MOSt Market Outlook Date: Friday, February 08, 2013 World Markets Market Outlook FLAT Hangseng SGX Nifty 5961 -3 Expect market to open on a flat note on account of global cues. US market declined marginally despite US jobless data coming in above forecasts. Asian markets are a mixed bag. NTPC FPO has been successfully over subscribed 1.7 times. ACC and Ambuja reported lower than expected quarterly EBITDA margins. Hindalco, M&M and Canara Bank will announce results today. Dow 13944.05 -42.47 Nasdaq 3165.134 -3.345 FTSE 6228.42 -66.92 Nikkei 11200.44 -156.63 23208.99 31.99 London Metal Exchange(LME) Rates B.Crude$ 117.48 $ 0.24 Copper 2,060.50 $ 1.85 -43.25 Zinc 2,139.50 $ -3.50 Aluminium 8,164.50 $ Research Updates: FY13 GDP growth slip to decadal low of 5%, slowdown across sectors; demand deficit dragging down GDP, see FY14 GDP growth at 6.5% - FY13 advance estimate for GDP growth has been placed at 5.0% - the lowest in a decade and represent sharp slowdown from 9.3% of FY11 and 6.2% in FY12. All three components of GDP, viz., agriculture, industry and services displayed YoY slowdown. Industry in particular registered their third lowest growth rate in two decades while services growth was the lowest in 12 years. AMBUJA CEMENT 4QCY12: Below est. impacted by lower volumes, higher depreciation, tax and Nifty Trend Trend Reversal Short Term Intermediate Term 10 DMA* 20 DMA* 6013 6023 AMBUJA CEMENT 4QCY12: Below est. impacted by lower volumes, higher depreciation, tax and interest; Cutting EPS 7% - Net sales were flat (-0.7% YoY) at INR23.1b (+7% QoQ; est INR25.1b). Volumes de-grew 5.6% YoY (+13% QoQ) to 5.4MT (v/s est. 5.9mt), while realization declined by 5% QoQ (+5.2% YoY) in line with estimate at INR4,293/ton (-INR227/ton QoQ) v/s est of INR4,283. Adj EBITDA de-grew by 1% YoY (-25% QoQ) to INR4.3b (v/s est INR4.9b), translating into margin contraction of 7.7pp QoQ to 18.5% (flat YoY; est 19.4%). EBITDA/ton declined by ~INR390/ton QoQ to INR795 in 4QCY12 (+INR40 YoY; est INR831). The stock trades at 7.9x CY14E EV/EBITDA and US$164/ton. ACC 4QCY12: EBIDTA below est at INR530/ton; higher other income & lower tax boosts PAT; Cutting Down Down ACC 4QCY12: EBIDTA below est at INR530/ton; higher other income & lower tax boosts PAT; Cutting EPS 5-9% - ACC’s operating performance is below estimate with EBITDA of ~INR3.17b (v/s est INR3.33b), impacted by lower than estimated realizations. Results are not comparable as merger for RMC business subsidiary is fully done in 4QCY12 (for CY12). EBITDA de-grew by 18% YoY (-25% QoQ) to INR3.17b (v/s est INR3.33b), translating into EBITDA margins of 10.2% (-520bp YoY, -710bp QoQ v/s est 12.8%). The stock trades at 7.2x CY14E EV/EBITDA and USD110/ton. Maintain Neutral with target price of INR1,601 (~9x CY14E EV/EBITDA). Buy Investment Idea (Investment With One Year Prospective) Tech Mahindra Company description Tech Mahindra (TECHM) is part of the USD12.5b Mahindra Group. It is one of India’s largest software exporters and serves telecom service providers, equipment manufacturers, software vendors and systems integrators. It has offices in over 13 countries, employs over 50,000 people, and its key clients include British Telecom (BT) and AT&T. Key investment arguments Current Market Price 990 Maximum Buy Price 1,000 Target 1,225 Maruti is the largest passenger vehicle manufacturer in India, with 1.13m units. Key investment arguments TECHM’s 3QFY13 revenue at USD329m grew 10% QoQ, above our estimate of USD323m (+7.9%). Organically, revenue was flat QoQ v/s our estimate of 2% sequential decline. EBITDA margin at 21% (+30bp QoQ) was a key positive surprise, v/s our estimate of 19.7%. PAT before share of Satyam’s profits was INR2.4b, above our estimate of INR2.08. Valuation and view The stock trades at 9.5x FY14E EPS and 8.4x FY15E EPS. We value TECHM at a 25% discount to our target multiple for HCLT due to: [1] relatively smaller scale, [2] skew of revenues towards Telecom vertical, and [3] Increasing proportion of BPO revenues. Our target price for TECHM is INR1,225, Motilal Oswal Securities Ltd., Motilal Oswal Tower, Level 6, Sayani Road, Prabhadevi, Mumbai 400 025 in India, with 1.13m units. vertical, and [3] Increasing proportion of BPO revenues. Our target price for TECHM is INR1,225, which discounts FY15E EPS by 10.5x. Motilal Oswal Securities Ltd., Motilal Oswal Tower, Level 6, Sayani Road, Prabhadevi, Mumbai 400 025