Economy News - Kotak Securities

Kotak Securities - Private Client Research Please see the disclaimer on the last page For Private Circulation 1

MORNING INSIGHT July 21, 2011

21 JULY, 2011

Economy News4 It is estimated that banks and housing finance companies (HFCs) have

disbursed Rs 10-12bn of home loans to buyers who have booked flats inNoida Extension (which have come under cloud after courts cancelled landacquisition in several villages by Greater Noida authorities) though theymay have sanctioned loans worth Rs 100-120bn. Besides, banks have alsolent directly to builders, not known yet, as builders are not willing todiscuss their debts. (BS)

4 The Finance Minister, Mr Pranab Mukherjee is optimistic about meetingthe disinvestment target of Rs 400bn for 2011-12, even as a mere Rs11.45bn has been mopped up through this route so far this fiscal. (BL)

4 FM pegs 2011-12 growth at 8.6%, expects inflation to fall to 6-7% by endof the financial year. He stated that it is taking long to take a call onentry of more players in the banking space. But I will not call it a policyparalysis. RBI will issue final guidelines and then licences would be issued.(BS)

4 The pension reforms Bill is likely be passed with the BJP deciding tosupport it in the parliamentary standing committee. The Bill has beenpending since 2005. Its revised version was tabled in the Budget session ofParliament this year. NPS, unlike the old pension system, does not havedefined benefits and gives subscribers an option to invest a part of theirmoney in the markets. The Bill's revised version has some changes. Itkeeps the option of specifying foreign investment in pension fundsoutside the purview of the proposed law. (BS)

4 Mumbai has hit a new 24-month low as far as sale registrations areconcerned. For the month of June, the city clocked a 27% dip in salesregistrations, which is close to the levels that were last seen during June2009. (ET)

Corporate News4 Larsen & Toubro (L&T) has bagged yet another EPC contract worth Rs

12.1bn from the Qatar General Electricity & Water Corporation. Theorder is for supply and construction of 13 extra-high voltage substationsin Qatar, and is the largest such for the company's power unit anywherein the Gulf Cooperation Council countries. (BL)

4 JK Paper plans to raise Rs 2.46bn through rights issue to part-finance theexpansion of its unit at Rayagada in Orissa.The company has decided toissue 58.6mn shares of face value of Rs 10 each at a premium of Rs 32each. The rights issue will open on August 8 and close on August 23. (BL)

4 Petronet LNG is planning to set up a 5MTPA liquefied natural gasterminal along the East Coast, a top company official said. The Petronetboard has approved a proposal to carry out the detailed feasibility reportfor the terminal, which, at current rates is expected to cost at least $1billion. The terminal is expected to be ready in five years. (BL)

4 Cairn India, the company in which Vedanta Resources is looking toacquire a majority stake, has criticised the government for delays anduncertainties in clearing the deal. (BS)

4 Dr Reddy's Laboratories said that up to $30 million in annual revenuescould be impacted due to import ban by US Food and DrugAdministration on some products from its Mexican facility. The totalrevenues from the facility are $60 million, of which half is from Naproxenfamily which was not affected by the ban. (BS)

Equity% Chg

20 Jul 11 1 Day 1 Mth 3 Mths

Indian Indices

SENSEX Index 18,502 (0.8) 5.4 (5.6)NIFTY Index 5,567 (0.8) 5.5 (5.4)BANKEX Index 12,763 (1.3) 6.8 (5.8)

BSET Index 5,834 (0.7) 1.6 (6.1)BSETCG INDEX 13,491 (1.5) 4.9 (1.1)BSEOIL INDEX 9,130 (0.5) 4.4 (11.4)

CNXMcap Index 8,108 (1.3) 5.3 (2.5)BSESMCAP INDEX 8,432 (0.4) 7.1 (5.0)

World Indices

Dow Jones 12,572 (0.1) 3.1 0.5Nasdaq 2,814 (0.4) 4.7 (0.2)FTSE 5,854 1.1 1.4 (2.7)

NIKKEI 10,006 1.2 5.6 3.2HANGSENG 22,004 0.5 0.6 (8.9)

Value traded (Rs cr)20 Jul 11 % Chg - Day

Cash BSE 3,099 10.6Cash NSE 11,315 14.3Derivatives 133,493 12.8

Net inflows (Rs cr)19 Jul 11 % Chg MTD YTD

FII 418 (892.2) 6,985 9,038

Mutual Fund 80 (200.6) 399 3,624

FII open interest (Rs cr)19 Jul 11 % Chg

FII Index Futures 12,828 6.2

FII Index Options 43,371 (0.3)FII Stock Futures 32,701 (0.3)FII Stock Options 1,165 (4.9)

Advances / Declines (BSE)20 Jul 11 A B S Total % total

Advances 32 910 250 1,192 39Declines 168 1,300 227 1,695 56

Unchanged 3 108 20 131 4

Commodity % Chg

20 Jul 11 1 Day 1 Mth 3 Mths

Crude (NYMEX) (US$/BBL) 98.6 0.2 5.6 (12.2)Gold (US$/OZ) 1,594.9 (0.4) 3.7 6.3Silver (US$/OZ) 39.5 (1.8) 10.3 (13.3)

Debt / forex market20 Jul 11 1 Day 1 Mth 3 Mths

10 yr G-Sec yield % 8.28 8.26 8.19 8.04Re/US$ 44.45 44.50 45.01 44.33

Sensex

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

16,600

18,100

19,600

21,100

Jul-10 Oct-10 Jan-11 Apr-11 Jul-11



WIPRO LTD

PRICE: RS.395 RECOMMENDATION: BUYTARGET PRICE: RS.470 FY12E P/E: 17.3X

Wipro's 1QFY11 results were marginally below expectations. The organicvolume growth of about 1.4% (1.9% in 4QFY11) was a dampener, reflectingthe impact of the recent management changes. The guidance of an almostflat growth in organic revenues in 2Q was a negative surprise. Margins wereslightly lower QoQ but the full impact of salary hikes and SAIC acquisitionwill moderate margins further in 2Q, we opine. Average realizations fell by1.7% (on-site) and 1.2% (off-shore) on CC basis. Wipro's volume growth haslagged peers in the recent past likely due to lower success in accountmining. The recent organizational restructuring will yield results over thenext couple of quarters, we opine.

Broader management commentary suggests increasing comfort with respectto demand and signs of a pick up in certain verticals. Wipro managementalso indicated that discretionary spends are increasing, leading to betterpipelines across businesses. The company has won two large deals in BFSItotaling to more than $500mn, which is a positive.

We modify earnings to account for the 1QFY12 results - expect FY12E EPS atRs.22.8 (Rs.24.4), impacted by lower revenue growth and margins. Wemaintain BUY rating with a price target of Rs.470 (Rs.503) based on FY12Eearnings. However, we prefer TCS and Infosys over Wipro and our exitmultiple for Wipro is at a discount to peers. Higher success in drivingincremental growth from large accounts and sustained higher margins maymake us more positive on the company. Higher-than-expected appreciationin the INR and a slower-than-anticipated recovery in user economies posedownside risks to our estimates.

1QFY12 results

(Rs mn) 4QFY11 1QFY12 QoQ (%) 1QFY11 YoY (%)

Turnover 83,024 85,640 3.2 71,906 19.1

Expenditure 65,956 68,350 55,987

EBDITA 17,068 17,290 1.3 15,919 8.6

Depreciation 2,281 2,338 1,884

EBIT 14,787 14,952 1.1 14,035 6.5

Interest -1,491 -1,432 -1,406

PBT 16,278 16,384 0.7 15,441 6.1

Tax 2,604 3,096 2,345

PAT 13,674 13,288 -2.8 13,096 1.5

Share of profit 139 110 157

EO Items 0 0 0

Minority interest -59 -49 -67

Adjusted PAT 13,754 13,349 -2.9 13,186 1.2

EPS (Rs) 5.60 5.44 5.37

EBIDTA(%) 20.6 20.2 22.1

EBIT (%) 17.8 17.5 19.5

Net Profit (%) 16.5 15.5 18.2

Source : Company

Summary table

(Rs mn) FY10 FY11 FY12E

Sales 271,180 310,528 356,833

Growth (%) 5.8 14.5 14.9EBITDA 59,112 65,835 73,085EBITDA margin (%) 21.8 21.2 20.5

PBT 54,701 62,457 68,734Net profit 45,540 52,743 55,692EPS (Rs) 31.3 21.6 22.8

Growth (%) 21.0 15.2 5.7CEPS (Rs) 36.0 25.0 26.9BV (Rs/share) 79.9 97.7 114.1

Dividend / share (Rs) 6.0 4.0 5.0ROE (%) 28.4 24.3 21.6ROCE (%) 29.5 25.2 23.7

Net cash (debt) 69,473 82,962 146,623NW Capital (Days) 79.2 83.8 83.8P/E (x) 12.7 18.3 17.3

P/BV (x) 5.0 4.1 3.5EV/Sales (x) 3.3 2.9 2.3EV/EBITDA (x) 15.3 13.5 11.3

Source: Company, Kotak Securities - PrivateClient Research

RESULT UPDATE

Dipen [email protected]+91 22 6621 6301



Revenues : Volume growth at 1.4% disappoints. Realizations alsodown QoQn Wipro's IT Services business reported a 1.8% rise in INR terms.

n The volume growth was tepid at about 1.8%, which was below expectations.This also includes about $10mn of revenues from SAIC, which was acquired byWipro.

n Thus, organic volume growth was even lower at about 1.4%, which was muchlower than peers. Moreover, this comes on the back of a tepid 4Q were volumesgrew by 1.9% QoQ.

n Wipro has been reporting lower growth in volumes vis-à-vis industry peers overthe past few quarters and 1Q was also disappointing.

n We believe that, the recent changes to the management and execution teamresulted in this relatively lower growth rate.

n We have been cautious on Wipro's growth prospects over the past few quartersbased on the above

n The growth was muted across geographies and verticals in cc terms, though inINR terms, the growth rates were marginally higher.

n Geographically, only APAC and other emerging markets report a cc growth ofmore than 6%. Europe reported a cc growth of about 2.6%. All other geogra-phies witnessed a negative growth on a sequential basis.

Revenue break-up - Geography - wise


USA 33944.35 33898.17 0.14 31515.92 7.71

Europe 18317.14 17609.44 4.02 13970.41 31.11

Japan 704.51 943.36 -25.32 825.02 -14.61

India & ME 5764.13 5723.07 0.72 4950.14 16.44

ROW 5315.81 4716.81 12.70 3740.11 42.13

Source : Company

n Similarly, all verticals except Energy and Utilities reported negative growth. En-ergy & Utilities reported a 6% organic growth.

Revenue break-up - Vertical - wise


Global Media / Telecom 10759.72 10817.23 -0.53 9405.27 14.40

Finance Solns 17100.27 16791.86 1.84 14795.43 15.58

Maft & Hitech 12617.05 12389.50 1.84 11825.34 6.69

Hcare, Life S, Sers 6532.69 6603.54 -1.07 5885.17 11.00

Retail & Trans 9606.89 9873.86 -2.70 8195.24 17.23

Energy & Util 7429.33 6414.87 15.81 4895.14 51.77

Source : Company

n Volumes grew on the back of increased traction in the Top account, where thegrowth was about 8% in INR terms.

n However, the Top 10 clients reported flat growth, indicating challenges in thenon-Top accounts.

n The management indicated that, the de-growth in some of the major accountswas one time and not structural.

n Wipro is now increasingly focusing on its existing accounts and has re-aligned itssales teams to the focus verticals to effectively service large accounts.



n Wipro has now 4 clients with LTM revenues of $100mn.

n Wipro has also won a few large deals from existing and new clients. The com-pany won two deals with a combined value of more than $500mn during thequarter.

n Also, the company has indicated that, the pipeline is robust with a few largedeals under negotiations.

n We understand that, there is traction in discretionary spends..

n Clients are looking at reducing costs on one hand but on the other hand, theyare looking at ways to improve growth rates and this is driving discretionaryspends.

n Wipro is witnessing higher traction in new service areas like business analytics,cloud and mobility. These form part of the focus themes for Wipro.

n About 30% of the new deals won in manufacturing vertical in 1Q are based oncloud services.

Services mix


Technology Infra Sers 13897.97 13584.42 2.31 11550.34 20.33

Analytics, Inf Mgt 4098.94 3773.45 8.63 3080.09 33.08

Busi Appli Sers 19469.97 18678.58 4.24 16720.49 16.44

BPO 5956.27 6163.30 -3.36 5555.16 7.22

Product Engg &Mobi 5315.81 5157.05 3.08 4730.14 12.38

ADM 15306.98 15534.04 -1.46 13365.39 14.53

Source : Company

Realisations down QoQn The average realizations were down by 1.7% (on-site) and 1.2% (off-shore) dur-

ing the quarter.

n The management has indicated this to one-off factors and also to the seasonalhike in realizations during the last quarter of every fiscal.

n We view this with concern especially in the backdrop of stable and rising prices.

n The management has indicated that like-to-like pricing is stable with upwardbias in areas like analytics and ERP consulting.

n However application management and other related services are witnessing pric-ing pressures.

n Non-linear revenues at about 11% of overall revenues, are expected to providesome cushion to overall pricing in the future.

n Within the non-IT businesses, the revenues in Wipro Consumer Care and Light-ning revenues grew at about 18% YoY to Rs.7.55bn, while the IT products busi-ness reported a 21% rise on a YoY basis.

EBITDA margins - marginally lowern The EBITDA margins in 1QFY12 were marginally lower on a sequential basis.

n The company gave salary hikes during the quarter (2-3% onsite and 15-15%offshore), which impacted margins.

n The company was able to set-off part of the impact by improving efficiencies andcost rationalization.

n The company added 4,105 employees on a net basis during the quarter.



Guidance for 2QFY12 reflects near term challengesn Wipro has guided to a flat to 2% sequential rise in USD revenues in IT services.

n This is after excluding the impact of SAIC acquisition, which is expected to bringin $40mn in revenues as compared to $10mn in 1QFY12.

n We believe that, the recent restructuring will have an impact on near term per-formance.

n Wipro's focus on creating demand rather than reacting to demand, will likelylead to slower growth in the near term, we understand.

n We also note that, the slower growth will be for the quarter which is traditionallyone of the strongest quarters for the IT services industry.

Valuations and recommendationsn We have made suitable changes to our earnings estimates to take into account

the 1QFY12 results.

n For FY12E, we expect IT services revenues to grow by 16%. Margins are ex-pected to be marginally lower due to salary hikes and rupee appreciation.

n We expect earnings for FY12E to be Rs.22.8 per share.

n We have assumed tax rate to be 19% as against about 15.5% in FY11.

n We have accorded a discount to Wipro as compared to the valuations accordedto Infosys and TCS, noting the lower success in driving incremental growth fromlarge accounts, relatively lower margins and a more subdued revenue growthprofile.

n Noting the upside to our target price for Wipro based on FY12E earnings, wemaintain our BUY recommendation with a price target of Rs.470 (Rs.502).

n Our exit multiple works out to 20.5x FY12E EPS.

Risks and concernsn A delayed recovery in major user economies and a sharper-than-expected appre-

ciation of rupee remain the key risks for earnings.

We maintain BUY on WiproTechnologies with a revised

price target of Rs.470



RESULT UPDATE

Dipen [email protected]+91 22 6621 6301

INFOTECH ENTERPRISES LTD (IEL)PRICE: RS.139 RECOMMENDATION: ACCUMULATETARGET PRICE: RS.155 FY12E P/E: 10.4X

Infotech's results were disappointing. While volumes grew at a decent 5.6%QoQ, EBIDTA margins fell more than expected. The management hasindicated that, pricing improvements have not materialised to the desiredextent. We had assumed some benefit in margins because of the expectedincrease in billing rates. The margin performance reflects the continuingpressure of attrition and salaries on mid-tier company, which also have toinvest in demand generating initiatives. Overall, we tweak our earningsestimates for FY12. FY12E earnings now stand at Rs.13.3 per share (Rs.14.9).Consequently, our PT stands revised to Rs.155 v/s Rs.174 earlier. At ourtarget price FY12 estimates will be discounted by about 12x. We believe thisdiscount to larger peers is justified due to the pressure on margins. Wemaintain ACCUMULATE. We believe that, Infotech will have to address theabove mentioned concerns before we turn more positive on the stock. Weare also concerned about the relatively high proportion of project-basedrevenues (in N&CE), in addition to currency fluctuations.

1QFY12 results - margins disappoint

4QFY11 1QFY12 QoQ (%) 1QFY11 YoY (%)

Income 3258.3 3466.7 6.4 2528.0 37.1

Expenditure 2790.1 3031.9 2124.9

EBDITA 468.2 434.8 -7.1 403.1 7.9

Depreciation 122.6 115.4 116.8

EBIT 345.6 319.4 -7.6 286.3

Interest 8.2 2.4 2.4

Other income 50.9 63.7 80.7

PBT 388.3 380.7 -1.9 364.6 4.4

Tax 39.6 126.6 74.0

PAT 348.7 254.1 -27.1 290.6 -12.5

Sh of profit 21.6 14.6 36.8

MI -0.5 -0.2 1.5

Adj PAT 369.8 268.5 -27.4 328.9 -18.3

EPS (Rs) 3.33 2.42 2.96

Margins (%)

EBDITA 14.4 12.5 15.9

EBIT 10.6 9.2 11.3

PAT 10.7 7.3 11.5

Source : Company

Revenues were up 6% - Volume growth in linen Revenues for the quarter grew by 6.4% QoQ. Volumes were 5.6% higher QoQ.

n While ENGG vertical reported a 6.3% rise in volumes, N&CE (Network and Con-tent Engineering) saw volumes grow by 4.4%.

n Infotech bagged 7 new accounts during the quarter of which, 3 were in theENGG vertical and the balance in N&CE.

n In N&CE, revenues from Europe were impacted in 4QFY11 as two of the top 5clients (BT and Rural Payment Agency) reduced / tightened their budgets. How-ever, we understand that, the company has been able to tide over this impact in1QFY12.

Summary table


Sales 9,531 11,879 14,987Growth (%) 7.1 24.6 26.2EBITDA 2,082 1,800 2,206

EBITDA margin (%) 21.8 15.1 14.7PBT 2,079 1,597 1,995Net profit 1,708 1,397 1,478

EPS (Rs) 15.4 12.6 13.3Growth (%) 83.8 (18.3) 5.8CEPS (Rs) 19.3 16.9 18.1

BV (Rs/share) 81.7 92.5 103.0Dividend / share (Rs) 1.0 2.0 2.5ROE (%) 20.4 14.4 13.6

ROCE (%) 24.8 16.5 18.0Net cash (debt) 4,316 3,862 4,692NW Capital (Days) 66.3 85.7 89.8

P/E (x) 9.0 11.1 10.4P/BV (x) 1.7 1.5 1.3EV/Sales (x) 1.2 1.0 0.7

EV/EBITDA (x) 5.3 6.4 4.9




n The company saw traction with a couple of telecoms customers and also in rev-enue from three new customers.

n Infotech witnessed good traction in North America, with increased volumes fromsome of its largest telecom and utility clients.

n The company signed a long term agreement with one of the global leaders inmining and construction equipment.

n This vertical has been facing continuing client issues. The projects-based natureof N&CE revenues also adds to the uncertainty.

n In ENGG, the revenues from Aerospace Engineering has crossed the $100mnannual mark. The company entered into a strategic partnership with a chip OEMin the previous quarter and this is expected to scale up in due course. This wasits second such partnership in the HiTech space.

n ENGG has been witnessing consistent growth over the past few quarters on theback of significant new additions and scale up of existing accounts.

n According to the management, the spending in manufacturing industry haspicked up and this has been led by hitech, heavy engineering and aerospace ver-ticals.

n The client budgets are expected to be higher for companies in these three verti-cals. Hi-tech and heavy engineering space is expected to see a significant in-crease in spend due to the cuts experienced in the previous two years.

n We understand growth came due to the scale up is existing accounts and scaleup in new accounts from Hamilton Sunstrand and Westinghouse. However, thescale up in Westinghouse will be more gradual.

n Infotech has penetrated the UTC group well with cumulative revenues of morethan $250mn. It now operates at ACE Gold level across all divisions of UTC.

n The company has also been short-listed as one of the off-shore partners for anew initiative of Caterpillar.

Marginal realisation increases - lower than expectedn Infotech has conceded that, some of the billing rate increases, which were ex-

pected to come in, have failed to materialise.

n Due to this, there was a meagre 0.1% improvement in average realisations in1Q.

n In the previous quarter, the company had indicated that, it will secure billing rateincreases for off-shore services. The full impact is expected to be felt WEF1QFY12.

n We view this with concern because in absence of these rate increases, the com-pany will find it difficult to sustain and improve margins significantly.

EBIDTA margins were a negative surprise.n EBITDA margins for the quarter were down on a QoQ basis by 190bps. This was

disappointing, especially after a steep fall in 4QFY11. 4QFY11 also had a onetime impact of about 80bps, which was expected to cushion the margin fall.

n The margins were impacted by salary hikes given during the quarter - 3% on-siteand about 12% off-shore, according to the management.

n Margin performance of Infotech has been disappointing for the past few quartersand we see this as a reflection of the challenges faced by mid-tier companiesfrom attrition and S&M investments, which they are forced to make.

n We had indicated that, salary increments, higher levels of attrition and need toinvest in business generating initiatives will put pressure on margins.

n The management has scaled down its target margins from about 18% to 15-16% (by Fy12 end).



"Other income' and taxn Infotech reported other income of Rs.64mn, which was higher than our expecta-

tions.

n The company provided tax at the rate of 33% of PBT which was higher thanexpectations.. Management expects the same to move up to about 30% inFY12E.

Tweak estimatesn We have tweaked our earnings expectations to accommodate the lower than

expected margins in 1QFY12.

n For FY12, we have assumed a revenue growth of about 26%, led by ENGG.

n EBIDTA margins are expected to fall marginally on the back of salary increasesand assumed rupee appreciation. Higher capacity utilisation and rightsizing ini-tiatives may cushion some impact.

n We have assumed tax rate to rise to 29% of PBT in FY12 v/s about 17% in FY11,in line with the management guidance of 30% - 31%.

n Consequently, PAT is expected to rise by about 6% to Rs.1.48bn, resulting intoan EPS of Rs.13.3.

n We expect the company to have net cash of about Rs.4.5bn by FY12 end, whichworks out to Rs.40 per share.

Deep relationships augur well; however margins performancehas to improven Infotech has managed to deepen client engagement for clients like UTC, Tom

Tom, P&W, Bombardier, Tele-Atlas & Swisscom over the recent quarters andenjoys relationships with marquee clients in its verticals.

n Management continues to see opportunities in the higher thrust which aerospacecompanies (Bombardier, etc are major clients) are giving to efficient and lightengine design skill sets- areas where IEL has domain expertise and existing im-pressive client roster.

n We have in our DCF model built in higher growth rates for Infotech over themedium term, given the improving demand environment.

n However, margins have a lot of scope for improvement. They have fallen by1000bps over the past 8 quarters.

n These reflect the challenges of a mid-tier company and we will become morepositive only after seeing a sustained improvement in the same.

Concernsn A sharp acceleration in the rupee from our assumed levels will impact earnings

estimates negatively for the company.

n Belying of hopes of a pick up in the economic outlook of major user economiescould impact revenue growth of Infotech.

We maintain ACCUMULATErating on Infotech Enterpriseswith a revised price target of

Rs.155



IRB INFRASTRUCTURE

PRICE: RS.186 RECOMMENDATION: BUYTARGET PRICE: RS.246 FY12E P/E: 13X

Result highlights

q Revenues of the company for Q1FY12 reported a growth of 55.4% YoYled by 81% YoY growth in EPC division and 14% YoY growth in toll rev-enues.

q Operating margins declined on yearly basis due to higher proportion ofEPC revenues. Margins improved on a sequential basis since company hasbuilt in sufficient cushion in the EPC projects

q Net profit growth was lower than our estimates and was impacted byhigher interest outgo in BOT segment due to MTM provisioning for inter-est rate currency swap for Mumbai-Pune BOT during Q1FY12 also.

q We maintain our estimates and continue to maintain BUY on IRB Infrawith a price target of Rs 246 on FY12 estimates.

Financial highlights

Q1FY12 Q1FY11(Rs mn) EPC BOT Total EPC BOT Total

Revenues 5971 2324 8295 3301 2036 5337

YoY (%) 80.9 14.1 55.4

EBITDA 1548 2029 3577 952 1758 2710

EBITDA (%) 25.2 90.6 42.7 28.8 86.3 50.8

Depreciation 137 465 602 110 427 537

EBIT 1411 1564 2974 842 1331 2173

Interest 285 890 1174 59 602 661

EBT 1126 674 1800 784 729 1513

YoY (%) 43.7 -7.5 19.0

Tax 360 83 443 224 79.4 303.4

Tax (%) 32.0 12.2 24.6 28.6 10.9 20.1

PAT 766 592 1357 560 650 1209

Minority interest 0 16 16 33 33

Net profit 766 576 1342 560 616 1176

YoY (%) 36.9 -6.6 14.1

Net profit w/o MAT credit 766 576 1342 560 616 1176

Shares (mn) 332.4 332.4 332.4 332.4 332.4 332.4

EPS (Rs) 2.3 1.7 4.0 1.7 1.9 3.5

Source: Company

Revenue growth led by improvement in toll collection and higherEPC revenuesn Revenues of the company for Q1FY12 reported a growth of 55.4% YoY led by

81% YoY growth in EPC division and 14% YoY growth in toll revenues.

n EPC division reported 81% YoY growth led by improvement in execution fromSurat-Dahisar, Amritsar-Pathankot, Talegaon-Amravati and Jaipur-Deoli project.

Summary table

(Rs mn) FY11 FY12E FY13E

Sales 25,026 32,250 46,074Growth (%) 43.0 29.0 43.0EBITDA 11,584 14,215 17,060


EPS (Rs) 13.6 14.3 18.5Growth (%) 17.4 4.9 29.4CEPS(Rs) 20.4 26.4 31.8

BV (Rs/share) 72.5 84.3 100.3DPS (Rs) 2.0 2.0 2.0ROE (%) 20.3 18.2 20.0

ROCE (%) 16.3 14.0 13.4Net debt 34,246 47,755 64,927P/E (x) 13.7 13.0 10.1

P/BV (x) 2.6 2.2 1.9EV/Sales (x) 3.9 3.4 2.8EV/EBITDA (x) 8.3 7.7 7.4


RESULT UPDATE

Teena [email protected]+91 22 6621 6302



n BOT revenues reported a growth of 14% YoY led by 18% toll rate hike inMumbai-Pune BOT project from Apr, 2011 and commencement of toll collectionfrom Tumkur-Chitradurg project. Toll collection from Tumkur-Chitradurg projectstood at nearly Rs.43-44 lac per day. Mumbai-Pune expressway has shown a23% YoY growth while Bharuch Surat project has also shown a healthy growthof 12.8% YoY growth in toll collections. Traffic growth in Surat-Dahisar waslower than our estimates. Thane-ghodbunder toll collections were impacted bytraffic diversion while other projects such as Pune-Nashik, Thane-Bhiwandi,MMK, Kharpada bridge and Pune Sholapur have reported toll collections betterthan our estimates.

n Construction work on Surat-Dahisar project is expected to complete in Aug,2011. Along with this, Kolhapur road project is also expected to complete byAug, 2011. Commissioning of this project has got delayed due to land availabilityissues so company has requested for partial completion certificate and begin thetoll collections by Aug-Sep, 2011.

n EPC division has a current order book of Rs 112 bn and with completion of con-struction work on Surat-Dahisar and Kolhapur project by Aug, 2011, we expectrevenue growth to be led by execution of Amritsar-Pathankot, Talegaon-Amravati and Jaipur-Deoli project in FY12. We expect work on Ahmedabad-Vadodara project to commence from FY13 which will aid the revenue growthgoing forward. We thus maintain our estimates and expect consolidated rev-enues to grow at a CAGR of 36% between FY11-FY13.

BOT revenue trendQ1 Q2 Q3 Q4 Q1

(Rs mn) FY10 FY11 FY11 FY11 FY11 FY11 FY12

Mumbai Pune 3063 802 803 809 802 3215 986QoQ (%) 5.4 0.1 0.8 -0.1 22.9YoY (%) 5.0 4.7 4.9 5.4 5.0 22.9Surat Dahisar 3337 882 828 955 982 3647 942QoQ (%) -2.8 -6.1 8.2 18.6 -4.1YoY (%) 13.4 6.2 9.3 8.3 9.3 6.8Thane Bhiwandi 472 133 122 138 150 544 156QoQ (%) 2.3 -8.3 3.8 23.0 4.0YoY (%) 18.8 8.9 17.0 15.4 15.3 17.3Thane Ghodbunder 277 72 65 73 74 284 70QoQ (%) 2.9 -9.7 1.1 13.8 -5.4YoY (%) 4.3 -3.0 1.1 5.7 2.5 -2.8Pune-Nashik 181 48 53 55 55 212 56QoQ (%) 0.0 10.4 15.5 3.8 1.8YoY (%) 14.3 22.1 17.3 14.6 17.1 16.7Pune-Sholapur 133 36 31 35 42 144 43QoQ (%) 2.9 -13.9 -1.8 35.5 2.4YoY (%) 0.0 0.0 10.5 20.0 8.3 19.4NKT 135 38 35 36 37 146 37QoQ (%) 5.6 -7.9 -5.4 5.7 0.0YoY (%) 31.0 2.9 2.7 2.8 8.1 -2.6MMK 63 17 20 19 21 76 20QoQ (%) 21.4 17.6 11.6 5.0 -4.8YoY (%) 0.0 11.1 35.6 50.0 20.6 17.6Kharpada bridge 67 19 15 19 21 74 23QoQ (%) 5.6 -21.1 1.4 40.0 9.5YoY (%) 5.6 0.0 20.4 16.7 10.4 21.1Bharuch surat 663 298 305 348 351 1302 336QoQ (%) -6.0 2.3 16.7 15.1 -4.3YoY (%) 1352.4 12.8Total revenues 7297 2036 2032 2140 2115 8322 2324

Source: Company



Operating margins slightly lower than our estimatesn Operating margins declined on yearly basis due to higher proportion of EPC rev-

enues. Margins improved on a sequential basis since company has built in suffi-cient cushion in the EPC projects

n Operating margins in the construction division stood at 25.9% for Q1FY12. Mar-gins also remained strong in the BOT division at 87.3% for Q1FY12. Overallmargins on consolidated basis stood at 43.1% for Q1FY12 as against 50.8% inQ1FY11.

n We maintain our estimates and expect consolidated margins to be 44.1% and37% for FY12 and FY13 respectively.

Net profit growth led by excellent revenue growth and strongoperating marginsn Net profit growth of 14% was led by healthy growth in revenues and excellent

margins.

n It was to some extent impacted by higher interest outgo in BOT segment due tohigher debt at the project level. We believe this is also due to MTM provisioningfor interest rate currency swap for Mumbai-Pune BOT during Q1FY12 also. How-ever, we don't expect further provisioning since the contract is about to expire inAug, 2011.

n We maintain our estimates and expect net profits to grow at a CAGR of 17%between FY11-FY13. This is expected to be impacted by higher interest and de-preciation charges going forward due to commissioning of Surat-Dahisar,Kolhapur and Tumkur-Chitradurg project.

Sum of the parts valuation

Sum of the parts valuation EBITDA Multiple EV Value(FY12E) (Rs mn) per share

Core construction division 5140 6 30841 93

BOT projects(based on FY12) Cost of equity(%)

Bharuch Surat 12% 2492 8

Thane Ghodbunder 12% 2214 7

Surat Dahisar 12% 3125 9

Mumbai Pune 11% 16115 49

Pune-Sholapur 12% 872 3

KHP 12% 315 1

Thane bhiwandi 12% 2573 8

Pune Nashik 12% 1640 5

NKT 12% 362 1

MMK 12% 433 1

Kolhapur IRDP 12.8% 4057 12

Talegaon Amravati 12.8% 2629 8

Jaipur-Deoli 12.8% 5596 17

Amritsar-Pathankot 12.8% 3725 11

Tumkur Chitradurg 12.8% 1609 5

Real estate investment valuations 1250 acres 1 1300 4

Value of upcoming projects 4

Cash and investments 451 1

Total 246

Source: Kotak Securities - Private Client Research



Valuation and recommendationn At current price of Rs 186, stock is trading at 13x and 10.1x P/E and 7.7x and

7.4x EV/EBITDA on FY12 and FY13 estimates.

n We maintain our estimates and continue to maintain our price target of Rs 246on FY12 estimates based on sum of the parts methodology.

n We continue to remain positive on the company and believe that IRB is bestpositioned to capture upcoming opportunities in the road segment. We thus con-tinue to maintain BUY on the stock.

We continue to maintain BUY onIRB Infrastructure with a price

target of Rs.246



CROMPTON GREAVES

PRICE: RS.177 RECOMMENDATION: BUYTARGET PRICE: RS.205 FY12E P/E: 13.9X

q Crompton Greaves results for Q1FY12 are significantly below our esti-mates. Sluggish spending in domestic T&D space and delays from fewclients in taking product delivery has led to de-growth in power systemdivision.

q Company has been experiencing margin pressure on account of 1) in-creasing input prices 2) pricing pressure due to increased competition inpower systems division 3) sluggish volume growth across segments.

q Overseas subsidiary has been experiencing slowdown in certain geogra-phies; few order cancellations in Libya and deferments in certain ordershave led to the muted growth in the international business.

q Management anticipates increased competition and margin pressure inthe current year and has significantly reduced the revenue and marginguidance for FY12.

q We believe that the stock will continue to underperform the broadermarket for next two quarters till interest rates starts to peak out and in-vestments in domestic T&D space especially from Powergrid normalize.

q With various power generation capacities coming on stream in next fewyears, we opine that the spending in domestic T&D space is bound toincrease in the next few quarters

q In view of the changes in earning estimates, we continue to maintain'BUY' rating on the company's stock with a one year DCF based revisedtarget price of Rs 205 (Rs 280 earlier).

Consolidated Quarterly financials

(Rs mn) Q1FY12 Q1FY11 YoY (%) Q4FY11 QoQ (%) FY11

Net Sales 24377 23022 5.9 29080 (16.2) 100051

RM costs 13384 11079 20.8 15098 (11.4) 50787

Purchase of traded goods 2897 3104 (6.7) 3874 (25.2) 11902

Staff costs 3221 2994 7.6 2719 18.4 11811

Other costs 3059 2871 6.5 3658 (16.4) 12113

Total Expenditure 22560 20048 12.5 25350 (11.0) 86613

PBIDT 1818 2974 (38.9) 3731 (51.3) 13438

Interest 110 50 72 209

Other Income 151 183 (17.3) 468 (67.7) 999

PBDT 1860 3107 (40.1) 4126 (54.9) 14227

Depreciation 608 415 46.4 597 1.8 1936

PBT 1252 2692 (53.5) 3530 (64.5) 12291

Tax 475 793 (40.1) 683 (30.5) 3099

PAT 777 1899 (59.1) 2846 (72.7) 9192

EPS (Rs) 1.2 3.0 (58.2) 4.4 (72.1) 14.3

RM costs to sale (%) 66.8 61.6 50.3 50.3

Staff costs (%) 13.2 13.0 9.4 11.8

Other costs (%) 12.5 12.5 12.6 12.1

OPM (%) 7.5 12.9 12.8 13.4

Total tax rate (%) 37.9 29.5 19.4 25.2

Source: Company

Summary table


Sales 91,409 100,051 110,445

Growth (%) 4.6 9.5 10.4EBITDA 12,614 13,438 12,008EBITDA margin (%) 13.8 13.4 10.9

PBT 11,896 12,284 10,907Net profit 8,247 9,184 7,962EPS (Rs) 12.9 14.3 12.4

Growth (%) 50.9 11.4 -13.3CEPS (Rs) 15.3 17.3 15.4BV (Rs/share) 39.0 51.0 62.4

Dividend/share (Rs) 2.2 2.2 2.3ROE (%) 33.8 28.6 20.2ROCE (%) 42.9 35.7 26.5

Net cash (debt) 1,679 (1,719) 9,986NW Capital (Days) 16.7 31.4 26.7EV/Sales (x) 1.2 1.1 0.9

EV/EBITDA (x) 8.9 8.4 9.4P/E (x) 13.5 12.1 13.9P/Cash Earnings 11.3 10.0 11.2

P/BV (x) 4.4 3.4 2.8


RESULT UPDATE

Ruchir [email protected]+91 22 6621 6448



Result Highlightsn Consolidated revenues grew by 5.9% YoY mainly driven by the industrial busi-

ness. However company has reported significant fall in the operating margins at7.9% in Q1FY12 vis-à-vis 12.9 % in Q1FY10.

n Consolidated Power system division reported revenue growth of 4.1% YoY toRs.15.2 bn. However, EBIT for the segment are down by 74% YoY mainly due to1) sluggish spending in domestic T&D business 2) increasing competition leadingto pricing pressure 3) higher raw material prices.

n Domestic power division has grown by close to 11% YoY in the quarter to Rs 5.6bn. However overseas power system has posted de-growth on account of execu-tion delays in Europe and middles east projects.

n Management has reported that some of its clients are delaying taking order de-livery. However it believes this to be a temporary phenomenon and conditionsare likely to improve through 2HYFY12.

n Also, in Q1FY12 company has taken up the rewinding work in few of the earlierplaced transformers, which it has supplied to one of its clients. Charges to thisrework have been booked in the quarter under review and have had a depress-ing effect on the overall margins of the company.

n Company has also reported order cancellation in Libya. Management has alsostated that an overseas order of nearly Rs 2.5 bn has been deferred probably tothe next quarter.

n Company has been observing significant demand in the European wind business.However it is also experiencing slowdown in some of the key markets likeFrance.

n Revenue growth in Consumer Product division remained muted at Rs 5.4 bn.While company plans to expand in the rural areas for sustaining growth, it fore-sees tough environment for the segment in view of the increasing interest ratesand rising inflation having negative impact on the consumer sentiment.

Segment revenue

(Rs bn) Q1FY12 Q1FY11 YoY (%) Q4FY11 QoQ (%)

Power 15.2 14.6 4.1 19.2 (21.2)

Consumer 5.4 5.3 2.2 5.5 (1.3)

Industrial 3.8 3.2 18.3 4.3 (12.6)

Source: Company

Segment PBIT

(%) Q1FY12 Q1FY11 Q4FY11

Power 2.6 10.7 13.4

Consumer 13.9 15.1 14.3

Industrial 13.4 18.6 14.9

Source: Company

n Industrial division observed 18% YoY revenue growth at Rs. 3.8 bn. Howevermargins remained under pressure for the segment due to higher input prices.



Business Outlookn We believe that the current slowdown in the real estate activity in India and

continuous delays from power grid would remain a matter of concern for thecompany and the peer group in the short term.

n With the increasing capacity in the transformer space, company would continueto observe pricing pressure in the power system division. However, we also opinethat the company is reasonably positioned in terms of product and geographydiversification.

n With various power generation capacities coming on stream in next few years,we believe that the spending in domestic T&D space is bound to increase in thenext few quarters and company is likely to benefit from this.

n We believe that the Indian consumer space has been undergoing a change interms of consumer preference toward the branded products manufactured by thecompany and peer group (Havells, Bajaj Electricals etc) over the unorganizedsector.

n However peaking out of interest rates and inflation would be the key variables tomonitor for the growth of the overall sector.

Financialsn We project 10.4% growth in consolidated revenues for FY12 driven mainly by

the industrial systems segment. However we believe that the domestic T&D divi-sion is also likely to post recovery in 2HYFY12E.

n We believe that the company is likely to experience margin pressure through1HYFY11 on account of 1) increase in input prices 2) lower volumes 3) increasein overheads for funding company's future growth mainly in industrial systemsdivision.

n In our projections, we build 10.9% EBITDA margins for FY12 vis-à-vis 13.2% inFY11. We build EPS of Rs 12.4 vis-à-vis Rs 14.3 in FY11.

Change in estimates for FY12

(Rs mn) New Old % Change

Sales 110445 111155 (0.6)

EBITDA 12008 14630 (17.9)

PAT 7962 10007 (20.4)

EPS 12.4 15.6 (20.5)

EBITDA% 10.9 13.2

Source: Kotak Securities - Private Client Research

Valuation & Recommendationn Company's stock has corrected sharply by over 35% post Q1FY12 results in last

two trading session. At the current price of Rs 177 stock is trading at 13.9x P/Eand 9.4 x EV/EBITDA on FY12E earnings.

n We opine that the investment in the infrastructure space (particularly power insector) are delayed in the short run but is likely to recover and sustain in the longterm. We believe that with various power plants coming on stream in next fewyears, off take in T&D infrastructure is inevitable.

n With increased capabilities in various domains acquired through JVs and acquisi-tions we believe that the company is well integrated and well poised to benefitfrom 1) spending in T&D space in India 2) up tick in industrial capex 3) revival ofoverseas markets.

n In view of the changes in earning estimates affected by us, we continue to main-tain 'BUY' rating on the company's stock with a one year DCF based revisedtarget price of Rs 205 (Rs 280 earlier).

We continue to maintain BUYon Crompton Greaves with arevised price target of Rs.205



ASHOK LEYLAND LIMITED (ALL)PRICE: RS.50 RECOMMENDATION: REDUCETARGET PRICE: RS.46 FY12E P/E: 11.8X

q ALL reported disappointing set of 1QFY12 results that was lower thanour and street expectations. While results were in line at the operatinglevel, high depreciation and interest cost led to below expected PAT.

q While revenues grew by 6%, adjusted EBITDA remained flat. Net profitwitnessed a 30% drop YoY.

q Macro headwinds persist for the M&HCV sector and we expect flat vol-ume growth for the company in FY12.

q Margins too are expected to remain under pressure in FY12 on account of1. Firm commodity prices and 2. Expected increased share of margindilutive U-truck in the portfolio.

q We continue to maintain our REDUCE rating on the stock with an un-changed price target of Rs.46.

Quarterly performance

(Rs mn) 1QFY12 1QFY11 YoY% 4QFY11 QoQ%

Total Revenues 24,955 23,480 6.3 38,285 (34.8)

Total expenditure 22,603 21,126 7.0 33,187 (31.9)

RM consumed 17,981 17,346 3.7 27,603 (34.9)

Employee cost 2,497 2,025 23.3 3,018 (17.3)

Other expenses 2,125 1,755 21.1 2,566 (17.2)

EBITDA 2,352 2,354 (0.1) 5,099 (53.9)

EBITDA margin (%) 9.4 10.0 - 13.3 -

Depreciation 847 615 37.7 772 9.6

Interest cost 533 316 68.7 451 18

Other Income 41 47 (12.9) 41 0.0

Extraordinary income/ (loss) 95 - - - -

PBT 1,107 1,470 (24.7) 3,917 (71.7)

PBT margins (%) 4.4 6.3 - 10.2 -

Tax 245 244 0.3 935 (73.8)

Tax rate (%) 22.1 16.6 - 23.9 -

Reported PAT 863 1,226 (29.7) 2,982 (71.1)

PAT margins (%) 3.5 5.2 - 7.8 -

Reported EPS (Rs) 0.6 0.9 (29.7) 2.2 (71.1)

Volume (units) 19,277 21,402 (11.0) 29,679 (35.0)

Net Realization (Rs) 1,294,551 1,097,083 18.0 1,289,980 0.4

RM cost per vehicle (Rs) 932,773 810,485 15.1 930,051 0.3

Source: Company

Summary table

(Rs mn) FY11E FY12E FY13E

Sales 111,177 117,413 134,175Growth (%) 53 6 14EBITDA 12,176 11,778 14,202


EPS (Rs) 4.7 4.2 5.2Growth (%) 49.0 (11.7) 25.0CEPS (Rs) 6.8 6.2 7.5

Book value (Rs/share) 30 32 35Dividend per share (Rs) 2.0 1.5 2.0ROE (%) 16.6 13.5 15.6

ROCE (%) 14.7 12.3 14.0Net cash (debt) (23,887) (28,534) (29,686)NW Capital (Days) 17 14 11

P/E (x) 10.5 11.8 9.5P/BV (x) 1.7 1.5 1.4EV/Sales (x) 0.8 0.8 0.7

EV/EBITDA (x) 7.4 8.0 6.7


RESULT UPDATE

Arun [email protected]+91 22 6621 6143



Revenues grow marginally due to poor show on the volumesfrontn Revenues for the quarter grew by 6% from Rs23,480mn in 1QFY11 to

Rs24,955mn. Growth in revenues happened on account of improved realizations.

n Steep price hike taken in the past one year led to 18% YoY jump in realizationsfor the company. Realization remained flat over 4QFY11.

n Engine volumes sales dropped from 3900 units in 1QFY11 to 3400 units in1QFY12. Revenues from the engine business were down marginally fromRs660mn in 1QFY11 to Rs640mn in 1QFY12.

n ALL vehicle volumes in 1QFY12 were down by 11% YoY on account of overallslowdown being witnessed in the M&HCV segment. Company cited the poorperformance on the volume front to the election in southern India sates wherecompany is the market leader.

n Management continues to maintain their 15% FY12 volume growth guidance.We believe that this would be daunting task for the company as 1.Volumes in1QFY12 are already down by 11% 2. Interest rates are not expected to comedown in short term. 3. Moderation being witnessed in the IIP growth numbers.One of the prime reason for the company's robust volume guidance is expecta-tion of drop in interest rates which we expect will not happen in the near tomedium term.

n We are of the view that FY12 will be a difficult year for the M&HCV industrybecause of reasons cited above. We continue to maintain our flat volume growthassumption for the company in FY12.

Operating performance remains in linen ALL's performance for the quarter at the operating profit level was broadly in line

with expectations.

n Company reported adjusted EBDITA of Rs2,352mn for the quarter, which wassimilar to 1QFY11 EBITDA of Rs2,354mn.

n Adjusted margins for the quarter stood at 9.4% versus 10% in 1QFY11. Lowervolumes during the quarter meant that the company could not benefit from op-erating leverage.

n For FY12, we expect the company's EBITDA margin to be at 10%. We expectthe volumes over the remaining quarters to be better than 1QFY11 and thatwould entail higher operating leverage for the company. Secondly, ramp up atPantnagar plant should also contribute positively towards the volumes. However,having said that, FY12 EBITDA margins are expected to be 100bps lower overFY11 EBITDA margins.

Net profits drop on high interest and depreciation costn ALL reported net profit of Rs863mn, a 30% drop over 1QFY11 net profit of

Rs1,226mn.

n Depreciation cost during the quarter increased by 10% QoQ on back of full im-pact of capex done in 4QFY11.

n Increase in finished goods inventory led to higher working capital. Accordinglythe interest cost moved up by 18% QoQ.

n EPS for the quarter stood at Rs0.68. Our full year EPS estimate stands at Rs4.2.



We continue to maintainREDUCE on Ashok Leyland

with an unchanged price targetof Rs.46

Conference call highlightn Management maintains their 15% volume guidance and 10.5% EBIDTA margin

guidance for FY12.

n Company took price increase of less than 1% on its vehicles in July 2011.

n During 1QFY12 the company produced 5,900 units out of the Pantnagar plantand expects to produce ~36,000 units in FY12.

n U-Truck volumes for the quarter were 700-800 units.

n Finished vehicle inventory at the end of 1QFY12 was 10,000 units which thecompany expects to bring it down in 2QFY12.

n Debt at the end of 1QFY12 stood at Rs32bn as against Rs25.6bn at the end ofFY11. Rise in debt is on account of increased loan for working capital. Companyexpects to bring this down by Rs5bn by liquidating inventory.

n Capex and investment amount for FY12 is expected to be around Rs11bn.

Valuation and Outlookn Slowing economy, mounting interest cost and rise in fuel prices will keep

M&HCV volumes under pressure in FY12.

n We expect the company's profit to de-grow by 12% in FY12.

n We continue to maintain our REDUCE rating on the stock with an unchangedprice target of Rs46.



LIC HOUSING FINANCE LTD

PRICE: RS.217 RECOMMENDATION: ACCUMULATETARGET PRICE: RS.240 FY12E P/E: 9.1X; P/ABV: 2.2X

Q1FY12: Overall disappointing results; muted disbursementcame along with deteriorating asset quality. Downgrading toACCUMULATE from BUY earlierq NII grew 22.6% YoY (8.8% lower than expectations) on back of 32.1%

growth in loans book despite 23 bps decline in NIM. Net Income was up21.0% YoY (14.3% lower than our expectations), partly aided by onlymarginal increase in operating expenses (7.1% YoY).

q Disbursement during Q1FY12 has been disappointing - Individual dis-bursement grew moderately at 15% (YoY), while Developers disburse-ment continued to decline by 79% (YoY).

q NIM came down to 2.78% during Q1FY12 as against 3.45% and 3.01%witnessed during Q4FY11 and Q1FY11, respectively. Another disappoint-ment was deteriorating asset quality. In absolute terms, gross NPA grew84% while net NPA grew 12x. Even in percentage terms, both gross aswell as net NPAs spiked to 0.84% and 0.35%, respectively (Q4FY11: grossNPA - 0.47%; net NPA: 0.03%).

q At the CMP, stock is trading at 2.2x its FY12E ABV and 9.1x its FY12Eearnings. We have tweaked earnings estimate downward for FY12E. Weare downgrading the stock to ACCUMULATE from BUY earlier and alsocutting the TP to Rs.240 (earlier Rs.260) based on 2.4x its FY12 ABV.

Result highlights

(Rs bn) Q1FY12 Q4FY11 Q1FY11 YoY% QoQ %

Interest income 13.58 12.94 9.72 39.8 5.0

Interest expenses 9.97 8.73 6.77 47.2 14.2

Net Interest Income 3.61 4.20 2.94 22.6 (14.1)

Non Interest Income 0.60 0.98 0.43 38.6 (38.8)

Net Operating Income 4.21 5.19 3.38 24.7 (18.8)

Operating Expense 0.42 0.70 0.39 7.1 (39.9)

Operating profit 3.79 4.48 2.98 27.0 (15.5)

Provi. for loan loss 0.33 0.19 0.09

Profit before tax 3.45 4.30 2.89 19.4 (19.6)

Provisions for taxes 0.89 1.15 0.77

PAT 2.57 3.15 2.12 21.0 (18.5)

EPS (Rs) 5.40 6.63 4.46

Cost/Income ratio (%) 10.0 13.5 11.7

Effective Tax rate (%) 25.7 26.7 26.7

Sanctions - 58.0 53.5

Disbursements 35.5 67.9 33.9 4.5 (47.8)

Mortgaged Loan 528.8 510.9 400.3 32.1 3.5

GNPA (%) 0.84 0.47 0.92

NNPA (%) 0.35 0.03 0.35

Source: Company

Summary table


Interest Income 32,827 44,697 59,029

Interest expenses 23,957 30,977 42,972NII 8,870 13,719 16,057Growth (%) 21.0 55.0 17.0

Non-Int Income 1,866 3,991 2,433Total Income 10,736 17,710 18,490Gross profit 8,830 15,550 16,150

Net profit 6,622 9,745 11,333Growth (%) 25.0 47.0 16.0Gross NPA (%) 0.7 0.5 0.7

Net NPA (%) 0.1 0.0 0.2NIMs (%) 2.7 3.1 2.9RoA (%) 2.0 2.2 2.0

RoE (%) 23.5 26.0 25.1Divi. Payout (%) 22.6 29.8 36.2EPS (Rs) 13.9 20.5 23.9

BV (Rs) 71.3 86.7 103.7Adj. BV (Rs) 70.3 86.4 100.6P/E (x) 15.5 10.6 9.1

P/ABV (x) 3.1 2.5 2.2


RESULT UPDATE

Saday [email protected]+91 22 6621 6312



In our view, there are three disappointments from Q1FY12 re-sults:1) Disbursement during Q1FY12 has been disappointing - Individual disbursement

grew moderately at 15% (YoY), while Developers disbursement continued todecline by 79% (YoY). On aggregate basis, total disbursement grew only by4.5% (YoY) which is disappointing in our view.

2) Next disappointment came on margin front. NIM compressed more than whatwe were expecting. It came down to 2.78% during Q1FY12 as against 3.45%and 3.01% witnessed during Q4FY11 and Q1FY11, respectively.

3) Asset quality also disappointed during Q1FY12. In absolute terms, gross NPAgrew 84% while net NPA grew 12x. Even in percentage terms, both gross aswell as net NPAs spiked to 0.84% and 0.35%, respectively (Q4FY11: gross NPA- 0.47%; net NPA: 0.03%).

NII came at 22.6% YoY, 8.8% below expectations; NIM also dis-appointedNII grew 22.6% YoY (8.8% lower than expectations) on back of 32.1% growth inloans book despite 23 bps decline in NIM.

Net Income was up 21.0% YoY (14.3% lower than our expectations), partly aidedby only marginal increase in operating expenses (7.1% YoY).

NIM came down to 2.78% during Q1FY12 as against 3.45% and 3.01% witnessedduring Q4FY11 and Q1FY11, respectively. We opine that 67 bps (QoQ) contraction inNIM suggests that there is some pressure on its margins due to rising cost of funds.

Muted disbursement during Q1FY12; although loan book grew at32.1% during Q1FY12, we are assuming moderate growth of 18%during FY12E.Disbursement during Q1FY12 has been disappointing - Individual disbursement grewmoderately at 15% (YoY), while Developers disbursement continued to decline by79% (YoY). This led to overall disbursement growing at only 4.5% during Q1FY12.

Unsurprisingly, developer loan continued to take a breather during Q1FY12 and onback of lower disbursement to developers during last three quarters, its outstandingdeveloper's loan book has continuously declined from 11.3% at the end of Q2FY11to 7.6% at the end of Q1FY12. However, management has guided that developerdisbursement is picking up and ~Rs.1.0 bn was disbursed during July month so far asagainst Rs.0.8 bn done during whole Q1FY12.

Although outstanding mortgage portfolio rose 32.1% (YoY) at the end of Q1Fy12,we are assuming moderate loan growth of 18% during FY12E as there has beensome indication of sluggishness in the real estate transactions.

Disappointing asset quality; provision coverage ratio declined to58.3%In absolute terms, gross NPA grew by 21% YoY and 84% QoQ, respectively. Simi-larly, net NPA also spiked by 32% YoY and became 12x QoQ.

Trend in Asset Quality

(Rs mn) Q1FY11 Q2FY11 Q3FY11 Q4FY11 Q1FY12

Gross NPA 3,683 3,196 3,130 2,420 4,442

% chg (YoY) -17% -22% -36% -8% 21%

% chg (QoQ) 40% -13% -2% -23% 84%

Gross NPA Ratio (%) 0.92 0.74 0.67 0.47 0.84

Net NPA 1,401 902 840 150 1,851

% chg (YoY) -26% -54% -68% -68% 32%

% chg (QoQ) 202% -36% -7% -82% 1134%

Net NPA Ratio (%) 0.35 0.21 0.18 0.03 0.35

Source: Company



In percentage terms, gross NPA increased to 0.84% at the end of Q1FY12 from0.47% at the end of Q4FY11 (however, slightly improved from 0.92% at the end ofQ1FY11). Similarly net NPA also deteriorated to 0.35% at the end of Q1FY12 from0.03% at the end of Q4FY11 (0.35% at the end of Q1FY11).

Provision coverage ratio declined to 58.3% at the end of Q1FY12 as against 93.8%at the end of Q4FY11 and 62.0% at the end of Q1FY11.

Valuation and recommendationWe have reduced our loan growth forecast to 18% YoY during FY12 to Rs.602.9 bn.We have tweaked earnings estimate downward for FY12E and now expect net profitof Rs.11.33 bn for FY12. This would translate into EPS of Rs.23.9 and adjusted bookvalue of Rs.100.6 for FY12.

At the CMP, stock is trading at 2.2x its FY12E ABV and 9.1x its FY12E earnings. Weare downgrading the stock to ACCUMULATE from BUY earlier and also cutting theTP to Rs.250 (earlier Rs.260) based on 2.5x its FY12 ABV.

We now recommend roACCUMULATE on LIC Housing

Finance with a revised pricetarget of Rs.250



PETRONET LNG LTD. (PLNG)PRICE: RS.153 RECOMMENDATION: ACCUMULATETARGET PRICE: RS.157 FY12E P/E: 11.1X

q Petronet LNG has reported good set of Q1FY12 results which are aboveour estimates. Profit has increased both on account of 1). Volume and 2).Realization growth. Falling domestic gas supply from KG-D6 and strongdemand of natural gas from petrochemicals and refinery sector resultedin higher import of LNG.

q Management has stated the rising demand of LNG has led to steadygrowth in capacity utilization at Dahej plant. In Q1FY12, the ratio of spotcargos to long term cargos was 15:27.

q The Company's board has approved the expansion of Dahej terminal.This will create more storage and re-gasification capacities. We expectpost expansion sales volume from Dahej will be more than 10 Mn MTPA.However, we also expect capacity constraint beyond 10.5 Mn MTPA tillthe time additional capacity comes on stream.

q Dahej operational capacity is expected to be 15 Mn MTPA higher than thenameplate capacity of 10 Mn MTPA post Jetty commission i.e afterQ2FY14. This is due to ambient temperatures and cargo scheduling.

q Additional Jetty and associated unloading terminal expected at Dahej tocommission by Q2FY14, contract awarded. We believe that this will al-low PLNG to bring in bigger vessels which will lower the turnaroundtime and improving operational efficiencies.

q Recently, PLNG has signed a preliminary agreement with Russia's market-ing arm Gazprom to buy as much as 2.5 million tonne per year of lique-fied natural gas (LNG) for up to 25 years.

q Currently, PLNG is importing 7.5 mmtpa from Qatar on a long-term basisand additional 1.5 mmtpa from Gas Natural (of Spain). It is in touch withcountries like Qatar and Australia for long-term contracts for sourcingLNG.

q PLNG is also aiming to increase its presence in direct marketing ratherthan just a tolling re-gassifier. This will improve its margins going for-ward.

q India's gas demand is currently pegged at 179 mmscmd, while the do-mestic supply is constrained at around 140 mmscmd.

q FY12 revised earnings estimate with EPS of Rs.13.76. (earlier Rs.8.7). Thisis mainly due to higher utilization rate at the Dahej terminal, strong do-mestic demand and long delay in ramping up of KG-D6 production.

q On the basis of our estimates, the stock at current market price of Rs.153is fairly valued at 7.4x EV/EBIDTA, 11.1x P/E, 9.4x P/CEPS and 3.27x P/BVon the basis of FY12 earnings estimates.

q Due to limited upside potential and fair valuations, we recommend Accu-mulate on PLNG with revised price target of Rs.157. We believe PLNGshould benefit from gas shortages and rising domestic natural gas de-mand over the long term.

Summary table

(Rs mn) FY11 FY12E FY13E

Net Sales 131,973 194,133 221,537Growth (%) 23.9 47.1 14.1EBIDTA 12,333 19,163 22,138

EBIDTA margin (%) 9.3 9.9 10.0PBT 9,063 15,638 18,035Net profit 6,195 10,323 11,905

EPS (Rs) 8.10 13.76 15.87Growth (%) 50.2 70.0 15.3CEPS (Rs) 10.7 16.3 19.0

Book value (Rs/share) 35.7 46.9 59.7DPS (Rs) 2.00 2.27 2.57ROE (%) 23.9 32.3 29.0

ROCE (%) 13.6 18.3 18.3Net Cash (Debt) (30621) (32713) (31565)EV/Sales (x) 1.1 0.7 0.6

EV/EBIDTA (x) 11.5 7.4 6.4P/E (x) 18.9 11.1 9.6P/BV (x) 4.28 3.27 2.56

P/CEPS (X) 14.3 9.4 8.0


RESULT UPDATE

Sumit [email protected]+91 22 6621 6313



Results table

(Rs mn) Q1FY12 Q1FY11 YoY (%) QoQ (%)

Revenue 46233 25260 83.0 15.99

Total Expenditure 41,852 22,782 83.7 15.15

EBIDTA 4,381 2,477 76.9 24.72

Depreciation 458 461 (0.7) 0.74

EBIT 3923 2016 94.6 28.28

Other income 263 126 108.5 (16.29)

Interest-net 464 498 (6.9) 7.52

PBT 3722 1644 126.4 26.57

Tax 1155 530 117.9 31.55

Current Tax 1110 450 146.7 23.33

Deferred tax 45 80 (43.8) (305)

PAT 2567 1114 130.5 24.45

EPS (Rs) 3.42 1.48 130.5 24.45

Source: Company

Margins & Tax Rate

Q1FY12 Q1FY11 YoY (%) QoQ (%)

EBITDA Margin (%) 9.5 9.8 (0.3) 0.7

EBIT Margin (%) 8.49 7.98 0.5 0.8

Adj PAT Margin (%) 5.55 4.41 1.1 0.4

Other Income/PBT (%) 7.1 7.7 (7.9) (3.6)

Tax/PBT (%) 31.0 32.2 (0.0) 1.2

Source: Company

Expenses Statement

(Rs mn) Q1FY12 Q1FY11 YoY (%) QoQ (%)

Raw Material consumption 41331 22333 85.07 15.63

Staff costs 64 73 (12.68) (47.48)

Other Expenditure 457 376 21.48 (5.10)

Total 41,852 22,782 83.70 15.15

Source: Company

Expenses Ratio


RM/Sales (%) 89.34 88.41 1.0 (0.28)

Employee Cost to Sales (%) 0.14 0.29 (0.2) (0.17)

Other Expenditure/Sales (%) 0.99 1.49 (0.5) (0.22)

Source: Company

Volume and Realization Details


R-LNG (Rs mn) 46233 25260 83.0 16.0

Sold Qty - TBTUs (Volume) 133.37 95.11 40.2 6.06

Price Rs/TBTUs 346.7 265.6 30.5 9.36

Source: Company



n During Q1FY12, PLNG sold 114.65 TBTUs of re-gasified LNG as against 89.46TBTUs in Q1FY11 and provided re-gasification services for 18.72 TBTUs asagainst 5.65 TBTUs in Q1FY11, totaling to 133.37 TBTUs which is significantly upby 40.2% on YoY basis and by 6.06% on QoQ basis mainly on account of importof cargos to meet the latent demand.

n In Q1FY12, PLNG has imported 42 cargos, out of this ~64% was long-term con-tracts and balance was short term spot cargos. This shows strong demand of LNGin India.

n Revenues for Q1FY12 were at Rs.46.2 Bn which is substantially up by 83.0% onYoY basis and 15.99% on QoQ basis. The average net realization (LNG sold andservice provided) is up 30.5% on YoY basis to Rs.346.7 per mmbtu and up by9.36% on QoQ basis.

n Petronet has been benefiting from a decline in local production of natural gasthat has pushed up LNG imports. Natural gas output at Reliance's D6 block inthe Krishna Godavari basin is currently around 48-50 million standard cubicmeters a day, significantly down. Also, it is expected that it will take two yearsto ramp-up the production.

n Raw material cost i.e. LNG for Q1FY12 was at Rs.41.3 Bn up by 85.07% on YoYbasis and 15.63% on sequential basis. Hence, PLNG imported LNG at averagecost of Rs.310 per mmbtu in Q1FY12 which is up by 32% on YoY basis and upby 9% on sequential basis. This is mainly due to rise in LNG prices.

n Net Back (Net Revenue less Raw Material Cost) for Q1FY12 was at Rs.4.9 Bn upby 67% on YoY basis and 19% on QoQ basis. Resulting in average net back ofRs.36.76 per mmbtu up by 19% on YoY basis and 12% on sequential basismainly due to higher demand and lower domestic supply the Company could getbetter realizations.

n For Q1FY12, the operational profit is up 76.9% YoY and 24.7% on sequentialbasis to Rs.4.4 bn. The company recorded EBIDTA margin of 9.5%, which isdown 0.3% on YoY basis but up 0.7% on QoQ basis. On QoQ basis, Companyhas imported higher spot cargos which have resulted in higher margins.

n Finance cost has increased by 7.52% QoQ basis but has fallen 6.9% YoY basis toRs.464 Mn.

n PBT for Q1FY12 was at Rs.3.7 bn up 126.4% YoY and up 26.6% on sequentialbasis.

n PAT for Q1FY12 was at Rs.2.57 bn up 130.5% YoY and up 24.5% on sequentialbasis thereby translating into quarterly EPS of Rs.3.42 and CEPS of Rs.4.0.

Quarterly sale volume (TBTU) & YoY growth (%)

Source: Company and Kotak Securities - Private Client Research

(60.0)

-

60.0

120.0

180.0

Q2F

Y10

Q3F

Y10

Q4F

Y10

Q1F

Y11

Q2F

Y11

Q3F

Y11

Q4F

Y11

Q1F

Y12

-20

0

20

40

60Quarterly sales volumes (TBTU - LHS)

YoY Growth (% - RHS)



PLNG volumes (MMTPA)& YoY growth (%)

Source: Company and Kotak Securities - Private Client Research

Key assumptionsn For FY12E we expect revenues of Rs.194.1 bn up 47% YoY (earlier Rs.148 bn),

operating margin of 9.9% and PAT of Rs.10.3 bn (earlier Rs.6.6 bn). Accordingly,we expect PLNG to report EPS of Rs.13.76 and CEPS of Rs.16.3 in FY12E. This ismainly due to higher utilization rate at the Dahej terminal, strong domestic de-mand, long delay in ramping up of kg-d6 production.

n Management has guided 9.5 Mn MTPA of LNG sales for FY12E.

n Management has guided higher re-gasification charges for FY12E. Also, theCompany enjoys marginally higher margins on spot cargo's which will also im-prove its operating margins. In Q1FY12, the Company imported 15 short andspot cargos as against 27 long term cargos.

Price target increased to Rs.157We have valued PLNG on DCF-based method of valuation with 11.9% WACC and5.0% terminal growth rate. The price target is revised upwards to Rs.157.

Valuation & Recommendationn On the basis of our estimates, the stock at current market price of Rs.153 is fairly

valued at 7.4x EV/EBIDTA, 11.1x P/E, 9.4x P/CEPS and 3.27x P/BV on the basisof FY12 earnings estimates.

n Due to 2% upside potential, we recommend Accumulate on PLNG with revisedprice target of Rs.157.

NotesLNG is natural gas in its highly compact liquid form. When natural gas is cooled tominus 260 degrees Fahrenheit (or minus 162 degrees Celcius), it is reduced to onesix-hundredth of its original volume and becomes a clear, non-toxic liquid. LNG of-fers a safe and economical means for transporting natural gas over long distances tolocations beyond the reach of pipelines. LNG is loaded on specialized ships and de-livered to a regas- sification terminal where it is reheated, turned into gas and dis-tributed to customers through a pipeline network.

We now recommend toACCUMULATE on Petronet LNG

with a revised price target ofRs.157

(3.0)

-

3.0

6.0

9.0

12.0

FY08 FY09 FY10 FY11 FY12E-6

0

6

12

18

24MMTPA (LHS)

YoY % (RHS)



Trade details of bulk deals

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

(Rs)

20-Jul Adf Foods-$ Bhavesh Thakkar (HUF) S 105,000 72.3

20-Jul Aryaman Fin BCB Finance Private Ltd S 505,000 17.5

20-Jul BGIL Films Rapid Credit & Holdings Pvt Ltd B 50,323 5.6

20-Jul BIL Energy Sys Radiance Exim Pvt Ltd S 106,030 32.6

20-Jul BIL Energy Sys Abhivandan Properties Pvt.Ltd S 115,000 31.4

20-Jul Cals Ref JMP Securities Pvt Ltd S 51,630,831 0.6

20-Jul Cosboard Inds Brijmohan Chandulal S 24,000 21.7

20-Jul Dhvanil Chem Mayur Narayandas Darji B 40,000 71.5

20-Jul Dhvanil Chem Aanir Shares Services S 50,300 70.0

20-Jul Fineotex Chem Mahavirsingh Bahadursingh Rana B 65,000 296.9

20-Jul Gflfin Namdeo Shantaram Gole B 15,000 78.6

20-Jul Gflfin Jigar Mahesh Shah B 19,350 79.0

20-Jul Gflfin Abhijai Investment B 20,000 79.3

20-Jul Gflfin Kirti Kantilal Mehta B 16,000 79.0

20-Jul Gflfin Amit Vinod Bhodia S 18,950 79.0

20-Jul Gflfin Premji H Shah S 56,300 79.1

20-Jul Henkel India Jyothy Laboratories Ltd B 800,000 40.5

20-Jul Henkel India Nalin Pravin Shah S 800,000 40.5

20-Jul Indo City Info-$ Mahavirsingh N Chauhan S 128,913 8.2

20-Jul Kailash Ficom Pareen Nemichand Sanghvi B 125,000 40.0

20-Jul Kailash Ficom Coral Hub Ltd S 60,000 40.0

20-Jul Kanchan Intl IL&FS Securities Services Ltd B 25,000 91.5

20-Jul Novagold Petro Siddharth Mayur Pandey B 71,000 3.5

20-Jul Novagold Petro Sonal International Ltd S 71,000 3.5

20-Jul Omkar Overseas Shah Daksha Pravinchandra B 30,862 5.4

20-Jul Oscar Global Mahavirsingh N Chauhan S 40,014 8.9

20-Jul Thambbi Modrn Sannasi Krishnan B 55,000 14.5

20-Jul Thambbi Modrn Asset Reconstruction Co I Ltd S 55,000 14.5

20-Jul Trijal Inds Mahavirsingh N Chauhan B 44,498 4.5

20-Jul United Textiles Mahavirsingh N Chauhan S 91,600 8.6

20-Jul Vjil Consulting-$ Venkat Rao Jalagam S 88,000 15.0

20-Jul White Diamond Jay Manoj Desai B 60,000 39.4

20-Jul White Diamond Jasmine Sangam Kothari S 100,000 39.4

20-Jul White Diamond Reshma Sunay Kothari S 100,000 39.4

Source: BSE

Bulk deals



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

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

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

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

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

Arun [email protected]+91 22 6621 6143

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

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

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

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

Jayesh [email protected]+91 22 6652 9172

Shrikant ChouhanTechnical [email protected]+91 22 6621 6360

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

Gainers

ITC 206 0.8 2.9 8.4

DLF 244 1.8 0.5 8.2

Hindustan Unilever 332 0.3 0.3 2.0

Losers

ICICI Bank 1,045 (1.6) (6.3) 1.7

HDFC Bank 503 (1.5) (4.6) 1.9

SBI 2,471 (1.6) (3.5) 1.0

Source: Bloomberg

Gainers & Losers

K. [email protected]+91 22 6621 6311

Company/MarketDate Event

21-Jul Biocon, Container Corp, DB Corp, Esab India, Hero Honda, Hindustan Zinc,Indiab Power, JSW Energy, Kotak Mahindra Bank, Sesa Goa, Yes Bank,Zee Entert, Zensar Tech earnings expected

22-Jul Allahabad Bank, Axis Bank, Colgate Palmolive, Indiabulls Real Est, Ispat Ind, JetAir India, Mirc Elect, NIIT, Praj Ind, Thermax, Union Bank earnings expected

Source: Bloomberg

Forthcoming events

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