India Daily, February 11, 2013 - 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 DAILYFebruary 11, 2013 India 8-Feb 1-day1-mo 3-mo

Sensex 19,485 (0.5) (0.9) 4.3

Nifty 5,904 (0.6) (0.8) 3.8

Global/Regional indices

Dow Jones 13,993 0.4 3.7 9.2

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KOSPI 1,951 1.0 (2.3) 2.4

Value traded – India

Cash (NSE+BSE) 149 151 71

Derivatives (NSE) 976 1,019 1,121

Deri. open interest 1,327 1,367 1,465

Forex/money market

Change, basis points

8-Feb 1-day 1-mo 3-mo

Rs/US$ 53.7 5 (114) (129)

10yr govt bond, % 8.0 - (4) (30)

Net investment (US$mn)

7-Feb MTD CYTD

FIIs 1,196 3,039 7,135

MFs (0) (246) (1,104)

Top movers -3mo basis

Change, %

Best performers 8-Feb 1-day 1-mo 3-mo

SUEL IN Equity 25.0 (2.2) 29.3 61.0

ESOIL IN Equity 92.7 5.2 33.7 43.7

UNSP IN Equity 1917.3 (0.5) 1.0 40.9

UT IN Equity 35.2 (1.4) (8.1) 32.9

RCOM IN Equity 75.3 (0.1) (5.9) 31.1

Worst performers

HDIL IN Equity 71.2 (1.7) (37.4) (31.8)

MMTC IN Equity 511.5 (2.7) (18.3) (29.2)

IVRC IN Equity 31.5 (1.3) (27.4) (23.7)

RBXY IN Equity 428.8 (1.7) (14.0) (21.0)

EDSL IN Equity 118.6 (1.6) (15.6) (20.4)

Contents

Daily Alerts

Results

Sun Pharmaceuticals: Taro and Lipodox drive performance

Mahindra & Mahindra: Slight disappointment in automotive business

Hindalco Industries: Aluminum disappoints

United Breweries: Impacted by change in policy in Tamil Nadu

Canara Bank: Growth in all the wrong areas

Cadila Healthcare: Weak quarter, recovery expected in FY2014

Tata Communications: Good quarter with solid margin beat; sustainability the key. Retain REDUCE

Bharat Forge: Sharp decline in revenues across business segments

GSPL: In-line results

BGR Energy Systems: Execution improves although margin miss and high interest cost nullify gain

NCC: Weak operations belie improving trajectory of 1H; looking out for asset sales

Results, Change in Reco

Tata Chemicals: European and African operations disappoint Downgrade to ADD from BUY

Company

NMDC: Analyzing Karnataka e-auctions

Apollo Hospitals: Strong capacity addition expected in FY2014

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

Ex-Taro earnings below estimates

Sun Pharma’s reported net income at Rs8.8 bn (32% yoy) is 5% ahead of estimate. The beat at the profit level is primarily driven by strong performance at Taro. However, ex-Taro, profits at Rs5.6 bn (23% yoy) is 7% below estimates. While sales ex-Taro is marginally lower, margin at 36.5% is 190 bps lower than estimate (sequential decline of 250 bps). The analysis of core margin remains constrained given the difficulty in estimating Lipodox sales – we estimate Lipodox sales of US$40 mn for the quarter (at 95% margin). Taro and Lipodox appear to be the key drivers for the earnings performance. Taro price increases have sustained and with Sun receiving generic Doxil approval, this trend in earnings will stay for the near term.

Sun and Taro agree to terminate merger agreement

Sun Pharma and Taro have mutually agreed to terminate their merger agreement under which the minority shareholders in Taro were offered US$39.5/share (total cash consideration of US$600 mn). Given the market price of Taro (which was trading at close to US$50) and strong financial performance in recent quarters, the merger at the offer price appeared unlikely.

The termination does not have any impact on financials but a potential buyout of minorities would have been EPS accretive for Sun (even at a significant upside to the offer price).

The move may also strengthen the possibility of other deals that Sun Pharma may be considering. The management has reiterated that it is looking at potential opportunities and Taro minority buyout was not the only deal on the table.

Maintain REDUCE with increased TP at Rs750 (from Rs664 earlier)

Our TP is based on 22X one-year forward EPS. We increase FY2014/15E EPS by 5%/1% to factor the generic Doxil approval and recent acquisitions. Sun Pharma remains a strong franchise both in the US and branded markets but we believe current valuations for the core business remain stretched at 26X. In addition, US sales (including Taro and recent acquisitions) are likely to reach over US$1.3 bn (over 50% of sales) which may limit the organic growth potential for the business.

Sun Pharmaceuticals (SUNP)

Pharmaceuticals

Taro and Lipodox drive performance. Sun Pharma’s overall net profit is higher than estimates, but the beat is primarily on account of the strong performance by Taro. Price increases in Taro and Lipodox remain the key drivers for the earnings growth. We believe the stock is fully valued on the core business – 26X on FY2014E EPS. In addition, the high base in the US may limit organic growth potential. Maintain REDUCE with increased TP at Rs750 (from Rs664) due to roll-forward and generic Doxil approval.

Sun PharmaceuticalsStock data Forecasts/Valuations 2013 2014E 2015E

52-week range (Rs) (high,low) EPS (Rs) 28.6 35.1 39.9Market Cap. (Rs bn) 772.6 EPS growth (%) 14.4 22.7 13.7

Shareholding pattern (%) P/E (X) 26.1 21.3 18.7Promoters 63.7 Sales (Rs bn) 113.2 136.5 157.0FIIs 21.5 Net profits (Rs bn) 29.6 36.3 41.3MFs 1.4 EBITDA (Rs bn) 53.1 55.4 62.4

Price performance (%) 1M 3M 12M EV/EBITDA (X) 13.2 12.4 10.5Absolute (1.1) 7.1 35.5 ROE (%) 20.0 20.2 19.0Rel. to BSE-30 0.2 3.6 23.1 Div. Yield (%) 0.7 0.8 1.0

Company data and valuation summary

776-535

REDUCE

FEBRUARY 11, 2013

RESULT

Coverage view: Attractive

Price (Rs): 746

Target price (Rs): 750

BSE-30: 19,485

Sun Pharmaceuticals Pharmaceuticals

KOTAK INSTITUTIONAL EQUITIES RESEARCH 3

Exhibit 1: Sun Pharma interim results, March fiscal year-ends (Rs mn)

(% chg.) yoy3QFY13 3QFY13E 3QFY12 2QFY13 3QFY13E 3QFY12 2QFY13 9MFY13 9MFY12(% chg.) FY2013E

Sales 28,520 27,670 21,451 26,572 3.1 33.0 7.3 81,674 56,755 43.9 113,201Total expenditure 15,910 15,786 11,814 14,888 0.8 34.7 6.9 45,210 33,802 33.7 62,662Raw material 5,593 5,396 3,781 4,886 3.7 47.9 14.5 15,502 11,490 34.9 22,122Staff cost 3,871 3,635 2,885 3,568 6.5 34.2 8.5 10,951 8,398 30.4 14,709R&D cost 1,880 1,657 1,069 1,402 13.5 75.9 34.1 4,671 2,890 61.7 6,411Other expenditure 4,565 5,099 4,079 5,032 (10.5) 11.9 (9.3) 14,086 11,025 27.8 19,420EBITDA 12,611 11,884 9,638 11,685 6.1 30.8 7.9 36,464 22,953 58.9 50,538 EBITDA - adjusted 12,611 11,884 9,638 11,685 6.1 30.8 7.9 36,464 22,953 58.9 50,538 Other income 813 800 (863) 1,779 2,573 555 3,173Interest (123) 200 (591) 283 372 (1,324) 622Depreciation 844 850 774 829 2,475 2,089 3,325Pretax profits 12,703 11,634 8,591 12,352 9.2 47.9 2.8 36,191 22,742 59.1 49,765 Tax 2,369 1,978 634 2,139 6,432 2,058 8,740Minority interest 1,521 1,297 1,274 1,181 3,958 3,014 5,591Exceptional item - (5,836) (5,836)Net income 8,813 8,359 6,683 9,032 5.4 31.9 (2.4) 19,965 17,670 13.0 29,598 Adjusted net income 8,813 8,359 6,683 9,032 5.4 31.9 (2.4) 25,801 17,670 46.0 35,434 Adjusted EPS (Rs) 8.5 8.1 6.5 8.7 5.4 31.9 (2.4) 24.9 17.1 46.0 34.2 Tax rate (%) 18.6 17.0 7.4 17.3 17.8 9.0 17.6 Segment wise salesDomestic formulation 7,880 8,348 6,956 8,099 (5.6) 13.3 (2.7) 21,855 20,387 7.2 30,216 US (excluding Taro) 6,380 7,560 4,381 5,855 (15.6) 45.6 9.0 20,341 9,622 111.4 29,521 Emerging markets (excluding Taro) 2,438 1,632 1,305 2,307 49.4 86.8 5.7 7,122 4,011 77.6 9,605 Taro 10,028 8,810 7,523 8,865 13.8 33.3 13.1 27,487 18,875 45.6 37,747 Total formulations 26,726 26,349 20,166 25,125 1.4 32.5 6.4 76,805 52,896 45.2 107,088 API 2,090 1,677 1,536 1,758 24.6 36.0 18.9 5,850 4,615 26.7 7,499 Others - - - 125 143 6 143 Total sales 28,816 28,026 21,703 27,008 2.8 32.8 6.7 82,798 57,517 44.0 114,730 % marginRaw material 19.6 19.5 17.6 18.4 19.0 20.2 19.5Staff 13.6 13.1 13.4 13.4 13.4 14.8 13.0R&D 6.6 6.0 5.0 5.3 5.7 5.1 5.7Other expenditure 16.0 18.4 19.0 18.9 17.2 19.4 17.2EBITDA 44.2 42.9 44.9 44.0 44.6 40.4 44.6

Source: Company, Kotak Institutional Equities estimates

Call highlights

URL Pharma. Sun Pharma has closed the acquisition of non-Colcrys business of URL Pharma from Takeda (last week). The company did not provide any update on the consideration paid or expected sales from URL. Sun Pharma will continue to manufacture Colcrys for a specified period.

Sun remains optimistic on synergies from the URL Pharma business primarily from improving the operational efficiencies. Sun believes the volumes in URL can be significantly increased and Sun may need a few more quarters to evaluate the real potential in this entity. The technology/patents in URL can also be of interest to Sun Pharma. Sun Pharma has commented that the US pipeline for URL remains weak.

DUSA. Sun Pharma has offered a severance agreement to the senior management of DUSA. Sun may look to selectively retain the talent in this entity.

Doxil. Sun Pharma believes the multiple myeloma indication (which has been carved out in the Sun Label) may not be a significant part of Doxil sales. The company did not provide any indication of the current market size. Sun Pharma also indicated that it had limited visibility on further generic competition considering there are no litigations.

Caraco. Sun Pharma has not yet started receiving approvals from the Caraco facility post the resolution of the quality issues. The company expects approvals to start in the near term.

Pharmaceuticals Sun Pharmaceuticals

4 KOTAK INSTITUTIONAL EQUITIES RESEARCH

Taro. The strong performance in Taro is driven by price increase and product mix. The company did not rule out further price increase in the US portfolio.

Domestic formulations. The reported growth for the quarter is at 13.3% - impacted by change in treatment of sales returns and discounts (now being offset against sales as against cost line earlier). The change does not have any impact at the EBITDA level. The underlying growth in the domestic business is 19% for the quarter.

Sun Pharma growth rates have not been impacted significantly by the market slowdown in the past two months.

Tax rate guidance for FY2014 stands at 18-19%.

Core business remains fully valued

We present the analysis of sales and profits across Taro, Lipodox and the core business of Sun in Exhibit 2 .

We have estimated US$170 mn in Lipodox sales for FY2013 given the single-player market for a significant period. Our estimate of US$100 mn for FY2014 assumes J&J returning with full supplies through the year. We assume a decline in FY2015E to US$80 mn with potential entry of one or two generics. We believe generic entry in Doxil is likely to be phased given the complex nature of the drug.

Our assumption for Taro builds a 15% growth in FY2014 and 10% in FY2015E. However, we build in 330 bps contraction in margin for FY2014E. There could be upside to the margin assumption in case of no further generic competition – every 1% increase in Taro margin adds 0.6% to Sun Pharma EPS.

However, we believe our SOTP valued Taro at a peak multiple of 16X given at current Taro stock price (of US$50), the stock trades at <10X FY2013E EPS (of US$6.6).

We believe the core business of Sun Pharma deserves a premium – but at 26X one-year forward P/E we view the stock to be fully valued. We value the peer group (Cipla, Lupin) at 22X one-year forward EPS. Given the higher cash balance, Sun is likely to trade at a premium which we believe is adequately captured at current price (18% premium).



Exhibit 2: Sun Pharma – segment analysis, March fiscal year-ends, 2012-15E (Rs mn)

FY12 1QFY13 2QFY13 3QFY13 3QFY13E 4QFY13E FY13E FY14E FY15ESales-Taro 26,168 8,594 8,865 10,028 8,810 10,260 37,747 43,042 48,223Sales-ex-Taro 53,885 17,987 17,708 18,492 18,860 21,267 75,454 93,420 108,739 - Lipodox 1,005 2,700 2,200 2,160 2,160 2,160 9,220 5,400 4,400 - Base 15,001 15,287 15,508 16,332 16,700 19,107 66,234 88,020 104,339Sales-reported 80,054 26,581 26,572 28,520 27,670 31,527 113,201 136,462 156,962EBITDA - Taro 12,421 4,511 4,786 5,863 4,645 5,894 21,054 22,612 24,896EBITDA - Ex-Taro 20,096 7,658 6,899 6,747 7,240 8,181 29,485 30,173 33,918 - Lipodox 955 2,565 2,090 2,052 2,052 2,052 8,759 4,968 3,960 - Base 5,051 5,093 4,809 4,695 5,188 6,129 20,726 25,205 29,958EBITDA - Total 32,517 12,169 11,685 12,611 11,884 14,075 50,538 52,784 58,814EBITDA margin - Taro 47.5 52.5 54.0 58.5 52.7 57.4 55.8 52.5 51.6EBITDA margin - Ex-Taro 37.3 42.6 39.0 36.5 38.4 38.5 39.1 32.3 31.2 - Lipodox 95.0 95.0 95.0 95.0 95.0 95.0 95.0 92.0 90.0 - Base 33.7 33.3 31.0 28.7 31.1 32.1 31.3 28.6 28.7EBITDA margin - Total 40.6 45.8 44.0 44.2 42.9 44.6 44.6 38.7 37.5Net Profit - Taro 7,064 2,252 2,391 3,193 2,333 2,996 10,833 11,403 12,530Net profit - Ex-Taro 18,808 5,703 6,641 5,620 6,026 6,637 24,601 24,928 28,787 - Lipodox 793 2,129 1,735 1,703 1,703 1,703 7,270 4,258 3,469 - Base 18,016 3,574 4,906 3,917 4,323 4,934 17,331 20,670 25,317Net profit - Total 25,873 7,956 9,032 8,813 8,359 9,633 35,434 36,331 41,317EPS - Taro 6.8 2.2 2.3 3.1 2.3 2.9 10.5 11.0 12.1EPS - Ex-Taro 18.2 5.5 6.4 5.4 5.8 6.4 23.8 24.1 27.8 - Lipodox 0.8 2.1 1.7 1.6 1.6 1.6 7.0 4.1 3.4 - Base 17.4 3.5 4.7 3.8 4.2 4.8 16.7 20.0 24.4EPS - Total 25.0 7.7 8.7 8.5 8.1 9.3 34.2 35.1 39.9


Exhibit 3: SOTP valuation -Sun Pharma

2014EEPS (Rs) Implied Multiple Value (Rs)

Taro EPS 11.0 16 176

Lipodox EPS 4.1 12 49

Core 20.0 26 520Current market price (Rs) 35.1 21 746




Exhibit 4: Interim balance sheet, March fiscal year-ends, 2011-1HFY13 (Rs mn)

2011 2012 1HFY13Share capital 1,036 1,036 1,036Reserves and surplus 93,798 120,628 131,596Total equity 94,833 121,664 132,632Minority interest 8,472 11,615 12,245Long term borrowings 1,573 1,554 1,575Deferred tax liabilities 1,348 1,636 1,812Other long term liabilities 67 89 95Long term provisions 130 1,387 7,492Total non current liabilities 3,118 4,667 10,975Short term borrowings 2,078 1,096 1,330Trade payables 6,454 8,401 8,615Other current liabilities 3,624 6,009 2,748Short term provisions 5,153 9,154 6,032Total current liabilities 17,309 24,659 18,725Total equity and liabilities 123,731 162,604 174,577Fixed assets 27,568 32,742 34,477Goodwill 7,720 10,218 10,405Non current investments 3,460 5,890 5,603Deferred tax assets 5,001 6,835 7,610Long term loans and advances 3,790 5,338 5,803Other non current assets 262 174 55Total non current assets 47,801 61,196 63,953Current investments 18,838 16,239 17,117Inventories 14,895 20,870 24,534Trade receivables 11,049 19,261 21,629Cash and cash equivalents 22,046 33,672 35,231Short term loans and advances 8,492 10,427 11,490Other current assets 612 939 623Total current assets 75,931 101,408 110,624Total assets 123,731 162,604 174,577

Source: Company, Kotak Institutional Equities



Exhibit 5: Revenue summary, March fiscal year-ends, 2009-15E (Rs mn)

2009 2010 2011 2012 2013E 2014E 2015EDomestic formulations 19,597 18,301 23,801 29,154 30,216 35,654 42,072Taro — — 9,806 26,168 37,747 43,042 48,223US (excluding Taro) 14,734 10,969 13,157 13,675 29,521 40,500 46,750Emerging markets (excluding Taro) 4,521 4,878 6,020 5,997 9,605 11,526 13,831Total formulations 38,852 34,148 52,783 74,995 107,088 130,722 150,876API 4,846 5,502 5,212 6,147 7,499 7,499 8,109Others 0 66 71 31 143 — —Total 43,698 39,716 58,067 81,173 114,730 138,221 158,984yoy growth, %Domestic formulations 32.8 -6.6 30.1 22.5 3.6 18.0 18.0Taro 166.9 44.2 14.0 12.0US (excluding Taro) 4.2 (25.6) 19.9 3.9 115.9 37.2 15.4Emerging markets (excluding Taro) 86.9 7.9 23.4 (0.4) 60.2 20.0 20.0Total formulations 24.0 (12.1) 54.6 42.1 42.8 22.1 15.4API 49.5 13.5 (5.3) 17.9 22.0 0.0 8.1Total 26.3 (9.1) 46.2 39.8 41.3 20.5 15.0% of salesDomestic formulations 44.8 46.1 41.0 35.9 26.3 25.8 26.5Taro 0.0 0.0 16.9 32.2 32.9 31.1 30.3US (excluding Taro) 33.7 27.6 22.7 16.8 25.7 29.3 29.4Emerging markets (excluding Taro) 10.3 12.3 10.4 7.4 8.4 8.3 8.7Total formulations 88.9 86.0 90.9 92.4 93.3 94.6 94.9API 11.1 13.9 9.0 7.6 6.5 5.4 5.1


Approval of generic Doxil drives FY2014E EPS upgrade

We increase FY2014 EPS by 5.4% primarily due to the recent approval of generic Doxil. In addition, we also consolidate DUSA (US$50 mn in revenue and limited EPS impact) and URL Pharma (we assume US$80 mn in sales at 18% margin for FY2014E).

With generic Doxil approval, we no longer treat Lipodox sales as one-off and include it as part of the core EPS.

Exhibit 6: Change to sales estimates, March fiscal year-ends, 2013-15E (Rs mn)

2013E 2014E 2015E 2013E 2014E 2015E 2013E 2014E 2015EDomestic formulations 30,683 36,820 44,184 30,216 35,654 42,072 (1.5) (3.2) (4.8)Taro 35,187 37,917 41,800 37,747 43,042 48,223 7.3 13.5 15.4US (excluding Taro) 31,241 29,150 33,480 29,521 40,500 46,750 (5.5) 38.9 39.6Emerging markets (excluding Taro) 8,798 10,558 12,670 9,605 11,526 13,831 9.2 9.2 9.2Total formulations 105,910 114,445 132,134 107,088 130,722 150,876 1.1 14.2 14.2API 7,086 7,654 8,280 7,499 7,499 8,109 5.8 (2.0) (2.1)Others 143 — — 143 — —Total 113,139 122,099 140,413 114,730 138,221 158,984 1.4 13.2 13.2

Old estimates New estimates % change

Source: Kotak Institutional Equities estimates



Exhibit 7: Change to EPS estimates, March fiscal year-ends, 2013-15E (Rs mn)

2013E 2014E 2015E 2013E 2014E 2015E 2013E 2014E 2015ESales 111,559 120,283 138,324 113,201 136,462 156,962 1.5 13.5 13.5Raw material 22,030 26,462 30,431 22,122 33,447 39,240 0.4 26.4 28.9Staff cost 13,042 14,998 17,248 12,709 15,886 18,746 (2.6) 5.9 8.7R&D 6,188 7,116 8,183 6,411 7,885 9,226 3.6 10.8 12.7Other expense 21,454 24,552 28,115 21,420 26,459 30,935 (0.2) 7.8 10.0EBITDA - reported 48,846 47,154 54,347 50,538 52,784 58,814 3.5 11.9 8.2PBT 42,945 47,734 55,677 43,930 51,737 58,517 2.3 8.4 5.1Tax 8,364 8,115 9,465 8,740 9,313 10,533 4.5 14.8 11.3PAT -reported 29,530 34,462 40,713 29,598 36,330 41,317 0.2 5.4 1.5PAT -adjusted 35,366 34,462 40,713 35,434 36,331 41,317 0.2 5.4 1.5EPS -adjusted 34.2 33.3 39.3 34.2 35.1 39.9 0.1 5.4 1.5



Exhibit 8: Financial summary, March fiscal year-ends, 2013-15E (Rs mn)

2011 2012 2013E 2014E 2015ENet sales 57,214 80,054 113,201 136,462 156,962% growth 50.2 39.9 41.4 20.5 15.0Core sales 49,954 80,054 113,201 136,462 156,962% growth 56.9 60.3 41.4 20.5 15.0EBITDA 19,700 32,535 50,538 52,784 58,814% growth 59.1 65.2 55.3 4.4 11.4% margin 34.4 40.6 44.6 38.7 37.5Core EBITDA 13,166 32,535 50,538 52,784 58,814% growth 104.0 147.1 55.3 4.4 11.4% margin 26.4 40.6 44.6 38.7 37.5Net profit 18,161 25,873 29,598 36,330 41,317% growth 34.4 42.5 14.4 22.7 13.7Core net profit 11,857 25,873 35,434 36,331 41,317% growth 80.9 118.2 37.0 2.5 13.7Reported EPS 17.5 25.0 28.6 35.1 39.9Adjusted EPS 11.4 25.0 34.2 35.1 39.9




Exhibit 9: Profit and loss statement, March fiscal year-ends, 2009-15E (Rs mn)

2009 2010 2011 2012 2013E 2014E 2015ENet sales 41,833 38,087 57,214 80,054 113,201 136,462 156,962Materials (8,556) (10,241) (14,607) (16,399) (22,122) (33,447) (39,240)Employee cost (3,401) (4,008) (6,729) (10,110) (12,709) (15,886) (18,746)R&D (3,099) (2,083) (2,860) (3,892) (6,411) (7,885) (9,226)Others (8,138) (9,373) (13,319) (17,118) (21,420) (26,459) (30,935)Total expenditure (23,194) (25,705) (37,514) (47,519) (62,662) (83,677) (98,147)EBITDA 18,639 12,382 19,700 32,535 50,538 52,784 58,814Depreciation and amortisation (1,233) (1,533) (2,041) (2,912) (3,325) (3,625) (3,875)EBIT 17,406 10,849 17,659 29,624 47,214 49,160 54,939Net finance cost (1,217) (1,139) (1,342) (1,696) (1,356) (978) (978)Other income 599 576 981 2,878 1,196 1,600 2,600Non-recurring income 270 1,586 376 (633) (5,836) 0 0Pretax profits 19,491 14,150 20,358 33,565 43,930 51,737 58,517Current tax (712) (679) (1,284) (3,826) (8,740) (9,313) (10,533)Reported net profit 18,780 13,471 19,074 29,738 35,190 42,424 47,984Minority Interests 603 (41) 913 3,866 5,591 6,094 6,667Reported net profit after minority interests 18,177 13,512 18,161 25,873 29,598 36,330 41,317Adjusted Net profit 11,697 6,553 11,857 25,873 35,434 36,331 41,317Adjusted EPS 11.3 6.3 11.4 25.0 34.2 35.1 39.9


Exhibit 10: Balance sheet and cash flow statement, 2009-15E, March fiscal year-ends (Rs mn)

2009 2010 2011 2012 2013E 2014E 2015EBalance sheetTotal equity 70,449 78,289 94,833 121,664 145,120 174,080 206,552Total debt 1,789 1,712 4,256 3,207 3,207 3,207 3,207Current liabilities 7,198 7,579 14,234 24,482 31,158 26,247 27,263Minority Interests 1,970 1,932 8,472 11,615 17,206 23,300 29,967Total equity and liabilities 81,407 89,512 121,794 160,968 196,691 226,833 266,989Cash and cash equivalents 16,690 6,073 21,936 33,672 45,099 66,418 96,808Current assets 25,993 31,048 38,236 57,008 63,429 70,878 79,518Net fixed assets 12,486 13,068 19,335 20,895 38,770 40,146 41,271Intangible assets 5,393 6,321 13,619 18,619 18,619 18,619 18,619Capital -WIP 1,571 1,448 2,706 3,447 3,447 3,447 3,447Investments 18,595 30,664 22,310 22,129 22,129 22,129 22,129Deferred tax asset 679 890 3,652 5,199 5,199 5,199 5,199Total assets 81,407 89,512 121,794 160,968 196,691 226,833 266,989Free cash flow Operating cash flow, excl. working capital 21,620 12,289 17,955 33,515 36,560 44,271 49,581Working capital 29 (4,356) 4,877 (10,033) 255 (12,360) (7,624)Capital expenditure (6,101) (3,648) (8,908) (9,869) (21,200) (5,000) (5,000)Free cash flow 15,548 4,284 13,923 13,612 15,615 26,911 36,957



Operating margin remains stable sequentially driven by improvement in tractor margin

M&M + MVML net profit of Rs9,149 mn (+30% yoy, -7% qoq) was in line with our estimates primarily due to lower tax rate while reported EBITDA was 5% below our estimate. Net revenues of Rs102,426 mn (+25% yoy, +11% qoq) were in line with our estimates. Average selling prices increased by 14% yoy, attributed to (1) addition of XUV500 volumes and (2) 7% yoy increase in tractor net average selling prices.

Gross margins declined by 100 bps qoq driven by 100 bps qoq decline in automotive EBIT margins. Staff costs and other expenses were almost in line with expectations. Automotive EBIT margins declined by 100 bps qoq due to higher discounts on Scorpio/Xylo in Dec 2012 and higher share of lower-margin Quanto/Rexton in the product mix. Tractor EBIT margin improved by 70 bps qoq despite sluggish volume growth.

Tractor volume growth to remain muted over the next 12 months

We believe tractor volume growth is likely to remain sluggish over the next 12 months due to lack of opportunities for renting out tractors for non-agricultural purposes and subdued farmer profitability.

We have maintained our target price at Rs1,000 based on sum-of-the-parts methodology. We maintain our ADD rating on the stock due to inexpensive valuations and stable earnings growth. Inefficient capital allocation and subdued outlook on tractor volume growth make us less constructive on the stock.

Mahindra & Mahindra (MM)

Automobiles

Slight disappointment in automotive business. M&M missed our estimates by 5% at the EBITDA level in 3QFY13 driven by 100 bps qoq sequential decline in automotive EBIT margin. We believe new model launches, slightly inferior product mix and higher year-end discounts led to decline in margin. We are positively surprised by tractor EBIT margin holding up despite sluggish growth in the industry. We maintain our ADD rating due to inexpensive valuations and stable earnings growth (12% CAGR over the next two years).

Mahindra & MahindraStock data Forecasts/Valuations 2013 2014E 2015E



Price performance (%) 1M 3M 12M EV/EBITDA (X) 12.0 11.0 9.2Absolute (7.7) (3.2) 28.8 ROE (%) 24.7 22.9 22.9Rel. to BSE-30 (6.5) (6.4) 17.0 Div. Yield (%) 1.8 2.0 2.3


976-621

ADD

FEBRUARY 11, 2013

RESULT

Coverage view: Neutral

Price (Rs): 885

Target price (Rs): 1,000

BSE-30: 19,485

Mahindra & Mahindra Automobiles


XUV500 continues to drive volume growth in the UV business

M&M passenger utility vehicle volumes grew by 27% yoy primarily driven by addition of Quanto and ramp-up of XUV500 volumes. Excluding XUV500 and Quanto, utility vehicle volumes grew by 4% yoy. We believe this is a concern area as growth could start tapering off from 1QFY14 onwards as base effect of XUV volumes stiffens. Despite concerns of increase in competitive intensity in lower-end SUV segment, Bolero volumes have grown by 12% yoy in 3QFY13. Scorpio volumes have declined by 3% yoy. XUV500 now forms 16% of utility vehicle volumes and around 17% of standalone automotive business revenues.

Automotive segment net revenues (including MVML) grew by 38% yoy primarily driven by 19% yoy increase in automotive segment volumes and 16% yoy increase in average selling prices. Average selling prices have increased primarily due to addition of XUV500 volumes. The company did not take any price increase in 3QFY13 but has taken an average 2% price hike in January 2013. Automotive EBIT margin declined by 100 bps qoq driven by addition of low-margin Quanto and Rexton in the product mix and high discounts in December on Xylo and Scorpio to clear off inventory. The company indicated that dealer inventory levels in automotive segment are around 3 weeks which is at normal levels.

We estimate domestic industry utility vehicle segment to grow at 12% yoy in FY2014 and expect Mahindra to retain its market share. We note that Ford Ecosport could be a major competitor to Mahindra but we expect it to take some market share from sedan segment as well, so we see limited impact on M&M from this product.

Exhibit 1: XUV500 continues to drive volume and revenue growth M&M utility vehicle quarterly volume mix trend, March fiscal year-ends, 2012-13YTD (units)

1QFY12 2QFY12 3QFY12 4QFY12 1QFY13 2QFY13 3QFY13Bolero 23,870 24,831 26,826 28,537 27,303 28,194 29,969 Scorpio 11,746 13,207 13,206 12,826 12,230 12,646 12,858 Xylo 7,241 7,237 5,528 7,685 7,155 6,273 5,550 XUV500 — 505 5,103 8,211 10,326 12,589 12,957 Quanto — — — — — 1,782 7,024 Rexton — — — — — — 451 Jeeps, Hard tops 1,550 1,743 1,039 1,385 1,602 1,267 1,670 Verito 3,807 4,900 4,208 4,924 2,888 4,899 3,814

Exports 5,717 7,239 7,587 8,633 7,841 10,349 6,501 Total volumes 53,931 59,662 63,497 72,201 69,345 77,999 80,794 Volume mix (%) 58,394 60,813 Bolero 44.3 41.6 42.2 39.5 39.4 36.1 37.1 Scorpio 21.8 22.1 20.8 17.8 17.6 16.2 15.9 Xylo 13.4 12.1 8.7 10.6 10.3 8.0 6.9

XUV500 — 0.8 8.0 11.4 14.9 16.1 16.0 Quanto — — — — — 2.3 8.7 Rexton — — — — — — 0.6 Jeeps, Hard tops 2.9 2.9 1.6 1.9 2.3 1.6 2.1 Verito 7.1 8.2 6.6 6.8 4.2 6.3 4.7

Source: Company, CRISIL, Kotak Institutional Equities

Tractor EBIT margins improve by 70 bps qoq despite slowdown in volume growth

Tractor volumes declined by 2% yoy in 3QFY13 while tractor revenues grew by 5% yoy due to 7% yoy increase in net average selling prices. The company has exhibited strong pricing power despite challenging conditions in the tractor segment. Tractor EBIT margin improved by 70 bps qoq to 15.5% driven by improvement in product mix. Tractor average selling prices increased by 7% yoy due to higher share of 41-50 hp segment in the product mix and 4% price increase effected in 9MFY13.

We expect tractor EBIT margin to remain in 14-15% range despite a muted outlook on tractor volume growth. Management has cut its guidance for tractor volume growth to -2% yoy in FY2013E from flat growth earlier. We estimate a -3% yoy growth in tractor volumes in FY2013E due to weak spatial distribution of South West monsoons.

Automobiles Mahindra & Mahindra


Exhibit 2: Less than 51 hp segment declining in tractor mix but 40-50 hp segment showing strong growth M&M domestic quarterly tractor volume mix, March fiscal year-ends, 2012-13YTD (units)

1QFY12 2QFY12 3QFY12 4QFY12 1QFY13 2QFY13 3QFY13Less than 30 hp 10,457 10,183 12,036 8,902 7,105 4,140 3,925 31-40 hp 32,098 24,285 27,468 18,889 25,220 20,995 28,785 41-50 hp 12,092 11,352 13,367 10,440 17,836 17,736 30,617 > 51 hp 11,202 11,574 12,883 11,609 9,420 4,507 2,093 Total volumes 65,849 57,394 65,754 49,840 59,581 47,378 65,420 Volume mix (%)Less than 30 hp 15.9 17.7 18.3 17.9 11.9 8.7 6.0 31-40 hp 48.7 42.3 41.8 37.9 42.3 44.3 44.0

41-50 hp 18.4 19.8 20.3 20.9 29.9 37.4 46.8 > 51 hp 17.0 20.2 19.6 23.3 15.8 9.5 3.2 Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0

Source: TMA, Kotak Institutional Equities

3QFY13 results were impacted by sequential decline in automotive EBIT margin

M&M + MVML net profit of Rs9,149 mn (+30% yoy, -7% qoq) was in line with our estimates primarily due to lower tax rate while reported EBITDA was 5% below our estimate. Net revenues of Rs102,426 mn (+25% yoy, +11% qoq) were in line with our estimates. Average selling prices increased by 14% yoy, attributed to (1) addition of XUV500 volumes and (2) 7% yoy increase in tractor net average selling prices.

Gross margins declined by 100 bps qoq driven by 100 bps qoq decline in automotive EBIT margins. Staff costs and other expenses were almost in line with expectations. Automotive ASPs declined by 100 bps qoq due to higher discounts on Scorpio/Xylo in Dec 2012 and higher share of lower-margin Quanto/Rexton in the product mix.

The biggest positive surprise in the results was 70 bps qoq improvement in tractor EBIT margins aided by improvement in product mix and 1% price increase in October 2012. We expect tractor volume outlook to remain subdued over the next 12 months due to lack of opportunities for renting out tractors for non-agricultural purposes and subdued farmer profitability.

Other key highlights of the results

The company has corrected inventory in the tractor segment as capital employed in the tractor segment has declined by Rs4.3 bn qoq. Capital employed in the automotive segment has increased by Rs3.4 bn qoq which indicates inventory build-up during the quarter, which could also be attributed to ramp-up of Quanto and Rexton volumes—new model launches.

The company indicated that they have sold 12,000 Quanto vehicles and 800 Rexton SUVs, which is impressive in our view.

The company will start production at new tractor plant in Zaheerabad by end of FY2013. Dealer inventory level in tractor business is around 5 weeks, and 3 weeks in utility vehicle business.

The company did not provide much clarity on the financial performance of Mahindra Navistar and two-wheeler business which we believe continues to make losses.



Exhibit 3: M&M + MVML numbers were lower than our estimates due to lower automotive margins M&M + MVML 3QFY13 results, March fiscal year-ends (Rs mn)

3QFY13 3QFY13E 3QFY12 2QFY13 3QFY13E 3QFY12 2QFY13 9MFY13 9MFY12 % change Volumes (units) 209,263 209,263 187,531 188,412 11.6 11.1 579,827 522,303 11.0 Avg realization 546,993 549,660 478,169 555,205 (0.5) 14.4 (1.5) 549,215 465,239 18.1 Gross sales 114,466 115,024 89,672 104,607 (0.5) 27.6 9.4 318,450 242,996 31.1 Excise duty 12,040 13,228 7,555 12,081 (9.0) 59.4 (0.3) 34,713 20,372 70.4 Net sales 102,426 101,796 82,117 92,526 0.6 24.7 10.7 283,737 222,624 27.5 Raw materials 73,747 72,278 59,027 65,707 2.0 24.9 12.2 202,947 158,092 28.4 Staff costs 5,320 5,150 4,729 5,070 3.3 12.5 4.9 15,199 13,396 13.5 Other expenses 9,565 9,847 7,040 8,952 (2.9) 35.9 6.8 26,649 20,552 29.7 Total expenses 88,631 87,275 70,796 79,729 1.6 25.2 11.2 244,795 192,040 27.5 EBITDA 13,795 14,521 11,321 12,797 (5.0) 21.9 7.8 38,942 30,583 27.3 Other income 758 600 686 3,260 26.3 10.6 (76.8) 4,680 3,720 25.8 Interest expense 725 730 644 741 (0.7) 12.6 (2.2) 2,179 1,773 22.9 Depreciation expense 2,054 2,050 1,644 2,045 0.2 24.9 0.5 5,899 4,435 33.0 Extraordinary income — — — — — — Profit before tax 11,774 12,341 9,718 13,272 (4.6) 21.2 (11.3) 35,544 28,095 26.5 Tax expense 2,625 3,270 2,659 3,491 (19.7) (1.3) (24.8) 8,829 7,238 22.0 Profit after tax 9,149 9,071 7,059 9,781 0.9 29.6 (6.5) 26,715 20,858 28.1 Adj PAT 9,149 9,071 7,059 9,781 0.9 29.6 (6.5) 26,715 20,858 28.1 Raw material (% of net sales) 72.0 71.0 71.9 71.0 71.5 71.0 Staff costs (% of net sales) 5.2 5.1 5.8 5.5 5.4 6.0 Other expenses (% of net sales) 9.3 9.7 8.6 9.7 9.4 9.2 EBITDA margin (% of net sales) 13.5 14.3 13.8 13.8 13.7 13.7 Tax rate (%) 22.3 26.5 27.4 26.3 24.8 25.8 Segmental break upRevenue break upAutomotive 68,761 49,889 66,262 37.8 3.8 193,248 133,815 44.4 Farm Equipment 34,040 32,486 26,534 4.8 28.3 91,357 89,287 2.3 EBITAutomotive 7,669 5,030 8,078 52.5 (5.1) 22,284 14,697 51.6 Farm Equipment 5,274 5,085 3,921 3.7 34.5 14,019 13,984 0.2 EBIT margin (%)Automotive 11.2 10.1 12.2 11.5 11.0 Farm Equipment 15.5 15.7 14.8 15.3 15.7 Average selling prices (Rs)Automotive 475,978 409,991 478,176 16.1 (0.5) 476,443 394,813 20.7 Farm Equipment 525,304 493,333 532,392 6.5 (1.3) 524,372 486,923 7.7

% change




Exhibit 4: M&M standalone numbers were lower than our estimates due to lower automotive margins M&M standalone 3QFY13 results, March fiscal year-ends (Rs mn)

3QFY13 3QFY13E 3QFY12 2QFY13 3QFY13E 3QFY12 2QFY13 9MFY13 9MFY12 % change Volumes (units) 209,263 209,263 187,531 188,412 11.6 11.1 579,827 522,303 11.0 Net average ASPs (Rs/unit) 514,868 517,127 447,015 520,825 (0.4) 15.2 (1.1) 516,613 430,140 20.1 Net sales 107,743 108,216 83,829 98,130 (0.4) 28.5 9.8 299,546 224,664 33.3 Inc/dec in stock 4,133 — (1,011) (4,685) (817) 4,119 (119.8) Raw materials 77,658 81,300 61,343 78,229 (4.5) 26.6 (0.7) 226,504 168,223 34.6 Staff costs 4,982 4,800 4,473 4,743 3.8 11.4 5.0 14,241 12,724 11.9 Other expenses 8,858 9,346 6,772 8,654 (5.2) 30.8 2.4 25,222 19,822 27.2 Total expenses 95,630 95,446 73,600 86,940 0.2 29.9 10.0 265,150 196,650 34.8

EBITDA 12,113 12,769 10,230 11,189 (5.1) 18.4 8.3 34,396 28,014 22.8 Other income 742 500 667 3,229 48.5 11.3 (77.0) 4,570 3,702 23.5

Interest expense 466 475 348 475 (1.9) 33.9 (1.9) 1,401 918 Depreciation expense 1,790 1,785 1,408 1,784 0.3 27.1 0.3 5,122 3,764 36.1 Extraordinary income — — — — — — Extraordinary exp — — — — — — Profit before tax 10,599 11,010 9,140 12,160 (3.7) 16.0 (12.8) 32,443 27,033 20.0

Tax expense 2,238 2,862 2,519 3,142 (21.8) (11.2) (28.8) 7,807 6,989 11.7 Profit after tax 8,362 8,147 6,621 9,018 2.6 26.3 (7.3) 24,636 20,044 22.9 Adj PAT 8,362 8,147 6,621 9,018 2.6 26.3 (7.3) 24,636 20,044 22.9 Raw material (% of net sales) 75.9 75.1 74.4 74.9 75.9 73.0 Staff costs (% of net sales) 4.6 4.4 5.3 4.8 4.8 5.7 Other expenses (% of net sales) 8.2 8.6 8.1 8.8 8.4 8.8 EBITDA margin (% of net sales) 11.2 11.8 12.2 11.4 11.5 12.5 Tax rate (%) 21.1 26.0 27.6 25.8 24.1 25.9 Volumes (units)Passenger Uvs + Verito 74,293 74,293 55,910 67,650 32.9 9.8 203,447 156,547 30.0 Maxximo + Gio + pick ups 44,620 44,620 40,220 43,372 10.9 2.9 127,403 110,730 15.1 UV exports 6,501 6,501 7,587 10,349 (14.3) (37.2) 24,691 20,543 20.2 3 wheelers 19,049 19,049 17,965 17,201 6.0 10.7 50,065 51,114 (2.1) Tractors 64,800 64,800 65,849 49,840 (1.6) 30.0 174,221 183,369 (5.0) Total volumes 209,263 209,263 187,531 188,412 11.6 11.1 579,827 522,303 11.0 Volume mix (%)Passenger Uvs 35.5 35.5 29.8 35.9 35.1 30.0 Maxximo + Gio 21.3 21.3 21.4 23.0 22.0 21.2 UV exports 3.1 3.1 4.0 5.5 4.3 3.9 3 wheelers 9.1 9.1 9.6 9.1 8.6 9.8 Tractors 31.0 31.0 35.1 26.5 30.0 35.1 Total volumes 100.0 100.0 100.0 100.0 100.0 100.0 Segmental break upRevenue break upAutomotive 73,605 74,496 51,152 71,498 (1.2) 43.9 2.9 207,890 134,875 54.1 Farm Equipment 34,040 33,615 32,486 26,534 1.3 4.8 28.3 91,357 89,287 2.3 EBITAutomotive 6,254 6,407 4,179 6,718 (2.4) 49.6 (6.9) 18,499 12,799 44.5 Farm Equipment 5,274 5,042 5,085 3,921 4.6 3.7 34.5 14,019 13,984 0.2 EBIT margin (%)Automotive 8.5 8.6 8.2 9.4 8.9 9.5 Farm Equipment 15.5 15.0 15.7 14.8 15.3 15.7 Average selling prices (Rs)Automotive 509,508 515,677 420,374 515,966 (1.2) 21.2 (1.3) 512,541 397,939 28.8 Farm Equipment 525,304 518,749 493,333 532,392 1.3 6.5 (1.3) 524,374 486,923 7.7

% change




Exhibit 5: Automotive margins declined in the current quarter while farm equipment EBIT margins improved Standalone quarterly segmental performance, March fiscal year-ends, 2011-13YTD (Rs mn)

1QFY11 2QFY11 3QFY11 4QFY11 1QFY12 2QFY12 3QFY12 4QFY12 1QFY13 2QFY13 3QFY13RevenuesAutomotive 28,798 33,239 34,716 39,567 38,579 45,177 51,164 66,137 62,787 71,498 73,605 Farm equipment 22,739 20,850 26,383 27,939 28,615 28,260 32,516 27,611 30,783 26,534 34,040 Other segments 137 348 210 288 205 246 249 196 170 151 144 Less: Inter segment (72) (94) (97) (101) (64) (77) (57) (72) (65) (54) (46) Total 51,601 54,344 61,211 67,692 67,335 73,606 83,871 93,872 93,674 98,130 107,743 EBITAutomotive 3,521 5,199 4,266 4,182 4,139 4,481 4,179 5,759 5,528 6,718 6,254 Farm equipment 3,894 3,561 4,872 4,756 4,574 4,325 5,084 4,342 4,824 3,921 5,274 Other segments 2 28 6 60 21 21 36 31 40 34 12 Total 7,418 8,788 9,143 8,997 8,734 8,827 9,299 10,132 10,392 10,672 11,540 EBIT Margin (%)Automotive 12.2 15.6 12.3 10.6 10.7 9.9 8.2 8.7 8.8 9.4 8.5 Farm equipment 17.1 17.1 18.5 17.0 16.0 15.3 15.6 15.7 15.7 14.8 15.5


Earnings revision

We have cut our tractor volume and utility vehicle volume assumptions by 2-4% in FY2014E, as we expect automotive volume growth to remain muted over the next 12 months due to economic weakness. We have thus cut our EBITDA margin assumptions to factor in lower volumes. We retain our target price of Rs1,000 based on sum-of-the-parts valuation methodology.

Exhibit 6: We have reduced our M&M+MVML EBITDA estimate by 6% in FY2014 due to lower volume assumptions Revised M&M+MVML EPS estimates, March fiscal year-ends, 2013-15E (Rs mn)

New Old % change

2013E 2014E 2014E 2013E 2014E 2014E 2013E 2014E 2014E

Volumes (units) 783,593 867,430 973,865 796,078 900,990 1,007,873 (1.6) (3.7) (3.4)

Net sales 383,512 435,158 498,324 386,144 447,958 511,121 (0.7) (2.9) (2.5)

EBITDA 52,296 56,509 67,615 53,046 59,873 67,725 (1.4) (5.6) (0.2)

EBITDA margin (%) 13.6 13.0 13.6 13.7 13.4 13.3

Profit after tax 35,196 38,123 46,520 35,095 39,746 45,554 0.3 (4.1) 2.1

EPS FD 57.3 62.1 75.8 57.2 64.7 74.2 0.3 (4.1) 2.1

EPS FD (ex subs dividends) 53.6 57.9 71.2 53.4 60.6 69.6 0.3 (4.4) 2.3




Exhibit 7: We value M&M at Rs1,000/share based on SOTP methodology M&M sum-of-the-parts valuation methodology

EPS MultipleValue per

share(Rs/share) (X) (Rs) Comment

M&M standalone + MVML 57.9 13.0 753 Based on 13X 12-month forward EPS less dividend income from subsSubsidiaries 235 Tech Mahindra 79 Based on KIE target price price of Rs1,000/shareMahindra Holidays 30 Based on current price of Rs282/shareM&M Financial Services Ltd 77 Based on current price price of Rs1,065/shareMahindra Lifespace Developers Ltd 11 Based on current market price of Rs 397/shareMahindra Forgings 3 Based on current price of Rs57/shareSsangyong Motors 34 Based on investment made by M&M in the firm of 463 mn dollarsSOTP-based value 988 Target price 1,000

Note(1) The subsidiaries have been valued at a holding company discount of 20%.


Exhibit 8: We expect a 11% yoy growth in volumes in FY2013E Volume assumptions, March fiscal year-ends, 2010-15E (units)

2010 2011 2012 2013E 2014E 2015ESales volume (units)Utility Vehicles - domestic 201,489 230,110 261,440 282,355 304,944 350,685XUV500 — — 14,253 48,000 52,800 58,080Quanto — — — 17,000 30,000 33,000Utility Vehicles - exports 10,567 19,042 29,176 32,094 35,303 39,539Utility vehicles 212,056 249,152 304,869 379,449 423,047 481,304Maxximo + Gio 12,639 44,683 79,337 89,651 103,098 118,5633-wheelers 57,424 62,142 67,440 67,440 70,812 76,477Verito — — 17,776 18,665 30,665 33,731Auto division 282,119 355,977 469,422 555,204 627,622 710,076Tractors 174,634 213,653 235,452 228,388 239,808 263,789Total vehicles 456,753 569,630 704,874 783,593 867,430 973,865Yoy growth (%)Utility Vehicles - domestic 31.1 14.2 13.6 8.0 8.0 15.0XUV500 — — — 236.8 10.0 10.0Quanto — — — — 76.5 10.0Utility Vehicles - exports 24.3 80.2 53.2 10.0 10.0 12.0Utility vehicles 30.8 17.5 22.4 24.5 11.5 13.8Maxximo + Gio — 253.5 77.6 13.0 15.0 15.03-wheelers 28.9 8.2 8.5 — 5.0 8.0Verito — — — 5.0 64.3 10.0Auto division 36.5 26.2 31.9 18.3 13.0 13.1Tractors 83.2 22.3 10.2 (3.0) 5.0 10.0Total vehicles 51.2 24.7 23.7 11.2 10.7 12.3




Exhibit 9: We estimate earnings to grow at 12% CAGR during 2013-15E M&M standalone profit and loss, balance sheet and cash flow statement, March fiscal year-ends, 2010-15E (Rs mn)

2010 2011 2012 2013E 2014E 2015EProfit model (Rs mn)Net sales 186,021 234,937 319,529 401,621 454,498 520,081 EBITDA 29,552 34,655 37,907 47,014 51,083 59,322 Other income 1,994 3,095 3,366 3,728 3,983 4,223 Interest (278) 503 (536) (303) 191 580 Depreciation (3,708) (4,139) (5,761) (7,000) (8,577) (9,792) Profit before tax 27,560 34,114 34,976 43,438 46,680 54,333 Current tax (7,493) (7,617) (5,382) (10,642) (11,203) (13,040) Deferred tax (97) (958) (1,888) — — — Net profit 20,878 26,714 28,789 32,796 35,477 41,293 Adjusted net profit 20,878 25,619 27,706 32,796 35,477 41,293 Adjusted earnings per share (Rs) 33.9 41.7 45.1 53.4 57.8 67.3 Adjusted earnings per share ex subs dividends (Rs) 32.5 39.7 42.6 49.7 53.6 62.7 Balance sheet (Rs mn)Equity 80,671 106,678 126,982 148,590 171,965 199,171 Total Borrowings 28,802 24,053 35,808 33,425 25,687 15,687 Current liabilities 52,000 67,676 76,330 92,451 101,117 113,213 Total liabilities 161,473 198,406 239,120 274,466 298,769 328,071 Net fixed assets 37,027 43,719 50,808 63,808 70,231 75,439 Investments 63,980 93,253 103,105 112,105 120,105 128,105 Cash 17,432 6,146 11,884 10,373 8,520 10,652 Other current assets 42,992 55,288 73,323 88,181 99,913 113,875 Miscellaneous expenditure 41 — — — — — Total assets 161,473 198,406 239,120 274,466 298,769 328,071 Free cash flow (Rs mn)Operating cash flow excl. working capital 23,409 27,724 32,192 36,372 39,880 46,282 Working capital changes (45) 2,074 (4,843) 1,263 (3,066) (1,866) Capital expenditure (9,607) (12,070) (13,404) (20,000) (15,000) (15,000) Free cash flow 13,758 17,728 13,945 17,635 21,814 29,416 RatiosEBITDA margin (%) 15.9 14.8 11.9 11.7 11.2 11.4 PAT margin (%) 11.2 11.4 9.0 8.2 7.8 7.9 Debt/equity (X) 0.4 0.2 0.3 0.2 0.1 0.1 Net debt/equity (X) 0.1 0.2 0.2 0.2 0.1 0.0 Book Value (Rs/share) 131.4 168.0 198.2 233.4 271.5 315.8 RoAE (%) 30.5 28.2 24.6 24.7 22.9 22.9 RoACE (%) 19.2 19.6 16.9 17.8 17.1 18.2




Exhibit 10: MVML profit to rise sharply as production at Chakan plant increases M&M + MVML profit and loss statement, March fiscal year-ends, 2012-15E (Rs mn)

2012 2013E 2014E 2015EVolumes 704,874 783,593 867,430 973,865 Avg realization 489,898 548,686 562,403 573,651 Gross sales 345,317 429,947 487,845 558,659 Excise duty 31,506 46,434 52,687 60,335 Net sales 313,811 383,512 435,158 498,324 Raw materials 223,947 274,211 314,184 357,796 Staff costs 17,946 20,638 23,734 27,294 Other expenses 30,306 36,367 40,731 45,618 Total expenses 272,199 331,216 378,649 430,709 EBITDA 41,613 52,296 56,509 67,615 Other income 4,735 5,445 6,099 6,831 Interest expense 2,874 3,000 2,600 2,100 Depreciation 6,699 7,938 9,514 10,729 Extraordinary income 1,083 — — — Profit before tax 37,858 46,804 50,494 61,616 Tax expenses 7,887 11,607 12,371 15,096 Profit after tax 29,970 35,196 38,123 46,520 Adj profit before tax 28,888 35,196 38,123 46,520 EPS FD 47 57 62 76 EPS FD ex subs dividends 44 54 58 71 Ratios (%)EBITDA margin (%) 13.3 13.6 13.0 13.6 Raw material cost as % of sales 71 72 72 72 Staff cost as % of sales 5.7 5.4 5.5 5.5 Other expenses as % of sales 9.7 9.5 9.4 9.2 Excise duty (% of sales) 9.1 10.8 10.8 10.8 Tax rate (%) 21 25 25 25 MVML profit 1,181 2,400 2,646 5,227 MVML profit/share 1.9 3.9 4.3 8.5



3QFY13 standalone results: Lower than expected due to high costs and decline in premiums

Hindalco reported 3QFY13 EBITDA of Rs5.8 bn (-18.6% yoy, +13% qoq), lower than our estimate of Rs7.2 bn. Performance was impacted by (a) a sequential decline in aluminum ingot premiums; our interaction indicates lower realized physical premiums of US$30-40/ton (as opposed to stronger premiums reported by companies such as Alcoa) and (b) higher-than-expected aluminum production cost due to high raw material prices; aluminum production costs in 3QFY13 were US$1,825/ton (down US$50/ ton qoq). Aluminum volumes rose 8.6% qoq to 139 kt with a ramp-up at the smelters after operational disturbances in 2QFY13. Hindalco reported aluminum EBIT of Rs2.1 bn in 3QFY13 against Rs1.7 bn in 2QFY13.

Copper EBIT improves on higher volumes; net income includes one-off write-back of Rs1.4 bn

Copper EBIT was Rs2.3 bn (+4.3% yoy, +8% qoq), helped by higher cathode volumes of 84 kt (+8.3% qoq) but partially pulled down by a fall in acid realizations. Net income increased 20.8% sequentially to Rs4.3 bn, aided by a one-off write-back of Rs1.4 bn. We note that Hindalco’s interest cost increased to Rs1.7 bn (Rs0.3 bn in 2QFY13) due to reallocation of project-related debt to general corporate debt after the financial closure of Aditya in September 2012. Accordingly, treasury income increased from Rs1.3 bn in 2QFY13 to Rs1.7 bn in 3QFY13.

Mahan and Utkal to be commissioned in 1QFY14, trial runs commence at Hirakud FRP

The first leg of commissioning of the Mahan and Utkal projects has begun, and they will start full commissioning from 1QFY14. Hindalco has initiated trial runs for the Hirakud FRP facility. We highlight that Mahan will be commissioned in stages and volumes will increase incrementally over FY2014-16E. Utkal may not operate at higher capacities initially due to delayed commissioning of the conveyor-belt system and limited truck transport.

Low incremental EBITDA, higher depreciation and interest charge to affect performance

In the absence of stage-II clearance for the Mahan coal block and staged commissioning, additional EBITDA generation from the Mahan smelter in FY2014-15 is likely to be low. Additional depreciation and interest charges will lead to a decline in FY2014E-15E EPS. We will incorporate changes in our model after Novelis’ results. We maintain our SELL rating.

Hindalco Industries (HNDL)

Metals & Mining

Aluminum disappoints. Hindalco reported lower-than-estimated standalone EBITDA of Rs5.8 bn (-18.6% yoy) in 3QFY13. Decline in physical premiums and high production costs affected the aluminum business. Volumes increased in the aluminum and copper businesses and aided copper EBIT despite a decline in acid prices. Hindalco has begun to commission major green-field projects but we expect low profitability in initial years due to its use of non-captive coal and high fixed costs. We maintain our SELL rating.

Hindalco IndustriesStock data Forecasts/Valuations 2013 2014E 2015E

52-week range (Rs) (high,low) EPS (Rs) 14.7 14.0 16.7Market Cap. (Rs bn) 210.1 EPS growth (%) (16.9) (5.1) 19.6

Shareholding pattern (%) P/E (X) 7.4 7.8 6.6Promoters 32.1 Sales (Rs bn) 852.9 919.8 1,055.8FIIs 35.5 Net profits (Rs bn) 28.2 26.8 32.0MFs 2.3 EBITDA (Rs bn) 79.9 83.9 115.8

Price performance (%) 1M 3M 12M EV/EBITDA (X) 7.9 8.2 6.0Absolute (17.5) (3.6) (31.8) ROE (%) 8.5 7.5 8.4Rel. to BSE-30 (16.4) (6.8) (38.0) Div. Yield (%) 1.4 1.4 1.4


165-100

SELL

FEBRUARY 11, 2013

RESULT

Coverage view: Cautious

Price (Rs): 110


BSE-30: 19,485

Metals & Mining Hindalco Industries


Hindalco’s performance is contingent, in our view, on stage-II forest clearance for the Mahan coal block and timely approvals for Talabira II and III coal blocks for the Aditya aluminum smelter. Without captive coal, EBITDA generation from these projects will be minimal at spot aluminum prices.

Commissioning of Mahan smelter may not aid FY2014 and FY2015 earnings

The Mahan smelter will be commissioned in stages over FY2014-15. Out of the 359 kt capacity at Mahan, aluminum production in FY2014 could be100-125kt with an additional ramp-up expected in FY2015 and FY2016. Lack of captive coal (in the absence of stage II clearance for Mahan coal block) will lead to higher costs in the initial phases. We expect costs (without captive coal) at Mahan smelter to be higher than current operational costs of US$1,825/ton by US$200-250/ton. As such, the incremental EBITDA from Mahan is expected to be minimal at Rs1.5-2.0 bn at spot aluminum LME prices. However, additional depreciation and interest charges (75% debt financed) of the Rs107 bn project cost may lead to negative earning contribution initially.

Utkal Alumina can be a value driver, full ramp-up contingent on conveyor

Utkal Alumina’s cash alumina costs are expected to be US$170-180/ton and a full ramp-up to 1.5 mtpa capacity can be a good value driver. At spot global prices of US$330/ton, the project has EBITDA potential of US$200-225 mn at full capacity. However, initially ore will be transported by truck as a conveyor system, based on gravitational pull is under construction. This may lead to lower production volumes in FY2014. Operationally, the conveyor system is superior as it ensures continuity against batch delivery by trucks and can handle higher volumes. The conveyor system is also cost-efficient and will lead to savings of US$4-5/ton of alumina.

FY2014 capex Rs70 bn, mainly related to Aditya

The company expects to incur capital expenditure of Rs70 bn in FY2014, mainly related to the Aditya smelter project and some leftovers from the Mahan smelter and Utkal Alumina. Hindalco has spent Rs95 bn on the Mahan project (Rs107 bn overall capex), Rs50 bn on Utkal Alumina (Rs72 bn total capex) and Rs70 bn in relation to the Aditya project (Rs132 bn total capex). We highlight that the Aditya Aluminium smelter cost is 30% higher than that of Mahan despite the same smelter and technology configuration being used.

Hindalco Industries Metals & Mining


Exhibit 1: Interim results of Hindalco (standalone), March fiscal year-ends (Rs mn)

(% chg.)3QFY13 3QFY13E 3QFY12 2QFY13 3QFY13E 3QFY12 2QFY13

Net sales 68,717 68,318 66,470 61,635 0.6 3.4 11.5 Total expenditure (62,897) (61,115) (59,321) (56,482) 2.9 6.0 11.4 Stock adjustment (3,048) - 3,799 6,203 — (180.2) (149.1) Raw materials (43,523) (43,992) (47,766) (46,188) (1.1) (8.9) (5.8) Employee cost (3,082) (3,262) (3,040) (3,129) (5.5) 1.4 (1.5) Power and fuel cost (7,549) (7,980) (7,385) (8,065) (5.4) 2.2 (6.4) Other costs (5,695) (5,880) (4,929) (5,304) (3.1) 15.6 7.4 EBITDA 5,821 7,204 7,149 5,153 (19.2) (18.6) 13.0 Other income 3,181 1,451 901 1,324 119.3 253.2 140.3 Interest (1,690) (798) (793) (279) 111.8 113.0 506.5 Depreciation (1,884) (1,747) (1,747) (1,728) 7.8 7.8 9.0 Pretax profits 5,428 6,109 5,509 4,471 (11.1) (1.5) 21.4 Extraordinaries — — — —Tax (1,093) (1,205) (1,002) (882) (9.3) 9.0 23.9 Net income 4,335 4,904 4,507 3,589 (11.6) (3.8) 20.8 RatiosETR (%) 20.1 19.7 18.2 19.7 EPS (Rs) 2.3 2.6 2.4 1.9 Operational detailsAlumina production (tonnes) 326,000 340,000 343,086 328,000 (4.1) (5.0) (0.6) Aluminium metal production (tonnes) 139,000 134,798 146,374 128,000 3.1 (5.0) 8.6 Copper cathode production (tonnes) 84,000 89,648 87,748 77,548 (6.3) (4.3) 8.3 Average Realizations (US$/tonne)Aluminium 2,943 2,899 2,997 2,984 1.5 (1.8) (1.4) Copper 10,246 9,713 9,878 9,512 5.5 3.7 7.7 EBITDA (US$/tonne)Aluminium 469 620 594 427 (24.3) (21.0) 10.0 Segmental revenue (Rs mn)Aluminium 22,155 21,163 22,362 21,049 4.7 (0.9) 5.3 Copper 46,608 47,156 44,182 40,657 (1.2) 5.5 14.6 Segmental PBIT (Rs mn)Aluminium 2,064 3,367 3,099 1,698 (38.7) (33.4) 21.6 Copper 2,252 2,089 2,159 2,085 7.8 4.3 8.0 Segmental PBIT (%)Aluminium 9.3 15.9 13.9 8.1 Copper 4.8 4.4 4.9 5.1


Exhibit 2: Hindalco Industries, valuation, 12-month forward basis (Rs mn)

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

Hindalco EBITDA 25,133 5.5 138,232 72 Novelis EBITDA 56,426 6.0 338,555 177 ABML EBITDA (proportionate stake) 1,488 5.0 7,442 4 Total Enterprise Value 484,229 253 Less: Net debt (adjusted for CWIP) 264,138 264,138 138 Arrived market capitalization 251,371 115 Target price (Rs) 115

Value




Exhibit 3: Hindalco Industries, key assumptions, March fiscal-year ends, FY2008-2014E (Rs mn)

2009 2010 2011 2012 2013E 2014E 2015EAluminiumHindalcoAluminium price (US$/ton) 2,234 1,868 2,257 2,316 2,000 2,150 2,400 Metal sales volume (tons) 521,069 555,066 534,400 574,310 546,484 641,900 825,300 Blended realization (Rs/ton) 127,384 110,516 128,533 135,275 147,188 150,324 157,341 Cost/ton (US$/ton)- blended (1) 1,983 1,717 2,119 2,304 2,365 2,527 2,318 EBITDA/ton (US$/ton) 937 715 834 696 527 487 879 Aluminium EBITDA (Rs mn) 22,428 18,859 20,314 19,151 15,481 16,503 37,905 NovelisAverage realization (US$/ton) 3,458 3,039 3,415 3,710 3,422 3,607 3,886 Conversion premium (US$/ton) 1,224 1,171 1,158 1,394 1,422 1,457 1,486 Shipments ('000 tons) 2,943 2,854 3,097 2,982 2,967 3,115 3,334 EBITDA/ton (US$/ton) 165 264 346 353 350 345 345 EBITDA (US$ mn)- (2) 566 1,085 935 893 1,038 1,074 1,149 EBITDA (Rs mn) 25,997 51,538 42,636 42,775 55,798 56,635 59,987 CopperPrice (US$/ton) 5,885 6,112 8,300 8,485 7,450 7,150 7,150 Copper cathode volumes (tons) 153,236 185,213 207,640 183,501 189,106 214,106 214,106 Copper rods volumes (tons) 146,323 146,164 142,167 145,034 149,385 149,385 149,385 TCRC margin (cents/lb) 15 21 11 13 12 13 14 EBITDA (Rs mn) 5,476 8,256 7,753 9,741 7,652 8,157 8,612


Hindalco Industries Metals & Mining


Exhibit 4:Hindalco (standalone), profit model, balance sheet and cash flow model, March fiscal year-ends, 2009-2015E (Rs mn)

2009 2010 2011 2012 2013E 2014E 2015EProfit model (Rs mn)Net sales 182,197 195,363 238,592 265,968 284,388 305,457 357,932

EBITDA 30,359 29,499 31,854 31,048 24,125 25,469 54,219 Other income 6,367 2,599 3,168 6,158 5,802 3,997 4,395

Interest (3,369) (2,780) (2,200) (2,936) (3,191) (3,920) (19,618) Depreciation (6,453) (6,672) (6,875) (6,900) (6,874) (8,854) (15,849)

Profit before tax 26,903 22,646 25,947 27,370 19,862 16,693 23,147 Extraordinaries 1,508 1,132 108 — — — —Taxes (6,109) (4,621) (4,687) (4,998) (3,972) (3,339) (4,629)

Reported net income 22,303 19,156 21,369 22,372 15,890 13,354 18,517 Adjusted net income 20,794 18,025 21,261 22,372 15,890 13,354 18,517 Fully diluted EPS (Rs) 13.1 10.0 11.2 11.7 8.3 7.0 9.7 Balance sheet (Rs mn)Equity 237,583 279,110 297,000 320,325 332,765 342,669 357,736 Deferred tax liability 14,107 13,664 12,875 12,246 13,401 13,902 14,596

Total Borrowings 83,243 63,569 72,715 145,734 230,734 320,734 380,734 Current liabilities 26,721 60,134 76,979 78,172 83,349 84,317 85,386

Total liabilities 361,653 416,477 459,569 556,476 660,250 761,622 838,453 Net fixed assets 78,869 77,348 75,843 71,504 76,132 291,968 415,070 Capital work in progress 13,896 37,028 94,641 162,567 247,207 120,766 45,880

Goodwill — — — — — — —Investments 191,489 214,808 182,468 180,871 180,871 180,871 180,871

Cash 8,437 1,402 2,334 7,223 5,950 8,174 19,195 Other current assets 68,962 85,891 104,284 134,311 150,090 159,843 177,438

Miscellaneous expenditure — — — — — — —

Total assets 361,653 416,477 459,569 556,476 660,250 761,622 838,453 Free cash flow (Rs mn)Operating cash flow excl. working capital 19,360 18,846 18,397 16,805 1,456 (2,313) 18,589 Working capital changes 3,777 (8,090) (1,913) (5,774) (6,660) (8,786) (16,525)

Capital expenditure (113,736) (34,353) (59,977) (76,779) (83,422) (77,225) (51,988)

Free cash flow (90,598) (23,596) (43,494) (65,748) (88,625) (88,323) (49,924) RatiosEBITDA margin (%) 16.7 15.1 13.4 11.7 8.5 8.3 15.1

EBIT margin (%) 13.1 11.7 10.5 9.1 6.1 5.4 10.7 Debt/equity (X) 0.4 0.2 0.2 0.5 0.7 0.9 1.1

Net debt/equity (X) 0.1 0.0 0.1 0.3 0.5 0.8 0.9 Net debt/EBITDA (X) 1.1 0.2 0.7 3.0 7.4 10.4 5.8

RoAE (%) 10.1 7.0 7.4 7.2 4.9 4.0 5.3

RoACE (%) 5.7 5.0 5.4 4.3 2.4 2.0 4.3




Exhibit 5: Hindalco (consolidated), profit model, balance sheet and cash flow model, March fiscal year-ends, 2008-2013E (Rs mn)

2009 2010 2011 2012 2013E 2014E 2015EProfit model (Rs mn)Net sales 656,252 607,221 720,779 808,214 852,944 919,807 1,055,818

EBITDA 53,584 97,458 80,017 81,894 79,925 83,895 115,763 Other income 6,878 3,227 4,309 7,831 6,357 4,828 5,400

Interest (12,323) (11,041) (18,393) (17,580) (21,106) (21,518) (37,955)

Depreciation (30,378) (27,836) (27,500) (28,696) (27,979) (32,221) (40,975)

Profit before tax 17,761 61,808 38,432 43,449 37,198 34,985 42,233 Extraordinaries (22,319) 1,030 100 — — — —

Taxes 8,046 (19,319) (9,739) (7,862) (8,649) (8,782) (10,864)

Profit after tax 3,488 43,519 28,793 35,587 28,549 26,203 31,369 Minority interest 1,718 (4,237) (3,659) (2,113) (817) 94 167

Share in profit/(loss) of associates (353) (27) (571) 496 496 496 496

Reported net income 4,853 39,255 24,564 33,969 28,228 26,792 32,032 Adjusted net income 19,791 38,225 24,463 33,969 28,228 26,792 32,032 Fully diluted EPS (Rs) 11.6 20.0 12.8 17.7 14.7 14.0 16.7 Balance sheet (Rs mn)Equity 158,536 215,446 290,233 319,113 343,891 367,233 395,815

Deferred tax liability 27,571 39,382 37,596 36,050 36,305 36,806 37,501

Total Borrowings 283,098 239,987 276,920 410,165 509,266 594,927 652,639

Current liabilities 162,602 180,166 216,840 231,604 251,873 265,363 292,803

Minority interest 12,866 17,372 22,169 17,091 17,908 17,814 17,647

Total liabilities 644,672 692,353 843,758 1,014,023 1,159,244 1,282,143 1,396,404 Net fixed assets 275,249 290,006 234,640 242,338 313,492 513,949 620,737

Capital work in progress 29,495 58,008 131,308 227,981 247,207 120,766 45,880

Goodwill 42,908 - 89,414 110,665 110,665 110,665 110,665

Investments 104,308 112,455 108,549 105,510 106,006 106,501 106,997

Cash 21,918 21,954 25,563 32,960 55,785 85,341 135,558

Other current assets 170,791 209,930 254,285 294,569 326,089 344,922 376,567

Miscellaneous expenditure 4 — — — — — —

Total assets 644,672 692,353 843,758 1,014,023 1,159,244 1,282,143 1,396,404 Free cash flow (Rs mn)Operating cash flow excl. working capital (7,156) 39,333 44,082 45,873 50,426 54,096 67,638

Working capital changes 29,309 (5,984) (7,031) (9,322) (11,251) (5,343) (4,206)

Capital expenditure (28,898) (41,708) (77,171) (143,641) (118,359) (106,237) (72,877)

Free cash flow (6,744) (8,359) (40,120) (107,090) (79,184) (57,484) (9,444) RatiosEBITDA margin (%) 8.2 16.0 11.1 10.1 9.4 9.1 11.0

EBIT margin (%) 3.5 11.5 7.3 6.6 6.1 5.6 7.1

Debt/equity (X) 1.8 1.1 1.0 1.3 1.5 1.6 1.6

Net debt/equity (X) 1.4 0.7 0.7 1.0 1.2 1.2 1.2

Net debt/EBITDA (X) 4.1 1.6 2.4 3.9 5.0 5.4 4.0

RoAE (%) 11.9 20.4 9.7 11.1 8.5 7.5 8.4

RoACE (%) 5.4 10.4 7.7 6.5 5.1 4.4 5.9



Change in procurement policy in TN impacts volumes

UBBL reported 3QFY13 revenues at Rs8.4 bn (-2.3% qoq); down 12.7% yoy on reported basis. 3QFY13 results are not comparable yoy as 3QFY12 numbers include 9M results of four entities which have been merged with the company. Adjusting for that, revenue was up in mid-single digit (6-7%). On a like to like basis, 3QFY13 EBITDA at Rs845 mn was flat yoy (reported 3QFY13 EBITDA is down 8% yoy). The company reported 3QFY13 PAT at Rs335 mn after a tax credit of Rs95 mn.

3QFY13 volumes at 29 mn cases were flat yoy. Volumes continue to be impacted due to change in procurement norms by state beverage corporation of Tamil Nadu. The state has started procuring beer from various companies through quota (based on capacity in the state) based allocations rather than demand in the market. Tamil Nadu is the second largest beer market in India after Andhra Pradesh (~18% of all India volumes). UBBL has been allocated 30% of state volume quota versus 65% market share prior to change in norms. Also, volume growth in West Bengal was flat as there has been a disruption in distribution on account of change in Government which would take some time to normalize. With the exception of these two markets, volume growth has been as per usual trends (+12-15% yoy) and the company has maintained market share.

EBITDA margins impacted by adverse mix

As per the management, 3QFY13 EBITDA is flat yoy on account of pressure on margins on adverse mix. Andhra Pradesh, which is the largest and least profitable market in India, grew 20% yoy in volume terms, thereby impacting margins. The company has not taken a price increase in Andhra in the past five years which has impacted profits in the state. The recent hike approved by the State Government is only on MRP (higher distribution margins for state beverage corporation) and has not increased realizations for companies.

Reduce estimates; retain SELL with an unchanged target price of Rs700

We have reduced our estimates. We retain SELL on expensive valuations with an unchanged target price of Rs700 (DCF-based).

United Breweries (UBBL)

Consumer products

Impacted by change in policy in Tamil Nadu. UBBL’s 3QFY13 results were below estimates as volume growth (flat yoy) continues to be impacted by change in Government procurement policy in Tamil Nadu to the one based on quotas rather than demand. EBITDA was flat yoy (like to like); margins were impacted by adverse mix as AP (largest; least profitable market) volumes grew 20% yoy. We have reduced our estimates. Retain SELL with an unchanged DCF-based target price of Rs700.

United BreweriesStock data Forecasts/Valuations 2013 2014E 2015E





1,024-429

SELL

FEBRUARY 11, 2013

RESULT


Price (Rs): 748


BSE-30: 19,485

Consumer products United Breweries


Exhibit 1: Sales impacted by change in procurement norms by Tamil Nadu Government – volumes are down 50% yoy in TN Interim results of United Breweries, March fiscal year-ends (Rs mn)

3QFY13 2QFY13 3QFY12 yoy qoq FY2013 FY2012 Chng. (%)Total Income 8,387 8,580 9,611 (12.7) (2.3) 29,001 26,248 10.5Total Expenditure (7,542) (7,478) (8,865) (14.9) 0.9 (25,166) (23,263) 8.2Raw materia ls (3,462) (3,394) (4,412) (12,182) (12,080) Employee expense (562) (554) (552) (1,595) (1,349) Advertising/promotion (1,494) (1,501) (1,581) (4,814) (4,104) Se lling and distribution (977) (985) (1,386) (3,376) (2,862) Other expenditure (1,047) (1,044) (933) (3,198) (2,867) EBITDA 845 1,102 746 13.2 (23.4) 3,836 2,986 28.5EBITDA (%) 10.1 12.8 7.8 13 11 Depreciation (419) (434) (532) (1,230) (1,003) Interest (214) (169) (293) (570) (721) PBT 211 499 (79) (367.5) (57.7) 2,036 1,262 61.3Other income 29 13 508 192 525 Exceptional items 0 0 0 - - Tax expense 95 (170) (143) (565) (596) PAT 335 342 286 1664 1,192Margins (as % of sales)RM 41.3 39.6 45.9 42.0 46.0Employee cost 6.7 6.5 5.7 5.5 5.1Advertising/promotion 17.8 17.5 16.5 16.6 15.6Selling and distribution 11.6 11.5 14.4 11.6 10.9Other expenditure 12.5 12.2 9.7 11.0 10.9

Change (%) 9 months


Exhibit 2: Volumes impacted on change in procurement policy in Tamil Nadu Trend in quarterly volumes for UBBL, March fiscal year-ends (mn cases)

39

29.4 2935.6

45

30 29

0

10

20

30

40

50

1QFY

12

2QFY

12

3QFY

12

4QFY

12

1QFY

13

2QFY

13

3QFY

13


United Breweries Consumer products


Exhibit 3: Margins impacted by lower volumes and adverse mix Trend in EBITDA margins, UBBL, March fiscal year-ends (%)

Note: 3QFY12 numbers are not comparable

15.1

7.69.6

11.815.4

12.810.1

0

5

10

15

20

1QFY

12

2QFY

12

3QFY

12

4QFY

12

1QFY

13

2QFY

13

3QFY

13


Exhibit 4: Margins impacted by lower volumes and adverse mix Trend in EBITDA margins, UBBL, March fiscal year-ends (Rs per case)

37

19

32

4237

2932

0

10

20

30

40

50

1QFY

12

2QFY

12

3QFY

12

4QFY

12

1QFY

13

2QFY

13

3QFY

13


Exhibit 5: Company has been able to take commensurate price increase excluding Andhra Pradesh Trend in realizations for UBBL, March fiscal year-ends (Rs per case)


244 249

331

268 272 286 289

100

150

200

250

300

350

1QFY

12

2QFY

12

3QFY

12

4QFY

12

1QFY

13

2QFY

13

3QFY

13


Exhibit 6: RM and packaging cost is under control Trend in RM and packaging costs for UBBL, March fiscal year-ends (Rs per case)

121124

135

111

118113

119

100105110115120125130135140

1QFY

12

2QFY

12

3QFY

12

4QFY

12

1QFY

13

2QFY

13

3QFY

13


Consumer products United Breweries


Exhibit 7: Trend in other expenses for UBBL, March fiscal year-ends (Rs per case)


87106

169

126112

136 141

507090

110130150170190

1QFY

12

2QFY

12

3QFY

12

4QFY

12

1QFY

13

2QFY

13

3QFY

13


Exhibit 8: Trend in interest + depreciation for UBBL, March fiscal year-ends (Rs per case)

1215

28

21

13

20 22

0

5

1015

20

25

30

1QFY

12

2QFY

12

3QFY

12

4QFY

12

1QFY

13

2QFY

13

3QFY

13


Other highlights:

The company does not expect its share of market to go lower than 30% (prevalent right now) in Tamil Nadu. As per the management, it has lost market share to local players (3 breweries). One of these breweries has a tie-up with SAB Miller which would have increased its market share marginally.

The company has got a 20% price increase in Tamil Nadu. Retail price of beer has increased from Rs75 per bottle (650 ml) to Rs100 per bottle.

Volumes in Maharashtra, Karnataka and Andhra are up 15%, 10% and 20% yoy, respectively.

Gross debt as of 3QFY13 is Rs10 bn and cash is Rs650 mn.

As per the management, none of the banks or creditors of UB holdings and Mr Mallya can stake any claim over the ‘Kingfisher’ brand for use in the beverage (beer and water) segment. The right to use ‘Kingfisher’ brand for product segment of beverages (beer+water) rests with UBBL in perpetuity and there is no royalty which is payable to UB Holdings for the same.

Change in estimates

Exhibit 9: Change in estimates for UBBL, March fiscal year-ends (Rs mn)

New Old Change (%) New Old Change (%) New Old Change (%)

Revenues (Rs 42,269 43,864 (4) 51,040 52,966 (4) 61,631 63,957 (4)

EBITDA (Rs m 5,391 5,834 (8) 7,640 7,999 (5) 9,873 9,900 (0)

PAT (Rs mn) 2,296 2,336 (2) 3,401 3,642 (7) 4,713 4,732 (0)

EPS (Rs) 8.7 8.8 (1) 13 13.8 (7) 18 17.9 (0)

2013E 2014E 2015E


United Breweries Consumer products


Exhibit 10: Summary financials: United Breweries Profit and loss account, cash flow statement and balance sheet for United Breweries, March fiscal year-ends (Rs mn)

2009 2010 2011 2012 2013E 2014E 2015EProfit model (Rs mn)Income 19,295 22,755 30,598 36,252 42,269 51,040 61,631EBITDA 2,271 2,342 3,903 4,125 5,391 7,640 9,873Other income 536 831 450 730 328 335 95Interest (1,054) (665) (779) (989) (805) (856) (657)Depreciation (896) (1,040) (1,308) (1,489) (1,633) (2,042) (2,276)Profit before tax 856 1,468 2,266 2,377 3,281 5,077 7,034Tax expense (400) (572) (791) (914) (984) (1,675) (2,321)Exceptional items 0 0 0 (196) 0 0 0Reported PAT 456 896 1,475 1,268 2,296 3,401 4,713EPS 1.7 3.4 5.6 4.8 8.7 12.9 17.8Balance sheet (Rs mn)Equity 10,624 11,333 12,954 13,658 14,679 17,290 20,908Total borrowings 7,713 7,972 8,684 11,057 9,057 7,257 5,257Deferred tax liability/minority interest 187 248 300 525 525 525 525Current liabilities and provisions 3,288 5,055 6,114 7,702 8,747 10,589 12,821Total liabilites 21,812 24,607 28,052 32,941 33,008 35,661 39,510Net fixed assets 8,817 9,287 11,627 14,272 15,639 16,596 16,320Investments and goodwill 2,767 2,357 1,868 243 243 243 243Cash 511 927 1,291 1,774 793 763 1,407Other current assets 9,716 12,037 13,266 16,653 16,334 18,060 21,541Total assets 21,812 24,607 28,052 32,941 33,008 35,661 39,511Free cash flow (Rs mn)Operating cash 2,269 2,264 3,498 3,840 4,406 5,965 7,551Working capital changes (3,233) (531) 2,213 (311) 1,364 117 (1,251)Capital expenditure (1,671) (1,513) (4,389) (3,806) (3,000) (3,000) (2,000)Free cash flow (2,634) 220 1,323 (277) 2,770 3,082 4,301RatiosEBITDA margin (%) 11.8 10.3 12.8 11.4 12.8 15.0 16.0Net debt/equity (X) 0.68 0.62 0.57 0.68 0.56 0.38 0.18Book value (Rs/share) 44 47 51 52 56 65 79ROAE (%) 3.2 3.5 9.5 7.4 14.1 19.2 23.7ROACE (%) 12.0 5.0 9.6 7.7 11.3 15.9 20.7



A weak revenue profile, outlook is worrisome; maintain REDUCE

Canara Bank reported another weak quarter with earnings growth declining 19% yoy on the back of higher provisions (25% yoy) and higher operating expenses (18% yoy). 40% of PBT has been contributed by treasury income but the bank has booked most of its gains from its high-duration AFS portfolio in recent quarters. As highlighted in our previous reports, Canara Bank is struggling to grow its loan book (0.3% yoy) as the target segment is skewed to corporate loans (>60% of loans) and is highly dependent on wholesale funds, which it is trying to correct.

We maintain our REDUCE rating and cut FY2014/15 estimates by 8-14%. We are valuing the bank at `415 (from `420 earlier) which implies 0.8X book and 5X EPS. Return ratios are weak (<13-15% RoE and earnings growth primarily on a weak base of the past few years). We are giving the benefit of NIM expansion (lower than previous estimates) which would drive earnings growth for FY2013-15E, but we are extremely concerned that the bank would refocus on growth under the new management. We are extremely worried on the quality of these exposures and the price at which they are underwritten.

Loan impairment ratios remain high; slippages led by SME and retail

Canara Bank continued its disappointing performance on loan impairment ratios. Slippages remained high at 2.4% (note that the upgradation of accounts that slipped in 1HFY13 is netted off with current slippages which implies that the gross slippages are higher than reported) and fresh restructuring at 1.6% of loans. The bulk of slippages emerged from the SME and retail portfolio for the quarter with a marginally better performance from the large corporate portfolio.

Gross NPLs are currently at 2.8% of loans while net NPLs are at 2.4% of loans. Provision coverage ratio including technical write-offs declined 150 bps qoq to 61% (16% excluding write-offs). We are building slippages at ~2.7% and loan-loss provisions at 1-1.3% for FY2012-14E to factor the possible regulation on dynamic provisions, higher restructuring, improvement in coverage ratio and normal slippages. Aggressive growth in loans as projected by the management in this environment could result in weak underwriting—a key risk in our view.

Canara Bank (CBK)

Banks/Financial Institutions

Growth in all the wrong areas. Strong growth in operating expenses (18% yoy) and provisions (25% yoy) on the back of high loan impairment ratios (slippages at 2.4% and fresh restructuring of 1.6%) marked the performance of the current quarter. 40% of PBT was from treasury income. Weak revenue growth is a concern (5% yoy) as loan growth has been slow (0.3% yoy); we expect strong loan growth with the management shifting focus—negative in our view. Consistent deterioration in liability and weak return ratios drive our REDUCE rating (TP at `415 from `420 previously).

Canara BankStock data Forecasts/Valuations 2013 2014E 2015E

52-week range (Rs) (high,low) EPS (Rs) 68.5 70.6 83.1Market Cap. (Rs bn) 197.6 EPS growth (%) (7.5) 3.0 17.7

Shareholding pattern (%) P/E (X) 6.5 6.3 5.4Promoters 67.7 NII (Rs bn) 79.6 92.7 105.5FIIs 12.8 Net profits (Rs bn) 30.3 31.3 36.8MFs 4.5 BVPS 440.4 484.1 540.4

Price performance (%) 1M 3M 12M P/B (X) 1.0 0.9 0.8Absolute (13.0) 0.6 (14.8) ROE (%) 12.7 11.9 12.7Rel. to BSE-30 (11.9) (2.7) (22.6) Div. Yield (%) 2.7 2.7 2.7


566-306

REDUCE

FEBRUARY 11, 2013

RESULT


Price (Rs): 446


BSE-30: 19,485

QUICK NUMBERS

• Earnings declined 19% yoy; NII grew 4% yoy

• Slippages at 2.4%; restructured loans (facility-wise) at 7%

• Maintain REDUCE with TP of `415 (from `420 earlier)

Canara Bank Banks/Financial Institutions


Exhibit 1: Defaults in SME resulted in sharp rise in NPLs qoq March fiscal year-ends, 3QFY12-3QFY13 (` bn)

3QFY12 4QFY12 1QFY13 2QFY13 3QFY13SME 10.6 9.6 11.1 12.8 15.9 Agriculture 7.6 6.7 9.4 8.8 9.8 Other priority segments 3.7 3.0 4.3 4.3 5.0 Medium industries 1.3 2.1 2.5 2.0 3.4 Large enterprises 8.5 12.3 10.9 14.6 16.1 Non-priority segments 8.4 6.6 6.9 13.5 10.7 Total gross NPL 40.0 40.3 45.0 56.1 60.9 Slippages (%) 1.6 2.1 2.6 3.4 2.4 Write-off (%) 0.2 1.3 0.6 0.3 1.1 LLP (%) 0.6 0.9 0.9 0.8 1.3 Net NPL 32.7 33.9 37.6 45.7 51.3 Net NPL (%) 1.5 1.5 1.7 2.1 2.4 Coverage (%, without w/o) 18.3 16.0 16.5 18.5 15.7 Coverage (%, w/o) 67.9 67.6 66.5 63.0 61.6


Restructured loans decline qoq; fresh restructuring at 1.6% of loans

Overall restructured loans declined qoq despite fresh restructuring of 1.6% of loans primarily on the back of higher repayment from the large corporate portfolio (aviation sector). Of the `8.6 bn fresh restructuring during the quarter, two steel accounts accounted for ~45% share. Overall restructured loans are currently at ~7% of loans (facility-wise). Given the higher share of corporate loans, we would retain a cautious outlook.

Exhibit 2: Revised restructured loans are significantly lower than earlier reported estimates March fiscal year-ends, 3QFY11-3QFY13 (` bn)

3QFY11 4QFY11 1QFY12 2QFY12 3QFY12 4QFY12 1QFY13 2QFY13 3QFY13Agriculture 8.5 6.0 6.1 6.1 6.2 2.2 2.3 2.4 2.8

MSME 6.7 7.1 7.7 7.7 7.9 3.4 3.5 3.6 3.7

Housing 5.4 5.3 5.3 5.3 5.4 2.8 2.8 2.7 2.5

Large advances 54.3 49.2 51.8 52.0 61.1 45.5 61.5 64.5 64.7

Others 12.6 13.3 14.1 14.2 15.0 25.1 70.5 75.8 71.3

Total 87.4 80.8 85.0 85.2 95.6 79.0 140.7 148.9 145.0 % of loans 4.6 3.8 4.0 3.9 4.6 3.4 6.2 6.9 6.6


Not much improvement in NIM; sharp improvement unlikely as growth takes precedence

NIM remained flat qoq at 2.4% as reduction in costs of deposits did not come through the quarter. Cost of deposits remained almost stable qoq at 7.8%. We note the liability franchise remains weak with bulk deposits at 27% (down from 29% in 2QFY13 and 44% in FY2012) and CASA ratio at 25% (a marginal improvement over the previous quarter as term deposits declined qoq). We note the improvement in CASA ratio is primarily driven by slower deposit growth (8% yoy with CD ratio) and better traction in savings deposits.

Canara Bank has one of the weakest liability profiles as compared to other large public banks and the focus on growth is not likely to result in sharp improvement as expected earlier.

Banks/Financial Institutions Canara Bank


Exhibit 3: CASA shows a decline on weak CA growth March fiscal year-ends, 2006-3QFY13 (%)

8.8 8.7 8.6 7.7 7.8 8.34.5 3.4 3.9 3.9

24.5 22.8 22.9 22.4 21.3 20.0

19.8 19.9 20.9 21.2

-

7.0

14.0

21.0

28.0

35.0

2006 2007 2008 2009 2010 2011 2012 1QFY13 2QFY13 3QFY13

CA SA


Loan growth flat yoy; expect a stronger performance in the near term

Overall loans grew 1% qoq (flat yoy) as the bank shifted its focus to (1) improving liability profile by shedding wholesale deposits, 27% of deposits (down from 29% in 2QFY13 and 44% in 4QFY12) and (2) reducing the share of loans to large corporate sector (59% as of Dec 2012). Agriculture loans grew 13% yoy, while retail and SME loans declined 15% yoy and 16% yoy respectively.

We are not too positive on the bank’s recent decision to accelerate growth from the current levels. We were a bit excited that the focus to improving liability had gained traction in recent quarters, but the new management has clearly indicated that growth would be its new and the most important agenda—something that we are negative of. We remain cautious of the pricing and quality of impending loan growth.

Exhibit 4: Loan growth has sharply slowed down in recent quarters Loans/deposit growth, March fiscal year-ends, 3QFY11-3QFY13 (%)

(7.0)

-

7.0

14.0

21.0

28.0

35.0

3QFY

11

4QFY

11

1QFY

12

2QFY

12

3QFY

12

4QFY

12

1QFY

13

2QFY

13

3QFY

13

Loan growth Deposit growth


Exhibit 5: Canara Bank has started to increase lending CD ratio, March fiscal year-ends, 3QFY11-3QFY13 (%)

60.0

63.0

66.0

69.0

72.0

75.0

3QFY

11

4QFY

11

1QFY

12

2QFY

12

3QFY

12

4QFY

12

1QFY

13

2QFY

13

3QFY

13




Strong treasury gains drive other income growth

Non-interest income grew 9% yoy led by strong treasury gains (60% yoy to `2.5 bn), even as all other components reported a subdued trend. Forex income grew 7% yoy, fee income declined 3% yoy and income from recoveries declined 13% yoy. We note that the bank has also taken high benefits through write-back of investment depreciation (`1.3 bn). Pre-tax income, excluding income from investments (treasury income and investment depreciation), would be down 54% yoy. We expect fee income growth at 3% CAGR for FY2012-14E.

Other highlights for the quarter

Overall capital adequacy is comfortable at 12.6% with tier-1 capital at 9.8%.

Cost-income ratio was at 46% compared to 50% in Sept 2012 as non-staff expenses declined during the quarter (-1% qoq, 19% yoy). Staff expenses increased 17% yoy (5% qoq).

Tax rate for the quarter continued to be low at 20% (18-23% over past 10 quarters) as the bank continues to take benefit from aggressive write-offs.

Exhibit 6: Key changes to our estimates Old and new estimates, March fiscal year-ends, 2013-15E (` mn)

New estimates Old estimates2013E 2014E 2015E 2013E 2014E 2015E 2013E 2014E 2015E

Net interest income 79,641 92,711 105,482 80,820 97,081 115,552 (1.5) (4.5) (8.7) Loan growth (%) 5 12 13 5 16 16 NIM (%) 2.1 2.3 2.4 2.1 2.3 2.4

Loan loss provisions 23,773 32,136 36,027 21,396 34,075 39,422 11.1 (5.7) (8.6) Other income 31,833 35,445 39,373 30,470 37,146 40,644 4.5 (4.6) (3.1)

Fee income 7,651 8,416 9,257 8,288 9,117 10,029 (7.7) (7.7) (7.7) Treasury income 6,500 6,500 7,000 3,500 5,500 5,500

Operating expenses 51,456 56,873 62,783 51,692 57,232 63,323 (0.5) (0.6) (0.9) Employee expenses 32,731 36,033 39,669 32,731 36,033 39,669 - - -

Depreciation on investments (4,500) 200 200 (2,500) 200 200 PBT 37,746 38,897 45,794 37,703 42,671 53,201 0.1 (8.8) (13.9) Net profit 30,349 31,275 36,821 30,315 34,310 42,777 0.1 (8.8) (13.9) PBT-treasury 31,246 32,397 38,794 34,203 37,171 47,701 (8.6) (12.8) (18.7) PBT-treasury + loan loss provisions 55,019 64,533 74,821 55,598 71,245 87,123 (1.0) (9.4) (14.1)

% change


Exhibit 7: Canara Bank – rolling PER and PBR Feb 2005 – Feb 2013

0.0

2.0

4.0

6.0

8.0

10.0

Feb-

05

Feb-

06

Feb-

07

Feb-

08

Feb-

09

Feb-

10

Feb-

11

Feb-

12

Feb-

13

0.0

0.4

0.8

1.2

1.6

2.0Rolling PER (X) Rolling PBR (X)

Source: Company, Bloomberg, Kotak Institutional Equities

Exhibit 8: Canara Bank trading at discount to peers Canara Bank trading premium to peers, Feb 2006 – Feb 2013

0.5

0.7

0.9

1.1

1.3

1.5

Feb-

06

Feb-

07

Feb-

08

Feb-

09

Feb-

10

Feb-

11

Feb-

12

Feb-

13

Source: Company, Bloomberg, Kotak Institutional Equities



Exhibit 9: Canara Bank quarterly results March fiscal year-ends, 3QFY12-3QFY13 (` mn)

3QFY12 4QFY12 1QFY13 2QFY13 3QFY13 % change 3QFY13E Actual Vs KS (%)

Interest income 78,121 82,675 84,729 85,955 85,445 9.4 86,123 (0.8)Interest on advances 59,457 61,893 62,291 61,207 59,575 0.2 60,765 (2.0)Income from investments 18,098 19,083 20,399 23,061 24,596 35.9 24,233 1.5 Others 566 1,699 2,039 1,688 1,274 124.9 1,125 13.2

Interest expense 58,935 62,273 66,293 66,387 65,565 11.2 65,035 0.8 Net interest income 19,186 20,402 18,435 19,568 19,880 3.6 21,088 (5.7)Non-int.income 7,791 7,693 6,926 6,081 8,458 8.6 7,929 6.7

Sale of investments 1,570 950 988 740 2,510 59.9 1,480 69.6 Fee income 2,050 2,150 1,953 1,710 1,990 (2.9) 2,091 (4.8)Recoveries 680 980 468 640 590 (13.2) 1,156 (49.0)

Other income excl treasury 6,221 6,743 5,938 5,341 5,948 (4.4) 6,449 (7.8)

Total income 26,976 28,094 25,362 25,649 28,338 5.0 29,017 (2.3)Op. expenses 11,209 13,187 11,424 12,828 13,174 17.5 13,273 (0.7)

Employee cost 7,125 8,259 7,430 7,911 8,311 16.6 8,306 0.1 Other cost 4,084 4,928 3,994 4,917 4,864 19.1 4,966 (2.1)

Profit pre provisions 15,767 14,907 13,938 12,821 15,164 (3.8) 15,744 (3.7)Provisions and cont. 5,012 4,616 4,185 4,211 6,259 24.9 5,541 13.0

Investment depreciation 1,850 (1,070) (2,050) (1,203) (1,290) (169.7) (500) 158.0 NPL provisions 3,020 5,010 5,420 4,444 6,940 129.8 5,556 24.9

PBT 10,756 10,291 9,752 8,610 8,905 (17.2) 10,204 (12.7)Tax 2,000 2,000 2,000 2,000 1,800 (10.0) 1,999 (10.0)Net profit 8,756 8,291 7,752 6,610 7,105 (18.9) 8,204 (13.4)Tax rate (%) 18.6 19.4 20.5 23.2 20.2 - 19.6 - PBT-invt gains+/-extra. itemPBT-gains+ prov - ex ordry 11,725 11,118 9,984 9,240 9,867

Key balance sheet items (Rs bn)Deposits 3,155 3,271 3,346 3,368 3,240 2.7 CASA ratio (%) 23.9 24.3 23.3 24.8 25.1 Advances 2,176 2,325 2,256 2,158 2,182 0.3

Total retail loans 250 248 228 222 213 (14.8)Priority sector 728 674 652 682 697 (4.2)Agriculture advances 312 319 314 333 354 13.4 SME 390 349 320 331 326 (16.4)

Investments 939 1,021 1,112 1,213 1,188 AFS (%) 27 29 32 36 35

Yield management measures (%)Yield on advances 10.9 10.9 11.1 11.2 11.1 Cost of deposits 7.3 7.4 7.9 7.8 7.8 Cost of funds 6.6 6.7 7.1 7.1 7.0 Net interest margin 2.5 2.5 2.4 2.4 2.4

Asset quality detailsGross NPLs (Rs bn) 40.0 40.3 45.0 56.1 60.9 52.3 Gross NPL ratio (%) 1.8 1.7 2.0 2.6 2.8 Net NPLs (Rs bn) 32.7 33.9 37.6 45.7 51.3 57.2 Net NPL ratio (%) 1.5 1.5 1.7 2.1 2.4 Provision Coverage (%) 18.3 16.0 16.5 18.5 15.7 Restructured assets -Rs bn 99.6 79.0 140.7 148.9 145.0 % of loans 4.6 3.4 6.2 6.9 6.6

Capital adequacy details (%)CAR 13.2 13.8 13.2 13.1 12.6 Tier I 9.5 10.4 10.1 10.1 9.8




Exhibit 10: Canara Bank growth rates and key ratios March fiscal year-ends, 2010-15E (%)

2010 2011 2012 2013E 2014E 2015EGrowth rates (%)Net loan 22.5 24.8 10.0 4.5 11.6 12.5 Customer assets 22.1 24.4 10.2 4.5 11.5 12.4 Investments excld. CPs and debentures 21.6 20.7 21.9 3.7 6.3 0.8 Net fixed assets (2.4) (0.5) 0.5 12.0 5.6 5.3

Cash and bank balance 18.0 56.2 (8.2) 24.9 7.5 6.9 Total Asset 20.5 26.9 11.4 5.7 9.5 8.7 Deposits 25.6 25.1 11.5 1.4 10.6 9.4 Current 28.1 33.3 (39.5) 1.4 10.6 9.4 Savings 19.3 17.5 10.5 (1.2) 16.3 14.8 Fixed 27.3 26.4 17.7 2.1 9.1 8.0 Net interest income 20.4 35.5 (0.1) 3.6 16.4 13.8 Loan loss provisions 68.7 (21.9) 23.6 62.3 35.2 12.1 Total other income 23.7 (1.6) 4.1 8.7 11.3 11.1 Net fee income 13.3 4.4 5.4 (4.0) 10.0 10.0 Net capital gains 30.6 (69.7) 36.5 115.6 - 7.7 Net exchange gains 23.9 77.2 14.1 5.0 15.0 15.0 Operating expenses 13.5 27.1 5.8 10.1 10.5 10.4 Employee expenses 16.9 34.7 0.6 10.1 10.1 10.1

Key ratios (%)Yield on average earning assets 8.0 7.9 9.0 9.3 9.0 8.8 Yield on average loans 9.1 9.0 10.6 10.4 10.1 9.8 Yield on average investments 7.3 7.5 7.7 9.1 9.0 8.8 Average cost of funds 5.9 5.5 7.1 7.6 7.2 6.9 Interest on deposits 5.8 5.4 7.1 7.6 7.3 7.0 Difference 2.1 2.4 1.9 1.7 1.9 2.0 Net interest income/earning assets 2.4 2.7 2.2 2.1 2.3 2.4 New provisions/average net loans 1.0 0.6 0.7 1.0 1.3 1.3 Interest income/total income 66.5 73.3 72.4 71.4 72.3 72.8 Other income / total income 33.5 26.7 27.6 28.6 27.7 27.2 Fee income to total income 8.5 7.2 7.5 6.9 6.6 6.4 Net trading income to PBT 27.7 3.9 3.6 29.1 16.2 14.8 Exchange inc./PBT 5.6 7.6 10.7 12.1 13.5 13.2 Operating expenses/total income 40.7 42.0 44.0 46.2 44.4 43.3 Operating expenses/assets 1.4 1.5 1.3 1.3 1.4 1.4 Operating profit /AWF 1.3 1.7 1.1 0.8 0.8 0.9 Tax rate 20.9 19.9 19.6 19.6 19.6 19.6 Dividend payout ratio 13.6 12.1 14.8 17.5 17.0 14.4 Share of deposits Current 7.8 8.3 4.5 4.5 4.5 4.5 Fixed 70.9 71.7 75.7 76.2 75.2 74.2 Savings 21.3 20.0 19.8 19.3 20.3 21.3 Loans-to-deposit ratio 72.2 72.0 71.1 73.3 73.9 76.0 Equity/assets (EoY) 5.5 6.0 6.1 6.3 6.4 6.5 Asset quality trendsGross NPL 1.5 1.5 1.7 2.6 3.1 3.1 Net NPL 1.1 1.1 1.5 2.2 2.3 2.4 Slippages 2.4 2.1 2.2 2.8 2.7 2.4 Provision coverage 30.5 25.7 16.0 16.2 26.4 26.0 Dupont analysis (%)Net interest income 2.3 2.6 2.2 2.1 2.2 2.3 Loan loss provisions 0.6 0.4 0.4 0.6 0.8 0.8 Net other income 1.2 0.9 0.8 0.8 0.9 0.9 Operating expenses 1.5 1.4 1.4 1.4 1.4 1.4 (1- tax rate) 79.1 80.1 80.4 80.4 80.4 80.4 ROA 1.2 1.3 0.9 0.8 0.8 0.8 Average assets/average equity 18.0 17.3 16.6 16.1 15.8 15.6 ROE 22.5 23.2 15.4 12.7 11.9 12.7




Exhibit 11: Canara Bank P&L and balance sheet March fiscal year-ends, 2010-15E (` mn)

2010 2011 2012 2013E 2014E 2015EIncome statementTotal interest income 187,520 229,401 308,506 346,004 362,876 387,896 Total interest expense 130,714 152,407 231,613 266,362 270,165 282,414 Net interest income 56,805 76,993 76,893 79,641 92,711 105,482 Loan loss provisions 15,180 11,855 14,651 23,773 32,136 36,027 Net interest income (after prov.) 41,625 65,138 62,242 55,868 60,575 69,455 Other income 28,579 28,115 29,276 31,833 35,445 39,373 Net fee income 7,239 7,558 7,969 7,651 8,416 9,257 Net capital gains 7,295 2,208 3,015 6,500 6,500 7,000 Net exchange gains 2,152 3,814 4,350 4,567 5,252 6,040 Operating expenses 34,776 44,193 46,737 51,456 56,873 62,783 Employee expenses 21,937 29,548 29,731 32,731 36,033 39,669 Depreciation on investments (3,287) 271 1,539 (4,500) 200 200 Other Provisions 501 (1,470) 2,415 3,000 50 50 Pretax income 38,214 50,259 40,827 37,746 38,897 45,794 Tax provisions 8,000 10,000 8,000 7,396 7,622 8,973 Net Profit 30,214 40,259 32,827 30,349 31,275 36,821 % growth 45.8 33.2 (18.5) (7.5) 3.0 17.7 Operating profit 46,099 59,906 52,463 55,019 64,533 74,821 % growth 58.2 30.0 (12.4) 4.9 17.3 15.9

Balance sheetCash and bank balance 196,532 307,081 281,794 351,936 378,265 404,278 Cash 6,176 7,181 10,032 10,032 10,534 11,060 Balance with RBI 151,019 212,967 167,919 235,466 260,403 284,989Net value of investments 696,770 836,360 1,020,574 1,057,312 1,122,713 1,131,404 Govt. and other securities 627,804 711,493 887,639 924,473 989,875 998,566 Shares 11,848 10,474 11,724 11,724 11,724 11,724 Debentures and bonds 20,695 20,337 26,055 26,055 26,055 26,055Net loans and advances 1,693,346 2,112,683 2,324,898 2,429,680 2,712,110 3,052,180Fixed assets 28,594 28,444 28,575 32,010 33,794 35,571Other assets 32,169 74,880 85,760 85,760 85,760 85,760Total assets 2,647,411 3,359,449 3,741,602 3,956,697 4,332,643 4,709,194

Deposits 2,346,514 2,934,366 3,270,537 3,316,416 3,667,644 4,013,927Borrowings and bills payable 96,124 154,049 166,306 272,808 272,808 272,808Other liabilities 58,055 70,635 77,859 116,789 116,789 116,789Total liabilities 2,500,693 3,159,050 3,514,702 3,706,012 4,057,241 4,403,524Paid-up capital 4,100 4,430 4,430 4,430 4,430 4,430Reserves & surplus 142,618 195,968 222,470 246,255 270,972 301,240Total shareholders' equity 146,718 200,398 226,900 250,685 275,402 305,670



Significant miss on earnings

Cadila’s reported net income of Rs1 bn (31% yoy) is significantly lower than our estimate of Rs2 bn. The earnings miss was entirely driven by weak margin performance. Sales at Rs15.6 bn (15% yoy) was in line. EBITDA at Rs2.1 bn (-8% yoy) is 34% below estimate while margin at 13.6% (declined 350 bps yoy) is 700 bps below estimate. Tax rate at 36% (1HFY13: 27%; KIE estimate: 23%) was also significantly higher.

Core gross margin (excluding currency impact) at 65% is significantly lower than our estimate of 67.6%. The company attributed the weak margin to weak product mix (has launched AG in the US) and contraction in Docetaxel margin. The gross margin is expected to remain weak for one more quarter until launches gain steam in the US market.

Other expense at Rs5.8 bn (21% yoy) is 10% higher than estimate (Rs5.3 bn). The increase is due to (1) GDUFA provision of Rs100 mn, (2) higher marketing spends in domestic business (pharma/wellness) and (3) donations amounting to Rs60 mn to political parties and charity. R&D at 8.8% is also higher versus our estimate of 7.1%.

Near term to stay weak; US launches hold the key

The company expects weak margin performance to continue in 4QFY13 and recovery starting from 1QFY14. US launches remain key to improvement in EBITDA margin. Cadila has guided for 22 launches (own products) from India and two launches from Nesher in the US market for CY2013. The improved US product mix, growth in Brazil and benefit from cost-saving programs are expected to result in EBITDA margin of 19-20% in FY2014 (from 15.3% in FY2013).

Maintain ADD; reduce TP to Rs840 (from Rs940)

We reduce FY2013/14/15E EPS by 23%/11%/7%. We reduce multiple to 20X (from 22X earlier resulting in a reduced TP of Rs840). While near-term performance will remain weak, we stay positive on the monetization of the US pipeline over the next 1-2 years. We expect an improving trend in the US product mix driven by launches of limited competition opportunities.

Cadila Healthcare (CDH)

Pharmaceuticals

Weak quarter, recovery expected in FY2014. Cadila reported another weak quarter with a significant miss on margin. The lack of any significant launches in US remains the key issue and the company does not expect a recovery until FY2014. The weak earnings trend is likely to continue in the near term. We maintain ADD rating with reduced TP at Rs840 (from Rs940 earlier) – based on 20X (from 22X earlier) one-year forward EPS. We remain positive on the medium-term US pipeline which will drive the recovery in EBITDA margin. We have cut FY2013/14E EPS by 23% and 11% respectively.

Cadila HealthcareStock data Forecasts/Valuations 2013 2014E 2015E





975-649

ADD

FEBRUARY 11, 2013

RESULT


Price (Rs): 790


BSE-30: 19,485

QUICK NUMBERS

• Net income at Rs1 bn declined by 31% yoy

• EBITDA margin at 13.6% declined by 350 bps yoy

• Maintain ADD with TP at Rs840

Pharmaceuticals Cadila Healthcare


Cadila Healthcare 3QFY13 results, March fiscal year-ends (Rs mn)

(% chg.) yoy3QFY13 3QFY13E 3QFY12 2QFY13 3QFY13E 3QFY12 2QFY13 9MFY13 9MFY12 (% chg.) FY2013E

Sales 15,610 15,719 13,525 15,125 (0.7) 15.4 3.2 45,896 37,456 22.5 61,536Total expenditure 13,491 12,492 11,216 13,170 8.0 20.3 2.4 39,149 30,643 27.8 52,357Raw material 5,379 4,937 4,520 5,711 9.0 19.0 (5.8) 16,342 12,046 35.7 21,798Staff cost 2,319 2,306 1,922 2,283 0.6 20.7 1.6 6,900 5,339 29.2 9,316Other expenditure 5,793 5,250 4,775 5,176 10.3 21.3 11.9 15,907 13,258 20.0 21,243EBITDA 2,119 3,227 2,308 1,955 (34.3) (8.2) 8.4 6,747 6,814 (1.0) 9,179 Other operating income 431 350 308 351 1,566 751 1,866Other income 171 50 182 65 330 356 380Interest 479 420 594 405 1,338 1,474 1,876Depreciation 496 460 465 432 1,363 1,188 1,873Non recurring income/(expense) 0 0 0 0 0 0 0Pretax profits 1,746 2,747 1,739 1,534 (36.4) 0.4 13.8 5,942 5,259 13.0 7,676 Tax 630 632 174 494 1,777 694 2,211Minority interest 86 80 74 88 236 193 316Net income 1,029 2,035 1,492 951 (49.4) (31.0) 8.2 3,929 4,371 (10.1) 5,149 Adjusted net income 1,029 2,035 1,492 951 (49.4) (31.0) 8.2 3,929 4,371 (10.1) 5,149 EPS (Rs) 5.0 9.9 7.3 4.6 (49.4) (31.0) 8.2 19.2 21.3 (10.1) 25.2 Tax rate (%) 36.1 23.0 10.0 32.2 29.9 13.2 28.8 R&D 1,381 1,120 1,120 1,172 23.3 23.3 17.8 3,426 2,752 24.5 4,522Segment wise salesDomestic formulation (including Bayer JV) 6,049 6,215 4,993 6,318 (2.7) 21.1 (4.3) 18,485 14,710 25.7 24,672 API 160 120 157 116 33.3 1.9 37.9 384 291 32.0 509 Zydus wellness 1,018 915 796 965 11.2 27.9 5.5 3,016 2,589 16.5 4,027 Animal health 500 466 412 538 7.4 21.4 (7.1) 1,533 1,257 22.0 2,043 Total domestic 7,727 7,715 6,358 7,937 0.1 21.5 (2.6) 23,418 18,847 24.3 31,251 US 3,920 3,780 3,435 3,674 3.7 14.1 6.7 11,186 8,898 25.7 15,344 Europe 1,119 978 889 762 14.4 25.9 46.9 2,735 2,277 20.1 3,533 Brazil 666 935 792 487 (28.7) (15.9) 36.8 1,798 1,917 (6.2) 2,437 Japan 180 182 154 143 (0.9) 16.9 25.9 462 386 19.7 622 Emerging markets 677 770 513 754 (12.0) 32.0 (10.2) 2,152 1,334 61.3 2,901 Hospira+Nycomed (JV) 913 925 912 1,000 (1.3) 0.1 (8.7) 2,908 2,346 24.0 3,758 Animal health 122 120 107 102 1.7 14.0 19.6 340 191 78.0 465 API 618 635 577 588 (2.6) 7.1 5.1 1,856 1,820 2.0 2,513 Total export 8,215 8,323 7,379 7,510 (1.3) 11.3 9.4 23,437 19,169 22.3 31,574 Total sales 15,942 16,039 13,737 15,447 (0.6) 16.1 3.2 46,855 38,016 23.3 62,824 % marginRaw material 34.5 31.4 33.4 37.8 35.6 32.2 35.4Staff cost 14.9 14.7 14.2 15.1 15.0 14.3 15.1R&D 8.8 7.1 8.3 7.7 7.5 7.3 7.3Other expenditure 37.1 33.4 35.3 34.2 34.7 35.4 34.5EBITDA 13.6 20.5 17.1 12.9 14.7 18.2 14.9


Call highlights

Domestic formulations. Core growth (excluding biochem) in India formulations remained strong at 18% yoy. This is despite a weakness in the overall market growth for the quarter. The company has increased marketing spend due to new launches, which is also a reason for the higher other expense. Cadila expects domestic business growth rate to sustain at 18% for FY2014.

US formulations. Cadila launched 2 generics in the US which included one from Nesher (oxycodone). The company has filed for 18 ANDAs during the quarter (total of 30 for 9MFY13). There are 90 ANDAs pending approval (including the partner filings). Cadila expects to sustain the filings momentum in FY2014. The filings for the quarter also included first filings by the company in the dermatology segment (2 topicals).

Cadila expects to launch 22 products in US in CY2013 which will be mostly oral solids. The company expects to launch 2 products from Nesher in FY2014 which includes one controlled substance.

The US FDA inspection for the transdermal facility is expected this quarter. The company has filed for 2 patches so far with the first launch expected in FY2014.

Cadila Healthcare Pharmaceuticals


Latin America. Brazil sales declined by 16% yoy impacted by (1) backlog following the end of ANVISA strike in September 2012 and (2) issues with quota for controlled substance products. The backlog has been cleared in December 2012 and the company expects return to growth in 4QFY13. The company did not receive any approvals in Brazil during CY2012. Cadila expects Brazil sales to be 15-20% for FY2014.

Branded business is 65% of Brazil sales while generics constitute the rest. The company expects generics business to grow faster in the medium term.

During the quarter, the company received the first product approval in Mexico.

R&D. Cadila expects R&D expense to stay flat on an absolute basis for FY2014E.

Tax rate. The increase in tax rate for FY2013 has been due to AMT on partnership facility and no offset for losses in overseas subsidiaries. Tax rate is expected to be 25% for FY2014E. In the longer term, tax rate is expected to be closer to MAT.

Balance sheet details. Gross debt is at Rs2.3 bn while cash is Rs0.5 bn – there has been an increase of Rs0.2 bn in net debt (40% of debt is in foreign currency) from September 2012. The company does not have any outstanding hedges.

Capital expenditure. The capital expenditure for 9MFY13 is Rs6 bn with guidance for Rs6.5 bn for FY2013. Cadila has increased the guidance for FY2014 to Rs6.5 bn (from Rs5 bn earlier).

Sales mix remains under pressure

The overall sales for the quarter have been in line but the growth has been primarily on account of lower-margin businesses.

US sales at US$73 mn posted a sequential increase of US$6 mn but the increase was primarily due to launch of authorized generics (AG for Abbott; Azithromycin and Potassium chloride). AG gross margin is typically at 20% compared to 40-50% for the regular generics.

Overall JV sales (include Hospira, Nycomed and Bayer) at Rs1.3 bn (4% yoy) were in line. However, there has been a sharp reduction in Docetaxel margins which has been a key factor for the gross margin decline. The company expects the margin to remain at this level going forward.

Wellness posted an improved performance for the quarter with 28% yoy growth driven by launch of line extensions and aided by a weak base. The company has guided for Rs5 bn in sales for FY2014E.

Reduce FY2013E EPS by 23% and FY2014E EPS by 11%

We maintain our sales estimates for FY2014/15 while EPS has been reduced by 23%/11%/7% for FY2013/14/15E.

Domestic formulations. We expect sales growth at 16% yoy, lower than the company expectation of 18%. The reduced estimate will also partly account for the impact from the implementation of the drug pricing policy (estimated impact of Rs700 mn at the PAT level).

US. In US$ tems, sales is expected to grow to US$360 mn in FY2014 (28% yoy) driven by launches in both Nesher and Cadila. We expect US$80 mn addition for FY2015 at US$440 mn.



Sales estimates, March fiscal year-ends, 2013-15E (Rs mn)

2013E 2014E 2015E 2013E 2014E 2015E 2013E 2014E 2015EDomestic formulations (includes Bayer JV) 24,838 28,812 33,422 24,672 28,619 33,199 (0.7) (0.7) (0.7)Zydus Wellness 3,899 4,523 5,246 4,027 4,752 5,513 3.3 5.1 5.1Animal health 2,008 2,309 2,656 2,043 2,451 2,819 1.7 6.1 6.1API 469 469 469 509 560 616 8.5 19.4 31.3Total domestic 31,214 36,113 41,793 31,251 36,383 42,146 0.1 0.7 0.8US 15,204 19,092 22,892 15,344 19,453 23,773 0.9 1.9 3.8Europe 3,371 3,876 4,264 3,533 4,063 4,672 4.8 4.8 9.6Brazil 2,695 3,234 3,816 2,437 2,925 3,451 (9.6) (9.6) (9.6)Japan 624 749 899 622 735 881 (0.3) (1.9) (1.9)Emerging markets 3,022 3,626 4,170 2,901 3,482 4,004 (4.0) (4.0) (4.0)Hospira and Nycomed (JV) 3,770 3,875 3,996 3,758 3,828 3,944 (0.3) (1.2) (1.3)Animal health 463 532 612 465 535 615 0.4 0.4 0.4API 2,529 2,782 3,061 2,513 2,814 3,096 (0.7) 1.1 1.1Total exports 31,677 37,767 43,709 31,574 37,833 44,435 (0.3) 0.2 1.7Total gross sales 62,891 73,880 85,501 62,824 74,216 86,581 (0.1) 0.5 1.3



We expect gross margin to improve by 180 bps in FY2014 driven by US product mix. R&D margin is also expected to decline with absolute spend expected to stay flat in FY2014E. Overall, we expect EBITDA margin to recover to 19.2% which is at the lower end of the guided range of 19-20%.

Margin analysis, March fiscal year-ends, 2009-15E (Rs mn)

0

5

10

15

20

25

30

35

40

2009

2010

2011

2012

2013

E

2014

E

2015

E

Raw material Staff cost R&D Others EBITDA




Core raw material margin analysis, March fiscal year-ends, 1QFY12-2015E (Rs mn)

1QFY12 2QFY12 1QFY13 2QFY13 3QFY13 4QFY13E 2013E 2014E 2015ESales 11,735 12,196 15,161 15,125 15,610 15,639 61,536 72,798 85,021Raw material expense - reported 3,620 3,906 5,134 5,711 5,379 5,574 21,798 24,387 28,057 -Hedge losses — — 300 440 740 - Inventory gains / (losses) — 180 280 -200 82 -100 62 - Core 3,620 4,086 5,114 5,071 5,461 5,474 21,120 24,387 28,057Export incentives 250 250 250Reported raw material expense - including export incentives 21,548 24,137 27,807% marginReported raw material margin 30.9 32.0 33.9 37.8 34.5 35.6 35.4 33.5 33.0

Core raw material margin 30.9 33.5 33.7 33.5 35.0 35.0 34.3 33.5 33.0Reported raw material expense - including export incentives 35.0 33.2 32.7


Earnings estimates, March fiscal year-ends, 2013-15E (Rs mn)

2013E 2014E 2015E 2013E 2014E 2015E 2013E 2014E 2015ENet sales 61,624 72,486 83,968 61,535 72,798 85,021 (0.1) 0.4 1.3Raw material 20,686 22,945 26,200 21,548 24,137 27,807 4.2 5.2 6.1Staff cost 9,263 10,838 12,680 9,316 10,853 12,698 0.6 0.1 0.1R&D 4,645 5,308 6,126 5,022 5,474 6,320 8.1 3.1 3.2Other expense 15,868 18,249 21,168 16,221 18,329 21,079 2.2 0.4 (0.4)Other operational income 1,585 1,150 1,150 1,616 1,200 1,200 2.0 4.3 4.3EBITDA 12,746 16,295 18,944 11,044 15,204 18,317 (13.4) (6.7) (3.3)PBT 9,372 12,989 15,687 7,735 11,881 15,045 (17.5) (8.5) (4.1)Tax 2,338 2,987 3,608 2,211 2,970 3,761 (5.4) (0.6) 4.2PAT -reported 6,724 9,651 11,699 5,208 8,561 10,903 (22.6) (11.3) (6.8)PAT -adjusted 6,724 9,651 11,699 5,208 8,561 10,903 (22.6) (11.3) (6.8)EPS -adjusted 32.8 47.1 57.1 25.4 41.8 53.3 (22.6) (11.3) (6.8)





Revenue summary, March fiscal year-ends, 2009-15E (Rs mn)

2009 2010 2011 2012 2013E 2014E 2015EDomestic formulations (includes Bayer JV) 12,889 14,458 17,145 19,998 24,672 28,619 33,199Zydus Wellness 1,947 2,675 3,355 3,446 4,027 4,752 5,513Animal health 1,173 1,273 1,473 1,708 2,043 2,451 2,819API 426 318 352 438 509 560 616Total domestic 16,435 18,724 22,325 25,590 31,251 36,383 42,146US 4,056 6,715 9,655 12,431 15,344 19,453 23,773Europe 1,980 2,740 2,756 2,983 3,533 4,063 4,672Brazil 1,628 1,818 2,250 2,473 2,437 2,925 3,451Japan 219 316 422 522 622 735 881Emerging markets 1,793 1,590 1,980 1,889 2,901 3,482 4,004Hospira and Nycomed (JV) 999 1,598 2,708 3,187 3,758 3,828 3,944Animal health — — — 316 465 535 615API 2,061 2,642 3,116 2,417 2,513 2,814 3,096Total exports 12,736 17,419 22,887 26,218 31,574 37,833 44,435Total gross sales 29,171 36,143 45,212 51,808 62,824 74,216 86,581yoy growth, %Domestic formulations (includes Bayer JV) 9.6 12.2 18.6 16.6 23.4 16.0 16.0Zydus Wellness 24.1 37.4 25.4 2.7 16.9 18.0 16.0Animal health 11.7 8.5 15.7 16.0 19.6 20.0 15.0API -15.8 -25.4 10.7 24.4 16.2 10.0 10.0Total domestic 10.4 13.9 19.2 14.6 22.1 16.4 15.8US 57.9 65.6 43.8 28.8 23.4 26.8 22.2Europe 20.2 38.4 0.6 8.2 18.4 15.0 15.0Brazil 32.4 11.7 23.8 9.9 -1.4 20.0 18.0Japan 346.9 44.3 33.5 23.7 19.2 18.0 20.0Emerging markets 84.7 -11.3 24.5 -4.6 53.6 20.0 15.0Hospira and Nycomed (JV) 49.6 60.0 69.5 17.7 17.9 1.9 3.0Animal health 47.2 15.0 15.0API 27.4 28.2 17.9 -22.4 4.0 12.0 10.0Total exports 45.5 36.8 31.4 14.6 20.4 19.8 17.5Total gross sales 23.4 23.9 25.1 14.6 21.3 18.1 16.7% of salesDomestic formulations (includes Bayer JV) 44.2 40.0 37.9 38.6 39.3 38.6 38.3Zydus Wellness 6.7 7.4 7.4 6.7 6.4 6.4 6.4Animal health 4.0 3.5 3.3 3.3 3.3 3.3 3.3API 1.5 0.9 0.8 0.8 0.8 0.8 0.7Total domestic 56.3 51.8 49.4 49.4 49.7 49.0 48.7US 13.9 18.6 21.4 24.0 24.4 26.2 27.5Europe 6.8 7.6 6.1 5.8 5.6 5.5 5.4Brazil 5.6 5.0 5.0 4.8 3.9 3.9 4.0Japan 0.8 0.9 0.9 1.0 1.0 1.0 1.0Emerging markets 6.1 4.4 4.4 3.6 4.6 4.7 4.6Hospira and Nycomed (JV) 3.4 4.4 6.0 6.2 6.0 5.2 4.6Animal health 0.6 0.7 0.7 0.7API 7.1 7.3 6.9 4.7 4.0 3.8 3.6Total exports 43.7 48.2 50.6 50.6 50.3 51.0 51.3




Cadila healthcare interim balance sheet, March fiscal year-ends (Rs mn)

2011 2012 1HFY13Share capital 1,024 1,024 1,024Reserves and surplus 20,691 24,712 27,756Total equity 21,715 25,736 28,780Minority interest 669 904 1,055Long term borrowings 7,629 13,223 12,191Deferred tax liabilities 1,127 1,185 1,192Other long term liabilities 188 426 505Long term provisions 619 756 715Total non current liabilities 9,563 15,590 14,603Short term borrowings 2,598 6,871 9,884Trade payables 5,706 5,455 6,385Other current liabilities 3,673 6,924 8,010Short term provisions 2,182 2,281 916Total current liabilities 14,160 21,531 25,194Foreign currency monetary items translation difference account — 31 -52Total equity and liabilities 46,106 63,792 69,581Fixed assets 18,063 23,438 26,559Goodwill 4,573 9,880 9,880Non current investments 207 212 212Deferred tax assetsLong term loans and advances 2,010 2,631 3,020Other non current assets — — — Total non current assets 24,853 36,161 39,671Current investments — 30 358Inventories 8,119 10,905 11,165Trade receivables 7,652 8,863 10,018Cash and cash equivalents 2,952 4,666 5,046Short term loans and advances 2,062 2,746 2,761Other current assets 469 421 561Total current assets 21,253 27,631 29,910Total assets 46,106 63,792 69,581

Source: Company

Profit and loss statement, March fiscal year-ends, 2009-15E (Rs mn)

2009 2010 2011 2012 2013E 2014E 2015ENet sales 28,977 36,143 44,648 50,900 61,535 72,798 85,021Raw Materials (9,477) (11,693) (14,514) (16,543) (21,548) (24,137) (27,807)Employee cost (3,282) (4,260) (5,371) (7,102) (9,316) (10,853) (12,698)R& D (1,958) (2,019) (3,170) (4,507) (5,022) (5,474) (6,320)Others (8,411) (10,719) (12,140) (13,392) (16,221) (18,329) (21,079)Total expenditure (23,128) (28,691) (35,195) (41,544) (52,107) (58,794) (67,904)Other operational income 209 635 846 1,037 1,616 1,200 1,200EBITDA 6,058 8,087 10,299 10,393 11,044 15,204 18,317Depreciation/amortisation (1,118) (1,339) (1,269) (1,579) (1,873) (2,223) (2,573)EBIT 4,940 6,748 9,030 8,814 9,172 12,981 15,745Net finance cost (1,106) (676) (669) (1,547) (1,817) (1,400) (1,000)Other income (136) (32) (409) 229 380 300 300License / milestone income — — 474 446 — — —PBT 3,698 6,040 8,426 7,942 7,735 11,881 15,045Current tax (666) (741) (1,064) (1,130) (2,211) (2,970) (3,761)Minority interest 1 247 251 286 316 350 380PAT - reported 3,031 5,052 7,111 6,526 5,208 8,561 10,903PAT - adjusted 3,031 5,052 7,139 6,592 5,208 8,561 10,903EPS - adjusted 14.8 24.7 34.9 32.2 25.4 41.8 53.3




Balance sheet and cash model, March fiscal year-ends, 2009-15E (Rs mn)

2009 2010 2011 2012 2013E 2014E 2015EBalance sheetTotal equity 11,914 16,183 21,715 25,767 29,460 35,532 43,265Total debt 12,674 10,905 10,973 22,893 24,857 27,842 29,320Current liabilities 6,915 8,661 11,189 13,042 14,243 16,035 18,115Minority Interests 228 392 669 904 904 904 904Deferred tax liabilities 1,316 1,141 1,127 1,185 1,185 1,185 1,185Total equity and liabilities 33,047 37,282 45,672 63,791 70,649 81,498 92,790Cash and cash equivalents 2,517 2,507 2,952 4,666 3,536 6,176 10,440Inventory 6,012 7,504 8,119 10,905 12,759 14,928 17,466Debtors 4,549 4,668 7,652 8,863 10,370 12,133 14,195Other current assets 2,533 3,070 4,107 5,798 5,798 5,798 5,798Net fixed assets + intangibles 10,516 12,006 13,482 18,328 22,955 27,233 29,660Goodwill 4,782 4,838 4,844 10,151 10,151 10,151 10,151Capital -WIP 1,889 2,482 4,310 4,839 4,839 4,839 4,839Investments 249 207 207 241 241 241 241Total assets 33,047 37,282 45,672 63,791 70,649 81,498 92,790Free cash flow Operating cash flow, excl. working capital 3,396 7,560 8,579 9,236 5,579 9,733 12,856Working capital (1,210) (1,236) (1,753) (4,217) (2,160) (2,139) (2,521)Capital expenditure (including acquisitions) (4,296) (3,321) (5,021) (12,444) (6,500) (6,500) (5,000)Free cash flow (2,110) 3,003 1,805 (7,425) (3,081) 1,094 5,336



3QFY13 – good quarter, even adjusted for 2QFY13 one-offs

TCOM reported a robust 3.8% qoq and 23% yoy growth in consolidated revenues to Rs44.3 bn, around 0.8% ahead of our estimate. Yoy growth was aided by around 7% Re depreciation versus the USD; however, the same had a negative impact on qoq growth. EBITDA of Rs6 bn (+37% qoq, +20% yoy) surprised positively coming in 12% ahead of our estimate. EBITDA margins of 13.6% represented a 330 bps qoq jump. We note that 2Q had a few cost one-offs; nonetheless even adjusted margins surprised. Our OPM expectation of 12.2% reflected the 2Q cost one-off adjustments. However, losses at the net level continued; the company reported a net loss of Rs2 bn for the quarter – this included Rs791 mn charge towards employee cost optimization. We note that the company had initiated headcount reduction in the middle of the Dec 2012 quarter.

Voice segment – good quarter led by sharp improvement in net realization and cost reduction

TCOM reported a 10% qoq and 4% yoy growth in net revenues for the global voice segment; net realization per minute grew 7.4% qoq while declining 11% yoy. Sequential fluctuations in net realization are expected; yoy movements reflect the underlying sustained net realization pressure on this business better. Nonetheless, we are encouraged with the 22% yoy growth in EBITDA reported in this segment as the company brought ex-interconnect operational costs for the segment down 10% yoy. Total minutes carried increased a healthy 17.2% yoy, led by a strong 19% growth in ILD traffic (substantially ahead of the market, in our view). NLD volumes declined 10% qoq while growing 5.6% yoy.

Data – solid qoq margin expansion the key highlight

Data business gross revenues of Rs17.4 bn represented a 4.1% qoq and 21% yoy growth. EBITDA at Rs3.6 bn (+38% qoq, +8.5% yoy) surprised positively as EBITDA margins expanded 500 bps qoq to 20.5% (still down 240 bps yoy, though). Strong qoq margin expansion was driven by favorable business mix, in our view – data segment revenue growth was driven by a strong 11% qoq growth in the Enterprise sub-segment even as the Carrier sub-segment (lower margin business, in our view) declined 1.8% qoq. On the negative side, data business remained EBIT-negative.

Tata Communications (TCOM)

Telecom

Good quarter with solid margin beat; sustainability the key. Retain REDUCE. Tata Communications (TCOM) reported a strong quarter of operating performance beating our EBITDA estimates by a solid 12%. We take our EBITDA estimates up by 3-5% for FY2013-15E but retain our cautious stance noting – (1) sticky high net debt; capex has been tracking ahead of our expectations, and (2) sustained weak performance at Neotel. Newsflow on surplus land monetization is yet to translate into even meaningful material milestones. Reiterate REDUCE with an end-FY2014E TP of Rs220/share.

Tata CommunicationsStock data Forecasts/Valuations 2013 2014E 2015E

52-week range (Rs) (high,low) EPS (Rs) (27.0) (19.4) (12.9)Market Cap. (Rs bn) 63.9 EPS growth (%) (3.3) (28.1) (33.6)

Shareholding pattern (%) P/E (X) (8.3) (11.6) (17.4)Promoters 76.2 Sales (Rs bn) 174.0 182.9 196.3FIIs 8.3 Net profits (Rs bn) (7.7) (5.5) (3.7)MFs 1.2 EBITDA (Rs bn) 21.8 24.8 27.2

Price performance (%) 1M 3M 12M EV/EBITDA (X) 8.2 7.3 6.6Absolute (9.4) (8.7) (0.1) ROE (%) (40.3) (44.7) (48.2)Rel. to BSE-30 (8.2) (11.7) (9.2) Div. Yield (%) 0.0 0.0 0.0


270-191

REDUCE

FEBRUARY 11, 2013

RESULT


Price (Rs): 224


BSE-30: 19,485

Telecom Tata Communications


Decent operational quarter for Neotel

Neotel (TCOM’s fixed-line business in South Africa) had a decent operational quarter with revenue growth of 6.3% qoq and 10.6% yoy to ZAR773 mn. EBITDA margin expanded a further 100 bps qoq to 11.3%.

Net debt (both standalone and consolidated) rises further

Consolidated net debt increased further to Rs120.4 bn (5X 3QFY13 annualized and 5.6X TTM EBITDA) at end-Dec 2012 from Rs116.1 bn at end-Sep 2012. Net debt increased at both standalone TCOM as well as Neotel.

Investment thesis – stock is essentially a surplus land play

We believe the stock fortunes are likely to revolve around developments (and market sentiments) on the surplus land monetization front.

Even as we rely on the assessment of our real estate analyst for the gross realizable value of the surplus land, we do exercise our judgment on ascribing a discount to this gross value. We currently ascribe a 40% discount to account for three factors – (1) potential capital gains tax, (2) dividend distribution tax, and (3) time value – it could take a while before the demerger, land sale, and proceeds distribution to shareholders happen.

In essence, there are four variables (gross realizable value and the three factors discussed above) that go into estimation of surplus land value per TCOM share. The most important of these is of course the gross realizable value of the land – this is where Street sentiments would play a large role in determining the stock’s movements.

We note that TCOM’s core business – (1) forms only a part of the overall SOTP, and (2) needs to deliver improvement in cash flow generation for a higher kicker to fair value. Exhibit 1 gives our SOTP for TCOM. Nearly Rs126 (57%) of our SOTP-based fair value of Rs220/share comes from TCOM’s surplus real estate assets.

We also highlight a critical factor pertaining to TCOM’s core business equity fair value estimate – the high financial leverage for TCOM. We note that core business equity value is just about 16.1% of the core business EV given the presence of substantial net debt on the company’s books. Our core business equity value is highly sensitive (both ways – upside as well downside) to the FCF the company generates given high financial leverage. Exhibit 3 presents the sensitivity of our SOTP fair value for TCOM to core business EBITDA and target EV/EBITDA multiple.

Exhibit 4 gives the sensitivity of our SOTP fair value for TCOM to surplus real estate valuation and assumed % net monetization.

Exhibit 1: Our sum-of-the-parts target price for TCOM is Rs220/share

Estimated value Value in SOTP(Rs bn) (Rs/share) (Rs bn) (Rs/share) Comments

1. Core businessEnterprise value (EV) 136 479 136 479 Based on 5.5X EV/EBITDA multiple on FY2014E EBITDANet cash/(debt) (115) (402) (115) (402) Equity value 22 77 22 77 2. InvestmentsTATA Teleservices (TTSL) 5 16 5 16 9% stake at Rs50 bn equity valueTotal 5 16 5 16 3. OthersSurplus real estate 60 210 36 126 60% of estimated market value of surplus landTotal 60 210 36 126 Grand total [1]+[2]+[3] 86 303 62 219 12-month forward target price is Rs220/share


Tata Communications Telecom


Exhibit 2: TCOM consolidated interim results, March fiscal year-ends (Rs mn)

3QFY12 2QFY13 3QFY13 qoq (%) yoy (%) 3QFY13E % deviationRevenues 36,041 42,710 44,341 3.8 23.0 43,991 0.8 Staff cost (5,137) (6,380) (5,682) Network costs (19,900) (24,043) (24,946) Operating and other expenses (5,985) (7,894) (7,702) Total expenditure (31,022) (38,316) (38,331) 0.0 23.6 (38,624) (0.8) EBITDA 5,019 4,394 6,011 36.8 19.8 5,367 12.0 Depreciation and amortization (4,728) (5,307) (5,400) 1.8 14.2 (5,389) 0.2 EBIT 290 (914) 610 (167) 110 (22) (2,874.2) Other income 503 318 402 178 Interest expense (1,902) (2,112) (1,888) (2,090) Pre-tax profits (1,109) (2,708) (876) (67.6) (21.0) (1,934) (54.7) Tax (incl. deferred tax) (155) (189) (405) (268) Net income before exceptional items (1,264) (2,897) (1,281) (55.8) 1.3 (2,203) (41.9) Exceptional items - - (791) - PAT after exceptional items (1,264) (2,897) (2,072) (28.5) 63.9 (2,203) (5.9) Minority int. share of loss (269) 153 66 (100) Share in loss of associates 3 1 (4) 1 Reported net income (1,531) (2,742) (2,010) (26.7) 31.3 (2,301) (12.7) Adjusted net profit (1,531) (2,742) (1,219) (55.6) (20.4) (2,301) (47.0)

Margins (%)EBITDA 13.9 10.3 13.6 12.2 EBIT 0.8 (2.1) 1.4 (0.0) PBT (3.1) (6.3) (2.0) (4.4) PAT (pre exceptionals and MI) (3.5) (6.8) (2.9) (5.0) Tax rate (as % of PBT) (14.0) (7.0) (46.2) (13.9)

Segment wise financialsRevenues 36,041 42,710 44,341 3.8 23.0

Global voice 17,273 21,138 22,143 4.8 28.2 Global data 14,375 16,703 17,389 4.1 21.0 Core business 31,648 37,840 39,532 4.5 24.9 Neotel 4,366 4,840 4,788 (1.1) 9.7 Others 27 30 22 (25.8) (19.2)

EBITDA 5,018 4,393 6,010 36.8 19.8 Global voice 1,598 1,289 1,941 50.6 21.5 Global data 3,293 2,588 3,573 38.1 8.5 Core business 4,891 3,877 5,514 42.2 12.7 Neotel + others 127 516 496 (3.9) 290.6

EBITDA margin 13.9 10.3 13.6 Global voice 9.3 6.1 8.8 Global data 22.9 15.5 20.5 Core business 15.5 10.2 13.9 Neotel + others 2.9 10.6 10.3

% changeQuarterly


Telecom Tata Communications


Exhibit 3: Sensitivity of TCOM fair value estimate to core business EBITDA and EV/EBITDA multiple

Rs/share219 (10) (5) - 5 10 4.5 93 112 132 151 171 5.0 132 153 175 197 219 5.5 171 195 219 243 267 6.0 210 236 262 288 314 6.5 249 277 306 334 362

FY2014E EBITDA versus base case

FY2014E EV/EBITDA multiple (X)


Exhibit 4: Sensitivity of TCOM fair value estimate to land valuation and % net realization

Rs/share219 40 50 60 70 80 50 163 180 198 215 233 55 170 189 208 228 247 60 177 198 219 240 261 65 184 207 229 252 275 70 191 215 240 264 289

Land value (Rs bn)

% monetization (net of taxes, and adjusted for

time value)


Exhibit 5: Derivation of value of surplus land held by TCOM

Estimated valueLocation (Rs/sq ft) (Rs mn)Delhi—Greater Kailash 70 3,049 14,500 44,214 Delhi—Chattarpur 58 2,526 3,000 7,579 Pune—Dighi 524 22,826 300 6,848 Kolkata—Halisahar 35 1,533 250 383 Chennai—Padinallur 86 3,744 250 936 Total 773 33,678 59,960 Taxes payable (Rs mn) —Net value recovered 59,960 Net value per TCOM share (Rs/share) 210 Value added to our target price—60% 126

Acres (000 sq ft)


Tata Communications Telecom


Exhibit 6: TCOM - key operational metrics

Quarter-ending Sep-11 Dec-11 Jun-12 Sep-12 Dec-12Gross Revenue by Segment (%)Global Voice Solutions 46.7 47.9 49.9 49.5 49.9 Global Data Services 39.5 39.9 38.9 39.1 39.2 Neotel 13.7 12.1 11.2 11.3 10.8 Others 0.1 0.1 0.1 0.1 0.1 Global Voice Solutions (Rs mn)Gross revenues 15,758 17,273 20,485 21,138 22,143 Net revenues 2,760 3,501 3,704 3,309 3,647 EBITDA 1,221 1,598 1,950 1,289 1,941 EBIT 710 1,057 1,454 776 1,411 EBITDA margin (%) 7.7 9.3 9.5 6.1 8.8 EBIT margin (%) 4.5 6.1 7.1 3.7 6.4

Volumes (bn mins) 13.1 13.4 15.7 15.3 15.7 ILD (to & from India) 3.9 4.6 5.7 5.4 5.7 ILD (rest of the world) 7.5 7.0 7.3 7.8 8.1 NLD 1.7 1.8 2.7 2.1 1.9

Net realization per min (Rs/min) 0.211 0.261 0.236 0.216 0.232 EBITDA per min (Rs/min) 0.093 0.119 0.124 0.084 0.124 Operating costs per min (Rs/min) 0.117 0.142 0.112 0.132 0.109

Global Data Solutions (Rs mn)Gross revenues 13,321 14,375 15,980 16,703 17,389 Net revenues 10,706 11,229 12,547 12,866 13,081 EBITDA 3,466 3,293 2,784 2,588 3,573 EBIT 363 (168) (1,213) (1,599) (618) EBITDA margin (%) 26.0 22.9 17.4 15.5 20.5 EBIT margin (%) 2.7 (1.2) (7.6) (9.6) (3.6) GR by segment (%)Service Provider / Carrier 54.0 52.0 52.0 53.0 50.0 Enterprise 46.0 48.0 48.0 47.0 50.0 GR by service line (%)Network services 74.0 74.0 72.0 71.0 71.0 Managed services 26.0 26.0 28.0 29.0 29.0 GR by geography (%)India 49.0 47.0 48.0 50.0 52.0 Rest of the world 51.0 54.0 52.0 50.0 48.0 Tata Communications Banking InfraSolutions Ltd. (TCBIL)Gross Revenue (Rs mn) 409 460 713 833 999 Total ATMs managed 4,949 5,693 12,609 13,127 13,244 Total POS managed 6,662 3,524 9,430 10,915 7,756 Debt profile Core business (US$ mn)Gross debt 1,605 1,631 1,650

Foreign Currency Loans 1,372 1,386 1,487 Rupee Loans 233 245 163

Average cost of loans (%) 5.07 4.99 4.85 Cash and cash equivalent 84 57 95 Net debt 1,521 1,574 1,555 Neotel (ZAR mn)Gross Debt 5,212 5,254 5,575 Net debt 5,129 5,170 5,477



Sharp fall in revenues across business segments impacts 3QFY13 results

Bharat Forge standalone revenues declined by 29% yoy in 3QFY13 driven by a sharp slowdown in industrial capex in India, US and Europe. Domestic revenues declined by 23% yoy while export revenues declined by 33% yoy in 3QFY13. Tonnage sales declined by 32% yoy while revenues declined by 28% yoy offset by higher contribution of machining sales in the product mix (50% of total revenues in 3QFY13 versus 45% in 3QFY12).

Capacity utilization in standalone operations declined to 50% in 3QFY13 (versus 65% in 2QFY13) while capacity utilization at overseas plants remained at 40-50%, indicating sharp slowdown across business segments. The company was also cautious in its outlook on revenue growth in FY2014 and expected flat or a decline in revenues in standalone operations. Inventory destocking in both domestic and export markets by the company’s customers will continue to impact revenues over the next few quarters.

Subsidiaries reported a loss of Rs 250 mn in 3QFY13 (Rs 216 mn loss in 2QFY13) largely driven by poor performance in China operations. The company indicated that European subsidiaries are at break-even levels in context of profit before tax. The company has closed its US operations and took a charge of Rs260 mn in the quarter pertaining to Bharat Forge US subsidiary. China subsidiary reported Rs115 mn loss in 3QFY13.

We maintain our REDUCE rating on the stock

We have revised our earnings estimates downwards by 18-27% over FY2013-15E driven by 12-17% cut in our revenue assumptions. We have also reduced our EBITDA margin assumptions by 40-80 bps due to negative operating leverage. We maintain our REDUCE rating on the stock and cut our target price to Rs200 based on sum-of-the-parts valuation methodology (see Exhibit 8) from Rs270 earlier.

Bharat Forge (BHFC)

Automobiles

Sharp decline in revenues across business segments. Bharat Forge standalone revenues declined by 29% yoy in 3QFY13. The company was impacted by sharp decline in commercial vehicle sales in India and export markets while its non-auto business was under pressure due to slowdown in industrial capex in power, mining and oil and gas sectors. We maintain our REDUCE rating on the stock as we expect revenue growth to remain under pressure. We cut our target price to Rs200 (from Rs270 earlier).

Bharat ForgeStock data Forecasts/Valuations 2013 2014E 2015E





358-217

REDUCE

FEBRUARY 11, 2013

RESULT


Price (Rs): 219


BSE-30: 19,485

Bharat Forge Automobiles


Revenues decline sharply due to sharp slowdown in industrial capex

Bharat Forge standalone revenues declined by 29% yoy in 3QFY13 driven by a sharp slowdown in industrial capex in India, US and Europe. The company was impacted by sharp decline in commercial vehicle sales in India and export markets while its non-auto business was under pressure due to slowdown in industrial capex in power, mining and oil and gas sectors. Tonnage sales declined by 32% yoy while revenues declined by 28% yoy offset by higher contribution of machining sales in the product mix (50% of total revenues in 3QFY13 versus 45% in 3QFY12). Domestic revenues declined by 23% yoy while export revenues declined by 33% yoy in 3QFY13.

EBITDA margins in the standalone business (at 21.2% in 3QFY13) declined by 420 bps yoy despite improvement in product mix driven by negative operating leverage. Gross margins declined by only 80 bps yoy but manufacturing expenses and staff costs rose sharply as percentage of sales due to sharp decline in revenues. The company indicated that standalone operations are operating at 50% capacity utilization and break-even point has been reduced to 30% in standalone operations.

The company was also cautious in its outlook on revenue growth in FY2014 and expected flat to decline in revenues in standalone operations. Inventory destocking in both domestic and export markets by company’s customers will continue to impact revenues over the next few quarters.

Exhibit 1: Sales of Class 8 trucks in US is on a downward trend since past few months Monthly sales units and yoy change (%), US class 8 truck market

-

5

10

15

20

25

30

35

Jan-

10

Apr

-10

Jul-1

0

Oct

-10

Jan-

11

Apr

-11

Jul-1

1

Oct

-11

Jan-

12

Apr

-12

Jul-1

2

Oct

-12

(40)

(20)

-

20

40

60

80

100

120

140Class 8 sales ('000 units) [LHS]Yoy change (%) [RHS]

Source: Wards auto, Kotak Institutional Equities

Exhibit 2: Sales of heavy trucks in EU is on a downward trend since past few months Monthly sales units and yoy change (%), EU heavy truck market

-

5

10

15

20

25

30

35

Jan-

10

Apr

-10

Jul-1

0

Oct

-10

Jan-

11

Apr

-11

Jul-1

1

Oct

-11

Jan-

12

Apr

-12

Jul-1

2

Oct

-12

(60)

(40)

(20)

-

20

40

60

80

100

120

140Heavy CVs ('000 units) [LHS]

Yoy change (%) [RHS]

Source: ACEA, Kotak Institutional Equities

Automobiles Bharat Forge


Exhibit 3: Bharat Forge 3QFY13 EBITDA was significantly below our estimates driven by sharp decline in export revenues Bharat Forge standalone interim results, March fiscal year-ends (Rs mn)

% change3QFY13 3QFY13E 3QFY12 2QFY13 3QFY13E 3QFY12 2QFY13 9MFY13 9MFY12 % chg

Tonnage sold 37,483 47,100 55,412 46,350 (20.4) (32.4) (19.1) 135,121 162,111 (16.6) Average realization per ton 189,425 177,643 177,232 196,177 6.6 6.9 (3.4) 192,348 174,649 10.1 Gross sales 7,100 8,367 9,821 9,093 (15.1) (27.7) (21.9) 25,990 28,313 (8.2) Excise duty 375 377 409 417 (0.5) (8.5) (10.2) 1,225 1,224 0.0 Net sales 6,726 7,991 9,412 8,676 (15.8) (28.5) (22.5) 24,766 27,088 (8.6) Inc/dec in stock 192 — (112) 61 222 (168) Raw materials 2,713 3,498 4,237 3,721 (17.0) (29.6) (23.2) 10,512 12,259 (14.2) Mfg expenses 1,325 1,491 1,638 1,621 (11.1) (19.1) (18.2) 4,667 4,696 (0.6) Staff costs 627 650 625 643 (3.5) 0.3 (2.5) 1,955 1,909 2.4 Other expenses 445 631 633 686 (29.5) (29.7) (35.2) 1,605 1,735 (7.5) Total expenses 5,302 6,270 7,021 6,732 (15.4) (24.5) (21.2) 18,962 20,430 (7.2) EBITDA 1,424 1,720 2,391 1,944 (17.2) (40.5) (26.8) 5,804 6,658 (12.8) Other income 195 240 113 257 (18.9) 71.8 (24.1) 645 516 24.9 Interest expense 363 300 473 289 21.1 (23.1) 25.5 1,200 1,160 3.4 Depreciation expense 574 560 558 555 2.5 2.8 3.5 1,694 1,614 5.0 Profit before tax before exceptional 681 1,100 1,474 1,356 (38.1) (53.8) (49.8) 3,555 4,400 (19.2) Extraordinary income — — — 106 106 —Extraordinary exp — — — — — —Profit before tax 681 1,100 1,474 1,462 (38.1) (53.8) (53.4) 3,660 4,400 (16.8) Tax expense 206 357 442 434 (42.3) (53.5) (52.6) 1,106 1,331 (16.9) Profit after tax 475 744 1,031 1,028 (36.1) (53.9) (53.8) 2,555 3,070 (16.8) Adj PAT 475 744 1,031 1,028 (36.1) (53.9) (53.8) 2,555 3,070 (16.8) Geographical breakdownDomestic 3,995 3,800 5,177 4,426 5.1 (22.8) (9.7) 13,235 15,542 (14.8) Exports 3,105 4,191 4,644 4,667 (25.9) (33.1) (33.5) 12,755 12,771 (0.1) US exports 1,758 2,358 2,317 3,083 (25.4) (24.1) (43.0) 7,380 5,744 28.5 Europe exports 1,117 1,450 1,940 1,283 (23.0) (42.4) (12.9) 4,563 6,047 (24.5) Asia Pacific exports 230 383 387 301 (39.9) (40.6) (23.6) 812 980 (17.1) Auto/Non Auto MixAuto revenues 4,800 4,967 6,641 5,712 (3.4) (27.7) (16.0) 16,853 19,000 (11.3) Non Auto revenues 2,300 3,400 3,180 3,381 (32.4) (27.7) (32.0) 9,137 9,313 (1.9) Ratios (%)Excise duty as a % of gross sales 5.3 4.5 4.2 4.6 4.7 4.3 Raw material cost as % of net sales 43.2 43.8 43.8 43.6 43.3 44.6 Mfg expenses as % of net sales 19.7 18.7 17.4 18.7 18.8 17.3 Staff cost as % of net sales 9.3 8.1 6.6 7.4 7.9 7.0 Other expenses as % of net sales 6.6 7.9 6.7 7.9 6.5 6.4 EBITDA margin (%) 21.2 21.5 25.4 22.4 23.4 24.6 No of shares 237.4 237.4 237.4 237.4 237.4 237.4 EPS 2.0 3.1 4.3 4.3 10.8 12.9 Tax rate (%) 30.2 32.4 30.0 29.7 30.2 30.2

yoy




Exhibit 4: Non-auto revenues declined sharply (-28% yoy) in 3QFY13 Standalone non-auto revenues, March fiscal year-ends, 2010-13YTD (Rs mn)

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

1QFY

10

2QFY

10

3QFY

10

4QFY

10

1QFY

11

2QFY

11

3QFY

11

4QFY

11

1QFY

12

2QFY

12

3QFY

12

4QFY

12

1QFY

13

2QFY

13

3QFY

13

(Rs mn)


Subsidiaries unlikely to turn around anytime soon

Subsidiaries reported a loss of Rs250 mn in 3QFY13 (Rs216 mn loss in 2QFY13) largely driven by poor performance in China operations. The company indicated that European subsidiaries are at break-even levels at the profit before tax level. The company has closed its US operations and took a charge of Rs260 mn in the quarter pertaining to Bharat Forge US subsidiary. China subsidiary reported Rs115 mn loss in 3QFY13. We believe subsidiaries will remain under pressure due to subdued outlook of commercial vehicle sales in US and Europe coupled with high fixed cost structure. We estimate subsidiaries to makes losses over the next two years.

Exhibit 5: Consolidated results disappoint driven by subdued performance of the standalone as well as overseas subsidiaries Consolidated interim results, March fiscal year-ends (Rs mn)

3QFY13 3QFY13E 3QFY12 2QFY13 3QFY13E 3QFY12 2QFY13 9MFY13 9MFY12 % chgNet sales 13,458 13,257 16,002 14,303 1.5 (15.9) (5.9) 44,188 47,425 (6.8) Total expenses 11,866 11,516 13,292 12,318 3.0 (10.7) (3.7) 37,860 39,551 (4.3) EBITDA 1,592 1,740 2,710 1,985 (8.5) (41.3) (19.8) 6,328 7,874 (19.6) EBITDA margin (%) 11.8 13.1 16.9 13.9 14.3 16.6 Profit before tax 404 760 1,505 1,212 (46.9) (73.2) (66.7) 3,137 4,637 (32.4)

% change yoy


We revise our earnings estimates by 18-27% over FY2013-2015

We have revised our earnings estimates downwards by 18-27% over FY2013-15E driven by 12-17% cut in our revenue assumptions. We have also reduced our EBITDA margin assumptions by 40-80 bps due to negative operating leverage. We maintain our REDUCE rating on the stock and cut our target price to Rs 200 based on sum-of-the-parts valuation methodology (see Exhibit 8) from Rs 270 earlier driven by cut in our earnings estimates. We do not ascribe any value to Bharat Forge-Alstom joint venture due to very slow progress of the project (earlier we ascribed Rs 24/share to the project which was expected to start operations in FY2014).



Exhibit 6: We revise our standalone EPS estimates by ~18-27% downwards for FY2013-15E Revised standalone EPS estimates, March fiscal year-ends, 2013-15E (Rs mn)

New estimates Old estimates % change2013E 2014E 2015E 2013E 2014E 2015E 2013E 2014E 2015E

Net sales 30,902 32,021 36,110 35,079 38,357 42,310 (11.9) (16.5) (14.7) EBITDA 7,205 7,427 8,839 8,316 9,228 10,250 (13.4) (19.5) (13.8) EBITDA margin (%) 23.3 23.2 24.5 23.7 24.1 24.2 Adjusted net profit 3,033 3,461 4,547 3,807 4,715 5,531 (20.3) (26.6) (17.8) EPS 12.8 14.6 19.2 16.0 19.9 23.3 (20.3) (26.6) (17.8)


Exhibit 7: We revise our consolidated EPS estimates by ~17-27% downwards for FY2013-15E Revised consolidated EPS estimates, March fiscal year-ends, 2013-15E (Rs mn)

New estimates Old estimates % change2013E 2014E 2015E 2013E 2014E 2015E 2013E 2014E 2015E

Net sales 54,979 56,532 62,169 59,568 64,373 68,955 (7.7) (12.2) (9.8) EBITDA 7,418 8,065 9,606 8,695 9,968 11,143 (14.7) (19.1) (13.8) EBITDA margin (%) 13.5 14.3 15.5 14.6 15.5 16.2 Adjusted net profit 2,582 3,314 4,575 3,284 4,528 5,520 (21.4) (26.8) (17.1) EPS 10.9 14.0 19.3 13.8 19.1 23.3 (21.4) (26.8) (17.1)


Exhibit 8: We value Bharat Forge at Rs200/share based on SOTP methodology Bharat Forge sum-of-the-parts valuation table

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

12 m forward standalone EBITDA 7,427 8.0 59,420 250 12 m forward overseas EBITDA 531 4.0 2,126 9 Less: consolidated net debt 14,215 60 Equity value 47,330 199 Target price 200




Exhibit 9: We expect profitability of the standalone business to remain under pressure due to subdued demand outlook Bharat Forge standalone profit and loss, balance sheet and cash flow statement, March fiscal year-ends, 2009-15E (Rs mn)

2009 2010 2011 2012 2013E 2014E 2015EProfit model (Rs mn)Net sales 20,576 18,560 29,473 36,860 30,902 32,021 36,110 EBITDA 4,450 4,370 7,161 9,168 7,205 7,427 8,839 Other income 488 323 462 661 916 969 1,032 Interest (1,004) (1,028) (1,214) (1,505) (1,510) (1,018) (798) Depreciation (1,494) (1,644) (1,933) (2,149) (2,260) (2,413) (2,549) Profit before tax 2,439 2,021 4,476 6,175 4,351 4,965 6,524 Tax expense (544) (537) (1,370) (1,850) (1,319) (1,504) (1,977) Adjusted net profit 1,611 1,421 3,106 4,325 3,033 3,461 4,547 Adjusted earnings per share (Rs) 6.8 6.0 13.1 18.2 12.8 14.6 19.2 Balance sheet (Rs mn)Equity 14,869 15,272 19,954 21,431 24,186 27,369 31,639 Total Borrowings 18,079 18,528 14,734 19,817 13,729 10,229 9,729 Deferred Tax Liability 1,617 1,065 1,556 1,272 1,272 1,272 1,272 Current liabilities 6,925 9,595 11,065 10,762 12,828 13,194 13,996 Total liabilities 41,489 44,460 47,309 53,282 52,015 52,064 56,635 Net fixed assets 20,632 19,146 19,244 20,853 21,093 20,680 20,131 Investments 3,672 7,209 9,198 8,848 9,348 9,848 10,348 Cash 3,667 4,935 1,466 5,386 1,169 987 4,376 Other current assets 13,518 13,169 17,402 18,195 20,405 20,549 21,780 Total assets 41,489 44,460 47,309 53,282 52,015 52,064 56,635 Free cash flow (Rs mn)Operating cash flow 3,824 2,577 5,529 6,190 5,293 5,874 7,096 Working capital changes (2,838) 3,005 (2,750) (1,096) (145) 222 (429) Capital expenditure and strategic investments (3,267) (1,164) (2,025) (4,259) (2,500) (2,000) (2,000) Free cash flow (2,281) 4,418 754 835 2,648 4,096 4,667 RatiosEBITDA margin (%) 21.6 23.5 24.3 24.9 23.3 23.2 24.5 PAT margin (%) 7.8 7.7 10.5 11.7 9.8 10.8 12.6 Debt/equity (X) 1.2 1.2 0.7 0.9 0.6 0.4 0.3 Book Value (Rs/share) 66.8 68.6 84.1 90.3 101.9 115.3 133.3 RoAE (%) 7.0 8.4 17.6 17.5 13.3 13.4 15.4 RoACE (%) 10.9 8.8 16.0 19.5 14.3 15.3 18.0




Exhibit 10: We expect profitability of the consolidated business to remain under pressure due to subdued demand outlook Bharat Forge consolidated profit and loss, balance sheet and cash flow statement, March fiscal year-ends, 2009-15E (Rs mn)

2009 2010 2011 2012 2013E 2014E 2015EProfit model (Rs mn)Net sales 47,751 33,276 50,873 62,791 54,979 56,532 62,169 EBITDA 5,575 3,427 7,853 9,947 7,418 8,065 9,606 Other income 675 511 671 893 950 998 1,097 Interest (1,291) (1,303) (1,529) (1,837) (1,812) (1,203) (867) Depreciation (2,517) (2,451) (2,548) (3,018) (3,073) (3,208) (3,328) Profit before tax 2,441 184 4,447 5,984 3,483 4,652 6,508 Tax expense (696) (119) (1,402) (1,796) (1,080) (1,442) (2,018) Adjusted net profit 1,476 198 3,117 4,123 2,582 3,314 4,575 Adjusted earnings per share (Rs) 6.6 0.9 13.1 17.4 10.9 14.0 19.3 Balance sheet (Rs mn)Equity 17,388 15,413 21,072 23,860 25,807 28,635 32,764 Total Borrowings 21,908 22,527 18,950 27,615 17,690 14,390 10,390 Deferred Tax Liability 1,843 959 1,321 886 886 886 886 Current liabilities 12,081 14,062 18,075 20,982 20,044 20,356 21,808 Total liabilities 53,221 52,960 59,416 73,342 64,426 64,266 65,847 Net fixed assets 27,895 26,060 27,662 31,619 31,046 29,839 28,511 Investments 2 2,737 3,668 3,870 3,667 4,667 5,667 Cash 4,883 5,977 3,110 6,718 151 175 191 Other current assets 20,440 18,187 24,977 31,135 29,561 29,586 31,478 Total assets 53,221 52,960 59,416 73,342 64,426 64,266 65,847 Free cash flow (Rs mn)Operating cash flow 4,929 1,632 5,543 7,183 5,476 6,418 7,818 Working capital changes (3,173) 4,221 (2,324) (3,664) 635 288 (440) Capital expenditure and strategic investments (5,355) (1,350) (5,089) (12,520) (2,500) (2,000) (2,000) Free cash flow (3,598) 4,502 (1,870) (9,002) 3,611 4,705 5,379 RatiosEBITDA margin (%) 11.7 10.3 15.4 15.8 13.5 14.3 15.5 PAT margin (%) 3.1 0.6 6.1 6.6 4.7 5.9 7.4 Debt/equity (X) 1.0 1.1 0.8 1.0 0.7 0.5 0.3 Book Value (Rs/share) 73.8 65.7 82.3 92.3 101.3 113.6 131.4 RoAE (%) 9.0 1.3 18.3 19.9 11.2 13.0 15.7 RoACE (%) 9.8 3.7 14.9 16.7 10.9 13.3 16.8



Decline in operating profits led by lower gas volumes

GSPL reported 3QFY13 EBITDA at `2.39 bn (-6.5% qoq and -5.6% yoy), modestly higher than our estimate of `2.35 bn. The decline in operating profits reflects lower gas transmission volumes. Implied transmission tariff was higher at `1.04/cu m versus `0.99/cu m in 2QFY13 and `0.9/cu m in 3QFY12, our expectation was `0.99/cu m. Gas transmission volumes were lower at 27.3 mcm/d versus 28.6 mcm/d in 2QFY13 and 32.8 mcm/d in 3QFY12. Reported net income declined to `1.19 bn in 3QFY13 versus `1.33 bn in 2QFY13 and `1.26 bn in 3QFY12.

Use-or-pay agreements protect earnings currently; risk exists from renewal of contracts

We highlight that GSPL has reported a modest 4% decline in gas transmission segment revenues and 7% decline in operating profits in 9MFY13 despite a sharp 17% yoy decline in volumes. The company has presumably benefited from use-or-pay contracts. However, we expect the benefit to subside gradually as and when the contracts are renegotiated. Interestingly, GSPL’s transmission segment revenues have declined modestly by 4% since 1QFY12 despite 26% decline in gas transmission volumes in the same period.

Gas volumes will likely improve in the long term

We expect GSPL’s Gujarat pipeline network to benefit from increase in gas supply in the long term led by (1) higher LNG imports from proposed expansion of Dahej and Hazira terminals and (2) potential recovery in domestic gas supply assuming incremental production from ONGC’s marginal fields and KG D-6 satellite fields.

Retain our ADD rating with a revised TP of `83

We retain our ADD rating on the GSPL stock noting moderate upside to our revised DCF-based target price of `83 (`85 previously). We model average transmission tariff of `0.8/cu m in the long term which results in reasonable CROCI of 12%. We have revised FY2013E, FY2014E and FY2015E EPS to `8.8, `8.3 and `8.1 from `8.5, `8.1 and `8 to reflect (1) lower transmission volumes, (2) higher tariffs in FY2013-14E and (3) other minor changes. We model gas transmission volumes for FY2013E, FY2014E and FY2015E at 28.5 mcm/d, 27.5 mcm/d and 30 mcm/d versus 29 mcm/d in 9MFY13 and 34 mcm/d in FY2012.

GSPL (GUJS)

Energy

In-line results. GSPL reported net income at `1.19 bn (-10.4% qoq and -5.7% yoy) in 3QFY13, modestly higher than our estimate of `1.16 bn led by higher implied transmission tariff at `1.04/cu m. Gas transmission volumes declined further to 27.3 mcm/d. We retain our ADD rating on the GSPL stock given inexpensive valuations at 8.4X FY2014E EPS. Our revised DCF-based TP of `83 (`85 previously) factors in low transmission tariffs and moderate improvement in gas volumes in the long term.

GSPLStock data Forecasts/Valuations 2012 2013E 2014E

52-week range (Rs) (high,low) EPS (Rs) 9.3 8.8 8.3Market Cap. (Rs bn) 39.4 EPS growth (%) 4.7 (5.1) (6.2)




88-62

ADD

FEBRUARY 11, 2013

RESULT


Price (Rs): 70


BSE-30: 19,485

QUICK NUMBERS

• 4.7% qoq decline in volumes to 27.3 mcm/d

• 5% qoq increase in implied tariffs to `1.04/cu m

• Stock trading at 8.4X FY2014E EPS

Energy GSPL


Key highlights of 3QFY13 results

Exhibit 1 gives the details of 3QFY13 results and compares the same with 2QFY13 and 3QFY12. We discuss key financial and operating highlights.

Exhibit 1: Interim results of GSPL, March fiscal year-ends (` mn)

(% chg) yoy3QFY13 3QFY13E 3QFY12 2QFY13 3QFY13E 3QFY12 2QFY13 9MFY13 9MFY12 (% chg) FY2013E

Net sales 2,661 2,562 2,755 2,772 3.9 (3.4) (4.0) 8,134 8,445 (3.7) 10,774 Total expenditure (267) (214) (221) (212) 25.0 21.2 26.3 (690) (668) 3.2 (943) Operating costs (117) (106) (114) (102) (336) (338) (446) Staff cost (91) (53) (51) (57) (192) (159) (246) Other expenditure (59) (55) (56) (53) (162) (171) (250)EBITDA 2,394 2,348 2,535 2,561 1.9 (5.6) (6.5) 7,444 7,777 (4.3) 9,832 OPM (%) 90.0 91.7 92.0 92.4 91.5 92.1 91.3 Other income 175 159 158 185 9.9 10.7 (5.8) 511 373 37.0 668Interest (314) (318) (325) (316) (1.0) (3.3) (0.4) (947) (986) (3.9) (1,272)Depreciation (478) (466) (460) (464) 2.6 3.8 2.9 (1,381) (1,353) 2.1 (1,857)Pretax profits 1,776 1,724 1,907 1,966 3.0 (6.9) (9.7) 5,627 5,811 (3.2) 7,370 Tax (473) (405) (484) (531) (1,534) (1,463) (1,784) Deferred taxation (114) (154) (162) (107) (327) (421) (607)Adjusted net income 1,190 1,164 1,261 1,328 2.2 (5.7) (10.4) 3,767 3,928 (4.1) 4,979 Earnings per share (Rs) 2.1 2.1 2.2 2.4 2.2 (5.7) (10.4) 6.7 7.0 (4.1) 8.8 Income tax rate (%) 33.0 32.4 33.9 32.5 33.1 32.4 32.4

Operating detailsGas transmission volumes (mcm) 2,508 2,530 3,015 2,631 (0.9) (16.8) (4.7) 7,972 9,600 (17.0) 10,403 Gas transmission volumes (mcm/d) 27.3 27.5 32.8 28.6 (0.9) (16.8) (4.7) 29.0 34.9 (17.0) 28.5 Gas transmission tariff (Rs/cu m) 1.04 0.99 0.90 0.99 5.0 16.0 5.0 0.98 0.85 15.2 0.99 Segment revenuesGas transportation 2,615 2,711 2,612 (3.5) 0.1 7,784 8,138 (4.3) Sale of electricity 50 46 160 360 314 Segment EBITGas transportation 2,041 2,210 2,101 (7.7) (2.9) 6,206 6,678 (7.1) Sale of electricity (48) (68) 62 66 (32)


Financial highlights. GSPL reported 3QFY13 EBITDA at `2.39 bn versus `2.56 bn in 2QFY13 and `2.54 bn in 3QFY12. The decline in EBITDA reflects lower transmission volumes at 27.3 mcm/d (-4.7% qoq and -16.8% yoy) which were partially offset by higher implied transmission tariffs at `1.04/cu m (+5% qoq and +16% yoy). The company reported operating loss of `48 mn from sale of electricity versus operating profit of `62 mn in 2QFY13 and operating loss of `68 mn in 3QFY12.

Lower transmission volumes. GSPL reported lower gas transmission volumes at 27.3 mcm/d in 3QFY13 versus 28.6 mcm/d in 2QFY13 and 32.8 mcm/d in 3QFY12; our estimate was 27.5 mcm/d. Exhibit 2 shows that transmission volumes of GSPL and GAIL have declined over the past few quarters reflecting decline in KG D-6 gas production.

Exhibit 2: GSPL’s transmission volumes continue to decline Gas volumes for GSPL, RIL and PLNG, March fiscal year-ends, 2012-13YTD (mcm/d)

1QFY12 2QFY12 3QFY12 4QFY12 1QFY13 2QFY13 3QFY13Transmission volumes of GSPL 36.8 35.2 32.8 31.1 31.1 28.6 27.3 Transmission volumes of GAIL 117.2 118.6 119.0 115.6 109.8 105.6 NALNG imports from PLNG's Dahej terminal 39.7 39.8 42.7 40.2 37.8 40.2 41.9 Gas supply from RIL's KG D-6 block 48.6 45.3 40.9 35.8 32.2 28.5 24.0


GSPL Energy


Higher implied transmission tariffs. GSPL’s 3QFY13 implied gas transmission tariff increased to `1.04/cu m versus `0.99/cu m in 2QFY13 and `0.9/cu m in 3QFY12. The company has presumably benefited from use-or-pay contracts.

Key assumptions behind earnings model of GSPL

Gas transmission volumes. We have reduced our FY2013E, FY2014E and FY2015E gas transmission volumes to 28.5 mcm/d, 27.5 mcm/d and 30 mcm/d versus 29.5 mcm/d, 29 mcm/d and 31.5 mcm/d previously. We model a gradual increase in GSPL’s transmission volumes to 40 mcm/d by FY2018E reflecting moderate improvement in gas supply led by (1) proposed expansion of Hazira terminal by 1.4 mtpa in CY2013 and Dahej terminal by 5 mtpa in 4QCY15 and (2) incremental gas production from ONGC’s marginal fields by FY2014-15 and RIL’s KG D-6 satellite fields by FY2016-17 (see Exhibit 3).

Exhibit 3: We expect moderate increase in gas supply led by higher LNG imports Supply of natural gas in India, March fiscal year-ends, 2010-18E (mcm/d)

2010 2011 2012 2013E 2014E 2015E 2016E 2017E 2018EMumbai High 48 48 48 48 47 47 46 46 45 Gujarat 7 6 6 6 6 6 6 6 6 North-East 9 9 10 10 10 10 10 10 10 Rajasthan 1 1 2 2 2 2 2 2 2 TN/AP 7 7 7 7 7 7 7 7 7 Eastern offshoreKG-D6 (RIL-Niko) 39 56 43 26 20 18 28 40 40 NEC-25 (RIL-Niko) — — — — — — — — 8 Deen Dayal (GSPC) — — — — 2 3 5 5 5 ONGC — — — 1 2 2 2 2 2 PY-3 0 0 0 0 0 0 0 0 0 Ravva 1 2 2 1 1 1 1 1 1 Western offshoreLakshmi 1 1 1 0 0 0 — — —Panna-Mukta 5 4 6 5 4 4 4 4 3 Tapti 8 7 6 5 5 5 4 4 4 ONGC marginal fields — — — 2 4 6 6 6 6 LNG and CBMPetronet LNG - Dahej 30 33 41 40 42 46 47 57 60 Petronet LNG - Kochi — — — — 1 4 8 11 15 RGPPL - Dabhol — — — 0 4 8 11 15 18 Shell Total LNG - Hazira 5 4 10 10 12 14 15 18 18 CBM gas — 0 0 1 2 4 6 7 9 Total domestic gas 128 141 129 114 113 114 126 138 147 Total LNG imports 35 37 50 51 60 72 81 101 112 Total gas supply 163 178 179 165 172 186 207 240 259

Source: MOPNG, Kotak Institutional Equities estimates

Gas transportation tariffs. We model gas transportation tariffs at `0.99/cu m for FY2013E and `0.97/cu m for FY2014E. We have assumed lower tariffs of `0.85/cu m in FY2015E and `0.8/cu m from FY2016E onwards assuming finalization of regulated tariffs by PNGRB; we highlight that the regulator has fixed ‘provisional’ tariffs in September 2012. Our assumptions result in reasonable CROCI of 12% in FY2015-22E in line with regulated returns of 12%.

Energy GSPL


Exhibit 4: DCF valuation of GSPL (` mn)

2013E 2014E 2015E 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E 2024E EBITDA 9,832 9,182 8,660 8,897 9,636 10,671 10,598 10,520 10,436 10,347 10,347 10,347Contribution towards GSEDS — — — — — — — — — — — —Adjusted tax expense (1,930) (1,791) (1,691) (1,867) (2,232) (2,667) (2,725) (2,768) (2,796) (2,813)Change in working capital (752) (12) 42 (361) (401) (82) 2 (1) (1) (1)Operating cash flow 7,149 7,379 7,011 6,670 7,003 7,922 7,875 7,751 7,639 7,532Capital expenditure (2,795) (2,635) (2,669) (1,703) (725) (734) (743) (752) (762) (2,835)Free cash flow 4,354 4,744 4,342 4,967 6,278 7,188 7,132 6,999 6,877 4,697 4,697 4,697Discounted cash flow 4,286 4,169 3,407 3,479 3,926 4,014 3,555 3,114 2,732 1,666Discounted cash flow-1 year forward 4,669 3,816 3,897 4,397 4,495 3,982 3,489 3,060 1,866 1,666Discounted cash flow-2 year forward 4,274 4,365 4,926 5,035 4,460 3,908 3,428 2,090 1,866 1,666

Now + 1-year + 2-yearsDiscount rate (%) 12.0 12.0 12.0 Total PV of free cash flow 34,348 35,338 36,018Terminal value assumptionGrowth to perpetuity (%) — — —FCF in 2022E 4,697 4,697 4,697Exit FCF multiple (X) 8.3 8.3 8.3 Exit EV/EBITDA multiple (X) 3.8 3.8 3.8 Terminal value 39,141 39,141 39,141 PV of terminal value 13,884 13,884 13,884 Total value of operating business 48,232 49,222 49,902

Net debt 8,882 5,743 1,949Equity value 39,350 43,479 47,953 Shares outstanding (mn) 563 563 563 Value of Gujarat pipeline network (Rs) 70 77 85 Value of investments (Rs) 6 6 6 Fair value of GSPL (Rs) 76 83 91

Fiscal Year end (March 31, XXXX) March-13 March-14 March-15 March-16 March-17 March-18 March-19 March-20 March-21 March-22 March-23 March-24Today 8-Feb-13 8-Feb-13 8-Feb-13 8-Feb-13 8-Feb-13 8-Feb-13 8-Feb-13 8-Feb-13 8-Feb-13 8-Feb-13 8-Feb-13 8-Feb-13Days left 51 416 781 1,147 1,512 1,877 2,242 2,608 2,973 3,338 3,703 4,069 Years left 0.1 1.1 2.1 3.1 4.1 5.1 6.1 7.1 8.1 9.1 10.1 11.1 Discount factor at WACC 0.98 0.88 0.78 0.70 0.63 0.56 0.50 0.44 0.40 0.35 0.32 0.28


GSPL Energy


Exhibit 5: GSPL: Profit model, balance sheet, cash model, March fiscal year-ends, 2008-16E (` mn)

2008 2009 2010 2011 2012 2013E 2014E 2015E 2016EProfit model (Rs mn)Net sales 4,179 4,875 9,920 10,391 11,233 10,774 10,164 9,743 10,098EBITDA 3,645 4,249 9,297 9,616 10,332 9,832 9,182 8,660 8,897Other income 294 243 247 291 513 668 740 830 924Interest (815) (870) (938) (961) (1,302) (1,272) (1,089) (861) (723)Depreciation (1,632) (1,705) (2,365) (1,533) (1,822) (1,857) (1,917) (1,915) (1,915)Pretax profits 1,491 1,918 6,242 7,413 7,722 7,370 6,915 6,713 7,184Tax (389) (536) (1,878) (1,180) (1,866) (1,784) (1,705) (1,683) (1,921)Deferred taxation (82) (145) (261) (1,235) (603) (607) (539) (495) (410)Adjusted net profits 1,015 1,236 4,113 5,008 5,245 4,979 4,672 4,535 4,853Earnings per share (Rs) 1.8 2.2 7.3 8.9 9.3 8.8 8.3 8.1 8.6

Balance sheet (Rs mn)Total equity 11,410 12,152 15,638 20,066 24,667 28,992 33,009 36,490 39,087Deferred tax liability 999 1,144 1,405 2,641 3,244 3,851 4,390 4,885 5,295Total borrowings 9,660 11,509 12,595 14,835 14,086 12,135 10,312 8,489 6,733Currrent liabilities 5,106 5,331 8,334 7,586 2,690 1,894 1,838 1,850 1,515Total liabilities and equity 27,175 30,137 37,973 45,128 44,686 46,871 49,549 51,714 52,630Cash 2,569 975 1,742 2,390 5,203 6,392 8,363 9,772 10,874Current assets 2,928 4,641 5,808 6,607 2,611 2,567 2,523 2,493 2,518Total fixed assets 21,259 24,132 29,755 35,363 35,708 36,748 37,499 38,285 38,073Investments 356 356 666 766 1,164 1,164 1,164 1,164 1,164Deferred expenditure 63 33 3 2 — — — — —Total assets 27,175 30,137 37,973 45,128 44,686 46,871 49,549 51,714 52,630

Free cash flow (Rs mn)Operating cash flow, excl. working capital 2,743 2,918 6,367 6,808 7,225 6,673 6,355 6,084 6,253Working capital changes 2,460 (1,752) 1,420 (2,122) (851) (752) (12) 42 (361)Capital expenditure (5,863) (4,579) (7,777) (5,693) (2,581) (2,795) (2,635) (2,669) (1,703)Investments (356) — — (100) (401) — — — —Other income — 297 157 170 443 668 740 830 924Free cash flow (659) (3,116) 167 (837) 4,236 3,793 4,448 4,287 5,114

Ratios (%)Debt/equity 77.9 86.6 73.9 65.3 50.5 36.9 27.6 20.5 15.2 Net debt/equity 43.8 46.4 42.5 39.5 33.5 27.0 21.6 17.0 13.2 RoAE 8.8 9.6 27.1 25.2 20.7 16.4 13.3 11.5 11.3 RoACE 8.2 8.6 18.5 21.0 17.2 15.1 13.0 11.6 11.5 CROCI 16.9 14.8 23.2 20.2 18.9 15.1 13.4 12.0 11.6

Key assumptionsVolumes (mcm/d) 16.8 14.9 32.0 35.6 34.0 28.5 27.5 30.0 33.0 Average tariff (Rs/cu m) 0.67 0.83 0.86 0.79 0.87 0.99 0.97 0.85 0.80



Execution improves although margin miss and high interest cost nullify gain; PAT down 24% yoy

BGR reported better-than-expected execution of Rs8 bn in 3Q (flat yoy, 15% ahead of Rs7 bn estimate) after a dismal 1H (18% yoy decline). Sharp decline in EBITDA margin (13.7%; down 140 bps yoy) and substantial increase in interest cost (Rs503 mn; up 26% qoq and 38% yoy) led to a 24% yoy decline in PAT to Rs414 mn (in line with estimates). For the nine months ending Dec 2012, the company’s sales have declined 11% (Rs20 bn) with broadly flat margin (14.3%). High interest cost (up 32% yoy) has further marred PAT (down 30% yoy to Rs1.1 bn).

Slow progress on bulk tender capacities and less bidding interest in incremental orders worry

Our recent interaction with BGR suggests limited progress made by the JV towards setting up manufacturing facilities for its bulk-tender order wins (LoA given a year ago). The company did not put price bids for OPGCL and Tanda, potentially on contract-specific issues. We also highlight recent agreement between Hitachi (BGR’s JV partner) and Mitsubishi to pool and merge their thermal power businesses, which further puts the technology agreement with BGR for super-critical equipment at risk.

Backlog declines, remains shallow excluding bulk tender; completes Mettur, Kalisindh finishing nears

BGR reported a sequential decline in backlog to Rs136 bn versus Rs140 bn as of end-Sep 2012, implying lack of any major order win in 3Q (~Rs4 bn of inflows). Note that backlog remains shallow after excluding the bulk tender order wins (~Rs70 bn contribution). BGR has completed its Mettur project (commissioned in Aug 2012) and is close to completing the 2X 600 MW Kalisindh project (Rs51 bn capex or about 85% of work completed by Jun 2012 as per CEA reporting).

Reiterate REDUCE with a TP of Rs260/share on weak business prospects (execution, orders)

We cut our estimates to Rs25 and Rs28 for FY2013E and FY2014E from Rs28/Rs34. Reiterate REDUCE rating with a TP of Rs260 on (1) potentially sedate FY2014E execution (delaying execution of bulk tender which forms majority of backlog), (2) lack of pipeline/bidding for incremental orders and (3) macro issues plaguing the sector, which may continue to delay inflows.

BGR Energy Systems (BGRL)

Industrials

Execution improves although margin miss and high interest cost nullify gain. Sharp margin miss and very high interest cost nullified gain of better execution in 3Q (flat yoy versus 15% decline expected), leading to an in-line PAT (Rs414 mn, down 24% yoy). We remain cautious on risk to (1) execution (going slow on bulk tender capacities despite getting LoA a year back) and (2) ordering prospects (not putting price bids for limited available opportunities, Hitachi-Mitsuibishi global tie-up). Backlog has declined qoq (Rs136 bn) and remains shallow excluding bulk tender contribution. Retain REDUCE.

BGR Energy SystemsStock data Forecasts/Valuations 2013 2014E 2015E





378-230

REDUCE

FEBRUARY 11, 2013

RESULT


Price (Rs): 235


BSE-30: 19,485

BGR Energy Systems Industrials


Improves on execution although margin miss & high interest cost nullify gain

Sharp sequential improvement in execution. BGR reported stronger-than-expected execution of Rs8 bn in 3Q (flat yoy), 15% ahead of our estimate of Rs7 bn. Sales grew 29% on a sequential basis.

Sharp margin decline on higher raw material cost. EBITDA margin at 13.7% declined sharply on a yoy (down 260 bps) and qoq basis (140 bps decline) and was lower than our expectation of14.5%. The margin decline was primarily led by higher material cost (at 75.5% of sales in 3Q). This led to an in-line EBITDA of Rs1.1 bn (down 16% yoy).

High interest cost further mars results. The company’s interest cost increased further in 3Q to Rs503 mn (increasing 26% qoq and 38% yoy) leading to a sharp 24% yoy decline in PAT to Rs414 mn.

9M results. 9M sales at Rs20 bn have contracted by 11% with small decline in EBITDA margin (14.3% versus 14.6% in 9MFY12). High interest cost, up 32% yoy, has resulted in a sharp 30% decline at PAT level (Rs1.1 bn versus Rs1.6 bn in 9MFY12).

Exhibit 1: BGR Energy Systems - 3QFY13 results - Key numbers (Rs mn)

% change3QFY13 3QFY13E 3QFY12 2QFY13 vs est. yoy qoq 9MFY13 9MFY12 % change

Sales 8,049 7,029 8,037 6,265 14.5 0.1 28.5 20,422 23,094 (11.6)Expenses (6,943) (6,010) (6,724) (5,320) 15.5 3.3 30.5 (17,492) (19,719) (11.3)

Stock (26) (2) (68) (15) (2) 790Raw material cost (6,049) (5,874) (4,492) 3.0 34.7 (15,166) (17,457) (13.1)Employee expenses (557) (482) (492) 15.8 13.2 (1,425) (1,241) 14.9Other expenses (310) (367) (267) (15.4) 16.2 (886) (1,019) (13.1)

EBITDA 1,106 1,019 1,313 945 8.5 (15.8) 17.0 2,930 3,375 (13.2)Other income 55 13 — 13 322.5 NA NA 70 0 NAInterest (503) (366) (462) (401) 37.5 9.0 25.5 (1,246) (943) 32.1Depreciation (44) (54) (41) (43) (18.3) 7.5 2.8 (129) (119) 8.5PBT 614 612 810 514 0.2 (24.3) 19.4 1,626 2,314 (29.7)Tax (199) (202) (263) (167) (1.4) (24.3) 19.4 (528) (751) (29.8)Net profit 414 410 547 347 1.0 (24.3) 19.3 1,098 1,563 (29.7)

Key RatiosRM/Sales 75.5 73.1 72.8 74.3 75.6Employee exp/Sales 6.9 6.0 7.9 7.0 5.4Other Exp/Sales 3.9 4.6 4.3 4.3 4.4EBITDA 13.7 14.5 16.3 15.1 14.3 14.6PBT margin 7.6 8.7 10.1 8.2 8.0 10.0PAT Margin 5.1 5.8 6.8 5.5 5.4 6.8Tax rate 32.5 33.0 32.5 32.4 32.4 32.5

Order detailsOrder backlog 135,780 81,498 139,790 66.6 (2.9) 135,780 81,498Order booking 4,039 16,980 NA 81,042 24,882


Segmental: Construction/EPC business grows in 3Q post dismal 1H

The company’s construction and EPC business grew by 2.6% on a yoy basis in 3Q to Rs5 bn post sharp 16% decline in 1H.

Industrials BGR Energy Systems


Exhibit 2: BGR Energy Systems - 3QFY13 segmental results (Rs mn)

3QFY13 3QFY12 2QFY13 yoy qoq 9MFY13 9MFY12 % changeRevenuesConstruction & EPC 7,463 7,271 5,680 2.6 31.4 18,829 20,792 (9.4) Capital goods 587 752 592 (22.0) (1.0) 1,602 2,249 (28.8) Total revenues 8,050 8,023 6,273 0.3 28.3 20,432 23,041 (11.3)

Segment resultsConstruction & EPC 994 1,181 898 (15.8) 10.6 2,708 2,960 (8.5) Capital goods 69 92 12 (25.1) 470.8 104 298 (65.2) Net unallocable income 55 — 5 #DIV/0! 1,035.4 60 0 14,975.0 Interest expense (503) (462) (401) 9.0 25.5 (1,246) (943) 32.1 Total PBT 614 810 514 (24.3) 19.4 1,626 2,314 (29.8)

Capital employedConstruction & EPC 10,595 9,622 10,253 30,758 27,621 Capital goods 1,650 1,439 1,577 4,798 3,955 Total capital employed 12,244 11,061 11,830 35,556 31,575

Margins (%)Construction & EPC 13.3 16.2 15.8 14.4 14.2Capital goods 11.7 12.2 2.0 6.5 13.2

change (%)

Source: Kotak Institutional Equities

Slow progress on bulk tender capacities, less bidding interest in new orders worry

Our recent interaction with BGR suggests limited progress made by the JV towards setting up manufacturing facilities for its bulk-tender order wins (LoA given a year ago). The company has shown less interest in bidding for incremental orders (did not put price bids for OPGCL and Tanda despite being technically qualified) in current scenario of limited opportunities (see exhibit below. We also highlight recent agreement between Hitachi (BGR’s JV partner) and Mitsubishi to pool and merge their thermal power businesses, which further puts the technology agreement with BGR for super-critical equipment at risk.

BGR Energy Systems Industrials


Exhibit 3: 8 GW of near-term opportunity Details of key EPC/BTG thermal projects in advanced stages

CapacityProject Status Agency (MW) Nature Clearances Remarks/constraintsProjects with environemtal clearance

Banaharpalli U3,4 BHEL awarded L1 OPGCL 1,320 BTG

Coal: Manoharpur/Dipside Manoharpur (in No Go zoneEC: Received in Feb 2010Land required only for ash pond (expansion project), no diversion of forest land is required

Submitted request for tapering linkage

Suratgarh U7,8 BHEL declared L1 RRUVNL 1,320 EPC

Coal: Parsa Kente mines/imported (70:30)Land: has been acquiredEC: Received in May-12FC: Stage I approved None

Chhabra U5,6 BHEL declared L1 RRUVNL 1,320 EPC

Coal: Parsa Kente mines/imported (70:30)Land: has been acquiredEC: Received in May-12 (only for one unit as second unit lacks coal supply

EC received for only 1 unit

Neyvelli Tendered NLC 1,000 TG

Lignite: Take supply from resturcturing of existing NLC minesEC:Issued in Oct-10 None

Tanda L&T likely L1 (boiler) NTPC 1,320 NA Coal: North Kapampura minesEC: Issed in Apr 11

Close to being tendered

Bhusawal U-6 Tendered MAHAGENCO 660 EPC

Coal: WCL LoA (1 mtpa)/Machakata mines (rapering linkage)Land: has been acquiredEC: Achieved in Nov-12

Machakata to make minimum 2 years

Total 6,940 Projects with ToRs issued

Khargone Tendered NTPC 1,320 EPC

Coal: SECL EC: TOR achieved in Dec-10, EIA prepared, public hearing completed in Jan-12Land: In-principle commitment

EC likely to be awarded with PH has happened with certain pre-conditions decided for granting clearance

Total 1,320 Total near-term opprtunity 8,260

Source: Industry sources, Kotak Institutional Equities

Backlog declines, remains shallow excluding bulk tender

BGR reported a sequential decline in backlog to Rs136 bn versus Rs140 bn as of end-Sep 2012, implying lack of any major order win in 3Q (~Rs4 bn of inflows). Note that backlog remains to be shallow after excluding the bulk tender order wins (~Rs70 bn contribution). BGR has completed its Mettur project (commissioned on Aug 2012) and is close to completing the 2X 600MW Kalisindh project (Rs51 bn capex or about 85% of work completed by Jun 2012 as per CEA reporting).

Reiterate REDUCE on weak business prospects (execution, orders)

We retain our estimates to Rs28 and Rs34 for FY2013E and FY2014E. Reiterate REDUCE rating with a TP of Rs260 on (1) potentially sedate FY2014E execution (delaying execution of bulk tender which forms majority of backlog), (2) lack of bidding interest for incremental orders and (3) macro issues plaguing the sector, which may delay inflows.

Industrials BGR Energy Systems


Exhibit 4: Financials of BGR Energy, March fiscal year-ends, 2009-14E (Rs mn)

2008 2009 2010 2011 2012 2013E 2014E 2015EIncome statementOperating income 15,177 19,314 30,779 47,498 34,505 32,646 40,094 60,294 Total operating expenses (13,623) (17,225) (27,292) (42,135) (29,836) (28,484) (35,460) (53,407) EBITDA 1,553 2,089 3,487 5,363 4,669 4,162 4,634 6,887 Other income 52 317 205 223 144 44 48 52 Interest expense (254) (579) (538) (605) (1,355) (1,292) (1,417) (1,646) Depreciation (55) (75) (103) (173) (174) (205) (225) (253) Pre-tax profit 1,296 1,752 3,051 4,808 3,285 2,709 3,040 5,040 Tax (411) (596) (1,037) (1,577) (1,041) (912) (1,023) (1,696) Net profits 885 1,156 2,015 3,231 2,244 1,797 2,017 3,343 EPS (Rs) 11.7 16.0 27.9 44.9 31.0 25.0 28.1 46.5 Balance sheetShareholders funds 4,732 5,633 7,057 9,514 11,175 12,537 14,083 16,645

Equity share capital 720 720 720 722 722 722 722 722 Reserves and surplus 4,012 4,913 6,337 8,793 10,453 11,816 13,361 15,923

Loan funds 2,464 5,027 7,090 9,336 13,373 17,468 17,000 19,500 Total sources of funds 10,141 13,498 17,973 26,484 33,530 33,549 37,611 42,193 Net fixed assets 538 1,031 1,557 2,840 4,135 2,572 2,998 3,450 Investments 1,514 5 5 5 5 3,859 4,859 4,859 Net current assets (excl. cash) 5,019 6,310 6,130 13,190 19,982 17,262 19,553 26,926 Cash 3,070 6,152 10,280 10,449 9,407 9,856 10,202 6,959 Total application of funds 10,141 13,498 17,973 26,484 33,530 33,549 37,611 42,193 Free cash flowOperating profit before Wcap. changes 3,793 1,622 2,635 4,020 2,418 2,015 2,260 3,619 Change in working capital / other adjustments (3,060) (1,292) 180 (7,060) (6,792) 2,720 (2,291) (7,373) Net cashflow from operating activites 732 330 2,815 (3,040) (4,374) 4,735 (30) (3,754) Fixed Assets (179) (568) (629) (1,455) (1,470) 1,358 (650) (705) Investments (1,511) 1,509 - - - (3,853) (1,000) - Cash (used) / realised in investing activities (1,691) 941 (629) (1,455) (1,470) (2,495) (1,650) (705) Free cash flow (958) 1,271 2,186 (4,495) (5,844) 2,240 (1,680) (4,459) RatiosEBITDA margin (%) 10.2 10.8 11.3 11.3 13.5 12.7 11.6 11.4 Net debt/equity (0.1) (0.2) (0.5) (0.1) 0.4 0.6 0.5 0.8 RoAE (%) 30.4 22.3 31.8 39.2 21.7 15.2 15.2 21.8 RoACE (%) 15.2 13.0 15.1 16.6 10.7 8.0 8.3 11.1



Sales miss and higher-than-expected interest costs lead to disappointing PAT

NCC reported disappointing 3QFY13 revenues of Rs11.8 bn, down 6.4% yoy on client-side delays which impacted revenues by Rs2 bn. The management cited some pick-up in execution in these projects and guided for a full-year revenue growth of 15% in FY2013E (14% registered in 9M). EBITDA margin (7.2%) declined by 110 bps qoq on negative operating leverage. Disappointing revenues and EBITDA margin led to a low net PAT of Rs108 mn. The company reported high other income of Rs494 mn for the quarter on Rs120 mn from profit on sale of some real estate assets.

Balance sheet improves on asset sales; unlikely to meet PPAs for 75% of power by end-FY2013E

NCC reported Rs1 bn reduction in debt levels to Rs25.2 bn at end-3QFY13, attributed to real estate asset monetization (Rs550 mn in 3QFY13; another Rs450 mn expected in 4QFY13) and better debtor collection period. The management is also in the process of selling some of its road BOT assets as well though cited no significant progress so far (expects to sell at least one road BOT project by the end of the fiscal) – it expects to reduce the standalone debt further by about Rs2 bn.

The company has not achieved any significant progress on signing PPAs so far; it has currently been shortlisted for 700 MW in Andhra Pradesh. The company has to achieve PPAs for 75% of the power (990 MW) by end-FY2013E as per the lender’s condition.

Inflows remain weak in 3Q leading to backlog decline; though expects Rs23-25 bn inflows in 4Q

NCC reported weak inflows of Rs9.6 bn in 3QFY13 which led to a sequential decline in order backlog to Rs188 bn (versus Rs196 bn at end-2QFY13). The management expects inflows to pick up in 4QFY13 citing opportunities in buildings, electrical, international and water & environment segments. The management cited visibility of orders of Rs18 bn (based on L1 status) and expects to win a further Rs6-7 bn orders, thereby expects a total of Rs23-25 bn of inflows in 4QFY13E.

Retain ADD with an unchanged target price of Rs55/share

We revise our estimates to Rs2.4 and Rs2.4 (from Rs2.4 and Rs3) for FY2013E and FY2014E respectively. Retain ADD (unchanged TP of Rs55) on attractive valuations for construction business (adjusted for investment in subsidiaries) with a strong and well-diversified backlog.

NCC (NJCC)

Construction

Weak operations belie improving trajectory of 1H; looking out for asset sales. NCC reported disappointing sales (down 6% yoy) and EBITDA margin (negative operating leverage), leading to a low net PAT (Rs108 mn) and weak inflows at Rs9 bn. Management guidance of 15% full-year revenue growth and Rs20 bn+ inflow in 4Q may be missed. Most of EBITDA is consumed by interest at current interest cost and thus reducing balance sheet size (assets sales and Wcap reduction) remains key. Debt reduced by Rs1 bn on real estate asset sales; it expects another Rs2 bn reduction by end-FY. Retain ADD.

NCCStock data Forecasts/Valuations 2013 2014E 2015E

52-week range (Rs) (high,low) EPS (Rs) 2.4 2.4 2.0Market Cap. (Rs bn) 10.5 EPS growth (%) 67.8 1.9 (16.7)




68-28

ADD

FEBRUARY 11, 2013

RESULT


Price (Rs): 41


BSE-30: 19,485

Construction NCC


Lower-than-expected revenues and margins lead to disappointing net PAT

Revenue decline (6%) attributed to client-side project delays

NCC reported disappointing 3QFY13 revenues of Rs11.8 bn, declining by about 6.4% on a yoy basis (against our estimate of a 15% growth). The sedate revenues were attributed to client-side delay in certain projects (2-3 projects) as they got held up on delay in disbursements by the lenders which led to lower 3QFY13 revenues to the tune of about Rs2 bn. The management cited some pick-up in execution in these projects and guided for a full-year revenue growth of about 15% in FY2013E (about 14% registered in 9MFY13). We build full-year standalone revenues of Rs60 bn in FY2013E which implies a yoy growth of about 14%.

Margins also disappoint on negative operating leverage

NCC also reported lower-than-expected EBITDA margin of 7.2% (against our estimate of 8.5%). EBITDA margin declined by about 110 bps sequentially primarily on negative operating leverage – higher employee and other expenses as a percentage of sales (though has remained relative flat qoq on an absolute basis).

Sharp PAT miss despite higher-than-expected other income (on real estate asset sales)

The disappointing revenues and EBITDA margin led to a sharp miss at the net PAT level – reported 3QFY13 net PAT of Rs108 mn (versus our estimate of Rs237 mn). The company reported high other income of Rs494 mn for the quarter versus our estimate of about Rs250 mn on the back of Rs120 mn from profit on sale of some real estate assets. The company has finalized sales of real estate assets to the tune of about Rs1 bn of which about Rs550 mn was recognized in 3QFY13 and another Rs450 mn would be recognized in 4QFY13E.

Exhibit 1: Nagarjuna Construction - 3QFY13 - standalone key numbers (Rs mn)

3QFY13 3QFY13E 3QFY12 2QFY13 vs est. yoy qoq 9MFY13 9MFY12 % changeNet sales 11,830 14,997 12,640 13,261 (21.1) (6.4) (10.8) 39,812 34,957 13.9 Operating costs (10,983) (13,722) (11,863) (12,160) (20.0) (7.4) (9.7) (36,697) (31,984) 14.7 Construction costs (9,996) (10,703) (11,165) (6.6) (10.5) (33,690) (28,894) Staff cost (588) (638) (587) (7.9) 0.1 (1,789) (1,776) Other expenditure (399) (522) (408) (23.6) (2.0) (1,217) (1,315) Operating profit 848 1,275 777 1,100 (33.5) 9.1 (23.0) 3,115 2,973 4.8 Other income 494 250 390 266 97.7 26.7 85.6 996 434 129.5 Interest cost (989) (946) (1,070) (1,019) 4.6 (7.6) (2.9) (2,939) (2,420) 21.5 Depreciation (234) (231) (214) (231) 1.4 9.7 1.5 (691) (613) 12.7 Profit before tax 118 348 (117) 117 (66.0) NA 1.2 481 374 28.3 Tax (10) (111) 22 (36) (91.0) (72.0) (125) (122) 2.3 Profit after tax 108 237 (95) 81 (54.3) NA 33.6 355 252 41.0 EPS (Rs) 0.4 0.9 (0.4) 0.3 (54.3) NA 33.6 1.4 1.0 41.0

Key ratios (%)Construction costs/sales 84.5 84.7 84.2 84.6 82.7 Staff cost/sales 5.0 5.0 4.4 4.5 5.1 Other exp./sales 3.4 4.1 3.1 3.1 3.8 EBITDA margin 7.2 8.5 6.1 8.3 7.8 8.5 PBT margin 1.0 2.3 (0.9) 0.9 1.2 1.1 PAT margin 0.9 1.6 (0.8) 0.6 0.9 0.7 Effective tax rate 8.5 32.0 19.2 30.7 26.1 32.7

Order detailsOrder booking 9,589 68,480 6,200 (86.0) 54.7 32,000 99,430 (67.8) Order backlog 187,990 219,890 196,390 (14.5) (4.3) 187,990 219,890 (14.5)

% change


NCC Construction


Consolidated results

NCC reported consolidated revenues of Rs15.2 bn in 3QFY13, relatively flat on a yoy basis. EBITDA margin expanded by about 60 bps yoy (to 11.5% in 3QFY13 from 10.9% last year), leading to a 5% yoy growth in EBITDA. NCC reported a 3QFY13 consolidated net PAT of Rs83 mn against a loss of Rs130 mn in 3QFY12.

Exhibit 2: Nagarjuna Construction - 3QFY13 - consolidated key numbers (Rs mn)

3QFY13 3QFY12 2QFY13 yoy qoq 9MFY13 9MFY12 % changeNet sales 15,215 15,328 16,160 (0.7) (5.9) 49,304 46,084 7.0 Operating costs (13,463) (13,665) (14,174) (1.5) (5.0) (43,525) (38,872) 12.0 Construction costs (12,030) (12,021) (12,732) 0.1 (5.5) (39,191) (34,214) 14.5

(Incr.)/Decr. in stock 41 922 (169) (95.5) (124.3) 767 1,801 (57.4) Raw materials (5,067) (6,204) (5,907) (18.3) (14.2) (18,389) (16,548) 11.1 Other constrn exp. (5,516) (5,072) (5,057) 8.7 9.1 (17,111) (14,486) 18.1 Labour (1,488) (1,666) (1,599) (10.7) (6.9) (4,457) (4,982) (10.5)

Staff cost (905) (1,004) (905) (9.9) (0.0) (2,729) (2,784) (2.0) Other expenditure (528) (640) (537) (17.4) (1.7) (1,605) (1,874) (14.3) Operating profit 1,752 1,663 1,986 5.3 (11.8) 5,780 7,211 (19.9) Other income 369 83 232 344.6 59.4 837 248 237.3 Interest cost (1,435) (1,243) (1,514) 15.4 (5.2) (4,365) (4,384) (0.4) Depreciation (570) (651) (587) (12.5) (2.9) (1,731) (2,386) (27.4) Profit before tax 117 (149) 117 NA (0.1) 520 690 (24.7) Tax (34) 18 (40) (15.0) (159) (174) (8.3) Profit after tax 83 (130) 77 NA 7.7 360 517 (30.2) EPS (Rs) 0.3 (0.5) 0.3 1.4 2.0

Key ratios (%)Constrn exp./Sales 79.1 78.4 78.8 79.5 74.2 Staff cost/Sales 5.9 6.6 5.6 5.5 6.0 Other exp./Sales 3.5 4.2 3.3 3.3 4.1 EBITDA margin 11.5 10.9 12.3 11.7 15.6 PBT margin 0.8 (1.0) 0.7 1.1 1.5 PAT margin 0.5 (0.9) 0.5 0.7 1.1 Effective tax rate 29.1 12.3 34.2 30.7 25.2

% change


NCC’s subsidiaries cumulatively recorded revenues of about Rs3.3 bn and a net profit of Rs16 mn in 3QFY13.

Exhibit 3: Revenues and net PAT of key subsidiaries in 3QFY13 (Rs mn)

Revenues PATNCC International, Muscat 2,138 69 Nagarjuna Contracting LLC. Dubai 240 6 NCC Urban Infra 515 10 OB Infra 221 (14) Western UP Tollways 143 (108) NCC Infra Mauritius 49 16 Brindavan Infra 50 15 Bangalore Elevated Tollway 85 (35) Pondichery-Tindivanam 15 (36) Total subsidiaries 3,260 16

3QFY13

Source: Company

Construction NCC


Debt reduction of Rs1 bn in 3Q on asset sales and better debtor collections

NCC reported some sequential improvement in the balance sheet with about Rs1 bn reduction in debt levels to Rs25.2 bn at end-3QFY13 (from about Rs26.2 bn from end-2QFY13). The reduction in debt levels was attributed to real estate asset monetization (Rs550 mn in 3QFY13; another Rs450 mn expected in 4QFY13) and better debtor collection period.

The management is also in the process of selling some of its road BOT assets as well though cited no significant progress so far. They expect to sell at least one road BOT project by the end of the fiscal. The company also cited intent to sell stake in the Himachal Sorang project (close to declaring CoD). All put together, the management expects to reduce the standalone debt further by about Rs2 bn by end-FY2013E on the back of these stake sales.

Power: May not achieve pre-condition of 75% PPAs by end-FY2013

NCC is developing a 2X660 MW thermal power project in Krishnapatnam and has already invested about Rs4 bn of equity in the project (about similar contribution from its partner as well). The company has tied up debt funds to the tune of Rs53 bn for the project of which about Rs12 bn of debt has already been released. As a part of the debt agreement, the lender had put a condition to achieve PPA for 75% of the power (990 MW) within 12 months from the first date of debt disbursement, i.e. by end-FY2013E.

However, the company has not achieved any significant progress on signing PPAs so far (had been shortlisted for 400 MW in Karnataka but the bids were cancelled). The company has currently been shortlisted for 700 MW in Andhra Pradesh and is also in talks with the Uttar Pradesh Government to sign PPAs.

Toll collections across road projects remain sub-par

The company indicated weak tolling revenues from its three operational projects including (1) Western UP tollway (remains lower at to Rs1.8-2 mn per day versus Rs2.4 mn per day earlier on recent ban on mining by Supreme Court), (2) Pondicherry project (Rs0.4 mn per day versus initial expectation of Rs0.8 mn per day) and (3) Bangalore project (Rs2-2.2 mn per day versus breakeven cost of Rs2.5 mn per day; though this is a substantial improvement versus initial toll collection levels of about Rs1.4 mn per day.

Exhibit 4: NCC - status of BOT projects as of September 30, 2012

Cost NCC Equity Equity investedProject Partners (Rs mn) (Rs mn) (Rs mn) COD StatusRoadsBrindavan Infrastructure Annuity Maytas, KMC 2,475 150 150 Jun-06 Operational, revenue generation for last 4 yearsBangalore Elevated Toll Maytas, Soma 9,903 1,597 1,597 Apr-10 Toll collection improved to about Rs2-2.2 mn/dayOB Infra Annuity KMC 6,000 940 940 Jun-09 Operational; annuities being received regularlyWestern UP Tollway Toll Maytas, Gayatri 7,566 796 875 Apr-11 Toll rev. of Rs1.8-2 mn/day; impacted by mining banPondicherry-Tindivanam Toll Maytas 3,646 322 510 Dec-11 Collection of Rs0.3 mn/day vs initial est. of Rs0.8 mnTotal roads 29,590 3,805 4,072 PowerHimachal Sorang Merchant Maytas 8,900 1,470 1,277 Mar-13 85% completeNCC Power PPA/ Merchant Gayatri 70,470 9,690 3,635 Mar-15 Financially closed; notice to proceed to EPC contractorHimalayan Green PPA/ Merchant SMEC Intl 19,600 3,626 91 Project cancelled by Sikkim govtTotal power 98,970 14,786 5,003 Total 128,560 18,591 9,075

Revenue model

Source: Company

Sedate inflows in 3QFY13 lead to decline in backlog

NCC reported weak order inflows of Rs9.6 bn in 3QFY13 against average quarterly inflows of Rs12-13 bn in FY2012 (adjusted for the large in-house power project order worth Rs52 bn). The weak inflows led to a sequential decline in order backlog to Rs188 bn (versus Rs196 bn at end-2QFY13).

NCC Construction


However, the management expects order inflows to pick up in the next few quarters citing opportunities in buildings, electrical, international and water & environment segments. The management cited strong visibility of orders to the tune of Rs18 bn (based on L1 status) and it expects to win a further Rs6-7 bn orders, thereby it expects a total of about Rs23-25 bn of inflows in 4QFY13E.

The order backlog remains well-diversified across various segments including buildings + roads + oil & gas (29% of backlog), power (32%), water & environment (16%), irrigation (10%) and international (8%). We expect power segment to incrementally increase its share in total revenues for the company on execution of the in-house power project (Rs5 bn of sales in 9M).

Exhibit 5: Segmental break-up of NCC's revenues and order backlog for 9MFY13

3QFY13-end order backlog (Rs188 bn)

Mining2%

International8%

Power32%

Irrigation10%

Metals1% Electrical

2%

Water & environment, railways

16%

Buildings, roads, O&G29%

3QFY13 revenues incl. international (Rs14.4 bn)

Buildings, roads, O&G42%

Water & environment, railways

20%

Electrical6%

Metals2%

Irrigation4%

Power7%

International17%

Mining2%


Order backlog visibility dips to below 2.5 years

The reported order backlog of Rs188 bn provides a revenue visibility of about 2.4 years based on forward four-quarter revenues.

Exhibit 6: NCC backlog has visibility of 2.4 years based on forward four-quarter revenues Order backlog, order booking and visibility (X) of NCC, 2QFY04-3QFY13

0

40

80

120

160

200

240

Q30

4

Q10

5

Q30

5

Q10

6

Q30

6

Q10

7

Q30

7

Q10

8

Q30

8

Q10

9

Q30

9

Q11

0

Q31

0

Q11

1

Q31

1

Q11

2

Q31

2

1Q13

3Q13

(Rs bn)

0.0

0.7

1.4

2.1

2.8

3.5

4.2

(X)Order backlog ( Rs bn, LHS) Order booking (Rs bn, LHS)

Visibility (X, RHS)


Construction NCC


Reiterate ADD with a target price of Rs55/share

We revise our earnings estimates to Rs2.4 and Rs2.4 from Rs2.4 and Rs3 for FY2013E and FY2014E respectively.

We retain our SOTP-based target price of Rs55/share comprised of (1) standalone construction business valuation of Rs19/share based on target P/E multiple of 8X 12-month forward earnings, (2) Rs4/share from the international construction subsidiaries based on 3X 12-month forward earnings, (3) Rs23/share contribution from book value of BOT projects (0.75X FY2012-end book value), and (4) Rs9/share from book value of real estate investments (0.5X FY2012-end book value).

Exhibit 7: Derivation of SOTP-based target price for NCC

Equity inv. ValuationProject/Business (Rs mn) (Rs mn) Rs/share Valuation methodologyStandalone construction business 4,923 19 8X 1-yr forward earningsInternational subsidiary 959 4 3X 1-yr forward earningsInvestments in real estate 4,600 2,300 9 0.5X FY2012-end bookInvestments in BOT assets 7,802 5,852 23 0.75X FY2012-end bookTotal 54.7


We retain ADD rating based on (1) relatively attractive valuations, (2) market capitalization lower than equity committed in BOT projects (about Rs12.5 bn), (3) market price implies almost nil value for standalone construction business (adjusted for value from BOT and other subsidiaries; has invested about Rs19 bn in equity investments and loans & advances to subsidiaries), (4) reasonably well-diversified order backlog and visibility.

NCC Construction


Exhibit 8: Profit model and balance sheet of NCC, March fiscal year-ends, 2007-15E (Rs mn)

2007 2008 2009 2010 2011 2012 2013E 2014E 2015EIncome statementOperating Income 28,711 34,729 41,514 47,778 50,737 52,505 58,469 62,775 68,037 Operating Expenses (26,036) (31,132) (37,777) (42,944) (45,860) (48,511) (53,856) (57,697) (62,582) EBITDA 2,698 3,599 3,737 4,834 4,877 3,993 4,614 5,078 5,455 Other Income 428 56 42 544 146 126 226 133 166 Interest & Finance charges (640) (719) (964) (1,322) (1,682) (2,761) (3,020) (3,248) (3,629) Depreciation (299) (482) (533) (525) (685) (830) (919) (1,044) (1,226) Profit Before Tax 1,824 2,431 2,282 3,530 2,657 529 901 918 765 Tax expense (667) (811) (743) (1,204) (1,021) (169) (297) (303) (252) PAT 1,519 1,642 1,539 2,326 1,635 360 604 615 513 EPS (Rs) 7.3 7.2 6.7 9.1 6.4 1.4 2.4 2.4 2.0

Balance sheetTotal share holders funds 10,391 15,724 16,856 22,457 23,787 24,111 24,541 24,868 25,092

Share Capital 418 458 458 513 513 513 513 513 513 Reserves & Surplus 9,973 15,266 16,398 21,943 23,274 23,597 24,028 24,355 24,579

Loan Funds 6,370 8,938 12,439 15,302 24,841 22,341 25,788 32,288 33,788 Working Capital Loan 2,398 5,613 6,739 6,969 9,503 8,608 8,608 8,608 8,608 Long term 3,971 3,325 5,699 8,333 15,337 13,733 17,179 23,679 25,179

Total Sources of Funds 16,876 24,829 29,482 38,013 48,935 46,707 50,584 57,410 59,134 Net fixed assets 4,229 5,340 4,873 5,972 7,215 7,610 7,840 8,796 10,070

Net block 4,043 5,197 4,592 5,538 6,745 7,259 7,840 8,796 10,070 Capital WIP 186 143 281 434 469 351 — — —

Investments 4,768 5,648 7,402 9,412 12,008 12,402 14,841 16,341 16,341 Net Current Assets (excl Cash) 5,435 11,512 15,861 20,633 28,315 26,048 26,761 31,229 30,697 Cash and Bank Balances 2,434 2,330 1,345 1,997 1,397 646 1,141 1,044 2,026 Total 16,875 24,829 29,482 38,013 48,935 46,707 50,584 57,410 59,134

Free cash flowNet cashflow from operating activites 1,609 (4,098) (1,294) (498) (3,628) 6,164 3,830 440 5,900

Net PBT 1,824 2,431 2,282 3,530 2,657 529 901 918 765 Add: Depreciation 299 482 533 525 685 830 919 1,044 1,226 Add: Financial Charges 640 719 964 1,322 1,682 2,761 3,020 3,248 3,629 Tax paid (603) (759) (722) (1,105) (969) (222) (297) (303) (252) Change in wcap. (562) (6,981) (4,350) (4,771) (7,683) 2,267 (713) (4,468) 532

Cash flow from investing activities (6,447) (2,451) (1,505) (3,490) (4,301) (1,434) (3,588) (3,500) (2,500) Free cash flow (4,838) (6,549) (2,799) (3,989) (7,929) 4,731 242 (3,060) 3,400

Key ratiosEBITDA margin (%) 9.4 10.4 9.0 10.1 9.6 7.6 7.9 8.1 8.0 PAT margin (%) 5.3 4.7 3.7 4.9 3.2 0.7 1.0 1.0 0.8 Debt/ equity (X) 0.6 0.6 0.7 0.7 1.0 0.9 1.1 1.3 1.3 Net debt/ equity (X) 0.4 0.4 0.7 0.6 1.0 0.9 1.0 1.3 1.3 ROAE (%) 23.8 27.0 21.8 31.1 22.4 6.2 10.4 9.6 8.7 ROACE (%) 18.5 15.3 12.2 14.9 10.0 7.4 9.1 8.6 8.2



Domestic soda ash operations deliver; Europe and Africa disappoint

TTCH reported 3QFY13 consol revenue at Rs42 bn (+11% yoy; flat qoq). Reported 3QFY13 consol EBITDA at Rs5.4 bn (-4% yoy;-19% qoq) was lower than our estimates led by disappointment in European and African operations. The company reported 3QFY13 PAT at Rs2.24 bn which was boosted by Rs654 mn of other income (including exchange loss of Rs501 mn and restructuring expense of Rs310 mn for European operations). Highlights of various business segments:

Domestic soda ash business continues to benefit from a weak Rupee which has enhanced competitiveness versus Chinese imports. 3QFY13 PBIT in the standalone inorganic chemicals segment improved to Rs1.8 bn from Rs1.64 bn in 2QFY13. 3QFY13 PBIT margins (inorganic chemicals) at 23.9% are highest in the past two years. As per the company, Chinese companies are selling soda ash at cash cost of production in export markets which means that prices could increase from current levels, benefitting the company.

Consolidated operations disappointed led by European and African operations. Europe soda ash operations continue to experience production issues (equipment related) and Magadi operations were impacted by heavy rains. 3QFY13 EBITDA in Europe at Rs330 mn was down 56% qoq. 3QFY13 EBITDA margin in GCIP at US$ 48 per ton was flat qoq and was lower than our expectations. As per the management, even as volumes are 100% sold for next year (GCIP) pricing is down 1-2% (yoy) due to lower prices in South-East Asian markets.

As per the management, IMACID would continue to work at low levels of profitability. Conversion margins have shrunk as prices of Rock Phosphate have fallen to a lesser extent versus Phos. acid (finished product). Pricing power is shifting to producers of Rock Phosphate.

Reduce estimates; downgrade to ADD with a revised target price of Rs370

We have reduced our estimates for FY2013E and FY2014E led by lower profitability assumptions in the overseas operations, primarily Europe and US. We have downgraded the stock to ADD (BUY earlier) in view of the low upside potential at the current levels with a revised price target of Rs370 (Rs360 previously).

Tata Chemicals (TTCH)

Others

European and African operations disappoint. TTCH’s 3QFY13 results were below estimates. Even as standalone operations continue to deliver as a depreciated Rupee keeps enhancing competitiveness of domestic soda ash operations, European and African operations continue to disappoint. GCIP margins were below estimates but higher volumes more than made up for it. We have cut our estimates; downgrading to ADD (BUY previously) with a revised target price of Rs370 (Rs360 previously).

Tata ChemicalsStock data Forecasts/Valuations 2013 2014E 2015E



Price performance (%) 1M 3M 12M EV/EBITDA (X) 6.1 5.3 4.7Absolute (5.7) 11.2 2.1 ROE (%) 11.1 11.2 10.9Rel. to BSE-30 (4.5) 7.5 (7.2) Div. Yield (%) 2.8 2.8 2.8


382-298

ADD

FEBRUARY 11, 2013

RESULT, CHANGE IN RECO.

Coverage view:

Price (Rs): 354


BSE-30: 19,485

Tata Chemicals Others


Exhibit 1: European operations continue to disappoint Interim results of Tata Chemicals, consolidated, March fiscal year-ends (Rs mn)

3QFY13 3QFY13E 3QFY12 2QFY12 3QFY13E 3QFY12 2QFY13 9MFY13 9MFY12Net sales 41,968 41,832 38,107 41,967 0 10 0 114,596 103,410Op. costs (36,606) (35,543) (32,525) (35,353) NM NM NM (97,672) (85,752)EBITDA 5,362 6,289 5,582 6,614 (15) (4) (19) 16,924 17,659Interest(net) (1,184) (1,100) (1,111) (1,144) NM NM NM (3,572) (3,062)Depreciation (1,378) (1,400) (1,228) (1,402) NM NM NM (4,147) (3,727)Other income 654 200 (39) 325 227 NM 101 746 340PBT 3,454 3,989 3,204 4,393 (13) 8 (21) 9,950 11,209Tax (733) (988) (645) (1,158) NM NM NM (2,341) (2,636)PAT 2,722 3,001 2,559 3,235 (9) 6 (16) 7,609 8,573MI 481 350 321 667 37 50 (28) 1,725 1,582Reported PAT 2,241 2,651 2,238 2,568 (15) 0 (13) 5,884 6,991Segmental sales 41,705 — 37,939 41,655 113,569 102,574Inorganic chemicals 19,252 16,670 19,102 15 1 57,005 48,448Fertilizers 18,431 17,287 17,229 7 7 42,638 41,705Other agri inputs 4,266 4,168 5,378 2 (21) 14,087 12,757Others 214 176 257 22 (17) 706 527Intersegment sales (458) (361) (311) (867) (862)Segmental profits 4,110 — 4,257 5,902 14,083 14,413Inorganic chemicals 2,706 2,609 3,278 4 (17) 9,496 9229Fertilizers 1,153 1,672 1,663 (31) (31) 3,096 4110Other agri inputs 422 230 998 83 (58) 1,831 1629Others (170) (254) (37) NM NM (340) (556)Segmental marginsInorganic chemicals 14.1 15.6 17.2 (160) (311) 16.7 19.0Fertilizers 6.3 9.7 9.7 (342) (340) 7.3 9.9Other agri inputs 9.9 5.5 18.6 435 (868) 13.0 12.8

% change % change


Exhibit 2: Domestic soda ash operations continue to outperform Segmental results for Tata Chemicals, standalone, March fiscal year-ends (Rs mn)

1QFY12 2QFY12 3QFY12 4QFY12 1QFY13 2QFY13 3QFY13Segment revenues 15,763 19,647 23,319 20,397 15,063 24,218 25,312Inorganic chemicals 5,518 5,682 6,126 6,554 6,868 7,215 7,427Fertilisers 9,474 13,317 16,281 13,471 6,747 16,445 17,206Other agri inputs 835 724 1,097 316 1,312 612 922Others 148 201 174 225 231 254 211Less: Inter-segment (211) (276) (359) (168) (95) (309) (454)Segment profitsInorganic chemicals 1,272 1,123 1,371 1,298 1,680 1,643 1,774Fertilisers 725 1,315 1,339 1,031 435 1,667 1,056Other agri inputs 82 43 73 (85) 43 79 51Others (113) (99) (213) (309) (79) (100) (105)Total 1,966 2,382 2,570 1,934 2,079 3,290 2,776Segment margins (%)Inorganic chemicals 23.1 19.8 22.4 19.8 24.5 22.8 23.9Fertilisers 7.7 9.9 8.2 7.7 6.5 10.1 6.1Other agri inputs 9.8 5.9 6.7 (27.0) 3.3 12.9 5.5


Others Tata Chemicals


India soda ash operations continue to deliver; outstanding subsidies in the fertilizer segment increase to Rs15 bn

India soda ash business continues to deliver, buoyed by a depreciated Rupee. Segment margins in the inorganic chemicals (soda ash + salt) business segment at 23.9% were the highest in the past two years. Domestic soda ash business is doing well on improved competitive positioning versus Chinese imports led by a depreciated Rupee. As per the management, as long as Rupee remains upwards of Rs50 (per US$), profitability should remain at attractive levels. Also, as per the management, Chinese soda ash players are selling at their cash cost of production in the export market which seems to suggest that soda ash prices could increase from the current levels.

Fertilizer business segment profits at Rs1.05 bn were down from Rs1.66 bn in 2QFY13 despite similar volumes. 2QFY13 segment profits were boosted by Rs450 mn of prior-period subsidy. The business continues to be bogged down due to delay in subsidy payments by the Government. Outstanding subsidy has increased to Rs15 bn which means higher working capital requirements. As per the management, subsidy dues could be cleared by the Government with fresh subsidy allocations in the coming budget.

With the Government announcing the new urea investment policy, the company is investing into brownfield capacity expansion of 1.2 mn tons at Babrala (site of existing urea plant). The company has all the approvals in place.

Exhibit 3: India operations continue to deliver Operating parameters for the India business, Tata Chemicals, March fiscal year-ends

1QFY12 2QFY12 3QFY12 4QFY12 1QFY13 2QFY13 3QFY13 yoy qoqVolumes ('000 tons)Soda ash 171 160 166 184 154 158 172 3.6 8.9Urea 285 279 320 254 222 322 319 (0.3) (0.9)NPK 140 170 183 96 0 112 194 6.0 73.2Salt 207 215 219 219 228 229 223 1.8 (2.6)Net sales (Rs mn) 15,853 19,780 23,398 20,810 15,380 24,410 25,460 8.8 4.3Profit from operations (Rs mn) 2,214 2,650 2,956 2,680 2,240 3,320 2,890 (2.2) (13)PBT (Rs mn) 1,503 1,850 2,004 2,280 890 240 2,880 43.7 1,100PAT (Rs mn) 1,108 1,380 1,530 1,850 680 1,730 2,420 58.1 39.9

Change (%)


European and African operations continue to disappoint

Soda ash operations in Europe and Magadi (Africa) continue to disappoint with very low levels of profitability. 3QFY13 EBITDA in Europe (soda ash) fell to Rs370 mn from Rs750 mn in 2QFY13 on account of equipment-related production problems. In Magadi, the company has not been able to scale up production, partially due to the impact of heavy rains. As per the management, it is in the last stages of executing the business plan in Magadi (change in fuel source from oil to coal) which should see the plant switching to a cheaper fuel and ramping up production and hence, profitability.



Exhibit 4: European and African operations continue to disappoint Operating parameters for European and African operations, Tata Chemicals, March fiscal year-ends

1QFY12 2QFY12 3QFY12 4QFY12 1QFY13 2QFY13 3QFY13 yoy qoqVolumes ('000 tons)Europe-Soda ash 191 214 196 185 195 186 171 (12.8) (8.1)Magadi-Soda ash 119 135 110 120 104 103 117 6.4 13.6Net sales (Rs mn) 4,730 5,490 5,280 5,380 5,810 5,790 5,560 5.3 (4.0)

Europe (Rs mn) 3,360 3,500 3,790 3,870 4,110 4,210 3,910 3.2 (7.1)Magadi (Rs mn) 1,370 1,990 1,490 1,510 1,700 1,580 1,650 10.7 4.4

Profit from operations (Rs mn) 770 1,280 730 1,120 740 750 370 (49.3) (50.7)Europe (Rs mn) 630 910 580 740 720 740 330 (43.1) (55.4)Magadi (Rs mn) 140 370 150 380 20 10 40 (73.3) 300.0

EBITDA per ton (US$) 56 80 47 73 46 47 24 (49.4) (49.6)PBT (Rs mn) 100 580 230 430 (110) (50) (620) (369.6) 1,140.0PAT (Rs mn) 170 230 60 170 (110) (130) (620) (1,133.3) 376.9

Change (%)


IMACID: Continues to operate at very low levels of profitability

IMACID continues to operate at very low levels of profitability. As per the management, the situation would continue as conversion spreads between Rock Phosphate and Phos. acid have declined as prices of Rock Phosphate have fallen to a lesser extent versus prices of Phos. acid (finished product).

Exhibit 5: IMACID will continue operating at marginal levels of profitability Operating parameters for IMACID, Tata Chemicals, March fiscal year-ends

1QFY12 2QFY12 3QFY12 4QFY12 1QFY13 2QFY13 3QFY13 yoy qoq

Net sales (Rs mn) 1,740 1,720 1,770 530 420 1,740 2,030 14.7 16.7Profit from operations (Rs mn) 210 300 210 (20) (100) 100 80 (61.9) (20.0)PBT (Rs mn) 200 300 210 (30) (120) 80 70 (66.7) (12.5)PAT (Rs mn) 160 240 170 (30) (120) 70 60 (64.7) (14.3)

Change (%)


GCIP: Disappointed on margins front

GCIP’s 3QFY13 EBITDA margin at US$48 per ton was flat qoq even as volumes surprised positively (+15% yoy; +11% qoq). We were expecting higher margins sequentially as the company had opened a new mine face in 2QFY13 which had increased expenses even as production could not be increased in the same quarter, thereby impacting margins. GCIP’s volumes remain sold out for the current calendar year even as pricing is down ~2% on a blended basis, essentially due to lower prices in South-East Asia.



Exhibit 6: EBITDA margins were lower than expectations – impact of lower realizations Operating parameters for GCIP, Tata Chemicals, March fiscal year-ends

1QFY12 2QFY12 3QFY12 4QFY12 1QFY13 2QFY13 3QFY13 yoy qoqVolumes ('000 tons) 619 625 544 588 575 566 629 15.6 11.1Net sales (Rs mn) 5,510 5,620 5,550 6,390 6,690 6,450 6,900 24.3 7.0Profit from operations (Rs mn) 1,680 1,700 1,060 1,440 1,780 1,510 1,630 53.8 7.9EBITDA per ton (US $) 61 59 38 49 57 48 48 25.0 (1.1)PBT (Rs mn) 1,360 1,400 1,050 930 1,370 1,090 1,200 14.3 10.1PAT (Rs mn) 770 770 660 500 780 590 680 3.0 15.3

Change (%)


Other highlights

Consolidated debt and cash are at Rs67 bn and Rs16 bn levels as of 3QFY13.

The company has fairly low inventory of MOP (500 tons) and complex (NPK) fertilizers (30,000 tons).

Urea project in Gabon is awaiting financial closure for which Olam (majority shareholder) is responsible. As per the company, financial closure could happen by March 2013.

Sales of pulses under the I-Shakti brand would increase at 80-100% (volumes) for the next two years from a very low base. The company is not comfortable with growth levels higher than this.

The company’s pension liabilities have increased by Rs1.25 bn in FY2013 which have not been accounted for in the P&L and have been passed through the balance sheet instead (deducted from reserves and surplus). 3QFY13 PAT is higher by Rs854 mn as a result.

Change in estimates

We have reduced our earning estimates for FY2013E and FY2014E led by lower margin assumptions in Europe, Africa and GCIP. We have downgraded the stock to ADD from BUY in view of low upside with regard to our target price at Rs370 (Rs360 previously).

Exhibit 7: Change in estimates for Tata Chemicals, consolidated, March fiscal year-ends (Rs mn)

New Old Change (%) New Old Change (%) New Old Change (%)

Revenues (Rs mn) 152,545 151,007 1 159,723 158,185 1 167,179 165,642 1

EBITDA (Rs mn) 23,027 24,670 (7) 25,175 26,324 (5) 26,260 27,445 (5)

PAT (Rs mn) 8,661 8,998 (4) 9,608 10,286 (7) 10,381 10,286 1

EPS (Rs) 34.0 35.3 (4) 37.7 40.4 (7) 40.7 40.4 1

2015E2013E 2014E




Exhibit 8: We value Tata Chemicals at Rs370 per share SOTP valuation for Tata Chemicals, FY2014E basis, March fiscal year-ends (Rs mn)

Business Methodology Metric FY2014E Multiple ValuationIndia business EV/EBITDA EBITDA (Rs mn) 12,225 6.6 80,683

Brunner Mond EV/EBITDA EBITDA (Rs mn) 2,946 4 11,782GCIP USA EV/EBITDA EBITDA (Rs mn) 6,760 7 48,672

IMACID EV/EBITDA EBITDA (Rs mn) 414 5 2,070Rallis Market value Mcap (Rs mn) 14,827 0.7 10,379

Quoted investments Market value Value (Rs mn) 12,128 0.7 8,489Total assets 162,076Less: Net debt (48,076)Less: Buyers credit (10,163)Less: Pension liability (10,255)= Equity valuation 93,582Implied value per share 367




Exhibit 9: Summary financials: Tata Chemicals Profit model, cash flow statement, balance sheet for Tata Chemicals, consolidated, March fiscal year-ends (Rs mn)

2008 2009 2010 2011 2012 2013E 2014E 2015EProfit model (Rs mn)Sales 60,232 127,726 95,436 110,602 138,061 152,545 159,723 167,179EBITDA 11,100 20,017 18,398 18,635 23,037 23,027 25,175 26,260Other income 5,839 600 1,688 962 1,678 3,067 1,554 1,627Interest (1,365) (3,953) (3,932) (3,508) (4,270) (4,515) (3,815) (3,255)Depreciation (3,138) (4,226) (4,468) (4,511) (5,087) (5,587) (6,019) (6,532)Extraordinardy items (676) (3,265) (2,358) (369) (1,524) (1,535) (900) (900)Profit before tax 11,759 9,173 9,329 11,210 13,834 14,458 15,996 17,200Tax expense (2,115) (1,575) (2,093) (2,749) (3,439) (3,614) (3,999) (4,300)Minority interest 0 (1,117) (1,311) (1,926) (1,995) (2,182) (2,389) (2,519)Income from assoc. 0 0 135 0 (25) 0 0 0PAT 9,644 6,481 6,059 6,535 8,376 8,661 9,608 10,381EPS 37.8 25.4 23.8 25.6 32.9 34.0 37.7 40.7Balance sheet (Rs mn)Equity 37,185 47,698 47,164 54,517 64,180 69,913 76,594 84,047Total borrowings 48,067 62,838 49,937 56,997 70,523 58,523 50,523 42,523Deferred tax liability/minority interest 3,776 2,728 5,448 5,743 5,499 7,681 10,070 12,589Current liabilities and provisions 30,135 37,167 34,089 36,464 50,973 52,867 54,628 56,457Total liabilites 119,162 150,431 136,638 153,722 191,174 188,984 191,814 195,615Net fixed assets 33,712 37,585 38,310 44,905 49,436 47,849 48,831 49,299Goodwill/Intangible assets 46,492 56,213 53,247 56,324 63,587 63,587 63,587 63,587Investments 4,174 8,698 5,577 4,479 6,097 6,097 6,097 6,097Cash 6,767 9,899 11,589 13,450 16,780 3,721 2,447 2,536Other current assets and miscellaneous 28,016 38,037 27,916 34,564 55,273 67,729 70,853 74,097Total assets 119,162 150,431 136,638 153,722 191,174 188,984 191,814 195,615Free cash flow (Rs mn)Operating cash flow 6,487 13,413 12,515 11,141 15,900 13,363 16,461 17,805Working capital changes 827 (6,835) 3,522 (4,286) (8,261) (10,562) (1,362) (1,415)Capital expenditure (2,445) (7,331) (5,885) (5,932) (7,610) (4,000) (7,000) (7,000)Free cash flow 4,869 (753) 10,152 924 29 (1,199) 8,099 9,389RatiosEBITDA margin (%) 18.4 15.7 19.3 16.8 16.7 15.1 15.8 15.7Net debt/equity (X) 1.11 1.11 0.81 0.80 0.84 0.78 0.63 0.48Book value (Rs/share) 145.9 187.2 185.1 213.9 251.9 274.4 300.6 329.8ROAE (%) 17.2 23.1 16.4 15.8 17.3 14.5 15.7 15.4ROACE (%) 10.2 14.1 11.1 10.9 11.9 10.2 10.8 10.9



Strong e-auction volumes from Karnataka to act as a hedge to Chhattisgarh performance

Analysis of Karnataka e-auction data for NMDC throws up auctioned volumes of 6.6 mn tons (+53% yoy) over April 2012-January 2013. At the current run rate of ~650kt/month, NMDC may clock ~8 mn tons of sales from Karnataka in FY2013E, higher than our earlier estimate of ~6 mn tons. The higher volumes can be attributed to faster (though partial) ramp-up of the Kumarswamy mines. On the other hand, performance in the Chhattisgarh mines was weak; NMDC’s total sales in 9MFY13 declined 13% yoy to 18 mn tons. We believe Chhattisgarh volumes declined due to (1) evacuation bottlenecks, (2) lower sales to long-term customers due to inflexible erstwhile quarterly pricing and (3) heavy rains in 2QFY13.

Karnataka grades are lower than mine grades; some impact (negative) on realizations

Iron ore grades (Fe content) for Karnataka e-auction sales have been lower than mine-reserve grades and impacted NMDC’s realizations. According to e-auction data, the average grade for iron ore fines and lumps was 61% and 63%, lower than Karnataka mine grade of 64%. Dilution in grade could be due to faster ramp-up in production. Lower grades also had a bearing on realizations with average realization for fines and lumps at Rs2,476/ton and Rs4,854/ton over April 2012-January 2013. This is lower than current Chhattisgarh prices of Rs2,600/ton and Rs5,080/ton. However, at an auction in February 2013, average fines sales price increased to Rs3,000/ton. We note that 12% Forest Development Tax levied in Karnataka could have affected prices by increasing the total procurement cost for steel mills.

Higher volumes, improved Karnataka e-auction realizations can drive strong 4QFY13

We expect strong 4QFY13 performance, aided by (1) higher volumes and (2) improvement in Karnataka e-auction prices. A meltdown in global prices in September and October 2012 and NMDC’s erstwhile inflexible quarterly pricing led to imports replacing part of NMDC’s sales. A rebound in global prices and monthly price adjustments will ensure competitiveness against imports. We make marginal adjustments to our estimates. We revise target price to Rs185 from Rs190 earlier and retain BUY rating. Key risk to our call: participation in Government divestment program. We understand that NMDC has set aside Rs40 bn, as per media reports, or Rs10/share (5% of our fair value) for such purpose.

NMDC (NMDC)

Metals & Mining

Analyzing Karnataka e-auctions. Our analysis of NMDC’s Karnataka e-auction data reveals (1) a visible and higher-than-expected increase in volumes, (2) grade dilution compared to mine reserve grade (which could be due to faster volume ramp-up) with some impact on realizations and (3) preference for fines. A faster ramp-up in Karnataka (monthly e-auction rate of ~650kt, + 42% from FY2012) reduces evacuation concerns from Chhattisgarh. After lackluster volumes in 3QFY13, we expect strong performance in 4QFY13. Valuations at 3.9X FY2014E EBITDA are attractive. Retain BUY.

NMDCStock data Forecasts/Valuations 2013 2014E 2015E





207-145

BUY

FEBRUARY 11, 2013

UPDATE


Price (Rs): 147


BSE-30: 19,485

Metals & Mining NMDC


Data indicates preference for fines to lumps

Out of total YTD e-auction quantity of 6.8 mn tons (including February 2013 auctions), ~26% have been lump sales – lower than NMDC’s average of 37% in FY2012. We believe the availability of higher pelletization capacity in Karnataka (with JSW Steel) could be the main reason. The low preference for lumps is also evident in the premium that the booking price fetched over the floor price. While the auction premiums for fines were ~18% over the floor prices (Rs2,480/ton versus Rs2,090/ton), the premiums for lumps were lower at 5% over the floor price (Rs4,850/ton versus Rs4,620/ton) (see Exhibits 1 and 3).

JSW Steel accounts for 70% of e-auctioned volumes

JSW Steel brought 4.7 mn tons (70%) of the total e-auctioned quantity 6.8 mn tons (from NMDC) in YTD auctions. The company made 84% (3.9 mn tons) of its purchases in iron ore fines and 0.8 mn tons in lumps (see Exhibits 8 and 9). The average ex-mine price paid by JSW for iron ore fines was Rs2,560/ton and for iron ore lumps was Rs4,860/ton, which were comparable to other steel mills in the State. Note that the ex-mine price does not include royalty (10%), VAT (5%) and Forest Development Tax (12%).

February auction prices encouraging for NMDC

NMDC realized Rs3,000/ton for 128kt of iron ore fines auctioned in February 2013 with Fe content of ~61% (see Exhibit 1). The e-auction price was higher than prices in Chhattisgarh (~Rs2,600/ton, ex-mine). The higher realization could be reflective of shrinking stockpiles and delay in restart of mines in Karnataka. E-auction prices for lumps were at Rs4,361/ton for Fe content of 63%.

Rebound in global prices and monthly price adjustment to aid sales

A rebound in global prices after a slump in September-October 2012 and NMDC’s shift to more responsive monthly price-setting and combination of import-parity prices for lumps and domestic market-linked fines will aid Chhattisgarh’s sales performance. Currently lumps are priced at import-parity prices, which are at netback from imported cost to long-term customers such as Essar Steel. We note that the company lost some sales due to lower global lump iron-ore prices between September and November 2012 (see Exhibit 10), as the total delivered cost of its lumps worked out to US$150-160/ton, higher than imported prices of US$125-140/ton during the period.

NMDC Metals & Mining


Exhibit 1: NMDC's iron ore fines prices have seen an uptick in the February 2013 auction Karnataka e-auction prices for NMDC's iron fines (Rs/ton)

500

1,000

1,500

2,000

2,500

3,000

3,500

Apr

-12

May

-12

Jun-

12

Jul-1

2

Aug

-12

Sep-

12

Oct

-12

Nov

-12

Dec

-12

Jan-

13

Feb-

13

50

55

60

65

70

75

80

Floor Price -fines (Rs/ton) Booking price - fines (Rs/ton) Fe Content (%) - (RHS)

Source: Department of Mines and Geology- Karnataka, Kotak Institutional Equities

Exhibit 2: Karnataka e-auction realizations have been lower than declared Chhattisgarh prices Chhattisgarh fines prices compared with Karnataka e-auction fines prices (Rs/ton)

500

1,000

1,500

2,000

2,500

3,000

3,500

Apr

-12

May

-12

Jun-

12

Jul-1

2

Aug

-12

Sep-

12

Oct

-12

Nov

-12

Dec

-12

Jan-

13

Feb-

13

(800)

(600)

(400)

(200)

-

200

400

600Chhattisgarh prices - fines (Rs/ton) Karnataka prices - lumps (Rs/ton)

Premium/(Discount) (%) (RHS)

Source: Company, Department of Mines and Geology- Karnataka, Kotak Institutional Equities



Exhibit 3: NMDC lumps were generally sold at floor prices at the Karnataka e-auction Karnataka e-auction prices for NMDC's iron ore lumps (Rs/ton)

3,000

3,500

4,000

4,500

5,000

5,500

Apr

-12

May

-12

Jun-

12

Jul-1

2

Aug

-12

Sep-

12

Oct

-12

Nov

-12

Dec

-12

Jan-

13

Feb-

13

50

55

60

65

70

75

80Floor Price - lumps (Rs/ton) Booking price - lumps (Rs/ton) Fe Content (%) - (RHS)


Exhibit 4: Karnataka e-auction prices were lower than declared Chhattisgarh prices (for long-term customers) Comparison of Chhattisgarh lump prices with Karnataka e-auction lump prices (Rs/ton)

1,000

2,000

3,000

4,000

5,000

6,000

7,000

Apr

-12

May

-12

Jun-

12

Jul-1

2

Aug

-12

Sep-

12

Oct

-12

Nov

-12

Dec

-12

Jan-

13

Feb-

13

(1,400)

(1,200)

(1,000)

(800)

(600)

(400)

(200)

-Chhattisgarh prices - lumps (Rs/ton) Karnataka prices - lumps (Rs/ton)

Premium/(Discount) (%) - (RHS)




Exhibit 5: Karnataka e-auction volumes averaged ~650 kt, up 40% yoy NMDC's Karnataka e-auction sales volume (mn tons)

-

0.2

0.4

0.6

0.8

1.0

Apr

-12

May

-12

Jun-

12

Jul-1

2

Aug

-12

Sep-

12

Oct

-12

Nov

-12

Dec

-12

Jan-

13

Fines (mn tons) Lumps (mn tons)


Exhibit 6: Karnataka e-auction sales indicate a quarterly run-rate of ~2 mn tons in FY2013 against 1.3 mn tons in FY2012 Karnataka iron ore sales (mn tons), March fiscal year-ends

0.0

0.5

1.0

1.5

2.0

2.5

1Q 2Q 3Q

Karnataka actual sales (FY2012) - mn tonsKarnataka e-auctions (FY2013) - mn tons

Source: Company, Department of Mines and Geology, Karnataka, Kotak Institutional Equities

Exhibit 7: Chhattisgarh iron ore sales declined in 9MFY13 Chhattisgarh iron ore sales (mn tons), March fiscal year-ends

0.0

2.0

4.0

6.0

8.0

1Q 2Q 3Q

Actual Chhattisgarh sales (FY2012) - (mn tons)

Derived Chhattisgarh sales (FY2013) (mn tons)*

Note: (1) Chhattisgarh sales derived from total sales – Karnataka e-auctions. Not adjusted for time difference for e-auction deliveries.

Source: : Company, Department of Mines and Geology, Karnataka, Kotak Institutional Equities



Exhibit 8: ~70% of iron ore sales were made to JSW Steel Karnataka e-auction sales to major customers over April-January (mn tons)

E-auction purchases (mn tons)

0

1

2

3

4

5

6

JSW Steel -Fines

JSW Steel -lumps

Total - Fines Total - lumps

Source: Department of Mines and Geology, Karnataka, Kotak Institutional Equities

Exhibit 9: JSW Steel paid Rs2,560/ton for fines and Rs4,860/ton for lumps Karnataka e-auction sales to major customers, April-January (mn tons)

-

1,000

2,000

3,000

4,000

5,000

6,000

JSW Steel -Fines

JSW Steel -lumps

Others -Fines

Others -lumps

Source: Department of Mines and Geology, Karnataka, Kotak Institutional Equities

Exhibit 10: NMDC's lump ore costs were higher than imported iron ore between July and December 2012 Comparative analysis of the cost of NMDC's iron ore lumps and imported iron ore at Essar Steel's plant

Apr-12 May-12 Jun-12 Jul-12 Aug-12 Sep-12 Oct-12 Nov-12 Dec-12 Jan-13Imported lumps price (at steel mill) -DMT 166 158 160 157 142 129 142 145 154 163

Imported lumps price (at steel mill) -WMT 158 150 152 149 135 122 135 138 146 155

Less: Freight and handling 35 35 35 35 35 35 35 35 35 35

Ex-mine price (including royalty) -WMT 123 115 117 114 100 87 100 103 111 120

NMDC's ex-mine price (including royalty) - WMT 113 113 113 126 126 126 123 110 110 104

Lower price NMDC - - Imported Imported Imported Imported Imported - NMDC

Source: CRU, Kotak Institutional Equities

Exhibit 11: NMDC: Changes in estimates, March fiscal year-ends, FY2013E-15E

2013E 2014E 2015E 2013E 2014E 2015E 2013E 2014E 2015EPrice (US$/ton)Domestic lumps 101 97 95 102 96 97 (1.4) 0.0 (2.2)Domestic fines 56 53 54 57 57 56 (1.4) (6.8) (3.8)Blended 74 73 73 75 75 75 (1.4) (3.1) (3.1)Export 120 110 100 120 110 100 0.0 0.0 0.0Iron-ore volumes (mn tons)Chhattisgarh 17.2 21.9 22.0 19.5 23.0 24.5 (11.8) (4.8) (10.2)Karnataka 7.8 8.1 10.5 6.0 7.6 10.5 30.0 6.6 0.4Total 25.0 30.0 32.5 25.5 30.6 35.0 (2.0) (2.0) (7.0)Earnings estimates (Rs mn)Revenues 101,760 118,433 127,138 103,732 121,751 137,827 (1.9) (2.7) (7.8)EBITDA 77,916 91,272 97,529 79,691 94,250 106,870 (2.2) (3.2) (8.7)PAT 65,991 73,609 76,758 67,238 75,757 83,427 (1.9) (2.8) (8.0)EPS 16.6 18.6 19.4 17.0 19.1 21.0 (1.9) (2.8) (8.0)

Re/US$ rate 54.5 54.0 53.5 53.7 52.8 52.2 1.5 2.4 2.4

Revised estimate Previous estimate Change (%)




Exhibit 12: Our target price implies a P/E multiple of 10X on FY2014E earnings NMDC, valuation details, December 2013E basis

EBITDA 87,933 5.5 487,151 123 Net debt (including CWIP) (246,441) (62) Market capitalization 733,592 185

EV (Rs mn)

Value per share

(Rs) EBITDA (Rs mn)

EV/EBITDA (X)


Exhibit 13: NMDC: Key assumptions, March fiscal year-ends, 2009-15E

2009 2010 2011 2012 2013E 2014E 2015EIron-ore realization (US$/ton)Domestic lumps 74 60 106 107 101 97 95

Domestic fines 42 42 78 66 56 53 54

Blended 62 55 94 85 74 73 73

Export 96 66 131 148 120 110 100

Iron-ore realization (Rs/ton)Domestic lumps 3,388 2,852 4,819 5,112 5,481 5,213 5,091

Domestic fines 1,909 1,981 3,562 3,185 3,061 2,864 2,867

Blended 2,856 2,584 4,289 4,091 4,038 3,920 3,886

Export 4,414 3,120 5,975 7,089 6,539 5,940 5,346

Iron-ore volumes (mn tons)Chhattisgarh 21.4 17.9 21.0 21.7 17.2 21.9 22.0

Karnataka 5.7 6.2 5.3 5.6 7.8 8.1 10.5

Total 26.5 24.1 26.3 27.3 25.0 30.0 32.5 Lumps 9 9 11 10 9 11 12

Fines 18 15 16 17 16 19 21

Lumps (%) 33 39 40 37 37 37 37

Domestic (%) 85 86 90 99 98 98 98

Cost (US$/ton)Production costs 7 9 10 9 9 9 10

Royalty 0 3 8 8 6 6 6

Export freight 37 21 53 54 48 48 37

EBITDA/ton (Rs) 2,203 1,831 3,254 3,235 3,084 3,015 2,975 EBITDA/ton (US$) 48 39 71 68 57 56 56




Exhibit 14: NMDC: Financial summary, March fiscal year-ends, 2009-15E Profit model, balance sheet, cash model of NMDC, March fiscal year-ends, 2009-15E (Rs mn)

2009 2010 2011 2012 2013E 2014E 2015EProfit model (Rs mn)Net sales 75,640 62,391 113,689 112,619 101,760 118,433 127,138 EBITDA 58,372 44,261 86,462 89,259 77,916 91,272 97,529 Other income 8,840 8,617 12,057 20,165 20,610 19,027 17,889 Depreciaton (736) (732) (1,215) (1,302) (1,480) (2,052) (2,539) Interest — — — (15) — — — Profit before tax 66,477 52,146 97,304 108,108 97,046 108,248 112,879 Extra-ordinary items 5 (73) (32) (513) — — — Taxes (22,759) (17,601) (32,280) (34,941) (31,055) (34,639) (36,121) Net profit 43,723 34,473 64,992 72,654 65,991 73,609 76,758 Earnings per share (Rs) 11.0 8.7 16.4 18.5 16.6 18.6 19.4 Balance sheet (Rs mn)Equity 116,369 142,724 192,145 244,064 286,960 337,475 391,138 Deferred tax liability 580 849 1,029 1,001 1,001 1,001 1,001 Current liabilities 11,648 13,477 17,807 21,420 21,264 21,513 21,646 Total liabilities 128,597 157,050 210,981 266,484 309,225 359,989 413,785 Net fixed assets 9,949 13,432 17,764 26,830 62,354 98,302 137,548 Investments 715 761 1,357 2,478 2,477 2,477 2,477 Cash 97,397 128,549 172,281 202,646 210,694 224,641 238,009 Other current assets 20,314 14,087 19,435 34,465 33,634 34,503 35,684 Miscellaneous expenditure 222 220 145 66 66 66 66 Total assets 128,597 157,050 210,981 266,484 309,225 359,989 413,785 Free cash flow (Rs mn)Operating cash flow excl. working capital 35,634 26,750 53,865 54,854 47,324 57,118 61,903 Working capital changes (7,851) 9,257 (5,249) (8,908) 671 (623) (1,053) Capital expenditure (3,886) (4,202) (5,163) (15,088) (37,005) (38,000) (41,785) Free cash flow 23,897 31,806 43,453 30,857 10,991 18,495 19,064 RatiosNet debt/equity (X) (0.8) (0.9) (0.9) (0.8) (0.7) (0.7) (0.6) RoAE (%) 44.0 26.7 38.9 33.3 24.9 23.6 21.1 RoACE (%) 44.0 26.7 38.9 33.3 24.9 23.6 21.1



Execution stays on track

Apollo Hospitals reiterated its capacity addition plans in Chennai, which is likely to be a key growth driver in FY2014. REACH hospitals in Trichy, Nashik and Nellore are also expected to become operational in FY2014. Operational trends in the key clusters have been broadly sustained: Case-mix driven growth in Chennai and capacity addition/improved utilization in tier-II hospitals. Hyderabad performance remains subdued – the company expects the rationalization plan and addition of doctors to drive growth in FY2014. Apollo believes 3Q is seasonally weak, given the festive season.

EBITDA margin: Apollo to sustain upward trend

The theme at the EBITDA margin level, expected to play out the over the next few years will be the case-mix improvement in mature hospitals and improved utilization and operating leverage in new/upcoming hospitals. Margin expansion will have to be balanced with improvement in return ratios.

Through FY2013, we have seen this trend play out with increased utilization, mainly in tier-II cities (Bhubaneshwar, Karaikudi, Karimnagar and Madurai), case-mix improvement in Chennai and improving profitability of retail pharmacies, resulting in 28 bps improvement in standalone EBITDA. On an annual basis, the extent of EBITDA margin expansion can vary (based on expansion plans). We believe Apollo is likely to sustain the upward trend in EBITDA margin. We expect 70 bps expansion in EBITDA margin in FY2014 and 30 bps for FY2015.

We maintain our ADD rating and increase our target price to Rs870 (from Rs820)

We are constructive on the stock with a target price of Rs870 – 15X one-year forward EV/EBITDA. We increase FY2014E/15E EPS by 3-4% driven by higher sales. Apollo has stayed on track on its capital expansion program and operational metrics on the recent bed additions have been in line with expectations. The structural growth in healthcare services and earnings visibility, driven by the expansion plan provide valuation support. Despite the structural growth, we expect local dynamics to have a significant impact on the success in individual hospitals/cities.

Apollo Hospitals (APHS)

Pharmaceuticals

Strong capacity addition expected in FY2014. Apollo Hospitals is expected to add 1,000 operational beds over the next 12 months. The capacity addition in Chennai is targeted at new facilities and rationalizing existing capacities. We expect the company to sustain the upward trend in EBITDA margin. We maintain our ADD rating and increase our target price to Rs870 (from Rs820). We expect 28% EPS growth over FY2013-15 – strong earnings visibility to provide valuation support.

Apollo HospitalsStock data Forecasts/Valuations 2013 2014E 2015E



Price performance (%) 1M 3M 12M EV/EBITDA (X) 18.9 14.8 12.2Absolute 4.5 (2.2) 37.5 ROE (%) 11.6 14.0 15.5Rel. to BSE-30 5.9 (5.4) 25.0 Div. Yield (%) 0.7 0.9 1.1


903-550

ADD

FEBRUARY 11, 2013

UPDATE


Price (Rs): 840


BSE-30: 19,485

Pharmaceuticals Apollo Hospitals


Call highlights

Proton-therapy center in South Chennai. Apollo will establish a dedicated oncology centre at its upcoming facility in South Chennai (expected in FY2015). The project was earlier expected to be a multi-disciplinary super-specialty center.

The overall bed capacity for the facility has been scaled down to 200 (from 350) and the total cost of the project increased to Rs6.2 bn (from Rs2.9bn). The cost includes Rs4.2 bn (to be invested over the next three years) in setting up the proton-therapy center. Out of the total cost, the equipment is expected to cost Rs3 bn. The equipment will allow for targeted radiation treatment of cancerous tissues with limited impact on healthy tissues. The first patient treatment in the proton centre is expected in FY2017. Project IRR for the center is expected to be 18-20%: Investment will be back-ended with availability of vendor financing.

The proton treatment will be at a significant premium (at Rs1.5-2.0 mn) to existing treatment options (Rs0.6-0.7 mn) and Apollo targets 35% of the utilization from international patients (the cost will be a third or quarter of the cost in the West).

Over a period, Apollo may look to move its existing cancer facilities to the new unit.

Retail pharmacy. The contribution of private label has increased from 3% to 5% yoy. This has contributed to improvement in pharmacy margins. Same-store sales growth also remains strong at 18-20% yoy. Apollo expects to add 200 stores on a net basis next year – 250 gross additions. There is no specific update on the strategic partner for the pharmacy business. The company targets 100 bps expansion in EBITDA margin on an annual basis. Apollo is also evaluating a proposal to hive off this business into a wholly owned subsidiary.

Sale of stake in Apollo Health Street. In December 2012, Apollo sold 39.4% stake in Apollo Health Street (Healthcare BPO; associate entity) to Sutherland Global Services for Rs2 bn. The transaction is expected to be closed this month. There will be no gain/loss in P&L due to the transaction and the proceeds will be used to fund capital expansion.

New facilities to be commissioned over the next 12 months. Apollo is scheduled to add over 1,000 operational beds over the next 12 months. This includes new hospitals in Ayanambakkam, a women’s and children’s hospital in Chennai, two hospitals in Bangalore and units in tier-II cities (Bangalore, Trichy, Nellore and Nashik).

RoCE target. The pre-tax RoCE in existing units vary between 8% and 35%. The target RoCE on a consolidated basis is 20-22%.

Chennai: Capacity expansion to aid strong earnings growth

Chennai’s occupancy rate of 78% leaves limited opportunity to improve utilization. Besides, this cluster has stayed focused on case-mix improvement in FY2013, which has negatively impacted the operating beds (declined by 23) while delivering ARPOB increase of 12% (in 9MFY13).

The capacity in Chennai will see an uptick in FY2014 due to

Ayanambakkam (on the outskirts of Chennai) where operations will commence 4QFY13 with initial bed capacity of 100 beds, which will be scaled up to 200.

A new outpatient center expected to be set up (close to the main hospital in Chennai) which will allow 100 more beds in the main hospital. This project is likely to be completed over the next 6-8 months. The rationale is to free-up capacity in the main hospital.

Expansion in the Chennai main hospital (30 beds) and setting up of the women’s and children’s hospital (will allow 40 additional beds in the Chennai main hospital), resulting in increased operational beds.

Apollo Hospitals Pharmaceuticals


Structural growth opportunity but watch out for local dynamics

The healthcare services segment in India has strong macro tailwinds, which should drive growth over the medium term. Given the structural growth story, valuations are likely to be stretched. We believe the period of strong capital expansion (addition of about 3,000 beds in the next three years) will support valuation. We value the stock at 15X one-year forward EV/EBITDA.

While we do not contest the structural growth opportunity, we believe actual earnings growth may be impacted by local dynamics. The success of REACH hospitals is a reflection of the underlying macro opportunity for hospital services in India. The additional capacity has been accompanied by strong volume growth, healthy occupancy rates and steady ARPOB growth.

In contrast, Hyderabad is impacted by overcapacity, local issues offsetting favorable macro trends. Apollo (despite being an early entrant) has not been able to replicate the operating performance of the Chennai cluster. Apollo has been reworking its strategy and plans to recruit established doctors and rationalize operations (reduce exposure to Government programs) to turn around the operations.

Key assumptions for standalone hospitals, March fiscal year-ends, 2012-15E, (Rs mn)

2012A 2013E 2014E 2015E 2012A 2013E 2014E 2015E 2012A 2013E 2014E 2015EOperational beds 1,159 1,136 1,386 1,606 930 930 950 960 1,246 1,350 1,650 1,900Occupancy (%) 75 78 78 78 62 66 70 71 71 76 75 73ARPOB (Rs/day) 27,853 31,307 34,751 38,226 17,307 18,588 20,446 22,491 10,784 11,755 13,048 14,483% yoy ARPOB growth 17 12 11 10 15 7 10 10 15 9 11 11

OthersChennai cluster Hyderabad cluster


Standalone hospitals: Key operational metrics

1QFY12 1HFY12 9MFY12 FY12 1QFY13 1HFY13 9MFY13No of operational bedsChennai 1,162 1,157 1,194 1,159 1,130 1,136 1,136Hyderabad 930 930 930 930 930 930 930Others 1,164 1,215 1,206 1,246 1,299 1,299 1,327% yoy growth in bedsChennai 7 7 8 5 (3) (2) (5)Hyderabad 54 35 15 15 — — —Others 13 17 12 12 12 7 10Inpatient Average Length Of Stay (ALOS, days)Chennai 4.65 4.56 4.46 4.50 4.63 4.60 4.41Hyderabad 4.78 4.76 4.62 4.64 4.44 4.54 4.59Others 5.66 5.51 5.44 5.43 5.14 5.14 5.06Occupancy (%)Chennai 80.0 77.0 73.0 75.0 80.0 80.0 78.0Hyderabad 60.0 64.0 62.0 62.0 62.0 66.0 66.0Others 71.0 70.0 71.0 71.0 73.0 75.0 76.0ARPOB (Rs/day)Chennai 25,301 26,362 27,331 27,853 29,852 29,519 30,634Hyderabad 16,796 16,672 17,050 17,307 18,637 18,237 18,213Others 10,083 10,421 10,657 10,784 11,447 11,678 11,639% yoy growth in ARPOBChennai 7 12 16 17 18 12 12Hyderabad 15 12 14 15 11 9 7Others 17 17 16 15 14 12 9




Retail pharmacy: Key data, March fiscal-year ends, 1QFY11-3QFY13 (Rs mn)

1QFY11 2QFY11 3QFY11 4QFY11 1QFY12 2QFY12 3QFY12 4QFY12 1QFY13 2QFY13 3QFY13Number of stores 1,066 1,110 1,142 1,199 1,220 1,257 1,290 1,364 1,357 1,399 1,445Total revenues 1,395 1,663 1,734 1,821 1,898 2,085 2,246 2,377 2,477 2,776 2,905EBITDA -28 30 5 24 23 38 45 59 61 82 78%, EBITDA margin -2.0 1.8 0.3 1.3 1.2 1.8 2.0 2.5 2.5 2.9 2.7Revenue/store 1.3 1.5 1.5 1.5 1.6 1.7 1.7 1.7 1.8 2.0 2.0EBITDA/store 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.1 0.1Capex 29 32 40 88 28 62 35 82 28 49 59No of employees 6,642 6,553 6,673 7,012 7,446 7,584 7,734 8,082 8,401 8,788 9,195% yoy growthTotal revenues 40.2 39.8 30.5 37.7 36.0 25.4 29.6 30.5 30.5 33.2 29.3EBITDA NM NM NM 281.0 NM 29.2 731.5 144.2 171.7 113.9 73.9No of employees 21.5 12.0 5.9 8.6 12.1 15.7 15.9 15.3 12.8 15.9 18.9


Standalone pharmacy: Key data by launch period, March fiscal year-ends (Rs mn)

3QFY12 3QFY13 % yoy 9MFY12 9MFY13 % yoyUpto FY2008 batchNo of stores 484 461 (4.8) 484 461 (4.8)Revenue/store 2.3 2.7 16.7 6.6 7.7 17.4Revenue 1,099 1,222 11.2 3,170 3,545 11.8EBITDA/store 0.1 0.1 27.3 0.3 0.4 37.9EBITDA 53 65 21 140 184 31.4% EBITDA margin 4.8 5.3 4.4 5.2FY2009 batchNo of stores 214 205 (4.2) 214 205 (4.2)Revenue/store 1.9 2.24 19.1 5.4 6.5 20.0Revenue 402 459 14.1 1,153 1,326 15.0EBITDA/store 0.03 0.05 66.7 0.0 0.2 650.0EBITDA 6 10 59.7 4 31 618.5% EBITDA margin 1.6 2.2 0.4 2.3FY2010 batchNo of stores 199 193 (3.0) 199 193 (3.0)Revenue/store 1.6 2.0 23.8 4.7 5.8 23.5Revenue 326 392 20.0 931 1,116 19.8EBITDA/store 0.0 0.1 200.0 0.0 0.2 325.0EBITDA 4 12 191.0 8 33 312.2% EBITDA margin 1.2 3.0 0.9 2.9Post FY2011 batchNo of stores 393 586 49.1 393 586 49.1Revenue/store 1.1 1.4 33.3 2.5 3.7 49.6Revenue 419 833 98.8 974 2,171 123.0EBITDA/store 0.0 0.0 (70.4) (0.1) 0.0 (61.5)EBITDA (18.7) (8.3) (55.9) (47.0) (27.0) (42.6)% EBITDA margin (4.5) (1.0) (4.8) (1.2)TotalNo of stores 1,290 1,445 12.0 1,290 1,445 12.0Revenue/store 1.7 2.0 15.5 4.8 5.6 16.9Revenue 2,246 2,905 29.3 6,229 8,158 31.0EBITDA/store 0.0 0.1 55.3 0.1 0.2 86.8EBITDA 45 78 73.9 106 221 109.3% EBITDA margin 2.0 2.7 1.7 2.7




Quarterly standalone segment data, March fiscal year-ends, 1QFY12-3QFY13 (Rs mn)

1QFY12 2QFY12 3QFY12 4QFY12 1QFY13 2QFY13 3QFY13 4QFY13EStandalone salesChennai 2,048 2,237 2,258 2,301 2,446 2,482 2,520 2,750Hyderabad 853 949 903 951 976 1,069 1,052 1,100Others 758 866 892 954 986 1,105 1,135 1,200Total standalone hospital revenue 3,659 4,052 4,053 4,206 4,408 4,656 4,707 5,050Hospital pharmacy (subsidiaries/JV) / consulting 855 863 850 864 891 933 946 950Total healthcare services sales 4,514 4,915 4,903 5,070 5,299 5,589 5,653 6,000Pharmacy - standalone 1,898 2,085 2,246 2,377 2,477 2,776 2,905 2,950Total standalone sales 6,412 6,999 7,149 7,447 7,776 8,365 8,558 8,950% of standalone salesChennai 31.9 32.0 31.6 30.9 31.5 29.7 29.4 30.7Hyderabad 13.3 13.6 12.6 12.8 12.6 12.8 12.3 12.3Others 11.8 12.4 12.5 12.8 12.7 13.2 13.3 13.4Total standalone hospital revenue 57.1 57.9 56.7 56.5 56.7 55.7 55.0 56.4Hospital pharmacy (subsidiaries/JV) / consulting 13.3 12.3 11.9 11.6 11.5 11.1 11.1 10.6Total healthcare services sales 70.4 70.2 68.6 68.1 68.1 66.8 66.1 67.0Pharmacy - standalone 29.6 29.8 31.4 31.9 31.9 33.2 33.9 33.0yoy growth, %Chennai 6.2 11.7 13.4 16.0 19.4 11.0 11.6 19.5Hyderabad 30.8 23.2 25.9 24.8 14.4 12.6 16.5 15.7Others 23.7 23.9 20.7 25.4 30.1 27.6 27.2 25.8Total standalone hospital revenue 14.6 16.7 17.5 19.9 20.5 14.9 16.1 20.1Hospital pharmacy (subsidiaries/JV) / consulting 32.9 17.7 2.5 (2.6) 4.2 8.1 11.3 9.9Total healthcare services sales 17.7 16.9 14.6 15.4 17.4 13.7 15.3 18.3Pharmacy - standalone 35.9 25.4 29.6 30.5 30.5 33.2 29.3 24.1Total standalone sales 22.5 19.3 18.9 19.8 21.3 19.5 19.7 20.2Standalone EBITDAHealthcare services 1,037 1,132 1,139 1,142 1,243 1,358 1,386 1,428Pharmacy - standalone 23 38 45 59 61 82 78 89Total standalone EBITDA 1,059 1,170 1,184 1,201 1,304 1,440 1,464 1,516% EBITDA marginHealthcare services 23.0 23.0 23.2 22.5 23.4 24.3 24.5 23.8Pharmacy - standalone 1.2 1.8 2.0 2.5 2.5 2.9 2.7 3.0Total standalone EBITDA 16.5 16.7 16.6 16.1 16.8 17.2 17.1 16.9% yoy growthHealthcare services 13.8 17.1 21.5 23.6 19.9 20.0 21.7 25.0Pharmacy - standalone NM 29.2 731.5 144.2 171.7 113.9 73.9 51.0Total standalone EBITDA 19.9 17.5 25.6 26.7 23.1 23.0 23.7 26.3




Healthcare services: Investment plan

LocationExpected date of

completion Type of hospitalNo of beds

Total estimated

cost

Apollo share of

costNavi mumbai FY2015 Super speciality 350 3,500 3,500Byculla FY2015 Super speciality 300 1,400 1,400Thane FY2015 Super speciality 250 2,200 550Mumbai cluster 900 7,100 5,450Ayanambakkam FY2013 REACH 200 700 700MLCP FY2013 - 337 83Chennai main - expansion FY2014 Super speciality 30 100 100Women and child FY2014 Super speciality 60 740 740Chennai (OMR) FY2014 Super speciality 45 310 310South chennai FY2015 Super speciality 200 2,000 2,000Proton FY2017 4,200 4,200Chennai cluster 535 8,387 8,133Trichy FY2014 REACH 200 945 945Nashik FY2014 REACH 125 520 520Nellore FY2014 REACH 200 667 667REACH 525 2,132 2,132Bangalore ortho & spine FY2013 Super speciality 125 558 558Bilaspur - oncology FY2013 Super speciality - 80 80Vizag FY2014 Super speciality 300 1,150 1,150North bangalore FY2014 Super speciality 180 770 770Indore FY2015 Super speciality 185 668 668Patna phase I FY2015 Super speciality 240 2,760 2,760Others 1,030 5,986 5,986Total 2,990 23,605 21,701


Change in sales estimates, March fiscal year-ends, 2013-15E (Rs mn)

2013E 2014E 2015E 2013E 2014E 2015E 2013E 2014E 2015EChennai cluster 10,405 13,992 18,071 10,198 13,712 17,478 (2.0) (2.0) (3.3)Hyderabad cluster 4,483 5,568 6,445 4,197 4,963 5,593 (6.4) (10.9) (13.2)Other hospitals 4,394 5,332 6,521 4,426 5,893 7,332 0.7 10.5 12.4Others 3,431 3,431 3,592 3,719 3,894 4,078 8.4 13.5 13.5Healthcare services - standalone 22,713 28,323 34,629 22,540 28,463 34,480 (0.8) 0.5 (0.4)Pharmacy - standalone 10,929 13,826 15,208 11,108 14,107 16,647 1.6 2.0 9.5Total sales - standalone 33,642 42,149 49,837 33,648 42,570 51,127 0.0 1.0 2.6Subsidiaries 1,802 2,192 2,393 2,486 2,888 3,077 38.0 31.7 28.6JV 2,351 2,999 4,301 2,351 2,999 4,301 0.0 (0.0) 0.0Total sales - consolidated 37,795 47,340 56,531 38,485 48,457 58,505 1.8 2.4 3.5





Change in earnings estimates, March fiscal year-ends, 2013-15E, (Rs mn)

2013E 2014E 2015E 2013E 2014E 2015E 2013E 2014E 2015ESales 37,795 47,340 56,531 38,485 48,457 58,505 1.8 2.4 3.5Operative expense 19,427 24,285 29,000 20,012 25,149 30,305 3.0 3.6 4.5Staff cost 6,286 7,857 9,271 6,286 7,857 9,429 0.0 0.0 1.7Other expense 5,643 6,964 8,235 5,842 7,127 8,553 3.5 2.3 3.9EBITDA - reported 6,440 8,233 10,024 6,395 8,373 10,268 (0.7) 1.7 2.4PBT 4,002 5,399 6,590 4,065 5,579 6,834 1.6 3.3 3.7Tax 1,041 1,458 1,779 1,057 1,451 1,777 1.5 (0.5) (0.1)PAT -reported 3,067 4,067 4,935 3,113 4,194 5,122 1.5 3.1 3.8EPS - reported 22.0 29.2 35.5 22.4 30.1 36.8 1.7 3.2 3.7



Revenue summary, March fiscal year-ends, 2010-15E (Rs mn)

2010 2011 2012 2013E 2014E 2015EHealthcare services - standalone 13,415 16,712 19,401 22,540 28,463 34,480 - Chennai cluster 6,570 7,906 8,844 10,198 13,712 17,478 - Hyderabad cluster 2,259 2,901 3,656 4,197 4,963 5,593 - Others 2,016 2,812 3,470 4,426 5,893 7,332 - Hospital pharmacy (subsidiaries/JV) / consulting 2,570 3,093 3,431 3,719 3,894 4,078Pharmacy - standalone 4,846 6,614 8,606 11,108 14,107 16,647Total sales - standalone 18,262 23,326 28,007 33,648 42,570 51,127Subsidiaries sales (primarily Bangalore/Kakinada hospitals) 949 1,317 1,576 2,486 2,888 3,077JV sales (primarily Kolkota/Ahmedabad hospitals) 1,058 1,417 1,898 2,351 2,999 4,301Total sales 20,269 26,059 31,481 38,485 48,457 58,505% of standalone salesHealthcare services - standalone 66.2 64.1 61.6 58.6 58.7 58.9 - Chennai cluster 32.4 30.3 28.1 26.5 28.3 29.9 - Hyderabad cluster 11.1 11.1 11.6 10.9 10.2 9.6 - Others 9.9 10.8 11.0 11.5 12.2 12.5 - Hospital pharmacy (subsidiaries/JV) / consulting 12.7 11.9 10.9 9.7 8.0 7.0Pharmacy - standalone 23.9 25.4 27.3 28.9 29.1 28.5Total sales - standalone 90.1 89.5 89.0 87.4 87.9 87.4Subsidiaries sales (primarily Bangalore/Kakinada hospitals) 4.7 5.1 5.0 6.5 6.0 5.3JV sales (primarily Kolkota/Ahmedabad hospitals) 5.2 5.4 6.0 6.1 6.2 7.4% yoy growthHealthcare services - standalone 19.4 24.6 16.1 16.2 26.3 21.1 - Chennai cluster 27.6 20.3 11.9 15.3 34.5 27.5 - Hyderabad cluster 23.7 28.4 26.0 14.8 18.2 12.7 - Others 42.2 39.5 23.4 27.6 33.2 24.4 - Hospital pharmacy (subsidiaries/JV) / consulting (9.6) 20.3 10.9 8.4 4.7 4.7Pharmacy - standalone 45.0 36.5 30.1 29.1 27.0 18.0Total sales - standalone 25.2 27.7 20.1 20.1 26.5 20.1Subsidiaries sales (primarily Bangalore/Kakinada hospitals) 29.8 38.8 19.7 57.7 16.1 6.5JV sales (primarily Kolkota/Ahmedabad hospitals) 27.3 33.9 34.0 23.8 27.6 43.4Total sales 25.6 28.6 20.8 22.2 25.9 20.7




EBITDA summary, March fiscal year-ends, 2011-13E, (Rs mn)

2011 2012 2013EHealthcare services - standalone 16,712 19,401 22,540Pharmacy - standalone 6,614 8,606 11,108Total sales - standalone 23,326 28,007 33,648Others 2,734 3,475 4,837Total sales 26,059 31,481 38,485EBITDAHealthcare services - standalone 3,739 4,450 5,414Pharmacy - standalone 31 164 310Total EBITDA - standalone 3,770 4,614 5,724Total EBITDA - consolidated 4,182 5,131 6,345EBITDA margin, %Healthcare services - standalone 22.4 22.9 24.0Pharmacy - standalone 0.5 1.9 2.8Total - standalone 16.2 16.5 17.0Total - consolidated 16.0 16.3 16.5


Apollo Hospitals: Interim balance sheet, March fiscal year-ends, 2011-1HFY13E (Rs mn)

2011 2012 1HFY13Share capital 624 672 696Reserves and surplus 17,098 22,850 25,914Total equity 17,722 23,523 26,610Long term borrowings 5,586 4,217 7,549Deferred tax liabilities 1,071 1,701 1,969Other long term liabilities 50 48 38Long term provisions 2,053 2,657 3,063Total non current liabilities 8,761 8,622 12,619Short term borrowings 1,173 1,383 437Trade payables 1,794 1,709 1,781Other current liabilities 1,420 1,573 2,019Short term provisions 684 773 82Total current liabilities 5,072 5,438 4,318Total equity and liabilities 31,554 37,583 43,547Fixed assets 13,982 16,369 18,553Non current investments 5,155 6,470 6,858Long term loans and advances 4,521 5,103 5,512Total non current assets 23,658 27,943 30,923Current investments 1,086 1,171 1,799Inventories 1,505 1,827 2,033Trade receivables 2,696 3,538 4,381Cash and cash equivalents 1,414 1,870 2,657Short term loans and advances 1,009 977 1,378Other current assets 184 258 375Total current assets 7,895 9,641 12,624Total assets 31,554 37,583 43,547




Apollo Hospitals: Profit and loss statement, March fiscal year-ends, 2009-15E (Rs mn)

2009 2010 2011 2012 2013E 2014E 2015ENet sales 16,142 20,265 26,054 31,475 38,485 48,457 58,505Operative expenses (8,728) (10,726) (13,886) (16,365) (20,012) (25,149) (30,305)Employee cost (2,594) (3,308) (4,151) (5,029) (6,286) (7,857) (9,429)Others (2,365) (2,999) (3,748) (4,824) (5,792) (7,077) (8,503)Total expenditure (13,688) (17,033) (21,785) (26,217) (32,090) (40,083) (48,237)EBITDA 2,454 3,232 4,269 5,258 6,395 8,373 10,268Depreciation and amortisation (632) (750) (942) (1,239) (1,500) (1,844) (2,144)EBIT 1,822 2,483 3,327 4,019 4,895 6,529 8,124Net finance cost 438 506 714 759 830 950 1,290Non-recurring income (40) — — — — — —Pretax profits 1,344 1,976 2,613 3,260 4,065 5,579 6,834Current tax (490) (676) (873) (1,150) (1,057) (1,451) (1,777)Reported net profit 854 1,300 1,740 2,110 3,008 4,129 5,057Minority interests (56) (36) (15) (12) (15) (15) (15)Associates 115 39 84 71 90 50 50Reported net profit 1,025 1,376 1,839 2,193 3,113 4,194 5,122EPS 8.8 11.0 13.9 16.6 22.4 30.1 36.8


Balance sheet and cash flow statement, March fiscal year-ends, 2009-15E (Rs mn)

2009 2010 2011 2012 2013E 2014E 2015EBalance sheetTotal equity 14,689 16,535 18,989 25,068 28,415 31,351 34,936Total debt 6,706 9,132 9,585 8,167 9,499 12,627 14,576Current liabilities 4,137 5,973 6,355 7,614 8,244 8,943 9,719Minority Interests 265 241 249 126 126 126 126Deferred tax liabilities 446 536 845 1,551 1,551 1,551 1,551Total equity and liabilities 26,243 32,418 36,023 42,526 47,835 54,597 60,908Cash and cash equivalents 876 3,117 1,781 2,368 2,368 2,368 2,368Current assets 6,569 8,878 10,317 12,311 14,120 16,226 18,681Net fixed assets 10,110 12,679 14,555 18,469 21,969 26,625 30,481Intangible assets 329 541 740 1,643 1,643 1,643 1,643Capital -WIP 2,446 3,037 3,610 2,093 2,093 2,093 2,093Investments 5,914 4,166 5,020 5,642 5,642 5,642 5,642Total assets 26,243 32,417 36,022 42,526 47,835 54,597 60,908Free cash flow Operating cash flow, excl. working capital 1,735 2,270 3,627 4,736 5,338 6,923 8,491Working capital (789) (295) (1,043) (873) (1,180) (1,407) (1,679)Capital expenditure (3,724) (3,938) (3,335) (3,945) (5,000) (6,500) (6,000)Free cash flow (2,778) (1,964) (750) (82) (841) (985) 812




Apollo Hospitals: Key ratios, March fiscal year-ends, 2009-15E, (Rs mn)

2009 2010 2011 2012 2013E 2014E 2015ECost margins (%)Operative expense 54.1 52.9 53.3 52.0 52.0 51.9 51.8Staff cost 16.1 16.3 15.9 16.0 16.3 16.2 16.1Other expense 15.8 15.9 14.7 15.7 15.2 14.7 14.6EBITDA 14.0 14.8 16.1 16.3 16.5 17.2 17.5EBITDA (incl other op.income) 15.2 15.9 16.4 16.7 16.6 17.3 17.6Tax rate 36.4 34.2 33.4 35.3 26.0 26.0 26.0Return ratios (%)ROE 7.7 8.8 10.4 10.0 11.6 14.0 15.5ROCE (pre tax) 9.2 10.6 12.3 13.0 13.8 15.9 17.4Working capital daysDebtor 39.4 40.1 42.1 44.8 44.0 41.9 41.7Inventory 26.3 25.4 22.2 22.2 21.8 20.8 20.6Creditor 20.5 35.4 27.0 28.9 27.2 24.8 23.6


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December 2012: Results calendar

Mon Tue Wed Thu Fri Sat4-Feb 5-Feb 6-Feb 7-Feb 8-Feb 9-FebBank of Baroda Carborundum Universal Apollo Tyres ACC BEML Indraprastha GasJ&K Bank NHPC Cipla Ambuja Cements BGR Energy Systems Tata CommunicationsJain Irrigation Uco Bank Godrej Indsutries Apollo Hospitals Bharat ForgeJK Cement United Bank of India IRB Infrastructure Aurobindo Pharma Cadila HealthcareJubilant Foodw orks Manappuram Finance Balaji Telefilms Canara BankREC MOIL CEAT City union BankState bank of Mysore Speciality Restaurants Hathw ay Cables Cox n KingsUnited Spirits TBZ Hotel Leela Emami

Tech Mahindra Maharashtra Seamless GMR InfraUnited Brew eries MRF Gujarat State Petronet

PC Jew ellw er GVKPILPfizer Hindalco Industries

Mahindra & MahindraMax IndiaSun PharmaceuticalsTata Chemicals

11-Feb 12-Feb 13-Feb 14-Feb 15-Feb 16-FebBritannia Industries CESC BPCL Aditya Birla Nuvo GSK ConsumerHexaw are Technologies Eicher Motors Coal India CRISILIndian Hotels HPCL Gitanjali Gems Dr ReddysJaiprakash Associates IFCI IOCL GAILJaypee Infratech Jindal Steel & Pow er JSW Steel HDILONGC Lanco Infratech Madras Cements LIC Housing FinancePiramal Enterprises Motherson Sumi Systems MMTC Suzlon EnergyTata Pow er Oil India NMDC Tata MotorsVoltas Opto Circuits Tata Steel DLF

Pow er Grid Unitech State Bank of IndiaSAIL

Source: BSE, NSE, Kotak Institutional Equities

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Kotak Institutional Equities: Valuation summary of KIE Universe stocks

8-Feb-13 Mkt cap.O/S

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

ADVT-3mo

Company Price (Rs) Rating (Rs mn) (US$ mn) (mn) 2012 2013E 2014E 2012 2013E 2014E 2012 2013E 2014E 2012 2013E 2014E 2012 2013E 2014E 2012 2013E 2014E 2012 2013E 2014E (Rs) (%) (US$ mn)Automobiles

Apollo Tyres 86 BUY 43,553 811 504 8.1 12.3 13.9 (7.0) 51.6 13.1 10.6 7.0 6.2 6.0 4.6 4.1 1.3 1.1 1.0 0.5 0.8 0.9 15.6 19.9 18.8 110 27.3 4.4

Ashok Leyland 24 ADD 63,058 1,175 2,661 2.1 0.8 2.1 (10.6) (60.9) 156.0 11.2 28.5 11.2 7.4 10.8 7.6 1.3 1.3 1.2 4.2 1.1 3.6 17.7 11.0 15.3 26 9.7 4.9

Bajaj Auto 2,047 REDUCE 592,358 11,035 289 103.8 110.3 139.3 14.9 6.3 26.3 19.7 18.6 14.7 14.4 14.3 11.2 9.7 7.6 6.0 2.2 2.2 2.7 54.5 46.0 45.5 2,100 2.6 17.0

Bharat Forge 219 REDUCE 51,909 967 237 17.4 10.9 14.0 38.5 (37.4) 28.4 12.6 20.1 15.7 7.3 9.4 8.2 2.1 1.9 1.8 0.5 0.5 0.5 15.1 13.0 10.5 200 (8.6) 2.3

Exide Industries 130 SELL 110,075 2,051 850 5.4 5.9 7.2 (27.2) 9.6 20.8 23.9 21.8 18.0 16.0 14.0 11.9 3.6 3.2 2.9 1.2 1.2 1.4 15.9 15.6 16.8 110 (15.1) 4.9

Hero Motocorp 1,719 SELL 343,334 6,396 200 119.1 104.8 115.3 19.9 (12.0) 10.0 14.4 16.4 14.9 10.8 12.1 10.1 6.2 5.0 4.1 1.7 1.8 2.0 61.8 40.4 34.9 1,600 (6.9) 12.7

Mahindra & Mahindra 885 ADD 543,144 10,118 614 45.1 53.4 57.8 8.1 18.4 8.2 19.6 16.6 15.3 15.0 12.0 11.0 4.3 3.7 3.2 1.3 1.8 2.0 24.6 24.7 22.9 1,000 13.0 21.1

Maruti Suzuki 1,588 SELL 479,613 8,935 302 56.6 63.0 87.0 (28.6) 11.2 38.2 28.1 25.2 18.2 22.7 17.5 11.6 3.1 2.8 2.5 0.5 0.5 0.5 11.1 11.7 14.4 1,300 (18.1) 22.5

Motherson Sumi Systems 191 BUY 112,249 2,091 588 4.4 7.9 15.9 (34.3) 78.9 101.9 43.2 24.2 12.0 18.5 10.5 5.4 6.0 5.2 3.5 1.2 1.2 2.1 15.5 30.7 33.3 230 20.5 2.0

Tata Motors 285 BUY 918,374 17,108 3,218 44.6 33.3 50.5 58.7 (25.4) 51.7 6.4 8.6 5.7 5.4 5.1 3.8 2.7 2.1 1.6 1.4 2.1 1.5 46.3 28.2 32.5 350 22.6 64.5

Automobiles Neutral 3,307,955 61,624 25.9 (7.0) 30.7 12.5 13.4 10.3 9.0 8.4 6.3 3.7 3.1 2.5 1.4 1.7 1.7 29.6 22.9 24.1

Banks/Financial Institutions

Andhra Bank 102 ADD 57,301 1,067 560 24.0 22.2 22.4 6.1 (7.7) 1.1 4.3 4.6 4.6 — — — 0.8 0.8 0.7 5.4 5.0 5.0 19.2 15.6 14.2 125 22.1 2.7

Axis Bank 1,451 ADD 599,476 11,168 413 102.7 115.7 120.1 24.4 12.6 3.8 14.1 12.5 12.1 — — — 2.7 2.3 2.0 1.1 1.2 1.3 20.3 19.3 17.3 1,520 4.8 48.1

Bajaj Finserv 826 SELL 131,362 2,447 159 94.8 69.2 72.1 21.3 (27.1) 4.2 8.7 11.9 11.5 — — — 2.6 1.9 1.6 1.7 1.7 1.7 32.2 18.5 15.0 810 (1.9) 2.7

Bank of Baroda 768 REDUCE 316,814 5,902 412 121.4 111.4 116.4 12.4 (8.2) 4.4 6.3 6.9 6.6 — — — 1.3 1.2 1.0 2.2 2.4 2.6 21.7 16.3 15.0 770 0.2 13.8

Bank of India 342 ADD 196,371 3,658 575 46.6 52.1 58.9 2.5 11.8 13.0 7.3 6.6 5.8 — — — 1.1 1.1 0.9 2.0 2.3 2.6 15.0 14.3 14.3 365 6.8 8.0

Canara Bank 446 REDUCE 197,600 3,681 443 74.1 68.5 70.6 (18.5) (7.5) 3.0 6.0 6.5 6.3 — — — 1.1 1.0 0.9 2.5 2.7 2.7 15.4 12.7 11.9 415 (7.0) 8.5

Corporation Bank 407 BUY 60,839 1,133 150 101.7 85.9 110.1 6.6 (15.5) 28.2 4.0 4.7 3.7 — — — 0.8 0.7 0.7 5.0 4.3 5.5 19.5 15.1 16.6 480 18.0 1.0

Federal Bank 516 ADD 88,286 1,645 171 45.4 47.7 47.5 32.3 5.0 (0.3) 11.4 10.8 10.9 — — — 1.6 1.4 1.3 1.7 1.8 1.8 14.4 13.5 12.2 540 4.6 6.2

HDFC 809 SELL 1,238,854 23,079 1,532 27.9 31.6 37.4 15.8 13.2 18.3 29.0 25.6 21.6 — — — 6.5 4.9 4.4 1.3 1.4 1.7 22.7 22.0 21.5 730 (9.7) 38.3

HDFC Bank 650 SELL 1,525,465 28,418 2,347 22.0 28.6 36.5 30.4 30.1 27.3 29.5 22.7 17.8 — — — 5.1 4.4 3.7 0.7 0.9 1.1 18.7 20.7 22.3 615 (5.4) 32.7

ICICI Bank 1,130 ADD 1,302,801 24,270 1,153 56.1 72.3 70.8 25.4 29.0 (2.2) 20.2 15.6 16.0 — — — 2.2 2.0 1.9 1.5 1.9 1.9 11.2 13.2 11.9 1,260 11.5 59.8

IDFC 162 ADD 244,775 4,560 1,512 10.3 12.3 14.5 17.2 19.8 17.6 15.7 13.1 11.2 — — — 2.0 1.8 1.6 1.5 1.4 1.7 13.7 14.4 15.1 180 11.2 18.1

India Infoline 78 REDUCE 25,418 474 327 4.5 8.5 10.9 (38.3) 86.3 28.2 17.1 9.2 7.2 — — — 1.4 1.2 1.1 1.7 3.7 2.4 7.7 14.4 15.9 75 (3.7) 0.9

Indian Bank 184 BUY 79,142 1,474 430 39.6 35.3 39.6 1.2 (10.7) 12.1 4.7 5.2 4.7 — — — 0.9 0.9 0.8 4.1 3.5 4.0 19.4 15.2 15.1 260 41.2 1.0

Indian Overseas Bank 76 REDUCE 60,333 1,124 797 13.2 12.1 20.2 (24.0) (8.1) 67.0 5.7 6.3 3.7 — — — 0.6 0.7 0.6 5.9 3.7 6.3 9.9 7.8 12.1 70 (7.5) 2.4

IndusInd Bank 425 ADD 220,812 4,113 520 17.2 19.9 22.8 38.5 16.0 14.6 24.8 21.3 18.6 — — — 5.0 3.0 2.7 0.5 0.8 0.9 20.1 17.6 15.1 460 8.3 10.9

J&K Bank 1,317 REDUCE 63,847 1,189 48 165.6 213.6 185.3 30.6 29.0 (13.2) 7.9 6.2 7.1 — — — 1.6 1.3 1.2 2.5 3.3 2.8 21.2 23.1 17.2 1,300 (1.3) 2.3

LIC Housing Finance 266 NR 134,519 2,506 505 18.1 22.1 28.4 (11.8) 22.2 28.6 14.7 12.0 9.4 — — — 2.4 2.1 1.8 1.4 1.7 2.1 18.6 18.3 20.2 — — 14.3

L&T Finance Holdings 80 SELL 136,581 2,544 1,715 2.7 4.4 4.1 (5.6) 66.2 (5.9) 30.0 18.1 19.2 — — — 2.9 2.5 2.2 — — — 11.9 14.7 12.1 60 (24.7) 13.0

Mahindra & Mahindra Financial 1,033 REDUCE 117,432 2,188 114 60.4 77.6 91.8 33.6 28.5 18.2 17.1 13.3 11.3 — — — 4.0 2.7 2.3 1.2 1.8 2.1 22.8 23.5 21.1 1,100 6.5 5.8

Muthoot Finance 213 NR 79,249 1,476 372 24.0 25.7 25.1 52.4 7.1 (2.5) 8.9 8.3 8.5 — — — 2.7 2.0 1.6 1.9 — — 41.9 29.8 22.7 — — —

Oriental Bank of Commerce 303 REDUCE 88,462 1,648 292 39.1 50.0 55.3 (24.0) 27.9 10.6 7.7 6.1 5.5 — — — 0.9 0.8 0.7 2.6 3.3 3.7 9.9 11.7 11.9 325 7.2 4.9

PFC 223 ADD 294,013 5,477 1,319 23.0 32.0 35.0 0.9 38.8 9.4 9.7 7.0 6.4 — — — 1.5 1.3 1.3 2.7 3.7 4.1 16.9 19.0 18.3 240 7.7 10.8

Punjab National Bank 863 REDUCE 292,559 5,450 339 144.0 139.4 145.3 2.9 (3.2) 4.2 6.0 6.2 5.9 — — — 1.3 1.2 1.1 2.6 2.5 2.6 21.1 16.7 15.3 820 (4.9) 12.8

Reliance Capital 444 ADD 109,234 2,035 246 21.1 30.5 21.3 126.7 44.3 (30.0) 21.0 14.6 20.8 — — — 1.0 0.9 0.9 1.7 2.1 1.4 5.7 6.6 4.5 500 12.7 33.1

Rural Electrification Corp. 243 REDUCE 239,738 4,466 987 28.6 38.2 41.6 10.0 33.7 9.0 8.5 6.4 5.8 — — — 1.7 1.4 1.4 3.1 3.5 3.9 20.5 23.4 21.6 255 5.0 8.1

Shriram City Union Finance 1,120 NR 61,942 1,154 55 65.4 80.2 98.3 34.7 22.6 22.6 17.1 14.0 11.4 — — — 3.6 2.8 2.2 0.5 0.9 1.2 23.3 22.3 22.5 NA — 0.4

Shriram Transport 758 ADD 169,040 3,149 223 56.4 60.5 72.2 2.3 7.3 19.4 13.4 12.5 10.5 — — — 2.9 2.6 2.2 0.9 1.6 1.9 23.1 20.7 21.1 775 2.3 5.1

SKS Microfinance 132 RS 9,695 181 73 (189.0) (32.2) 0.5 (1,304.4) (83.0) (101.4) (0.7) (4.1) 294.2 — — — 2.2 4.2 3.8 — — — (122.9) (70.7) 1.4 — — 3.2

State Bank of India 2,286 ADD 1,534,100 28,579 671 174.5 209.2 218.7 34.0 19.9 4.6 13.1 10.9 10.5 — — — 2.3 2.2 2.0 1.7 1.8 1.9 15.7 15.7 14.6 2,400 5.0 99.0

Union Bank 233 ADD 128,030 2,385 551 32.3 35.7 40.1 (18.2) 10.7 12.3 7.2 6.5 5.8 — — — 1.2 1.0 0.9 3.4 3.0 3.4 14.9 14.4 14.4 285 22.6 9.7

Yes Bank 510 REDUCE 179,900 3,351 353 27.7 35.3 39.0 32.1 27.5 10.6 18.4 14.4 13.1 — — — 3.9 3.2 2.6 0.8 1.0 1.1 23.1 24.0 21.9 450 (11.7) 20.6

Banks/Financial Institutions Cautious 9,983,989 185,991 14.6 16.3 9.5 13.8 11.8 10.8 — — — 2.3 2.0 1.8 1.6 1.8 1.9 16.4 17.1 16.8

Cement

ACC 1,304 SELL 244,949 4,563 188 57.1 73.6 79.7 7.8 28.9 8.2 22.8 17.7 16.4 13.0 9.4 8.1 3.2 2.8 2.5 2.5 1.8 1.8 16.9 18.4 17.5 1,300 (0.3) 7.4

Ambuja Cements 190 SELL 288,566 5,376 1,522 7.8 10.3 12.9 (1.2) 32.9 24.2 24.3 18.3 14.7 14.1 10.9 8.6 3.3 3.1 2.8 1.2 1.5 2.0 14.6 18.1 20.4 190 0.2 9.1

Grasim Industries 3,013 ADD 276,329 5,148 92 288.6 335.4 363.9 24.4 16.2 8.5 10.4 9.0 8.3 7.0 5.4 4.5 1.6 1.4 1.2 1.1 1.1 1.1 16.7 16.7 15.7 3,500 16.2 4.3

India Cements 85 ADD 25,987 484 307 9.0 9.8 12.4 373.8 9.5 26.7 9.4 8.6 6.8 5.1 4.5 3.8 0.6 0.6 0.5 2.5 3.8 3.8 6.9 7.3 8.6 105 24.1 2.3

Shree Cement 4,455 SELL 155,212 2,891 35 159.6 272.8 286.5 179.3 70.9 5.0 27.9 16.3 15.6 8.6 9.4 7.9 5.8 4.5 3.6 0.4 0.4 0.4 24.3 31.1 25.8 3,427 (23.1) 1.2

UltraTech Cement 1,884 SELL 516,471 9,621 274 89.3 101.8 121.9 99.0 14.0 19.7 21.1 18.5 15.5 13.0 10.6 8.6 3.5 3.0 2.5 0.5 0.5 0.5 20.8 19.7 19.7 1,700 (9.8) 8.7

Cement Cautious 1,507,515 28,083 40.8 23.1 14.2 18.4 15.0 13.1 10.1 8.3 6.9 2.7 2.4 2.1 1.1 1.1 1.2 14.9 16.0 15.9

Price/BV (X) Dividend yield (%)

Source: Company, Bloomberg, Kotak Institutional Equities estimates

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ADVT-3mo

Company Price (Rs) Rating (Rs mn) (US$ mn) (mn) 2012 2013E 2014E 2012 2013E 2014E 2012 2013E 2014E 2012 2013E 2014E 2012 2013E 2014E 2012 2013E 2014E 2012 2013E 2014E (Rs) (%) (US$ mn)Consumer products

Asian Paints 4,524 SELL 433,894 8,083 96 103.1 122.6 141.5 17.3 18.9 15.5 43.9 36.9 32.0 28.5 23.6 20.0 15.8 12.8 10.7 0.9 1.1 1.3 41.4 40.1 38.1 3,550 (21.5) 6.4

Bajaj Corp. 230 BUY 33,888 631 148 8.1 11.5 14.0 16.5 40.7 21.8 28.2 20.1 16.5 29.1 18.9 14.8 7.9 7.0 6.2 1.7 2.8 3.6 29.9 37.0 39.9 280 21.9 0.5

Colgate-Palmolive (India) 1,333 SELL 181,210 3,376 136 32.8 37.7 44.3 10.9 14.7 17.6 40.6 35.4 30.1 34.9 29.5 25.0 41.6 34.3 30.0 1.9 2.0 2.5 109.0 106.3 106.6 1,150 (13.7) 4.1

Dabur India 131 ADD 229,774 4,280 1,753 3.7 4.4 5.2 12.6 19.4 18.6 35.6 29.8 25.2 28.2 23.1 19.1 13.1 10.4 8.4 1.0 1.2 1.4 41.4 39.6 37.5 140 6.8 2.6

GlaxoSmithkline Consumer 3,755 RS 157,909 2,942 42 86.0 108.5 126.4 20.8 26.1 16.4 43.6 34.6 29.7 34.6 29.1 24.7 13.8 11.5 9.7 0.9 1.2 1.5 34.4 36.2 35.3 — — 3.6

Godrej Consumer Products 721 ADD 233,406 4,348 324 17.7 20.8 26.4 18.7 17.6 26.9 40.8 34.7 27.4 28.3 23.2 18.3 8.3 6.8 5.9 0.7 0.7 0.7 25.2 23.0 26.8 760 5.4 2.3

Hindustan Unilever 453 REDUCE 978,511 18,229 2,162 11.9 14.9 16.5 22.4 25.4 10.6 38.0 30.3 27.4 33.0 28.8 25.4 27.9 32.6 26.0 1.7 3.8 2.4 83.4 99.1 105.5 450 (0.6) 25.4

ITC 302 ADD 2,371,805 44,184 7,860 7.8 9.4 11.2 22.3 19.4 19.1 38.5 32.2 27.1 27.7 22.6 18.8 12.6 11.3 10.1 1.5 1.9 2.3 35.5 37.0 39.4 330 9.4 38.7

Jubilant Foodworks 1,132 SELL 74,276 1,384 66 16.4 21.9 32.8 46.1 33.6 50.0 69.2 51.8 34.5 39.5 29.0 20.2 25.1 16.9 11.3 — — — 44.0 39.0 39.3 1,000 (11.7) 12.1

Jyothy Laboratories 145 ADD 23,737 442 164 2.8 3.9 7.2 (73.3) 40.7 86.0 52.5 37.3 20.1 35.1 20.3 13.8 3.9 3.5 3.0 — — — 6.1 9.9 16.2 195 34.4 0.6

Marico 219 ADD 140,828 2,623 645 5.2 6.3 7.7 34.2 20.8 22.5 42.0 34.7 28.4 30.3 22.4 18.5 12.1 7.1 6.0 0.3 0.4 0.7 31.0 26.0 22.9 240 9.8 1.1

Nestle India 4,643 SELL 447,697 8,340 96 104.6 113.0 139.2 20.5 8.0 23.2 44.4 41.1 33.4 29.3 25.4 20.4 35.1 26.2 18.8 1.0 1.2 1.3 94.7 73.0 65.7 4,000 (13.9) 2.2

Speciality Restaurants 165 ADD 7,739 144 47 4.9 5.4 8.1 7.6 11.1 48.0 33.7 30.3 20.5 21.4 19.5 12.9 6.7 5.1 4.1 — — — 16.2 12.3 11.8 190 15.3 0.5

Tata Global Beverages 143 BUY 88,122 1,642 618 5.4 6.3 7.6 36.3 16.9 20.1 26.4 22.6 18.8 15.6 13.2 11.0 1.5 1.5 1.4 1.3 1.5 1.8 7.8 8.3 9.5 165 15.8 10.9

Titan Industries 265 ADD 234,864 4,375 888 6.8 8.2 10.3 37.5 21.8 25.7 39.1 32.1 25.6 27.1 21.3 16.3 16.2 12.9 8.9 0.9 1.1 0.4 48.3 44.8 41.3 325 22.9 9.6

United Breweries 748 SELL 197,735 3,684 264 4.8 8.7 12.9 (17.2) 81.1 48.1 156.0 86.1 58.1 50.2 38.2 26.7 14.5 13.5 11.4 0.1 0.2 0.3 9.3 15.7 20.6 700 (6.4) 19.4

United Spirits 1,917 ADD 243,954 4,545 127 15.8 36.8 64.8 (55.4) 133.6 76.0 121.6 52.1 29.6 30.6 19.7 15.5 5.2 3.0 2.7 0.1 0.5 0.3 4.5 7.3 11.0 2,000 4.3 110.9

Consumer products Cautious 6,079,348 113,252 19.8 22.7 21.2 41.5 33.8 27.9 29.4 23.9 19.7 12.6 10.5 9.1 1.2 1.8 1.8 30.4 31.1 32.6

Constructions

NCC 41 ADD 10,494 195 257 1.4 2.4 2.4 (78.0) 67.8 1.9 29.2 17.4 17.1 8.1 7.6 8.2 0.4 0.4 0.4 0.8 1.5 2.4 1.5 2.5 2.5 55 34.5 1.7

Punj Lloyd 50 REDUCE 16,912 315 340 3.3 3.9 7.6 (322.9) 18.7 94.5 15.0 12.7 6.5 9.7 6.5 5.6 0.6 0.6 0.5 0.3 0.7 1.3 3.8 4.5 8.2 60 20.5 4.3

Sadbhav Engineering 122 BUY 18,329 341 150 9.3 5.3 9.1 20.4 (42.8) 69.4 13.1 22.8 13.5 7.7 10.6 7.6 2.3 2.1 1.9 0.5 0.5 0.5 17.9 9.4 13.9 180 47.6 0.3

Construction Cautious 45,735 852 25.9 (5.1) 66.7 15.8 16.7 10.0 8.8 7.3 6.5 0.7 0.7 0.7 0.5 0.8 1.3 4.7 4.3 6.8

Energy

Aban Offshore 324 RS 14,109 263 44 68.3 43.2 79.4 (49.1) (36.7) 83.6 4.7 7.5 4.1 8.1 7.4 6.5 0.5 0.5 0.4 1.1 1.4 1.5 12.3 8.9 12.9 — — 2.9

Bharat Petroleum 401 ADD 290,244 5,407 723 18.3 30.3 20.9 (5.7) 65.1 (31.1) 21.9 13.3 19.2 11.6 7.9 9.8 1.8 1.6 1.5 1.4 2.3 1.6 8.1 12.2 7.8 455 13.4 9.8

Cairn india 315 ADD 600,353 11,184 1,907 41.6 63.9 56.1 25.0 53.7 (12.3) 7.6 4.9 5.6 5.6 3.6 3.6 1.2 1.1 1.0 — 4.0 5.4 17.7 23.3 18.4 370 17.6 21.9

Castrol India 316 SELL 156,330 2,912 495 9.5 9.2 10.2 (4.4) (3.0) 11.2 33.4 34.5 31.0 22.9 23.9 21.2 28.5 27.4 25.6 2.4 2.4 2.5 87.9 81.1 85.4 200 (36.7) 1.2

GAIL (India) 336 ADD 425,702 7,930 1,268 28.8 31.2 31.4 2.3 8.4 0.6 11.6 10.7 10.7 7.6 7.0 6.7 1.8 1.6 1.4 2.6 2.8 2.8 15.7 15.1 13.5 420 25.1 7.5

GSPL 70 ADD 39,388 734 563 9.3 8.8 8.3 4.7 (5.1) (6.2) 7.5 7.9 8.4 4.7 4.6 4.5 1.4 1.2 1.1 1.4 1.4 1.4 20.7 16.4 13.3 83 18.6 1.2

Hindustan Petroleum 320 REDUCE 108,466 2,021 339 26.8 10.2 23.5 (34.4) (61.8) 129.2 11.9 31.2 13.6 2.7 3.6 2.9 0.7 0.7 0.6 2.7 1.0 2.3 5.4 2.0 4.5 370 15.6 10.7

Indian Oil Corporation 315 ADD 765,290 14,257 2,428 32.9 18.3 24.3 1.3 (44.3) 32.7 9.6 17.2 13.0 7.5 8.9 7.5 1.3 1.2 1.1 1.6 1.3 2.4 13.0 6.8 8.5 335 6.3 6.4

Oil India 535 BUY 321,542 5,990 601 57.3 58.5 62.2 19.5 2.1 6.2 9.3 9.1 8.6 4.0 3.6 2.8 1.7 1.5 1.4 3.6 3.9 4.3 17.2 15.5 14.9 700 30.9 4.2

Oil & Natural Gas Corporation 314 ADD 2,683,011 49,982 8,556 32.8 29.9 33.1 33.1 (8.8) 10.6 9.6 10.5 9.5 4.0 4.4 3.8 1.6 1.4 1.3 3.1 3.2 3.5 16.8 13.5 13.5 375 19.6 25.5

Petronet LNG 145 ADD 108,675 2,024 750 14.1 16.3 13.0 70.7 15.8 (20.6) 10.3 8.9 11.2 7.1 6.6 7.1 2.8 2.2 1.9 1.7 1.9 2.1 29.7 27.2 17.5 180 24.2 3.7

Reliance Industries 864 REDUCE 2,574,243 47,955 2,981 61.3 64.1 61.4 (1.1) 4.6 (4.2) 14.1 13.5 14.1 8.2 8.8 8.7 1.4 1.3 1.2 1.0 1.0 1.0 11.7 11.2 9.9 835 (3.3) 52.1

Energy Attractive 8,087,353 150,659 12.9 (0.8) 2.5 10.7 10.8 10.5 6.0 6.2 5.6 1.5 1.4 1.2 1.9 2.3 2.6 13.9 12.7 11.9

Industrials

ABB 646 SELL 136,903 2,550 212 8.7 11.4 20.1 192.0 31.1 76.0 74.2 56.6 32.2 47.2 33.6 20.0 5.4 5.1 4.5 0.5 0.5 0.5 7.4 9.3 14.9 500 (22.6) 0.7

BGR Energy Systems 235 REDUCE 16,958 316 72 31.1 27.9 33.9 (30.7) (10.1) 21.5 7.6 8.4 6.9 5.4 4.8 4.5 1.5 1.3 1.2 3.0 2.4 2.9 21.7 16.9 18.0 280 19.1 0.9

Bharat Electronics 1,274 REDUCE 101,908 1,898 80 106.3 110.7 125.7 (0.9) 4.1 13.5 12.0 11.5 10.1 6.6 5.2 3.8 1.7 1.6 1.4 1.6 2.4 2.4 15.3 14.3 14.6 1,300 2.1 0.8

Bharat Heavy Electricals 209 SELL 510,937 9,518 2,448 28.8 24.3 21.3 17.1 (15.5) (12.5) 7.3 8.6 9.8 4.8 5.7 5.8 2.0 1.7 1.5 3.1 2.5 2.2 30.9 21.6 16.4 205 (1.8) 17.0

Crompton Greaves 104 ADD 66,459 1,238 642 5.7 1.9 8.4 (60.0) (67.3) 347.9 18.1 55.2 12.3 8.0 14.6 7.3 1.8 1.8 1.6 1.4 1.2 1.4 10.6 3.3 13.9 130 25.5 6.7

Cummins India 509 ADD 141,053 2,628 277 22.0 25.4 29.4 (0.9) 15.2 15.9 23.1 20.0 17.3 21.2 17.2 14.6 6.9 6.1 5.4 2.2 2.5 2.9 30.7 31.1 31.6 550 8.1 2.4

Kalpataru Power Transmission 90 BUY 13,765 256 153 13.3 11.6 14.5 (4.1) (12.6) 24.8 6.7 7.7 6.2 4.7 4.9 4.4 0.7 0.7 0.6 1.7 1.7 1.7 10.7 8.7 9.9 120 33.8 0.4

KEC International 55 BUY 14,166 264 257 6.9 5.7 8.6 (14.1) (16.8) 49.5 8.0 9.6 6.4 5.3 6.2 5.1 1.2 1.1 1.0 2.2 1.6 2.3 16.4 12.1 16.0 80 45.2 0.3

Larsen & Toubro 1,511 REDUCE 925,398 17,239 612 75.7 82.2 88.0 12.4 8.6 7.1 20.0 18.4 17.2 15.6 14.1 12.3 3.0 2.5 2.2 0.9 0.9 0.9 16.1 14.7 13.5 1,600 5.9 42.2

Maharashtra Seamless 233 BUY 16,451 306 71 43.9 33.9 39.1 (9.0) (22.6) 15.3 5.3 6.9 6.0 3.2 3.5 2.7 0.6 0.6 0.5 3.2 2.9 3.4 11.5 8.3 9.2 400 71.5 0.1

Siemens 616 SELL 216,674 4,036 352 13.6 23.3 27.4 (46.6) 71.2 17.6 45.2 26.4 22.5 27.4 15.2 12.6 5.1 4.4 3.8 0.3 0.8 0.9 11.7 17.9 18.3 575 (6.6) 2.4

Suzlon Energy 25 RS 44,345 826 1,777 (4.0) (3.7) (0.4) (34.1) (6.0) (88.1) (6.3) (6.7) (56.3) 8.7 8.9 7.1 0.8 1.0 1.1 — 0.8 0.8 (11.7) (13.7) (1.8) — — 16.6

Tecpro Systems 141 ADD 7,112 132 50 24.4 25.1 27.6 (9.6) 2.9 9.9 5.8 5.6 5.1 4.8 4.9 4.5 0.9 0.8 0.7 — — — 17.1 15.3 14.8 200 41.9 0.2

Thermax 584 REDUCE 69,637 1,297 119 32.9 26.7 34.0 4.0 (19.0) 27.5 17.8 21.9 17.2 11.8 14.3 10.6 4.3 3.8 3.3 1.2 1.4 1.7 26.6 18.3 20.6 575 (1.6) 0.8

Voltas 95 REDUCE 31,570 588 331 9.4 7.4 8.3 (3.4) (21.2) 11.6 10.1 12.8 11.5 8.1 8.8 7.0 2.1 1.9 1.7 1.7 2.3 2.6 21.7 15.6 15.8 115 20.5 3.6

Industrials Cautious 2,296,884 42,788 6.5 (3.9) 10.2 15.5 16.1 14.6 10.6 10.7 9.5 2.6 2.3 2.0 1.5 1.5 1.4 16.8 14.2 13.9

Dividend yield (%)


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ADVT-3mo

Company Price (Rs) Rating (Rs mn) (US$ mn) (mn) 2012 2013E 2014E 2012 2013E 2014E 2012 2013E 2014E 2012 2013E 2014E 2012 2013E 2014E 2012 2013E 2014E 2012 2013E 2014E (Rs) (%) (US$ mn)Infrastructure

Adani Port and SEZ 152 BUY 306,350 5,707 2,017 5.5 6.2 9.5 20.0 13.1 54.5 27.8 24.6 15.9 23.2 15.9 12.2 6.2 5.1 3.7 0.7 0.8 1.1 23.8 22.7 26.9 160 5.4 5.9

Container Corporation 963 ADD 125,141 2,331 130 67.5 75.2 83.2 (0.1) 11.4 10.7 14.3 12.8 11.6 9.5 8.6 7.6 2.2 2.0 1.8 1.6 1.8 2.0 16.6 16.4 16.1 1,000 3.9 1.2

GMR Infrastructure 19 RS 73,761 1,374 3,892 (1.1) 0.4 0.4 236.7 (132.7) (3.8) (16.7) 51.2 53.2 18.1 8.0 5.6 0.8 0.7 0.6 — — — (5.8) 1.9 1.8 — — 4.9

Gujarat Pipavav Port 42 REDUCE 20,208 376 483 1.4 1.4 2.2 (212.6) 4.1 58.4 30.9 29.7 18.7 13.6 12.2 10.8 2.5 1.7 1.5 — — — 10.4 7.0 10.2 52 24.4 0.4

GVK Power & Infrastructure 13 RS 20,056 374 1,579 0.4 1.0 3.5 (60.3) 165.6 243.1 32.6 12.3 3.6 26.1 12.7 7.4 0.6 0.4 0.4 — 2.8 6.3 1.8 3.9 11.1 — — 2.8

IRB Infrastructure 120 BUY 40,000 745 332 15.1 14.3 16.6 10.8 (4.8) 15.8 8.0 8.4 7.2 6.7 6.8 5.6 1.3 0.9 0.8 — — — 18.1 12.9 11.8 170 41.3 7.4

Infrastructure Cautious 585,515 10,908 (2.9) 42.5 41.9 27.1 19.0 13.4 16.8 10.9 7.7 2.2 1.7 1.5 0.7 0.9 1.2 8.0 9.0 11.0

Media

DB Corp 239 BUY 43,738 815 183 11.0 11.4 13.8 (14.5) 3.3 21.5 21.6 20.9 17.2 12.5 11.7 9.8 4.7 4.3 4.0 2.1 2.5 3.3 23.0 21.6 24.1 260 9.0 0.4

DishTV 72 ADD 76,739 1,430 1,064 (1.0) (1.3) 0.6 (45.3) 32.4 (146.9) (71.2) (53.8) 114.6 17.4 14.5 11.3 (81.8) (47.9) (82.4) — — — 694.0 112.4 (53) 80 10.9 5.5

Eros International 197 ADD 18,073 337 92 16.5 18.8 20.5 31.9 13.8 9.5 11.9 10.5 9.6 8.8 7.4 6.8 2.1 1.8 1.5 — — — 20.0 18.5 16.8 230 16.8 3.0

Hindustan Media Ventures 144 BUY 10,594 197 73 8.9 11.1 12.1 21.9 25.0 8.6 16.2 13.0 11.9 8.7 6.8 5.8 2.4 2.1 1.9 0.8 1.4 2.8 15.9 17.3 16.7 200 38.6 0.0

HT Media 99 BUY 23,273 434 235 7.0 7.0 8.6 (8.5) (1.0) 23.4 14.1 14.2 11.5 6.1 6.0 4.5 1.5 1.4 1.3 0.4 2.0 4.0 11.1 10.2 11.8 130 31.4 0.3

Jagran Prakashan 105 BUY 33,270 620 316 5.6 5.9 7.1 (17.2) 3.8 20.5 18.7 18.0 14.9 11.5 9.9 8.6 4.4 3.7 3.4 3.3 3.3 3.8 24.5 22.5 23.9 130 23.6 0.3

Sun TV Network 468 REDUCE 184,607 3,439 394 17.6 17.5 20.5 (10.0) (0.3) 17.2 26.6 26.7 22.8 16.9 16.3 14.0 6.9 6.4 5.8 2.0 2.1 2.6 28.6 25.9 27.7 410 (12.5) 10.3

Zee Entertainment Enterprises 230 REDUCE 218,595 4,072 950 6.0 7.3 8.9 (0.5) 20.6 22.0 38.2 31.7 26.0 27.5 21.8 17.5 4.8 4.5 4.3 0.6 0.7 0.8 13.0 14.9 17.3 190 (17.4) 13.0

Media Neutral 608,887 11,343 (1.5) 6.7 30.5 31.7 29.7 22.8 16.7 14.8 12.3 5.2 4.8 4.4 1.2 1.4 1.7 16.5 16.2 19.4

Metals & Mining

Coal India 339 BUY 2,139,668 39,860 6,316 23.2 24.8 27.8 34.4 6.5 12.4 14.6 13.7 12.2 9.1 7.9 6.6 5.0 4.0 3.3 3.0 2.2 2.5 38.0 32.8 29.9 404 19.3 13.7

Hindalco Industries 110 SELL 210,086 3,914 1,915 17.7 14.7 14.0 38.8 (16.9) (5.1) 6.2 7.4 7.8 6.7 7.9 8.2 0.7 0.6 0.6 1.4 1.4 1.4 11.1 8.5 7.5 115 4.8 16.5

Hindustan Zinc 124 ADD 523,055 9,744 4,225 13.2 15.5 15.6 13.2 17.6 0.9 9.4 8.0 7.9 5.7 5.0 3.9 1.9 1.6 1.4 1.9 2.1 2.1 22.6 22.3 19.0 156 26.0 2.3

Jindal Steel and Power 414 REDUCE 387,241 7,214 935 42.4 32.6 43.6 5.6 (23.2) 33.8 9.8 12.7 9.5 8.2 8.5 7.6 2.1 1.8 1.6 0.5 0.5 0.5 24.8 15.7 17.8 420 1.4 16.3

JSW Steel 830 SELL 185,134 3,449 223 24.1 65.6 56.3 (69.3) 172.3 (14.1) 34.4 12.6 14.7 5.8 6.1 6.6 1.1 1.0 1.0 0.9 1.2 1.2 8.2 11.3 6.8 585 (29.5) 15.5

National Aluminium Co. 47 SELL 120,486 2,245 2,577 3.4 2.2 3.6 (19.7) (35.7) 65.4 13.9 21.6 13.1 6.3 8.5 4.7 1.0 1.0 1.0 2.1 2.1 2.1 7.6 4.7 7.5 50 7.0 0.2

NMDC 147 BUY 583,406 10,868 3,965 18.5 16.6 18.6 12.6 (9.8) 11.5 8.0 8.8 7.9 4.3 4.8 3.9 2.4 2.0 1.7 3.1 3.4 3.4 33.3 24.9 23.6 185 25.7 15.3

Sesa Goa 170 ADD 147,617 2,750 869 31.0 26.6 28.0 (36.2) (14.2) 5.3 5.5 6.4 6.1 5.3 27.2 15.3 1.0 0.9 0.8 2.7 0.7 0.7 11.1 (0.2) 2.2 203 19.5 6.2

Sterlite Industries 101 ADD 340,658 6,346 3,361 15.8 16.6 16.5 3.9 5.4 (0.8) 6.4 6.1 6.1 3.8 3.5 2.9 0.7 0.7 0.6 2.0 2.0 2.0 12.1 11.5 10.4 120 18.4 13.0

Tata Steel 387 ADD 376,373 7,011 971 17.2 14.0 48.7 (72.3) (18.7) 247.1 22.5 27.6 8.0 7.7 7.6 5.9 0.9 0.9 0.8 3.1 3.1 3.1 6.4 3.2 10.6 400 3.2 32.4

Metals & Mining Cautious 5,013,723 93,400 0.5 0.7 12.6 10.7 10.6 9.4 6.6 6.8 5.8 1.8 1.6 1.4 2.4 2.1 2.2 17.0 15.2 15.2

Pharmaceutical

Apollo Hospitals 840 ADD 116,862 2,177 139 15.8 22.4 30.1 19.3 41.7 34.7 53.2 37.5 27.9 22.8 18.9 14.8 4.6 4.1 3.7 0.5 0.7 0.9 9.6 11.6 14.0 870 3.6 7.3

Biocon 285 ADD 57,090 1,064 200 17.1 17.7 20.6 (6.9) 3.4 16.5 16.7 16.1 13.9 9.5 9.3 7.8 2.5 2.3 2.1 1.8 1.9 2.2 15.7 14.8 15.6 300 5.1 3.5

Cipla 381 ADD 305,632 5,694 803 14.0 19.7 20.0 13.5 40.8 1.6 27.2 19.3 19.0 18.5 13.5 12.1 4.0 3.4 3.0 0.5 0.7 0.7 15.7 17.0 16.7 440 15.6 15.4

Cadila Healthcare 790 ADD 161,814 3,014 205 31.9 25.4 41.8 (8.2) (20.2) 64.4 24.8 31.1 18.9 19.2 19.4 13.1 6.3 5.5 4.6 0.9 0.8 1.3 27.5 18.9 26.3 840 6.3 2.3

Divi's Laboratories 1,031 REDUCE 136,720 2,547 133 40.2 50.6 58.6 24.0 25.9 15.8 25.6 20.4 17.6 19.4 15.6 12.5 6.4 5.4 4.5 1.3 1.6 1.8 27.1 28.7 27.8 1,140 10.6 6.7

Dr Reddy's Laboratories 1,855 ADD 315,746 5,882 170 84.0 102.3 110.1 29.4 21.7 7.6 22.1 18.1 16.9 13.9 12.1 11.0 5.5 4.4 3.6 0.7 0.8 0.8 23.4 24.9 22.5 2,100 13.2 12.7

GlaxoSmithkline Pharmaceuticals 2,099 SELL 177,896 3,314 85 74.3 79.8 90.3 8.8 7.5 13.2 28.3 26.3 23.2 20.1 19.6 16.6 9.2 8.7 8.1 2.1 2.3 3.0 32.4 34.0 36.2 1,900 (9.5) 1.5

Glenmark Pharmaceuticals 494 REDUCE 133,821 2,493 271 21.9 22.3 27.5 31.1 1.9 23.5 22.6 22.2 17.9 25.4 15.8 12.8 5.5 4.5 3.7 0.4 0.5 0.7 20.7 22.7 23.0 510 3.2 6.4

Lupin 597 ADD 267,060 4,975 447 19.5 27.1 29.8 1.2 39.0 10.1 30.7 22.1 20.1 21.7 13.1 12.5 6.5 5.3 4.4 0.5 0.8 0.9 23.9 26.9 24.2 645 8.0 8.2

Ranbaxy Laboratories 429 SELL 180,946 3,371 422 (18.5) 38.8 23.5 (145.7) 309.1 (39.5) (23.1) 11.1 18.3 12.8 8.3 12.8 6.3 4.2 3.5 — — — (68.5) 45.6 20.8 482 12.4 7.5

Sun Pharmaceuticals 746 REDUCE 772,641 14,393 1,036 25.0 28.6 35.1 42.5 14.4 22.7 29.9 26.1 21.3 22.1 13.9 13.0 5.8 4.8 3.9 0.6 0.7 0.8 21.9 20.0 20.2 750 0.5 11.2

Pharmaceuticals Attractive 2,626,227 48,924 (9.6) 49.7 9.4 32.1 21.4 19.6 18.5 13.6 12.6 5.5 4.6 3.8 0.7 0.8 1.0 17.2 21.3 19.6

Real Estate

DLF 269 NR 460,877 8,586 1,715 7.1 12.7 16.9 (22.1) 79.7 33.1 38.0 21.1 15.9 17.9 13.6 10.5 1.7 1.6 1.5 0.9 1.1 1.3 4.5 7.6 9.5 — — 34.7

Housing Development & Infrastructure 71 NR 29,833 556 419 22.0 28.8 28.8 11.3 30.5 0.2 3.2 2.5 2.5 4.5 4.1 3.7 0.3 0.2 0.2 — 2.1 2.8 8.3 10.8 9.6 — — 46.2 Mahindra Life Space Developer 409 NR 16,683 311 41 29.4 29.8 34.3 18.0 1.3 15.1 13.9 13.7 11.9 13.6 10.9 10.3 1.5 1.4 1.3 1.1 1.2 1.3 11.2 10.4 11.0 — — 0.5 Oberoi Realty 274 NR 90,216 1,681 330 14.1 14.3 22.4 (10.5) 1.4 57.3 19.5 19.2 12.2 16.0 12.4 7.8 2.4 2.2 1.9 0.7 0.9 1.1 13.1 12.0 16.9 — — 0.6

Phoenix Mills 270 NR 39,072 728 145 7.3 10.7 11.5 14.9 46.9 7.9 37.1 25.2 23.4 28.2 19.7 18.9 2.3 2.2 2.0 0.7 0.7 0.7 6.4 8.9 9.0 — — 0.6 Sobha Developers 436 NR 42,771 797 98 21.4 25.1 37.4 13.8 17.1 49.2 20.4 17.4 11.7 11.6 10.5 7.4 2.1 2.0 1.7 1.1 1.1 1.1 10.9 11.7 15.6 — — 1.4 Unitech 35 NR 91,963 1,713 2,616 0.9 1.8 2.3 (56.1) 84.8 32.7 37.0 20.0 15.1 34.7 19.0 14.7 0.8 0.7 0.7 0.3 0.3 0.3 2.1 3.7 4.7 — — 31.4

Real Estate Cautious 699,542 13,032 0.3 48.7 1.1 19.3 12.9 12.8 12.4 9.6 9.2 1.5 1.3 1.3 0.8 1.1 1.2 7.6 10.2 10.3

Dividend yield (%)


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ADVT-3mo

Company Price (Rs) Rating (Rs mn) (US$ mn) (mn) 2012 2013E 2014E 2012 2013E 2014E 2012 2013E 2014E 2012 2013E 2014E 2012 2013E 2014E 2012 2013E 2014E 2012 2013E 2014E (Rs) (%) (US$ mn)Technology

HCL Technologies 670 REDUCE 476,512 8,877 711 34.6 51.6 53.7 51.2 49.4 3.9 19.4 13.0 12.5 11.9 8.3 7.7 4.9 3.5 2.9 1.2 1.2 1.2 25.1 30.7 25.5 650 (3.0) 17.2

Hexaware Technologies 81 REDUCE 23,862 445 294 9.1 10.9 10.0 207.9 20.3 (8.2) 8.9 7.4 8.1 7.4 5.2 5.4 2.3 2.1 1.9 4.9 6.7 6.2 26.9 29.7 24.3 90 10.7 6.1

Infosys 2,789 REDUCE 1,601,144 29,828 574 144.9 162.9 177.2 21.0 12.5 8.7 19.3 17.1 15.7 13.0 11.6 10.1 5.1 4.3 3.7 1.6 1.9 2.2 29.0 27.3 25.3 2,700 (3.2) 64.6

Mahindra Satyam 119 REDUCE 139,415 2,597 1,176 10.2 11.0 11.2 142.3 8.4 1.2 11.7 10.7 10.6 10.9 6.6 6.1 4.7 3.5 2.8 — — 1.9 50.4 37.6 29.6 120 1.2 7.5

Mindtree 781 ADD 32,128 599 41 53.1 79.7 86.1 115.1 50.1 8.1 14.7 9.8 9.1 10.9 6.1 5.6 3.4 2.7 2.2 0.7 2.0 3.3 25.2 30.3 26.8 825 5.7 1.7

Mphasis 356 SELL 74,996 1,397 211 39.0 37.6 37.7 (24.6) (3.7) 0.4 9.1 9.5 9.4 7.6 7.0 6.9 1.9 1.7 1.6 1.8 4.8 5.3 22.8 19.0 17.4 375 5.4 1.1

Polaris Financial Technology 118 REDUCE 11,780 219 100 20.8 21.1 18.7 7.4 1.9 (11.4) 5.7 5.6 6.3 3.1 2.8 2.5 0.9 0.8 0.8 3.3 3.5 3.6 18.1 15.8 12.6 120 1.6 1.5

TCS 1,423 REDUCE 2,784,313 51,869 1,957 54.4 72.0 80.0 22.0 32.4 11.1 26.2 19.8 17.8 18.6 14.4 12.7 8.6 6.9 5.7 1.8 2.0 2.2 36.8 38.8 35.4 1,320 (7.2) 34.0

Tech Mahindra 1,002 REDUCE 127,749 2,380 128 80.1 105.1 106.3 63.5 31.2 1.1 12.5 9.5 9.4 15.9 10.1 9.5 3.2 2.7 2.3 0.4 0.6 0.8 28.4 31.2 27.1 1,025 2.3 11.2

Wipro 412 REDUCE 1,012,854 18,868 2,456 22.7 27.4 29.4 5.2 20.6 7.2 18.2 15.1 14.0 12.6 10.1 9.0 3.5 3.0 2.6 1.2 1.5 1.6 21.2 21.5 19.7 400 (3.0) 11.4

Technology Cautious 6,284,752 117,078 21.2 24.1 8.0 20.2 16.3 15.1 14.3 11.3 10.1 5.2 4.3 3.7 1.5 1.8 2.1 26.0 26.6 24.3

Telecom

Bharti Airtel 322 ADD 1,222,068 22,766 3,798 11.2 7.2 13.3 (29.6) (36.0) 84.8 28.7 44.8 24.3 8.0 7.4 6.2 2.4 2.3 2.1 — 0.5 0.4 8.6 5.3 9.2 350 8.8 34.0

IDEA 110 ADD 363,198 6,766 3,303 2.2 3.0 5.6 (19.6) 36.0 87.5 50.2 36.9 19.7 9.8 8.5 6.5 2.8 2.6 2.3 — — — 5.7 7.3 12.3 125 13.7 8.2

MTNL 23 RS 14,774 275 630 (9.1) (8.4) (8.3) (11.9) (8.1) (1.7) (2.6) (2.8) (2.8) 0.6 0.8 0.9 0.2 0.2 0.2 — — — (5.7) (5.5) (5.8) — — 1.1

Reliance Communications 75 SELL 155,316 2,893 2,064 4.5 2.7 4.8 (31.0) (40.2) 79.8 16.7 28.0 15.6 9.1 7.8 6.4 0.4 0.4 0.4 — — — 2.4 1.5 2.6 60 (20.3) 23.8

Tata Communications 224 REDUCE 63,869 1,190 285 (27.9) (27.0) (19.4) 12.0 (3.3) (28.1) (8.0) (8.3) (11.6) 9.6 8.2 7.3 2.8 4.2 6.7 — — — (27.0) (40.3) (44.7) 220 (1.8) 1.2

Telecom Neutral 1,819,224 33,890 (34.4) (34.7) 129.5 40.1 61.3 26.7 8.6 7.7 6.4 1.6 1.6 1.5 — — 0.3 4.0 2.6 5.6

Utilities

Adani Power 57 SELL 136,297 2,539 2,393 (0.4) (6.4) (0.9) (118.0) 1,418.2 (86.1) (134.3) (8.8) (63.9) 37.4 45.8 12.6 2.3 3.1 3.2 — — — (1.5) (29.3) (4.9) 35 (38.5) 4.0

CESC 321 REDUCE 40,067 746 125 21.7 26.0 32.3 (9.3) 19.6 24.1 14.8 12.3 9.9 8.7 8.9 6.0 0.7 0.6 0.6 — 1.5 1.7 4.5 5.2 6.2 294 (8.3) 3.4

JSW Energy 64 SELL 104,714 1,951 1,640 2.0 6.7 7.1 (60.6) 230.6 5.9 31.6 9.6 9.0 14.8 7.2 5.8 1.8 1.5 1.3 — — — 5.8 17.5 15.7 61 (4.5) 2.9

Lanco Infratech 13 RS 27,788 518 2,223 (0.5) (0.7) 1.0 (131.8) 39.2 (233.2) (23.9) (17.1) 12.9 10.6 10.3 6.9 0.6 0.6 0.6 — — — (2.5) (3.6) 4.8 — — 5.1

NHPC 28 REDUCE 344,421 6,416 12,301 2.5 1.8 2.0 84.5 (26.2) 10.8 11.2 15.2 13.8 10.3 12.8 10.8 1.2 1.1 1.1 2.4 1.7 1.9 11.1 7.7 8.1 26 (7.1) 8.1

NTPC 148 ADD 1,220,741 22,741 8,245 10.8 13.3 13.9 (1.1) 22.8 5.0 13.7 11.2 10.6 11.4 10.1 9.0 1.7 1.5 1.4 2.3 2.7 2.8 12.6 14.2 13.7 180 21.6 12.5

Power Grid 111 ADD 515,057 9,595 4,630 7.1 8.1 10.0 22.9 14.3 23.8 15.7 13.8 11.1 12.6 11.4 9.0 2.2 2.0 1.8 1.9 2.2 2.7 14.6 15.1 16.9 140 25.8 7.9

Reliance Infrastructure 488 BUY 128,240 2,389 263 60.3 50.7 68.0 4.0 (16.0) 34.3 8.1 9.6 7.2 10.2 5.2 3.6 0.5 0.5 0.5 2.1 2.3 2.3 8.9 8.6 9.7 820 68.2 19.2

Reliance Power 85 SELL 238,716 4,447 2,805 3.1 3.4 3.7 14.0 9.5 10.2 27.5 25.2 22.8 65.1 25.1 19.7 1.4 1.3 1.2 — — — 5.0 5.3 5.5 80 (6.0) 13.1

Tata Power 97 ADD 239,800 4,467 2,468 4.6 3.4 6.0 (40.6) (26.8) 77.3 21.1 28.8 16.2 10.9 8.9 7.0 1.8 1.7 1.6 1.5 1.7 1.7 8.1 6.1 10.4 113 16.3 6.0

Utilities Attractive 2,995,841 55,809 (1.8) 2.8 23.9 15.6 15.2 12.2 13.1 11.4 9.0 1.5 1.4 1.3 1.7 1.9 2.1 9.5 9.2 10.5

Others

Carborundum Universal 133 BUY 24,914 464 187 11.6 5.4 10.5 27.0 (53.0) 92.0 11.5 24.4 12.7 7.1 11.4 7.0 2.3 2.1 1.9 1.5 0.7 1.3 24.8 9.8 17.1 180 35.4 0.5

Coromandel International 215 SELL 60,766 1,132 283 22.6 18.1 22.1 (7.9) (19.7) 21.8 9.5 11.9 9.7 8.0 10.1 6.6 2.5 2.3 2.0 3.3 3.4 3.6 27.8 18.8 20.5 220 2.3 0.9

Havells India 670 REDUCE 83,624 1,558 125 31.5 31.7 37.3 28.2 0.8 17.6 21.3 21.1 18.0 13.3 12.1 10.4 8.3 5.7 4.6 1.0 1.1 1.2 45.6 31.8 28.2 580 (13.5) 4.9

Jaiprakash Associates 73 BUY 155,443 2,896 2,126 2.9 6.6 10.7 (51.5) 127.3 60.9 25.0 11.0 6.8 12.8 8.6 6.7 1.4 1.2 1.1 — — — 5.6 11.7 16.6 100 36.8 33.6

Jet Airways 592 SELL 51,099 952 86 (184.6) 1.2 26.0 1,735.6 (101) 2,095.1 (3.2) 500.6 22.8 (672.6) 10.4 8.8 39.0 36.2 14.0 — — — (164.4) 7.5 88.5 400 (32.4) 45.9

Rallis India 128 BUY 24,931 464 194 5.1 6.3 8.6 (21.6) 23 37.6 25.1 20.5 14.9 12.9 12.1 8.3 4.5 4.0 3.4 1.7 1.7 1.7 20.4 19.6 24.5 155 20.9 1.2

SpiceJet 43 BUY 20,611 384 484 (13.7) 0.4 3.5 (649.9) (103.2) 679.1 (3.1) 96.0 12.3 (5.2) 23.4 7.8 (13.5) (64.0) 15.3 — — — (721) (23.2) 325.1 60 41.0 5.1

Tata Chemicals 354 ADD 90,321 1,683 255 32.9 33.6 37.7 28.2 2.2 12.2 10.8 10.6 9.4 6.0 6.1 5.3 1.3 1.2 1.0 2.8 2.8 2.8 12.3 11.1 11.2 370 4.4 4.5

United Phosphorus 128 REDUCE 59,157 1,102 462 12.0 15.0 16.0 (0.4) 24.9 6.5 10.6 8.5 8.0 5.8 5.2 4.7 1.4 1.2 1.1 2.0 2.0 2.0 14.5 16.0 15.0 120 (6.3) 6.3

Others 570,867 10,635 (67.8) 254.1 41.0 49.0 13.8 9.8 12.5 8.6 6.7 2.1 1.8 1.6 1.3 1.3 1.3 4.2 13.2 16.1

KS universe (b) 52,513,358 978,267 9.5 9.3 12.9 15.8 14.5 12.8 10.1 9.2 7.9 2.4 2.2 2.0 1.5 1.7 1.9 15.5 15.1 15.3

KS universe (b) ex-Energy 44,426,005 827,608 8.5 12.2 15.6 17.4 15.5 13.4 11.8 10.3 8.6 2.8 2.5 2.2 1.5 1.6 1.8 16.0 15.9 16.4

KS universe (d) ex-Energy & ex-Commodities 37,904,767 706,125 9.5 14.5 16.3 18.9 16.5 14.2 13.5 11.4 9.4 3.0 2.7 2.4 1.3 1.6 1.7 15.8 16.1 16.6

Notes:

(a) For banks we have used adjusted book values.(b) 2012 means calendar year 2011, similarly for 2013 and 2014 for these particular companies.

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

(d) Rupee-US Dollar exchange rate (Rs/US$)= 53.68

Dividend yield (%)



Disclosures

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

Source: Kotak Institutional Equities As of December 31, 2012

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

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

* The above categories are defined as follows: Buy = We expect this stock to deliver more than 15% returns over the next 12 months; Add = We expect this stock to deliver 5-15% returns over the next 12 months; Reduce = We expect this stock to deliver -5-+5% returns over the next 12 months; Sell = We expect this stock to deliver less than -5% returns over the next 12 months. Our target prices are also on a 12-month horizon basis. These ratings are used illustratively to comply with applicable regulations. As of 31/12/2012 Kotak Institutional Equities Investment Research had investment ratings on 173 equity securities.

19.7%22.0%

35.3%

23.1%

4.0% 4.6%1.7% 2.3%

0%

10%

20%

30%

40%

50%

60%

70%

BUY ADD REDUCE SELL

Ratings and other definitions/identifiers

Definitions of ratings

BUY. We expect this stock to deliver more than 15% returns over the next 12 months.

ADD. We expect this stock to deliver 5-15% returns over the next 12 months.

REDUCE. We expect this stock to deliver -5-+5% returns over the next 12 months.

SELL. We expect this stock to deliver <-5% returns over the next 12 months.

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

Other definitions

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

Other ratings/identifiers

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

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

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

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

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

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

Corporate Office Overseas Offices

Kotak Securities Ltd.

Bakhtawar, 1st Floor

229, Nariman Point

Mumbai 400 021, India

Tel: +91-22-6634-1100

Kotak Mahindra (UK) Ltd

8th Floor, Portsoken House

155-157 Minories

London EC3N 1LS

Tel: +44-20-7977-6900

Kotak Mahindra Inc

50 Main Street, Ste. 890

Westchester Financial Centre

White Plains, New York 10606

Tel:+1-914-997-6120

Copyright 2013 Kotak Institutional Equities (Kotak Securities Limited). All rights reserved.

1. Note that the research analysts contributing to this report may not be registered/qualified as research analysts with FINRA; and

2. Such research analysts may not be associated persons of Kotak Mahindra Inc and therefore, may not be subject to NASD Rule 2711 restrictions on communications with a subject company, public appearances and trading securities held by a research analyst account.

Kotak Securities Limited and its affiliates are a full-service, integrated investment banking, investment management, brokerage and financing group. We along with our affiliates are leading underwriter of securities and participants in virtually all securities trading markets in India. We and our affiliates have investment banking and other business relationships with a significant percentage of the companies covered by our Investment Research Department. Our research professionals provide important input into our investment banking and other business selection processes. Investors should assume that Kotak Securities Limited and/or its affiliates are seeking or will seek investment banking or other business from the company or companies that are the subject of this material and that the research professionals who were involved in preparing this material may participate in the solicitation of such business. Our research professionals are paid in part based on the profitability of Kotak Securities Limited, which include earnings from investment banking and other business. Kotak Securities Limited generally prohibits its analysts, persons reporting to analysts, and members of their households from maintaining a financial interest in the securities or derivatives of any companies that the analysts cover. Additionally, Kotak Securities Limited generally prohibits its analysts and persons reporting to analysts from serving as an officer, director, or advisory board member of any companies that the analysts cover. Our salespeople, traders, and other professionals may provide oral or written market commentary or trading strategies to our clients that reflect opinions that are contrary to the opinions expressed herein, and our proprietary trading and investing businesses may make investment decisions that are inconsistent with the recommendations expressed herein. In reviewing these materials, you should be aware that any or all of the foregoing, among other things, may give rise to real or potential conflicts of interest. Additionally, other important information regarding our relationships with the company or companies that are the subject of this material is provided herein.

This material should not be construed as an offer to sell or the solicitation of an offer to buy any security in any jurisdiction where such an offer or solicitation would be illegal. We are not soliciting any action based on this material. It is for the general information of clients of Kotak Securities Limited. It does not constitute a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual clients. Before acting on any advice or recommendation in this material, clients should consider whether it is suitable for their particular circumstances and, if necessary, seek professional advice. The price and value of the investments referred to in this material and the income from them may go down as well as up, and investors may realize losses on any investments. Past performance is not a guide for future performance, future returns are not guaranteed and a loss of original capital may occur. Kotak Securities Limited does not provide tax advise to its clients, and all investors are strongly advised to consult with their tax advisers regarding any potential investment.

Certain transactions -including those involving futures, options, and other derivatives as well as non-investment-grade securities - give rise to substantial risk and are not suitable for all investors. The material is based on information that we consider reliable, but we do not represent that it is accurate or complete, and it should not be relied on as such. Opinions expressed are our current opinions as of the date appearing on this material only. We endeavor to update on a reasonable basis the information discussed in this material, but regulatory, compliance, or other reasons may prevent us from doing so. We and our affiliates, officers, directors, and employees, including persons involved in the preparation or issuance of this material, may from time to time have “long” or “short” positions in, act as principal in, and buy or sell the securities or derivatives thereof of companies mentioned herein. For the purpose of calculating whether Kotak Securities Limited and its affiliates holds beneficially owns or controls, including the right to vote for directors, 1% of more of the equity shares of the subject issuer of a research report, the holdings does not include accounts managed by Kotak Mahindra Mutual Fund. Kotak Securities Limited and its non US affiliates may, to the extent permissible under applicable laws, have acted on or used this research to the extent that it relates to non US issuers, prior to or immediately following its publication. Foreign currency denominated securities are subject to fluctuations in exchange rates that could have an adverse effect on the value or price of or income derived from the investment. In addition, investors in securities such as ADRs, the value of which are influenced by foreign currencies affectively assume currency risk. In addition options involve risks and are not suitable for all investors. Please ensure that you have read and understood the current derivatives risk disclosure document before entering into any derivative transactions.

This report has not been prepared by Kotak Mahindra Inc. (KMInc). However KMInc has reviewed the report and, in so far as it includes current or historical information, it is believed to be reliable, although its accuracy and completeness cannot be guaranteed. Any reference to Kotak Securities Limited shall also be deemed to mean and include Kotak Mahindra Inc.

Documents

India Daily, February 11, 2013 - Kotak Securities...For Private Circulation Only. FOR IMPORTANT INFORMATION ABOUT KOTAK SECURITIES’ RATING SYSTEM AND OTHER DISCLOSURES. REFER TO