Morning Insight 2 Aug 2012 - Business Standardsmartinvestor.business-standard.com/BSCMS/PDF/tvs_020812.pdfgrowth from now on would be led mainly by execution of Bina, Nigrei and Bara

AUGUST 2, 2012

Economy News India's merchandise exports fell 5.5 per cent to $25 billion in June,

compared with $26.5 billion in the corresponding month last year, asdemand in the struggling European economies continued to decline.Imports recorded a much sharper fall - declining 13.5 percent to $35.4billion, compared with $40.9 billion in June 2011.

With firming of oil prices in the international market, jet fuel or aviationturbine fuel (ATF) rates were increased by 4.5 per cent on Wednesday

Growth of eight core industries slipped to 3.6 per cent in June against fourper cent in May, on the back of contraction in natural gas, fertilisers andsteel output. This will impact overall economic growth, given thatagriculture might also remain lackluster due to a weak monsoon. (BS)

The securities market regulator has proposed a long-term policy to revivemutual funds, which includes tax breaks for investors, higher minimumcapitalization norms, and an obligation on fund houses to push theirschemes in the hinterland. (ET)

Corporate News State Bank of India (SBI) has brought interest rate relief to its new

home and automobile loan customers. It has slashed home, auto loanrates by 25-85 bps. Other banks are expected to follow suit. (BS)

Jet Airways would have to wait for some time before the Ministry of CivilAviation takes a decision on its application to join the Star Alliance. (BS)

L Capital Eco Ltd, a subsidiary of the $ 640-million global private equity(PE) firm L Capital Asia, will invest Rs 1.08 bn in lieu of equity stake in PVRLtd, boosting the theatre chain's growth plans in the cinema exhibitionand in-mall retail space. (BS)

Toll road development company IRB Infrastructure Developers said it isthe selected bidder for four-laning a 190-km stretch of NH 17.(BS)

After Oil Ministry veto, three state owned oil firms IOC, ONGC and BPCLhave decided not to press for acquiring Asian Development Bank's stakein Petronet LNG Ltd. (BS)

The ongoing battle between joint venture partners of telco Uninorescalated on Wednesday, with the company announcing an auction of itsassets, a move that has been strongly opposed by Unitech Ltd, thesmaller of the two stakeholders. (Mint)

India's advertising regulator has told consumer goods major HindustanUnilever to stop mentioning its Kwality Walls brand as 'ice cream' incertain advertisements following a complaint by top ice-cream brandAmul.(ET)

The Children Investment Fund Management (UK) Llp, or TCI, filed a writpetition in the Delhi high court against India's coal ministry and Coal IndiaLtd, in which it is a minority shareholder, challenging their moves to keepprices artificially low.(mint)

Equity% Chg

1 Aug 12 1 Day 1 Mth 3 Mths

Indian IndicesSENSEX Index 17,257 0.1 (0.8) (0.3)NIFTY Index 5,241 0.2 (0.7) 0.0BANKEX Index 11,952 0.3 (0.3) 0.8BSET Index 5,327 (0.3) (7.3) (7.3)BSETCG INDEX 9,703 1.1 (3.8) 4.1BSEOIL INDEX 8,129 (0.4) 0.4 2.7CNXMcap Index 7,231 0.9 (2.6) (2.9)BSESMCAP INDEX 6,520 1.1 (1.4) (3.8)

World IndicesDow Jones 12,971 (0.3) 0.8 (2.2)Nasdaq 2,920 (0.7) (1.1) (4.6)FTSE 5,713 1.4 1.3 (0.8)NIKKEI 8,642 (0.6) (3.7) (7.6)HANGSENG 19,820 0.1 1.5 (7.4)

Value traded (Rs cr)1 Aug 12 % Chg - Day

Cash BSE 1,859 (6.0)Cash NSE 9,000 (17.0)Derivatives 81,501 (28.3)

Net inflows (Rs cr)31 Jul 12 % Chg MTD YTD

FII 928 (23.1) 11,201 53,281Mutual Fund (107) 1,306.6 (1,862) (7,922)

FII open interest (Rs cr)31 Jul 12 % Chg

FII Index Futures 13,329 2.8FII Index Options 36,178 2.8FII Stock Futures 23,590 1.5FII Stock Options 1,311 14.0

Advances / Declines (BSE)1 Aug 12 A B T Total % total

Advances 132 1,290 293 1,715 58Declines 68 761 267 1,096 37Unchanged 2 80 45 127 4

Commodity % Chg

1 Aug 12 1 Day 1 Mth 3 Mths

Crude (NYMEX) (US$/BBL) 88.8 (0.1) 6.1 (15.6)Gold (US$/OZ) 1,603.3 (0.8) 0.1 (3.1)Silver (US$/OZ) 27.4 (2.3) (0.4) (10.1)

Debt / forex market1 Aug 12 1 Day 1 Mth 3 Mths

10 yr G-Sec yield % 8.3 8.4 8.4 N/ARe/US$ 55.5 55.7 55.4 52.7

Sensex

Source: ET = Economic Times, BS = Business Standard, FE = Financial Express,BL = Business Line, ToI: Times of India, BSE = Bombay Stock Exchange

15,000

16,600

18,200

19,800

Jul-11 Oct-11 Jan-12 Apr-12 Jul-12

Kotak Securities - Private Client Research Please see the disclaimer on the last page For Private Circulation 2

MORNING INSIGHT August 2, 2012

JAIPRAKASH ASSOCIATES LTD

PRICE: RS.76 RECOMMENDATION: ACCUMULATETARGET PRICE: RS.83 FY13E P/E: 23.4X

Revenues of the company in Q1FY13 came lower than our estimates dueto lower than expected revenues from the cement and real estate divi-sion. Company has demerged the south and west cement plants andtransferred it to Jaypee Cement Corporation Ltd so correspondingly it hasrestated financials of Q1FY12.

Operating margins in Q1FY13 stood strong at 26% and primarily led bystrong margins in construction and real estate division.

Net profit for the quarter was slightly ahead of our estimates led bystrong operating margins and lower than expected interest outgo.

At current price of Rs 76, stock is trading at 23.4x P/E and 11.6x EV/EBITDA on FY13 estimates respectively. We maintain our FY13 estimatesand price target of Rs 83. We had upgraded the stock to BUY in our lastrecommendation at Rs 61. Owing to limited upside from the current lev-els, we now downgrade the stock to ACCUMULATE and would look fordips in the stock to buy with a long term view.

Financial highlights

(Rs mn) Q1FY13 Q1FY12* YoY (%)

Net sales 29,636 29,023 2

Expenditure 21,923 21,558 2

EBITDA 7,713 7,465 3

EBITDA margin (%) 26.0 25.7

Depreciation 1,763 1,413

EBIT 5,949 6,052 -2

Interest 4,653 3,836

EBT(exc other income) 1,297 2,216

Other income 731 372

Excp inc on sale of shares in trust 9 -1

EBT 2,037 2,586 -21

Tax 649 745

Tax (%) 32 29

Profit after tax 1,388 1,841 -25

Core business PAT 1,388 1,841 -25

Equity capital 4,253 4,253

Core EPS 0.65 0.87

Source: Company; * Q1FY12 revenues and expenses are restated

Revenue growth lower than our expectations Revenues of the company in Q1FY13 came lower than our estimates due to

lower than expected revenues from the cement and real estate division. Com-pany has demerged the south and west cement plants and transferred it toJaypee Cement Corporation Ltd so correspondingly it has restated financials ofQ1FY12.

Summary table

(Rs mn) FY11 FY12E FY13E

Sales 129,665 127,429 141,493Growth (%) 29 -2 11EBITDA 28,887 33,294 32,740EBITDA margin (%) 22.3 26.1 23.1PBT 12,402 13,143 10,447Adjusted net profit 6,521 10,264 6,895EPS (Rs) 3.1 4.8 3.2Growth (%) (28.4) 57.4 (32.8)CEPS (Rs) 8.3 7.7 6.9BV per share (Rs) 44.2 48.4 51.1Dividend / share (Rs) 0.4 0.5 0.5ROE (%) 13.0 10.4 6.5ROCE (%) 9.2 9.6 7.9Net cash /(debt) (192,451) (213,686) (219,508)NW capital (days) 127.6 127.6 127.6P/E (x) 24.8 15.7 23.4EV/EBITDA (x) 12.3 11.3 11.6EV/Sales (x) 2.7 2.9 2.7P/BV (x) 1.7 1.6 1.5

Source: Company, Kotak Securities - PrivateClient Research

RESULT UPDATE

Teena [email protected]+91 22 6621 6302



Cement division performance: Cement volumes for Q1FY13 stood at 3.59MT asagainst 3.25MT (restated) for Q1FY12. Cement volumes have witnessed an in-crease due to commissioning of new capacities as well as entry into newer mar-kets. Cement realizations stand at Rs 4354 per tonne as against Rs 3948 pertonne in Q1FY12. Increase in realizations is on account of improvement in ce-ment prices witnessed during Q1FY13. Reported revenues of cement divisionwould not include demerged southern and western cement plants for bothQ1FY13 and Q1FY12. Company's 5MT balaji plant in AP has commissioned. Itplans to commission another 2.6MT in North India over H1FY13, thereby takingits total capacity to nearly 35.6 MT. Post demerger of cement assets, cementcapacity in standalone company would be 25MT approximately. We expect ce-ment volumes to jump to 20MT for FY13 on a consolidated basis.

Construction division performance: Construction division revenues during Q1FY13was in line with our estimates led by execution of power projects as well asNoida land parcel. It also includes one-time excess revenue billing of Rs 1 bn dueto some extra work carried out on Yamuna expressway. Construction revenuegrowth from now on would be led mainly by execution of Bina, Nigrei and Barathermal power project. We expect Bina thermal power project to commission byQ3FY13 and Nigrei Thermal power plant to commission by H1FY14. We expectconstruction division revenues to remain largely flattish at Rs 55 bn for FY13.

Real estate division revenues declined by 53% YoY for Q1FY13 due to lowerthan expected revenue booking from its projects but is expected to ramp upgoing forward. We expect this division to record revenues of Rs 10 bn for FY13.

Company also expects Yamuna Expressway to open for tolling by end of Aug,2012.

We maintain our estimates and expect revenues to grow to Rs 141 bn for FY13.Our estimates are subject to change post we get details about the demergedentities financials.

Operating margins better than our estimates Operating margins in Q1FY13 stood strong at 26% and primarily led by strong

margins in construction and real estate.

EBIT margins in cement division stood at 14.5% translating into EBITDA marginof 18.4% for Q1FY13. Cement EBITDA per tonne stood at Rs 800 per tonne asagainst Rs 786 per tonne in Q1FY12. Increase in EBITDA per tonne is not in pro-portion with increase in realizations due to sharp increase in overall cost ofmanufacturing cement. Construction division EBIT margins stood at 29.6% andEBITDA margins stood at 31.3% for Q1FY13. Adjusted with Rs 1 bn excess rev-enue booking, construction division margins would have been lower. Thus, on afull year basis, we expect construction margins to be around 18% going forward.

On a consolidated basis, we maintain our estimates and expect margins to be23.1% for FY13.

Net profit growth boosted by improved margins and lower inter-est outgo Net profit for the quarter was slightly ahead of our estimates led by strong oper-

ating margins and lower than expected interest outgo.

Interest outgo has declined sequentially but continues to remain high on YoYbasis for the company on account of sharp increase in its borrowings led bycapex in cement and construction segment. Along with this, with FCCB redemp-tion round the corner in Sep, 2012, we expect company to raise funds either byselling stake in cement division or by sale of treasury shares or by selling stake inJaypee Infratech.



Company has also demerged Cement Plants in Gujarat & Andhra Pradesh and itsother units viz. Asbestos Sheet Plants, Heavy Engineering Workshop & Hi TechCasting Centre / Foundry into its Wholly Owned Subsidiary, namely, Jaypee Ce-ment Corporation Limited which is implementing 3 MTPA Cement Plant inKarnataka. Total capacity of Jaypee Cement Corporation Limited is approxi-mately 10MT and is expected to be 14MT by March, 2013. Company has beenin talks with several industry and PE players to sell stake in Jaypee Cement Cor-poration Ltd to repay the debt.

During the quarter, HP high court also imposed a penalty of Rs 1 bn on JP Asso-ciates for violation of environmental clearance norms for its grinding and blend-ing unit at Bagheri(HP). Company is filing special leave petition in SupremeCourt for the same and hence thus not made any provisions. CCI also imposed apenalty of Rs 13.24 bn on company for alleged cartelization. This is also going tobe challenged by the company and hence no provisioning is being done for thesame.

We maintain our FY13 estimates and expect net profits to be around Rs 6.9 bnfor FY13. Our estimates are subject to change post we get details about thedemerged entities financials.

Valuation and recommendation At current price of Rs 76, stock is trading at 23.4x P/E and 11.6x EV/EBITDA on

FY12 and FY13 estimates respectively.

We maintain our FY13 estimates and price target of Rs 83. We had upgraded thestock to BUY in our last recommendation at Rs 61. Owing to limited upside fromthe current levels, we now downgrade the stock to ACCUMULATE and wouldlook for dips in the stock to buy with a long term view.

We recommend ACCUMULATE onJaiprakash Associates with a

price target of Rs.83

Sum of the parts valuation

SOTP FY13 Priceper share Rationale

Core business

Construction 79,319 37 At 8x EV/EBITDA

Cement 174,448 82 At $115/tonne for cement, inline with peers

Jaypee greens 9,757 5 NPV of land bank

Hotels 3,092 2 6x EV/EBITDA at a discount to peers

Less net debt(FY13) 219,508 103

Core business valuation 66,200 23 -

JPVL valuation 56,204 26 At 10% discount to the market price

Karwam Wangtoo valuation(44%stake) 12,508 6

Power assets valuation 32

Real estate valuation 44,699 21 At 10% discount to the market price

Treasury share 12,948 6 At 10% discount to the market price

Total 123,847 83

Source: Kotak Securities - Private Client Research

Dipen Shah holding 150 shares ofJaiprakash Associates



PHOENIX MILLS LTD

PRICE: RS.183 RECOMMENDATION: BUYTARGET PRICE: RS.237 FY13E P/E: 20.2X

Result highlights: Revenues of the company were better than our estimatesled by improvement in rentals and also on account of reclassification ofelectricity expenses recovered from licensees. Operating margins remainedstrong. Net profit growth was slightly better than our estimates. Pune,Kurla and Bangalore market cities are slowly witnessing increased tradingdensities while Chennai market city is expected to commence operations byQ2FY13. We maintain BUY on the stock.

Phoenix mills had reported a growth of 17% in revenues for Q1FY13 primarilyled by improvement in rentals and also on account of reclassification of electricityexpenses recovered from licensees.

Operating margins stood strong at 63% for Q1FY13 but adjusted with reclassifi-cation of electricity charges in revenues and expenses, margins stood at 74%.

Net profit growth was boosted by growth in revenues and other income.

Phoenix mills has entered into share purchase agreement to acquire stake inChennai market city during Q4FY12. Post completion of the transaction, PMLwould have a 50.01% stake in Chennai market city. Company is looking out fortax efficient structure and may decide later on whether it would be a part of itsconsolidated financials. We would incorporate the enhanced shareholding postcompletion of the transaction.

At current price of Rs 183, stock is trading at 20.2x P/E and 12.1x EV/EBITDA.We value the company on sum of the parts valuation and arrive at a target priceof Rs 237 on FY13 estimates. We remain positive on the company due to its ro-bust business model, excellent operating cash flows from HSP and expertise tocapitalize on the upcoming opportunities in the retail sector in various cities. Wethus recommend BUY on the stock.

Standalone Q1FY13 financials

(Rs mn) Q1FY13 Q1FY12* YoY (%)

Net Sales 626.0 535.2 17.0%

Total Expenditure 231.7 204.6 13.2%

EBITDA 394.3 330.6 19.3%

EBITDA % 63.0% 61.8%

Depreciation 67.2 66.9

EBIT 327.1 263.7 24.0%

Interest 57.5 10.2

EBT(exc other income) 269.6 253.5 6.3%

Other Income 143.2 109.7

PBT 412.8 363.2

Tax 106.8 90.9

Tax% 25.9% 25.0%

PAT 306.0 272.3 12.4%

Equity Capital 289.7 289.7

Face Value (In Rs) 2.00 2.00

EPS (Rs) 2.11 1.88 12.4%

Source: Company; * Q1FY12 revenues and expenses are restated

Summary table

(Rs mn) FY11 FY12E FY13E

Sales 2,102 3,666 4,927Growth (%) 71 74 34EBITDA 1,406 2,114 3,172EBITDA margin (%) 66.9 57.7 64.4PBT 1,151 1,053 1,511Net profit 842 1,056 1,310EPS (Rs) 5.8 7.3 9.0Growth % 36 25 24CEPS (Rs) 8.0 11.2 14.3BV per share(Rs) 115.3 120.5 127.2DPS (Rs) 1.8 2.0 2.0ROE (%) 5.1 6.2 7.3ROCE (%) 5.6 6.9 8.5Net debt 8,605 12,377 11,919NW Capital (Days) (29) (75) (75)EV/Sales (x) 16.7 10.6 7.8EV/EBITDA (x) 25.0 18.4 12.1P/E (x) 31.5 25.1 20.2P/BV (x) 1.6 1.5 1.4


RESULT UPDATE

Teena [email protected]+91 22 6621 6302



Revenue growth led by improvement in rentals and reclassifica-tion of electricity charges Phoenix mills had reported a growth of 17% in revenues for Q1FY13 primarily

led by improvement in rentals and also on account of reclassification of electricityexpenses recovered from licensees.

Average rentals stood at Rs 177 per sq ft per month. Average sales per sq ft in-creased from Rs 1485 in Q1FY12 to Rs 1756 in Q1FY13, though footfalls continueto remain same at 4.4mn. PML also added 16,000 sq ft in Palladium Annexewhich was opened in Q4FY12 and houses mostly the luxury brands such as Bally,Ermeneglido Zegna, Paul Smith etc. It currently has more than 70% occupancy.It has also re-opened food court (6000 sq ft) with an international look and occu-pancy stands at approx. 65% with brands like Ice cream Works and HaagenDazs.

Phoenix mills ltd has entered into share purchase agreement to acquire stake inChennai market city during Q4FY12. Now Sharyans Resources Ltd, anothershareholder in Chennai Market city, has also expressed desire to increase itsstake. Thus correspondingly, post completion of the transaction, PML would havenow have a stake of 50% in Chennai market city instead of earlier planned63%. We would incorporate the enhanced shareholding post completion of thetransaction which would be completed by FY14.

We thus maintain our estimates and expect revenues to grow by 34% in FY13.

Status of market cities and Hotel Shangri-La Pune market city is 85 % leased with average rentals of nearly Rs 60-65 per sq

ft per month. Occupancy levels have remained same sequentially at 70% duringQ1FY13 but is expected to improve with opening of PVR Cinemas in Aug, 2012.Company has also sold nearly 85% of phase 1 commercial area of nearly 0.26mn sq ft at Rs 6100 per sq ft. Overall revenues are expected to improve goingforward due to improvement in occupancies as well as rentals.

Bangalore market city was opened in Oct, 2011 and is currently 88% leased withaverage rentals of nearly Rs 65-70 per sq ft per month. No. of opened storeshave now increased to 189 as against 178 in Mar, 2012. Occupancy levels havealso improved to 62% versus 60% during Mar, 2012. During the quarter, largeformat stores like Croma, Home town, Tanishq were opened during the quarter.

Kurla market city is currently 82% leased and has an occupancy of 59% withaverage rentals of nearly Rs 90 per sq ft per month. Currently 189 stores haveopened as against 171 stores during Mar, 2012. During the quarter, RelianceMart and Freezing Rains @ Snow World have become operational. PVR is ex-pected to open from Sep, 2012. Along with this, Amoeba has partially openedwith four Bowling Alleys which would ramp up to 14 lanes by mid-Aug, 2012.

Launch of Chennai market city is delayed and is now expected to be launchedby Q2FY13. Key Brands viz. Big Bazaar Croma, Lifestyle, Pantaloons, SatyamCinemas, Man U, OOD life, etc. are undergoing fit-outs. Construction of residen-tial space above mall structure is progressed up to 7th roof slab and out of total0.25 mn sq ft (105 apartments), company has already sold nearly 0.2 mn sq ft atan average sale price of Rs 7000 per sq ft. Phoenix mills had earlier entered intoshare purchase agreement with Kshitij venture capital fund for buying out theirholding of 32% in Classic mall and classic housing which is executing Chennaimarket city and residential project for a consideration of Rs 1.06 bn. NowSharyans Resources Ltd, another shareholder in Chennai Market city, has alsoexpressed desire to increase its stake. Thus correspondingly, post completion ofthe transaction, PML would have now have a stake of 50% in Chennai marketcity instead of earlier planned 63%. Thus, now company would have to pay onlyRs 620 mn for increasing its stake to 50%. It is looking for some tax efficientstructure to complete this transaction and hence whether it will be consolidatedor not would be known only when transaction gets closed.



Launch of residential space in Bangalore(W) is expected by Aug, 2012. Projectcomprises of high-rise towers and one luxury tower. It is expected to be devel-oped over four and a half years.

Phase wise handover of Shangri-La has commenced but PML had faced environ-mental clearance related issues which have delayed the commencement. PMLhas already given presentations to committee reviewing its clearance and an-other meeting is scheduled for Aug, 2012. Post that PML expects hotel to openfrom Sep, 2012.

Details of sales in residential and commercial projects in market cities

Location Project Type Area PML stake PML ec. Int Launch Sales till Jun,12

Pune Phase 1 Commercial 0.25 58.5% 0.15 Constructed 88%

Mumbai 15 LBS Commercial 0.28 24.3% 0.07 Constructed 91%

Orion Park Commercial 0.84 24.3% 0.20 Jan, 2012 37%

Graceworks Commercial 0.42 44% 0.18 Jan, 2012 12%

Chennai Phase 1 Residential 0.26 63% 0.16 June, 2011 77%

Classic Housing Residential 0.21 66% 0.14 FY12 29%

2.26 0.91

Source: Company

Operating margins continued to remain strong Operating margins stood strong at 63% for Q1FY13 but adjusted with reclassifi-

cation of electricity charges in revenues and expenses, margins stood at 74%.

We maintain our estimates and expect operating margins to be 64.4% on con-solidated basis. Margins on consolidated basis are expected to improve goingforward with improvement in occupancies, leasing as well as rentals in key mar-ket cities.

Net profit growth led by growth in revenues and strong operat-ing margins Net profit growth was boosted by growth in revenues and other income.

Borrowings are likely to come down once operations stabilize in different marketcities.

We maintain our estimates and expect net profits to grow by 24% on consoli-dated basis for FY13.

Valuation and recommendation At current price of Rs 183, stock is trading at 20.2x P/E and 12.1x EV/EBITDA.

We value the company on sum of the parts valuation and arrive at a target priceof Rs 237 on FY13 estimates.

We remain positive on the company due to its robust business model, excellentoperating cash flows from HSP and expertise to capitalize on the upcoming op-portunities in the retail sector in various cities.

We thus recommend BUY on the stock.

Key risks for the stock would be further delays in launch of Shangri-La and lowerthan expected ramp up in occupancies in key market cities.

We recommend BUY on PhoenixMills with a price target of Rs.237



Sum of the parts valuation

Phnx Avg rent Avg Rate Value Per share Stake (Rs/sq ft/m) (Rs/sq ft) (Rs mn)

High Street Phoenix 100% 180 18195 126

Phase IV @ HSP 100% 12000 3000 21

Market cities

Pune 58.60% 60 6200 1792 12

Kurla 24.30% 95 9000 2232 15

Bangalore(E) 46.6% 65 3000 1075 7

Chennai* 31.00% 80 6500 1654 11

Bangalore(W)-Residential 70% 4500 2269 16

EWDL 40% 45-60 2091 14

Big Apple 70% 35-40 668 5

Shangri-La 53% 12000 1290 9

Total 237

CMP 183.00

* Stake in Chennai market city is likely to be enhanced to 50%; Source: Kotak Securities - Private Client Research



INDIAN OVERSEAS BANK (IOB)PRICE: RS.73 RECOMMENDATION: ACCUMULATETARGET PRICE: RS.84 FY13 P/E: 5.6X, P/ABV: 0.7X

Q1FY13: Disappointment continues; near term outlook remainschallenging with ~12% of stressed assets along with thin marginas well as need for recapitalization (tier-I capital at 7.92%). NII came at Rs.13.28 bn, a modest growth of 11.8% YoY, due to 26bps

(YoY) decline in NIM (2.59% in Q1FY13) despite strong growth in loanbook (24.5% YoY). Net profit grew 13.5% YoY (Rs.2.33 bn), slightly lowerthan our estimates, on back of higher credit costs (NPA provisions shotup QoQ from Rs.2.77 bn during Q4FY12 to Rs.4.07 bn during Q1FY12).

Business growth has continued to moderate since Q4FY12; loan bookgrew 24.5% YoY partly aided by overseas book (49.2% YoY; share at12.5% of total loan book). Deposits grew 22.3% YoY but at the cost ofshrinking CASA mix (declined 250bps to 25.1%).

NIM has been on the declining path (2.59% in Q1FY13; lowest in last sixyears) due to deterioration in the liability franchise along with shift to-wards lower yielding asset mix (corporate loan growth is faster thanother segments). IOB needs recapitalization as its tier-I capital stands at7.92%. This does not bode well in the prevailing macro environment.

Improving the asset quality remains the biggest challenge for IOB, in ourview. Their ~12% of loan book is facing stress (restructured book + grossNPA), one of the highest in the industry. Gross slippage has remained atthe elevated levels (Rs.8.65 bn, 2.4% on annualized basis), while up gra-dation and cash recovery was relatively subdued vis-à-vis previous quar-ter.

We believe, the near term outlook remains challenging for the stock with~12% of stressed assets along with thin NIM as well as need for recapi-talization (tier-I capital at 7.92%). IOB is likely to report subdued returnratios (RoE: 10-11%, RoA: 0.5%) during FY13E/14E and hence, we retainACCUMULATE rating on the stock with lower TP of Rs.84 (Rs.96 earlier)based on 0.75x its FY13E ABV. We advise our clients to remain cautiouson the stock and look for better entry opportunity in the future.

Result Performance

(Rs mn) Q1FY13 Q1FY12 YoY (%)

Interest on advances 39,091 30,089 29.9

Interest on Investment 10,345 8,932 15.8

Interest on RBI/ banks' balances 826 904 -8.7

Other interest - - NM

Total Interest earned 50,262 39,926 25.9

Interest expenses 36,979 28,050 31.8

Net interest income 13,283 11,876 11.8

Other income 3,767 3,392 11.1

Net Revenue (NII + Other income) 17,050 15,268 11.7

Operating Expenses 8,582 7,242 18.5

Payments to / Provisions for employees 5,620 5,023 11.9

Other operating expenses 2,962 2,219 33.5

Operating profit 8,468 8,026 5.5

Provisions & contingencies 5,204 5,449 -4.5

Provision for taxes 929 521 78.4

Net profit 2,334 2,056 13.5

EPS (Rs.) 2.93 3.32 -11.8

Source: Company

RESULT UPDATE

Saday [email protected]+91 22 6621 6312



NII witnessed a modest growth of 11.8% YoY largely due to 26bps (YoY)decline in NIM despite strong growth in loan book (24.5% YoY); reportedNIM lowest in last six years due to decline in CASA and change in asset mix.

NII came at Rs.13.28 bn, a modest growth of 11.8% YoY, due to 26bps (YoY) de-cline in NIM (2.59% in Q1FY13) despite strong growth in loan book (24.5% YoY).Net profit grew 13.5% YoY (Rs.2.33 bn), slightly lower than our estimates, on backof higher credit costs (NPA provisions shot up QoQ from Rs.2.77 bn during Q4FY12 toRs.4.07 bn during Q1FY12).

NIM has been on the declining path (2.59% in Q1FY13; lowest in last six years) dueto deterioration in the liability franchise along with shift towards lower yielding assetmix (corporate loan growth is faster than other segments). IOB needs recapitalizationas its tier-I capital stands at 7.92%. This does not bode well in the prevailing macroenvironment.

Although management has guided for NIM to come at 2.85% for FY13, we aremore cautious and expect IOB to report NIM at 2.55% and 2.51%, respectively, dur-ing FY13E and FY14E as against 2.75% achieved during FY12.

Business growth continued to moderate; liability franchise hasweakened (CASA mix declined 250bps YoY)Business growth has continued to moderate since Q4FY12 - loan book grew 24.5%YoY partly aided by overseas book (49.2% YoY; share at 12.5% of total loan book),while domestic book grew at relatively moderate pace (21.6% YoY). All other seg-ments expect corporate saw moderate growth while corporate segment witnessedstrong growth of 25.9% YoY.

However, on liability front, strong deposit mobilization (22.3% YoY) came at thecost of weakening liability franchise (CASA share declined to 25.1%, 130 bps QoQand 250 bps YoY). Although current account floats declined (10.6% QoQ) duringQ1FY13 which is the normal trend seen every year during Q1 (in line with the indus-try trend), subdued growth in demand deposits (8.9% YoY) has impact the overallCASA deposits. We believe this is largely responsible for rise in the cost of deposits(6bps QoQ), while yield on funds declined by 26bps QoQ on back of 25bps decline inyield on advances.

Trend in deposits

(Rs. bn) 1Q2012 2Q2012 3Q2011 4Q2011 1Q2012 3Q2012 YoY (%)

Total deposits 1,512 1,636 1,670 1,784 1,849 22.3% 3.6%

Current Deposits 92 113 103 123 110 19.7% -10.6%

Saving Deposits 325 336 334 349 354 8.9% 1.5%

CASA (Rs. Cr) 416.7 449.1 436.8 471.5 463.6 11.3% -1.7%

CASA (%) 27.6% 27.5% 26.2% 26.4% 25.1%

Term Deposits 1,095 1,187 1,233 1,313 1,385 26.5% 5.5%

Source: Company

Gross slippage has remained at the elevated levels (Rs.8.65 bn,2.4% on annualized basis); near term risk persists with ~12% ofstressed assets.Gross slippage has remained at the elevated levels (Rs.8.65 bn, 2.4% on annualizedbasis), while up gradation and cash recovery was relatively subdued vis-à-vis previ-ous quarter. We believe this corroborates our view that IOB would continue to facestress on its asset quality.



NPA Movement

(Rs bn) Q1FY12 H1FY12 9MFY12 FY12 Q1FY13

Gross NPA - Opening 30.9 30.9 30.9 30.9 39.2

Fress Slippage 4.9 10.0 7.0 10.2 8.7

Deduction due to write off 1.4 0.8 3.3 6.2 1.9

Reduction due to upgradation 0.4 0.7 1.1 2.2 0.8

Reduction due to recoveries (cash recovery) 1.0 2.5 1.8 2.3 1.1

Addition due to other factors 0.0 0.0 0.0 0.0 0.0

Gross NPA (Closed) 32.9 37.0 31.7 30.4 44.1

Source: Company

Sequentially, gross NPA and net NPA rose 12.5% and 12.8% in absolute terms andnow stand at 2.97% (2.74% in Q4FY12) and 1.48% (1.35% in Q4FY12), respec-tively, at the end of Q1FY13.

Trend in NPAs

(Rs. bn) 1Q2011 2Q2011 3Q2011 4Q2011 1Q2012 2Q2012 3Q2012 4Q2012 1Q2013 YoY (%) QoQ (%)

Gross NPA 35.7 33.3 32.6 30.9 32.9 39.0 39.7 39.2 44.1 34.0% 12.5%

Gross (%) 4.30 3.78 3.26 2.72 2.76 3.07 3.00 2.74 2.97

Net NPA 17.9 17.6 14.9 13.3 12.6 15.0 16.0 19.1 21.5 71.1% 12.8%

Net (%) 2.21 2.04 1.51 1.19 1.08 1.21 1.23 1.35 1.48

Source: Company

During Q1FY13, Rs.8.34 bn of fresh loans were restructured while Rs.1.1 bn went offthe book, taking the cumulative restructured book to Rs.133.7 bn (9.0% of ad-vances). The segments which are contributing to this are Power (21.4%), aviation(10.8%), Textiles (8.7%) and Iron & steel (8.3%).

Main contributor to restructured portfolio

(%) Q1FY13 Q4FY12

Textiles 8.7 8.4

Iron & Steel 8.3 8.5

Infrastructure 6.4 13.0

Power 21.4 10.6

SMEs 5.2 5.6

Agriculture 1.3 3.1

CREs 1.7 2.4

Auto & Ancillary 4.2 3.6

Aviation 10.8 10.8

Trade 9.1 10.2

Telecom 7.8 9.6

Source: Company

Sector wise break up of NPA

Q3FY12 Q4FY12 Q1FY13Domestic business Rs. Bn % of total Rs. Bn % of total Rs. Bn % of total

Agriculture 7.0 19.4 5.7 16.1 7.2 18.9

Industry 17.7 49.2 19.0 53.3 18.9 49.5

Services 7.9 21.8 8.8 24.8 9.3 24.5

Personal 3.4 9.5 2.0 5.7 2.7 7.2

Total 36.0 100 35.5 100 38.2 100

Source: Company



Improving the asset quality remains the biggest challenge for IOB, in our view.~12% of its loan book is facing stress (restructured book + gross NPA), one of thehighest in the industry. The risks get aggravated due to lower cushion available interms of thin margin and need for recapitalization (tier-I at 7.92%)

Valuation and recommendationAlthough IOB is currently trading close to its lower end of its historical valuation band(0.7x FY13E ABV; 5.6x FY13E earnings), we believe, the near term outlook remainschallenging for the stock on back of high share (~12% of loan book) of stressedassets (restructured book + gross NPA) along with thin NIM as well as need for re-capitalization (tier-I capital at 7.92%).

Rolling 1-year forward P/ABV band

Source: Company, Kotak Securities - Private Client Research

Rolling 1-year forward P/E band


IOB is likely to report subdued return ratios (RoE: 10-11%, RoA: 0.5%) during FY13E/14E and hence, we retain ACCUMULATE rating on the stock with lower TP of Rs.84(Rs.96 earlier) based on 0.75x its FY13E ABV. We advise our clients to remain cau-tious on the stock and look for better entry opportunity in the future.

We recommendACCUMULATE on IOB with a

price target of Rs.84

0

65

130

195

260

325

Apr-02 Apr-03 Apr-04 Apr-05 Apr-06 Apr-07 Apr-08 Apr-09 Apr-10 Apr-11 Apr-12

CMP 0.5x 0.75x

1.0x 1.25x 1.5x

1.75x 2.0x 2.25x

0

100

200

300

400

Apr-02 Apr-03 Apr-04 Apr-05 Apr-06 Apr-07 Apr-08 Apr-09 Apr-10 Apr-11 Apr-12

CMP 2x 4x 6x

8x 10x 12x



Key data

(Rs. bn) 2011 2012 2013E 2014E

Interest income 121.0 179.0 212.5 249.6

Interest expense 78.9 128.8 156.6 184.1

Net interest income 42.1 50.2 56.0 65.6

Growth (%) 32.8 19.2 11.6 17.2

Other income 12.3 16.8 18.3 21.6

Gross profit 28.6 35.3 37.1 43.2

Net profit 10.7 10.5 10.5 12.7

Growth (%) 51.7 -2.1 -0.3 20.8

Gross NPA (%) 2.7 2.7 3.1 3.2

Net NPA (%) 1.2 1.4 1.5 1.4

Net int. margin (%) 3.0 2.8 2.6 2.6

CAR (%) 14.6 13.3 12.4 11.7

RoE (%) 14.2 11.1 9.5 10.9

RoAA (%) 0.7 0.5 0.4 0.5

Dividend per share (Rs) 5.0 5.0 6.0 6.0

EPS (Rs) 17.3 13.2 13.1 15.9

Adjusted BVPS (Rs) 110.5 111.4 109.9 115.6

P/E (x) 4.2 5.6 5.6 4.6

P/ABV (x) 0.7 0.7 0.7 0.6




CROMPTON GREAVES (CRG)PRICE: RS.119 RECOMMENDATION: REDUCETARGET PRICE: RS.94 FY13E P/E: 14.5X

Crompton Greaves (CRG) has acquired ZIV group at an Enterprise Value ofEUR150 mn (~Rs 10 bn). ZIV is engaged in design. Engineering, manufac-turing and support of Intelligent Electrical Device (IEDs) and automationsystems for Utilities and Industries.

We interacted with various industry players to understand that marketdynamics of smart grid. US market has been the largest market for Smartgrid followed by Europe. Indian market is currently in a nascent stagesized at Rs 8-9 bn per annum.

With the acquisition Crompton marks its tenth overseas acquisition inthe span of last six years. Management expects that the acquisitionwould add substantially to company's offering in providing comprehen-sive energy saving solutions with latest technology.

We believe that the ZIV acquisition is likely to be value accretive in FY13and offer long term strategic advantage to Crompton. Acquisition valueat EUR 150 mn looks reasonable.

We highlight that currently overseas subsidies has been experiencingheadwinds of economic slowdown in certain geographies mainly in Eu-rope; integration of existing subsidiaries and realignment of their corebusiness processes along with that of ZIV now continues to remain achallenge.

We therefore tweak our estimates and do not make substantial revisionsin FY13 earnings. Maintain 'Reduce' rating on the company's stock witha one year DCF based revised target price of Rs 94 (Rs 90 earlier).

Acquisition highlights CRG has acquired Spain based ZIV group at an Enterprise Value of €150 mn

(~Rs 10 bn). ZIV is engaged in design. Engineering, manufacturing and supportof Intelligent Electrical Device (IEDs) and automation systems for Utilities and In-dustries.

CRG through its subsidiary in Netherlands has acquired ZIV at 1.8x and 9x CY12Esales and EBITDA (CRG management guidance) respectively. In CY11, ZIV hasreported revenue at EUR 52 mn and EBITDA at EUR 8.4 mn. ZIV has reportedsubstantial growth in CY12 (12-month trailing) with revenue at EUR 70 mn andhas maintained EBITDA at 21%.

ZIV primarily focuses on two business verticals 1) Grid automation and 2) Smartmetering with 50% revenue and EBITDA contribution from both the segments.

ZIV is currently present in several geographies but has a reasonable presence inthe European region mainly Spain which accounts for nearly 60% of company'sbusiness. Currently ZIV's order book offers business visibility for next six months.We believe that the metering is more of a commoditized business and is themajor revenue driver for ZIV and to that extent is not order book driven.

ZIV sales growth is mainly driven by a large order from Iberdola in metering busi-ness. Sales from grid automation segment remains flat for the company. Man-agement has stated that sizable opportunities are available in US, UK and Po-land markets and it expects to de-risk operations by achieving geographical di-versification.

Summary table

(Rs mn) FY11 FY12 FY13E

Sales 100051 112486 127850Growth (%) 9.5 12.4 13.7EBITDA 13438 8036 10555EBITDA margin (%) 13.4 7.1 8.3PBT 12284 5497 7396Net profit 9261 3736 5251EPS (Rs) 14.4 5.8 8.2Growth (%) 12.3 -59.7 40.6CEPS (Rs) 17.5 9.9 12.8BV (Rs/share) 51.0 56.3 63.4Dividend/share (Rs) 1.3 2.3 3.3ROE (%) 32.0 10.9 13.7ROCE (%) 33.2 12.3 13.9Net cash (debt) (971) (4873) (8082)NW Capital (Days) 48.9 49.8 48.7EV/Sales (x) 0.8 0.7 0.7EV/EBITDA (x) 5.8 9.6 7.3P/E (x) 8.2 20.4 14.5P/Cash Earnings 6.8 12.1 9.3P/BV (x) 2.3 2.1 1.9


COMPANY UPDATE

Ruchir [email protected]+91 22 6621 6448



CRG has stated that the acquisition would be funded by employing D/E of 1:1.Management is targeting revenues of close to EUR 200 mn by FY14-15 throughZIV. CRG has association with ZIV through a JV signed in 2010 with the later andhas been operational in the field of automation systems for substation.

CRG aims to target large utilities for smart grid in India and abroad that is likelyto offer future growth for the company. ZIV offerings are complementary to CRGcurrent portfolio and it virtually fills the gaps in medium & high voltage segment.

Smart grid Industry is dominated by few large players; US/Europemarkets offer higher opportunity for investments and Indianmarket though promising is currently at a nascent stageWe interacted with other industry players in sub-station /Automation segment to geta perspective on the overall business opportunities in Indian as well as overseasmarkets. Following are the key highlights.

What is smart grid?A smart grid is an electrical grid that involves the application of various equipmentand electrical infrastructure to gather and subsequently act on the information aboutthe supply and consumption pattern in an automated fashion to improve the overallefficiency.

Advantages over classical grid

Improved fault detection

Higher efficiency

Peak curtailment.

Increased sustainability of the Grid.

Global Smart grid industry is expected to reach nearly USD 110 bn by 2020 (in-dustry sources). Within the industry, smart meter manufacturers (in which ZIV ispresent) are expected to benefit the most followed by software providers.

US have been the key market for smart grid solutions so far. European markethas also been observing traction. China has developed a program to achievereduced energy consumption by means of smart grids and has planned for invest-ments of close to USD 96 bn by 2020 (source: IEA).

We believe that this is likely to offer substantial growth opportunity for variousplayers in the industry. High technological for manufacturing of smart grid prod-ucts and software is likely to remain the major entry barrier of the new players.

Currently industry is dominated by few large players like Siemens, Areva,Schneider, ABB and Alstom. ZIV is relatively a smaller player whose operationsare mainly concentrated in Spain and therefore it would be a challenge to com-pete with these established players.

Indian smart grid market is at a nascent stage and is valued at close to Rs 8-9 bnper year. PGCIL has envisaged an investment of nearly USD 1.7 bn in XII fiveyear plan. Smart grid opportunity is likely to gain momentum in the second halfof XII plan.

We highlight that though ZIV acquisition equips CRG to bid for grid automationand metering business in India, we remain skeptical on the overall prospects ofthe business especially in India considering its smaller size w.r.t other global play-ers and absence of required PGCIL qualification which other large players likeSiemens, ABB etc have in place.



Overseas subsidiaries have continued to disappoint by erodingprofits in past; realignment of various international operationsremains the keyCRG made ten acquisitions in last six years including QEI and Emotron in FY12.These acquisitions have failed to achieve process integration and generate free cashflow so far. Partly, CRG performance has also been affected by Europan slowdownas majority of acquisitions lie in this region.

Management has been trying to curtail losses in these subsidiaries by taking variouscost restructuring measures. Company has been trying to curtail the administrationcost in Belgium unit and is also planning to reduce the workforce by 260 employeesout of currently employed 730 employees.

While QEI and Emotron are doing well, we remain cautious on the company's over-all overseas business mainly in view of 1) ongoing economic crisis in European re-gion and 2) continuous under achievement in integration between various overseassubsidiaries.

We believe that while ZIV acquisition is likely to be marginally accretive in FY13,major benefits shall follow only in the longer term.

Some of the key acquisitions company has made in last few years other thanEmotron are highlighted below.

Key acquisition

Company Year Operating Acquisition Areas of workCountry EV Rs (mn)

Pauwels 2005 Belgium 2100 Power and distribution transformers

Ganz 2006 Hungary 2290 Power transformers, GIS switchgear and rotating machines, as well as in the supporting areasof design, erection and commissioning.

Microsol 2007 Ireland, USA, UK 685 sub-station automation for MV and HV substations

Sonomatra 2008 France 85 Power transformers and on-load tap changers, oil analysis, oil treatment and retro-filling.

MSE Power Sys Inc 2008 USA 750 engineering, procurement and construction (EPC) of electric power applications in renewableenergy segment

Power Tech (PTS) 2010 UK 2040 consulting as well as technical and engineering support to regional electricity companiesThree businesses ofNelco Limited -traction electronics,SCADA and industrialdrives 2010 India 920 Railways and drives

JV with ZIVAplicaciones yTecnologia, SL 2010 India 70 Manufacturing of Substation Automation System-EHV/UHV range

Emotron AB 2011 Sweden 3670 Drive solutions-Variable freqency drives (VFDs)

QEI Inc 2011 USA 1350 Scada, Comtrol Systems




Financials: ZIV acquisition to remain moderately accretive, oper-ating margins expected to remain under pressure over FY13 dueto increase in input prices and muted margin growth in overseasbusiness In view of recent ZIV acquisition, we project 13.7% YoY growth in consolidated

revenues for FY13E driven mainly by domestic business. We believe that thecompany is likely to experience margin pressure over FY13 on account of 1)lower volumes 2) restructuring cost for overseas subsidiaries and 3) increase inoverheads for funding company's future growth.

In our projections, we build 8% EBITDA margins for FY13E. CRG would benefitfrom the ZIV tax shelter of EUR 18 mn and also from the cheap funding fromEurope at nearly 5.5% pre-tax rate. We highlight that post ZIV acquisition, CRG'sfinancial leverage is likely to increase to 0.41 from current 0.27 levels.

We believe that ZIV would be moderately accretive in FY13E and meaningfulcontribution shall follow in the longer term. We build an EPS of Rs 8.2 for FY13in our forecasts.

Valuation & Recommendation At the current price of Rs 119, company's stock is trading at 14.5x P/E and 7.3 x

EV/EBITDA on FY13E earnings.

We maintain our 'Reduce' rating on the company's stock with a one year DCFbased revised target price of Rs 94 (Rs 90 earlier).

We recommend REDUCE Crompton Greaves with a

revised price target of Rs.94



AUTO INDUSTRY UPDATE

Arun [email protected]

+91 22 6621 6143

Summary - July 2012 volumes (Nos)

July June July YoY gth MoM gth YTD YTD Growth2011 2012 2012 (%) (%) FY12 FY13 (%)

Hero MotoCorp

2W 491,036 534,091 484,217 (1.4) (9.3) 2,020,613 2,126,509 5.2

TVS Motor

Scooters 49,333 38,166 40,895 (17) 7 166,856 153,727 (8)

Motorcycles 70,170 61,274 53,355 (24) (13) 285,221 246,729 (13)

Mopeds 67,169 65,998 63,704 (5) (3) 259,302 267,579 3

Total 2W sales 186,672 165,438 157,954 (15) (5) 711,379 668,035 (6)

2W Exports (incl. above) 26,324 17,545 17,132 (35) (2) 95,287 76,159 (20)

3W 3,290 3,255 3,301 0 1 14,713 12,380 (16)

Overall sales 189,962 168,693 161,255 (15) (4) 726,092 680,415 (6)

Maruti Suzuki

A1&A2 (M-800, Alto, Wagon-R,Estilo, Ritz, Swift, A-Star) 47,127 56,822 44,757 (5) (21) 224,830 212,556 (5)

A3 (SX4, D'zire) 5,324 14,149 12,092 127 (15) 35,936 60,497 68

A4 (Kizashi) 32 6 2 (94) (67) 149 23 (85)

MUV (Grand Vitara, Gypsy, Ertiga) 642 5,638 7,294 1,036 29 2,144 26,259 1,125

C (OMNI, Eeco) 13,379 6,916 6,879 (49) (1) 54,128 34,953 (35)

Total Domestic 66,504 83,531 71,024 7 (15) 317,187 334,288 5

Export 8,796 13,066 11,210 27 (14) 39,639 43,842 11

Total Sales 75,300 96,597 82,234 9 (15) 356,826 378,130 6

M&M

Passenger Vehicles (incl. Verito) 17,312 19,792 22,011 27 11 65,526 83,515 27

4W Commercial 13,472 13,103 14,688 9 12 44,528 54,099 21

3W 5,395 4,836 5,149 (5) 6 19,453 18,964 (3)

MNAL 1,144 1,220 951 (17) (22) 4,096 4,409 8

Total Domestic 37,323 38,951 42,799 15 10 133,603 160,987 20

Export 2,310 2,371 4,260 84 80 8,027 12,101 51

Total Sales 39,633 41,322 47,059 19 14 141,630 173,088 22

Tractors 16,692 23,765 16,521 (1) (30) 76,844 76,102 (1)

AUTO INDUSTRY VOLUME UPDATE - JULY 2012July is seasonally a weak month for auto sales. Accordingly volumes duringthe month were on the weaker side. Most of segments (except LCV and UV)continue to face headwinds from various factors such as economicdownturn, high interest rate, etc. Among companies, TVS Motors reportedbelow expected numbers on poor motorcycle volumes. HMC reported YoYvolume de-growth for the first time since December 2008. MSIL'sperformance was impacted by lock-out at the Manesar plant. M&Mperformed strongly in the auto division while tractor performance remainedunder pressure. Tata Motors reported higher than expected numbers largelydue to higher passenger car dispatches. We expect the auto sales to remainsubdued in the near term. Monsoons have been weak and that in our viewwill somewhat prolong the recovery.



Tata Motors

M&HCV 15,838 12,663 12,786 (19) 1 61,380 47,729 (22)

LCV 24,960 28,363 29,601 19 4 92,788 109,956 19

Utility 3,195 3,649 5,087 59 39 13,631 15,916 17

Cars 13,997 13,595 21,153 51 56 68,342 70,729 3

Total Domestic 57,990 58,270 68,627 18 18 236,141 244,330 3

Export 5,583 6,071 5,532 (1) (9) 20,469 18,603 (9)

Total Sales 63,573 64,341 74,159 17 15 256,610 262,933 2

Source: Companies

Summary - July 2012 volumes (Nos)




Hero MotoCorp - sales volume (Nos)


2W 491,036 534,091 484,217 (1.4) (9.3) 2,020,613 2,126,509 5.2

Source: Company

HERO MOTOCORP (HMC)

HMC reported sales of 484,217 units in July 2012 as against 491,036 units in July2011, a drop of 1%. Over June 2012, volumes dropped by 9%.

July 2012 volumes were the lowest since February 2011. Volumes came inslightly below our expectation.

Inventory has increased from 2 weeks to 4 weeks over the past few months.Given slowdown in retail demand and increased inventory levels, the volumessaw a decline.

In the scooter segment, the company will start promoting its newly launchedmodel "Maestro" in 2QFY13 and that should help the company improve volumesin the scooter segment.

In the motorcycle space too the company looking at re-launching its entire rangeof premium motorcycles.

On the export side, the company plans are moving on expected lines and thecompany will enter the African and the Latin America market in the current cal-endar year.

We expect volumes to stay under pressure in the near term and expect improve-ment in 2HFY13 on reasons mentioned above.

Management expects the domestic 2W industry volumes in FY13 to grow under10% and for HMC the volume growth to be in excess of the industry growthrate.

HHML - 2W sales volume

Source: Company

(15)

-

15

30

45

60

(150,000)

-

150,000

300,000

450,000

600,000Volume (Units - LHS) % YoY growth (RHS)



TVS Motors - sales volume (Nos)


Scooters 49,333 38,166 40,895 (17.1) 7.2 166,856 153,727 (7.9)

Motorcycles 70,170 61,274 53,355 (24.0) (12.9) 285,221 246,729 (13.5)

Mopeds 67,169 65,998 63,704 (5.2) (3.5) 259,302 267,579 3.2

Total 2W sales 186,672 165,438 157,954 (15.4) (4.5) 711,379 668,035 (6.1)

2W Exports (incl. above) 26,324 17,545 17,132 (34.9) (2.4) 95,287 76,159 (20.1)

3W 3,290 3,255 3,301 0.3 1.4 14,713 12,380 (15.9)

Overall sales 189,962 168,693 161,255 (15.1) (4.4) 726,092 680,415 (6.3)

Source: Company

TVS MOTORS (TVSM)

Mopeds sales volume trend

Source: Company

Exports sales volume trend

Source: Company

Scooters sales volume trend

Source: Company

Motorcycles sales volume trend

Source: Company

TVSM reported lower than expected dispatch numbers in July 2012. Companydispatched a total of 161,255 units, 15% lower YoY and 4.4% lower MoM.

2W volumes in the domestic market de-grew by 12% from 160,348 units in July2011 to 140,822 units in July 2012 - the lowest since November 2010.

2W export volumes dropped 35% YoY to 17,132 units. Company is facing pres-sure in some of the export markets like Sri Lanka and Egypt.

3W volume growth remained flat YoY at 3,301 units.

(continued ....)

(25)

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(20)

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% YoY growth (RHS)



Scooter sales declined by 17% YoY to 40,895 units on overall subdued demandand increase in capacity by the market leader. Sequentially though volumeswere up by 7%.

Motorcycle dispatches were a major disappointment and the prime reason forlower than expected volumes in July 2012. Company dispatched 53,355 units,down 24% YoY and lowest since December 2009.

Moped sales were lower by 5% YoY at 63,704 units.

Overall subdued demand scenario has kept the company's volumes weak. Com-pany will be launching a new motorcycle in the executive segment and a newscooter in FY13. New launches along with expected pick-up in 2W demand willhelp the company gradually improve volumes, going forward. However, in thenear term, we expect volumes to remain on the weaker side.



MSIL - sales volume (Nos)


A1&A2 (M-800, Alto, Wagon-R,Estilo, Ritz, Swift, A-Star) 47,127 56,822 44,757 (5.0) (21.2) 224,830 212,556 (5.5)

A3 (SX4, D'zire) 5,324 14,149 12,092 127.1 (14.5) 35,936 60,497 68.3

A4 (Kizashi) 32 6 2 (93.8) (66.7) 149 23 (84.6)

MUV (Grand Vitara, Gypsy, Ertiga) 642 5,638 7,294 1,036.1 29.4 2,144 26,259 1,124.8

C (OMNI, Eeco) 13,379 6,916 6,879 (48.6) (0.5) 54,128 34,953 (35.4)

Total Domestic 66,504 83,531 71,024 6.8 (15.0) 317,187 334,288 5.4

Export 8,796 13,066 11,210 27.4 (14.2) 39,639 43,842 10.6

Total Sales 75,300 96,597 82,234 9.2 (14.9) 356,826 378,130 6.0

Source: Company

MARUTI SUZUKI INDIA LIMITED (MSIL)

Export volume trend

Source: Company

Business Mix (Domestic)

Source: Company

A1 & A2 segment domestic volume trend

Source: Company

Domestic sales volume trend

Source: Company

MSIL dispatched 82,234 units in July 2012 as against 75,300 units dispatched inJuly 2011. Over June 2012, volumes were down by 15%.

MSIL's July 2012 volumes were impacted by worker violence and subsequentlock-out at the Manesar facility. Accordingly production of Swift, Swift Dzire,SX4 and A-star is believed to have been impacted.

(continued ....)

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50%

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100% D

C

MUV

A3

A1 and A2



Company's volumes in July 2011 too were abnormal as they were impacted by1.Shifting of Swift Dzire's production from Manesar to Gurgaon plant and 2. Dis-continuation of old Swift in wake of planned launch of new Swift.

Volumes in the mini passenger car segment (Alto, WagonR, etc.) dropped from38,028 units in July 2011 to 28,998 units in July 2012, a decline of 24%. Fall involumes in this segment is mainly because of weak demand for petrol run cars.

Another segment where the company is facing pressure due to declining petrolcar demand is the van category. Volumes in this segment declined by 49% YoYto 6,879 units in July 2012.

Export volumes grew by 27% YoY to 11,210 units. Given weak demand in thedomestic markets, the company has stepped up focus on exports. Further weakINR yields better realization and that adds as an for higher focus on exports.

With the lock-out at the Manesar plant, the company is losing out on sales ofsome of the best-selling models like Swift and Dzire. If the lock-out goes on forlonger period of time, we see competitor making in-roads in MSIL's dominance.

Currently the company is facing a double whammy; subdued demand for petrolrun cars and losing production (due to lock-out) of in demand models. Given noclarity on resumption of production at the Manesar plant, volumes for the com-pany will remain impacted in the near term.



M&M - sales volume (Nos)


Passenger Vehicles (incl. Verito) 17,312 19,792 22,011 27.1 11.2 65,526 83,515 27.5

4W Commercial 13,472 13,103 14,688 9.0 12.1 44,528 54,099 21.5

3W 5,395 4,836 5,149 (4.6) 6.5 19,453 18,964 (2.5)

MNAL 1,144 1,220 951 (16.9) (22.0) 4,096 4,409 7.6

Total Domestic 37,323 38,951 42,799 14.7 9.9 133,603 160,987 20.5

Export 2,310 2,371 4,260 84.4 79.7 8,027 12,101 50.8

Total Sales 39,633 41,322 47,059 18.7 13.9 141,630 173,088 22.2

Tractors 16,692 23,765 16,521 (1.0) (30.5) 76,844 76,102 (1.0)

Source: Company

MAHINDRA AND MAHINDRA (M&M)

Domestic volume trend (Automotive)

Source: Company

Export volume trend (Automotive)

Source: Company

4W - domestic volume trend

Source: Company

Tractor - volume trend

Source: Company

M&M reported strong dispatch figures in July 2012 in the auto segment.Company's wholesale volumes in July 2012 stood at 47,059 units - its highestever. Volumes grew by 19% YoY and 14% MoM. In June 2012 there was fewdays production shut down and hence the volume growth is higher MoM.

Passenger UV volumes grew on strong note. Volumes increased by 32% YoY to20,750 units. We believe the growth was largely aided by strong performance byXUV500.

(continued ....)

-

20

40

60

80

100

-

8,000

16,000

24,000

32,000

40,000Volume (Units - LHS)

% YoY growth (RHS)

(20)

-

20

40

60

80

(8,000)

-

8,000

16,000

24,000

32,000


% YoY growth (RHS)

-

20

40

60

80

-

11,250

22,500

33,750

45,000


% YoY growth (RHS)

(30)

-

30

60

90

120

150

(1,000)

-

1,000

2,000

3,000

4,000

5,000


% YoY growth (RHS)



Verito sales declined by 23% to 1,261 which we believe was on account re-placement of old model with the new one. Company claims that the new Veritolaunch has received good response.

Volumes in 4W pick-up segment grew by 9% YoY to 14,688 units. Growth in thissegment was lower in July 2012 as compared to YTD growth rate of 21%.

3W sales volume declined 5% YoY in line with the declining trend witnessed inthe segment. LCV and M&HCV sales was lower by 17% in July 2012.

Exports saw a steep 84% YoY rise. Company exported 4,260 units which is thehighest ever monthly dispatches.

After showing marginal growth in the past couple of months, tractor sales ofM&M was down by 1%. Company sold 16,521 tractors in July 2012 as against16,692 tractors sold in July 2011.

M&M's performance in the automotive space came in slightly ahead of expecta-tion on account of strong performance in passenger UV segment and higher ex-ports. We expect the company to continue with its strong performance in the au-tomotive segment over near to medium term.

In the tractor segment, we remain a bit cautious. Monsoons have been belowpar which may add pressure to tractor sales in the near term.



Tata Motors - sales volume (Nos)

June May June YoY gth MoM gth YTD YTD Growth2011 2012 2012 (%) (%) FY12 FY13 (%)

M&HCV 15,838 12,663 12,786 (19.3) 1.0 61,380 47,729 (22.2)

LCV 24,960 28,363 29,601 18.6 4.4 92,788 109,956 18.5

Utility 3,195 3,649 5,087 59.2 39.4 13,631 15,916 16.8

Cars 13,997 13,595 21,153 51.1 55.6 68,342 70,729 3.5

Total Domestic 57,990 58,270 68,627 18.3 17.8 236,141 244,330 3.5

Export 5,583 6,071 5,532 (0.9) (8.9) 20,469 18,603 (9.1)

Total Sales 63,573 64,341 74,159 16.7 15.3 256,610 262,933 2.5

Source: Company

TATA MOTORS (TAMO)

Cars - domestic volume trend

Source: Company

Business Mix ( Domestic)

Source: Company

M&HCV - domestic volume trend

Source: Company

LCV - domestic volume trend

Source: Company

Tata Motors reported dispatch figures higher than expectation in July 2012 onaccount of improved passenger car volumes.

Company's overall sales in July 2012 grew by 15.6% YoY to 73,491 units. Do-mestic volumes grew by 18.3% while exports de-grew 13%.

Sequentially volumes were up by 14.2% on account of lower base.

(continued ....)

(30)

(15)

-

15

30

45

60

(12,000)

(6,000)

-

6,000

12,000

18,000

24,000


% YoY growth (RHS)

-

13

25

38

50

-

10,000

20,000

30,000

40,000


% YoY growth (RHS)

(50)

(25)

-

25

50

75

100

(16,000)

(8,000)

-

8,000

16,000

24,000

32,000

Volume (Units - LHS) % YoY growth (RHS)

0%

25%

50%

75%

100%Cars

UV

LCV

M&HCV



Passenger car volumes rose by 51% YoY to 21,153 units. Tata Nano reported68% growth in volumes while Indica and Indigo range registered 51% and 40%respectively. Growth in this segment comes on a poor July 2011 base. In1QFY13, volumes in this segment de-grew and therefore YTD growth in this seg-ment stands at 3.5% despite such high growth rate reported in July 2012.

UV volumes increased by 59% YoY to 5,087 units. YTD growth in this segmentstands at 16.8%.

Dispatches in the LCV space grew by 18.6% YoY. This is the only segment inwhich TAMO is performed strongly on a consistent basis.

TAMO reported de-growth in the M&HCV volumes for the 5th consecutivemonth. During the month, the company reported volumes of 12,786 units,19.3% lower over July 2011 volumes of 15,838 units. We do not see any nearterm recovery in this segment.

Exports de-grew in July 2012 to 4,864 units.

Going ahead, we expect the volumes to largely remain under pressure. LCV vol-umes continue to show robust performance but M&HCV performance remains amatter of concern. Passenger car volumes are expected to remain erratic.



Trade details of bulk deals

Date Scrip name Name of client Buy/ Quantity Avg.Sell of shares price

(Rs)

1-Aug 8k Miles Soft Vedawala Sangitaben Pareshkumar S 98,854 25.2

1-Aug 8k Miles Soft Shah Nikhil Dhirajlal Huf S 67,370 24.7

1-Aug ACIL Prakashkumar Devshilal Sheth B 1,575,000 0.2

1-Aug ACIL Jigar Mahesh Shah S 1,558,577 0.2

1-Aug Akar Tools Rahul Nareshbhai Shah B 29,751 27.4

1-Aug Amar Remedies Alkesh Satish Shah B 200,000 74.5

1-Aug Choice Intl Manasvi Consultancy Private S 37,555 39.6

1-Aug Cupid Trades Umeshbhai Mahashankar Purohit S 5,350 168.9

1-Aug Cupid Trades Rupal Vipulkumar Patel B 5,000 168.9

1-Aug Finalysis Cred Sagar Kadam B 56,500 58.1

1-Aug Finalysis Cred Darshan Mahendra Shah B 29,780 59.5

1-Aug Gcv Serv Sanjay Jaideo Poddar B 892,466 1.1

1-Aug Gcv Serv Saurabh Chandrakant Nagarsheth S 900,000 1.1

1-Aug Gujarat Narm Fly Goyal Financials (India) Ltd B 45,000 42.0

1-Aug IBIPL Fidelity Inv. Trust Fidelity Series S 7,517,085 4.6

1-Aug IBIPL Morgan Stanley Asia (Singapore) Pte B 6,455,713 4.6

1-Aug Inani Marbles Manish Rameshbhai Vyas S 22,500 210.7

1-Aug Jaihind Syn Sanjay S Dasrapuria Huf B 50,000 15.3

1-Aug Jaihind Syn Dinesh Jayntalal Doshi B 81,504 14.6

1-Aug Jaihind Syn Suresh Jayantilal Shah S 50,000 15.3

1-Aug Jaihind Syn Rekha Upesh Shah S 35,100 14.2

1-Aug Kaleidoscope Balmiki Agencies Pvt Ltd B 350,000 23.0

1-Aug Kaleidoscope Daulat Jain S 350,000 23.0

1-Aug Mahesh Agri Saurav B 4,160 39.8

1-Aug Marmagoa Steel Rukmani Finance Private Ltd S 8,000,000 2.4

1-Aug Marmagoa Steel Ashok Kumar Mittal B 7,989,000 2.4

1-Aug Nhc Foods Evolution Corporate Services B 30,000 20.3

1-Aug Nhc Foods Onyx Corporate Services B 17,325 20.3

1-Aug Nhc Foods Hansa Shah S 100,000 20.3

1-Aug Nhc Foods Emerald Corporate Advisory B 33,075 20.3

1-Aug Ortin Lab-$ Piyush Dharshi Koradiya B 28,900 17.3

1-Aug Osian Inds Rajkumar Shyamnarayan Singh S 36,000 159.0

1-Aug Parichay Invest Patel Dipal Virendrakumar B 11,143 232.7

1-Aug Parichay Invest Jhaveri Sanjeev Burman B 13,475 233.0

1-Aug Parichay Invest Vishnubhai Hargovandas Patel B 8,100 232.6

1-Aug Poddardev Rhodes Diversified S 70,000 92.2

1-Aug Poddardev Investment Professionals LtdAc Hypnos Fund Ltd B 70,000 92.2

1-Aug Prabhav Inds Naina Sanjeev Malhotra S 250,000 3.0

1-Aug Prabhav Inds Jitendrakumar Babulal Shah B 298,152 3.0

1-Aug Prakash Steelage Haridarshan Sales Pvt Ltd S 125,000 155.2

1-Aug Rammaica India Paresh Dhirajlal Shah S 28,000 11.1

1-Aug Shalibhadra Fin Sanjay Babulal Pandya B 25,500 58.2

1-Aug SIEL Pnr Systems Pvt Ltd S 33,199 16.6

1-Aug Symphony Goodwill Warehousing Pvt Ltd B 305,841 309.7

1-Aug Symphony Gita Mehta S 182,930 310.1

1-Aug Vaishnavi Jaya Veera V D Prakash Maddula S 171,400 5.9

1-Aug Vaishnavi Parvathaneni Venkata Siva G Rao S 102,702 5.9

Source: BSE

Bulk deals



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Gainers & Losers Nifty Gainers & LosersPrice (Rs) chg (%) Index points Volume (mn)

Gainers

HDFC 700 1.3 4.1 3.1

Cipla 354 4.6 2.5 6.6

SBI 2,033 1.4 2.3 2.0

Losers

ONGC 280 (2.1) (3.3) 2.0

TCS 1,225 (1.5) (3.1) 0.6

Coal India 349 (2.8) (2.0) 2.7

Source: Bloomberg

Fundamental Research TeamDipen ShahIT, [email protected]+91 22 6621 6301

Sanjeev ZarbadeCapital Goods, [email protected]+91 22 6621 6305

Teena VirmaniConstruction, Cement, Mid [email protected]+91 22 6621 6302

Saurabh AgrawalMetals, [email protected]+91 22 6621 6309

Saday SinhaBanking, NBFC, [email protected]+91 22 6621 6312

Arun AgarwalAuto & Auto [email protected]+91 22 6621 6143

Ruchir KhareCapital Goods, [email protected]+91 22 6621 6448

Ritwik RaiFMCG, [email protected]+91 22 6621 6310

Sumit PokharnaOil and [email protected]+91 22 6621 6313

Amit AgarwalLogistics, [email protected]+91 22 6621 6222

Jayesh [email protected]+91 22 6652 9172

K. [email protected]+91 22 6621 6311

Technical Research Team

Shrikant [email protected]+91 22 6621 6360

Amol [email protected]+91 20 6620 3350

Premshankar [email protected]+91 22 6621 6261

Derivatives Research TeamSahaj [email protected]+91 22 6621 6343

Rahul [email protected]+91 22 6621 6198

Malay [email protected]+91 22 6621 6350

Prashanth [email protected]+91 22 6621 6110

Morning Insight 2 Aug 2012 - Business Standardsmartinvestor.business-standard.com/BSCMS/PDF/tvs_020812.pdfgrowth from now on would be led mainly by execution of Bina, Nigrei and Bara

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