Morning Insight 2 Aug 2011 - Business Standard...FII open interest (Rs cr) 29 Jul 11 % Chg FII Index Futures 11,275 2.4 FII Index Options 33,075 3.7 FII Stock Futures 31,475 1.6 FII

AUGUST 2, 2011

Economy News4 The prime minister's economic advisory council (PMEAC) has lowered its

economic growth projection for this financial year to 8.2%, from 9%pegged earlier. (BS)

4 Impacted by higher borrowing costs and increase in fuel prices, domesticcar sales in July continued the slide that began earlier this year. The bigthree carmakers - Maruti Suzuki, Tata Motors and Hyundai - whichrepresent 75 per cent of the market saw sales taking a nosedive. (BL)

4 Exports in June grew by 46.4 per cent to $29.2 billion, according to thedata released by the Commerce Ministry. On the other hand, imports inJune growing 42.5 per cent to $36.9 billion, leaving a trade deficit of $7.7billion. (BL)

4 Charting the boldest reform ever, the Economic Advisory Council to thePrime Minister (PMEAC) has suggested uniform 49 per cent direct foreigndirect investment in all sectors, except the negative ones (defence,nuclear energy, etc). (BL)

4 Information technology and IT-enabled service units in special economiczones are going to be allowed the same tax concessions as given todevelopers of SEZs. The government is to soon issue the new norms, asmore and more IT companies don the function of a developer,empowering them to even sub-lease vacant spaces within theircampuses. (BS)

Corporate News4 The Supreme Court ban on iron ore mining in the Bellary district of

Karnataka has hit more than half a dozen steel companies, including JSWSteel and Kalyani Steels manufacturing about 14 mn tonnes steel thatproduces 21% of the country's iron ore. (BS)

4 Fortis Healthcare (India) Ltd has unveiled its plan to launch six newhospitals in Southern and Western India. The addition of these six newprojects will increase Fortis' bed capacity by 1,400 beds to 9,700 beds. (BL)

4 Leading engineering company Jyoti Ltd has announced an exclusivecollaboration agreement with Japan's DMW Corporation formanufacturing cooling water (CW) pumps for large irrigation and powerprojects in India at the Vadodara plant. (BL)

4 The National Highways Authority of India (NHAI) awarded a Rs.28.2 bnworth of contract in Madhya Pradesh to infrastructure player GVK thatwill fetch it an annual premium of about Rs.1.9 bn for 30 years, morethan the total project cost. (BS)

4 State-run hydro power generation company NHPC would invest aroundRs.150 bn for developing two projects in the neighboring countryMyanmar. (BS)

4 Essar Energy completed the $1.26-billion takeover of Royal Dutch Shell'sStanlow refinery in the UK on Monday, providing the company with itsfirst step into the European market as well as a potential market forproduct from Vadinar. (BL)

4 MphasiS has said that they will acquire US-based Wyde Corporation, aninsurance software provider, for an undisclosed amount. The deal isexpected to boost Mphasis' footprint in the US and Canada and expandits reach in Europe. (FE)

4 Sun Pharma chairman Dilip Shanghvi will pick up an 11% stake in anIsraeli investment company that specialises in the life sciences sector. Theinvestment, to be carried out in his personal capacity, comes close on theheels of Sun's takeover of Taro Pharmaceuticals in that country.

Equity% Chg

2 Aug 11 1 Day 1 Mth 3 Mths

Indian IndicesSENSEX Index 18,314 0.6 (2.4) (3.6)

NIFTY Index 5,517 0.6 (2.0) (3.2)BANKEX Index 12,483 0.3 (2.9) (2.5)BSET Index 5,886 0.9 (4.3) (4.3)

BSETCG INDEX 13,088 0.7 (5.7) 0.3BSEOIL INDEX 8,843 0.5 (2.2) (10.4)CNXMcap Index 8,007 (0.1) (0.2) (1.4)

BSESMCAP INDEX 8,284 (0.3) 0.7 (3.8)

World IndicesDow Jones 12,132 (0.1) (3.6) (5.3)

Nasdaq 2,745 (0.4) (2.5) (4.2)FTSE 5,774 (0.7) (3.6) (4.9)NIKKEI 9,965 1.3 (0.3) (1.7)

HANGSENG 22,663 1.0 0.5 (5.1)

Value traded (Rs cr)2 Aug 11 % Chg - Day

Cash BSE 2,406 (17.7)

Cash NSE 9,604 (22.9)Derivatives 76,026 (23.8)

Net inflows (Rs cr)29 Jul 11 % Chg MTD YTD

FII (619) (248.4) 7,411 9,465Mutual Fund 108 (31.6) 652 3,877

FII open interest (Rs cr)29 Jul 11 % Chg

FII Index Futures 11,275 2.4FII Index Options 33,075 3.7

FII Stock Futures 31,475 1.6FII Stock Options 289 46.1

Advances / Declines (BSE)2 Aug 11 A B S Total % total

Advances 104 845 254 1,203 40Declines 97 1,293 254 1,644 55

Unchanged 2 98 25 125 4

Commodity % Chg

2 Aug 11 1 Day 1 Mth 3 Mths

Crude (NYMEX) (US$/BBL) 95.2 0.3 0.2 (16.2)

Gold (US$/OZ) 1,626.7 0.2 9.1 3.6Silver (US$/OZ) 39.6 (0.9) 17.0 (15.1)

Debt / forex market2 Aug 11 1 Day 1 Mth 3 Mths

10 yr G-Sec yield % 8.46 8.45 8.35 8.13Re/US$ 44.08 44.19 44.58 44.34

Sensex

Source: ET = Economic Times, BS = Business Standard, FE = Financial Express,BL = Business Line, ToI: Times of India, BSE = Bombay Stock Exchange

16,600

18,100

19,600

21,100

Jul-10 Oct-10 Jan-11 Apr-11 Jul-11

Kotak Securities - Private Client Research Please see the disclaimer on the last page For Private Circulation 2

MORNING INSIGHT August 2, 2011

AUTO INDUSTRY VOLUME UPDATE - JULY 2011Wholesale auto sales numbers posted by the automobile manufacturerslargely remained in line with expectations. Trend witnessed among varioussegments continued in to July 2011 with two wheeler and LCV segmentgrowing at a healthy pace and the growth in the car and the M&HCVsegment growing at a dismal pace. Among the companies, Hero MotoCorp(formerly Hero Honda Motors) and TVS Motors posted healthy growth intheir monthly dispatches. M&M posted very strong set of numbers withgrowth coming from all segments. Maruti Suzuki and Tata Motors had arelatively weak month on the back of unfavorable macro factors. Goingforward, we expect sequential improvement in numbers but YoY growth isexpected to remain subdued primarily for the car and M&HCV segment.

AUTO INDUSTRY UPDATE

Arun [email protected]+91 22 6621 6143

Summary - July 2011 volumes (Nos)

July June July YoY MoM YTD YTD Growth2010 2011 2011 gth (%) gth (%) FY11 FY12 (%)

Hero MotoCorp

2W 427,686 512,244 491,036 15 (4) 1,661,725 2,020,613 22

TVS Motor

Scooters 40,357 44,281 49,333 22 11 135,843 166,856 23

Motorcycles 61,051 69,859 70,170 15 0 261,409 285,221 9

Mopeds 61,698 64,493 67,169 9 4 221,895 259,302 17

Total sales 163,106 178,633 186,672 14 5 619,147 711,379 15

Exports 20,067 23,337 26,324 31 13 74,111 95,287 29

Maruti Suzuki

A1&A2 (M-800, Alto, Wagon-R,

Estilo, Ritz, Swift, A-Star) 65,759 54,422 47,127 (28) (13) 243,178 224,830 (8)

A3 (SX4, D'zire) 10,352 3,199 5,324 (49) 66 39,310 35,936 (9)

A4 (Kizashi) - 32 32 - - - 149 -

MUV (Grand Vitara, Gypsy) 386 185 642 66 247 3,375 2,144 (36)

C (OMNI, Eeco) 13,617 12,182 13,379 (2) 10 47,138 54,128 15

Total Domestic 90,114 70,020 66,504 (26) (5) 333,001 317,187 (5)

Export 10,743 10,278 8,796 (18) (14) 51,180 39,639 (23)

Total Sales 100,857 80,298 75,300 (25) (6) 384,181 356,826 (7)

M&M

Passenger Vehicles (incl. Verito) 12,825 16,053 17,312 35 8 53,003 65,526 24

4W pick-up/Gio/Maxximo 7,053 11,560 13,472 91 17 30,047 44,528 48

3W 5,418 5,149 5,395 (0) 5 17,586 19,453 11

MNAL 1,007 1,010 1,144 14 13 3,985 4,096 3

Total Domestic 26,303 33,772 37,323 42 11 104,621 133,603 28

Export 1,746 1,812 2,310 32 27 5,521 8,027 45

Total Sales 28,049 35,584 39,633 41 11 110,142 141,630 29

Tractors 14,592 22,730 16,718 15 (26) 64,740 76,870 19

Tata Motors

M&HCV 15,255 16,074 15,836 4 (1) 57,411 61,378 7

LCV 20,439 23,197 24,962 22 8 75,512 92,790 23

Utility 3,251 3,472 3,195 (2) (8) 12,901 13,631 6

Cars 24,613 18,521 13,997 (43) (24) 87,202 68,342 (22)

Total Domestic 63,558 61,264 57,990 (9) (5) 233,026 236,141 1

Export 4,241 5,094 5,771 36 13 16,484 20,657 25

Total Sales 67,799 66,358 63,761 (6) (4) 249,510 256,798 3

Source: Companies



HMC - 2W sales volume

Source: Company

HH - 2W sales volume (Nos)


2W 427,686 512,244 491,036 15 (4) 1,661,725 2,020,613 22

Source: Company

n Hero Honda Motors Limited has officially changed its name to Hero MotoCorpLtd.

n HMC's dispatches for the month of July were in line with expectation.

n Volumes for the month stood at 491,036 units as against July 2010 volumes of427,686 units, a YoY growth of 15%.

n Sequentially volumes were down by 4%. Generally volumes in July tend to beweak as it is a non marriage and non festive month. Company's Haridwar facilitywas closed for few days on account of religious activity in the region during themonth and that too impacted volumes to certain extent.

n In the domestic market, HMC's performance has been superior as compared tothe peers.

n Company expects to cross the 6mn unit mark in FY12. HH’s production capacitystands at 6.15mn units which the company expects to take it to 6.4-6.5mn unitsby the end of FY12.

n Company's FY12 YTD volume growth stands at 21.6%. Company's lower expo-sure to credit sales is a positive in current situation of rising interest rate sce-nario. We expect HMC to outperform the domestic industry volume growth ratein FY12.

HERO MOTOCORP (HMC)

-

150,000

300,000

450,000

600,000

Jul-1

0

Aug

-10

Sep

-10

Oct

-10

Nov

-10

Dec

-10

Jan-

11

Feb

-11

Mar

-11

Apr

-11

May

-11

Jun-

11

Jul-1

1

-

15

30

45Volume (Units - LHS) % YoY growth (RHS)



TVS Motors - sales volume (Nos)


Scooters 40,357 44,281 49,333 22.2 11.4 135,843 166,856 22.8

Motorcycles 61,051 69,859 70,170 14.9 0.4 261,409 285,221 9.1

Mopeds 61,698 64,493 67,169 8.9 4.1 221,895 259,302 16.9

Total sales 163,106 178,633 186,672 14.4 4.5 619,147 711,379 14.9

Exports 20,067 23,337 26,324 31.2 12.8 74,111 95,287 28.6

Source: Company

TVS MOTORS (TVSM)

Mopeds sales volume trend

Source: Company

Exports sales volume trend

Source: Company

Scooters sales volume trend

Source: Company

Motorcycles sales volume trend

Source: Company

n TVSM continued with the streak of posting healthy volumes on a monthly basis.Overall volumes for the company grew by 14% from 166,214 units in July 2010to 189,962 units in July 2011.

n Domestic 2W volumes increased by 12% YoY to 160,348 units while 2W exportsregistered an excellent 31% YoY growth with volumes of 26,324 units for theperiod under consideration. 2W exports in the current financial year have beenquite robust with YTD growth rate at 28.6%. (continued ....)

-

9,000

18,000

27,000

36,000

45,000

Jul-1

0

Aug

-10

Sep

-10

Oct

-10

Nov

-10

Dec

-10

Jan-

11

Feb-

11

Mar

-11

Apr

-11

May

-11

Jun-

11

Jul-1

1

-

20

40

60

80

100

Volume (Units - LHS) % YoY growth (RHS)

-

25,000

50,000

75,000

100,000

Jul-1

0

Aug

-10

Sep

-10

Oct

-10

Nov

-10

Dec

-10

Jan-

11

Feb-

11

Mar

-11

Apr

-11

May

-11

Jun-

11

Jul-1

1

-

20

40

60

80Volume (Units - LHS)

% YoY growth (RHS)

-

15,000

30,000

45,000

60,000

75,000

Jul-1

0

Aug

-10

Sep

-10

Oct

-10

Nov

-10

Dec

-10

Jan-

11

Feb

-11

Mar

-11

Apr

-11

May

-11

Jun-

11

Jul-1

1

-

11

22

33

44Volume (Units - LHS)% YoY growth (RHS)

-

6,000

12,000

18,000

24,000

Jul-1

0

Aug

-10

Sep

-10

Oct

-10

Nov

-10

Dec

-10

Jan-

11

Feb

-11

Mar

-11

Apr

-11

May

-11

Jun-

11

Jul-1

1

-

25

50

75




n TVSM Motors sold 49,000 scooters in July 2011, the highest on a monthly basis.Scooter demand has been quite strong and that helped the company post 22%YoY growth in this segment. MoM increase of 11.4% in scooter sales was im-pressive.

n Motorcycle sales were up by 15% YoY and flat MoM to 70,170 units. July 2011motorcycle volumes were similar to FY11 average motorcycle sales volume of69,735 units. Company's performance in this segment on a monthly basis hasbeen relatively volatile.

n Moped sales during the month remained steady at 67,169 units. Moped salesgrew by 9% YoY and 4% MoM.

n TVS Motors posted weak 3W sales volume in July 2011. 3W sales were up byonly 6% to 3,290 units. Karnataka Court order to open up 40,000 permits is amajor positive for the 3W sales over the next couple of quarters.

n Company has planned launch of a new scooter and motorcycle towards 4QFY12.

n Management expects volumes to grow by ~15% in FY12. Company YTD volumegrowth stands at 15% as against our expectation of 13.2% volume growth forFY12. This translates into an implied growth rate of 11% over the balance partof FY12.



M&M - sales volume (Nos)


Passenger Vehicles (incl. Verito) 12,825 16,053 17,312 35.0 7.8 53,003 65,526 23.6

4W pick-up/Gio/Maxximo 7,053 11,560 13,472 91.0 16.5 30,047 44,528 48.2

3W 5,418 5,149 5,395 (0.4) 4.8 17,586 19,453 10.6

MNAL 1,007 1,010 1,144 13.6 13.3 3,985 4,096 2.8

Total Domestic 26,303 33,772 37,323 41.9 10.5 104,621 133,603 27.7

Export 1,746 1,812 2,310 32.3 27.5 5,521 8,027 45.4

Total Sales 28,049 35,584 39,633 41.3 11.4 110,142 141,630 28.6

Tractors 14,592 22,730 16,718 14.6 (26.4) 64,740 76,870 18.7

Source: Company

MAHINDRA AND MAHINDRA (M&M)

Domestic volume trend (Automotive)

Source: Company

Export volume trend (Automotive)

Source: Company

UV - domestic volume trend

Source: Company

Tractor - volume trend

Source: Company

n M&M posted a very strong set of volumes for the month of July 2011. Automo-tive volumes for M&M rose from 28,049 units in July 2010 to 39,633 units (theirhighest ever) in July2011, a growth of 41% YoY. Sequentially too the volumesshowed good traction and were up by 11.4%.

(continued ....)

(6,000)

-6,000

12,00018,000

24,00030,000

36,000

Jul-1

0

Aug

-10

Sep

-10

Oct

-10

Nov

-10

Dec

-10

Jan-

11F

eb-1

1

Mar

-11

Apr

-11

May

-11

Jun-

11

Jul-1

1

(30)

-

30

60

90

120

150

Volume (Units - LHS)

% YoY growth (RHS)

(6,000)

-

6,000

12,000

18,000

24,000

30,000

Jul-1

0

Aug

-10

Sep

-10

Oct

-10

Nov

-10

Dec

-10

Jan-

11F

eb-1

1

Mar

-11

Apr

-11

May

-11

Jun-

11

Jul-1

1(30)

-

30

60

90

120


-

9,000

18,000

27,000

36,000

Jul-1

0

Aug

-10

Sep

-10

Oct

-10

Nov

-10

Dec

-10

Jan-

11F

eb-1

1

Mar

-11

Apr

-11

May

-11

Jun-

11

Jul-1

1

-

20

40

60

80

Volume (Units - LHS)% YoY growth (RHS)

-

500

1,000

1,500

2,000

2,500

Jul-1

0

Aug

-10

Sep

-10

Oct

-10

Nov

-10

Dec

-10

Jan-

11

Feb

-11

Mar

-11

Apr

-11

May

-11

Jun-

11

Jul-1

1

-

100

200

300

400




n Volumes in the passenger UV segment improved by a strong 30% YoY to 15,682units. Waiting periods for key models in this segment like Scorpio and Bolerohave come down from 6-8 weeks to 1-2 weeks primarily on account of increasedsupply. Slowdown could be a potential reason too for waiting period comingdown. Nonetheless company's FY12 YTD growth rate in this segment stands atan impressive 18%.

n Verito sales increased at a rapid pace YoY though on a low base. Company dis-patched 1,630 Veritos in July 2011 versus 752 Veritos dispatched in July 2010.

n M&M's performance in the 4W pick-up segment continued to remain strongbacked by overall healthy demand and new launches. Volumes in this segmentincreased by 91% YoY to 13,472 units and was one of the prime reason for thecompany's strong performance in July 2011.

n 3W volumes remained flat YoY while LCV and M&HCV volumes grew by 14%.

n Exports at 2,310 units too reported a healthy 32% jump over July 2010 volumesof 1,746 units.

n Tractor sales for the month stood at 16,718 units, 15% higher over July 2010tractor volumes of 14,592 units. Company's FY12 YTD growth in the tractor seg-ment stands at a healthy 18.7%.

n Overall volumes for the company were ahead of expectations on the automotiveside. We expect that new launches will help the company continue with strongvolume momentum for the balance part of FY12.



MSIL - sales volume (Nos)


A1&A2 (M-800, Alto, Wagon-R,

Estilo, Ritz, Swift, A-Star) 65,759 54,422 47,127 (28.3) (13.4) 243,178 224,830 (7.5)

A3 (SX4, D'zire) 10,352 3,199 5,324 (48.6) 66.4 39,310 35,936 (8.6)

A4 (Kizashi) - 32 32 - - - 149 -

MUV (Grand Vitara, Gypsy) 386 185 642 66.3 247.0 3,375 2,144 (36.5)

C (OMNI, Eeco) 13,617 12,182 13,379 (1.7) 9.8 47,138 54,128 14.8

Total Domestic 90,114 70,020 66,504 (26.2) (5.0) 333,001 317,187 (4.7)

Export 10,743 10,278 8,796 (18.1) (14.4) 51,180 39,639 (22.5)

Total Sales 100,857 80,298 75,300 (25.3) (6.2) 384,181 356,826 (7.1)

Source: Company

MARUTI SUZUKI INDIA LIMITED (MSIL)

Export volume trend

Source: Company

Business Mix (Domestic)

Source: Company

A1 & A2 segment domestic volume trend

Source: Company

Domestic sales volume trend

Source: Company

n MSIL posted disappointing wholesale volumes for the month of July 2011. Evenafter adjusting for one-off's that impacted the production/dispatches in July 2011,volumes were below expectations.

n During the month the company dispatched 75,300 units as against 100,857 unitsdispatched in July 2010.

(continued ....)

(16,000)

-

16,000

32,000

48,000

64,000

80,000

Jul-1

0

Aug

-10

Sep

-10

Oct

-10

Nov

-10

Dec

-10

Jan-

11

Feb

-11

Mar

-11

Apr

-11

May

-11

Jun-

11

Jul-1

1

(16)

-

16

32

48

64


% YoY growth (RHS)

-

25,000

50,000

75,000

100,000

125,000

Jul-1

0

Aug

-10

Sep

-10

Oct

-10

Nov

-10

Dec

-10

Jan-

11

Feb

-11

Mar

-11

Apr

-11

May

-11

Jun-

11

Jul-1

1(40)

(20)

-

20

40

60

80


% YoY growth (RHS)

(6,000)

-

6,000

12,000

18,000

Jul-1

0

Aug

-10

Sep

-10

Oct

-10

Nov

-10

Dec

-10

Jan-

11

Feb

-11

Mar

-11

Apr

-11

May

-11

Jun-

11

Jul-1

1

(40)

-

40

80

120Volume (Units - LHS)

% YoY growth (RHS)

0%

25%

50%

75%

100%

Jul-1

0

Sep

-10

Nov

-10

Jan-

11

Mar

-11

May

-11

Jul-1

1

D

C

MUV

A3

A2

A1



n Volumes during the month were impacted on two counts 1.Shifting of SwiftDzire's production from Manesar plant to the Gurgaon plant led to YoY drop insales by 5,471 units. 2. Discontinuation of dispatches of old Swift in wake ofplanned launch of new Swift in August 2011 led to Swift dispatch of mere 348units as against 11,828 units dispatched in July 2010. Both the above mentionedreasons negatively impacted volumes to the tune of ~17,000 units in July 2011.However, even after adjusting for the same, we believe that the volumes for themonth were weak.

n Volumes in the van segment (Omni and Eeco) de-grew YoY by 1.7% to 13,379units. MoM van segment numbers were up on lower June 2011 base (on ac-count of plant shutdown for maintenance activity).

n Jul y 2011 was one of the weakest month for the company for exports. Exportsvolumes for the month were the lowest since April 2009. Export volume at 8,796units was 18% lower YoY and 14% lower MoM. Slowing Europe sales is one ofthe prime reasons for slowdown in exports. Company's exposure to Europe hasdeclined from 80% of their overall export volumes in FY10 to 33% during1QFY12. Company's FY12 YTD export volumes stand lower by 22.5% YoY.

n Company's overall FY12YTD volumes have declined by 7.1% on account ofslowing car sales and one-off events. In August 2011, with the launch of newswift, we expect sharp increase in volumes over July 2011.

n We expect 6.7% volume growth for the company in FY12 and the company hastill date posted 7% de-growth in volumes. While volumes are expected to im-prove going forward, overall volume growth in FY12 is expected to remain weak.



Tata Motors - sales volume (Nos)


M&HCV 15,255 16,074 15,836 3.8 (1.5) 57,411 61,378 6.9

LCV 20,439 23,197 24,962 22.1 7.6 75,512 92,790 22.9

Utility 3,251 3,472 3,195 (1.7) (8.0) 12,901 13,631 5.7

Cars 24,613 18,521 13,997 (43.1) (24.4) 87,202 68,342 (21.6)

Total Domestic 63,558 61,264 57,990 (8.8) (5.3) 233,026 236,141 1.3

Export 4,241 5,094 5,771 36.1 13.3 16,484 20,657 25.3

Total Sales 67,799 66,358 63,761 (6.0) (3.9) 249,510 256,798 2.9

Source: Company

TATA MOTORS (TAMO)

Cars - domestic volume trend

Source: Company

Business Mix ( Domestic)

Source: Company

M&HCV - domestic volume trend

Source: Company

LCV - domestic volume trend

Source: Company

n TAMO reported mediocre wholesale volumes for the month of July 2011. Vol-umes for the month fell by 6% YoY from 67,799 units in July 2010 to 63,761units for the period under consideration.

n While LCV sales remained robust, performance in the passenger car segment re-mained dismal. M&HCV sales remain impacted by unfavorable macro situation.

(continued ....)

-

6,000

12,000

18,000

24,000

Jul-1

0

Aug

-10

Sep

-10

Oct

-10

Nov

-10

Dec

-10

Jan-

11

Feb

-11

Mar

-11

Apr

-11

May

-11

Jun-

11

Jul-1

1

-

20

40

60


% YoY growth (RHS)

-

6,500

13,000

19,500

26,000

Jul-1

0

Aug

-10

Sep

-10

Oct

-10

Nov

-10

Dec

-10

Jan-

11F

eb-1

1

Mar

-11

Apr

-11

May

-11

Jun-

11

Jul-1

1

-

10

20

30

40

Volume (Units - LHS)% YoY growth (RHS)

(14,000)

(7,000)

-

7,000

14,000

21,000

28,000

Jul-1

0

Aug

-10

Sep

-10

Oct

-10

Nov

-10

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-10

Jan-

11F

eb-1

1

Mar

-11

Apr

-11

May

-11

Jun-

11

Jul-1

1

(60)

(40)(20)-20

4060

80

Volume (Units - LHS) % YoY growth (RHS)

0%

25%

50%

75%

100%

Jul-1

0

Sep

-10

Nov

-10

Jan-

11

Mar

-11

May

-11

Jul-1

1

Cars

UV

LCV

M&HCV



n Passenger car sales for TAMO fell by 43% YoY to 13,997 units in July 2011.Sales were weak for all the three brands (Nano, Indica and Indigo). Nano saleswere down 64% YoY, Indica sales were lower by 32% YoY and Indigo saleslower by 30% YoY. Given rising competition we had indicated pressure on pas-senger car volumes for TAMO; but the performance has been poorer than ex-pected.

n UV sales too were weak during the month at 3,195 units, down both YoY andMoM.

n LCV sales has been the only performer for the company in FY12 (YTD) register-ing FY12 YTD growth rate of 23% as against overall FY12 YTD volume growth of3%. LCV volumes for the company grew by 22% YoY in July 2011 with volumesof 24,962 units.

n M&HCV industry is facing the heat of unfavorable macro factors and accordinglythe volumes in this segment for the company grew by a mere 3.8% YoY to15,255 units. We expect M&HCV volumes for the company to remain underpressure in FY12.

n Exports grew on a strong note for TAMO. Exports were up by 36% YoY to 5,771units.

n As indicated in our earlier monthly updates, we continue to believe that FY12will be a difficult year for TAMO from volume growth perspective. Rising compe-tition, unfavorable macro environment and lack of new launches is expected tokeep TAMO's domestic volume growth subdued in FY12.



RESULT UPDATE

Teena [email protected]+91 22 6621 6302

GRASIM INDUSTRIES

PRICE: RS.2200 RECOMMENDATION: BUYTARGET PRICE: RS.2795 FY12E P/E: 8.0X

Consolidated result highlightsq Revenues of the company were better than our estimates led by higher

cement and VSF realizations

q Operating margin improvement led by better realizations despite highercosts

q Net profit growth was also better than our estimates due to excellentrevenue growth

q We continue to maintain our estimates and price target. We maintainBUY with a price target of Rs 2795 on FY12 estimates.

Financial highlights

(Rs mn) Q1FY12 Q1FY11 YoY (%)

Net sales 58,721 50,552 16.2

Expenditure 42,967 37,514 14.5

Dec/(Inc) in stock -2,439 -1,400

Raw material consumed 12,558 10,040

As a % of sales 21.4 19.9

Purchase of finished goods 519 290


Staff cost 3,114 2,748


Power and fuel 12,951 10,224


Freight, handling and other expense 7,980 7,893


Other expenditure 8,285 7,719


Operating profit 15,754 13,038 20.8

Operating margin 26.8 25.8

Depreciation 2,815 2,672

EBIT 12,939 10,366 24.8

Interest 942 912

EBT(exc other income) 11,998 9,454 26.9

Other income 1,730 1,598

Write back of provisions

EBT 13,728 11,052 24.2

Tax 3,726 3,199

Tax (%) 27.1 28.9

PAT 10,002 7,853 27.4

- Minority share 2,627 2,215

+ Share of profit/(loss) of associate 141 112

Net profit 7,517 5,750 30.7

Equity capital 917.2 916.9

EPS (Rs) 82.0 62.7

Source: Company

Summary table

(Rs mn) FY10 FY11 FY12E

Sales 199,548 212,690 244,077Growth (%) 9.0 7.0 15.0EBITDA 57,867 46,832 58,863

EBITDA margin (%) 29.0 22.0 24.1PBT 49,930 38,528 48,111Net profit 30,955 22,648 25,218

EPS (Rs) 295.3 247.0 275.0Growth (%) 24 (16) 11CEPS (Rs) 446.0 371.1 416.5

BV (Rs/share) 1,366 1,577 1,816Dividend/Share (Rs) 30.0 30.0 30.0ROE (%) 25.7 16.8 16.2

ROCE (%) 30.0 22.3 24.8Net cash (debt) 13,136 17,244 25,069NW capital (days) 38 33 36

EV/Sales (x) 0.9 0.9 0.7EV/EBITDA (x) 3.3 3.9 3.0P/E (x) 7.4 8.9 8.0

P/BV (x) 1.6 1.4 1.2

Source: Company, Kotak Securities - PrivateClient Research



Revenue growth led by higher VSF and cement realizationsRevenues of the company for Q1FY12 reported a growth of 16.2% on YoY basis,better than our estimates. This was led by improvement in VSF and cement realiza-tions on yearly basis.

Segment wise performance of the company is shown below -

n Cement - Cement volumes on a consolidated basis for Q1FY12 stood at 10.71MT as against 9.85 MT in Q1FY11. Total cement capacity of Ultratech postmerger of Samruddhi Cements and acquisition of ETA Star Cement stands at51.75 MT.

Average cement prices continued to stay high during Q1FY12. Blended cementrealizations for the company also witnessed an improvement on both yearly andsequential basis for Q1FY12 and stood at Rs 3859 per tonne for Q1FY12 asagainst Rs 3591 per tonne for Q4FY11 and Rs 3500 per tonne for Q1FY11. Whitecement realizations continue to improve on sequential as well as yearly basis.Wall care putty segment has witnessed an improvement in terms of demand aswell as volumes.

Company's capex of nearly Rs 110 bn for cement division expansion as well asmodernization is progressing on track. It has already spent nearly Rs 6 bn on thiscapex during Q1FY12. Out of the total planned capex, company intends to spendRs 51.5 bn for setting up additional clinker units at Chattisgarh and Karnatakaand Rs 58.5 bn for setting up bulk packaging terminals across various states andupgrading and modernizing existing units.

We had expected cement prices to stay firm only till the onset of monsoons andin line with our expectations, prices have started witnessing correction due tolack of demand as well as incremental supplies in the market. Though we ex-pect the demand to recover during H2FY12, but oversupply situation may con-tinue to prevail for next 2-2.5 years which may keep the prices subdued.

n VSF - Though VSF realizations for the company have improved significantly on asequential basis in Q1FY12, but prices have started coming down due to sharpdecline in the cotton prices as well as demand slowdown seen in China. VSFrealizations stood at Rs 152 per kg as against Rs 145 in Q4FY11. However, cur-rent prices of VSF for the company are in the range of Rs 120-125 per kg. Vol-umes in the VSF division were also impacted as buyers preferred to reduce theinventory level in the value chain. Coupled with this, there was a scheduled pro-duction suspension due to water shortage during Q1FY12 which also impactedthe overall volumes. Company management indicated that initial stabilization inthe prices has been witnessed and downward pressure on VSF prices may reducefurther after Q2FY12.

With the acquisition of Domsjo, Grasim will be able to get assured supply of highquality dissolving grade pulp. This will not only help in reducing overall costs butwill also enable the company to increase its share in specialty fibre market.

n Chemicals - Chemicals' division volumes registered a decline of 18.5% due tolower production on account of water shortage. However, average realizationsimproved by 22.5% YoY for Q1FY12. Chemical prices are up due to temporaryoutage of competitors' caustic plants in west/North zone as well as improvementin caustic prices in international markets. Grasim expansion plan to build 182,500tonnes caustic capacity at Vilayat for its captive use along with the VSF facilitiesis progressing on schedule.



Cement division details

Q1FY12 Q1FY11 YoY (%)

Ultratech Cement Sales volumes (MT) 10.71 9.85 8.7

Realisations (Rs/tonne) 3859 3500 10.3

White Cement sales volume (MT) 122277 133052 -8.1

Realisations (Rs/tonne) 8943 8172 9.4

VSF division details

VSF volumes (MT) 54839 67302 -18.5

VSF realisations (Rs/tonne) 152409 117910 29.3

Chemical division details

Sales volumes (MT) 54424 54386 0.1

Realisation (Rs/Tonne) 22605 18455 22.5

Source: Company

n We maintain our estimates and expect revenues to grow to Rs 244 bn for FY12.

Operating margins improved sequentially as well as on yearlybasisn Operating margins stood at 26.8% for Q1FY12, better than our expectations.

This was due to improvement seen in average VSF and cement realizations dur-ing the quarter.

n Overall costs continue to remain high due to higher coal costs as well as rawmaterial cost such as pulp. Full impact of hike in domestic coal prices was wit-nessed during Q1FY12 while imported coal costs also witnessed an increase ofnearly 30% YoY. Though these prices have come off a bit from the highs, butwe have built in higher costs in our estimates and expect margins to be 24% forFY12.

Net profit growth led by excellent revenue growth as well ashigher other incomen Net profit improved by 31% for Q1FY12. This was better than our estimates due

to better than expected revenues and higher other income due to surplus cashand sale of aircraft during Q1FY12.

n We maintain our estimates and expect net profits to grow by 11% for FY12 to Rs25 bn.

Valuation and recommendationn At current market price of Rs 2200, stock is trading at 8.0x P/E and 3.0x EV/

EBITDA for FY12 respectively.

n We maintain our estimates and value the company on sum of the parts method-ology.

n We maintain our price target of Rs 2795 on FY12 estimates and continue tomaintain BUY on the stock due to decent upside from the current levels.

Sum of the parts valuation

Division EBITDA EV/EBITDA EV Rationale(Rs mn) (x) (Rs mn)

Valuation of VSF division 15027 5 75135 Based on relative valuations

Valuation of chemical division 1328 5 6638 Based on relative valuations

Total

Valuation of 60.3% holding in merged entity 136011 At 20% discount to current price of Rs 1029

Investments 13270 At 20% discount to current market price of Rs 97

Net debt (25069)

Total valuation 256122

Value per share(Rs) 2793

Source: Kotak Securities - Private Client Research



MADHUCON PROJECTS LTD (MPL)PRICE: RS.86 RECOMMENDATION: BUYTARGET PRICE: RS.130 FY12E P/E: 12.3X

q Revenue growth of the company during Q1FY12 was lower than our es-timates due to unbilled revenues of Rs 1140 mn.

q Operating margins were better than our estimates due to higher execu-tion of power projects.

q Net profit growth was impacted by lower than expected revenue growthas well as higher tax rate.

q We thus tweak our revenue estimates to factor in Q1FY12 performanceand arrive at a revised price target of Rs 130 (Rs 145 earlier) o FY12 esti-mates. However, we continue to maintain BUY on the company based onits valuations.Any delays seen in raising funds at the subsidiary levelmay impact financial closure of its projects which may adversely impactrevenue growth.



Net Sales 3292 4074 -19%

Expenditure -2829 -3639

EBITDA 463 435 7%

EBITDA margin 14.07% 10.68%

Depreciation (123) (120)

EBIT 341 316 8%

Interest (207) (103)

EBT(exc other income) 134 213

Other Income 6 3

EBT 140 215 -35%

Tax (60) (81)

Tax (%) 42.79% 37.51%

Net profit 80 135 -41%

NPM% 2.42% 3.30%

Equity Capital 73.80 74.03

EPS (Rs) 1.1 1.8

Source: Company

Revenue growth impacted by unbilled projectsn Madhucon Projects Ltd reported a decline of 19% in revenues for Q1FY12 due to

unbilled revenues of Rs 1140 mn during the current quarter. This was lower thanour estimates. Company has mentioned that this was due to pending bills fromChappra-Hajipur project and expects to bill this amount during next quarter.

n Current order book of company stands at nearly Rs 61 bn diversified across roadsegment 51%, irrigation projects 22%, power projects 17%, and remaining frombuilding and mining segment.

n Orders worth nearly Rs 13.8 bn from the irrigation segment are from AP region.Company has mentioned that if Pollavaram project gets nationalized, then con-cerns related to funding of irrigation projects would get addressed. Till that time,company has decided to put execution on these projects on hold.

Summary table

(Rs mn) FY11 FY12E FY13E

Sales 17,046 19,432 22,347

Growth (%) 30 14 15EBITDA 1,850 2,138 2,346EBITDA margin (%) 10.9 11.0 10.5

PBT 810 776 846Net profit 510 516 563EPS (Rs) 6.9 7.0 7.6

Growth (%) 24 1 9CEPS (Rs) 13.3 14.0 15.3BV (Rs/share) 84.9 91.5 98.8

Dividend / share (Rs) 0.4 0.4 0.4ROE (%) 8.5 7.9 8.0ROCE (%) 11.5 10.8 10.5

Net cash (debt) (6,987) (8,445) (10,090)NW Capital (Days) 65.0 65.0 65.0P/E (x) 12.4 12.3 11.3

P/BV (x) 1.0 0.9 0.9EV/Sales (x) 0.6 0.6 0.6EV/EBITDA (x) 5.5 5.4 5.7


RESULT UPDATE




n Construction work of Phase 1 of power project is complete and synchronizationof units is going on. And both the units are likely to commission by Sep-Oct,2011. Construction work on Phase 2 is under progress and targeted date ofcompletion is expected to be before Sep, 2012.

n Toll revenues for road projects are improving and company has commenced tollcollection of Madurai - Tuticorin expressway and Trichy-Thanjavur expressway.Total toll collection from all operational four road BOT projects is nearly Rs 5 mnper day and company expects toll collection to improve going forward withhigher collections from Madurai-Tuticorin project and Trichy-Thanjavur project.

n We marginally tweak our estimates to factor in Q1FY12 performance and expectrevenues to grow at a CAGR of 14.5% between FY11-FY13.

Operating margins better than our estimatesn Operating margins were better than our estimates due to higher execution of

power projects. Margins stood at 14.1% for Q1FY12 vs 10.7% during Q1FY11.However, we believe that these margins may not remain sustainable due to con-struction of low margin road projects also going forward.

n Hence we maintain our estimates and expect margins to remain near 11% forFY12 and 10.5% for FY13.

Net profit growth impacted by lower revenue growth and highertax raten Net profit growth of the company was impacted by lower revenue growth as

well as higher tax rate. Profits declined by 41% during Q1FY12 vs Q1FY11.

n For meeting the funding requirements of its road BOT projects as well as powerproject, company is looking out for private equity funding for both the divisions atthe SPV level. It expects to raise these funds in next 3-6 months.

n Post fine tuning our estimates, we expect net profits to grow at a CAGR of 6%between FY11-FY13.

Valuation and recommendationn At current price of Rs 86, stock is trading at 12.3x and 11.3x P/E for FY12 and

FY13 respectively

n We thus tweak our revenue estimates to factor in Q1FY12 performance and ar-rive at a revised price target of Rs 130 (Rs 145 earlier) on FY12 estimates. How-ever, we continue to maintain BUY on the company based on its valuations.

n Any delays seen in raising funds at the subsidiary level may impact financial clo-sure of its projects which may adversely impact revenue growth.

Sum of the parts valuation(FY12)

Rs per share

Core business 52 7.5 times FY12 earnings

Road projects

Agra-Jaipur expressway 12 Expected Equity IRR of 16%

TN Expressway 11 Expected Equity IRR of 16%

Madurai - Tuticorin expressway 15 Expected Equity IRR of 13%

Trichy-Thanjavur expressway 6 Expected Equity IRR of 13%

Power project 28 P/BV of 0.5x for equity investment of

Rs 5.2bn invested till date

Land value 6 9.2acres bought at Rs 45mn per acre

Total 130


We continue to maintain BUY onMadhucon Projecs with a price

target of Rs.130



Summary table


Sales 36,321 35,119 41,574

Growth (%) 33.8 -3.3 18.4EBITDA 15,025 8,856 9,364EBITDA margin (%) 41.4 25.2 22.5

PBT 8,679 1,104 2,495Net profit 6,761 2,097 2,046EPS (Rs) 194.1 60.2 58.7

Growth (%) 17.0 (69.0) (2.4)CEPS (Rs) 357.8 254.2 243.0BV (Rs/share) 536.1 586.3 635.0


Net cash (debt) (7,865) (12,716) (8,614)NW Capital (Days) 30.3 26.0 26.0P/E (x) 9.2 29.7 30.5

P/BV (x) 3.3 3.1 2.8EV/Sales (x) 1.7 1.9 1.5EV/EBITDA (x) 4.0 7.4 6.5

P/CEPS(x) 5.0 7.0 7.4


RESULT UPDATE


SHREE CEMENTS

PRICE: RS.1791 RECOMMENDATION: REDUCETARGET PRICE: RS.1784 FY12E P/CEPS: 7.4X

q Company's revenues during Q1FY12 reported a growth of 9% YoY led byimprovement in cement dispatches as well as cement prices.

q Operating margins declined on both sequential and yearly basis due tosteep increase in overall costs.

q Net profits of the company witnessed a decline of 48% YoY due to de-cline in operating margins as well as higher depreciation charges.

q Cement demand scenario continues to remain weak and commissioningof thermal power plants for the company has also delayed. We thus re-vise our revenue estimates downwards and arrive at a revised price tar-get of Rs 1784 on FY12 estimates.

q Based on limited upside from the current levels, we change our recom-mendation to REDUCE from ACCUMULATE earlier.



Net Sales 10,340 9,446 9

Expenditure 7,749 6,550

Inc/Dec in trade 172 -299

RM 1,120 1,412

As a % of net sales 10.8 14.9

Staff cost 612 478


Power and fuel 2,728 2,274


Transportation & Handling 2,231 1,783


Other expenditure 886 903


Operating Profit 2,591 2,895 -11

Operating Profit Margin 25.1 30.7

Depreciation 1,598 1,509

EBIT 993 1,387 -28

Interest 318 302

EBT(exc other income) 675 1,085

Other Income 1 168

Exceptional items 83 9

EBT 594 1,245 -52

Tax 43 185

Tax Rate% 7.3 14.9

PAT 550 1,060 -48

Net Profit 550 1,060 -48

NPM (%) 5.3 11.2

Equity Capital 348.4 348.4

EPS (Rs) 15.8 30.4

Cash EPS 62 74

Source: Company



Revenue growth led by higher cement pricesn Company's revenues during Q1FY12 reported a growth of 9% YoY led by im-

provement in cement dispatches as well as cement prices.

n Cement dispatches including clinker stood at 2.69MT for Q1FY12, in line withour estimates. Cement realizations during Q1FY12 witnessed an increase of3.3% QoQ and stood at Rs 3409 per tonne as against Rs 3299 per tonne seenduring Q4FY11. Sales in the power segment stood at 238.4 mn unit at an aver-age rate of Rs 4.9 per unit.

n However, during full year FY12, due to slower than expected demand recovery,company expects dispatch growth to be impacted adversely. Along with this, wehad expected first phase of thermal power plant to get operational in June,2011. Company has mentioned that trial runs are already going on for the Phase1, but both the phases are likely to commission only from Q3FY12. Thus, corre-spondingly the sale of power from these phases would also be lower during FY12as against management's earlier estimate of 2 bn units.

n We thus correspondingly reduce our revenue estimates to factor in lower cementvolumes as well as lower power sales. We now expect cement volumes of10.5MT for the company for FY12. Along with this, we also lower power salesestimate from 1.7bn units earlier to now 1.2 bn units. Thus, our revised estimatesnow stand at Rs 41.6 bn as against our earlier estimate of Rs 47.2 bn for FY12.

Operating margins impacted by higher costsn Operating margins declined on both sequential and yearly basis due to steep in-

crease in overall costs. Margins stood at 25.1% for Q1FY12vs 30.6% forQ1FY11. EBITDA/tonne for cement division was impacted by steep increase inpower and fuel costs due to increase in pet coke prices and higher raw materialcosts. Pet coke prices during Q1FY12 stood Rs 7761 per tonne as against Rs 6710per tonne in Q1FY11.

n Post revising our cement and power sales estimates downwards, we expect mar-gins to be 22.5% for FY12.

Per tonne analysis

Q1FY12 Q1FY11

Dispatches (Mn tonne) 2.69 2.428

Average Cem Realisation/tonne 3409 3352

YoY % 1.7

Cost Per tonne

Inc/Dec in trade 64 -123

Raw material 417 581

Staff cost 228 197

Power and fuel 1014 936

Transporation&Handling 829 734

Other expenditure 329 372

Total EBITDA per tonne 528 654




Net profit growth impacted by lower margins and higher depre-ciation chargesn Net profits of the company witnessed a decline of 48% YoY due to decline in

operating margins as well as higher depreciation charges.

n However, for the full year, depreciation charges are expected to be lower sincethe commissioning of thermal power projects has been delayed and thus man-agement has guided for a depreciation of Rs 6.3 bn for FY12.

n Thus post revising our revenue estimates as well as depreciation charges down-wards, we now expect net profits to be Rs 2.04 bn as against Rs 1.25 bn esti-mated earlier.

Valuation and recommendationn At current market price of Rs 1790, stock is trading at 7.4x P/CEPS and 6.5x EV/

EBITDA for FY12.

n We value the company based on the average of 7x P/CEPS and 6.5x EV/EBITDAand arrive at a revised price target of Rs 1784 (Rs 1908 earlier) on FY12 esti-mates.

n Based on limited upside from the current levels, we change our recommendationto REDUCE from ACCUMULATE earlier.

n Cement scenario in the northern markets also continue to remain weak withlower than expected demand growth. Commissioning of power projects has alsobeen delayed. We thus don't see any near term trigger for the company withcement prices already started correcting and cost pressures continue to remainhigh.

n We would look for better entry points to enter into the stock.

We recommend REDUCE onShree Cements with a price

target of Rs.1784



M & M FINANCIAL SERVICES

PRICE: RS.665 RECOMMENDATION: BUYTARGET PRICE: RS.840 FY12E: P/E: 11.6X; P/ABV: 2.4X

Core performance better than our expectations; asset quality re-mained stable (QoQ deterioration is a seasonal phenomenon).Retain BUY rating on the stockq Reported NII came at Rs.3.32 bn (27.1% YoY) in Q1FY12 against our esti-

mate of Rs.3.21 bn on back of buoyant rural market behaviour. It waswell supported by strong loan growth during Q1FY12 (45% YoY; 12%QoQ). Net income was even higher at 37.7% YoY (Rs.1.02 bn) duringQ1FY12 mainly aided by muted provisions (growth of only 3.4%) alongwith healthy growth in NII.

q Net spread declined sequentially from 6.3% in Q4FY11 to 4.4% inQ1FY12; however, it was stable as compared to Q1FY11. Although grossspread declined from 11.1% in Q1FY11 to 10.0% in Q1FY12 on back ofchange in asset mix, net spread remained stable at 4.4%, due to lowercredit costs.

q Strong momentum in business growth continued for MMFSL duringQ1FY12 - AUM grew 45.7% YoY (4.7% QoQ) mainly driven by more sur-plus funds in the hands of rural and semi-urban populace, where MMFSLhas a strong presence. However, asset mix composition largely remainedunchanged.

q Asset quality remained stable on back of good monsoon during last 18months along with better labour and asset absorption; its QoQ deteriora-tion has to do more with the seasonal factors.

q We believe that rural market behaviour is still buoyant and driven moreby the cash flows and not by the movement in interest rate. With goodmonsoon during last 18 months along with better asset and labour ab-sorption leading to multiple cash flows to the families in rural India,MMFSL is better placed to deliver superior growth during FY12E.

q At CMP, stock is trading at 11.6x its FY12E earnings and 2.4x its FY12EABV and hence we maintain BUY rating on the stock with TP of Rs.840(Rs.883 earlier) based on 3.0x its FY12 ABV. Lower TP is due to unclearregulatory stance on securitization as well as funding to NBFC as a partof PSL, which continue to put pressure on its borrowing costs.

RESULT UPDATE

Saday [email protected]+91 22 6621 6312



Result Perfomance

(Rs. mn) Q1FY12 Q4FY11 Q1FY11 yoy% qoq%

Income from operations 5,477 5,916 3,924 39.6 -7.4

Interest Expenses 2,160 1,956 1,315 64.2 10.4

Net Interest Income 3,317 3,960 2,609 27.1 -16.2

Other income 163 107 90

Total income 3,480 4,067 2,699 28.9 -14.4

Operating cost 1,406 1,483 1,046 34.4 -5.2

Employee cost 519 470 365

Other operating expenses 886 1,013 681

Operating profit 2,074 2,584 1,653 25.5 -19.7

Provision and write offs 561 144 543 3.4 288.6

Profit before tax 1,513 2,439 1,110 36.3 -38.0

Provision for taxes 491 874 368

Net profit 1,022 1,566 742 37.7 -34.7

EPS 10.0 15.8 7.7

Cost to income (%) 40.4 36.5 38.8

Effective Tax rate (%) 32.4 35.8 33.2

Advances (Rs bn) 139,308 124,650 96,070 45.0 11.8

Gross NPA 4.6 4 6.9

Net NPA 1 0.6 1.3

Provision coverage (%) 80 86 82

Source: Company

Core earnings came better than our estimates; stable net spreadas lower gross spread is being offset by lower credit costReported NII came at Rs.3.32 bn (27.1% YoY) in Q1FY12 against our estimate ofRs.3.21 bn on back of buoyant rural market behaviour. It was well supported bystrong loan growth during Q1FY12 (45% YoY; 12% QoQ). Net income was evenhigher at 37.7% YoY (Rs.1.02 bn) during Q1FY12 mainly aided by muted provisions(growth of only 3.4%) along with healthy growth in NII.

Net spread declined sequentially from 6.3% in Q4FY11 to 4.4% in Q1FY12; how-ever, it was stable as compared to Q1FY11. Although gross spread declined from11.1% in Q1FY11 to 10.0% in Q1FY12 on back of change in asset mix, net spreadremained stable at 4.4%, due to lower credit costs.

Spread analysis

Q1FY10 H1FY10 9MFY10 FY10 Q1FY11 H1FY11 9MFY11 FY11 Q1FY12

Total Income/Average Assets 16.9 17.1 17.9 19.0 16.6 17.0 17.4 17.9 16.2

Interest/Average Assets 6.3 6.0 6.2 6.0 5.5 5.5 5.7 5.8 6.2

Gross spreads 10.6 11.1 11.7 13.0 11.1 11.5 11.7 12.1 10.0

Overheads/average assets 3.7 3.8 3.8 3.9 4.4 4.4 4.3 4.4 4.0

Write offs & provisions/Average assets 4.2 3.5 3.1 2.7 2.3 1.7 1.8 1.4 1.6

Net spreads 2.7 3.8 4.8 6.4 4.4 5.4 5.6 6.3 4.4

Source: Company



Strong business growth continues; asset mix composition largelyremained unchangedStrong momentum in business growth continued for MMFSL during Q1FY12 - AUMgrew 45.7% YoY (4.7% QoQ) mainly driven by more surplus funds in the hands ofrural and semi-urban populace, where MMFSL has a strong presence.

At the end of Q1FY12, AUM composition remained stable with 30% exposure toauto/utility vehicles (M&M), 23% to tractors (M&M) and 31% to cars (including non-M&M vehicles). Good monsoon during last 18 months, higher allocation to govern-ment programs like NREGA etc and enhancement in the minimum support prices(MSP) of various crops resulted in the improved cash flows to rural India and helpedthe M&M Financial Services which has a strong presence (~80% branches) in ruralareas.

Disbursement during Q1FY12 was also strong at Rs.38.3 bn (34.3% YoY) as com-pared to Rs.28.5 bn witnessed during Q1FY11. Out of this, ~32% went to Cars,~27% to Auto/UVs and ~22% to tractors.

MMFSL has also become the significant financier for other auto companies. Theshare of CV has improved from ~7% in Q4FY11 to ~10% in Q1FY12 on back ofhigher business of Mahindra's Navistar.

Asset quality remained stable on back of good monsoon duringlast 18 months along with better labour and asset absorption; itsQoQ deterioration has to do more with the seasonal factors.Asset quality remained largely stable after removing the seasonality. In absoluteterms, gross NPA declined 5% YoY while net NPA rose 10%, at the end of Q1FY12.In percentage terms, gross NPA declined to 4.6% of total assets at the end ofQ1FY12 as compared to 6.9% at the end of Q1FY11. Similarly, net NPA as a per-centage of total assets also declined to 1.0% at the end of Q1FY12 as against 1.3%at the end of Q1FY11.

Trend in asset quality

Q1FY10 Q2FY10 Q3FY10 Q4FY10 Q1FY11 Q2FY11 Q3FY11 Q4FY11 Q1FY12

Gross NPA (%) 9.8 9.0 8.7 6.4 6.9 5.8 5.6 4.0 4.6

Net NPA (%) 3.1 2.8 2.3 0.9 1.3 1.1 1.1 0.6 1.0

Coverage Ratio 71.2 71.2 75.0 86.4 82.4 82.5 81.6 86.4 79.7

Source: Company

We believe, stable asset quality after excluding the seasonality has come on theback of improving cash flows in rural India with rising government allocation to ruralemployment generation/development programs as well as rise in MSP of variouscrops. We are of the view that - improved operating scenario, revival in agriculturegrowth and more govt's focus on inclusive growth will help arrest incremental slip-pages and will also aid better recoveries. Going forward, we opine that MMFSL'sasset quality will continue to improve.

Its provision coverage ratio stands at 79.7% at the end of Q1FY12, providing cushionto earnings in the future from any asset quality deterioration.

Valuation and recommendationsWe believe that rural market behaviour is still buoyant and driven more by the cashflows and not by the movement in interest rate. With good monsoon during last 18months along with better asset and labour absorption leading to multiple cash flowsto the families in rural India, MMFSL is better placed to deliver superior growth dur-ing FY12E.

We have slightly tweaked our earning estimates for FY12E and now expect netprofit to come at Rs.5.94 bn for FY12E which would translate into EPS of Rs.58.0and adjusted book value (ABV) at Rs.280.3.



At CMP, stock is trading at 11.6x its FY12E earnings and 2.4x its FY12E ABV andhence we maintain BUY rating on the stock with TP of Rs.840 (Rs.883 earlier) basedon 3.0x its FY12 ABV

Summary Table

Rs. Mn FY09 FY10 FY11 FY12E

Interest Income 13648.2 15307.7 19739.3 25481.1

Interest expenses 5098.6 5017.3 6602.1 9043.4

NII 8549.6 10290.4 13137.2 16437.7

Growth (%) 20% 28% 25%

Other Income 198.4 380.3 386.5 405.8

Total Income 8748.0 10670.7 13523.7 16843.5

Optg Profit 6080.2 7420.9 8591.5 10694.0

PAT 2145.3 3427.0 4631.1 5940.0

Growth (%) 60 35 28.3

Gross NPA (%) 8.7 6.7 5.0 4.3

Net NPA (%) 2.6 1.0 0.7 0.6

NIM on Assets (%) 10.4 10.6 10.4 10.3

RoA (%) 3.3 4.6 4.9 4.9

RoE (%) 15.4 21.4 21.9 21.8

Divi. Payout Ratio (%) 24.5 25.0 22.1 25.9

EPS (Rs) 22.4 35.7 45.2 58.0

BV (Rs) 153.5 180.1 244.4 288.2

Adj. BV (Rs) 133.2 171.5 237.2 280.3

P/E (x) 30.0 18.8 14.9 11.6

P/ABV (x) 5.0 3.9 2.8 2.4

Source: Company, Kotak Securities - Private Client Research

We recommend BUY on M&MFinancial Services with a price

target of Rs.840



JAMMU & KASHMIR BANK

PRICE: RS.887 RECOMMENDATION: BUYTARGET PRICE: RS.1060 FY12E P/E: 6.2X; P/ABV: 1.1X

Q1FY12 results: Earnings came better than our expectations;splendid performance on NIM and asset quality; reiterate BUY asstock is trading at attractive valuation (1.1x FY12E ABV).q NII came at Rs.4.37 bn (19.5% YoY), higher than our expectations; NIM

improved both YoY as well as QoQ to 3.82% during Q1FY12 on back ofbetter liability management (CASA mix remained ~40% resulting intomarginal increase in cost of deposits) and rebalancing of loan portfolio.

q Non-interest income declined 28.5% YoY to Rs.670 mn during Q1FY12 onback of lower trading profit (decline of 70%) which fell from Rs.3.36 bnduring Q1FY11 to Rs.1.01 bn during Q1FY12.

q Moderate balance sheet growth continues- Its loan book grew by only14.6% YoY during Q1FY12. However, this does not reflect the true pic-ture of its loan growth during Q1FY12 as Q1FY11 included overdraft fa-cilities given to the J&K state government (~7-8% of its loan book); weare assuming ~14% loan growth during FY12.

q Its asset quality continues to remain amongst the best in class - grossNPA and net NPA remained stable at 1.97% and 0.22%, respectively, atthe end of Q1FY12. Its coverage ratio is also one of the best and nowstands at 89.0% (92.5% including technical W/O) at the end of Q1FY12.

q At the current market price of Rs.887, the stock is trading at 6.2x itsFY12E earnings and 1.1x its FY12E ABV. We retain BUY rating on thestock with unchanged TP of Rs.1060 based on 1.3x of its FY12E adjustedbook value.

Result Performance

(Rs mn) Q1 FY12 Q1 FY11 % (YOY)

Int. on advances 7506.5 6259.6 19.9

Int. on investments 2992.7 2364.1 26.6

Int. on RBI/Other balances 59.9 33.3 79.9

Total interest earned 10559.1 8657.0 22.0

Interest expenses 6187.1 4999.2 23.8

Net interest income 4372.0 3657.8 19.5

Other income 670.0 936.9 -28.5

Net Revenue (NII + Other Income) 5042.0 4594.7 9.7

Operating Expenses 1878.0 1711.8 9.7

Employee cost 1278.0 1197.4 6.7

Other operating exp 600.0 514.4 16.6

Operating profit 3164.0 2882.9 9.8

Provisions 444.8 700.7 -36.5

Taxes 896.1 728.7 23.0

Net profit 1823.1 1453.5 25.4

EPS (Rs.) 37.60 29.98 25.4

Source: Company

RESULT UPDATE

Saday [email protected]+91 22 6621 6312



NII came at Rs.4.37 bn (19.5% YoY), higher than our expectations;NIM improved both YoY as well as QoQ.J&K bank's core earnings grew at healthy pace - NII grew 19.5% to Rs.4.37 bn inQ1FY12 mainly aided by 12 bps improvement in NIM (YoY) despite moderate loangrowth (14.6% YoY).

However, net profit rose 25.4% YoY to Rs.1.82 bn in Q1FY12 on back of lower pro-visions during Q1FY12 on account of NPA and Investment depreciation. NPA provi-sions came down from Rs.440 mn in Q1FY11 to Rs.250 mn in Q1FY12. Similarly,depreciation on investment also declined from Rs.259 mn to Rs.37 mn, during thesame period.

Its NIM improved both YoY as well as QoQ to 3.82% during Q1FY12 on back ofbetter liability management (CASA mix remained ~40% resulting into marginal in-crease in cost of deposits) and rebalancing of loan portfolio. Yield on advances im-proved 56 bps from 10.86% in Q1FY11 to 11.42% in Q1FY12, while cost of depositsincreased by only 28 bps during the same period.

We believe its margin would witness some compression during FY12 as bank mightgo for higher loan growth outside J&K state, where spread is likely to be lower.Hence, we are modeling NIM at 3.55% for FY12E as against 3.62% witnessed dur-ing FY11.

Moderate balance sheet growth continues; we are assuming~14% loan growth during FY12.Its loan book grew by only 14.6% YoY during Q1FY12. However, this does not re-flect the true picture of its loan growth during Q1FY12 as Q1FY11 included overdraftfacilities given to the J&K state government (~7-8% of its loan book).

Bank's deposit mobilization (14.5% YoY) also came in line with the loan growth. Inour view, bank enjoys enough balance sheet liquidity as its C/D ratio remained~61%, far below its peers. We believe, bank is comfortably placed in terms of C/Dratio as compared to its peers and this implies it can easily grow its loan book with-out mobilizing much of high interest rate bearing bulk deposits.

Muted non-interest income on back of lower trading profitNon-interest income declined 28.5% YoY to Rs.670 mn during Q1FY12 on back oflower trading profit (decline of 70%) which declined from Rs.3.36 bn during Q1FY11to Rs.1.01 bn during Q1FY12.

Trend in non-interest income

1QFY11 2QFY11 3QFY11 4QFY11 1QFY12

Other Income (Rs. Bn) 0.94 0.74 0.78 1.19 0.67

Commission/ Exchange 0.35 0.33 0.34 0.43 0.34

Trading Income (Net of Amortization) 0.34 0.18 0.18 0.23 0.10

Insurance Income 0.06 0.05 0.06 0.08 0.07

Misc. Income 0.18 0.18 0.19 0.45 0.15

Source: Company

Asset quality continues to remain amongst the best in class; cov-erage ratio at 92.5% (including technical W/O), one of the best inthe industry.Its asset quality continues to remain amongst the best in class - gross NPA and netNPA remained stable at 1.97% and 0.22%, respectively, at the end of Q1FY12. Itscoverage ratio is also one of the best and now stands at 89.0% (92.5% includingtechnical W/O) at the end of Q1FY12.



Trend in asset quality

1QFY11 2QFY11 3QFY11 4QFY11 1QFY12

Gross-NPAs (cr) 4.50 5.13 5.04 5.19 5.28

Gross-NPAs (%) 1.92 2.17 1.95 1.95 1.97

Net-NPAs (cr) 0.08 0.31 0.11 0.53 0.58

Net-NPAs (%) 0.03 0.13 0.04 0.20 0.22

PCR (%) 98.2 94.0 97.9 89.7 89.0

Source: Company

Valuation & recommendationAt the current market price of Rs.887, the stock is trading at 6.2x its FY12E earningsand 1.1x its FY12E ABV. We have slightly revised our earnings estimate upward forFY12E and now expect net profit for FY12E to be Rs.6.98 bn. This would result intoan EPS of Rs.143.9 for FY12E and adjusted book value of Rs.816.8, respectively.

We retain BUY rating on the stock with unchanged TP of Rs.1060 based on 1.3x ofits FY12E adjusted book value.

Key Financials:

(Rs bn) FY09 FY10 FY11 FY12E

Interest income 29.88 30.6 37.1 44.2

Interest expense 19.88 19.4 21.7 26.4

Net interest income 10.00 11.2 15.4 17.8

Growth (%) 23.4 11.9 37.9 15.4

Other income 2.61 4.2 3.6 3.4

Gross profit 7.91 9.6 11.5 12.8

Net profit 4.26 5.1 6.2 7.0

Growth (%) 12.7 20.3 20.0 13.4

Gross NPA (%) 2.6 2.0 1.9 2.0

Net NPA (%) 1.4 0.3 0.2 0.2

Net int. margin (%) 3.2 3.0 3.6 3.6

CAR (%) 14.5 15.9 13.7 13.7

RoE (%) 17.4 18.2 19.0 18.6

RoA (%) 1.2 1.3 1.3 1.3

Dividend per share (Rs) 16.9 22.0 26.0 26.0

EPS (Rs) 87.9 105.7 126.9 143.9

Adjusted BVPS (Rs) 481.6 607.6 706.5 816.8

P/E (x) 10.1 8.4 7.0 6.2

P/ABV (x) 1.8 1.5 1.3 1.1

Source: Company, Kotak Securities - Private Client Research

We recommend BUY on J&KBank with a price target of

Rs.1060



RESULT UPDATE

Ruchir [email protected]+91 22 6621 6448

SIEMENS INDIA LTD

PRICE: RS.922 RECOMMENDATION: ACCUMULATETARGET PRICE: RS.865 CY12E P/E: 27.4X

q Siemens Q3FY11 numbers are lower than estimates on account of loweroperating margins in Industry segment.

q Revenue from industry automation and building technologies recordedsignificant growth of close to 36% and 54% respectively. Healthcare seg-ment also reported meaningful traction with revenues at Rs.2.5 bn.

q The growth in Power T&D sector remains remained elusive due to slackin new order booking by PGCIL.

q In view of inadequate upside due to rich valuations, we maintain Accu-mulate with a DCF based revised price target of Rs 865 (Rs 825 earlier).

Quarterly performance


Sales 27,968 22,464 24.5

Other Income 21 0

(Increase)/decrease in stock in trade (1,855) (45)

Raw materials 22,852 16,152 41.5

Employee cost 2,321 1,663 39.6

other expenditure 2,146 2,274 (5.6)

Total Expenses 25,485 20,044 27.1

EBITDA 2,483 2,420 2.6

Depreciation 401 249 60.7

EBIT 2,102 2,170 (3.1)

Interest (165) (181) (8.5)

PBT 2,268 2,351 (3.5)

tax 741 790 (6.2)

PAT 1,527 1,561 (2.2)

EPS (Rs) 4.5 4.60

Raw materials/sales 81.7 71.9

EBITDA (%) 8.9 10.8

Tax Rate (%) 32.7 33.6

Source: Company

Q3FY11 highlightsn Revenue for the quarter increased by 24.5% on back of energy and healthcare

division.

n The revenues were mainly driven by oil& gas and industrial segment even as thePower T&D sector group remained muted.

n The drive technologies division reported meaningful growth at 16%. The divisionincludes motors, which is a play on Greenfield industrial capex as well as re-placement demand. This division is largely short-cycle product business and trac-tion in economic growth is reflected immediately in numbers.

n Affected by slowdown in domestic T&D sector, the power transmission businesshas reported YoY decline in revenue at Rs 7.4 bn vis-à-vis 8.1 bn.

n Company has been positive on the outlook for healthcare segment in the coun-try. It has established meaningful market share over a period of years. Segmentreported a growth of 52% in the quarter.

n At the end of 9MFY11, company's order book has increased by 10% YoY at Rs149.6 bn. Order inflows in Q3FY11 remained elusive.

Summary table

(Rs mn) FY10 FY11E F12E

Sales 94001 119090 140497Growth (%) 11.1 26.7 18.0

EBITDA 12932 14669 17556EBITDA margin (%) 13.8 12.3 12.5PBT 12588 14387 17209

Net profit 8272 9496 11358EPS (Rs) 24.5 28.2 33.7Growth (%) 31.9 14.8 19.6

CEPS (Rs) 27.6 31.2 37.0BV (Rs/share) 105.4 127.9 155.9Dividend per share (Rs)5.0 5.0 5.0

ROE (%) 25.6 24.2 23.8ROCE (%) 25.6 24.2 23.8Net cash (debt) 17664 23535 31289

NW Capital (Days) 10.6 13.0 15.9P/E (x) 37.6 32.7 27.4EV/EBITDA 22.7 19.6 15.9




Segment Revenue


Industry

Industry Automation 2,082 1,526 36.4

Drive technologies 3,662 3,156 16.1

Building technologies 2,214 1,434 54.3

Industry solutions 3,051 2,923 4.4

Mobility 1,266 1,777 (28.8)

Total 12,274 10,816 13.5

Energy

Fossil Fuel 1,510 255 491.6

O&G 3,397 1,677 102.6

Power transmission 7,438 8,196 (9.2)

Power distribution 2,448 1,980 23.6

Total 14,794 12,108 22.2

Healthcare 2,509 1,926 30.2

Real Estate 162 124 30.1

Source: Company

n EBITDA margins for the quarter stood at 8.9% as compared to 10.8% in Q3FY10.

n Company has reported sequential decline in margins. It has maintained highermargins of close to 13% in last two quarters on back of robust growth acrosssegments. We highlight that margins are also sensitive to the sales mix betweenproducts and projects.

Segment margins

(%) Q3FY11 Q3FY10

Industry Automation 7.9 9.3

Drive technologies 8.5 2.2

Building technologies 5.5 0.8

Industry solutions 2.5 12.4

Mobility 9.4 4.2

Total industry group 6.4 6.1

Energy

Fossil Fuel -5.7 2.0

O&G 9.9 1.2

Power transmission 12.5 13.7

Power distribution 1.0 6.8

Total energy group 8.2 10.6

Healthcare 6.6

Real Estate 58.1 80.4

Source: Company

Long-term plans of Siemens AGSiemens has chalked out its investment plans for the Indian operations. The com-pany plans to spend Rs 16 bn mainly into renewable energy market products. Thecompany plans to spend Rs 5 bn building high-end technology wind turbines for theIndian market. Siemens plans to make India a hub for value priced products for ca-tering to the Indian as well as global markets. The objective is to generate revenuesof Rs 65 bn from these value priced products. Four of the six hubs will be "Centresof Competence" for the products such as Railway signaling systems, steam turbinesover 45 MW, Ring main units and Steel making plants. The other two "Centres ofCompetence" will be for wind turbines and power plant EPC.



n The company has inaugurated a state of the art bogie factory (undercarriage ofa wagon) in Aurangabad, which will serve the Indian and Asian markets. Theinvestment in this factory was Rs 2.0 bn. The company plans to amalgamate thisdivision into the company.

n As part of its commitment to increase share of renewable energy, the companyis exploring investment in solar power.

n In healthcare the company plans to expand the product portfolio.

n The company plans to spend Rs 2 bn for expanding its Automation and MediumVoltage products capacity. This expansion is part of the Rs 16 bn expansion planover the next few years.

Valuation and Recommendationn We have been cautious on the stock and the MNC Electrical Equipment sector

due to intense competitive scenario coupled with stock valuations running aheadof earnings growth.

n However, we prefer to Siemens over the other MNC peers on account of higherorder backlog, robust cash flow and relative valuation discount.

n However, in view of rich valuations implied by current market price, we maintainACCUMULATE with a DCF based price target of Rs 865 (Rs 825 earlier) oncompany's stock.

We maintain ACCUMULATErating on Siemens India with a

revised price target of Rs.865



SUZLON ENERGY LTD

PRICE: RS.54 RECOMMENDATION: REDUCETARGET PRICE: RS.53 FY11E P/E: 18X

q Suzlon Energy reported Q1FY12 nos. above our estimates; higher salesand stable employee cost resulted in significant YoY% EBITDA growth.

q Emerging wind markets viz. Brazil and China remains on the growthtrack. Success on international order intake (mainly US) remained elusive.

q Company anticipates significant increase in competition among wind tur-bine players in domestic as well as international markets. However itexpects to maintain market share and post meaningful growth in rev-enues in FY12E.

q Prevailing under capacity in the renewable energy space in India withchanging regulatory guidelines could lead to meaningful capacity addi-tion in India between FY11-FY15.

q Company's order book currently stands at 2030 MW (ex-RE Power) vis-à-vis break even levels of 1900 MW. Company has restructured the entiredebt of USD 2.1 bn in FY11. However we continue to remain cautious onthe high net debt levels and interest outflow of the company.

q We maintain 'Reduce' rating on company's sock with one year forwardrevised target price of Rs 53 (Rs 52 earlier).

Consolidated Financials

(Rs mn) Q1FY12 Q1FY11 YoY (%) Q4FY11 QoQ (%)

Income from operations 43260 23987 80.4 72760 (40.5)

other operating income 537.1 58 827.6 961 (44.1)

Total income 43797 24044 82.2 73721 (40.6)

other income 322 240 34.1 295

Raw materials 28130 17770 58.3 51096 (44.9)

Forex loss (535) 1460 (2204)

Employees Cost 4663 3980 17.2 4563 2.2

Other expenditure 6636 6300 5.3 10028 (33.8)

Total Expenditure 38894 29510 31.8 63482 (38.7)

EBITDA 4903 (5466) (189.7) 10239 (52.1)

Depreciation 1411 1270 11.1 2512 (43.8)

Interest 2979 2610 14.1 3126 (4.7)

Profit after inerest but

before exceptional items 835 (9106) (109.2) 4897

Tax expense 140 240 413

Net profit 695 (9346) 4484

Add: Share in associate after tax (124) 0 (86)

Add: Minority share in losses 30 -90 (82)

Net profit after minority interest 601 (9436) 4316

EPS (Rs) 2.2

EBITDA (%) 11.2 -22.7 13.9

RM/Sales 64.2 73.9 69.3

Source: Company

Summary table


Sales 207792 180902 244563

Growth (%) (20.3) (12.9) 35.2EBITDA 9431 8081 21827EBITDA margin (%) 4.5 4.5 8.9

PBT (8455) (8783) 5858Net profit (11945) (10591) 4686EPS (Rs) (7.7) (6.8) 3.0

Growth (%) - - -CEPS (Rs) (2.1) (2.8) 6.2BV (Rs/share) 40.3 33.3 35.1

Dividend/share (Rs) 0.0 0.0 1.0ROE (%) (15.8) (17.5) 8.3ROCE (%) 1.2 0.8 9.6

Net cash (debt) (98369) (100369) (104336)NW Capital (Days) 86 55 47EV/Sales (x) 0.9 1.0 0.7

EV/EBITDA (x) 19.4 - 8.4P/E (x) (7.1) (8.0) 18.0P/Cash Earnings (26.4) (19.2) 8.8

P/BV (x) 1.3 1.6 1.5


RESULT UPDATE

Ruchir [email protected]+91 22 6621 6448



Wind Business

Q1FY12 Q1FY11 YoY (%) Q4FY11 QoQ (%)

Volumes MW 437 208 110.1 492 (11.2)

Net Sales 25900 14400 79.9 30370 (14.7)

Other operating income 30 20 50.0 230 (87.0)

Raw material costs 16870 10590 59.3 19530 (13.6)

Staff costs 2440 2270 7.5 2570 (5.1)

Other exp 4090 4470 (8.5) 6150 (33.5)

Forex loss/(Gain) (570) 1484 (2350) (75.7)

Total Expenditure 22830 18814 21.3 25900 (11.9)

PBIDT 3100 (4394) (170.6) 4700 (34.0)

Depreciation 790 790 0.0 1070 (26.2)

Other income 250 130 220 13.6

EBIT 2560 (5054) (150.7) 3850 (33.5)

Interest 2370 2210 7.2 2310 2.6

PBT 190 (7264) (102.6) 1540 (87.7)

Tax (60) (190) (600) (90.0)

Net Profit 250 (7074) 2140 (88.3)

Realisation Rs mn/MW 59 69 (14.4) 62 (4.0)

EBITDA/MW 7.1 (21.1) 9.6

Raw material cost to sales (%) 65.1 73.5 64.3

Other exp to sales (%) 15.8 31.0 20.3

Staff costs to sales (%) 9.4 15.8 8.5

EBITDA % 12.0 (30.5) 15.5

Tax rate % (31.6) 2.6 (39.0)

Source: Company

n Suzlon reported consolidated revenue growth of 80% YoY at Rs 43.2 bn inQ1FY12. On sequential basis, volumes have grown by 10%% at 437 MW.

n Company reported consolidated EBITDA margin of 11.2% for the quarter. Webelieve that ongoing cost rationalizing drive and operating leverage is likely tocurtail inching up in input prices as well as other overheads.

n Realizations dipped sequentially to Rs 59 mn/MW as compared to Rs 62 mn/MWin Q4FY11.

n Employee expense has stabilized at Rs 4.6 bn in the quarter against. We believethat this was majorly accounted by company continuous effort to avoid duplica-tion of resources by streamlining the operations between REpower and Suzlon.

n EBITDA margins for the wind business improved to 12% vis-à-vis operating loss inQ1FY11, despite higher material and fixed costs. This is mainly driven by thehigher operating leverage and reduction in other expenses.

n Company has highlighted increasing competition in the industry mainly from in-ternational players including Chinese manufacturers. However management hasstated its plans to expand in the Chinese markets.

n Consolidated Interest cost for the quarter stood at Rs 2.3 bn vis-à-vis Rs 2.2 bnlast year. Interest costs have been largely contained over the past few quartersdue to the company's ongoing efforts on debt restructuring. However postQ4FY11 it has been on the increasing trajectory due to increase in interest rates.

n We remain concerned about current uptrend in interest rate cycle which is likelyto have significant risk to free cash flow generation for the company.



n At the end of the quarter, company reported cash figure of Rs 22 bn vis-à-vis 28bn in Q1FY11. Net Working Capital stood at Rs 41 bn as compared to Rs 35 bnat the end of Q1FY11. Company has observed increase in inventory in receiv-ables in the quarter under review.

n REpower's reported meaningful revenue growth at Rs 17 bn vis-à-vis Rs 9.4 bnlast year. Going ahead, management expects to increase margins on account ofintegration of Suzlon and REpower's operations.

n Company has acquired 95% stake in REpower in Q4FY11. It has initiated theprocess of squeezing out of minority shareholders offering EUR 142.7/share. Ithas raised USD 175 mn through FCCB for the funding of the same.

n Company has observed muted domestic order flows in the quarter at 205 MW.We believe that increasing interest rates have led to significant erosion in infra-structure space.

Order backlog remained at Q4FY11 levelsn Company's current order book stands close to 2030MW offering 18-20 months of

revenue visibility. The current order book includes 775 MW of international or-ders and highest ever domestic order backlog of 1255MW. Average realizationof the order book stands at Rs 57 mn/MW.

n We opine that the current order book is still inadequate vis-à-vis capital goodspeers including BHEL and L&T, which boast of revenue visibility of 30-45 months.

n Company continues to expect meaningful demand in the domestic businessdriven by increasing emphasis on green power generation by the regulator. Thecentral power regulator has made it mandatory for all power utilities to purchase6% green power of the total installed capacity in a year.

n Company has bagged several orders in the domestic market in last few quarters.Successful implementation of REC's (Renewable energy certificate) trading andGBI (generation based incentive) has given the thrust to the domestic demand.

Financialsn In recent quarters, the stock has been sensitive to corporate developments fo-

cused mainly on debt restructuring measures and balance sheet repair. This hasmade the stock movement highly volatile and speculative in nature.

n Going forward, the company needs to maintain momentum in terms of orderaccretion in absence of which we expect that the stock could continue to remainrange bound.

n In our projections we build 25% CAGR in domestic wind business over FY10-12E.We expect that the company is likely to benefit from its higher operating lever-age. However we opine that liquidity related concerns regarding debt repay-ments would make it vulnerable in current rising interest rate scenario.

n We expect that the company is likely to continue reducing cost overheads at theconsolidated levels mainly by integrating work force at Suzlon and RE Power.

n At consolidated level, we expect that company would post recovery in FY12Edriven by higher operating leverage and reduction in cost overheads. We buildvolume growth of 25% in FY12E and EBITDA margin (consolidated) of 8.9% forFY12E.

Stock outlook and Recommendationn At current price of Rs 54 stock is trading at 18x PE and 8.4x EV/EBITDA for

FY12E earnings respectively.

n Current order book position of the company is still far below its peak level of3400 MW in FY08. We believe that company would under perform the broadermarket due to high debt levels and insufficient estimated free cash flow genera-tion over next two years.

n We maintain REDUCE rating on the stock with a SOTP based one year price tar-get of Rs 53 (Rs 52 earlier).

We recommend REDUCE onSuzlon Energy with a price target

of Rs.53



EVEREST KANTO CYLINDERS LTD (EKC)PRICE: RS.92 RECOMMENDATION: ACCUMULATETARGET PRICE: RS.106 CONS. FY12E P/E:10.2X

q EKC has reported good set of Q1FY12 results which are above our esti-mates on strong revenue and excellent margins.

q US and China operations report reduction in losses.

q Volumes up 33% YoY to 2.4 lakh cylinders for the quarter.

q Due to 15% upside potential from current levels we maintain Accumulaterating on the stock with a revised price target of Rs 106 (Rs.103 earlier).

q Concerns - The company has FCCB outstanding USD 35 mn convertible atRs 271 per share and redeemable at 142% of the principal amount in2012.

Result Table


Net Sales 2143 1381 55

Increase / decrease in stock -253 47 (642)

raw materials 1164 789 48

purchase of traded goods 95 0

staff cost 215 182 18

other exp. 444 287 55

total exp. 1665 1304 28

EBIDTA 478 77 525

Depreciation 161 159 1

EBIT 317 -83 (483)

Interest 16 30 (46)

Other income 18 14 26

PBT 319 -99 (423)

Extraordinary loss/ (gain) -18 -211 (91)

Tax & deferred tax 23 -96 (124)

PAT 314 -115

Equity Rs. mn 214 214 -

sh. Mn FV Rs. 2 107 107 -

Ratios

Operating profit margin (%) 22.3 5.5

Raw Materials / Sales (%) 43 61

Staff Exp / Sales (%) 10.0 13.2

Other Exp / sales (%) 20.7 20.8

Tax / PBT (%) 7.2 97.4

EPS (Rs.) 2.9 (1.1)

CEPS (Rs) 5.9 (1.8)

Cylinders Sold (Lakh) 2.4 1.8

Avg. Relalizations (Rs./cylinder) 8,819 7533.6

Source: Company

Summary table

(Rs mn) FY10 FY11E FY12E

Sales 6497 7822 9780

Growth (%) -24.2 20.4 25.0EBITDA 556 1379 1956EBITDA margin (%) 8.6 17.6 20.0

PBT 477.3 746.1 1,175.7Net profit 120 675 964EPS (Rs) 1.1 6.3 9.0

Growth (%) -91.3 462.7 42.8CEPS (Rs) 9.2 12.5 16.2BV (Rs/share) 56.1 70.3 77.4


Net cash (debt) (4,416.8) (3,254.2) (2,926.8)

NW Capital (Days) 204 166 151EV/Sales (x) 2.2 1.7 1.3EV/EBITDA (x) 25.7 9.5 6.5

P/E (x) 23.8 14.0 10.2P/Cash Earnings 10.0 7.3 5.7P/BV (x) 1.6 1.3 1.2


RESULT UPDATE

Sanjeev [email protected]+91 22 6621 6305



Segmental table

Rs. mn Q1 FY11 Q2 FY11 Q3 FY11 Q4 FY11 Q1 FY12

India 771 1,169 805.8 1150.2 940.4

Dubai 585 719 780 936.4 893.9

China 23 122 153.6 157.7 138.1

USA 86 167 283.2 310.7 342.6

Thailand 0 0

Total 1465.4 2176.5 2022.6 2555 2315

PBIT (Rs mn)

India (88) 170 46.3 90.80 86.80

Dubai 144 178 304.5 283.60 268.40

China (33) (32) -51.9 (20.90) (36.90)

USA (98) (65) -81.9 (7) (25)

Thailand (1) (0)

Total (74) 251 217 346 293

Volumes (cylinder - Nos)

India 121334 135364 166226 174901 158447

Dubai 60371 51404 45240 72077 63118

China 1354 17524 6650 24903 21393

USA 155 195 326 472 559

Total 183214 204487 218442 272353 243517

Average Realisation per cylinder (Rs/cylinder)

India 6,358 8,634 4,848 6,576 5,935

Dubai 9,685 13,989 17,241 12,992 14,162

China 17,282 6,968 23,098 6,333 6,455

USA 554,194 854,359 868,712 658,263 612,880

PBIT (%)

India -11.4 14.5 5.7 7.9 9.2

Dubai 24.7 24.7 39.0 30.3 30.0

China -141.9 -26.0 -33.8 -13.3 -26.7

USA -113.6 -38.7 -28.9 -2.3 -7.2

Source: Company

n On a consolidated basis EKC sold 2.43 lakh cylinders in Q1FY12, which is up33% YoY and but down 10% on sequential basis. The volume growth was pri-marily on account of pick up in demand across all major locations especiallyChina.

n In the chinese market, the competition is very intense and the company plans toincrease sales of jumbo cylinders. The company expects operations to turn prof-itable by May 2012.

n The average realization per cylinder is up 17% yoy mainly due to higher realiza-tion in Dubai. On a sequential basis, realizations are more or less at the samelevel.

n Revenue from Indian operations remained strong and registered growth of 27%yoy on account of robust demand for CNG cylinders.

n EKC reported EBIDTA of Rs.478 mn in Q1FY12 vs Rs 77 mn in Q1 FY11. Themargin expansion has been led by improved profitability at Indian and Dubai lo-cations combined with reduction in losses at China and US plants.

n The company is optimistic of maintaining the current level of operating marginsof 22%.



n The interest cost is down on YoY basis to Rs.16.4 mn as the company has repaidthe high cost loans. The total consolidated debt of the company has beenbrought down from Rs.4.7 bn in June 2010 to Rs.3.6 bn in June 2011. The cost ofdebt is 3.5% (borrowing cost is getting masked due to FCCB).

n Capex of Rs 400 mn in FY12, which may increase depending upon whether thecompany plans to go for capacity addition in Dubai

n Tax rate was low during the quarter but is expected to increase going ahead.

Key pointsn On the demand side, the company is yet to see visible improvement in demand

for CNG cylinders despite the firming up of retail petrol prices in recent months.The demand is driven by industrial cylinders and Jumbo cylinders.

n The US operations have been bleeding due to lower throughput (1277 cylindersin FY10 on installed capacity of 3000 cylinders) from the plant and high value in-ventory. In recent months, the US subsidiary (CP Holdings) has shown improve-ment in its order backlog aided by an order win of USD 25 mn. With higheroutput, the company expects to improve the profitability of the US operations.

n The Aurangabad plant with a capacity of 110000 cylinders is being phased out.The plant load would be transferred to the Gandhidham plant, which is modernand has enough room for increasing output. The company has started commer-cial production at this plant which is based on billet piercing technology.

n The Kandla SEZ plant has started trial production (based on steel plated). Thisplant has a capacity of 200000 CNG cylinders (to be increased to 300000 gradu-ally). The plant is expected to get fully stabilized by the H2 FY12 and ramp-upshould happen in FY13. The company targets to sell just over 100000 cylinders inFY12 from Kandla.

Capacity (Cylinders nos)

Jumbo CNG Industrial

Gandhidham 1000 230000 140000

Tarapur 0 100000 60000

Dubai 0 196000 0

China 1000 200000 0

US 3000 0 0

Kandla 0 300000 0

Gandhidham II 0 0 200000

Total 5000 1026000 400000

Source: Company

Iran market is doing well and this augers well for the profitability as this marketenjoys premium realizations compared to other markets. The Dubai plant whichmainly serves the Iran market continues to be fully utilized.

Valuation & Recommendation

n At the current price of Rs.92, EKC is trading at 1.2x book value, 10.2x earningsand 5.7x cash earnings based on FY12E.

n We remain positive on the medium to long term growth prospects of the com-pany primarily on account of expected huge demand of CNG cylinders for theautomobiles in India due to increasing gas availability, various CGD projects andde-regulation of petrol prices.

n Due to 15% upside potential from the current levels we maintain Accumulatewith revised DCF based price target of Rs.106 (Rs 103 earlier).

n Promoters have been increasing stake through market purchases though the in-crease in stake is not very significant.

FY12 - estimates

Earlier Revised

Revenue 9780 9780EBITDA % 19.0 20EPS 8.3 9.0% change 8%

Source: Kotak Securities - Private ClientResearch

We recommend ACCUMULATEon EKC with a price target of

Rs.106



VOLTAS LTD

PRICE: RS.135 RECOMMENDATION: BUYTARGET PRICE: RS.171 FY12E P/E: 14.1X

Voltas has reported disappointing set of numbers for Q1 FY12. Theelectromechanical business growth has slackened on subdued order intakeespecially from its international geography. Company's subsidiary RohiniElectricals continued to report loss in the quarter. Engg services segmentnumbers are not comparable due to transfer of material handling businessto JV. In the unitary cooling segment (room ACs), volumes were weak butprofitability has improved amidst cost pressures.

Outlook for FY12 is also not very encouraging due to decline in orderbacklog (Commercal real estate activity remains weak), weak room ACvolumes (inventory levels are high across manufacturers) and expansion inworking capital affecting free cash generation.

Despite, the near-term challenges on growth front, we continue to bepositive on the long-term potential of the business. The business is asset-light with high ROE and generates substantial cash. Our DCF based targetprice works out to Rs 171 (Rs 198 earlier), providing adequate upside of27%.

Financial performance

(Rs mn) Q1 FY12 Q1 FY11 YoY (%)

Sales Turnover 13458 14031 -4

Operating other income 29 53 -46

Expenditure 12395 12807 -3

Raw Material costs 6786 7178 -5

Purchase of traded goods 2902 2928 -1

Staff costs 1467 1347 9

Other expenditure 1240 1354 -8

Operating profit 1091 1276 -15

Depreciation 103 50 106

Other income 188 200 -6

EBIT 1176 1426 -18

Interest 85 53 61

PBT 1091 1374 -21

Tax 360 429 -16

minority interest -4 -5 -15

Share in profit/(loss) of associates cos -1 0

Adjusted PAT 727 940 -23

extraordinary items* 815 -7 -11109

Reported PAT 1318 932 41

*Proceeds from transfer of material handling business

Adjusted EPS 2.20 2.84 -23

EBITDA excl other op income (%) 7.9 8.7

OPM (%) 8.1 9.1

Raw material to sales (%) 50.4 51.2

Purchase of traded goods (%) 21.6 20.9

Other expenditure (%) 9.2 9.6

Staff costs (%) 10.9 9.6

Tax rate (%) 33.0 31.2

Source: Company

Summary table


Sales 48,059 51,914 50,508Growth (%) 11.1 8.0 -2.7

EBITDA 4,592 4,554 4,293EBITDA margin (%) 9.6 8.8 8.5PBT 5,318 5,245 4,708

Net profit 3560 3171 3154EPS (Rs) 10.8 9.6 9.5Growth (%) 58.0 -10.9 -0.5

CEPS (Rs) 11.4 10.2 10.2Book value (Rs/share) 31.8 40.6 48.3Dividend per share (Rs)1.6 1.6 1.6

ROE (%) 38.0 25.8 21.0ROCE (%) 42.3 30.8 25.9Net cash (debt) 4338 6052 7922

NW Capital (Days) 8.2 11.4 14.9EV/Sales (x) 0.8 0.7 0.7EV/EBITDA (x) 8.8 8.5 8.5

P/E (x) 12.5 14.1 14.1P/Cash Earnings 11.8 13.2 13.2P/BV (x) 4.2 3.3 2.8


RESULT UPDATE

Sanjeev [email protected]+91 22 6621 6305



Segment Revenues

(Rs mn) Q1 FY12 Q1 FY11 YoY (%)

Electromechanical projects 6769 6926 -2

Engg products and services 973 1203 -19

unitary cooling 5625 5868 -4

others 98 38 160

Source: Company

Electromechanical Projects Segment - continued stagnation ingrowth since Q2 FY10n Electromechanical Projects and Services is the core business of the Company and

comprises 60% of the annual turnover. About 70-75% of the segment turnovercomes from International Operations mainly the Middle East. As in the previousquarter, revenues were down for the quarter mainly due to slack order backlogwhich was up 4% at the end of FY11.

n In addition to this, the turnover at Rohini Electricals was lower by Rs 290 mn.

Engineering Products Business (yoy comparison not applicabledue to transfer of material handling business to JV)n The engineering products business posted degrowth of 19% yoy during the quar-

ter. This segment includes commission income on sale of textile machinery forLMW and material handling equipments like forklifts, dumptrucks etc.

n The decline in segment turnover for the quarter was primarily due to transfer ofmaterial handling business to JV with KION Group Gmbh. The material handlingbusiness was almost 30% of the segment's turnover in FY11.

n The Mining and Construction equipment business has decelerated as severalmining companies are facing delays in obtaining environment and Forest clear-ance.

n Apart from environmental issues impeding growth of mining, the EngineeringProducts and Services segment has slowed down reflecting the moderation in IIPnumbers.

Unitary Cooling Business - Industry volumes down 15% in Q1The unitary cooling revenue was down 4% yoy for the quarter. The room AC indus-try was seeing strong growth till Feb 2011 and AC makers had built inventory inanticipation of robust demand. However, the summer season of 2011 has been un-expectedly weak for the AC manufacturers. Consequently, most leading players aresaddled with unsold inventory.

While the drop in Industry volume during the first quarter is estimated to be wellahead of 15%, Voltas managed to contain its volume shortfall at 11%.

In the subdued market conditions, Voltas has added some 380 bps to its marketshare.

Margins lower due to execution issues and cost pressures in theElectromechanical projects segmentn Margins shrunk 80 bps in Q1 FY12 to 7.9% mainly due to the Electromechanical

Projects segment which reported a margin loss of 390 bps due to cost pressure(Copper and aluminum prices ruled firm during the quarter).

n Rohini Electricals continued to be in the red with a EBIT loss of Rs 40 mn.

n The management has indicated that lower volume of available business in itsestablished international geographies, has resulted in intense competitionamongst players for garnering business. It further sees reduction in availablemargins in the potential business.



n Though not comparable, the engineering services segment reported margin lossof 540 bps yoy to 17.5% in the first quarter. However, on a sequential basis,segment margins have improved from 13.9% in Q4 FY11 to 17.5%. Thissegment's profit margins are a function of revenue mix between the commissionbusiness (high margins) and the manufacturing business. Segment margins havebenefited from change in revenue mix as the material handling business wastransferred to a JV. Hence to that extent the share of commission business wouldhave increased in the segment revenues.

n Margins in the unitary cooling (Room ACs) segment were strong despite costpressures from commodities like aluminum and steel. This was on the back of aseries of cost reduction and bottom-line improvement measures initiated by thecompany.

|Segment Margins

(%) Q1FY12 Q1 FY11 Q4 FY11

Electromechanical projects 4.6% 8.5% 8.3%

Engg products and services 17.5% 22.9% 13.9%

Unitary cooling 11.3% 9.3% 10.6%

Total 8.4% 10.0% 9.6%

Source: Company

Capital engagement has increased significantly in Electrome-chanical projects and Unitary Cooling segmentOn account of the substantial client advances, Voltas's electromechanical projectsbusiness has been working on a very lean working capital. However, in recent quar-ters, capital employed has increased substantially in the Electromechanical projectsbusiness without a commensurate increase in volume of work.

Higher capital employed has been on account of slower collections, lower advancesavailable (due to slower intake of new orders), increase in on-site inventory andslower clearance of certifications.

As discussed earlier, the offtake of room ACs has belied industry expectations,which has resulted in significant unsold inventory with the manufacturers. This is re-flected in the sharp rise in capital employed in the unitary cooling division.

Capital Employed

(Rs mn) Q1FY12 Q1 FY11 Q4FY11

Electromechanical projects 6163 2599 4704

Engg products and services 791 987 845

Unitary cooling 2587 486 1908

Source: Company

Order book remains subdued. Overseas order book down 25%yoyn Order backlog at Rs 45.5 bn is down 9% and 7% on a yoy and sequential basis

respectively. However, revenue visibility remains adequate at around 18 monthsof trailing four quarter revenues of the Projects segment (the other segmentshave shorted order cycle). Average execution period is around 20 months.

n Given the degrowth in order backlog, the order intake has also been weak espe-cially in the international geography. In the international market, the award ofcertain major projects such as the Louvre Museum, Al-Ain Hospital, Abu Dhabi,Airport, etc., by the local Govt. has got delayed, which is resulting in weak or-der intake.

n Order intake in Q1 FY12 was at Rs 2.0 bn which was mainly from domesticmarkets. As a result, domestic backlog is up 28% yoy to Rs 19 bn.



Outlookn The Management is hopeful of booking adequate orders for 2012-13, particularly

in view of its expanded geographical presence through two new Joint Ventures inKingdom of Saudi Arabia and Oman and in the Far East.

n Outlook for domestic market is also not strong either with dull commercial realestate activity and falling IIP rates.

n With fewer business opportunities, margins are expected to remain compressedin the medium term.

n In the unitary cooling business, margins would continue to remain under pressureas the finished goods inventory levels in the industry remain high.

n We see continued sluggishness and margin pressure in the near-term.

Earnings OutlookWe project a decline in revenue of 3% for FY12 as order intake has been very weakin the quarter and macro-economic conditions have also turned unfavourable for thecommercial real estate sector. We have also effected revenue loss due to transfer ofmaterial handling business to JV with KION Group. As a result, earnings is revisedlower by 17% to Rs 9.5 per share.

Valuationn Voltas is currently trading at 14.1x P/E and 8.5x EV/EBITDA on FY12 basis respec-

tively.

n Based on WACC of 14% and terminal growth rate of 4%, we arrive at a one-year forward DCF value of Rs 171 (Rs 198 earlier).

n Despite, the near-term challenges on growth front, we continue to be positive onthe long-term potential of the business. The business is asset-light with high ROEand generates substantial cash. Our DCF based target price works out to Rs 171(Rs 198 earlier), providing adequate upside of 27%.

FY12

Rs mn Earlier Revised

Revenue 56649 50508EBITDA % 9.2 8.5EPS 11.4 9.5

Source: Kotak Securites - Private ClientResearch

DCF Summary

FCFF in FY12 2,562WACC 13.4%

PV of FCF 49,816TV as % of FCF 38%Present value per share 151

One year forward value 171Implied PE FY12 17.9Revenue growth FY11-17 11.3%

Source: Kotak Securities - Private Client Re-search

We recommend BUY on Voltaswith a price target of Rs.171



INDRAPRASTHA GAS (IGL)PRICE: RS.412 RECOMMENDATION: ACCUMULATETARGET PRICE: RS.450 FY12E P/E: 16.6X

Operating performance impresses…

q IGL has shown results better than our expectation. In Q1FY12, IGL's netprofit has increased by 15.8% QoQ and up by 40% YoY to Rs. 801 Mn.The key factors which have led to rise in profits are as follows 1). Highersales volumes, 2). Better realization, 3). Marginal decline in raw materialcost due to higher availability of domestic gas and 4). Lower deprecia-tion charge due to change in accounting policy.

q Both the segment i.e. CNG and PNG has shown decent volume growth. InQ1FY12, IGL has twice hiked the CNG prices resulting in decent realiza-tion growth. Together, it has led to 5.3% QoQ and 60% YoY% revenuegrowth.

q During Q1FY12, IGL sold 161.3 mn kg of CNG thereby registering agrowth of 13.6% YoY and 2.4% sequentially. IGL sold 64.8 Mn SCM ofPNG in Q1FY12 showing strong 82.5% YoY and 9.5% sequential growth.

q Blended gross realization is higher by 28% YoY basis and 1% QoQ basisto Rs.19.0/Scm (net of excise). On QoQ basis, the realization improvedmainly due to 1.3% growth in CNG segment but 0.4%decline in PNG seg-ment.

q In June'11, the government granted approval to IGL for use of unutilizedAPM allocations for Gurgaon/Faridabad for its own operations. This hasresulted in lower raw material cost for IGL. The full benefit will be re-flected in next three quarters. IGL was earlier getting domestic gas to theextent of about 2.3 mscmd, this has now increased to about 2.6 mscmd.(APM gas Allocation: 2 mscmd of APM gas for Delhi, 0.15 for Noida/Greater Noida, and 0.15 of KG gas)

q WEF 1st April'11, IGL has changed the estimated useful life of some ofits assets and accordingly WDV of the assets is amortized over theremaining useful life (as per Accounting Stanadard-6). This has loweredthe depreciation charge by Rs.41.5 Mn and resulted in higher PBT.

q With the recent fuel price hike by OMCs, the cost-competitiveness of CNGas against petrol/diesel has further improved. We expected more andmore vehicles will shift to CNG.

q IGL's revenues are expected to grow with the increase in realization andhuge demand of natural gas both in CNG and PNG segment.

q With crude trading in the range of $115-120/bbls, OMCs are again in redwith regard to retail fuel sales. Hence, the possibility of further fuel pricehike (petrol) cannot be ruled out. This will provide an opportunity to IGLto hike CNG prices to ring-fence its margins.

q As mandated by Delhi government, LCVs will be converted into CNGwhich will boost the CNG sales.

q In FY12E, IGL will be investing ~Rs.5.5 Bn in Delhi and NCR to expand itsnetwork. In CY12, PNG connections are expected to cross 13,000 in Nodiafrom current ~8,000 PNG connections. PNG is flowing through the mainpipelines in 21 sectors. Work on laying the pipelines is in progress in tenother sectors apart from the Phase-II industrial belt, NSEZ, Hosiery Com-plex and Rajat Vihar. After the monsoons, IGL will begin work for layingpipelines in 23 more sectors.

q Also, IGL has planned to open 5 more CNG stations in Nodia which willbe operational by March'12. Presently, Noida has only one exclusive CNGstation in Sector 53 and two CNG filling units at petrol pumps in sectors62 and 63. This will boost the gas sales volume going forward.

RESULT UPDATE

Sumit [email protected]+91 22 6621 6313

Summary table


Sales 12,131 19,515 25,670

Growth (%) 26.1 60.9 31.5EBIDTA 3,852 4,965 6,946EBIDTA margin (%) 31.8 25.4 27.1

PBT 3,244 3,857 5,231Net profit 2155 2598 3470EPS (Rs) 15.3 18.4 24.8

Growth (%) 25.9 20.3 34.7CEPS (Rs) 20.8 25.8 34.2BV/Share (Rs.) 59.0 71.7 89.8

DPS (Rs) 4.5 5.0 5.7ROE (%) 13.5% 27.0% 29.5%ROCE (%) 12.9% 21.9% 22.3%

Net Debt (660) 4,460 6,742NW Capital (days) -31.8 -19.4 -21.5EV/Sales (x) 5.1 3.2 2.4

EV/EBIDTA (x) 16.2 12.6 9.0P/E (x) 26.9 22.4 16.6P/BV (x) 7.0 5.7 4.6

P/CEPS (X) 19.8 16.0 12.1




q The management has guided that in addition to catering to the demandof households, the thrust would be on tapping industrial and commer-cial customers who have huge demand potential. Also, private vehicleswill continue to be a growth driver for CNG sales in the coming years.

q We expect FY12E EPS of Rs.24.7 and FY13E Rs.34.4. The management be-lieves that the strong trends in CNG and PNG segment will continue andIGL is best placed to benefit from rising gas consumption in India.

q Key risk remains in terms of gas-supply and further rise in gas pricesboth domestic and LNG. However, we expect IGL to pass on increasinginput cost in a phased manner to its customers.

q Based on our estimates, the stock at current market price of Rs.412 istrading at 9x EV/EBIDTA and 16.6x P/E earnings on the basis of FY12 earn-ings estimates.

q We have assumed WACC of 12.2% and growth rate of 5% for terminalvalue.

q Based on our DCF valuation model, the 12-month target price of IGL isRs.450. Also, looking at the growth potential in the City gas distribution,rich experience, huge demand of natural gas and strong promoter back-ground of IGL, we are bullish on the growth prospects of IGL. However,looking at the limited upside and the recent outperformance we recom-mend Accumulate.

Result Table

In. Rs. Mn Unit Q1FY12 Q1FY11 YoY (%) QoQ (%)

Net Sales Rs. Mn 5364 3350 60 5.3

Net Sales Rs/Scm 19.0 14.9 28 1.0

Add: Closing Stock Rs. Mn 1.81 2.63 -31 -56.3

Less: Raw Material Rs. Mn 3006 1670 80.0 (0.7)

Gross Margin Rs. Mn 2360 1683 40.2 14.0

Gross Margin Rs./Scm 8.4 7.5

Gross Margin % 44.0 50.2 (6.25) 3.4

Less: Opex Rs. Mn 786 616 28 10.4

Salaries, Wages & Bonus Rs. Mn 99 92 8 10.9

Salaries, Wages & Bonus Rs./Scm 0.35 0.41 -14 6.4

Other Mfg. Expenses Rs. Mn 687 524 31 10.3

Other Mfg. Expenses Rs./Scm 2.4 2.3 4 5.8

EBIDTA Rs. Mn 1573 1067 47 16.0

EBIDTA Margin Rs./Scm 5.58 4.76

EBIDTA Margin % 29.3 31.9 -3 2.7

Add: Other Income Rs. Mn 24 19 27 1.9

Less: Depreciation Rs. Mn 322 231 39 8.3

EBIT Rs. Mn 1275 855 49 17.8

EBIT Rs./Scm 4.5 3.8

Less: Interest Rs. Mn 90 0 28.2

PBT Rs. Mn 1185 855 39 17.1

EBT Rs./Scm 4.2 3.8

Less: Tax Rs. Mn 384 283 36 19.8

Tax Rs./Scm 1.4 1.3

PAT Rs. Mn 801 571 40 15.8

PAT Rs./Scm 2.8 2.5

PAT % 14.9 17.1 (2.1) 1.3

EPS Rs/Share 5.7 4.1 40.1 15.8

Source: Company



Ratios (%)

Unit Q1FY12 Q1FY11 YoY (%) QoQ (%)

RW/Net Sales (Excise) % 56.0 49.8 6.2 (3.4)

Staff Cost % 1.9 2.7 (0.9) 0.1

Other Mfg Expenses % 12.8 15.6 (2.8) 0.6

Cash EPS Rs/Share 8.0 5.7 40 13.5

Other Income/Net Sales % 2.0 2.2 -0.2 -0.3

Tax rate (%) % 32.4 33.2 -0.7 0.7

Source: Company

Segment-wise break-up

In. Rs. Mn Unit Q1FY12 Q1FY11 YoY (%) QoQ (%)

A). CNG-Gross Sales Rs. Mn 4688 3180 47.4 4.2

CNG Gross Sales Rs/Kg 29.06 22.40 30 1.8

Less: Excise Duty Rs. Mn 593 402 47.4 3.8

Excise Duty Rs/Kg 3.7 2.8

Excise Duty/Net Sales (%) % 12.65 12.65 0.00

Sales Volume Mn Kg 161.3 142.0 13.6 2.4

CNG-Net Sales - Excise Rs. Mn 4095 2778 47 4

CNG-Net Sales - Excise Rs/Kg 25.4 19.6

B). PNG-Sales Rs. Mn 1269 572 121.9 9.0

Sales realization Rs./Scm 19.588 16.1 21.5 -0.4

Sales Volume MSCM 64.80 35.50 82.5 9.5

Total Sales Volume MSCM 281.73 224.36 25.6 4.3

Source: Company

Result Analysisn Net revenue for Q1FY12 was at Rs.5.4 Bn up by 60% YoY and up by 5.3% on

sequential basis. Higher sales were a result of both increases in volume and pricerevision undertaken by IGL.

n During the Q1FY12, IGL sold 161.3 mn kg of CNG thereby registering a growthof 13.6% YoY and 2.4% sequential growth. IGL sold 64.8 mn SCM of PNG inQ1FY12 showing strong 82.5% YoY and 9.5% sequential growth.

n Segment wise revenue analysis: IGL has registered revenue of Rs.4.7 Bn in CNGbusiness a 47.4% YoY and 4.2% sequential growth. However, PNG segment hasregistered revenue of Rs.1.3 Bn resulting in a 121.9% YoY and 9.0% QoQgrowth.

n Blended gross realization is higher by 28% YoY basis and 1.0% QoQ basis toRs.19.0/Scm (net of excise). On QoQ basis, the realization improved mainly dueto 1.8% growth in CNG segment In Jun'11, IGL took a marginal increase of 50paise a kg in the price of CNG in Delhi, the second such hike. Also a hike of 55paise a kg in neighboring Noida, Greater Noida and Ghaziabad.

n In Q1FY12, the EBIDTA margin stood at 29.3%, which is up by 2.7% on QoQbasis but down by 3% on YoY basis. On QoQ basis, margins have improvedmainly due to price hike and lower raw material cost.



n The raw material cost has reduced by 0.72% QoQ but increased 80.0% on YoYbasis to Rs. 3 Bn. In June'11, the government granted approval to IGL for use ofunutilized APM allocations for Gurgaon/Faridabad for its own operations. Thishas resulted in lower raw material cost for IGL. However, the full benefit will bereflected in next three quarters. IGL was earlier getting domestic gas to the ex-tent of about 2.3 mscmd, this has now increased to about 2.6 mscmd. (APM gasAllocation: 2 mscmd of APM gas for Delhi, 0.15 for Noida/Greater Noida, and0.15 of KG gas)

n In absolute terms, EBIDTA was at Rs.1.6 Bn up by 47% YoY and 16.0% QoQbasis. Another important factor to monitor is EBIDTA per unit of sales. The samehas increased by 11.2% QoQ and 17.4% YoY to Rs.5.58/SCM which showsstrong pricing power of the Company.

n PNG segment has witnessed higher growth in volumes as compare to CNG seg-ment. However, CNG segment has higher realization as compare to PNG seg-ment. This has resulted in lower blended margin.

n The raw material cost as a percentage of revenue is up by 620 bps YoY basis butdown by 340 bps on QoQ basis. In order to meet the rising demand of naturalgas, IGL not only source Krishna Godavari (KG)-D6 gas and Administered PriceMechanism (APM) gas but also source higher priced long-term liquid natural gasas well as spot gas.

n The staff cost and other operating expenditure (as a percentage of sales) hasrisen QoQ but has fallen YoY basis.

n Other income of the company has increased marginally by 1.9% on QoQ basis toRs.24 Mn as against 27% YoY basis due to use of funds for expansion purpose.

n The depreciation cost has gone up by 39% on YoY basis and 8.3% QoQ basis toRs.322 Mn as the company has expanded the number of stations in & aroundDelhi and capitalized pipelines. Based on technical evaluation and past experi-ence, IGL has changed the estimated useful life of some of its assets and accord-ingly WDV of the assets is amortized over the remaining useful life (as per Ac-counting Stanadard-6). This has lowered the depreciation charge by Rs.41.5 Mnand resulted in higher PBT.

n In Q1FY12, the Company paid an interest of Rs.90 Mn as against Rs.70 Mn inQ4FY11 and nil in Q1FY11.

n PBT for Q1FY12 was at Rs.1.2 Bn up 38.6% YoY and up 17.1% on a sequentialbasis.

n Bottom line for Q1FY12 was at Rs.801 Mn up 40.1% YoY and 15.8% on sequen-tial basis thereby translating into Q1FY12 EPS of Rs.5.7 and CEPS of Rs.8.

n In Q1FY12, the PAT margin stood at 14.9%, which is down by 212 bps on QoQbasis and up by 135 bps on YoY.

Earnings estimatesWe expect IGL to book CNG gas volume of ~703 Mn Kgs and PNG 266 MSCMPAof natural gas in FY12E. We expect IGL to report EPS of Rs.24.8 and CEPS of Rs.34.2in FY12E. We have assumed a capex of Rs.5.5 Bn in FY12E. Out of this around 50%will be spent in Delhi and balance in Ghaziabad, Noida and Greater Noida. Simi-larly, 50% will be invested in CNG and balance in PNG.



Valuation & Recommendationn Based on our estimates, the stock at current market price of Rs.412 is trading at

9x EV/EBIDTA and 16.6x P/E earnings on the basis of FY12 earnings estimates.

n We believe the demand for gas will increase going forward due to mandatoryconversion of LCVs to CNG when they will come for renew of permits and alsocost advantage over alternative auto fuels. In April'11 and June'11, the Com-pany has again hiked the prices of CNG and PNG which reflects their pricingpower. Hence, we are bullish on IGL with robust CNG and PNG demand outlookand recommend an Accumulate with a one-year price target of Rs.450/share.



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Gainers & Losers Nifty Gainers & LosersPrice (Rs) chg (%) Index points Volume (mn)

Gainers

L&T 1,764 2.2 6.9 0.8

Infosys 2,815 1.4 6.3 0.8

ICICI Bank 1,045 0.8 3.3 2.1

Losers

Jindal Steel 573 (2.6) (2.0) 2.6

SAIL 120 (5.1) (1.3) 6.1

Sterlite Ind 158 (1.1) (0.9) 5.3

Source: Bloomberg

Research TeamDipen ShahIT, [email protected]+91 22 6621 6301

Sanjeev ZarbadeCapital Goods, [email protected]+91 22 6621 6305

Teena VirmaniConstruction, Cement, Mid [email protected]+91 22 6621 6302

Saurabh AgrawalMetals, [email protected]+91 22 6621 6309

Saday SinhaBanking, NBFC, [email protected]+91 22 6621 6312

Arun [email protected]+91 22 6621 6143

Ruchir KhareCapital Goods, [email protected]+91 22 6621 6448

Ritwik RaiFMCG, [email protected]+91 22 6621 6310

Sumit PokharnaOil and [email protected]+91 22 6621 6313

Amit AgarwalLogistics, [email protected]+91 22 6621 6222

Jayesh [email protected]+91 22 6652 9172

Shrikant ChouhanTechnical [email protected]+91 22 6621 6360

K. [email protected]+91 22 6621 6311

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