India Post Conference Notes Day 1 Feb 12 EDEL

th th7 & 8 February, 2012 The Trident, Bandra Kurla Complex, Mumbai

Post Conference Notes - Day 1

Edelweiss Securities LimitedEdelweiss Securities Limited1 Edelweiss Securities Limited

Preface

We present key takeaways from the day 1 of the Mumbai leg of Edelweiss India Conference 2012.

The event is aimed at bringing together over 70 corporates and facilitating over 2,000 one-on-one

meetings between investors and corporates.

The conference is being held in the backdrop of uncertain times, both in India as well as globally.

CY11 was one of the most challenging periods in recent times with the nascent global recovery

faltering on intensifying strains in the euro area and weakness elsewhere. Locally too, sentiments

took a beating as multiplicity of factors, ranging from government policy hurdles to the aggressive

monetary tightening, weighed down on macros. While sentiments have certainly improved since

the December lows, real economy indicators would need to be closely monitored to gauge the

extent of the recovery.

Overall, even as headwinds remain, investors are enthusiastic about India. The likely triggers in

the form of a possible reversal of the rate cycle, fiscal consolidation and traction in basic policy

decisions could provide big boost to investments in FY13. Our interactions with the companies

also point to a gradual recovery in demand. Within the consumer sector, our interactions

suggest that while the overall demand remains healthy, there is some pressure within the

discretionary space. With raw material prices beginning to soften, companies are confident of a

revival in margins. Further, rural markets are a key focus area and hence consumer companies

continue to invest in a robust rural distribution system. Meanwhile, real estate sector companies

are hopeful that as the interest cycle peaks out and policy reforms begin to kick in, risk perception

for the sector is likely to recede. While some concerns remain, a fall in interest rates is expected

to boost volume while recent initiatives to deleverage through asset sales may help spur cash

flows, leading to a reduction in debt levels, going forward. In metals, participants are hopeful of

an uptick in steel demand in FY13. While FY12 demand is expected at 4.5%-5.0%, (below the GDP

growth rate), FY13 could witness a higher demand growth in the range of 7%-8% (at least equal to

the GDP growth). Production cuts worldwide, especially in China (total of ~150mt annualized),

will support steel prices at current levels. Utility companies who attended the conference are

hopeful of speedy approvals from the government and are firmly on track in adding new capacities.

We hope this conference will provide investors with an ideal platform to interact with a cross-

section of companies besides giving an insightful perspective on the likely trajectory of India's

growth and investment opportunities that come with it.

Team Edelweiss

CONTENTS

Ajanta Pharma .............................................................................................................................................................................................. 4

Axis Bank ....................................................................................................................................................................................................... 6

Bajaj Electricals ............................................................................................................................................................................................ 8

Bhushan Steel ............................................................................................................................................................................................. 10

Cairn India ................................................................................................................................................................................................. 12

Cox & Kings ................................................................................................................................................................................................ 14

Dabur India ................................................................................................................................................................................................ 16

Deepak Fertilizers & Petrochemicals Corp ............................................................................................................................................. 18

Dish TV India .............................................................................................................................................................................................. 20

eClerx Services ........................................................................................................................................................................................... 22

Emami .......................................................................................................................................................................................................... 24

Gail .............................................................................................................................................................................................................. 26

Glenmark Pharmaceuticals ...................................................................................................................................................................... 28

Godrej Consumer Products ....................................................................................................................................................................... 30

Grasim Industries ...................................................................................................................................................................................... 32

Havells India .............................................................................................................................................................................................. 34

HDFC Bank .................................................................................................................................................................................................. 36

Hexaware Technologies ............................................................................................................................................................................ 38

Housing Development Finance Corp........................................................................................................................................................ 40

ICICI Bank ................................................................................................................................................................................................... 42

IDBI Bank .................................................................................................................................................................................................... 44

Indoco Remedies ........................................................................................................................................................................................ 46

Info Edge India ........................................................................................................................................................................................... 48

Infrastructure Development Finance Co ................................................................................................................................................. 50

JSW Energy .................................................................................................................................................................................................. 52

JSW Steel ..................................................................................................................................................................................................... 54

Jyothy Laboratories ................................................................................................................................................................................... 56

Kajaria Ceramics ....................................................................................................................................................................................... 58


Profile of Participating Companies



KEC International ....................................................................................................................................................................................... 60

Kotak Mahindra Bank ................................................................................................................................................................................ 62

Larsen & Toubro ......................................................................................................................................................................................... 64

Manappuram Finance ............................................................................................................................................................................... 66

Oil & Natural Gas Corp ............................................................................................................................................................................. 68

Pantaloon Retail ........................................................................................................................................................................................ 70

Persistent Systems ..................................................................................................................................................................................... 72

Phoenix Mills ............................................................................................................................................................................................. 74

Power Finance Corporation ..................................................................................................................................................................... 76

PI Industries ............................................................................................................................................................................................... 78

Reliance Infrastructure ............................................................................................................................................................................. 80

Reliance Power ........................................................................................................................................................................................... 82

Shoppers Stop ............................................................................................................................................................................................ 84

Sun Pharmaceutical Industries ................................................................................................................................................................ 86

Tata Consultancy Services ........................................................................................................................................................................ 88

Titan Industries .......................................................................................................................................................................................... 90

Torrent Pharmaceuticals .......................................................................................................................................................................... 92

Yes Bank ...................................................................................................................................................................................................... 94

Zodiac Clothing .......................................................................................................................................................................................... 96

Zuari Industries ......................................................................................................................................................................................... 98

Edelweiss Securities LimitedEdelweiss Research is also available on www.edelresearch.com,Bloomberg EDEL <GO>, Thomson First Call, Reuters and Factset.

Key takeawaysFocus on differentiated products drives above industry level growth: Ajanta’s focuson differentiated products, through R&D capability, has led to above industrylevel growth in its focus therapies including Cardio, Opthal and Dermatology. Itsderma portfolio, growing at 32%, has improved its ranking by four levels to 14thduring Dec 2011. Its entry into new segments including Ortho, ENT and Gastro willdrive higher growth over the next year. These segments comprise ~7% of currentdomestic sales with portfolio of 16 products. Management expects to maintaincurrent growth momentum (~20%) in domestic market.

US market to accelerate growth: The key trigger for growth in exports (60% of totalsales) will be US where it plans to launch Levetiracetam and Risperdone over thenext two months. The products will be supplied from Aurangabad FDA approvedfacility. Overall, Ajanta has 5-8 filings under approval in US. More importantly, USwill be a strategic focus market for Ajanta and will drive higher incrementalinvestment in future. Management has planned INR3bn investment into dedicatedmanufacturing facility for the US market.

Targeting 1,300 registrations in key export markets: Ajanta has developed a robustpipeline of ~1,300 product registrations (over existing similar base) which willdrive future growth in key branded generics markets (Asia, Africa and LATAM). Thispipeline of products will double the existing base business from these marketsover next three to four years and largely comprise niche products or segmentswith less than three or four competitors.

Funding under AMFM programme not a concern: Ajanta’s presence in Africa (40%of total exports) largely comprises sales under AMFM programme (INR750mn).Management has confirmed that Bill Gate foundation support of USD200mn willassure continued supply under the programme until FY14.

Growth guidance: Management is confident of delivering 21% growth in FY12 andaims to achieve long term target sales of INR 10 bn (from INR 5 bn).

Key risksROCE may dip due to upcoming investments. Increase in API costs could impactmargins in exports business.

AJANTA PHARMAIndia Equity Research l Pharmaceuticals

Exciting play on specialty branded generics

Company Profile

February 7, 2012

Manoj Garg+91-22-6623 3302

[email protected]

Perin Ail+91-22-6620 [email protected]

EDELWEISS RATINGS

Absolute Rating NOT RATED

MARKET DATA (R : AJPH.BO, B: AJP IN)

CMP : INR 391

Target Price : NA

52-week range (INR) : 421 / 175

Share in issue (mn) : 11.7

M cap (INR bn/USD mn) : 5 / 94

Avg. Daily Vol. BSE/NSE (‘000) : 85.4

Share Holding Pattern (%)

Promoters* : 68.9

MFs, FIs & Banks : 0.0

FIIs : 0.0

Others : 31.1

* Promoters pledged shares : 4.7 (% of share in issue)

Relative Performance (%)

Sensex Stock Stock over Sensex

1 month 11.7 32.2 20.5

3 months 0.8 14.6 13.9

12 months (1.8) 99,7 101.5

Financials

Year to March FY08 FY09 FY10 FY11

Revenues (INR mn) 3,092 3,492 4,077 5,049Rev. growth (%) 19.9 12.9 16.8 23.8EBITDA (INR mn) 514 651 771 963Net profit (INR mn) 225 254 340 507Share outstanding (mn) 12 12 12 12EPS (INR) 18.9 21.6 28.8 43.0EPS growth (%) 53.6 13.8 33.6 49.4Diluted P/E (x) 20.5 18.2 13.6 9.1EV/EBITDA (x) 12.3 10.8 8.7 6.6ROE (%) 17.6 17.4 19.9 24.5



Cash flow statement (INR mn)Year to March FY08 FY09 FY10 FY11

Net profit 225 254 340 507 Depreciation 79 142 207 247Gross cash flow 303 396 547 755Less:Changes in WC (113) (50) 404 93Operating cash flow 191 346 951 848Less: Capex (237) (509) (501) (405)Free cash flow (46) (163) 450 443

RatiosYear to March FY08 FY09 FY10 FY11

ROAE (%) (on adjusted profits) 17.6 17.4 19.9 24.5ROACE (%) 16.5 14.5 14.2 17.8Inventory days 213.0 282.5 280.3 245.7Debtors days 91.7 97.7 88.1 72.6Payable days 94.2 126.5 144.0 158.6Cash conversion cycle 210.4 253.6 224.4 159.6Current ratio 4.4 5.0 3.5 3.1Debt/EBITDA 3.4 3.8 3.0 2.0Debt/equity 1.3 1.6 1.2 0.8

Valuation parametersYear to March FY08 FY09 FY10 FY11

Diluted EPS (INR) 19.0 21.5 28.8 43.0Y-o-Y growth (%) 53.6 13.1 33.6 49.4CEPS 25.3 33.6 46.4 64.0Diluted P/E (x) 20.5 18.2 13.6 9.1Price/BV (x) 1.5 1.1 1.1 1.1EV/Sales (x) 2.0 2.0 1.7 1.3EV/EBITDA (X) 12.3 10.8 8.7 6.6

Growth metrics (%)Year to March FY08 FY09 FY10 FY11

Revenues 19.9 12.9 16.8 23.8EBITDA 29.4 26.7 18.6 24.9PBT 49.0 3.2 30.0 46.0Net profit 53.6 13.1 33.6 49.4EPS 53.6 13.8 33.6 49.4

Financial Statements

Income statement (INR mn)


Income from operations 3,092 3,492 4,077 5,049Direct costs 1,402 1,271 1,455 1,729Employee costs 305 427 542 637R&DOther expenses 872 1,144 1,308 1,719Total operating expenses 2,578 2,841 3,306 4,085EBITDA 514 651 771 963Depreciation and amortisation 79 142 207 247EBIT 435 509 564 716Interest expenses 161 236 202 178Other income 15 25 25 28Profit before tax 289 298 388 566Provision for tax 69 44 48 59Core profit 220 254 340 507Extraordinary items (6) 0 0 0Profit after tax 226 254 340 507Adjusted net profit 225 254 340 507EPS (INR) basic 18.9 21.6 28.8 43.0Diluted equity shares (mn) 12 12 12 12Tax rate (%) 23.7 14.7 12.3 10.3

Common size metrics as % of net revenuesYear to March FY08 FY09 FY10 FY11

Operating expenses 83.4 81.4 81.1 80.9Depreciation and Amortization 2.5 4.1 5.1 4.9Interest expenditure 5.2 6.7 4.9 3.5EBITDA margins 16.6 18.6 18.9 19.1Adj. Net profit margins 7.3 7.3 8.3 10.0

Balance sheet (INR mn)

As on 31st March FY08 FY09 FY10 FY11

Equity capital 118 118 118 118Reserves & surplus 1,231 1,453 1,731 2,170Shareholders funds 1,349 1,571 1,849 2,288Borrowings 1,735 2,502 2,280 1,906Minority Interest 3 0 0 0Sources of funds 3,087 4,073 4,129 4,195Net block 1,018 1,383 1,685 1,842Capital Work in Progress 239 552 470 470Investments and goodwill 85 85 85 85Inventories 928 1,039 1,196 1,131Sundry debtors 868 1,001 967 1,040Cash and equivalents 58 81 148 148Other current assets 375 452 400 506Total current assets 2,228 2,573 2,712 2,825Sundry creditors 426 455 693 809Total CL & provisions 512 513 769 918Net current assets 1,716 2,060 1,942 1,907Net deferred tax 29 (6) (53) (109)Uses of funds 3,087 4,073 4,129 4,195Adjusted BV per share (INR) 262 345 350 356


Key takeawaysMajor discussion has been around its infra and non-fund based exposure.Management indicated that government seems to be warming up to take someaffirmative action in power sector particularly on the SEB front and fuel linkageissue. On non-fund based exposure it reiterated that as a lead syndicator it issuesbank guarantees/LCs on behalf of consortium banks with back-to-backarrangements.

With respect to priority sector lending requirement, it highlighted that this timeagri loan proportion will be similar to FY11 (against its guidance of inching it upby 25-30bps every year) and it will have to resort to RIDF investments.

Proposes to open 250 branches in the next 12 months (including RBI’s requirementfor Tier 5 and 6 cities).

Will gradually increase share of retail in the overall loan portfolio. Will furtherbuild branch based origination capabilities for retail loans. In retail, securedloans will continue to be a growth driver. On the corporate side, growth will beprimarily working capital related and draw-downs from past sanctions.

Expects credit cost to be around 80bps. No chunky or lumpy restructuring pipeline.INR70mn of restructured has slipped into NPL in Q3FY12.

Margins are higher than the guided range and should normalize to 3.25-3.5%.

Investment conclusionLed by a healthy NIM and fee income performance coupled with a benign assetquality (against consensus expectation), we anticipate ~21% earnings CAGR overFY12 14E. The bank’s strategy of moderating the pace of loan growth is alreadyreflecting in more formidable retail franchise and consistently higher RoA of 1.6%.

Key risksChange in management may affect the pace of growth and profitability in the nearterm. Deterioration of macro environment can result in higher slippages and slowdown business growth.

AXIS BANKIndia Equity Research l Banking and Financial Services

Buoyant growth

Company Profile

February 7, 2012

EDELWEISS 4D RATINGS

Absolute Rating BUY

Rating Relative to Sector Outperformer

Risk Rating Relative to Sector Medium

Sector Relative to Market Equalweight

MARKET DATA (R : AXBK.BO, B: AXSB IN)

CMP : INR 1,114

Target Price : INR 1,372

52-week range (INR) : 1,460 / 784


M cap (INR bn/USD mn) : 460 / 9,151

Avg. Daily Vol. BSE/NSE (‘000) : 2,171.0


Promoters* : 37.5


FIIs : 31.4

Others : 24.4

* Promoters pledged shares : Nil (% of share in issue)

PRICE Performance (%)

Stock Nifty EW BFSI Index

1 month 27.7 9.6 15.8

3 months (4.5) 0.3 3.9

12 months (16.5) (7.1) (6.2)

Nilesh Parikh+91-22- 4063 [email protected]

Kunal Shah+91-22- 4040 [email protected]

Suruchi Chaudhary+91-22-6623 3316

[email protected]

Financials

Year to March FY10 FY11 FY12E FY13E

Net revenues (INR mn) 89,509 111,951 136,267 163,502Net rev growth (%) 36.0 25.1 21.7 20.0Net profit (INR mn) 25,143 33,880 41,874 49,564Shares outstanding (mn) 405 411 411 411Diluted EPS (INR) 62.1 82.5 102.0 120.7EPS growth (%) 23.1 33.0 23.6 18.4Diluted P/E (x) 17.9 13.5 10.9 9.2Price to adj. book (x) 2.9 2.4 2.1 1.8ROAE (%) 19.1 19.3 20.2 20.3



Valuation parametersYear to March FY10 FY11 FY12E FY13E

Diluted EPS (INR) 62.1 82.5 102.0 120.7EPS growth (%) 23.1 33.0 23.6 18.4Book value per share (INR) 396.0 462.8 546.0 644.7Adj. book value/share (INR) 388.8 455.8 531.7 626.8Diluted P/E (x) 17.9 13.5 10.9 9.2Price/ BV (x) 2.8 2.4 2.0 1.7Price/ ABV (x) 2.9 2.4 2.1 1.8Dividend yield (%) 1.1 1.3 1.5 1.8




Interest income 116,380 151,548 209,366 243,666Interest expenses 66,335 85,918 128,731 149,947Net interest income 50,045 65,630 80,635 93,719Non interest income 39,465 46,321 55,632 69,782- Fee & forex income 30,333 39,210 49,629 62,542- Misc. income 2,030 3,518 3,253 3,741- Investment profits 7,102 3,593 2,750 3,500Net revenues 89,509 111,951 136,267 163,502Operating expense 37,097 47,794 59,605 69,057 - Employee exp 12,558 16,139 23,378 27,626 - Other opex 24,539 31,655 36,227 41,432Preprovision profit 52,412 64,157 76,662 94,444Provisions 13,916 12,832 14,626 21,016- Loan loss provisions 13,570 9,551 13,576 20,266- Investment depreciation (222) 993 800 500- Other provisions 568 2,288 250 250PBT 38,496 51,325 62,036 73,429Taxes 13,353 17,445 20,162 23,865PAT 25,143 33,880 41,874 49,564Diluted EPS 62.1 82.5 102.0 120.7DPS 12.0 14.0 17.0 20.0Payout ratio (%) 22.6 19.8 18.4 18.3

Growth metrics (%)Year to March FY10 FY11 FY12E FY13E

NII growth 35.8 31.1 22.9 16.2Fees growth 19.7 29.3 26.6 26.0Opex growth 29.8 28.8 24.7 15.9PPOP growth 31.5 33.7 22.0 23.0PPP growth 40.7 22.4 19.5 23.2Provisions growth 48.1 (29.6) 42.1 49.3PAT growth 38.5 34.8 23.6 18.4

Operating ratios (%)Year to March FY10 FY11 FY12E FY13E

Yield on advances 8.6 8.4 9.5 9.1Yield on investments 6.7 6.5 6.8 6.6Yield on assets 7.3 7.4 8.0 7.6Net interest margins 3.1 3.2 3.07 2.94Cost of funds 4.4 4.4 5.2 5.0Cost of deposits 0.0 4.5 5.1 4.9Cost of borrowings 5.9 6.4 6.8 6.5Spread 2.9 2.9 2.8 2.7Cost-income 41.4 42.7 43.7 42.2Tax rate 34.7 34.0 32.5 32.5


As on 31st March FY10 FY11 FY12E FY13E

LiabilitiesEquity capital 4,052 4,106 4,106 4,106Reserves 156,393 185,883 220,065 260,581Net worth 160,444 189,988 224,171 264,686Sub bonds/pref cap 71,558 69,932 71,932 73,932Deposits 1,413,002 1,892,378 2,287,450 2,696,121Borrowings 100,137 192,746 297,053 421,212Other liabilities 61,335 82,089 84,013 94,259Total 1,806,477 2,427,134 2,964,619 3,550,211AssetsLoans 1,043,431 1,424,078 1,708,894 2,050,673InvestmentsGilts 341,959 441,979 599,605 692,048Others 217,789 277,937 345,041 428,920Cash & equi 152,064 214,087 243,375 302,469Fixed assets 12,224 22,732 22,019 20,996Other assets 39,009 46,321 45,686 55,105Total 1,806,477 2,427,134 2,964,619 3,550,211Balance sheet ratios (%)Credit growth 23.7 35.8 20.6 20.6Deposit growth 20.4 33.9 20.9 17.9EA growth 22.8 34.3 22.9 19.9SLR ratio 22.6 21.2 23.2 22.2C-D ratio 83.6 84.9 84.7 86.6Low-cost deposits 46.7 41.1 39.5 39.7Gross NPA ratio 1.1 1.0 1.1 1.3Net NPA ratio 0.4 0.3 0.5 0.5Provision coverage 68.2 74.3 61.0 65.2Incremental slippage 1.9 1.2 1.5 1.7Net NPA / Equity 2.6 2.2 3.7 4.0Capital adequacy 15.8 17.9 16.9 16.2 - Tier 1 11.2 13.2 13.0 12.8Book value 396.0 462.8 546.0 644.7

ROA decomposition (%)Year to March FY10 FY11 FY12E FY13E

Net interest income/Assets 3.1 3.2 3.1 2.9Fees/Assets 2.0 2.1 2.0 2.1Investment profits/Assets 0.4 0.2 0.1 0.1Net revenues/Assets 5.6 5.4 5.2 5.1Operating expense/Assets (2.3) (2.3) (2.3) (2.2)Provisions/Assets (0.9) (0.6) (0.6) (0.7)Taxes/Assets (0.8) (0.8) (0.8) (0.7)Total costs/Assets (4.0) (3.8) (3.6) (3.6)ROA 1.6 1.6 1.6 1.6Equity/Assets 8.2 8.5 7.9 7.7ROAE 19.1 19.3 20.2 20.3


Key takeawaysManagement reiterated its view on not splitting the consumer business andengineering and projects business, given the synergies.

The company indicated that there is no slowdown in the consumer business andestimates growth at 20-25%. Moderate growth in fans and luminaries at 10-15%.

The company is not too worried of the competition as the market itself is expanding.

After sales service is the key differentiator given Bajaj Electricals provides withtwo years warranty.

Investment conclusionWith its consumer-facing business growing steadily, the company is now morefocused on its E&P division. By virtue of tie ups with global majors like MorphyRichards (UK) and Nardi (Italy), the company competes with premium players likePhilips and Kenstar, and has been able to create a niche in the premium segment.Its products like mixers, irons, OTG, water heaters and room coolers are leadingproducts in their respective product ranges. The company’s distribution reach isfar wider than its competitors, and is efficiently managed in terms of logistics andsupply chain. BJE outsources most of its manufacturing. It has long-term relationswith its vendors, dating back several decades, and has exclusive arrangementswith 70% vendors. With such a set up in place, the company is able to focus on itscore competencies, i.e., marketing and distribution.

Key risksOverdependence on vendors or vendor buy out.

Intense competition in the consumer durable segment can squeeze margins.

Increase in prices of key raw materials such as steel and zinc can hamper marginsof the E&P division.

BAJAJ ELECTRICALSIndia Equity Research l Engineering and Capital Goods

Domestic consumer play

Company Profile

February 7, 2012


Absolute Rating BUY



Sector Relative to Market Underweight

MARKET DATA (R : BJEL.BO, B: BJE IN)

CMP : INR 170

Target Price : INR 240

52-week range (INR) : 296 / 132





Promoters* : 65.6


FIIs : 6.9

Others : 18.1



Stock Nifty EW Capital Goods Index

1 month 20.8 9.6 16.1

3 months (15.1) 0.3 (7.1)

12 months (24.4) (7.1) (25.5)

Rahul Gajare+91-22- 4063 [email protected]

Amit Mahawar+91-22- 4040 [email protected]

Swarnim Maheshwari+91-22- 4040 7418

[email protected]

Financials


Revenues (INR mn) 22,286 27,408 31,778 38,350Rev. growth (%) 26.2 23.0 15.9 20.7EBITDA (INR mn) 2,499 2,598 2,475 3,451Net profit (INR mn) 1,221 1,488 1,291 1,895Share outstanding (mn) 98 99 99 99EPS (INR) 12.5 15.1 13.1 19.2EPS growth (%) 21.0 20.2 (13.2) 46.8Diluted P/E (x) 13.5 11.2 12.9 8.8EV/EBITDA (x) 6.8 6.5 7.3 5.3ROE (%) 33.0 26.9 19.6 24.1



RatiosYear to March FY10 FY11 FY12E FY13E

ROAE (%) (on adjusted profits) 33.0 26.9 23.5 25.0ROACE (%) 45.1 38.1 35.3 35.9Inventory days 43 44 50 52Debtors days 107 121 133 136Payable days 127 140 156 154Cash conversion cycle 23 25 27 34Current ratio 1.7 1.5 1.6 1.7Debt/EBITDA 0.6 0.4 0.7 0.6Interest coverage 7.4 8.5 6.1 7.0Fixed assets t/o (x) 22.7 21.5 21.0 23.6Debt/equity 0.3 0.2 0.3 0.3


Diluted EPS (INR) 12.4 15.0 13.0 19.2Y-o-Y growth (%) 39.8 21.1 (13.2) 46.8CEPS 13.8 16.2 14.3 20.5Diluted P/E (x) 13.5 11.2 12.9 8.8Price/BV (x) 6.6 5.4 4.7 3.8EV/Sales (x) 0.8 0.6 0.6 0.5EV/EBITDA (X) 6.8 6.5 7.3 5.3






Income from operations 22,286 27,408 32,853 38,848Direct costs 16,524 20,729 24,806 29,063Employee costs 972 1,224 1,438 1,660Other expenses 2,292 2,856 3,646 4,349Total operating expenses 19,787 24,810 29,891 35,072EBITDA 2,499 2,598 2,963 3,776Depreciation & amortisation 157 126 135 149EBIT 2,342 2,472 2,828 3,627Interest expenses 314 291 466 521Other income 29 57 55 54Profit before tax 2,057 2,239 2,416 3,161Provision for tax 835 751 834 1,106Core profit 1,221 1,488 1,583 2,055Extraordinary items (50) (50) - -Profit after tax 1,171 1,438 1,583 2,055PAT after minority interest 1,171 1,438 1,583 2,055Adjusted net profit 1,171 1,438 1,583 2,055EPS (INR) basic 12.5 15.1 16.0 20.8Diluted equity shares (mn) 98 99 99 99Dividend payout (%) 22.4 21.8 20.5 15.8Tax rate (%) 40.6 33.5 34.5 35.0

Common size metrics as % of net revenuesYear to March FY10 FY11 FY12E FY13E

Operating expenses 88.8 90.5 91.0 90.3Depreciation and Amortization 0.7 0.5 0.4 0.4Interest expenditure 1.4 1.1 1.4 1.3EBITDA margins 11.2 9.5 9.0 9.7Net profit margins 5.5 5.4 4.8 5.3

Cash flow statement (INR mn)Year to March FY10 FY11 FY12E FY13E

Net profit 1,221 1,488 1,583 2,055 Depreciation 157 126 135 149 Deferred tax (5) (20) - - Others 243 260 466 521Gross cash flow 1,616 1,853 2,184 2,724Less:Changes in WC 1,564 828 2,237 1,726Operating cash flow 52 1,025 (53) 998Less: Capex 395 627 200 250Free cash flow (343) 398 (253) 748



Equity capital 195 198 198 198Reserves & surplus 4,749 5,913 7,172 8,902Shareholders funds 4,944 6,111 7,370 9,100Secured loans 684 483 1,483 1,683Borrowings 1,518 1,165 2,165 2,365Sources of funds 6,462 7,275 9,534 11,465Gross block 1,700 2,302 2,502 2,752Depreciation 683 769 904 1,052Net block 1,016 1,533 1,598 1,699Capital work in progress 1 - - -Total fixed assets 1,017 1,533 1,598 1,699Investments 366 366 366 366Inventories 2,094 2,946 3,874 4,419Sundry debtors 7,507 10,654 13,290 15,705Cash and equivalents 612 481 438 541Loand & Advances 1,777 1,668 1,834 2,018Total current assets 11,990 15,749 19,435 22,682Sundry creditors and others 6,273 9,661 11,561 12,979Provisions 643 731 324 324Total CL & provisions 6,916 10,392 11,885 13,303Net current assets 5,074 5,357 7,550 9,379Net deferred tax 5 20 20 20Uses of funds 6,462 7,276 9,534 11,465Adjusted BV per share (INR) 32 52 78 109


Key takeawaysPhase III 2.9mtpa expansion on track for completion by October 2012

Bhushan Steel reiterated completion of 2.9mtpa (crude steel) steel expansion byOctober 2012. H2FY13E to post volumes of ~0.8mt from this expansion (ourassumption is nil). FY13 and FY14 HRC production guidance is 2.35mt and 3.7mt,respectively

Targeting FY13 EBITDA of INR 40 bn, a ~33% YoY growth

The company guided for FY13 EBITDA of INR40bn (against our INR28.5bn estimate)led by volume growth from Phase III expansion. By FY15E, EBITDA expected to growfurther to INR60bn led by HRC volumes rising to 4mt.

Adding downstream capacity of ~2.6mtpa over next three years

Bhushan Steel has already completed 0.5mtpa ERW pipe plant at Khopoli. CR millof 0.35mtpa capacity is expected in Orissa in April 2013 while high-end CR mill of1.8mtpa capacity is likely to be launched for completion in FY15.

Captive mine commencement ~2 years away

The company has been allotted iron ore and thermal coal mines with reserves of70mt and 325mt, respectively, but with the slow approval process would take 18-24 months to commence. For the thermal coal mine, land acquisition process hascommenced.

Investment conclusionThe expected ramp up of the 2.3mtpa steel capacity will drive volumes over thenext two years and enable BSL to further strengthen its position in the auto andwhite goods sectors. The backward integration facility right up to the metallicstage will give a fillip to EBITDA margin as dependence on external HR will beeliminated. Moreover, the pure play exposure to the auto/ white goods industryplaces BSL in a competitive position compared to peers.

Key risksDelay in ramping up of capacities.

Lack of captive raw material.

BHUSHAN STEELIndia Equity Research l Metals & Mining

In expansion mode

Company Profile

February 7, 2012


Absolute Rating HOLD

Rating Relative to Sector Performer



MARKET DATA (R : BSSL.BO, B: BHUS IN)

CMP : INR 358


52-week range (INR) : 530 / 296





Promoters* : 69.9


FIIs : 1.8

Others : 27.5



Stock Nifty EW Metalsand Mining

Index

1 month 10.9 9.6 17.3

3 months 7.4 0.3 3.1

12 months (14.7) (7.1) (10.5)

Prasad Baji+91-22-4040 7415

[email protected]

Navin Sahadeo+91-22-6623 [email protected]

Financials


Revenues (INR mn) 56,404 70,005 96,188 96,754Rev. growth (%) 13.8 24.1 37.4 0.6EBITDA (INR mn) 14,527 20,304 28,430 28,546Net profit (INR mn) 8,458 10,051 9,437 8,812Share outstanding (mn) 212 212 212 212EPS (INR) 39.8 47.3 44.4 41.5EPS growth (%) 100.8 18.8 (6.1) (6.6)Diluted P/E (x) 9.0 7.6 8.1 8.6EV/EBITDA (x) 12.7 11.8 9.2 9.9ROE (%) 26.5 20.5 15.0 12.3


Edelweiss Securities LimitedEdelweiss Securities Limited1 1 Edelweiss Securities Limited


Net profit 9,653 11,037 8,007 7,613Add:Non cash charge 2,091 2,778 6,202 6,437Others 1,755 4,942 8,644 9,575Gross cash flow 13,500 18,758 22,853 23,624Less: Changes in W. C. 9,529 8,251 (10,504) 283Operating cash flow 3,970 10,507 33,358 23,341Less: Capex 29,042 56,460 35,000 35,000Free cash flow (25,072) (45,953) (1,642) (11,659)


ROAE (%) 26.5 20.5 12.9 10.9ROACE (%) 9.6 9.2 8.0 7.4Inventory (days) 163 304 200 200Debtors (days) 44 25 20 20Payable (days) 150 172 187 185Cash conversion cycle (days) 57 85 25 25Debt/EBITDA 7.9 8.2 7.3 7.9Current ratio 2.4 2.4 2.4 2.2Debt/ Equity 2.9 2.8 2.8 2.8Adjusted debt/Equity 2.9 2.8 2.8 2.8


EPS (INR) 39.8 47.3 44.4 41.5Y-o-Y growth (%) 100.8 18.8 (6.1) (6.6)CEPS (INR) 49.7 60.4 73.6 71.8P/E (x) 9.0 7.6 8.1 8.6Price/BV(x) 1.9 1.3 1.1 1.0Market cap/Sales (x) 1.3 1.1 0.8 0.8EV/Sales (x) 3.3 3.4 2.7 2.9EV/EBITDA (x) 12.7 11.8 9.2 9.9Dividend yield (%) 0.1 0.1 0.2 0.2


Revenues 13.8 24.1 23.1 4.6EBITDA. 41.1 39.8 27.1 2.4PBT 105.3 19.5 (20.3) (4.9)Net profit 100.8 18.8 (20.3) (4.9)EPS 100.8 18.8 (20.3) (4.9)




Net revenue 56,404 70,005 86,166 90,133Accretion to stock (2,955) (4,718) - -Raw material costs 38,576 42,769 40,236 42,631Purchase of goods 64 - - -Employee expenses 1,409 2,221 2,244 2,266Power & fuel 2,150 5,220 6,235 6,583SGA & other expenses 2,632 4,208 11,637 12,213Total operating expenses 41,876 49,701 60,351 63,693EBITDA 14,527 20,304 25,815 26,440Depreciation & amortisation 2,091 2,778 6,202 6,437EBIT 12,436 17,525 19,612 20,003Interest expenses 2,100 4,464 9,294 10,290Other income 1,178 695 650 715Profit before tax 11,514 13,756 10,968 10,428Provision for tax 3,056 3,706 2,961 2,816Core profit 8,458 10,051 8,007 7,613Profit after tax 8,458 10,051 8,007 7,613Profit after minority interest 8,458 10,051 8,007 7,613Basic shares outstanding (mn) 212.4 212.4 212.4 212.4Basic EPS 39.8 47.3 37.7 35.8Diluted shares (mn) 212.4 212.4 212.4 212.4Diluted EPS 39.8 47.3 37.7 35.8Dividend per share (INR) 0.5 0.5 0.7 0.7Dividend payout (%) 1.3 1.1 1.9 2.0Tax rate 26.5 26.9 27.0 27.0


Operating expenses 74.2 71.0 70.0 70.7Depreciation 3.7 4.0 7.2 7.1Interest expenditure 3.7 6.4 10.8 11.4EBITDA margins 25.8 29.0 30.0 29.3Net profit margins 15.0 14.4 9.3 8.4



Equity capital- Voting shares 425 425 425 425Preference share capital 367 687 687 687Reserves & surplus 39,125 57,853 65,684 73,121Shareholders funds 39,917 58,964 66,796 74,233Secured loans 106,101 150,659 183,859 203,359Unsecured loans 7,940 15,267 4,275 4,275Borrowings 114,041 165,926 188,134 207,634Deferred tax liability 3,295 6,983 6,983 6,983Sources of funds 157,253 231,874 261,913 288,850Gross block 36,859 144,244 144,244 155,137Depreciation 16,066 18,581 24,784 31,220Net block 20,793 125,663 119,460 123,917CWIP 111,093 73,932 108,932 133,039Total fixed assets 131,886 199,595 228,393 256,956Investments 3,700 2,777 3,610 3,610Loans and advances 9,534 13,307 13,307 13,307Inventories 19,627 31,684 22,047 23,360Sundry debtors 7,339 4,835 4,721 4,939Cash and equivalents 1,202 351 11,264 9,355Total current assets 37,702 50,177 51,339 50,960Sundry creditors and others 15,671 20,192 20,945 22,192Provisions 365 484 484 484Total CL & provisions 16,036 20,676 21,429 22,676Net current assets 21,666 29,501 29,910 28,284Uses of funds 157,253 231,874 261,913 288,850BV per share (INR) 188 278 315 350


Key takeawaysCY13 exit crude oil prodn. at 210-240kbpd; pipeline not a bottleneck

Crude oil production is likely to increase to 210-240kbpd, (150+kbpd - Mangala,40+kbpd – Bhagyam, 20+kbpd – Aishwarya) by CY13 end. Pipeline capacity is nota bottleneck for increasing the production as the same can be managed byincreasing the number of pumping stations (required approvals), which requireless time and capex.

Dividend seems near, but only after consolidation; better Q4 pricing

Cairn holds cash of USD1.4bn and will be generating ~USD1bn of FCF in FY13. It isin final stages DGH approval for consolidation of its foreign subsidiaries. Onlyafter the same will it announce the dividend. Q4FY12 pricing will be better due tobetter fuel oil cracks.

FY13E net capex at USD800mn; triggers exist

FY13 capex guidance of USD800mn (net), of which 70% for MBA development andbalance for Rajasthan exploration. Sri Lanka exploration capex at USD200mn(USD150mn spent till date). Triggers to watch out are—Mangala approval for 150kbpd, Aishwarya FDP approval, FDP submission and approval for Bhagyam andAishwarya fields.

Investment conclusionWe have a negative view on crude on the back of weakening demand and risingsupply from Libya and US and estimate FY13 Brent at USD95/bbl.

Key risksFall in crude prices or a higher discount to Brent. Delay in getting approvals toramp up Mangala. Utilization of excess cash.

CAIRN INDIAIndia Equity Research l Oil, Gas and Services

CY13 exit production guidance at 210-240 kbpd

Company Profile

February 7, 2012





Sector Relative to Market Overweight

MARKET DATA (R : CAIL.BO, B: CAIR IN)

CMP : INR 366


52-week range (INR) : 372 / 250

Share in issue (mn) : 1,903.0

M cap (INR bn/USD mn) : 697 / 13,863



Promoters* : 59.0


FIIs : 6.2

Others : 26.5



Stock Nifty EW O &G Index

1 month 8.9 9.6 8.0

3 months 18.5 0.3 (1.1)

12 months 5.0 (7.1) (5.8)

Niraj Mansingka, CFA+91 22 6623 [email protected]

Financials


Net Revenues(INR Mn) 16,230 102,779 155,252 168,367EBITDA (INR Mn) 9,805 84,117 109,136 112,244Net profit (INR Mn) 10,511 63,344 87,114 89,498EPS (INR) 5.5 33.2 45.8 47.0P/E (x) 66.5 11.0 8.0 7.8EV/EBITDA (x) 71.6 7.9 5.9 5.3ROAE (%) 3.2 17.1 19.9 17.5




Net profit 10,511 63,344 82,207 85,424Add: Depreciation 3,570 13,596 16,453 17,622Add: Deferred tax (1,087) (11,214) (12,371) (11,511)Add: Others (3,881) 1,545 (2,225) (5,450)Gross Cash flow 9,114 67,271 84,064 86,086Less: Changes in wor. capital 8,357 5,861 20,216 6,483Opertaing cash flow 757 61,410 63,848 79,603Less: Capex 31,122 32,791 29,527 21,490Free Cash flow (30,365) 28,619 34,320 58,113


ROACE 1.7 18.0 22.1 18.0ROAE (%) 3.2 17.1 20.9 16.6ROA 2.8 15.6 20.0 16.8Current ratio 1.6 2.7 3.3 4.7Inventory (days) 65 12 9 9Payables (days) 222 45 29 29Cash conversion cycle (days) (105) (1) 22 31Debt-equity (x) 0.1 0.1 0.0 0.0Debt/EBITDA 3.5 0.3 0.1 0.0Adjusted debt/equity 0.1 0.1 0.0 0.0


Diluted EPS (INR) 5.5 33.2 45.8 47.0Y-o-Y growth (%) 31.0 503.8 37.9 2.7CEPS (INR) 6.9 34.6 47.8 50.3Diluted P/E (x) 66.5 11.0 8.0 7.8P/BV (x) 2.2 1.8 1.5 1.3EV/Sales (x) 43.3 6.5 4.1 3.5EV/EBITDA (x) 71.6 7.9 5.9 5.3Dividend yield(%) 0.0 0.0 1.1 1.9


Revenues 13.3 533.3 59.7 (1.4)EBITDA 7.8 757.9 36.7 (6.9)PBT 2.9 577.9 43.3 (7.0)Net profit 30.8 502.6 44.9 (7.0)EPS 31.0 503.8 45.3 (7.0)




Net revenues 16,230 102,779 164,113 161,790Increase/decrease in stocks (366) (264) 0 0Statutory levies 1,466 9,820 39,894 44,865Lifting costs 2,782 5,350 5,358 5,885Production expenses 4,248 15,170 45,252 50,751Employee expenses 1,441 1,409 1,442 1,495Other expenses 1,102 2,346 2,416 2,489Total expenses 6,791 18,925 49,111 54,734EBITDAX 9,805 84,117 115,002 107,056Recouped costs 3,570 13,596 16,453 17,622EBIT 6,235 70,521 98,549 89,434Financing costs 148 2,909 2,603 2,055Other income 4,077 1,288 2,771 4,475Profit before tax 10,163 68,900 98,717 91,854Current tax 2,216 15,611 19,281 17,940Deferred tax (1,087) (11,214) (12,371) (11,511)Other taxes (1,477) 1,159 0 0Total tax (348) 5,556 6,910 6,430Core profit 10,511 63,344 91,807 85,424Extraordi./ prior period items 0 0 (9,600) 0Profit after tax 10,511 63,344 82,207 85,424Profit after minority int. 10,511 63,344 82,207 85,424Basic shares (mn) 1,897 1,902 1,903 1,903EPS - basic (INR) 5.5 33.3 48.3 44.9Diluted shares (mn) 1,911 1,908 1,903 1,903EPS - diluted (INR) 5.5 33.2 48.3 44.9CEPS 6.9 34.6 50.4 48.1DPS - - 4.3 6.7


Direct costs 26.2 14.8 27.6 31.4Other expenses 6.8 2.3 1.5 1.5EBITDA margins 60.4 81.8 70.1 66.2Depreciation & amortisation 22.0 13.2 10.0 10.9Interest 0.9 2.8 1.6 1.3Net profit margin 64.8 61.6 50.1 52.8



Total equity capital 18,970 19,019 19,027 19,027Stock option outstanding 464 555 0 0Reserves & surplus 319,250 383,358 458,490 531,100Shareholder's equity (A) 338,683 402,932 477,516 550,127Minority interest (B)Secured loans 34,007 13,282 10,000 5,000Unsecured loans 0 13,500 1 1Total debt (C) 34,007 26,782 10,001 5,001Deferred tax liability (D) 4,453 5,612 (6,759) (18,269)Sources of funds (A+B+C+D) 377,144 435,326 480,759 536,858Gross fixed assets 261,791 346,398 370,812 387,182Depreciation 2,335 13,120 28,073 44,196Net fixed assets 259,457 333,278 342,739 342,986Capital WIP 91,635 39,819 44,933 50,053Total fixed assets (A) 351,092 373,097 387,671 393,039Investments (B) 17,124 10,944 12,000 12,000Inventories 2,909 3,277 4,103 4,045Accounts receivable 3,067 14,829 22,976 22,651Cash and cash equivalents 9,294 44,847 55,376 99,625Loans and advances 8,318 16,269 32,823 40,448Other current assets 145 386 821 809Current assets (C) 23,734 79,608 116,098 167,577Current liabilities 9,869 12,638 13,129 12,943Provisions 4,937 16,628 21,881 22,815Current lia. & provis. (D) 14,806 29,266 35,010 35,758Net current assets (E) 8,928 50,343 81,087 131,819Miscellaneous exp. (F) 0 943 0 0Uses of funds (A+B+E+F) 377,144 435,326 480,759 536,858Book value per share 169 202 241 279


Key takeawaysCox and Kings (CNK) expects synergies in business as combined group buying(~INR65bn) will improve overall margins going forward.

Holiday Breaks (HBR) is in talks with public schools to start providing educationaltours facility at subsidized rates in UK. Current facilities of government are facingbudget cuts. Currently, HBR’s educational centers are running at just 30% capacityutilization.

CNK has the option to purchase the balance 50% stake of Menninger at EUR40-50mn. The final pricing will be dependent on a formula based on various factorssuch as sales achieved, PAT etc. Purchase could be executed during FY13-14.

The company may look for equity dilution to reduce the leverage (~INR33bn postacquisition) as one of the options.

From the short-term perspective the company’s goal is proper integration. Fromthe medium-term perspective the aim is to drive synergies, margins and reduceleverage. Its long-term aim is to introduce HBR educational products in India.

Investment conclusionPost acquisition of HBR, we believe working capital will turn negative in FY13 asoperations in UK are mostly retail based. CNK is looking for synergies from HBR interms of better purchasing power capacity, wider geographical reach and moreproduct offerings. Consistent innovation and the company’s inorganic growthstrategy have provided CNK with higher growth rate.

Key risksCNK’s inability to drive volumes could lower its bargaining power with businesspartners, deployment of further working capital in subsidiaries and other groupcompanies, unforeseen events like war or disease.

COX & KINGSIndia Equity Research l Hotels

All eyes on HBR

Company Profile

February 7, 2012

EDELWEISS RATINGS


Investment Characteristics Growth

MARKET DATA (R : COKI.BO, B: COXK IN)

CMP : INR 185


52-week range (INR) : 248 / 152





Promoters* : 58.7


FIIs : 21.3

Others : 13.9



BSE Midcap Stock Stock overIndex Index

1 month 15.0 10.4 (4.6)

3 months (4.0) (20.4) (16.4)

12 months (10.2) (14.7) (4.5)

Manish Sarawagi+91 22 4040 7575

[email protected]

Manav Vijay+91 22 4063 [email protected]

Financials


Revenues (INR mn) 3,992 4,967 17,145 43,555Growth (%) 39.1 24.4 245.1 154.0EBIDTA (INR mn) 1,864 2,301 1,122 7,508Net profit (INR mn) 1,064 1,175 (1,711) 2,779Share outstanding (mn) 126 137 137 137EPS (INR) 8.4 8.5 (12.6) 20.2EPS growth (%) 26.8 1.4 (248.8) NADiluted P/E (x) 22.1 21.8 NA 9.2ROAE (%) 20.7 11.7 (15.4) 24.2




Net profit 1,865 1,931 (948) 3,755 Depreciation 151 186 938 1,532 Others (87) 188 1,179 2,268Gross cash flow 1,345 1,765 406 6,579Less:Changes in WC 833 815 (9,145) (1,984)Operating cash flow 512 950 9,552 8,562Less: Capex 312 883 17,160 300Free cash flow 201 67 (7,608) 8,262


ROAE (%) (on adjusted profits) 20.7 11.7 (15.4) 24.2ROACE (%) 21.4 14.5 0.6 14.7Inventory days 5.4 6.2 4 4Debtors days 244.3 263.2 99 47Payable days 309.3 304.6 191 166Cash conversion cycle (59.6) (35.2) (87.5) (115.3)Current ratio 4.5 5.8 0.8 0.8Debt/EBITDA 2.7 3.7 31 4Interest coverage 6.4 3.9 0.1 2.3Fixed assets t/o (x) 5.5 4.9 1.0 2.7Debt/equity 0.6 0.7 3.4 2.4


Diluted EPS (INR) 8.4 8.5 (12.6) 20.2Y-o-Y growth (%) 26.8 1.4 (248.8) NACEPS (INR) 9.7 10.0 (5.7) 31.6Diluted P/E (x) 22.1 21.8 NA 9.2Price/BV(x) 2.9 2.1 2.5 2.0EV/Sales (x) 5.5 4.4 3.3 1.2EV/EBITDA (x) 11.8 9.6 49.9 6.7EV/EBITDA (x)+1 yr forward 10.1 22.5 3.4Dividend yield (%) 0.5 0.5 1.1 1.1


Revenues 39.1 24.4 245.1 154.0EBITDA 53.7 23.4 (51.2) 568.9PBT 60.9 13.9 (152.6) NANet profit 67.9 10.4 (245.6) NAEPS 26.8 1.4 (248.8) NA




Income from operations 3,992 4,967 17,145 43,555Employee cost 994 1,296 2,868 6,414Advertisement expenditure 357 423 1,291 3,106Other expenditure 776 948 11,863 26,527Total operating expenses 2,127 2,667 16,022 36,047EBITDA 1,864 2,301 1,122 7,508Depreciation and amortisation 151 186 938 1,532EBIT 1,714 2,115 185 5,976Interest expenses 270 544 1,467 2,615Other income 137 230 335 395Profit before tax 1,581 1,801 (948) 3,755Provision for tax 517 626 763 976Core profit 1,064 1,175 (1,711) 2,779Extraordinary items 284 130 0 0Profit after tax 1,348 1,305 (1,711) 2,779Less: Minority interests (10) (15) (15) (15)PAT after minority interest 1,338 1,290 (1,726) 2,764EPS (INR) basic 8.4 8 (13) 20Diluted equity shares (mn) 126 137 137 137Dividend payout (%) 5.5 6.2 NA 5.7Tax rate (%) 28 32 33 26


Operating expenses 53.3 53.7 93.5 82.8Depreciation and Amortization 3.8 3.7 5.5 3.5Interest expenditure 6.8 11.0 8.6 6.0EBITDA margins 46.7 46.3 6.5 17.2Net profit margins 26.7 23.7 (10.0) 6.4



Equity capital 629 683 683 683Reserves & surplus 7,472 11,396 9,522 12,137Shareholders funds 8,101 12,079 10,204 12,819Secured loans 2,946 5,443 31,693 27,693Unsecured loans 2,097 3,000 3,000 3,000Borrowings 5,043 8,443 34,693 30,693Deferrex tax (net) 48 91 91 91Sources of funds 13,192 20,613 44,989 43,604Gross block 1,337 1,841 19,001 19,301Depreciation 615 819 1,757 3,289Net block 722 1,021 17,243 16,011Capital work in progress 204 641 641 641Investments 2,584 2,112 3,112 4,112Inventories 83 86 282 716Sundry debtors 3,021 4,142 5,167 5,966Cash and equivalents 3,747 9,613 852 1,687Other current assets 2,715 3,826 4,826 6,326Total current assets 9,565 17,667 11,127 14,696Sundry creditors and others 1,769 2,681 14,047 18,764Provisions 344 350 350 350Total CL & provisions 2,113 3,031 14,397 19,114Net current assets 7,452 14,636 (3,270) (4,418)Net deferred tax 55 28 28 28Uses of funds 13,192 20,613 44,989 43,604Adjusted BV per share (INR) 64 88 75 94


Key takeawaysDabur India (Dabur) posted ~8% YoY volume growth in domestic business in Q3FY12.Management expects volume growth to be sustained at high single digit in comingquarters. The company believes that margins have bottomed out. It expects marginsto improve 100bps per quarter for the next 2 3 quarters despite maintaining adspends at ~13-14% of sales.

New launches: Almond Hair Oil is doing well and expected to be in full traction bymid Feb 2012. Foods business (operational only in India and Nepal) reportedgrowth of 17.4% YoY during Q3FY12 and was impacted largely by base effect (grew~44% YoY in Q3FY11). Management estimates growth moderation in the comingquarters and expects growth to be in higher teens. Nepal had witnessed turmoil inthe past and is back on track now. The company plans to launch a few new productsin this category.

To increase the company’s rural reach, Dabur has revamped its distribution strategy.It will have ~2,000 people outsourced, who will be trained specially for ruralsales and marketing. Each person will be a specialist for a particular rural area.This will help the company focus more intensely on rural areas. Currently, theproject is complete in UP and Maharashtra and Dabur aims to roll this out inseven other states soon. This is likely to benefit the company’s skin care portfolio.

Investment conclusionDabur’s broad product portfolio provides a good play on Indian FMCG spend byvirtue of its strong presence in less penetrated and high growth categories. Dabur’spositioning on the ‘health and wellness’ platform, backed by its ANH (ayurvedic/natural/herbal) image is very progressive. This, combined with its demonstratedability to create new categories and sub-categories, makes it well-placed to capturelifestyle changes-led growth in the FMCG space. Dabur has also demonstrated itsability to make and integrate smart acquisitions (Balsara) that complement itsproduct portfolio and thereby drive inorganic growth.

Key risksA slowdown in rural demand could impact Dabur’s revenues significantly. Furtherrise in competitive intensity. Growth in food business in India needs to be monitored.Management bandwidth post acquisition in international geographies is a concern.

DABUR INDIAIndia Equity Research l Consumer Goods

The health and wellness expert

Company Profile

February 7, 2012


Absolute Rating BUY




MARKET DATA (R : DABU.BO, B: DABUR IN)

CMP : INR 100


52-week range (INR) : 122 / 89





Promoters* : 68.7


FIIs : 19.1

Others : 6.5



Stock Nifty EW Consumer Goods Index

1 month (8.4) 9.6 (1.6)

3 months (3.2) 0.3 0.2

12 months (2.3) (7.1) 20.7

Abneesh Roy+91 22 6620 3141

[email protected]

Harsh Mehta+91 22 4063 [email protected]

Financials


Revenues (INR mn) 34,143 41,045 51,414 59,961Rev. growth (%) 20.9 20.2 25.3 16.6EBITDA (INR mn) 6,470 7,625 8,729 10,449Net profit (INR mn) 5,032 5,686 6,244 7,594Shares outstanding (mn) 1,734 1,740 1,741 1,741Diluted EPS (INR) 2.9 3.3 3.6 4.4EPS growth (%) 16.9 12.7 9.8 21.6Diluted P/E (x) 34.5 30.6 27.9 22.9EV/EBITDA (x) 26.7 23.7 20.3 16.6ROAE (%) 57.6 51.2 42.3 40.3




Net profit 5,032 5,686 6,485 7,778Add: Non cash charge 697 931 1,445 1,433Depreciation 503 624 864 928Others 194 307 582 505Gross cash flow 5,729 6,616 7,931 9,211Less:Changes in WC (127) 2,708 (951) 389Cash from operations 5,857 3,908 8,881 8,822Less: Capex 1,865 9,480 1,470 1,450Free cash flow 3,991 (5,572) 7,411 7,372


ROAE (%) 57.6 51.2 43.8 40.9ROACE (%) 75.6 48.2 37.2 37.6Debtor days 16 21 21 21Inventory days 43 51 51 51Payable days 61 64 65 65Cash conversion cycle (days) (2) 8 7 7Current ratio 1.2 1.3 1.5 1.6Debt/EBITDA 0.3 1.4 1 .0 1 .0Debt/Equity 0.2 0.8 0.6 0.4Adjusted debt/equity 0.2 0.8 0.6 0.4Interest coverage (x) 29.5 23.1 14.2 19.4


Diluted EPS (INR) 2.9 3.3 3.6 4.3Y-o-Y growth (%) 16.9 12.7 9.8 21.6CEPS (INR) 3.2 3.6 4.1 4.9Diluted P/E (x) 34.5 30.6 27.9 22.9Price/BV (x) 18.5 12.4 9.8 7.8EV/Sales (x) 5.1 4.4 3.4 2.9EV/EBITDA (x) 26.7 23.7 20.3 16.6Dividend yield (%) 1.0 1.2 1.3 1.5






Net revenue 33,905 40,774 50,196 58,535Other operating Income 238 271 311 358Total operating income 34,143 41,045 50,508 58,893Cost of materials 15,507 19,053 25,131 29,042Gross profit 18,636 21,992 25,377 29,851Employee costs 2,847 3,222 4,016 4,741Advertisement & sales costs 4,935 5,346 5,773 6,878Others 4,383 5,799 6,526 7,610EBITDA 6,470 7,625 9,063 10,623Depreciation 503 624 864 928EBIT 5,968 7,001 8,199 9,694Other income 244 381 490 534EBIT incl. other income 6,211 7,382 8,689 10,228Net int. & Finance charges 202 303 578 501PBT 6,009 7,079 8,111 9,728Provision for taxation 985 1,390 1,622 1,946Core PAT 5,024 5,689 6,489 7,782Minority interest 8 (3) (4) (4)Pro. af. tax after min. int.&Ass. 5,032 5,686 6,485 7,778Eq. shares outstanding (mn) 1,734 1,740 1,741 1,741EPS (INR) basic 2.9 3.3 3.7 4.5Diluted shares (mn) 1,741 1,750 1,741 1,741EPS (INR) fully diluted 2.9 3.3 3.7 4.5CEPS (INR) 3.2 3.6 4.2 5.0DPS 1.0 1.2 1.3 1.6Dividend payout ratio (%) 34.5 35.2 35.2 35.2


Cost of materials 45.4 46.4 49.8 49.3Employee costs 8.3 7.9 8.0 8.1Advertising & sales costs 14.5 13.0 11.4 11.7Other general expenditure 12.8 14.1 12.9 12.9Depreciation 1.5 1.5 1.7 1.6Net interest expenditure 0.6 0.7 1.1 0.8EBITDA margin 19.0 18.6 17.9 18.0EBIT margin 17.5 17.1 16.2 16.5Net profit margin 14.7 13.9 12.8 13.2



Share capital 869 1,741 1,741 1,741Reserves 8,485 12,170 16,001 20,594Shareholders' funds 9,354 13,911 17,741 22,335Minority 38 41 44 49Secured loans 702 703 4,505 4,280Unsecured loans 1,091 9,807 5,506 5,231Borrowings 1,793 10,510 10,010 9,510Deferred tax liability 107 189 189 189Sources of funds 11,291 24,651 27,985 32,083Gross block 9,857 19,338 20,838 22,338Less depreciation 3,391 4,351 5,214 6,143Net fixed assets 6,466 14,987 15,623 16,195Capital work in progress 301 430 400 350Investments 2,641 4,274 4,274 4,274Current assets 11,058 18,525 21,447 26,244Inventories 4,262 7,085 6,971 8,113Sundry debtors 1,198 3,555 2,912 3,380Cash and bank balance 1,923 2,724 6,403 9,590Loans and advances 3,674 5,161 5,161 5,161Current liabilities 9,202 14,576 14,769 15,990Liabilities 4,669 7,141 7,334 8,555Provisions 4,533 7,435 7,435 7,435Working capital 1,855 3,950 6,677 10,254Misc expenditure 27 1,010 1,010 1,010Uses of funds 11,291 24,651 27,985 32,083BV (INR) 5 8 10 13


Key takeawaysWhile there were margin pressures in the chemicals segment (primarily on higherammonia prices) over the past two quarters, with raw material prices coming offand rupee appreciating, Deepak Fertilisers’ (DFPCL) management guided for amargin improvement going forward.

During 9mFY12, while lower coal mining activity resulted in flattish TAN volumesin India, DFPCL’s TAN sales rose 67% YoY owing to the commissioning of new300,000 MT/yr plant and displacing the import volumes.

Management guides for 75% capacity utilization for the new TAN plant by FY13 endand a total sales volume target of 0.3 mn MT in FY13.

DFPCL posted strong fertiliser performance during 9mFY12 owing to improvedcapacity utilization of ANP plant coupled with significantly higher proportion ofthe high margin traded specialty nutrients.

Management reiterates that the restructuring of Ishanya Mall in Pune is likely to befinished over the next few quarters and would be eventually looking at hiving it off.

Investment conclusionDFPCL is the leader in the Indian Technical Ammonium Nitrate (TAN) market, with30% share. The company has increased its TAN capacity further by 300,000 MTfrom 132,000 MT, at a capex of ~INR 6 bn. With increased capacity, DFPCL’s marketshare in TAN is estimated to rise to ~70% in FY12 by replacing the cheaper gradeTAN imports. With better gas availability, Ammonium Nitrophosphate (ANP)fertiliser capacity utilisation is poised to increase from 25% in FY09 to ~70% inFY12. Also, the capacity utilisation of Methanol is expected to increase from 12%in FY09 to 80% in FY12. DFPCL is well connected to the National Gas Grid to receivegas from multiple sources like Panna-Mukta-Tapti (PMT) gas field, Krishna-Godavari (KG) Basin and ONGC.

Key risksDelay in capacity scale up in new TAN plant. Poor monsoon could hit fertiliserdemand. Delay in payment of subsidies by GoI could strain the company’s WC cycle.Any issues on the supply side of raw materials may impact capacity utilizations.INR volatility may impact the operating margin of the chemicals segment.

DEEPAK FERTILISERSIndia Equity Research l Agriculture

Chemical and infrastructure play

Company Profile

February 7, 2012

EDELWEISS RATINGS

Absolute Rating BUY


MARKET DATA (R : DPFE.BO, B: DFPC IN)

CMP : INR 146


52-week range (INR) : 186 / 118





Promoters* : 43.3


FIIs : 12.9

Others : 34.2




1 month 15.0 15.8 0.8

3 months (4.0) (11.4) (7.4)

12 months (10.2) (7.5) 2.8

Manoj Bahety, CFA+91-22-6623 3362

[email protected]

Varun Guntupalli+91-22-6623 [email protected]

Financials


Revenues (INR mn) 13,293 16,279 21,162 23,890Rev. growth (%) (10.3) 22.5 30.0 12.9EBITDA (INR mn) 2,920 3,578 4,293 4,973Net profit (INR mn) 1,402 1,894 2,176 2,628Share outstanding (mn) 88 88 88 88EPS (INR) 15.9 21.5 24.7 29.8EPS growth (%) (0.1) 35.1 14.9 20.8Diluted P/E (x) 9.2 6.8 5.9 4.9EV/EBITDA (x) 5.9 4.9 4.2 3.3ROE (%) 16.2 19.1 19.0 19.8




Net profit 1,652 1,875 2,176 2,628Depreciation 714 787 994 1,123Others (56) 358 192 108Gross cash flow 2,311 3,021 3,362 3,859Less:Changes in WC 29 683 972 211Operating cash flow 2,281 2,338 2,390 3,648Less: Capex 2,398 1,909 2,144 1,510Free cash flow (117) 429 247 2,139


ROAE (%) (on adjusted profits) 16.2 19.1 19.0 19.8ROACE (%) 14.6 16.0 16.8 18.7Inventory days 50.1 52.7 55.1 60.0Debtors days 65.9 51.8 54.6 59.5Payable days 89.4 77.7 69.1 64.3Cash conversion cycle 26.6 26.7 40.6 55.2Current ratio 2.7 2.7 2.5 2.4Debt/EBITDA 2.5 2.2 1.9 1.2Interest coverage 4.8 6.4 5.6 6.9Fixed assets t/o (x) 1.7 1.7 1.8 1.8Debt/equity 0.8 0.7 0.7 0.4


Diluted EPS (INR) 15.9 21.5 24.7 29.8Y-o-Y growth (%) (0.1) 35.1 14.9 20.8CEPS 23.6 30.4 35.9 42.5Diluted P/E (x) 9.2 6.8 5.9 4.9Price/BV (x) 1.4 1.2 1.1 0.9EV/Sales (x) 1.3 1.1 0.8 0.7EV/EBITDA (X) 5.9 4.9 4.2 3.3


Revenues (10.3) 22.5 30.0 12.9EBITDA 0.1 22.5 20.0 15.8PBT 0.1 28.0 15.7 20.4Net profit (0.1) 35.1 14.9 20.8EPS (0.1) 35.1 14.9 20.8




Income from operations 13,293 16,279 21,162 23,890Direct costs 8,000 9,617 13,141 14,713Employee costs 912 1,097 1,288 1,452Other expenses 1,461 1,987 2,440 2,752Total operating expenses 10,373 12,701 16,869 18,917EBITDA 2,920 3,578 4,293 4,973Depreciation and amortisation 714 787 994 1,123EBIT 2,207 2,791 3,299 3,850Interest expenses 464 439 591 560Other income 356 335 399 452Profit before tax 2,099 2,686 3,107 3,741Provision for tax 697 792 931 1,114Core profit 1,402 1,894 2,176 2,628Extraordinary items 250 (19) 0 0Profit after tax 1,652 1,875 2,176 2,628Adjusted net profit 1,402 1,894 2,176 2,628EPS (INR) basic 15.9 21.5 24.7 29.8Diluted equity shares (mn) 88 88 88 88Dividend payout (%) 28.3 23.3 20.3 18.5Tax rate (%) 29.7 29.7 30.0 29.8





Equity capital 882 882 882 882Reserves & surplus 8,358 9,713 11,373 13,433Shareholders funds 9,240 10,595 12,255 14,315Secured loans 6,090 7,757 8,000 6,000Unsecured loans 1,222 0 0 0Borrowings 7,312 7,757 8,000 6,000Deferred tax liability (net) 658 839 839 839Sources of funds 17,210 19,190 21,094 21,154Gross block 14,581 17,853 21,205 23,016Depreciation 6,491 7,262 8,257 9,380Net block 8,090 10,591 12,949 13,636Capital work in progress 4,144 2,717 1,509 1,208Total fixed assets 12,234 13,308 14,457 14,844Investments 944 548 548 548Inventories 1,163 1,614 2,355 2,482Sundry debtors 2,020 2,596 3,731 4,054Cash and equivalents 2,069 2,697 2,479 1,942Other current assets 1,134 1,550 1,515 1,515Total current assets 6,387 8,458 10,081 9,994Sundry creditors and others 1,708 2,386 2,590 2,594Provisions 646 737 1,403 1,637Total CL & provisions 2,354 3,124 3,993 4,231Net current assets 4,033 5,334 6,088 5,762Uses of funds 17,210 19,190 21,094 21,154Adjusted BV per share (INR) 105 120 139 162


Key takeawaysOut of the total market of 6.8mn subscribers, Dish TV hopes to add 0.9-1.0mnadditional subscribers in Phase 1. Dish TV stands to benefit most from Phase 2.

Incremental market share for Dish TV, Airtel and Videocon d2h is ~25%.

Dish TV has 0.14mn HD subscribers. HD subscriber base will increase when majorbroadcasters start offering HD technology.

Subscriber additions slowed in November and December 2011 primarily due tohike in prices of set top boxes. The slowdown continues in January as well.

The impact of the INR10 price hike in the base pack in the third week of November2011 was not felt in Q3FY12 due to lag effect. Going forward, the company’s focusremains on digitization and not ARPU.

The company believes that churn is high due to lower quality of subscriber additionin earlier quarters because of low entry price of the set top box. Also, there wereno major sporting events during FY12 which resulted in higher churn.

Gross debt stands at INR12bn, of which ~INR7.5bn constitute foreign loans. Thedebt figure is expected to remain stable in the next quarter as well.

Content cost is estimated to rise 15% YoY from Q1FY13 due to renegotiation ofdeals with broadcaster for the next three years each.

Investment conclusionDish TV’s first mover advantage and strong distribution network help boostsubscriber additions. The company has also managed to cut costs by shiftingfrom variable to fixed-cost content contracts with most broadcasters. It is alsoexpected to benefit from the digitization mandate which will speed up thedigitization process.

Key risksCompetition from other DTH service providers.

Competition from alternative technologies especially digital cable.

The DTH industry is subject to extensive regulations and hence it faces the risk ofan unfavorable regulatory environment.

Sustained economic slowdown.

DISH TV INDIAIndia Equity Research l Media

Beaming bright

Company Profile

February 7, 2012


Absolute Rating BUY




MARKET DATA (R : DSTV.BO, B: DITV IN)

CMP : INR 63







Promoters* : 64.8


FIIs : 11.7

Others : 17.8



Stock Nifty EW Media Index

1 month 1.8 9.6 5.3

3 months (15.7) 0.3 5.9

12 months 1.1 (7.1) (28.6)

Abneesh Roy+91 22 6620 3141

[email protected]

Alankar Garude+91 22 6623 [email protected]

Financials


Revenues (INR mn) 10,850 14,367 19,353 24,006Rev. growth (%) 47.0 32.4 34.7 24.0EBITDA (INR mn) 1,117 2,380 4,732 6,688Net profit (INR mn) (2,622) (1,920) (1,163) 18Share outstanding (mn) 1,063 1,063 1,063 1,063EPS (INR) (2.5) (1.8) (1.1) 0.0EPS growth (%) 75.6 26.8 39.4 101.6EV/EBITDA (x) 60.0 30.3 15.5 10.6




Net profit (2,622) (1,920) (1,163) 18 Depreciation 3,227 3,996 4,916 5,895 Others 601 271 979 775Gross cash flow 1,206 2,346 4,732 6,688Less:Changes in WC (1,125) (1,602) (2,199) (2,544)Operating cash flow 2,331 3,948 6,931 9,233Less: Capex 3,940 7,826 7,020 6,050Free cash flow (1,609) (3,878) (89) 3,183


ROACE (%) (29.0) (17.3) (2.0) 8.6Inventory days 15 7 6 7Debtors days 2 2 2 2Payable days 1 1 1 1Cash conversion cycle 2 29 (15) (15)Current ratio (2.2) (1.1) (0.1) 0.5Debt/EBITDA 323 233 217 213Interest coverage 0.7 0.4 0.4 0.5Fixed assets t/o (x) 8.3 4.5 2.5 1.7Debt/equity 2.5 29.1 (15.1) (14.8)


Diluted EPS (INR) (2.5) (1.8) (1.1) 0.0Y-o-Y growth (%) 75.6 26.8 39.4 101.6CEPS 0.6 2.0 3.5 5.6EV/Sales (x) 6.2 5.0 3.8 3.0EV/EBITDA (X) 60.0 30.3 15.5 10.6


Revenues 47.0 32.4 34.7 24.0EBITDA 190.6 113.2 98.8 41.3PBT NA NA NA NANet profit NA NA NA NAEPS NA NA NA NA




Income from operations 10,850 14,367 19,353 24,006Direct costs 6,926 7,861 10,142 11,805Employee costs 514 761 774 960Other expenses 2,294 3,364 3,704 4,553Total operating expenses 9,733 11,986 14,621 17,318EBITDA 1,117 2,380 4,732 6,688Depre. and amortisation 3,227 3,996 4,916 5,895EBIT (2,111) (1,615) (184) 793Interest expenses 971 1,534 1,560 1,495Other income 453 1,226 581 720Profit before tax (2,628) (1,923) (1,163) 18Provision for tax (6) (3) - -Core profit (2,622) (1,920) (1,163) 18Profit after tax (2,622) (1,920) (1,163) 18PAT after minority interest (2,622) (1,920) (1,163) 18Adjusted net profit (2,622) (1,920) (1,163) 18EPS (INR) basic (2.5) (1.8) (1.1) 0.0Diluted equity shares (mn) 1,063 1,063 1,063 1,063


Operating expenses 89.7 83.4 75.5 72.1Depreciation and Amortization 29.7 27.8 25.4 24.6Interest expenditure 8.9 10.7 8.1 6.2EBITDA margins 10.3 16.6 24.5 27.9Net profit margins (24.2) (13.4) (6.0) 0.1



Equity capital 1,062 1,063 1,063 1,063Reserves & surplus 2,706 (693) (1,856) (1,838)Shareholders funds 3,768 370 (793) (775)Secured loans 9,143 10,763 12,000 11,500Deferred revenues 179 - - -Borrowings 9,322 10,763 12,000 11,500Sources of funds 13,090 11,133 11,207 10,725Gross block 18,344 25,131 32,131 38,531Depreciation 7,298 10,694 15,610 21,505Net block 11,046 14,437 16,521 17,026Capital work in progress 3,541 4,580 4,600 4,250Total fixed assets 14,587 19,017 21,121 21,276Investments 3,561 2,000 2,000 1,500Inventories 28 44 46 53Sundry debtors 359 227 394 489Cash and equivalents 5,550 3,385 3,554 5,962Other current assets 4,966 2,558 3,445 4,274Total current assets 10,903 6,214 7,439 10,778Sundry creditors and others 14,243 13,077 16,332 19,808Provisions 1,718 3,021 3,021 3,021Total CL & provisions 15,960 16,098 19,354 22,829Net current assets (5,057) (9,884) (11,914) (12,051)Uses of funds 13,090 11,133 11,207 10,725Adjusted BV per share (INR) 4 0.3 (0.75) (1)


Key takeawayseClerx Services (eClerx) stated that it continues to see traction in SMS segment andthe recent marquee client wins will help it post higher growth than Banking CapitalMarket (BCM) segment.. Further, it has not witnessed any scale down in BCMclients led by ongoing macro economic uncertainties. However, quarterly growthtrend could moderate due to uncertainty and delays at clients end.

It is focused on increasing contribution of clients beyond top 5 by dedicated salesefforts and has seen increasing traction from them. However, in the near term Top5 client contribution will continue to remain at current level as demand from themalso continues to be strong.

Over the past 18-20 months the company has scaled up its onsite businessdevelopment team from 23 to 41 and will continue to add further as it intends tomine further its top clients.

Currently, it has 15 clients in BCM and ~35 in the SMS segment.

Investment conclusioneClerx is a strongly differentiated play in India’s burgeoning KPO space and standsout by virtue of its business model. The company has built a strong and relativelyuncontested position in specific high opportunity segments such as data analytics& management and process improvement solutions thus positioning itself as anestablished provider of specialised services. It inks multi-year annuity contractsfacilitated by ongoing engagements, which has helped the company forge apredictable revenue stream leading to attractive profitability. Strong financialtrack record marked by significant profitability and return ratios, strong executionand management are eClerx’s distinctive factors. We expect eClerx’s earningsgrowth at 26% CAGR over FY11-13E.

Key risksSupply side pressures could affect client servicing and margins.

Volatility in exchange rates could impact the company’s financials meaningfully.

Process automation and adverse regulations could impact the existing business.

ECLERX SERVICESIndia Equity Research l IT

Going's good

Company Profile

February 7, 2012


Absolute Rating BUY




MARKET DATA (R : ECLE.BO, B: ECLX IN)

CMP : INR 729


52-week range (INR) : 874 / 580





Promoters* : 54.8


FIIs : 23.5

Others : 11.2

* Promoters pledged shares : NIL (% of share in issue)


Stock Nifty EW IT Index

1 month 2.2 9.6 (1.5)

3 months (3.0) 0.3 4.0

12 months 3.8 (7.1) (3.9)

Kunal Sangoi+91-22- 6623 [email protected]

Sandip Agarwal+91-22- 6623 3474

[email protected]

Omkar Hadkar+91-22- 6620 [email protected]

Financials


Revenues (INR mn) 2,570 3,421 4,827 5,938 Growth (%) 30.3 33.1 41.1 23.0 EBITDA (INR mn) 1,004 1,346 2,037 2,438 Net profit (INR mn) 735 1,224 1,725 1,956 Shares outstanding (mn) 30 30 30 30 Diluted EPS (INR) 24.8 40.7 57.2 64.9 EPS growth (%) 14.2 64.3 40.6 13.4 Diluted P/E (x) 29.6 18.0 12.8 11.3 EV/EBITDA (x) 19.5 14.3 9.3 7.6 ROAE (%) 40.2 55.9 62.2 54.8




ROAE (%) 40.2 55.9 62.2 54.8ROACE (%) 92.0 75.4 96.5 103.7Debtors (days) 60 56 60 63Payable (days) 32 30 30 30Cash conversion cycle 28 26 30 33Current ratio 2.9 2.5 2.0 2.1Fixed assets turnover (x) 12.8 13.6 13.1 12.1Total asset turnover(x) 7.0 14.5 13.8 12.8Equity turnover(x) 1.4 1.6 1.7 1.7


Diluted EPS (INR) 24.8 40.7 57.2 64.9Y-o-Y growth (%) 14.2 64.3 40.6 13.4CEPS (INR) 28.3 45.8 63.4 72.7Diluted P/E (x) 29.6 18.0 12.8 11.3Price/BV(x) 10.9 9.2 7.0 5.6EV/Revenues (x) 7.6 5.6 3.9 3.1EV/EBITDA (x) 19.5 14.3 9.3 7.6EV/EBITDA (x)+1 yr forward 14.6 9.4 7.8 7.3Dividend yield (%) 1.6 3.1 4.0 4.6




Revenues 2,570 3,421 4,827 5,938Cost of revenues 1,078 1,477 2,007 2,472Gross profit 1,492 1,945 2,820 3,466Total SG&A expenses 489 599 782 1,027EBITDA 1,004 1,346 2,037 2,438Depreciation & amortization 70 91 124 164EBIT 934 1,255 1,914 2,275Other income (106) 240 242 171Exceptionals 0 103 0 0Profit before tax 828 1,392 2,156 2,445Tax 93 168 430 489Core profit 735 1,224 1,725 1,956Profit after tax 735 1,224 1,725 1,956Net profit after minority interest735 1,224 1,725 1,956Shares outstanding (mn) 28 29 29 29EPS (INR) basic 25.8 42.7 59.2 67.1Diluted shares (mn) 30 30 30 30EPS (INR) diluted 24.8 40.7 57.2 64.9CEPS (INR) 28.3 45.8 63.4 72.7Dividend per share 11.7 22.6 29.6 33.5Dividend pay out (%) 45.4 53.0 50.0 50.0


Cost of revenues 41.9 43.2 41.6 41.6Gross margin 58.1 56.8 58.4 58.4SG&A expenses 19.0 17.5 16.2 17.3EBITDA margin 39.0 39.3 42.2 41.1EBIT margin 36.3 36.7 39.7 38.3Net profit margins 28.6 35.8 35.7 32.9



Equity share capital 193 292 295 295Share premium account 740 667 727 727Reserves 1,066 1,425 2,141 2,953Total shareholders funds 1,999 2,384 3,163 3,975Sources of funds 1,999 2,384 3,163 3,975Goodwill & other intan.asset 101 0 0 0Gross fixed assets 446 639 889 1,169Less: Accum. depreciation 246 335 458 622Net fixed assets 199 305 431 547Capital WIP 22 65 50 60Investments 775 279 1,300 1,450Deferred tax asset 7 7 7 7Cash & bank balances 472 1,515 1,023 1,372Debtors 392 659 926 1,139Loans and advances 501 698 873 1,091Total current assets 1,366 2,873 2,822 3,601Sundry creditors 220 350 437 546Provisions 251 795 1,009 1,144Total current liabilities 471 1,144 1,446 1,690Working capital 894 1,728 1,375 1,911Application of funds 1,999 2,384 3,163 3,975BV per share (INR) 67 79 105 132


Revenues 30.3 33.1 41.1 23.0EBITDA 23.2 34.1 51.4 19.7EBIT 27.0 34.4 52.5 18.9PBT 19.2 68.1 54.9 13.4Net profit 18.9 66.5 40.9 13.4EPS 14.2 64.3 40.6 13.4


Net profit 735 1,224 1,725 1,956Add : Non cash chargesDepreciation 70 91 124 164Others (53) (607) (145) (225)Gross cash flow 753 709 1,704 1,895Less:Changes in WC 147 (209) 139 187Operating cash flow 606 918 1,566 1,708Less: Capex 84 237 235 290Free cash flow 522 681 1,331 1,418


Key takeawaysEmami believes the current severe winter will not have a significant impact onvolume growth primarily on account of delayed winter. Volume growth to be littleless than 10% in Q3FY12. However, growth is likely to pick up in Q4FY12 (~12-13%). Boroplus is expected to grow in single digits in Q3FY12.

Fair and Handsome has performed well to grow at 25% plus YoY, thereby gainingmarket market share (after five quarters of market share loss).

Emami expects its organic annual growth to normalize at 18-19% for the next two-three years and PAT growth of ~20% YoY. The company launched Vasocare lip balm,Vasocare body lotion and Boroplus face wash and also smaller size SKU in Zandubalm (INR2) which the company expects to be the next growth drivers.

Key raw material, menthol (18% of COGS), is facing severe inflation. It is currentlytrading at INR1,700/kg from INR700/kg a year ago. Emami has booked menthol ataverage price of ~INR1,600/kg in the current quarter. Emami has taken 6-7% pricehike in FY12 and it will not roll back price hikes once raw material pressure eases.

Investment conclusionEmami’s product portfolio provides a play on Indian FMCG spend by virtue of itsstrong presence in less penetrated and high growth categories. More than 80% ofEmami’s products have Ayurvedic base. The therapeutic usage gives customerloyalty leading to high gross margins, high barriers to entry, strong brand equity,mass acceptance and superior growth opportunities. Emami has a superior trackrecord of launching new brands (Fair & Handsome, first fairness cream for men inIndia) and transforming them into blockbusters. Emami does not compete withany large multinational or domestic player in its key segments. Introduction oflower SKUs for Zandu balm and rejuvenating more than 200 of Zandu’s Ayurvedic-based prescription products will be another growth driver for Emami.

Key risksSeasonality risk is one of the biggest risks to Emami. Summer products (like talc)and winter products (like Boroplus) sales depend upon weather conditions.Fluctuation in crude-linked prices affect raw material cost for Emami (~50% rawmaterial is crude linked) leading to margin pressure.

EMAMIIndia Equity Research l Consumer Goods

Blockbuster player

Company Profile

February 7, 2012


Absolute Rating BUY


Risk Rating Relative to Sector High


MARKET DATA (R : EMAM.BO, B: HMN IN)

CMP : INR 365


52-week range (INR) : 545 / 320





Promoters* : 72.7


FIIs : 15.8

Others : 8.7




1 month (0.6) 9.6 (1.6)

3 months (14.5) 0.3 0.2

12 months (15.2) (7.1) 20.7

Abneesh Roy+91 22 6620 3141

[email protected]


Financials


Revenues (INR mn) 10,380 12,778 15,334 18,426Rev. growth (%) 35.5 23.1 20.0 20.2EBITDA (INR mn) 2,465 2,534 2,783 3,565Net profit (INR mn) 1,697 2,287 2,561 3,137Shares outstanding (mn) 151 151 151 151Diluted EPS (INR) 11.2 15.1 16.9 20.7EPS growth (%) 69.7 34.8 12.0 22.5Diluted P/E (x) 32.5 24.1 21.5 17.6EV/EBITDA (x) 22.8 21.8 19.4 14.8ROAE (%) 36.6 34.8 35.9 40.2




ROAE (%) 36.6 34.8 35.9 40.2ROACE (%) 29.9 27.3 27.3 32.5Debtor days 26 26 26 26Inventory days 28 29 29 29Payable days 51 33 33 33Cash conversion cycle (days) 3 23 23 22Current ratio 2.6 3.6 3.9 4.4Debt/EBITDA 1.1 0.9 0.8 0.6Debt/Equity 0.4 0.3 0.3 0.3Adjusted debt/equity 0.4 0.3 0.3 0.3Interest coverage (x) 11.0 (21.4) (22.7) (26.2)








Net revenues 10,380 12,778 15,334 18,426Cost of materials 3,805 5,232 6,471 7,684Gross profit 6,575 7,546 8,863 10,742Employee costs 579 737 981 1,152Advert. & sales costs 1,944 2,305 2,760 3,178Commission and Discount 116 68 153 221Freight and forwarding 227 363 498 645Others 1,244 1,539 1,687 1,981EBITDA 2,465 2,534 2,783 3,565Depreciation 154 140 185 259EBIT 2,310 2,394 2,598 3,306Other income 70 185 232 302EBIT incl. other income 2,380 2,580 2,830 3,608Net interest & Finance charges* 210 (112) (115) (126)PBT 2,171 2,691 2,944 3,734Provision for taxation 352 404 383 597Extraordinary items (net of tax) 121 0 0 0Core PAT 1,697 2,287 2,561 3,137Pro. af. tax af. Min. Int. & Asso. 1,697 2,287 2,561 3,137Equity shares outstanding (mn) 151 151 151 151EPS (INR) basic 11.2 15.1 16.9 20.7Diluted shares (mn) 151 151 151 151EPS (INR) fully diluted 11.2 15.1 16.9 20.7CEPS (INR) 12.2 16.0 18.2 22.4DPS 3 4 6 7Dividend payout ratio (%) 31.3 27.0 41.0 41.0


Cost of materials 36.7 40.9 42.2 41.7Employee costs 5.6 5.8 6.4 6.3Advertising & sales costs 18.7 18.0 18.0 17.3Other general expenditure 12.0 12.0 11.0 10.8Depreciation 1.5 1.1 1.2 1.4Net interest expenditure 2.0 (0.9) (0.7) (0.7)EBITDA margin 23.7 19.8 18.2 19.4EBIT margin 22.3 18.7 16.9 17.9Net profit margin 16.4 17.9 16.7 17.0



Share capital 151 151 151 151Reserves 6,103 6,747 7,239 8,070Shareholders' funds 6,254 6,899 7,391 8,222Secured loans 1,492 1,756 1,756 1,756Unsecured loans 1,098 537 537 537Borrowings 2,591 2,294 2,294 2,294Deferred tax liability 70 137 137 137Sources of funds 8,914 9,330 9,822 10,653Goodwill on consolidation 0 8 8 8Gross block 7,638 7,993 8,643 9,018Less depreciation 2,027 3,148 4,354 5,635Net fixed assets 5,611 4,845 4,288 3,383Capital work in progress 62 65 65 65Investments 616 66 66 66FX translation difference (14) 0 0 0Current assets 4,260 5,997 7,261 9,211Inventories 826 1,234 1,232 1,475Sundry debtors 755 1,089 1,102 1,319Cash and bank balance 1,614 2,105 3,358 4,847Loans and advances 1,065 1,570 1,570 1,570Current liabilities 1,621 1,651 1,867 2,079Liabilities 927 917 1,133 1,346Provisions 695 733 733 733Net current assets 2,639 4,347 5,395 7,132Misc expenditure 0.4 0.1 0.0 0.0Uses of funds 8,914 9,330 9,822 10,653BV (INR) 41 46 49 54


Net profit 1,697 2,287 2,561 3,137Add: Non cash charge 485 28 70 133Depreciation 154 140 185 259Others 331 (112) (115) (126)Gross cash flow 2,183 2,315 2,632 3,270Less:Changes in WC 475 751 (205) 248Cash from operations 1,707 1,564 2,837 3,022Less: Capex 571 355 650 375Free cash flow 1,137 1,209 2,187 2,647


Key takeawaysLow risks of marketing margins; lower subsidy share in Q4

Total LPG/kerosene under-recovery for 9mFY12 is ~INR400bn, of which GAIL sharesINR21.2bn. Upstream share in Q4 is expected at 37.91% (same as 9mFY12).

Risks of marketing margins being regulated looks low as marketing margins wereearlier decided by a cabinet committee (superior to PNGRB). PNGRB’s role is totypically regulate transmission charges and has no role in marketing margins.High returns enjoyed by CGD companies so far were due to focus on CNG (ability topass on costs is higher) and availability of APM gas. With increased focus onPNG, incremental marketing margins will be lower as PNG will be competing withsubsidized LPG.

Growth and expansion plans

Current transmission volume is ~118 mmscmd, of which KG-D6 volume is 24mmscmd (earlier 30 mmscmd). This is expected to clock 123 mmscmd in FY13/FY14. GAIL is currently importing ~16 spot cargos a year and plans to import 20 inFY13/FY14, 40 in FY15 and 80 in FY16. The Marubeni contract will continue for ~2more years – can increase from current 1 cargo/qtr to 2 cargoes/qtr. GAIL hasreserved ~2.5 mtpa in the 5.0 mtpa PLNG Dahej expansion. PLNG’s Kochi terminalwill be completed by Dec 2012 while GAIL’s Phase-I pipeline servicing the samewill be ready by Aug 2012. In Kochi, GAIL has tied up for 1.5 mmscmd gas. Petchemexpansion plan to double capacity to 900KT by Apr 2014. FY13E capex at INR85bn(pipelines = INR35bn; petchem INR35bn).

Investment conclusionWe remain neutral on GAIL due to decline in Indian gas availability, probabletariff cut, and lack of near-term earnings growth. GAIL’s quality of earnings remainslow as the share of gas trading income rises.

Key risksFalling domestic gas production. Tariff reduction in existing pipelines by theregulator. Rise in crude prices leading to higher subsidy sharing. Cap on marketingmargins on domestic gas by PNGRB.

GAILIndia Equity Research l Oil, Gas and Services

Muted transmission volume growth

Company Profile

February 7, 2012




Risk Rating Relative to Sector Low


MARKET DATA (R : GAIL.BO, B: GAIL IN)

CMP : INR 379


52-week range (INR) : 485 / 360


M cap (INR bn/USD mn) : 481 / 9.564



Promoters* : 57.3


FIIs : 13.5

Others : 4.0



Stock Nifty EW O & G Index

1 month (5.0) 9.6 8.0

3 months (12.3) 0.3 (1.1)

12 months (18.8) (7.1) (5.8)


Financials


Net revenues (INR mn) 270,353 351,067 474,331 522,981Revenue growth (%) 9.6 29.9 35.1 10.3EBITDA (INR mn) 54,718 64,970 74,129 73,495Net profit (INR mn) 33,278 40,210 44,941 42,830Share outstanding (mn) 1,268 1,268 1,268 1,268Diluted EPS (INR) 26.2 31.7 35.4 33.8EPS growth (%) 17.7 20.8 11.8 (4.7)Diluted P/E (x) 14.4 12.0 10.7 11.2EV/EBITDA (x) 8.8 8.0 7.7 8.6ROAE (%) 19.7 20.1 19.4 16.3



Cash flow statement (INR bn)Year to March FY10 FY11 FY12E FY13E

Net profit 33,278 40,210 44,941 42,830Add: Depreciation 8,462 8,093 10,106 11,928Add: Deferred tax 727 2,498 4,277 4,626Add: Others (2,336) (1,514) (1,131) (471)Gross cash flow 40,132 49,287 58,192 58,913Less:Changes in WC (15,786) 8,683 17,474 2,149Opertaing cash flow 55,918 40,604 40,718 56,764Less: Capex 57,519 71,961 85,149 103,810Free cash flow (1,601) (31,357) (44,431) (47,046)


Diluted EPS (INR) 26.2 31.7 35.4 33.8Y-o-Y growth (%) 17.7 20.8 11.8 (4.7)CEPS (INR) 32.9 40.0 46.4 46.4Diluted P/E (x) 14.4 12.0 10.7 11.2P/BV (x) 2.7 2.3 2.0 1.7EV/Sales (x) 1.8 1.5 1.2 1.2EV/EBITDA (x) 8.8 8.0 7.7 8.6Dividend yield (%) 2.0 2.0 2.1 2.2


Revenues 9.6 29.9 35.1 10.3EBITDA 24.0 18.7 14.1 (0.9)PBT 12.7 19.5 12.5 (4.7)Net profit 18.1 19.9 12.6 (4.8)EPS 17.7 20.8 11.8 (4.7)


Income statement (INR bn)


Net revenues 270,353 351,067 474,331 522,981Raw material costs 179,474 247,109 351,276 396,903Gross profit 90,880 103,958 123,054 126,078Employee expenses 6,689 8,179 10,602 11,448Other expenses 29,473 30,808 38,322 41,135Operating expenses 36,162 38,988 48,925 52,583Total expenditure 215,635 286,097 400,201 449,486EBITDA 54,718 64,970 74,129 73,495Depreciation & amortisation 8,234 8,880 10,106 11,928EBIT 46,483 56,090 64,024 61,568Interest expense 3,853 3,779 4,442 5,675Other income 5,797 5,574 5,559 6,161Profit before tax 48,427 57,886 65,140 62,054Current tax 14,586 15,683 16,174 14,861Deferred tax 727 2,498 4,277 4,626Total tax 15,313 18,181 20,451 19,488Core profit 33,114 39,705 44,688 42,566Extraord./ Prior period items (191) 104 0 0Profit after tax 32,923 39,809 44,688 42,566Share in profits of associates 355 401 252 264Group profit 33,278 40,210 44,941 42,830Eq. shares outstanding (mn) 1,268 1,268 1,268 1,268EPS (INR) basic 26.2 31.7 35.4 33.8Diluted shares (mn) 1,268 1,268 1,268 1,268EPS (INR) fully diluted 26.2 31.7 35.4 33.8CEPS 32.9 40.0 46.4 46.4DPS 7.5 7.5 8.0 8.5Dividend payout (%) 28.6 23.7 22.6 25.2


Cost of goods sold 66.4 70.4 74.1 75.9Operating expenses 13.4 11.1 10.3 10.1EBITDA margins 20.2 18.5 15.6 14.1Depreciation & amortisation 3.0 2.5 2.1 2.3Interest 1.4 1.1 0.9 1.1Net profit margin 12.3 11.5 9.5 8.2

Balance sheet (INR bn)


Total equity capital 12,685 12,685 12,685 12,685Reserves & surplus 165,415 199,454 232,437 262,551Shareholder's equity (A) 178,100 212,139 245,121 275,236Minority interest (B) 2,302 5,472 5,472 5,472Secured loans 49,994 62,640 132,510 180,377Unsecured loans 4,138 6,401 6,900 6,900Total debt (C) 54,132 69,041 139,410 187,277Deferred tax liability (D) 14,650 17,151 21,428 26,055Sources of funds (A+B+C+D) 249,184 303,803 411,432 494,040Total fixed assets (A) 202,123 265,990 341,033 432,915Investments (B) 10,651 12,363 12,545 12,545Inventories 8,578 10,586 14,148 15,492Accounts receivable 15,108 21,023 22,219 29,119Cash and cash equivalents 45,486 25,844 40,773 29,380Loans and advances 76,828 65,587 104,169 111,569Other current assets 145 129 216 240Current assets (C) 146,145 123,168 181,525 185,800Accounts payable 59,201 55,414 66,175 75,462Other current liab. & prov. 50,535 42,304 57,496 61,728Current liab. & prov. (D) 109,735 97,717 123,671 137,190Net current assets (E) 36,410 25,450 57,854 48,610Miscellaneous expenditure (G) 0 0 0 (30)Uses of funds (A+B+E+F+G) 249,184 303,803 411,432 494,040Book value per share 140 167 193 217


ROACE 21.3 21.2 18.5 14.0ROAE 19.7 20.1 19.4 16.3ROA 14.5 14.4 12.5 9.4Current ratio 1.3 1.3 1.5 1.4Quick ratio 1.3 1.2 1.4 1.2Cash ratio 0.4 0.3 0.3 0.2Receivable turnover (x) 17.4 19.4 21.9 20.4Inventory turnover (x) 22.7 25.8 28.4 26.8Payables turnover (x) 3.5 4.3 5.8 5.6Receivables (days) 21 19 17 18Inventory (days) 16 14 13 14Payables (days) 106 85 63 65Cash conversion cycle (days) (68) (52) (34) (34)Debt-equity (x) 0.3 0.3 0.6 0.7Debt/EBITDA 1.0 1.1 1.9 2.5Adjusted debt/Equity 0.3 0.3 0.6 0.7


Key takeawaysBase business to grow over 20% during FY12-14E: Management is confident ofmaintaining 20% plus revenue growth in key geographies such as US, India, SRMand LatAm markets driven by new product launches and streamlining the focus inkey therapeutic segments such as Dermatology, Respiratory, Oncology and CVS.Company highlighted that base business has now attained scale and size fromwhere it could be self sustainable.

R&D assets: Best among peers: Despite several setbacks, Glenmark continued toinvest in NCE/NBE research which demonstrates its conviction in the R&Dcapabilities. Management has highlighted that there are 7-8 important data pointswhich have potential to generate incremental milestone income in FY13E ifsuccessful.

Margin to improve going forward: Management has indicated that margins havebottomed out and expects them to head North going forward. Margin expansionwill be driven by improved traction in India, niche launches in US and lower R&Dcost as percentage of sales. We expect margin to improve 200bps over FY14E.

Improved focus on profitability a positive: Glenmark’s focus on improving cashconversion cycle should allay concerns on high receivables. Its overall debt andworking capital position have improved which has led to higher free cash flowsduring 9mFY12. Management indicated positive cash flow of INR2.25bn whichhighlights its focus on profitable growth.

Investment conclusionGlenmark has made significant investments in base business over FY05-11, largelyutilising cash flow from domestic business and R&D income. However, basebusiness has now attained sizeable scale which is self sustainable. We expect19% CAGR in core business over FY12-14E. Also, the company’s focus on improvingcash cycle should allay concerns on high receivables. With strong earnings traction(34% CAGR), better cash conversion cycle, gearing and return profile, Glenmark ispoised for re-rating.

Key risksDisappointments in NCE pipeline.

Regulatory risks in US market.

GLENMARK PHARMACEUTICALSIndia Equity Research l Pharmaceuticals

On road to recovery

Company Profile

February 7, 2012


Absolute Rating BUY




MARKET DATA (R : GLEN.BO, B: GNP IN)

CMP : INR 295


52-week range (INR) : 351 / 241





Promoters* : 48.3


FIIs : 34.2

Others : 12.4



Stock Nifty EW Pharma Index

1 month 12.2 9.6 20.3

3 months 3.4 0.3 14.8

12 months 0.3 (7.1) 15.1

Manoj Garg+91-22-6623 3302

[email protected]


Financials


Revenues (INR mn) 25,006 29,491 38,806 43,743Rev growth (%) 18.2 17.9 31.6 12.7Operating profit (INR mn) 6,195 6,573 9,862 9,287Adj. PAT (INR mn) 2,995 3,914 6,701 6,113Adj. EPS (INR) 270 12 16 20Recurring EPS (INR) 10.4 11.7 15.7 19.8EPS growth (%) (7.9) 12.6 34.0 26.3P/E (x) 28.5 21.3 15.9 12.6EV/EBITDA (x) 15.7 15.1 9.8 10.1Core ROE (%) 14.3 14.8 20.3 20.4




Core ROAE (%) 14.8 20.3 20.6 20.9Core ROACE (%) 11.8 16.2 18.9 21.9Inventory days 160 150 146 149Debtors days 141 127 120 119Payable days 122 119 115 118Cash conversion cycles 179 158 152 150Current ratio 3.4 3.2 3.0 3.1Debt/ EBITDA 3.2 1.7 1.5 1.0Debt/equity 1.0 0.6 0.4 0.3




Revenues 17.9 28.2 13.1 15.6EBITDA 6.1 55.2 (6.3) 23.1Net profit 58.0 31.1 (8.4) 24.2PBT 42.4 45.9 (7.3) 32.0Adj. EPS 30.5 73.4 (8.4) 24.2Recurring EPS 12.6 34.2 28.3 29.0




Income from operations 29,491 37,818 42,774 49,433Net revenues 28,599 35,178 42,774 49,433Milestone income 892 2,640 0 0Total operating expenses 22,918 27,615 33,214 37,668Materials cost 9,918 11,609 14,073 15,769Employee cost 5,103 5,804 7,002 8,058R&D cost 1,380 2,111 2,524 2,867Selling, admin and gen. exp. 5,592 6,156 7,310 8,404Other expenses 925 1,935 2,306 2,571EBITDA 6,573 10,203 9,560 11,765Depre. and amortisation 947 1,003 1,214 1,316EBIT 5,626 9,200 8,346 10,449Interest expense/(income) 1,566 1,386 1,132 933Other income 1,405 158 176 237Profit before tax 5,466 7,972 7,390 9,753Provision for tax 237 1,116 1,109 1,951Core profit 5,228 6,856 6,282 7,802Extraordinary items (650) 0 0 0Profit after tax 4,578 6,856 6,282 7,802Minority interest & others 46 69 63 78Rep. profit after mino. int. 4,532 6,788 6,219 7,724Adj. PAT after minority int. 3,914 6,788 6,219 7,724EPS (INR) adjusted 14.5 25.1 23.0 28.6Diluted shares (mn) 270 270 270 270Recurring EPS (INR) fully diluted 11.7 15.7 20.1 25.9CEPS (INR) 22.7 28.8 27.5 33.5Dividend per share (INR) 0.5 0.6 0.6 1.2Dividend payout (%) 3.2 2.3 2.5 4.1


Cost of revenues 34.7 33.0 32.9 31.9Selling, admin and gen. exp. 19.6 17.5 17.1 17.0R & D cost 4.8 6.0 5.9 5.8Total operating expenses 80.1 78.5 77.7 76.2Depre. and amortisation 3.3 2.9 2.8 2.7EBITDA margins 19.9 21.5 22.4 23.8Net profit margins 11.3 13.7 14.5 15.6



Equity capital 270 270 270 270Reserves & surplus 20,102 26,800 32,924 40,410Common shareholders eq. 20,372 27,070 33,194 40,680Short term debt 14,802 13,802 12,802 11,302Long term debt 6,314 3,314 1,314 314Borrowings 21,116 17,116 14,116 11,616Deferred tax liability (net) (1,081) (1,081) (1,081) (1,081)Minority interest 267 267 267 267Sources of funds 40,675 43,373 46,496 51,482Gross block 12,489 17,020 19,770 22,020Depreciation 2,152 3,155 4,369 5,685Net block 10,337 13,865 15,401 16,335Capital work in progress 1,781 - - -Intangible assets & goodwill 10,005 9,755 9,505 9,255Inventories 8,070 9,539 11,189 12,670Sundry debtors 11,308 13,236 14,971 17,302Cash and bank balances 1,986 966 688 2,037Loans and advances 4,932 4,916 5,347 5,932Total current assets 26,297 28,658 32,195 37,941Current liabilities 6,574 7,393 8,894 10,071Provisions 1,172 1,513 1,711 1,977Total cur. lia. and provisions 7,746 8,906 10,605 12,048Net current assets 18,551 19,753 21,590 25,893Uses of funds 40,675 43,373 46,496 51,482Book value per share ( INR) 75 100 123 151


Net profit 4,532 6,788 6,219 7,724Depreciation 947 1,003 1,214 1,316Others (1,496) 69 63 78Gross cash flow 3,983 7,859 7,496 9,119Less:Changes in WC (3,528) 2,221 2,116 2,953Operating cash flow 7,511 5,638 5,380 6,166Less: Capex 3,708 2,500 2,500 2,000Free cash flow 3,802 3,138 2,880 4,166


Key takeaways15-16% volume growth is sustainable in soaps. Margins in soaps declined YoY butexpect them to be better sequentially. Management has hinted at further price hikes.

HIT magic paper to be launched in H2FY13.

Despite growth trailing the hair colour category, management is confident ofimproving it and plans to support the category with strong marketing initiatives.It plans to launch new hair care products in H1FY13.

International sales grew 68% YoY backed by a strong growth of 35% YoY in Indonesiaand 251% YoY in Africa (primarily due to DGH merger). Revival was seen in LatAmbusiness.

GCPL will complete the second and third phases of DGH acquisition by September2012 and September 2013, respectively. Post this, it will work towards acquiringthe balance 49% stake in DGH.

New packaging law, if implemented, will affect SKU sales in soaps and eliminatethe INR5 and INR10 price points. However, if the government agrees to industryproposals to bar below 50g SKUs, GCPL will not be affected.

Investment conclusionGCPL boasts of a patented technology for PHDs that has helped it drive usage ofhair colours at the lower end of the market. The company also provides high-quality value-for-money soaps which helped it garner larger market share. GCPL’saggressive stance to take its operations to the international platform has resultedin several acquisitions in past three years. The company can be expected to benefitfrom its new ventures, increasing consumer spending and inorganic growth goingforward.

Key risksIntegration of recent overseas acquisitions will test the execution capabilities ofGCPL management. Depreciating INR can yield to rise in cost of dollar denominateddebt. GCPL’s ability to gain market share in its soap segment could be adverselyaffected by the aggression of HUL, ITC, Wipro, etc. The entry of new players has putpressure on GCPL’s hair colour business because of which it has been losingmarket share at the top end of the market.

GODREJ CONSUMER PRODUCTSIndia Equity Research l Consumer Goods

The right hue

Company Profile

February 7, 2012


Absolute Rating BUY




MARKET DATA (R : GOCP.BO, B: GCPL IN)

CMP : INR 443


52-week range (INR) : 463 / 326





Promoters* : 67.3


FIIs : 19.9

Others : 10.4




1 month 11.1 9.6 (1.6)

3 months 2.1 0.3 0.2

12 months 12.5 (7.1) 20.7

Abneesh Roy+91 22 6620 3141

[email protected]


Financials






Net profit 3,395 5,147 6,756 6,620Add: Non cash charge 347 687 531 2,365Depreciation 236 499 671 892Others 111 188 (141) 1,473Gross cash flow 3,743 5,834 7,287 8,985Less:Changes in WC (887) 1,316 (890) (294)Cash from operations 4,630 4,519 8,177 9,279Less: Capex 779 14,999 8,016 9,415Free cash flow 3,851 (10,480) 161 (136)


ROAE (%) 44.5 35.9 27.6 28.4ROACE (%) 43.2 25.3 18.2 19.5Debtor days 16 25 25 25Inventory days 39 35 35 35Payable days 92 84 84 84Cash conversion cycle (days) (38) (23) (24) (24)Current ratio 1.6 1.7 1.6 1.4Debt/EBITDA 0.1 3.1 3 2Debt/Equity 0.0 1.2 1.0 1.0Adjusted debt/equity 0.0 1.2 1.0 1.0Interest coverage (x) 34.6 11.4 7.2 8.2








Net revenues 20,412 36,430 45,356 56,461Cost of materials 9,463 17,488 21,544 26,678Gross profit 10,949 18,942 23,812 29,783Employee costs 1,518 2,845 3,515 4,348Advt. & sales costs 2,015 4,099 5,171 6,437Others 3,343 5,590 7,076 8,893EBITDA 4,073 6,407 8,051 10,107Depreciation 236 499 671 892EBIT 3,837 5,908 7,379 9,215Other income 473 729 907 960EBIT incl. other income 4,310 6,637 8,287 10,175Net int. & Finance charges 111 519 1,023 1,125PBT 4,199 6,118 7,264 9,050Provision for taxation 803 1,302 1,671 2,081Core PAT 3,395 4,816 5,593 6,968Extraordinary items (net of tax) 0 331 1,443 0Minority interest 0 0 (280) (348)Pro.af. tax af. min. int. & Asso. 3,395 5,147 6,756 6,620Equity shares outstanding (mn) 308 324 324 324EPS (INR) basic 11.0 14.9 16.4 20.5Diluted shares (mn) 308 324 324 324EPS (INR) fully diluted 11.0 14.9 16.4 20.5CEPS (INR) 11.7 16.4 19.4 24.3DPS 4.0 5.0 6.9 6.8Dividend payout ratio (%) 37.0 31.7 33.0 33.0





Share capital 308 324 324 324Reserves 9,239 16,928 20,997 24,984Shareholders' funds 9,547 17,252 21,321 25,308Minority 0 0 280 628Secured loans 369 17,017 2,205 2,505Unsecured loans 0 3,037 19,849 22,549Borrowings 369 20,054 22,054 25,054Deferred tax liability 66 14 14 14Sources of funds 9,981 37,320 43,669 51,004Gross block 4,149 19,147 27,147 36,547Less depreciation 1,532 3,775 4,446 5,338Net fixed assets 2,617 15,373 22,702 31,210Capital work in progress 8 154 170 185Goodwill 3,119 15,404 15,404 15,404Investments 670 0 0 0Current assets 9,095 15,062 14,186 15,089Inventories 2,644 4,394 4,369 5,423Sundry debtors 1,153 3,840 3,096 3,838Cash and bank balance 3,052 2,269 2,163 1,269Other Current Asset 0 122 122 122Loans and advances 2,247 4,437 4,437 4,437Current liabilities 5,528 8,673 8,793 10,884Liabilities 5,326 8,448 8,568 10,659Provisions 202 225 225 225Working capital 3,567 6,389 5,393 4,205Uses of funds 9,981 37,320 43,669 51,004BV (INR) 31 53 66 78


Key takeawaysMarket leadership to be maintained in both Cement and VSF

With capacity expansion of 9.2mtpa (estimated commissioning in Q1FY14) incement and 156ktpa in VSF (estimated commissioning in Q4FY13) Grasim Industries(Grasim) will maintain its market leadership in both these segments. Postcompletion of the current expansion plan, the company’s total cement capacitywill increase to 62mtpa (capex outlay INR56bn) and VSF capacity will increase to490ktpa (capex outlay INR21bn). Total capex is ~INR144bn including the capexmentioned above and other capex for power plants, logistic infrastructure andmodernisation and upgradation projects.

Sustainable growth for cement industry

Grasim expects cement demand in India to grow at over 8% (in line with GDPgrowth) over the next few years and believes the current surplus scenario to subsideover two-three years, aiding gradual improvement in cement realisation.

Investment conclusionVolumes of both VSF and cement are estimated to significantly outperform theindustry growth in FY14, post completion of the current capex plan. Over the longterm, Grasim intends to maintain its current market share of 18% and will hencelook at further expansions. In VSF, the company has recently formalised plans toset up 180ktpa greenfield capacity in Turkey in joint venture with group companies.The company’s balance sheet continues to remain strong with D/E ratio of just0.3x.

Key risksSharp decline in prices of cement and VSF will significantly impact earnings.

Spike in coal and diesel cost will impact margin.

GRASIM INDUSTRIESIndia Equity Research l Cement

On terra firma

Company Profile

February 7, 2012


Absolute Rating BUY




MARKET DATA (R : GRAS.BO, B: GRASIM IN)

CMP : INR 2,485


52-week range (INR) : 2,625 / 1,981





Promoters* : 25.5


FIIs : 23.5

Others : 33.0



Stock Nifty EW Cement Index

1 month 4.2 9.6 2.4

3 months 3.5 0.3 5.5

12 months 9.3 (7.1) 19.7

Navin Sahadeo+91-22-6623 3473

[email protected]

Prasad Baji+91-22-4040 [email protected]

Financials


Revenues (INR mn) 199,334 212,690 233,360 259,471Rev. growth (%) 6.70 9.72 11.19EBITDA (INR mn) 57,867 46,832 53,856 54,588Net profit (INR mn) 27,595 22,790 25,647 24,082Share outstanding (mn) 91.7 91.7 91.7 91.7EPS (INR) 301.0 248.5 279.6 262.6EPS growth (%) (17.4) 12.5 (6.1)Diluted P/E (x) 8.3 10.0 8.9 9.5EV/EBITDA (x) 4.4 5.5 5.1 5.5ROE (%) 28.5 21.4 21.7 17.8




ROAE (%) 28.5 21.4 21.7 17.8ROACE (%) 28.0 19.2 19.8 16.6Debtors (days) 16 20 25 20Current ratio 1.2 1.4 1.4 1.4Debt/EBITDA 1.0 1.4 1.3 1.2Interest cover (x) 14.3 8.7 16.5 14.3Fixed assets turnover (x) 1.5 1.5 1.3 1.5Total asset turnover (x) 0.9 0.8 0.8 0.8Equity turnover(x) 1.7 1.6 1.5 1.4Debt/Equity (x) 0.4 0.5 0.4 0.4Adjusted debt/Equity 0.4 0.5 0.4 0.4


Diluted EPS (INR) 301.0 248.5 279.6 262.6Y-o-Y growth (%) 26.2 (17.4) 12.5 (6.1)CEPS (INR) 442.8 441.4 483.9 468.0Diluted P/E (x) 8.3 10.0 8.9 9.5Price/BV(x) 1.8 1.6 1.3 1.2EV/Sales (x) 1.3 1.2 1.2 1.2EV/EBITDA (x) 4.4 5.5 5.1 5.5Dividend yield (%) 1.2 0.8 1.2 1.2


Revenues 8.3 6.7 9.7 11.2EBITDA 33.7 (19.1) 15.0 1.4PBT 38.4 (22.8) 21.4 (4.0)Core net profit 30.9 (15.4) 17.5 (6.3)EPS 26.2 (17.4) 12.5 (6.1)




Income from operations 199,334 212,690 233,360 259,471Total operating expenses 141,467 165,858 179,504 204,883EBITDA 57,867 46,832 53,856 54,588Depreciation & amortisation 9,947 11,384 10,368 11,059EBIT 47,920 35,449 43,488 43,529Interest 3,346 4,056 2,641 3,050Total other income 5,356 7,135 5,911 4,423Profit before tax 49,930 38,528 46,758 44,902Provision for tax 15,705 9,576 12,747 13,038Core profit 34,225 28,952 34,012 31,864Profit after tax 37,586 28,952 34,012 31,864Less: Minority interest 6,631 6,162 8,364 7,782Core profit after min. int. 27,595 22,790 25,647 24,082Shares outstanding (mn) 91.7 91.7 91.7 91.7Core EPS af. min. int (INR) basic301.0 248.5 279.6 262.6Diluted shares (mn) 92 92 92 92Core EPS after min. int (INR) dil.301.0 248.5 279.6 262.6Dividend per share (INR) 30 20 30 30Dividend payout (%) 12.8 16.6 8.7 13.4


Operating expenses 71.0 78.0 76.9 79.0Depreciation and amortisation 5.0 5.4 4.4 4.3Interest expenditure 1.7 1.9 1.1 1.2EBITDA margins 29.0 22.0 23.1 21.0Net profit margins 17.2 13.6 14.6 12.3


Net profit 27,595 22,790 34,012 31,864 Depreciation 9,947 11,384 10,368 11,059 Deferred tax (3569) 151 0 0 Others 11,011 9,584 0 0Gross cash flow 44,984 43,909 44,380 42,923Less:Changes in WC (3,271) 8,299 48 2,699Operating cash flow 48,254 35,610 44,332 40,225Less: Capex 14,555 14,326 51,300 55,000Free cash flow 33,699 21,284 (6,968) (14,775)



Equity capital 917 917 917 917Other Share capital 363 377 377 377Reserves & surplus 123,967 144,439 167,849 188,712Shareholders funds 125,246 145,734 169,144 190,006Minority interest 37,548 43,514 52,223 60,696Secured loans 38,508 38,346 38,346 38,346Unsecured loans 17,484 29,481 29,481 29,481Borrowings 55,992 67,827 67,827 67,827Deferred tax (Net) 20,057 19,616 19,616 19,616Sources of funds 238,844 276,691 308,809 338,145Gross block 209,439 228,066 254,566 274,566Depreciation 71,646 83,749 94,118 105,177Net block 137,793 144,316 160,448 169,389Capital work in progress 7,734 13,578 38,378 73,378Intangible assets 20,071 24,203 24,203 24,203Investments 66,759 79,333 67,333 54,333Inventories 21,835 27,216 28,531 32,012Sundry debtors 8,803 14,346 15,472 16,241Cash and bank balances 2,370 2,844 5,982 1,678Loans and advances 12,362 14,378 14,378 14,378Other current assets 10 0 0 0Total current assets 45,379 58,784 64,363 64,310Sundry creditors and others 30,370 35,753 38,145 39,697Provisions 8,522 7,771 7,771 7,771Total current liab. & prov. 38,891 43,524 45,916 47,467Net current assets 6,488 15,261 18,448 16,842Uses of funds 238,844 276,691 308,809 338,145Book value per share (BV) 1,366 1,589 1,844 2,072


Key takeawaysHavells India (Havells) reiterated its strategy of being a multi-product companywith strong focus on brand strengthening.

Given that large part of capex is done over the past few years, incremental capexis going to be lower during FY13.

To focus on new products like appliances and switchgear exports.

The company will continue its focus on distributors and have about 5,000distributors with about 100,000 touch points.

In Sylvania, profitability dropped due to performance of the European region andthis is where restructuring helped.

The company is looking at 10-15% growth in Latin America.

Havells is looking at consolidating its outsourcing from China (currently at 55-60%) through its joint venture with a local partner. It is looking at changing theproduct mix from lamps to fixtures which is expected to help improve margin.

Investment conclusionWe expect Havells to continue to grow its domestic business on the back of strongproduct portfolio. HAVL is currently one of the fastest growing fans brands in theIndian market with market share at ~14%. The company has launched innovativeproducts with its energy efficient fans (consuming only 50W) making it the largestenergy efficient fan in the country. In the switchgear market, HAVLS is the market leaderin the low voltage segment with ~ 28% share (market size INR 12 bn) with the largestmanufacturing facility (48 mn pieces per annum) in the country. It has the secondlargest CFL manufacturing capacity in India at 50 mn annually. In India, the companyhas a network of ~4,000 distributors spread across the four regions servicing ~100,000retailers. In international business, we believe Sylvania is on track to turnaroundbusiness and improve overall margin with growth primarily coming from emergingmarkets like Latin America and Asia including new markets. Any meaningful growth inthe European region could provide significant operating leverage.

Key risksSlowdown in domestic business. Slowdown in the international business couldput pressure on margins.

HAVELLS INDIAIndia Equity Research l Engineering and Capital Goods

Electrifying growth

Company Profile

February 7, 2012


Absolute Rating BUY




MARKET DATA (R : HVEL.BO, B: HAVL IN)

CMP : INR 485


52-week range (INR) : 506 / 290





Promoters* : 61.6


FIIs : 19.1

Others : 18.1




1 month 9.2 9.6 16.1

3 months 18.5 0.3 (7.1)

12 months 21.5 (7.1) (25.5)




[email protected]

Financials - Consolidated


Revenues (INR mn) 54,315 56,126 65,455 73,346Rev. growth (%) (1.8) 3.8 10.8 11.8EBITDA (INR mn) 3,222 5,571 6,976 8,101Net profit (INR mn) 696 3,099 3,988 4,763Share outstanding (mn) 125 125 125 125EPS (INR) 5.6 24.6 32.0 38.2EPS growth (%) 74.4 341.3 29.9 19.4Diluted P/E (x) 86.8 19.7 15.1 12.7EV/EBITDA (x) 21.6 12.5 10.0 8.4ROE (%) 13.7 58.3 48.2 39.2




ROAE (%) (on adjusted profits) 13.7 58.3 45.5 37.7ROACE (%) 14.3 28.7 28.4 27.8Inventory days 91 98 105 108Debtors days 49 48 49 58Payable days 166 165 158 156Cash conversion cycle (26) (19) (4) 10Current ratio 1.2 1.3 1.4 1.6Debt/EBITDA 3.3 2.0 1.7 1.4Interest coverage 2.4 5.3 5.5 6.7Fixed assets t/o (x) 6.2 6.0 6.5 7.4Debt/equity 2.7 1.7 1.1 0.8




Revenues (0.8) 3.3 17.3 11.0EBITDA 11.7 72.9 19.0 15.2PBT 100.0 152.0 14.5 19.4Net profit 80.8 341.3 20.6 19.1EPS 74.4 341.3 20.6 19.1

Financial Statements - Consolidated



Income from operations 54,315 56,126 65,862 73,119Direct costs 32,430 35,753 41,069 45,770Employee costs 7,645 6,405 6,734 6,886Other expenses 11,019 8,398 11,430 12,829Total operating expenses 51,093 50,556 59,233 65,485EBITDA 3,222 5,571 6,629 7,634Depreciation & amortisation 837 804 1,012 1,191EBIT 2,385 4,766 5,617 6,443Interest expenses 979 902 1,026 965Other income 222 237 108 132Profit before tax 1,628 4,102 4,698 5,610Provision for tax 932 1,031 996 1,201Core profit 696 3,071 3,702 4,409Extraordinary items - 31 - -Profit after tax 696 3,102 3,702 4,409Less: Minority interests - (4) - -PAT after minority interest 696 3,099 3,702 4,409Adjusted net profit 696 3,099 3,702 4,409EPS (INR) basic 5.6 24.6 29.7 35.3Diluted equity shares (mn) 125 125 125 125Dividend payout (%) 38.9 11.8 15.2 12.7Tax rate (%) 57.2 25.1 21.2 21.4




Net profit 696 3,102 3,702 4,409 Depreciation 837 804 1,012 1,191 Deferred tax 331 99 - - Others (1,493) 584 1,243 958Gross cash flow 371 4,589 5,957 6,558Less:Changes in WC (2,543) 2,013 2,459 3,619Operating cash flow 2,914 2,576 3,498 2,938Less: Capex 1,077 1,647 1,500 600Free cash flow 1,837 929 1,998 2,338



Equity capital 312 624 624 624Reserves & surplus 3,690 5,914 9,117 13,027Shareholders funds 4,002 6,537 9,741 13,651Secured loans 9,963 10,473 10,323 10,173Borrowings 10,664 11,173 11,023 10,873Minority Interest 2 6 6 6Sources of funds 14,668 17,717 20,770 24,530Gross block 26,963 28,454 29,729 30,329Depreciation 18,089 18,499 19,511 20,701Net block 8,874 9,955 10,219 9,628Capital work in progress 336 249 249 249Total fixed assets 9,210 10,204 10,468 9,877Goodwill 3,212 3,354 3,354 3,354Inventories 8,250 10,860 12,798 14,396Sundry debtors 6,982 7,724 10,105 13,021Cash and equivalents 1,481 1,779 2,109 2,841Loand & Advances 1,574 1,615 1,776 2,132other current assets 102 100 110 121Total current assets 18,389 22,077 26,899 32,510Sundry creditors and others 15,555 16,722 18,893 20,154Provisions 321 639 499 499Total CL & provisions 15,876 17,361 19,392 20,653Net current assets 2,513 4,717 7,507 11,857Net deferred tax (266) (559) (559) (559)Uses of funds 14,668 17,717 20,770 24,530Adjusted BV per share (INR) 32 52 78 109


Key takeawaysAsset quality continues to be good as in terms of business practices, sourcingfrom branches have gone up. Also, on CV, SME segment the bank is resorting torelationship banking wherein cash flows indicate any upcoming stress in advance.Proportion of sales from DSA is also trending down.

Moderation in corporate loan book is due to conscious stance to allow someshort-term loans to run-off and reduced marginal NIMs being generated on thesame.

Retail has seen strong growth due to increase in market share in some segmentsand benefiting from network expansion—CVs, credit cards and personal loans. CVsegment – in value terms, MHCV will be higher; mix has definitely shifted moretowards LCV in the past few quarters as it qualifies for PSL as well. Unsecuredportion is now 19% of the portfolio and continues to do well.

Slippages continue to be fairly stable QoQ. Actual losses in retail segment arelower than expected—retail charge-offs are offset by better recoveries as well asnormal write-offs.

Forex revenues normally grow at 15-20% on annual basis. Quarterly volatility islikely.

NIMs to be maintained in the 3.9-4.3% range.

Gold loans now constitute 1% of the loan book and likely to touch 4-5% over thenext 3-4 years.

The bank is carefully watching impact of saving bank rate hikes by a few privatesector banks before making any changes on the same.

Investment conclusionQuality of earnings continues to improve given stable NIMs, steady advance growthand benign LLPs. With stressed assets (restructured + GNPA) at a mere 1.4%, it isbest placed to navigate through asset quality pressures.

Key risksHigher than expected decline in CASA ratio and change in macro environment mayimpact cost of funds and consequently margins. Lower–than-expected asset growth.

HDFC BANKIndia Equity Research l Banking and Financial Services

Quality player

Company Profile

February 7, 2012






MARKET DATA (R : HDBK.BO, B: HDFCB IN)

CMP : INR 510


52-week range (INR) : 519 / 396


M cap (INR bn/USD mn) : 1,193 / 23,751



Promoters* : 23.2


FIIs : 29.7

Others : 36.2




1 month 10.1 9.6 15.8

3 months 2.6 0.3 3.9

12 months 17.8 (7.1) (6.2)




[email protected]

Financials


Net revenues (INR mn) 121,942 148,783 177,250 207,288Net rev. growth (%) 13.8 22.0 19.1 16.9Net profit (INR mn) 29,487 39,264 50,677 61,985Shares outstanding (mn) 2,289 2,326 2,326 2,326Diluted EPS (INR) 12.9 16.9 21.8 26.6EPS growth (%) 22.1 31.0 29.1 22.3Diluted PE (x) 39.5 30.2 23.4 19.1Price to book (x) 5.4 4.7 4.1 3.5ROAE (%) 16.3 16.7 18.6 19.6




Diluted EPS 12.9 16.9 21.8 26.6EPS growth (%) 22.1 31.0 29.1 22.3Book value per share (INR) 94 109 126 146Adj. book value/share (INR) 93 108 124 144Diluted P/E (x) 39.5 30.2 23.4 19.1Price/ BV (x) 5.4 4.7 4.1 3.5Price/ ABV (x) 5.5 4.7 4.1 3.5Dividend yield (%) 0.5 0.6 0.8 0.9




Interest income 161,729 199,282 252,164 293,618Interest expenses 77,863 93,851 128,420 148,743Net Interest income 83,866 105,431 123,744 144,874Non interest income 38,076 43,352 53,506 62,414- Fee & forex income 34,408 45,176 51,952 60,158- Misc. income 177 (1,290) 755 755- Investment profits 3,491 (534) 800 1,500Net revenues 121,942 148,783 177,250 207,288Operating expense 57,645 71,529 84,159 94,251 - Employee exp 22,892 28,360 33,081 36,084 - Other opex 34,753 43,169 51,079 58,167Preprovision profit 64,297 77,254 93,091 113,037Provisions 21,406 19,067 18,566 21,882- Loan loss provisions 19,389 14,330 16,566 19,882- Other provisions 2,017 4,737 2,000 2,000PBT 42,891 58,187 74,525 91,154Taxes 13,404 18,923 23,848 29,169PAT 29,487 39,264 50,677 61,985Reported PAT 29,487 39,264 50,677 61,985EPS (INR) 12.9 16.9 21.8 26.6DPS (INR) 2.4 3.0 4.0 4.8Payout ratio (%) 21.7 22.7 24.2 24.3


NII growth 13.0 25.7 17.4 17.1Fees growth 12.6 31.3 15.0 15.8Opex growth 4.2 24.1 17.7 12.0PPOP growth 26.9 27.9 18.6 20.9PPP growth 24.2 20.2 20.5 21.4Provisions growth 13.9 (10.9) (2.6) 17.9PAT growth 31.3 33.2 29.1 22.3





LiabilitiesEquity capital 4,577 4,652 4,652 4,652Reserves 210,648 249,140 287,564 334,457Net worth 215,225 253,793 292,216 339,109Sub bonds/pref cap 63,531 73,928 83,928 93,928Deposits 1,674,044 2,085,864 2,419,642 2,864,786Borrowings 65,626 70,013 85,740 110,740Other liabilities 206,160 289,929 338,703 406,443Total 2,224,586 2,773,526 3,220,229 3,815,006AssetsLoans 1,258,306 1,599,827 1,919,792 2,303,750InvestmentsGilts 510,504 536,518 613,823 729,009Others 75,572 172,776 166,167 183,117Cash & equi 299,424 296,688 333,623 393,338Fixed assets 21,228 21,707 23,858 24,914Other assets 59,552 146,011 162,964 180,877Total 2,224,586 2,773,526 3,220,229 3,815,006Balance sheet ratios (%)Credit growth 25.9 26.4 20.0 20.0Deposit growth 17.2 24.6 16.0 18.4EA growth 28.7 21.9 18.7 17.8SLR ratio 29.3 24.9 24.5 24.5C-D ratio 75.9 77.3 79.9 81.0Low-cost deposits 52.0 52.7 50.5 49.5Gross NPA ratio 1.4 1.1 1.0 1.2Net NPA ratio 0.3 0.2 0.2 0.3Provision coverage 78.4 82.5 77.1 72.2Incremental slippage 2.6 1.1 1.3 1.5Net NPA / Equity 1.8 1.2 1.5 2.2Capital adequacy 16.5 14.0 13.0 13.0 - Tier 1 12.5 10.5 9.5 9.5Book value (INR) 94.0 109.1 125.6 145.8


Net interest income/Assets 4.3 4.4 4.4 4.4Fees/Assets 1.8 1.8 1.9 1.8Investment profits/Assets 0.2 (0.0) 0.0 0.0Net revenues/Assets 6.3 6.3 6.3 6.2Operating expense/Assets (3.0) (3.0) (3.0) (2.8)Provisions/Assets (1.1) (0.8) (0.7) (0.7)Taxes/Assets (0.7) (0.8) (0.8) (0.9)Total costs/Assets (4.7) (4.6) (4.5) (4.4)ROA 1.5 1.7 1.8 1.9Equity/Assets 9.3 9.9 9.7 9.5ROAE 16.3 16.7 18.6 19.6


Key takeawaysHexaware highlighted its growth confidence for CY12 is emanating from: (a)incremental revenues from ramp up of large deals (USD250mn and USD177mndeal); (b) visibility of higher than company growth from 8 of the top 10 clients; (c)strong revenue exit rate posted in Q4CY11; and (d) pipeline of large deals that it ischasing (while this is not factored in growth guidance).

The account management structure that has been in place for top 25 accounts sofar, is now to be extended for the next 10 accounts. Its revamped sales (focused onstrength areas) and account management structure have driven significant growthfrom its top 10 clients and increased the wallet share.

Multiple margins levers remain. Despite EBITDA margin reaching 23% (20%adjusted for currency benefit), Hexaware is likely to sustain or improve marginshereon. Key margin levers include higher off shoring, broadening of employeepyramid (40% fresher intake), utilization, bill rates and G&A leverage.

It is chasing five large deals (TCV > USD25mn) of which, it is in advanced stage ofnegotiations in two. Interestingly, these are relatively new clients where thecompetition has been higher.

Importantly, growth from existing large clients is helping it scale younger servicelines e.g., IMS that now has over 400 people.

Investment conclusionOver the past one year Hexaware has focused on improving operational efficienciesand re-aligned itself vertically from earlier horizontal sales-based approach.Further, strengthening of the sales force with 16 new recruits and new deal winsreported in the past six months are likely to result in improving revenue tractiongoing forward. In addition, high US and BFSI exposure should aid growth in animproving macro environment. We see Hexaware fundamentally strengthened withthe recent initiatives and with a healthy cash position it is well poised to exploreinorganic growth opportunities as well.

Key risksDouble dip recession in its major market US and prolonged slowdown in Europe.Appreciation of INR against USD, EUR, and GBP. Inadequate availability ofmanpower.

HEXAWARE TECHNOLOGIESIndia Equity Research l IT

Sailing on strong winds

Company Profile

February 7, 2012


Absolute Rating BUY




MARKET DATA (R : HEXT.BO, B: HEXW IN)

CMP : INR 101







Promoters* : 28.2


FIIs : 41.4

Others : 21.0




1 month 8.2 9.6 (1.5)

3 months (6.5) 0.3 4.0

12 months 45.6 (7.1) (3.9)


Sandip Agarwal+91-22- 6623 [email protected]

Omkar Hadkar+91-22- 6620 3147

[email protected]

Financials

Year to December CY09 CY10 CY11E CY12E

Revenues (INR mn) 10,386 10,545 14,505 18,860Rev. growth (%) (9.8) 1.5 37.6 30.0EBITDA (INR mn) 2,023 938 2,646 3,876Net profit (INR mn) 1,343 1,077 2,668 3,125Shares outstanding (mn) 298 297 299 299Diluted EPS (INR) 4.5 3.6 8.9 10.5EPS growth (%) 95.8 (19.6) 145.7 17.1Diluted P/E (x) 22.4 27.8 11.3 9.7EV/EBITDA (x) 12.3 26.3 9.4 6.0ROAE (%) 17.8 9.4 26.2 26.9



RatiosYear to December CY09 CY10 CY11E CY12E

ROAE (%) 17.8 9.4 26.2 26.9ROACE (%) 24.7 8.3 24.5 33.1Debtors (days) 63 60 60 62Payable (days) 88 60 41 38Cash conversion cycle (25) (0) 20 23Current ratio 2.1 2.8 3.1 3.1Fixed assets turnover (x) 5.9 5.5 6.0 6.1Total asset turnover(x) 1.3 1.1 1.4 1.6Equity turnover(x) 1.4 1.2 1.4 1.6

Valuation parametersYear to December CY09 CY10 CY11E CY12E

Diluted EPS (INR) 4.5 3.6 8.9 10.5Y-o-Y growth (%) 95.8 (19.6) 145.7 17.1CEPS (INR) 5.6 3.8 10.0 11.6Diluted P/E (x) 22.4 27.8 11.3 9.7Price/BV(x) 3.4 3.0 2.8 2.4EV/Revenues (x) 2.4 2.3 1.7 1.2EV/EBITDA (x) 12.3 26.3 9.4 6.0EV/EBITDA (x)+1 yr forward 26.5 9.3 6.4 5.9Dividend yield (%) 0.7 2.0 4.0 4.5



Year to December CY09 CY10 CY11E CY12E

Revenues 10,386 10,545 14,505 18,860Cost of revenues 5,643 6,915 8,939 11,728Gross profit 4,743 3,630 5,566 7,133Total SG&A expenses 2,720 2,692 2,920 3,257EBITDA 2,023 938 2,646 3,876Depreciation & Amortization 270 242 248 272EBIT 1,753 696 2,398 3,604Other income (307) 249 677 297Profit before tax 1,446 945 3,075 3,901Tax 103 92 407 776Core Profit 1,343 853 2,668 3,125Extraordinary income/(loss) - 224 - -Profit after tax 1,343 1,077 2,668 3,125Net profit after min. interest 1,343 1,077 2,668 3,125Shares outstanding (mn) 286.9 290.1 292.3 292.3EPS (INR) basic 4.7 3.7 9.1 10.7Diluted shares (mn) 297.5 296.6 299.1 299.1EPS (INR) diluted 4.5 3.6 8.9 10.5CEPS (INR) 5.6 3.8 10.0 11.6Dividend per share 0.7 2.0 4.0 4.5Dividend (%) 70.1 200.4 199.9 225.0Dividend pay out (%) 15.0 54.0 43.8 42.1

Common size metrics as % of net revenuesYear to December CY09 CY10 CY11E CY12E

Cost of revenues 54.3 65.6 61.6 62.2Gross margin 45.7 34.4 38.4 37.8G&A expenses 26.2 25.5 20.1 17.3SG&A expenses 26.2 25.5 20.1 17.3EBITDA margin 19.5 8.9 18.2 20.6EBIT margin 16.9 6.6 16.5 19.1Net profit margins 12.9 8.1 18.4 16.6

Growth metrics (%)Year to December CY09 CY10 CY11E CY12E

Revenues (9.8) 1.5 37.6 30.0EBITDA 57.0 (53.6) 182.1 46.5EBIT 72.1 (60.3) 244.5 50.3PBT 76.2 (34.6) 225.4 26.9Net profit 101.6 (36.5) 212.8 17.1EPS 95.8 (19.6) 145.7 17.1

Cash flow statement (INR mn)Year to December CY09 CY10 CY11E CY12E

Net profit 1,343 1,077 2,668 3,125Depreciation 270 242 248 272Others (304) (634) (657) (297)Gross cash flow 1,309 685 2,259 3,100Less:Changes in working capital (201) 563 947 (389)Operating cash flow 1,511 122 1,312 3,489Less: Capex 82 (542) 665 528Free cash flow 1,429 665 647 2,961


As on 31st December CY09 CY10 CY11E CY12E

Equity share capital 290 291 585 585Share premium account 4,726 4,774 4,479 4,479Reserves 3,482 4,590 5,647 7,473Total shareholders funds 8,497 9,655 10,711 12,537Borrowings 163 112 - -Deferred tax liability 10 13 13 13Sources of funds 8,670 9,780 10,724 12,551Goodwill & other intan.asset 1,207 1,160 1,160 1,160Gross fixed assets 3,298 3,469 4,667 5,369Less: Accum. depreciation 1,404 1,519 1,767 2,039Net fixed assets 1,893 1,950 2,899 3,329Capital WIP 1,258 969 436 262Investments 1,269 397 500 1,000Deferred tax asset 121 182 162 162Cash & bank balances 2,992 4,356 4,101 5,326Debtors 1,526 1,919 2,861 3,514Loans and advances 1,113 1,632 1,200 1,000Total current assets 5,632 7,907 8,163 9,840Sundry creditors 1,998 1,475 1,745 2,222Provisions 710 1,309 850 980Total current liabilities 2,709 2,785 2,595 3,202Working capital 2,923 5,123 5,567 6,638Application of funds 8,670 9,780 10,724 12,551BV per share (INR) 30 33 37 43


Key takeawaysHDFC maintains its guidance of 20% loan growth, 2.2% spreads and steady assetquality. While Mumbai and Delhi are seeing some moderation in demand, it isbeing offset by robust demand from other metros and Tier-1 cites.

HDFC has outstanding loans under Dual Rate Home Loan scheme of INR223bn andthis entire portfolio will be converted into floating rate loans on April 1, 2012.

Of the 36% lending exposure to the non individual segment, developer loans accountfor 12% while lease rental discounting constitutes 13 14%.

HDFC had USD1.1bn of foreign currency denominated liabilities, which werecompletely hedged as of FY11. It has entered into USD697mn cross currency swapsand interest rate swap converting its fixed rate INR liability into floating rateforex liability to trim the overall cost of borrowing. Besides using principal onlyswaps, currency option, forward contracts and cross currency swaps for hedging,it has build USD denominated assets of USD500 600mn to create a natural hedgeagainst currency movement risk.

HDFC has been carrying zero coupon bonds of ~INR73bn (equivalent to the valueof its investments in subsidiaries) and interest on ZCBs of ~INR7bn will be adjustedagainst its net worth as per its accounting policy.

Investment conclusionHDFC’s performance in 9mFY12 reinforces our expectation of 20% loan growth,stable margins (at 3.5%) and an insignificant stress on asset quality. We maintainour estimate of 18% CAGR in PAT over FY11 13E; interest on zero coupon bonds andstandard asset provisioning will be adjusted against excess reserves/networth.

Key risksIncrease in competition and sustained slack in the mortgage market can lead tolower growth than our estimates. Higher than expected increase in funding costand inability to pass the cost to customers in the current tightening monetaryenvironment will adversely affect margins and profitability. Risk of fraud and NPAaccretion due to increase in interest rates and fall in property prices is inherent tothe mortgage business.

HDFCIndia Equity Research l Banking and Financial Services

The big daddy

Company Profile

February 7, 2012



Rating Relative to Sector Underperformer



MARKET DATA (R : HDFC.BO, B: HDFC IN)

CMP : INR 686


52-week range (INR) : 736 / 582


M cap (INR bn/USD mn) : 1,011 /20,119



Promoters* : 0.0


FIIs : 59.0

Others : 12.3




1 month 4.8 9.6 15.8

3 months 4.9 0.3 3.9

12 months 7.1 (7.1) (6.2)




[email protected]

Financials


Net Interest Income(INR mn) 33,875 42,471 50,886 60,597Net profit (INR mn) 28,265 35,350 41,871 49,452Shares outstanding (mn) 287.1 293.4 294.3 305.9EPS (INR) 19.7 24.1 28.5 32.3EPS growth (%) 22.7 22.4 18.1 13.6PE (x)* 31.3 24.6 19.5 17.0Price to book (x)* 10.3 8.1 6.8 4.4ROE (%) 20.0 21.7 23.3 23.1

* Adj. for subs.




Diluted EPS (INR) 19.7 24.1 28.5 32.3EPS growth (%) 22.7 22.4 18.1 13.6Book value per share (INR) 106 118 127 158Adj. book value per share (INR)* 52 64 72 104Diluted P/E (x) 34.8 28.4 24.1 21.2Price/ BV (x) 6.5 5.8 5.4 4.3Price/ Adj. Earnings (x)* 31.3 24.6 19.5 17.0Price/ Adj. BV (x)* 10.3 8.1 6.8 4.4Dividend yield (%) 1.1 1.3 1.5 1.7

* adjusted for value of investments in subsidiaries


Net interest income 10.9 25.4 19.8 19.1Net revenues growth 19.9 23.7 17.8 17.6Opex growth 2.6 17.7 10.3 10.9PPP growth 16.0 21.6 20.0 19.2Provisions growth 14.5 20.7 7.1 20.0PAT growth 23.8 25.1 18.4 18.1

Sanctions and disbursementsYear to March FY10 FY11 FY12E FY13E

Sanctions (INR mn) 606,110 751,850 902,220 1,082,664Disbursements (INR mn) 504,130 603,140 723,768 868,522Disb. to sanction ratio (%) 83.2 80.2 80.2 80.2Disbursements growth (%) 27.1 19.6 20.0 20.0Sanctions growth (%) 23.3 24.0 20.0 20.0



LiabilitiesEquity capital 2,871 2,934 2,943 3,059Share premium 57,796 62,189 57,567 84,917Reserves & surplus 91,309 108,043 126,209 154,129Net worth 151,977 173,165 186,719 242,105Total deposits 230,811 246,251 288,114 339,974Secured Loans 636,057 816,415 959,925 1,116,449Unsecured Loans 98,785 91,439 101,018 111,375Total liabilities 1,117,630 1,327,270 1,535,776 1,809,904AssetsLoans 979,670 1,171,266 1,378,148 1,646,629Investments 107,275 118,324 122,393 126,944Current assets 74,392 98,610 98,640 100,270Current liabilities 48,785 67,751 70,915 72,364Net current assets 25,607 30,859 27,725 27,906Fixed assets (net block) 2,221 2,340 2,237 2,125Other assets 2,857 4,481 5,273 6,300Total assets 1,117,630 1,327,270 1,535,776 1,809,904Balance sheet ratios (%)Loan growth 15.0 19.6 17.7 19.5Deposit growth 19.1 6.7 17.0 18.0EA growth 15.2 18.7 15.7 17.9CAR 14.6 14.0 9.6 11.3


Net interest income/assets 3.3 3.5 3.6 3.6Non interest income/assets 0.7 0.6 0.6 0.6Investment gains/assets 0.2 0.3 0.2 0.2Net revenues/Assets 4.1 4.4 4.4 4.4Operating expense/assets 0.3 0.3 0.3 0.3Provisions/assets 0.1 0.1 0.1 0.1Taxes/assets 1.0 1.1 1.1 1.1Total costs/assets 1.4 1.5 1.5 1.5ROA 2.7 2.9 2.9 3.0Equity/assets 13.6 13.4 12.6 12.9ROAE 20.0 21.7 23.3 23.1




Interest income 104,506 118,070 141,705 166,186Interest expended 70,631 75,599 90,819 105,589Net interest income 33,875 42,471 50,886 60,597Non interest income 7,008 7,113 8,250 9,560- Fee & forex income 2,317 2,204 2,644 3,173- Income from investments 1,898 2,175 2,502 2,877- Misc. income 2,794 2,734 3,104 3,510Income from operations 40,884 49,584 59,136 70,157Net revenues 40,884 49,584 59,136 70,157Operating expenses 3,237 3,811 4,206 4,665 - Employee exp 1,467 1,755 1,931 2,163 - Depreciation /amortisation 182 192 202 213 - Other opex 1,589 1,864 2,073 2,290Preprovision profit 37,646 45,773 54,931 65,492Profit on sale of investments 2,094 3,597 3,500 3,500Provisions 580 700 750 900PBT 39,160 48,670 57,681 68,092Taxes 10,895 13,320 15,809 18,640PAT 28,265 35,350 41,871 49,452Reported PAT 28,265 35,350 41,871 49,452Basic number of shares (mn) 1,436 1,467 1,471 1,530Basic EPS (INR) 19.7 24.1 28.5 32.3Dil. number of shares (mn) 1,436 1,467 1,471 1,530Diluted EPS (INR) 19.7 24.1 28.5 32.3DPS (INR) 7.2 9.0 10.5 11.6Dividend pay out (%) 42.6 43.4 43.1 42.0


YYield on assets 10.1 9.7 9.9 10.0Yield on advances 10.9 10.5 10.8 10.7Cost of funds 7.8 7.1 7.3 7.2Spread 2.2 2.6 2.7 2.7Net interest margins 3.3 3.5 3.6 3.6Cost-income 8.0 7.8 7.2 6.7Tax rate 27.8 27.4 27.4 27.4


Key takeawaysPending restructuring, which is undergoing CDR mechanism, is INR13bn. Thisincludes GTL where their exposure is INR6.5bn.GTL has not yet been restructuredand will be reported in Q4FY12. Gross restructuring was INR8.3bn in Q3FY12,INR7.5bn in Q2FY12 and INR1.5bn in Q1FY12.

To grow loan book by 15% in FY13: driven by 20% growth in domestic business(contributed by retail, working capital demand, drawdown from past corporatesanctions and PSL loan build up) and flat growth in the international business.Asset liability in international business is adequately matched – asset flows ofUSD3.2bn will be sufficient to meet liability payment of USD2.7bn.

Will try to sustain CASA at the current level- 40% on average basis. On a sustainablelong term basis, no impact of savings deposit deregulation as it will be passed on.

Margins to be maintained at 2.7% in FY12 with improvement of 10bps expected inFY13 largely on back of improvement in domestic business.

Credit cost guidance for FY12 maintained at 70bps and 75bps for FY13, lower thanthe initial guidance of 100bps.

Opex to increase in line with balance sheet growth and cost/income for FY12 willbe similar to run rate as of 9mFY12 level (43.5%) and will try to bring it down to41% in FY13. It will target opex to assets at 1.7-1.8% in the medium term.

Investment conclusionStructurally, ICICI Bank has successfully switched from consolidation to the growthphase with a leaner and robust business model (40% CASA to stay). Managementoutlook for FY13: Stable margins from hereon and credit cost at ~75 80bps. Led by18% CAGR in earnings on back of 19% loan growth and 2.5 2.6% margins, weexpect core ROA to stabilise at 1.5% and core ROE to touch 15%.

Key risksMain risks for ICICI is NPA risk due to its low cumulative provisions and lumpycorporate exposures. With ~40% of retail asset book, it is vulnerable to systemwide deterioration in the quality of retail assets. Deterioration in the internationalliquidity scenario will lead to slowdown in growth rates of the internationalbusiness.

ICICI BANKIndia Equity Research l Banking and Financial Services

On growth path

Company Profile

February 7, 2012


Absolute Rating BUY




MARKET DATA (R : ICBK.BO, B: ICICIBC IN)

CMP : INR 937


52-week range (INR) : 1,137 / 641


M cap (INR bn/USD mn) : 1,080 / 21,494



Promoters* : 0.0


FIIs : 34.7

Others : 37.3




1 month 22.3 9.6 15.8

3 months 1.9 0.3 3.9

12 months (10.1) (7.1) (6.2)




[email protected]

Financials


Net revenues (INR mn) 155,947 156,648 177,910 216,133Net profit (INR mn) 40,250 51,514 62,382 75,041Diluted EPS (INR) 36.1 44.7 54.2 65.1EPS growth (%) 6.9 23.9 21.1 20.3Diluted P/E (x) 26.0 21.0 17.3 14.4Price to book (x) 2.0 2.0 1.8 1.7ROAE (%) 8.0 9.7 10.9 12.1






NII growth 11.1 15.2 24.2 15.7Fees growth 8.3 8.0 12.0 12.0Opex growth 12.9 17.1 14.3 14.6PPOP growth 4.3 10.8 22.5 13.9PPP growth (7.1) 11.0 27.1 13.7Provisions growth (54.7) (15.7) 61.0 6.9PAT growth 28.0 21.1 20.3 15.5


Net interest income/Assets 2.5 2.5 2.7 2.6Fees/Assets 1.9 1.8 1.8 1.7Investment profits/Assets (0.1) (0.1) 0.0 0.0Net revenues/Assets 4.3 4.3 4.5 4.3Operating expense/Assets (1.8) (1.9) (1.8) (1.8)Provisions/Assets (0.6) (0.4) (0.6) (0.5)Taxes/Assets (0.4) (0.5) (0.5) (0.5)Total costs/Assets (2.9) (2.8) (2.9) (2.8)ROA 1.42 1.50 1.55 1.52Equity/Assets 14.7 13.8 12.8 11.9ROAE 9.7 10.9 12.1 12.7




Interest income 259,741 330,953 379,744 434,489Interest expenses 169,572 227,066 250,740 285,173Net interest income 90,169 103,888 129,005 149,316Non interest income 66,479 74,023 87,128 97,201- Fee & forex income 64,315 69,460 77,796 87,131- Misc. income 4,186 6,662 7,332 8,070- Investment profits (2,022) (2,100) 2,000 2,000Net revenues 156,648 177,910 216,133 246,517Operating expense 66,173 77,505 88,561 101,446 - Employee exp 28,169 33,398 39,977 47,852 - Other opex 38,003 44,107 48,584 53,594Preprovision profit 90,475 100,406 127,572 145,071Provisions 22,898 16,671 26,846 28,710- Loan loss provisions 19,769 16,671 26,846 28,710- Investment depreciation 2,038 0 0 0- Other provisions 1,091 0 0 0PBT 67,577 83,735 100,726 116,361Taxes 16,063 21,352 25,685 29,672PAT 51,514 62,382 75,041 86,689Reported PAT 51,514 62,382 75,041 86,689Diluted EPS (INR) 44.7 54.2 65.1 75.3DPS (INR) 13.0 14.0 15.0 16.0Payout ratio (%) 35.2 30.1 26.8 24.8





LiabilitiesEquity capital 11,518 11,518 11,518 11,518Reserves 539,388 582,967 637,861 703,060Net worth 550,906 594,485 649,379 714,578Sub bonds/pref cap 367,414 372,414 377,414 382,414Deposits 2,256,021 2,663,525 3,158,048 3,816,271Borrowings 728,132 873,427 1,091,987 1,316,691Other liabilities 159,864 193,435 232,121 278,545Total 4,062,337 4,697,285 5,508,949 6,508,498AssetsLoans 2,163,659 2,593,028 3,086,627 3,678,942InvestmentsGilts 641,613 796,139 935,333 1,129,577Others 705,247 689,222 768,226 857,429Cash & equi 340,901 378,503 443,979 525,778Fixed assets 47,443 42,588 37,419 31,935Other assets 163,475 197,804 237,365 284,837Total 4,062,337 4,697,285 5,508,949 6,508,498Balance sheet ratios (%)Credit growth 25.8 18.1 18.5 18.7Deposit growth 11.7 18.1 18.6 20.8EA growth 13.0 15.7 17.4 18.3SLR ratio 21.5 22.5 22.0 22.0C-D ratio 108.9 108.2 107.5 105.1Low-cost deposits 45.1 43.1 43.1 43.1Gross NPA ratio 4.2 3.9 3.6 3.2Net NPA ratio 1.1 1.0 0.9 0.7Provision coverage 76.0 75.6 77.0 79.3Incremental slippage 1.5 1.3 1.3 1.2Net NPA / Equity 4.4 4.3 4.1 3.5Capital adequacy 16.6 15.7 14.8 14.0


Key takeawaysOn asset quality, the bank is confident that slippages should stabilize going forward.It highlighted that even for Q3FY12, slippages would have been lower than Q1 andQ2 but for one off large accounts. In terms of guidance, GNPA is likely to touch2.4% and NNPA to clock 1.2% by FY13E.

Along with reduced slippages, the bank also expects recoveries to be good fromboth GNPAs and from written off accounts as well.

Given the experience while the bank was a DFI, the bank has stayed away from SEBlending and will continue to do so. Major constituents of the restructured pool inthe power segment are Dabhol Ratnagiri and Lanco’s Udupi .

Restructuring pipeline includes accounts of Air India and 3i Infotech likely tocome up in either Q4FY12 or Q1FY13.

The government of India has agreed to convert INR21.3bn of Tier 1 bonds intoequity. While this will not boost Tier 1 capital since bonds were already a part ofTier 1 it will be beneficial in transition to Basel 3.

With the regulator tightening portfolio buyout guidelines from NBFCs, meeting thepriority sector lending norms can be a little difficult.

Advances are likely to grow slower than the industry while NIMs are likely to comein flat. RoA likely to improve to 0.9% in FY13E.

Key risksExposure to some of the stressed sector is on the higher side (~45-50% of loans toinfra SME/MSME sector) versus sector average of ~30-35%.

IDBI BANKIndia Equity Research l Banking and Financial Services

Global aspirations

Company Profile

February 7, 2012

Nilesh Parikh+91-22- 4063 5470

[email protected]


Suruchi Chaudhary+91-22-6623 [email protected]

EDELWEISS RATINGS


MARKET DATA (R : IDBI.BO, B: IDBI IN)

CMP : INR 106

Target Price : NA



M cap (INR bn/USD mn) : 104 /2,071



Promoters* : 65.1


FIIs : 3.3

Others : 16.0




1 month 11.7 23.3 11.6

3 months 0.8 (7.1) (7.9)

12 months (1.8) (20.2) (18.4)

Financials


Revenues (INR mn) 24,359 28,016 45,578 64,125Rev growth (%) 41.9 15.0 62.7 40.7Net Interest Income (INR mn) 6,564 13,259 22,561 43,289Net profit (INR mn) 7,295 8,585 10,311 16,503Shares outstanding (mn) 724.8 724.8 724.9 985.6EPS (INR) 10.1 11.8 14.2 16.7EPS growth (%) 15.7 17.7 20.1 17.7PE (x) 10.2 8.7 7.2 6.1Price to book (x) 1.1 1.0 0.9 0.8Price to PPOP (x) 24.1 8.0 3.7 2.5ROE (%) 11.2 12.1 13.2 15.8




NII growth (0.2) 102.0 70.2 91.9Fees growth 43.8 75.0 77.8 24.8Opex growth 23.2 39.1 37.3 23.1PPOP growth (27.4) 202.0 117.8 98.7PPP growth 57.5 (0.6) 85.7 52.5Provisions growth 156.7 (26.3) 248.5 11.6PAT growth 15.7 17.7 20.1 60.0

ROA decomposition (%)Year to March FY08 FY09 FY10 FY11

Net Interest Income/Assets 0.6 0.9 1.2 1.8Fees/Assets 0.6 0.7 0.8 0.8Investment profits/Assets 1.1 0.4 0.4 0.1Net revenues/Assets 2.2 1.9 2.3 2.7Operating Expense/Assets (0.9) (0.9) (0.9) (1.0)Provisions/Assets (0.6) (0.3) (0.9) (0.8)Taxes/Assets (0.1) (0.1) (0.0) (0.3)Total Costs/Assets (1.6) (1.3) (1.8) (2.0)ROA 0.7 0.6 0.5 0.7Equity/Assets 6.0 4.9 4.0 4.4ROAE 11.2 12.1 13.2 15.8




Interest income 80,208 116,316 152,613 186,008Interest expenses 73,644 103,057 130,052 142,719Net Interest income 6,564 13,259 22,561 43,289Non interest income 17,795 14,757 23,017 20,837- Fee & forex income 4,644 8,127 14,449 18,040- Misc. income 1,468 1,277 1,621 1,595- Investment profits 11,683 5,354 6,947 1,202Net revenues 24,359 28,016 45,578 64,125Operating expense 9,588 13,337 18,314 22,547 - Employee exp 3,846 5,692 7,570 10,265 - Other opex 5,742 7,644 10,744 12,282Preprovision profit 14,771 14,680 27,264 41,579Provisions 6,547 4,826 16,817 18,769- Loan loss provisions 1,336 1,438 2,363 3,716- Investment depreciation 3,573 2,262 2,474 3,770- Other provisions 1,638 1,126 11,979 11,283PBT 8,225 9,854 10,447 22,810Taxes 930 1,269 136 6,307PAT 7,295 8,585 10,311 16,503Reported PAT 7,295 8,585 10,311 16,503EPS 10.1 11.8 14.2 16.7DPS 2.0 2.5 3.0 4.0Payout ratio (%) 22.9 24.7 24.1 24.2

Operating ratios (%)Year to March FY08 FY09 FY10 FY11



EPS 10.1 11.8 14.2 16.7EPS growth (%) 15.7 17.7 20.1 17.7Book value per share 93.8 102.7 113.5 128.6Adjusted Book Value/share 83.3 93.5 99.9 116.6Price/Earnings 10.2 8.7 7.2 6.1Price/ BV 1.1 1.0 0.9 0.8Price/ ABV 1.2 1.1 1.0 0.9Dividend yield (%) 1.9 2.4 2.9 3.9



LiabilitiesEquity capital 7,248 7,248 7,249 9,856Reserves 60,734 67,178 75,007 116,863Net worth 67,982 74,426 82,255 126,708Sub bonds/pref cap 52,104 49,229 0 0Deposits 729,980 1,124,010 1,676,687 1,804,858Borrowings 386,126 394,941 477,095 515,697Other liabilities 52,263 61,621 82,278 69,908Total 1,288,454 1,704,228 2,318,315 2,517,180AssetsLoans 822,127 1,034,283 1,382,019 1,570,981InvestmentsGilts 233,140 407,245 608,139 540,200Others 94,889 93,231 125,315 142,492Cash & equi 87,588 112,193 145,828 207,661Fixed Assets 7,439 8,446 10,592 11,416Other Assets 43,271 48,830 46,421 44,432Total 1,288,454 1,704,228 2,318,315 2,517,180Balance sheet ratios (%)Credit growth 29.0 24.6 32.1 13.6Deposit growth 68.4 54.0 49.2 7.6EA growth 30.2 33.1 37.3 8.8SLR ratio 20.9 26.8 28.2 23.3C-D ratio 116.8 94.5 84.1 88.6Low-cost deposits 16.6 14.8 14.6 20.9Gross NPA ratio 1.9 1.4 1.5 1.8Net NPA ratio 1.3 0.9 1.0 1.1Provision coverage 30.8 33.9 34.0 39.7Incremental Slippage 1.5 0.8 1.4 0.0Net NPA / Equity 15.9 12.8 17.1 13.2Capital Adequacy 12.0 11.2 10.8 12.2 - Tier 1 7.4 6.6 6.0 7.1Book Value 94 103 113 129


Key takeawaysDomestic formulation market: A key growth driver

Domestic formulation business, which contributes 67% to total revenues, hasbeen a key growth driver for the company. Indoco has a fairly large presence in theacute segment (antibiotic being the largest segment for the company) and it isexpanding presence in high growth chronic segment by venturing into high growthsegments of CVS, diabetics and pain management.

Betting on strategic alliance to tap global opportunities

To tap the rowing opportunity in sterile space, Indoco has entered into a strategicalliance with Watson for US market and Aspen for emerging markets. Indoco hasidentified around 10-12 products in opthal space (USD1bn opportunity) out ofwhich 5-6 ANDAs have already been filed (expect initial launches in FY14E).Similarly, the tie up with Aspen is for 30 emerging markets and largely in sterilesegment.

Focus on ophthalmic segment

Indoco is focusing on the ophthalmic segment in regulated markets as well asemerging markets. In addition to tie up with Watson and Aspen, the company hasalso set up a JV with Amneal Pharmaceuticals. US ophthalmic market is estimatedto be around USD4bn and dominated by players like Alcon, Allegran, Santen andBausch & Lomb.

Key risksOver dependency in acute segment in the domestic market.

Change in pricing policy could have negative impact.

Regulatory risks in the US.

INDOCO REMEDIESIndia Equity Research l Pharmaceuticals

Building blocks for future growth

Company Profile

February 7, 2012

Manoj Garg+91-22-6623 3302

[email protected]


EDELWEISS RATINGS


MARKET DATA (R : INRM.BO, B: INDR IN)

CMP : INR 418

Target Price : NA

52-week range (INR) : 485 / 360





Promoters* : 61.1


FIIs : 2.8

Others : 22.0




1 month 11.7 5.2 (6.5)

3 months 0.8 6.6 5.8

12 months (1.8) 2.9 (1.1)

Financials


Revenues (INR mn) 2,624 3,551 4,022 4,835Rev. growth (%) NM 35.3 13.3 20.2EBITDA (INR mn) 409 462 537 644Net profit (INR mn) 317 314 422 511Share outstanding (mn) 12.3 12.3 12.3 12.3EPS (INR) 25.8 25.5 34.3 41.6EPS growth (%) NM (0.8) 34.3 21.2Diluted P/E (x) 16.3 16.4 12.2 10.1EV/EBITDA (x) 14.6 12.9 11.1 9.3ROE (%) 12.4 11.3 13.6 14.6




Net profit 317 314 422 511 Depreciation 78 112 121 135 Deferred tax 12 11 13 15Gross cash flow 407 436 555 660Less:Changes in WC (112) (59) (77) (239)Operating cash flow 295 377 478 421Less: Capex (152) (302) (481) (807)Free cash flow 143 76 (3) (386)




Diluted EPS (INR) 25.8 25.5 34.3 41.6Y-o-Y growth (%) NM (0.8) 34.3 21.2CEPS 32.1 34.6 44.1 52.5Diluted P/E (x) 16.3 16.4 12.2 10.1Price/BV (x) 1.8 1.5 1.4 1.1EV/Sales (x) 2.3 1.7 1.5 1.2EV/EBITDA (X) 14.6 12.9 11.1 9.3


Revenues (19.0) 35.3 13.3 20.2EBITDA (28.0) 12.9 16.1 20.1PBT (31.0) 3.4 30.2 31.2Net profit (26.0) (0.8) 34.3 21.2EPS (26.0) (0.8) 34.3 21.2




Income from operations 2,624 3,551 4,022 4,835Direct costs 1,124 1,540 1,772 2,182Employee costs 325 452 533 636Other expenses 765 1,097 1,181 1,373Total operating expenses 2,215 3,089 3,485 4,190EBITDA 409 462 537 644Depreciation & amortisation 78 112 121 135EBIT 332 350 416 510Interest expenses 36 59 29 24Other income 25 39 45 80Profit before tax 320 331 431 566Provision for tax 20 17 10 55Core profit 301 314 421 511Extraordinary items (16) 0 (1) 0Profit after tax 317 314 422 511PAT after minority interest 317 314 422 511Adjusted net profit 317 314 422 511EPS (INR) basic 25.8 25.5 34.3 41.6Diluted equity shares (mn) 12 12 12 12Dividend payout (%) 21.0 21.0 21.0 20.0Tax rate (%) 6.1 5.1 2.4 9.7





Equity capital 123 123 123 123Reserves & surplus 2,421 2,662 2,983 3,380Shareholders funds 2,543 2,785 3,106 3,503Secured loans 221 399 570 920Borrowings 121 158 91 80Sources of funds 2,886 3,343 3,766 4,502Gross block 2,190 2,343 2,676 2,959Depreciation 474 584 702 833Net block 1,716 1,759 1,974 2,126Capital work in progress 18 163 305 822Total fixed assets 1,735 1,922 2,279 2,948Inventories 443 525 691 804Sundry debtors 1,078 1,003 907 918Cash and equivalents 161 290 376 271Other current assets 309 415 537 691Total current assets 1,991 2,233 2,511 2,684Sundry creditors and others 517 521 636 709Provisions 104 63 146 164Total CL & provisions 621 583 782 873Net current assets 1,371 1,650 1,729 1,811Net deferred tax (219) (230) (243) (257)Uses of funds 2,886 3,343 3,766 4,502Adjusted BV per share (INR) 235 272 306 366


Key takeawaysInfo Edge (IEL) highlighted that growth in collections continues to remain weakprimarily due to slowdown in the domestic economy as high correlation existswith the absolute GDP growth level and its delta.

IEL highlighted that to improve the realization in Naukri.com it has also startedcapping the usage on a per licence basis and adding pay per use revenue model.Earlier, licence pricing has time limitation that now has second usage filter.

Management continues to be optimistic on its online real estate business as it hasseen stronger adoption of the online medium by broker community. It highlightedthat the number of registered brokers has doubled over the past two years (healthysign). Magicbrick.com (Times Group) is also emerging as key competitor here.

It shared that it will continue to invest in marketing 99acres.com with budgetedINR100mn-120mn and also add to its 250 people on ground sales team.

On the education segment, Shiksha.com is gaining increased student acceptancewith 500,000 visitors and revenue base of ~INR100mn, but IEL believes the scalablerevenue model is yet to be proven.

Investment conclusionIEL is a long term play on the internet space in India. With lead in the onlinerecruitment market (through Naukri.com) and presence in the online classifiedspace has the potential to establish a market leading position and grab large pieof increasing online adoption. As various businesses come out of the recentslowdown we see recruitment industry to grow significantly as it is highly correlatedto the economic health of the growth of domestic corporate sector. We expect IEL’searnings growth at 25% CAGR over FY11-13E.

Key risksFaster than anticipated scale up of non-recruitment segments.

Strong profitability from investee companies.

INFOEDGE INDIA

India Equity Research l IT

Growth to be impacted in near term

Company Profile

February 7, 2012


Absolute Rating REDUCE




MARKET DATA (R : INED.BO, B: INFOE IN)

CMP : INR 645


52-week range (INR) : 772 / 460





Promoters* : 53.9


FIIs : 26.1

Others : 10.6




1 month 2.7 9.6 (1.5)

3 months (13.7) 0.3 4.0

12 months 6.8 (7.1) (3.9)



Omkar Hadkar+91-22- 6620 3147

[email protected]

Financials (Standalone)


Revenues (INR mn) 2,322 2,936 3,684 4,400Rev. growth (%) (5.3) 26.4 25.5 19.4EBITDA (INR mn) 666 977 1,362 1,681Net profit (INR mn) 598 840 1,121 1,314Shares outstanding (mn) 58 55 54.7 54.8Diluted EPS (INR) 10.3 15.4 20.5 24.0EPS growth (%) (3.7) 49.8 33.2 17.0Diluted PE (x) 62.8 41.9 31.5 26.9EV/EBITDA (x) 50.4 31.2 21.6 16.7ROAE (%) 18.1 19.5 22.8 21.5




ROAE (%) 18.1 19.5 22.8 21.5ROACE (%) 21.4 41.9 64.4 61.6Debtors (days) 9 14 10 6Payable (days) 119 135 145 139Cash conversion cycle (110) (121) (134) (134)Current ratio 3.4 1.6 1.8 1.9Fixed assets turnover (x) 7.8 6.9 5.8 6.3Total asset turnover(x) 0.7 0.7 0.7 0.7Equity turnover(x) 0.7 0.7 0.8 0.7


Income statement (Standalone) (INR mn)


Revenues 2,322 2,936 3,684 4,400Cost of revenues 960 1,233 1,437 1,707Gross profit 1,362 1,704 2,247 2,693S&M expenses 374 380 517 572G&A expenses 322 347 368 440Total SG&A expenses 696 727 885 1,012EBITDA 666 977 1,362 1,681Depreciation & Amortization 61 71 77 130EBIT 605 906 1,285 1,551Interest expense 1 1 - -Other income 320 283 334 410Profit before tax 925 1,188 1,619 1,961Tax 317 400 498 647Core profit 607 788 1,121 1,314Extraordinary income/(loss) (38) 52 - -Profit after tax 569 840 1,121 1,314Min. int. & others - paid/(recd.) (28) - - -Net profit after min. int. 598 840 1,121 1,314Shares outstanding (mn) 58.2 54.6 54.7 54.8EPS (INR) basic 10.3 15.4 20.5 24.0Diluted shares (mn) 58.2 54.6 54.7 54.8EPS (INR) diluted 10.3 15.4 20.5 24.0CEPS (INR) 12.0 15.7 21.9 26.4Dividend per share 0.4 0.8 1.0 1.0Dividend (%) 3.5 7.5 10.0 10.0Dividend pay out (%) 3.4 4.9 4.9 4.2


Cost of revenues 41.4 42.0 39.0 38.8Gross margin 58.6 58.0 61.0 61.2G&A expenses 13.9 11.8 10.0 10.0S&M expenses 16.1 13.0 14.0 13.0SG&A expenses 30.0 24.8 24.0 23.0EBITDA margin 28.7 33.3 37.0 38.2EBIT margin 26.0 30.8 34.9 35.2Net profit margins 26.1 26.8 30.4 29.9


Revenues (5.3) 26.4 25.5 19.4EBITDA 2.1 46.7 39.5 23.4EBIT 4.1 49.7 41.9 20.7PBT 6.6 28.5 36.3 21.1Net profit 2.1 40.5 33.5 17.2Diluted EPS (3.7) 49.8 33.2 17.0


Net profit 598 840 1,121 1,314Depreciation 61 71 77 130Others (304) (413) (334) (410)Gross cash flow 355 498 864 1,034Less:Changes in WC (22) (540) (224) (188)Operating cash flow 376 1,038 1,089 1,221Less: Capex 44 429 271 125Free cash flow 332 609 818 1,096

Balance sheet (Consolidated) (INR mn)


Equity share capital 273 546 547 548Share premium account 28 31 31 31Reserves 3,445 3,774 4,880 6,192Total shareholders funds 3,746 4,351 5,458 6,771Borrowings 6 7 - -Minority interest - 16 16 16Sources of funds 3,752 4,374 5,474 6,787Goodwill & Other Intan. Asset 0 29 29 29Gross fixed assets 581 890 1,140 1,240Less: Accum. depreciation 287 332 423 554Net fixed assets 294 557 716 686Capital WIP 69 154 175 200Investments 1,162 2,641 3,214 4,014Deferred tax asset 34 59 59 59Cash & bank balances 2,791 2,076 2,649 3,355Debtors 80 149 61 72Loans and advances 219 200 250 290Total current assets 3,090 2,426 2,959 3,717Sundry creditors 812 1,358 1,562 1,796Provisions 84 135 117 122Total current liabilities 896 1,493 1,678 1,918Working capital 2,194 933 1,281 1,799Application of funds 3,752 4,374 5,474 6,787Book value per share (BV) (INR) 64 80 100 124


Diluted EPS (INR) 10.3 15.4 20.5 24.0Y-o-Y growth (%) (3.7) 49.8 33.2 17.0CEPS (INR) 12.0 15.7 21.9 26.4Diluted P/E (x) 62.8 41.9 31.5 26.9Price/BV(x) 10.0 8.1 6.5 5.2EV/Revenues (x) 14.5 10.4 8.0 6.4Mcap/Revenues (x) 16.2 12.0 9.6 8.0EV/EBITDA (x) 50.4 31.2 21.6 16.7EV/EBITDA (x)+1 yr forward 34.4 22.4 17.5 13.3Dividend yield (%) 0.1 0.1 0.2 0.2


Key takeawaysLoan book growth to be at 20% in FY12 and FY13 higher than the initial guidanceof 15%, largely supported by refinancing opportunities and traction in the telecomsector.

Margins to be stable to improving as rates cycles reverses and management expectsto remain with long term averages.

Management does not expect GNPL to cross 1% in the worst case scenario over thenext 12-18 months.

Management expects to report INR800mn in Q3 from the stake sale in the AMC.

Investment conclusionFactoring in higher principal investments we have revised up our FY12E earnings5%. We further lower our loan growth assumption to ~18% CAGR from 21% earlierdue to slowdown in fresh sanctions coupled with issues in the power sector andare building in lower fee-based income. Management indicated that it will focuson multi-dimensional transactions (spreads+fees) and high yielding non-infradeals which will provide some cushion to earnings. Despite this, RoE is likely toremain subdued at ~12% due to front-ended capital raising. Our SOTP fair valuefor the stock stands at INR153 per share. The stock is currently trading 1.4x FY13E(net of subs value of INR19).

Key risksThere are risks of margin compression, as the infrastructure financing space iskeenly contested. Being an NBFC, IDFC is dependent on wholesale funding. Hence,high interest rates will remain a risk. Large ticket lending makes IDFC’s loan bookriskier than other banks. NPA occurrence due to large ticket size can dent its futureearnings. As it now generates more than 40% of non-interest income, revenue canbe lumpy in nature (especially in investment banking and principal investmentbook).

INFRASTRUCTURE DEVELOPMENT FINANCE

India Equity Research l Banking and Financial Services

Growth focus

Company Profile

February 7, 2012






MARKET DATA (R : IDFC.BO, B: IDFC IN)

CMP : INR 136







Promoters* : 0.0


FIIs : 45.8

Others : 16.3




1 month 35.7 9.6 15.8

3 months 2.7 0.3 3.9

12 months (12.2) (7.1) (6.2)




[email protected]

Financials


Revenues (INR mn) 21,070 25,470 29,890 33,511Rev growth (%) 35.4 20.9 17.4 12.1Net int. income (INR mn) 11,180 16,450 20,849 24,666Net profit (INR mn) 10,614 12,805 15,212 17,728Shares outstanding (mn) 5,710 9,787 11,751 13,174Diluted EPS (INR) 8.2 8.8 10.1 11.8EPS growth (%) 41.0 7.6 15.0 16.5Diluted P/E (x) 16.7 15.5 13.5 11.5Price to adj. book (x) 2.6 1.8 1.6 1.4ROAE (%) 16.1 14.0 12.4 12.7




Diluted EPS (INR) 8.2 8.8 10.1 11.8EPS growth (%) 41.0 7.6 15.0 16.5Book value per share (INR) 53.9 77.0 87.9 97.3Adj. book value per share (INR) 53.6 76.7 87.5 97.1Diluted P/E (x) 16.7 15.5 13.5 11.5Price/ BV (x) 2.5 1.8 1.5 1.4Price/ Adj. BV (x) 2.6 1.8 1.6 1.4Dividend yield (%) 1.1 1.5 1.5 1.5


Net interest income 24.0 47.1 26.7 18.3Net revenues growth 35.4 20.9 17.4 12.1Opex growth 49.5 (2.9) 27.6 8.9PPP growth 31.1 29.3 14.6 13.1Provisions growth (15.3) 80.8 (5.2) (25.4)PAT growth 41.6 20.9 18.8 16.5

Sanctions and disbursementsYear to March FY10 FY11 FY12E FY13E

Sanctions (INR mn) 304,420 427,160 384,444 461,332Disbursements (INR mn) 129,620 267,020 249,889 299,866Disburs. to sanction ratio (%) 43 63 65 65Disbursements growth (%) 60 106 (6) 20Sanctions growth (%) 195 40 (10) 20


Net interest income/assets 3.5 4.0 3.9 3.9Non interest income/assets 2.0 1.6 1.1 1.0Investment gains/assets 1.0 0.6 0.6 0.4Net revenues/assets 6.5 6.1 5.6 5.3Operating expense/Assets 1.7 1.3 1.3 1.2Provisions/Assets 0.4 0.6 0.4 0.3Taxes/Assets 1.1 1.2 1.1 1.1Total costs/Assets 3.2 3.0 2.8 2.5ROA 3.3 3.1 2.9 2.8Equity/Assets 20.4 21.9 23.0 22.2ROAE 16.1 14.0 12.4 12.7Operating ratios (%)


Yield on assets 9.5 9.7 10.4 10.5Yield on advances 10.8 12.1 12.3 12.6Cost of funds 7.8 7.6 8.6 8.7Net interest margins 3.5 4.0 3.9 3.9Cost-income 26.0 20.9 22.7 22.1Tax rate 25.7 28.1 27.1 27.5




Interest income 30,715 40,325 55,159 65,931Interest expended 19,535 23,875 34,310 41,265Net interest income 11,180 16,450 20,849 24,666Non interest income 9,890 9,020 9,041 8,845- Fee & forex income 2,560 2,740 2,541 2,982- Investment profits 3,330 2,340 3,300 2,500- Asset management fee 2,890 2,480 2,397 2,480- Investment advisory fee 1,110 1,460 803 883Income from operations 21,070 25,470 29,890 33,511Net revenues 21,070 25,470 29,890 33,511Operating expenses 5,481 5,321 6,791 7,393 - Employee exp 3,072 2,956 3,561 3,859 - Depreciation /amortisation 406 402 482 527 - Other opex 2,004 1,963 2,748 3,007Preprovision profit 15,588 20,149 23,100 26,118Provisions 1,298 2,346 2,223 1,658PBT 14,291 17,803 20,876 24,460Taxes 3,677 4,998 5,665 6,732PAT 10,614 12,805 15,212 17,728Share of asso./min. interest 1 26 26 26PAT after minority interest 10,615 12,831 15,237 17,754Reported PAT 10,615 12,831 15,237 17,754Basic number of shares (mn) 1,301 1,461 1,509 1,509Basic EPS (INR) 8.2 8.8 10.1 11.8Dil. number of shares (mn) 1,301 1,461 1,509 1,509Diluted EPS (INR) 8.2 8.8 10.1 11.8DPS (INR) 1.5 2.0 2.0 2.0Dividend pay out (%) 12.5 12.5 12.5 12.5



LiabilitiesEquity capital 13,006 14,609 15,085 15,085Share premium 22,040 47,004 54,928 54,928Reserves & surplus 35,057 50,871 62,585 76,816Net worth 70,103 112,484 132,599 146,830Preference capitalSubordinate debt 6,500 6,500 6,500 6,500Secured loansUnsecured loans 258,939 356,540 424,903 512,948Total liabilities 335,542 475,525 564,002 666,277ASSETSLoans 250,311 376,523 438,150 534,144Investments 46,417 69,611 81,238 89,740Current assets 35,262 30,926 44,905 45,533Current liabilities 12,557 17,644 16,502 19,224Net current assets 22,704 13,282 28,403 26,309Fixed assets (net block) 16,109 16,108 16,210 16,084Total assets 335,542 475,525 564,002 666,277Balance sheet ratios (%)Loan growth 22 50.4 16.4 21.9EA growth 13 42 18 18Gross NPA ratio 0.4 0.3 0.3 0.4Net NPA ratio 0.2 0.2 0.2 0.1Provision coverage 46.7 44.2 47.3 76.4CAR 21.2 23.8 23.1 13.2


Key takeawaysManagement indicated that Q4FY12 earnings will be better due to capacity additionin Barmer as well as favourable forex movement. Post the final tariff approval inBarmer (Rajasthan) apart from 300 MW that is being sold at INR3.6 /kwh toMSEDCL from the Ratnagiri plant the company is making profits in all its otherunits. The ad-hoc Barmer tariff is ~INR3/kwh which should be ~ INR4/kwh to earnregulated return.

The only capacity addition will be the 540 MW over the next 6 months, post whichthere would be a lull for 3-4 years as the expansions at Chattisgarh, Bengal, Kuter,HP and Barmer expansion are not expected before FY17/18.

In Vijaynagar the tariffs are likely to get revised to INR 5.3/kwh from the existingINR4.3–5.0 /kwh in phases starting June 2012. Long term merchant prices areexpected to trade in the INR4.25–4.5 /kwh range.

The company has stopped supplying to TN and UP due to payment related issues.It is not facing any payment issues from Karnataka (despite the state restrictingexternal power sales) and Maharashtra.

The JV with Toshiba (20% held by JSW Energy) is expected to start operations in2013. Equipment for further expansions by JSW Energy will be sourced throughthis JV.

Investment conclusionWe believe earnings are likely to improve going forward post the regulatoryapproval, decline in INR/USD rates as well as higher blending of Indonesian coal~70% compared to existing ~60%.

Key risksAdverse regulatory ruling, sustained higher international coal prices, and sharpfall in merchant prices.

JSW ENERGY

India Equity Research l Power

Power play

Company Profile

February 7, 2012






MARKET DATA (R : JSWE.BO, B: JSW IN)

CMP : INR 53







Promoters* : 76.7


FIIs : 3.9

Others : 13.7




Index

1 month 37.3 9.6 14.2

3 months 5.1 0.3 (3.1)

12 months (39.4) (7.1) (14.5)

Shankar K+91-22-4040 7412

[email protected]

Santosh Hiredesai+91-22-6620 [email protected]

Financials


Revenue (INR mn) 23,551 42,944 57,555 80,197Rev. growth (%) 28.3 82.3 34.0 39.3EBITDA (INR mn) 12,189 15,642 14,532 28,062Net profit (INR mn) 7,509 8,418 1,144 6,982Shares outstanding (mn) 1,640 1,640 1,640 1,640EPS (INR) 4.6 5.1 0.7 4.3EPS growth (%) (9.6) 12.1 (86.4) 510.2P/E (x) 11.7 10.4 76.7 12.6EV/EBITDA (x) 12.0 10.9 12.4 6.1ROAE (%) 24.0 16.1 2.0 12.0




Net profit 7,509 8,418 1,144 6,982Depreciation 1,361 2,668 5,717 8,233Others 6,302 2,274 7,218 11,131Gross cash flow 15,173 13,360 14,080 26,346Less:Changes in WC 6,703 4,468 (6,290) (886)Operating cash flow 8,470 8,892 20,370 27,232Less: Capex 31,985 28,368 21,105 6,541Free cash flow (23,515) (19,476) (735) 20,691


ROAE (%) 24.0 16.1 2.0 12.0ROACE (%) 11.6 9.8 5.6 12.3Current ratio 1 1 1 1Debtors (days) 32 44 54 52Average fixed assets t/o (x) 1 1 1 1Average working capital t/o (x) (2.1) (9.3) (15.1) (10.8)Average capital employed t/o (x) 0.2 0.3 0.4 0.5Debt / Equity 2 2 2 2Debt/EBITDA 6.5 6.2 7.5 3.7Adjusted Debt/Equity 1.6 1.7 1.9 1.7


Revenues 28.3 82.3 34.0 39.3EBITDA 129.2 28.3 (7.1) 93.1PBT 137.4 14.3 (84.0) 444.7Net profit 171.4 12.1 (86.4) 510.2EPS (9.6) 12.1 (86.4) 510.2




Total revenues 23,551 42,944 57,555 80,197Cost of Operations 10,030 24,813 36,669 44,121Staff cost 311 486 953 1,202Other operating expenses 1,020 2,003 5,401 6,812Total expenditure 11,362 27,302 43,023 52,135EBITDA 12,189 15,642 14,532 28,062Depre. and Amortisation 1,361 2,668 5,717 8,233EBIT 10,828 12,974 8,815 19,829Interest 2,837 4,325 7,981 12,046Other income 742 1,332 763 915PBT 8,733 9,980 1,597 8,698Provision for tax 1,224 1,563 452 1,716Core profit 7,509 8,418 1,144 6,982Profit before minority int. 7,509 8,418 1,144 6,982Minority interest 0 (1) 0 0Profit after minority interest 7,509 8,418 1,144 6,982Shares outstanding ( mn ) 1,640 1,640 1,640 1,640EPS (INR) basic 5 5 1 4Diluted shares (mn) 1,640 1,640 1,640 1,640EPS (INR) fully diluted 4.6 5 1 4Dividend per share 1 1 1 1Dividend payout (%) 16.4 19.5 143.3 23.5





Equity capital 16,401 16,401 16,401 16,401Reserves & surplus 31,401 40,364 39,602 44,679Shareholders funds 47,802 56,765 56,003 61,079Secured loans 77,696 88,128 101,527 96,836Deferred revenues 1,006 8,248 6,958 6,072Borrowings 78,701 96,376 108,485 102,907Sources of funds 127,817 155,427 166,774 166,272Gross block 36,668 73,982 164,459 174,976Depreciation 6,714 9,767 15,485 23,717Net block 29,954 64,214 148,974 151,259Capital work in progress 86,026 77,080 7,708 3,731Total fixed assets 115,980 141,295 156,682 154,990Investments 14,344 4,842 4,842 4,842Inventories 3,714 5,348 8,037 9,670Sundry debtors 2,714 7,637 9,461 13,183Cash and equivalents 6,048 9,779 12,028 14,105Other current assets 3,852 6,977 6,977 6,977Total current assets 16,499 29,741 36,503 43,936Sundry cred. and others 17,524 18,665 29,468 35,709Provisions 1,482 1,957 1,957 1,957Total CL & provisions 19,006 20,622 31,425 37,666Net current assets (2,507) 9,120 5,079 6,270Net deferred tax 0 171 171 171Uses of funds 127,817 155,427 166,774 166,272Adj. BV per share (INR) 29.1 34.6 34.1 37.2


Diluted EPS (INR) 4.6 5.1 0.7 4.3Y-o-Y growth (%) (9.6) 12.1 (86.4) 510.2CEPS (INR) 5.4 6.8 4.2 9.3Diluted P/E (x) 11.7 10.4 76.7 12.6Price/BV(x) 1.84 1.55 1.57 1.44EV/Sales (x) 6.2 4.0 3.1 2.2EV/EBITDA (x) 12.0 10.9 12.4 6.1Dividend Yield (%) 1.4 1.9 1.9 1.9


Key takeawaysExpects iron ore mining in Karnataka to restart

JSW Steel (JSW) believes the Supreme Court will allow the first category of mines(no irregularities) to start first with 10-12mtpa iron ore production followed bythe second category (minor irregularities) with another 12-15mtpa iron oreproduction.

West Bengal project to be launched only post raw material security

The company plans to launch the West Bengal steel project (3mtpa in Phase I) onlypost obtaining clearances for its coal mines in West Bengal project and securelinkages for iron ore from Orissa. Estimated capex for 3mtpa capacity is USD3bnover three years.

JSW Ispat EBITDA to improve going forward

In the coming two quarters, JSW Ispat’s EBITDA/t is expected to improve to INR4,000led by sourcing lower cost power from JSW Energy, modest uptick of INR 800-1,000/t in steel prices and lower coking coal costs. Over 18-24 months, postimplementation of the 1mtpa coke oven, 4mtpa pellet plant and 0.8mtpa CRM,EBITDA/t is expected to rise to INR7,000-8000/t.

Indian steel demand growth to pick up in FY13

JSW expects Indian steel demand to grow ~5% in FY12E (below GDP growth rate).FY13E to see pick up with steel demand growing 7% plus (atleast equal to GDPgrowth).

Investment conclusionSteel margins expected to expand in FY13E led by declining raw material. JSW’svolumes to increase >25% YoY in FY13E led by capacity expansion of 3.2 mtpacompleted in Q2FY12. Expect partial restart of iron ore mining in Karnataka.

Key risksUnavailability of iron ore due to current mining ban in Karnataka.

Weakness in global steel demand leading to lower international prices withoutproportionate decline in input costs.

JSW STEEL

India Equity Research l Metals & Mining

Focused on growth

Company Profile

February 7, 2012


Absolute Rating BUY




MARKET DATA (R : JSTL.BO, B: JSTL IN)

CMP : INR 743


52-week range (INR) : 1,015 / 464





Promoters* : 37.7


FIIs : 20.2

Others : 36.8




Index

1 month 30.5 9.6 17.3

3 months 9.7 0.3 3.1

12 months (30.5) (7.1) (10.5)

Prasad Baji+91-22-4040 7415

[email protected]

Navin Sahadeo+91-22-6623 [email protected]

Financials


Revenues (INR mn) 189,572 239,002 285,454 345,311Rev. growth (%) 19.0 26.1 19.4 21.0EBITDA (INR mn) 40,707 46,627 51,238 67,953Adjusted net profit (INR mn) 15,201 16,751 7,759 20,233Basic shares outstanding (mn) 187 223 223 223Diluted EPS (INR) 81.3 75.1 34.8 90.7EPS growth (%) 681.5 (7.6) (53.7) 160.8Diluted P/E (x) 9.1 9.9 21.4 8.2EV/EBITDA (x) 7.3 6.1 6.1 4.7ROAE (%) 19.4 13.9 4.9 12.1




ROAE (%) 19.4 13.9 4.9 12.1ROACE (%) 10.5 10.4 9.4 12.6Inventory (days) 94 90 107 111Debtors (days) 11 12 13 13Payable (days) 260 224 230 226Cash conversion cycle (days) (155) (121) (110) (102)Debt/EBITDA 4.0 3.5 3.6 2.7Current ratio 0.7 0.9 0.9 0.9Debt/ Equity 1.7 1.0 1.1 1.0Adjusted debt/Equity 1.7 1.0 1.1 1.0


Diluted EPS (INR) 81.3 75.1 34.8 90.7Y-o-Y growth (%) 681.5 (7.6) (53.7) 160.8CEPS (INR) 154.8 148.5 121.3 189.6Diluted P/E (x) 9.1 9.9 21.4 8.2Price/BV(x) 1.5 1.0 1.0 0.9Market cap/Sales (x) 0.7 0.7 0.6 0.5EV/Sales (x) 1.6 1.2 1.1 0.9EV/EBITDA (x) 7.3 6.1 6.1 4.7Dividend yield (%) 1.3 1.6 1.3 1.3


Revenues 19.0 26.1 19.4 21.0EBITDA 86.1 14.5 9.9 32.6PBT 597.7 11.0 (33.2) 115.6Net profit 539.9 6.8 (69.0) 375.3EPS 681.5 (7.6) (53.7) 160.8




Net revenue 189,572 239,002 285,454 345,311Accretion to stock (171) (6,978) 0 0Raw material costs 112,483 154,031 185,868 216,676Employee expenses 4,795 6,368 6,911 7,482Power and freight 10,475 12,067 13,095 15,660SGA and other expenses 21,282 26,888 28,343 37,540Total operating expenses 148,865 192,375 234,217 277,358EBITDA 40,707 46,627 51,238 67,953Depr. and amortisation 12,987 15,597 19,085 21,835EBIT 27,720 31,030 32,153 46,118Interest expenses 11,080 9,454 17,412 15,884Other income 5,360 2,840 1,582 4,950Profit before tax 22,000 24,417 16,322 35,184Provision for tax 6,467 7,823 4,554 10,698Core profit 15,533 16,594 11,768 24,485Extraordinary income/(loss) (6,617)Profit after tax 15,533 16,594 5,151 24,485Minority interest (332) (239) (197) (181)Share of profit of associates 111 707 (3,979) (4,193)Profit after minority int. 15,976 17,540 1,369 20,473FCCB interest post-tax 774 789 227 241Adjusted PAT 15,201 16,751 7,759 20,233Basic sha.outstanding (mn) 187 223 223 223Basic EPS 81 75 35 91Diluted shares (mn) 187 223 223 223Diluted EPS 81 75 35 91Dividend per share (INR) 10 12 10 10Dividend payout (%) 15 20 215 14Tax rate (%) 29.4 32.0 27.9 30.4


Operating expenses 78.5 80.5 82.1 80.3Depreciation 6.9 6.5 6.7 6.3Interest expenditure 5.8 4.0 6.1 4.6EBITDA margins 21.5 19.5 17.9 19.7Net profit margins 8.2 6.9 4.1 7.1



Equity capital- Voting shares 2,481 2,842 2,841 2,841Reserves & surplus 87,300 159,662 158,094 175,631Shareholders funds 92,571 165,293 163,726 181,263Secured loans 134,541 121,728 137,958 139,958Unsecured loans 27,190 43,016 45,645 45,111Borrowings 161,730 164,744 183,604 185,070Minority interest 2,187 2,358 2,162 1,981Deferred tax liability 19,650 23,256 23,256 23,256Sources of funds 276,138 355,652 372,747 391,570Gross block 267,921 326,839 416,839 426,839Depreciation 53,393 68,732 87,817 109,652Net block 214,528 258,107 329,022 317,187CWIP 69,562 65,077 28,097 63,155Total fixed assets 284,090 323,183 357,118 380,341Investments 6,282 29,138 18,542 14,349Deferred tax asset 2,802 2,762 2,762 2,762Goodwill 8,992 10,932 10,932 10,932Loans and advances 16,038 21,568 21,568 21,568Inventories 28,667 44,097 64,557 67,559Sundry debtors 6,964 9,333 11,731 12,299Cash and equivalents 3,030 20,480 23,986 22,161Total current assets 54,700 95,649 121,842 123,587Sundry creditors and others 78,078 102,019 132,147 135,804Provisions 2,649 3,995 6,303 4,599Total CL & provisions 80,727 106,014 138,450 140,403Net current assets (26,027) (10,365) (16,608) (16,816)Uses of funds 276,138 355,652 372,747 391,570Book value per share (INR) 480 728 721 800


Net profit 15,976 17,540 1,369 20,473Depreciation 12,987 15,597 19,085 21,835Others 9,361 8,302 27,811 19,896Gross cash flow 38,323 41,439 48,266 62,205Less: Changes in W. C. 4,710 13,137 (9,749) 1,617Operating cash flow 33,613 28,302 58,015 60,588Less: Capex 27,537 55,181 53,020 45,058Free cash flow 6,076 (26,879) 4,995 15,530


Key takeawaysIn Ujala volume growth was up ~10% YoY and value growth of 4% YoY. JyothyLaboratories (Jyothy) does not anticipate any rural slowdown in Ujala and expectsto grow at ~7% in FY12E and FY13E.

In Maxo, the company lost three percentage points in market share on trailing 12-months period owing to aggressive competition at the trade level.

Exo grew 38% YoY contributing ~18% to topline. Jyothy has gained some marketshare and has become leader in Kerala in this segment.

Due to strike at Karaikal plant from September 26 till December 26 the companylost out 62 days of production, costing ~INR270mn on topline, affecting EBITDA of~INR70mn. Normal production was restored post December 27, 2012.

Entire product portfolio of 10 brands, three from Jyothy and seven from Henkel,are likely to be realigned effective from April 1, with new campaign spending ~10%on advertisement.

In Q3FY12, the company effected 7-8% average price hike across products (however,the impact of price increase was only ~5%). Jyothy is contemplating ~15% pricehike across Henkel products as most of them are under-priced.

Change in distribution structure: The company has changed its distributionstructure from 3 tiered to 2 tiered since the beginning of the current financial year.Commission savings of 5-7% would accrue due to change in distribution structure.Also, sales for first half were tepid as super stockists who held 70-80 days inventoryliquidated the same.

Key risksMaxo performance at risk due to stiff competition from market leader.

Slowdown in rural demand due to lower government spending or a monsoon failurecould impact Jyothy’s revenues significantly.

Integration of Henkel takes longer than expected.

Jyothy being a price follower has risk to its margin.

JYOTHY LABORATORIESIndia Equity Research l Mescellaneous

Pan-India player

Company Profile

February 7, 2012

Abneesh Roy+91 22 6620 3141

[email protected]


EDELWEISS RATINGS


MARKET DATA (R : JYOI.BO, B: JYL IN)

CMP : INR 172

Target Price : NA

52-week range (INR) : 254 / 125





Promoters* : 65.1


FIIs : 12.5

Others : 8.0




1 month 11.7 6.3 5.5

3 months 0.8 13.0 12.2

12 months (1.8) (17.1) (15.3)

Financials

Year to March FY08 FY09* FY10 FY11

Revenues (INR mn) 3,976 3,851 6,398 6,674Rev. growth (%) (5.8) (3.2) 66.1 4.3EBITDA (INR mn) 588 506 721 779Net profit (INR mn) 449 384 744 688Share outstanding (mn) 15 73 73 78EPS (INR) 30.9 5.3 10.2 8.9EPS growth (%) (13.2) (82.9) 93.9 (13.5)Diluted P/E (x) 5.5 32.4 16.7 19.3EV/EBITDA (x) 2.5 22.7 16.0 15.6ROAE (%) 4.0 2.9 5.1 3.4

* The figure of FY09 is for 9 months i.e. from July1,2008 to March31,2009 as the company is about tochange its accounting year




Net profit 449 384 744 688Depreciation 80 75 124 130Deferred tax 22 22 28 30Others 13 (11) (83) 1,336Gross cash flow 564 469 813 2,184Less:Changes in WC (2) 170 304 2,239Operating cash flow 566 299 509 (55)Less: Capex 925 129 456 199Free cash flow (359) 170 53 (255)



Valuation parametersYear to March FY08 FY09* FY10 FY11

Diluted EPS (INR) 30.94 5.28 10.25 8.86Y-o-Y growth (%) (13.2) (82.9) 93.9 (13.5)CEPS 41.4 6.6 12.3 10.9Diluted P/E (x) 5.5 32.4 16.7 19.3Price/BV (x) 0.8 3.6 3.2 2.1EV/Sales (x) 0.4 3.0 1.8 1.8EV/EBITDA (X) 2.5 22.7 16.0 15.6

* The figure of FY09 is for 9 months i.e. from July1,2008 to March31,2009as the company is about to change its accounting year


Revenues (5.8) (3.2) 66.1 4.3EBITDA 45.4 (13.9) 42.4 8.1PBT 13.2 (27.6) 98.3 (15.0)Net profit (3.0) (25.1) 98.2 (11.2)EPS (13.2) (82.9) 93.9 (13.5)




Income from operations 3,976 3,851 6,398 6,674Direct costs 1,957 2,073 3,530 3,310Employee costs 467 442 710 774Other expenses 964 830 1,437 1,811Total operating expenses 3,388 3,345 5,677 5,895EBITDA 588 506 721 779Depreciation and amortisation 80 75 124 130EBIT 508 431 597 648Interest expenses 7 7 17 22Other income 164 58 376 185Profit before tax 666 482 956 812Provision for tax 167 108 215 154Core profit 499 374 741 657Extraordinary items (50) - (1) -Profit after tax 449 374 741 657Less: Minority interests - (10) (3) (30)PAT after minority interest 449 384 744 688Adjusted net profit 449 384 744 688EPS (INR) diluted 30.9 5.3 10.3 8.9Diluted equity shares (mn) 15 73 73 78Dividend payout (%) 29.1 37.8 39.1 58.6Tax rate (%) 25.0 22.4 22.5 19.0





Equity capital 73 73 73 81 Reserves & surplus 3,182 3,396 3,805 6,230 Shareholders funds 3,255 3,469 3,878 6,311 Secured loans - - 129 689 Unsecured loans 5 5 2 2 Borrowings 5 5 131 691 Sources of funds 3,260 3,476 4,013 7,059 Gross block 2,350 2,476 2,930 3,114 Depreciation 358 429 547 709 Net block 1,950 2,004 2,336 2,405 Capital work in progress 94 110 41 202 Total fixed assets 2,043 2,114 2,377 2,607 Investments 5 2 0 607 Inventories 479 470 730 694 Sundry debtors 254 429 707 1,053 Cash and equivalents 960 1,019 1,227 2,809 Other current assets 191 221 351 548 Total current assets 1,884 2,140 3,016 5,104 Sundry creditors and others 368 422 786 538 Provisions 222 253 462 559 Total CL & provisions 590 676 1,248 1,097 Net current assets 1,294 1,464 1,768 4,007 Net deferred tax (83) (105) (133) (163) Uses of funds 3,260 3,476 4,013 7,059 Adj. BV per share (INR) 224.3 47.8 53.4 81.3


Key takeawaysManagement expects Kajaria Ceramics (Kajaria) to grow at 25% next year primarilydriven by 20% volume growth and better product mix. The company expectsstandalone volume sales of 27mn sq ft on an installed capacity of 28.6mn sq ft.Including outsourcing and imports the company expects total volume sales at40mn sq ft in FY12E.

Replacement demand contributes around 20% to sales and balance 80% of salesare to new demand. The company has in excess of 700 SKUs currently and sells itsproducts at 5-7% premium to competition, demonstrating strong pricing power.Kajaria derives 70% of its revenue from retail sales and balance from institutionalsales.

The industry is growing at 16-18% primarily driven by 10-11% volume growth.

The company expects margin to improve by 25-50bps every year on account ofbetter product mix, increase of share of value-added products and reduction ingas prices.

The company currently has 800 distributors including 100 exclusive kajariaoutlets. The company plans to increase distribution network by 150 outlets everyyear, thereby driving growth. Kajaria expects to improve the ratio of large sizetiles / small sized tiles by 300bpls every year .The ratio currently stands at 50:50.The company plans to spend INR500mn in FY12E on advertisement. It derives 18%of sales from South, 55% from North, 13% from East and 14% from West.

Key risksGrowth in demand is linked to the health of the construction sector. Any slowdownin real estate will directly impact sales volume.

The unorganized tile industry could affect price realizations and reduce marketshare.

To compete with low-cost Chinese imports, the company will have to reducemargins, which will dent profitability.

KAJARIA CERAMICSIndia Equity Research l Mescellaneous

Adding sheen

Company Profile

February 7, 2012

Niket Shah+91-22-4063 [email protected]

EDELWEISS RATINGS


MARKET DATA (R : KAJR.BO, B: KJC IN)

CMP : INR 139

Target Price : NA






Promoters* : 53.5


FIIs : 7.2

Others : 30.7




1 month 11.7 39.8 28.0

3 months 0.8 20.8 20.0

12 months (1.8) 102.5 104.3

Financials


Revenues (INR mn) 5,027 6,649 7,355 9,523Rev. growth (%) 21.5 32.3 10.6 29.5EBITDA (INR mn) 819 949 1,149 1,479Net profit (INR mn) 150 89 359 607Share outstanding (mn) 74 74 74 74EPS (INR) 2.0 1.2 4.9 8.2EPS growth (%) 95.7 -40.8 302.9 69.1Diluted P/E (x) 68.1 114.9 28.5 16.9EV/EBITDA (x) 16.5 14.1 11.1 8.8ROE (%) 10.1 5.6 20.4 29.4




Net profit NA 91.40 363.30 617.80Depreciation NA 249.40 267.10 295.00Others NA (85.90) 446.70 674.40Gross cash flow NA 254.90 1,077.10 1,587.20Less:Changes in WC NA 99.00 (499.40) (804.70)Cash from operations NA 254.90 1,077.10 1,587.20Less: Capex NA 87.90 446.00 1,539.60Free cash flow NA 167 631 48


ROAE (%) 5.6 20.4 29.5ROACE (%) 14.4 18.9 25.0Debtors (days) 39 36 32Payable (days) 44 50 64Cash conversion cycle (5) (14) (32)Current ratio 3.4 2.1 1.3Fixed assets turnover (x) 2.0 2.2 2.3Total asset turnover(x) 1.3 1.6 2.0Equity turnover(x) 4.1 4.2 4.6



Equity share capital 147 147 147 147Reserves 1,402 1,474 1,746 2,079Total shareholders funds 1,549 1,621 1,893 2,226Borrowings 3,373 3,252 2,628 2,797Sources of funds 4,922 4,872 4,522 5,023Gross fixed assets 4,901 5,015 5,436 7,000Less: Accum. depreciation 1,519 1,738 1,988 2,210Net fixed assets 3,382 3,277 3,448 4,790Capital WIP 26 0 25 1Investments 34 34 34 90Deferred tax asset (522) (535) (549) (602)Cash & bank balances 83 79 45 30Debtors 713 678 773 909Inventories 1,539 1,385 1,403 1,515Loans and advances 460 827 756 808Total current assets 2,795 2,968 2,977 3,263Sundry creditors 748 830 1,198 2,130Provisions 46 42 216 389Total current liabilities 793 872 1,414 2,519Working capital 2,001 2,096 1,563 743Application of funds 4,922 4,872 4,522 5,023BV per share (INR) 21 21 25 29




Revenue 5,319 6,539 7,361 9,486Materials 2,672 3,535 3,603 5,360Power & fuel cost 786 917 1,061 940Staff cost 404 492 599 728Other manufacturing expenses 140 134 168 202Selling & Admin. expenses 479 533 705 754Miscellaneous expenses 18 (20) 77 27Total expenditure 4,500 5,590 6,212 8,011EBITDA 819 949 1,149 1,475Depreciation 236 249 267 295EBIT 583 700 882 1,180Interest expense 419 582 425 331Other income 36 10 57 43Profit before tax 200 128 514 892Tax 50 39 156 285Core profit 150 89 359 607Extraordinary income/(loss) (7) 2 5 11Profit after tax 144 91 363 618Net profit after min. int. 144 91 363 618Shares outstanding (mn) 75 75 76 77EPS (INR) basic 2.0 1.2 4.7 7.9Diluted shares (mn) 75 75 76 77EPS (INR) diluted 2.0 1.2 4.7 7.9CEPS (INR) 5.2 4.5 8.2 11.8


Materials 50.2 54.1 48.9 56.5Power & fuel cost 14.8 14.0 14.4 9.9Staff cost 7.6 7.5 8.1 7.7Other manufacturing expenses 2.6 2.0 2.3 2.1Selling & admin. expenses 9.0 8.2 9.6 8.0Total expenditure 84.6 85.5 84.4 84.5EBITDA margin 15.4 14.5 15.6 15.5EBIT margin 11.0 10.7 12.0 12.4Net profit margins 2.8 1.4 4.9 6.4


Revenues NA 23.0 12.6 28.9EBITDA NA 15.9 21.1 28.3EBIT NA 20.1 26.0 33.7PBT NA (36.4) 303.5 73.4Net profit NA (40.7) 302.8 69.2EPS NA (41.3) 299.2 68.2


Diluted EPS (INR) 2.0 1.2 4.9 8.2Y-o-Y growth (%) 95.7 -40.8 302.9 69.1CEPS 5.6 4.9 8.9 13.2Diluted P/E (x) 68.1 114.9 28.5 16.9Price/BV (x) 6.6 6.3 5.4 4.6EV/Sales (x) 2.7 2.0 1.7 1.4EV/EBITDA (X) 16.5 14.1 11.1 8.8


Key takeawaysKEC International (KEC) expects sales growth improvement to continue on back ofstrong order book. It will grow at a minimum industry growth rate of 10-15%. Keyinternational markets like MENA and US will help optimize overall growth rate.Guidance for FY13 sales growth stands at 20%. It expects new business (watersegment) to start contributing from Q4FY12. It targets margins in the 8.5-9.0%range. The company stated that 5 business and 5 geographies are helping sustainedorder intake.

KEC expects cables margin to improve from 3% to 6% next year as it will shut downits Thane plant and start a new cable plant at Vadodara.

Power system, which is currently 10% of sales, will rise once the large Kazakhstanorder starts executing from Q4FY12. It expects net debt to equity at 1.3x to belargely maintained and working capital of 110 days to sustain.

SAE utilization has increased from 60% to 80% now. SAE sales currently at INR175mnUSD. It expects SAE margins to drop to 13% from 15% now.

Investment conclusionWe believe KEC has a robust order backlog and with higher order flows fromPower Grid Corporation (PGCIL) expected, it has balanced order mix betweeninternational and domestic orders. We believe the company is likely to significantlybenefit from increased order flows from PGCIL. Further, KEC being present in over20 countries in international geographies, is expected to keep international ordersflowing in. However, currently, margins are under attack due to increase incompetitive intensity and entry into new business vertical.

Key risksForex fluctuation could potentially impact margins for the company. Further thePAT margins are sensitive to interest rates and any increase the same is likely tonegatively impact the company.

KEC INTERNATIONALIndia Equity Research l Engineering and Capital Goods

Towering growth

Company Profile

February 7, 2012






MARKET DATA (R : KECL.BO, B: KECI IN)

CMP : INR 63







Promoters* : 42.0


FIIs : 2.4

Others : 16.0



Stock Nifty EW Cpital Goods Index

1 month 41.5 9.6 16.1

3 months (5.1) 0.3 (7.1)

12 months (36.1) (7.1) (25.5)




[email protected]



Revenues (INR mn) 39,082 44,742 56,817 64,979Rev. growth (%) 14.0 14.5 27.0 14.4EBITDA (INR mn) 4,069 4,625 4,774 5,492Net profit (INR mn) 1,897 2,057 1,719 2,165Share outstanding (mn) 247 257 257 257EPS (INR) 7.7 8.0 6.7 8.4EPS growth (%) 63.1 4.0 (16.4) 25.9Diluted P/E (x) 8.3 8.0 9.6 7.6EV/EBITDA (x) 5.6 6.3 6.3 5.5ROE (%) 28.6 24.0 16.5 17.6




ROAE (%) (on adjusted profits) 28.6 24.0 20.6 20.6ROACE (%) 27.1 20.9 18.5 20.2Inventory days 29 33 32 31Debtors days 177 186 182 179Payable days 219 222 211 202Cash conversion cycle (12) (3) 3 7Current ratio 1.5 1.6 1.6 1.6Debt/EBITDA 1.9 3.1 2.9 2.5Interest coverage 4.4 3.9 3.3 3.2Fixed assets t/o (x) 6.6 6.1 6.4 6.7Debt/equity 1.0 1.5 1.3 1.1


Diluted EPS (INR) 7.7 8.0 6.7 8.4Y-o-Y growth (%) 63.1 4.0 (16.4) 25.9CEPS 8.8 10.2 8.5 10.4Diluted P/E (x) 8.3 8.0 9.6 7.6Price/BV (x) 2.1 2.7 1.4 1.2EV/Sales (x) 0.6 0.7 0.5 0.5EV/EBITDA (X) 5.6 6.3 6.3 5.5






Income from operations 39,082 44,742 55,253 64,287Direct costs 29,709 32,357 40,296 46,681Employee costs 1,689 2,833 4,287 5,032Other expenses 3,616 4,926 5,513 6,429Total operating expenses 35,014 40,116 50,095 58,142EBITDA 4,069 4,625 5,158 6,144Depreciation & amortisation 270 408 461 499EBIT 3,798 4,217 4,697 5,645Interest expenses 865 1,075 1,408 1,762Other income 0 26 0 0Profit before tax 2,934 3,168 3,289 3,883Provision for tax 1,037 1,111 1,151 1,340Core profit 1,897 2,057 2,138 2,544Profit after tax 1,897 2,057 2,138 2,544PAT after minority interest 1,897 2,057 2,138 2,544Adjusted net profit 1,897 2,057 2,138 2,544EPS (INR) basic 7.7 8.0 8.3 9.9Diluted equity shares (mn) 247 257 257 257Dividend payout (%) 19.0 17.6 16.6 13.9Tax rate (%) 35.3 35.1 35.0 34.5





Equity capital 514 514 514 514Reserves & surplus 7,162 8,952 10,735 12,924Shareholders funds 7,676 9,466 11,249 13,438Secured loans 7,755 14,322 14,822 15,322Borrowings 7,867 14,322 14,822 15,322Sources of funds 15,543 23,788 26,071 28,760Gross block 8,291 10,382 12,132 13,132Depreciation 1,541 2,366 2,827 3,326Net block 6,750 8,016 9,305 9,806Capital work in progress 383 392 392 392Total fixed assets 7,133 8,408 9,697 10,198Goodwill 0 2,813 2,813 2,813Investments 19 0 0 0Inventories 2,498 3,359 3,701 4,232Sundry debtors 19,450 26,177 28,913 34,089Cash and equivalents 678 1,614 1,362 1,052Loand & Advances 3,973 4,724 4,724 4,724Total current assets 26,598 35,873 38,699 44,096Sundry creditors and others 17,190 22,248 24,288 27,497Provisions 556 561 355 355Total CL & provisions 17,746 22,809 24,643 27,852Net current assets 8,852 13,063 14,057 16,245Net deferred tax (461) (497) (497) (497)Uses of funds 15,543 23,788 26,071 28,760Adjusted BV per share (INR) 31 37 44 52


Net profit 2,155 2,489 2,138 2,544 Depreciation 270 408 461 499 Deferred tax 0 166 0 0 Others 440 929 0 0Gross cash flow 2,866 3,992 2,599 3,043Less:Changes in WC 2,519 2,297 1,245 2,498Operating cash flow 347 1,694 1,354 545Less: Capex 588 780 1,750 1,000Free cash flow (242) 914 (396) (455)


Key takeawaysConsolidated advances to grow at 25-30% in FY12. The structural shift in productportfolio towards quality corporate loans and secured retail loans will continue.Corporate banking loans to wind down in Q4FY12 (as witnessed historically).

Capital market related businesses are at lower end of the trough; will not seesignificant slowdown from this level; it will either remain flat or will improve.

Will add 30 another branches in Q4FY12 (to 360 branches) and maintain guidanceof 500 branches by CY13.

Retail segment: behavior of consumer is much better than previous cycle (evenwithin secured segment itself); on commercial financing side it will be cautiouson construction equipment; on wholesale side big ticket loans in some sectors arebeing closely monitored.

Added INR9bn to savings deposit base (to 11.5% of total deposits). Consequently,CASA deposit inched up 200bps to 28% (excluding sweep deposits of 6.7%). Themanagement would continue to focus on low cost deposit base.

Has been resorting to forex borrowings where cost post currency hedging andinterest rate swap provides benefit of 2.5-3.0%. However, it has exhausted thelimit of 50% of networth on the same.

Insurance profitability primarily driven by surrender charges.

Investment conclusionFinancing business has been the key driver of earnings growth led by a robustadvance growth, consistently low credit costs and NIMs at 4.7%. Earnings of capitalmarket related businesses continue to reel under pressure. In banking business,we expect the growth to moderate and NIMs to be under pressure due to the recentsavings bank deregulation and focus on quality corporate segment. The stock iscurrently trading at 2.6x FY13E book and 20.5x earnings (excluding life insurance)while our SOTP fair value for the stock stands at INR427 per share for FY13E.

Key risksGrowth momentum continues to be buoyant. Asset quality continues to be undercontrol and credit cost increase remains capped. Traction in auto financingbusiness continues.

KOTAK MAHINDRA BANKIndia Equity Research l Banking and Financial Services

Lying low

Company Profile

February 7, 2012


Absolute Rating REDUCE




MARKET DATA (R : KTKM .BO, B: KMB IN)

CMP : INR 536


52-week range (INR) : 539 / 333





Promoters* : 45.4


FIIs : 27.0

Others : 22.4




1 month 8.9 9.6 15.8

3 months (0.3) 0.3 3.9

12 months 26.1 (7.1) (6.2)




[email protected]

Financials


Net revenues (INR mn) 44,848 50,112 53,873 63,257Net rev growth (%) 34.8 11.7 7.5 17.4Net interest income(INR mn) 25,484 30,136 35,069 41,687Net profit (INR mn) 12,327 14,951 16,031 19,209Shares outstanding (mn) 348 368 368 368EPS (INR) 17.7 20.3 21.8 26.1EPS growth (%) 88.9 14.6 7.2 19.8Diluted P/E (x) 30.2 26.4 24.6 20.5Price to book (x) 4.7 3.6 3.2 2.8ROAE (%) 17.0 16.2 14.2 14.8






Interest income 45,450 58,640 81,650 100,239Interest expenses 19,966 28,504 46,582 58,552Net interest income 25,484 30,136 35,069 41,687Non interest income 19,364 19,976 18,804 21,570- Fee & forex income 14,285 15,060 12,926 15,890- Misc. income 4,989 4,836 5,798 5,580- Investment profits 90 80 80 100Net revenues 44,848 50,112 53,873 63,257Operating expense 21,037 26,200 27,781 31,746 - Employee exp 8,976 11,108 11,691 13,882 - Other opex 12,061 15,093 16,090 17,864Preprovision profit 23,811 23,912 26,091 31,512Provisions 5,643 1,603 1,555 2,302PBT 18,168 22,309 24,537 29,209Taxes 5,807 7,128 8,156 9,650PAT 12,362 15,181 16,381 19,559Extraordinaries (35) (230) (350) (350)Reported PAT 12,327 14,951 16,031 19,209EPS (INR) 17.7 20.3 21.8 26.1DPS (INR) 1.4 2.0 2.5 2.9Payout ratio (%) 4.7 4.8 5.8 5.6


NII growth 26.0 18.3 16.4 18.9Fees growth 28.4 5.4 (14.2) 22.9Opex growth 0.0 24.5 6.0 14.3PPP growth 94.4 0.4 9.1 20.8Provisions growth 161.0 (71.6) (3.0) 48.1PAT growth 90.3 21.3 7.2 19.8



LiabilitiesEquity capital 3,481 3,684 3,684 3,684Reserves 75,241 104,470 119,566 137,701Net worth 78,722 108,155 123,250 141,385Sub bonds/pref capDeposits 169,328 207,524 274,139 345,415Borrowings 135,559 162,671 178,938 196,832Other liabilities 81,464 118,368 152,813 185,931Total 465,074 596,718 729,140 869,563AssetsLoans 281,136 396,893 514,015 640,141Investments 125,542 138,096 151,906 167,097OthersCash & equi 25,501 27,058 27,736 27,098Fixed assets 4,865 4,933 5,000 5,446Other assets 28,029 29,738 30,483 29,782Total assets 465,074 596,718 729,140 869,563


Net interest income/Assets 6.0 5.7 5.3 5.2Fees/Assets 4.6 3.8 2.8 2.7Net revenues/Assets 10.6 9.5 8.2 8.0Operating expense/Assets 5.0 5.0 4.2 4.0Provisions/Assets 1.3 0.3 0.2 0.3Taxes/Assets 1.4 1.4 1.2 1.2Total costs/Assets 7.7 6.6 5.7 5.5ROA 2.9 2.9 2.5 2.5Equity/Assets 17.2 17.8 17.6 16.7ROAE 17.0 16.2 14.2 14.8


EPS (INR) 17.7 20.3 21.8 26.1EPS growth (%) 88.9 14.6 7.2 19.8Book value per share (INR) 113.1 146.8 167.3 191.9Adjusted Book Value/share 109.4 144.9 165.7 190.1Price/Earnings (x) 30.2 26.4 24.6 20.5Price/ BV (x) 4.7 3.6 3.2 2.8Price/ ABV 4.9 3.7 3.2 2.8Dividend yield (%) 0.3 0.4 0.5 0.5Price/Earnings (x)* 28.3 24.7 23.0 19.1Price/ BV (x)* 4.4 3.4 3.0 2.6

* adj for insurance


Key takeawaysRecently, Larsen & Toubro (L&T) has lost orders such as NMDC coke oven batterydue to difficult technology, NTPC bulk tenders and USD2bn ONGC order which itlost to NPCC Mc Dermott. Aggressive pricing in ONGC tenders in the past ninemonths by smaller players like NPCC Mc Dermott and not by Samsung & Hyundai.It expects no immediate relief in BTG ordering since coal problem will take morethan two years to be resolved. The Jaypee Group may move the Karchana plantfrom Karchana to Bina. Currently, INR57bn Karchana order is non-moving order. Italso mentioned that the Hyderabad Metro is stuck in high court and the concessionperiod has not started as yet although L&T has started with the pre-constructiondesign. Godrej and NESCO are two infra projects worth INR10bn that are on holdin the order book and L&T has advances from them.

The company maintains that it is not qualified for mega billion dollars wheremargins would be low and focuses on sub billion USD project size where there isa fabrication yard locally available and OPM is in a comfortable range. Itmentioned that Power T&D business is steady in Middle East. It targets 20-25% ofthe order book from exports. The USD100bn Qatar FIFA ordering will start in nextyear. L&T is currently evaluating the stake sale in IDPL, power development andLarsen Realty. IDPL will be the first to hit the market for IPO. IT has investedUSD400mb in the shipyard which will be ready in next six months, but no majororder has been booked as yet. It can make vessels upto 200 mtr in length and hastied up with MHI for high end vessels. It has formed a JV with NPCIL for forgingswhere the company has invested USD400mn.

Investment conclusionBest equipped to ride infrastructure capex cycle: L&T is India’s largest infrastructureand EPC company with presence across major verticals like process, hydrocarbons,power, core infrastructure like roads, ports, bridges, industrial structures etc.

Diversified business dominance: L&T has a dominant position and market share inmost operating verticals. It has dedicated key business divisions with skilledmanpower.

Key risksEconomy slowdown. Raw material cost and execution risk.

LARSEN & TOUBROIndia Equity Research l Engineering and Capital Goods

In a class of its own

Company Profile

February 7, 2012


Absolute Rating BUY




MARKET DATA (R : LART.BO, B: LT IN)

CMP : INR 1,354


52-week range (INR) : 1,932 / 971


M cap (INR bn/USD mn) : 828.4 / 16,489



Promoters* : 0.0


FIIs : 13.8

Others : 48.3




1 month 34.3 9.6 30.5

3 months 2.3 0.3 0.2

12 months (15.9) (7.1) (16.8)




[email protected]



Revenues (INR mn) 439,698 520,891 622,142 723,299Rev. growth (%) 8.5 18.5 19.4 16.3EBITDA (INR mn) 64,398 76,910 86,742 98,528Net profit (INR mn) 34,968 43,918 48,142 54,596Share outstanding (mn) 613 615 617 617EPS (INR) 57.1 71.4 78.0 88.5EPS growth (%) 15.9 25.2 9.3 13.4Diluted P/E (x) 23.7 19.0 17.4 15.3EV/EBITDA (x) 14.6 13.4 12.0 10.6ROE (%) 20.0 19.1 17.8 17.5




ROAE (%) (on adjusted profits) 20.0 19.1 17.8 17.5ROACE (%) 16.7 14.2 12.6 13.4Inventory days 28 26 29 31Debtors days 100 95 107 122Payable days 117 137 146 148Cash conversion cycle 11 (16) (10) 4Current ratio 1.8 1.9 1.8 1.8Debt/EBITDA 3.8 4.3 3.8 3.4Interest coverage 7.9 7.8 7.7 7.9Fixed assets t/o (x) 4.0 3.7 4.0 4.7Debt/equity 1.2 1.3 1.1 1.0








Income from operations 439,698 520,891 622,142 723,299Direct costs 323,400 375,409 459,270 538,033Employee costs 30,654 38,020 43,503 50,621Other expenses 21,246 30,553 32,627 36,117Total operating expenses 375,300 443,982 535,400 624,771EBITDA 64,398 76,910 86,742 98,528Depreciation & amortisation 9,793 12,443 15,642 17,242EBIT 54,605 64,467 71,100 81,286Interest expenses 6,919 8,309 9,220 10,270Other income 7,585 11,153 9,743 10,227Profit before tax 55,271 67,312 71,623 81,243Provision for tax 20,388 23,479 23,779 26,973Core profit 34,884 43,833 47,844 54,270Extraordinary items 19,540 719 - -Profit after tax 54,423 44,552 47,844 54,270Less: Minority interests 975 786 861 977Add: Share in profits of asso. 1,060 871 1,158 1,303PAT after minority interest 54,508 44,637 48,142 54,596Adjusted net profit 34,968 43,918 48,142 54,596EPS (INR) basic 58.1 72.1 79.1 89.7Diluted equity shares (mn) 613 615 617 617Dividend payout (%) 21.2 19.9 18.4 17.1Tax rate (%) 36.9 34.9 33.2 33.2





Equity capital 1,204 1,218 1,218 1,218Reserves & surplus 208,708 249,288 288,439 333,594Shareholders funds 209,913 250,506 289,656 334,812Secured loans 141,859 234,490 236,490 238,490Deferred paymet liability 45,117 45,117 45,117Borrowings 246,073 328,285 330,285 332,285Minority Interest 10,873 10,260 11,121 12,098Sources of funds 466,858 634,167 676,179 724,312Gross block 161,081 205,216 208,300 224,300Depreciation (37,476) (48,975) (52,701) (69,942)Net block 123,605 156,242 155,600 154,358Capital work in progress 66,184 125,396 126,396 127,396Total fixed assets 189,789 281,637 281,995 281,754Investments 99,279 92,158 93,658 96,658Inventories 23,782 30,403 41,523 48,644Sundry debtors 125,280 144,802 221,347 261,527Cash and equivalents 33,216 36,454 28,131 31,181Loand & Advances 160,299 235,366 247,134 277,318Other current assets 74,433 121,099 129,576 142,534Total current assets 417,009 568,124 667,712 761,205Sundry creditors & others 212,946 280,517 355,086 402,755Provisions 24,743 24,126 8,991 9,440Total CL & provisions 237,689 304,642 364,077 412,195Net current assets 179,320 263,482 303,635 349,009Net deferred tax (1,530) (3,109) (3,109) (3,109)Uses of funds 466,858 634,167 676,179 724,312Adjusted BV per share (INR) 348 411 476 550


Net profit 54,508 44,637 48,142 54,596 Depreciation 9,793 12,443 15,642 17,242 Deferred tax (1,530) (3,109) - - Others (32,582) (64,837) 10,081 11,247Gross cash flow 30,188 (7,757) 73,865 83,085Less:Changes in WC 28,318 8,110 48,477 42,324Operating cash flow 21,513 (15,867) 25,388 40,761Less: Capex 44,800 68,942 16,000 17,000Free cash flow (23,287) (84,809) 9,388 23,761


Key takeawaysWith respect to deposit issue raised by RBI, management clarified that after beingclassified as a non-deposit taking NBFC in 2011, Manappuram F inance(Manappuram) has not been issuing any public deposit and pending publicdeposits of INR12.5mn was lying in escrow with PNB. RBI has raised an issue withrespect to INR3mn issued by Manappuram Agro Foods and it will issue clarificationin this respect.

The company will be more focused on RoA profile. It will pass on operating leverageand funding cost benefit to customers in terms of lower yields to be equallycompetitive.

Management is maintaining its guidance of INR135bn-140bn AUM by FY12 drivenby improved productivity of branches added in the past one year anddisbursements per branch can be ramped up to INR50mn as branches mature.

It terms of customer profile, ~30% of gold loans used for agri, 14% as bridge loansfor housing, 10% to education and marriage each and 15% to working capitalneeds.

Average LTV is 71%; minimum is 50% and maximum is 85%. If there is a decline ingold prices, customers may probably shift to higher LTV products thereby protectingyields to some extent.

Investment conclusionWhile we remain positive on its niche business model of collateralised lending,generating RoEs of 4% plus, we believe RoEs will be vulnerable to increasedcompetition, margin pressure, volatility in gold prices and most importantly,regulatory risk.

Key risksCompetition intensity in gold loan financing is bound to rise . Demand and assetquality of gold loans is susceptible to price fluctuations of underlying collateral(gold).

MANAPPURAM FINANCEIndia Equity Research l Banking and Financial Services

Golden opportunity

Company Profile

February 7, 2012






MARKET DATA (R : MNFL.BO, B: MGFL IN)

CMP : INR 46







Promoters* : 36.3


FIIs : 33.0

Others : 29.4




1 month 14.1 9.6 15.8

3 months (15.5) 0.3 3.9

12 months (13.1) (7.1) (6.2)




[email protected]

Financials


Net revenues (INR mn) 3,413 8,496 16,498 22,304Net rev growth (%) 96.8 148.9 94.2 35.2Net interest income(INR mn) 3,306 8,314 16,162 21,855Net profit (INR mn) 1,197 2,827 5,726 7,173Shares outstanding (mn) 170 417 417 417Diluted EPS (INR) 2.0 3.4 6.9 8.6EPS growth (%) 306.1 66.8 102.6 25.3Diluted P/E (x) 22.2 13.3 6.6 5.2Price to book (x) 5.0 2.0 1.6 1.3ROAE (%) 27.8 22.3 26.5 26.7




Diluted EPS (INR) 2.0 3.4 6.9 8.6EPS growth (%) 306.1 66.8 102.6 25.3Book value per share (INR) 9.0 23.1 28.7 35.8Adj. book value per share (INR) 8.9 23.0 28.5 35.5Diluted P/E (x) 22.2 13.3 6.6 5.2Price/ BV (x) 5.0 2.0 1.6 1.3Price/ Adj. BV (x) 5.0 2.0 1.6 1.3Dividend yield (%) 1.1 1.0 2.3 2.9




Interest income 4,675 11,634 22,418 31,848Interest charges 1,369 3,320 8,605 13,947Net interest income 3,306 8,314 13,813 17,901Fee & other income 107 181 317 425Net revenues 3,413 8,496 14,130 18,327Operating expense 1,453 4,032 6,250 8,116 - Employee exp 536 1,605 2,819 3,620 - Depreciation /amortisation 57 213 224 282 - Other opex 859 2,214 3,207 4,214Preprovision profit 1,960 4,463 7,880 10,210Provisions 142 224 826 1,508PBT 1,818 4,239 7,054 8,702Taxes 621 1,412 2,328 2,872PAT 1,197 2,827 4,726 5,830Reported PAT 1,197 2,827 4,726 5,830Basic number of shares (mn) 585.3 833.8 833.8 833.8Basic EPS (INR) 2.0 3.4 5.7 7.0Dil. number of shares (mn) 589.0 833.8 833.8 833.8Diluted EPS (INR) 2.0 3.4 5.7 7.0DPS (INR) 0.5 0.5 0.9 1.0Payout ratio (%) 16.1 20.6 15.0 15.0


Operating income growth 100.3 151.5 66.1 29.6Net revenues growth 96.8 148.9 66.3 29.7Opex growth 76.1 177.6 55.0 29.9PPP growth 115.6 127.7 76.6 29.6Provisions growth (21.4) 57.9 268.4 82.5PAT growth 150.5 136.1 67.2 23.4


Yield on advances 24.5 23.1 22.9 21.4Cost of funds 7.1 7.1 9.6 10.1Spread 17.4 16.0 13.3 11.3Net interest margins 14.2 14.3 12.7 11.1Cost-income 42.6 47.5 44.2 44.3Tax rate 34.2 33.3 33.0 33.0



LiabilitiesEquity capital 340 834 834 834Reserves 5,765 18,406 22,279 27,062Net worth 6,106 19,240 23,113 27,895Preference capital 0 0 0 0Subordinate debt 1,165 2,779 3,279 3,279Secured loans 16,501 43,723 95,635 143,405Unsecured loans 691 10,038 32 34Deferred tax liability (33) (87) (176) (285)Assignments 7,077 11,183 12,094 17,680Total liabilities 31,506 86,876 133,977 192,008AssetsLoans 18,694 63,671 108,848 159,120Investments 1,407 403 404 404Current assets 4,774 12,082 14,666 17,886Current liabilities 1,015 1,911 4,104 5,431Net current assets 3,759 10,171 10,563 12,455Fixed assets (net block) 569 1,448 2,069 2,349Assignments 7,077 11,183 12,094 17,680Total assets 31,506 86,876 133,977 192,008Balance sheet ratios (%)Loan growth 107.3 190.5 61.6 46.2Deposit growth 249.5 212.7 77.9 49.9EA growth 98.6 176.1 54.4 43.8Gross NPA ratio 0.4 0.5 0.7 0.9Net NPA ratio 0.1 0.1 0.2 0.2Provision coverage 70.0 70.0 70.0 75.0


Net interest income/Assets 14.2 14.3 12.7 11.1Non-interest income/Assets 0.5 0.3 0.3 0.3Net revenues/Assets 14.7 14.6 13.0 11.4Operating expense/Assets (6.2) (6.9) (5.8) (5.0)Provisions/Assets (0.6) (0.4) (0.8) (0.9)Taxes/Assets (2.7) (2.4) (2.1) (1.8)Total costs/Assets (9.5) (9.7) (8.7) (7.8)ROA 5.1 4.9 4.3 3.6Equity/Assets 18.5 21.8 19.5 15.9ROAE 27.8 22.3 22.3 22.9


Key takeawaysSubsidy to remain at 37.91% for upstream for Q4FY12 (provisional estimates)

The government has indicated, in a recent communication, that the FY12 upstreamprovisional subsidy is likely to be pegged at 37.91% (same as 9mFY12 average),which will result in net realization at over USD56/bbl. We believe the same ispositive as the consensus has pegged the upstream sharing at ~45%.

Oil production to get a boost in FY14; Daman gas to start from FY17

Management guided for FY13/14 crude oil production (including JV) at 28.75/32.10 mmt. Incremental FY14 production of 3.35 mmt to come from B-22, B-4, B-193, Heera and South Heera redevelopment, MHS- redevelopment and MHN –redevelopment fields. Gas production guidance for FY13/14 stands at 27.0/27.5bcm. Peak gas production from Daman offshore fields is likely to start in FY17with 7 mmscmd and finally scale up to ~15 mmscmd.

Capex plans of INR1,450 bn for next 5 years, 100 tcf of shale gas reserves

In its recent five year plan, ONGC has planned a capex of INR1,450bn till FY17.FY13 planned capex is INR331bn. ONGC awaits DGH’s commerciality approval for3 large discoveries – Mahanadi basin, KG-98/2 northern area, and KG-98/2 southernarea.

Investment conclusionLower subsidy burden and increase in crude production implies better times aheadfor ONGC. We expect the stock to perform well in the near term as we expect lowersharing of subsidies against Street estimates.

Key risksHigher subsidies may limit crude net realizations. Higher-than-expected declinerates in its existing matured assets could impact production, going forward.ONGC’s assets in countries like Sudan/Syria face geo-political risks.

ONGCIndia Equity Research l Oil, Gas and Services

Lower provisional subsidies in FY12

Company Profile

February 7, 2012


Absolute Rating BUY




MARKET DATA (R : ONGC.BO, B: ONGC IN)

CMP : INR 287


52-week range (INR) : 325 / 226


M cap (INR bn/USD mn) : 2,452 / 48,814



Promoters* : 74.1


FIIs : 5.3

Others : 13.7



Stock Nifty EW O & G Index

1 month 8.6 9.6 8.0

3 months 3.1 0.3 (1.1)

12 months 3.1 (7.1) (5.8)


Financials


Revenues (INR mn) 1,018 1,176 1,288 1,374EBITDA (INR mn) 443 485 523 609Net profit (INR mn) 194 225 263 296EPS (INR) 22.6 26.3 29.6 34.6Diluted P/E (x) 12.6 10.9 9.7 8.3EV/EBITDA (x) 5.1 4.6 4.4 3.8ROE (%) 20.2 20.9 20.6 21.1



Cash flow statement (INR bn)Year to March FY10 FY11 FY12E FY13E

Net profit 194 225 263 296Add: Depreciation 123 157 91 104Add: Deferred tax 12 9 11 12Add: Others (60) (41) (71) (71)Gross cash flow 269 349 294 342Less:Changes in working capital (19) (69) 54 (1)Opertaing cash flow 288 418 239 343Less: Capex 213 356 315 320Free cash flow 75 62 (76) 23


ROACE 20.1 19.7 18.8 20.2ROAE (%) 20.2 20.9 20.6 21.1ROA 14.9 15.7 15.3 15.8Current ratio 1.7 1.5 1.6 1.6Cash ratio 0.7 0.7 0.7 0.6Receivables (days) 26 26 30 29Inventory (days) 30 27 27 26Payables (days) 81 106 90 87Cash conversion cycle (days) (26) (53) (34) (32)Debt-equity (x) 0.1 0.1 0.1 0.1Debt/EBITDA 0.1 0.1 0.2 0.2Adjusted debt/Equity 0.1 0.1 0.1 0.1


EPS - Diluted (INR) - Cons. 22.6 26.3 29.6 34.6Y-o-Y growth (%) (1.8) 16.0 12.8 17.0CEPS (INR) 35.4 41.6 46.0 52.9Diluted P/E (x) - Cons. 12.6 10.9 9.7 8.3P/BV (x) 2.4 2.1 1.8 1.6EV/Sales (x) 2.2 1.9 1.8 1.7EV/EBITDAX (x) 5.1 4.6 4.4 3.8Dividend yield( %) 2.9 3.1 3.4 4.1


Revenues (2.7) 15.6 9.5 6.6EBITDA 6.4 9.3 7.9 16.5PBT (2.2) 12.9 12.9 15.1Net profit (2.0) 16.0 12.0 17.0EPS (1.8) 16.0 12.8 17.0


Income statement (INR bn)


Net revenues 1,018 1,176 1,288 1,374 Statutory levies 170 197 201 209 Other expenditure 398 479 553 544 Provisions & Write-offs 6 16 12 12 Total expenditure 574 692 765 765 EBITDA 443 485 523 609 Recouped cost 187 206 215 232 EBIT 256 278 308 377 Financing expense 5 4 6 9 Other income 53 69 86 78 Profit before tax 304 343 387 446 Current tax 96 114 126 139 Other taxes (0) (8) (5) (5) Deferred tax 12 9 11 12 Total tax 107 115 132 147 Core profit 197 228 256 299 Extraordinary/Prior period items 0 (0) 10 - Profit after tax 197 228 266 299 Add: Profit/Loss from asso. 0 0 0 0 Less: Profit/Loss from min. int. 3 4 2 3 Group Profit after tax 194 225 263 296 Eq. shares outstanding (bn) 9 9 9 9 EPS (INR) basic 22.6 26.3 29.6 34.6 Diluted shares (bn) 9 9 9 9 EPS - Diluted (INR) 22.6 26.3 29.6 34.6 CEPS 35.4 41.6 46.0 52.9 DPS 8.2 8.7 9.6 11.7 Dividend payout (%) 36.5 33.3 32.5 33.8


Cost of goods sold 39.1 40.7 42.9 39.6Operating expenses 39.1 40.7 42.9 39.6EBITDA margins 43.6 41.2 40.6 44.3Depreciation & amortisation 18.4 17.5 16.7 16.9Interest 0.5 0.4 0.5 0.6Net profit margin 19.3 19.4 19.9 21.8

Balance sheet (INR bn)


Total equity capital 21 43 43 43Reserves & surplus 993 1,110 1,281 1,465Shareholder's equity (A) 1,014 1,153 1,324 1,507Minority interest (B) 16 20 21 22Secured loans 7 7 7 7Unsecured loans 56 56 113 125Total debt (C) 63 63 120 132Deferred tax liability (D) 103 112 122 135Lia. for abondonment cost (E) 175 199 205 201Sources of funds (A+B+C+D+E) 1,371 1,546 1,793 1,997Gross fixed & prod. proper. 2,044 2,280 2,524 3,004Accumulated DD&A 1,193 1,350 1,440 1,544Net fixed assets 851 930 1,083 1,460Cap.WIP & Exp. wells in progr. 256 376 448 287Total fixed assets (A) 1,107 1,307 1,531 1,747Investments (B) 52 34 33 23Inventories 82 86 94 97Accounts receivable 71 98 112 109Cash and cash equivalents 224 287 254 253Loans and advances 121 110 128 141Other current assets 7 9 8 6Current assets (C) 506 589 596 606Current liabilities 227 340 318 326Provisions 75 51 58 63Current lia. & provisions (D) 302 391 377 389Net current assets (E) 204 198 220 217Miscellaneous expenditure (F) 8 8 9 9Uses of funds (A+B+E+F) 1,371 1,546 1,793 1,997Book value per share 118.5 134.8 154.7 176.2


Key takeawaysPantaloon Retail (PRIL) is looking to divest equity stake and raise ~INR10-12bn,which the company will use to pay back some debt.

The company is committed to calibrated growth by increasing selling space by2mn sq feet per year in FY12 and FY13.

FDI in multi-brand retail is likely to benefit the company, but currently it is in thecold storage. B but traction could take place post elections and budget; could takeanother 2-3 months.

The JV with a Japanese company is likely to take place by end of FY12 which wouldbe in the foods category.

Divestment of Future Capital and Future Insurance stake is in progress and thediscussions have reached an advanced stage.

Raw material prices, specially cotton, is seeing a correction from peak prices. Thecompany might decrease prices only if volumes are being impacted by the earlierprice hikes. PRIL is confident of improving inventory days from 120 to 85-90 daysby the next 3-5 years. PRIL shut down 11 E-Zone stores. The company is alsowitnessing severe slowdown in Hometown.

Investment conclusionThe Indian retail landscape is evolving with interplay of several demographic andeconomic factors. Despite the slowdown expected in real GDP growth in the nearterm, the long term prospects backed by changing consumer behaviour in favourof larger discretionary spend, has set the stage for a healthy growth in the retailspace over the next five years. The big opportunity lies in the growing share oforganised retail with the growing trend among consumers to allocate a largershare of income to consumption and gradual improvement in lifestyle. We continueto remain optimistic about PRIL’s strong presence across multiple consumptioncategories and its size. However, burgeoning debt and higher inventory days remainkey concerns and continues to deteriorate.

Key risksRising share of debt. Pressure on margins due to competition. Macro slowdown.

PANTALOON RETAILIndia Equity Research l Retail

Growth engine

Company Profile

February 7, 2012


Absolute Rating BUY




MARKET DATA (R : PART.BO, B: PF IN)

CMP : INR 193


52-week range (INR) : 364 / 125





Promoters* : 44.7


FIIs : 23.4

Others : 14.6



Stock Nifty EW Retail Index

1 month 25.6 9.6 10.6

3 months (6.4) 0.3 (4.2)

12 months (44.5) (7.1) (11.1)

Abneesh Roy+91 22 6620 3141

[email protected]


Financials


Revenues (INR mn) 89,261 110,123 129,946 160,054Rev. growth (%) 40.8 23.4 18.0 23.2EBITDA (INR mn) 8,191 9,600 11,175 13,845Net profit (INR mn) 2,302 1,897 1,934 2,482Shares outstanding (mn) 206 217 217 217Diluted EPS (INR) 11.8 8.7 8.9 11.4EPS growth (%) 59.7 (25.9) 2.0 28.3Diluted P/E (x) 16.4 22.1 21.7 16.9EV/EBITDA (x) 9.8 12.0 11.0 9.5ROAE (%) 9.0 6.3 6.0 7.3




Net profit 2,302 1,897 1,934 2,482Add: Non cash charge 7,328 6,964 8,612 10,442Depreciation 2,123 2,675 3,395 4,182Others 5,205 4,288 5,218 6,260Gross cash flow 9,630 8,860 10,546 12,923Less: Changes in WC (2,339) 6,248 3,162 4,183Cash from operations 11,969 2,612 7,385 8,740Less: Capex 4,923 9,392 9,555 10,750Free cash flow 7,046 (6,780) (2,170) (2,010)


ROAE (%) 9.0 6.3 6.0 7.3ROACE (%) 9.6 8.2 7.4 8.5Debtor days 14 15 15 15Inventory days 96 102 110 110Payable days 75 84 80 80Cash conversion cycle (days) 35 33 45 45Current ratio 2.9 3.3 3.4 3.1Debt/EBITDA 5.3 8.2 7 7Debt/Equity 1.5 2.5 2.5 2.6Adjusted debt/equity 1.5 2.5 2.5 2.6Interest coverage (x) 1.6 1.6 1.5 1.5


Diluted EPS (INR) 11.8 8.7 8.9 11.4Y-o-Y growth (%) 59.7 (25.9) 2.0 28.3CEPS (INR) 22.1 21.1 24.5 30.7Diluted P/E (x) 16.4 22.1 21.7 16.9Price/BV (x) 1.4 1.3 1.3 1.2EV/Sales (x) 0.9 1.0 0.9 0.8EV/EBITDA (x) 9.8 12.0 11.0 9.5Dividend yield (%) 0.6 0.5 0.5 0.7


Revenues 40.8 23.4 18.0 23.2EBITDA 22.6 17.2 16.4 23.9PBT 39.4 (5.6) 1.5 28.3Net profit 73.0 (22.0) 2.0 28.3EPS 59.7 (25.9) 2.0 28.3




Net revenues 89,261 110,123 129,946 160,054Cost of materials 63,549 79,010 92,262 113,238Gross profit 25,712 31,113 37,684 46,816Employee costs 3,940 4,883 5,848 7,202Advertisement & sales costs 2,126 2,485 2,664 3,361Electricity expenses 1,308 1,831 2,209 2,721Rent and lease expenses 6,315 7,474 10,266 12,644Others 3,833 4,840 5,523 7,042EBITDA 8,191 9,600 11,175 13,845Depreciation 2,123 2,675 3,395 4,182EBIT 6,068 6,925 7,781 9,663Other income 857 208 324 301EBIT incl. other income 6,925 7,133 8,104 9,964Net int. & Finance charges 3,913 4,288 5,218 6,260PBT 3,013 2,845 2,887 3,704Provision for taxation 582 948 953 1,222Core PAT 2,431 1,897 1,934 2,482Extraordi. items (net of tax) (129) 0 0 0PAT after min. int. & asso. 2,302 1,897 1,934 2,482Eq. shares outstanding (mn) 206 217 217 217EPS (INR) basic 11.8 8.7 8.9 11.4Diluted shares (mn) 206.2 217.1 217.1 217.1EPS (INR) fully diluted 11.8 8.7 8.9 11.4CEPS (INR) 22.1 21.1 24.5 30.7DPS 1.3 0.9 1.0 1.3Dividend payout ratio (%) 11.0 10.7 11.0 11.0


Cost of materials 71.2 71.7 71.0 70.8Employee costs 4.4 4.4 4.5 4.5Advertising & sales costs 2.4 2.3 2.1 2.1Electricity expenses 1.5 1.7 1.7 1.7Rent and lease expenses 7.1 6.8 7.9 7.9Other general expenditure 4.3 4.4 4.3 4.4Depreciation 2.4 2.4 2.6 2.6Net interest expenditure 4.4 3.9 4.0 3.9EBITDA margin 9.2 8.7 8.6 8.6EBIT margin 6.8 6.3 6.0 6.0Net profit margin 2.7 1.7 1.5 1.6



Share capital 1,108 1,818 1,818 1,818Reserves 27,656 29,602 31,287 33,450Shareholders' funds 28,764 31,420 33,105 35,267Minority 3,183 3,313 3,313 3,313Secured loans 32,571 55,397 37,558 41,608Unsecured loans 10,949 23,065 45,904 50,854Borrowings 43,520 78,461 83,461 92,461Deferred tax liability 1,102 1,555 1,555 1,555Sources of funds 76,569 114,749 121,434 132,596Gross block 30,868 40,260 50,260 61,260Less depreciation 4,400 6,787 10,182 14,364Net fixed assets 26,468 33,473 40,079 46,897Capital work in progress 3,044 3,446 3,000 2,750Investments 9,098 12,967 12,967 12,967Current assets 58,467 93,287 93,122 103,771Inventories 24,912 36,791 39,162 48,191Sundry debtors 3,914 5,298 5,400 6,607Cash and bank balance 2,865 5,520 2,884 3,295Other current asset 157 402 402 402Loans and advances 26,620 45,275 45,275 45,275Current liabilities 20,508 28,424 27,734 33,788Liabilities 19,706 26,721 26,032 32,086Provisions 802 1,702 1,702 1,702Working capital 37,959 64,863 65,388 69,983Uses of funds 76,569 114,749 121,434 132,596BV (INR) 140 145 152 162


Key takeawaysThe company reiterated that the macro environment continues to remain uncertainand deal cycles taking longer to close. However, it is seeing traction in smallersized deals due to healthy start up activity.

It stated that it will continue to invest in S&M going ahead to scale up its USD1mnplus accounts and maintained that its margin can sustain at ~ 18% PBT level onconstant currency basis. Further, it believes higher proportion of IP-led revenuesand benefits of “sell-with” strategy will aid margin performance. It expects taxrate to dip gradually to 26%.

Q4FY12 is likely to witness a volume growth unlike Q3FY12 which saw a volumedecline.

Significant emphasis remains on continuing with its “sell with” strategy and expectsit to be key growth driver inFY13.

The company has formed strategic partnerships in its key focus areas viz., CloudComputing, Mobility, Analytics and Collaboration which will drive growth in FY13.

It currently has hedge book of USD102mn at an average price of INR49.59 /USD.

Key risksGiven the high proportion of offshore revenues, significant appreciation of INRagainst USD will impact its financials materially

Since Persistent derives more than 80% of its revenue from US, unsustainablerecovery in the geography could hamper the company’s performance

PERSISTENT SYSTEMSIndia Equity Research l IT

Navigating turbulent times

Company Profile

February 7, 2012

Kunal Sangoi+91-22- 6623 3370

[email protected]


Omkar Hadkar+91-22- 6620 [email protected]

EDELWEISS RATINGS


MARKET DATA (R : PERS.BO, B: PSYS IN)

CMP : INR 323

Target Price : NA

52-week range (INR) : 429 / 280





Promoters* : 38.9


FIIs : 5.8

Others : 28.2




1 month 11.7 2.9 (8.8)

3 months 0.8 2.7 1.9

12 months (1.8) (17.7) (15.9)

Financials


Revenues (INR mn) 4,249 5,938 6,012 7,758Rev. growth (%) 34.6 39.8 1.2 29.1EBITDA (INR mn) 900 1787.51 1464 1583Net profit (INR mn) 832 661 1,150 1,398Shares outstanding (mn) 34 35 36 40Diluted EPS (INR) 25.2 19.3 32.1 34.9EPS growth (%) 73.9 (23.5) 66.4 8.8Diluted P/E (x) 12.8 16.8 10.1 9.3EV/EBITDA (x) 8.9 5.1 4.8 5.5




Net profit 832 661 1,150 1,398Depreciation 280 297 335 423Others (12) (65) 51 199Gross cash flow 1,099 893 1,536 2,020Less:Changes in working capital 97 195 (74) 445Operating cash flow 1,002 698 1,611 1,575Less: Capex 485 474 475 970Free cash flow 517 224 1,135 605






Revenues 4,249 5,938 6,012 7,758Personnel expenses 2,711 3,036 3,372 4,723Gross profit 1,537 2,902 2,639 3,036SG&A expenses 637 1,115 1,176 1,453EBITDA 900 1,788 1,464 1,583Depreciation & amortization 280 297 335 423EBIT 620 1,491 1,128 1,160Other income 48 69 81 171Forex gain/(loss) 222 (874) 32 173Profit before tax 889 685 1,241 1,504Tax 22 9 91 106Core profit 867 676 1,150 1,398Extraordinary income/(loss) (35) (15) 0 0Profit after tax 832 661 1,150 1,398Shares outstanding (mn) 27 31 32 38EPS (INR) basic 31.6 21.6 35.7 37.0Diluted shares (mn) 34.4 35.1 35.9 40.1EPS (INR) diluted 25.2 19.3 32.1 34.9CEPS (INR) 41.8 31.1 46.2 48.3Dividend per share 1.6 1.1 3.0 5.8Dividend pay out (%) 6.1 6.3 10.0 18.3





Equity share capital 359 359 400 400Reserves 2,927 3,589 5,990 7,071Total shareholders funds 3,286 3,948 6,390 7,471Minority interest 0 0 45 30Sources of funds 3,286 3,948 6,435 7,501Gross fixed assets 2,928 3,372 3,715 4,543Less: Accum. depreciation 1,286 1,573 1,881 2,281Net fixed assets 1,643 1,800 1,834 2,261Capital WIP 331 377 485 605Investments 692 880 1,562 2,500Deferred tax asset (3) 20 7 60Cash & bank balances 113 165 1,918 1,000Debtors 745 1,034 1,363 1,582Loans and advances 403 454 638 869Other current assets 89 130 340 226Total current assets 1,351 1,784 4,258 3,677Sundry Creditors 244 71 313 465Provisions 165 170 317 396Other liabilities 318 673 1,080 741Total current liabilities 727 914 1,710 1,602Working capital 623 870 2,548 2,075Application of funds 3,286 3,948 6,435 7,501BV per share (INR) 95 113 178 186


Revenues 34.6 39.8 1.2 29.1EBITDA 11.7 98.7 (18.1) 8.2EBIT 15.8 140.5 (24.3) 2.8PBT 60.1 (22.9) 81.0 21.2Net profit 61.4 (22.0) 70.2 21.5EPS 73.9 (23.5) 66.4 8.8


Diluted EPS (INR) 25.2 19.3 32.1 34.9Y-o-Y growth (%) 73.9 (23.5) 66.4 8.8CEPS (INR) 41.8 31.1 46.2 48.3Diluted P/E (x) 12.8 16.8 10.1 9.3Price/BV(x) 3.4 2.9 1.8 1.7EV/Revenues (x) 1.9 1.5 1.2 1.1EV/EBITDA (x) 8.9 5.1 4.8 5.5EV/EBITDA (x)+1 yr forward 4.5 6.2 4.4 3.9Dividend yield (%) 0.5 0.4 0.9 1.8


Key takeawaysHSP anchor rental renegotiations complete, further renegotiations in FY14-15

Rental renegotiations for 0.15 msf of HSP anchor space (total HSP area at 0.9msf)has been completed at a weighted average rent of INR110/sf/month vs. INR64/sf/month earlier. Further, ~0.50 msf of space is up for rental renegotiations overFY13-15E (0.27msf in FY14E and 0.17 msf in FY15E). Management also highlightedthat development plans for Phase IV of HSP (0.25 msf) would be firmed up over thenext 6-8 months post which Phoenix Mills (PML) may look at a formal projectlaunch in CY13.

Shangri-La Hotel to open in June 2012; final approvals awaited

The Shangri-La Hotel, which has faced delays, is slated to now open by June 2012(Edelweiss est. October 2012) as PML awaits final approvals before handing overthe hotel to the Shangri-La operations team in Q4FY12. Further, the hotel whichearlier had an estimated project cost of INR8.35bn may see cost overruns of~INR0.7bn, taking project costs to ~INR9bn, largely due to additional interest onconstruction on account of delayed approvals.

Phase II Market City projects to be launched in FY13; to aid cut debt in SPVs

With Phase I of Market City projects drawing to a close in CY12, PML is embarkingon a strategy of reducing SPV level debt for Market Cities through phased launch ofresidential/commercial sale projects in FY13. These include ~0.6 msf f residentialspace at Bengaluru (W), 0.3 msf residential space at Pune and ~0.7 msf of commercialspace at Kurla, Mumbai (PML has acquired 0.2 msf of the total 0.9msf commercialspace in Phase II) while the Chennai residential launch in FY12 of 0.25 msf has been70% pre-sold for ~INR1.1bn at an average realization of INR6,600/sf.

Investment conclusionFactoring in the recent Phoenix Hospitality Company (PHCPL) acquisition androlling our NAV to FY13E basis, we have a NAV of INR246/share. Near term triggersare the Shangri La Hotel becoming operational in H2FY13 and the commencementof Chennai Market City mall. We reiterate ‘BUY/SO’ with a target price of INR246/share at par with FY13E NAV.

Key risksSlower-than-expected offtake in retail leasing. Cap rate expansion.

PHOENIX MILLSIndia Equity Research l Real Estate

Real estate play on Indian consumption theme

Company Profile

February 7, 2012


Absolute Rating BUY




MARKET DATA (R : PHOE.BO, B: PHNX IN)

CMP : INR 188


52-week range (INR) : 229 / 149





Promoters* : 65.9


FIIs : 21.6

Others : 6.1



Stock Nifty EW Real Estate Index

1 month 6.8 9.6 14.2

3 months (8.8) 0.3 (4.8)

12 months (14.2) (7.1) (16.9)

Aashiesh Agarwaal, CFA+91-22-4063 5491

[email protected]

Adhidev Chattopadhyay+91-22-6623 [email protected]



Revenues (INR mn) 1,230 2,102 3,818 4,819Rev. growth (%) 23.5 70.8 81.7 26.2EBITDA (INR mn) 776 1,406 2,534 2,909Net profit (INR mn) 620 842 1,412 1,293Share outstanding (mn) 145 145 145 145EPS (INR) 4.3 5.8 9.7 8.9EPS growth (%) (20.9) 35.7 67.7 (8.4)Diluted P/E (x) 44.1 32.5 19.4 21.1EV/EBITDA (x) 38.5 23.6 14.6 12.6ROE (%) 4.0 5.1 8.2 7.1




ROAE (%) (on adjusted profits) 4.0 5.1 8.2 7.1ROACE (%) 3.2 5.1 7.4 7.3Inventory days 100 4,267 NM NMDebtors days 116 121 104 94Payable days 1,236 1,166 791 497Cash conversion cycle NM NM NM NMCurrent ratio 2.4 2.4 3.5 4.2Debt/EBITDA 8.5 6.8 5.9 4.8Fixed assets t/o (x) 0.2 0.3 0.3 0.2Debt/equity 0.4 0.6 0.8 0.7


Diluted EPS (INR) 4.3 5.8 9.7 8.9Y-o-Y growth (%) (20.9) 35.7 67.7 (8.4)CEPS 13.6 20.2 29.5 27.9Diluted P/E (x) 44.1 32.5 19.4 21.1Price/BV (x) 1.7 1.6 1.5 1.5EV/Sales (x) 24.3 15.8 9.7 7.6EV/EBITDA (X) 38.5 23.6 14.6 12.6


Revenues 23.5 70.8 81.7 26.2EBITDA 28.9 81.2 80.3 14.8PBT (20.5) 51.4 51.8 3.2Net profit (20.1) 35.4 44.8 (7.0)EPS (20.9) 35.7 67.7 (8.4)




Income from operations 1,230 2,102 3,818 4,819Direct costs 12 51 16 17Employee costs 66 141 153 145Other expenses 377 505 1,115 1,748Total operating expenses 455 696 1,284 1,910EBITDA 776 1,406 2,534 2,909Depreciation & amortisation 172 314 569 741EBIT 603 1,091 1,965 2,168Interest expenses 86 228 398 539Other income 243 287 180 175Profit before tax 760 1,151 1,747 1,804Provision for tax 147 321 545 686Core profit 613 830 1,202 1,118Extraordinary items 0 0 0 0Profit after tax 613 830 1,202 1,118Less: Minority interests (1) (29) 60 244Add: Share in profits of asso. 6 (17) 270 419PAT after minority interest 620 842 1,412 1,293Adjusted net profit 620 842 1,412 1,293EPS (INR) basic 4.3 5.8 9.7 8.9Diluted equity shares (mn) 145 145 145 145Dividend payout (%) 28.0 31.0 25.0 20.0


Operating expenses 37.0 33.1 33.6 39.6Depreciation & Amortization 14.0 14.9 14.9 15.4Interest expenditure 7.0 10.8 10.4 11.2EBITDA margins 63.0 66.9 66.4 60.4Net profit margins 49.8 39.5 31.5 23.2



Equity capital 290 290 290 290Reserves & surplus 15,759 16,410 17,412 18,405Shareholders funds 16,048 16,700 17,702 18,695Secured loans 6,398 9,103 14,353 13,353Unsecured loans 210 523 523 523Borrowings 6,608 9,626 14,876 13,876Minority interest 2,190 1,965 2,025 2,269Sources of funds 24,847 28,291 34,603 34,839Gross block 7,955 8,880 22,883 23,133Depreciation 633 948 1,516 2,257Net block 7,321 7,932 21,367 20,876Capital work in progress 9,137 11,245 0 0Total fixed assets 16,458 19,178 21,367 20,876Investments 5,601 4,787 4,887 5,187Inventories 3 1,182 1,063 1,531Sundry debtors 431 961 1,211 1,261Cash and equivalents 671 1,021 2,432 1,511Loans and advances 3,628 4,238 6,938 7,188Total current assets 4,732 7,402 11,645 11,491Sundry creditors and others 1,724 2,725 2,838 2,366Provisions 244 359 467 357Total CL & provisions 1,969 3,084 3,305 2,723Net current assets 2,764 4,318 8,341 8,768Net deferred tax 24 9 9 9Uses of funds 24,847 28,291 34,603 34,839Adjusted BV per share (INR) 111 115 122 129


Net profit 613 830 1,202 1,118 Depreciation 172 314 569 741 Deferred tax 0 0 0 0 Others (150) 118 488 784Gross cash flow 635 1,262 2,259 2,642Less:Changes in WC (544) 325 2,718 1,239Operating cash flow 1,179 937 (460) 1,403Less: Capex 2,694 2,907 2,758 250Free cash flow (1,515) (1,970) (3,217) 1,153


Key takeawaysExposure of INR3.95bn to Konaseema considered as NPL – INR370mn ofprovisioning and INR190mn of income reversal. Critical will be the hearing onFebruary 13 related to financing arrangement and sharing of project risk.

Management expects recoveries of INR150mn-200mn from Om Shakti (classifiedas NPL) and R S India (restructured Satara based wind project). Even with respectto Maheswar project, it indicated that government is keenly looking forparticipation from some government agency.

Provided short-term loans (for 3 months with condition to recover the loan atleastin 4 months) to Rajasthan, Haryana, Punjab discoms on 4-5 conditionalities.

Current outstanding short-term loans stand at INR30bn. Exposure breakup:Maharashtra – INR156bn, Rajasthan INR118bn, Haryana – INR96bn, UP – INR86bn,WB – INR84bn, MP – INR92bn, TN – INR55bn.

It has provided INR175bn to project developers at 9.73% which is earning thinspread; it is yet to disburse further INR73bn to these developers. However, reversalin the interest rate cycle will provide some kicker to margins.

Management has been confident of achieving disbursement target of INR450bnand loan growth of 25%.

Investment conclusionPFC has underperformed the Bankex by 24% in the past one year due to structuralissues in the power sector. However, some positive developments have taken placefor SEBs recently (tariff hikes, government support etc). Building in a loan growthof 18%, NIMs of 3.9% and credit cost of 20bps for FY12-14E, we expect it to generateRoEs in excess of 17%.

Key risksPresence in the power sector exposes PFC to project-specific and general structuralrisks in power sector. PFC’s gross NPA is at low levels. Any major slippage orineffective recoveries can raise its NPAs significantly, adversely affecting itsprofitability and future growth.

POWER FINANCE CORPORATIONIndia Equity Research l Banking and Financial Services

Firming up

Company Profile

February 7, 2012


Absolute Rating BUY




MARKET DATA (R : PWFC.BO, B: POWF IN)

CMP : INR 190


52-week range (INR) : 281 / 130





Promoters* : 53.1


FIIs : 19.6

Others : 20.9




1 month 23.2 9.6 15.8

3 months 13.9 0.3 3.9

12 months (36.8) (7.1) (6.2)




[email protected]

Financials


Revenues (INR mn) 30,229 35,797 45,188 55,433Rev growth (%) 27.2 18.4 26.2 22.7Net profit (INR mn) 21,320 25,275 31,449 38,255Shares outstanding (mn) 1,148 1,148 1,320 1,320EPS (INR) 18.6 22.0 23.8 29.0EPS growth (%) 32.7 18.6 8.2 21.6Book value per share (INR) 115.5 134.3 152.5 174.1PE (x) 10.2 8.6 7.9 6.5Price to book (x) 1.6 1.4 1.2 1.1ROE (%) 17.2 17.6 17.7 17.8




Diluted EPS (INR) 18.6 22.0 23.8 29.0EPS growth (%) 32.7 18.6 8.2 21.6Book value per share (INR) 115.5 134.3 152.5 174.1Adj. BV per share (INR)* 115.5 134.1 148.4 168.3Diluted P/E (x) 10.2 8.6 7.9 6.5Price/ BV (x) 1.6 1.4 1.2 1.1Price/ Adj. Earnings (x) 1.6 1.4 1.3 1.1Price/ Adj. BV (x) 1.6 1.4 1.3 1.1Dividend yield (%) 2.4 2.6 3.2 3.6




Interest income 78,954 98,845 125,448 150,081Interest expended 49,876 63,776 82,128 96,650Net interest income 29,079 35,069 43,320 53,431Non interest income 521 467 1,677 1,802Income from operations 29,600 35,536 44,998 55,233Other income 629 261 190 201Net revenues 30,229 35,797 45,188 55,433Operating expenses 1,069 1,614 1,213 1,314 - Employee exp 985 1,121 1,120 1,221 - Depreciation /amortisation 44 48 48 49 - Other opex 40 445 45 45Preprovision profit 29,160 34,183 43,975 54,119Provisions 17 64 1,187 2,071- Loan loss provisions (0) 59 1,182 2,066- Investment depreciation 17 5 5 5PBT 29,143 34,119 42,788 52,048Taxes 7,823 8,843 11,339 13,793PAT 21,320 25,275 31,449 38,255Extraordinaries 2,238 910 (1,397) (1,103)Reported PAT 23,557 26,185 30,053 37,153Basic number of shares (mn) 1,148 1,148 1,320 1,320Basic EPS (INR) 18.6 22.0 23.8 29.0Dil. number of shares (mn) 1,148 1,148 1,320 1,320Diluted EPS (INR) 18.6 22.0 23.8 29.0DPS (INR) 4.5 5.0 6.0 6.8Dividend pay out (%) 28.3 26.5 29.4 27.2


Net interest income 29.1 20.6 23.5 23.3Net revenues growth 27.2 18.4 26.2 22.7Opex growth (22.6) 51.0 (24.9) 8.4PPP growth 30.3 17.2 28.6 23.1PAT growth 32.7 18.6 24.4 21.6


Yield on assets 10.8 10.8 11.1 11.0Cost of funds 8.3 8.3 8.6 8.4Spread 2.6 2.5 2.5 2.5Net interest margins 4.0 3.8 3.8 3.9Cost-income 3.5 4.5 2.7 2.4Tax rate 26.8 25.9 26.5 26.5



LiabilitiesEquity capital 11,478 11,478 13,199 13,477Reserves & surplus 112,694 132,982 182,831 207,726Net worth 124,171 144,460 196,031 221,202Reserve for doubtful debts 8,421 9,658 11,220 13,089Unsecured loans 671,080 855,985 1,035,814 1,249,433Deferred tax liability 485 829 485 485Int. subsidy fund from govern. 6,640 4,518 4,018 3,018Total liabilities 810,798 1,015,450 1,247,567 1,487,227AssetsLoans 798,560 995,707 1,225,050 1,469,072Investments 310 538 566 605Current assets 48,720 71,144 77,173 88,534Current liabilities 37,536 52,706 61,969 76,232Net current assets 11,184 18,438 15,204 12,302Fixed assets (net block) 743 767 747 749For. currency transaltion diff. 0 0 6,000 4,500Total assets 810,798 1,015,450 1,247,567 1,487,227Balance sheet ratios (%)Loan growth 23.9 24.7 23.0 19.9Borrowings growth 28.7 27.6 21.0 20.6EA growth 25.5 25.3 22.9 19.2Gross NPA ratio 0.0 0.1 0.7 0.9Net NPA ratio 0.0 0.0 0.6 0.7Provision coverage 50.0 50.0 10.0 17.5


Net interest income/assets 4.0 3.8 3.8 3.9Non interest income/assets 0.2 0.1 0.2 0.1Net revenues/Assets 4.2 3.9 4.0 4.1Operating expense/Assets 0.1 0.2 0.1 0.1Provisions/Assets 0.0 0.0 0.1 0.2Taxes/Assets 1.1 1.0 1.0 1.0Total costs/Assets 1.2 1.2 1.2 1.3ROA 2.9 2.8 2.8 2.8Equity/Assets 17.0 15.7 15.7 15.8ROAE 17.2 17.6 17.7 17.8Sanctions and disbursements


Sanctions (INR mn) 654,660 818,325 613,744 705,805Disbursements (INR mn) 258,080 322,550 367,791 427,779Disburs. to sanction ratio (%) 39.4 39.4 59.9 60.6Disbursements growth (%) 22.6 25.0 14.0 16.3Sanctions growth (%) 14.8 25.0 (25.0) 15.0


Key takeawaysStrong visibility in custom synthesis with order book at USD325mn. Managementguided for 40-45% revenue growth in this segment over the next 2-3 years.

While the agri-input division had short-term headwinds due to adverse weatherconditions causing sub-optimal product mix during FY12, the long-term outlook isstrong. PI has a robust pipeline of 8-9 products in in-licensed space to be launchedover the next 3-4 years and also guided for 25-30% growth in this segment overthis period.

Contribution of in-licensed products in the agri-input business is currently about45% (which was ~10% three years ago) and management guided for this to increaseto 70-80% over the next 3-4 years.

Capex plan of INR1.5bn-1.8bn during FY12 and FY13.

Investment conclusionPI is expected to deliver strong profit CAGR of 47% and robust ROEs of more than30% over FY11-13. It is a preferred partner for global MNCs for custom synthesison account of its competencies in process research and manufacturing, coupledwith its non-compete and IP driven business model. The company has built astrong order book of ~USD300mn to be executed within the next 3-4 years and byincurring capex of INR2bn over FY11-13. EBITDA margin likely to expand owing toimproving product mix, higher operating leverage and sale of the low-marginpolymer business.

Key risksExecution delay in setting up new capacities to impact the custom synthesisbusiness. Poor monsoon could hit agro chemical demand. USD/INR volatility mayimpact export revenues as well as margins.

PI INDUSTRIESIndia Equity Research l Agriculture

Growth, custom made

Company Profile

February 7, 2012

EDELWEISS RATINGS

Absolute Rating BUY


MARKET DATA (R : PIIL.BO, B: PI IN)

CMP : INR 500


52-week range (INR) : 630 / 250





Promoters* : 63.7


FIIs : 7.7

Others : 27.1




1 month 15.0 (6.0) (21.0)

3 months (4.0) (20.0) (16.0)

12 months (10.2) 72.0 82.3


[email protected]


Financials


Revenues (INR mn) 5,425 7,202 9,389 12,157Rev. growth (%) 17.2 32.8 30.4 29.5EBITDA (INR mn) 871 1,241 1,787 2,394Net profit (INR mn) 419 651 982 1,411Share outstanding (mn) 25 25 25 25EPS (INR) 16.6 25.8 38.9 55.9EPS growth (%) 45.6 55.4 50.9 43.7Diluted P/E (x) 30.2 19.4 12.9 9.0EV/EBITDA (x) 13.7 10.6 8.0 5.8ROE (%) 33.8 35.3 34.4 33.2












Income from operations 5,425 7,202 9,389 12,157Direct costs 3,183 4,204 5,446 6,970Employee costs 445 566 765 986Other expenses 926 1,191 1,391 1,807Total operating expenses 4,554 5,961 7,602 9,762EBITDA 871 1,241 1,787 2,394Depreciation and amortisation 129 153 186 244EBIT 743 1,088 1,601 2,151Interest expenses 183 181 216 162Other income 11 7 0 0Profit before tax 572 914 1,385 1,989Provision for tax 153 263 403 578Core profit 419 651 982 1,411Extraordinary items 0 0 237 0Profit after tax 419 651 1,219 1,411Adjusted net profit 419 651 982 1,411EPS (INR) basic 19.7 29.1 38.9 55.9Diluted equity shares (mn) 25 25 25 25Dividend payout (%) 3.6 7.7 6.4 4.5Tax rate (%) 26.7 28.8 29.1 29.1





Equity capital 71 112 126 126Preference capital 206 81 0 0Reserves & surplus 1,269 1,944 3,450 4,787Shareholders funds 1,546 2,137 3,576 4,913Secured loans 1,053 1,560 1,700 1,250Unsecured loans 444 918 144 144Borrowings 1,498 2,478 1,844 1,394Deferred tax liability (net) 270 326 326 326Sources of funds 3,313 4,941 5,746 6,633Gross block 2,924 3,617 4,317 5,067Depreciation 923 1,076 1,263 1,506Net block 2,001 2,540 3,054 3,560Capital work in progress 86 335 80 80Total fixed assets 2,087 2,875 3,134 3,640Investments 5 5 5 5Inventories 1,028 1,410 1,641 2,100Sundry debtors 1,034 1,766 2,057 2,331Cash and equivalents 54 84 195 227Other current assets 347 503 503 503Total current assets 2,463 3,763 4,396 5,162Sundry creditors and others 1,189 1,568 1,716 2,100Provisions 53 134 74 74Total CL & provisions 1,243 1,702 1,790 2,174Net current assets 1,221 2,061 2,607 2,987Uses of funds 3,313 4,941 5,746 6,633Adjusted BV per share (INR) 73 96 142 195


Net profit 419 651 1,219 1,411 Depreciation 129 153 186 244 Others 199 262 (21) 162Gross cash flow 747 1,067 1,384 1,816Less:Changes in WC (131) 843 435 349Operating cash flow 877 224 949 1,468Less: Capex 363 947 845 750Free cash flow 514 (723) 104 718


Key takeawaysThe regulatory overhang in Delhi has been cleared with IDBI approving INR50bnfinancial package (80:20 debt:equity) funded. The company has contributed its shareof the INR5.2bn equity infusion into discoms. This has been post Delhi government’scommitment of routine tariff increases and regulatory asset creation. With this, theregulatory overhang on power businesses (including Mumbai) is eliminated.

Management indicated that over the next 12 months 10 out of 11 road projectsand the Mumbai Metro I will be operational.

The tariff gap in Mumbai has reduced post customer migration to Tata Power aspower purchases have reduced to ~950 MW from 1.3 GW.

In Delhi Metro management is targeting daily pax to increase from 18,000 currentlyto 30,000 in FY13. The average fare collected is INR75/pax. Within the two metrostations (New Delhi railway station and Shivaji Stadium) out of 130,000 sf ofretail space management has leased out 30% area @ INR525-550/sf /month.Management indicated that the price is justified if the same is adjusted for built-up area (as their rates are on carpet), 24 hours operational and securityarrangement provided by the company.

EPC order book is at INR243bn and the execution has picked up starting FY12 andexpected to sustain due to the large execution pipeline from captive road andReliance Power projects. EBIT margin guidance of 8-10%.

Investment conclusionWe expect the execution pick up to regain investor confidence which accompaniedby resolution to some of the group related issues should augur well for the stock.

Key risksThe scale and timing of projects could expose the company to execution risks. Theroad traffic growth has been dented due to the depressed industrial growth andweak macro environment. This, in addition to any delay in execution ofinfrastructure projects, could impact valuations. The company has parked asizeable part of its investments in group entities and yield bearing instruments.Since other income contributes significantly to the total earnings of the company,any diminution in the value of the same could impact valuations.

RELIANCE INFRASTRUCTUREIndia Equity Research l Power

Power packed

Company Profile

February 7, 2012


Absolute Rating BUY




MARKET DATA (R : RLIN.BO, B: RELI IN)

CMP : INR 552


52-week range (INR) : 710 / 328





Promoters* : 48.5


FIIs : 14.5

Others : 16.0



Stock Nifty EW Power Index

1 month 43.4 9.6 14.2

3 months 25.0 0.3 (3.1)

12 months (25.2) (7.1) (14.5)

Shankar K+91-22-4040 7412

[email protected]

Parvez Akhtar Qazi+91-22-4063 [email protected]

Financials


Revenue (INR mn) 98,897 94,148 126,888 134,126Rev. growth (%) 2.0 -4.8 34.8 5.7EBITDA (INR mn) 8,906 8,393 16,403 18,040Net profit (INR mn) 11,517 10,809 12,369 12,910Shares outstanding (mn) 245 267 248 248EPS (INR) 47.0 40.4 49.9 52.1EPS growth (%) (14.3) (14.1) 23.5 4.4P/E (x) 11.7 13.7 11.1 10.6P/B(x) 0.9 0.8 0.8 0.7ROAE (%) 8.5 6.6 7.0 7.1




ROAE (%) 8.5 6.6 7.0 7.1ROACE (%) 6.8 5.7 12.5 11.3Current ratio 1.8 1.2 1.3 1.4Debtors (days) 90 159 164 183Average fixed assets t/o (x) 2.9 1.9 2.1 2.4Av. working capital t/o (x) 2.3 2.5 3.8 2.6Av. capital employed t/o (x) 0.5 0.5 0.6 0.6Debt / Equity 0.3 0.2 0.2 0.2Debt/EBITDA 4.6 4.7 2.4 2.2Adjusted debt/Equity 0.3 0.2 0.2 0.2


Diluted EPS (INR) 47.0 40.4 49.9 52.1Y-o-Y growth (%) (14.3) (14.1) 23.5 4.4CEPS (INR) 58.6 49.9 62.9 68.3Diluted P/E (x) 11.7 13.7 11.1 10.6Price/BV(x) 0.9 0.8 0.8 0.7EV/Sales (x) 0.7 0.6 0.6 0.5EV/EBITDA (x) 8.2 6.9 4.6 3.4


Revenues 2.0 (4.8) 34.8 5.7EBITDA 75.8 (5.8) 95.4 10.0PBT (7.2) (12.5) 26.5 8.4Net profit (14.3) (6.1) 14.4 4.4EPS (14.3) (14.1) 23.5 4.4




Income from operations 98,897 94,148 126,888 134,126Direct costs 79,584 73,655 99,265 104,109Employee costs 4,649 5,808 6,979 7,377Other expenses 5,758 6,293 4,240 4,599Total operating expenses 89,991 85,755 110,485 116,086EBITDA 8,906 8,393 16,403 18,040Depreciation and amortisation 3,198 3,134 3,225 4,011EBIT 5,708 5,258 13,179 14,030Interest expenses 2,922 2,425 2,760 2,753Other income 10,184 8,517 3,934 4,277Profit before tax 12,969 11,351 14,353 15,554Provision for tax 1,453 541 1,984 2,644Core Profit 11,517 10,809 12,369 12,910Extraordinary items 1,938 445 0 0Profit before min. interest 13,455 11,254 12,369 12,910Profit after min. interest 13,455 11,254 12,369 12,910Shares outstanding 245 267 248 248EPS (INR) basic 47.0 40.4 49.9 52.1Diluted shares (mn) 245 267 248 248EPS (INR) fully diluted 47.0 40.4 49.9 52.1Dividend per share 7.1 7.2 8.0 8.3Dividend payout (%) 15.1 17.7 16.0 16.0


Operating expenses 91.0 91.1 87.1 86.5Depreciation and amortization 3.2 3.3 2.5 3.0Interest expenditure 3.0 2.6 2.2 2.1EBITDA margins 9.0 8.9 12.9 13.5Net profit margins 11.6 11.5 9.7 9.6



Equity capital 2,449 2,675 2,479 2,479Reserves & surplus 149,073 174,001 174,586 185,431Shareholders funds 151,522 176,675 177,065 187,909Secured loans 14,750 15,839 17,850 17,850Unsecured loans 26,399 23,854 21,399 21,399Borrowings 41,149 39,693 39,249 39,249Others 1,577 990 990 990Sources of funds 194,248 217,358 217,304 228,148Gross block 74,283 105,137 105,137 105,137Depreciation 39,511 43,078 46,302 50,313Net block 34,771 62,060 58,835 54,825Capital work in progress 5,549 6,493 16,493 16,493Total fixed assets 40,320 68,552 75,328 71,317Investments 100,196 125,841 98,232 98,232Inventories 2,692 2,903 2,101 2,295Sundry debtors 33,457 48,579 65,472 69,207Cash and equivalents 3,018 3,711 2,185 16,698Loans and advances 80,853 105,748 105,748 105,748Total current assets 120,019 160,940 175,505 193,947Sundry creditors and others 56,467 125,114 118,900 122,487Provisions 9,820 12,861 12,861 12,861Total CL & provisions 66,287 137,975 131,761 135,348Net current assets 53,732 22,965 43,744 58,599Uses of funds 194,248 217,358 217,304 228,148Book value per share (INR) 619 661 714 758


Net profit 13,455 11,254 12,369 12,910 Depreciation 3,198 3,134 3,225 4,011 Deferred tax (362) (587) 0 0 Others 8,926 (732) 0 0Gross cash flow 25,217 13,069 15,593 16,920Less: Changes in W. C. 15,313 (34,928) 22,305 342Operating cash flow 9,904 47,996 (6,712) 16,578Less: Capex 4,960 31,798 10,000 0 Free cash flow 4,943 16,198 (16,712) 16,578


Key takeawaysIn the operational Rosa project (3x300 MW) the company is earning 25-30% RoEsincluding efficiency gains from O&M, station heat rate and working capitalsavings. Management expects the same to be in the 20-25% range going forwardwith increase in domestic coal supplies.

The company expects power generation capacity to be ~5 GW by FY13 end from theexisting ~1 GW comprising:

• Sasan UMPP first unit of 660 MW to be commissioned by December 2012.

• The combined cycle 2250 MW at Samalkot by FY13 end as all the 6 gas turbineswould be operationalised in the short term. The company expects some gasallocation to be approved when EGoM meets to decide on diverting gas fromnon-core to power sector (to release 18 mmscmd).

• Rosa phase II unit II of 300 MW would be commissioned by April 2012.

• Butibori 1x 300 MW to be operationalised in March 2012 and the second unitby Q2FY13.

Out of the INR230bn of capex done so far, ~INR110-120bn has been equity and thebalance is debt. Hence, all the incremental capex requirement will be debt fundeddue to low draw down so far.

Coal production from the Sasan coal mines is expected to commence from Q2FY13leading to ~ 5 mt of output in the first year. Management expects the government toapprove sale of coal to power plants at CIL equivalent prices atleast in the interimwhich will also help addressing India’s coal problem partially.

Key risksKey approvals / policies in the form of utilization of surplus coal (from Sasan’smines as well as setting up Chitrangi) and the imported coal based projects arecritical, failing which not only earnings are at risk but even capacity additionwould be impacted.

RELIANCE POWERIndia Equity Research l Power

Powering ahead

Company Profile

February 7, 2012

Shankar K+91-22-4040 7412

[email protected]

Parvez Akhtar Qazi+91-22-4063 [email protected]

EDELWEISS RATINGS


MARKET DATA (R : RPOL.BO, B: RPWR IN)

CMP : INR 99

Target Price : NA






Promoters* : 80.4


FIIs : 4.6

Others : 13.2




1 month 11.7 36.2 24.5

3 months 0.8 (2.4) (3.2)

12 months (1.8) (19.3) (17.5)

Financials


Revenue (INR mn) - - 207 10,548Rev. growth (%) NA NA NA 4,990.5EBITDA (INR mn) (350) (1,014) (1,057) 2,290Net profit (INR mn) 854 2,445 6,839 7,604Shares outstanding (mn) 2,260 2,397 2,397 2,805EPS (INR) 0.4 1.0 2.9 2.7EPS growth (%) NA 170.0 179.7 (5.0)P/E (x) 261.1 96.7 34.6 36.4EV/EBITDA (x) (262.8) (144.4) (168.8) 119.7ROAE (%) 1.2 1.8 4.8 4.9




Net profit 854 2,445 6,839 7,604 Depreciation - 2 57 1,009 Deferred tax 6 0 0 0 Others (8,085) (1,522) (11,234) (16,013)Gross cash flow (7,225) 925 (4,338) (7,400)Less: Changes in W. C. (6,654) 2,750 (2,228) (7,068)Operating cash flow (572) (1,825) (2,111) (332)Less: Capex 8,726 39,405 41,869 73,281Free cash flow (9,298) (41,231) (43,979) (73,612)


ROAE (%) 1.2 1.8 4.8 4.9ROACE (%) (6.9) (3.6) (1.6) 0.9Current ratio 0.7 0.6 0.5 2.3Debtors (days) 254 65Average fixed assets t/o (x) - - 0.0 0.4Average working capital t/o (x) - - (0.1) (12.0)Average capital employed t/o (x) - - 0.0 0.1Debt / Equity 0.0 0.1 0.2 0.4Debt/EBITDA (12.8) (13.1) (21.2) 32.0Adjusted Debt/Equity 0.1 0.1 0.2 0.6


Diluted EPS (INR) 0.4 1.0 2.9 2.7Y-o-Y growth (%) 4,623.4 170.0 179.7 (5.0)CEPS (INR) 0.4 1.0 2.9 3.1Diluted P/E (x) 261 96.7 34.6 36.4Price/BV(x) 1.65 1.72 1.63 1.64EV/Sales (x) 860.8 26.0EV/EBITDA (x) (262.8) (144.4) (168.8) 119.7


Revenues (100.0) #DIV/0! #DIV/0! 4,990.5EBITDA (2,672.1) 189.8 4.2 (316.8)PBT 16,964.8 178.9 173.4 9.9Net profit 53,262.5 186.4 179.7 11.2EPS 4,623.4 170.0 179.7 (5.0)




Total revenues - - 207 10,548Cost of Operations 0 4 244 6,090Staff cost 30 239 433 769Other operating expenses 320 772 587 1,398Total expenditure 350 1,014 1,264 8,257EBITDA (350) (1,014) (1,057) 2,290Depreciation & Amortisation - 2 57 1,009EBIT (350) (1,016) (1,114) 1,282Interest 58 18 87 2,195Other income 1,329 3,604 8,227 8,633PBT 922 2,570 7,026 7,719Provision for tax 68 125 187 115Core profit 854 2,445 6,839 7,604Profit before minority interest 854 2,445 6,839 7,604Profit after minority interest 854 2,445 6,839 7,604Shares outstanding ( mn ) 2,260 2,397 2,397 2,805EPS (INR) basic 0.4 1.0 2.9 2.7Diluted shares (mn) 2,260.0 2,396.8 2,396.8 2,805.1EPS (INR) fully diluted 0.4 1.0 2.9 2.7


Operating expenses 609.9 78.3Depreciation & amortization 27.6 9.6Interest expenditure 42.0 20.8EBITDA margins (509.9) 21.7Net profit margins 3,300.7 72.1



Share capital 22,600 23,968 23,968 28,051Reserves & surplus 112,735 113,824 120,663 140,283Shareholders funds 135,334 137,792 144,631 168,334Secured loans 4,483 13,325 22,156 56,564Unsecured loans 0 0 250 16,785Borrowings 4,483 13,325 22,406 73,348Sources of funds 139,817 151,116 167,037 241,683Gross block 2,148 2,952 23,572 38,654Less : Depreciation 17 73 164 2,286Net block 2,131 2,879 23,408 36,369Capital work in progress 8,178 46,780 68,029 126,227Total fixed assets 10,310 49,659 91,436 162,595Investments 131,234 103,172 79,152 56,790Inventories - - 487 537Sundry debtors - - 288 3,471Cash and equivalents 4,270 216 1,338 19,161Loans and advances 681 1,996 1,264 16,359Total current assets 4,951 2,212 3,377 39,528Sundry creditors and others 6,599 3,672 6,501 16,418Provisions 79 255 428 813Total CL & provisions 6,677 3,927 6,929 17,231Net current assets (1,727) (1,715) (3,552) 22,298Uses of funds 139,817 151,116 167,037 241,683Adj. BV per share (BV)(INR) 60 57 60 60


Key takeawaysShoppers Stop (SSL) witnessed a slowdown in the departmental format as LTLvolumes were down led by slowdown in apparels. The company indicated thatQ1FY13 is likely to see price cuts in apparel (5-10%) across brands. Pick up inapparel volumes is likely to commence from H2FY13.

Sales growth revived in January due to end of season sales (10 days of extra salesto counter slowndown: 18-20% discount). Also, SSL is planning price cuts as COGSpressure has eased significantly which can further boost demand.

Margin pressure primarily on back of aggressive roll out of new stores whichexperienced delayed cash generation owing to slowdown in consumer offtake.

The HyperCity business is expected to turn around at the PAT level in FY14 and atEBITDA level in FY13. This format posted a strong Diwali season, soft month ofNovember followed by pick up in December and January.

Investment conclusionThe Indian retail landscape is evolving with interplay of several demographic andeconomic factors. The big opportunity lies in the growing share of organised retailwith the growing trend among consumers to allocate a larger share of income toconsumption and gradual improvement in lifestyle. The improving liquidity isalso positive as it means better delivery of retail space for expansion. SSL is aniche play with strong brand position in the lifestyle space. It has assiduouslypositioned itself as a retailer since 1991 of superior quality products and services,offering an international shopping experience. This strong positioning and brandrecall gives the company a strategic advantage in the light of increasingcompetition. With its steadfast focus on systems and processes and its ability toattract global brands as venture partners, it is well placed to emerge as a leadingdepartmental store player in the long run.

Key risksPressure on margins due to cost escalation and competition.

Escalation in lease rentals and administration expenses can impact margins.

Macro concerns could hamper domestic consumption trends and result in lowerfootfalls.

SHOPPERS STOPIndia Equity Research l Retail

Luxe growth

Company Profile

February 7, 2012


Absolute Rating BUY




MARKET DATA (R : SHOP.BO, B: SHOP IN)

CMP : INR 347


52-week range (INR) : 504 / 251





Promoters* : 67.9


FIIs : 11.7

Others : 13.0




1 month (13.0) 9.6 10.6

3 months (40.7) 0.3 (4.2)

12 months (68.0) (7.1) (11.1)

Abneesh Roy+91 22 6620 3141

[email protected]


Financials


Revenues (INR mn) 23,619 28,809 34,440 41,092Rev. growth (%) 53.0 22.0 19.5 19.3EBITDA (INR mn) 1,284 1,061 1,784 2,496Net profit (INR mn) 432 323 650 1,079Shares outstanding (mn) 79 79 79 79Diluted EPS (INR) 5.4 4.0 8.1 13.5EPS growth (%) (17.0) (25.2) 101.4 66.1Diluted P/E (x) 64.0 85.6 42.5 25.6EV/EBITDA (x) 23.2 28.5 17.0 12.0ROAE (%) 11.0 6.3 11.6 16.7




ROAE (%) 13.6 11.0 13.6 17.2ROACE (%) 15.1 13.5 12.2 16.5Debtor days 3 3 2 2Inventory days 38 32 32 31Payable days 68 54 54 54Cash conversion cycle (days) (27) (20) (20) (20)Current ratio 1.4 1.3 1.3 1.3Debt/EBITDA 2.2 2.0 2.0 2.0Debt/Equity 0.8 0.5 0.5 0.5Adjusted debt/equity 0.8 0.5 0.5 0.5Interest coverage (x) 2.7 2.8 2.5 3.4


Diluted EPS (INR) 5.4 4.0 8.1 13.5Y-o-Y growth (%) 17.0 (25.2) 101.4 66.1CEPS (INR) 8.2 8.2 15.1 23.4Diluted P/E (x) 64.0 85.6 42.5 25.6Price/BV (x) 5.5 5.2 4.6 3.9EV/Sales (x) 1.3 1.0 0.9 0.7EV/EBITDA (x) 23.2 28.5 17.0 12.0Dividend yield (%) 0.2 - - -


Revenues 12.3 53.0 21.0 17.1EBITDA 513.5 20.9 18.6 35.9PBT (163.5) (9.5) 6.0 80.7Net profit (126.0) (20.4) 68.8 46.9EPS (123.4) (17.1) 68.8 46.9




Net revenues 15,433 23,619 28,589 33,469Cost of materials 9,965 16,064 19,547 22,598Gross profit 5,468 7,555 9,042 10,871Employee costs 920 1,399 1,687 1,975Advertisement & sales costs 347 504 572 669Electricity expenses 349 477 543 636Rent and lease expenses 1,377 1,856 2,144 2,510Others 1,412 2,034 2,573 3,012EBITDA 1,062 1,284 1,523 2,069Depreciation 381 469 547 587EBIT 681 815 976 1,482Other income 95 51 24 51EBIT incl. other income 776 866 1,000 1,533Net interest & Finance charges 254 295 395 440PBT 522 571 605 1,093Provision for taxation 164 389 121 219Core PAT 358 182 484 875Minority interest 1 250 245 196Pr. af. tax af. Min. Int. & Asso. 359 432 729 1,071Equity shares outstanding (mn) 76 79 79 79EPS (INR) basic 4.7 5.5 9.2 13.6Diluted shares (mn) 77.6 79.8 79.8 79.8EPS (INR) fully diluted 4.6 5.4 9.1 13.4CEPS (INR) 9.8 8.2 13.1 18.5DPS 0.7 0.8 - -Dividend payout ratio (%) 14.6 14.3 - -


Cost of materials 64.6 68.0 68.4 67.5Employee costs 6.0 5.9 5.9 5.9Advertising & sales costs 2.3 2.1 2.0 2.0Electricity 2.3 2.0 1.9 1.9Rent and lease 8.9 7.9 7.5 7.5Other general expenditure 9.1 8.6 9.0 9.0Depreciation 2.5 2.0 1.9 1.8Net interest expenditure 1.6 1.3 1.4 1.3EBITDA margin 6.9 5.4 5.3 6.2EBIT margin 4.4 3.5 3.4 4.4Net profit margin 2.3 1.8 2.6 3.2



Share capital 349 411 369 369Reserves 2,463 4,598 5,327 6,398Shareholders' funds 2,812 5,009 5,696 6,766Minority (217) 22 (223) (419)Secured loans 2,071 2,168 1,319 1,454Unsecured loans 221 462 1,612 1,777Borrowings 2,292 2,630 2,930 3,230Deferred tax liability (46) (19) (19) (19)Sources of funds 4,841 7,642 8,384 9,559Gross block 5,018 7,474 8,971 10,599Less depreciation 2,115 2,600 3,146 3,734Net fixed assets 2,903 4,874 5,825 6,866Capital work in progress 278 570 450 375Goodwill 109 991 991 991Investments 399 0 0 0Current assets 4,017 5,126 5,230 6,088Inventories 1,591 2,505 2,471 2,884Sundry debtors 122 214 196 220Cash and bank balance 92 182 339 761Loans and advances 2,212 2,224 2,224 2,224Current liabilities 2,865 3,920 4,112 4,762Liabilities 2,784 3,811 4,004 4,653Provisions 80 108 108 108Working capital 1,152 1,206 1,117 1,326Uses of funds 4,841 7,642 8,384 9,559BV (INR) 37 63 72 86


Net profit 359 432 729 1,071Add: Non cash charge 634 514 696 831Depreciation 381 469 547 587Others 254 45 150 244Gross cash flow 993 946 1,425 1,901Less:Changes in WC (277) (20) (245) (213)Cash from operations 1,270 966 1,671 2,114Less: Capex 428 2,456 1,377 1,553Free cash flow 842 (1,490) 293 561


Key takeawaysEmerging markets focus to drive growth beyond FY13: Sun Pharma (SUNP) hascited a three pronged plan to address growth post patent cliff opportunities in2012-13. Overall, management expects global generics market to grow robustly;however, growth within each market could be different. The first priority is topenetrate higher into emerging markets either organically or through acquisitions.Second, will be to expand into European markets where markets have evolved interms of pricing cycles and lastly to target higher growth markets such as Japan.

Focus on complex products in US: US is likely to remain a key growth driver. However,incrementally management focus will be to develop pipeline of more complexmolecules or where company would have advantage in terms of pricing (backended API). Some of these molecules include Stalevo, Comptan, among others.Management also highlighted that it expects to launch generic Clopidagril postTeva exclusivity (May-Oct 2012).

Domestic growth to sustain over next two to three years: Domestic (40% of totalbusiness) will sustain higher growth. Management expects to maintain marketshare in key chronic segments and improve market share in underpenetratedsegments by addressing product and field force gap. Incrementally, managementfocus will be to target niche products with in the acute segment.

Higher competitive intensity may impact realizations: Management has highlightedthat higher competitive intensity in the domestic market as well as limited growthopportunities in the US can impact realization going forward.

Investment conclusionSUNP’s core earnings from base business are expected to post CAGR of 27% overFY11-13E led by strength in domestic business, export formulations, new productsin US generics space and full year impact of Taro acquisition. While we do notbuild in early resumption in Caraco manufacturing sites, a favorable outcomewill be potentially accretive by ~USD50-60 to sales for FY12-13E.

Key risksReducing patent cliff opportunities beyond FY13 could slowdown growthmomentum. Pricing increases and supply issues in US had disproportionate impacton FY12 profits which is unsustainable.

SUN PHARMACEUTICALSIndia Equity Research l Pharmaceuticals

In fine fettle

Company Profile

February 7, 2012


Absolute Rating BUY




MARKET DATA (R : SUN.BO, B: SUNP IN)

CMP : INR 544


52-week range (INR) : 565 / 392


M cap (INR bn/USD mn) : 564 / 11,223



Promoters* : 63.7


FIIs : 19.3

Others : 10.7




1 month 5.9 9.6 20.3

3 months 5.0 0.3 14.8

12 months 14.8 (7.1) 15.1

Manoj Garg+91-22-6623 3302

[email protected]


Financials


Revenues (INR mn) 40,075 57,215 75,584 90,923Rev. growth (%) (4.2) 42.8 32.1 20.3EBITDA (INR mn) 13,633 19,700 26,786 33,011Net profit (INR mn) 13,194 17,800 23,188 28,572Share outstanding (mn) 1,036 1,036 1,036 1,036EPS (INR) 12.7 17.2 22.4 27.6EPS growth (%) (27.4) 34.9 30.3 23.2Diluted P/E (x) 42.7 31.7 24.3 19.7EV/EBITDA (x) 38.9 27.0 19.7 15.5ROE (%) 17.7 20.5 22.5 23.4




ROAE (%) 17.7 20.5 22.5 23.4ROACE (%) 29.3 34.0 37.0 40.5Inventory days 341 319 276 274Debtors days 94 75 67 70Payable days 89 85 84 90Cash conversion cycles 346 309 259 254Current ratio 4.9 4.2 5.6 6.2Debt/ EBITDA 0.1 0.2 0.2 0.1 Net Debt/equity (0.1) (0.2) (0.2) (0.3)




Revenues (4.2) 42.8 32.1 20.3EBITDA (26.9) 44.5 36.0 23.2Net profit (30.1) 42.3 34.8 23.2PBT (29.1) 44.6 37.6 22.8EPS (31.9) 55.8 49.5 23.8


Cost of revenues 27.4 25.5 28.8 28.7Selling, admin & general exp. 15.3 17.0 11.8 11.4R & D cost 5.2 5.0 5.5 6.0Other expenses 8.1 6.3 7.8 7.4Total operating expenses 66.0 65.6 64.6 63.7Depreciation and amortisation 3.8 3.6 3.6 3.2Interest expenditure (2.8) (2.3) (3.8) (3.4)EBITDA margins 34.0 34.4 35.4 36.3Net profit margins 34.5 32.7 33.3 34.2




Income from operations 40,075 57,215 75,584 90,923Net revenues 38,086 57,215 75,584 90,923Other operating income 1,988 0 0 0Total operating expenses 26,441 37,515 48,798 57,912Materials cost 10,977 14,607 21,761 26,095Employee cost 4,008 6,729 8,075 9,286R&D cost 2,083 2,860 4,157 5,455Selling, admin & general exp. 6,143 9,698 8,924 10,374Other expenses 3,230 3,621 5,881 6,702EBITDA 13,633 19,700 26,786 33,011Depreciation & amortisation 1,533 2,041 2,693 2,939EBIT 12,100 17,660 24,093 30,072Interest expense/(income) (1,138) (1,341) (2,841) (3,110)Other income 576 982 552 576Profit before tax 13,815 19,982 27,486 33,758Provision for tax 679 1,284 2,281 2,701Core profit 13,136 18,698 25,205 31,057Extraordinary items 334 376 0 0Profit after tax 13,470 19,074 25,205 31,057Minority interest & others (41) 913 2,016 2,485Profit after minority interest 13,511 18,161 23,188 28,572Adj. PAT after min. int. 13,194 17,800 23,188 28,572Eq. shares outstanding (mn) 1,036 1,036 1,036 1,036EPS (INR) adjusted 12.7 17.2 22.4 27.6Diluted shares (mn) 1,036 1,036 1,036 1,036Recurring EPS (INR) fully dil. 8.8 13.7 20.4 25.3CEPS (INR) 14.2 19.1 25.0 30.4Dividend per share (INR) 3.2 4.1 4.3 5.3Dividend payout (%) 25.2 23.7 19.1 19.1



Equity capital 1,036 1,036 1,036 1,036Reserves & surplus 77,254 93,798 110,029 132,110Common shareholders eq. 78,289 94,833 111,064 133,146Total shareholders funds 78,289 94,833 111,064 133,146Secured loans 479 3,523 3,523 3,523Unsecured loans 1,233 733 733 733Borrowings 1,712 4,256 4,256 4,256Deferred tax liability (net) (890) (3,652) (3,652) (3,652)Minority interest 1,932 8,472 10,488 12,972Sources of funds 81,042 103,908 122,155 146,721Gross block 23,340 45,520 41,543 45,543Depreciation 8,013 20,286 12,946 15,806Net block 15,328 25,234 28,597 29,738Capital work in progress 1,448 2,706 500 500Intangible assets & goodwill 4,060 7,720 7,720 7,720Investments 30,664 22,310 22,310 22,310Inventories 10,739 14,794 18,140 21,003Sundry debtors 11,748 11,716 15,873 19,094Cash and bank balances 6,073 21,937 29,116 46,547Loans and advances 8,562 11,726 13,643 16,412Total current assets 37,121 60,172 76,772 103,056Current liabilities 2,693 4,090 5,875 7,046Provisions 4,886 10,144 7,867 9,556Total current liab. & prov. 7,579 14,234 13,743 16,602Net current assets 29,542 45,939 63,029 86,454Uses of funds 81,042 103,908 122,155 146,721Book value per share ( INR) 76 92 107 129


Net profit 13,511 18,161 23,188 28,572 Depreciation 1,533 2,041 2,693 2,939 Others (469) 1,346 2,016 2,485Gross cash flow 14,575 21,548 27,898 33,996Less:Changes in WC 4,675 533 9,911 5,994Operating cash flow 9,901 21,015 17,987 28,003Less: Capex 2,920 16,864 3,850 4,080Free cash flow 6,981 4,151 14,137 23,923


Key takeawaysManagement reiterated its long-term revenue growth target of 20% (CAGR) with27% sustainable EBIT margin. The company also reiterated the fact that the costcutting pressures have led to increase in outsourcing in Europe which is expectedto grow at a faster pace.

Company also expects more clarity on budgets by May /June for FY13 and currentlythe pipeline remains strong with deal wins in all verticals and across geographies.It also foresees the telecom vertical to post a better YoY growth in FY13.

On the operational front TCS expects to end FY12 with gross hire of 65,000 andalso maintained its campus offers for FY13 at 43,600.

TCS expects a capital expenditure of ~INR25bn for FY13 and a tax rate of 25%,which is expected to dip gradually.

The company has been adding capacity in tier II cities to increase its retentionratio of employees and will be adding sizable capacity in Bhubaneshwar , Indore, and Gandhinagar (Ahmedabad).

Investment conclusionAs India’s largest and most-experienced IT services firm, TCS is well-positioned tobenefit from the growing demand for offshore IT services. It is a serious contenderfor winning large deals, as it has more experience than peers in implementinglarge, complex, and mission-critical projects. TCS has multiple margin levers atits disposal, which we believe, will sustain its margins, shielding it from continuedpressures on account of wage increases across the industry. End-to-end fullservices offerings, traction in emerging markets, ability to roll up largeacquisitions, improving sales and marketing prowess and willingness to takemultiple big bets (different go-to-market models) are among the key rationales forTCS to sustain its long term hi-growth trajectory.

Key risksKey risks to our investment theme include – (1) double dip recession in majormarket US and prolonged slowdown in Europe (2) sharp cross currency movementsand appreciation of rupee against USD, Euro and GBP (3) pricing pressure and (4)reduction in margins.

TATA CONSULTANCY SERVICESIndia Equity Research l IT

Re-iterates its positive stance

Company Profile

February 7, 2012


Absolute Rating BUY




MARKET DATA (R : TCS.BO, B: TCS IN)

CMP : INR 1,199


52-week range (INR) : 1,247 / 902


M cap (INR bn/USD mn) : 2,348 / 46,728



Promoters* : 74.1


FIIs : 13.4

Others : 4.8




1 month (5.7) 9.6 (1.5)

3 months 1.5 0.3 4.0

12 months (6.4) (7.1) (3.9)



Omkar Hadkar+91-22- 6620 3147

[email protected]

Financials


Revenues (INR mn) 300,289 373,245 495,590 582,482Rev. growth (%) 8.0 24.3 32.8 17.5EBITDA (INR mn) 86,800 111,984 149,615 171,988Net profit (INR mn) 68,738 87,164 107,753 128,998Shares outstanding (mn) 1,957 1,957 1,957 1,957Diluted EPS (INR) 35.1 44.5 55.1 65.9EPS growth (%) 32.9 26.8 23.6 19.7Diluted P/E (x) 33.9 26.8 21.7 18.1EV/EBITDA (x) 26.5 20.4 15.0 12.7ROAE (%) 37.6 37.6 36.9 34.3






Diluted EPS (INR) 35.1 44.5 55.1 65.9Y-o-Y growth (%) 32.9 26.8 23.6 19.7CEPS (INR) 38.8 48.2 59.8 71.7Diluted PE (x) 33.9 26.8 21.7 18.1Price/BV(x) 11.1 9.2 7.1 5.5EV/Revenues (x) 7.7 6.1 4.5 3.8EV/EBITDA (x) 26.5 20.4 15.0 12.7EV/EBITDA (x)+1 yr forward 20.5 15.3 13.1 11.1Dividend yield (%) 1.7 1.2 1.2 1.3




Revenues 300,289 373,245 495,590 582,482Cost of revenues 157,244 199,373 260,222 306,201Gross profit 143,045 173,872 235,368 276,281Total SG&A expenses 56,246 61,888 85,753 104,293EBITDA 86,800 111,984 149,615 171,988Dep. & Amortization 7,208 7,214 9,299 11,298EBIT 79,592 104,770 140,316 160,690Other income 2,256 5,324 1,843 10,591Profit before tax 81,847 110,094 142,159 171,281Tax 12,089 21,739 33,299 41,107Core profit 69,759 88,355 108,859 130,174Profit after tax 69,759 88,355 108,859 130,174Min, int. & others - paid/(recd.) 1,021 1,191 1,106 1,176Net profit after min. int. 68,738 87,164 107,753 128,998Shares outstanding (mn) 1,957 1,957 1,957 1,957EPS (INR) basic 35.1 44.5 55.1 65.9Diluted shares (mn) 1,957 1,957 1,957 1,957EPS (INR) diluted 35.1 44.5 55.1 65.9CEPS (INR) 38.8 48.2 59.8 71.7Dividend per share 20.0 14.0 13.8 16.0Dividend (%) 2,000.0 1,400.0 1,375.0 1,600.0Dividend pay out (%) 56.9 31.4 25.0 24.3





Equity share capital 1,957 1,957 1,957 1,957Share premium account 23,401 19,192 19,192 19,192Reserves 184,026 232,895 308,907 401,508Total shareholders funds 209,384 254,044 330,056 422,657Borrowings 10,110 12,029 13,232 14,555Minority interest 4,056 3,147 4,253 5,429Sources of funds 223,549 269,220 347,541 442,641Goodwill & ot. intan. asset 32,415 33,791 33,791 33,791Net fixed assets 41,706 51,996 65,697 72,398Investments 37,816 47,405 61,627 80,115Other assets 22,488 25,745 31,409 38,319Cash & Bank balances 10,249 15,539 37,709 88,076Debtors 58,098 82,016 108,623 124,476Unbilled revenue 12,011 13,489 15,512 18,925Prepaid & other cur. assets 59,762 15,042 16,197 18,102Total current assets 140,120 168,945 220,899 292,437Sundry creditors 43,651 29,819 35,783 42,940Provisions 7,311 7,363 8,100 8,910Other liabilities 34 21,481 22,000 22,571Total current liabilities 50,996 58,663 65,882 74,420Working capital 89,124 110,282 155,017 218,017Application of funds 223,549 269,220 347,541 442,641BV per share (INR) 107.0 129.8 168.6 215.9


Revenues 8.0 24.3 32.8 17.5EBITDA 20.9 29.0 33.6 15.0EBIT 20.6 31.6 33.9 14.5PBT 33.4 34.5 29.1 20.5Net profit 33.3 26.7 23.2 19.6EPS 32.9 26.8 23.6 19.7


Net profit 68,738 87,164 107,753 128,998Depreciation 7,208 7,214 9,299 11,298Others (5,498) (4,899) (5,198) (15,002)Gross cash flow 70,447 89,480 111,855 125,294Less:Changes in WC (4,431) 20,331 23,084 13,204Operating cash flow 74,878 69,148 88,770 112,089Less: Capex 10,225 16,834 23,000 18,000Free cash flow 64,653 52,314 65,770 94,089


Key takeawaysVolume growth in jewellery was primarily impacted by volatility in gold pricesand weakening consumer sentiment. Volume growth will continue to be a challengein coming quarters (though January has seen better sales compared to Q3FY12) aswell since volatility in gold prices continues and chances of rise in impulsepurchases remain dim. Management is targeting 35% YoY topline growth for FY12.

The recent hike in import duty on gold will not significantly impact Titan’s jewellerysegment’s volumes.

Titan’s watches segment’s EBIT margin faced severe strain due to material costpressure. Most parts of watches are imported by Titan and the INR depreciationthus hit the watches division’s margin. However, Q4FY12 will witness full impactof price hike taken by the company in watch category. But the recent rupeeappreciation will benefit margins to a limited extent as the company has hedgedthe rupee at 50+ levels. Sustained rupee appreciation will aid margins in thelonger term. Eye wear facing severe competition. Breakeven delayed by a year.Titan expects it to break even by FY13 end. Titan is planning capital expenditure of~INR2bn per annum for next two years primarily directed towards aggressiveretail expansion. At least one large format (company owned) store in Tanishq inevery metro.

Investment conclusionTitan has assiduously positioned itself in the premium watch and designerjewellery space. With constant product innovation it has become the largestorganised player in both these segments. Given its well established brand andsound management we expect Titan to replicate this success in its new eyewearventure as well. We believe Titan has the ability to create significant value with itslarge distribution presence, strong brand, designing skills and proven executiontrack record.

Key risksDeterioration of macro conditions.

Volatility in gold prices.

Business seasonal, restricted to marriage season and festivals.

TITAN INDUSTRIESIndia Equity Research l Retail

Scaling new heights

Company Profile

February 7, 2012


Absolute Rating BUY




MARKET DATA (R : TITN.BO, B: TTAN IN)

CMP : INR 200


52-week range (INR) : 238 / 147





Promoters* : 53.5


FIIs : 13.1

Others : 27.5




1 month 18.1 9.6 10.6

3 months (4.9) 0.3 (4.2)

12 months 15.8 (7.1) (11.1)

Abneesh Roy+91 22 6620 3141

[email protected]


Financials






ROAE (%) 39.0 49.0 45.4 42.6ROACE (%) 43.4 58.1 56.3 52.9Debtor days 12 11 9 9Inventory days 100 93 93 93Payable days 90 110 125 125Cash conversion cycle (days) 22 (5) (23) (23)Current ratio 1.4 1.3 1.4 1.5Debt/EBITDA 0.2 0.1 0.1 0.1Debt/Equity 0.1 0.1 0.0 0.0Adjusted debt/equity 0.1 0.1 0.0 0.0Interest coverage (x) 13.3 67.5 53.3 106.5








Net revenues 46,786 65,342 87,272 106,329Cost of materials 34,429 48,037 64,625 78,258Gross profit 12,356 17,305 22,647 28,071Employee costs 2,779 3,974 5,149 6,273Advertisement & sales costs 2,112 3,033 4,145 5,210Others 3,492 4,391 5,716 7,018EBITDA 3,974 5,907 7,636 9,570Depreciation 607 351 378 408EBIT 3,367 5,556 7,258 9,162Other income 113 559 667 911EBIT incl. other income 3,480 6,114 7,924 10,073Net interest & Finance charges 254 82 136 86PBT 3,226 6,032 7,788 9,987Provision for taxation 713 1,701 2,181 2,796Core PAT 2,513 4,331 5,608 7,191Associate 0 (0) 0 0Pr. af. tax after Min. Int. & Asso.2,513 4,331 5,608 7,191Equity shares outstanding (mn) 888 888 888 888EPS (INR) basic 2.8 4.9 6.3 8.1Diluted shares (mn) 888 888 888 888EPS (INR) fully diluted 2.8 4.9 6.3 8.1CEPS (INR) 3.5 5.3 6.7 8.6DPS 0.8 1.3 1.6 2.0Dividend payout ratio (%) 26.5 25.6 25.0 25.0




Net profit 2,513 4,331 5,608 7,191Add: Non cash charge 861 434 515 494Depreciation 607 351 378 408Others 254 82 136 86Gross cash flow 3,374 4,765 6,122 7,685Less:Changes in WC (133) (5,586) (502) (332)Cash from operations 3,507 10,351 6,624 8,017Less: Capex 316 481 531 525Free cash flow 3,192 9,870 6,093 7,492



Share capital 444 444 444 444Reserves 6,875 9,912 13,894 18,999Shareholders' funds 7,319 10,356 14,338 19,443Secured loans 730 680 194 194Unsecured loans 0 0 237 237Borrowings 730 680 430 430Deferred tax liability 54 21 21 21Sources of funds 8,104 11,057 14,789 19,894Gross block 6,374 6,855 7,405 7,955Less depreciation 3,696 3,971 4,349 4,757Net fixed assets 2,678 2,884 3,056 3,198Capital work in progress 123 194 175 150Investments 16 26 26 26Current assets 18,235 34,465 41,019 51,898Inventories 13,454 19,981 22,309 27,151Sundry debtors 947 1,176 1,395 1,670Cash and bank balance 1,973 11,083 15,163 20,484Loans and advances 1,860 2,225 2,152 2,593Current liabilities 12,949 26,512 29,487 35,378Liabilities 11,591 24,298 27,272 33,163Provisions 1,358 2,214 2,214 2,214Working capital 5,285 7,953 11,532 16,520Uses of funds 8,103 11,057 14,789 19,894BV (INR) 8 12 16 22


Key takeawaysDomestic growth to return to industry level FY13 onwards: Management hashighlighted that though FY12 will be a low growth year in the domestic market, itexpects to grow in line with the covered market growth (15-16%) starting FY13onwards. Domestic business was largely affected by muted growth in anti-infectiveand gastro (45% of India sales) while chronic is growing in line with the historicaltrend (15% YoY). The company has already taken the corrective action and confidentto grow the business going forward

Brazil to sustain growth momentum: Brazil, which has been a jewel for Torrent,has been showing strong traction and grew over 20% in constant currency over9mFY12. Management is confident of maintaining growth trajectory driven by newlaunches (pipeline of 35 products) as well as gaining market shares in the existingportfolio (marketing 29 products).

US business to turn profitable driven by niche launches: The company is confidentof maintaining the growth momentum in US (over 50% growth in CER) over the nexttwo years driven by a couple of niche launches such as Quitapine, Duloxitine, etc.Moreover, management has highlighted that US business has already broken evenin Q3FY12 and is confident that it will become profitable FY13 onwards.

Margins to improve from current level: Torrent expects operating margin to improvegoing forward driven by: (a) improved traction from India; (b) US turning profitable;(c) new launches in Brazil; and (d) capacity ramp-up in Sikkim.

Investment conclusionDespite a strong performance on the international front, domestic businesscontinues to pull down the operating performance of the company. We expect thedomestic business to improve from Q1FY13 as base effect of acute will be behind.In our view the investment cycle in India as well as the global business has peakedand Torrent will reap benefits over FY13, which limits downside risk. However,recovery in domestic growth is a key trigger for valuation re-rating.

Key risksRecovery in domestic growth will be lower than anticipated.

Regulatory risk.

TORRENT PHARMACEUTICALSIndia Equity Research l Pharmaceuticals

Domestic revival awaited

Company Profile

February 7, 2012


Absolute Rating BUY




MARKET DATA (R : TORP.BO, B: TRP IN)

CMP : INR 566


52-week range (INR) : 686 / 499





Promoters* : 71.5


FIIs : 5.3

Others : 11.3




1 month 5.7 9.6 20.3

3 months (5.2) 0.3 14.8

12 months (6.7) (7.1) 15.1

Manoj Garg+91-22-6623 3302

[email protected]


Financials


Revenues (INR mn) 19,040 22,329 26,815 32,075Rev. growth (%) 16.8 17.3 20.1 19.6EBITDA (INR mn) 4,087 4,156 5,174 6,314Net profit (INR mn) 2,277 2,794 3,536 4,374Share outstanding (mn) 85 85 85 85EPS (INR) 26.9 33.0 41.8 51.7EPS growth (%) 5.7 22.7 26.5 23.7Diluted P/E (x) 21.0 17.1 13.5 11.0EV/EBITDA (x) 11.7 11.4 9.1 7.3ROE (%) 30.7 30.1 30.5 29.8




ROAE (%) 30.7 30.1 30.5 29.8ROACE (%) 42.5 37.3 37.8 38.2Inventory days 56 68 70 72Debtors days 54 52 55 55Payable days 95 132 100 100Cash conversion cycles 16 (12) 25 27Current ratio 2.1 1.7 2.1 2.1Debt/ EBITDA 1.3 1.4 1.1 0.8Debt/equity 0.6 0.6 0.4 0.3Adjusted debt/Equity 0.6 0.6 0.4 0.3




Revenues 16.8 17.3 20.1 19.6EBITDA 36.3 1.7 24.5 22.0Net profit 5.7 22.7 26.5 23.7PBT 81.7 1.5 11.6 29.0Adj. EPS 5.7 22.7 26.5 23.7




Income from operations 19,040 22,329 26,815 32,075Net revenues 18,329 21,500 25,870 31,431Other operating income 710 830 945 645Total operating expenses 14,953 18,173 21,641 25,761Materials cost 5,725 6,984 8,393 10,008Employee cost 3,162 3,895 4,479 5,196R&D cost 1,202 1,388 1,636 1,957Selling, admin & general exp. 4,864 5,905 7,132 8,601EBITDA 4,087 4,156 5,174 6,314Depreciation & amortisation 481 626 826 995EBIT 3,606 3,531 4,348 5,319Net Interest expense/(income) 165 29 127 75Other income 211 205 (87) 90Pr. before tax (excl extraord.) 3,652 3,707 4,135 5,334Provision for tax 1,160 739 744 960Core profit 2,277 2,794 3,536 4,374Extraordinary items (180) (280) 0 0Re. profit after min. int. 2,312 2,702 3,391 4,374Adj. PAT after min. interest 2,277 2,794 3,536 4,374Equity shares outstanding (mn) 85 85 85 85EPS (INR) basic 26.9 33.0 41.8 51.7Diluted shares (mn) 84.6 84.6 84.6 84.6EPS (INR) adjusted 26.9 33.0 41.8 51.7CEPS (INR) 32.6 40.4 51.5 63.4Dividend per share (INR) 6.0 8.0 6.8 8.8Dividend payout (%) 22.3 24.2 16.4 17.1


Cost of revenues 30.1 31.3 31.3 31.2Employee cost 16.6 17.4 16.7 16.2Selling, admin & general exp. 25.5 26.4 26.6 26.8R & D cost 6.3 6.2 6.1 6.1Total operating expenses 78.5 81.4 80.7 80.3Depreciation and amortisation 2.5 2.8 3.1 3.1Interest expenditure 0.9 0.1 0.5 0.2EBITDA margins 21.5 18.6 19.3 19.7Net profit margins 12.4 13.0 13.7 13.9



Equity capital 423 423 423 423Reserves & surplus 7,887 9,801 12,513 16,012Total shareholders funds 8,310 10,224 12,937 16,435Borrowings 5,224 5,721 5,621 5,121Deferred tax liability (net) 499 480 480 480Sources of funds 14,033 16,440 19,053 22,052Gross block 9,228 11,828 13,828 16,328Depreciation 2,718 3,287 4,114 5,109Net block 6,510 8,541 9,715 11,220Investments 1,412 1,460 1,460 1,460Inventories 3,236 5,048 4,713 5,808Sundry debtors 2,982 3,404 3,703 4,437Cash and bank balances 3,883 4,788 4,772 5,529Loans and advances 1,138 1,428 1,428 1,428Other current assets 368 678 678 678Total current assets 11,607 15,346 15,293 17,880Sundry creditors 3,782 6,994 5,454 6,493Other current liabilities 434 485 534 587Provisions 1,280 1,427 1,427 1,427Total current liab. & prov. 5,496 8,907 7,415 8,508Net current assets 6,111 6,439 7,878 9,372Uses of funds 14,033 16,440 19,053 22,052Book value per share ( INR) 98 121 153 194


Net profit 2,312 2,702 3,391 4,374 Depreciation 481 626 826 995 Others (74) (29) - 0Gross cash flow 2,720 3,298 4,217 5,369Less: Changes in WC (349) (577) 1,454 737Operating cash flow 3,069 3,875 2,763 4,631Less: Capex 1,108 2,641 2,000 2,500Free cash flow 1,961 1,234 763 2,131


Key takeawaysSavings rate deregulation – significant accretion to savings deposits continues.Traction in savings account (in terms of enquiries, account opening etc.,) has goneup 3-5x. It is getting empanelment every day from large/mid corporate etc. Also,the bank indicated that even an absolute 1% release of CASA by top three banksimplies INR350bn opportunity. Pursuing to complete retail product suite on boththe asset as well as liability side.

The bank has launched some basic retail lending product namely auto loans; hastied up with Dewan Housing for home loans (will be helpful in building PSL book);has also started providing dealer financing. Even on liability side, will beintroducing new retail offerings like gold/silver coins, reimbursement cards.

Cost-to-income increased slightly in Q3 due to higher headcount and branchexpansion. Management indicated that despite branch expansion C/I ratio willnot go beyond 40%. Forecasts SME/retail to grow to 30% by FY15 (from 15% atpresent). Asset quality will behave cyclically – if there is sharp downturn can seesome asset quality pressures. Restructuring is likely to go up but not beyondmanageable levels.

Financial advisory stream will be sustainable going forward particularly on debtsyndication front as there is lot of demand for refinancing in some sectors likeinfra, cement etc. However, it believes non-interest income will be cyclical as it ismore transaction oriented.

The bank can manage without capital raising in the near term. For FY12, it is likelyto close with 9.2- 9.3% Tier 1. Also, it believes that approximately 50bps can bereleased by more corporate getting rerated.

Investment conclusionWe expect Yes Bank to grow well above the system even if at a slower pace with awell entrenched fee income platform and lower credit costs, delivering superiorearnings (~24% CAGR over FY12 14E) and attractive RoA/RoE of 1.4%/22% by FY13E.

Key risksLower CASA can be a negative for the bank at this point of time when most banksarebanking on their franchise network. In event of demand for credit dying lack ofpricing power can impact its margin adversely.

YES BANKIndia Equity Research l Banking and Financial Services

Maintaining momentum

Company Profile

February 7, 2012


Absolute Rating BUY




MARKET DATA (R : YESB.BO, B: YES IN)

CMP : INR 337


52-week range (INR) : 354 / 230





Promoters* : 26.2


FIIs : 44.5

Others : 13.9




1 month 29.9 9.6 15.8

3 months 5.6 0.3 3.9

12 months 22.7 (7.1) (6.2)




[email protected]

Financials


Net revenues (INR mn) 13,691 18,706 24,513 30,082Net rev growth (%) 41.4 36.6 31.0 22.7Net profit (INR mn) 4,776 7,275 9,593 11,408Shares outstanding (mn) 340 347 347 347EPS (INR) 14.1 21.0 27.6 32.9EPS growth (%) 37.5 49.0 31.9 18.9PE (x) 24.0 16.1 12.2 10.3Price to book (x) 3.7 3.1 2.5 2.1ROE (%) 20.3 21.1 22.7 22.1








Interest income 23,697 40,418 57,482 72,272Interest expenses 15,818 27,948 41,094 52,710Net interest income 7,880 12,469 16,388 19,562Non interest income 5,812 6,237 8,125 10,520- Fee & forex income 4,232 6,555 7,949 9,998- Misc. income 593 145 176 222- Investment profits 986 (464) 0 300Net revenues 13,691 18,706 24,513 30,082Operating expense 5,007 6,798 9,053 10,883 - Employee exp 2,569 3,623 4,792 5,768 - Other opex 2,439 3,175 4,261 5,114Preprovision profit 8,684 11,908 15,461 19,199Provisions 1,419 982 1,248 2,299- Loan loss provisions 1,265 914 1,248 2,299- Investment depreciation 154 (72) 0 0- Other provisions 0 140 0 0PBT 7,265 10,926 14,212 16,900Taxes 2,489 3,651 4,619 5,493PAT 4,776 7,275 9,593 11,408Reported PAT 4,776 7,275 9,593 11,408EPS 14.1 21.0 27.6 32.9DPS 1.5 2.5 2.5 2.5Payout ratio (%) 12.5 13.8 10.4 8.8


NII growth 54.1 58.2 31.4 19.4Fees growth 54.5 54.9 21.3 25.8Opex growth 19.6 35.8 33.2 20.2PPOP growth 92.0 60.7 25.0 22.2PPP growth 58.0 37.1 29.8 24.2Provisions growth 51.3 (27.8) 36.7 84.1PAT growth 57.2 52.3 31.9 18.9





LiabilitiesEquity capital 3,397 3,472 3,472 3,472Reserves 27,499 34,469 43,061 53,466Net worth 30,896 37,941 46,532 56,938Sub bonds/pref cap 17,235 33,579 58,579 78,579Deposits 267,986 459,389 532,042 652,730Borrowings 30,256 33,330 78,267 116,267Other liabilities 17,453 25,831 25,220 28,804Total 363,825 590,070 740,640 933,317AssetsLoans 221,931 343,636 395,182 493,977InvestmentsGilts 67,865 107,473 146,474 184,559Others 34,235 80,816 141,326 183,684Cash & equi 26,733 34,960 40,294 49,536Fixed assets 1,155 1,324 1,479 1,545Other assets 11,907 21,861 15,885 20,015Total 363,825 590,070 740,640 933,317Balance sheet ratios (%)Credit growth 71.9 66.3 21.3 25.8Deposit growth 65.7 71.4 15.8 22.7EA growth 63.6 61.6 27.6 26.1SLR ratio 22.8 25.0 24.0 24.0C-D ratio 86.1 83.6 87.5 89.7Low-cost deposits 10.5 10.3 12.8 15.3Gross NPA ratio 0.3 0.2 0.5 0.7Net NPA ratio 0.1 0.0 0.1 0.1Provision coverage 78.4 88.6 81.0 81.7Incremental slippage 0.9 0.2 0.8 1.0Net NPA / Equity 0.4 0.2 0.8 1.1Capital adequacy 20.6 16.8 16.5 16.2 - Tier 1 12.9 11.0 10.8 10.6Book value (INR) 91.0 109.3 134.0 164.0


Net interest income/Assets 2.8 2.7 2.5 2.4Fees/Assets 1.7 1.5 1.3 1.3Investment profits/Assets 0.3 (0.1) 0.0 0.0Net revenues/Assets 4.8 4.1 3.8 3.7Operating expense/Assets (1.8) (1.5) (1.4) (1.3)Provisions/Assets (0.5) (0.2) (0.2) (0.3)Taxes/Assets (0.9) (0.8) (0.7) (0.7)Total costs/Assets (3.2) (2.5) (2.3) (2.3)ROA 1.7 1.6 1.5 1.4Equity/Assets 8.3 7.5 6.5 6.3ROAE 20.3 21.1 22.7 22.1


Key takeawaysZodiac Clothing Company (Zodiac) saw severe slowdown in demand in Q3FY11.However, January has been particularly good due to end of season discount sales.

It expects future growth to come from: (a) store expansion; ( b) accessories; (c) be-spoke luxury tailor range Regale; (d) suits range; (e) shift from unbrandedinternational range to branded clothing; (f) focused approach on retailing; and (g)other brands like Zod and Z3. The company believes point of inflection is yet tocome.

The company does not plan to take price cuts despite decline in key raw material(cotton) prices.

~85% of Zodiac’s production is pre-sold; the company insures export receivables.

Best-in-class debt/equity ratio of 0.2x. In addition to India, the company hasmanufacturing locations in Dubai to facilitate imports in Europe.

Zodiac is not keen on revenue sharing model with mall developers. It invests ~9-12% of domestic branded sales into advertising.

Key risksExcise duty increase will force the company to effect price increases, which canimpact volumes.

Pressure on margins due to competition.

Macro slowdown.

Slow revenue growth due to rollout delays and poor same store growth.

Currency exchange risk is another monitorable.

ZODIAC CLOTHINGIndia Equity Research l Mescellaneous

The right cut

Company Profile

February 7, 2012

Abneesh Roy+91 22 6620 3141

[email protected]


EDELWEISS RATINGS


MARKET DATA (R : ZCCL.BO, B: ADC IN)

CMP : INR 209

Target Price : NA

52-week range (INR) : 276 / 180





Promoters* : 59.8


FIIs : 18.1

Others : 19.8




1 month 11.7 2.3 (9.4)

3 months 0.8 3.7 2.9

12 months (1.8) (9.6) (7.8)

Financials


Revenues (INR mn) 2,835 3,211 3,140 3,475Rev. growth (%) 9.4 13.2 (2.2) 10.7EBITDA (INR mn) 325 233 281 229Net profit (INR mn) 321 249 262 332Share outstanding (mn) 8 8 8 13EPS (INR) 37.5 28.6 30.0 26.2EPS growth (%) 36.9 (23.7) 4.8 (12.8)Diluted P/E (x) 5.6 7.3 7.0 8.0EV/EBITDA (x) 4.6 7.8 6.1 11.2ROAE (%) 24.9 16.4 15.1 16.7




Net profit 321 249 262 332 Depreciation 50 58 63 72 Deferred tax (8) 1 1 13 Others (165) 167 50 (259)Gross cash flow 198 475 376 157Less:Changes in WC 11 117 226 3Operating cash flow 187 358 150 155Less: Capex 66 289 63 247Free cash flow 121 69 87 (93)


ROAE (%) (on adjusted profits) 24.9 16.4 15.1 16.7ROACE (%) 19.5 10.8 11.3 7.2Inventory days 58 59 63 68Debtors days 40 37 39 36Payable days 149 159 158 118Cash conversion cycle (51) (63) (56) (15)Current ratio 2.3 2.4 2.3 3.1Debt/EBITDA 0.8 1.2 1.1 1.9Interest coverage 9.7 6.3 7.8 6.4Fixed assets t/o (x) 4.2 4.0 3.4 3.5Debt/equity 0.2 0.2 0.2 0.2


Diluted EPS (INR) 37.53 28.64 30.02 26.18Y-o-Y growth (%) 36.9 (23.7) 4.8 (12.8)CEPS 43.6 36.8 38.9 32.4Diluted P/E (x) 5.6 7.3 7.0 8.0Price/BV (x) 1.2 1.1 0.9 1.3EV/Sales (x) 0.5 0.6 0.5 0.7EV/EBITDA (X) 4.6 7.8 6.1 11.2


Revenues 9.4 13.2 (2.2) 10.7EBITDA 9.8 (28.5) 20.9 (18.5)PBT 28.3 (21.7) 12.6 7.7Net profit 37.1 (23.0) 4.9 26.7EPS 36.9 (23.7) 4.8 (12.8)




Income from operations 2,835 3,211 3,140 3,475Direct costs 1,053 1,148 1,112 1,387Employee costs 470 547 559 610Other expenses 987 1,282 1,188 1,249Total operating expenses 2,510 2,978 2,859 3,245EBITDA 325 233 281 229Depreciation and amortisation 50 58 63 72EBIT 275 175 218 158Interest expenses 28 28 28 25Other income 194 198 198 285Profit before tax 441 345 388 418Provision for tax 116 95 126 86Core profit 324 250 262 332Extraordinary items 3 0 - -Profit after tax 321 249 262 332PAT after minority interest 321 249 262 332Adjusted net profit 321 249 262 332EPS (INR) diluted 37.5 28.6 30.0 26.2Diluted equity shares (mn) 8.4 8.4 8.4 12.8Dividend payout (%) 16.8 21.8 22.5 19Tax rate (%) 26.4 27.6 32.6 20.7


Operating expenses 88.5 92.8 91.0 93.4Depreciation & Amortization 1.8 1.8 2.0 2.1Interest expenditure 1.0 0.9 0.9 0.7EBITDA margins 11.5 7.2 9.0 6.6Net profit margins 11.3 7.8 8.3 9.5



Equity capital 84 84 84 128Reserves & surplus 1,338 1,531 1,764 2,002Shareholders funds 1,422 1,615 1,848 2,131Secured loans 248 268 321 328Unsecured loans - 1 1 115Borrowings 248 269 322 443Sources of funds 1,670 1,884 2,170 2,573Gross block 970 1,286 1,329 1,566Depreciation 289 374 418 479Net block 681 912 911 1,087Capital work in progress 41 34 95 172Total fixed assets 722 946 1,007 1,259Investments 228 102 102 263Inventories 510 533 555 733Sundry debtors 312 343 329 349Cash and equivalents 103 271 292 147Loans and Advances 356 341 421 427Total current assets 1,281 1,488 1,598 1,657Sundry creditors and others 463 540 422 473Provisions 82 95 96 101Total CL & provisions 545 635 518 575Net current assets 737 854 1,080 1,082Net deferred tax (17) (18) (19) (31)Uses of funds 1,670 1,884 2,170 2,573Adjusted BV per share (INR) 169 192 220 166


Key takeawaysZuari is planning to invest ~USD700mn for an integrated facility comprising aphosphoric acid facility and 1 mn MT complex fertiliser granulation facility. Theyindicated a timeline of 2-3 years for completion of the project. Zuari has announcedraw material linkages during Q3FY12, by acquiring a stake in a Peru mine.

NPK capacity expansion from 0.7 mn MT to 1 mn MT is likely by FY13 end.

Demerger of fertiliser entities likely over the next few months, considering thatapproval from High Court is the only pending issue.

With regard to urea feedstock conversion from naphtha to natural gas, managementguided that it is likely to get gas during H2FY13, which will result in workingcapital efficiency as well as better capacity utilisation for the urea plant.

Zuari’s performance during FY12 was impacted by a fire accident. Currently, bothurea and NPK plants are operating normally. Management pegs EBITDA loss onaccount of lost volumes during the peak demand season at about INR330mn.

Management guided for strong performance from Paradeep phosphates for FY12.

On account of lowering of raw material prices, government is likely to lowersubsidy under NBS. While the inventory level for Zuari is high at 0.5mn MT NPKfertilisers at Q3FY12 end, it guided for most of this to be liquidated in Q4FY12.

Investment conclusionWith a capex outlay of ~INR800mn, Zuari is likely to expand its complex fertilisercapacity by ~300,000 MT by FY13 end. It targets to increase the 2 mn MT fertilisersales in FY11 to over 3.5 mn MT over the next three years. Zuari is also expected tobenefit from its holding in PPL, that manufactures ~1.2 mn MT NPK per annum andmanufactures ~50% of its phosphoric acid requirement. With implementation ofNBS, the company’s complex fertiliser segment is expected to benefit due to marginexpansion and lower subsidy receivables.

Key risksAny execution delay in the change of urea feedstock from naphtha to natural gas.Possible misallocation of capital resulting in sub-optimal value realization.Possible delay in payment of fertiliser subsidies by government.

ZUARI INDUSTRIESIndia Equity Research l Agriculture

Deep value urea and complex fertiliser play

Company Profile

February 7, 2012


Absolute Rating BUY

Investment Characteristics Value

MARKET DATA (R : ZURI.BO, B: ZUAR IN)

CMP : INR 453


52-week range (INR) : 730 / 436





Promoters* : 34.4


FIIs : 8.3

Others : 36.8




1 month 15.0 (1.0) (15.9)

3 months (4.0) (24.2) (20.2)

12 months (10.2) (27.4) (17.2)


[email protected]


Financials


Revenues (INR mn) 61,684 75,988 85,762 94,732Rev. growth (%) (30.7) 23.2 12.9 10.5EBITDA (INR mn) 2,645 3,745 4,189 4,875Net profit (INR mn) 2,536 2,556 2,614 3,195Share outstanding (mn) 29 29 29 29EPS (INR) 85.9 86.9 88.8 108.5EPS growth (%) (15.9) 1.2 2.1 22.2Diluted P/E (x) 5.2 5.2 5.1 4.1EV/EBITDA (x) 4.3 4.1 3.7 2.3ROE (%) 20.4 17.3 15.2 16.1




ROAE (%) (on adjusted profits) 20.4 17.3 15.2 16.1ROACE (%) 12.8 13.0 13.1 15.6Inventory days 59.7 52.8 61.6 59.1Debtors days 75.4 50.3 52.5 54.6Payable days 165.4 64.7 57.3 58.6Cash conversion cycle (30.3) 38.3 56.8 55.2Current ratio 2.4 2.9 2.6 2.5Debt/EBITDA 6.4 4.3 2.9 1.8Interest coverage 4.0 3.6 4.3 7.7Fixed assets t/o (x) 19.1 23.1 24.2 23.6Debt/equity 1.2 1.0 0.7 0.4




Revenues (30.7) 23.2 12.9 10.5EBITDA 4.4 41.6 11.9 16.4PBT (21.2) 8.6 3.2 21.8Net profit (24.0) 1.9 3.6 21.8EPS (15.9) 1.2 2.1 22.2




Income from operations 61,684 75,988 85,762 94,732Direct costs 47,459 59,904 69,108 74,906Employee costs 1,306 1,477 1,525 1,726Other expenses 10,274 10,862 10,940 13,225Total operating expenses 59,039 72,243 81,573 89,857EBITDA 2,645 3,745 4,189 4,875Dep. & amortisation 404 394 473 510EBIT 2,240 3,351 3,716 4,365Interest expenses 565 922 863 570Other income 1,936 1,492 1,194 1,134Profit before tax 3,612 3,921 4,047 4,929Provision for tax 931 1,188 1,214 1,479Core profit 2,681 2,733 2,833 3,451Extraordinary items 0 (81) 0 0Profit after tax 2,681 2,652 2,833 3,451Less: Minority interests 152 173 218 256Add: Share in profits of asso. 7 (4) 0 0PAT after minority interest 2,536 2,475 2,614 3,195Adjusted net profit 2,536 2,556 2,614 3,195EPS (INR) basic 85.9 86.9 88.8 108.5Diluted equity shares (mn) 29 29 29 29Dividend payout (%) 5.2 5.2 5.1 4.1Tax rate (%) 25.8 30.9 30.0 30.0





Equity capital 294 294 294 294Reserves & surplus 13,302 15,622 18,081 21,121Shareholders funds 13,596 15,916 18,376 21,415Secured loans 11,585 11,819 8,000 7,000Unsecured loans 5,305 4,189 4,000 2,000Borrowings 16,890 16,008 12,000 9,000Deferred tax liability (net) (135) (23) 174 174Minority interest 744 841 1,059 1,315Sources of funds 31,096 32,743 31,609 31,904Gross block 8,877 9,327 10,196 11,249Depreciation 5,634 5,980 6,454 6,963Net block 3,243 3,347 3,742 4,286Capital work in progress 531 1,685 1,200 900Total fixed assets 3,774 5,032 4,942 5,186Investments 8,651 3,809 3,809 3,809Inventories 6,560 10,758 12,560 11,714Sundry debtors 10,213 10,727 13,945 14,422Cash and equivalents 2,498 6,775 6,727 8,118Other current assets 9,440 5,103 886 886Total current assets 28,711 33,362 34,118 35,140Sundry creditors and others 11,167 10,076 11,627 12,440Provisions 836 1,378 1,626 1,783Total CL & provisions 12,003 11,454 13,253 14,223Net current assets 16,708 21,909 20,865 20,917Good will 1,963 1,993 1,993 1,993Uses of funds 31,096 32,743 31,609 31,904Adjusted BV per share (INR) 462 541 624 727


Net profit 2,536 2,475 2,614 3,195 Depreciation 404 394 473 510 Others (461) 201 (112) (308)Gross cash flow 2,479 3,070 2,975 3,396Less:Changes in WC 11,000 1,299 (996) (1,339)Operating cash flow (8,521) 1,771 3,971 4,735Less: Capex 622 1,605 383 753Free cash flow (9,143) 166 3,588 3,982

NOTES



RATING & INTERPRETATION

ABSOLUTE RATING

RELATIVE RETURNS RATING

RELATIVE RISK RATING

Ratings Expected absolute returns over 12 months

Buy More than 15%

Hold Between 15% and - 5%

Reduce Less than -5%

Ratings Criteria

Sector Outperformer (SO) Stock return > 1.25 x Sector return

Sector Performer (SP) Stock return > 0.75 x Sector return

Stock return < 1.25 x Sector return

Sector Underperformer (SU) Stock return < 0.75 x Sector return

Sector return is market cap weighted average return for the coverage universe within the sector

Ratings Criteria

Low (L) Bottom 1/3rd percentile in the sector

Medium (M) Middle 1/3rd percentile in the sector

High (H) Top 1/3rd percentile in the sector

Risk ratings are based on Edelweiss risk model

SECTOR RATING

Ratings Criteria

Overweight (OW) Sector return > 1.25 x Nifty return

Equalweight (EW) Sector return > 0.75 x Nifty return

Sector return < 1.25 x Nifty return

Underweight (UW) Sector return < 0.75 x Nifty return


This document has been prepared by Edelweiss Securities Limited (Edelweiss). Edelweiss, its holding company and associate companies are a full service, integrated investment banking, portfolio management andbrokerage group. Our research analysts and sales persons provide important input into our investment banking activities. This document does not constitute an offer or solicitation for the purchase or sale of anyfinancial instrument or as an official confirmation of any transaction. The information contained herein is from publicly available data or other sources believed to be reliable, but we do not represent that it is accurateor complete and it should not be relied on as such. Edelweiss or any of its affiliates/ group companies shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertenterror in the information contained in this report. This document is provided for assistance only and is not intended to be and must not alone be taken as the basis for an investment decision. The user assumes theentire risk of any use made of this information. Each recipient of this document should make such investigation as it deems necessary to arrive at an independent evaluation of an investment in the securities of companiesreferred to in this document (including the merits and risks involved), and should consult his own advisors to determine the merits and risks of such investment. The investment discussed or views expressed may notbe suitable for all investors. We and our affiliates, group companies, officers, directors, and employees may: (a) from time to time, have long or short positions in, and buy or sell the securities thereof, of company(ies) mentioned herein or (b) be engaged in any other transaction involving such securities and earn brokerage or other compensation or act as advisor or lender/borrower to such company (ies) or have other potentialconflict of interest with respect to any recommendation and related information and opinions. This information is strictly confidential and is being furnished to you solely for your information. This information shouldnot be reproduced or redistributed or passed on directly or indirectly in any form to any other person or published, copied, in whole or in part, for any purpose. This report is not directed or intended for distributionto, or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction, where such distribution, publication, availability or use would be contrary to law, regulationor which would subject Edelweiss and affiliates/ group companies to any registration or licensing requirements within such jurisdiction. The distribution of this document in certain jurisdictions may be restricted bylaw, and persons in whose possession this document comes, should inform themselves about and observe, any such restrictions. The information given in this document is as of the date of this report and there canbe no assurance that future results or events will be consistent with this information. This information is subject to change without any prior notice. Edelweiss reserves the right to make modifications and alterationsto this statement as may be required from time to time. However, Edelweiss is under no obligation to update or keep the information current. Nevertheless, Edelweiss is committed to providing independent andtransparent recommendation to its client and would be happy to provide any information in response to specific client queries. Neither Edelweiss nor any of its affiliates, group companies, directors, employees, agentsor representatives shall be liable for any damages whether direct, indirect, special or consequential including lost revenue or lost profits that may arise from or in connection with the use of the information. Pastperformance is not necessarily a guide to future performance. The disclosures of interest statements incorporated in this document are provided solely to enhance the transparency and should not be treated asendorsement of the views expressed in the report. Edelweiss Securities Limited generally prohibits its analysts, persons reporting to analysts and their family members from maintaining a financial interest in thesecurities or derivatives of any companies that the analysts cover. The analyst for this report certifies that all of the views expressed in this report accurately reflect his or her personal views about the subject companyor companies and its or their securities, and no part of his or her compensation was, is or will be, directly or indirectly related to specific recommendations or views expressed in this report. Analyst holding in thestock: no.

For recipients in the United States: This report was prepared by Edelweiss Securities, which is not a FINRA member nor a broker-dealer registered with the SEC. US persons receiving this research and wishing toeffect any transactions in any security discussed in the report should contact an SEC-registered broker-dealer. In order to conduct business with Institutional Investors based in the U.S., Edelweiss Securities has enteredinto a chaperoning agreement with a U.S. registered broker-dealer, Marco Polo Securities Inc. ("Marco Polo").

Copyright 2009 Edelweiss Research (Edelweiss Securities Ltd). All rights reserved

Vikas Khemani Head Institutional Equities [email protected] +91 22 2286 4206

Nischal Maheshwari Co-Head Institutional Equities & Head Research [email protected] +91 22 6623 3411

Edelweiss Securities Limited, Edelweiss House, off C.S.T. Road, Kalina,Mumbai – 400 098, Board: (91-22) 4009 4400.

Email: [email protected]

Access the entire repository of Edelweiss Research on www.edelresearch.com


Distribution of Ratings / Market Cap

Edelweiss Research Coverage Universe

Buy Hold Reduce Total

Rating Distribution* 119 47 15 184

* 3 stocks under review

> 50bn Between 10bn and 50 bn < 10bn

Market Cap (INR) 111 57 16


India Post Conference Notes Day 1 Feb 12 EDEL

Documents

parvez akhtar

npcc mc dermott

post conference

gross cash

big opportunity

risk rating

cash conversion

common size