top picks

October 2012 Sharekhan ValueGuide2

Sharekhan ValueGuide October 20123

CONTENTS

Policy makers fromacross the globe wereexpected to take criticaldecisions in September2012 that were toprovide direction to theequity markets globally,and sure enough theydid. As European Central Bank, US Federal Reserve and the Chinesegovernment announced stimulus measures one after another in acoordinated effort to support the sagging global economy, the marketgained strength and moved closer to the higher end of its multi-monthtrading range (the Nifty level of 4600-5600).

REGULAR FEATURESReport Card 4Earnings Guide I

TECHNICALS

Sensex 29

Stock Ideas 13

Stock Updates 17

Sharekhan Special 26

Sector Updates 27

From Sharekhan’s Desk EQUITY

06

Booster dose from policy makers FUNDAMENTALS

DERIVATIVES

View 30

TECHNICALS

Crude Oil 31Gold 32Silver 32

FUNDAMENTALSCopper 32Lead 32Zinc 33

Gold 34Silver 34Crude Oil 34

Copper 35Lead 35Nickel 35

TECHNICALS

FUNDAMENTALS

USD-INR 37EUR-INR 37

GBP-INR 37JPY-INR 37

disclaimerDISCLAIMER: “This document has been prepared by Sharekhan Ltd.(SHAREKHAN) This Document is subject to changes without prior notice and is intended only for the person or entity to which it is addressed to and maycontain confidential and/or privileged material and is not for any type of circulation. Any review, retransmission, or any other use is prohibited. Kindly note that this document does not constitute an offer or solicitation for thepurchase or sale of any financial instrument or as an official confirmation of any transaction. Though disseminated to all the customers simultaneously, not all customers may receive this report at the same time. SHAREKHANwill not treat recipients as customers by virtue of their receiving this report. The information contained herein is from publicly available data or other sources believed to be reliable. While we would endeavour to update theinformation herein on reasonable basis, SHAREKHAN, its subsidiaries and associated companies, their directors and employees (“SHAREKHAN and affiliates”) are under no obligation to update or keep the information current.Also, there may be regulatory, compliance, or other reasons that may prevent SHAREKHAN and affiliates from doing so. We do not represent that information contained herein is accurate or complete and it should not be reliedupon as such. This document is prepared for assistance only and is not intended to be and must not alone betaken as the basis for an investment decision. The user assumes the entire risk of any use made of this information.Each recipient of this document should make such investigations as it deems necessary to arrive at an independent evaluation of an investment in the securities of companies referred to in this document (including the meritsand risks involved), and should consult its own advisors to determine the merits and risks of such an investment. The investment discussed or views expressed may not be suitable for all investors. We do not undertake toadvise you as to any change of our views. Affiliates of Sharekhan may have issued other reports that are inconsistent with and reach different conclusion from the information presented in this report. This report is not directedor intended for distribution to, or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction, where such distribution, publication, availability or use would be contraryto law, regulation or which would subject SHAREKHAN and affiliates to any registration or licensing requirement within such jurisdiction. The securities described herein may or may not be eligible for sale in all jurisdictions orto certain category of investors. Persons in whose possession this document may come are required to inform themselves of and to observe such restriction. SHAREKHAN & affiliates may have used the information set forthherein before publication and may have positions in, may from time to time purchase or sell or may be materially interested in any of the securities mentioned or related securities. SHAREKHAN may from time to time solicit from,or perform investment banking, or other services for, any company mentioned herein. Without limiting any of the foregoing, in no event shall SHAREKHAN, any of its affiliates or any third party involved in, or related to,computing or compiling the information have any liability for any damages of any kind. Any comments or statements made herein are those of the analyst and do not necessarily reflect those of SHAREKHAN.”

Sharekhan Ltd, Regd Add: 10th Floor, Beta Building, Lodha iThink Techno Campus, Off. JVLR, Opp. Kanjurmarg Railway

Station, Kanjurmarg (East), Mumbai – 400 042, Maharashtra. Tel: 022 - 61150000. BSE Cash-INB011073351; F&O-

INF011073351; NSE – INB/INF231073330; CD - INE231073330; MCX Stock Exchange: CD - INE261073330 DP: NSDL-IN-DP-NSDL-

233-2003; CDSL-IN-DP-CDSL-271-2004; PMS INP000000662; Mutual Fund: ARN 20669. Sharekhan Commodities Pvt. Ltd.: MCX-

10080; (MCX/TCM/CORP/0425); NCDEX -00132; (NCDEX/TCM/CORP/0142)

COMMODITY

CURRENCY

PMS DESKProPrime - Top Equity 38ProPrime - Diversified Equity 39ProTech - Diversified 40ProTech - Nifty Thrifty 41ProTech - Trailing Stops 42

MUTUAL FUNDS DESK

Top MF Picks (equity) 45

Top SIP Fund Picks 46

RESEARCH BASED EQUITY PRODUCTS

Special Report 07Top Picks Basket 09Switch Ideas 16

INR-GBP 36INR-JPY 36

ADVISORY DESKMID Trades 43

INR-USD 36INR-EUR 36

Derivative Ideas 43

Viewpoint 28


REPORT CARD EQUITY FUNDAMENTALS

STOCK IDEAS STANDING (AS ON OCTOBER 05, 2012)

COMPANY CURRENT PRICE AS ON PRICE 52 WEEK ABSOLUTE PERFORMANCE RELATIVE TO SENSEXRECO 05-OCT-12 TARGET HIGH LOW 1M 3M 6M 12M 1M 3M 6M 12M

NEW

NEW

NEW

AUTOMOBILES

Apollo Tyres Hold 89.7 105.0 102.5 52.0 -2.6 11.9 8.0 70.8 -11.0 3.2 -1.6 40.0Ashok Leyland Hold 24.7 27.0 33.5 18.8 19.6 -0.4 -17.8 4.5 9.3 -8.1 -25.1 -14.3Bajaj Auto Hold 1751.1 1755.0 1850.1 1407.2 6.5 12.5 10.3 20.3 -2.7 3.8 0.5 -1.4M&M Buy 869.0 920.0 880.0 621.1 15.1 22.4 26.7 12.7 5.1 12.9 15.4 -7.6Maruti Suzuki Hold 1387.7 1414.0 1429.0 900.0 18.2 12.6 6.1 28.6 7.9 3.9 -3.3 5.5BSE Auto Index 10492.9 10829.1 7894.0 13.6 11.6 6.0 28.8 3.8 2.9 -3.4 5.6BANKS & FINANCIALS

Allahabad Bank Buy 146.8 205.0 211.4 103.0 23.0 -4.1 -19.2 8.2 12.4 -11.5 -26.4 -11.3Andhra Bank Hold 111.2 120.0 138.5 76.5 23.0 -6.8 -4.7 0.7 12.3 -14.0 -13.2 -17.4Axis (UTI) Bank � Buy 1143.0 1370.0 1309.0 784.0 22.9 9.5 -0.5 22.0 12.3 1.0 -9.4 0.0Bajaj Finserv Hold 918.4 ** 984.0 334.0 16.1 36.5 32.9 87.0 6.0 25.9 21.0 53.3Bank of Baroda Buy 794.4 865.0 881.0 605.6 29.7 8.4 1.6 11.7 18.5 0.0 -7.5 -8.4Bank of India Hold 296.9 310.0 408.0 253.3 16.4 -16.3 -18.6 -1.2 6.4 -22.8 -25.9 -19.0Corp Bank Hold 416.8 480.0 540.0 335.0 12.7 -3.4 1.8 8.6 3.0 -10.9 -7.3 -11.0Federal Bank Buy 457.8 522.0 480.0 322.1 14.1 2.9 6.3 36.8 4.2 -5.1 -3.2 12.2HDFC Buy 750.0 785.0 794.0 600.3 3.5 10.9 12.2 22.1 -5.4 2.3 2.2 0.1HDFC Bank Hold 622.4 ** 639.3 400.3 5.1 6.6 19.1 43.0 -4.0 -1.7 8.5 17.2ICICI Bank � Buy 1066.7 1110.0 1100.0 641.0 21.3 15.8 22.3 39.8 10.8 6.9 11.4 14.6IDBI Bank Hold 102.0 120.0 121.7 77.1 17.9 5.3 -2.7 11.5 7.7 -2.9 -11.4 -8.5Punjab National Bank Buy 819.1 920.0 1091.1 659.0 22.5 -3.1 -9.3 -7.3 11.9 -10.7 -17.4 -24.0SBI Buy 2339.5 ** 2475.0 1571.1 27.8 4.7 10.1 38.6 16.8 -3.4 0.3 13.6Union Bank of India Hold 200.4 ** 274.0 150.1 27.0 -5.9 -12.6 -7.3 16.0 -13.2 -20.4 -24.0Yes Bank Buy 393.5 431.0 407.0 230.5 21.4 10.0 6.5 61.7 10.9 1.5 -3.0 32.6BSE Bank Index 13212.1 13481.5 8947.4 17.0 8.0 12.5 34.7 6.9 -0.4 2.5 10.4CONSUMER GOODS

Bajaj Corp Hold 184.2 208.0 195.0 94.5 -0.1 47.9 41.4 91.1 -8.7 36.4 28.8 56.7GSK Consumers Hold 2984.6 3000.0 3142.8 2179.0 2.9 12.5 8.7 25.9 -6.0 3.8 -1.0 3.3Godrej Consumer Products � Hold 695.2 726.0 717.8 355.0 2.7 20.0 41.5 74.6 -6.2 10.7 28.9 43.1Hindustan Unilever Hold 565.4 ** 568.7 324.0 6.4 28.3 42.9 78.9 -2.8 18.3 30.2 46.7ITC Hold 275.7 283.0 280.0 189.3 3.0 10.0 23.5 44.7 -5.9 1.5 12.5 18.6Marico Hold 203.0 ** 211.0 134.1 -0.7 10.8 19.4 41.2 -9.3 2.2 8.7 15.8Mcleod Russel India � Hold 322.1 356.0 346.5 165.5 -1.3 4.8 19.7 48.7 -9.8 -3.3 9.0 21.9TGBL (Tata Tea)^ Hold 150.2 158.0 157.2 80.0 12.4 27.8 29.7 88.2 2.7 17.9 18.1 54.3Zydus Wellness Hold 423.1 430.0 637.0 299.0 7.3 4.7 10.3 -19.0 -2.0 -3.5 0.4 -33.6BSE FMCG Index 5639.7 5679.9 3858.9 4.5 15.7 26.9 50.1 -4.5 6.8 15.6 23.1IT / IT SERVICES

AGC Networks Buy 400.8 ** 433.9 117.7 1.7 62.2 144.1 204.1 -7.1 49.6 122.3 149.4CMC Buy 1124.2 1551.0 1187.3 685.0 16.0 30.0 15.6 45.8 6.0 19.9 5.3 19.6HCL Technologies** Buy 573.6 650.0 597.6 372.7 2.0 16.5 13.1 48.5 -6.8 7.4 3.0 21.7Infosys Hold 2526.9 ** 2981.3 2060.6 8.0 1.9 -10.2 5.2 -1.3 -6.0 -18.2 -13.7NIIT Technologies Buy 283.2 340.0 324.9 164.3 0.8 -0.4 8.3 50.0 -7.9 -8.2 -1.4 23.0Persistent Systems Buy 426.8 552.0 443.1 281.3 12.0 8.7 32.2 44.7 2.3 0.2 20.4 18.6Polaris Financial Tech � Buy 129.3 163.0 175.5 102.5 8.5 0.6 -21.7 5.6 -0.9 -7.2 -28.6 -13.4Tata Consultancy Services Hold 1304.0 1364.0 1439.8 1014.0 -4.4 5.4 12.4 27.6 -12.7 -2.8 2.3 4.6Wipro Hold 373.3 ** 453.0 320.5 3.1 -5.7 -15.1 15.5 -5.8 -13.0 -22.6 -5.3BSE IT Index 5910.9 6361.4 5134.1 3.2 3.8 -2.0 16.8 -5.7 -4.2 -10.7 -4.2CAPITAL GOODS / POWER

BHEL Hold 263.9 ** 344.5 195.1 29.4 14.0 -1.8 -13.4 18.2 5.2 -10.5 -29.0CESC Buy 332.2 405.0 343.4 186.3 11.2 9.3 21.4 31.1 1.6 0.8 10.5 7.5Crompton Greaves Hold 139.4 ** 175.0 102.1 30.5 6.5 -3.6 -4.3 19.2 -1.7 -12.2 -21.5Greaves Cotton Hold 83.0 86.0 98.6 59.8 26.7 24.1 -1.4 -0.1 15.8 14.5 -10.2 -18.1Kalpataru Power Transmission Buy 88.6 130.0 134.4 64.0 36.4 6.2 -16.2 -13.0 24.6 -2.0 -23.7 -28.7PTC India Buy 70.2 82.0 75.9 38.1 31.4 11.2 7.5 7.4 20.1 2.6 -2.1 -12.0Thermax Hold 579.9 ** 601.0 380.6 18.9 18.0 22.9 43.4 8.6 8.9 12.0 17.6V-Guard Industries Hold 386.6 434.0 457.5 141.3 -5.5 53.3 102.3 93.5 -13.6 41.4 84.2 58.7BSE Power Index 2087.7 2416.3 1725.2 12.3 3.9 -2.3 2.6 2.6 -4.2 -11.0 -15.9BSE Capital Goods Index 11339.5 11615.1 7806.9 21.9 11.7 10.7 9.4 11.4 3.1 0.8 -10.3INFRASTRUCTURE / REAL ESTATE

Gayatri Projects Buy 118.8 300.0 169.0 75.4 32.6 13.1 -10.1 4.0 21.2 4.3 -18.1 -14.7ITNL Buy 192.1 330.0 231.0 142.6 17.3 6.4 -0.7 -0.2 7.2 -1.9 -9.5 -18.2


REPORT CARDEQUITY FUNDAMENTALS

STOCK IDEAS STANDING (AS ON OCTOBER 05, 2012)

� In Top Picks basket **Price target under review ***Price target adjusted for the demerger

Please note that due to the recent sharp rally, many companies are close to price target or have crossed it. We will review the price targets along with Q2 results update.

NEW

NEW

COMPANY CURRENT PRICE AS ON PRICE 52 WEEK ABSOLUTE PERFORMANCE RELATIVE TO SENSEXRECO 05-OCT-12 TARGET HIGH LOW 1M 3M 6M 12M 1M 3M 6M 12M

IRB Infra � Buy 156.9 175.0 210.5 100.1 24.1 16.7 -19.2 -1.4 13.4 7.6 -26.4 -19.2Jaiprakash Associates Buy 88.7 105.0 92.8 50.4 39.8 14.2 3.8 25.2 27.7 5.4 -5.5 2.6

Larsen & Toubro � Buy 1649.9 1788.0 1657.4 969.2 24.6 16.8 24.0 24.2 13.8 7.8 13.0 1.9Mahindra Lifespace Developers Buy 405.1 ** 422.0 235.0 17.5 23.9 25.4 45.7 7.3 14.3 14.2 19.5Orbit Corporation Buy 62.1 75.0 68.9 24.9 45.5 5.7 9.3 85.2 32.9 -2.5 -0.4 51.9Pratibha Industries Buy 55.2 65.0 59.0 27.8 10.3 8.0 16.2 32.8 0.8 -0.4 5.9 8.9Punj Lloyd Hold 55.8 60.0 65.9 37.0 25.7 -0.4 -3.5 5.7 14.8 -8.1 -12.1 -13.3Unity Infraprojects Buy 48.8 95.0 56.4 22.4 24.0 4.2 -3.7 21.7 13.3 -3.9 -12.2 -0.2CNX Infra Index 2577.7 2835.8 2045.7 15.7 4.1 1.5 3.5 5.7 -3.9 -7.5 -15.2BSE Real Estate Index 1949.6 2212.3 1347.8 29.4 11.0 9.2 16.9 18.2 2.3 -0.6 -4.1

OIL & GAS

GAIL Buy 393.1 410.0 449.0 302.0 10.4 10.6 7.6 -0.7 0.9 2.0 -2.0 -18.6Oil India Buy 490.1 600.0 552.4 430.5 2.8 -0.9 0.2 -2.2 -6.1 -8.6 -8.8 -19.8

Reliance Ind � Buy 857.8 875.0 905.0 673.1 11.2 16.1 16.2 13.2 1.6 7.1 5.9 -7.2Selan Exploration Technology Buy 344.2 360.0 351.0 221.2 19.5 18.5 20.0 23.0 9.2 9.3 9.3 0.8BSE Oil and Gas Index 8852.2 9282.8 7336.2 8.2 9.9 10.0 9.5 -1.1 1.4 0.2 -10.2

PHARMACEUTICALS

Cadila Healthcare � Hold 819.4 1062.0 966.0 620.0 -9.2 8.0 12.7 7.2 -17.1 -0.3 2.6 -12.1

Dishman Pharma � Buy 95.6 135.0 107.4 32.5 -5.8 41.9 93.0 65.0 -13.9 30.9 75.8 35.3Divi's Labs Buy 1095.6 1246.0 1201.7 693.1 -2.3 7.1 44.7 54.7 -10.7 -1.2 31.8 26.8Glenmark Pharmaceuticals Buy 400.0 468.0 450.0 264.8 -4.9 7.2 29.6 34.8 -13.1 -1.1 18.0 10.5Ipca Laboratories Buy 443.3 476.0 496.0 225.0 2.6 19.1 33.6 88.9 -6.2 9.8 21.7 54.9Lupin Buy 568.2 660.0 632.0 408.2 -3.0 5.7 6.9 21.7 -11.4 -2.5 -2.6 -0.3Piramal Enterprises Buy 471.2 600.0 562.5 340.0 0.0 -6.9 6.1 37.8 -8.7 -14.1 -3.4 13.0Sun Pharmaceutical Industries Buy 682.6 743.0 711.5 462.0 4.9 8.0 21.8 49.0 -4.1 -0.3 10.9 22.2Torrent Pharma Buy 691.5 760.0 728.5 504.6 -1.7 11.9 10.1 29.6 -10.2 3.2 0.3 6.3BSE Healthcare Index 7427.2 7794.1 5767.5 0.4 7.6 13.9 28.9 -8.3 -0.7 3.7 5.7

AGRI-INPUTS

Deepak Fert. Buy 132.5 179.0 171.0 111.0 5.0 -2.1 -6.9 -13.8 -4.1 -9.7 -15.2 -29.3Tata Chemicals Hold 320.5 338.0 374.7 297.0 3.0 2.1 -5.6 12.3 -5.9 -5.8 -14.0 -8.0United Phosphorus Buy 132.9 167.0 170.4 104.1 10.3 4.5 -0.7 8.7 0.8 -3.6 -9.6 -10.9

BUILDING MATERIALS

Grasim Hold 3362.2 3405.0 3438.2 2205.1 14.9 27.2 28.1 45.8 5.0 17.3 16.6 19.5India Cements Hold 93.2 95.0 119.4 65.1 15.2 10.5 -16.2 35.8 5.3 1.9 -23.7 11.3Madras Cements Hold 193.6 210.0 197.9 93.0 5.8 22.0 26.7 100.9 -3.3 12.6 15.4 64.7Orient Paper and Industries Buy 76.9 80.0 80.9 43.7 7.9 21.6 31.1 32.3 -1.5 12.2 19.4 8.5Shree Cement Hold 3874.0 ** 4445.0 1737.9 14.1 26.0 24.7 111.8 4.2 16.2 13.6 73.6UltraTech Cement Hold 1971.1 ** 2059.8 1057.0 17.7 28.3 30.8 79.0 7.5 18.4 19.1 46.8

RETAIL

KKCL Hold 687.3 ** 843.6 485.4 11.7 23.3 6.8 -8.8 2.0 13.8 -2.7 -25.2Provogue India Buy 15.5 35.0 20.2 5.2 14.7 -20.6 -1.2 76.1 4.8 -26.8 -10.0 44.3Raymond Buy 380.2 463.0 439.4 299.1 10.3 -9.3 -10.2 18.3 0.8 -16.3 -18.2 -3.0Relaxo Footwear Buy 719.2 885.0 814.8 230.1 14.5 34.9 125.7 67.0 4.6 24.4 105.6 37.0

DIVERSIFIED / MISCELLANEOUS

Aditya Birla Nuvo Buy 937.3 943.0 1028.9 708.0 24.5 15.0 -6.1 9.1 13.8 6.1 -14.5 -10.6Bajaj Holdings Buy 833.0 1131.0 873.1 625.0 11.2 4.8 5.4 21.0 1.6 -3.4 -4.0 -0.8Bharti Airtel Hold 265.8 310.0 412.3 215.8 3.1 -17.7 -19.2 -27.1 -5.8 -24.1 -26.4 -40.3Bharat Electronics Buy 1224.0 1685.0 1710.0 1111.0 1.2 -9.5 -18.3 -17.2 -7.5 -16.5 -25.5 -32.1Eros International Media Buy 159.9 267.0 277.0 153.0 -3.9 -13.5 -19.1 -31.2 -12.2 -20.2 -26.3 -43.6Gateway Distriparks Buy 146.0 173.0 160.4 117.6 6.8 0.4 -4.3 12.6 -2.4 -7.4 -12.8 -7.7Indian Hotel Company Buy 66.7 82.0 80.0 50.6 13.1 6.9 3.4 -2.9 3.3 -1.4 -5.8 -20.4Max India Buy 228.2 262.0 264.8 140.1 26.1 19.2 30.4 31.6 15.2 9.9 18.7 7.9Opto Circuits India Buy 138.4 219.0 225.9 114.5 13.7 -14.1 -24.6 -12.0 3.9 -20.7 -31.3 -27.9Ratnamani Metals and Tubes Hold 114.9 129.0 121.7 82.0 5.7 2.5 9.4 15.4 -3.4 -5.4 -0.3 -5.4Sintex Industries Buy 72.3 100.0 123.3 50.2 32.1 9.4 -15.4 -33.2 20.7 0.9 -22.9 -45.2BSE500 Index 7279.2 7364.5 5683.0 10.5 7.8 7.8 20.4 0.9 -0.6 -1.8 -1.3CNX500 Index 4547.9 4602.1 3535.9 10.6 7.9 8.1 20.9 1.0 -0.5 -1.6 -0.9CNXMCAP Index 7934.4 8069.1 6030.5 11.9 5.8 3.1 18.5 2.2 -2.4 -6.1 -2.9


Booster dose from policy makers

FROM SHAREKHAN’S DESK

from

sha

rekh

an’s

des

k Policy makers from across the globe were expected to take critical decisions in September2012 that were to provide direction to the equity markets globally, and sure enough theydid. As European Central Bank (ECB), US Federal Reserve (Fed) and the Chinese governmentannounced stimulus measures one after another in a coordinated effort to support the saggingglobal economy, the market gained strength and moved closer to the higher end of itsmulti-month trading range (the Nifty level of 4600-5600). The booster dose for the Indianequity market, however, came from our own government, which shaking off months ofpolicy inertia announced a series of policy measures in a surprise move last month.

Economic reforms have been on the market’s wish-list for long but in the face of the scamsand controversies surrounding the United Progressive Alliance (UPA) II government thesehopes had dwindled. That is why when the government swung into action and rolled outseveral critical policy measures in a matter of days, it received an enthusiastic responsefrom the market. The benchmark index, Sensex, gained nearly 8% in the month on theback of the policy push.

In the first phase of the policy reforms initiated last month, the government hiked dieselprices and limited the supply of subsidised liquefied petroleum gas to six cylinders perhousehold in a year as part of its initiative to curtail the ballooning subsidy burden. It alsoallowed foreign direct investment (FDI) in sectors like multi-brand, aviation and powerexchanges; and raised the FDI limit in the direct-to-home broadcast services sector. What’smore important is that the government has withstood the pressure from the oppositionparties to roll back these measures. Not even the withdrawal of the Trinamool Congress(TMC)’s support has dented its newfound confidence. Within weeks of the first policyannouncement, the government has opened up the insurance and pension sectors, clearedthe Companies Bill 2011, and amended the Forward Contracts Regulation Act.

The foreign institutional investors (FIIs) have reaffirmed their faith in the Indian economyand pumped in a record Rs83,000 crore in Indian equities till now in 2012 as comparedwith Rs2,714 crore they had pulled out from the market in 2011. However, the convictionamong the domestic investors is still lacking and the domestic institutional and retailerinvestors have largely been sellers so far.

The macro environment remains tough. The political uncertainties have also risen after thewithdrawal of support from TMC and the UPA II government’s dependence on the not soreliable regional parties like the Samajwadi Party, which has openly opposed some of thegovernment’s recent policy announcements. Moreover, the government might find it difficultto form political consensus to push forward some of the recently announced policy reformsthat are required to be voted and approved by the Parliament. The UPA II government doesnot have the required numbers in the upper house of the Parliament and has been unable topush through its policy decisions.

Globally also, the situation in Europe remains fragile though the recent ECB announcementdid soothe investors’ nerves. The handling of the bail-out of Spain is the litmus test aheadfor the policy makers in Europe. There are also lingering concerns related to the potentialimpact of the expiry of tax breaks in the USA (fiscal cliff) by the end of 2012 and themarked slowdown in the Chinese economy.

Notwithstanding the concerns, our Fundamental research team remains constructive onthe equities due to resilience in corporate earnings, supportive valuations, an improvingpolicy environment (in terms of both the government's policy push and the easing of themonetary policy by the RBI) and the relative stability in the global environment. In therecent special report, “High on cocktail of policy measures”, dated September 17, 2012,the research team had reaffirmed the positive stance and also highlighted some of the reasonsfor the growing probability of a multi-month rally in the Indian market. Don't miss out onthe better times ahead.�


High on cocktail of policy measuresSPEICAL REPORT SEPTEMBER 17, 2012

The equity markets are celebrating the recent flurry of policymeasures. Another round of liquidity infusion by the central bankersin Europe and the USA is soothing investor nerves and unleashinga “risk-on” rally globally. In India also, the government has finallyshaken off the policy inertia and announced some critical policysteps to curtail the bloating subsidy bill and attract foreign inflowsin the retail and aviation sectors. The developments have come asan unexpected pleasant surprise and the domestic market hasaccordingly reacted with a sharp appreciation of close to 7-8% inthe past one week.

In this note we summarise some of the recent developments andour views on the equity markets from here.� Relief for troubled European peripheral countries: The European

Central Bank (ECB) and Germany’s constitution court havecleared the way for the proposed bond-buying programme forthe peripheral European countries. This has eased the bond yieldsof Italy and Spain—the two pain points in Europe—and reducedthe probability of a break-up of Europe, at least for now.

View: There are divergent views on the effectiveness of the QE3in supporting the US economy and boosting the credit offtake,given the questionable response to the QEs undertaken by theUS Fed earlier. Moreover, the expiry of tax incentives and theneed to rein in government debt are the other concerns thatwould weigh on investor sentiments as we move towards theend of this calendar year. Besides, the flush of liquidity tends tofind its way into commodities (especially crude oil) which isbad news for the emerging markets, which are already strugglingwith inflationary trends and declining economic growthmomentum.

� Finally, UPA-II pushes through tough decisions: Afterdisappointing the market with continued policy inertia and itsinability to form a consensus among its allies to take criticalpolicy decisions, the United Progressive Alliance (UPA)-IIgovernment took the domestic equity market by surprise byannouncing a slew of policy announcements, including necessary(though unpopular) steps to hike diesel prices and limit thesubsidy on liquefied petroleum gas cylinders. The governmenthas approved foreign investments in multi-brand retail (51%),aviation (49%) and power exchanges, and increased the foreigndirect investment (FDI) limit in direct-to-home services (from49% to 74%). The government has approved plans to raiseRs15,000 crore by reducing its stake in four public sectorundertakings. It has also hinted at follow-up policy actions tosupport the sagging industrial activity and business confidence.

View: We are quite enthused by the announcement of the recentpolicy decisions by the UPA-II government and the resolve shownby the prime minister as well as the new finance minister inaddressing some of the long-pending critical decisions. However,it remains to be seen whether the government would witherunder the pressure from allies/opposition or go ahead withfurther policy actions.

BOND YIELDS (10-YEAR) OF EURO PERIPHERAL NATIONS

View: The bond-buying programme would keep the bond yieldof the peripheral countries under check from the speculativeinterest and make it easier for some of these nations to roll overtheir debt obligations. However, the bail-out bond-buyingprogramme under the European Stability Mechanism comeswith conditions (not fully specified yet) and would be tough toimplement smoothly. Moreover, the move is not a way out ofthe debt crisis and would only buy some time for the Europeanleaders to foster a more workable long-term solution.

� US Fed unleashes QE3: The US Federal Reserve (Fed) surprisedby unleashing the third round of quantitative easing (QE3) justtwo months ahead of the presidential elections in the USA. TheFed proposes to infuse $40 billion every month in buying short-duration treasury bonds and mortgage-backed assets to keepthe interest rates low and support the economic revival.

Source: Bloomberg

REFORMS ANNOUNCED

� Increase in diesel prices and rationalisation of LPG subsidy

� FDI of 51% in multi-brand retail

� 49% FDI in aviation

� 49% FDI in power exchanges

� Approved stake sale in 4 PSUs

REFORMS ON RADAR

� Creation of National Investment Board

� Relaxation in ECB policy

� Fast-track approval of important projects

� Increase in investment limit for insurance companies in bonds/equity

SPECIAL REPORTEQUITY FUNDAMENTALS

4.0

4.55.0

5.56.0

6.5

7.07.5

8.0

Aug

-11

Sep

-11

Oct

-11

Nov

-11

Dec

-11

Jan-

12

Feb

-12

Mar

-12

Apr

-12

May

-12

Jun-

12

Jul-1

2

Aug

-12

Spain Italy


Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding orhaving a postition in the companies mentioned in the article.

For detailed report, please visit the Research section of our website, sharekhan.com.

Nifty—within kissing distance of the higher end of range and thehighs made earlier this yearContrary to general pessimism and the bearish consensus view, wehad always been convinced that the benchmark index (Nifty) wouldremain within its multi-month trading range (4600-5600) with anupward bias. Driven by the recent events, the Nifty has surged aheadtouching the higher end of the range and tested the recent highs (atleast on an intra-day basis).

In the absolute near term, the equity market could give up some ofthe recent gains on account of profit booking and the growingpolitical uncertainties domestically. However, we believe that thebias remains positive and the probability of the benchmark indicesbreaking out of their range has increased substantially now. Thecaveat is the that the government should follow up the recent moveswith more policy actions and take corrective steps to support thekey sectors such as power and small and medium enterprises aswell as the other troubled sectors. Thus, the idea should be to buyon corrective pull-backs.

Risk/concerns: The stock market rally could lose steam if the crudeoil prices remain at uncomfortable alleviated levels on the back of

QE3-inducted speculative interest in commodities. Domestically,the ability of the government to move forward with reforms despitethe discontent among allies and the growing pressure from theopposition on the government over the corruption charges wouldinfluence investor sentiments.�

NIFTY MOVEMENT

Source: Bloomberg

4500

4700

4900

5100

5300

5500

5700

Dat

e05

-09-

1121

-09-

1110

-10-

1126

-10-

1116

-11-

1102

-12-

1121

-12-

1106

-01-

1223

-01-

1209

-02-

1228

-02-

1215

-03-

1202

-04-

1220

-04-

1208

-05-

1224

-05-

1211

-06-

1227

-06-

1213

-07-

1231

-07-

1217

-08-

1205

-09-

12

RBI does its bit with symbolic cut in CRRIn the mid quarter policy review the RBI has reduced the cashreserve ratio (CRR) by 25 basis points to 4.5% but kept thepolicy rates unchanged. The CRR cut is likely to free up aroundRs17,000 crore of funds in the banking system which wouldpartially compensate for the stress on liquidity arising from theadvance tax outflows and increased credit demand in theupcoming festive season.

We expect banks to reduce the rates selectively following theCRR cut and wait for more signals from the RBI to go for abroader reduction in interest rates. However, the RBI has clearlyindicated that given the persistent inflationary pressures, the paceof monetary easing would be relatively slower. Moreover, theinflation rate is likely to firm up in the near future on the backof the recent diesel prices hike and the increase in power tariffs.The firming up of crude oil prices and global liquidity glut-driven

REPO, CRR TRENDS

Source: RBI

3

4

5

6

7

8

9

10

Sep

-05

Sep

-06

Sep

-07

Sep

-08

Sep

-09

Sep

-10

Sep

-11

Sep

-12

Repo rate CRR

speculative move in commodities would also prevent the RBIfrom taking aggressive monetary easing steps in the near future.

SPECIAL REPORT EQUITY FUNDAMENTALS


Sharekhan Top Picks

SHAREKHAN TOP PICKS

Markets tend to surprise investors. But this time around, it was thegovernment waking up from its policy slumber that surprised theinvestors. Taking heart from the new-found assertiveness shownby the policy makers in India and the central bankers globally, thedomestic stock market has surged in the past one month or so—thebenchmark indices, the Sensex and the Nifty, have registered gainsof 7.9% and 8.6% respectively since our last update on the TopPicks basket on September 3, 2012. In the Top Picks basket, fourstocks (namely ICICI Bank, Larsen & Toubro, IRB InfrastructureDevelopers and Selan Exploration Technology) registered gains ofover 15% each and enabled the Top Picks basket to appreciate byover 6% in this period. In the first nine months of CY2012, theTop Picks basket has given returns of 27%, ahead of the Sensex,the Nifty and the CNX Mid-Cap Index, which have given returnsof 21%, 23% and 24% respectively in the same period.

* CMP as on September 28, 2012 ** Under review

NAME CMP* PER ROE (%) PRICE UPSIDE(RS) FY12 FY13E FY14E FY12 FY13E FY14E TARGET (%)

Axis Bank 1,137 11.1 10.0 8.3 20.3 19.1 19.5 1,370 21

BHEL 247 8.6 9.1 9.5 27.7 22.2 18.5 260 5

Cadila Healthcare 870 23.1 18.7 14.6 25.3 27.2 26.3 950 9

Dishman Pharma 96 13.8 9.0 5.6 6.1 8.7 12.4 135 40

GCPL 672 40.0 28.5 23.2 26.3 27.3 27.4 726 8

ICICI Bank 1,057 18.8 16.0 14.2 11.2 12.1 12.6 1,110 5

IRB 152 10.2 10.2 11.2 13.9 11.6 11.4 175 15

Larsen & Toubro 1,597 23.0 20.0 18.0 19.1 18.7 18.6 ** -

Mcleod Russel 322 11.9 10.2 8.2 18.6 18.5 19.9 356 10

Polaris Financial Tech 130 5.9 5.3 4.8 17.2 18.3 18.4 163 25

Reliance Industries 837 13.7 13.6 12.9 11.5 10.4 9.9 ** -

ABSOLUTE OUTPERFORMANCE (RETURNS IN %) CONSTANTLY BEATING NIFTY AND SENSEX (CUMULATIVE RETURNS IN %)

SHAREKHAN TOP PICKSEQUITY FUNDAMENTALS

We are making as many as five changes in the basket this month toincrease its exposure to the sectors that are likely to benefit fromthe ongoing policy vigour (refer to our special report, “High oncocktail of policy measures” dated September 17, 2012) and areattractively valued as compared with their peers. Accordingly, weare introducing Axis Bank and Bharat Heavy Electricals Ltd (BHEL)and reducing the basket’s exposure to the fast moving consumergoods (FMCG; GlaxoSmithKline Consumer Healthcare) andpharmaceutical (Torrent Pharmaceuticals) sectors. As part of thechurn within the FMCG sector, we are replacing ITC with GodrejConsumer Products, which has much higher upside potential fromthese levels. Lastly, we are replacing Selan Exploration Technology(which has appreciated by about 30% in the last one month) withPolaris Financial Technology.�

-40%

-20%

0%

20%

40%

60%

80%

100%

120%

140%

160%

YTD CY2012 CY2011 CY2010 CY2009 Since Jan2009

Sharekhan (Top Picks) Sensex Nifty

80%

120%

160%

200%

240%

280%

320%

Mar

-09

Jun-

09

Sep

-09

Dec

-09

Mar

-10

Jun-

10

Sep

-10

Dec

-10

Mar

-11

Jun-

11

Sep

-11

Dec

-11

Mar

-12

Jun-

12

Sep

-12

Sharekhan Sensex Nifty


SHAREKHAN TOP PICKS

NAME CMP PER ROE (%) PRICE UPSIDE(RS) FY12 FY13E FY14E FY12 FY13E FY14E TARGET (%)

BHEL 247 8.6 9.1 9.5 27.7 22.2 18.5 260 5

Remarks: � Bharat Heavy Electricals Ltd (BHEL) is a premier power generation equipment manufacturer and a leading engineering, procurementand construction company.

� BHEL has witnessed a severe downgrade in its valuation multiples in the last couple of years on account of policy inaction-drivenslowdown in the demand environment. However, the proposed initiatives to restructure the debt on the books of the state electricityboards would kick-start the reforms in the power sector.

� In terms of the existing order book, we believe that the concern over the cancellation of the orders from the private power developers seemsoverplayed as the Inter Ministerial Group hasn't de-allocated any coal mine of BHEL’s private clients after scrutinising 29 coal mines.

� The company is also focusing on the non-BTG segments, like railways, logistics, and transmission and distribution (T&D), that have asignificant growth potential.

� The relatively lower order intake in recent years would reflect on its revenue growth and result in a marginal decline in the earningsover the next two years. However, a lot of negatives are reflected in the serious de-rating of the stock over the last two years.Therefore, we have included BHEL in our Top Picks basket.

CADILA HEALTHCARE 870 23.1 18.7 14.6 25.3 27.2 26.3 950 9

Remarks: � A weak performance during the past few quarters due to a series of acquisitions and a warning letter by USFDA to its Moraiya plant hadspawned the negative sentiment, widening the valuation discount. However, the valuation discount is set to shrink on the recentclearance of the Moraiya plant by the USFDA and a strong growth in the domestic market.

� It acquired three entities during FY2012, namely Nesher Pharma (USA), Bremer Pharma (Germany) and Biochem Pharma (India),which caused the re-organisation of business across segments. These entities are in the process of settling down which will lead tobetter synergies going forward.

� Better synergies and a favourable change in the product mix due to the focus on niche segments are set to lead the margin expansionby 310 basis points and 100 basis points to 23.6% and 24.7% in FY2013 and FY2014 respectively.

� However, patent litigation, forex and competition remain the key risks for the company.

� We expect revenue CAGR of 18.6% and profit CAGR of 25.6% over FY2012-14. The stock is currently trading at 14.6x FY2014E EPS,which is a 19% discount to Lupin. We believe the valuation discount should narrow further. We value the stock at 16x FY2014E EPSto arrive at a price target of Rs950.

EQUITY FUNDAMENTALS

AXIS BANK 1,137 11.1 10.0 8.3 20.3 19.1 19.5 1,370 21

Remarks: � Axis Bank’s net interest margin (NIMS) is expected to improve (NIM declined by 38 basis points in Q1FY2013 to 3.37%) due to adecline in the wholesale rates. On an average, the short-term borrowing rates have eased by 150 basis points, which should cushionAxis Bank’s NIM. Further, the running of the priority sector advances and the rising share of the retail advances will aid marginexpansion, leading to strong NIM growth.

� The bank aims to expand its loan book by 3-5% higher than the industry rate (~20% for FY2013). Moreover, the bank has shifted itsfocus towards the retail segment (currently corporate loans form ~55% of the book) and aims to expand the retail mix to 30% of thebook by FY2015.

� Axis Bank continues to maintain a strong liability base (the CASA ratio is 39.1%) and expects a healthy growth in deposits. Theaverage CASA balance remains healthy, which will give stability to the margins.

� While the asset quality scenario remains challenging, the bank’s NPA ratio (gross NPAs at 1.06%, net NPAs at 0.31%) is better than itspeers’. Going ahead, any asset quality deterioration will be within manageable levels (ie gross stressed loan additions at ~Rs1,000crore per quarter) and the management has guided for a credit cost of 75-80 basis points. Further, the higher provision coverage(~80%) adds comfort on the asset quality front.

� Axis Bank is attractively valued as it trades at 1.5x FY2014 book value against a five-year mean valuation of 2.1x. We expect the bankto deliver return on equity (RoE) of ~19% and return on asset (RoA) of 1.5% by FY2014. We recommend a Buy on Axis Bank with aprice target of Rs1,370.


SHAREKHAN TOP PICKS


DISHMAN PHARMA 96 13.8 9.0 5.6 6.1 8.7 12.4 135 40

Remarks: � After four years of lull, Dishman is all set to capitalise on its capabilities in the CRAMS space and the marketable molecules (MM)business, thanks to its enhanced capacities and the up cycle in the CRAMS business.

� In Q1FY2013, the net revenues of Dishman jumped by 33% YoY to Rs315 crore on the back of a 24% Y-o-Y rise in the CRAMSbusiness and a 51% jump in the MM business (which includes the vitamin-D business). The OPM improved by 800 basis points YoYto 26.5% which led the net profit to jump by 156% YoY to Rs38.7 crore during the quarter.

� The up cycle in the CRAMS business and the enhanced capacities (it commercialised three new units in Q3FY2012) will help achievea 16% revenue CAGR over FY2012-14. We expect an improvement in the operating profit margin and a reduction in the fixed costsduring this period, which should lead the PAT to grow at a CAGR of 55% over FY2012-14. Strong cash flows are likely to help reduceits debts significantly. We expect the debt/equity ratio to reduce to 0.5x in FY2014 from 0.9x in FY2012.

� Being an export-oriented player and having a substantial portion of foreign debts on its balance sheet Dishman is vulnerable to foreignexchange fluctuations. The chequered past performance and the management’s inability to meet the stated guidance in the past arealso causes for concern in the prevailing market where management quality and transparency carry a premium.

� The stock is currently trading at 5.6x FY2014E, which is a 60% discount to its five-year average P/E multiple and close to a 68%discount to Divi’s Laboratories. We expect the valuation gap to narrow on a strong operating performance and an improved financialhealth. We recommend a Buy on the stock with a price target of Rs135 (8x FY2014E EPS).

GCPL 672 40.0 28.5 23.2 26.3 27.3 27.4 726 8

Remarks: � Godrej Consumer Products Ltd (GCPL) is a major player in the Indian FMCG market with a strong presence in the personal care, haircare and home care segments in India. The recent acquisitions (in line with the 3x3 strategy) have immensely improved the long-termgrowth prospects of the company.

� On the back of strong distribution network, and advertising and promotional support, we expect GCPL to sustain the market share inits core categories of soap and hair colour in the domestic market. On the other hand, continuing its strong growth momentum, thehousehold insecticide business is expected to grow by ~20% YoY.

� In the international markets, the Indonesian and Argentine businesses are expected to achieve a CAGR of around 20% and 35%respectively over FY2012-14. This along with the recently acquired Darling Group would help GCPL to post a top-line CAGR of ~23%over FY2012-14.

� Due to the recent domestic and international acquisitions, the company’s business has transformed from a commodities soap businessinto the business of value-added personal care and home care products. Therefore, we expect its OPM to be in the range of 16-18%in the coming years. Overall, we expect GCPL’s bottom line to grow at a CAGR of about 32.4% over FY2012-14.

� We believe the increased competitive activity in the personal care and hair care segments and the impact of high food inflation on thedemand for its products are the key risks to the company’s profitability.

� At the current market price, the stock trades at 28.5x its FY2013E EPS of Rs23.6 and 23.2x its FY2014E EPS of Rs29.0.

ICICI BANK 1,057 18.8 16.0 14.2 11.2 12.1 12.6 1,110 5

Remarks: � ICICI Bank is back on growth path as its advances are growing at a healthy rate (up 17.3% YoY and 3.1% QoQ in Q4FY2012). Weexpect the advances of the bank to grow by 20% CAGR over FY2012-14. This should lead to a 15% CAGR growth in the net interestincome in the same period.

� ICICI Bank’s asset quality has shown a turnaround as its NPAs have continued to decline over the last eight quarters led by contractionin slippages. This has led to a sharp reduction in the provisions and an increase in the profitability. Going forward, we expect the NPAsto decline further which will lead to lower NPA provisions and hence aid the profit growth.

� With a pick-up in the business growth and an improvement in the margins the RoEs are likely to expand to about 12% over the next twoyears while the RoA would improve to 1.5%. This would be driven by a 15% CAGR in profits over FY2012-14.

� The stock trades at 1.7x FY2014E book value. We expect the stock to re-rate, given the improvement in the profitability led by lowerNPA provisions, a healthy growth in the core income and improved operating metrics. We recommend Buy with a price target ofRs1,110.

IRB 152 10.2 10.2 11.2 13.9 11.6 11.4 175 15

Remarks: � IRB is the largest toll road BOT player in India and the second largest BOT operator in the country. It has a portfolio of 16 projects whichare all toll based, together worth Rs16,468 crore and cover 1,180km of length. Its portfolio is mostly located along the corridors withhigh traffic density and high growth around Mumbai and Pune.

� Of these 16 projects, 11 are operational and five are under construction. It has an integrated business model with an in-house constructionarm. This provides a competitive advantage in bidding for the larger projects and captures the entire value from the BOT assets.

� Further, seven of its ten operational projects are already debt-free and generating steady cash for the company. Continuing cash flowsfrom these are likely to fuel growth.

� With the charges levied against the promoter of IRB unfounded, the stock recovered smartly from its lows. The improving outlook forthe road infrastructure developers should keep the momentum going.

� At the current market price, the stock is trading at 10.2x and 11.2x its FY2013E and FY2014E earnings respectively and the valuationsare very attractive. We maintain our Buy recommendation on the stock with a price target of Rs175.

EQUITY FUNDAMENTALS


SHAREKHAN TOP PICKS


LARSEN & TOUBRO 1,597 23.0 20.0 18.0 19.1 18.7 18.6 ** -

Remarks: � Larsen & Toubro (L&T), the largest engineering and construction company in India, is a direct beneficiary of the strong domesticinfrastructure development and industrial capital expenditure (capex) boom.

� L&T continues to impress us with its good execution skills, reporting decent numbers throughout this year despite the slowdown in theindustrial capex cycle. While there has been a growth of 12% YoY in its order backlog to Rs153,095 crore, the order inflow remainedrather muted (excluding spill-over orders) in Q1FY2013.

� Despite challenges like deferral of award decisions and stiff competition, the company has given robust guidance of 15-20% inrevenue and order inflow for FY2013. While this seems an uphill task, it instills confidence amongst the investors.

� Though the company reported overall decent results for the quarter, but the order inflow guidance would be highly subjective to anuptick in the infrastructure development activities in the country and in the Middle East region.

� Sound execution track record, bulging order book and strong performance of its subsidiaries reinforce our faith in L&T. With thecompany entering new verticals, namely solar and nuclear power, railways, and defence, there appears a huge scope for growth.

� At the current market price, the stock is trading at 18.0x its FY2014E stand-alone earnings and at an EV/EBIDTA of 9.5x.

MCLEOD RUSSEL 322 11.9 10.2 8.2 18.6 18.5 19.9 356 10

Remarks: � Mcleod Russel India (MCR) is the world’s largest tea producer with a total area of 38,758 hectares under tea cultivation (1.1% of theworld’s total area under tea cultivation). With a production capacity of close to 100 million kg MCR is well poised to capitalise on thegrowing demand for Indian black tea in the global markets.

� The rising demand-supply gap of tea due to a production shortfall in the key tea exporting countries has created a favourable scenariofor the domestic tea producers. We expect a growth of Rs10-15 per kg in MCR’s average realisation in the next two years. This willhelp the margins to improve by 120-130 basis points YoY in the coming years.

� With expectations of strong cumulative operating cash inflow of around Rs680 crore over the next two years, MCR is expected toimprove the dividend pay-out and/or build a cash war chest for potential inorganic initiatives in future.

� Since the tea industry is labour intensive, any labour unrest in India is the key risk for the company in the near future. Also anysubstantial increase in the production of the key tea exporting countries will improve the demand-supply gap resulting in an adverseimpact on the sales realisation of the Indian tea producers.

� The stock is currently trading at 8.2x its FY2014E EPS of Rs39.5. We maintain our Hold recommendation on the stock with a pricetarget of Rs356.

POLARIS FINANCIAL 130 5.9 5.3 4.8 17.2 18.3 18.4 163 25

Remarks: � Polaris Financial Technology (Polaris) is a niche player offering solutions and services in the banking and financial services space.Polaris’ flagship product “Intellect” offers solutions for core banking, corporate banking, wealth & asset management and insurance.Polaris is the chosen partner for nine of the top ten global banks and seven of the ten top global insurance companies.

� Intellect, the flagship banking product of the company, would be a game changer over the long term. Over the years, Intellect has beengrowing steadily with new client additions and increasing geographical reach. The expected increase in the revenue from the productbusiness augurs well, as it would help improve the margin dynamics as well as the overall profitability of the company.

� The company is pursuing a sales funnel of $600-681 million. It is pursuing at least six large opportunities across the globe. Additionally,there are about 40 opportunities in the USA and about 25 opportunities in Europe. The company has earmarked three segments forinvestment and growth, core banking and credit cards, treasury and capital markets and insurance. It would be investing in thesesegments in FY2013 with results expected from FY2014 onwards.

� Polaris is one of the few integrated mid-cap IT companies having a strong foothold in the banking, financial services and insurancevertical and offerings in both the service and solution segments. At the current market price, the stock trades at 5.3x FY2013E and 4.8xFY2014E earnings.

RELIANCE INDUSTRIES 837 13.7 13.6 12.9 11.5 10.4 9.9 ** -

Remarks: � Reliance Industries Ltd (RIL) has a strong presence in the refining, petrochemical and upstream exploration business. The refiningdivision of the company is the highest contributor to the company’s earnings and is operating efficiently with a better gross refiningmargin (GRM) compared with its peers in the domestic market due to the ability of its plant to refine more of heavier crude. However,the gas production from the Krishna-Godavari-D6 field has fallen significantly in the past one year. With the government approval foradditional capex, we believe production will improve going ahead.

� In case of refining, the GRM, which had corrected sharply in Q1FY2013, has improved in the last two months. Therefore, in the comingquarter, we could see the refining companies including RIL posting better GRMs.

� In the petrochemical business, the company’s margins are close to bottoming out (with a sharp correction in Q1FY2013). In H2FY2013,we could see an improvement in the margin that will support the overall profitability of the company.

� In case of the upstream exploration business, the company has recently got the nod for further investments in exploration at theKrishna-Godavari basin, which augurs well for the company and could address the issue of falling gas output.

� The key concern remains in terms of a lower than expected GRM, profitability of the petrochemical division and the company’s inabilityto address the issue of falling gas output in the near term.

� At the current market price the stock is trading at PE of 12.9x, discounting its FY2014E EPS.


Leveraging on its pedigreeCOMPANY DETAILS

Price target: Rs1,551

Market cap: Rs3,357 cr

52-week high/low: Rs1135/685

NSE volume (no. of shares): 42,906

BSE code: 517326

NSE code: CMC

Sharekhan code: CMC

Free float (no. of shares): 1.48 cr

PRICE CHART

SHAREHOLDING PATTERN

(%) 1m 3m 6m 12m

Absolute 18.2 31.3 10.0 27.1

Relative 15.5 22.2 7.3 14.2to Sensex

PRICE PERFORMANCE

EMERGING STAR BUY; CMP: RS1,108 SEPTEMBER 14, 2012

KEY POINTS� Solid parentage, strong visibility: Over the years, under the Tata Consultancy Services

(TCS) parentage CMC has transformed itself into a well-diversified IT services andsolutions provider. CMC initiated its “Joint-Go-To-Market” approach with TCSin 2005, which is paying up handsomely now. In the last five years the contributionof the international revenues has tripled to around 60% of the total revenues inFY2012 whereas the share of the services revenues has gone up to almost 90% ofthe total revenues as compared with 53% in FY2005. The share of revenues achievedthrough synergies with TCS crossed 51% in FY2012 from 43% in FY2007.

� Strong foothold in domestic IT arena, expanding competencies in internationalmarkets: CMC has gained a strong foothold in the domestic IT arena by winninglarge turnkey deals, some on its own and the others in partnership with TCS. Itsprevious status as a public sector undertaking (PSU) has given it an edge over theother players. The company counts some of the marquee names in the domesticmarket, like Reserve Bank of India, Oil and Natural Gas Corporation and IndianRailways, as its clients which is testimony to its strong presence in the domestic ITmarket. Currently, the domestic market contributes around 40% of its total revenues.Going forward, with an upswing in the domestic IT spending, CMC is well poisedto tap this advantage.

� Thrust on value-added services augurs well for margin trajectory: CMC started asa low-margin equipment provider and integrator with an asset heavy model.However, over the years its management has credibly brought down the low-marginequipment revenues to around 10% from 40% earlier. Over the same period, owingto the synergies with TCS, the revenue contribution of the relatively high-margininternational business has increased significantly to over 60% of the total revenues.Strong growth traction in the system integration (SI) and IT enabled services (ITES)business, increasing acceptability of its industry specific solutions (asset-basedsolutions) and further scope for improving the offshore mix would drive thecompany’s margins in the coming years.

� Valuation: Over the years, CMC has gradually transformed itself from a low-marginequipment provider into a well-diversified IT services and solutions provider, andcreated a niche for itself in the field of large system engineering and integrationprojects. On the other hand, its Joint-Go-To-Market strategy with TCS is also playinga big role in the business transformation, with CMC gaining strong traction in theinternational markets. We believe CMC has already set the stage for the next levelof growth and is likely to witness a much stronger growth in the coming years. Wevalue the stock at 15x target multiple based on the FY2014 earnings estimate, inline with its two-year average trading multiple. We initiate coverage on CMC witha Buy rating and a one-year price target of Rs1,551.

VALUATIONSParticulars FY2010 FY2011 FY2012 FY2013E FY2014ETotal revenues (Rs cr) 870.7 1084.4 1469.3 1965.3 2377.4EBITDA margin (%) 18.6 19.4 15.3 16.7 17.3Net profit (Rs cr) 143.2 178.4 152.8 250.7 313.4EPS (Rs) 47.2 58.9 50.4 82.7 103.4PER (x) 23.5 18.9 22.0 13.4 10.7CEPS (Rs) 50.5 62.3 57.5 90.5 113.1EV/EBITDA (x) 19.3 14.6 14.1 9.9 7.6RoE (%) 31.2 30.6 21.4 28.6 28.3RoCE (%) 34.8 36.0 30.9 37.1 36.2Dividend yield (%) 0.9 0.9 1.1 1.1 1.4

CMC

Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding

or having a postition in the companies mentioned in the article. For detailed report, please visit the Research section of our website, sharekhan.com.

STOCK IDEA EQUITY FUNDAMENTALS

700

775

850

925

1000

1075

1150

Sep

-11

Dec

-11

Mar

-12

Jun-

12

Sep

-12

Institutions21%Promoters

52%

Non-promotercorporate

1%

Foreign19%

Public & Others7%


STOCK IDEAEQUITY FUNDAMENTALS

Persistently innovatingCOMPANY DETAILS

Price target: Rs552




BSE code: 533179

NSE code: PERSISTENT

Sharekhan code: PERSISTENT


PRICE CHART


(%) 1m 3m 6m 12m

Absolute 8.9 5.6 32.5 34.6

Relative 3.5 -4.1 21.5 17.7to Sensex

PRICE PERFORMANCE

BUY; CMP: RS414 SEPTEMBER 28, 2012

KEY POINTS� Well placed in the under-penetrated OPD space: Persistent Systems Ltd (PSL) is a

niche player in the highly under-penetrated outsourced product development (OPD)market. According to industry reports, the OPD market was worth close to $8billion in 2009 and is expected to grow at 19.1% CAGR over 2009-13. The ad-dressable worldwide R&D/product engineering services market was worth approxi-mately $35.4 billion in 2009 and is expected to reach $65.7 billion by 2013, grow-ing at a CAGR of 16.7%. PSL has helped its customers develop over 3,000 prod-ucts over the last five years. With strong domain expertise and years of experiencein the OPD business, PSL is well placed to garner the incremental spending takingplace in the global R&D space.

� Investing for the future growth augurs well for deeper client mining: Over the lastfour years, PSL has consistently invested in the areas of innovative technologies(cloud computing, analytics, collaboration and mobility) to penetrate deeper intoclients’ wallet and the expertise that it has built in these areas over the years hasstarted reflecting in its numbers. In the last two years, these four areas have contrib-uted close to 40% of the total revenues and their combined contribution is poisedto increase in the coming days. PSL is amongst the few Indian IT companies withconsiderable expertise in the area of innovative technologies with niche offerings inthe OPD space.

� Higher IP-led revenues = Margin improvement: With expertise in the OPD businessand confidence of its clients, PSL continues to invest in acquiring and buildingintellectual property (IP) to gain a foothold in the non-linear side of the business. ItsIP-led revenues have grown from $1 million in FY2007 (1.5% of revenues) to $18.3million in FY2012 (8.8% of revenues). Currently, the company owns around 14IPs and is continuously investing in building IP both on its own, through collabora-tions and inorganic route. This, we believe, will differentiate the company from therest and help improve its margin in the coming years.

� Undemanding valuation, buy: PSL has proven expertise in the OPD space, a strongpresence in the newer technologies, strength to improve its IP base and the best-in-the-class margin profile which set it apart from the other mid-cap IT companies. Itsearnings are expected to grow at a CAGR of 23% over FY2012-14. At the currentmarket price of Rs414, the stock trades at 9.3x and 7.7x FY2013 and FY2014earnings estimates respectively. In view of the niche offerings, the best-in-the-classmargin profile and strong cash kitty (Rs85 per share), the current valuation seemsto be undemanding. We initiate coverage on PSL with a Buy rating and a 12-monthprice target of Rs552 based on our target PER of 10x FY2014E earnings.

PERSISTENT SYSTEMS



EMERGING STAR

VALUATIONSParticulars FY2010 FY2011 FY2012 FY2013E FY2014ENet sales (Rs cr) 601.2 775.8 1,000.3 1,253.0 1,420.5EBITDA margin (%) 24.3 20.4 23.2 25.8 25.9Net profit (Rs cr) 115.0 139.7 141.8 177.2 216.0EPS (Rs) 28.8 34.9 35.4 44.3 54.0PER (x) 14.4 11.9 11.7 9.3 7.7EV/EBITDA (x) 8.9 8.3 5.7 3.7 2.7RoCE (%) 24.5 21.5 24.5 26.8 27.5RoE (%) 22.8 20.2 17.9 19.4 20.1Dividend yield (%) 0.6 1.3 1.4 1.7 2.0

Foreign22%

Institutions13%

Promoters38%

Non-promoter corporate

1%

Public & Others26%

290

320

350

380

410

440

Sep

-11

Dec

-11

Mar

-12

Jun-

12

Sep

-12


STOCK IDEAEQUITY FUNDAMENTALS

Catch this FliteCOMPANY DETAILS

Price target: Rs885

Market cap: Rs806 cr



BSE code: 530517

NSE code: RELAXO

Sharekhan code: RELAXO


PRICE CHART


(%) 1m 3m 6m 12m

Absolute 30.4 44.1 126.2 78.3

Relative 29.6 34.6 116.3 69.2to Sensex

PRICE PERFORMANCE

BUY; CMP: RS672 SEPTEMBER 10, 2012

KEY POINTS� Enviable position in the lucrative footwear segment: Relaxo Footwears (Relaxo) is

present in the Indian organised footwear market, which has been growing at aCAGR of 15-18% for the last five years and is expected to maintain the growthmomentum for the next five years. Its flagship brand, Hawaii, is the leader in therubber slipper market, particularly in the north, while its other brands also commanda significant share of their respective markets.

� A well-heeled distribution set-up complemented by a growing network of exclusiveoutlets: Relaxo sells its products primarily through distributors, who, in turn, sell thecompany’s products to retailers on a pan-India basis. Over the years the company hasdeveloped a strong distribution network of over 700 distributors, making its productsand brands available in over 50,000 retail touch-points across India. At present, around90% of its revenues come from this mode of distribution. Also it owns 154 directretail outlets called Relaxo Shoppe which together contribute around 7% of its totalsales. The company plans to improve the revenue flow from this segment by settingup 25-30 stores each over the next three financial years. To improve its brand reachand drive its volume growth, Relaxo is aggressively promoting its brands—it hasroped in leading Bollywood actors as brand ambassadors

� Soft raw material price outlook to drive margins and earnings going forward: Threeraw materials, viz raw rubber, EVA and synthetic rubber, together constitute 55-60% of the company’s total raw material cost. In the last two years, the prices ofraw rubber and EVA have increased considerably, affecting its margin andconsequently the net earnings. Of late, the input prices have cooled off and arecurrently ruling at their 24-month lows. The outlook for these raw materials isexpected to be soft which would benefit Relaxo by driving up its earnings. Withnew strategies in place and raw material prices softening, the company’s top lineand earnings are expected to grow at a CAGR of over 22% and 34% over FY2012-14 respectively.

� Consistent robust financial performance leading to re-rating of multiples; recommendBuy: Relaxo has emerged as an attractive investment opportunity in the domesticconsumption space due to its growing scale of operations, strong brand positioningand consistent healthy financial performance. In addition to the steady volumegrowth and higher blended realisation due to a favourable product mix, the companyis likely to benefit from the softening of the price of the key raw material (readrubber) and is a potential re-rating candidate. Thus, we recommend a Buy on thestock with a price target of Rs885.

VALUATIONSParticulars FY2010 FY2011 FY2012 FY2013E FY2014ENet sales (Rs cr) 553.7 688.1 860.4 1,044.0 1,284.6

Change (%) 30.0 30.5 24.2 20.4 22.4Operating profit (Rs cr) 90.7 83.7 109.9 140.7 179.0

Change (%) 76.5 -7.7 31.3 28.0 27.2OPM (%) 16.4 12.2 12.8 13.5 13.9Net earnings (Rs) 37.7 26.7 39.9 50.1 71.1

Change (%) 165.5 -29.1 49.4 25.5 41.9EPS (Rs) 31.4 22.3 33.3 41.7 59.2PER (x) 21.7 30.5 20.5 16.3 11.5EV/EBITDA (x) 10.1 11.4 8.6 6.8 5.3RoCE (%) 28.8 19.6 24.7 27.3 31.9RoE (%) 30.8 17.4 20.2 19.4 20.2

RELAXO FOOTWEARS



EMERGING STAR

200

275

350

425

500

575

650

725

Sep

-11

Dec

-11

Mar

-12

Jun-

12

Sep

-12

Foreign2%


16%

Public & Others

8%

Promoters74%


SWITCH IDEA

SHAREKHAN SPECIAL OCTOBER 06, 2008

Closure of switch call from ITNL to IRB with 18.5% returns

Key points� Closing switch call from ITNL to IRB with 18.5% returns; out-

performing Sensex and BSE-500: Our Switch Idea to shift fromIL&FS Transportation Networks Ltd (ITNL) to IRB Infrastruc-ture (IRB) released on June 22, 2012 has played out well, deliv-ering 18.5% returns in three months. It has also outperformedthe benchmark indices (Nifty, Sensex and BSE-500 all of whichhave appreciated by 9.5% to 10.5%) over the same period.

CONSTRUCTION SEPTEMBER 21, 2012



EQUITY FUNDAMENTALS

Time to book profit, though we remain positive on IRB: Since ourcall, IRB has appreciated by 20%, giving good returns to its inves-tors. Thus, we believe one should book profit now. However, wecontinue to like the company from a medium-term to long-termperspective as it is the largest toll road operator and would be oneof the beneficiaries of the tall target set by the National HighwaysAuthority of India for projects to be awarded in this fiscal.

PERFORMANCEParticulars 22-Jun-12 21-Sept-12 Gain / Loss%Sell ITNL 180.4 182.9 (1.4)Buy IRB 126.0 151.2 20.0Total returns (%) 18.5Nifty 5,146.1 5,691.2 10.6Sensex 16,972.5 18,752.8 10.5BSE-500 6,513.8 7,131.8 9.5

� So far we have closed nine switch calls with a success rate of100% and an absolute average return of 21.7% as comparedwith an average return of 6.9% given by the Nifty over thesame period.

RATIONALE FOR CLOSING THE SWITCH CALLNo negative outcome of the legal issue bridges the valuation gap:With serious allegations made against the promoter of IRB (thepromoter was linked to the murder of an RTI [Right to Informa-tion Act] activist), the IRB stock had taken a huge beating and wastrading at an abnormal discount to its comparable peers includingITNL. The sharp correction in IRB had created a huge divergenceof more than 2x standard deviation between the valuations of IRBand ITNL. ITNL usually trades at a 5-20% premium to IRB. Thispremium gap at the time of our call had widened to 40% offering acompelling buying opportunity. However, as stated by us in ourswitch initiation report, the allegations against the promoter haveremained unfounded and the valuation gap has bridged now.

IRB’S ONE-YEAR FORWARD P/E BAND

Prefer ITNL to IRB in the long run: Though we like both ITNLand IRB, but ITNL scores over IRB based on many parameters.ITNL is the largest road operator followed by IRB. It enjoys strongparentage and owns a well-diversified portfolio both geographi-cally and in terms of annuity and toll project mix. Moreover, ITNLoffers superior returns as compared with IRB. Lastly, with the in-terest rate cycle now expected to turn around, ITNL would benefitas its interest outgo is higher than IRB’s. �

ITNL’S PREMIUM OVER IRB

ITNL’S ONE-YEAR FORWARD PE BAND

-20.0

-10.0

0.0

10.0

20.0

30.0

40.0

50.0

Apr

-10

Jun-

10

Aug

-10

Oct

-10

Dec

-10

Feb

-11

Apr

-11

Jun-

11

Aug

-11

Oct

-11

Dec

-11

Feb

-12

Apr

-12

Jun-

12

Aug

-12

+2σ

+1σ

Mean

-1σ

-2σ

-

50.0

100.0

150.0

200.0

250.0

300.0

350.0

Feb

-08

May

-08

Aug

-08

Nov

-08

Feb

-09

May

-09

Aug

-09

Nov

-09

Feb

-10

May

-10

Aug

-10

Nov

-10

Feb

-11

May

-11

Aug

-11

Nov

-11

Feb

-12

May

-12

Aug

-12

20x

16x

12x

8x

-

50.0

100.0150.0

200.0

250.0

300.0350.0

400.0

450.0

Mar

-10

May

-10

Jul-1

0

Sep

-10

Nov

-10

Jan-

11

Mar

-11

May

-11

Jul-1

1

Sep

-11

Nov

-11

Jan-

12

Mar

-12

May

-12

Jul-1

2

Sep

-12

12.5x

10x

7.5x

5x


STOCK UPDATE

Price target revised to Rs105COMPANY DETAILS

Price target: Rs105


52 week high/low: Rs100/52

NSE volume (no. of shares): 28.4 lakh

BSE code: 500877

NSE code: APOLLOTYRE

Sharekhan code: APOLLOTYRE


(%) 1m 3m 6m 12m

Absolute 9.0 15.0 15.7 56.6

Relative to Sensex 7.1 6.7 11.9 45.5

PRICE PERFORMANCE

APPLE GREEN HOLD; CMP: RS100 SEPTEMBER 12, 2012APOLLO TYRES

Natural rubber prices rebound following global stimulus but may remain in a range as weapproach the peak tapping seasonRubber prices have increased by 6-9% in the last two weeks following the large liquidityenhancement programmes announced by China and Europe. However, we expect the revivalto remain capped as we approach the peak tapping season of October-January. The currentconditions are indicating a range-bound movement in natural rubber prices or stability atthe current levels.Apollo Tyres’ margin in a sweet spot on improved fundamentalsWe believe Apollo Tyres is currently in a sweet spot in terms of margins. The combinedeffect of a better replacement mix, an improved radial mix, firm pricing and lower rawmaterial cost would result in a margin surprise on the upside for the stand-alone operations.The operating profit margin (OPM) touched a low of 6.8% in Q2FY2012 and thereafterimproved to 10.3% in Q1FY2013. We are now building in an 11% OPM expectation forthe stand-alone operations for FY2013 against 10.3% estimated earlier.Valuation: upgrading EPS estimates but retaining Hold recommendationWe are upgrading the stand-alone earnings estimates as we assume a 70-basis-point marginimprovement in FY2013 as compared with our previous estimates. Our consolidatedearnings per share estimates for FY2013 and FY2014 stand revised upwards by 6.4% and6.8% respectively.The medium-term concerns of natural rubber prices hardening again and crude-linked rawmaterials firming up further have not receded. The probable ruling of the CompetitionCommission of India against tyre companies is expected to be contested but may limit thepricing power of the industry. We turn conservative and recommend Hold with a pricetarget of Rs105 per share.�


Sharekhan Limited, its analyst or dependant(s) of the analyst might be

holding or having a postition in the companies mentioned in the article. For detailed report, please visit the Research section of our website, sharekhan.com.

EQUITY FUNDAMENTALS

Promoters46%

Non promoter

corp8%

Govt2%

Public & Others10%

Institutions11%

Foreign23%

Margins likely to improve but asset quality worries remainCOMPANY DETAILS

Price target: Rs310




BSE code: 532149

NSE code: BANKINDIA

Sharekhan code: BANKINDIA


(%) 1m 3m 6m 12m

Absolute 9.7 -13.2 -15.5 1.4

Relative to Sensex 4.4 -21.6 -22.5 -13.7

PRICE PERFORMANCE

APPLE GREEN HOLD; CMP: RS302 SEPTEMBER 25, 2012BANK OF INDIA

We met the management of Bank of India (BoI) to get an update on the bank’s asset qualityand capital requirement. The management believes that the pressure on the bank’s assetquality remains due to the weakness in the economy but going ahead the rate of slippagesmay moderate. The bank expects its advances to grow by about 15% and is also hopeful ofmarginally improving its NIM.NIM to improve to ~2.75%: BoI is likely to end FY2013 with an NIM of 2.75%. Webelieve the reduction in the deposit rates, CRR cut and moderation in wholesale rates willmore than offset the reduction in the lending rates.Pressure on asset quality remain: The management expects its gross NPAs to increase to~Rs7,500 crore by FY2013. The bank is mostly done with the restructuring of SEBs andno major restructuring is expected in the near term. However, given the weak macroenvironment, higher restructured loans and relatively higher exposure to the sensitivesegments, the pressure on the bank’s asset quality will remain.Capital infusion awaited from the government: BoI has requested for capital infusion tothe tune of Rs3,000 crore from the government to improve its CAR. We believe capitalinfusion by the government is a key to the bank’s growth plans and successful transition toBasel-III norms.Valuation: We believe the asset quality concern is relatively higher for BoI due to thehigher proportion of restructured loans (7.8% of its total advances) and relatively highexposure to the troubled sectors. Also, BoI has lower NIM and return ratios (RoE of 14%and RoA of 0.7%). Thus, we believe that it would attract 10-15% discounted valuation ascompared with its peers like PNB and BoB. We maintain our Hold rating on the stock witha price target of Rs310 (0.9x FY2014 adjusted book value). We continue to prefer PNBand BoB to BoI.�




Promoter63%

MF & FI16%

Foreign15%

Public & others6%


Price target revised to Rs1,064COMPANY DETAILS





BSE code: 532321

NSE code: CADILAHC

Sharekhan code: CADILAHC


(%) 1m 3m 6m 12m

Absolute 8.0 31.5 36.3 15.9


PRICE PERFORMANCE

EMERGING STAR BUY; CMP: RS936 SEPTEMBER 12, 2012CADILA HEALTHCARE

Growth tapered in FY2012; expect better performance ahead: Despite contributions fromthree newly acquired entities, the net revenues of Cadila Healthcare increased by 14% toRs5,090 crore in FY2012. The growth was the slowest in seven years mainly due to weakerrevenues from the consumer business in India and the generic business in the US andemerging markets. The net profit declined by 8% to Rs652.5 crore due to a decline in theoperating profit margin (OPM), a rise in the effective tax rate and a foreign exchange(forex) loss of Rs118 crore. We expect the growth to pick up from FY2013 onwards onbetter traction in the base business and newer streams of revenues.

Multiple growth factors to boost earnings in FY2013 and FY2014: (1) Better traction inthe US business owing to clearance of the Moraiya facility by the US Food and DrugAdministration; (2) better contribution from Nesher Pharma in the USA; (3) incrementalrevenues from the joint ventures due to additional products and geographical expansions;(4) contribution from the newly set-up business in Mexico; (5) better traction in the consumerbusiness; and (6) incremental revenues from Bremer Pharma (the animal healthcare business).

We revise upwards earnings estimates and price target: We have revised our earningsestimates up by 3% and 5% for FY2013 and FY2014 respectively. We believe the stockwill be re-rated as most of the concerns of the company have been addressed. We reviseour price target up by 12% to Rs1,064 (implies 17x FY2014E earnings, a 10% discount toLupin). �




Promoters74%

Institutions12%


4%Public and others

5% Foreign5%

Maintain Hold with price target of Rs260COMPANY DETAILS

Price target: Rs260




BSE code: 500103

NSE code: BHEL

Sharekhan code: BHEL


(%) 1m 3m 6m 12m

Absolute 2.1 6.2 -12.3 -26.9

Relative to Sensex -2.7 -4.2 -18.8 -34.6

PRICE PERFORMANCE

APPLE GREEN HOLD; CMP: RS248 SEPTEMBER 24, 2012BHARAT HEAVY ELECTRICALS

RESULT HIGHLIGHTS� Bharat Heavy Electricals Ltd (BHEL) has witnessed a severe downgrade in valuation

multiples in the last couple of years on account of a policy inaction-driven slowdownin the demand environment. However, the proposed initiatives to restructure debt onthe books of the state electricity boards, tariff hikes and flexibility in raising tariffs infuture have kick-started the reforms at one end of the power sector.

� In terms of the existing order book, we believe that the concern over the cancellation ofBHEL’s orders from the private power developers seems overplayed as the InterMinisterial Group hasn't de-allocated any coal mine of BHEL’s private clientele afterscrutinising 29 coal mines.

� The company is now focusing on the non-BTG segments, like railways, logistics andtransmission & distribution, that have a significant growth potential.

� In addition to the firm input prices and competition-led margin pressure, there is agrowing risk of liquidation damages being slapped by some of its clients who are blamingBHEL for delaying project execution. Moreover, the relatively lower order intake inrecent years would reflect on its revenue growth and result in a marginal decline in theearnings over the next two years. However, a lot of negatives are reflected in the seriousde-rating of the stock over the last two years. Thus, we maintain our relatively morepositive view on the stock with a revised price target of Rs260 (10x FY2014 earnings).We maintain our Hold recommendation on BHEL despite the recent upsurge in thestock price.�



holding or having a postition in the companies mentioned in the article.For detailed report, please visit the Research section of our website, sharekhan.com.

Promoters68%

Foreign13%

Institutions13%

Others6%

STOCK UPDATE EQUITY FUNDAMENTALS


STOCK UPDATEEQUITY FUNDAMENTALS

Annual report reviewCOMPANY DETAILS

Price target: Rs179




BSE code: 500645

NSE code: DEEPAKFERT

Sharekhan code: DEEPAKFERT


(%) 1m 3m 6m 12m

Absolute -1.1 3.0 -13.1 -18.4


PRICE PERFORMANCE

UGLY DUCKLING BUY; CMP: RS128 SEPTEMBER 13, 2012DEEPAK FERTILISERS & PETROCHEMICALS CORPORATION

� Deepak Fertiliser and Petrochemicals Corporation (Deepak Fertiliser) reported a robustrevenue growth of 49.7% year on year (YoY) to Rs2,342.8 crore in FY2012, largelydriven by a surge of 83.1% in the revenues from the fertiliser segment to Rs969 crore.The fertiliser segment’s strong performance was driven by a higher production of nitro-phosphate fertilisers (NP; a volume growth of 42%) due to the better availability ofphosphoric acid and the introduction of new variants of NP (like 24:24:0). The revenuesgenerated from trading of fertilisers also surged by 75% to Rs475.3 crore in FY2012.However, the operating profit margin (OPM) plummeted by 500 basis points to 17.1%due to a steep jump in the cost of inputs (ammonia and propylene).

� In this fiscal, the fertiliser segment may see some contraction in volume (bothmanufacturing and trading) mainly because of a lower offtake of non-urea fertilisersdue to an increase in the price and a delayed monsoon. On the chemical side, themargins are expected to stablise with the ammonia prices likely to stay in the range of$650-700/tonne due to the expected commissioning of new capacities globally towardsthe end of the year.

� At the current market price the valuation looks supportive and attractive. So we maintainour Buy rating on the stock with a price target of Rs179. Moreover, the stock offers adecent dividend yield (a dividend of 55% or Rs5.5/share in FY2012). At the currentmarket price of Rs128, the stock trades at very attractive valuations of 4.9 and 4.3x itsFY2013E and FY2014E earnings respectively.�




Promoter44%

MF & FI9%

Foreign13%

Public & others34%


Price target: Rs267




BSE code: 533261

NSE code: EROSMEDIA

Sharekhan code: EROSMEDIA


(%) 1m 3m 6m 12m

Absolute -6.0 1.4 -10.7 -25.8


PRICE PERFORMANCE

EMERGING STAR BUY; CMP: RS165 SEPTEMBER 6, 2012EROS INTERNATIONAL MEDIA

Eros International Media Ltd (EIML)’s FY2012 annual report highlighted the following:(a) its revenue growth was strong during the fiscal driven by some high-profile films withmore wider screen releases; (b) it is de-risking its film investments with acceleratedmonetisation from pre-sales; (c) higher amortisation restricted its margin improvement,though adjusted for the one-offs the margins improved year on year (YoY); (d) its negativefree cash flow (FCF) increased during the year owing to the repayment to the parent andhigher production advances; (e) it has a strong film slate for the coming years; and (f) ithas increased the content investments.

Accelerated investments in content to enhance revenue predictability: During the year,content investments went up by 33% YoY to Rs724 crore. This included an investment ofabout Rs224 crore toward the purchase of film rights (up from Rs183 crore in FY2011)and Rs501 crore toward funding own/co-production deals (up from Rs380 crore in FY2011).Out of Rs501 crore, Rs474.7 crore was advances towards film production for FY2013and FY2014.

Valuation: EIML with its niche expertise in film distribution and co-production is wellpoised to capitalise on the upswing in the Indian film industry. The Indian film industry isgoing through a good phase with an increased number of screens, acceleration in digitalprints and improved pricing in TV syndication. We have fine-tuned our estimates based onthe annual report of FY2012. At the current market price of Rs165, the stock trades at8.7x and 7x FY2013 and FY2014 earnings estimates respectively. We remain positive onEIML and maintain our Buy rating on the stock with a price target of Rs267. �




Promoters78%

Institutions2%

Foreign8%


4%

Public & Others

8%




Price target: Rs410




BSE code: 532155

NSE code: GAIL

Sharekhan code: GAIL


(%) 1m 3m 6m 12m

Absolute 3.8 12.1 4.5 -12.1

Relative to Sensex 0.0 2.5 -2.7 -19.5

PRICE PERFORMANCE

APPLE GREEN BUY; CMP: RS386 SEPTEMBER 21, 2012GAIL INDIA

KEY POINTS� Maintains earnings despite higher subsidy burden, tariff revision and unfavourable

revenue mix: GAIL India (GAIL) was able to maintain a flattish growth in earnings inFY2012 despite a surge in its subsidy burden (up 50%) and a one-time expense relatedto a tariff revision with retrospective effect in its gas transmission business (an adverseimpact of Rs550 crore).

� Gas sourcing remains a challenge; sourcing attempts visible: Given the declining gasproduction from the domestic sources (especially the Krishna-Godavari-D6 field),meeting the gas demand remains a challenge. However, GAIL has made several visibleattempts in the past to secure gas supply and is currently also scouting for gas overseason long-term and spot bases.

� Expansion drive continues, added debt on books: During FY2012, GAIL commissionedvarious pipelines expanding its network to 1,337km. As part of its long-term capitalexpenditure (capex) plan it will add 7,500km of pipeline with an investment of Rs30,000crore. Though a large portion of the capex is being funded through internal accruals(Rs3,000 crore generation from operation), but it added debt of Rs2,500 crore in FY2012.

� Return ratios remained downward biased but dividend pay-out ratio maintained: Dueto declining domestic gas production, which is affecting the volume and margin of thegas transmission business, the return ratios have been downward biased. However,GAIL maintained its historical dividend pay-out record of around 30% in FY2012.

� Valuation and view: The regulator has recently taken some tough actions in the oil & gassector which remain a key concern for the sector. Also, supply constraint would continueto keep GAIL’s returns subdued. We estimate an earnings growth of 9% in FY2013 andof 5% in FY2014. Hence, we retain our price target of Rs410/share on the stock.�




Promoters58%

Foreign13%

Others4%

Institutions25%

Annual report review; price target revised to Rs726COMPANY DETAILS

Price target: Rs726




BSE code: 532424

NSE code: GODREJCP

Sharekhan code: GODREJCP


(%) 1m 3m 6m 12m

Absolute 7.3 21.4 52.4 63.8


PRICE PERFORMANCE

APPLE GREEN HOLD; CMP: RS677 SEPTEMBER 4, 2012GODREJ CONSUMER PRODUCTS

KEY POINTS� Focusing on reducing debt on consolidated books: GCPL’s debt/equity ratio in FY2012

stood at 0.6x. The company raised Rs685 crore in FY2012 by making a preferentialallotment to Baytree Investments. This will be largely utilised to reduce the debt on thebooks and to fund the gradual stake hike in the Darling Group. Also, the operatingcash flows of the company are expected to improve with the improving supply chain inthe coming years. The company has set a target of reducing approximately Rs330crore of its foreign currency debt in FY2013. Overall, we expect the debt/equity ratioto improve to 0.4x in FY2013.

� Operating cash cycle improved: The cash generated from operations improvedsignificantly to Rs1,102.2 crore in FY2012 from Rs307 crore in FY2011. The operatingcash cycle improved to 24 days in FY2012 from 42 days in FY2011. We expect thecash generation from operations to improve in the coming years.

� Return ratios stood above 20% in FY2012: The return ratios stood lower on a Y-o-Ybasis largely on account of an increase in the capital employed due to the mobilising offunds to fund the recent acquisitions. The RoE and the RoCE declined to 26.3% and20.6% in FY2012 from 36.0% and 28.8% in FY2011 respectively. We expect thereturn ratios to improve substantially going ahead once the recent acquisitions startcontributing significantly to the bottom line of the company.

� Valuation: At the current market price the stock trades at 29.7x its FY2013E EPS ofRs23.6 and 23.3x its FY2014E EPS of Rs29.0. We have revised our price target toRs726. However, in view of the limited upside from the current level we maintain ourHold recommendation on the stock.�




Promoters64%

Foreign & Institutions

28%

Others8%



Price target revised to Rs3,405COMPANY DETAILS



52 week high/low: Rs3,277/2,207


BSE code: 500300

NSE code: GRASIM

Sharekhan code: GRASIM


(%) 1m 3m 6m 12m

Absolute 8.0 32.6 21.5 39.4


PRICE PERFORMANCE

APPLE GREEN HOLD; CMP: RS3,237 SEPTEMBER 26, 2012GRASIM INDUSTRIES

KEY POINTS� The price of viscose staple fibre (VSF) has increased in September 2012 and with that

the average price for Q2FY2013 is expected to be higher by around Rs3/kg on asequential basis. The recent price hike is supported by a better demand environmentand an increase in the prices of the competing fibres like cotton (increased by Rs8-10/kg). The better demand environment for VSF products in the domestic as well as theinternational markets will help the company to register a higher volume in Q2FY2013as compared with Q2FY2012.

� As per media reports, the Inter-Ministerial Group looking into coalfield allocations hasrecommended taking back coal blocks from Grasim. However, the block is not operationaland is not contributing to the coal requirement of the company at present. Therefore, thelikely move will not have any direct impact on the earnings of the company.

� On account of the recent hike in the diesel prices by Rs5/litre, the cement manufacturershave increased cement prices by Rs5-6/bag to offset the cost inflation. However, cementprices corrected significantly in August and early September 2012. Therefore, the averageprice of cement in the major Indian cities has corrected by around Rs10-12/bag comparedwith the Q1FY2013 level.

� We continue to value the stock using the SOTP valuation method and arrive at a revisedfair value of Rs3,405 per share. However, on account of a sharp run-up in the stockprice of the company in recent times (appreciated by 27% in the past three months),we maintain our Hold recommendation on the stock with a revised price target ofRs3,405. At the current market price, the stock trades at a PE ratio of 11.5x and 10.4x,discounting its FY2013 and FY2014 estimated EPS respectively.�




Foreign24%

Promoters26%

Institutions17%

Public & others33%

Growing steadily despite competitionCOMPANY DETAILS

Price target: Rs785


52-week high/low: Rs741/ 600


BSE code: 500010

NSE code: HDFC

Sharekhan code: HDFC


(%) 1m 3m 6m 12m

Absolute 3.3 14.9 9.9 11.2


PRICE PERFORMANCE

EVERGREEN BUY; CMP: RS724 SEPTEMBER 5, 2012HOUSING DEVELOPMENT FINANCE CORPORATION

We interacted with the management of HDFC recently to understand the impact of therising competition in the mortgage segment on the company and the other industry trends.According to the management, the spate of rate cuts announced by banks for mortgageloans will not have any impact on business growth as the company enjoys a premium of25-50 basis points in interest rates due to its better servicing levels and lower turn-aroundtime compared with its peers. Further, the company continues to focus on the quality of itsbook instead of market share. The spreads are likely to be maintained within the guidedrange of 2.15-2.35%.

Growing competition unlikely to have a significant impact on growth and spreads: Sincethe difference in the lending rates of banks and HDFC is not significant, competition isunlikely to affect the company. Normally, HDFC enjoys an interest rate premium of 25-50basis points compared with its peers due to its better servicing levels and turn-around time.

Increased contribution from newer geographies to support growth: While the slowdowncontinues in the residential properties within the metro regions (metro + tier-I cities =~55% of the volume), the incremental growth from the tier-II and tier-III cities is likely tosupport the disbursement growth going ahead.

Spreads to remain in the guided range: The spreads have consistently remained in therange of 2.15-2.35% as guided by the management. While the spreads for the developers’loans are around 2.8%, the retail spreads are 1.93%, which gets compensated by thelower risk weightage and provisions.

Valuation: We believe the company is well capitalised and better equipped to take on thecompetition and estimate its earnings would expand at a CAGR of 19% over FY2012-14.We maintain our Buy recommendation on HDFC with an SOTP-based price target ofRs785.�




Foreign67%

MF & FI19%

Public & others14%


Downgraded to Hold; price target revised to Rs95COMPANY DETAILS

Price target: Rs95




BSE code: 530005

NSE code: INDIACEM

Sharekhan code: INDIACEM


(%) 1m 3m 6m 12m

Absolute -5.9 10.5 -17.4 15.9

Relative to Sensex -9.7 -0.9 -21.0 3.1

PRICE PERFORMANCE

UGLY DUCKLING HOLD; CMP: RS83 SEPTEMBER 17, 2012INDIA CEMENTS

KEY POINTS� During FY2012, India Cements delivered an impressive performance, with a 20%

growth in the revenue and over 3x jump in the net profit to Rs296 crore as comparedwith just Rs66 crore in the previous fiscal. The robust earnings growth during the fiscalwas supported by a surge of 25% in the cement realisation and the low base effect ofFY2011. However, the demand environment in the southern region remains sluggish.

� The company commissioned 48MW of captive power plant (CPP) at Sankarnagar inJanuary 2012. Further, the company also commissioned 20MW of CPP in theQ4FY2012. Therefore, the positive impact in terms of a regular power supply and costsaving will be reflected in FY2013. Further, the work is on for the development of itscoal mines in Indonesia and the project is expected to be commissioned in near term.

� During this fiscal, the company raised close to Rs400 crore of debt, and the overalldebt stood at Rs2,429 crore (a debt:equity ratio of 0.6x). The company raised fundsmainly to inject capital in its subsidiary, namely Trinetra Cement. Therefore, theinvestment of the company increased to Rs852 crore from Rs160 crore in FY2011. Onthe working capital front, the overall working capital cycle improved to 147 days ascompared with 217 days in FY2011.

� We believe India Cements could underperform the broader market in the coming coupleof quarters. Thus, we are downgrading our recommendation on the company fromBuy to Hold with the revised price target of Rs95. At the current market price, thestock is trading at PE of 8.4x, discounting its FY2014 EPS, and at EV/EBITDA of 4.2x,discounting its FY2014E EPS.�




Foreign29%

Promoters26%

Public & others26%

Institutions19%

Foreign52%

Institutions18%


1%

Promoters16%

Public & Others15%

Wait is over, Infosys’ first major acquisitionCOMPANY DETAILS

Price target: Under review


52 week high/low: Rs2,990/2,102


BSE code: 500209

NSE code: INFY

Sharekhan code: INFY


(%) 1m 3m 6m 12m

Absolute 8.6 3.8 -10.8 12.6

Relative to Sensex 7.2 -3.1 -13.4 5.1

PRICE PERFORMANCE

EVERGREEN HOLD; CMP: RS2,529 SEPTEMBER 11, 2012INFOSYS

The event: acquisition of Lodestone Holding AG

Infosys has acquired Zurich-based Lodestone Holding AG (Lodestone) for CHF330 million($349 million) in an all-cash deal. Lodestone is a global management consultancy firm,which provides business transformation solutions enabled by SAP. It has strong presencein Continental Europe with 200 clients and an employee base of 858 employees. Two-third of the total cost of the acquisition is being paid upfront whereas the balance one-third would be paid after three years. The Infosys management expects the deal to becomplete by end October 2012. On the earnings front, the management has indicated thatthe acquisition would be earnings accretive after 18 months.

Valuation: After a long wait, Infosys has finally resumed its long-pending inorganic growthinitiatives with the acquisition of Lodestone ($349 million). The acquisition size is muchlarger than the historical average (Infosys has done cumulative acquisitions of around$150 million till date). We view the current acquisition as more of a strategic fit than ameaningful financial leap for the company. At least with this acquisition Infosys has managedto come out of its comfort zone to acquire a company with a single-digit margin profile. Atthe current juncture, it has become imperative for Infosys to accelerate its inorganic initiativesto catch up with its peers in terms of growth. We have not incorporated the financials ofLodestone in our estimates and would wait for further clarity on the numbers. At thecurrent levels, Infosys trades at 13.6x FY2014. We maintain our Hold recommendationon the stock.�







Annual report review; price target revised to Rs1,627COMPANY DETAILS



52 week high/low: Rs1,720/971


BSE code: 500510

NSE code: LT

Sharekhan code: LT


(%) 1m 3m 6m 12m

Absolute -3.1 10.6 5.7 -17.6

Relative to Sensex -3.9 1.5 4.6 -21.8

PRICE PERFORMANCE

EVERGREEN BUY; CMP: RS1,317 SEPTEMBER 6, 2012LARSEN & TOUBRO

KEY POINTS� In FY2012, Larsen & Toubro (L&T)’s stand-alone revenues rose by 21% led by a

pick-up in execution in the engineering and construction business and a growth of36% YoY in the overseas business.

� In the annual report, the management has expressed hopes of better order inflow fromthe Middle East region. It believes that the hydrocarbon segment will see an intake of~Rs10,000 crore in FY2013.

� In FY2012, the company saw a marked deterioration in its working capital cycle to 33days from 11 days in FY2011 with a corresponding decline in the net cash flow fromoperations to Rs1,081.6 crore.

� Heavy investments in developmental projects (whose benefits are yet to accrue) and anotable increase in the short-term borrowings caused the RoCE to decline to 19.1% inFY2012.

� There appears to be a strong correlation (~0.83x) between the growth in the country’sGDP and L&T’s sales with a lag effect of one year. Hence, the recent slowdown in theeconomy is likely to get reflected in the performance of L&T in the coming quarters.

� The achievement of the 12-15% growth guidance in the yearly order inflow would besubject to an uptick in the infrastructure development activities in the country and inthe Middle-East region. Moreover, excluding the build-operate-transfer projects mightlimit the growth in the order inflow especially in the public-private partnership projects.At the current market price, the stock is trading at 12.5x its FY2010E consolidatedearnings. We maintain our Buy recommendation on the stock with a new sum-of-the-parts price target of Rs1,627.�




DIIs38%

Foreign14%

Others48%

Price target revised to Rs201COMPANY DETAILS

Price target: Rs201




BSE code: 531642

NSE code: MARICO

Sharekhan code: MARICO


(%) 1m 3m 6m 12m

Absolute 1.4 10.7 18.8 34.0

Relative to Sensex -3.4 -0.2 10.0 19.9

PRICE PERFORMANCE

APPLE GREEN HOLD; CMP: RS191 SEPTEMBER 24, 2012MARICO

Key takeaways from interaction with the management

Growth momentum to sustain in key domestic categories: Despite headwinds, such as abelow normal monsoon and sustained high food inflation, Marico has not witnessed anysignificant slowdown in demand for its products in some of its key domestic categories.Marico expects Parachute coconut oil to grow in the range of 8-10% in the coming quarters.Saffola is likely to achieve a volume growth of around 11-12% YoY in FY2012. Thevalue-added hair oil portfolio is expected to grow by 15-20% in the coming quarters.

Mixed trend in raw material prices: The copra prices have corrected significantly fromtheir highs but remained volatile in the recent past. On the other hand, the prices of the keyinputs of Saffola have maintained their upward momentum. This will have an impact onthe margins of the Saffola edible oil portfolio.

International business showing some improvement: The international business is expectedto grow in mid teens in FY2013. Going ahead, the company is banking on steps like cross-pollination, entry into new categories and improvement in the distribution reach. It expectsthe growth of the international business to revert to the 18-20% range over FY2014-15and the OPM to improve above 11%.

Outlook and valuation: At the current market price the stock is trading at 31.0x its FY2013EEPS of Rs6.2 and 24.7x its FY2014E EPS of Rs7.7. We have revised our price targetupwards to Rs201. However, the current valuations do not provide any significant upsideto the stock price. Hence, we maintain our Hold recommendation on the stock.�




Promoters60%

Foreign & Institutions

33%

Others7%



Downgraded to Hold; price target revised to Rs356COMPANY DETAILS

Price target: Rs356




BSE code: 532654

NSE code: MCLEODRUSS

Sharekhan code: MCLEODRUSS


(%) 1m 3m 6m 12m

Absolute 4.0 16.9 42.9 35.1


PRICE PERFORMANCE

UGLY DUCKLING HOLD; CMP: RS329 SEPTEMBER 13, 2012MCLEOD RUSSEL INDIA

KEY POINTS� FY2012 performance—high input cost affected stand-alone business’ margins: MCRL’s

consolidated revenues grew at a steady rate of 14.1% YoY to Rs1,412 crore in FY2012driven by a mix of volume growth (~7%) and higher blended realisation (also up 7%).However, the consolidated OPM declined by 137 basis points to 25.2% in FY2012,largely due to pressure on the stand-alone OPM (down 353 basis points to 22.5%).

� Operating cash cycle increased to 15 days: MCRL’s operating cash cycle stood at 15days in FY2012 as against negative three days in FY2011. This was largely on accountof a decline in the creditor days to 25 days in FY2012 from 38 days in FY2011.

� Consolidated debt reduced by over Rs50 crore: MCRL maintained its thrust on reducingdebt at the consolidated level. In FY2012 the consolidated debt was reduced by Rs53.2crore largely through the incremental cash generated at the operating level (whichincreased by almost Rs40 crore in FY2012).

� Return ratios sustained in high teens: The RoE and RoCE stood at 18.6% and 18.5%in FY2012 as against 17.3% and 18.4% in FY2011 respectively.

� Outlook and valuations: At the current market price the stock is trading at 10.5x itsFY2013E EPS of Rs31.5 and 8.3x its FY2014E EPS of Rs39.5. The fine-tuning of theearnings estimates has led to a revision in the price target, which now stands at Rs356.However, due to limited upside from the current levels, we downgrade therecommendation on the stock from Buy to Hold. Any substantial improvement in theprofitability in the coming quarters would act as a key trigger for the stock.�




Promoters47%

FIIs33%

Others15%

Domestic institutions

5%

Management meet highlightsCOMPANY DETAILS

Price target: Rs60




BSE code: 532693

NSE code: PUNJLLOYD

Sharekhan code: PUNJLLOYD


(%) 1m 3m 6m 12m

Absolute -13.0 -0.6 -22.1 -23.8


PRICE PERFORMANCE

APPLE GREEN HOLD; CMP: RS45 SEPTEMBER 3, 2012PUNJ LLOYD

We recently met the management of Punj Lloyd Ltd (PLL) to understand the future courseof the company’s business.

� Execution of Libya’s orders to start in two to three months: The current order book ofPLL stands at Rs26,206 crore, of which 16% is exposed to Libya. With the newgovernment in place and stability restored, PLL has started execution of one upstreamproject. Of the other five infrastructure contracts, three have been renegotiated andwould commence construction activity in the next one month. The remaining twoinfrastructure and oil & gas contracts are up for renegotiation.

� Various claims and settlement negotiations on track; favourable outcome expected thisfiscal: A considerable chunk of PLL’s money is caught up in various claims and contractsettlement cases. Of these ONGC’s Heera project has been put under the purview ofthe OEC, which usually settles cases within six to seven months. The total claims areestimated at ~$200 million. In Libya, there were some force majeure claims, amountingto ~$80 million, which will be released in a month. All this will help the company torelease its working capital and thus reduce its debt burden.

� Evaluating strategies to reduce debt: Though PLL seems to have regained its operationalefficiency but its profitability still remains questionable due to high debt. To reduce it,the company intends to (1) raise debt through its international subsidiaries; (2) sell afew assets located mostly in and around Delhi; (3) repay loans using the claim proceeds.

� Hold with price target of Rs60: Any success in lowering the cost of the debt or improvingthe working capital days will add to the growth at the net profit level. We, therefore,maintain our Hold recommendation on the stock with a price target of Rs60, as thevisibility of the company’s business is improving.�




Promoters37%

Others40%

Institutions13%

Foreign10%



Downgraded to HoldCOMPANY DETAILS



52 week high/low: Rs1,438/970

NSE volume (No of shares): 13.5 lakh

BSE code: 532540

NSE code: TCS

Sharekhan code: TCS

Free float (No of shares): 50.9 cr

(%) 1m 3m 6m 12m

Absolute 5.0 5.7 16.5 33.3

Relative to Sensex 0.1 -4.0 8.3 19.7

PRICE PERFORMANCE

EVERGREEN HOLD; CMP: RS1,302 SEPTEMBER 18, 2012TATA CONSULTANCY SERVICES

We attended the pre-quarter analyst briefing of Tata Consultancy Services (TCS). Themanagement maintained its optimism about the demand driven by the timely closure ofdeals and a pick-up in the discretionary spending on new technologies. Though the volumegrowth for Q2FY2013 is expected to remain relatively lower than that in Q1FY2013, TCSis comfortably placed to lead the industry in terms of revenue growth on a constant-currencybasis in FY2013. On the margin front, the management indicated that cost pressure resultingfrom the ramp-up in the onsite projects and the geographical mix would also restrict themargin improvement.

Other highlights: (1) The company is fully hedged till Q3FY2013 and partly for Q4FY2013.(2) The management expects a marginal net foreign exchange gain in Q2FY2013 ascompared with a loss in the last quarter. (3) The management expects the pricing to remainstable. (4) It foresees a strong pipeline of deals.

Valuation: Among the top IT companies, TCS remains impressive with the strongpredictability of its earnings. However, in the run-up to the announcement of its Q2FY2013results and the likely absence of any material positive surprise in it, the stock is likely tounderperform the broader market indices in the near to medium term. In the last one yearthe stock has outperformed the broader market with a 28% return. At the current marketprice of Rs1,302, the stock trades at 18.3x and 15.8x FY2013 and FY2014 earningsestimates respectively. In view of the limited upside in the stock in the medium term, wehave downgraded our rating on it from Buy to Hold with a price target of Rs1,364.�




Foreign15%

Institutions7%

Promoters74%

Public & Others

5%

Growth revivesCOMPANY DETAILS

Price target: Rs760




BSE code: 500420

NSE code: TORNTPHARM

Sharekhan code: TORNTPHARM


(%) 1m 3m 6m 12m

Absolute -1.4 11.5 12.4 14.1

Relative to Sensex -5.8 0.0 4.7 2.7

PRICE PERFORMANCE

UGLY DUCKLING BUY; CMP: RS678 SEPTEMBER 20, 2012TORRENT PHARMACEUTICALS

KEY POINTS� Growth revives in FY2012: Torrent Pharma’s net sales rose by an impressive 22.3% to

Rs2,594 crore in FY2012 on the back of a 39% rise in the revenues of the internationalbusiness and a 15% rise in the India-based business (including the CRAMS business).The revenue growth was better than seen in the previous four years. The OPM expandedby 260 basis points to 17%, which was better than the five-year average of 15.7%. Theadjusted net profit jumped by an impressive 57.7% year on year (YoY) to Rs391.4crore, which was the highest in five years.

� Improvement in financial health: A healthy rise in the profits, tighter working capitaland relatively lower capital expenditure during the year resulted in stronger cash flowsfrom operations and investments. This, in turn, also helped the return on capitalemployed to jump to 29.1% in FY2012 from 21.8% in FY2011. The return on equityjumped to 35.3% in FY2012 from 26.8% in FY2011. These ratios are comparablewith those of the other large-cap companies.

� Key risks: The implementation of the new pharma policy in its current draft form,which substantially covers chronic drugs, would hurt the company’s domestic businessmaterially. As the company hedges its foreign exchange (forex) exposure throughforward contracts, a change in the forex rate is a key risk for the company.

� We maintain our price target of Rs760 (implies 13x average earnings for FY2013E andFY2014E EPS) and Buy rating on the stock.�




Promoters72%

Foreign5%

Institutions12%

Public & others

7%


4%


SHAREKHAN SPECIALEQUITY FUNDAMENTALS

Q2FY2013 IT earnings previewSHAREKHAN SPECIAL OCTOBER 03, 2012

Decent revenue growth in a seasonally strong quarter

� We expect the top Indian information technology (IT) companiesto report a decent revenue growth of 2.0% to 4.4% [as against(-)1.4% to 3.0% reported in Q1FY2013] for Q2FY2013, whichis seasonally a strong quarter. The sequential growth in therevenues will be driven by a volume uptick and cross-currencytailwinds (as against headwinds of around 1.4% in Q1FY2013).

� We expect a volume uptick in Infosys (of 3.4%) after a softvolume growth (of 2.7%) in Q1FY2013 (part of the soft volumegrowth in Q1FY2013 was on account of a $15-million write-off pertaining to projects of an European client). On the otherhand, Tata Consultancy Services (TCS) is likely to report a 4%volume growth, lower than the 5.3% sequential growth seen inQ1FY2013 (the Q1FY2013 revenues of TCS included part ofthe spill-over revenues from Q4FY2012).

� During the September 2012 quarter, all the major currencieslike the euro, the pound and the Australian Dollar appreciatedagainst the US Dollar to the extent of 3.3%, 4.2% and 3.3%respectively. Thus, there will be a positive impact of the cross-currency tailwinds on the reported revenues.



� We expect our mid-cap picks to report decent revenue numbersled by NIIT Technologies (NIIT Tech; up 9.4% quarter onquarter [QoQ]), partly driven by the hardware revenues fromthe company’s Crime and Criminal Tracking and NetworkingSystems (CCTNS) deals. Polaris Financial Technology (Polaris)and Persistent Systems (PSL) are expected to report a sequentialgrowth of 4.4% each for Q2FY2013.

Valuation: We continue to believe the industry environment isgradually getting more conducive for the tier-II companies, giventhe increasing number of relatively small deals (sub-$50 million) inthe market place. Vendor consolidation/restructuring of deals isalso favouring the tier-II players (one of the key factors being thelower pricing points). We remain structurally positive on the mid-cap IT companies and our top picks are CMC, PSL and NIIT Tech.In the large-cap space we continue to like HCL Tech.�

Q2FY2013 Banking earnings previewSHAREKHAN SPECIAL OCTOBER 05, 2012

KEY POINTS� Earnings to grow 19% YoY but remain flattish QoQ: The

earnings of Sharekhan’s banking universe are expected to growat 19% year on year (YoY; down 0.2% sequentially) inQ2FY2013. The private banks are likely to grow at 24% YoYwhereas the public sector banks (PSBs) are expected to see agrowth of 16.5% YoY. However, excluding Bank of India (BoI)and Union Bank of India (due to a low base of Q2FY2012) theearnings are expected to grow at 16% YoY. The slower growthin the net interest income (NII) and the increased provisioningwill continue to affect the earnings growth.

� Operating performance to weaken: Due to stagnation in thecredit growth and pressure on the margins the operatingperformance of banks is likely to weaken. We expect the NII ofour coverage universe to see a growth of 13.5% YoY comparedwith the 17.6% year-on-year (Y-o-Y) growth in Q1FY2013and the 22% growth in Q4FY2012. The pre-provisioningprofits are expected to show a growth of 16.2% as against the19% growth seen in Q1FY2013.

� Asset quality under stress: Given the rising stress in the midcorporate and small and medium enterprises (SME) segmentsthe asset quality pressures are likely to continue in Q2FY2013as well, though the rate of slippages and restructuring coulddecline. The provisioning is expected to remain high and we



expect a 4% Y-o-Y (14% QoQ) increase in the provisions forthe banks under our coverage.

� Outlook: The banking stocks have rallied on the hope of theeasing of interest rates, resumption of investment cycle basedon the reforms initiated by the government and attractivevaluations. Going ahead, the earnings will remain under pressuredue to the slowing credit growth and asset quality pressures.We continue to prefer private banks like Axis Bank, ICICI Bankand Federal Bank. Among the state-owned banks we preferlarger banks like Punjab National Bank (PNB) and Bank ofBaroda (BoB).

� Macro concerns casts shadow on credit growth: The creditgrowth for banks continues to stagnate—it has grown by 3.4%in the year till date (YTD) and increased by merely 0.1 % inQ2FY2013 (June 29- September 2012). The credit growth standsat 16.4% on a Y-o-Y basis (the fortnight ending September 21,2012) and the sluggishness in the economy will pressurise thecredit growth further. Looking at the segments, the credit growthin the retail segment is expected to be reasonable while it islikely to be weak in the non-retail segment.�


SHAREKHAN SPECIAL OCTOBER 06, 2008

Forex gains for auto sector, impact on FY2013 earnings

Maruti and Hero MotoCorp in OEMs and Apollo Tyres in ancillariesto benefit the most from rupee’s appreciationThe rupee has appreciated by 4.4% to 53.25 against the dollar andby 3.3% to 0.685 against the yen in the last one month. Weevaluated our automobile (auto) tracking universe to ascertain theimpact of the strengthening rupee on their earnings in FY2013.The rupee’s appreciation benefits Hero MotoCorp and MarutiSuzuki (Maruti) the most amongst the original equipmentmanufacturers (OEMs) as their royalty bill will reduce and theimport of components from Japan will get cheaper. Among theancillaries, Apollo Tyres stands to gain the most.

Exporters such as Bharat Forge and Bajaj Auto appear to be affectedas their export realisations will be lower but there may not be anyimpact on their earnings in FY2013 as they have hedged their inflowsfor the rest of the year. Mahindra and Mahindra (M&M) remainsthe most insulated from the volatility in the currency market.

At a macro level, the rupee’s appreciation, the lower internationalcrude prices and the moderation in the auto loan financing ratesare expected to revive sentiments during the forthcoming festiveseason. Our preferred picks in the auto sector are M&M and Maruti.

Royalty-paying companies benefit: Hero MotoCorp and Maruti� Maruti: Royalty forms 5.5% of the company’s sales. The

company pays royalty bi-annually and generally hedges its rupee-yen exposure for the following quarter. The benefit of the rupee’srecent appreciation would accrue in Q4FY2013. We estimatean impact of 0.9% on the company’s EPS purely on account ofthe royalty if the rupee sustains at the current levels.

� Hero MotoCorp: After splitting from Honda Motor Company(Honda) the company originally agreed to pay Rs180 crore as afixed royalty to Honda and charges the same under“Depreciation” every quarter. However, the company faces therisk of the rupee’s depreciation. Due to a sharp depreciation inthe rupee, the royalty payable every quarter had swelled toRs228 crore in Q1FY2013. On new models, such as Ignitor,Impulse and Maestro, the incremental royalty is guided ataround 1% of the total sales. We estimate an EPS benefit of1.4% in FY2013 assuming the rupee-yen rate sustains at thecurrent levels.

Benefit to large net importers: Hero MotoCorp and Maruti amongstOEMs; Apollo Tyres and Exide amongst auto ancillaries companies� Maruti: For Maruti direct and indirect (vendor) imports form

approximately 21% of its total sales. The exports form roughly10% of its revenues; the euro-based exports form 4% of its

AUTOMOBILES SEPTEMBER 27, 2012

EQUITY FUNDAMENTALS

sales and are naturally hedged while the dollar-denominatedexports get adjusted against the yen-denominated imports. Weobserve the company’s net exposure to yen is at around 16-17% of its total sales. We estimate a benefit of 2.8% for FY2013,taking into account the impact for Q4FY2013 as the companytakes hedges for a quarter in advance.

� Hero MotoCorp: The company’s direct and indirect importsform 16% (direct 2% and indirect 14%) of its net sales whileits exports form roughly 2.0-2.5% of its net sales. Hence, net ofexports, the raw material cost forms around 14% of its netsales and the raw materials are largely imported by vendors inyen. We estimate an EPS benefit of 2.2% for FY2013, takinginto account the impact on the H2FY2013 earnings.

� Apollo Tyres: The imports form roughly 21% of theconsolidated sales while the exports are pegged at 5.5% of theconsolidated sales. Usually, the impact is felt with the lag of aquarter. Based on the net import exposure and the fact thatthere are no hedges, the company would see an EPS impact of5.4% in FY2013 if the rupee sustains at 53.26 against the dollarfor the rest of the year after taking into account the impact onthe earnings in H2FY2013.

� Exide Industries: The company imports lead even though it hasbackward integrated 50% from captive smelters. Net of exports,the import component forms 11% of the total sales which arelargely open. We estimate 1.7% benefit to the FY2013 EPS aftertaking into account the impact on the earnings in H2FY2013.

OutlookDirectionally, the study above indicates Maruti, Hero MotoCorpand Apollo Tyres will be the primary beneficiaries of the rupee’sappreciation with the assumption that the rupee shall sustain at thecurrent levels for the rest of the year. However, we are not changingour Hold recommendation on the stocks on which we have a rating(Maruti and Apollo Tyres) because of specific issues related to eachcompany. Maruti would announce extremely weak Q2FY2013numbers while Apollo Tyres would face the CompetitionCommission of India’s penalty in the near term.

Also, in view of the fact that the rupee has limited visibility in themedium term, we continue to prefer the stock that is insulated fromthe fluctuations in the currency market, ie M&M.



SECTOR UPDATE


New drug pricing policy—less severe than anticipated

PHARMACEUTICALS SEPTEMBER 28, 2012

The Group of Ministers, which was constituted to look into the drugpricing policy in India, has finalised its recommendations and thesame would be sent to the cabinet within a week to get the finalapprovals.

Key points� The highlights of the new drug pricing policy: (1) All drugs men-

tioned in the National List of Essential Medicines (NLEM) wouldbe under price control (ie 348 drugs and 654 dosages forms); (2)a ceiling price would be fixed on the basis of the weighted aver-age price of brands having at least 1% market share; and (3)there would be no exemption from price control on any otherground if it falls under NLEM. Besides, the panel also discussedtopics to make it mandatory for physicians to recommend onlyprice-controlled drugs.

� Broad-based coverage but less severe impact: The policy is esti-mated to cover nearly 60% of the market on an average (cover-age will vary in different therapeutic groups) as compared with25-30% of the market previously. This indicates that most ofthe Indian players will have a certain proportion of drugs underprice control. Though the new pricing policy expands the spanof price control, the mechanism to fix the ceiling price is rela-tively favourable compared with the existing pricing policy, whichuses the cost-based price fixing method. The market price-based



EQUITY FUNDAMENTALS

ceiling will provide a cushion against the fluctuation in the rawmaterial prices and market competition.

� MNCs are likely to be the most affected; Indian players may seean average 10-12% reduction in prices: We expect multinationalplayers like GlaxoSmithKline Pharmaceuticals, Abbott, Pfizer andNovartis to be the most affected due to high brand prices of theirproducts and market leadership in certain segments. However,for Indian players the average reduction in price should not behigher than 10-12%. For our pharma universe, the impact shouldbe limited to 2-3% on the earnings per share (EPS) due to pricecontrol. In particular, Cadila Healthcare and Glenmark Pharma-ceuticals are likely to have a relatively higher impact than SunPharmaceutical and Lupin.

� Most of the adverse impact already factored in; estimates to bereviewed along with Q2 results: We believe most of the adverseimpact of the price control policy is largely factored in the valu-ations. We remain constructive on the pharma stocks and wouldfine-tune the earnings estimates for our universe in the forthcom-ing quarterly result update..�

Concerns abating

AUROBINDO PHARMAVIEWPOINT SEPTEMBER 27, 2012CMP: RS141

Key points� Looking beyond concerns: Aurobindo Pharma has been reeling

under pressures from various quarters including (1) the US Foodand Drug Administration (USFDA) warning letter to its keyplants; (2) fluctuation in the foreign currency resulting in inflatedliability (mark-to-market [MTM] loss) and (3) inquiry byinvestigative agencies related to the company’s link with theformer chief minister of Andhra Pradesh, YS Rajasekhara Reddy.This has resulted in the valuation getting eroded by 26% fromthe three-year average of 13.3x (based on one-year forwardearnings). However, with an inspection of USFDA due in coupleof months (by December 2012; positive outcome will reviveUS$30 million of the revenue), focus on niche segments andchange in strategy for the developed markets, the company seemsto be preparing to look beyond the concerns.

� Change in strategy to rejuvenate the growth: The company isenvisaging a couple of change in its business strategies torejuvenate the growth. That includes (1) reducing the dependenceon the foreign partners in the developed markets (USA andEurope) and focusing on own their business (through wholly ownedsubsidiaries) to ensure predictable growth; (2) focusing on the nichesegments like the controlled substances in the USA; (3) focusingon the margins in the antiretroviral (ARV) business; (4) investing



in other manufacturing units to avoid USFDA action in the futureand (5) aggressive products filings in different countries.

� Pressure on the cash flow to ease in FY2014: The company isfacing pressure on the cash flows mainly due to the weakeroperating performance, which got further hit from the repaymentof outstanding foreign currency convertible bonds (FCCBs;including premium and foreign exchange losses) in FY2012. Whilethe level of debts continues to be high (debt/equity ratio at 1.1x),the repayment obligation of US$80 million is set to impact thecash flows in FY2013. However, we expect a strong revival inthe operating performance in FY2013-14, which should lead toan improvement in financial health of the company.

� Attractive valuation but inquiry by the investigative agencies toweigh down the valuations: Despite the recent upsurge, the stockis currently trading at 8.3x FY2014E earnings per share (EPS),which is a 27% discount to Ipca Laboratories and 22% discountto Torrent Pharmaceuticals, though the company has strongerproduct pipeline. Thus, there is a scope for further re-rating ofthe stock. However, the ongoing inquiries by the investigativeagencies could weigh down on the valuations and make it ariskier bet.�

SECTOR UPDATE


Higher tops, higher bottoms

� The momentum indicators have given a positive crossover andare trading above the zero line, which has started a new cycleon the upside.

� The key support would be around 18284 and 18062 while theresistance would be around 19200 and 19800.

� In the short term, the index is expected to consolidate between19200 and 18355 before the next leg up with support aroundthe 20-daily moving average, ie 18355.�

� The Sensex has been forming higher tops and higher bottomson the weekly charts with support around the 20-weekly mov-ing average, ie 17471.

� The leg on the upside as wave C or 3 has already started and isexpected to move up till 19800.

� On the weekly charts, the momentum indicators are still on thepositive side, trading above the zero line, and are expected tocontinue the positive momentum.

� As the index has broken out of a narrow range between 18000and 16000, it is expected to continue the positive momentumand the strategy should be to buy on declines.

� The key support would be around 18280/17471 and resistancewould be around 19800.�

� According to the Elliott Wave theory the index has completedwave Z and a new move on the upside has started as wave 3 orX, which can move up till 19800/21207.

� The Sensex has formed a double top around the all-time high,ie 21207, which is a crucial resistance going forward.

� The index has broken out of the consolidation range forminghigher tops and higher bottoms, which indicates that the newmove on the upside has already started and the index has avery high probability of crossing the all-time high.

� The Sensex has taken support around the 20-monthhly mov-ing average, ie 17617 levels, and is expected to form a positiveclose on the quarterly chart.�

Sensex: Daily view

Sensex: Weekly view

Sensex: Monthly view

Trend Trend reversal Support Resistance Target

Up 18280 18280 19800 19800

Medium term

Trend Trend reversal Support Resistance Target

Down 19150 18450 19150 18450

Short term

TREND & VIEWEQUITY TECHNICALS

13ruary

21 27 5March

12 19 26 2April

16 23 30 7May

14 21 28 4June

11 18 25 2July

9 16 23 30 6August

13 21 27 3 10September

17 24 1 8October

1515500

15600

15700

15800

15900

16000

16100

16200

16300

16400

16500

16600

16700

16800

16900

17000

17100

17200

1730017400

17500

1760017700

178001790018000

1810018200183001840018500186001870018800189001900019100192001930019400

A/1

B/2

C/3?* BSE - SENSEX (18,939.75, 19,107.04, 18,939.75, 19,058.15, +188.461)

Jun Jul Aug Sep Oct Nov Dec 2011 Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2012 Mar Apr May Jun Jul Aug Sep Oct Nov Dec

15000

15500

16000

16500

17000

17500

18000

18500

19000

19500

20000

20500

21000

21500

W

X

X

Y

Z

A/1

B/2

C/3?

* BSE - SENSEX (18,784.64, 19,107.04, 18,745.28, 19,058.15, +295.410)

J A S O N D 2008 A M J J A S O N D 2009 A M J J A S O N D 2010 A M J J A S O N D 2011 A M J J A S O N D 2012 A M J J A S O N D 2013 A M J J A S

7500

8000

8500

9000

9500

10000

10500

11000

11500

12000

12500

13000

13500

14000

14500

15000

15500

16000

16500

17000

175001800018500190001950020000205002100021500220002250023000* BSE - SENSEX (18,784.64, 19,107.04, 18,745.28, 19,058.15, +295.410)


Derivative view: Riding on reformsInternational positive developments such as the third round of

quantitative easing by the US Federal Reserve, European Central

Bank’s new bond buying programme to stabilise the euro zone

followed by domestic reforms such as an increase in diesel prices,

capping of the number of subsidised cylinders per year with an

increase in the price, foreign direct investment in retail, aviation,

insurance and pension sectors, slashing of the tax on the overseas

borrowings and review of the General Anti Avoidance Rules not

only lifted investor sentiment but also helped craft a turn-around

story for the market. Moving in one direction, ie north, the market

registered a spectacular rise of 8.46% in September this year to end

at 5700.

MARKET WIDE VS NIFTY ROLL-OVER

MONTHLY VIEW EQUITY DERIVATIVES

Accelerating gains of the previous series the October series witnessed

a joyful start. It started the month with Rs13,011 crore in Nifty

futures vs Rs11,365 crore in the previous series; Rs29,995 crore in

stocks futures vs Rs26,306 crore in the previous series; Rs59,211

crore in index options vs Rs49,502 crore in the previous series; and

Rs3,236 crore in stocks options vs Rs3,100 crore in the previous

series. The Nifty roll-over stood at 63.80%, which was way below

the three-month average roll-over of 67.50% and marginally below

the six-month average roll-over of 65.28%. Though the Nifty

witnessed low roll-over but there was an increase in the roll-over

cost, which clearly shows that positions have been rolled on the

long side. As per expectations, the market-wide roll-over stood at

83.10%, almost in line with the three- and six-month average roll-

overs of 83.57% and 82.55% respectively.

STOCK FUTURES (SHAREKHAN SCRIP CODE) OPEN INTEREST (RS CR)

MCDOWELL-N 1475.09

RELIANCE 1193.76

SBIN 1136.90

ICICIBANK 1096.89

INFY 909.33

Top five stock futures with the highest OI in the current series

The overall picture of the market is still intact on the positive side.

But as the index has experienced a substantial rise we feel that we

may see some retracement of the recent upmove. The break-even

point of the at-the-money straddle of strike 5700 comes around

5900 levels. So going forward the level of 5850-5900 will act as a

stiff resistance for the market. If the Nifty manages to close above

the 5900 mark the current rally would extend on the higher side

and it will be advisable to close all the short positions or put options.

Till that time we recommend to buy a Vanilla Put Option of strike

5700 in Nifty from the expiry point of view. This would provide

protection to the portfolio from any downfall in the market.�

View

Top five stock options with the highest OI in the current series

STOCK OPTIONS (SHAREKHAN SCRIP CODE) OPEN INTEREST (RS CR)

SBIN 952.21

INFY 496.59

RELIANCE 399.41

LT 316.52

MCDOWELL-N 294.65

In terms of open interest (OI), both call and put options witnessed

a gradual shift in strikes. On the call side, the focus has shifted

from the 5700-5800 strikes to the 5900-6000 strikes whereas on

the put side, the focus has shifted from the strikes of 5500-5300 to

those of 5600-5700 with implied volatility hovering in a broad

band of 15-20%. This indicates the market may continue to witness

sharp whipsaws.

83.1

0%

81.6

0%

83.6

5%

85.4

6%

82.4

2%

83.3

1%

78.8

5%58

.46%

71.8

6%

58.8

6%

68.3

4%

70.0

6%

64.0

9%

63.8

0%

0.00%

10.00%

20.00%

30.00%

40.00%

50.00%

60.00%

70.00%

80.00%

90.00%

Oct

ober

Sep

tem

ber

Aug

ust

July

June

May

Apr

il

Nifty Market Wide


Commodities—Buoyed by central banks as the US Fed starts QE3

Key points

� ECB agreed to unlimited sterilised bond-purchase programme(outright monetary transactions)

� The ECB’s programme will target government bonds withmaturities of one to three years, including longer-dated debtsthat have a residual maturity of that length

� In order to qualify for the bond buying programme Europeancountries would have to agree to a number of fiscal and economicausterity measures; give up a significant amount of sovereignty—a sticky point

� German court rules in favour of bail-out fund, with conditions� Europe faces unrest; Greek Troika report delayed by US elections� Unemployment in euro zone at record high� Spain fears escalate as separatists raise rhetoric� German business confidence unexpectedly fell in September

� EU outlook cut by Moody’s to reflect German, French, UK risks� Olympic fails to boost retail sales in Britain� Fed undertakes QE3 with $40bn in MBS purchases a month; to

hold the federal funds rate near zero “at least through mid-2015”� Fed cuts 2012 growth forecast to 2% from 2.40%, raises next

two years’ forecast� US economy added 96K jobs in August, rate falls to 8.1%—a

weak job report� Fed’s Fisher says US inflation expectations show a sharp rise� Egan Jones downgrades USA to “AA-“ from “AA”

� China’s August exports rise 2.7% (forecast 2.9%); importsunexpectedly decline

� China’s Beige Book shows optimism drops as job cuts rise� Japan halves growth estimate for past quarter to annual 0.7%� Bank of Japan to add 10 trillion yens ($127bn) to its 45tn-yen fund� IMF sees economic deterioration ahead; likely to cut growth

forecast

COMMODITY PRICES IN SEPTEMBER 2012 (IN $)

Commodity High Low Close % Mon chg

Copper 8422.0 7545.3 8205.0 8.1

Zinc 2153.8 2037.9 2096.0 14.0

Lead 2325.0 1956.0 2280.0 16.2

Gold 1787.4 1685.7 1772.3 6.8

Silver 35.2 31.5 34.5 13.0

Crude oil 100.7 89.0 92.2 -3.0

MONTHLY CHANGE IN SHFE STOCKS (AUG-SEP 2012)

Copper Lead Zinc

Change (in tonne) 4482 6967 5030

30-August-12 158065 15346 296656

Change (in %) 2.84 45.40 1.70

MONTHLY CHANGE IN DOE CRUDE STOCKS (AUG-SEP 2012)

Crude oil Dist. Gasoline

Change in (000' bbls) 8082 672 -3065

31-August-12 357098 127076 198893

Change in (%) 2.26 0.53 -1.54

Refinary utlisation rate was at 87.40% in the last week of September.

MONTHLY CHANGE IN LME STOCKS (AUG-SEP 2012)

Copper Lead Zinc

Change (in tonne) -10500 -42525 40275

31-August-12 229900 310225 951100

Change (in %) -4.57 -13.71 4.23

Note—LME: London Metal Exchange , SHFE: Shanghai Futures Exchange, DOE: Department of Energy (US)

Macro-economy

Crude oil: tumbles on SPR release fears, rising US inventoriesKey points

� Russia's oil output in August hit record� China’s crude oil demand rises 2.3% from year earlier� US raises 2012 gasoline demand estimate and price forecast� US Energy Department increases 2012 oil price forecast� Syria’s oil output slumps more than half on sanctions, says IEA� A halt in Libya’s oil output would probably cause a price spike: EIA� Saudi Arabia acting to reduce oil price, said a Gulf official� Oil rigs in the USA fall in quarter for the first time since 2009� Chinese diesel demand growth to outpace supply� OPEC crude oil production drops in September

Crude oil turned out to be the worst performer in September 2012 as the counter was restrained by talks of inventory releases from theStrategic Petroleum Reserve and the rising US inventories. Crude oil faced additional downside pressure as the US crude output climbedto the highest level in more than 15 years and fuel consumption decreased. The total fuel demand fell 0.3% to 18.3 million barrels a dayin the four weeks ended September 28, 2012, the lowest level since April this year. Crude oil is likely to lose the support of gasoline pricessince the US gasoline prices at the pump are poised to drop by year-end because the refineries will resume production, Europe will exportmore fuel to the East Coast and the driving season will end. However, the downside in the counter is likely to be limited on account of thegeopolitical risks and tight supplies. It is to be noted that the total spare capacity with the Organization of Petroleum Exporting Countriesis around 2mb/day. The demand in the emerging economies remains strong. We look for a range of $86-98 in October this year.

WTI NYMEX crude oil CMP: $87.85

MONTHLY VIEWCOMMODITY FUNDAMENTALS


MONTHLY VIEW

Gold CMP: $1,790 (spot)

Precious metals: Boosted by QE3

Silver CMP: $34.80 (spot)

Silver was one of the best performers last month as the white metal rallied sharply on stimulus amid a possibility of an improvingeconomic scenario. China’s silver imports in last two months have fared slightly better. The risk to silver prices can come from Europeand the still sluggish global economy. We look for a range of $32-37 with an upward bias.

Copper CMP: Rs436 (November contract)

Base metals: possibility of a correction in short termKey points

� Zinc’s premium in Singapore said to exceed $100 for the first time

� China backs roads-to-subways construction

� China’s power sector may offset slowing copper demand: Barclays

� China to close more non-ferrous smelting capacities

� China's lead output up 8.8% month on month in August

� China's zinc output up by 8.5% in August

� Lead output and usage fell in July, a study group report shows

� Zinc market was in surplus in July, a study group report shows

� Japan’s copper and cable shipments gained in August on auto demand

� China’s iron ore demand growth has slowed

Copper prices rallied nearly $1,000 moving past the $8,400-mark on the London Metal Exchange (LME) in the wake of the third roundof quantitative easing (QE3). China approved plans to build 2,018km (1,254 miles) of roads, which is supportive for the metal. TheChinese government also recently boosted plans for 2012 spending on railway construction to 496 billion yuans. Barclays notes that arebound in the demand from the power sector, which accounts for up to half of the Chinese copper use, as the government favours gridinvestment as a tool to stimulate the economy, could offset the slowing demand for the metal in China. The rising inventories in theShanghai Futures Exchange (SHFE) would cap the upside in the metal. We expect copper to consolidate its gains. Spain and the Chinastimulus would be the determining factors going ahead. We expect the metal to trade between Rs418 and Rs447 in the near term.

Lead CMP: Rs119.20 (November contract)Lead was one of the best performers in the base metals pack on account of the declining LME and SHFE inventories. The rising cancelledtonnage ratio and the improving battery demand in China are likely to support the counter. However, the metal appeares to have donetoo much in a relatively short term. It is at a risk of correction as the refined lead market is still in surplus. The counter is likely to tradebetween Rs110 and Rs123.

Gold rallied sharply in anticipation of the possible easing by the major central banks. With the US Federal Reserve embarking on an open-ended QE3, the yellow metal is on firm ground now. Possible weakness in the US Dollar, easy monetary conditions and buying by thecentral banks would lend good support to the counter. The US employment scenario is likely to remain uninspiring for years to come.Hence, the US Fed would stick to its loose monetary policies for quite some time. However, we note that physical demand in Indiaremains weak. Still, going forward we expect the demand to improve in the festival season, more so as the Indian Rupee has appreciatedsharply in the last one month. The risk to gold prices can come from market destabilising developments in Europe and a possibility ofsudden liquidation after a sharp run-up in the prices in the last two months. We look for a range of $1,720-1,830 with an upward bias.

Key points

� Gold’s surplus seen growing and valued at $120bn—GFMS

� Gold industry says India may raise import tax to cut deficit

� GFMS sees gold hedge book falling by 188,000 ounces in the quarter

� Silver in ETPs set for record as central banks ignite demand

� US September mint gold coin sales climb, silver coins increase

� Physical gold demand still weak in India; stronger rupee likely to support

� The supply of recycled gold in India will hit 300 tonne in 2012, up about five-fold from 2011 and the highest in more than a decade—BBA

� Euro-denominated physical gold sets record high

� Easy money, inflation worries, central bank buying to support gold prices

• South Africa wildcat strikes spread to more mines

• Gold seen rising to $2,000 while silver can rise to $40 in medium term

COMMODITY FUNDAMENTALS


Zinc CMP: Rs107.70 (November contract)

Zinc benefited from the risk-on rally despite not so strong fundamentals. A weak demand from the steel sector would limit the upside. Welook for a range of Rs100-111.

Major economic events in October 2012

CMP as on October 04, 2012

Date Region Event Forecast Actual Prior Impact

1-Oct-12 China Manufacturing PMI 50.1 49.8 49.2 Bearish for industrial commodities but increases the possibility of stimulus from China

1-Oct-12 Germany PMI Manufacturing 47.3 47.4 47.3 Slightly higher than forecast but overall in contraction mode; bearish for industrialcommodities and euro

1-Oct-12 USA ISM Manufacturing 50 51.5 49.6 Unexpected expansion supportive for base metals and other industrial commodities

1-Oct-12 UK PMI Manufacturing 49.9 48.4 49.5 UK PMI Manufacturing fell to three-year low in July; contraction again deepened inAugust. Bearish for GBP, industrial commodities; outlook for GBP is weak

1-Oct-12 Euro zone PMI Manufacturing 46 46.1 46 Slightly higher; important for euro, industrial commodities; outlook of euro is weak

2-Oct-12 UK PMI Construction 50 49.5 49 Contraction is bearish for GBP, overall outlook for GBP is weak

3-Oct-12 Germany PMI Services 50.6 49.7 50.6 Bearish for euro and industrial commodities

3-Oct-12 Euro zone PMI Services 46 46.1 46 Slightly higher than forecast but overall contraction signifies bearish outlook

4-Oct-12 USA Factory orders -2.50% -- 2.80% Important for industrial commodities and USD

4-Oct-12 UK BOE asset purchase target 375B 375 B 375B Intensifying dissent on inflation risks that threatens to cause a rift on future aid forthe economy, no major reaction on GBP

4-Oct-12 Euro zone ECB announces interest rates 0.75% 0.75% 0.75% ECB sticking with its stance

5-Oct-12 Germany Factory orders MoM (SA) -0.50% -- 0.50% Important for euro, industrial commodities. Bearish data out of Germany—euro zonegrowth engine—would be bearish for euro and commodities in general

5-Oct-12 USA Change in non-farm payrolls 111K -- 96K Weaker data would support bullions

5-Oct-12 USA Unemployment rate 8.20% -- 8.10% Only statistically important, as the pool size itself is shrinking

5-Oct-12 Japan BOJ target rate -- -- 0.10% Focus would be on assessment of economy, hints of further easing, BoJ interventionis expected, important for bullions and JPY

8-Oct-12 China HSBC Services PMI -- -- 52 Crucial for industrial commodities

8-Oct-12 Euro zone Sentix Investor Confidence -- -- -23.2 Important for euro

11-Oct-12 USA Trade balance -- -- -$42.0B Both import and export figures need scrutiny

11-Oct-12 Japan Machine orders (MoM) -- -- 4.60% Important for JPY and industrial commodities

12-Oct-12 USA U. of Michigan Confidence -- -- -- Higher confidence would support industrial commodities, Gold can fall

13-Oct-12 China Trade Balance ($) -- -- $26.66B Crucial for industrial commodities

15-Oct-12 China Consumer Price Index (YoY) -- -- 2.00% Data lower than that forecast will be supportive as it will increase the possibility of stimulus

15-Oct-12 USA Retail sales ex auto and gas -- -- 0.10% Important for all commodities

16-Oct-12 USA CPI ex food and energy (YoY) -- -- 1.90% Important for USD and bullions

16-Oct-12 USA Industrial production -- -- -1.20% Crucial for industrial commodities

16-Oct-12 Euro zone Euro zone CPI (MoM) -- -- 0.40% Important for euro. Lower inflation would give room to ease further

16-Oct-12 Euro zone Euro zone trade balance -- -- 15.6B Larger surplus bullish for euro

16-Oct-12 Euro zone ZEW Survey (economic sentiment) -- -- -3.8 Important for industrial commodities and the euro move

17-Oct-12 USA Housing starts MoM % -- -- 2.30% Higher than expected numbers supportive for base metals

18-Oct-12 China Industrial production (YoY) -- -- 8.90% Crucial for industrial commodities

18-Oct-12 China Real GDP (QoQ) -- -- 1.80% Important for industrial metals

18-Oct-12 USA Philadelphia Fed -- -- -1.9 Crucial for industrial commodities

22-Oct-12 Japan Merchandise trade balance total -- -- Important for yen

24-Oct-12 Germany IFO - business climate -- -- 101.4 Crucial for industrial commodities, euro

24-Oct-12 USA New home sales MoM -- -- -0.30% Higher than expected numbers supportive for base metals

24-Oct-12 USA FOMC rate decision -- -- 0.25% Important for all commodities and currencies

25-Oct-12 USA Durables ex transportation -- -- -1.60% Important for industrial commodities as the US slows down

25-Oct-12 UK GDP QoQ -- -- -0.40% Important for GBP

26-Oct-12 USA GDP QoQ (annualised) -- -- 1.30% Important for all commodities and USD

30-Oct-12 Germany Retail sales (MoM) -- -- 0.30% Crucial for industrial commodities and euro

30-Oct-12 Euro zone Euro Zone Consumer Confidence -- -- -- Important for industrial commodities, euro

MONTHLY VIEWCOMMODITY FUNDAMENTALS


Gold: Above Golden ratio

� As can be seen from the weekly chart, gold managed to surpassthe medium-term falling trendline.

� The weekly momentum indicator has assisted bulls in overcom-ing the hurdle. The yellow metal has been trading above thetrendline since the last few weeks.

� Thus, bulls seem to possess strength to form a deeper retracementof the entire fall from $1,920 to $1,522.

� It has crossed the 61.8% retracement mark, ie $1,768, and canmove up till the 78.6% mark, ie $1,834. A crucial support awaitsat $1,720.

Silver: Aiming higher

� Silver had kissed and tumbled from the medium-term fallingchannel line.

� However, it couldn’t break the low of $26.04. From there it ismoving up once again.

� On the way up silver has crossed the upper channel line. Thus,the move can stretch further on the upside. The move is sub-dividing into lower-degree waves.

� The weekly momentum indicator is supporting the price action.The key level on the upside is $37.75, ie the 50% retracementmark.

� On the other hand, the swing low, ie $32.49, will act as areversal.

Trend Trend Supports Resistances Targetreversal

Up $32.49 $34/33.35 $36/37.46 $37.75

� Crude oil formed a sharp pull-back after a sharp decline. Itcrossed the 61.8% retracement mark and a falling trendlinebut couldn’t sustain in the higher territory.

� Consequently, crude oil has fallen significantly in the last coupleof weeks.

� The daily chart shows that the oil has done a minor-degreepull-back after the fall and started the next leg down.

� The weekly momentum indicator has triggered a bearish cross-over. Thus, the commodity is likely to fall towards $86-82.3levels. The reversal can be placed at $94.


Down $94 $86.84/83.65 $90/93.33 $86/82.3


Up $1,720 $1,750/ $1,800/ $1,834$1,736 $1,820

Crude oil: A vertical fall

TREND & VIEW COMMODITY TECHNICALS

M A M J J A S O N D 2012 M A M J J A S O N D 2013 M A

1450

1500

1550

1600

1650

1700

1750

1800

1850

1900

1950

0.0%

23.6%

38.2%

50.0%

61.8%

78.6%

100.0%

1768

1834

1720

0

50

100MACD (31.6475)

D 2011 M A M J J A S O N D 2012 M A M J J A S O N D 2013 M A

25

30

35

40

45

50

55

0.0%

23.6%

38.2%

50.0%

61.8%

100.0%

37.75

32.49

SILVER [CASH] (34.4800, 35.4000, 34.1890, 34.5600, +0.08000)

0

5MACD (0.88883)

ep Oct Nov Dec 2012 Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2013 Feb

75

80

85

90

95

100

105

110

0.0%

23.6%

38.2%

50.0%

61.8%

78.6%

100.0%

0.0%

23.6%

38.2%

50.0%

61.8%

78.6%

100.0%

94

86

82.3

LIGHT CRUDE CONTINUOUS 1000 BARRELS [NYMEX] (92.1500, 93.3300, 87.7000, 88.1400, -4.05000)

30

40

50

60Relative Strength Index (41.5624)



Down $3.99 $3.68/ $3.84/ $3.6/$3.55 $3.95 $3.5

Lead: Pull-back matured

� MCX lead retraced 78.6% of the entire previous fall (fromRs135.35 to Rs88.45). The pull-back unfolded in a channelisedmanner.

� From the upper end of the channel and the key Fibonacci levelthe base metal is ready to start the next leg down. The weeklymomentum indicator has started falling from the overboughtterritory.

� The reversal can be placed above the high, ie Rs135.35. Theinitial target will be the rising trendline, ie Rs105, whereas thesubsequent target will be the junction of the 50% retracementmark and the swing low, ie Rs88.45.


Down Rs135.35 Rs109/100 Rs125.5/130 Rs105/88.45

Nickel: Sub-division

� Nickel formed a three-wave pull-back that retraced 50% of thefirst leg of the fall.

� From there nickel has started the next leg down, which is sub-dividing into lower-degree waves. A minor-degree pull-back hasretraced 61.8% of the previous fall.

� In terms of price pattern, the right shoulder of a head-and-shoul-der pattern is being formed. Once the neckline and the swinglow, ie Rs845, is broken a sharp sell-off can be seen. The equal-ity target is Rs695. The reversal of the bearish view can beplaced above the swing high, ie Rs1,087.


Down Rs1,087 Rs865/750 Rs1,000/1,050 Rs695

Copper: Near key resistance

� From the 61.8% retracement of the larger fall (from $4.649 to$2.994) copper had started to fall.

� However the fall found support near the neckline (in blue inthe chart). From there copper has formed a sharp pull-back.

� The pull-back stretched till $3.83, ie the junction of the 78.6%retracement of the recent fall (from $3.989 to $3.238) and the20-monthly moving average.

� The red metal is now expected to fall back towards the 40-weekly exponential moving average ($3.6) and the 20-weeklymoving average ($3.5). The reversal can be pegged at $3.99.

TREND & VIEWCOMMODITY TECHNICALS

N D 2011 M A M J J A S O N D 2012 M A M J J A S O N D

2.8

2.9

3.0

3.1

3.2

3.3

3.4

3.5

3.6

3.7

3.8

3.9

4.0

4.1

4.2

4.3

4.4

4.5

4.6

4.7

4.8

4.9

0.0%

23.6%

38.2%

50.0%

61.8%

00.0%

0.0%

23.6%

38.2%

50.0%

61.8%

78.6%

100.0%3.99

3.6

3.5

HG COPPER CONTINUOUS 25000 LBS [COMEX] (3.75050, 3.82250, 3.72150, 3.78400, +0.02600)

-0.2-0.10.00.10.2MACD (0.03351)

2009 2010 2011 2012 2013

40

50

60

70

80

90

100

110

120

130

140

150

160

0.0%

23.6%

38.2%

50.0%

61.8%

100.0%

0.0%

23.6%

38.2%50.0%61.8%

78.6%

100.0% 135.35

88.45

105

LEAD - 1 KG - 1 MONTH (119.750, 120.800, 117.800, 119.700, -0.20000)

3040506070

Relative Strength Index (69.4217)

2009 2010 2011 2012 2013

550

600

650

700

750

800

850

900

950

1000

1050

1100

1150

1200

1250

1300

1350

140014501500

0.0%

23.6%

38.2%

50.0%

61.8%

100.0%

0.0%

23.6%38.2%50.0%61.8%

100.0% 1087

845

695

NICKEL 1 KG - 1 MONTH (977.300, 988.800, 966.500, 972.400, -6.09998)

0

KST (5.59166)


Currency market : Reforms unleashed, liquidity tap flowing

Key points

� Rupee at a multi-month high against dollar on reforms and riskasset rally

� UK budget deficit for 2013-14 set to increase to 7.8%

� ECB unveils new bond-buying plan “Outright MonetaryTransactions”

� Germany and France at loggerheads over EU Banking Union

� US Fed announces monthly MBS purchases of $40bn

CURRENCY LEVELS IN SEPTEMBER 2012 (IN RS)

Currency High Low Close Monthly chg (%)

INR-USD 56.19 53.04 53.57 3.78

INR-EUR 71.71 68.69 68.93 1.46

INR-GBP 89.44 86.02 86.61 1.67

INR-JPY 71.58 67.76 68.91 2.81

INR-USD CMP: Rs52.56 (SPOT)

The rupee gained 4.76% against the dollar after the Indian government announced the much anticipated foreign direct investment (FDI)reforms in the retail and aviation sectors. The diesel prices were hiked by 15% in order to curb the fiscal deficit. Supporting the rally inrupee were the European Central Bank (ECB) and the US Federal Reserve (Fed), which announced unconventional policy measures. Theresultant risk-on rally saw major risk currencies appreciate against the greenback. Though the global sentiment remains positive, the eurocrisis may return while investors may remain cautious over the low growth-high inflation situation in India. We expect the rupee to tradein a range of 52.00-54.00, though a rally to Rs50.65 level is possible.

INR-GBP CMP: Rs84.92 (SPOT)The pound gained 1.86% against the dollar mainly due to a rally in the risk assets after the ECB and the Fed announced a bond-buying planand mortgage-backed security (MBS) purchases respectively. The UK economy, though far from a rebound, recovered slightly in terms ofgross domestic product (GDP) and employment. Economists predict that the UK’s budget deficit in 2013-14 may overshoot that of Spain andGreece by more than 2%. On the other hand, the UK’s austerity measures will continue to weigh on its growth. Moreover, the pound hasbeen beneficiary of its safe-haven status among the other European currencies. We feel the rally in the pound is overdone and the currencyis due for a correction. We look for a target of Rs81.80 (spot) on the downside while the upside will remain capped at 85.70.

INR-JPY CMP: Rs67.35 (SPOT)The yen gained 0.52% against the dollar after the increase in Bank of Japan’s asset purchase programme by 10 trillion yens was out-classed by the Fed’s open-ended QE3 with monthly MBS purchases to the tune of $40bn. The macro data out of both the USA and Japancontinue to disappoint. The dollar-yen exchange rate is more a function of currency debasement than of economic performance. Thelongest quarterly rally in nine years in Japanese government bonds added to the yen’s strength. We see the JPY-INR in a range of 64.30to 67.30.

September 2012 contract price movement September 2012 contract price movement

CMP as on October 03, 2012

The euro rallied to its four-month high of 1.3172 against the greenback after ECB announced a new bond-buying plan “OutrightMonetary Transactions” (OMT), which aims to cap the sovereign yields and impose stringent austerity measures. The austerity condi-tionality has discouraged Spain to apply for a bail-out under OMT. The euro is likely to remain under pressure as Spain delays the bail-out while the European Union (EU) nations butt heads over banking union. However, a fall in the euro will be restricted to around 1.25due to the third round of the Fed’s quantitative easing (QE3) and potential threat of a fiscal cliff in early 2013. Spain’s bail-out would becrucial for the single currency. We see the EUR-INR in the range of 65.70 to 68.10.

MONTHLY VIEW CURRENCY FUNDAMENTALS

53

54

55

56

57

29-A

ug-1

2

31-A

ug-1

2

2-S

ep-1

2

4-S

ep-1

2

6-S

ep-1

2

8-S

ep-1

2

10-S

ep-1

2

12-S

ep-1

2

14-S

ep-1

2

16-S

ep-1

2

18-S

ep-1

2

20-S

ep-1

2

22-S

ep-1

2

24-S

ep-1

2

26-S

ep-1

2

68

69

70

71

72USDINR JPYINR

68

69

70

71

72

29-A

ug-1

2

31-A

ug-1

2

2-S

ep-1

2

4-S

ep-1

2

6-S

ep-1

2

8-S

ep-1

2

10-S

ep-1

2

12-S

ep-1

2

14-S

ep-1

2

16-S

ep-1

2

18-S

ep-1

2

20-S

ep-1

2

22-S

ep-1

2

24-S

ep-1

2

26-S

ep-1

2

86

87

88

89

90EURINR GBPINR

INR-EUR CMP: Rs67.85 (SPOT)


GBP-INR: Approaching channel support� After a sharp fall the GBP-INR moved up to retest the high of

89.46 last month. It crossed the high marginally but couldn’tsustain in the higher territory.

� It faced intense selling pressure there and ultimately formed adouble top. The price has fallen from the upper end of thechannel drilling through the lower end.

� It has broken the low of 84.73 and fallen towards the lowerend of the medium-term rising channel (82.98). Unless this levelis broken on a closing basis there is a case for a bounce. Thetarget for that is 86.75.

Currency View Reversal Supports Resistances Target

USD-INR Up 50.480 51.3/51.0 52.57/53.6 53.76-54.2

GBP-INR Up 82.980 83.23/83.00 84.83/86.00 86.75

EUR-INR Up 65.350 66.80/66.00 67.91/68.50 69.0-69.50

JPY-INR Up 0.6415 0.6500/0.6450 0.6724/0.6800 0.6850

EUR-INR: Scope for a bounce� In case of the EUR-INR the price crossed the high of 71.895

but couldn’t sustain in the higher territory last month. Conse-quently, the price tumbled significantly. In terms of price pat-tern, it has formed an ending diagonal, which is bearish in thisparticular case.

� The price has broken the lower end of the pattern and reachedthe medium-term rising trendline (67). In terms of Fibonacciretracement, the 66.80 and 65.35 levels are the key supports.

� Though the overall trend is down there is a scope for a minor-degree bounce towards 69-69.5.

JPY-INR: Potential for a pause� As can be seen from the adjacent chart, after a sharp fall (from

0.7212 to 0.6780) the JPY-INR started moving up once againlast month. It crossed the high of 0.7212 marginally but couldn’tsustain above that.

� Recent history shows that the price has faced resistance theremultiple times. Continuing with the pattern, bears have pushedthe price down this time as well. The price has reached the50% retracement (0.6570) mark.

� From hereon further decline without any bounce looks unlikely,as there are multiple supports on the downside, viz at the 0.6450-0.6415 level. A bounce can take the price to 0.6850.

TREND & VIEW

USD-INR: Expecting recovery

� The USD-INR traded in a range-bound manner last month. Interms of price pattern, it formed a triangular pattern. It turnedout to be a distribution pattern and broke on the downside. Theprice cracked a medium-term rising trendline.

� The price has fallen below the lower end of the falling channeland reached beyond the 61.8% retracement mark (51.95). As aresult of the sharp fall the daily momentum indicator has reachedthe oversold zone. Thus a bounce may be on the cards.

� The price can bounce towards the key daily moving averages(MAs), ie 53.76-54.2. The key supports are at 51.05 and 50.48.

CURRENCY TECHNICALS

2012 February March April May June July August September Novemb

48.0

48.5

49.0

49.5

50.0

50.5

51.0

51.5

52.0

52.5

53.0

53.5

54.0

54.5

55.0

55.5

56.0

56.5

57.0

57.5

58.0

0.0%

23.6%

38.2%

50.0%

61.8%

70.7%

78.6%

100.0%

0.0%

100.0%

161.8%

54.2

50.48

51.05

53.76

USDINR - INDIAN RUPEE (52.1450, 52.2200, 51.6600, 51.7400, -0.49000)

50


February March April May June July August September Nov

77.578.078.579.079.580.080.581.081.582.082.583.083.584.084.585.085.586.086.587.087.588.088.589.089.590.090.591.091.5

86.75

82.98

GBPINR (83.9700, 84.0320, 83.2350, 83.7980, -0.14600)

304050607080Relative Strength Index (23.4425)

Aug Sep Oct Nov Dec 2012 Feb Mar Apr May Jun Jul Aug Sep Oct Nov

61.5

62.0

62.5

63.0

63.5

64.0

64.5

65.0

65.5

66.0

66.5

67.0

67.5

68.0

68.5

69.0

69.5

70.0

70.5

71.0

71.5

72.0

72.5

73.0

0.0%

23.6%

38.2%

50.0%

61.8%

78.6%

100.0%

66.80

69.0

69.5

65.35

EURINR (67.4180, 67.4580, 66.8640, 67.3650, -0.04800)

0

KST (-3.30186)

2012 February March April May June July August September Nov

0.5850.5900.5950.6000.6050.6100.6150.6200.6250.6300.6350.6400.6450.6500.6550.6600.6650.6700.6750.6800.6850.6900.6950.7000.7050.7100.7150.7200.7250.730

0.0%

23.6%

38.2%

50.0%

61.8%

100.0%

0.6850

0.6450

0.6415

JPYINR (0.66540, 0.66540, 0.65730, 0.65920, -0.00580)

203040506070



We are pleased to introduce you to Sharekhan’s PortfolioManagement Service (PMS) in which we completely manageyour investment portfolio so that you stop worrying aboutthe market volatility and focus your energy on things thatyou like to do!

We have a wide range of strategies that you can choose from.Our strategies are based on fundamental research and tech-nical analysis.

Portfolio Management Service

INVESTMENT STRATEGY� Disciplined investment decisions are taken in specific stocks based on thorough

fundamental research.

� Investments are made primarily in the Nifty Fifty or the BSE 100 scrips.

� Attempts to have an exposure of minimum of 70% in the Nifty Fifty stocks and

that of minimum of 90% in the BSE 100 stocks.

� Endeavours to create a core portfolio of blue-chip companies with a proven track

record and have partial exposure to quality companies in the mid-cap space.

Fund Manager: Gaurav Dua

FUND OBJECTIVEA good return on money through long-term investing in quality companies

PRICING� Minimum investment of Rs25 lakh

� Charges

� 2% per annum; AMC fee charged every quarter

� 0.5% brokerage

� 20% profit sharing after the 12% hurdle is crossed at the end of

every fiscal

PROPRIME - TOP EQUITY

OVERVIEWThe ProPrime—Top Equity PMS strategy is suitable for the long-term investors looking

to create an equity portfolio through disciplined investments that will lead to a growth

in the portfolio’s value with low to medium risk.

Top 10 stocks

BHEL

Cipla

Dabur India

ICICI Bank

Larsen & Toubro

Maruti Suzuki

McLeod Russel

Reliance Industries

State Bank of India

Product performanceas on September 30, 2012

(In %) Scheme Sensex Nifty

1 month 9.8 7.6 8.5

3 month 6.5 7.6 8.0

6 month 4.0 7.8 7.7

1 year 4.1 14.0 15.4

3 year - - -

Since inception* 1.3 4.3 5.7

Best month 11.5 11.2 12.4

Worst month -7.7 -8.9 -9.3

Best quarter 12.4 12.6 14.5

Worst quarter -11.0 -12.7 -12.5

#16-June-11

Disclaimer: Returns are based on a client’sreturns since inception and may be different fromthose depicted in the risk disclosure document.

We have the following strategies on offer:

ProPrime (based on fundamental research)

� Top Equity � Diversified Equity

ProTech (based on technical analysis)

� Nifty Thrifty � Diversified� Trailing Stoploss

PMS FUNDS PMS DESK


INVESTMENT STRATEGY� Disciplined investment decisions are taken in specific stocks based on thorough

fundamental research.� A balanced mix of value and growth stocks (mid-cap and small-cap) is created

that represents investment opportunities across sectors and market capitalisation.� Invests in quality value and growth stocks with good earnings visibility and healthy

balance sheet.� The fund manager, with the help of extensive, in-house, superior research,

identifies fundamentally sound companies to invest in.� The fund manager strives to capture the short-term trading opportunities to

maximise the potential of the swings in specific stocks.

FUND OBJECTIVEA good return on money through long-term investing regardless of short-term volatility

PRICING� Minimum investment of Rs25 lakh� Charges

� 2.5% per annum; AMC fee charged every quarter

� 0.5% brokerage

� 20% profit sharing after the 15% hurdle is crossed at the end of every fiscal

PROPRIME - DIVERSIFIED EQUITYOVERVIEWThe ProPrime—Diversified Equity PMS strategy is suitable for long-term investorslooking to create an equity portfolio through disciplined investments that will lead to agrowth in the portfolio’s value with medium to high risk.

Top 10 stocks

Allahabad Bank

Bank of Baroda

BHEL

IDBI Bank

ITNL

Oil India

Reliance Industries

Reliance Infrastructure

Southern Petrochemicals Industries

Sterlite Industries (India)


(In %) Scheme S&P CNX 500

1 month 15.1 9.1

3 month 9.2 8.0

6 month 3.0 6.7

1 year 3.5 13.2

3 year -32.2 9.4

Since inception* 102.1 208.3

Best month 37.5 34.4

Worst month -24.1 -27.2

Best quarter 65.0 51.2

Worst quarter -32.0 -28.6

*24-Sept-04


FUND MANAGER’S VIEWBetter late than never. For reasons best known to itself (fear of a rating downgrade or

an honest desire to revive the economy that has been reeling under policy paralysis for

the last three years?) the government has finally made its presence felt. It has announced

a string of policy measures on the expected lines in a matter of just two days! The

market has reacted with enthusiasm and stock after stock has rebounded like a

suppressed spring.

The packing off of Pranabda to Rashtrapati Bhavan and the reinstatement of P

Chidambaram at the finance ministry were two clear signals to investors to return to

the stock market. After taking charge of the finance portfolio Mr Chidambaram proved

his mettle again by announcing reforms. Unfortunately, the domestic investors remained

nervous and continued to sell on every rise. It is sad that even though since January

2012 till date the foreign institutional investors have pumped Rs83,000 crore into the

Indian stock market (35% of it in August and September alone), the domestic investors

have preferred to stay away from equities.

As ProPrime Diversified Equity remained focused on the fundamentals and stayed

invested in the stock market all through, the portfolio rose by 18-20% in the last

month. The strategy of shifting from the small-cap companies and increasing focus on

banking stocks in the last four to five months has proved beneficial to the portfolio.

The balancing of the portfolio going ahead will take its net asset value to respectable

levels. After the rally in the large-cap stocks, the market will now search for value in the

mid- and small-cap stocks which will give our investment ideas a sound upside in the

coming months.

Fund Manager: Suhas Samant

PMS FUNDSPMS DESK


INVESTMENT STRATEGY� This strategy has the potential to generate profits irrespective of the market

direction by going long or short on specific indices and stocks.

� It invests in the Nifty and the Bank Nifty indices (via futures) and 10 stock futures.

� An automated basic back-testing model is used to predict the market directionfor each of the indices and stocks which then decides the strategy to be deployedin terms of going long or short.

� The portfolio is not leveraged, ie its exposure will never exceed its value.

Fund Manager: Abhinay Jain

FUND OBJECTIVEAbsolute returns irrespective of market conditions through a long-short strategy followed in multiple investments


� Charges

� AMC fees: 0%

� Brokerage: 0.05%

� Profit sharing: Flat 20% charged on a quarterly basis

PROTECH - DIVERSIFIEDOVERVIEWThe ProTech–Diversified PMS strategy is suitable for long-term investors who desireto profit from both bullish and bearish market conditions. The strategy involvesgoing long (buying) or going short (selling without holding) on certain investmentclasses by predicting the market direction based on a back-tested automated model.



1 month 7.3 7.6 8.5

3 month 2.2 7.6 8.0

6 month 3.9 7.8 7.7

1 year 12.3 14.0 15.4

3 year - - -


Best month 11.3 11.7 12.4

Worst month -8.1 -10.6 -10.2


Worst quarter -1.3 -12.7 -12.5

*16-May-2010


FUND MANAGER’S VIEWThe September of 2012 started on a very optimistic note for the Indian stock marketand the benchmark indices gained in excess of 8% during the month. In the currentrally where the defensives have taken a backseat and actually fallen, the interest rate-sensitive sectors like banking and infrastructure have done quite well. Sectoral changesas well as massive fund inflows from the foreign institutional investors (FIIs) clearlyindicate that the risk-on trade is back in the market. The sharp appreciation in therupee and the government’s intent to take some serious steps to get the economyback in shape form the base of this spectacular rise.The current series is likely to start on a positive note and may test 5880-5900 on thehigher side as the momentum on the upside is very strong. The level 5900-5930 canbe the hurdle area for the Nifty as the FIIs are aggressive writers in call options andhave added a good amount of open interest on the put side as well.After two consecutive negative months ProTech Diversified’s net asset valueappreciated by 7.28% in September and the scheme finally ended the quarter with again of 2.2%. Since its inception the scheme has delivered close to 24% returns. Theproduct has been consistently performing since its inception on a quarter-on-quarterbasis with only one quarter in the negative (-1.3%).In our endeavour to ensure superior risk-adjusted returns from the scheme we havemade a few changes based on the scheme’s performance over the last six months andthe news flow surrounding its constituents. The changes are listed below:� Aban Lyod has been replaced by Reliance Capital as the former has been removed

from the derivatives segment.� Jindal Steel and Power has been replaced by Tata Steel. The uncertainty

surrounding the allocation of coal blocks is hampering the movement of theformer’s stock price.

� Sesa Goa has been replaced by LIC Housing Finance as external news flow regardingSesa Goa’s mining operations in Goa has affected its price and performance.

We may consider these stocks again in the portfolio once the external environmentstabilises for these stocks, as these have been the best trading stocks for the lastcouple of years.

*Traded stocks

Investments in*

Bank Nifty

DLF

IDBI Bank

Jaiprakash Associates

LIC Housing Finance

Nifty

Punj Llyod

Ranbaxy

Reliance Capital

Tata Motors

Tata Steel

Yes Bank

PMS FUNDS PMS DESK


Fund Manager: Rohit Shrivastava

FUND OBJECTIVEAbsolute returns irrespective of market conditions.


� Charges

� AMC fees: 0%



PROTECH - NIFTY THRIFTY

OVERVIEWThe ProTech–Nifty Thrifty PMS strategy is suitable for long-term investors whodesire to profit from both bullish and bearish market conditions. The strategy in-volves going long (buying) or going short (selling without holding) on Nifty futuresby predicting the market direction based on a back-tested automated model.



1 month -0.1 7.6 8.5

3 month -0.7 7.6 8.0

FY11-12 13.1 -10.5 -9.2

FY10-11 9.2 10.9 11.1

FY09-10 14.7 80.5 73.8


Best month 28.9 28.3 28.1

Worst month -17.1 -23.9 -26.4


Worst quarter -11.7 -25.0 -24.5

*01-Feb-2006


FUND MANAGER’S VIEWProTech Nifty Thrifty reported near flat returns in September this year. The volatility

in the initial part of the month cost us the month but the clear uptrend in the second

half allowed us to recover those losses. We were unable to add to the performance

significantly though. However, with a clear trend showing up we believe that the

windfall trades we were anticipating in ProTech Nifty Thrifty are closer than ever, as

the market has changed trends at the monthly degree which should give us some big

one-sided moves both up and down in the coming months.

After nine months in a triangular trading range the market has broken out on the

upside and so chances of large trending moves on the upside have increased. This

should help us in giving a much better performance at the end of the year than in the

last two years when the portfolio had given returns in lower double digits. The monthly

momentum indicators have turned to the buy side, making a case for a potential

large move on the upside after months of consolidation. The levels 6000-6300 could

get tested.

Investments in

Nifty Index

INVESTMENT STRATEGY� The strategy has the potential to generate profits irrespective of the market

direction by going long or short on Nifty futures.

� An automated basic back-testing model is used to predict the market directionfor the Nifty which then decides the strategy to be deployed in terms of goinglong or short.

� The portfolio is not leveraged, ie its exposure never exceeds its value.

PMS FUNDSPMS DESK


Fund Manager: Rohit Shrivastava

FUND OBJECTIVEAbsolute returns irrespective of market conditions.


� Charges

� AMC fees: 0%



PROTECH - TRAILING STOPS



1 month 3.8 7.6 8.5

3 month 9.6 7.6 8.0

FY11-12 29.0 -6.1 -4.6

FY10-11 - - -

FY09-10 - - -

Since Inception-RSD* 47.5 1.3 2.7

Best month 9.1 11.3 12.4

Worst month -4.4 -8.9 -9.3


Worst quarter -1.0 -12.7 -12.5

*09th May 2011 (revised strategy date)


FUND MANAGER’S VIEWThis year, September was far better than August as a trending month. But we managed

a positive return in both the months. A return of 3.77% for September was a great

achievement as the market moved both ways, first down and then sharply up for the

rest of the month. Adding on to the long positions along the way was helpful based

on the risk model to keep the returns consistent and the volatility low in the portfolio

as always.

The move up from 5200 looks impulsive but faces resistance near 5825. After a brief

correction we will watch for signs of continuation of the uptrend and position ourselves

accordingly in the portfolio. With the monthly momentum indicators turning to the

buy side, the trading bias has turned to the buy side too.

Investments in

Nifty Index

Stock futures

INVESTMENT STRATEGY� This strategy spots the winning trades based on technical analysis vs time frame-

based portfolios, basically the momentum calls.

� A risk model has been developed for stock portfolio allocation that reduces therisk and portfolio volatility through staggered building of positions.

� It is non-leveraged—the exposure will never exceed the value of the portfolio.

OVERVIEWOur ProTech–Trailing Stops PMS strategy is ideal for Traders and Investors look-ing for Regular Income from trading and desire to make profits in both bullish andbearish market conditions. It is designed to payout book profits on monthly basis.*

It is also for those investors who are looking for better income than Fixed Incomeor Deposits. This strategy involves going Long (buying) or Short (selling withoutholding) on stock futures.

* Terms and conditions apply

PMS FUNDS PMS DESK


Advisory Products & ServicesThe Advisory Desk is a central desk consisting of a Mumbai-based expert teamthat runs various sample model portfolios (for illustrative purposes only) for cli-ents of all profiles, be they traders or investors. For investors, it has the PortfolioDoctor service under which it reviews an existing portfolio on various parametersand suggests changes to improve its performance. For traders, it has four productsin all: MID Intraday, MID Swing, MID Option and MID Delivery.

All MID products are different from Sharekhan’s research-based technical and fun-damental offerings as these essentially try to capture trading opportunities in liquidstocks where momentum is expected before or after some event including the an-nouncement of results or where some news/event is probable. These calls are rolledout by the Advisory Desk based on the market pulse and before generating an MID

call, all market news on the stock as well as its technical and derivative indicators are thoroughly checked.

Advisory products are ideal for those who do not have time to either monitor the market tick by tick or shift through pages of research fordata or pour over complex charts to catch a trend. However, all these products require perfect discipline and money management.

MONTHLY PERFORMANCE

MID TRADESThere are four different types of MID calls.

� MID Swing: These are positional long/short ideas based on fun-damental rationales/events/news as well as technical checks.These ideas come with proper stop losses and probable targets.

� MID Delivery: This is a long-only cash market delivery productwhere ideas are generated based on the market pulse (and notfundamental research). These ideas come with proper stop lossesand probable targets for a maximum period of one month.

For more details on any of the Advisory Desk products write to us at [email protected]

READY FOR ROARING ADVICE

#Please note there may be some deviation in the actual performance reported in TradeTiger due to a difference in the method of closure of an idea in a particular month.

NEW

Portfolio Doctor evaluates an existing portfolio on various parameters and suggests recommendations on aregular basis to improve its performance. It is targeted at long-term investors with a portfolio value of morethan Rs10 lakh. The Portfolio Doctor service involves three simple steps:

� analysis of an existing portfolio, � realignment of the portfolio with Sharekhan’s

� creation of a Model Portfolio. recommendations

FOR INVESTORS

PORTFOLIO DOCTOR

FOR TRADERS

DERIVATIVE TRADESDerivative Trades are generated by the Sharekhan Derivatives Deskbased on the analysis of open interest and other indicators. It is aleveraged product and ideal for aggressive futures traders.

� MID Options: These are directional calls in the options seg-ment based on the analysis of the open interest and the put-callratio in the market. These too come with proper stop losses andprobable targets.

� MID Intraday: These are long/short ideas based on fund flowand technical levels. As is apparent from the name, these callsare meant for intra-day trading. All MID Intraday calls are ac-companied by proper stop losses and probable targets.

Derivative Ideas performance#

Ticket size (Rs) 300,000

Month Sep 2012 YTD FY13

No. of calls 25 99

Profit and loss (Rs) -7,533 13,472

Returns (%) -2.5 4.5

MID performance#

Product MID Swing MID Intraday MID Delivery MID Option

Month Sep 2012 YTD FY13 Sep 2012 YTD FY13 Sep 2012 YTD FY13 Sep 2012 YTD FY13

No. of calls 10 196 61 510 39 201 17 105

Profit and loss 6 118 36 307 28 132 12 58

Stop loss hit 4 78 25 203 11 69 5 47

Strike rate (%) 60 60 59 60 72 66 71 55

ADVISORY DESK

http://www.sharekhan.com/stock-research/option_enabler.html


Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a postition in the mutual funds mentioned in the article.

Every individual has a different investment requirement, which depends on his financial goals and risk-taking capacities. We at Sharekhanfirst understand the individual’s investment objectives and risk-taking capacity, and then recommend a suitable portfolio. So, we suggestthat you get in touch with our Mutual Fund Advisor before investing in the best funds.�

MF PICKS

SHAREKHAN’S TOP MUTUAL FUND PICKS (EQUITY) SEPTEMBER 20, 2012Data as on September 17, 2012

Scheme name Star NAV (Rs) Returns (%)rating Absolute Compounded annualised

6 months 1 year 3 years 5 years Since inception

Large-cap fundsPrincipal Large Cap Fund �� 22.8 10.9 14.1 11.2 - 24.5

Tata Pure Equity Fund �� 17.2 5.7 11.7 10.9 - 13.4

UTI Wealth Builder Fund - Series II �� 219.5 3.1 8.3 9.0 7.8 24.9

Franklin India Bluechip �� 102.5 7.9 12.2 8.4 7.3 24.2

ICICI Prudential Focused Bluechip Equity Fund - Ret �� 89.4 8.0 10.9 6.9 8.1 24.3

IndicesBSE Sensex 18,542.3 6.1 9.4 3.5 3.6

Mid-cap fundsSBI Magnum Sector Funds Umbrella - Emerg Buss Fund �� 51.6 18.4 16.5 22.0 7.9 22.7

HDFC Mid-Cap Opportunities Fund �� 17.0 5.1 9.7 16.4 10.4 10.6

IDFC Sterling Equity Fund �� 19.8 9.6 9.9 14.8 - 16.2

Franklin India Prima Fund �� 281.5 6.0 9.7 9.7 3.5 19.4

Reliance Long Term Equity Fund �� 15.5 9.6 7.1 8.6 4.8 7.9

IndicesBSE MID CAP 6,316.0 -0.7 -1.2 0.9 -1.8

Multi-cap fundsReliance Equity Opportunities Fund �� 40.1 10.6 18.3 16.9 11.1 20.4

Tata Dividend Yield Fund �� 34.9 2.3 9.0 13.5 10.4 17.3

Mirae Asset India Opportunities Fund - Reg �� 17.3 6.8 12.5 11.5 - 13.0

UTI Opportunities Fund �� 30.0 5.4 12.6 10.2 12.0 16.6

BNP Paribas Equity Fund �� 36.2 6.5 11.1 6.2 2.3 17.5

IndicesBSE 500 7,016.6 3.5 6.3 3.1 2.8

Tax saving fundsReliance Equity Linked Saving Fund - Series I �� 15.8 12.5 20.0 11.9 - 10.8

Reliance Tax Saver (ELSS) Fund �� 22.3 5.6 13.0 11.2 6.4 12.2

Franklin India Taxshield �� 221.6 5.2 9.7 11.2 8.5 25.9

Canara Robeco Equity Taxsaver �� 27.5 7.0 10.3 10.9 - 32.2

BNP Paribas Tax Advantage Plan �� 15.3 7.5 11.7 8.2 -0.5 6.5

IndicesCNX500 4,383.1 3.7 6.7 2.9 2.9

Thematic fundsBirla Sun Life India GenNext Fund - Growth �� 27.9 13.7 15.0 14.6 8.6 15.5

UTI India Lifestyle Fund - Growth �� 13.0 9.4 10.6 12.4 5.0 5.2

Canara Robeco FORCE Fund - Ret - Growth �� 14.1 8.5 11.1 11.7 - 12.1

Fidelity India Special Situations Fund - Growth �� 19.6 8.7 15.3 9.9 6.2 11.3

Reliance Media & Entet Fund - Growth �� 31.0 9.6 22.6 9.6 0.5 15.3

IndicesS&P Nifty 5,610.0 5.5 10.3 4.1 4.5

Balanced funds

HDFC Balanced Fund �� 60.5 4.0 8.7 14.7 12.9 16.1

HDFC Prudence Fund �� 220.3 2.8 6.7 12.1 11.1 19.7

Tata Balanced Fund �� 92.1 9.0 13.9 11.2 9.5 16.1

ICICI Prudential Balanced �� 51.2 5.8 10.6 11.0 6.5 13.5

Canara Robeco Balance �� 66.5 7.1 10.5 10.1 9.6 10.3

Indices

Crisil Balanced Fund Index 5.0 9.9 5.3 6.4 13.2

MUTUAL FUNDS DESK


MF PICKS

SHAREKHAN’S TOP SIP FUND PICKS SEPTEMBER 20, 2012

Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a postition in the mutual funds mentioned in the article.

Every individual has a different investment requirement, which depends on his financial goals and risk-taking capacities. We at Sharekhanfirst understand the individual’s investment objectives and risk-taking capacity, and then recommend a suitable portfolio. So, we suggestthat you get in touch with our Mutual Fund Advisor before investing in the best funds.�

Investment period 1 year 3 years 5 yearsTotal amount invested (Rs) 12,000 36,000 60,000Funds would have grown to (Rs) NAV Present Avg. annual Present Avg. annual Present Avg. annual

value (Rs) return (%) value (Rs) return (%) value (Rs) return (%)

Large-cap funds

Birla Sun Life Top 100 Fund 23.6 13,232.1 11.2 39,512.2 3.2 76,710.5 5.1

Tata Pure Equity Fund 102.5 13,234.6 11.2 39,243.5 3.0 77,084.1 5.2

SBI Magnum Bluechip Fund 15.2 13,587.9 14.5 39,228.6 3.0 74,079.1 4.4

Franklin India Bluechip 219.5 12,856.4 7.8 38,982.7 2.8 78,591.1 5.6

Birla Sun Life Frontline Equity Fund - Plan A 89.4 13,228.3 11.2 38,793.6 2.6 77,806.6 5.4

BSE Sensex 18,542.3 13,153.9 10.0 37,861.5 1.7 70,887.3 3.4

Multi-cap funds

Reliance Equity Opportunities Fund 40.1 13,633.2 14.9 42,680.6 6.0 93,754.6 9.5

UTI Opportunities Fund 30.0 13,046.1 9.5 41,166.0 4.7 85,529.8 7.5

Tata Dividend Yield Fund 34.9 12,821.5 7.5 40,020.8 3.7 84,966.3 7.3

BNP Paribas Equity Fund 36.2 13,003.4 9.1 39,631.2 3.4 72,391.4 3.9

Tata Ethical Fund 68.8 13,134.9 10.3 39,552.4 3.3 79,199.1 5.8

BSE 500 7,016.6 12,968.8 8.4 36,706.5 0.7 69,589.7 3.0

Mid-cap funds

SBI Magnum Sector Funds Umbrella - Emerg Buss Fund 51.6 13,795.6 16.4 46,425.1 9.1 99,551.2 10.8

HDFC Mid-Cap Opportunities Fund 17.0 13,090.2 9.9 41,488.5 5.0 90,439.1 8.7

Franklin India Prima Fund 281.5 13,086.8 9.9 38,728.1 2.5 79,279.3 5.8

DSP BlackRock Small and Midcap Fund 17.6 12,950.6 8.6 38,384.1 2.2 83,786.1 7.0

Reliance Long Term Equity Fund 15.5 13,206.8 11.0 38,233.0 2.1 75,496.1 4.8

BSE Midcap 631.6 12,642.8 5.6 34,377.5 -1.5 65,606.4 1.8

Tax saving funds

BNP Paribas Tax Advantage Plan 15.3 13,125.6 10.2 40,229.6 3.9 74,464.5 4.5

Reliance Tax Saver (ELSS) Fund 22.3 13,295.3 11.8 40,178.3 3.8 81,478.5 6.4

Franklin India Taxshield 221.6 12,948.6 8.6 40,140.9 3.8 80,937.0 6.3

ICICI Prudential Taxplan 145.5 13,288.8 11.7 39,716.5 3.4 83,716.8 7.0

Religare Tax Plan 18.1 13,058.2 9.2 39,212.4 2.9 80,153.7 6.1

S&P Nifty 5,610.0 13,177.3 10.3 38,141.3 2.0 71,336.2 3.6

Data as on September 17, 2012

MUTUAL FUNDS DESK


Prices as on October 05, 2012

FY12 FY13E FY14E FY12 FY13E FY14E FY12 FY13E FY14E FY14/FY12 FY12 FY13E FY14E FY13E FY14E FY13E FY14E (Rs)

EQUITY FUNDAMENTALSEARNINGS GUIDE

Sharekhan Earnings Guide Company CMP Sales Net profit EPS (%) EPS PE (x) RoCE (%) RoNW (%) DPS Div

(Rs) growth yield(%)

@Stand-alone financials **June ending companyNote: For Grasim and Apollo Tyres we have shifted our estimates to consolidated

AUTOMOBILES

Apollo Tyres 89.7 12,153.3 13,868.4 15,518.4 441.5 678.5 815.0 8.2 13.5 16.2 41% 10.9 6.6 5.5 19.8 20.2 19.6 19.2 0.5 0.6

Ashok Leyland 24.7 12,842.0 14,501.0 17,229.0 566.0 621.9 677.6 2.1 2.3 2.5 9% 11.8 10.7 9.9 11.9 13.2 13.7 13.9 1.0 4.0

Bajaj Auto 1,751.1 19,759.2 21,139.4 24,666.2 3,138.1 3,234.7 3,910.2 108.5 111.9 135.2 12% 16.1 15.6 13.0 50.0 48.3 40.7 38.1 45.0 2.6

M&M 869.0 31,864.2 41,488.6 48,522.7 2,770.6 3,052.9 2,926.1 45.1 49.7 47.7 3% 19.3 17.5 18.2 24.9 21.7 21.3 17.8 12.5 1.4

Maruti Suzuki 1,387.7 35,895.1 43,987.5 52,894.6 1,635.1 1,890.8 2,783.6 56.6 65.4 96.6 27% 24.5 19.5 15.3 14.1 19.7 11.3 14.8 7.5 0.5

BANKS & FINANCIALS

Allahabad Bank 146.8 6,461.2 7,198.8 8,485.0 1,866.7 1,890.3 2,167.4 37.3 37.8 43.3 8% 3.9 3.9 3.4 - - 16.8 17.0 6.0 4.1

Andhra Bank 111.2 4,619.3 4,868.0 5,728.0 1,344.7 1,302.0 1,592.0 24.0 23.3 28.5 9% 4.6 4.8 3.9 - - 16.3 17.5 5.5 4.9

Axis (UTI) Bank 1,143.0 13,438.2 15,751.0 18,678.0 4,242.5 4,717.0 5,650.0 102.7 114.1 136.7 15% 11.1 10.0 8.4 - - 19.1 19.5 18.6 1.6

Bajaj Finserv 918.4 3,904.8 - - 1,337.8 - - 92.5 - - - 9.9 - - - - - - 1.5 0.2

Bank of Baroda 794.4 13,739.3 16,134.0 18,973.0 5,007.0 5,276.0 6,155.0 121.4 127.5 148.4 11% 6.5 6.2 5.4 - - 17.8 18.0 19.7 2.5

Bank of India 296.9 11,634.6 13,107.2 14,605.3 2,677.5 3,128.7 3,454.2 46.6 54.5 60.1 14% 6.4 5.5 4.9 - - 14.1 14.0 8.1 2.7

Corp Bank 416.8 4,639.5 5,074.0 5,856.0 1,506.0 1,495.0 1,685.0 101.7 100.9 113.8 6% 4.1 4.1 3.7 - - 16.9 16.7 20.2 4.8

Federal Bank 457.8 2,485.7 2,869.8 3,398.6 776.8 856.2 1,036.7 45.4 50.1 60.6 16% 10.1 9.1 7.6 - - 14.2 15.3 9.0 2.0

HDFC 750.0 4,998.3 6,110.0 7,568.6 4,122.6 4,890.0 5,882.0 27.9 31.8 38.3 17% 26.9 23.6 19.6 - - 22.9 21.8 9.8 1.3

HDFC Bank 622.4 17,540.8 21,736.0 25,827.0 5,166.3 6,302.0 7,419.0 22.0 26.9 31.6 20% 28.3 23.1 19.7 - - 19.5 19.7 4.3 0.7

ICICI Bank 1,066.7 18,236.2 21,698.0 25,119.0 6,464.5 7,623.0 8,540.0 56.1 66.2 74.2 15% 19.0 16.1 14.4 - - 12.1 12.6 16.5 1.5

IDBI Bank 102.0 6,663.6 7,670.6 9,143.2 2,031.6 2,043.5 2,523.4 15.9 16.0 19.7 11% 6.4 6.4 5.2 - - 10.1 11.5 1.5 1.5

PNB 819.1 17,617.0 19,857.9 23,424.1 4,884.2 5,129.0 6,124.0 144.0 151.2 180.6 12% 5.7 5.4 4.5 - - 17.2 17.8 22.0 2.7

SBI 2,339.5 57,642.5 63,314.0 72,601.0 11,707.3 13,677.0 17,116.0 174.5 203.8 255.1 21% 13.4 11.5 9.2 - - 15.3 16.9 35.0 1.5

Union Bank of India 200.4 9,241.3 10,292.0 11,926.7 1,788.5 2,281.9 2,725.3 32.5 42.0 49.0 23% 6.2 4.8 4.1 - - 14.8 15.5 8.0 4.0

Yes Bank 393.5 2,472.6 3,304.0 4,233.0 977.2 1,264.0 1,571.0 27.8 32.7 40.6 21% 14.2 12.0 9.7 - - 21.4 20.2 4.0 1.0

CONSUMER GOODS

Bajaj Corp 184.2 473.3 600.3 713.0 120.1 162.1 190.9 8.1 11.0 12.9 26% 23.1 17.0 14.5 43.8 43.2 34.8 34.3 4.0 2.1

GSK Consumers 2,984.6 2,685.5 3,119.8 3,651.4 355.2 435.4 505.1 84.5 103.5 120.1 19% 35.3 28.8 24.9 52.8 51.1 34.6 33.5 35.0 1.2

Godrej Consumer 695.2 4,850.9 6,175.9 7,314.0 597.1 849.9 1,045.9 16.8 23.6 29.0 31% 41.4 29.5 24.0 23.2 25.8 27.3 27.4 4.8 0.7

Hindustan Unilever 565.4 22,987.7 27,006.7 31,485.0 2,721.5 3,289.3 3,832.0 12.5 15.2 17.7 19% 45.2 37.2 31.9 95.8 79.6 74.1 61.5 7.5 1.3

ITC 275.7 25,173.8 29,241.3 34,512.2 6,162.4 7,331.8 8,841.2 7.9 9.4 11.3 20% 34.9 29.3 24.4 45.9 47.1 36.3 37.3 4.5 1.6

Marico 203.0 4,008.3 4,703.3 5,503.5 318.9 413.0 506.6 5.2 6.4 7.9 23% 39.0 31.7 25.7 25.8 25.8 26.3 22.7 0.7 0.3

Mcleod Russel India 322.1 1,412.0 1,688.4 1,987.9 296.5 344.4 432.8 27.1 31.5 39.5 21% 11.9 10.2 8.2 20.8 22.8 18.5 19.9 6.0 1.9

TGBL (Tata Tea) 150.2 6,631.2 7,396.5 8,241.0 339.2 397.6 461.1 5.5 6.4 7.5 17% 27.3 23.5 20.0 9.2 10.1 8.5 9.3 2.2 1.4

Zydus Wellness 423.1 331.4 354.3 393.2 68.6 73.3 84.1 17.6 18.8 21.5 11% 24.0 22.5 19.7 41.9 38.4 34.6 31.6 5.0 1.2

IT / IT SERVICES

AGC Networks 400.8 994.6 1,342.1 1,771.0 68.8 96.8 125.3 48.3 68.0 88.0 35% 8.3 5.9 4.6 24.2 25.6 26.9 27.9 15.0 3.7

CMC 1,124.2 1,469.3 1,965.3 2,377.4 152.8 250.7 313.4 50.4 82.7 103.4 43% 22.3 13.6 10.9 37.1 36.2 28.6 28.3 12.5 1.1

HCL Technologies** 573.6 21,031.2 25,819.7 29,543.4 2,525.9 3,221.1 3,698.4 36.1 46.0 52.8 21% 15.9 12.5 10.9 32.7 30.9 30.3 27.7 12.0 2.1

Infosys 2,526.9 33,734.0 39,942.1 44,719.4 8,332.0 9,402.7 10,661.6 145.7 164.4 186.4 13% 17.3 15.4 13.6 37.6 34.1 27.1 25.5 47.0 1.9

NIIT Technologies 283.2 1,576.5 2,084.1 2,401.0 197.2 256.8 288.2 33.1 43.1 48.3 21% 8.6 6.6 5.9 34.0 31.3 25.2 23.6 8.0 2.8

Persistent Systems 426.8 1,000.3 1,253.0 1,420.5 141.8 177.2 216.0 35.4 44.3 54.0 24% 12.1 9.6 7.9 26.8 27.5 19.4 20.1 6.0 1.4

Polaris Financial 129.3 2,052.7 2,443.3 2,731.2 220.7 244.4 268.4 22.3 24.6 27.1 10% 5.8 5.3 4.8 23.4 23.3 18.3 18.4 4.5 3.5

TCS 1,304.0 48,893.8 62,872.7 73,064.8 10,638.3 13,977.7 16,123.3 54.4 71.4 82.4 23% 24.0 18.3 15.8 42.5 39.6 33.2 30.8 25.0 1.9

Wipro 373.3 37,197.1 43,492.0 48,238.9 5,573.0 6,200.6 6,840.5 22.7 25.2 27.8 11% 16.4 14.8 13.4 20.5 20.0 19.7 18.8 6.0 1.6

CAPITAL GOODS / POWER

BHEL 263.9 47,227.9 45,172.4 42,716.8 7,059.2 6,643.1 6,339.1 28.8 27.1 25.9 -5% 9.2 9.7 10.2 28.3 27.9 22.2 18.5 6.4 2.4

CESC 332.2 4,593.0 5,455.1 5,902.1 565.0 582.4 614.9 45.0 46.4 49.0 4% 7.4 7.2 6.8 7.8 7.7 9.4 9.3 4.0 1.2

Crompton Greaves 139.4 11,248.6 13,052.0 14,809.7 373.6 516.1 705.7 5.7 7.9 10.9 38% 24.3 17.5 12.8 16.4 19.1 12.8 15.6 1.0 0.7

Greaves Cotton^ 83.0 1,751.2 1,844.5 2,065.8 185.5 144.4 167.6 5.9 5.9 6.9 8% 14.1 14.1 12.0 28.4 29.2 19.6 19.8 2.2 2.7

Kalpataru Power 88.6 5,308.0 6,498.6 7,723.4 188.7 203.6 230.1 12.3 13.3 15.0 10% 7.2 6.7 5.9 13.3 13.7 10.4 10.6 1.5 1.7

PTC India 70.2 7,650.2 8,711.6 10,875.3 119.8 144.7 175.6 4.1 4.9 6.0 21% 17.3 14.3 11.8 8.3 10.2 6.2 7.1 1.5 2.1

Thermax 579.9 5,303.9 5,164.6 5,396.4 406.9 391.8 410.1 34.1 32.9 34.4 0% 17.0 17.6 16.9 33.1 30.0 21.3 19.3 7.0 1.2

V-Guard Industries 386.6 993.6 1,297.1 1,649.3 50.8 71.9 92.5 17.0 24.1 31.0 35% 22.7 16.1 12.5 31.5 31.1 29.8 29.6 3.5 0.9


Company CMP Sales Net profit EPS (%) EPS PE (x) RoCE (%) RoNW (%) DPS Div(Rs) growth yield

(%)FY12 FY13E FY14E FY12 FY13E FY14E FY12 FY13E FY14E FY14/FY12 FY12 FY13E FY14E FY13E FY14E FY13E FY14E (Rs)

#UltraTech numbers are post merger of Samruddhi Cement.

EQUITY FUNDAMENTALS EARNINGS GUIDE

*FY2012 is of 15 months, ending June 2012 as company has changed reporting year from FY to June end

INFRASTRUCTURE / REAL ESTATE

Gayatri Projects 118.8 1,801.9 2,076.8 2,498.8 98.7 103.5 130.2 41.2 43.2 54.3 15% 2.9 2.8 2.2 16.1 16.1 18.6 19.7 3.0 2.5

ITNL 192.1 5,605.6 6,431.5 6,972.5 497.0 616.6 634.5 25.6 31.7 32.7 13% 7.5 6.1 5.9 12.5 10.9 19.3 15.9 4.0 2.1

IRB Infra 156.9 3,130.5 3,942.3 4,889.2 495.8 496.2 451.4 14.9 14.9 13.6 -4% 10.5 10.5 11.5 11.6 11.4 16.2 13.0 1.0 0.6

Jaiprakash Associates 88.7 12,742.9 15,559.1 17,258.9 1,020.4 1,040.1 1,177.0 4.8 4.9 5.5 7% 18.5 18.1 16.0 11.3 12.2 10.0 10.4 0.5 0.6

Larsen & Toubro 1,649.9 64,313.1 70,886.5 78,560.4 5,006.4 6,078.6 6,692.5 81.6 99.0 109.0 16% 20.2 16.7 15.1 11.6 11.7 17.7 16.8 16.5 1.0

Mahindra Lifespace 405.1 469.0 470.8 503.0 120.1 125.1 130.9 29.4 30.6 32.0 4% 13.8 13.2 12.7 13.4 13.0 10.7 10.3 5.0 1.2

Orbit Corporation 62.1 382.6 449.0 580.5 21.4 43.4 85.1 1.9 3.8 7.5 99% 32.7 16.3 8.3 8.8 11.6 4.1 7.6 - -

Pratibha Industries 55.2 1,664.6 2,147.9 2,631.6 81.1 99.0 136.0 8.2 8.7 12.0 21% 6.7 6.3 4.6 17.2 18.6 15.8 17.8 0.6 1.1

Punj Lloyd 55.8 10,312.9 12,700.5 15,866.8 (150.0) 90.1 272.2 -4.5 2.7 8.2 -12.4 20.7 6.8 9.9 12.3 3.0 8.3 0.2 0.3

Unity Infraprojects 48.8 1,972.8 2,259.4 2,713.8 103.5 118.5 146.4 14.0 16.0 19.8 19% 3.5 3.0 2.5 18.1 18.7 14.9 15.8 1.0 2.1

OIL & GAS

GAIL 393.1 40,280.7 44,577.7 46,788.6 3,653.9 4,032.1 4,205.2 28.8 31.8 33.2 7% 13.6 12.4 11.9 17.1 16.6 17.7 16.7 8.7 2.2

Oil India 490.1 9,863.0 10,755.0 10,878.0 3,446.0 3,733.0 3,982.0 57.0 62.0 66.0 8% 8.6 7.9 7.4 28.2 26.8 19.8 18.7 19.0 3.9

Reliance Ind 857.8 358,501.0 341,535.6 323,328.9 20,033.0 20,199.4 21,325.1 61.0 61.5 64.9 3% 14.1 13.9 13.2 9.9 9.7 10.4 9.9 8.5 1.0

Selan Exploration 344.2 92.7 110.3 143.8 43.9 53.2 68.6 25.8 31.3 40.4 25% 13.3 11.0 8.5 28.6 30.3 23.0 24.0 3.0 0.9

PHARMACEUTICALS

Cadila Healthcare 819.4 5,263.2 6,411.6 7,464.3 770.2 975.8 1,278.8 37.6 47.7 62.5 29% 21.8 17.2 13.1 26.2 28.3 28.4 27.9 7.5 0.9

Dishman Pharma 95.6 1,122.1 1,306.0 1,521.9 56.3 86.7 138.1 7.0 10.7 17.1 57% 13.7 8.9 5.6 10.2 13.2 8.7 12.4 1.2 1.3

Divi's Labs 1,095.6 1,858.6 2,262.7 2,721.8 533.3 677.5 827.3 40.2 51.0 62.3 25% 27.3 21.5 17.6 33.3 33.2 27.5 27.7 13.0 1.2

Glenmark Pharma 400.0 4,020.6 4,651.8 5,449.2 744.0 618.7 657.1 27.5 22.9 24.3 -6% 14.5 17.5 16.5 17.5 16.7 19.6 17.6 2.0 0.5

Ipca Laboratories 443.3 2,314.0 2,724.1 3,136.6 316.9 361.0 452.3 25.3 28.8 36.1 19% 17.5 15.4 12.3 24.2 24.9 24.8 24.3 3.2 0.7

Lupin 568.2 6,959.7 8,326.2 9,684.3 924.0 1,219.9 1,474.2 20.7 27.3 33.0 26% 27.5 20.8 17.2 24.3 23.9 22.2 21.0 3.2 0.6

Piramal Enterprises 471.2 2,204.0 3,083.8 3,779.0 229.1 329.2 628.0 13.3 19.1 36.4 66% 35.5 24.7 12.9 4.9 5.0 4.2 5.2 17.5 3.7

Sun Pharma 682.6 8,005.7 10,052.6 10,708.1 2,587.3 2,887.5 3,344.0 25.0 27.9 32.3 14% 27.3 24.5 21.1 26.0 23.5 20.0 18.9 4.3 0.6

Torrent Pharma 691.5 2,594.4 3,098.9 3,544.8 391.4 442.7 554.1 46.3 52.3 65.5 19% 14.9 13.2 10.6 30.5 32.2 31.7 30.1 8.5 1.2

AGRI-INPUTS

Deepak Fert 132.5 2,411.6 2,510.1 2,939.0 211.7 232.2 265.4 24.0 26.3 29.7 11% 5.5 5.0 4.5 12.2 12.5 17.8 17.9 5.5 4.2

Tata Chemicals 320.5 13,806.1 14,535.7 16,064.0 837.4 714.7 741.7 32.8 28.0 29.1 -6% 9.8 11.4 11.0 13.7 13.8 10.4 10.0 10.0 3.1

United Phosphorus 132.9 7,654.7 8,859.7 9,675.1 636.0 692.9 762.6 12.0 15.2 16.7 18% 11.1 8.7 8.0 14.5 14.3 14.8 14.3 2.0 1.5

BUILDING MATERIALS

Grasim 3,362.2 24,988.0 27,506.0 29,580.0 2,647.0 2,601.0 2,885.0 288.8 283.8 314.7 4% 11.6 11.8 10.7 18.2 17.7 13.0 12.4 22.5 0.7

India Cements 93.2 4,203.0 4,489.0 4,830.0 297.0 300.0 342.0 9.6 9.8 11.1 8% 9.7 9.5 8.4 8.0 8.0 7.0 8.0 2.0 2.1

Madras Cements 193.6 3,236.0 3,501.0 3,780.0 385.0 355.0 395.0 16.2 14.9 16.6 1% 12.0 13.0 11.7 9.0 9.0 16.0 16.0 2.5 1.3

Orient Paper 76.9 2,491.0 2,789.0 3,087.0 212.0 225.0 256.0 10.4 11.0 12.5 10% 7.4 7.0 6.1 13.0 13.0 19.0 18.0 2.0 2.6

Shree Cement* 3,874.0 5,898.0 5,305.0 5,903.0 631.0 560.0 721.0 181.1 160.7 206.9 7% 21.4 24.1 18.7 14.0 15.0 15.0 17.0 8.0 0.2

UltraTech Cement 1,971.1 18,166.4 19,655.7 21,416.2 2,446.2 2,344.7 2,573.3 89.3 85.6 93.9 3% 22.1 23.0 21.0 20.1 19.6 15.7 14.9 8.0 0.4

RETAIL

KKCL 687.3 301.9 295.2 326.7 52.1 47.4 61.4 42.3 38.5 49.8 9% 16.2 17.9 13.8 24.8 30.2 19.8 23.2 17.0 2.5

Provogue India 15.5 644.6 725.6 32.3 40.7 - 2.8 3.6 - - 5.5 4.3 - 9.0 - 5.1 - 0.3 1.6

Raymond 380.2 3,657.0 3,981.0 4,706.0 155.8 158.5 213.4 25.4 25.8 34.8 17% 15.0 14.7 10.9 17.8 20.2 13.8 16.7 2.5 0.7

Relaxo Footwear 719.2 860.4 1,044.0 1,284.6 39.9 50.1 71.1 33.3 41.7 59.2 33% 21.6 17.2 12.1 27.3 31.9 19.4 20.2 1.5 0.2

DIVERSIFIED / MISCELLANEOUS

Aditya Birla Nuvo 937.3 8,253.2 7,319.0 7,921.0 426.4 430.3 532.8 37.6 33.1 41.0 4% 24.9 28.3 22.9 9.2 10.2 7.4 8.4 6.0 0.6

Bajaj Holdings 833.0 295.3 - - 1,679.2 - - 217.0 - - - 3.8 - - - - - - 35.0 4.2

Bharti Airtel 265.8 71,506.0 79,460.0 87,360.0 4,258.0 4,516.0 5,946.0 11.2 11.9 15.7 18% 23.7 22.3 16.9 7.9 8.7 7.7 9.1 1.0 0.4

Bharat Electronics 1,224.0 5,650.0 6,269.3 7,078.4 829.9 855.3 941.4 103.7 106.9 117.7 7% 11.8 11.4 10.4 17.3 16.3 12.8 12.0 20.8 1.7

Eros Intl Media 159.9 943.9 1,245.9 1,521.0 147.8 183.3 225.1 16.1 20.0 24.6 24% 9.9 8.0 6.5 23.8 24.3 20.6 20.8 0.0 0.0

Gateway Distriparks 146.0 817.3 1,012.9 1,226.1 132.0 150.1 168.1 12.2 13.9 15.5 13% 12.0 10.5 9.4 17.5 19.4 19.1 19.4 3.0 2.1

Indian Hotel Co 66.7 3,432.7 4,170.0 4,753.4 3.5 152.7 214.7 0.0 1.9 2.7 - - 35.1 24.7 6.3 2.5 6.0 7.9 1.0 1.5

Max India 228.2 7,648.4 - - 241.9 - - 6.0 - - - - - - - - - - - -

Opto Circuits India 138.4 2,356.9 2,765.8 3,179.7 571.9 524.4 666.3 23.6 21.6 27.5 8% 5.9 6.4 5.0 19.3 21.9 25.0 25.3 3.0 2.2

Ratnamani Metals 114.9 1,221.7 1,273.4 1,459.9 94.3 90.6 119.4 20.3 19.5 25.7 13% 5.7 5.9 4.5 19.1 20.9 15.9 18.1 3.0 2.6

Sintex Industries 72.3 4,453.5 4,635.0 5,161.8 353.5 331.1 389.6 12.9 12.1 14.3 5% 5.6 6.0 5.1 9.2 10.3 11.3 11.8 0.7 0.9


Remarks

Automobiles

Apollo Tyres � Apollo Tyres is the market leader in truck and bus tyre segments with a 28% market share. A strong demand inthe OEM and replacement tyre segments coupled with the commencement of the additional capacity at its newChennai plant is likely to see a healthy growth in its volume going forward. The sharp run-up in the stock pricehas factored in the positives of lower natural rubber prices. We maintain our Hold recommendation with arevised price target of Rs105.

Ashok Leyland � Ashok Leyland, the second largest commercial vehicle (CV) manufacturer in India, is a pure CV play. The newgreenfield facility in Pantnagar in Uttaranchal has provided strategic cost and diversification benefits. The companyhas ventured into LCV space with the launch of Dost together with Nissan and is witnessing significant ramp-upin volumes. It has also entered into construction equipment space in JV with John Deere.

Bajaj Auto � Bajaj Auto is a leading two-wheeler maker. It is moving up the value chain by concentrating on the executive andpremium motorcycle segments. The launch of the new Pulsar and the KTM range would help it maintain itsleadership in the premium bike segment as well as its domestic volume growth. Exports remain the key for thecompany to drive the overall volumes.

M&M � M&M is a leading maker of tractors and utility vehicles in India. New product launches are likely to drive itsgrowth going forward in the automobile segment while the company is witnessing a moderation in tractor demand.Associating with world majors in passenger cars and commercial vehicles has helped it diversify into variousautomobile segments. The value of its subsidiaries adds to its sum-of-the-parts valuation. Higher farm incomes,strong rural positioning, lower vulnerability to interest rates, pro-diesel policies and best diesel portfolio makeM&M a proxy play on food inflation.

Maruti Suzuki � Maruti Suzuki is India’s largest small carmaker. While the new Swift has seen unprecedented response from themarket, there is considerable stress in its petrol portfolio. Recently the company successfully diversified into theMPV segment with the launch of Ertiga. Suzuki of Japan has also identified India as a manufacturing hub forsmall cars for its worldwide markets.

Banks & Financials

Allahabad Bank � With a wide network of over 2,200 branches spread across India, Allahabad Bank enjoys a strong hold in northand east India. With an average RoE of ~20% during FY2010-12E, coupled with improving asset quality trends,the bank is one of the stronger players among the public sector banks.

Andhra Bank � Andhra Bank, with a wide network of over 1,200 branches across the country, has a strong presence in southIndia especially in Andhra Pradesh. Though it is available at attractive valuation, concerns on asset quality frontand political situation within the state would affect its operations.

Axis Bank � Over the last few years, Axis Bank has grown its balance sheet aggressively. Notably, the bank has maintained adelicate balance between aggressive balance sheet growth and profitability. Besides the core banking business, thebank has forayed into the asset management business and is acquiring the securities and investment bankingbusiness of Enam. We expect the quality of its earnings to improve as the proportion of fee income goes up.

Bajaj Finserv � Bajaj Finserv is actively present in businesses such as vehicle finance, consumer finance, distribution etc withinsurance being the dominant contributor to its revenues. It is one of the top few players in the fast-growing lifeinsurance segment and also has a sizeable presence in the general insurance segment.

Bank of Baroda � BoB is among the top PSU banks having a sizeable overseas presence (86 offices in 25 countries) and a strongdomestic network of over 3,400 branches across the country. It has a stronghold in the western and eastern partsof India. The bank has laid out aggressive plans to expand its income streams from both the domestic andinternational businesses.

Bank of India � Bank of India has a wide network of branches, spread across the country and abroad, along with a diversifiedproduct and services portfolio and steadily growing assets. The asset quality had posed concerns and affected theoperating performance of the bank.

Corp Bank � Corporation Bank is a mid-sized PSU bank having a strong presence in the corporate segment. Due to higherdependence on wholesale business and low CASA ratio, margins are unlikely to improve in the near term.

Federal Bank � Federal Bank is the fifth largest private sector bank in India in terms of asset size and has traditionally been astrong player in south India especially Kerala. The bank is expected to witness an improvement in its RoE due tothe leveraging of its equity and easing of the cyclical asset-quality pressures.



Remarks


HDFC � HDFC is among the top mortgage lenders providing housing loans to individuals, corporates and developers. Ithas interests in banking, asset management and insurance through its key subsidiaries. As these subsidiaries aregrowing faster than HDFC, the value contributed by them would be significantly higher going forward.

HDFC Bank � HDFC Bank was established in 1994 as part of the liberalisation of the Indian banking industry by the ReserveBank of India (RBI). It was one of the first banks to receive an “in-principle” approval from the RBI to set up aprivate sector bank. Its relatively high margins (compared with its peers), strong branch network and better assetquality make HDFC Bank a safe bet.

ICICI Bank � ICICI Bank is India’s largest private sector bank with a network of over 2,500 branches in India and a presence inaround 18 countries. The bank has once again entered an expansionary mode after making a conscious effort tocontract its advances book due to asset quality concerns. The bank offers substantial value unlocking opportunitieswith the expected listing of its subsidiaries like ICICI Securities and ICICI Prudential Life Insurance.

IDBI Bank � IDBI Bank is one of leading public sector banks of India. It is expected to improve its core performance significantly,which is likely to reflect in the form of better margins and return ratios. Due to rising asset quality risks and slowerbusiness growth the stock is likely to underperform in the near term.

PNB � Punjab National Bank has one of the best deposit mixes in the banking space with low-cost deposits constitutingaround 36% of its total deposits. This helps it maintain one of the highest margins in the sector. A strong liabilityfranchise and technology focus will help the bank boost its core lending operations and fee income related businesses.

SBI � State Bank of India is the largest bank of India with loan assets of Rs9.5 lakh crore. The loan growth is likely toremain slightly subdued in FY2013 while the core operating performance will be healthy with a stable NIM. Thesuccessful merger of the associate banks and value unlocking from insurance business could provide further upsidefor the parent bank. The asset quality of the bank would remain a key monitorable.

UBI � Union Bank has a strong branch network and an all-India presence. The bank’s earnings growth has deteriorateddue to asset quality pressures.

Yes Bank � Yes Bank, a new generation private bank, started its operations in November 2004 and is the only greenfield bankapproved by the RBI in the last decade. The bank is promoted by Rana Kapoor and Ashok Kapur. Yes Bankfollows a unique business model based on knowledge banking, which offers product depth and a sustainablecompetitive edge over established banking players. Knowledge-led banking also enables the bank to generate astrong fee income, which eventually translates into higher return ratios.

Consumer goods

Bajaj Corp � Bajaj Corp is the third largest player in the hair oil segment and has emerged as the dominant player in thepremium light hair oil (LHO) category with its Almond Drops hair oil. With its strong brand positioning, distributionstrength and healthy balance sheet, it is well poised to ride on the strong consumer demand emerging due to therising disposable income and growing aspirations of the Indians. Any initiative to expand its limited productportfolio or strengthen its core business would be the key upside trigger for the stock.

GSK Consumers � GSK is a leading player in the MFD segment with a close to 70% share in the domestic market. Judicious new launchesand brand extensions, and the expansion of its distribution reach have helped GSK to stay ahead of the competitionand maintain its pricing power over the years. In a bid to de-risk its business model, GSK has expanded its productportfolio by entering into new categories such as biscuits, noodles, energy bars, sports drinks and oats in the recentyears. With cash balance of Rs1,100 crore the company can invest in growth initiatives as well as reward its investorswith a healthy dividend payment. We have a Hold recommendation on the stock with the price target of Rs3,000.

GCPL � Godrej Consumer Products Ltd (GCPL) is a major player in personal wash, hair colour and household insecticidemarket segments in India. The recent acquisitions of Darling Group, Tura, Megasari and Latin American companieshave helped the company to expand its geographic footprint. We believe the decent sales volume growth in thedomestic business coupled with a strong growth in the Indonesian, African and Argentine businesses would helpGCPL to achieve an above 20% CAGR top line and bottom line growth over FY2012-14.

HUL � HUL is India’s largest FMCG company. It would achieve around 17% Y-o-Y top line growth driven by a mix ofsales volume and a price-led growth. However, the volatile input prices are likely to sustain the pressure on theprofitability in the near term. Overall, we expect HUL’s bottom line to grow at a CAGR of 19% over FY2012-14.In the long term, HUL will be one of the key beneficiaries of the Indian consumerism story.

ITC � ITC has a strategy of effectively utilising the excess cash generated from its cash cow, the cigarette business, tostrengthen and enhance its other non-cigarette businesses. This would nurture the growth of these businesses someof which are at a nascent stage. Thus, we believe the company will deliver a sustained and steady growth incoming years.


Remarks


Marico � Marico is among India’s leading FMCG companies. Its core brands, Parachute and Saffola, have a strong footingin the market. It follows a three-pronged strategy which hinges on expansion of its existing brands, launch of newproduct categories (especially in the beauty and wellness space) and growth through acquisitions. While the domesticproduct portfolio is likely to achieve a steady growth in volumes, the international business is expected to post arobust growth on the back of an increase in distribution to neighbouring countries and extension of its internationalproduct portfolio over the long run.

Mcleod Russel � Mcleod Russel is the world’s largest tea producer with an annual tea production of close to 100 million kg. Withtea estates in India and Africa, it is well poised to take advantage of the current favourable global demand-supplyscenario. With the expectations of a substantial improvement in its sales realisation and a volume growth in midto high single digits (in the domestic market and the international subsidiaries), the company’s consolidated topline and earnings are expected to grow at CAGR of 18.5% and 20% respectively over FY2012-14.

TGBL � Over the past few years, TGBL (formerly Tata Tea) has transformed its focus from being a mere tea and coffeecompany to a complete beverage maker. The recent addition of Mount Everest mineral water to its productportfolio and its tie-up with Pepsico Inc to make a mark in the non-carbonated beverage space are likely to be thenew growth drivers in the long run. Also, its JV with Starbucks would help it to explore opportunities in the coffeeretailing space. Its intention to acquire companies in the USA, Europe and Russia also augurs well and willenhance its geographical footprint.

Zydus Wellness � Zydus Wellness owns three high-growth brands, Nutralite, Sugar Free and Ever Yuth, in the niche health andwellness segment. The company focuses on rampant growth by increasing the distribution of the existing products,scaling up the existing product portfolio through variants and new product launches leveraging the three brands.However the company is facing intense competition in some of its key categories which led to a muted performancein FY2012.

IT/IT services

AGC Networks � AGC Networks (formerly known as Avaya Global Connect) has transformed its business from a single-solution,single-partner (Avaya) relationship into a diversified business with multi-level global partners to significantlymultiply the addressable market and growth opportunities in its focus area of IT network infrastructure andrelated services. Going forward, on the back of diversified offerings and a wider client base, we estimate an over40% CAGR in its earnings over FY2012-14 with a 33% revenue CAGR over the same period.

CMC � Over the years, CMC has gradually transformed itself from a low-margin equipment provider into a well-diversifiedIT services and solutions provider. CMC has created a niche for itself in the field of large system engineering andintegration projects. On the other hand, its joint-go-to-market strategy with TCS is also playing a big role in thebusiness transformation, with CMC gaining a strong traction in the international markets. As a matter of fact, theinternational business constitutes more than 60% of CMC’s total revenues. We believe CMC has already set thestage for the next level of growth and is likely to witness a much stronger growth in the coming years.

HCL Tech � HCL Tech is one of the leading Indian IT service vendors. It has performed better than its peers in terms of betterfinancial performance in the past few quarters on the back of a ramp-up in business from large deals baggedearlier. It continues to demonstrate strong growth visibility with a robust deals backlog and successful executionwith market share gains strategy through vendor churns/consolidation. We remain positive on the company andexpect the valuation discount to Infosys to reduce on the back of its order wins and superior earnings visibility.

Infosys � Infosys is India's premier IT and IT-enabled services company. Once a bellwether, the company over the last few quartershas reported disappointing financial performance due to company-specific issues and the overall demand environment.The company has given a very sluggish outlook for FY2013, much lower than the Nasscom’s expectation. Though thestock has corrected but we do not see any major upside trigger for the stock in the near to medium term.

NIIT Tech � With its strong domain expertise in a few niche verticals and competitive advantage in terms of significantcontribution from its non-linear initiatives, NIIT Tech is well placed to benefit from the overall improvement inthe demand environment. The recent large deal wins give further revenue visibility for the future. Moreover, thecompany has healthy cash on the books with minimal debt which leaves scope for further acceleration in growththrough inorganic initiatives and will act as another re-rating trigger for the stock.

Persistent � Persistent Systems has proven expertise in the OPD space, a strong presence in the newer technologies, strength toimprove its IP base and the best-in-the-class margin profile, which set it apart from the other mid-cap IT companies.The IP-led revenue strategy of the company has started to bear some fruits. Going forward, the management isaiming to earn 20% of its revenues from the non-linear space in the next three to four years. This, we believe, willdifferentiate the company from the rest and help improve its margin in the coming years.


Remarks


Polaris � Polaris Financial is one of the few integrated mid-cap IT companies having a strong foothold in the BFSI verticaland offerings in both the services and the solutions segment. We remain positive on the “Intellect” side of thebusiness and expect a faster and stronger growth momentum in the coming years which would improve themargin as well.

TCS � TCS pioneered the IT services outsourcing business from India and is the largest IT service firm in the country. Itis a leader in most service offerings and has further consolidated its leadership through the inorganic route. TCSwith a strong base is well placed to garner incremental deals across sectors. Its consistent quarterly performance(better than peers) coupled with the higher predictability of its earnings would keep it the Street’s favourite overInfosys.

Wipro � Wipro is one of the leading Indian IT service companies. It has lagged the other IT biggies in terms of performance.In the medium term we expect Wipro to demonstrate a relatively weaker earnings growth as it gets back on its feetpost-organisational restructuring and has a low presence in the banking and financial services space. We expectWipro’s performance to lag its peers.

Capital goods/Power

BHEL � BHEL, India’s biggest power equipment manufacturer, has been the prime beneficiary of the multifold increase inthe investments made in the domestic power sector over the last few years. The current order book of Rs132,900crore stands at around 2.8x its FY2012 revenues providing revenue visibility for at least the next two to threeyears. However, the key challenge before the company now would be to maintain a robust order inflow amidrising competition in the power equipment space and a profitable execution of the order book.

CESC � CESC is the power distributor in Kolkata and Howrah (backed by 1,225MW of power generation capacity) whichis a strong cash generating business. Further, it is adding 1,200MW of generation capacity which would be onstream by FY2015. Moreover, having 80% of assured coal supply from invested company and coal linkages,CESC has a high degree of integrated status among peers. Despite that, the stock is currently one of the cheapestin the Indian utility space trading at a discount to its book value primarily on account of the concerns related tothe losses from its retail business, Spencer’s. However, we believe the concerns are overdone and the company hasstarted exhibiting store-level profit in FY2011 which is a sign of revival as per the management. Nevertheless, thepossible turnaround of the retail business is not priced in the current stock price; hence the stock is a re-ratingcandidate.

Crompton Greaves � Crompton Greaves’ key businesses—industrial and power systems—hold a huge potential in view of the investmentopportunities in the domestic infrastructure sector, particularly the transmission and distribution sector. Its consumerproducts segment, which has done very well in the recent years, also allows it to diversify its business. The synergyfrom the acquisition of the ZIV Group, Pauwels, GTV, Microsol, Emotron and QEI will drive the company’sconsolidated earnings. However, continuing disappointment in the recent quarterly results has added to the investors’concerns on the slowdown and competitive margin pressure faced by the company.

Greaves Cotton � Greaves Cotton is a mid-sized and well-diversified engineering company. Its core competencies are in diesel/petrolengines, power gensets, agro engines and pumpsets (engine segment) and construction equipment (infrastructureequipment segment). The engine business accounts for ~85% of its revenue while the rest comes from infrastructureequipment. Given the sharp deterioration in growth and the margins in the core three-wheeler business, we assign10% discount to our long term target multiple. We maintain our Hold recommendation on the stock.

Kalpataru � Kalpataru Power is a leading EPC player in the transmission & distribution space in India. Opportunities in thisspace are likely to grow significantly, thereby providing healthy growth visibility (also current order book is 2x itsFY12E sales). The OPM of the stand-alone business is likely to sustain in early double digits. JMC Projects(subsidiary) is experiencing margin pressure which would affect the overall margin and return ratios of the company.We have retain price target to Rs130 and our Buy call.

PTC India � PTC India is a leading power trading company in India with a market share of 33% in FY2012 in the short-termtrading market. In the last few years, the company has made substantial investments in areas like power projectfinancing, coal trading and power tolling which have great growth potential in the future. While the poor financialhealth of the state electricity boards (SEBs) has elongated its working capital cycle, the recent policy push for theSEB debt restructuring programme has eased the payment delay concerns. Its valuations continue to look attractiveon a sum-of-the-parts basis.

Thermax � The energy and environment businesses of Thermax are direct beneficiaries of the continuous rise in India Inc’scapex. Thermax’ group order book stands at Rs5,042 crore, which is 0.9x its FY2012 consolidated revenue. Thisprovides limited revenue visibility. Its super-critical boiler foray has yet to see some major order inflow.


RemarksRemarks


V Guard Ind � V-Guard is an established brand in the electrical and household goods space, particularly in South India. Over theyears, it has successfully ramped up its operation and network to become a multi-product company. It has recentlyalso forayed into non-south India and is particularly focusing on the tier-II and III cities where there is a lot ofpent-up demand for its products. We expect a CAGR of 35% in its earnings over FY2012-14E.

Infrastructure/Real estate

Gayatri Proj � Gayatri Projects is a Hyderabad-based infrastructure company with a very strong presence in irrigation, road andindustrial construction businesses. The order book stands at Rs9,400 crore, which is 5.2x its FY2012 revenues. Itis also expanding its power and road BOT portfolio and plans to unlock value by offloading stake to privateequity. The company has potential to transform itself into a bigger player and we expect its net profit to grow at

a CAGR of 15% over FY2012-14.

IL&FS Trans � ITNL is India’s largest player in the BOT road segment with a pan-India presence and a diverse project portfolio.The fair mix of annuity and toll projects, and state and NHAI projects along with the geographical diversificationacross 12 states reduce the risk to a large extent and provide comfort. Further, a strong pedigree along with theoutsourcing of civil construction activity helps ITNL to scale up its portfolio faster. Thus, it is well equipped tocapitalise on the huge and growing opportunity in the road infrastructure sector.

IRB Infra � IRB is the largest toll road BOT player in India and the second largest BOT operator in the country with all itsprojects being toll based. It has an integrated business model with an in-house construction arm which provides acompetitive advantage in bidding for the larger projects and captures the entire value from the BOT asset. Further,it has a profitable portfolio as majority of its operational projects have become debt-free and it has presence inhigh-growth corridors which provides healthy cash flow. Thus, IRB is well poised to benefit from the hugeopportunity in the road development projects on the back of its proven execution capability and the scale of itsoperations.

Jaiprakash Asso � Jaiprakash Associates, India’s leading cement and construction company, is all set to reap the benefits of India’sinfrastructure spending. The company has also monetised very well on the real estate properties of YamunaExpressway. The marked improvement in the macro environment has improved accessibility to capital and thuseased the concerns of liquidity to some extent. However, higher leverage could act as drag on the valuation.

L&T � Larsen & Toubro, being the largest engineering and construction company in India, is a direct beneficiary of the strongdomestic infrastructure boom. Strong potential from its international business, its sound execution track record,bulging order book and strong performance of subsidiaries further reinforce our faith in it. There also lies a greatgrowth potential in some of its new initiatives.

Mahindra Lifespace� Mahindra Lifespace is the first in India to own two integrated business cities (IBC; a combination of SEZ anddomestic area): one in Chennai and the other in Jaipur. Both have become operational. It has acquired land atPune and Chennai to come up with two more IBCs. Apart from this, it has 3.77mn sq ft of residential andcommercial projects under construction across various cities and an additional land bank of 18.57mn sq ft forfuture development. Consequently, its stand-alone net profit should grow at a CAGR of 4.4% over FY2012-14.

Orbit Corp � Given its unique business model, Orbit is expected to cash on in the massive re-development opportunities insouthern and central Mumbai. Given its presence in the luxury segment, which is less price sensitive, it will be ableto revive faster once the real estate industry recovers.

Pratibha Ind � Pratibha is a dominant player in water & irrigation and urban infrastructure segments. It has also diversified intoother high-margin areas like road BOT, power and oil & gas. The current order book stands at Rs6,600 crore,which is 3.9x its FY2012 revenues. Given the government’s thrust on developing these segments, we expect the netprofit to grow at a CAGR of 29% over FY2012-14. The company is looking at expanding into the structuralmanufacturing business instead of the HSAW pipe manufacturing business (which has been an overhang for thepast one year). This will improve the balance sheet and profitability.

Punj Lloyd � Punj Lloyd is the second largest EPC player in the country (first being Larsen & Toubro) with a global presence.However, since FY2009, the profitability has come under severe pressure due to cost overruns/ liquidated damagesin some of Simon Carves (subsidiary) projects. Thus it has put Simon Carves under administration. Further Libyanprojects will take another few quarters to begin execution. Therefore, the successful execution of its projects alongwith debt reduction and working capital management will drive its growth as it enjoys a robust order book.

Unity Infra � With a well-diversified order book, Unity Infrastructure is expected to be the key beneficiary of the government’sthrust on infrastructure spending. The order book remains strong at Rs4,180 crore, which is 2.1x its FY2012revenues. We expect its net profit to post a CAGR of 19% on the back of a strong order book during FY2012-14.Further, it has recently forayed into the road BOT segment and has three BOT projects under its kitty.


RemarksRemarks


Oil & gas

GAIL � GAIL India, a leading gas transmission company, is aggressively expanding its pipeline network and plans toinvest more than Rs28,000 crore over FY2011-14 in a phased manner to significantly expand its gas pipelinenetwork to over 14,000km and its transmission capacity to around 300mmscmd. On account of lower domesticgas production, we expect a subdued performance from its core gas transmission business in the next couple ofyears. However, the LNG trading business is likely to see an uptick in the same period.

Oil India � Oil India has several hydrocarbon discoveries across reserves in Rajasthan and the north-eastern region of India.The total 1P (proven) and 2P (proven and probable) reserves of the company stood at 505 million barrels (mmbbls)and 944mmbbls respectively as on March 2011. In addition to the huge oil reserves, the company’s reserve-replacement ratio is quite healthy at 1.42x which implies a comfortable level of accretion of oil reserves throughnew discoveries. Further it has cash of around Rs10,935 crore (Rs182 per share) as on March 2012 and offershealthy dividend pay-out (divident yield of 4.3%) which provides comfort to investors.

Reliance Ind � RIL holds a great promise in E&P business with gas production from the KG basin starting from April 2009 and crudeoil production commencing from September 2008. We expect the company’s GRM to pick up with a likelyimprovement in the light-heavy crude oil price differential. The company is likely to fetch a premium over SingaporeComplex’ GRM due to its superior refinery complexity and captive use of KG-D6 gas. We expect the petrochemmargins to be maintained in the medium term on an uptick in the domestic demand. Currently the decline in gas outputfrom the KG-D6 basin is weighing on the stock price.

Selan Exploration � Selan is an oil exploration & production company with five oil fields in the oil-rich Cambay Basin of Gujarat. Theinitiatives taken to monetise the oil reserves in its Bakrol and Lohar oil fields are likely to improve production.Further, it intends to explore its next field, Indrora, which is the most prolific one with significant reserves. Basedon this, we expect it to ramp up production significantly, subject to approval for the new wells. However, due todelay in regulatory approvals, we have cut our production and earnings estimates. Nevertheless, our revisedearnings estimates are likely to grow by 25% (CAGR over FY12-14). Hence, we retain our Buy rating on the stockwith price target of Rs360.

Pharmaceuticals

Cadila � Cadila’s improving performance in the US generic vertical and emerging markets along with steady progress in theCRAMS space (through JVs) will help it achieve its target of generating revenues of $3 billion by 2015. It acquiredthree entities in FY2012, namely Nesher Pharma (USA), Bremer Pharma (Germany) and Biochem Pharma (India)which should supplement the growth. It has got USFDA’s clearance for its Moraiya plant, which removes one ofthe vital concerns for the company. However, the imposition of a new tax (Budget 2013) on partnership basedunits in Sikkim would be drag the earnings.

Dishman Pharma � Dishman Pharmaceutical and Chemicals is a key player engaged in CRAMS and specialty chemical businesses.The company has invested heavily over the past four years (over Rs1,000 crore capex during FY08-11) to establisha strong foothold in the CRAMS, API and vitamin-D businesses. After witnessing four years of sluggish performancedue to a global slowdown (that affected the CRAMS business) and heavy capex (that resulted in a sharp rise in thefixed costs), the company is all set to record a strong operating performance on the back of enhanced capacities,the up cycle in the CRAMS business and a substantial reduction in the debt/equity ratio due to stronger free cashflow. We initiate coverage on the stock with a Buy call and price target of Rs135.

Divi Labs � The FY2012 performance has re-affirmed our confidence in Divi’s Laboratories’ growth potential. The new DSNSEZ facility at Vishakhapatnam which started in June 2011 is likely to bring better economies of scale and taxbenefits. A near debt-free balance sheet and strong cash flow are likely to help build a war chest for pursuingstrategic investments (biosimilars) and exploit the growth opportunities in niche segments, like oncology andsteroids for contraceptives.

Glenmark Pharma � Glenmark exhibited an impressive operating performance during Q1FY2013 in core business on key genericlaunches but for forex losses and extraordinary items which dented the profits. Through the successful developmentand out-licencing of six molecules in a short span of eight years, Glenmark has become India’s best play onresearch-led innovation. It has built a pipeline of 14 molecules and clinched six out-licencing deals worth $1,672million (active deals worth $938). It has received $200 million as initial milestone payment. Its core business hasseen stupendous success due to its focus on niche specialties.

Ipca Lab � Ipca has successfully capitalised on its inherent strength in producing low-cost drugs to tap the export markets. Itsongoing efforts in the branded formulations business in the emerging economies, the revival in the UK operations,the pan-European initiatives, the likely approval of one additional product under institutional business and asignificant scale-up in the US business will drive its formulation exports. It has received USFDA’s approval for theIndore SEZ which would help ramp up the sales in the USA.


RemarksRemarks


Piramal Enterprises � Even though the pharma business is witnessing strong traction, Piramal’s diversification into unrelated areas likefinancial services, healthcare information business etc keeps us cautious. With the NCE business becoming anintegral part of the parent company, the risk profile of Piramal has increased. But the acquisitions of BST-Gel andmolecular imaging systems are set to unlock its investments in R&D in a short span of time. It has nearly Rs4,000crore outstanding from Abbott receivable by FY2014. We value the company’s cash receivables and liquidinvestments at Rs216 per share.

Sun Pharma � The combination of Sun Pharma and Taro offers an excellent business model. With a stronghold in the domesticformulation market, Sun Pharma has become an aggressive participant in the Para IV patent challenge space.Along with the exclusivities in the USA, the recent consolidation of the Taro acquisition has provided the much-needed boost to the stock. Recently, the USFDA has cleared its Caraco plants which can resume the production oftwo key drugs to start with. This will help Caraco gradually regain the market share in the USA. However, theimposition of new tax (Budget 2013) on partnership-based units in Sikkim would be a drag on earnings.

Torrent Pharma � A well-known name in the domestic formulation market, Torrent has been investing in expanding its internationalpresence. With the investment phase now over, Torrent should start gaining from its international operations inRussia and Brazil. The impending turnaround of its German acquisition, Heumann, will also drive its profitability.However, the imposition of new tax (Budget 2013) on partnership-based units in Sikkim would be a drag onearnings.

Agri-inputs

Deepak Fert � DFPCL manufactures and supplies industrial chemicals and ANP fertilisers. Given the expansion in TAN capacity,introduction of new products in the fertiliser division and ability to manage cost pressures, we expect the companyto report a good growth in revenue on the back of good volumes from the fertiliser segment. Going forward, thecompany may see pressure on margin due to an increase in the price of the key inputs for the chemical segment.

Tata Chemicals � With a combined capacity of 5.5mmtpa Tata Chemicals is the second largest soda ash producer in the world. Ithas purchased 25% stake in urea-ammonia green field project at Goban with investment of $290 million. Furtherchanges in urea policy are likely to benefit the company further. IMACID is expected to show a strong performanceon the back of a steep increase in the price of phosphoric acid, the main raw material for the production of DAP.The company is expected to show a strong performance on the back of a relatively healthy demand for soda ashand sodium bicarbonate in India compared with the rest of the world.

United Phos � A leading global producer of crop protection products, intermediates, specialty chemicals and other industrialchemicals, United Phosphorus has presence across value-added agricultural inputs ranging from seeds to cropprotection products and post-harvest activities. A diversified geography and the recent acquisition of DVA AgroBrazil will help the company to have a strong presence in the Brazilian market and aid in inorganic growth. It hasreduced its revenue growth guidance for FY2013 (earlier 20-25% revenue growth guidance) due to the roughweather condition in different geographies. It expects a revenue growth of 15% for the year 2012-13 and willmaintain 18-20% EBIDTA margin.

Building materials

Grasim � Grasim is better placed compared with the other large players in the cement space due to its strong balance sheet,comfortable debt/equity ratio (0.33x FY2012), attractive valuation and diversified business. The demand for VSFproducts remains strong in the global market and Grasim being a leading domestic player is well placed to capturethe incremental demand. The company is in the process of adding another 120,000 tonne capacity in VSF byFY2013 at an investment of Rs1,690 crore.

India Cements � India Cements’ installed capacity has got enhanced to 16MTPA which will result in volume growth and drive theearnings of the company. The company is also setting up a 100MW captive power plant, which is expected tocome on stream by FY2013 and benefit the company in terms of coast saving. Further we believe avg. cementrealisation of the company in FY13 to remain higher as compared to avg realisation of FY12.

Madras Cement � Madras Cement, one of the most cost-efficient cement producers in India, will benefit from the capacity additioncarried out ahead of its peers in the southern region. The 3mtpa expansion will provide the much-needed volumegrowth in the future. The regional demand remains lacklustre but on account of the improvement in the realisationdue to supply discipline and a likely change in the market mix its profitability will improve (marginally) in FY2013.

Orient Paper � Orient Paper has increased its cement capacity from 3.4mtpa to 5mtpa and installed a 50MW captive power plantto save on power cost. It will be able to deliver a better volume growth over FY2012-14 due to the commissioningof its new capacity and change in its market mix in favour of the western region compared with the southernregion. It is also in the process of demerging its cement division which could unlock value.


RemarksRemarks


Shree Cement � Shree Cement’s cement grinding capacity has grown to 13.5mtpa which will support its volume growth in thecoming years. It has set up 300MW power plant entirely for merchant sale which is expected to support itsrevenue growth going ahead. Thus, a volume growth of the cement division and the additional revenue accruingfrom the sale of surplus power will drive the earnings of the company.

UltraTech Cement � UltraTech is India’s largest cement company with approximately 52 million tonne cement capacity. It has benefitedfrom an improvement in its market mix. Further, the ramping-up of the new capacity and savings accruing fromthe new captive power plants will improve the company’s cost efficiency.

Retail

KKCL � Kewal Kiran Clothing is a branded apparel play with four brands in its kitty. Killer, its flagship denim brand, hascreated a niche space in the minds of consumers. With a gross market turnover of over Rs145 crore, Killer is aheadof its rival, Spykar. A strong brand profile, a disciplined management and a consistent track record coupled witha robust balance sheet position (cash on books at ~Rs120 a share) put it in a sweet spot.

Provogue India � Provogue is a play on the discretionary consumption space. Its core business of fashion apparels has seen demandslowdown in the recent quarters. Hence it has underperformed strongly on the bourses. Also, its 75% subsidiaryProzone has completed its restructuring exercise. It is now demerged from the parent company and is likely to getlisted on the bourses. The undemanding valuation makes it attractive.

Raymond � Raymond is present in the fast-growing discretionary & lifestyle category of branded textiles and apparels. Withthe growing income, rise in aspirations to lead a luxurious life, greater discretionary spending and favourabledemographics, the segment of branded apparels & fabrics presents a tremendous growth opportunity and Raymondwith its brands and superior distribution set-up is very well geared to encash the same. The company’s efforts toenhance focus on its power brands coupled with the benefits of a turnaround are not getting reflected in thevaluations. Hence the stock is due for a re-rating. Any development with regard to the Thane land in the form ofeither joint development or disposal would lead to value unlocking and provide significant cash to the company.

Relaxo Footwear � Relaxo is present in the fast-growing footwear category, wherein it caters to customers with its four top-of-the-mind-recall brands, viz, Hawaii, Sparx, Flite and Schoolmate. It has emerged as an attractive investment opportunitydue to its growing scale, strong brand positioning and healthy financial performance. Further, the company islikely to benefit from the softening ofthe price of its key raw materials. Therefore, it is a potential re-ratingcandidate. We recommend a Buy on the stock with a price target of Rs885

Diversified/Miscellaneous

Aditya Birla Nuvo � We believe the value businesses of the company (insulators, textiles, fertilisers, carbon black and rayon) have startedwitnessing increased efficiency as reflected in the sharp improvement in their OPM, while the growth businesses (retail,BPO, life insurance and financial services) are showing improved revenue visibility and gaining strong market share.Strong internal cash flows from value businesses coupled with the promoter funding would aid in meeting the fundingrequirement of the growth businesses.

Bajaj Holdings � Bajaj Holdings is the holding company of the Bajaj group, having a 30% stake each in Bajaj Auto and Bajaj Finserv.The two-wheeler sales are expected to improve going forward with new product launches. The insurance businessmakes it one of the largest players in the insurance space.

Bharti Airtel � Bharti Airtel continues to perform well in the Indian telecom market, in terms of both growth in subscriber base andrevenue market share. After a long time, traffic growth was seen in the Indian mobile segment which is positive. Thecontinuing regulatory uncertainty keeps us cautious on the sector.

BEL � Bharat Electronics, a PSU manufacturing electronic, communication and defence equipment, is benefiting from theenhanced budgetary outlay for strengthening and modernising the country’s security. The growth in revenue is alsoexpected to be aided by the civilian and export orders. The company’s current order book of Rs25,748 crore providesrevenue visibility for the next three to four years. The huge cash reserve would support the stock.

Eros Intl Media � Eros is one of the largest integrated film studios in India with multi-platform revenue streams and a well-establisheddistribution network across the globe. With its proven track record, de-risked business model and aggressiveramp-up plans, we believe the company is well poised to gain from the rising discretionary spending on filmentertainment driven by the country’s favourable demographics. Thus, EIML is a compelling value play on theIndian media and entertainment industry.


RemarksRemarks


RemarksRemarks

GDL � With its dominant presence in the container freight station segment and recent forays into the rail freight and coldchain businesses, GDL has evolved as an integrated logistic player. Its CFS business is a cash cow while its investmentsin the rail and cold storage businesses have started bearing fruits. It is one of the largest players in the CFS businessand has also evolved as the largest player in the rail freight business as well as the cold storage business. Theproposed capex for all the three segments will strengthen its presence in each of the segments and increase its pan-India presence. We expect GDL’s revenue and net profit to grow at 22% and 13% CAGR respectively overFY2012-14.

Indian Hotels Co � Indian Hotels is the largest hotelier in India with a vast portfolio of hotel properties around the globe. Over the longterm the company would benefit from the increase in tourism and corporate travel in India. Also, a turnaround inprofitability of its overseas properties would boost its earnings.

Max India � Max India is a unique investment opportunity providing direct exposure to two sunrise industries of insuranceand healthcare services. Max New York Life, its life insurance subsidiary, is among the leading private sectorplayers, has gained the critical mass and enjoys some of the best operating parameters in the industry. Withinsurance penetration picking up in India and with the company entering into a tie-up with Axis Bank, we expectto see a healthy growth in the company’s annual premium equivalent going ahead. As the company has turnedprofitable on a consolidated basis and also has treasury corpus of Rs860 crore, it plans to announce a dividend inFY13 and continue it in future.

Opto Circuits � Having a strong presence in organ monitoring systems, Opto Circuits has diversified into the invasive space,supplying stents for medical use. Besides, the Criticare acquisition has further enabled it to diversify into gasmonitoring system and strengthen its position in the USA. The quick turnaround in the recently acquired CardiacLifescience is impressive and would drive the future growth. However, the recent downgrade by ICRA due toRs584 crore worth of working capital debts and other balance sheet concerns (like long working capital cycle andhigh debt/equity ratio) are the key concerns.

Ratnamani Metals � Ratnamani Metals is the largest stainless steel tube and pipe maker in India. In spite of the challenging businessenvironment due to increasing competition, the stock is attractively valued. The management has maintained astrong outlook on the potential opportunities in the oil & gas sector. It has reported strong revenue growth butmargins have been trending downwards. Going ahead, we expect the revenue growth to pick up in the later partof H2FY2013 with stable margins.

Sintex Industries � A key player in the plastic specialties space, Sintex Industries has a diverse business model with presence inconstruction, prefabs, custom moulding and textile businesses. Being a pioneer in the monolithic constructiontechnique, it has a good order book position. But owing to policy paralysis, the company is going slow on the executionfront, which is likely to break the strong growth momentum seen by it in the last two years. The stock hasunderperformed the Sensex and the Nifty. It is currently trading at less than 6x its one-year forward earnings whichis cheap in terms of valuation. Thus we maintain a Buy on it.











Documents

top picks