Preview 4QFY2011 Results Preview | April 4, 2011

Table of Contents
Strategy Portfolio Angel Research Model Portfolio 4QFY2011 Sectoral Outlook Automobile Banking Capital Goods Cement FMCG Infrastructure Logistics Metals Oil & Gas Pharmaceutical Power Real Estate Retail Software Telecom Watch Stock Watch 12 15 19 22 25 28 31 34 37 40 43 46 49 52 55 58
Note: Stock prices as on March 31, 2011 Refer to important Disclosures at the end of the report

2-9 10

1

Preview 4QFY2011 Results Preview | April 4, 2011

Strategy
Earnings growth to carry the Sensex forward
The Indian stock market declined in the early part of 4QFY2011 on the back of negative news flows that kept coming in
(x)

Exhibit 2: One-year forward Sensex P/E
30.0 25.0 20.0 15.0 10.0 5.0 0.0 Mar-04 Mar-05 Mar-06 Mar-07 Mar-08 Mar-09 Average P/E Mar-10 Mar-11

persistently. High food inflation, rate hikes by the central bank and political crisis in the Middle East and North Africa (MENA) sent jitters in the market, continuing the negative momentum witnessed in 3QFY2011. However, latest developments related to food inflation, fiscal deficit and interest rates look positive and we believe improvement is likely in these macro indicators going forward. More importantly, the market has been largely range-bound for entire FY2011 (the Sensex is up just about 10%), even though earnings growth has been reasonably healthy. As the market increasingly starts acknowledging and factoring in FY2012 and FY2013 earnings growth, in our view, the Sensex will get a springboard for further upsides.

Sensex 1-yr fwd P/E

Source: BSE, Angel Research

Exhibit 3: Bond yield vs. earnings yield
12.0 10.0 8.0
(%)

6.0 4.0 2.0 0.0 Mar -04 Mar -05 Mar -06 Mar -07 Bond Yield Mar -08 Mar -09 Mar -10 Mar -11

We believe for the 8-8.5% real GDP growth that India still looks set to achieve and the resulting strong 17.4% CAGR in Sensex earnings, a target P/E multiple of 15x on FY2013E EPS looks reasonable. In this context, even after the recent bounce back, the Sensex is looking reasonably valued, available at 15.4x FY2012E EPS, almost 10% lower than its average P/E of 16.7x since April 2004. In fact, even continuing with this 10% discount to its seven-year average, our 15x target multiple on FY2013E EPS translates into a Sensex target of 22,326 by March 2012, on account of healthy earnings growth expected. This implies an upside of 15%, with further upsides likely as valuations move closer to the average P/E. Hence, we maintain our positive stance on the market, with an overweight view on interest-sensitive sectors such as banking and infrastructure.

Earnings Yield

Source: Bloomberg, Angel Research

Indian market underperformed sequentially, with some respite at the end of the quarter
Negative global news, including the Middle East and North African crisis, which led to a spike in oil prices, and the disaster in Japan took their toll on emerging markets as well. Notable exceptions from this list were Russian and Chinese markets, which were up by 7.1% and 4.3%, respectively, during the quarter. Ex-Russia, emerging markets were, however, down by 0.8%.

Exhibit 1: Sensex EPS estimates
1,600 1,500 1,400 1,300
EPS (`)
wth g ro
0 18. % wth gro

1,488

Developed markets, other than Japan, performed well during the quarter. Overall, developed markets (ex-Japan) were up by 2.4% during the quarter, despite negative developments throughout the globe. Japanese markets were down by 4.6%, as investors feared the impact of the devastating earthquake and tsunami on the nation's economy. The Indian market underperformed the others during the

wth % gro 16.9

1,262

1,200 1,100 1,000 900 800 700 FY2010 889

4% 21.

1,079

FY2011E

FY2012E

FY2013E

Source: Angel Research

quarter (falling 5.2% qoq), though the market staged a strong comeback in the last part of the quarter, bouncing back over 1,600 points in March. This was in consonance with our view that several macro indicators have recently been evolving in a positive direction.

Refer to important Disclosures at the end of the report

2

high fiscal deficit and rising interest rates were adding to the negative sentiments created by slow project clearances. a host of macro headwinds such as high inflation. Angel Research Source: Bloomberg. the lack of an upward bias in interest rates would prove to be a key positive for the market. despite negative news flows in the recent past. in the coming quarters. in March. This would still imply not more than a Exhibit 6: BSE sectoral returns (yoy and qoq) 60. FIIs sold US $1bn during the quarter. we believe. In our view. interest rates have peaked and the possibility of a 50-100bp decline in interest rates cannot be ruled out.0 40.0) (40. even after factoring in higher subsidies. DIIs were net buyers to the extent of nearly `12.0) (30. though in the near term. Overall. The high FII inflow during the year. with cyclical tailwinds in the form of positive macro developments adding to the structural attractiveness of the Indian market. FII flows are likely to remain robust. DIIs were net sellers during FY2011. reflecting weak mobilisations in equity schemes in MFs and insurance due to the recent regulatory developments. several of these macro headwinds look set to ebb going forward. pumping in over US $1bn over the period. In our view. The first is that broader demand and supply of funds in the economy are showing positive trends in favour of moderating liquidity and interest rates.900cr in the market. compared to net selling of over US $2bn in January and February combined. Angel Research Exhibit 7: Net fund inflows 60 50 40 (` '000 cr) Exhibit 5: Performance of key global markets 35 30 25 20 15 10 5 0 (5) (10) (15) 30 20 10 0 (%) (10) (20) (30) 1QFY08 2QFY08 3QFY08 4QFY08 1QFY09 2QFY09 3QFY09 4QFY09 1QFY010 2QFY010 3QFY010 4QFY010 1QFY011 2QFY011 3QFY011 4QFY011 Russia HongKong Indonesia Korea Brazil US Nasdaq Singapore UK FTSE Malaysia US Dow Taiwan Japan China India FII DII yoy qoq Source: Bloomberg. one of the key positives of this year's budget was the remarkable restraint exercised by the finance minister by not undertaking any incremental populist expenditure.0 (%) 10. for the next few months at least. There are two variables on which this plateauing (and potential cooling) of interest rates is predicated. especially for interest-sensitive sectors. Sure.Preview 4QFY2011 Results Preview | April 4. as FIIs turned net sellers during the period. FIIs were back on a buying spree.000cr-50.0 50. Angel Research FII inflows resumed towards the end of the quarter Negative developments in the first part of 4QFY2011 were manifested by the reversed flow of FII money. selling nearly `16. a plateau in interest rates can be expected.000cr above budget estimates. it looks unlikely that overall market borrowing by the government will be more than `40. Despite this heavy buying in the last quarter.0) IT TECk CG OIL&GAS POWER CD FMCG HC BANKEX REALTY Sensex METAL AUTO yoy qoq Source: BSE. underlines the strong fundamentals of the Indian economy. Source: BSE. As we had explained in our Budget Review. DIIs turned net buyers during the quarter. In comparison. execution hurdles and corporate governance issues. 2011 Strategy Exhibit 4: Performance of Sensex (qoq) 60 50 40 30 20 10 0 (10) (20) (30) 3QFY2008 4QFY2008 2QFY2007 3QFY2007 4QFY2007 2QFY2010 1QFY2008 2QFY2008 4QFY2010 1QFY2009 2QFY2009 3QFY2009 4QFY2009 1QFY2010 3QFY2010 1QFY2011 2QFY2011 3QFY2011 4QFY2011 (%) selling in the Indian market for the previous two quarters. the subsidy projections are likely to be overshot but. taking their net portfolio investments in India to around US $24bn in FY2011.0) (20. However.0 30. which stood at US $23bn.0 0. after Refer to important Disclosures at the end of the report 3 .0 (10. Overall.800cr (US $3bn) in 4QFY2011. In our view. Angel Research Macro headwinds are clearing up In the months preceding the Union Budget. slightly above the total investment flows in FY2010.0 20.

079 6.490 143.000 22.5 149.000 (23.000 FY2012 BE Variance (%) 141.820 7.Market borrowings .Savings schemes 415.182 441.997 (15.212 194.Others (adjusted for cash) 47. FIIs) Funding of Fiscal Deficit (% of GDP at mkt prices) Source: RBI.167) 31.846 628. Angel Research Exhibit 10: Subsidy estimates appear optimistic (` Particulars (` cr) Fertiliser subsidy Food subsidy Petroleum subsidy Interest subsidies Other subsidies Total subsidies Source: Budget Document. LAF .399 85.25 8. demand for funds from the government is set to be in check in FY2012E.180) 35.154 12.433 205.000) Exhibit 12: Retail FD rates Bank Axis Bank (AXSB) Bank of India (BOI) HDFC Bank (HDFCBK) ICICI Bank (ICICIBK) Indian Bank (INDBK) Jammu & Kashmir Bank (J&KBK) Corporation Bank (CRPBK) Yes Bank (YESBK) Dena Bank (DENABK) State Bank of India (SBI) South Indian Bank (SIB) UCO Bank (UCOBK) Indian Overseas Bank (IOB) Punjab National Bank (PNB) Oriental Bank of Commerce (OBC) Union Bank of India (UNBK) Source: Company.457 125.340 227.729 (14.781 844.912 392.000 41.547 1. broader interest rates have already increased by a substantial 200-250bp.579 Debt receipts .998 60. as far as broader interest rates are concerned.020 23.25 9.931 13.745 55.NSS.153 11.00 9. Exhibit 11: Market borrowings . etc.685 220. we believe rates have peaked and banks are unlikely to change deposit rates until April at least. Angel Research 4QFY11 (%) 9.Other (Incl.435 100.586 6.Insurance .386 5. IRDA. Funding.25 9.Aided by higher insurance sector allocations (` Particulars (` cr) .977 60.000 22.573 23.Preview 4QFY2011 Results Preview | April 4.50 8.257.Banks (adj for MSS) FY2010 FY2011E FY2012E FY2013E 119.570 4 . Exhibit 9: Restraint in FY12 budgeted expenditure (` Particulars (` cr) Subsidies Agri waiver Capital outlay (mainly PSU recapitalisation) Defence.371) 46.500 100. PF Ext.000 622. .50 9.50 8.283 225.756 53.986 396.25 9.259 27.325 816.000 24.75 3QFY11 (%) 8.60 bp chg.223 4.696 179.640 6.484) 14.000) 400.000 100.778 821.25 8. (qoq) 100 100 100 100 100 100 85 85 75 75 75 75 65 65 50 15 Total expenditure 1.35 9.00 8.182 45.482 6.553 395.262 240.100 65.25 8.15 9.25 8.152 FY2011 RE 164. with further hikes beyond April too looking unlikely at present.521 267.024 13.500 665.677 180.817 20.229 9.5 7.547 (5. chg.25 8. Angel Research In the last couple of months. which in our view is easily manageable.25 8.500 22.333 (23.315 .710 1.25 9.600 38. Angel Research 80.169 51.257.149 664.466 54.635 29.499 120. Angel Research Refer to important Disclosures at the end of the report FY2011(RE) 54.772 (94.714) .MSS . As a result.149 2.25 8. which may cool down credit growth from the current ~23% levels to more sustainable 18-20% levels.757 386.00 9.50 8.968 164.523 41.576 1.997 335.000 412.802 Source: Budget Document. While on the one hand.199 93.216.153 FY2012(BE) 49.25 9.25 9.999 100.737 224.75 9.414 17. At the same time.50 9.0 1.50 8. 110. on the supply side also.577 Source: Budget Document.500 Exhibit 8: FY12 budgeted revenue largely reasonable (` Particulars (` cr) Centre's net tax revenue Non-tax revenue (mainly 3G auctions) Non-debt capital receipts (mainly divestments) 815.222 187.817 343.Cash balances Total receipts Fiscal deficit .40 8.275 FY2011 RE FY2012 BE Variance (%) 563.216. Police Grants to state governments Pension Interest Other non-plan expenditure Total non-plan expenditure Total plan expenditure 27.012 128.RBI's Open Mkt Ops.660 9.868 2.25 9.5 7.401 (2. there is relief – this is because more insurance sector flows are now being directed towards debt rather than equity.75 8.729 . 2011 Strategy 14-15% yoy increase in market borrowing.075) (6.60 8.276 590. deposit mobilisation is expected to improve in the coming months due to the recent increase in interest rates.50 9.

UNBK 9.8 9.317 180.688) 216.069 19.947 20.298 1.484 916.125. there appears to be some respite on the inflation front. but at current or lower levels of interest rates.793 944.5 9. AMFI.583 656.460 FY2012E 81.000 30.3 155.5 8.0 9.460 (653) 21.3 FY2013E 10.5 9.5 9.717 137.872 87.243 944.579 FY2011E 80.788 65.0 8.016.949 179.872 157.180 14.0 8.009 656. etc.125.860 14.864 311. in our view. 2010.251 57.680 225. but similar GDP growth at those high interest rates looks unlikely in this cycle in the absence of the corresponding forex inflows.978 1.012 75. Gross sav in fin.735.020 464. savings rate and consequent credit/ investment demand and GDP growth – inflation.980.961 92.545 21.8 FY2012E 8. Angel Research This brings us to the second variable that has a bearing on the level of interest rate.579 68.0 147. Angel Research Refer to important Disclosures at the end of the report 5 . Company.3 9.5 9.277 FY2010 60.114.e.135 117.5 3QFY11 (%) 8.304. Source: RBI.440 1. huge foreign risk capital was able to sustain 8%+ GDP growth at higher levels of interest rates.251 100. This view is also supported by the fact that forex reserves have not shown a material increase in this cycle.271 17.129 916.0 8. we expect GDP growth of about 8% in FY2012E and accompanying credit growth of about 20%. (qoq) 75 50 115 50 100 120 50 100 50 50 50 50 60 65 100 50 In fact.788 Source: RBI. Consequently. In the last cycle.0 FY2011E 7.000 90.677 65.015 1.165 364.168 426. with the latest index numbers showing virtually no increase.832 1.Funds raised CRR Call SLR Non-SLR 1. # upto March 11.Preview 4QFY2011 Results Preview | April 4. i. Note: * upto March 12. PPF.717 64.038 762. Looking at incremental month-on-month (mom) trends as well.5 7. unlike in the pre-Lehman period.609 19. Angel Research.164 796. much of the bad news such as high food inflation and reflation of commodity prices after the global crisis is already built into the inflation numbers.5 9.5 9.716 19.015 1.182 149.0 9.5 9.509 123. Apart from 10-12% of pass-on left on the fuel front.997 Funds Banks .304.576 9. Angel Research Exhibit 16: Banks’ incremental assets and liabilities (` Particulars (` cr) Net worth Deposits Borrowings Other 168.8 9.865 12.244 124.404 893.000 150. deposit rates were increased by almost 50-75bp more than expected in such a short period of time because of the sudden steep increase in liquidity crunch and the subsequent strong moral suasion by the RBI for banks to correct the imbalance rapidly.245.3 102.290 1. it cannot be ruled out that there may also be some cooling of interest rates.673 762.0 8.199 86.849 796.0 chg.679 18.484.0 171. bp chg.000 120.211 262.114.8 9.0 8.386 19. which we believe could lead to peaking of interest rates at a lower level in this cycle as compared to 2007.979 140.Funds deployed Funds 1.7 Credit Banks .693 11.268 2.6 8.7 9. 2011 Exhibit 13: Lending base rates Bank AXSB BOI CRPBK DENABK FEDBK HDFCBK IOB ICICIBK INDBK J&KBK OBC PNB SIB SBI UCOBK 4QFY11 (%) 8. IRDA.0 7.5 9.125 (21.5 Source: Company. 2011 Exhibit 15: Domestic savings . assets (% of GDP at mkt prices) FY2010 6.877.238.177 77.273 69.000 Credit offtake 4QFY10* Deposit mobilisation 4QFY11# 105.1 8.155 23.793 784.3 9.480 121.000 60.Bank deposits likely to attract higher savings (` Particulars (` cr) Nom GDP (Mkt prices) Growth Currency Bank Deposits Equity & MF Life Insurance NSS.770 680.949 81.0 9.550.448 Exhibit 14: Incremental deposits and credit (` cr) 180.854 Source: RBI.0 7. once liquidity settles down in 1QFY2012E.4 9.206 FY2013E 94.

considering their relatively rich valuations. Other metal companies have also performed well on the back of increased metal prices.2 2. Telecom stocks are estimated to pull down growth by 14.3 8. while being underweight on IT and FMCG sectors. alloys & metal products 10. with all the companies expected to post strong growth. Angel Research Exhibit 19: Contribution to Sensex EPS growth – FY11E 200. the RBI could pause after at most another 25bp hike on the repo front (taking it to 7%).5 WPI 100. is likely to support major areas of private investment.8 7.0 150.0 5. On the other hand. we are overweight on interest-sensitive sectors such as banking and infrastructure.3% of Sensex EPS growth in FY2011. Hence.0% in FY2013 to `1.4% growth.9 YoY YoY growth 14.1 2.2 13.0 15.2 11. Profit Growth Contribution to increase in Sensex EPS Source: Angel Research.0) Realty IT Oil & Gas Construc Finance Pharma Auto Engg FMCG Metals Power Telecom Policy and broader interest rates have already increased by ~200bp.6 29. This is also corroborated by the slightly weakening trends in IIP growth as well. 2011 Strategy Exhibit 17: MoM annualised WPI inflation (%) 25. while Tata Steel has boosted the performance of the metals pack. Sensex EPS for FY2011E is expected to end with 21.262 in FY2012 and by 18. which. BFSI companies are estimated to contribute 20. Angel Research Moreover.4% CAGR in FY11-13E We expect Sensex EPS to grow by 16. which will eventually pass through manufactured goods as well in the form of wage inflation. A fall in the profit of the index-heavyweight Reliance implies that oil and gas companies would contribute negative 5. In comparison.0 4.0 10.9 16.9% to `1.0 Source: CSO.7 Other manufactured products 42.3 3-year CAGR CAGR 14. respectively.Preview 4QFY2011 Results Preview | April 4. in our view. after eliminating base effects. 3 and 5-year CAGR) Components Primary articles Food articles Non-food articles Minerals Fuel & power Weightage Weightage (%) 20.3%.488.6 4.0 Sep-10 Oct-10 Nov-10 Dec-10 Jan-11 Feb-11 WPI Inflation MoM Annualised We believe with interest rates having peaked and earnings growth outlook looking healthy.5 14.4 Electricity 3.7 5. metal and BFSI stocks. Sensex EPS growth would come in at 12% for FY2011E.6 5. Without contributions from either of these sectors. supply-constrained economy like India.9 0.1 9. industrial capex and housing. This plateauing of interest rates. metal and auto companies are expected to contribute 44.8 7. Sensex EPS to grow at a 17.5 3. Both these sectors have gained from improvements in Tata Group companies. aided by restrained fiscal spending and moderating inflation. The auto sector has benefited from a bounce back in the profitability of Tata Motors.2 17.6 5. considering that M3 growth is in any case well within the 17-18% comfort zone.4 6.7 3.0 4. Exhibit 18: WPI components (1. in the absence of any major new unanticipated negative development on the inflation front.4% CAGR over FY2011-13E.1 16. could be a peak in this cycle in the absence of huge forex inflows.0 (%) 50. as companies face competitive pressures.0 8.9 8.5% and 44.7 6.0 20. Source: CSO. viz. the current valuations of the Sensex represent a reasonably attractive level to invest. certain items such as food will exhibit structural 6-7% inflation.4%.7 Coal 2.6 13. incrementally as well.2 1. telecom and oil and gas stocks are the major drags on the growth in Sensex EPS. as well as due to higher costs on account of 3G network rollouts. implying a 17.3 4.1 7. The main drivers for Sensex EPS in FY2011E are auto.1 Mineral oils 9.5 NA 16.0 0.1 7.0 (50.8 16.0 6.3 1.8% to Sensex EPS growth. infrastructure.8 11.0 Food Products & beverages 11. Note: For FY2011E Refer to important Disclosures at the end of the report 6 .4 8.5 Manufactured products 65. Of the total increase in EPS in FY2011. At this point.1 14.7 Basic metals.8 10.0) (100. there seems to be increasing acceptance in policy circles that in a high-growth.1 5-year CAGR CAGR 12.0 100.

9%.5% of the increase in EPS.4% to Sensex EPS growth. IT and metal stocks. Exhibit 21: Contribution to Sensex EPS growth – FY13E 80.0 25.0 0. sectors such as telecom. Again.0 10. the metal sector is expected to contribute a much higher 24.9% to EPS growth. Infosys is expected to fare much better than the others in FY2012E. none of the sectors are expected to contribute negatively to Sensex EPS growth.0 15. power and FMCG are expected to underperform the others.9%. higher profits.5%.Preview 4QFY2011 Results Preview | April 4. telecom and FMCG stocks are expected to underperform compared to the others.0 20. profit growth is expected to be lower at 14. Net profit margin is also expected to decline to 11. Note: For FY2012E The story remains similar in FY2013E.5% to Sensex EPS growth over FY2011-13E. the primary growth drivers of Sensex EPS over FY2011-13E are expected to be BFSI. The oil and gas sector is expected to drive growth in Sensex sales and profit. to total Sensex EPS growth in FY2012E. 2011 Strategy In FY2012E. profits of none of the sectors are expected to decline in FY2012E.5%. However.9% in the corresponding period last year. Growth in profits of IT companies is expected to be driven by higher volumes. with 33% and 25% growth in its sales and profit. Both these companies would start getting additional profits in FY2013E from their new capacities coming on stream around that time. IT companies are expected to report 26. IT companies are expected to contribute 11. Ex-BFSI. The BFSI sector should continue to be the main driver of the EPS. the sector is expected to ride on strong performances by SBI and ICICI Bank. growth in Sensex sales and earnings is expected to be 16. Notably. mainly on account of strong 34% top-line growth in Reliance and substantial 41% profit growth in ONGC. we expect OPM to come in at 20. On the other hand. with IT and metal stocks also contributing reasonably well. respectively.0 0.0 Auto Engg IT Oil & Gas Metals Power FMCG Realty Construc Pharma Finance Telecom Profit Growth Contribution to increase in Sensex EPS Source: Angel Research. IT and metal companies are expected to contribute 13. Note: For FY2013E Overall. as it is expected to garner better price points. which would lead to lower provisioning and. The BFSI sector is expected to contribute 35.0 50. Ex-oil and gas. Strong performance by the BFSI sector highlights the underpenetration of financial services in India. IT. while profit growth is expected to Profit Growth Contribution to increase in Sensex EPS Source: Angel Research. We expect strong numbers to be posted by oil and gas. Refer to important Disclosures at the end of the report 7 . with the same sectors driving Sensex EPS growth. vis-à-vis 21. which are expected to contract by 92bp during the quarter.0 (%) 40.6% from 12. growth is expected to be primarily on the back of the BFSI sector. Sensex EPS is expected to grow by 10. down by 88bp yoy.9% and 13.5% yoy.2% growth in sales.8% in FY2012E.0 Oil & Gas FMCG Realty Auto Engg IT Construc Finance Pharma Metals Power Telecom 4QFY2011 Sensex earnings outlook We expect Sensex companies to maintain strong top-line growth momentum.7% over FY2011-13E. as the demand scenario remains robust for these companies. with projected growth of 23% yoy in sales.0 (%) 20. while contribution from the metal sector is estimated to be at 19. respectively. However. even though power. respectively. capital goods and BFSI sectors in 4QFY2011.0 5. contributing 30. IT companies are expected to contribute healthy 12.0 30.1% and 10. which would drive credit growth in the years to come. Overall.0 10. therefore. mainly on the back of lower operating margins. driven primarily by volumes. on the back of strong performance by Tata Steel and Hindalco.0 60. Exhibit 20: Contribution to Sensex EPS growth – FY12E 40. with the BFSI sector expected to contribute 32. Both the banks are expected to benefit from improvement in their asset quality. when Sensex EPS is expected to increase by 16.2%. primarily backed by higher volumes.0 30.2% to the overall increase in FY2013E. The combined contribution of all these sectors to Sensex EPS growth is expected to be 11.0 70.0 35.8% to overall growth in Sensex EPS during the period.3%. despite a margin contraction of 209bp yoy.

4% yoy growth in sales. construction and telecom sectors are expected to be the major underperformers during this quarter. Power companies are expected to post a 19% increase in sales. because of which profit is expected to increase by 15% yoy. numbers are much better for metal stocks. compared to 3QFY2011. Ex-BFSI. Auto stocks are expected to report just 9% yoy growth in profit. The telecom sector is expected to report a strong 37. as execution picks up in 4QFY2011. Metal companies are also expected to witness decent growth of 16% in the top line. profits are expected to decline by 41% yoy. despite a healthy 23% increase in sales. OPM is expected to expand to 21. Metal and telecom companies are expected to report a decline in profits. as these companies face stiff pressure on margins due to high input costs. Sales and profits are estimated to grow by 2% and 4% yoy. despite only a 16% top-line increase. The capital goods sector is expected to witness strong sales growth of 26%. while the increase in profits is expected to be a strong 26. Refer to important Disclosures at the end of the report 8 . Sequentially. profit growth in the Sensex is estimated at 16. resulting in bottom-line growth of 18%.2% from 20.5% yoy.8% yoy increase in the top line. with margins increasing by 140bp. mainly on the back of higher volumes. respectively. as these companies had considerable provisions in 4QFY2010. DLF is expected to witness a 430bp correction in its margin on account of lower realisations due to change in product mix. the BFSI sector's top line is expected to grow by 6%. with 12% top-line growth and 49% growth in the bottom line. In the construction sector. while high input costs are expected to result in margin compression and an 11% yoy drop in profits. mainly because of a decline in profits of Maruti Suzuki and Hero Honda. while profit is expected to increase by 8% qoq. We expect FMCG companies to post decent 16. Ex-telecom. However. Metals. BFSI companies are expected to report a 41% jump in net profit. Sequentially. while sales growth is expected to come in at strong 60% qoq. We expect Cipla to perform well. due to increased competition and higher costs on account of the 3G network rollout. while profit is set to increase by 8%. 2011 Strategy come in at 20. the top line is expected to grow by 5%. mainly on account of low base effect for ICICI Bank and SBI. we expect JP Associates to report a subdued performance. However. despite substantial top-line growth. margins are estimated to fall by 102bp yoy.7% yoy. while PAT is expected to grow by 15%. partially because of the inclusion of Zain's numbers in Airtel's accounts. respectively.8% yoy. Sequentially though. OPM is expected to expand by 522bp yoy. with sales and profits expected to rise by 9% and 29% qoq. growth in Sensex profit is expected to be 8% yoy. despite a 40% jump in the top line.4% in the corresponding period last year. Sequential numbers are expected to be even more attractive. with a substantial 85% increase in the bottom line.Preview 4QFY2011 Results Preview | April 4.

2 6.4 1.1 0.6 (21.5 Weightage (%) 1.181 253 1.0 8.570 11.5 (2.4 18.4 17.585 5.434 1.0 (16.710 1.8 22.0 1.501 19.6 16.079 3.6 1.163 7.896 35.0 1.348 Source: Angel Research.0) 26.7 20.9) (18.795 27.347 13.0 51.7 7.898 1.4 8.4 20.998 31.221 251 4.8 5.1) 3.9 2.994 1.9 0.3 10.5 20.7 18.6 (75. 2011 Strategy Exhibit 22: Quarterly earnings trend for Sensex companies (` Net Sales (` cr) Company Bajaj Auto Bharti Airtel BHEL Cipla DLF HDFC HDFCBK Hero Honda Hindalco HUL ICICIBK Infosys ITC Jindal Steel JP Associates L&T M&M Maruti Suzuki NTPC ONGC RCOM Reliance Infra RIL SBI Sterlite Tata Motors Tata Power Tata Steel TCS Wipro Total Sensex# # Profit (` Net Profit (` cr) % chg 23.318 1.1 32.2 4QFY2011E 630 1.0 19.8 53.255 4.2 17.216 5.8 48.006 1.478 2.365 681 530 2.4 10.983 294.6 20.867 1.0 17.2) 1.209 39.291 4QFY2010 529 2.670 13.1 18.9 28.325 1.1 66.7 4.2) 9.Preview 4QFY2011 Results Preview | April 4.691 9.835 19.1) (31.7 5.621 9.045 1.498 3.360 570 657 2.5 11.600 1.211 8.4 19.111 28.659 3.2 40.9 39.018 3.190 365.2 5.0) 11.9 100.8 2.0 3.028 963 244 1.448 1.3 32.0 0.201 % chg 19.225 1.2 22.522 1.926 5.4 8.1 3.397 16.139 17.9 0.880 269 488 1.336 1.8 8.433 45.796 1.8 34.3 1.254 5.9 14.183 3.4 1.732 16.7 28.093 16.290 10.115 1.5 14.531 6.3 24.7 (5.7 1.316 3.6 6.625 2.2 23.8 40.776 1.3 16.2) 5.587 4.0 21.931 1.747 1.5 0.5 (11.1 (20.3 1.162 13.248 231 2.073 16.3 3.1 2.5 38.504 7.5 15.680 2.8 12.2 12.934 5.467 4.5 3.0) 10.2 1.0 26.9 25.8 43.309 299 413 5.029 1.2) 1.2 3.2 0.3 3.333 3.945 1.2 7.0 4QFY2011E 4.1 (2.344 6.0 % Contribution to Sensex growth 1.749 13.5 (19.6 (0.944 5.910 181 426 926 837 599 659 386 1.7 5.4 2.4 0.607 194 1.2 2.7 3.3 1.644 57.7 2.7 12.002 4.473 2.5) 50.986 10.992 2.3 25.2 1.381 2.235 12.803 77.279 8.843 4.9 6.9 100.5 11.6 12.5) 64.7 18.9 18.435 4QFY2010 3.5 1.737 6.1 6. Note: Sensex sales and earnings growth based on free-float weightages Refer to important Disclosures at the end of the report 9 .054 3.110 473 731 455 1.011 4.6 3.2 0.175 3.230 7.

0 12.0 3.048 1.3 3.0 0.0 5.0 0.0 3.2 0.0 6.0 0.655 7.8 4.0 Stance Underweight Overweight Overweight Overweight Overweight Overweight Underweight Overweight Overweight Overweight Overweight Overweight Overweight Underweight Underweight Underweight Overweight Overweight Overweight Overweight Equalweight Overweight Overweight Underweight Overweight Overweight Overweight Overweight Underweight Overweight Overweight Underweight Underweight Overweight Equalweight Underweight Overweight Overweight Overweight Refer to important Disclosures at the end of the report 10 .0 3.6 1.237 101 108 2.0 3.7 4.5 0.0 7.113 2.5 4.Preview 4QFY2011 Results Preview | April 4.0 0.0 3.0 3.4 7.6 0.1 4.343 6.9 0.0 3.0 6.0 3.0 14.0 3.0 8.0 3.0 8.0 3.765 1.0 3.0 3.1 0.237 416 1.0 3.2 0.5 0.9 8. 2011 Angel Research Model Portfolio Sector Auto & Ancillaries JK Tyres BFSI SBI Axis Bank ICICI Bank HDFC Bank CRISIL Capital Goods & Infrastructure IVRCL Infra L&T LMW Nagarjuna Construction Cement FMCG ITC Hotels Taj GVK Media Jagran Prakashan Metals Tata Sponge Tata Steel Oil & Gas Reliance Industries Pharma Alembic Lupin Power Real Estate HDIL Software Infosys Mphasis TCS Telecom Others Greenply United Phosporus 196 150 270 198 3.479 1.0 26.0 0.291 3.274 176 242 73 415 104 560 1.0 2.0 0.616 94 133 Company CMP (`) Target Price (`) BSE-100 Weightage (%) 6.0 3.6 0.6 4.0 0.7 5.1 0.0 3.0 3.0 12.0 3.0 3.629 537 1.2 2.034 2.0 0.189 343 621 415 802 127 150 93 124 181 205 82 1.947 150 2.0 1.768 1.3 0.9 13.0 30.0 3.0 9.0 3.653 2.404 1.0 3.0 1.0 5.0 Angel Weightage (%) 3.0 12.0 12.0 3.405 2.2 0.0 0.183 3.0 9.3 7.0 5.

2011 4QFY2011 Sectoral Outlook Refer to important Disclosures at the end of the report 11 .Preview 4QFY2011 Results Preview | April 4.

Moreover. the growth rate tapered off slightly. respectively. For 4QFY2011. aided largely by ~21% yoy volume growth. as expected. increasing by 14-18% yoy. In addition. a benign finance environment and an increase in finance penetration and loan-to-value (LTV) ratio are the key factors responsible for the industry's growth. Further. which supported robust growth during the period. respectively. Rubber and lead prices also rose by ~62% and ~17% yoy. The underperformance was seen despite most of the auto majors reporting healthy volume numbers during the quarter. However. Prices of major raw materials such as steel. a CAGR of ~8. have a direct impact on ownership cost and freight operators' profitability and could moderately impact auto volume growth in the medium term. A swift revival in underlying vehicle sales volume.0%.5% yoy growth. commodity prices in general have witnessed an upward trend. during 4QFY2011. the Sensex 250 BSE Auto BSE_SENSEX 200 150 100 50 0 Apr-07 Sep-07 Mar-08 Sep-08 Mar-09 Sep-09 Mar-10 Sep-10 Mar-11 Source: Bloomberg. rising input cost pressures and higher product prices by manufacturers. it would not offset higher input costs completely. during the quarter. 2011 Automobile The robust demand trend witnessed in the domestic auto industry during 9MFY2011 (overall volumes up 29%) continued in 4QFY2011. we expect sales momentum to continue. Exide. cost-reduction initiatives and improved operating leverage are expected to dilute the impact of input cost inflation to a certain extent. the focus will continue to be on volume growth as nearterm volume growth is likely to moderate due to the high base effect of FY2011 and increased financing cost and fuel prices. Volume growth during the quarter was supported by positive consumer sentiment coupled with pre-Budget buying in anticipation of the likely increase in excise duty in the Union Budget 2011-12 and higher discounts offered by OEMs and dealers to clear their year-end inventory. Tata Motors and Bajaj Auto outperformed the auto index by 4. thus underperforming the Sensex by 4. major players in our auto universe are expected to register a ~200bp yoy decline in profitability. Petrol and diesel prices were hiked by `10. the government's policy of deregulating petrol prices to control fiscal deficit has led to a substantial increase in petrol prices since June 2010. For 4QFY2011.94/litre and `2. we expect operating margins of most auto companies to continue their downward trend on account of higher raw-material costs. We expect the operating margin for our auto universe to witness a significant ~250bp yoy and ~70bp qoq contraction for 4QFY2011. supported by sustained growth in the economy. we expect auto companies to post healthy net sales growth of ~22% yoy. we expect the CV sector to register a CAGR of ~10% over FY2011-13E. On the net profit front. easy availability of finance and new product launches. improvement in industrial and agricultural production and healthy freight availability. Among index heavyweights. respectively.2% decline for the Sensex.2% during 4QFY2011 versus a 5. The sentiments were negative mainly due to increased financing cost.5% over the next two years.7% and 3. growth has been relatively subdued in 4QFY2011 on account of the relatively high base of previous year. Maruti and M&M underperformed. aided by healthy consumer sentiment. steel and aluminum. respectively. ~15% and ~62% yoy. thereby increasing the cost of ownership for consumers. easy availability of finance and government thrust on infrastructure investment are expected to boost the growth momentum further.1% yoy growth from April 2010-February 2011. monetary tightening by the RBI has pushed interest rates up. fuel price and commodity price trend Financing plays an important role and industry trend suggests that there is a negative correlation between auto finance rates and auto volume growth. With positive traction in the GDP which is estimated to register . EBITDA margins continue to be under pressure For 4QFY2011. leading to a decline of ~5% yoy in profits.9%. with prices of key raw materials. Angel Research Commercial vehicles (CV) CV sales reported strong 32. fuel price hikes. However. the sector received a major relief as the finance minister left the excise duty structure unchanged in the Union Budget. while other heavyweights such as Hero Honda. mainly due to an Interest rate. healthy freight rates.3/litre in FY2011. Tata Motors recorded 12. While realisation for auto companies is expected to improve on account of superior sales mix and price increases. with companies reporting yoy volume growth of 13-27%. rising income levels.Preview 4QFY2011 Results Preview | April 4. However. recent price hikes and supply constraints due to unavailability of components and tyres. This should Refer to important Disclosures at the end of the report 12 . During 4QFY2011. As a result. However. while in the long run. aluminum and rubber witnessed average increases of ~17%. we expect CV demand to remain buoyant. Going ahead. Auto finance rates declined by 200-250bp in FY2010. Auto index underperforms the Sensex The auto index lost 9. Exhibit 1: Auto index vs.

589 6.350 968 312.0 44. Maruti lost ~120bp of its market share in the domestic A2 segment.4) 22.606 70. robust volume growth.9 64.929 2.7 19.821 466.932 870.668 836.937 891.036 241. was stuck in the midst of sluggish growth in the domestic market and a recession-hit global export market in FY2009.124 207.668 111.264 703. an overall increase in vehicle population (recorded a 10% CAGR over FY2000-10E) is expected to support consistent growth in replacement demand of auto parts and register a 7-8% CAGR over FY2011-13E.5% yoy increase in total volumes. aided by strong performance in the domestic market. while Bajaj Auto (BAL) reported 17.040 136.155 12.868 27.432 259 712.6 21.239 81.666 138. We believe though the substantial ownership base of two-wheelers results in reduced headroom for higher growth and increases dependence on replacement demand to sustain volumes. recovery of auto sales volume is likely to help the OEM segment to register a CAGR of 11-12% over the next two years. Vitara Domestic Exports M&M Domestic Auto Exports Domestic Tractor Exports 4QFY11 343.786 11.858 3.4 2.387.6 50.Quarterly volumes Segment Tata Motors M&HCV LCV Total CV Utility Vehicles Cars Total PV Exports (Inc Above ) ALL CV sales 4QFY11 236.1 17.965 309.6 836.1 (6. while the scooters segment reported impressive 45% growth. Wego and Pleasure.852.431 Source: Company. Hero Honda (HH) posted robust 22.685 167. Volkswagen. Moreover. M&M . domestic demand continues to sustain.951 167.2% yoy growth from April 2010-February 2011.973 712. Exports.382 42.2 21.365 27. inflation and hike in product prices. fuel injection pumps and tyres.8 92. During CY2010.098 Exports (Inc above ) 275.8 28.3 31.127.536 14. Despite concerns of increasing interest rates.662 82.691 96.807 12.387.006 102.859 FY2011 FY2011 FY2010 % chg 24.340 58.1 35.825 123. Angel Research Auto ancillaries to track the auto sector The auto ancillaries sector.130 27.618 25.926 25.7% yoy growth from April 2010-February 2011.399 30.718 22. but at a slightly modest pace.511. thereby escalating competition for the market leader Maruti.828 233.229 44.567 165.4) 34.3 1.633 9. During 4QFY2011.3% yoy increase in LCV volumes.282 FY2011 FY2011 FY2010 % chg 34.203.7 23. rural markets are likely to post better growth.2 3.4 3.461 11.5 27.6 8.914 286.6 1.1 18.3) 24.2 Source: Company.726 179.647 496.2 30.595 10.095 4QFY10 % chg 287. We estimate the PV segment to register a CAGR of ~12% during FY2011-13E. Micra and Figo.8 436.018.739 15.866 168.4 33.527 4QFY10 % chg 808.823.501 571.384 29.705 85.2% yoy growth in motorcycle volumes.444 4.264 306.271.513 28.9% yoy YTD in FY2011 as PV majors continue to focus on meeting strong demand in the domestic market.056 57. TVS .1 9. driven by robust performance in the A2 and C segments.056 5.884 340.402.414 41.536.679 4QFY10 % chg 210.4 3. HH.8 23.8 26.106 FY2010 % chg 642.790 147. Polo. we expect volume momentum in the PV segment to continue.523 14.030 149.471 1. Maruti registered a 19.7 Source:Company.Quarterly volumes Segment Bajaj Auto Motorcycles Scooters Total 2 Wheelers Three Wheelers Exhibit 2: TML. ALL .131 182.697 401.0 26.042 201.2 27. The dominant motorcycle segment posted strong 25% yoy growth.5 9.0 47.045 2.925 43.140 63.431 533. 4QFY11 948. revival of domestic auto volumes in FY2010 supported recovery of players during the period.731 1.868 20. respectively.015 1. with its current market share at 55. Thus.5 1.278 284.329 62.422 244.536 419.719 358.057 76.411 640. This is expected to help two-wheeler companies maintain their growth momentum and register a volume CAGR of ~11% over the next couple of years.717 39.8 31.Quarterly volumes Segment Maruti Suzuki MUV Gypsy.5 21. Growth of the Indian auto component industry is directly linked to the auto sector's growth and has more than 65% of its domestic sales to OEMs.285 1. General Motors.412 70. however.843 Hero Honda TVS Motors Motorcycles Scooters Mopeds Three-Wheelers Exports (Inc above ) 1.3 14.749 90.097 245.001 Total Passenger Cars 311.8 30.562 56.9 19.3 27. Nissan and Ford launched Beat.6% yoy growth in the domestic market in 4QFY2011. Angel Research Passenger vehicles (PV) PV volumes registered robust 23.749 866.105 2. who have started launching products for the Indian market. 2011 Automobile 18. Two-wheeler Healthy domestic demand and continued improvement in supply aided the two-wheeler segment to post robust 27. supported by positive consumer sentiment and new model launches.861 145.083 (11.887 27 4. riding on the strong performance of Pulsar and Discover.852 (99.929 234.575 472.186.076 263.8) (26. backed by the strength of its market reach and strong performance in the rural market.1 17.9 15.195 836. in the dominant A2 segment.6 5.989 82.049 127.2 19.1 17.806 15.066 70. Further.2 27.512 4. which depends on OEMs for growth. The shift in focus of the Indian auto component industry from the domestic market to exports has 13 Exhibit 3: Maruti. Exhibit 4: BAL.713 11.5 1.7%.600.0 70.0 35.772 218.1 30.676 17.265 212.0 FY2011 FY2011 803.9 24.018 2.9 44. As a result. Going ahead.046. Sales volumes to some extent were impacted by the shortage in supplies of key components – engines.525 34.266 590.282 214.Preview 4QFY2011 Results Preview | April 4.132.044 94.506.454.160 34. However.1 8.273 55. Angel Research Refer to important Disclosures at the end of the report . declined by 0.023 19.293 3. helped by good demand for Activa.1 52.3 5. low penetration and a low-cost manufacturing base have been attracting global auto majors to India.6 165.

Note: Price as on March 31.073 5. Angel Research.1 64.1 43.1 80.9 18.3) (57.9 rge Target (`) 421 155 1.2 4.4 20.4 11.4) 19. Accum. auto component players were finding it difficult to make future projections. as reflected by the substantial volume growth of 25% yoy and 27% yoy witnessed in FY2010 and YTD FY2011. Noticeably. driven by strong economic recovery.4 21. The economic slowdown has been adversely affecting vehicle sales in these markets in the last two years.3 FY12E 4. CVs and two-wheelers. export volumes are expected to recover in FY2012-13E. Among battery manufacturers.0 144.225 1.0 85. Exhibit 5: Quarterly estimates .2 10. Tata Motors@* 1.4 23.0 (` EPS (`) FY11E 4. & FY2011E-13E Yaresh Kothari Analyst . we expect the auto sector.8 25.808 1.1 9.6 1. leading to a ~58% yoy decline in profit.9 12.6 17.4 88.8 15.490 39.4 22.8 106. Over the longer term.8 24. We prefer stocks with attractive valuations and where strong fundamentals could deliver positive earnings surprises.2 % chg 4QFY11E % chg 4QFY11E (` (`) 64 1.4 146.8 11.3 (0. We expect Apollo Tyres to report a ~453bp yoy contraction in its operating margin.3 FY13E 14.8 629.4 53.0 14.0 19.5 11. Companies in the subsegments of the auto components sector (tyres.522 881 1.285 1.6 5.8 (0.6 (17.680 835 70 Exide Industries 143 Motherson Sumi* 214 Net Sales 4QFY11E 1.587 1.610 1.456 64 Accum.9 105.3 107. to register good growth in the domestic market and decent growth in the export market over FY2011-13E.7 96.139 9.4 2.9 273. aided by improved business environment for the sector.0 (30.1 8. we expect auto companies to report a marginal growth sequentially.3 114.3 201.1 1.3 90.023 81 Buy Neutral Acc.146 1.9 530.123 274 2. with larger share of revenue from replacement and domestic markets.1 15. respectively.9 P/E (x) FY12E 12.5 144. as two of their key markets.5 49.9 23.6 41.4 9.1 305. * Consolidated numbers. Tata Motors and M&M.8 16.0) (19.5 13. we prefer Maruti.1 7.4 FY13E 23.0 18.8) 3.9 102.5 10. we expect Exide to post modest ~9% yoy growth.3 128.2 681.7 7.2) 19.6 31.7 9. Note: Price as on March 31.2 49.0 7.5 19.2 1.6 (` EPS (`) % chg (17.4 15. % chg 4QFY11E % chg 4QFY11E Source: Company.9 14. Buy Neutral Buy Reco.4) 19. Thus. Most stocks have been positive in the last one year due to better visibility for the sector.1 9.3 16. 2011.0 14. as they are available at reasonable valuations. # December year ending. comparatively low penetration levels.3 11.5 Profit Net Profit 4QFY11E 71.3 16.3 FY11E 13. while the 4QFY2011 performance is likely to be robust on a yoy basis. which includes PVs.9) (57. However.6 1.248 Source: Company.4 16. Tata Among auto heavyweights. bearings and batteries).621 35.5 OPM (%) chg bp (18) (273) (511) 324 (432) (453) 17.0) (19. up ~62% yoy and ~18% qoq.0 (27. However. the industry is now recovering on better-than-expected revival in the domestic market and marginal improvement in exports.5 10.Yaresh Kothari Refer to important Disclosures at the end of the report 14 . as battery players continue to be affected by the slowdown in demand in the telecom segment.7 FY13E 5.0 15. Broadly.5 16.7 5.9 OPM (%) chg bp (287) (339) (612) (420) (139) 185 (80) 10. Core business performance of auto companies continues to improve.9 9.6) (4.1 (21.4) 42.2 101.Automobile Company Ashok Leyland Bajaj Auto@ Hero Honda Maruti M&M@ TVS Motors CMP (`) 57 1.7 13.0 27. with these markets now showing signs of revival.4 25.6 12. We estimate overall auto volumes to register a CAGR of 11-12% over the next couple of years.4) 42.2 8.5 13. Europe and US contribute around 66% to the sector's export revenue.1 21. have been less affected than those that supply exclusively to the overseas market. the sector is expected to deliver good yoy earnings performance in 4QFY2011 on improved volumes and better operating leverage.607. a healthy economic environment and favourable demographics supported by higher per capita income levels are likely to help auto companies in sustaining their top-line growth. 2011.9 6.2) 15.2 13.9 73. had been hit by poor demand and instability in final product prices.2 2.5 39. OEM and replacement.264 699 60 Net Sales 4QFY11E 3.7 472.9 FY12E 18.5 9.4 9.9 80.1 (21. which has affected their profitability.8 23.1 14.4 4.0 @ (` cr) P/E (x) FY11E 26.6 13.2 49.3 18.8 19. We remain positive on the long-term prospects of the Indian auto sector. @Adjusted for extraordinary items. EPS on consolidated basis Adjusted for FCCB interest after tax. In the auto ancillary space.0 FY12E 19.4 15.7 18. 2011 Automobile been apparent from the rise in its share in the overall turnover to 20% in FY2009 (11% in FY1999).1 16.0 14.670 6.2 166.Auto Ancillary Company CMP (`) Bharat Forge*@ 346 Bosch India# FAG Bearings# Apollo Tyres& 6. At the end of FY2009.6 7.671 4. (` cr) rge Target Reco.8) (` EPS (`) % chg 21.668 24.0 (` EPS (`) FY11E 12.4 344. we maintain our positive FA stance on FAG Bearings and Amara Raja Batteries.Preview 4QFY2011 Results Preview | April 4.9 FY13E 10.5 6.6) (4. which were trending downwards. Angel Research.1 153. Exide has increased its product prices by 5-8%. effective from February 2011.1 9. Outlook Going ahead.1 12. * Consolidated numbers Exhibit 6: Quarterly estimates .460 1. Tyre manufacturers continue to reel under the pressure of increasing natural rubber prices.5 11.8 11.2 4. Neutral Buy Buy Buy Accum.8 Profit Net Profit 4QFY11E 183.3 13.

PSU banks also showed good momentum on the back of finalisation of capital infusion into a few PSU banks.7% sequentially. Consequently.6%) continues to increase in the coming months due to the recent increase in interest rates. 2011 Banking For most of January 2011. An average rate hike of 50-150bp in the last quarter was supplemented by a ~100bp hike in the current quarter.0) (0. however. followed by BOI and Federal Bank.6 32.200) (1. the broader interest rates have already increased by a substantial 200-250bp.6 28. temporary pressures soon alleviated as average LAF borrowings dropped to `72.5) (1. Although advance tax outflows for the fourth quarter resulted in LAF borrowings touching `1.979cr.9) (2.2) (5.9 21. 2011) to more sustainable 18-20% levels. even as deposit The persistent tight liquidity situation and slower deposits growth that prevailed in the last quarter prompted many banks to raise their fixed deposit interest rates aggressively across maturities. Post the rate hikes on January 25. which prevailed in December 2010 eased slightly in January 2011. 2011.4%. Within our coverage universe. 2010. 2011.3 56. which may cool down credit growth from the current 23.9) (1. the Bankex was down 0.2 10.2) (6. to March 11. Exhibit 1: 4QFY2011 stock performance (%) Jammu and Kashmir Bank (J&KBK) Bank of India (BOI) Federal Bank (FEDBK) Axis Bank (AXSB) Corporation Bank (CRPBK) Union Bank of India (UNBK) Punjab National Bank (PNB) HDFC Bank (HDFCBK) Bankex Yes Bank (YESBK) State Bank of India (SBI) Indian Overseas Bank (IOB) ICICI Bank (ICICIBK) Oriental Bank of Commerce (OBC) South Indian Bank (SIB) Sensex Indian Bank (INDBK) UCO Bank (UCOBK) Dena Bank (DENABK) Source: Bloomberg.2 16.6) (5.6%.0 0.2 89.8) (4. Angel Research Returns (qoq) 12. respectively. J&K Bank gave the highest returns of 12. 2010.9 Liquidity concerns receding The liquidity tightness. the highest in 4QFY2011).400cr in December 2010. the overall credit-to-deposit ratio fell to 75.8 40. it outperformed the Sensex by 4. eventually leading to relative easing of liquidity pressures. Angel Research Interest rates at peak. In February. By the end of the quarter.000) Sep-10 Aug-10 Nov-10 Dec-10 Feb-11 Jul-10 Oct-10 Jan-11 Repo (-ve) / Reverse Repo (+ve) Source: RBI. a decline of 11.3% and 5. liquidity concerns further eased with average LAF borrowings falling to `74.9 32. a rise of 20.8% compared to the credit offtake over the same period last year. leading to underperformance of the BSE Bankex against the Sensex.1 32.7% at the start of 4QFY2011.6 33. banks have incrementally lent `92.3 (0. The deposit mobilisation over the period of consideration is `1. to March 11.0) (7. The Union Budget also turned out to be encouraging for the banking sector as the finance minister continued with reforms to increase the availability of funds to the private sector.200cr for the last week of the quarter. 2011. 2011.2 24. banking stocks were lacklustre on fears of further rate hikes owing to rising food inflation.9 20.6) (0. as far as broader interest rates are concerned.000cr during the second fortnight of January.700cr upto March 14. demand growth gaining momentum In the last couple of months. fell to 55.1) (0.2) (0.68.7 6.7 18.000cr compared to over `1.2% (as of March 11.600) (2. with gains of 6. As a result.854cr. Refer to important Disclosures at the end of the report Mar-11 15 .05.Preview 4QFY2011 Results Preview | April 4. we believe rates have peaked and banks are unlikely to change deposit rates until April at least. with government spending kicking in and deposit accretion by banks gaining momentum. The incremental credit-to-deposit ratio from December 31.0% in 3QFY2011.45.6 20. with average LAF borrowings at ~`91.6% sequentially.0% from 75.4 4.4 21.3 5.8 20.1 56.19.6) Returns (yoy) 28. with further hikes beyond April also appearing to be unlikely. Exhibit 2: Average LAF borrowings reduced during the quarter (` bn) 800 400 0 (400) (800) (1.7) (10.3% compared to the deposit mobilisation over the same period last year. liquidity started easing as evident from overnight borrowings from the RBI for the first fortnight of February averaging ~`74.400cr (as of March 17. From December 31. mobilisation (currently 16.300cr compared to `1.0% from 142.

60 9.25 8.0 3QFY11 (%) 8.25 8.4 8.25 8.40 8.75 9.50 8.3 9. However.60 8. there is lack of clarity regarding the treatment of pension liabilities for retired employees.3 Source: Company. mid-size banks.6 8.50 8. That said. Large banks better placed to sustain NIMs On account of the recent rise in deposit rates. Correspondingly. banks also raised lending rates by 50-100bp during the quarter.50 9.6 7. especially wholesale deposit rates. (qoq) 260 175 150 125 125 100 100 100 75 55 Provisioning for employee benefits The RBI has allowed PSU banks to amortise the liabilities arising out of second pension option for existing employees over a period of five years.3 9.600 2. our interaction with managements of few banks indicates that there is a strong possibility of banks being allowed to amortise pension costs related to retired employees too. However.25 8.50 9. 2011 Banking Exhibit 3: Peak retail FD rates in 1-3 years maturity bracket Bank AXSB BOI HDFCBK ICICIBK INDBK J&KBK CRPBK YESBK DENABK SBI SIB UCOBK IOB PNB OBC 4QFY11 (%) 9.00 9.50 8.35 9. while Canara Bank might have to provide a one-time provision of `100cr-150cr in 4QFY2011 for its retired employees. According to news articles.3 9. Angel Research Exhibit 4: Peak wholesale deposit rates Bank CENTBK VIJAYA ANDHBK ALLBK OBC BOI INDBK PNB IOB UNBK 4QFY11 (%) 9. more so in case of smaller banks.a. HDFC Bank and Axis Bank are better placed to sustain their NIMs going forward.15 3QFY11 (%) 7. Angel Research.00 7.25 9. Corporation Bank had the highest average base rate change (108bp) amongst banks under our coverage. larger banks with high CASA ratio and robust branch expansion such as SBI.7 7. any unexpected high pension expenditure related to retired employees reported by banks could act as a downside risk to our earnings estimates.300 925 280 Liabilty p.3 9.50 8.15 9.25 9.1 9.25 9.75 8.25 8. bp chg.50 9. over the next 4-6 quarters. Going forward.25 8. Although the RBI notification suggests that banks ought to make a one-off provision for liabilities related to retired employees in 4QFY2011.000 3.25 9.60 chg. assuming banks are allowed at least four quarters to amortise this liability. Union Bank could have to provide anything between `350cr-600cr in the quarter towards pension for its retired employees. (qoq) 100 100 100 100 100 100 85 85 75 75 75 75 65 65 50 15 To maintain their margins.0 chg.4 8.25 8.6 8. (qoq) 108 86 74 74 74 72 71 71 70 68 53 48 31 Exhibit 6: Expected pension liabilities Bank BOI PNB UNBK IOB UCOBK INDBK Expected Liabilty 4.3 9.25 8.50 8.* 800 720 480 260 185 56 Provisions Provisions 9MFY11 600 485 360 324 153 42 DENABK 9. ICICI Bank.25 8. bp chg.0 8. we have conservatively factored in estimated provisioning burdens on an approximate basis.50 9. bp chg.25 3QFY11 (%) 8.3 9.75 8.00 7.1 8. we expect rising retail and wholesale fixed deposit rates to lead to a substantial 40-60bp NIM compression for low-CASA. we expect NIMs to decline by 5-15bp in 4QFY2011.00 9.00 9.25 9. Note: * Assuming 5 years amortisation Refer to important Disclosures at the end of the report 16 .60 chg.3 9.5 9.6 7. a large part of NIM compression expected in FY2012 would be back-ended as the deposit cost increase lags the increase in yield on advances.6 8.00 9. Source: Company.25 9.00 9.25 9.6 8.50 10. Angel Research Source: Company.400 1.Preview 4QFY2011 Results Preview | April 4.6 8.25 8. UNBK 8.75 Source: Company.50 9. To account for the likelihood of banks reporting these expenses in the current quarter.6 8. Angel Research Exhibit 5: Average base rates Bank CRPBK UNBK UCOBK AXSB BOI OBC INDBK PNB IOB ICICIBK SBI HDFCBK 4QFY11 (%) 9.00 8.50 8.50 8.25 9.3 8.

we broadly expect asset quality to continue to show an improving trend.02 1. will help banks to meet Basel III norms The government’s capital infusion plans have already taken off.0 6. Syndicate Bank) or have already seen bulk of asset-quality pressures and will see an improvement going forward (such as Indian Overseas Bank).06 Exhibit 9: Capital infusion plans* Bank Capital Infusion (` cr) 1. Angel Research G-sec yields remain firm through 4QFY2011 The benchmark 10-year G-sec bond yield has more or less remained firm at ~8% through 4QFY2011. in the mid-cap space.0 65. which is evident from the fact that the net NPA ratio for the entire sector has been on a declining trend since 3QFY2010 (coming off from a peak of 1.8 Post GoI (%) 58.06 1.1 7. we would be also watchful of incremental asset-quality pressures.9 65. and overall market borrowings by the government unlikely to be more than 14-15% higher than in FY2011. Angel Research. The relaxation of one quarter is likely to lessen the spurt in slippages that would have been witnessed in 4QFY2011 for PSU banks that have not yet already switched over to CBS-based systems and will give them additional time to cleanse the data and avoid any inconsistencies while shifting to the new platform. Exhibit 8: G-sec yields remain firm across entire yield curve (%) 8. Note: *For companies under coverage Refer to important Disclosures at the end of the report 10-yr Gsec 3-yr Gsec 5-yr Gsec 7-yr Gsec 17 .2 57.90 3QFY09 4QFY09 1QFY10 2QFY10 3QFY10 4QFY10 1QFY11 2QFY11 3QFY11 Source: Company.054 1.07 1.1 61.05 1.0 0. OBC IOB BOI UCOBK UNBK DENA CPRBK PNB Source: Company.08 1.6 Pre GoI (%) 51. with increasing amount of insurance sector flows being directed towards debt rather than equity.99 1. In case of larger banks.5 7. Only 12 out of the 39 listed banks registered an increase in net NPA ratio in 3QFY2011 v/s 23 banks witnessing an increase in 3QFY2010. Exhibit 7: Net NPA ratio on a declining trend 1. the lowest in the entire quarter. while OBC is the biggest recipient under our coverage universe with approved capital infusion of `1. This will ensure tier-I CRAR of all public sector banks in excess of 8% and raise the government’s holding in all public sector banks to ~58%. no significant MTM losses are expected to be reported by banks under our coverage for 4QFY2011.4 7. Considering that interest rates have gone up by ~200bp.2 57.0 58.4 51.15 1.9 68.2 8. The government has extended the mandated timeline for implementing the CBS-based NPA recognition system from 4QFY2011 to 1QFY2012 for accounts up to `50lakh.740 1. With interest rates being stable across the entire yield curve.3 8.1 7.461cr (6.5 6. Bank of Baroda is the biggest beneficiary with a capital infusion of `2. G-sec yields are unlikely to have an upward bias in FY2012E. After softening by ~8bp to 7.5 58.00 0. although there was some temporary easing post the Union Budget when the finance minister by refraining from having any major populist measure brought down the targeted fiscal deficit estimate to 4.1 57.20 1.0 7. Net NPA ratio of private banks halved from 1. Moreover.93%.Preview 4QFY2011 Results Preview | April 4. with 15 PSU banks receiving their approved capital during the quarter. Angel Research Capital infusion plans underway.97 0.5%).6%.6 55. the 10-year G-sec bond yield climbed back to the pre-Budget levels of ~8%.010 940 682 539 309 182 Tier-I Pre Tier-I CAR (%) 9.10 1.0 7.67% in 3QFY2011.740cr (also the highest equity dilution at 16. Accordingly.5 8. 2011 Banking Asset quality improves further The asset quality of the entire sector especially private banks continued to improve in 3QFY2011.2 64.15% in 3QFY2010 to 0.8% equity dilution). we prefer banks that have either been conservative in the last couple of years (for instance.27% in 3QFY2010 to 0.1 58.0 12-month T-bill 31-Mar-11 31-Dec-10 30-Sep-10 Source: Bloomberg.99% in 3QFY2011).5 7.5 63.

Preview 4QFY2011 Results Preview | April 4.7 FY12E 530. the RBI is expected to outline the process of entry of foreign banks in India.220 2. 541 Accum.8 6.3 536.0 7.7 1.6 622.5 400.6 2.0 1.197 13.6 6.8 5.2 1.6 2.5 13.5 20.3 0. 120 269 170 Buy Buy Buy 930 Accum.9 929. bringing the budgeted level of fiscal deficit for FY2012 down to 4.2 14. The RBI in the near future is also expected to release a discussion paper regarding the deregulation of savings rate. though any negative surprises on this front would be a downside risk for the sector.9 16.4 44.8 178. we expect inflation to cool down to 5-7%.3 148. bringing the affairs of five SBI subsidiaries directly under the government's supervision.0 13.4 541.1 1. we like Corporation Bank.5 7.2 1.9 15.2 300.8 .4 1.0 18.4 25.4 340.144 3.1 120.7 61. which provides means for SBI to enhance its capital base. Having already published a discussion paper regarding the same.1 1.1 1.1 1.7 2.6 6.7 109.2 137.7 15.9 22.3 1.7 26.7 637.9 2.4 1.8 51.9 0.5 6.7 8.655 Accum.0 2.1 8. 2. That said.0 158.8 220. which lacked momentum till 3QFY2011. 433 Accum.5 9. in light of the ~200bp increase in interest rates.9 0. Accordingly.7 5.2 5.7 20.765 Buy 451 Accum. Buy Buy 1.1 124. and ICICI Bank and Axis Bank are our top picks in this space.0 8.3 74. Outlook The RBI revised the key policy rates eight times during FY2011 to battle inflation. is also expected to make the process of merger of the subsidiary banks with SBI smoother.1 17.4 1.7 6.4 2.3 342.473 459 1.7 6.522 77 181 745 338 156 486 247 138 359 1.0 5.2 8.3 21.0 138.7 9. with receding liquidity concerns.1 103.6 FY11E 83.3 40.9 475.7 11.5 737.691 1.6 23. Buy 3.1 2.3 74.8 65.9 12.0 14. 701 Accum.1 161.5 556.1 Profit Net Profit 4QFY11E 995 156 1.9 1.9 (5.4 137.4 717.8 6.5 4.291 4.1 1.3 P/E (x) FY12E 13. we continue to like large banks with strong deposit franchises.2 6.0 21.1 33.022 587 3.9 6. which aligns the ability of shareholders to exert voting rights in line with their ownership as compared to previous limitations of 1% in state-owned banks and 10% in private banks.9 46. We expect credit growth to remain at 19-20% over FY2012-13.0 1.3 335. consistent with an expected GDP growth rate of 8%.2 5.9 0.343 1.8 1. indicating strength of the underlying demand.123.934 4.5 1. Exhibit 10: Quarterly estimates Company CMP (`) AXSB FEDBK HDFCBK ICICIBK SIB YESBK BOI CRPBK DENABK INDBK IOB J&KBK OBC PNB SBI UCOBK UNBK 1.4 4. The banking amendment bill.Vaibhav Agrawal/ Shrinivas Bhutda / Varun Varma Refer to important Disclosures at the end of the report 18 .3 6.404 419 2.163 252 493 2.6 2.115 359 621 % chg 30.7 BVPS (` Adj BVPS (`) FY11E 459. 2011 Banking Regulatory events during 4QFY2011 Introduction of new banking licenses to improve financial inclusion was on the horizon since last year.0 44.4 1.768 107 347 Operating Income 4QFY11E 3. The bill.3 95. The Union Budget was also encouraging for the banking sector as the finance minister continued with the reforms to increase availability of funds to the private sector.2 402 .113 23 310 478 638 104 232 144 875 387 1.0 1.6 8.547.4 895. 2011 Vaibhav Agrawal/ l/Shrinivas Bhutda Varm arma Analyst .0 58.3 15.6 752.2 56.6 113.2 375.2 71.8 15.4 1.4 2.3 33.4 20.2 2.4 FY13E 130.6 1.6 9. In the mid-cap space.1 Target (`) (` ( ` cr) Reco.4 1.4 11.7 244. picked up during 4QFY2011 on the back of a further hike of ~100bp in fixed deposit rates.8 186.0 14. Note: Price as on March 31.2 1.Neutral 303.0 7.0 19.0 41.9 5.6 22.388 Accum.4 6.1 1.316 1.713 1. The parliament in the current quarter also cleared the State Bank of India (SBI) Amendment Bill. Angel Research.4 283.1 469. Deposit mobilisation.1 5.7 52.8 66.3 21.1 142.5 19.8 8.0 1.2 1.5 27. The peaking of interest rates coupled with stabilising asset quality augurs well for the entire banking sector.3 6.2 5.0 402.3 18.4 1.4) 4.7 19.1 3. In addition.0 5.1 0.6 51.9 6.155 % chg 26.3 24. has been cleared by the parliament.298 2.5 110.6%.6 11. we believe incremental margin and asset-quality pressures could lead to a deteriorating earnings trend for banks that have aggressively relied on wholesale deposits to fund high credit growth.4 14.0 21.8 3. Indian Bank.1 287.5 93.5 75.4 624.8 152.8 FY13E 630.2 3.7 50.9 9. Further.8 6.0 66.8 2.4 5.479 1.8 Source: Company. While the broader interest rates have also increased by ~200bp.7 45.1 16.3 8. 2.1 109.4 20.7 1.9 501.6 20.9 30. The finance minister also refrained from announcing any major populist measures.3 101.405 1.8 15.3 126.0 0.0 1.2 1. Going forward.2 1.7 183.2 64. we believe interest rates have peaked.0 33. credit demand during this period sustained at above 20% levels.4 130.4 85. 1.110 1.110 619 1.4 99.7 8.2 FY11E 16.1 98.2 32. the RBI is expected to come out with guidelines for eligibility of awarding these licenses in the next few weeks. In this space.2 1.2 256.3 2.6 822.7 23.0 105.5 2.7 237.Neutral 343 Accum.8 P/ABV P/ABV (x) FY13E FY11E FY12E FY13E 10. Indian Overseas Bank and Syndicate Bank.8 200.3 2.8 0.6 141.7 (` EPS (`) FY12E 103.9 455.322. we prefer banks that have either already seen bulk of the asset-quality pressures or have been relatively conservative in the past couple of years.9 29.

2 9.3) (12. Angel Research Major losers during the quarter were BGR Energy and Jyoti Structures. the stock was affected in 4QFY2011 due to poor order intake and low earnings visibility going forward.4QFY2011 Abs. which would enable the company to substantially reduce its interest cost going forward.0 10.5 5.1) (39.0 5.2) (30.0 10.2% fall in the Sensex.0 2.1% as compared to the 5. The deceleration has come on the back of contraction in the manufacturing sector as a whole. Jyoti Structures successfully raised `123cr through 7% NCD.0 30.5 7.6) (10.0) Deterioration in the macro environment. valuations of front-line stocks in the CG index continued to trade at a premium to the Sensex. Thermax Source: C-line.0 (10.6) (5.2) (14. IIP numbers for November 2010-January 2011 have consistently drifted downwards and have settled at sub-4%. delays in land acquisition and environmental clearances also negatively affected the CG sector. before marginally recovering in March 2011. In addition.9) (34.4) (34.0) 1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 Source: C-line.1) (6.1) (21.8 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011E Source: CMIE. declining 14. rising commodity prices over the past few quarters are likely to affect profit margins of CG companies.2) (14.5 8.5 17.6 9. We believe the administered currency regime.0 0. Besides.7) 3. Domestic power equipment manufacturers such as BHEL and L&T have been losing bulk of the orders to their Chinese counterparts.6 (6. 2011 Capital Goods The capital goods (CG) index was the major loser during 4QFY2011.3 0.8) (11. especially from China.0) (20.Preview 4QFY2011 Results Preview | April 4. in absolute terms. despite reporting poor results for 4QCY2010 and reduced order intake for CY2010. which declined by 34.6%.8 (18.0 0. Angel Research (5. Lower-than-expected IIP growth coupled with the continuing decline in CG production over the past few months adversely affected CG stocks during the quarter.7) (7. ABB gained 0.0 8.8) (9. In addition to declining IIP numbers. various private sector power developers had placed orders worth over US $12bn to various Chinese power equipment companies. In contrast.1%.8 8.1) (0.6 20. Valuations corrected significantly during the first two months of the quarter. Angel Research Exhibit 2: CG index: Relative returns to the Sensex 60. the fall in new order bookings coupled with hardening interest rates.9% reported in 1HFY2011.0 6. CG stocks .3 8. The overall decline in industrial growth is likely to reduce the GDP growth rate for 2HFY2011 to less than 8.3% and 18. CG production for December 2010 and January 2011 dipped by 9. delays in environment approvals.8 (%) 9. Returns (%) BSE Sensex BSE Cap Goods ABB Areva T&D BHEL BGR Energy Sys.6%. hardening interest rates causing the cost of capital to remain high. which contributes ~80% to the IIP reported ~ 3% growth. the power transmission and distribution (T&D) segment has also seen serious competition from Chinese and Korean majors. negative growth during the same period.3% and 39.0 23. viz.4 1. less than 1/4th their pace a year ago.5 8.0 4. while CG production reported . coal linkages and land acquisition. Despite underperforming the broad-based Sensex for a major portion of the quarter. we expect various CG majors to miss the order inflow guidance for FY2011.1) (4.0 50.6 (23. The Indian CG sector continues to be negatively impacted by increasing competition.0 40. has deferred order finalisation. Though BGR Energy reported robust results for 3QFY2011. Exhibit 1: Sensex vs.4 3. respectively.00 (9.1) 0. Macros signal slowdown After reporting strong double-digit growth during the first half of FY2011.2) (29. During the quarter. Going forward. Refer to important Disclosures at the end of the report 4Q11 2012E . respectively. During 3QFY2011. 19 (%) (9.5 48.1) 6.0) Exhibit 3: GDP growth to bounce back 12. cheaper finance and the favourable duty structure under which Chinese companies operate have enabled them to place their products in Indian markets at lower prices.3) Relative to Sensex (%) 0.0 4. Crompton Greaves Jyoti Structures K E C Intl.5 9. These orders were placed when the domestic power equipment industry was in the midst of expanding capacities to meet the growing demand.0) (25.0) (16.6) (6. The manufacturing sector.

500kV and 220kV. Zurich.000MVA. The transformers of capacity 1. Angel Research Exhibit 7: Intermediate goods component growth 30 23 16 (%) 9 2 (5) Oct-08 Oct-09 Apr-09 Jan-09 Apr-08 Jan-08 Oct-10 Apr-10 Jan-10 Jan-11 KEC International During the quarter. Areva T&D During the quarter. 7 4 1 Oct-08 Oct-09 Apr-08 Apr-09 Jan-08 Jan-09 Jan-10 Oct-10 Apr-10 Jan-11 Jul-09 Jul-09 Jul-10 (2) Source: Bloomberg. Areva T&D commissioned India's first indigenously developed 765kV interconnecting transformer bay and the Unnao line bay consisting of 765kV transformers. 6000MW ultrahigh voltage multi-terminal DC transmission link. ABS Global Industries and Services Ltd. 765/400/33 kV (forming part of Lanco Infratech's 1. 2011 Capital Goods Exhibit 4: IIP growth 18 15 12 (%) Key developments ABB ABB Group. The acquisition is expected to generate additional revenue of approximately `250cr on a full-year basis. (ABBGISL). BHEL together with ABB Sweden was awarded the world's first 800kV. KEC International received substation orders of `980cr from Kazakhstan Electricity Grid Operating Company (KEGOC) for the execution of 38 substations spread across the Northeast and South of Kazakhstan. 220kV and 110kV. (WBPDCL).220cr mega contract for installing two 500MW thermal units for the Sagardighi Thermal Power Project Stage-II by West Bengal Power Development Corporation Ltd.445cr to BHEL for the supply and installation of the main plant package for its power project in Andhra Pradesh. valued at US $436mn. has been selected by PGCIL to deliver an ultrahigh voltage transmission system. The parent company is expected to pass on ~15% of the order value to its Indian subsidiary. Zurich. current transformers and other equipment. Further. manufactured and tested at AREVA T&D India's power transformer plant in Vadodara. worth about US $900mn. circuit breakers. for a consideration of `400cr. 9 6 3 0 Oct-08 Oct-09 Oct-09 Jul-09 Apr-08 Jul-09 Apr-09 Jan-10 Jul-10 Apr-10 Jan-09 Jan-11 Jan-08 Source: Bloomberg. Angel Research Refer to important Disclosures at the end of the report 20 . The first order is for 21 substations of voltage levels of 1150kV. which will deliver the remainder of the project (worth more than US $1. APGENCO also placed a major order worth `1.590cr. Angel Research Exhibit 6: Basic goods component growth 16 13 10 (%) BHEL BHEL received the `3. The second order is for 17 substations of voltage levels of 500kV. ABB Ltd. viz. has approved the proposal to acquire the operating business of the wholly owned Indian subsidiary of ABB Group. Angel Research Exhibit 5: CG component growth 70 55 40 (%) 25 10 (5) (20) Oct-08 Oct-09 Apr-08 Apr-09 Jan-08 Jan-09 Oct-10 Jan-10 Apr-10 Jan-11 Jul-09 Jul-09 Jul-10 Source: Bloomberg. The company has been chosen to execute the Northeast Agra transmission project along with BHEL. BHEL's share of the order is worth ~`1.1bn) over the next 48 months. BHEL has also bagged the single-largest export order for a gas turbine-based power plant from Yemen.Preview 4QFY2011 Results Preview | April 4. as a slump sale on a going concern basis.200MW Anpara-C Thermal Power Plant) were designed. (12) Jul-09 Jul-09 Jul-10 Source: Bloomberg.

9 FY11E 3. slightly higher than our FY2011 estimate of `40. In such a scenario.5 11. we expect work orders for setting up transmission facilities to be released over the next 3-4 months.9) 10. would be `369cr.2 7. we believe most companies in our CG universe are presently trading at premium valuations.2 31.8 19.8 3. the total proceeds from the above issue.1 10.0 5. BGR Energy and KEC International are expected to report a slight improvement in margins to 11.7 8. After adjusting for the new accounting policy.5 FY13E 27.Preview 4QFY2011 Results Preview | April 4.8 3.8 41. Greav 273 Kec Intl.0 38. 2011 Capital Goods Jyoti Structures Jyoti Structures has completed the allotment of non-convertible debentures (NCDs) and detachable warrants to finance its working capital requirements.8 19. hardening interest rates.9 10.880cr.8 2.0 7.995cr.6 5.8 153. Foreign companies can still enter into joint ventures with local manufacturers and supply equipment manufactured at Indian facilities. BGR Energy is expected to report a decline of 10%. the company would receive `123cr from the issue of NCDs.8 15.2 7.021cr. KEC International and Jyoti Structures are expected to benefit from the capex plans of PGCIL and other state utilities. we expect the company to witness margin contraction of 234bp to 10. Almost all companies in our CG universe are highly dependent on the generation and T&D segments of the power sector. However.3 30.2 13.7 141.6 17. Note: Price as on March 31. we expect ABB and Areva to report steady top-line growth of 15% and 20%. BHEL has reported provisional figures for FY2011 with top line and bottom line of `43. The generation segment has attracted increasing domestic competition in addition to Chinese imports. mainly on account of high base. Crompton Greaves is likely to post a 190bp margin contraction. In the transmission segment.8 16. Though Jyoti Structures is likely to post 28% top-line growth.8 6.9 50. the company's top line stands at `40. including the conversion of warrants.3 19. In the T&D segment. Angel Research.9 158.8 19.9 1.570 703 1.178. Jyoti Structures and Thermax are expected to post strong growth of 28% and 25% yoy.771 1. while Crompton Greaves is expected to witness growth of 11%. * December year ending Analyst .9 (` EPS (`) FY12E 23.4 10.234cr.3 2. Post the recent spate of equipment orders placed with Chinese companies.3 14. Jyoti Structures Thermax 82 81 602 Source: Company. with the government mandating domestic manufacturing to be a pre-requisite to bid for NTPC and PGCIL tenders.061 477 Net Sales 1.7 28.3% and 10.3 24.3 58. we prefer a stock-specific approach. On the operating front.7 11.5 14. BGR Energy and Jyoti Structures are among our preferred picks.0 20.6 9.5 84.517 15.4 2. respectively. our 4QFY2011 top line and bottom line estimates are revised to `19. However. KEC International is expected to maintain steady top-line growth of 16%.8 10.Hemang Thaker 21 Refer to important Disclosures at the end of the report . With increasing number of power projects likely to be commissioned over the next couple of years. The warrants would have to be exercised within 18 months from the date of allotment during the periods designated for the conversion.5 15.5 FY13E 29.7 (9.1) 14.8 (28. companies such as ABB and Areva T&D have consistently lost ground to low-price imports from China and Korea.9 (` EPS (`) % chg 836.2) (19.178.336 1. especially by PGCIL as the recent FPO proceeds are likely to be utilised for setting up transmission assets.1 22.6) 14. 2011.9 16.3 Crompt.6 9. Exhibit 8: Quarterly estimates Company ABB* Areva* BHEL BGR CMP 797 247 2.3%.8 10.2) (9.6 arg Target (` (`) 595 700 330 115 110 Sell Neutral Neutral Buy Buy Buy Buy Neutral Reco. we expect other private sector power projects to follow suit. In addition. similar restrictions do not apply to private sector projects. The above NCDs are to be redeemed at the end of 15 months from the date of allotment. In line with the provisional figures. ( ` cr) OPM (%) 6.8%. On the valuation front.496 2.336cr and `2.6 25.3 1.3 10.6 13. we expect the flow of imports to temporarily slow down.4 12. which can place direct orders with foreign companies.7 13.451cr and `6.7 499 656 10 71 (191) 49 (234) (130) Profit Net Profit 62 836.1 10. respectively.0 7.697 932 19.5 8. offering meager upside from current levels. Assuming full conversion.8 13. thereby benefitting domestic companies. respectively. Crompton Greaves.5 (`) 4QFY11E % chg 4QFY11E 44 1.7 12. we expect companies in our CG universe to maintain margins. KEC International.0 42. Excluding the conversion of warrants.8 (28.880 78 245 72 30 106 50.0 20.7 8.6 49.8 14. higher inflation and elevated crude prices are the downside risks to industrial and GDP growth.4 21.8 P/E (x) FY12E 33. respectively. Outlook The slowdown in IIP numbers during the past few months indicates early signs of a possible slowdown in industrial growth.4 4.6 36.2 FY11E 267. despite higher commodity prices.7 9. chg bp 4QFY11E % chg 4QFY11E 4QFY2011 expectations We expect companies in our CG universe to post cumulative top-line growth of 14% yoy on the back of higher execution.5 12.

8 4. Exhibit 2: Cement dispatches across players (mt) Company Jan-Feb Jan-Feb 2011 ACC Ambuja UltraTech Jaiprakash Asso. Post budget cement players have increased cement prices on account of the hike in excise duty.3 6. Growth in dispatches was aided by the late pick-up in demand post the cessation of monsoons in the southern region.0 (16.7 2.2 1.0 All-India capacity to increase by 28mt in FY2011 In FY2010.1% yoy to 3. cement manufacturers hiked prices by `6-8/bag across the country to pass on the hike in excise duty due to announcement of the new duty structure in the Union Budget. utilisation levels are expected to be ~78%.Preview 4QFY2011 Results Preview | April 4. Overall.6 3. 2011 Cement During January and February 2011.7) (1. Similarly.7 YoY chg(%) chg(%) 11.0 1. ACC reported 11.6 2. which is ~12% above 3QFY2011 average prices.5) (0. The country’s cement capacity is expected to increase further by 18mtpa in FY2012E. Refer to important Disclosures at the end of the report 22 .3 Union Budget 2011-12 – Neutral for the cement sector The Union Budget 2011-12 is expected to have a neutral impact on the cement sector.0 8.8mn tonnes (mt) on the back of substantial capacity addition. Ambuja Cements' dispatches grew by modest 5.5 5.7) 6.0 18.1 3.6 0.3 14.0 10. Angel Research Capacity utilisation During 4QFY2011(Upto February 2011). Price situation Improved demand across the country since February 2011 resulted in a surge in cement prices. Industry 4.5 2.3 0.05mt.8 (2. Demand improved in the west as well due to improvement in availability of sand.6mt.8 1. all-India capacity utilisation picked up slightly.5 3. the country's cement capacity is expected to increase by 28mt and touch 295mt. increasing to 79% from 76% in 3QFY2011.9% yoy growth in dispatches to 4. as per the new tax regime.8 1. all-India cement capacity stood at 267mtpa.6 6.1 1.9 5.7 0. which is likely to have an impact of `2-3/bag for cement sold above `190. Exhibit 1: Monthly dispatch trend (11MFY2011) 20.6) April June August September November October December May January February July (5. aided by higher capacity. Further.8 Jan-Feb Jan-Feb 2010 3. FY2007 FY2006 FY2005 FY2004 0 4 8 7 100 200 300 (mtpa) 400 Year -end Capacity Additions during the year Source: CMA. (%) 7.8 27. posting a 27. cement dispatches grew by 3.0 15.5/bag for cement sold below `190. on the back of low demand and new capacities coming on stream. all-India cement prices are trading at `270/bag. In FY2011. Currently.4 6. in FY2011.8 1. The most important budget announcement concerning the cement sector pertained to changes in the excise duty structure. the impact is higher by `4. Angel Research Performance of top players During January and February 2011. construction activities picked up in the northern region in February after the cold weather came to an end. Jaiprakash Associates continued to remain the top performer with respect to growth in dispatches. India Cem Madras Cem Shree Cem Dalmia Cem Source: Company.0 0.0) Exhibit 3: All-India capacity addition FY2012E FY2011E FY2010 FY2009 FY2008 313 295 267 219 198 167 158 154 146 18 28 48 21 31 9 Source: Industry.8 2.2 1.1% yoy.3% yoy jump in sales volumes to 2.

Preview 4QFY2011 Results Preview | April 4, 2011

Cement
Exhibit 4: Union Budget 2011-12 – Major announcements for the sector Announcement
Excise duty on cement with retail sale price exceeding `190/bag has been changed to 10% ad valorem + `160/mt from 10% on the retail sale price. Excise duty on sale price below `190/bag has been changed to 10% on ad valorem basis + `80/mt from `290/mt. Duty on clinker has been changed from `375/tonne to 10% ad valorem + `200/mt. Basic customs duty on raw materials such as pet coke and gypsum reduced to 2.5% from 5%.

Impact
As per the earlier tax regime, cement companies paid excise duty on retail sale. Under the new tax regime, excise duty would be calculated on the retail selling price less the dealers' commission, VAT and excise duty. The change in duty structure on cement is likely to have an impact of ` 2-3/bag for cement sold above `190, but the impact will be higher by `4.5/bag for cement sold below `190 as per the new tax regime. Post the announcement, players have hiked cement prices. Reduction in customs duty will be neutral for the sector as only few companies like Shree Cements, JK Lakshmi Cements and UltraTech Cement have their plants based on pet coke. Reduction in duty on gypsum will have a marginal positive impact of `2-3/mt on the cement produced. Although the Union Budget was silent in addressing the cement industry’s demands, increased allocation for infrastructure and housing incentives are expected to improve cement demand.

An allocation of `2,14,000cr has been earmarked for infrastructure in 2011-12, an increase of 23.3% over 2010-11 and accounting for 48.5% of the total budgetary allocation. To boost infrastructure development, tax-free bonds of `30,000cr have been proposed to be issued by the government undertakings during 2011-12.
Source: Budget Document, Angel Research

Global coal prices surge
Indian cement manufacturers are highly dependent on imported coal due to relatively low coal linkages within India. The cement industry gets ~45% of its requirement from domestic linkage coal, while the remaining is procured from global markets and the domestic open market. Global spot coal prices were substantially higher on a yoy basis during the quarter. Average prices of New Castle Mckloksey 6,700kc coal stood at ~US $129/tonne in 4QFY2011, as against US $95/tonne in

4QFY2010. Coal cost has surged by ~20% over the last three months after the floods in Australia in December 2010, which disrupted coal exports from the country. The increase in coal prices is expected to result in higher power costs for cement manufacturers during the quarter, which would considerably impact margins. Hike in coal prices by CIL to hurt cement players During the quarter, Coal India (CIL) selectively raised prices of coal by a huge 30% for sectors whose products command market-driven prices. The price hike included the cement sector, as cement prices are market driven. Consequent to the substantial increase in coal prices, power and fuel costs of cement manufacturers are expected to increase, in turn negatively impacting their operating margins.

Exhibit 5: New Castle Mckloskey coal prices
250 200

(US$/tonne)

150 100 50 0 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11

Cement stocks - Performance on the bourses
During 4QFY2011, large-cap cement stocks in our coverage universe outperformed the Sensex, which lost 5.2% during the quarter. UltraTech Cement gained 4.8% and Ambuja Cements rose by 2.8% during the quarter.

Source: Bloomberg, Angel Research

Refer to important Disclosures at the end of the report

23

Preview 4QFY2011 Results Preview | April 4, 2011

Cement
Exhibit 6: Sensex vs. cement stocks - 4QFY2011
Abs. Returns (%) Sensex ACC Ambuja Cem. India Cem. JK Lakshmi Madras Cem. UltraTech Cem. Source: BSE, Angel Research (5.2) (0.1) 2.8 (11.5) (7.2) (4.9) 4.8 Relative to Sensex (%) 5.1 8.0 (6.3) (2.0) 0.3 10.0

Operating margins to decline Operating margins of most pure cement players are expected to decline on a yoy basis due to increased power and fuel costs. However, India Cements and Madras Cements are expected to record a margin increase of 375bp and 474bp yoy, aided by higher cement prices in the south. Exhibit 8: 4QFY2011E OPM performance
Company (%) ACC* Ambuja* India Cements JK Lakshmi Madras Cements UltraTech^ 4QFY11E 19.6 19.8 17.7 11.0 26.2 20.5 4QFY10 30.7 29.7 14.0 23.5 21.5 25.7 chg bp (yoy) (1,112) (990) 375 (1,256) 474 (517) 17.4 19.7 16.4 7.9 26.0 19.6 3QFY11 chg bp (qoq) 222 5 130 307 19 94

4QFY2011 expectations
Top line to decline by 1.6% 6% We expect pure cement players under our coverage to report a 1.6% yoy top-line decline. However, average realisations yoy are expected to increase, with the highest improvement likely to be recorded in the southern region. Among pure cement players under our coverage, we expect Madras Cement to post highest top-line growth of 6.1%, while ACC is expected to post top-line growth of 2.7% during the quarter. However, India Cements and JK Lakshmi Cement are expected to post a top-line decline of 7.0% and 20.5%, respectively, for the quarter.

Source: Company, Angel Research; Note: *Year ending December; ^Performance is computed on Like-to-Like basis

Outlook and valuation
Going ahead, we expect cement demand, which picked up in 4QFY2011, to gain further momentum in 1QFY2012. However, the industry would be impacted by overcapacity till the end of FY2012. Hence, we do not expect high prices to sustain. Also, cement prices would witness a downward pressure with the commencement of the monsoon season. We maintain our Neutral view on large-cap cement players such as ACC, Ambuja and UltraTech. We recommend Accumulate on India Cements and maintain our Buy rating on JK Lakshmi Cement.

Exhibit 7: 4QFY2011E top-line performance
10.0 5.0 0.0

(%)

(5.0) (10.0) (15.0) (20.0) ACC (25.0) Ambuja Cem. India Cem. JK Lakshmi Cem. Madras Cem. Ultratech Cem.

Source: Angel Research; Note: UltraTech perforamance is computed on Like-to Like basis

Exhibit 9: Quarterly estimates
Company ACC^ Ambuja^ India Cem. J K Lakshmi UltraTech# CMP (`) 1,075 147 96 51 1,134 Net Sales 4QFY11E 2,193 1,970 897 351 618 4,164 2.7 (2.4) (7.0) (20.5) 6.1 116.6 OPM (%) chg bp (1,112) (990) 375 (1,256) 474 (109) 19.6 19.8 17.7 11.0 26.2 20.5 Profit Net Profit 4QFY11E 247 207 53 11 54.6 404 (39.0) (55.1) 38.3 (84.5) 85.9 76.7 (` EPS (`) % chg (39.0) (55.1) 38.3 (84.5) 85.9 (19.7) FY11E 59.6 8.3 1.3 2.7 8.5 39.5 13.2 1.4 1.7 0.9 2.3 14.7 (` EPS (`) FY12E 54.6 7.2 5.0 5.0 9.5 61.1 FY13E 65.0 8.4 7.5 7.6 10.5 76.7 FY11E 18.0 17.7 73.3 18.7 12.0 28.7 P/E (x) FY12E 19.7 20.4 19.1 10.3 10.7 18.6 FY13E 16.5 17.5 12.8 6.8 9.7 14.8 arg Target (`) 107 66 % chg 4QFY11E % chg 4QFY11E

(` cr)
Reco. Neutral Neutral Accum. Buy Neutral Neutral

Madras Cem. 102

Source: Company, Angel Research; Note: Price as on March 31, 2011; ^December year ending; # Estimates for merged entity

Analyst - V Srinivasan
Refer to important Disclosures at the end of the report

24

Preview 4QFY2011 Results Preview | April 4, 2011

FMCG
For 4QFY2011, we expect our FMCG universe to report robust top-line growth of 18% yoy. Earnings are also expected to grow at 17% yoy. The unchanged excise duty post the Union Budget provided a breather for FMCG companies, which were reeling under high raw-material inflation. Better reach (significant investments in distribution infrastructure) and support from rural markets (higher MSPs, NREGS) will be the key drivers, aiding modest volume growth for our FMCG universe. Downside risks to our estimates include: 1) a lagged effect of the economic slowdown on consumer spending (less likely); and 2) down-trading to a cheaper brand (likely).

Gross margins to remain range-bound
Prancing raw-material inflation has been a worry for all FMCG companies for the past few quarters. As a result, margins are expected to remain range-bound for the next couple of quarters.

Exhibit 2: Key input prices in 4QFY2011
CMP (`) Wheat (`/quintal) Barley (`/quintal) Sugar (`/ quintal) Tea (`/kg) Coffee (`/100kg) Cocoa (US$/tonne) Milk Liquid (`/ltr) Palm Oil (MYR/tonne) Copra (`/quintal) 1,258 1,230 2,870 185 4,700 3,233 27 3,450 6,150 2,375 603 75,000 9,360 5,150 1,165 965 yoy (%) 1 37 (6) 68 81 10 29 33 85 7 39 12 76 (8) 33 15 qoq (%) (5) (4) (8) (3) 7 10 4 (10) 2 (4) (3) (4) 8 (6) (2) 0

Exhibit 1: Revenue growth yoy (%) – 4QFY2011E
120.0 100.0 80.0 60.0 40.0 20.0 8.2 16.0 20.8 17.7 12.2 18.9 20.3 11.0 95.9

Safflower (`/ quintal) Soyabean Oil (`/10kg)

Dabur

Asian Paints

GCPL

HUL

Colgate

GSKCH

Marico

Nestle

ITC

Groundnt Oil (`/MT) Coconut Oil (`/quintal) Rice Bran Oil (`/MT) Caustic Soda (`/kg) Soda Ash (`/kg)

Source: Company; Angel Research; Note: Nestle, GSKCH figures - 1QCY2011E

Budget brings smiles
The Union Budget 2011-12 continued with its thrust on rural development. The government’s approach focuses on increasing disposable income in the hands of people, by effecting reduction in indirect taxes and by expanding public expenditure on programmes such as NREGS and Bharat Nirman and on rural infrastructure. For the sector per se, the budget was a bundle of joy with an exception of postponement of GST till April 2012. In terms of tax rate, the much anticipated excise duty increase remained unchanged at 10%, while the overall MAT rate remained at ~20%. No hike in the excise duty for cigarettes pleasantly surprised ITC, which had taken a pre-budget price increase of ~4%. Soap manufacturing firms, HUL, GCPL and ITC, benefitted from the exemption of custom duty for crude palm stearin (earlier 20%), a key component used in the manufacture of soaps. Other benefit for the industry in the budget relates to a decrease in central excise duty to 10% (earlier 30%) for bamboo for aggarbati and a decrease in excise duty on sanitary napkins and diapers by ~9%. A marginal 1% increase in excise duty on select consumer goods, like noodles, ready-to-eat packaged foods, ketchup, soups, toothpowder and coffee/tea pre-mixes, would have a marginal impact on companies such as HUL, GCPL, Dabur and Nestle.

Source: Bloomberg, CMIE, Angel Research

Over the past one year, a sharp spike has been seen in almost all agri commodities and crude and crude oil derivatives. The price of sugar and rice bran oil show respite from their highs.

Expanding footprint to drive growth
FMCG majors are increasingly focusing on expanding their footprints, either inorganically through strategic tie-ups or widening their distribution reaches by setting up Greenfield projects. Jyothy Labaratories (JLL) has been very active in terms of acquisitions, announcing the much-anticipated acquisition in its JFSL arm towards the fag end of the quarter. JLL also acquired a 15% stake in Henkel India in an all-cash deal, making it the largest Indian shareholder of the company. Henkel is known for its hair styling brand Schwarzkopf Professional, detergent brands Henko Stain Champion and Mr White and home care brand Pril. Other acquisitions that consummated this quarter include Marico acquiring an 85% stake in a Vietnamese company, International Consumer Product (ICP), engaged in consumer products. ICP is known for brands such as X-men, L'Ovite and Thuan Phat. Starbucks signed a non-binding MoU

Refer to important Disclosures at the end of the report

25

Bru Lite. Nestle plans to invest ~`1. Johnson & Johnson launched its nicotine gum brand.1% in the first week of 3QFY2011 soared to 19. besides sourcing and roasting coffee beans at Tata Coffee's Kodagu facility. England and South Africa. Moreover.5%). milk. in India to help reduce nicotine craving. Energy and Sport. branded coconut oil makers are desperately trying to hold on to their consumers. Australia. Dabur forayed into professional beauty care with the launch of Oxylife. industrial containers and light industrial coatings markets. Emami launched Boroplus healthy fair winter cream and Boroplus intensive skin therapy cream. Grammage of Nestle's Kit Kat. CG Foods launched new flavours of Wai Wai. Milkybar and Munch chocolate bars is expected to be reduced by around 5-7%. GCPL increased the price of its popular soap brand. placing itself in the league of ITC Foods. Sri Lanka. prices of coffee. which includes a `360cr investment plan for its new factory at Nanjangud in Karnataka. CG Foods is scouting for acquisition in the Southeast and domestic markets and has chalked out a `100cr investment plan for expanding manufacturing capabilities in India over three years. Parle Agro launched Bailey soda. resulting in double whammy for FMCG companies that were forced to pass on the increase to end-consumers. Dabur and Nestle are building up their distribution and manufacturing facilities to reach out to a wider audience. Nestle and MTR Foods. Cadbury Dairy Milk. The arrangement is subject to regulatory approvals and will service the protective. With no let-up in coconut oil prices. ITC is planning to hike prices of its packaged food products by 7-8% to combat the increase in ingredient prices (up 30-35% in past two years) and packaging costs of the company. ITC launched its much-awaited handrolled Refer to important Disclosures at the end of the report 26 . New launches pick pace Keeping in pace with our expectation. In the personal care segment. During the quarter. industrial powder. Nestle's move follows market leader Cadbury India's 9% price hike of its flagship brand. Godrej No.Preview 4QFY2011 Results Preview | April 4. Marico's management indicated a price increase of 7-8% in the offing. cocoa. Astra Gold. in the Indian market. besides expanding its existing JV in order to accelerate growth of the non-decorative coatings business in India. West Indies. While inflation seems to have cooled down (currently at 9. most product launches were limited to the processed foods category. cigar. HUL increased the prices of Lux. which have a significant national presence in this segment. with the classic mocha flavour. Dabur is investing in its manufacturing infrastructure and product development projects to promote its brands Real and Active. Pepsico launched six new flavours of its popular Lays chips. Britannia forayed into the ready-to-eat breakfast food category with the launch of Britannia Health Start.1 by 4% and other SKUs by 3-5%. The company also expanded the Sunfeast biscuits range by launching two variants of Dark Choco biscuits. However. companies such as Parle Agro. The six new flavours are named after India. Cool Kick. 5% and 10%. The company is further mulling the test launch of a bread spread. `600cr in Haryana for the Green Field facility and `200cr for manufacturing chocolates in Punjab. We recall.with high level of nutritional fats in Karnataka. implying a price hike of ~7%. Nestle India will not only be undertaking selective price hikes but will also be reducing the weight for its chocolate products to combat rising raw-material costs. Nicorette. inspired by the top teams participating in the World Cup Cricket Tournament. has increased its prices by 1-2% in the enamels range. while Godrej Consumer relaunched Fair Glow soap in a new pack and shape. respectively. Amrutanjan Health Care forayed into the beverages business by acquiring Chennai-based Siva's Soft Drink' soft drink and the fruit-based beverages business along with the brand Fruitnik for ~`26cr. Britannia indirectly hiked price by 5-10% by reducing grammage of its Milk Bikies and Digestive biscuit brands and Amul increased milk prices by `1 and butter prices by `10 for 1kg and `5 for half a kg. Similarly. most FMCG companies continued their momentum in launching new products. Armenteros. HUL has ventured into the retail business by opening a Bru World Café outlet on a pilot basis at Juhu Mumbai and has launched a new variant of Bru.1% in first week of 4QFY2011. While Asian Paints has increased the prices of oil-bound paints by 1%. AkzoNobel India. Wai Wai Chicken pizza and Wai Wai quick masala curry.500cr over the next two-three years. High inflation pressurises margins The entire FMCG sector is reeling under an unnatural increase in raw-material prices and food inflation. Liril and Lux International by 6%. copra and coconut oil seem unrelenting. Asian Paints formed a second new 50:50 JV with PPG Industries. HUL had raised the price of Lifebuoy soap by ~6% and reduced the grammage for Lux in August 2010. Food inflation from 17. Nivea for men launched 2-in-1 shower gels in three variants. operating under the Dulux brand. 2011 FMCG with Tata Coffee to explore setting up stores in the Tata Group's retail outlets and hotels. As part of its expansion plans.

0 20. growth.4 3.8 (` EPS (`) % chg 2.1 30.9 Profit Net Profit 4QFY11E 196.0 28. driven by robust sales and margin expansion (mainly in the cigarette business.0) 14.1 1. not hiked in the budget. Angel Research Mid caps to outperform heavyweights For 4QFY2011.0 28. we expect our FMCG universe to report robust top-line growth of 18% yoy.8 6. Benefitting from the excise duty cut of 9% in the budget. We continue to emphasise selective stock picking and prefer a set of companies having a diverse product portfolio and with strong pricing power. Reckitt has also cut general trade margins from 12% to 10% for brands such as Harpic and Cherry shoe polish and distributor's margins to 5% from 7. driven by both value and volume Exhibit 4: Quarterly estimates Company CMP (`) Asian Paints^ 2.V .6) (6.4 27. Earnings are also expected to grow at 17% yoy.5 21.9 2.6 27.4) (5. Valuations appear rich.8 30.2) (9. however.1 23.240 Source: Company.S Analyst: Chitrangda Kapur/Sreekanth P .650 Net Sales 4QFY11E 2.9 34.1 21. respectively.6 36.843 6.3 4.767 123 431 304 205 % chg 4QFY11E % chg 4QFY11E GSK Cons.0 20.1 24.8 26.9%. Neutral Neutral Kapur/Sreekanth . Exhibit 3: Relative performance to the Sensex Sensex BSE FMCG GCPL Marico ITC Asian Paints GSKCHL Nestle Dabur Colgate HUL (5.2 22.1 18.8 13.2 8.2%. on the back of improving margins. Angel Research.0 4.4 12.0 15. Stay selective The ensuing volatility in the international business of select FMCG companies and high inflationary situation on the domestic bourses (both raw-material inflation and food inflation) render us cautious on the sector as a whole.026 997 763 4.6) 16.6 97.5 28.0) - (5. we maintain a Buy view on GCPL (GSL consolidation to address portfolio concerns) and Dabur (a play on the valuation gap).8 28.780 8.6 4.7 18. driven by price hikes on anticipation of a likely increase in excise duty.5% for Dettol antiseptic lotion. during the quarter.1) 20.9 154. 2011 FMCG On the other hand.0 FY13E 20. despite margin contraction for most companies (on account of gross margin pressures).1 18. 2011.9 2.3 7.0 (10.0 28. Among heavyweights.5 FY13E 125. aided by high other income. * December year ending.6) (4.0 83. The company’s earnings are expected to increase by ~29%.8 78.0 20.3 120.2 (31.4 18.5) 14.1) (2.4 31.1 19.5) 24. In mid caps.2 9.031 599 1. Reckitt Benckiser has cut margins of its major retailers to 14% from 16% on some of its products to partly offset rising input costs and is getting severely punished for the move with retailers boycotting the company's products. one-year forward P/Es for most companies are in line with their five-year averages. Neutral Buy Buy Neutral Accum.2 18.6 4. ^Consolidated Refer to important Disclosures at the end of the report (15. Moreover.0) ` (` cr) Reco. despite high base in personal care portfolio.4 20.0 5.1 (` EPS (`) FY12E 104. Accum.6 455. ITC is expected to report sales growth of 18.0) Source: Company.8 95. HUL is expected to report top-line growth of 12. Earnings (recurring) are expected grow at a robust pace of 18%.0) 14.7 0.0 10.2 16.8 21. any further re-rating from current valuations seems less likely.5 17.4 27. We upgrade our rating on HUL to Accumulate on account of its strong earnings growth.9 71. which are better placed to combat the vagaries of inflation.9 101. P&G slashed prices of Whisper and Pampers by 3% and 15%.0 44.0 21.3 arg Target (`) 2.0 5.S 27 .6 35.8 (50.011 669 1.* 2.7) (4.8 FY11E 87.9 26.5) 24.8 (50.9 11.1 1.5 26. Dabur India^ GCPL ^ HUL ITC Marico^ Nestle * 815 96 365 285 181 139 3.Preview 4QFY2011 Results Preview | April 4. Note: Price as on March 31.4 (3.0 P/E (x) FY12E 24.8 0.2 (31.0 19.9 32.9 111.2 82.5 5. in terms of valuation.527 Colgate Pal.V.8 11.7 12.7 92. While the long-term consumption story for the FMCG industry remains intact. Accum.5 13.0 25.9 11. Sector leader.8 38.324. we maintain our Accumulate view on ITC and Asian Paints (factored a 360bp yoy decrease in EBIT margins from the Middle East region on account of Egypt crisis).3 OPM (%) chg bp (106) (914) 67 (747) 23 (42) 205 (630) 135 15.3 16.2 251.4) (2.0 21.9 17.4 FY11E 28.1 24. led by price hikes).4 1.5 15.7 20.5 7. the excise duty was.6 6.1 (12.5 2.6 27.

3% yoy.000 16.6cr and `124. earnings are expected to be subdued primarily on account of increased debt levels and hardening of interest rates.0 10. we expect growth of 13.0) IRB Infra We expect 70.0 50.000 14. a decent jump of 20.1cr for the quarter.0% yoy to `748cr for 4QFY2011.4% yoy.600 1. However.0 80. We expect CCCL to report net profit of `29.8cr primarily due to higher interest costs. in line with the management’s guidance.0cr (resulting in an effective tax rate of ~40.4cr for the quarter.0cr.432cr. RHS) Simplex In Sadbhav L&T Source: Company. a yoy jump of 32. EBITDA margins are expected to decline to 41.Preview 4QFY2011 Results Preview | April 4.0 28.9 (1.0 20. We project healthy EBITDA margins at 12. Angel Research Simplex Infra We project decent 14.2) 0. on the net profit front.2%) and additional tax provision of `7. Exhibit 1: Revenue trend – 4QFY2011E 18. We project stable EBITDA margins of 10.0 (20.0 20.0% for the quarter.4 121. 28 .200 1.6cr) for the quarter.8% for the quarter to `97. Refer to important Disclosures at the end of the report CCCL We expect CCCL to post mere 6. We believe order inflow guidance by many companies for FY2011 is bound to see some slippages and result in disappointment for the markets.5% yoy revenue growth to `1. Hence. primarily on the back of a pick-up in the execution of road projects.0 120. Management had earlier guided for revenue growth of ~20.4cr (`33.9cr. LHS) yoy change (%.7 110.0 60.7% to `68. On the operating front.000 800 600 400 200 0 (12.7) (11. we project modest ~12.5%). 4QFY2011 expectations Larsen and Toubro (L&T) We expect L&T to record revenue of `16. We project net profit at `1. mainly on account of healthy order book.4 32. However.0% (46.0 100. On the earnings front.9% (11. we expect our coverage universe to post average growth of ~20.000 12.7 19.4% (10. owing to the slowdown being witnessed in order booking and shift in the order book mix towards longer-gestation orders (read infrastructure).0 - IRB Infra MPL CCCL HCC NCC Top -line (`cr. the bottom line is expected to be under pressure due to lower OPM and profit sharing with the JV partner.0% yoy revenue growth for the construction and BOT segments. RHS) Source: Company.0 30.2 6. we are expecting disappointment mainly on account of higher interest cost (`46.8 3. respectively.5) (44. Angel Research Hindustan Construction Company (HCC) For HCC.0) (40.1 1.0% and 8.4%).5 40.742cr. we expect CCCL to face some pressures and post margins of 9.6) 13. we are penciling in a net profit decline of 33.1% yoy top-line growth. Therefore.9) (33. LHS) JP Associate IVRCL Infra yoy change (%. 2011 Infrastructure For 4QFY2011.5 14.000 10. but expect the company’s net profit to decline by 44. given the higher revenue contribution from the low-margin construction segment.0 12.217cr for 4QFY2011 on account of its high exposure to longer-gestation period orders. owing to commodity price pressures.750cr. Nagarjuna Construction (NCC) We project NCC to post decent revenue growth of 14.2% yoy revenue growth to `1. resulting in flat net profit at `45.0 60.0%).7% to `23.000 8. an increase of 0.0 40.7% yoy for 4QFY2011 to `2.0% for the quarter.344cr.1% in 4QFY2010 to factor in higher commodity prices during the quarter.0 20.0%. We expect EBITDA margins to remain stable at 10.4% yoy for 4QFY2011 to `1. We expect a decline in EBITDA margins at 9.0% on the top-line front. IVRCL Infra (IVRCL) We expect IVRCL Infra to post robust revenue growth of 28. we expect margins to be lower at 13.0cr.365cr. IVRCL Infra Sadbhav IRB Infra JP Associate Simplex In MPL CCCL HCC NCC L&T Earning (`cr.0) (60. assuming a tax rate of 27.0%). respectively.1 140.000 6.000 4.000 49. which is unlikely to be met due to subdued 3QFY2011 numbers as acknowledged by the management. On the EBITDA front. leading to consolidated revenue growth of 49.3 14.2%.3% as against 15.0% for FY2011 (standalone) to `5. We project net profit before tax and after tax at `171.000 2. Exhibit 2: Earnings trend – 4QFY2011E 1.400 1. We believe the original order inflow guidance of 25% for the year will witness some slippages.434cr for the quarter. However. top-line growth is expected to be negated by increased interest cost.

West Bengal and Pondicherry) and slowdown in private capex. mainly on account of the low base of last year.397cr (yoy jump of mere 1. On the EBITDA front. we expect MPL to post normalised 19.806 2.500 1.2%. 2011 Infrastructure Sadbhav Engineering (SEL) We expect SEL to post robust 32.5%).700 2. order inflow for construction companies would remain muted (barring the road sector. EBITDA margins are expected to remain flat at 11. in spite of higher interest costs. Exhibit 4: NHAI .14.700 5.5% (11. Budget FY2012 – Positive for sector The Union Budget 2011-12 continued to lay stress on infrastructure development. the credit offtake for road construction further corroborates the fact that the sector has slackened substantially in the recent months. On the earnings front.9cr).1mt and realisations of `3.Downtrend in awarding activity 3.000 500 1QFY10 2QFY10 3QFY10 4QFY10 1QFY11 2QFY11 3QFY11 264 914 614 359 832 2. resulting in its top line surging by 49.128 Madhucon Projects (MPL) During 4QFY2010.4%.406cr for the quarter. Announcements made for the sector focused on increasing the avenues to meet the long-term fund requirements of the sector. Angel Research The road sector (which contributes significanty to the order book of construction companies) in particular has seen a substantial slowdown in award activity. corruption cases. depreciation and interest costs are expected to rise for the quarter. led by pick-up in the execution of captive road BOT projects.729 2.3% yoy to `2.3cr (`6.000 1. primarily due to the decline (~24. the bottom line is likely to come in at healthy `15. the company is expected to post substantial 110. (228) IVRCL Infra 4QFY10 NCC 1QFY11 Simplex Infra 2QFY11 3QFY11 3QFY10 Source: Company.510 1. upcoming state elections (Kerala. changes in bidding norms and corruption charges. with the allocation for the sector increasing by 23. but operating margins coming in at an abysmal 6.692 Kms awarded by NHAI Source: NHAI. for the quarter. uncertainty in fuel supply and poor health of State Electricity Boards (SEB).450/tonne. Hence.9%). despite improved operating margins. overall we expect the order inflow guidance by most companies in our universe to witness some slippages for FY2011. Hence. land acquisition problems.070 2. we expect better performance from both the segments as compared to 3QFY2011. Jaiprakash Associates (JAL) We expect JAL to post subdued top-line numbers.8cr due to a strong order book.000cr.166 2. On the cement front. as no major orders were awarded by NHAI in the last two quarters owing to various issues such as lack of stability at the top level. Due to higher debt and capex. For 4QFY2011.Preview 4QFY2011 Results Preview | April 4.3%) in C&EPC revenue at `1.7cr (`7. Tamil Nadu. owing to the recent scams.8cr).5% of the planned expenditure. Assam. Poor show on order inflow front to persist in the short term The sector has been witnessing muted order inflow since 4QFY2010. This has been a negative for companies in our coverage universe as government orders constitute a major portion of their overall order inflows.000 2. Refer to important Disclosures at the end of the report 29 . the bottom line is likely to post flat growth of 3. Overall.500 2.0%. Moreover. constituting 48.9% for the quarter. post factoring in the interest cost of `17. Angel Research Moreover. including attracting foreign funds.700 700 (300) HCC 1QFY10 2QFY10 5.6% to 4. we expect JAL to post volume growth of 38. MPL had recorded heavy subcontracting in the power segment (mainly for equipment).497cr. at `3.0% yoy top-line growth to `578. resulting in revenue of `1. primarily due to the considerable slowdown in the decision-making process concerning infrastructure policies and sluggishness in spending by various government bodies.5cr.9% to `253.0% yoy growth.700 4. we expect the company to post EBITDA margins of 26.0% yoy growth in the top line to `604cr.800 4. Thus. Exhibit 3: Order inflow peaked in 4QFY2010 (` cr) 6.194 1. which is overdue for some action) for the next few quarters.700 3. Slowdown in order awarding has also been observed in other segments such as power generation and transmission and distribution (T&D) due to environmental issues.700 1. Margins are expected to improve to 9. and within the country through issuance of tax-free bonds and extension of tax incentives.

8 9. Consequently.4 % chg 4QFY11E % chg 4QFY11E Sadbhav Engg.9) (10.7) (11.8 6.319 70.8 3.1 9.148 Fixed price contract as a % of Order Book Source: Company.429 66.4 1.1 4.7 (33. Incorporating the same.1 13.5) 3.1 118.093 New 97. we believe India's infrastructure is a multi-decade story and the current underperformance should be bought into with a long-term perspective.2 4.8 7. investments in BOT and real estate total to `131.2) (34.2 64.2 14.9) 13. we adopt a stock-specific approach and prefer companies with a relatively strong balance sheet and visibility on the execution front.6 1.2) 0.2 7.6) 110.9/share.8 9. value of IVRCL Assets and BOT projects totals to`33/share.5 FY13E 7. (9)For Simplex Infra. sector's order intake.6 10.4 1. Exhibit 7: Quarterly estimates Company CCCL HCC IRB Infra^ IVRCL Infra JP Associate MPL NCC Simplex Infra L&T CMP (`) 51 36 212 82 93 92 101 326 1.1 FY12E 5.(8) For Sadbhav.9 56.3) (1.2 13.0 28.3 68.9 4.0 10. hence.4 3. driven by the government and private outlay.7 7.Earnings (` cr) FY2012E Old 8 Exhibit 5: Fixed price contracts form major part of order book 40 35 30 25 20 15 10 5 0 HCC IVRCL Infra NCC L&T Simplex Infra 30 29 20 35 FY2013E % chg (16.7 8. (6) For Madhucon Projects.434 16.9 12. There has been some upward movement in key commodity prices (read steel).6 21.9 39. Angel Research.9 68. we have increased our interest rate assumptions across the board for our universe.034 Buy Neutral Accum. (4) For IVRCL.7 6.6) 110. and 3) relaxation on the working capital front.3 1.0 24.1) (12.5 9.0 11.9 123. we introduce our FY2013 numbers.2 96.7 1.1 29.7/share.6 3.1 17.2 49.4 13.9 4.742 604 1.8 124.5) (44.1 4.5 19. given the increasing proportion of fixed price contracts in order books. (7) For Nagarjuna.5 13.1/share. Prevailing environment hazy. some volatility cannot be ruled out.0 8.1) 1.397 579 1.3 OPM (%) chg bp (147) 66 (504) (114) 140 265 (3) (43) (7) (180) 9. However.1 22.5 225.7 7. we have downgraded our earnings estimates for construction companies to reflect lower revenue growth and higher interest outgo (refer Exhibit 6).4 1.8 123.0 14.7 1.5 8. (3) For IRB.6 16.653 Net Sales 4QFY11E 675 1. These valuations are attractive on a long-term basis.3 Profit Net Profit 4QFY11E 29. In this report. investments in subsidiaries amount to `458/share. Nonetheless. L&T.8 3.2 14. the Construction stocks under our coverage have corrected by 6-35% YTD (except SEL) vs. MPL NCC SEL Simplex L&T Source: Angel Research 116.2 6. 124 Source: Company. are impacting infrastructure spending and. and (10) For L&T.0 150.0 253. Road BOT and other investments total to `61. Exhibit 6: Change in estimates .4 1.6 4. 2) respite in interest rates owing to lower inflation.7) (11.4 7.344 6.1 6.(2) For HCC.0 510.192 CCCL HCC IRB Infra IVRCL JP Asso.217 748 2.5 15. (5) For JAL.3 FY13E 6.8/share.165 51.0 FY11E 11. ^Consolidated numbers. we have factored in lower order inflows for the first half of FY2012.8 6.2 (` EPS (`) FY11E 4.4 119.432 3.0 9.0 14.9) 13.7 6.0 1.0 41.6 226. IVRCL and NCC continue to be our top picks in the sector. P/E (x) FY12E 9. the 5% decline registered by the Sensex.4) (22.6 156.365. its investments in BOT projects total to `74.2 2.8 83.9 121.5 230. Angel Research We believe with the recent tightening on the liquidity front and anticipated continuation of the same (at least in the near to medium term) will lead to the further hardening of interest rates.4 arg Target (`) 64 242 108 118 138 150 171 438 2.4 7. stocks on which we have a Buy recommendation are trading at 6-9x FY2012E and 4-8x FY2013E (except L&T and JAL). *(1)For CCCL. Buy Buy Buy Buy Buy Buy Buy Reco.1 (1.9 121.1 12. which is unlikely to improve in the near future.5 10. value of land bank. Normally. On adjusted P/E basis.7 2. 2011 Infrastructure FY2012 expectations curtailed Against this backdrop.0 6.1 559. value of Lavasa and Road BOT totals to `29. no investments have been adjusted.0 5. (` cr) ` (` EPS (`) % chg (12. there are no major investments in subsidiary.9 16.9 9. there are no major investments in subsidiaries.6 0.6 247.5 5. BOT projects and investments totals to `34.8 251.7 (33.0 98. Note: Price as on March 31. long-term prospects promising Poor decision-making by the government and an uncertain policy environment.6 6.5 444. 2011. which factor in 10-22% earnings growth by most companies in our coverage during the year. construction companies have the escalation clause in place.8 3. Target prices are based on SOTP methodology. we pencil in lower growth for FY2012.1 2.6 1. given the increasing share of captive orders.4 26. To factor in the same. Kanani Analyst: Shailesh Kanani / Nitin Arora Refer to important Disclosures at the end of the report 30 .2 45.5 (21.5 5.0 5.6 202.0 (12.9/share.3 *Adj.4 32.4 7.4 23.5 20.5 5.Preview 4QFY2011 Results Preview | April 4.5 6.4 25. Our estimates are primarily based on the following assumptions: 1) revival in order inflow.2) 0.1 (1.6 12. However.6 4.3) (18.8 3. which helps them in maintaining margins.5) (44.9 97.3 197.2 24.

5) (10) Revenue Concor Gateway Distriparks PAT Allcargo Logistics 14. which led to lower OPMs in 4QFY2010.4% yoy in volumes for the mentioned period.8% yoy growth in CFS volumes. Source: Angel Research Impact of Union Budget FY2011-12 The Union Budget FY2011-12 has accorded infrastructure status to cold storage projects. Africa and Latin America coupled with revival in demand in the US.1 20 10 0 (0. with figures touching 4.5% yoy as the company begins to pay higher tax post ending of MAT credit entitlement. due to improving ECU Line numbers for AGL and on a low base.000 20.8 22.4% yoy increase in revenue and PAT respectively. Exhibit 2: Container traffic . 2011 Logistics For 4QFY2011. we expect Gateway Distripark (GDL) and Allcargo (AGL) (1QCY2011) to report strong revenue growth of 14.9% yoy increase in exim volumes.0 47. Company wise. PAT yoy growth estimates – 4QFY11 50 40 30 28. It even achieved its best-ever volumes for a fiscal year. Overall. as increased container haulage charges and competition are likely to shift some volumes to road and private carriers. on the back of healthy exim volume growth.5 Container Volumes (LHS) YoY change (RHS) Source: IPA. registered 6. we expect a 11. However.1% yoy. as they intend to expand their cold chain business.000 10. The Chennai port.Sustaining post recovery 680 660 640 620 600 580 560 540 520 500 480 654 630 604 608 569 554 555 608 562 649 663 640 636 643 624 600 614 35 30 25 20 15 10 5 (5) (’000 TEUs) Dec-09 Nov-09 Dec-10 Feb-10 Oct-09 Mar-10 May-10 Aug-10 Nov-10 Exhibit 1: Revenue. Companies such as Concor and GDL are expected to benefit. taking the trade deficit to US $97bn. Concor is expected to report flat top-line growth. Imports also recorded robust growth of 18% yoy to US $305bn. respectively.1mn TEUs for FY2010.000 15.7% and 12.2mn TEUs in FY2011 YTD vis-à-vis 4.5% and 28. Concor is expected to post a 10.000 30.000 (US $ mn) 25. Operating margins (OPMs) of these companies are expected to be healthy for the current quarter on account of rebates.0mn TEU mark set for FY2011. AGL is likely to benefit mainly because of a low base effect and consistently improving ECU Line numbers. respectively. ahead of the FY2011 target of US $200bn. The JNPT port. as a result of which capital investment will be eligible for the viability gap funding scheme of the Finance Ministry.0% yoy growth in volumes.000 0 Container volumes stabilising at higher levels The container traffic data released for April 2010-February 2011 by the Indian Port Association (IPA) reported robust growth of 10. for our coverage universe. 17% of the country's container volumes.5% and 22. Angel Research Refer to important Disclosures at the end of the report Apr-07 Jun-07 Aug-07 Oct-07 Dec-07 Feb-08 Apr-08 Jun-08 Aug-08 Oct-08 Dec-08 Feb-09 Apr-09 Jun-09 Aug-09 Oct-09 Dec-09 Feb-10 Apr-10 Jun-10 Aug-10 Oct-10 Dec-10 Feb-11 Imports Exports Feb-11 Jan-10 Apr-10 Jun-10 Sep-10 Oct-10 Jan-11 Jul-10 31 (%) . Going ahead. (%) Exhibit 3: Steadily growing exim trade 40.8% yoy.000 5. The revival in exim trade has been visible in the overall port throughput as well as container volumes. AGL and Concor are expected to report healthy PAT growth of 47. Container data for FY2011 so far indicates that volumes have stabilised at higher levels albeit on the low base of FY2010. which handles around 60% of the country's container volumes.5 3.6% yoy on a low base and revival in global trade. has recorded a strong increase of 26. which handles around Source: Bloomberg. we expect the ports to sustain the monthly run-rate and surpass the 7.4% to US $208bn. while GDL is expected to report 11.Preview 4QFY2011 Results Preview | April 4.000 35. This is on account of diversification to new markets in Asia. while GDL is expected to report a marginal decline of 0. Angel Research Exports picking up India's merchandise exports during April 2010-February 2011 grew by robust 31.

the Jat agitation. the trend reversed in 2HFY2010 and container traffic is expected to outperform overall cargo going ahead. Angel Research Refer to important Disclosures at the end of the report FY11TD 32 (%) . Container traffic outperforming overall cargo traffic Container traffic increased from 3. The margin decline can mainly be attributed to lower ground rent revenue.2 54. registering an 11% CAGR during the period.2 47. compared to 80% globally. 2011 Logistics Key developments No rollback of freight hike During 3QFY2011. it is expected to increase to 62-65% over the next five years.4mn TEUs in FY2003 to 6. though since the last two-three years it has stabilised at 25-27%. Meanwhile. which is likely to have an adverse impact on Concor's exim and domestic container throughput to and from ports on the western coast. we expect Concor to witness a decline of ~1. which indicates the scope of growth on account of improved infrastructure.2 47. all of which have pulled down the company's exim performance. GDL has indicated that it targets to reduce the share of domestic volumes from 35% currently to ~10% by FY2012E. Angel Research Bullish on the container industry on low penetration and customer preference Non-bulk cargo.0% in FY2010. For 4QFY2011. as it helps to reduce handling costs.2 51. The hike was under review post industry presentations for a roll-back. the level of containerisation in India is at ~51%. It is estimated that 75-80% of the total non-bulk cargo can be containerised. Concor as well as private operators have revised their rail freight tariffs with effect from mid-January 2011. Currently. However.7 50 40 30 20 10 0 ('000 Tonnes) 400 300 200 100 0 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 EXIM traffic at major ports -LHS Non-bulk cargo-LHS Container share in non bulk cargo -RHS Source: IPA.4 46. The share of container traffic in the current decade increased from 11. has the potential to be transported in containerised form.5 52. however. The share of containerised traffic increased by around 700bp during FY2007-09.9mn TEUs in FY2010. However. While the slowdown in global trade in FY2009 impacted containerisation more than the overall cargo traffic. Moreover. a substantial share of domestic traffic has begun to shift to road carriers. the Indian Railways (IR) had proposed a 50-200% hike on transportation of nine commodities and an additional increase of 4% in freight rates across the board. Earlier. it tapered down in FY2010. which constitutes ~35% of the total cargo at major ports. (%) Exhibit 4: Container traffic to outperform cargo traffic in FY2011E 30 25 20 15 10 5 0 FY2003 FY2004 FY2005 FY2006 FY2007 FY2008 FY2009 FY2010 3rd container terminal at JNPT came into existence boosting volumes Slowdown in global trade has impacted container volumes more than overall cargo EXIM growth YoY Container growth YoY Source: IPA.2 47. We expect the share of containerisation to sustain at current levels in the near term.8% in its domestic volumes. following increased private participation in handling container terminals and customer preference in transporting cargo in containerised form as it reduces handling costs. Consequently. which began on March 5. Sustaining margins a challenge for Concor Concor's OPM has been declining over the years. but now most items can be shipped in a container. cargo at major ports posted a 9% CAGR during the mentioned period. despite the slowdown in trade in FY2009.5% in FY2003 to 18.Preview 4QFY2011 Results Preview | April 4.5 60 54. only basic goods were suitable for shipment in containers. inability to completely pass on the hike in haulage charges due to intense competition and rebates to clients. led to cancellation of hundreds of passenger and cargo trains. with no downward revision in rate hikes. 2011. Exhibit 5: Improving levels of containerisation 600 500 45.

8 FY11E 13. Gateway Dist.5) (` EPS (`) % chg 47. Going ahead.2 47. Angel Research Exhibit 7: Quarterly estimates Company Allcargo* Concor CMP (`) 174 1. AGL's performance shall largely be driven by its ability to sustain volumes and realisations at its European subsidiary.3 18. We recommend an Accumulate rating on GDL and expect the company to register a 15.5 28.9 25. We expect an increase in the pace of GDL's capex by utilising the cash received from Blackstone.5 28.1 3. 2011 Logistics Sensex vs.1% CAGR in EPS over FY2011-13.0 13.0 0. we await clarity on Concor's ability to sustain domestic market share and pricing power in the high-margin exim segment.8 (0.1 FY13E 8.5 10. We are rolling over our target price on FY2013E EPS. management has guided that the company intends to shift its focus towards the more lucrative exim segment. In the current decade.219bp during 4QFY2011. the breakeven of the company's rail business at the PAT level has also been encouraging.3 (` EPS (`) FY12E 16. Post the recent freight hikes.2%.339bp during the quarter. *Data for CY2010-12E Param Analyst: Param Desai / Mihir Salot Refer to important Disclosures at the end of the report 33 . which has been on an uptick since the past two quarters.0) (4.6 71. logistics stocks During 4QFY2011.3 FY13E 21. We maintain our Buy recommendation on AGL.0) (5. its ongoing expansion plans and breakeven in the rail business at the PAT level.8 (0.Preview 4QFY2011 Results Preview | April 4.0 15.0 15.2) (10. Buy Neutral Accum.5) FY11E 13. the Sensex declined by 5.5% over the next few years as well as emergence of India as a global outsourcing hub will facilitate the country's container trade.5) Source: Bloomberg. 2011. Note: Price as on March 31. Angel Research. We expect GDL to be adversely affected by the freight hike.0 14.5 14. AGL also sharply outperformed the Sensex by 2. container traffic registered a 12% CAGR compared to the 9% CAGR posted by the total traffic at major ports. however.0 978. driven by the addition of new container terminals and increased containerisation. Concor underperformed in line with the Sensex. Accordingly.2 221.1 3. GDL sharply outperformed the Sensex by 1. Outlook We believe sustained growth in the Indian economy with GDP growth expected at 8.0 (5.9 P/E (x) FY12E 10. We expect this trend to continue and container traffic to register an 11% CAGR over the next five years.3 arg Target (`) 217 130 % chg 4QFY11E % chg 4QFY11E (` cr) ` Reco. as investors had begun to discount the impact of freight hike on OPMs and volumes.1 65. We prefer companies that provide a decent blend of growth opportunities and are quoting at attractive valuations. 121 Source: Company.4 Profit Net Profit 4QFY11E 50. owing to reasonable valuations and improved performance by ECU Line over the last few quarters.0 10. From our coverage universe.4 17.5 8.212 Net Sales 4QFY11E 715.0 22.7 79.2 7.7 155.0 (%) Concor GDL AGL 18.5 OPM (%) chg bp 74 518 107 10.4 9.3 27. Exhibit 6: Outperforming the Sensex in 4QFY2011 Sensex 20.5 28. we maintain our Neutral view on Concor as we expect competition to intensify in the domestic rail business. Concor's underperformance was on expected lines.8 17. ECU Line (contributes ~70% to the top line). on account of being present at strategic locations.2 11.0 5. Besides.1 2.

respectively. 3.200 1.8% and 2. CIL increased coal prices for some of its customers.4% due to imposition of export duty and increased railway freights. Angel Research Abs. Sterlite and Hindalco underperformed by 1.9% yoy). Tata Steel and JSW Steel underperformed the Sensex by 1. Base metal prices were also volatile during the quarter. while Sesa Goa underperformed by 6. Sterlite acquired Anglo's assets.6% to 56.0%. Tata Steel has spent AUD100mn to raise its stake in Riversdale Mining to 27.0) 2. In the ferrous space.8 (1. coking coal prices have been settled at US $330/tonne and iron ore prices are expected to be higher by nearly 20%. Tata Steel raises stake in Riversdale: As per media reports.2) (2. Coal India (CIL) hiked coal prices for non-regulated sectors to pass on the anticipated wage hike.3 (6. The Budget had a negative impact on Sesa Goa. In 4QFY2011. NMDC outperformed the Sensex by 7. fertiliser and defense (which account for ~80% of CIL's consumers). Moreover. Tata. Meanwhile. no announcement on the imposition of mining tax (26% at PBT) was a positive for mining companies as well as steel companies with captive mines. citing rising raw-material prices. We believe Tata Steel's investment in Riversdale is of strategic importance and will help in increasing the raw-material integration level at TSE in the long term.4% and 16.500-3.0%. During April 2010-January 2011.6%. Whereas.2) (8.6 2.0) (8.Neutral for the metals sector: The FY2012 Budget proposed 20% export duty on iron ore. Average Chinese export prices also increased by 17. however.6) (22.4 (12.9%.3) Relative to Sensex (%) (3. SAIL. Average HRC prices in India increased by 17. New Millennium to develop taconite deposit: During the quarter.6) 10.8%. Major events Budget FY2012 . not increased tariffs for regulated sectors such as power. Returns (%) (5. average world HRC prices increased by 17. b) 100% owned Lisheen mine in Ireland (acquired for US $546mn including cash of US $275mn) and c) 74% owned Black Mountain Mines (acquired for US $348mn). respectively.1% from 24. which comprised a) 100% owned Skorpion mine in Namibia (acquired for US $707mn).4) (7. as the company exports ~90% of the total iron ore volumes. respectively. CIL topped by gaining 10. Indian steel consumption for FY2011 is expected to grow at 10%. Refer to important Disclosures at the end of the report 34 .6 (7.1 (11. while steel production grew by 8. Tata Steel signed an agreement with New Millennium to develop the taconite iron ore deposit in Canada. HZL and Nalco outperformed by 5. 2011 Metals During 4QFY2011.Preview 4QFY2011 Results Preview | April 4.8) (3. Angel Research Domestic steel demand remains strong: As per the steel ministry.1% qoq and 29.000 (US $/tonne) 800 600 400 200 0 1QFY08 4QFY08 3QFY09 2QFY10 1QFY11 4QFY11 World HRC prices China export HRC prices (FOB) Source: Bloomberg. Exhibit 2: HRC prices on an uptick 1.9) (10. steel companies hiked steel prices by `2. the ferrous space witnessed a series of price hikes due to higher raw-material prices.2%.5% yoy to US $720/tonne. CIL has.1mn tonnes.1) 0. NMDC also increased iron ore prices by about 5% in the domestic market during 4QFY2011. which includes the LabMag and the KeMag iron ore deposits.8 7.3%. Sterlite completes the Anglo Zinc acquisition: In 4QFY2011. the BSE metals index lost 8.4) 15. in an unexpected move.0% yoy to `41. CIL hikes coal prices for select customers: In 4QFY2011.333/tonne.5% qoq and 17.6% qoq to US $794/tonne (up 28.1) (15. as it hiked prices for few customers. The price hike by CIL was made to pass on the anticipated rise in wage and dearness allowances. metal stocks – 4QFY2011 Metal Majors Sensex BSE Metals SAIL Tata Steel JSW Steel Hindalco Nalco Sterlite Hindustan Zinc NMDC Sesa Goa Coal India MOIL Source: Bloomberg. Exhibit 1: Sensex vs.2) (7.2% in absolute terms.000/tonne in January and February 2011 and by marginal `350-500/tonne in March 2011.9) 5.4% in absolute terms and outperformed the Sensex by 15. For the 1QFY2012 contract. We believe the acquisition is earnings accretive. In 4QFY2011. Nevertheless.9% and 10. steel consumption rose by 8. given the low operating cost structure of Anglo's mines and relatively higher metal prices.0) (1.8%.4) (16.1) Ferrous sector During the quarter.

Upon the successful completion of the feasibility study. while New Millennium will hold the remaining 20% stake. Sesa Goa is currently reviewing options for commissioning the plant at the earliest. iron ore exports are likely to further fall by 35% to 58mn tonnes in FY2012. average spot iron ore prices for 63% Fe grade (CFR. whereas its third-party operations in Orissa have been discontinued.5mn-tonne steel plant in Bellary and holds nearly 700 acres of land.5% yoy to 79. Tuticorin Sterlite's Tuticorin smelter to continue its operations: On February 28. Tata Steel will own 80% stake in the JV.85bn if both deposits are developed and up to CAD4.9% yoy and 12. In our view.4mn tonnes. Sesa Goa acquired assets of Bellary Steel & Alloys (BSAL) for `220cr. capex to be spent and clearances and approvals for the project. However. Given the ongoing exports ban in Karnataka and the increase in export duty. if only the KeMag or LabMag deposits are developed. CFR China (LHS) Source: Bloomberg. the settlement of benchmark coking coal contracts for 1QFY2012 is substantially higher at US $330/tonne (US $225/tonne for 4QFY2011). Exhibit 4: Indian iron ore exports to China down 16 14 12 (mn tonnes) 10 8 6 4 2 0 Jan-09 Jun-09 Nov-09 Apr-10 Sep-10 Feb-11 Source: Bloomberg.Preview 4QFY2011 Results Preview | April 4.2% qoq to US $183/tonne. estimated at US $50mn. Indian iron ore exports to take a hit: According to the Ministry of Mines. Angel Research Outlook Raw-material Raw-material cost pressure to persist in 4QFY2011. Indian iron ore exports for FY2011 are likely to be around 90mn tonnes. The court has ordered the National Engineering Research Institute to submit a new report on the copper smelter. It further stated that mining companies would be entitled to interim relief if the new law does not come into force within the stipulated time period. lower demand from Japan due to steel production cuts on account of the earthquake is expected to keep further increases in iron ore price muted. We await for more clarity as the matter will be taken up after eight weeks. However. BSAL is setting up a 0.76bn. extending its stay on the Madras High Court's (HC) order to close the Tuticorin smelter. Sesa Goa will be marginally affected by this move as iron ore exports from Karnataka have stopped. During the quarter. Total iron ore exports to China for April 2010-February 2011 fell by 25. SC permits exports of iron ore lying at ports: The SC. 2011. the SC had asked the Karnataka state government to come up with a new law by March 31. leading to a decline of over 5% to 259mn tonnes in CY2011. As per the company. Indian Railways raised distance charges on iron ore meant for exports by `100. Indian iron ore exports to China for February 2011 declined by 29% yoy to 7mn tonnes. media reports suggest a hike of ~20% over 4QFY2011. that checks illegal mining. In case of iron ore negotiations. Angel Research 1QFY2012 raw -material prices fixed higher: According to raw-material ABARE. global capacity utilisation levels are estimated at nearly 81% in 4QF20Y11. the Supreme Court (SC) allowed Sterlite to keep its copper smelter running until further ruling. as compared to ~75% in 3QFY2011. the acquisition will allow it to venture into steel making in Karnataka. allowed the export of iron ore lying at major ports of Karnataka. As a result. However. but reduce going forward: We expect raw-material prices to remain volatile as a result of floods in Australia and low supplies of iron ore from India. Despite increasing steel production across the globe. 2011 Metals Tata Steel will incur 64% of the project feasibility cost. there has been no information on the new mining law as yet. coking coal prices may decline as the flood situation in Australia normalises and normalcy in supply is restored. According to World Steel. Moreover. BSAL: Sesa Goa acquires BSAL: On March 22. Refer to important Disclosures at the end of the report 35 . respectively. Exhibit 5: Iron ore prices and inventory in China 210 180 150 (US $/tonne) 90 75 60 45 (mn tonnes) 120 90 60 30 0 Mar-09 Jul-09 Nov-09 Mar-10 Jul-10 Nov-10 Mar-11 30 15 0 Iron ore inventory (RHS) Indian Iron ore 63% Fe. Tata Steel will invest up to CAD4. China) were up by 36. Indian Railways raises freight rates on iron ore exports: Following the export duty hike. the floods in Australia are expected to affect global coking coal exports. with an option to buy an additional 16% equity.68bn and CAD3. the two companies will enter into a joint venture to develop one or both of the deposits. Moreover. we await management's verdict on the timeline. on February 11. we expect steel prices to remain firm during 1HFY2012 due to higher raw-material prices.

3 39.3 16. zinc and lead inventory levels have increased by 16. for 1HCY2011.039 1.0 16.8 9. except for Nalco.368 350 180 265 2. which dampened the sentiment.3) 46.202 2. due to relatively higher raw-material costs.8 9.587 2.1 7. Angel Research Outlook In our view.7 69.1 3.7 24. respectively. iron ore sales volume is likely to be negatively affected.1 FY13E 20. 7.4 87.3) 91.5%.Preview 4QFY2011 Results Preview | April 4. Sell Accum.3 13.1 arg Target (`) 262 1. © Denotes consolidated numbers Chauhan/Pooja Analyst : Bhavesh Chauhan/Pooja Jain Refer to important Disclosures at the end of the report 36 .0 68.0) (32.724 6.7 3QFY11 8.0 104.4 47.3 OPM (%) chg bp 122 (365) (835) (537) 1. Buy Buy Buy Sterlite Inds © 173 Source: Company.2 6. average LME prices of copper.8 10. aided by higher realisations.3 28.5% and that of aluminium was flat.506 388 2.4 12.0) (32. However.3% decline in its top line.6 9. Angel Research.3 10.7 FY12E 19.6 (31. which is expected register a 4. Thus.1 19. Tata SAIL and JSW Steel. However. 2011.473 1. we expect the top line of all the companies under our coverage to grow by 11-17% yoy.8 3.341 353 2.9 10. respectively.2 17.307 2.158 325 2. 5.180/tonne in February 2011.524 17.9 11.5 (` EPS (`) FY11E 16. Note: Price as on March 31.914 13.3 16.6 26.8 14.6 7.4 17.8 40. while Hindalco is expected to report margin expansion of 122bp yoy.4 (36.3 34.6 8.0 17.2 16.6 32. We remain positive on Tata Steel.8 8. Copper touched new highs of US $10.896 31.1 13.3 12. As per media reports.0% and 35.1 5. the key positives for base metal prices are ongoing economic recovery in developed economies.7 39.4 10.3 19.763 (832) (551) (393) (410) 30. Angel Research On a yoy basis. however. BHP Billiton has finalised the TC/RC with Chinese smelters at US $77/tonne and US $7.535 2.8 10.7 43.375 354 1.2) 5.2 100.7 4. zinc and lead increased by 3-12% qoq and 5-34% yoy. EPS calculation based on fully diluted equity.8 17.9) 5. Nalco and Sterlite are expected to contract by 350-540bp yoy on account of higher operating cost.0 FY13E 16.0 17. aluminium. For Sesa Goa.4 (24.8 3.5 9.3 9.7 67. We maintain our positive stance on Sterlite and Hindalco.125 446 74 312 195 336 215 802 % chg 4QFY11E % chg 4QFY11E cr ( ` cr ) Reco.70/pound (+66% yoy).3 4. Exhibit 6: Average base metal prices (US $/tonne) 4QFY11 Copper Aluminium Alumina Zinc Lead 9.7 9.986 6. and later base metals prices fell sharply after an earthquake struck Japan in March.4 14.1%. 2011 Metals 4QFY2011 expectations: For 4QFY2011.394 2.2 11.7 11. owing to a surge in LME prices on a yoy basis.4 9.2 13. alumina. we expect sales volumes to increase. Zinc JSW Steel © MOIL Nalco NMDC SAIL Sesa Goa © Tata Steel © CMP (`) 347 209 138 916 395 96 283 170 290 621 Net Sales 4QFY11E 13.1 10.7 58.0 3.2 21. inventory level of copper at the LME warehouse was down by 14.0) (` EPS (`) % chg 10.288 2.6 6.5 4. We expect non-ferrous companies to register positive top-line growth of 7-40%.4 (36.647. margins of Hindustan Zinc.2 17.8 9. on a YTD basis.6 25.9 FY11E 21. however.2 Profit Net Profit 4QFY11E 3.4 24. copper.0 Source: Bloomberg.7 16. levels for zinc and lead were.680 10.387 qoq % 11.1 20. Jul-10 Sep-10 Nov-10 Zinc Jan-11 Mar-11 Lead Aluminium Source: Bloomberg.2 12.5 14.5 10.4%.2 P/E (x) FY12E 17.9 6.9 10.0 45.2 10. During the quarter.633 2.3) 91. Exhibit 7: Inventory chart 300 250 200 150 100 50 0 Sep-09 Nov-09 Jan-10 Mar-10 May-10 Copper Non-ferrous sector The quarter witnessed volatility as interest rates and bank reserve requirements were hiked by China.0%. rising interest rates and the Chinese government's efforts to curb the rising inflation and property prices could be the dampeners.8 13.602 4QFY10 7. margins of steel companies are likely to contract by 400-840bp yoy. aluminium.281 1.6 (36.8 16.2 6. Accum.4 4.654 9.5 731 1.5 9.3 11.2 (4.566 1.9 22. On the operating front.3 85.631 2.1 7. However.3 13.9) 5. higher by 35. tight supply and emergence of restocking activity.3 37.5 11.229 yoy % 33.9 18.4 (24.8 4.9% and 60. higher iron ore prices will support top-line growth.4 12.9 4.314 2.6 6. Inventory Exhibit 8: Quarterly estimates Company Coal India Hindalco © Hind.8 18.6 56. Neutral Buy Neutral Buy Accum.

the preferred level for OPEC. Further.8mnbpd yoy) and 89. after hitting a high of US $105/bbl in the first fortnight of March. as per the IEA's February outlook. up 0. on a cautious note. crude price soared substantially by ~62%. the lowest since November 2008. crude inched up again as the ongoing air strikes against Libya by the US and allied forces. reducing the OECD’s inventory surplus to 30. Crude hits 30-month high.5 days in December 2010.8mnbbls. In fact.000 barrels to 9mnbpd failed to do much towards cooling the rising crude price. OPEC is still divided on whether to hold an emergency meeting to consider raising oil production due to the disruption of oil supply in Libya. post hitting a 2010 low of US $66/bbl in May. 2011 Oil & Gas During 4QFY2011. causing oil price to surge. However. Exhibit 1: WTI crude and Indian crude oil basket prices 150 125 100 US$/ bbl 75 50 25 0 Nov-10 Jan-11 Nov-09 Nov-08 Nov-07 Mar-07 Mar-08 Mar-09 Mar-10 Sep-09 May-10 Sep-08 May-09 Sep-07 May-08 May-07 WTI Crude Indian Crude oil basket Avg.6mnbpd. respectively.6mnbbl in December 2010 to 2. Libya and Bahrain. On the other hand. On the demand side. driven by a faster-than-expected recovery in global fuel demand and continued optimism of US economic recovery. Many OPEC members claim that there is sufficient supply of oil and there is no need for a special meeting. Indian Crude oil basket Source: Bloomberg. non-integrated PE margins and PVC margins improved during 4QFY2011. the agency. with positive developments taking place. crude remained subdued as the US Department of Energy reported that total domestic crude inventories rose above expectations. despite it being demand destructive. the sharp drop in Japanese oil demand following the devastating earthquake and tsunami caused oil futures to dip below the US $100/bbl mark during mid-March. states downside risks to its outlook on account of persistent fragilities in advanced economies and inflationary pressures in emerging countries. OPEC crude oil output in February 2011 fell by 95kbpd to 30.3 days in November 2010 to 57. towards the second half of March. as per January 2011 preliminary data.05mnbpd mainly on account of the near 200kbpd average monthly loss of Libyan supply. Global oil supply rose by 0. However. OECD oil stocks rose by 19. Consequently.8mnbpd (up 2. On an average. OPEC has not formally changed its output policy since agreeing on the record cut in December 2008. which was partly offset by higher output from Gulf states.1mnbpd to 53.2mnbbls from 45. which on an average weakened during 3QFY2011.668mnbbls. Egypt. Overall. Petrochemical margins weakened during the quarter. crude ruled firm hitting a 30-month high of US $107/bbl. Nonetheless. surpassing the US $100/bbl mark in the first fortnight of March 2011. Refining margins were higher qoq due to higher middle distillate cracks in Asia.2mnbpd.5mnbpd yoy). However. Crude price is now much above US $70-80/bbl. coupled with Palestinian rocket attacks against Israel and unrest in the region. efforts by Saudi Arabia to ease the loss of Libyan supplies by increasing its production output by 500.8mnbpd in CY2010. However.7mnbbls in November 2010. on an average. surpasses US $100/bbl Crude spiked to hit a 30-month high. whereas natural gas.6% qoq in 4QFY2011. IEA has revised global oil demand for CY2010 and CY2011 upwards by 120kbpd to 87. on stronger-than-expected Canadian output. The quarter ended with crude hitting a high of US $107/bbl on renewed concerns of Libyan turmoil and a weaker dollar on expectations that the European Central Bank will raise interest rates. on rising concerns that the revolt against the government (in Tunisia.Preview 4QFY2011 Results Preview | April 4. However. Refer to important Disclosures at the end of the report Mar-11 Jan-07 Jan-08 Jan-09 Jan-10 Sep-10 Jul-07 Jul-08 Jul-09 Jul-10 37 . forward demand cover fell from 58.3mnbpd mom. Non-OPEC supply is expected to average 52. resulted in crude price increasing further. which may threaten global oil shipments. on re-instated Alaskan output. crude price stood firm in 4QFY2011 at US $85-107/bbl v/s US $80-90/bbl in 3QFY2011. OECD stocks declined sharply by 55. WTI price Avg. while CY2011 forecast has been raised by 0.3mnbpd (up 1. fear that continued violence in Saudi Arabia (OPEC's top producer) could lead to skyrocketing of crude prices is ensuring crude from not falling. countries such as Venezuela always believed that a fair price for crude remains near US $100/bbl. Also. on stronger data from non-OECD Asia and improved economic prospects for OECD North America. Thus.2mnbpd mom to 89mnbpd (highest-ever level) in February 2011 due to increased non-OPEC production to 53. However. among others) may spread to the other rich and bigger oil-producing countries in the Middle East and North Africa such as Iran and Saudi Arabia. strengthened during the first and last month of 4QFY2011 with marginal weakness seen in the middle of the quarter. crude price rose by 10. Angel Research On the supply side. following a reduction in cracker margins and subdued PP margins.

thus increasing the cracks. Higher heating oil demand has led to a spurt in distillate cracks. The cotton markets are expected to remain tight in the coming quarters. Yemen. Increased production from North American shale formations is also pressuring natural gas prices and the overhang is expected to continue. petchem dips Polyethylene and polypropylene prices decreased relatively higher than naphtha. especially because distillate cracks are at ~US $18-20/bbl. Response to NELP-IX better than earlier – PSU oil majors continue to dominate Response to NELP-IX must have come as some relief for the government as bidding for oil and gas blocks received a better response than that seen under NELP-VIII. Thus.Henry Hub prices 14.0 12. During 4QFY2011. thus decreasing polymer cracks qoq. have resulted in a demand-supply imbalance of petro products. taking material positions in significant hydrocarbon basins and increasing exposure to growing energy markets such as India. Currently. due to firm price in the first half of 4QFY2011. average natural gas price in 4QFY2011 stood at US $4.0 4. Key developments BP to take over 30% stake in RIL's 23 O&G blocks RIL and British oil major British Petroleum (BP) announced a historic partnership between the two companies during 4QFY2011. natural gas price gave up its upward momentum and fell below the US $4/mmbtu mark towards mid-February 2011 (hitting a low of US $3.Preview 4QFY2011 Results Preview | April 4. BP could further pay US $1. RIL has also signed a 50:50 JV agreement with BP for sourcing and marketing gas in India. Thus. Japan is expected to become more reliant on LNG spot cargoes.0 Sep-09 Nov-09 Jan-07 Mar-07 May-07 Jun-07 Sep-07 Nov-07 Jan-08 Mar-08 May-08 Jun-08 Sep-08 Henry Hub Price Source: Bloomberg. which was showing strength at US $4-4. as above-normal temperatures largely prevailed throughout the US. These payments and combined investment could amount to US $20bn.0 US$\mmbtu 10. The partnership also meets BP's strategy of forming alliances with strong national partners.5/bbl in 4QFY2011. 2011 Oil & Gas Average gas price recovers. We believe the deal will benefit RIL as BP is one of the largest energy majors and one of the finest deepwater exploration companies in the world. speculations over supply disruptions in the Middle East countries due to geo-political tensions. As against this.0 6. Despite higher demand. Besides. valued at US $9bn. should the outages continue for an extended period at the nuclear power stations in the affected region.0 0.0 8. leading to a sustainably high polyester demand. for US $7. Demand supply imbalance resulted in a spurt in cotton prices. BP will buy 30% stake in RIL's 23 oil and gas blocks. the market is expected to remain amply supplied in CY2011 as new production in Russia. with 76 bids received. However.1% qoq Natural gas price.17/mmbtu. Out of the 34 blocks on offer. As per the agreement. benefiting the relatively cheaper polyester producers. Angel Research Spot LNG price during 4QFY2011 was higher qoq.8bn on exploration success. gross refining margins are expected to improve due to increased middle distillate cracks in Asia. Another positive feature in NELP-IX was the return of RIL (bid for six blocks). up 10. continued to rule strong and touched a 4QFY2011 high of US $4. the JV agreement. Besides this. which had stayed away from the Refer to important Disclosures at the end of the report 38 . which may lead to development of commercial discoveries.0 2. Exhibit 2: Natural gas . Indonesia and Qatar come on stream. 74 bids were received for 33 blocks.5-2/bbl qoq in 4QF20Y11. polyester prices added to average global petchem margins due to tighter cotton market. GRMs are likely to spurt by US $1.73/mmbtu in January 2011.1% qoq. Only one offshore block did not receive any bid.2/mmbtu.5/mmbtu in the latter part of 3QFY2011 after hitting a low of US $3. With this. The Singapore Dubai complex refining margin is expected to be reported at ~US $6. However. Nov-08 Jan-09 Mar-09 May-09 Jun-09 Average Henry Hub NG Price Jan-10 Mar-10 May-10 Jun-10 Sep-10 Nov-10 Jan-11 Mar-11 Refining margins improve.2/mmbtu in October 2010. aided by concerns that global LNG supplies will become tighter as Japan tries to restore lost power due to the earthquake and tsunami. we do not expect spot LNG prices to run up from current levels. However.2bn. up 10. is one of the biggest foreign direct investments in the country. Refineries are also likely to report significant inventory gains due to the sudden rally in crude price. natural gas price is hovering around US $4. including the giant KG-D6 gas fields off the east coast.7/mmbtu in March 2011). NELP-VIII saw bidding for only 36 of 70 oil and gas blocks. Post that. thus valuing the 23 blocks at whopping US $24bn. RIL will continue to be the operator in all 23 blocks. This partnership will combine the technical expertise of both the companies and will focus on finding more hydrocarbons in the deepwater blocks of India.

lost 10. Cairn being highly leveraged to crude oil.3 34.0 9.1% and 2. Yet. Cairn.000cr.2%). gained 5. We believe the decent response despite recent significant changes in tax laws announced in the Budget would also have been reassuring for the government.9 13. Exhibit 3: Relative performance to the Sensex 60.6 20.0 50. BG Group and East West Petroleum Corp. with ONGC along with its partners being the sole bidder in 10 blocks.1 11. resulting in a 10. Consequent to all the above. RIL is expected to report higher GRM qoq at around US $10/bbl (US $9/bbl in 3QFY2011). Polymer margins are expected to dip slightly on account of reduction in polymer demand due to higher prices although polyester margins continue to be higher because of the tighter global cotton market. has proved to be a spoilsport for OMCs and upstream PSU companies.6 arg Target (`) 539 356 1.1 (` EPS (`) % chg 820.3 83.8% during 4QFY2011.1 FY11E 11. Participation by international oil majors has again been minimal with BHP Billiton.2 19.7 15. is expected to benefit the most from the ~11% spurt in crude price sequentially.6%. Higher demand for heating oil and shutdown of refineries in Japan consequent to the earthquake resulted in a spurt in petro cracks in the Asian benchmark indices. we expect a sequential dip of 25% in the bottom line. the substantial increase of 10.7 13.6 20.8 30.162 410.7 Profit Net Profit 4QFY11E 2.4 FY13E 7. Cairn.4 FY12E 42.5 31.189 % chg 4QFY11E % chg 4QFY11E (` cr) ` Reco.048 Net Sales 4QFY11E 3. 4QFY2011 expectations ONGC is likely to report a dip of US $2/bbl in net realisation qoq (US $67/bbl vs.2% spurt in the bottom line sequentially.908 18 283 (216) 82.8%. Neutral Buy Buy Buy Source: Company. 7.1 20.0 (` EPS (`) FY11E 30. whereas.5 7.6% in average crude price.7% on higher crude price and getting SEBI clearance for the Vedanta-Cairn Energy deal. respectively. Also.3 2.4 35. the predominance of PSU oil and gas companies continued in NELP-IX. leading to a marginal drop in the bottom line sequentially.7 16.6 12. 2011 Oil & Gas NELP-VIII auction. ONGC and Oil India Exhibit 4: Quarterly estimates Company Cairn India GAIL ONGC ^ RIL ^ CMP (`) 351 465 290 1. A more broad-based participation would have been a better representative of investor interest. Higher refining and petchem margins are expected to more than offset flat natural gas production (53mmscmd) qoq from KG-D6.6%. RIL's share price registered smart gains on announcement of BP buying a 30% stake in RIL’s E&P blocks and on expectations of the company reporting higher refining margins due to higher middle distillate cracks in Asia. Single bid was received for 14 blocks. 2011.2 15.0 0.0 (10. all is not positive.7 40. It could also be attributed to wider heavy-light crude oil spread. Higher transmission tariff and petchem margins are expected to be offset by higher subsidy burden. After a fall below the `900 mark in early February 2011.1 FY13E 44.0 (%) 30.0 OPM (%) chg bp 2. the Sensex fall of 5. US $69/bbl). ^Standalone numbers for the quarter and consolidated numbers for full year Vora Analyst: Amit Vora Refer to important Disclosures at the end of the report 39 . GAIL is expected to report flat transmission volumes qoq. backed by relative outperformance by index heavyweight RIL (-1% vs.255 935 5.7 20. Note: Price as on March 31.1 29. HPCL. among the eight foreign bidders. resulting in mounting under recoveries and reducing chances of any further deregulation reforms.309 5. respectively.6 9.659 820. Production from MBA fields is expected to remain stagnant qoq due to approvals awaited from the JV partners and management committee for additional production.3% and 6. Angel Research Oil and gas index outperforms the Sensex The oil and gas index outperformed (after underperformance in the previous two quarters) the Sensex by 1. ONGC reported extraordinary income of `1.0 10.Preview 4QFY2011 Results Preview | April 4.0 9.0 69.254 77.800cr in 3QFY2011 due to gas pool receipts.0) Q1'FY10 Q2'FY10 Q3'FY10 Q4'FY10 Q1'FY11 Q2'FY11 Q3'FY11 Q4'FY11 BSE Sensex BSE Oil & Gas Source: Bloomberg.536 7.8 29. with ONGC bidding for a lion's share (29 blocks). companies in our universe are expected to show a mixed performance for 4QFY2011E . BPCL and IOC registered losses of 8. However. Angel Research.547 19.1 P/E (x) FY12E 8. however.4 6.1 30.0 40. Besides.0 20. due to higher subsidy burden of ~`8. despite a spurt of ~US $11/bbl in crude oil price.9 13.4 61.4 78.7 40.3 14. we expect ONGC to post higher recouped cost owing to higher drilling of exploratory wells.3 2. Overall.

0 10. Both Bayer HealthCare and Zydus will supply the JV with products sourced from their manufacturing operations. product. lifting an earlier motion for preliminary injunction and clearing the sale of Dr. which could be extended to May 2014 if Sunovion obtains additional six months exclusivity on the product. Alembic and Aventis stood out positive amongst our universe.0 ( %) BSE HC Sensex 20. 8% and 3%.6% as against the 5. whereas Aurobindo Pharma was strangled by a 26% dip. Reddy's gets US court's nod to sell Allegra: The U.S. Abbott already has a settlement with Teva. Sun Pharma declined by 9%. Ranbaxy settles patent litigation with Abbott: During 4QFY2011. The deal is expected to start contributing from FY2012. Ranbaxy and Abbott entered into a settlement to resolve the patent litigation involving Tricor (annual sales of ~US $1bn in the US).0 0. 2010. Ranbaxy was no exception.2bn in 2010 in the US. the JV would focus on the sale and marketing of the future patented pipeline of pharma products.9/share) on our estimated EPS of `39. the generic version of Sanofi-Aventis's Taxotere. Cipla declined by 13% during the period.IMS Health). Lupin dropped by 14%. as the terms of the settlement are not disclosed. The HC index dropped by 10. Dr. for the sale and marketing of pharmaceutical products in India. Lupin and Sunovion Pharmaceuticals (subsidiary of Dainippon Sumitomo Pharma Co. Bayer HealthCare's pharma division would provide its existing sales and marketing business in India to the new company and Zydus would offer its women healthcare products. Dishman reported a 35% drop due to poor 3QFY2011 performance. as it would acquire a branded product basket. Amidst small caps. Bayer Zydus Pharma. further strengthening its position in the domestic market. the Sensex 50. USFDA Mylan sues USFD A to block Ranbaxy's Lipitor sales: During 4QFY2011. Indoco Remedies lost 10% due to lower-than-expected 3QFY2011 results. permitting it to launch its low-price generic version in March 2011.) entered into a settlement agreement to resolve the pending litigation over Lunesta (Eszopiclone). which has a 50:50 JV with Hospira for six oncology products.0) 4QFY2009 1QFY2010 2QFY2010 3QFY2010 4QFY2010 1QFY2011 2QFY2011 3QFY2011 (20. the BSE healthcare (HC) index underperformed the BSE Sensex after having outperformed in 3QFY2011. 2011 Pharmaceutical During 4QFY2011.0 30. after getting caught under the USFDA’s clutches. up 2%. We have accorded NPV of `13. of which Docetaxel is also a part. leading to incremental 5% (`1. Among mid caps. The product grossed sales of ~US $787mn in 2010 and would go off patent in November 2013. Taxotere posted sales of ~US $1. respectively. 2010 . an anti-cancer Refer to important Disclosures at the end of the report 4QFY2011 40 . diagnostic imaging business and other products. levying of MAT on SEZ units and some lower-than-expected results in 3QFY2011. Cadila. In addition to Bayer HealthCare's currently existing pharmaceutical product portfolio in India. Angel Research The downward rally during 4QFY2011 varied from a single to a double-digit drop across the sector. Ranbaxy had reached an agreement with Pfizer in 2008 to sell copies of Lipitor beginning November 2011 and was entitled to a 180-day marketing exclusivity as a reward for being the first to Exhibit 1: BSE HC index vs. This is positive for Cadila.0 (10.Preview 4QFY2011 Results Preview | April 4.2% fall in the Sensex in the same period. Amongst large caps.6 in FY2012. which was approved by the USFDA on March 16. During 4QFY2011. Hospira received USFDA approval for Docetaxel. DRL would be able to enjoy a longer period of exclusivity for the product.27bn for the 12 months period ending September 30. The sector was affected because of major expectations from the Union Budget remaining unfulfilled. Reddy's generic version of Allegra D24. post which Lupin is entitled to sell its generic version. Mylan sued the USFDA to block Ranbaxy's exclusive rights to sell the generic version of Pfizer's cholesterol pill Lipitor (US sales of US $7. Key developments Dr. However. Cadila and Bayer to set up new pharmaceuticals JV in India: During 4QFY2011. Lupin settles patent litigation with Sunovion: During 4QFY2011. we expect DRL to post gross sales of US $60mn and net profit of US $42mn. helping it garner US $30mn from this product.0) Source: C-line. For FY2012.0 40. down 26% during the period. This approval would boost Cadila's earnings. USFDA Hospira receives USFDA approval for Docetaxel: During 4QFY2011. it cannot not be ascertained when Ranbaxy would be able to launch its drug in the US. in 4QFY2011. Bayer HealthCare and Zydus Cadila signed an agreement to set up a 50:50 JV company.2/share for the product. despite good 3QFY2011 performance. District Court of New Jersey filed a stipulation and order. given that there is no visible competition for the product in the near future. which imposed an import alert.

On the domestic front. Cadila and Sun Pharma received five approvals each. where Lipitor’s copies would be produced and.9% to `1. from this site. Sun Pharma is expected to post 27. DRL received four approvals. Mylan stated that Ranbaxy is not eligible for the marketing exclusivity due to ‘false and unreliable data’ from its manufacturing site in Paonta Sahib.8bn and US $238mn. These products address a market opportunity of US $1.4% and a whopping profit on a comparative basis. The unit was audited by the USFDA in December 2010.4%. Gabapentin. despite the 1. which is expected to post 44. are expected to report 50.2% growth in net profit. Aurobindo Pharma is awaiting approval for 15 ANDAs.5% yoy and 51. the USFDA imposed an import alert on the entire unit. Naratriptan.3% yoy sales growth. Other players. Indian formulation sales are expected to report a muted performance. Tramadol Hydrochloride. Galantamine Hydrobromide. of which US $35mn (4% of FY2011E sales) were from the US. resulting in a 16. the USFDA imposed an import alert for the detention of Aurobindo Pharma’s products from its Cephalosporin facility (Unit VI) located in Andhra Pradesh. with sterile products contributing US $4mn-5mn of sales in the US. Levocitrizine Dihydrochloride. led by formulation sales in the export (US and Europe) and domestic markets.6 12. majorly driven by the US market. Despite strong top-line growth. thus wants the court to force the FDA to say publicly that Ranbaxy's application is tainted by Ranbaxy's misconduct and that the application must be denied and the 180-day reward be announced void. DRL launched pantoprazole sodium and Levocitirizine tablets in the US.9 11. Aurobindo Pharma received three approvals during the period. Even in the worst-case scenario. According to Mylan. Lupin is expected to post 15.0) Sales growth (13.5 15.2% yoy and overall net profit growth of 48. Topotecan Hydrochloride.6%. DRL is expected to post strong results with top-line growth of 15.7 13. the target would be `521/share.0) OPM Lupin Cipla Ranbaxy DRL 20. respectively. down 938bp yoy. mainly due to Taro's integration. Ciclopirox.2% and 24. Indoco Remedies is expected to post 8.0 27.1% yoy drop in net profit. operating profit is likely to decline by 4%.0) (20.4% yoy appreciation in INR against USD on an average during the quarter. Lipitor contributes `67/share to our target of `588.9% yoy growth. Lupin and Cadila. 4QFY2011 expectations We expect the pharma sector to close FY2011 with a mixed 4QFY2011 performance. on account of Taro's integration. which will drive export formulation sales during the period.4 15. Source: Angel Research Cipla and DRL to outperform For 4QFY2011. Subsequently. Cipla is expected to post net sales growth of 12. Risperidone.2%. other generic drug makers should be allowed to enter the market as soon as the patent expires.Preview 4QFY2011 Results Preview | April 4. Ondansetron Hydrochloride 5 DRL Ipca Lupin Ranbaxy Sun Pharma Source: USFDA. Desloratadine 4 Allopurinol 1 Nabumetone 1 Ondansetron 1 Galantamine Hydrobromide. USFDA USFDA import alert imposed on Aurobindo: During 4QFY2011. mostly sterile. Galantamine Hydrobromide.3 28. mainly because of Taro's integration. India. Exhibit 3: Sales growth and OPM for 4QFY2011 40. Out of which. The unit generated ~US $70mn of sales in FY2010. namely DRL. with margins likely to be around 28.0% yoy top-line growth. Currently. Fosinopril Sodium 3 Glipizide and Metformin Hydrochloride. Net profit is expected to increase by 8. assuming there is no contribution from Lipitor.2% growth in net profit. in the US. Amongst the MNC pack. Alembic is expected to post strong sales growth of 22.904cr.0 30. India. OPM is likely to contract by 78bp for 4QFY2011.4% yoy growth in sales and net profit. Amongst small caps. In its complaint.0 Sun Pharma (10. With flat gross margin.1% growth for the quarter. Propranolol Hydrochloride 5 Pantoprazole Sodium. respectively. Aventis is likely to post 12.8 ANDA approvals in 4QFY2011 During 4QFY2011. The company is expected to see strong traction in its Indian and Russian Exhibit 2: ANDA approvals for select companies Company Alembic Aurobindo Cadila Generic products Approvals Lamotrigine 1 Famciclovir.0 20.3% yoy sales growth.0 0. led by an 83bp yoy improvement in OPM. 8. Sun Pharma is likely to post 27. Amongst large caps.9 18. We expect our universe to post 11. respectively.9% yoy. Angel Research Refer to important Disclosures at the end of the report (%) 41 . Until the issue is resolved. the import alert will be affecting all shipments from Unit VI to the US market.2 10. 2011 Pharmaceutical challenge the Lipitor patent.

1) (` EPS (`) % chg 9.3 FY13E 11.5 41.2) (16.3 85.4 28. which will aid the sector trade at premium valuations to the Sensex.7%.0 17.1 21. The company is expected to post strong growth on the export and domestic fronts. OPM is expected to increase by 113bp yoy to 18.9 89.4 11.6 6.Preview 4QFY2011 Results Preview | April 4.1 9.3 2. OPM is expected to expand by 719bp yoy to 17.6% for the Sensex.9 22.4 11.6 7. we expect our universe companies to report an earnings CAGR of 21% vis-a-vis 17. OPM (excluding technical know-how fees) is likely to come in at 20.2 24. driven by the domestic segment.6 15. We expect DRL to post net profit of `251cr.2 67.9 FY13E 6.5% to `118.0 14.2 48. Cadila and Indoco to take the lead Cadila is likely to post yet another strong quarter with 24.0 39. boosted by strong performance at the operating level and lower taxes during the quarter.9 12.6 30. but lower tax outgo during the quarter.2 27.8 8.0%.5 20.5 20.8 10.8) 50. In the PSAI segment.2 7. The long-term growth drivers for the pharma sector both for domestic and exports remain intact.3 5.0 8.3 OPM (%) chg bp 1.0 7.4 7.1 30. due to lower gross margin.1 16.164 1.2 14.6 19.9 (13.412 22.6 54. Angel Research.4 Profit Net Profit 4QFY11E 34.0 146. reporting growth of 15.7 29.904 611 118 458 1.9 18.5 250. though the segment is currently witnessing some pressure.2 (85.3 8.5%.6 17.5 12.1 19.1 23. net profit is likely to increase by 24.9 13. Net profit is expected to increase by 48.6 11.009 277 1.6 13.4 51. Exhibit 4: Quarterly estimates Company Alembic Aurobindo Aventis# Cadila Cipla Dishman Dr. led by formulation exports. 2011 Pharmaceutical formulation businesses as well. with gradual improvement in the business.9 20.2 11.6 16.4 16.053 426 83 35 522 (22) 241 91 719 113 (78) (1.5 5.3 0.2 12.6% due to improved gross margin.9 8. Reddys Glaxo# Indoco Ipca Labs Lupin Orchid* Sun Pharma CMP (`) 73 196 2.9%. due to lower other expenses.9 (92. Buy Buy Neutral Buy Buy Buy Buy Neutral Buy Buy Buy Buy Buy Buy Ranbaxy Lab# 444 Source: Company. driven by its domestic performance.6 31.091 15.1 arg Target (`) 104 278 972 397 151 2.6 35. OPM is expected to expand by 35bp yoy to 19.094 449 302 415 300 442 Net Sales 4QFY11E 322 1.6 142. Outlook and valuation We have a positive earnings outlook for the sector.3 19.8 37.8 20.1) FY11E 7.9 17. net profit is expected to increase by 51.2 (` EPS (`) FY12E 9.2 81. For FY2011-13E.9 19.8 24.012cr due to robust growth on the domestic formulation front.4 66. OPM is expected to grow by 426bp yoy to 20. Going forward.6cr.6 21.2 (85.164cr during 1QCY2011. Consequently.7 3.9 8. Alembic and Indoco Remedies. Cipla is expected to post net sales growth of 12.4 18. we expect the stock to be an outperformer.012 1.2% yoy because of higher depreciation costs.8 9.6 7. Overall.3 22.0 18.1 9.4 15.8 54.5 19.2 3.7 28.7 74. up 50.8 23.3%.7cr.3 28.9 (92.0) 27.7 238.5cr. respectively.9 44.4 13. leading to OPM of 11. Indoco Remedies is expected to report top-line growth of 8.1 3.0 36.2% and 25.7 19. we recommend Dishman Pharma.478cr. Note: Price as on March 31.8 15. Aurobindo Pharma is expected to post net sales growth of 13% yoy.7 18.927) (938) 17.6 6. Cadila Healthcare.3cr.1 15.478 266 1.9 10. as Aricept (the FTF opportunity) reported below-expectation sales in 4QCY2010.7cr.0 8.4 40.3 48.7 29. We estimate Ipca Labs' top line to grow by 25. The company is expected to post OPM of 13.2% yoy to `147.8 12.6 100.2% to `1. lacklustre performance is expected for 4QFY2011. 2011.7cr for 4QFY2011. We expect Ranbaxy’s net sales to decline to `2. up 241bp yoy. we prefer Cipla.0 12.8) 50. Consequently.0 10.2 10.3 18. In this segment. #1QCY2011 .5 27.2 8.6 171.3 16. We expect net profit of `142.2) (16.4% yoy to `12.6% yoy.8% yoy. driven by growth in domestic formulation sales. In the generic segment.091 20.* Non availability of 4QFY2010 consolidated numbers Kour Nangra/Poonam Analyst: Sarabjit Kour Nangra/Poonam Sanghavi Refer to important Disclosures at the end of the report 42 .8 29.2 20.2 40.2 48. up 522bp yoy.7 20. Lupin.1 P/E (x) FY12E 7.5 25.0 62.6 9.1 FY11E 9.0 12.8% due to favourable product mix.4 55.1 16.3 330.7 24. net profit is expected to rise by 20.5 84.002 791 321 102 1.4 51.0% growth in net sales to `1. Aurobindo Pharma.3 13.7 13. The company ’s operating profit is likely to dip by 67%.9% yoy to `268. led by gross margin expanding to 59.4 3. net profit is expected to rise by 11.1 11.3 24.489 369 2.7 21.639 2.6 268.8 25.1 22.2cr.1 18.3 13.006 622 356 560 369 588 508 % chg 4QFY11E % chg 4QFY11E (` cr) ` Reco. as its valuations discount the worst. Overall.6 13.2 24. Our numbers include MTM on foreign debt.9 27.4% to `457. In CRAMS.7 1.8%. there have been indications of a gradual recovery and ramp-up from most players.9% yoy to `41.7 9.2 24.5 147.

5 104. It may be noted here that inordinate delays in project completion has led to the CEA revising the Eleventh Plan capacity estimates to 62.000 40 0 FY2003 FY2005 Target (T) LHS FY2007 FY2009 Achievement (A) LHS 20 11MFY2011 A as a % of T (RHS) Source: CEA.0 Source: CEA.6 9.0 7.9% and 12. During 11MFY2011.854ckm.6% yoy to 104.6% yoy.8 12. while the peak deficit was 5%.488MW.2 2. Capacity addition: Status check Generation As of February 2011.0 10.9BU. much below the target of 78. The plant load factor (PLF) of the thermal plants for 11MFY2010 stood at 74.000 60 5. FY2003 FY2004 FY2005 FY2006 FY2007 FY2008 FY2009 FY2010 Overall Peak Source: CEA. we expect 49.9 23. as against the targeted 12.4 9.6% and peak deficit of 21.0% yoy to 729.000MW to be added during the plan period.2 11.5BU. Net profit is expected to rise by 10.762MW of power capacity was commissioned.8 5.8% yoy to 23.8 4. However. the country's thermal power generation rose by 3.232ckm.2 11. as against targeted 14. Exhibit 1: Generation capacity addition performance 20. However.4 16.7%.0 12. Maharashtra had overall power deficit of 16.1 3. Capacity addition has generally been delayed due to execution issues relating to acquisition of land and obtaining environment and other statutory clearances. while nuclear power generated grew substantially by 39.7BU (695. Addition to the 220kv sub-station category stood at 10.6 Transmission lines During 11MFY2011. we expect the capacity addition to pick-up in FY2012.385MW for the mentioned period. In all.0 6. Hydro power generation increased by 6. the region's power deficit stood at 13.0 8.139ckm for the mentioned period.6% and 10.5 7.1 4.3 12.7 580 98.6% reported in 11MFY2010. lower than 9.697 circuit kilometers (ckm) were added to the 400kv transmission lines.3 7.7 10.1 601. 6.4 1.1 7.0%.2% yoy. we expect power-generating companies in our universe to report top-line growth of 11.577MW set at the beginning of the period.7 61. fuel shortage and deficiencies in the T&D system.635 MW. that is a mere 54% of the original Eleventh Plan target.4 53.3 8.1BU). 32. Exhibit 3: India – Power-deficit scenario 20.7% yoy to 601.4%.0 12. as against the targeted 9. respectively.0 8.7 13. Total addition to 220kv transmission lines stood at 5. power generation in India rose by 5.6 39.266MW. being the last year of the plan period. operating profit is expected to increase at a higher rate of 25.7 695. India's overall and peak power-deficit levels during 11MFY2011 stood at 8. total addition to the 400kv substation category stood at 10. driven by capacity additions and higher tariffs.3%. Overall. Refer to important Disclosures at the end of the report 11MFY2011 43 . Transmission sub-stations During 11MFY2011.000 100 Exhibit 2: Power generation (BU) eb-11 eb-10 Feb-11 Feb-10 chg (%) 11MFY11 11MFY10 chg (%) Thermal Hydro Nuclear Total 55.000 80 (MW) (%) 10.3 729.1 16.3%.6% yoy.3BU during the mentioned period.3 11.7 6. 2011 Power For 4QFY2011.0 16. higher by 238bp than the targeted 72. as against the targeted 5.7 12. Angel Research Power-deficit situation The country continues to face power deficit due to the delay in commissioning of new capacities.0 0.866MW. The Eastern region had the lowest power deficit of 4.Preview 4QFY2011 Results Preview | April 4.3%. Angel Research Power deficit highest in the Western region The Western region continues to record the highest power deficit in the country.7 65. Angel Research 8.6 13.3 56.9 15. Operational highlights During 11MFY2011.

a JV of NTPC.4) (5. coal prices were higher by 20. Unit-I of the 500MW Indira Gandhi Super Thermal Power Project at Jhajjar. Average prices of the New Castle Mckloksey 6. 32 critical thermal power stations out of the 82 monitored by the CEA had critical coal stocks for less than seven days. and logistical and infrastructural issues. On qoq basis too. accounting for ~70% of the country's overall demand in FY2010. a JV between NTPC and Nuclear Power Corporation of India (NPCIL).9) (5. Refer to important Disclosures at the end of the report 44 .700kc coal stood at ~US $129/tonne in 4QFY2011 v/s US $95/tonne in 4QFY2010.Preview 4QFY2011 Results Preview | April 4. During 4QFY2011.9) (16. which currently stands at 92. was declared commercial in 4QFY2011. was incorporated during the quarter for developing nuclear power projects.3) (13..5) (10. Angel Research Key corporate developments NTPC Anushakti Vidhyut Nigam. Angel Research Coal-based power plants have been facing fuel shortage on account of various reasons such as delays in procuring coal linkages. NTPC completed the synchronisation of Unit-I of the Sipat Super Thermal Power Station and Unit-VI of the 500MW Farakka Super Thermal Power Station in West Bengal. Government of Haryana and Indraprastha Power Generation Co. The dominance of coal as the fuel for power generation in India is expected to continue with a major portion of the upcoming capacity being based on coal. 150 100 50 0 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Source: Bloomberg. 2011 Power Exhibit 4: Region-wise power deficit (11MFY2011) Region (%) Northern Western Southern Eastern North-Eastern All -India Source: CEA Overall (8. coal demand by India's power sector would grow by ~280mn tonnes over the next five years. Exhibit 5: Coal consumption for power generation 400 350 (mn tonnes) 355 330 302 240 253 263 278 280 366 300 250 200 150 100 50 0 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 Source: CEA. The power sector is the leading consumer of coal in India. accounts for ~54% of the overall capacity.5%. NTPC will hold the balance 49% of the equity share capital of the company.3) Global coal prices on the rise Spot global coal prices were substantially higher on a yoy basis during the quarter. While NPCIL will hold 51% stake.. issues in obtaining environment clearances and other regulatory approvals for developing coal blocks.6) Peak (8. hurdles in the expansion of coal blocks. Exhibit 6: New Castle Mckloskey coal prices 250 200 Coal scenario (US$/tonne) Coal India's coal-based power generation capacity. As per our estimates. Haryana Power Generation Corp. As of February 2011.418MW.0) (18.0) (8.8) (5.3) (9.1) (4.

4 FY13E 45.7 18. Angel Research. aided by volume growth due to the commencement of new capacities and higher tariffs.Preview 4QFY2011 Results Preview | April 4. We recommend an Accumulate rating on NTPC and maintain GIPCL. companies under our coverage mostly operate under the regulated return model and. Commissioning of Unit 3 and 4 in Surat is expected to aid the company’s volume growth. Note: Price as on March 31.4 2. Exhibit 7: Performance on the bourses Sensex BSE Power (5.6 10. Angel Research 4QFY2011 expectations We expect NTPC to record an 8.0) (10. hence. as supply is not expected to keep pace with demand due to delay in capacity addition by companies and shortage of fuel. respectively.0) (14. However. OPM is expected to expand by 262bp yoy to 27. Buy Buy Accum.0 (41. 2011 Power Performance on the bourses Most power stocks under our coverage underperformed the Sensex.8%.216 37.8) NTPC (16. while the bottom line is likely to decline by 41. players with high merchant capacities would benefit due to healthy merchant tariffs.V. CESC is expected to register 27.8 6. 2011 Analyst . Exhibit 8: Quarterly estimates Company CESC GIPCL NTPC CMP (`) 311 93 193 Net Sales 4QFY11E 980 322 13.0%.2% during the quarter.3 9.6 12.8 (` EPS (`) % chg 37. Thus.3%.785cr. the country's power-deficit scenario is likely to persist.2 P/E (x) FY12E 7.8% yoy to `2.0) GIPCL (11. NTPC fell by only 3. our Buy view on CESC and GIPCL.3) (%) CESC (15. while net profit is likely to increase by 37% yoy to `137cr for 4QFY2011.3% yoy growth in its standalone top line to `980cr.9 1.6%.0 (41. CESC and GIPCL also fell by 15% and 11. Source: Company.0) (12.4 Profit Net Profit 4QFY11E 137 21 2. are not expected to benefit from this.5 12.0) (4.7% yoy increase in its top line to `13.7 (` EPS (`) FY12E 43. We expect GIPCL to register a 26. OPM is expected to expand by 260bp yoy to 28.0) 0.9 FY13E 6.4 15. We expect capacity addition to gather pace by the end of the Eleventh Plan in FY2012.8) 9.0 Source: BSE.7 FY11E 7.8 7.2 9.3% yoy to `3.835 27.8 FY11E 40.6 27.2 arg Target (`) 386 107 209 % chg 4QFY11E % chg 4QFY11E (` cr) ` Reco.8% yoy to `21cr for 4QFY2011 due to higher depreciation and interest costs.0) (8.835cr for the quarter.7 OPM (%) chg bp 260 262 346 28. aided by higher volumes due to commissioning of the 250MW Budge-Budge plant.6 11.7% yoy increase in revenue in 4QFY2011.2) (9.0) (6. primarily due to higher volumes. in line with the fuel price hike.0 27.8 10.0) (2.3) Outlook (3. which lost 5. The company’s operating profit is expected to increase by 24. However.216cr. Refer to important Disclosures at the end of the report 45 .7 16. However.3 26.8) 9. Net profit for the quarter is estimated to grow by 9. Srinivasan V.7 8. which are expected to prevail over the next two years.6 13.

81 0.) for arriving at our target price and do not expect negative impact incrementally.5 PAT ARIL DLF HDIL Source: Angel Research.72 0.94 FY10 0. we expect revenue to be driven by the residential segment and rental income. 2011 Real Estate The quarter has witnessed a slew of new launches in the residential space given high pricing in regions like NCR and Mumbai. the debt refinancing requirement is expected to come under pressure during 1HFY2012. 20% discount to current levels of `3.900cr.52 0. of TDR sale (i.1 200 150 100 50 0 Revenue 40. We expect volumes to remain flat. It should be noted that a 10% decline in TDR prices would adversely impact our NAV by mere 3% and target price by 2. Most companies have higher project visibility with significant portion of their land bank under development or about to be launched.5mn sq. we expect the share of TDR sales in the company's revenue mix to fall from 60% in FY2011 to 30% in FY2012. Note: HDIL revenue includes `750 cr of FSI sale ’s (Popular Bazaar) Companies better placed in 2011 than 2008 We believe project visibility. DLF's net debt-toequity now stands increased from 0. the challenges are more cyclical in nature and appear to be largely priced in.e.82 0. strong residential volumes in Gurgaon in February (50% growth mom) came in as a positive surprise. Also.53 0. ft. 30% decline in TDR sales from FY2010) in FY2011 and FY2012 to factor in the hike in FSI.80 0.Debt/Equity trend Company DLF Unitech Sobha HDIL FY08 0.79x qoq. which gives some respite to developers in a declining volume scenario.e. the RBI initiated measures including: 1) capping the LTV ratio to 80% (previously 85%).2 65. ft. PAT yoy growth estimates – 4QFY11 350 300 250 (%) 310. Further.000/sq.33x in the suburbs. where prices have overheated since the last six months. In our universe of stocks.0x to 1. we expect DLF's revenue to be largely driven by sale of plotted properties in Gurgaon. which continues to remain a key overhang on the stock price as debt repayment of ~`2.45 0. Most banks have refinanced loans.4% to 2. HDIL is expected to continue to book partial revenue from the recent 2msf FSI sale (worth ~`1. Given the delay/uncertainty in shifting of families. Rentals seem to have bottomed out and a material uptick may not become visible until inventory levels come down. funding and pricing pressures could continue for a while.85 FY09 0. Overall.Look beyond MIAL HDIL has already generated 11mn sq. we have factored in lower TDR price of `2.58 1QFY11 2QFY11 3QFY11 0. Angel Research Refer to important Disclosures at the end of the report 46 .Stretched balance sheet remains key concern In 3QFY2011. For ARIL. Inventory levels remained high both in Gurgaon and Mumbai. Exhibit 2: Real estate companies . which will affect TDR prices. the DLF .78 2. Hence.000 families.77 0.400cr) in 4QFY2011.3 185. Exhibit 1: Revenue.5x by FY2012E from 1x in FY2009.4 14.44 1.400/sq. HDIL . from the MIAL project this far.84 1.0%. Thus. the company's net debt increased by ~`800cr qoq to ~`20. We believe these measures will marginally affect demand and may lead to postponement of buying in the short term.81 0. RBI tightens liquidity to curb speculative demand In its bid to curb excess liquidity and speculative demand in the real estate sector.95 1.45 Source: Company.1 228. ft. which HDIL is expected to get at the airport vicinity as it rehabilitates 85. despite more than one-year delay in shifting the families in Phase 1. We believe. sector leverage and cash flow are much better placed for real estate companies than they were in 2008.69 0.53 0.Preview 4QFY2011 Results Preview | April 4. which could lead to prices cooling off in regions like Central Mumbai and Gurgaon. Further.69 0.67 0.74 0. (potential 65 acres). (i. clarity on whether DLF will buy out the promoter's stake in DAL remains another key concern since it could potentially further dilute minority shareholders. given low inventory of TDRs left and indefinite stoppage of the MIAL project. even though the interest in commercial properties seems to be improving. Sector leverage is likely to be below 0. However. operationally.700cr from ~`19. However.910cr is required to be made over the next 15 months (~`210cr in 4QFY2011). We have assumed 4.72 0. HDIL is expected to report flat growth in Transfer of Development Rights (TDR) volumes and prices. the sector is better placed than the last slowdown. 2) increasing risk weight on residential housing loan of above `75lakh and 3) raising standard asset provisioning for teaser loans from 0.50 0. ft. the Maharashtra government is likely to hike FSI from 1.3%. However. Nonetheless.75x to 0. we have excluded 10mn sq. ft.

Industry participants have indicated that the surge in leasing enquiries has come on the back of renewed interest shown by corporates. with a modest to flat 5% increase expected in other markets. Moreover. However. Angel Research Sensex vs. We expect prices to remain under pressure. HDFC and the SBI have seen a drop in their mortgage loan transactions. Exhibit 3: Pan-India commercial demand 60 50 (mn sq. ft.000cr. which stoked fears of 1) corporate governance. vacant spaces are likely to increase given the considerable rationalisation in the supply pipeline. especially in tier-II and III cities.Preview 4QFY2011 Results Preview | April 4.299bp on the back of the housing loan scam. capital values have started to strengthen and registered a marginal appreciation across most micro markets. ft. way ahead of its full-year guidance of 4. This is based on the key assumption that there will be no recourse to Unitech's balance sheet for the loans taken by the telecom venture. owing to which many retailers shifted gears from the rapid expansion mode to the consolidation mode. 8 6 4 2 0 2009 2010 2011 2012E 2013E Source: Cushman & Wakefield. Even if one were to subtract the entire debt on Unitech Wireless balance sheet. 2011 Real Estate Unitech .0mn sq.Minimal overhang due to telecom stalemate Unitech's equity investment in its telecom venture is ~`650cr (`2/share). We believe Unitech's balance sheet will be unaffected.) 40 30 20 10 0 2009 2010 2011 2012E 2013E Source: Cushman & Wakefield. strong residential volumes in Gurgaon in February (50% increase mom) came in as a positive surprise. On the other hand. Amidst this scenario.4mn sq. as the segment has fragmented supply dynamics. For instance. as it is common practice to provide loans on spectrum because telecom is a recognised sector. and not necessarily large ones. In the IT/ITES sector.) Commercial demand to pick up over the next 12 months After registering a sharp decline in the past few quarters.Still some pain left Vacant space in shopping centres increased during 2008-09 primarily on account of high real estate costs and lower consumption. This has resulted in tapering of volumes in regions like Mumbai and NCR.2% correction in the stock during FY2011 is unwarranted. in 9MFY2011. Accordingly. where catchment areas are witnessing high demand. realty stocks During 4QFY2011. in the short term. Angel Research Dipping residential volumes owing to high prices In Mumbai and Delhi.ft. As a result. Initial recovery volumes are likely to be cornered by experienced players such as Phoenix Mills. 4. the BSE realty index widely underperformed the Sensex by 1. ft. value erosion for Unitech would still be only `10/share. we believe demand is yet to pick up. we believe the recent correction Refer to important Disclosures at the end of the report 47 . Cushman and Wakefield estimates cumulative pan-India demand for office space during CY2009-13 to be 196mn sq. while SBI expects a downward revision in its growth target for this fiscal from its earlier target of ~`22. we believe the 44. which is not the case with metros. Exhibit 4: Pan-India retail demand 14 12 10 (mn sq. This has already been reflected by companies like DLF which leased out . HDFC has seen a drop of 15-20% in its mortgage loans in the island city (although disbursements have been good otherwise). whereas prices in most other markets are still 10-15% lower than their last peak levels. we expect net employee addition of 20% over FY2011-13. We believe 2011 will see consolidation with residential prices remaining soft in Mumbai and Gurgaon (could see a correction of 15-20% in some overheated micro markets). ft. 2) restricted credit flow to the sector and 3) the expected increase in cost of funding for future projects. Therefore. However. Retail segment . the RBI's measures to tighten liquidity and curb speculative demand by increasing LTV and risk weight on teaser loans have further dampened stock performance. residential prices are currently ruling 15-30% above the peak levels of 2008. we expect demand for office space to start picking up from 2HCY2011.

0) (15.036) 355 Profit Net Profit 4QFY11E 488.4 11.7 14. Given the current scenario.9 1.4 FY13E 23. Further. flow. to remain firm at current levels with uptick likely over the next 12 months.5 65. one-year increasing gearing and just 4% discount to our one -year NAV forward NAV.3 FY11E 10.5 40. net debt-equity and growing disposable income.8 (` EPS (`) % chg 14.9 % chg 4QFY11E 14.2) (10.8 56.6 7. We discount to their NAVs.5 32. 2) stability in volumes and 3) comfortable balance sheet position unlike that in 2008. We maintain our Neutral DLF.3 2.4 FY13E 11.0 (5. which are trading at 49% and 56% NAVs. We expect rentals Exhibit 7: Quarterly estimates Company CMP (`) DLF Anant Raj Ind HDIL 267 83 176 Net Sales 4QFY11E 2. we believe absorption and not price appreciation will drive residential growth over the next six quarters.7 11. Note: Price as on March 31 .2 583. Our top ARIL. 2011.0 51. However.2 4. low leverage and strong project pipeline with attractive valuations.0) (9.1 (` cr) ` Reco. where prices have overheated.9 (` EPS (`) FY12E 13.1 5.6 30.4 228.1 185. .0) (25.4 228. Amidst this scenario. with growing disposable income. We believe HDIL.6 5.238 OPM (%) chg bp (429) (2.0) BSE Sensex ARIL DLF (21. high inventory is still hampering commercial recovery. things are much better than 2008 with respect to project visibility. respectively.0) (5.1 45. cash flow. picks are HDIL and ARIL. Neutral Buy Buy Source: Company. HDIL revenue includes `750 cr of FSI sale (Popular Bazaar) ’s Param Analyst .6 55. we expect stability in residential prices with the exception of certain micro markets. shortage of 25mn houses in India and reasonable affordability.4 7. 2011 Real Estate gives a good entry opportunity on account of 1) companies trading at significant discount to our one-year forward NAV.4 12. Exhibit 5: Realty stocks underperform the Sensex 0. new launches have been more rewarding for developers who have launched projects at 10-15% discount to the prevailing market rates. We prefer companies with visibility in cash flow.0) (20.3 FY11E 25.5 6. view on DLF owing to concerns of weak operating cash flow.0) (%) (8. Further.5 65.Preview 4QFY2011 Results Preview | April 4. We are positive on the long-term outlook of the realty sector. We believe that stock performances are related to macro factors interspersed with company-specific issues such as the DLF-DAL merger translating into higher debt and 2G-related scam for Unitech. Having said that. refinancing of loans from banking sector will give some respite to developers in the falling volume scenario.796 140 1.2 310.4 arg Target ) (`) 114 242 % chg 4QFY11E 40. Angel Research.9) HDIL Source: Bloomberg. Oberoi Realty and ARIL are best placed in the sector. though there has been an uptick in the absorption levels. respectively.7 P/E (x) FY12E 19.Param Desai / Mihir Salot Refer to important Disclosures at the end of the report 48 . and expect an uptick in the commercial segment over the next 12 months. Angel Research Outlook and valuation India's realty index is currently ruling near the life-time low seen in 2008.

optimism was also visible in space booking done by retailers during the quarter. Markets witnessed strong space booking not only from domestic retailers but from international retailers as well. We believe the change in strategy signals evolution in the business model. it has been done with a very cautious approach post the learning phase for retailers during the recessionary times of 2008 and 2009. Developers are also a more knowledgeable clan now and have started appreciating the retailers' matrix (footfalls. Cautious approach towards expansion Overall. stand to benefit from such growth. Spencer's and Spinach. thereby offering an immense opportunity to the organised retailer. We believe the mood on the street is buoyant due to sustained increase in consumer spends. As a result. rental plunged 30-40% across cities.5% in the last quarter. demand for better food goes up and the per capita spend on food doubles. Organised retail in India has been growing at a strong pace. retail consumption trends remained upbeat in both the rural and urban households. Value retail formats such as Big Bazaar. despite high food prices. It helped Indian consumers become more shopping savvy and demanding in terms of choice and product range. is likely to be added by 2012. Lifestyle retailing on a roll Stable economic conditions and a pick-up in consumer confidence resulted in consumers opening up their wallets for purchasing lifestyle goods during the quarter. in 3QFY2011. backed by enthusiasm of retailers and investors alike in the sector. Although retailers have gone aggressive in space booking. More and D'Mart tried to cushion the impact of inflation on demand by stepping up bargains and discount offers across product categories that have been hit hard by the spiraling prices. major players in the value retailing segment.9% of the total retail sector by CY2013E. Of the total addition. Food Bazaar. It is common knowledge that as a consumer's earning increases. Food retailing . on an average. during the recession. leaving Japan behind. It is expected that by 2013 there will be around 300 million middle-class consumers in India propelling growth of organised food retail in India and facilitating it to capture a market share of 3. Therefore. stand to benefit from this ongoing trend. and it is now stabilising. This is because rental is a key cost component in the retail business. eZone. India is estimated to have added 5 million square feet (mn sq. India is the fourth largest economy on purchasing power parity terms and is all set to become the third largest by 2013.) in 2010 and another 15mn sq. 2011 Retail The year gone by was once again very challenging for the organised retail segment.The saviour The food and grocery (F&G) segment forms a major share of an individual's wallet. more acceptable to retailers. Reliance Retail. the Indian economy steadily recovered to the pre-2007 level and economists across the board expect GDP growth of around 8% for the next decade. Spencer's and More. albeit with a cautious approach. which had witnessed a stunning increase during the pre-recession era. and we expect the segment to register higher double-digit growth for the quarter under review. We believe retailers across the board would start re-evaluating their business model. an Indian spends around 60% of his/her earnings on food. Overall. F&G is expected to be at the forefront of the retail revolution. major players in this segment. the beginning of which has already been made by Pantaloon Retail (PRIL). Many developers have changed their rental model from fixed to variable (revenue share). developers have chalked out aggressive plans to build 90 new malls and take the grand total to 280 by the end of 2012. which is Value retailing maintains positive momentum The value retailing segment is expected to have witnessed robust growth during 4QFY2011. During the year. including our top pick PRIL along with Reliance Fresh. However. During 4QFY2011. tenant mix and conversion rates) while commencing projects and approaching retailers. Currently. Currently.Preview 4QFY2011 Results Preview | April 4. However. ft. including PRIL. PRIL's value retailing reported same-store-sales growth of 11. the retailer faced pressure on the margin front because of increasing raw-material prices. Rising inflation led by higher commodity prices has put pressure on the retailer's margin. growth in FY2011 has been mired by rising prices both for retailers as well as consumers. ft. PRIL reported Refer to important Disclosures at the end of the report 49 . Bangalore forms the largest share of 70%. Organised retail was responsible for bringing in the much-needed revolution in the behaviour of Indian consumers. As per the recent CB Richard Ellis report. which allows more flexibility to retailers in developing their business. which announced the restructuring of its consumer durable retail chain. majorly in the unorganised retail segment.

while Titan outperformed the Exhibit 3: Retail universe .000 2. consequently. as the upbeat consumer sentiment should translate into higher demand for lifestyle Refer to important Disclosures at the end of the report 50 . coupled with revived consumer sentiment during the festive 3QFY2011. are expected to benefit both in PRIL Shoppers Titan Sensex Source: C-line.Preview 4QFY2011 Results Preview | April 4.0 16. as more and more consumers are expected to go for value-for-money goods.Sales estimates 3. However. 2011 Retail 20. we expect the trend to continue and strengthen. higher infrastructure outlay and granting infra status to cold storage will bring indirect benefits to the sector. Angel Research 4QFY2011 preview During 4QFY2011. Shoppers Stop underperformed the benchmark BSE Sensex by 1%. seasonal sales from January-February have resulted in increased footfalls and. who are straddled across price and product points. However. thereby keeping long-term growth prospects for the Indian organised retail segment intact. there were proposals pertaining to the agri and logistics sectors. The value retailing segment is likely to lead growth over the next few years. ft. However. Retail stocks perform in line with the Sensex Most retail stocks (excluding PRIL) performed in line with the Sensex during the quarter. which is expected to come down in 4QFY2011. ft.500 1. goods.000 500 - PRIL Shoppers Titan Source: Angel Research On the operating margin front. Exhibit 2: Retail universe .9% same-store-sales growth in lifestyle retailing in 3QFY2011. it did have few negative announcements such as levy of 1% central excise and conversion of optional excise to mandatory for cotton and 10% for others). while lifestyle retailing is likely to extend its growth trajectory. resulting in an increment in same store sales and per sq. consumer sentiment was upbeat due to stable economic outlook. Players such as PRIL. retailers across the nation went on a one-day strike.0 (%) 8. thereby providing the much-needed security in the minds of people. which is estimated to have cost the industry a loss of `500cr in sales. we expect net profit margin to contract marginally by 42bp yoy.0 12. We expect value retailing to strengthen further. Overall.000 1.0 2QFY10 3QFY10 4QFY10 PRIL Sensex by 11%. sales. Exhibit 1: Retail stocks outperform the Sensex 140 120 100 80 60 14-Jan-11 21-Jan-11 28-Jan-11 11-Feb-11 18-Feb-11 31-Dec-10 25-Feb-11 4-Mar-11 4-Feb-11 7-Jan-11 11-Mar-11 18-Mar-11 25-Mar-11 1QFY11 2QFY11 3QFY11 Titan 4QFY11 Shoppers Source: Angel Research Outlook and valuation With economic recovery gathering steam. Proposals such as increasing agri credit.500 3. Additionally. we expect PRIL and Titan to show a yoy decline of 60bp and 10bp. which would in turn benefit retailers. translated into higher sales per sq. Going ahead.500 (` cr) excise (at the rate of 10% for all garments from the earlier 4% 2. We expect organised retail to post a 31% CAGR over the next five years.0 4. respectively.EBITDA margin estimates 20. Union Budget 2011: Mixed outcome The Union Budget 2011 did not mention about FDI. we expect the lifestyle retailing segment's growth to pick up on the back of stable economic conditions. Consequently. We estimate PRIL to lead our universe with 50% yoy top-line growth. PRIL continued its underperformance and was down by 24% during the quarter. footfalls registered an upward trend. We expect retail stocks under our coverage to report top-line growth of 37% yoy.

3x FY2013E earnings and at 14.8 FY13E 15. Future Bazaar and Future Logistics at `25.7 OPM (%) chg bp (60) 130 (10) 10. we maintain our Neutral view on the stock.8 (2. Our SOTP target price for PRIL is `332.7x FY2013E earnings and 1.2x FY2013E P/BV.0 6.1) (`) EPS ( ) % chg 34. Buy Neutral Neutral Source: Company.7) 3. the stock is trading at 29.Preview 4QFY2011 Results Preview | April 4.7 130.2 11. as demand fell due to higher gold prices.8 105. However. Titan had witnessed a dip in volumes earlier.3x FY2013E P/BV.7 25. The company's watch segment is performing well.0 0.3 (`) EPS ( ) FY11E 8.2 31. In the jewellery segment. Angel Research. respectively. * June year ending. At `350.3x FY2013E P/BV.6 122. PRIL continues to be our preferred pick PRIL is better placed than its peers because of its presence across price points and categories. Apart from cost-rationalisation measures. the falling rate of decline in volumes indicates that consumers may be adjusting to high prices and do not expect gold prices to correct significantly. We remain Neutral on the stock due to its rich valuations.0 6.6 11.9 7.4 11.5 13. Overall. At `259.3 arg Target ) (`) 332 % chg 4QFY11E % chg 4QFY11E (` cr) ` Reco.5 6.0 FY11E 30. the retail segment remains one of the fastest growing sectors in India and we remain positive on its growth prospects.6 29.0 2.8 36.0 FY13E 16.0 42.2 FY12E 13. Note: Price as on March 31. the company's restructuring initiatives would also enable it to enhance its focus on different segments and provide a good opportunity for value unlocking.6 Profit Net Profit 4QFY11E 72 14 50 41.2 P/E (x) FY12E 19.811.0 2QFY10 3QFY10 4QFY10 PRIL 1QFY11 2QFY11 3QFY11 Titan 4QFY11 Shoppers Source: Angel Research Exhibit 6: Quarterly estimates Company Pantaloon* Titan CMP (`) 259 3.530 50. while the others segment is also expected to perform well.0 (%) 4. 2011 Retail the short and long term.0 8.1 30. At `3. as there has been a revival in demand for lifestyle category goods. 2011.5 3.6x FY2013E earnings and at 3.6 51.869 616 1. PRIL estimates are for 3QFY2011 ’s Analyst . wherein we have valued its stake in FCH. Exhibit 4: PAT estimates 160 140 120 100 (` cr) 80 60 40 20 2QFY10 3QFY10 4QFY10 PRIL 1QFY11 Shoppers 2QFY11 Titan 3QFY11 4QFY11 Source: Angel Research Exhibit 5: PAT margin estimates 10. Titan has a stable and niche business model. PRIL continues to be our top pick in the retail sector and we recommend a Buy rating on the stock.8) (1. the stock is trading at 16.811 Shoppers Stop 350 Net Sales 4QFY11E 2. the stock is trading at 25. We expect Shoppers Stop's performance to improve in the ensuing quarters on the back of pick-up in consumer demand for lifestyle retailing. `21 and `14.6 (5.1 16.Sageraj Bariya Refer to important Disclosures at the end of the report 51 .

5) unemployment rate declining to two-year low at 8. we expect growth momentum for tier-I IT companies to continue and remain broad-based. Angel Research BSE IT Sensex (RHS) Source: Bloomberg. shooting to 59.8 in January 2011. US is ahead. 76. 3) industrial production sustaining the momentum of 5.0 in February 2011 from 57. although clients continue to go in for short-term spending commitment rather than long-term commitment. The manufacturing segment is also back to its secular growth phase. 2) risk and compliance and 3) anti-money laundering. Angel Research Exhibit 3: Retail . especially with industries such as hi-tech and semiconductor looking at immediate go-to-market strategies and spending on product engineering. social media. 2) rationalisation and consolidation and 3) post-merger integration.3% mom in January 2011. 4.1% vs. For the retail segment. 4) retail sales growth at 1. 60. even Europe's macro data strengthened with higher PMI. 2011 Software For 4QFY2011.4 vs. managements of tier-I IT companies see client budgets to remain flat to positive with a higher element of offshoring. For CY2011. utilities and retail segments. 0.3% vs. Angel Research Moreover. The change in the perception about recovery being sustainable from the earlier perception of it being just a fad (in 2QFY2011) and continued spending on IT by global corporates led to the outperformance of IT stocks over the BSE Sensex during 4QFY2011. which is gaining attention. supply-chain management and consulting to drive cost efficiencies and targeting to go global. especially in continental Europe. The next wave of strategic investment by BFSI clients is expected in areas of Refer to important Disclosures at the end of the report 19 -Mar-11 18 -Jan -11 4-Mar-11 3-Jan -11 2-Feb-11 3QFY11 3QFY11 52 . are opening up to outsourcing-offshoring to drive cost efficiencies. the Sensex 7200 6800 6400 18000 6000 5600 5200 16500 15000 21000 19500 (10) (15) (20) Infosys TCS Wipro HCL Tech Source: Company. Spending in the telecom segment continues to be laggard. whereas European clients. TCS's cloud offering iON for SMEs was a step in this direction.Revenue growth trend 20 15 10 (% qoq) 5 0 (5) 4QFY09 1QFY10 2QFY10 3QFY10 4QFY10 1QFY11 2QFY11 Exhibit 1: IT index vs. the aggregate US macro data for February 2011 points towards a robust macro picture with sustained recovery going ahead. Geographically. and 6) personal income growth at 5. 2) manufacturing index expanding to 61.Revenue growth trend 15 10 (% qoq) 5 0 4QFY09 1QFY10 2QFY10 3QFY10 4QFY10 1QFY11 2QFY11 (5) (10) Infosys TCS Wipro HCL Tech Source: Company. CRM applications. IT spends in this segment are expected to pick up in the next couple of quarters. In fact. with the BFSI and retail segments leading the growth path and the manufacturing segment following their footsteps. This is resulting in the rise of transformational deals with a higher component of discretionary services such as EAS and ERD from the manufacturing. Exhibit 2: BFSI . automotive and aerospace have now started spending on dealer management network. driven by new initiatives such as cloud computing and adoption of new technologies. riding on the wave of technological investments to drive growth apart from harvesting cost efficiencies. 1) fraud prevention. multi-channel commerce and digital consumer engagements. Moreover.9%. Indian IT companies are working on cloud computing. The positive cues for February 2011 include 1) capacity utilisation firming up to 76.2% in December 2010.0% vs.Preview 4QFY2011 Results Preview | April 4. 17-Feb-11 Broad-based growth The recent increase in IT spending in the BFSI segment (the major revenue contributor having a 45-50% share in industry exports) is driven by persistent business needs related to 1) regulatory compliance and risk.9% yoy in January 2011.6% yoy growth. IT spend continues to grow to tap the digital consumer's behaviour. In the manufacturing segment.3 in January 2011. global launch and product engineering. to acquire incremental market share.

988 18. causing any lapse in the billable position of companies. utilisation level (offshore incl. Refer to important Disclosures at the end of the report 3QFY11 53 .3%. going forward.22.63. This will aid .975 5.591 2.e.27.14. Exhibit 6: Trend in utilisation rates 85 80 Cross-currency movement continues to favour revenue growth The cross-currency movement. Source: Company.311 12. the USD depreciated by 1. For 4QFY2011.20% and 0.796 and ~8.822 1.468 1.13. Angel Research In case of EAS.900 70.6%. we expect these rates to normalise as strong campus hiring carried out simultaneously by these companies will create a stable bench.417 1.491 72.261 4.74. Thus. Even engineering and R&D services are witnessing a spurt in demand. the need for standardisation of enterprise platforms.497 3. while HCL Tech sustained its utilisation level qoq.663 32. the lowest level since the last seven quarters. The INR also depreciated by 1. Wipro and HCL Tech by 0.267 Infosys TCS Wipro HCL Tech Source: Company. respectively.071 1. i. we expect utilisation levels for TCS. the surge in discretionary spending witnessed in the last few quarters continues its traction as more and more clients are looking at change-the-business initiatives through IT spending to drive growth and optimise cost. as companies were flocking for people everywhere to map the sudden surge in demand. However.646 10.15.717 2.224 FY10 8.946 16.661 3QFY11 5.796 1. 0.643 employees in 4QFY2011.8% against the GBP Euro and AUD.218 1.5% (qoq).000 campus offers and plans to hire ~25. we expect utilisation to come off a little due to lack of budget flush as well as ongoing training of freshers.60. Angel Research.026 58. In fact.19%. Infosys has already made 26. respectively.567 49.271 4.22%.026 3.243 4.653 FY09 13. With a strengthening demand landscape. we do not expect attrition to be a spoilsport anymore. which had proved to be a bane over 4QFY2010-1QFY2011 impacting USD revenue by 0. map any surge in demand and abate poaching of laterals. USD revenue for Infosys. 0. with product companies getting aggressive and trying to launch a series of new products by shortening the go-to-market cycle.946 21.049 0 (5) 4QFY09 1QFY10 2QFY10 3QFY10 4QFY10 1QFY11 2QFY11 3QFY11 (10) (15) Infosys TCS Wipro* HCL Tech 91. 0. for Infosys. which will result in higher INR revenue growth and aid operating margins by 35-40bp for 4QFY2011.925 54.19. for Wipro.6% and 1.8-1.86. Angel Research Attrition blues behind Attrition levels had shot up in the last few quarters to the pre-recessionary levels of FY2008.Preview 4QFY2011 Results Preview | April 4.779 1. TCS.429 1. Companies are now looking at planned hiring to address the strengthening demand pipeline.187 1.802 97.700 95.11. respectively.103 1QFY11 1.668 10. In 3QFY2011. Source: Company. Infosys and TCS have robust hiring targets for FY2012.854 6.914 1.129 64. has turned into a boon since 2QFY2011.43.20%.000 laterals for FY2012. Note: * For IT services segment Utilisation to be a mixed bag Utilisation levels for Infosys and TCS peaked in 2QFY2011 but dipped in 3QFY2011.04. conversion of multi-version implementation into single-version or limited-version as well as global-level rollout of the same is pacing up. 2011 Software Exhibit 4: Manufacturing .810 1.529 9.850 1. However. trainees) slipped to 68.08. Thus. We expect the hiring trend to remain upbeat.354 2. HCL Tech and Wipro to inch up.12. with high lateral hiring in 2HFY2010 to tap the sudden pent-up demand.761 1.Revenue growth trend 15 10 5 (% qoq) Exhibit 5: Trend in net addition Net addition Infosys TCS Wipro* HCL Tech Total employees FY08 18.407 1. owing to lesser number of working days vis-à-vis other quarters and robust fresher hiring done to map the surge in demand.557 1.0% against the USD.428 2QFY11 7. with Infosys and TCS expected to have hired ~2. During 4QFY2011. as trainees hired in 9MFY2011 will start getting billed. (%) 75 70 65 3QFY08 4QFY08 1QFY09 2QFY09 3QFY09 4QFY09 1QFY10 2QFY10 3QFY10 4QFY10 1QFY11 2QFY11 Wipro Infosys TCS HCL Tech Hiring spree to continue IT players got into the hiring mode from 3QFY2010. incremental growth is emerging out of implementation work rather than sale of new licenses.

6 3.0 P/E (x) FY12E 21.3 1.5 19. we expect volume growth to remain modest at 4.6 25.5 0.7 12. the spend happens heavily in the next couple of quarters.6) 0.5 OPM (%) chg bp 20 33 100 247 25 138 222 77 7 30. we expect USD revenue to surge by 3.3 2.7 52.3 15.3 4.4) 4. 2011.4 18.2 (` EPS (`) FY12E 148. revenue growth is expected to be higher at 4.7 arg Target (`) 3.1-5.0 13.0 14.0 (8. favourable cross-currency movement and stable pricing environment.0 5.190 4.8 11.6-7.4 19. HCL Tech is expected to record a 247bp qoq expansion in its EBIT margin on the back of strong cross-currency benefit.6 18.6 7.5 21. thereby instilling confidence in the IT sector. We expect Infosys to record EBIT margin expansion of 20bp qoq to 30.85 (in 3QFY2011).9 25. Wipro is expected to record a 100bp qoq expansion in EBIT margin to 19. Change is on a qoq basis Analyst . we expect tier-I IT companies to report decent performance on the EBIT margin front.448 1.3 FY11E 26.7 24. Infosys and HCL Tech as our preferred picks.4 28.7 13. Outlook and valuation Over the last four quarters.6% qoq growth in USD revenue for tier-I IT companies.1 8.28 vs.2 (58.4% on the back of 1.9 9. Angel Research. Tech sector with TCS.8 10.227 1. Note: Price as on March 31.7 19.6 25.1 12. is expected to be more broad-based with broader economies tracking recovery in the true sense. at 45.3 56. Thus. On a consolidated level.8 18.8 44. with manufacturing coming in a big way and largely driven by the US market.4 7.3 11.2% qoq for tier-I companies due to ongoing IT spend by clients Exhibit 7: Trend in volume growth (qoq) 12 10 8 6 Wipro is expected to record a 50bp qoq expansion in the EBIT margin of its IT services segment on the back of better utilisation levels qoq.4 13.9 9.8 60.8 11.6 21.0% INR depreciation against the USD.7 5.1 11. 2011 Software Cyclically a muted quarter but with modest volume growth Traditionally.6 1.3 12. Buy Tech Mahindra 676 KPIT Cummins 168 Source: Company. there has been an uptick in discretionary spending as clients are looking forward to gain competitive advantage by remaining ahead of the curve.4) 4. Exhibit 9: Quarterly estimates Company Infosys TCS Wipro HCL Tech* Mphasis^ Infotech 3i Infotech CMP (`) 3.6 57.5) FY11E 120. better utilisation levels and productivity gains.9 44.629 1. Exhibit 8: Change in EBIT margins (qoq) 300 200 100 89 20 (26) (100) (98) (200) (300) (39) (178) (35) (85) (187) (242) 4QFY10 1QFY11 Infosys 247 189 86 1 7 18 24 20 50 33 (% qoq) 4 2 0 4QFY07 2QFY08 4QFY08 2QFY09 4QFY09 2QFY10 4QFY10 2QFY11 (2) (4) (6) (8) 4QFY11E BP(qoq) Infosys TCS HCL Tech Wipro 2QFY11 TCS Wipro* 3QFY11 HCL Tech 4QFY11E Source: Company.7 9.6 13.5 0.3% due to good growth in the consumer care and lightening business segments.5 15.0 14.1 7.7 11.0 42.8 26. Margins to inch up For 4QFY2011. *June ending (3QFY2011 estimates). Angel Research.5 8.6 FY13E 172.5 11.285 336 272 641 6.7 48.3 (0.6 11.4 7.6% qoq for tier-I IT companies on the back of modest volume growth.433 502 206 243 34 27 267 6.274 510 595 796 537 194 189 55 % chg 4QFY11E % chg 4QFY11E cr ( ` cr ) Reco. Buy Buy Buy Buy Accum. Accum. 44. ^October ending (2QFY2011 estimates).3 10.4 36.7 30.1 3.531 10. *Note: For IT services segment Revenue continues to surge In 4QFY2011.2 (58.0 Profit Net Profit 4QFY11E 1.Preview 4QFY2011 Results Preview | April 4. 4Q is a soft quarter for IT companies as budgets get closed from January to March and decisions are taken between February and March on the kind of discretionary.8-6.0 19.211 8.5 5. In INR terms. adding to the IT services segment's growth.8 22. though led by the BFSI and retail segments. we expect 4QFY2011 to be yet again a modest quarter with 3. Angel Research Source: Company.4%.9 8. We expect Infosys to guide for 18-20% yoy growth in USD revenue for FY2012.8 16.0 33.6 16.4 56.0 (8.3 4.0 3.8 18.8 7.3 44. Accum.0 16.6% qoq on the back of weaker INR in 4QFY2011. operational and capital spending. increased utilisation levels and INR depreciation are expected to aid its EBIT margin by 33bp qoq to 28.8-6. stable pricing and favourable cross-currency movement.5) (` EPS (`) % chg 6.237 1.2 15.2 FY13E 18. For 4QFY2011. We remain positive on the IT TCS CS. aided by buoyant demand driving volumes.186 1.1 8.7 5. Accum. In case of TCS.898 2.7 4.Srishti Anand/Ankita Somani Refer to important Disclosures at the end of the report 54 .183 478 477 416 161 44 Net Sales 4QFY11E 7. This trend.

Reports indicate .8 47.9 13.1 1. Reliance Communication (RCOM) and Idea falling by 0.0 0.800MHz pan-India contracted spectrum at `1.8 2.5% of the total subscriber base has opted for MNP which is not a significant number.800MHz band.4 121.770cr/MHz (47% lower than the 3G spectrum price) and price of excess spectrum at `4.5 20. Uninor's market share increased to 2.0 75.6 0. Angel Research Source: Bloomberg. Refer to important Disclosures at the end of the report 55 .7 5. almost all telecom stocks slumped.1 681.3% mom.9 Exhibit 1: Stock return analysis of leading Indian TSPs 20 10 0 (%) 13.1 3.0 (10) (20) (30) (40) (50) Uninor Videocon DB Etisalat Total Source: COAI. (1 year) Idea 2. The policy uncertainty during the quarter led to the underperformance of telecom stocks.1-2.3%. Etisalat and S Tel. suggested that the government could consider auctioning the spectrum.8 128. 0.3 (0.0 0.7 74.A non-event for the sector: The initial data released by TRAI shows that 3.2MHz) and Idea will incur `1.0 132.4) (4. The committee recommended the price of the 1. respectively.6 8.7 785.1 51.4 118. Based on the committee's recommendation.4 83. 2011 Telecom During 4QFY2011.1 3. which was submitted by the spectrum committee that was constituted to study the issue of valuing the 2G spectrum in the 1. due to regulatory uncertainties. if executed.0 1.2 76.1%. which will aid revenue growth and overall profitability in the next few quarters by stabilising average revenue per user (ARPU) and average revenue per minute (ARPM). whereas Idea and Aircel outperformed by growing at average rates of 3.3%.7 124. Airtel will incur a one-time cost of `4.6 72.1 Dec-10 152.1 0. in its letter to the DoT. (3 months) Chg.4%. 73.1 1.0 1.6 84. however.4 2.6 1. a trend was spotted with most of the incumbents (Vodafone.8) (38. Airtel. with Bharti Airtel (Airtel). RCOM and Aircel) maintaining or inching up their subscriber market share over December 2010-February 2011.5 765.8 83. Thus.3 81.1 3.8 5. lost their market shares slightly to 20.1 725. AUSPI.570cr/MHz (36% higher than the 3G spectrum price). Loop Mobile. Following this. while Videocon declined at an average rate of 10.6 6.1 16.3 9.1% and 3.8% in February 2011 from 20.2 3.4 9.6 2.3 86.1) Airtel RCOM Chg.750cr.9% in December 2010.5 0.7% mom. Subscriber market share of new entrants such as Loop Mobile and S Tel remained constant at 0. which will be released on cancellation of a few licenses.5 125.9 85.8 Oct-10 Oct-10 146. Idea.5 5.8 87.4% and 10. These stocks underperformed the Sensex due to the report released by TRAI. 3G launch by private players to aid growth: Most telecom players have launched 3G services in select areas.000cr for excess spectrum (over 6.7 50.2 130. TRAI.8% in February 2011. The recommended increase in spectrum charges. Amongst the incumbents. Incumbents witness strong subscriber additions Over December 2010-February 2011.8% and 4.1 Jan-11 155.7 21. and that price should be considered for future allotment. the Indian subscriber base grew at an average rate of 2.0 1.3) (26.2 5.3 119. whereas Videocon lost its market share to 0.0 3. New entrants. Vodafone and BSNL grew at an average rate of 2. respectively. respectively.2% and 10.8mn or 0. Airtel and BSNL.3 115.2 78.3 6. Angel Research non-event MNP .1 Nov-10 149.3 4.2 79.2 3. grew at average rates of 8.5 8.7 53. respectively.6 11.9 127.3 117.8 82. respectively. including Uninor. The offered pricing of 3G services rules out the possibility of any irrational pricing and will give a respite to the price war in the industry. despite improving outlook for incumbents. TRAI has also issued recommendation regarding the reframing and repricing of the spectrum.0 6.1 2. that Airtel.7 7. will negatively impact the incumbents.1% and 8.5 5.4% and 0.6 48.7% in February 2011.1 702.1 46.7 eb-11 Feb-11 159.2 8.4 0.4 7.4 81.0 80. RCOM.1 1.5 5.4 122. However.3 18. Exhibit 2: Total subscriber base Company (mn) Airtel RCOM Vodafone Essar BSNL Idea TTSL Aircel Cellular MTNL Loop Mobile HFCL Shyam Telelink S Tel Sep-10 Sep-10 143.1 86. 26.3 747.9% mom.6%.6% mom.2 78. Idea and Vodafone were the key beneficiaries of MNP and RCOM was among players who lost subscribers.0 7.0 1.Preview 4QFY2011 Results Preview | April 4.3%.

1 2.5 2.7%.7 0.8 0.1 0.5 6.0 1.7 0.2 0. 1.8 10.5 2.7 0. 2.5 2. respectively.2% in net subscriber addition.2 1.7 10.6 Oct-10 Oct-10 99.2 1.0 17.8 2.1 3.0 Source: COAI. For 4QFY2011.4 0. we expect VAS share as a percentage of mobility revenue to grow by 300bp and 200bp to 14.3) 0.6 6.1 0.1 3.9 11.1 Dec-10 3.8 (2.5 1.3 747.2 Exhibit 6: Trend in MOU per month per subscriber 500 478 450 399 375 365 300 340 330 318 295 200 276 251 244 446 389 398 415 394 401 394 468 480 454 449 441 (minutes per user) 400 Airtel (ex -Africa) Idea RCOM Source: Company.1 3.1 0.2 1.2 3.7 0.0 0.4 1.7 0.0 1.1 1.4mn. however.0 0. Angel Research In January-February 2011.0 11.7 0.9 11.7 0.5 0. respectively. while Idea reported MOU growth on the back of higher-than-expected gains due to the festive season.1 0.3 3. A and C circles growing by 1.7 0.2 0.8 0.8 0.0% qoq. For 4QFY2011. grew by 3. AUSPI.2 3. registered its lowest subscriber addition in the last six months at 1.2 20.0 (0.2 1.7 0. B circle. all circles witnessed impressive growth in subscribers. with B circle leading at 8.0 0.3 1.7 98.5 2.0 0.5 261.4 0.3 3.0 Oct-10 Oct-10 3. incumbents again witnessed strong net additions. respectively.8 16.0 0.8 11.3 2.4 6.3 16.7 10.1 2.3 0.0 0.8 702.2% for Airtel and Idea.0 0.9 DB Etisalat 0.0 0. Vodafone and RCOM leading the pack.0 2.8 1.3 2. Idea and RCOM to decline by 1.7 0. in February 2011.4 0.7 1.5 2.2 2. both Airtel and Vodafone have been adding over 3mn subscribers and Idea has been adding over 2.0 306. with Airtel.7 Oct-10 Oct-10 20.2 20.5 1.8 280. 2011 Telecom Exhibit 3: Operator-wise subscriber market share Company (%) Airtel RCOM Vodafone Essar BSNL Idea TTSL Aircel Cellular MTNL Loop Mobile HFCL Shyam Telelink S Tel Uninor Videocon Sep-10 Sep-10 21.1 22.0 2.1 eb-11 Feb-11 20.6 10. Angel Research VAS share to grow We expect VAS share to follow a secular growth trend in 4QFY2011 also.6 0.8 1.8 0.2 2.1 Source: COAI.2 3.0 0.0 16.5 0. with Metro. all circles grew rapidly.8 0. however.9-2.3 2.2 1.0 Dec-10 20.7 10.8 270. C and Metro circles at 6.0 3.2 1.3 3.9 11.1 0. 56 Total 17.4) 0. AUSPI.4 0.4 0.5 0.3 239.3mn net additions. despite having the highest subscriber base.0 765.7 10.1 Circle-wise net additions In the first two months of 4QFY2011.1 Jan-11 104.8% and 3. Angel Research Refer to important Disclosures at the end of the report 4QFY11E 1QFY10 2QFY10 3QFY10 4QFY10 1QFY11 2QFY11 3QFY11 .7mn.5mn in February 2011.5 101.8% mom.6 10.2 2.1 0.6 1.8 0. BSNL. Airtel and RCOM experienced a decline in their minutes of usage (MOU).6 92. On an absolute basis.8 16.4 255. which should help the downside in ARPM to be limited due to lower voice ARPM resulting from higher growth in B and C circles.8 11.8 0.6 16.0 Source: COAI.8 785.4 0.0%.2 0.8 17.3 2.4 0.8 289.0 0.3 2.7 0. followed by A.3 Nov-10 101.2 6.Preview 4QFY2011 Results Preview | April 4.1 0.5 263.2 6.7 0.6 0.8mn and 2.7 0.8 16.0 1.5 Dec-10 103.0 0.2 1.1 3.5mn subscribers per month.0 11.2 18.2 1.4 0. which stood tall with a market share of 39.3 0.3 1. Total 681.5 0.9 16.8 1. Since November 2010.3 23.2 1.0 Nov-10 20.1 1.2 0. Exhibit 5: Circle-wise subscriber base Circle (mn) Metro A Circle B Circle C Circle Sep-10 Sep-10 95.1% and 13.0 0.8 10.0 89. AUSPI.7 0.1 1.9 10.9 103.0 0.2 2.0 0.7 233.3 0. In February 2011. Metro lost its market share to B circle.6 298.0 Jan-11 3.5 1.5 eb-11 Feb-11 3.2 268.6 1.2 6.9 11.4 16.1 725.2 0.7 Feb-11 eb-11 107.7 0.0 Jan-11 20.0 2.0 2.0 0. Exhibit 4: Trend in subscriber net additions Company (mn) Airtel RCOM Vodafone Essar BSNL Idea TTSL Aircel Cellular MTNL Loop Mobile HFCL Shyam Telelink S Tel Uninor Videocon DB Etisalat Sep-10 Sep-10 2.0% in overall subscriber base and 41. Angel Research MOUs to remain under pressure In the last quarter. we expect MOU for Airtel (excluding Africa).2 16.0 Nov-10 3.9 10.7 0.2 16.4 247.4 95.

Accum. respectively.7 FY13E 14.17 0.4 33. potential opportunity to scale up in Africa.50 0.6 FY11E 21.5 (` EPS (`) FY11E 16.17 0.2 2.e. Further.13 0.16 0.0 18.23 0. However. Angel Research 1QFY10 2QFY10 3QFY10 4QFY10 1QFY11 2QFY11 3QFY11 4QFY11E Outlook and valuation For 4QFY2011.10 Exhibit 7: Trend in ARPM per subscriber 0.501 5.10 0. for RCOM. flat ARPM and growing VAS share in mobility revenue. The sector continues to be haunted by issues related to the 2G scam.4% and 33. We expect Idea.45 0. we expect EBITDA per minute (EPM) to remain flat for Idea.Srishti Anand/Ankita Somani 57 Refer to important Disclosures at the end of the report 4QFY11E . 2.4 14.25 0.6 15. i.8 7.0 25. for Airtel.3 1.14 0.3 FY12E 20.5) 4.16 0.55 0.7) (28.10 0.5 7. the price war logged by these new entrants has turned into a curse for their own sustainability. Angel Research Exhibit 10: Quarterly estimates Company Airtel RCOM Idea CMP (`) 357 108 68 Net Sales 4QFY11E 16. established leadership in revenue and subscriber market share. we expect Airtel to record an expansion of 78bp qoq to 32. we expect revenue growth to be driven by strong growth in subscriber base.13 0.7 6.5% and 5. Aircel. BSNL. 4. On the EBITDA margin front.7 (37. EPMs to remain stable For 4QFY2011. while we expect a 1.4% due to lower personnel cost and decreasing network operating expense (NOE) with higher subscribers per cell site. RCOM.6% qoq decline for RCOM in 4QFY2011.7 3.6%. Exhibit 9: EPM trend 0. including Airtel.4 FY13E 24.13 0.5) (` EPS (`) % chg 24.20 0.28 0.1%. we expect the combination of flat ARPM and weak MOU to pull down ARPU by 2.15 0.40 Airtel (ex -Africa) Idea RCOM Source: Company. respectively. Idea and RCOM.2 21.16 0.17 0. Airtel continues to be our preferred pick amongst telcos due to its low-cost integrated model (owned tower infrastructure).10 (`/min) 0.183 4. We believe industry dynamics point toward a possible consolidation in the long run and expect only few operators.7% and 6. Idea and TTSL. The confidence in no further possibility of a price war was instilled by the rational pricing move by various telecom players.20 0.6 OPM (%) chg bp 78 157 140 32. Idea and RCOM are also expected to post EBITDA margin expansion of 140bp and 157bp qoq to 25. Neutral Neutral Source: Company.1 29. we expect EPM to inch up slightly on the back of strong subscriber growth.17 0.26 0. 2011. Vodafone. Airtel (including Zain) and RCOM to register qoq revenue growth of 4. Exhibit 8: Trend in ARPU per month 300 278 252 230 209 210 161 149 200 220 185 139 130 100 122 110 105 (`/month) 232 200 215 182 202 167 198 194 168 164 1QFY10 2QFY10 3QFY10 4QFY10 1QFY11 2QFY11 3QFY11 Airtel (ex-Africa) Idea RCOM Source: Company.24 0.7 (37.0 28.16 (`/min) 2QFY10 1QFY10 1QFY11 3QFY10 4QFY10 2QFY11 3QFY11 0.1 2. and relatively better KPIs.19 0. Airtel (ex -Africa) Idea RCOM Source: Company. 2011 Telecom ARPM to remain flat ARPM has been registering free fall at a ~5% CQGR over the past nine quarters on the back of entry of new players and the price war.17 0. we expect ARPM to remain flat qoq for Airtel and Idea. no case of undercutting. marginal dip in MOU and strong subscriber growth.60 0.5 4. to survive out of the current 15 operators.0%. we expect EPM to witness a slight decline due to stable ARPM.21 0. Note: Price as on March 31.4 0.5% qoq. However.Preview 4QFY2011 Results Preview | April 4. Angel Research.625 299 174 24. Angel Research ARPUs to decline For 4QFY2011.7) (28. Therefore.16 0. respectively.7 5.2% qoq for Airtel. Change is on a qoq basis Analyst .5 P/E (x) FY12E 17.7 rge Target (`) 393 % chg 4QFY11E % chg 4QFY11E 4QFY11E (` cr) ` Reco.4 Profit Net Profit 4QFY11E 1.18 0.11 0.22 0.136 4.

Preview 4QFY2011 Results Preview | April 4. 2011 Stock Watch Refer to important Disclosures at the end of the report 58 .

2 64.390 5.1 0.4 13.4 4.5 3.9 1.5 7.3 6.8 0.4 7.8 23.0 2.5 2.5 27.4 16.2 10.201 21.5 2.376 782 19.1 21.0 EV/Sales (x) FY12E FY13E 1.3 3.737 13.6 0.610 421 134 93 155 1.6 15.670 1.8 16.043 4.6 14.2 20.039 2.990 7.469 18.2 5.6 2.5 21.2 14.7 2.4 14.161 108.6 21.3 RoE (%) FY12E FY13E 23.1 0.694 38.7 1.7 8.113 232 875 387 1.2 12.3 19.6 1.8 4.6 0.Bank Reco CMP (`) 917 179 1.5 0.2 16.9 0.5 18.788 12.8 14.5 22.806 2.562 25.559 9.2 19.4 15.5 0.8 1.6 5.3 12.563 6.2 9.815 843 22.5 0.427 17.8 1.1 21.0 6.404 478 638 104 419 2.0 18.241 8.6 1.3 16.2 19.0 13.4 1.7 45.035 1.945 1.544 1.882 7.540 2.6 18.3 0.108 9.7 1.155 6.6 4.103 2.7 19.7 2.8 1.5 2.3 18.850 57.7 0.5 11.1 27.680 103 69 143 835 1.8 18.396 10.9 8.8 2.0 0.765 541 701 120 451 2.689 7.975 5.1 2.4 19.2 21.4 21.0 85.4 0.9 6. 2011 Refer to important Disclosures at the end of this report 59 .3 0.2 0.2 3.3 - Neutral Neutral Neutral Buy Buy Buy Accumulate Buy Accumulate Buy Neutral Buy Buy Accumulate Buy Neutral Buy Buy Buy Neutral Neutral Buy Accumulate Buy Accumulate Accumulate Buy Accumulate Accumulate Buy Buy Buy Accumulate Accumulate Accumulate Neutral Source: Company.456 64 1.4 6.2 48.5 5.8 106.6 14.8 18.3 1.5 18.4 20.4 12.9 1.1 3.138 6.7 2.5 2.615 3.6 3.0 1.7 63.131 OPM (%) FY12E FY13E 12.4 344.133 6.0 18.Bank South Ind.1 9.2 14.7 6.1 0.2 0.997 1.5 2.7 4.7 11.0 6.0 19.7 74.7 0.678 36.0 21.5 16.506 7.5 16.1 103.8 5.7 3.158 42.8 3.1 5.5 0.8 1.6 4.405 269 930 433 1.0 137.6 2.246 1.4 3.7 0.2 21.631 11.3 7.6 10.0 5.5 16.9 15.8 19.2 14.249 9.6 1.527 2.6 1.4 141.1 18.4 3.2 3.1 0.392 4.886 7.387 31.5 19.5 15.3 148.9 5.6 12.9 50.0 0.2 1.4 EPS (`) FY12E FY13E 45.434 7.4 1.5 1.875 4.343 144 1.2 25.7 3.0 158.5 11.9 13.8 19.7 0.621 6.933 2.6 22.949 5.6 1.7 17.264 214 32 1.360 13.1 1.618 2.8 1.7 32.9 19.4 58.9 1.4 2.3 2.4 65.2 15.234 1.310 192 78.9 3.6 17.1 17.6 8.503 2.4 2.6 51.4 1.4 15.134 30.3 31.6 18.6 5.4 2.2 1.5 110.7 8.4 7.4 0.532 6.0 24.6 1.0 13.9 0.3 16.4 46.239 9.4 23.0 7.451 5.655 170 1.582 Sales (` cr) FY12E FY13E 2.9 9.3 15.9 30.3 27.1 2.4 5.4 5.8 18. Angel Research.3 9.2 21.3 130.3 16.1 19.1 305.0 10.016 5.220 23 Target Price (`) 198 234 81 64 485 1.769 23.2 5.1 1.9 2.2 5.3 15.7 5.9 3.9 1.1 21.3 0.3 34.2 8.388 Mkt Cap (` cr) 3.6 10.1 153.343 160.2 14.0 15.4 1.5 9.6 0.2 10.5 4.0 15.3 1.1 15.3 12.4 5.5 81.5 2.1 17.1 6.517 8.2 7.7 15.6 88.3 1.4 2.5 0.042 8.7 50.1 11.6 2.5 16.4 20.8 0.460 346 6.611 1.358 1.0 16.1 17.8 16.7 183.2 13.3 12.129 1.2 20.8 9.023 133 881 1.4 2.9 1.2 10.6 0.1 14.4 21.2 4.0 23.8 13.6 12.683 385 41.3 18.4 5.7 6. Price as on March 31.3 23.1 1.567 6.167 2.0 5.2 0.1 10.5 9.0 8.3 7.134 1.3 39.6 7.403 23.990 4.3 3.9 5.9 0.899 10.3 16.097 9.976 353 192 12.0 44.8 8.7 3.2 19.0 8.0 0.9 7.3 4.7 103.5 3.2 2.5 16.1 12.0 66.7 2.1 6.9 10.695 1.1 16.5 3.9 3.2 114.0 0.4 166.6 53.2 29.4 7.1 26.7 7.8 18.8 4.4 2.0 9.5 0.1 2.427 27.5 3.752 6.5 9.2 2.4 P/BV FY12E FY13E 4.9 12.6 17.2 101.4 2.8 2.393 6.5 31.0 18.4 20.1 18.6 2.2 1. 2011 Company Name Agri / Agri Chemical Bayer Jain Irrigation Rallis United Phosphorus Auto & Auto Ancillary Amara Raja Batteries Apollo Tyres Ashok Leyland Automotive Axles Bajaj Auto Bharat Forge Bosch India Ceat Denso Exide Industries Fag Bearings Hero Honda JK Tyre & Industries Mahindra & Mahindra Maruti Suzuki Motherson Sumi Subros Tata Motors TVS Motor Banking Axis Bank Bank of India Corporation Bank Dena Bank Federal Bank HDFC Bank IOB ICICI Bank Indian Bank J&K Bank Oriental Bank Punjab Natl.3 1.5 2.5 8.8 13.1 2.2 15.9 14.4 4.564 5.5 20.823 127.253 17.1 17.0 5.321 150 189 70 57 417 1.009 12.141 5.4 10.1 0.300 48.0 14.7 0.062 20.7 PER (x) FY12E FY13E 20.2 1.Watch Stock Watch | April 4.7 3.980 2.8 5.2 21.0 21.518 1.2 0.8 6.1 29.6 1.6 107.2 1.587 94 699 1.3 18.752 2.6 71.6 20.1 49.6 113.8 1.1 1.1 96.522 1.864 18.6 44.345 23.9 0. Note: We have revised our target multiples downwards for several mid-cap stocks in light of sharp market de-rating in the mid-cap space.3 14.1 22.2 11.287 6.5 22.2 9.221 141.1 90.2 28.7 12.569 629 42.8 3.6 3.5 11.1 2.825 19.807 9.153 2.925 4.248 60 1.3 6.1 12.7 12.3 1.9 80.6 3.9 0.

399 2.3 2.120 2.892 2.1 0.3 12.8 9.081 4.7 2.422 31.9 10.670 101.6 0.1 5.9 84.0 1.4 22.4 10.1 10.8 245.2 3.864 2.1 1.0 33.3 1.6 8.9 1.5 76.7 18.0 5.1 0.0 24.1 0.050 6.895 2.9 4.9 39.1 0.9 14.0 26.3 18.602 4.2 2.8 0.2 15.8 1.1 15.6 0.120 2.435 100.3 38.0 1.776 10.7 49.4 24.453 3.6 12.699 1.3 1.775 15.7 1.1 22.4 1.5 4.6 26.1 2.805 2.766 679 7.1 1.8 10.6 24.715 6.8 9.698 6.0 8. Note: We have revised our target multiples downwards for several mid-cap stocks in light of sharp market de-rating in the mid-cap space.6 6.183 9.635 4.104 1.8 7.5 22.7 6.931 3.0 9.5 16.0 0.2 20.894 5.5 7.3 8.7 2.6 19.8 83.070 933 2.982 3.4 11.9 2.3 11.805 10.3 0.5 2.1 4.1 2.8 141.9 1.887 5.9 23.5 14.1 5.0 25.7 17.3 8.8 13.063 1.1 2.075 Neutral 147 Accumulate 96 Buy 51 Neutral 102 Neutral 1.5 41. $ Estimates for CY2011E and CY2012E.1 10.6 20.1 16.911 48.3 1.1 18.8 2.653 Buy 92 Buy 101 Neutral 140 Neutral 65 Buy 124 Buy 326 Source: Company.8 21.0 4.6 7.4 1.4 19.2 5.2 13.7 6.3 3.2 13.883 17.3 6.0 3.485 4.883 17.150 1.0 8.712 3.7 13.4 10.4 7.091 5.7 3.3 0.6 1.5 1.5 2.8 10.3 7.5 1.4 26.4 19.8 23.4 1.7 14.3 28.4 15.0 0.6 25.1 1.7 14.4 25.8 6.5 0.9 1.8 2.6 2.706 67.1 1.2 RoE (%) FY12E FY13E 20.3 1.1 12.1 11.597 981 2.0 12.0 9.8 0.0 1.8 1.034 4.6 9.3 14.1 19.503 5.409 11.5 26.4 21.5 20.1 5.5 2.8 19.6 0.034 138 150 171 438 Mkt Cap (` cr) 175. Larsen & Toubro Madhucon Proj Nagarjuna Const.226 3.6 1.6 198.5 1.0 23.1 0. IRB Infra ITNL IVRCL Infra Jaiprakash Asso.768 Neutral 107 Buy 347 Accumulate 310 Sell Neutral Buy Neutral Buy Neutral Buy Buy Buy Buy Buy Neutral Buy 797 247 477 2.8 12.7 65.909 OPM (%) FY12E FY13E 3.2 7.348 8.3 29.5 0.1 10.2 1.1 1.3 11. Price as on March 31.3 1.6 9.8 4.3 8.456 6.8 21.7 12.4 9.8 PER (x) FY12E FY13E 11.244 17.5 18.6 6.761 5.0 8.294 4.061 273 68 93 81 82 2.6 8.8 3.6 12.8 2.8 18.7 0.8 9.9 24.5 2.248 11.0 15.4 23.3 17.6 10.678 53.8 15.0 14.8 1.3 19.5 1.3 0.766 9.8 51.8 19.1 11.439 3.4 1.4 15.531 8.205 7.6 3.5 0.8 5.0 20.816 8.4 9.6 9.7 0.4 158.8 18.9 303.1 1.5 1.0 1.5 10.624 1.380 8.7 20.690 1.0 3.7 23. Patel Engg.4 2.3 3.2 15.9 13.5 7.9 2.3 7.330 5.501 2.8 9.4 10.309 18.822 664 2.1 5.550 10.5 6.5 75.1 1.7 13.3 17.9 4.4 27.320 6.3 17.8 16.1 19.048 2.2 83.510 630 1.7 19.7 1.6 34.5 8.3 1.7 8.3 EV/Sales (x) FY12E FY13E 2.9 4.149 1.6 9.754 14.463 684 2.Watch Stock Watch | April 4.5 8.0 1.8 15.134 Buy 51 Neutral 36 Accumulate 212 Buy 235 Buy 82 Buy 93 Buy 1.561 2.0 11.530 5.6 19.7 13.7 9.9 8.722 3.4 1.946 5.7 2.6 0.4 0.4 5.7 5.5 1.811 2.8 4.0 14. Simplex Infra Reco CMP (`) Target Price (`) 3.2 11.4 11.7 2.8 11.1 5.3 9.7 0. 2011 Refer to important Disclosures at the end of this report 60 .4 0.7 8.5 9.9 2.4 9.0 10.5 1.6 0.915 3.4 29.203 19.3 0.7 19.9 16.3 21. Angel Research.6 16.6 11.6 1.8 20.124 5.6 1.2 2.4 10.4 18.9 0.528 56.1 15.3 36.8 42.9 0.2 29.0 11.9 16.419 2.0 3.6 40.6 5.185 22.4 19.1 18.370 68.8 18.8 15.5 9.1 24.2 2.9 0.4 41.6 1.2 7.8 14.1 9.6 4.9 20.936 625 2.8 6.1 4.8 23.331 4.2 27.3 1.8 1.2 10.5 Buy 2.8 11.4 23.3 2.7 18.9 0.6 10.4 16.1 0.0 9.3 14.0 25.4 0.619 Sales (` cr) FY12E FY13E 57.2 8. Punj Lloyd Sadbhav Engg.7 26.8 10.0 54.9 1.8 2.5 61.3 10.1 9.756 16.2 13.8 0.1 0. Const.8 27.2 3.192 2.645 9.7 3.5 21.4 9.0 19.2 19.7 1.1 2.2 P/BV FY12E FY13E 2.933 6.4 10.8 0.7 0.178 502 20.0 12.481 2.8 25.9 9.974 16.7 1.1 13.8 0.8 EPS (`) FY12E FY13E 237.0 24.7 10.630 7.5 1.8 6.2 1.4 2.1 9.377 8.7 20.115 2.596 1.6 17.8 33.5 5.5 22.5 2.3 10.5 7.2 1.1 1.8 13.3 18.9 2.4 13.7 14.0 14.955 4.6 0.6 18.4 0.2 56.2 8.947 307 675 107 66 64 242 316 108 118 2.6 14.4 14.5 1.201 7.6 14.0 16.5 14.479 402 343 595 700 330 128 110 115 2.5 11.237 219 602 500 Neutral 1.5 17.6 15.6 7.6 0.4 3.362 2.3 5.4 10.661 2.6 0.8 6.9 0.7 68.0 9.5 12. 2011 Company Name State Bank of India UCO Bank Union Bank (I) Yes Bank Capital Goods ABB$ Areva$ BGR Energy BHEL Crompton Greaves Elecon Engg Graphite India Jyoti Structures KEC International Lakshmi Machine Works McNally Bharat Engg Thermax TIL Cement ACC Ambuja Cements India Cements J K Lakshmi Cements Madras Cements UltraTech Cement Construction Consolidated Co Hind.7 30.8 0.0 0.3 0.

5 21.4 2.5 77.3 1.371 8.4 28.093 33.6 18.7 2.8 5.0 25.0 0.052 1.1 21.2 17.1 1.055 1.291 4.1 30.1 35.555 3.1 4.3 16.4 19.7 4.6 75.2 33.710 957 231.1 3.181 24.668 3.102 1.5 31.4 2.142 1.5 8.4 47.5 11.0 16.6 42.1 1.6 18. $ Estimates for CY2011E and CY2012E.7 18.9 19.9 1.8 1.8 40.5 4.183 2.3 9.584 4.5 4.7 7.4 10.0 16.527 Neutral 815 Buy 96 Buy 365 Neutral 2.6 3.1 8.5 23.9 1.6 10.0 21.7 18.0 5.7 2.9 30.3 16.3 42.6 2.5 18.995 4.3 16.7 0.753 41.0 17.9 1.961 3.3 17.6 18.785 185.370 1.754 1.3 18.6 7.509 3.6 6.0 7.8 4.9 12.5 13.0 18. Angel Research.109 4.9 17.8 0.6 3.4 21.2 18.0 13.1 7.4 31.355 612 OPM (%) FY12E FY13E 17.1 24.307 3.813 116.6 4.1 1.0 5.9 1.0 40.0 18.6 6.467 1.479 1.1 15.974 1.4 18.7 EV/Sales (x) FY12E FY13E 2.491 34.812 788 3.2 20.5 1.650 Neutral Buy 39 93 Buy 44 Buy 421 Neutral 575 Buy 477 Buy 161 Accumulate 3.0 8.117 1.6 27.420 879 344 3.5 2.5 7.6 10.778 5.7 16.7 13.9 3.4 26.2 37.3 12.7 3.3 5.8 0.818 6.2 22.4 2.8 24.993 1.6 4.5 10.9 6.8 25.7 4.767 123 431 304 205 124 55 522 595 194 3.5 11.3 51.237 Accumulate 168 Buy 416 Buy 58 Accumulate 1.3 9.7 0.4 1.3 0.6 17.7 56.274 796 510 217 130 360 321 108 193 150 125 Mkt Cap (` cr) 24.1 32.5 2.1 2.1 33.241 527 10.3 18.717 11.9 11.415 6.8 6.6 1.3 11.3 76.8 8. 2011 Refer to important Disclosures at the end of this report 61 .8 4.721 41.7 0.3 20.0 21.6 1.6 15.1 3.9 100.0 8.6 2.508 579 840 3.0 1.6 1.4 1.239 11.922 24.325 1.0 26.3 32.559 55.215 5.6 1.571 5.5 27.8 1.0 15.612 480 20.7 79.7 27.0 27.7 19.776 1.2 31.6 1.4 2.8 8.4 22.0 20.7 30.8 16.891 3.5 52.9 15.7 3.6 15.5 5.5 0.3 4. Note: We have revised our target multiples downwards for several mid-cap stocks in light of sharp market de-rating in the mid-cap space.6 3.0 17.2 5.9 1.8 7.130 35.7 0.3 18.002 288 Sales (` cr) FY12E FY13E 9.7 2.8 3.4 9.183 Buy 676 Accumulate 478 Neutral 362 Buy 174 Neutral 1.7 P/BV FY12E FY13E 8. 2011 Company Name FMCG Asian Paints Colgate Dabur GCPL GlaxoSmith Con HUL ITC Marico Nestle Hotel Hotel Leela Taj GVK Hotels IT 3i Infotech Educomp Sol Everonn Edu HCL Tech Infotech Enterprises Infosys KPIT Cummins Mphasis NIIT TCS Tech Mahindra Wipro Logistics and Shipping ABG Shipyard Allcargo$ Concor Gateway Distriparks GE Shipping Media D B Corp Deccan Chronicle HT Media Jagran Prakashan PVR Reco CMP (`) Target Price (`) 2.0 3.7 56.3 44.6 87.2 2.1 37.8 60.7 18.689 3.4 19.5 0.8 13.7 13.2 14.062 4.4 4.9 17.2 17.6 6.240 Accumulate 285 Accumulate 181 Neutral 139 Neutral 3.6 29.2 10.2 11.4 5.5 7.8 1.9 1.Watch Stock Watch | April 4.6 21.6 18.4 13.5 3.629 189 537 69 1.7 17.7 2.5 27.6 46.7 23.5 4.0 0.9 19.245 1.9 101.270 15.5 11.1 13.9 43.0 1.7 17.3 15. Price as on March 31.1 4.009 1.4 2.239 1.420 62.824 9.6 37.0 28.9 29.5 1.5 2.4 18.748 1.6 5.9 9.7 33.9 7.1 19.246 688 3.8 38.9 125.9 0.2 8.0 1.6 36.3 41.8 4.409 4.4 6.2 82.1 6.6 6.1 23.400 46.2 28.8 19.8 18.3 9.5 1.5 1.2 13.080 16.2 15.1 10.347 7.0 9.2 14.7 35.4 19.4 172.8 42.725 21.9 17.0 44.8 1.824 8.5 8.0 48.9 34.9 19.1 53.0 0.5 17.5 1.6 19.6 6.2 EPS (`) FY12E FY13E 104.9 107.0 29.4 17.0 11.2 31.6 19.3 8.5 18.439 8.8 12.0 2.521 35.7 10.475 961 2.2 1.357 3.9 21.6 19.843 2.6 16.663 2.0 2.3 4.3 14.0 4.409 8.9 0.4 16.6 27.103 140.2 46.7 14.8 RoE (%) FY12E FY13E 31.0 5.9 46.9 30.5 19.4 21.3 1.6 17.7 40.0 17.6 22.3 0.1 0.6 2.3 15.0 22.7 2.0 35.1 16.7 23.124 2.384 1.0 13.9 18.6 20.8 2.5 1.3 8.1 30.6 71.342 936 2.8 49.0 19.2 15.212 Accumulate 121 Buy 263 Buy Buy Buy Buy Buy 246 81 145 127 106 Source: Company.7 2.6 2.6 97.7 8.2 18.938 2.1 0.4 44.5 15.802 650 24.6 1.1 5.2 1.4 17.4 PER (x) FY12E FY13E 24.0 148.2 13.1 17.3 2.5 31.6 107.1 24.3 7.6 3.3 27.6 2.8 16.7 14.5 2.3 9.5 0.9 3.4 21.7 2.2 1.4 34.4 27.4 2.6 7.7 27.7 Accumulate 2.5 10.2 21.9 35.9 31.1 22.3 17.5 14.0 21.9 34.267 798 309 2.526 5.3 120.3 16.772 27.193 1.7 0.3 2.8 0.3 14.5 36.5 31.6 6.3 1.9 1.1 21.9 17.7 9.

Angel Research.1 25.1 21.381 10.1 17.4 1.4 20.9 5.006 622 356 560 369 588 508 Mkt Cap (` cr) 17.5 7.6 7.9 4.7 21.7 19.966 248.0 2.4 1.6 55.6 25.2 30.4 2.301 2.5 15.6 0.3 3.6 11.5 0.4 3.4 2.0 0.9 19.8 1.125 446 476 74 312 115 195 228 336 215 802 539 1.467 OPM (%) FY12E FY13E 76.2 27.101 1.1 24.8 1.2 11.669 45.5 17.2 17.061 8.143 10.5 17.4 1.7 9.1 1.3 20.1 29.114 718 25.6 7. Note: We have revised our target multiples downwards for several mid-cap stocks in light of sharp market de-rating in the mid-cap space.8 0.9 0.596 14.661 143.7 19.777 829 27.9 22.9 15.1 11.753 Sales (` cr) FY12E FY13E 2.5 6.7 20.0 62.4 15.4 21.241 1.4 85.5 17.616 57.9 0.2 66.290 59.1 42.4 16.2 25.500 11.2 14.7 20.0 6.6 12.6 42.1 24.0 4.0 5.2 2.4 1.9 1.8 83.8 2.6 1.3 18.5 84.6 35.6 22.2 4.5 1.6 1.9 44.9 11.955 1.1 18.0 14.4 19.3 0.4 20.6 7.9 22.3 20.5 82.3 14.3 21.6 2.002 791 321 102 1.2 100.8 15.4 34.6 19.655 131.8 25.0 8.7 0.704 9.1 16.9 44.5 5.7 20.3 21.1 EV/Sales (x) FY12E FY13E 7.7 2.9 19.792 58.897 31.8 78. 2011 Company Name Sun TV Metal Bhushan Steel Coal India Electrosteel Castings Godawari Power Hind.175 6.721 275.174 25.7 13.5 0.9 44.3 5.9 89.1 2.929 23.9 33.8 17.9 2.1 67.6 100.5 31.1 PER (x) FY12E FY13E 21.1 P/BV FY12E FY13E 6.5 8.6 4.9 6. 2011 Refer to important Disclosures at the end of this report 62 .0 81.2 6.5 1.9 17.416 6.4 35.9 35.2 0.2 22.1 18.3 1.9 4.875 1.6 26.0 23.5 0.6 18.5 17.3 21.2 1.380 1. $ Estimates for CY2011E and CY2012E.7 0.6 16.8 1.0 8.4 1.0 39.9 10.5 11.200 11.776 18. Price as on March 31.3 10.513 4.100 7.8 9.1 0.9 18.5 2.3 2.6 1.1 29.8 4.4 9.9 11.0 18.6 4.1 104.1 2.6 13.4 9.9 17.6 29.4 16.0 8.4 19.6 17.2 1.9 2.6 1.6 RoE (%) FY12E FY13E 30.728 17.6 10.6 18.803 15.3 24.1 1.4 3.2 8.214 1.3 34.9 2.194 975 5.6 18.009 1.797 2.474 32.9 15.8 1.4 9.5 12.1 37.691 62.5 18.5 0.9 1.0 26.2 41.2 25.5 8.323 6.0 2.119 39.837 58.635 35.435 1.984 342.696 2.8 8.3 22.2 50.3 1.7 21.3 36.431 834 9.094 449 302 415 300 444 442 Target Price (`) 580 362 45 240 262 1.3 12.3 24.6 18.7 15.0 18.6 3.952 2.5 21.3 18.0 32.171 128.3 48.8 EPS (`) FY12E FY13E 21.508 12.6 4.2 2.903 73.0 13.7 40.571 38.9 19.447 1.2 11.023 473 58.2 81.4 4.6 1.6 6.9 1.6 28.8 1.609 13.0 2.5 12.196 7.0 3.7 21.1 25.9 13.2 25. Zinc Hindalco JSW Steel MOIL Monnet Ispat NALCO NMDC Prakash Ind.5 1.7 24.8 9.5 1.8 15.1 7.1 23.6 6.2 21.425 80.9 19.8 12.490 66.182 1.023 9.808 41.651 112.8 54.0 21.0 36.5 45.5 Source: Company.0 4.2 3.4 3.1 5.3 27.0 26.6 13.8 3.447 590 2.9 27.1 22.7 3.6 20.7 35.7 9.9 44.5 1.7 55.409 2.7 2.4 78.591 2.5 20.6 1.189 356 104 278 972 397 151 2.5 4.0 19.921 1.1 13.5 41.403 2.5 0.7 77.5 3.1 21.242 6.1 2.7 6.0 17.4 2.659 17.5 1.0 1.5 1.3 12.519 1.9 1.530 4.5 25.1 18.3 1.7 6.7 3.7 29.0 1.542 8.3 39.1 9.165 2.2 21.3 7.7 25.9 0.0 22.3 4.8 2.282 57.0 0.611 16.7 16.5 4.4 12.8 35.2 23.5 2.3 28.9 10.8 1.206 5.2 24.1 58.0 28.Watch Stock Watch | April 4.2 8.8 27.045 9.1 3.6 6.8 1.6 18.3 21.9 16.9 7.3 3.216 7.9 28.1 20.6 3.8 6.8 13.231 1.7 19.4 43.6 17.6 44.5 1.2 0.2 21. SAIL Sarda Energy Sesa Goa Sterlite Inds Tata Steel Oil & Gas Cairn GAIL RIL ONGC Pharmaceuticals Alembic Aurobindo Pharma Aventis$ Cadila Healthcare Cipla Dishman Pharma Dr Reddy's GSK Pharma$ Indoco Remedies Ipca labs Lupin Orchid Chemicals Ranbaxy$ Sun Pharmaceuticals Reco Buy Sell Neutral Buy Buy Neutral Buy Buy Accumulate Reduce Sell Accumulate Buy Accumulate Accumulate Buy Buy Buy Neutral Buy Buy Buy Buy Buy Neutral Buy Buy Buy Buy Neutral Buy Buy Buy Buy Buy Buy CMP (`) 449 438 347 31 175 138 209 916 395 510 96 283 82 170 200 290 173 621 351 465 1.4 3.4 2.4 20.3 1.6 9.9 1.3 11.6 19.2 16.788 746 2.7 24.0 13.200 876 10.0 28.243 1.3 1.4 2.1 1.8 10.630 2.2 1.0 8.5 1.628 3.8 1.9 15.4 1.235 70.3 85.3 13.5 4.3 16.9 16.1 7.3 32.9 22.2 3.0 26.8 23.9 29.380 6.0 10.2 11.9 16.7 3.001 50.5 30.9 31.3 15.721 5.4 4.0 1.8 1.9 1.503 7.8 0.0 1.4 26.7 74.7 1.5 27.1 18.4 28.4 35.6 9.706 147.7 1.2 19.7 69.3 8.5 21.298 219.0 12.2 2.3 0.9 1.2 18.639 2.2 26.7 1.3 0.2 14.3 11.1 9.7 3.8 1.165 275.8 77.205 37.7 43.1 30.0 27.5 2.5 33.471 2.8 10.9 19.2 0.1 19.6 19.175 24.9 4.6 30.9 2.2 11.749 551 3.116 18.048 290 73 196 2.8 2.

535 2.5 7.500 22.5 1.5 0.2 2.1 0.4 6.7 1.0 2.1 15.897 3.9 0.1 44. Note: We have revised our target multiples downwards for several mid-cap stocks in light of sharp market de-rating in the mid-cap space.7 20.7 25.3 1.1 1.4 40.917 135.0 34.7 14.4 23.8 1.7 130.272 14.9 1.7 0.3 8.0 12.2 1.4 22.9 19.3 1.256 5.4 15.5 9.5 0.9 35.7 0.2 0.8 0.2 12.616 58 66 270 1.5 30.8 0.7 24.144 OPM (%) FY12E FY13E 26.5 50.4 28.3 0.1 0.6 2.7 0.882 3.1 0.4 5.280 926 1.3 6.7 14.6 1.7 1. Price as on March 31.8 55.6 0.4 4.0 0.354 7.0 41.4 28.3 1.5 2.7 64.3 0.019 21.288 22.626 1.003 20.508 1.8 23.7 5.3 11.5 P/BV FY12E FY13E 0.4 1.9 7.5 0.4 16.4 PER (x) FY12E FY13E 7.7 1.2 9.1 19.2 5.2 4.0 10.3 4.2 4.8 20.7 7. ^ Estimates for SY2010E and SY2011E. Angel Research.5 51.1 48.458 45.2 5.9 11.1 11.9 8.6 1.2 14.9 5.9 42.4 3.7 1.3 7.5 20.2 11.465 801 720 474 1.2 12.5 12.1 31.8 10.3 3.0 2.568 66.9 5.886 1.4 0.4 13.875 16.6 3.854 2.0 17.8 7.498 822 2.544 2.8 5.748 1.2 14.8 0.1 2.9 2.9 11.0 48.4 5.0 8.6 7.6 11.6 0.5 32.1 9.6 3.7 7.2 0.4 60.7 16.3 15.957 18.2 9.2 34.6 11.7 26.5 20.8 19.5 2.811 357 68 108 245 71 70 372 6.4 18.5 2.3 0.2 31.0 34.4 4.9 3.0 8.3 9.0 16.3 0.6 122.5 1.4 8.6 8.2 6.125 6.6 0.5 1.9 18.0 17.3 25.3 29.2 4.1 0. 2011 Refer to important Disclosures at the end of this report 63 .7 0.6 14.7 16.9 10.3 19.3 0.0 6.4 28.6 25.8 0.1 21.618 419 Sales (` cr) FY12E FY13E 4.2 8.7 13.6 21.290 5.8 22.3 14.2 12.1 13.6 1.4 7.7 0.1 20.9 0.4 3.1 30.2 4.036 3.4 40.3 2.818 3.4 13.419 1.5 346.2 56.3 12.5 6.694 4.9 12.5 18.2 9.5 0.5 0.257 784 70.0 2.768 1.9 2.6 32.312 4.5 7.2 0.2 28.0 18.9 1.7 2.6 2.1 285.0 24.6 0.8 34.4 9.3 14.6 0.0 47.6 29.1 EPS (`) FY12E FY13E 43.680 3.4 55.6 1.5 23.2 41.9 0.8 EV/Sales (x) FY12E FY13E 1.7 21.253 16.5 13.4 19.9 8.9 46.594 766 1.6 18.980 2.6 14.7 1.2 25.3 25.6 12.9 0.9 7.3 8.328 5.5 13.5 3.6 8.2 7.5 25.625 145 206 152 38 96 Target Price (`) 386 107 209 114 242 332 393 519 7.8 13.909 941 78.3 26.5 23.813 481 659 4.5 1.336 3.8 12.4 31.061 1.4 10.7 11.Watch Stock Watch | April 4.1 0.9 45.9 0.4 0.254 4.285 6.8 4.7 5.291 51 47 196 1.296 3.3 Buy Buy Accumulate Buy Neutral Buy Buy Neutral Neutral Accumulate Neutral Neutral Neutral Neutral Balrampur Chini Mills^ Neutral Blue Star Buy CRISIL Buy Essel Propack Buy Finolex Cables Buy Greenply Buy Page Industries Buy Philips Carbon Black Buy Polyplex Neutral Sintex Buy SpiceJet Neutral Surya Roshni Buy Source: Company.1 7.0 0.1 7.898 198 212 128 Mkt Cap (` cr) 3.137 2.5 9.4 39.5 3.3 15.0 18.2 18.6 0.411 58.406 3.8 9.4 12.9 10.8 43.7 9.2 1.7 2.9 36.3 11. 2011 Company Name Power CESC GIPCL NTPC Real Estate Anant Raj DLF HDIL Retail Pantaloon Retail Shoppers Stop Titan Ind Telecom Bharti Airtel Idea Cellular Rcom Others Bajaj Electricals Bajaj Hindusthan^ Reco CMP (`) 311 93 193 83 267 176 259 350 3.7 2.6 17.399 159.1 5.0 26.4 5.391 22.7 4.229 2.6 0.3 6.1 1.7 RoE (%) FY12E FY13E 11.110 16.108 1.3 10.8 3.0 12.0 19.7 17.4 21.7 108.418 1.3 4.9 5.8 21.5 2.6 6.344 4.1 0.0 254.9 57.677 2.1 9.594 2.935 4.0 3.622 2.079 2.9 0.7 8.383 658 1.6 79.751 697 12.2 2.5 19.004 3.2 6.3 20.

to the accuracy. Reports based on technical and derivative analysis center on studying charts of a stock's price movement. from time to time.Preview 4QFY2011 Results Preview | April 4. Nothing in this document should be construed as investment or financial advice. redistributed or passed on. Angel Broking Limited has not independently verified all the information contained within this document. internal data and other reliable sources believed to be true. Angel Broking Limited and its affiliates may seek to provide or have engaged in providing corporate finance. make investment decisions that are inconsistent with or contradictory to the recommendations expressed herein. but we do not represent that it is accurate or complete and it should not be relied on as such. information or data may not be reproduced. and must not be singularly used as the basis of any investment decision. Angel Broking Limited and its affiliates may have investment positions in the stocks recommended in this report. compliance. While Angel Broking Limited endeavours to update on a reasonable basis the information discussed in this material. and should consult their own advisors to determine the merits and risks of such an investment. its affiliates. nor make any representation or warranty. express or implied. Accordingly. Angel Broking Limited or any of its affiliates/ group companies shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. investment banking or other advisory services in a merger or specific transaction to the companies referred to in this report. Angel Broking Limited. as such. its proprietary trading and investment businesses may. or other reasons that prevent us from doing so. directly or indirectly. 2011 Disclaimer This document is solely for the personal information of the recipient. Also. contents or data contained within this document. Note: Please refer to the important ‘Stock Holding Disclosure' report on the Angel website (Research Section). Ratings (Returns) : Buy (> 15%) Reduce (-5% to -15%) Accumulate (5% to 15%) Sell (< -15%) Neutral (-5 to 5%) Refer to important Disclosures at the end of the report 64 . we cannot testify. as opposed to focusing on a company's fundamentals and. and its contents. directors. and the company may or may not subscribe to all the views expressed within. as on the date of this report or in the past. as this document is for general guidance only. employees or affiliates shall be liable for any loss or damage that may arise from or in connection with the use of this information. there may be regulatory. This document is being supplied to you solely for your information. The views contained in this document are those of the analyst. The information in this document has been printed on the basis of publicly available information. please refer to the latest update on respective stocks for the disclosure status in respect of those stocks. nor its directors. outstanding positions and trading volume. Each recipient of this document should make such investigations as they deem necessary to arrive at an independent evaluation of an investment in the securities of the companies referred to in this document (including the merits and risks involved). Neither Angel Broking Limited. may not match with a report on a company's fundamentals.

kanani@angelbroking.com pooja.com dilipm.400 059.s@angelbroking.anand@angelbroking.com jayr.com chitrangdar.kamalakant@angelbroking.DP . Mumbai .varma@angelbroking.bariya@angelbroking.Institutional Sales Sr.kaur@angelbroking.com nitin. Shipping Fertiliser.Preview 4QFY2011 Results Preview | April 4.Derivatives Derivative Analyst siddarth.com Head . Media) Research Associate (Capital Goods) Research Associate (Infra.com vasant.com poonam.com sreekanth. Power) Research Associate (Logistics.j@angelbroking.com bharat.com jaya.com paramv. Andheri (E).sofat@angelbroking. 2011 Address: Acme Plaza.patil@angelbroking. Mid-cap IT.com varun.sanghvi@angelbroking.com Angel Broking Ltd: BSE Sebi Regn No : INB 010996539 / CDSL Regn No: IN .com yareshb. Media Research Associate (Oil & Gas) Research Associate (Cement.2004 / PMS Regn Code: PM/INP000001546 Angel Securities Ltd:BSE: INB010994639/INF010994639 NSE: INB230994635/INF230994635 Membership numbers: BSE 028/NSE:09946 Angel Capital & Debt Market Ltd: INB 231279838 / NSE FNO: INF 231279838 / NSE Member code -12798 Angel Commodities Broking (P) Ltd: MCX Member ID: 12685 / FMC Regn No: MCX / TCM / CORP / 0037 NCDEX : Member ID 00220 / FMC Regn No: NCDEX / TCM / CORP / 0302 Refer to important Disclosures at the end of the report 65 . Telecom Metals. Road.com shrinivas. Pharmaceutical VP-Research.harsora@angelbroking.com meenakshis. Manager Manager Dealer Dealer mayuresh.salot@angelbroking.kulkarni@angelbroking.kapur@angelbroking.srinivasan@angelbroking.S Hemang Thaker Nitin Arora Ankita Somani Varun Varma Vasant Lohiya Poonam Sanghvi Technicals: Shardul Kulkarni Mileen Vasudeo Derivatives: Siddarth Bhamre Jaya Agarwal Institutional Sales Team: Mayuresh Joshi Abhimanyu Sofat Pranav Modi Jay Harsora Meenakshi Chavan Gaurang Tisani Production Team: Simran Kaur Bharat Patil Dilip Patel Research Editor Production Production simran. Sangam Cinema.arora@angelbroking.com sharanb.com naitiky. Real Estate) Research Associate (IT) Research Associate (Banking) Research Associate (Banking) Research Associate (Pharma) sarabjit@angelbroking. Banking Infrastructure Real Estate.agarwal@angelbroking.com VP-Research.bhutda@angelbroking. Mining Mid-cap Mid-cap Mid-cap FMCG.com sageraj. Opp. ‘A’ Wing.V.com shailesh.mody@angelbroking.vora@angelbroking.desai@aangelbroking.modi@angelbroking.com jai.CDSL .chavan@angelbroking.com hemang.tisani@angelbroking.Institutional Sales AVP . Tel : (022) 3952 4568 / 4040 3800 Research Team Fundamental: Sarabjit Kour Nangra Vaibhav Agrawal Shailesh Kanani Param Desai Sageraj Bariya Srishti Anand Bhavesh Chauhan Jai Sharda Sharan Lillaney Naitik Mody Chitrangda Kapur Amit Vora V Srinivasan Mihir Salot Pooja Jain Yaresh Kothari Shrinivas Bhutda Sreekanth P .bhamre@angelbroking. 3rd Floor.com gaurangp.thaker@angelbroking.V.sharda@angelbroking.com srishti.com ankita. Shipping) Research Associate (Metals & Mining) Research Associate (Automobile) Research Associate (Banking) Research Associate (FMCG.kothari@angelbroking.com mihirr.com vasudeo.agrawal@angelbroking. M.lillaney@angelbroking.com vaibhav.patel@angelbroking.chauhan@angelbroking.somani@angelbroking. Technical Analyst Technical Analyst shardul.com VP .lohiya@angelbroking.com pranavs.com abhimanyu.com amit. Logistics.234 .com Sr.com v.joshi@angelbroking.com bhaveshu.

Sign up to vote on this title
UsefulNot useful