Kotak - New Release - Strategy - The 100 Billion Dollar Club[1](2)

8/9/2019 Kotak - New Release - Strategy - The 100 Billion Dollar Club[1](2)

1/38

Strategy Template.dot

For Private Circulation Only. In the US, this document may only be distributed to QIBs (qualified institutional buyers) as defined under rule 144A of the Securities Act of 1933. This document is not for public distributionand has been furnished to you solely for your information and may not be reproduced or redistributed to any other person. The manner of circulation and distribution of this document may be restricted by law orregulation in certain countries, including the United States. Persons into whose possession this document may come are required to inform themselves of, and to observe, such restrictions.

StrategyINDIA

The 100 Billion Dollar Club . We analyze Indian companies and their attributes suchas (1) IPR (brand and technology), (2) financial and industrial assets and (3) natural

resources that can propel them to US$100 bn market capitalization over a period oftime. We also look at global experience to draw conclusions for India; every decadethrows up new and interesting names. Finally, we assess operating factors that arerequired to achieve and sustain US$100 bn market capitalization.

Asset-based companies: A few banks can and will get there

Other than financial services companies, we are skeptical of any other asset-based companyentering the US$100 bn league from India. Asset-based companies require constantreinvestment to grow and return on invested capital is not high enough in mature businessesto create meaningful value. Most will trade at and around book value.

IPR-based companies: A rarity in India and will likely remain so

Infosys and TCS can make it to the US$100 bn league on a 15-16% CAGR in earnings up toFY2021E and 14-15X P/E multiple. However, their headcount-led services business could faceissues of (1) scalability, (2) manpower and (3) margin pressure. We dont see circumstanceschanging meaningfully in India for creation of large IPR-based companies.

Resource-based companies: Few candidates but right policies critical

RIL and ONGC are obvious candidates to get to US$100 bn market capitalization fairly quickly.For RIL, the migration to a resource-based company from an asset-based cyclical play would becritical. RILs ROIC has not been very high historically and has been supported by favorablefiscal incentives. For ONGC, a combination of (1) favorable government policies on pricing and(2) volume growth from domestic fields (its R/P and RRR are quite high and lend credibility)and judicious overseas acquisitions could drive its market capitalization to the coveted mark.

Global experience: Banks, IPR, natural resource plays dominate the league

BFSI companies (23), IPR companies (16) and natural resources companies (23) dominate thetop-100 global market capitalization companies currently. This list has changed dramatically inevery decade. Not only have the companies in the top-100 list changed over the past threedecades with (1) new companies from previously closed economies getting listed and (2) asset-backed industrial companies losing prominence, even sectors in the top-100 list have changedover the past few decades with the emergence of the IT/media era.

INDIA

June 28, 2010

BSE-30:17,575

INSIDE SBI, HDFC Bank and

ICICI Bank keycandidates to reachUS$100 bn pg9

Infosys and TCS mayget there but largeemployee additionschallenging pg15

RIL and ONGC wellon course to reach

US$100 bn pg18

Sanjeev [email protected]: +91-22-6634-1229

Amit [email protected]: +91-22-6634-1392

Sunita [email protected]: +91-22-6634-1325

Kotak Institutional EquitiesResearch

Important disclosures appearat the back


2/38

2 KOTAK INSTITUTIONAL EQUITIES RESEARCH

India Strategy

TABLE OF CONTENTS

World view: Change is the only constant................................................3

Asset-based companies: A few banks can and will get there ..................9

IPR companies: IT services companies only............................................15

Natural resources companies: Oil companies only.................................18

Appendix 1: Global top-100 market capitalization companies ..............22

Appendix 2: Indian top-100 market capitalization companies...............27

The prices in this report are based on the market close of June 25, 2010.


3/38

KOTAK INSTITUTIONAL EQUITIES RESEARCH 3

Strategy India

WORLD VIEW: CHANGE IS THE ONLY CONSTANTWe note that 23 BFSI companies, 16 IPR-based companies and 23 natural resources companies account for thetop-100 companies by market capitalization currently. This list has changed dramatically over the past threedecades with only 19 survivors of 1989 top-100 list appearing in the current top-100 list. We use the globalexperience as a framework to shortlist and analyze Indian companies. We caution that companies, which donot possess long-term competitive advantages, rarely deliver value even in the medium term; their artificialstrengths, such as regulated markets and political affiliations, disappear quickly.

Companies change, sectors change

Our analysis of the top-100 companies by sectors and countries in 1989, 1999, 2004and 2009 shows a fascinating change in the importance of sectors and countries,which in turn partly reflects the evolution of new technologies and countries. We useyear-end prices for the years to sort companies by market capitalization. The analysis is notperfect in that Japanese stock prices were inflated in the late 1980s and technology stocksall over the world enjoyed frothy valuations in the late 1990s. Nonetheless, the analysis helps

track changes in companies and sectors. Appendix 1 gives the list of top-100 companies bymarket capitalization in 1989, 1999, 2004 and 2009.

We make a few observations on our analysis.

Market capitalization of the top-100 companies. The market capitalization of the top-100 companies was US$11.8 tn in CY2009 compared to US$12.2 tn in CY1999 andUS$7.1 tn in CY1989.

Breakdown by sectors . Exhibit 1 gives the breakdown of the top-100 companies bysectors in 1989, 1999, 2004 and 2009. As can be seen, the BFSI (banking, financialservices and insurance) companies have been fairly consistent with 23 companies in the

2009 top-100 list compared to 27 in 1989.

Exhibit 1: BFSI, IPR-based and natural resources companies dominate the global market capitalizationlistBreakdown of Top-100 market capitalization companies by sectors (#)

2009 2004 1999 1989Automoblies 2 1 3 9Banking & Financial Services 21 21 11 25Chemicals 2 2 1 2Construction 3Consumers 10 7 6 4Diversified 4 4 6 14Electronics 5 6 10 9Insurance 2 5 5 2Media 1 5 5 1Met als & Mi ning 5 1 4Oil & Gas 18 8 5 4Pharmaceuticals 9 14 14 4Retailing 2 3 4 2Services 1 Technology 7 8 12 2Telecom 9 12 18 7Transportation 5Utilities 3 2 3Total 100 100 100 100

Source: FactSet, Kotak Institutional Equities


4/38


India Strategy

Breakdown by geography . Exhibit 2 shows that 24 companies from the US and 28companies from Japan dominated the league in 1989. This shifted to 37 companies forthe US in 2009 against only 5 from Japan. In the meantime, new countries have emergedsuch as China with nine companies and Russia with three. Western Europe has been fairlyconsistent with its IPR-based pharmaceutical, consumer products continuing to do well

along with banks, telecom and utilities, which face little threat from companies fromemerging markets.

Exhibit 2: New countries have emerged on the world mapBreakdown of Top-100 market capitalization companies by countries (#)

2009 2004 1999 1989Argentina 1Australia 4 1 1 Belgium 1 Brazil 4 1Canada 1 2 1China 9 Finland 1 1 France 7 5 3 5Germany 5 5 5 4Hong Kong 2 1 2 1India 1 Indonesia 1Italy 1 4 2 5Japan 5 5 12 28Netherlands 2 3 4 1Norway 1 1Russia 3 1 Saudi Arabia 1 1 South Africa 1South Korea 1 1 9Spain 3 3 1 2Sweden 1 1

Switzerland 4 4 4 2Taiwan 3Thailand 2United Kingdom 8 8 8 8United States 37 56 54 24Total 100 100 100 100


Lessons for India: How big and how fast?

We use the global list of companies and their corresponding sectors as a frameworkto sort and analyze Indian companies. We look at the factors that are the most prevalentamong the large market capitalization companies. Three groups stand out(1) large asset-based companies including financial companies, (2) IPR-based companies in IT and mediaand (3) resource-based companies. We look at the presence and absence of factors that willresult in creation of large market capitalization companies in India.

Large size of the economy and likely strong growth in GDP. Exhibit 3 compares thesize of the Indian economy with other major countries and also shows the per capita GDP(PPP basis) of India relative to other countries. We note that Indias GDP per capita is stillvery low compared to developed countries and we see this as an opportunity for Indiancompanies.


5/38


Strategy India

Exhibit 3: India's GDP-per-capita is the lowest among top-20 global economies but indicates strong growth potentialPPP GDP and GDP per capita of key global economies

PPP GDP (US$ tn) PPP GDP-per-capita (US$)Economy 1989 1999 2004 2009 Economy 1989 1999 2004 2009United States 5,482 9,354 11,868 14,256 United States 22,169 33,502 40,451 46,381

China 844 2,721 4,698 8,765 Australia 17,348 26,321 32,293 38,911 Japan 2,119 3,058 3,666 4,159 Canada 19,152 27,203 33,409 38,025 India 658 1,411 2,096 3,526 United Kingdom 16,086 24,325 30,668 34,619 Germany 1,310 2,055 2,416 2,806 Germany 16,905 25,009 29,281 34,212 United Kingdom 918 1,428 1,835 2,139 France 17,092 24,611 29,255 33,679 Russia NA 999 1,549 2,110 Japan 17,226 24,154 28,703 32,608 France 964 1,444 1,777 2,108 Taiwan 8,985 18,919 24,942 31,834 Brazil 786 1,158 1,495 2,013 Spain 13,183 20,999 26,228 29,689 Italy 917 1,319 1,576 1,740 Italy 16,191 23,172 27,434 29,109 Mexico 555 960 1,232 1,466 Korea 6,962 14,964 21,138 27,978 Korea 296 698 1,015 1,364 Poland 6,117 9,624 12,700 18,072 Spain 511 838 1,111 1,361 Russia NA 6,862 10,740 14,920 Canada 521 826 1,066 1,281 Mexico 6,791 9,940 11,830 13,628

Indonesia 248 465 650 962 Turkey 5,009 7,845 9,844 12,476 Turkey 257 470 659 880 Iran 3,703 6,446 8,767 11,172 Australia 292 501 654 851 Brazil 5,457 6,861 8,231 10,514 Iran 197 403 592 828 China 749 2,163 3,614 6,567 Taiwan 181 418 566 736 Indonesia 1,387 2,243 3,005 4,157 Poland 231 372 485 689 India 779 1,376 1,883 2,941

Source: IMF, Kotak Institutional Equities

We expect Indias GDP to grow rapidly over the next several years (see Exhibit 4), whichwill result in increased demand for various goods and services. In particular, we see

(1) favorable demographics (see Exhibit 5) and (2) high household savings (see Exhibit 6)to result in continued strong demand for various financial products. As a corollary, we seebanks, financial services and insurance (BFSI) companies growing rapidly along with theeconomy and becoming very large entities with market capitalization topping US$100 bnin a few cases over the next decade.

Exhibit 4: Indias nominal GDP to grow to US$6 tn by FY2025EProjected nominal GDP (at current exchange rates) and GDP per capita, March fiscal year-ends, 2010-25E

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

2 0 1 0

2 0 1 1 E

2 0 1 2 E

2 0 1 3 E

2 0 1 4 E

2 0 1 5 E

2 0 1 6 E

2 0 1 7 E

2 0 1 8 E

2 0 1 9 E

2 0 2 0 E

2 0 2 1 E

2 0 2 2 E

2 0 2 3 E

2 0 2 4 E

2 0 2 5 E

1,100

1,200

1,300

1,400

GDP (US$ bn, LHS) GDP per capita (US$, LHS) Population (mn, RHS)

Source: Kotak Institutional Equities estimates


6/38


India Strategy

Exhibit 5: 88% of Indias population to be less than 60 years oldby 2025EIndias age profile in 2025E (% of population)

0

20

40

60

80

100

0 - 4

5 - 9

1 0

- 1 4

1 5

- 1 9

2 0

- 2 4

2 5

- 2 9

3 0

- 3 4

3 5

- 3 9

4 0

- 4 4

4 5

- 4 9

5 0

- 5 4

5 5

- 5 9

6 0

- 6 4

6 5

- 6 9

7 0

- 7 4

7 5

- 7 9

8 0

+

Source: National Commission on Population, Kotak InstitutionalEquities

Exhibit 6: India's high household savings rate to result inmassive cumulative savings and opportunitiesBreakdown of household savings rate by financial products (% ofGDP)

0

4

8

12

16

20

2 0 1 0

2 0 1 1 E

2 0 1 2 E

2 0 1 3 E

2 0 1 4 E

2 0 1 5 E

2 0 1 6 E

2 0 1 7 E

2 0 1 8 E

2 0 1 9 E

2 0 2 0 E

2 0 2 1 E

2 0 2 2 E

2 0 2 3 E

2 0 2 4 E

2 0 2 5 E

Currency Deposits

Shares and debentures Claims on governmentInsurance funds Pension funds


Macro-environment for creation of new technologies and innovation. We do notsee many IPR-based Indian companies becoming really big. The macro-environment justdoes not exist, in our view.

The level of investment in high technology and R&D is too small for any realbreakthrough technology to emerge out of India over the next 10 years despite itssmart human capital. Exhibit 7 compares the R&D spending in India with other majorglobal countries.

The poor quality of education and low ratio of graduates to total intake ofstudents (see Exhibit 8) restricts the availability of the right talent pool for highereducation (beyond graduation).

Exhibit 7: India's R&D expenditure needs to increase for anyprogress in IPR industriesResearch and development expenditure, calendar year-end, 2007 (%of GDP)

Economy R&D (%)Korea 3.5 Japan 3.4 United States 2.7 Germany 2.6 Australia 2.2

France 2.1 Canada 2.0 United Kingdom 1.8 China 1.5 Spain 1.3 Italy 1.1 Russia 1.1 Brazil 1.0 India 0.8 Iran 0.7 Turkey 0.7 Mexico 0.6 Poland 0.6 Indonesia NATaiwan NA

Source: World Bank, OECD, Kotak Institutional Equities

Exhibit 8: Low tertiary GER restricts the availability of the righttalent pool in IndiaGross tertiary enrolment ratio of key economies, calendar year-end,2008 (%)Economy GER (%)Korea 96 United States 82 Australia 75 Russia 75 Spain 69

Italy 67 Poland 67 Canada 60 United Kingdom 59 Japan 58 France 55 Germany 46 Turkey 37 Iran 36 Brazil 30 Mexico 26 China 22 Indonesia 18 India 14 Taiwan NA Notes;(a) Tertiary GER is the percentage of primary school passed-outstudents enrolling in higher (tertiary) education programs.

Source: World Bank, Unesco, Kotak Institutional Equities


7/38


Strategy India

Presence of natural resources. Exhibit 9 compares Indias reserves of coal, iron ore, gasand oil with the top-20 respective countries in those resources. Barring coal and iron ore,India is not really blessed with natural resources. As such, we do not see large Indiannatural resource-based companies dominating the global landscape in the next decade.We note that the number of oil and gas and metals and mining companies among large

market-capitalization companies has increased sharply over the past two decades with asteep increase in commodity prices.

Exhibit 9: India does not have sufficient natural resources to support large natural resources-based companiesReserves of oil, natural gas, coal and iron ore in key global economies

Oil (bn bbls) Natural gas (tcm) Coal (bn tons) Iron ore (bn tons)Rank Country Reserves Rank Country Reserves Rank Country Reserves Rank Country Reserves1 Saudi Arabia 265 1 Russia 44.4 1 US 238 1 Russia 14.0 2 Venezuela 172 2 Iran 29.6 2 Russia 157 2 Australia 13.0 3 Iran 138 3 Qatar 25.4 3 China 115 3 Ukraine 9.0 4 Iraq 115 4 Turkmenistan 8.1 4 Australia 76 4 Brazil 8.9 5 Kuwait 102 5 Saudi Arabia 7.9 5 India 59 5 China 7.2 6 UAE 98 6 US 6.9 6 Ukraine 34 6 India 4.5 7 Russia 74 7 UAE 6.4 7 Kazakhstan 31 7 Kazakhstan 3.3 8 Libya 44 8 Venezuela 5.7 8 South Africa 30 8 Venezuela 2.4 9 Kazakhstan 40 9 Nigeria 5.2 9 Poland 8 9 Sweden 2.2 10 Nigeria 37 10 Algeria 4.5 10 Brazil 7 10 United States 2.1 11 Canada 33 11 Indonesia 3.2 11 Colombia 7 11 Iran 1.4 12 US 28 12 Iraq 3.2 12 Germany 7 12 Canada 1.1 13 Qatar 27 13 Australia 3.1 13 Canada 7 13 South Africa 0.7 14 China 15 14 China 2.5 14 Czech Republic 5 14 Mexico 0.4 15 Angola 14 15 Malaysia 2.4 15 Indonesia 4 15 Mauritania 0.4 16 Brazil 13 16 Egypt 2.2 16 Greece 417 Algeria 12 17 Norway 2.0 17 Hungary 318 Mexico 12 18 Kazakhstan 1.8 18 Pakistan 219 Norway 7 19 Kuwait 1.8 19 Bulgaria 223 India 6 25 India 1.1 20 Turkey 2

Note:(a) The Fe (Iron) content is very low in iron ore from Ukraine and China resulting in limited scope for commercial exploitation.

Source: BP Statistical Review, US Geological Survey, Kotak Institutional Equities

Nature of the market. The structure of the market (nature of the market, number ofplayers and level of competition) also plays a key role in value creation and marketcapitalization eventually. We note the presence of several large gas, power and telecomutilities (we loosely club them as utilities even though many markets are no longerregulated) in the list of large market capitalization companies. Many of them started asregulated monopolies; their large sizes built on near-monopoly positions and incumbentpositions have allowed them to withstand the entry of new players. India may be lessfortunate in this regard.

Power utilities are state-owned and every state has a separate entity. Most ofthe distribution of power in India is controlled by the state utilities and there is nosingle pan-India utility. Every state has a government-owned utility and the process ofunbundling has resulted in further fragmentation of the erstwhile full utilities intogeneration and distribution entities. Private companies exist in a few cities and statesonly and the process of privatization, which started in the late 1990s, has largelystalled. In our view, the opportunity is on the generation side and we expect at leastone company (NTPC), if not others, to eventually reach the US$100 bn marketcapitalization figure.


8/38


India Strategy

Telecom space is too competitive and fragmented. Exhibit 10 shows thefragmented nature of the Indian wireless market. An eventual consolidation may resultin some of the stronger players becoming larger through M&A activity but they areunlikely to create meaningful value, in our view. Wireless penetration levels are alreadyquite high in India and the nature of competition will likely prevent improvement in

profitability and financial returns meaningfully from current levels. We note that thebusiness has been reduced to a cost of capital business (asset-based) from a high-growth, low competition market in its initial years.

The fixed-line market is largely dominated by two incumbent government-ownedcompanies. However, they are in poor financial condition currently given their bloatedworkforce and low productivity and we rule them out as creating meaningful valuegiven their relatively smaller presence in the newer wireless market.

Exhibit 10: Everyones chasing the same consumer in Indian telecom segmentNumber of players with spectrum in 2G (GSM, CDMA), 3G and BWA wireless segments (#)

2G (a) Unique

GSM CDMA Total 3G BWA playersMetros + A circlesDelhi 12 4 16 4 3 14Mumbai 11 4 15 4 3 14Chennai + TN 11 4 15 4 3 13Kolkata 10 4 14 4 3 13Andhra Pradesh 12 4 16 4 3 13Gujarat 11 4 15 4 3 14Karnataka 12 4 16 4 3 13Maharashtra 12 4 16 4 3 13B circlesHaryana 12 4 16 4 3 14Kerala 11 4 15 4 3 14Madhya Pradesh 11 4 15 4 3 14

Punjab 12 5 17 5 3 14Rajasthan 12 4 16 4 3 14Uttar Pradesh (east) 11 4 15 4 3 14Uttar Pradesh (west) 11 4 15 4 3 14West Bengal and A&N islands 10 4 14 5 3 13C circlesAssam 10 4 14 4 3 14Bihar 12 4 16 5 3 14Himachal Pradesh 11 4 15 5 3 15North East 10 4 14 4 3 14Orissa 11 4 15 4 3 14J&K 10 4 14 5 3 14Pan-India

Notes:(a) Including networks not launched yet.

Source: TRAI, Kotak Institutional Equities

Gas-based utilities have to contend with a smaller market opportunity andbureaucratic issues. We note that India has largely tropical and sub-tropical weatherthroughout the 12 months and thus, demand for heating in the winter months is quitelimited. Also, India has chosen to create separate entities for gas distribution inpractically every city, which makes little economic sense, in our view. It will also likelyprevent the creation of large gas-based utilities.


9/38


Strategy India

ASSET-BASED COMPANIES: A FEW BANKS CAN AND WILL GET THEREWe expect some of the larger banks to reach a market capitalization of US$100 bn under a favorable set ofconditions. This should not be too surprising since (1) banking and financial companies are an integral part ofany economy, (2) they grow along with an economy and Indian banks will grow for the next several decadesgiven Indias high GDP growth and (3) the industry has high entry barriers. Among other asset-basedcompanies, NTPC is an obvious choice; other power companies can also emerge.

Banks can do it

Exhibit 11 shows that State Bank of India (SBI), HDFC Bank and ICICI Bank can reacha market capitalization of US$100 bn over the next 10 years with SBI likely reachingit by FY2018E. We give our underlying assumptions regarding (1) credit growth and (2)market share of credit for some of the larger banks in Exhibit 12. We assume that credit willgrow at 16-21% per annum in FY2011-21E. We may be conservative in our assumptions onboth nominal GDP growth and credit growth.

Exhibit 11: SBI can reach US$100 bn market capitalization by FY2018E, ICICI Bank and HDFC Bank by FY2021EKey assumptions that may drive growth of banks, March fiscal year-ends, 2011-21E

2011E 2012E 2013E 2014E 2015E 2016E 2017E 2018E 2019E 2020E 2021EMarket capitalization (US$ bn)SBI 32 37 44 63 72 84 97 113 132 155 212 HDFC Bank 19 22 25 29 35 55 62 71 81 93 130 ICICI Bank 20 22 25 28 33 38 45 65 75 87 123 Axis Bank 11 13 14 16 22 25 29 38 43 54 61 PNB 7 9 11 13 18 22 26 31 37 44 54 Credit growth (%)SBI 23 21 19 20 20 19 18 17 16 15 14 HDFC Bank 25 25 27 27 26 25 25 25 25 25 23 ICICI Bank 19 18 28 27 27 24 24 24 23 23 22 Axis Bank 25 25 30 29 29 26 26 26 26 26 27 PNB 22 21 23 23 23 22 21 20 19 18 17 Market share of credit (%)SBI 20.0 19.9 19.7 19.5 19.3 19.1 18.9 18.7 18.5 18.3 18.1 HDFC Bank 4.0 4.2 4.4 4.6 4.8 5.0 5.2 5.5 5.9 6.3 6.7 ICICI Bank 5.5 5.4 5.7 6.0 6.3 6.5 6.7 7.0 7.4 7.8 8.2 Axis Bank 3.4 3.5 3.7 4.0 4.2 4.4 4.7 5.0 5.3 5.8 6.3 PNB 5.8 5.9 6.0 6.1 6.2 6.3 6.4 6.5 6.6 6.7 6.8


Exhibit 12: Credit growth may grow at around 20% for the next 10 years

Key assumptions behind our growth models for banks, March fiscal year-ends, 2010-21E2010 2011E 2012E 2013E 2014E 2015E 2016E 2017E 2018E 2019E 2020E 2021E

Current GDP (Rs bn) 59,604 66,756 74,767 83,739 93,787 105,042 117,122 130,005 143,656 158,021 173,033 188,606 Growth estimates (%) 12.0 12.0 12.0 12.0 12.0 11.5 11.0 10.5 10.0 9.5 9.0 Nominal multiplier (X) 1.75 1.75 1.75 1.75 1.75 1.75 1.75 1.75 1.75 1.75 1.75Credit growth (%) 21.0 21.0 21.0 21.0 21.0 20.1 19.3 18.4 17.5 16.6 15.8 Credit (Rs bn) 32,147 38,898 47,067 56,951 68,911 83,382 100,163 119,444 141,392 166,136 193,756 224,272 Credit/GDP (%) 54 58 63 68 73 79 86 92 98 105 112 119 Rupee/Dollar (Rs/US$) 45.0 45.0 45.0 45.0 45.0 45.0 45.0 45.0 45.0 45.0 45.0 45.0


We expect a 12.3% CAGR in nominal GDP to result in cumulative savings of US$10 tn overthe next 15 years (see Exhibit 13). Our thematic research team had discussed these positivedrives in more detail in its May 26 report titled Indian Household Savings: US$10 tn up for

grabs over the next 10 years .


10/38


India Strategy

Exhibit 13: We model cumulative savings flow at US$10 tn in FY2010-25EIndia's savings flow, March fiscal year-ends, 2010-25E (US$ bn)

0

300

600

900

1,200

1,500

2 , 0

1 0

2 0 1 1 E

2 0 1 2 E

2 0 1 3 E

2 0 1 4 E

2 0 1 5 E

2 0 1 6 E

2 0 1 7 E

2 0 1 8 E

2 0 1 9 E

2 0 2 0 E

2 0 2 1 E

2 0 2 2 E

2 0 2 3 E

2 0 2 4 E

2 0 2 5 E

Currency Deposits Shares and debenturesClaims on government Insurance funds Pension funds


State Bank of India: The elephant will continue to dance

Exhibit 14 gives our key assumption for SBI on credit growth, ROA, leverage and anydilutions in FY2011-21E. We note that this is a simplified model and does not captureother nuances of quality of book, movement in interest rates and investments. We make thesimplified but realistic assumption that SBI will continue to earn a certain ROA on its balancesheet. We assume ROA at about 1% in our forecast period. RoE would continue to remainat around 15% as regulations will likely become tighter especially for systemically importantplayers.

We make the following observations that will help SBI meet our projections.

Franchisee strength unlikely to be broken; still to remain the largest bank. SBI willlikely remain a direct proxy for playing the growth of the country. SBIs current networkof 12,000 branches (standalone) and 16,000 (group) will enable to stay ahead of itsnearest competitors through the next decade. We assume that SBI will grow its businessat industry-average growth rate of 18.4% CAGR in FY2011-21E. It is currently investingin growing its international presence (currently contributing less than 20% of assets),which would be vital to its next leg of growth.

Building a diversified financial institution; leadership in many products. SBI, similarto ICICI Bank, is building an integrated financial platform capturing most of theopportunities in the financial value chain: Banking, insurance (general and life), primarydealership, institutional broking/investment banking, mutual funds, wealth managementand private equity. The strength of SBI has been its ability to gain leadership positions insome of these segments (insurance, loans and deposits, loan syndication among others).

Risks. We identify the following risks. (1) As a public sector bank, changes to topmanagement will result in frequent change in strategy. (2) Direct proxy to the economyand affected by the vagaries of growth; however, size (lower concentration risk) anddiversified balance sheet provide some comfort. (3) Market share of the group maydecline unless the bank is able to identify new geographies for growth.


11/38


Strategy India

Exhibit 14: SBI can reach US$100 bn market capitalization by FY2018EKey assumptions behind our SBI model, March fiscal year-ends, 2010-21E (Rs bn)

2010 2011E 2012E 2013E 2014E 2015E 2016E 2017E 2018E 2019E 2020E 2021EMarket capitalization 1,443 1,687 1,988 2,834 3,257 3,765 4,375 5,101 5,961 6,966 9,551 Market capitalization (US$ bn) 32 37 44 63 72 84 97 113 132 155 212 Implied price/book (X) 1.9 2.0 2.1 1.9 1.9 2.0 2.0 2.1 2.1 2.2 2.0 Implied book value 1,039 1,172 1,330 1,522 2,411 2,242 2,517 2,839 3,214 3,646 4,137 6,302 Credit 6,319 7,763 9,372 11,197 13,411 16,060 19,092 22,528 26,385 30,670 35,382 40,506 Growth (%) 22.9 20.7 19.5 19.8 19.8 18.9 18.0 17.1 16.2 15.4 14.5 Market share (%) 19.7 20.0 19.9 19.7 19.5 19.3 19.1 18.9 18.7 18.5 18.3 18.1 Balance sheet 10,534 12,520 14,664 17,521 20,984 25,130 29,874 35,251 41,286 47,991 55,363 63,381 Net profit 108 126 152 186 227 274 327 389 458 530 609 RoA (%) 0.91 0.94 0.93 0.95 0.97 0.99 1.00 1.01 1.02 1.03 1.03 1.03 RoE (%) 14.8 15.5 15.8 16.8 14.9 14.0 15.1 16.0 16.9 17.5 17.9 15.3 Dividend payout ratio 20 21 22 24 25 27 28 30 31 Movement in net worthOpening net worth 845 966 1,531 1,708 1,917 2,163 2,448 2,778 3,152 Add: Net profits 152 186 227 274 327 389 458 530 609 Add: Proceeds from new issuances 418 1,227 Less: Dividends (30) (39) (50) (64) (82) (103) (128) (156) (186)

Closing net worth 659 744 845 966 1,531 1,708 1,917 2,163 2,448 2,778 3,152 4,801 Growth (%) 13 14 14 58 12 12 13 13 13 13 52 Dilution proceedsBalance sheet/net worth (X) 16.0 16.8 17.4 18.1 13.7 14.7 15.6 16.3 16.9 17.3 17.6 13.2 Recommeded leverage (X) 17.5 17.5 17.5 17.5 17.5 17.5 17.5 17.5 17.5 17.5 17.5 Requires dilution (Yes or No) NO YES NO NO NO NO NO NO YESExtent of dilution (X) 0.20 0.20 0.20 0.20 0.20 0.20 0.20 0.20 0.20 Number of shares ( mn) 635 635 635 635 635 762 762 762 762 762 762 762 Fresh shares (mn) 127 152 Closing outstanding shares (mn) 635 635 635 635 762 762 762 762 762 762 762 914 Implied book value (1-year forward) 1,172 1,330 1,452 1,599 1,776 1,986 2,231 2,517 2,846 3,220 3,643 Price/book (X) 1.9 2.0 2.1 1.9 1.9 2.0 2.0 2.1 2.1 2.2


HDFC Bank: Maintenance of high profitability (ROA) key

Exhibit 15 gives our key assumption for HDFC Bank on credit growth, ROA, leverageand any dilutions in FY2011-21E. We make the following observations that may supportor impede HDFC Banks growth towards the US$100 bn market capitalization goal over thenext decade.

Strong franchise to lead to high and profitable growth . With a liability base that hasnearly 50% CASA and an asset base that focuses on retail (especially unsecured that isabove par versus most of its peers), HDFC Bank is well positioned to participate in thegrowth of savings and retail loans over the next decade. We expect its growth to be

above industry-average growth rate given the size of the opportunity relative to its marketshare. It also stands to gain from a large distribution opportunity for all third party/wealthmanagement products; it is already one of the leading distributors of third party.

Successful inorganic growth: Option to maintain its strong growth trajectory. With two acquisitions in a span of a decade, HDFC Bank can look at inorganic growthopportunities actively to propel it to a higher-growth trajectory. Successful integrationand improvement in productivity of Times Bank in 2000 and Centurion Bank of Punjab in2009 are examples of quick turnaround for the bank.

Risks. HDFC Bank has specialized in banking/distributing primarily with most of the otherfinancial products (mutual fund and insurance) being manufactured by its parent, HDFC.New growth would be led by (1) deeper penetration in existing geographies and(2) geographical expansion rather than by new products. We do not see meaningfulthreat to existing franchise although HDFC Bank would have to ensure high ROAs (1.45%in FY2010) that would support its high valuations without it taking undue leverage risks.


12/38


India Strategy

Exhibit 15: HDFC Bank can reach US$100 bn market capitalization by FY2021EKey assumptions behind our HDFC Bank model, March fiscal year-ends, 2010-21E (Rs bn)

2010 2011E 2012E 2013E 2014E 2015E 2016E 2017E 2018E 2019E 2020E 2021EMarket capitalization 864 1,003 1,143 1,311 1,556 2,478 2,799 3,185 3,648 4,202 5,863 Market capitalization (US$ bn) 19 22 25 29 35 55 62 71 81 93 130 Implied price/book (X) 3.5 3.5 3.4 3.3 3.3 3.0 3.0 3.0 3.0 3.0 2.7 Implied book value 470 536 622 731 864 1,026 1,816 1,710 1,945 2,228 2,566 3,978 Credit 1,258 1,573 1,967 2,494 3,155 3,985 4,987 6,234 7,803 9,751 12,147 14,957 Growth (%) 25.0 25.1 26.8 26.5 26.3 25.2 25.0 25.2 25.0 24.6 23.1 Market share (%) 3.9 4.0 4.2 4.4 4.6 4.8 5.0 5.2 5.5 5.9 6.3 6.7 Balance sheet 2,225 2,708 3,329 4,221 5,341 6,744 8,441 10,551 13,208 16,503 20,558 25,315 Net profit 39 51 62 77 96 118 145 178 218 266 322 RoA (%) 1.45 1.56 1.67 1.64 1.61 1.58 1.55 1.52 1.49 1.46 1.43 1.40 RoE (%) 16.1 17.0 19.2 20.0 21.1 22.1 18.1 16.4 17.7 19.0 20.2 17.9 Dividend payout ratio 18.6 18.6 18.6 20 21 23 24 26 27 29 30 32 Movement in net worthOpening net worth 285 335 396 470 831 939 1,069 1,224 1,410 Add: Net profits 62 77 96 118 145 178 218 266 322 Add: Proceeds from new issuances 272 555 Less: Dividends (12) (16) (22) (28) (37) (48) (62) (80) (102)

Closing net worth 215 245 285 335 396 470 831 939 1,069 1,224 1,410 2,185

Growth (%) 14 16 18 18 19 77 13 14 15 15 55 Dilution proceedsBalance sheet/net worth (X) 10.3 11.0 11.7 12.6 13.5 14.4 10.2 11.2 12.4 13.5 14.6 11.6 Recommeded leverage (X) 14 14 14 14 14 14 14 14 14 14 14 Requires dilution (Yes or No) NO NO NO YES NO NO NO NO YESExtent of dilution (X) 0.20 0.20 0.20 0.20 0.20 0.20 0.20 0.20 0.20 Number of shares ( mn) 458 458 458 458 458 458 458 549 549 549 549 549 Fresh shares (mn) 92 110 Closing outstanding shares (mn) 458 458 458 458 458 458 549 549 549 549 549 659 Implied book value (1-year forward) 536 622 672 733 807 897 1,005 1,134 1,289 1,475 1,696 Price/book (X) - 3.5 3.5 3.4 3.3 3.3 3.0 3.0 3.0 3.0 3.0


ICICI Bank: Right lessons from past may help it make the cut-off

Exhibit 16 gives our key assumption for ICICI Bank on credit growth, ROA, leverageand any dilutions in FY2011-21E. We make the following observations that may supportor impede ICICIs growth towards the US$100 bn market capitalization goal over the nextdecade.

Pace of turnaround important after an eventful decade. The new decade offerssignificant opportunities to grow after a couple of years of slowdown. In our view, ICICI isin a good position to start growing again(1) CASA is at comfortable levels of 40%(sustainable at a marginally lower level), (2) capital is comfortable with tier-1 at 14%,(3) credit costs have fallen with lower slippages, and (4) cost-income ratio is at around40%. ICICI Bank has had a checkered past decade with the first half showing rapidgrowth and innovation but the second half of FY2010 saw balance sheet contraction andpartial exits from various products.

Positive on innovation; another diversified play . ICICI Bank is less of a play on theeconomy but more of a play on retail savings and loan growth. Savings and consumptionare its growth areas with (1) savings through insurance, mutual funds and wealthmanagement services and (2) consumption through housing, auto and credit cards.Innovation has helped the bank grow rapidly in the past and we continue to see its focuson bringing technology to a wider audience. The bank led the previous wave that resultedin (1) higher acceptance amongst its customers to move from branch banking to

online/off branch platform (ATM, debit/credit cards), (2) higher share of customers walletthrough 3-in-1 accounts (broking, demat and banking) and (3) wealth managementservices (third-party distribution). Its early investments in insurance (general and life),mutual funds, and venture capital are helping it reap higher valuations.


13/38


Strategy India

Risks. We do not see any major risks to our thesis. (1) ICICI bank is currently wellcapitalized and its subsidiaries (especially insurance) would not require any further capitalinfusion. (2) ICICI can grow along with natural growth in the Indian economy withoutresorting to aggressive tactics seen in the past. However, growth is crucial to leveragecapital and improve RoEs from current levels of below 10%. It is unlikely to trade at a

high P/B (2X or higher) without improvement in its ROEs. (3) Liability franchise has shownstrong improvement although it is still dependent on wholesale segment.

Exhibit 16: ICICI Bank can reach US$100 bn market capitalization by FY2021EKey assumptions behind our ICICI Bank model, March fiscal year-ends, 2010-21E (Rs bn)

2010 2011E 2012E 2013E 2014E 2015E 2016E 2017E 2018E 2019E 2020E 2021EMarket capitalization 920 987 1,115 1,274 1,470 1,711 2,010 2,945 3,378 3,907 5,517 Market capitalization (US$ bn) 20 22 25 28 33 38 45 65 75 87 123 Implied price/book (X) 1.7 1.7 1.7 1.8 1.9 2.0 2.0 1.8 1.9 2.0 1.8 Implied book value 463 492 528 574 630 699 783 884 1,439 1,323 1,471 2,308 Credit 1,812 2,156 2,535 3,238 4,125 5,241 6,497 8,034 9,934 12,254 15,066 18,336 Growth (%) 19.0 17.6 27.7 27.4 27.1 23.9 23.7 23.7 23.4 22.9 21.7 Market share (%) 5.6 5.5 5.4 5.7 6.0 6.3 6.5 6.7 7.0 7.4 7.8 8.2 Balance sheet 3,634 3,956 4,484 5,728 7,297 9,272 11,492 14,211 17,573 21,677 26,652 32,436 Net profit 53 65 77 97 120 148 179 217 262 315 376 RoA (%) 1.1 1.4 1.5 1.5 1.5 1.5 1.4 1.4 1.4 1.3 1.3 1.3 RoE (%) 8.0 10.0 11.5 12.6 14.4 16.3 17.9 19.3 16.7 15.5 16.9 14.9 Dividend payout ratio 33 33 33 34 35 36 37 37 37 37 37 37 Movement in net worthOpening net worth 589 640 703 780 873 986 1,605 1,770 1,968 Add: Net profits 77 97 120 148 179 217 262 315 376 Add: Proceeds from new issuances 483 883 Less: Dividends (26) (34) (43) (55) (66) (80) (97) (117) (139)

Closing net worth 516 549 589 640 703 780 873 986 1,605 1,770 1,968 3,088 Growth (%) 6 7 9 10 11 12 13 63 10 11 57 Dilution proceedsBalance sheet/net worth (X) 7.0 7.2 7.6 9.0 10.4 11.9 13.2 14.4 10.9 12.2 13.5 10.5 Recommeded leverage (X) 14 14 14 14 14 14 14 14 14 14 14 Requires dilution (Yes or No) NO NO NO NO NO YES NO NO YESExtent of dilution (X) 0.20 0.20 0.20 0.20 0.20 0.20 0.20 0.20 0.20

Number of shares ( mn) 1,115 1,115 1,115 1,115 1,115 1,115 1,115 1,115 1,115 1,338 1,338 1,338 Fresh shares (mn) 223 268 Closing outstanding shares (mn) 1,115 1,115 1,115 1,115 1,115 1,115 1,115 1,115 1,338 1,338 1,338 1,605 Implied book value (1-year forward) 492 528 579 642 719 812 925 1,062 1,226 1,425 1,662 Price/book (X) 1.7 1.7 1.7 1.8 1.9 2.0 2.0 1.8 1.9 2.0


Life Insurance of India: Insurance behemoth will be there provided it lists

Exhibit 17 gives details of LICs annual premium income and number of policies.We note that LICs premium has grown quite strongly over the past several years despiteentry of new competition. Exhibit 18 shows LICs AUM and growth in the same over thepast several years. We see insurance as a big opportunity in India as highlighted in our May2010 report on household financial savings.


14/38


India Strategy

Exhibit 17: LIC's premium mobilizations have increased rapidlyover the yearsLIC's premia and policies issued, March fiscal year-ends, 200 2 -09

0.5 0.50.6

0.7

0.9

1.3

1.5 1.6

-

0.6

1.2

1.8

2

0 0 2

2

0 0 3

2

0 0 4

2

0 0 5

2

0 0 6

2

0 0 7

2

0 0 8

2

0 0 9

-

15

30

45Annual premium (Rs bn, LHS)

Policies (mn, RHS)

Source: LIC, Kotak Institutional Equities

Exhibit 18: LIC has a large investment bookLIC's investment book, March fiscal year-ends, 200 2 -09

1.92.3

3.03.6

4.7

5.5

6.8

8.0

-

3.0

6.0

9.0

2 0 0 2

2 0 0 3

2 0 0 4

2 0 0 5

2 0 0 6

2 0 0 7

2 0 0 8

2 0 0 9

-

15

30

45AUMs (Rs tn, LHS)

YoY (%, RHS)

Source: LIC, Kotak Institutional Equities

NTPC: Can power ahead to US$100 bn if it executes well

Exhibit 19 shows that NTPCs market capitalization can reach US$100 bn if it makessignificant investment in incremental power capacities. Our reverse valuation showsthat NTPC will need to achieve installed capacities of about 148 GW (compared to extantcapacity of ~31 GW) of power capacities to achieve a target market capitalization of US$100bn. We use 2.3X P/B multiple to value NTPCs businesses.

We justify our 2.3X P/B multiple based on (1) cost of equity of 12% and 4% inflation in thelong term, and (2) sustainable RoE of 22%. The last assumption would depend oncontinuation of the current regulations, which allow for 15.5% post-tax RoE andincremental returns on savings from operational efficiencies. We note that the current networth of NTPC of Rs624 bn includes a large proportion of investments in cash and liquidinvestments (~Rs249 bn) and capital work in progress (Rs85 bn), which we assume wouldconvert into operational equity yielding returns of 22%.

Exhibit 19: NTPC will need to increase its net worth by 3X to achieve a market capitalization ofUS$100 bnCapacities required for NTPC to reach US$100 bn market capitalization, FY2014E basis

Key driver

Power capacityDesired market capitalization (US$ bn) 100 Target share price (Rs) 546 Target P/B multiple (X) 2.3 Target net worth (a) (Rs bn) 2,000 Required capacities (GW) 148 Required RoE (%) 22.0 RoE in FY2014E (%) 18 FY2010 networth (Rs bn) 624 FY2014E networth (b) (Rs bn) 918 Gap in networth (a) - (b) (Rs bn) 1,082 Likely market capitalization on FY2014E networth (US$ bn) 46 Exchange rate (Rs/US$) 45



15/38


Strategy India

IPR COMPANIES: IT SERVICES COMPANIES ONLYWe would be positively surprised to see very large IPR-based companies emerging out of India in the nextdecade. India does not have the requisite macro-environment currently to support R&D, large investments innew technologies and innovation. Almost all Indian IT and pharmaceutical companies derive theircompetitive advantage from low cost of production of IT services or generic pharmaceuticals. Nonetheless,we see (1) the large size of global IT spending and (2) Indian companies relatively small share as providingcertain companies the opportunity to grow for the next decade and likely beyond.

IT services companies offer the only hope

Exhibits 20 and 21 give a set of assumptions under which the two largest Indian ITcompanies, TCS and Infosys, can reach a market capitalization of US$100 bn by end-FY2020. We note that no pure-play IT services company around the world has achieved amarket capitalization of US$100 bn. The challenge for TCS and Infosys to reach US$100 bnis huge and will require perfect execution on (1) expansion of service offerings, increasinggeographic coverage, increasing non-linearity and building a truly global delivery network

and (2) protecting profitabilityan envious task given that super-normal returns earned byTier-1 Indian IT companies may erode over a period of time with more competition andmaturity of clients sourcing strategies. On the positive side, the addressable market sizeshould not be a limiting factor in the path to US$100 bn, in our view.

In our assessment, the US$100 bn target for market capitalization looks achievable forInfosys and TCS given (1) their small revenue market share of global IT spending currentlyand (2) the large opportunity size. However, employee additions may be more challenging.

Exhibit 20: 15% CAGR in earnings should get Infosys to US$100 bn market capitalization by FY2021EPath to US$100 bn market capitalization by March 2020

CommentsCurrent share price (Rs/share) 2,778 Shares outstanding (mn) 574 Current market capitalization (Rs bn) 1,594 Current market capitalization (US$ bn) 35 Target market capitalization in 10 years (US$ bn) 100 Market capitalization CAGR (%) 10.9 Total return to shareholders (a) (%) 11.9 Target market capitalization at end-March 2020 (US$ bn) 100 Steady-state PE multiple (X) - 1-year forward 15 Required earnings FY2021E (US$ bn) 6.7 FY2011E earnings (US$ bn) 1.6 10-years earnings CAGR (%) 15.4

What does US$6.7 bn net income mean?FY2011E net margin (%) 26.3 FY2021E net margin (%) 23.3 Assuming 30 bps per annum net margin declineRevenuesRequired FY2021E revenues (US$ bn) 28.6 FY2011E revenues (US$ bn) 6.1 Required 10-year revenue CAGR (%) 16.8 Total Indian IT services revenues (including domestic, FY2010E, US$ bn) (b) 63.7 Infosys revenue market share of Indian IT services revenues (%, FY2010E) 7.5 Assumed revenue market share for Infosys in FY2021E 10.0 Required Indian IT services revenues FY2021E (US$ bn) 286 Required 11-year Indian IT services revenue CAGR (%) 14.6 EmployeesRequired FY2021E revenues (US$ bn) 28.6 Revenue/employee - FY2011E (based on end-period total employees, US$) 45,675 Revenue/employee - FY2021E (based on end-period total employees, US$) 55,677 Assuming 2% per annum increase in productivityRequired employees at end-FY2021E (#) 513,843 IBM has ~400,000 employees worldwideend-FY2011E employee base 132,858 Required 10-year revenue CAGR (%) 14.5 Required employee net-adds over 10 years 380,985 Required employee net adds per annum (average) 38,098 Peak single-year employee net adds (FY2007) 19,526

Note:(a) Including assumed 1% dividend yield.(b) Nasscom estimate.



16/38


India Strategy

Exhibit 21: 15% CAGR in earnings should get TCS to US$100 bn market capitalization by FY2021E; employee additions a challengePath to US$100 bn market capitalization by March 2020

CommentsCurrent share price (Rs/share) 759 Shares outstanding (mn) 1,956 Current market cap (Rs bn) 1,484 Current market cap (US$ bn) 33 Target market capitalization in 10 years (US$ bn) 100 Market cap CAGR (%) 11.7 Total return to shareholders (a) (%) 13.7 Target market cap - end-March 2020 (US$ bn) 100 Steady-state PE multiple (X) - 1-year forward 14 Required earnings FY2021E (US$ bn) 7.1 FY2011E earnings (US$ bn) 1.8 10-years earnings CAGR (%) 14.9

What does US$7.1 bn net income mean?FY2011E net margin (%) 22.7 FY2021E net margin (%) 18.7 Assuming 40 bps per annum margin declineRevenuesRequired FY2021E revenues (US$ bn) 38.2 FY2011E revenues (US$ bn) 7.9 Required 10-year revenue CAGR (%) 17.1 Total Indian IT services revenues (including domestic, FY2010E, US$ bn) (b) 63.7 TCS revenue market share of Indian IT services revenues (%, FY2010E) 10.0 Assumed revenue market share for TCS in FY2021E (%) 13.3 Required Indian IT services revenues FY2021E (US$ bn) 286 Required 11-year CAGR (%) 14.6 EmployeesRequired FY2021E revenues (US$ bn) 38.2 Revenue/employee - FY2011E (based on end-period total employees, US$) 40,981 Revenue/employee - FY2021E (based on end-period total employees, US$) 49,955 Assuming 2% per annum increase in productivityRequired employees at end-FY2021E (#) 764,296 IBM has ~400,000 employees worldwideend-FY2011E employee base 191,811 Required 10-year revenue CAGR (%) 14.8 Required employee net-adds over 10 years 572,485

Required employee net adds per annum (average) 57,248 Peak single-year employee net adds (FY2009) 32,313

Note:(a) Including assumed 2% dividend yield.(b) Nasscom estimate.


We make the following observations on the required parameters for Infosys and TCS togrow to US$100 bn market capitalization by FY2021E.

Revenue growth. We compute the implied growth of the Indian IT industry at 14.6%

CAGR for the next 10 years assuming that Infosys and TCS are able to increase theirmarket share to 10% and 13.3% by FY2021E from the current 7.5% and 10%. Webelieve a 14.6% CAGR in IT revenues is achievable given the large opportunity for theIndian IT industry to grow its market share in the worldwide IT spending market. Indiascurrent market share is just 4.8% based on current industry revenues of US$64 bn.

We note that the Indian IT industrys revenues grew at a CAGR of 25% in FY2004-10.Even during the downturn in the last year, it grew by 5% and NASSCOM has projected13-15% growth rate for the Indian IT industry (exports only) for FY2011E, which couldturn out to be conservative, in our view.

Net profit margin assumptions. We model net profit margin of Infosys and TCS to

decline by 300 bps and 400 bps over FY2011-21E to reach 23.3% and 18.7% inFY2021E compared to FY2011E net profit margin of 26.3% for Infosys and 22.7% forTCS. We assume that (1) more competition and (2) maturity of certain businesses of theirclients will result in more subdued margins and financial returns over a period of time.


17/38


Strategy India

P/E multiple. We see our 15X and 14X FY2021E net income multiples as reasonable aswe expect revenues and profits of the Indian IT companies to continue to grow beyondFY2021E.

Employees. Infosys would require ~510,000 employees by FY2021E (IBM has ~400,000employees currently) compared to ~130,000 employees at end-FY2011E, to reach ourFY2021E revenue target. It would need to add ~38,000 employees per year duringFY2011-21E versus ~19,000 peak single-year employee net additions. Similarly TCS wouldrequire ~760,000 employees by FY2021E to reach our FY2021E revenue target. This maybe a tough task given that it will likely have ~192,000 employees at end-FY2011E. TCSwould need to add ~57,000 employees per year during FY2011-21E versus ~32,000 peaksingle-year employee net additions.

Pharmaceuticals: Generics business unlikely to become very big

We note that most large Indian pharmaceutical companies derive all of theirrevenues from generics (see Exhibit 22) and there is hardly any focus on original moleculeresearch. We see generics as a low value-creation business and in the long run, companiesmay find it hard to sustain their competitive advantages. Large Indian pharmaceuticalcompanies are quite small by global standards and may look at overseas acquisitions tobecome larger but this would entail meaningful dilution, which Indian major shareholdersmay not want at this stage. On the other hand, we do not rule out Indian majorshareholders selling to global majors as witnessed in the (1) Ranbaxy Laboratories-DaiichiSankyo and (2) Piramal Healthcare-Abbot deals.

Some of the Indian pharmaceutical majors are involved with original drug molecule researchand development, which may provide significant upside to their valuation if successful at thedevelopment as well as distribution level; however, this is a likely event risk (positive) that isvery difficult to predict beforehand.

Exhibit 22: Indian pharmaceutical companies derive all of their revenues from genericsBreak-up of generic sales revenues of Indian pharmaceutical companies, March fiscal year-ends, 2010 (%)

Market cap Revenues(US$ mn) (US$ mn) India US/Europe ROW API

Cipla 5,996 1,131 46 11Dr Reddy's Laboratories 5,408 1,445 15 38 17 30Glenmark Pharmaceuticals 1,610 514 31 36 23 11Lupin 3,647 1,000 27 38 20 15Ranbaxy Laboratories 4,160 1,546 19 26 44 11Sun Pharmaceuticals 7,980 860 45 30 12 13

43

Finished dosage (%)

Source: Company data, Kotak Institutional Equities


18/38


India Strategy

NATURAL RESOURCES COMPANIES: OIL COMPANIES ONLYWe believe RIL and ONGC can reach US$100 bn market capitalization fairly quickly led by a combination of(1) their large extant sizes; RILs current market capitalization is US$68 bn and ONGCs US$58 bn, (2) largecash flows that can be used to create value through successful exploitation of E&P assets, (3) potentialaddition to E&P reserves and (4) favorable pricing policy for ONGC in the medium term that may allow it torealize global crude oil prices as compared to US$50-55/bbl over the past few years. NMDC is the othercandidate that can reach US$100 bn market capitalization if it ramps up production from its considerablereserves.

RIL: Transformation to resource company from asset-based company critical

Exhibit 23 shows that RILs market capitalization can reach US$100 bn if it makessignificant oil and gas discoveries. Our reverse valuation shows that RIL will need to showadditional reserves of about 63 tcf of recoverable gas reserves or 3 bn bbls of recoverable oilreserves by FY2014E for it to achieve a target market capitalization of US$100 bn. We use10X P/E multiple on our FY2014E EPS to value RILs extant businesses including its two

refineries, chemical businesses and extant producing oil and gas assets (KG D-6, PMT,Yemen).

We justify our 10X P/E multiple based on (1) cost of equity of 12.5% and 2% inflation in thelong term, (2) mid-cycle refining margin of US$10.9/bbl in FY2014E, (3) mid-cycle chemicalmargins and (4) profits of the E&P business sustaining in perpetuity. The last assumptionwould depend on RIL discovering more oil and gas reserves and bringing the same underproduction once cash flows from its extant oil and gas assets start declining due to (1) lowershare of profit petroleum at higher levels of investment multiples (IM), (2) decline inproduction due to finite life of fields and (3) higher taxation.

Exhibit 23: RIL will need to convert its large cash into high-yielding assets to reach US$100 bn market

capitalizationOil and gas reserves required for RIL to reach US$100 bn market capitalization, FY2014E basis

Key driverGas reserves Oil reserves

Desired market capitalization (US$ bn) 100 100 Target share price (Rs) 1,511 1,511 Target P/E multiple (X) 10.0 10.0 Target net profit (a) (Rs bn) 450 450 FY2010 net profit (Rs bn) 162 162 FY2014E net profit (b) (Rs bn) 297 297 Gap in net profit (a) - (b) (Rs bn) 153 153 Likely market capitalization on FY2014E net profit (US$ bn) 66 66 Value of other businesses 1 1 Gap in market capitalization (US$ bn) 32 32 Valuation of 1 bn boe of gas reserves or 1 bn bbls of oil reserves (US$/bbl) 3 10 Required bn bbls of oil equivalent of gas or oil reserves (bn bbls) 11 3.2 Required tcf of proven gas reserves (tcf) or oil reserves (bn bbls) 63 3.2 Exchange rate (Rs/US$) 45 45


Exhibit 24 shows that RILs market capitalization can reach US$100 bn by FY2014E if RIL(1) confirms 35 tcf of gas reserves in NEC-25, KG D-3, KG D-9 and MN D-4 blocks assumedby us and (2) invests its Rs420 bn (US$9.3 bn) of net cash as of end-FY2014E in assets thatcreate value. In our exercise, we have valued the cash on RILs balance sheet as cash and ourSOTP-based fair valuation comes to US$88 bn. The amount of value creation from the largecash flow generation over the next few years (we model US$32 bn in FY2011-14E) woulddepend on the use of cash(1) E&P assets may generate likely higher IRRs and value,(2) petrochemical and refining assets will likely not generate much value and (3) overseasacquisitions, if any, are unlikely to create much value in the short term given that assets areunlikely to be available cheap currently. RIL has identified power and telecom as othergrowth areas but we see them as unnecessary diversifications.


19/38


Strategy India

Exhibit 24: RIL's market capitalization can reach US$100 bn by FY2014ESum-of-the-parts valuation of Reliance Industries, FY2014E basis (Rs)

Valuation base (Rs bn) Multiple (X) EV ValuationOther EBITDA Multiple EV/EBITDA (Rs bn) (Rs/share)

Chemicals 104 6.5 677 227

Refining & Marketing 170 6.5 1,102 370Oil and gasproducing (PMT and Yemen) 20 5.0 98 33Gasproducing and developing (DCF-based) (a) 1,123 1,123 377KG D-6 389 389 130NEC-25 171 171 57CBM 53 53 18KG D-3 157 157 53KG D-9 196 196 66MN D-4 158 158 53

OilKG-DWN-98/3 (b) 81 81 27Investments other than valued separately 105 105 35Loans & advances to affiliates 4 4 1Cash with subsidiary from sale of treasury shares 86 86 29Retailing 52 80% 42 14SEZ development 30 80% 24 8Total enterprise value 3,342 1,122Net debt adjusted for 50% of C-WIP of E&P assets (599) (201)Implied equity value 3,940 1,331

Note:(a) We value KG D-6, NEC-25, CBM, KG D-3, KG D-9 and MN D-4 blocks on DCF.(b) 180 mn bbls of recoverable reserves based on gross OOIP of 0.5 bn bbls.(c) We use 2.978 bn shares (excluding treasury shares) for per share computations.


We would caveat that RILs historical returns on its traditional asset-based businesses havenot been high, which makes us somewhat skeptical about meaningful creation from thetraditional use of cash. Exhibit 25 shows RILs ROACE and CROCI for FY1996-2010 hasaveraged 16% and 17%. We exclude other income adjusted for tax from the numerator andcash, investment and C-WIP from the denominator for computing its core ROACE andCROCI. We also note that (1) RILs historical profits have been boosted by a combination offiscal incentives such as sales tax incentives and income tax exemption and (2) high tariffprotection on its chemical and refining businesses in the 1990s and early 2000s.

Exhibit 25: RIL's ROACE and CROCI have averaged 16% and 17% in FY1996-2010RoACE and CROCI for RIL, March fiscal year-ends, 1996-2010 (%)

0

5

10

15

20

25

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

RoACE CROCI(%)

Source: Company, Kotak Institutional Equities estimates


20/38


India Strategy

ONGC: Favorable policy action will get it there fairly easily and quickly

Exhibit 26 shows that ONGCs market capitalization can reach US$100 bn if (1) itreceives crude oil price of US$81/bbl or (2) it receives crude oil price of US$77/bbland natural gas price of US$6/mn BTU in FY2014E. Our base-case crude priceassumption for FY2014E is US$80/bbl (Dated Brent basis) but our realized crude price

assumption is US$57/bbl only after factoring in discount on crude oil of Rs175 bn(US$23/bbl) pertaining to the subsidy-sharing system.

Exhibit 26: ONGC would need a favorable pricing/subsidy regime to reach US$100 bn marketcapitalizationOil and gas prices required for ONGC to reach US$100 bn market capitalization, FY2014E basis

Key driverOil prices Oil & gas prices

Desired market capitalization (US$ bn) 100 100 Target share price (Rs) 2,104 2,104 Target P/E multiple (X) 10.0 10.0 Target net profit (a) (Rs bn) 450 450 Required crude oil price (US$/bbl) 81 77 Required natural gas price (US$/mn BTU) 4.2 6.0 Net realized crude oil price in FY2014E (US$/bbl) 57 57 FY2014E net profit (b) (Rs bn) 336 336 Likely market capitalization on FY2014E net profit (US$ bn) 75 75 Exchange rate (Rs/US$) 45 45


ONGCs market capitalization can increase faster if the government was to deregulatepricing of auto fuels over the next few months and compensate the downstream oilcompanies for their under-recoveries on cooking fuels fully from the budget. ONGC and twoother state-owned entities have borne about 30% of the gross under-recoveries on autoand cooking fuels in FY2008-10. This ratio has largely remained constant over the past threeyears but the government has not explicitly defined a subsidy-sharing formula. An

Empowered Group of Ministers (EGoM) is reviewing the pricing system in India currently inorder to tackle the fuel subsidy issue. We model ONGCs net realized price at US$54-57/bblin FY2011-14E assuming that the government is unable to deregulate prices (see Exhibit 27).

Exhibit 27: We assume net realized price at US$54-57/bbl over the next four yearsKey assumptions, March fiscal year-ends, 2010-2014E

2010 2011E 2012E 2013E 2014EMacro assumptionsRs/US$ rate 47.4 45.0 45.3 45.3 45.3 Subsidy share scheme loss (Rs bn) 115.5 154.3 146.2 175.3 175.3 Import tariff on crude oil (%) 0.4 5.2 5.2 5.2 5.2 Pricing and volumes assumptionsCrude priceCrude price, Bonny Light (US$/bbl) 67.1 75.0 75.0 80.0 80.0 Net crude price, ONGC-India (US$/bbl) 55.9 54.1 55.4 57.0 57.0 Natural gas priceCeiling natural gas price, India (Rs/cu m) 3.20 6.78 7.50 7.50 7.50Ceiling natural gas price, India (US$/mn BTU) 1.80 4.03 4.43 4.43 4.43International operationsNet natural gas price, OVL-Vietnam (Rs/cu m) 3.3 3.2 3.2 3.2 3.2Net crude price, OVL-Sudan (Rs/ton) 10,173 10,782 10,842 11,557 11,557Net crude price, OVL-Russia (Rs/ton) 10,448 11,087 11,148 11,892 11,892Sales volumesDomestic fields (a)Crude oil (mn tons) 22.3 24.1 25.1 26.5 26.5Natural gas (bcm) 20.6 20.4 19.9 20.4 20.7Sales volumesOverseas fieldsCrude oil (mn tons) 4.7 4.6 5.1 5.3 5.3Natural gas (bcm) 2.9 3.0 3.0 3.0 3.0Total salesCrude oil (mn tons) 27.0 28.8 30.2 31.8 31.8Natural gas (bcm) 23.5 23.4 22.9 23.4 23.7Total sales (mn toe) 48.0 49.7 50.7 52.7 52.9Total sales (mn boe) 350 363 370 385 387

(a) Includes ONGC's share of production from joint venture fields.



21/38


Strategy India

ONGC would be hard-pressed to achieve US$100 bn market capitalization without a morefavorable pricing system. We would caution that the government may increase the royaltyon crude oil and gas from ONGCs nominated blocks that account for the bulk of ONGCsoil and gas production. ONGC currently pays a royalty of 10% on offshore crude (20% ononshore crude) on the realized price of crude oil and a cess of Rs2,575/ton (US$7.8/bbl),

which is quite favorable versus (1) sharing of profit petroleum in production-sharingcontracts (PSCs) signed for blocks under the New Exploration and Licensing Policy (NELP) and(2) royalty/PSC regimes in other countries.

ONGCs other option is to make large oil and gas discoveries to bridge the gap betweenUS$100 bn market capitalization and US$75 bn of market capitalization possible under theas-is scenario (see Exhibit 28). However, the market may not accord significant value toONGCs new discoveries unless ONGC can increase production of oil and gas over the nextfew years. The market will likely treat the new discoveries as replacement reserves requiredto sustain cash flows in perpetuity. This has been the case over the past few years with themarket largely ignoring a very high reserve replacement ratio (RRR), about 1.46X in FY2007-10 and 1.73X in FY2010.

Exhibit 28: ONGC would need to add 2.3 bn bbls of oil reserves to reach US$100 bn marketcapitalizationOil and gas reserves required for ONGC to reach US$100 bn market capitalization, FY2014E basis

Key driverGas reserves Oil reserves

Desired market capitalization (US$ bn) 100 100 Target share price (Rs) 2,104 2,104 Target P/E multiple (X) 10.0 10.0 Target net profit (a) (Rs bn) 450 450 FY2010 net profit (Rs bn) 196 196 FY2014E net profit (b) (Rs bn) 336 336 Gap in net profit (a) - (b) (Rs bn) 114 114 Likely market capitalization on FY2014E net profit (US$ bn) 75 75 Value of other assets 3 3 Gap in market capitalization (US$ bn) 23 23 Valuation of 1 bn boe of gas reserves or 1 bn bbls of oil reserves (US$/bbl) 3 10 Required bn bbls of oil equivalent of gas or oil reserves (bn bbls) 8 2.3 Required tcf of proven gas reserves (tcf) or oil reserves (bn bbls) 44 2.3 Exchange rate (Rs/US$) 45 45



22/38


India Strategy

APPENDIX 1: GLOBAL TOP-100 MARKET CAPITALIZATION COMPANIESExhibits 29 -32 list the top-100 companies in the world by market capitalization in 2009, 2004, 1999 and 1989.We have used year-end prices to compute market capitalization and have removed certain companies incountries with hyperinflation and fixed official exchange rates. We also give (1) the domicile of thecompanies (in most cases, the home market) although many of the top-100 companies are large globalcompanies with operations in several countries and (2) the sectors in which they operate. The lists are quitefascinating and show the emergence of sectors and countries.


23/38


Strategy India

Exhibit 29: Top-100 companies by market cap as on December 2009Market cap

Company Name Country Industry (US$ mn)1 Petrochina China Oil & Gas 353,140 2 Exxon Mobil Corp. United States Oil & Gas 323,717 3 Microsoft Corp. United States Technology 270,636 4 Industrial & Commercial Bank of China China Banking & Financial Services 268,957 5 Wal-Mart Stores Inc. United States Retailing 203,654

6 China Construction Bank Corp. China Banking & Financial Services 201,436 7 BHP Billiton Australia Metals & Mining 201,248 8 HSBC Holdings PLC United Kingdom Banking & Financial Services 199,255 9 Petrobras Brazil Oil & Gas 199,108 10 Apple Inc. United States Technology 189,801 11 China Mobile Ltd. Hong Kong Telecom 188,471 12 Royal Dutch Shell United Kingdom Oil & Gas 186,618 13 BP PLC United Kingdom Oil & Gas 181,806 14 Johnson & Johnson United States Pharmaceuticals 177,714 15 Nestle S.A. Switzerland Consumers 177,248 16 Procter & Gamble Co. United States Consumers 177,145 17 International Business Machines Corp. United States Technology 171,951 18 JPMorgan Chase & Co. United States Banking & Financial Services 171,053 19 AT&T Inc. United States Telecom 165,405 20 General Electric Co. United States Diversified 161,097 21 Sinopec China Oil & Gas 159,263 22 Chevron Corp. United States Oil & Gas 154,463 23 Bank of China China Banking & Financial Services 153,957 24 Berkshire Hathway United States Diversified 153,624 25 Total S.A. France Oil & Gas 151,548 26 Google Inc. United States Technology 150,655 27 Roche Holding AG Switzerland Pharmaceuticals 147,497 28 Pfizer Inc. United States Pharmaceuticals 146,785 29 Novartis AG Switzerland Pharmaceuticals 144,165 30 Toyota Motor Corp. Japan Automoblies 143,705 31 Vale Brazil Metals & Mining 143,524 32 Gazprom Russia Oil & Gas 142,985 33 Wells Fargo & Co. United States Banking & Financial Services 137,995 34 Cisco Systems Inc. United States Electronics 137,717 35 Banco Santander S.A. Spain Banking & Financial Services 136,363 36 China Life Insurance China Insurance 133,462 37 Coca-Cola Co. United States Consumers 132,079 38 Bank of America Corp. United States Banking & Financial Services 130,280 39 Telefonica S.A. Spain Telecom 127,821 40 Rio Tinto Australia Metals & Mining 124,297 41 Oracle Corp. United States Technology 122,925 42 Vodafone Group PLC United Kingdom Telecom 122,079 43 Hewlett-Packard Co. United States Technology 121,778 44 Intel Corp. United States Electronics 112,649 45 Merck & Co United States Pharmaceuticals 111,611 46 Samsung Electronics Co. Ltd. South Korea Electronics 111,363 47 GlaxoSmithKline PLC United Kingdom Pharmaceuticals 110,575 48 Electricite de France S.A. France Utilities 110,245 49 Sanofi-Aventis S.A. France Pharmaceuticals 103,996 50 ENI S.p.A. Italy Oil & Gas 102,291

51 China Shenhua Energy China Metals & Mining 100,765 52 GDF Suez S.A. France Utilities 98,212 53 BNP Paribas S.A. France Banking & Financial Services 94,972 54 PepsiCo Inc. United States Consumers 94,875 55 Citigroup United States Banking & Financial Services 94,155 56 Verizon Communications Inc. United States Telecom 93,957 57 Philip Morris International Inc. United States Consumers 91,787 58 Unilever Netherlands Consumers 91,450 59 Itau Unibanco Brazil Banking & Financial Services 90,039 60 Rosneft Russia Oil & Gas 88,121 61 Goldman Sachs Group Inc. United States Banking & Financial Services 86,798 62 Siemens AG Germany Electronics 84,221 63 E.ON AG Germany Utilities 83,917 64 Anheuser-Busch InBev Belgium Consumers 83,723 65 Abbott Laboratories United States Pharmaceuticals 83,508 66 Statoil ASA Norway Oil & Gas 79,926 67 Schlumberger Ltd. United States Oil & Gas 78,158 68 Qualcomm Inc. United States Electronics 77,269 69 Reliance Industries Ltd. India Oil & Gas 76,447 70 ConocoPhillips United States Oil & Gas 75,772 71 Commonwealth Bank of Australia Australia Banking & Financial Services 75,683 72 ArcelorMittal Netherlands Metals & Mining 72,068 73 CNOOC Ltd. Hong Kong Oil & Gas 70,281 74 Mitsubishi UFJ Financial Group Inc. Japan Banking & Financial Services 68,694 75 Banco Bilbao Vizcaya Argentaria Spain Banking & Financial Services 68,454 76 Royal Bank of Canada Canada Banking & Financial Services 68,239 77 AstraZeneca PLC United Kingdom Pharmaceuticals 68,151 78 Westpac Banking Corp. Australia Banking & Financial Services 67,662 79 McDonald's Corp. United States Consumers 67,384 80 L'Oreal S.A. France Consumers 66,972 81 Saudi Basic Industries Corp. Saudi Arabia Chemicals 66,587 82 Bayer AG Germany Chemicals 66,394 83 France Telecom France Telecom 66,235 84 Occidental Petroleum Corp. United States Oil & Gas 66,029 85 United Technologies Corp. United States Diversified 65,075 86 British American Tobacco PLC United Kingdom Consumers 65,010 87 Deutsche Telekom AG Germany Telecom 64,389 88 Bank of Communicatons China Banking & Financial Services 62,313 89 Sberbank Russia Banking & Financial Services 61,845 90 Nippon Telegraph & Telephone Corp. Japan Telecom 61,717 91 Honda Motor Co. Ltd. Japan Automoblies 61,296 92 NTT DoCoMo Inc. Japan Telecom 61,184 93 BG Group PLC United Kingdom Oil & Gas 61,100 94 Ping An Insurance China Insurance 61,061 95 Walt Disney Co. United States Media 60,147

96 Credit Suisse Group AG Switzerland Banking & Financial Services 58,673 97 3M Co. United States Diversified 58,527 98 Bradesco Brazil Banking & Financial Services 58,440 99 Amazon.com Inc. United States Retailing 58,245 100 SAP AG Germany Technology 58,047



24/38


India Strategy


Company Name Country Industry (US$ mn)1 General Electric Co. United States Diversified 385,883 2 Exxon Mobil Corp. United States Oil & Gas 330,693 3 Microsoft Corp. United States Technology 290,489 4 Citigroup Inc. United States Banking & Financial Services 250,042 5 Wal-Mart Stores Inc. United States Retailing 223,686

6 BP PLC United Kingdom Oil & Gas 210,966 7 Pfizer Inc. United States Pharmaceuticals 202,508 8 Royal Dutch Shell Netherlands Oil & Gas 201,874 9 Bank of America Corp. United States Banking & Financial Services 189,801 10 HSBC Holdings PLC United Kingdom Banking & Financial Services 188,523 11 Johnson & Johnson United States Pharmaceuticals 188,213 12 Vodafone Group PLC United Kingdom Telecom 177,766 13 American International Group Inc. United States Insurance 171,042 14 International Business Machines Corp. United States Technology 164,106 15 Intel Corp. United States Electronics 147,895 16 Toyota Motor Corp. Japan Automoblies 146,908 17 Procter & Gamble Co. United States Consumers 139,721 18 JPMorgan Chase & Co. United States Banking & Financial Services 138,954 19 Total S.A. France Oil & Gas 138,192 20 GlaxoSmithKline PLC United Kingdom Pharmaceuticals 137,660 21 Berkshire Hathway United States Insurance 135,280 22 Novartis AG Switzerland Pharmaceuticals 134,547 23 Cisco Systems Inc. United States Electronics 127,217 24 Altria Group Inc. United States Consumers 125,413 25 Verizon Communications Inc. United States Telecom 112,170 26 Chevron Corp. United States Oil & Gas 111,854 27 Sanofi-Aventis S.A. France Pharmaceuticals 111,272 28 Royal Bank of Scotland Group Plc United Kingdom Banking & Financial Services 105,738 29 Nestle S.A. Switzerland Consumers 105,569 30 Wells Fargo & Co. United States Banking & Financial Services 105,150 31 Dell Inc. United States Technology 104,689 32 Roche Switzerland Pharmaceuticals 101,980 33 Coca-Cola Co. United States Consumers 100,745 34 ENI S.p.A. Italy Oil & Gas 100,260 35 Deutsche Telekom AG Germany Telecom 94,997 36 UBS AG Switzerland Banking & Financial Services 94,369 37 Home Depot Inc. United States Retailing 93,855 38 Telefonica S.A. Spain Telecom 93,365 39 NTT DoCoMo Inc. Japan Telecom 92,554 40 PepsiCo Inc. United States Consumers 87,930 41 Time Warner Inc. United States Media 85,750 42 SBC Communications United States Telecom 85,438 43 Wachovia United States Banking & Financial Services 84,365 44 France Telecom France Telecom 81,689 45 Amgen Inc. United States Pharmaceuticals 81,479 46 Banco Santander S.A. Spain Banking & Financial Services 77,616 47 Ebay Inc. United States Retailing 77,123 48 Siemens AG Germany Electronics 75,551 49 Nippon Telegraph & Telephone Corp. Japan Telecom 75,049 50 Nokia Corp. Finland Technology 73,662

51 Comcast United States Media 73,189 52 Abbott Laboratories United States Pharmaceuticals 72,652 53 Barclays PLC United Kingdom Banking & Financial Services 72,335 54 BHP Billiton Australia Metals & Mining 72,012 55 Tyco International Ltd. United States Diversified 71,895 56 Oracle Corp. United States Technology 71,685 57 Merck & Co United States Pharmaceuticals 71,273 58 American Express Co. United States Banking & Financial Services 70,755 59 Samsung Electronics Co. Ltd. South Korea Electronics 70,686 60 Saudi Basic Industries Corp. Saudi Arabia Chemicals 70,070 61 Qualcomm Inc. United States Electronics 69,595 62 Fannie Mae United States Banking & Financial Services 68,924 63 Unilever Netherlands Consumers 66,915 64 China Mobile Ltd. Hong Kong Telecom 66,689 65 Mitsubishi Tokyo Financial Japan Banking & Financial Services 66,431 66 ING Groep N.V. Netherlands Insurance 65,746 67 Gazprom OAO Russia Oil & Gas 65,347 68 Eli Lilly & Co. United States Pharmaceuticals 64,221 69 BNP Paribas S.A. France Banking & Financial Services 64,095 70 Telecom Italia Mobile Italy Telecom 64,091 71 Hewlett-Packard United States Technology 63,945 72 3M Co. United States Diversified 63,894 73 HBOS United Kingdom Banking & Financial Services 63,781 74 News Corp United States Media 63,368 75 E.ON AG Germany Utilities 63,074 76 Viacom United States Media 62,137 77 Telecom Italia Italy Telecom 61,030 78 Morgan Stanley United States Banking & Financial Services 60,771 79 Banco Bilbao Vizcaya Argentaria S.A. Spain Banking & Financial Services 60,148 80 Mizuho Financial Group Inc. Japan Banking & Financial Services 60,130 81 Medtronic Inc. United States Pharmaceuticals 60,037 82 Enel S.p.A. Italy Utilities 59,982 83 ConocoPhillips United States Oil & Gas 59,933 84 AstraZeneca PLC United Kingdom Pharmaceuticals 59,661 85 U.S. Bancorp United States Banking & Financial Services 58,479 86 UnitedHealth Group Inc. United States Insurance 57,539 87 Genentech United States Pharmaceuticals 57,141 88 Wyeth United States Pharmaceuticals 56,823 89 Walt Disney United States Media 56,803 90 Sap Germany Technology 56,252 91 Merrill Lynch United States Banking & Financial Services 55,504 92 DuPont E I de Nemours & Co. United States Chemicals 52,986 93 United Technologies Corp. United States Diversified 52,816 94 Yahoo! Inc. United States Technology 51,803 95 Ericsson Sweden Electronics 51,556

96 United Parcel Services United States Services 51,372 97 L'Oreal S.A. France Consumers 51,323 98 Allianz SE Germany Insurance 51,176 99 Freddie Mac United States Banking & Financial Services 51,142 100 BellSouth United States Telecom 50,905



25/38


Strategy India


Company Name Country Industry (US$ mn)1 Microsoft Corp. United States Technology 586,197 2 General Electric Co. United States Diversified 474,956 3 NTT DoCoMo Inc. Japan Telecom 366,204 4 Cisco Systems Inc. United States Electronics 348,965 5 Wal-Mart Stores Inc. United States Retailing 286,153

6 Intel Corp. United States Electronics 277,096 7 Nippon Telegraph & Telephone Corp. Japan Telecom 274,905 8 Exxon Mobil Corp. United States Oil & Gas 265,894 9 Lucent Technologies United States Technology 237,668 10 Deutsche Telekom AG Germany Telecom 209,628 11 Nokia Corp. Finland Technology 208,077 12 Royal Dutch Shell Netherlands Oil & Gas 205,583 13 International Business Machines Corp. United States Technology 201,014 14 BP Amoco United Kingdom Oil & Gas 190,088 15 Toyota Motor Corp. Japan Automoblies 179,577 16 America Online United States Technology 176,267 17 Citigroup Inc. United States Banking & Financial Services 169,917 18 AT&T United States Telecom 163,746 19 American International Group Inc. United States Insurance 152,695 20 Merck & Co United States Pharmaceuticals 152,080 21 Oracle Corp. United States Technology 151,922 22 British Telecommunications United Kingdom Telecom 151,549 23 SBC Communications United States Telecom 150,423 24 Vodafone Airtouch United Kingdom Telecom 150,082 25 Home Depot Inc. United States Retailing 142,171 26 Mci Worldcom United States Telecom 140,498 27 Procter & Gamble Co. United States Consumers 138,314 28 Coca-Cola Co. United States Consumers 138,148 29 France Telecom France Telecom 131,036 30 Ericsson Sweden Electronics 129,559 31 Nortel Networks Canada Electronics 129,205 32 Sun Microsystems United States Technology 125,345 33 Seven-Eleven Japan Japan Retailing 125,228 34 Johnson & Johnson United States Pharmaceuticals 123,444 35 SONY Japan Media 123,252 36 Dell Inc. United States Technology 119,601 37 Pfizer Inc. United States Pharmaceuticals 118,801 38 Bristol Myers Squibb United States Pharmaceuticals 118,030 39 Mannesmann Germany Diversified 117,316 40 Yahoo! Inc. United States Technology 116,615 41 Qualcomm Inc. United States Electronics 114,780 42 HSBC Holdings PLC United Kingdom Banking & Financial Services 113,869 43 EMC United States Electronics 110,642 44 Softbank Japan Media 109,602 45 Hewlett-Packard United States Technology 108,563 46 Roche Switzerland Pharmaceuticals 108,390 47 Novartis AG Switzerland Pharmaceuticals 104,559 48 Glaxo Wellcome United Kingdom Pharmaceuticals 100,725 49 Motorola United States Electronics 97,775 50 Total Fina France Oil & Gas 94,606

51 China Telecom (Hong Kong) Hong Kong Telecom 92,083 52 Bell Atlantic United States Telecom 90,062 53 Fujitsu Japan Technology 89,246 54 Bellsouth United States Telecom 83,861 55 Telefonica Spain Telecom 80,662 56 Allianz SE Germany Insurance 80,568 57 Time Warner Inc. United States Media 80,530 58 Texas Instruments United States Electronics 80,439 59 Berkshire Hathway United States Insurance 78,887 60 Bank of America Corp. United States Banking & Financial Services 77,784 61 DaimlerChrysler Germany Automoblies 75,626 62 Siemens AG Germany Electronics 73,734 63 AstraZeneca United Kingdom Pharmaceuticals 71,276 64 Morgan Stanley Dean Witter United States Banking & Financial Services 71,055 65 Telecom Italia Mobile Italy Telecom 71,006 66 Nestle S.A. Switzerland Consumers 70,964 67 Telecom Italia Italy Telecom 70,946 68 Smithkline Beecham United Kingdom Pharmaceuticals 69,639 69 Eli Lilly & Co. United States Pharmaceuticals 68,968 70 Telstra Australia Telecom 68,775 71 Warner-Lambert Co United States Pharmaceuticals 68,156 72 AT&T Liberty Media United States Media 67,804 73 DuPont E I de Nemours & Co. United States Chemicals 67,804 74 American Express United States Banking & Financial Services 66,992 75 Disney (Walt) United States Media 65,720 76 Lloyds TSB United Kingdom Banking & Financial Services 65,068 77 Aegon Netherlands Insurance 64,066 78 NTT Data Japan Technology 63,818 79 GTE United States Telecom 63,653 80 Tyco International Ltd. United States Diversified 62,593 81 Bank of Tokyo-Mitsubishi Japan Banking & Financial Services 62,466 82 Wells Fargo United States Banking & Financial Services 60,970 83 Carrefour France Retailing 60,721 84 Amgen United States Pharmaceuticals 59,494 85 Fannie Mae United States Banking & Financial Services 59,118 86 ING Groep N.V. Netherlands Insurance 58,324 87 Matsushita Electric Ind. Japan Electronics 58,008 88 Chase Manhattan United States Banking & Financial Services 57,961 89 Ford Motor United States Automoblies 57,562 90 Hutchison Whampoa Hong Kong Telecom 57,310 91 UBS Switzerland Banking & Financial Services 56,802 92 Hikari Tsushin Japan Diversified 56,657 93 Schering-Plough United States Pharmaceuticals 55,890 94 BCE Canada Diversified 55,016 95 Chevron United States Oil & Gas 54,880

96 Philip Morris United States Consumers 54,655 97 Hitachi Japan Diversified 54,614 98 Unilever Netherlands Consumers 52,887 99 Abbott Laboratories United States Pharmaceuticals 52,622 100 McDonald's Corp. United States Consumers 52,554



26/38


India Strategy


Company Name Country Industry (US$ mn)1 SsangYong Motor Co. Ltd. South Korea Automoblies 539,251 2 S&T Dynamics Co. Ltd. South Korea Automoblies 527,678 3 Banco de Galicia y Buenos Aires S.A. Argentina Banking & Financial Services 445,607 4 Banco do Brasil S/A Brazil Banking & Financial Services 400,960 5 Lotte Midopa Co. Ltd. South Korea Retailing 217,260

6 Edison S.p.A Italy Diversified 216,889 7 Hyundai Engineering & Construction Co. Ltd. South Korea Construction 159,636 8 Nippon Telegraph & Telephone Corp. Japan Telecom 157,717 9 Bakrie & Brothers Indonesia Diversified 150,943 10 Cathay Financial Holding Co. Ltd. Taiwan Banking & Financial Services 142,347 11 Telecom Italia S.p.A. Italy Telecom 135,257 12 Kia Motors Corp. South Korea Automoblies 131,461 13 Shieldtech PLC United Kingdom Diversified 128,606 14 Bank of America Corp. United States Banking & Financial Services 116,006 15 Chiquita Brands International Inc. United States Consumers 109,368 16 AT&T Inc. United States Telecom 94,359 17 Nomura Holdings Inc. Japan Banking & Financial Services 88,946 18 SK Networks Co. Ltd. South Korea Diversified 87,287 19 Hua Nan Financial Holdings Co. Ltd. Taiwan Banking & Financial Services 83,524 20 Haseko Corp. Japan Diversified 82,602 21 Verizon Communications Inc. United States Telecom 78,618 22 Mizuho Trust & Banking Co. Ltd. Japan Banking & Financial Services 74,533 23 Ford Motor Co. United States Automoblies 72,761 24 First Financial Holding Co. Ltd. Taiwan Banking & Financial Services 72,535 25 Lloyds Banking Group PLC United Kingdom Banking & Financial Services 67,643 26 Bank of Ayudhya PCL Thailand Banking & Financial Services 62,596 27 Exxon Mobil Corp. United States Oil & Gas 62,107 28 Service Point Solutions S.A. Spain Diversified 61,679 29 Bull S.A. France Electronics 58,771 30 General Electric Co. United States Diversified 57,386 31 Tokyo Electric Power Co. Inc. Japan Utilities 56,513 32 Sprint Nextel Corp. United States Telecom 55,975 33 Daiei Inc. Japan Retailing 53,185 34 Sumitomo Mitsui Construction Co. Ltd. Japan Construction 52,815 35 Fiat SpA Italy Automoblies 52,143 36 Royal Bank of Scotland Group Plc United Kingdom Banking & Financial Services 50,992 37 Toyota Motor Corp. Japan Automoblies 50,320 38 Norman Broadbent PLC United Kingdom Diversified 49,693 39 Daimler AG Germany Automoblies 49,213 40 Nissan Motor Co. Ltd. Japan Automoblies 46,201 41 BP PLC United Kingdom Oil & Gas 46,088 42 Hitachi Ltd. Japan Diversified 45,471 43 Allianz SE Germany Insurance 43,883 44 Mitsubishi Motors Corp. Japan Automoblies 43,506 45 Sanyo Electric Co. Ltd. Japan Electronics 41,357 46 Merck & Co

Documents

Kotak - New Release - Strategy - The 100 Billion Dollar Club[1](2)