India Daily, February 16, 2012

For Private Circulation Only. FOR IMPORTANT INFORMATION ABOUT KOTAK SECURITIES’ RATING SYSTEM AND OTHER DISCLOSURES. REFER TO THE END OF THIS MATERIAL.

INDIA DAILYFebruary 16, 2012 India 15-Feb 1-day1-mo 3-mo

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Value traded – India

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Forex/money market

Change, basis points

15-Feb 1-day 1-mo 3-mo

Rs/US$ 49.4 (9) (205) (129)

10yr govt bond, % 8.3 (1) (8) (62)

Net investment (US$mn)

14-Feb MTD CYTD

FIIs 232 2,243 4,427

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Top movers -3mo basis

Change, %

Best performers 15-Feb 1-day 1-mo 3-mo

IVRC IN Equity 60.4 (1.3) 52.3 72.6

IBULL IN Equity 219.0 9.4 36.7 66.8

WLCO IN Equity 142.1 2.9 29.8 65.4

TTMT IN Equity 287.9 7.4 34.7 57.9

RELI IN Equity 626.6 1.7 53.1 51.8

Worst performers

ESOIL IN Equity 66.5 0.5 5.8 (14.4)

UNSP IN Equity 689.1 2.0 9.0 (14.2)

BHARTI IN Equity 349.6 2.1 2.8 (12.9)

GNP IN Equity 303.4 0.8 (3.2) (9.5)

BHEL IN Equity 277.1 4.6 0.0 (7.1)

Contents

Daily Alerts

Results

IVRCL: Asset sales hold out some hope; IVRCL cites challenges in execution

Results, Change in Reco

Tecpro Systems: Strong revenues, though inflow decline and high debt limit upside

Company

Infosys: Infosys Consulting - takeaways from management interaction

Sector

Telecom: NTPP (NTP in parts) - few more policy guidelines, lot still remains

Utilities: FSAs in place, but where's the coal? And who will pay for it?

For private Circulation Only. FOR IMPORTANT INFORMATION ABOUT KOTAK SECURITIES’ RATING SYSTEM AND OTHER DISCLOSURES, REFER TO THE END OF THIS MATERIAL.

Results disappoint on both execution and margin

IVRCL reported a 16% yoy decline in revenue in 3QFY12 (Rs11.9 bn) versus our estimates of flat revenue (Rs14.4 bn). EBITDA margin of 7.3% declined by 260 bps yoy (9% estimate) on (1) higher raw material cost (200 bps impact) and (2) staff cost growing despite a fall in execution (90 bps impact). Interest cost of Rs661 mn was flat sequentially and up 11% yoy versus a sharp contraction in execution. This led to PAT of Rs68 mn versus our expectation of Rs276 mn.

Asset sales to support near-term equity requirement; other projects will need equity later

Five under-construction projects (four toll projects and IOTL) in FY2013E would need about Rs3 bn of incremental equity. This may be funded through asset sales, amounting to Rs4 bn including (1) sale of land (Rs2.3 bn worth of assets sold so far) and (2) sale of certain BOT assets. Its requirement for FY2013E excludes additional funding for the recently won road projects such as Raipur-Bilaspur, Bhiwani project in Haryana and Sion-Panvel project in Mumbai.

Expects top-line to decline in FY2012; aims at 15-20% growth in FY2013 though cites hurdles

The company expects FY2012 revenue to decline (we build 3% decline though it can be higher). Factors affecting execution include (1) delays in permissions (2) protests (villagers stopping work in Orissa) and (3) weather (floods in Rajasthan, snow in J&K, cyclone in Tamil Nadu). Some of these hurdles may continue to affect execution and so the company refrained from giving guidance for FY2013 and indicated even 15-20% growth may be challenging (even with such a large backlog).

Revise estimates on lower execution and margin; IVRCL A&H price appreciation boosts SOTP

We revise earnings estimates to Rs2.9 and Rs3.9 from Rs4.2 and Rs5 for FY2012 and FY2013 respectively based on lower execution and margin assumptions. We have not changed construction business valuation as earnings are squeezed by near-term pressure of interest rates and execution which may alleviate (implying 10X FY2013E EPS against 8X earlier). Change to SOTP-based target price Rs70 (Rs60 earlier) is essentially led by a change in contribution of listed IVR Assets and Holdings. Retain ADD on potential peaking of interest rate cycle and recovery in execution. Stock trades at 0.7X FY13E standalone book and <5X EV/EBITDA for capital deployed in non-core assets.

IVRCL (IVRC)

Construction

Asset sales hold out some hope; IVRCL cites challenges in execution. IVRCL posted 16% lower revenue yoy and margins were down 260 bps. PAT was a negligible Rs68 mn. IVRCL cited asset sales (Rs4 bn from real estate, BOT) to fund a Rs3 bn equity requirement in FY2013E, meeting near-term equity needs. FY2012E revenue is likely to fall yoy and it is not confident of 15-20% growth in FY13 due to execution challenges. Retain ADD (TP Rs70 versus Rs60 earlier on higher IVRAH Mcap contribution to SOTP).

IVRCLStock data Forecasts/Valuations 2011 2012E 2013E

52-week range (Rs) (high,low) EPS (Rs) 5.9 2.9 3.9Market Cap. (Rs bn) 16.1 EPS growth (%) (25.2) (50.5) 33.6

Shareholding pattern (%) P/E (X) 10.2 20.6 15.4Promoters 11.0 Sales (Rs bn) 56.5 54.9 63.6FIIs 39.5 Net profits (Rs bn) 1.6 0.8 1.0MFs 2.8 EBITDA (Rs bn) 5.1 4.5 5.2

Price performance (%) 1M 3M 12M EV/EBITDA (X) 6.9 8.8 7.6Absolute 57.7 76.1 (17.1) ROE (%) 8.2 3.9 5.0Rel. to BSE-30 40.0 63.3 (16.8) Div. Yield (%) 1.0 0.7 0.7

Company data and valuation summary

99-27

ADD

FEBRUARY 15, 2012

RESULT

Coverage view: Attractive

Price (Rs): 60

Target price (Rs): 70

BSE-30: 18,202

IVRCL Construction

KOTAK INSTITUTIONAL EQUITIES RESEARCH 3

Results disappoint on both execution and margins

Sharp decline in execution. IVRCL posted a 16% yoy decline in revenue in 3QFY12 (Rs11.9 bn) versus our estimates of flat revenue (Rs14.4 bn). The revenue comprised contribution from (1) water (Rs3.7 bn), buildings (Rs3.5 bn), (3) transportation (Rs4 bn) and (3) power (Rs1 bn).

Margin declines on negative operating leverage and higher raw material cost:. EBITDA margin declined significantly by 260 bps yoy to 7.3% versus our estimate of 9%. Margin was also lower sequentially by 170 bps. The yoy decline was led by (1) higher raw material cost (200 bps impact) and (2) higher staff cost despite fall in execution (90 bps impact).

Negligible PAT as interest cost declines marginally despite lower execution. Interest cost of Rs661 mn was flat sequentially and up 11% yoy versus a sharp contraction in execution. This led to PAT of Rs68 mn versus our estimate of Rs276 mn.

IVRCL - 3QFY12 - key numbers, (Rs mn)

3QFY12 3QFY12E 3QFY11 2QFY12 vs est. yoy qoq 9MFY12 9MFY11 % changeNet Sales 11,955 14,477 14,188 10,460 (17.4) (15.7) 14.3 33,658 36,002 (6.5) Expenditure (11,077) (13,174) (12,784) (9,523) (15.9) (13.3) 16.3 (30,987) (32,637) (5.1) CoGS (10,162) (11,769) (8,490) (13.7) 19.7 (28,096) (29,703) (5.4)

Constrn, stores & spares (4,323) (5,325) (3,761) (18.8) 15.0 (12,237) (13,026) (6.1) Subcontracting exp. (1,677) (1,894) (1,596) (11.5) 5.0 (5,101) (5,479) (6.9) Masonry & labour (4,163) (4,551) (3,133) (8.5) 32.8 (10,758) (11,198) (3.9)

Staff cost (624) (604) (647) 3.3 (3.6) (1,951) (1,888) 3.3 Other expenditure (292) (411) (387) (29.1) (24.6) (941) (1,045) (10.0) EBITDA 878 1,303 1,404 937 (32.6) (37.5) (6.3) 2,671 3,365 (20.6) Other income 80 50 11 62 59.5 611.3 29.4 190 76 148.6 Interest (661) (694) (592) (652) (4.8) 11.6 1.3 (1,941) (1,525) 27.3 Depreciation (229) (247) (199) (250) (7.4) 15.0 (8.5) (706) (540) 30.6 Profit before tax 69 412 625 96 (83.3) (89.0) (28.8) 214 1,376 (84.4) Tax (1) (136) (202) (22) (99.5) (99.7) (97.1) (30) (440) (93.3) Profit after tax 68 276 423 74 (75.3) (83.9) (8.3) 184 937 (80.3)

Order bookOrder backlog 252,000 242,000 256,000 4.1 (1.6) 252,000 242,000 4.1 Order booking 39,310 16,188 44,460 142.8 (11.6) 106,770 101,702 5.0

Key ratios (%)CoGS/Sales 85.0 83.0 81.2 83.5 82.5 Staff cost/sales 5.2 4.3 6.2 5.8 5.2 Other expenditure/sales 2.4 2.9 3.7 2.8 2.9 EBITDA margin 7.3 9.0 9.9 9.0 7.9 9.3 PBT Margin 0.6 2.8 4.4 0.9 0.6 3.8 Net Profit margin 0.6 1.9 3.0 0.7 0.5 2.6 Effective tax rate 0.9 33.0 32.3 23.1 13.8 31.9

% change

Source: Company, Kotak Institutional Equities estimates

Asset sales to support pending equity with no further dilution

IVRCL highlighted it required about Rs3 bn of incremental equity to be invested in five assets under construction (four toll projects and IOTL) in FY2013. It aims to fund these through asset sales, amounting to Rs4 bn including (1) sale of land parcels as it exits the real estate business (Rs2.3 bn worth of assets sold so far, about Rs3 bn in total expected by the end of the year) and (2) sale of some BOT assets. Its guidance was for no further equity dilution to fund pending requirements. IVRCL invested about Rs20 bn of debt and Rs5-6 bn of equity.

Construction IVRCL

4 KOTAK INSTITUTIONAL EQUITIES RESEARCH

Key details of IVRCL’s existing BOT projects

Baramati-Phaltan IOCL-tankage Indore-Gujarat Chengapalli - Walayar

Karanji - Wani - Ghuggus - Chandrapur

Project Description

4-laning of Baramati-Phaltan & Phaltan to Shirwal (77.9 km)

Construction of 12 tanks

155 km stretch from Indore to Gujarat/MP border

Six lanning of 42 km stretch from Chengapalli to Walayar

4 laning of Karanji - Wani - Ghuggus - Chandrapur highway

Company's share 75% 37.5% 100% 100% 100%Other partners NA NA NA

Project Type TollAnnuity - (Rs350 mn per month) Toll Toll Toll

Concession Period 25 years 15 years 27 years 25 years 30 yearsConstruction period 2 years

Grant structurePositive grant of Rs1,220 mn No grant

Rs230 mn revenue share

Rs360 mn revenue share Rs2,318.4 mn VGF

Project statusFinancial closure achieved

Financial closure achieved




Estimated Funding structure (in Rs mn)Total project Cost 3,820 30,000 15,200 11,250 7,500 Equity 700 2,250 3,800 4,250 1,295 Debt 1,900 2,250 -Sponser debt 11,400 7,000 3,886 Grant 1,220 25,500 - Senior — — 2,318 IVRCL's Equity Commitment 525 844 3,800 4,250 1,295

Pending equity in FY2013E 3,000

Source: Company, Kotak Institutional Equities

We note that this requirement does not include funding for (1) Sion Panvel (small amount of work done, partner intending to increase stake) and (2) Rs4.5 bn funding for recently won road projects (Raipur-Bilaspur and Bhiwani projects in Haryana) required in FY2014E.

Expects FY2012 sales to decline; 15-20% growth in FY2013E may be difficult

For the nine months ending Dec-11, IVRCL reported sales of Rs33.6 bn, down 6.5% yoy. IVRCL expects to end the current financial year with a decline in the top-line (expects a minimum of Rs50 bn in FY2012 sales, which would imply an 11% yoy decline). It cited various factors affecting execution in the current quarter including (1) delays in permissions (UP elections, difficulty in achieving right of way from NHAI), (2) protests (villagers stopping work in Orissa) and (3) weather (floods in Rajasthan in December, snow in J&K, cyclone in Tamil Nadu). IVRCL believes some of these uncertainties or execution hurdles may continue to affect the execution of current projects and those recently won. It refrained from giving guidance for FY2013 and indicated that 15-20% growth would be a challenge.

Strong ordering continues; some reduction of scope leads to flat backlog

IVRCL cited orders worth about Rs30 bn in 3QFY12. In the nine months ending Dec-11, it won Rs107 bn of orders versus Rs86 bn won in FY2011. It also highlighted about Rs10 bn reduction in scope of earlier orders leading to marginal sequential decline in backlog to Rs252 bn. The backlog includes about Rs20-23 bn of L1 orders.

IVRCL Construction


Order book visibility at four years based on forward four quarter revenues Order backlog, booking and visibility (X) of IVRCL Infrastructure, March fiscal year-ends, 2002-3QFY12

-

40

80

120

160

200

240

280

FY02

FY03

FY04

FY05

FY06

FY07

1Q08

2Q08

3Q08

4Q08

1Q09

2Q09

3Q09

4Q09

1Q10

2Q10

3Q10

4Q10

1Q11

2Q11

3Q11

4Q11

1Q12

2Q12

3Q12

(Rs bn)

0.0

0.9

1.8

2.7

3.6

4.5

(years)Order Backlog (LHS) Order Booking (LHS) Visibility (RHS)


Cites water as key segment though buoyant about opportunities across the board

Water continues to lead the share in backlog, accounting for about Rs92 bn of the backlog, followed by the transportation segment, amounting to Rs72 bn. The share of the water segment is significant at 36% but has been steadily declining from 46% in 3QFY11 and 42% in 2QFY12. The management also appeared to be buoyant about opportunities in other key segments. In transportation it highlighted opportunities in roads, metros (10 such projects under consideration) and railways (it prequalified for an order worth Rs36 bn in a dedicated rail freight corridor). It also cited increased activity in tunnels (large tunnel tender in Mumbai, order won in J&K) and in the buildings segments (it is bidding for large Rs8-10 bn size projects). IVRCL also cited opportunities in the mining sector as it bid for civil and earthmoving jobs (it would refrain from owning mining assets, though).

Segment-wise break-up of IVRCL's order book (%)

3QFY12 (Rs252 bn)

Oil & Gas0%

Mining6%

Water resources36%

Transportation29%

Electrical7%

Buildings and Industrial

22%

3QFY11 (Rs240 bn)Oil & Gas

1%

Water resources46%


19%

Electrical7%

Transportation27%

2QFY12 (Rs256 bn)Mining

5%Oil & Gas

0%

Transportation25%

Electrical7%


21%

Water resources42%

Source: Company, Kotak Institutional Equities

Revise estimates on lower execution and margin; IVRCL A&H boosts SOTP

We revise our standalone estimates to Rs2.9 and Rs3.9 from Rs4.2 and Rs5 for FY2012 and FY2013 respectively, based in (1) lower execution (5% revision), (2) lower margin (50 bps revision) and (3) price appreciation in IVRCL Assets and Holdings (Rs8 impact on target price). We value the standalone business at Rs39 (10XFY2013E EPS).

Construction IVRCL


Revised estimates for IVRCL, March fiscal year-ends, 2012-13E (Rs mn)

FY2012E FY2013E FY2012E FY2013E FY2012E FY2013EDebt 25,958 25,958 25,958 27,458 0.0 (5.5)Revenues 54,945 63,643 57,907 67,060 (5.1) (5.1)EBIDTA 4,533 5,219 5,067 5,834 (10.5) (10.5)EBITDA margin (%) 8.3 8.2 8.8 8.7Interest cost 2,584.7 2,739.2 2,599.6 2,916.8 (0.6) (6.1)PAT 782 1,045 1,129 1,337 (30.7) (21.9)EPS (Rs) 2.9 3.9 4.2 5.0 (30.7) (21.9)

yoy growth (%)Revenus (2.8) 15.8 2.5 15.8EBITDA (11.9) 15.1 (24.0) (19.7)PAT (50.5) 33.6 (28.5) 18.5EPS (50.5) 33.6 (28.5) 18.5

Old estimates % revisionNew estimates


Our SOTP of Rs70 (Rs60 earlier) assumes (1) standalone value of Rs39, (2) Rs4 from Hindustan Dorr Oliver (20% discount to the market price) and (2) Rs23 from IVRCL Assets and Holdings (20% discount to the market price).

SOTP valuation of IVRCL

Equity Commitment (Rs mn)

Valuation (Rs mn) Rs/ share Valuation methodology

Value of core construction business 10,563 39 P/E multiple of 10X FY2013E earningsValue of Hindustan Dorr Oliver 1,210 4 Discount to market priceValue of IVRCL Assets & Holding Ltd 6,268 23 Discount to market priceTotal 67Target price 70


We revise estimates to Rs2.9 and Rs3.9 from Rs4.2 and Rs5 for FY2012 and FY2013 respectively, based on lower execution and margin assumptions. We have not changed the construction business valuation as earnings are squeezed by near-term pressure of interest rates and execution, which may alleviate (implying 10X FY2013 EPS versus 8X earlier). Change to SOTP-based target price Rs70 (Rs60 earlier) is essentially led by a change in contribution of listed IVR Assets and Holdings. Retain ADD on potential peaking of the interest rate cycle and recovery in execution. The stock trades at 0.7X FY13E standalone book and <5X EV/EBITDA for capital deployed in non-core assets.

IVRCL Construction


Profit model and balance sheet of IVRCL, March fiscal year-ends, 2007-13E (Rs mn)

2007 2008 2009 2010E 2011E 2012E 2013EIncome statementOperating Income 23,059 36,606 48,819 54,923 56,515 54,945 63,643 Operating Expenses (19,497) (30,965) (41,772) (46,281) (47,274) (47,555) (55,115) EBITDA 2,301 3,544 4,145 5,313 5,146 4,533 5,219 Other Income 74 45 299 155 120 131 141 Interest & Finance charges (308) (407) (1,233) (1,637) (2,182) (2,585) (2,739) Depreciation (216) (328) (473) (543) (758) (909) (1,057) Profit Before Tax 1,851 2,853 2,738 3,288 2,326 1,170 1,564 Tax expense (436) (749) (478) (1,177) (747) (389) (519) PAT 1,415 2,105 2,260 2,111 1,579 782 1,045 EPS (Rs) 10.9 15.8 16.9 7.9 5.9 2.9 3.9

Balance sheetTotal share holders funds 13,217 16,060 18,106 18,533 19,874 20,535 21,458

Share Capital 259 267 267 534 534 534 534 Reserves & Surplus 12,918 15,789 17,839 17,999 19,340 20,001 20,924

Loan Funds 5,561 10,678 13,980 16,133 20,958 25,958 25,958 Working Capital Loan 2,864 5,215 7,645 9,103— 11,991— — —Long term 1,580 5,159 3,949 3,489 5,917 25,958 25,958

Total Sources of Funds 18,834 26,841 32,203 34,791 40,918 46,493 47,417 Net fixed assets 2,435 3,733 5,403 6,017 7,178 7,759 8,452

Net block 1,929 3,192 5,207 5,664 6,918 7,509 8,202 Capital WIP 506 541 196 353 260 250 250

Investments 2,829 3,409 3,892 6,138 6,347 6,710 6,710 Net Current Assets (excl Cash) 11,332 17,928 21,900 20,992 25,962 29,733 29,931 Cash and Bank Balances 2,238 1,772 1,009 1,644 1,432 2,291 2,324 Total 18,834 26,841 32,203 34,791 40,918 46,493 47,417

Free cash flowNet cashflow from operating activites (4,340) (3,657) 22 5,213 (528) 418 4,644

Net PBT 1,851 2,853 2,738 3,288 2,326 1,170 1,564 Add: Depreciation 216 328 473 543 758 909 1,057 Add: Financial Charges 308 407 1,233 1,637 2,182 2,585 2,739 Tax paid (399) (650) (449) (1,162) (824) (475) (519) Change in wcap. (6,316) (6,596) (3,972) 908 (4,970) (3,771) (197)

Cash flow from investing activities (1,407) (2,264) (2,611) (5,087) (2,085) (1,853) (1,750) Free cash flow (5,747) (5,922) (2,589) 127 (2,613) (1,435) 2,894

Key ratiosEBITDA margin (%) 10.0 9.7 8.5 9.7 9.1 8.3 8.2 PAT margin (%) 6.1 5.7 4.6 3.8 2.8 1.4 1.6 Debt/ equity (X) 0.4 0.7 0.8 0.9 1.1 1.3 1.2 Net debt/ equity (X) 0.3 0.6 0.7 0.8 1.0 1.2 1.1 ROAE (%) 15.7 14.4 13.2 11.5 8.2 3.9 5.0 ROACE (%) 10.7 10.4 10.5 9.6 8.0 5.8 6.1



Strong revenues continue though margins disappoint; net PAT at Rs147 mn, down 26% yoy

Tecpro Systems recorded strong revenue growth of 35.6% yoy to Rs6.3 bn in 3QFY12, about 8% ahead of estimates. However EBITDA margin contracted sharply to 9.5% in 3QFY12, from 11% in 3QFY11 on increase in purchase of traded goods and contract expenses. Margin dip and increased interest expenses (though in line) led to disappointing net PAT of Rs147 mn, down 26% yoy from Rs199 mn in 3QFY11 and versus our estimate of Rs236 mn.

Maintains FY2012E revenue, PAT guidance; slow inflows may impact FY2013E revenue momentum

The management has maintained its guidance of 35-40% growth in revenues and 20-25% growth in net PAT for FY2012E. While the company may achieve its revenue growth guidance, we remain a bit skeptical on net PAT growth as high interest expenses and margin pressures may impact bottom-line growth. Tecpro reported moderate inflows of Rs16.4 bn in 3QFY12. Though the inflows track record in 9MFY12 is below the company’s initial guidance (of 30-35% growth in inflows), it is broadly on track to meet our full-year estimate of Rs24-25 bn. We expect revenue growth to moderate in FY2013E to about 6-6.5% on decline in order inflows in FY2012E.

Debt increases further (to Rs11.5 bn) on high working capital requirements—a key concern

Tecpro Systems reported a gross debt of Rs11.5 bn at end-9MFY12, about Rs1.3 bn higher than debt of Rs10.2 bn at end-1HFY12, and Rs4 bn higher than FY2011-end levels of Rs7.5 bn. The sharp rise in debt was primarily led by higher working capital requirement for execution of the large BoP orders in the backlog of the company. We believe that these debt levels may continue as working capital gets tied up for the existing business (especially as execution peaks in 4Q).

Revise estimates and target price to Rs220/share; downgrade to ADD on limited upside

We revise our estimates to Rs28.2 and Rs24.4 from Rs28.8 and Rs24.8 for FY2012E and FY2013E primarily on slightly higher debt levels. We revise our TP to Rs220 (from Rs200) on 9X FY2013E EPS. Downgrade our rating on Tecpro to ADD (from BUY) on limited upside to our target price as (1) continuously increasing working capital would strain the balance sheet, (2) concentration of backlog on a few large orders, and (3) unexpected fluctuation in commodity prices.

Tecpro Systems (TPRO)

Industrials

Strong revenues, though inflow decline and high debt limit upside. Tecpro reported strong 3QFY12 revenue growth of 35.6% (to Rs6.3 bn), though margin contraction and high interest cost led to PAT decline (to Rs147 mn). Inflow traction (Rs16 bn in 9M) implies Rs25-27 bn of inflows in FY2012E (in line with estimates), about 50% decline yoy (likely to impact revenue momentum in FY2013E). Debt also increased further to Rs11.5 bn (from Rs10.2 bn at end-1H). Downgrade to ADD on limited upside to TP.

Tecpro SystemsStock data Forecasts/Valuations 2011 2012E 2013E

52-week range (Rs) (high,low) EPS (Rs) 27.0 28.2 24.4Market Cap. (Rs bn) 9.5 EPS growth (%) 24.2 4.3 (13.5)


Price performance (%) 1M 3M 12M EV/EBITDA (X) 4.7 5.4 5.3Absolute 6.9 (8.3) (38.9) ROE (%) 26.8 19.7 15.0Rel. to BSE-30 (5.1) (14.9) (38.7) Div. Yield (%) 0.0 0.0 0.0


361-141

ADD

FEBRUARY 15, 2012

RESULT, CHANGE IN RECO.

Coverage view: Cautious

Price (Rs): 188

Target price (Rs): 220

BSE-30: 18,202

Tecpro Systems Industrials


Strong revenues continue though margins disappoint

Tecpro Systems reported strong revenues of Rs6.3 bn in 3QFY12, recording a strong growth of 35.6% yoy and about 8% ahead of our estimate. Strong revenue growth was primarily attributed to execution of existing strong backlog. Revenues for 9MFY12 were up 41.5% yoy to Rs14.2 bn (from Rs10 bn in 9MFY11).

Margins dip to 9.5%, down 150 bps leading to PAT disappointment (down 26% yoy)

Tecpro reported a sharp dip in EBITDA margin to 9.5% in 3QFY12, from 11% in 3QFY11 and our estimate of about 12.5%. Margin contraction was led by sharp increase in purchase of traded goods and contract expenses. Margin dip and increased interest expenses (though in line) led to disappointing net PAT of Rs147 mn, down 26% yoy from Rs199 mn in 3QFY11 and versus our estimate of Rs236 mn.

For 9MFY12, net PAT has increased by 8% yoy to Rs287 mn from Rs265 mn in 9MFY11.

Tecpro Systems - 3QFY12 results (Rs mn)

3QFY12 3QFY12E 3QFY11 2QFY12 vs. est. yoy qoq 9MFY12 9MFY11 % changeTotal operating income 6,252 5,775 4,611 4,522 8.2 35.6 38.3 14,258 10,075 41.5 Expenses (5,657) (5,054) (4,104) (4,012) 11.9 37.8 41.0 (12,753) (9,108) 40.0 Direct costs (5,048) (3,589) (3,337) 40.6 51.3 (10,919) (7,721) 41.4

Stock 180 (70) 345 (356.1) (47.9) 920 425 116.2 Raw material (476) (505) (330) (5.7) 44.5 (1,205) (1,489) (19.0) Purchase of traded goods (952) (609) (409) 56.3 132.6 (1,718) (1,790) (4.0) Contract cost (3,614) (2,210) (2,759) 63.5 31.0 (8,290) (4,407) 88.1 Other direct costs (186) (195) (185) (4.6) 0.3 (625) (461) 35.5

Employee expenses (283) (222) (274) 27.2 3.1 (840) (623) 34.7 Other expenses (327) (293) (401) 11.7 (18.4) (995) (764) 30.2 Operating profit 594 722 506 510 (17.7) 17.3 16.5 1,505 967 55.6 Other income 34 45 38 47 (24.0) (9.1) (27.7) 118 120 (1.9) Interest (368) (365) (211) (400) 0.7 74.1 (8.1) (1,099) (604) 81.8 Depreciation (37) (40) (28) (30) (6.3) 33.5 24.3 (94) (78) 21.7 PBT 223 362 305 127 (38.3) (26.7) 76.1 430 406 6.0 Tax (76) (126) (106) (41) (39.4) (27.9) 86.1 (143) (141) 1.8 Net profit 147 236 199 86 (37.6) (26.1) 71.3 287 265 8.2

Key ratios (%)Direct costs/sales 80.7 77.8 73.8 76.6 76.6 Employee expenses/sales 4.5 4.8 6.1 5.9 6.2 Other expenses/sales 5.2 6.3 8.9 7.0 7.6 EBITDA margin 9.5 12.5 11.0 11.3 10.6 9.6 Tax rate 34.2 33.0 34.7 32.3 33.4 34.7 PAT margin 2.4 4.4 4.3 1.9 2.0 2.6

Order book detailsInflows 7,698 25,440 6,672 (69.7) 15.4 16,380 33,680 (51.4) Backlog 46,000 42,500 44,370 8.2 3.7 46,000 42,500 8.2

% change


Maintains guidance of 35-40% revenue and 20-25% PAT growth for FY2012E

The management has maintained its guidance of 35-40% growth in revenues and 20-25% growth in net PAT for FY2012E. While the company may achieve its revenue growth guidance, we remain a bit skeptical on net PAT growth as high interest expenses and margin pressures may impact bottom-line growth.

Industrials Tecpro Systems


Our estimates build in about 35% revenue growth in FY2012E which implies a revenue requirement of Rs12.3 bn in 4QFY12E, a 28% growth over 4QFY11 revenues of Rs9.6 bn. Full-year margins of 13.6% imply EBITDA margin of 17% in 4QFY12E versus 20.7% in 4QFY11 and 10.6% recorded in 9MFY12. FY2012E net PAT of Rs1.4 bn would require a net PAT of Rs1.13 bn in 4QFY12E versus Rs287 mn recorded in 9MFY12.

Tecpro - 4QFY12E implied numbers (Rs mn)

9MFY12 9MFY11 % change 4QFY12E-imp. 4QFY11 % change FY2012E FY2011 % changeTotal operating income 14,258 10,075 41.5 12,280 9,609 27.8 26,538 19,684 34.8 Expenses (12,753) (9,108) 40.0 (10,186) (7,619) 33.7 (22,939) (16,728) 37.1 Operating profit 1,505 967 55.6 2,094 1,990 5.2 3,599 2,957 21.7 Other income 118 120 (1.9) 103 51 100.0 221 172 28.6 Interest (1,099) (604) 81.8 (464) (321) 44.3 (1,562) (926) 68.8 Depreciation (94) (78) 21.7 (42) (25) 68.0 (137) (103) 33.0 PBT 430 406 6.0 1,691 1,694 (0.2) 2,121 2,100 1.0 Tax (143) (141) 1.8 (556) (597) (6.8) (700) (738) (5.2) Net profit 287 265 8.2 1,134 1,097 3.4 1,421 1,362 4.3 Key ratios (%)EBITDA margin 10.6 9.6 17.1 20.7 13.6 15.0 Tax rate 33.4 34.7 32.9 35.2 33.0 35.1 PAT margin 2.0 2.6 9.2 11.4 5.4 6.9 Order book detailsInflows 16,380 33,680 (51.4) 7,698 8,240 (6.6) 24,503 43,530 (43.7)


Debt rises further (to Rs11.5 bn) to fund working capital requirements

Tecpro Systems reported a gross debt of Rs11.5 bn at end-9MFY12, about Rs1.3 bn higher than debt of Rs10.2 bn at end-1HFY12, and Rs4 bn higher than FY2011-end levels of Rs7.5 bn. The sharp rise in debt was primarily led by higher working capital requirement for execution of the large BoP orders in the backlog of the company. The management cited that they expect debt levels to decrease marginally by the year-end. However, we believe that these debt levels would continue for the remainder of the year as well as working capital gets tied up for existing business (especially as execution peaks in 4Q).

Gross debt levels of Tecpro Systems, March fiscal year-ends, 2008-13E (Rs mn)

11,500 11,669 11,669

2711,098

4,868

7,469

10,218

-

2,000

4,000

6,000

8,000

10,000

12,000

2008 2009 2010 2011 1HFY12 9MFY12 2012E 2013E

(Rs mn)

Gross loans increased by Rs2.6 bn even post Rs2.2 bn IPO in Sept-10 (debt level of ~Rs6 bn at IPO time)

Debt levels rise further from end-FY2011 levels




Net working capital (as days of sales) remained broadly flat on a sequential basis at about 220 days of sales (based on historical four quarter revenues). Tecpro reported a net working capital (excluding cash) of about Rs14.6 bn at end-9MFY12. We expect the company to end the year with a working capital of about 210 days of sales (at Rs15.3 bn).

Inflows of Rs16.4 bn in 9MFY12; lower than initial guidance though on track to meet our full-year estimate

Tecpro reported moderate order inflows of Rs16.4 bn in 3QFY12, a dip of 51% yoy. Note that last year’s order inflows were boosted by two large BoP orders to the tune of Rs20 bn. While the inflows track record in 9MFY12 is below the company’s initial guidance (of 30-35% growth in inflows), it is broadly on track to meet our full-year estimate of Rs24-25 bn. The company’s initial guidance was based on assumption of winning one large BoP order in FY2012 which has not panned out. The management cited significant delays in finalization of orders leading to deferral of ordering activity to FY2013E.

The management now expects to end the year with total inflows of about Rs25-30 bn in FY2012E. The company has already won several additional orders with cumulative inflows of Rs18 bn as on date. Furthermore, the company is also L1 in orders to the tune of Rs7.5 bn which are expected to be finalized by end-FY2012E which provides the confidence to the Rs25 bn inflows.

Key orders won during the year are summarized below.

Key order inflows announced by Tecpro Systems in FY2012E so far

Date Client Size

(Rs mn) Description Segment3Q12 Ambuja Cements 695 Waste heat recovery order Waste heat recovery3Q12 AP State Power Gen Co. 190 Wet ash disposal system for 1X500 MW Viyajwada TPP Material handling3Q12 Bhushan Steel 300 Material handling3Q12 Lanco 805 Ash handling system - Vidarbha project Ash handlingOct-11 NTPC Ltd 4,045 Extended Coal Handling Plant for Pakri Barwadih Coal Mining Block Material handlingSep-11 BHEL 5,214 Ore Handling and Coal Handling Plant for NMDC Steel Plant, Nagamar Material handlingAug-11 UltraTech Cement Ltd 793 Coal handling and cement plant conveying system Material handlingJul-11 Tata Projects 1,270 EPC order for stock house for 3 MPTA Nagarnar steel plant Material handling1Q12 Nagarjuna Construction 310 Material handling1Q12 Steel Authority of India Ltd 116 Material handlingApr-11 UltraTech Cement Ltd 2,030 Waste heat recovery power plant at Rawan Cement Works, Raipur Waste heat recoveryApr-11 Shree Cement Ltd 208 Engg, supply & erection of waste heat recovery boiler at Rajasthan Waste heat recoveryTotal orders in FY2012E so far 15,975

Source: Company

Among pre-qualified bidders in coal and ash handling projects for NTPC; already declared as L1 in a few units

Tecpro Systems has pre-qualified for bidding for NTPC’s coal and ash handling projects for the 11X660 MW and 9X800 MW bulk tender units (all from approved list of bidders for NTPC’s 500 MW project have pre-qualified for these tenders). Of the 11 units in the 660 MW tranche, about 6-7 price bids have already opened and Tecpro has been declared as L1 in a few units (for ash and coal; included in Rs7.5 bn of L1 orders). The management expects these orders to be finalized by end-FY2012E and have already had pre-award meetings with the NTPC management. The remaining units of the 660 MW tranche and 9 units of the 800 MW tranche are expected to be ordered out in FY2013E.

Tecpro reported an order backlog of Rs46 bn at end-9MFY12. Share of BoP orders in the total backlog declined to about 34% versus about 34% at end-FY2011 as execution of existing BoP contracts proceeded on track and no new orders won in the meanwhile. Material handling segment increased its share to about 58% (from 48% at end-FY2011) on strong order inflows in the coal handling and waste heat recovery segments.



Segment-wise, Sector-wise order backlog of Tecpro Systems at end-9MFY12

Order book - Sector wise break up

Others9%

Steel & cement22%

Power69%

Order book - Segment wise break up

Ash handling8%

Material handling

58%

Balance of Plant34%

Source: Company

Estimates build in revenue slowdown on the back of inflows decline

We expect revenue growth to moderate in FY2013E to about 6-6.5% on decline in order inflows in FY2012E (broadly unchanged versus previous estimate). Key assumptions underlying our estimates include:

Balance of Plant. We build an annual average of one large BoP order win for Tecpro Systems worth about Rs10 bn over FY2013-14E (no BoP inflow in FY2012). Execution of existing large orders in the backlog (Chhattisgarh, Kakatiya and Rayalseema projects) are likely to drive near-term revenues.

Coal/material handling segment. We expect the company to win orders to the tune of about Rs20-22 bn in FY2012E (broadly flat yoy) on the back of strong coal handling and waste heat orders. Tecpro Systems witnessed very strong order inflows in the coal/bulk material handling segment in FY2011 with order wins of Rs21.8 bn.

EBITDA margin. We do expect some correction in margins. We expect EBITDA margin to decline to about 13-13.5% in FY2012-13E versus 15% in FY2011 and 13% in FY2010.



Segmental revenues, order booking and backlog for Tecpro Systems, March fiscal year-ends, 2009-14E (Rs mn)

2009 2010 2011 2012E 2013E 2014ETecpro SystemsOrder inflows 15,329 16,146 45,268 24,503 29,327 32,227 Yoy growth (%) 5.3 180.4 (45.9) 19.7 9.9 Total revenues 9,926 14,549 19,684 26,538 28,211 29,617 Yoy growth (%) 60.7 35.1 34.8 6.3 5.0 Order backlog 16,389 18,674 43,710 42,147 43,264 45,873 Coal handlingOrder inflows 10,899 3,620 21,787 21,787 16,340 18,791

Yoy growth (%) 28.2 (66.8) 501.8 — (25.0) 15.0 Revenues 7,070 9,769 10,010 15,587 17,412 18,326 Yoy growth (%) 46.6 38.2 2.5 55.7 11.7 5.2 Order backlog 12,268 7,018 18,795 24,996 23,924 24,389 EBITDA 919 1,368 1,552 2,260 2,394 2,520 EBITDA margin (%) 13.0 14.0 15.5 14.5 13.8 13.8 Ash handlingOrder inflows 4,430 2,596 3,621 2,716 2,987 3,435

Yoy growth (%) (41.4) 39.5 (25.0) 10.0 15.0 Revenues 2,000 2,922 3,295 2,646 2,886 3,057 Yoy growth (%) 159 46 13 (20) 9 6 Order backlog 4,121 3,608 3,934 4,004 4,105 4,483 EBITDA 260 409 511 384 390 413 EBITDA margin (%) 13.0 14.0 15.5 14.5 13.5 13.5 Balance of PlantOrder booking 9,930 19,860 — 10,000 10,000

Korba West - TPP 9,930

Rayalseema 12,630 Kakatiya 7,230

New BoP orders — 10,000 10,000

Execution details 1,882 6,455 8,306 7,913 8,235 Korba West - TPP 1,882 4,469 2,979 601 Rayalseema — 1,263 3,158 4,421 3,789 Kakatiya — 723 2,169 2,892 1,446 New BoP orders — — — — 2,000

Order backlog 8,048 21,454 13,148 15,235 17,000 Korba West - TPP 8,048 3,580 601 Rayalseema 11,367 8,210 3,789 Kakatiya 6,507 4,338 1,446 New BoP orders — 10,000 8,000

EBITDA 861 955 831 865 EBITDA margin (%) 13.5 11.5 10.5 10.5


Revise estimates and TP to Rs220/share; downgrade to ADD on limited upside

We revise our earnings estimate to Rs28.2 and Rs24.4 from Rs28.8 and Rs24.8 for FY2012E and FY2013E respectively, primarily on slightly higher debt levels of Rs11-11.5 bn (to fund working capital requirements). We revise our target price to Rs220/share (from Rs200/share) based on 9X FY2013E EPS (versus 8X FY2013E EPS earlier).

We downgrade our rating on the stock to ADD (from BUY) on limited upside to our target price. We believe that upside potential remains limited despite relatively strong operations as (1) continuously increasing working capital requirements for large BoP orders may strain the balance sheet, (2) concentration of order backlog on a few large orders, and (3) unexpected fluctuation in commodity prices leading to margin risk.



Revises estimates of Tecpro Systems, March fiscal year-ends, 2012-13E (Rs mn)

FY2012E FY2013E FY2012E FY2013E FY2012E FY2013ERevenues 26,538 28,211 26,252 27,575 1.1 2.3 EBITDA 3,599 3,615 3,557 3,527 1.2 2.5 EBITDA margin (%) 13.6 12.8 13.6 12.8 PAT 1,421 1,229 1,456 1,251 (2.4) (1.8) EPS (Rs) 28.2 24.4 28.8 24.8 (2.4) (1.8)

Order detailsInfloows 24,503 29,327 23,413 28,510 4.7 2.9 Backlog 42,147 43,264 41,344 42,279 1.9 2.3

Yoy growth (%)Revenues 34.8 6.3 33.4 5.0 EBITDA 21.7 0.4 20.3 (0.8) EPS 4.3 (13.5) 6.9 (14.1) Inflows (45.9) 19.7 (48.3) 21.8

Revised estimates Original estimates % revision

Source: Kotak Institutional Equities estimates

Tecpro Systems' consolidated financials, March fiscal year-ends, 2008-14E (Rs mn)

2008 2009 2010 2011 2012E 2013E 2014EIncome statementTotal income 5,047 9,926 14,549 19,684 26,538 28,211 29,617 Expenses (4,357) (8,702) (12,646) (16,728) (22,939) (24,596) (25,820)

Incr./ (decr.) in inventory 8 - 93 393 - - - Direct costs (3,698) (7,483) (10,969) (14,879) (20,232) (21,860) (22,947) Emplyee expenses (242) (487) (628) (913) (1,194) (1,269) (1,333) Selling and admin expenses (425) (733) (1,141) (1,328) (1,513) (1,467) (1,540)

EBITDA 690 1,224 1,904 2,957 3,599 3,615 3,797 EBIDTA margin (%) 13.7 12.3 13.1 15.0 13.6 12.8 12.8 Other income 44 145 209 172 221 190 228 Interest expense (50) (189) (356) (926) (1,562) (1,797) (1,741) Depreciation (26) (39) (73) (103) (137) (173) (203) PBT 658 1,141 1,683 2,100 2,121 1,835 2,081 Tax paid (249) (378) (587) (738) (700) (605) (687) PAT 409 763 1,096 1,362 1,421 1,229 1,394 EPS (Rs) 15.3 17.3 24.8 27.0 28.2 24.4 27.6

Balance sheetTotal shareholders funds 999 2,505 3,522 6,688 7,776 8,718 9,699 Total loan funds 271 1,098 4,868 7,469 11,669 11,669 10,500 Deferred tax liability (net) 7 5 (12) (25) (25) (25) (25) Total sources of funds 1,311 3,609 8,378 14,132 19,420 20,362 20,174 Net block 317 303 1,208 1,595 2,176 2,602 2,999 Capital WIP 217 545 110 417 300 200 200 Investments 1 173 94 76 76 76 76 Cash and bank balances 456 1,307 1,820 2,995 1,600 2,025 2,293 Net current assets (excl. cash) 279 1,281 5,145 9,048 15,268 15,458 14,606 Total application of funds 1,311 3,609 8,378 14,132 19,420 20,362 20,174



More confident of its ‘Consulting positioning’ than ever

Infosys was the first IT offshore pure-play to set up a separate consulting unit way back in 2003. 8+ years and multiple tweaks (some major, mostly minor) to the model later, Infosys appears extremely confident of (1) market proposition of its consulting unit, (2) integration of consulting with its outsourcing business, and (3) its ability to hire and retain top consulting talent in the marketplace.

We note that after running Consulting as a separate company (not just on paper, but also in spirit) for several years, Infosys recently folded it into the parent company as part of the recent reorganization. Head of Infosys Consulting, Stephen Pratt, now heads the company’s larger system integration and consulting horizontal business unit – this BU accounts for 30%+ of Infosys’ revenues and includes its package implementation practice. ‘Pure consulting’ revenue run-rate is around US$200 mn per annum with downstream revenues generated from consulting engagements of around US$600 mn (in line with the company’s targeted ratio of 3:1 downstream: consulting revenues). The company has 50 ‘consulting’ partners; these are equivalent of partners in other larger consulting firms. Infosys management indicated strong belief that its partner stack compares well with that of any of its competitors.

Consulting broadens business potential from CIO organization to the larger CXO organization

Among other advantages, Infosys emphasized that consulting broadens the scope of engagement with a client from (1) CIO organization to the larger CXO organization; several consulting projects initiated by the business units throw downstream outsourcing opportunities; even the ones that don’t help deepen relationship with the client, and (2) only cost-centric projects to also revenue-centric ones; this, per Infosys, is an area where Infosys is substantially ahead of its Indian peers. There is a downside, however, to higher exposure to revenue-centric projects – it increases volatility in velocity of business and may lead to slower-than-peers growth in an environment of indecision or slow decision-making among clients. On the flip-side, consulting-driven downstream revenues typically come in at higher-than-corporate-average pricing and profitability.

Infosys shared the example of one of the largest CPG companies in the world where its consulting success has helped grown the relationship and Infosys’ competitive positioning multifold.

Infosys (INFO)

Technology

Infosys Consulting – takeaways from management interaction. We spoke to Stephen Pratt, Global head of consulting and system integration at Infosys and also the founder of Infosys Consulting, with a focus on understanding the company’s consulting practice. The company appears more confident than ever on its consulting practice, both in terms of its ability to leverage consulting as a differentiator versus Indian and legacy MNC peers and also its ability to attract top consulting talent.

InfosysStock data Forecasts/Valuations 2012 2013E 2014E

52-week range (Rs) (high,low) EPS (Rs) 146.1 173.7 198.8Market Cap. (Rs bn) 1,644.0 EPS growth (%) 22.0 18.9 14.4


Price performance (%) 1M 3M 12M EV/EBITDA (X) 13.2 10.6 8.9Absolute 10.8 2.4 (7.8) ROE (%) 29.3 28.9 27.6Rel. to BSE-30 (1.6) (5.1) (7.4) Div. Yield (%) 1.6 1.9 2.2


3,378-2,162

ADD

FEBRUARY 15, 2012

UPDATE

Coverage view: Attractive

Price (Rs): 2,864

Target price (Rs): 3,100

BSE-30: 18,202

Technology Infosys


Other key takeaways

Initial success in consulting was restricted to select verticals (Retail, Hi-tech, Oil and Gas) and geographies (US and UK); however, Infosys has seen increased traction in other verticals including BFSI and other geographies (especially part of Continental Europe and Australia) in recent times.

In line with the overall company strategy, consulting resources (management as well as technical consultants) are aligned along vertical lines.

Average age of onsite consultants is 38; Infosys indicated that this was an advantage over some of the legacy MNC players, whose average onsite experience profile is lower.

Terming 4QFY12 outlook as muted (in line with the company’s guidance), Steve expressed confidence on business momentum to pick up starting 1QFY13E.

Exhibit 1: Key assumptions driving Infosys earnings model, March fiscal year-ends, 2010-2014E

2010 2011 2012E 2013E 2014EKey assumptionsRevenue growth (US$ terms) (%) 2.9 25.8 16.5 14.1 16.5 Volume growth yoy (%) (IT only) 7.4 25.0 11.3 16.3 16.9 Pricing change yoy (%)Onsite 0.0 5.4 2.1 (1.0) 0.8 Offshore (5.1) (3.1) 5.4 (0.9) 0.8 Blended (4.2) 1.1 4.9 (1.7) (0.3) Total employees (#) 113,796 130,820 148,949 167,359 192,321 Employee additions 8,946 17,024 18,129 18,410 24,962 SG&A expense as % of revenues 12.4 12.7 12.6 12.4 12.3 Re/US$ rate 47.4 45.5 48.4 50.5 50.0


Infosys Technology


Exhibit 2: Profit model, balance sheet, cash model of Infosys Technologies, March fiscal year-ends, 2010-2014E (Rs mn)

2010 2011 2012E 2013E 2014EProfit modelRevenues 227,420 275,010 340,361 405,487 467,795 Cost of sales (120,710) (150,540) (188,504) (224,347) (261,643) SG&A expenses (28,100) (34,830) (42,817) (50,124) (57,680) EBITDA 78,610 89,640 109,040 131,016 148,472 Depreciation (9,050) (8,130) (9,397) (10,644) (12,076) EBIT 69,560 81,510 99,643 120,372 136,395 Other income 9,430 12,110 17,611 19,102 21,527 Pre-tax profits 78,990 93,620 117,254 139,475 157,923 Provision for tax (16,810) (24,900) (33,399) (39,750) (43,824) Recurring net income 62,180 68,720 83,855 99,724 114,099 Extraordinaries 480 — — — —Reported net income 62,660 68,720 83,855 99,724 114,099 EPS (Rs) 108.3 119.7 146.1 173.7 198.8 Balance SheetShareholders funds 230,490 259,760 312,700 376,454 448,882 Deferred tax liability/(assets) (2,000) (3,210) (3,210) (3,210) (3,210) Borrowings — — — — —Minority interest — — — — —Total liabilities 228,490 256,550 309,490 373,244 445,672 Gross block 78,390 85,010 102,020 116,199 135,523 Accumulated depreciation (28,930) (32,660) (42,057) (52,701) (64,778) Net block 49,460 52,350 59,962 63,498 70,746 CWIP 4,090 5,250 5,250 5,250 5,250 Net fixed assets 53,550 57,600 65,212 68,748 75,996 Cash and bank balances 124,480 171,030 208,250 261,074 319,098 Net current assets excluding cash 50,460 27,920 36,028 43,421 50,578 Total assets 228,490 256,550 309,490 373,244 445,672 Cashflow statement

Operating profit before WC changes 78,610 89,640 109,040 131,016 148,472

Change in WC/other adjustments (250) (17,720) (8,108) (7,394) (7,157)

Capital expenditure (6,750) (13,080) (17,010) (14,180) (19,324)

Taxes paid (17,530) (28,460) (33,399) (39,750) (43,824)

Free cash flow 54,080 30,380 50,524 69,692 78,168



New Telecom policy continues to be delivered in parts

Key highlights from the policy guidelines issued by the DOT today

Spectrum-related – (1) maximum 2G GSM spectrum holding capped at 10 MHz for Delhi and Mumbai, 8 MHz for other circles; barring BSNL, no other operator gets materially impacted. CDMA spectrum capped at 6.25 MHz for Delhi/Mumbai and 5 MHz for other circles. Operators would have to surrender spectrum beyond this prescribed limit on renewal, (2) companies can acquire additional spectrum beyond the aforementioned prescribed limit if attained through an auction or through M&A (spectrum norms for M&A discussed later) – this is a positive for large players as the option to acquire additional spectrum remains open, and (3) 2G spectrum sharing allowed provided both the parties hold spectrum; spectrum charges to be levied on the basis of combined spectrum, for both players; 3G spectrum sharing not permitted. Even as the license-spectrum delinkage policy is clear, it is still unclear whether past licensees who hold only 4.4 MHz of spectrum right now are entitled to another 1.8 or not.

M&A-related – (1) both subs market share and revenue (AGR) market share of the combined entity to be considered for ‘substantial market power’ considerations, (2) automatic approval if the combined entity’s market share is less than 35%, (3) case-by-case approval if the combined market share is between 35% and 60%; TRAI to come up with a transparent set of guidelines on how such cases will be evaluated, and (4) 2G GSM spectrum market share of the combined entity capped at 25% of the total spectrum allocated in the circle; for CDMA, hard limit of 10 MHz; excess spectrum to be surrendered post transaction (within a year of transaction closer).

Uniform license fees at 8% across services – wireless players benefit to the extent of about 50 bps on margins; however, long distance players suffer as they would see an increase in license fees; a very modest positive.

IP-I infrastructure providers (tower companies primarily) not to be a part of the unified licensing regime for now, final decision to be taken later. Modest positive from a sentiment perspective.

Directive incentives for rural rollout – exact contours not defined; benefits players with higher rural presence – Bharti, Vodafone, BSNL, and Idea, in particular.

Issues where final stance remains pending – (1) spectrum pricing – DOT indicated that they would take a stance on this post the upcoming spectrum auctions; no comments on whether the auction-discovered prices will be used as the benchmark, (2) spectrum refarming – DOT agrees with refarming in principle but would wait for detailed recommendations from TRAI on this before taking a final stance, (3) one nation-wide license (one country, one license); we note the difficulty in implementing such a policy given the circle-wise approach to spectrum allocation taken in the past and (4) excess spectrum charges, if any.

Telecom India

NTPP (NTP in parts) – few more policy guidelines, lot still remains. The Department of Telecom (DOT) issued guidelines around spectrum policy (not pricing), M&A norms, license fees, and spectrum sharing while deferring further final decisions on some of the other key issues around spectrum pricing, refarming, and roaming. Prima facie, incremental clarity is good and the guidelines appear, on balance, positive for the sector. We remain constructive on Bharti and Idea.

CAUTIOUS

FEBRUARY 15, 2012

UPDATE

BSE-30: 18,202


Coal India’s production will not suffice: imports are inevitable, though has few takers

CIL has commitment for sale of 418 mtpa (305 mtpa for power) under extant FSAs, with commitments under LOAs aggregating another 395 mtpa. As per CEA, LoAs aggregating 108 GW have been issued, of which 26 GW will likely be commissioned in FY2012. With CIL’s production target a modest 570 mtpa (in FY2015E), its ability to convert extant LOAs into firm FSAs is constrained, and supplementing this through imports is inevitable. We note that under extant FSAs CIL is liable to pay a penalty of 10% on notified coal prices for the shortfall of coal not supplied below 50% of contracted quantities (proposed to be increased to 80%).

CIL has always been in favor of implementing FSAs (for plants commissioned after March 2009) with the assurance of domestic supply of 50% of LOA quantity, the balance being met through imports. However such an arrangement has not found takers in the power sector.

Differential cost of imported and domestic coal is a sticky issue

The price differential between domestic coal at notified prices (average notified price of about Rs1,200/ton) and imported coal may be a dampener for power utilities to sign an FSA with CIL sourcing imported coal for its production shortfalls. The other alternatives could be (1) pooling of coal prices across generation utilities or (2) subsidization by CIL to supplement production shortfalls.

In our view, subsidizing private generation companies (key beneficiaries), may be a politically unpalatable move for a public-sector undertaking such as CIL. We note that the state and central sector generating companies receive their share of coal at notified prices and are less likely to benefit incrementally from subsidization by CIL.

Increasing domestic coal supplies, improving functioning of SEBs a more sustainable solution

In our view, lagging domestic coal production and inefficiencies of SEBs (both operational and financial) are the crux of the power sector’s woes and are more pertinent. Fast track clearances and a hassle-free land acquisition process will better enable CIL to ramp up production of domestic coal supplies. Allowing SEBs to pass on their cost inflation through regular tariff hikes remains the key to resolving the issues of the sector.

Adani Power, Lanco and CESC are beneficiaries of concessional domestic supplies

If the current proposal increases availability of coal at concessional prices, then and only then, will it benefit private utilities such as Adani Power, Lanco Infratech and CESC, which have operational or under-construction capacities with long-term sale arrangements and are dependent on domestic coal linkages. CIL would be at the receiving end of this mechanism, if and only if, it has to bear a burden of the differential in prices of domestic and imported coal, though policy statements do not give clarity on this.

Utilities/Coal India

FSAs in place, but where’s the coal? And who will pay for it? The Prime Minister’s Office announced the signing of fuel-supply agreements (FSAs) between Coal India (CIL) and power plants that were previously allotted LOAs, subject to CIL’s production shortfalls being met through imports. However, the moot question remains unanswered: who will pay for the coal? (1) the procuring plant at the market price, (2) all power plants using a pooled mechanism, (3) CIL through some subsidization, (4) or a combination of all. We see the current scheme, at best, beneficial for Lanco and Adani Power, only if they can source coal at a lower price.

CAUTIOUS

FEBRUARY 15, 2012

UPDATE

BSE-30: 18,202

India Utilities


Exhibit 1: Adani Power and Lanco Infratech to be likely beneficiaries if CIL were to subsidize coal imports Impact analysis under potential scenarios

Company Scenario I Scenario II Remarks (what if scenario I pans out)Adani Power Positive Neutral Benefit to accrue for linkage based Mundra IV and Tiroda that have fixed price PPA JSW Energy Neutral Neutral Neutral since bulk of portfolio is on imported coal and sells on merchant ratesLanco Infatech Positive Neutral Benefit to accrue as most of the plants are dependent on linkage coalNTPC Neutral Neutral Neutral since already gets coal and entire supply is at regulated ratesReliance Power Neutral Neutral Neutral since bulk of portfolio is either on imported or captive coalTata Power Neutral Neutral Neutral since the extant capacity is regulated (and receiving coal) and Mundra UMPP is on imported coalCoal India Negative Neutral CIL will have to bear to an extant the imported coal bills

Note:Scenraio I - Coal India supplements the deficit through imports and also subsidizes the coalScenraio II - Coal India supplements the deficit through imports and sells and market prices of imported coal

Impact


Exhibit 2: Domestic coal supplies will have to increase at a CAGR of 11% a year to meet increased demand from the power sector Details of coal demand and supply, March fiscal year-ends, 2008-17E (mn tons)

2008 2009 2010 2011E 2012E 2013E 2014E 2015E 2016E 2017EDemandPower 364 374 386 390 464 490 529 576 630 689 Other 144 174 195 217 241 269 296 326 359 396 Total 507 549 581 607 705 759 825 902 990 1,085 SupplyCIL 375 401 415 425 433 448 469 487 506 520 SCCL 42 45 49 47 47 47 47 47 47 47 Others 37 45 49 54 65 84 110 143 171 206 Domestic 454 490 513 526 545 579 625 677 724 772 Gap (53) (59) (68) (81) (160) (180) (200) (225) (266) (313)


Exhibit 3: MoUs were signed for supply of 55% of LOA quantity in FY2011 Coal supply to projects commissioned after April 2009 in FY2011

Capacity LOA quantityCoal company Power plant Developer Type of Linkage (MW) (mtpa) (mtpa) (%) CommentCCL Chandrapura TPS Unit 7&8 Pre-NCDP linkage 500 2.1 0.9 44.2 Supply through MoUCCL Rosa Unit 1&2 Reliance Power Pre-NCDP linkage 600 2.9 1.6 55.6 Supply through MoUBCCL Maithon Right Bank TPS DVC Pre-NCDP linkage 525 1.7 0.0 0.0 FSASECL Amarkantak Unit 1 Lanco Infratech Pre-NCDP linkage 300 1.4 1.3 90.0 Supply through MoUSECL Amarkantak Unit 1 Lanco Infratech Pre-NCDP LOA 300 1.4 1.3 90.0 Supply through MoUMCL Vijaywada Unit 4 APGENCO Pre-NCDP linkage 500 2.3 2.1 90.0 Supply through MoUNCL Anpara Lanco Infratech Pre-NCDP linkage 1,200 4.2 0.1 1.2 Supply through MoU for trial runMCL Raichur Unit 8 KPCL Pre-NCDP LOA 250 1.0 0.0 0.0 FSAMCL Hissar TPP Unit 1 HPGCL Pre-NCDP LOA 600 2.8 2.5 90.3 Supply through MoUMCL Jhajjar TPS NTPC Pre-NCDP LOA 1,500 6.9 1.1 15.3 Supply through MoUMCL Parli Unit 2 MSPGCL Pre-NCDP LOA 250 1.2 1.1 89.7 Supply through MoUMCL Paras Exp. Unit 2 MSPGCL Pre-NCDP LOA 250 1.2 1.1 89.7 Supply through MoUSECL Kotak V Unit 7 RRVUNL Pre-NCDP LOA 195 0.9 0.9 91.6 Supply through MoUSECL Chabra TPS RRVUNL Pre-NCDP LOA 500 2.4 1.5 63.1 Supply through MoUSECL Suratgarh IV RRVUNL Pre-NCDP LOA 250 1.2 1.1 89.7 Supply through MoUMCL Hissar TPP Unit 2 HPGCL Post-NCDP LOA 600 2.8 0.7 24.5 Supply through MoUECL/BCCL Budge Budge exp. CESC Post-NCDP LOA 250 0.8 0.8 91.7 Supply through MoUSECL NTPC-SAIL NTPC Pre-NCDP linkage 500 2.4 2.2 89.7 Supply through MoUCCL Dadri Unit 5 NTPC Post-NCDP LOA 490 2.0 1.8 89.8 Supply through MoUCCL Dadri Unit 6 NTPC Post-NCDP LOA 490 2.0 0.6 27.8 Supply through MoUMCL Jharsuguda Sterlite Energy Post-NCDP LOA 600 2.6 0.8 30.7 Supply through MoUMCL Barmer Unit 1 JSW Energy Post-NCDP LOA 135 0.3 0.1 20.7 Supply through MoUTotal 10,785 42.4 23.2 54.7

MoU quantity

Source: Ministry of Coal, Kotak Institutional Equities

Utilities India


Exhibit 4: Lanco and Adani have capacities with linkage and PPA sales

Linkage Captive Imported Linkage Captive ImportedPPA (Bid/Regulated)NTPC 4,810 — — 9,890 1,320 —Others 3,275 1,250 — 3,000 1,200 —Total central sector 8,085 1,250 — 12,890 2,520 —Total state sector 7,265 1,200 — 6,050 4,190 500Adani Power 1,000 — 2,138 2,912 — —JSW Energy — 540 300 — — —Lanco Infratech 1,500 — 600 441 — 600Reliance Power 600 — — 900 4,960 4,000Tata Power 525 — — 525 — 4,000Others 210 250 — 6,199 4,720 2,290Total private sector 3,835 790 3,038 10,977 9,680 10,890Total 19,185 3,240 3,038 29,917 16,390 11,390MerchantAdani Power 320 — 502 1,048 — —JSW Energy — — 1,500 — — —Lanco Infratech 300 — — 819 — —Reliance Power — — — 300 — —Tata Power — — — — — —Others 270 2,340 — 2,116 4,110 410Total 890 2,340 2,002 4,283 4,110 410Total 20,075 5,580 5,040 34,200 20,500 11,800

Plants commissioned (FY2011-12) Under construction

Source: CEA, Kotak Institutional Equities estimates

Exhibit 5: Extant FSAs have penal charges below 90% of ACQ Details of penal charges and performance incentives payable by CIL and customers

Penal chargesExisting FSA (pre 2009) New power FSAs (post 2009) proposed by CILScenario Charge Scenario Charge90% and above of ACQ None 50% and above None85%-90% of ACQ 10% Below 50% 10%80%-85% of ACQ 20%Below 80% ACQ 40%Performance incentiveExisting FSA (pre 2009) New power FSAs (post 2009) proposed by CILScenario Charge Scenario Charge90%-95% ACQ 10% 90%-95% ACQ 15%95%-100% ACQ 20% 95% and above of ACQ 30%Above ACQ 40%

Note:(1) Penal charges are payable on basis simple average of base price of various grades of coal.(2) Permormance incentives are payable on basis weighted average of base price of various grades of coal.

Source: Coal India Ltd, Kotak Institutional Equities

India Utilities


Exhibit 6: Utilities valuation summary

Mkt Cap. Price Target EV/EBITDA (X) P/E (X)Rating (US$ bn) 15-Feb price 2010 2011 2012E 2013E 2010 2011 2012E 2013E

Reliance Infrastructure BUY 3.4 627 890 10.6 11.8 7.4 6.9 10.1 10.8 11.0 8.3

Tata Power BUY 5.5 110 125 11.3 11.0 8.4 8.0 17.4 14.2 13.0 12.0

CESC BUY 0.7 281 400 5.9 5.2 4.8 4.2 8.1 7.2 7.4 7.2

NTPC REDUCE 30.5 182 175 13.3 13.5 12.1 11.2 17.4 17.9 15.3 13.5

Lanco Infratech BUY 0.9 19 33 11.9 11.4 9.5 5.9 8.9 11.6 8.5 6.4

Reliance Power SELL 7.0 123 76 (219.7) 149.0 61.2 28.6 45.1 45.2 46.1 42.9

Adani Power SELL 3.8 79 60 108.7 33.1 13.3 5.5 96.7 33.5 14.8 7.8

NHPC BUY 5.6 22 29 8.8 10.8 8.2 7.3 12.1 16.6 10.9 10.3

JSW Energy REDUCE 2.2 67 43 14.4 13.4 14.6 9.3 15.4 13.6 30.6 28.0

P/BV (X)Div Yield

(%) ROCE (%) ROE (%)2010 2011 2012E 2013E 2010 2010 2011 2012E 2013E 2010 2011 2012E 2013E

Reliance Infrastructure 0.7 0.7 0.7 0.6 1.1 5.9 5.5 4.6 6.0 6.5 6.8 10.3 9.0

Tata Power 2.2 1.9 1.7 1.5 1.3 8.0 7.1 6.8 7.3 14.7 14.9 14.3 14.0

CESC 1.1 1.0 0.9 0.8 1.5 9.7 10.3 9.7 9.5 14.2 14.4 12.4 11.6

NTPC 2.4 2.2 2.0 1.8 2.0 9.8 10.0 9.6 8.9 14.1 13.7 13.5 13.3

Lanco Infratech 1.1 2.1 1.9 1.7 — 12.3 9.7 7.7 9.8 12.3 9.7 7.7 9.8

Reliance Power 2.0 2.0 2.0 1.9 — 4.2 3.9 3.2 3.2 4.6 4.9 4.3 4.9

Adani Power 3.0 2.6 2.1 1.5 — 1.4 2.1 4.4 8.6 4.2 8.5 19.7 30.2

NHPC 1.1 1.1 1.0 0.9 2.5 7.4 5.0 6.6 6.9 10.3 6.7 9.6 9.5

JSW Energy 2.3 2.0 1.8 1.7 — 8.2 7.2 2.9 3.2 23.8 16.1 6.4 6.6


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Kotak Institutional Equities: Valuation summary of KIE Universe stocks

15-Feb-12 Mkt cap.O/S

shares EPS (Rs) EPS growth (%) PER (X) EV/EBITDA (X) RoE (%)Target price Upside ADVT-3mo

Company Price (Rs) Rating (Rs mn) (US$ mn) (mn) 2011 2012E 2013E 2011 2012E 2013E 2011 2012E 2013E 2011 2012E 2013E 2011 2012E 2013E 2011 2012E 2013E 2011 2012E 2013E (Rs) (%) (US$ mn)

Automobiles

Apollo Tyres 83 BUY 41,739 845 504 8.7 7.4 10.0 (26.1) (15.4) 34.6 9.5 11.2 8.3 6.6 5.9 4.7 1.5 1.4 1.2 0.6 0.5 0.7 20.1 14.4 16.8 90 8.7 3.4

Ashok Leyland 29 ADD 77,958 1,578 2,661 2.4 1.9 2.3 68.1 (19.7) 22.5 12.3 15.4 12.6 8.3 9.0 7.9 1.7 1.7 1.6 3.4 3.4 3.4 21.8 15.9 18.2 26 (11.3) 3.2

Bajaj Auto 1,748 ADD 505,784 10,240 289 90.4 106.8 122.3 43.9 18.1 14.6 19.3 16.4 14.3 14.7 12.3 11.0 10.2 7.4 5.6 2.3 2.3 2.3 84.9 52.5 44.7 1,715 (1.9) 20.7

Bharat Forge 312 REDUCE 73,943 1,497 237 12.5 17.5 20.0 1,402.1 39.2 14.6 24.8 17.8 15.6 11.4 9.0 8.0 3.3 2.8 2.4 1.1 — — 8.2 14.6 15.6 315 1.1 2.3

Exide Industries 141 SELL 119,468 2,419 850 7.5 5.1 6.5 18.0 (32.1) 28.4 18.9 27.8 21.6 13.6 18.0 14.4 4.4 3.9 3.4 1.1 0.9 0.9 25.5 14.9 17.0 105 (25.3) 3.9

Hero Motocorp 2,094 SELL 418,182 8,466 200 99.3 118.0 129.5 (11.1) 18.8 9.7 21.1 17.7 16.2 14.0 12.9 11.2 9.0 7.8 6.6 5.0 3.3 3.3 56.5 66.1 58.8 1,815 (13.3) 25.3

Mahindra & Mahindra 735 BUY 451,014 9,131 614 41.7 42.8 46.5 22.7 2.5 8.6 17.6 17.2 15.8 13.5 13.0 11.6 4.2 3.6 3.0 1.6 1.3 1.3 27.3 22.5 20.8 835 13.7 37.7

Maruti Suzuki 1,303 ADD 376,379 7,620 289 79.2 52.3 90.0 (8.4) (33.9) 72.0 16.4 24.9 14.5 10.5 17.1 8.9 2.7 2.5 2.1 0.6 0.6 0.6 17.6 10.3 15.8 1,250 (4.1) 18.7

Tata Motors 288 REDUCE 957,101 19,376 3,325 27.2 34.3 38.7 737.9 26.2 12.8 10.6 8.4 7.4 7.0 5.5 4.6 4.9 3.3 2.3 1.3 1.0 1.0 66.1 46.8 37.0 285 (1.0) 74.1

Automobiles Cautious 3,021,567 61,172 82.8 11.0 16.9 14.7 13.3 11.4 9.7 8.4 7.0 4.6 3.7 2.9 2.0 1.6 1.6 31.1 27.5 25.6

Banks/Financial Institutions

Andhra Bank 128 BUY 71,542 1,448 560 22.6 23.6 23.0 5.0 4.4 (2.8) 5.6 5.4 5.6 — — — 1.1 1.0 0.9 4.3 4.5 4.4 23.2 19.0 16.3 150 17.3 1.4

Axis Bank 1,221 BUY 518,105 10,489 424 82.5 95.5 102.8 33.0 15.7 7.6 14.8 12.8 11.9 — — — 2.7 2.3 2.0 1.1 1.3 1.4 19.3 19.6 18.2 1,350 10.6 56.8

Bajaj Finserv 526 ADD 76,123 1,541 145 78.2 63.2 62.9 102.3 (19.2) (0.4) 6.7 8.3 8.4 — — — 2.2 1.6 1.3 2.4 2.4 2.4 37.2 21.9 16.8 650 23.5 1.0

Bank of Baroda 853 BUY 334,966 6,781 393 108.0 115.6 121.2 29.1 7.1 4.9 7.9 7.4 7.0 — — — 1.7 1.5 1.3 2.2 2.4 2.5 25.9 21.5 19.2 1,050 23.1 9.2

Bank of India 393 BUY 214,948 4,352 547 45.5 46.7 62.0 37.4 2.7 32.8 8.6 8.4 6.3 — — — 1.3 1.2 1.0 2.1 2.1 2.8 17.3 15.1 17.6 450 14.6 5.4

Canara Bank 550 BUY 243,761 4,935 443 90.9 74.8 93.2 23.3 (17.7) 24.6 6.1 7.4 5.9 — — — 1.4 1.2 1.0 2.0 2.2 2.2 23.2 15.5 16.9 550 (0.0) 7.6

Corporation Bank 516 BUY 76,502 1,549 148 95.4 107.5 107.5 16.3 12.7 (0.0) 5.4 4.8 4.8 — — — 1.1 0.9 0.8 3.9 4.4 4.4 21.9 20.6 17.8 600 16.2 0.8

Federal Bank 434 BUY 74,252 1,503 171 34.3 42.4 49.7 26.3 23.5 17.3 12.6 10.2 8.7 — — — 1.5 1.4 1.2 2.0 2.4 2.8 12.0 13.5 14.3 500 15.2 4.2

HDFC 714 REDUCE 1,046,853 21,194 1,467 24.1 27.7 31.8 22.4 14.9 14.7 29.6 25.8 22.5 — — — 6.0 5.3 4.1 1.3 1.4 1.7 21.7 22.0 21.4 725 1.6 35.5

HDFC Bank 533 ADD 1,239,943 25,103 2,326 16.9 22.1 28.1 31.0 30.9 27.2 31.6 24.1 19.0 — — — 4.9 4.2 3.6 0.6 0.8 1.0 16.7 18.8 20.5 560 5.1 33.4

ICICI Bank 981 BUY 1,130,108 22,879 1,152 44.7 53.2 56.7 23.9 19.0 6.5 21.9 18.4 17.3 — — — 2.1 1.9 1.8 1.4 1.6 1.7 9.7 10.7 10.7 1,100 12.1 110.1

IDFC 143 ADD 215,288 4,358 1,509 8.8 10.6 12.8 4.6 20.6 20.8 16.3 13.5 11.2 — — — 2.1 1.7 1.5 1.5 1.4 1.8 14.7 13.9 14.6 155 8.6 22.2

India Infoline 71 SELL 20,248 410 286 7.4 4.0 4.3 (9.3) (45.5) 5.7 9.6 17.6 16.6 — — — 1.2 1.2 1.0 5.0 1.2 1.2 12.9 6.7 7.3 70 (1.0) 1.0

Indian Bank 252 BUY 108,302 2,193 430 38.8 41.9 46.6 10.5 8.0 11.2 6.5 6.0 5.4 — — — 1.4 1.2 1.0 3.0 3.1 3.5 22.3 20.4 19.4 300 19.0 1.9

Indian Overseas Bank 104 BUY 64,226 1,300 619 17.3 14.4 27.8 33.6 (17.2) 93.6 6.0 7.2 3.7 — — — 0.8 0.7 0.6 4.8 1.9 3.7 12.7 9.1 15.9 140 34.9 1.5

IndusInd Bank 332 ADD 154,654 3,131 466 12.4 16.8 17.9 45.2 35.2 7.1 26.8 19.8 18.5 — — — 3.8 3.3 2.9 0.6 0.8 0.9 20.8 19.3 17.4 330 (0.6) 3.7

J&K Bank 814 ADD 39,473 799 48 126.9 155.4 160.6 20.1 22.5 3.4 6.4 5.2 5.1 — — — 1.1 1.0 0.9 3.2 3.9 4.0 19.0 20.0 17.9 950 16.7 0.4

LIC Housing Finance 276 ADD 131,015 2,652 475 20.5 19.3 29.5 47.2 (5.8) 52.7 13.4 14.3 9.3 — — — 3.3 2.8 2.4 1.6 1.5 2.3 25.8 20.3 26.0 270 (2.1) 13.0

Mahindra & Mahindra Financial 703 BUY 72,019 1,458 102 45.2 55.6 71.9 26.1 23.0 29.3 15.5 12.6 9.8 — — — 2.9 2.6 2.2 1.4 1.7 2.3 22.0 21.1 23.1 825 17.4 1.6

Muthoot Finance 171 BUY 63,549 1,287 371 15.7 23.1 27.5 108.4 46.4 19.3 10.9 7.4 6.2 — — — 4.8 2.1 1.5 — — — 51.5 38.7 28.4 240 40.3 —

Oriental Bank of Commerce 309 BUY 90,052 1,823 292 51.5 43.0 57.9 13.7 (16.5) 34.7 6.0 7.2 5.3 — — — 0.9 0.8 0.7 3.4 2.8 3.8 15.5 10.9 13.4 370 19.9 2.9

PFC 204 BUY 269,472 5,455 1,320 22.8 22.7 29.3 11.1 (0.5) 29.0 8.9 9.0 7.0 — — — 1.8 1.3 1.2 1.9 2.2 2.9 18.4 16.7 17.4 225 10.2 14.2

Punjab National Bank 1,050 BUY 332,748 6,736 317 140.0 152.0 166.5 13.0 8.6 9.5 7.5 6.9 6.3 — — — 1.7 1.4 1.2 2.1 3.0 3.2 24.4 22.0 20.5 1,270 20.9 8.7

Reliance Capital 432 ADD 106,304 2,152 246 9.3 8.4 22.6 (25.3) (10.2) 170.0 46.4 51.7 19.1 — — — 1.5 1.5 1.4 0.9 0.8 2.1 3.3 2.9 7.6 470 8.8 26.9

Rural Electrification Corp. 234 BUY 230,951 4,676 987 26.0 28.7 33.7 28.1 10.5 17.2 9.0 8.1 7.0 — — — 1.8 1.6 1.4 3.2 3.5 4.1 21.5 20.7 21.1 230 (1.7) 10.5

SKS Microfinance 139 RS 10,264 208 74 15.7 (89.1) (27.5) (41.8) (667.7) (69.1) 8.9 (1.6) (5.1) — — — 0.6 0.9 1.0 — — — 8.3 (44.7) (19.3) — — 1.8

State Bank of India 2,251 BUY 1,513,767 30,646 673 130.2 179.2 219.6 (9.9) 37.7 22.6 17.3 12.6 10.2 — — — 2.3 1.8 1.6 1.4 1.6 1.7 12.6 16.4 16.8 2,450 8.9 136.9

Union Bank 258 BUY 138,474 2,803 536 39.5 31.6 44.0 (3.9) (19.8) 39.0 6.5 8.2 5.9 — — — 1.2 1.1 1.0 3.0 2.5 3.4 20.9 14.4 17.5 340 31.6 5.6

Yes Bank 366 ADD 127,004 2,571 347 20.9 27.1 31.8 39.6 29.3 17.3 17.5 13.5 11.5 — — — 3.3 2.8 2.3 0.7 0.9 1.0 21.1 22.4 21.7 375 2.5 18.4

Banks/Financial Institutions Attractive 8,837,818 178,921 20.0 13.1 20.1 14.4 12.8 10.6 — — — 2.3 2.0 1.7 1.5 1.7 1.9 16.0 15.5 16.2

Cement

ACC 1,370 SELL 257,358 5,210 188 53.0 57.1 69.9 (36.3) 7.8 22.4 25.9 24.0 19.6 15.4 14.5 10.6 3.8 3.3 3.0 2.6 1.7 1.7 17.5 16.1 17.6 1,030 (24.8) 8.2

Ambuja Cements 171 SELL 261,011 5,284 1,522 7.9 7.8 10.0 (1.5) (1.2) 28.6 21.8 22.0 17.1 13.4 12.6 9.4 3.3 3.0 2.7 1.2 1.3 1.4 16.6 14.6 17.1 145 (15.4) 8.4

Grasim Industries 2,827 BUY 259,315 5,250 92 232.0 275.8 281.7 (22.9) 18.9 2.2 12.2 10.3 10.0 7.2 5.9 5.2 1.8 1.5 1.4 0.7 1.2 1.2 15.7 16.2 14.5 2,900 2.6 4.2

India Cements 109 ADD 33,436 677 307 1.9 11.6 12.2 (81.2) 511.9 5.9 57.6 9.4 8.9 17.6 5.9 5.1 0.8 0.7 0.7 1.5 2.9 2.9 1.4 8.5 8.4 110 1.1 2.0

Shree Cement 2,531 REDUCE 88,173 1,785 35 57.2 80.2 119.4 (72.5) 40.3 48.9 44.3 31.6 21.2 10.4 7.9 6.9 4.6 4.2 3.7 0.6 0.6 0.8 10.7 13.9 18.4 2,085 (17.6) 0.5

UltraTech Cement 1,439 REDUCE 394,412 7,985 274 44.9 79.7 89.4 (49.2) 77.7 12.2 32.1 18.1 16.1 15.6 10.2 8.9 3.2 2.7 2.3 0.4 0.4 0.6 16.7 18.7 17.7 1,220 (15.2) 4.4

Cement Neutral 1,293,706 26,191 (24.3) 30.9 13.9 22.3 17.0 14.9 11.6 9.0 7.5 2.7 2.4 2.1 1.1 1.1 1.2 12.1 14.0 14.1

Price/BV (X) Dividend yield (%)

Source: Company, Bloomberg, Kotak Institutional Equities estimates

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shares EPS (Rs) EPS growth (%) PER (X) EV/EBITDA (X) Price/BV (X) RoE (%)Target price Upside ADVT-3mo


Consumer products

Asian Paints 3,031 SELL 290,771 5,887 96 80.8 94.4 106.9 13.0 16.8 13.3 37.5 32.1 28.4 25.0 21.8 17.6 14.2 10.9 8.9 1.1 0.9 1.2 43.9 39.9 35.6 2,500 (17.5) 5.0

Colgate-Palmolive (India) 1,010 SELL 137,305 2,780 136 29.6 32.5 39.1 (4.9) 9.9 20.3 34.1 31.0 25.8 29.7 26.6 21.5 35.8 36.4 29.0 2.2 2.8 2.7 113.4 116.1 124.9 900 (10.9) 1.9

Dabur India 103 ADD 179,520 3,634 1,740 3.3 3.7 4.4 12.8 12.1 19.2 31.6 28.2 23.6 25.5 21.5 18.4 13.7 10.6 8.4 1.1 1.3 1.5 51.2 43.2 40.2 115 11.5 3.4

GlaxoSmithkline Consumer (a) 2,641 ADD 111,067 2,249 42 71.3 84.5 105.4 28.8 18.5 24.8 37.0 31.3 25.1 26.9 23.6 19.3 11.9 10.1 8.3 1.9 1.3 1.7 32.2 33.8 35.2 3,000 13.6 1.0

Godrej Consumer Products 435 ADD 140,859 2,852 324 14.9 16.8 21.8 31.3 13.1 29.8 29.2 25.9 19.9 24.8 19.8 14.8 8.2 6.1 5.0 1.2 0.7 0.7 35.9 27.6 28.9 500 14.9 1.8

Hindustan Unilever 389 REDUCE 838,941 16,984 2,159 9.9 11.8 14.2 4.8 19.7 19.7 39.3 32.9 27.4 33.7 27.0 21.5 31.9 27.4 23.5 2.0 2.5 3.0 66.3 89.8 92.4 420 8.1 22.1

ITC 203 ADD 1,560,329 31,589 7,681 6.4 7.9 9.0 20.7 22.5 14.1 31.7 25.9 22.7 21.0 17.6 15.2 9.3 8.0 7.0 2.2 1.8 2.2 33.2 34.9 34.3 230 13.2 29.6

Jubilant Foodworks 1,016 SELL 66,679 1,350 66 11.2 16.3 24.0 99.6 45.4 47.3 90.7 62.4 42.4 55.5 34.6 23.8 34.8 22.3 14.6 — — — 46.6 43.6 41.7 800 (21.3) 22.5

Jyothy Laboratories 203 ADD 15,734 319 78 10.3 8.4 10.8 (6.2) (18.8) 28.0 19.6 24.1 18.9 16.1 36.6 27.1 2.3 2.3 2.1 3.0 2.3 2.9 12.3 9.7 11.7 190 (6.3) 0.4

Marico 165 BUY 101,572 2,056 615 3.9 5.2 6.8 (12.8) 33.5 31.7 42.6 31.9 24.2 26.1 22.5 17.1 10.8 8.5 6.6 0.4 0.4 0.6 30.3 30.3 30.8 190 15.1 0.8

Nestle India (a) 4,389 SELL 423,183 8,567 96 86.8 104.6 125.1 16.7 20.5 19.6 50.6 42.0 35.1 33.7 27.7 22.5 49.5 33.2 19.8 1.1 1.1 1.3 116.5 94.7 70.7 3,600 (18.0) 2.7

Tata Global Beverages 121 BUY 74,826 1,515 618 4.0 5.3 6.6 (34.6) 35.1 23.0 30.6 22.6 18.4 12.7 12.4 10.0 1.5 1.4 1.3 1.7 1.5 1.8 6.4 8.2 9.5 110 (9.1) 5.9

Titan Industries 218 ADD 193,449 3,916 888 4.9 6.5 7.9 71.7 32.5 20.7 44.3 33.4 27.7 31.1 23.5 19.0 18.6 14.1 10.9 0.6 1.0 1.4 49.2 48.0 44.4 230 5.6 18.0

United Spirits 689 BUY 86,547 1,752 126 35.3 36.6 42.7 29.5 3.5 16.9 19.5 18.8 16.1 13.8 11.6 10.7 2.1 1.9 1.7 0.4 0.3 0.5 11.2 10.5 11.1 900 30.6 17.6

Consumer products Attractive 4,220,781 85,450 16.3 19.3 18.1 35.1 29.4 24.9 24.6 20.6 17.1 10.9 9.3 7.9 1.7 1.7 2.0 31.0 31.6 31.8

Constructions

IVRCL 60 ADD 16,127 326 267 5.9 2.9 3.9 (25.2) (50.5) 33.6 10.2 20.6 15.4 6.9 8.8 7.6 0.8 0.8 0.8 1.0 0.7 0.7 8.2 3.9 5.0 70 15.9 8.2

Nagarjuna Construction Co. 62 BUY 15,844 321 257 6.4 1.8 3.7 (29.7) (71.1) 100.8 9.7 33.5 16.7 8.1 9.9 8.4 0.7 0.7 0.7 1.7 3.2 3.2 7.1 2.0 4.0 65 5.3 1.4

Punj Lloyd 63 REDUCE 21,445 434 340 (1.5) 5.1 6.6 (56.6) (442.7) 28.9 (42.5) 12.4 9.6 13.3 9.7 6.7 0.7 0.7 0.6 (0.1) 0.7 0.9 (1.7) 5.7 6.9 60 (5.0) 4.8

Sadbhav Engineering 145 BUY 21,657 438 150 7.8 10.0 10.0 51.0 28.5 0.5 18.6 14.5 14.4 11.0 8.9 8.6 3.4 2.8 2.4 0.4 0.4 0.4 18.1 19.2 16.3 180 24.6 0.5

Construction Attractive 75,073 1,520 (1.1) 15.6 27.8 19.4 16.8 13.1 9.4 9.4 7.5 0.9 0.9 0.9 0.7 1.1 1.2 4.8 5.4 6.5

Energy

Aban Offshore 540 BUY 23,518 476 44 134.2 71.5 92.4 25.9 (46.7) 29.1 4.0 7.6 5.8 6.8 7.8 6.9 1.1 1.4 1.2 0.7 0.7 0.8 33.3 20.8 21.4 615 13.8 10.8

Bharat Petroleum 604 RS 218,370 4,421 362 38.9 42.3 53.5 (32.5) 8.8 26.3 15.5 14.3 11.3 10.2 8.0 7.5 1.4 1.4 1.3 2.3 2.3 2.9 9.2 9.3 11.0 — — 6.8

Cairn india 379 REDUCE 721,130 14,599 1,903 33.3 45.7 62.7 501.1 37.2 37.1 11.4 8.3 6.0 8.4 6.5 4.2 1.8 1.5 1.3 — - 4.0 16.9 19.7 23.5 355 (6.3) 18.5

Castrol India (a) 481 SELL 119,028 2,410 247 19.8 19.5 21.0 28.5 (1.8) 7.8 24.3 24.7 23.0 15.6 17.0 15.5 23.1 21.8 20.3 3.1 3.1 3.4 100.2 90.4 91.4 400 (16.9) 0.8

GAIL (India) 397 BUY 503,523 10,194 1,268 28.2 30.1 31.0 13.8 6.8 3.2 14.1 13.2 12.8 8.9 9.3 8.7 2.4 2.1 1.8 1.9 2.0 2.1 17.5 16.3 14.7 485 22.2 11.4

GSPL 86 REDUCE 48,579 983 563 8.9 9.2 8.5 21.7 3.4 (7.1) 9.7 9.4 10.1 6.3 5.7 5.9 2.1 1.8 1.5 1.2 1.6 2.5 25.2 20.5 16.2 87 0.8 2.3

Hindustan Petroleum 290 RS 98,296 1,990 339 40.8 11.0 28.8 (20.8) (73.2) 162.9 7.1 26.5 10.1 3.2 2.8 3.2 0.6 0.6 0.6 4.8 1.2 3.1 9.0 2.2 5.7 — — 4.4

Indian Oil Corporation 277 RS 671,692 13,598 2,428 32.4 30.1 29.8 (34.0) (7.2) (0.9) 8.5 9.2 9.3 8.3 7.2 6.6 1.1 1.1 1.0 3.4 0.6 3.2 13.3 12.2 11.1 — — 2.7

Oil India 1,300 BUY 312,597 6,329 240 120.0 146.1 189.9 4.2 21.8 30.0 10.8 8.9 6.8 5.4 3.6 2.5 1.8 1.7 1.5 2.9 4.2 5.8 16.2 17.5 20.1 1,750 34.6 2.7

Oil & Natural Gas Corporation 279 BUY 2,388,273 48,350 8,556 24.7 31.2 37.5 7.4 26.6 20.2 11.3 8.9 7.4 4.3 3.7 2.8 1.6 1.4 1.3 3.1 3.6 4.3 14.3 16.1 17.1 350 25.4 16.1

Petronet LNG 168 SELL 125,925 2,549 750 8.1 14.9 13.6 50.3 83.4 (8.2) 20.7 11.3 12.3 11.9 7.9 8.6 4.2 3.2 2.6 1.2 1.8 1.8 20.9 31.1 22.5 140 (16.6) 6.2

Reliance Industries 837 ADD 2,494,054 50,492 2,981 62.0 62.8 63.5 24.8 1.4 1.0 13.5 13.3 13.2 7.4 6.7 6.4 1.5 1.4 1.2 1.0 1.0 1.0 13.0 11.9 10.9 915 9.4 86.0

Energy Attractive 7,724,985 156,392 11.6 11.8 14.5 11.5 10.3 9.0 6.4 5.5 4.7 1.6 1.4 1.3 2.0 1.9 2.9 13.8 13.9 14.3

Industrials

ABB 862 SELL 182,644 3,698 212 3.0 11.7 22.7 (82.2) 291.5 94.5 288.8 73.8 37.9 210.8 49.0 24.7 7.5 7.1 6.1 0.2 0.4 0.4 2.6 9.9 17.3 515 (40.2) 1.5

BGR Energy Systems 295 REDUCE 21,289 431 72 44.8 29.4 27.2 60.0 (34.4) (7.4) 6.6 10.0 10.8 4.5 5.3 4.4 2.2 1.9 1.7 3.4 2.0 1.8 39.0 20.5 16.5 260 (11.9) 4.5

Bharat Electronics 1,516 ADD 121,304 2,456 80 107.3 115.8 132.8 11.6 8.0 14.7 14.1 13.1 11.4 6.2 6.9 4.7 2.4 2.1 1.8 1.4 1.6 1.6 18.2 16.8 16.9 1,650 8.8 1.5

Bharat Heavy Electricals 277 REDUCE 678,230 13,731 2,448 24.6 27.5 23.3 39.7 12.0 (15.4) 11.3 10.1 11.9 7.3 7.3 7.9 3.4 2.7 2.3 2.2 2.1 1.8 33.3 29.7 20.9 230 (17.0) 28.6

Crompton Greaves 155 ADD 99,336 2,011 642 14.3 6.4 10.3 11.5 (55.2) 60.0 10.8 24.1 15.1 7.0 11.8 8.3 3.0 2.8 2.4 1.5 0.9 1.0 31.7 12.0 17.0 155 0.1 7.1

Cummins India 468 REDUCE 129,854 2,629 277 22.2 21.6 25.9 37.1 (2.9) 19.8 21.1 21.7 18.1 18.9 19.5 15.4 7.2 6.3 5.5 2.3 2.2 2.7 35.1 29.7 31.2 475 1.4 3.2

KEC International 62 BUY 15,888 322 257 8.0 6.7 8.1 4.1 (16.5) 21.6 7.7 9.2 7.6 6.2 6.6 5.7 1.6 1.4 1.2 1.9 2.1 2.0 22.5 16.2 17.2 65 5.2 0.4

Larsen & Toubro 1,455 REDUCE 885,938 17,936 609 67.7 80.7 87.0 18.1 19.2 7.8 21.5 18.0 16.7 15.3 11.9 10.8 3.4 2.8 2.4 1.0 1.0 1.0 17.0 16.8 15.4 1,325 (8.9) 75.9

Maharashtra Seamless 345 BUY 24,365 493 71 48.2 42.1 46.8 24.8 (12.6) 11.0 7.2 8.2 7.4 4.5 4.5 3.7 0.9 0.9 0.8 2.4 2.4 2.7 13.8 11.1 11.5 460 33.2 0.2

Siemens 799 SELL 271,879 5,504 340 25.5 22.3 27.9 13.6 (12.7) 25.5 31.3 35.9 28.6 21.7 22.8 18.1 7.0 6.1 5.2 0.8 0.6 0.7 24.4 18.2 19.7 550 (31.2) 3.5

Suzlon Energy 29 REDUCE 50,533 1,023 1,746 (6.0) (0.9) 3.8 (4.6) (85.7) (539.2) (4.8) (33.6) 7.7 17.9 8.1 5.5 0.7 0.8 0.7 — 0.7 0.7 (15.8) (2.2) 9.7 32 10.5 16.5

Tecpro Systems 188 ADD 9,509 193 50 27.0 28.2 24.4 24.2 4.3 (13.5) 7.0 6.7 7.7 4.7 5.4 5.3 1.4 1.2 1.1 — — — 26.8 19.7 15.0 220 16.8 0.1

Thermax 490 REDUCE 58,389 1,182 119 31.6 32.8 31.4 44.3 3.7 (4.3) 15.5 14.9 15.6 10.3 9.9 10.0 4.4 3.7 3.2 1.8 1.9 1.8 31.5 27.0 21.9 440 (10.2) 1.1

Voltas 118 REDUCE 38,928 788 331 9.8 6.4 7.6 (14.3) (34.4) 17.6 12.0 18.3 15.6 7.2 12.4 10.0 2.8 2.6 2.4 1.7 1.7 2.0 26.1 14.8 15.9 90 (23.5) 4.7

Industrials Cautious 2,588,087 52,396 24.3 12.5 7.2 18.4 16.3 15.2 12.0 10.7 9.7 3.3 2.8 2.5 1.4 1.3 1.3 18.1 17.4 16.2

Infrastructure

Adani Port and SEZ 147 ADD 296,868 6,010 2,017 4.6 5.6 7.3 36.3 22.1 31.3 32.3 26.5 20.2 26.1 18.9 14.1 6.9 5.8 4.7 0.6 0.7 1.0 23.4 23.8 25.8 160 8.7 4.5

Container Corporation 941 ADD 122,311 2,476 130 67.6 71.0 77.5 11.7 5.0 9.2 13.9 13.3 12.1 9.9 8.8 7.7 2.5 2.2 1.9 1.6 1.7 1.9 18.9 17.4 16.7 1,100 16.9 1.3

GMR Infrastructure 32 RS 124,362 2,518 3,892 (0.3) (0.8) (0.2) (178.0) 131.2 (77.8) (94.9) (41.0) (184.6) 19.5 14.3 11.8 1.3 1.1 1.1 — — — (1.8) (4.0) (0.9) — — 3.9

Gujarat Pipavav Port 58 ADD 24,651 499 424 (1.2) 1.2 2.3 (65.8) (195.8) 100.8 (48.4) 50.6 25.2 25.4 16.9 13.0 3.3 3.1 2.8 — — — (9.1) 8.9 12.1 63 8.2 0.3

GVK Power & Infrastructure 19 RS 29,452 596 1,579 1.0 1.0 0.3 (0.6) 1.6 (73.4) 19.0 18.7 70.3 18.6 17.0 20.1 0.9 0.8 0.8 — 1.6 1.9 4.7 4.6 1.2 — — 4.7

IRB Infrastructure 189 ADD 62,867 1,273 332 13.6 11.9 15.2 30.4 (12.9) 27.9 13.9 16.0 12.5 8.8 9.1 7.6 2.5 1.8 1.5 0.8 — — 19.3 13.1 13.0 190 0.4 5.1

Infrastructure Cautious 660,511 13,372 10.5 5.3 30.5 29.7 28.2 21.6 17.3 14.3 11.7 2.6 2.2 2.0 0.7 0.7 0.9 8.7 7.9 9.3

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Media

DB Corp 201 BUY 36,867 746 183 14.1 11.2 13.5 32.7 (20.7) 20.6 14.3 18.0 14.9 9.3 10.5 8.7 4.4 3.9 3.5 2.0 2.0 3.0 35.0 23.0 24.5 300 49.1 0.1

DishTV 70 BUY 74,463 1,508 1,063 (1.8) (0.7) 0.6 (27.7) (62.1) (192.8) (39.3) (103.6) 111.6 34.3 16.0 11.9 118.7 (816.3) 129.3 — — — (81.9) (268.1) 275.3 80 14.2 6.6

Eros International 214 BUY 20,711 419 97 11.8 15.6 19.6 19.0 32.7 25.6 18.1 13.7 10.9 12.6 9.6 6.9 3.1 2.5 2.0 — — — 24.9 20.1 20.4 270 26.4 1.5

Hindustan Media Ventures 131 BUY 9,643 195 73 7.3 9.0 10.6 198.0 23.3 17.8 18.0 14.6 12.4 8.6 8.2 6.2 2.5 2.2 1.9 0.8 0.8 1.5 23.3 16.1 16.5 190 44.6 0.1

HT Media 146 ADD 34,422 697 235 7.7 7.5 9.2 31.0 (3.1) 23.3 19.0 19.6 15.9 9.1 9.9 7.3 2.4 2.2 2.1 0.2 1.4 2.7 14.9 11.8 13.4 160 9.3 0.1

Jagran Prakashan 108 BUY 34,218 693 316 6.8 6.5 7.8 16.7 (5.3) 21.6 15.9 16.8 13.8 9.5 9.1 7.9 4.9 4.4 3.9 3.2 3.2 3.7 32.8 27.6 30.0 150 38.6 0.2

Sun TV Network 325 ADD 128,096 2,593 394 19.5 18.5 21.4 48.1 (5.4) 15.9 16.6 17.6 15.2 10.1 10.4 9.2 5.3 4.8 4.5 2.7 3.4 4.3 36.5 30.2 32.2 390 20.0 6.7

Zee Entertainment Enterprises 140 BUY 136,726 2,768 978 5.8 6.2 7.7 10.0 6.4 23.3 23.9 22.5 18.2 16.3 15.0 11.9 3.2 3.1 3.0 1.0 0.9 1.1 14.2 14.3 16.9 160 14.5 3.4

Media Neutral 475,147 9,619 51.6 4.7 27.8 24.1 23.0 18.0 12.9 11.9 9.7 4.4 4.1 3.8 1.4 1.7 2.2 18.4 17.8 20.9

Metals & Mining

Coal India 340 ADD 2,146,616 43,458 6,316 17.3 23.4 26.9 13.6 35.1 14.9 19.6 14.5 12.7 11.5 8.9 7.7 6.1 4.8 3.9 1.1 2.1 2.4 35.1 37.3 34.1 380 11.8 28.0

Hindalco Industries 163 REDUCE 311,171 6,300 1,915 12.8 17.2 16.1 (36.0) 34.3 (6.0) 12.7 9.5 10.1 6.6 7.3 7.0 1.1 1.0 0.9 0.9 0.9 0.9 9.7 10.8 9.2 160 (1.5) 30.3

Hindustan Zinc 143 ADD 603,753 12,223 4,225 11.6 12.7 14.7 21.8 8.8 16.0 12.3 11.3 9.7 8.3 7.2 5.2 2.7 2.3 1.9 0.7 1.7 1.7 24.3 21.8 21.4 150 5.0 2.0

Jindal Steel and Power 610 REDUCE 570,343 11,547 934 40.2 40.9 46.1 5.1 1.7 12.7 15.2 14.9 13.3 11.0 10.6 9.7 4.0 3.2 2.6 0.2 0.3 0.3 30.9 24.1 21.8 530 (13.2) 21.9

JSW Steel 869 SELL 196,451 3,977 226 78.6 32.3 77.7 (2.2) (58.9) 140.5 11.1 26.9 11.2 7.4 6.2 6.6 1.2 1.2 1.1 1.4 1.2 1.2 13.6 14.1 9.9 680 (21.8) 41.6

National Aluminium Co. 66 SELL 169,196 3,425 2,577 4.2 3.2 3.7 36.4 (23.9) 15.8 15.8 20.8 17.9 7.4 10.4 8.3 1.5 1.5 1.4 2.3 2.3 2.3 9.9 7.2 8.0 53 (19.3) 0.7

Sesa Goa 249 REDUCE 222,869 4,512 895 48.6 32.7 46.8 65.3 (32.7) 43.1 5.1 7.6 5.3 4.3 6.5 7.0 1.7 1.4 1.1 1.6 1.6 1.6 36.8 17.2 22.1 190 (23.7) 15.6

Sterlite Industries 135 BUY 452,754 9,166 3,361 15.2 13.5 15.2 26.2 (11.0) 12.4 8.9 10.0 8.9 5.5 4.7 3.8 1.1 1.0 0.9 0.8 1.5 1.5 13.0 10.5 10.8 150 11.4 18.0

Tata Steel 495 ADD 480,994 9,738 971 75.3 27.8 58.4 (2,258.1) (63.1) 110.4 6.6 17.8 8.5 6.1 8.1 6.2 1.4 1.2 1.1 2.4 2.4 2.4 24.7 7.1 13.4 525 6.0 62.9

Metals & Mining Cautious 5,154,146 104,346 39.1 (1.9) 18.4 12.4 12.7 10.7 7.8 7.7 6.6 2.4 2.1 1.8 1.1 1.7 1.8 19.0 16.3 16.7

Pharmaceutical

Apollo Hospitals 625 BUY 86,762 1,756 139 13.2 17.1 21.2 21.0 29.3 24.0 47.2 36.5 29.4 21.4 16.0 13.7 4.5 3.4 3.0 — — — 9.8 10.3 10.5 650 4.1 5.4

Biocon 294 BUY 58,760 1,190 200 18.4 16.8 20.7 23.9 (8.7) 23.2 16.0 17.5 14.2 9.0 9.9 7.8 2.8 2.6 2.3 — — — 19.4 15.7 17.2 380 29.3 3.7

Cipla 318 SELL 255,650 5,176 803 12.3 14.1 17.7 (10.0) 14.1 25.5 25.8 22.6 18.0 22.4 17.7 13.6 3.8 3.4 3.0 0.9 0.9 1.1 15.4 15.6 17.3 320 0.5 10.5

Cadila Healthcare 719 REDUCE 147,276 2,982 205 34.7 31.1 40.9 40.6 (10.5) 31.4 20.7 23.1 17.6 18.0 18.1 13.6 6.8 5.5 4.5 0.9 0.9 1.1 37.5 26.4 28.1 700 (2.7) 2.0

Dishman Pharma & chemicals 60 REDUCE 4,868 99 81 9.8 5.1 8.3 (31.8) (48.6) 64.7 6.1 11.8 7.2 8.1 7.7 5.8 0.6 0.5 0.5 — — — 9.6 4.6 7.2 60 0.3 0.3

Divi's Laboratories 730 ADD 96,827 1,960 133 32.4 37.4 46.4 25.7 15.6 24.1 22.6 19.5 15.7 18.6 15.1 11.0 5.4 4.6 3.9 — — — 25.9 25.4 26.8 935 28.1 2.6

Dr Reddy's Laboratories 1,620 REDUCE 275,386 5,575 170 64.9 90.7 106.9 932.5 39.7 17.8 24.9 17.9 15.2 17.5 11.7 9.7 6.0 4.7 3.7 0.7 0.8 0.9 24.8 29.3 27.1 1,740 7.4 13.1

GlaxoSmithkline Pharmaceuticals (a) 2,106 SELL 178,406 3,612 85 68.3 75.5 83.3 15.5 10.6 10.3 30.9 27.9 25.3 20.5 19.6 17.1 9.1 9.4 8.7 1.9 2.4 2.7 30.9 33.2 35.7 1,930 (8.4) 1.0

Glenmark Pharmaceuticals 303 REDUCE 82,044 1,661 270 17.0 19.9 22.4 33.6 17.6 12.2 17.9 15.2 13.6 20.0 18.7 11.1 4.0 3.2 2.7 — — — 20.6 23.6 21.5 340 12.1 3.5

Jubilant Life Sciences 202 REDUCE 32,242 653 159 14.4 16.9 29.5 (45.6) 17.3 74.1 14.0 12.0 6.9 11.1 8.3 6.6 1.5 1.3 1.1 1.0 1.0 1.5 12.3 16.3 18.0 180 (11.1) 0.5

Lupin 489 ADD 219,256 4,439 448 19.2 21.1 26.5 25.6 9.7 25.3 25.4 23.2 18.5 21.3 18.4 13.6 6.6 5.3 4.3 0.6 0.7 0.9 29.5 25.8 26.2 520 6.3 7.5

Ranbaxy Laboratories 442 SELL 186,888 3,784 423 40.6 19.0 42.8 474.9 (53.3) 125.7 10.9 23.3 10.3 13.4 13.9 8.3 3.3 3.1 2.4 — — — 34.5 14.0 26.4 400 (9.4) 10.3

Sun Pharmaceuticals 557 ADD 576,519 11,672 1,036 17.5 23.4 28.1 34.4 33.4 20.1 31.7 23.8 19.8 27.3 17.2 14.2 5.6 4.5 3.7 0.6 0.7 0.9 21.0 23.1 22.9 625 12.3 9.9

Pharmaceuticals Neutral 2,200,883 44,557 43.1 8.2 29.7 23.0 21.3 16.4 18.7 14.6 11.1 3.7 3.2 2.7 0.7 0.8 0.9 16.0 14.9 16.3

Property

DLF 249 ADD 426,671 8,638 1,715 9.1 9.7 12.7 (14.5) 6.5 31.5 27.4 25.8 19.6 17.4 16.0 12.9 1.6 1.6 1.5 0.8 1.0 1.2 5.4 6.1 7.6 260 4.5 39.8

Housing Development & Infrastructure 111 BUY 48,885 990 441 19.8 19.4 29.8 24.2 (2.1) 53.6 5.6 5.7 3.7 5.5 6.9 5.1 0.5 0.5 0.4 — 0.9 1.4 10.0 8.4 11.6 130 17.3 22.2

Indiabulls Real Estate 79 RS 31,858 645 402 4.0 8.5 15.4 (1,095.5) 114.1 81.5 19.9 9.3 5.1 13.9 11.2 4.9 0.3 0.3 0.2 0.4 0.6 0.9 1.4 2.9 5.0 — — 10.4

Mahindra Life Space Developer 344 BUY 14,051 284 41 24.9 26.7 32.2 30.2 6.9 20.8 13.8 12.9 10.7 10.6 8.7 6.9 1.4 1.3 1.1 1.5 1.3 1.5 10.4 10.2 11.2 405 17.6 0.3

Oberoi Realty 278 BUY 91,600 1,854 330 15.7 14.9 26.4 14.8 (5.0) 77.3 17.7 18.6 10.5 13.4 13.7 6.6 2.7 2.4 2.0 0.4 0.5 0.9 19.9 13.9 21.1 300 8.0 0.2

Phoenix Mills 209 BUY 30,200 611 145 6.3 7.4 10.7 53.0 17.2 44.1 33.0 28.1 19.5 24.4 20.3 15.2 1.9 1.8 1.7 0.9 1.0 1.0 5.8 6.6 8.9 300 43.9 0.2

Puravankara Projects 78 REDUCE 16,562 335 213 5.5 7.4 9.5 (18.9) 33.2 29.4 14.0 10.5 8.1 18.7 13.5 11.1 1.1 1.0 0.9 1.3 1.9 2.6 8.0 9.9 11.8 80 3.1 0.1

Sobha Developers 279 BUY 27,394 555 98 18.8 15.6 25.7 33.8 (17.2) 65.3 14.8 17.9 10.9 12.5 13.5 8.5 1.5 1.4 1.2 1.1 1.3 1.4 10.2 7.9 12.0 340 21.7 0.8

Unitech 32 RS 83,068 1,682 2,616 2.3 1.5 2.0 (23.4) (35.3) 34.7 13.7 21.1 15.7 14.8 17.3 12.0 0.7 0.7 0.6 0.3 0.6 0.9 5.4 3.3 4.0 — — 12.7

Property Cautious 810,558 16,410 5.3 12.4 45.0 18.9 16.8 11.6 14.5 13.4 9.5 1.2 1.1 1.0 0.7 0.9 1.2 6.1 6.4 8.5

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ary 16, 2012





Technology

HCL Technologies 470 REDUCE 331,139 6,704 705 22.9 33.8 39.9 30.4 47.9 18.0 20.6 13.9 11.8 12.5 8.2 7.0 3.9 2.9 2.4 1.6 1.7 1.7 21.0 22.8 22.3 460 (2.1) 10.6

Hexaware Technologies 110 ADD 32,373 655 294 3.0 9.1 10.7 (36.8) 207.9 17.3 37.3 12.1 10.3 30.0 10.6 7.1 3.4 3.2 2.7 1.3 2.7 2.9 9.3 26.9 28.0 110 (0.3) 3.2

Infosys 2,864 ADD 1,643,993 33,283 574 119.7 146.1 173.7 10.5 22.0 18.9 23.9 19.6 16.5 16.4 13.2 10.6 6.3 5.3 4.4 2.1 1.6 1.9 28.0 29.3 28.9 3,100 8.2 72.7

Mahindra Satyam 74 REDUCE 87,200 1,765 1,176 4.2 8.7 8.1 68.9 106.3 (6.5) 17.7 8.6 9.2 13.2 6.0 4.7 5.1 3.2 2.4 — — — 27.6 45.7 29.7 80 7.9 6.5

Mindtree 455 ADD 18,734 379 41 24.7 50.5 53.9 (52.7) 104.5 6.8 18.4 9.0 8.4 10.3 6.1 4.7 2.4 2.0 1.7 0.5 1.1 3.6 14.4 23.9 21.5 540 18.6 0.6

Mphasis 382 SELL 80,496 1,630 211 51.8 39.0 34.6 18.8 (24.6) (11.4) 7.4 9.8 11.0 6.3 8.2 7.4 2.4 2.1 1.8 1.0 1.2 1.3 38.6 22.8 17.3 310 (18.8) 2.5

Polaris Financial Technology 165 REDUCE 16,495 334 100 19.3 21.7 24.0 25.7 12.5 10.4 8.6 7.6 6.9 5.3 3.3 2.5 1.6 1.4 1.2 2.2 2.4 2.5 20.2 19.2 18.2 145 (12.4) 1.4

TCS 1,242 REDUCE 2,430,060 49,196 1,957 44.5 54.6 66.4 26.8 22.6 21.6 27.9 22.7 18.7 20.9 15.9 13.0 9.6 7.7 6.2 1.1 1.5 1.9 37.8 37.6 36.6 1,250 0.7 38.0

Tech Mahindra 661 SELL 83,236 1,685 126 48.0 74.7 80.7 (26.3) 55.5 8.0 13.8 8.8 8.2 9.2 9.9 8.1 2.5 2.1 1.9 0.6 0.6 1.5 20.2 27.0 25.5 600 (9.2) 2.1

Wipro 436 ADD 1,070,189 21,666 2,454 21.6 23.2 28.2 14.5 7.4 21.7 20.2 18.8 15.5 15.0 12.8 10.2 4.5 3.8 3.2 1.0 1.1 1.4 24.3 21.7 22.2 460 5.5 14.6

Technology Attractive 5,856,426 118,563 17.0 20.9 18.1 22.8 18.9 16.0 16.5 13.0 10.6 6.0 4.9 4.0 1.5 1.5 1.7 26.2 25.9 25.3

Telecom

Bharti Airtel 350 ADD 1,327,641 26,878 3,798 15.9 12.8 20.8 (32.6) (19.9) 62.9 22.0 27.4 16.8 9.7 8.2 6.3 2.7 2.7 2.3 — — — 13.3 9.9 14.7 390 11.6 56.9

IDEA 94 ADD 309,684 6,270 3,303 2.7 2.1 4.6 (0.5) (22.2) 118.5 34.5 44.3 20.3 11.0 8.6 6.5 2.5 2.5 2.2 — — — 7.6 5.7 11.6 100 6.7 14.0

MTNL 29 RS 18,491 374 630 (10.4) (9.1) (8.4) (33.7) (11.9) (8.1) (2.8) (3.2) (3.5) 1.1 1.4 1.8 0.2 0.2 0.2 — — — (6.1) (5.7) (5.5) — — 0.6

Reliance Communications 105 SELL 215,791 4,369 2,064 6.5 3.9 1.0 (71.1) (39.7) (73.5) 16.0 26.6 100.2 6.6 8.5 7.2 0.5 0.6 0.6 — — — 3.2 2.0 0.6 60 (42.6) 21.8

Tata Communications 240 REDUCE 68,329 1,383 285 (24.9) (27.0) (26.6) (13.0) 8.4 (1.4) (9.6) (8.9) (9.0) 11.8 8.8 7.9 1.9 2.7 4.4 — — — (17.5) (25.1) (37.0) 215 (10.3) 0.9

Telecom Cautious 1,939,936 39,274 (45.8) (27.5) 66.7 28.1 38.7 23.2 9.3 8.4 6.6 1.7 1.7 1.6 — — — 6.0 4.4 6.9

Utilities

Adani Power 79 SELL 188,704 3,820 2,393 2.4 2.3 8.1 200.7 (4.3) 259.1 33.5 35.0 9.7 35.0 23.8 6.8 3.0 2.6 2.0 — — — 8.5 7.9 23.2 60 (23.9) 4.1

CESC 281 BUY 35,132 711 125 39.1 32.1 39.9 13.1 (17.9) 24.4 7.2 8.8 7.0 4.8 6.8 6.5 0.7 0.7 0.6 1.4 1.4 1.7 10.8 8.2 9.4 400 42.2 1.5

JSW Energy 67 REDUCE 110,618 2,239 1,640 5.1 1.6 2.3 12.9 (69.5) 44.8 13.1 43.1 29.8 13.2 19.6 9.1 1.9 1.9 1.8 (1.5) — — 16.1 4.5 6.3 43 (36.2) 2.2

Lanco Infratech 19 BUY 42,348 857 2,223 1.6 0.8 0.9 (22.6) (48.7) 3.0 11.6 22.5 21.9 10.7 10.3 8.6 0.9 0.9 0.8 — — — 9.2 3.9 3.7 33 73.2 5.9

NHPC 22 BUY 274,922 5,566 12,301 1.3 2.0 2.2 (27.2) 49.2 7.2 16.6 11.1 10.4 11.9 11.1 8.0 1.0 1.0 0.9 2.7 2.5 2.6 6.4 9.0 9.1 29 29.8 2.9

NTPC 182 REDUCE 1,501,499 30,398 8,245 10.9 11.4 12.2 4.2 4.1 7.6 16.7 16.0 14.9 12.6 14.0 12.0 2.2 2.0 1.8 2.2 1.9 2.0 13.6 13.0 12.9 175 (3.9) 9.3

Reliance Infrastructure 627 BUY 166,187 3,364 265 58.0 65.3 71.4 (6.5) 12.5 9.4 10.8 9.6 8.8 13.7 7.8 8.7 0.7 0.7 0.6 1.2 1.6 1.8 6.8 11.7 8.9 890 42.0 22.9

Reliance Power 123 SELL 343,909 6,962 2,805 2.7 2.6 2.9 (0.2) (5.3) 13.5 45.2 47.8 42.1 173.7 65.5 27.8 2.0 2.0 1.9 — — — 4.9 4.2 4.5 76 (38.0) 10.4

Tata Power 110 BUY 272,382 5,514 2,468 7.6 4.9 8.7 21.5 (36.3) 77.6 14.4 22.6 12.7 11.1 9.5 8.2 1.9 2.0 1.8 1.3 1.4 1.5 13.8 8.4 14.5 125 13.3 8.2

Utilities Cautious 2,935,700 59,433 4.3 (1.1) 21.9 17.2 17.4 14.3 14.2 13.5 10.2 1.7 1.6 1.5 1.5 1.4 1.5 9.9 9.2 10.4

Others

Carborundum Universal 168 REDUCE 31,425 636 187 9.1 11.6 11.7 67.7 26.6 1.0 18.4 14.5 14.4 11.3 8.3 7.9 3.7 3.0 2.6 1.1 1.4 1.5 25.2 25.9 22.0 150 (10.8) 0.2

Havells India 555 ADD 69,256 1,402 125 24.5 29.7 33.0 334.1 21.1 11.0 22.6 18.7 16.8 14.1 11.8 10.2 9.8 6.9 5.1 0.5 0.5 0.5 53.9 43.3 34.7 500 (9.9) 3.6

Jaiprakash Associates 86 BUY 182,556 3,696 2,126 6.0 6.4 8.1 230.2 6.2 26.1 14.3 13.4 10.6 12.4 11.0 8.6 1.7 1.5 1.4 — — — 13.3 12.0 13.6 97 13.0 26.8

Jet Airways 337 ADD 29,102 589 86 (10.1) (233.8) (24.3) (91.0) 2,225 (89.6) (33.5) (1.4) (13.9) 10.1 (165.4) 10.0 1.8 (6.9) (4.6) — — — (5.0) — — 380 12.7 14.8

SpiceJet 25 BUY 11,100 225 441 2.5 (8.7) 1.9 (1.8) (450.3) (122.1) 10.1 (2.9) 13.0 14.9 (8.0) 11.5 3.5 18.1 7.6 — — — (961) (201.8) 82.1 45 78.9 1.8

Tata Chemicals 368 REDUCE 93,827 1,900 255 26.2 32.9 38.8 (0.7) 25.4 17.9 14.0 11.2 9.5 8.2 5.8 4.9 1.7 1.5 1.3 2.7 3.3 4.1 16.9 18.6 19.5 365 (0.9) 2.4

United Phosphorus 161 ADD 74,327 1,505 462 12.3 14.4 21.0 3.9 16.7 45.6 13.0 11.2 7.7 7.9 5.4 4.5 2.0 1.8 1.5 1.2 1.9 2.2 18.0 17.3 21.3 170 5.6 3.3

Others 491,593 9,952 233.8 (63.1) 298.9 17.3 47.0 11.8 11.0 11.4 7.8 2.1 2.1 1.8 0.8 1.1 1.3 12.1 4.4 15.2

KS universe (b) 48,314,202 978,119 18.4 8.6 20.0 16.4 15.1 12.6 10.4 9.3 7.7 2.5 2.3 2.0 1.4 1.5 1.8 15.4 14.9 15.7

KS universe (b) ex-Energy 40,589,216 821,727 20.6 7.7 21.6 17.9 16.6 13.7 12.2 11.0 9.0 2.9 2.5 2.2 1.3 1.4 1.6 16.0 15.2 16.2

KS universe (d) ex-Energy & ex-Commodities 34,141,364 691,191 19.3 9.2 22.6 19.0 17.4 14.2 13.7 12.0 9.7 3.0 2.6 2.3 1.4 1.4 1.6 15.6 15.0 16.1

Notes:

(a) For banks we have used adjusted book values.

(b) 2010 means calendar year 2009, similarly for 2011 and 2012 for these particular companies.

(c) EV/Sales & EV/EBITDA for KS universe excludes Banking Sector.

(d) Rupee-US Dollar exchange rate (Rs/US$)= 49.40

Dividend yield (%)



Disclosures

Kotak Institutional Equities Research coverage universeDistribution of ratings/investment banking relationships

Source: Kotak Institutional Equities As of December 31, 2011

Percentage of companies covered by Kotak Institutional Equities, within the specified category.

Percentage of companies within each category for which Kotak Institutional Equities and or its affiliates has provided investment banking services within the previous 12 months.

* The above categories are defined as follows: Buy = We expect this stock to deliver more than 17.5% returns over the next 12 months; Add = We expect this stock to deliver 7.5-17.5% returns over the next 12 months; Reduce = We expect this stock to deliver 0-7.5% returns over the next 12 months; Sell = We expect this stock to deliver less than 0% returns over the next 12 months. Our target prices are also on a 12-month horizon basis. These ratings are used illustratively to comply with applicable regulations. As of 31/12/2011 Kotak Institutional Equities Investment Research had investment ratings on 167 equity securities.

13.2%

42.5%

26.9%

17.4%

6.6%4.2%

2.4% 3.0%

0%

10%

20%

30%

40%

50%

60%

70%

BUY ADD REDUCE SELL

Ratings and other definitions/identifiers

Definitions of ratings

BUY. We expect this stock to deliver more than 17.5% returns over the next 12 months.

ADD. We expect this stock to deliver 7.5-17.5% returns over the next 12 months.

REDUCE. We expect this stock to deliver 0-7.5% returns over the next 12 months.

SELL. We expect this stock to deliver less than 0% returns over the next 12 months.

Our target prices are also on a 12-month horizon basis.

Other definitions

Coverage view. The coverage view represents each analyst’s overall fundamental outlook on the Sector. The coverage view will consist of one of the following designations: Attractive, Neutral, Cautious.

Other ratings/identifiers

NR = Not Rated. The investment rating and target price, if any, have been suspended temporarily. Such suspension is in compliance with applicable regulation(s) and/or Kotak Securities policies in circumstances when Kotak Securities or its affiliates is acting in an advisory capacity in a merger or strategic transaction involving this company and in certain other circumstances.

CS = Coverage Suspended. Kotak Securities has suspended coverage of this company.

NC = Not Covered. Kotak Securities does not cover this company.

RS = Rating Suspended. Kotak Securities Research has suspended the investment rating and price target, if any, for this stock, because there is not a sufficient fundamental basis for determining an investment rating or target. The previous investment rating and price target, if any, are no longer in effect for this stock and should not be relied upon.

NA = Not Available or Not Applicable. The information is not available for display or is not applicable.

NM = Not Meaningful. The information is not meaningful and is therefore excluded.

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Documents

India Daily, February 16, 2012