India Daily, August 16, 2010 - Kotak Securities · for private circulation only. for important information about kotak securities’ rating system and other disclosures. refer to

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

INDIA DAILYAugust 16, 2010 India 13-Aug 1-day1-mo 3-mo

Sensex 18,167 0.5 1.2 6.9

Nifty 5,452 0.7 1.1 7.0

Global/Regional indices

Dow Jones 10,303 (0.2) 2.0 (3.0)

Nasdaq Composite 2,173 (0.8) (0.3) (7.4)

FTSE 5,275 0.2 2.3 0.2

Nikkie 9,119 (1.5) (3.1) (12.8)

Hang Seng 21,072 (0.2) 4.1 4.6

KOSPI 1,721 (1.5) (1.0) 1.5

Value traded – India

Cash (NSE+BSE) 223 173 169

Derivatives (NSE) 949 803 770

Deri. open interest 1,702 1,461 1,338

Forex/money market

Change, basis points

13-Aug 1-day 1-mo 3-mo

Rs/US$ 46.8 (1) (1) 169

10yr govt bond, % 7.9 5 23 35

Net investment (US$mn)

12-Aug MTD CYTD

FIIs 96 830 11,307

MFs (30) (191) (282)

Top movers -3mo basis

Change, %

Best performers 13-Aug 1-day 1-mo 3-mo

HPCL IN Equity 485.3 (0.7) 8.3 46.0

BOI IN Equity 463.0 0.1 17.2 40.3

TCOM IN Equity 329.6 2.8 13.6 31.2

BHFC IN Equity 343.1 1.2 4.1 28.7

SBIN IN Equity 2850.3 2.4 16.4 28.1

Worst performers

PUNJ IN Equity 116.8 (0.7) (15.2) (19.1)

RNR IN Equity 38.6 (0.8) (14.9) (18.8)

SUEL IN Equity 56.5 (1.9) (5.9) (13.9)

NMDC IN Equity 257.1 (0.1) (2.7) (11.8)

IH IN Equity 102.6 6.3 (2.8) (11.6)

Contents

Results Reliance Communications: 1QFY11 weak; balance sheet remains stretched. SELL

Nalco: Results marginally below expectations, valuations expensive

Cipla: In line quarter marked by weak performance in India

Unitech: Steady 1QFY11

Lanco Infratech: Power drive

Suzlon Energy: Subscale sales lead to EBITDA loss; focus back on India with integrated model

Shree Cement: Advent into power trading boost sales

Dishman Pharmaceuticals: Weak quarter, no recovery in CRAMS revenues

Updates Tata Steel: Profitability has peaked, expect moderation ahead

Patni Computer Systems: Special dividend announcement: Prelude to eventual sale?

Shree Renuka Sugars: 3QFY11 subdued but demand-supply scenario more stable than earlier

News Round-up

Mahindra & Mahindra (MM IN) plans to scale up its production capacity, by over 60% in two years to cash in on the growing rural demand. (ECNT)

Tata Steel's (TATA IN) domestic manufacturing capacity will jump three-fold to 21 mn tonne per annum (mtpa) following the expansion of its Jamshedpur project and Orissa & Chhattisgarh's Greenfield units becoming operational. (ECNT)

PowerGrid (PWGR IN) is planning to lease out 80% of the towers to telecom companies, which in turn will make it one of the leading telecom tower companies in the country. (ECNT)

Marico (MRCO IN) buys Ingwe brand from South African Co for an undisclosed amount. (ECNT-SAT)

Anil Agrawal controlled Vedanta Resources has concluded talks to buy a controlling stake in Cairn India (CAIR IN) & the announcement is expected today. (BSTD)

Cairn India (CAIR IN) has made an oil & gas discovery in the second well drilled in the block KG-ONN-2003/1 in Krishna Godavari basin. (BSTD)

Keen to get gas for its plant, NTPC (NATP IN) may offer equity stake to Qatar Petroleum in its gas based projects, a move that would allow the company assured supply of fuel for the operations. (BSTD)

Mahanagar Gas Ltd. an equal JV between GAIL India & British Gas is likely to go for a listing, it will be the second city gas distribution firm to get listed after IGL. (BSTD)

Cairn India (CAIR IN) has made an Oil and gas discovery in an onland KG basin block. (THBL)

S&P raised Tata Motors (TTMT IN) credit ratings to "B+ " from "B" citing improved performance by auto maker's premium brands Jaguar Land Rover. (FNLE-Sat)

Source: ECNT= Economic Times, BSTD = Business Standard, FNLE = Financial Express, THBL = Business Line.

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

Weak 1QFY11 – disappointing, across the board

RCOM reported revenues, EBITDA, and net income of Rs51 bn (3% below estimate, +0.3% qoq, -17% yoy), Rs16.3 bn (in line with estimate, +2% qoq, -34% yoy), and Rs2.5 bn (69% below estimate, -79% qoq, -85% yoy) for 1QFY11. Even as the company managed to meet our EBITDA estimate despite revenue miss through aggressive cost controls (network opex declined in absolute terms), forex losses of Rs2.2 bn versus our estimate of a gain led to substantial net income miss.

More importantly, however, operational metrics across business segments disappointed yet again, and clearly reflect RCOM’s weak competitive positioning. Specifically, we note – (1) loss in revenue market share in the wireless segment – RCOM reported a qoq growth of 1.5% in wireless revenues, substantially lower than the 5-6% reported by Bharti, Idea, and Vodafone. RCOM’s earnings report also validated the reversal of network traffic to GSM incumbents – wireless minutes carried grew a meager 1% qoq versus 10-14% reported by large GSM peers, and (2) sustained weakness in the long distance and BB segments – long distance revenues were down 11% qoq, while BB segment revenues also declined 0.5% qoq.

Balance sheet remains stretched

Exhibit 3 depicts the end-June 2010 balance sheet of RCOM while Exhibit 4 gives our analysis of the company’s debt position; we estimate net debt/ EBITDA of 4.3X on FY2011E financials, stretched in our view. The company has announced an asset sale (tower deal with GTL) and intends to raise equity to reduce leverage. However, this could turn out to be a temporary relief unless the company improves on execution and delivers better turnover of its massive asset base.

Cut estimates and target price; reiterate SELL

We now build in 3G investments and revenue upside in our model. Even as 3G revenue/EBITDA upside leads to moderate increase in EBITDA estimates despite sustained weakness in operating performance, the incremental interest and depreciation expenses (in a highly leveraged P&L) drive substantial (35-57%) cut in our FY2011-13E EPS estimates. We also reduce our target price on the stock to Rs150/share – this includes Rs30/share upside from the completion of the tower sale at announced EV. Reiterate our SELL rating on the stock.

Reliance Communications (RCOM)

Telecom

1QFY11 weak; balance sheet remains stretched. SELL. RCOM reported a weak 1QFY11 across wireless and non-wireless segments. The company’s GSM (2G) foray has failed to drive improvement in competitive positioning. Even as the company is working on asset sale (tower deal with GTL) and equity infusion (stake sale in parent co.) to improve its stretched balance sheet, success in the marketplace demands substantial improvement in execution. We cut our EPS estimates substantially and reiterate SELL.

Reliance CommunicationsStock data Forecasts/Valuations 2010 2011E 2012E

52-week range (Rs) (high,low) EPS (Rs) 22.1 6.0 9.4Market Cap. (Rs bn) 358.5 EPS growth (%) (30.2) (72.8) 56.1

Shareholding pattern (%) P/E (X) 7.6 28.0 17.9Promoters 67.7 Sales (Rs bn) 222.5 214.0 252.5FIIs 8.6 Net profits (Rs bn) 48.8 13.9 21.2MFs 1.2 EBITDA (Rs bn) 78.9 67.7 82.8

Price performance (%) 1M 3M 12M EV/EBITDA (X) 7.1 9.6 8.0Absolute (11.0) 14.7 (36.5) ROE (%) 11.7 3.2 4.9Rel. to BSE-30 (11.9) 9.1 (45.7) Div. Yield (%) 0.5 0.0 0.0

Company data and valuation summary

320-132

SELL

AUGUST 13, 2010

RESULT

Coverage view: Cautious

Price (Rs): 168

Target price (Rs): 150

BSE-30: 18,167

Reliance Communications Telecom

KOTAK INSTITUTIONAL EQUITIES RESEARCH 3

1QFY11 results – disappointing, despite aggressive cost rationalization

Wireless – below expectations, weaker than peers

RCOM reported gross wireless revenues of Rs41.5 bn (+1.5% qoq, down 13% yoy), 2% below our estimate. Revenue miss was driven by a disappointing 1% qoq growth in total minutes carried (our expectation was 6.2%), strikingly lower than the 10-14% reported by the GSM peers, clearly validating the trend of reversal of network traffic to GSM incumbents. RCOM attributed the weak volume performance to its efforts to reduce free minutes in the network. RPM of Rs0.44/min (+0.8% qoq, down 23% yoy) came in 3% ahead of our estimate, while MOU fell a sharp 7% qoq to 295 versus our estimate of 311.

Wireless EBITDA were flat at 28.9% versus our estimate of a 70 bps decline. The company indicated reduction in network opex on account of more cell sites getting connected to grid power (leading to lower fuel expenses) and reduction in network maintenance costs.

Long distance – pricing pressure continues to put pressure on financials

RCOM reported a sharp 10.6% qoq decline in long distance (LD) segment revenues to Rs18.1 bn, 12% lower than our estimate. The sharp 48% and 41% yoy increase in NLD and ILD traffic carried, respectively, has failed to translate into revenue growth in the LD segment (revenues were down 4% yoy), indicating sharp pricing pressure in the segment. EBITDA margin for the segment expanded 80 bps qoq, again driven by aggressive cost control.

Broadband (BB) segment – little improvement

RCOM reported a 0.5% sequential drop in its BB segment revenues to Rs6.8 bn – we highlight that this is the third consecutive quarter of sequential revenue drop in the segment. BB EBITDA of Rs2.5 bn for 1QFY11 was down 2% qoq and 17% yoy. OPM fell 60 bps qoq to 36.6%.

Others – the only silver lining, but too small in the overall scheme of things

RCOM reported a 18% qoq and 11% yoy increase in revenues from the ‘others’ segment (DTH, primarily) to Rs3.35 bn. Revenue growth also reflected better EBITDA performance – EBITDA loss for this segment reduced to Rs1.35 bn from Rs1.76 bn in 4QFY10.

Cost items – overall costs decline qoq in absolute terms, driven by decline in network opex

RCOM reported a 40 bps qoq improvement in consolidated EBITDA margin despite poor revenue performance on the back of aggressive cost control. Overall costs were down 0.4% qoq, driven by the second consecutive quarter of decline in network operating expenses (down 14% qoq).

Build in 3G into our model; cut EPS estimates sharply

We now build in 3G investments and revenue upside into our model. Even as the inclusion of 3G limits the cuts in our revenue estimates and increases our EBITDA estimates a tad, sharp increase in interest and depreciation charge on account of the same drives a sharp 57%, 48% and 35% cut in our FY2011E, 12E, and 13E EPS estimates to Rs6.0, Rs9.4, and Rs13.8, respectively. Exhibit 1 depicts the key changes to our model.

We reiterate our SELL rating on the stock with a revised end-March 2012E target price of Rs150/share (Rs175 earlier). Our target price includes a net upside of Rs30/share from the tower sale deal (on announced terms) to our core business DCF value of Rs120/share.

Exhibit 6 gives our DCF model for the company. Exhibits 7-11 look at the impact of the tower sale deal under two potential scenarios, while Exhibit 12 gives the profit, balance, and cash models.

Telecom Reliance Communications

4 KOTAK INSTITUTIONAL EQUITIES RESEARCH

Exhibit 1: Summary of key changes to the RCOM model, March fiscal year-ends, 2011-2017E

Unit 2011E 2012E 2013E 2014E 2015E 2016E 2017EMobile market subs old mn 794 946 1,052 1,127 1,179 1,219 1,249Mobile market subs new mn 794 946 1,052 1,127 1,179 1,219 1,249 Revision (%) 0% 0% 0% 0% 0% 0% 0%

RCOM mobile subs old mn 132 152 167 177 184 189 193RCOM mobile subs new mn 132 152 167 177 184 189 193 Revision (%) 0% 0% 0% 0% 0% 0% 0%

Blended ARPU (incl. inroaming) est. old Rs 124 122 123 126 129 132 136Blended ARPU (incl. inroaming) est. new Rs 124 122 125 129 131 134 137 Revision (%) 0% 0% 1% 2% 2% 1% 1%

Blended RPM est. old Rs 0.39 0.38 0.38 0.38 0.39 0.39 0.40Blended RPM est. new Rs 0.43 0.41 0.41 0.42 0.42 0.42 0.42 Revision (%) 10% 7% 8% 9% 8% 7% 7%

Blended MOU est. old Rs 319 319 322 326 332 337 343Blended MOU est. new Rs 289 300 303 307 312 318 324 Revision (%) -9% -6% -6% -6% -6% -6% -6%

Consolidated revenues old (Rs bn) 223 260 293 322 348 371 394 Consolidated revenues new (Rs bn) 214 253 288 320 344 366 386 Revision (%) -4% -3% -2% -1% -1% -2% -2%

Consolidated EBITDA old (Rs bn) 67 83 98 110 118 126 133Consolidated EBITDA new (Rs bn) 68 83 99 112 121 129 136 Revision (%) 0% 0% 1% 2% 2% 2% 2%

Mobile EBITDA margin old (%) 28.5 28.9 29.2 29.5 29.8 30.1 30.3 Mobile EBITDA margin new (%) 29.3 29.1 29.5 30.2 30.7 31.1 31.5 Revision (bps) 79 23 27 67 84 99 116

Adjusted PAT old (Rs bn) 30.0 38.7 45.3 52.5 58.6 59.4 60.3Adjusted PAT new (Rs bn) 12.8 20.0 29.4 38.2 45.0 47.9 51.8 Revision (%) -57% -48% -35% -27% -23% -19% -14%

Diluted EPS estimate old (Rs) 14.1 18.2 21.3 24.6 27.5 27.9 28.3Diluted EPS estimate new (Rs) 6.0 9.4 13.8 17.9 21.1 22.4 24.3 Revision (%) -57% -48% -35% -27% -23% -19% -14%

Capex old (Rs bn) 36.8 53.9 54.8 55.7 56.8 59.5 62.8Capex new (Rs bn) 30.7 65.7 55.4 52.2 50.9 50.5 51.0 Revision (%) -17% 22% 1% -6% -10% -15% -19%

Mobile capex /sales old (%) 15 20 19 18 17 17 17Mobile capex /sales new (%) 6 21 15 13 12 12 11 Revision (pps) -9.8 1.3 -3.4 -4.7 -5.0 -5.2 -5.5

Source: Kotak Institutional Equities estimates



Exhibit 2: RCOM - 1QFY11 performance, March fiscal year-ends (Rs mn)

(Rs mn) Jun-09 Mar-10 Jun-10 qoq (%) yoy (%) 1QFY11E Deviation (%)Consolidated resultsRevenues 61,452 50,928 51,092 0.3 (16.9) 52,538 (2.8)

EBITDA 24,525 16,020 16,320 1.9 (33.5) 16,362 (0.3) EBITDA margin (%) 39.9 31.5 31.9 31.1 Depreciation and Amortization (11,144) (10,847) (9,648) (11.1) (13.4) (8,894) 8.5 Net finance (cost)/income 6,205 8,134 (4,396) (154.0) (170.8) 2,218 (298) PBT 19,475 13,292 2,276 (82.9) (88.3) 9,686 (76.5) Tax provision (2,267) (1,923) 719 (137.4) (131.7) (1,337) (153.7) PAT before minority interest 17,208 11,369 2,995 (73.7) (82.6) 8,349 (64.1) Minority interest (842) 826 (486) (158.8) (42.3) (257) 89 Repoted net income 16,366 12,195 2,509 (79.4) (84.7) 8,092 (69.0)

Segmental performanceWirelessRevenues 47,931 40,900 41,528 1.5 (13.4) 42,453 (2.2) EBITDA 18,489 11,815 11,989 1.5 (35.2) 11,972 0.1 OPM (%) 38.6 28.9 28.9 28.2 ARPU (Rs/sub/month) 210 139 130 (6.5) (38.1) 133 (2.1) MOU (min/sub/month) 365 318 295 (7.2) (19.2) 311 (5.0) RPM (Rs/min) 0.58 0.44 0.44 0.8 (23.4) 0.43 3.1 EPM (Rs/min) 0.22 0.13 0.13 0.5 (42.8) 0.12 5.3 Total minutes (bn) 83.3 93.5 94.4 1.0 13.3 99.3 (4.9)

Long DistanceRevenues 18,844 20,278 18,137 (10.6) (3.8) 20,609 (12.0) EBITDA 4,515 3,555 3,317 (6.7) (26.5) 3,813 (13.0) OPM (%) 24.0 17.5 18.3 18.5 NLD minutes (bn) 10,349 16,086 15,265 (5.1) 47.5 ILD minutes (bn) 2,209 2,656 3,123 17.6 41.4

BroadbandRevenues 6,842 6,798 6,763 (0.5) (1.2) 6,841 (1.1) EBITDA 2,994 2,526 2,477 (1.9) (17.3) 2,565 (3.4) OPM (%) 43.8 37.2 36.6 37.5

OthersRevenues 3,031 2,845 3,348 17.7 10.5 3,135 6.8 EBITDA (1,381) (1,759) (1,350) (23.3) (2.2) (1,787) (24.5)

Source: Company, Kotak Institutional Equities estimates



Exhibit 3: RCOM's balance sheet for the most recent quarters (Rs mn)

Mar-08 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 Sep-09 Dec-09 Mar-10 Jun-10EquityShare capital 10,320 10,320 10,320 10,320 10,320 10,320 10,320 10,320 10,320 10,320 Reserves and surprlus 246,107 253,877 271,278 280,329 359,683 366,845 369,084 373,742 377,505 377,948 Equity 256,427 264,197 281,598 290,649 370,003 377,165 379,404 384,062 387,825 388,268 Minority interest 24,311 18,707 11,621 11,014 8,228 7,001 8,688 9,212 7,472 7,360 Debt 215,681 207,542 240,735 266,722 335,520 314,631 254,665 249,348 247,473 332,162 Current liabilities 199,267 238,240 251,144 272,944 225,980 224,206 227,706 224,407 198,855 184,346 Provisions 42,420 44,011 40,680 36,954 39,162 39,312 37,685 39,680 39,121 39,423 Total capital 738,106 772,697 825,778 878,283 978,893 962,315 908,148 906,709 880,746 951,559 AssetsCash 115,981 77,654 88,478 80,747 109,577 93,001 43,873 60,639 48,585 47,349 Inventories 4,059 4,330 4,408 5,111 5,427 5,390 5,494 5,210 5,446 5,441 Debtors 27,224 26,617 33,803 47,441 54,785 53,797 45,117 37,703 33,380 32,438 Other current assets 23,058 26,121 29,346 32,167 16,912 21,679 20,575 20,691 22,455 20,487 Loans and advances 42,834 56,118 53,368 64,911 59,859 71,071 71,471 61,796 54,286 53,871 Gross block 463,640 503,993 540,804 582,120 756,489 775,079 781,996 778,988 786,643 811,386 Less: Depreciation 89,814 102,050 115,352 128,634 141,069 162,527 167,519 178,361 190,765 206,277 Net block 373,826 401,943 425,452 453,486 615,420 612,552 614,477 600,627 595,878 605,109 CWIP 148,327 178,381 189,309 191,602 114,056 103,527 105,776 118,716 119,517 185,635 Investments 2,797 1,533 1,614 2,818 2,857 1,318 1,365 1,327 1,199 1,229 Total assets 738,106 772,697 825,778 878,283 978,893 962,335 908,148 906,709 880,746 951,559

Net debt 96,903 128,355 150,643 183,157 223,086 220,312 209,427 187,382 197,689 283,584

Source: Company, Kotak Institutional Equities

Exhibit 4: RCOM: Analysis of debt position

(Rs mn) FY2010 FY2011E FY2012E FY2013EGross debt 247,473 361,623 361,623 341,623 Cash and equivalents 49,784 68,474 57,690 59,834 Net debt 197,689 293,148 303,932 281,789 EBITDA 78,870 67,679 80,195 96,315

Net debt/TTM EBITDA (X) 2.5 4.3 3.8 2.9




Exhibit 5: RCOM reported a significant net finance cost (not seen in last many quarters despite significant net debt)

Rs mn 1QFY09 2QFY09 3QFY09 4QFY09 1QFY10 2QFY10 3QFY10 4QFY10 1QFY11Rupee loans 61,870 83,667 88,348 148,614 131,756 65,990 60,748 60,953 103,609 Foreign currency loans 143,297 157,068 178,374 186,906 182,875 188,675 188,600 186,520 205,330 Less: FCCB (b) 56,975 62,196 64,296 67,969 64,349 64,215 62,392 60,260 62,070 ex-FCCB FC loans 86,322 94,873 114,079 118,937 118,526 124,460 126,208 126,260 143,260 Estimated interest rate on Re loans (%) 10.0 10.0 10.0 10.0 10.7 11.0 11.0 11.0 Estimated interest rate on FC loans (%) 7.0 7.0 7.0 7.0 7.0 7.0 7.0 7.0 Estimated interest on Re loans 1,819 2,150 2,962 3,505 2,640 1,743 1,673 2,263 Estimated interest on FC loans 1,585 1,828 2,039 2,078 2,126 2,193 2,209 2,358 Estimated total interest cost 3,405 3,979 5,001 5,582 4,766 3,936 3,882 4,621 Cash on books + investments 79,187 90,092 83,565 112,434 94,319 45,238 61,956 49,784 48,578 Estimated yield on cash balance (%) 10.0 9.0 8.0 7.0 6.0 6.0 6.0 6.0 Estimated interest income 2,116 1,954 1,960 1,809 1,047 804 838 738 Net finance (cost)/income reported 2,353 1,496 1,678 6,205 (6,551) 4,075 8,134 (4,396)

Estimated forex gains (loss)/ other income 3,642 3,521 4,719 9,978 (2,832) 7,207 11,178 (513)


Exhibit 6: End-March 2012 TP of Rs150/share includes DCF value of Rs120/share of core business and upside of Rs30/share from the tower sale deal Discounted cash flow valuation of Reliance Communications (Rs mn)

2010E 2011E 2012E 2013E 2014E 2015E 2016E 2017E EBITDA 78,870 67,679 82,829 99,306 112,365 121,207 128,722 135,929 Tax (7,649) (6,401) (7,804) (9,959) (11,645) (12,576) (13,360) (14,217) Change in working capital 40,097 (31,601) (10,366) (469) 440 (394) (749) (863) Post-tax operating cash flow 111,318 29,678 64,659 88,877 101,159 108,238 114,613 120,848 Capex (41,621) (116,575) (65,735) (55,402) (52,165) (50,885) (50,470) (50,965) Free cash flow 69,697 (86,898) (1,076) 33,476 48,995 57,353 64,143 69,882

Mar-12 WACC and terminal year assumptionsPV of cash flows 211,982 Terminal growth (%) 4.0 PV of terminal value 344,107 WACC (%) 14.0 EV 556,089 Net debt 293,148 Equity value (Rs mn) 262,940 Equity value (US$ mn) 5,478RCL shares (mn) 2,133 Equity value (Rs/RCOM share) 123 Exit FCF multiple (X) 10.0 Exit EBITDA multiple (X) 5.1

Key assumptions (%) 2010E 2011E 2012E 2013E 2014E 2015E 2016E 2017ERevenue growth (3.0) (3.8) 18.0 13.9 11.1 7.6 6.3 5.5 EBITDA growth (15.2) (14.2) 22.4 19.9 13.2 7.9 6.2 5.6 EBITDA margin 35.4 31.6 32.8 34.5 35.2 35.2 35.2 35.2 Capex/sales 18.7 54.5 26.0 19.3 16.3 14.8 13.8 13.2 Cash tax rate 10.3 17.0 17.0 17.0 17.0 17.0 17.0 17.0 Effective tax rate 8.4 9.2 15.0 15.6 15.9 16.1 20.2 21.4 Return on avg. capital employed 5.3 3.5 4.3 5.6 6.7 7.4 8.0 8.6




Exhibit 7: The deal - RCOM tower asset sale to GTL Infrastructure in numbers - Scenario 1

Combined EV of the post-deal GTL infra (Rs bn) 500 Combined # of towers 82,000 EV/tower (Rs mn) 6.10 Tower base - GTL Infra 32,000 Deal-implied EV of GTL Infra (Rs bn) 195 Implied deal-implied share price of GTL infra (b) 93 Implied Deal EV (Rs bn) 305 EV/tower (US$) 135,501 Net debt of RITL being transferred (assumed) (Rs bn) 20 Equity value realized (Rs bn) 285 Equity value accruing to RCOM shareholders (95% of total) (Rs bn) (b) 271 Of which, cash accrual to RCOM (Rs bn) (c) 145 Share swap portion (Rs bn) (d) - for RCOM shareholders 126 Share swap portion to RITL minority shareholders 14 Total new shares of GTL Infra to be issued (mn) (@93/ GTL share) 1,502

Of which, RCOM shareholders receive 1,349 Of which, RITL minority shareholders receive 153

Share swap ratio (applicable to RCOM shareholders) (e) 0.62

Note:(a) end-FY2010 reported net debt of Rs40 bn + Rs84 bn for Aircel deal less Rs18 bn shown as invested.(b) adjusted for 5% minority interest in Reliance Infratel.(c) based on press statements of 50% reduction in RCOM's gross debt post deal.(d) = (b) - (c) .(e) denotes shares of GTL Infra to be received per share of RCOM.

Source: Company release, Press reports, Kotak Institutional Equities estimates



Exhibit 8: RCOM equity value pre/post-deal - FY2012E basis - Scenario 1 Pre-deal fair value of RCOMConsolidated EBITDA (Rs mn) 82,829 Implied EV/EBITDA (X) 6.8 EV (Rs mn) 562,316 Net debt (including 3G payout) (Rs mn) 302,876 Equity value (Rs mn) 259,440 Per share equity value (Rs) 120 Post-deal fair value of RCOMPre-deal consolidated EBITDA (Rs mn) 82,829 Towerco sale impact on EBITDA (Rs mn) (26,460) Adjusted EBITDA (Rs mn) 56,369 EV/EBITDA (X) 6.8 EV (Rs mn) 382,683 Net debt (Rs mn) 137,876 Equity value (Rs mn) 244,807 Per share value (Rs) 113 + value of 0.62 shares of GTL infra 34 Post-deal per share value of RCOM (Rs) 147 Current share price of RCOM (Rs) 168 Potential upside/(downside) (12) Post-deal fair value of GTL infraPost-deal # of towers 90,000 EV/tower (US$) 100,000 EV (US$ mn) 9,000 EV (Rs mn) 405,000 Net debt (Rs mn) 271,000 Equity value (Rs mn) 134,000 Revised share count (mn) 2,459 Fair value (per share) 54


Exhibit 9: The deal - RCOM tower asset sale to GTL Infrastructure in numbers - Scenario 2

Combined EV of the post-deal GTL infra (Rs bn) 500 Current market cap of GTL Infra (Rs bn) (@CMP of Rs46.3/share) 44 Current net debt of GTL Infra (Rs bn) (a) 106 Current EV of GTL Infra (Rs bn) 150 Implied Deal EV (Rs bn) 350 Implied EV/tower (US$) 155,440 Net debt of RITL being transferred (assumed) (Rs bn) 20 Equity value realized (Rs bn) 330 Equity value accruing to RCOM shareholders (95% of total) (Rs bn) (b) 313 Of which, cash accrual to RCOM (Rs bn) (c) 145 Share swap portion (Rs bn) (d) - for RCOM shareholders 168 Share swap portion to RITL minority shareholders 16 Total new shares of GTL Infra to be issued (mn) (@46.3/ GTL share) 3,990

Of which, RCOM shareholders receive 3,634 Of which, RITL minority shareholders receive 356

Share swap ratio (applicable to RCOM shareholders) (e) 1.68

Note:(a) end-FY2010 reported net debt of Rs40 bn + Rs84 bn for the Aircel deal less Rs18 bn already shown as invested.(b) adjusted for 5% minority interest in Reliance Infratel.(c) based on press statements of 50% reduction in RCOM's gross debt post deal.(d) = (b) - (c) .(e) denotes # of shares of GTL Infra to be received per share of RCOM.

Source: Company release. Press reports, , Kotak Institutional Equities estimates



Exhibit 10: RCOM equity value pre/post-deal - FY2012E basis - Scenario 2

Pre-deal fair value of RCOMConsolidated EBITDA (Rs mn) 82,829 Implied EV/EBITDA (X) 6.7 EV (Rs mn) 551,506 Net debt (including 3G payout) (Rs mn) 302,876 Equity value (Rs mn) 248,630 Per share equity value (Rs) 115 Post-deal fair value of RCOMPre-deal consolidated EBITDA (Rs mn) 82,829 Towerco sale impact on EBITDA (Rs mn) (26,460) Adjusted EBITDA (Rs mn) 56,369 EV/EBITDA (X) 6.7 EV (Rs mn) 375,326 Net debt (Rs mn) 137,876 Equity value (Rs mn) 237,450 Per share value (Rs) 110 + value of 1.68 shares of GTL infra 45 Post-deal per share value of RCOM (Rs) 155 Current share price of RCOM (Rs) 168 Potential upside/(downside) (8) Post-deal fair value of GTL infraPost-deal # of towers 90,000 EV/tower (US$) 100,000 EV (US$ mn) 9,000 EV (Rs mn) 405,000 Net debt (Rs mn) 271,000 Equity value (Rs mn) 134,000 Revised share count (mn) 5,010 Fair value (per share) 27




Exhibit 11: Implications of the deal from a RCOM shareholder perspective

Fair value of RCOM (Rs/share) 147

Broken into (Rs/share)EV of core business 177 Net debt (64) Equity value of RCOM 113 Value of 0.62 shares of GTL Infra 34

Fair value of RCOM (Rs/share) 120 Equity value per share of RCOM held today 147

Broken into (Rs/share)EV of core business incl towers 255 Net debt (135) Equity value 120

Fair value of RCOM (Rs/share) 155

Broken into (Rs/share)EV of core business 174 Net debt (64) Equity value of RCOM 110 Value of 1.68 shares of GTL Infra 45 Equity value per share of RCOM held today 155

Pre-deal

Post-deal Scenario 2

Post-deal Scenario 1




Exhibit 12: RCOM's condensed financial statements, March year ends, 2009-2017E

2009 2010 2011E 2012E 2013E 2014E 2015E 2016E 2017EProfit model (Rs mn)Revenue 229,411 222,504 213,960 252,535 287,719 319,630 344,031 365,776 386,000EBITDA 92,976 78,870 67,679 82,829 99,306 112,365 121,207 128,722 135,929EBIT 56,899 41,404 27,689 37,176 50,040 59,938 65,732 70,246 74,483Net interest income / (expense) 12,049 11,863 (12,357) (12,213) (13,680) (12,855) (10,447) (8,362) (6,542)Tax 518 (4,454) (1,406) (3,742) (5,679) (7,502) (8,896) (12,517) (14,547)Net profit 67,430 47,385 12,810 19,992 29,391 38,226 44,967 47,873 51,826Fully diluted EPS 31.6 22.1 6.0 9.4 13.8 17.9 21.1 22.4 24.3

Balance sheet (Rs mn)Cash 16,829 48,585 67,275 57,548 61,124 58,359 50,471 61,691 77,384Other current assets 130,316 115,567 114,076 120,807 126,947 132,515 136,773 140,567 144,096Fixed assets 727,053 715,395 791,980 812,062 818,198 817,936 813,345 805,340 794,860Other long term assets — 0 1,919 2,419 2,919 3,419 3,919 1,919 0Short tem debt (33,110) 29,754 61,348 61,348 41,348 (1,199) (1,199) (1,199) (1,199)Other current liabilities 200,814 237,976 205,604 201,969 207,639 213,647 217,511 220,557 223,222Long term debt 329,075 216,520 299,075 299,075 299,075 299,075 241,101 216,101 196,101Other long term liabilities 281 0 — — — — — 0 1,081Shareholders funds (incl. minorities) 429,352 395,297 409,224 430,444 461,125 500,706 547,095 574,058 597,135Net (debt)/ cash (374,794) (198,888) (294,347) (304,075) (280,499) (240,716) (190,630) (154,411) (118,717)

Free cash flow (Rs mn)EBITDA 92,976 78,870 67,679 82,829 99,306 112,365 121,207 128,722 135,929 Change in working capital (38,059) 40,097 (31,601) (10,366) (469) 440 (394) (749) (863)Cash tax (paid) (328) (5,454) (2,606) (4,242) (6,179) (8,002) (9,396) (10,517) (11,547)Cash interest (paid) (10,711) (21,284) (22,333) (20,958) (22,240) (21,440) (18,712) (16,727) (15,715)Capex on PP&E and intangibles (194,168) (41,621) (116,575) (65,735) (55,402) (52,165) (50,885) (50,470) (50,965)Miscallenous (6,981) (376) 0 0 0 (0) 0 0 0Free cash flow (157,271) 50,232 (105,435) (18,472) 15,015 31,199 41,821 50,258 56,838

Ratios (%)Sales growth 20.3 (3.0) (3.8) 18.0 13.9 11.1 7.6 6.3 5.5EBITDA growth 13.4 (15.2) (14.2) 22.4 19.9 13.2 7.9 6.2 5.6EPS growth 19.4 (30.2) (72.8) 56.1 47.0 30.1 17.6 6.5 8.3FCF growth NM NM NM NM NM 107.8 34.0 20.2 13.1EBITDA margin 40.5 35.4 31.6 32.8 34.5 35.2 35.2 35.2 35.2 Net margin 29.4 21.3 6.0 7.9 10.2 12.0 13.1 13.1 13.4FCF margin (68.6) 22.6 (49.3) (7.3) 5.2 9.8 12.2 13.7 14.7RoAE 18.9 11.7 3.2 4.9 6.8 8.1 8.8 8.8 9.1ROAE (excl. cash and int. income 12.9 4.5 1.1 3.6 5.9 7.6 8.3 8.4 8.9 RoACE 11.4 9.1 4.4 4.9 6.1 7.1 7.8 8.3 8.8ROACE (excl. cash and int. incom 8.3 5.3 3.5 4.3 5.6 6.7 7.4 8.0 8.6

Net debt/EBITDA (X) 4.0 2.5 4.3 3.7 2.8 2.1 1.6 1.2 0.9Net debt/equity (X) 0.9 0.5 0.7 0.7 0.6 0.5 0.3 0.3 0.2Total debt/capital (X) 0.7 0.6 0.9 0.0 0.0 0.0 0.0 0.0 0.0Tax rate (%) 0.5 10.3 17.0 17.0 17.0 17.0 17.0 17.0 17.0



Results marginally below expectation

Nalco’s 1QFY11 EBITDA of Rs4.1 bn (+126.5% yoy, -27.2% qoq) was 7% lower than our estimate. EBITDA declined 27.2% sequentially on account of lower aluminium prices and sales tonnage. Net income of Rs2.8 bn (+124.6% yoy, -27.4% qoq) was marginally higher than our estimate on account of higher-than-expected interest income. Aluminium metal sale was 108,620 tons, marginally lower than our estimate. The company generated 1.65 bn units of electricity.

All costs, other than employee costs, declined sequentially. Power costs declined 8.2% sequentially to Rs3.7 bn. Employee costs increased 14.8% sequentially to Rs2.2 bn, possibly on account of higher gratuity provision.

Segmental reporting methodology changed

Nalco changed the assumptions of segmental reporting making comparison of performance difficult. For alumina transfer pricing to the aluminium segment, Nalco now considers lower realization on alumina exports less freight or 15.5% return on investment in gross fixed assets. For power sales, the company considers average sales price to GRIDCO or 15.5% return on investment on gross fixed assets, whichever is lower. As a result of this change, the company reported profits in the aluminium segment after reporting losses in four of the past five quarters.

Valuations expensive, maintain SELL rating

We align our earnings estimates with our aluminium price forecast of US$1,950/ ton and US$2,050/ ton for FY2011E and FY2012E. As a result, we lower our earnings estimate for FY2011E and FY2012E by 48.9% and 37.7% to Rs14.3 and Rs17.3, respectively. Nalco is trading at an extreme valuation of 30.7X FY2011E and 25.4X FY2012E earnings. The stock trades at FY2011E P/BV of 2.6X. In our view, the stock price is discounting aluminium price of US$2,575/ ton, optimistic in our view. We note that Nalco stock has stopped reacting to change in aluminium prices over the last six months. This, in our view, may be partly led by hope of follow-on public offering by the Government.

National Aluminium Co (NACL)

Metals

Results marginally below expectations, valuations expensive. Nalco’s 1QFY11 EBITDA of Rs4.1 bn was 7% lower than our estimate. Net income of Rs2.8 bn was 4.3% higher than our estimate led by higher-than-expected other income. We align Nalco’s earnings estimate with our aluminiun price forecast and lower our earnings estimate by 48.9% and 37.7% for FY2011E and FY2012E, respectively. We cut our 12-month target price to Rs260 (Rs320 earlier) and maintain SELL rating.

National Aluminium Co.Stock data Forecasts/Valuations 2010 2011E 2012E

52-week range (Rs) (high,low) EPS (Rs) 12.6 14.3 17.3Market Cap. (Rs bn) 282.9 EPS growth (%) (34.9) 13.3 20.5


Price performance (%) 1M 3M 12M EV/EBITDA (X) 21.9 16.9 13.7Absolute 1.2 7.1 37.2 ROE (%) 8.1 8.6 9.8Rel. to BSE-30 0.2 1.8 17.2 Div. Yield (%) 0.6 1.1 1.1


527-300

SELL

AUGUST 14, 2010

RESULT


Price (Rs): 439


BSE-30: 18,167

Metals National Aluminium Co


Interim results of NALCO, March fiscal year-ends (Rs mn)

(% chg.)1QFY11 1QFY11E 1QFY10 4QFY10 1QFY11E 1QFY10 4QFY10

Net sales 13,081 14,825 9,353 16,260 (11.8) 39.9 (19.6) Total expenditure (9,143) (10,639) (7,679) (10,849) (14.1) 19.1 (15.7) Inc/(Dec) in stock 740 — 604 (692) — 22.5 (206.9) Raw materials (1,685) (1,912) (1,859) (1,893) (11.9) (9.3) (11.0) Power & Fuel (3,691) (4,102) (2,852) (4,021) (10.0) 29.4 (8.2) Staff cost (2,183) (2,050) (1,685) (1,902) 6.5 29.5 14.8 Other expenditure (2,324) (2,575) (1,888) (2,341) (9.8) 23.1 (0.7) Other operating income 164 224 137 224 (26.7) 19.4 (26.7) EBITDA 4,102 4,410 1,811 5,634 (7.0) 126.5 (27.2) OPM (%) 30 28 18 33 — — —Other income 897 658 1,012 658 36.4 (11.3) 36.4 Interest 0 (1) (11) (1) (157.1) (103.6) (157.1) Depreciation (916) (955) (756) (878) (4.1) 21.1 4.4 Pretax profits 3,919 3,888 1,918 5,189 0.8 104.3 (24.5) Extraordinaries — — — — — — —Tax (1,079) (1,166) (654) (1,275) (7.5) 65.0 (15.4) Net income 2,841 2,722 1,265 3,915 4.3 124.6 (27.4) Income tax rate (%) 27.5 30.0 34.1 24.6 — — —

RatiosEBITDA margin (%) 30.1 28.2 17.9 33.3 ETR (%) 27.5 30.0 34.1 24.6 EPS (Rs) 4.4 4.2 2.0 6.1

Segmental revenueChemicals 4,031 — 3,496 6,946 — 15.3 (42.0) Aluminium 11,212 — 7,522 12,534 — 49.1 (10.5) Electricity 3,602 — 4,811 4,619 — (25.1) (22.0) Segmental PBITChemicals 801 — 474 4,156 — 69.0 (80.7) Aluminium 1,978 — (1,853) (3,307) — (206.7) (159.8) Electricity 650 — 2,656 3,999 — (75.5) (83.7) Segmental PBIT (%)Chemicals 20 — 14 60 — 46.6 (66.8) Aluminium 18 — (25) (26) — (171.6) (166.8)


Nalco, Changes in estimates, March fiscal year-ends, 2011E-12E (Rs mn)

2011E 2012E 2011E 2012E 2011E 2012ENet sales 55,960 63,016 64,835 65,739 (13.7) (4.1) EBITDA 14,091 16,798 25,662 25,406 (45.1) (33.9) PAT 9,225 11,116 18,069 17,847 (48.9) (37.7) EPS (Rs) 14.3 17.3 28.0 27.7 (48.9) (37.7)

Revised estimates Old estimates % change


National Aluminium Co Metals


Nalco, Valuation details, 2012 basis (Rs mn)

EBITDA EV/EBITDA EV Value

(Rs mn) (X) (Rs mn) (Rs/share)

FY2012E 16,798 7.0 117,587 183

Net debt (52,826) (82)

Market capitalization 170,413 264

Target price 260


Daily indexed LME Aluminium prices versus NALCO, March fiscal year-ends

0

50

100

150

200

250

300

Jan-

05

Jul-0

5

Jan-

06

Jul-0

6

Jan-

07

Jul-0

7

Jan-

08

Jul-0

8

Jan-

09

Jul-0

9

Jan-

10

Jul-1

0

LME Aluminium Spot Prices NALCO

Source: Bloomberg, Kotak Institutional Equities estimates

Sensitivity of 2012 SOTP to varying aluminium & alumina price levels

1,850 1,950 2,050 2,150 2,250 268 193 219 244 269 294 288 204 229 254 279 304 308 215 240 265 290 315 328 225 250 275 300 325 348 236 261 286 311 336

Alumina Prices

(US$/ton)

Target PriceAluminium prices (US$/ton)


Sensitivity of 2012 EPS to varying aluminium & alumina price levels

1,850 1,950 2,050 2,150 2,250 268 11.0 13.2 15.4 17.6 19.8 288 11.9 14.1 16.3 18.6 20.8 308 12.9 15.1 17.3 19.5 21.7 328 13.8 16.0 18.2 20.4 22.6 348 14.7 16.9 19.1 21.3 23.6

Alumina Prices

(US$/ton)

EPSAluminium prices (US$/ton)


Metals National Aluminium Co


Nalco, Key assumptions sheet, March fiscal year-ends, 2008-13E

2,008 2,009 2,010 2011E 2012E 2013EALUMINIUM Aluminium metal sales ('000 tons) 353,334 352,007 434,666 451,153 450,800 450,800 Average LME aluminium price (US$/ton) 2,624 2,227 1,950 1,950 2,050 2,200 EBITDA/ ton (Rs) 38,546 19,618 5,948 (4,873) (4,088) (2,115) EBITDA/ ton (US$) 957 428 126 (106) (89) (46)

ALUMINAAlumina sales ('000 tons) 864,988 865,000 760,202 693,525 910,518 1,202,201 Average Alumina price (US$/ton) 362 302 234 293 308 330 Alumina EBITDA/ ton (Rs) 5,885.2 7,356.7 3,669.7 6,891.6 6,839.8 8,150.8 Alumina EBITDA/ ton (US$) 146.2 160.6 77.7 149.8 148.7 177.2

Re/US$ rate 40.3 45.8 47.3 46.0 46.0 46.0


National Aluminium Co Metals


NALCO, Profit model, balance sheet and cash flow model, March fiscal year-ends, 2008-2013E (Rs mn)

2008 2009 2010 2011E 2012E 2013EProfit model (Rs mn)Net sales 51,342 52,173 51,736 55,960 63,016 71,976

EBITDA 23,332 17,870 11,024 14,091 16,798 22,023 Other income 4,410 3,995 3,741 3,631 4,104 4,929 Interest (15) (40) (23) (40) (40) (40) Depreciaiton (2,811) (2,724) (3,194) (3,900) (4,255) (4,626)

Profit before tax 24,916 19,101 11,549 13,782 16,607 22,287 Current tax (8,604) (6,458) (3,014) (3,401) (4,568) (6,576) Deferred tax 53 (139) (393) (1,156) (923) (793)

Net profit 16,315 12,723 8,142 9,225 11,116 14,918 Earnings per share (Rs) 25.3 19.7 12.6 14.3 17.3 23.2

Balance sheet (Rs mn)Equity 88,744 97,698 103,956 109,424 116,784 127,945 Deferred tax liability 6,074 6,214 6,606 7,762 8,685 9,477 Total Borrowings — — — — — —Current liabilities 15,409 19,332 22,199 24,712 26,400 28,435

Total liabilities 110,228 123,244 132,761 141,898 151,869 165,858 Net fixed assets 58,664 68,997 70,797 78,900 79,645 78,891 Investments 1,150 8,959 9,868 9,868 9,868 9,868 Cash 35,165 28,690 31,524 35,527 42,958 55,715 Other current assets 15,249 16,598 20,573 17,603 19,398 21,384 Miscellaneous expenditure — — — — — —

Total assets 110,228 123,244 132,761 141,898 151,869 165,858

Free cash flow (Rs mn)Operating cash flow excl. working capital 18,719 15,775 7,821 10,687 12,231 15,447 Working capital changes 300 3,608 (1,856) 3,604 (107) 50 Capital expenditure (15,441) (22,111) (4,811) (12,000) (5,000) (3,872)

Free cash flow 3,578 (2,729) 1,154 2,291 7,124 11,625

RatiosDebt/equity (%) — — — — — —Net debt/equity (X) (0.4) (0.4) (0.4) (0.4) (0.5) (0.5) RoAE (%) 19.8 13.4 8.1 8.6 9.8 12.2

RoACE (%) 16.3 10.7 5.5 6.4 7.4 9.5



Revenues were Rs14 bn, in line with our estimate, margin lower than estimate

Sales was up 8% yoy in line with our estimate, however, India finished dosage sales disappointed with 4% sales growth, down from 10% seen in FY2010 and 8% last quarter. EBITDA margin, excluding forex/other operating income at 22%, is 60 bps lower than estimated due to (1) a lower proportion of sales from India finished dosage at 47% this quarter versus 49% the last quarter (2) higher ARV sales comprising 19% of sales.

PAT adjusted for forex at Rs2.7 bn, was 4% lower than our estimate

EBITDA was 3% below estimate and PBT was 11% lower than our estimate due to (1) lower technology licensing income at Rs159 mn versus our estimate of Rs400 mn. Cipla expects to report licensing fees of at least Rs1 bn in FY2011E and (2) lower other income on account of forex loss. This loss was due to open position in outstanding debtors where Cipla was hurt due to appreciation of Indian Rupee against Euro.

We factor in recovery in India and export business post muted growth of 7-10% in FY2010

We increase FY2012E estimates by 6% and factor in (1) recovery in India at 13% in 9MFY11E-FY2012E and (2) We forecast 17-25% sales growth in dollar terms in international finished dosage in FY2011-12E. However, we think Cipla’s inhaler opportunity may take time to play out and will likely remain difficult to penetrate for generic companies. Even though exclusivity on key blockbuster inhalers expires in EU in the next two years, patents on the dispensing devices run far beyond.

Valuation remain rich, maintain REDUCE with PT at Rs295 (up from Rs280)

We expect Cipla to report adjusted EPS growth of 18% in FY2012E. However, despite optimistic assumptions, at 19X FY2012E earnings, valuations remain rich.

Cipla (CIPLA)

Pharmaceuticals

In line quarter marked by weak performance in India. Sales were in line although India disappointed with 5% sales growth adjusted for sale of I-Pill versus 8% in the last quarter. EBITDA margin dipped yoy to 22%,60 bps lower than our estimate due to the higher share of exports from ARV segment. PAT adjusted for forex was 4% lower than our estimate. We increase FY2012E estimates by 6% and factor in recovery in India at 13% in 9MFY11E-FY2012E. We expect Cipla to report adjusted EPS growth of 18% in FY2012E. However, despite optimistic assumptions, at 19X FY2012E earnings, valuations remain rich. Retain Reduce with a PT of Rs295 (raised from Rs280).

CiplaStock data Forecasts/Valuations 2010 2011E 2012E

52-week range (Rs) (high,low) EPS (Rs) 13.7 14.0 16.6Market Cap. (Rs bn) 252.8 EPS growth (%) 38.1 1.9 19.2


Price performance (%) 1M 3M 12M EV/EBITDA (X) 16.7 15.1 12.8Absolute (4.8) 0.5 11.6 ROE (%) 21.1 17.6 18.2Rel. to BSE-30 (5.9) (5.9) (5.4) Div. Yield (%) 0.6 0.8 0.8


364-251

REDUCE

AUGUST 16, 2010

RESULT

Coverage view: Attractive

Price (Rs): 315


BSE-30: 18,167

QUICK NUMBERS

• Revenues were Rs14 bn, in line with our estimate

• PAT adjusted for forex at Rs2.7 bn, was 4% lower than our estimate

• Valuation remain rich, maintain REDUCE with PT at Rs295

•

Cipla Pharmaceuticals


Valuation remain rich compared to growth potential, maintain REDUCE with PT at Rs295 (was Rs280)

We expect Cipla to report adjusted (for forex losses) EPS growth of nil in FY2011E and 18% in FY2012E. At its current price, Cipla is trading at 19X FY2012E estimated earnings. Hence, we think the stock is richly valued compared to growth potential. At out PT, it will trade at 18X FY2012E earnings estimate.

We think that Cipla’s inhaler opportunity may take time to play out and remain a difficult market to penetrate for generic companies. Even though exclusivity on key blockbuster inhalers expires in EU in the next two year, patents on its devices run far beyond. Hence, any generic company will not only have to use a device not protected by patents, also convincing a patient to switch to a different device is going to be a challenge once product reaches market.

1QFY11 revenues were Rs14 bn, in line with estimate

Sales was up 8% yoy in line with our estimate, however, India finished dosage sales disappointed with 4% sales growth, down from 10% seen in FY2010 and 8% in the last quarter. Adjusted for I-Pill sales of Rs316 mn in FY2010, the sales growth was 5%. International finished dosage was US$137 mn vs our estimate of US$127 mn, and API sales were in line with estimates.

EBITDA margins excluding forex/other operating income at 22%, 60 bps lower than estimated

EBITDA margin excluding forex item of Rs140 mn and other operating income was lower due to (1) lower proportion of sales from India finished dosage at 47% this quarter vs 49% last quarter (2) higher ARV sales comprising 19% of sales. In 1QFY11, export composition was dominated by Africa, with exports to Africa at 40%, EU at 11%, Asia/ME at 11% and NA at 27%.

This led to material cost at 47%, higher than last quarter’s 46%. Staff costs at Rs1.4 bn were 28% higher than our est. due to annual increments and increase in field force to Rs5,100 from 4,800 as of March 2010. Other expenses were flat yoy as expected and tend to peak in 4Q.

PAT adjusted for forex at Rs2.7 bn, was 4% lower than our estimate

While EBITDA was 3% below estimate, PBT was 11% lower than our estimate due to (1) lower technology licensing income at Rs159 mn versus our estimate of Rs400 mn. Cipla expects to report licensing fees of at least Rs1 bn in FY2011E and (2) lower other income on account of forex loss. This loss was due to open position in outstanding debtors where Cipla was hurt due to appreciation of the INR against the Euro.

Pharmaceuticals Cipla


Interim results- Cipla , March fiscal year-ends (Rs mn)

1QFY11 1QFY11E 1QFY10 4QFY10 1QFY11E 1QFY10 4QFY10Sales 14,410 14,460 13,395 13,290 (0) 8 8Excise duty 137 146 142 115 (7) (4) 18Net sales 14,274 14,314 13,253 13,175 (0) 8 8Stock changes 209— — (592) (887) NM NM NMRaw Materials 6,494 6,613 6,659 6,995 (2) (2) (7)Staff costs 1,376 1,075 950 999 28 45 38Others 3,074 3,395 3,059 3,860 (9) 0 (20)Op. costs 11,152 11,083 10,075 10,967 1 11 2EBITDA 3,122 3,231 3,177 2,208 (3) (2) 41Interest 1 0 105 5 NM (99) (76)Depreciation 548 525 458 495 4 20 11Other income 28 150 (150) 251 (82) NM (89)Other operating income 524 650 508 572 (19) 3 (8) Technology fees 159 400 257 136 (60) (38) 17 Others 365 250 251 437 46 45 (16)PBT 3,124 3,506 2,972 2,531 (11) 5 23Tax - current 550 601 505 413 (9) 9 33Tax - deferred — 100 50 — NM NM NMPAT 2,574 2,805 2,417 2,119 (8) 6 21Extraordinary item — — — 637 NM NM NMPAT 2,574 2,805 2,417 2,755 (8) 6 (7)PAT (adj for forex) 2,690 2,805 2,637 2,286 (4) 2 18

International 7,659 7,159 6,876 7,602 7 11 1 API 1,402 1,368 1,404 1,463 2 (0) (4) Finished dosage 6,257 5,791 5,472 6,139 8 14 2India 6,752 7,301 6,519 5,688 (8) 4 19

% change

Source: Kotak Institutional Equities estimates, Company

Key takeaways from call- Cipla maintains sales guidance of 10% in FY2011E.

As of June 2010, the hedged position is US$260 mn, up from US$200 mn as of March 2010. Cipla covers all outstanding debtors and continues to hedge net exports on a month to month basis.

Cipla’s export formulations business is expected to rebound in FY2011E post 7% growth in FY2010.

• The export formulations business of Cipla was hit in many ways in FY2010 including (1) Rupee appreciation (2) shortage of a key raw material, mainly gas for CFC based inhalers which (3) lower ARV tender business due to conscious decision by the company to protect margin (4) tightening of working capital and credit norms.

• Cipla now sees no raw material shortage on the inhalers front. While revenues from Europe at 11% of total exports was lower on account of certain issues in Europe, company did book sales from supplies of Salbutamol to UK.

• Cipla maintained that that due to small market size of single-ingredient drugs which are older-generation drugs, sales from inhalers such as Salbutamol are lower than expectations.

Cipla Pharmaceuticals


• While Cipla has eight HFA inhalers developed for EU, six of which have been submitted. The company has approval so for Budesonide in Germany/Portugal and Salbutamol in Denmark, UK and Portugal. It is expecting approval for Salmeterol in UK very soon and for Seroflo in South Africa. Other inhalers such as fluticasone are still in the regulatory phase in EU.

• We forecast 17-25% sales growth in dollar terms in international finished dosage in FY2011-12E.

Indian finished dosage revenues are forecast to grow 11-12% yoy. We factor in 11% sales growth for FY2011E implying 13% sales growth in 9MFY11E.

After capex of Rs9 bn in FY2009 and Rs6.25 bn in FY2010, Cipla plans to spend Rs 4.5bn in FY2011E. In FY2011E, Cipla will largely incur capital expenditure on API facilities at Bangalore for anti-cancer products (Rs2.5 bn) and new R&D facilities (Rs 2 bn)

Cipla has commissioned its Indore facility (capex of Rs9 bn). Initially, the facility is being used for finished dosage exports to semi –regulated markets and later for advanced markets once various regulatory authorities such as FDA WHO, MHRA have approved the facility. Cipla expects to get these approvals in next 12 months. Full utilization of this facility is still 12-24 months away depending on the speed of approval from international regulatory authorities. Cipla expects to recover the cost of investment with sale of around Rs20 bn over the next five years from this facility.

Profit and loss statement, March fiscal year-ends, 2007-2012E

2007 2008 2009 2010 2011E 2012ENet sales 34,382 40,104 49,606 53,595 59,587 70,301Operating expensesMaterials (16,949) (21,130) (23,474) (24,530) (27,610) (32,533)Selling and administration (5,085) (6,135) (8,835) (9,010) (7,679) (8,987)Employee cost (1,846) (2,555) (2,714) (3,191) (4,751) (5,368)R&D (1,473) (2,029) (2,355) (2,507) (2,979) (3,515)Others (2,152) (1,845) (2,747) (3,077) (3,277) (3,867)Total expenditure (27,505) (33,693) (40,125) (42,315) (46,297) (54,270)EBITDA 6,877 6,410 9,481 11,280 13,290 16,031Depreciation and amortisation (1,034) (1,307) (1,518) (1,671) (2,423) (2,750)EBIT 5,844 5,104 7,963 9,609 10,867 13,281Net finance cost (70) (117) (329) (230) 1— —Other income 2,306 3,393 1,335 3,881 3,051 3,009Pretax profits before extra-ordinaries 8,080 8,379 8,968 13,261 13,917 16,290Current tax (1,218) (940) (1,010) (2,285) (2,710) (2,932)Deferred tax (147) (365) (150) (150) 0 0Fringe benefit tax (35) (64) (98) — — —Reported net profit 6,680 7,010 7,710 10,826 11,207 13,358


Pharmaceuticals Cipla


Balance sheet statement, March fiscal year-ends, 2007-2012E

2007 2008 2009 2010 2011E 2012EBalance sheetNet worth 32,273 37,552 43,478 59,106 67,964 78,974Debt 1,236 5,805 9,402 51 — —Current liabilities 9,413 12,477 12,096 12,143 13,614 17,503Deferred tax liabilities 1,127 1,492 1,642 1,792 1,792 1,792Total equity and liabilities 44,048 57,326 66,618 73,091 83,370 98,268Cash and cash equivalents 1,315 797 534 621 800 800Current assets 27,032 36,649 41,695 43,053 48,757 58,703Net fixed assets incl CWIP 14,523 18,945 23,588 26,954 29,031 31,281Investments 1,178 935 801 2,464 4,782 7,484Total uses of funds 44,048 57,326 66,618 73,091 83,370 98,268

Free cash flow Operating cash flow, excl. working ca 7,620 8,351 9,387 12,534 13,631 16,108Working capital (4,270) (6,553) (5,428) (1,363) (4,710) (6,057)Capital expenditure (4,192) (5,620) (6,247) (5,219) (4,500) (5,000)InvestmentsFree cash flow (841) (3,822) (2,287) 5,951 4,421 5,051


Change in estimates

2011E 2012E 2011E 2012E 2011E 2012ENet sales 59,587 70,301 58,524 67,899 2 4Operating expensesMaterials (27,610) (32,533) (27,045) (30,602) 2 6Selling and administration (7,679) (8,987) (8,910) (10,337) (14) (13)Employee cost (4,751) (5,368) (4,450) (5,029) 7 7R&D (2,979) (3,515) (2,926) (3,395) 2 4Others (3,277) (3,867) (3,219) (3,734) 2 4Total expenditure (46,297) (54,270) (46,550) (53,097) (1) 2EBITDA 13,290 16,031 11,974 14,802 11 8Depreciation and amortisation (2,423) (2,750) (2,400) (2,750) 1 0EBIT 10,867 13,281 9,574 12,052 14 10Net finance cost (1) 0 0 0Other income 3,051 3,009 3,300 3,250 (8) (7)Pretax profits before extra-ordinaries 13,917 16,290 12,874 15,302 8 6Current tax (2,710) (2,932) (2,178) (2,354) 24 25Deferred tax 0 0 (400) (400) (100) (100)Fringe benefit tax 0 0 0 0Reported net profit 11,207 13,358 10,296 12,548 9 6

Old estimates % changeNew estimates



Better-than-expected EBITDA margins but revenues lower than expected

Unitech reported 1QFY11 EBITDA of `2.9 bn (+8% qoq, -7% yoy and 2% below estimates), 1QFY11 revenues at `11.3 bn (-27% qoq, +61% yoy and17% below estimates) and PAT of `1.8 bn (+12% qoq, -8% yoy and 5% below estimates).

EBITDA margins expanded significantly to 35.5% versus 24.1% in 4QFY10 and our estimate of 30%. This was led by increase in segmental EBIT margins for real estate business, which expanded to 43% versus 23-25% in the previous two quarters but down from 81/74% in 1Q/2QFY10. We have been highlighting that EBITDA margins for Unitech remain volatile – they had been high earlier on account of one-off rev. booking (1Q/2QFY10) and then were adversely impacted by upward revision in cost estimates (3Q/4QFY10) of projects under construction.

We are currently building in better EBITDA margins of 37.1% in FY2011E and 34.2% in FY2012E compared to 24% margins in 4QFY10 on account of better operating leverage as Unitech benefits from lower construction cost and larger scale of operations. With 1QFY11 EBITDA margin of 35.5%, our concern of downside risks to our margin estimates has reduced.

Operational performance remains on track

Unitech launched 2.8 mn sq. ft in 1QFY11 taking the total area launched since March 2010 to 26.8 mn sq. ft (excluding Mumbai).

Out of this, it has managed to sell 17.7 mn sq. ft up to end-1QFY11. In 1QFY11, Unitech has sold 3 mn sq. ft, which is marginally lower than 3.4 mn sq. ft in 4QFY10. Total sales value in 1QFY11 was `1.3 bn with Gurgaon and NOIDA accounting for 71% of area sold. Residential area sold was 2.6 mn sq. ft while 0.4 mn sq. ft was commercial and retail. Average selling rates in 1QFY11 were 3% and 16% higher than FY2010 for residential and non-residential, respectively.

In 1QFY11, Unitech delivered 0.9 mn sq. ft (1.2 mn sq. ft in 4QFY10) across Gurgaon, NOIDA and Kolkata.

Unitech (UT)

Property

Steady 1QFY11. UT’s EBITDA margins expanded 1,140 bps qoq while sales booking and launches remained steady though lower than 4QFY10. We believe revenue booking from Unitech’s projects has picked up which indicates progress on the new projects resulting in an improvement in the liquidity position. We retain our SELL recommendation with a target price of `74/share (earlier `72) in line with our NAV estimate assuming a WACC of 14% and a 5% increase in selling prices.

UnitechStock data Forecasts/Valuations 2010 2011E 2012E



Price performance (%) 1M 3M 12M EV/EBITDA (X) 20.7 14.2 9.0Absolute 15.0 0.5 16.3 ROE (%) 9.7 9.4 11.1Rel. to BSE-30 9.4 0.0 (12.4) Div. Yield (%) 0.0 0.0 1.9


118-62

SELL

AUG 14, 2010

RESULT


Price (Rs): 88


BSE-30: 18,167

QUICK NUMBERS

• UT’s margins expanded 1,140 bps qoq

• UT sold 3 mn sq. ft in 1QFY11

Property Unitech


We observe steady progress on ongoing projects as they move into handover/finishing stage. Unitech has more than 20,000 workers deployed across various construction sites, which is marginally lower than 21,000 in March 2010, an all-time peak.

EBITDA margins surprise positively in 1QFY11 Interim results, Unitech, March fiscal year-ends (`mn)

% change1QFY11 1QFY11E 4QFY10 1QFY10 1QFY11E qoq yoy

Net sales 8,286 10,035 11,324 5,150 (17) (27) 61(Increase) / Decrease in stock in trade (67) (46) (73) 46 (8)Real estate, construction and other expenditure (5,033) (8,290) (1,727) (39) 191Staff Cost (248) (264) (198) (6) 25EBITDA 2,938 3,010 2,724 3,152 (2) 8 (7)Other income 150 649 196 333 (76.9) (24) (55)Interest costs (340) (803) (323) (926) (57.6) 5 (63)Depreciation (88) (100) (106) (42) (12.8) (18) 109Pretax profits 2,660 2,756 2,492 2,517 (3) 7 6Extraordinaries (22) — — —Tax (809) (827) (828) (536) (2.1) (2) 51Deferred tax (25) (7) (3) 254 —Net income 1,826 1,929 1,634 1,978 (5) 12 (8)Adjusted net income 1,800 1,633 1,579 10 14

Key ratiosEBITDA margin (%) 35.5 30.0 24.1 61.2PAT margin (%) 22.0 19.2 14.4 38.4Effective tax rate (%) 30.4 30.0 33.2 21.3

Source: Kotak Institutional Equities

EBITDA margin increased to 35.5% in 1QFY11 from 24.1% in 4QFY10 EBITDA margins, Unitech, 1QFY07 – 1QFY11

55.0

66.3

44.7

62.0

49.9

35.7

58.5

24.1

42.759.0

61.2

35.5

24.0

61.664.370.7

36.2

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

1QFY

07

2QFY

07

3QFY

07

4QFY

07

1QFY

08

2QFY

08

3QFY

08

4QFY

08

1QFY

09

2QFY

09

3QFY

09

4QFY

09

1QFY

10

2QFY

10

3QFY

10

4QFY

10

1QFY

11

EBIT

DA

mar

gin

(%)


Unitech Property


Segmental revenues of Unitech Segment-wise results, Unitech, March fiscal year-ends (` mn)

1QFY08 2QFY08 3QFY08 4QFY08 1QFY09 2QFY09 3QFY09 4QFY09 1QFY10 2QFY10 3QFY10 4QFY10 1QFY11Segment revenueReal estate 7,610 8,303 10,173 9,940 9,140 8,077 3,748 3,199 3,623 4,147 6,279 10,250 6,996Construction 375 518 595 642 316 187 223 291 471 264 420 239 106Consultancy 280 772 308 334 251 990 247 (327) 369 161 547 185 274Hospitality 25 26 33 35 31 32 40 19 27 28 38 18 35Electrical 154 140 75 302 206 208 153 379 352 200 142 265 545Others 264 378 236 348 373 336 483 295 306 295 320 369 331

Segment EBITReal estate 5,036 4,978 7,661 2,709 6,049 5,257 2,221 2,611 2,950 3,083 1,419 2,515 3,004Construction 6 15 48 30 42 37 13 8 170 16 99 7 (9)Consultancy 305 374 126 429 251 984 252 (348) 365 165 547 185 274Hospitality 3 3 8 (14) 2 0 10 (13) 2 0 5 (18) (6)Electrical (9) 8 (15) 59 8 (22) (14) 27 4 33 16 18 44Others 16 53 130 (21) 24 7 45 21 15 (0) 47 14 5

Interest 677 915 1,079 1,341 967 2,158 926 603 148 323 340Unallocable overheads net of una (5) 503 133 26 (40) (2,585) 65 261 216 (96) 312PBT 5,357 4,759 6,539 3,191 5,164 4,896 1,599 2,733 2,516 2,433 1,769 2,493 2,660

Segment EBIT margins (%)Real estate 66 60 75 27 66 65 59 82 81 74 23 25 43Construction 2 3 8 5 13 20 6 3 36 6 24 3 (8)Consultancy 109 48 41 129 100 99 102 106 99 102 100 100 100Hospitality 10 13 24 (39) 6 1 24 (68) 7 1 14 (102) (17)Electrical (6) 6 (20) 19 4 (10) (9) 7 1 17 11 7 8Others 6 14 55 (6) 7 2 9 7 5 (0) 15 4 1


Launches pick up in 1QFY11 but area sold declines marginally Launch and sales volumes, Unitech, March fiscal year-ends (` mn)

Area launched Area sold Area launched Area sold Area launched Area sold Area launched Area soldCity (mn sq.ft) (mn sq. ft) (mn sq.ft) (mn sq. ft) (mn sq.ft) (mn sq. ft) (mn sq.ft) (mn sq. ft) (%)Gurgaon 6.6 4.9 8.8 6.1 9.6 8.1 11.1 9.5 47.2Chennai 2.3 1.7 2.4 1.8 2.6 2.0 2.8 2.4 12.3Noida + Greater Noida 6.2 1.7 6.2 2.4 6.2 2.8 7.0 3.5 23.9Mumbai 1.3 1.2 1.9 1.6 2.2 1.9 0.0 0.0 NAKolkata 2.6 0.4 2.6 0.5 2.6 0.6 2.8 0.9 10.0Other cities 2.5 0.3 2.7 0.8 3.1 1.2 3.2 1.4 6.6Total 21.3 10.1 24.4 13.2 26.2 16.6 26.8 17.7

As of 30 Sept 2009 As of 31 Dec 2009 Incremental volumes

As of 31 March 2010 As of 30 June 2010


Property Unitech


Unitech has delivered 0.9 mn sq. ft in 1QFY11 Region-wise delivery volumes, Unitech, March fiscal year-ends (` mn)

(mn sq. ft) (mn sq. ft) (mn sq. ft) (mn sq. ft) (mn sq. ft)Past projectsGurgaon 4.1 4.4 5.0 5.2 4.7Noida+Greater Noida 0.6 0.8 0.9 1.3 5.3Kolkata 0.2 0.4 0.9 1.1 4.6Mohali 0.0 0.0 0.0 0.0 0.5Lucknow 0.0 0.0 0.0 0.0 0.1Total 4.9 5.6 6.8 7.6 15.2

Area delivered till Dec 2009

Area delivered till Sept 2009

Balance to be delivered

Area delivered till March 2010

Area delivered till June 2010


Steady progress in past projects as they move to handover/finishing stage Unitech, March fiscal year-ends (` mn)

Area Construction stage (mn sq. ft) % total Projects

Handover/Finishing 12 11.5 50

Gurgaon-The Close (South), The Close (North), World Spa (East), World Spa (West), Escape, Fresco, Nirvana Courtyard; Greater Noida-Horizon; Heights; Kolkata-Gardens, Horizons; Lucknow - South City Gardens

Structure complete, Internal work-in-progress 9 6.8 30Gurgaon - Escape, Harmony, Business Zone, Arcadia; G Noida - Cascades, Habitat, Verve; Kolkata - Heights, Downtown

Piling/Structure work in progress 7 3.7 16Gurgaon - UW Resorts; Kolkata - Air, Harmony, Cascades, Gateway-I; Mohali - Executive Floors; Noida - Grande

Pre-construction activities 3 0.9 4 Plotted Development in NCR and MohaliTotal 31 22.9 100

Projects launced since March 2009

Structure in progress 8 6.3 45Gurgaon - Nirvana Floors, Gardens II, Residences; Kolkata - Vistas, Chambers; Chennai - Unihomes; Noida- Unihomes Ph-1, Ph-2

Piling work in progress 8 4.2 30Gurgaon - Vistas; Noida - UW Gardens; Bangalore - Gardens Galleria; Chennai - Ananda, Brahma, Palm Villas; Kolkata - Gateway Cluster 2; Bhopal - Unihomes

Pre-construction activities 9 3.6 26

Gurgaon - Sunbreeze, Nirvana Country II, South City II Floors; Mohali - Singleton Floors, Unihomes; Chennai - Gulmohar Avenue; Lucknow - Gardens Galleria; Kochi -Gardens Galleria; Bangalore - Gardens Galleria

Yet to start 3 0.0 0 GalleriaMysore; Mohali - Gardens Galleria; Chennai - Unihomes Ph 2Total 28 14.1 100

Projects launched before March 2009

Jun-10

No. of projects


Debt declines marginally qoq

After being able to reduce debt by `6.4 bn in 2HFY10, debt is down `690 mn in 1QFY11. Shareholder funds have increased due to promoters’ warrants conversion. Customer advances are `8.6 bn versus `8 bn as of end-FY2010 while cash and cash balances have increased to `8.6 bn versus `7.9 bn as of end-FY2010.

Unitech Property


Sources and uses of funds Unitech, March fiscal year-ends (` mn)

4QFY09 1QFY10 2QFY10 3QFY10 4QFY10 1QFY11Sources of fundsShareholders funds 51,695 68,180 99,590 101,660 102,370 107,590Minority Interest 615 615 615 615 615 615Total debt 90,558 82,620 66,590 62,020 60,680 60,130Deferred Land Liability 17,922 17,910 17,910 17,910 17,910 17,940Deferred Tax liability 14 14 14 14 14 14Total 160,803 169,339 184,719 182,219 181,589 186,289

Application of fundsFixed assets 33,257 30,357 29,757 30,757 31,757 32,757Investments 15,808 15,808 15,808 13,808 13,808 13,808Goodwill 11,672 11,672 11,672 11,672 11,672 11,672Current Assets

Projects in Progress 157,388 160,940 165,160 169,940 171,780 177,010 Sundry Debtors 9,310 10,790 12,000 10,780 12,670 14,000 Loans and Advances 28,674 29,050 30,080 31,490 31,490 31,180 Cash and Bank balances 6,448 6,250 7,400 6,110 7,870 8,560 Others 368 368

Less Current Liabilities Current Liabilities 101,827 95,601 86,862 92,042 99,162 102,402 Sundry Creditors 22,549 20,651 11,850 14,732 13,660 11,760

Customer Advances 74,453 71,450 74,300 77,310 80,160 86,410 Provisions 297 297 297 297 297 297

Misc. expenditure 0 0 0 0 0 0Total 160,803 169,339 184,719 182,219 181,589 186,289

Note: grey colored cells indicate our estimates


Our estimate of Unitech’s NAV is ` 74/share NAV-based valuation, Unitech, March fiscal year-ends (` bn)

0% 3% 5% 10%Valuation of land reserves 162 189 209 267 Residential projects 99 121 137 185 Commercial projects 29 32 34 39 Retail projects 34 36 38 43Add: Hotel business 10 10 10 10

Add: Balance money to be received on conversion of warrants 9 9 9 9 Add: Consultancy fees received from Unitech Corporate Parks, JVs 5 5 5 5 Less: Net debt as on March 31, 2010 (56) (56) (56) (56) Less: Land cost to be paid as on March 31, 2010 (19) (19) (19) (19) NAV (Rs bn) 116 143 163 221 Valuation for telecom business (Rs bn) 30 Total no. of shares (mn) 2,616 Valuation/share (Rs) 74

Sept '11 based NAV

Growth rate in selling prices per annum


Property Unitech


Profit model, balance sheet and free cash flow Unitech, March fiscal year-ends (` mn)

Profit model 2007 2008 2009 2010 2011E 2012E 2013ENet sales 32,883 41,400 28,844 29,313 38,608 60,541 82,897EBITDA 20,018 22,287 15,835 10,712 14,332 20,704 28,092Other income 1,000 1,401 4,312 840 1,096 1,160 1,231Interest (3,020) (2,804) (5,546) (2,000) (2,229) (2,768) (2,943)Depreciation (80) (205) (209) (341) (443) (627) (829)Pretax profits 17,919 20,678 14,392 9,210 12,756 18,469 25,551Tax (4,864) (3,967) (2,455) (2,239) (2,825) (4,826) (7,614)Deferred taxation 0 (19) 31 (25) (43) (104) (96)Net income 13,055 16,692 11,968 6,946 9,887 13,539 17,841Adjusted net income 13,055 16,614 11,964 6,751 9,887 13,539 17,841Earnings per share (Rs) 8.0 10.2 7.4 3.0 3.9 5.2 6.8

Balance sheet Total equity 19,944 36,003 51,695 102,370 120,915 129,980 147,820Deferred taxation liability 20 60 14 39 82 186 283Total borrowings 39,805 85,524 90,558 60,680 61,680 51,680 51,680Current liabilities 71,118 111,048 120,045 117,344 99,865 111,716 118,504Total liabilities and equity 130,900 233,793 262,927 281,047 283,157 294,177 318,902 Cash 10,227 14,083 6,448 7,870 6,008 13,352 36,500Other current assets 106,851 172,979 195,740 215,940 217,243 217,606 211,613Total fixed assets 8,148 31,442 33,257 31,757 34,426 37,738 45,308Intangible assets 1,126 1,126 11,672 11,672 11,672 11,672 11,672Investments 4,548 14,165 15,808 13,808 13,808 13,808 13,808Total assets 130,900 233,794 262,927 281,047 283,157 294,177 318,902

Free cash flow Operating cash flow, excl. working capital 17,485 19,816 9,277 (153) 4,077 8,989 14,188Working capital changes (37,520) (29,956) (10,784) (16,435) (13,582) 15,621 15,926Capital expenditure (3,340) (23,508) (1,988) 1,160 (3,112) (3,938) (8,400)Investments (4,376) (3,409) (13,537) 2,000— — — — Other income 414 736 156 840 1,096 1,160 1,231Free cash flow (27,337) (36,321) (16,876) (12,589) (11,521) 21,832 22,946

Ratios (%)Debt/equity 199.4 237.1 175.1 59.3 51.0 39.7 34.9Net debt/equity 148.2 198.1 162.7 51.6 46.0 29.4 10.2ROAE (%) 115.0 59.3 27.3 8.8 8.9 10.8 12.8ROACE (%) 41.8 20.9 12.5 5.6 6.7 8.6 10.5



Results meet estimates. Power becomes the earnings driver

LITL reported consolidated revenues of Rs21.2 bn, operating profit of Rs5.9 bn and net income of Rs1.9 bn against our estimate of Rs21.5 bn, Rs5.5 bn and Rs1.6 bn, respectively. Earnings were driven by robust performance in power business even as construction revenues moderated. Overall power revenues increased from Rs13.2 bn in 4QFY10 to Rs14.3 bn in 1QFY11 (41% yoy and 8% qoq) driven by (1) contribution from recently commissioned capacities, (2) strong realizations in the short-term market and (2) higher volumes of traded power. We note that 4QFY10 also included entire prior quarter sales (June-December 2010) from Amarkantak I, which was previously considered as ‘infirm sale’. Adjusting for this, power revenues (net of power trading) registered a strong sequential growth of ~32%. Lower tax expense further boosted profitability yielding a higher-than-estimated PAT.

Moderation in construction revenues as projects near commissioning

Construction revenues declined sharply from Rs16.1 bn in 4QFY10 to Rs10.4 bn in 1QFY11 (-36% qoq) driven primarily by moderation in pace of execution as most of LITL’s under construction projects are near commissioning while the new ones have not yet commenced construction. We expect moderation in execution activities in the next few quarters as most of the near-term projects of LITL are near commissioning or are already commissioned. However, we remain positive on long-term revenues on account of (1) healthy order book emanating form its own power projects and (2) LITL’s effort to diversify its order book with third party contracts as evident from recent contract that LITL won for construction of 1,980 MW power plant in Maharashtra.

Retain BUY rating with a target price of Rs77/share

We retain our BUY rating with a target price of Rs77/share. Our SOTP-based target price now comprises—(1) DCF-equity of power project portfolio at Rs61/share, (2) construction business valued at Rs17/share at EV/EBITDA of 6X on FY2012E, (3) real estate project at 50% of NAV ~Rs3/share, (4) DCF equity of BOT road projects at Rs1/share and (5) value from sale of carbon credits of Rs1/share and (6) net debt of Rs5/share. Upside risk to our target price emanates from improved visibility on planned projects that could add another Rs19/share to our target price.

c.dot

Lanco Infratech (LANCI)

Utilities

Power drive. Lanco Infratech (LITL) continues stellar execution, having commercialized the steam turbine at Kondapalli in July taking aggregate capacity to 2,082 MW and synchronized the first unit at Udupi (600 MW). During the quarter, lower construction revenues were sufficiently compensated by superior merchant tariffs earned at Amarkantak and Kondapalli. LITL remains our preferred pick in the utility space and we maintain our BUY rating and target price of Rs77/share.

Lanco InfratechStock data Forecasts/Valuations 2010 2011E 2012E



Price performance (%) 1M 3M 12M EV/EBITDA (X) 20.4 8.7 8.2Absolute 2.5 12.6 59.7 ROE (%) 15.8 21.2 22.7Rel. to BSE-30 1.3 5.3 35.5 Div. Yield (%) 0.0 0.0 0.0


71-39

BUY

AUGUST 16, 2010

RESULT


Price (Rs): 68


BSE-30: 18,167

Utilities Lanco Infratech


Exhibit 1: Construction revenues moderated during the quarter as two large power plants are near-commissioned Lanco Infratech (Consolidated), Quarterly performance, March year-ends (Rs mn)

(% Chg.)1QFY11 1QFY11E 1QFY10 4QFY10 1QFY11E 1QFY10 4QFY10 FY2010 FY2011E (% Chg.)

Net sales 21,256 21,475 21,929 23,419 (1) (3) (9) 80,718 115,083 43 Total expenses (15,303) (16,025) (19,185) (17,429) (65,805) (79,914) EBITDA 5,954 5,450 2,744 5,990 9 117 (1) 14,912 35,169 136 Depreciation (1,551) (1,500) (328) (2,440) (3,479) (10,747) EBIT 4,403 3,950 2,416 3,550 11,433 24,422 Other income 251 500 254 1,106 1,978 1,304 Net interest (1,567) (1,500) (605) (1,861) (3,554) (10,546) PBT 3,087 2,950 2,065 2,794 5 49 10 9,857 15,181 54 Tax (353) (885) (813) (1,201) (3,643) (3,990) Profit before Minority Interest 2,734 2,065 1,252 1,594 32 118 72 6,215 11,191 80 Minority interest (427) (464) (430) (507) (1,849) (3,001) Net Profit 2,306 1,601 822 1,087 44 181 112 4,366 8,190 88 Extraordinary income (loss) (359) — 337 46 487 -

EBITDA margin (%) 28.0 25.4 12.5 25.6 18.5 30.6 Effective tax rate (%) 11.4 30.0 39.4 43.0 37.0 26.3

Segment RevenuesConstruction 10,375 14,463 16,103 (28) (36) 57,994 less inter-segment revenues (4,252) (2,837) (5,262) 50 (19) (17,398) Net construction revenues 6,123 11,625 10,840 (47) (44) 40,595 Power 14,251 10,126 13,160 41 8 30,501 Property development 345 178 (553) 94 (162) 562 Infrastructure development - - - - Others 537 25 713 2,085 (25) Net revenues 21,256 21,954 24,160 (3) (12) 71,659

EBITConstruction 1,758 2,134 1,782 (18) (1) 7,201 Power 3,168 642 2,848 394 11 4,419 Property development (30) 38 (455) (180) (93) (78) Infrastructure development - - - - Others (17) (153) 445 - less interest expenses (1,567) (605) (1,861) (3,554) less unallocable expenses 70 - 70 70 Total 3,382 2,055 2,829 8,058

EBIT Margin (%)Construction 16.9 14.8 11.1 12.4 Power 22.2 6.3 21.6 14.5 Property Development (8.7) 21.1 82.3 (13.9)


Lanco Infratech Utilities


Exhibit 2: Progress on Babandh, Vidarbha and Kondapalli III projects could provide Rs19/share upside to our target price SOTP-based valuation of LITL

Equity valueGross Attributable Est. CoD (Rs mn) (Rs mn) P/BV (X) (%) (Rs mn) (Rs/share)

Operating power plantsLanco Kondapalli 368 217 5,662 3,400 1.7 59 3,341Aban Power 120 61 1,887 1,318 1.4 51 963Lanco Electric Utility (Power trading) 1,294 212 6.1 100 1,291

Power plants under constructionLanco Amarkantak 600 600 Feb-10/April-10 30,489 5,598 5.4 100 30,489Lanco Green 70 63 May-10 1,375 840 1.6 90 1,238Vamshi Hydro 10 9 Mar-09 154 155 1.0 91 140Vamshi Industrial 10 9 Sep-09 178 153 1.2 91 162Nagarjuna Power 1,200 1,200 Apr-10/Sep-10 23,593 13,440 1.8 100 23,593Lanco Energy - Teesta VI 500 370 Sep-12 10,917 5,900 1.9 74 8,079Anpara 'C' 1,200 1,200 Jun-11/Sept-11 16,583 8,800 1.9 100 16,583Lanco Kondapalli extn. 366 216 Dec-09 15,879 59 9,369Lanco Amarkantak Extn 1,320 Jan-13 / Apr-14 55,600 13,200 4.2 100 55,600Lanco Hydro 150 137 Mar-13 4,906 2,079 2.4 91 4,468Sub total 4,444 3,945 160,405 55,095 2.9 155,317 65Net equity funding requirement (8,846) (4)Power (A) 146,471 61Construction (B) 41,698 17Property development (C) 6,442 3Road projects (D) 1,370 1Net debt (E) (11,643) (5)Carbon credits (F) 1,340 1Grand total (A+B+C+D+E+F) 185,677 77

Attributable valueCapacity (MW) Equity Inv.


Power— commissioning of capacities and short-term sale of power to drive near-term earnings

LITL reported power revenues of Rs8.3 bn (net of power trading revenues) in 1QFY11. Overall power revenues increased from Rs13.2 bn in 4QFY10 to Rs14.3 bn in 1QFY11 driven (1) by strong realizations in the short-term market and (2) higher volumes of traded power (Rs5.9 bn in 1QFY11). Average realization from short-term sale was Rs6.15/kwh (Rs5.72/kwh in 4QFY10) for Kondapalli II and Rs5.63/kwh for Amarkantak I. We note that volume of power sold in short-term market declined in 1QFY11 due to lower generations from Kondapalli on account of planned maintenance shutdown (see Exhibit 3). Kondapalli II exported 343 MU in 1QFY11 as against 444 MU in 4QFY10, due to activities relating to commissioning of the steam turbine.

LITL will have robust near-term earnings from power division driven primarily by sale of power in short-term market and commissioning of new capacities in FY2011E. We note that with commissioning of another 133 MW at Kondapalli (declared operational on July 31, 2010), LITL has 666 MW of capacity (366 MW at Kondapalli and 300 MW at Amarkantak I) for sale in the short-term market. Along with that, LITL will add an incremental capacity of 2,400 MW in FY2011E with commissioning of 1,200 MW each at Udupi and Anpara. We note that Unit I at Udupi has been synchronized on full load of coal.



Exhibit 3: Short-term sale declined in 1QFY11 due to maintenance shutdown of Kondapalli Monthly sale of power in the short-term market (MU)

131

188

126148 138 156 143 158

185134

161

59 76

11692

7850

16

945

1344

0

50

100

150

200

250

300

350

Jul-09 Aug-09 Sep-09 Oct-09 Nov-09 Dec-09 Jan-10 Feb-10 Mar-10 Apr-10 May-10

(MU

)

Net UI exports Net bilateral sale Net sale through power exhchange


Kondapalli III closes in on gas—secures place for next round of allocation

As per recent media reports, LITL’s 732 MW gas-based plant at Kondapalli figures in the first list of companies that may be allocated gas on priority from stepped-up production from RIL's KG D-6 block. We, however, note that EGoM has already committed 60 mcm/d of gas from RIL's KG D-6 block and made fallback arrangements for another 30 mcm/d. As against this, the gas supply from the block is ramping up at a slower-than-expected-pace and as per news articles, the gas supply may be stuck at 60 mcm/d for some time due to technical difficulties. We therefore continue to remain skeptical on availability of gas for the project and do not ascribe value to the project.

We, however, note that upside to our target price is contingent upon further visibility on Kondapalli III along with other pipe line projects - Babandh (2,640 MW), Vidarbha (1,320 MW). These projects could add another Rs19/share to our target price. Exhibit 4 highlights the status of these projects.

Exhibit 4: Upcoming projects could provide an upside of ~Rs19/share to our target price Execution status of upcoming projects of LITL

Capacity Cost Expected value

Project (MW) (Rs bn) Fuel Land (Rs/share)

Kondapalli III 732 25.2 Thermal WIP r 4.0

Babandh 2,640 139.0 Thermal WIP WIP WIP 10.0

Vidarbha 1,320 69.5 Thermal WIP r WIP r 5.0

Total 4,692 233.7 19.0

Environmental clearance

Fuel arrangement

Financial closure




Construction – external order booking allays concerns over sustainable revenue flows

LITL has been awarded the BOP contract for setting up 1,980 MW (3x660 MW) thermal power plant by Maharashtra State Power Generation Company (Mahagenco). The project is expected to be completed in 42 months from commencement of construction. Mahagenco contract is the first major external contract for LITL’s EPC division which has been primarily involved in in-house construction of LITL’s power projects. We believe that a large third-party contract on the order book allays to an extent concerns over sustainability of revenue flows from LITL’s EPC division.

LITL’s has a healthy order book of Rs248 bn as of June 30, 2010 (see Exhibit 5) which does not include the order for the abovementioned Mahagenco contract.

Exhibit 5: Pace of execution has moderated in last few quarters Details of order book position as of June 2010 (Rs bn)

Balance order book % complete

Project value 1QFY11 (%) 1QFY11 4QFY10 1QFY10 FY2010 (qoq %) (yoy %)Amarkantak I & II 13.3 0.3 97.4 0.0 0.7 0.2 2.5 (100.0) (100.0)Amarkantak III & IV 55.2 52.7 4.6 1.6 0.9 0.0 0.0Teesta VI 23.2 16.0 31.1 0.9 1.5 0.3 6.2 (42.4) 224.4Anpara 34.9 8.6 75.3 3.5 2.1 3.4 20.2 68.1 2.6Udupi (Nagarjuna) 36.4 4.5 87.6 1.2 2.4 5.3 16.2 (50.7) (77.3)Kondapalli Expn. 9.7 0.3 96.9 0.2 0.5 2.0 5.6 (58.9) (88.7)Kondapalli Phase III 21.1 19.8 6.2 0.4 0.9Vidarbha 56.8 56.8 0.0Babandh 55.8 55.8 0.0Others 4.4 0.3 0.8Power 219 8 9 11 51 (11) (19)

Others 29

Total 248

Execution Growth


Exhibit 6: Standalone revenues dropped sharply in 1QFY11 Lanco Infratech (Standalone), Quarterly performance, March year-ends (Rs mn)

(% Chg.)1QFY11 1QFY10 4QFY10 1QFY10 4QFY10 FY2010 FY2011E (% Chg.)

Net sales 10,375 14,463 15,720 (28) (34) 57,994 52,747 (9) Total expenses (8,883) (12,369) (14,437) (2,697) (2,110) EBITDA 1,492 2,094 1,283 (29) 16 55,296 50,637 (8) Depreciation (151) (143) (154) (598) (871) EBIT 1,342 1,951 1,129 54,699 49,766 Other income 537 404 1,256 1,989 947 Net interest (806) (464) (611) (1,979) (2,612) PBT 1,073 1,891 1,775 (43) (40) 54,708 48,101 (12) Tax (360) (604) (616) (2,337) (1,619) Net Profit 713 1,287 1,158 (45) (38) 52,371 46,482 (11)

EBITDA margin (%) 14.4 14.5 8.2 95.3 96.0 Effective tax rate (%) 33.5 32.0 34.7 4.3 3.4




Exhibit 7: Segmental breakup of LITL financials, March fiscal year-ends (Rs mn)

2007 2008 2009 2010 2011E 2012ERevenue flows

Power 10,990 17,501 27,170 33,099 70,174 87,958 Construction 5,417 15,745 40,826 57,994 52,747 47,827 Real estate — 1,039 1,732 562 1,129 5,264 Less inter-segmental (349) (1,873) (9,008) (10,937) (8,967) (8,131) Total 16,058 32,413 60,720 80,718 115,083 132,918

EBITDA flowsPower 3,216 3,706 3,588 5,849 28,804 37,627 Construction 1,141 3,141 5,671 7,789 7,299 5,662 Real estate — 341 514 77 307 1,861 Less inter-segmental (52) (281) (1,251) (1,469) (1,241) (963) Total 4,305 6,907 8,522 12,246 35,169 44,188 Attributable EBITDA 3,056 5,576 8,200 10,913 28,188 35,713

Net profitPower 1,454 2,260 2,130 3,530 7,257 8,276 Minority interest (576) (939) (832) (1,258) (2,388) (2,484) Attributable PAT from Power 877 1,321 1,298 2,272 4,869 5,792 Construction 732 2,002 2,664 4,864 3,144 2,616 Less inter-segmental (52) (281) (453) (1,459) (534) (445) Attributable PAT from Construction 679 1,721 2,211 3,405 2,609 2,172 Real estate — 218 288 (180) (17) 484 Minority interest — (57) (75) 47 5 (126) Attributable PAT from Real Estate — 161 213 (133) (13) 358 Attributable profit 1,557 3,203 3,723 5,543 7,466 8,322

EPS (Rs)Power 0.4 0.6 0.6 1.0 2.2 2.6 Construction 0.3 0.8 1.0 1.5 1.2 1.0

Real estate — 0.1 0.1 (0.1) (0.0) 0.2

Total 0.7 1.4 1.7 2.5 3.4 3.7 EPS differential due to accounting for depreciation 0.1 0.0 (0.2) (0.5) 0.3 1.2 Reported EPS 0.8 1.5 1.5 2.0 3.7 5.0

Attributable net debtTotal 13,020 54,000 101,059 120,526 132,484 135,063




Exhibit 8: Lanco: Profit model, balance sheet, cash model 2008-2013E, March fiscal year-ends (Rs mn)

2008 2009 2010E 2011E 2012E 2013EProfit model (Rs mn)

Net sales 32,413 60,720 80,718 115,083 132,918 140,690

EBITDA 6,993 8,874 14,912 35,169 44,188 52,063

Other income 708 562 1,978 1,304 1,491 1,274

Interest (920) (1,773) (3,554) (10,546) (14,416) (18,489)

Depreciation (776) (1,073) (3,479) (10,747) (13,379) (17,652)

Pretax profits 6,005 6,590 9,857 15,181 17,883 17,196

Tax (1,404) (1,674) (3,643) (3,990) (4,110) (3,810)

Minority Interest (1,304) (1,684) (1,849) (3,001) (2,727) (2,471)

Net profits 3,297 3,232 4,366 8,190 11,046 10,915

Extraordinary items 245 (429) 219 — — —

Earnings per share (Rs) 1.6 1.3 2.1 3.7 5.0 4.9

Balance sheet (Rs mn)

Total equity 18,333 20,976 34,294 43,018 54,508 63,042

Deferred taxation liability 173 175 624 1,293 (444) (2,070)

Total borrowings 37,200 62,962 162,833 171,582 237,297 218,039

Currrent liabilities 27,038 31,331 48,417 45,139 42,354 2,759

Minority Interest 41 41 41 42 43 44

Total liabilities and equity 82,785 115,485 246,209 261,074 333,757 281,813

Cash 7,411 9,905 22,489 29,675 39,904 40,167

Current assets (excl cash) 30,379 39,438 49,864 50,726 53,405 24,330

Total fixed assets 38,029 56,306 172,164 178,981 238,755 215,623

Investments 6,966 9,837 1,692 1,692 1,692 1,692

Deferred Expenditure 0 0 1 1 1 1

Total assets 82,785 115,485 246,209 261,074 333,757 281,813

Free cash flow (Rs mn)

Operating cash flow, excl. working capital 5,632 6,919 11,068 28,566 36,553 46,604

Working capital (2,752) (4,766) 6,660 (4,140) (5,465) (10,520)

Capital expenditure (14,415) (19,350) (119,337) (17,564) (73,153) 5,480

Investments (936) (2,871) 8,145 — — —

Free cash flow (12,472) (20,068) (93,464) 6,863 (42,065) 41,565



Weak results continue; subscale sales lead to EBITDA level loss

Suzlon reported 1QFY11 sales of 207 MW, versus our estimate of 300 MW; but some pick up on a yoy basis from 123 MW in 1QFY10. The low volumes led to an EBITDA level loss of Rs2.9 bn. The net profit of the company was further impacted by a foreign exchange loss of Rs1.4 bn and a one-time loss on restructuring and refinancing of financial facilities to the tune of about Rs372 mn. Suzlon reported a net loss of Rs7.5 bn in 1QFY11 versus our estimate of a loss of Rs1.9 bn.

International orders remain elusive - not the case for other market players such as Vestas

Almost all of the reported order inflows of 540 MW in 1QFY11 were from India with only 51 MW from China (zero inflows from other geographies). The management expects inflows to remain muted from developed economies (USA and Europe) and expects only China and Brazil to contribute to some extent, Key however remains India. However, we highlight that Vestas has announced very strong order inflows from USA as well as Europe (over 2,000 MW since end-March 2010 till date). Hence Suzlon’s problem could be company specific and not entirely sectoral.

Other highlights: Repower sales also dip; Indian inflows strong at 489 MW; focus back on India

Other key highlights include (1) Repower sales also dipped about 30% in Euro terms; however there is no change in sales guidance of Euro1.5-1.6 bn, (2) lack of available liquidity constrains acquisition of remaining 10% in Repowerand may look at selling 26% stake in Hansen, (3) focus seem to be back on Indian market buoyed by potential favorable regulation (CERC tariffs, RPO, along with trading certificates and Generation based incentive) and competitive edge based on integrated model along with large land acquisition, infrastructure development, long term O&M.

Concerns: Insufficient visibility and cost reduction, dwindling global presence; Retain REDUCE

We revise estimates to loss of Rs0.7 (versus loss of Rs0.2) and Rs3 (versus Rs5 earlier) for FY2011E and FY2012E based on changes to volume, rights issue led dilution etc. Retain REDUCE with a target price of Rs55 based on (1) low order inflow momentum led by company specific issues and competition pick up, and (2) strained cash flows. Target price of Rs55 builds in execution of about 2,200 for FY2012E and depend upon resumption of order inflows (about 2,300 MW in FY2012E)

Suzlon Energy (SUEL)

Industrials

Subscale sales lead to EBITDA loss; focus back on India with integrated model. Suzlon reported sales of 207 MW in 1QFY11, leading to an EBITDA loss during the quarter. International orders remain elusive on easing of supply side, competition pick up and company specific issues. Company to focus more on India (reports strong 489 MW order inflows) with well known vertically integrated model. Rights almost entirely subscribed by promoters, reports Rs2.7 bn Wcap improvement. Retain REDUCE.

Suzlon EnergyStock data Forecasts/Valuations 2010 2011E 2012E

52-week range (Rs) (high,low) EPS (Rs) (6.2) (0.8) 3.3Market Cap. (Rs bn) 90.0 EPS growth (%) (185.4) (86.8) (504.1)

Shareholding pattern (%) P/E (X) (9.2) (69.5) 17.2Promoters 53.1 Sales (Rs bn) 206.2 188.0 224.4FIIs 10.7 Net profits (Rs bn) (9.8) (1.3) 5.2MFs 3.7 EBITDA (Rs bn) 12.8 14.1 21.1

Price performance (%) 1M 3M 12M EV/EBITDA (X) 14.7 12.3 8.2Absolute (5.9) (13.9) (36.1) ROE (%) (11.4) (1.8) 6.9Rel. to BSE-30 (7.0) (19.5) (45.8) Div. Yield (%) 0.0 0.4 0.4


105-52

REDUCE

AUGUST 16, 2010

RESULT


Price (Rs): 56


BSE-30: 18,167

Suzlon Energy Industrials


Weak results in this quarter as well

Suzlon reported MW sales of 207 MW versus our estimate of 300 MW sales. The company reported wind business revenues of 14.4 bn, about 20% below our estimate of Rs18 bn. The wind energy market continues to witness a slowdown with several customers delaying/ pushing back deliveries of orders. There has been some pick up in sales on a yoy basis (Suzlon had reported sales of 123 MW in 1QFY10). The low volumes in the quarter led to an EBITDA level loss of Rs2.9 bn versus our estimate of a positive EBITDA of Rs1.35 bn. The company had reported a negative EBITDA of Rs1.7 bn in 1QFY10 despite the lower volumes - the decline in EBIDTA margin was due to higher raw material and other expenses as a percentage of sales. The net profit of the company was further impacted by a foreign exchange loss of Rs1.4 bn and a one-time loss on restructuring and refinancing of financial facilities to the tune of about Rs372 mn. Suzlon reported a net loss of Rs7.5 bn in 1QFY11 versus out estimate of a loss of Rs1.9 bn and a loss of Rs4.6 bn in 1QFY10.

Suzlon Energy - 1QFY11 wind business results (Rs mn)

1QFY11 1QFY11E 1QFY10 4QFY10 vs est. yoy qoq FY2011E FY2010 %chgMW sales 207 300 123 650 (31.0) 68.3 (68.2) 1,830 1,460 25.4 Income from operations 14,410 18,000 11,650 41,500 (19.9) 23.7 (65.3) 100,042 96,350 3.8 Expenditure (17,330) (16,650) (13,380) (37,990) 4.1 29.5 (54.4) (93,539) (96,930) (3.5) Raw material consumption (10,590) (11,700) (8,300) (25,480) (9.5) 27.6 (58.4) (66,027) (63,910) 3.3 Staff cost (2,270) (2,250) (2,220) (2,380) 0.9 2.3 (4.6) (9,004) (9,110) (1.2) Other expenditure (4,470) (2,700) (2,860) (10,130) 65.6 56.3 (55.9) (18,508) (23,910) (22.6) EBITDA (2,920) 1,350 (1,730) 3,510 (316.3) 68.8 (183.2) 6,503 (580) (1,221.2) Other income 150 17 140 290 793.5 7.1 (48.3) 150 820 (81.7) PBDIT (2,770) 1,367 (1,590) 3,800 (302.7) 74.2 (172.9) 6,653 240 2,671.9 Interest & finance charges (2,210) (2,457) (2,340) (2,330) (10.1) (5.6) (5.2) (8,783) (8,580) 2.4 Depreciation (800) (859) (620) (1,060) (6.9) 29.0 (24.5) (3,437) (3,120) 10.1 PBT (5,780) (1,949) (4,550) 410 196.5 27.0 (1,509.8) (5,567) (11,460) (51.4) Tax 200 — 110 (2,850) 81.8 (107.0) — (2,360) (100.0) PAT (5,580) (1,949) (4,440) (2,440) 186.2 25.7 128.7 (5,567) (13,820) (59.7) One-time items included in PAT (1,900) — (180) 70 — 2,110 Associates/Minority interest 10 — 10 (60) — (20) Adjusted PAT (7,470) (1,949) (4,610) (2,430) 283.2 62.0 207.4 (5,567) (11,730) (52.5)

Key ratios (%)Material cost 73.5 65.0 71.2 61.4 66.0 66.3 Staff cost 15.8 12.5 19.1 5.7 9.0 9.5 Other expenditure 31.0 15.0 24.5 24.4 18.5 24.8 EBITDA margin (20.3) 7.5 (14.8) 8.5 6.5 (0.6) PBDIT margin (19.2) 7.6 (13.6) 9.2 6.6 0.2 Pre-tax margin (40.1) (10.8) (39.1) 1.0 (5.6) (11.9) Tax rate 3.5 — 2.4 695.1 — (20.6) PAT margin (38.7) (10.8) (38.1) (5.9) (5.6) (14.3)

% chg


At the consolidated level, Suzlon reported 1QFY11 revenues of Rs24 bn, down 42% yoy from Rs41.7 bn in 1QFY10. EBITDA margin was at -16.6% versus a marginal positive EBITDA margin of 0.3% in 1QFY10 and positive margin of 7.5% in the previous quarter. Suzlon has reported a net loss (excluding exceptional items) of Rs7.4 bn at the consolidated level.

Industrials Suzlon Energy


Suzlon Energy - 1QFY11 consolidated results (Rs mn)

1QFY11 1QFY10 4QFY10 yoy qoqIncome from operations 24,044 41,714 60,836 (42.4) (60.5) Expenditure (28,042) (41,590) (56,294) (32.6) (50.2) (Increase) / Decrease in stock in trade (551) 1,694 8,011 Raw material consumption (17,218) (30,807) (46,229) (44.1) (62.8) Staff cost (3,976) (5,924) (4,226) (32.9) (5.9) Other expenditure (6,297) (6,553) (13,849) (3.9) (54.5) EBITDA (3,997) 123 4,542 (3,347.0) (188.0) Other income 235 214 910 10.1 (74.1) PBDIT (3,762) 337 5,452 (1,216.9) (169.0) Interest & finance charges (2,611) (3,128) (3,002) (16.5) (13.0) Depreciation (1,265) (1,626) (1,451) (22.2) (12.8) PBT (7,638) (4,417) 1,000 72.9 (863.8) Tax 237 (26) (2,953) (1,001.5) (108.0) PAT (7,401) (4,443) (1,953) 66.6 278.9 One-time items included in PAT (1,836) (183) 67 905.8 (2,860.2) Associates/Minority interest 114 99 2 Adjusted PAT (9,122) (4,527) (1,885) 101.5 384.0

Key ratios (%)Material cost 73.9 69.8 62.8 Staff cost 16.5 14.2 6.9 Other expenditure 26.2 15.7 22.8 EBITDA margin (16.6) 0.3 7.5 PBDIT margin (15.6) 0.8 9.0 Pre-tax margin (31.8) (10.6) 1.6 Tax rate 3.1 (0.6) 295.3 PAT margin (30.8) (10.7) (3.2)

%chg


International markets muted; company focus shifting to emerging geographies

Suzlon reported order inflows of about 540 MW in 1QFY11. Majority of these order were from the domestic market and the company reported international order inflow of only 51 MW. The entire international order inflow was also only from China with zero inflows from all other geographies. Indian market now contributes to a majority (39%) of the total order backlog of the company versus only 4% of the backlog at the end of 1QFY10. USA which contributed to 39% of the order backlog at end-1QFY10 now contributes to 17% of the current backlog. The next major contributor to the order backlog of the company is China with 29% stake in the backlog.



Emerging markets likely to drive orders Geographical break-up of order book of Suzlon, 1QFY10 and 1QFY11

1QFY11 (1,458 MW)

India39%

EU11%

USA17%

China29%

ANZ4%

1QFY10 (1,501 MW)

EU8%

South America

1%

ANZ9%

China39%

USA39%

India4%


The management expects that going forward as well India and China are likely to drive the order booking for the company. The management cited continued sedation in the US and European markets leading to no order inflows from these geographies. The company is launching a new product variant (2.25 MW machines - likely to be launched in October-2010) to compete with other player in the Chinese market.

Brazil – 400 MW of PPAs with Suzlon as preferred supplier

Another market likely to drive the inflows of the company if Brazil. In the recent wind energy auction conducted by Brazil, about 400 MW of Power Purchase Agreements (PPAs) were awarded which have declared Suzlon as the preferred supplier for turbines. These projects are scheduled to be online by 2012 and hence the management expects order inflows for these projects to start coming in from 2HCY10.

However, order announcement data from Vestas suggests otherwise

Suzlon has reported no order inflows from the developed economies in 1QFY11 citing slowdown in the markets but the order inflow announcements of Vestas suggest otherwise. Vestas has announced orders to the tune of 1,103 MW in the quarter ending June 30, 2010 and has also announced order of about 1,373 MW in the months of July and August 2010 so far. The announcements include some very large orders of about 400-500 MW as well viz. (1) 570 MW order from Terra-Gen Power, USA, (2) 420 MW order from AGL Energy Ltd, Australia and (3) 250 MW order from RES Americas, USA in June, 2010.



Order inflow announcements made by Vestas in CY2010 so far Product Configuration Capacity

Date Customer Country MW MW13-Aug-10 Chinese IPP China 2.0 74.0

12-Aug-10 AGL Energy Limited Australia 3.0 420.0 3-Aug-10 Devon Wind Power Ltd, subs of ESB Wind Development, UK UK 3.0 66.0 2-Aug-10 China Longyuan Power Group China 2.0 36.0 23-Jul-10 E.ON Vind Sverige AB Sweden 2.0 32.0

21-Jul-10 Terra-Gen Power, LLC USA 3.0 570.0 19-Jul-10 Ningxia Hanas New Energy Company China 1.8/2.0 49.0 14-Jul-10 Näsudden Väst Invest, Slitevind AB and Stugyl AB Sweden 3.0 63.0 8-Jul-10 Volturino Wind and CO-VER Industrial Chile 1.8 23.4 6-Jul-10 UKA Group (UKA) Germany 2.0 40.0

Total large order booking in 3QCY10 1,373.4 30-Jun-10 Renewable Energy Systems Americas Inc. (RES Americas) USA 1.8 250.2 24-Jun-10 Fujian Energy Wind Power Company China 2.0 48.0 23-Jun-10 Capital Power Corporation Canada 1.8 142.2 21-Jun-10 Datang Renewable Power China 2.0 50.0 17-Jun-10 Datang Renewable Power China 2.0 50.0 18-May-10 International Power Canada, Inc Canada 1.8 48.6 27-Apr-10 Chinese IPP China 0.85/2 198.0 23-Apr-10 Algonquin Power Canada 1.7 26.0 22-Apr-10 Ningxia Hanas New Energy Company China 2.0 49.0 20-Apr-10 Master Investment Company Ltd China 2.0 49.0 15-Apr-10 Chinese customer - Guangdong province China 0.9 49.0 7-Apr-10 Galata Wind Energy Ltd Turkey 3.0 93.0 6-Apr-10 Project in the Heilongjiang province China 50.0

Total large order booking in 2QCY10 1,103.0 31-Mar-10 Collgar Wind Farm Pty Ltd Australia 2.0 206.0 30-Mar-10 Project in the Heilongjiang province China 50.0 25-Mar-10 We Energies USA 1.8 145.0 16-Mar-10 Electricity Generating Company Haina, SA Dominican Republic 1.8 25.0 16-Mar-10 France 2.0 42.0 8-Mar-10 Camas Energy S.r.l. Italy 2.0 34.0

25-Feb-10Inner Mongolia Huitong Energy Zuozi Wind Energy Co. Ltd (subs of Shanghai Huitong Energy Co. Ltd)

China 2.0 48.0

10-Feb-10 Noble Environmental Power USA 3.0 99.0 11-Jan-10 TransAlta Canada 3.0 54.0 6-Jan-10 Nordwind Handels GmbH & Co. KG Germany 2.0 80.0

Total large order booking in 1QCY10 783.0 Total large order booking in CY2010 3,259.4

Source: Company

Quarterly order inflow announcements of Vestas, 1QCY07 - 3QCY10 (MW)

-

450

900

1,350

1,800

Mar

-07

Jun-

07

Sep-

07

Dec

-07

Mar

-08

Jun-

08

Sep-

08

Dec

-08

Mar

-09

Jun-

09

Sep-

09

Dec

-09

Mar

-10

Jun-

10

Sep-

10 s

o fa

r

(MW)Steady rise in order inflows since slowdown in FY2010




Of the total order announcements made by Vestas, about 70-75% of the orders were won from developed economies, contributed by 41% from USA (including Canada) and 14% from Europe.

Geographical split of order inflow announcements made by Vestas in CY2010 so far

Order announcements in CY2010 so far (3,259 MW)

China25%

Australia19%USA

41%

Europe14%

Others1%


Hence we believe that although some of the recent slowdown in Suzlon’s execution/inflows could be attributed to the global slowdown in the wind industry, we believe that Suzlon’s problem could be company specific to large extent. Furthermore, the strong growth witnessed in the global wind industry (albeit majority driven by China market) implies that the global wind industry has not suffered as much of a slowdown as Suzlon.

Present backlog provides very low revenue visibility for FY2011E

The present backlog of 1,458 MW comprises of 580 MW of orders from India and the remaining 879 MW from international markets. The company expects to execute the entire international order backlog in FY2011E and a majority of the Indian order in this fiscal itself. We have currently built in an estimated international order inflow of 500 MW for FY2011E and 1000 MW for FY2012E. These estimates may actually have downside as visibility remains low. We believe that pick up in order inflows for Suzlon would be visible with a time lag versus Vestas led by quality perception of Suzlon.

FY11E wind business EBITDA may fall below interest cost; WCap and cost reduction vital

We expect Suzlon to record sales of 1,830 MW in FY2011E led by 1,097 MW of domestic sales and 733 MW of international sales. The expected FY2011E-EBITDA of Rs6.5 bn is unlikely to be sufficient to meet the expected interest cost requirements of about Rs8.75 bn. Hence, cost reduction, improvement in working capital levels are all essential for Suzlon.



Order backlog, booking and execution, March fiscal year-ends, 2008-12E (MW)

2007 2008 2009 2010 2011E 2012EOrder backlogDomestic 267 160 75 230 233 262 Internaional 1,692 3,294 1,388 896 663 707 Total backlog 1,959 3,454 1,463 1,126 896 969 Order inflowsDomestic 957 869 664 843 1,100 1,265 Internaional 502 2,937 135 280 500 1,000 Total inflows 1,459 3,806 799 1,123 1,600 2,265 ExecutionDomestic 956 976 749 688 1,097 1,236 Internaional 502 1,335 2,041 772 733 956 Total execution 1,458 2,311 2,790 1,460 1,830 2,192


Moderate working capital reduction on better collection from receivables

Working capital employed in the business has reduced to Rs48.4 bn from Rs51 bn at the end of March 31, 2010 releasing about Rs2.6 bn of cash. The reduction in working capital level has primarily been led by better collection of receivables from clients. Debtor levels reduced to about Rs38 bn at end-1QFY11 versus about Rs47.3 bn at end-FY2010. Over the past year (since June 30, 2010) Suzlon has recorded a working capital reduction of about Rs6.7 bn. The management aims to reduce the working capital by about Rs10 bn by the end of the financial year from FY2010-end levels of about Rs51 bn.

We highlight that Suzlon has been operating with very high working capital levels versus peers such as Vestas and hence there could be scope for significant improvement on this over a period of time.

Working capital details of Suzlon wind business

As on June 30, 2009

As on Sept 30, 2009

As on Dec 31, 2009

As on Mar 31, 2010

As on Jun 30, 2010

Inventories 39,450 37,460 34,440 28,770 29,100 Sundry debtors 45,520 41,570 42,550 47,260 37,980 Loans and advances 13,270 12,850 13,370 11,870 12,090 Total current assets 98,240 91,880 90,360 87,900 79,170 Current liabilities 9,410 10,850 11,950 6,960 10,020 Trade payables 33,720 27,400 26,620 29,900 20,710 Total current liabilities 43,130 38,250 38,570 36,860 30,730 Net working capital 55,110 53,630 51,790 51,040 48,440


REpower integration constrained by cash flows; may sell residual Hansen stake

Suzlon plans to acquire the remaining 10% stake in REpower in order to completely integrate the operations of the company with the parent entity. This would provide Suzlon access to strong cash balance of REpower - reported cash balance of EUR275 mn at end-1QFY11. The Suzlon management cited that the key obstacle towards completion of the acquisition of the remaining stake of REpower is the unavailability of cash flows/ liquidity to the company. One of he options available would be to sell the remaining 26% stake in Hansen and utilize the cash generated to complete the REpower acquisition.



Rights issue almost fully subscribed by promoters; seemingly no participation from others

Only promoters seem to have subscribed to the rights issue, all others stay away

Number of shares at the end of June 2010 1,556,739,743Promoter shares at the end of June 2010 826,268,000 Rights issue price 63Promoter holding at the end of June 2010 53.1Number of additional shares issued in rights issue (#) 188,633,322Total number of shares post rights issue (#) 1,745,373,065Promoter holding post rights issue (%) 58.1Promoter shares post rights issue 1,014,759,900Increase in promoter shares 188,491,900Rights shares to promoter as proportion of total rights issue (%) 99.9

Source: Kotak Institutional Equities, Company

Concerns: Insufficient visibility, cost reduction; dwindling global presence; Retain REDUCE

We revise estimates to loss of Rs0.7 (versus loss of Rs0.2) and Rs3 (versus Rs5 earlier) for FY2011E and FY2012E based on changes to volume, rights issue led dilution etc. Retain REDUCE with a target price of Rs55 based on (1) low order inflow momentum led by company specific issues and competition pick up, and (2) strained cash flows. Target price of Rs55 builds in execution of about 2,200 for FY2012E and depend upon resumption of order inflows (about 2,300 MW in FY2012E). Suzlon faces challenges such as (1) slowdown in global ordering activity, (2) pressure to rebuild the order inflow momentum that can provide comfort to other global customers and (3) finding ways to reduce the debt burden including substantial reduction in working capital involvement in the business apart from selling stake in prized assets.



Target price of Rs55 - FY2011E does not capture full earnings potential of the company; target presume resumption of ordering Estimation of target price of Suzlon Energy

FY2011E Multiple based assigned mcap

FY2012E Actual Mcap of

holdings

FY2012E Multiple based assigned mcap

Hansen Transmissions Target EV/EBITDA (X) 8 8 FY2012E EBITDA (Euro mn) 100 131 Entreprise value (Euro mn) 803 1,050 Net debt ( Euro mn) 262 262Market capitalisation (Rs mn) 32,189 32,616 46,893 Suzlon's stake in Hansen (%) 26 26 26Contr to Suzlon MCap (Rs mn) 8,369 8,480 12,192 REpowerEV/EBITDA multiple 8 8FY2011E EBITDA (Euro mn) 123 154 EV (Euro mn) 981 1,234 Net debt (Euro mn) (113) (113)Market capitalisation (Euro mn) 1,095 1,072 1,347 Repower per share price (Euro) 119 117 146 Suzlon's stake in REpower (%) 90 90 90Contr to Suzlon MCap (Rs mn) 68,530 67,109 84,328 Suzlon wind business (Rs mn)MW sales 1,830 2,192 2,192EV/EBITDA multiple (X) 9 9 9FY2011E EBITDA 6,503 12,565 12,565 EV of wind business 58,524 113,083 113,083 Net debt as on Mar' 2011E 89,888 89,888 89,888 Mcap. of Suzlon wind business (31,363) 23,195 23,195 Mcap. contr of Hansen & Repower 76,899 75,589 96,520 Mcap. Incl. Hansen and Repower 45,536 98,784 119,715 No. of shares (mn) 1,746 1,746 1,746 Suzlon target price (Rs) 26 57 69

Source: Company, Bloomberg, Kotak Institutional Equities estimates

Key risks originate from (1) continued negative execution surprises related to sectoral and company specific problems; we highlight that Suzlon did not have strong execution track record when sector scenario was buoyant, (2) Rupee appreciation may start to affect competitiveness versus peers from FY2011E onwards. Furthermore, over the long term competitive intensity of sector would increase, with new players from China and other industrial companies joining the renewable energy bandwagon.


Power trading business boosts revenues, hits operating margins

SRCM reported revenues of Rs9.4 bn, operating profit of Rs2.9 bn and net income of Rs1.1 bn against our estimate of Rs8.7 bn, Rs2.9 bn and Rs1.3 bn respectively. Higher-than-estimated revenues were primarily on account of extra revenues of ~Rs480 mn from power trading business commenced in 1QFY11 which also resulted in a sharp sequential decline in operating margins. Lower tax during the quarter partially compensated for higher depreciation and interest cost as PAT was marginally below our estimate.

SRCM commenced low-margin power trading business in 1QFY11 partially contributing to the 480 bps contraction in operating margins and a sharp sequential jump of 75% in power revenues from Rs1.5 bn in 4QFY10 to Rs2.6 bn in 1QFY11. We note that SRCM’s purchase of power for trading purposes amounted to Rs473 mn in 1QFY11.

Cement holds fort against inflating input cost

Cement realizations remained stable, declining marginally from Rs3,265/ton in 4QFY10 to Rs3,247/ton in 1QFY11 as prices in North held up during the quarter. Cement revenues declined from Rs8.9 bn in 4QFY10 to Rs8.1 bn in 1QFY10 (-9% qoq) primarily due to decline in volumes from 2.7 mn tons to 2.5 mn tons. Declining volumes can be attributed to timely onset of monsoon resulting in reduced demand. However, power and fuel cost inflation driven by rising pet coke prices resulted in a sequential decline in cement EBITDA by ~Rs100/ton. We note that a sequential increase of ~388 bps in cement EBIT margins is due to sharp drop in depreciation from Rs2.8 bn in 4QFY10 to Rs1.5 bn in 1QFY11.

Reiterate BUY with a target price of Rs2,550/share

We reiterate our BUY rating on SRCM with a target price of Rs2,550 and rate SRCM as our preferred pick in the cement sector as we believe that current valuations are much below the replacement cost. We highlight that Shree Cement’s current stock price values the company at adjusted EV/ton of US$52/ton based on FY2012E production compared to the current replacement cost of US$110-120/ton. Our target price of Rs2,550 implies adjusted-EV/ton of US$94/ton based on FY2012E production.

c.dot

Shree Cement (SRCM)

Cement

Advent into power trading boost sales. Shree Cement reported higher-than-estimated sales on account of its advent in the low margin power trading business, which diluted operating margins by 400 bps sequentially. Adjusted for earnings from trading business, operating margins at 33% were marginally below estimates. We re-iterate our BUY rating, as the CMP offers 35% upside to our target price of Rs2,550/share.

Shree CementStock data Forecasts/Valuations 2010 2011E 2012E



Price performance (%) 1M 3M 12M EV/EBITDA (X) 4.4 4.2 3.4Absolute (3.0) (11.1) 20.8 ROE (%) 48.0 35.0 28.1Rel. to BSE-30 (4.2) (16.8) 2.5 Div. Yield (%) 0.6 0.6 0.6


2,542-1,372

BUY

AUGUST 16, 2010

RESULT

Coverage view: Neutral

Price (Rs): 1,881

Target price (Rs): 2,550

BSE-30: 18,167

Cement Shree Cement


SRCM’s valuation at 3X on FY2012E EV/EBITDA is at the lower than the historical range of 4-6X for the stock. Our target price of Rs2,550 implies an EV/EBITDA multiple of 4.4X. We maintain our earnings estimate of Rs221 for FY2011E and Rs242 for FY2012E and will re-visit the same post the earnings call of the company, as we seek operational data on the power business segment.

Exhibit 1: Foray in power trading hits margins Interim results of Shree Cement, March fiscal year-ends (Rs mn)

(% chg.)1QFY11 1QFY11E 1QFY10 4QFY10 1QFY11E 1QFY10 4QFY10 FY2010 FY2011E (% chg.)

Net sales 9,445 8,727 9,224 9,440 8 2 0 36,321 38,779 7 Raw material costs (1,113) (715) (836) (3,133) (3,466) Power & fuel costs (2,274) (1,399) (1,779) (6,105) (8,100) Freight costs (1,783) (1,842) (2,265) (7,626) (8,162) Personnel costs (478) (352) (408) (1,586) (1,824) Other costs (903) (667) (807) (2,847) (3,491) Total expenditure (6,550) (5,779) (4,974) (6,093) (21,296) (25,043) EBITDA 2,895 2,947 4,250 3,347 (2) (32) (14) 15,025 13,735 (9) EBITDA (%) 31 34 46 35 41 35 Other income 168 150 473 54 758 1,699 Interest (302) (180) (152) (163) (766) (1,177) Depreciation (1,509) (1,250) (973) (2,786) (5,704) (4,366) Pre-tax profits 1,253 1,667 3,599 452 (25) (65) 177 9,313 9,891 6 Tax (185) (367) (728) (329) (2,086) (1,948) Deferred tax - — 81 (1) 20 (242) Net income 1,068 1,300 2,951 122 (18) (64) 775 7,248 7,702 6 Extraordinary (9) — (40) (836) (487) —Reported income 1,059 1,300 2,911 (714) 6,761 7,702

Segment results of Shree CementRevenuesCement 8,138 8,860 8,900 (8) (9) Power 2,576 1,657 1,476 55 75 Gross turnover 10,714 10,516 10,376 2 3 Inter segment (1,269) (1,292) (935) (2) 36 Net sales 9,445 9,224 9,440 2 0 EBITCement 802 2,010 534 (60) 50 Power 585 1,269 (54) (54) (1,184) Total 1,387 3,279 480 (58) 189 Interest (302) (152) (163) Others 168 471 135 PBT 1,253 3,599 452 EBIT margin (%)Cement 9.86 23 6.00 Power 23 77 (4) Total 15 36 5

Cement and clinker sales ('000 tons) 2,504 2,548 2,726 (2) (8)

Tax rate (%) 14.8 18.0 73.0


Shree Cement Cement


Exhibit 2: Contribution from power revenues will further aid revenue growth Financial summary of power revenues of Shree Cement, March fiscal year-ends, 2008-12E (Rs mn)

2008 2009 2010E 2011E 2012EFinancial summarySegment revenue 3,242 5,369 6,317 7,344 8,128 Inter-segment (3,242) (4,563) (4,545) (3,520) (3,442) External revenue — 806 1,772 3,824 4,686 Tariff (Rs/kwh) 6.3 6.7 6.6 4.5 4.0 Cost of generation (Rs/kwh) 4.4 3.0 3.4 2.2 2.2 Segment EBIT 973 2,976 3,065 3,748 3,651 Inter-segment (973) (2,215) (2,109) (1,797) (1,546) External EBIT — 762 955 1,952 2,105

Computation of available surplusCaptive power plants (MW) 81 100 119 204 254Self-consumption (MW) (81) (74) (82) (98) (108) Surplus available (MW) — 26 37 106 146 Surplus available (MU) — 205 297 850 1,172


Exhibit 4: Profit model, balance sheet, cash model of Shree Cement, March fiscal year-ends, 2008-13E (Rs mn)

2008 2009 2010E 2011E 2012E 2013EProfit model (Rs mn)Net sales 20,650 27,150 36,321 38,779 42,155 45,713EBITDA 8,653 9,508 15,025 13,735 14,882 16,225 Other income 733 829 758 1,699 1,699 1,699Interest (527) (744) (766) (1,177) (869) (614)Depreciation (4,788) (2,054) (5,704) (4,366) (4,821) (4,861)Pretax profits 4,072 7,538 9,313 9,891 10,890 12,449Tax (930) (1,449) (2,066) (2,190) (2,444) (3,482)Net profits 3,142 6,089 7,248 7,702 8,447 8,967 Extraordinary items (389) (309) (487) — — —Earnings per share (Rs) 90.2 174.8 208.0 221.1 242.5 257.4

Balance sheet (Rs mn)Total equity 6,543 11,996 18,208 25,739 32,735 40,820Total borrowings 13,307 14,962 21,062 15,062 10,805 6,548Currrent liabilities 4,799 6,842 9,667 9,666 13,924 15,814Total liabilities and equity 24,649 33,800 48,938 50,468 57,464 63,182 Cash 4,674 4,723 4,164 6,308 13,074 18,545Current assets 6,286 9,571 11,545 13,210 14,261 15,369Total fixed assets 7,779 11,057 17,194 15,028 14,206 13,345Investments 5,910 8,448 16,035 15,922 15,922 15,922Total assets 24,649 33,800 48,938 50,468 57,464 63,182

Free cash flow (Rs mn)Operating cash flow, excl. working capital 7,631 8,154 12,937 11,890 11,665 12,618Working capital (125) (1,243) 851 (1,666) 3,206 782Capital expenditure (4,260) (5,295) (11,841) (2,200) (4,000) (4,000)Investments 500 — — — — —Free cash flow 3,746 1,616 1,948 8,024 10,871 9,400



Weak quarter with sales and margin down yoy and qoq.

Revenues declined 11% yoy in rupee terms to touch Rs2 bn this quarter, 18% lower than our estimate. Revenues from the marketable molecule segment were in line with our estimate, there was no pick up in CRAMS business from India, which led to revenues being lower. Supplies to Solvay have resumed only from the end of the quarter, according to the company.

PAT at Rs271 mn was 8% lower than our estimate of Rs296 mn

Although EBITDA was lower by 26%, PAT was down 8% due to forex gain of Rs100 mn reported in other income. Interest cost and depreciation were lower than our estimates while the tax rate at 11% was in line.

Dishman maintains guidance of sales growth of 15-20% and margin of 25% in FY2011E

Dishman’s guidance of sales growth of at least 15% in FY2011E implies 24% sales growth in 9MFY11E or 17% excluding new businesses of China (US$5 mn) and intermediate supply for CVS drug (US$6 mn). We think this is achievable considering Dishman’s CRAMS India base business, excluding Solvay and contract research, grew 14% in FY2010.

We estimate sales growth of 15% in FY2011E,12% in base business

Dish has spoken of several new orders in the past but we remain conservative and do not expect meaningful revenue from them in FY2011E except for the intermediate supply for the CVS drug, for which Dish has firm indication from its European partner- sales of US$6 mn likely in 2HFY11E. The high potency plant is yet to be validated by consultants and we think certification from consultants such as Safebridge is imperative for Dish to be a player in the global HP API space. We factor in US$15 mn of revenues from this facility in FY2012E.

Lower rating to ADD (from BUY) with PT at Rs230 (10X FY2012E estimated earnings)

We expect earnings to grow 24% in FY2011E to Rs1.4 bn, same as that seen in FY2009 and to Rs1.8 bn in FY2012E. Dish is currently trading at 9X FY2012E estimated earnings.

Dishman Pharma & chemicals (DISH)

Pharmaceuticals

Weak quarter, no recovery in CRAMS revenues. Sales/PAT came in lower than we estimated in the absence of recovery in CRAMS from India. We estimate sales growth of 15% in FY2011E, 12% in base business. We think this is achievable as Dishman’s CRAMS India research grew 14% in FY2010, excluding Solvay. We remain conservative and do not expect meaningful revenue from new clients in FY2011E, however, FY2012E earnings growth likely to be strong driven by recovery in base business and new contracts. At 9X FY2012E earnings, we lower our rating to ADD with PT of Rs230 (10X FY2012E estimated earnings).

Dishman Pharma & chemicalsStock data Forecasts/Valuations 2010 2011E 2012E



Price performance (%) 1M 3M 12M EV/EBITDA (X) 10.4 8.5 6.7Absolute (4.0) (4.1) 0.0 ROE (%) 15.5 16.8 18.3Rel. to BSE-30 (5.1) (10.3) (15.2) Div. Yield (%) 0.0 0.0 0.0


275-190

ADD

AUGUST 12, 2010

RESULT, CHANGE IN RECO.


Price (Rs): 207


BSE-30: 18,167

QUICK NUMBERS

• Weak quarter with sales and margin down yoy and qoq

• We estimate sales growth of 15% in FY2011E,12% in base business

• Lower rating to ADD (from BUY) with PT at Rs230 (10X FY2012E estimated earnings)

Dishman Pharma & chemicals Pharmaceuticals


1QFY10 revenues at Rs2 bn, down 11% yoy and 18% below our estimate

Revenues declined 18% qoq and 11% yoy in rupee terms to touch Rs2 bn this quarter, 18% lower than our estimate. Revenues from marketable molecule segment was in line with our estimate though there was no pick up in CRAMS business from India.

Carbogen Amcis reported revenues of US$20 mn, lower than our estimate of US$22 mn and flat qoq. Carbogen Amcis operates in three segments - contract manufacturing in high potency substances, Phase I-III clinical work and preclinical research. Revenue decline was seen in the latter two segments in FY2010. Revenues in these segments were affected due (1) to funding problems faced by small development companies in US and (2) MNC and mid size companies withdrawing projects. Sales from US account for 50% of revenues of Carbogen Amcis.

CRAMS business from India reported revenues of at US$11 mn, flat yoy and lower than our estimate of US$18 mn. Solvay revenues did not pick up this quarter.

EBITDA margins at 22%, was lower than our estimate of 24.5%

Margin were lower than our estimate due to poor recovery in business. However, material cost and other expenses were lower than our estimate while staff cost were in line. Other expenses at Rs384 mn were down 13% yoy and qoq due to cost control and high base last year on account of dividend payment.

PAT at Rs271 mn was 8% lower than our estimate of Rs296 mn

Although EBITDA was lower by 26%, PAT was down 8% due to forex gain of Rs100 mn reported in other income. Interest cost and depreciation were lower than our estimates while tax rate at 11% was in line. Depreciation is expected to increase in FY2011E once Chinese and high-potency facilities go into production.

Interim results- Dishman , March fiscal year-ends (Rs mn)

1QFY11 1QFY11E 1QFY10 4QFY10 1QFY11E 1QFY11 4QFY10Net sales 2,019 2,456 2,277 2,479 (18) (11) (19)Change in stock (62) — (51) 214 NM NM NMConsumption of raw mater 621 712 612 803 (13) 1 (23)Personnel cost 631 650 740 450 (3) (15) 40Other expenses 384 491 444 442 (22) (13) (13)Total Expenditure 1,574 1,853 1,745 1,909 (15) (10) (18)EBITDA 445 603 532 570 (26) (16) (22)Other income 104 15 155 (51) 592 (33) NMInterest 82 100 104 100 (18) (21) (18)Depreciation 161 185 145 135 (13) 11 20PBT 305 333 438 285 (8) (30) 7Tax 34 37 46 74 (7) (26) (54)PAT 271 296 392 210 (8) (31) 29

CRAMS 1,427 1,892 1,684 1,722 (25) (15) (17)Marketable molecules 592 564 594 757 5 (0) (22)Total 2,019 2,456 2,277 2,479 (18) (11) (19)

% change


Pharmaceuticals Dishman Pharma & chemicals


We estimate sales growth of 15% in FY2011E or 12% in base business

Dishman maintains guidance of sales growth of 15-20% and margin of 25% in FY2011E. Despite weak 1QFY11 with sales declining 11% yoy, Dishman’s guidance of sales growth of at least 15% in FY2011E implies 24% sales growth in 9MFY11E or 17% excluding new businesses of China (US$5 mn) and intermediate supply for CVS drug to European partner (US$6 mn). We think this is achievable considering Dishman’s CRAMS India base business, excluding Solvay and contract research, grew 14% in FY2010.

New clients/orders to impact sales in FY2012E. Dishman has spoken of several new orders in the past, but we do not expect meaningful revenue generation on account of the new clients in FY2011E except for the CVS intermediate supply for which Dish has firm indication from its partner.

We include sales of US$5 mn from China facility in FY2012E. China facility is expected to commissioned by August end, however, getting QC/QA clearances will take time and we expect revenue generation to take place in FY2012E.

High potency plant is yet to be validated by consultants and we think certification from consultants such as Safebridge, etc is imperative for Dish to be a player in the global HPAPI space. We factor in US$15 mn of revenues from this facility in FY2012E

Dish is supplying exhibit batches of intermediates to its Japanese partner although no firm order has been given as of now. We remain conservative and expect US$5 mn of sales from supplies to its Japanese partner from India in FY2012E

Flat sales from contract research in India in FY2011E. Dish has around 200 employees engaged in contract research at Bavla and expects to report revenues of Rs700 mn from contract research in India in FY2011E, flat yoy. Dish has 8 R&D labs at its facility at Bavla spread across 4,500 sq mtrs. In FY2010, Dish completed 120 R&D CRAMS projects at the lab and pilot level. Another 80 are in various stages of development

Dish expects CA to register revenues of CHF100 mn in FY2011E, up from CHF82 mn in FY2010.

Capex is expected to remain high at Rs1.5 bn in FY2011E. This includes Rs250 mn likely to be spent on Vitamin D3 facility in India which will conduct manufacturing for clients of Netherlands facility. This is expected to be operational by end FY2011E

Tax rate is expected at 11% in FY2011E. However, with EOU benefits expiring in FY2011E, Dish’s tax rate will increase to 17% in FY2012E, until SEZ facility is ready.

We lower our FY2012E earnings by 12%, FY2011E earnings up marginally due to forex gain reported in 1QFY11

We expect earnings to grow 24% in FY2011E to Rs1.4 bn, same as that seen in FY2009 and to Rs1.8 bn in FY2012E. We expect EBITDA margin of 25% in FY2011E, driven by (1) operating leverage benefits due to higher sales (2) CHF6 mn savings from personnel reduction at CA (3) US and Japanese subsidiary turning profitable on account of revenue ramp up while Chinese facility is expected to breakeven in FY2012E once revenues ramp up from US$5 mn guided for by the Dish in FY2011E.

Dish grew its base business of CRAMS in India at 14% excluding Solvay and contract research. We factor in base business CRAMS India growth of 18-20% in FY2011-12E and expect recovery in 2HFY11E. We believe this is the main driver of sales growth in FY2011-12E. Growth in CRAMS business from India excluding Solvay, contract research will be led by the addition of new clients.

Dishman Pharma & chemicals Pharmaceuticals


Revenue breakup (Rs mn)

FY2009 FY2010 FY2011E FY2012E FY2010 FY2011E FY2012ECRAMS 7,774 6,629 8,220 10,808 (15) 24 31 Solvay 1,750 1,200 1,600 1,600 (31) 33 0 Contract research 500 670 700 805 34 4 15 New contracts from CVS drug 276 552 Japan 230 India excl Solvay, research 685 785 951 1,118 14 21 18 CA 4,504 3,685 4,443 5,109 (18) 21 15 UK 334 290 251 244 (13) (14) (2) China - - - 460 High potency - - - 690 Marketable Molecules 2,850 2,524 2,345 2,526 (11) (7) 8 India 1,753 1,241 1,198 1,150 (29) (3) (4) Netherlands 1,097 1,284 1,147 1,376 17 (11) 20Total 10,624 9,154 10,566 13,334 (14) 15 26

% growth


Lower rating to ADD (from BUY) with PT at Rs230

We estimate PAT of Rs1.4 bn in FY2011E rising to Rs1.8 bn in FY2012E. Dishman is currently trading at 12X FY2011E and 9X FY2012E estimated earnings. At our target price, the stock will trade at 10X FY2012E estimated earnings.

Profit and loss statement, March fiscal year-ends, 2007-2012E

2007 2008 2009 2010 2011E 2012ENet operating revenues 5,786 8,031 10,624 9,154 10,566 13,334Operating expensesMaterials (2,536) (2,932) (3,242) (2,768) (2,984) (3,835)Selling and administration (690) (1,385) (2,003) (1,757) (2,033) (2,667)Employee cost (1,409) (2,154) (2,730) (2,541) (2,881) (3,334)R&D (31) (35) (51) 0 0Total expenditure (4,634) (6,502) (8,009) (7,116) (7,899) (9,835)EBITDA 1,151 1,529 2,615 2,038 2,667 3,499Depreciation and amortisation (263) (472) (629) (594) (791) (850)EBIT 888 1,057 1,985 1,444 1,876 2,649Net finance cost (162) (305) (459) (388) (402) (430)Other income 232 477 48 269 159 20PBT 959 1,228 1,575 1,325 1,632 2,239Current tax (11) (67) (37) (150) (181) (381)Deferred tax (19) 57 (66) 0 0 0Fringe benefit tax (2) (2) (3) — — —Reported net profit 927 1,215 1,467 1,176 1,452 1,858 Prior period adjustments (10) (18) (5) (2) — —Reported net profit after minority interests 917 1,197 1,462 1,174 1,452 1,858


Pharmaceuticals Dishman Pharma & chemicals


Balance sheet, cash model, March fiscal year-ends, 2007-2012E (Rs mn)

2007 2008 2009 2010 2011E 2012EBlaance sheetTotal equity 3,183 5,735 7,143 7,969 9,279 10,996Total debt 5,609 6,580 7,237 7,739 7,352 6,773Current liabilities 2,707 2,472 2,284 1,873 2,272 2,804Deferred tax liabilities 109 149 208 316 316 316Total equity and liabilities 11,609 14,936 16,872 17,898 19,219 20,889Cash and cash equivalents 355 371 452 455 150 150Current assets 5,069 6,216 6,399 5,426 6,399 7,919Net assets incl intangibles 6,030 8,329 10,008 12,004 12,656 12,806Investments 155 20 14 14 14 14Total assets 11,609 14,936 16,872 17,898 19,219 20,889

Free cash flow Operating cash flow, excl. working ca 1,346 1,917 2,401 2,044 2,600 3,065Working capital (810) (1,399) (396) 563 (603) (988)Capital expenditure (4,165) (2,718) (2,514) (2,524) (1,500) (1,000)Investments 18 66 (126) (230) — —Free cash flow (3,611) (2,134) (635) (148) 497 1,077


Change in estimates (Rs mn)

2011E 2012E 2011E 2012E 2011E 2012ENet operating revenues 10,566 13,334 11,031 14,844 (4) (10)Operating expensesMaterials (2,984) (3,835) (3,199) (4,304) (7) (11)Selling and administration (2,033) (2,667) (2,206) (2,969) (8) (10)Employee cost (2,881) (3,334) (2,900) (3,711) (1) (10)Total expenditure (7,899) (9,835) (8,305) (10,984) (5) (10)EBITDA 2,667 3,499 2,727 3,860 (2) (9)EBITDA , % 25.2 26.2 24.7 26.0 1 0Depreciation and amortisation (791) (850) (795) (850) (0) 0EBIT 1,876 2,649 1,932 3,010 (3) (12)Net finance cost (402) (430) (420) (450) (4) (4)Other income 159 20 70 70 127 (71)Pretax profits before extra-ordinaries 1,632 2,239 1,582 2,630 3 (15)Current tax (181) (381) (174) (526) 4 (28)Deferred tax 0 0 0 0Fringe benefit tax 0 0 0 0Reported net profit 1,452 1,858 1,408 2,104 3 (12)

New estimates Old estimates % change



Corus performance to remain an overhang

Tata Steel management highlighted that sovereign debt crisis/ banking sector concerns are driving aggressive fiscal cuts. As a result, Government projects, especially in the construction sector, may slow down; note that the construction sector accounts for close to 40% of steel demand in Europe. The company also guided for lower steel deliveries for the September quarter and emphasized focus on profitability over volumes. This in our view is a logical choice and indicates willingness to maintain supply discipline (industry leader Arcelor Mitttal has also taken the lead on this front). However performance may be hit till December quarter from lag impact of raw material price increases even if realization remains flat or move up marginally. Note that contract iron ore prices have increased by ~20% and coking coal prices by 10% for the Sep’10 quarter over the June’10 quarter prices. We forecast EBITDA/ ton of US$54 for FY2011E versus US$79 in 1QFY11.

Tata Steel India profitability may have peaked

Tata Steel reported strong performance for 1QFY11 with EBITDA/ ton of US$444 led by a combination of increase in steel prices and lag impact of raw material cost increase (will impact 2QFY11 performance). However decline in realization will impact subsequent quarter performance. The India business is still better positioned; we forecast EBTIDA/ ton of US$374 for FY2011E. Tata Steel management indicates that the 3 mt brownfield expansion project is on track.

No meaningful upsides from hereon, downgrade to REDUCE

We lower our EPS estimate by 19.5% and 29.9% to Rs63.4 and Rs65.5 for FY2011E and FY2012E. While we continue to like the India steel operations, high leverage (net debt/ EBITDA of 2.7X and 2.5X for FY2011E and FY2012E financials) and likely weak performance of Corus will continue to be an overhang. We align our rating to our cautious view on steel prices and sector and downgrade the stock to REDUCE. Our target price of Rs550 (down from Rs700 earlier) is based on Sep’11 EBITDA; we assign 6X to Tata Steel standalone operations and 5X to Corus and East Asian operations. We also assign Rs49 value to listed Indian investments. Tata Steel trades at 4.9X FY2011E and 4.6X FY2012E EBITDA and 3.2X FY2011E book value (adjusted for goodwill).

Tata Steel (TATA)

Metals

Profitability has peaked, expect moderation ahead. Tata Steel emphasized focus on profitability over volumes at its analyst meet. The company has guided for lower deliveries in 2QFY11 at Corus. While the performance of Tata Steel India will remain strong, likely weak performance of Corus over the next few quarters may remain an overhang. We have tweaked our estimates and lower FY2011E and FY2012E EPS by 19.5% and 29.9% to Rs63.4 and Rs65.5, respectively. Downgrade to REDUCE.

Tata SteelStock data Forecasts/Valuations 2010 2011E 2012E

52-week range (Rs) (high,low) EPS (Rs) (3.6) 63.4 65.5Market Cap. (Rs bn) 467.8 EPS growth (%) (103.6) (1,880.2) 3.4

Shareholding pattern (%) P/E (X) (148.1) 8.3 8.0Promoters 31.3 Sales (Rs bn) 1,023.9 1,156.5 1,172.5FIIs 15.9 Net profits (Rs bn) (3.3) 57.9 59.9MFs 3.2 EBITDA (Rs bn) 80.4 157.3 158.7

Price performance (%) 1M 3M 12M EV/EBITDA (X) 11.7 5.9 5.6Absolute 3.6 (8.3) 12.1 ROE (%) (1.5) 22.0 18.7Rel. to BSE-30 2.6 (12.9) (4.2) Div. Yield (%) 1.5 1.5 0.0


739-408

REDUCE

AUGUST 13, 2010

UPDATE


Price (Rs): 527


BSE-30: 18,167

Metals Tata Steel


Key highlights from 1QFY11 analyst meet

1QFY11 EBITDA/ ton of Corus was impacted by (1) US$10.8/ ton impact on translation losses on loans; (2) US$11.3/ ton on account of translation impact qoq on account of depreciation of GBP against INR and (3) US$4/ ton impact on account of fire at IJmuiden. Adjusted for these items, EBITDA/ ton improved to US$105 in 1QFY11 versus US$92 in 4QFY10.

Net debt increased by US$292 mn to US$9,843 mn largely to fund working capital on account of increase in raw material prices.

Pension surplus declined further to US$268 mn; this has declined consistently for the last few quarters.

Corus flat product margin was 11% for the quarter, approx. 3X of long product division.

Tata Steel will spend about US$1 bn in FY2011E and FY2012E each to fund new capex.

Tata Steel, Change in estimates, March fiscal year ends, 2011-12E (Rs mn)

Revised estimates Old estimates % change2011E 2012E 2011E 2012E 2011E 2012E

Earnings (consolidated)Net sales 1,156,506 1,172,510 1,019,970 1,108,262 13.4 5.8 EBITDA 157,292 158,676 163,766 184,058 (4.0) (13.8) Adj. PAT 57,946 59,939 69,878 82,977 (17.1) (27.8) EPS (Rs) 63.4 65.5 78.7 93.5 (19.5) (29.9) VolumesIndia (mn tons) 6.5 6.7 6.5 7.0 0.2 (4.3) International operations (mn tons) 14.9 15.1 15.1 16.6 (1.3) (9.2) PricingHRC price India (US$/ton) 655 650 680 680 (3.7) (4.4) HRC price Corus (US$/ton) 700 690 758 758 (7.6) (8.9)


Tata Steel, valuation, March fiscal year-ends, September 2011E basis (Rs mn)

EBITDA Multiple Enterprise value EV (Rs mn) (X) (Rs mn) (Rs/share)

Tata Steel standalone 112,165 6 661,771 724 Corus 37,493 5 187,463 205 Tata Steel Thailand and Natsteel 2,546 5 12,728 14 Total Enterprise Value 861,962 943 Consolidated group net debt 407,574 Total borrowings 407,574 446 Arrived market capitalization 454,388 497 Add: Value of listed investments 45,000 49 Arrived market capitalization 499,388 546 Target price (Rs) 550


Tata Steel Metals


Sensitivity of SOTP to varying Tata Steel & Corus HRC price levels

555 605 655 705 755 600 251 305 359 413 467 650 345 399 452 506 560 700 438 492 546 600 654 750 532 586 640 694 748 800 626 680 734 787 841

Target PriceTata Steel HRC Prices (US$/ton)

Corus HRC

Prices (US$/ton

)


Sensitivity of 2011 Consolidated EPS to varying Tata Steel & Corus HRC price levels

555 605 655 705 755 600 (10.0) 2.0 13.9 25.8 37.8 650 14.8 26.7 38.6 50.6 62.5 700 39.5 51.4 63.4 75.3 87.2 750 64.2 76.2 88.1 100.0 112.0 800 89.0 100.9 112.8 124.8 136.7

Corus HRC

Prices (US$/ton

)

EPSTata Steel HRC Prices (US$/ton)


Sensitivity of SOTP to varying Corus capacity utilizations & HRC price levels

74 79 84 89 94 680 426 467 509 550 592 690 442 485 527 570 613 700 459 502 546 590 634 710 475 520 565 610 655 720 492 538 584 630 675

Corus HRC

Prices (US$/ton

)

Target PriceCorus Capacity (%)


Sensitivity of 2011 Consolidated EPS to varying Corus capacity utilization & HRC price levels

74 79 84 89 94 680 31.5 42.5 53.5 64.4 75.4 690 35.9 47.2 58.4 69.7 80.9 700 40.3 51.8 63.4 74.9 86.5 710 44.6 56.5 68.3 80.2 92.0 720 49.0 61.1 73.3 85.4 97.5

Corus HRC

Prices (US$/ton

)

EPSCorus Capacity (%)


Tata Steel, Key assumptions, March fiscal-year ends, FY2008-2013E (Rs mn)

2008 2009 2010 2011E 2012E 2013ETata Steel (India)Benchmark HRC Price (US$/ton) 630 690 565 655 650 655 Volume (mn tons) 4.8 5.2 6.2 6.5 6.7 8.6 EBITDA margin (%) 40.7 37.6 35.8 38.6 37.4 36.1 EBITDA/ton (US$/ton) 394 380 307 374 364 336

CorusBenchmark HRC Price (US$/ton) 688 834 587 700 690 685 Volume (mn tons) 22.8 19.0 14.2 14.9 15.1 15.2 EBITDA margin (%) 8.5 8.2 (2.1) 5.1 5.1 5.9 EBITDA/ton (US$/ton) 88 103 (20) 54 55 63

Re/US$ rate 42.5 46.0 47.3 46.0 46.0 45.3


Metals Tata Steel


Tata Steel (standalone), Profit model, balance sheet and cash flow model, March fiscal year-ends, 2008-2013E (Rs mn)

2008 2009 2010 2011E 2012E 2013EProfit model (Rs mn)Net sales 196,910 243,157 250,220 290,564 299,878 361,824 EBITDA 80,138 91,334 89,521 112,095 112,234 130,754 Other income 2,428 3,083 8,538 6,779 6,624 6,721 Interest (7,865) (11,527) (15,084) (14,243) (11,913) (9,556) Depreciation (8,346) (9,734) (10,832) (11,804) (12,574) (16,722) Profit before tax 66,355 73,156 72,143 92,827 94,371 111,198 Extraordinaries 4,309 — — — — —Taxes (23,793) (21,139) (21,675) (30,633) (31,142) (36,695) Profit after tax 46,870 52,017 50,468 62,194 63,229 74,503 Fully diluted EPS (Rs) 51.3 56.9 55.2 68.0 69.1 81.5

Balance sheet (Rs mn)Equity 218,282 242,319 371,688 441,361 496,030 561,974 Deferred tax liability 6,818 5,857 8,677 10,533 12,421 14,645 Total Borrowings 234,942 324,188 252,392 202,392 172,392 142,392 Current liabilities 78,401 100,077 99,568 108,804 111,813 123,627 Total liabilities 538,443 672,441 732,324 763,090 792,656 842,638 Net fixed assets 82,561 109,945 121,624 119,820 117,746 247,034 Capital work in progress 43,675 34,877 38,436 64,436 95,936 1,936 Investments 41,032 423,718 449,797 449,797 449,797 449,797 Cash 4,650 15,906 32,341 28,031 26,697 31,582 Other current assets 364,974 86,945 90,126 101,006 102,480 112,289 Miscellaneous expenditure 1,551 1,051 — — — —Total assets 538,443 672,442 732,324 763,090 792,656 842,638

Free cash flow (Rs mn)Operating cash flow excl. working capita 60,778 66,599 71,874 75,855 77,690 93,448 Working capital changes 1,764 7,373 11,818 (3,105) 1,534 2,006 Capital expenditure (23,951) (27,711) (20,237) (36,000) (42,000) (52,010) Free cash flow 38,591 46,261 63,455 36,750 37,224 43,444

RatiosEBITDA margin (%) 40.7 37.6 35.8 38.6 37.4 36.1 EBT margin (%) 35.9 30.1 28.8 31.9 31.5 30.7 Debt/equity (X) 1.1 1.3 0.7 0.5 0.3 0.3 Net debt/equity (X) 1.0 1.1 0.5 0.3 0.2 0.1 Net debt/EBITDA (X) 2.7 3.0 2.1 1.3 1.0 0.6 RoAE (%) 26.4 22.7 16.5 15.3 13.5 14.1 RoACE (%) 16.7 13.9 12.3 13.3 12.7 13.9


Tata Steel Metals


Tata Steel (consolidated), Profit model, balance sheet and cash flow model, March fiscal year-ends, 2008-2013E (Rs mn)

2008 2009 2010 2011E 2012E 2013EProfit model (Rs mn)Net sales 1,315,336 1,473,293 1,023,931 1,156,506 1,172,510 1,229,608 EBITDA 177,824 181,277 80,427 157,292 158,676 182,787 Other income 4,759 2,657 11,859 7,389 6,991 7,790 Interest (40,854) (32,902) (30,221) (32,255) (30,055) (28,803) Depreciation (41,370) (42,654) (44,917) (45,658) (46,605) (50,431) Profit before tax 100,359 108,378 17,147 86,767 89,008 111,343 Extraordinaries 63,351 (40,945) (16,837) — — —Taxes (40,493) (18,940) (21,518) (29,501) (29,818) (37,300) Profit after tax 123,218 48,492 (21,208) 57,266 59,190 74,043 Minority interest (1,399) 409 (152) (525) (578) (635) Share in profit/(loss) of associates 1,682 607 1,269 1,205 1,326 1,326 Reported net income 123,500 49,509 (20,092) 57,946 59,939 74,733 Adjusted net income 60,149 90,454 (3,255) 57,946 59,939 74,733 Fully diluted EPS (Rs) 65.8 98.9 (3.6) 63.4 65.5 81.7

Balance sheet (Rs mn)Equity 287,015 217,700 230,208 295,653 347,033 413,208 Deferred tax liability 24,545 17,094 16,541 17,409 17,854 18,411 Total Borrowings 590,973 653,732 531,004 478,004 455,004 452,004 Current liabilities 339,163 313,109 309,639 324,171 328,722 341,615 Minority interest 8,327 8,949 8,841 9,366 9,943 10,578 Total liabilities 1,250,022 1,210,583 1,096,232 1,124,603 1,158,556 1,235,815 Net fixed assets 331,187 364,175 365,252 349,003 332,309 447,297 Capital work in progress 88,476 88,880 92,706 118,706 150,206 56,206 Goodwill 180,500 153,649 145,418 145,418 145,418 145,418 Investments 33,675 64,111 54,178 55,383 56,709 58,034 Cash 42,319 61,484 67,878 33,164 46,070 83,477 Other current assets 572,309 477,229 370,800 422,928 427,843 445,382 Miscellaneous expenditure 1,556 1,055 — — — —Total assets 1,250,022 1,210,583 1,096,232 1,124,603 1,158,556 1,235,815

Free cash flow (Rs mn)Operating cash flow excl. working capita 117,771 116,077 25,583 94,942 99,249 117,241 Working capital changes (22,227) 2,254 46,465 (37,595) (365) (4,646) Capital expenditure (79,967) (83,608) (69,472) (55,410) (61,410) (71,420) Free cash flow 15,578 34,723 2,577 1,937 37,474 41,175

RatiosEBITDA margin (%) 13.5 12.3 7.9 13.6 13.5 14.9 EBIT margin (%) 10.4 9.4 3.5 9.7 9.6 10.8 Debt/equity (X) 2.1 3.0 2.3 1.6 1.3 1.1 Net debt/equity (X) 1.9 2.6 1.9 1.4 1.1 0.8 Net debt/EBITDA (X) 3.0 3.1 5.5 2.7 2.5 1.9 RoAE (%) 27.8 35.8 (1.5) 22.0 18.7 19.7 RoACE (%) 14.6 9.9 (34.8) 12.8 12.3 13.8



Announces special dividend payout of Rs63/ share

Patni has announced interim dividend of Rs63/ share; this will entail dividend payout of Rs9.9 bn (including dividend distribution tax). Note that Patni had a very low dividend payout ratio historically (6 to 12%). Cash per share will reduce to Rs88 from end-June 2010 levels. In our view, interim dividend payout is a positive for shareholders since (1) it improves return ratios and (2) fear of aggressive acquisitions will recede. From a fundamental standpoint, the stock price should automatically adjust lower to the extent of dividend payout (or marginally higher after making some concessions for increase in RoE and investor sentiment).

Timing of dividend payout surprising, possibly a prelude to eventual sale

Timing of dividend payout is surprising in our view, especially after just a few days of results declaration. Patni has utilized excess cash in stock buyback in the past, which we view as more tax-efficient, shareholder value enhancement. The press has been speculating about an eventual sell-out by the promoters of Patni to a Japanese IT service provider—which could have implications for minority shareholders. Patni’s shareholding comprises 46.26% stake held by promoters, 17.64% by General Atlantic Partners (GAP) (2.12% in locals and 15.52% through ADRs), 13.26% by other ADR holders and 22.84% balance by public. A potential sale by promoters and GAP will necessitate an open offer to acquire additional 20% stake. Patni has to maintain a free-float of at least 10% of outstanding equity in India (ADRs excluded). If the free float falls below 10% (post open offer), the company have 12 months to shore it back to 10%, and until June 2013 to raise it to 25%—failing which the stock would have to de-list.

Cautious on business outlook but this matters little in the near term for the stock

We expect Patni to underperform industry revenue growth. Several factors may hurt growth prospects including weak quality client base, non-differentiated positioning and limited strength in high-growth new service offerings. In addition, the company faces severe margin headwinds from potential wage revision and a few margin dilute contracts. We have a REDUCE rating on the stock; however, in the near term the stock will likely move on speculation of corporate action. We would await an announcement from the company on the stake sale to review estimates.

Patni Computer Systems (PATNI)

Technology

Special dividend announcement: Prelude to eventual sale? Patni stock price increased by 15% in the run-up to and after a special dividend announcement of Rs63/ share. Dividend payout is indeed a positive for shareholders (company has cash/share of Rs162); however, the timing, coming just a few days after the results announcement, is surprising. Press reports speculate that the company may be sold to a global player. The Patni story, otherwise listless, may gain from corporate developments in the short term.

Patni Computer SystemsStock data Forecasts/Valuations 2010 2011E 2012E

52-week range (Rs) (high,low) EPS (Rs) 36.6 41.3 37.5Market Cap. (Rs bn) 68.9 EPS growth (%) 36.4 12.8 (9.1)


Price performance (%) 1M 3M 12M EV/EBITDA (X) 7.4 6.5 5.5Absolute (1.8) (8.1) 27.8 ROE (%) 18.2 15.1 12.4Rel. to BSE-30 (2.9) (14.0) 8.4 Div. Yield (%) 1.4 1.6 1.5


625-307

REDUCE

AUGUST 14, 2010

UPDATE


Price (Rs): 517


BSE-30: 18,167

Patni Computer Systems Technology


Exhibit 1: Patni: Shareholding pattern (as of June 30, 2010)

Shareholding of promoter and promoter groupIndia 30.33 Foreign 15.93 Total promoter 46.26 Public shareholdingInstitutional Mutual funds 5.29 FII's 12.29 Others 1.16 Total institutional 18.74 Non-institutionalGeneral Atlantic Partners 2.12 Others 4.10 Total non-institutional 6.22 ADR's 28.78 - General Atlantic Partners 15.52 - Other ADR holders 13.26 Total 100.00

Promoters 46.26 General Atlantic Partners 17.64 - via local shares 2.12 - via ADR's 15.52


Technology Patni Computer Systems


Exhibit 2: Patni consolidated financials for 2009-2012E, December fiscal year-ends (US$ '000)

US$ '000 2009 2010E 2011E 2012EProfit model Total income 655,638 698,375 809,442 895,018

EBITDA 133,405 141,803 155,722 165,076 Depreciation (incl amortization of intangibles) (24,230) (27,501) (29,154) (32,025)

Other income 10,600 31,905 20,868 26,114

Pretax profits 119,775 146,207 147,437 159,167 Tax (22,404) (26,508) (38,625) (47,006)

Profit after tax 97,371 119,700 108,812 112,161 Diluted earnings per share (Rs) 36.6 41.3 37.5 38.1 Balance sheetTotal equity 747,033 838,735 922,095 1,008,021

Deferred taxation liability 1,105 1,105 1,105 1,105

Other non-current liabilities 42,789 29,190 33,818 37,383

Current liabilities 110,253 127,576 146,852 161,705

Total liabilities and equity 901,181 996,606 1,103,870 1,208,214 Cash and equivalents 439,317 573,976 641,469 724,706

Other current assets 163,648 164,163 200,016 220,166

Tangible fixed assets 147,632 118,923 119,331 117,582

Goodwill and intangibles 88,733 88,733 88,733 88,733

Other non-current assets 61,850 50,810 54,321 57,027

Total assets 901,181 996,606 1,103,870 1,208,214 Free cash flowOperating cash flow, excl. working capital 106,626 128,321 117,097 118,071

Working capital changes (49,219) 14,360 (15,459) (4,437)

Capital expenditure (18,711) 1,208 (29,562) (30,276)

Acquisitions — — — —

Other income 20,293 18,879 20,868 26,114

Free cash flow 58,989 162,768 92,944 109,471 Ratios (%)EBITDA margin 20.3 20.3 19.2 18.4

ROAE 18.2 15.1 12.4 11.6

ROACE 15.1 16.1 14.4 13.8

Note:(a) Estimates above are not adjusted for the special dividend payout of Rs63/share



3QFY10 lower than estimates adjusting for VDI consolidation

SHRS reported consolidated revenues (excluding VDI) of Rs18. 6 bn (+108% yoy and +4% qoq) versus KIE estimate of Rs15.7 bn. Consolidated EBITDA at Rs910 mn (-42% yoy and -74% qoq) has been impacted by negative EBIT (2.4%) in the domestic sugar business versus 15% in 3QFY09. Consolidated PAT at Rs823 mn (+6.2% yoy and -63.3% qoq) versus our estimate of Rs1.6bn.

Recovery likely from1QFY11 onwards but near-term to be determined by government policy

Operating parameters should start improving from 1QFY11 onwards on account of (1) lower cane prices in FY2011, in line with the sugar prices (2) bulk of high-priced inventory being sold by end-4QFY10 and c) high White-Raw premium which should bode well for the refining business.

With sugar in backwardation in the futures market and demand-supply unlikely to correct over the next 1-2 quarters, stock performance would be driven by favorable government policy moves on: (1) decontrol of the sector, (2) re-start of the ethanol blending program and (3) imposition of import duty and (4) lifting of embargo on exports.

World supply estimates adjusted downwards by 3-4 mn tons

Current weather patterns in various sugar producing nations have led to world supply estimates being adjusted downwards. If the current dry season in Brazil continues it would lead to early end to the current sugar season which would lead to lower TRS/Ton and lower yields in the next season on account of lower moisture in the soil. Also, the unprecedented drought conditions in Russia and the floods in regions of Pakistan and China have also lead to cut in supply estimates from respective countries. In aggregate the total supply estimates have gone down by 3-4 mn tons.

We maintain our estimates and BUY rating with a target price of Rs76

We maintain our estimates for FY2010 and FY2011 despite lower-than-expected 3QFY11 as (1) current margins have no impact on FY2011 view and (2) we think sugar prices will remain stable and hence 4QFY11 will mirror 3QFY11. We have not factored the Brazilian acquisitions into our financial estimates pending clarity on the operating performance of Equipav. Retain BUY with a target price of Rs76 at 6XFY11 EV/EBITDA.

Shree Renuka Sugars (SHRS)

Sugar

3QFY11 subdued but demand-supply scenario more stable than earlier. SHRS reported a 42% yoy decline in EBITDA but we believe pricing outlook is more stable now as (1) world supply estimates are being adjusted downwards to account for recent weather issues in Brazil, China and Pakistan and (2) likely Indian government steps on import duty imposition. Operating performance should stabilize from 1QFY11 led by (1) high cost inventory getting sold in 4Q and (2)cane prices more in line with sugar prices.

Shree Renuka SugarsStock data Forecasts/Valuations 2010 2011E 2012E

52-week range (Rs) (high,low) EPS (Rs) 9.9 7.6 7.8Market Cap. (Rs bn) 46.0 EPS growth (%) 196.4 (23.2) 3.1


Price performance (%) 1M 3M 12M EV/EBITDA (X) 4.8 5.4 4.8Absolute (3.5) 22.2 (26.4) ROE (%) 32.0 18.1 15.7Rel. to BSE-30 (4.5) 16.2 (37.1) Div. Yield (%) 0.6 0.5 0.5


124-51

BUY

AUGUST 13, 2010

UPDATE


Price (Rs): 69


BSE-30: 18,167

QUICK NUMBERS

• 3QFY10 EBITDA down 42% yoy;-74% qoq

• Recovery from 1QFY11 onwards

Sugar Shree Renuka Sugars


Sugar segment surprised negatively SHRS, interim results (Consol-VDI), September fiscal year-ends (Rs mn)

3QFY10 3QFY10E 3QFY09 2QFY10 KIE est. yoy qoq FY2010 FY2009 Chng. (%)Net revenues 18,566 15,738 8,935 17,814 18.0 107.8 4.2 52,096 17,227 202.4 Total expenditure (17,656) (7,378) (14,269) #DIV/0! 139.3 23.7 (43,314) (14,266) 203.6 EBITDA 910 2,454 1,557 3,545 (62.9) (41.6) (74.3) 8,782 2,961 196.6 Margins (%) 4.9 15.6 17.4 19.9 16.9 17.2

Other income 426 258 (39) 255 NM NM NM 831 122 581.1 Depreciation (211) (245) (174) (239) (13.9) 21.3 (11.7) (986) (479) 105.8

EBIT 1,125 2,467 1,344 3,561 (54.4) (16.3) NM 8,627 2,604 231.3 Margins (%) 6.1 15.7 15.0 20.0 16.6 15.1

Net Interest (350) (260) (231) (260) 34.6 51.5 34.6 (1,200) (874) 37.3 PBT 775 2,207 1,113 3,301 (64.9) NM (76.5) 7,427 1,730 329.3 Tax 49 (589) (337) (1,054) (108.3) (114.5) (104.6) (1,667) (491) 239.5 Reported PAT 824 1,618 776 2,247 (49.1) 6.2 (63.3) 5,760 1,239 364.9 Minority interest (1) (5) 5 (5) (7) (16) Consolidated PAT 823 1,613 781 2,242 (49.0) 5.4 (63.3) 5,753 1,223 370.4

9 months(% change)


Sugar segment drives underperformance SHRS, segmental (SA), September fiscal year-ends (Rs mn)

3QFY10 2QFY10 1QFY10 4QFY09 3QFY09Segment RevenueSugar 7,963 8,466 7,136 7,136 5,859Trading 3,450 6,783 3,016 693 671Cogeneration 1,129 1,441 951 387 801Ethanol 284 494 406 517 378Others 21 10 5 7 10less: inter segment (661.00) (1,624.00) (1,105.00) (177.00) (564.00)Net sales 12,186 15,570 12,530 8,563 7,155ResultSugar (189.00) 2,097 1,878 765 863Trading 286 581 597 124 7Cogeneration 104 272 146 68 203Ethanol 52 84 99 100 90Others 9 4 — 1 5Total 262 3,038 2,720 1,058 1,168less: (i) interest 200 160 210 76 226 (ii) unallocable expense 144 338 165 177 111add: other income 109 447 267 (73.00) 93PBT 27 2,987 2,612 732 924EBIT marginSugar (2.37) 24.77 20.29 10.72 14.73Trading 8.29 8.57 19.79 17.89 1.04Cogeneration 9.21 18.88 15.35 17.57 25.34Ethanol 18.31 17.00 24.38 19.34 23.81

Realizations

Sugar 26.95 33.626 28.886 24.836 21.366

Ethanol 25 30 30 30 24

cogeneration 5.14 4.9 5 6.3 6.21


Shree Renuka Sugars Sugar


Conference call takeaways Less than previously estimated supply in the world sugar markets. The current distortion in weather in some of the geographies have created conditions for lower-than-estimated supply in the forthcoming sugar year.

Center-South region, which is main sugar producing region in Brazil is experiencing alleviated dryness on account of lack of rains. Though the dryness is aiding crushing in the current season, it would lead to lower sugarcane yields in the current season due to lower ATR/Ton because of early harvesting and also in the next season on account of lower moisture in the soil. This has already led to the scaling down of the production estimates for the next years crop in center-south region.

Floods in the large swathes of China and Pakistan have affected the current year production. The situation in Pakistan is grave to an extent that sugar is selling at a price of Rs50/kg.

Worst drought in the history of Russia has played havoc with the sugar beet crop leading to production estimates for sugar for the 2010/2011 harvest beginning in August10 being revised downwards from 4.1 to 3.4 mn tons of sugar.

As a result of this, the sugar world demand-supply balance for 2010/2011, which was projected to be surplus of 4 mn tons would at best be even.

Next year to hopefully begin on a good note

The cane cost for next year should adjust downwards on account of:

In response to the lower sugar prices and less competition between mills to procure cane. As per the management estimates there are Rs15 bn of cane arrears in this year on account of which large numbers of cooperative sugar mills are finding it difficult to start crushing for the next year on account of paucity of funds.

The white-raw premium is currently at historically high levels of US$130, which would hopefully lead to higher profitability in the refining business. The current premiums could be structurally sustained on account to Brazilian ports preferring to load raw sugar instead of white as the former could be loaded four times faster.

White-Raw Spread at sustaining at high levels White-Raw spread 06-Aug 10

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Source: Bloomberg, Kotak Institutional Equities



VDI positive at PAT level

VDI reported 3Q sales, EBITDA and PBT at Rs1420 mn, Rs717 mn and Rs80 mn, respectively. The company managed to report positive PBT operating at 65% of the rated capacity. The company should report better number in the coming quarters on account of better capacity utilization. The total variable cost of production at FOB basis was 11cents.

VDI positive at PBT level VDI, interim results, September fiscal year-ends (Rs mn)

3QFY10 Rs mnNet Sales 1429

Sugar Sales 662Ethanol 241Molasses, Yeast and other Products 526

Total Expenditure 713EBITDA 717Depreciation 341Interest 296PBT 80Tax 0PAT 80

Sugarcane Crushed MT 566082Raw Sugar Production 41586Ethanol production KL 14873Molasses MT 3747ATR Kg/Ton 122Total ATR MT 69,062 ATR cost per Kg 10.32


Inventory details

At the end of the quarter, SHRS had closing stock of 525,400 MT of white sugar including 77,909 of imported white sugar and 187,798 of raw sugar. Inventory of ethanol and molasses was 38,770 KL and 58,536 tons respectively. The inventory of white sugar is at a cost of Rs25.5/kg and that of raw sugar is at Rs22/kg. With ex-factory realizations at Rs25/kg, the next quarter should be weak for the sugar segment.

Balance sheet details

At the end of 3QFY10, SHRS had a gross debt (excluding VDI) of Rs15.5 bn (Rs8.7 bn long term; Rs6.7bn working capital) and a cash balance of Rs2bn. VDI had a debt of Rs6.7bn.

Government policy action; could be a medium-term trigger

With world and the domestic sugar supply improving from last year and the sugar market being in backwardation in the forwards market, the sugar price is unlikely to move up dramatically in the near future. Indian government policy changes could provide a medium term trigger in form of:

Decontrol of the sector. Though complete decontrol would be tough for the government , any incremental moves in the direction would be seen as positive for the sector valuations. Union Minister for Agriculture Sharad Pawar met with the sugar industry representatives on July 29 to discuss the same. Though the government seems serious this time around but there is little clarity on the way forward.

Shree Renuka Sugars Sugar


Export embargo might be lifted. The sugar production estimates for the next year of around 25 mn tons would generate a modest surplus after meeting the domestic demand. This might lead the government to allowing exports from India which could take care of little bit of extra supply in the market right now. This seems unlikely as in our opinion the government would wait for sufficient domestic inventories to build up before allowing exports.

Moves on ethanol blending. The management referred to the recent moves of the government on the ethanol blending program. The group of ministers has already approved the ethanol blending program with a provisional price of Rs27/lit. The government has constituted a seven member committee which will lay down the framework to determine the price of ethanol for blending in the future. Oil companies have invited RFPs from the sugar companies on the quantities they are willing to supply. The policy is waiting final nod from CCEA (Cabinet Committee of Economic Affairs).

We maintain our estimates for FY2010 despite 3QFY11 results being lot lower than our estimates as we think that this quarter’s underperformance should be balanced by higher than expected performance in 4QFY11. We retain our FY2011 estimates and our Buy rating on Renuka sugar with a target price of Rs76 at 6XFY11 EV/EBITDA. We have not factored the Brazilian acquisitions into our numbers pending clarity on the operating performance of Equipav.

We value SHRS at Rs76/share SHRS, EV/EBITDA based valuation, September fiscal year-ends (Rs mn)

2011EEBITDA 8,968EV/EBITDA (X) 6.0EV 53,806Net debt 2,745Equity value 51,061Value per share (Rs) 76Fully diluted no. of shares 670

Current price 63Upside (%) 21.0%

EPS 7.6P/E 8.3Target P/E 10.0




Summary Financials SHRS, Profit model, balance sheet, cash model (consolidated, September fiscal year-ends, 2007-2011E (Rs mn)

2007 2008 2009 2010E 2011EProfit model Total income 9,506 21,143 28,160 65,909 59,242

EBITDA 1,320 2,526 4,656 11,187 8,968 Interest (expense)/income (180) (701) (1,077) (1,107) (735)

Depreciation (249) (369) (675) (903) (1,171)

Other income 176 152 64 167 118

Pretax profits 1,066 1,608 2,968 9,344 7,180 Tax (236) (427) (720) (2,690) (2,046)

Profit after tax 830 1,181 2,248 6,654 5,134 Minority interest — (25) (5) (27) (42)

Consolidated PAT 830 1,156 2,243 6,627 5,092

Diluted earnings per share (Rs) 1.7 2.2 3.3 9.9 7.6

Balance sheetTotal equity 4,417 8,320 15,274 23,468 28,286

Deferred taxation liability 202 467 821 1,901 2,471

Minority interest — 533 147 174 216

Total borrowings 6,470 8,595 13,427 8,484 5,484

Current liabilities 1,218 2,786 10,172 4,372 3,838

Total liabilities and equity 12,307 20,701 39,841 38,398 40,294 Cash 917 227 4,912 781 2,954

Other current assets 3,519 7,436 17,719 15,771 15,038

Net fixed assets 7,710 12,728 16,734 21,005 21,460

Investments 161 310 477 842 842

Total assets 12,307 20,701 39,841 38,398 40,294

Free cash flowOperating cash flow, excl. working capital 1,321 1,783 3,454 8,496 6,757

Working capital changes (1,049) (2,377) (3,274) (3,795) 238

Capital expenditure (3,400) (5,205) (4,681) (5,174) (1,626)

Investment changes (160) (149) (167) (365) —

Other income 27 30 15 167 118

Free cash flow (3,262) (5,917) (4,652) (670) 5,487

Ratios (%)EBITDA margin 13.9 11.9 16.5 17.0 15.1

Net debt/equity 120.2 101.3 53.8 31.1 8.9

Net debt/EBITDA 1.2 1.0 0.5 0.3 0.1

RoAE 21.8 17.2 18.0 32.0 18.1

RoACE 10.9 11.5 12.8 23.3 15.9

CRoCI 10.1 10.7 14.3 23.6 18.6


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13-Aug-10 Mkt cap.O/S

shares EPS (Rs) EPS growth (%) PER (X)

Company Price (Rs) Rating (Rs mn) (US$ mn) (mn) 2010E 2011E 2012E 2010E 2011E 2012E 2010E 2011E 2012EAutomobiles

Ashok Leyland 72 ADD 95,515 2,042 1,330 2.8 4.3 5.9 84.5 52.3 37.5 25.4 16.7 12.1

Bajaj Auto 2,660 ADD 384,873 8,230 145 117.7 169.0 189.5 160.1 43.6 12.2 22.6 15.7 14.0

Bharat Forge 343 ADD 82,021 1,754 239 0.7 12.4 19.7 (92.0) 1,705.4 59.1 499.1 27.6 17.4

Hero Honda 1,884 SELL 376,285 8,046 200 111.8 115.3 130.1 74.1 3.1 12.8 16.9 16.3 14.5

Mahindra & Mahindra 627 BUY 373,628 7,989 595 33.9 44.1 51.7 125.8 30.1 17.3 18.5 14.2 12.1

Maruti Suzuki 1,249 REDUCE 361,004 7,720 289 86.4 77.6 88.3 104.9 (10.2) 13.9 14.5 16.1 14.1

Tata Motors 1,013 ADD 634,588 13,570 626 23.8 27.1 35.0 137.8 13.5 29.4 42.5 37.5 29.0

Automobiles Cautious 2,307,914 49,351 109.9 19.4 17.3 22.6 19.0 16.2

Banks/Financial Institutions

Andhra Bank 152 BUY 73,599 1,574 485 21.6 22.9 26.7 60.1 6.4 16.4 7.0 6.6 5.7

Axis Bank 1,328 ADD 538,152 11,508 405 62.1 78.1 98.3 22.7 25.9 25.9 21.4 17.0 13.5

Bank of Baroda 779 BUY 284,892 6,092 366 83.7 95.1 115.7 37.3 13.7 21.7 9.3 8.2 6.7

Bank of India 463 REDUCE 243,472 5,206 526 33.1 49.9 58.1 (42.1) 50.9 16.4 14.0 9.3 8.0

Canara Bank 503 ADD 206,312 4,412 410 73.7 82.2 98.3 45.8 11.6 19.5 6.8 6.1 5.1

Corporation Bank 603 BUY 86,457 1,849 143 82.0 88.0 102.6 31.8 7.3 16.6 7.4 6.9 5.9

Federal Bank 330 ADD 56,475 1,208 171 27.2 36.4 49.0 (7.2) 34.1 34.4 12.2 9.1 6.7

HDFC 2,996 ADD 860,153 18,393 287 98.4 116.1 138.9 22.7 17.9 19.6 30.4 25.8 21.6

HDFC Bank 2,088 BUY 955,562 20,433 458 64.4 87.2 113.8 22.1 35.4 30.5 32.4 23.9 18.3

ICICI Bank 976 REDUCE 1,088,578 23,278 1,115 36.1 45.2 57.3 6.9 25.3 26.6 27.0 21.6 17.1

IDFC 181 ADD 264,326 5,652 1,458 8.4 9.4 11.2 44.9 12.4 18.7 21.6 19.2 16.2

India Infoline 100 BUY 31,305 669 312 8.1 7.2 8.7 59.2 (11.9) 21.6 12.4 14.0 11.5

Indian Bank 244 ADD 104,799 2,241 430 35.1 32.4 44.1 25.5 (7.7) 36.2 6.9 7.5 5.5

Indian Overseas Bank 129 BUY 70,334 1,504 545 13.0 16.7 24.8 (46.7) 29.0 48.4 9.9 7.7 5.2

J&K Bank 875 BUY 42,431 907 48 105.7 119.3 139.9 25.1 12.8 17.3 8.3 7.3 6.3

LIC Housing Finance 1,226 ADD 116,472 2,491 95 69.7 100.7 109.9 11.5 44.5 9.1 17.6 12.2 11.2

Mahindra & Mahindra Financial 605 BUY 58,051 1,241 96 35.9 46.4 56.2 60.0 29.4 21.2 16.9 13.0 10.8

Oriental Bank of Commerce 420 ADD 105,126 2,248 251 45.3 57.8 66.8 25.3 27.6 15.5 9.3 7.3 6.3

PFC 332 SELL 381,174 8,151 1,148 20.5 22.9 27.6 53.5 11.9 20.3 16.2 14.5 12.0

Punjab National Bank 1,139 BUY 359,145 7,680 315 123.9 133.4 163.3 26.4 7.7 22.4 9.2 8.5 7.0

Reliance Capital 764 NR 187,992 4,020 246 12.9 13.7 9.8 (67.3) 6.5 (28.6) 59.4 55.8 78.1

Rural Electrification Corp. 329 ADD 324,753 6,944 987 20.3 25.3 31.2 23.2 24.5 23.4 16.2 13.0 10.6

Shriram Transport 717 ADD 160,047 3,422 223 39.2 53.4 64.8 30.1 36.4 21.3 18.3 13.4 11.1

SREI 92 NR 10,675 228 116 8.3 7.9 9.9 17.8 (4.8) 25.8 11.1 11.6 9.3

State Bank of India 2,850 BUY 1,809,574 38,695 635 144.4 177.7 211.2 0.5 23.1 18.8 19.7 16.0 13.5

Union Bank 336 BUY 169,922 3,634 505 41.1 45.7 56.9 20.2 11.3 24.5 8.2 7.4 5.9

Yes Bank 321 BUY 109,033 2,332 340 15.0 17.7 22.5 46.7 18.2 26.6 21.4 18.1 14.3

Banks/Financial Institutions Attractive 8,698,814 186,011 14.8 20.3 22.1 17.3 14.4 11.8

Cement

ACC 844 ADD 158,571 3,391 188 83.2 66.0 72.4 47.9 (20.7) 9.8 10.1 12.8 11.7

Ambuja Cements 117 SELL 177,585 3,797 1,522 8.0 8.4 8.9 11.4 5.3 5.1 14.6 13.8 13.2

Grasim Industries 1,876 ADD 172,047 3,679 92 301.0 229.0 273.3 26.1 (23.9) 19.4 6.2 8.2 6.9

India Cements 105 SELL 32,284 690 307 10.0 8.7 10.6 (43.5) (13.1) 21.1 10.5 12.0 9.9

Shree Cement 1,881 BUY 65,527 1,401 35 208.0 221.1 242.5 19.0 6.3 9.7 9.0 8.5 7.8

UltraTech Cement 892 ADD 111,095 2,376 124 88.2 66.9 75.1 12.0 (24.2) 12.4 10.1 13.3 11.9

Cement Neutral 717,109 15,334 19.3 (15.4) 12.7 9.3 11.0 9.8

EV/EBITDA (X) Price/BV (X) RoE (%)Target price Upside

ADVT-3mo

2010E 2011E 2012E 2010E 2011E 2012E 2010E 2011E 2012E 2010E 2011E 2012E (Rs) (%) (US$ mn)

14.7 11.0 8.7 2.4 2.2 1.9 2.1 1.4 1.4 10.9 13.5 16.7 78 8.6 8.5

14.6 11.1 9.7 13.1 7.6 5.2 0.8 0.8 0.8 70.9 61.4 44.0 2,650 (0.4) 13.6

25.5 12.0 8.4 2.2 2.1 1.9 — — — 0.9 0.4 0.1 360 4.9 4.7

10.8 10.8 9.1 10.4 7.3 5.4 1.6 1.6 1.9 59.1 52.5 42.8 1,800 (4.5) 19.5

12.2 10.3 8.6 4.6 3.7 3.0 1.5 1.5 1.5 30.0 29.0 27.3 760 21.1 25.3

7.7 8.0 6.9 3.0 2.6 2.2 0.5 0.4 0.5 23.3 17.3 16.7 1,200 (3.9) 22.3

18.7 17.2 14.9 3.5 3.0 2.6 1.3 0.5 0.5 8.6 8.6 9.1 1,150 13.5 91.9

13.3 11.8 10.0 4.4 3.6 3.0 1.2 0.9 1.0 19.4 19.1 18.6

— — — 1.7 1.4 1.2 3.3 3.5 4.1 26.0 23.1 22.7 180 18.6 4.4

— — — 3.4 2.9 2.5 0.9 1.1 1.4 19.2 18.3 19.9 1,500 12.9 46.4

— — — 2.1 1.7 1.4 1.9 2.2 2.7 24.4 23.0 23.3 950 21.9 8.7

— — — 1.9 1.6 1.4 1.5 2.3 2.7 14.2 19.0 19.2 460 (0.6) 8.1

— — — 1.6 1.3 1.1 1.6 2.0 2.4 22.4 20.8 20.8 580 15.3 6.4

— — — 1.5 1.3 1.1 2.7 2.9 3.4 22.0 20.2 20.2 700 16.1 1.1

— — — 1.2 1.1 1.0 1.5 2.0 2.7 10.3 12.6 15.2 360 9.0 6.3

— — — 5.7 5.0 4.4 1.2 1.4 1.6 20.0 20.6 21.7 3,450 15.2 38.0

— — — 4.4 3.9 3.3 0.6 0.8 1.0 16.1 17.3 19.5 2,400 15.0 31.1

— — — 2.1 2.0 1.9 1.2 1.5 1.9 8.0 9.5 11.3 1,000 2.4 82.2

— — — 3.8 2.5 2.1 0.7 1.0 1.2 16.6 15.5 14.3 205 13.1 24.8

— — — 2.0 1.7 1.4 3.2 1.5 2.0 16.4 12.9 14.4 120 19.5 4.0

— — — 1.6 1.4 1.1 2.7 2.4 3.2 24.1 18.8 21.7 280 14.8 4.0

— — — 1.1 1.0 0.8 2.7 3.0 3.3 9.6 11.6 15.4 160 23.9 4.2

— — — 1.4 1.3 1.1 2.5 2.8 3.3 18.2 17.9 18.3 930 6.3 1.2

— — — 3.6 3.0 2.5 1.2 1.8 1.9 23.6 25.5 23.2 1,250 1.9 20.7

— — — 3.4 2.9 2.4 1.3 1.6 2.0 21.5 23.5 23.8 590 (2.4) 2.0

— — — 1.4 1.2 1.1 2.2 2.8 3.2 14.5 16.5 16.9 430 2.5 5.5

— — — 3.0 2.6 2.3 1.5 1.7 2.1 18.8 18.3 19.2 275 (17.2) 3.8

— — — 2.2 1.8 1.5 1.9 2.4 2.9 26.2 23.2 23.7 1,300 14.1 8.7

— — — 2.7 2.7 2.6 0.8 0.7 0.5 4.7 4.8 3.4 - (100.0) 40.5

— — — 2.9 2.6 2.2 2.0 2.3 2.8 22.0 21.0 22.5 325 (1.2) 13.8

— — — 4.3 3.7 3.0 1.6 2.2 2.7 28.4 28.2 28.4 700 (2.4) 4.3

— — — 0.9 0.8 0.8 1.3 1.3 1.3 11.1 10.5 12.3 — — 4.5

— — — 2.7 2.4 2.1 1.1 1.1 1.2 14.8 16.0 16.7 3,100 8.8 101.1

— — — 1.9 1.6 1.3 1.6 1.8 2.3 26.2 23.7 24.1 400 18.9 4.6

— — — 3.5 3.0 2.5 0.4 0.6 0.7 20.3 18.0 19.3 350 9.0 19.9

— — — 2.7 2.3 2.0 1.3 1.5 1.8 15.5 16.2 17.2

5.3 6.0 4.8 2.5 2.2 1.9 3.2 2.8 2.8 29.3 20.0 19.2 920 9.0 7.1

8.0 7.6 6.5 2.6 2.2 2.0 1.6 1.8 1.8 19.3 17.8 16.5 108 (7.4) 4.8

4.0 4.3 3.3 1.4 1.2 1.0 1.8 1.8 1.8 22.9 15.7 16.3 2,200 17.2 7.8

5.8 7.2 4.9 0.8 0.7 0.7 2.0 3.0 3.0 8.2 6.7 7.7 95 (9.6) 2.3

4.4 4.2 3.4 3.6 2.5 1.9 0.6 0.6 0.6 48.0 35.0 28.1 2,550 35.6 1.0

5.3 6.4 5.4 2.0 1.8 1.6 0.7 0.9 0.9 25.9 16.7 16.3 985 10.4 2.6

5.1 5.5 4.4 1.9 1.7 1.5 1.8 1.8 1.8 20.6 15.2 15.0

Dividend yield (%)


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shares EPS (Rs) EPS growth (%) PER (X)Company Price (Rs) Rating (Rs mn) (US$ mn) (mn) 2010E 2011E 2012E 2010E 2011E 2012E 2010E 2011E 2012EConsumer products

Asian Paints 2,655 BUY 254,624 5,445 96 71.5 89.0 107.1 85.3 24.4 20.4 37.1 29.8 24.8

Colgate-Palmolive (India) 849 REDUCE 115,465 2,469 136 31.1 34.5 39.6 44.2 10.9 14.6 27.3 24.6 21.5

Dabur India 200 REDUCE 173,388 3,708 866 5.8 6.8 8.2 28.1 17.6 20.8 34.5 29.4 24.3

GlaxoSmithkline Consumer (a) 1,805 ADD 75,912 1,623 42 55.4 68.6 81.3 23.6 23.9 18.6 32.6 26.3 22.2

Godrej Consumer Products 363 ADD 117,350 2,509 324 11.3 13.0 17.3 69.5 14.4 33.1 32.0 28.0 21.0

Hindustan Unilever 266 REDUCE 579,892 12,400 2,182 9.4 10.2 11.8 (0.9) 8.4 15.3 28.2 26.0 22.6

ITC 156 BUY 1,195,397 25,562 7,651 5.3 6.3 7.3 22.6 18.2 15.8 29.4 24.9 21.5

Jubilant Foodworks 460 REDUCE 29,364 628 64 5.5 9.7 12.1 340.6 75.7 24.6 83.0 47.2 37.9

Jyothy Laboratories 284 NR 20,642 441 73 11.0 12.9 15.3 99.6 17.0 18.3 25.8 22.0 18.6

Nestle India (a) 2,800 REDUCE 270,003 5,774 96 74.4 86.6 104.8 27.0 16.4 20.9 37.6 32.3 26.7

Tata Global Beverages 114 ADD 70,590 1,509 618 6.6 7.4 8.4 23.4 11.1 13.8 17.2 15.5 13.6

Consumer products Attractive 2,975,161 63,619 24.2 16.4 17.5 30.3 26.0 22.2

Constructions

IVRCL 162 BUY 43,175 923 267 7.9 9.1 11.6 (6.7) 15.0 27.9 20.5 17.8 13.9

Nagarjuna Construction Co. 161 BUY 41,182 881 257 7.1 9.2 11.8 6.1 29.6 27.8 22.5 17.4 13.6

Punj Lloyd 117 REDUCE 39,565 846 339 (12.9) 9.8 12.0 79.2 (175.4) 22.4 (9.0) 12.0 9.8

Sadbhav Engineering 1,468 BUY 22,019 471 15 43.1 62.0 84.0 (15.8) 43.9 35.5 34.1 23.7 17.5

Construction Attractive 145,941 3,121 (95.8) 9,733 27.8 1,601.9 16.3 12.8

Energy

Aban Offshore 831 ADD 36,161 773 43 94.5 154.1 139.3 (2.5) 63.0 (9.6) 8.8 5.4 6.0

Bharat Petroleum 671 ADD 242,539 5,186 362 62.1 57.4 65.7 201 (8) 14.5 11 12 10.2

Cairn india 355 SELL 674,277 14,418 1,897 5.5 20.5 36.0 29.0 270.6 75.1 64.1 17.3 9.9

Castrol India (a) 463 REDUCE 114,515 2,449 247 15.4 20.7 21.2 45 34 2.4 30 22 21.9

GAIL (India) 454 BUY 575,509 12,306 1,268 24.8 27.2 40.2 11.7 10.1 47.4 18.3 16.7 11.3

GSPL 111 SELL 62,319 1,333 562 7.4 7.2 8.0 235 (3) 12.1 15 15 13.8

Hindustan Petroleum 485 ADD 164,522 3,518 339 52.6 53.5 58.6 210.1 1.8 9.5 9.2 9.1 8.3

Indian Oil Corporation 380 ADD 923,471 19,747 2,428 49.9 38.8 41.1 407 (22) 5.9 8 10 9.3

Oil India 1,390 BUY 334,244 7,147 240 115.1 133.6 153.4 13.8 16.1 14.8 12.1 10.4 9.1

Oil & Natural Gas Corporation 1,278 BUY 2,732,535 58,431 2,139 91.4 116.6 136.1 1 27 16.7 14 11 9.4

Petronet LNG 106 REDUCE 79,163 1,693 750 5.4 6.5 7.9 (22.0) 20.5 21.8 19.6 16.2 13.3

Reliance Industries 979 SELL 2,913,802 62,307 2,976 49.6 59.0 74.4 (2) 19 26.2 20 17 13.2

Energy Cautious 8,853,057 189,309 38.1 16.3 21.9 14.7 12.6 10.3

Industrials

ABB 783 REDUCE 165,850 3,546 212 16.7 18.3 33.1 (35.2) 9.3 80.7 46.8 42.8 23.7

BGR Energy Systems 796 BUY 57,341 1,226 72 16.0 28.0 39.7 32.2 74.6 41.9 49.7 28.5 20.1

Bharat Electronics 1,731 REDUCE 138,452 2,961 80 93.9 107.3 122.4 (9.6) 14.3 14.1 18.4 16.1 14.1

Bharat Heavy Electricals 2,497 REDUCE 1,222,209 26,135 490 88.1 116.3 135.4 37.9 32.1 16.4 28.4 21.5 18.4

Crompton Greaves 287 BUY 184,143 3,938 642 12.8 14.0 16.3 46.5 9.0 16.6 22.3 20.5 17.6

Larsen & Toubro 1,809 ADD 1,089,199 23,291 602 57.9 71.7 89.0 15.6 23.8 24.1 31.2 25.2 20.3

Maharashtra Seamless 407 BUY 28,681 613 71 40.2 43.6 49.8 12.1 8.5 14.2 10.1 9.3 8.2

Siemens 696 REDUCE 234,798 5,021 337 25.2 27.0 31.9 56.4 7.3 18.0 27.7 25.8 21.9

Suzlon Energy 56 REDUCE 89,974 1,924 1,594 (5.9) 0.3 5.3 (182.3) (104.4) 1,931.8 (9.5) 217.6 10.7

Thermax 745 ADD 88,773 1,898 119 21.7 29.5 39.7 (10.4) 35.9 34.4 34.3 25.2 18.8

Voltas 207 REDUCE 68,462 1,464 331 10.9 11.8 13.4 57.4 8.2 14.3 19.0 17.6 15.4

Industrials Attractive 3,367,882 72,017 1.8 35.1 26.6 31.6 23.4 18.5


ADVT-3mo


22.9 18.6 15.2 15.9 12.4 9.9 1.0 1.4 1.7 51.8 47.9 45.4 3,000 13.0 5.0

22.3 18.2 15.6 35.4 30.2 25.8 2.4 3.1 3.5 156.1 132.3 129.4 830 (2.2) 2.2

25.6 20.6 17.0 16.5 13.5 11.1 1.5 1.8 2.2 54.3 51.1 50.7 210 4.9 4.0

18.0 15.6 12.8 8.5 7.0 5.9 1.0 1.2 1.5 27.9 29.0 28.7 2,000 10.8 0.7

25.3 20.0 15.0 12.2 6.7 6.1 1.1 0.9 0.9 44.6 31.0 30.4 400— — 2.8

19.2 18.5 15.4 22.4 19.4 16.8 2.9 3.1 3.6 71.1 80.2 80.0 250 (5.9) 11.0

17.8 15.6 13.2 8.1 6.8 5.8 3.2 1.8 1.9 29.2 31.1 30.5 165 5.6 24.0

44.2 26.7 18.7 25.0 16.3 11.4 — — — 46.6 41.8 35.4 370 (19.5) 9.6

20.0 15.2 12.5 5.1 4.3 3.7 1.6 1.2 1.6 18.6 20.2 20.5 — — 1.3

24.9 21.6 18.4 46.5 37.1 29.5 1.7 2.2 2.6 136.0 127.5 122.9 3,000 7.1 1.9

11.1 9.0 8.1 1.4 1.3 1.2 1.9 2.1 2.4 10.9 11.4 12.0 125 10 4.1

19.5 17.0 14.2 10.3 8.6 7.4 2.4 2.0 2.3 33.9 32.9 33.3

10.4 9.9 7.8 2.1 1.9 1.7 0.2 0.2 0.2 11.0 11.3 12.9 205 26.8 7.8

11.3 9.7 8.1 1.8 1.7 1.5 0.8 1.2 1.2 9.3 10.2 11.9 210 30.8 3.4

34.4 6.7 6.2 1.3 1.2 1.1 (0.1) 0.4 0.9 (15.8) 10.3 11.4 140 19.9 12.3

18.7 12.1 9.8 5.3 3.6 3.0 0.2 0.4 0.4 13.3 14.1 17.4 1,575 7.3 0.2

15.4 8.7 7.4 1.9 1.7 1.5 0.3 0.6 0.7 0.1 10.3 11.8

8.4 6.7 6.5 1.6 1.5 1.3 0.4 0.4 0.5 21.7 33.1 22.9 935 12.5 56.4

5.9 5.7 5.2 1.7 1.5 1.4 2.1 2.8 3.2 15.6 13.0 13.5 690 2.9 28.2

50.4 10.3 6.3 2.0 1.8 1.6 — — 4.2 3.1 10.7 17.0 270 (24.0) 18.1

17.9 13.9 13.4 24.9 23.3 22.1 2.7 3.6 3.7 83.8 107.4 103.7 380 (17.9) 1.1

10.3 10.3 8.3 3.2 2.8 2.4 1.7 1.9 2.8 17.4 17.0 21.6 550 21.2 17.3

7.6 7.5 6.3 3.7 3.0 2.7 0.9 1.6 2.9 27.3 21.4 20.8 83 (25.1) 4.3

3.3 3.3 3.0 1.2 1.1 1.0 2.5 3.4 3.8 13.3 12.2 12.1 535 10.2 35.7

5.2 5.2 4.6 1.7 1.5 1.4 3.4 3.1 3.3 22.7 15.6 15.1 415 9.1 17.6

5.2 4.0 3.4 2.3 2.0 1.8 2.4 3.2 3.7 16.7 18.1 18.3 1,550 11.5 7.4

5.1 4.4 3.5 2.1 1.9 1.7 2.6 3.3 3.8 14.6 16.8 17.6 1,480 15.8 38.3

11.3 9.6 8.4 3.1 2.7 2.3 1.7 1.9 2.6 15.9 16.7 17.6 88 (16.6) 5.2

10.0 7.8 6.5 2.0 1.8 1.6 0.7 0.8 1.0 11.4 12.3 13.9 1,060 8.3 107.7

7.2 6.0 5.0 2.0 1.8 1.6 1.8 2.1 2.7 13.8 14.5 15.7

26.7 24.5 13.6 6.8 6.1 4.9 0.3 0.4 0.4 15.6 15.0 23.0 725 (7.4) 6.8

27.9 16.2 11.7 10.2 8.1 6.2 0.4 0.9 1.0 22.3 31.8 35.1 950 19.3 3.9

8.8 7.4 6.2 3.1 2.7 2.4 1.4 1.4 1.4 17.9 18.0 17.9 1,835 6.0 2.1

15.9 12.1 10.2 7.7 6.1 4.9 0.8 1.0 1.2 29.9 31.5 29.2 2,600 4.1 27.7

12.9 11.4 9.6 7.3 5.6 4.4 0.4 0.7 0.7 37.9 31.1 28.2 320 11.5 8.1

17.5 13.8 11.5 4.9 4.1 3.5 0.7 0.7 0.8 18.6 17.7 18.5 2,075 14.7 56.8

5.4 4.7 3.7 1.8 1.6 1.3 1.5 1.9 2.5 19.3 17.9 17.7 450 10.7 0.4

16.8 15.2 12.5 6.9 5.7 4.8 0.7 0.8 0.9 27.6 24.2 23.8 635 (8.8) 6.4

16.7 8.6 5.6 0.8 0.8 0.8 — — 0.4 (8.8) 0.4 7.5 70 24.0 21.3

17.6 13.8 10.2 8.2 6.8 5.5 0.7 1.2 1.5 25.0 29.5 32.2 865 16.1 1.2

11.3 9.8 8.2 6.4 5.2 4.2 1.5 1.6 1.9 38.3 32.5 30.2 225 8.7 5.0

16.1 12.4 10.1 5.1 4.3 3.6 0.7 0.8 1.0 16.1 18.4 19.6

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Kotak Institutional Equities: Valuation summary of key Indian companies


shares EPS (Rs) EPS growth (%) PER (X)Company Price (Rs) Rating (Rs mn) (US$ mn) (mn) 2010E 2011E 2012E 2010E 2011E 2012E 2010E 2011E 2012EInfrastructure

Container Corporation 1,366 REDUCE 177,611 3,798 130 61.1 74.3 85.9 0.3 21.7 15.6 22.4 18.4 15.9

GMR Infrastructure 62 ADD 226,621 4,846 3,667 0.4 0.2 0.1 (43.8) (48.9) (40.0) 143.4 280.7 467.5

GVK Power & Infrastructure 42 BUY 66,801 1,428 1,579 0.8 1.1 1.4 6.7 33.5 32.4 52.0 38.9 29.4

IRB Infrastructure 291 RS 96,668 2,067 332 9.7 12.6 12.1 83.8 29.2 (3.7) 29.9 23.1 24.0

Mundra Port and SEZ 798 REDUCE 321,924 6,884 403 16.7 21.9 34.1 55.7 31.0 56.1 47.8 36.5 23.4

Infrastructure Attractive 889,625 19,023 16.3 21.2 26.0 42.8 35.3 28.0

Media

DB Corp 255 BUY 46,376 992 182 10.6 13.0 15.7 286.5 22.4 21.0 24.0 19.6 16.2

DishTV 50 ADD 52,957 1,132 1,063 (2.5) (1.8) 0.1 (62.0) (28.8) (107.4) (19.9) (28.0) 380.7

HT Media 171 NR 40,138 858 235 6.1 7.7 9.2 623.3 25.9 19.8 28.0 22.2 18.5

Jagran Prakashan 116 BUY 34,785 744 301 5.9 6.6 7.7 92.3 12.3 17.8 19.7 17.6 14.9

Sun TV Network 509 REDUCE 200,744 4,293 394 13.1 18.0 22.5 44.8 36.9 25.2 38.7 28.3 22.6

Zee Entertainment Enterprises 303 REDUCE 131,757 2,817 435 10.6 11.8 14.4 25.0 12.0 21.5 28.7 25.6 21.1

Media Neutral 506,758 10,836 185.5 35.8 37.2 41.7 30.7 22.4

Metals

Hindalco Industries 166 ADD 317,811 6,796 1,914 5.7 13.6 15.5 (64.5) 139.5 14.2 29.3 12.2 10.7

Hindustan Zinc 1,118 BUY 472,285 10,099 423 95.6 102.5 116.0 48.2 7.2 13.1 11.7 10.9 9.6

Jindal Steel and Power 663 REDUCE 616,943 13,192 931 38.4 50.9 56.0 17.3 32.7 9.9 17.3 13.0 11.8

JSW Steel 1,114 REDUCE 280,994 6,009 252 80.4 68.5 108.5 481.1 (14.8) 58.5 13.9 16.3 10.3

National Aluminium Co. 439 SELL 282,884 6,049 644 12.6 14.3 17.3 (34.9) 13.3 20.5 34.7 30.7 25.4

Sesa Goa 354 REDUCE 314,599 6,727 890 29.6 58.6 46.3 23.5 98.4 (21.0) 12.0 6.0 7.6

Sterlite Industries 161 ADD 540,050 11,548 3,362 12.0 14.2 19.3 2.8 18.4 35.5 13.4 11.3 8.3

Tata Steel 527 REDUCE 482,077 10,308 914 (3.6) 63.4 65.5 (103.6) (1,880.2) 3.4 (148.1) 8.3 8.0

Metals Cautious 3,307,643 70,729 (30.6) 72.5 11.3 18.9 11.0 9.9

Pharmaceutical

Biocon 343 BUY 68,560 1,466 200 14.8 17.8 22.0 216.4 19.8 23.7 23.1 19.3 15.6

Cipla 315 REDUCE 252,800 5,406 803 13.7 13.6 16.2 38.1 (0.4) 19.1 23.0 23.1 19.4

Cadila Healthcare 622 REDUCE 127,251 2,721 205 24.7 33.2 37.7 66.9 34.2 13.7 25.2 18.7 16.5

Dishman Pharma & chemicals 207 REDUCE 16,816 360 81 14.4 17.4 23.0 (19.7) 20.5 32.2 14.3 11.9 9.0

Divi's Laboratories 748 REDUCE 97,646 2,088 131 26.1 34.0 44.9 (18.2) 30.4 32.1 28.7 22.0 16.7

Dr Reddy's Laboratories 1,339 REDUCE 226,897 4,852 169 48.1 66.7 70.8 48.3 38.8 6.1 27.9 20.1 18.9

GlaxoSmithkline Pharmaceuticals (a) 1,962 REDUCE 166,170 3,553 85 59.1 69.7 79.2 8.1 18.0 13.5 33.2 28.1 24.8

Glenmark Pharmaceuticals 267 NR 73,136 1,564 274 12.7 19.2 20.3 14.7 50.6 5.6 21.0 13.9 13.2

Jubilant Organosys 348 BUY 55,325 1,183 159 26.5 31.8 38.9 49.0 19.8 22.4 13.1 11.0 9.0

Lupin 1,835 ADD 162,380 3,472 88 77.0 99.1 127.6 27.9 28.7 28.7 23.8 18.5 14.4

Piramal Healthcare 476 REDUCE 99,532 2,128 209 22.4 13.3 9.5 29.7 (40.4) (28.9) 21.3 35.7 50.2

Ranbaxy Laboratories 443 SELL 189,888 4,060 428 7.1 27.0 11.6 (128.4) 282.7 (57.0) 62.7 16.4 38.1

Sun Pharmaceuticals 1,751 REDUCE 362,646 7,755 207 65.2 80.0 85.1 (25.7) 22.6 6.4 26.8 21.9 20.6

Pharmaceuticals Attractive 1,899,048 40,608 45.5 30.3 5.0 26.2 20.1 19.2

Property

DLF 323 ADD 550,890 11,780 1,708 9.6 16.3 25.1 (64.0) 69.4 53.8 33.5 19.8 12.9

Housing Development & Infrastructure 285 ADD 109,719 2,346 385 12.4 14.2 16.7 (41.2) 14.2 17.9 23.0 20.1 17.1

Indiabulls Real Estate 194 RS 77,939 1,667 401 1.6 4.0 8.0 109.7 151.7 101.7 122.5 48.7 24.1

Mahindra Life Space Developer 500 ADD 21,029 450 42 18.9 20.3 27.5 82.4 7.3 35.8 26.5 24.7 18.2

Phoenix Mills 247 BUY 35,791 765 145 4.1 6.6 7.6 (16.7) 59.0 15.6 59.8 37.6 32.5

Puravankara Projects 119 REDUCE 25,462 544 213 6.4 8.2 8.1 (5.2) 28.4 (2.0) 18.6 14.5 14.8

Sobha 370 ADD 36,289 776 98 14.1 17.0 26.2 (7.1) 20.8 54.0 26.3 21.8 14.1

Unitech 88 SELL 230,485 4,929 2,616 3.1 3.9 5.2 (58.1) 25.1 34.0 28.5 22.8 17.0

Property Cautious 977,884 20,911 (54.2) 58.0 48.4 34.9 22.1 14.9


ADVT-3mo


15.8 12.9 10.8 4.1 3.5 3.0 1.0 1.3 1.4 19.6 20.6 20.5 1,250 (8.5) 1.7

24.6 15.9 14.9 2.1 1.8 1.8 — — — 2.4 1.2 0.7 65 5.2 5.4

18.0 16.5 16.9 2.1 2.0 1.9 — 0.7 0.7 4.7 5.3 6.7 54 27.7 5.1

13.9 12.3 11.4 4.2 3.2 2.6 — — — 15.6 15.7 11.9 — — 8.7

35.6 23.3 16.8 9.1 7.7 6.0 — — — 20.8 22.9 28.9 750 (6.0) 5.7

22.3 16.5 14.3 3.7 3.2 2.9 — — 0.3 8.7 9.1 10.3

13.4 11.0 9.1 7.1 5.8 5.0 0.8 1.2 1.6 40.3 32.6 33.2 290 13.6 0.3

65.6 26.4 14.0 12.9 23.8 22.4 — — — 249.3 (59.7) 6.1 47 (5.6) 3.8

14.0 11.8 9.8 4.1 3.7 3.3 0.6 1.2 2.3 15.6 17.5 18.9 — — 0.4

11.9 10.2 8.7 5.7 5.2 4.8 3.0 3.5 4.3 30.1 30.8 33.3 140 21.2 1.5

22.0 16.3 13.2 10.4 8.7 7.2 1.5 1.5 1.8 28.4 33.7 35.1 420 (17.6) 2.4

21.4 17.0 13.6 3.6 3.4 3.2 0.8 1.0 1.2 13.1 13.8 16.0 270 (10.9) 8.7

20.1 15.4 12.1 6.1 5.6 5.1 1.1 1.3 1.6 14.7 18.4 22.8

7.6 7.6 7.9 1.4 1.3 1.2 0.8 0.8 0.8 10.3 11.1 11.5 200 20.4 39.8

7.6 6.1 4.3 2.5 2.0 1.7 0.5 0.5 0.5 24.1 20.8 19.4 1,240 10.9 4.2

12.0 8.6 7.2 5.5 3.8 2.9 0.2 0.4 0.4 37.8 34.9 28.0 625 (5.7) 25.5

10.6 8.9 5.9 2.6 1.6 1.2 0.6 0.8 0.9 16.0 12.0 13.3 1,075 (3.5) 50.9

16.4 13.4 11.0 2.7 2.6 2.4 0.6 1.1 1.1 8.1 8.6 9.8 260 (40.8) 1.0

9.9 4.2 4.1 3.9 2.4 1.9 1.0 1.0 1.0 35.8 41.5 23.7 340 (3.8) 69.8

8.5 7.5 4.7 1.5 1.3 1.1 0.6 0.6 0.6 12.9 12.2 14.6 210 30.7 41.1

10.3 5.7 5.4 2.1 1.6 1.4 1.5 1.5 - (1.5) 22.0 18.7 550 4.3 101.8

9.7 7.0 5.8 2.3 1.9 1.6 0.7 0.8 0.6 12.3 17.1 15.9

13.4 11.2 9.3 3.8 3.3 2.8 — — 0.0 17.9 18.8 20.0 400 16.7 4.1

16.5 15.5 13.2 4.3 3.7 3.2 0.6 0.8 0.8 21.1 17.3 17.9 280 (11.1) 7.7

16.4 12.6 11.1 7.8 5.8 4.6 0.8 1.1 1.2 36.0 35.8 31.3 580 (6.7) 1.5

10.4 8.7 6.7 2.1 1.8 1.5 — — — 15.5 16.4 18.5 230 11.2 0.5

21.2 16.2 11.7 6.4 5.3 4.3 — — — 24.7 26.4 28.5 800 7.0 2.8

15.4 11.6 10.8 6.0 4.8 3.9 0.5 0.6 0.7 22.2 26.3 22.6 1,150 (14.1) 16.0

18.9 16.1 13.8 9.3 7.9 6.8 — — — 29.8 30.4 29.4 1,880 (4.2) 1.7

13.6 8.8 8.4 3.1 2.6 2.2 — — — 16.7 19.9 17.6 — — 3.7

9.6 8.6 6.9 2.5 2.1 1.7 0.6 0.7 0.9 26.3 21.7 21.1 400 14.8 2.4

20.4 14.8 11.3 7.0 5.3 4.0 0.7 0.8 0.8 36.6 33.0 32.2 2,000 9.0 7.3

15.5 5.7 3.5 5.9 1.1 0.9 1.1 1.3 0.7 30.7 140.7 16.5 490 2.9 27.7

15.4 9.4 18.0 4.8 3.5 3.2 — 0.9 0.9 6.9 22.6 8.3 255 (42.5) 8.6

20.3 15.8 14.1 4.4 3.7 3.2 0.8 0.8 0.8 17.8 18.8 17.2 1,685 (3.8) 7.0

16.4 12.4 11.6 5.0 3.5 3.0 0.5 0.6 0.6 19.0 17.6 15.7

21.0 13.3 10.0 2.1 1.9 1.7 0.9 0.9 1.5 6.4 9.9 13.8 340 5.4 45.6

11.3 12.8 8.5 1.6 1.4 1.3 1.0 1.8 1.8 10.0 9.3 9.9 318 11.5 33.8 (109.8) 52.8 13.8 0.9 0.9 0.8 0.0 0.0 0.0 0.8 1.8 3.5 285 46.7 18.8

22.5 18.8 10.5 2.2 2.1 1.9 0.8 0.8 0.8 8.4 8.5 10.7 540 8.0 0.6

47.8 26.3 22.1 2.3 2.2 2.1 0.4 0.6 0.8 3.9 6.0 6.7 260 5.2 0.9

22.8 15.4 15.0 1.8 1.6 1.5 1.7 1.7 1.7 10.0 11.9 10.7 110 (7.8) 0.5 19.0 14.8 9.8 2.1 1.9 1.7 0.3 0.3 0.4 9.7 9.2 12.8 372 0.5 2.0

26.4 20.0 13.0 2.3 1.9 1.8 — — 1.7 9.1 8.9 10.8 74 (16.0) 50.8

23.3 15.3 11.0 1.9 1.7 1.6 0.6 0.6 1.4 5.4 7.9 10.8

Dividend yield (%)


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st 16, 2010 Kotak Institutional Equities: Valuation summary of key Indian companies


shares EPS (Rs) EPS growth (%) PER (X)Company Price (Rs) Rating (Rs mn) (US$ mn) (mn) 2010E 2011E 2012E 2010E 2011E 2012E 2010E 2011E 2012ERetail

Titan Industries 2,984 ADD 132,451 2,832 44 57.3 83.4 110.2 29.3 45.6 32.2 52.1 35.8 27.1

Retail Neutral 132,451 2,832 29.3 45.6 32.2 52.1 35.8 27.1

Sugar

Bajaj Hindustan 118 SELL 22,513 481 191 4.9 9.9 8.9 52.3 101.0 (9.9) 23.9 11.9 13.2

Balrampur Chini Mills 84 ADD 21,593 462 257 4.3 10.4 7.0 (43.2) 140.4 (32.7) 19.4 8.1 12.0

Shree Renuka Sugars 69 BUY 46,049 985 670 9.9 7.7 8.1 195.3 (21.9) 4.7 7.0 8.9 8.5

Sugar Cautious 90,155 1,928 80.0 12.4 (8.4) 10.4 9.3 10.1

Technology

HCL Technologies 411 REDUCE 283,625 6,065 690 17.5 24.5 30.1 0.2 39.7 23.0 23.5 16.8 13.7

Hexaware Technologies 78 REDUCE 11,140 238 144 9.3 5.0 9.4 127.7 (46.3) 87.7 8.3 15.4 8.2

Infosys Technologies 2,777 BUY 1,594,142 34,088 574 108.3 124.1 150.0 5.7 14.5 20.9 25.6 22.4 18.5

Mphasis BFL 599 REDUCE 124,896 2,671 208 43.6 49.0 45.6 207.5 12.5 (7.0) 13.7 12.2 13.1

Mindtree 529 REDUCE 21,755 465 41 52.2 32.6 51.6 294.3 (37.5) 58.1 10.1 16.2 10.3

Patni Computer Systems 517 REDUCE 68,892 1,473 133 36.6 41.3 37.5 36.4 12.8 (9.1) 14.1 12.5 13.8

Polaris Software Lab 175 SELL 17,487 374 100 15.4 19.1 18.8 16.9 24.3 (1.7) 11.4 9.2 9.3

TCS 854 BUY 1,672,232 35,758 1,957 35.1 42.1 48.2 32.8 19.8 14.5 24.3 20.3 17.7

Wipro 415 ADD 1,015,367 21,712 2,447 18.9 22.3 25.7 22.1 18.1 15.6 22.0 18.6 16.1

Technology Attractive 4,809,534 102,845 22.7 17.4 16.0 23.0 19.6 16.9

Telecom

Bharti Airtel 317 REDUCE 1,203,649 25,738 3,798 23.6 20.0 20.7 5.8 (15.6) 3.9 13.4 15.9 15.3

IDEA 73 REDUCE 239,730 5,126 3,300 2.7 2.2 1.5 (5.8) (19.7) (30.8) 26.6 33.1 47.9

MTNL 65 SELL 40,761 872 630 (15.6) (10.4) (9.1) (750.8) (33.7) (11.9) (4.1) (6.2) (7.1)

Reliance Communications 168 SELL 358,477 7,665 2,133 22.1 6.0 9.4 (30.2) (72.8) 56.1 7.6 28.0 17.9

Tata Communications 330 REDUCE 93,922 2,008 285 14.0 15.2 15.7 3.2 8.2 3.5 23.5 21.7 21.0

Telecom Cautious 1,936,539 41,410 (15.9) (33.1) 9.5 13.7 20.4 18.6

Utilities

Adani Power 140 ADD 305,200 6,526 2,180 0.8 4.3 17.4 — 455.1 300.9 178.7 32.2 8.0

CESC 396 ADD 49,462 1,058 125 35.2 37.3 44.3 9.3 5.7 18.9 11.2 10.6 8.9

Lanco Infratech 68 BUY 164,502 3,518 2,405 2.0 3.7 5.0 35.1 87.6 34.9 34.8 18.6 13.8

NHPC 31 REDUCE 377,633 8,075 12,301 1.9 1.3 1.6 74.9 (27.5) 20.6 16.6 22.9 19.0

NTPC 196 REDUCE 1,614,050 34,514 8,245 10.8 12.5 14.7 9.6 16.2 17.4 18.2 15.7 13.3

Reliance Infrastructure 1,084 ADD 266,657 5,702 246 61.8 65.0 84.5 (1.5) 5.3 30.0 17.6 16.7 12.8

Reliance Power 155 SELL 372,096 7,957 2,397 2.9 3.1 5.3 179.7 9.8 70.0 54.4 49.6 29.1

Tata Power 1,327 ADD 327,512 7,003 247 60.2 69.2 88.5 20.1 15.0 27.8 22.0 19.2 15.0

Utilities REDUCE 3,477,111 74,353 23.5 15.6 37.5 22.0 19.0 13.9

Others

Havells India 755 SELL 45,433 972 60 5.3 31.6 45.0 3.7 497.9 42.6 142.9 23.9 16.8

Jaiprakash Associates 121 BUY 257,481 5,506 2,129 1.5 5.5 7.4 (27.2) 279.8 34.1 83.1 21.9 16.3

Jindal Saw 206 ADD 60,535 1,294 294 25.0 18.6 17.9 110.8 (25.4) (4.0) 8.2 11.0 11.5

PSL 135 BUY 7,207 154 53 22.9 25.4 28.2 3.3 10.6 11.0 5.9 5.3 4.8

Sintex 372 BUY 50,715 1,084 136 24.1 28.3 33.3 0.5 17.4 17.5 15.4 13.1 11.2

Tata Chemicals 363 REDUCE 88,374 1,890 243 26.4 33.2 37.5 (27.1) 25.8 12.7 13.7 10.9 9.7

Welspun Corp 253 ADD 52,005 1,112 205 32.0 27.0 25.6 85.2 (15.7) (5.4) 7.9 9.4 9.9

United Phosphorus 190 BUY 87,702 1,875 463 11.9 13.8 17.4 18.8 15.8 25.9 15.9 13.7 10.9

Others 649,452 13,888 16.3 32.3 17.6 19.3 14.6 12.4

KS universe (b) 45,742,076 978,126 14.1 20.0 20.4 19.5 16.2 13.5

KS universe (b) ex-Energy 36,889,020 788,817 7.6 21.3 19.9 21.1 17.4 14.5

KS universe (d) ex-Energy & ex-Commodities 32,864,268 702,754 14.4 17.3 21.6 22.0 18.7 15.4

Note:

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

(2) 2010 means calendar year 2009, similarly for 2011 and 2012 for these particular companies.

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

(4) Rupee-US Dollar exchange rate (Rs/US$)= 0.00


ADVT-3mo


33.1 24.1 18.4 18.0 12.8 9.1 0.5 0.4 0.5 38.7 41.8 39.4 3,000 0.5 5.3

33.1 24.1 18.4 18.0 12.8 9.1 0.5 0.4 0.5 34.5 35.8 33.8

8.3 6.0 5.6 1.0 0.9 0.8 0.6 0.6 0.6 4.2 7.9 6.5 99 (15.9) 5.4

9.0 5.5 5.9 1.6 1.4 1.3 0.5 0.5 0.5 8.2 17.9 10.9 93 10.6 4.8

4.4 5.0 4.2 1.6 1.3 1.1 0.6 0.5 0.5 22.4 17.0 14.8 76 10.5 12.8

6.3 5.5 5.1 1.4 1.2 1.1 0.6 0.5 0.5 13.1 12.8 10.5

11.4 10.0 8.2 4.0 3.4 3.0 1.0 1.0 1.5 19.3 22.0 21.2 390 (5.1) 11.9

4.1 9.6 4.9 1.3 1.2 1.1 1.3 1.3 1.3 17.8 8.2 14.0 72 (7.2) 2.1

18.7 15.3 12.4 6.9 5.7 4.7 0.9 1.3 1.5 30.1 28.0 28.0 3,100 11.6 55.8

10.9 9.7 8.8 5.3 3.8 3.0 0.6 0.7 0.8 48.1 36.4 25.8 550 (8.2) 7.6

8.7 9.2 6.1 3.2 2.7 2.2 0.4 0.6 1.0 35.2 19.2 23.7 550 4.0 0.9

7.4 6.5 5.5 1.9 1.8 1.6 1.4 1.6 1.5 18.2 15.1 12.4 450 (13.0) 10.7

5.6 7.3 6.2 2.0 1.7 1.5 2.0 2.1 2.2 18.6 20.1 17.2 180 2.6 4.4

18.4 14.8 12.3 8.0 6.6 5.5 2.3 2.0 2.3 37.6 35.6 33.9 965 12.9 29.9

16.6 13.4 11.0 5.2 4.2 3.5 0.9 1.1 1.3 26.5 25.0 23.7 465 12.0 13.3

16.6 13.8 11.3 6.1 5.0 4.2 1.4 1.4 1.7 26.4 25.7 24.9

7.6 8.4 6.9 2.9 2.4 2.1 - - - 24.4 16.5 14.7 305 (3.8) 49.8

9.0 9.8 8.3 2.1 2.0 1.9 — — — 7.2 6.2 4.2 55 (24.3) 12.2

(0.4) (0.6) (0.8) 0.4 0.4 0.4 — — — (8.5) (6.1) (5.7) 50 (22.7) 3.2

7.1 9.6 8.0 0.9 0.9 0.9 0.5 — — 11.7 3.2 4.9 150 (10.8) 42.9

9.5 8.8 8.4 1.3 1.3 1.2 2.0 2.3 2.6 5.2 5.5 5.5 225 (31.7) 2.6

8.0 9.0 7.4 1.8 1.6 1.5 0.2 0.1 0.1 12.8 7.9 8.0

136.0 23.7 7.0 5.5 4.7 3.0 — — — 4.4 15.9 45.5 146 4.3 2.9

7.1 5.9 6.4 1.2 1.1 1.0 1.1 1.2 1.4 11.1 10.4 11.3 466 17.7 2.0

20.4 8.7 8.2 4.8 3.8 3.0 — — — 15.8 21.2 22.7 77 12.6 6.8

10.7 11.5 8.9 1.5 1.4 1.4 1.8 1.1 1.4 9.7 6.4 7.4 28 (8.8) 5.6

13.9 12.2 10.2 2.5 2.3 2.1 2.1 2.4 2.8 14.5 15.4 16.6 210 7.3 9.1

18.8 16.6 11.6 1.4 1.3 1.2 0.8 0.9 1.0 6.3 7.3 10.1 1,160 7.0 45.1

226.4 35.4 2.6 2.4 2.3 — — — 4.8 5.1 8.1 135 (13.0) 20.2

13.8 12.5 10.7 2.5 2.3 2.0 0.9 1.1 1.1 12.9 12.5 14.3 1,420 7.0 10.1

17.4 14.5 10.6 2.3 2.2 1.9 1.3 1.4 1.7 10.6 11.3 13.9

19.1 11.8 9.7 12.5 8.2 5.6 0.3 0.3 0.4 6.6 41.6 39.7 497 (34.2) 7.3

21.4 15.7 11.2 3.0 2.6 2.3 — — — 4.1 12.8 14.9 170 40.6 27.5

5.4 6.1 5.9 1.6 1.3 1.2 0.5 0.4 0.4 20.5 12.9 11.1 256 24.4 3.2

3.3 2.8 2.9 0.8 0.7 0.6 4.8 4.8 5.2 12.6 11.7 12.0 182 35.0 0.6

12.6 8.6 7.3 2.4 2.0 1.7 0.3 0.3 0.4 15.5 15.3 15.2 380 2.3 4.5

7.1 6.1 5.2 1.9 1.6 1.4 2.4 2.5 2.5 16.0 18.7 18.3 360 (0.9) 3.7

4.5 4.9 4.7 1.6 1.4 1.2 0.9 0.9 0.9 24.8 15.6 12.8 286 13.0 5.1

9.1 8.3 6.6 2.6 2.2 1.9 0.8 1.1 1.1 17.7 17.2 18.3 225 18.7 8.3

11.2 9.9 8.2 2.4 2.0 1.8 0.7 0.7 0.7 12.4 14.0 14.3

11.5 9.7 8.1 2.9 2.5 2.2 1.2 1.3 1.6 14.8 15.5 16.3

14.0 11.7 9.6 3.2 2.8 2.4 1.1 1.2 1.3 15.1 15.8 16.5

15.9 13.4 10.9 3.4 2.9 2.6 1.1 1.2 1.4 15.3 15.6 16.6

Dividend yield (%)



Disclosures

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

Source: Kotak Institutional Equities As of June 30, 2010

* The above categories are defined as follows: Buy = We expect this stock to outperform the BSE Sensex by 10% over the next 12 months; Add = We expect this stock to outperform the BSE Sensex by 0-10% over the next 12 months; Reduce = We expect this stock to underperform the BSE Sensex by 0-10% over the next 12 months; Sell = We expect this stock to underperform the BSE Sensex by more then 10% over the next 12 months. These ratings are used illustratively to comply with applicable regulations. As of 30/06/2010 Kotak Institutional Equities Investment Research had investment ratings on 150 equity securities.

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

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

11.3%

32.0%29.3%

27.3%

4.7% 5.3%2.7%

0.0%0%

10%

20%

30%

40%

50%

60%

70%

BUY ADD REDUCE SELL

Ratings and other definitions/identifiers

Definitions of ratings

BUY. We expect this stock to outperform the BSE Sensex by 10% over the next 12 months.

ADD. We expect this stock to outperform the BSE Sensex by 0-10% over the next 12 months.

REDUCE. We expect this stock to underperform the BSE Sensex by 0-10% over the next 12 months.

SELL. We expect this stock to underperform the BSE Sensex by more than 10% over the next 12 months.

Our target price are also on 12-month horizon basis.

Other definitions

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

Other ratings/identifiers

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

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

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

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

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

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

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Documents

India Daily, August 16, 2010 - Kotak Securities · for private circulation only. for important information about kotak securities’ rating system and other disclosures. refer to