2QFY2013ResultPreview 031012

2QFY2013 Results Preview | October 3, 2012
Table of Contents
Strategy 2QFY2013 Sectoral Outlook Automobile Banking Capital Goods Cement FMCG Infrastructure Information Technology Media Metals Oil & Gas Pharmaceutical Power Real Estate Telecom Stock W atch Watch 9 12 17 19 21 23 26 29 30 34 37 40 42 44 47
Note: Stock prices as on September 28, 2012 Refer to important Disclosures at the end of the report
2-7
Strategy
Reforms fuel market sentiments
The risk-on trade rally in Indian markets following an increase in global liquidity gained further momentum after the government shook off its policy inertia and announced a flurry of big-ticket reform measures. The government has so far remained resolute on no rollback of reforms in the backdrop of political opposition and also maintained the thrust on driving further reforms. The reform measures taken by the government are expected to have a positive impact on investor sentiments and business confidence. We believe that a resultant improvement in the growth outlook for the economy is likely to be experienced in the medium term. However growth concerns emanating from stubborn inflation and slowing capex activity continue to persist in the near-term. Excluding ONGC, to remove distortions, earnings for Sensex as well as coverage companies are expected to improve during 2QFY2013 at 17.7% yoy and 20.3% yoy vis-a-vis 12% yoy and 14% yoy during 1QFY2013 respectively (aided by low base for some of the large companies such as SBI and Tata Steel). On the revenue front, we expect Sensex companies to report reasonable growth of 14.3% yoy during 2QFY2013 as against growth of 17.9% yoy registered in 1QFY2013. Our coverage companies are expected to report revenue growth of 14.0% yoy as against growth of 17.2% yoy witnessed in 1QFY2013. Margins for Sensex companies are expected to be lower by 180bp yoy during 2QFY2013 (coverage by 120bps yoy). However, on a sequential basis, pressure on margins during the quarter has eased to some extent and operating margins are expected to be flat for Sensex and lower by 30bps qoq for coverage companies. We expect sectors such as banking, IT, mining and metals to contribute considerably towards Sensex earnings growth for the quarter while oil and gas and telecom sector are likely to weigh down on overall earnings of Sensex companies. Currently we are factoring in an improvement in the Sensex' EPS at a CAGR of 9.8% over FY2012-14E. We arrive at our 12 month Sensex target of 20,300, maintaining our target multiple at 15x FY2014E earnings implying an upside of 8.2%.
2QFY2013 earnings performance

The continued trend of slowing growth and elevated inflation is expected to impede corporate earnings performance to some extent in 2QFY2013 as well. Owing to the steep de-growth in earnings for ONGC, Sensex companies are expected to report moderate earnings growth of 7.7% yoy during 2QFY2013 compared to growth of 15.5% yoy in earnings registered during 1QFY2013. For our coverage companies, we expect earnings to grow at 13.3% yoy as against 16.1% yoy growth in earnings witnessed in the previous quarter.
Exhibit 1: Sensex earnings summary

Net Sales (` cr) Sector Auto (5) Capital Goods (1) Finance (4) FMCG (2) Infrastructure (1) IT (3) Metals (4) Mining (1) Oil & Gas (3) Pharma (3) Power (2) Telecom (1) Sensex Sensex # Source: Company, Angel Research; Note: # on free-float adjusted basis Refer to important Disclosures at the end of the report W eight (%) Weight 9.8 1.3 26.3 13.1 5.5 14.0 4.8 1.4 14.3 4.4 2.9 2.2 100.0 2QFY2013E 72,662 11,967 27,390 13,004 12,634 36,472 55,749 15,832 125,305 7,270 23,446 19,382 421,111 2QFY2012 61,614 10,299 23,730 11,496 11,245 28,824 51,975 13,148 111,193 5,894 21,660 17,276 368,353 % chg 17.9 16.2 15.4 13.1 12.3 26.5 7.3 20.4 12.7 23.3 8.2 12.2 14.3 15.7 2QFY2013E 4,915 1,487 8,312 2,383 891 7,131 2,860 4,013 11,804 1,511 2,744 862 48,912 Net P rofit (` cr) Profit 2QFY2012 4,312 1,412 6,484 2,158 798 5,643 2,296 2,588 15,439 1,213 2,028 1,027 45,399 % chg 14.0 5.3 28.2 10.4 11.6 26.4 24.5 55.1 (23.5) 24.5 35.3 (16.1) 7.7 8.8
Strategy
Exhibit 2: Angel coverage earnings summary
Net Sales (` cr) Sector Auto (7) Auto Anc. (6) Cap Goods (7) Cement (7) Banks - large Pvt (3) Banks - small Pvt (3) Banks- Large PSU (7) Banks- Mid PSU (14) Banks-Hsg. Fin. (2) FMCG (12) Infrastructure (12) IT (13) Media (5) Metals (10) Midcap (29) Mining (1) Oil & Gas (4) Agri (2) Pharma-large (7) Pharma-mid (7) Power (3) Telecom (3) Coverage (164) 2QFY2013E 77,584 14,261 21,161 12,844 14,170 1,781 33,642 17,092 2,174 28,724 24,561 50,284 1,850 79,852 10,303 15,832 129,723 1,842 14,989 3,174 17,927 30,124 603,896 2QFY2012 66,660 9,518 18,718 10,984 11,644 1,503 30,791 16,144 1,870 25,207 22,325 39,842 1,737 75,896 9,274 13,148 113,845 2,151 11,953 2,808 16,900 26,936 529,856 % chg 16.4 49.8 13.1 16.9 21.7 18.5 9.3 5.9 16.3 14.0 10.0 26.2 6.5 5.2 11.1 20.4 13.9 (14.4) 25.4 13.0 6.1 11.8 14.0 2QFY2013E 5,075 845 1,843 1,437 4,557 586 8,993 4,202 1,367 3,845 1,208 9,054 346 7,939 436 4,013 14,611 151 2,354 424 2,530 1,281 77,096 Net P rofit (` cr) Profit 2QFY2012 4,543 668 1,750 845 3,623 521 7,393 3,669 1,069 3,475 1,173 7,050 324 7,193 679 2,588 15,671 127 1,379 351 2,566 1,385 68,041 % chg 11.7 26.5 5.3 70.1 25.8 12.5 21.6 14.5 27.8 10.6 3.0 28.4 6.7 10.4 (35.8) 55.1 (6.8) 19.1 70.7 20.6 (1.4) (7.5) 13.3
Source: Company, Angel Research; Note: Only for coverage companies for which results are estimated
Sectoral Analysis
Automobile -Two wheeler auto companies to drag down earnings performance
For 2QFY2013, demand in the automobile sector is expected to be weak excluding volume growth in light commercial vehicles and utility vehicles segments. On the earnings front, we expect Sensex auto companies to report a growth of 14% yoy supported by the performance of Tata Motors and Mahindra & Mahindra. Sensex two-wheeler companies on the other hand are expected to post an earnings de-growth of 20.5% yoy.
growth of 28.2%. Overall amongst our coverage, we expect private banks to post a strong 23.5% yoy growth in their net interest income (NII), while public sector (PSU) banks excluding State Bank of India (SBI) are expected to register a moderate 9.5% yoy growth. A moderate NII growth and a flat performance on the other income front are expected to result in a modest 7.5% yoy growth in pre-provisioning profits for PSU banks; while private banks are expected to report healthy performances on the pre-provisioning profit front, with growth of 24.1% yoy. Both large private banks and large PSU banks are expected to post healthy performances at the net profit after tax level (25.8% yoy and 21.6% yoy, respectively) on account of lower increases in provisioning expenses.
Banking - Large private banks expected to post healthy earnings performance

Sensex BFSI companies are expected to report a robust earnings
Refer to important Disclosures at the end of the report
Strategy
Cement - Higher realizations to drive robust earnings performance
Despite weak cement dispatches due to cyclical factors, owing to considerable improvement in realization, our coverage cement companies are expected to report an improvement in their top-line and bottom-line performances. Our coverage cement companies are expected to post strong earnings growth of 70.1% yoy mainly aided by earnings performance of J K Lakshmi, Shree Cement and Ultratech Cement on account of a low base effect.
Metals and mining - Tata Steel to drive earnings growth

We expect the earnings performance of steel companies to improve aided by decreasing prices of key inputs, mainly coking coal, while non-ferrous players are expected to be adversely impacted by declining product prices and higher input costs. For Sensex metal companies, we estimate a robust earnings growth of 24.5% yoy, owing to stellar earnings growth of Tata Steel aided by a low base effect, while our coverage metal companies are expected to post an earnings growth of 10.4% yoy. Coal India, the only mining company in the Sensex, is likely to report a robust earnings growth aided by a low base.
FMCG - Pressure on volume growth but top-line growth to remain healthy

Sensex FMCG companies are expected to report earnings growth of 10.4% yoy (10.6% for coverage universe). The double-digit top-line growth expected by almost all FMCG companies in our coverage is likely to be value-driven rather than volume-driven.
Oil and gas - Earnings to decelerate since ONGC is likely to underperform

Sensex oil and gas companies are expected to report earnings de-growth of 23.5% yoy weighed down by deceleration in earnings performance of ONGC. Excluding ONGC, we expect earnings of Sensex oil and gas companies to decline by 9.6% yoy in spite of healthy top-line performance due to pressure on margins.
Infrastructure and Capital goods - Challenging growth environment expected to result in subdued earnings growth
Slowing growth in capex and a high-interest-rate environment are likely to weigh on growth of companies in the capital goods and infrastructure space. Thus we expect a muted performance on the earnings front. We expect Larsen & Toubro (L&T), the only infrastructure company in the Sensex, to report a modest earnings growth of 11.6%. Amongst our coverage companies, excluding L&T, we expect a decline in earnings by 15.2% due to challenging economic environment of high interest cost coupled with declining order inflows. BHEL, the only Sensex capital goods company, is expected to post a subdued earnings growth of 5.3% owing to pressure on margins.
Pharmaceuticals - Earnings growth healthy for Sensex companies, large-cap pharma companies to outperform
We expect Sensex pharma companies to witness healthy sales and earnings growth of 23.3% yoy and 24.5% yoy respectively. Among our coverage pharma companies, large caps are expected to report a robust earnings performance supported by earnings growth of Dr. Reddy's and Cadila.
Power - Negative headwinds facing the sector to adversely impact performance

Owing to exceptional earnings performance of Tata Power largely due to a low base effect, we expect Sensex power companies to report strong earnings growth of 35.3% yoy. On the other hand, our coverage power companies are expected to post an earnings de-growth by 1.4% yoy.
IT - Healthy growth on the earnings front

Overall, the IT sector is expected to report a healthy growth on the sales and earnings front. We expect Sensex IT companies to witness a top-line and bottom-line growth of 26.5% yoy and 26.4% yoy respectively. Our coverage companies are also expected to report a similar top-line and bottom-line growth of 26.2% yoy and 28.4% yoy respectively. In spite of headwinds facing the sector due to uncertain global demand environment, the sector is expected to benefit from INR depreciation on a yoy basis.
Telecom - Margins to remain under pressure

Our coverage telecom companies are expected to report a decline in earnings by 7.5% yoy as margins continue to remain stressed due to excessive competition in the sector and lower subscriber additions.
Strategy
Exhibit 3: Earnings estimates for Sensex companies
Net Sales (` cr) Company Bajaj Auto Bharti Airtel BHEL Cipla Coal India Dr. Reddy HDFC HDFC Bank Hero Moto Corp Hindalco HUL ICICI Bank Infosys ITC Jindal Steel Gail India L&T M&M Maruti Suzuki NTPC ONGC RIL SBI Sterlite Sun Pharma Tata Motors Tata Power Tata Steel TCS Wipro Sensex Sensex#
#
Net P rofit (` cr) Profit % chg (6.9) 12.2 16.2 14.8 20.4 23.5 17.9 23.8 (11.7) 3.2 11.5 25.7 22.7 14.6 31.4 25.7 12.3 32.9 10.9 4.9 (16.4) 19.6 9.5 9.7 31.0 24.6 16.5 5.2 33.6 20.8 14.3 15.7 2QFY2013E 671 862 1,487 339 4,013 507 1,118 1,562 462 364 718 1,868 2,314 1,665 454 1,129 891 907 284 2,365 5,662 5,013 3,764 1,299 665 2,591 379 743 3,372 1,446 48,912 2QFY2012 821 1,027 1,412 309 2,588 307 971 1,199 604 503 644 1,503 1,906 1,514 553 1,094 798 769 240 2,424 8,642 5,703 2,810 1,028 598 1,877 (396) 212 2,436 1,301 45,399 % chg (18.3) (16.1) 5.3 9.7 55.1 65.3 15.2 30.2 (23.5) (27.7) 11.5 24.2 21.4 10.0 (17.9) 3.2 11.6 17.9 18.0 (2.5) (34.5) (12.1) 33.9 26.4 11.3 38.0 195.7 250.5 38.4 11.1 7.7 8.8
Free float Weightage (%) 1.7 2.3 1.3 1.2 1.5 1.3 7.3 7.6 1.2 1.0 3.5 7.8 8.0 8.9 1.2 1.2 5.5 2.4 1.2 1.7 3.9 9.4 3.7 1.0 1.8 3.3 1.1 1.7 4.8 1.5 100.0
% Contribution to Sensex growth# (2.8) (2.2) 1.0 0.7 5.4 5.7 5.6 11.0 (2.7) (3.7) 1.4 13.9 13.2 4.0 (1.7) 0.5 3.2 3.9 0.8 (0.5) (28.3) (14.4) 14.5 4.6 1.0 19.0 20.6 14.1 10.7 1.4 100.0
2QFY2013E 4,699 19,382 11,967 1,987 15,832 2,800 1,743 5,144 5,110 6,423 6,155 5,336 9,940 6,849 3,707 12,196 12,634 9,711 8,362 16,126 19,175 93,934 15,168 11,121 2,482 44,781 7,320 34,498 15,542 10,990 421,111
2QFY2012 5,046 17,276 10,299 1,731 13,148 2,268 1,479 4,156 5,784 6,221 5,522 4,246 8,099 5,974 2,822 9,699 11,245 7,307 7,537 15,378 22,925 78,569 13,849 10,134 1,895 35,938 6,282 32,798 11,631 9,095 368,353
Source: Angel Research; Note: based on free-float weightages
Strategy Reform measures fuel market sentiments

The government recently announced major policy reform measures with an objective of corrective actions towards fiscal consolidation, boosting foreign investment in the economy, deepening capital markets and improving business sentiment. The key reforms include:
The reform measures taken by the government are expected to have a positive impact on investor sentiments and business confidence. We believe that a resultant improvement in the growth outlook for the economy is likely to be experienced in the medium term. However growth concerns emanating from stubborn inflation and slowing capex activity continue to persist in the near-term. The Reserve Bank of India (RBI), too, in its Mid Quarter Review of the Monetary Policy reiterated that inflation management remains its priority and maintained its key policy rates at the same level, while reducing the CRR by 25bps. We believe that there is a slight shift in the central bank's tone with some concerns being expressed about growth on the back of policy reforms and fiscal consolidation measures taken by the government. However, the scale is still tilted in favor of inflation control rather than growth, at least in the near term.
Hike in diesel prices and a cap on subsidized LPG cylinders per household.
Amending deterrent norms for FDI in single-brand retail. Increasing the limit of foreign investment in multi-brand retail, civil aviation, broadcasting and power exchanges.
Approval of divestment of government's stake in four PSUs viz. NALCO, MMTC, Hindustan Copper and Oil India.
Reduction in withholding tax for local companies on overseas borrowings from 20% to 5%.
FIIs remain bullish on Indian equity markets

On the global front, market sentiments have been spurred by a) the European Central Bank (ECB)'s agreement to purchase unlimited government bonds to lower borrowing costs for struggling euro zone countries, b) ratification by German constitutional court on unlimited financial liability for Germany towards the euro zone bailout fund (though with conditions) and c) the Federal Reserve's decision to launch a third-round of quantitative easing (QE3) measures that are aimed at reviving growth and boosting employment in the US economy. We believe that with an increase in global liquidity, the resultant rise in appetite for risky assets is likely to be favorable for the Indian markets. Since a lot of the potential negatives have already been factored in the current valuations, with incremental positive news the domestic equity market is likely to continue attracting buoyant FII inflows. Indian equity markets outperformed other emerging market peers and FIIs poured in almost US$8 bn in the Indian equity market since June 2012. We expect capital inflows to improve following the policy measures taken by the government to boost investor sentiment.
Approval of the Rajiv Gandhi Equity Savings Scheme (RGESS), granting tax benefits to new investors, with annual income below `10lakh and investment of up to `50,000 in the stock markets.
Financial restructuring of state electricity boards. Proposal of a National Investment Board to provide single-window fast-track clearances for investment projects over `1,000cr.
The momentum on reforms continued with the Union Cabinets approval on key policy issues. The Cabinet approved the 12th Five Year Plan (2012-17), foreign investment in insurance with a ceiling of 49% and opened up the pension sector to FDI with a limit of 26%. Further, it also approved amendments in Companies Bill, 2011; Competition Act, 2002 and Forward Contracts (Regulation) Amendment Bill, 2010. In order to take effect, these bills parliamentary approval and hence are likely to face challenges in their implementation. Nevertheless, the Sensex regained the 19,000 mark in anticipation of positive action on the reform agenda. In addition, positive macroeconomic cues such as corrective actions towards fiscal adjustment, the government's indication to stick to its budgeted borrowing program for the fiscal, and moderation in the current account deficit (CAD) to 3.9% of GDP are likely to bolster the improving business confidence in the economy.
Strategy
Exhibit 4: Slowdown in investment activity
(` cr) 650 550 450 0 350 250
1QFY2010 2QFY2010 3QFY2010 4QFY2010 1QFY2011 2QFY2011 3QFY2011 4QFY2011 1QFY2012 2QFY2012 3QFY2012 4QFY2012 1QFY2013
Exhibit 5: Inflation remains a key concern

(%) 15 10 5 (%) 12 11 10 9 8 7 6 5 Jan-12 Feb-12 Mar-12 Apr-12 May-12 Jun-12 Jul-12 Aug-12 7.6 10.0
Gross fixed capital formation
GFCF growth (RHS)
WPI Inflation
CPI inflation
(5) (10)
Source: MOSPI, Angel Research
Source: RBI, OEA, Angel Research
Exhibit 6: Sensex on the up-move

19000 18600 18200 ECB's OMT program 17800 17400 17000 3-Sep 8-Sep 13-Sep 18-Sep 23-Sep 28-Sep Hike in diesel prices & opening up of FDI political protest against reforms Fed's QE3
Exhibit 7: Indian equities outperform EM peers

110 100 90 80 MSCI Emerging markets MSCI India MSCI Developed Markets MSCI China
70 60 Apr-11
Aug-11
Dec-11
Apr-12
Aug-12
Source: Bloomberg, Angel Research
Outlook and Valuation

We believe that an improvement in the growth outlook for FY2014 also rests on a reversal in the slowing investment cycle. The external global environment for growth remains challenging and therefore positive domestic catalysts such as easing inflation and interest rates, policy reforms supporting removal of supplyside bottlenecks, expediting mining clearances, land acquisition, power sector reforms and increasing infrastructure spending are key to reviving growth of the economy.
Currently we are factoring in an improvement in the Sensex' EPS at a CAGR of 9.8% over FY2012-14E. We arrive at our 12 month Sensex target of 20,300, maintaining our target multiple at 15x FY2014E earnings implying an upside of 8.2%. We believe that high inflation and sluggish growth in capex activity will continue to affect stocks in cyclical sectors. Hence, we maintain a stock-specific and value-buying approach to yield better returns. We prefer private banks and select infrastructure and real estate stocks amongst rate-sensitives and also quality stocks in export-oriented sectors like IT.
Exhibit 8: Sensex one year forward P/E

27.0 24.0 Sensex 1 year forward P/E 15 year Avg 5 year Avg
Exhibit 9: Sensex EPS growth over FY2014E

(`)
1,500 1,300
21.0 18.0 15.0 12.0 9.0 6.0 Mar-97
th 7% grow
1,202.5 1,124.0
growth 12.7%
1,355.5
1,100 900 700 500 300

Nov-98 Aug-00 May-02 Jan-04 Oct-05 Jul-07 Mar-09 Dec-10 Sep-12
FY2012
FY2013E
FY2014E
Source: Angel Research
2QFY2013 Sectoral Outlook
Automobile
The domestic automotive industry which witnessed initial signs of weakness in 1QFY2013, slowed down considerably in 2QFY2013. Total industry volumes registered a growth of 4.7% YTD in FY2013 (8.2% in 1QFY2013) with almost all the segments of the industry except light commercial vehicles (LCV, up 17.8% yoy) and utility vehicles (UV, up 56.7% yoy) seeing significant moderation in demand. While three-wheelers (3W, down 15.5% yoy), medium and heavy commercial vehicles (MHCV, down 12.9% yoy), tractors and passenger cars (PC, flat yoy) are amongst the worst impacted segments; two-wheeler (2W, up 5.6% yoy) sales have also slowed down in recent times. Going ahead, we expect the demand environment to remain weak in 2HFY2013 as well; however, festival season buying may lead to slight improvement in volumes. of production at Manesar) too registered strong outperformance driven by reducing uncertainty on the volume front. HMCL was the major loser amongst the heavyweights as it witnessed sharp decline in volumes leading to inventory pile-up at the dealer end.
Exhibit 1: 2QFY2013 - Stock price performance

Tata Motors Maruti Suzuki MM Hero MotoCorp Exide Industries Cummins India Bharat Forge Bajaj Auto Bosch Ashok Leyland (30.0) (13.4) (13.7) (20.0) (3.3) (3.6) (10.0) 0.0 10.0 20.0 30.0 (8.3) 1.8 6.5 16.6 (22.4) (12.3) 2.2 1.4 12.3 11.5 0.4 5.3 10.5 15.4 12.2 22.3
Relative to Auto index (%)
Absolute
Sector earnings growth to be driven by Tata Motors

We expect companies in our coverage universe to post a strong 16.3% yoy (down 1% qoq) growth in revenues during 2QFY2013. Top-line performance is expected to be driven by growth in net average realization which would come on the back of superior product-mix at Maruti Suzuki (MSIL) and Mahindra and Mahindra (MM) and favorable currency movement (INR depreciated by 18.2% vs. GBP). Volumes on the other hand registered a decline of 10.6% yoy (10.1% qoq) primarily due to decline in 2W volumes of all the players and also due to volume loss at MSIL because of the month long strike at its Manesar plant. While Tata Motors (TTMT) and MM are likely to drive the sector growth; 2W majors, Bajaj Auto (BJAUT) and Hero MotoCorp (HMCL) are expected to post a 7-12% decline in top-line during the quarter. Ex TTMT, the top-line growth of our coverage universe is expected to slow down to 7% yoy (down 7% qoq). We estimate EBITDA margins to decline by 20-30bp yoy to 12.3% due to higher discounts in the commercial vehicles (CV) and PC segments and negative operating leverage. However, we expect net profit to register a healthy growth of 11.7% yoy (4.7% qoq) for the quarter. We expect TTMT to drive the sector growth with a strong 38% yoy earnings growth driven by 24.6% yoy growth in revenues. Ex TTMT the bottom-line of our coverage space is likely to decline by 6.8% yoy (4.5% qoq).
CV growth continues to struggle on weak MHCV sales

The CV segment continues to witness a challenging environment (growth of 5% YTD in FY2013) as MHCV demand has fallen sharply on account of slowdown in transportation demand from key sectors such as infrastructure, mining and construction. As a result, MHCV volumes have plunged by 12.9% YTD in FY2013. Further, the steep hike in diesel prices by `5/litre in September 2012 will impact fleet operators significantly as it will increase their ownership cost. This in turn is expected to further pressurize MHCV demand going ahead. We expect the MHCV segment to witness a 7-8% volume CAGR over the next two years. Demand for LCVs on the other hand continues to remain strong (17.8% yoy growth YTD in FY2013), led by preference for low payload vehicles and structural factors such as proliferation of the hub and spoke model and new launches. Going ahead, we expect the LCV segment to sustain its strong performance and post a volume CAGR of 14-15% over the next two years. For 2QFY2013, we expect TTMT's consolidated revenues to register a robust growth of 24.6% yoy (3.7% qoq) boosted by a 17.4% yoy growth in Jaguar Land Rover (JLR; GBP terms) and 18.2% yoy depreciation of INR versus GBP . We expect the bottom-line to post a strong 38% yoy (15.4% qoq) growth as we expect operating margins to improve ~40bp yoy (down 40bp qoq) during the quarter. We expect AL to register a revenue growth of 7.5% yoy (10.6% qoq) despite a strong volume growth of 26.3% yoy (8.2% qoq) largely on account of higher discounts and increasing contribution of the lower priced vehicle Dost (~30% of total volumes vs ~25% in 1QFY2013). We estimate EBITDA margins to decline by ~140bp yoy due to adverse product-mix and sharp spike in discounts leading to 24.3% yoy decline in the bottom-line.
9
Auto index outperforms the Sensex

The BSE Auto index outperformed the Sensex during 2QFY2013, registering absolute gains of 10.1%. The outperformance was led by index heavyweights, MM, BJAUT and MSIL; however, HMCL, Ashok Leyland (AL) and Bosch (BOS) underperformed the index during the quarter. While, MM was the top gainer in the index with absolute returns of 22.3% led by strong volume growth; BJAUT (revival in export markets) and MSIL (resumption
Automobile
Exhibit 2: TTMT and AL Quarterly volumes
Segment
TTMT Total CV Total PV Exports (incl. above) AL
Two-wheeler majors to post extremely weak results

2.6 1.8 4.3 33.8
2QFY2013 2QFY2012 % chg 1HFY2013 1HFY2012 % chg

221,090 148,667 72,423 14,678 29,840 206,622 144,482 62,140 16,192 23,628 7.0 2.9 16.5 (9.4) 26.3 409,864 275,301 134,563 27,749 57,418 399,470 270,440 129,030 42,905
31,078 (10.7)
Source: Company; Angel Research
Weak demand for PCs impacts overall PV sales

The passenger vehicle (PV) industry registered a subdued 6.3% yoy growth YTD in FY2013 due to weak demand for PCs (flat yoy) which offset the strong growth witnessed in the UV segment (a strong 56.7% yoy growth). PC demand continues to be impacted by weak economic environment, high interest rates and rising fuel prices (petrol and diesel prices hiked by `4.5/liter and `7.2/liter YTD in FY2013, respectively). These have weighed on consumers sentiments, resulting in postponement of purchases. Industry demand continued to be driven by demand for diesel vehicles whereas sales of petrol variants continued to struggle despite higher levels of discounts. During 2QFY2013, the government hiked the diesel prices by `5/litre; however, we do not see any major impact of it on customer preference for diesel cars going into the festival season as the running cost benefit of diesel cars is still significant compared to petrol cars. Going ahead, we expect overall sales to remain subdued; however, we believe consumer sentiments will improve during the festival season. We expect the domestic PC segment to report a 4-5% yoy volume growth in FY2013, driven by increased diesel engine capacity and the likely pick-up in demand for petrol cars in 2HFY2013. For 2QFY2013, we expect MSIL's volume to decline by 8.7% yoy (down 22.1% qoq) on the back of a month long plant shutdown at Manesar which impacted domestic as well as export volumes. Net average realization is likely to increase by 2% qoq (21.5% yoy), led by selective price increases in the diesel portfolio and improvement in product mix (higher proportion of diesel sales). We expect EBITDA margin to contract by 30bp qoq (up 70bp yoy) due to lag impact of relatively strong INR in 1QFY2013 and negative operating leverage.
The domestic 2W industry which registered a healthy volume growth of 10.5% in 1QFY2013, witnessed a sharp fall in demand in 2QFY2013 leading to a moderate growth of 5.6% YTD in FY2013. Noticeably, the overall growth in the sector has been driven entirely by Honda Motorcycle and Scooters India (HMSI) which has recorded an impressive growth of 51.4% YTD in FY2013. While the scooter segment (strong growth of 23% yoy) continues to drive the overall growth in the 2W sector; motorcycle sales have slowed down considerably (volumes up 3.3% yoy) largely due to poor consumer sentiments which have resulted in a high level of inventory (5-6 weeks at HMCL and 4-5 weeks at BJAUT) at the dealer end. Further, a weak economic environment and sharp increases in fuel prices have resulted in consumers down-trading within the motorcycle segments. For instance, the share of greater than 125cc segment has declined from 19% to 16% over the same period. Going ahead, for FY2013, we have lowered our growth assumption for the 2W industry to 5-6% from 8-10% earlier. We expect the near-term environment to remain challenging as demand remains extremely weak due to weak economic environment and sharp increase in fuel prices. During the quarter, 2W majors (HMCL and BJAUT) recorded a 10-14% yoy decline in total volumes led by a slowdown in both domestic and exports markets, with the product mix shifting to adverse territory. Hence, we expect HMCL and BJAUT to post disappointing set of results for the quarter. We expect lower volumes and adverse product-mix to negatively impact the operating performance of HMCL and BJAUT in 2QFY2013 which will lead to decline in net profits by 23.5% and 18.3% yoy respectively. Exhibit 4: BJAUT, HMCL and TVSL Quarterly volumes
Segment
BJA UT BJAUT Motorcycles Three-wheelers

1,049,208 928,524 120,684 1,164,137 1,027,357 136,780 424,134 (9.9) 2,128,179 2,256,979 (9.6) 1,911,147 1,990,408 (11.8) (8.0) 217,032 805,930 (5.7) (4.0)
266,544 (18.6) 851,498 (5.4) (3.3)
Exports (incl. above) 390,285 HMCL TVSL Two-wheelers Three-wheelers Exports (incl. above) 1,332,805 485,999 473,786 12,213 55,934
1,544,315 (13.7) 2,973,095 3,073,892
604,229 (19.6) 1,005,159 1,140,360 (11.9) 592,546 11,683 84,499 (20.0) 4.5 (33.8) 983,867 1,117,253 (11.9) 21,292 120,773 23,107 (7.9)
Exhibit 3: MSIL and MM Quarterly volumes

Segment
MSIL Domestic Exports MM Auto - domestic Auto - exports Tractor - domestic Tractor - exports

230,376 209,954 20,422 191,077 130,888 10,349 46,797 3,043 252,307 222,406 29,901 178,822 114,215 7,239 54,266 3,102 (8.7) (5.6) (31.7) 6.9 14.6 43.0 (13.8) (1.9) 526,272 473,218 53,054 308,257 203,813 15,111 84,450 4,883 533,833 473,089 272,161 169,359 9,955 88,002 4,845 (1.4) 0.0 13.3 20.3 51.8 (4.0) 0.8
162,301 (25.6)
Source: Company; Angel Research
60,744 (12.7)
Auto ancillaries
We expect 2QFY2013 to be extremely challenging for the auto ancillary companies as we expect profitability of companies in our coverage universe (ex. Apollo Tyres and Exide Industries) to be severely impacted by the slowdown in demand in the original equipment manufacturer (OEM) as well replacement markets.
10
Source: Company; Angel Research Refer to important Disclosures at the end of the report
Automobile
While OEM demand continued to remain weak on account of macro concerns such as high interest rates and negative consumer sentiments, replacement sales also witnessed lower-than-expected off-take due to weak economic activity and higher inflation. Nonetheless, we expect Apollo Tyres (APTY) to outperform the overall sector's earnings growth in 2QFY2013 as well, driven by receding cost pressures. We expect APTY's consolidated top-line to register a healthy growth of 12% yoy driven by strong growth in South Africa and healthy growth in India and Europe. EBITDA margin is estimated to improve by ~330bp yoy (30bp qoq) to 11.4% benefitting from a 14.3% yoy (6.5 qoq) decline in natural rubber prices. As a result, the adjusted net profit is expected to increase substantially by 84.3% yoy (3.8% qoq). On a standalone basis, we expect Bharat Forge (BHFC) to report modest revenue growth of 2.4% yoy, driven by 10% yoy growth in net average realization. The company is expected to benefit from higher share of machining component. We expect the company's volumes to decline by 7% yoy following a 12.9% yoy decline in MHCV volumes. The operating margin is expected to improve by 117bp yoy led by stable commodity prices and a superior product-mix. However, we expect the bottom-line to decline by 3.1% primarily due to an increase in interest expense. For the quarter, we expect Bosch (BOS) to post a moderate revenue growth of 5% yoy on account of poor volume growth in the CV and tractor segments which are the primary drivers of the company's revenues. Meanwhile, Bosch has also announced temporary production cuts at its plants in Nashik, Jaipur and Bangalore to avoid unnecessary buildup of inventory amidst Exhibit 5: Quarterly estimates Automobile
Company AL BJAUT HMCL MSIL MM TTMT* TVSL CMP (`) 24 1,833 1,879 1,350 865 267 42 Net Sales 2QFY13E 3,326 4,699 5,110 8,362 9,711 44,781 1,677 7.5 (6.9) (11.7) 10.9 32.9 24.6 (14.1) OPM (%) chg bp (137) (187) (93) 70 (35) 41 (104) 9.3 18.2 14.8 7.0 12.0 12.9 5.9 Net P rofit Profit 2QFY13E 117 671 462 284 907 2,591 44 (24.3) (18.3) (23.5) 18.0 17.9 38.0 (42.8) EPS (`) % chg (24.3) (18.3) (23.5) 18.0 17.9 38.0 (42.8) 0.4 23.2 23.1 9.8 15.4 8.2 0.9 EPS (`) FY12 2.1 106.5 108.3 50.6 46.7 36.1 5.2 FY13E 2.2 108.5 122.5 66.6 50.4 39.0 4.7 FY14E 2.7 121.3 134.0 92.6 56.3 44.9 5.4 FY12 11.4 17.2 17.3 26.7 18.5 7.4 8.1 P/E (x) FY13E 11.0 16.9 15.3 20.3 17.2 6.9 9.0 FY14E 8.8 15.1 14.0 14.6 15.4 6.0 7.8 % chg 2QFY13E % chg 2QFY13E (`) 30 2,077 944 316 49 Buy Neutral Accum. Neutral Accum. Buy Buy
slowdown in the industry. We expect operating margins to contract sharply by 260bp yoy on account of raw-material cost pressures (due to INR depreciation) and lower operating leverage benefits. As a result, the net profit is expected to decline by 22.8% yoy (10.1% qoq) during the quarter. We expect Exide Industries (EXID) to witness a strong revenue growth of 16.1% yoy (down 12% sequentially due to lower OEM volumes) driven by growth in four-wheeler replacement and inverter batteries. While we expect EBITDA margins to improve by 30bp sequentially; net profit is expected to decline by 11.7% qoq mainly on account of a sequential decline expected in the top-line. On a y-o-y basis, the net profit is expected to jump significantly by 162.4% due to the base effect. We expect Motherson Sumi Systems (MSS) to report improvement in its operating performance driven by pick-up in order execution at the new plant in Hungary. However, lower operating efficiency at Peguform facilities may pose margin pressures. Led by consolidation of Peguform operations, the top-line and bottom-line are expected to post a 177.1% and 102.6% yoy growth, respectively.
Outlook: We believe long-term structural growth drivers of the domestic automotive industry such as GDP growth (leading to increasing affluence of rural and urban consumers), favorable demographics, low penetration levels, entry of global players and easy availability of finance are intact, which should support a 10-12% CAGR in auto volumes over FY2012-14E. As such, we prefer stocks that have strong fundamentals, high exposure to rural and exports markets and commanding superior pricing eyland, Hero MotoCorp, power. We remain positive on Ashok L Leyland, Mahindra and Mahindra and T ata Motors. Tata
(` cr)
T arget Reco. Target
Source: Company, Angel Research; Note: Price as on September 28, 2012, * Consolidated numbers
Exhibit 6: Quarterly estimates Auto Ancillary

Company Apollo Tyres* Bharat Forge& Bosch# Exide Industries CMP (`) 92 305 8,804 153 Net Sales 2QFY13E 3,215 902 2,069 1,365 365 6,346 12.0 2.4 5.0 16.1 10.4 177.1 OPM (%) chg bp 332 117 (260) 762 (333) (120) 11.4 24.8 16.7 15.3 16.5 7.5 Net P rofit Profit 2QFY13E 143 103 222 134 42 200 84.3 (3.1) (22.8) 162.4 (7.3) 102.6 EPS (`) % chg 84.3 (3.1) (22.8) 162.4 (7.3) 100.2 2.8 4.4 70.8 1.6 25.3 5.1 EPS (`) FY12 8.1 17.6 339.6 5.4 105.9 4.3 FY13E 12.1 20.3 348.3 7.4 111.2 8.0 FY14E 14.1 25.1 435.8 9.2 132.7 10.6 FY12 11.3 17.3 25.9 28.3 16.6 34.3 P/E (x) FY13E 7.6 15.0 25.3 20.8 15.8 18.5 FY14E 6.5 12.2 20.2 16.7 13.3 14.1 T arget Target (`) 99 351 159 % chg 2QFY13E % chg 2QFY13E
(` cr)
Reco. Accum. Buy Neutral Neutral Neutral Accum.
FAG Bearings# 1,760 Motherson Sumi* 149
Source: Company, Angel Research; Note: Price as on September 28, 2012, * Consolidated numbers; # December year ending; & Full year EPS is consolidated
Analyst - Y aresh K othari Yaresh Kothari

11
Banking
Banking stocks remained under stress on increased asset quality concerns
Banking stocks remained under stress during 2QFY2013 on increased asset quality concerns. However, on a sequential basis, the recent liquidity driven rally aided 15 out of the 27 banking stocks under our coverage to end the quarter with positive returns. The economic growth environment has remained challenging; however, persistent inflation levels have restrained the RBI from undertaking a policy rate cut, which also weighed on banking stocks. Short-term liquidity improved aided by open market operations (OMOs) and a cut in the CRR, leading to easier and cheaper access to funds at the shorter end of the interest rate curve. Even at the longer end of the yield curve, cost of deposits is expected to ease as modest deposit mobilization amid weak incremental credit growth has allowed banks to reduce deposit rates. On a yoy basis, the bottom-line performance is expected to be healthy at 21% levels, driven by strong growth on the operating front for private banks. However, dissecting the coverage universe into sub-groups, large private banks (25.8% yoy) are expected to outperform large public sector (PSU) banks excluding SBI (14.1% yoy) and mid PSU banks (14.5% yoy) comfortably.
Deposit and Credit growth remain moderate

The credit growth for the banking system as of September 7, 2012 stood at a moderate 16.5% yoy, however comparing on an incremental basis, the FY2013 YTD net credit off-take (fresh credit minus repayments) has been only ~`45,000cr compared to ~`1.33lakh cr over the same period in the last year (ie net credit off-take is lower by 66.1% on an yoy basis). A challenging economic growth environment resulted in weak incremental credit growth. Even the pipeline for banks, as indicated by their managements, remains thin, largely comprising of existing sanctions and accordingly in our view, credit growth by the year end could fall even lower to 14-15%. Deposit growth, on the other hand, has also been low (14.4% yoy growth as of September 7, 2012), however comparing on an incremental basis, the FY2013 YTD incremental deposit mobilization stands at comfortable `4.1lakh cr compared to ~`3.2lakh cr over the same period in the last year. Going ahead, deposit growth is likely to remain moderate as real interest rates for depositors continue to remain negative (considering CPI inflation levels of ~10%). The recent diesel and LPG price revisions, proposed hike in electricity tariffs, impact of elevated global commodity prices, agricultural bottlenecks and increase in MSP are yet to reflect in generalized inflation and therefore pose significant upside risks to overall inflation expectation and resultant threat to savings and deposit mobilization.
Exhibit 1: 2QFY2013 stock performance

(%) Oriental Bank of Commerce (OBC) HDFC Ltd (HDFC) ICICI Bank Ltd (ICICIBK) Yes Bank Ltd (YESBK) Axis Bank Ltd (AXSB) HDFC Bank Ltd (HDFCBK) BSE India Bank Index Indian Bank (INDBK) Bank of Baroda (BOB) Sensex Index Dena Bank (DENABK) IDBI Bank Ltd (IDBIBK) United Bank of India (UTDBK) Canara Bank (CANBK) LIC Housing Finance (LICHF) Punjab National Bank (PNB) State Bank of India (SBI) Bank of Maharashtra (BOM) Syndicate Bank (SYNDBK) Corporation Bank (CRPBK) Federal Bank Ltd (FEDBK) Union Bank of India (UNBK) Allahabad Bank (ALBK) Vijaya Bank (VIJBK) UCO Bank (UCOBK) Central Bank (CNTBK) Andhra Bank (ANDHBK) South Indian Bank (SIB) Jammu & Kashmir Bank (JKBK) Indian Overseas Bank (IOB) Bank of India (BOI) Source: Bloomberg, Angel Research Refer to important Disclosures at the end of the report Returns (qoq) 19.3 18.6 17.7 12.6 11.8 11.6 10.3 9.8 8.9 7.6 7.4 7.1 6.2 4.6 4.4 4.0 3.8 1.7 1.7 0.0 (0.4) (0.6) (1.9) (3.4) (3.5) (4.6) (4.9) (5.6) (5.6) (6.0) (10.3) Returns (yoy) 3.3 20.8 21.0 40.2 11.5 34.5 21.1 (9.5) 4.7 14.0 36.3 (2.4) (14.2) (2.8) 33.2 (11.8) 17.2 9.2 4.5 (1.0) 21.4 (15.1) (6.9) 3.0 17.5 (23.9) (9.1) 2.2 16.3 (15.4) (1.3)
Exhibit 2: Deposits growth decelerates

(%) 35.00 30.00 25.00 20.00 15.00 10.00 5.00 0.00
Credit growth (%)
Deposit growth (%)
Feb-09
Feb-10
May-09
Feb-11
May-10
May-11
Feb-12
May-12
Sep-12
Aug-08
Nov-08
Aug-09
Nov-09
Aug-10
Nov-10
Aug-11
Nov-11
Source: RBI, Angel Research
Exhibit 3: Liquidity eased further in 2QFY2013

(` cr)
(50,000) (100,000) (150,000) (200,000) (250,000)
Nov-11 Feb -12 Jan-12 Oct-11 Jun-12 Dec-11 Mar-12 May-12 Aug-12 Apr-12 Jul-12
Source: RBI, Angel Research
12
Aug-12
Banking
Exhibit 4: 1QFY2013 and 2QFY2013 Lending and deposit rates
Avg . Base rates (%) Avg. Bank 1QFY13 2QFY13 BP change 1QFY13 18.50 14.87 15.75 14.83 14.83 14.83 14.83 14.83 15.00 14.83 15.50 14.00 14.83 15.00 17.75 14.83 18.56 15.05 15.00 15.24 14.66 15.00 14.75 17.75 15.00 19.00 19.75 HDFCBK 10.00 9.80 (20) OBC 10.62 10.45 (17) DENABK 10.59 10.45 (14) ALLBK 10.58 10.50 (8) ANDHBK 10.58 10.50 (8) BOB 10.58 10.50 (8) BOI 10.58 10.50 (8) CANBK 10.58 10.50 (8) CENTBK 10.58 10.50 (8) INDBK 10.58 10.50 (8) IOB 10.58 10.50 (8) PNB 10.58 10.50 (8) SYNBK 10.58 10.50 (8) UCOBK 10.58 10.50 (8) FEDBK 10.52 10.45 (7) VIJAYA 10.52 10.45 (7) ICICIBK 9.81 9.75 (6) IDBI 10.55 10.50 (5) CRPBK 10.55 10.50 (5) UNBK 10.55 10.50 (5) UTDBK 10.49 10.45 (4) BOM 10.53 10.50 (3) SBI 10.00 9.98 (2) AXSB 10.00 10.00 J&KBK 10.50 10.50 SIB 10.50 10.50 YESBK 10.50 10.50 Source: Company, Angel Research; Note: *1-3 year maturity bucket Avg . BPLR rates (%) Avg. 2QFY13 18.30 14.75 15.75 14.75 14.75 14.75 14.75 14.75 15.00 14.75 15.50 14.00 14.75 15.00 17.75 14.75 18.50 15.00 15.00 15.00 14.60 15.00 14.74 17.75 15.00 19.00 19.75 BP change (20) (12) (8) (8) (8) (8) (8) (8) (8) (8) (6) (5) (24) (6) (1) 1QFY13 9.25 9.50 9.25 9.50 9.25 8.85 9.35 9.25 9.00 9.50 9.25 8.75 9.50 9.10 9.25 9.50 9.25 9.25 9.25 9.25 9.25 9.35 9.00 9.25 9.25 9.90 9.60 FD rates* (%) 2QFY13 8.75 9.10 9.00 9.25 9.00 9.00 9.35 8.50 9.30 9.25 9.25 9.00 9.05 9.10 9.00 9.75 8.75 9.25 9.00 9.25 9.00 9.30 8.50 9.00 9.00 9.50 9.60 BP change (50) (40) (25) (25) (25) 15 (75) 30 (25) 25 (45) (25) 25 (50) (25) (25) (5) (50) (25) (25) (40) -
Margins to be aided by lower funding costs

Recently, 16 out of the 27 banks under our coverage have reduced their fixed retail term deposit rates (1-3 year tenure) by 25-75bp. Deposit rate cut, in our view, is largely due to improvement in liquidity as incremental credit growth has been lower amid weak macro fundamentals. On the asset side, most banks have recently also reduced their retail lending rates across home, auto, personal and educational segments, as they clamor for shoring up retail assets offering higher-risk-adjusted-yields. Also, after the 25bp CRR cut in the September policy review, SBI has reduced its base rate by 25bp, while State Bank of Bikaner and Jaipur (SBBJ) and State Bank of Mysore (SBM) are effecting a similar reduction in base rate in the first week of October. Depending on their growth targets, some other banks might also follow these banks and mull reduction in their base rates. Even, short-term borrowing rates have eased considerably compared to the last quarter, as reflected in the sharp correction in the three-month CD and CP rates. Easier and cheaper access to short-term funding, in our view, should aid margins to some extent. Within our coverage universe, HDFCBK had the highest average base rate reduction of 20bp, followed by OBC (17bp) and DENABK (14bp). On the deposit front, Canara Bank, HDFCBK,
ICICIBK and SBI have reduced their retail term deposit rates (1-3 year tenure) by 50-75bp, highest within our coverage universe.
Large private banks expected to post healthy earnings performance

Overall amongst our coverage, we expect private banks to post a strong 23.5% yoy growth in their net interest income(NII), while PSU banks excluding SBI are expected to register a moderate 9.5% yoy growth. Within our coverage, we expect YESBK, OBC and BOI to outperform others on NII growth front. Moderate NII growth and flat performance on the other income front are expected to result in a modest 7.5% yoy growth in pre-provisioning profits for PSU banks; while private banks are expected to report healthy performances on the pre-provisioning profit front, with growth of 24.1% yoy. Both large private banks and large PSU banks are expected to post healthy performances at the net profit after tax level (25.8% yoy and 21.6% yoy, respectively) on account of lower increases in provisioning expenses.
Asset quality woes continue to plague sector fundamentals

Asset quality pressures, which had made FY2012 a year to forget for the banking industry (particularly for PSU banks), intensified further during 1QFY2013. The non performing assets (NPA)
13
Banking
Exhibit 5: Gross NPA trends (%) Private vs. PSU
3.60 3.30 3.00 2.70 2.40 2.10 1.80 1.50
4QFY10 1QFY11 2QFY11 3QFY11 4QFY11 1QFY12 2QFY12 3QFY12 4QFY12 1QFY13
Exhibit 6: Net NPA trends (%) Private vs. PSU

3.34
1.80 1.60 1.40 1.20 1.00 0.80 1.06 0.92 0.79 0.69 0.55
4QFY10 1QFY11 2QFY11 3QFY11 4QFY11
1.73 1.47 1.13 1.07 1.08 1.16 1.56 1.50
2.87
3.02 2.80 2.70 2.85 2.57 2.36 2.34 2.42 2.35 2.45
2.98
1.10
1.12
2.24
2.25
2.33
2.24
2.17 2.01 2.05
0.60 0.40 0.20
0.56
1QFY12
0.54
2QFY12
0.54
3QFY12
0.46
4QFY12
0.49
1QFY13
Pvt Banks
PSU Banks
Pvt Banks
PSU Banks
Source: Company, Angel Research
Exhibit 7: Gross NPA trend (%) for the banking industry

3.09 3.10 2.90 2.73 2.70 2.50 2.30 2.10
1QFY11 2QFY11 3QFY11 4QFY11 1QFY12 2QFY12 3QFY12 4QFY12 1QFY13
Exhibit 8: Net NPA trend (%) for the banking industry

1.49 1.50 1.40 1.28 1.30 1.20 1.08 1.10 1.00 0.90
1QFY11 2QFY11 3QFY11 4QFY11 1QFY12 2QFY12 3QFY12 4QFY12 1QFY13
2.85
2.80
1.36 1.30
2.43
2.47 2.40 2.27
2.43
1.07 1.00 0.98
1.04
ratios for PSU banks have spiked almost every quarter since 1QFY2012, as higher exposure to overleveraged companies in sensitive sectors amid weakening economic environment continue to weigh heavily on their balance sheets. During 1QFY2013 as well, the banking industry resorted to letting its provision coverage ratio (PCR) deteriorate significantly, so as to lessen the impact of the increased slippages on their profitability. The PCR ratio for PSU banks (after taking into account technical write-offs) dipped by ~350bp sequentially to 63.2% as of 1QFY2013. Slippages and restructured assets in the banking sector have increased significantly over the past few quarters and are expected to remain in the spotlight during 2QFY2013. There remains a steady flow of large loans coming up for restructuring as per media reports, the latest and major ones include Deccan Chronicle and Sterling Biotech. Some of the companies named in the Comptroller and Auditor General (CAG) report on coal block allocation, also run the risks of turning into impaired asset for their lenders, in our view, if their allocated coal blocks, depending on which they have made significant investment, are de-allocated. Most of these companies have availed the loans under consortiums comprising many banks, thus the impact would be wide-spread across banks. Recently the Cabinet Committee on Economic Affairs (CCEA) had approved state electricity boards (SEB)' loan bailout package, which would further increase the lender's restructuring book as some of those advances are still not restructured. However the overall scheme remains positive for the banking sector, as it provides more
confidence and clarity on the timeline of the SEB loan repayments. Corporate debt restructuring (CDR) referrals have risen significantly over the past one year. Cases referred for CDR during 1QFY2013 stand at ~ ` 20,500cr (compared to ~`68,000cr during FY2012 and average of ~`21,400cr during FY2010 and FY2011). Even the pending approvals of ~`37,000cr under the CDR mechanism could lead to further fattening of restructuring books for the banking industry. Unlike their PSU peers, private banks have maintained their asset quality largely intact until now in a tough economic environment and are expected to maintain relatively better asset quality going ahead as well.
Exhibit 9: CDR snapshot

Referred No. of cases Add. (` cr) FY10 FY11 1QFY12 2QFY12 3QFY12 4QFY12 FY12 1QFY13 Cumulative 31 49 18 18 23 28 87 41 433 20,175 22,614 4,595 21,095 19,187 23,012 67,889 20,528 227,021 Approved No. of cases 31 27 10 7 17 16 50 17 309 Add. (` cr) 17,763 6,615 8,141 2,095 21,364 8,001 39,601 17,957 168,472
Source: CDR Cell, Angel Research
14
Banking
Exhibit 10: Industry-wise exposure to CDR
Industry Iron & Steel Infrastructure Textiles Telecom Construction Fertilizers NBFC Sugar Cements Ship-Breaking/Ship Building Petrochemicals Refineries Power Jewellery, Liquor, edible oil etc. Pharmaceuticals Electrical Chemicals Electronics Paper/Packaging Metals (Non-ferrous Metals) Others Total Source: CDR Cell, Angel Research No. 34 14 60 10 2 8 7 26 11 3 3 1 10 6 9 2 15 6 18 5 59 309 Agg . Debt (` cr) Agg. 39,714 17,490 12,090 9,886 8,762 8,455 7,247 6,733 6,595 6,213 5,493 4,874 4,850 3,557 3,349 3,333 2,898 2,852 2,307 2,171 9,603 168,472 Debt in % 23.6 10.4 7.2 5.9 5.2 5.0 4.3 4.0 3.9 3.7 3.3 2.9 2.9 2.1 2.0 2.0
16-Jul-12 23-Jul-12 30-Jul-12 6-Aug-12 2-Jul-12 9-Jul-12 13-Aug-12 20-Aug-12 27-Aug-12 3-Sep-12 10-Sep-12 17-Sep-12
8.0 8.2
Exhibit 11: Corporate and G-Sec bond yields

(%) 10.0 9.5 9.0 8.5 8.0
9.60 9.24 9.48 9.43 9.36 9.25 8.06 8.18 8.18 9.26 9.26 8.06 7.99 8.01 8.18
29-Jun-12
28-Sep-12
7.5 7.0
Exhibit 12: 10-year G-sec yields movement

(%) 8.4
1.7 1.4 1.3 5.7 100.0
Outlook and valuation

Recent corrective fiscal consolidation measures and other reformatory announcements coupled with expected reforms across sectors including mining and power would likely aid improvement in the investment climate. However, the outlook for economic growth improving and investment cycle picking up, rests purely on catalysts such as inflation and interest rates. The downward interest rate movement going by inflation levels currently is expected to be slower than anticipated earlier. In fact, inflation levels have the potential to inch up further from the current levels thus certainly delaying the start of the downward interest rate cycle. The slippages which started off from particular stressed sectors of the economy such as real estate, airlines and textiles have now become more broad-based in nature. Private banks, having structurally stronger balance sheet and cyclically better asset-quality profile, remain our preferred segment choice with Yes Bank, Axis Bank and ICICI Bank being our top picks. Even the recent significant correction in the wholesale interest rates over the last few months is expected to benefit banks such as Yes Bank. While the entire PSU segment is relatively more burdened with asset quality concerns, few banks such as Punjab National Bank and Union Bank, after the recent run up in their stock prices, are still available near their 8-year low valuations and hence provide a case for accumulation from an 18-24 month perspective. Among other banks, we believe valuations of most mid-size PSU banks still do not provide adequate margin of safety from asset-quality risks, warranting a switch to Syndicate Bank and United Bank, which have a relatively better asset quality outlook and cheaper valuations.
15
Bond yields remain largely range bound

The Indian 10-year bond yield remained largely range bound throughout 2QFY2013, as the much needed fiscal consolidation steps coupled with announcement of big ticket reforms negated the impact of reduction in SLR and CRR by the RBI. After the Junes monthly WPI inflation eased unexpectedly, hopes of a policy rate cut by the RBI led the 10-year G-sec yields to reach an intra-quarter low of 8.05% in July 2012. However the RBI dashed rate cut hopes maintaining its hawkish stance and instead reduced the statutory liquidity ratio (SLR) by 100bp, and consequently yields soared to 8.25%. During August, yields again moved lower on rate cut hopes as the government intended pursuing fiscal consolidation. However, the yields regained the lost ground and reached an intra-quarter high of 8.26%, as rate cut hopes were soon dented after July inflation rose and high global crude prices increased upside risks to inflation and fiscal consolidation. In September, yields edged lower following the announcements of fiscal measures such as hike in diesel and LPG prices and long awaited big ticket reforms. In its policy meeting, the RBI reduced the CRR to support liquidity, lending support to the yields. Overall, the 10-year bonds ended the quarter largely flat at 8.15% (8.18% as of June 29, 2012). Even the 3 year Gsec ended flattish at 8.01% compared to 8.06% as of June 29, 2012) and hence the treasury gains/losses for the banking sector are expected to be limited during 1QFY2013.
24-Sep-12
1.7
7.8
Gsec 10Yr
Gsec 1Yr
Gsec 3Yr
Gsec 5Yr
AAA 1 Yr
AAA 3 Yr
AAA 5 Yr
AAA 10 Yr
8.15
Banking
Exhibit 13: PSU banks price band (P/ABV)*
1.80 1.50 1.20 0.90 0.60 0.30
Exhibit 14: Large pvt. banks price band (P/ABV)

4.00 3.50 3.00 2.50 2.00 1.50 1.00 0.50
Jan-07
Jun-07
Aug-05
Dec-07
Aug-11
May-08
Nov-08
Feb-06
Mar-10
Mar-05
Feb-11
Apr-09
Apr-04
Sep-04
Oct-09
Sep-10
Jan-12
Jul-06
Jul-12
Oct-11 Mar-12 Mar-07 Aug-07 Nov-08 Dec-05 Feb-10 Dec-10 May-06 May-11 Sep-09 Feb-05 Sep-04 Aug-12 Oct-06 Jan-08 Jun-08 Apr-04 Apr-09 Jul-05 Jul-10
Source:C-line, Angel Research, Note:* For PSU banks , excl. SBI and IDBI
Source:C-line, Angel Research
Exhibit 15: Quarterly estimates

Company CMP (`) AXSB FEDBK HDFCBK ICICIBK SIB YESBK ALBK ANDHBK BOB BOI BOM CANBK CENTBK CRPBK DENABK IDBI INDBK IOB JKBK OBC PNB SBI SYNDBK UCOBK UNBK UTDBK VIJBK HDFC LICHF 1,137 446 629 1,057 23 382 147 113 799 310 50 431 78 418 106 100 192 78 932 302 840 2,238 108 77 208 64 56 773 282 Operating Income 2QFY13E 3,691 629 5,144 5,336 365 788 1,662 1,180 3,735 3,039 836 2,695 1,711 1,182 753 1,802 1,457 1,792 626 1,492 4,821 15,168 1,626 1,328 2,383 846 602 1,743 431 % chg 13.8 6.3 23.8 25.7 16.9 31.3 2.1 4.5 13.1 10.7 7.5 (3.4) (0.6) 3.4 19.9 12.5 (1.4) 5.8 23.9 17.7 11.1 9.5 4.4 9.5 10.2 7.7 (2.8) 17.9 10.1 Net P rofit Profit 2QFY13E 1,128 185 1,562 1,868 113 288 398 308 1,223 912 137 919 318 388 213 496 475 300 234 389 1,210 3,764 356 385 468 162 139 1,118 248 % chg 22.5 (3.1) 30.2 24.2 18.7 22.6 (18.4) (2.5) 4.9 85.8 36.3 7.9 30.3 (3.3) 10.1 (3.8) 1.3 44.6 17.0 131.8 0.4 33.9 10.4 66.7 32.8 30.2 (31.7) 15.2 152.2 FY12 102.7 45.4 22.0 56.1 3.5 27.7 37.3 24.0 121.4 46.6 6.2 74.1 5.2 106.4 22.9 15.9 39.6 13.2 165.7 39.1 144.0 174.5 21.8 14.2 32.2 15.1 9.1 27.9 18.1 EPS (`) FY13E 115.9 44.9 28.7 68.6 3.5 33.9 35.5 23.7 115.3 58.2 8.9 74.9 15.6 101.3 24.8 17.1 40.5 16.0 192.3 56.7 147.7 225.6 24.3 17.0 38.6 17.2 9.2 31.5 21.1 FY14E 137.5 52.5 35.9 82.0 3.9 42.2 37.0 24.5 139.4 68.0 11.4 85.1 21.0 101.7 24.4 22.9 41.6 21.3 188.0 62.6 166.2 Adj B VPS (`) BVPS FY12 551.5 333.3 127.5 524.0 17.8 132.5 192.1 131.9 666.3 324.1 63.8 448.1 85.6 542.3 122.6 132.6 210.4 129.9 844.1 350.4 734.2 FY13E 630.3 368.4 149.7 568.6 21.1 161.2 219.0 144.2 756.0 355.6 70.3 499.0 94.2 603.9 143.4 141.0 246.2 139.8 FY14E 736.4 409.2 177.4 622.1 24.2 196.4 249.8 162.1 864.0 412.2 78.9 560.9 107.0 688.4 163.7 160.2 278.5 157.7 FY12 11.1 9.8 28.6 18.9 6.4 13.8 3.9 4.7 6.6 6.7 8.0 5.8 14.9 3.9 4.6 6.3 4.9 5.9 5.6 7.7 5.8 12.8 5.0 5.4 6.4 4.2 6.2 27.7 15.6 P/E (x) FY13E 9.8 9.9 21.9 15.4 6.4 11.3 4.1 4.7 6.9 5.3 5.6 5.8 5.0 4.1 4.3 5.8 4.7 4.9 4.8 5.3 5.7 9.9 4.5 4.5 5.4 3.7 6.1 24.5 13.4 FY14E 8.3 8.5 17.5 12.9 5.8 9.0 4.0 4.6 5.7 4.6 4.4 5.1 3.7 4.1 4.3 4.4 4.6 3.7 5.0 4.8 5.1 8.7 4.0 4.7 4.5 2.9 4.9 20.4 9.9 P/AB V (x) P/ABV FY12 FY13E FY14E 2.1 1.3 4.9 2.0 1.3 2.9 0.8 0.9 1.2 1.0 0.8 1.0 0.9 0.8 0.9 0.8 0.9 0.6 1.1 0.9 1.1 1.9 0.8 1.0 1.0 0.6 0.8 6.0 2.5 1.8 1.2 4.2 1.9 1.1 2.4 0.7 0.8 1.1 0.9 0.7 0.9 0.8 0.7 0.7 0.7 0.8 0.6 0.9 0.7 1.0 1.7 0.7 0.9 0.9 0.5 0.7 4.9 2.2 Target (`)
( ` cr)
Reco.
1.5 1,326 1.1 3.5
Buy
- Neutral - Neutral Buy
1.7 1,245 0.9 1.9 0.6 0.7 0.9 0.8 0.6 0.8 0.7 0.6 0.6 0.6 0.7 0.5
25 Accum. 452 131 Buy Reduce
97 Reduce - Neutral 330 Accum. 47 Reduce - Neutral - Neutral - Neutral - Neutral - Neutral 181 Reduce
83 Accum.
991.1 1,134.9 405.6 843.3 457.2 990.5
0.8 1,021 Accum. 0.7 0.8 - Neutral 941 Accum.
258.4 1,200.1 1,338.7 1,576.5 27.2 16.5 46.3 22.0 11.4 37.8 28.5 133.5 79.3 217.3 109.0 69.4 128.8 112.2 152.0 87.9 234.5 121.7 75.8 157.7 128.4 172.8 97.9 283.0 141.0 83.9 176.9 150.7
1.4 2,353 Accum. 0.6 0.8 0.7 0.5 0.7 4.4 1.9 117 Accum. - Neutral 226 Accum. 78 Buy
- Neutral - Neutral 301 Accum.
Source: Company, Angel Research; Note: Price as on September 28, 2012
Analyst - V aibhav Agrawa l/ Varun V arm a /Saurabh T aparia Vaibhav Agrawal/ l/V Varm arma Taparia
16
Capital Goods
We expect companies in our capital goods (CG) universe to post a moderate cumulative top-line growth of 13%. However, on the bottom-line front, the picture is mixed, with most companies in our coverage universe posting a decline mainly on account of margin pressure and, in some cases, due to higher interest costs. this backdrop, the company's PAT is expected to decline by 18.8% yoy to `18cr. We recommend an Accumulate rating on the stock with a target price of `54.
KEC International (CMP/TP: `73/78) (Rating: Accum.)

For 2QFY2013, KEC International (KEC) is expected to register a strong growth of 16% yoy to `1,465cr on the back of strong execution of its robust order book. On the EBITDA front, the company's margin is expected to increase by ~27bp yoy to 7.6%. Interest cost is expected to remain at elevated levels. We expect the PAT to come in at `31cr, an increase of 31%yoy. We recommend an Accumulate rating on the stock with a target price of `78.
ABB (CMP/TP: `798/593) (Rating: SELL)

For 3QCY2012, we expect ABB India (ABB) to post top-line growth of 15.6% yoy to `2,015cr, driven by the company's balanced performance across all segments. ABB's margin is likely to improve by 238bp yoy to 6.2%. Aided by modest revenue growth and margin expansion, ABB's bottom line is expected to jump by 187% yoy to `63.7cr, albeit on a lower base. However, on account of high valuations, we maintain our Sell recommendation on the stock with a target price of `593.
Thermax (CMP/TP: `561/-) (Rating: Neutral)

For 2QFY2013, we expect Thermax to report a top-line of `1,238cr, as weak order inflows since the last couple of quarters will keep the company's revenue under strict check. The company's EBITDA margin is likely to compress by ~68bp yoy to 10.1%. Falling revenue and margin contraction are expected to result in a y-o-y fall of 18.7% in the company's PAT to `83cr. We maintain our Neutral rating on the stock. Capital Goods Index - has outperformed sensex: After a flat performance of capital goods stocks in 1QFY2013, the sector has bounced back for the quarter, outperforming the Sensex by 1.7%. Though concerns of weak industrial capex and problems in the power sector remain, the renewed push for reforms by the government, aided the recovery of capital goods stocks. While KEC International, Jyoti Structures and Thermax posted impressive gains, ABB and BGR Energy declined. BHEL and Crompton Greaves remained subdued, underperforming the Sensex. Though project awarding in the T&D space (primarily by PGCIL) has been a silver lining, other sub-sectors, especially power, have disappointed. We believe the investment activity will improve in the medium term if the government continues reforms and tackles power sector challenges such as inadequate coal supplies, land acquisition issues etc. Cabinet hikes import duty on power equipment to 21%: The Cabinet has approved 5% basic customs duty, 12% counter-veiling duty and 4% special additional duty on import of power gear hiking the overall import duty to 21%. The hike is expected to partially benefit domestic manufacturers such as BHEL and BGR Energy against cheaper Chinese and Korean imports. However, with most of the 12th Plan orders already placed and multiple headwinds in power sector, BTG space will continue to remain subdued in short to medium term.
BHEL (CMP/TP: `247/-) (Rating: Neutral)

We expect BHEL to post a top-line growth of 16.2% yoy to `11,967cr for 2QFY2013. On the EBITDA front, the company's margin is expected to remain stable at 18.8% for the quarter. We expect PAT to come in at `1,487cr. We maintain our Neutral recommendation on the stock as we expect weak order flow to continue for the rest of the year.
BGR Energy (CMP/TP: `275/-) (Rating: Neutral)

We expect BGR Energy's (BGR) top-line to grow by 10% yoy to `849cr. The EBITDA margin is expected to decrease by 28bp yoy to 14.0%. Interest cost is expected remain high (owing to elevated interest rate scenario and enhanced working capital requirements), which is likely to drag the bottom line slightly down by 1.4% yoy to `51cr. We recommend Neutral on the stock.
Crompton Greaves (CMP/TP: `126/141) (Rating: Accum.)

For 2QFY2013, we project Crompton Greaves to report a modest top-line growth of 10% yoy to `2,976cr. A weak capex cycle along with strained consumer sentiments is also likely to impact the company's growth. On the EBITDA front, the company's margin is expected at 7.0%. Though we expect a modest revenue growth, however due to stress on margins, we expect the company's PAT to fall by 5.9% yoy to `110cr. We recommend an Accumulate rating on the stock with a target price of `141.
Jyoti Structures (CMP/TP: `47/54) (Rating: Buy)

For 2QFY2013, we expect Jyoti Structures' top-line to remain flat at `651cr. We expect the company's EBITDA margin to contract by ~76bp yoy to 10.0%. The interest cost is expected to increase due to higher working capital borrowings. Against
17
Capital Goods
CCEA clears debt restructuring plan of SEBs
CCEA has cleared the debt restructuring of SEBs under which 50% of the short terms loans of these SEBs would be taken over by the state government. The restructuring by lenders is subject to steps taken by the State discoms to bridge the gap between the cost incurred and revenue realized to restore the viability of the sector. It will improve the financial position of State discoms, thereby, enabling them to clear any pending dues of power generators. cycle is expected to remain in a downturn for the next few quarters, as not many orders are expected to be finalized. In tandem, the boiler turbine generator (BTG) market will further witness a dry spell as most of the planned orders have already been awarded and new orders are in the preliminary stages of discussions, which are likely to witness delay in finalizations due to ongoing headwinds (such as fuel issues, constraints in land acquisition and poor health of state electricity boards [SEBs]). However, if reform measures such as captive coal allocation policy and land acquisition policy are addressed, it will be positive for the sector in medium to long term. T&D space in a better shape; Although concerns loom: While T&D capex is on an uptick given strong traction in ordering from PGCIL, land acquisition and forest clearances (RoW) entail execution risks, which have led to slower-than-expected growth in T&D infrastructure historically. Overall, the outlook remains challenging: A handful of positives, especially in the T&D space do very little to warrant a change in our pessimistic view. Against the backdrop of economic slowdown, we believe the overall picture remains gloomy for market leaders (read BHEL, BGR and ABB, among others). We believe it will take a while for the sector to witness dramatic improvements, while the government is initiating its efforts to resolve the key issues in the power sector. Given this, we expect the slowdown to continue for the next couple of quarters. Therefore, companies catering to the power sector will witness a high degree of discomfort unless core concerns soothe. Valuations: We prefer companies with strong growth visibility and diversified revenue streams. We follow a stock-specific approach, with Crompton Greaves, KEC International and Jyoti Structures being our preferred picks in our coverage universe. In the BTG space, we continue to maintain our negative stance, owing to concerns of heightened competition and slowing of order inflows.
Exhibit 1: 2QFY2013 - Sensex vs CG stocks

35 30 25 20 15 10 5
ABB KEC International Jyoti Structures BGR Energy BHEL Thermax
33
17
18 9.3 7.6
(1)
(10) (15)
(9)
Exhibit 2: Stalled projects as a % of total outstanding

12 10 8 6 4 2
Sep-01
Jun-02
Mar-09
Mar-03
Dec-03
Dec-09
Capital Goods Index
Crompton greaves
Sep-04
Sep-98
Sep-07
Sep-10
Jun-05
Jun-99
Jun-08
Jun-11
SENSEX
Mar-12
(5)
Mar-06
Mar-97
Dec-97
Mar-00
Dec-00
Private
Government
Source: Industry data, Angel Research

BTG space continues to reel under pressure
Investments across various sectors have substantially decelerated owing to the deteriorating macro environment. The investment

Company ABB BHEL BGR Energy CMP 798 247 275 Net Sales 2,015 11,967 849 2,976 651 1,465 1,238 15.6 16.2 10.0 10.0 3.0 16.0 (5.0) OPM (%) 6.2 18.8 14.0 7.0 10.0 7.6 10.1 238 (18) (28) (135) (76) 27 (68) Net P rofit Profit 64 1,487 51 110 18 31 83 187.5 5.3 (1.4) (5.9) (18.8) 30.9 (18.7) EPS (`) % chg 187.5 5.3 (1.4) (5.9) (18.8) 30.9 (18.7) FY12 8.7 29.0 34.6 5.8 11.2 8.1 33.9 3.0 6.1 7.0 1.7 2.2 1.2 6.9 EPS (`) FY13E 14.5 25.3 24.7 7.0 9.6 8.3 26.9 FY14E 24.7 22.8 29.6 9.7 12.2 9.8 30.3 FY12 91.6 8.5 7.9 21.7 4.2 9.0 16.6 P/E (x) FY13E 55.2 9.8 11.1 18.1 4.9 8.8 20.9 FY14E 32.3 10.8 9.3 13.0 3.8 7.5 18.5 Tar get arg (`) 593 141 54 78 (`) 2QFY13E % chg 2QFY13E chg bp 2QFY13E % chg 2QFY13E
Dec-06
( ` cr)
Reco. Sell Neutral Neutral Accum. Buy Accum. Neutral
Crompton Greaves126 Jyoti Structures 47
KEC International73 Thermax 561
Source: Company; Angel Research; Note: Price as on September 28, 2012; * December year ending
Analyst - Rahul K aul / Amit P atil Kaul Patil

18
Cement
Cement demand weakens in July-August
After witnessing sustained buoyancy since 2HFY2012 (November11-June 2012 cumulative cement dispatches growth of ~12% yoy), cement demand showed weakness in 2QFY2013. The all-India cement demand is estimated to have grown by a marginal ~4% yoy in July-August 2012. However, the overall cement demand growth is estimated to be at ~5.5% during the first five months of FY2013, higher than ~3.3% growth reported during the corresponding period of FY2012. The second quarter of the fiscal year is generally weak for the cement industry, due to the slowdown in construction activity on account of south west monsoon which covers most parts of the country. The southwest monsoon which was weak till the end of July 2012, picked up from August. This has resulted in reducing the overall monsoon deficit considerably. The deficit which was at 22% of long period average (LPA) at the end of July has reduced to 7% of LPA as on September 12, 2012. In particular the rains were severe in North India with many areas in the region flooded. Flooding in many parts of the country, particularly in northern and eastern India, affected construction severely in the month of August, resulting in cement makers reporting a y-o-y decline in dispatches for the month. Further, cement demand continued to remain weak in Andhra Pradesh, a region which has been plagued by low demand over the past two years. The poor demand scenario resulted in price correction in many parts of the country in August after hitting all-time highs in July. On a positive note we believe the late pick-up in monsoons would augur well for cement demand in 2HFY2013. Andhra Pradesh, supply has increased post the commencement of JP Associates' 5mtpa Balaji Cement plant and JSW Steel's Andhra Cement plant, which has put pressure on prices. Prices in Chennai, which went up by ~`8/bag in July, fell by `10/bag in August and are currently trading at `330/bag. Cement prices which were stable in Bangalore in July fell by `10/bag in August. Prices declined further in Andhra Pradesh in September. Northern region: Prices in the northern region, which rose by ~`30/bag in the month of July, fell steeply in August due to a weak demand scenario. Currently, the prices are in the range of `255-280/bag. Parts of the northern region such as Rajasthan and Himachal Pradesh witnessed heavy rainfall during the quarter (2QFY2013), resulting in flooding which affected the construction activity. Western region: Prices went up by `10/bag in places such as Mumbai, Nagpur and Ahmedabad in July before witnessing a slide of `10/bag in August. Prices declined further in September in this region. Currently the prices are in the range of `290320/bag. Eastern region: Prices in Kolkata and Odisha, which remained flat in July fell by `15-20/bag in August. The eastern region has witnessed the highest price hike over the past one year and even after this correction, prices are still substantially higher by ~`50-70/bag on a y-o-y basis. Currently the prices in the region are in the range of `300-350/bag. The demand in the region is expected to be muted till the end of Durga Puja in late October. Central region: In the central region prices are currently in the range of `260-300/bag. Prices in the region too corrected by ~`20/bag in August after rising by `25/bag in July.
Exhibit 1: Cement dispatches (mt)

Company ACC Ambuja OCL Jul-Aug12 3.63 3.15 0.49 Jul-Aug 11 3.89 3.16 0.99 0.54 yoy(%) (6.7) (0.4) 1.1 (8.5) 5MFY13 9.71 8.74 2.39 1.40 5MFY12 yoy(%) 9.84 8.45 2.23 1.37 (1.3) 3.4 7.6 2.0
Imported coal prices down 28.5% yoy

During 2QFY2013, average prices of New Castle Mckloksey 6,700kc coal were down by 28.5% yoy and 8.8% qoq to US$86.2 per tonne. Although, the benefit of lower prices was neutralized to some extent by the ~20.7% yoy depreciation in INR vs USD (~2.3% qoq), the reduction in INR terms is substantial at 13.7% on a y-o-y basis for the quarter. Reduction in coal prices is expected to favor cement companies.
Dalmia Cement 1.01
Prices remain at high levels

All-India average cement prices witnessed an increase in July. However, the prices corrected significantly in August due to low demand. The prices which fell in North and Central regions in early september rose later in the month due to some improvement in demand and pass-through of higher freight costs due to diesel price hike. For 2QFY2013, on a whole, prices are substantially higher on a y-o-y basis at All-India level. Southern region: Prices in Hyderabad which fell by ~`3-4/bag in July saw a steep ~`30/bag decline in August due to the poor demand scenario. Though the demand scenario has continued to remain poor in Hyderabad and other parts of
Exhibit 2: New Castle Mckloksey prices

250 200
USD/tonne
coal prices down in INR terms
9000 8000 7000 6000 5000 4000 3000 2000 1000 0

INR/tonne
150 100 50 0
Mar-06 Mar-07 Mar-08 Mar-09 Mar-10 Mar-11 Mar-12 Sep-05 Sep-06 Sep-07 Sep-08 Sep-09 Sep-10 Sep-11 Sep-12
PX_LAST
INR
19
Cement Key developments

Diesel price increased by `5/litre: During the quarter, the price of diesel was hiked by `5/litre due to the elevated crude prices prevailing over the past several months. Higher crude prices coupled with a steep decline in INR vs USD resulted in pushing up the cost of refining, thereby necessitating a hike in the price of diesel. Transporters have already hiked freight rates to factor the hike in diesel prices. This is expected to push up freight costs of cement manufacturers. Reliance Cement commences operation: Reliance Cement, a subsidiary of Reliance Infrastructure, commenced cement production from its 1mtpa Butibori cement plant in Maharashtra. The company intends to sell the cement produced in Butibori in the Vidharbha region of Maharashtra. Reliance Cement would be procuring fly ash from Reliance Power's (subsidiary of Reliance Infrastructure) Butibori power plant. Further, the company intends to set up another 10mtpa of cement capacity at an investment of `6,000cr in Maharashtra and Madhya Pradesh. Currently the projects are under various stages of development. Shree Cement fined by CCI: During the quarter the Competition Commission of India (CCI) found eleven cement manufacturers including Shree Cement guilty of indulging in unfair trade practices. The CCI imposed a fine of `397cr on Shree Cement alone as it had already fined other cement manufacturers in a different case.
2QFY2013 expectations
Top-line to grow by 16.9% yoy; margins to remain healthy
We expect our cement universe to report an 16.9% yoy improvement in its top-line primarily on account of a substantial improvement in realization. Amongst the companies under our coverage, Shree Cement is expected to post the highest top-line growth of 46.1% on account of a 36.8% in the top-line of cement businesses. We also expect most of the cement players to post margin expansion on a y-o-y basis due to better realization.

In our view, the cement sector's valuations in terms of EV/sales and EV/tonne are ahead of the cycle when compared to utilization levels and are almost 36% more expensive than historical valuations during periods of similar utilization levels. Hence, we maintain our Neutral view on the sector . sector.
Exhibit 4: One-year forward EV/sales vs. utilization

3.0 2.5 2.0 1.5 1.0 0.5 0.0
Apr-01 Apr-02 Apr-03 Apr-04 Apr-05 Apr-06 Apr-07 Apr-08 Apr-09 Apr-10 Apr-11 Oct-01 Oct-02 Oct-03 Oct-04 Oct-05 Oct-06 Oct-07 Oct-08 Oct-09 Oct-10 Oct-11 Apr-12
95.0 90.0 85.0 80.0 75.0 70.0
Cement stocks outperform broader markets

Exhibit 3: Sensex vs. cement stocks (2QFY2013)
Cement majors Sensex ACC Ambuja India Cements JK Lakshmi Cement Madras Cements Shree Cements Ultratech Source: BSE, Angel Research Abs. Return (%) 7.6 15.9 16.1 9.5 69.2 21.2 31.1 30.2 Relative to Sensex (%) 8.3 8.5 1.8 61.6 13.5 23.4 22.5
EV/Sales(x) -LHS
Utilization 1yr fwd(%) -RHS

Company ACC^ Ambuja^ India Cem. J K Lakshmi CMP (`) 1,469 202 95 114 Net Sales 2QFY13E 2,401 2,123 1,113 412 887 1,249 4,659 11.7 17.6 1.9 16.5 8.4 46.1 19.2 OPM (%) chg bp 443 573 (150) 865 (379) 431 525 19.3 23.4 19.9 20.3 28.8 27.8 21.9 Net P rofit Profit 2QFY13E 230 307 61 35 101 145 558 37.2 79.1 (12.9) 445.6 (8.6) 266.4 100.1 EPS (`) % chg 37.2 79.1 (12.9) 445.6 (8.6) 266.4 100.1 FY12 70.5 8.2 9.8 8.9 16.2 180.9 89.3 12.2 2.0 2.0 2.9 4.3 41.5 20.4 EPS (`) FY13E 76.9 11.2 9.8 16.3 15.7 222.5 93.2 FY14E 82.2 12.5 12.3 17.8 18.3 259.3 110.5 FY12 20.8 24.7 9.7 12.8 11.9 21.9 22.0 P/E (x) FY13E 19.1 18.1 9.7 7.0 12.2 17.8 21.1 FY14E 17.9 16.2 7.7 6.4 10.5 15.2 17.8 Tar get arg (`) % chg 2QFY13E % chg 2QFY13E
(` cr)
Reco. Neutral Neutral Neutral Neutral Neutral Neutral Neutral
Madras Cem. 192 Shree Cem.* 3,954 UltraTech 1,968
Source: Company, Angel Research; Note: Price as on September 28, 2012; ^December year ending; *June year ending
Analyst - V Srinivasan
20
FMCG
Volume growth under pressure
For 2QFY2013, we expect our FMCG universe's revenue to grow by 14.0% yoy. The revenue growth is expected to be driven by the impact of substantial price hikes carried out by companies in 2HFY2012. The price hike trend continued to some extent even in 1QFY2013. However, volume growth is expected to be muted in most categories barring categories such as soaps and detergents which have remained robust over the past few quarters. The overall slowdown in the economy (1QFY2013 GDP at 5.5%) has begun to have an impact on consumer spending, particularly with respect to discretionary spending. This coupled with high inflation has left companies with little room for carrying out further price hikes. While volume growth has remained strong in categories such as soaps and detergents, it has remained weak in categories such as biscuits, paints etc. High inflation and resultant lower disposable incomes pose the risk of down-trading. Companies have tried to beat demand slowdown by focusing more on regional brands, launching small packs, offering price discounts, offering higher grammage for the same price, announcing lucky draw contests etc. Further, the revival of monsoon in August is a big relief for the FMCG sector as the fear of drought has receded in most parts of the country. Drought situation would have aggravated the low demand situation further and would have caused a further dent on rural demand, which has been a major driver of FMCG growth over the past few years. 2.6% yoy during the quarter in USD terms. Elevated prices of crude oil are a negative for the FMCG sector in general.
Exhibit 1: Input cost trend during 2QFY2013

Average P rices Prices Wheat (`/quintal) Barley (`/quintal) Sugar (`/ quintal) Tea (`/kg) Coffee (US cent/LB) Cocoa (US$/MT) Milk Liquid (`/ltr) Palm Oil (MYR/tonne) Copra (`/quintal) Safflower (`/ quintal) Soyabean Oil (`/10kg) Groundnt Oil (`/MT) Rice Bran Oil (`/MT) Crude (US$/ barrel) Caustic Soda (`/kg) Soda Ash (`/kg) 1427 1304 3542 289 106 2481 28 2899 4179 3917 754 121329 5000 109 1956 1148 yoy (%) 21.8 5.3 22.7 (45.1) (3.3) (18.1) (10.5) (6.3) (31.0) 44.3 18.1 24.9 (4.0) (2.6) 31.2 17.2 qoq (%) 15.1 (7.7) 15.3 (7.5) 1.5 8.5 0.2 (10.1) (1.5) 9.2 5.9 0.6 0.0 0.4 4.3 3.0
Source: Bloomberg, C-Line, Angel Research
Monsoons showed late pick up; deficit at only 7% of LPA

The southwest monsoon which was weak till the end of July 2012, picked up from August. This has resulted in reducing the overall monsoon deficit considerably. The deficit which was at 22% of long period average (LPA) at the end of July has reduced to 7% of LPA as on September 28, 2012. Most regions in the country barring parts of Karnataka and Maharashtra are expected to have near normal monsoon this year. Although the deficiency in rains at the beginning is expected to result in some crop loss, the cultivation of rabi crop is expected to be normal due to sufficient availability of water for irrigation.
Raw-material price trend mixed

Average prices of agri commodities showed a mixed trend during 2QFY2013. While wheat and sugar prices went up by 21.8% yoy and 22.7% yoy respectively, prices of tea and cocoa were down by 45.1% yoy and 18.1% yoy respectively. High wheat and sugar prices are a negative for companies such as ITC and Britannia. Lower y-o-y tea prices are expected to benefit Tata Global Beverages (TGBL). Among other raw materials, while copra prices continued to remain low (down 31% yoy), palm oil prices too were down by 6.3% on a y-o-y basis. Low copra prices are expected to result in healthy operating margins for Marico. Reduction in palm oil prices is expected to favor Hindustan Unilever (HUL) and Godrej Consumer Products (GCPL). The steep fall in the INR vs the USD resulted in crude prices rising higher in INR terms, despite the prices declining by
Exhibit 2: Monsoon deficit

Departure from LP A (%) LPA All-India North West India Central India Southern Peninsula East and North East India Source: Bloomberg, C-Line, Angel Research (7) (7) (3) (10) (10)
21
FMCG
Exhibit 3: Monsoon deficit in FY2013
0 June-end (5) (7) July-end Aug-end Sep-end
Most of the FMCG players in our universe are expected to post a double digit top-line growth. The growth is expected to be more of value driven rather than volume driven. GCPL is expected to post the highest top-line growth of 23.4%. The growth in its top-line is expected to be driven by healthy performance of the core categories in domestic markets and due to the integration of the revenues of Darling group which is being done in multiple stages by the company.
(10)
(%)
(15)
(12)
(20) (22)
(25)
(23)
Source: IMD Angel Research

Consumption in many categories with potential for high growth rates is still very low in urban India (like penetration of deodorants at ~6%, skin creams at ~30% and noodles at ~21%). In rural India, penetration of these products is even lower. With rising income levels and changing consumer behavior in the country, consumer spending on branded FMCG products is set to rise. Also, growth in modern retail (currently contributing ~6% to FMCG sales) offers scope for further growth. The FMCG Index continued to outperform the broader markets in the past quarter and most of the stocks are trading at close to all-time-high valuations. While the long-term consumption story for the FMCG industry remains intact, we believe the current lofty valuations are unjustified. Thus, we remain Neutral on the sector. But, considering the cheap valuations, we recommend Buy on Britannia Industries.
Performance on the bourses

The BSE FMCG Index outperformed the Sensex by 2.8% and posted an absolute return of 13.2% during the quarter. Tata Global Paints posted the highest return of 23.4%, while HUL and Godrej Consumer too gained by 20.9% and 17.7% respectively. However, Britannia Industries and Nestle declined by 9.3% and 2.2% during the quarter.

Tata Global (2.2) Nestle Marico ITC HUL Godrej Consum Glaxosmith Dabur Colgate Britania Asian Paints BSEFMCG Index SENSEX Index (5.0) 0.0 23.4 9.6 8.4 20.9 17.7 9.3 12.4 2.8 5.0 13.2 10.4 5.0 10.0 15.0 20.0 25.0 30.0
(9.3)
(15.0)
(10.0)

Company CMP (`) Asian Paints^ 3,937 Britannia Colgate Dabur^ GCPL^ GSK Con.* HUL ITC Marico^ Nestle * TGBL^ 476 1,206 128 668 2,994 545 272 199 4,374 143 Net Sales 2QFY13E 2,575 1,459 739 1,531 1,463 797 6,155 6,849 1,186 2,217 1,802 1,952 14.4 12.7 12.5 21.3 23.4 10.6 11.5 14.6 21.7 12.9 11.8 9.0 OPM (%) chg bp 65 20 388 (189) (186) 21 (7) (78) 158 (111) 396 31 15.0 5.0 21.0 16.9 15.8 16.6 13.3 34.5 13.5 19.8 10.6 14.0 Net P rofit Profit 2QFY13E 243.1 49.2 113.1 190.3 152.4 116.1 718.2 1,665 112.0 269.5 107.7 108.0 16.5 29.9 13.5 9.5 19.3 12.7 11.4 10.0 43.1 5.3 28.7 (27.0) EPS (`) % chg 16.5 29.9 13.5 9.5 19.3 12.7 11.4 10.0 43.1 5.3 28.7 (27.0) FY12 103.1 15.6 32.8 3.7 16.1 86.0 11.9 7.9 5.2 99.7 5.4 12.6 26.5 4.1 8.3 1.1 4.7 27.6 3.3 2.2 1.8 28.0 1.7 8.6 EPS (`) FY13E 121.0 20.7 35.7 4.5 21.9 111.4 14.3 9.3 6.8 114.8 6.6 31.0 FY14E 144.8 25.4 42.3 5.2 26.5 131.7 16.5 10.8 8.5 139.8 7.8 42.9 FY12 38.2 30.4 36.7 34.6 41.5 34.8 45.8 34.5 38.4 43.9 26.5 96.6 P/E (x) FY13E 32.5 23.0 33.8 28.7 30.5 26.9 38.2 29.3 29.4 38.1 21.6 39.2 FY14E 27.2 18.8 28.5 24.7 25.2 22.7 33.1 25.2 23.6 31.3 18.3 28.4 Tar get arg (`) 584 % chg 2QFY13E % chg 2QFY13E
(` cr)
Reco. Neutral Buy Neutral Neutral Neutral Neutral Neutral Neutral Neutral Neutral Neutral Neutral
United Spirits# 1,218
Source: Company, Angel Research; Note: Price as on September 28, 2012; * December year ending; ^Consolidated; #Quaterly numbers pertains to standalone financials
Analyst - V Srinivasan
22
Infrastructure
For 2QFY2013, we expect the average revenue growth for our coverage universe to remain muted at 10.0% yoy as 2Q is seasonally the weakest quarter due to monsoon and owing to slowdown in execution.
CCCL (CMP/TP: `15/-) (Rating: Neutral)

Consolidated Construction Consortium (CCCL) is expected to continue to post poor numbers in 2QFY2013 as well. We expect a decline of 13.0% yoy on the top-line front to `466cr, given the slowdown in execution across projects. On the EBITDA front, we expect the company to continue with its dismal performance; however, owing to a low base of 2QFY2012, its EBITDAM is expected to register an improvement of 379bp yoy to 5.2%. On the bottom-line front, the company is expected to post loss of `3cr for 2QFY2013 vs loss of `19cr in 2QFY2012.
Exhibit 1: Average yoy revenue growth (%)

20.0 18.5 15.8 15.0 12.6 11.6 10.0 10.0 17.5 18.2
5.0
HCC (CMP/TP: `18/-) (Rating: Neutral)

For Hindustan Construction Company (HCC), we project a marginal 4.0% yoy increase in revenue for 2QFY2013 to `862cr due to slowdown in execution on account of gloomy macro environment. On the EBITDA front, we expect a dip of 361bp yoy to 7.7% on the back of muted margin performance in the past few quarters. On the bottom-line front, we expect a loss of `62cr against a loss of `41cr in 2QFY2012 due to poor show expected on the revenue and margin fronts and owing to escalating interest cost, which is expected to post a y-o-y jump of 25.3%.
4QFY11 1QFY12 2QFY12 3QFY12 4QFY12 1QFY13 2QFY13E
Source: Company, Angel Research; Note: For our analysis, we have selected 12 companies, as detailed in Exhibit 6
During 2QFY2013, there has been no respite from the several headwinds (such as high interest and inflationary cost pressures and slowdown in order inflow) faced by the sector. Thus, dull revenue performance along with pressure on EBITDAM and high interest cost will result in muted performance on the earnings front. Given this backdrop, we expect a decline in the earnings of most companies under our coverage universe.
IRB (CMP/TP: `154/`166) (Rating: Accumulate)

IRB is expected to post a good performance on a quarterly basis. We expect 18.1% yoy growth in the engineering and construction (E&C) segment to `623cr. This would come on back of healthy execution pace in under construction build-operate-transfer (BOT) projects. The BOT segment is also expected to report a decent 16.0% yoy growth to `277cr, leading the overall top-line to `900cr. We expect blended EBITDA margin at 43.4%, a dip of 33bp yoy. Depreciation for the quarter is expected to witness a y-o-y jump of 81.2%, owing to completion of the Surat - Dahisar project. We project net profit before tax and after tax (post minority interest) at ` 144cr and ` 106cr, respectively, after factoring a blended tax rate of 28.8% for the quarter.
Exhibit 2: Average yoy earnings growth (%)

12.0 10.0 8.0 6.0 4.0 2.0 (2.0) (4.0) (6.0) (8.0) 4QFY11 1QFY12 2QFY12 3QFY12 4QFY12 1QFY13 2QFY13E (5.9) 4.2 3.0 1.2 4.0 3.1 10.1
Source: Company, Angel Research; Note: For our analysis, we have selected 12 companies, as detailed in Exhibit 6
ABL (CMP/TP: `225/`304) (Rating: Buy)
For 2QFY2013, Ashoka Buildcon (ABL) is expected to post revenue growth of 40.5% yoy on the consolidated revenue front to `403cr. This jump is on account of low base. On the margin front, we expect ABL to post an EBITDAM of 22.0%, registering a dip of 134bp on a y-o-y basis. We expect the company to post a 33.1% yoy increase in its earnings to `22cr for the quarter.
ITNL (CMP/TP: `189/`232) (Rating: Buy)

We expect IL&FS Transportation Networks (ITNL) to post a mixed set of numbers for the quarter, with healthy performance on the revenue front, but muted show on the earnings level owing to high interest cost. The company's revenue is expected to grow by 20.0% yoy to `1,507cr. We expect the company to register a dip of 131bp yoy on the EBITDAM front to 27.1%. Further, on the back of a high interest cost, which is expected to come at `265cr, we expect ITNL's earnings to decline by 15.9% yoy to `98cr.
23
Infrastructure
IVRCL (CMP/TP: `47/`51) (Rating: Accumulate)
We expect IVRCL to post poor numbers for the quarter. On the revenue front, IVRCL is expected to post a y-o-y growth of 10.0% to `1,151cr on the back of execution slowdown. On the EBITDA margin front, we expect an expansion of 64bp to 9.6%. On the earnings front, we expect a loss of `5cr for the quarter against a profit of `8cr in 2QFY2012, primarily on account of higher interest costs for the quarter. 10.0% to `387cr. The EBITDA margin is expected to witness a dip of 42bp yoy to 10.1%. On the earnings front, the company is expected to post a dip of 31.8% yoy to `12cr.
Simplex Infra (CMP/TP: `208/`265) (Rating: Buy)

Simplex Infra is expected to post a modest performance on the revenue front, as we project a 4.0% yoy top-line growth to `1,375cr for 2QFY2013. We expect the company's EBITDA margin to fall by 90bp yoy to 8.1%. The bottom-line is expected to be under pressure due to increased interest cost (expected jump of 37.2% yoy), resulting in a y-o-y decline of 44.7% to `10cr for the quarter.
JAL (CMP/TP: `81/`91) (Rating: Accumulate)

We expect Jaiprakash Associates (JAL) to post a top-line growth of 3.1% yoy to `3,231cr for the quarter. We expect the company to post blended EBITDA margin of 25.2%, registering an expansion of 136bp for the quarter. The bottom-line is expected to be at `126cr, registering a y-o-y decline of 2.2% for the quarter. This is mainly on account of an 18.3% yoy expected jump in interest cost to `479cr.
No respite from high interest cost

Infrastructure companies continue to reel under pressure on account of soaring interest cost. High interest cost (owing to a high interest rate regime and increased debt levels) has resulted in a decline in the bottom line of most companies under our coverage. Further, on account of inflation continuing to remain above comfortable levels, the possibility of rate cuts in the next few months has become very dim.
L&T (CMP/TP: `1,596/`1,721) (Rating: Accumulate)

We expect L&T to record a revenue of `12,634cr, registering a 12.3% yoy growth, for 2QFY2013. This growth can be attributed to the company's large order book (~`1.4trillion). On the EBITDA front, we expect the company's margin to witness an expansion of 96bp yoy to 11.4%. We project the net profit to come in at `891cr, registering a y-o-y growth of 11.6%.
Exhibit 3: Interest cost as a % of sales for E&C companies

18.0 16.0 14.0 12.0 10.0 8.0 6.0 4.0 2.0 JAL HCC IVRCL MPL NCC CCCL Simplex In. Sadbhav L&T
MPL (CMP/TP: `38/`56) (Rating: Buy)

Madhucon Projects (MPL) is expected to post a 2.1% yoy growth on the top-line front to `425cr for 2QFY2013. We expect the company's EBITDA margin to witness a dip of 117bp at 11.8%. Despite muted revenue growth, the company's earnings are expected to post a jump of 31.0% yoy to `8cr on account of lower interest cost for the quarter on a y-o-y basis.
1QFY13
1QFY12
4QFY12
Order inflow remains muted

Order inflow in the last couple of quarters has largely been disappointing for companies under our coverage. Moreover the road sector which witnessed robust order awarding in FY2012 also has seen a significant slowdown. Infrastructure companies are bidding very cautiously for road projects and are looking to get EPC (engineering, procurement and construction) contracts. The main reasons for companies going slow on road BOT projects are: 1) High interest cost and tough business environment; 2) Difficulties in achieving financial closure; 3) Banks turning cautious against lending for road projects and demanding higher equity contribution. For 1QFY2013, Simplex, NCC and L&T showed positive growth; however, Simplex's growth was due to low base in
NCC (CMP/TP: `46/-) (Rating: Neutral)

We expect a subdued performance from Nagarjuna Construction (NCC) for this quarter. On the top-line front, NCC is expected to post a growth of 12.0% to `1,221cr. The EBITDA margin is expected to witness a dip of 126bp yoy to 8.2% for the quarter. However, a blow is expected on the earnings front, as we expect the company to post a decline of 53.9% on a y-o-y basis to `5cr for the quarter. This would be primarily on account of muted revenue and EBITDAM and burgeoning interest cost (yoy jump of 36.7%), led by elongated working capital cycle.
SEL (CMP/TP: `143/`182) (Rating: Buy)

We expect Sadbhav Engineering (SEL) to post muted numbers in 2QFY2013. The company's revenue is expected to fall by
24
Infrastructure
1QFY2012. Most players witnessed a decline in order inflow for the quarter owing to policy paralysis at the government's end, delays arising due to land acquisition and environment clearance issues. company's order book at higher levels. This order backlog gives comfort for growth over the next couple of years. For few companies such as NCC and MPL, the order book has been boosted by captive orders during FY2012.
Exhibit 4: Order inflow yoy growth trend during 1QFY2013 (%)

116 48 Simplex In.

There has been no respite for infrastructure companies from persistent headwinds faced by the industry - high interest rates and slower-than-anticipated revival in industrial capex. Further, a stretched balance sheet and working capital on the back of investment in subsidiaries and delays in payment from clients continues to pose a problem. However, infrastructure stocks have seen some positive movement during the past few weeks as the Indian government has unleashed various reforms to help revive the dampened investment sentiment and to bolster the country's economic growth. We believe that although interest rate cuts and increasing investment in the sector remain key triggers for infrastructure stocks, removal of bottlenecks such as delays in environmental clearance and land-acquisition issues is also of prime importance for the execution pace to pick up. We prefer to remain selective: We remain positive on companies having 1) a comfortable leverage position; 2) superior return ratios and 3) less dependence on capital markets for raising equity for funding projects. Hence, we recommend L&T and SEL as our top picks in the sector . sector.
NCC
21
L&T
(83)
CCCL
(90) (100) (50) 50 100
HCC
Order backlog remains decent

Despite sluggish order inflow during the quarter, the order book (OB) remained decent for companies under our coverage universe. Slowdown in execution pace has also kept the
Exhibit 5: Decent order book provides revenue visibility

30.0 4.9 20.0 10.0 3.5 3.2 2.1 2.3 2.9 2.5 3.0 3.5 4.0 5.0
Sadbhav
L&T
MPL
Simplex In.
CCCL
IVRCL
NCC
HCC
2.0
(10.0) (20.0) (30.0)
1.0
Order book growth yoy (%), LHS
OB/Sales (x), RHS

Company ABL^ CCCL HCC IRB Infra^ ITNL^ IVRCL JAL L&T MPL NCC SEL Simplex In. CMP (`) 227 14 18 152 194 46 82 1,597 37 47 147 210 Net Sales 2QFY13E 403 466 862 900 1,507 1,151 3,231 12,634 425 1,221 387 1,375 40.5 (13.0) 4.0 22.3 20.0 10.0 3.1 12.3 2.1 12.0 (10.0) 4.0 OPM (%) chg bp (134) 379 (361) (33) (131) 64 136 96 (117) (126) (42) (90) 22.0 5.2 7.7 43.4 27.1 9.6 25.2 11.4 11.8 8.2 10.1 8.1 Net P rofit Profit 2QFY13E 22 (3) (62) 106 98 (5) 126 891 8 5 12 10 33.1 (3.8) (15.9) (2.2) 11.6 31.0 (53.9) (31.8) (44.7) EPS (`) % chg 33.1 (3.8) (15.9) (2.2) 11.6 31.0 (53.9) (31.8) (44.7) 4.3 (0.2) (1.0) 3.2 5.0 (0.2) 0.6 14.5 1.1 0.2 0.8 2.0 EPS (`) FY12 23.7 (0.5) (3.7) 14.9 25.6 0.9 4.8 72.8 4.9 1.4 9.3 16.8 FY13E 27.1 1.5 (2.3) 15.7 24.4 2.5 4.0 79.7 4.6 3.0 7.5 23.4 FY14E 31.7 2.7 (1.0) 16.9 30.3 4.6 4.8 85.4 4.7 3.5 10.4 29.4 FY12 9.5 10.3 7.4 51.9 16.7 21.9 7.6 32.5 15.3 12.4 P/E (x) FY13E 8.4 9.6 9.7 7.9 18.3 20.5 20.0 8.0 15.4 19.5 9.0 FY14E 7.2 5.4 9.0 6.4 10.1 17.2 18.7 8.0 13.4 14.1 7.1 Tar get arg (`) 304 166 232 51 91 1,721 56 182 265 % chg 2QFY13E % chg 2QFY13E
( ` cr)
Reco. Buy Neutral Neutral Accum. Buy Accum. Accum. Accum. Buy Neutral Buy Buy
Source: Company, Angel Research; Note: Price as on September 28, 2012, Target prices are based on SOTP methodology; ^Consolidated numbers
Analyst: Nitin Arora

25
Information Technology
Mixed economic data causes delays in CY2012 IT spending
Gartner's current US dollar growth forecast for overall global IT spending in 2012 has been revised up slightly from 2.5% last quarter to 3.0% now but in constant US dollar terms, the growth forecast for overall IT spending in 2012 is unchanged at 5.2%. The challenges facing global economic growth in terms of the euro zone crisis, weaker US recovery and a slowdown in China persist; still the outlook has stabilized than in the recent past. Also, according to IDC, a market research firm, the global IT spending is expected to grow by 6% in 2012 despite a turbulent economy. For August 2012, data points for the US economy were mixed. For instance, 1) non-manufacturing index inched up to 53.7 from 52.6 in July 2012, 2) unemployment rate stood at 8.1% as against 8.3% in July 2012, 3) industrial production declined by 1.2% mom as against a 0.6% mom growth in July 2012; 4) manufacturing index came in at 49.6 as against 49.8 in July 2012; and 5) retail sales grew by 0.9% as against 0.8% in July 2012. The real GDP in the US grew by 1.5% in 2QCY2012, a slight slowdown from 2.0% in 1QCY2012. Also, US corporate profit growth is slowing down with the S&P 500's operating EPS growth having moderated to 2% yoy in 2QCY2012 from 7% in 1QCY2012. Also, the S&P 500's EPS growth expectations for CY2012 now stand at 5%, down from 9% at the start of CY2012. These mixed economic data points from the US as well as unsteady economic situation in Europe have created a weak macro-environment over the past few quarters and companies are facing some challenges in the near term due to financial turmoil and global uncertainties. Mixed commentary: Infosys' management's commentary was again highly cautious in terms of overall business conditions in 1QFY2013. The revenue growth guidance for FY2013 was scaled down to at least 5% yoy from 8-10% yoy earlier. The guidance was also a tad lower than market expectations. In addition, the management stopped issuing quarterly guidance citing uncertainly in demand environment which was discomforting. Post a 1.1% decline in USD revenue in 1QFY2012, the company requires ~3% ask rate in 2Q-4QFY2013 to achieve a 5% growth in FY2013, which in the current scenario looks a bit stretched and indicates that the management is banking on back-ended growth. This makes us cautious as the second half of every fiscal year is typically slow for IT companies. This clearly indicates a challenging visibility in business volumes and management's future expectations. Tata Consultancy Services (TCS)' management's commentary came in contrast to that of Infosys as its management indicated that the company is witnessing IT spends returning and sees higher visibility than in 4QFY2012. The management sounded confident of surpassing Nasscom's industry growth guidance
of 11-14% yoy for FY2013 in constant currency terms. TCS expects FY2013 to be a normal year with growth in 1H higher than that in 2H. Its management indicated that clients are aware of the challenging macro environment and have plans to spend on IT in spite of all these challenges. Cognizant maintained its CY2012 revenue growth guidance of at least 20% yoy despite a negative impact of currency movements. The company gave a 4.4% qoq growth guidance for 3QCY2012 (2QFY2013), which implies stable growth for the rest of the year. Our take: Given the current uncertain environment, we see moderation in IT budgets for CY2012 and expect volume growth of tier-I Indian IT companies to scale down to sub-14% in FY2013. The banking, financial services and insurance (BFSI) industry is expected to be a laggard in terms of growth. It is this segment from which the IT companies derive maximum revenue. A weak performance from this segment due to weaker-thananticipated acceleration implies industry-wide slowdown in IT spending. We believe FY2013 will see diversity in terms of growth rates of tier-I IT companies. TCS and HCL Technologies (HCL Tech) are expected to grow at a rate higher than the industry's average (in mid teens) and Infosys is expected to post a mid single digits growth. The IT spend now is driven due to trends such as increased off-shoring of work from Europe and vendor consolidation. But given all the above mentioned headwinds, IT companies are deriving benefits from INR depreciation against USD since the past few months, giving a boost to INR revenue, operating margins and overall profitability of all IT companies.
Exhibit 1: Relative performance to the Sensex

8.6 7.1 3.2 (4.3) 10.3
(%)
KPIT Cummins Persistent Mindtree Hexaware Mphasis 42.7 38.6 25.8 Mahindra Satyam Tech Mahindra HCL Tech Wipro TCS Infosys BSE IT Index 16.0 24.0 32.0 40.0 48.0
(4.5) 2.9 2.5 4.1 (8.0) 0.0 8.0
Cyclically a strong quarter with robust volume growth

Traditionally, 2Q is the strongest period for IT companies as client budgets start getting spent aggressively. We expect 2QFY2013 to be better than 1QFY2013. However this year's (FY2013) 2Q is not expected to be as good as 2Q tends to be traditionally due to unstable macros and economic uncertainty across the developed economies. On account of this, clients are delaying their incremental budget flush. For 2QFY2013, we expect volume growth to be in the range of 2.0-4.0% qoq for tier-I IT companies, with TCS leading the pack.
26
Pricing is expected to remain stable. For tier-II companies, we expect growth to be modest at 1.0-4.5% qoq, with Tech Mahindra leading the pack aided by acquisition of Hutchison Global Services. For 2QFY2013, in INR terms, the revenue growth is expected to be in the range of 2.0-4.5% qoq for tier-I IT companies, marginally higher than USD revenue growth due to depreciation of INR against USD on a q-o-q basis, with average USD/INR rate at 55.2 for 2QFY2013 as against 54.0 in 1QFY2013. For tier-II IT companies, INR revenue growth is expected to be at 1.5-4.6% qoq, with Tech Mahindra leading the pack.
Exhibit 2: Trend in volume growth (qoq) Tier-I

8 6.3 6 4.5 4 5.1 3.2 3.1 1.8 6.0 4.9 3.3 2.0 0.8 0 2.7 1.8 0.8 5.3 4.0 3.0 2.0 4.0
Exhibit 4: Trend in INR revenue growth (qoq) - Tier-I

20 15 8.2 10 8.2 7.7 14.8 13.5 12.8 11.4 6.6 4.5 3.4 0.4 (0.6) 2QFY12 (5) 3QFY12 (0.2) 4QFY12 1QFY13 2QFY13E 3.9 2.0 13.5 12.1 8.6 9.5
(%)
2
(2) 2QFY12 3QFY12
(1.5) 4QFY12
(%)
1QFY13 2QFY13E
5 0
Infosys
TCS
HCL Tech
Wipro*
Source: Company, Angel Research; Note: *For the IT services segment
USD revenue to grow, albeit at a slower pace

(10)
(4.8)
The cross-currency movement, which negatively impacted USD revenue during 1QFY2013, is not expected to be a severe spoil sport this quarter. In 2QFY2013, it would be marginally negative because the USD appreciated by ~2.7% against the Euro and by ~0.3% against the GBP . Since the magnitude of appreciation is not high, there will only be a slight impact of 0.2-0.5% qoq on USD revenue of tier-I IT companies. For 2QFY2013, on the back of decent volume growth, stable pricing and marginally negative cross-currency movement, we expect USD revenue of tier-I IT companies to grow moderately by 1.8-3.7% qoq, with TCS leading the pack.
Infosys
TCS
HCL Tech
Wipro*
Margins to be a mixed bag

We expect EBITDA margin of Infosys to expand by 110bp qoq to 31.9%, aided by improvement in utilization level (because freshers joining delayed by a quarter) and INR depreciation. On the other hand, the EBITDA margins of Wipro (IT services) and HCL Tech are expected to decline by 225bp qoq and 134bp qoq to 21.8% and 20.6%, respectively, due to wage hikes given during the quarter. HCL Tech has divided the quantum of wage hikes between two quarters so that the impact on margin, to some extent, is less. Wipro gave wage hikes in June 2012, the full negative impact of which will flow during 2QFY2013. TCS is expected to show a marginal dip of 22bp qoq in its EBITDA margin as the gains from INR depreciation and productivity will be offset by increase in employee costs due to freshers joining and ramp up of projects from India and APAC geography which generate lower margins. Exhibit 5: EBITDA margin profile Tier-I
35 33.7 31.0 30 29.1 31.0 28.1 29.1 29.5 29.1 24.0 25.0 23.2 20 18.5 15 1QFY12 17.1 2QFY12 3QFY12 4QFY12 1QFY13 2QFY13E 18.5 18.4 23.9 23.8 22.0 20.6 21.8 32.6 30.8 31.9 28.9
Exhibit 3: Trend in USD revenue growth (qoq) - Tier-I

6 4.7 5 4 3 4.5 4.1 3.4 2.4 2.5 2.2 2.0 2.4 2.0 1.8 3.0 3.0 2.8 4.6 3.7 3.6
(%)
2 1 0 (1) (2) 2QFY12
3QFY12
4QFY12
1QFY13 (1.1) (1.4)
2QFY13E
(1.9)
Infosys
TCS
HCL Tech
Wipro*

(%)
For tier-II IT companies, USD revenue growth is expected to be 1.1-4.4% qoq, with Tech Mahindra leading the pack.
25
INR revenue expected to lift performance

2QFY2013 again witnessed one of the most volatile seasons as far as the currency is concerned. In the last 15 days, the INR appreciated by ~5% but still on an average basis, the INR depreciated by ~2.3% qoq during 2QFY2013. This will aid the INR revenue growth and boost the operating margins of IT players by 70-90bp qoq.
Infosys
TCS
HCL Tech
Wipro*
Source: Company, Angel Research; Note: *For IT services segment
For tier-II IT companies under our coverage (excluding KPIT Cummins), we expect the EBITDA margin to decline or remain almost flat q-o-q due to wage hikes given during 2QFY2013;
27
though some of the negative impact will be absorbed by gains from INR depreciation. Tech Mahindra and Mahindra Satyam are expected to record 161bp and 207bp qoq decline in its EBITDA margin to 19.8% and 19.6%, respectively, due to negative impact of wage hike given during the quarter. EBITDA margins of IT companies by 30-40bp. Some IT companies might pass on the benefits derived from INR depreciation to their clients in pursuit of market share gains. Considering the current economic uncertainties, we see moderation in IT budgets for CY2012 and expect volume growth of tier-I Indian IT companies to scale down to sub-14% from 17% plus in FY2012. Pricing of IT companies came down slightly during 1QFY2013, but now we do not foresee any further price erosion. Going forward, we expect market share led growth to be restricted to a few IT companies only and the overall sector growth will be highly correlated to the macro-economy and pick-up in overall technology spending. We remain cautiously optimistic on the IT sector, as on one hand global uncertainties prevail along with concerns regarding IT budgets for CY2012, while on the other hand software companies are deriving some benefits from INR depreciation. We expect TCS and HCL Tech to lead the growth in the tier-I IT pack. TCS and HCL Tech's stock prices have run up significantly and are currently trading at 17.5x and 12.8x their respective FY2014E EPS, which leaves little room for upside in the stock prices. Hence, we recommend an Accumulate rating on TCS and HCL Tech. The PE premium between TCS and Infosys has widened a lot as Infosys is expected to post a much lower growth than TCS, and is trading at 14.6x FY2014E EPS. So we recommend an Accumulate rating on Infosys as well. In addition, we have a Buy rating on Wipro with a target price of `421. In the mid-cap space, we like Tech Mahindra, MindTree and KPIT Cummins.

Nasscom, in February 2012, gave growth forecast of 11-14% for India's IT exports for FY2012. The range of forecast is wider this time as compared to the past due to uncertainty in the environment and delays in decision-making. After subdued results in 4QFY2012 and mixed results in 1QFY2013 along with diverse commentary for FY2013, Nasscom has still maintained its guidance. Nasscom expects growth to come back and will not read too much into a couple of quarters of challenges. We believe FY2013 might be different in terms of growth rates of tier-I IT companies, as companies will have divergent growth rates with TCS and HCL Tech growing higher than the industry's average (in mid teens) and Infosys growing in mid single digits. Given the current uncertainly, unfavourable cross currency environment and broadly soft 1QFY2013 results, Nasscom's growth guidance seems to be on the optimistic side. If challenges continue to prevail in the BFSI industry, which is the largest revenue generator for IT companies, then the growth trajectory of Indian IT companies will be shaken up. Given all the above-mentioned headwinds, IT companies are deriving benefits from INR depreciation as this is aiding in improving the bottom-line of Indian IT companies. Every 1% depreciation in the INR against the USD aids

Company TCS Infosys Wipro HCL Tech* Mah. Satyam Mphasis^ Hexaware# Mindtree Persistent Infotech Entp. CMP (`) 1,294 2,534 381 577 111 402 122 662 427 189 Net Sales 2QFY13E 15,542 9,940 10,990 6,153 1,615 1,929 1,412 515 587 305 554 479 4.5 3.4 3.2 3.9 4.6 2.6 4.2 2.9 4.2 1.5 2.9 4.9 OPM (%) chg bp (22) 110 (170) (134) (161) (207) 73 11 19 (1) 162 (16) 28.9 31.9 18.4 20.6 19.8 19.6 20.5 23.0 21.0 26.8 16.7 18.5 Net P rofit Profit 2QFY13E 3,372 2,314 1,446 786 308 273 211 86 72 40 50 69 2.8 1.1 (8.5) (8.0) (8.9) (22.5) 1.1 (3.1) (18.6) (5.0) 2.6 3.2 EPS (`) % chg 2.8 1.1 (8.5) (8.0) (8.9) (22.5) 1.1 (3.1) (18.6) (5.0) 2.6 3.2 FY12 54.3 145.5 22.7 36.0 88.2 10.2 37.8 8.9 53.7 35.4 8.0 14.5 17.2 40.5 5.9 11.2 23.4 2.3 10.1 2.9 17.6 9.9 5.5 6.0 EPS (`) FY13E 69.0 163.2 25.6 41.4 92.7 9.7 37.0 11.6 70.4 42.4 11.3 18.1 FY14E 74.0 173.4 28.1 45.1 99.6 10.0 37.3 12.2 77.2 44.2 12.9 19.5 FY12 23.8 17.4 16.8 16.0 11.0 10.9 10.6 13.7 12.3 12.0 15.5 13.0 P/E (x) FY13E 18.7 15.5 14.9 13.9 10.5 11.4 10.9 10.5 9.4 10.1 11.0 10.4 FY14E 17.5 14.6 13.6 12.8 9.8 11.1 10.8 10.0 8.6 9.7 9.5 9.7 Tar get arg (`) 1,405 2,687 421 632 1,046 140 772 142 185 % chg 2QFY13E % chg 2QFY13E
( ` cr)
Reco. Accum. Accum. Accum. Accum. Accum. Neutral Neutral Accum. Buy Neutral Accum. Neutral
Tech Mahindra 972
KPIT Cummins 124
Source: Company, Angel Research; Note: Price as on September 28, 2012; *June ending, so 1QFY2013 estimates; ^October ending, so 4QFY2012 estimates; #December ending, so 3QCY2012 estimates; Change is on a qoq basis
Analyst - Ankita Somani

28
Media
Healthy top-line growth
For 2QFY2013, we expect our Media universe to post a cumulative top-line growth of 7% yoy. The revenue growth of print media companies for the quarter would primarily be aided by resilient local advertisement revenues. Sun TV's agreement with Arasu cable is expected to bolster its top-line performance. PVR is also expected to post a healthy revenue growth on the back of seat addition and many successful releases during the quarter. Exhibit 1: Newsprint prices up in INR terms
800 750 700
USD/tonne
company's channels on all cable TV distribution systems run by Arasu Cable across the state of Tamil Nadu. This deal will ensure cable revenues from Tamil Nadu and strengthen the reach of Sun TV network across Tamil Nadu, thereby having a positive effect on ad revenues of the company. L Capital Eco Ltd, a subsidiary of the $640mn global private equity firm L Capital Asia is investing `108cr in PVR Ltd. This deal will boost PVR's expansion plans in movie exhibition business as well as leisure business. Meanwhile, PVR opened new multiplexes at Nagpur, Bilaspur and Pune during the quarter.
Newsprint prices up in INR terms
40,000 35,000
INR/tonne
Performance in the bourses

Exhibit 2: Relative performance to Sensex during 2QFY2013
30.0 25.0
650 600 550 500 450 400 Sep-05 Sep-06 Sep-07 Sep-08 USD/tonne Sep-09 Sep-10 Sep-11
30,000 25,000 20,000
20.0
15,000 Sep-12
15.0 10.0 5.0 (5.0) (10.0) DBCORP HTMEDIA JAGRAN PVR SUNTV SENSEX
INR/tonne
During 2QFY2013, the average prices of newsprint have remained flat at ~$620. However, newsprint prices increased in INR terms, on account of ~20.8% yoy and ~2.1% qoq depreciation in INR vs USD.
Source: TRAI, Angel Research
Foreign investment limit raised in DTH and cable networks

The Cabinet Committee on Economic Affairs (CCEA) has raised foreign investment limit (both FDI and FII taken together) from 49% to 74% in DTH and cable networks (including multi system operators [MSOs]). It will aid them to tap foreign funds to step up India's digitization aspirations. Therefore, a relaxed foreign investment limit is expected to augur well for Sun TV.

Print media stocks have underperformed due to OPM pressure on account of higher newsprint costs and cyclical nature of ad revenue growth (sluggish due to slower GDP growth). Due to these cyclical headwinds, the stocks are currently trading at cheaper valuations. However, considering the structural positives of print business (high brand loyalty and significant entry barriers), print media stocks deserve a premium to the Sensex. We maintain our Buy view on DB Corp, HT Media and Jagran. Sun TV is expected to post a good performance on back of the Arasu deal as well as strong content on its general entertainment channels (GECs). PVR is expected to register a ~20% CAGR in its top line, aided by seat additions and good performance of hindi movies such as Ek tha tiger, Bol Bachchan, Barfi etc. We believe both the stocks are fairly valued and would prefer to wait for a better entry opportunity. Hence, we maintain our Neutral view on both these stocks.
Key developments during the quarter

In the last few quarters, print media companies are facing margin pressure. The companies are likely to counter it by continuing cost rationalization measures such as increasing pagination efficiency, improving ad-edit ratio and selective increase in cover prices. The companies are also expected to keep their expansion plans on backburner for a while. Sun TV has signed a 1-year agreement with Arasu Cable TV Corp. This agreement will enable total availability of the

Company DB Corp HT Media Jagran PVR Sun TV CMP (`) 202 93 91 193 349 Net Sales 2QFY13E 386 504 329 184 445 9.1 3.0 7.7 34.0 (1.4) OPM (%) chg bp 23 78 (300) 109 (203) 22.0 14.5 22.9 21.3 79.0 Net P rofit Profit 2QFY13E 47.1 48 57 14 172 16.7 9.2 24.6 (3.1) (4.5) EPS (`) % chg 16.7 9.2 24.6 (3.1) (4.5) FY12 11.0 7.0 5.6 9.8 17.7 2.6 2.0 1.8 5.3 4.4 EPS (`) FY13E 11.2 7.3 6.2 13.3 18.6 FY14E 13.6 8.1 7.1 15.6 21.3 FY12 18.3 13.2 16.2 19.7 19.7 P/E (x) FY13E 18.1 12.7 14.7 14.5 18.8 FY14E 14.8 11.5 12.8 12.3 16.4 Tar get arg (`) 236 113 112 % chg 2QFY13E % chg 2QFY13E
( ` cr)
Reco. Buy Buy Buy Neutral Neutral
Analyst - Amit P atil Patil

29
Metals
In our view, steel companies' profitability is expected to improve yoy during 2QFY2013 on the back of flat steel prices coupled with decreasing prices of key inputs, mainly coking coal. However, we expect profitability of non-ferrous companies to suffer yoy due to lower realizations coupled with higher input costs. During 2QFY2013, global steel prices continued to decline led by steep decline in spot iron ore and coking coal prices. Steel prices in China and CIS decreased by 12.9% and 4.4%, respectively, during the quarter. However, steel price decline was muted in India on account of depreciation of INR against the USD. On the raw materials front, coking coal prices have declined to US$170/tonne for 3QFY2013, compared to US$225/tonne for 2QFY2013. Iron ore contract prices for 3QFY2013 are expected to decline as spot iron ore prices have declined sharply during 2QFY2013. Looking ahead, although we expect steel consumption to pick up, concerns on account of slowdown in the capex cycle and slowdown in construction demand remain. After a steep decline in base metal prices during 1QFY2013, prices rebounded during August - September. Going forward, we do not expect base metal prices to spike meaningfully due to the anticipated slowdown in China and subdued outlook for the eurozone. The BSE Metal Index posted a positive return of 1.0% in 2QFY2013. Steel stocks excluding JSW Steel declined during 2QFY2013 on the back of a Comptroller and Auditor General (CAG) report stating the irregularities in coal block allocation to private steel and power producers. JSW Steel stock increased by 13.1% in 2QFY2013 mainly on the back of Supreme Court order to lift mining ban in Karnataka and starting 18 category-A mines. SAIL and Tata Steel stock prices declined by 3.3% and 6.6%, respectively. On the non-ferrous side Nalco's stock prices declined by 15.6% on account of steep fall in aluminium price. On the other hand Hindustan Zinc (HZL) and Sterlite Industries (Sterlite) stock prices rose by 15.3% and 2.1% respectively on the back of news reports suggesting that government may sell its stake in HZL and Balco (Sterlite's subsidiary) to Vedanta Resources. Stock prices of Coal India and NMDC recorded an increase of 3.2% and 7.0% respectively during the quarter, as Coal India reported better than expected 1QFY2013 results and NMDC raised its prices for 2QFY2013.
Key events
Supreme Court permits mining operations for category-A mines in Karnataka
During 2QFY2013 the Supreme Court allowed 18 mines (category-A) to resume iron ore mining in Karnataka after a suspension of over a year on environmental concerns. This was in line with our expectations given that the Central Empowered Committee had earlier recommended category-A mines to resume operations. The A-category mines are the ones that are either free of any illegality or had committed marginal illegalities in their mining operations. However, the mines need to get fresh environmental and pollution clearances from the Ministry of Environment and Forest before they resume operations which could delay the commencement of operations in our view. Further, there is no clarity on the quantum of annual production capacity of these mines (although some media report suggested that the new mines could produce ~7mn tonne p.a.). NMDC has been producing iron ore at a run rate of 8-10mn tonne in Karnataka over the past one year. Given the Karnataka steel industry's requirement of 30mn tonne, the commencement of production from these 18 mines was slightly positive for the steel industry in Karnataka, especially JSW Steel - which operates a 10mn tonne plant in Karnataka with annual iron ore requirement of 18mn tonne. For JSW Steel, the eventual start-up of production from these mines will be positive as this will result in higher availability of iron ore at slightly lower prices. As far as Sesa Goa is concerned, all its Tumkur mines fall under category-B and these mines are yet to be sanctioned the permission to start production
Government bans mining in Goa until further notice

During the quarter the Goa government had imposed a ban on iron ore mining in Goa until further review. Later, Ministry of Environment and Forest Clearances (MOEF) also suspended environment clearances to all functional mining leases in Goa. There were 90 mines which were operational in Goa. Sesa Goa operates several mines in the region with an annual production of 12mn tonne. It generates a significant proportion of its revenues and profit from its Goa mines. However, 2QFY2013 was a seasonally weak quarter for Sesa Goa given that it sells only 10-15% of its annual output during second quarter of a fiscal year on account of monsoon in Goa. The ban however is seen to be a short term phenomenon with no major repercussions in the long term. The stock of Sesa Goa, as a result of this development, declined significantly.
Exhibit 1: Metal stocks performance 2QFY2013

Nalco MOIL Sesa Tata Steel SAIL BSE Metal Index Sterlite COAL Hindalco NMDC JSW HZL (20.0) (15.0) (10.0) (5.0) 0.0 (%) 5.0 10.0 15.0 20.0
Coal India board approves higher penalty for new FSAs:

During the quarter Coal India's board approved higher penalty rates for Fuel Supply Agreements (FSAs) to be signed with power producers which have commissioned units after March 30, 2009. The penalty will now be levied at 1.5% for a
30
Source: Bloomberg, Angel Research Refer to important Disclosures at the end of the report
Metals
shortfall below 80% but above 65% (compared to earlier penalty level of only 0.01%). For a shortfall below 65%, the penalty will be in the range of 5-40% depending on the quantum of the shortfall. However, there is no clarity on price pooling and quantum of imports. We do not foresee a material impact on Coal India's financials on account of this marginal increase in penalty. Inter-ministerial group (IMG) recommended to the coal ministry to cancel the mining leases of 11 companies and deduct bank guarantees of several others for reasons such as delays in starting the production from these allotted mines. The companies whose coal blocks got de-allocated include JSW Steel, Bhushan Steel and Electrosteel Castings.
JSW Steel to merge with JSW Ispat

During 2QFY2013 JSW Steel announced that it will merge JSW Ispat with itself which will result in potential tax benefits to the merged entity, although it will increase the leverage levels of the merged entity. JSW Ispat's shareholders will receive 1 share of JSW Steel for every 72 shares held resulting in equity dilution of 8%. Shares of JSW Ispat held by JSW Steel will be cancelled. Further, JSW Steel will also issue 48.54cr new 0.01 per cent non-convertible cumulative redeemable preference shares to the preference shareholders of JSW Ispat. The merged entity's steel-making capacity will increase to 14.3mn tonne from the current 11mn tonne capacity of JSW Steel (standalone). Post-merger, JSW Steel's promoters' stake will decrease to 35.12% in the merged entity, compared to the current stake in JSW Steel of 38.02%. JSW Ispat, being a loss-making company, has a tax benefit of `288cr which will now benefit the merged company. The merger is also expected to lower the interest cost of JSW Ispat as being a loss-making entity JSW Ispat's debt's interest rate is higher. However, the net debt (including acceptances) of the merged entity will increase to `32,700cr from the current JSW Steel's debt of `24,100cr. JSW Steel's standalone tax rate of 30% is likely to fall to 20%, thus boosting the EPS during FY2014 in our view. The deal is subject to several approvals and is expected to be completed by end of FY2013.
Ferrous sector
During 2QFY2013, global steel prices continued to decline led by a steep decline in spot iron ore and coking coal prices. Steel prices in China and CIS decreased by 12.9% and 4.4%, respectively, during the quarter. However, decline in domestic steel prices remained muted on a qoq basis on account of a sharp depreciation of INR against the USD. World average hot rolled coiled (HRC) prices fell by 8.1% qoq and 19.1% yoy to US$634/tonne. Average HRC prices in India remained flat at `42,560/tonne.
Exhibit 2: World HRC prices decreased qoq

900 800
(US$/tonne)
700
600
500
Aug-10
Nov-10
Dec-10
Feb-11
Sep-10
Mar-11
Apr-11
Aug-11
May-10
Nov-11
Feb-12
Jun-11
Apr-10
Oct-11
Jan-12
Jul-10
Mar-12
May-12
Jun-12
World HRC price
USA Domestic HRC price
CIS export HRC price
Exhibit 3: Domestic HRC prices flat qoq

39,000 37,000
(`/tonne)
CAG reports irregularities in Coal block allocation

During the quarter, the CAG tabled a report in the parliament - "Performance Audit of Allocation of Coal Blocks and Augmentation of Coal Production (Ministry of Coal)" where it stated that an estimated gain of ` 185,591cr has occurred to private companies, on account of they being allocated open cast mines, due to policy defaults by the Coal Ministry / government. It stated that there was no transparency in allocation of blocks and auctioning/competitive bidding for the mines would have tapped a part of this financial benefit. A total of 154 coal blocks were awarded to public and private companies (including ultra mega power plants [UMPPs]) after July 2004. However, CAG's loss estimates of `185,591cr are limited to 57 mines allotted to private companies. The private players named in this report which benefitted from these 57 blocks include Tata Steel, JSW Steel, Hindalco, Bhushan Steel and Sterlite. Acting on this report presented by the CAG, the
35,000 33,000 31,000 29,000 27,000 25,000
May-11
Nov-11
Jan-11
Mar-11
Sep-11
Jul-11
Jan-12
Mar-12
May-12
May-10
Nov-10
Mar-10
Sep-10
Indian HRC price
Iron ore and coking coal prices slide

Iron ore prices declined sharply during 2QFY2013 on the back of lower demand from China. Declining supplies from India were more than offset by rising exports from Australia. Australia exported 57.1mn tonne (+9.6% yoy) in July - August 2012. During the quarter, spot iron ore prices for 63.5% Fe grade (CFR, China) declined by 22.4% qoq to US$108/tonne. Hence, iron ore contract prices for 3QFY2013 are likely to decline on a qoq basis. Ironically, however, domestic iron ore
31
Sep-12
Jul-10
Jul-12
Sep-12
Jul-11
Jul-12
Metals
prices have remained firm on account of the mining ban in Karnataka and government's stricter stance on illegal mining in the mineral-rich states of Odisha and Goa. Media reports suggest that quarterly coking coal contract price between BMA and Nippon steel settlement for October-December quarter have been signed at US$170/tonne which is likely to be a benchmark for other contracts.
Exhibit 6: Production and consumption - steel

7,000 6,000 800 700 600 500 400 300 200 100 0 (100) (200)
(000 tonnes)
4,000 3,000 2,000 1,000 0
Feb-11 Mar-11
Sep-10
Nov-10 Dec-10
May-11 Jun-11
Aug-11
Dec-11 Jan-12
Feb-12
Jan-11
Sep-11 Oct-11
May-12
Oct-10
Apr-11
Nov-11
Exhibit 4: Iron ore prices and inventory in China

210 180 150 120 105 90 75 60 90 60 30 0 Sep-09 45 30 15 0 Feb-10 Jul-10 Dec-10 May-11 Oct-11 Mar-12 Aug-12
Net production
Real consumption
Net imports - RHS

(mn tonnes)
(US $/tonne)
120
Outlook
Margins to expand on a yoy basis
Current international iron ore prices are in the range of US$100-110/tonne (close to marginal cost of production for several Chinese iron ore miners). Hence, we do not expect any further meaningful downside from the current price levels. Contracted coking coal prices have declined gradually over the past one year. Moreover, spot coking coal prices have declined sharply over the past three months. A decline in coking coal prices is expected to benefit Indian steelmakers during 2HFY2013, although INR depreciation would partially offset the decline in price of coking coal. According to World Steel, global crude steel production for July 2012 increased by 2.0% to 130mn tonne whereas for August 2012 it declined 1.0% yoy to 124mn tonne. Global capacity utilization levels during July and August stood at 78.7% and 75.5%, respectively. 2QFY2013 expectations: For 2QFY2013, on a yoy basis, we expect net sales to increase, aided by higher volumes. Thus, we expect the top-line of steel companies under our coverage to grow by 1.1-9.0% yoy. Also, due to lower raw-material costs, margins of steel companies are likely to improve on a yoy basis. For Sesa Goa, net sales are expected to decline on account of no production from Karnataka mines and decline in iron ore prices. Further, higher iron ore royalty and increased export tax are expected to result in operating profit declining by 30.0% yoy. For Coal India, we expect a 20.4% yoy growth in net sales (due to increases in both volumes and prices) and 55.1% yoy ata Steel. growth in net profit. We remain positive on T Tata
Iron ore inventory (RHS)
Indian Iron ore 63% Fe, CFR China (LHS)
Iron ore exports from India continued to decline

As per Federation of Indian Mineral Industries (FIMI), iron ore exports from India had declined by 38.5% to 62mn tonne during FY2012 on account of export ban in Karnataka, stringent measures in issuing export permits in Odisha, a sharp decline in international iron ore price and increased export duty. Further, as per FIMI, total iron ore exports during FY2013 are estimated to decline by 36.7% to 45mn tonne due to ban on mining imposed by the Goa government and subsequently suspension of environment clearances of all the 93 mining leases by the Ministry of Environment and Forests.
Exhibit 5: Indian iron ore exports to China down

6 5
(mn tonnes)
4 3 2 1 0
Aug-11
Sep-11
Nov-11
Dec-11
Feb-12
Mar-12
Jul-11
May-12
Oct-11
India's iron ore exports to China
Steel imports on a rise

Steel imports have continued to rise over the past one year. Indian steel players continue to face threat of higher steel imports from FTA (free trade agreement) countries (which attract lower import duty). During January- August 2012, steel imports by India have increased by 48.4% yoy to 4.6mn tonne.
Aug-12
Jan-12
Apr-12
Jun-12
Jul-12
Non-ferrous sector
During the quarter, base metal prices continued to decline (during July 2012). Nevertheless, the prices rebounded during August-September 2012. Domestic aluminium companies continued to suffer on account of low aluminium prices coupled with higher coal costs.
32
Mar-12 Apr-12
Jun-12 Jul-12
Jul-11
(000 tonnes)
5,000
Metals
On a sequential basis, average copper, aluminium and zinc prices decreased by 1.5%, 4.9% and 2.3%, respectively. On a yoy basis, average copper, aluminium, and zinc prices declined by 14.3% 21.0% and 16.3%, respectively on the back of eurozone debt crisis and lower demand from China.
Outlook
Non-ferrous companies are expected to face a double whammy of declining product prices coupled with higher input costs during FY2013. Base metal prices have declined steeply over the past one year and hence realizations for companies are expected to decline during FY2013 (partially offset by INR depreciation against the USD). Further, although several aluminium companies (globally) have announced production cuts, we are yet to see any meaningful decline in production. Thus, lower realizations coupled with higher prices of key inputs such as imported coal, caustic soda, CP pitch and petroleum coke are expected to hit margins of non-ferrous companies during FY2013 in our view. We expect non-ferrous companies to report lower top-line on a yoy basis, owing to a decline in LME prices. Further, we expect operating profits to decline yoy on account of lower LME prices and higher costs of coal. However, for Nalco we expect net profit to increase by 52.5% yoy during the quarter as it had reported low profitability during 2QFY2012. We remain positive on Hindustan Zinc.
Exhibit 7: Average base metal prices (US$/tonne)

2QFY13 Copper Aluminium Zinc 7,710 1,920 1,884 2QFY12 8,992 2,430 2,251 yoy % (14.3) (21.0) (16.3) 1QFY13 7,829 2,019 1,929 qoq % (1.5) (4.9) (2.3)
On a yoy basis, inventory levels at the London Metal Exchange (LME) warehouse for copper decreased by 4.9%, while zinc and aluminium inventories rose by 12.4% and 7.7%, respectively. On a qoq basis, copper and aluminium inventory decreased by 1.6% and 1.7%, respectively, while zinc inventory increased by 4.1%.
Exhibit 8: Inventory chart

160 140 120 100 80 60 40 20 0 Apr-11 Jun-11 Aug-11 Oct-11 Dec-11 Feb -12 Apr-12 Jun-12 Aug-12
Copper
Aluminium
Zinc
Source: Bloomberg, Angel Research; Note: Base = 100

Company Coal India Hindalco Hind. Zinc JSW Steel MOIL Nalco NMDC SAIL Sesa Goa Sterlite Inds Tata Steel CMP (`) 359 121 135 757 252 51 194 85 171 99 401 Net Sales 2QFY13E 15,832 6,423 2,733 8,315 237 1,890 2,950 10,960 725 11,121 34,498 20.4 3.2 5.4 9.0 (4.4) 19.1 (3.7) 1.1 (8.2) 9.7 5.2 OPM (%) chg bp 892 (330) (580) 220 292 676 (535) 228 (781) (477) 112 29.8 7.5 50.7 19.2 47.7 16.4 74.1 13.2 25.1 19.7 9.5 Net P rofit Profit 2QFY13E 4,013 364 1,347 818 109 212 1,838 962 247 1,299 743 55.1 (27.7) (1.6) 27.8 7.9 52.5 (6.4) (4.1) 5.1 26.4 250.5 EPS (`) % chg 55.1 (27.7) (1.6) 27.8 7.9 52.5 (6.4) (4.1) 5.1 26.4 250.5 6.4 1.9 3.1 6.8 6.5 0.8 4.7 1.2 2.8 3.8 13.3 EPS (`) FY12 23.4 17.7 13.1 55.9 25.5 3.4 18.3 9.2 30.3 14.4 55.5 FY13E 26.0 13.2 14.3 79.9 24.5 3.4 21.1 9.6 42.0 16.3 48.6 FY14E 28.3 16.2 15.5 89.4 26.1 4.1 23.4 11.7 43.1 16.9 63.3 FY12 15.3 6.8 10.3 13.5 9.9 15.1 10.6 9.2 5.6 6.9 7.2 P/E (x) FY13E 13.8 9.1 9.5 9.5 10.3 14.9 9.2 8.9 4.1 6.1 8.2 FY14E 12.7 7.5 8.7 8.5 9.7 12.5 8.3 7.3 4.0 5.9 6.3 Tar get arg (`) 385 144 271 48 214 481 % chg 2QFY13E % chg 2QFY13E
(` c r) cr
Reco. Accum. Neutral Accum. Neutral Accum. Reduce Accum. Neutral Neutral Neutral Buy
Source: Company, Angel Research; Note: Price as on September 28, 2012; EPS calculation based on fully diluted equity; Denotes consolidated numbers
Analyst : Bhavesh Chauhan / Vinay Rachh

33
Oil & Gas

During 2QFY2013, the price of Brent crude oil rose in the July - August period before falling steeply in September 2012. Overall, average Brent crude oil was flattish during 2QFY2013. Further, the WTI (West Texas Intermediate) crude oil price also remained flat, broadly reflecting flattish move in Brent crude oil price. Average Henry Hub natural gas price increased by 25.6% qoq after falling steeply over the past one year. Further, Asian spot LNG price remained firm on account of demand-supply mismatch in Asia. Prices of petrochemical products, on the other hand, remained flat on a qoq basis during 2QFY2013. During July and August 2012, Indian crude oil basket for oil prices stood at US$100/bbl and US$110/bbl, respectively. Rise in international crude oil prices coupled with INR depreciation against the USD resulted in higher under-recoveries for oil marketing companies (OMCs) on account of selling diesel, kerosene and domestic LPG at subsidized rates. Thus, the government increased the price of diesel by `5/liter and capped the number of subsidized LPG cylinders to 6 per household per year during September 2012. During the first half of September 2012, OMCs continued to lose `496cr per day. OMCs continued to lose `13.9/liter, `32.7/liter and `347/cylinder on diesel, kerosene and domestic LPG, respectively, during the first half of September 2012. Bank which stated that it may undertake outright open market bond purchases of a size adequate. Outages in North Sea and lower output from Iran also resulted in firm oil price. Further, the announcement of QE3 by the US Federal Reserve resulted in higher crude oil price during September 2013. However, during the second half of September 2012, the price declined. Average Brent crude oil price increase modestly by 1.2% qoq.
Petrochemical prices remained flat qoq in 2QFY2013

Average prices of petrochemical products remained flat on a qoq basis during 2QFY2013 in INR terms as the increase in crude oil prices was offset by lower demand for petrochemicals.
Exhibit 3: Petchem prices remained flat qoq in 2QFY13

120 100 80
( ` /kg)
60 40 20 0 Aug-09
Dec-09
Apr-10
Aug-10
Dec-10
Apr-11
Aug-11
Dec-11
Apr-12
Aug-12
PTA
MEG
CHIPS
POY
Source: Industry sources, Angel Research
Exhibit 1: Indian crude basket trend

128 124 120 116 112 108 104 100 96 92 88 84 80 Oct-11 Dec-11 Feb-12 Apr-12 Jun-12 Aug-12
Oil supply across the world continued to improve in 2QFY2013 on account of higher production from both, OPEC (Organization of the Petroleum Exporting Countries) and non-OPEC countries.
(US$/bbl)
Exhibit 4: World oil supply improved in 2QFY2013

92 92 91
(mnbpd)
91 90 90 89 89 Oct-11 Dec-11 Feb -12 Apr-12 Jun-12 Aug-12

Total oil supply - Monthly
Indian crude oil basket
Source: PPAC, Angel Research
Brent crude increased slightly during 2QFY2013

Brent crude oil price remained volatile in 2QFY2013. Price rose by USD10/bbl in August, partly driven by the European Central
EIA downgrades oil demand estimates

The Energy Information Administration (EIA) has lowered its estimate for world oil consumption to 0.8mnbpd, compared to its previous estimate of 0.9mnbpd for CY2012. Nevertheless, it has increased its forecast for CY2013 to 0.9mnbpd, compared to its previous estimate of 0.7mnbpd. On the supply front, EIA projects non-OPEC crude oil and liquid fuels production to increase by an average 0.6mnbpd in CY2012 and by 1.3mnbpd in CY2013. Higher supplies are expected mainly from North America (+0.9mnbpd and 0.4mnbpd in CY2012 and CY2013, respectively).
34
Exhibit 2: Crude oil remained volatile during 2QFY2013

130 125 120
(US $ /barrel)
115 110 105 100 95 90 85
Sep-11
Oct-11
Nov-11
Dec-11
Feb-12
Jan-12
Mar-12
May-12
Source: PPAC, Angel Research Refer to important Disclosures at the end of the report
Aug-12
Sep-12
Jun-12
Apr-12
Jul-12
Oil & Gas

US gas prices rise; Asian gas prices also remain firm
Average Henry Hub natural gas price increased by 25.6% qoq after declining for the past one year. Further, Asian spot LNG prices continued to remain high on account of higher demand in Asia.
Key developments
Diesel price hiked by `5/litre; caps on LPG cylinder
During 2QFY2013, the Cabinet Committee on Economic Affairs (CCEA) raised the price of diesel steeply by `5/litre. Out of this, `1.50/litre was on account of increase in excise duty. The balance increase of `3.50/litre is expected to reduce the under-recoveries of OMCs by `15,000cr for the remaining part of FY2013. Further, CCEA also decided to cap the number of subsidized LPG cylinders to six per household in a year. This would result in reduction in under-recoveries by approximately `5,300cr during 2HFY2013. CCEA also lowered the excise duty on petrol by `5.3/litre to make up for the losses of OMCs. This move as a whole had a short-term positive impact in stock prices of both upstream and downstream companies.
Exhibit 5: US gas prices rose in 2QFY2013

5.5
(US $/mmbtu)
4.5
3.5
2.5
1.5
Feb-12
May-12
Sep-11
Jul-12
Nov-11
Dec-11
Mar-12
Henry Hub Natural Gas Spot Price
Aug-12
Jan-12
Apr-12
Jun-12
Sep-12
Oct-11
Exhibit 6: Asian LNG prices remain firm

20
CAG blames ONGC over inadequate efforts in oil and gas exploration
During the quarter, CAG in a report on Hydrocarbon Exploration Efforts of ONGC, blamed ONGC for not putting desired emphasis on discovering new oil and gas finds and also for being slow in monetizing its discoveries. The report recommended that the Oil Ministry must reset annual targets set out in Memorandum of Understanding (MoU) that the company signs with the government. The report also stated that less than 50% of the basins were only able to meet 2D/3D survey targets as ONGC was tardy in purchase of seismic survey vessels. It also recommended a review of Reserve Replacement Ratio (RRR) as a performance parameter for ensuring performance in exploration efforts as although ONGC has been able to maintain its RRR, its production has remained constant over the past several years.
(US$/mmbtu)
15
10
5
Dec-06 Dec-07 Dec-08 Dec-09 Jun-06 Dec-10 Sep-06 Jun-07 Dec-11 Sep-07 Jun-08 Sep-08 Jun-09 Sep-09 Jun-10 Sep-10 Jun-11 Sep-11 Mar-06 Mar-07 Mar-08 Mar-09 Mar-10 Mar-11 Mar-12 Jun-12
LNG price
Exhibit 7: Crude inventory decreased in 2QFY2013

400 380
(000 bbls)
360 340 320 300 280
PNGRB slashed GAIL's tariff for a pipeline

During 2QFY2013 the oil regulator - Petroleum and Natural Gas Regulatory Board (PNGRB) had cut GAIL's transportation tariff for the Dadri-Bawana-Nangal pipeline by 57% to `11.85/mmbtu and Jamnagar-Loni LPG pipeline by 18-26%. In case of Dadri-Bawana-Nangal pipeline, GAIL had seeked a tariff of `27.73/mmbtu on which it aimed to spend a capex of `2,203cr. PNGRB did not consider the capex of `365cr for the spurline built from Panipat to Amritsar for tariff determination. Since the Dadri-Bawana-Nangal pipeline has not yet been fully commissioned, there is no material impact on GAIL's financials. However in case of Jamnagar-Loni LPG pipeline the company will have to make a one-time payment of `100cr as this order was from retrospective effect. Further, GAIL's top-line will be lower by `120cr annually (0.3% of GAIL's net sales) which is not very significant and will not impact the company's financials.
35
Nov-11 Dec-11 Mar-12 Feb-12 Aug-12 Oct-11 Jan-12 Apr-12 Jun-12 May-12 Sep-12 Sep-12 Jul-12
DOE crude oil inventory
Exhibit 8: Motor gasoline inventory declined in 2QFY13

240 230 220
(000 bbls)
210 200 190 180 170
Oct-11
Nov-11
Feb-12
Jun-12
Dec-11
Mar-12
May-12
DOE motor gasoline inventory
Source: Bloomberg, Angel Research Refer to important Disclosures at the end of the report
Aug-12
Jan-12
Apr-12
Jul-12
Oil & Gas

Cairn India acquired 60% stake in an oil block
During the quarter Cairn India acquired a 60% stake from PetroSA in an oil exploration block in Orange basin (Block 1) of South Africa. Block 1 covers a large area of 19,922km and is in the initial stages of exploration. It has an existing gas discovery and has identified oil and gas leads and prospects. Cairn India did not spend any funds for acquisition; however, it will make all the required investments for exploration and drilling and will work as an operator.

18.0 16.0 14.0 12.0
(%)
10.0 8.0 6.0 4.0 2.0 0.0 RIL GAIL BSE O&G Index Cairn ONGC
PNGRB cuts GSPL's pipeline tariff by 40%

During the quarter, PNGRB had cut Gujarat State Petronet's (GSPL) tariff rate for its 2,239km Gujarat Gas Grid by 40% to `23.99/mmbtu. Further, PNGRB had stated that the approved tariff will be effective from November 2008 which implied that the company would have to adjust the rates in subsequent bills for its customers. The final tariff approved by PNGRB was better than street's expectations and it removed the overhang over the stock of the tariff regulation.
For 2QFY2013, we expect mixed profitability performance for our coverage companies. For RIL, we expect the top-line to increase by 19.6% yoy on account of higher prices of petrochemicals. However, its operating profit is expected to decrease by 25.7% yoy mainly due to decline in production from the KG D6 block. For ONGC, we expect net sales to decrease by 16.4% yoy mainly on account of yoy increase in subsidy. ONGC's PAT is expected to decrease by 34.5% yoy. GAIL is expected to report a top-line growth of 25.7% yoy on account of increase in volume. However, its net profit is expected to increase by only 3.2% yoy due to higher interest and depreciation expenses. Cairn India's net sales are expected to increase by 66.6% yoy mainly on account of increase in volumes; its operating income is also expected to increase by 66.1% yoy. However, its bottom-line is expected to increase by 1,109.9% due to low base in 2QFY2012. Cairn India had charged a one-time royalty of `1,355cr in 2QFY2012 which had depressed its bottom-line.
O&G stocks increased during 2QFY2013

During 2QFY2013, the BSE Oil and Gas Index recorded an increase of 9.1% in line with the rise in the broader market after a series of reforms in India such as diesel price hike. Reliance Industries (RIL) rose by 16.3% due to increase in Singapore GRMs coupled with ongoing buy-back program. GAIL's stock increased by 10.7% during 2QFY2013 after falling steeply over the past several months. ONGC's stock also posted a 1.1% increase due to diesel price hike and cap on LPG cylinders which is expected to reduce the subsidy burden on the upstream companies.

Company Cairn India GAIL ONGC ^ RIL ^ CMP (`) 331 383 280 837 Net Sales 2QFY13E 4,418 12,196 19,175 93,934 66.6 25.7 (16.4) 19.6 OPM (%) chg bp (25) (159) (745) (474) 79.1 15.7 55.7 7.8 Net P rofit Profit 2QFY13E 1,129 5,662 5,013 2,807 1,109.9 3.2 (34.5) (12.1) EPS (`) % chg 3.2 (34.5) (12.1) 48.4 1,109.9 8.9 6.6 15.3 EPS (`) FY12 42.2 28.8 32.9 66.2 FY13E 57.0 35.4 30.7 61.5 FY14E 54.9 36.5 32.3 64.3 FY12 7.9 13.3 8.5 12.6 P/E (x) FY13E 5.8 10.8 9.1 13.6 FY14E 6.0 10.5 8.7 13.0 Tar get arg (`) 380 312 % chg 2QFY13E % chg 2QFY13E
( ` cr)
Reco. Accum. Neutral Accum. Neutral
Source: Company, Angel Research; Note: Price as on September 28, 2012; ^Standalone numbers for the quarter and consolidated numbers for the full year
Analyst : Bhavesh Chauhan / Vinay Rachh

36
Pharmaceutical
Pharma sector continues its outperformance
During 2QFY2013, the BSE Healthcare (HC) index continued its outperformance. The HC index rose by 9.0% as against a 7.8% rise in the Sensex. The performance of the sector was mainly driven by the mid-cap stocks and stocks which had not participated in the rally so far. pipeline. Nearly 830 employees would be transferred to Hospira as part of the business transfer. The funds raised from this sale will be used to repay high-cost debt. The company has nearly `2,200 crore as debt on its books. Orchid intends to repay `800 crore from the sale proceeds of nearly `1,200 crore and use the balance to fund working capital requirements and invest in newer businesses. Assuming all necessary approvals are secured, the transaction is expected to be completed in the third quarter of 2012-13. At current valuations, the deal has been done at attractive valuations and the sale of the unit will entail a loss of revenues to the extent of `450cr annually and `100cr at the EBDIT levels. However, the management expects to make up for the same through the savings on the interest component on back of debt repayment. On the EBDITA front, the EBDITA post the deal is expected to be around 14-15% and consequent to the same the company's sales mix would be API: Formulation of 70:30 and the EPS for FY2014 is expected to come down to `12-13. Thus, at the current market price, the stock trades at 8.6x FY2014E earnings, leaving little room for further upsides and hence we recommend a Neutral stance on the stock.
Exhibit 1: BSE HC Index vs. the Sensex

15.0 10.0 5.0
(%)
0.0 (5.0) (10.0) (15.0) 2QFY2012 3QFY2012 4QFY2012 1QFY2013 2QFY2013
BSE HC
Sensex
Source: C-line, Angel Research
The upward rally during the quarter was mainly driven by mid-caps, whereas the large-caps posted gains in line with the BSE HC. The major gainers were Dishman Pharmaceuticals and Chemicals (Dishman Pharma), IPCA Labs and Alembic Pharma, which rose by 41.8%, 33.4% and 30.2% respectively. Other mid-caps like Aurobindo and Indoco Remedies rose by 24.0% and 23.8% respectively. Among the large caps, Cipla rose by 20.5%, whereas other large-caps like Ranbaxy Laboratories (Ranbaxy) , Cadila and Lupin rose by 6.8%, 13.2% and 9.7% respectively. Dr. Reddy's (DRL), on the other hand was flat during the quarter. Amongst the MNC pack, Glaxosmithkline Pharmaceuticals (Glaxo) was down by 2.4%, whereas Aventis Pharma was up by 8.4%. Amongst the major losers was Orchid Chemicals, which lost about 6.8%.
Sun Pharma - USFDA lifts ban on Caraco

Sun Pharma announced that subsequent to inspections earlier this year and corrective action on 483s, the US Food and Drug Administration (USFDA) has determined Caraco to be in compliance with relevant paragraphs of the Consent Decree. Therefore, the USFDA has notified that Caraco may resume operations at its manufacturing facility and packaging sites in Detriot and Wixom, Michigan. During their inspection, the USFDA reviewed the certification reports for production of Carvedilol USP as well as Paramomycin USP , and subsequently reviewed corrective actions on 483s. Currently, Caraco may resume production of only these two products. Manufacturing of other products from these sites, including those pending approval with the USFDA, will be subject to a similar rigorous approval procedure. As a result, the increase in production at these sites and resultant revenue contribution is expected to be gradual. With reference to other requirements of the same Consent Decree, Caraco is required to now work with an external auditor conducting regular inspections for an extended period. Currently we are maintaining our estimates and our Neutral rating on the stock, given the valuations.
Key developments
Orchid sells drugs units to Hospira
A debt overhang coupled with the inability to raise equity has forced Orchid Chemicals & Pharma to sell its Penicillin and Penem active pharmaceutical ingredient (API), including its plant in Aurangabad, to US-based Hospira for around $200 million (`1,200 crore). Orchid Pharma, the pharmaceutical division of Orchid Chemicals and Pharmaceuticals, said that it had entered into a business transfer agreement (BTA) with Hospira for the sale and transfer of Penicillin and Penem API business and the API facility located in Aurangabad (Maharashtra) together with an associated process R&D infrastructure in Chennai. The sale includes the related Penicillin and Penem product portfolio and
37
Pharmaceutical
Ranbaxy - Withdrawal of drugs: Ranbaxy has withdrawn 27 approved abbreviated new drug applications (ANDAs) in the US market. It has clarified that the withdrawn products would have negligible commercial impact. According to the company, the withdrawal would enable the organization to focus resources on other applications that are of greater importance and value to the US business and healthcare system. Further, according to the company, the aforesaid ANDAs do not pertain to current business and will have a negligible impact on the company's business in the US. We recommend a Neutral view on the stock. of 14.8%. Other players, namely DRL, Lupin and Cadila are expected to report 23.5%, 18.2% and 26.6% growth in net sales, respectively. Amongst small caps, Indoco Remedies is expected to post a 23.0% yoy sales growth. Amongst the MNC pack, Aventis Pharma is likely to post a 25.6% yoy growth in net sales, while Glaxo is expected to post a 13.2% yoy growth of sales.
Exhibit 2: Sales growth and OPM for 2QFY2013

50.0 40.2 40.0 31.0 30.0 22.6 18.2 19.1 14.8 13.5 36.9 23.5 25.1
Aurobindo Pharma gets approval for Montelukast tablets

Aurobindo Pharma has announced that it has received the final approvals from the USFDA to manufacture and market Montelukast Sodium Tablets 10mg (ANDA 202468) and Montelukast Sodium Chewable Tablets 4mg and 5mg (ANDA 202096). The products are ready for a first-day launch. Montelukast Sodium Tablets 10mg and Chewable Tablets 4mg and 5mg are the generic equivalent of Merck & Co Inc's Singulair Tablets 10mg and Chewable Tablets 4mg and 5mg respectively. The annual sales of Montelukast Sodium Tablets 10mg is approximately US$3.5 billion and that of Montelukast Sodium Chewable Tablets is US$1.1 billion for the twelve months ending March 2012 according to IMS health. The products have been approved out of its Unit VII (SEZ) formulations facility in Hyderabad, India. Aurobindo now has a total of 157 ANDA approvals (131 final approvals including 1 from Aurolife Pharma LLC and 26 tentative approvals) from the USFDA. Overall, the company expects around 7-8 players in the product. Given the size of the product, the product can contribute around US$2030mn for the full year. However, this has already been included in our financials and the 15% yoy revenue growth target for FY2013. At the current market price, we maintain our estimates and Accumulate recommendation with a target price of `156.
(%)
20.0 10.0 0.0 Sun Pharma
Lupin
Cipla Sales growth
Ranbaxy OPM
DRL
Source: Angel Research
Among large caps, DRL and Cadila to outperform

Among the large caps in our coverage universe, for 2QFY2013, Sun Pharma is likely to clock a 31.0% yoy growth on the sales front, led by both exports and domestic sales. Operating profit margins would decline by 120bps with margins likely to be around 40.2%. This along with a higher tax outgo, would lead to an expected net profit growth of 11.3% yoy during the quarter. Lupin, on the other hand, is expected to register a revenue growth of 18.2%. OPMs are expected to decline by 230bps during the period, which would limit the net profit growth to 1.3% yoy. DRL is expected to post strong results with a top-line growth of 23.5% to `2,800cr, majorly driven by the US market. The company is expected to see strong traction in its Indian and Russian formulation businesses as well. In terms of the pharmaceuticals services and active ingredients (PSAI) segment, the performance is expected to be lackluster for 2QFY2013.The company is expected to post an OPM of 25.1%, up 390bp yoy. On the net profit front, the company is expected to post a net profit of `507cr, ie a growth of 65.3% over the corresponding period of the previous year. Cipla is expected to post a net sales growth of 14.8% to `1,987cr, driven mainly by the domestic performance. On the operating front, the OPM (excluding technical know-how fees) is expected to come in at 22.6%, almost same as in the corresponding period of the previous year. Further, the net profit is expected to increase by 9.7% yoy to `339cr.
2QFY2013 Result Expectations

The Indian pharma sector is expected to post robust numbers for 2QFY2013 on the sales front. We expect our coverage universe to register a 23.0% yoy top-line growth. On the operating front, the margins are expected to expand by 157bps. This along with the losses on the net level by some of the companies in the last corresponding period, the companies in our coverage are expected to post a growth of 60.5% yoy. Amongst large caps, Sun Pharma is expected to post a 31.0% yoy sales growth. Cipla is expected to post a net sales growth
38
Pharmaceutical
Ranbaxy is expected to post a growth of 36.9% with sales at `2,768cr during 3QCY2012. The OPM is expected to be at 13.5% vs 5.0% in 3QCY2011. However, the net profit is likely to come in at ` 357cr, vs a loss of ` 124cr during the corresponding period of the previous year. Cadila is expected to post yet another strong quarter with a 26.6% growth in net sales to `1,544cr on the back of robust growth on the domestic formulation and exports front. On the OPM front, we expect the company's OPM to expand by 40bps yoy to 18.5% on the back of a favourable product mix. The net profit is expected to increase by 62.5% yoy to `167cr, on back of a lower interest outgo during the quarter. Indoco Remedies is expected to report a top-line growth of 23.0% to `178cr.The OPM is expected to expand by 330bps yoy to 15.7%, driven by growth in domestic formulation sales. As a result, net profit is expected to increase by 9.2% yoy to `15.1cr on back of higher tax outgo.
Outlook and Valuation

With an expected CAGR of ~20% in earnings over FY2012-14E for our universe of pharma stocks, we remain overweight on the sector maintaining a positive future outlook and earnings growth. Though the stocks have witness a good upsides, in near time, leavening little upsides for stocks in near time. However, given the opportunities, in the sector we maintain our long-term buy on the stocks. Given, the opportunities, in the generic segment; we prefer Lupin, Cadila Healthcare, Aurobindo Pharma and Indoco Remedies. In the contract research and manufacturing services (CRAMS) space, though it's currently witnessing some pressure, there have been indications of gradual recovery and ramp up from most of the CRAMS players. Thereby, with the valuations rendering attractive, we recommend Dishman Pharma in this segment from a long term perspective.
IPCA and Aurobindo Pharma excepted to fair well

We estimate Ipca's top-line to grow by 19.7% to `740cr for 2QFY2013. The OPM is expected to decline by 280bp yoy to 21.9%. In spite of the same, the adjusted net profit is expected to grow by 37.0% yoy, on back of expected lower interest outgo. Aurobindo Pharma is expected to post a net sales growth of 25.5% yoy, led by formulation exports. The margins are likely to expand to 15.1% vs 10.7% (in 2QFY2012), which will lead to a net profit of `48.4cr vs a net loss of `80.2cr.

Company Alembic Pharma Sanofi India# Aurobindo Cadila Cipla Dishman Dr. Reddys Glaxo# Indoco Rem. Ipca Lab. Lupin Orchid Chem. Ranbaxy Lab# Sun Pharma. CMP (`) 72 142 872 381 96 1,647 1,977 70 482 596 112 530 693 2,374 Net Sales 2QFY13E 419.4 392.7 1,349.0 1,544.0 1987.4 322.0 2,800.0 688.0 178.0 740.0 2,058.4 434.0 2,768.0 2,482.2 5.7 25.6 25.5 26.6 14.8 19.6 23.5 13.2 23.0 19.7 18.2 (5.4) 36.9 31.0 OPM (%) chg bp (80) 60 440 40 0 300 390 (130) 330 (280) (230) (320) 850.0 (120) 14.2 16.7 15.1 18.5 22.6 20.5 25.1 31.1 15.7 21.9 19.1 18.0 13.5 40.2 Net P rofit Profit 2QFY13E 34.7 51.9 48.4 167.2 338.9 19.1 507.1 167.2 15.1 106.7 270.3 29.0 357.2 665.1 (8.8) (5.4) 62.5 9.7 65.3 14.5 9.2 37.0 1.3 7.5 11.3 EPS (`) % chg (8.8) (5.4) 62.5 9.7 65.3 14.5 9.2 37.0 1.3 7.5 11.3 FY12 6.9 83.2 4.9 31.7 14.7 7.1 88.8 69.8 5.0 21.8 19.4 13.6 14.2 25.0 1.8 22.6 1.7 8.2 4.2 2.4 30.1 19.7 1.6 8.5 6.1 4.1 6.4 EPS (`) FY13E 6.6 95.1 11.8 36.0 18.4 9.2 83.7 76.0 7.4 29.2 26.3 11.4 31.3 26.0 FY14E 9.1 104.4 12.6 46.1 20.0 11.3 92.9 82.4 8.9 36.6 31.3 13.3 29.8 28.2 FY12 10.4 28.5 28.9 27.5 25.9 13.6 18.6 28.3 13.9 22.1 30.7 8.2 37.3 27.7 P/E (x) FY13E 10.8 25.0 12.0 24.2 20.7 10.5 19.7 26.0 9.4 16.5 22.7 9.8 16.9 26.7 FY14E 7.9 22.7 11.2 18.9 19.0 8.5 17.7 24.0 7.8 13.2 19.1 8.4 17.8 24.6 Tar get arg (`) 91 156 953 1,859 92 647 % chg 2QFY13E % chg 2QFY13E
(` cr)
Reco. Buy Neutral Accum. Accum. Neutral Neutral Accum. Neutral Buy Neutral Accum. Neutral Neutral Neutral
Source: Company, Angel Research; Note: Price as on September 28, 2012; Our numbers do not include MTM on foreign debt. # 3QCY2012
Analyst: Sarabjit K our Nangra Kour

39
Power
All-India power generation highlights
During April-August 2012, overall power generation in India rose by 4.9% yoy to 382.3BU, aided by a 14.0% yoy increase in installed capacity to 207,006MW. During this period, thermal power generation grew by 8.6% yoy to 310.2BU while hydro power generation declined by10.9% yoy to 55.5BU. Nuclear power generation posted a growth of 3.0% yoy to 13.7BU. The plant load factor (PLF) of thermal power plants during April-August 2012 stood at 69.9% vs 73.4% in corresponding period last year due to coal availability constraints. target of 88,425MW for the current Five-Year Plan period ending March, 2017 to bridge the widening demand-supply gap for electricity. However, we believe the target to be over-ambitious in the wake of multiple headwinds facing the power sector such as fuel availability issues and land acquisition delays. Exhibit 2: Generation capacity addition: Targeted vs. achieved
(MW) 25,000 20,000 15,000 10,000 5,000 0 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 5MFY13 Target (T) LHS Achievement (A) LHS A as a % of T (RHS) (%) 120.0 100.0 80.0 60.0 40.0 20.0 0.0
Generation for companies under coverage

During 5MFY2013, NTPC's power generation stood at 953.5BU, posting an increase of 5.8% yoy. GIPCL's generation (excluding 145MW Baroda Plant) rose by 10.3% yoy to 17.2BU; while for CESC, it rose by 1.7% yoy to 40.7BU.
Source: CEA, Angel Research
Fuel availability position

As of August 2012, 28 thermal power stations had coal stocks for less than seven days compared to 32 thermal power stations at the end of 1QFY2013. The main reason for less coal stocks was attributed to inadequate availability of domestic coal.
Transmission lines and substations

During 5MFY2013, 6,837 circuit kilometers (ckm) were added to the transmission lines, as against the targeted 7,979ckm. In the same period, total addition to the transmission sub-station category was 29,065MVA, as against the targeted 12,045MVA.
Imported coal prices down 28.5% yoy

During 2QFY2013, average prices of New Castle Mckloksey 6,700kc coal decreased by 28.5% yoy and 8.8% qoq to US$86.2 per tonne. Despite ~20.7% yoy and ~2.3% qoq depreciation in INR vs USD, coal prices are down by 13.7% yoy and 6.4% qoq in INR terms. The fall in imported coal prices augurs well for power companies as the shortage of domestic coal has forced them to import more coal. Exhibit 1: Global coal prices
250 200
USD/tonne
Power-deficit situation
The country continues to face power deficit due to the fuel shortage and deficiencies in the T&D system. India's overall and peak power-deficit levels during 5MFY2013 stood at 8.5% and 9.0% respectively, as against 5.9% and 8.2% reported in 5MFY2012.
Exhibit 3: India - Power-deficit scenario

(%)
20.0 16.6 16.0 12.2 13.8 11.2 11.7 12.3 12.0 12.7 9.8 8.8 9.6 9.9 11.0 10.1 8.5 10.6 9 8.5 8.5
coal prices down in INR terms
9000 8000 7000 6000 5000 4000 3000 2000 1000 0

INR/tonne
12.0 8.0 4.0 0.0

FY2003
7.1
7.3
8.4
150 100 50 0
Mar-06 Mar-07 Mar-08 Mar-09 Mar-10 Mar-11 Mar-12 Sep-05 Sep-06 Sep-07 Sep-08 Sep-09 Sep-10 Sep-11 Sep-12
FY2004
FY2005
FY2006
FY2007
FY2008
FY2009
FY2010
FY2011
FY 2012
Overall
Peak
Source:CEA, Angel Research
Exhibit 4: Region-wise power deficit (5MFY2013)

Region (%) Northern Western Southern Eastern Northeastern All India Source: CEA, Angel Research Overall (9.7) (3.5) (13.4) (5.4) (8.4) (8.5) Peak (8.9) (4.7) (15.3) (7.4) (10.0) (9.0)
PX_LAST
INR
Source: CEA, Angel Research
Capacity addition
During 5MFY2013, 6,766 MW of capacity was added compared to targeted capacity of 6954 MW. During the last few years, private power companies have made robust capacity additions. The Planning Commission has set a power capacity addition
5MFY2013
40
Power
Key developments
Sector
CA G report might delay captive coal block allocation: During CAG the quarter, the Comptroller and Auditor General (CAG) published a report on irregularities in coal block allocation, popularly dubbed as Coalgate scandal. The CAG report on coal block allocation states that between 2005 and 2009 nearly 57 coal blocks were allotted to private firms without transparency and objectivity which led to an estimated loss of `1.86 lakh crore to the exchequer. The government has disputed the CAG report. However, the opposition is demanding de-allocation of all these coal blocks. Currently, the government's stance is to only de-allocate coal blocks which have not met deadlines to start coal production. We believe the Coalgate scandal may result in further delay in allotting captive coal mines to power projects under construction. This may result in delaying India's power generation plans. CCEA clears debt restructuring plan of SEBs: The Cabinet Committee on Economic Affairs (CCEA) has cleared the debt restructuring of state electricity boards (SEBs) under which 50% of the short terms loans of these SEBs would be taken over by the state government. The restructuring by lenders is subject to steps taken by the state power distribution companies (discoms) to bridge the gap between the cost incurred and revenue realized to restore the viability of the sector. It will improve the financial position of state discoms, thereby enabling them to clear any pending dues of power generators. Hence, it is a positive development for power generating companies. FDI in power trading: The CCEA has permitted foreign investment of up to 49% in power trading exchanges, with foreign direct investment (FDI) limit of 26% and FII limit of 23%. FII investments would be permitted under automatic route and FDI would be permitted under government approval route. FSA agreement: Coal India (CIL) has agreed to supply 80% of contracted quantity of coal out of which 15% would be through imports. CIL has also accepted to pay a hefty penalty of 40% if it supplies coal below 50% of the contracted quantity. The revised penalty clause is a relief to power companies as earlier fuel supply agreements (FSAs) had penalty as less as 0.01%.
Exhibit 6: Revised penalty at different trigger levels

Supplies Below 50% 50%-60% 60%-65% 65%-80% Penalty(%)* 40 10-20 5 1.5
Source: Angel Research; Note: *Penalty would be % of value of coal not supplied
Company
During the quarter, NTPC has commissioned unit 3 of 660MW of Sipat STPS stage-1 and unit 4 of 500MW of Simhadri STPS. With this the commercial capacity of NTPC group stands at 37,174MW. Meanwhile, NTPC has agreed to sign the new FSA with Coal India for units commissioned after January 2010.
Exhibit 5: Performance on the bourses in 2QFY2013

(%) 16.0 14.0 12.0 10.0 8.0 6.0 4.0 2.0 NTPC CESC GIPCL BSE Power SENSEX 5.4 3.1 9.3 7.6 14
Source: BSE, Angel Research
Outlook: The power sector is currently facing many headwinds such as fuel shortage, falling merchant tariffs, land acquisition problems, and poor financial health of SEBs. The government has shown its intent on reforms with restructuring plans for SEBs and granting permission of foreign investment of up to 49% in power trading exchanges. If the government continues with measures such as captive coal allocation policy and land acquisition policy, it will be positive for the sector in the medium to long term. We recommend Accumulate on GIPCL and remain Neutral on NTPC and CESC.

Company CESC GIPCL NTPC*# CMP (`) 331 71 168 Net Sales 1QFY13E 1,441 361 16,126 17.8 20.2 4.9 OPM (%) chg bp (12) 17 114 21.1 31.8 22.2 Net P rofit Profit 1QFY13E 131 35 2,365 14.9 24.8 (2.5) EPS (`) % chg 14.9 24.8 (2.5) FY12 44.1 8.4 11.5 10.4 2.3 2.9 EPS (`) FY13E 44.6 10.8 12.1 FY14E 47.6 11.0 13.7 FY12 7.5 8.5 14.6 P/E (x) FY13E 7.4 6.6 13.9 FY14E 7.0 6.5 12.2 Tar get arg (`) 77 % chg 1QFY13E % chg 1QFY13E
( ` cr)
Reco. Neutral Accum. Neutral
Source: Company, Angel Research; Note: Price as on September 28, 2012; * Consolidated; #Quaterly numbers pertains to standalone financials
Analyst - V . Srinivasan / Amit P atil V. Patil

41
Real Estate
Real estate prices in Mumbai have increased significantly over the past few quarters, that too at a much faster rate than other key cities, and have been accompanied by falling absorptions. In our opinion, the increase in prices can be attributed to declining launches seen over the past few quarters, for which uncertainty due to Development Control Regulations (DCR) and slow approval process have been significantly responsible. However, with the new DCR rules in place, we expect the launch activity to significantly improve over the coming quarters. The average prices in Mumbai have rallied by 85% since the end of 2009, followed by Pune (35%) and Chennai (20%). Although it is natural for Mumbai real estate prices to trade at a premium over other cities given its dynamics, we note that the price premium over other cities has increased significantly to ~190% currently from ~90% at the end of 2009. The strong increase in prices has negatively impacted affordability, which is being reflected in the city's falling volume levels. For FY2012, the decline in sales was the highest in Mumbai, followed by Hyderabad and NCR whereas southern cities of Chennai and Bangalore along with Pune showed strong sales for the year. For 2QFY2013, we expect residential volumes to report a flat to moderate growth on a sequential basis on account of weak demand due to high interest rates and elevated property prices, especially in Mumbai and NCR. We are of the opinion that a 10-15% price cut in Mumbai can lead to a significant demand revival in Mumbai. Revenue of real estate companies is expected to be largely driven by execution of existing projects, though execution delays remain a cause of concern. Inventory levels are expected to remain high in Mumbai and NCR. In our universe of stocks, we expect HDIL to report negligible Transfer of Development Rights (TDR) volumes, given low inventory of TDRs left on account of stoppage of the Mumbai International Airport (MIAL) project. DLF's revenue is expected to be largely driven by the sale of plotted properties in Gurgaon. DLF has also decided to focus on high margin premium housing going forward, citing increased cost pressure. We expect sales volume to remain robust for Mahindra Lifespace Developers (MIAL) following the launch of its project in Chennai. Exhibit 2: Key cities - Office vacancy rates
(%) 35 30 25 20 15 10 5 1Q11 2Q11 3Q11 4Q11 1Q12 1Q09 2Q09 3Q09 1Q08 2Q08 3Q08 4Q08 1Q10 2Q10 3Q10 4Q10 2Q12
4Q09
Mumbai
Chennai
Bangalore
NCR
Hyderabad
Pune
Source: C&W, Angel Research
Interest rate cuts to benefit

The Reserve Bank of India (RBI) rate cut at the start of the year is expected to slightly benefit developers, leading to lower cost of borrowing and marginal improvement in housing demand during the quarter; however, rates still remain elevated and further rate cuts are required in order to see a meaningful recovery in sales. We are of the opinion that revival in housing demand will be led by mid-market housing, which remains more sensitive to interest rate cuts. Housing loans in proportion of total non-food credit outstanding have been falling over the past four years and can see a possible reversion if mortgage rates start to come down.
Cost increase has been moderated

Around 70% of the construction cost is contributed by materials (steel and cement) and labor costs. Although cost overruns have been a cause of concern for real estate developers in the past, they seem to be moderating. The major components of these costs are steel, cement and labor. Currently, on a y-o-y basis, cement prices have slightly decreased to ~`275/bag from ~`290/bag; steel prices, on the other hand, have been more or less stable at `42,613/ton vs `42,875/ton last year. During 2QFY2013, the BSE realty index slightly outperformed the Sensex by 1.0% following the recent strong performance. Anant Raj Industries (+38%) has been the best performer followed by DLF (+14%) and Mahindra Lifespace Developers (MLIFE; +13%).
Exhibit 1: Key cities sales volume (LTM - yoy%)

(%) 60 50 40 30 20 10 (10) (20) (30) Mumbai NCR Chennai Bangalore Pune Hyderabad
Source: Bloomberg, Liasas foras, Angel Research
42
Real Estate
Exhibit 3: Price performance of coverage universe
(%) 60 50 40 30 20 10 0 DLF HDIL MLIFE ARCP BSE Realty SENSEX

India's Realty Index is currently ruling near its lifetime low seen in 2008. However, things are better than 2008 with respect to project visibility, cash flow, net debt-equity and growing disposable incomes. Further, refinancing of loans from the banking sector will give some respite to developers in the falling volume scenario. Having said that, we believe absorption and not price appreciation will drive residential growth over the next six quarters. Further, high inventory is still hampering commercial recovery, especially in the office space with vacancy rates still elevated in key cities. However we don't expect commercial space to deteriorate further given the falling launches in the space. Though the situation is now much better than in 2008, challenges such as high debt levels, falling absorptions and high inventory remain a challenge for the sector. Given the recent run up in the realty stocks under our coverage we turn Neutral on MLIFE and Anant Raj Industries.
Exhibit 4: BSE Realty vs Sensex (Indexed to 100)

115 110 105 100 95 90 85 80
Aug-12 Aug-12 Aug-12 Aug-12 Jul-12 Sep-12 Jul-12 Sep-12 Jul-12 Sep-12 Jul-12 Sep-12 Jul-12
BSE Realty
SENSEX

Company CMP (`) MLifeMlife DLF HDIL Anant Raj 378 234 98 71 Net Sales 2QFY13E 97 2,469 366 105 OPM (%) chg bp (1.5) 3.6 (0.7) (1.0) Net P rofit Profit 2QFY13E 24.9 380 126 42 EPS (`) % chg (20.8) 2.2 (15.2) 20.0 FY12 29.2 7.1 17.9 3.8 EPS (`) FY13E 32.0 9.6 22.7 8.4 FY14E 37.0 13.4 26.6 12.7 FY12 13.0 32.71 5.5 18.6 P/E (x) FY13E 11.9 24.3 4.3 8.5 FY14E 10.3 17.4 3.7 5.6 Tar get arg (`) 0 115 % chg 2QFY13E 3.9 (2.5) (16.9) 15.2 26 50 52 53 % chg 2QFY13E (20.8) 2.2 (15.2) 20.0 6.1 2.2 3.0 1.4
( ` cr)
Reco.
Neutral Neutral Buy Neutral
Analyst - Rahul K aul Kaul

43
Telecom
During February 2012, in a major blow to various telecom players, the Supreme Court, in its judgment on the 2G case, cancelled 122 licenses given to telecom firms since January 2008. After this move, as expected, some telecom players (DB Etisalat and S Tel) expressed intentions of shutting down operations in India. For the companies under our coverage - Bharti Airtel (Bharti) and Reliance Communications (RCom), none of their licenses were canceled, as all of their licenses had been issued before 2008. We believe this move will increase consolidation in the highly competitive telecom industry, and the total number of players operating in the industry can come down considerably. Post this, the Telecom Regulatory Authority of India (TRAI) came out with its recommendation on spectrum auction during April 2012. TRAI recommended a reserve price of ~`18,000cr for 5MHz pan India (1800MHz spectrum). But after a lot of discussion in the market pointing that the reserve price set by TRAI was high, the cabinet finally decided a reserve price of ~`14,000cr for 5MHZ pan India (1800MHz band; 22% lower than TRAI's recommendation). We believe, despite the reduction, the reserve price remains a negative for the sector along with the decision not to reduce spectrum usage charges, which has been kept unchanged at 3-8% as against 1% recommended by TRAI. Decisions regarding one-time excess spectrum fee and modalities of spectrum refarming are yet to be made, which in our view will add to the overhang on the sector. The recent set of developments again advocate the challenging regulatory outlook for industry players. Along with the aforesaid developments on the regulatory side in the telecom sector, during 1QFY2013 results, the management of all the telecom companies pointed out that the competitive intensity in the industry has increased and the industry has once again started to witness pricing pressure in 1QFY2013 after two quarters of respite. Hyper competition in the industry will lead to increase in pricing pressure on telecom companies which will keep voice average revenue per minute (ARPM) under pressure. In addition, lower subscriber additions add to the negative woes. All this would lead to margin contraction, thereby leading to overall profitability being under pressure. All these events created pressure on the share prices of all telecom companies during 2QFY2013. But in the later half of September 2012, RCom raised its tariff by 25% for its GSM subscriber base which led to speculation in the market that other players could also implement similar hikes. This will lead to an increase in operating margins of telecom companies, on expectation of which the stock prices of telecom companies drew support during the end of the quarter.
Exhibit 1: Stock return analysis of leading Indian TSPs

20 15 10 5 0
(%)
14.4 4.8
(5) (10) (15) (20) (25) (30) (35) (30.0) Bharti Idea
Chg. (3 months) Chg. (1 year)
(12.6)
(13.2) (17.5)
RCom
VLR data points favorable for tier-I companies

As per the recent visitor location register (VLR) data released for July 2012, of the total 920mn subscribers, 76.42%, ie 703mn subscribers were active subscribers on the date of peak VLR. Service-provider wise, Idea leads the tally with a share of 92.8%, followed by Bharti with 90.5%, Vodafone with 89.2% and RCom with 76.0%, whereas MTNL stood at the bottom with 39.5% active subscribers. RCom has shown substantial improvement in its peak VLR data from 66.5 in April 2012 to 76.0 in July 2012 as the company removed inactive customers (subscribers who have not had any usage in the last 60 days) from its subscriber base, focusing on the quality of its subscribers.
Exhibit 2: VLR data of incumbents

100 91.4 90 80
(%)
93.2 90.5 88.9 89.2
92.8
76.0
70 60
66.5 58.7 54.3 53.4 58.6
50 Bharti Vodafone Idea Rcom BSNL Aircel
Apr-12
May-12
Jun-12
Jul-12
Exhibit 3: Active subscribers (July 2012)

Active subscribers (mn) Bharti Vodafone Idea RCom BSNL Aircel MTNL 170.8 138.1 109.2 102.9 50.5 38.2 2.1 Active subscribers' market share (%) 24.28 19.64 15.52 14.63 7.19 5.42 0.29 Active subscribers' Reported subscribers' market share (%) market share -April 2012 (%) 24.34 19.54 15.48 14.97 7.47 5.42 0.29 20.51 16.83 12.78 14.71 10.29 7.08 0.57
44
Telecom
RMS vs. SMS
As per the revenue market share (RMS) data for 1QFY2013, Bharti leads at 30.5% with subscriber market share (SMS) of 19.9%, whereas Idea has its RMS and SMS at 15.1% and 12.4%, respectively. For Bharti and Idea, their RMS is higher than SMS, which indicates that the quality of subscribers added by these companies is good. On the contrary, in case of RCom, SMS is at 16.5%, which is much ahead of the RMS that is at 7.4% only. This is evident from the average revenue per user (ARPU) profile of these companies; also, RCom has peak VLR of merely 66.6% (in June 2012) as compared to its peers like Bharti, Idea and Vodafone - the peak VLR of these varies from 89-94% (for June 2012). However, the current step by RCom to remove inactive customers from its subscriber base might lead to improvement in its overall ARPU profile as well as reduce the difference between its RMS and SMS. Amongst unlisted companies, Vodafone is also part of the Bharti-Idea clan with higher RMS at 22.1% and SMS at 16.3%, whereas incumbents such as BSNL and Aircel are part of RCom's clan with SMS higher than RMS. 0.28mn, 0.47mn and 23,000 new users, respectively in July 2012. We believe the decline in the subscriber base of the industry was brought about by operators withdrawing freebies and lucrative offers. DB Etisalat, S Tel and Loop (except Mumbai) have already decided to shut shop in India while Uninor has scaled down its operations to nine circles. We believe this decline has been led by a general slowdown in incremental gross additions and aggressive churn policy by a few operators in response to stringent norms for allocation of new number series.
Exhibit 5: Total subscriber base

Company (mn) Bharti RCom Vodafone BSNL Idea TTSL Aircel MTNL Loop Mobile Feb -12 eb-12 178.8 152.0 149.4 93.8 110.7 81.8 63.3 5.5 3.3 1.4 15.4 3.4 41.1 6.2 1.7 Mar -12 Mar-12 181.3 153.0 150.5 94.7 112.7 81.6 62.6 5.6 3.3 1.3 15.8 3.4 42.4 6.0 1.7 Apr -12 Apr-12 183.3 153.6 151.3 94.7 114.2 81.1 63.6 5.5 3.3 1.4 16.0 3.4 43.6 6.1 1.7 May -12 June -12 May-12 June-12 185.3 154.1 152.5 94.7 116.0 81.4 64.4 5.3 3.3 1.5 16.3 3.4 45.1 6.2 1.7 931.1 187.3 154.6 153.7 94.7 117.2 93.2 64.9 5.3 3.2 1.5 16.5 45.6 5.6 943.2 July -12 July-12 188.8 134.1 154.9 94.7 117.6 88.9 65.2 5.2 3.0 1.5 16.7 44.5 5.2 920.3
Exhibit 4: RMS vs. SMS of incumbents (as of 1QFY2013)

35 30.5 30 25 19.9 22.1 16.3 15.1 12.4 7.4 6.9 4.5 16.5 10.0 6.9
(%)
20 15 10 5 0 Bharti
HFCL Shyam Telelink S Tel Uninor Videocon DB Etisalat
Vodafone
Idea
Rcom
BSNL
Aircel
RMS
SMS
Muted momentum in net subscriber addition

The Indian mobile subscriber base fell to 920.3mn in July 2012 from 943.2mn in June 2012, the first ever decline in the country. The decline in total subscriber base for the first time was led by the wireless segment where users declined by 20.6mn. The biggest loss in user base came from RCom that lost 20.5mn users, followed by Tata Teleservices, Uninor, Videocon, Loop and MTNL. Drop in RCom's subscriber base was due to removal of inactive customers from its user base as RCom has decided to deactivate the inactive prepaid subscribers who have not had any usage in the last 60 days. Tata Teleservices lost over 2.4mn wireless customers, Uninor lost over 1mn subscribers, Videocon lost 0.4mn subscribers, and Loop Mobile and MTNL lost ~0.15mn subscribers each in July. Bharti, however, led the growth in mobile subscribers in July by adding 1.5mn new customers, taking its total subscriber base to over 188mn. Vodafone added 1.2mn users, taking its total subscriber base to over 154mn. Idea, Aircel, BSNL and HFCL added 0.45mn,
Total 907.7 915.9 922.7 Source: COAI, AUSPI, Angel Research
MOUs to decline
In 1QFY2013, Bharti (excluding Africa), Idea as well as RCom posted stable minutes of usage (MOU) on the back of many promotional offers as well as a sharp cut in 3G tariffs. For 2QFY2013, we expect the overall MOU profile for Bharti (excluding Africa), Idea and RCom to experience a qoq decline
Exhibit 6: Trend in MOU per month per subscriber

500 445 423 400
(min)
419
431
433
424
391 364 300 233 200 1QFY12 2QFY12 3QFY12 227 224 369
379
379
372
227
228
225
4QFY12
1QFY13
2QFY13E
Bharti (ex-Africa)
Idea
RCom
45
Telecom
by 2.0%, 2.0% and 1.5% to 424min, 372min and 225min, respectively. This is because 2Q is a seasonally weak quarter for MOU of telecom players due to the monsoon season, which leads to higher call drop rates.
Exhibit 8: Trend in ARPU per month

200 190 160 150
(/month) `
183
187
189
185
181
155
160
160
156
153
ARPM to remain flat

The ARPM, which saw some improvement during 3QFY2012 because of tariff hikes taken by most of the players, again declined in 4QFY2012 as well as in 1QFY2013 due to many promotional vouchers launched by various players to tap volumes and due to 3G tariff cut. During 2QFY2013, we expect ARPM to remain stable on a q-o-q basis for Bharti, Idea as well as RCom at `0.43/min, `0.41/min and `0.43/min, respectively. Idea has recently announced a tariff hike in two circles and RCom in four circles. These moves will have positive implication on the APRM profile of these companies but the results will be seen from 3QFY2013 onwards.
100 103 102 101 100 98 97
50 1QFY12 2QFY12 3QFY12 4QFY12 1QFY13 2QFY13E
Bharti (ex-Africa)
Idea
RCom

For 2QFY2013, we expect revenue growth to be muted due to moderating growth in subscriber base, flat voice ARPM and declining MOU. Amongst the top three operators, we expect Bharti and Idea to post a revenue growth of 0.1% and 0.7% qoq, respectively. RCom is expected to post a revenue decline of 2.3% qoq. On the EBITDA margin front, we expect the margin of Bharti to grow by 71bp qoq to 30.9% as during the last quarter margins were severely hit because of high administrative expenses and tax rates. The EBITDA margin of Idea and RCom are expected to be weak and decline by 10bp and 7bp qoq to 26.0% and 30.9%, respectively. We believe industry dynamics point toward a possible consolidation in the long run and expect the prevalence of fewer operators, which would include Bharti, Vodafone, RCom, Idea, BSNL, Aircel and Uninor. The Indian telecom sector is currently experiencing heat due to a number of policy uncertainties related to spectrum and license fee payments which are yet to be resolved. The actual financial impact on the industry due to high reserve price, spectrum refarming and one-time spectrum charge can be significantly negative for the incumbents. In our view, the telecom industry can improve structurally only after data revenues start picking up which still looks far. Telecom stocks are currently trading close to historically low valuations, which we believe, is justified given the low business returns and an uncertain industry environment which might pose huge risk to the overall profitability of these companies. We are currently Neutral on the telecom sector and will refrain from taking any call till financial clarity on the stocks emerges.
Exhibit 7: Trend in ARPM

0.46 0.45 0.45 0.44 0.44 0.43 0.43 0.42 0.41 0.40 1QFY12 2QFY12 3QFY12 4QFY12 1QFY13 2QFY13E 0.41 0.43 0.43 0.43
0.44 0.44 0.45 0.43
( ` /min)
0.43 0.42 0.41
0.43
Bharti (ex-Africa)
Idea
RCom
ARPU to decline
For 2QFY2013, we expect the combination of decline in MOU and stable ARPM to pull down the APRU of Bharti (excluding Africa), Idea as well as RCom by 2.0%, 2.3% and 1.7% qoq to `181/month, `153/month and `97/month, respectively.

Company Bharti Idea RCom CMP (`) 265 85 65 Net Sales 2QFY13E 19,382 5,544 5,199 0.1 0.7 (2.3) OPM (%) chg bp 71 (13) (7) 30.9 26.0 30.9 Net P rofit Profit 2QFY13E 862 250 170 11.0 6.6 4.5 EPS (`) % chg 11.0 6.6 4.5 2.3 0.8 0.8 EPS (`) FY12 11.2 2.2 4.5 FY13E 9.9 3.3 4.2 FY14E 15.1 4.7 5.7 FY12 23.6 39.0 14.4 P/E (x) FY13E 26.7 25.7 15.3 FY14E 17.6 18.1 11.3 Targ et rge (`) % chg 2QFY13E % chg 2QFY13E
( ` cr)
Reco. Neutral Neutral Neutral
Source: Company, Angel Research; Note: Price as on September 28, 2012; Change is on a qoq basis
Analyst - Ankita Somani

46
Stock Watch
47
Stock W atch | October 3, 2012 Watch

Company Name Agri / Agri Chemical Rallis United Phosphorus Auto & Auto Ancillary Amara Raja Batteries Apollo Tyres Ashok Leyland Automotive Axle Bajaj Auto Bharat Forge Bosch India CEAT Exide Industries FAG Bearings Hero Motocorp JK Tyre Mahindra & Mahindra Maruti Suzuki Motherson Sumi Subros Tata Motors TVS Motor Financials Allahabad Bank Andhra Bank Axis Bank Bank of Baroda Bank of India Bank of Maharashtra Canara Bank Central Bank Corporation Bank Dena Bank Federal Bank HDFC HDFC Bank ICICI Bank IDBI Bank Indian Bank IOB Reco CMP (`) 145 131 219 92 24 411 1,833 305 8,804 113 153 1,760 1,879 108 865 1,350 149 29 267 42 Target Price (`) 170 99 30 351 164 2,077 135 944 159 34 316 49 131 97 1,326 330 47 1,245 181 83 Mkt Cap (` cr) 2,828 6,053 3,748 4,660 6,399 621 53,027 7,108 27,644 386 13,035 2,925 37,527 444 53,079 39,000 8,742 177 71,278 2,007 7,328 6,298 47,121 31,267 17,810 2,948 19,100 5,756 6,185 3,705 7,621 118,989 148,480 121,534 12,791 8,258 6,244 Sales (` cr) FY13E FY14E 1,466 8,421 2,844 13,412 14,920 993 21,285 7,004 8,793 4,989 5,913 1,505 24,941 7,517 37,434 41,796 24,285 1,230 195,096 7,611 6,944 4,929 15,425 15,473 12,573 3,442 10,905 7,095 4,886 3,147 2,593 7,340 21,753 22,304 7,761 6,062 7,343 1,686 9,263 3,275 15,041 16,850 1,140 23,927 7,985 10,294 5,634 6,787 1,768 28,706 8,329 42,860 49,350 27,317 1,378 219,428 8,443 7,884 5,633 18,500 18,142 14,971 3,802 12,783 8,102 5,669 3,495 3,009 8,805 26,811 26,855 9,484 6,818 8,391 OPM (%) FY13E FY14E 14.8 16.5 15.4 11.3 9.0 11.6 18.2 16.2 17.4 8.7 16.0 17.5 15.0 6.1 11.6 7.6 6.7 8.8 12.8 7.9 3.0 3.1 3.1 2.6 2.3 3.1 2.1 2.5 2.1 2.8 3.2 3.5 4.4 2.9 1.9 3.4 2.5 14.8 16.5 15.6 11.0 9.3 11.5 18.3 16.4 18.5 8.5 17.0 18.0 15.5 6.3 11.5 8.6 7.2 8.6 13.0 7.9 3.1 3.1 3.2 2.6 2.4 3.2 2.2 2.7 2.2 2.9 3.2 3.5 4.5 3.0 2.2 3.4 2.5 EPS (`) FY13E FY14E 7.0 15.0 15.9 12.1 2.2 36.9 108.5 20.3 348.3 32.7 7.4 111.2 122.5 26.2 50.4 66.6 8.1 4.5 39.0 4.7 35.5 23.7 115.9 115.3 58.2 8.9 74.9 15.6 101.3 24.8 44.9 31.5 28.7 68.6 17.1 40.5 16.0 8.1 17.0 18.8 14.1 2.7 43.0 121.3 25.1 435.8 41.1 9.2 132.7 134.0 38.5 56.3 92.6 10.6 5.7 44.9 5.4 37.0 24.5 137.5 139.4 68.0 11.4 85.1 21.0 101.7 24.4 52.5 37.8 35.9 82.0 22.9 41.6 21.3 PER (x) FY13E FY14E 20.8 8.8 13.8 7.6 11.0 11.1 16.9 15.0 25.3 3.4 20.8 15.8 15.3 4.1 17.2 20.3 18.5 6.5 6.9 9.0 4.1 4.7 9.8 6.9 5.3 5.6 5.8 5.0 4.1 4.3 9.9 24.5 21.9 15.4 5.8 4.7 4.9 18.0 7.7 11.7 6.5 8.8 9.6 15.1 12.2 20.2 2.7 16.7 13.3 14.0 2.8 15.4 14.6 14.1 5.2 6.0 7.8 4.0 4.6 8.3 5.7 4.6 4.4 5.1 3.7 4.1 4.3 8.5 20.4 17.5 12.9 4.4 4.6 3.7 P/BV (x) FY13E FY14E 4.4 1.3 3.7 1.4 2.0 2.2 7.0 2.8 4.9 0.5 3.7 3.3 6.7 0.5 3.6 2.3 4.0 0.6 2.0 1.5 0.7 0.8 1.8 1.1 0.9 0.7 0.9 0.8 0.7 0.7 1.2 4.9 4.2 1.9 0.7 0.8 0.6 3.8 1.1 3.0 1.2 1.8 1.9 5.6 2.3 4.1 0.4 3.1 2.7 5.3 0.4 3.1 2.0 3.3 0.6 1.5 1.3 0.6 0.7 1.54 0.9 0.8 0.6 0.8 0.7 0.6 0.6 1.1 4.4 3.54 1.7 0.6 0.7 0.5 RoE (%) FY13E FY14E 22.6 15.6 29.5 19.6 13.3 21.2 46.1 19.9 19.4 15.8 19.1 22.7 49.6 13.4 22.6 12.0 23.3 9.8 32.6 17.9 17.2 16.6 19.9 16.2 15.9 13.5 15.1 12.2 17.0 18.7 12.8 34.8 20.7 14.2 11.9 18.1 11.3 22.5 15.5 28.3 19.2 15.6 21.2 41.3 20.9 20.1 16.9 20.3 22.1 42.2 17.2 21.5 14.8 25.7 11.8 28.8 18.1 15.7 15.3 20.1 17.2 16.3 15.5 15.3 14.7 15.1 15.9 13.5 32.2 21.9 15.5 14.4 16.3 13.6 EV/Sales (x) FY13E FY14E 2.0 0.8 1.2 0.5 0.5 0.7 2.1 1.2 2.8 0.3 1.9 1.7 1.2 0.3 1.2 0.7 0.5 0.4 0.4 0.2 1.7 0.7 1.1 0.4 0.4 0.5 1.8 1.0 2.3 0.2 1.6 1.4 1.0 0.3 1.0 0.6 0.4 0.3 0.4 0.2 -
Neutral Buy Neutral Accumulate Buy Neutral Neutral Buy Neutral Buy Neutral Neutral Accumulate Buy Accumulate Neutral Accumulate Buy Buy Buy
Reduce 147 Reduce 113 Buy 1,137 Neutral 799 Accumulate 310 Reduce 50 Neutral 431 Neutral 78 Neutral 418 Neutral 106 Neutral 446 Neutral 773 Neutral 629 Buy 1,057 Neutral 100 Reduce 192 Accumulate 78
Please refer to important disclosures at the end of this report.
48

Company Name J & K Bank LIC Housing Finance Oriental Bank Punjab Natl.Bank South Ind.Bank St Bk of India Syndicate Bank UCO Bank Union Bank United Bank Vijaya Bank Yes Bank Capital Goods ABB* BGR Energy BHEL Blue Star Crompton Greaves Jyoti Structures KEC International LMW Thermax Cement ACC Ambuja Cements India Cements J K Lakshmi Cements Madras Cements Shree Cements UltraTech Cement Construction Ashoka Buildcon Consolidated Co Hind. Const. IRB Infra ITNL IVRCL Infra Buy Neutral Neutral Accumulate Buy Accumulate 227 14 18 152 194 46 304 166 232 51 1,194 263 1,095 5,052 3,760 1,425 2,034 2,262 4,239 3,964 6,840 5,510 2,315 2,522 4,522 4,582 7,767 6,722 22.4 6.6 9.9 42.3 26.3 8.8 22.4 7.5 11.2 40.2 26.0 9.0 27.1 1.5 (2.3) 15.7 24.4 2.5 31.7 2.7 (1.0) 16.9 30.3 4.6 8.4 9.6 9.7 7.9 18.3 7.2 5.4 9.0 6.4 10.1 1.0 0.4 1.0 1.5 1.2 0.6 0.9 0.4 1.1 1.3 1.0 0.6 13.1 4.4 (11.4) 16.6 16.0 3.4 13.4 7.5 (5.6) 15.7 16.2 5.8 1.8 0.4 1.2 2.8 2.7 0.7 2.1 0.4 1.2 2.7 2.9 0.7 Neutral Neutral Neutral Neutral Neutral Neutral Neutral 1,469 202 95 114 192 3,954 1,968 27,584 31,100 2,917 1,396 4,573 13,774 53,930 10,964 10,163 4,354 1,964 3,608 5,630 20,913 12,417 11,729 4,929 2,278 3,928 6,187 23,530 21.6 25.4 18.6 19.5 27.6 29.5 21.3 21.5 24.9 18.7 20.4 27.0 27.9 22.7 76.9 11.2 9.8 16.3 15.7 222.5 93.2 82.2 12.5 12.3 17.8 18.3 259.3 110.5 19.1 18.1 9.7 7.0 12.2 17.8 21.1 17.9 16.2 7.7 6.4 10.5 15.2 17.8 3.6 3.9 0.8 1.0 1.9 4.1 3.6 3.2 3.5 0.8 0.9 1.7 3.3 3.1 19.4 20.3 8.6 14.7 16.9 25.3 18.4 19.1 20.5 10.2 14.6 17.0 23.8 18.7 2.2 2.7 1.1 0.9 1.9 1.9 2.5 1.9 2.2 1.0 1.2 1.6 1.5 2.3 Sell Neutral Neutral Neutral Accumulate Buy Accumulate Neutral Neutral 798 275 247 179 126 47 73 2,037 561 593 141 54 78 16,905 1,986 60,419 1,613 8,096 385 1,884 2,295 6,687 8,760 3,669 47,801 3,047 12,691 2,622 6,858 2,369 5,514 10,023 4,561 43,757 3,328 14,126 2,744 7,431 2,727 5,559 6.2 11.0 19.0 5.4 7.4 10.7 7.1 11.7 8.9 8.7 11.0 18.8 6.9 8.9 10.5 7.4 11.7 10.2 14.5 24.7 25.3 12.5 7.0 9.6 8.3 143.4 26.9 24.7 29.6 22.8 16.2 9.7 12.2 9.8 166.0 30.3 55.2 11.1 9.8 14.4 18.1 4.9 8.8 14.2 20.9 32.3 9.3 10.8 11.0 13.0 3.8 7.5 12.3 18.5 6.1 1.6 3.0 3.5 2.1 0.5 1.5 2.4 3.6 5.3 1.5 2.5 2.8 1.9 0.5 1.3 2.2 3.2 11.6 15.3 34.3 26.1 11.9 10.8 25.1 17.4 18.4 17.6 16.7 25.3 28.2 15.0 12.3 24.0 18.4 18.2 1.9 1.1 1.1 0.6 0.7 0.4 0.4 0.5 1.1 1.6 1.0 1.2 0.5 0.6 0.3 0.4 0.3 1.0 Reco Accumulate Accumulate Neutral Accumulate Accumulate Accumulate Neutral Accumulate Buy Neutral Buy CMP (`) 932 282 302 840 23 108 77 208 64 56 382 Target Price (`) 1,021 301 941 25 2,353 117 226 78 452 Mkt Cap (` cr) 4,518 14,221 8,800 28,481 3,032 150,173 6,513 5,112 11,432 2,303 2,785 13,611 Sales (` cr) FY13E FY14E 2,600 1,867 6,278 19,934 1,535 63,806 6,722 5,411 9,924 3,572 2,490 3,270 2,850 2,338 7,125 22,705 1,760 73,435 7,719 6,124 11,647 4,041 2,881 4,253 OPM (%) FY13E FY14E 3.6 2.4 2.7 3.3 2.9 3.5 2.9 2.4 2.8 2.8 2.1 2.8 3.5 2.4 2.8 3.3 2.8 3.6 3.0 2.5 2.9 2.9 2.2 3.0 EPS (`) FY13E FY14E 192.3 21.1 56.7 147.7 3.5 225.6 24.3 17.0 38.6 17.2 9.2 33.9 188.0 28.5 62.6 166.2 3.9 258.4 27.2 16.5 46.3 22.0 11.4 42.2 PER (x) FY13E FY14E 4.8 13.4 5.3 5.7 6.4 9.9 4.5 4.5 5.4 3.7 6.1 11.3 5.0 9.9 4.8 5.1 5.8 8.7 4.0 4.7 4.5 2.9 4.9 9.0 P/BV (x) FY13E FY14E 0.9 2.2 0.7 1.0 1.1 1.7 0.7 0.9 0.9 0.5 0.7 2.4 0.8 1.9 0.7 0.8 0.9 1.4 0.6 0.8 0.7 0.5 0.7 1.9 RoE (%) FY13E FY14E 21.0 17.5 14.1 17.7 19.4 17.7 17.0 16.7 15.4 14.2 11.5 23.1 17.7 20.4 13.9 17.3 17.1 17.7 16.8 14.4 16.3 16.2 13.0 23.6 EV/Sales (x) FY13E FY14E -
Accumulate 2,238
49

Company Name Jaiprakash Asso. Larsen & Toubro Madhucon Proj Nagarjuna Const. Patel Engg. Punj Lloyd Sadbhav Engg. Simplex Infra FMCG Asian Paints Britannia Colgate Dabur India GlaxoSmith Con* Godrej Consumer HUL ITC Marico Nestle* Tata Global IT HCL Tech Hexaware Infosys Infotech Enterprises KPIT Cummins Mahindra Satyam Mindtree Mphasis NIIT Persistent TCS Tech Mahindra Wipro Media D B Corp HT Media Jagran Prakashan PVR Sun TV Network Reco CMP (`) Target Price (`) 91 1,721 56 182 265 584 632 140 2,687 142 772 36 1,405 1,046 421 236 113 112 Mkt Cap (` cr) 17,479 98,010 276 1,205 538 1,813 2,206 1,037 37,759 5,685 16,403 22,327 12,590 22,725 117,727 213,613 12,856 42,176 8,834 40,066 3,609 145,510 2,102 2,206 13,034 2,707 8,451 527 1,709 253,264 12,404 93,871 3,707 2,190 2,889 501 13,769 Sales (` cr) FY13E FY14E 15,259 60,474 2,206 5,804 3,609 11,892 2,506 6,732 11,198 5,835 3,018 6,124 3,124 6,097 25,350 29,513 4,840 8,610 7,207 24,569 1,966 39,383 1,895 2,191 7,628 2,334 5,700 1,034 1,207 61,611 6,603 43,800 1,604 2,111 1,488 625 1,981 17,502 69,091 2,502 6,513 3,836 13,116 3,147 7,837 13,184 6,824 3,429 7,030 3,663 7,233 28,974 33,885 5,643 10,174 7,927 27,002 2,161 41,380 2,049 2,364 8,062 2,481 5,993 1,146 1,278 67,507 7,196 48,332 1,786 2,263 1,664 732 2,239 OPM (%) FY13E FY14E 25.7 12.1 10.7 8.0 13.1 8.9 10.3 8.1 16.3 5.7 20.9 17.0 17.1 18.4 13.9 35.4 13.1 20.9 9.7 18.8 22.5 31.7 18.0 16.1 19.9 19.5 18.0 9.9 26.2 29.3 18.2 19.5 22.3 14.7 22.7 17.4 77.0 24.7 11.5 10.7 8.6 13.1 8.9 10.7 8.4 16.3 5.9 22.1 16.8 17.6 18.6 13.9 35.8 13.1 21.2 10.0 17.6 21.4 31.9 17.5 16.4 18.4 17.6 16.9 11.0 24.3 29.1 17.1 19.3 23.8 14.8 22.7 17.1 76.7 EPS (`) FY13E FY14E 4.0 79.7 4.6 3.0 14.0 1.7 7.5 23.4 121.0 20.7 35.7 4.5 111.4 21.9 14.3 9.3 6.8 114.8 6.6 41.4 11.6 163.2 18.1 11.3 9.7 70.4 37.0 5.2 42.4 69.0 92.7 25.6 11.2 7.3 6.2 13.3 18.6 4.8 85.4 4.7 3.5 14.5 3.1 10.4 29.4 144.8 25.4 42.3 5.2 131.7 26.5 16.5 10.8 8.5 139.8 7.8 45.1 12.2 173.4 19.5 12.9 10.0 77.2 37.3 6.4 44.2 74.0 99.6 28.1 13.6 8.1 7.1 15.6 21.3 PER (x) FY13E FY14E 20.5 20.0 8.0 15.4 5.5 32.2 19.5 9.0 32.5 23.0 33.8 28.7 26.9 30.5 38.2 29.3 29.4 38.1 21.6 13.9 10.5 15.5 10.4 11.0 11.4 9.4 10.9 6.1 10.1 18.7 10.5 14.9 18.1 12.7 14.7 14.5 18.8 17.2 18.7 8.0 13.4 5.3 17.7 14.1 7.1 27.2 18.8 28.5 24.7 22.7 25.2 33.1 25.2 23.6 31.3 18.3 12.8 10.0 14.6 9.7 9.5 11.1 8.6 10.8 5.0 9.7 17.5 9.8 13.6 14.8 11.5 12.8 12.3 16.4 P/BV (x) FY13E FY14E 1.6 3.4 0.4 0.5 0.3 0.6 2.4 0.8 10.9 9.1 31.2 11.8 8.9 6.8 22.7 9.7 8.1 23.0 2.2 3.2 2.7 3.7 1.5 2.4 3.1 2.2 1.6 0.8 1.7 6.1 2.5 2.8 3.4 1.4 3.6 1.6 4.7 1.5 3.0 0.4 0.5 0.3 0.6 2.1 0.7 8.6 6.9 23.2 9.4 7.2 5.6 17.5 8.1 6.2 16.0 2.1 2.7 2.3 3.2 1.3 1.9 2.5 1.7 1.4 0.7 1.5 5.0 2.0 2.4 3.0 1.2 3.2 1.4 4.1 RoE (%) FY13E FY14E 8.5 16.3 5.2 3.2 6.2 1.9 13.5 9.2 37.4 43.1 101.0 43.2 34.4 25.5 70.9 35.6 31.4 71.2 8.6 22.8 26.8 23.9 14.5 21.8 27.7 23.3 14.3 12.8 17.1 32.4 23.6 18.9 20.3 11.3 25.2 13.2 27.1 9.3 15.1 5.0 3.6 6.1 3.4 16.0 10.6 35.3 41.9 93.5 41.4 32.8 25.4 59.8 35.0 29.7 60.3 9.5 21.1 23.9 22.0 13.6 20.0 22.2 20.4 12.6 14.3 15.5 28.6 20.5 17.9 21.4 11.2 26.3 13.8 27.5 EV/Sales (x) FY13E FY14E 2.5 1.8 0.7 0.6 1.0 0.6 1.0 0.5 3.3 0.9 5.3 3.7 3.7 3.9 4.4 6.9 2.7 5.0 1.1 1.6 1.5 3.1 0.8 1.0 1.3 0.9 1.0 0.3 1.1 3.9 1.9 1.8 2.2 0.7 2.1 1.2 6.4 2.2 1.6 0.7 0.7 1.0 0.5 0.9 0.5 2.8 0.7 4.6 3.1 3.1 3.2 3.8 6.0 2.2 4.1 1.0 1.4 1.3 2.8 0.6 0.8 1.1 0.8 0.9 0.2 0.9 3.5 1.7 1.5 1.9 0.6 1.8 1.0 5.5
Accumulate 82 Accumulate 1,597 Buy 37 Neutral 47 Neutral 77 Neutral 55 Buy 147 Buy 210 Neutral Buy Neutral Neutral Neutral Neutral Neutral Neutral Neutral Neutral Neutral 3,937 476 1,206 128 2,994 668 545 272 199 4,374 143
Accumulate 577 Accumulate 122 Accumulate 2,534 Neutral 189 Accumulate 124 Neutral 111 Buy 662 Neutral 402 Accumulate 32 Neutral 427 Accumulate 1,294 Accumulate 972 Accumulate 381 Buy Buy Buy Neutral Neutral 202 93 91 193 349
50

Company Name Metal Bhushan Steel Coal India Electrosteel Castings Hind. Zinc Hindalco JSW Steel MOIL Monnet Ispat Nalco NMDC SAIL Sesa Goa Sterlite Inds Tata Steel Sarda Prakash Industries Godawari Power Oil & Gas Cairn India GAIL ONGC Reliance Industries Gujarat Gas* Indraprastha Gas Petronet LNG Gujarat State Petronet Pharmaceuticals Alembic Pharma Aurobindo Pharma Sanofi India* Cadila Healthcare Cipla Dr Reddy's Dishman Pharma GSK Pharma* Indoco Remedies Ipca labs Lupin Orchid Chemicals Ranbaxy* Sun Pharma Reco CMP (`) 497 359 20 135 121 757 252 305 51 194 85 171 99 401 135 56 122 331 383 280 837 343 265 158 81 Target Price (`) 385 23 144 271 379 48 214 481 148 73 161 380 312 176 91 156 953 1,859 92 647 Mkt Cap (` cr) 10,552 227,042 702 57,232 23,071 16,884 4,240 1,964 13,183 76,836 35,295 14,901 33,388 38,921 485 759 389 63,131 48,589 239,896 273,982 4,393 3,709 11,831 4,538 1,348 4,125 5,467 17,858 30,559 27,967 777 16,746 640 6,076 26,656 790 22,361 71,686 Sales (` cr) FY13E FY14E 11,979 69,808 1,984 12,446 84,855 38,740 918 2,511 7,401 12,934 47,252 7,704 41,680 145,799 1,251 2,694 2,341 16,605 50,176 147,139 362,700 3,228 3,040 29,145 1,041 1,624 5,243 1,482 6,148 8,031 10,696 1,280 2,651 685 2,850 8,426 1,667 12,046 9,752 14,584 75,550 2,074 13,538 92,446 41,459 993 3,303 7,841 14,266 60,351 8,034 45,382 150,431 1,321 2,906 2,425 17,258 55,815 154,821 380,031 3,819 3,135 33,736 939 1,855 5,767 1,682 7,386 9,130 11,662 1,536 2,993 837 3,474 10,082 1,835 11,980 12,134 OPM (%) FY13E FY14E 31.6 27.4 11.2 52.3 8.7 17.2 50.6 23.8 16.7 79.4 14.2 33.6 24.2 10.3 22.7 14.6 15.6 75.4 15.5 33.9 7.9 11.5 24.3 6.6 91.8 14.2 14.6 15.5 18.6 23.4 20.7 17.8 31.7 15.2 20.7 19.7 13.9 18.0 41.6 31.0 27.4 12.6 52.9 9.3 17.0 50.9 26.0 19.2 80.1 14.8 34.6 23.2 11.2 23.4 16.6 17.3 71.7 15.8 33.7 8.0 11.3 26.7 6.5 91.9 15.6 14.6 15.5 19.6 22.4 21.0 17.8 31.2 15.2 20.7 20.0 13.9 15.8 41.6 EPS (`) FY13E FY14E 49.2 26.0 2.5 14.3 13.2 79.9 24.5 46.3 3.4 21.1 9.6 42.0 16.3 48.6 33.0 16.4 33.3 57.0 35.4 30.7 61.5 19.2 24.8 14.2 8.5 6.6 11.8 95.1 36.0 18.4 83.7 9.2 76.0 7.4 29.2 26.3 11.4 31.3 26.0 61.4 28.3 2.9 15.5 16.2 89.4 26.1 57.3 4.1 23.4 11.7 43.1 16.9 63.3 37.1 20.8 43.2 54.9 36.5 32.3 64.3 22.1 27.9 16.0 7.4 9.1 12.6 104.4 46.1 20.0 92.9 11.3 82.4 8.9 36.6 31.3 13.3 29.8 28.2 PER (x) FY13E FY14E 10.1 13.8 8.2 9.5 9.1 9.5 10.3 6.6 14.9 9.2 8.9 4.1 6.1 8.2 4.1 3.4 3.7 5.8 10.8 9.1 13.6 17.9 10.7 11.1 9.5 10.8 12.0 25.0 24.2 20.7 19.7 10.5 26.0 9.4 16.5 22.7 9.8 16.9 26.7 8.1 12.7 7.1 8.7 7.5 8.5 9.7 5.3 12.5 8.3 7.3 4.0 5.9 6.3 3.6 2.7 2.8 6.0 10.5 8.7 13.0 15.5 9.5 9.9 10.9 7.9 11.2 22.7 18.9 19.0 17.7 8.5 24.0 7.8 13.2 19.1 8.4 17.8 24.6 P/BV (x) FY13E FY14E 1.3 4.0 0.4 1.8 0.7 0.9 1.6 0.7 1.1 2.4 0.8 0.8 0.7 0.8 0.6 0.3 0.4 1.1 1.9 1.6 1.3 4.7 2.5 2.7 1.6 2.7 1.5 4.4 5.7 3.4 4.0 0.8 7.5 1.4 3.9 5.3 0.6 5.8 5.0 1.1 3.2 0.1 1.5 0.6 0.9 1.4 0.7 1.0 2.0 0.7 0.7 0.6 0.7 0.5 0.3 0.4 0.9 1.7 1.4 1.2 4.3 2.1 2.2 1.5 2.1 1.3 3.4 4.6 3.0 3.4 0.7 6.7 1.2 3.1 4.3 0.6 4.6 4.3 RoE (%) FY13E FY14E 14.1 32.5 5.1 20.5 7.8 10.4 16.0 12.4 7.4 29.6 9.4 22.3 11.3 10.5 15.1 11.4 13.2 20.2 18.9 18.3 10.3 28.7 25.5 26.9 18.1 27.9 17.9 18.6 25.8 17.8 22.4 7.7 20.1 16.4 26.1 26.0 6.6 39.1 20.3 15.2 28.1 5.7 18.9 8.9 10.6 15.5 13.7 8.4 26.5 10.6 19.2 10.7 12.4 14.8 12.8 14.4 16.3 17.0 17.2 9.9 29.0 23.6 24.4 14.0 29.9 16.4 17.0 26.8 16.6 20.8 8.5 26.3 17.0 26.1 24.7 7.3 28.9 18.8 EV/Sales (x) FY13E FY14E 2.9 2.3 0.5 2.7 0.7 0.9 2.3 1.7 1.3 4.1 1.2 2.2 0.8 0.5 0.7 0.5 0.5 2.8 0.7 1.4 0.7 1.2 1.3 0.4 5.2 1.0 1.3 3.5 3.1 3.6 2.9 1.3 5.5 1.1 2.3 3.2 0.9 1.9 6.6 2.4 2.0 0.5 2.1 0.6 0.8 2.0 1.2 1.2 3.4 1.0 2.1 0.7 0.5 0.7 0.4 0.5 2.2 0.5 1.2 0.7 1.0 1.1 0.4 5.8 0.8 1.1 3.0 2.6 3.1 2.5 1.1 4.8 0.9 1.9 2.6 0.8 1.8 5.1
Neutral Accumulate Accumulate Accumulate Neutral Neutral Accumulate Buy Reduce Accumulate Neutral Neutral Neutral Buy Accumulate Buy Buy Accumulate Neutral Accumulate Neutral Neutral Neutral Accumulate Neutral
Buy 72 Accumulate 142 Neutral 2,374 Accumulate 872 Neutral 381 Accumulate 1,647 Neutral 96 Neutral 1,977 Buy 70 Neutral 482 Accumulate 596 Neutral 112 Neutral 530 Neutral 693
51

Company Name Reco CMP (`) Target Price (`) Mkt Cap (` cr) Sales (` cr) FY13E FY14E OPM (%) FY13E FY14E EPS (`) FY13E FY14E PER (x) FY13E FY14E 7.0 6.5 12.2 5.6 17.4 3.7 10.2 17.6 18.1 11.3 22.3 8.6 9.5 7.8 24.1 4.1 6.0 10.2 13.7 4.4 11.7 21.1 13.4 5.9 22.3 17.8 7.2 26.2 10.6 4.2 3.6 6.9 7.7 4.7 5.5 28.4 11.7 1.4 P/BV (x) FY13E FY14E 0.8 0.7 1.7 0.5 1.5 0.4 1.2 1.9 2.0 0.4 5.5 2.4 2.4 2.8 12.7 0.7 0.5 2.1 8.2 1.1 1.7 3.7 2.6 0.7 3.9 5.6 1.5 17.4 3.8 0.7 0.8 14.9 1.2 0.8 1.5 3.1 2.0 0.2 0.7 0.6 1.5 0.5 1.5 0.3 1.1 1.7 1.8 0.3 4.7 1.9 2.0 2.1 10.2 0.6 0.5 1.8 6.5 0.9 1.5 3.2 2.2 0.6 3.5 4.9 1.3 14.1 2.8 0.6 0.7 4.7 1.1 0.7 1.3 2.8 1.8 0.1 RoE (%) FY13E FY14E 11.0 10.8 12.6 6.3 6.4 8.8 10.4 7.0 7.8 2.3 20.0 18.6 24.8 25.2 50.9 13.0 4.4 17.1 51.8 16.8 3.7 9.3 14.7 9.4 15.0 27.5 21.3 57.4 30.3 12.9 21.1 13.9 14.9 16.8 8.1 15.8 11.3 10.6 10.2 13.2 8.9 8.7 9.4 11.0 9.7 9.9 3.1 22.7 22.4 23.0 26.5 46.9 14.9 7.6 19.0 47.0 21.0 13.6 16.3 17.5 10.9 16.6 27.4 19.4 59.5 30.2 13.2 20.8 14.4 15.1 24.8 10.3 16.2 11.5 EV/Sales (x) FY13E FY14E 1.6 1.2 2.5 4.5 6.5 3.5 2.3 2.0 1.7 2.3 1.9 0.5 1.1 0.5 6.5 0.2 0.1 0.3 2.2 0.5 0.4 1.3 1.1 0.6 2.5 8.8 0.5 4.0 1.0 0.7 0.5 0.4 1.8 0.3 0.4 2.2 1.1 0.6 1.6 1.0 2.3 3.4 5.4 2.7 2.0 1.7 1.5 2.1 1.6 0.5 1.0 0.4 5.4 0.1 0.1 0.2 1.8 0.4 0.4 1.1 1.0 0.6 2.0 7.4 0.4 3.2 0.8 0.6 0.4 0.4 1.5 0.2 0.3 2.0 1.0 0.6
Power CESC Neutral 331 4,141 5,218 5,644 24.2 23.8 44.6 47.6 7.4 GIPCL Accumulate 71 77 1,076 1,557 1,573 29.3 28.7 10.8 11.0 6.6 NTPC Neutral 168 138,400 74,111 85,789 22.7 23.1 12.1 13.7 13.9 Real Estate Anant Raj Neutral 71 2,107 657 875 52.0 56.1 8.4 12.7 8.5 DLF Neutral 234 39,712 9,878 12,033 44.7 46.1 9.6 13.4 24.4 HDIL Buy 98 115 4,092 2,441 3,344 55.1 48.2 22.7 26.6 4.3 MLIFE Neutral 378 1,543 813 901 26.2 26.6 32.0 37.0 11.8 Telecom Bharti Airtel Neutral 265 100,578 79,147 86,745 31.1 32.5 9.9 15.1 26.7 Idea Cellular Neutral 85 28,258 22,582 24,684 26.4 26.9 3.3 4.7 25.7 Rcom Neutral 65 13,365 20,650 20,935 32.3 33.0 4.2 5.7 15.3 Others Abbott India Neutral 1,600 3,401 1,602 1,833 10.4 11.8 54.7 71.7 29.3 Bajaj Electricals Buy 198 228 1,971 3,670 4,290 7.6 8.8 15.0 23.0 13.2 Cera Sanitaryware Buy 332 388 420 396 470 16.7 16.6 31.0 35.0 10.7 Cravatex Buy 446 682 115 289 340 5.2 5.9 41.0 57.0 10.9 CRISIL Neutral 965 6,772 982 1,136 34.3 34.3 34.3 40.0 28.1 Finolex Cables Buy 41 61 629 2,334 2,687 6.2 6.5 8.0 10.0 5.1 Force Motors Buy 448 591 583 2,214 2,765 4.5 5.4 39.0 74.0 11.5 Goodyear India Neutral 318 733 1,543 1,654 6.5 7.3 24.8 31.1 12.8 Disa India Buy 2,880 3,353 435 176 203 22.7 22.6 182.4 209.6 15.8 Greenply Industries Buy 193 309 466 1,925 2,235 10.6 10.9 29.6 44.1 6.5 Hitachi Neutral 127 292 868 977 3.9 6.6 2.7 10.9 46.4 Honeywell Automation Neutral 2,850 2,519 1,847 2,162 4.3 7.3 69.0 135.0 41.3 Styrolution ABS India Buy 632 744 1,112 1,056 1,081 8.0 10.6 34.0 47.0 18.6 ITD Cementation Neutral 246 283 1,451 1,669 12.3 12.4 32.4 41.5 7.6 Jyothy Laboratories Neutral 160 2,581 1,248 1,468 9.8 10.4 5.9 7.2 27.0 MCX Accumulate 1,284 1,440 6,549 553 624 65.3 66.3 62.5 72.0 20.6 MRF Buy 10,273 12,884 4,357 11,804 12,727 10.4 10.5 1,289.9 1,431.3 8.0 Page Industries Neutral 3,165 3,531 887 1,108 18.3 18.6 95.0 120.9 33.3 Relaxo Footwears Accumulate 726 821 871 1,019 1,208 12.3 13.0 51.0 68.4 14.2 Sintex Industries Buy 67 79 1,821 4,751 5,189 16.3 16.6 13.6 15.8 4.9 Siyaram Silk Mills Buy 284 392 266 1,042 1,173 12.4 12.5 66.3 78.5 4.3 SpiceJet Buy 37 43 1,797 5,720 6,599 5.3 6.8 3.6 5.4 10.3 TAJ GVK Buy 70 108 440 300 319 35.8 36.2 7.9 9.1 8.9 Tata Sponge Iron Buy 315 377 485 787 837 16.2 17.5 58.5 66.9 5.4 TVS Srichakra Accumulate 309 335 237 1,476 1,643 7.0 8.2 32.6 55.9 9.5 United Spirits Neutral 1,218 15,931 10,289 11,421 13.5 14.3 31.0 42.9 39.2 Vesuvius India Neutral 338 685 560 611 16.1 17.0 24.7 28.8 13.7 S. Kumars Nationwide Buy 19 24 575 7,134 7,985 19.7 19.4 12.2 14.1 1.6 Source: Company, Angel Research, Note: *December year end; #September year end; &October year end; ^June year end; Price as on September 28, 2012
52
Disclaimer
This document is solely for the personal information of the recipient, and must not be singularly used as the basis of any investment decision. Nothing in this document should be construed as investment or financial advice. Each recipient of this document should make such investigations as they deem necessary to arrive at an independent evaluation of an investment in the securities of the companies referred to in this document (including the merits and risks involved), and should consult their own advisors to determine the merits and risks of such an investment. Angel Broking Limited, its affiliates, directors, its proprietary trading and investment businesses may, from time to time, make investment decisions that are inconsistent with or contradictory to the recommendations expressed herein. The views contained in this document are those of the analyst, and the company may or may not subscribe to all the views expressed within. Reports based on technical and derivative analysis center on studying charts of a stock's price movement, outstanding positions and trading volume, as opposed to focusing on a company's fundamentals and, as such, may not match with a report on a company's fundamentals. The information in this document has been printed on the basis of publicly available information, internal data and other reliable sources believed to be true, but we do not represent that it is accurate or complete and it should not be relied on as such, as this document is for general guidance only. Angel Broking Limited 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 inadvertent error in the information contained in this report. Angel Broking Limited has not independently verified all the information contained within this document. Accordingly, we cannot testify, nor make any representation or warranty, express or implied, to the accuracy, contents or data contained within this document. While Angel Broking Limited endeavours to update on a reasonable basis the information discussed in this material, there may be regulatory, compliance, or other reasons that prevent us from doing so. This document is being supplied to you solely for your information, and its contents, information or data may not be reproduced, redistributed or passed on, directly or indirectly. Angel Broking Limited and its affiliates may seek to provide or have engaged in providing corporate finance, investment banking or other advisory services in a merger or specific transaction to the companies referred to in this report, as on the date of this report or in the past. Neither Angel Broking Limited, nor its directors, employees or affiliates shall be liable for any loss or damage that may arise from or in connection with the use of this information. Note: Please refer to the important Stock Holding Disclosure' report on the Angel website (Research Section). Also, please refer to the latest update on respective stocks for the disclosure status in respect of those stocks. Angel Broking Limited and its affiliates may have investment positions in the stocks recommended in this report.
Ratings (Returns) :
Buy (> 15%) Reduce (-5% to -15%)
Accumulate (5% to 15%) Sell (< -15%)
Neutral (-5 to 5%)
53

6th Floor, Ackruti Star, Central Road, MIDC, Andheri (E), Mumbai - 400 093. Tel: (022) 39357800
Research Team Fundamental: Sarabjit Kour Nangra Vaibhav Agrawal Bhavesh Chauhan Sharan Lillaney V Srinivasan Yaresh Kothari Ankita Somani Varun Varma Sourabh Taparia Bhupali Gursale Vinay Rachh Amit Patil Shareen Batatawala Twinkle Gosar Tejashwini Kumari Technicals: Shardul Kulkarni Sameet Chavan Sacchitanand Uttekar Derivatives: Siddarth Bhamre Institutional Sales Team: Mayuresh Joshi Hiten Sampat Meenakshi Chavan Gaurang Tisani Akshay Shah Production Team: Tejas Vahalia Dilip Patel Research Editor Production tejas.vahalia@angelbroking.com dilipm.patel@angelbroking.com VP - Institutional Sales Sr. A.V.P- Institution sales Dealer Dealer Sr. Executive mayuresh.joshi@angelbroking.com hiten.sampat@angelbroking.com meenakshis.chavan@angelbroking.com gaurangp.tisani@angelbroking.com akshayr.shah@angelbroking.com Head - Derivatives siddarth.bhamre@angelbroking.com Sr. Technical Analyst Technical Analyst Technical Analyst shardul.kulkarni@angelbroking.com sameet.chavan@angelbroking.com sacchitanand.uttekar@angelbroking.com VP-Research, Pharmaceutical VP-Research, Banking Sr. Analyst (Metals & Mining) Analyst (Mid-cap) Analyst (Cement, Power, FMCG) Analyst (Automobile) Analyst (IT, Telecom) Analyst (Banking) Analyst (Banking) Economist Research Associate Research Associate Research Associate Research Associate Research Associate sarabjit@angelbroking.com vaibhav.agrawal@angelbroking.com bhaveshu.chauhan@angelbroking.com sharanb.lillaney@angelbroking.com v.srinivasan@angelbroking.com yareshb.kothari@angelbroking.com ankita.somani@angelbroking.com varun.varma@angelbroking.com Sourabh.taparia@angelbroking.com bhupali.gursale@angelbroking.com vinay.rachh@angelbroking.com amit.patil@angelbroking.com shareen.batatawala@angelbroking.com gosar.twinkle@angelbroking.com tejashwini.kumari@angelbroking.com
Refer to important Disclosures at the of - the report CSO & Registered Office: G-1, Ackruti Trade Centre, Rd. No. 7, MIDC, Andheriend (E), Mumbai 400 093.Tel.: (022) 3083 7700. Angel Broking Ltd: BSE Sebi Regn No: INB010996539 / PMS Regd Code: PM/INP000001546 / CDSL Regn No: IN - DP - CDSL - 234 - 2004 / NSE Sebi Regn Nos: Cash: INB231279838 / NSE54 F&O:
INF231279838/ Currency: INE231279838 / MCX Currency Sebi Regn No: INE261279838 / Member ID: 10500 / Angel Commodities Broking Pvt. Ltd: MCX Member ID: 12685 / FMC Regn No: MCX / TCM / CORP / 0037 NCDEX : Member ID 00220 / FMC Regn No: NCDEX / TCM / CORP / 0302

2QFY2013ResultPreview 031012

Uploaded by

Document Information

Original Description:

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

2QFY2013ResultPreview 031012

Uploaded by

Copyright:

Available Formats

2QFY2013 Results Preview | October 3, 2012

2QFY2013 Results Preview | October 3, 2012

2QFY2013 earnings performance

Exhibit 1: Sensex earnings summary

2QFY2013 Results Preview | October 3, 2012

Banking - Large private banks expected to post healthy earnings performance

2QFY2013 Results Preview | October 3, 2012

Metals and mining - Tata Steel to drive earnings growth

FMCG - Pressure on volume growth but top-line growth to remain healthy

Oil and gas - Earnings to decelerate since ONGC is likely to underperform

Power - Negative headwinds facing the sector to adversely impact performance

IT - Healthy growth on the earnings front

Telecom - Margins to remain under pressure

Refer to important Disclosures at the end of the report

2QFY2013 Results Preview | October 3, 2012

Source: Angel Research; Note: based on free-float weightages

Refer to important Disclosures at the end of the report

2QFY2013 Results Preview | October 3, 2012

Strategy Reform measures fuel market sentiments

FIIs remain bullish on Indian equity markets

Refer to important Disclosures at the end of the report

2QFY2013 Results Preview | October 3, 2012

Exhibit 5: Inflation remains a key concern

Gross fixed capital formation

GFCF growth (RHS)

Source: MOSPI, Angel Research

Source: RBI, OEA, Angel Research

Exhibit 6: Sensex on the up-move

Exhibit 7: Indian equities outperform EM peers

Source: Bloomberg, Angel Research

Source: Bloomberg, Angel Research

Outlook and Valuation

Exhibit 8: Sensex one year forward P/E

Exhibit 9: Sensex EPS growth over FY2014E

21.0 18.0 15.0 12.0 9.0 6.0 Mar-97

1,100 900 700 500 300

Source: Bloomberg, Angel Research

Source: Angel Research

Refer to important Disclosures at the end of the report

2QFY2013 Results Preview | October 3, 2012

2QFY2013 Sectoral Outlook

Refer to important Disclosures at the end of the report

2QFY2013 Results Preview | October 3, 2012

Exhibit 1: 2QFY2013 - Stock price performance

Relative to Auto index (%)

Sector earnings growth to be driven by Tata Motors

Source: Bloomberg, Angel Research

CV growth continues to struggle on weak MHCV sales

Auto index outperforms the Sensex

Refer to important Disclosures at the end of the report

2QFY2013 Results Preview | October 3, 2012

Two-wheeler majors to post extremely weak results

2QFY2013 2QFY2012 % chg 1HFY2013 1HFY2012 % chg

Source: Company; Angel Research

Weak demand for PCs impacts overall PV sales

2QFY2013 2QFY2012 % chg 1HFY2013 1HFY2012 % chg

266,544 (18.6) 851,498 (5.4) (3.3)

1,544,315 (13.7) 2,973,095 3,073,892

Exhibit 3: MSIL and MM Quarterly volumes

2QFY2013 2QFY2012 % chg 1HFY2013 1HFY2012 % chg

Source: Company; Angel Research

2QFY2013 Results Preview | October 3, 2012