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OUTLOOK 2009:
PREFERRED SECTORS AND COMPANIES

FOR INSTITUTIONAL CLIENTS


Analyst:
ANKIT KHAITAN
akhaitan@hemonline.com
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BROKING | DEPOSITORY | DISTRIBUTION | FINANCIAL ADVISORY

INDEX
INDIAN ECONOMY - 01
BANKING INDUSTRY
OVERVIEW - 02
RECENT NEWS - 03
PRODUCTS & SERVICES - 04
ARE INDIAN BANKS SAFE??? - 05
GRAPHICAL PRESETATION - 06
RBI STEPS TO FIGHT AGAINST LIQUIDITY CRUNCH - 07
ANALYSIS OF BANKING SECTOR
A) CRAMELS STRATEGY - 08
B) PORTER'S FIVE FORCES MODEL - 09
C) PEST ANALYSIS - 10
D) SWOT ANALYSIS -11
GROWTH PROSPECT & MARKET OPPORTUNITIES - 12
THINGS TO WATCH & KEY TAKEAWAYS - 13
TELECOM INDUSTRY
OVERVIEW - 14
RECENT UPDATES - 15
ALL ABOUT TELECOM INDUSTRY - 16
SEGMENTS - 17
GOVERNMENT REGULATIONS - 18
ALL ABOUT ‘3RD GENERATION TECHNOLOGY (3G)’ - 19
FUTURE OF INDIAN TELECOM INDUSTRY - 20
ANALYSIS OF TELECOM SECTOR
A) PORTER'S FIVE FORCES MODEL - 21
B) SWOT ANALYSIS & KEY TAKEAWAYS - 22
WHAT’S ROAD AHEAD - 23
FMCG INDUSTRY
OVERVIEW - 24
INDUSTRY CATEGORY AND PRODUCTS - 25
GROWTH PROSPECT - 27
GOVERNMENT INITATIVE - 28
MARKET OPPORTUNITIES - 29
ANALYSIS OF FMCG SECTOR
A) PORTER'S FIVE FORCES MODEL - 30
B) SWOT ANALYSIS & KEY TAKEAWAYS - 31
COMPANIES
BHARTI AIRTEL LIMITED - 32
RELIANCE COMMUNICATION - 34
HDFC BANK - 36
STATE BANK OF INDIA - 38
UNION BANK OF INDIA - 40
AXIS BANK LIMITED - 42
PUNJAB NATIONAL BANK - 44
HINDUSTAN UNILEVER LIMITED - 46
GODREJ CONSUMER PRODUCTS LIMITED - 48
DABUR INDIA LIMITED - 50
EMAMI LIMITED - 52
ICSA INDIA LIMITED - 54

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Indian Economy 20th February 2009

Indian Economy: An Overview


Indian Economy is among one of the fastest growing economy in the World. It has
registered a robust growth rate in past few years. But weakening of U.S. Economy
coupled with higher inflation rate, higher interest rate, higher crude prices and higher Indian Economy has regis-
commodity prices have a reflection on Indian Economy too. tered an over of 9 per cent of
growth in Gross Domestic
The Index of Industrial Production (IIP) has registered a double digit growth of 11.5 per Product (GDP) for last 3
cent in the year 2006-07 but it slip down by 300bp to 8.5 per cent in the year 2007-08. years. Economic Advisory
According to Centre for Monitoring Indian Economy (CMIE) forecast, the IIP could be Council expects GDP to be
at 3.9 per cent for the year 2008-09. 7.1 per cent for the year 2008-
09.
The IIP for the month ended December was quite disappointing at -2 per cent as com-
pare to 8 per cent for last year ended December.

According to CMIE forecast,


the IIP could be at 3.9 per cent
for the year 2008-09.

Source: CMIE

To fight against the slowdown of the Economy, Government of India & Reserve Bank
Inflation stands at 3.92 per
of India took many fiscal as well as monetary actions. Clubbed with fiscal & monetary
cent against a high of 12.63
actions, decreasing commodity prices, decreasing crude prices and lowering interest
per cent.
rate, we expect that Indian Economy could again register a robust growth rate in the
th
year 2009-10. Inflation stands at 3.92 per cent on 7 February 2009 against a high of
th
12.63 per cent on 9 August 2008.

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Banking Industry – Funding the Economy


Banking Industry is an essential part of any economy. In fact, banks are the single most
important supplier of credit. The banking industry has the capital and commitment to
support the financial needs of individuals, businesses and all levels of government.
Banks make loans to consumers to finance purchases of homes, education, cars and
major appliances. Bank credit helps small businesses get started, grow and prosper.
Banks help state and local governments fund a variety of public improvements like India has 79 scheduled com-
schools, roads, water & sewer and public health facilities. In each of these roles, banks mercial banks, 28 public sec-
support the creation of jobs and the growth of our economy. tor banks, 23 private banks
and 28 foreign banks.
India has 79 scheduled commercial banks with 28 public sector banks, 23 private banks
and 28 foreign banks. They have a combined network of over 67,000 branches and
914,241 employees, according to a release by Reserve Bank of India published on Sep
24, 2008.

According to a report by ICRA Limited, a rating agency, the public sector banks hold
around 75.3 per cent of total assets of the banking industry and the private and foreign
banks hold of 18.2 per cent and 6.5 per cent respectively.

Banking Industry is the most dominant sector of the financial system in India, and with
good valuations and increasing profits, the sector has been among the top performers in
the markets. But currently worldwide the banking industry is facing a tough time due to
the failure of financial system in the biggest economy i.e. United State of America. The
problem arises due to default in sub prime mortgage lending clubbed with rising national
debt, current account deficit, and fiscal policies of US. This has led to the failure of some
big investment banking firm leading to file bankruptcy. Financial Institutions are the one
to face challenge because of liquidity crunch.

Indian Industries have been witnessing today is an indirect, knock-on effect of the global
financial situation and is a reflection of the uncertainty and anxiety in the global financial
markets. While no country in today’s globalizing world can remain completely insulated
from the global financial crisis, Indian banking industry is better placed to cope with the
adverse consequences of the financial turmoil. India is relatively better placed due to its
robust policy framework, stricter prudential regulations with respect to capital and liquid-
ity and strong growth performance (a growth of ~9 per cent) in recent years.

An added obstacle to the sustained improvement of the banking system is the fact that
banks are mandated to provide funding to government-defined priority sectors dominated
by small-scale business and agriculture. Loans to these sectors are at high risk of be-
coming non-performing. Private-sector banks must ensure that 25 per cent of their loans
are directed towards these priority sectors; for state-owned banks, the figure is 40 per
cent. These thresholds restrict the level of credit available to more efficient companies in
non-priority sectors.

The level of bad loans has been falling in recent years as a result of the creation of as-
set-reconstruction companies and a rapid expansion in lending. Non-performing assets
(NPA) fell to 1.0 per cent for the fiscal year 2007-08, according to the latest data from the
Reserve Bank of India. In the near future, for a stint, we expect to see an increase in
Non-performing Assets.

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Recent News in Banking Industry


RBI turns down plea to relax NPA norms
Companies, especially small and medium enterprises (SMEs) has plea to treat loan to be
treated as Non Performing Assets (NPA) if it is overdue for 180 days rather than the current
treatment which consider loan as NPA if it is overdue for 90 days. But Reserve Bank of India
(RBI) has turned down plea. RBI feels such a move will affect banks’ financial health.

SBI loans at 8 per cent could trigger a rate war Populations to Branch
Ratio for different coun-
State Bank of India’s has taken a decision to offer home loans at 8 per cent and allow loan tries:
borrowers to switch to SBI after foreclosing existing loans. This may compel the other gov-
ernment-owned banks to reduce rates. The primarily reason for the reduction in interest rate UK stand at 4484
is to stimulate growth in the economy and not to attract customers of their competitor. US stand at 2720
Singapore stand at 10101
Why aren’t banks lowering their Prime Lending Rate (PLR)? & India stand at 16129
Under RBI norms, certain loans are benchmarked to Prime Lending Rate (PLR) and if it
declines, banks’ earnings on such loans are compromised drastically. For instance, loans to
exporters are given at 250 basis points lower than PLR. So if PLR for a bank is 12.25 per
cent, they offer loans to exporters at 9.75 per cent. Similarly, all small-firm loans are priced
cheaper than a bank’s PLR and same for home loans. 30 to 35 per cent of the total loan
provided accounts for such concessional loans.

India needs more bank branches for rural areas


According to a joint study by ASSOCHAM and Ernst & Young, India needs to increase the
number of bank branches in the country to cater to the large number of people especially
those living in rural areas. “Population to Branch Ratio” of India stands at more than 16,000
individuals which are very high as compare to other developed countries stands at around
1,600 to 4,500 individuals.

PSBs to see higher pressure on margins


Public sector banks (PSBs) could see higher pressure on their net interest margins (NIMs)
in the coming months as they have mopped up large amounts of deposits at higher rates
and have also affected by steep cuts in lending rates.

Bank credit shrinks by INR 25,000 Crores


Reflecting moderation in economic growth, bank credit contracted by about INR 25,000
Crores from 27,42,947 Crores in December ended 2008 to 27,18,077 Crores in January
2009.

Centre to infuse INR 3800 Crores in three state-run banks


The Union Cabinet has approved a proposal to infuse INR 3800 Crores out of which UCO
Bank will received INR 450 crore in fund infusion in the year ending March 2009 and addi-
tional INR 750 crore in next year. Central Bank of India will receive INR 700 crore each this
fiscal and the next year whereas Vijaya Bank to receive INR 500 crore in year ending March
2009 and INR 700 crore in next year.

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Products & Services


Banking Industry has evolved a lot over past few decades. Now banking is not limited to
traditional banking which just offers deposits and loans. Internet banking, mobile banking,
ATMs and technology advancement has help banks to lower there cost and at the same
time offer new and sophisticated products and services to there customers.

Deposits
Excepting deposits are prime functions of bank. Types of accounts offered are Current, Today banking is not lim-
Saving and Recurring account. The average CASA (Current account saving account) ited to traditional banking
deposit accounts for Indian Bank are around 25-30 per cent of the total deposit. which just offers deposits
and loans but Internet
Loans banking, mobile banking,
Banks provide loans from the deposit. They manage long term loans with short terms ATMs and technology
deposit. They charge a spread between loan and deposit. Traditional banks were limited advancement.
to deposit and loan. But in today world, the banks offer loans from consumer loan to cor-
porate loan, education to marriage loan, personal to vehicle loan. Bank offers loan to
SME (Small & Medium Enterprise) at lower interest rate. Loan sector has grown at ~30
per cent per year over the past 4-5 years.

Retail banking
Retail banking provides many services to retailer. It provides need of the hour services
like around-the-clock accessibility through automated teller machines (ATMs), mobile and
internet banking. It has also offered services like Demat, plastic money (credit and debit
cards), and online transfers.
Convenience, Complete
ATMs Solution, Faster Services
and Safety are the buzz-
Banks have increased their ATM network over the past three years. According to the RBI,
ing word of Banking In-
by June 2008, the number of ATMs in the country had gone up to 36,314 against 27,088
dustry.
and 20,267 at end-March 2007 and 2006, respectively.

Plastic Money
With the use of credit cards increasing significantly over the last few years, it has played
an important role in promoting retail banking. The number of credit cards (outstanding) in
June 2008 stood at 27.02 million, against 24.39 million in June 2007, posting a 10.73 per
cent growth.

Financial Services One Stop Point for Every


Wealth Management Financial Service - Indian
Banks offer wealth management services to individual and HNI. The investment service Banking Industry
offers all financial products not limited to Mutual funds, Gilt funds, ForEx, Insurance, de-
rivatives.

Insurance
Banks are offering insurance products also. They offers Life Insurance, Health Insurance,
theft Insurance, Vehicle Insurance, House Insurance, Goods Insurance to name a few.

Demat Services
Bank offer demat account for Individual and to corporate. The services offered are in equi-
ties, commodity and currency.

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Are Indian Banks Safe???


India Banks are relatively placed better due to its robust policy framework, stricter pruden-
tial regulations with respect to capital and liquidity and strong growth performance (a
growth of ~9 per cent) in recent years. The regulatory systems of Indian banks are rated
above China and Russia; and at par with Japan and Singapore.
Indian banking industries
Reserve Bank of India while restricting the overnight unsecured market for funds to banks are quite healthy. The aver-
and primary dealers has also imposed limits on their borrowing and lending operations in age deposits in government
the overnight inter-bank call money market. In order to encourage greater reliance on sta- securities and cash are ~34
ble sources of funding, the Reserve Bank of India has imposed prudential limits on banks’ per cent, this give banking
purchased inter-bank liabilities and these limits are linked to their net worth. Even Reserve industry a safer picture.
Bank of India continuously monitored the incremental credit-deposit ratio of the banking
industry. The Asset-Liability Management guidelines in India take into account both on and
off balance sheet items.

In order to strengthen capital requirements, the credit conversions factors, risk weights and
provisioning requirements for specific off-balance sheet items (including derivatives) have
been reviewed in the last few years.

As per RBI, Indian banks have little exposure to sub-prime mortgages which are mainly
through the bank overseas branches. But this exposure is part of the normal course of their
business and is quite small relative to the size of their overall business.

The bulk of retail lending ~80 per cent consists of mortgages and vehicle loans, which are
considered relatively safe. Indian banks are insulated from the mortgage-lending woes
currently afflicting developed-country banks, as their lending criteria remained strict even
throughout the boom years and their exposure to complex securitizations are minimal.

While many big companies of financial markets are either going bust or getting bailed-out,
Indian banks are performing well and have secured a place in the latest Top 500 Global
Financial Brands 2009. 19 Indian banks have secured a place in Global 500 for the year Regulatory systems of In-
2008, up from 6 Indian Banks for the year 2007. dian banks are rated above
China and Russia; and at
For three months ending December 2008, 19 Indian banks/financial institution in the 500 par with Japan and Singa-
Global 2009 reported an average 35 per cent growth in interest income and an average of pore.
42 per cent jump in net profit.

Basel II Norms
The Indian banks with overseas presence and foreign banks operating in India have suc-
cessfully migrated to Basel II Framework by March 2008 and all other scheduled commer-
cial banks are encouraged to migrate to Basel II not later than March 2009.

The Basel Committee on Banking Supervision (BCBS) is now deliberating on Basel II,
which is complicated than Basel I. An important improvement in Basel II, compared with
Basel I, is that banks will hold more capital against a wider range of risks - not just credit
risk and market risk but also operational risk, interest rate risk and other risks.

The financial health of Indian banking industry improved significantly in terms of capital
adequacy ratio (CAR) during the third quarter of the fiscal 2007-08. The mandated limit for
CAR posed by the Basel II is 8 per cent.

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Graphical Representation - Are Indian Banks Safe???

Among 9 banks considered,


Kotak Mahindra Bank CAR
stands at the highest with
17.00 per cent.

Non-Performing Assets
(NPA) is lower for Union
Bank which stands at 0.14
per cent

For both, State Bank of In-


dia and ICICI Bank the total
net-worth stands at more
than 50,000 Crores.

State Bank of India’s net


worth is ~20 per cent more
with its nearest revival ICICI
Bank.

The above values are for December Quarter 2008

The numerical represent Capital Adequacy Ratio (CAR) and then Non-Performing Assets
(NPA). The next figure represents the Net Worth of the Banks in INR Crores.

Lower NPA and Higher CAR - Best for Banks


In graphical representation, banks having Non-Performing Assets (NPA) less than 1.5 per
cent are consider stable, whereas NPA higher than 1.5 per cent are not consider stable.

Capital Adequacy Ratio (CAR) above 12 per cent gives a stable picture. CAR for above
banks are calculated according to Basel II norms.

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Steps by RBI to fight against the Liquidity Crunch


Liquidity in the banking system has eased significantly with the Reserve Bank of India
pumping over INR 3,20,000 Crores into the banking system since October 2008.

RBI, the central bank, has reduces the Cash Reserve Ratio, or CRR, (portion of funds that
the banks have to park with RBI) to 5 per cent. Reductions of 100 bps results in infuse of Monetary action by Reserve
additional liquidity of INR 40,000 Crores into the system. Bank of India has eased
significantly Liquidity in the
RBI has reduced the statutory liquidity ratio, or SLR, (amount which banks have to park in banking system by pump-
government securities) to 24 per cent. Even reductions of 100 bps results in infuse of ad- ing over INR 3,20,000
ditional liquidity of INR 40,000 Crores into the system. Crores into the banking
system since October 2008.
RBI has also cut the Repurchase-agreement rate, or Repo rate, (agreement by one party
to sell a security by another and agreed to purchase it on a specified date) to 5.50 per
cent. The reduction in the repo rate will make short term (overnight) borrowing from the
RBI cheaper for banks.

Other step taken by RBI was reduction in Reverse Repurchase-agreement rate, or re-
verse repo rate, (agreement by one party to purchase a security by another and agreed to
sell it on a specified date) to 4 per cent. An reduction in reverse repo rate discourage
banks from parking surplus short term funds with the RBI and encourage them to lend
those funds. CRR from the peak of nine
per cent has come down to
Bank Rate (at which central banks lend funds to national banks) stands at 6 per cent. The 5 per cent.
Bank rate directly impacts the cost portion of the bank and hence the bank lending rates.

Since 4 October 2008, when the CRR was at its peak of nine per cent, the RBI consis-
tently pruned it to bring it down to 5 per cent by 17 January 2009. This amounts to a liquid-
ity infusion to the tune of INR 1,60,000 Crores. A 100 bps reduction in SLR cut from 25
per cent to 24 per cent in November 2008 had yielded a liquidity infusion of INR 40,000
Crores.

Liquidity has returned to comfortable levels following swift, prompt and extensive meas-
ures by the RBI such as CRR and SLR cuts and opening of refinance windows, lending
rates of banks eased. The prime lending rates (PLR) for most of the banks have come
st
down by an average of 150 basis points from 1 October 2008.

We further expect RBI to announce cut in Repo rate and in Reverse Repo rate. Even we
expect Banks for further reduction in prime lending rate.

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CRAMELS Strategy – Must for Banking Industry


The statutory mandated areas for banking industry are solvency, liquidity and operational
health. For analyzing banking industry, the model we prefer is known as CRAMELS. The
‘CRAMELS’ model stand for: Capital Adequacy, Resource raising ability, Asset Quality,
Management & System evaluation, Earning potential, Liquidity/Assets Liability Manage-
ment and System & Control.

(a) Capital Adequacy: Capital represents the level of cushion or protection available to the
company creditor’s to absorb losses from credit and other risks. It is measured by the ratio
of capital to risk-weighted assets (CRAR). Although CRAR is lower for bank as compare
to finance companies, but bank are positioned better on account of big capital base and
strong recapitalization prospect. A sound capital base strengthens confidence of deposi- ‘CRAMELS’ Strategy:
tors. According to release by Reserve Bank of India the average CRAR for all banks is 13 Capital Adequacy
per cent and 12.3 per cent for the year ended 2007-08 and 2006-07 respectively. The Resource raising ability
CRAR for Indian Banking is higher as compare to the statutory requirement. Asset Quality
Management & System
(b) Resource raising ability: Since funds are finance company’s raw material, its ability to evaluation
generate them is essential for its operating model. Banks has an advantage for raising Earning potential
resource as compare to others financing institution. This give banks a competitive advan- Liquidity/Assets Liability
tage over other financial institutions. Management
System & Control
(c) Asset Quality: Asset quality is of primary consideration when assessing credit risk of a
finance company. One of the indicators for asset quality is the ratio of non-performing
loans to total loans (NPA). The non-performing loans to advances ratio is more indicative
of the quality of credit decisions made by bankers. Lower NPA is indicative of good and
robust credit decision-making. Low NPA of Indian Banks give the Industry a saver pic-
ture.
The CRAR for Indian Banks
(d) Management & System evaluation: The quality of a company’s management, its busi-
are higher as compare to
ness strategies and its ability to track and respond according to changes in market condi-
the statutory requirement.
tion. The ratio of non-interest expenditures to total assets can be one of the measures to
assess the working of the management. This variable, which includes a variety of ex-
penses, such as payroll, workers compensation and training investment, reflects the man-
agement policy stance. We need to analysis management’s risk appetite in terms of its
growth, capitalization policy and diversification philosophy.

(e) Earnings potential: Earnings are the key input for supporting growth. Earning potential
directly attract debt and equity. Earning for finance company is driven by net interest mar-
gin and the difference between the yield generated by assets and cost of debts. The
spread has come down to 3-4 per cent as compare to over 8 per cent a decade back. This
has leads to increase in efficiencies to maintain overall profitability.

(f) Liquidity/Assets Liability Management: Cash maintained by the banks and balances
park with central bank is an indicator of bank's liquidity. Bank has access to call market or
RBI refinance facilities in the event of liquidity crunch. The banks properly manage the
time difference between short term deposits with long term loans. In general, banks with a
larger volume of liquid assets are perceived safe, since these assets would allow banks to
meet unexpected withdrawals.

(g) Systems and Control: The Systems and control access plays an important part in to-
day’s highly advance banking technology. Due to electronic technology advancement, the
bank needs to have access as well as control over the systems. Safety and security plays
a vital role in today world.

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Porter's Five Forces Model

Porter's Five Forces model


outlines the primary forces
about competitiveness
within the industry.

Rivalry among Competing Firms


Rivalry among competitors is very fierce in Indian Banking Industry. The services banks
offer is more of homogeneous which makes the company to offer the same service at a
lower rate and eat their competitor market’s share. Market Players use all sorts of aggres- . The intensity of rivalry
sive selling strategies and activities from intensive advertisement campaigns to promo- among competitors is very
tional stuff. Even consumer switch from one bank to another, if there is a wide spread in high
the interest. Hence the intensity of rivalry is very high.

Potential Entry of New Competitors


Reserve Bank of India has laid out a stagnant rules and regulation for new entrant in . Potential Entry of New
Banking Industry. We expect merger and acquisition in the banking industry in near future. Competitors is very less
Hence, the industry is less porn of new competitor.

Potential Development of Substitute Products


. Wide range of choices and
Every day there is one or the other new product in financial sector. Banks are not limited needs results in new prod-
to tradition banking which just offers deposit and lending. In addition, today banks offers uct development and prod-
loans for all products, derivatives, ForEx, Insurance, Mutual Fund, Demat account to uct enhancement
name a few. The wide range of choices and needs give a sufficient room for new product
development and product enhancement.

Bargaining Power of Suppliers . Reserve Bank of India is


Banking industry is governed by Reserve Bank of India. Reserve Bank of India is the au- lay down the rules and
thority to take monetary action which leads to direct impact on circulation of money in the regulation for Banking In-
Economy. The rules and regulation lay down by RBI. dustry

Bargaining Power of Consumers . Bargaining Power of Con-


In today world, Customer is the King. Banks offers different services according to clients sumers is little high as
need and requirement. They offer loans at Prime Lending Rate (PLR) to their trust worthy “Customer is the King”
clients and higher rate to others clients.

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PEST Analysis
PEST analysis of any industry investigates the important factors that affect the industry
and influence the companies operating in the sector. PEST stands for Political, Economic,
Social and Technological analysis. The PEST Analysis is a tool to analyze the forces that
drive the industry and how those factors can influence the industry.

Political Factors
Focus on Regulations
Indian Banking is least affected as compare to other developed economy which is attrib-
uted to Reserve Bank of India for its robust policy framework, stricter prudential regula- Every Industry has Gov-
tions with respect to capital and liquidity. This gives India an advantage in terms of credi- ernmental or Social influ-
bility over other countries. ence on their workings.

High Capital Adequacy Ratio


The Implementation of Basel II norm has stricter rules and regulations. India’s regulatory
systems are places above China and Russia; and at par with Japan and Singapore.

Economic Factors
Growing Economy
Indian economy has registered a growth of more that 9 per cent for last three year and is
expected to maintain robust growth rate as compare to other developed and developing
countries. Banking Industry is directly related to the growth of the economy.
PEST Analysis gives in-
Low Interest Rates sights on different influ-
Reserve Bank of India controls the Interest rate, which is based on several monetary poli- ence. Pest Analysis stands
cies. Recently RBI has reduced the interest rate which stimulates the growth rate of bank- for:
ing industry. Political Factor
Economic Factor
Inflation Rates Social Factor
Different fiscal and monetary policies have curbed the Inflation rate from the high of 12.63 Technological Factor
per cent to 3.92 per cent.

Social Factors
Loyalty Factor
Banking industry services is lending and borrowing of funds. The banks need to have a
good royalty factor as compare to counter part in other countries. The financial meltdown
on Indian Banks is less impact as compare to other countries.

Increased Penetration of Cards


India has registered a robust growth in plastic money. There is a still lot of potential in the
plastic market. India just spend 1 per cent of their total purchases through credit cards
where as the world average is stands more that 9 per cent.

Technological Factors
IT Services & Mobile Banking
Technology advancement has changed the face of traditional banking systems. Technol-
ogy advancement has offer 24X7 banking even giving faster and secured service.

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SWOT Analysis

Strengths:
9 Wider presence of branches and ATM
9 Micro Finance
9 Low expenditure cost due to high usage of ATM & Internet Banking
9 Electronic banking - Connected Globally
9 Faster and safer banking
9 Specialized services offering

Weaknesses:
9 Intensive competition has reduce the margins
9 Cyber crime

Opportunities:
9 Large market – over a billion populations
9 Foreign banks eyeing over India banks for Merger and Acquisition
9 From traditional banking to a Hub of every financial products
9 Increase in loans due to easy and faster loan approval
9 Rising disposable income has resulted in demand of different financial products

Threats:
9 Non Banking Financial Institution (NBFC) offering financial services
9 Reserve Bank of India persuade banks to lower the spread
9 RBI control the Supply of money in the Economy, has an impact in loan offering
9 To ensure minimum loans towards priority sectors 25 per cent for private banks
and 40 per cent for state-owned banks has a limitation on growth

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Growth Prospect
Advantage India – FDI
The Reserve Bank of India (RBI), has allowed foreign players to set up branches in rural
India and take over weak banks with an investment of up to 74 per cent, and further re- Foreign players are allowed to
laxations are on the anvil by 2010, with the second phase of opening expected to com- set up branches in rural India
mence in April 2009. and take over weak banks
with an investment of up to 74
Some of the biggest names in global financial services and banks like Credit Suisse, per cent.
Rabo Group and ANZ are seeking a banking license in India. The RBI has, in recent
months, given fresh banking licenses to UBS - Switzerland's largest bank, Dresdner
Bank and United Overseas Bank.

ANZ and Rabobank Group, the Dutch Group, is now in the process acquiring a banking
license. The Rabobank Group already holds 18.2 per cent stake in another local private
bank YES Bank. Some of the existing players such as StanChart, Citi and HSBC, hold
India as one of their top markets.

Due to current Global crisis, we expect the deadline for second phase i.e. April 2009 to
be extended further. However, banking authorities has not announced about the exten-
sion of the phase.

Market Opportunities According to BCG, the profit


pool of the Indian banking
Road Ahead industry is estimated to in-
The Indian consumer holds the biggest opportunity for the Indian banking system and crease to US$ 20 billion in
retail banking has immense opportunities in India. Though there are 334 million bank 2010 and further to US$ 40
accounts in India, only 60 million Indian households are actively involved with regular billion by 2015.
banking activities. If 30 million additional households are targeted over the next three
years, it would expand the revenue pool by around US$ 2.24 billion for banks. Around 91 Where as the credit market is
million households, with incomes of varying between INR 45,000-2,00,000 per annum, estimated to grow to US$ 23
are yet to be tapped by the banking sector. trillion by 2050.

This year is likely to set a reform process in the banking sector with most banks are ex-
pected to comply Basel II guidelines. The Indian banking system can see an enormous
transformation after the opening of the financial services sector under the World Trade
Organisation (WTO). Under WTO, the Indian banking sector will be open to foreign
banks. Bigger capital reserves, cutting edge technology, best practices in audit, account-
ing and transparency and skilled personnel of foreign banks will pose major challenges
to Indian banks.

According to a report by Boston Consultancy Group, the profit pool of the Indian banking
industry is estimated to increase to US$ 20 billion in 2010 and further to US$ 40 billion
by 2015 and credit market is estimated to grow to US$ 23 trillion by 2050.

To sustain an average capital adequacy ratio of 12.0 per cent by March 2010, the public
sector banks would require an additional capital of approximately US$ 67.50 billion. Un-
der such favorable conditions, India is expected to become the third largest banking hub
in the world by 2040.

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Things to Watch Out For in 2009: Remittances, NPLs

Remittances
The global recession coupled with declining oil prices could result in a deceleration in re-
mittance flows which have played an integral role in the Balance of Payment (BoP). To
counter this, besides raising rates on NRI deposits, introducing another ‘diaspora’ bond
and further reducing remittance costs would be steps in the right direction.

Rising NPLs
Higher rates, ForEx assumptions going wrong, slowing industrial output and corporate
profits are likely to result in a rise in NPLs and weakness in asset quality. Though far from
peak levels, the macro implication is cautious lending, with aggressive policy easing not
being matched by banks lowering rates or increasing advances. This would escalate the In India, default on loans
negative feedback loop currently in play. either on principal amount
or interest amount for more
than 90 days, are consider
Key Takeaways as NPL.

Where as major other coun-


Key highlights of our analysis are:
tries consider it NPL when
it is due for more than 180
Accelerated growth rate - Indian Banking and Financial Services led to impressive value
days.
creation. Over 5 year period from April 2003 to March 2008 the total shareholder return for
the sector was more than 53 per cent which was better than the overall return of 42 per
This gives India a safer pic-
cent by the complete stock market.
ture.
Indian Banking performance - Even during the Global Meltdown, Indian Financial sector
performs better than its peer in the developed and other BRIC countries.

Wide distribution network - Public sector bank and even now private sector bank are
entering into rural area too.

Higher Disposable Income - Rise in household income has resulted in increase in dis-
posable income and hence increase in savings and investment.

Future growth rate - The financial sector is expected to maintain a decent growth rate in
future.

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Telecom Industry – Connecting the World


Introduction- Low-cost, High-Quality networks & Innovative Marketing
Indian Telecom sector, like any other sector in the country, has gone through many
phases of growth and diversification. Starting from telegraphic and telephonic systems in
the 19th century, the field of telephonic communication has now expanded to advanced India's telecom services in-
technologies like GSM, CDMA, and WLL to the much awaited great 3G (Third Genera- dustry revenues is projected
tion) Technology in mobile phones. to reach $54 billion in 2012, as
compared with $31 billion in
Telecom Industry in India is the fastest growing markets in the World and become the 2008 according to the CII
second largest mobile market in the world just after China. India has added around 9.5 Ernst & Young report titled
million new mobile subscribers to the network each month for the year 2008. Upcoming 'India 2012: Telecom growth
services such as 3G and WiMax (Worldwide Interoperability for Microwave Access) will continues.'
help for further growth rate. The service providers are offering services at cheap call
rates, low-cost handsets and network expansion is fuelling the boom for the industry.

There exists enormous business potential for telecom companies on account of the
country’s low teledensity, which stand at 33.23 for December 2008. Every day there is an
addition in Value added Services (VAS), technology advancement and reduction in traffic
charges. Increase in private and public players in the sector has enhanced the telecom-
munication technology to give the maximum benefits to their customers.

Segment Analysis
India's growth story in the telecom space shows no signs of slowdown. The country
added 113.26 million new customers in 2008, the largest globally. To put this growth into According to Capitaline Data-
perspective, the country’s cellular base witnessed around 48.50 per cent growth in 2008, base, total revenue for Tele-
with an average 9.5 million customers added every month. com industry for current year
is around 100,000 Crores.
The country had 346.89 million mobile phone users as of December 2008 compared to
233.62 million in the corresponding period a year ago and the total number of telephone
connections (wireless and wireline) is 384.79 million as of December-end, taking the
telecom penetration to over 36 per cent. It implies that one out of every three Indian has
a telephone connection.

The Indian telecom industry has been growing rapidly at a CAGR of 40.63 per cent from
2003 to 2008. Telecom sector contributed 3.4 per cent to India’s gross domestic product
in for the year 2008 and is expected to contribute 5.4 per cent by 2010.

There is still a big room for further growth. The growth will primarily driven by the rise in
communications demand from semi urban and rural India. The teledensity in rural areas
being a little more than 10 per cent against the national average of 33.23 per cent, there
is huge untapped potential for mobile phone penetration in rural India.

The total Broadband subscriber base has reached 5.45 million by the end of December
2008 as compared to 5.28 million by the end of November 2008. Even there is a huge
potential in broadband segment.

The growth in 2008 was led by Bharti Airtel, the country’s largest communications pro-
vider. Bharti had 85.65 million customers as of December-end, Reliance Communica-
tions had 62.02 million and Vodafone of about 60.93 million.

In fact, Bharti has more customers than the state-owned BSNL’s mobile and landline
users combined.

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Recent updates in Telecom Industry


Around 11 million mobile subscribers added in the month December
According to telecom regulator TRAI, 10.81 million mobile subscribers were added in the
month December, the highest monthly addition, against 10.35 mobile subscribers in the
month November.

3G Auction
With the announcement of a 3G policy on 1 August 2008, India joined a select list of According to Gartner Inc.,
countries to have a policy on the much-hyped 3G revolution. Third generation mobile India's mobile subscriber
services would offer voice, video, data and downloading services on mobile phones. base is projected to exceed
However, the journey towards 3G in India was not quite uneventful, with the auctions 737 million connections by
being postponed and the economic slowdown affecting the major players vying for 3G. 2012 growing at a CAGR of 21
per cent.
3G & WiMax
The launch of 3G and WiMax (Worldwide Interoperability for Microwave Access) services
is expected to drive the data revolution. Mobile entertainment and mobile banking are
likely to be the biggest drivers for data services. 3G and WiMax services are expected to
gain popularity initially in the top 20 cities in India and then gradually penetrate to the rest
of the country. By 2012, India could have around 25-30 million 3G subscribers and
around $4-5 billion 3G revenues. WiMax, on the other hand, could attract about 8-10 The Government has plans to
million subscribers and could account for about $1-1.5 billion by 2012. raise teledensity to 40-45 per
cent by 2010, thereby offering
The average revenue per user per month is likely to drop further since most of the greater growth opportunities
growth in subscriber additions is coming due to expansion in non-metro regions. for service providers.

Mobile number portability gets nod and bid invited for mobile number
portability
Department of Telecommunications (DoT) has invited bids for mobile number portability.
Mobile Number Portability (MNP) will provide the customer the facility to retain the same
number while switching over from one operator (service provider) to another within the
same service area. A recent study pointed out that having to give up their mobile num-
bers was the single most reason that subscribers did not want to change their operator
despite poor quality of services. This will be an advantage for the customer.

99 per cent of new mobile connections in India are pre-paid


Call it the death of post-paid mobile user in the world’s fastest-growing mobile market.
Out of new mobile user additions in the country, pre-paid connections accounts for
around 99 per cent.

Telecom Industry on robust expansion plans


The total outstanding investment in the telecom industry at the end of December 2008
quarter stood at INR 2,09,007 crore spread over 140 projects. Of these, close to 70 pro-
jects entailing an investment of INR 1,53,821 crore are under implementation and seven
projects encompassing an investment of INR 4,577 Crore are stalled. Most of the exist-
ing telecom companies have robust expansion plans out of which majority have not wit-
nessed any delay in execution.

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All about Telecom Industry


Industry Fact Book

Total mobile phone subscribers: 346.89 million (December 2008)


Teledensity: 33.23 per cent (December 2008)
Addition of new mobile subscribers in month: 10.81 Million (December 2008) According to Springboard
Research, India will become
Average Addition of new mobile subscribers per month: 9.44 Million (Year 2008) the leading market for WiMAX
Annual growth rate of telecom subscribers: 48.48 per cent (Year 2007-08) in the Asia pacific region and
is expected to have 15.8 mil-
Fastest growing cellular telephony markets in the world lion WiMAX subscribers by
Average Revenue per User (ARPU) for GSM: INR 261 per month (December 2008) 2012, accounting for 46.7 per
cent of total subscribers in
Average Revenue per User (ARPU) for CDMA: INR 176 per month (December 2008) Asia-Pacific and 35.7 per cent
More Wireless subscribers than Wireline subscribers of revenues from the region.

Minute of Usage (MoU) for GSM: 464 Minute per month (December 2008)
Minute of Usage (MoU) for CDMA: 375 Minute per month (December 2008)

The Telecom sector in India has witnessed unparalleled growth by global standards. In a According to Gartner, the
little over a decade of wireless telephony, India has moved from a subscriber base of value-added services (VAS)
zero to becoming the second-largest market in the world after China. market in India is expected to
grow to about US$ 5.6 billion
Rural telephony, 3G, WiMax and data services will drive sector growth in 2012. The in- by 2011.
dustry will witness sustained growth in mobile services and data revenues. Network ex-
pansion will continue in order to support the rural growth. It is imperative for the govern-
ment to revisit high levies on the telecom sector and lay down a clear roadmap for future
spectrum allocation.

Subscriber base to grow


Further growth will be primarily driven by a rise in communications demand from semi
urban and rural India. Over past few years, Circle B and Circle C have witnessed the
highest growth rate as compare to Metros and Circle A.

The availability of adequate spectrum could remain a hurdle for wireless growth. The
telecom sector could witness another round of Mergers & Acquisitions. As new operators
roll-out networks, there could be 10-12 operators in each circle. However, by end of
2012, industry consolidation will result in about five to seven large operators.

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Segment
Mobile Services
India's telecom growth pattern continues with mobile operators adding 113.26 millions
subscribers in the year 2008 to the world's second largest wireless market.

GSM According to Gartner, India's


The GSM subscriber base has reached to 257.98 million in the year ending December mobile subscriber base is
2008. The number of addition in GSM subscriber for month ended December 8.12 million projected to exceed 737 mil-
which stand at 3.25 per cent. Bharti with 85.66 million subscriber base remains the larg- lion connections by 2012
est GSM mobile operator followed by Vodafone, BSNL and Idea with subscriber’s base growing at a compound an-
of 60.93 million, 41.36 million, and 38.01 million respectively. nual growth rate (CAGR) of 21
per cent and India is likely to
CDMA remain the world's second
The CDMA subscriber base has reached 87.91 million in the year ending December largest wireless market after
2008. The number of addition in CDMA subscriber for month ended December 2.29 mil- China in terms of mobile con-
lion which stand at 2.67 per cent. Reliance remains the largest CDMA mobile operator nections.
followed by Tata Teleservices and BSNL with subscriber base of 52.07 millions, 31.18
millions and 2.62 millions respectively.

Wireline
Wireline services subscriber base stood at 37.90 million for the year ended December
2008 compared to 39.42 million last year. The Wireline has registered a decline of 3.63
per cent. The market leader in wireline is BSNL and market follower is MTNL. The fixed
(Wireline) subscriber base registered a decline of 1.52 million in the year 2008. Reduc- The overall cellular services
tion in the subscriber base of wireline is mainly due to switching to wire less which is revenue in India is projected
more convenient and cheaper. to grow at a CAGR of 18 per
cent from 2008-2012 to ex-
Other Telephone Services ceed US$ 37 billion.
Public Call Offices
Number of Public Call Offices (PCOs) has reported a positive number over past few
years. In Public Call Offices, BSNL is market leader with a share of little more than 30
per cent. MTNL market share is a little less than 4 per cent and the rest of market is cap-
ture by other private operators.

Village Public Telephones


Number of Village Public Telephones (VPT) has increased from 5.60 lakh in quarter end-
ing March 2008 to 5.63 lakh in quarter ending June 2008. There are around 6 lakh vil-
lages in India. More than 85 per cent of the villages have VPTs. 100 per cent of Villages
in Haryana and Panjab have access to Village Public Telephone.

Wireline internet subscriber


Broadband Growth: Total Broadband subscribers base has reached to 5.45 million by
the end of December 2008 as compared to 3.13 million last year to registered a growth
of 74.12 per cent.

Non Voice Services


Value added service has registered a robust growth rate. It contributes more than 10 per
cent of the total revenue.

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Telecom Industry Government


Government Policy Initiatives
The Government has taken many proactive initiatives to facilitate the rapid growth of the
Indian telecom industry.

The Indian telecom industry has a 74 percent FDI limit in the telecom services segment.

The Government of India (GOI) has permitted 100 percent FDI in manufacturing of tele- Total FDI inflow in Telecom
com equipment in India through the automatic route. Sector from April 2000 to No-
vember 2008 amounts to INR
The Indian telecom industry has attracted foreign investors. The cumulative FDI inflow, 25,671.68 Crores which is 7.86
during April 2000 to November 2008 period (latest data available), in the telecommunica- per cent of total FDI inflow.
tion sector amounted to INR 256,716.88 Million. It is the third largest sector to attract FDI
in India which accounts for 7.86 per cent just after Service sector and Computer Soft-
ware & Hardware sector.

FDI calculation takes into account radio paging, cellular mobile and basic telephone ser-
vices in the telecommunication sector. According to an IMRB paper
for the Internet and Mobile
Opening of telecom industry for private sector participation. Association of India, VAS, or
the sale of ring tones, caller
Establishment of an independent regulator - the Telecom Regulatory Authority of India tunes, wallpapers, SMSes (for
(TRAI) - for the telecom sector. contests and communica-
tion), among other non-voice
Allowing service providers to share active infrastructure. services, generated Rs 7,500
Crores in revenues in 2008

There is a huge growth in FDI


Inflow in India for the month
of Sep, 08.

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All about the ‘Much Awaited 3rd Generation Technology (3G)’


What is 3rd Generation Technology (3G)????
The 3rd generation technology (3G) represents a shift from voice centric services to mul-
timedia oriented services like video, voice, data and fax services. 3G networks have po- According to a report by in-
tential transfer speeds of up to 3 Mbps (about 15 seconds to download a 3-minute MP3 dustry body FICCI and tele-
song). For comparison, the fastest 2G phones can achieve up to 144Kbps (about 8 min- com consulting firm BDA, "3G
utes to download a 3-minute song). The high speed of data transfer can accommodate subscriber base will reach 90
broadband applications like video conferencing, receiving streaming video from the million by 2013 and the reve-
internet, sending and receiving faxes, instantly downloading e-mail messages with at- nue from 3G is expected to
tachments and international roaming. reach $ 15.8 billion by the
same year." Even introduc-
What will be the impact on Revenue???? tion of 3G would also in-
We have seen a decline in Average Revenue per User (ARPU) and the decline is due to crease the Average revenue
continuous fall in the tariff charges as competition in the industry increases. There is per users (ARPU).
substantial rise in subscriber base from Circle B and Circle C compare to Metros and
Circle A. The usage is less in Circle B and Circle C as compare to other circle.

Around 129.79 million GSM subscribers are from Metros or Circle A. It accounts for more
that 50 per cent of the total GMS subscriber base. We expect atleast 5 per cent of the Value-added Services (VAS)
customer to opt for 3G within 2 years. This could result for 3G subscriber base of more brings in 9 per cent of tele-
than 10 million. com industry revenues. As
average revenues per user
This would leads to sharp rise in ARPU from this Circle. Recently Mahanagar Telephone (ARPU) fall, the pressure on
Nigam Limited (MTNL) has become the first telecom operator in the country to launch 3G making more money from
mobile services. Although the service is on the higher side as mobile users will have to VAS will keep going up.
pay a one-time fee of INR 500 as activation charges and a monthly rental of INR 599, but
the company has receive good response from the customer. Apart from the rental
charges, there will be an increase in revenue from usage of the service.

Although we expect a decrease in the tariff charges, there would be an increase in Aver-
age Revenue per User.

Wireless Vs Wireline

There is a constant rise in subscriber base of wireless where as there has been a con-
stant decrease in wireline subscriber.

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Future of Indian Telecom Industry


Industry on High Growth Track
The telecom industry has been growing at a CAGR of 40 per cent during 2003-2008,
with total subscriber growing at an average of 9.5 million subscribers per month over the
last year. The subscriber base totaled to 346.89 million in December 2008, and is ex-
pected to be 500 million and 800 million by 2010 and 2012 respectively as per TRAI. The
ARPU for the industry is INR 240, which is among the lowest in the world.

Rural Expansion & Services Abroad


The number of mobile users per 100 persons is described by teledensity. Currently, the
teledensity of the Indian telecom sector is 33.23 per cent, whereas the TRAI expected it
to reach around 45 per cent by 2010.

Falling Handset Prices and Youth Population


Falling handset prices along with added features, makes the market more attractive.
Today, the handsets are available in just three-digit figures with all necessary facilities.
Young generation and living standard is also one of the factors for the increase in sub-
scriber base.

Alarming Competition
The rising competition from new entrants in the industry, both domestic and foreign play-
ers along with new technologies and their core competencies, will heat up the competi-
tion in the industry.

Availability of Spectrum
The Government has allowed and framed the policies for introduction of new technolo-
gies in the Indian telecom sector in the form of 3G and Wimax. The Department of Tele-
com and TRAI are about to auction the required 3G spectrum to various service provid-
ers. The scarcity of spectrum and the price to be charged at the auction will purely be a
matter of time.

Passive Infrastructure Sharing


The infrastructure sharing will encourage more efficient operations, thereby resulting in
significant cost savings. The company is also willing to explore and share active infra-
structure, based on guideline issued by TRAI.

Mobile Commerce to Become the Next Big Thing


Mobile commerce is the upcoming and growing trend. The increased use of mobile
phones for the purpose of banking, tele-booking, inquiries, and other commercial ser-
vices will lead to further increase in the revenues of the companies. The increased use of
such services is welcomed by the users as it offers high utility and value for money.

Mobile Number Portability to Become a Reality Soon


Indian mobile users will soon have the option to switch their service providers without
changing their mobile numbers. Implementation of mobile number will motivate and
stimulate the service providers to constantly endeavor to further improve their quality of
service in order to retain existing customers and attain new subscribers.

Falling ARPUs – Margins under Pressure


The revenues are showing a fall because of declining call tariff. However, the profit mar-
gins are stable because of rising subscriber base in the industry. Every month, more
than 9.5 million subscribers are added in the last year.

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Porter's Five Forces Model

Porter's Five Forces model


outlines the primary forces
about competitiveness within
the industry.

Rivalry among Competing Firms


. The intensity of rivalry
New entrant and commencement of WLL services has resulted in intense competition among competitors is very
Due to higher setup cost the intensity of rivalry is very high high

Potential Entry of New Competitors


High start up cost result as an obstacle for new competitor . Potential Entry of New Com-
Nation wide player has an advantage for network, license fee, new technology and to petitors is very low
maintain margin, hence threat of entry is low

Potential Development of Substitute Products


Little substitutes . Product development and
Wireless has already substituted the wireline which has registered a decline in wireline enhancement is serviced by
subscriber base the market player
Voice over Internet Protocol (VoIP), future threats, has already been incorporated by
existing service provider
Hence threat of substitutes is low for telecom industry

Bargaining Power of Suppliers


Tower upliftment companies and silicon chip manufacturers - main suppliers has high . Medium to low bargaining
competition among them has in low bargaining power but medium switching cost for tele- power of suppliers
com vendors has resulted in medium to low bargaining power of suppliers

Bargaining Power of Consumers


Many telecom providers in wireline as well as in wireless . Bargaining Power of Con-
Mobile number portability after getting approval will result in high bargaining power for sumers is little high
consumer, hence the over all bargaining power is high

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SWOT Analysis

Strengths:

9 Technology Advancement has offered enhanced services


9 Widening of network coverage to rural areas also
9 Low Operational Costs
9 Demand of Mobile Commerce

Weaknesses:
9 High start-up cost
9 Reducing ARPU
9 Reducing MoU

Opportunities:
9 Large domestic market – over a billion populations
9 Low Teledensity as compare to other developed countries
9 Potential in rural market
9 3G and WiMax to be launched

Threats:
9 Higher bidding cost for 3G
9 Government control companies get regulatory benefits over private player
9 Net-phone

Key Take Away for Investors


9 Rapid CAGR of more than 40 per cent over last from few years
9 Low Teledensity as compare to other developed countries leave place for future
growth
9 Upcoming 3G and WiMax Technology to result in high ARPU

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Telecom Industry – What’s Road Ahead


Growth Potential
The Indian rural market is going to be the next big thing for wireless telecom providers.
With the tele-density in rural areas being a little more than 10 per cent against the na-
tional average of 33.23 per cent, there seems to be huge untapped potential for mobile
phone penetration in rural India.

According to a report by in-


dustry body FICCI and tele-
com consulting firm BDA, "3G
subscriber base will reach 90
million by 2013 and the reve-
nue from 3G is expected to
reach $ 15.8 billion by the
same year." Even introduc-
tion of 3G would also in-
crease the Average revenue
per users (ARPU).
Note: Teledensity for certain Countries are for March 2008

The much awaited Third Generation (3G) Auction has been delayed. As per Depart-
ment of Telecom (DoT), set a base price of INR 2,020 crore for a pan-India 3G spectrum
where as the Union Finance Ministry stepped in with a recommendation to double this
price to INR 4,040 Crore.

The Cabinet Committee on Economic Affairs (CCEA) is likely to consider the proposal to
set INR 3540 crore by the means of doubling the reserve price for Delhi, Mumbai and
category A circles and increasing it by 1.5 times for Kolkata and category B circles and
retaining the current base price for category C circles. This could again put off the much-
awaited roll-out of advanced mobile services.

WiMax, Broadband Wireless Access (BWA), which was been proposed at INR 1,010
Crore could be doubled to INR 2,020 Crores as recommend by ministry of finance.

Mahanagar Telephone Nigam (MTNL) becomes the first telecom company to launch
th
third-generation (3G) mobile services in India on 5 February 2009. MTNL competes
with private firms, including Bharti Airtel, Vodafone, Reliance Communications, Idea Cel-
lular and Tata Teleservices, in India. State-owned telcos MTNL and BSNL were given
3G spectrum last year before the private players, giving them the first mover's advan-
tage.

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FMCG Industry – Moving at fastest Pace


FMCG Sector is one of the most important sectors for each and every Economy. It plays
a vital role being a necessity and inelastic product which touches every life in one or the
other aspect.

India's FMCG sector is the fourth largest sector in the economy and creates employment
for more than three million people in downstream activities. Its principal constituents are
Household Care, Personal Care and Food & Beverages. The total FMCG market is in 85,000 Crores Indian FMCG
excess of INR 85,000 Crores. It is currently growing at double digit growth rate and is market is one of the important
expected to maintain a high growth rate. FMCG Industry is characterized by a well estab- sector and has registered a
lished distribution network, low penetration levels, low operating cost, lower per capita robust growth rate.
consumption and intense competition between the organized and unorganized seg-
ments.

The FMCG Industry remained insulated from inflation led demand slowdown. Inflation as
measured by the wholesale price index (WPI) shot up to 9.5 per cent in June 2008 quar-
ter and further climbed up to 12.63 per cent in September quarter. In both these quar- According to CMIE Data, Ag-
ters, industry sales accelerated by more than 15 per cent backed by healthy growth in off gregate sale FMCG industry is
take as well as price hikes affected. During this period, the industry was largely able to expected to increase by 19.2
hold on to margins through a combination of strategies such as reduction in packaging per cent during the December
cost and changes in product mix. Since October, inflation rate has been waning and fell 2008 quarter.
th
to 3.92 per cent for the week ended 7 February 2009. Thus demand for personal care
products is likely to remain buoyant.

According to CMIE Data, Aggregate sale of the industry is expected to increase by 19.2
per cent during the December 2008 quarter.

Commodity prices after peaking are on the downswing. In September 2008 quarter, palm
oil price fell by 13 per cent sequentially. In the subsequent months, palm oil price contin-
ued to weaken further and in November 2008 its price ruled 38 per cent lower than the According to Federation of
year ago level. This would minimize input cost pressure for soap companies like HUL, Indian Chambers of Com-
Nirma and Godrej Consumer Products. Even fall in crude price is expected to make pe- merce and Industry (FICCI),
troleum derivatives like LAB (key input for detergents) cheaper as well reduce packaging FMCG industry sales could
costs. grow at 16 per cent during
2008-09.
Even during the slowdown of the economy, the FMCG sector has registered a growth
rate of 14.5 per cent for the year 2007-08.

There is a huge growth potential for all the FMCG companies as the per capita consump-
tion of almost all products in the country is amongst the lowest in the world. Federation of
Indian Chambers of Commerce and Industry (FICCI) predicted that the Indian FMCG
industry sales could grow 16 per cent during 2008-09.

According to CRISIL anticipation, FMCG sector total revenue could touch around INR
140,000 Crores by 2015.

The key players in FMCG Industry are Hindustan Unilever Limited, Dabur India Limited,
Procter & Gamble Hygiene & Health Care Limited, Nirma Limited, Emami Limited, Col-
gate Palmolive India Limited, Godrej Consumer Products Limited to name a few.

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Industry Category and Products


Household Care
Personal Wash
The market size of personal wash is estimated to be around INR 8,300 Cr. The personal
Hindustan Unilever Lim-
wash can be segregated into three segments: Premium, Economy and Popular. The
ited is the biggest pro-
penetration level of soaps is ~92 per cent. It is available in 5 million retail stores, out of
ducer of Personal wash
which, 75 per cent are in the rural areas. HUL is the leader with market share of ~53 per
and detergents. The seg-
cent; Godrej occupies second position with market share of ~10 per cent. With increase
ment is expected to grow
in disposable incomes, growth in rural demand is expected to increase because con-
by double digit.
sumers are moving up towards premium products. However, in the recent past there has
not been much change in the volume of premium soaps in proportion to economy soaps,
because increase in prices has led some consumers to look for cheaper substitutes.
Detergents
The size of the detergent market is estimated to be INR 12,000 Cr. Household care
segment is characterized by high degree of competition and high level of penetration.
With rapid urbanization, emergence of small pack size and sachets, the demand for the
household care products is flourishing. The demand for detergents has been growing but
the regional and small unorganized players account for a major share of the total volume
of the detergent market. In washing powder HUL is the leader with ~38 per cent of mar-
ket share. Other major players are Nirma, Henkel and Proctor & Gamble.

Personal Care

Skin Care
The total skin care market is estimated to be around INR 3,400 Cr. The skin care market
is at a primary stage in India. The penetration level of this segment in India is around 20 The Skin Care segment is
per cent. With changing life styles, increase in disposable incomes, greater product expected to register a
choice and availability, people are becoming aware about personal grooming. The major growth rate of mare that
players in this segment are Hindustan Unilever with a market share of ~54 per cent, fol- 16 per cent.
lowed by CavinKare with a market share of ~12 per cent and Godrej with a market share
of ~3 per cent.

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Industry Category and Products (Cont…)


Personal Care
Hair Care
The hair care market in India is estimated at around INR 3,800 Cr. The hair care market
can be segmented into hair oils, shampoos, hair colorants & conditioners, and hair gels.
Marico is the leader in Hair Oil segment with market share of ~ 33 per cent; Dabur occu-
pies second position at ~17 per cent.
Personal Wash is a highly
penetrated category, with
Shampoos
all India penetration lev-
The Indian shampoo market is estimated to be around INR 2,700 Cr. It has the penetration els exceeding 90 per cent.
level of only 13 per cent in India. Sachet makes up to 40 per cent of the total shampoo On the other hand, sham-
sale. It has low penetration level even in metros. Again the market is dominated by HUL poo is not as penetrated
with around ~47 per cent market share; P&G occupies second position with market share which is expected to be
of around ~23 per cent. Anti-dandruff segment constitutes around 15 per cent of the total around 40 per cent. Com-
shampoo market. The market is further expected to increase due to increased marketing panies can bet on growth
by players and availability of shampoos in affordable sachets. rate for the shampoo
category.
Oral Care
The oral care market can be segmented into toothpaste - 60 per cent; toothpowder - 23 per
cent; toothbrushes - 17 per cent. The total toothpaste market is estimated to be around INR
3,500 Cr. The penetration level of toothpowder/toothpaste in urban areas is three times
that of rural areas. This segment is dominated by Colgate-Palmolive with market share of
~49 per cent, while HUL occupies second position with market share of ~30 per cent. In
toothpowders market, Colgate and Dabur are the major players. The oral care market, es-
pecially toothpastes, remains under penetrated in India with penetration level ~50 per cent.

Food & Beverages


Food Segment
The foods category in FMCG is gaining popularity with a swing of launches by HUL, ITC,
Godrej, and others. This category has 18 major brands aggregating INR 4,600 Cr. Nestle
and Amul slug it out in the powders segment. The food category has also seen innovations
like softies in ice creams, ready to eat rice by HUL and pizzas by both GCMMF and Godrej
Pillsbury.

Tea According to Tea Board


of India, the export of tea
The major share of tea market is dominated by unorganized players. More than 50 per cent is expected to be more
of the market share is capture by unorganized players. Leading branded tea players are that 210 million kg for the
HUL and Tata Tea. year 2008 against about
179 million kg last year.
Coffee
The Indian beverage industry faces over supply in segments like coffee and tea. However,
more than 50 per cent of the market share is in unpacked or loose form. The major players
in this segment are Nestlé, HUL and Tata Tea.

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Growth Prospect
Large Market
India is second largest
India has a population of more than 1.150 Billions which is just behind China. According to Country in terms of Popula-
the estimates, by 2030 India population will be around 1.450 Billion and will surpass China tion growth and increase in
to become the World largest in terms of population. FMCG Industry which is directly related population has a direct rela-
to the population is expected to maintain a robust growth rate. tion to FMCG Products.

Source: UN Population Division: Medium variant

Spending Pattern Increase in spending pat-


tern because of higher dis-
An increase is spending pattern has been witnessed in Indian FMCG market. There is an posable income.
upward trend in urban as well as rural market and also an increase in spending in organ-
ized retail sector. An increase in disposable income, of household mainly because of in-
crease in nuclear family where both the husband and wife are earning, has leads to growth
rate in FMCG goods.

Changing Profile and Mind Set of Consumer Consumer mind set


changed towards “Money
People are becoming conscious about health and hygienic. There is a change in the mind for Value” from “Value for
set of the Consumer and now looking at “Money for Value” rather than “Value for Money”. Money”
We have seen willingness in consumers to move to evolved products/ brands, because of
changing lifestyles, rising disposable income etc. Consumers are switching from economy
to premium product even we have witnessed a sharp increase in the sales of packaged Survey by A. C. Nielsen
water and water purifier. shows about 71 per cent of
Indian take notice of pack-
Findings according to a recent survey by A. C. Nielsen shows about 71 per cent of Indian aged goods' labels contain-
take notice of packaged goods' labels containing nutritional information compared to two ing nutritional information
years ago which was only 59 per cent. compared to two years ago
which was only 59 per cent.

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Advantage India
Governmental Policy
Indian Government has enacted policies aimed at attaining international competitiveness
through lifting of the quantitative restrictions, reducing excise duties, automatic foreign in-
vestment and food laws resulting in an environment that fosters growth. 100 per cent ex-
port oriented units can be set up by government approval and use of foreign brand names
is now freely permitted.

Central & State Initiatives


Recently Government has announced a cut of 4 per cent in excise duty to fight with the 4 per cent reduction in ex-
slowdown of the Economy. This announcement has a positive impact on the industry. cise duty

But the benefit from the 4 per cent reduction in excise duty is not likely to be uniform across
FMCG categories or players. The changes in excise duty do not impact cigarettes (ITC,
Godfrey Phillips), biscuits (Britannia Industries, ITC) or ready-to-eat foods, as these prod-
ucts are either subject to specific duty or are exempt from excise. Even players with manu-
facturing facilities located mainly in tax-free zones will also not see material excise duty
savings. Only large FMCG-makers may be the key ones to bet and gain on excise cut.

Foreign Direct Investment (FDI)


Automatic investment approval (including foreign technology agreements within specified
norms), up to 100 per cent foreign equity or 100 per cent for NRI and Overseas Corporate
Bodies (OCBs) investment, is allowed for most of the food processing sector except malted
food, alcoholic beverages and those reserved for small scale industries (SSI).

There is a continuous growth in net FDI Inflow. There is an increase of about 150 per cent
in Net Inflow for Vegetable Oils & Vanaspati for the year 2008.

There is a continuous
growth in FDI Inflow in In-
dia.

Source: DIPP

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Market Opportunities
Vast Rural Market
Rural India accounts for more than 700 Million consumers, or ~70 per cent of the Indian
population and accounts for ~50 per cent of the total FMCG market. The working rural
population is approximately 400 Millions. And an average citizen in rural India has less
then half of the purchasing power as compare to his urban counterpart.

Still there is an untapped market and most of the FMCG Companies are taking different
steps to capture rural market share. The market for FMCG products in rural India is esti-
mated ~ 52 per cent and is projected to touch ~ 60 per cent within a year. Hindustan
Unilever Ltd is the largest player in the industry and has the widest market coverage.

Export - “Leveraging the Cost Advantage” Export - Leveraging the


Cost Advantage
Cheap labor and quality product & services have helped India to represent as a cost ad-
India offers cost advantage
vantage over other Countries. Even the Government has offered zero import duty on capi-
benefits by offering lower
tal goods and raw material for 100 per cent export oriented units. Multi National Compa-
raw material & labor cost
nies outsource its product requirements from its Indian company to have a cost advan-
tage.

India is the largest producer of livestock, milk, sugarcane, coconut, spices and cashew
apart from being the second largest producer of rice, wheat, fruits & vegetables. It adds a
cost advantage as well as easily available raw materials.

Sectoral Opportunities
Major Key Sectoral opportunities for Indian FMCG Sector are mentioned below:
FMCG Industry has Sectoral
Opportunities as rural mar-
Dairy Based Products
ket has growth potential.
India is the largest milk producer in the world, yet only around 15 per cent of the milk is
processed. The organized liquid milk business is in its infancy and also has large long-
term growth potential. Even investment opportunities exist in value-added products like
desserts, puddings etc.

Packaged Food
Only about 10-12 per cent of output is processed and consumed in packaged form, thus
highlighting the huge potential for expansion of this industry.

Oral Care
The oral care industry, especially toothpastes, remains under penetrated in India with
penetration rates around 50 per cent. With rise in per capita incomes and awareness of
oral hygiene, the growth potential is huge. Lower price and smaller packs are also likely to
drive potential up trading.

Beverages
Indian tea market is dominated by unorganized players. More than 50 per cent of the mar-
ket share is capture by unorganized players highlighting high potential for organized play-
ers.

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Porter's Five Forces Model

Porter's Five Forces model


outlines the primary forces
about competitiveness
within the industry.

Rivalry among Competing Firms


In the Fast Moving Consumer Goods (FMCG) Industry, rivalry among competitors is very
fierce. There are scarce customers because the industry is highly saturated and the com- . The intensity of rivalry is
petitors try to snatch their share of market. Market Players use all sorts of tactics and ac- very high among the com-
tivities from intensive advertisement campaigns to promotional stuff and price wars etc. petitor of FMCG Industry.
Hence the intensity of rivalry is very high.

Potential Entry of New Competitors


FMCG Industry does not have any measures which can control the entry of new firms.
The resistance is very low and the structure of the industry is so complex that new firms
can easily enter and also offer tough competition due to cost effectiveness. Hence poten-
tial entry of new firms is highly viable. . There is a threat for new
entrants as well as for sub-
Potential Development of Substitute Products stitute.
There are complex and never ending consumer needs and no firm can satisfy all sorts of
needs alone. There are plenty of substitute goods available in the market that can be re-
placed if consumers are not satisfied with one. The wide range of choices and needs give
a sufficient room for new product development that can replace existing goods. Every
other day there is some short of new product, variants and design. This leads to higher
consumer’s expectation.

Bargaining Power of Suppliers


The bargaining power of suppliers of raw materials and intermediate goods is not very
high. There is ample number of substitute suppliers available and the raw materials are . Even there is high bargain-
also readily available and most of the raw materials are homogeneous. There is no mo- ing power for Suppliers as
nopoly situation in the supplier side because the suppliers are also competing among well as for Buyers.
themselves.

Bargaining Power of Consumers


Bargaining power of consumers is also very high. This is because in FMCG industry the
switching costs of most of the goods is very low and there is no threat of buying one prod-
uct over other. Customers are never reluctant to buy or try new things off the shelf.

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SWOT Analysis

Strengths:
9 Presence of established distribution networks in both urban and rural areas
9 Low Operational Costs
9 Presence of well-known brands in FMCG sector
9 Availability of raw materials

Weaknesses:
9 "Me-too" products which illegally mimic the labels and brands of the established
brands
9 Lower scope of investing in technology and achieving economies of scale, es-
pecially in small sectors
9 Low exports levels

Opportunities:
9 Large domestic market – over a billion populations
9 Untapped rural market
9 Rising income levels, i.e. increase in purchasing power of consumers
9 Export potential and tax & duty benefits for setting exports units

Threats:
9 Tax and regulatory structure
9 Removal of import restrictions resulting in replacing of domestic brands
9 Temporary Slowdown in Economy can have an impact on FMCG Industry

Key Take Away for Investors


9 Robust Growth rate in Future
9 Wide distribution network and supply chain
9 Customized Product range to suit local market requirements
9 Superior processing technology
9 Brand building and marketing
9 Higher Disposable Income
9 Awareness about Nutrition and Hygiene

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Bharti Airtel Limited

Company Outlook Positive

Company Description

Bharti Airtel Limited (Airtel) is India’s largest integrated and first private telecom ser-
vices provider with a footprint in all the 23 telecom circles. The company is been struc-
tured into three individual strategic business units (SBU) - Mobile Services, Airtel Tele-
media Services (ATS) & Enterprise Services. The mobile business provides mobile &
fixed wireless services using GSM technology across 23 telecom circles while the Airtel
Telemedia Services business offers broadband & telephone services in 95 cities. The
Enterprise services provide end-to-end telecom solutions which has two sub units. Na-
tional & International long distance services to carriers and services to corporates.

The company’s subscriber base for the year ended December 2008 is 85.65 million by
adding an additional of 2.73 million of new subscriber in the month of December 2008.
The company has a market share of 33.22 per cent in the mobile GSM sector. Bharti is
the only Indian company to have existence in all 23 telecom circles.

Major Recent News


Bharti Airtel introduced a broad range of new mCommerce services and
announce milestone of One Million users
Bharti Airtel announced that more than One Million users have registered for the mChek
on Airtel service, since its commercial launch in June 2008. Further, Airtel also intro-
duced a new range of capabilities and offers for users of mChek on Airtel.

Bharti Airtel plans USD 5 Billion CAPEX for 2009-10


Bharti Airtel has set aside around USD 5 billion as capital expenditure (CAPEX) for mo-
bile services and infrastructure business for the next financial year. The allocation is
USD 2.5 billion for CAPEX of mobile services and approximately USD 2.5-3 billion for
passive infrastructure.

Fitch upgrades Bharti Airtel rating to BBB-


Fitch Ratings has upgraded Bharti Airtel long-term foreign currency Issuer Default Rating
(IDR) to BBB- from BB+. According to Fitch, the outlook for the company is Stable. The
rating upgrade reflects the strengthening of the company consolidated financial.

Bharti Airtel wins top honours at the 7th Frost & Sullivan ICT Awards 2008
Bharti Airtel won top honours at the 7th edition of the Frost & Sullivan ICT awards 2008.
The company also won three Market Leadership Awards in the Large Enterprise Tele-
com Services, Wholesale Data Services and Mobile Services categories under the Tele-
com Services category-one of the six major award categories.

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Key Financial Result for the Financial Year Ending Mar’ 08


The company performance improved significantly in 2007-08. The company reported a
net sales of INR 20,712.2 Crores registered a growth rate of ~47 per cent over the last
year which was INR 18,420.2 Crores whereas the profit after taxes were INR 6,395.4
Bharti Airtel is India largest
Crores to registered a growth rate of ~57 per cent over the last year which stood at INR
mobile company by user
4,062.1 Crores.
base, added a record 8.1
million-plus new customers
The Company consolidated revenue and EBITDA has grown at a CAGR of 54 per cent
during the October-
and 72 per cent respectively over the last five years.
December 2008 quarter, of
which 99.6 per cent were
Bharti Airtel Q3 (Dec’ 08) Results: Revenue Soars by ~8 per cent to INR pre-paid users.
9633 Crores
The Company has registered revenue of INR 9,633.4 Crores as compare to INR 9,020.3
Crores on QOQ basis to register a growth rate of 6.79 per cent. The Average Revenue
per user (ARPU) has decreased to 324 from 331 on QOQ basis. The reduction on ARPU
is mainly due to continuous reduction in traffic charges and new scheme coming to mar-
ket. The Minute of Usage (MoU) has also reduced to 505 minutes from 526 minutes. The
Company plans $5 billion as CAPEX on mobile services and infrastructure in FY10. This Total wireless Subscriber
CAPEX is in addition to the amount the company plans to spend on 3G and WiMax. base for the company
stands at 85.65 million user
on December 2008.
Outlook
Company’s strong operational metrics coupled with its low cost structure and scale of
operations will help the company to maintain strong growth rate. The company's strong
cash position along with low gearing will support its expansion plans. The pan-India exis-
tence, along with brand equity, first-mover advantage and quality of services will help the
company in maintaining its leadership position. Intense competition, regulatory changes
and uncertain 3G bidding remains a concern.

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Reliance Communications (RCom)

Company Outlook Positive

Company Description

Reliance Communications (RCom) is one of the largest private sector communications


and Information Company, with over 62 million subscribers. The company offers a com-
plete range of telecom services covering mobile and fixed line telephony. It includes
broadband, national and international long distance services and data services along
with an exhaustive range of value-added services and applications.

The company is market leader in CDMA segment. It has a subscriber base of 52.07 mil-
lion in CDMA and more than 10.00 million in GSM. The company has a lion share of
around 60 per cent in CDMA segment. Recently the company has launched GSM ser-
vices in many circles.

Major Recent News


Reliance Communications launches GSM service in all over India
Reliance Communications launch a nationwide enhanced GSM service covering over 1
billion people in 24,000 towns and 600,000 villages. The company has existence in 8
circles out of 23, the company has already launched the services in many other circles
and has planned to cover all 23 circles. The company has a market share of 3.86 per
cent of the total GSM market.

RCom geared up with USD 1 Billion for 3G rollout


Reliance Communications (RCom) has kept aside USD 1 billion for its 3G (third genera-
tion) telecom services. About INR 47 billion investments in 3G, will be funded through the
company’s internal cash treasury of INR 120 billion.

RCom venture into the GSM space sets off a price war
Reliance Communications (RCom) foray into the GSM space has set off a price war in
pre-paid segment as Airtel, Vodafone and Idea have slashed tariffs on several entry-level
schemes. The company is planning to launch more pre-paid and post-paid plans offering
maximum value suited for various other customer segments of the GSM market. RCom
has created a low-price environment.

Estimates CAPEX of INR 15000 Crores in FY10


By next year the company expects to incur a CAPEX of INR 15000 Crores including
CAPEX for Reliance Infratel. The Investment to roll out 3G license is not included in
15000 Crores. The company expects CAPEX intensity to slow down going forward and
expects to have 50,000 towers by the end of current financial year which currently stands
at 40,000 with combined tenancy of 1.7 for CDMA and GSM.

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Key Financial Result for the Financial Year Ending Mar’ 08


The company performance improved significantly in 2007-08. The company reported a
net sales of INR 19,067.76 Crores registered a growth rate of 31.79 per cent over the
last year which was INR 14,468.29 Crores whereas the profit after taxes were INR
5,401.14 Crores to registered a growth rate of 70.51 per cent over the last year which
About 99.9 per cent of
stood at INR 3,167.59 Crores.
RCom 5.5 million new addi-
tions in the quarter went in
The Company revenue has registered a growth of ~50 per cent in the wireless and
for a pre-paid connection.
broadband segment. The revenue has registered a CAGR of ~33 per cent over the last
two years where as the profit after taxes has registered a CARG ~350 per cent over the
last two years.

RCom Q3 (Dec’ 08) Results: Revenue Soars by ~20 per cent and Net Profit
by ~3 per cent
The Company has registered quarterly sales of INR 5,850.2 Crores as compare to INR
4,874.2 Crores for the last year to report a growth rate of more than 20 per cent where
as the quarterly profit after taxes amount to INR 1,410.6 Crores as compare to INR
1,372.9 Crores for the last year. Profit after taxes has registered a growth rate of 2.7 per Total CDMA wireless Sub-
cent growth. scriber base for the com-
pany stands at 52.07 million
The Average Revenue per user (ARPU) has decreased drastically to INR 251 from INR user on December 2008.
339 compare to Q3FY07. Even Minute of Usage (MoU) has also reduced to 410 minutes
from 449 minutes compare to Q3FY07. The net realizations per minute in wireless seg-
ment for RCom were low at INR 0.61 where at Bharti Airtel and Idea was at INR 0.64.

Outlook
Rcom recently launch of GSM has receive good response from the market and shall
result in gaining higher net additions and improvement in subscriber market share. The
company expects to become a major player in GSM segment too. The company is ex-
pecting an increase in ARPU with the launch of 3G services. Total GSM wireless Sub-
scriber base for the com-
pany stands at 9.96 million
user on November 2008.

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HDFC Bank

Company Outlook Positive

Company Description

HDFC Bank, a private sector bank, was incorporated in the year of 1994 by Housing
Development Finance Corporation Limited (HDFC). HDFC Bank was amongst the first to
receive an 'in principle' approval from the Reserve Bank of India (RBI) to set up a bank in
the private sector.

The company deals with three key business segments - Wholesale Banking Services,
Retail Banking Services and Treasury. It has entered the banking consortia of over 50
corporates for providing working capital finance, trade services, corporate finance and
merchant banking.

The bank also provides sophisticated product structures in areas of foreign exchange
and derivatives, money markets, debt trading and equity research. In 2008, the bank
merged with Centurion Bank of Punjab (CBoP). Currently Bank has distribution network
comprised 1,412 branches and 3,177 ATMs across the country.

Major Recent News


HDFC’s disbursement plan on track
HDFC expects to record a growth rate of around 20-25 per cent in home loan disburse-
ments during the current fiscal. In the first nine months of the current fiscal, the bank has
recorded a 22 per cent growth.

HDFC very near to the largest private sector bank in terms of branch
count
HDFC Bank and ICICI Bank are very near to each others in terms of branch network.
HDFC Bank after adding 658 branches last year have a network of 1,412 branches
where as ICICI Bank has a network of 1,416 branches.

HDFC Bank raises INR 17.28 Billion via bonds


HDFC Bank has issued on a private placement basis unsecured non-convertible re-
deemable subordinated bonds in the nature of debentures as Upper Tier - II Bonds for
an amount of INR 5.78 billion and Lower Tier - II Bonds for an amount of INR 11.50 bil-
lion.

HDFC Bank opened branch in Bahrain


HDFC Bank opened its overseas branch in Bahrain with a 25-member strong staff. The
branch will offer cash management and trade finance solutions to corporate clients and
wealth management services for NRIs.

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Key Financial Result for the Financial Year Ending Mar’ 08


The company performance improved significantly in 2007-08. The company reported net
The bank operates with
revenue of INR 12,492.8 Crores registered a growth rate of more than 50 per cent over
1,412 branches in India. It is
the last year which was INR 8,301.8 Crores whereas the net profit were INR 1,592
second among the private
Crores to registered a growth rate of ~39 per cent over the last year which stood at INR
players and very near to it
1,143 Crores.
competitor ICICI bank at
1,416.
The Company revenue has registered a CAGR of ~50 per cent across the last three
years where as the net profit has registered a CARG ~33 per cent over the last three
years.

HDFC Bank Q3 (Dec’ 08) Results: Revenue Soars by ~59 per cent to INR
5400 Crores
The Company has registered quarterly revenue of INR 5,407.89 Crores as compare to
INR 3,405.79 Crores for the last year to report a growth rate of 58.85 cent where as net
profit amount for the quarter was INR 621.74 Crores as compare to INR 429.36 Crores
for the last year. Net Profit growth rate was 42.80 per cent. The bank has 3,177 num-
bers of ATMs across India.
Note: The results for the quarter ended December 31, 2008 includes operations of Cen-
turion Bank of Punjab Limited.

Outlook
There is an increase in NPA from 0.40 per cent to current 0.60 per cent. NPA for the
bank has increased due to merger with Central Bank of Punjab. Even at 0.60 NPA, it is
among the lowest in the industry. Business India declare
HDFC Bank as the 'Best
The bank has lots of expansion plans in near future also. Bank 2008'

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State Bank of India (SBI)

Company Outlook Positive

Company Description

State Bank of India (SBI) commenced its operations from the year 1955 is country’s
largest commercial Bank in terms of profits, assets, deposits, branches and employees
which was constituted through an act of Parliament in 1955. State Bank of India has 21
subsidiaries and more than 11,000 branches.

The company offer banking services as well as non- banking services to their customers.
It provides a whole range of financial services which includes Life Insurance, Merchant
Banking, Mutual Funds, Credit Cards, Factoring, Security Trading & Primary dealership
in the Money market. The Bank is actively involved in non-profit activity called community
services banking apart from its normal banking activity.

Major Recent News


SBI loans at 8 per cent could trigger a rate war
State Bank of India’s has taken a decision to offer home loans at 8 per cent and allow
loan borrowers to switch to SBI after foreclosing existing loans. This may compel the
other government-owned banks to reduce rates. The primarily reason for the reduction in
interest rate is to stimulate growth in the economy and not to attract customers of their
competitor.

SBI wins IBA Award


State Bank of India got two prestigious awards from Indian Banks Association namely
'Rural Banking Initiative' and 'Best IT Architecture' in the IBA & TFCIs 5th Annual Bank-
ing Technology Awards function 2009.

Bank will open 2000 new branches in FY09


The bank has planned to open 2000 new branches in FY09 of which more than 300 has
already opened.

Plastic Money is ‘OUT’ and fingerprints are ‘IN’


Smart cards have been outsmarted as the country's largest lender, State Bank of India
(SBI), has come up with a card-less transactions that requires only an account holder's
fingerprints. The bank has decided to dispense with cards to lower the cost of transac-
tions, particularly for the disbursement of social security pensions and wages under the
National Rural Employment Guarantee Scheme.

SBI to set up 383 I-banking kiosks


State Bank of India is planning to set up 383 internet banking kiosks at ATM centers lo-
cated on railway stations across the country over the next couple of months. The internet
banking services at these kiosks have been specially designed to provide e-ticket facility
for railway travelers through IRCTC gateway. In addition to the ticket reservation facility,
other internet banking facilities would also be there in the kiosk. The bank is also plan-
ning to open add 300 ATMs over the next few weeks thereby taking the total number of
ATMs to 10,000.

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Key Financial Result for the Financial Year Ending Mar’ 08


The company performance improved significantly in 2007-08. The company reported a
net revenue of INR 91,079.1 Crores to registered a growth rate of ~33 per cent over the
last year which was INR 67,788.25 Crores whereas the net profit were INR 9,212.81
Crores to registered a growth rate of ~46 per cent over the last year which stood at INR
The bank has more than
6,619.8 Crores.
9000 ATMs at present and
has a plan to scale up its
The Company revenue has registered a CAGR of ~18 per cent across the last three
ATM network to 15,000 by
years where as the net profit has registered a CARG ~24 per cent over the last three
FY09 and 25,000 by FY10.
years.

State Bank of India Q3 (Dec’ 08) Results: Revenue Soars by ~34 per cent
and Net Profit by ~47 per cent
The Company has registered quarterly revenue of INR 91,079.1 Crores as compare to
INR 67,788.25 Crores for the last year to report a growth rate of ~34 per cent where as
net profit for the quarterly amount to INR 9,213.83 Crores as compare to INR 6,619.80
Crores for the last year. Net Profit growth rate was ~47 per cent.
The bank has more than
11,111 branches in the
Outlook
World.
State Bank of India has largest number of branches in world. State Bank of India pres-
ence in rural and sub-urban regions is a distinct advantage over its private peers. A large
branch network and improving distribution network would sustain greater volumes from
rural areas. Greater propensity to mobilise low-cost deposits and technology-driven con-
nectivity would ensure profitability, besides volumes from these regions.

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Union Bank of India (Union)

Company Outlook Positive

Company Description

Union Bank of India is a leading nationalized bank of India which was incorporated in the
year 1919. The company is committed to consolidating and maintaining its identity as a
leading, innovative commercial Bank, with a proactive approach to the changing needs
of the society.

The bank’s business is mainly divided into three main areas; corporate financial services,
retail financial services and agricultural financial services along with other allied services.
The bank also provides fee-based services including distribution of third-party products
and financial services to small and medium enterprises (SMEs) and small scale indus-
tries (SSIs). The Bank services include the broad categories of Government Business,
Social Banking, Insurance, Mutual Fund and Non-Life Insurance.

Major Recent News


Union Bank of India made it existence globally
Union Bank of India has made it global presence and has finalized plans to open repre-
sentative offices or subsidiaries in a few more countries by 2009. The company has
branch in Hong Kong and representative offices in Shanghai in China and Abu Dhabi in
UAE.

Union Bank of India to set up an asset management joint venture com-


pany with KBC Asset Management
Union Bank of India, a leading nationalized bank in India, and KBC Asset Management,
the globally active asset manager of the Belgian KBC group, formally signed the share-
holders agreement to set up a joint venture asset management company in India, in
which they will take a stake of 51 per cent and 49 per cent, respectively.

Union Bank to add more than 500 branches by March 2009


Union Bank of India is planning to add more than 500 new branches by March 2009 to
the current 2500 branches in the country. Out of which more than 60 per cent is ex-
pected to be in rural areas. The bank is also expected to add 1000 ATMs by the end of
next year.

Union Bank ties up with Edelweiss Securities


Union Bank of India had tied up with Edelweiss Securities, a part of Edelweiss Group to
launch Wealth Management Services to cater its High Net worth Individuals (HNI) in
Mumbai. Under the terms of the tie-up, Edelweiss will be offering a whole range of
wealth management products and alternative investment options such as structures
product, Real Estate Funds, Art and so on.

Union Bank focuses on MSMEs, opens 100 branches


Union Bank will open 100 specialized branches in order to increase the focus on the
Micro, Small and Medium Enterprise (MSME) sector. The bank has planned to recruit
specially trained staff including credit analysts and technical officers for these branches
and would be located in the MSME-centric regions.

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Key Financial Result for the Financial Year Ending Mar’ 08


The company performance improved significantly in 2007-08. The company reported a
net revenue of INR 11,189.24 Crores to registered a growth rate of ~27 per cent over the
Union bank added 427 out-
last year which was INR 8,603.36 Crores whereas the net profit were INR 1,387.03
lets during 9M FY'09 in-
Crores to registered a growth rate of ~64 per cent over the last year which stood at INR
creasing total ATMs to 1573
845.39 Crores.
as on 31st December 2008.
The Company revenue has registered a CAGR of ~25 per cent across the last three
years where as the net profit has registered a CARG ~25 per cent over the last three
years.
The bank added 82 new
Union Bank of India Q3 (Dec’ 08) Results: Net Profit Soars by ~84 to INR outlets during 9M FY'09
672 Crores increasing total outlets to
The Company has registered quarterly revenue of INR 3,653.79 Crores as compare to 2596 as on 31st December
INR 2,806.04 Crores for the last year to report a growth rate of ~30 per cent where as 2008.
net profit for the quarterly amount to INR 671.74 Crores as compare to INR 365.02
Crores for the last year. Net profit growth rate was ~84 per cent.

Outlook
Productivity (INR Lakhs)
Union Bank of India is among the top performer in public sector bank. We expect the Business/ Employee - 672
bank to register a robust growth rate in the future also. Business/Branch - 7609

The Bank NPA has decreased from 0.35 per cent to 0.14 per cent. It is among the lowest Net Profit/Employee - 4.47
in banking industries. Net Profit/Branch - 50.64

Gross Profit/Employee- 8.73


Gross Profit/Branch - 98.81

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Axis Bank Limited

Company Outlook Positive

Company Description

Axis Bank, formerly known as UTI Bank, was among the first to set up private banks.
The Bank was promoted jointly by the Administrator of the specified undertaking of the
Unit Trust of India (UTII), Life Insurance Corporation of India (LIC) and General Insur-
ance Corporation of India (GIC) and other four PSU insurance companies.

The bank has restructured its business into four strategic profit centres such as Corpo-
rate, Retail, Merchant & Treasury Banking and Further the bank also provide mobile
banking services and mobile refill facilities. It has also diversified into investment bank-
ing, insurance, credit cards, mortgage financing, depository services and more. The bank
has taken control of UTI collection centers in many cities. The bank is also acting as a
clearing house for NSE and has also tied up with companies in e-commerce.

Major Recent News


Axis Bank secured a place in Nifty Index, to replace Zee Entertainment
Axis Bank, a leading private sector bank will replace Zee Entertainment Enterprises in
the National Stock Exchange's benchmark 50-share index Nifty, with effect from March
27, 2009.

Axis Bank planning to expand its network in Orissa


Axis Bank is planning to expand its networks in 30 districts of Orissa to consolidate its
position in the state. The company has planed to open six branches at Jatni, Talcher,
Nuapada, Jagatpur, Sundergarh and Baripada all in Orissa during the current year. The
bank further plans to open 10 branches in next year.

Nayak to step down as Axis chairman


P J Nayak will step down as Axis Bank’s Chairman & CEO from August after a nine-and-
a-half year’s stint with the bank. Nayak’s term is due to end in July 2009.

Axis Bank to improve Credit Deposit (CD) Ratio


Axis Bank has focus on improving the credit-deposit (CD) ratio in Orissa. The bank had a
CD ratio of 33 per cent on mid of January 2009 and aims to increase it to 40 per cent by
March 2009. The bank has chalked out plans to lend more to sectors like agriculture,
micro-finance and mid cap corporate.

Care assigns ‘AAA’ rating to Axis Bank


CARE has assigned ‘AAA’ rating to Lower Tier II Bonds of Axis Bank aggregating to INR
20 Billion. Axis Bank track record of growth and improving profitability, healthy capitaliza-
tion levels, strong management and resource-raising ability marked with high proportion
of low-cost deposits on the back of innovative product offerings, strong technology plat-
form and expanding network leads to best rating quality.

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Key Financial Result for the Financial Year Ending Mar’ 08


The company performance improved significantly in 2007-08. The company reported a
net revenue of INR 8,801 Crores to registered a growth rate of more than 60 per cent
The Bank has a very wide
over the last year which was INR 5,472 Crores whereas the net profit were INR 1,071
network of 3171 ATM. This
Crores to registered a growth rate of more than 62 per cent over the last year which
is one of the largest ATM
stood at INR 659 Crores.
networks in the country.
The company has registered a decent decrease in NPA when the competitors NPA has
actually shot up. The closing NPA for the year ended is among the lower in the sector.

Axis Bank of India Q3 (Dec’ 08) Results: Revenue Soars by ~65 to INR During the quarter the bank
2985 Crores opened 20 branches, 89
The Company has registered quarterly revenue of INR 2984.77 Crores as compare to ATMs and also recruited
INR 1802.34 Crores for the last year to report a growth rate of ~65 per cent where as net 1,415 employees. Axis Bank
profit for the quarterly amount to INR 500.86 Crores as compare to INR 306.83 Crores operates with 752 branches
for the last year. Net profit growth rate was ~63 per cent. including extension count-
ers and overseas branches
Savings Bank deposits registered a growth of 39 per cent on YOY basis to INR 21,888 and two representative of-
Crore for the quarter end December 08 from INR 15,768 Crore last year. Even Current fices overseas.
Account deposits grew at 20 per cent on YoY basis.

Outlook
Axis Bank is among the top performer in private sector bank. In this global financial cri-
sis, the company is least affected in terms of NPA. The company has reported a reduc- The Company has 19,719
tion in NPA from 1.39 per cent to 0.42 per cent in a span of just three year. The company employees as on December
has reported lower NPA for the current quarter too. 2008.

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Punjab National Bank

Company Outlook Positive

Company Description

Punjab National Bank (PNB) is the second largest state owned bank with a strong pres-
ence in cash rich North and Central India. It has over 37 million satisfied customers and
over 4589 offices and more than 1733 ATMs. It has continued to retain its leadership
position among the nationalized banks. The bank enjoys strong fundamentals, large
franchise value and good brand image. It is one of the most technologically advanced
public sector bank with the government owning around 57.8 per cent of the company
equity. PNB aims to expand its base in the entire northern India region for providing
banking facilities at the doorsteps of the people.

PNB offers a wide variety of banking services which include corporate and personal
banking, industrial finance, agricultural finance, financing of trade and international bank-
ing. Among the clients of the Bank are Indian conglomerates, medium and small indus-
trial units, exporters, non-resident Indians and multinational companies.

Major Recent News


Punjab National Bank Upper Tier II bonds rated CRISIL AAA
CRISIL has assigned ‘AAA/Stable’ rating to the INR 10 billion Upper Tier II bonds of Pun-
jab National Bank. The rating reflects PNB strong market position and healthy resource
profile. It is also underpinned by the bank’s comfortable capitalization and earnings posi-
tions, and the support it is likely to receive from its majority owner, the government of
India, in the event of distress.

Punjab National Bank International, fastest growing Indian bank in UK


In the first year of operation in the UK, the Punjab National Bank International Limited
(PNBIL) has recorded the fastest growth among Indian banks in the country. The PNBIL
set up in May 2007 with two branches in London and Southall has asset size of more
than $500 million.

Punjab National Bank aims at workforce rationalization


Punjab National Bank is expected to rationalize its workforce and reduce its staff
strength by 28,000 in the next six years from 58,000 now. The company long-term goal
is to run the bank by 30,000 people. The company doesn’t have any exit policy and don’t
want anybody to leave with an exit package. The reduction in the employee will happen
by natural course of retirement.

Many in the race for Punjab National Bank’s housing finance subsidiary
GE Capital, Carlyle, New Silk Route and Tata Capital are in the race for a significant
stake in Punjab National Bank’s housing finance company. The second-largest state-
owned bank is planning to sell a 49 per cent stake in its subsidiary, PNB Housing Fi-
nance. Five bidders have been short-listed and the due diligence is likely to be com-
pleted soon.

Punjab National Bank to merge PNB Gilts with self


Punjab National Bank is planning to merge its primary dealership subsidiary PNB Gilts
with self instead of selling the company. The Bank holds 74.07 per cent stake in PNB
Gilts.

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Key Financial Result for the Financial Year Ending Mar’ 08


The company performance improved significantly in the year 2007-08. The company has
reported a net revenue of INR 16,653.72 Crores to registered a growth rate of ~26 per
cent over the last year which was INR 13,187.4 Crores whereas the net profit were INR
The bank operates with
2,119.50 Crores to registered a growth rate of ~36 per cent over the last year which
4,589 branches in India. It
stood at INR 1,552.68 Crores.
has one of the largest num-
bers of branches.
Punjab National Bank Q3 (Dec’ 08) Results: Net Profit Soars by ~85 to INR
1006 Crores
The Company has registered quarterly revenue of INR 6,239.91 Crores as compare to
INR 4,119.57 Crores for the last year to report a growth rate of ~51 per cent where as
net profit for the quarterly amount to INR 1,005.82 Crores as compare to INR 541.45
Crores for the last year. Net profit growth rate was ~85 per cent.

Outlook
The bank has 1.912 num-
The Bank has registered a robust growth rate in the past and is expected to maintain the bers of ATMs across India.
same in the future also. Bank margin are among the best in the industry.

The NPA for the quarter has decreased from 1.33 per cent to 0.39 per cent.

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Hindustan Unilever Limited (HUL)

Company Outlook Positive

Company Description

Hindustan Unilever Limited (HUL) is India's largest Fast Moving Consumer Goods
(FMCG) Company, touching the lives of two out of three Indians with over 20 distinct
categories in Home & Personal Care Products and Foods & Beverages. In FY ending
2007 the Company generated net sales of INR 13,913.40 Cr. and a profit of INR
1,914.88 Cr.

HUL is also one of the country's largest exporters in FMCG product; it has been recog-
nized as a Golden Super Star Trading House by the Government of India.

The mission that inspires HUL's over 15,000 employees, including over 1,300 managers,
is to "add vitality to life." HUL meets everyday needs for nutrition, hygiene, and personal
care with brands that help people feel good, look good and get more out of life.

HUL's brands - like Lifebuoy, Lux, Surf Excel, Rin, Wheel, Fair & Lovely, Pond's, Sunsilk,
Clinic, Pepsodent, Close-up, Lakme, Brooke Bond, Kissan, Knorr-Annapurna, Kwality
Wall's are household names across the country and span many categories - soaps, de-
tergents, personal products, tea, coffee, branded staples, ice cream and culinary prod-
ucts. They are manufactured over 40 factories across India. The operations involve over
2,000 suppliers and associates. HUL's distribution network comprises of about 4,000
redistribution stockists, covering 6.3 million retail outlets reaching the entire urban popu-
lation, and about 250 million rural consumers.

Major Recent News


Margins scenario likely to change
We expected to see an increase in margins. The primary reason for our upgrade is that
we expect the margin scenario to turn around. Crude prices have dropped drastically
over the last quarter, driving a sharp decrease in cost of key inputs for soaps, detergents
and packing material. HUL increases the prices of soaps and detergents to partially pass
on rising costs, when crude rose from US$70–80/bbl to US$140/bbl. Now, Crude prices
are down to ~25 per cent from its peak.

Unilever, U.K. reduces packaging spend


Unilever is lowering its expenditure on packaging across its portfolio of food brands as
part of a wider cost-cutting drive. HUL has pared down the colour palette used for print-
ing across many products. The system has been used to reduce printed packaging costs
for Unilever's products. It is also eco-friendly because it reduces waste in the printing
process. HUL is taking different steps to reduce the cost and increase the margin.

Unilever's Pureit wins the UNESCO Water Digest Water Award 2008-2009
Hindustan Unilever’s product - Pureit (a water purifier) has received the UNESCO Water
Digest Water Award 2008-2009 in the category of best domestic non-electric water puri-
fier. Pureit received the award for outstanding contribution in the field of water in India.
The product is available across 21 Indian states and has reached more than 1 million
homes in India giving them access to microbiologically safe drinking water.

Pureit’s performance has been tested by leading international & national medical, scien-
tific & public health institutions and meets the germ-kill criteria of the Environmental Pro-
tection Agency, the drinking water regulatory agency in the USA.

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Key Financial Result for the Financial Year Ending Dec’ 07


The company has reported total income of INR 14,366.54 Crores as compare to last
year of INR 12,803.90 Crores to report a growth rate of ~12 per cent. The company is HUL is a market leader in
among one of the fastest growing in FMCG Industry. FMCG Industry.

Where as, Profit after taxes were at INR 1,767.66 Crores as compare to last year of
INR 1523.16 Crores to register a growth rate of ~16 per cent. The company is able to main-
tain its margin and even to
The Company sale has registered a CAGR of 9.67 per cent across the last three years capture bigger market by
where as the profit after taxes has registered a CARG 13.83 per cent over the last widest coverage.
three years.

HUL Q4 (Dec’ 08) Results: Revenue Soars by ~17 per cent to INR 4300
Crores
The Company continues to impress on sales growth with one more quarter of near ~17
per cent growth. Total Income reported by the company for the quarter was INR The company is innovative in
4,307.71 Crores as compare to INR 3,687.40 Crores QOQ basis. launching new products. The
new flavor in coffee has leads
The Net Profit registered for the quarter was INR 615.74 Crores as compare to INR HUL to snatch big market
631.44 Crores. The reduction in profit margin is mainly due to increase in raw material share in Coffee Division.
prices which are expected to come down in next quarter.

Note: The Company has change the accounting period from December to March. The Company has launched
Pureit, a water purifier, has
Outlook received a good response and
is expected to grab big mar-
The Company is the largest FMCG player and market leader in most of the product
ket share.
category. The Company has registered a robust growth rate over last few years and
has wide market coverage. HUL believe in product innovation and entrance into niche
market. Recently company has launch Pureit, a water purifier, received a good re-
sponse from the market. The company has a good growth rate.

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Godrej Consumer Products Limited (Godrej)

Company Outlook Positive

Company Description

Godrej Consumer Products Limited (GCPL) continues to be one of the leading FMCG
companies in the country. One in three households in India uses a Godrej product every
day.

The company is a leader in hair colour category and Liquid Detergent category and is
among the largest marketer of toilet soaps with leading brands such as Cinthol, Fairglow,
Godrej No 1.

The company has wide market coverage and by the means of acquisition the company is
building a presence in different countries. The company is presently exporting there
products to 30 different countries. The acquired arms of Godrej like Keyline, Rapidol and
Kinky are expected to create synergy and larger market share. The company launches
some new products that include Godrej Expert Powder and Liquid hair colors, Cinthol
Musk and Godrej Ezee Bright and Soft.

The mission that inspires Godrej's over 950 employees, spread over 3 state-of-the-art
manufacturing facilities at different location, is to “Deliver Superior Stakeholder Value by
providing solutions to existing and emerging consumer needs in the Household & Per-
sonal Care business”.

The company has annual sales of INR 1102.57 Crores with a CAGR in double digits over
past many years.

Major Recent News


Godrej takes over Joint Venture
The Board of Directors of Godrej Consumer Products Limited (GCPL) has approved the
acquisition of 50 per cent stake of its joint venture partner SCA Hygiene Products’ stake
in Godrej SCA Hygiene Limited. After the transaction, the Joint Venture which owns the
‘Snuggy’ brand of baby diapers will become a 100 per cent subsidiary of GCPL.

Godrej buys back equities


The Company has bought back 23.83 Lakhs shares for INR 3.11 Crores under its buy
back offer. The share represents 20.89 per cent of the INR 14.9 Crores offer.

Godrej acquired Kinky - One of South Africa’s leading hair brand


Godrej Consumer Products Limited has acquired 100 per cent stake in the Kinky Group
Limited, South Africa. Kinky is among one of the largest brand into hair segment with
product portfolio includes dry hair, hair braids, human hair extensions, hair pieces, wigs
and wefted pieces. Kinky also offers hair accessories like styling gels, hair sprays, oil
free shampoo, bonding glue and bonding glue removal.

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Key Financial Result for the Financial Year Ending Mar’ 08


The company reported sales of INR 1,102.57 Crores to register a jump of ~16 per cent
compare to INR 951.52 Crores last year. Where as the profit after taxes were at INR
159.23 Crores grew by ~11 per cent from INR 144.03 Crores last year

The Company sale has registered a CAGR of 25.11 per cent across the last three
years where as the profit after taxes has registered a CARG of 20.80 per cent over the Godrej enjoys a market share
last three years. of ~35 per cent in Hair Colour
and ~80 per cent in Liquid
Godrej Q3 (Dec’ 08) Results: Revenue Soars by 25 per cent to 342 Detergent. For both the seg-
Crores ment the company is a market
leader.
The Company continues to impress on sales growth with one more quarter of more
than 26 per cent growth. Total Income reported by the company for the quarter was
INR 342.14 Crores as compare to INR 272.75 Crores QOQ basis.

The Net Profit registered for the quarter was INR 40.06 Crores as compare to INR
43.02 Crores QOQ basis. There is a decrease in Net profit in mainly on account of
increase in raw material prices.

Outlook Although the company is


market leader for Hair Colour
The Company is one of the largest FMCG player and market leader in hair colour
and Liquid Detergent, the
category and Liquid Detergent category. The company is come international acquisi-
company always does some
tions. The company has entered into several new categories during the year and ex-
product innovative. The com-
pects to add significant value to the company.
pany launched some new
products in Liquid hair colors
The company registered a decrease in profit, mainly on account of high raw material
and Godrej Ezee.
prices, now as the raw materials process are down, the company will be able to main-
tain the margins.

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Dabur India Limited (Dabur)

Company Outlook Positive

Company Description
Dabur India Limited is the fourth largest FMCG Company in India with interests in
Health care, Personal care and Food products. Dabur has build on a legacy of quality
and experience for over 120 years, today Dabur has powerful brands like Dabur Amla,
Dabur Chyawanprash, Vatika, Hajmola and Real.

Dabur is a market leader for Dabur Chyawanprash and packaged juice - Real & Ac-
tive. The Company never limits itself to power branded product but believes to strength
in other business opportunities by growing in niche segments. The company has en-
tered into Health and Beauty Retail segment which is an emerging retail category in
India. The Company has opened 7 H&B stores and has plan to setup 160 stores by
2010. Hindustan Unilever Ltd (Ayush) and Marico (Kaya Skin) have presence in Health
and Beauty Retail segment.

The mission that inspires Dabur’s over 3500 employees is to “Dedicated to the Health
and well being of every household”. Dabur posses Strong capabilities which are re-
flected by Strong R&D infrastructure, 14 manufacturing units and wide distribution
network which covers 2.5 million retailers.

Major Recent News


Dabur foray into health drink
Dabur has entered into the malted food drink market with the launch of a new health
drink “Dabur Chyawan Junior”. According to the company, they expect to capture a
market share of 10 per cent of the INR 1,900 Crores malted food drink market over the
next two years.

Acquisition of Fem
Dabur has acquired 72.15 per cent of Fem Care Pharma Ltd (FCPL), a leading player
in the women’s skin care products market, for Rs 203.7 Crores in an all-cash deal. The
Company is expected to create synergy by this deal.

Dabur to set up new medicine manufacturing in Himachal Pradesh


Dabur got approval from Government of Himachal Pradesh to set up another medicine
manufacturing unit. The project has an expected investment of INR 130 Crores.

Margins scenario to increase


We expected to see an increase in margins of FMCG Company. The recent fall in
commodity prices are primary reason for the margin scenario to turn around. Crude
prices have dropped drastically over the last quarter, driving a sharp decrease in cost
of key inputs for soaps, detergents and packing material.

The company also expects to see a significant correction in packaging costs. The
company is taking different steps to reduce it packaging cost which currently consist
~17 per cent of the total cost for the company.

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Key Financial Result for the Financial Year Ending Mar’ 08


Dabur has achieved a turnover of INR 2,396.30 Crores compare to INR 2080.3 Crores
last year to register a growth rate of ~15 per cent and Profit after Tax of INR 332.90 Dabur is able to maintain is
compare to INR 281.7 Crores last year to registered a growth rate of ~18 per cent. margin. The company has
continuously registered a
Over the last five years, the company has reported compound annual growth rates of robust growth rate.
18 per cent in Net Revenues and 33 per cent in Profit after Tax.

The Company sale has registered a CAGR of 19.15 per cent across the last three Recently company foray into
years where as the profit after taxes has registered a CARG 28.76 per cent over the health drink and expect to
last three years. capture 10 per cent market
share in next two years.
Dabur Q3 (Dec’ 08) Net Sales Soars by 20 per cent to INR 778 Crores
The Company continues to impress on sales growth with one more quarter of around
20 per cent growth. Total Income reported by the company for the quarter was INR
778.65 Crores as compare to INR 649.64 Crores QOQ basis. The Net Profit registered
for the quarter was INR 108.45 Crores as compare to INR 94.52 Crores QOQ basis.

Dabur took aggressive cost management initiatives coupled with a judicious pricing
strategy and continued strong performance in key categories helped Dabur to mitigate
Dabur is not leaving any
the impact of steep cost inflation and the company announced an increase in profit
stone un-green. The Company
margin.
has acquired 72.15 per cent
stank in Fem. By this acquisi-
Outlook tion the company got an en-
The company is well known for ayurvedic brand which have existence of over 120 trance into women’s skin care
years. The major product of the company is Dabur Chyawanprash and packaged juice. product.
The acquisition with Fem will add synergy to the company and will help the company
to capture market in women’s products too. Recently the company has entered into
Health and Beauty Retail segment. The company has registered a continuous and
high growth rate. There is growth in Profit margin also. We expect the company to
continue the growth.

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Emami Limited (Emami)

Company Outlook Positive

Company Description

Emami Limited (Emami) is one of the know brands whose principal activities are to de-
velop and manufacture personal, beauty and health care products through an effective
leverage of Ayurveda. The company’s portfolio consists of 20 products made from herbs,
natural extracts and essential oils. The company started with a vision of making people
healthy and beautiful naturally. The products are sold across India and in countries like
Holland, Bangladesh, Nepal, Sri Lanka, Pakistan, Gulf countries, Europe, Russia, Africa
and the Middle East.

The company has a network which consist of 2,700 distributors which have a direct cov-
erage of 4,00,000 retail outlets across the country. The company has plants located in
Kolkata, Pondicherry and a new plant in Guwahati.

The Company accounts for ~22 per cent share of personal care of the country’s FMCG
market. Some of the company power brands like Boroplus Antiseptic Cream is the mar-
ket leader with a ~70 per cent market share; Navratna Oil is also a market leader with
more than 50 per cent market share. Company’s other power brands also plays an im-
portant part and hold a good market share.

The company entered into Realty business in May 2007. Emami Realty with its joint ven-
ture partners undertook 31 projects. Recently the company called off its earlier decision
to quit the realty business. The company is planning to transfer its stake in 100 per cent
subsidiary Emami Realty to other group companies.

Major Recent News


Emami may hive off Zandu Chemical
The company has recently bought Zandu Pharmaceuticals for ~INR 700 Crores is evalu-
ating the possibility to hiving off Zandu Chemicals, a subsidiary of Zandu Pharmaceuti-
cals, because there are limited growth prospects and chemicals in not the core business
of Emami.

Emami plans to transfer holding of realty arm to group companies


The company has decided to stay rooted in the real estate business and transfer its
stake in 100 per cent subsidiary Emami Realty to other group companies. The company
share swap ratio would be worked out so that Emami Realty's stake is fairly distributed
among other group companies. The company has reversed its earlier decision to quit the
property business.

Emami plans to set up a manufacturing facility in Africa


The company is planning to set up a new manufacturing facility in Africa with an invest-
ment of INR 90 Crores. The facility is anticipated to commence operations by 2010.

Emami to install its 2nd plant in Assam


Emami has established its second production facility in Assam. The plant is installed at
Abhoypur with an investment of INR 500 million which will manufacture creams, lotions
and ointments. The plant has installed capacity to produce 5,400 tons of cream, 1,800
tons of lotion and 900 tons of ointment.

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Key Financial Result for the Financial Year Ending Mar’ 08


The company performance improved significantly in 2007-08. The company reported a
net sales of INR 583.71 Crores registered a growth rate of ~13 per cent over the last
Emami is one of the best
year which was INR 515.80 Crores whereas the profit after taxes were INR 92.75 Crores
names for Ayurvedic prod-
to registered a growth rate of ~41 per cent over the last year which stood at INR 65.92
ucts.
Crores.

The Company sale has registered a CAGR of 24.56 per cent across the last three years
where as the profit after taxes has registered a CARG 45.81 per cent over the last three
years.
The company has acquired
Emami Q3 (Dec’ 08) Results: Net Sales Soars by 43 per cent to INR 280 stake in Zandu Pharmaceu-
Crores ticals. The company has
The Company has registered sales of INR 280.63 Crores as compare to INR 195.47 plans to get into different
Crores for the last year to report a growth rate of ~43 per cent where as profit after taxes industries.
amount to INR 33.65 Crores as compare to INR 37.82 Crores for the last year. The com-
pany has registered a decline in profit margin.

Outlook
In 2007, the company has
The company is one of the know brands whose principal activities are to develop and undertaken 31 projects with
manufacture personal, beauty and health care products through an effective leverage of Emami Realty, 100 per cent
Ayurveda. Recently the company has entered into Realty business. subsidiary, with its joint
venture partners.

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ICSA India Limited

Company Outlook Positive

Company Description

ICSA India Limited was incorporated in 1994 is into the business of embedded solu-
tions, software services and infrastructure projects. ICSA India delivers comprehensive
solutions in the areas like Customized Embedded System Applications and Integrated
Telemetry Applications. This apart, the company is also into the business of construction
of power transmission lines and substations.

The company’s product line include: Intelligent Automatic Reading System, Multiplexer
Unit, Distribution Transformer Monitoring System, Substation Controller, Micro Remote
Terminal Unit, Theft Detection Devices, and Pole Top RTU.

Major Recent News


Government of Singapore Investment Corporation increases stake in ICSA
The Government of Singapore Investment Corporation (GIC) has raised its stake in Hy-
derabad based ICSA India Limited. GIC bought 159,771 shares from open market and
its shareholding after the acquisition stands at over 3.3 million shares, representing 7.14
per cent stake of ICSA. Even Goldman Sachs has recently acquired 1.75 million equity
shares in ICSA by exercising its right of conversion for warrants.

Goldman Sachs buys additional stake at 28 per cent premium in ICSA


Goldman Sachs acquired an additional stake worth INR 35.75 Crore in ICSA India, at 28
per cent premium to the company's stock price by exercising an option to convert war-
rants into equity.

ICSA earns INR 236 Crores orders from Mahavitaran and MP Paschim
Ksehtra Vidyut Vitaran
ICSA India Limited has bagged work orders of INR 236.14 Crore from two power utilities
Mahavitaran (Maharashtra State Electricity Distribution Company Limited) and MP
Paschim Kshetra Vidyut Vitaran Company Limited. The INR 204.22 Crore order from
Mahavitran is for the construction and commissioning of sub transmission lines, power
transformers, new substations, augmenting of existing substations, distribution trans-
formers of varying capacities and allied works. The second order worth INR 31.92 crore
from MP Paschim Ksehtra Vidyut Vitaran Co Ltd is for the supply of material, survey,
erection and installation, and commissioning of 11 Kilo Volts (KV) line and bays with
VCB and metering.

ICSA India Limited get approval to set up Wind Project


ICSA India Limited has been permitted by the Board of Non-Conventional Energy Devel-
opment Corporation of Andhra Pradesh Limited (NEDCAP) to set up a 20 MW Capacity
Wind power project in Andhra Pradesh.

ICRA assigns LA+, A1 to fund based, non-fund based limits of ICSA


ICRA assigns the ratings of LA+ and A1 for INR 2,300 million fund based and non fund
based limits of ICSA (India) Limited. ICRA has also assigned rating of A1 to the short
term non fund based limits indicating lowest credit risk in the short term.

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Key Financial Result for the Financial Year Ending Mar’ 08


The company performance improved significantly in 2007-08. The company reported a
net sales of INR 678.55 Crores which registered double fold over the last year which was
INR 333.25 Crores whereas the profit after taxes were INR 108.95 Crores to registered a
CAGR for Revenue as well
growth rate of more than 82 per cent over the last year which stood at INR 59.86 Crores.
as for Net Profit was more
than 300 per cent over the
The Company sale has registered a CAGR of more than 300 per cent over the last three
last three years.
years and even the profit after taxes registered a CARG of more than 300 per cent over
the last three years.

ICSA India Q3 (Dec’ 08) Results: Net Sales Soars by 60 per cent to INR 304
Crores
The Company has registered quarterly sales of INR 304.22 Crores as compare to INR
189.13 Crores for the last year to report a growth rate of ~60 per cent where as quarterly Lots of potential is embed-
profit after taxes amount to INR 45.22 Crores as compare to INR 36.24 Crores for the ded system applications
last year. Profit after taxes growth rate was ~25 per cent. EPS for the quarter was INR and also in integrated te-
9.66 compare to INR 8.93 for the last year quarter. lemetry applications.

Profit after taxes for the nine month has registered a growth of more than 50 per cent.

Outlook
The company has registered best growth rate in the industry. With a little more than a
decade the company is expected to registered total revenue of more than INR 1,000
Crores.

There is lot of potential is embedded system applications and also in integrated telemetry
applications.

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