Angel +Market+Strategy+ +June+2012+ +Strategy+Reports+ +June+13,+2012

8/13/2019 Angel +Market+Strategy+ +June+2012+ +Strategy+Reports+ +June+13,+2012

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Market StrategyMarket StrategyMarket StrategyMarket StrategyMarket StrategyJune 2012June 2012June 2012June 2012June 2012

Please refer to important disclosures at the end of this report. 1

Global worries remain, domestic environment toimprove going ahead

4QFY2012 and FY2012 earnings snapshot:4QFY2012 and FY2012 earnings snapshot:4QFY2012 and FY2012 earnings snapshot:4QFY2012 and FY2012 earnings snapshot:4QFY2012 and FY2012 earnings snapshot: Sensex companies reported adjusted

earnings growth of 19.2% yoy for 4QFY2012, against our expectation of 13.8%,

aided by unexpected earnings surprise by ONGC. Excluding the ONGCs

suprise, earnings grew by 13.7% yoy, compared to our expectation of 15.1%, as

lower-than-expected earnings of metal and telecom companies (sectoral earnings

declined for both) largely offset better-than-expected performance of auto companies

(primarily Tata Motors), Sun Pharma, SBI and ICICI Bank. Overall for FY2012, the

earnings performance story was directionally similar to that witnessed in 4QFY2012,

with lower-than-expected sectoral earnings of cyclical and structurally stressed sectors

largely offseting better-than-expected yearly performance of few sectors like Private

banks, auto, pharma, FMCG and IT. In fact, excluding Tata Motors (which wasaided more by its foreign subsidiary) and SBI (which had a low base of earnings in

FY2011), overall earnings growth for Sensex companies came in at just 9.6%.

Global worries remain, but domestic environment to improve going ahead:Global worries remain, but domestic environment to improve going ahead:Global worries remain, but domestic environment to improve going ahead:Global worries remain, but domestic environment to improve going ahead:Global worries remain, but domestic environment to improve going ahead:

Concerns about a crisis in Eurozone, which had earlier abated somewhat, have

risen again on the back of recent developments in Europe (particularly regarding

elections in Greece and the intensifying banking crisis in Spain), which coupled

with series of lower-than-estimated economic data have led Indian markets to fall

in April-May 2012. However, going ahead we expect the domestic macro

environment to improve on the back of easing commodity prices, moderating

inflation, further monetary easing in the form of repo rate cuts and narrowing

current account deficit. Weak demand outlook have led to a significant decline in

commodity prices including crude oil. The decline in global commodity prices, which

generally gets reflected in inflation levels domestically with a lag, is expected to

lead to a further decline in manufacturing inflation, while current forecasts suggest

good monsoon levels which is expected to keep food inflation under control.

CAD to narrow going ahead:CAD to narrow going ahead:CAD to narrow going ahead:CAD to narrow going ahead:CAD to narrow going ahead: Indian exporters are expected to benefit significantly

from INR depreciation, as it has improved their competitive edge vis-a-vis global

competitors such as China. Also, imports are expected to decline on 1) lower

domestic demand on account of slowing capex activities; 2) moderating global

commodity prices including crude oil prices; and 3) reduction in gold imports (~10%

of total imports) as gold is unlikely to generate similar supernormal returns as it did

in last few years. Hence, we expect the trade deficit (in USD terms) also to narrow

from here on, leading to a reduction of 50-100bp in current account deficit.

Outlook and valuation:Outlook and valuation:Outlook and valuation:Outlook and valuation:Outlook and valuation: Overall, for FY2013, we expect corporate earnings to be

aided at the revenue level by better growth prospects than in FY2012, at the earnings

level due to directionally better inflation scenario and lower interest costs. We expect

Sensex companies to deliver EPS growth of 11.4% in FY2013E (12.2% CAGR over

FY2012-14E). We continue to prefer rate sensitives like financials, infra and auto

sectors, which are likely to benefit the most from the expected correction in interest

rates and also select export-oriented IT and Pharma companies. We arrive at our

12-18 months Sensex target of 19,800, maintaining our conservative multiple of

14x FY2014E earnings. Our target implies an upside of ~19% from current levels.

Note: Investment period - 12 Months

BSE Sensex (16,719) and Price as on June 8, 2012

Top Picks

Company CMP (`) TP (`)

LLLLLarge Caparge Caparge Caparge Caparge Cap

Axis Bank 1,049 1,476

Crompton Greaves 119 142

D B Corp. 189 269

ICICI Bank 829 1,174

Infosys 2,419 2,792

Larsen & Toubro 1,309 1,553

Lupin 548 647

MCX 1,031 1,598

Tata Motors 239 299United Phosphorus 113 183

Mid CapMid CapMid CapMid CapMid Cap

Bajaj Electrical 186 245

CEAT 94 164

Jyothi Lab 216 268

Mahindra Life 308 376

Tata Sponge 286 420


4/28

Market Strategy

June 2012 Please refer to important disclosures at the end of this report. 2

Sensex earnings performance aided by ONGC surprise;

Ex. ONGC performance remain mixed

For 4QFY2012, on a yoy basis, Sensex companies' adjusted

earnings grew by 19.2% yoy as against our expectation of 13.8%,

aided by the unexpected earnings surprise by ONGC. Excluding

the positive surprise from ONGC, earnings grew by 13.7% yoy,

compared to our expectation of 15.1%, as lower-than-expected

earnings of metal and telecom companies (sectoral earnings

declined for both) nearly offset better-than-expected performance

of auto companies (primarily Tata Motors), Sun Pharma, SBI and

ICICI Bank. Sector wise, on a yoy basis, Sensex earnings growth

was primarily contributed by BFSI stocks, followed by auto, oil

and gas and IT stocks. Excluding SBI (which had a low base in

4QFY2011 due to exceptional pension-related expenses) and

ONGC (on unexpected earnings surprise), overall earnings

growth for Sensex companies came in at just 4.1% yoy, as againstour anticipation of 6.7% yoy.

ONGC surprised positively by reporting considerably

higher-than-expected bottom line, which was partly aided by

technicalities pertaining to lower-than-expected subsidy-sharing

assumption. Sun Pharma also reported higher earnings growth

on the back of better-than-expected sales. In the banking space,

SBI and ICICI Bank reported better-than-expected earnings

primarily on the back of improving asset quality.

Metals and telecom companies disappoint:Metals and telecom companies disappoint:Metals and telecom companies disappoint:Metals and telecom companies disappoint:Metals and telecom companies disappoint: On the flip side,results of metal companies were disappointing, as they reported

a 37.2% yoy decline in their profits. Realizations of ferrous

companies remained steady, but they fell significantly for

non-ferrous ones, which coupled with input costs pressures for

both hampered the overall profitability. In the telecom pack, we

were expecting Bharti Airtel's earnings to decline, but numbers

came in much poorer than our expectations due to higher-than-

expected forex losses and interest expenditure.

Private banks and auto, pharma, IT and FMCG

stocks drive Sensex growth in FY2012

For FY2012 as a whole, Sensex companies reported better-than-

expected, healthy top-line growth of 23.8% yoy. However, higher-

than-anticipated across-the-board margin compression resulted

in depressed bottom-line growth of 12.6% yoy. Margins came in

at 20.2% as against 22.6%, registering a decline of 248bp yoy.

In fact, excluding Tata Motors (which was aided more by its foreign

subsidiary) and SBI (which had a low base of earnings in FY2011),

overall earnings growth for Sensex companies came in at just

9.6%.

Overall, the earnings performance story was directionally similar

to that witnessed in 4QFY2012, with lower-than-expected sectoral

earnings of cyclical and structurally stressed sectors largely

offseting better-than-expected yearly performance of few sectors

like Private banks, auto, pharma, FMCG and IT.

BFSI companies expectedly remained the highest contributor to

Sensex' bottom-line growth, with contribution of 54.4% to

the overall increase. Non-Sensex PSU banks posted a

weak-to-moderate set of results in FY2012, with provisioning

expenses increasing significantly on the back of continued fresh

slippages. However, within Sensex banking players, SBI reported

the strongest earnings growth as the bank had already witnessed

a lot of pain in FY2011 itself. Private banks continued their

impressive performance, directionally in-line with expectations, with

robust performance on the operating as well as asset-quality front.

IT companies reported healthy earnings growth of 19.6% yoy,

largely in-line with our estimates, on the back of moderate volume

growth emanating from decent budget flush from clients and

INR depreciation. Pharmaceutical companies reported better-

than-expected growth of 39.8% yoy in net profit, adjusted for

extraordinary items, on higher-than-expected sales, which were

partly aided by INR depreciation.

Net Sales ( Net Sales ( Net Sales ( Net Sales ( Net Sales (`````cr)cr)cr)cr)cr) Operating P Operating P Operating P Operating P Operating Profit (rofit (rofit (rofit (rofit (`````cr)cr)cr)cr)cr) Net P Net P Net P Net P Net Profit* (rofit* (rofit* (rofit* (rofit* (`````cr)cr)cr)cr)cr)

SectorSectorSectorSectorSector 4QFY20124QFY20124QFY20124QFY20124QFY2012 4QFY20114QFY20114QFY20114QFY20114QFY2011 % chg% chg% chg% chg% chg 4QFY20124QFY20124QFY20124QFY20124QFY2012 4QFY20114QFY20114QFY20114QFY20114QFY2011 % chg% chg% chg% chg% chg 4QFY20124QFY20124QFY20124QFY20124QFY2012 4QFY20114QFY20114QFY20114QFY20114QFY2011 % chg% chg% chg% chg% chg

Auto 81,814 60,959 34.2 10,213 7,812 30.7 7,373 4,904 50.3

Engineering 38,050 33,765 12.7 7,498 6,634 13.0 5,223 4,335 20.5

Finance 29,133 22,774 27.9 16,971 12,060 40.7 8,731 3,730 134.1

FMCG 12,522 10,730 16.7 2,898 2,357 23.0 2,273 1,767 28.6

IT 31,980 25,710 24.4 8,759 7,119 23.0 6,729 5,574 20.7

Metals 57,111 54,108 5.5 8,647 10,256 (15.7) 3,548 5,648 (37.2)

Mining 19,419 15,009 29.4 4,353 6,483 (32.9) 4,008 4,207 (4.7)

Oil and Gas 114,456 96,964 18.0 18,874 19,103 (1.2) 10,363 8,950 15.8

Pharma 6,802 5,088 33.7 1,804 1,008 79.0 1,455 991 46.9

Power 23,434 20,505 14.3 5,867 5,011 17.1 2,750 3,335 (17.5)

Telecom 18,739 16,265 15.2 6,233 5,444 14.5 1,006 1,401 (28.2)

SensexSensexSensexSensexSensex 433,460433,460433,460433,460433,460 361,877361,877361,877361,877361,877 19.819.819.819.819.8 92,11892,11892,11892,11892,118 83,28883,28883,28883,28883,288 10.610.610.610.610.6 53,45953,45953,45953,45953,459 44,84144,84144,84144,84144,841 19.219.219.219.219.2

Exhibit 1: Sensex - 4QFY2012 performance on a yoy basis

Source: Company, Angel Research; Note: *Net profit adjusted for forex gain/loss and other extraordinary items


5/28

Market Strategy


FMCG companies continued to perform steadily at the revenue

and bottom-line level. Higher realizations and better product

mix aided healthy revenue growth and stable margins, in spite

of the inflationary environment, indicating their pricing power.

Improved performance on the operating front led to higher

growth of 20.6% yoy on the bottom-line front.

Oil and gas stocks' sizeable 24.1% contribution to Sensex'

bottom-line growth was mainly aided by better-than-expected

performance by ONGC and Gail India. ONGC reported strong

yearly performance on account of higher net realizations and

increased Rajasthan JV sales, while Gail India reported a yoyimprovement in its volumes and realizations. However, for index

heavyweight, Reliance, the year gone by was disappointing, as it

reported a slight decline in its earnings on a yoy basis, as against

our expectation of muted growth.

TTTTTata Motors drives auto sectorata Motors drives auto sectorata Motors drives auto sectorata Motors drives auto sectorata Motors drives auto sector s outperformance:s outperformance:s outperformance:s outperformance:s outperformance: Auto

companies performed better than our expectations during the

year, with higher-than-expected 35.3% contribution to Sensex'

bottom-line growth, mainly driven by Tata Motor's stellar

performance on account of a strong show by JLR.

In case of Sensex metal companies, higher input costs affected

margins for both ferrous and non-ferrous companies and led to

a sharp 53.8% yoy decline in earnings for ferrous companies.

As expected, Coal India reported strong earnings growth of

36.1% yoy for the year, mainly aided by higher realizations as

the company had increased its product prices in February 2011.

Sensex capital goods companies reflected the brunt of the GDP

slowdown, as slowness in project pick-ups and increased

competition marred order inflows, thereby making the sector's

performance bleak. Even the only Sensex capital goods company,

BHEL, could, hence, manage just 10.9% earnings growth, withthe picture being even worse for non-Sensex peers.

TTTTTata Pata Pata Pata Pata Power and Bharti Airtel underperform:ower and Bharti Airtel underperform:ower and Bharti Airtel underperform:ower and Bharti Airtel underperform:ower and Bharti Airtel underperform: Sector wise, other

major underperformers during the year were power and telecom.

While Tata Power was a disappointment among the two Sensex

power companies, as it reported a loss this year mainly due to

impairment loss provisions made for Mundra project, Bharti Airtel

reported worse-than-expected earnings, as higher-than-expected

amortisation of 3G rollout expenses as well as forex loss led its

earnings to decline rather steeply by 29.4% yoy.


SectorSectorSectorSectorSector FY2012FY2012FY2012FY2012FY2012 FY2011FY2011FY2011FY2011FY2011 % chg% chg% chg% chg% chg FY2012FY2012FY2012FY2012FY2012 FY2011FY2011FY2011FY2011FY2011 % chg% chg% chg% chg% chg FY2012FY2012FY2012FY2012FY2012 FY2011FY2011FY2011FY2011FY2011 % chg% chg% chg% chg% chg

Auto 274,649 218,331 25.8 34,380 28,408 21.0 22,476 18,446 21.9

Finance 100,487 84,212 19.3 57,526 47,045 22.3 27,462 20,877 31.5

Engineering 102,684 86,443 18.8 15,983 14,173 12.8 10,708 10,011 7.0

FMCG 46,534 40,569 14.7 11,384 9,519 19.6 8,735 7,294 19.8

IT 120,149 95,924 25.3 32,538 26,750 21.6 24,524 20,836 17.7

Metals 270,175 233,914 15.5 36,426 38,529 (5.5) 14,643 18,896 (22.5)

Mining 62,415 50,234 24.3 17,138 14,057 21.9 14,788 10,867 36.1

Oil and Gas 545,270 415,881 31.1 88,507 92,852 (4.7) 54,662 46,385 17.8

Pharma 24,488 19,315 26.8 7,040 4,598 53.1 5,286 3,785 39.7Power 90,827 76,489 18.7 19,699 16,445 19.8 9,290 11,413 (18.6)

Telecom 71,475 59,467 20.2 23,712 20,035 18.4 4,261 6,035 (29.4)

SensexSensexSensexSensexSensex 1,709,1541,709,1541,709,1541,709,1541,709,154 1,380,7781,380,7781,380,7781,380,7781,380,778 23.823.823.823.823.8 344,333344,333344,333344,333344,333 312,411312,411312,411312,411312,411 10.210.210.210.210.2 196,836196,836196,836196,836196,836 174,845174,845174,845174,845174,845 12.612.612.612.612.6

Exhibit 3: Sensex - Yearly performance


Net Sales ( Net Sales ( Net Sales ( Net Sales ( Net Sales (````cr)cr)cr)cr)cr) Operating P Operating P Operating P Operating P Operating Profit (rofit (rofit (rofit (rofit (````cr)cr)cr)cr)cr) Net P Net P Net P Net P Net Profit* (rofit* (rofit* (rofit* (rofit* (`````cr)cr)cr)cr)cr)

SectorSectorSectorSectorSector 4QFY2012A4QFY2012A4QFY2012A4QFY2012A4QFY2012A 4QFY2012E4QFY2012E4QFY2012E4QFY2012E4QFY2012E VVVVVararararar. (%). (%). (%). (%). (%) 4QFY2012A4QFY2012A4QFY2012A4QFY2012A4QFY2012A 4QFY2012E4QFY2012E4QFY2012E4QFY2012E4QFY2012E VVVVVararararar. (%). (%). (%). (%). (%) 4QFY2012A4QFY2012A4QFY2012A4QFY2012A4QFY2012A 4QFY2012E4QFY2012E4QFY2012E4QFY2012E4QFY2012E VVVVVararararar. (%). (%). (%). (%). (%)

Auto 81,814 80,782 1.3 10,213 10,672 (4.3) 7,373 6,232 18.3

Engineering 38,050 39,898 (4.6) 7,498 7,100 5.6 5,223 4,916 6.2

Finance 29,133 27,418 6.3 16,971 15,801 7.4 8,731 7,986 9.3

FMCG 12,522 12,421 0.8 2,898 3,056 (5.2) 2,273 2,179 4.3

IT 31,980 32,662 (2.1) 8,759 9,165 (4.4) 6,729 6,784 (0.8)

Metals 57,111 55,443 3.0 8,647 7,752 11.6 3,548 5,564 (36.2)

Mining 19,419 17,672 9.9 4,353 4,731 (8.0) 4,008 3,958 1.3

Oil and Gas 114,456 109,896 4.1 18,874 15,134 24.7 10,363 7,626 35.9

Pharma 6,802 5,732 18.7 1,804 1,815 (0.6) 1,455 1,583 (8.1)

Power 23,434 23,645 (0.9) 5,867 6,081 (3.5) 2,750 3,281 (16.2)

Telecom 18,739 18,973 (1.2) 6,233 6,037 3.2 1,006 1,090 (7.7)

SensexSensexSensexSensexSensex 433,460433,460433,460433,460433,460 424,540424,540424,540424,540424,540 2.12.12.12.12.1 92,11892,11892,11892,11892,118 87,34487,34487,34487,34487,344 5.55.55.55.55.5 53,45953,45953,45953,45953,459 51,19951,19951,19951,19951,199 4.44.44.44.44.4

Exhibit 2: Sensex - Actual vs. Angel estimates



6/28

Market Strategy


Markets fell largely on global macro worries, butis trending upwards since the last week onmonetary easing hopes

Concerns about a crisis in Eurozone, which had earlier abated

somewhat, have risen again on the back of recent developmentsin Europe (particularly regarding elections in Greece and

intensifying banking crisis in Spain), adding further fears about

the already fragile Eurozone finances. During April-May 2012,

Indian markets have fallen in tandem with their emerging market

peers on recent developments in the Eurozone and series of

lower-than-estimated economic data, as investors played off the

risk-aversion strategy.

The global economy is expected to continue growing at

multispeed levels, with 1) growth slowing, higher than

expectations, in emerging markets such as China and India;

2) growth remaining muted in the U.S.; and 3) Eurozone

witnessing a mild recession. The Fed and the ECB have already

hinted an abstinence from adopting QE-III/LTRO-3 measures to

combat the moderating growth environment. However, countries

like China, Brazil and Australia, after assessing significant

slowness in their growth, have responded by inducing monetary

stimulus.

Indian markets are on uptrend since the last week on hopes of

monetary easing by the central bank. Recent evolving macro

signals like falling commodity prices including crude and forecasts

of good monsoons this year, in our view, should lead to lowerinflation levels going ahead. In addition, domestic growth has

slowed, as evident from recent series of weak domestic data like

the disappointing IIP and moderating GDP growth. Both these

above factors are expected to ease of the pressure on the RBI to

maintain its hawkish outlook.

Markets to remain volatile on Greece, Spain andEurozone summit developments in June

Greek elections and their outcome:Greek elections and their outcome:Greek elections and their outcome:Greek elections and their outcome:Greek elections and their outcome: Greece heads back to

elections on June 17, after political leaders failed to form a

coalition government in the polls held on May 6. Though latest

opinion polls suggest lead for pro-bailout conservatives, who

were in the last opinion polls running neck to neck with anti-

bailout parties, we would not rule out the probability of elections

resulting in a coalition anti-bailout government or no government

at all and assess the most evident and rational consequences of

all three possible outcomes.

If recent opinion polls are to hold true on the day of election,

results would be forming of conservationists' coalitiongovernment, which would again attempt to comply with the

stipulated fiscal and monetary program to ensure further funding

from Troika and extend their stay in the union. Reckoning past

experiences, the market would, however, consider Greece's

attempt as a mere can-kicking exercise and would remain

skeptical about its ability to comply fully with the required reforms,

considering the consequential severe social unrest and macro-

economic instability, and expect the country to return back for

renegotiation of bailout terms. Even though such election results

would provide temporary positive sentiments for the markets.

On the other hand, If the election results in a) an anti-bailout

government, which refrains from austerity measures or b) no

agreement for government at all, then it is highly unlikely, in our

view, that other Euro members would maintain their commitment


SectorSectorSectorSectorSector 4QFY20124QFY20124QFY20124QFY20124QFY2012 4QFY20114QFY20114QFY20114QFY20114QFY2011 % chg% chg% chg% chg% chg 4QFY20124QFY20124QFY20124QFY20124QFY2012 4QFY20114QFY20114QFY20114QFY20114QFY2011 % chg% chg% chg% chg% chg 4QFY20124QFY20124QFY20124QFY20124QFY2012 4QFY20114QFY20114QFY20114QFY20114QFY2011 % chg% chg% chg% chg% chg

Agriculture 2,325 2,043 13.8 357 326 9.5 211 239 (11.7)

Auto and Auto anc. 106,351 79,231 34.2 12,997 10,101 28.7 8,852 6,235 42.0

Capital Goods 30,086 28,591 5.2 5,821 5,370 8.4 3,831 3,447 11.1

Cement 14,865 12,264 21.2 3,640 3,018 20.6 2,112 1,736 21.6

Finance 71,290 61,777 15.4 40,552 32,356 25.3 20,715 13,856 49.5

FMCG 25,245 21,348 18.3 4,865 3,960 22.9 3,638 2,868 26.8

Infrastructure 38,441 34,579 11.2 5,529 5,159 7.2 2,567 2,410 6.5

IT 44,047 35,612 23.7 10,979 8,823 24.4 8,656 6,867 26.0

Media 1,702 1,609 5.8 515 609 (15.5) 257 347 (25.9)

Metal and Mining 108,965 100,106 8.8 20,691 26,807 (22.8) 13,683 17,151 (20.2)

Midcap 15,901 14,071 13.0 1,344 1,636 (17.8) 480 851 (43.6)

Oil and Gas 118,107 100,618 17.4 21,855 22,162 (1.4) 12,766 11,367 12.3

Pharmaceutical 17,717 13,708 29.2 3,945 2,527 56.1 3,212 2,338 37.4

Power 17,874 16,675 7.2 4,631 4,298 7.7 2,898 2,975 (2.6)

Real Estate 3,447 3,463 (0.5) 1,113 1,033 7.7 570 591 (3.5)

Telecom 29,419 25,831 13.9 9,222 8,111 13.7 1,575 1,832 (14.0)

TTTTTotalotalotalotalotal 645,783645,783645,783645,783645,783 551,525551,525551,525551,525551,525 17.117.117.117.117.1 148,056148,056148,056148,056148,056 136,299136,299136,299136,299136,299 8.68.68.68.68.6 86,02386,02386,02386,02386,023 75,11175,11175,11175,11175,111 14.514.514.514.514.5

Exhibit 4: Coverage - 4QFY2012 performance on a yoy basis

Source: Company, Angel Research; Note: Data for 177 coverage companies, *Net profit adjusted for forex gain/loss and other extraordinary items


7/28

Market Strategy


of an open-ended funding to Greece, which then would have to

take the undesirable step of exiting the monetary union. Greece's

exit from Euro will have repercussions to the global economy

(more to the European economy) with direct costs in terms of

loans to the Greek private sector turning bad and indirect costs

in terms of spreading of the contagion. However, in our view,the exit of Greece would be an orderly managed event, which is

expected to have implications mainly in form of short term

volatility and uncertainity in financial markets, rather on the

overall global GDP outlook.

Recent developments suggest that Spain, whose economy is

nearly five times larger than that of Greece, is slated to become

the next epicenter of Eurozone crisis. The country's sovereign

borrowing costs have soared to untenable levels. Also, Spanish

banks need recapitalization as they are currently saddled with

huge overvalued real estate assets after the bust of a

decade-long real estate bubble in 2008. Two recessions in thepast three years and slow labor reforms to tackle the highest

unemployment rate amongst developed nations have increased

the likelihood of defaults on loans, which coupled with recent

deposits plights have made matters only worse for banks.

As a result, Eurozone members have agreed to bailout Spanish

banks, for a tentative amount of EUR100bn. On one hand, the

macro economic outlook for Spain remains uncertain and may

continue to contribute to volatility in global financial markets in

the near term. At the same time, the timely bailout by Eurozone

members corroborates our view that the policymakers over there are

committed to handling the sovereign debt crisis in an orderly fashion.

Exhibit 5: 10 year Sovereign yield spreads over Germany

Source: Bloomberg, Angel Research

0

500

1,000

1,500

2,000

2,500

3,000

3,500

Jul-06

Jan-

07

Jul-07

Jan-

08

Jul-08

Jan-

09

Jul-09

Jan-

10

Jul-10

Jan-

11

Jul-11

Jan-

12

(bps) Italy Spain Greece France Portugal

CCCCCountryountryountryountryountry GDPGDPGDPGDPGDP SavingsSavingsSavingsSavingsSavings GrossGrossGrossGrossGross CurrentCurrentCurrentCurrentCurrent InvInvInvInvInv Unemp.Unemp.Unemp.Unemp.Unemp.

USD bnUSD bnUSD bnUSD bnUSD bn rate (%)rate (%)rate (%)rate (%)rate (%) debt (%)debt (%)debt (%)debt (%)debt (%) a/c (%)a/c (%)a/c (%)a/c (%)a/c (%) rate (%)rate (%)rate (%)rate (%)rate (%) rate (%)rate (%)rate (%)rate (%)rate (%)

Germany 3,478.8 23.7 78.9 5.2 18.5 5.6

France 2,712.0 19.4 89.0 (1.9) 21.3 9.9

Italy 2,066.9 16.6 123.4 (2.2) 18.8 9.5

Spain 1,397.8 18.5 79.0 (2.1) 20.7 24.2

Netherlands 802.1 26.3 70.1 8.2 18.1 5.5

Belgium 496.8 21.4 99.1 (0.3) 21.7 8.0

Austria 409.6 25.2 73.9 1.4 23.9 4.4

Greece 271.1 7.3 153.2 (7.4) 14.7 19.4

Finland 257.8 19.8 51.6 (1.0) 20.8 7.7

Portugal 220.6 12.2 112.4 (4.2) 16.0 14.4

Ireland 209.6 10.8 113.1 1.0 9.9 14.5

Slovak Republic 94.6 24.8 47.1 (0.4) 25.1 13.8

Luxembourg 55.9 26.6 23.8 5.7 20.8 6.0Slovenia 46.9 20.0 52.5 0.0 20.0 8.7

Cyprus 24.0 9.0 74.3 (6.2) 15.2 9.5

Estonia 22.3 25.5 5.7 0.9 24.7 11.3

Malta 8.7 8.4 71.4 (3.0) 11.4 6.6

Eurozone 12,586.1 20.3 90.0 0.7 19.5 10.9

U.S. 15,609.7 13.1 106.6 (3.3) 16.3 8.2

U.K. 2,452.7 13.1 88.4 (1.7) 14.8 8.3

Japan 5,981.0 23.0 235.8 2.2 20.7 4.5

Exhibit 6: Global macro snapshot

Source: IMF estimates for 2012, Angel Research

Apart from the above-mentioned Greece Elections and Spanish

banks' bailout, June would be far more eventful with the Euro

summit scheduled in Brussels in the last week to consider closer

integration and more central power to manage Eurozone

finances. Although Berlin has denied that the summit could

provide a master plan for Europe's future, market expectations

are already quite high. Policymakers will closely monitor the turn of

events in this month to decide on the suitable course of action

depending on their priorities. Greek elections and their outcome;developments over the widely expected bailout of Spanish banks;

and the outcome of the Euro summit are expected to result in continued

volatility in financial markets worldwide at least in the near term.

Immediate QE-3 prospects weak - Commodityprices could ease further

Federal Reserve Chairman, Ben Bernanke in his recent speech

in front of the Joint Economic Committee of Congress hinted at

further quantitative easing only if the U.S. economy weakens

further. Mr. Bernanke also acknowledged the prospects of

diminishing returns from further increases in money supply,

thus making the immediate outlook for rollout of QE3 weak, in

our view.

LTROs compared to QEs have had much lesser impact on global

commodity prices owing to their nature of being capital substitutes(collateralized near-zero interest loans) rather than creation of

new capital (OMOs). Further LTROs, immediate prospects of

which also look bleak, are hence not expected to lead to any

near-term revival in commodity prices.

The absence of new money supply fueling liquidity in the system,

a weak demand outlook and strengthening of the USD due to

abstinence from fresh money printing have led to a significant

decline in commodity prices, including crude oil prices over the

last year (post the end of QE2). We expect this downward bias to

continue going ahead as the global economic environment anddemand outlook continue to remain weak.


8/28


9/28

Market Strategy


Competitiveness of Indian exporters expected toincrease

The INR witnessed a sharp depreciation in the second half of

CY2011 but strengthened somewhat on the back of renewed

capital inflows in 4QFY2012. However, widening current account

deficit, persistent inflation and global liquidity crunch have again

led to further weakening of the INR (now ~55 levels).

Indian exporters are expected to benefit significantly from INR

depreciation, as it has improved their competitive edge vis-a-vis

global competitors such as China. Also, imports are expected to

decline on 1) lower domestic demand on account of slowing

capex activities; 2) moderating global commodity prices including

crude oil prices; and 3) reduction in gold imports (~10% of totalimports) as gold is unlikely to generate similar supernormal

returns as it did in last few years. Hence, we expect the trade

deficit (in USD terms) also to narrow from here on, leading to a

reduction of 50-100bp in current account deficit.

5.9

7.5

9.8

7.4

9.4

8.5

7.68.2

9.2

8.0

6.76.1

5.3

3.0

4.0

5.0

6.0

7.0

8.0

9.0

10.0

4QFY09

1QFY10

2QFY10

3QFY10

4QFY10

1QFY11

2QFY11

3QFY11

4QFY11

1QFY12

2QFY12

3QFY12

4QFY12

(%)

Exhibit 11: India GDP growth at nine-year low in 4QFY2012

Source: MOSPI, Angel Research

Exhibit 12: IIP data has been disappointing lately

Source: MOSPI, Angel Research

6.2

9.5

3.7 3.42.5

(5.0)

6.0

2.7

1.0

4.1

(3.2)

0.1

(6.0)

(4.0)

(2.0)

-

2.0

4.0

6.0

8.0

10.0

12.0

May-1

1

Jun-1

1

Jul-11

Aug-1

1

Sep-1

1

Oc

t-11

Nov-1

1

Dec-1

1

Jan-1

2

Fe

b-1

2

Mar-

12

Apr-

12

May-1

2

(%)

Exhibit 16: Competitive advantage for Indian exporters

Source: Bloomberg, Angel Research; Note: *CNY denotes yuan

CountryCountryCountryCountryCountry 12-12-12-12-12-OctOctOctOctOct-11-11-11-11-11 Since Aug 1(%)Since Aug 1(%)Since Aug 1(%)Since Aug 1(%)Since Aug 1(%) 3M chg3M chg3M chg3M chg3M chg. (%). (%). (%). (%). (%) 1Y chg1Y chg1Y chg1Y chg1Y chg. (%). (%). (%). (%). (%)

USD-INR 55.51 26.0 11.5 24.2

USD-CNY* 6.38 (0.9) 1.0 (1.5)

Net benefit for Indian ExportersNet benefit for Indian ExportersNet benefit for Indian ExportersNet benefit for Indian ExportersNet benefit for Indian Exporters 26.926.926.926.926.9 10.410.410.410.410.4 25.725.725.725.725.7

Exhibit 13: Trade data (INR terms)

Source: RBI, Angel Research

40

42

44

46

48

50

52

54

(15)

0

15

30

45

60

75

E xpor ts yoy I mpor ts yoy I NR vs USD ( avg, RH S)(%)

May-1

1

Jun-1

1

Jul-11

Aug-1

1

Sep-1

1

Oct-11

Nov-1

1

Dec-1

1

Jan-1

2

Fe

b-1

2

Mar-

12

Apr-

12

Exhibit 14: Trade data (USD terms)


40

42

44

46

48

50

52

54

(15)

0

15

30

45

60

75

May-1

1

Jun-1

1

Jul-11

Aug-1

1

Sep-1

1

Oct-11

Nov-1

1

Dec-1

1

Jan-1

2

Fe

b-1

2

Mar-

12

Apr-

12

(%)

E xp or ts y oy I mp or ts y oy I NR v s U SD ( av g, R HS )

( )`

Exhibit 15: Trade deficit (USD bn) has narrowed


10

12

14

16

18

20

$Bn

May-1

1

Jun-1

1

Jul-11

Aug-1

1

Sep-1

1

Oct-11

Nov-1

1

Dec-1

1

Jan-1

2

Fe

b-1

2

Mar-

12

Apr-

12

Sensex EPS expected to post a 12.2% CAGR overFY2012-14E

Sensex EPS is expected to grow by 11.4% to `1,252 in FY2013E

and by 13.1% to `1,416 in FY2014E, implying a CAGR of 12.2%

over FY2012-14E.

In FY2013E, when Sensex EPS is expected to grow by 11.4%, the

BFSI sector would time and again dominate the increase,

contributing 35.6% to overall growth. The BFSI sector's growth is


10/28


11/28

Market Strategy


which are likely to benefit the most from the expected correction

in interest rates and also select export oriented Pharma and IT

companies.

With markets underperforming since so much time on muted

foreign inflows as risk aversion plays off, valuations

understandably are at multi-year lows of just 11.8x FY2014E

earnings. We arrive at our 12-18 months Sensex target of 19,800,

maintaining our conservative multiple of 14x FY2014E earnings.

Our target implies an upside of 19% from current levels, which

is likely to be back-ended.

Exhibit 19: Sensex EPS estimates

Source: Angel Research

24 252

4 6

300

500

700

900

1,100

1,300

1,500

FY2012 FY2013E FY2014E

(`)

11.4%growth

13.1%gr

owth

Exhibit 20: Sensex one-year forward P/E


6.0

9.0

12.0

15.0

18.0

21.0

24.0

27.0 Sensex 1 year forward P/E 15 year Avg 5 year Avg

Mar-

97

Oct-97

May-9

8

Dec-9

8

Jul-99

Fe

b-0

0

Sep-0

0

Apr-

01

Nov-0

1

Jun-0

2

Jan-0

3

Aug-0

3

Mar-

04

Oct-04

May-0

5

Dec-0

5

Jul-06

Fe

b-0

7

Sep-0

7

Apr-

08

Nov-0

8

Jun-0

9

Jan-1

0

Aug-1

0

Mar-

11

Oct-11

May-1

2

Exhibit 21: Earnings yields vs. Bond yields


3.0

5.0

7.0

9.0

11.0

13.0

Mar-

00

Earnings Yield 10Yr G-Se c Yield

Oct-00

May-0

1

Dec-0

1

Ju

l-02

Fe

b-0

3

Sep-0

3

Apr-

04

Nov-0

4

Jun-0

5

Jan-0

6

Aug-0

6

Mar-

07

Oct-07

May-0

8

Dec-0

8

Jul-09

Fe

b-1

0

Sep-1

0

Apr-

11

Nov-1

1

Jun-1

2

Exhibit 22: Sensex valuations Peaks and troughs


6

9

12

15

18

21

24

27

1 yr fwd PE Current(x)

Jan-9

3

Sep-9

3

May-94

Jan-9

5

Sep-9

5

May-96

Jan-9

7

Sep-9

7

May-98

Jan-9

9

Sep-9

9

May-0

0

Jan-0

1

Sep-0

1

May-0

2

Jan-0

3

Sep-0

3

May-04

Jan-0

5

Sep-0

5

May-06

Jan-0

7

Sep-0

7

May-08

Jan-0

9

Sep-0

9

May-1

0

Jan-1

1

Sep-1

1

May-12


12/28


13/28


14/28

Market Strategy


DB Corp. is one of the leading publishing houses in India, with seven newspapers

and 65 editions in four languages across 13 states. The company leads its nearest

competitor in its market with a huge margin in terms of circulation. The companys

combined average daily readership is 19.2mn readers, which makes it the most

widely read newspaper group in India.

DB Corp. has a relatively advertising-focused revenue model, and its multi-state leadership

and strong foothold in Hindi belt ensures high advertising revenue. The company has

successfully forayed into Maharashtra, where the state ad market is estimated at ~`700cr

(excl. Mumbai). We expect a ~15% CAGR in ad revenue over FY2012-14.

The recent underperformance of the stock can be attributed to OPM pressure on

account of higher newsprint costs and the cyclical nature of ad revenue growth

(sluggish due to slower GDP growth). Due to these cyclical headwinds, the stock is

currently trading at cheaper valuations of 11.7x FY2014E consolidated EPS of

`16.1. However, considering the structural positives of the print business (high

brand loyalty and significant entry barriers) and DBCL's multi-state leadership, inour view, the stock deserves a premium to the Sensex. Hence, we assign a targetHence, we assign a targetHence, we assign a targetHence, we assign a targetHence, we assign a target

multiple of 17x FY2014E EPSmultiple of 17x FY2014E EPSmultiple of 17x FY2014E EPSmultiple of 17x FY2014E EPSmultiple of 17x FY2014E EPS, benchmarking it to our print media sector valuations, benchmarking it to our print media sector valuations, benchmarking it to our print media sector valuations, benchmarking it to our print media sector valuations, benchmarking it to our print media sector valuations

(which are at 15% premium to the Sensex) and maintain our Buy view on the stock(which are at 15% premium to the Sensex) and maintain our Buy view on the stock(which are at 15% premium to the Sensex) and maintain our Buy view on the stock(which are at 15% premium to the Sensex) and maintain our Buy view on the stock(which are at 15% premium to the Sensex) and maintain our Buy view on the stock

with a target price ofwith a target price ofwith a target price ofwith a target price ofwith a target price of `````269.269.269.269.269.

DB Corp. (CMP: `189 / TP: `269 / Upside:42%)

Y/EY/EY/EY/EY/E SalesSalesSalesSalesSales OPMOPMOPMOPMOPM PPPPPAAAAATTTTT EPSEPSEPSEPSEPS RoERoERoERoERoE P/EP/EP/EP/EP/E P/BP/BP/BP/BP/BVVVVV EV/EBITDEV/EBITDEV/EBITDEV/EBITDEV/EBITDAAAAA EV/SalesEV/SalesEV/SalesEV/SalesEV/Sales

MarchMarchMarchMarchMarch (((((`````cr)cr)cr)cr)cr) (%)(%)(%)(%)(%) (((((`````cr)cr)cr)cr)cr) (((((`````))))) (((((%%%%%))))) (x)(x)(x)(x)(x) (x)(x)(x)(x)(x) (x)(x)(x)(x)(x) (x)(x)(x)(x)(x)

FY2013E 1,652 25.7 247 13.5 24.1 14.0 3.1 7.8 2.0

FY2014E 1,863 26.3 295 16.1 24.4 11.7 2.6 6.5 1.7

ICICI Bank's substantial branch expansion (from 955 branches at the end of

3QFY2008 to 2,752 branches by 4QFY2012) and strong capital adequacy at

18.5% (tier-1 at 12.7%) have positioned it to gain CASA and credit market share,

respectively. The bank improved its market share of savings deposits by ~5bp in

FY2012 compared to FY2011, capturing a substantial 5.7% incremental market share.

The bank's strategic transformation has expectedly resulted in significantly better

balance sheet and earnings quality. The distinguishing feature of the bank's

performance in FY2010 was the improvement in CASA ratio to 42.1% (transformative

considering that the ratio was as low as 22% at the end of FY2007 and 29% evenas recently as FY2009). CASA ratio has remained healthy at 43.5% even in FY2012.

The bank's asset quality continues to show further improvement, with a declining

trend in additions to gross as well as net NPAs. The reduction in risk profile of

advances has resulted in a commensurate decline in NPA provisioning costs and is

reflected in improved RoA, from 1.0% in FY2010 to 1.4% in FY2012.

The stock is trading at attractive valuations of 1.3x FY2014E P/ABV. Hence, weHence, weHence, weHence, weHence, we

maintain our Buy view on the stock with a target price ofmaintain our Buy view on the stock with a target price ofmaintain our Buy view on the stock with a target price ofmaintain our Buy view on the stock with a target price ofmaintain our Buy view on the stock with a target price of `````1,174, valuing the core1,174, valuing the core1,174, valuing the core1,174, valuing the core1,174, valuing the core

bank at 1.9x FY2014E P/ABbank at 1.9x FY2014E P/ABbank at 1.9x FY2014E P/ABbank at 1.9x FY2014E P/ABbank at 1.9x FY2014E P/ABV and assigning a value ofV and assigning a value ofV and assigning a value ofV and assigning a value ofV and assigning a value of `````157 to its subsidiaries.157 to its subsidiaries.157 to its subsidiaries.157 to its subsidiaries.157 to its subsidiaries.

ICICI Bank (CMP: `829/ TP: `1,174/ Upside: 42%)

Y/EY/EY/EY/EY/E Op Inc.Op Inc.Op Inc.Op Inc.Op Inc. NIMNIMNIMNIMNIM PPPPPAAAAATTTTT EPSEPSEPSEPSEPS ABABABABABVVVVV RoARoARoARoARoA RoERoERoERoERoE P/EP/EP/EP/EP/E P/ABP/ABP/ABP/ABP/ABVVVVV

MarchMarchMarchMarchMarch (((((`````cr)cr)cr)cr)cr) (%)(%)(%)(%)(%) (((((`````cr)cr)cr)cr)cr) (((((`````))))) (((((`````))))) (%)(%)(%)(%)(%) (%)(%)(%)(%)(%) (x)(x)(x)(x)(x) (x)(x)(x)(x)(x)

FY2013E 22,209 2.8 7,843 67.9 565.5 1.5 14.7 12.2 1.5

FY2014E 26,512 2.8 9,369 81.1 616.2 1.5 16.0 10.2 1.3


15/28

Market Strategy


Infosys strongly focuses on consulting and package implementation services (~25%

of revenue). Globally, license sales for SAP and Oracle services are showing healthy

traction, leading to higher implementation opportunities for offshore vendors such

as Infosys. Further, key IT spend-thrift verticals such as manufacturing (21%) andretail and CPG (16%) would continue to be the companys primary growth drivers.

Infosys is strategically seeking high-quality growth by moving from a tech-heavy business

model to a balanced consulting and business IT services company. We expect Infosys

to record an 11.5% CAGR in its USD revenue over FY2012-14E. Improvement in

utilization level from 69% to at least 72-74% (company's comfort level) will be an

important margin lever.

The stock has corrected significantly YTD in CY2012 on concerns of management

restructuring, slower growth and weak demand, which are exaggerated given the

company's strong domain focus with superior clientele, robust business model with

the highest margin in the Indian IT industry and healthy balance sheet with cash of

~US$4bn (FY2012). Currently, the stock is trading at inexpensive valuations of

13.9x FY2014E EPS of `174.5.WWWWWe value the company at 16x FY2014 EPS i.e., ate value the company at 16x FY2014 EPS i.e., ate value the company at 16x FY2014 EPS i.e., ate value the company at 16x FY2014 EPS i.e., ate value the company at 16x FY2014 EPS i.e., at

`````2,792, and recommend it as one of our top picks with a Buy rating2,792, and recommend it as one of our top picks with a Buy rating2,792, and recommend it as one of our top picks with a Buy rating2,792, and recommend it as one of our top picks with a Buy rating2,792, and recommend it as one of our top picks with a Buy rating .....

Infosys (CMP: `2,419/ TP: `2,792/ Upside:15%)



FY2013E 37,615 31.1 9,015 158.5 22.5 15.3 3.4 9.7 3.0

FY2014E 42,491 30.6 9,969 174.5 20.8 13.9 2.9 8.3 2.5

L&T (CMP: `1,309/ TP: `1,553/ Upside:19%)

L&T's strong balance sheet, a sound execution engine, wide array of capabilities,

integrated operations tailored to suit India's infrastructure growth story and multiple,

recurring value unlocking triggers over the medium term lead us to place faith in

this default India's infrastructure story. L&T has an order book of >`1.4 trillion,

which lends good revenue visibility.

We believe L&T is best placed to benefit from the gradual recovery in its capex

cycle, given its diverse exposure to sectors, strong balance sheet and cash flow

generation as compared to its peers, which grapple with issues such as strainedcash flow, high leverage and limited net worth and technological capabilities.

On the valuation front, the stock is trading at PE of 12.8x FY2014E earnings (adjusted

for its subsidiary value), which is lower than its historical PE of 15-20x. Hence,Hence,Hence,Hence,Hence,

we maintain our Buy view on the stock with an SOwe maintain our Buy view on the stock with an SOwe maintain our Buy view on the stock with an SOwe maintain our Buy view on the stock with an SOwe maintain our Buy view on the stock with an SOTP target price ofTP target price ofTP target price ofTP target price ofTP target price of `````1,553.1,553.1,553.1,553.1,553.



FY2013E 59,559 12.1 4,369 70.8 16.1 18.5 2.8 12.4 1.5

FY2014E 69,089 11.5 4,720 76.5 15.3 17.1 2.4 11.3 1.3


16/28

Market Strategy


Multi Commodity Exchange (MCX) is the largest commodity exchange in India

(86% market share) and the third largest in the world. MCX is on an expansion

mode and has increased its registered members to 2,170, which are operating

through over 3,46,000 terminals, including CTCL trading terminals (296,000 at

the end of December 2011), spread over 1,577 cities and towns across India.

Since its inception in FY2004, the number of products offered by MCX has grown

from 15 to 49 in FY2012. The company registered a 35.3% and 63.1% CAGR in

its revenue and adjusted PAT, respectively, over FY2009-12. The company is expected

to continue to focus on offering futures trading in commodities, which is significant

in the Indian and global contexts. Going ahead, we believe the company's technologyplatform and business model are highly scalable and have the potential to generate

better margins at greater volumes.

We expect MCX to post a 15.5% and 17.7% CAGR in its revenue and PAT, respectively,

over FY2012-14. Further, we expect investment and cash to improve to `2,141cr or

`422/share post dividend payout. Currently, MCX is trading at 12.9x FY2014E

earnings, which we believe is attractive owing to its zero-debt and high-margin business

and presence in an highly underpenetrated and oligopoly business.WWWWWe recommende recommende recommende recommende recommend

Buy with a target price ofBuy with a target price ofBuy with a target price ofBuy with a target price ofBuy with a target price of `````1,598, valuing the stock at 20x FY2014E earnings.1,598, valuing the stock at 20x FY2014E earnings.1,598, valuing the stock at 20x FY2014E earnings.1,598, valuing the stock at 20x FY2014E earnings.1,598, valuing the stock at 20x FY2014E earnings.

MCX (CMP: `1,031/ TP: `1,598 / Upside: 55%)



FY2012E 610 65.5 344 67.8 29.1 15.2 4.4 8.6 5.7

FY2013E 702 67.0 406 79.9 28.9 12.9 3.7 6.6 4.4

Lupin (CMP: `546/ TP: `647/ Upside:18%)

Lupin is one of the highest filers of ANDAs in the Indian pharmaceuticals industry.

As of FY2012, the company's cumulative filings stood at 173, of which 64 have

been approved. Lupin plans to launch 20 products in the U.S. in FY2013 and

another 80 products over the next three years, including nine exclusives.

In the oral contraceptive (OC) segment, Lupin plans to launch around 10 ANDAs

in FY2013. As per management, the OC segment is expected to contribute

US$100mn to the company's top line over the next 2-3 years.

Lupin continues to make strides in the Indian market. Lupin has been the fastest

growing company among the top five companies in the domestic formulation space,

registering a strong CAGR of 20% over the last three years. Currently, Lupin ranks

No.5, climbing up from being No.11 six years ago. Going forward, for FY2013

and FY2014, management has reinforced ~20% growth in the Indian market.

Management has given a revenue guidance of US$3bn by FY2013-14. We expect

Lupin's net sales to post a 19.3% CAGR to `10,082cr and earnings to report a

29.1% CAGR to `32.4/share over FY2012-14E. Currently, the stock is trading at18.4x and 16.9x FY2013E and FY2014E earnings, respectively.WWWWWe maintain oure maintain oure maintain oure maintain oure maintain our

Buy rating on the stock with a revised target price ofBuy rating on the stock with a revised target price ofBuy rating on the stock with a revised target price ofBuy rating on the stock with a revised target price ofBuy rating on the stock with a revised target price of `````647.647.647.647.647.



FY2013E 8,426 19.7 1,324 29.7 27.0 18.4 4.8 14.5 2.8

FY2014E 10,082 20.0 1,677 32.4 25.2 16.9 3.8 11.4 2.2


17/28

Market Strategy


United Phosphorus (UPL) figures among the top five generic agrichemical players

in the world, with a presence across major markets such as the U.S., EU, Latin

America and India.

The total off-patent market is worth US$29bn, of which mere US$16bn is currently

being catered by generic players. Furthermore, 61% of the same is controlled by

the five largest generic players, including UPL. Given the high entry barriers by way

of high investments, entry of new players is restricted. Thus, amidst this scenario

and on account of having a low cost base, we believe UPL enjoys an edge over

competition and is placed in a sweet spot to leverage the upcoming opportunities

in the global generic space.

Over FY2012-14E, we estimate UPL to post a 7% and 23.4% CAGR in its sales and

PAT, respectively. The stock is attractively valued compared to its global and domesticpeers (18x) and historic average (15x). Currently, the stock is trading at attractive

valuations of 6.1x FY2014E EPS. Hence, we maintain our Buy view on the stockHence, we maintain our Buy view on the stockHence, we maintain our Buy view on the stockHence, we maintain our Buy view on the stockHence, we maintain our Buy view on the stock

with a target price ofwith a target price ofwith a target price ofwith a target price ofwith a target price of `````183.183.183.183.183.

United Phosphorus (CMP: `112/ TP: `183/ Upside:63%)



FY2013E 8,191 16.5 789 17.1 17.5 6.5 1.1 5.3 0.8

FY2014E 8,764 16.5 847 18.3 16.2 6.1 0.9 4.6 0.7

We expect JLR to sustain its volume momentum (expect ~14% volume growth in

FY2013) driven by the successful launch of Evoque and newXF 2.2coupled with

the introduction of new Range Rover and Jaguar XE in FY2013. Further, strong

growth in China (sales up 98% in FY2012) will also benefit the companys overall

volume growth. Additionally, favorable market mix (China's contribution increased

from 11% in FY2011 to 17% in FY2012) and sourcing from low-cost countries will

help Tata Motors mitigate its raw-material cost pressures to a certain extent.

We expect the domestic CV segment to maintain its healthy growth rate (~13%

CAGR over FY2012-14E) on the back of strong volume momentum in LCV sales.

However, the PV segment is likely to register a moderate 8-9% volume CAGR,

led by weak demand in domestic markets.

At `239, the stock is attractively valued at 5.3x and 4.0x FY2014E earnings and

EV/EBITDA, respectively.WWWWWe recommend Buy on the stock with an SOe recommend Buy on the stock with an SOe recommend Buy on the stock with an SOe recommend Buy on the stock with an SOe recommend Buy on the stock with an SOTP targetTP targetTP targetTP targetTP target

price ofprice ofprice ofprice ofprice of `````299,299,299,299,299, assigning a value/share of `81 (10x FY2014E EPS) to its domestic

business,`

197 (6x FY2014E EPS) to JLR and`

21 to other subsidiaries.

Tata Motors (CMP: `239 / TP: `299/ Upside:25%)



FY2013E 187,676 12.5 12,617 39.8 44.3 6.0 2.5 4.3 0.5

FY2014E 210,905 12.6 14,356 45.2 41.6 5.3 2.0 4.0 0.4


18/28

Market Strategy


Bajaj Electrical (BEL) is a consumer durables and E&P company having a strong

brand positioning and a well-spread distribution network across India. In the small

appliances market, BEL enjoys a market share of over 15-30% across all product

categories. In India, BEL's luminaries segment maintains its No. 2 position with a

~17% market share in the organized sector, after Philips. BEL's fan segment is

among the top three in India, with a ~16.5% market share in the organized sector.

BEL plans to capitalize on growth in rural markets. The company has also identified

7-8 potential acquisition candidates across businesses. Management expects about

15% of future sales to come from the acquired businesses. The company also

plans to foray into newer verticals, including water management, which is an

underpenetrated and rapidly growing market.

We believe consumer appliances and new product launches will fuel the company's

growth going ahead. Further, we expect the company's margin to improve from

these levels on the back of easing commodity prices and closure of lower-margin

E&P projects. With the recent sharp correction in the stock price, the stock is availableat attractive valuation of just 8.3x FY2014 earnings, against its five-year historical

average of 11x one-year forward earnings.WWWWWe recommend Buy on the stock withe recommend Buy on the stock withe recommend Buy on the stock withe recommend Buy on the stock withe recommend Buy on the stock with

a target price ofa target price ofa target price ofa target price ofa target price of `````246, valuing the stock at 11x FY2014 earnings.246, valuing the stock at 11x FY2014 earnings.246, valuing the stock at 11x FY2014 earnings.246, valuing the stock at 11x FY2014 earnings.246, valuing the stock at 11x FY2014 earnings.

Bajaj Electrical (CMP: `186 / TP: `246 / Upside:32%)



FY2013E 3,569 8.6 172 17.3 22.9 10.8 2.3 6.2 0.5

FY2014E 4,172 9.2 221 22.3 25.3 8.3 1.9 5.0 0.4

CEAT (CMP: `94/ TP: `164/ Upside:74%)

The Indian tyre industry is going through a structural shift as radialization levels in

the truck and bus radial (TBR) segment are expected to reach ~40% by FY2014

from ~18% in FY2012. Further, the expected steady growth of 8-10% in replacement

demand (~65% of total demand) is likely to lend a greater degree of stability to

overall tyre demand in our view.

CEAT is ramping up its radial capacity at the Halol plant to 150TPD, which is likely

to be fully operational by 1QFY2013. With the completion of the proposed

expansion, the product mix of truck:non-truck is likely to improve to 55:45, resulting

in better product mix, thereby fetching better margins. Further, stable raw-material

pricing environment is expected to improve the companys margins going ahead

(~300bp improvement in FY2013E).

CEAT has been increasingly focusing on exports (~24% of volumes in FY2012),

especially the high-margin specialty tyres, in a bid to offset volatility in its domestic

tyre business in the long run. The company has recently acquired the global rights

of the CEAT brand from Italian tyre maker Pirelli, which is likely to enable the

company to expand its global presence.

The stock is currently trading at attractive valuation of 2.3x its FY2014E EPS.WWWWWe maintaine maintaine maintaine maintaine maintain

our Buy view on the stock with a target price ofour Buy view on the stock with a target price ofour Buy view on the stock with a target price ofour Buy view on the stock with a target price ofour Buy view on the stock with a target price of `````161616161644444, valuing it at 4x FY2014E EPS, valuing it at 4x FY2014E EPS, valuing it at 4x FY2014E EPS, valuing it at 4x FY2014E EPS, valuing it at 4x FY2014E EPS.....



FY2013E 5,067 8.0 135 39.4 18.8 2.4 0.4 3.6 0.3

FY2014E 5,631 7.6 141 41.0 16.5 2.3 0.4 3.5 0.3


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Market Strategy


Jyothy Laboratories (CMP: `216/ TP: `268/ Upside:24%)

Jyothy Laboratories (JLL) has transformed itself from being a three-brand company

to a multi-brand company with the acquisition of an 83.7% stake in Henkel India

(HIL), which owns seven brands.

HIL's acquisition is a strategic step and would provide JLL immense opportunities in

terms of achieving revenue and cost synergy. We expect HIL's turnaround to take

place in FY2014E, with profit of `11cr. Once HIL starts yielding profits and all

synergies are in place, we expect the consolidated profit of JLL to witness a significant

jump of 70.5% yoy to `88cr in FY2014E.

Currently, the stock is trading at `216. We value JLL (standalone) at a price of

`218/share (target PE of 20x for FY2014E); HIL at `31/share (target PE of 28x for

FY2014E for an 83.7% stake); and JSFL at `19/share (discounted at 50% to the

last stake sale value, for a 75% stake).WWWWWe have a Buy rating on JLL with an SOe have a Buy rating on JLL with an SOe have a Buy rating on JLL with an SOe have a Buy rating on JLL with an SOe have a Buy rating on JLL with an SOTPTPTPTPTP

target price oftarget price oftarget price oftarget price oftarget price of `````268.268.268.268.268.



FY2013 1,315 8.6 51 6.4 8.4 33.9 2.9 18.8 1.6

FY2014E 1,568 11.1 88 10.9 13.9 19.9 2.7 12.2 1.3

Mahindra Lifespaces Developers (MLIFE) is a mid and premium housing developer

catering to strong demand in tier-1 cities and small metros in the country. Apartfrom real estate development, MLIFE also operates two integrated business

cities - Mahindra World City (MWC) Chennai and Jaipur [special economic zones

(SEZ) and domestic tariff area (DTA)]. MLIFE's strong balance sheet (FY2013E D/E

ratio - 0.2x), good corporate governance, diversified land bank and solid brand

name set it apart from many of its peers. We also prefer MLIFE's high-turnover real

estate business model, which is more focused on development rather than land

bank accumulation.

With slowing demand in super metros (Mumbai and NCR), we favor MLIFE's exposure

to tier-1 cities (Pune and Nagpur) and small metros (Hyderabad), given their strong

demand dynamics. Pune, Nagpur and Hyderabad now form 68% of MLIFE's

exposure in terms of saleable area. With 5.2mn sq. ft. of forthcoming projects

(~4.3x its FY2012 sales), we expect strong sales momentum during FY2013E and

FY2014E, which is the primary catalyst. We also note that with the initiation of the

rate cut cycle, mid-market housing will lead the recovery in demand, which has

been a focus area for MLIFE.

MLIFE is currently trading at 1.0x and 0.9x on our FY2013E and FY2014E BVPS

estimates, respectively. We recommend Buy on the stock, valuing it on an SOTP

basis to arrive at a value of `470.WWWWWe apply a 20% discount to our SOe apply a 20% discount to our SOe apply a 20% discount to our SOe apply a 20% discount to our SOe apply a 20% discount to our SOTP value toTP value toTP value toTP value toTP value to

arrive at our target price ofarrive at our target price ofarrive at our target price ofarrive at our target price ofarrive at our target price of `````376, implying a PB (FY2014E) of 1.1x.376, implying a PB (FY2014E) of 1.1x.376, implying a PB (FY2014E) of 1.1x.376, implying a PB (FY2014E) of 1.1x.376, implying a PB (FY2014E) of 1.1x.

Mahindra Lifespaces (CMP: `312 / TP: `376 / Upside:21%)



FY2013E 814 26.9 128 31.3 10.2 10.0 1.0 7.2 1.9

FY2014E 897 27.0 139 33.9 10.1 9.2 0.9 6.3 1.7


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Market Strategy


Tata Sponge Iron (TSIL) is an associate company of Tata Steel, which holds a 39.7%

stake in the company. TSIL is a leading manufacturer of sponge iron, which is used

as a raw material in steel manufacturing, with an installed capacity of 3,90,000

tonnes per year and a 26MW captive power plant.

The company has a long-term supply agreement with Tata Steel for the assured

supply of iron ore, thus leading to uninterrupted production. Although the company

has been facing iron ore shortage on account of transportation issues, we expect

this to be a short-term hindrance.

TSIL has a 45% stake in Talcher coal block in Odisha, with estimated reserves

of 120mn tonnes for captive consumption. The company has deposited money for

the first phase of land acquisition with the Odisha government. Forest clearance

for the block is pending. Management expects the coal block to be operational

by FY2014E.

At the CMP of `286, the stock is trading at PE of 3.9x its FY2014E earnings and

P/B of 0.6x for FY2014E. The company is debt free with cash reserves of `377cr

and RoIC of 71.6% for FY2014E.WWWWWe maintain our Buy rating on the stock with ae maintain our Buy rating on the stock with ae maintain our Buy rating on the stock with ae maintain our Buy rating on the stock with ae maintain our Buy rating on the stock with a

target price oftarget price oftarget price oftarget price oftarget price of `````420, based on a target P/B of 0.9x for FY2014E420, based on a target P/B of 0.9x for FY2014E420, based on a target P/B of 0.9x for FY2014E420, based on a target P/B of 0.9x for FY2014E420, based on a target P/B of 0.9x for FY2014E .....

Tata Sponge Iron (CMP: `286/ TP: `420/ Upside: 47%)



FY2013E 757 19.0 98 63.5 16.1 4.5 0.7 1.0 0.2

FY2014E 875 19.0 112 72.9 16.1 3.9 0.6 0.2 0.0


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Market Strategy


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Market Strategy


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