Market Strategy April 2011

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4QFY2011 Results P4QFY2011 Results P4QFY2011 Results P4QFY2011 Results P4QFY2011 Results Preview |review |review |review |review |April 4, 2011

Refer to important Disclosures at the end of the report

Note: Stock prices as on March 31, 2011

Table of Contents

StrategyStrategyStrategyStrategyStrategy 2-9

Angel Research Model PAngel Research Model PAngel Research Model PAngel Research Model PAngel Research Model Portfolioortfolioortfolioortfolioortfolio 10

4QFY2011 Sectoral Outlook4QFY2011 Sectoral Outlook4QFY2011 Sectoral Outlook4QFY2011 Sectoral Outlook4QFY2011 Sectoral Outlook

Automobile 12

Banking 15

Capital Goods 19

Cement 22

FMCG 25

Infrastructure 28

Logistics 31

Metals 34

Oil & Gas 37

Pharmaceutical 40

Power 43

Real Estate 46

Retail 49

Software 52

Telecom 55

Stock WStock WStock WStock WStock Watchatchatchatchatch 5858585858


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Strategy

Source: BSE, Angel Research

Exhibit 4: Performance of Sensex (qoq)

FII inflows resumed towards the end of the quarter

Negative developments in the first part of 4QFY2011 were

manifested by the reversed flow of FII money, as FIIs turned net

sellers during the period. However, in March, FIIs were back on

a buying spree, pumping in over US $1bn over the period,

compared to net selling of over US $2bn in January and

February combined. Overall, FIIs sold US $1bn during the

quarter, taking their net portfolio investments in India to around

US $24bn in FY2011, slightly above the total investment flows

in FY2010, which stood at US $23bn. The high FII inflow during

the year, despite negative news flows in the recent past,underlines the strong fundamentals of the Indian economy. In

comparison, DIIs turned net buyers during the quarter, after

Source: Bloomberg, Angel Research

Exhibit 5: Performance of key global markets

Macro headwinds are clearing up

In the months preceding the Union Budget, a host of macro

headwinds such as high inflation, high fiscal deficit and rising

interest rates were adding to the negative sentiments created

by slow project clearances, execution hurdles and corporate

governance issues. In our view, several of these macro

headwinds look set to ebb going forward. In our view, interest

rates have peaked and the possibility of a 50-100bp decline in

interest rates cannot be ruled out, though in the near term, for

the next few months at least, a plateau in interest rates can be

expected. In our view, the lack of an upward bias in interest

rates would prove to be a key positive for the market, especially

for interest-sensitive sectors.

There are two variables on which this plateauing (and potential

cooling) of interest rates is predicated. The first is that broader

demand and supply of funds in the economy are showing

positive trends in favour of moderating liquidity and interest

rates. As we had explained in our Budget Review, one of the

key positives of this year's budget was the remarkable restraint

exercised by the finance minister by not undertaking any

incremental populist expenditure. Sure, the subsidy projections

are likely to be overshot but, even after factoring in higher

subsidies, it looks unlikely that overall market borrowing by thegovernment will be more than `40,000cr-50,000cr above

budget estimates. This would still imply not more than a

(30)

(20)

(10)

0

10

20

3040

50

60

2QFY2007

3QFY2007

4QFY2007

1QFY2008

2QFY2008

3QFY2008

4QFY2008

1QFY2009

2QFY2009

3QFY2009

4QFY2009

1QFY2010

2QFY2010

3QFY2010

4QFY2010

1QFY2011

2QFY2011

3QFY2011

4QFY2011

(%)

yoy qoq

(15)

(10)

(5)

0

5

10

15

20

2530

35

Russ

ia

US

Dow

US

Nas

daq

China

Korea

Hong

Kong

Ma

lays

ia

UKFTSE

Indones

ia

Braz

il

Singapore

Taiwan

Japan

India

(%)


Exhibit 7: Net fund inflows

FI I D II

(30)

(20)

(10)

0

10

2030

40

50

60

1QFY08

2QFY08

3QFY08

4QFY08

1QFY09

2QFY09

3QFY09

4QFY09

1QFY010

2QFY010

3QFY010

4QFY010

1QFY011

2QFY011

3QFY011

4QFY011

('000

cr)

selling in the Indian market for the previous two quarters. DIIs

were net buyers to the extent of nearly`12,800cr (US $3bn) in

4QFY2011. Despite this heavy buying in the last quarter, DIIs

were net sellers during FY2011, selling nearly`16,900cr in the

market, reflecting weak mobilisations in equity schemes in MFs

and insurance due to the recent regulatory developments.

Overall, we believe, in the coming quarters, with cyclical

tailwinds in the form of positive macro developments adding to

the structural attractiveness of the Indian market, FII flows are

likely to remain robust.

yoy qoq

(40.0)

(30.0)

(20.0)

(10.0)

0.0

10.0

20.0

30.0

40.0

50.0

60.0

CD

FMCG IT

BANKEX

AUTO

TECk

HC

Sensex

OIL&GAS

CG

METAL

POWER

REALTY

(%)

Source: BSE, Angel Research

Exhibit 6: BSE sectoral returns (yoy and qoq)


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Refer to important Disclosures at the end of the report 4

4QFY2011 Results P4QFY2011 Results P4QFY2011 Results P4QFY2011 Results P4QFY2011 Results Preview |review |review |review |review | April 4, 2011

Strategy

Source: Budget Document, Angel Research

Exhibit 9: Restraint in FY12 budgeted expenditure

PPPPParticulars (articulars (articulars (articulars (articulars (`````cr)cr)cr)cr)cr) FY2011 REFY2011 REFY2011 REFY2011 REFY2011 RE FY2012 BEFY2012 BEFY2012 BEFY2012 BEFY2012 BE VVVVVariance (%)ariance (%)ariance (%)ariance (%)ariance (%)

Subsidies 164,154 141,079 (23,075)

Agri waiver 12,000 6,000 (6,000)

Capital outlay (mainly PSU

recapitalisation) 27,696 13,212 (14,484)

Defence, Police 179,169 194,100 14,931

Grants to state governments 51,756 65,466 13,710

Pension 53,262 54,521 1,259

Interest 240,757 267,986 27,229

Other non-plan expenditure 386,778 396,325 9,547

Total non-plan expenditure 821,553 816,182 (5,371)

Total plan expenditure 395,024 441,547 46,523

Total expenditure 1,216,577 1,257,729 41,152

PPPPParticulars (articulars (articulars (articulars (articulars (`````cr)cr)cr)cr)cr) FY2011(RE)FY2011(RE)FY2011(RE)FY2011(RE)FY2011(RE) FY2012(BE)FY2012(BE)FY2012(BE)FY2012(BE)FY2012(BE)

Fertiliser subsidy 54,977 49,998

Food subsidy 60,600 60,573

Petroleum subsidy 38,386 23,640

Interest subsidies 5,223 6,868

Other subsidies 4,968 2,490

Total subsidies 164,153 143,570

Exhibit 10: Subsidy estimates appear optimistic

In the last couple of months, broader interest rates have already

increased by a substantial 200-250bp, which may cool down

credit growth from the current ~23% levels to more sustainable

18-20% levels. At the same time, deposit mobilisation is expected

to improve in the coming months due to the recent increase in

interest rates. As a result, as far as broader interest rates are

concerned, we believe rates have peaked and banks are unlikely

to change deposit rates until April at least, with further hikes

beyond April too looking unlikely at present.

14-15% yoy increase in market borrowing, which in our view is

easily manageable. While on the one hand, demand for funds

from the government is set to be in check in FY2012E;on the supply side also, there is relief this is because more

insurance sector flows are now being directed towards debt

rather than equity.


Exhibit 8: FY12 budgeted revenue largely reasonable

PPPPParticulars (articulars (articulars (articulars (articulars (`````cr)cr)cr)cr)cr) FY2011 REFY2011 REFY2011 REFY2011 REFY2011 RE FY2012 BEFY2012 BEFY2012 BEFY2012 BEFY2012 BEVVVVVariance (%)ariance (%)ariance (%)ariance (%)ariance (%)

Centre's net tax revenue 563,685 664,457 100,772

Non-tax revenue (mainly 3G 220,149 125,435 (94,714)

auctions)

Non-debt capital receipts 31,745 55,020 23,275

(mainly divestments)815,579 844,912 29,333

Debt receipts 415,997 392,817 (23,180)

- Cash balances (15,000) 20,000 35,000

Total receipts 1,216,576 1,257,729 41,153

Fiscal deficit 400,997 412,817 11,820

- Market borrowings 335,414 343,000 7,586

- Savings schemes 17,781 24,182 6,401

- Others (adjusted for cash) 47,802 45,635 (2,167)


PPPPParticulars (articulars (articulars (articulars (articulars (`````cr)cr)cr)cr)cr) FY2010FY2010FY2010FY2010FY2010 FY2011EFY2011EFY2011EFY2011EFY2011E FY2012EFY2012EFY2012EFY2012EFY2012E FY2013EFY2013EFY2013EFY2013EFY2013E

- Insurance 119,399 187,433 205,149 224,283

- MSS 85,340 2,737 - -

- Banks (adj for MSS) 227,222 149,677 180,012 225,199

- NSS, PF, Ext. Funding, etc. 110,315 128,499 120,999 93,500

- RBI's Open Mkt Ops, LAF 80,000 100,000 100,000 100,000

- Other (Incl. FIIs) 22,500 22,500 22,500

Funding of Fiscal Deficit 622,276 590,846 628,660 665,482

(% of GDP at mkt prices) 9.5 7.5 7.0 6.5

Exhibit 11: Market borrowings - Aided by higherinsurance sector allocations

Source: RBI, IRDA, Angel Research

Exhibit 12: Retail FD ratesBankBankBankBankBank 4QFY114QFY114QFY114QFY114QFY11 3QFY113QFY113QFY113QFY113QFY11 bp chgbp chgbp chgbp chgbp chg.....

(%)(%)(%)(%)(%) (%)(%)(%)(%)(%) (qoq)(qoq)(qoq)(qoq)(qoq)

Axis Bank (AXSB) 9.25 8.25 100

Bank of India (BOI) 9.25 8.25 100

HDFC Bank (HDFCBK) 9.25 8.25 100

ICICI Bank (ICICIBK) 9.25 8.25 100

Indian Bank (INDBK) 9.50 8.50 100

Jammu & Kashmir Bank (J&KBK) 9.50 8.50 100

Corporation Bank (CRPBK) 9.25 8.40 85

Yes Bank (YESBK) 9.35 8.50 85

Dena Bank (DENABK) 9.00 8.25 75

State Bank of India (SBI) 9.25 8.50 75

South Indian Bank (SIB) 9.75 9.00 75

UCO Bank (UCOBK) 9.00 8.25 75

Indian Overseas Bank (IOB) 9.25 8.60 65

Punjab National Bank (PNB) 9.15 8.50 65

Oriental Bank of Commerce (OBC) 9.25 8.75 50

Union Bank of India (UNBK) 8.75 8.60 15

Source: Company, Angel Research


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In fact, in our view, deposit rates were increased by almost

50-75bp more than expected in such a short period of time

because of the sudden steep increase in liquidity crunch andthe subsequent strong moral suasion by the RBI for banks to

correct the imbalance rapidly. Consequently, once liquidity settles

down in 1QFY2012E, it cannot be ruled out that there may

also be some cooling of interest rates. This view is also supported

by the fact that forex reserves have not shown a material increase

in this cycle, unlike in the pre-Lehman period, which we believe

could lead to peaking of interest rates at a lower level in this

cycle as compared to 2007. In the last cycle, huge foreign risk

capital was able to sustain 8%+ GDP growth at higher levels of

interest rates, but similar GDP growth at those high interest

rates looks unlikely in this cycle in the absence of thecorresponding forex inflows, i.e. we expect GDP growth of about

8% in FY2012E and accompanying credit growth of about 20%,

but at current or lower levels of interest rates.

105,277

140,448

92,854

168,979

-

30,000

60,000

90,000

120,000

150,000

180,000

Credit offtake Deposit mobilisation4QFY10* 4QFY11#

(`cr)

Source: RBI, Angel Research; Note: * upto March 12, 2010, # upto March 11, 2011

Exhibit 14: Incremental deposits and credit


Nom GDP (Mkt prices) 6,550,271 7,877,947 8,980,860 10,238,180

Growth 17.3 20.3 14.0 14.0

Currency 102,583 155,673 147,793 171,440

Bank Deposits 656,251 762,717 944,872 1,114,949

Equity & MF 100,211 137,864 157,165 179,168

Life Insurance 262,509 311,135 364,480 426,244

NSS, PPF, etc. 123,832 117,290 121,298 124,268

Gross sav in fin. assets 1,245,386 1,484,679 1,735,609 2,016,069

(% of GDP at mkt prices) 19.0 18.8 19.3 19.7

Exhibit 15: Domestic savings - Bank deposits likely toattract higher savings

Source: RBI, IRDA, AMFI, Angel Research

Exhibit 13: Lending base rates

BankBankBankBankBank 4QFY11 (%)4QFY11 (%)4QFY11 (%)4QFY11 (%)4QFY11 (%) 3QFY11 (%)3QFY11 (%)3QFY11 (%)3QFY11 (%)3QFY11 (%) bp chgbp chgbp chgbp chgbp chg. (qoq). (qoq). (qoq). (qoq). (qoq)

AXSB 8.8 8.0 75

BOI 9.5 9.0 50

CRPBK 9.4 8.3 115

DENABK 9.5 9.0 50

FEDBK 9.0 8.0 100

HDFCBK 8.7 7.5 120

IOB 9.5 9.0 50

ICICIBK 8.8 7.8 100

INDBK 9.5 9.0 50

J&KBK 9.0 8.5 50

OBC 9.5 9.0 50

PNB 9.5 9.0 50SIB 9.1 8.5 60

SBI 8.3 7.6 65

UCOBK 9.5 8.5 100

UNBK 9.5 9.0 50


This brings us to the second variable that has a bearing on the

level of interest rate, savings rate and consequent credit/

investment demand and GDP growth inflation. Apart from

10-12% of pass-on left on the fuel front, much of the bad news

such as high food inflation and reflation of commodity prices

after the global crisis is already built into the inflation numbers.

Looking at incremental month-on-month (mom) trends as well,

there appears to be some respite on the inflation front, with the

latest index numbers showing virtually no increase.


Net worth 60,009 80,038 81,243 94,978

Deposits 656,251 762,717 944,872 1,114,949

Borrowings 57,155 64,576 87,693 81,865

Other 23,164 9,129 11,206 12,997

Banks - FBanks - FBanks - FBanks - FBanks - Funds raisedunds raisedunds raisedunds raisedunds raised 796,579796,579796,579796,579796,579 916,460916,460916,460916,460916,460 1,125,0151,125,0151,125,0151,125,0151,125,015 1,304,7881,304,7881,304,7881,304,7881,304,788

CRR 68,125 (653) 65,716 77,545

Call (21,688) 21,182 19,317 21,680

SLR 216,273 149,677 180,012 225,199

Non-SLR 69,020 65,770 75,793 86,404

Credit 464,849 680,484 784,177 893,961

Banks - FBanks - FBanks - FBanks - FBanks - Funds deployedunds deployedunds deployedunds deployedunds deployed 796,579796,579796,579796,579796,579 916,460916,460916,460916,460916,460 1,125,0151,125,0151,125,0151,125,0151,125,015 1,304,7881,304,7881,304,7881,304,7881,304,788

Exhibit 16: Banks incremental assets and liabilities

Source: RBI, Company, Angel Research


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Policy and broader interest rates have already increased by

~200bp, which, in our view, could be a peak in this cycle in the

absence of huge forex inflows. This is also corroborated by the

slightly weakening trends in IIP growth as well, after eliminating

base effects. This plateauing of interest rates, aided by restrained

fiscal spending and moderating inflation, is likely to support

major areas of private investment, viz. infrastructure, industrial

capex and housing.

Source: Angel Research; Note: For FY2011E

Exhibit 19: Contribution to Sensex EPS growth FY11E

Profit Growth Contribution to increase in Sensex EPS

(100.0)

(50.0)

0.0

50.0

100.0

150.0

200.0

Au

to

Engg

Finance

FMCG IT

Me

tals

Oil

&Gas

Pharma

Power

Rea

lty

Construc

Telecom

(%)

Strategy

Moreover, incrementally as well, there seems to be increasing

acceptance in policy circles that in a high-growth,

supply-constrained economy like India, certain items such as

food will exhibit structural 6-7% inflation, which will eventually

pass through manufactured goods as well in the form of wage

inflation. Hence, in the absence of any major new unanticipated

negative development on the inflation front, the RBI could pause

after at most another 25bp hike on the repo front (taking it

to 7%), considering that M3 growth is in any case well within

the 17-18% comfort zone.

Source: CSO, Angel Research

Exhibit 17: MoM annualised WPI inflation (%)

WPI Inflation MoM Annualised

-

5.0

10.0

15.0

20.0

25.0

Sep-10 Oct-10 Nov-10 Dec-10 Jan-11 Feb-11

ComponentsComponentsComponentsComponentsComponents WWWWWeightageeightageeightageeightageeightage YYYYYoYoYoYoYoY 3-year3-year3-year3-year3-year 5-year5-year5-year5-year5-year

(%)(%)(%)(%)(%) growthgrowthgrowthgrowthgrowth CACACACACAGRGRGRGRGR CACACACACAGRGRGRGRGRPPPPPrimary articlesrimary articlesrimary articlesrimary articlesrimary articles 20.120.120.120.120.1 14.814.814.814.814.8 14.614.614.614.614.6 12.212.212.212.212.2

Food articles 14.3 10.6 13.9 11.2

Non-food articles 4.3 29.8 16.1 13.2

Minerals 1.5 16.8 16.8 17.6

FFFFFuel & poweruel & poweruel & poweruel & poweruel & power 14.914.914.914.914.9 11.511.511.511.511.5 7.17.17.17.17.1 5.45.45.45.45.4

Coal 2.1 NA 9.0 6.7

Mineral oils 9.4 16.7 8.1 6.2

Electricity 3.5 3.6 2.0 1.7

Manufactured productsManufactured productsManufactured productsManufactured productsManufactured products 65.065.065.065.065.0 4.94.94.94.94.9 4.44.44.44.44.4 5.15.15.15.15.1

Food Products & beverages 11.7 0.9 8.2 7.1

Basic metals, alloys & metal

products 10.7 8.6 2.5 7.0

Other manufactured products 42.5 5.3 3.8 4.0

WPIWPIWPIWPIWPI 100.0100.0100.0100.0100.0 8.38.38.38.38.3 7.17.17.17.17.1 6.76.76.76.76.7

Exhibit 18: WPI components (1, 3 and 5-year CAGR)

Source: CSO, Angel Research

We believe with interest rates having peaked and earnings

growth outlook looking healthy, the current valuations of the

Sensex represent a reasonably attractive level to invest. At thispoint, we are overweight on interest-sensitive sectors such as

banking and infrastructure, while being underweight on IT and

FMCG sectors, considering their relatively rich valuations.

Sensex EPS to grow at a 17.4% CAGR in FY11-13E

We expect Sensex EPS to grow by 16.9% to`1,262 in FY2012

and by 18.0% in FY2013 to`1,488, implying a 17.4% CAGR

over FY2011-13E. In comparison, Sensex EPS for FY2011E is

expected to end with 21.4% growth.

The main drivers for Sensex EPS in FY2011E are auto, metal

and BFSI stocks. Of the total increase in EPS in FY2011, metal

and auto companies are expected to contribute 44.5% and

44.3%, respectively. Without contributions from either of these

sectors, Sensex EPS growth would come in at 12% for FY2011E.

Both these sectors have gained from improvements in Tata

Group companies. The auto sector has benefited from a bounce

back in the profitability of Tata Motors, while Tata Steel has

boosted the performance of the metals pack. Other metal

companies have also performed well on the back of increased

metal prices. BFSI companies are estimated to contribute 20.3%

of Sensex EPS growth in FY2011, with all the companies expectedto post strong growth.

On the other hand, telecom and oil and gas stocks are the

major drags on the growth in Sensex EPS. Telecom stocks are

estimated to pull down growth by 14.4%, as companies face

competitive pressures, as well as due to higher costs on

account of 3G network rollouts. A fall in the profit of the

index-heavyweight Reliance implies that oil and gas companies

would contribute negative 5.8% to Sensex EPS growth.


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Overall, the primary growth drivers of Sensex EPS over

FY2011-13E are expected to be BFSI, IT and metal stocks, with

the BFSI sector expected to contribute 32.8% to overall growth

in Sensex EPS during the period, while contribution from the

metal sector is estimated to be at 19.5%. Strong performance

by the BFSI sector highlights the underpenetration of financial

services in India, which would drive credit growth in the years

to come. IT companies are expected to contribute healthy 12.5%

to Sensex EPS growth over FY2011-13E, primarily backed by

higher volumes. On the other hand, sectors such as telecom,

power and FMCG are expected to underperform the others.

The combined contribution of all these sectors to Sensex EPS

growth is expected to be 11.7% over FY2011-13E.

4QFY2011 Sensex earnings outlook

We expect Sensex companies to maintain strong top-line growth

momentum, with projected growth of 23% yoy in sales. However,

profit growth is expected to be lower at 14.5% yoy, mainly on

the back of lower operating margins, which are expected to

contract by 92bp during the quarter. Overall, we expect OPM

to come in at 20.9%, vis--vis 21.9% in the corresponding period

last year. Net profit margin is also expected to decline to 11.6%

from 12.5%, down by 88bp yoy.

We expect strong numbers to be posted by oil and gas, IT,

capital goods and BFSI sectors in 4QFY2011. The oil and gas

sector is expected to drive growth in Sensex sales and profit,

with 33% and 25% growth in its sales and profit, respectively,

despite a margin contraction of 209bp yoy, mainly on account

of strong 34% top-line growth in Reliance and substantial 41%

profit growth in ONGC. Ex-oil and gas, growth in Sensex sales

and earnings is expected to be 16.1% and 10.3%, respectively.

IT companies are expected to report 26.2% growth in sales,

driven primarily by volumes, while profit growth is expected to




0.0

10.0

20.0

30.0

40.0

50.060.0

70.0

80.0

Au

to

Engg

Finance

FMCG IT

Me

tals

Oil

&Gas

Pharma

Power

Rea

lty

Construc

Telecom

(%)

The story remains similar in FY2013E, with the same sectors

driving Sensex EPS growth. However, the metal sector is expected

to contribute a much higher 24.5% of the increase in EPS, on

the back of strong performance by Tata Steel and Hindalco.

Both these companies would start getting additional profits in

FY2013E from their new capacities coming on stream aroundthat time. The BFSI sector should continue to be the main driver

of the EPS, contributing 30.2% to the overall increase in

FY2013E. IT companies are expected to contribute 11.4% to

Sensex EPS growth. Again, none of the sectors are expected to

contribute negatively to Sensex EPS growth, even though power,

telecom and FMCG stocks are expected to underperform

compared to the others.




0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0

Au

to

Engg

Fin

ance

FMCG IT

Me

tals

Oil

&G

as

Ph

arma

Power

Rea

lty

Cons

truc

Tele

com

(%)

In FY2012E, when Sensex EPS is expected to increase by 16.9%,

growth is expected to be primarily on the back of the BFSI sector,

with IT and metal stocks also contributing reasonably well.The BFSI sector is expected to contribute 35.9% to EPS growth;

the sector is expected to ride on strong performances by

SBI and ICICI Bank. Both the banks are expected to benefit

from improvement in their asset quality, which would lead to

lower provisioning and, therefore, higher profits. Ex-BFSI, Sensex

EPS is expected to grow by 10.8% in FY2012E. IT and metal

companies are expected to contribute 13.9% and 13.2%,

respectively, to total Sensex EPS growth in FY2012E.

Growth in profits of IT companies is expected to be driven by

higher volumes, as the demand scenario remains robust for

these companies. Infosys is expected to fare much better thanthe others in FY2012E, as it is expected to garner better

price points. Notably, profits of none of the sectors are expected

to decline in FY2012E.

Strategy


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Metals, construction and telecom sectors are expected to

be the major underperformers during this quarter. Metal and

telecom companies are expected to report a decline in profits,despite substantial top-line growth. The telecom sector is

expected to report a strong 37.8% yoy increase in the top line,

partially because of the inclusion of Zain's numbers in Airtel's

accounts. However, due to increased competition and higher

costs on account of the 3G network rollout, profits are expected

to decline by 41% yoy. Sequentially, the top line is expected to

grow by 5%, while profit is set to increase by 8%. Ex-telecom,

profit growth in the Sensex is estimated at 16.8% yoy. Metal

companies are also expected to witness decent growth of 16%

in the top line, while high input costs are expected to result in

margin compression and an 11% yoy drop in profits.

Sequentially though, numbers are much better for metal

stocks, with sales and profits expected to rise by 9% and

29% qoq, respectively.

In the construction sector, we expect JP Associates to report

a subdued performance. Sales and profits are estimated to grow

by 2% and 4% yoy, respectively, with margins increasing by

140bp. DLF is expected to witness a 430bp correction in its

margin on account of lower realisations due to change in

product mix, because of which profit is expected to increase by15% yoy, despite a 40% jump in the top line. We expect Cipla

to perform well, with 12% top-line growth and 49% growth in

the bottom line. OPM is expected to expand by 522bp yoy.

come in at 20.7% yoy. The capital goods sector is expected to

witness strong sales growth of 26%. However, margins are

estimated to fall by 102bp yoy, resulting in bottom-line growthof 18%. Sequential numbers are expected to be even more

attractive, with a substantial 85% increase in the bottom line,

while sales growth is expected to come in at strong 60% qoq,

as execution picks up in 4QFY2011, compared to 3QFY2011.

BFSI companies are expected to report a 41% jump in net profit,

despite only a 16% top-line increase, mainly on account of low

base effect for ICICI Bank and SBI, as these companies had

considerable provisions in 4QFY2010. Sequentially, the BFSI

sector's top line is expected to grow by 6%, while profit is expected

to increase by 8% qoq. Ex-BFSI, growth in Sensex profit is

expected to be 8% yoy.

Auto stocks are expected to report just 9% yoy growth in

profit, despite a healthy 23% increase in sales, mainly because

of a decline in profits of Maruti Suzuki and Hero Honda,

as these companies face stiff pressure on margins due to high

input costs. We expect FMCG companies to post decent 16.4%

yoy growth in sales, mainly on the back of higher volumes,

while the increase in profits is expected to be a strong 26.5%

yoy. Power companies are expected to post a 19% increase in

sales, while PAT is expected to grow by 15%. OPM is expectedto expand to 21.2% from 20.4% in the corresponding period

last year.

Strategy


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9



Net Sales (Net Sales (Net Sales (Net Sales (Net Sales (`````cr)cr)cr)cr)cr) Net PNet PNet PNet PNet Profit (rofit (rofit (rofit (rofit (`````cr)cr)cr)cr)cr) WWWWWeightageeightageeightageeightageeightage % Contribution% Contribution% Contribution% Contribution% Contribution

CompanyCompanyCompanyCompanyCompany 4QFY2011E4QFY2011E4QFY2011E4QFY2011E4QFY2011E 4QFY20104QFY20104QFY20104QFY20104QFY2010 % chg% chg% chg% chg% chg 4QFY2011E4QFY2011E4QFY2011E4QFY2011E4QFY2011E 4QFY20104QFY20104QFY20104QFY20104QFY2010 % chg% chg% chg% chg% chg (%)(%)(%)(%)(%) to Sensex growthto Sensex growthto Sensex growthto Sensex growthto Sensex growthBajaj Auto 4,073 3,290 23.8 630 529 19.1 1.3 1.7

Bharti Airtel 16,501 10,749 53.5 1,625 2,045 (20.5) 3.1 (5.0)

BHEL 19,336 13,945 38.7 2,880 1,910 50.8 2.4 11.7

Cipla 1,478 1,318 12.2 269 181 48.9 1.1 2.0

DLF 2,796 1,994 40.2 488 426 14.5 0.7 0.5

HDFC 1,498 1,333 12.4 1,029 926 11.1 5.8 3.2

HDFCBK 3,934 3,255 20.9 1,110 837 32.6 5.6 7.5

Hero Honda 5,139 4,093 25.6 473 599 (21.0) 1.0 (2.2)

Hindalco 17,587 16,467 6.8 731 659 10.9 1.8 1.7

HUL 4,843 4,316 12.2 455 386 18.0 2.0 1.2

ICICIBK 4,163 3,926 6.0 1,522 1,006 51.4 8.3 17.8

Infosys 7,531 5,944 26.7 1,898 1,600 18.7 10.1 8.7

ITC 6,011 5,054 18.9 1,325 1,028 28.8 6.4 7.1

Jindal Steel 4,079 3,175 28.5 1,181 963 22.6 1.9 3.4

JP Associates 3,397 3,347 1.5 253 244 3.9 0.7 0.2

L&T 16,344 13,585 20.3 1,365 1,360 0.4 5.9 0.2

M&M 6,621 5,279 25.4 681 570 19.5 2.2 3.1

Maruti Suzuki 9,670 8,235 17.4 530 657 (19.2) 1.2 (2.2)

NTPC 13,835 12,732 8.7 2,216 2,018 9.8 2.0 1.4

ONGC 19,254 16,002 20.3 5,309 3,776 40.6 3.2 10.5

RCOM 5,183 4,992 3.8 299 1,221 (75.5) 0.5 (11.1)

Reliance Infra 3,803 2,644 43.8 413 251 64.6 0.6 3.1

RIL 77,162 57,570 34.0 5,659 4,710 20.1 12.2 18.0

SBI 13,691 11,230 21.9 3,115 1,867 66.9 5.2 19.3

Sterlite 9,896 7,111 39.2 1,473 1,381 6.6 1.7 1.4

Tata Motors 35,225 28,747 22.5 2,607 2,248 16.0 3.0 8.6

Tata Power 1,998 1,795 11.3 194 231 (16.1) 1.4 (0.9)

Tata Steel 31,986 27,504 16.3 1,680 2,434 (31.0) 2.7 (18.2)

TCS 10,211 7,737 32.0 2,448 1,931 26.7 4.3 5.3

Wipro 8,190 6,983 17.3 1,433 1,209 18.5 1.9 1.9

TTTTTotalotalotalotalotal 365,435365,435365,435365,435365,435 294,348294,348294,348294,348294,348 24.224.224.224.224.2 45,29145,29145,29145,29145,291 39,20139,20139,20139,20139,201 15.515.515.515.515.5 100.0100.0100.0100.0100.0 100.0100.0100.0100.0100.0

Sensex# 23.2 14.5

Exhibit 22: Quarterly earnings trend for Sensex companies

Source: Angel Research; Note: #Sensex sales and earnings growth based on free-float weightages

Strategy


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BSE-100 Angel

Sector Company CMP (`) Target Price (`) Weightage (%) Weightage (%) Stance

Auto & AncillariesAuto & AncillariesAuto & AncillariesAuto & AncillariesAuto & Ancillaries 6.66.66.66.66.6 3.03.03.03.03.0 UnderweightUnderweightUnderweightUnderweightUnderweight

JK Tyres 94 133 0.0 3.0 Overweight

BFSIBFSIBFSIBFSIBFSI 26.326.326.326.326.3 30.030.030.030.030.0 OverweightOverweightOverweightOverweightOverweight

SBI 2,768 3,479 3.6 5.0 Overweight

Axis Bank 1,404 1,765 1.7 7.0 Overweight

ICICI Bank 1,113 1,405 5.8 12.0 Overweight

HDFC Bank 2,343 2,655 4.0 3.0 Underweight

CRISIL 6,291 7,616 0.0 3.0 Overweight

Capital Goods &Capital Goods &Capital Goods &Capital Goods &Capital Goods & 9.69.69.69.69.6 14.014.014.014.014.0 OverweightOverweightOverweightOverweightOverweight

InfrastructureInfrastructureInfrastructureInfrastructureInfrastructure IVRCL Infra 82 108 0.1 3.0 OverweightL&T 1,653 2,034 4.1 5.0 Overweight

LMW 2,237 2,947 0.0 3.0 Overweight

Nagarjuna Construction 101 150 0.0 3.0 Overweight

CementCementCementCementCement 2.32.32.32.32.3 0.00.00.00.00.0 UnderweightUnderweightUnderweightUnderweightUnderweight

FMCGFMCGFMCGFMCGFMCG 7.77.77.77.77.7 3.03.03.03.03.0 UnderweightUnderweightUnderweightUnderweightUnderweight

ITC 181 205 4.5 3.0 Underweight

HotelsHotelsHotelsHotelsHotels 0.20.20.20.20.2 3.03.03.03.03.0 OverweightOverweightOverweightOverweightOverweight

Taj GVK 93 124 0.0 3.0 Overweight

MediaMediaMediaMediaMedia 0.30.30.30.30.3 3.03.03.03.03.0 OverweightOverweightOverweightOverweightOverweightJagran Prakashan 127 150 0.0 3.0 Overweight

MetalsMetalsMetalsMetalsMetals 8.28.28.28.28.2 8.08.08.08.08.0 EqualweightEqualweightEqualweightEqualweightEqualweight

Tata Sponge 343 415 0.0 3.0 Overweight

Tata Steel 621 802 1.9 5.0 Overweight

Oil & GasOil & GasOil & GasOil & GasOil & Gas 13.913.913.913.913.9 12.012.012.012.012.0 UnderweightUnderweightUnderweightUnderweightUnderweight

Reliance Industries 1,048 1,189 8.6 12.0 Overweight

PharmaPharmaPharmaPharmaPharma 4.14.14.14.14.1 6.06.06.06.06.0 OverweightOverweightOverweightOverweightOverweight

Alembic 73 104 0.0 3.0 Overweight

Lupin 415 560 0.5 3.0 Overweight

PPPPPowerowerowerowerower 4.04.04.04.04.0 0.00.00.00.00.0 UnderweightUnderweightUnderweightUnderweightUnderweight

Real EstateReal EstateReal EstateReal EstateReal Estate 1.01.01.01.01.0 3.03.03.03.03.0 OverweightOverweightOverweightOverweightOverweight

HDIL 176 242 0.0 3.0 Overweight

SoftwareSoftwareSoftwareSoftwareSoftware 12.412.412.412.412.4 9.09.09.09.09.0 UnderweightUnderweightUnderweightUnderweightUnderweight

Infosys 3,237 3,629 7.2 3.0 Underweight

Mphasis 416 537 0.0 3.0 Overweight

TCS 1,183 1,274 3.2 3.0 Equalweight

TTTTTelecomelecomelecomelecomelecom 2.92.92.92.92.9 0.00.00.00.00.0 UnderweightUnderweightUnderweightUnderweightUnderweight

OthersOthersOthersOthersOthers 0.50.50.50.50.5 6.06.06.06.06.0 OverweightOverweightOverweightOverweightOverweight

Greenply 196 270 0.0 3.0 Overweight

United Phosporus 150 198 0.0 3.0 Overweight

Angel Research Model Portfolio


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11



4QFY2011 Sectoral Outlook


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Automobile

Commercial vehicles (CV)

CV sales reported strong 32.1% yoy growth from

April 2010-February 2011, supported by sustained growth inthe economy, improvement in industrial and agricultural

production and healthy freight availability. However, growth has

been relatively subdued in 4QFY2011 on account of the

relatively high base of previous year, recent price hikes and

supply constraints due to unavailability of components and tyres.

With positive traction in the GDP, which is estimated to register

a CAGR of ~8.5% over the next two years, we expect CV

demand to remain buoyant. Moreover, healthy freight rates,

easy availability of finance and government thrust on

infrastructure investment are expected to boost the growth

momentum further. As a result, we expect the CV sector to registera CAGR of ~10% over FY2011-13E. During 4QFY2011,

Tata Motors recorded 12.5% yoy growth, mainly due to an

The robust demand trend witnessed in the domestic auto industry

during 9MFY2011 (overall volumes up 29%) continued in

4QFY2011. However, as expected, the growth rate tapered off

slightly, with companies reporting yoy volume growth of

13-27%. For 4QFY2011, we expect auto companies to post

healthy net sales growth of ~22% yoy, aided largely by ~21%

yoy volume growth. Volume growth during the quarter was

supported by positive consumer sentiment coupled with

pre-Budget buying in anticipation of the likely increase in excise

duty in the Union Budget 2011-12 and higher discounts offered

by OEMs and dealers to clear their year-end inventory. Going

ahead, the focus will continue to be on volume growth as near-

term volume growth is likely to moderate due to the high base

effect of FY2011 and increased financing cost and fuel prices;

while in the long run, we expect sales momentum to continue,

aided by healthy consumer sentiment, rising income levels, easy

availability of finance and new product launches.

EBITDA margins continue to be under pressure

For 4QFY2011, we expect operating margins of most auto

companies to continue their downward trend on account of

higher raw-material costs. Prices of major raw materials such

as steel, aluminum and rubber witnessed average increases of

~17%, ~15% and ~62% yoy, respectively, during 4QFY2011.

While realisation for auto companies is expected to improve on

account of superior sales mix and price increases, it would notoffset higher input costs completely. In addition, cost-reduction

initiatives and improved operating leverage are expected to

dilute the impact of input cost inflation to a certain extent. We

expect the operating margin for our auto universe to witness a

significant ~250bp yoy and ~70bp qoq contraction for

4QFY2011. On the net profit front, major players in our auto

universe are expected to register a ~200bp yoy decline in

profitability, leading to a decline of ~5% yoy in profits.

Interest rate, fuel price and commodity price trend

Financing plays an important role and industry trend suggeststhat there is a negative correlation between auto finance rates

and auto volume growth. Auto finance rates declined by

200-250bp in FY2010, which supported robust growth during

the period. A swift revival in underlying vehicle sales volume, a

benign finance environment and an increase in finance

penetration and loan-to-value (LTV) ratio are the key factors

responsible for the industry's growth. However, monetary

tightening by the RBI has pushed interest rates up, thereby

increasing the cost of ownership for consumers. Further, the

government's policy of deregulating petrol prices to control fiscal

deficit has led to a substantial increase in petrol prices sinceJune 2010. Petrol and diesel prices were hiked by

`10.94/litre and`2.3/litre in FY2011, respectively. This should

have a direct impact on ownership cost and freight operators'

profitability and could moderately impact auto volume growth

in the medium term. For 4QFY2011, commodity prices in

general have witnessed an upward trend, with prices of key

raw materials, steel and aluminum, increasing by 14-18% yoy.

Rubber and lead prices also rose by ~62% and ~17% yoy,

respectively, during the quarter.

Auto index underperforms the Sensex

The auto index lost 9.2% during 4QFY2011 versus a 5.2%

decline for the Sensex, thus underperforming the Sensex by

4.0%. The underperformance was seen despite most of the auto

majors reporting healthy volume numbers during the quarter.

The sentiments were negative mainly due to increased financing

cost, fuel price hikes, rising input cost pressures and higherproduct prices by manufacturers. However, the sector received

a major relief as the finance minister left the excise duty structure

unchanged in the Union Budget. Among index heavyweights,

Tata Motors and Bajaj Auto outperformed the auto index by

4.7% and 3.9%, respectively, while other heavyweights such as

Hero Honda, Exide, Maruti and M&M underperformed.


Exhibit 1: Auto index vs. the Sensex

B SE A ut o B SE _S EN SE X

0

50

100

150

200

250

Apr-07 Sep -07 Mar-08 Sep -08 Mar-09 Sep -09 Mar-10 Sep -10 Mar-11


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13



Automobile

Exhibit 4: BAL, HH, TVS - Quarterly volumes

SegmentSegmentSegmentSegmentSegment 4QFY114QFY114QFY114QFY114QFY11 4QFY104QFY104QFY104QFY104QFY10 % chg% chg% chg% chg% chg FY20FY20FY20FY20FY201111111111 FY2010FY2010FY2010FY2010FY2010 % chg% chg% chg% chg% chg

Bajaj AutoBajaj AutoBajaj AutoBajaj AutoBajaj Auto 948,195948,195948,195948,195948,195 808,973808,973808,973808,973808,973 17.217.217.217.217.2 3,823,9293,823,9293,823,9293,823,9293,823,929 2,852,6762,852,6762,852,6762,852,6762,852,676 34.034.034.034.034.0

Motorcycles 836,668 712,432 17.4 3,387,018 2,506,887 35.1

Scooters - 259 - 27 4,852 (99.4)

TTTTTotal 2 Wheelersotal 2 Wheelersotal 2 Wheelersotal 2 Wheelersotal 2 Wheelers 836,668836,668836,668836,668836,668 712,691712,691712,691712,691712,691 17.417.417.417.417.4 3,387,0453,387,0453,387,0453,387,0453,387,045 2,511,7392,511,7392,511,7392,511,7392,511,739 34.834.834.834.834.8

Three Wheelers 111,527 96,282 15.8 436,884 340,937 28.1

Exports ( Inc above ) 275,843 214,471 28.6 1,203,718 891,098 35.1

Hero HondaHero HondaHero HondaHero HondaHero Honda 1,454,4311,454,4311,454,4311,454,4311,454,431 1,186,5361,186,5361,186,5361,186,5361,186,536 22.622.622.622.622.6 5,402,4445,402,4445,402,4445,402,4445,402,444 4,600,1304,600,1304,600,1304,600,1304,600,130 17.417.417.417.417.4

TVS MotorsTVS MotorsTVS MotorsTVS MotorsTVS Motors 533,772533,772533,772533,772533,772 419,131419,131419,131419,131419,131 27.427.427.427.427.4 2,046,7312,046,7312,046,7312,046,7312,046,731 1,536,8681,536,8681,536,8681,536,8681,536,868 33.233.233.233.233.2

Motorcycles 218,825 182,239 20.1 836,821 640,965 30.6

Scooters 123,726 81,030 52.7 466,264 309,501 50.7

Mopeds 179,155 149,589 19.8 703,717 571,536 23.1

Three-Wheelers 12,066 6,273 92.3 39,929 14,866 168.6

Exports (Inc above ) 70,513 55,282 27.6 234,411 165,414 41.7

Source:Company, Angel Research

Passenger vehicles (PV)

PV volumes registered robust 23.2% yoy growth from

April 2010-February 2011, aided by strong performance in

the domestic market. Despite concerns of increasing interest

rates, inflation and hike in product prices, domestic demand

continues to sustain, supported by positive consumer sentiment

and new model launches. Exports, however, declined by 0.9%

yoy YTD in FY2011 as PV majors continue to focus on meeting

strong demand in the domestic market. Moreover, robust volume

growth, low penetration and a low-cost manufacturing basehave been attracting global auto majors to India, who have

started launching products for the Indian market. During

CY2010, General Motors, Volkswagen, Nissan and Ford

launched Beat, Polo, Micra and Figo, respectively, in the

dominant A2 segment, thereby escalating competition for the

market leader Maruti. As a result, Maruti lost ~120bp of its

market share in the domestic A2 segment, with its current market

share at 55.7%. During 4QFY2011, Maruti registered a 19.5%

yoy increase in total volumes, driven by robust performance in

the A2 and C segments. Going ahead, we expect volume

momentum in the PV segment to continue, but at a slightlymodest pace. We estimate the PV segment to register a CAGR

of ~12% during FY2011-13E.

Two-wheeler

Healthy domestic demand and continued improvement in supply

aided the two-wheeler segment to post robust 27.7% yoy growthfrom April 2010-February 2011. The dominant motorcycle

segment posted strong 25% yoy growth, while the scooters

segment reported impressive 45% growth, helped by good

demand for Activa, Wego and Pleasure. Hero Honda (HH)

posted robust 22.6% yoy growth in the domestic market in

4QFY2011, backed by the strength of its market reach and

strong performance in the rural market, while Bajaj Auto (BAL)

reported 17.2% yoy growth in motorcycle volumes, riding on

the strong performance of Pulsar and Discover. We believe

though the substantial ownership base of two-wheelers results

in reduced headroom for higher growth and increasesdependence on replacement demand to sustain volumes, rural

markets are likely to post better growth. This is expected to help

two-wheeler companies maintain their growth momentum and

register a volume CAGR of ~11% over the next couple of years.

Exhibit 3: Maruti, M&M - Quarterly volumes


Maruti SuzukiMaruti SuzukiMaruti SuzukiMaruti SuzukiMaruti Suzuki 343,350343,350343,350343,350343,350 287,422287,422287,422287,422287,422 19.519.519.519.519.5 1,271,0151,271,0151,271,0151,271,0151,271,015 1,018,3651,018,3651,018,3651,018,3651,018,365 24.824.824.824.824.8

Total Passenger Cars 311,431 244,285 27.5 1,127,083 866,858 30.0

MUV Gypsy, Vitara 968 1,097 (11.8) 5,666 3,932 44.1

DomesticDomesticDomesticDomesticDomestic 312,399312,399312,399312,399312,399 245,382245,382245,382245,382245,382 27.327.327.327.327.3 1,132,7491,132,7491,132,7491,132,7491,132,749 870,790870,790870,790870,790870,790 30.130.130.130.130.1

Exports 30,951 42,040 (26.4) 138,266 147,575 (6.3)

M&MM&MM&MM&MM&M 167,006167,006167,006167,006167,006 136,705136,705136,705136,705136,705 22.222.222.222.222.2 590,719590,719590,719590,719590,719 472,914472,914472,914472,914472,914 24.924.924.924.924.9

Domestic Auto 102,056 85,512 19.3 358,023 286,713 24.9Exports 5,562 4,229 31.5 19,042 11,567 64.6

Domestic Tractor 56,293 44,105 27.6 201,786 165,633 21.8

Exports 3,095 2,859 8.3 11,868 9,001 31.9

Source: Company; Angel Research

18.3% yoy increase in LCV volumes. Sales volumes to some

extent were impacted by the shortage in supplies of key

components engines, fuel injection pumps and tyres.

Source: Company; Angel Research

Exhibit 2: TML, ALL - Quarterly volumes


TTTTTata Motorsata Motorsata Motorsata Motorsata Motors 236,329236,329236,329236,329236,329 210,056210,056210,056210,056210,056 12.512.512.512.512.5 803,265803,265803,265803,265803,265 642,685642,685642,685642,685642,685 25.025.025.025.025.0

M&HCV 62,662 57,412 9.1 212,278 167,828 26.5

LCV 82,861 70,049 18.3 284,647 233,697 21.8

TTTTTotal CVotal CVotal CVotal CVotal CV 145,523145,523145,523145,523145,523 127,461127,461127,461127,461127,461 14.214.214.214.214.2 496,925496,925496,925496,925496,925 401,525401,525401,525401,525401,525 23.823.823.823.823.8

Utility Vehicles 14,057 11,606 21.1 43,076 34,124 26.2

Cars 76,749 70,989 8.1 263,264 207,036 27.2

TTTTTotal PVotal PVotal PVotal PVotal PV 90,80690,80690,80690,80690,806 82,59582,59582,59582,59582,595 9.99.99.99.99.9 306,340306,340306,340306,340306,340 241,160241,160241,160241,160241,160 27.027.027.027.027.0

Exports (Inc Above ) 15,384 10,618 44.9 58,044 34,140 70.0

ALL CV salesALL CV salesALL CV salesALL CV salesALL CV sales 29,67929,67929,67929,67929,679 25,80725,80725,80725,80725,807 15.015.015.015.015.0 94,10694,10694,10694,10694,106 63,92663,92663,92663,92663,926 47.247.247.247.247.2

Auto ancillaries to track the auto sector

The auto ancillaries sector, which depends on OEMs for growth,

was stuck in the midst of sluggish growth in the domestic market

and a recession-hit global export market in FY2009. However,

revival of domestic auto volumes in FY2010 supported recovery

of players during the period. Growth of the Indian auto

component industry is directly linked to the auto sector's growth

and has more than 65% of its domestic sales to OEMs. Thus,

recovery of auto sales volume is likely to help the OEM segment

to register a CAGR of 11-12% over the next two years. Further,

an overall increase in vehicle population (recorded a 10% CAGR

over FY2000-10E) is expected to support consistent growth inreplacement demand of auto parts and register a 7-8% CAGR

over FY2011-13E. The shift in focus of the Indian auto

component industry from the domestic market to exports has


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Automobile

Analyst - YAnalyst - YAnalyst - YAnalyst - YAnalyst - Yaresh Karesh Karesh Karesh Karesh Kothariothariothariothariothari

Exhibit 5: Quarterly estimates - Automobile (((((`````cr)

Source: Company, Angel Research; Note: Price as on March 31, 2011, @Adjusted for extraordinary items; * Consolidated numbers

CompanyCompanyCompanyCompanyCompany CMPCMPCMPCMPCMP Net SalesNet SalesNet SalesNet SalesNet Sales OPM (%)OPM (%)OPM (%)OPM (%)OPM (%) Net PNet PNet PNet PNet Profitrofitrofitrofitrofit EPS (EPS (EPS (EPS (EPS (`````))))) EPS (EPS (EPS (EPS (EPS (`````))))) P/E (x)P/E (x)P/E (x)P/E (x)P/E (x) TTTTTaaaaargrgrgrgrgeeeeettttt Reco.Reco.Reco.Reco.Reco.

(((((`````))))) 4QFY11E4QFY11E4QFY11E4QFY11E4QFY11E % chg% chg% chg% chg% chg 4QFY11E4QFY11E4QFY11E4QFY11E4QFY11E chg bpchg bpchg bpchg bpchg bp 4QFY11E4QFY11E4QFY11E4QFY11E4QFY11E % chg% chg% chg% chg% chg 4QFY11E4QFY11E4QFY11E4QFY11E4QFY11E % chg% chg% chg% chg% chg FY11EFY11EFY11EFY11EFY11E FY12EFY12EFY12EFY12EFY12E FY13EFY13EFY13EFY13EFY13E FY11EFY11EFY11EFY11EFY11E FY12EFY12EFY12EFY12EFY12E FY13EFY13EFY13EFY13EFY13E (((((`````)))))

Ashok Leyland 57 3,671 24.9 10.0 (287) 183.8 (17.4) 1.4 (17.4) 4.4 4.7 5.3 13.1 12.0 10.7 64 Accum.

Bajaj Auto@ 1,460 4,073 23.8 19.5 (339) 629.7 19.1 21.8 19.1 88.9 96.8 107.3 16.4 15.1 13.6 1,610 Accum.

Hero Honda 1,587 5,139 25.6 11.1 (612) 472.9 (21.0) 23.7 (21.0) 105.1 106.3 114.2 15.1 14.9 13.9 - Neutral

Maruti 1,264 9,670 17.4 9.0 (420) 530.2 (19.2) 18.4 (19.2) 80.1 90.5 101.4 15.8 14.0 12.5 1,522 Buy

M&M@ 699 6,621 25.4 14.6 (139) 681.4 19.5 11.6 15.2 43.4 49.1 53.2 16.1 14.2 13.1 881 Buy

Tata Motors@* 1,248 35,225 22.5 12.7 185 2,607.2 16.0 41.2 4.5 146.4 153.2 166.6 8.5 8.1 7.5 1,456 Buy

TVS Motors 60 1,668 39.9 5.8 (80) 49.6 144.6 1.0 144.6 4.3 4.7 5.3 13.9 12.9 11.2 64 Accum.

Exhibit 6: Quarterly estimates - Auto Ancillary (((((`````cr)

Source: Company, Angel Research; Note: Price as on March 31, 2011, * Consolidated numbers; # December year ending; @Adjusted for FCCB interest after tax, & FY2011E-13E

EPS on consolidated basis

CompanyCompanyCompanyCompanyCompany CMPCMPCMPCMPCMP Net SalesNet SalesNet SalesNet SalesNet Sales OPM (%)OPM (%)OPM (%)OPM (%)OPM (%) Net PNet PNet PNet PNet Profitrofitrofitrofitrofit EPS (EPS (EPS (EPS (EPS (````))))) EPS (EPS (EPS (EPS (EPS (````))))) P/E (x)P/E (x)P/E (x)P/E (x)P/E (x) TTTTTaaaaargrgrgrgrgeeeeettttt Reco.Reco.Reco.Reco.Reco.

(((((`````))))) 4QFY11E4QFY11E4QFY11E4QFY11E4QFY11E % chg% chg% chg% chg% chg 4QFY11E4QFY11E4QFY11E4QFY11E4QFY11E chg bpchg bpchg bpchg bpchg bp 4QFY11E4QFY11E4QFY11E4QFY11E4QFY11E % chg% chg% chg% chg% chg 4QFY11E4QFY11E4QFY11E4QFY11E4QFY11E % chg% chg% chg% chg% chg FY11EFY11EFY11EFY11EFY11E FY12EFY12EFY12EFY12EFY12E FY13EFY13EFY13EFY13EFY13E FY11EFY11EFY11EFY11EFY11E FY12EFY12EFY12EFY12EFY12E FY13EFY13EFY13EFY13EFY13E (((((`````)))))

Bharat Forge*@ 346 1,285 39.0 17.3 (18) 71.3 27.3 3.1 21.8 12.9 19.1 23.4 26.8 18.1 14.8 421 Buy

Bosch India# 6,680 1,808 14.4 16.4 (273) 201.3 (0.6) 64.1 (0.6) 273.5 305.6 344.1 24.4 21.9 19.4 - Neutral

Exide Industries 143 1,123 9.3 16.0 (511) 128.6 (4.4) 1.5 (4.4) 6.9 7.9 9.0 20.8 18.2 15.9 155 Acc.

FAG Bearings# 835 274 16.3 18.5 324 31.9 42.0 19.2 42.0 73.1 80.8 85.2 11.4 10.3 9.8 1,023 Buy

Motherson Sumi* 214 2,146 11.3 10.5 (432) 102.2 (27.9) 2.6 (30.3) 9.0 11.7 13.5 23.7 18.4 15.9 - Neutral

Apollo Tyres & 70 1,490 13.5 9.5 (453) 49.0 (57.8) 1.0 (57.8) 7.0 7.4 10.0 9.9 9.3 6.9 81 Buy

been apparent from the rise in its share in the overall turnover

to 20% in FY2009 (11% in FY1999). Europe and US contribute

around 66% to the sector's export revenue. The economic

slowdown has been adversely affecting vehicle sales in these

markets in the last two years. However, with these markets now

showing signs of revival, export volumes are expected to recover

in FY2012-13E. At the end of FY2009, auto component players

were finding it difficult to make future projections, as two of

their key markets, OEM and replacement, had been hit by poor

demand and instability in final product prices, which were

trending downwards. However, the industry is now recovering

on better-than-expected revival in the domestic market and

marginal improvement in exports. Companies in the

subsegments of the auto components sector (tyres, bearings

and batteries), with larger share of revenue from replacement

and domestic markets, have been less affected than those that

supply exclusively to the overseas market. Broadly, the sector is

expected to deliver good yoy earnings performance in

4QFY2011 on improved volumes and better operating leverage.

Among battery manufacturers, we expect Exide to post modest

~9% yoy growth, as battery players continue to be affected by

the slowdown in demand in the telecom segment. Noticeably,

Exide has increased its product prices by 5-8%, effective from

February 2011. Tyre manufacturers continue to reel under the

pressure of increasing natural rubber prices, up ~62% yoy and~18% qoq, which has affected their profitability. We expect

Apollo Tyres to report a ~453bp yoy contraction in its operating

margin, leading to a ~58% yoy decline in profit.

Outlook

Going ahead, driven by strong economic recovery, we expect

the auto sector, which includes PVs, CVs and two-wheelers, toregister good growth in the domestic market and decent growth

in the export market over FY2011-13E. We estimate overall

auto volumes to register a CAGR of 11-12% over the next couple

of years, aided by improved business environment for the sector.

Over the longer term, comparatively low penetration levels, a

healthy economic environment and favourable demographics

supported by higher per capita income levels are likely to help

auto companies in sustaining their top-line growth. Core

business performance of auto companies continues to improve,

as reflected by the substantial volume growth of 25% yoy and

27% yoy witnessed in FY2010 and YTD FY2011, respectively.

Thus, while the 4QFY2011 performance is likely to be robust

on a yoy basis, we expect auto companies to report a marginal

growth sequentially. Most stocks have been positive in the last

one year due to better visibility for the sector. We remain positive

on the long-term prospects of the Indian auto sector. We prefer

stocks with attractive valuations and where strong fundamentals

could deliver positive earnings surprises.

Among auto heavyweights, we prefer Maruti, TAmong auto heavyweights, we prefer Maruti, TAmong auto heavyweights, we prefer Maruti, TAmong auto heavyweights, we prefer Maruti, TAmong auto heavyweights, we prefer Maruti, Tata Motors andata Motors andata Motors andata Motors andata Motors and

M&M. In the auto ancillary space, we maintain our positiveM&M. In the auto ancillary space, we maintain our positiveM&M. In the auto ancillary space, we maintain our positiveM&M. In the auto ancillary space, we maintain our positiveM&M. In the auto ancillary space, we maintain our positive

stance on Fstance on Fstance on Fstance on Fstance on FAAAAAG Bearings and Amara Raja Batteries, as they areG Bearings and Amara Raja Batteries, as they areG Bearings and Amara Raja Batteries, as they areG Bearings and Amara Raja Batteries, as they areG Bearings and Amara Raja Batteries, as they areavailable at reasonable valuations.available at reasonable valuations.available at reasonable valuations.available at reasonable valuations.available at reasonable valuations.


16/66

15



BankingBanking

For most of January 2011, banking stocks were lacklustre on

fears of further rate hikes owing to rising food inflation, leading

to underperformance of the BSE Bankex against the Sensex. In

February, with government spending kicking in and deposit

accretion by banks gaining momentum, liquidity started easing

as evident from overnight borrowings from the RBI for the first

fortnight of February averaging ~`74,000cr compared to over

`1,05,000cr during the second fortnight of January. PSU banks

also showed good momentum on the back of finalisation of

capital infusion into a few PSU banks. The Union Budget also

turned out to be encouraging for the banking sector as the

finance minister continued with reforms to increase the

availability of funds to the private sector. By the end of the quarter,

the Bankex was down 0.6% sequentially, however,

it outperformed the Sensex by 4.6%. Within our coverage

universe, J&K Bank gave the highest returns of 12.7%

sequentially, followed by BOI and Federal Bank, with gains of

6.3% and 5.4%, respectively.

Exhibit 1: 4QFY2011 stock performance


(%)(%)(%)(%)(%) Returns (qoq)Returns (qoq)Returns (qoq)Returns (qoq)Returns (qoq) Returns (yoy)Returns (yoy)Returns (yoy)Returns (yoy)Returns (yoy)

Jammu and Kashmir Bank (J&KBK) 12.7 28.8

Bank of India (BOI) 6.3 40.3

Federal Bank (FEDBK) 5.4 56.9

Axis Bank (AXSB) 4.0 20.1

Corporation Bank (CRPBK) 0.3 32.7

Union Bank of India (UNBK) (0.0) 18.6

Punjab National Bank (PNB) (0.1) 20.4

HDFC Bank (HDFCBK) (0.2) 21.2

BankexBankexBankexBankexBankex (0.6)(0.6)(0.6)(0.6)(0.6) 24.924.924.924.924.9

Yes Bank (YESBK) (0.9) 21.6

State Bank of India (SBI) (1.5) 33.1

Indian Overseas Bank (IOB) (1.9) 56.2

ICICI Bank (ICICIBK) (2.8) 16.8

Oriental Bank of Commerce (OBC) (4.6) 20.6

South Indian Bank (SIB) (5.2) 28.2SensexSensexSensexSensexSensex (5.2)(5.2)(5.2)(5.2)(5.2) 10.910.910.910.910.9

Indian Bank (INDBK) (6.0) 32.2

UCO Bank (UCOBK) (7.7) 89.6

Dena Bank (DENABK) (10.6) 32.9

mobilisation (currently 16.6%) continues to increase in the

coming months due to the recent increase in interest rates.

From December 31, 2010, to March 11, 2011, banks haveincrementally lent`92,854cr, a decline of 11.8% compared to

the credit offtake over the same period last year. The deposit

mobilisation over the period of consideration is`1,68,979cr, a

rise of 20.3% compared to the deposit mobilisation over the

same period last year.

The incremental credit-to-deposit ratio from December 31,

2010, to March 11, 2011, fell to 55.0% from 142.0% in

3QFY2011. Consequently, the overall credit-to-deposit ratio

fell to 75.0% from 75.7% at the start of 4QFY2011.

As a result, as far as broader interest rates are concerned,we believe rates have peaked and banks are unlikely to change

deposit rates until April at least, with further hikes beyond April

also appearing to be unlikely.

Liquidity concerns receding

The liquidity tightness, which prevailed in December 2010 eased

slightly in January 2011, with average LAF borrowings at

~`91,300cr compared to`1,19,400cr in December 2010. Post

the rate hikes on January 25, 2011, liquidity concerns further

eased with average LAF borrowings falling to`74,700cr upto

March 14, 2011. Although advance tax outflows for the fourthquarter resulted in LAF borrowings touching`1,45,400cr (as of

March 17, the highest in 4QFY2011), temporary pressures soon

alleviated as average LAF borrowings dropped to`72,200cr for

the last week of the quarter.

Interest rates at peak; demand growth gaining

momentum

In the last couple of months, the broader interest rates have

already increased by a substantial 200-250bp, which may cool

down credit growth from the current 23.2% (as of March 11,2011) to more sustainable 18-20% levels, even as deposit

Source: RBI, Angel Research

Exhibit 2:Average LAF borrowings reduced during the quarter

(2,000)

(1,600)

(1,200)

(800)

(400)

0

400

800

Jul-10

Aug-1

0

Sep-1

0

Oct-10

Nov-1

0

Dec-1

0

Jan-1

1

Fe

b-1

1

Mar-

11

(` bn)

Repo (-ve) / Reverse Repo (+ve)

The persistent tight liquidity situation and slower deposits growth

that prevailed in the last quarter prompted many banks to raise

their fixed deposit interest rates aggressively across maturities.

An average rate hike of 50-150bp in the last quarter was

supplemented by a ~100bp hike in the current quarter,

eventually leading to relative easing of liquidity pressures.


17/66



Banking

To maintain their margins, banks also raised lending rates

by 50-100bp during the quarter. Corporation Bank had the

highest average base rate change (108bp) amongst banks

under our coverage.

Large banks better placed to sustain NIMs

On account of the recent rise in deposit rates, especially

wholesale deposit rates, we expect NIMs to decline by

5-15bp in 4QFY2011, more so in case of smaller banks.

That said, a large part of NIM compression expected in FY2012

would be back-ended as the deposit cost increase lags the

increase in yield on advances. Going forward, over the next

4-6 quarters, we expect rising retail and wholesale fixed deposit

rates to lead to a substantial 40-60bp NIM compression for

low-CASA, mid-size banks. Correspondingly, larger banks withhigh CASA ratio and robust branch expansion such as SBI,

ICICI Bank, HDFC Bank and Axis Bank are better placed to

sustain their NIMs going forward.

Provisioning for employee benefits

The RBI has allowed PSU banks to amortise the liabilities arising

out of second pension option for existing employees over a

period of five years. However, there is lack of clarity regarding

the treatment of pension liabilities for retired employees.

Although the RBI notification suggests that banks ought to make

a one-off provision for liabilities related to retired employees in4QFY2011, our interaction with managements of few banks

indicates that there is a strong possibility of banks being allowed

to amortise pension costs related to retired employees too.

According to news articles, while Canara Bank might have to

provide a one-time provision of`100cr-150cr in 4QFY2011

for its retired employees, Union Bank could have to provide

anything between`350cr-600cr in the quarter towards pension

for its retired employees. To account for the likelihood of banks

reporting these expenses in the current quarter, we have

conservatively factored in estimated provisioning burdens on

an approximate basis, assuming banks are allowed at leastfour quarters to amortise this liability. However, any unexpected

high pension expenditure related to retired employees reported

by banks could act as a downside risk to our earnings estimates.

Exhibit 3: Peak retail FD rates in 1-3 years maturity bracket



AXSB 9.25 8.25 100

BOI 9.25 8.25 100

HDFCBK 9.25 8.25 100

ICICIBK 9.25 8.25 100

INDBK 9.50 8.50 100

J&KBK 9.50 8.50 100

CRPBK 9.25 8.40 85

YESBK 9.35 8.50 85

DENABK 9.00 8.25 75

SBI 9.25 8.50 75

SIB 9.75 9.00 75

UCOBK 9.00 8.25 75

IOB 9.25 8.60 65

PNB 9.15 8.50 65

OBC 9.25 8.75 50

UNBK 8.75 8.60 15

Exhibit 5: Average base rates



CRPBK 9.1 8.0 108

UNBK 9.3 8.4 86

UCOBK 9.3 8.6 74

AXSB 9.3 8.6 74

BOI 9.3 8.6 74

OBC 9.3 8.6 72

INDBK 9.3 8.6 71

PNB 9.3 8.6 71

IOB 9.3 8.6 70

ICICIBK 8.4 7.7 68

SBI 8.1 7.6 53

HDFCBK 8.0 7.5 48DENABK 9.3 9.0 31

Exhibit 4: Peak wholesale deposit rates



CENTBK 9.60 7.00 260

VIJAYA 9.00 7.25 175

ANDHBK 9.50 8.00 150

ALLBK 8.50 7.25 125OBC 10.00 8.75 125

BOI 9.25 8.25 100

INDBK 9.50 8.50 100

PNB 9.50 8.50 100

IOB 9.00 8.25 75

UNBK 9.15 8.60 55

Exhibit 6: Expected pension liabilities

Source: Company, Angel Research; Note: * Assuming 5 years amortisation

BankBankBankBankBank Expected LiabiltyExpected LiabiltyExpected LiabiltyExpected LiabiltyExpected Liabilty Liabilty p.a.*Liabilty p.a.*Liabilty p.a.*Liabilty p.a.*Liabilty p.a.* PPPPProvisions 9MFY11rovisions 9MFY11rovisions 9MFY11rovisions 9MFY11rovisions 9MFY11

BOI 4,000 800 600

PNB 3,600 720 485

UNBK 2,400 480 360

IOB 1,300 260 324

UCOBK 925 185 153INDBK 280 56 42


18/66

17



Banking

Capital infusion plans underway; will help banks to

meet Basel III norms

The governments capital infusion plans have already takenoff, with 15 PSU banks receiving their approved capital during

the quarter. This will ensure tier-I CRAR of all public sector banks

in excess of 8% and raise the governments holding in all public

sector banks to ~58%. Bank of Baroda is the biggest beneficiary

with a capital infusion of`2,461cr (6.8% equity dilution), while

OBC is the biggest recipient under our coverage universe with

approved capital infusion of`1,740cr (also the highest equity

dilution at 16.5%).

Exhibit 9: Capital infusion plans*

Source: Company, Angel Research; Note: *For companies under coverage

BankBankBankBankBank Capital InfusionCapital InfusionCapital InfusionCapital InfusionCapital Infusion PPPPPre Tierre Tierre Tierre Tierre Tier-I CAR-I CAR-I CAR-I CAR-I CAR PPPPPre GoIre GoIre GoIre GoIre GoI PPPPPost GoIost GoIost GoIost GoIost GoI(((((````` cr)cr)cr)cr)cr) (%)(%)(%)(%)(%) (%)(%)(%)(%)(%) (%)(%)(%)(%)(%)

OBC 1,740 9.1 51.1 58.0

IOB 1,054 7.3 61.2 65.9

BOI 1,010 8.0 64.5 65.9

UCOBK 940 7.5 63.6 68.1

UNBK 682 7.4 55.4 57.1

DENA 539 7.2 51.2 58.0

CPRBK 309 8.1 57.2 58.5

PNB 182 7.6 57.8 58.0


Exhibit 7: Net NPA ratio on a declining trend

0.97

1.02

1.05 1.06

1.15

1.081.07

1.06

0.99

0.90

1.00

1.10

1.20

3QFY09

4QFY09

1QFY10

2QFY10

3QFY10

4QFY10

1QFY11

2QFY11

3QFY11

Asset quality improves further

The asset quality of the entire sector especially private banks

continued to improve in 3QFY2011, which is evident from thefact that the net NPA ratio for the entire sector has been on a

declining trend since 3QFY2010 (coming off from a peak of

1.15% in 3QFY2010 to 0.99% in 3QFY2011). Net NPA ratio

of private banks halved from 1.27% in 3QFY2010 to 0.67% in

3QFY2011. Only 12 out of the 39 listed banks registered an

increase in net NPA ratio in 3QFY2011 v/s 23 banks witnessing

an increase in 3QFY2010.

The government has extended the mandated timeline for

implementing the CBS-based NPA recognition system from

4QFY2011 to 1QFY2012 for accounts up to `50lakh. Therelaxation of one quarter is likely to lessen the spurt in slippages

that would have been witnessed in 4QFY2011 for PSU banks

that have not yet already switched over to CBS-based systems

and will give them additional time to cleanse the data and avoid

any inconsistencies while shifting to the new platform.

Considering that interest rates have gone up by ~200bp,

we would be also watchful of incremental asset-quality pressures.

Accordingly, in the mid-cap space, we prefer banks that have

either been conservative in the last couple of years (for instance,

Syndicate Bank) or have already seen bulk of asset-qualitypressures and will see an improvement going forward (such as

Indian Overseas Bank). In case of larger banks, we broadly

expect asset quality to continue to show an improving trend.


31-Mar-11 31-Dec -10 30-Sep -10

6.0

6.5

7.0

7.5

8.0

8.5

12

-month

T-b

ill

3-yr

Gsec

5-yr

Gsec

7-yr

Gsec

10

-yr

Gsec

(%)

Exhibit 8: G-sec yields remain firm across entire yield curve

the 10-year G-sec bond yield climbed back to the pre-Budget

levels of ~8%. With interest rates being stable across the entire

yield curve, no significant MTM losses are expected to bereported by banks under our coverage for 4QFY2011.

Moreover, with increasing amount of insurance sector flows

being directed towards debt rather than equity, and overall

market borrowings by the government unlikely to be more than

14-15% higher than in FY2011, G-sec yields are unlikely to

have an upward bias in FY2012E.

G-sec yields remain firm through 4QFY2011

The benchmark 10-year G-sec bond yield has more or less

remained firm at ~8% through 4QFY2011, although there was

some temporary easing post the Union Budget when the finance

minister by refraining from having any major populist measure

brought down the targeted fiscal deficit estimate to 4.6%. Aftersoftening by ~8bp to 7.93%, the lowest in the entire quarter,


19/66



Banking

Regulatory events during 4QFY2011

Introduction of new banking licenses to improve financial

inclusion was on the horizon since last year. Having already

published a discussion paper regarding the same, the RBI is

expected to come out with guidelines for eligibility of awarding

these licenses in the next few weeks. In addition, the RBI is

expected to outline the process of entry of foreign banks in

India. The RBI in the near future is also expected to release a

discussion paper regarding the deregulation of savings rate.

The banking amendment bill, which aligns the ability of

shareholders to exert voting rights in line with their ownership

as compared to previous limitations of 1% in state-owned banksand 10% in private banks, has been cleared by the parliament.

The parliament in the current quarter also cleared the

State Bank of India (SBI) Amendment Bill, bringing the affairs

of five SBI subsidiaries directly under the government's

supervision. The bill, which provides means for SBI to enhance

its capital base, is also expected to make the process of merger

of the subsidiary banks with SBI smoother.

The Union Budget was also encouraging for the banking

sector as the finance minister continued with the reforms to

increase availability of funds to the private sector. The financeminister also refrained from announcing any major populist

measures, bringing the budgeted level of fiscal deficit for FY2012

down to 4.6%.

Outlook

The RBI revised the key policy rates eight times during FY2011

to battle inflation. Going forward, we expect inflation to cooldown to 5-7%, though any negative surprises on this front would

be a downside risk for the sector. While the broader interest

rates have also increased by ~200bp, credit demand during

this period sustained at above 20% levels, indicating strength

of the underlying demand. We expect credit growth to remain

at 19-20% over FY2012-13, consistent with an expected GDP

growth rate of 8%.

Deposit mobilisation, which lacked momentum till 3QFY2011,

picked up during 4QFY2011 on the back of a further hike of

~100bp in fixed deposit rates. Further, with receding liquidity

concerns, we believe interest rates have peaked.

The peaking of interest rates coupled with stabilising asset quality

augurs well for the entire banking sector. That said, in light of

the ~200bp increase in interest rates, we believe incremental

margin and asset-quality pressures could lead to a deteriorating

earnings trend for banks that have aggressively relied on

wholesale deposits to fund high credit growth. Accordingly,

we continue to like large banks with strong deposit franchises,

and ICICI Bank and Axis Bank are our top picks in this space.

In the mid-cap space, we prefer banks that have either already

seen bulk of the asset-quality pressures or have been relativelyconservative in the past couple of years. In this space, we like

Corporation Bank, Indian Bank, Indian Overseas Bank

and Syndicate Bank.

Analyst - VAnalyst - VAnalyst - VAnalyst - VAnalyst - Vaibhav Agrawaaibhav Agrawaaibhav Agrawaaibhav Agrawaaibhav Agrawal/l/l/l/l/Shrinivas BhutdShrinivas BhutdShrinivas BhutdShrinivas BhutdShrinivas Bhutdaaaaa/////VVVVVarun Varun Varun Varun Varun Varmarmarmarmarmaaaaa

Exhibit 10: Quarterly estimates (((((````` cr)cr)cr)cr)cr)CompanyCompanyCompanyCompanyCompany CMPCMPCMPCMPCMP Operating Income Net POperating Income Net POperating Income Net POperating Income Net POperating Income Net Profit EPS (rofit EPS (rofit EPS (rofit EPS (rofit EPS (`````) Adj B) Adj B) Adj B) Adj B) Adj BVPS (VPS (VPS (VPS (VPS (`````))))) P/E (x) P/ABP/E (x) P/ABP/E (x) P/ABP/E (x) P/ABP/E (x) P/ABV (x)V (x)V (x)V (x)V (x) TTTTTargetargetargetargetarget Reco.Reco.Reco.Reco.Reco.

(((((`````))))) 4QFY11E4QFY11E4QFY11E4QFY11E4QFY11E % chg% chg% chg% chg% chg 4QFY11E4QFY11E4QFY11E4QFY11E4QFY11E % chg% chg% chg% chg% chg FY11EFY11EFY11EFY11EFY11E FY12EFY12EFY12EFY12EFY12E FY13EFY13EFY13EFY13EFY13E FY11EFY11EFY11EFY11EFY11E FY12EFY12EFY12EFY12EFY12E FY13EFY13EFY13EFY13EFY13E FY11EFY11EFY11EFY11EFY11E FY12EFY12EFY12EFY12EFY12E FY13EFY13EFY13EFY13EFY13E FY11EFY11EFY11EFY11EFY11E FY12EFY12EFY12EFY12EFY12E FY13EFY13EFY13EFY13EFY13E (((((`````)))))

AXSB 1,404 3,022 26.2 995 30.1 83.0 103.4 130.7 459.2 530.3 630.2 16.9 13.6 10.7 3.1 2.6 2.2 1,765 Buy

FEDBK 419 587 8.7 156 33.2 33.4 44.6 50.3 300.3 335.6 375.5 12.5 9.4 8.3 1.4 1.2 1.1 451 Accum.

HDFCBK 2,343 3,934 20.9 1,110 32.6 85.7 113.0 148.2 536.1 622.9 737.4 27.3 20.7 15.8 4.4 3.8 3.2 2,655 Accum.

ICICIBK 1,113 4,163 6.0 1,522 51.4 45.3 58.6 71.4 469.4 501.7 541.1 24.5 19.0 15.6 2.4 2.2 2.1 1,405 Buy

SIB 23 252 105.6 77 99.9 2.5 2.7 2.7 14.1 15.4 17.8 9.0 8.5 8.4 1.6 1.5 1.3 - Neutral

YESBK 310 493 22.0 181 29.3 20.7 23.8 26.3 109.4 130.3 152.5 14.9 13.0 11.8 2.8 2.4 2.0 343 Accum.

BOI 478 2,713 19.3 745 74.1 52.1 65.1 74.5 283.9 342.5 400.7 9.2 7.3 6.4 1.7 1.4 1.2 541 Accum.

CRPBK 638 1,110 21.6 338 8.2 98.0 103.4 110.6 475.3 556.1 637.2 6.5 6.2 5.8 1.3 1.1 1.0 701 Accum.

DENABK 104 619 23.5 156 14.0 21.3 20.0 20.9 101.8 120.8 137.2 4.9 5.2 5.0 1.0 0.9 0.8 120 Buy

INDBK 232 1,316 7.3 486 18.5 40.1 44.0 46.4 186.1 220.1 256.1 5.8 5.3 5.0 1.2 1.1 0.9 269 Buy

IOB 144 1,473 33.6 247 93.9 16.3 21.4 25.6 124.4 142.6 161.9 8.8 6.7 5.6 1.2 1.0 0.9 170 Buy

J&KBK 875 459 11.9 138 15.0 126.7 137.2 141.0 717.4 822.0 929.9 6.9 6.4 6.2 1.2 1.1 0.9 930 Accum.

OBC 387 1,291 2.9 359 13.3 61.0 64.0 66.7 340.4 402.6 455.4 6.3 6.0 5.8 1.1 1.0 0.8 433 Accum.

PNB 1,220 4,197 22.3 1,144 0.8 138.8 158.7 183.5 624.5 752.3 895.7 8.8 7.7 6.7 2.0 1.6 1.4 1,388 Accum.

SBI 2,768 13,691 21.9 3,115 66.9 178.9 237.3 303.4 1,123.7 1,322.2 1,547.8 15.5 11.7 9.1 2.5 2.1 1.8 3,479 Buy

UCOBK 107 1,298 30.0 359 (5.4) 16.0 18.8 19.2 75.8 95.7 109.1 6.7 5.7 5.6 1.4 1.1 1.0 - Neutral

UNBK 347 2,155 14.1 621 4.6 41.7 51.4 56.7 200.7 244.8 287.2 8.3 6.8 6.1 1.7 1.4 1.2 402 Buy Source: Company, Angel Research; Note: Price as on March 31, 2011


20/66

19



Capital Goods

Major losers during the quarter were BGR Energy and Jyoti

Structures, which declined by 34.3% and 39.1%, respectively,

in absolute terms. Though BGR Energy reported robust results

for 3QFY2011, the stock was affected in 4QFY2011 due to

poor order intake and low earnings visibility going forward.

During the quarter, Jyoti Structures successfully raised`123cr

through 7% NCD, which would enable the company to

substantially reduce its interest cost going forward. In contrast,ABB gained 0.6%, despite reporting poor results for 4QCY2010

and reduced order intake for CY2010.

The capital goods (CG) index was the major loser during

4QFY2011, declining 14.1% as compared to the 5.2%fall in

the Sensex. Lower-than-expected IIP growth coupled with thecontinuing decline in CG production over the past few months

adversely affected CG stocks during the quarter. In addition to

declining IIP numbers, the fall in new order bookings coupled

with hardening interest rates, delays in land acquisition and

environmental clearances also negatively affected the CG sector.

Valuations corrected significantly during the first two months of

the quarter, before marginally recovering in March 2011.

Despite underperforming the broad-based Sensex for a major

portion of the quarter, valuations of front-line stocks in the

CG index continued to trade at a premium to the Sensex.

Macros signal slowdown

After reporting strong double-digit growth during the first half

of FY2011, IIP numbers for November 2010-January 2011

have consistently drifted downwards and have settled at

sub-4%, less than 1/4th their pace a year ago. The deceleration

has come on the back of contraction in the manufacturing sector

as a whole. The manufacturing sector, which contributes ~80%

to the IIP, reported ~ 3% growth, while CG production reported

negative growth during the same period. CG production for

December 2010 and January 2011 dipped by 9.3% and 18.6%,

respectively. The overall decline in industrial growth is likely to

reduce the GDP growth rate for 2HFY2011 to less than 8.9%

reported in 1HFY2011.

Source: C-line, Angel Research

Abs. ReturnsAbs. ReturnsAbs. ReturnsAbs. ReturnsAbs. Returns Relative to SensexRelative to SensexRelative to SensexRelative to SensexRelative to Sensex

(%)(%)(%)(%)(%) (%)(%)(%)(%)(%)

BSE Sensex (5.2) 0.00

BSE Cap Goods (14.1) (9.0)

B B 0.6 5.8

Areva T&D (23.8) (18.6)

BHEL (11.4) (6.2)

BGR Energy Sys. (34.3) (29.1)

Crompton Greaves (12.1) (6.9)

Jyoti Structures (39.1) (34.0)

K E C Intl. (21.2) (16.0)

Thermax (30.3) (25.1)

Exhibit 1: Sensex vs. CG stocks - 4QFY2011Exhibit 1: Sensex vs. CG stocks - 4QFY2011Exhibit 1: Sensex vs. CG stocks - 4QFY2011Exhibit 1: Sensex vs. CG stocks - 4QFY2011Exhibit 1: Sensex vs. CG stocks - 4QFY2011

Deterioration in the macro environment, viz. hardening interest

rates causing the cost of capital to remain high, delays in

environment approvals, coal linkages and land acquisition, has

deferred order finalisation. Going forward, we expect various

CG majors to miss the order inflow guidance for FY2011. In

addition, rising commodity prices over the past few quarters

are likely to affect profit margins of CG companies.

The Indian CG sector continues to be negatively impacted by

increasing competition, especially from China. We believe theadministered currency regime, cheaper finance and the

favourable duty structure under which Chinese companies

operate have enabled them to place their products in Indian

markets at lower prices. Domestic power equipment

manufacturers such as BHEL and L&T have been losing bulk of

the orders to their Chinese counterparts. During 3QFY2011,

various private sector power developers had placed orders worth

over US $12bn to various Chinese power equipment companies.

These orders were placed when the domestic power equipment

industry was in the midst of expanding capacities to meet the

growing demand. Besides, the power transmission and

distribution (T&D) segment has also seen serious competition

from Chinese and Korean majors.

Source: C-line, Angel Research

Exhibit 2: CG index: Relative returns to the Sensex

23.5

1.3

17.2

(6.2)

(14.1)

9.4

(9.7)(7.1)

48.6

(10.7)

0.6

(0.6)

3.5

(4.6) (5.8)(9.0)

(20.0)

(10.0)

0.0

10.0

20.0

30.0

40.0

50.0

60.0

1Q08

2Q08

3Q08

4Q08

1Q09

2Q09

3Q09

4Q09

1Q10

2Q10

3Q10

4Q10

1Q11

2Q11

3Q11

4Q11

(%)

Source: CMIE, Angel Research

Exhibit 3: GDP growth to bounce backExhibit 3: GDP growth to bounce backExhibit 3: GDP growth to bounce backExhibit 3: GDP growth to bounce backExhibit 3: GDP growth to bounce back

4.4

5.8

3.8

8.57.5

9.5 9.6 9.3

6.8

8.08.5 8.5

0.0

2.0

4.0

6.0

8.0

10.0

12.0

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011E

2012E

(%)


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Capital Goods


Exhibit 4: IIP growthExhibit 4: IIP growthExhibit 4: IIP growthExhibit 4: IIP growthExhibit 4: IIP growth Key developments

Documents

Market Strategy April 2011