Angel Broking Strategy - April 2010

StrategyApril 2010

gy

Firing up!

Research Team

Table of Contents

Strategy ………..………2-8

Federal Bank ……………. 36

GSFC …………….……… 39

IVRCL Infra 42

Large Caps

Bharti Airtel ……..….……. 10

ICICI B k 13

Heritage Foods …….…….64

JK Tyre and Ind. ……….…67

IVRCL Infra ………….….. 42

Jagran Prakashan …....… 45

Jyoti Structures ….……….48

ICICI Bank ………..………13

Maruti Suzuki ….……....... 16

Reliance Infra …..……......19

Spice Jet ……..…….….... 51

TAJGVK …..…….………. 54

SBI ………………............. 22

Tech Mahindra …...………25

Small Caps

Fag Bearings …………… 58

G l I d t i 61

Mid Caps

Anant Raj Ind. ………..…..29

Greenply Industries …….. 61Electrosteel Castings ……32

New growth cycle from FY2011E

Signs of economic improvement are getting stronger in India with the IIP growth having recovered from lows of-0.2% in December 2008 to hit a high of 16.7% in January 2010. We expect the economy to further strengthenas low interest rates help kick-start another cycle of corporate and consumer credit expansion.Correspondingly, Earnings expectations from Corporate India for FY2011E are increasing, coming off a lowbase in FY2010E. For instance, with global economies improving, we have revised upwards our Earningsestimates for Metal stocks by 10-20%; similar upgrades have also been made for several other sectors.Overall, we expect the Benchmark Sensex companies to register 27% CAGR in Earnings over the next two

W t t lik C it l G d & E i i I f t t B ki d R l E t t t l d

(Rs)

years. We expect sectors like Capital Goods & Engineering, Infrastructure, Banking and Real Estate to leadfrom the front, even as the Telecom Sector is expected to stabilise in FY2012E.

Sensex EPS Growth

830 805 820

1,065

1,312

1,000

1,250

1,500 (Rs)

527

723 830 805 820

250

500

750

-

50

FY2006 FY2007 FY2008 FY2009 FY2010E FY2011E FY2012E

Source: Angel Research

2

Manufacturing and Capital Goods to lead from front

Historical analysis of All-Industry Sales data indicates strong yoy growth, with an average growth rate of around22% during FY2003-09.

The growth in Sales was achieved on the back of steady increase in capital expenditure in turn increasing theGross Block and Plant & Machinery (P&M). The average P&M turnover was around 2.5x during the mentionedperiod with a peak rate of around 2.9x in FY2009.

T hi th ti t d S l th f 22 24% FY2010 12E t i d t t dd P&M thTo achieve the estimated Sales growth of 22-24% over FY2010-12E, we expect industry to add P&M worthRs2,64,000cr in FY2012E compared to the P&M addition of around Rs1,60,000cr in FY2009, implying a growthof 65% over the period. This indicates the significant scope of growth for the Capital Goods Sector in India.

C E ti ti (R )Capex Estimation (Rs cr)Particulars 2013E 2012E 2011E 2010E 2009 2008 2007 2006 2005 2004 2003Gross Block 3,301,234 2,721,234 2,281,234 1,911,234 1,565,922 1,269,462 992,474 834,503 706,515 595,294 555,235

Plant and Machinery 1,980,740 1,632,740 1,368,740 1,146,740 937,265 777,194 633,965 546,789 464,244 423,509 393,196

Capital Work in Progress 580,000 440,000 370,000 345,312 235,380 148,600 95,058 71,200 74,772 63,911Capital Work in Progress 580,000 440,000 370,000 345,312 235,380 148,600 95,058 71,200 74,772 63,911

Net Sales 5,715,628 4,609,377 3,717,240 3,046,918 2,720,462 2,208,030 1,713,108 1,329,333 1,103,187 898,690 807,378

Sales Growth (%) 24 24 22 12 23 29 29 20 23 11 16

Gross block turnover 1.7 1.7 1.6 1.6 1.7 1.7 1.7 1.6 1.6 1.5 1.5

P&M Turnover 2.9 2.8 2.7 2.7 2.9 2.8 2.7 2.4 2.4 2.1 2.1

Incremental Plant and Machinery 264,000 160,071 Growth 2009-12 (%) 65

Source: ACE Equity,, Angel Research

3

Inflation expected to decline

15%

WPI inflation to come down to 4-5% by March 2011Visibly, the headline WPI inflation, which hasclimbed to 9.9% yoy in February 2010, is themain catalyst for the RBI’s tightening measures.

10%

9%

12%

15%

Food inflation continues to be the main causefor this runaway increase in overall inflation. Itremains at elevated levels of 16.3% yoy, whileNon-Food manufacturing products inflation

5%

3%

6%

Non Food manufacturing products inflation(having 52.2% weightage in the WPI Index) isjust 4.3% in February 2010.

Going forward, Food inflation which wasb d b h B d l i

-3%

0%

Mar-06 Mar-07 Mar-08 Mar-09 Mar-10 Mar-11

exacerbated by the Bad monsoons last year, islikely to moderate. At the same time, due to thebase effect, over the next 6-9 months, overallinflation is likely to once again come down tothe manageable 4 5% rangethe manageable 4-5% range.

Source: RBI, Angel Research

4

Monetary Tightening not a concern

60.0 9.00

(%) (%)

Monetary Tightening began in Sep 2005, but Credit growth remained above 20% right up to Dec 2008

30.0

40.0

50.0

6.00

7.00

8.00

-

10.0

20.0

3.00

4.00

5.00

-04 -05 -05 -05 -06 -06 -07 -07 -08 -08 -08 -09 -09 -10

Sep-

Feb- Jul

-

Dec-

May- Oct-

Mar-

Aug- Jan-

Jun-

Nov- Apr-

Sep-

Feb-

Credit Growth yoy (RHS) Repo Rate (LHS) Reverse Repo Rate (LHS) CRR (LHS) Series5

The RBI’s main objective is to control inflation expectations Nonetheless at the current juncture with growth

Source: RBI, Angel Research

The RBI s main objective is to control inflation expectations. Nonetheless, at the current juncture with growthjust picking up, stifling liquidity is not required. Hence, we expect the rate hikes to happen in small, step-by-step increments, and it will take a dozen or more hikes spread over many quarters, before one needs to startworrying about high interest rates affecting growth.

In fact, in the previous cycle, even with a 3-4% increase in interest rates, credit demand remained strong dueto robust economic activity and opportunity, buoyed by cheap foreign capital and strong domestic savings. Thepresent situation appears headed in a similar direction.

5

FII inflows to surge…

Even as fundamental factors continue to show significant upward momentum, the economy is also receiving FIIinflows. In fact, even during the crisis-ridden year of CY2009, the country received as much as Rs85,000cr ofFII inflows.

In the first couple of months of this calendar year, India has already received Rs15,000cr by way of FII inflow,and considering the improving global and domestic scenario, this figure is likely to only improve going forward.CY2010 is likely to end with at least Rs1-1.25lakh crore (US $20-25bn) of FII inflows.

90,000 Phenomenal FII inflows even in a low global growth year

(Rs)

FII Inflows

-

30,000

60,000

(60,000)

(30,000)

CY02 CY03 CY04 CY05 CY06 CY07 CY08 CY09 CY10 (YTD)

Source: Bloomberg, Angel Research

6

…and FDI is gaining prominence

FDI Inflows (% of World)

Country 1980 2000 2006 2008y

World 100 100 100 100

Developed Economies 86.2 81.4 70.3 63.4

USA 31 3 22 7 16 2 18 6USA 31.3 22.7 16.2 18.6

UK 18.7 8.6 10.7 5.7

Developing Economies 13.8 18.6 29.7 36.6

Brazil 3.5 2.4 1.3 2.7

Russian Federation 0.0 0.2 2.0 4.1

China 1.8 8.4 9.0 11.0

India 0.1 0.3 1.4 2.4Source: UNCTAD, Angel Research

7

Markets in Fair value zone, stock-picking key to investment success

At current levels, the Sensex is trading at 13.4x FY2012E EPS v/s the 5-year average of 16.1x. Whilevaluations are not cheap, at the same time they are not factoring more than 8% GDP growth. With 8% growthlooking increasingly achievable, we expect the Sensex to touch 20,992 levels (an upside of 19%) by March2011 b d T t P/E f 16 FY2012E EPS2011, based on Target P/E of 16x FY2012E EPS.

In the ensuing slides we have discussed 15 of our Top Picks that are expected to significantly outperform theSensex. We have chosen the stocks from across sectors including large, mid and small caps such as SBI, TechMahindra, Electrosteel Casting, Greenply, etc., g, p y,

11.023,000Sensex (LHS) Sensex Earnings Yield (%) (RHS) Avg. Bond Yields (%) (RHS)

Sensex Earnings Yield(Sensex) (%)

8.0

9.0

10.0

11.0

15,500

18,000

20,500

23,000

4.0

5.0

6.0

7.0

5,500

8,000

10,500

13,000

3.0 3,000Mar-04 Mar-05 Mar-06 Mar-07 Mar-08 Mar-09 Mar-10

Source: Angel Research

8

Large Caps

Bharti Airtel(CMP/TP: Rs310/406)

Minute of usage to grow by 20% over FY10-14: Total MoU has been growing at robust pace marking aCAGR of 48% in last 4 years. The total minute of usage is likely to grow at a very high rate considering thelower tele-density of 47% as against that of 88% for US and lower MoU/subscriber (just 458 vs 772 for US)which provides enough headroom for future growth. We believe total MoU to grow by 20% over FY10-14.

Competition Intensity to reduce: We do not expect the ongoing price war to further intensify as the cost ofoperation for the new players are high and not sustainable unless they gain scale. Hence, we believe thatBharti with high EBIDTA per minute of Rs0.16 is relatively better placed than its peers.

LBO structuring to benefit: Though the Kuwait-based Zain Telecom (African Assets) has been valued higherthan that its closest peer MTN at US $9bn we believe it would still be value accretive for Bharti owing tothan that its closest peer, MTN, at US $9bn, we believe it would still be value accretive for Bharti owing tofinancial leverage from the Leveraged Buy-Out structuring of the deal. Moreover, Bharti has also successfullyacquired 70% stake in Warid Telecom to capitalise on the untapped opportunity in the densely populatedBangladesh market (160mn), which has low tele-density of 32%.

Trading at attractive valuations to Peers: Bharti Airtel is currently trading at 12.0 FY12E Earnings of Rs25.8,Trading at attractive valuations to Peers: Bharti Airtel is currently trading at 12.0 FY12E Earnings of Rs25.8,which is at significant discount to its historical average of 26x as well as Sensex P/E of 14.5x FY12E Earnings,despite higher average RoCE of 20% (FY10-12E) as against average RoCE of 18% for the Sensex. Hence, wemaintain a Buy on the stock based on 14x FY12E EPS for its Core business and Rs45 per share for its 42%stake in Indus Towers.

Valuation SnapshotEPS( Rs) RoE (%) P/E (x) P/BV (x) EV/Sales (x)

FY10 FY11 FY12 FY10 FY11 FY12 FY10 FY11 FY12 FY10 FY11 FY12 FY10 FY11 FY12

24.1 23.8 25.8 26.6 21.3 19.4 12.7 13.0 12.0 2.9 2.6 2.2 3.1 2.7 2.2

10

Bharti Airtel

20.0%

25.0%

30.0%

110

130

300

350

400

450

Leadership maintained with high customer market shareMoU to grow by 20% over FY10-14E

0.0%

5.0%

10.0%

15.0%

50

70

90

0

50

100

150

200

250

FY'07 FY'08E FY'09E FY'10E FY'11E FY'12E FY'13E FY'14E

1 630 0000 6

Q1'09 Q2'09 Q3'09 Q4'09 Q1'10 Q2'10 Q3'10

Subscribers Market share

FY'07 FY'08E FY'09E FY'10E FY'11E FY'12E FY'13E FY'14E

Total MOU (bn)

Source: Company, Angel Securities

Peer Group: Revenue per minute/ EBIDTA per minute


Tenancy ratio going up

1 2

1.3

1.4

1.5

1.6

26,000

28,000

30,0000.52

0.45

0.51

0 160 2

0.3

0.4

0.5

0.6

1

1.1

1.2

22,000

24,000

Q2'09 Q3'09 Q4'09 Q1'10 Q2'10 Q3'10No of towers Tenancy ratio

0.16 0.14 0.12

0

0.1

0.2

Bharti Rcom IdeaRPM EPM

Source: Company, Angel Securities Source: Company, Angel Securities

11

Bharti Airtel

Balance SheetY/E March (Rs cr) FY2009 FY2010E FY2011E FY2012ESOURCES OF FUNDS

Equity Share Capital 1,898 1,898 1,898 1,898

Profit & Loss StatementY/E March (Rs cr) FY2009 FY2010E FY2011E FY2012E

Net Sales 36,962 39,212 42,651 46,770

% chg 36.8 6.1 8.8 9.7

Reserves& Surplus 28,496 36,585 44,454 52,872

Shareholders Funds 30,395 38,483 46,352 54,771

Total Loans 11,880 10,152 7,873 5,762

Deferred Tax Liability 756 756 756 756

Oth Li biliti 34 34 34 34

Total Expenditure 21,794 23,195 26,000 28,484

EBIDTA 15,168 16,017 16,652 18,287

(% of Net Sales) 41.0 40.8 39.0 39.1

Other Income 152 627 618 678 Other Liabilities 34 34 34 34

Minority Interest 1,070 1,255 1,438 1,636

Total Liabilities 44,134 50,679 56,452 62,958

APPLICATION OF FUNDS

Gross Block 55,809 67,609 75,073 82,088

Depreciation& Amortisation 4,758 5,916 6,569 7,224

Interest 1,161 - - -

PBT 9,401 10,728 10,701 11,741

(% of Net Sales) 16 16.4 17.1 18.1 Gross Block 55,809 67,609 75,073 82,088

Less: Acc. Depreciation 14,895 20,811 27,380 34,604

Net Block 40,914 46,798 47,693 47,485

Goodwill 4,036 4,036 4,036 4,036

Investments 14 14 14 14

Share in profit of JVs (71.3) 35.0 35.0 35.0 Exceptional & Prior Period Expenses 22 22 22 22

Tax 662 1396 1,500 1,763

(% of PBT) 7 1 13 0 14 0 15 0Current Assets 14,408 15,817 21,958 30,026

Current liabilities 15,238 15,986 17,249 18,603

Net Current Assets 14,408 15,817 21,958 30,026

Total Assets 44,134 50,679 56,452 62,958

(% of PBT) 7.1 13.0 14.0 15.0

Less: Minority interest (MI) 175.9 185.0 182.4 197.8 PAT( After Minority Interest) 8,470 9,160 9,032 9,793

% chg 26.4 8.1 (1.4) 8.4

12

ICICI Bank(CMP/TP: Rs948/1,155)

Well-positioned to garner strong Market share gains in CASA deposits: In our view, the Bank’s substantial branchexpansion (210 branches added during last 12 months, about 875 more in next 12-18 months ie. 2.5 times the size 8quarters back) as well as strong Capital Adequacy at 19.4% (Tier-I at 14.2%) have positioned it to gain market share thatwill contribute to substantial Core business growth as the macro environment continues to improve. In fact, the Bank hasonce again started gaining market share in Savings accounts; during 9MFY2010, the Bank has improved its marketshare of Savings deposits by 20bp over FY2009 levels, capturing a substantial 6% incremental market share.

Improved Deposit Mix to reflect in better NIMs: The Bank is decisively executing a credible strategy of consolidationthat will drive materially improved Balance Sheet and Earnings quality over the next two years. The distinguishing featureof the Bank’s performance in 9MFY2010 was the improvement in CASA ratio to 40% (transformative considering that theratio was as low as 22% at the end of FY2007 and 29% even as recently as FY2009). In light of this change in theLiability-mix, we expect the Bank’s NIMs to improve to a healthy 2.8-3.0% over FY11-12E (2.6% in FY2009) .

Worst of Asset Quality issues over: The Bank’s asset quality is showing signs of stabilising, with 3QFY2010 slippagescoming down to Rs750cr (against run-rate of about Rs1,000cr per quarter). In absolute terms, Gross NPAs of the Bankdeclined on a sequential basis for the third consecutive quarter to Rs8,926cr. The Bank has also done lower restructuringof loans than PSU Banks (3.0% of total loans, 10.2% of net worth). Going forward, there could be potential upsides to our( , ) g , p pEarnings estimates on account of the better-than-expected performance on the Asset quality front.

Valuations attractive: At the CMP, the Bank’s Core Banking business (after adjusting Rs307 per share towards thevalue of the subsidiaries) is trading at 1.9x FY12E ABV of Rs377. Including subsidiaries, the stock is trading at 1.4xFY12E ABV of Rs512. We have valued the Bank’s subsidiaries at Rs307 per share of ICICI Bank and the core Bank atRs848 (2.25x FY12E ABV). We maintain a Buy on the stock, with a 12-month Target Price of Rs1,155.Rs848 (2.25x FY12E ABV). We maintain a Buy on the stock, with a 12 month Target Price of Rs1,155.

Valuation SnapshotCompany Reco CMP (Rs) Tgt Price (Rs) Upside (%) P/ABV (x) Tgt P/ABV (x) P/E (x) EPS CAGR (%) RoA (%) RoE (%)

FY12E FY12E FY12E FY09-12E FY12E FY12E

ICICIBK Buy 948 1,155 21.7 1.9 2.3 15.6 21.8 1.3 15.1

13

ICICI Bank

4.0

5.0

6.0

Well-positioned in terms of CAR and Branch expansionSavings Deposits Market share Trend

-

1.0

2.0

3.0

Y200

3

Y200

4

Y200

5

Y200

6

Y200

7

Y200

8

Y200

9

Y201

0

FY FY FY FY FY FY FY

9MFY

% Savings Deposit Share

1 640 0


Strong Traction expected in Profitability driven by lower Provisions


SOTP Valuation Summary

Y/E March (Rs) Value Per Share

0 6

0.8

1.0

1.2

1.4

1.6

10.0

20.0

30.0

40.0 Y/E March (Rs) Value Per ShareICICIBK 848ICICI Pru Life 154

ICICI Lombard General Insurance 13

ICICI Prudential AMC 15ICICI Securities & PD 27

-

0.2

0.4

0.6

(20.0)

(10.0)

-FY2009 FY2010E FY2011E FY2012E

% Advances Growth (LHS) % Earnings growth (LHS)% ROA (RHS) % Provisions/Assets (RHS)

Source: Company Angel Securities Source: Company, Angel Securities

C C Secu t es &

ICICI Venture Funds management 14

ICICI UK, Canada 66ICICI Home Finance 19SOTP Value 1,155


14

ICICI Bank

Income Statement Y/E March (Rs cr) FY2009 FY2010E FY2011E FY2012ENet Interest Income 9,092 8,918 10,169 12,877

- YoY Growth (%) 10.9 (1.9) 14.0 26.6

Balance SheetY/E March (Rs cr) FY2009 FY2010E FY2011E FY2012E

Share Capital 1,463 1,463 1,463 1,463

- Equity 1,113 1,113 1,113 1,113Other Income 8,118 7,612 8,327 10,174

- YoY Growth (%) (8.6) (6.2) 9.4 22.2

Operating Income 17,210 16,530 18,496 23,051

- YoY Growth (%) 0.8 (3.9) 11.9 24.6

O ti E 7 045 5 983 7 131 9 445

- Preference 350 350 350 350

Reserve & Surplus 48,420 50,533 53,152 56,705

Deposits 218,348 212,889 263,983 327,338

- Growth (%) (10.7) (2.5) 24.0 24.0

Borrowings 67 324 64 557 77 678 93 473Operating Expenses 7,045 5,983 7,131 9,445

- YoY Growth (%) (13.6) (15.1) 19.2 32.5

Pre - Provision Profit 10,165 10,548 11,364 13,606

- YoY Growth (%) 13.9 3.8 7.7 19.7

Provision and

Borrowings 67,324 64,557 77,678 93,473

Tier 2 Capital 25,482 29,304 36,337 45,421

Other Liabilities & Provisions 18,265 5,176 9,835 13,825


Cash in Hand and with RBI 17,536 10,644 13,199 16,367Provision and Contingencies 5,048 5,229 4,698 4,482

- YoY Growth (%) 30.4 3.6 (10.2) (4.6)

Profit Before Tax 5,117 5,319 6,667 9,124

- YoY Growth (%) 1.2 3.9 25.3 36.9

Bal. with banks & money at call 12,430 12,303 15,008 18,313

Investments 103,058 101,787 118,294 134,705

Advances 218,311 212,853 263,938 329,922

- Growth (%) (3.2) (2.5) 24.0 25.0Provision for Taxation 1,359 1,337 1,686 2,332

- as a % of PBT 26.6 25.1 25.3 25.6

PAT 3,758 3,982 4,981 6,792

- YoY Growth (%) (9.6) 6.0 25.1 36.4

Fixed Assets 3,802 3,164 3,743 4,431

Other Assets 24,164 23,171 28,265 34,488

Total Assets 379,301 363,922 442,447 538,226

- Growth (%) (6.3) (4.1) 22.0 22.0

15

Maruti Suzuki(CMP/TP: Rs1,396/1,861)

Per Capita near inflexion point for car demand: Car penetration in India is estimated at around 12vehicles/1,000 people in FY2009 compared to around 21 vehicles/1,000 people in China. Moreover, India’sPPP-based Per Capita is estimated to approach US $5,000 over the next 4-5 years, which is the inflexion pointfor Car demand. Increasing penetration is estimated to drive around 14% CAGR in domestic volumes overFY09 12E Further Maruti has a sizeable competitive advantage over the new foreign entrants due to itsFY09-12E. Further, Maruti has a sizeable competitive advantage over the new foreign entrants, due to itswidespread distribution network (service and sales outlets of around 2,767 and 681, respectively), which is noteasy to replicate.Suzuki focusing to make Maruti a small car manufacturing hub: Suzuki Japan is making Maruti amanufacturing hub to cater to increasing global demand for small cars due to rising fuel prices and stricteremission standards. We estimate the company's export volume to grow at around 55% CAGR overFY09-12E. Moreover, R&D capabilities, so far largely housed at Suzuki Japan, are progressively moving toMaruti. The company is aiming to achieve full model change capabilities over the next couple of years, whichwill enable it to launch new models and variants at a much faster pace.Valuation: The company recorded a CAGR of 15% in volume over FY08-10E (in line with industry) and weValuation: The company recorded a CAGR of 15% in volume over FY08-10E (in line with industry) and weestimate it to continue to register double-digit growth of about 14% CAGR over FY2010-12E. We believe thathigh growth potential of the Indian car market would mitigate the impact of rising competition for market leaderMaruti Suzuki. We recommend a Buy on the stock with a price target of Rs1,861, at which the stock wouldtrade at 17x FY2012E EPS, which is in line with our Sensex Target P/E.

Valuation SnapshotEP (Rs) RoE (%) P/E (x) P/BV (x) EV/Sales (x)

FY10E FY11 FY12E FY10E FY11E FY12E FY10E FY11E FY12E FY10E FY11E FY12E FY10E FY11E FY12E

88.0 96.6 109.4 20.5 18.7 17.8 15.9 14.5 12.8 3.3 2.7 2.3 1.1 0.9 0.7

16

Maruti Suzuki

Particulars* PPP-based/Capita Calorie Telecom Power Car

(US $) (Kilo/Capita) (MOU / Capita) (Kwh/year) (Car/1,000 people)

High growth potential of Indian car market would mitigate the impact of rising competition for market leader Maruti Suzuki

India 3,100 2,047 125 618 12

USA 46,400 3,900 624 14,240 449

India - Growth Opportunity (x) 15 2 5 23 37India Growth Opportunity (x) 15 2 5 23 37

100%

Car Sales growth - Tier II and III cities/towns remain to be tapped Rising income level to support volume growth

Source: NSSO, CIA, FCC, ERS, Human Development Report 2007-08, Crisil Research, Angel Securities; *-Estimates

62.0 61.8 61.6

16.8 18.8 20.4

40%

60%

80%

100%

High Income (annual income>Rs2.85lakh)

Medium Income (annual income Rs71000-Rs2.85lakh)

(in %) 3QFY10 2QFY10 1QFY10 4QFY09 3QFY092QFY09 1QFY09

Top 10 Cities 50 8 (10) (9) (23) (7) 7

Next 10 Cities 57 23 12 8 (12) 0 8

Next 20 Cities 56 35 9 10 (11) (4) 14

21.1 19.3 18.00%

20%

2005-08 2008-09 2009-10E

Rs71000 Rs2.85lakh)

Low Income (annual income<Rs71000)

Source: Industry Angel Securities Source: NCAER Angel Securities

Next 60 Cities 55 29 20 23 2 12 17

Other Cities (36) 55 38 34 11 22 31

All India 41 22 5 4 (13) (1) 12

Source: Industry, Angel Securities Source: NCAER, Angel Securities

17

Maruti Suzuki

Balance SheetY/E March FY2009 FY2010E FY2011E FY2012E

SOURCES OF FUNDS

Equity Share Capital 144 5 144 5 144 5 144 5

Profit & Loss Statement Y/E March FY2009 FY2010E FY2011E FY2012E

Net Sales 20,530 28,299 32,936 38,463

% chg 14.7 37.8 16.4 16.8 Equity Share Capital 144.5 144.5 144.5 144.5



Total Loans 698.9 698.9 698.9 698.9

Deferred Tax Liability (net) 155 1 151 3 140 9 119 8


EBIDTA 1,435 3,711 4,089 4,769

(% of Net Sales) 7.0 13.1 12.4 12.4

Other Income 1,016 985 1,038 1,080 Deferred Tax Liability (net) 155.1 151.3 140.9 119.8



Gross Block 8,721 10,679 12,668 14,794

Less: Acc Depreciation 4 650 5 504 6 429 7 538

Depreciation & Amortisation 707 854 925 1,110

Interest 51.0 50.3 52.4 50.7

PBT 1,693 3,792 4,150 4,689

(% of Net Sales) 8.2 13.4 12.6 12.2 Less: Acc. Depreciation 4,650 5,504 6,429 7,538

Net Block 4,071 5,175 6,239 7,255

Capital Work-in-Progress 861 1,068 1,013 740

Investments 3,173 5,301 6,301 7,429

Current Assets 5 491 6 243 7 476 9 104

( )

Extraordinary Expense/(Inc.) 146.1 - - -

Tax 457 1,247 1,359 1,526

(% of PBT) 27.0 32.9 32.8 32.6

PAT Current Assets 5,491 6,243 7,476 9,104



Total Assets 10,199 13,252 15,752 18,572

PAT 1,236 2,544 2,791 3,163

% chg (30.4) 105.9 9.7 13.3

Ad. PAT 1,090 2,544 2,791 3,163

% chg (36.5) 133.5 9.7 13.3

18

Reliance Infra(CMP/TP: Rs1,008/1,253)

Transformation into Infrastructure behemoth…: R-Infra offers strong near-term growth potential withsustained long-term cash flows with nearly Rs1.6trillion (US $35bn) in assets under development across theInfrastructure and Power verticals and ownership/control over around 3.8bn tonne coal reserves. Visibility inexecution is likely to improve substantially with two road projects already operational and Rs14,000cr worthroads metro rail and power projects going on stream in the next 12 monthsroads, metro rail and power projects going on-stream in the next 12 months.

…on the back of strong Balance Sheet…: R-Infra has one of the strongest Balance Sheets in the Infra spacein India, with a huge war chest. Given its high risk appetite, the company is uniquely positioned to gain fromIndia’s infra growth opportunity. Its cash and cash equivalent stood at around Rs10,000cr at end FY2009.Compared with peers, it has an under leveraged Balance Sheet, with Gross Debt-to-Equity of around 62%.p p , g , q yHence, we believe that there is ample scope for R-Infra to aggressively, albeit prudently, build its infrastructureportfolio with strong net worth along with its execution experience, which makes it a serious contender for theproposed mega infrastructure projects, which potentially offer higher returns by restricting competition.

…coupled with strong growth opportunities: Visible traction in road project awards by the NHAI andl d di i li (37 050k FY10 14E) i i f i f d l lik R liplanned awarding pipeline (37,050km over FY10-14E) are positives for infrastructure developers like Reliance

Infra. Besides this, the Mega Road Projects and Ultra Mega Transmission Projects serve as potentialopportunities in the near term. Also, the large Metro Projects in Hyderabad and Bangalore are at advancedstages of bidding with Reliance Infra also figuring amongst the bidders.

Valuation SnapshotValuation SnapshotEPS (Rs) RoE (%) P/E (x) P/BV (x) EV/Sales (x)

FY10E FY11E FY12E FY10E FY11E FY12E FY10E FY11E FY12E FY10E FY11E FY12E FY10E FY11E FY12E

54.1 54.4 68.3 6.5 6.2 7.2 18.6 18.5 14.8 1.2 1.2 1.1 2.5 2.4 2.0

19

Reliance Infra

�Mumbai Metro Line 1 (69%)

�Delhi Airport Metro Express Link (95%)


Reliance InfrastructureEPC + Investments

(Listed Company)

FuelAssets

ReliancePower

RelianceCementation

45%

51%

� CBM (45%)� Out Blocks (70%)� Coal Field (100%)

100%


�Delhi Airport Metro Express Link (95%)


Reliance InfrastructureEPC + Investments

(Listed Company)

FuelAssets

ReliancePower

RelianceCementation

45%

51%

� CBM (45%)� Out Blocks (70%)� Coal Field (100%)

100%

Re-organisation to increase Value-unlocking potential

RelianceEnergy

GenerationLtd

(Dahanu)

BSESKeralaPower

Ltd

ReliancePower

TransmissionLtd

RelianceEnergy

Ltd

RelianceEnergyTrading

Ltd

RelianceInfraVentures

Ltd

RelianceProperty

DevelopersLtd

RelianceGoa &

TransmissionProjects

�Mumbai distribution (100%)

�Delhi Discoms

Energy Trading Road projects�5 projects in

Tamil Nadu�GF t ll d

�Real Estate�SEZ

100%

RelianceEnergy

GenerationLtd

(Dahanu)

BSESKeralaPower

Ltd

ReliancePower

TransmissionLtd

RelianceEnergy

Ltd

RelianceEnergyTrading

Ltd

RelianceInfraVentures

Ltd

RelianceProperty

DevelopersLtd

RelianceGoa &

TransmissionProjects

�Mumbai distribution (100%)

�Delhi Discoms

Energy Trading Road projects�5 projects in

Tamil Nadu�GF t ll d

�Real Estate�SEZ

100%

Goa &Samalkot

PowerLtd

�Delhi Discoms(49%)

�GF toll road�Jaipur Reengus

toll road�Airport projects

Goa &Samalkot

PowerLtd

�Delhi Discoms(49%)

�GF toll road�Jaipur Reengus

toll road�Airport projects

Order Book lends visibility

Source: Company, Angel SecuritiesHuge infra portfolio: Metros to improve credibility

Project Detail Type of Project R-Infra'st k (%)

Capex(R b )

Concession period+Const CoD

4,500 -

5,400 9,900 12,000

16,000

20,000

(Rs cr)Project Detail Type of Project stake(%) (Rs bn) period+Const.

periodCoD

Current projects Delhi Airport Express Link Metro 95 28.9 28+2 FY11 Mumbai Metro phase I Metro 69 23.5 32.5+2.5 FY12 Namakkal - Karur (NK Toll) Road 100 3.5 18.5+1.5 Operational Dindigul Samyanallore (DS Toll) Road 100 4.2 18.5+1.5 Operational Trichy Karur (TK Toll) Road 100 7.5 28+2 FY12 Trichy Dindigul (TD Toll) Road 100 5.6 28+2 FY12 Salem Ulenderpet (SU Toll) Road 100 10.8 23+2 FY12

7,200 9,000

-

4,000

8,000

Existing Order Book Projects in Pipeline/ Preferred Bidder

Roads Power Transmission Metro's

Source: Company Angel Securities S C A l S iti

Gurgaon - Faridabad Road 100 7.8 15+2 FY12 Total 91.8Projects in-pipeline Mumbai Metro Line 2 Metro 48 110 30+5 5yrs from FCMumbai Western Expressway Sea Link Urban Transport 51 35+5 NA Jaipur-Reengus Road 100 5.9 15.5+2.5 NA Regional Airports Airport 100 1-1.5 95-year lease NA Total 169 Grand Total 260.7


20

Reliance Infra

Balance Sheet (Consolidated)Y/E March (Rs cr) FY2009 FY2010E FY2011E FY2012E

SOURCES OF FUNDS

Equity Share Capital 226 1 226 1 269 0 269 0

Profit & Loss Statement (Consolidated)Y/E March (Rs cr) FY2009 FY2010E FY2011E FY2012E

Net Sales 12,578 14,076 15,825 19,064 % chg 50.8 11.9 12.4 20.5 Equity Share Capital 226.1 226.1 269.0 269.0



Total Loans 10,217 13,812 16,446 16,624

Deffered Tax Liability 211 3 194 0 194 0 194 0


EBITDA 629.9 1,490.8 1,897.7 2,996.2 (% of Net Sales) 5.0 10.6 12.0 15.7

Other Income 1,423.8 993.2 1,121.0 1,267.9 Deffered Tax Liability 211.3 194.0 194.0 194.0



Gross Block 10,107 11,886 15,863 24,873


Depreciation & Amortisation 330.4 465.8 565.6 914.7

Interest & other Charges 439.4 561.1 706.4 1,128.3

PBT 1,283.9 1,457.1 1,746.7 2,221.1

(% of Net Sales) 10.2 10.4 11.0 11.7

Extraordinary Inc 53 6 - - - Less: Acc. Depreciation 4,638 5,104 5,669 6,584

Net Block 4,880 6,193 9,604 17,699

Capital Work-in-Progress 3,558 7,755 8,982 1,811

Investments 15,936 16,196 18,310 19,491

C t A t 9 570 9 393 9 861 9 957

Extraordinary Inc. 53.6 - - -

Tax 78.3 233.1 283.7 383.9

(% of PBT) 6.1 16.0 16.2 17.3

PAT 1,259.2 1,224.0 1,463.0 1,837.2 % chg 10.4 (2.8) 19.5 25.6

Current Assets 9,570 9,393 9,861 9,957



Total Assets 26,736 32,910 40,080 42,270

( )

(% of Net Sales) 10.0 8.7 9.2 9.6

Adj. PAT 1,205.6 1,224.0 1,463.0 1,837.2 % chg 92.7 1.5 19.5 25.6

(% of Net Sales) 9.6 8.7 9.2 9.6

21

State Bank of India(CMP/TP: Rs2,073/2,586)

Improving Savings Market Share: During the past few years, the Bank witnessed a significant decline in CASA marketshare with private sector banks pursuing aggressive branch expansion. However, the Bank’s market share of savings depositshas expanded by a substantial 300bp to 23.5% during FY07-9MFY10 (only PSB to do so), driven by relatively faster branchexpansion (9.5% CAGR v/s 2-5% for most PSBs) leveraging its tremendous trust factor in the country.

Strongest Fee Income among PSU Banks: SBI has a relatively strong share of Fee Income flowing from commission,g g y g gexchange and brokerage, which is one of the highest amongst PSU banks, owing to its vast branch network and strongcorporate and government business relationships. During 9MFY10, the Bank continued its dominance with Non-InterestIncome/Assets at 1.2% (highest among PSU Banks).

Asset quality pressure – A short-term headwind: SBI has a Gross NPA ratio of 3.1% and Net NPA ratio of 1.9%, indicatingvery low provision coverage ratio of 40.2%, (56% including technical write-offs) and restructured loans of Rs26,000cr,y p g %, ( % g ) , ,constituting 39.1% of its Net Worth. We expect pressure on Corporate and SME loans restructured to continue for anothercouple of quarters. However, the Bank is expected to comfortably absorb asset quality pressures and we see this as a short-term headwind over-discounted by the market, providing an attractive buying opportunity.

Banking and Non-Banking subsidiaries form significant portion of SOTP: Due to strong CASA and Fee Income, SBI’score RoEs have improved over the past few years and unlike virtually all other PSBs actual 9MFY2010 RoEs are below corecore RoEs have improved over the past few years and unlike virtually all other PSBs, actual 9MFY2010 RoEs are below corelevels due to low asset yields, providing scope for upside as the CD ratio improves and yields normalise to sectoral averages.Moreover, after a steep correction, SBI (excluding value of insurance and capital market subsidiaries), is trading at just 1.2xFY2012E ABV v/s its 5-year range of 1.3-2.0x and median of 1.6x. We believe this provides sufficient margin of safety andattractive upside, especially in light of its dominant position and reach, strong growth and superior Earnings quality. Werecommend a Buy on the stock, with a Target Price of Rs2,586.


FY12E FY12E FY12E FY09-12E FY12E FY12ESBI Buy 2,073 2,586 24.8 1.2 1.6 8.6 18.0 1.1 19.2

22

State Bank of India

21.0

23.0

25.0

2.1

1.7 1.7

1 5

2.0

2.5

Fee Income/Assets – The best amongst PSU BanksImproving Market Share – Savings Deposits

15.0

17.0

19.0

FY20

03

FY20

04

FY20

05

FY20

06

FY20

07

FY20

08

FY20

09

FY20

10

1.2 1.1 1.0 1.0 0.9 0.9 0.8 0.8 0.8 0.7 0.6 0.6

-

0.5

1.0

1.5

XSB

CBK

IBK

SBI

OBC

DBK

DBK

PNB

PBK

NBK

BOB

BOI

NBK

IOB

SIB

9M

% Savings Deposit Share

AX

HDFC

ICIC O

IND

FED P

CRP UN B

DEN


Upside in Core RoE (%, 9MFY10)


SOTP Valuation Summary

Y/E March (Rs) Target Multiple Value Per Share

SBI & Associates 1.6x ABV 2,342

Life 15.0x NBP 202

20.6

25.4

15.816.317.5

19.3

15

20

25

30

AMC 5% AUM 14

Others (Cap Mkt, Cards, Factors) 28

SOTP Value 2,5860

5

10

BOB PNB SBIActual RoE Core RoE

Source: Company Angel Securities Source: Company Angel SecuritiesSource: Company, Angel Securities Source: Company, Angel Securities

23

State Bank of India

Income Statement Y/E March (Rs cr) FY2009 FY2010E FY2011E FY2012ENet Interest Income 20,873 24,566 29,363 36,931

- YoY Growth (%) 22.6 17.7 19.5 25.8


Share Capital 635 635 635 635

Reserve & Surplus 57,313 64,707 73,390 85,184Other Income 12,902 13,806 15,115 18,297

- YoY Growth (%) 37.3 7.0 9.5 21.1


- YoY Growth (%) 27.8 13.6 15.9 24.2

O ti E 15 649 19 012 21 674 24 708

Reserve & Surplus 57,313 64,707 73,390 85,184

Deposits 742,073 801,439 961,727 1,144,455

- Growth (%) 38.1 8.0 20.0 19.0

Borrowings 53,714 58,011 69,613 82,839

Tier 2 Capital 30,344 37,931 45,517 54,620Operating Expenses 15,649 19,012 21,674 24,708

- YoY Growth (%) 24.1 21.5 14.0 14.0


- YoY Growth (%) 31.2 6.8 17.8 33.8

Provision and

C p , , , ,

Other Liabilities & Provisions 80,353 79,450 99,432 119,870

Total Liabilities 964,432 1,042,171 1,250,313 1,487,604

Cash in Hand and with RBI 55,546 40,072 48,086 57,223

Bal.with banks & money at 48 858 52 766 63 319 75 350Provision and Contingencies 3,736 4,903 5,809 7,457

- YoY Growth (%) 10.8 31.2 18.5 28.4

Profit Before Tax 14,391 14,457 16,995 23,063

- YoY Growth (%) 37.9 0.5 17.6 35.7

call 48,858 52,766 63,319 75,350

Investments 275,954 275,257 330,161 385,238

Advances 542,503 629,304 755,164 906,197

- Growth (%) 30.2 16.0 20.0 20.0

Fi d A 3 838 4 021 4 680 5 402Provision for Taxation 5,058 4,829 5,679 7,727

- as a % of PBT 35.2 33.4 33.4 33.5

PAT 9,332 9,628 11,316 15,335

- YoY Growth (%) 38.7 3.2 17.5 35.5

Fixed Assets 3,838 4,021 4,680 5,402

Other Assets 37,733 40,752 48,902 58,194

Total Assets 964,432 1,042,171 1,250,313 1,487,604

- Growth (%) 33.8 8.0 20.0 19.0

24

Tech Mahindra(CMP/TP: Rs907/1,168)

Sustained traction from Non-BT clients: The company’s Revenues from Non-BT clients have continued to flourish andmarked a strong CQGR of 16.1% over 1QFY06-3QFY10. The sustained volume traction from Non-BT clients (4% CQGRover 4QFY10-4QFY12E) continues to provide Revenue growth momentum, Margin improvement, geographicaldiversification, increased Off-shoring mix and reduced client concentration. Moreover, net addition of 3,897 employees in3QFY10 (highest in the last ten quarters) taking the total headcount to 30,404, indicates a strong pipeline .( g ) g g

Restructuring ends the uncertainty: The recent deal restructuring with BT ends the uncertainty, as the new termsensure compensatory volumes. We believe that the Advance Revenues will help it maintain its existing level of OperatingMargins of 24%. Also, the repayment of loans from the compensatory fee receipt (upfront payment of Rs968cr) willreduce Interest costs and support Earnings growth.

Positive news flow from Satyam: Positive news flow from Satyam by way of client retention, new deal wins andfavorable settlement with Upaid are also providing comfort on future business prospects.

Significant discount to Peers: Currently, the consolidated EBITDA margin outlook is relatively weak due to the BT dealas well as the uncertainty regarding Satyam. However, considering the company's pedigree of a Tier-1 IT player, marginsshould eventually revive close to peer levels. Based on this premise, including Satyam, the stock is looking attractive ons ou d e e tua y e e c ose to pee e e s ased o t s p e se, c ud g Satya , t e stoc s oo g att act e oEV/Sales basis relative to peers, trading at 1.9x FY2010E sales, a substantial discount to its peers average of 3.5x. Wehave valued TechM on SOTP basis, valuing Tech Mahindra (excl. Satyam) at 13x FY2012E EPS (40% discount to ourtarget P/E for Infosys v/s 55% at present and 20% to the 5-year average), and value its 42.7% stake in Mahindra Satyamat Rs287 per share based on current market cap, applying a 25% holding company discount.

Valuation Snapshot (Financials are excluding Satyam Market Cap not adjusted for Satyam)Valuation Snapshot (Financials are excluding Satyam, Market Cap not adjusted for Satyam)EPS (Rs) RoE (%) P/E (x) P/BV (x) EV/Sales (x)


53.2 60.7 67.8 28.5 25.1 22.1 17.0 14.9 13.4 4.3 3.3 2.6 1.9 1.7 1.4

25

Tech Mahindra

12%

14%

16%

18%

550

600

650

700

Strong Employee addition Robust Growth in Non-BT (qoq)

3000

40005000

28,000

32,000

2%

4%

6%

8%

10%

12%

300

350

400

450

500

550

Q1'09 Q2'09 Q3'09 Q409 Q1'10 Q2'10 Q3'10

(Rs

cr)

-1000

01000

2000

20,000

24,000

Q3'

08

Q4'

08

Q1'

09

Q2'

09

Q3'

09

Q40

9

Q1'

10

Q2'

10

Q3'

10

6 5 740%

Q Q Q Q Q Q Q

Non BT Revenue QoQ growth


Revenue contribution from BT decreasing


Economical FY10E EV/Sales despite Comparative Margins770

Q Q Q Q Q Q Q Q Q

Employee Net addition

6.5

5.3

3.8

2.82.2

1.9 1 7 2

3

4

5

6

7

15%

20%

25%

30%

35%

40%

420 490 560

630 700

1.7

0

1

2

0%

5%

10%

Infosys TCS Wipro Mphasis HCL TechM # Patni

EV/Sales EBIDTA Margin

Source: Company, Angel Securities Source: Company, Angel Securities, # Tech M EV/Sales includes Satyam

280 350

Q1FY08 Q3FY08 Q1FY09 Q3FY09 Q1FY10 Q3FY10

BT Revenue Non BT Revenue

26

Tech Mahindra


Equity Share Capital 121.7 122.2 125.7 129.2


Net Sales 4,465 4,607 4,989 5,704

% chg 18 5 3 2 8 3 14 3Preference Share Capital - - - -



Total Loans 0 1,400 800 0

D f d T Li bilit (19 6) 0 0 0

% chg 18.5 3.2 8.3 14.3


EBIDTA 1293.0 1120.2 1198.4 1313.9

(% of Net Sales) 29.0 24.3 24.0 23.0Deferred Tax Liability (19.6) 0 0 0

Minority Interest - - - -



Gross Block 900 1,100 1,275 1,450

Other Income (72) 15 10 10

Depreciation& Amortisation 110 138 159 181

Interest 3 224 119 34

PBT 1132.5 773.7 930.0 1108.6 , , ,

Less: Acc. Depreciation 410.00 547.54 706.95 888.24

Net Block 490 553 568 562

Capital Work-in-Progress 161.7 211.7 236.7 186.7

Investments 434.6 2946.6 2871.6 2821.6

PBT 1132.5 773.7 930.0 1108.6

(% of Net Sales) 25.4 16.8 18.6 19.4

Exceptional & Prior Period Expenses - - - -

Tax 118 124 167 233Current Assets 1,737 2,078 2,295 2,516

Current liabilities 889 1,787 1,702 1,637

Net Current Assets 848 290 593 879

Total Assets 1,935 4,001 4,270 4,449

(% of PBT) 10.4 16.0 18.0 21.0

PAT( After Minority Interest) 1014.5 649.9 762.6 875.8

% chg 207.5 (35.9) 17.3 14.8

27

Mid Caps

Anant Raj Industries(CMP/TP: Rs134/196)

Land acquisition at discounted price: Almost all of ARIL’s land bank (872 acres) is exclusively located inNCR (within 50km of Delhi), with around 525 acres in Delhi. This historical land bank has been acquired at anaverage cost of Rs300/sq ft. This is because ARIL follows the allocation route for land acquisition rather thanauctions, which are significantly lower than prevailing market rates. The successful strategy of land acquisitioncan be attributed to ARIL being a real estate contractor for the Delhi Development Authority (DDA) and acan be attributed to ARIL being a real estate contractor for the Delhi Development Authority (DDA) and afocused NCR player, which helps it in identifying areas with high economic potential in Delhi.Super premium Residential launches will drive near-term visibility: We expect ARIL’s two super premiumresidential projects, Hauz Khas and Bhagwandas (Delhi) to drive its near-term Revenue visibility, contributingaround Rs600cr Profit over the next three years. Further, ARIL has 70% pre-lease commitments at its ManesarIT Park (1 1mn sq ft) where 30% of lessees have already acquired fit outs and another 40% will be moving inIT Park (1.1mn sq ft), where 30% of lessees have already acquired fit-outs and another 40% will be moving inby March FY10. It will also have five hotels operational near the Delhi airport by FY11E, with transfer ofoccupancy risk to third-party in return of fixed rentals.Trading at significant discount: ARIL is trading at 43% discount to its NAV (much higher than its peers),which gives margin of safety, given its low-cost land bank at prime locations and well-capitalised BalanceSheet. The discount is primarily owing to higher exposure to commercial assets (67%). However, we expectdemand to pick up in the Commercial and Retail Segments in 2HFY11E, with our channel checks indicatingthat leasing enquiries have picked up following renewed interest from corporates. The stock is trading at 7.6xFY12E EPS and 0.9x FY12E P/BV. We have arrived at a Target Price of Rs196, which is at 15% discountto our 1-year forward NAV, and provides potential upside of 46% from current levels.

Valuation SnapshotEPS (Rs) RoE (%) P/E (x) P/BV (x) EV/Sales (x)


8.8 11.8 17.6 8.0 9.7 12.9 15.3 11.3 7.6 1.2 1.0 0.9 9.3 5.6 3.6

29

Anant Raj Industries

1 Yr forward NAV (Rs per share)Commercial 131 Hospitality 53 Residential 45

Valuation summary 60mn sq. ft. of Saleable area in NCR

33 %12 %

Other 17 Total 246 Add: Net Cash 22 Less: Present value of taxes (37)

NAV/share (Rs) 231 55 %

R id ti l C i l H it litTarget Price (Rs) 15% discount to NAV 196

Delhi, 16.9Other 80

9078

Location-wise Breakup of NAV Location-wise Breakup of Saleable Area (mn sq ft)

Residential Commercial Hospitality

Source: Angel SecuritiesSource: Angel Securities

Nazafgarh, 4.0

Faizalwas, 4.9

locations, 9.9

2

50

27 2010 6 8 10

32

2

2

4

8

44 1

1

40

10

20

30

40

50

60

70

80

Rs/s

hare

53

27 23

108 6

1610

Manesar, 17.52- Retail malls

Delhi, 0.7

Rai, Sonepat, 3.5

Greater Nodia, 2.8

Del

hi

Man

esar

2 Re

tail

Mal

ls-D

elhi

Sone

pat

Gre

ater

Noi

da

Naz

abga

rh

Faiz

alw

as

Oth

er lo

catio

ns

Oth

er in

com

e

Commercial Residential Hotels

Source: Angel Securities Source: Company, Angel Securities

30

Anant Raj IndustriesProfit & Loss StatementY/E March (Rs cr) FY2009 FY2010E FY2011E FY2012E

Net Sales 251 338 467 785

% chg (58) 35 38 68

Balance SheetY/E March (Rs cr) FY2009 FY2010E FY2011E FY2012ESOURCES OF FUNDSEquity Share Capital 59 59 63 63

Reserves& Surplus 3 261 3 547 3 991 4 492Total Expenditure (30) (27) (39) (60)

EBITDA 221 310 429 725

(% of Net Sales) 88.0 91.9 91.7 92.3

Other Income 70 54 59 44



Total Loans 210 110 110 410

Deffered Tax Liability 3 3 3 3

Minority Interest 69 69 69 69

Depreciation & Amortisation (9) (17) (21) (27)

Interest (0) (0) (1) (3)

PBT 282 347 466 739

Total Liabilities 3,601 3,787 4,236 5,036 APPLICATION OF FUNDSGross Block 1,260 1,534 1,894 2,640

Less: Acc. Depreciation (45) (61) (82) (109)

Net Block 1 215 1 472 1 812 2 530(% of Net Sales) 112.3 102.7 99.8 94.1

Min. Int./EO/Prior Period Items (1.1) (1.5) (1.0) -

Tax (73) (69) (93) (185)

Net Block 1,215 1,472 1,812 2,530Intangibles 146 146 146 146

Capital Work-in-Progress 721 721 721 721

Investments 309 309 309 309Current Assets 1,331 1,338 1,577 1,827

(% of PBT) 26.0 20.0 20.0 25.0

Reported PAT 207 276 372 555

% chg (52.5) 33.0 34.9 49.1

Current liabilities 126 205 334 503


Mis. Exp. not written off 5 5 5 5

Total Assets 3,601 3,787 4,236 5,036

31

Electrosteel Castings(CMP/TP: Rs48/72)

Moving towards an Integrated business model: ECL is on track to have in place an integrated businessmodel going ahead through: a) Backward integration initiatives led by the allocation of mines, and b) Focus onbeefing up its logistic infrastructure to further reduce costs. The company has already started coal productionfrom its coal mines at Parbatpur, Jharkhand. This is likely to result in EBITDA Margin improving by 1,304bp to28 0% over FY09-12E despite the fall in DI realisations Moreover grant of iron ore mining lease with28.0% over FY09 12E, despite the fall in DI realisations. Moreover, grant of iron ore mining lease, withestimated reserves of 91mn tonnes could further improve Margins, which is not factored in our estimates.

Value unlocking through listing of EIL: ECL is setting up a 2.2mn tonne steel plant through EIL, in which itholds a 40% stake. The total project cost of Rs7,262cr has been funded through a Debt-Equity ratio of 3:1 andthe project has already achieved financial closure. Of the total equity contribution of Rs1,815cr, ECL has madep j y q y , ,an investment of Rs726cr. ECL plans to list EIL to raise Rs300cr, which will unlock value for ECL.

Leading DI player, to benefit from Investment in Water Infrastructure: ECL, with 65% market share, isexpected to benefit from the strong domestic demand for DI pipes, which is set to grow at 15% per annum.Increasing demand for water and poor sanitation levels (estimated at 33%) are expected to drive investments inwater infrastructure. Also, the company’s strong relationship with the state governments will help mitigate therisk of losing market share as competitors’ capacities come on-stream. ECL already has a presence in Europe,the Middle-East and is currently exploring the US markets.



4.5 5.6 6.6 11.3 12.8 13.6 10.8 8.6 7.3 1.0 0.9 0.8 1.7 1.5 1.4

32

Electrosteel Castings

13

14

15

20

25

30

400

500

600

Return Ratios (RoCE and RoE) on an uptrendEBITDA Margins to almost double over FY09-12E

9

10

11

12 (%)

0

5

10

15

20

0

100

200

300

400

(%)

(Rs

cr)

500

FY09 FY10E FY11E FY12E

RoE RoCE

FY09 FY10E FY11E FY12EEBITDA (LHS) EBITDA margin (RHS)


Strong operating cash flows to fund Capex


Despite high Capex, Net Debt to Equity in comfortable zone

200

300

400

500

(Rs

cr)

0.54

0.56

0.58

0.60

100

150

200

250

300

350

(x)

(Rs

cr)

0

100

FY2009 FY2010E FY2011E FY2012E

Operating cash f lows

0.50

0.52

0

50

100

FY09 FY10E FY11E FY12ECapex (LHS) Net Debt/Equity (RHS)

Source: Company, Angel Securities Source: Company, Angel Securitiesp y, g p y, g

33

Listing of Subsidiary EIL can unlock value

1,200

1,400

1,600

Significant upside based on EV/tonne analysis

Sales Volume (mn tonne) 2.0EBITDA/tonne (US $) 175EBITDA 1 628

Valuation of Steel business (Rs cr)

0

200

400

600

800

1,000

(US

$/to

nne) EBITDA 1,628

Depreciation 360EBIT 1,268Interest 486PBT 782Tax @33% 258

SAIL Tata Steel* JSW Steel EIL

EV/tonne

Net Income 524Target Multiple (x) 8Market cap 4,189ECL's share (40%) 1,676Assuming a 20% discount 1,340Steel Business (Rs) 35

Source: Angel Securities; * Standalone figures

FY2012E EPS 6.6

Multiple (x) 8.0

V l P h 53

SOTP Valuation (Rs) Steel Business (Rs) 35

Valuation (Rs) including earnings from steel business

Source: Angel Securities

Value Per share 53

Steel business at cost 19

Target Price 72

Standalone business 53

Steel business 35

Price 88

Source: Angel Securities Source: Angel Securitiesg g

34

Electrosteel Castings




Total Sales 1,975 1,526 1,781 1,893

% chg 35 1 (22 7) 16 7 6 3Preference Share Capital - - - -



Total Loans 1,101 1,295 1,295 1,295

D f d T Li bilit 36 9 36 9 36 9 36 9

% chg 35.1 (22.7) 16.7 6.3


EBIDTA 290.9 389.2 447.7 508.7

(% of Net Sales) 14.9 26.8 26.2 28.0 Deferred Tax Liability 36.9 36.9 36.9 36.9

Minority Interest 4.3 5.5 6.5 7.5



Gross Block 797.8 1,047.8 1,297.8 1,497.8

Other Income 64.0 20.0 50.0 60.0

Depreciation& Amortisation 53.4 70.5 91.0 106.3

Interest 103.2 95.8 103.6 103.6

PBT 198.3 242.9 303.2 358.9 , , ,


Net Block 518.5 698.0 857.1 950.8


Investments 466.4 666.4 666.4 666.4

PBT 198.3 242.9 303.2 358.9

(% of Net Sales) 10.0 15.9 17.0 19.0


Tax 70.4 81.8 99.7 118.1 Current Assets 1,594 1,468 1,446 1,506

Current liabilities 337.0 276.2 298.6 300.2


Total Assets 2,544 2,908 3,072 3,275

(% of PBT) 35.5 33.7 32.9 32.9


% chg 17.1 24.5 25.5 17.7

35

Federal Bank(CMP/TP: Rs258/342)

Healthy Deposit Mix: Federal Bank’s CASA deposits recorded a CAGR of 20.6% during FY05-09, leading toa stable 25% CASA ratio. Further, a key differentiator for the Bank - low-cost NRI deposits base - constitutes16.5% of total deposits. Thus, effectively low-cost deposits as a proportion of total deposits stand at around41%, which is expected to underpin NIMs of around 3.1% in FY12E, even as the Bank grows its Advancesfaster than industry (24% CAGR over FY09-12E) to leverage its large Net Worthfaster than industry (24% CAGR over FY09 12E) to leverage its large Net Worth.Impact of Dubai crisis within manageable limits: The stock has been an underperformer due to concernsover impact of the Dubai crisis on the Bank’s business model, which benefits meaningfully from theMiddle-East NRI clients. However, as indicated by management, the Bank has a very low direct loan exposureof around Rs350cr (1.3% of the loan book) to NRIs dependent on Dubai. Hence, impact of the crisis on itsasset quality is expected to be within manageable limits.Compelling Valuations: Since April 2009 till date, the Federal Bank stock has underperformed its peers,which posted average returns of 135%, whereas Federal Bank clocked 80% returns, implying anunderperformance of 55%. The proposed CSB acquisition, which was partly responsible for the stock'sunderperformance in the last 11 months, is now unlikely to fructify, as the asking price substantially exceedsunderperformance in the last 11 months, is now unlikely to fructify, as the asking price substantially exceedsFederal Bank's assessment of the Bank's value. At the CMP, the stock is trading at attractive valuations of0.8x FY2012E ABV - similar to South Indian Bank, its closest peer, compared to the 5-year average premiumof 15%. While lower leverage is leading to low RoEs at present, at the core RoA level, the Bank’s Earningsquality is one of the best amongst peers. We recommend a Buy on the stock, assigning a multiple of 1.0xFY12E ABV to arrive at a 12-month Target Price of Rs342FY12E ABV to arrive at a 12 month Target Price of Rs342.


FY12E FY12E FY12E FY09-12E FY12E FY12EFedBk Buy 258 342 31.6 0.8 1.0 5.5 17.0 1.3 14.4

36

Federal Bank

4.5 4.1

3.5 3.3 3.3 3.2 3.0

2 73 03.5 4.0 4.5 5.0

0.5

0.6

0.7

% NII/Assets amongst the highest in the sectorCASA Market Share Maintained

2.7 2.5 2.4 2.4 2.3 2.2 2.2 2.2 2.1

-0.5 1.0 1.5 2.0 2.5 3.0

OBC

CBK

DBK

DBK

PNB

XSB

SIB

SBK

IOB

BOB

BOI

SBI

PBK

CIBK NB

K

NBK0.1

0.2

0.3

0.4

FY2005 FY2006 FY2007 FY2008 FY2009 FY2010E FY2011E FY2012E

100 03 5

O

HDFC IND

FED P AX YES B

CRP

ICIC UN DEN

25 030 0


% CASA Share


Strong CAR and Advances Growth


Stable Asset Quality, with strong Coverage Ratio

30.0 40.0 50.0 60.0 70.0 80.0 90.0 100.0

1.0

1.5

2.0

2.5

3.0

3.5

10.0

15.0

20.0

25.0

10.0

15.0

20.0

25.0

30.0

-10.0 20.0

-

0.5

1.0

FY2007 FY2008 FY2009 FY2010E FY2011E FY2012E

% Provision Coverage (RHS) % Gross NPA (LHS) % Net NPA (LHS)

0.0

5.0

0.0

5.0


% Advances Growth (LHS) %CAR (RHS)

Source: Company, Angel Securities Source: Company, Angel Securitiesp y, g

37

Federal Bank

Income Statement Y/E March (Rs cr) FY2009 FY2010E FY2011E FY2012E

Net Interest Income 1,315 1,412 1,617 1,921

- YoY Growth (%) 51.5 7.3 14.6 18.7


Share Capital 171 171 171 171

Reserve & Surplus 4,155 4,593 5,079 5,721Other Income 383 510 544 661

- YoY Growth (%) (3.0) 33.2 6.6 21.6


- YoY Growth (%) 34.5 13.1 12.5 19.5

Deposits 32,198 37,672 46,336 57,457

- Growth (%) 24.3 17.0 23.0 24.0

Borrowings 749 876 1,065 1,305

Tier 2 Capital 470 470 564 677Operating Expenses 571 665 787 938

- YoY Growth (%) 21.9 16.3 18.4 19.2


- YoY Growth (%) 41.9 11.5 9.3 19.6

p

Other Liabilities & Prov. 1,057 1,614 1,957 2,278


Cash in Hand and with RBI 2,214 2,497 2,317 2,873

Prov. and Conting. 334 426 456 429

- YoY Growth (%) 13.6 27.6 7.0 (6.0)

Profit Before Tax 793 831 918 1,215

- YoY Growth (%) 58.6 4.8 10.5 32.3

Bal. with banks & call money 1,223 1,431 1,739 2,131

Investments 12,119 13,163 16,328 19,498

Advances 22,392 27,318 33,601 41,666

- Growth (%) 18.4 22.0 23.0 24.0Provision for Taxation 293 282 312 413

- as a % of PBT 36.9 34.0 34.0 34.0

PAT 500 548 606 802

- YoY Growth (%) 36.0 9.5 10.5 32.3

Fixed Assets 281 319 376 447

Other Assets 572 669 813 996

Total Assets 38,800 45,396 55,173 67,609

- Growth (%) 19.7 17.0 21.5 22.5

38

Gujarat State Fertiliser Corp(CMP/TP: Rs209/280)

Key beneficiary of new Subsidy regime: GSFC is amongst the top DAP players in the country with totalvolume market share of 7%. DAP is the second highest consumed fertiliser in the country, and with the comingup of Nutrient-based Subsidy regime wherein companies would be allowed to freely price DAP, we expectGSFC to emerge beneficiary of the same.

JV to guarantee key raw material supply: Phosphoric acid is the key raw material required to manufactureDAP, which is in turn manufactured from rock phosphate. Globally, few countries have rock phosphate mines.GSFC’s has set up a joint venture (JV) in Tunisia for the manufacture of phosphoric acid. The JV wouldguarantee uninterrupted supply of the acid.

Assets below Replacement cost: GSFC’s DAP manufacturing assets are available at attractive valuation ofRs16,077/tonne against the current replacement cost of Rs20,000/ton. Hence, we expect GSFC to continue topost good Profitability going forward. This further provides deep value in the stock.

Improving Profitability, good Dividend yield and cheap Valuations: GSFC’s FY10 performance is likely tobe muted due to the correction in commodity prices and high base effect of FY09 We expect RoCE and RoEbe muted due to the correction in commodity prices and high base effect of FY09. We expect RoCE and RoEto improve from 12.9% and 13.1% in FY2010E to 16.3% and 15.3% in FY2012E. If we were to assume thecompany shares Profits in line with most other PSUs, the dividend yield works out to 7% on FY12E DPS. Atcurrent valuation of 0.6x FY12E Book Value, the stock is trading at cheap valuations. Hence, we recommend aBuy on the stock, with a Target Price of Rs280 (incl dividend), providing an upside of 34%.

Valuation SnapshotEPS (Rs) RoE(%) P/E(x) P/BV(x) EV/Sales(x)


33.6 39.4 48.4 13.1 13.8 15.3 6.2 5.3 4.3 0.8 0.7 0.6 0.3 0.3 0.2

39

Gujarat State Fertiliser Corp

400

500

600

16

18

Profits have bottomed outImproving EBITDA Margin

100

200

300

400

Rs

cr

10

12

14(%)

40

0FY2009 FY2010E FY2011E FY2012E

10FY2009 FY2010E FY2011E FY2012E


Profitability to bottom out in FY2010


Debt free by FY20120 2

15

20

25

30

35

40

(%)

0.1

0.1

0.1

0.1

0.2

0.2

0.2

ebt:E

quity

(x)

0

5

10

FY2009 FY2010E FY2011E FY2012E

RoE RoCE


0.0

0.0

0.0

0.1

FY2009 FY2010E FY2011E FY2012E

De

p y, g p y, g

40

Gujarat State Fertiliser Corp


Equity Share Capital 80 80 80 80

Profit & Loss StatementY/E March FY2009 FY2010E FY2011E FY2012E

Net Sales 5,881 4,133 4,354 4,587

% chg 64 8 (29 7) 5 3 5 3Preference capital - - - -

Reserves & Surplus 1,852 2,082 2,312 2,558

Shareholders fund 1,931 2,162 2,392 2,638

Total Loans 324 389 117 23

Deferred Tax Liability 172 172 172 172

% chg 64.8 (29.7) 5.3 5.3


EBIDTA 972 475 536 601

(% of Net Sales) 16.5 11.5 12.3 13.1 Deferred Tax Liability 172 172 172 172



APPLICATION

Gross Block 3,215 3,280 3,378 3,479

Other Income 71.3 96.5 97.0 127.5


Interest 95.8 32.1 20.2 5.6

PBT 804.4 396.8 465.8 571.9 Less: Acc.Depreciation 2,013 2,156 2,302 2,453

Net Block 1,202 1,124 1,076 1,026 Capital Work-in-Progress 51 51 51 51

Investments 606 606 606 606

C A 1 463 1 82 1 913 2 2 9

(% of Net Sales) 13.7 9.6 10.7 12.5

Tax 240.6 129.1 151.7 186.1

(% of PBT) 29.9 32.5 32.6 32.5 Current Assets 1,463 1,782 1,913 2,259

Current liabilities 895 841 965 1,109

Net Current Assets 568 942 948 1,150

Total Assets 2,427 2,722 2,680 2,833

Exception item 65.2 0.0 0.0 0.0

PAT 498.6 267.7 314.1 385.8

% chg 110.8 (46.3) 17.3 22.8

41

IVRCL Infra(CMP/TP: Rs167/240)

Restructuring to Re-form: IVRCL in a restructuring program will transfer its BOT assets (road and waterassets) to its listed subsidiary, IVR Prime. We believe that this move will benefit both the companies, viz. 1) IVRPrime to have consistent Revenue stream, leverage excess Net Worth for winning more BOT projects and raisemoney via Equity route to fund its growth, and 2) IVRCL to focus on EPC work and experience traction in inflowon the back of enhanced Asset portfolio of IVR Primeon the back of enhanced Asset portfolio of IVR Prime.

Expect huge Order inflows, strong L1 status: IVRCL has a robust Order Book of Rs17,500cr or 2.8x itsFY10E Revenues with a strong L1 status of around Rs4,500cr, the highest in the company’s history till date.We believe that this robust Order Book provides visibility on the Top-line front for the next 24-30 months.Further, the company has also been diversifying to reduce dependence on Andhra Pradesh., p y y g p

Short-term concerns provide Buying opportunity: IVRCL has around 22% of its Order Book coming fromthe state of AP (facing a crisis) owing to which the stock has underperformed in the last three months.However, we would like to take a long-term call on IVRCL, which offers an exposure to the road and irrigationtheme of India’s infra story. Thus, we recommend a Buy on the stock. Further, the excellent track record, strongmanagement team at the helm of affairs and compelling valuations also gives us comfort.

Valuation SnapshotEPS (Rs) RoE (%) Adj. P/E (x)* Adj. P/BV (x)* Adj. EV/Sales (x)*

FY10E FY11E FY12E FY10E FY11E FY12E FY10E FY11E FY12E FY10E FY11E FY12E FY10E FY11E FY12EFY10E FY11E FY12E FY10E FY11E FY12E FY10E FY11E FY12E FY10E FY11E FY12E FY10E FY11E FY12E

8.6 11.6 12.9 12.0 14.0 13.5 12.7 9.4 8.4 1.4 1.3 1.1 0.8 0.7 0.7

Note: * Adjusted for stake in subsidiaries

42

IVRCL Infra

9.9

9 39.4 9.5 9.4

9.6 9.8 10.0

7,000 8,000 9,000

10,000

…Margins to recover given lower commodity pricesOrder Book spread across 21 states lends revenue visibility…

22%

4%4%3%

3% 15%

8.6

9.3

8.0 8.2 8.4 8.6 8.8 9.0 9.2

-1,000 2,000 3,000 4,000 5,000 6,000

26%

9%5%

5%

4%

4%

40 0 300

FY08 FY09 FY10E FY11E FY12E

Sales (Rs cr, LHS) EBITDA (Rs cr, LHS) EBITDA Margins (%, RHS)


Trading at discount to historical P/E band…


…in spite of significant Embedded Value

AP Maharashtra Tamilnadu Karnataka MP OrissaGujarat UP Punjab West Bengal Other states

10.0

15.0

20.0

25.0

30.0

35.0

40.0

100

150

200

250

300

0.0

5.0

1-Apr-021-Jul-021-O

ct-021-Jan-031-Apr-031-Jul-031-O

ct-031-Jan-041-Apr-041-Jul-041-O

ct-041-Jan-051-Apr-051-Jul-051-O

ct-051-Jan-061-Apr-061-Jul-061-O

ct-061-Jan-071-Apr-071-Jul-071-O

ct-071-Jan-081-Apr-081-Jul-081-O

ct-081-Jan-091-Apr-091-Jul-091-O

ct-091-Jan-10

P/E 7YEAR AVG 5YEAR AVG 3YEAR AVG

0

50

100

IVRCL Standalone Construction

IVR Prime Hindustan Dorr-Oliver

SOTP Target Price

Source: Company, Angel Securities Source: Company, Angel Securitiesp y, g p y, g

43

IVRCL Infra


SOURCES OF FUNDS



Net Sales 4,882 5,941 7,570 8,741




Total Loans 1,398 1,946 2,567 3,119

Deffered Tax Liability 11.7 10.0 10.0 7.0

g


EBIDTA 421.5 550.8 714.6 827.0

(% of Net Sales) 8.6 9.3 9.4 9.5

Other Income 29 9 20 0 18 4 38 0 e e ed a ab ty 0 0 0 0 0



Gross Block 662.35 732.35 842.35 1,067.35


Other Income 29.9 20.0 18.4 38.0


Interest 130.6 156.5 185.7 245.1

PBT 273.4 355.0 481.6 541.0p

Net Block 520.70 531.38 575.67 721.69


Investments 388.68 388.68 388.68 388.68

Current Assets 3,814 4,669 5,736 7,273

(% of Net Sales) 5.6 6.0 6.4 6.2

Extraordinary Expense/(Inc.) - - - -

Tax 47.8 117.2 158.9 183.9

(% of PBT) 17.5 33.0 33.0 34.0 , , , ,



Total Assets 3,220 4,106 5,027 5,973

PAT 225.6 237.9 322.7 357.0

% chg 7.1 5.4 35.7 10.7

(% of Net Sales) 4.6 4.0 4.3 4.1

44

Jagran Prakashan(CMP/TP: Rs120 /160)

Prefer Regional Print Media to English: We continue to prefer the Regional Print Media over English owingto its lower penetration levels. According to IRS 2009, print media penetration among the rural literates is verylow at 21% v/s 42% of urban literates. Thus, there is significant scope for growth in the Circulation andReadership of Hindi newspapers as is evident from the fact that out of the 359mn people who can read in India,do not currently read any publication while 68% can read Hindido not currently read any publication, while 68% can read Hindi.

Recovery in Advertising to drive 17% CAGR in Top-line: With economic recovery is on-track and sectorslike BFSI, Real Estate and Auto are registering higher growth rates, we expect Jagran to post up-tick in itsAdvertising Revenues. Moreover, we expect Jagran to announce 8-10% rate hike in the coming months, whichshould help drive 17% CAGR in Revenues during FY2010-12E (aided by low base).

Higher Margins likely to sustain: Significant slide in Newsprint prices coupled with cost rationalisationmeasures have helped Jagran improve is Operating Margins by almost 1,000bp to 29% (19%) in FY10.Moreover, with the Newsprint prices expected to remain benign (modeled in 8-10% hike), Rupee to appreciateand lower losses in new initiatives, we expect Jagran to sustain current Margin levels.

Re-iterate as Top Pick in Print Media: We maintain Jagran as our Top Pick in the Print Media space owing toits dominant position in the Hindi Belt, increasing colour ad inventory and ability to attract high amount of localadvertising. We maintain a Buy on the stock, with a Target Price of Rs160 (Rs125) based on P/E multiple of20x FY12E.



5.7 6.7 8.0 28.5 30.5 33.2 20.9 17.9 15.0 6.0 5.5 5.0 4.0 3.4 2.9

45

Jagran Prakashan

Strong Revenue and Earnings growth for FY2010-12ELow Penetration among Rural literates - potential for Hindi Print

16.8 17.9

21.0

15 0 14 5

20.0

25.0 Earnings CAGR (%)Top-line CAGR (%)Language Urban Rural Total

12.8 13.1 15.0 14.4 14.5

-

5.0

10.0

15.0 Population (Mn) 272 590 862

Literacy (%) 83% 62% 68%

Source: Company Angel Securities

Sharp spike in Margins likely to sustain due to benign Newsprint

Source: IRS 2009, Angel Securities

Highest Return Ratios (RoCE %) in Print Media3740

JPL HTML DB Corp DCHLReadership (% of Literates) 42% 21% 29%

16

28

33

37

14 16 17

12

24 25 25

15

25 25 26

15

20

25

30

35

21.9

19.0

29.3 29.7 30.2 39.4

41.5

32.7 31.6 31.4 33.0

35.0

37.0

39.0

41.0

43.0

45.0

20.0

25.0

30.0

35.0

Source: Company Angel Securities Source: Companies, Angel Securities

2

-

5

10

FY2009 FY2010E FY2011E FY2012E

JPL HTML DB Corp DCHL

25.0

27.0

29.0

31.0

10.0

15.0

FY2008 FY2009 FY2010E FY2011E FY2012E

OPM % (LHS) RM Costs % of Sales (RHS)

p y g p g

46

Jagran Prakashan




Net Sales 823.4 928.2 1,092.3 1,267.2


Reserves& Surplus 499.7 545.8 599.1 663.2

Shareholders Funds 559.9 606.0 659.4 723.4 Total Loans 141.5 126.5 106.5 86.5

D f d T Li bilit 52 1 52 1 52 1 52 1

% chg 9.8 12.7 17.7 16.0

Total Expenditure 666.7 656.4 768.3 884.5

EBIDTA 156.7 271.8 324.1 382.6

(% of Net Sales) 19.0 29.3 29.7 30.2Deferred Tax Liability 52.1 52.1 52.1 52.1


Total Liabilities 753.5 784.5 817.9 862.0 APPLICATION OF FUNDS

Gross Block 479.5 580.1 642.6 704.0

Other Income 22.7 40.1 34.7 38.3


Interest 5.9 6.3 5.9 5.2

PBT 135 2 256 2 298 3 355 9 479.5 580.1 642.6 704.0


Net Block 328.2 379.5 387.4 388.9 Capital Work-in-Progress 70.7 87.0 96.4 105.6

Investments 156.8 156.8 156.8 156.8

PBT 135.2 256.2 298.3 355.9

(% of Net Sales) 16.4 27.6 27.3 28.1

Extraordinary Exp / (Inc) 0.0 0.0 0.0 0.0

Tax 43.6 83.3 96.9 115.7Current Assets 360.1 336.1 382.2 440.5


Net Current Assets 197.7 161.2 177.4 210.6

Total Assets 753.5 784.5 817.9 862.0

(% of PBT) 32.2 32.5 32.5 32.5PAT( After Minority Interest) 91.6 173.0 201.3 240.2

% chg -6.6 88.8 16.4 19.3

47

Jyoti Structures(CMP/TP: Rs168/220)

Huge Opportunity for Transmission EPC Players: The government has envisaged an investment in theTransmission sector of Rs1.4lakh crore for the 11th Plan (an increase of over two times from the investmentsmade in the 10th Plan) and Rs2.4lakh crore for the 12th Plan. Around 40-45% of the total Transmission capexand 15-20% of total APDRP and RGGVY spend, works out to a potential opportunity for transmission EPCplayers Factoring around 80 85% achievement we estimate the total opportunity to be aroundplayers. Factoring around 80-85% achievement, we estimate the total opportunity to be aroundRs60,000-65,000cr during the 11th Plan period alone.

Healthy Order Book provides Revenue visibility: JSL has a healthy Order book of Rs4,030cr (1.9xFY2010E Revenues), which provides good Revenue visibility and cushions it from short-term orderfluctuations Besides unlike peers the large domestic presence (with exports constituting around 5% of Orderfluctuations. Besides, unlike peers, the large domestic presence (with exports constituting around 5% of OrderBacklog), which has price variation clause, helps to insulate Margins from input price fluctuations and volatilecurrency movements.

Attractive Valuations: Currently, the stock is trading at 11.6x and 9.7x FY11E and FY12E EPS respectively,which we believe is attractive, given that the stock has commanded an average one-year forward P/E ofwhich we believe is attractive, given that the stock has commanded an average one year forward P/E of13-13.5x in the past five years. We believe that the stock is likely to command better valuations, underpinnedby the strong financial performance (EPS CAGR of 20.2% in FY09-12E and high average RoEs of 20-21%).We assign a multiple of 13x (based on 5-year average) and recommend a Buy on the stock.

Valuation SnapshotEPS (Rs) RoE (%) P/E (x) P/BV (x) EV/Sales (x)pEPS (Rs) RoE (%) P/E (x) P/BV (x) EV/Sales (x)


12.0 14.2 16.9 21.4 20.9 20.7 14.0 11.9 10.0 2.7 2.3 1.9 0.8 0.7 0.6

48

Jyoti Structures

240,000

200,000

250,000

300,000

Transmission Capex ComponentsHuge Opportunity for Transmission EPC players (Rs cr)

Components % SpendTransmission Lines (50%)Design & Testing 10Towers 30

44,740

140,000

0

50,000

100,000

150,000

200,000

(Rs

cr) Conductors & Insulators 30Construction 30Total 100Substation (50%)Engineering & Design 10Transformers 30S it h i it b k t 3510th Plan 11th Plan 12th Plan

Transmission Capex

Source: Industry, Angel Securities

Order Book Coverage Healthy Return Ratios

Source: MoP, CEA, Angel Securities

Switchgears, circuit breakers etc. 35Civil work 25Total 100

25.7 27.9

23.621.1 21.4 20.9 20.7

18.021.2

19.7 19.6 19.0 19.0 19.2

10 0

15.0

20.0

25.0

30.0

(

%)1.8

2.0

2.22.1

1.9 1.8 1.8

1.0

1.5

2.0

2.5

2 000

3,000

4,000

5,000

6,000

( Rs

cr)

0.0

5.0

10.0


RoE RoCE

0.0

0.5

0

1,000

2,000


Order Backlog (LHS) Revenues (LHS) Coverage Ratio (RHS)

Source: Company, Angel Securities Source: Company, Angel SecuritiesSource: Company, Angel Securities Source: Company, Angel Securities

49

Jyoti Structures


SOURCES OF FUNDS


Profit & Loss StatementY/E Mar FY2009 FY2010E FY2011E FY2012E

Net Sales 1,717 2,105 2,508 2,908

% chg 25.3 22.6 19.2 15.9Adj Reserves & Surplus 400.4 489.5 593.3 716.5

Shareholders Funds 416.7 505.9 609.7 732.9

Total Loans 303.6 363.6 393.6 393.6

Deferred Tax Liability (Net) 8.2 8.2 8.2 8.2

% chg 25.3 22.6 19.2 15.9


EBITDA 195.9 231.5 273.4 312.6

% of Net Sales 11.4 11.0 10.9 10.8

Oth 7 3 10 5 12 5 14 5Total Liabilities 728.6 877.7 1,011.5 1,134.7


Adj Gross Block 168.8 230.8 247.6 262.6


Others 7.3 10.5 12.5 14.5


Interest 68.3 75.1 89.0 94.5

PBT 126.4 153.0 180.2 214.9

Net Block 116.7 164.7 164.7 161.9

Capital Work-in-progress 4.4 2.4 0.6 0.6

Investments 23.1 23.1 23.1 23.1

Current Assets 1,100.7 1,192.1 1,496.2 1,647.1

% of Net Sales 7.4 7.3 7.2 7.4

Tax 46.6 54.3 64.0 76.3

Effective Tax Rate (%) 36.9 35.5 35.5 35.5

Reported PAT 79 7 98 7 116 3 138 6 Current Liabilities 517.4 505.7 674.3 699.0


Others 1.2 1.2 1.2 1.2

Total Assets 728.6 877.7 1,011.5 1,134.7

Reported PAT 79.7 98.7 116.3 138.6

Exceptionals 0.0 0.0 0.0 0.0

Adjusted PAT 79.7 98.7 116.3 138.6

% chg 10.1 23.7 17.8 19.2

50

Spicejet(CMP/TP: Rs58/80)

Load factors expected to remain healthy in coming quarters: Owing to the huge capacity expansion in the last fewyears and plummeting demand in FY2009, Airlines suffered substantial losses in the last nine months and virtually did nothave any fleet additions. In fact, some players like Kingfisher even rationalised their fleet (down from 88 to 66). However,with demand bouncing back significantly in the last nine months, all low-cost carriers (LCC) have been reporting strongload factors of around 80%+. Moreover, given the high under-penetration in India, demand is expected to record 12-15%CAGR th t th th h it i lik l t t t d M l d b l likCAGR over the next three years, though capacity is unlikely to get augmented. Moreover, large orders by players likeKingfisher are likely to get deferred owing to weak Balance Sheets.

Higher Load Factor to increase Profitability: Given that almost all costs are largely fixed in the Aviation Industry,improvement in load factor is expected to drive substantial spurt in Profits, which was clearly visible for Spice Jet where itreported excellent load factor of 80-90% over the last six months (one of the highest compared to competition) andreported Net Profit of Rs109cr (Rs-43cr) in 3QFY10. Due to its Operating lease based, low-cost model, SpiceJet’sEBITDAR Margins are also the highest compared to listed peers (Jet Airways-20.2%, JetLite-17.7% and SpiceJet-31%).

Increasing fleet and strengthening Balance Sheet: SpiceJet is set to take delivery of around 9 planes by FY12E (19%CAGR) taking its total fleet to 27 planes. The increase in capacity and strong load factor provides strong Revenuevisibility for SpiceJet, while Net Profit is estimated to come in at Rs371cr in FY12E. The company’s US $80mn FCCBsy yare likely to get converted by December 2010; the company is also planning to raise around Rs350cr through a QIP.Together with strong Profitability, the company’s Balance Sheet strength will also go up significantly, with an estimatedNet Worth of around Rs920cr by FY12E and zero debt. Factoring FCCB conversion and excluding cash per share, thestock is trading at attractive FY2012E P/E of 4.8x. We value the stock at 7x FY2012E EPS and have arrived at a TargetPrice of Rs80.

Valuation SnapshotEPS( Rs) RoE (%) P/E (x) P/BV (x) EV/Sales (x)


5.0 7.2 9.2 - 51.0 40.4 10.8 7.7 4.8 - 4.4 2.6 0.7 0.5 0.3

51

Spicejet

CY2009 CY2010E CY2011E CY2012EAIR India 0 0 0 0Indian Airlines 80 80 81 81

Jet Airways 63 63 68 78

10

8

6 6 5 5 5 4

6

8

10

12

Expected domestic fleet additionsAviation Sector to experience highest domestic annual growth (%)

Jet Airways 63 63 68 78Jet Lite 16 16 18 20Indigo 25 34 42 52Kingfisher 46 46 58 73Spice jet 19 20 24 27Paramount 5 5 5 5Go air 8 8 8 8

4 3

2

-

2

4

Indi

a

Chin

a

Braz

il

Sout

h Af

rica

North

Afri

ca

Russ

ia

Aust

ralia

/New

Ze

alan

d

entra

l Eur

ope

este

rn E

urop

e

U.S

80%90000 Gross Margin/ASKM(LHS) Cost/ASKM(LHS) Load Factor(RHS)

Total 262 272 304 344Growth (%) 4 12 13

A Ce We

20 years annual domestic growth forecast


Domestic Airlines Load Factor set to increase

Source: Airbus, Company, Angel Securities

Spice Jet Profits to surge with increasing load factor

20%

30%

40%

50%

60%

70%

80%

2000030000400005000060000700008000090000

Km(m

n)

Stagnant

1.1 1.0 1.0 1.0

1.5 1.7 1.7

1.5 1.5 1.3

1.4 1.3 1.4 1.3

84%79%

73% 67%74% 79% 79%

30%40%

50%

60%70%

80%90%

0 60.8 1.0 1.2 1.4 1.6 1.8 2.0

Gross Margin/ASKM(LHS) Cost/ASKM(LHS) Load Factor(RHS)

(Rs)

0%

10%

20%

01000020000

FY00

FY01

FY02

FY03

FY04

FY05

FY06

FY07

FY08

FY09

FY10

E

FY11

E

FY12

E

Domestic ASKM mn(LHS) Domestic RPKM mn(LHS) Load Factor%(RHS)

0%10%

20%

-0.2 0.4 0.6


(33) (77) (133.5) (352.6) 121.7 279.2 371.4P/(L)(Rs cr)

Source: DGCA, Company, Angel Securities Source: Company, Angel Securities; Note: Gross Margin = Operating Revenue – ATF cost, p y, g p y g g p g

52

Spicejet

Balance SheetY/E March (Rs cr) FY2009 FY2010E FY2011E FY2012ESOURCES OF FUNDSEquity Share Capital 241.0 241.0 403.6 403.6


Net Sales 1,689.4 2,158.2 2,886.9 3,389.0

% chg 30 5 27 7 33 8 17 4 Preference Share Capital - - - -

Reserves& Surplus (670.5) (548.7) 144.0 515.0

Shareholders Funds (429.5) (307.7) 547.6 918.6Total Loans 488.8 488.8 - -

Deferred Tax Liability - - - -

% chg 30.5 27.7 33.8 17.4

Total Expenditure 2108.6 2074.2 2,586.0 3,004.7

EBIDTA (419.2) 84.0 300.9 384.3

(% of Net Sales) (24.8) 3.9 10.4 11.3y


Total Liabilities 59.4 181.1 547.6 918.6APPLICATION OF FUNDSGross Block 95.8 100.6 105.6 110.9

L A D i ti 28 2 36 3 44 7 53 6

Other Income 124.1 54.0 52.1 77.5


Interest 16.0 8.2 4.1 -

PBT (318.3) 121.7 340.4 452.9 Less: Acc. Depreciation 28.2 36.3 44.7 53.6

Net Block 67.6 64.3 60.9 57.3Capital Work-in-Progress 185.3 164.7 82.3 6.8

Investments - - - -

Current Assets 497.9 733.3 1.159.9 1,653.1

PBT (318.3) 121.7 340.4 452.9

(% of Net Sales) (19) 5.7 11.8 13.4

Exceptional & Prior Period Expenses 30.9 - - -

Tax 3.3 - 61.3 81.5


Net Current Assets (193.5) (47.9) 404.3 854.9Deferred Rev. Exp - - - -Total Assets 59.4 181.1 547.6 918.6

(% of PBT) (0.1) - 18 18

PAT( After Minority Interest) (352.6) 121.7 279.2 371.4

% chg 164.1 - 129.4 33.0

53

TAJGVK(CMP/TP: Rs149 /240)

Hotel Industry witnessing signs of revival: We expect the Hotel Industry to witness an uptrend from 4QFY10Econsidering the visible signs of economic revival coupled with delays on the supply side (around 26% undersupply over earlier industry estimates till CY13E). We expect business destinations like Hyderabad and Chennaiwhere TAJGVK has a presence, to significantly benefit as business sentiment gathers steam. Signs of improvingdemand are visible with occupancy rates (OR’s) and average room rates (ARR’s) climbing up and expected tof th lfurther scale up.Diversification to de-risk business model: To diversify its presence and spread out geographical risks, TAJGVKopened a property in Chennai in December 2008 thereby lowering Hyderabad’s room concentration to 59% inFY2009 from 78% in FY2008. The company also plans to target the mid-market segment through its upcomingproperty in Begumpet in Hyderabad along with exploring possibilities of a tie-up with IHCL’s ‘Ginger’. There areplans to enter the Bangalore market too, for which land has already been acquired.Asset-light expansion strategy to keep Balance Sheet healthy : TAJGVK is adding 189 rooms in Begumpetadopting an Asset-light strategy to maintain its Debt-Equity ratio at comfortable levels of 0.3x in FY12E. This, webelieve, will provide adequate room for the company to plan further expansions.Attractive Valuations: Currently, the stock is trading at attractive valuations of 16.9x and 12.5x FY11E andAttractive Valuations: Currently, the stock is trading at attractive valuations of 16.9x and 12.5x FY11E andFY12E EPS respectively, given that the stock has mostly traded in a P/E band of 13-24x over FY04-10E, whichcovers one cycle for the Industry. Moreover, at FY12E EV/room of Rs1.2cr, TAJGVK is the cheapest incomparison to its peers (EV/room between Rs1.5-2cr). Hence, we expect the stock to witness a re-rating on theback of robust Earnings growth and revival signs in the industry. We recommend a Buy on the stock, with a TargetPrice of Rs240.

Valuation SnapshotEPS ( Rs) RoE (%) P/E (x) P/BV (x) EV/room (Rs cr)


4.7 9.0 12.2 10.1 16.4 18.7 31.5 16.6 12.3 3.2 2.7 2.3 1.2 1.2 1.1

54

TAJGVK

60

70

80

90

0.1

0.15

0.2

0.25

Tourist Arrival trend10 15 20 25 30

3,000

4,000

5,000

6,000

Recovering FTAs and Occupancy Trend Foreign Tourist Arrivals (FTA’s) Growth Trend (CY98-09)

0

10

20

30

40

50

-0.2

-0.15

-0.1

-0.05

0

0.05

Jul-08 Sep-08 Nov-08 Jan-09 Mar-09 May-09 Jul-09 Sep-09 Nov-09 Jan-10

Tourist Arrival trend recovering g Global slowdown &

Terrorism Impact

(10)(5)0 5

0

1,000

2,000

,

CY

1998

CY

1999

CY

2000

CY

2001

CY

2002

CY

2003

CY

2004

CY

2005

CY

2006

CY

2007

CY

2008

CY

2009

P

FTA's growth trend (July 2008 - February 2010) Occupancy rates (in %)

C

Foreign Tourist Arrivals (in '000) Growth %


Room Supply estimates for CY13E (Old and Revised)


Financial ForecastOld New % inc/decBusiness locations

1520253035404550

100150200250300350400Business locations

Ahmedabad 350 730 108.6 Bangalore 6461 4554 (29.5)Chennai 4002 3533 (11.7)Hyderabad 5353 3027 (43.5)Kolkata 4253 1649 (61.2)NCR 14096 10697 (24.1)North Mumbai 8709 7081 (18.7)South Mumbai 2790 2704 (3 1)

0510

050

100

FY2008 FY2009 FY2010E FY2011E FY2012E

Sales (Rs cr.) EBIDTA (Rs cr.) Net Prof it (Rs cr.)

EBIDTA margin (%) Net prof it margin (%)

S A l S iti S C A l S iti

South Mumbai 2790 2704 (3.1)Pune 2977 1180 (60.4)Leisure locationsAgra 1971 1756 (10.9)Goa 3544 3972 12.1 Jaipur 2791 1982 (29.0)Kerala 2924 2208 (24.5)Total 60,221 45,073 (25.2)

Source: Angel Securities Source: Company, Angel Securities

55

TAJGVK


Net Sales 237.5 223.6 298.3 342.4

% chg (7 8) (5 8) 33 4 14 8


SOURCES OF FUNDS

Equity Share Capital 12.5 12.5 12.5 12.5 % chg (7.8) (5.8) 33.4 14.8


EBITDA 100.8 76.9 121.1 146.6

% of Net Sales 0.4 0.3 0.4 42.8

q y p

Adj Reserves & Surplus 258.5 281.1 330.3 395.4


Total Loans 139.0 162.0 184.0 124.0

Deferred Tax Liability (Net) 12.2 12.2 12.2 12.2 Others 1.2 1.2 1.7 2.6


Interest 6.6 13.9 17.3 12.4

PBT 81.7 45.3 86.5 117.3

Total Liabilities 422.3 467.9 539.1 544.1


Adj Gross Block 463.1 534.8 625.9 650.9


% of Net Sales 34.4 20.3 29.0 34.3

Tax 28.9 15.6 30.3 41.1

Effective Tax Rate (%) 35.4 34.5 35.0 35.0

Reported PAT 52 8 29 7 56 2 76 3

Net Block 374.0 426.8 498.8 504.4

Capital Work-in-progress 69.4 45.0 25.0 25.0

Investments - - - -

Current Assets 32.7 48.4 85.5 95.6 Reported PAT 52.8 29.7 56.2 76.3

Exceptionals (0.6) 0.0 0.0 0.0

Adjusted PAT 53.3 29.7 56.2 76.3

% chg (24.6) (44.3) 89.4 35.6

Current Liabilities 55.5 53.9 71.9 82.6

Net Current Assets (22.8) (5.5) 13.6 13.0

Others 1.7 1.7 1.7 1.7

Total Assets 422.3 467.9 539.1 544.1

56

Small Caps

Fag Bearings (FAG IN)(CMP/TP: Rs509/626)

Industry outlook encouraging: In a developing economy like India, with a greater focus on mechanisation ofthe manufacturing process, the demand for bearings is expected to outperform industrial growth.Consequently, the Industrial Segment (which accounts for almost 50% of the Indian Bearings market) offersimmense growth opportunity for the Bearings industry. Moreover, the Bearings Segment has a directg pp y g y g gcorrelation with the Auto Sector growth, which is expected to grow at around 10% per annum over the next 2-3years.

Strong support from parent company: FAG India is a FAG Kugelfischer George Schaefer AG Groupcompany. The parent manufactures bearings for automotive and industrial applications. FAG India is apreferred supplier of bearing systems to some of the leading manufacturers of cars and trucks like Marutipreferred supplier of bearing systems to some of the leading manufacturers of cars and trucks, like Maruti,M&M, Tata Motors, GM, Ford and Daimler Chrysler. Notably, with global players looking at enhancing theircapacities in India, FAG can enjoy an edge over its peers to supply to these OEMs in India.

Attractive Valuations: The stock is currently trading below its average historical valuations, at 11.1xCY2010E and 9.8x CY2011E Earnings. It is also attractively placed on P/BV basis and is currently trading atC 0 0 a d 9 8 C 0 a gs s a so a ac e y p aced o / bas s a d s cu e y ad g a1.6x CY2010E and 1.4x CY2011E BV (as against its average historical valuation of 2x one-year forward BookValue). At our Target multiple of 12x CY2011E and 2x CY2011E BV, we have arrived at a Target Price ofRs626. Further, FAG Bearings scores well over its peers and we believe that it is a good long-term investmentpick, in view of its strong financials.

V l ti S h tValuation SnapshotEPS (Rs) RoE (%) P/E (x) P/BV (x) EV/Sales( x)

CY09 CY10E CY11E CY09 CY10E CY11E CY09 CY10E CY11E CY09 CY10E CY11E CY09 CY10E CY11E

46.4 45.7 52.2 14.3 14.5 14.5 11.0 11.1 9.8 1.8 1.6 1.4 0.8 0.7 0.6

58

Fag Bearing

30

40

50

15 0

20.0

25.0

Return RatiosBearing Industry Revenue Growth Trend

0

10

20

30

CY2004 CY2005 CY2006 CY2007 CY2008 CY2009E CY2010E CY2011E

0.0

5.0

10.0

15.0

FY2001 FY2002 FY2003 FY2004 FY2005 FY2006 FY2007 FY2008 FY2009 FY2010E

C FAG SKF Ti k NRB

RoCE (%) RoIC (%)(5.0)

IIP Growth (%) Bearing Industry Sales Growth (%)


Relative Valuation

Source: Bloomberg, BRBMA, Angel Securities

One Year Forward EV/Sales chart

Company FAG SKF Timken NRB

CMP (Rs) 531.2 353.1 110.0 67.0

Mcap (Rs cr) 882.6 1862.0 700.6 324.6

EPS (Rs) 39.4 17.9 5.1 3.6

RoE(%) 16 3 14 6 10 9 10 1 600

800

1,000

1,200

1,400

1,600

1,800

2,000

EV

(Rs

cr)

2.0x

1.0x

1.5x

RoE(%) 16.3 14.6 10.9 10.1

P/E(x) 13.5 19.7 21.6 18.4

P/BV(x) 2.2 2.9 2.4 1.9

EV/EBITDA(x) 7.4 10.3 16.2 9.0

0

200

400

600

Jan-

02

Jun-

02

Nov

-02

Apr

-03

Sep

-03

Feb-

04

Jul-0

4

Dec

-04

May

-05

Oct

-05

Mar

-06

Aug

-06

Jan-

07

Jun-

07

Nov

-07

Apr

-08

Sep

-08

Feb-

09

Jul-0

9

Dec

-09

0.5x

Source: C-Line, Company, Angel Securities; Note: Valuations on TTM basis Source: C-Line, Company, Angel Securities, p y, g ;

59

Fag Bearing

Balance SheetY/E December (Rs cr) CY2008 CY2009 CY2010E CY2011E

SOURCES OF FUNDS


Profit & Loss Statement Y/E December (Rs cr) CY2008 CY2009 CY2010E CY2011E

Net Sales 762.0 818.7 919.7 1,021.5




Total Loans - - - -

Deffered Tax Liability (net) 5 8 5 8 5 8 5 8


EBIDTA 162.4 124.1 135.2 153.2

(% of Net Sales) 21.3 15.2 14.7 15.0

Other Income 6.0 7.8 5.0 6.0 Deffered Tax Liability (net) 5.8 5.8 5.8 5.8



Gross Block 400.2 442.5 484.0 537.6



Interest 0.5 0.7 0.9 1.0

PBT 147.4 111.1 115.1 131.3

(% of Net Sales) 19.3 13.6 12.5 12.9 Less: Acc. Depreciation 251.8 271.9 296.1 323.0

Net Block 148.4 170.6 187.9 214.7


Investments 0.3 4.7 5.3 6.1

Current Assets 385 4 428 6 493 6 557 4

( )

Extraordinary Expense/(Inc.) (2.9) 11.5 - -

Tax 51.6 34.0 39.1 44.7

(% of PBT) 35.0 30.6 34.0 34.0

PAT 98 6 65 5 75 9 86 7 Current Assets 385.4 428.6 493.6 557.4



Total Assets 410.8 466.6 531.8 606.8

PAT 98.6 65.5 75.9 86.7

% chg 24.3 (33.6) 15.9 14.1

Ad. PAT 95.7 77.1 75.9 86.7

% chg 20.4 (19.5) (1.4) 14.1

60

Greenply Industries(CMP/TP: Rs198/291)

Banking on MDF and Laminates: Greenply Industries (GIL) is foraying into the lucrative, high-growth MDFmarket, with the largest MDF plant in India (1,80,000 m3/yr capacity), while continuing its strong expansion inlaminates (88% capacity expansion), that is estimated to drive 25% CAGR in Sales over FY10-12E. GIL iswitnessing very strong demand for its laminate products, with both its new production lines running at fullcapacity The MDF opportunity is especially huge: MDF constitutes 20% of wood panel consumption in Indiacapacity. The MDF opportunity is especially huge: MDF constitutes 20% of wood panel consumption in India,while plywood constitutes 80% - the reverse holds true globally. China alone consumes around 10-11mn m3/yrof MDF v/s 0.6mn m3/yr in India. Going forward, with a strict control on issue of new plywood licenses and5-7% CAGR in panel demand, MDF is likely to meet this demand, translating into 25-30% CAGR for MDF.Moreover, even out of present consumption, 80% is being met through imports, which GIL can substitute givenhigh freight costs and 25% anti-dumping duty on importshigh freight costs and 25% anti-dumping duty on imports.Strong brand, high ad-spend and massive distribution: GIL has leading plywood and laminate brands,supported by ad-spend as high as 3.3% of sales (around 10% of laminates revenue). The company also hasthe largest distribution network of over 15,000 dealers in this industry. These advantages underpin the strongRoE profile (20% over FY10-12E) of the company's brand-driven business model.

Attractive Valuations: The stock is currently trading at 9.1x FY11E and 5.4x FY12E Earnings (as against itshistorical range of 0.6-17x one-year forward Earnings) and it is also attractively priced on P/BV basis and iscurrently trading at 1.4x FY11E and 1.2x FY12E (as against its historical trading range of 0.4-3.7x one-yearforward Book Value). At our current target multiple of 8x FY12E, we have arrived at a Target Price of Rs291.

Valuation SnapshotValuation SnapshotEPS (Rs) RoE(%) P/E (x) P/BV (x) EV/Sales (x)


20.8 21.7 36.4 20.4 17.3 23.3 9.5 9.1 5.4 1.6 1.4 1.2 1.1 0.8 0.7

61

Greenply Industries

Global MDF Production and Consumption dataSales Breakup- MDF and Laminates to drive growthProducers Production Consumption

China* 24,986,000 22,469,775

Germany* 4,380,000 5,040,448108

2266

6

1000

1200

1400

1600

cr) y

United States of America* 3,334,680 6,087,006

Turkey* 1,952,000 1,621,000

Brazil* 1,879,000 1,763,000

World* 57,313,163 53,701,697284

410555 498 522 548

182

217

267 436542

668

1

3

56

0

200

400

600

800

1000


(Rs

253 5Rs3 000cr Laminate industry (50% organised)Rs7800cr Plywood industriy (20% organised )

Source: FAO.org Company, Angel Research *(2008 Data) ** (2010E)

Total Revenue highest amongst Peers (FY2009)


Higher Ad-spend/Sales resulting in higher RoE’s

India** 200,000 618,400FY2007 FY2008 FY2009 FY2010E FY2011E FY2012E

Plywood Laminates MDF Others

3.3

7

22

10

15

20

25

1.5

2.0

2.5

3.0

3.5

(%)

(%)

17.8%

7.1%3.6%

2.4%

0 2%66.8%

Rs3,000cr Laminate industry (50% organised)

35%

5%

7%

5%

1%

1%

15%

Rs7800cr Plywood industriy (20% organised )

0.7

7

-

5

-

0.5

1.0

Midcap Companies Greenply Inds.

Ad Cost / Sales(LHS) RoE(RHS)

0.2%

2%

Greenply Century PlyGolden laminate Bloom DekorKitply ArchidplyRest

32%

5%

Greenply Century PlySarda Ply ArchidplyUniply U.V BoardsW.I plywoods Rest

Source: Company, Angel Securities Source: Company, Angel Securities; Note: Rs 100 to 2,500cr market cap companiesp y, g ; , p p

62

Greenply Industries




Net Sales 724.9 824.9 1,043.9 1,291.8




Total Loans 258.0 457.1 430.4 413.4

D f d T Li bilit 12 6 12 6 12 6 12 6

% chg 33.8 13.8 26.6 23.7

Total Expenditure 646 717.7 897.7 1098

EBIDTA 78.9 107.2 146.2 193.8

(% of Net Sales) 10.9 13 14 15 Deferred Tax Liability 12.6 12.6 12.6 12.6




Gross Block 273 641.7 679.3 723.5

Other Income 2.2 2.3 2.4 2.5

Depreciation& Amortisation 17 26.2 42.5 45.2

Interest 19.6 26.7 43 41.3

PBT 44.3 56.6 63.0 109.7Less: Acc. Depreciation 73.7 100.0 142.5 187.8

Net Block 199.2 541.7 536.8 535.7

Capital Work-in-Progress 51.7 - - -

Investments 2.2 2.2 2.2 2.2

PBT 44.3 56.6 63.0 109.7

(% of Net Sales) 6.1 6.9 6.0 8.5


Tax 7.0 10.8 10.7 21.9 Current Assets 386.4 396.4 483.0 597.4



Total Assets 451.5 738.4 778.1 844.6

(% of PBT) 15.9 19.0 17.0 20.0


% chg (3.7) 22.9 14.1 67.8

63

Heritage Foods(CMP/TP: Rs206/291)

Reaping the Profits from under-penetrated Milk Business: A market leader in Andhra Pradesh, withnearly 14% market share, Heritage Foods is well placed to reap benefits of the secular growth in theunder-penetrated milk business, which is growing at a CAGR of 17.3%. On account of its large presence in thehighly unorganised industry, Heritage commands a strong brand name. Revenue from the Segment stood atRs465cr in FY2009, a yoy growth of 22.2%.y y g

Diversification into value-added Milk Products: Heritage has consistently increased the proportion of Salesfrom the higher-Margin value-added products like butter, cream, etc., with milk contributing nearly 80% ofSales in FY2009. This would help further boost the Dairy Segment’s pre-tax RoCE, which stood at nearly31.7% in FY2009.

Retail Business to break-even in FY12E: The losses from the Retail business will reduce going forward andthe company projects that the segment will break-even in FY12E. The company also plans to hive off thebusiness into a new company. Post that, the substantial profits from the Milk business will become clearlyvisible to the investors. Hence, the stock is a potential re-rating candidate going ahead.

Outlook and Valuation: We expect the company to clock Net Profit of Rs33.6cr in FY12E from Losses ofRs35.7cr in FY2009 owing to increase in Sales contribution from the Dairy business and improvement inperformance of the Retail business. Consequently, RoEs would improve to 25.1% in FY12E. We have valuedthe company at a P/E of 10x and not assigned any value to the Retail business and have arrived at a TargetPrice of Rs291.



7.9 15.2 29.1 9.8 16.4 25.1 26.1 13.6 7.1 2.6 2.2 1.8 0.46 0.42 0.37

64

Heritage Foods

219237

26022

2932

35

800

1000

1200

200

250

300

200

250

300

Curtailing Retail LossesSales Breakup- Dairy Business to Drive Growth

593 665 746 835

206219

0

200

400

600

0

50

100

150

0

50

100

150

FY09 FY10E FY11E FY12EDairy Retail Agri

8 0090 00 26%


Retail Sales (LHS) Retail EBIT Losses (RHS)


OPM to retrace back to Historical levels

Source: Company Angel Securities

Allied products to drive Milk Business Sales

3.00

4.00

5.00

6.00

7.00

8.00

30.00

40.00

50.00

60.00

70.00

80.00

90.00

18%

20%

22%

24%

26%

-

1.00

2.00

-

10.00

20.00

30.00


EBITDA (LHS) OPM (RHS)

12%

14%

16%

FY06 FY08 FY10E FY12E


65

Heritage Foods


SOURCES OF FUNDS



Net Sales 792.6 916.0 1,018.0 1,135.0




Total Loans 172.0 182.3 186.2 180.8

Deferred Tax Liability 20 2 20 2 20 2 20 2

% chg 128.9 15.6 11.1 11.5

Total Expenditure 790.5 875.3 960.3 1,055.3

EBIDTA 2.0 40.7 57.7 79.7

(% of Net Sales) 0.3 4.4 5.7 7.0Deferred Tax Liability 20.2 20.2 20.2 20.2




Gross Block 264.5 290.9 320.0 352.0

Other Income 6.7 8.0 6.0 5.0


Interest 20.5 16.0 18.0 15.0

PBT (29.0) 13.0 25.0 48.0Less: Acc. Depreciation 60.8 80.5 101.1 122.8

Net Block 203.7 210.4 218.9 229.2


Investments 0.2 - - -

C A 126 3 145 9 162 2 180 8

( )

(% of Net Sales) (3.7) 1.4 2.5 4.2

Exceptional & Prior Period Expenses 0.0 0.0 0.0 0.0

Tax 6.8 3.9 7.5 14.4Current Assets 126.3 145.9 162.2 180.8



Total Assets 276.0 295.4 313.3 334.8

(% of PBT) - 30.0 30.0 30.0

PAT( After Minority Interest) (35.7) 9.1 17.5 33.6

% chg - - 92.3 92.0

66

JK Tyre and Industries(CMP/TP: Rs196/267)

Favourable Product mix: Commissioning of its new T&B Radial capacity in October 2009 (up from 0.4mn to 0.8mntyres), expansion of PCR capacity by 10% to 5mn tyres for FY11E and planned increases in the OTR Segment forFY10E are working in favour of the company. Given the shortage of radial tyres in the T&B Segment, the companyis in pole position to fully utilise its enhanced capacity and at higher realisations (80% of India's total truck/bus radialtyre production). Further, the buyout of Tornel could act as an upside trigger for the stock, which has already turned

fit bl i 2QFY10 id d b th t t i i i l t d b thprofitable in 2QFY10, aided by the restructuring exercise implemented by the company.

Margins to increase on account of high investment on Radials: Currently, manufacturing Radial tyres is farmore capital intensive than Cross-ply. Investment per TPD is 3.2x of Cross-ply at Rs6.1cr per TPD. On the otherhand, selling prices of Radial tyres are about 20% higher than Cross-ply tyres. Taking into account the difference incapital requirements and consequent impact on Asset turnover, Interest cost and Depreciation, to generate similargRoCE and RoE, Tyre companies would need to earn EBITDA Margins of around 21% compared to around 9%being earned on Cross-ply tyres. Thus, higher capital requirements will help protect Margins from upward boundinput costs, as the business model evolves bearing in mind final RoEs rather than Margins. With the Sector set for astructural shift and apparent pricing flexibility, it will result in an improvement in RoCE and RoE of the Tyremanufacturers going forward.

Attractive Valuations: We estimate the company to clock EPS of Rs45.5 in FY11E and Rs53.5 in FY12E. Thestock is currently available at attractive valuations of 4.3x and 3.7x FY11E and FY12E EPS, respectively. Werecommend a Buy on the stock, with a Target Price of Rs267, at which level the stock would trade at 5x, 3.9x and0.9x FY12E EPS, EV/EBITDA and P/BV, respectively.

Valuation SnapshotValuation SnapshotEPS (Rs) RoE (%) P/E (x) P/BV (x) EV/Sales (x)


59.1 45.5 53.5 26.7 17.3 17.1 3.3 4.3 3.7 0.9 0.7 0.6 0.4 0.4 0.3

67

JK Tyre and Industries

16

20

100

105%%

100 96 95

71 6580

100

120

%

Radialisation across segmentsRadialisation across countries

0

4

8

12

80

85

90

955748

209.1

65

0

20

40

60

ster

n ro

pe

orth

er

ica

entra

l ur

ope

ca/ Ea

st

outh

er

ica

Asia

ster

n ro

pe

Indi

a

Wor

ld

5,100(x)(x)


Passenger Cars (LHS) Trucks and Buses (RHS) LCV (RHS)

Wes

Eur

No Am C e Eu

Afric

Mid

dle So Am Eas

Eu

W

Source: Industry, Crisil Research, Angel Securities

We expect P/BV to re-rate on higher forecast RoE levels

Source: Industry, Crisil Research, Angel Securities

Extremely attractive at 3.6x FY2012E EV/EBITDA

2,100

2,700

3,300

3,900

4,500

,

EV (R

s cr

)

5x

7x

0.4

0.6

0.8

1.0

1.2

0.4

0.6

0.8

1.0

1.2

(x)(x)

300

900

1,500

Oct

-01

Apr-

02

Oct

-02

Apr-

03

Oct

-03

Apr-

04

Oct

-04

Apr-

05

Oct

-05

Apr-

06

Oct

-06

Apr-

07

Oct

-07

Apr-

08

Oct

-08

Apr-

09

Oct

-09

Apr-

10

3x

0.0

0.2

0.0

0.2

Oct

-01

Apr-0

2

Oct

-02

Apr-0

3

Oct

-03

Apr-0

4

Oct

-04

Apr-0

5

Oct

-05

Apr-0

6

Oct

-06

Apr-0

7

Oct

-07

Apr-0

8

Oct

-08

Apr-0

9

Oct

-09

Apr-1

0

P/BV (LHS) 5-year Average P/BV (RHS)

Source: C-Line ,Company, Angel Securities Source: C-Line, Company, Angel Securities

68

JK Tyre and Industries

Balance SheetY/E March FY2009* FY2010E FY2011E FY2012E

SOURCES OF FUNDS


Profit & Loss Statement Y/E March FY2009* FY2010E FY2011E FY2012E

Net Sales 5,553 4,741 5,447 6,049

% chg 98.7 (14.6) 14.9 11.1

Reserves & Surplus 650.6 870.2 1,040.3 1,240.6

Shareholders Funds 691.6 911.3 1,081.3 1,281.6

Total Loans 1,382 1,382 1,682 1,682

Deffered Tax Liability (net) 112.0 111.7 111.7 111.7


EBIDTA 164.9 604.5 596.4 674.4

(%of Net Sales) 3.0 12.8 11.0 11.2

Other Income 53.9 32.0 33.0 35.0 Total Liabilities 2,186 2,405 2,875 3,076


Gross Block 2,840 3,362 4,095 4,480

Less: Acc.Depreciation 1,228 1,346 1,500 1,686

Net Block 1 612 2 016 2 596 2 795


Interest 171.2 145.2 185.1 180.9

PBT (75.0) 373.6 290.8 342.6

(% of Net Sales) (1.3) 7.9 5.3 5.7 Net Block 1,612 2,016 2,596 2,795


Investments 75.9 75.9 86.3 92.3

Current Assets 1,334 1,521 1,726 1,877


Extraordinary Expense/(Inc.) 0.2 - - -

Tax 32.9 130.8 101.8 119.9

(% of PBT) (43.9) 35.0 35.0 35.0

PAT (107.9) 242.9 189.0 222.7 , , , ,


Misc Expenditure 5.2 5.2 5.2 5.2

Total Assets 2,186 2,405 2,875 3,076

PAT (107.9) 242.9 189.0 222.7

% chg (261.8) (325.1) (22.2) 17.8

Ad. PAT (104.0) 242.9 186.9 219.5

% chg (249.5) (333.5) (23.0) 17.4

Note: * For 18 months

69

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Angel Broking Strategy - April 2010

Economy & Finance

e t t t

e t i d t t dd pm th

twow t t lik c

g d e i

f t t b ki d r

th ti t d s

estimated sales growth

iip growth