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Market Outlook

India Research
February 1, 2012

Dealers Diary
The domestic markets are expected to open in the green tracking positive developments in the European and the Asian markets. Asian stocks are trading positively, reversing earlier losses, after Chinese manufacturing index unexpectedly expanded and amid optimism about progress on the Greek debt deal. The US markets traded choppily as investors weighed optimism about the financial situation in Europe against a disappointing batch of U.S. economic data. The upward move in early trading on Wall Street came as traders reacted positively to the latest news out of Europe, including comments from Greek Prime Minister Lucas Papademos indicating that "significant progress" has been made in reaching a debt-swap agreement with bondholders. However, a disappointing housing report from Standard & Poor's showing a bigger than expected drop in U.S. home prices in the month of November limited the upside for the markets. Meanwhile Indian markets would keenly watch out for the imports and the exports figures due to be released today to get a clearer view on the fiscal situation that would pan out by the end of this fiscal year.

Domestic Indices BSE Sensex Nifty MID CAP SMALL CAP BSE HC BSE PSU BANKEX AUTO METAL OIL & GAS BSE IT Global Indices Dow Jones NASDAQ FTSE Nikkei Hang Seng Straits Times Shanghai Com

Chg (%) 2.0 2.2 2.0 1.4 1.4 1.1 3.8 2.4 2.2 1.7 1.6 Chg (%) (0.2) 0.1 0.2 (0.4) 1.6 0.1 0.6

(Pts) 112.0 114.7 89.7 85.2 82.2 213.6 144.7 88.7 (Pts) (20.8) 1.9 10.5 (34.2) 2.8 13.6

(Close) 5,199 5,872 6,463 6,336 7,357 9,242 8,500 5,778 (Close) 12,633 2,814 5,682 8,849 2,894 2,333

330.3 17,194

421.6 11,391 252.5 11,499

Markets Today
The trend deciding level for the day is 17,123/5,178 levels. If NIFTY trades above this level during the first half-an-hour of trade then we may witness a further rally up to 17,281 17,368/5,236 5,274 levels. However, if NIFTY trades below 17,123/5,178 levels for the first half-an-hour of trade then it may correct up to 17,036 16,878/5,141 5,083 levels.
Indices SENSEX NIFTY S2 16,878 5,083 S1 17,036 5,141 PIVOT 17,123 5,178 R1 17,281 5,236 R2 17,368 5,274

328.7 20,439

Indian ADRs Infosys Wipro ICICI Bank HDFC Bank

Chg (%) 1.3 1.5 4.6 1.4

(Pts) 0.7 0.2 1.6 0.4

(Close) $55.0 $10.9 $36.2 $31.0

News Analysis
Coal India hints roll back in coal prices 3QFY2012 - Result Reviews ICICI Bank, NMDC, PNB, Dabur, Crompton Greaves, United Phosphorus, Ipca Laboratories, Jagran Prakashan, TVS Motor, KEC International 3QFY2012 - Result Previews Mahindra Satyam, Ashok Leyland
Refer detailed news analysis on the following page

Advances / Declines Advances Declines Unchanged

BSE 1,804 1,034 108

NSE 1,047 438 67

Net Inflows (January 30, 2012)

` cr FII MFs Purch
2,578 378

2,657 709

(80) (331)

10,444 (1,944)

10,444 (1,944)

Volumes (` cr) BSE NSE 2,807 13,696

FII Derivatives (January 31, 2012)

` cr Index Futures Stock Futures Purch
2,150 1,772

1,768 1,799

383 (26)

Open Interest
11,727 26,647

Gainers / Losers
Gainers Company
Tata Global IVRCL Havells India Bata India Aurobindo Pharma

Losers Company
Glenmark Pharma Coal India Essar Oil JSW Energy PNB

Price (`)
108 51 480 688 115

chg (%)
10.0 9.2 8.2 7.4 7.1

Price (`)
296 326 61 54 940

chg (%)
(5.2) (3.0) (1.9) (1.6) (1.6)

Please refer to important disclosures at the end of this report

Sebi Registration No: INB 010996539

Market Outlook | India Research

Coal India hints roll back in coal prices

Coal Indias Chairman Mr. N.C. Jha informed that Coal India will roll back the increase in prices (that was effective from January 2012) due to opposition from consumers such as power and cement companies. The company will announce a new notification for pricing that will replace the existing notification (January 1, 2011). Management indicated that although new prices will continue to be linked to Gross Calorific Value, price bands for the various grades would be revised so that overall impact will be revenue-neutral for Coal India. We maintain our Neutral rating on the stock.

3QFY2012 - Result Reviews

For 3QFY2012, ICICI Bank posted a healthy set of numbers with net profit growing by 20.3% yoy to `1,728cr, which were mostly in-line with our estimates. Net interest income of the bank grew by healthy 17.3% yoy to `2,712cr; however, growth in non-interest income was moderate at 8.2% yoy to `1,892cr. Operating income of the bank grew by 13.4% yoy to `4,604cr. Provisioning expenses declined by 26.4% yoy to `341cr, leading to net profit growing by 20.3% yoy to `1,728cr in 3QFY2012. The banks asset quality improved during 3QFY2012, with gross and net NPA levels declining by 3.0% and 6.2% sequentially, respectively. As of 3QFY2012, gross NPA ratio stands at 3.8% (4.1% in 2QFY2012), while net NPA ratio stands at 0.8% (0.9% in 2QFY2012). NPA coverage ratio remains healthy at 78.9%. We maintain our Buy rating on the stock with a target price of `1,061.

NMDC reported its 3QFY2012 results, which were above our expectation. Net sales increased by 7.7% yoy to `2,822cr (slightly above our estimate of `2,745), which would be mainly due to higher iron ore realizations in our view. EBITDA increased by 11.6% yoy to `2,261cr, in-line with the increase in sales. EBITDA margin expanded by 283bp yoy to 80.1%. Other income increased by 78.3% yoy to `525cr due to higher yields as well as cash balances. Hence, PAT grew by 22.4% yoy to `1,859cr (above our estimate of `1,757). Going forward, despite some softness in global prices over the past six months, we do not expect NMDC to lower its prices meaningfully. We maintain our Buy rating on the stock, while we keep our target price under review.

For 3QFY2012, PNB registered a very moderate set of results with net profit growing by 5.5% yoy to `1,150cr, which was below our estimates on account of higher provisioning expenses than estimated by us. Net interest income of the
February 1, 2012

Market Outlook | India Research

bank grew by 10.4% yoy t0 `3,537cr. Non interest income growth was moderate at 10.6% yoy to `954cr. Provisioning expenses increased by 32.5% yoy to `946cr, leading to moderate PAT growth of 5.5% yoy. The banks asset quality deteriorated during 3QFY2012, with gross and net NPA levels increasing by 25.1% and 38.9% sequentially, respectively. As of 3QFY2012, gross NPA ratio stands at 2.4% (2.1% in 2QFY2012), while net NPA ratio stands at 1.1% (0.8% in 2QFY2012). Provisioning coverage ratio deteriorated by 507bp during 3QFY2012 to 70.0%. We recommend Accumulate on the stock with a target price of `1,059.

Dabur reported a mixed performance for 3QFY2012. The companys top line grew strongly by 34.5% yoy to `1,453cr, driven by a healthy performance across business segments. Earnings grew by 11.9% yoy to `173cr. The company reported a 416bp yoy decline in OPM due to increased input costs and a rise in ad spends and other expenses. During 3QFY2012, the companys domestic business growth stood at 16% yoy, while the international business (ex. acquisitions) grew by 38%yoy. The consumer care division grew by 15% yoy, with all categories registering healthy growth. Hobi and Namaste reported healthy top-line growth of 44% yoy and 16% yoy, respectively. We maintain our Accumulate rating on the stock. The target price is under review.

Crompton Greaves
Crompton Greaves (CG) 3QFY2012 results were significantly below our and consensus estimates. The companys consolidated revenue grew strongly by 26.3% yoy to `3,028cr (`2,397cr), which was 14.3% higher than our estimate of `2,649cr. The growth was largely driven by Power segment which posted consolidated 33.9% yoy growth to `2,069cr (`1,545cr) while international power systems revenues grew by a strong 36.3% yoy (aided by the currency movement) the Domestic power systems business posted strong growth of 30.0% yoy. Industrial system segment also delivered a 32.1% yoy growth to `503cr (`381cr) on consolidated basis. On the other hand, Consumer segment posted a flattish growth with revenues of `474.9cr (`475.1cr). It is pertinent to note that the current quarter includes revenues from Emotron and QEI (acquired subsidiaries). On the EBITDA front, margins witnessed a steep contraction of ~820bp yoy to 6.0%, primarily driven by high raw material costs which rose by 820bp yoy as a proportion to sales. Margin erosion was mainly attributable to Power system segment (both domestic and international segment), which has been facing increased cost and pricing pressures since past several quarters. Led by margin dip, the reported PAT plunged by 66.8% yoy to `77.2cr (`232.8cr), 42% below our (below street) expectations of `133.6cr. The stock is under review and we wait for further details in an analyst meet scheduled later in the day.

February 1, 2012

Market Outlook | India Research

United Phosphorus
For 3QFY2012, United Phosphorous, posted a strong set of numbers. The company reported top-line growth of 55%, mainly driven by 70% yoy growth in the international business. Gross margin came in at 37%, registering a dip of 300bp yoy. Consequently, OPM came in at 19%, down 100bp yoy. The dip in OPM came in lower than the dip in the gross margin mainly on account of lower other expenditure. Overall, net profit came in at `123cr, up 39%yoy. Management has given a guidance of 35-40% growth in revenue and 19-20% growth in OPM. We continue to maintain our Buy recommendation on the stock with a target price of `182.

Ipca Laboratories
For 3QFY2012, Ipca Labs reported above-expectation performance on the back of strong international sales growth and significant margin expansion. The companys top line increased by 31.8% yoy, with the domestic formulation business registering mere 6% growth. The companys international formulations business, on the other hand, registered phenomenal growth of 73%. The companys OPM stood at 24.6% in 3QFY2012 vs. 19.5% of 3QFY2011. Net profit was, however, flat on a yoy basis at `63.9cr. Adjusted net profit of the company stood at `103.8cr in 3QFY2012 vs. `52.74cr in 3QFY2011. We continue to maintain our Buy recommendation on the stock with a target price of `358.

Jagran Prakashan
For 3QFY2012, Jagran Prakashan (JPL) reported a healthy performance on the revenue front. The company reported top-line growth of 13.7% yoy/6.5% qoq to `317cr. The companys earnings declined on a yoy basis by ~32% as well as sequentially by ~10% and came in at `41cr. The decline in earnings was due to a 496bp yoy contraction in operating margin on account of high raw-material prices because of increased circulation and forex losses. During the quarter, ad revenue grew by ~15% yoy. Circulation growth stood at ~9% yoy. Nonpublishing business revenue, which comprises event, outdoor and digital businesses, grew by 15% yoy each. The company also reported forex loss of `8.7cr on account of foreign exchange fluctuations. The stock is under review.

TVS Motor
TVS Motor (TVSL) reported slightly lower-than-estimated net profit for 3QFY2012 mainly on account of high depreciation expense, lower other income and higher tax rate. Top line for the quarter registered in-line growth of 7% yoy (down 11.5% qoq), driven by a 6.3% yoy increase in net average realization. Volume performance, however, was sluggish as total volumes declined by 1.1% yoy (12.3% qoq) led by a 6.6% and 11.5% yoy decline in motorcycle and threewheeler volumes, respectively. EBITDA margin came in slightly ahead of our estimates at 6.9%, expanding by 83bp yoy (flat qoq), aided by higher net average

February 1, 2012

Market Outlook | India Research

realization and 99bp yoy savings in raw-material expenses (raw-material to sales ratio at 72.2% vs. 73.2% in 3QFY2011 and 74% in 2QFY2012). Net profit during the quarter registered modest 1.4% yoy growth (down 26.1% qoq) to `57cr, largely due to lower other income and higher depreciation expense. At `52, TVSL is trading at 9x FY2013E earnings. We retain our Buy rating on the stock with a revised target price of `64, valuing the stock at 11x FY2013E earnings of `5.8.

KEC International
KEC Internationals (KEC) posted a strong set of numbers for 3QFY2012 which exceeded expectations. The companys consolidated revenue grew strongly by 36.3% yoy to `1,460cr (`1,071cr), which was 15.0% higher than our estimate of `1,266cr. The stellar growth was mainly due to strong execution in South Asia, delivering a robust 57% yoy growth from the region. On the operating front, EBITDA margin posted a sharp contraction of ~400bp yoy to 7.7%, against our estimate of 8.5%. Margins were primarily impacted by higher raw material costs and sub-contracting expenses. New businesses of cable and telecom also remained low on profitability. Interest expense grew by 29.7% yoy to `37.2cr, which was fully offset by an exceptional income to the tune of `53.8cr. Aided by this extraordinary gain, PAT grew by 39% yoy to 80.6cr (`58cr). Adjusted for this gain, PAT de-grew by 25.9% yoy to `43cr, 16.6% higher than our (below street) estimate of `36.9cr. Management commentary remained active terms of growth trajectory order book at the end of the quarter stood at `9,200cr, majorly aided by the robust order inflows totalling `2,500cr during the quarter. The strong order accretion since past few quarters is mainly attributable to the companys diversified business operations, with equal exposure to domestic and international markets. Amidst strong order wins recently, the stock has witnessed a substantial rally, gaining ~50% in past few days. At the CMP, the stock trades at reasonable valuations of 6.0x FY2013 PE. We believe stock price has factored in most of the positives and hence, further upside seems limited. Thus, we recommend Neutral on the stock. Based on the earnings commentary, we will revise our estimates and recommendation and release a detailed note shortly.

3QFY2012 - Result Previews Mahindra Satyam

Mahindra Satyam (Satyam) is slated to announce its 3QFY2012 results. We expect the company to post revenue of US$339.2mn, up 2.7% qoq, majorly led by volume growth. In rupee terms, revenue is expected to come in at `1,716cr, up 8.8% qoq, aided by INR depreciation against USD. EBITDA margin is expected to shrink by 45bp qoq to 14.9% because of negative impact due to wage hikes given during the quarter, which will be largely overshadowed by gains on account of INR depreciation. PAT is expected to come in at `190cr. We maintain our Accumulate rating on the stock with a target price of `82.

February 1, 2012

Market Outlook | India Research

Ashok Leyland
Ashok Leyland (AL) is slated to announce its 3QFY2012 results. The companys top line is expected to grow by strong 23% yoy, led by 12% and 10% yoy growth in volumes and net average realization, respectively. On the operating front, EBITDA margin is expected to witness a 265bp yoy expansion to 10.1%, owing to easing of raw-material cost pressures. Bottom line, however, is expected to jump by 150% yoy to `108cr, largely due to low base of last year. The stock rating is under review.

Quarterly Bloomberg Brokers Consensus Estimates

Ashok Leyland Ltd - (01/02/2012)
Particulars (` cr) Net sales EBITDA EBITDA margin (%) Net profit 3Q FY12E 2,934 296 10.1 120 3Q FY11 y-o-y (%) 2,227 166 7.5 43 177 32 78 2Q FY12 q-o-q (%) 3,095 331 10.7 154 (22) (5) (11)

Power Finance Corporation Ltd - (03/02/2012)

Particulars (` cr) Net profit 3Q FY12E 718 3Q FY11 y-o-y (%) 659 9 2Q FY12 q-o-q (%) 419 71

Dr. Reddys Laboratories Ltd - (03/02/2012)

Particulars (` cr) Net sales Net profit 3Q FY12E 2,480 393 3Q FY11 y-o-y (%) 1,899 273 31 44 2Q FY12 q-o-q (%) 2,268 308 9 28

HPCL Ltd - (03/02/2012)

Particulars (` cr) Net sales EBITDA EBITDA margin (%) Net profit 3Q FY12E 42,218 (340) -0.8 (638) 3Q FY11 y-o-y (%) 33,903 780 2.3 211 (403) 25 (144) 2Q FY12 q-o-q (%) 37,030 (2,870) -7.7 (3,364) (81) 14 (88)

February 1, 2012

Market Outlook | India Research

Economic and Political News

India's per capita income grew by 15.6% to `53,331 in FY2011: Government India eyes US$100bn FDI in nuclear energy in 20 years: Anand Sharma Economy seen growing faster in FY2013: Kaushik Basu Possibility of another CRR cut on table: RBI RBI intends to use OMOs to tackle cash shortfall DoT issues notices to private telecomm players for under reporting revenue

Corporate News
SBI will need `15,000cr a year to meet rising demand for loans: CFO Suzlon bags `600cr order from CLP India to set up a 100MW power project TCS opens unit at Silicon Valley for mobility solutions
Source: Economic Times, Business Standard, Business Line, Financial Express, Mint

Results Calendar
01/02/2012 02/02/2012 03/02/2012 06/02/2012 07/02/2012 08/02/2012 Mahindra Satyam, Ashok Leyland, UCO Bank, Finolex Cables Marico, Andhra Bank, Corporation Bank, Hexaware, Greenply Dr. Reddy's, Power Fin.Corpn., HPCL, Madras Cements, Prakash Industries, Subros HUL, Mundra Port, Adani Power, Nalco, GlaxoSmith Con, MOIL, Dena Bank, BGR Energy , India Cements, Nagarjuna Const., GIPCL M&M, Cadila Healthcare, GMR Infra., ITNL, SpiceJet, J K Lakshmi Cements ONGC, Bharti Airtel, Power Grid Corpn, Bharat Forge, Orchid Chemicals, Alembic Pharma

February 1, 2012

Market Outlook | India Research

Research Team Tel: 022 - 39357800



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February 1, 2012