Contents Results IOCL: Limited merit in analyzing quarterly results or stock price movement Tata Motors: Stretched standalone financials tell only half the story; maintain SELL BPCL: In-line 4QFY09 results; frenzy continues on expectation of deregulation Lanco Infratech: 4QFY09: Project execution reflects in construction revenues; await commercialization of capacities Colgate-Palmolive (India): In-line quarter, limited valuation upside Tata Chemicals: Operating performance lower than expected IVRCL Infrastructures: Strong revenues help mitigate disappointing margins, strong growth guidance a positive; retain BUY Nagarjuna Construction: Disappointing margins ands execution; beset by large order cancellations Welspun Gujarat Stahl Rohren: Forex losses pull down 4QFY09 PAT PSL: 4QFY09 - strong revenues but disappointing margins Change in recommendations ICICI Bank: Valuations do not justify further re-rating; downgrade to REDUCE Updates Economy: India at the bottom of the U-shaped cycle of 5.5-6% in 2HFY09-1HFY10E Real Estate: Real estate stocks pricing in sharp recovery; advise profit booking in DLF, Unitech Insurance: April 2009—A dull month for the insurance industry INDIA DAILY For Private Circulation Only. FOR IMPORTANT INFORMATION ABOUT KOTAK SECURITIES’ RATING SYSTEM AND OTHER DISCLOSURES, REFER TO THE END OF THIS MATERIAL, AT http://www.kotaksecurities.com. EQUITY MARKETS Change, % India 29-May 1-day 1-mo 3-mo Sensex 14,625 2.3 28.3 64.5 Nifty 4,449 2.6 28.1 61.0 Global/Regional indices Dow Jones 8,404 1.3 2.7 19.0 FTSE 4,444 1.3 6.1 16.0 Nikkie 9,523 0.8 12.1 25.8 Hang Seng 18,171 1.6 24.8 41.8 KOSPI 1,396 0.3 4.3 31.3 Value traded - India Moving avg, Rs bn 29-May 1-mo 3-mo Cash (NSE+BSE) 341.1 236.5 184.4 Derivatives (NSE) 903.2 811.4 392 Deri. open interest 1,042.3 932 474 June 01, 2009 ® Forex/money market Change, basis points 29-May 1-day 1-mo 3-mo Rs/US$ 47.2 (45) (301) (477) 10yr govt bond, % 6.7 8 52 68 Commodity market Change, % 29-May 1-day 1-mo 3-mo Gold (US$/OZ) 975.7 1.7 8.7 3.5 Silver (US$/OZ) 15.6 2.6 21.9 18.5 Crude (US$/BBL) 64.5 1.8 31.4 43.6 Net investment (US$mn) 27-May MTD CYTD FIIs 92 - 3,653 MFs 213 - (22) Top movers -3mo basis Change, % Best performers 29-May 1-day 1-mo 3-mo Ivrcl Infrastructures 329 9.0 107.3 202.3 Nmdc Limited 449 5.4 126.7 195.8 Jsw Steel Limited 553 0.7 61.5 193.9 Aban Offshore Limi t 905 3.5 122.2 185.2 Unitech Limited 80 4.4 80.7 181.8 Worst performers Housing Developme 284 3.2 93.9 287.6 Hindustan Unilever L 231 (0.1) (1.7) (9.0) Itc Ltd 184 (0.1) (2.8) 0.3 Nestle India Limited 1,726 0.1 1.3 15.6 Tata Communicati o 468 (6.0) (14.7) 15.7
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India Daily, June 1, 2009Kotak Institutional Equities Research 1 India Daily Summary - June 01, 2009 Contents Results IOCL: Limited merit in analyzing quarterly results or stock price
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Kotak Institutional Equities Research 1
India Daily Summary - June 01, 2009
Contents
Results
IOCL: Limited merit in analyzing quarterly results or stock pricemovement
Tata Motors: Stretched standalone financials tell only half the story;maintain SELL
BPCL: In-line 4QFY09 results; frenzy continues on expectation ofderegulation
Lanco Infratech: 4QFY09: Project execution reflects in constructionrevenues; await commercialization of capacities
Tata Chemicals: Operating performance lower than expected
IVRCL Infrastructures: Strong revenues help mitigate disappointingmargins, strong growth guidance a positive; retain BUY
Nagarjuna Construction: Disappointing margins ands execution; besetby large order cancellations
Welspun Gujarat Stahl Rohren: Forex losses pull down 4QFY09 PAT
PSL: 4QFY09 - strong revenues but disappointing margins
Change in recommendations
ICICI Bank: Valuations do not justify further re-rating; downgrade toREDUCE
Updates
Economy: India at the bottom of the U-shaped cycle of 5.5-6% in2HFY09-1HFY10E
Real Estate: Real estate stocks pricing in sharp recovery; advise profitbooking in DLF, Unitech
Insurance: April 2009—A dull month for the insurance industry
INDIA DAILY
For Private Circulation Only. FOR IMPORTANT INFORMATION ABOUT KOTAK SECURITIES’ RATING SYSTEM AND OTHER DISCLOSURES, REFER TO THE END OFTHIS MATERIAL, AT http://www.kotaksecurities.com.
EQUITY MARKETS
Change, %
India 29-May 1-day 1-mo 3-mo
Sensex 14,625 2.3 28.3 64.5
Nifty 4,449 2.6 28.1 61.0
Global/Regional indices
Dow Jones 8,404 1.3 2.7 19.0
FTSE 4,444 1.3 6.1 16.0
Nikkie 9,523 0.8 12.1 25.8
Hang Seng 18,171 1.6 24.8 41.8
KOSPI 1,396 0.3 4.3 31.3
Value traded - India
Moving avg, Rs bn
29-May 1-mo 3-mo
Cash (NSE+BSE) 341.1 236.5 184.4
Derivatives (NSE) 903.2 811.4 392
Deri. open interest 1,042.3 932 474
June 01, 2009
®
Forex/money market
Change, basis points
29-May 1-day 1-mo 3-mo
Rs/US$ 47.2 (45) (301) (477)
10yr govt bond, % 6.7 8 52 68
Commodity marketChange, %
29-May 1-day 1-mo 3-mo
Gold (US$/OZ) 975.7 1.7 8.7 3.5
Silver (US$/OZ) 15.6 2.6 21.9 18.5
Crude (US$/BBL) 64.5 1.8 31.4 43.6
Net investment (US$mn)
27-May MTD CYTD
FIIs 92 - 3,653
MFs 213 - (22)
Top movers -3mo basis
Change, %
Best performers 29-May 1-day 1-mo 3-mo
Ivrcl Infrastructures 329 9.0 107.3 202.3
Nmdc Limited 449 5.4 126.7 195.8
Jsw Steel Limited 553 0.7 61.5 193.9
Aban Offshore Limit 905 3.5 122.2 185.2
Unitech Limited 80 4.4 80.7 181.8
Worst performers
Housing Developme 284 3.2 93.9 287.6
Hindustan Unilever L 231 (0.1) (1.7) (9.0)
Itc Ltd 184 (0.1) (2.8) 0.3
Nestle India Limited 1,726 0.1 1.3 15.6
Tata Communicatio 468 (6.0) (14.7) 15.7
2 Kotak Institutional Equities Research
India Daily Summary - June 01, 2009
IOCL: Limited merit in analyzing quarterly results or stock pricemovement
• Strong results boosted by oil bonds and impact of revision in AS-11 provisions
• No merit in analyzing quarterly results given volatility in compensation
• Fine-tuned estimates, but a futile exercise; maintain REDUCE rating with a revisedtarget price of Rs550 (Rs500 previously)
IOCL reported 4QFY09 net income at Rs66.2 bn versus net income of Rs29.6 bn in3QFY09 and net loss of Rs4.1 bn in 4QFY08. We see limited merit in analysis of results ofdownstream companies given volatility in compensation received in every quarter;quarterly results can swing wildly depending on the quantum and timing of receipt of oilbonds. We are uncomfortable with the continued frenzy triggered by likely deregulation ofauto fuel prices. We see deregulation, if any, as positive for the sector; however, we see noupside to the fair valuations of R&M companies even in case of full deregulation. Wecompute IOCL's fair valuation in a normalized scenario at Rs575 (see Exhibit 2). We havemade modest earnings revisions for IOCL for FY2010E, FY2011E and FY2012E EPS toRs45.6, Rs44.6 and Rs63.3 versus Rs43.6, Rs43.2 and Rs62, previously. We retain ourREDUCE rating with a revised 12-month fair valuation of Rs550 (Rs500 previously) basedon 8X FY2011E EPS plus value of investments. Key upside risk stems from higher-than-expected refining margins.
IOCL’s 4QFY09 results details
IOCL reported strong 4QFY09 results with standalone net income of Rs66.2 bn comparedto net income of Rs29.6 bn in 3QFY09 and net loss of Rs4.1 bn in 4QFY08; we expectednet income of Rs60.4 bn. The strong results were due to (1) provision of oil bonds atRs62.2 bn, (2) strong refining margins at US$4.6/bbl and (3) positive swing of Rs7.8 bndue to impact of change in AS-11 provisions.
1. Compensation (oil bonds) from the government. IOCL booked oil bonds for Rs62.2bn in 4QFY09 versus Rs90.8 bn in 3QFY09 and Rs75.4 bn in 4QFY08. Based on theshare of oil bonds for IOCL in FY2009 (56.65%), we model IOCL will receive Rs68 bn,Rs68 bn and Rs71 bn of oil bonds in FY2010E, FY2011E and FY2012E, respectively,based on total issue of Rs120 bn, Rs120 bn and Rs125 bn of bonds to the industry inFY2010E, FY2011E and FY2012E.
2. Good refining margins. IOCL’s 4QFY09 standalone refining margin was US$4.6/bblversus -US$2.7/bbl in 3QFY09 and US$8.8/bbl in 4QFY08. IOCL’s FY2009 margin wasUS$3.7/bbl versus US$9/bbl in FY2008. We model FY2010E, FY2011E and FY2012Erefining margins at US$4.1/bbl, US$4.1/bbl and US$5/bbl.
3. Higher employee costs due to provision for pay revision and gratuity. IOCL’sFY2009 employee costs increased 95% yoy to Rs56.9 bn. However, the steep rise wasdue to provision of Rs27.1 bn for pay revision of employees effective January 1, 2007and includes the impact of proposed enhancement in gratuity ceiling. We expectemployee costs to normalize in FY2010E.
4. AS-11 impact. IOCL has changed its accounting policy for recognition of exchangedifferences arising on account of long-term foreign currency monetary items as peroption given in AS-11, which resulted in a positive impact of Rs7.8 bn in 4QFY09.
5. High adventitious and inventory losses. Inventory/adventitious losses for FY2009were Rs44 bn driven by a decline of US$55/bbl in crude prices during the period.
Shareholding, March 2009
% of Over/(under)Pattern Portfolio weight
Promoters 80.4 - -
FIIs 1.0 0.1 (1.6)
MFs 1.9 1.0 (0.8)
UTI - - (1.7)
LIC 2.7 1.0 (0.7)
Energy
IOC.BO, Rs609Rating
Sector coverage view
Target Price (Rs) 550
52W High -Low (Rs) 662 - 299
Market Cap (Rs bn) 718.2
FinancialsMarch y/e 2009 2010E 2011E
Sales (Rs bn) 3,053 2,232 2,312
Net Profit (Rs bn) 22.6 52.8 51.4
EPS (Rs) 18.9 44.3 43.1
EPS gth (69.1) 133.8 (2.6)
P/E (x) 32.2 13.8 14.1
EV/EBITDA (x) 11.1 6.1 6.0
Div yield (%) 1.2 3.0 2.9
Neutral
REDUCE
Pricing performance
Perf-1m Perf-3m Perf-6m Perf-1y
37.5 39.1 48.1 45.6
Kotak Institutional Equities Research 3
India Daily Summary - June 01, 2009
6. Other operating details. IOCL processed 12.6 mn tons of crude in 4QFY09 versus 12mn tons in 3QFY09 and 12.3 mn tons in 4QFY08. IOCL sold 17.3 mn tons (includingexports) of refined products versus 16.5 mn tons in 3QFY09 and 16.6 mn tons in4QFY08. Pipeline throughput for 4QFY09 increased 8.9% qoq and 6.1% yoy to 15.8mn tons.
7. Dividend. IOCL declared a dividend of Rs7.5/share for FY2009 versus Rs 5.5/share inFY2008.
Performance of subsidiaries
CPCL. Chennai Petroleum (CPCL) reported 4QFY09 net income at Rs2.7 bn versus loss of -Rs12.7 bn in 3QFY09 and net income of Rs3.4 bn in 4QFY08 led by strong refiningmargins at US$6.6/bbl versus -US$18/bbl in 3QFY09. CPCL processed 2.5 mn tones ofcrude as compared to 2.6 mn tons in 3QFY09 and 2.7 mn tons in 4QFY08. Our EPSestimates for CPCL for FY2010E, FY2011E and FY2012E are Rs21.1, Rs25.5 and Rs34.7,respectively.
BRPL. The scheme of amalgamation of Bongaigaon Refineries and Petrochemicals (BRPL)with IOCL has been sanctioned by the ministry of corporate affairs with an approved swapratio of 4 shares of IOCL for every 37 shares held in BRPL.
Interim results of Indian Oil Corp., March fiscal year-ends (Rs mn)
Tata Motors: Stretched standalone financials tell only half the story;maintain Sell
• Tata Motors’ 4QFY09 earnings were worse than expected with adjusted net loss ofthe Rs859 mn on account of higher costs and interest expense
• We are reducing our FY2010E EPS to Rs15 from Rs19 to reflect higher interestexpense
• Balance sheet and cash flows: unsustainable capital structure requires debt to becut in half
• Raising our target price to Rs235 from Rs195 as we move to FY2011E earnings;maintain SELL
Tata Motors ended up with breakeven PAT for FY2009 excluding other income and one-time gains on sale of investments and technology transfers. 4QFY09 EBITDA came inbelow estimates. We lowered our EPS estimates for FY2010E and FY2011E to reflecthigher interest expense. Our FY2010E estimate implies margins improving to 9% from5.7% in FY09, 15% M&HCV and 10% LCV volume growth. We are raising our target toRs235 from Rs195 as we rolled forward our target to FY2011E consolidated (including JLR)earnings. Our target reflects 8X consolidated FY2011E EBITDA. At 6X net debt to EBITDAand 2.5X interest coverage, the company would need to cut its debt by half to achieve asustainable capital structure and would entail an equity placement to the tune of Rs80 bn.We are maintaining our SELL rating.
Tata Motors 4QFY09 adjusted net loss at Rs860 mn, worse than expected onhigher costs and interest expense
Tata Motors reported a PAT of Rs10 bn for the year, implying a PAT of Rs5.9 bn for thequarter. However, excluding the AS11 –related write back, income from technologytransfer and gain on bond buyback, we estimate adjusted PAT to be negative Rs859 mnversus our expectation of a positive Rs740 mn.
At the operating level, Tata Motors reported adjusted EBITDA of Rs3.5 bn versus ourexpectation of Rs4.3 bn, with the shortfall largely driven by higher other expenses.EBITDA margins came in at 5.2% for the quarter versus 6.3% a year ago and up from1.6% in 3QFY09. The sequential increase was largely driven by lower raw material costsand improved mix of higher margin CVs. Net revenues were down 23.4%yoy, in-line withthe 23% decline in volumes, implying flat realizations. Realizations improved 3%sequentially as the mix of M&HCVs improved.
Interest expense for the quarter came in at Rs2.5 bn versus Rs1.7 bn in the 3QFY09,despite net debt declining marginally on a sequential basis. This seems to be driven byhigher interest rates and the full quarter impact of higher debt in 3QFY09.
We are reducing our FY2010E EPS to Rs15 from Rs19 to reflect higher interestexpense
Tata Motors is taking the Rs4.2 bn secured NCD loan in its standalone books while usingthe proceeds to repay the JLR bridge. We raised our interest expense to reflect thatwithout assuming any additional income benefit from JLR on the higher investment. Weare also reducing our FY2011E EPS to Rs20 from Rs24 prior for similar reasons.
Our assumptions include a 10% volume growth for each of FY2010E and FY2011E
Shareholding, March 2009
% of Over/(under)Pattern Portfolio weight
Promoters 41.7 - -
FIIs 20.2 0.4 0.1
MFs 2.7 0.3 (0.1)
UTI - - (0.3)
LIC 10.3 0.7 0.4
Automobiles
TAMO.BO, Rs337Rating
Sector coverage view
Target Price (Rs) 235
52W High -Low (Rs) 620 - 122
Market Cap (Rs bn) 187.4
FinancialsMarch y/e 2009 2010E 2011E
Sales (Rs bn) 254.7 282.5 346.0
Net Profit (Rs bn) 10.0 8.4 11.1
EPS (Rs) 20.8 15.2 20.0
EPS gth (58.3) (27.0) 32.2
P/E (x) 16.2 22.2 16.8
EV/EBITDA (x) 12.2 10.5 9.2
Div yield (%) 1.6 1.6 1.6
SELL
Cautious
Pricing performance
Perf-1m Perf-3m Perf-6m Perf-1y
38.2 125.6 146.1 (40.4)
8 Kotak Institutional Equities Research
India Daily Summary - June 01, 2009
excluding the Nano. The growth is driven by a 15% increase in M&HCVs, 10% in CVsand 7% in passenger vehicles. On the margin front, we have modeled a 320 bps increasein EBITDA margins, driven by lower raw material costs. For FY2011E, we are modeling aslight 30bps decline in margins as Nano becomes a bigger portion of the mix.
Balance sheet and cash flows: unsustainable capital structure
Net debt to EBITDA at the end of FY2009 stood at 8.5X and interest coverage stood at2.1X EBITDA. These are unsustainable levels and we would expect to see some sort ofequity-raising, even at current stock price levels.
The company reported gross debt of Rs131.6 bn and net debt of Rs124 bn at the end ofFY2009. Net debt stood at Rs136 bn at the end of December 2008. Most of the declineseems to have come from a lower finance receivable book size on the Tata Motors’ books.Capex for the year totaled Rs40bn. The company reduced its capex outlook to Rs25-30bnannually for the next two years from Rs40bn prior.
Valuation: raising our target price to Rs235 from Rs195 as we move to FY2011Eearnings, reiterate Sell
Our Rs235 target is now based on consolidated (standalone + JLR) EBITDA, given the inter-mingling of debt between standalone and JLR books. Exhibit 1 explains how we arrive atour valuation. Our Rs235 target is based on 8X standalone + JLR EBITDA of Rs50bn forFY2011E.
While one can argue that the stock is currently trading only at a slightly higher 9X theseestimates, we would point out that FY2011E earnings are not trough earnings any more.Our Rs29.8 bn EBITDA estimate for standalone Tata Motors in FY2011E is within strikingdistance of the all-time high EBITDA of Rs30.2 bn reported in FY2007. For JLR we aremodeling EBITDA of over US$400 mn compared to an EBITDA loss of US$65 for FY2009Eand US$180 mn in FY2010E. A US$400 mn EBITDA would imply a 3.5% margin, whichseems conservative. However JLR has rarely made money (Exhibit2) and we would wary ofassuming a higher EBITDA margin. Additionally the non-availability of actual JLR financialsfor FY2009E keeps us unsure of the hole to begin with.
An ideal capital structure as defined by the company would require halving of the currentdebt. Assuming the company is able to raise equity to the tune of Rs80 bn at Rs350 pershare, we would arrive at a valuation of Rs275, assuming a similar EV/EBITDA multiple.
EBITDA Multiple Value Value/share(Rs mn) (X) (Rs mn) (Rs) Comments
Tata Motors standalone EV 29761.06 8 238,088 428 Based on 8X FY2011E EBITDAJLR stadalone EV 20128.74 8 161,030 290 Based on 8X FY2011E EBITDALess: Net debt - standalone 166,955 300 standalone debt including Rs42 bn secured NCDLess: Net debt - JLR 122,754 221 $1bn rollover loan, after-tax pension underfunding, cash burn Total standalone implied equity value 109,410 197 Value of subsidiaries 40 SOTP-based value 237 Target price 235
Notes:(1) We have valued the subsidiaries and the investments in Tata Steel after considering 20% holding company discount.
Source: Kotak Institutional Equities estimates
Kotak Institutional Equities Research 9
India Daily Summary - June 01, 2009
Exhibit 2: We see JLR burning cash through FY2011E
Source: Company data, Kotak Institutional Equities
Kotak Institutional Equities Research 13
India Daily Summary - June 01, 2009
BPCL: In-line 4QFY09 results; frenzy continues on expectation ofderegulation
• Strong 4QFY09 results boosted by oil bonds
• No merit in analyzing quarterly results given volatility in compensation
• Fine-tuned estimates; maintain SELL with revised 12-month TP of Rs475 (Rs450previously)
BPCL reported 4QFY09 net income at Rs36.3 bn versus our estimate of Rs34.6 bn; thevariance was due to (1) lower employee costs at Rs1.5 bn versus Rs3.6 bn assumed by usand (2) moderately higher refining margins. We have made modest earnings revisions forFY2010E, FY2011E and FY2012E EPS to Rs32.1, Rs41.8 and Rs67.5 versus Rs30.3, Rs39.5and Rs64.3. We see limited merit in analysis of quarterly results for downstreamcompanies as earnings can highly fluctuate depending on quantum and timing of receiptof oil bonds. We are perplexed by the continued frenzy triggered by likely deregulation ofauto fuel prices. We see deregulation, if any as positive for the sector; however, we see noupside to the fair valuations of R&M companies even in case of full deregulation. Wecompute BPCL's fair valuation in a normalized scenario at Rs458 (see Exhibit 2). We retainour SELL rating with a revised 12-month fair valuation of Rs475 (Rs450 previously) basedon 8X FY2011E EPS plus value of treasury shares and other investments. Key upside riskstems from higher-than-expected refining margins.
Strong 4QFY09 results boosted by receipt of oil bonds; decent operatingperformance as well. BPCL reported 4QFY09 EBITDA at Rs41.7bn versus Rs15.5 bn in3QFY09 and Rs8.6 bn in 4FY08; our estimate was at Rs35.8 bn. The strong performancewas due to (1) receipt of oil bonds of Rs20.7 bn and (2) good refining margins at US$4.9/bbl. We do not see merit in comparison of quarterly results given high volatility in timingand quantum of oil bonds and contribution form upstream companies.
Nonetheless, the operating performance was decent despite inventory loss of Rs3.7 bn in4QFY09. BPCL’s overall 4QFY09 refining margin was US$4.9/bbl versus US$4.8/bbl in3QFY09 and US$5/bbl in 4QFY08. BPCL sold 7.1 mn tons of products in 4QFY09 (+1.7%yoy and +3.7% qoq) and 27.2 mn tons in FY2009 (+5.3% yoy) led by strong demand fordiesel (+10.9% yoy), gasoline (+10.8% yoy) and LPG (+3.4%).
Other financial and operating details of 4QFY09 and FY2009 results and keyassumptions behind earnings model1. Refining margins. BPCL’s overall 4QFY09 refining margin was US$4.9/bbl versus
US$4.8/bbl in 3QFY09 and US$5/bbl in 4QFY08. BPCL’s FY2009 refining margin wasUS$5.2/bbl versus US$5.6/bbl in FY2008. We expect refining margins to decline inFY2010-11E due to (1) global demand weakness and (2) significant refining capacityadditions in CY2009-10 (3.5 mn b/d plus 1.0 mn b/d of additional NGL supply). Wemodel refining margin for BPCL at US$3.2/bbl in FY2010E, US$3.8/bbl in FY2011E andUS$4.7/bbl in FY2012E.
2. Compensation (oil bonds) from the government. BPCL booked oil bonds forRs20.7 bn in 4QFY09 versus Rs36 bn in 3QFY09 and Rs39.7bn in 4QFY08. Based onthe share of oil bonds for BPCL in FY2009 (22.75%), we model BPCL will receive Rs27bn, Rs27 bn and Rs28 bn of oil bonds in FY2010E, FY2011E and FY2012E, respectively,based on total issue of Rs120 bn, Rs120 bn and Rs125 bn of bonds to the industry inFY2010E, FY2011E and FY2012E, respectively.
Shareholding, March 2009
% of Over/(under)Pattern Portfolio weight
Promoters 64.3 - -
FIIs 8.4 0.3 (0.2)
MFs 6.9 1.1 0.5
UTI - - (0.5)
LIC 9.3 1.0 0.5
Energy
BPCL.BO, Rs465Rating
Sector coverage view
Target Price (Rs) 475
52W High -Low (Rs) 516 - 206
Market Cap (Rs bn) 152.3
FinancialsMarch y/e 2009 2010E 2011E
Sales (Rs bn) 1,353 885.1 920.9
Net Profit (Rs bn) 7.4 11.6 15.1
EPS (Rs) 20.4 32.1 41.8
EPS gth (50.7) 57.8 30.1
P/E (x) 22.8 14.5 11.1
EV/EBITDA (x) 5.2 5.2 4.7
Div yield (%) 1.7 2.8 3.7
SELL
Neutral
Pricing performance
Perf-1m Perf-3m Perf-6m Perf-1y
19.9 21.4 30.8 30.1
14 Kotak Institutional Equities Research
India Daily Summary - June 01, 2009
3. Refining throughput in 4QFY09. BPCL’s two refineries processed 4.9 mn tons ofcrude in 4QFY09 compared to 4.8 mn tons in 3QFY09 and 5 mn tons in 4QFY08.BPCL’s Mumbai refinery processed 12.3 mn tons of crude in FY2009 and its Kochirefinery processed 7.7 mn tons of crude. We model crude throughput at 21 mn tons inFY2010E and 22.7 mn tons in FY2011E. BPCL will expand its refining capacity (Kochirefinery) by 2 mtpa in FY2011E, which will boost its throughput significantly.
4. 45% yoy increase in employee costs. BPCL’s FY2009 employee cost increased toRs18.8 bn (+45% yoy). The steep increase reflects provision of Rs1.1 bn for estimatedliability due to pending pay revision of staff from January 1, 2007. We highlight thatthere has been a wide fluctuation in this line item due to provisioning of estimatedliability for pay revisions and other one-off items.
5. Dividend. BPCL declared a dividend of Rs7/share for FY2009 versus Rs 4/share inFY2008.
Interim results of Bharat Petroleum, March fiscal year-ends (Rs mn)
Lanco Infratech: 4QFY09—Project execution reflects in constructionrevenues; await commercialization of capacities
• Earnings from extant power business stable, await commissioning of Amarkantak
• Construction revenues grow 182% yoy, real estate earnings in the red
• Revise rating to ADD with target price of Rs360/share
Lanco Infratech (LITL) reported consolidated sales of Rs20.5 bn (our est. Rs17.3 bn), andnet profit of Rs1.1 bn (our est. Rs1.2 bn) during 4QFY09. Reported profits were lower byRs246 mn due to forex losses incurred during the quarter. Implementation of Kondapalliextn project contributed to 183% yoy increase in construction revenues. Lower powertrading during the quarter resulted in sequential decline in power revenues. We haverevised our rating to ADD (from BUY) as the stock is trading close to our SOTP-basedtarget price of Rs360/share (Rs270/share previously). We have revised our earning estimateto Rs18.1 (Rs17.1 previously) for FY2010E and Rs33.8 (Rs24.9 previously) for FY2011E.Changes to earnings largely emanate from inclusion of revenues from the Kondapalli Extnproject. Key risks to our estimates stem from (1) delay in commissioning of power projects,(2) lower margins in construction business, and (3) demand slowdown in property businesson account of lower affordability.
Revise rating to ADD—target price increased due to inclusion of Kondapalli Extn.The recent rally in the stock price of LITL offers limited upside to our revised target price ofRs360/share. The revision in our target price emanates largely from the 370 MW gas-basedproject at Lanco Kondapalli extn. We have included the gas-based project in our financialmodel due to—(1) strong execution of the project (capex of Rs5.5 bn incurred so far), (2)inclusion of the project in the EGOM list for allocation of gas from Reliance’s KG-D6 basinand (3) a favorable political environment. The premium valuation for the project is due tohigh leverage (entirely debt financed) and benefit accruing from merchant tariffs as earlyas the end of the current fiscal.
Our SOTP-based value of Rs360/share includes—(1) DCF-equity of power project portfolioat Rs204/share, (2) construction business valued at Rs120/share at EV/EBITDA of 6X onFY2011E, (3) real estate project at 50% of NAV ~Rs23/share, (4) DCF-equity of BOT roadprojects at Rs5/share and (5) value from sale of carbon credits (Rs8/share).
Power—Amarkantak I synchronized, commercial generation likely from nextquarter. LITL reported net revenues of Rs7 bn (up 14% yoy) and EBIT of Rs1 bn (1.0 bn in4QFY08) from the power business for 4QFY09. Use of higher cost naphtha fuel alsocontributed to inflation of revenues. Sequential decline in power revenues is attributed tolower revenues from power trading business, which does not contribute significantly tooperating profits.
We note that commercial generation from the first unit at Amarkantak (300 MW) hasbeen delayed, although the project has now been synchronized and will likely contributeto earnings from the next quarter. During the year, LITL commissioned 5 MW of VamshiHydro plant in Himachal Pradesh, commercial generation from which contributed Rs2 mnto power revenues. LITL has so far incurred a capex of Rs86 bn (funded by debt of Rs56bn) towards the 3,900 MW of power projects currently under construction. These projectswill likely commission in a phased manner by 2012/13.
Shareholding, March 2009
% of Over/(under)Pattern Portfolio weight
Promoters 73.6 - -
FIIs 12.7 0.1 (0.0)
MFs 0.5 0.0 (0.1)
UTI - - (0.1)
LIC 2.4 0.1 (0.1)
Utilities
LAIN.BO, Rs370Rating
Sector coverage view
Target Price (Rs) 360
52W High -Low (Rs) 520 - 83
Market Cap (Rs bn) 82.2
FinancialsMarch y/e 2009 2010E 2011E
Sales (Rs bn) 60.6 58.2 98.4
Net Profit (Rs bn) 3.2 4.0 7.5
EPS (Rs) 14.5 18.1 33.8
EPS gth (2.9) 29.4 101.7
P/E (x) 25.6 20.4 10.9
EV/EBITDA (x) 23.1 17.6 8.3
Div yield (%) - - -
ADD
Attractive
Pricing performance
Perf-1m Perf-3m Perf-6m Perf-1y
66.7 193.2 231.3 (25.5)
18 Kotak Institutional Equities Research
India Daily Summary - June 01, 2009
Construction—execution at Kondapalli contributes to revenue growth
Income from construction grew 182% yoy and 78% qoq to Rs18.5 bn. EBIT margins inconstruction business at 12.8% during 4QFY09 were significantly lower than marginsachieved in FY2008, but in line with margins reported in 3QFY09 and guidance given bythe management. Construction revenues were aided by ramp up of execution of powerprojects at Kondapalli extn., Nagarjuna and Anpara C. The order book for the constructionbusiness at Rs103 bn provides good visibility (3X FY2010E revenues) for the next fewyears. The order book includes Rs85 bn from power projects and balance frominfrastructure projects. We value the construction business at 6X EV/EBITDA on FY2011Eearnings of Rs5.1 bn, yielding an enterprise value of Rs30.6 bn and equity value of Rs26.5bn.
Spent Rs13.7 bn so far on real estate—largely debt funded
Lanco reported real estate revenues of Rs179 mn for 4QFY09 compared to Rs1.2 bnduring 4QFY08. EBIT losses of Rs214 mn during the quarter are likely due to lowerrevenue recognition and increase in the cost of construction. For FY2009, the real estatedivision is just break even ay EBIT level on revenues of Rs1.6 bn. As per management, thereal estate division has so far incurred a capex of Rs13.7 bn, has advances of Rs3.6 bn anda net debt position of Rs7.3 bn.
LITL is developing 3 mn sq.ft of residential space at Lanco Hills out of which about 2 mnsq. ft has been sold. Our valuation includes the residential projects and only 1.5 mn sq. ftof under construction commercial projects. While the residential construction typicallydoes not require external funding for construction, we are not considering the remainingcommercial and retail projects as these are capital intensive and we would value them asand when these projects are launched. We assign a value of Rs23/share based on NAV ofthe residential projects and under-construction commercial projects.
Kotak Institutional Equities Research 19
India Daily Summary - June 01, 2009
Lanco Infratech (Consolidated), Quarterly performance, March year-ends (Rs mn)
• Colgate faces two issues in near term, (1) likely higher competitive intensity fromHUL and (2) transition to higher income tax rate in FY2011E
• Retain ADD rating, TP increased to Rs520/share (Rs490 previously) based onFY2011E estimates
In 4QFY09, Colgate reported in-line net sales of Rs4,722 mn (+21%, KIE estimate Rs4,754mn), better-than-expected EBITDA of Rs977 mn (+93%, KIE estimate Rs814 mn) and PATof Rs771 mn (+85%, KIE estimate Rs663 mn). Colgate's toothpaste volumes grew 15.2%and toothpowder volumes were flat. HUL has recently cut prices of two SKUs inPepsodent—Rs10 from Rs13 for a 40 gm carton pack and to Rs5 from Rs6 for the 30 gmflow-wrap pack. We assign a high probability to the success of Pepsodent’s Rs5 pack as itcompetes with Colgate Dental Cream Rs5 pack. However, the Rs13 to Rs10 price cut willonly have a short-term impact on Colgate as Pepsodent’s 40 gm is trying to compete withCibaca and Babool which offers a much higher value proposition of 80 gm at Rs10. Weretain ADD rating and increase TP to Rs520/share (Rs490 previously) based on FY2011Eestimates. At the current market price of Rs474/share, the stock trades at 18.4X FY2011E;we see limited valuation upside. We marginally tweak estimates—our EPS estimates forFY2010E and FY2011E are Rs24.4/share and Rs25.7/share. We value Colgate stock at 20Xapplying a 10% discount to the three year average PE as the company faces two issues innear term, (1) likely higher competitive intensity from HUL and (2) transition to higherincome tax rate in FY2011E. Key risks are (1) any unprecedented competitive activity byHUL for aggressive market share gains, (2) emergence of price-based competition and (3)higher-than-expected downtrading in the category.
Raising target to Rs520 from Rs490 as we carry forward our target to reflectFY2011E estimates; keeping ADD rating
We retain ADD rating and increase TP to Rs520/share (Rs490 previously) based onFY2011E estimates. At the current market price of Rs474/share, the stock trades at 18.4XFY2011E; we see limited valuation upside. We recommend Colgate stock to investorslooking for high quality defensive names—stability of earnings, good dividend yield (4%)and market leadership position. We marginally tweak estimates; our EPS estimates forFY2010E and FY2011E are Rs24.4/share and Rs25.7/share. We value Colgate stock at 20Xapplying a 10% discount to the three year average PE as the company faces two issues innear term, (1) likely higher competitive intensity from HUL and (2) transition to higherincome tax rate in FY2011E. Key risks to our ADD rating are (1) any unprecedentedcompetitive activity by HUL for aggressive market share gains, (2) emergence of price-based competition and (3) higher-than-expected downtrading in the category.
Leadership position maintained
In 4QFY09, Colgate reported in-line net sales of Rs4,722 mn (+21%, KIE estimate Rs4,754mn), better-than-expected EBITDA of Rs977 mn (+93%, KIE estimate Rs814 mn) and PATof Rs771 mn (+85%, KIE estimate Rs663mn).
Shareholding, March 2009
% of Over/(under)Pattern Portfolio weight
Promoters 51.0 - -
FIIs 10.1 0.2 (0.1)
MFs 4.7 0.3 0.1
UTI - - (0.2)
LIC 5.0 0.3 0.0
Consumer products
COLG.BO, Rs474Rating
Sector coverage view
Target Price (Rs) 520
52W High -Low (Rs) 500 - 341
Market Cap (Rs bn) 64.4
FinancialsMarch y/e 2009 2010E 2011E
Sales (Rs bn) 16.9 19.1 21.3
Net Profit (Rs bn) 2.9 3.3 3.5
EPS (Rs) 21.6 24.4 25.7
EPS gth 26.3 12.9 5.4
P/E (x) 22.0 19.4 18.4
EV/EBITDA (x) 17.5 15.6 13.6
Div yield (%) 3.2 3.8 4.4
ADD
Cautious
Pricing performance
Perf-1m Perf-3m Perf-6m Perf-1y
(0.6) 1.8 22.5 10.5
24 Kotak Institutional Equities Research
India Daily Summary - June 01, 2009
During 4QFY09, Colgate’s toothpaste volumes grew 15.2% and toothpowder volumeswere flat. The company improved its position with market share of 50.2% in toothpaste(+200 bps yoy), 45.8% in toothpowder (+30 bps yoy) and 37% in toothbrush (-20 bpsyoy). Focus on low price point products and Cibaca helped Colgate outperform categorygrowth in 2008-09 (Exhibit 3). We have always liked Colgate’s strategy of (1) growththrough new consumer recruitment and (2) price increases as the last option (continuingdrive on penetration-led growth). We highlight that toothpaste is possibly the onlypersonal care category witnessing high levels of new consumer recruitment—the categorypenetration has improved to 57% in 2008 from 44% in 2001.
Toothpaste volume growth is likely to remain robust at about 10% for the next two yearsdriven by continued rural uptick and consumer upgradation from toothpowder andtraditional forms of dental care. Colgate is better placed to capture higher growth in ruralareas—the company’s sales from rural markets has increased to 35% in CY2008 from32% in 2005 (Exhibit 4).
Likely higher promotional spends in FY2010E
Reported EBITDA margins improved to 20.7% in 4QFY09 from 12.9% in 4QFY08. Thiswas led by favorable raw material costs (270 bps improvement to 42.5%, 4QFY08 hadcertain one-off supplier payments, which depressed the margins in base quarter) anddecline in ad spends (290 bps improvement to 14.9%). Though advertisement andpromotional spends (A&P) for the quarter was lower yoy, full-year spends were flat at 16%of sales. We model higher A&P spends in FY2010E (80 bps higher to 16.8% of sales) aswe continue to believe that (1) structurally Colgate will have to spend higher onadvertisements to match HUL’s SOV/SOM as HUL has scale benefits in media buying, (2)likelihood of higher competitive activity by HUL to win market shares in Pepsodent and (3)higher promotional spends to maintain toothpaste volume growth (for example,toothbrush free with toothpaste or a banded pack of toothbrush and toothpaste whereintoothbrush price is cross-subsidized by toothpaste). Expansion of EBITDA margins basedon cut in ad spends (as witnessed in 2HFY09) in FY2010 is unlikely, in our view. Weforecast modest decline of 30 bps in EBITDA margins to 15.9% in FY2010E.
Analyst meet takeaways and observations for FY2010E1. The excise duty reduction to 8% from 14% benefits Colgate as about 40% of
toothpaste production is in full-tax zones. The Himachal facility contributes ~47,000tons to total volumes of 80,000 tons and the management expects Himachal output toremain flat as (1) the facility is operating at >80% capacity utilization and (2) the facilityis already a three-shift operation
2. Cibaca forms 16.5% of the Colgate sales mix
3. We would keep a close watch on market share ambitions of key competitors, HUL andDabur. HUL has recently cut prices of two SKUs in Pepsodent—Rs13 to Rs10 for 40gmscarton pack and Rs6 to Rs5 for the 30 gms flow-wrap pack. We assign a highprobability for the success of Pepsodent Rs5 pack as it competes with Colgate DentalCream Rs5 pack. However, the Rs13 to Rs10 price cut will only have short term impacton Colgate as Pepsodent 40gm is trying to compete with Cibaca and Babool whichoffers a much higher value proposition of 80 gms at Rs10
4. Colgate has recently hiked the prices of some of its brands by ~4%. This surprised theStreet given the recent cut in excise duties and stable raw material prices. While we donot expect this to have any significant impact on demand, we would keenly watch forany incremental promotional spends by HUL in Pepsodent brand
5. Higher tax rates—the Himachal facility is already operating at >80% capacity utilizationand company has no plans to increase capacity before sunset clause takes effect fromMarch 31, 2010. Moreover, the Himachal facility will move to 30% income taxexemption in FY2011E from 100% exemption in FY2010E. We model effective tax ratesof 20% and 26% in FY2010E and FY2011E.
Kotak Institutional Equities Research 25
India Daily Summary - June 01, 2009
Interim results of Colgate Palmolive India Ltd, March fiscal year-end (Rs mn)
Tata Chemicals: Operating performance lower than expected
• 4QFY09 PAT is higher than expected due to forex income reversal, operatingmargins lower due to write offs, one-time items
• We tweak TTCH forecasts with higher prices for soda ash in US/EU, new currencyassumptions
• Maintain ADD rating and raise price target to Rs200 (from Rs190)
4QFY09 TTCH revenues at Rs19 bn were 14% higher than our estimates due to betterperformance of its fertilizer business. Soda ash revenues were 10% lower than ourestimates due to qoq decline in volumes in all markets except India where volumes heldsteady qoq as per our estimates. Margins declined 200 bps qoq to 9% due to (1) lowerprofitability in phosphatic fertilizers (2) net asset impairment charge of Rs1.2 bn onaccount of plant closure in Netherlands (3) Rs480 mn inventory loss. Adjusted for the lasttwo cost items, margins were at 18%. 4QFY09 PAT at Rs1.7 bn was higher than ourestimate of Rs1.1 bn due to reversal of forex income due to adoption of AS 11. We expectEPS at Rs23.1 in FY2010E and Rs27.2 in FY2011E. TTCH is trading at 10X FY2010 and 8XFY2011 earnings estimate. The stock has nearly doubled since early March. While soda ashbusiness fundamentals are improving, we would prefer to buy at lower levels. MaintainADD with a price target of Rs200. This implies the stock will probably outperform in afalling market. Key risk to our call is a likely volume decline in soda ash on the back ofdemand destruction emerging from the flat glass segment.
Revenues at Rs19 bn were 14% higher than our estimates, operating performancelower due to poor profitability in the fertilizer business
Revenues at Rs19 bn were 14% higher due to better performance of the IMACID withsales more than doubling qoq. Management mentioned that IMACID and DAP plants wereworking at full capacity.
Fertilizer business revenues beat our estimates while soda ash revenues fell short of ourestimates due to a qoq decline in volumes in all markets except India where volumes heldsteady during the quarter.
1. BMGL sales for the quarter were 20% lower than our estimates at Rs4 bn due to poorvolumes at Magadi and lower volumes at BMGL. The management mentioned thatMagadi was hit by Chinese supplies into Asia while demand shrinkage was being seenin European markets
2. GCIP sales at Rs3.2 bn were12% lower than estimates due to lower exports to LatinAmerica
Operating margins at 9% declined qoq for several reasons1) Lower profitability in phosphatics due to a mismatch in output and phosphoric acid
prices. Management mentioned that prices were stabilizing and that the phosphaticsfacility is now running at full capacity. PBT margins for the quarter were 14% for thechemicals segment and were negative for fertilizer segment
2) Other expenses at 28% of sales was higher than our estimate of 7% for severalreasons:
• Net asset impairment charge of Rs1.2 bn on account of plant closure in Netherlands.TTCH mentioned that volume shrinkage is now being witnessed in the Europeanmarket and capacity utilization is currently at 70%. TTCH has decided to close theDelfzil plant in Netherlands which accounts for roughly 0.3 mtpa of soda ash capacityout of total BMGL capacity of 1.3 mtpa.
Shareholding, March 2009
% of Over/(under)Pattern Portfolio weight
Promoters 29.2 - -
FIIs 8.2 0.1 (0.1)
MFs 11.5 0.4 0.3
UTI - - (0.1)
LIC 11.7 0.3 0.2
Others
TTCH.BO, Rs216Rating
Sector coverage view
Target Price (Rs) 200
52W High -Low (Rs) 440 - 95
Market Cap (Rs bn) 50.9
FinancialsMarch y/e 2009 2010E 2011E
Sales (Rs bn) 122.6 71.1 75.6
Net Profit (Rs bn) 6.5 5.4 6.4
EPS (Rs) 27.6 23.1 27.2
EPS gth (30.4) (16) 17.9
P/E (x) 7.9 9.4 8.0
EV/EBITDA (x) 5.3 4.3 3.7
Div yield (%) 4.2 4.2 4.5
ADD
N/A
Pricing performance
Perf-1m Perf-3m Perf-6m Perf-1y
26.1 74.3 46.2 (47.2)
30 Kotak Institutional Equities Research
India Daily Summary - June 01, 2009
• Inventory loss of Rs480 mn
• Rs780 loss on account of subsidy bonds. During the year, TTCH received Rs10 bn worthof bonds. Fertilizer bonds worth Rs5 bn were sold at a loss of Rs233 mn. On thebalance bonds, MTM losses of Rs546 mn were charged to other expenses
3) Staff costs at 8% were lower than our estimate of 11%, material cost at 33% of saleswas higher than our estimate of 32%, while all other expenses were broadly in line
4QFY09 PAT at Rs1.7 bn higher than our estimate of Rs1.1 bn due to the writebackof forex income due to adoption of AS 11
TTCH adopted AS 11 and has reversed forex losses arising out of long term forexliabilities. The amount amortised to P&L is Rs1.25 bn while Rs3.5 bn has been taken to thebalance sheet and will be amortised over two years ending March 2011. Due to this profitfor FY2009 is higher by around Rs2.4 bn.
We tweak TTCH forecasts with higher product prices, new currency assumptions
We change US$/Rs currency forecasts to Rs48 for FY2010E and Rs47.75 for FY2011E
GCIP: Our model builds in a price of US$135 per tonne for FY2010E for US market. Weexpected price to rise to US$142 in FY2011E. We built in volume of 2 mtpa in FY2010E(sales volume was 2.2 mtpa in FY2009), in line with management guidance recovering to2.1 mtpa in FY2011E. TTCH has capacity of 2.5 mtpa in USA. TTCH said that althoughdemand in the domestic market of US has stablized, exports to Latin America are shrinkingdue to Chinese exports. China has reintroduced a 9% export incentive leading toincreased exports out of China which is heading towards Asia and Latin America.
BMGL: For European operations of TTCH, our model built in price of US$276 per tonnefor FY2010E, same as the average price seen in FY2009. We forecast a 5% improvementin price in FY2011E. We estimate volume to decline to 1.5 mtpa in FY2010E from 1.6mtpa in FY2009.
We are leaving our assumptions for Indian operations unchanged at price of Rs14,500 pertonne in FY2010E down from Rs18,000 per tonne. The recent imposition of safeguardduty should give stability to prices in India. Volumes are expected to decline to 0.6 mtpa inFY2010E from 0.67 mtpa in FY2009 mainly due to lower exports. TTCH exports 15% ofvolumes in India which it expects to come down to 5% in FY2010E.
Maintain ADD with price target at Rs200 (was Rs 190)
We expect EPS of Rs23.1 in FY2010E (FY2009 EPS at Rs27.6) and Rs27.2 in FY2011E. Thestock is trading at 10X FY2010E and 8X FY2011E earnings estimate. Soda ash businessfundamentals are looking better than a few months ago, we note that the share price isup from a low of Rs95 in early March. We would wait for a lower price to enter the stock.
We arrive at our price target with an SOTP calculation of its two businesses – chemicalsand fertilizer. We use a 5X multiple for the soda ash business. In the absence of a puresoda ash company for comparison, we are using conservative multiples looking at globalcompanies Solvay and FMC. We think the fertilizer business can command a multiple of8X since the urea business is assured a 12% post tax ROE for older capacity and thepricing of new capacity is linked to international price. Our price target of Rs200 impliesP/E of 7X FY2011E earnings.
The increase in share price target is largely coming from the higher value of the Tata groupcompanies that TTCH owns. We arrive at a market value of these investments and apply a30% discount as before. We are not increasing the PE multiples we use in valuing TTCHthough the markets have gone up sharply in the past three months. If we use a PEmultiple of 8X for the chemicals business, the target price can rise to Rs270. Our rating isrelative to the BSE Sensex and hence implies that we expect the TTCH share price todecline less than the Sensex over the next 12 months.
Kotak Institutional Equities Research 31
India Daily Summary - June 01, 2009
Interim results- TCL , March fiscal year-ends (Rs mn)
• Better-than-expected revenues help meet expectations, however, margins aredisappointing
• Management maintains guidance of 30-35% revenue growth with 9.5% EBITDAmargin
• Change earnings estimates and target price to Rs350/share; retain BUY
IVRCL reported 4QFY09 revenues of Rs16.2 bn (up 23% yoy) significantly above ourestimates of Rs14 bn. Operating profit margin declined by 180 bps yoy to 8.7% from10.5% in the previous year versus our expectation of 9.8% operating margin. Profit aftertax reported was Rs799 mn versus our estimate of Rs793 mn. The managementmaintained strong guidance of 30-35% revenue growth with EBITDA margin of 9.5% forFY2010E. We revise our earnings estimates to Rs17.9 (Rs17 earlier) and Rs22.2 (Rs19.5earlier) for FY2010E and FY2011E respectively. We change our SOTP-based target price toRs350 from Rs215 earlier based on revision in target multiple to 12X from 10X earlierrollover to FY2011E basis. Maintain BUY based on likely strong earnings growth, andpositive long term outlook for infrastructural investments.
Better-than-expected revenues help meet expectations however, marginssignificantly below expectations
IVRCL reported 4QFY09 revenues of Rs16.2 bn (up 23% yoy) significantly above ourestimates of Rs14.0 bn (Exhibit 1). Operating profit margin declined by 180 bps yoy to8.7% from 10.5% in the previous year versus our expectation of 9.8% operating margin.Profit after tax reported was Rs799 mn versus our estimate of Rs793 mn.
For the full year FY2009E, the company reported revenues of Rs48.8 bn (up 33.4% yoy)and profit after tax of Rs2.26 bn (up 7.4% yoy). Operating profit margin for the periodwas at 8.6% (down 120 bps yoy) versus 9.9% for FY2008 (Exhibit 1).
Management maintains guidance of 30-35% revenue growth with 9.5% EBITDAmargin
IVRCL management has maintained its FY2010E full-year revenue growth guidance of 30-35% with EBITDA margins for the full year expected to be about 9.5%-10%. IVRCL hasan order backlog of Rs145 bn and is expecting another Rs10 bn as fresh orders in the nearterm (Exhibits 2-4).
Debt cost has started to come down, should help in upholding profitability
Management stated that interest cost has come down from about 12.5% or so to about11.5% or so and this decline in interest cost should help the company in shoring upprofitability in FY2010E.
Change earnings estimates and target price to Rs350/share; retain BUY
We revise our earnings estimates to Rs17.9 and Rs22.2 from Rs17 and Rs19.5 for FY2010Eand FY2011E respectively based on (a) higher execution assumptions, (b) lower interestrate assumptions. We have changed our SOTP-based target price to Rs350/share (Exhibits5 and 6) from Rs215 earlier comprised of (1) core business valuation of Rs290/share (13XFY2011E earnings), (2) Rs32/share contribution from road and water projects, (3) IVRPrime’s contribution of Rs21/share, and (5) Rs10/share contribution from Hindustan DorrOliver.
Shareholding, March 2009
% of Over/(under)Pattern Portfolio weight
Promoters 9.7 - -
FIIs 47.7 0.2 0.1
MFs 19.1 0.4 0.3
UTI - - (0.1)
LIC - - (0.1)
Construction
IVRC.BO, Rs329Rating
Sector coverage view
Target Price (Rs) 350
52W High -Low (Rs) 423 - 57
Market Cap (Rs bn) 44.6
FinancialsMarch y/e 2009 2010E 2011E
Sales (Rs bn) 46.8 59.6 71.2
Net Profit (Rs bn) 2.0 2.3 2.6
EPS (Rs) 14.4 16.9 19.4
EPS gth (7.3) 17.1 14.8
P/E (x) 22.8 19.5 17.0
EV/EBITDA (x) 12.7 10.2 8.4
Div yield (%) 0.2 0.2 0.2
BUY
Attractive
Pricing performance
Perf-1m Perf-3m Perf-6m Perf-1y
107.3 202.3 144.4 (18.2)
Kotak Institutional Equities Research 35
India Daily Summary - June 01, 2009
We maintain our BUY rating on the stock based on (a) strong likely near-term earningsgrowth, and (b) long-term outlook for infrastructural investments. Key risks to the earningsinclude (1) margin pressures due to volatility in commodity prices, (2) higher-than-expectedinterest costs and (c) deterioration in working capital parameters.
Exhibit 2. Majority of order inflow were government backed Water & irrigation projectsMajor orders booked by IVRCL recently
Date Nature of WorkSize of Order Customers
6-Apr-2009 Project Implementation Unit, Thrissur Corporation 422 Rehabilitation of water treatment plant6-Apr-2009 UP Rajya Vidyut Utpadan Nigam Ltd 347 Pump house ducts and cold water channel6-Apr-2009 Power Grid Corporation of India Ltd 298 Tower package works6-Apr-2009 Power Grid Corporation of India Ltd 779 Supply of equipment and materials for tower package6-Apr-2009 Kolkata Metropolitan Development Authoirty 1,646 Construction of Vivekananda road flyover6-Apr-2009 Govt. of AP, Roads & Buildings Department 103 Construction of R.O.B
Total large order booking in FY2010 so far 3,595 3-Mar-2009 Guru Gobind Singh refinery project, civil and structurals 1,783 HPCL-Mittal Energy Ltd.3-Mar-2009 Construction of Trauma Centre 354 Uttar Pradesh Rajkiya Nirman Nigam Ltd.3-Mar-2009 CSJM Medical Univ. campus 133 Uttar Pradesh Rajkiya Nirman Nigam Ltd.3-Mar-2009 Hostel and campus facilities 217 College of Engineering, Shivajinagar Pune3-Mar-2009 Two elevated terminal stations - RV Road and Jayanagar 715 Bangalore Metro Rail Corporation Ltd3-Mar-2009 Remodeling of distribution network 172 Government of Andhra Pradesh3-Mar-2009 Dam, canal and distribution netowrk work on turnkey basis 3,326 Narmada Development division, Madhya Pradesh5-Jan-2009 Pipelining works and construction of water treatment plant 539 Karnataka Urban Water Supply and Drainage Board5-Jan-2009 Civil, structual and piping works 383 Indian Oil Corporation Ltd5-Jan-2009 Contruction of elevated metro stations 758 Bangalore Metro Rail Corporation Ltd5-Jan-2009 Contruction of elevated metro stations 925 Bangalore Metro Rail Corporation Ltd
16-Dec-2008 Contruction of IT park 110 West Bengal Electronics Industry Development Corporation Ltd16-Dec-2008 EPC services on a turnkey basis 706 Government of Puducherry, Project Implementation Agency16-Dec-2008 Civil, interior and site development works 1,144 City & Industrial Development Corpn of Maharashtra Ltd16-Dec-2008 Housing project 5,503 A.P. Cine Workers' Coop. Housing Soceity Ltd24-Nov-2008 Rural electrification works 1,790 NTPC Electricity Supply Company Ltd24-Nov-2008 Somasila drinking water supply scheme 250 Andhra Pradesh Industrial Infrastructure Corporation 24-Nov-2008 Godavari drinking water supply project 2,538 Hyderabad Metropolitan Water Supply and Sewerage Board24-Nov-2008 Rayachoti water supply scheme 385 Government of Andhra Pradesh24-Nov-2008 Execution and O&M of village distribution system 335 Government of Rajasthan10-Nov-2008 Execution of Pranahitha - Chevella Lift Irrigation project 8,930 Government of Andhra Pradesh
7-Oct-2008 Execution of Kalleswaram Lift Irrigation project 4,993 Government of Andhra Pradesh29-Sep-2008 Punasa lift Irrigation scheme 4185 Narmada Development division, Madhya Pradesh19-Aug-2008 Mid manair reservoir, Karimnagar 7150 Government of Andhra Pradesh
31-Jul-2008 Madakasira branch canal 3580 Government of Andhra Pradesh21-Jul-2008 Buildings and water related orders 3512 Miscellaenous9-Jul-2008 Life scheme, Karimnagar district 4098 Government of Andhra Pradesh
2-Jun-2008 Accelerated soil stabilization 8,376 ONGC for Dahej Petrochemical Complex 5-May-2008 Godavari delta system 4,686 Govt. of Andhra Pradesh, Irrigation & CAD Dept
Total large order booking in FY2009 71,575 24-Mar-2008 Construction of research centre 789 Andhra Pradesh Industrial Infrastructure Corporation 3-Mar-2008 Execution of canal system 4,785 Narmada Valley Development Authority, Bhopal
20-Feb-2008 Water, irrigation and power works 5,179 Greater Visakhapatnam Municipal Corporation, Deoghar Water Supply Department among others
26-Nov-2007 Building construction and sewage works 3,293 Naya Raipur Dev. Authority, Pimpri Chinchwad Muni. Corpn, Tamilnadu Water Supply and Drainage Board
29-Oct-2007 Water & power transmission works 3,468 Rajasthan and Maharashtra state agencies9-Oct-2007 Lift irrigation works on EPC turnkey basis 7,612 Govt. of Andhra Pradesh, Irrigation & CAD Dept
24-Sep-2007 Buildings at Rajiv Gandhi Infotech Park, Pune 1,800 DLF Akruti Info Parks (Pune) Ltd
24-Sep-2007 Sea-Woods Estate Phase-II, Nerul, Navi Mumbai 851 City & Industrial Development Corpn of Maharashtra Ltd24-Sep-2007 Clear water sump and pumping station 678 Indore Municipal Corporation
24-Sep-2007 Transmission lines and erection of substations 614 Maharashtra State Electricity Distribution Co Ltd 17-Sep-2007 Water and civil projects in Chennai 3,681 Water utilities in Chennai and NTPC
30-Aug-2007 Irrigation works 3,202 Public Health and Engineering Dept, Govt of Rajasthan
23-Jul-2007 Irrigation works 6,414 Irrigation & C.A.D Dept, Govt of Andhra Pradesh17-Jul-2007 Irrigation works 2,027 Karnataka Neeravari Nigam Ltd
21-May-2007 Reservoir works 5,510 Irrigation & C.A.D Dept, Govt of Andhra Pradesh14-May-2007 Reservoir works 3,761 Irrigation & C.A.D Dept, Govt of Andhra Pradesh
Total large order booking since FY2008 so far 53,664
Source: Company data.
Kotak Institutional Equities Research 37
India Daily Summary - June 01, 2009
Exhibit 3. IVRCL Infrastructure has visibility of 2.6 years based on forward four quarter revenues
Order backlog, order booking and visibility (X) of IVRCL Infrastructure, March fiscal year-end 2002-2009
3.0Order Backlog (LHS) Order Booking (LHS) Visibility (RHS)
Exhibit 4. Segment wise breakup of IVRCL's order book at the end of 3QFY09, FY2008 and FY2007
Source: Company, Kotak Institutional Equities
3QFY09
Water
resources
68%
ansportati
on
6%
Buildings
and
Industrial
20%
Electrical
6%FY2008
Water
resources
62%Transportati
on
9%
Buildings
and
Industrial
23%
Electrical
6%FY2007
Water
resources
50%
Transportati
on
25%
Buildings
and
Industrial
13%
Electrical
12%
Exhibit 5: Derivation of SOTP based target price for IVRCL
Project/ BusinessEquity Commitment
(Rs mn)Valuation
(Rs mn) Rs/ share Valuation methodologyValue of core construction business 0 288.6 P/E multiple of 13X FY2011E earnignsBook value of investments in BOT assets 2,394 2,394 17.7 1X bookValue from Hindustan Dorr Oliver 1,267 9.4 Discount to market priceValue of IVRCL Prime Developers Ltd 2,880 21.3 NAVIncremental value from roads and water projects
Jallandhar- Amristar Tollways 413 310 2.3 Incremental P/B of 0.75
Salem - Kumarapalayam 651 488 3.6 Incremental P/B of 0.76
Sumarapalayam Chenagmpalli 801 601 4.5 Incremental P/B of 0.77
Chennai Water 713 534 4.0 Incremental P/B of 0.78
Total 351
Source: Kotak Institutional Equities estimates
38 Kotak Institutional Equities Research
India Daily Summary - June 01, 2009
Exhibit 6. Key road BOT projects
Jallandhar- Amristar Tollways Salem - KumarapalayamSumarapalayam Chenagmpalli Chennai Water
Project Description
4 laning of 49 km stretch between Jallandhar and Amristar
53 kilometers from Salem to Kumarapalayam
47 kilometers from Kumarapalayam to Chengapalli 100 MLD
Company's share 100.00% 100.00% 100.00% 75%Other partners - BefesaProject Type Toll Toll Toll Two part tariff
Concession Period17.5 years including 2.5 years of construction period
20 years including 2 years of construction period
20 years including 3 years of construction period
Grant structure Positive grant of Rs 330 mn Positive grant of Rs 175 mn Positive grant of Rs 1290 mnEstimated Funding structure (in Rs mn)Total project Cost 2,378 4,214 5,011 4,730 Equity 413 651 801 950 Preference EquityDebt 1,570 3,389 2,920 3,780 Subordinate DebtGrant 395 175 1,290 IVRCL's Equity Commitment (Rs Mn) 413 651 801 713
Kotak Institutional Equities Research 39
India Daily Summary - June 01, 2009
Nagarjuna Construction: Disappointing margins and execution; besetby large order cancellations
• Large order cancellations contribute to disappointing margins and execution
• Strong business ramp up in Middle-East; visibility declines marginally to about 2.5years
• Revise earnings estimates, Maintain BUY with a target price of Rs145 versus Rs120earlier
Nagarjuna Construction reported 4QFY09 revenues of Rs10.9 bn (down 13% yoy)significantly lower than our expectation of Rs15.4 bn. Reasons for lower-than-expectedrevenues include (a) cancellation of Rs12 bn order by ONGC, leading to revenue reversal ofabout Rs1.2 bn, (b) problems faced by Maytas Infra which is a JV partner in several projects- about Rs0.5 bn and (c) cancellation of order worth Rs3.5 bn by the Karnatakagovernment. We have revised our FY2010E and FY2011E earnings estimates to Rs7.5(from Rs8.8 earlier) and Rs8.5 (from Rs9.7 earlier) based on lower execution as well asslightly lower margin expectation versus earlier. We have also revised our SOTP-basedtarget price to Rs145 from Rs120 earlier. Target price revision is based on revision in coreconstruction business valuation to Rs110 (versus Rs90 earlier) - revision in target P/Emultiple to 13X and rollover to FY2011E from FY2010E basis earlier. BOT projects and realestate both contribute about Rs17 to our target price based on book value of equityinvested as well as potential upside on book value from BOT projects. We maintain ourBUY based on (a) strong growth visibility, (b) benefit of lower interest rates in FY2010E, (c)ramp up of business segments that hold potential and (d) long-term outlook of stronginfrastructural investments.
Disappointing margins and execution; beset by large order cancellations
Nagarjuna Construction reported 4QFY09 revenues of Rs10.9 bn (down 13% yoy)signifincantly lower than our expectation of Rs15.4 bn. The EBITDA margin at 7.4% wasalso lower than our expectations of 8.25%. Reason for lower-than-expected revenuesinclude (a) cancellation of Rs12 bn order by ONGC as it refused to recognize the JV withNaftoGas leading to reversal of about Rs1.2 bn, (b) problems faced by Maytas Infra whichis a JV partner in several projects as well as client in several orders leading to revenue hitversus potential of about Rs0.5 bn and (c) cancellation of order worth Rs3.5 bn by theKarnataka government.
Going wide: Significant business ramp up in Middle-East bodes well
Nagarjuna has reported substantial ramp up in Middle-East business 27% of orderbacklog in the parent entity belonging to international segment. Several internationalsubsidiaries such as NCC, Dubai (revenues Rs2.7 bn, PB T Rs0.12 bn) and NCC Muscat(revenues Rs2.8 bn, PB T Rs0.13 bn) have reported substantial independent turnover inMiddle-East. Nagarjuna expects that international subsidiaries may account to about Rs7bn of turnover in FY2010E with average profitability at PAT level in line with the parentbusiness or slightly ahead of it.
Order book visibility declies led by cancellation, adjusted for that meets its orderbooking target for FY2009
Order book visibility of Nagarjuna Construction has declined to about 2.5 years based on
Shareholding, March 2009
% of Over/(under)Pattern Portfolio weight
Promoters 24.4 - -
FIIs 27.1 0.1 0.0
MFs 22.1 0.4 0.3
UTI - - (0.1)
LIC - - (0.1)
Construction
NGCN.BO, Rs139Rating
Sector coverage view
Target Price (Rs) 145
52W High -Low (Rs) 203 - 34
Market Cap (Rs bn) 31.9
FinancialsMarch y/e 2009 2010E 2011E
Sales (Rs bn) 46.4 55.6 60.7
Net Profit (Rs bn) 1.7 2.0 2.2
EPS (Rs) 7.3 8.8 9.7
EPS gth 2.5 19.7 10.0
P/E (x) 18.9 15.8 14.4
EV/EBITDA (x) 10.2 8.5 7.7
Div yield (%) 1.0 1.2 1.4
BUY
Attractive
Pricing performance
Perf-1m Perf-3m Perf-6m Perf-1y
101.0 220.9 133.4 (28.5)
40 Kotak Institutional Equities Research
India Daily Summary - June 01, 2009
following four quarters revenues versus about 2.9 at the end of 1QFY09E. WhileNagarjuna has won orders worth Rs65 bn, net order booking adjusted for cancellation ofRs12.3 bn was Rs54.2 bn. Nagarjuna reports that it is L1 in orders worth Rs10 bn,particularly in the electrical segment.
Revise earnings estimates, Maintain BUY with a target price of Rs145 versusRs120 earlier
We have revised our FY2010E and FY2011E earnings estimates to Rs7.5 (from Rs8.8earlier) and Rs8.5 (from Rs9.7 earlier) based on lower execution as well as slightly lowermargin expectation versus earlier in. We have also revised our SOTP-based target price toRs145 from Rs120 earlier based on core construction business valuation to Rs110 (versusRs90 earlier) based on revision in target P/E multiple to 13X and rollover to FY2011E fromFY2010E basis earlier. BOT projects and real estate both contribute about Rs17 to ourtarget price based on book value of equity invested as well as potential upside on bookvalue from BOT projects. We maintain BUY based on (a) strong growth visibility based onorder backlog, (b) ramp up of business segments in areas like metals, power andinternational – areas that hold immense potential, and (c) long-term outlook of stronginfrastructural investments.
Source: Company data, Kotak Institutional Equities.
Exhibit 3. Order book continues to be well diversified Segment wise order book break up at end of 4QFY09 and FY2008
Source: Company
4QFY09Buildings
21%
Roads/Transp
ortation
8%
International
26%
Irrigation
5%
Electrical
5%
Metals
12%
Oil & gas
1%
Pow er
1%
Water and
env ironment
21%
FY2008 Buildings
19%
Roads/Transp
ortation
15%
Electrical
3%
Irrigation
7%
Metals
6%
International
22%
Water and
env ironment
16%
Pow er
1%
Oil & gas
11%
42 Kotak Institutional Equities Research
India Daily Summary - June 01, 2009
Exhibit 4. Nagarjuna Construction met the order booking target of Rs65 bn for FY2009E, however was beset by cancellations of oil and Gas orderOrder book details of Nagarjuna Construction, March fiscal year-ends, 2008-2009Date Segment Client (Rs mn) Profile of work
12-Mar-09 Buildings Institute of Chartered Financial Analysts 610 Construction of academic block12-Mar-09 Water supply Commissioner, Coimbatore Corporation 830 Different water works12-Mar-09 Electrical Maharashtra State Electricity Distribution Company Limited 1,190 Tunkey contract for "Infrastructure Plan Phase-II Project Works"
9-Feb-09 Others Mumbai Metropolitan Region Development Authority, Mumbai 410 Construction of skywalk at Thane9-Feb-09 Others Bangalore Metro Rail Corporation Ltd, Bangalore 1,500 Design and construction of various works9-Feb-09 Buildings National Buildings Construction Corporation Ltd, New Delhi 1,610 Construction of houses for NMDC9-Feb-09 Others Singareni Collieries Company Ltd, Khammam, Andhra Pradesh 3,600 Blast hole drilling, controlled blasting and other works1-Dec-08 Buildings Learning Panorama Foundation, Mumbai 360 Construction of school project1-Dec-08 Buildings Project Seabird, New Delhi 450 Construction of dwelling units and commons facilities1-Dec-08 Buildings Yogi Vemana University, Kadapa 720 Construction of buildings at university campus1-Dec-08 Buildings National Institute of Technology (NIIT), Agartala 990 Construction of boys and girls hostel1-Dec-08 Others Paschim Kshetra Vidyut Vitaran Co. Ltd, Indore 1,110 Several works1-Dec-08 Buildings Golden Jubilee Hotels Ltd, Hyderabad 1,210 Construction of 5 star delux hotels3-Nov-08 Others Assam State Electricity Board, Assam 1,260 Several works3-Nov-08 Water supply HMWSSB, Hyderabad 4,010 Transmission of Godavari water for drinking water needs
23-Sep-08 Water supply APIICL, Hyderabad 500 Commissioning of gravity main for Somasila drinking water supply scheme23-Sep-08 Buildings Infopark, Thapasya, Kusumagiri, Kochi 610 Construction of software development buildings23-Sep-08 Water supply Public Health, Government of Andhra Pradesh 730 Design and development of water supply scheme23-Sep-08 Others MSEDCL, Mumbai 2,290 Supply and commissioning od sub transmission lines21-Aug-08 Others KSRTC Civil Engineering Division, Mysore 1,080 Development of transport infrastructure facilities21-Aug-08 Buildings Bangalore Metropolitan Transport Corporation, Bangalore 1,140 Construction of traffic and transit management centre21-Aug-08 Buildings Engineers India Ltd, New Delhi 2,520 Development of sports facilities5-Aug-08 Buildings National Institute of Technology (NIT), Warangal, Andhra Pradesh 849 Construction of hostel buildings5-Aug-08 Others MSRDC, Aurangabad, Maharashtra 318 Design and construction of proposed ROB5-Aug-08 Water supply PHED, Jodhpur, Rajasthan 2,191 Water supply scheme5-Aug-08 Irrigation Medium Irrigation Projects Circle, Bellampaly 1,077 Lift irrigation scheme26-Jun-08 Transportation Bangalore Development Authority, Bangalore 800 Construction of outer ring road26-Jun-08 Transportation Bangalore Development Authority, Bangalore 940 Construction of grade separators along outer ring road26-Jun-08 Water supply Water Supply and Drainage Dept, Pimpri Cihnchwad Corporation, 1,590 Direct pipeline from Pawana dam to water treatment plant at NIGDI, Pune16-Jun-08 Others Steel Authority of India Ltd, Burnpur, West Bengal 2,846 Basic Oxygen Furnace, continuous Casting Plant, Lime & Dolomite Plant16-Jun-08 Others Steel Authority of India Ltd, Burnpur, West Bengal 1,972 Re-heating Furnace, Rolling Mills16-Jun-08 Buildings Nizam Institute of Medical Sciences, Hyderabad 932 University Campus, Heart Institute, Medical University Buildings2-Jun-08 Buildings Central Publics Work Department, New Delhi 886 General pool office complex2-Jun-08 Buildings Central Publics Work Department, New Delhi 655 Weightlifting Auditorium2-Jun-08 Others Brahmani River Pellets Ltd., Bhubaneswar 270 Pelletisation Plant2-Jun-08 Water supply Engineer in chief, DW&SD, Ranchi 687 Augmentation of Dhanbad Phase II water supply scheme
Total orders booked in FY2009 44,743 5-Mar-08 Water supply Indore Municipal Corporation, Indore 2,660 Sewerage System & allied works5-Mar-08 Transportation Mumbai Metropolitan Region Development Authority, Mumbai, M 1,120 Flyovers on Dr. Babasaheb Ambedkar Marg5-Mar-08 Buildings Volkswagen India Pvt Ltd., Chakan, MIDC, Pune, Maharashtra 460 construction of Body Shop hall16-Jan-08 Water supply Public Health, Government of Andhra Pradesh 1,850 Water Supply Improvement Scheme at Warangal16-Jan-08 Buildings Greater visakhapatnam Municipal Corporation, Visakhapatnam 840 Infrastructure facilities16-Jan-08 Buildings M/s. Salarpuria Properties Pvt Ltd, Bangalore 500 Salarpuria Cyber Gardens at Hitech City16-Jan-08 Water supply Engineer-in-Chief (PH), Public Health, Hyderabad 530 Water Supply Improvement Scheme at Kadiri16-Jan-08 Water supply Public Health Engineering Department, Govt. of Chhattisgarh, Raip 530 Augmentation Water Supply Scheme16-Jan-08 Water supply Karnataka Urban Water Supply & Drainage Board, Bangalore 770 Re-modelling of WS Distribution Network at Mysore24-Dec-07 Transportation Government of Oman 5,700 Wadi Adai Al Amerat Road project: 6 new bridges, 9 box culverts, 1 single lane bridge20-Dec-07 Electrical Dakshin Haryana Bijli Nigam Ltd (DHBNL), Haiyana 2,300 New 11 KV Single Circuit lines providing HVDS20-Dec-07 Water supply Thane Municipal Corporation, Thane, Maharashtra 770 Water Supply Scheme26-Sep-07 Water supply Brandix India Apparel City, Vishakhapatnam 410 Raw Water Storage Reservoir 26-Sep-07 Others Volkswagen India Pvt Ltd 660 Paint Shopt & HRK Hall 26-Sep-07 Buildings Govt of India, 1,360 EMBASSY OF INDIA COMPLEX19-Jul-07 Others Steel Authority of India Ltd for IISCO Steel Plant at Burnpur, West 11,000 Setting up of Blast Furnace Complex
17-Sep-07 Water supply Ahmedabad Municipal Corporation, Ahmedabad 320 Construction of Water Treatment Plant 17-Sep-07 Transportation Karnataka Road Development Corporation Ltd 1,090 Bridges in Karnataka 11-Sep-07 Buildings Offbeat Developers 600 Mall for Market City Mumbai 11-Sep-07 Buildings Satyam Computer Services Ltd 960 Shell and Core in SEZ Infocity 25-Jul-07 Transportation Pondicherry to Tindivanam Section, BOT project 2,850 Roads18-Jul-07 Buildings Shriram Properties Ltd 360 Multi storied apartments complex18-Jul-07 Irrigation Andhra Pradesh government 2,000 Turn key order for Tunnel
27-Jun-07 Buildings Rajeev Gandhi University of Health Science's 3,378 Residentail buildings14-Jun-07 Building National Institute of Technology (NIT), Warangal, Andhra Pradesh 610 Residential buildings
26-Mar-07 Others Other orders 560 N.A.26-Mar-07 Water supply Government of West Bengal, Kolkatta 2,460 Surface water based water supply scheme in Nadia District in West Bengal 14-Mar-07 Buildings Punjab Cricket Association 740 Cricket stadium at Mohali14-Mar-07 Irrigation Government of Andhra Pradesh 860 Irrigation Project in Kurnool District
8-Jan-07 Electrical Gulbarga district, Karnataka 580 Rajeev Gandhi Grameen Vidyutikaran Yojana (RGGVY) Scheme 8-Jan-07 Water supply Maharashtra Airport Development Company Limited 2,020 Supply and Underground Sewerage System at Nagpur2-Jan-07 Water supply Rajasthan Rajya Vidyut Utpadan Nigam Limited 420 Water intake system for the 500 MW Chhabra Thermal Power Project2-Jan-07 Electrical Jharkhand State Electricity Board 1,310 Rural Electrification Work under Rajiv Gandhi Grameen Vidutikaran Yojana
27-Dec-06 Water supply Millitary Engineer Services, Chandigarh 230 Water Supply of Ambala Cant27-Dec-06 Buildings Sahara India Commercial Corporation Ltd 650 Villas at Amby valley27-Dec-06 Water supply Government of Rajasthan 2,820 Water Supply at Ajmer 13-Nov-06 Irrigation Government of Andhra pradesh 2,260 Widening of SRBC main canal, in JV with Maytas Infrastructure13-Nov-06 Buildings CPWD, New Delhi 980 Construction of Jawahar Lal Bhavan28-Sep-06 Water supply Water Supply and Drainage work Boards 580 Water supply orders28-Sep-06 Transportation Karnataka Road Development Corporation 560 construction of roads in Karnataka 28-Sep-06 Buildings CPWD, New Delhi 860 Cabinet Secretariat Building29-Aug-06 Buildings Times of India Group - Printing Press complex 1,140 Priting press complex at Times Print City, Airoli, Navi Mumbai
1-Jul-06 Transportation Govt of Chattisgarh for Rehabilitation and 650 Upgradation of Road (ADB funded project01-Jul-06 Irrigation Govt of Madhya Pradesh 530 Construction of Sanjay Sagar Dam Project 1-Jul-06 International Sultanate of Oman 7,200 Dualization & Realignment of AI-Amerat Quriyat Road at Muscat
1-Jun-06 Buildings Government of Jharkhand 1,520 Mega Sports Complex at Ranchi 1-Jun-06 Electrical Maharashtra State Electricity Distribution Company Limited 2,700 Gaothan Feeder Separation Scheme from MSEB
1-May-06 International Muscat Municipality, Muscat, Sultanate of Oman 1,160 Sohar Water Network, Phase-I in Oman1-May-06 Others Other Domestic Orders 2,460 Miscellaneous
Total orders booked in FY2008 78,878
Kotak Institutional Equities Research 43
India Daily Summary - June 01, 2009
Exhibit 5. Nagarjuna Construction has visibility of 2.2 years based on forward four quarter revenuesOrder backlog, order booking and visibility (X) of Nagarjuna Construction
Order backlog ( Rs bn, LHS) Order booking (Rs bn, LHS) Visibility (X, RHS)
Exhibit 6: Derivation of SOTP based target price for NCCL
Project/BusinessEquity commitment
(Rs mn) Valuation
(Rs mn) Rs/share Valuation methodology
Value of core construction business 18,978 110.6 P/E multiple of 13.0X FY2011E earningsBook value of equity investments in real estate 3,796 3,796 16.6 1X bookBook value of investments in BOT assets 2,711 2,711 11.8 1X bookIncremental value from roads, power and housing projects
3,148 1,298 5.7Brindavan Infrastructure Co. Ltd. 150 60 0.3 Incremental P/B of 0.4Bangalore elevated Corridor Project 637 478 2.1 Incremental P/B of 0.75Western UP Tollway Ltd. 239 179 0.8 Incremental P/B of 0.75Orai - Bhognipur 832 333 1.5 Incremental P/B of 0.4Pondicherry Tindivanam Tollway Limited 375 150 0.7 Incremental P/B of 0.4Gautami Power 420 0 0.0 Incremental P/B of 0Hydropower project in Himachal Pradesh 495 99 0.4 Incremental P/B of 0.2Total 145
Source: Kotak Institutional Equities estimates
Exhibit 7: Change in estimates for Nagarjuna Construction
Welspun Gujarat Stahl Rohren: Forex losses pull down 4QFY09 PAT
• 4QFY09 adjusted PAT of Rs762 mn below our estimate due to forex losses
• Management once again changes stance on plate mill usage
• Revise target price to Rs125, maintain REDUCE
Welspun's 4QFY09 results were below our estimates—consolidated adjusted PAT of Rs762mn against our estimate of Rs1 bn. The negative surprise was mainly due to forex losses ofRs604 mn resulting in lower EBITDA. Revenues at Rs17 bn were in line with our estimates.For the full year, the company has provided Rs3.6 bn towards forex loss (Rs1.4 bn of whichis MTM adjustment which may be reversed in future years). Management once againchanged its plans for the plate mill utilization and it now plans to increase focus onexternal sale of commercial grade plates. The company also plans to raise US$200 mnthrough equity issuance to fund organic/inorganic growth and reduce leverage. We reviseour FY2010E and FY2011E EPS estimates to Rs23.1 and Rs17.1 from Rs21.6 and Rs16.6,respectively. We increase our target price to Rs125 to factor in higher cash balances andlower working capital investment. However, we maintain our REDUCE rating on concernsof (1) low order flow reducing revenue visibility and (2) low plate mill utilization in absenceof sufficient LSAW orders.
Forex loss pulls down 4QFY09 margins and PAT below estimate• Revenues at Rs17 bn in line with estimate. Welspun’s 4QFY09 consolidated
revenues at Rs17 bn (up 16.7% qoq and 38.5% yoy) were in line with our estimate.The consolidated revenues were lower than standalone revenues of Rs18.4 bn due tosale of traded goods to the US subsidiary. Total pipe volume was 185,490 tons (up 20%qoq and down 4% yoy) versus our estimate of 190,207 tons. However, higher-than-expected realization for the HSAW pipes resulted in in-line revenues.
• EBITDA margin below estimate due to forex losses. Welspun’s 4QFY09consolidated EBITDA margin at 13.7 % was lower than our estimate of 18.1% mainlydue to forex loss. Total forex charge during the quarter was Rs1,314 mn (of whichRs710 mn) was extraordinary, resulting in a net forex charge of Rs604 mn. Adjusting forthe forex charge, margin would have been at 17.2%.
• PAT lower than estimate due to forex losses. Welspun’s consolidated adjusted PATof Rs762 mn was lower than our estimate of Rs1 bn mainly due to the Rs604 mn offorex losses.
Exchange rate fluctuation resulted in Rs4.6 bn of forex loss in FY2009
The high variation in exchange rate resulted in Rs4.6 bn of forex loss in FY2009 (seeExhibit 3). Out of the above, Rs3.6 bn was charged to P/L account, Rs616 mn capitalizedto fixed assets (as per the latest amendment to AS-11 as notified by the govt) and Rs355mn was deferred to the balance sheet to be charged over the next two years. The totalcash loss during the year was Rs2.2 bn and the remaining Rs2.4 bn was MTM adjustmentwhich may be reversed in subsequent periods in the event of appreciation of the Rupee.We highlight that a part of the Rs2.2 bn cash loss during the year may have beenrecovered by way of higher sales realizations on conversion of foreign currency hence wedo not treat the same as extraordinary. We treat Rs1.4 bn of MTM adjustment charged tothe P/L as extra-ordinary since this may be reversed in future periods.
Shareholding, March 2009
% of Over/(under)Pattern Portfolio weight
Promoters 43.9 - -
FIIs 14.0 0.0 (0.0)
MFs 9.6 0.2 0.1
UTI - - (0.1)
LIC 1.1 0.0 (0.0)
Pipes
WGSR.BO, Rs169Rating
Sector coverage view
Target Price (Rs) 125
52W High -Low (Rs) 402 - 45
Market Cap (Rs bn) 31.9
FinancialsMarch y/e 2009 2010E 2011E
Sales (Rs bn) 57.4 70.8 59.8
Net Profit (Rs bn) 3.2 4.4 3.2
EPS (Rs) 17.3 23.4 17.3
EPS gth (15.8) 35.0 (25.7)
P/E (x) 9.8 7.2 9.7
EV/EBITDA (x) 6.6 4.6 5.4
Div yield (%) 1.2 0.9 0.9
REDUCE
Attractive
Pricing performance
Perf-1m Perf-3m Perf-6m Perf-1y
68.0 172.1 109.8 (55.2)
Kotak Institutional Equities Research 45
India Daily Summary - June 01, 2009
Plate mill performance dismal—management now focusing on commercial plates
The plate mill’s production at 192,000 tons was much below the management’s initialexpectation of 600,000 tons in FY2009. Our earlier concerns regarding (1) stabilization ofthe plate mill, (2) difficulty in rolling out API grade plates regularly and (3) lack ofsignificant captive demand due to insufficient LSAW orders were the key reasons for thedismal performance. Management corroborated our concerns and indicated that platemill’s performance has not been as per the expectations due to too many shutdowns anddifficulty in stabilizing the API grade plate production. Management has once againchanged its strategy for the plate mill :-
• The plate mill will be demerged into a 100% subsidiary with a separate managementteam to improve operational focus and marketing efforts
• Company is setting up 15 depots at various cities to sell its commercial grade plates
• It plans to sell plates to the railways and defence agencies and also for infrastructureand shipbuilding purposes
We believe the above measures indicate that the plate-cum-coil mill is not being effectiveas a backward integration project due to the lack of sufficient LSAW orders. The spreadbetween slab and plate prices have also reduced substantially thus the plate mill marginshave also shrunk from US$300/ton to US$100/ton. Welpsun will have to compete withintegrated steel players in the commercial grade plate market who have very lowproduction cost. The low margins and low volumes would imply a very low return on thelarge investment (US$400 mn) in the plant.
Current order book only limited till FY2010E; no visibility for FY2011E
Welspun’s current order book of Rs77 bn (including Rs6.4 bn for plates) is to be largelyexecuted in FY2010E. It has not received any major orders in the last 6 months except theRs4.5 bn order from GAIL. The company targets around 800, 000 tons of pipes inFY2011E; however currently it has no orders for the next year. We believe under thecurrent low demand scenario and increased competition it will be difficult for it to achievethe targeted volumes.
US$200 mn equity issuance planned
Welspun plans to raise fresh equity upto US$200 mn to fund organic/inorganic growthand reduce current debt position. Management indicated that they are looking at buyoutoptions in geographies where they are currently not present; however, they declined toelaborate on further plans at current stage.
Revise estimates marginally
We revise our FY2010E and FY2011E EPS estimates to Rs23.1 and Rs17.1 from Rs21.6 andRs16.6, respectively. Our FY2010E EPS increase is mainly due to increase in our assumptionof external plate sales to 136,125 tons from 79,500 tons earlier based on recently receivedexport orders. Our FY2011E EPS increase is mainly on account of lower interest anddepreciation costs.
Increase target price to Rs125, maintain REDUCE
We increase our DCF-based target price to Rs125 (from Rs100) to factor in higher cashbalances at end-FY2009E and lower working capital investment. We find the currentvaluation expensive at 9.9X FY2011E EPS. At our target price the stock will be valued at7.9X and 4X FY2011E EPS and EBITDA, respectively. We maintain our REDUCE rating dueto concerns on the global pipe demand and low returns on the plate mill investment.
Note: 4QFY09 consolidated numbers have been calculated by dedcuting the 9 month standalone numbers from the FY2009 consolidated numbers since the US plant was commercialised in 4QFY09 only.
Source: Company data, Kotak Institutional Equities
Source: Company data, Kotak Institutional Equities
yoy
Kotak Institutional Equities Research 47
India Daily Summary - June 01, 2009
Exhibit 3: Welspun Gujarat, Forex impact in FY2009 (Rs mn)
ECB Others TotalTotal forex loss 1,149 3,433 4,582 Accounting impactCapitalised to Fixed assets 616 — 616 Charged to P/L 178 3,433 3,611 Deferred to B/sheet 355 — 355 Total 1,149 3,433 4,582 Cash flow impactCrystalised and paid — 2,177 2,177 MTM adjustment 1,149 1,256 2,405 Total 1,149 3,433 4,582
Source: Company data
Note: The total MTM adjustment of Rs2.4 bn may be reversed in future years in the event of appreciation of Rupee/US$.
Exhibit 4: Management changing stand on plate mill utilisationsManagement views on utlisation of the plate-cum-coil mill
Date Management commentAug-07 Plate mill to be used captively as well as for external salesOct-07 Plate and coil production to be done only for captive use- no external salesMar-08 Coil production delayed to 3QFY09, captive plate consumption only from 4QFY08Apr-08 FY2009E production target of 600,000 tons; 60-70% of current year's production targeted for captive consumptionOct-08 FY2009E production target reduced to 340,000 tons from 600,000 tons; external sale only 40,000 tonsApr-09 Plate mill to be demerged to 100% subsidiary for better management of operations and fiscal benefitsMay-09 FY2009 production only 192,000 tons; setting up 15 regional depots for selling commercial grade plates
Source: Company, Kotak Institutional Equities
48 Kotak Institutional Equities Research
India Daily Summary - June 01, 2009
Exhibit 5: Welspun Gujarat, change in estimates, March fiscal year-ends, (Rs mn)
Sensitivity of DCF value to WACC and growth rate (Rs)
Kotak Institutional Equities Research 51
India Daily Summary - June 01, 2009
PSL: 4QFY09—strong revenues but disappointing margins
• Higher realization drive revenues up 86% yoy to Rs12.2 bn
• EBITDA margin at 4% a big disappointment
• Revise target price to Rs160, maintain BUY as valuations remain attractive
PSL reported 4QFY09 results significantly below expectations. PAT of Rs136 mn (down26% yoy and 45% qoq) was much below our estimate of Rs278 mn. EBITDA margin at4% was significantly below our estimated 7.9% mainly due to higher materials costs. Asper management, the forex liabilities for the imported raw materials were not hedged dueto which the cost of the steel increased on account of Rupee depreciation. Revenues atRs12.2 bn (up 86% yoy and 25% qoq) were higher than our estimate of Rs10.1 bn mainlyon account of higher realizations. Pipe volume during the quarter was 156,937 tonsagainst estimated 150,000 tons. We reduce our FY2010E and FY2011E EPS estimates toRs36.8 and Rs30, respectively, from Rs43.7 and Rs37.8 due to lower domestic pipe volumeassumptions. We were earlier factoring few of the orders from GAIL to be awarded to PSL;however, with two of the recent orders being given to competitors we reduce ourdomestic volume estimates for PSL. We revise our DCF-based target price to Rs160 (fromRs145) on account of roll forward of our forecast period.
4QFY09—Forex fluctuation pulls down EBITDA margin• Disappointing margins. PSL’s 4QFY09 EBITDA margin at 4% (8.3% in 4QFY08 and
7.4% in 3QFY09) was significantly below our estimate of 7.9%. This is the lowestmargin reported in last 16 quarters and was a big negative surprise. As explained by themanagement, the drop in margins was mainly on account of increase in the foreigncurrency liabilities due to depreciation of the rupee. The company had not hedged itsforex liabilities for steel resulting in a higher payout due to the steep depreciation of theRupee. Also PSL had not accounted for the forex movements in the earlier quarters andthe full adjustment was made at the year-end resulting in a high charge in 4QFY09.
• Higher realizations drive revenues above estimates. Revenues for the quarterwere at Rs12.2 bn (up 86% yoy and 25% qoq ) versus our estimate of Rs10.1 bn.Higher realizations (Rs77,520/ton versus estimated Rs67,500/ton) resulted in higher-than-expected revenues. Total pipe volumes during the quarter were at 156,937 tonsagainst estimated 150,000 tons.
• PAT below estimates due to lower margin. PSL’s 4QFY09 reported PAT at Rs136 mn(down 26% yoy and 45% qoq) was much below our estimate of Rs278 mn. LowerEBITDA margins resulted in PAT below estimates. The yoy decline in PAT was mainly dueto higher interest cost for the working capital debt.
Reduce estimates for lower volumes
We reduce our FY2010E and FY2011E EPS estimate to Rs36.8 and Rs30 from Rs43.7 andRs37.8, respectively to factor in lower domestic volumes. We reduce our pipe volumeestimates for FY2010E and FY2011E to 548,000 tons and 554,000 tons from 679,000tons and 631,000 tons, respectively. We were earlier factoring few of the orders from GAILto be awarded to PSL; however, with two of the recent orders being given to competitorswe reduce our near-term domestic volume estimates. We also reduce our FY2011Erealization estimated by 5-7%.
Revise target price to Rs160, maintain BUY
We revise our 12-month DCF-based target price to Rs160 (Rs145 earlier) as we roll forwardour forecast period. We find the current valuations at 3.5X and 4.4X FY2010E EPS andEBITDA, respectively. Our target price implies 4.3X and 4.8X FY2010E EPS and EBITDAmultiple. We believe the recent rise in oil prices and easing of the global liquidity crunchmay lead to increase in linepipe demand. We maintain BUY on low valuations.
Shareholding, March 2009
% of Over/(under)Pattern Portfolio weight
Promoters 49.1 - -
FIIs 17.2 0.0 0.0
MFs 15.9 0.1 0.1
UTI - - -
LIC - - -
Pipes
PSLH.BO, Rs128Rating
Sector coverage view
Target Price (Rs) 160
52W High -Low (Rs) 400 - 60
Market Cap (Rs bn) 5.6
FinancialsMarch y/e 2009 2010E 2011E
Sales (Rs bn) 34.3 39.3 31.0
Net Profit (Rs bn) 0.9 1.6 1.3
EPS (Rs) 22.0 36.8 30.0
EPS gth 4.3 67.4 (18.5)
P/E (x) 5.8 3.5 4.3
EV/EBITDA (x) 5.3 4.3 3.7
Div yield (%) 7.1 7.0 7.0
BUY
Attractive
Pricing performance
Perf-1m Perf-3m Perf-6m Perf-1y
41.2 91.5 52.6 (64.0)
52 Kotak Institutional Equities Research
India Daily Summary - June 01, 2009
Exhibit 1: Interim results of PSL (standalone) , March fiscal year-ends (Rs mn)
Sensitivity of DCF value to WACC and growth rate (Rs)
WACC
Kotak Institutional Equities Research 55
India Daily Summary - June 01, 2009
ICICI Bank: Valuations do not justify further re-rating; downgrade toREDUCE
• ICICI Bank's stock has outperformed the markets sharply - up 126% over the pastthree months, with a 37% outperformance
• Business outlook improving but valuations oustripping this pace - core PBR at1.4XFY2011E for sub 10% ROE for next couple of years, long-term ROEs assumed at14%
• Stretching valuations by removing discounts on international business, rolling overto FY2011E, raise target price Rs685 from Rs475 - stock still expensive, downgradeto REDUCE
We downgrade our recommendation on ICICI Bank to REDUCE from ADD as (1) valuationsdo not support any further re-rating and despite stretching our target price to Rs685, wedo not find upsides and (2) strong outperformance over the last one month (up 55%,outperformed the markets by 20%) and three months. ICICI Bank has rallied by 193%since its low of Rs252. A decline in wholesale rates is positive for ICICI Bank (alreadyreflecting in 4Q margins) however, concerns on asset quality persist (though we do notexpect delinquencies to shoot up in the immediate term). We increase our target price toRs685 (based on FY2011E) from Rs475 (based on FY2010E) by removing discounts on itsinternational subsidiaries (we earlier valued these subsidiaries at a 50% discount of theirnetworth), reducing our slippage assumptions and reducing our cost of equityassumptions. We find it difficult to increase target multiples for its core banking business,as ROEs are likely to remain sub 10% over next couple of years - earnings momentum(especially on fees) is likely to remain weak over the medium term and concerns on assetquality persist. Faster-than-expected economic recovery resulting in an improvement inasset quality or sustained inflows in equity markets are a key risks to our call.
Positive triggers appear to have already to be factored in
A declining rate scenario would likely result in a deposit re-pricing benefits for ICICI Bank,given its skewed liability profile towards the wholesale market. Wholesale rates havealready declined sharply on the back of ample liquidity and various measures undertakenby RBI. We expect ICICI Bank’s NIM to improve to 2.67% (up 27bps) in FY2010E and to2.8% in FY2011E. The improvement will be driven by re-pricing of deposits (about 60% ofICICI’s deposits are wholesale in nature and will re-price over the next year) andmanagement’s stated policy to go slow on loan growth. However, margins in 1QFY10E willbe impacted by priority loan acquisitions (made towards the end of 4QFY09); theimprovement will likely be more visible from 2QFY10E.
Stetching TP – remove all discounts
We have rolling over to FY2011E and raise target price to Rs685. We also remove alldiscounts that we place on its international subsidiaries, but still maintain a 10% holdingcompany discount on insurance. We marginally increase our valuations for othersubsidiaries in order to factor in the positive trend in capital markets. We also reduce ourcost of equity assumptions in order to factor in a lower risk perception currently. Thisincreases our target price to Rs600 for FY2010. Our target price for FY2011 is Rs685 forICICI Bank.
Shareholding, March 2009
% of Over/(under)Pattern Portfolio weight
Promoters - - -
FIIs 62.6 5.7 4.3
MFs 6.8 2.9 1.5
UTI - - (1.4)
LIC 9.4 2.8 1.4
Banking
ICBK.BO, Rs740Rating
Sector coverage view
Target Price (Rs) 685
52W High -Low (Rs) 835 - 252
Market Cap (Rs bn) 823.8
FinancialsMarch y/e 2009 2010E 2011E
Sales (Rs bn) 159.7 167.5 186.8
Net Profit (Rs bn) 37.6 35.9 42.8
EPS (Rs) 33.8 32.3 38.5
EPS gth (15.4) (4.4) 19.2
P/E (x) 21.9 22.9 19.2
P/B (x) 1.7 1.6 1.5
Div yield (%) 1.5 1.2 1.3
REDUCE
Attractive
Pricing performance
Perf-1m Perf-3m Perf-6m Perf-1y
54.5 126.0 110.5 (7.0)
56 Kotak Institutional Equities Research
India Daily Summary - June 01, 2009
Rise in interest rates in 2HFY10E- a potential risk
In an event of high portfolio flows, we believe that RBI might tighten money supply andraise CRR levels, which could lead to higher interest rates in 2HFY10E. Thus, the interplayof decline in interest rates in 1HFY10E followed by a likely spike in 2HFY10E will have abearing on the near-term margins of ICICI Bank. We like ICICI Bank’s strategy to reduce itsdependence on wholesale deposits, though the ratio of wholesale deposits to totaldeposits (52%) remains high. We believe a build up in CASA deposits would be crucial tosustain long-term profitability, higher ROEs and subsequenty higher valuations.
Asset quality issues- not over yet?
We believe that ICICI Bank’s asset quality continues to remain weak. We have reduced ourestimate of slippages to 2.3% in FY2010E and 2% in FY2011E as compared to 2.3% inFY2009, down from earlier assumption of 2.6% and 2.7% respectively since theenvironment to raise equity capital has somewhat improved for larger corporates.
High restructuring numbers in non-retail book; challenges remain high
The asset quality of the non-retail segment of ICICI Bank has been fairly robust, thus far, inline with the trend observed at other Indian banks. However, there are likely to bechallenges, even assuming an improving economic environment. The regulatory relaxationprovided by RBI has enabled ICICI Bank to restructure some of these stressed assets andpostpone the recognition of NPLs for a few quarters—similar as in the case of other banks.During 4QFY09, ICICI Bank had restructured Rs11 bn of loans (Rs 20 bn in pipeline). This isin addition to Rs50 bn of restructured assets already classified as standard assets before4QFY09. Thus, overall ICICI Bank has Rs80 bn of restructured assets, which is about 8% ofits corporate book. We believe that there are likely to be more such restructuring on thedomestic and the international book.
Asset quality in retail may remain stable. The gross NPLs in the retail segment for ICICIBank is 6.5% as of March 2009. In our assessment, its underlying asset quality is unlikelyto worsen though the reported gross NPL ratio of the retail segment for ICICI Bank is likelyto rise due to the stagnation of the loan book. The reasons for this conclusion are asfollows:
(1) Retail loans backed by collateral (especially mortgages and auto) do not have largeasset quality issues. Our recent channel checks for the auto loan segment suggest that thebehavior of the car loan portfolio has not seen a sharp deterioration in recent months.Mortgage segment has not seen a sharp rise in delinquencies for the banking industry,thus far.
(2) The slippages in the non-collateral segment (i.e. credit cards and personal loans)continue to remain high. ICICI Bank has slowed down disbursement growth in theuncollateralized segment over the last 12-18 months. We now expect the pace of NPLaddition to get lower as the portfolio gets seasoned.
Ability for corporates to raise funding is positive. Few recent transactions suggest that theability for larger corporates to raise equity funds has improved sharply. We believe that thisis positive for banks, as fears of NPLs reduce significantly. However, we believe that this isonly restricted to the larger corporates and the middle market and SMEs are still finding itvery diffcult to raise funds (even debt) in the current environment. A buoyant capitalmarkets is positive and could result in lower eventual NPLs, as corporates are able to raiseequity capital.
Kotak Institutional Equities Research 57
India Daily Summary - June 01, 2009
International business, MTM concerns recede, but asset quality concern still exists.
Concerns on MTM losses on ICICI Bank’s foreign investments have receded in our view,though we remain concerned on the international book. International loans account for38% of ICICI Bank’s consolidated loan book of US$53 bn as of March 2009. Internationalloans on ICICI Bank’s standalone book are about 59% of total consolidated internationalloan exposure while the subsidiaries account for the remainder 41%. The bank has beenan active player in the overseas acquisitions done by Indian corporates or actively involvedin the overseas funds raised (ECBs/FCCBs) by corporates. The management has indicatedthat the 10% of the ICICI Bank (standalone) international book is to non-India entitieswhile about 20% of the loans on the international subsidiaries are to non–India entities.We believe that the risks to the international book are similar to the domestic business- animprovement in corporate’s ability to raise funds would be positive for the bank.
Profitability of its international operations continues to be subdued. We highlight thatprofitability in its international operations continues to remain below par. In FY2009, ICICIBank UK reported a PAT of just Rs340 mn on an equity investment of Rs23.3 bn and ICICIBank Canada reported a PAT of Rs1.7 bn on an equity investment of Rs33.5 bn. Thecombined capital invested in these two subsidiaries is Rs66 bn. We believe that marginswill likely continue to remain low, resulting in lower RoEs for these businesses althoughrisk of MTM losses has now receded.
Fees to decline across the board. Fee income has been the key revenue driver for ICICIBank in the recent past. However, the fee income growth was largely driven by fees from arapidly expanding international business (M&A and transaction based) and distributionbusiness (especially insurance). With the deal flow having almost stopped on theinternational side coupled with declining distribution revenues, we believe that that thefee income growth is likely to remain modest over the next few quarters.
We estimate that out of total fee revenues, split between the corporate and retailsegments is 50:50. Lending related fees are about 10%, which will be impacted by theslower lending activity. Distribution business contributes about 10% of total fees and isalso likely to be under stress. Syndication and deal related fees, which are a large part ofcorporate fees, are likely to remain subdued for ICICI Bank given the moderation in activityin the international segment. We expect fees to remain flat in FY2010E.
NIMs to rise on back of low growth and lower wholesale ratesNet Interest Margin, March fiscal year-ends, 2004-2011E (%)
ICICI Share (%) FY2011 Valuation methodoly adoptedValue of ICICI standalone 100 445 Based on Residual growth modelSubsidiaries
ICICI Financial Services 94 148ICICI Prudential Life 74* 115 17X NBAP, margin assumed is 13%General Insurance 74* 13 1X FY2011 PBRMutual Fund 51* 20 3% of AUMs as of March 2011, assuming 20% growth
Other subsidiaries/associatesICICI Securities Ltd 100 1 1X FY2011 PBR ICICI Securities Primary Dealer 100 2 1X FY2011 PBRICICI Homes Ltd 100 20 1.5X FY2011 PBRICICI Bank UK 100 25 1XFY2011 PBRICICI Bank Canada 100 33 1XFY2011 PBRICICI Bank Euroasia 100 0Venture capital/MF 100 11 10% of AUM of US$2 bn
Interest on advances 160,963 226,010 223,238 198,294 204,005 Interest on investments 59,885 74,660 74,031 75,586 79,649
Total interest expense 163,585 234,842 227,259 189,404 189,143 Deposits from customers 116,477 182,759 169,678 127,652 133,034
Net interest income 66,358 73,041 83,666 92,090 100,875 Loan loss provisions 21,593 27,010 37,530 37,741 37,794 Net interest income (after prov.) 44,765 46,031 46,136 54,349 63,081 Other income 68,126 87,452 76,037 75,417 85,918
Net fee income 43,309 56,053 60,145 60,840 69,966 Net capital gains 11,152 18,121 4,430 7,000 8,000 Miscellaneous income 2,741 656 752 827 827
India at the bottom of U-shaped cycle of 5.5-6% in 2HFY09-1HFY10E
• CSO’s revised estimates place real GDP growth at 5.8% in 3QFY09 and 4QFY09
• In our view, similar growth likely in 1HFY10E before recovery sets in
• Consumption stimulus by the Indian government shores up GDP growth
• Risks to growth ahead arise from capex and interest rate cycles
The official data on India’s GDP growth pegged 4QFY09 real GDP growth at 5.8%, in linewith our expectations and above Street consensus of 5.2%; moreover, 3QFY09 GDPgrowth was revised upwards to 5.8% from 5.3%. In our view, the revised official data onIndia’s GDP growth suggests that Indian economy entered into a cyclical trough in3QFY09. We believe growth may stay in 5.5-6.0% band in 1QFY10E and 2QFY10E, withour base projection of 5.6% for both these periods. We do recognize the green shootevidence now available, but assess it as weak and not enough to suggest 6%+ growth innear term. If the monsoon turns out to be normal and current optimism in businessconfidence stays, we expect a U-shaped recovery. We still see risks to growth ahead arisingfrom the capex cycle, which may see private sector investment dipping in FY2010E, andinterest rate cycle which may see a turnaround if fiscal correction is not put in place.Therefore, we would not put too much faith in a quick and strong recovery in the Indianeconomy and expect the cycle to be a trifle elongated.
4QFY09 Real GDP growth in line with our expectations
Central Statistical Organization (CSO), the official statistical agency, released the 4QFY09GDP estimates along with its Revised Estimates (RE) for the full year FY2009. The 4QFY09estimates of 5.8% GDP growth were in line with our estimates but above Streetexpectations of 5.2%. The key highlights of the 4QFY09 estimates are.
• A healthy 2.7% yoy growth in agriculture and allied activities on the basis of normalRabi food-grains crop
• Industry contracting 0.5% in line with known trends, largely on of contraction in themanufacturing segment (1.4%)
• Better-than-expected services growth at 8.4% as a result of continued buoyancy incommunity, social and personal services (12.5%) and a good growth in financing,insurance, real estate and business services (9.5%)
Sharp upward revision in 3QFY09 growth
CSO also revised upwards its 3QFY09 GDP growth by 0.5-ppt of GDP to 5.8% from 5.3%.Major revisions in 3QFY09 GDP were:
• Growth for agriculture and allied activities revised upwards to (-)0.8% from (-)2.2%
• Manufacturing growth revised upwards to 0.9% from (-)0.2%
• Construction growth revised upwards to 8.3% from 6.7%
• Sharp upward revision in ‘community, social and personal services’ growth to 22.5%from 17.3%
Economy
Sector coverage view N/A
64 Kotak Institutional Equities Research
India Daily Summary - June 01, 2009
FY2009 growth at 6.7% in line with our expectations
The revised FY2009 GDP growth confirms the slowdown in Indian economy with growthdecelerated to sub-seven (6.7%) levels against the earlier official estimate of 7.1%.Nonetheless, the growth in 3QFY09 and 4QFY09 remained relatively (to the globaleconomy) robust at 5.8%. Therefore, it lends support to the view that while officialestimates are slower to catch up with reality, the street often overreacts in the short run.We had cautioned repeatedly on the street building low growth scenarios of sub-6.5% forFY2009 and sub-5.5% for FY2010. CSO’s latest data release reaffirms our view of relativestable Indian economy.
We retain our FY2010E and FY2011E GDP growth estimates
Indian economy has clearly decelerated from 9%+ growth and is unlikely to bounce backin a hurry. FY2010E may still see an investment dip and while it is early to give reliableforecasts, a growth of about 6% looks likely. Though we are seeing some weak signs ofgreen shoots, relatively stronger growth may come through only in 2HFY10E. Significantly,growth in FY2009 was shored up by consumption stimulus as reflected in ‘community,social and personal services’ (13.1% growth). We expect this component to again record adouble-digit growth in FY2010E.
We caution against too much optimism and expectations of quick and strong recovery inIndia’s economy. GDP growth in recent times has been supported by extensive fiscal andmonetary stimuli provided by the government and RBI. RBI has limited room for furthereasing and in fact, rising inflation and rupee appreciation (on the back of capital flows) in2HFY10E may force a reversal in its monetary policy stance. The scope for further stimulusis constrained (see our economy report “Mandate mania will not avert fiscal challenges”dated May 20, 2009). In our view, export sector and capital goods, which have been hitthe hardest in the current downturn, should have been given more targeted treatment.
We retain our base case estimate of a U-shaped recovery in the Indian economy (GDPgrowth back to 7.3% in FY2011E) assuming normal monsoons and continuation ofcurrent business confidence. However, we would also highlight the risks to our estimates,notably in the form of high fiscal deficit of the government; Exhibit 5 seeks to build atheoretical case for the impact of reversal of fiscal stimulus (initiated in FY2009 andFY2010E) in later years (reversal of tax cuts). Any attempt by the government to correct itschallenging fiscal position will have growth implications for the broader economy.However, return to the path of fiscal prudence is also important to prevent a reversal in theinterest rate cycle.
Exhibit 1: India's 4QFY09 growth stays at 5.8%Sector-wise quarterly real GDP growth rates, March fiscal year-ends, 1QFY08-4QFY09
6 Trade, hotels, transport, storage and communication 13.1 10.9 11.7 13.8 13.0 12.1 5.9 6.3
7 Financing, insurance, real estate and business services 12.6 12.4 11.9 10.3 6.9 6.4 8.3 9.5
8 Community, social and personal services 4.5 7.5 5.5 9.5 8.2 9.0 22.5 12.5
IV Real GDP at factor cost (I+II+III) 9.2 9.0 9.3 8.6 7.8 7.7 5.8 5.8
Source: Central Statistical Organization, Kotak Institutional Equities estimates
Kotak Institutional Equities Research 65
India Daily Summary - June 01, 2009
Exhibit 2: India's FY2010E real GDP growth likely to drop to 6.0% versus 6.7%in FY2009Growth in real GDP at factor cost and components, March fiscal year-ends, 2007-2011E (%)
Sector 2007 2008 2009 2010E 2011EAgriculture and allied activities 4.0 4.9 1.6 3.4 3.0 Industry 10.7 7.4 2.6 4.8 6.7 Mining and quarrying 8.8 3.3 3.6 7.5 8.3 Manufacturing 11.8 8.2 2.4 4.3 6.5 Electricity, gas and water supply 5.3 5.3 3.4 5.6 6.6 Services 11.3 10.8 9.4 7.1 8.5 Construction 11.8 10.1 7.2 5.9 7.0 Trade, hotels, transport, storage and communication 12.8 12.4 9.0 6.5 9.8 Financing, insurance, real estate and business services 13.8 11.7 7.8 5.5 9.1 Community, social and personal services 5.7 6.8 13.1 10.8 6.0 Real GDP at factor cost 9.7 9.0 6.7 6.0 7.3
Notes:(a) FY2009AE are CSO's Advance Estimates(b) FY2009E and FY2010E are Kotak Institutional Equities Estimates
Source: Central Statistical Organisation, Kotak Institutional Equities estimates
Exhibit 3: Growth likely to fall 2-ppt below potential in 2HFY09E and 1HFY10EGrowth in actual output, potential output and output gap, 1QFY98-4QFY11E (%)
Source: Central Statistical Organization, Kotak Institutional Equities estimates
-5
0
5
10
15
20
1QFY
98
1QFY
99
1QFY
00
1QFY
01
1QFY
02
1QFY
03
1QFY
04
1QFY
05
1QFY
06
1QFY
07
1QFY
08
1QFY
09
1QFY
10E
1QFY
11E
Actual Potential Output gap
66 Kotak Institutional Equities Research
India Daily Summary - June 01, 2009
Exhibit 4: Government spending helps hold aggregate demand in 3QFY09Growth in components of real aggregate demand, March fiscal year-ends, 1QFY07-4QFY09 (%)
Source: Central Statistical Organisation, compiled by Kotak Institutional Equities
-20
0
20
40
60
80
1QF
Y07
2QF
Y07
3QF
Y07
4QF
Y07
1QF
Y08
2QF
Y08
3QF
Y08
4QF
Y08
1QF
Y09
2QF
Y09
3QF
Y09
4QF
Y09
private consumption government consumption investment
Phased impact of publis sector (government) stimulus on the economy (% of GDP)
Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8Public sector(Spending)/Taxation (1.0) - 0.2 0.2 0.2 0.2 0.2 -
Real estate stocks pricing in sharp recovery; advise profit booking inDLF, Unitech
• Post euphoria of increase in launches focus likely to shift to valuations, execution
• Affordable housing cannot substitute for other business verticals
• Retain REDUCE on DLF with a revised target price of Rs320/share; retain SELL onUnitech with revised target price of Rs55/share
We would use the recent spurt in stock prices of DLF/Unitech to sell them. These stockshave started quoting at premium to NAVs indicating, (1) profitable re-investment, (2)limited uncertainty in pricing/volumes, and (3) full valuation of large land banks. Wehighlight that out of three main verticals'retail, commercial and residential'visibility hasincreased only for residential and that too only on the volume front. Recent events in mostreal estate companies indicate business restructuring including land bank rationalizationrather than expansion. This stock price rally has resulted in DLF/Unitech starting to quote atFY2010E P/B of 2.3+ for RoEs in the region of 10%. Thus stocks are pricing in muchhigher profitability vis-'-vis our expectations. We feel that higher profitability is unlikelysince, (1) we have already built in largest ever residential volumes, (2) pricing recoverytakes a long time, and (3) present fund raising in most cases is RoE/EPS dilutive.Furthermore, commercial and retail vertical remain weak and new activity can start onlypost absorption of current excess space. We now base our prices after removing discountto NAV (30% earlier) and thus factor in low uncertainty regarding pricing and volumes.We also roll forward our target price to March'11 based NAVs and even then we findlimited value at the current stock valuations. Our target price for DLF is revised to Rs320(Rs190 earlier) and we retain our REDUCE rating. Our target price for Unitech is revised toRs55/share (Rs32 earlier) and we retain our SELL rating. We would advice clients to reduceexposure to DLF and Unitech post this sharp rally as we believe these stocks will offerbetter entry points.
Current stock prices are factoring in sharp recovery in pricing as well as volumes
Real estate stocks have rallied rapidly over the past three weeks as liquidity concerns haveeased and sentiment on economic environment has improved post favorable electionresult. Good responses to some of residential projects especially in Mumbai and Delhi havefurther contributed to this positive sentiment. We have built in residential demandrecovery into our estimates but even then we estimate RoEs remaining around 10% forFY2010-11E. Thus stock prices are factoring in much sharper recovery on pricing/volumesor both. Furthermore, these RoEs need to be looked in the context of
Higher profitability vis-à-vis consensus. Our FY2010E PAT for DLF is Rs27.6 bn vis-à-visconsensus of Rs17.9 bn and for Unitech is Rs8.9 bn vis-à-vis consensus expectation ofRs6.7 bn.
We have built in demand recovery. We are expecting revenues and volumes for DLFand Unitech to rebound sharply in FY2010E and grow at 20+% pace in FY2011E. Exhibit 1shows trend in residential revenue booking for DLF and Unitech.
Asset sales. We built income from asset sale of Rs5 bn for Unitech in FY2010E and wenow estimate Rs3 bn in FY2011E as well. Asset sales would have been positive if stockswere pricing in liquidity concerns but that we believe is not the present scenario. Assetsales per se are going to NAV neutral in case they happen close to our valuations. As aresult out FY2011E PAT for Unitech is revised to Rs8.9 bn (Rs6.9 bn earlier).
Fund raising being EPS dilutive. We find that for Unitech as well IBREL, fund raisingshave been EPS dilutive. Equity issuances are being used to repay debt but interest expensereduction is minimal since most interest was being capitalized (Exhibit 2).
Property
Sector coverage view
Price, Rs
Company Rating 29-May TargetDLF REDUCE 407 320
Unitech SELL 80 55
Neutral
68 Kotak Institutional Equities Research
India Daily Summary - June 01, 2009
EBITDA margins under pressure. We note that all the three major verticals viz.residential, commercial and retail are undergoing structural changes in terms of bothpricing as well as absorption. EBITDA margins for DLF and Unitech peaked in FY2008 andwill likely remain weak over FY2009-11E.
Most important reason for limited profitability is large expansion in balance sheet. Mostcompanies have raised capital (debt as well as equity) very rapidly in FY2006-08. FY2006-08 saw DLF and Unitech preparing for rapid expansion across residential, retail,commercial and hotel verticals and its balance sheet size expanded by 6X (Exhibit 3). As aresult, sharp slowdown in retail and commercial businesses is resulting in sub-optimal assetutilization and will likely limit DLF’s profitability ratios in the near future.
Stocks starting to look expensive on all parameters
We expect focus to now shift to valuations and execution issues as refinancing concernsrecede. Funding concerns on account of tight credit markets have led the stockperformance to be extremely volatile over the past six months. Now as liquidity improves,we believe focus will now start shifting to valuations and sustainable profitability of thesecompanies. We find DLF/ Unitech expensive on all parameters.
NAV. DLF is quoting at 35% premium to March’11 based NAV of Rs320/share whileUnitech is quoting at 40% premium to March’11 based NAV of Rs55/share.
P/B. Despite RoE’s in the region of 10%, DLF is quoting at 2.5X FY2010E book value ofRs157 and Unitech is quoting at 2.3X FY2010E book value of Rs35.
P/E. DLF is quoting at FY2011E P/E of 24X while Unitech is quoting at FY2011E P/E of19X.
Thus present stock prices are pricing in huge sales momentum. Cumulative sales for DLFtill FY2005-09 is Rs300 bn against current EV of Rs800 bn while cumulative sales forUnitech for FY2005-09 is Rs120 bn against current EV of Rs230 bn. Exhibit 5 indicates thatEV of DLF and Unitech is more than three times of cumulative sales for FY2010-11E. This istwice similar ratio for Chinese companies.
Should there be premium to NAV/terminal value? We believe discount or premium toNAV will depend on direction of NAV movement and growth opportunities available to thesector. When there is uncertainty on NAV direction and limited confidence in NAVcalculations, stocks will tend to trade at a discount to NAVs, which should be the casecurrently. Most real estate companies have land banks which will take at least 7-10 yearsto develop and calculation of NAVs assume a large set of assumptions, thus increasinguncertainty.
Recent stock market optimism is not matched with physical market recovery
We believe that demand recovery across the three verticals will show a divergent trend.While demand recovery in the residential segment is expected to start in couple ofquarters, commercial and retail will take much longer.
Residential. Exhibit 6 indicates that competition in all markets is likely to increasetremendously. Increase in competition could be as a result of aggressive expansion plansby existing players (NCR, Bangalore) or on account of entry of new players (Chennai,Hyderabad). Even in non-metros competition is likely to remain high as many largedevelopers plan to enter these markets simultaneously. For NCR, we find three newentrants—Jaiprakash Associates, BPTP and Indiabulls Realty—gaining market share rapidly.Selling prices have dropped sharply with most locations seeing a fall if 30-35%. Webelieve that decrease in selling prices have been higher than expected. Such a fallcompresses operating margins by 50%, thus indicating that companies will have to sellmuch more to match operating profit of previous years.
Kotak Institutional Equities Research 69
India Daily Summary - June 01, 2009
Commercial. As shown in Exhibit 7, commercial revenues contributed 40% to revenues ofUnitech in FY2008 while similar number for DLF was 37%. We believe that proportion ofcommercial sales will decline rapidly on back of sharp slowdown in IT sector. From growthof 25+% witnessed over past few years, IT industry is expected to show nominal growththus limiting demand for new commercial space. We believe the sudden drop in demandwould have also created oversupply in certain locations, delaying recovery in commercialsector. We highlight that commercial demand is largely price inelastic and is moredependent on expected growth of corporates.
Exhibit 8 tracks changes in consensus EPS over the four-month period for DLFand Unitech.We haven’t seen any abatement in downgrades in the current quarter.
Changes in model
Unitech. We have now modeled in profit on asset sales of Rs5 bn (versus Rs3 bn earlier)and Rs3 bn for FY2011E (v/s NIL). Consequently, our PAT for FY2010E and FY2011E isrevised to Rs8.9 bn (Rs7.8 bn earlier) and Rs8.9 bn (Rs6.9 bn earlier).
DLF. We model payments of Rs20 bn by DAL to DLF for FY2010E and make adjustments inreceivables. We also adjust for lower retail rentals. On account of these changes, our PATfor FY2010E and FY2011E is revised to Rs27.6 bn (Rs27.3 bn earlier) and Rs29.7 bn(Rs29.6 bn earlier).
We are building in recovery in residential volumes/revenues in FY2010ESales (Rs mn), residential sales (mn sq. ft) for FY2006-11E, March fiscal year-ends
• In April 2009, APE of private players declined by 23% yoy while LIC was up 14%
• Most large players reported yoy decline, Max NY Life gained market share fromlarge players
• We are factoring moderate (5-10%) growth for the private players in FY2010E
The Indian insurance industry reported an 8% decline in APE during April 2009 as privateplayers were down 23% while LIC was up 14%. LIC retained its market share in theindividual business (48% in April marginally below 49% in March 2009 but significantlyabove 40% reported in 1HFY09) likely indicating investors/ policyholders continuedpreference to public sector. Within the private sector, Max NY gained market share fromalmost all large private players (Bajaj All, HDFC SL and ICICI Pru Life), SBI Life’s marketshare was stable month on month. The month of April typically contributes to about 3-4%of annual business for the insurance players and hence current trends may not beindicative for the full year. We expect subdued growth for private players in 1HFY10 as thebase effects play out. An improving environment for mobilizing retail investments (on theback of stable Government, improving stock market performance) will likely drive growthin 2HFY10 though it would currently be premature to expect a sharp recovery. Currently,most insurance companies continue to maintain a cautious outlook on near-term growthand are going slow with their expansion plan. We are factoring 5-10% growth for theprivate players for the year.
Adjusted life insurance premium income collections (Rs mn)
(Rs bn) (Rs bn) (Rs bn) (Rs bn) (X) (X)HDFC Standard Life 3.3 4.1 81.4 91.9 24.8 22.6
ICICI Prudential 6.5 7.5 165.1 197.8 25.5 26.5
Reliance Life 5.1 5.6 101.4 109.1 19.7 19.3
SBI Life 4.9 5.4 116.3 131.2 23.7 24.3
Source: Kotak Institutional Equities
High fair value to EV reflects high growth potntial in Indian insurance market
FY2010 EV Fair value Fair value to EV FY2011 EV Fair value EV(Rs bn) (Rs bn) (X) (Rs bn) (Rs bn) (X)
HDFC Standard Life 25.6 81.4 3.2 27.8 91.9 3.3
ICICI Prudential 62.7 165.1 2.6 80.0 197.8 2.5
Reliance Life 20.0 101.4 5.1 29.1 109.1 3.7
SBI Life 44.0 116.3 2.6 51.7 131.2 2.5
Source: Kotak Institutional Equities
76 Kotak Institutional Equities Research
India Daily Summary - June 01, 2009K
ota
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3
2.
1
1.
8
2.
0
18
.7
14.9
14
.2
370
(15.
7)
11
.2
——
—1.
8
1.
6
1.
5
2.
4
1.
9
2.
2
29
.2
19.0
18
.7
310
(8.1
)
16
.2
——
—1.
5
1.
3
1.
2
2.
8
2.
8
3.
5
18
.3
12.4
12
.2
220
(22.
5)
5.
4
——
—0.
9
0.
8
0.
7
4.
1
3.
4
3.
6
19
.6
14.3
13
.8
310
(0.2
)
0.
9
——
—1.
0
0.
9
0.
9
2.
1
2.
4
2.
9
11
.5
11.8
13
.0
280
12.7
3.1
——
—2.
4
1.
9
N
A—
——
3.8
21.4
N
A44
0
54
.5
1.
4
——
—4.
7
4.
2
3.
8
1.
4
1.
4
1.
6
18
.2
17.9
18
.0
1,97
5
(9.4
)
78
.0
——
—4.
0
3.
5
3.
1
0.
7
0.
8
1.
0
16
.9
16.7
17
.3
1,46
0
1.1
57
.9
——
—1.
7
1.
6
1.
5
1.
5
1.
2
1.
3
7.
8
7.
1
8.
0
68
5
(7
.5)
215.
4
——
—2.
6
2.
3
2.
1
0.
8
1.
0
1.
1
12
.9
14.1
14
.2
85
(3
1.8)
29.7
——
—3.
7
3.
3
3.
0
1.
8
2.
2
2.
6
11
.7
13.5
14
.6
90
(4
0.6)
8.4
——
—1.
1
1.
0
0.
9
3.
1
2.
9
3.
3
22
.7
18.3
18
.1
165
20.3
2.9
——
—0.
8
0.
8
0.
7
5.
8
4.
1
4.
5
24
.7
14.5
17
.0
110
20.6
3.9
——
—1.
0
1.
0
1.
0
3.
5
3.
1
3.
9
16
.5
12.9
14
.9
480
(2.2
)
0.
4
——
—1.
9
1.
6
1.
3
2.
6
2.
9
3.
3
26
.2
23.9
23
.4
390
(26.
1)
8.
5
——
—1.
8
1.
5
1.
4
2.
1
2.
6
2.
8
15
.4
16.9
16
.3
240
(8.9
)
0.
3
——
—0.
8
0.
9
0.
9
3.
9
2.
9
3.
7
14
.8
10.2
11
.8
150
(19.
7)
3.
3
——
—2.
0
1.
8
1.
6
1.
4
2.
6
2.
3
13
.8
15.8
16
.7
160
(17.
4)
5.
3
——
—1.
7
1.
5
1.
3
2.
9
2.
9
3.
4
23
.0
19.9
20
.1
760
13.3
24.4
——
—1.
8
1.
5
1.
3
3.
3
3.
9
4.
4
19
.6
19.9
19
.6
125
(14.
7)
2.
9
——
—2.
8
2.
4
2.
0
3.
0
3.
4
3.
8
29
.6
27.0
25
.8
300
4.1
2.
6
——
—0.
8
0.
8
0.
7
3.
0
3.
6
4.
1
14
.0
11.5
13
.0
50
(3
5.2)
2.4
——
—2.
4
2.
4
2.
1
1.
6
1.
6
1.
7
17
.1
12.7
13
.3
1,87
0
0.1
11
9.9
——
—1.
2
1.
1
0.
9
2.
5
2.
2
2.
6
27
.2
19.5
19
.9
220
7.2
6.
1
—
—
—
2.1
2.0
1.8
1.7
1.7
1.9
16.9
15
.0
15.6
7.0
7.0
8.2
2.8
2.5
2.3
3.0
3.0
3.0
24.7
21
.3
15.1
62
5
(2
0.1)
11.7
6.9
7.0
8.4
2.3
2.0
1.9
3.3
2.1
2.3
19.7
16
.6
12.0
70
(23.
6)
4.
8
5.2
4.6
4.4
1.8
1.5
1.3
1.6
1.6
1.6
21.7
18
.2
16.0
1,
900
(9
.7)
9.7
4.6
4.8
5.0
1.1
1.0
0.9
1.4
1.4
2.1
15.7
14
.7
11.7
13
0
(1
5.7)
6.0
4.1
4.4
4.6
3.0
2.4
2.1
1.0
1.0
1.0
65.7
24
.0
18.9
95
0
(6
.7)
0.5
5.9
5.6
7.0
2.1
1.8
1.6
1.1
1.1
1.1
31.2
22
.3
13.4
62
5
(1
2.9)
1.1
5.7
5.5
5.9
2.1
1.8
1.6
2.2
1.9
2.0
21.0
16
.4
12.9
16.3
12.8
10.8
9.
1
7.
5
6.
2
1.
6
1.
9
2.
1
36
.3
38.5
36
.8
1,00
0
(7.4
)
0.
9
17.5
15.6
13.6
30
.1
24.8
23
.5
3.2
3.8
4.4
156.
1
140.
2
131.
1
520
9.7
2.
0
10.6
8.6
7.5
4.7
4.0
3.6
1.7
2.4
3.4
26.8
28
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28.0
90
0
4.
5
0.5
23
.5
17
.2
14
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7.1
6.2
5.3
2.2
2.2
2.2
42.7
42
.7
33.1
16
0
(1
2.6)
0.8
20
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17
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15
.1
32.5
30
.2
27.9
3.
8
4.
2
4.
8
13
4.3
13
9.0
14
6.1
23
5
1.
8
26.8
12
.8
11
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10
.1
4.9
4.3
3.7
2.0
2.2
2.4
25.4
25
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25—
225
22.5
25.2
7.
2
5.
0
3.
8
1.
5
1.
3
1.
2
2.
8
3.
5
4.
2
13
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16.5
18
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127
52.8
18.7
16.0
13.8
35
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28.9
23
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2.5
3.0
3.5
126.
7
129.
6
124.
8
1,80
0
4.3
1.
8
6.2
4.9
4.3
0.9
0.8
0.8
2.5
2.8
3.1
10.3
10
.8
11.3
94
0
35
.6
1.
9
15.0
12.9
11
.3
6.9
6.1
5.4
2.6
2.9
3.3
30.0
30
.7
30.9
8.4
5.9
5.0
1.8
1.6
1.3
1.1
1.6
1.8
15.0
18
.1
18.3
19
0
(2
4.3)
0.1
12
.7
10
.2
8.
4
2.
5
2.
2
2.
0
0.
2
0.
2
0.
2
11
.5
12.0
12
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350
6.3
14
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10.2
8.5
7.7
1.9
1.7
1.6
1.0
1.2
1.4
10.3
11
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11.4
14
5
4.
2
4.7
28
.7
7.
3
7.
0
2.
5
2.
1
1.
8
(0
.2)
0.4
0.4
(9.2
)
18
.9
17.1
20
0
(2
.0)
29.8
8.
8
7.
3
5.
5
2.
5
2.
1
1.
7
0.
7
0.
9
1.
0
15
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16.8
21
.7
550
(19.
6)
0.
1
14.7
8.1
7.2
2.3
2.0
1.8
0.3
0.6
0.7
3.7
14.2
14
.1
Div
iden
d y
ield
(%
)
Kotak Institutional Equities Research 77
India Daily Summary - June 01, 2009K
ota
k In
stit
uti
on
al E
qu
itie
s: V
alu
atio
n S
um
mar
y o
f K
ey In
dia
n C
om
pan
ies
Sour
ce:
Com
pany
, Bl
oom
berg
, K
otak
Inst
itutio
nal E
quiti
es e
stim
ates
29-M
ay-0
9M
kt c
ap.
O/S
sh
ares
EPS
(Rs)
EPS
gro
wth
(%
)PE
R (
X)
Co
mp
any
139.
1
BU
Y(R
s m
n)
(US$
mn
)(m
n)
2009
E20
10E
2011
E20
09E
2010
E20
11E
2009
E20
10E
2011
EEn
erg
yBh
arat
Pet
role
um46
5
SE
LL15
2,33
93,
231
328
20—
32.1
41
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(50.
7)
58
NA
23N
A11
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Cai
rn in
dia
232
BUY
439,
743
9,32
61,
897
4.
3
9.
2
31
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(3,7
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115
238.
0
5425
7.
4
Cas
trol
Indi
a (a
)33
6
BU
Y41
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882
124
21.3
25
.5
26.6
20
.8
19
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4.
3
15
.8
13
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12
.7
GA
IL (I
ndia
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0
RE
DU
CE
380,
543
8,07
11,
268
23
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20.6
21
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14.7
(11.
8)
5.
7
12
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14
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13
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GSP
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RE
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33,7
6771
656
3
1.
9
2.
5
3.
7
4.
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30.5
52.6
31.9
24.4
16.0
Hin
dust
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etro
leum
363
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123,
044
2,61
033
9
(7
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17.9
34
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(122
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(3
43.0
)
90.1
(49.
3)
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Indi
an O
il C
orpo
ratio
n60
9
RE
DU
CE
718,
206
15,2
321,
179
18
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44.3
43
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13
3.8
(2.6
)
32
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13
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14
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Oil
& N
atur
al G
as C
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ratio
n1,
169
BU
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500,
894
53,0
412,
139
10
0.3
95
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119.
2
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(5
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11
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12
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8
Petr
onet
LN
G71
A
DD
53,0
631,
125
750
6.9
7.7
9.0
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17
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10
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9.
2
7.
9
Relia
nce
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3,11
9,31
966
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1,37
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103.
4
126.
5
169.
4
(1.5
)
22.4
33.9
22.0
18.0
13.4
Relia
nce
Petr
oleu
m14
4
N
R64
9,80
013
,782
4,50
0
—8.
3
13
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n/a
n/a
n/a
n/a
n/a
10.5
Ener
gy
Neu
tral
8,21
2,30
917
4,17
4(7
.0)
27.4
34.6
18
.5
14
.5
10.8
In
du
stri
als
ABB
651
RED
UC
E13
7,94
22,
926
212
25.8
24
.9
29.6
11
.3
(3
.6)
18
.7
25
.2
26
.1
22
.0
BGR
Ener
gy S
yste
ms
342
RED
UC
E24
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522
72
15.3
20
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24.3
26
.1
35
.4
17
.5
22
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16
.5
14
.0
Bhar
at E
lect
roni
cs1,
340
RE
DU
CE
107,
236
2,27
480
10
1.9
11
1.1
11
9.0
(0
.0)
9.
0
7.1
13.2
12.1
11.3
Bhar
at H
eavy
Ele
ctric
als
2,17
8
RED
UC
E1,
066,
248
22,6
1449
0
64
.1
92.0
10
6.8
9.
8
43.5
16.1
34.0
23.7
20.4
Cro
mpt
on G
reav
es26
3
A
DD
96,2
472,
041
367
15.3
17
.0
20.0
37
.3
11
.0
17
.5
17
.1
15
.4
13
.1
Lars
en &
Tou
bro
1,40
2
AD
D83
6,69
317
,745
597
52.6
57
.5
68.2
38
.6
9.
4
18.5
26.7
24.4
20.6
Mah
aras
htra
Sea
mle
ss24
3
BU
Y17
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363
71
35.9
33
.0
39.6
22
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20
.3
6.
8
7.
4
6.
1
Siem
ens
490
RED
UC
E16
5,14
13,
502
337
14.2
19
.8
21.1
(2
2.2)
39.7
6.4
34.6
24.7
23.2
Suzl
on E
nerg
y98
A
DD
153,
771
3,26
11,
571
7.
0
7.
1
11
.4
6.0
2.
1
59.7
14.0
13.8
8.6
Ind
ust
rial
s C
auti
ou
s2,
605,
040
55,2
5015
.5
20
.1
20
.0
25.8
21.4
17
.9
Infr
astr
uct
ure
IRB
Infr
astr
uctu
re14
1
A
DD
46,9
9699
733
2
5.
6
10
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10.8
63
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85
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3.
9
25
.2
13
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13
.1
Med
iaD
ishTV
49
RED
UC
E45
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974
946
(7.3
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(4
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(3.2
)
n/
a(4
4.4)
(22.
6)
(6.6
)
(1
1.9)
(1
5.4)
HT
Med
ia12
4
A
DD
29,0
5961
623
4
0.
8
3.
8
6.
4
(8
0.4)
342.
2
70
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14
6.0
33
.0
19
.4
Jagr
an P
raka
shan
72
BUY
21,6
3945
930
1
2.
9
4.
0
5.
5
(1
2.0)
39.8
36.4
25.1
17.9
13.2
Sun
TV N
etw
ork
252
RED
UC
E99
,407
2,10
839
4
9.
3
11
.1
12.8
11
.8
19
.2
15
.8
27
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22
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19
.7
Zee
Ente
rtai
nmen
t En
terp
rises
16
8
A
DD
72,9
691,
548
434
8.1
9.3
11.2
(9
.0)
15
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20
.0
20
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18
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15
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s45
A
DD
10,7
8922
924
0
1.
9
2.
1
2.
5
20
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11
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18
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24
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21
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18
.3
Med
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tral
279,
809
5,93
4(2
7.7)
84.1
49.2
72
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39
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26.3
M
etal
s H
inda
lco
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strie
s85
A
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148,
359
3,14
71,
753
7.
7
2.
4
8.
2
(4
4.4)
(69.
2)
24
8.7
11
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35
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10
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Nat
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l Alu
min
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354
SELL
228,
150
4,83
964
4
19
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10.3
16
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7.8)
58.3
18.0
34.5
21.8
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l Ste
el a
nd P
ower
2,09
0
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D32
1,84
16,
826
154
198.
0
172.
4
196.
2
139.
3
(1
2.9)
13.8
10.6
12.1
10.7
JSW
Ste
el55
3
SE
LL10
3,46
62,
194
187
13.1
24
.1
53.5
(8
4.7)
83.3
121.
8
42.1
22.9
10.3
Hin
dust
an Z
inc
584
BUY
246,
632
5,23
142
3
64
.6
62.9
80
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(38.
0)
(2
.6)
28
.7
9.
0
9.
3
7.
2
Sesa
Goa
165
BUY
130,
209
2,76
278
7
24
.8
25.5
34
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30.8
3.0
34
.0
6.
7
6.
5
4.
8
Ster
lite
Indu
strie
s62
4
A
DD
441,
888
9,37
270
8
49
.2
41.0
50
.5
(23.
6)
(1
6.7)
23.4
12.7
15.2
12.3
Tata
Ste
el40
5
BU
Y33
3,19
47,
067
822
123.
9
55.5
87
.0
63.6
(55.
2)
56
.7
3.
3
7.
3
4.
7
Met
als
Att
ract
ive
1,95
3,73
841
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6.6
(3
4.8)
43.1
7.
8
12
.0
8.4
Phar
mac
euti
cal
Bioc
on18
2
BU
Y36
,360
771
200
4.7
13.6
19
.4
(80.
0)
19
2.2
42.8
39.1
13.4
9.4
Cip
la22
3
A
DD
173,
181
3,67
377
7
9.
9
13
.9
15.5
9.
5
40.6
11.9
22.6
16.0
14.3
D
ishm
an P
harm
a &
che
mic
als
191
BUY
15,5
5533
081
18
.0
21.2
27
.3
22.1
17.9
28.7
10.6
9.0
7.0
Div
i's L
abor
ator
ies
1,15
1
BUY
74,2
941,
576
65
64.9
75
.1
89.1
21
.8
15
.8
18
.7
17
.7
15
.3
12
.9
Dr
Redd
y's
Labo
rato
ries
648
BUY
109,
551
2,32
316
9
32
.4
45.5
47
.0
24.5
40.2
3.3
20.0
14.2
13.8
G
lenm
ark
Phar
mac
eutic
als
225
BUY
59,6
841,
266
266
15.8
18
.2
22.5
(3
8.7)
14.7
23.6
14.2
12.4
10.0
Ju
bila
nt O
rgan
osys
172
BUY
29,4
3862
417
1
16
.5
18.6
21
.8
(26.
2)
12
.6
17
10
.4
9.
2
7.
9
Lu
pin
836
BUY
74,0
691,
571
89
60.7
66
.0
71.3
21
.9
8.
7
8.0
13.8
12.7
11.7
Pi
ram
al H
ealth
care
260
BUY
54,3
301,
152
209
17.3
22
.4
28.2
(2
.7)
29
.8
26
.0
15
.1
11
.6
9.
2
Ra
nbax
y La
bora
torie
s27
9
RE
DU
CE
119,
110
2,52
642
7
(8
.1)
(5.7
)
5.
1
(1
34.7
)
NA
NA
(34.
5)
NA
54.5
Su
n Ph
arm
aceu
tical
s1,
214
BU
Y25
1,38
85,
332
207
86.8
85
.7
94.0
16
.3
(1
.3)
9.
7
14
.0
14
.2
12
.9
Phar
mac
euti
cals
A
ttra
ctiv
e99
6,95
721
,144
(17.
6)
24
.7
22
.4
20.2
16.2
13
.2
Pro
per
tyD
LF40
7
RE
DU
CE
690,
561
14,6
461,
699
29
.3
16.3
17
.5
(36.
6)
(4
4.4)
7.2
13.9
25.0
23.3
H
ousin
g D
evel
opm
ent
& In
fras
truc
t28
4
N
R78
,323
1,66
127
5
30
.6
19.8
24
.8
(40.
1)
(3
5.3)
25.1
9.3
14.3
11.5
In
diab
ulls
Real
Est
ate
248
AD
D99
,465
2,11
040
1
3.
0
3.
1
7.
5
(8
1.8)
3.8
14
1.1
82
.7
79
.6
33
.0
Mah
indr
a Li
fe S
pace
Dev
elop
er28
4
BU
Y11
,958
254
42
10.2
10
.8
15.4
(3
9.2)
5.3
42
.5
27
.8
26
.4
18
.5
Phoe
nix
Mills
137
BUY
19,8
5842
114
5
5.
4
7.
3
8.
9
70
.0
34
.7
23
.4
25
.5
18
.9
15
.3
Pura
vank
ara
Proj
ects
110
RED
UC
E23
,423
497
213
6.8
7.0
7.4
(39.
8)
2.
8
6.9
16.2
15.8
14.8
So
bha
192
RED
UC
E14
,004
297
73
15.9
11
.9
14.7
(5
0.0)
(24.
8)
23
.5
12
.1
16
.1
13
.0
Uni
tech
80
SELL
162,
732
3,45
12,
044
6.
4
4.
4
4.
4
(3
8.4)
(30.
4)
(0
.9)
12.5
18.0
18.2
Pr
op
erty
Neu
tral
1,10
0,32
523
,337
(38.
6)
(3
5.7)
12.6
15
.0
23
.4
20.7
EV/E
BIT
DA
(X
)Pr
ice/
BV
(X
)R
oE
(%)
Targ
et
pri
ceU
psi
de
AD
VT-
3mo
2009
E20
10E
2011
E20
09E
2010
E20
11E
2009
E20
10E
2011
E20
09E
2010
E20
11E
(Rs)
(%)
(US$
mn
)
5.2
5.2
4.7
1.1
1.1
1.0
2—2.
8
3.
7
5.
2
7.
7
9.
4
47
5
2.
2
7.3
35.4
13.0
5.3
1.3
1.2
1.2
——
10.8
2.
5
5.
1
16
.5
225
(3.0
)
28
.2
8.8
7.6
7.2
9.3
8.3
7.8
4.5
5.4
5.9
61.2
66
.5
63.7
39
0
15
.9
0.
5
7.0
8.2
8.6
2.3
2.1
1.9
2.4
2.2
2.2
18.4
14
.5
14.0
27
0
(1
0.0)
13.0
10.5
6.7
5.6
2.5
2.3
2.3
0.9
1.1
6.2
8.2
9.8
14.4
45
(25.
0)
3.
7
7.4
6.4
NA
1.0
1.0
NA
—3.
3
6.
3
(2
.0)
4.3
8.0
325
(10.
5)
7.
9
11.1
6.1
6.0
1.5
1.4
1.3
1—3.
0
2.
9
4.
6
10
.2
9.3
550
(9.7
)
4.
0
4.5
4.4
3.7
2.2
2.0
1.8
2.9
3.4
3.6
18.9
15
.9
18.2
1,
100
(5
.9)
48.2
8.1
6.4
5.5
2.3
1.9
1.6
2.1
2.1
2.8
24.0
21
.8
20.9
57
(19.
4)
4.
1
12.9
8.2
6.3
2.6
2.3
2.0
0.6
0.7
0.9
15.1
15
.8
18.6
1,
750
(2
3.0)
233.
4
n/a
n/a
8.5
4.8
4.0
3.0
—1.
4
1.
4
0.
6
25
.1
33.0
—
—25
.5
8.9
6.7
5.4
2.2
2.0
1.8
1.4
1.9
2.7
11.9
13
.8
16.7
14.9
14.7
12.0
6.
5
5.
4
4.
5
0.
3
0.
4
0.
5
29
.2
22.6
22
.1
500
(23.
2)
7.
4
12.3
9.8
8.4
4.4
3.6
3.0
0.7
1.0
1.2
21.3
23
.9
23.2
16
5
(5
1.8)
1.5
5.6
5.0
4.5
2.7
2.3
2.0
1.9
1.9
1.9
22.4
20
.9
19.2
1,
025
(2
3.5)
1.7
18.5
13.2
11.1
8.
2
6.
5
5.
3
0.
8
0.
9
1.
0
26
.4
30.7
28
.6
1,90
0
(12.
8)
64
.3
9.6
8.6
7.5
5.4
4.2
3.3
0.7
0.8
0.9
36.5
30
.5
27.9
30
0
14
.3
6.
7
16.2
14.2
12.2
5.
3
4.
3
3.
6
0.
7
0.
8
0.
9
22
.5
19.4
19
.1
1,37
5
(1.9
)
85
.1
4.5
4.7
3.6
1.3
1.1
1.0
2.2
2.0
2.9
20.3
16
.0
16.8
22
5
(7
.4)
1.0
16.4
14.2
13.5
7.
3
6.
2
5.
1
0.
6
1.
4
0.
8
23
.3
27.1
24
.2
360
(26.
5)
7.
5
9.8
8.7
7.0
1.5
1.3
1.1
0.5
0.5
1.0
11.3
10
.1
13.9
90
(8.1
)
74
.1
14.5
12.1
10
.3
5.1
4.2
3.5
0.7
0.9
1.0
19.8
19
.6
19.6
13.7
7.6
6.9
2.5
2.1
1.7
——
—10
.6
16.8
14
.5
135
(4.5
)
6.
3
(28.
2)
(174
.5)
54
.8
(7.1
)
(2
2.6)
(9
.1)
——
—86
.191
.1
NA
22
(5
4.7)
6.9
29.9
13.3
9.7
3.4
3.2
2.9
0.3
0.6
1.8
2.3
10.1
15
.8
110
(11.
3)
0.
5
14.0
9.8
7.5
3.9
3.7
3.3
2.8
3.3
4.2
15.8
21.1
26
.5
85
18
.3
0.
1
14.6
12.7
11.0
5.
8
5.
4
5.
0
1.
6
2.
4
3.
2
23
.5
25.1
26
.7
200
(20.
7)
1.
1
14.6
12.5
10.4
2.
2
2.
1
1.
9
1.
3
1.
6
1.
9
11
.612
.2
13.7
14
5
(1
3.8)
8.2
12.4
10.4
9.1
4.4
3.8
3.3
0.9
0.9
1.3
20.0
19
.0
19.5
40
(11.
1)
0.
8
21.5
15.1
11
.9
4.6
4.0
3.9
1.2
1.6
2.2
6.4
10.2
14
.7
6.1
8.4
7.1
0.4
0.4
0.4
——
—10
.3
5.2
6.7
55
(3
5.0)
16.3
9.3
12.1
8.2
2.2
2.1
1.9
1.0
0.6
0.6
12.7
6.
2
9.
2
13
5
(6
1.9)
2.9
7.3
7.5
6.2
4.4
3.2
2.5
—0.
3
0.
3
53
.1
31.0
26
.4
1,82
0
(12.
9)
29
.2
9.0
9.0
7.0
1.0
0.9
0.8
0.2
0.9
0.9
11.0
4.
3
8.
3
34
0
(3
8.5)
34.0
5.2
4.7
2.8
1.6
1.4
1.2
0.7
0.9
0.9
20.1
16
.5
17.9
61
0
4.
5
3.4
4.0
3.4
1.9
2.9
2.1
1.5
2.1
2.1
2.1
52.8
37
.1
36.0
20
0
20
.9
22
.4
7.6
8.3
6.2
1.7
1.5
1.4
——
—14
.3
10.7
11
.8
490
(21.
4)
43
.9
3.8
5.2
3.9
0.7
0.7
0.6
3.2
3.2
3.2
36.8
15
.7
21.3
28
0
(3
0.9)
97.4
5.6
6.7
5.1
1.3
1.2
1.0
0.9
1.0
1.0
16.3
9.
8
12
.4
16.1
7.5
5.4
2.4
2.1
1.8
0.0
0.1
0.1
6.2
16.9
20
.9
235
29.3
1.9
16
.2
11
.6
10
.3
4.0
3.4
2.9
1.1
1.3
1.6
19.1
23
.0
21.8
26
0
16
.7
8.
5
8.8
7.0
5.4
2.2
1.8
1.5
0.0
0.0
0.0
22.8
21
.9
22.9
28
0
46
.4
0.
5
13.8
11.3
9.0
6.0
4.4
3.4
0.1
0.1
0.1
40.2
33
.4
29.7
1,
450
26
.0
4.
4
9.6
7.9
7.0
3.1
2.6
2.2
0.6
0.6
0.6
13.6
19
.8
17.3
74
0
14
.3
4.
9
9.4
8.0
6.7
2.7
2.2
1.8
0.0
0.0
0.0
21.9
19
.8
20.2
39
0
73
.7
7.
1
12.1
7.6
5.6
2.3
1.9
1.6
0.7
0.7
1.0
18.6
22
.6
21.7
25
0
45
.4
0.
5
13.6
11.3
9.7
4.3
3.4
2.8
1.4
1.3
1.6
33.7
30
.3
26.1
1,
075
28
.6
3.
4
11.3
7.9
6.4
4.1
3.2
2.5
1.6
1.7
1.7
26.3
31
.4
30.8
34
0
30
.8
1.
8
(162
.9)
84
6.5
21
.7
2.4
2.0
2.2
3.6
4.1
4.5
(8.8
)
(4
.7)
4.1
150
(46.
2)
16
.6
10.8
10.1
8.6
3.7
3.0
2.5
0.9
1.1
1.1
31.1
24
.3
21.9
1,
800
48
.3
18
.8
13.6
10.6
8.
5
3.
4
2.
8
2.
4
1.
1
1.
3
1.
4
16
.7
17.2
18
.0
13.7
19.8
16.9
2.
8
2.
6
2.
4
0.
7
0.
7
1.
0
22
.5
10.8
10
.6
320
(21.
3)
13
2.5
12.0
13.8
11.2
1.
8
1.
7
1.
5
1.
8
2.
1
2.
8
21
.2
12.1
13
.9
-
N
A85
.7
(265
)71
.1
17
.1
1.5
1.1
1.1
1.3
2.0
2.0
1.3
1.6
3.2
210
(15.
3)
50
.8
43.0
25.0
12.8
1.
4
1.
3
1.
3
1.
4
1.
4
1.
4
4.
8
4.
9
6.
7
41
0
44
.2
0.
6
28.3
14.2
11.4
1.
3
1.
3
1.
2
0.
7
0.
7
1.
1
5.
3
6.
8
7.
9
21
0
53
.2
0.
3
22.9
18.7
15.1
1.
8
1.
6
1.
5
—
1.8
1.8
11.5
10
.8
10.7
55
(49.
9)
0.
3
10.3
13.9
12.3
1.
3
1.
2
1.
1
2.
1
2.
1
2.
1
11
.0
7.8
9.1
90
(5
3.1)
1.0
13
.3
13
.5
12
.9
3.5
2.3
2.0
——
—25
.1
15.1
11
.8
55
(3
0.9)
95.7
14
.6
17
.9
15.1
2.
4
2.
1
1.
9
0.
8
0.
9
1.
1
16
.3
8.9
9.3
Div
iden
d y
ield
(%
)
78 Kotak Institutional Equities Research
India Daily Summary - June 01, 2009K
ota
k In
stit
uti
on
al E
qu
itie
s: V
alu
atio
n S
um
mar
y o
f K
ey In
dia
n C
om
pan
ies
Sour
ce:
Com
pany
, Bl
oom
berg
, K
otak
Inst
itutio
nal E
quiti
es e
stim
ates
29-M
ay-0
9M
kt c
ap.
O/S
sh
ares
EPS
(Rs)
EPS
gro
wth
(%
) PE
R (
X)
Co
mp
any
48.6
RED
UC
E(R
s m
n)
(US$
mn
)(m
n)
2009
E20
10E
2011
E20
09E
2010
E20
11E
2009
E20
10E
2011
ER
etai
lTi
tan
Indu
strie
s1,
073
RE
DU
CE
47,6
251,
010
44
45.9
50
.1
56.9
30
.8
9.
2
13.7
23.4
21.4
18.8
R
etai
lN
eutr
al47
,625
1,01
030
.8
9.
2
13.7
23
.4
21
.4
18.8
Te
chn
olo
gy
HC
L Te
chno
logi
es16
7
RE
DU
CE
115,
996
2,46
069
5
16
.2
12.5
16
.7
5.8
(2
2.6)
33.4
10.3
13.3
10.0
Info
sys
Tech
nolo
gies
1,60
5
BUY
921,
327
19,5
4057
4
10
2.4
10
4.1
11
6.1
29
.6
1.
6
11.5
15.7
15.4
13.8
M
phas
is BF
L33
7
RE
DU
CE
70,2
401,
490
208
14.2
38
.8
30.3
15
.7
17
3.5
(21.
9)
23.8
8.7
11.1
M
indt
ree
373
BUY
15,3
5532
641
13
.2
44.0
50
.7
(50.
5)
23
2.5
15.1
28.2
8.5
7.4
Patn
i Com
pute
r Sy
stem
s21
9
RE
DU
CE
28,0
8859
612
9
26
.8
23.5
26
.1
(19.
3)
(1
2.4)
11.1
8.2
9.3
8.4
Pola
ris S
oftw
are
Lab
91
SELL
8,96
719
099
13
.1
13.3
12
.1
76.0
1.7
(8
.9)
6.9
6.8
7.5
TCS
705
RED
UC
E68
9,52
914
,624
979
52.9
51
.3
55.9
3.
1
(2.9
)
8.8
13.3
13.7
12.6
Te
ch M
ahin
dra
474
AD
D61
,165
1,29
712
9
70
.4
38.0
37
.2
19.3
(46.
0)
(2
.1)
6.7
12.5
12.7
W
ipro
382
AD
D55
8,85
011
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1,46
2
25.7
27
.0
29.4
15
.8
4.
7
9.1
14.8
14.2
13.0
Tech
no
log
y C
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ou
s2,
475,
952
52,5
1215
.0
0.
3
8.9
13.9
13.8
12
.7
Tele
com
Bhar
ti A
irtel
821
AD
D1,
558,
479
33,0
541,
899
44
.6
52.2
59
.8
26.4
17.0
14.6
18.4
15.7
13.7
IDEA
84
RED
UC
E26
1,18
95,
540
3,10
4
2.9
2.9
3.2
(26.
5)
(0
.1)
10
.9
29
.0
29
.0
26
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MTN
L10
4
SE
LL65
,646
1,39
263
0
4.
0
4.
1
4.
6
(4
4.3)
2.6
11
.8
26
.2
25
.5
22
.8
Relia
nce
Com
mun
icat
ions
306
SELL
630,
868
13,3
802,
064
27
.7
20.3
21
.1
4.7
(2
6.6)
3.9
11.0
15.0
14.5
Tata
Com
mun
icat
ions
468
RED
UC
E13
3,32
32,
828
285
13.6
14
.0
15.2
24
.0
3.
2
8.2
34.4
33.4
30.9
Tele
com
C
auti
ou
s2,
649,
505
56,1
9311
.5
(0
.5)
11.3
16
.5
16
.5
14.8
Tr
ansp
ort
atio
nC
onta
iner
Cor
pora
tion
938
AD
D12
1,94
72,
586
130
64.4
71
.4
83.3
11
.6
10
.8
16
.6
14
.6
13
.1
11
.3
Tran
spo
rtat
ion
C
auti
ou
s12
1,94
72,
586
11.6
10.8
16.6
14
.6
13
.1
11.3
U
tilit
ies
CES
C35
1
BU
Y43
,853
930
125
31.2
38
.0
42.1
12
.3
21
.8
10
.8
11
.3
9.
2
8.
3
La
nco
Infr
atec
h37
0
A
DD
82,1
951,
743
222
14.5
18
.1
33.8
(2
.5)
25
.1
86
.9
25
.6
20
.4
10
.9
NTP
C21
5
SE
LL1,
776,
073
37,6
698,
245
9.
4
10
.8
12.2
1.
1
14.7
12.6
22.8
19.9
17.7
Relia
nce
Infr
astr
uctu
re1,
272
BU
Y28
8,04
46,
109
226
64.1
58
.8
62.9
70
.5
(8
.2)
6.
9
19
.8
21
.6
20
.2
Relia
nce
Pow
er18
1
RE
DU
CE
433,
573
9,19
62,
397
1.
0
2.
5
3.
1
—
140.
3
25
.3
17
7.3
73
.8
58
.9
Tata
Pow
er1,
070
A
DD
238,
278
5,05
422
3
56
.2
76.6
86
.5
76.6
36.2
12.9
19.0
14.0
12.4
Uti
litie
s A
ttra
ctiv
e2,
862,
016
60,7
0014
.0
17
.4
14
.8
25.0
21.3
18
.6
Oth
ers
Aba
n O
ffsh
ore
905
SELL
34,2
6872
738
87
.8
148.
2
277.
7
2168
.8
87
.4
10
.3
6.
1
3.
3
H
avel
ls In
dia
272
RED
UC
E16
,446
349
61
(1.0
)
10
.3
14.7
(1
04)
NA
43.0
NA
26.5
18.5
Ja
ipra
kash
Ass
ocia
tes
208
AD
D29
2,06
06,
194
1,40
3
6.2
7.8
11.7
27
25.0
50.2
33.5
26.8
17.9
Jinda
l Saw
366
BUY
20,0
9242
655
64
.3
47.8
41
.7
(1)
(25.
6)
(1
2.8)
5.
7
7.
7
8.
8
PS
L12
8
BU
Y5,
591
119
44
22.0
36
.8
30.0
4
67.4
(18.
5)
5.8
3.5
4.3
Sint
ex23
0
BU
Y31
,326
664
136
23.8
24
.8
27.3
22
4.1
10
.2
9.
6
9.
3
8.
4
Ta
ta C
hem
ical
s21
6
A
DD
50,8
791,
079
235
27.6
23
.1
27.2
(3
0)(1
6.4)
17.9
7.9
9.4
8.0
Wel
spun
Guj
arat
Sta
hl R
ohre
n16
9
RE
DU
CE
31,9
0367
718
9
17
.3
23.4
17
.3
(16)
35.0
(25.
7)
9.8
7.2
9.7
Uni
ted
Phos
phor
us16
4
BU
Y75
,721
1,60
646
2
10
.7
13.5
18
.0
2825
.7
33
.9
15
.3
12
.2
9.
1
Oth
ers
558,
286
11,8
4112
.5
12
.5
29
.9
15.3
13.6
10
.5
KS
un
iver
se (
b)
32,7
70,7
29
695,
031
3.
6
4.0
21
.6
16
15.4
12
.7
KS
un
iver
se (
b)
ex-E
ner
gy
24,5
58,4
20
520,
857
7.
0
(2.5
)
16
.9
15.3
15.7
13
.4
KS
un
iver
se (
d)
ex-E
ner
gy
& e
x-C
om
mo
dit
ies
21,9
56,5
51
465,
674
7.
8
4.2
15
.1
17.1
16.4
14
.3
Not
e:(1
) For
ban
ks w
e ha
ve u
sed
adju
sted
boo
k va
lues
.(2
) 200
8 m
eans
cal
enda
r ye
ar 2
007,
sim
ilarly
for
200
9 an
d 20
10 f
or t
hese
par
ticul
ar c
ompa
nies
.(3
) EV
/Sal
es &
EV
/EBI
TDA
for
KS
univ
erse
exc
lude
s Ba
nkin
g Se
ctor
.
EV/E
BIT
DA
(X
)Pr
ice/
BV
(X
)R
oE
(%)
Targ
et
pri
ceU
psi
de
AD
VT-
3mo
2009
E20
10E
2011
E20
09E
2010
E20
11E
2009
E20
10E
2011
E20
09E
2010
E20
11E
(Rs)
(%)
(US$
mn
)
15.0
13.0
11.2
8.
3
6.
4
5.
1
0.
9
1.
0
1.
1
38
.9
33.6
29
.9
850
(20.
8)
3.
7
15.0
13.0
11
.2
8.3
6.4
5.1
0.9
1.0
1.1
35.3
29
.7
26.8
5.8
5.5
5.4
1.8
1.7
1.6
7.2
7.2
7.2
18.3
13
.0
16.8
11
0
(3
4.1)
5.5
11.2
10.9
9.0
5.0
4.1
3.4
1.5
1.6
1.8
36.7
29
.3
26.8
1,
500
(6
.5)
61.7
18
.0
6.
2
6.
0
4.
9
3.
3
2.
7
1.
2
1.
3
1.
5
22
.8
45.3
26
.4
240
(28.
8)
3.
0
4.9
4.9
4.1
2.8
2.1
1.6
0.5
—1.
4
5.
5
20
.4
18.4
40
0
7.
2
4.5
2.
8
2.
3
2.
1
1.
1
0.
9
0.
8
0.
8
2.
1
2.
4
16
.2
10.0
10
.3
150
(31.
4)
2.
0
2.4
2.8
2.9
1.2
1.0
0.9
3.0
2.2
2.2
18.1
15
.9
12.9
50
(45.
0)
3.
0
9.3
9.4
8.2
4.4
3.6
3.2
2.0
2.2
3.2
36.9
29
.1
26.8
51
0
(2
7.6)
29.3
4.
5
8.
1
7.
6
2.
7
2.
3
2.
0
0.
8
1.
3
1.
5
52
.8
20.3
17
.0
360
(24.
0)
19
.2
10.9
9.8
8.2
3.7
3.1
2.6
1.0
2.0
2.2
26.9
23
.7
21.7
32
5
(1
5.0)
13.9
9.5
9.0
7.8
3.9
3.2
2.8
1.8
2.1
2.5
28.1
23
.3
21.8
10.7
9.2
7.9
5.0
3.7
2.9
0.5
0.7
1.0
31.4
27
.0
23.8
77
5
(5
.6)
98.4
10
.6
9.
4
7.
9
1.
9
1.
8
1.
7
—
——
10.4
6.
4
6.
8
55
(34.
6)
13
.3
14.8
11.0
7.5
0.6
0.6
0.6
5.8
5.8
5.8
1.6
1.6
1.9
50
(5
2.0)
2.6
9.4
8.9
7.0
1.8
1.6
1.4
0.3
——
18.6
11
.7
10.9
18
0
(4
1.1)
67.4
14
.7
13
.3
12
.4
1.9
1.9
1.8
1.1
1.4
1.6
5.4
5.2
5.5
400
(14.
5)
3.
9
10.5
9.3
7.7
2.7
2.3
2.0
0.5
0.6
0.8
16.3
14
.0
13.6
10.3
8.7
7.3
3.2
2.7
2.3
1.5
1.7
2.0
24.0
22
.5
22.2
85
0
(9
.4)
0.8
10.3
8.7
7.3
3.2
2.7
2.3
1.5
1.7
2.0
22.1
20
.8
20.5
6.0
6.7
7.1
1.2
1.1
0.9
1.3
1.6
1.7
11.4
12
.2
11.9
38
5
9.
7
1.3
23.1
17.6
8.3
3.8
3.1
2.4
——
—16
.1
16.9
25
.0
270
(27.
0)
14
.3
17.3
14.7
13.9
3.
0
2.
8
2.
5
1.
6
1.
9
2.
1
13
.7
14.5
15
.0
180
(16.
4)
33
.4
21.4
21.7
16.8
1.
7
1.
6
1.
5
0.
6
0.
7
0.
7
6.
3
7.
0
9.
0
97
0
(2
3.7)
119.
5
——
—3.
1
3.
0
2.
9
—
——
1.8
4.2
5.0
120
(33.
7)
24
.2
10.7
11.2
10.5
2.
4
2.
1
1.
8
1.
1
1.
1
1.
3
13
.4
15.8
15
.7
1,10
0
2.8
13
.2
17.9
17.0
15
.1
2.7
2.5
2.3
1.2
1.3
1.5
10.8
11
.7
12.3
9.0
7.1
5.6
2.5
1.8
1.2
0.4
0.6
0.6
33.7
36
.9
41.2
30
0
(6
6.8)
51.0
10.6
9.1
8.2
2.3
2.2
2.0
1.2
1.5
1.8
(0.9
)
8.
5
11
.4
120
(55.
8)
2.
4
18.4
14.5
13.1
4.
9
4.
3
3.
6
0.
0
0.
0
0.
0
15
.9
17.0
21
.8
190
(8.7
)
78
.5
3.8
3.9
3.7
0.6
0.6
0.5
1.4
1.1
1.1
10.8
7.
4
6.
2
30
0
(1
8.1)
3.0
5.3
4.3
3.7
0.6
0.6
0.5
7.1
7.0
7.0
10.2
13
.4
11.1
16
0
24
.7
0.
5
6.9
6.3
5.3
1.6
1.4
1.2
0.5
0.5
0.5
16.6
14
.8
14.1
17
5
(2
3.7)
4.1
5.3
4.3
3.7
1.1
1.0
0.9
4.2
4.2
4.2
17.9
12
.9
13.7
20
0
(7
.6)
3.1
6.
6
4.
6
5.
4
1.
7
1.
4
1.
2
1.
2
0.
9
0.
9
17
.6
20.8
12
.9
125
(26.
0)
14
.8
10.1
7.4
5.7
2.5
2.1
1.8
0.7
0.9
1.2
18.1
18
.2
20.5
14
0
(1
4.6)
3.1
9.9
8.2
7.6
2.4
2.1
1.8
0.7
0.8
0.8
15.4
15
.1
16.8
10
.3
9.
1
7.
7
2.
5
2.
2
2.
0
1.
3
1.
6
1.
9
15
.6
14.5
15
.7
11.0
10.5
9.
0
2.
6
2.
3
2.
1
1.
3
1.
4
1.
6
17
.1
14.8
15
.3
13.2
11.7
10
.2
2.9
2.6
2.3
1.3
1.5
1.7
17.1
15
.7
16.0
Div
iden
d y
ield
(%
)
Kotak Institutional Equities Research 79
India Daily Summary - June 01, 2009
Ratings and other definitions/identifiers
Rating systemDefinitions of ratings
BUY. We expect this stock to outperform the BSE Sensex by 10% over the next 12 months.ADD. We expect this stock to outperform the BSE Sensex by 0-10% over the next 12 months.REDUCE: We expect this stock to underperform the BSE Sensex by 0-10% over the next 12 months.SELL: We expect this stock to underperform the BSE Sensexby more than 10% over the next 12 months.
Our target price are also on 12-month horizon basis.
Other definitionsCoverage view. The coverage view represents each analyst’s overall fundamental outlook on the Sector. The coverage view will consist of one of the following designations:Attractive (A), Neutral (N), Cautious (C).
Other ratings/identifiersNR = Not Rated. The investment rating and target price, if any, have been suspended temporarily. Such suspension is in compliance with applicable regulation(s) and/or KotakSecurities policies in circumstances when Kotak Securities or its affiliates is acting in an advisory capacity in a merger or strategic transaction involving this company and incertain other circumstances.CS = Coverage Suspended. Kotak Securities has suspended coverage of this company.NC = Not Covered. Kotak Securities does not cover this company.RS = Rating Suspended. Kotak Securities Research has suspended the investment rating and price target, if any, for this stock, because there is not a sufficient fundamentalbasis for determining an investment rating or target. The previous investment rating and price target, if any, are no longer in effect for this stock and should not be relied upon.NA = Not Available or Not Applicable. The information is not available for display or is not applicable.NM = Not Meaningful. The information is not meaningful and is therefore excluded.
Kotak Institutional Equities Research coverage universeDistribution of ratings/investment banking relationships
Source: Kotak Institutional Equities As of March 31, 2009
* The above categories are defined as follows: Buy = We expect this stock to outperform the BSE Sensex by 10% over the next 12 months; Add = We expect this stock to outperform the BSE Sensex by 0-10% over the next 12 months; Reduce = We expect this stock to underperform the BSE Sensex by 0-10% over the next 12 months; Sell = We expect this stock to underperform the BSE Sensex by more then 10% over the next 12 months. These ratings are used illustratively to comply with applicable regulations. As of 31/03/2009 Kotak Institutional Equities Investment Research had investment ratings on 146 equity securities.
Percentage of companies covered by Kotak Institutional Equities, within the specified category.
Percentage of companies within each category for which Kotak Institutional Equities and or its affiliates has provided investment banking services within the previous 12 months.
9.6%
24.7%26.0%
39.7%
0.7%2.8%3.5% 0.7%
0%
10%
20%
30%
40%
50%
60%
70%
BUY ADD REDUCE SELL
80 Kotak Institutional Equities Research
India Daily Summary - June 01, 2009
Copyright 2009 Kotak Institutional Equities (Kotak Securities Limited). All rights reserved.
Kotak Securities Limited and its affiliates are a full-service, integrated investment banking, investment management, brokerage and financing group. We along with our affiliates areleading underwriter of securities and participants in virtually all securities trading markets in India. We and our affiliates have investment banking and other business relationshipswith a significant percentage of the companies covered by our Investment Research Department. Our research professionals provide important input into our investment bankingand other business selection processes. Investors should assume that Kotak Securities Limited and/or its affiliates are seeking or will seek investment banking or other business fromthe company or companies that are the subject of this material and that the research professionals who were involved in preparing this material may participate in the solicitationof such business. Our research professionals are paid in part based on the profitability of Kotak Securities Limited, which include earnings from investment banking and otherbusiness. Kotak Securities Limited generally prohibits its analysts, persons reporting to analysts, and members of their households from maintaining a financial interest in thesecurities or derivatives of any companies that the analysts cover. Additionally, Kotak Securities Limited generally prohibits its analysts and persons reporting to analysts from servingas an officer, director, or advisory board member of any companies that the analysts cover. Our salespeople, traders, and other professionals may provide oral or written marketcommentary or trading strategies to our clients that reflect opinions that are contrary to the opinions expressed herein, and our proprietary trading and investing businesses maymake investment decisions that are inconsistent with the recommendations expressed herein. In reviewing these materials, you should be aware that any or all of the foregoing,among other things, may give rise to real or potential conflicts of interest. Additionally, other important information regarding our relationships with the company or companies thatare the subject of this material is provided herein.
This material should not be construed as an offer to sell or the solicitation of an offer to buy any security in any jurisdiction where such an offer or solicitation would be illegal. Weare not soliciting any action based on this material. It is for the general information of clients of Kotak Securities Limited. It does not constitute a personal recommendation or takeinto account the particular investment objectives, financial situations, or needs of individual clients. Before acting on any advice or recommendation in this material, clients shouldconsider whether it is suitable for their particular circumstances and, if necessary, seek professional advice. The price and value of the investments referred to in this material and theincome from them may go down as well as up, and investors may realize losses on any investments. Past performance is not a guide for future performance, future returns are notguaranteed and a loss of original capital may occur. Kotak Securities Limited does not provide tax advise to its clients, and all investors are strongly advised to consult with their taxadvisers regarding any potential investment.
Certain transactions -including those involving futures, options, and other derivatives as well as non-investment-grade securities - give rise to substantial risk and are not suitable forall investors. The material is based on information that we consider reliable, but we do not represent that it is accurate or complete, and it should not be relied on as such. Opinionsexpressed are our current opinions as of the date appearing on this material only. We endeavor to update on a reasonable basis the information discussed in this material, butregulatory, compliance, or other reasons may prevent us from doing so. We and our affiliates, officers, directors, and employees, including persons involved in the preparation orissuance of this material, may from time to time have “long” or “short” positions in, act as principal in, and buy or sell the securities or derivatives thereof of companies mentionedherein. For the purpose of calculating whether Kotak Securities Limited and its affiliates holds beneficially owns or controls, including the right to vote for directors, 1% of more ofthe equity shares of the subject issuer of a research report, the holdings does not include accounts managed by Kotak Mahindra Mutual Fund.Kotak Securities Limited and its nonUS affiliates may, to the extent permissible under applicable laws, have acted on or used this research to the extent that it relates to non US issuers, prior to or immediately followingits publication. Foreign currency denominated securities are subject to fluctuations in exchange rates that could have an adverse effect on the value or price of or income derivedfrom the investment. In addition , investors in securities such as ADRs, the value of which are influenced by foreign currencies affectively assume currency risk. In addition optionsinvolve risks and are not suitable for all investors. Please ensure that you have read and understood the current derivatives risk disclosure document before entering into anyderivative transactions.
This report has not been prepared by Kotak Mahindra Inc. (KMInc). However KMInc has reviewed the report and, in so far as it includes current or historical information, it is believedto be reliable, although its accuracy and completeness cannot be guaranteed. Any reference to Kotak Securities Limited shall also be deemed to mean and include Kotak MahindraInc.
Kotak Securities Ltd.Bakhtawar, 1st floor, 229 Nariman Point, Mumbai 400 021, India. Tel: +91-22-6634-1100 Fax: +91-22-2288-6453
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