Market Outlook

India Research
September 21, 2010

Dealer’s Diary Domestic Indices Chg (%) (Pts) (Close)

The key benchmark indices opened on firm note on frenzied buying, BSE Sensex 1.6% 311.3 19,906
outperforming its Asian and European counterparts. The market breath was Nifty 1.6% 95.5 5,980
strong throughout the trading session and it hit a fresh 32-month high in late MID CAP 0.7% 53.7 8,158
trade as result of foreign institution’s buying spree and higher 2Q advance tax SMALL CAP 0.7% 75.5 10,314
payments from frontline companies. FMCG stocks were in demand, with ITC BSE HC 0.6% 34.5 5,877
striking its lifetime high. Metal and mining stocks gained, mirroring rise in BSE PSU 0.5% 56.2 10,299
global metal prices. Banking shares rose on fresh buying, while software BANKEX 1.1% 151.5 13,896
pivotals saw mixed trend. The Sensex and Nifty closed with gains of 1.6% each. AUTO 1.3% 121.4 9,397
BSE mid and small-cap indices were up by 0.7% each. Among the front liners,
METAL 1.3% 211.0 16,700
RCOM, ITC, Hero Honda, HUL and HDFC gained 3–5%, while Sterlite
OIL & GAS 1.1% 121.2 10,857
Industries, NTPC, TCS, BHEL and Tata Power lost 0–1%. Among mid caps, Blue
BSE IT 0.6% 34.7 5,879
Star, GMDC, MVL, Brigade Entertainment and Bajaj Hindusthan gained 5–8%,
Global Indices Chg (%) (Pts) (Close)
while Edelweiss Cap., Blue Dart, Sigrun Holdings, Rajesh Exports and
Purvankara Projects lost 3–5%. Dow Jones 1.4% 145.8 10,754
NASDAQ 1.7% 40.2 2,356
Markets Today FTSE 1.7% 94.1 5,603
Nikkei 1.2% 116.6 9,626
The trend deciding level for the day is 19760/5952 levels. If NIFTY trades
above this level during the first half-an-hour of trade then we may witness a Hang Seng 0.0% 6.5 21,977
further rally up to 20074–20241/6018–6056 levels. However, if NIFTY trades Straits Times 0.1% 4.6 3,081
below 19760/5952 levels for the first half-an-hour of trade then it may correct Shanghai Com -0.4% (10.0) 2,589
up to 19592–19278/5914–5847 levels.
Indian ADRs Chg (%) (Pts) (Close)
Indices S2 S1 R1 R2 Infosys 1.7% 1.1 $66.2
SENSEX 19,278 19,592 20,074 20,241 Wipro 0.9% 0.1 $13.9
Satyam 1.8% 0.1 $5.2
NIFTY 5,847 5,914 6,018 6,056
ICICI Bank 2.3% 1.1 $48.9
News Analysis HDFC Bank 1.7% 3.0 $185.1
„ Electrosteel Steels IPO Note: Recommend Subscribe
„ Ramky Infra IPO Note: Recommend Subscribe Advances / Declines BSE NSE
Refer detailed news analysis on the following page.
Advances 1,790 836
Net Inflows (September 17, 2010) Declines 1,233 527
Rs cr Purch Sales Net MTD YTD Unchanged 87 39
FII 5,387 3,671 1,716 13,620 72,746
MFs 533 878 (345) (2,440) (18,233) Volumes (Rs cr)
BSE 5,229
FII Derivatives (September 20, 2010)
Open NSE 16,169
Rs cr Purch Sales Net
Interest
Index Futures 3,934 2,657 1,277 25,184
Stock Futures 2,594 3,089 (494) 40,934

Gainers / Losers
Gainers Losers
Price chg Price chg
Company Company
(Rs) (%) (Rs) (%)
GMDC 141 6.6 GCPL 436 (5.0)
KSK Energy 182 5.5 Shipping Corp 164 (2.9)
Bajaj Hindstn 132 5.2 Indiabulls 145 (2.6)
RCom 175 5.1 Cadila Health 627 (1.6)
BPCL 802 5.0 Godrej Ind 230 (1.6)
1

Please refer to important disclosures at the end of this report Sebi Registration No: INB 010996539
 Market Outlook | India Research

Electrosteel Steels IPO Note: Recommend Subscribe

Electrosteel Steels (ESL), promoted by Calcutta-based Electrosteel Group, was incorporated

in December 2006. We believe ESL’s IPO holds value for long-term investors on account of
a) progressive commissioning of the greenfield steel plant from October 2010, b) raw-
material linkage and captive power to support margins and c) technical tie-ups to aid
operations at initial stages.

At the lower and upper band of Rs10–11, ESL trades at 1.0x FY2010 and 1.1x FY2010
P/BV, respectively, which is at a significant discount of 50–60% to its peers. We
recommend Subscribe to the IPO with a long-term perspective.

Rationale for our Subscribe recommendation:

Greenfield expansion of 2.2mn tonnes: ESL, in collaboration with Stemcor Mesa DMCC, is
setting up a 2.2mn tonne greenfield steel plant based on the BF-BOF route at Siyaljori,
Bokaro District, Jharkhand. The total project cost is estimated to be Rs7,362cr, of which
58.8% has already been incurred. The project is being financed through 3:1 debt/equity
ratio. While the debt has been fully tied up, Electrosteel Castings (ECL) has invested
Rs700cr as its equity contribution and the company has roped in strategic investors for the
balance equity amount. Commercial production at the plant is expected to start, in phases,
from October 2010.

Raw-material linkages: ESL entered into a 20-year agreement with ECL on July 21, 2008,
for the supply of iron ore and coking coal on a cost plus 20% basis. The company expects
to meet its 30% coking coal and 100% iron ore requirement from ECL-owned mines
located at Parbatpur (6km away from the plant) and Kodolibad (230km away from the
plant), respectively. We believe raw-material security will insulate ESL partly from cost
volatility. In addition to raw-material linkages, ESL will have access to 120MW captive
power and railway sidings.

Strategic tie-ups: ESL has entered into a delivery and marketing agreement with Stemcor
MESA. Stemcor is the world's largest steel trader with a network of 80 offices across the
globe. We believe the strategic alliance with Stemcor will enable ESL to leverage on its
well-spread distribution channel.

September 21, 2010 2

 Market Outlook | India Research

Ramky Infra IPO Note: Recommend Subscribe

IPO details: Ramky is tapping the IPO market with an issue size of Rs530cr (Rs350cr
through fresh equity issue and balance Rs180cr through an offer for sale) and a price
band of Rs405–468 per equity share, thus resulting in a public issue of 1.1cr and 1.3cr
equity shares of face value Rs10, resulting in a promoter shareholding dilution of 21% and
24% at the upper and lower price band, respectively. The company plans to use the IPO
proceeds for investment in capital equipments, working capital requirements and
repayment of loans.
Ramky’s robust order book of Rs7,432cr (3.7x FY2010 revenue) ensures revenue visibility
over the next few years. On a standalone basis, over FY2010–12, we expect Ramky to post
CAGRs of 31.7% and 28.9% in top-line and bottom-line, respectively, owing to: 1) strong
order book at 3.7x FY2010 revenue, 2) presence in growing segments, which ensures
consistent order inflow and 3) judicious choice of projects, wherein stable margins are
ensured.

We have arrived at an SOTP Target Price of Rs495 for Ramky, wherein we have assigned a
P/E of 14x FY2012E EPS fetching Rs426/share for its standalone C&EPC business in line
with peers like IVRCL and NCC. We have valued Ramky’s investments in assets at 1.5x
equity fetching Rs69/share, which is at a discount to asset owners like IRB and ITNL.
However, our SOTP Target Price provides limited upside of ~6% from the upper price
band. Nonetheless, we recommend a Subscribe view on the issue, as we believe that the
company is well poised to grow over the long term with the catalysts in place.

Key risks to our recommendation include: 1) Dependence on third-party contractors,

2) order book includes orders pending financial closure/slow-moving projects and
3) Ramky claims Section 80IA benefits. However, we have assumed full tax rates going
ahead.

Economic and Political News

„ BSE to launch mobile trading platform

„ FM expects over 8.5% GDP growth in 2010–11
„ Gold hits fresh record peak on economy concerns

Corporate News

„ Bharti Airtel selects 3G network gear partners

„ Core Projects buys two US companies for US $20mn
„ Rural Electrification Corp. gets infrastructure finance company status

Source: Economic Times, Business Standard, Business Line, Financial Express, Mint

September 21, 2010 3

 Market Outlook | India Research

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