Aksh Optifibre Ltd 20 8-Jan-13 0.5 0.3 6 60 25.0 121 121 0 (79) 0.1 5.6 324
Subex Ltd 39 9-Mar-12 3.6 2.6 41 656 108.9 131 131 0 (17) 0.1 1.2 71
Notes:
(a) Maturity multiple = Redemption premium / FCCB market price.

Source: Bloomberg, Kotak Institutional Equities
Altman z-score analysis for identifying financial health. The z-score formula has
been a part of finance curriculums for a long time as a predictor for financial insolvency.
The z-score analysis uses multiple income and balance sheet items in order to measure
the financial health of a company and the initial model had an accuracy of 72% of
predicting bankruptcy in the next two years. Based on the score, companies are divided
into safe, grey and distress zones. The formula, first published in 1968, gained wide
acceptance post-1985 by auditors, management and accountants for loan evaluation.
The formula and the scoring system are given below
Altman z-score = 1.2*(Working Capital/Tangible Assets) + 1.4*(Retained
Earnings/Tangible Assets) + 3.3*(EBIT/Tangible Assets) + 0.6*(Market Value of
Equity/Total Liabilities) + (Sales/Tangible Assets)
a) Safe zone = z-score > 3
b) Grey zone = 1.8 < z-score < 3
c) Distressed zone = z-score < 1.8






KOTAK INSTITUTIONAL EQUITIES RESEARCH 15
Strategy India
Issuers with strong Altman z-scores fail to convince. The ability of the Altman z-
score as a sole predictor for financial health is put to doubt with the likes of Subex
featuring in the safe zone (with scores greater than 3) even though market yields are
implying a high probability of default for the same (see Exhibit 21). As highlighted
earlier, Subex Ltd stated that it has been in negotiations with bond holders to roll over
one of its FCCB tranches to a later date. Sesa Goa, Pidilite and Firstsource Solutions
have the highest z-scores. We highlight Firstsource Solutions which has a good interest
coverage ratio and a reasonable degree of leverage to support its strong z-score.
Exhibit 21: Surprisingly strong Altman z-scores for the likes of Subex which is in talks of restructuring its FCCB obligations
FCCB issuers with Altman z-score greater than 3 along with ratios to measure leverage and interest coverage
Amount Institutional Solvency metrics Financial Ratios Maturity
outstanding Maturity holding Altman D/E Net debt (a) EBITDA multiple YTM
Company (US$ mn) date % of outstanding z-score EBITDA Interest paid (b) (X) (%)
Sesa Goa Ltd 217 31-Oct-14 62 9.3 0.1 (1.7) 89.5 1.1 9
Pidilite Industries Ltd 37 7-Dec-12 13 7.9 0.3 0.1 16.6 1.1 6
Firstsource Solutions Ltd 191 4-Dec-12 46 4.3 1.0 3.6 10.9 1.2 15
Core Education & Technologies 0 12-May-12 9 3.9 0.8 1.9 5.0 0.5 (92)
Core Education & Technologies 67 7-May-15 9 3.9 0.8 1.9 5.0 1.2 13
Subex Ltd 39 9-Mar-12 9 3.6 2.6 4.2 2.6 1.2 71
Subex Ltd 60 9-Mar-12 9 3.6 2.6 4.2 2.6 1.3 92
Fortis Healthcare India Ltd 100 18-May-15 7 3.5 0.3 11.5 0.5 NA NA
Geodesic Ltd 114 18-Jan-13 27 3.1 0.5 (1.6) 129.0 1.3 25
Sterlite Industries India Ltd 500 30-Oct-14 26 3.0 0.3 0.2 17.8 1.1 9
Notes:
(a) Net debt includes FCCB outstanding.
(b) Interest paid as per the cash flow statement for the current reported year.
(c) Maturity multiple = Redemption premium / FCCB market price.

Source: Bloomberg, Kotak Institutional Equities
Issuers with weak Altman z-scores show better relationship with yields. As can
be seen in Exhibit 22, the companies with the weakest scores (Moser Baer, GTL
Infrastructure and Aksh Optifibre) have been recently trading at yields implying a high
probability of default. Prominent Indian issuers like RCOM, JPA, Suzlon and JSW Steel
all feature in the distress zone as per the scoring system. JPA and Suzlon show a high
payback period of debt (considering the ratio between net debt and EBTIDA) while
Suzlon interest coverage ratio is less than 1 which could cause difficulty in raising debt
in the future. Although Suzlon looks weak even after considering the outstanding
FCCB obligations as a proportion to the total cash and marketable securities on its
balance sheet, JPA, Videocon and RCOM have sufficient cash in their books to repay
their obligations through internal accruals in a stress-case scenario (see Exhibit 23).


16 KOTAK INSTITUTIONAL EQUITIES RESEARCH
India Strategy
Exhibit 22: Distress-zone companies show better relationship with market yields but feature the likes of RCOM, JPA, Suzlon and JSW Steel
FCCB issuers with a Altman z-score less than 1.8 along with leverage and interest coverage ratios
Amount Institutional Solvency metrics Financial Ratios Maturity
outstanding Maturity Holding Altman D/E Net debt (a) EBITDA Multiple YTM
Company (US$ mn) date % of outstanding z-score (X) EBITDA Interest paid (b) (X) (%)
Moser Baer India Ltd 43 21-Jun-12 17 0.4 51.2 85.2 0.1 NA NA
Moser Baer India Ltd 46 21-Jun-12 17 0.4 51.2 85.2 0.1 NA NA
Aksh Optifibre Ltd 20 8-Jan-13 3 0.5 0.3 (15.2) (1.4) 5.6 324
Hotel Leela Venture Ltd 42 25-Apr-12 10 0.7 1.8 24.2 2.9 1.1 14
GTL Infrastructure Ltd 228 29-Nov-12 0 0.7 3.0 ND ND 2.4 121
Jaiprakash Power Ventures Ltd 200 13-Feb-15 1 0.8 2.6 17.3 1.5 1.4 16
Great Offshore Ltd 40 12-Oct-12 10 0.9 2.8 8.3 2.3 1.1 18
Jaiprakash Associates Ltd 354 12-Sep-12 18 0.9 4.1 7.7 2.8 1.2 19
Reliance Communications Ltd 925 1-Mar-12 48 1.0 1.0 4.1 6.1 1.1 24
Tata Power Co Ltd 300 21-Nov-14 67 1.3 1.9 5.3 5.4 1.1 6
Suzlon Energy Ltd 121 11-Oct-12 8 1.4 1.9 9.5 0.9 1.3 26
Suzlon Energy Ltd 211 12-Jun-12 8 1.4 1.9 9.5 0.9 1.1 24
Suzlon Energy Ltd 21 11-Oct-12 8 1.4 1.9 9.5 0.9 1.2 23
Suzlon Energy Ltd 36 12-Jun-12 8 1.4 1.9 9.5 0.9 1.1 23
Suzlon Energy Ltd 90 25-Jul-14 8 1.4 1.9 9.5 0.9 1.5 16
Suzlon Energy Ltd 175 13-Apr-16 8 1.4 1.9 9.5 0.9 1.5 14
Sterling Biotech Ltd (d) 135 16-May-12 3 1.4 1.5 5.2 3.1 NA NA
Orchid Chemicals & Pharmaceuti 117 28-Feb-12 15 1.4 1.8 5.0 2.1 1.1 29
Shiv-Vani Oil & Gas Exploratio 80 17-Aug-15 8 1.4 2.1 4.0 ND 1.5 15
JSW Steel Ltd 274 28-Jun-12 17 1.5 1.4 4.8 4.8 1.1 9
Videocon Industries Ltd (c) 196 16-Dec-15 11 1.6 1.6 5.1 2.3 1.4 17
Amtek Auto Ltd 7 30-Sep-14 34 1.7 0.8 3.3 4.4 1.0 6
Man Industries India Ltd (d) 44 23-May-12 7 1.8 0.8 1.2 3.1 1.1 17
REI Agro Ltd 105 13-Nov-14 40 1.8 1.7 4.6 2.4 1.1 7
Notes:
(a) Net debt includes FCCB outstanding.
(b) Interest paid as per the cash flow statement for current reported year.
(c) Videocon is highlighted as data used is for a 15-month period due to fiscal year change from September 2009 to December 2010.
(d) Amtek Auto, Sterling Biotech and Man Industries use FY2010 numbers for calculation of ratios.
(e) Maturity multiple = Redemption premium / FCCB market price.

Source: Bloomberg, Kotak Institutional Equities

Exhibit 23: JPA, Videocon and RCOM have large amount of cash on their books to pay off their outstanding FCCB in a stress case
Companies with FY2011 cash and marketable securities higher than the amount of FCCB outstanding in US$
Amount Solvency metrics FCCB outstanding Maturity
outstanding Maturity Altman D/E as % of FY2011 cash multiple YTM
Company (US$ mn) date z-score (X) (%) (X) (%)
Suzlon Energy Ltd 21 11-Oct-12 1.4 1.9 4 1.2 23
Suzlon Energy Ltd 36 12-Jun-12 1.4 1.9 6 1.1 23
Suzlon Energy Ltd 90 25-Jul-14 1.4 1.9 15 1.5 16
Suzlon Energy Ltd 121 11-Oct-12 1.4 1.9 21 1.3 26
Jaiprakash Associates Ltd 354 12-Sep-12 0.9 4.1 25 1.2 19
Suzlon Energy Ltd 175 13-Apr-16 1.4 1.9 30 1.5 14
Suzlon Energy Ltd 211 12-Jun-12 1.4 1.9 36 1.1 24
Jaiprakash Power Ventures Ltd 200 13-Feb-15 0.8 2.6 40 1.4 16
Moser Baer India Ltd 43 21-Jun-12 0.4 51.2 42 NA NA
Moser Baer India Ltd 46 21-Jun-12 0.4 51.2 44 NA NA
Man Industries India Ltd 44 23-May-12 1.8 0.8 51 1.1 17
Videocon Industries Ltd 196 16-Dec-15 1.6 1.6 55 1.4 17
JSW Steel Ltd 274 28-Jun-12 1.5 1.4 64 1.1 9
Tata Power Co Ltd 300 21-Nov-14 1.3 1.9 65 1.1 6
Great Offshore Ltd 40 12-Oct-12 0.9 2.8 88 1.1 18
Reliance Communications Ltd 925 1-Mar-12 1.0 1.0 91 1.1 24
Shiv-Vani Oil & Gas Exploratio 80 17-Aug-15 1.4 2.1 110 1.5 15
Notes:
(a) Maturity multiple = Redemption premium / FCCB market price.

Source: Bloomberg, Kotak Institutional Equities estimates


KOTAK INSTITUTIONAL EQUITIES RESEARCH 17
Strategy India
APPENDIX 1: THE GENERALIZED CONVERTIBLE BOND VALUATION MODEL
We highlight the valuation methodology used in the report to calculate fair values for liquid securities in the
Indian FCCB space. This helps us find the premium/discount offered by current market prices over their
respective fair values.
The binomial tree
We build a binomial tree of stock prices where each node represents the possible stock price
at a specific time. The whole tree starts from the valuation date and ends at maturity of the
convertible. The annual historical volatility is used to calculate the magnitude of stock price
movement in each step. Once the stock price tree is complete, a corresponding tree of
future convertible bond prices is built. We start at maturity, where the value of each end
node is computed as the greater of its fixed-income redemption value and its conversion
value and work backwards to calculate the value at every node. We assume no active call
and put provisions in our generalized methodology along with no reset clause for
the conversion price. Considering this, the value of the convertible at the current node is
based on the investors rational decision (of maximizing profit) of either holding the bond for
another period or converting it to stock.
The credit-adjusted discount rate
The value of the convertible at a node is the sum of the present values of the coupons paid
over the next period and the expected present value of the convertible at the two nodes at
the end of the period. The appropriate discount rate for calculating present value varies
depending on the possibility of conversion. When the convertible is expected to behave as
an option (current market price well above the conversion price), the appropriate discount
rate should be equal to the risk-free rate. In a case where the convertible is deep out-of-the-
money, the value of the convertible is quite similar to a bond and is subject to default.
Hence, the discount rate would need to incorporate a premium for the issuers credit risk. A
weighted factor is used across the different nodes of the binomial tree. In our model, the
yield to maturity of the 5-year generic GOI bond is considered as the risk-free rate
along with a default credit spread of 4% for all the companies.
Given below are the consolidated assumptions used in our generalized valuation model:
Risk-free rate = 8.8%
Credit spread premium= 4.0%
Annualized volatility = 360-day historical volatility
Size of the binomial tree = 200 steps
No Call features
No Put features
We would like to highlight that only fair values of FCCBs with available bid/ask prices have
been calculated.


18 KOTAK INSTITUTIONAL EQUITIES RESEARCH
India Strategy
APPENDIX 2: LIST OF OUTSTANDING INDIAN FCCBS
Given below is a list of Indian FCCBs along with their details (see Exhibit 24).
Exhibit 24: Average redemption premium for the 119 FCCBs is ~130% of face value
List of outstanding Indian foreign currency convertible bonds (FCCBs)
Amount Amount Prices Redemption Maturity
issued outstanding Issued Maturity Coupon rate Stock (A) Conversion (B) Bond (C) premium A/B multiple YTM
Company (US$ mn) (US$ mn) date date (%) (Rs) (Rs) (%) (%) (X) (X) (%)
Paramount Communications Ltd 27 8 22-Nov-06 23-Nov-11 1.0 3 43 NA 145.5 0.1 NA NA
Gitanjali Gems Ltd 110 84 24-Nov-06 25-Nov-11 1.0 356 220 139.8 142.1 1.6 1.0 20
Assam Co India Ltd 48 32 23-Nov-06 30-Nov-11 0.0 11 29 106.3 150.0 0.4 1.4 656
KEI Industries Ltd 36 17 29-Nov-06 30-Nov-11 1.0 17 71 NA 145.5 0.2 NA NA
Gati Ltd 20 15 5-Dec-06 6-Dec-11 0.0 54 113 NA 147.9 0.5 NA NA
Financial Technologies India L 100 91 20-Dec-06 21-Dec-11 0.0 733 2,363 144.2 147.1 0.3 1.0 13
Country Club India Ltd 25 25 22-Dec-06 23-Dec-11 0.0 9 103 NA 149.8 0.1 NA NA
Faze Three Ltd 8 8 20-Dec-06 27-Dec-11 1.5 14 17 NA 142.8 0.8 NA NA
Shrenuj & Co Ltd 8 0 22-Jan-07 23-Jan-12 4.0 68 50 NA 126.3 1.4 NA NA
Era Infra Engineering Ltd 75 40 24-Jan-07 25-Jan-12 0.0 152 159 136.3 149.0 1.0 1.1 42
Ruchi Infrastructure Ltd 40 13 2-Feb-07 3-Feb-12 0.0 23 39 NA 144.5 0.6 NA NA
Murli Industries Ltd 23 6 5-Feb-07 6-Feb-12 0.0 23 379 NA 149.8 0.1 NA NA
Suryajyoti Spinning Mills Ltd 10 3 16-Feb-07 17-Feb-12 2.0 21 42 NA 140.5 0.5 NA NA
Rajesh Exports Ltd 150 24 14-Feb-07 21-Feb-12 0.0 146 67 NA 148.2 2.2 NA NA
Prithvi Information Solutions 50 50 26-Feb-07 27-Feb-12 0.0 19 346 NA 152.2 0.1 NA NA
Orchid Chemicals & Pharmaceuti 175 117 27-Feb-07 28-Feb-12 0.0 187 348 130.4 142.8 0.5 1.1 29
Reliance Communications Ltd 1000 925 28-Feb-07 1-Mar-12 0.0 83 661 118.7 127.7 0.1 1.1 24
Kalindee Rail Nirman Engineers 7 3 1-Mar-07 7-Mar-12 0.0 120 150 NA 100.0 0.8 NA NA
Uflex Ltd 85 22 8-Mar-07 9-Mar-12 4.0 165 145 NA 121.9 1.1 NA NA
Subex Ltd 180 39 8-Mar-07 9-Mar-12 2.0 41 656 108.9 136.0 0.1 1.2 71
Subex Ltd 99 60 2-Nov-09 9-Mar-12 5.0 41 80 109.2 142.4 0.5 1.3 92
ICSA India Ltd 22 22 9-Mar-07 10-Mar-12 2.5 54 190 NA 136.4 0.3 NA NA
Kamat Hotels India Ltd 18 16 13-Mar-07 14-Mar-12 5.5 114 225 NA 120.5 0.5 NA NA
KLG Systel Ltd 22 22 26-Mar-07 27-Mar-12 1.0 36 350 NA 143.8 0.1 NA NA
Pokarna Ltd 12 12 28-Mar-07 29-Mar-12 0.0 89 237 NA 144.5 0.4 NA NA
3i Infotech Ltd 42 28 2-Apr-07 3-Apr-12 0.0 26 154 NA 139.6 0.2 NA NA
Grabal Alok Impex Ltd 20 20 5-Mar-07 5-Apr-12 1.0 19 51 NA 142.2 0.4 NA NA
Aarvee Denims & Exports Ltd 20 4 10-Apr-07 11-Apr-12 0.0 36 127 NA 148.0 0.3 NA NA
Wanbury Ltd 11 11 20-Apr-07 23-Apr-12 1.0 24 138 NA 138.7 0.2 NA NA
Hotel Leela Venture Ltd 100 42 24-Apr-07 25-Apr-12 0.0 40 72 137.2 146.6 0.6 1.1 14
ICSA India Ltd 24 24 27-Apr-07 28-Apr-12 2.5 54 227 NA 136.4 0.2 NA NA
Bharat Forge Ltd 40 40 28-Apr-06 28-Apr-12 0.0 297 604 137.5 142.6 0.5 1.0 6
Pioneer Embroideries Ltd 15 11 27-Apr-07 28-Apr-12 0.0 13 156 NA 149.2 0.1 NA NA
Core Education & Technologies 80 0 11-May-07 12-May-12 0.0 280 83 270.6 146.3 3.4 0.5 (92)
Sterling Biotech Ltd 250 135 15-May-07 16-May-12 0.0 64 163 NA 136.7 0.4 NA NA
KSL Realty & Infrastructure Lt 80 80 18-May-07 19-May-12 2.0 36 213 NA 139.5 0.2 NA NA
Man Industries India Ltd 50 44 22-May-07 23-May-12 0.0 120 115 133.2 146.6 1.0 1.1 17
Suzlon Energy Ltd 300 211 11-Jun-07 12-Jun-12 0.0 37 97 126.7 145.2 0.4 1.1 24
Suzlon Energy Ltd 36 36 8-May-09 12-Jun-12 7.5 37 77 134.7 150.2 0.5 1.1 23
Surana Industries Ltd 14 14 15-Jun-07 20-Jun-12 2.0 405 140 NA 129.4 2.9 NA NA
Moser Baer India Ltd 75 46 20-Jun-07 21-Jun-12 0.0 26 364 NA 135.1 0.1 NA NA
Moser Baer India Ltd 75 43 20-Jun-07 21-Jun-12 0.0 26 408 NA 139.4 0.1 NA NA
Strides Arcolab Ltd 100 80 26-Jun-07 27-Jun-12 0.0 411 462 132.0 145.1 0.9 1.1 14
JSW Steel Ltd 325 274 27-Jun-07 28-Jun-12 0.0 712 953 134.5 142.8 0.7 1.1 9
Rolta India Ltd 150 97 28-Jun-07 29-Jun-12 0.0 80 369 123.3 139.4 0.2 1.1 19
Pyramid Saimira Theatre Ltd 90 90 3-Jul-07 4-Jul-12 1.8 5 247 NA 136.2 0.0 NA NA
Tata Motors Ltd 490 473 11-Jul-07 12-Jul-12 0.0 188 181 127.4 131.8 1.0 1.0 5
Gemini Communications Ltd 21 21 17-Jul-07 18-Jul-12 6.0 22 42 75.7 105.1 0.5 1.4 56
Tantia Constructions Ltd 8 3 17-Jul-07 18-Jul-12 1.0 50 140 NA 137.9 0.4 NA NA
Micro Technologies India Ltd 20 13 20-Jul-07 23-Jul-12 0.5 131 250 NA 143.4 0.5 NA NA
OK Play India Ltd 10 0 23-Jul-07 24-Jul-12 0.0 14 98 NA 146.3 0.1 NA NA
Educomp Solutions Ltd 80 79 25-Jul-07 26-Jul-12 0.0 267 590 120.2 141.1 0.5 1.2 23
3i Infotech Ltd 100 66 26-Jul-07 27-Jul-12 0.0 26 166 NA 141.4 0.2 NA NA
Gayatri Projects Ltd 39 35 2-Aug-07 3-Aug-12 0.0 146 288 70.0 120.4 0.5 1.7 100
Zenith Infotech Ltd 45 45 16-Aug-07 17-Aug-12 7.8 53 522 NA 103.8 0.1 NA NA
Tulip Telecom Ltd 150 97 26-Jul-07 26-Aug-12 0.0 150 227 128.2 144.5 0.7 1.1 15
Tata Steel Ltd 875 382 4-Sep-07 5-Sep-12 1.0 467 731 119.4 123.3 0.6 1.0 5
Jaiprakash Associates Ltd 400 354 11-Sep-07 12-Sep-12 0.0 79 165 126.2 147.7 0.5 1.2 19
Shri Lakshmi Cotsyn Ltd 10 10 20-Sep-07 27-Sep-12 0.0 112 108 NA 144.7 1.0 NA NA
Everest Kanto Cylinder Ltd 35 35 9-Oct-07 10-Oct-12 0.0 61 271 115.0 142.8 0.2 1.2 26
Suzlon Energy Ltd 200 121 10-Oct-07 11-Oct-12 0.0 37 97 115.7 144.9 0.4 1.3 26
Suzlon Energy Ltd 21 21 8-May-09 11-Oct-12 7.5 37 77 133.0 157.7 0.5 1.2 23
Great Offshore Ltd 42 40 5-Oct-07 12-Oct-12 7.3 130 565 90.4 100.0 0.2 1.1 18
Karuturi Global Ltd 50 42 12-Oct-07 19-Oct-12 0.0 6 19 NA 141.2 0.3 NA NA
GV Films Ltd 12 12 23-Oct-06 23-Oct-12 0.0 1 11 NA 140.0 0.1 NA NA
Plethico Pharmaceuticals Ltd 75 75 22-Oct-07 23-Oct-12 0.0 378 484 NA 145.9 0.8 NA NA
XL Energy Ltd 40 32 22-Oct-07 23-Oct-12 0.0 7 160 NA 143.6 0.0 NA NA
Websol Energy Systems Ltd 17 17 25-Oct-07 1-Nov-12 0.0 36 550 NA 131.3 0.1 NA NA

Source: Bloomberg, Kotak Institutional Equities



KOTAK INSTITUTIONAL EQUITIES RESEARCH 19
Strategy India
Average redemption premium for the 119 FCCBs is ~130% of face value (contd)
List of outstanding Indian foreign currency convertible bonds (FCCBs)
Amount Amount Prices Redemption Maturity
issued outstanding Issued Maturity Coupon rate Stock (A) Conversion (B) Bond (C) premium A/B multiple YTM
Company (US$ mn) (US$ mn) date date (%) (Rs) (Rs) (%) (%) (X) (X) (%)
ORG Informatics Ltd 16 16 13-Nov-07 14-Nov-12 2.5 9 130 NA 100.0 0.1 NA NA
GTL Infrastructure Ltd 300 228 28-Nov-07 29-Nov-12 0.0 10 53 59.4 140.4 0.2 2.4 121
Firstsource Solutions Ltd 275 191 3-Dec-07 4-Dec-12 0.0 11 92 118.8 139.4 0.1 1.2 15
Sharon Bio-Medicine Ltd 17 17 27-Nov-07 4-Dec-12 0.0 326 228 NA 141.2 1.4 NA NA
Easun Reyrolle Ltd 35 4 5-Dec-07 5-Dec-12 0.0 72 315 NA 142.6 0.2 NA NA
Pidilite Industries Ltd 40 37 6-Dec-07 7-Dec-12 0.0 168 102 130.0 139.4 1.6 1.1 6
Prime Focus Ltd 55 55 12-Dec-07 13-Dec-12 0.0 61 111 100.4 143.6 0.6 1.4 37
Wanbury Ltd 10 10 20-Apr-07 17-Dec-12 1.0 24 175 NA 139.2 0.1 NA NA
Indowind Energy Ltd 30 30 21-Dec-07 22-Dec-12 0.0 9 167 NA 100.0 0.1 NA NA
Shree Ashtavinyak Cine Vision 33 33 21-Dec-07 22-Dec-12 2.9 7 44 NA 126.4 0.2 NA NA
Ankur Drugs & Pharma Ltd 20 20 24-Dec-07 27-Dec-12 0.0 26 280 NA 133.0 0.1 NA NA
Mascon Global Ltd 50 50 27-Dec-07 28-Dec-12 2.0 1 13 NA 129.4 0.1 NA NA
Aksh Optifibre Ltd 20 20 8-Jan-08 8-Jan-13 0.0 6 60 25.0 139.9 0.1 5.6 324
Geodesic Ltd 125 114 17-Jan-08 18-Jan-13 0.0 60 302 102.7 138.4 0.2 1.3 25
South Asian Petrochem Ltd 20 8 16-Jan-08 23-Jan-13 0.0 #N/A N/A 17 NA 100.0 NA NA
Bartronics India Ltd 50 50 4-Jan-08 4-Feb-13 0.0 52 191 NA 139.5 0.3 NA NA
Aksh Optifibre Ltd 6 6 5-Feb-10 5-Feb-13 1.0 6 20 NA 107.2 0.3 NA NA
Sancia Global Infraprojects Lt 50 50 12-Feb-08 13-Feb-13 1.0 9 282 NA 137.2 0.0 NA NA
Kinetic Engineering Ltd 18 18 13-Feb-08 15-Feb-13 2.0 107 156 NA 119.5 0.7 NA NA
Vardhman Polytex Ltd 12 9 12-Feb-08 19-Feb-13 2.0 95 107 NA 118.4 0.9 NA NA
Jaiprakash Associates Ltd 228 0 9-Mar-06 9-Mar-13 0.5 79 75 NA 132.1 1.1 NA NA
Sintex Industries Ltd 225 225 12-Mar-08 13-Mar-13 0.0 116 247 114.9 129.3 0.5 1.1 9
Bharat Forge Ltd 40 40 28-Apr-06 28-Apr-13 0.0 297 690 140.3 156.5 0.4 1.1 7
Enso Secutrack Ltd 12 12 30-Apr-08 30-Apr-13 3.0 6 90 NA 100.0 0.1 NA NA
Brushman India Ltd 12 12 6-Jun-08 13-Jun-13 0.0 3 129 NA 128.1 0.0 NA NA
Suzlon Energy Ltd 90 90 24-Jul-09 25-Jul-14 0.0 37 90 89.9 134.2 0.4 1.5 16
Amtek Auto Ltd 165 7 29-Sep-09 30-Sep-14 5.6 126 148 98.9 100.0 0.9 1.0 6
Tata Motors Ltd 375 120 15-Oct-09 16-Oct-14 4.0 188 121 151.7 108.5 1.6 0.7 (8)
Prakash Industries Ltd 50 17 16-Oct-09 17-Oct-14 5.6 45 161 NA 100.0 0.3 NA NA
Welspun Corp Ltd 150 150 16-Oct-09 17-Oct-14 4.5 105 300 83.1 102.8 0.4 1.2 12
Larsen & Toubro Ltd 200 200 21-Oct-09 22-Oct-14 3.5 1,394 1,908 103.2 100.0 0.7 1.0 2
Sterlite Industries India Ltd 500 500 29-Oct-09 30-Oct-14 4.0 123 NA 88.1 100.0 1.1 9
Sesa Goa Ltd 500 217 30-Oct-09 31-Oct-14 5.0 210 347 88.4 100.0 0.6 1.1 9
REI Agro Ltd 105 105 12-Nov-09 13-Nov-14 5.5 22 47 94.0 100.0 0.5 1.1 7
Tata Steel Ltd 547 547 20-Nov-09 21-Nov-14 4.5 467 602 97.2 100.0 0.8 1.0 5
Tata Power Co Ltd 300 300 20-Nov-09 21-Nov-14 1.8 103 146 97.1 109.5 0.7 1.1 6
Lavasa Corp Ltd 32 32 6-Jan-10 6-Jan-15 6.0 #N/A N/A 0 NA 100.0 NA NA
Jaiprakash Power Ventures Ltd 200 200 12-Feb-10 13-Feb-15 5.0 36 86 77.3 111.7 0.4 1.4 16
Venus Remedies Ltd 12 5 2-May-06 15-Feb-15 0.0 202 364 NA 119.1 0.6 NA NA
Prakash Industries Ltd 60 60 29-Apr-10 30-Apr-15 5.3 45 230 75.1 100.0 0.2 1.3 14
Core Education & Technologies 67 67 6-May-10 7-May-15 7.0 280 272 82.5 100.0 1.0 1.2 13
Fortis Healthcare India Ltd 100 100 17-May-10 18-May-15 5.0 130 167 NA 103.2 0.8 NA NA
IOL Chemicals and Pharmaceutic 5 5 28-May-10 5-Jun-15 0.0 30 78 NA 141.3 0.4 NA NA
Shiv-Vani Oil & Gas Exploratio 80 80 16-Jul-10 17-Aug-15 5.0 213 516 71.8 104.3 0.4 1.5 15
Essar Ports Ltd 150 150 31-Aug-10 31-Aug-15 5.0 85 92 NA 100.0 0.9 NA NA
Videocon Industries Ltd 200 196 15-Dec-10 16-Dec-15 6.8 176 240 69.8 100.0 0.7 1.4 17
Suzlon Energy Ltd 175 175 12-Apr-11 13-Apr-16 5.0 37 54 74.9 108.7 0.7 1.5 14
Advanta India Ltd 50 50 12-Jul-11 13-Jul-16 3.9 395 282 NA 100.0 1.4 NA NA
Essar Ports Ltd 130 130 31-Aug-10 31-Aug-17 5.0 85 92 NA 100.0 0.9 NA NA
JSL Stainless Ltd 50 24 23-Dec-04 24-Dec-19 0.5 93 120 NA 129.9 0.8 NA NA
Notes:
(a) Maturity multiple = Redemption premium / FCCB market price.

Source: Bloomberg, Kotak Institutional Equities

"I, Saifullah Rais, hereby certify that all of the views expressed in this report accurately reflect
my personal views about the subject company or companies and its or their securities. I also
certify that no part of my compensation was, is or will be, directly or indirectly, related to the
specific recommendations or views expressed in this report."


20 KOTAK INSTITUTIONAL EQUITIES RESEARCH
India Strategy
Kotak Institutional Equities Research coverage universe
Distribution of ratings/investment banking relationships
Source: Kotak Institutional Equities As of September 30, 2011
Percentage of companies covered by Kotak Institutional Equities,
within the specified category.
Percentage of companies within each category for which Kotak
Institutional Equities and or its affiliates has provided investment
banking services within the previous 12 months.
* The above categories are defined as follows: Buy = We expect
this stock to deliver more than 17.5% returns over the next 12
months; Add = We expect this stock to deliver 7.5-17.5% returns
over the next 12 months; Reduce = We expect this stock to
deliver 0-7.5% returns over the next 12 months; Sell = We expect
this stock to deliver less than 0% returns over the next 12
months. Our target prices are also on a 12-month horizon basis.
These ratings are used illustratively to comply with applicable
regulations. As of 30/09/2011 Kotak Institutional Equities
Investment Research had investment ratings on 167 equity
securities.
19.2%
36.5%
29.3%
15.0%
4.8%
3.6%
2.4%
3.0%
0%
10%
20%
30%
40%
50%
60%
70%
BUY ADD REDUCE SELL









Disclosures
KOTAK INSTITUTIONAL EQUITIES RESEARCH 21
Ratings and other definitions/identifiers
Definitions of ratings
BUY. We expect this stock to deliver more than 17.5% returns over the next 12 months.
ADD. We expect this stock to deliver 7.5-17.5% returns over the next 12 months.
REDUCE. We expect this stock to deliver 0-7.5% returns over the next 12 months.
SELL. We expect this stock to deliver less than 0% returns over the next 12 months.
Our target prices are also on a 12-month horizon basis.
Other definitions
Coverage view. The coverage view represents each analysts overall fundamental outlook on the Sector. The coverage view will consist of one of the following
designations: Attractive, Neutral, Cautious.
Other ratings/identifiers
NR = Not Rated. The investment rating and target price, if any, have been suspended temporarily. Such suspension is in compliance with applicable regulation(s)
and/or Kotak Securities policies in circumstances when Kotak Securities or its affiliates is acting in an advisory capacity in a merger or strategic transaction involving
this company and in certain other circumstances.
CS = Coverage Suspended. Kotak Securities has suspended coverage of this company.
NC = Not Covered. Kotak Securities does not cover this company.
RS = Rating Suspended. Kotak Securities Research has suspended the investment rating and price target, if any, for this stock, because there is not a sufficient
fundamental basis for determining an investment rating or target. The previous investment rating and price target, if any, are no longer in effect for this stock and
should not be relied upon.
NA = Not Available or Not Applicable. The information is not available for display or is not applicable.
NM = Not Meaningful. The information is not meaningful and is therefore excluded.











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