ValueGuide_Jan15

January 2015 Sharekhan ValueGuide2

Sharekhan ValueGuide January 20153

In the ongoing test seriesbetween India andAustralia being played inthe island continent, theIndian cricket team haslost the first two matcheswhile the third one hasended in a draw. Thepoint to note is that Indiahas lost both the matches by a small margin and that too despite havingenjoyed the upper hand at some point of each game. At the dawn of thenew year we cannot help wondering if India would be able to effectivelybuild on its economic recovery cycle, given the strong base of 2014, andnot fritter away its advantageous position unlike Team India.

REGULAR FEATURESReport Card 4Earnings Guide I

TECHNICALSNifty 26

Stock Ideas 15Stock Updates 17Sector Updates 24Viewpoint 24

From Sharekhan’s Desk EQUITY

06

From promise to performanceFUNDAMENTALS

DERIVATIVESView 27

TECHNICALS

Crude Oil 28Gold 29Silver 29Copper 29

FUNDAMENTALS

Lead 29

Zinc 29

Nickel 30

Gold 31Silver 31Crude Oil 31

Copper 32RM seed 32Dhaanya Index 32

TECHNICALS

FUNDAMENTALS

USD-INR 34EUR-INR 34

GBP-INR 34JPY-INR 34

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COMMODITY

CURRENCY

PMS DESKProPrime - Top Equity 35ProPrime - Diversified Equity 36ProTech - IndexFutures Fund 37ProTech - Trailing Stops 38

MUTUAL FUNDS DESK

Top MF Picks (equity) 41

Top SIP Fund Picks 42

RESEARCH BASED EQUITY PRODUCTS

Market Outlook 07Top Picks Basket 11Wealth Creator portfolio 14

INR-GBP 33INR-JPY 33

ADVISORY DESKMID Trades 39

INR-USD 33INR-EUR 33

Derivative Ideas 39

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CONTENTS


REPORT CARD EQUITY FUNDAMENTALS

STOCK IDEAS STANDING (AS ON JANUARY 02, 2015)

COMPANY CURRENT PRICE AS ON PRICE 52 WEEK ABSOLUTE PERFORMANCE RELATIVE TO SENSEXRECO 02-JAN-15 TARGET HIGH LOW 1M 3M 6M 12M 1M 3M 6M 12M

AUTOMOBILES

Apollo Tyres Buy 223.7 265.0 243.0 101.8 -5.0 13.7 9.8 118.5 -3.1 8.1 1.1 61.1Ashok Leyland � Buy 53.4 58.0 58.3 14.9 -2.5 26.7 47.1 200.8 -0.6 20.5 35.4 121.7Bajaj Auto Hold 2,451.8 2,625.0 2,695.0 1,793.2 -5.8 5.0 6.6 31.8 -4.0 -0.2 -1.9 -2.8Gabriel Industries � Buy 97.1 110.0 99.3 19.4 12.0 21.2 81.5 314.7 14.2 15.3 67.0 205.6M&M Buy 1,224.7 1,440.0 1,433.7 846.3 -3.2 -11.9 1.6 32.4 -1.3 -16.2 -6.5 -2.4Maruti Suzuki Buy 3,359.6 4,000.0 3,469.0 1,540.4 0.1 13.1 27.7 90.8 2.0 7.6 17.5 40.6Rico Auto Industries Buy 46.2 55.0 51.5 7.7 11.6 36.9 141.3 294.4 13.8 30.2 122.1 190.7TVS Motor Hold 267.5 ** 280.8 64.0 15.1 16.8 59.2 245.0 17.3 11.1 46.5 154.3BSE Auto Index 18,837.2 19,529.2 11,224.1 -1.3 6.3 19.3 56.6 0.6 1.1 9.8 15.4BANKS & FINANCE

Allahabad Bank Buy 132.0 145.0 150.0 72.2 3.5 35.5 -6.3 42.7 5.5 28.9 -13.8 5.2Andhra Bank Hold 96.3 104.0 110.0 53.5 9.0 49.1 -5.2 55.1 11.1 41.8 -12.7 14.3Axis (UTI) Bank Buy 514.3 556.0 520.4 216.5 4.3 35.4 33.5 104.2 6.4 28.8 22.8 50.5Bajaj Finance Hold 3,443.8 3,450.0 3,536.0 1,460.0 11.3 24.3 65.2 121.1 13.4 18.3 52.0 62.9Bajaj Finserv Hold 1,275.7 ** 1,416.9 658.4 10.9 13.3 33.3 75.5 13.1 7.8 22.7 29.3Bank of Baroda Buy 1,096.3 1,232.0 1,125.6 509.0 1.1 22.0 24.4 73.7 3.0 16.0 14.5 28.1Bank of India Buy 307.8 334.0 357.0 165.6 5.6 32.3 1.2 33.1 7.6 25.9 -6.9 -1.9Capital First Buy 379.2 380.0 387.0 125.0 6.4 22.2 78.3 160.1 8.4 16.3 64.0 91.7Corp Bank Hold 338.2 388.0 417.8 220.0 3.6 6.8 -15.5 31.3 5.6 1.6 -22.2 -3.2Federal Bank Buy 149.0 155.6 153.0 72.4 1.7 20.5 15.7 83.0 3.7 14.6 6.4 34.9HDFC Hold 1,171.9 ** 1,178.0 755.0 4.2 11.6 17.9 50.2 6.2 6.1 8.5 10.7HDFC Bank Hold 965.3 ** 974.0 616.8 2.3 11.2 14.9 48.2 4.3 5.8 5.7 9.2ICICI Bank � Buy 362.3 424.0 367.3 188.7 2.3 26.8 24.8 71.1 4.3 20.6 14.8 26.1IDBI Bank Hold 77.0 95.3 116.5 52.9 4.8 27.3 -28.0 18.9 6.9 21.1 -33.8 -12.3LIC Housing Finance Buy 466.8 ** 479.7 186.2 9.2 45.7 44.7 124.1 11.3 38.6 33.1 65.2PTC India Fin. Ser. � Buy 68.3 90.0 71.8 12.7 21.0 54.9 98.2 394.2 23.4 47.4 82.4 264.2Punjab National Bank Hold 219.8 ** 231.5 101.8 0.3 25.0 11.0 83.1 2.3 18.9 2.1 35.0SBI � Buy 315.3 378.0 327.1 145.5 -1.1 30.1 16.7 83.6 0.8 23.7 7.3 35.3Union Bank of India Hold 240.3 250.0 259.7 100.5 9.6 26.0 3.1 95.1 11.7 19.9 -5.1 43.8Yes Bank Buy 792.2 930.0 804.9 291.4 10.3 42.1 39.3 121.9 12.5 35.2 28.1 63.6BSE Bank Index 21,830.1 21,967.2 11,373.1 2.7 24.5 23.1 73.0 4.7 18.4 13.2 27.5CONSUMER GOODS

GSK Consumers Hold 5,900.3 6,005.0 5,999.0 4,011.0 2.2 5.8 28.8 35.4 4.2 0.7 18.5 -0.2Godrej Consumer Products Hold 970.1 1,030.0 1,119.0 667.0 0.0 -2.0 20.1 16.5 2.0 -6.7 10.5 -14.2Hindustan Unilever Reduce 756.0 710.0 829.8 536.0 -6.2 3.5 20.7 37.1 -4.4 -1.5 11.1 1.1ITC Buy 368.3 415.0 400.3 311.1 0.7 1.2 11.8 19.0 2.6 -3.8 2.9 -12.3Jyothy Laboratories Hold 262.2 285.0 300.6 171.3 1.6 10.6 47.7 41.5 3.6 5.2 35.9 4.3Marico Buy 330.0 340.0 350.2 198.6 0.0 6.3 34.5 55.3 1.9 1.1 23.8 14.5Zydus Wellness Hold 800.7 875.0 952.0 435.0 0.0 25.1 30.0 51.0 1.9 19.0 19.6 11.3BSE FMCG Index 7,776.9 8,278.4 6,310.1 -0.8 3.4 15.1 22.2 1.2 -1.7 5.9 -9.9IT / IT SERVICES

CMC Hold 1,972.3 ** 2,407.0 1,334.0 -3.1 -9.6 -0.8 24.0 -1.2 -14.0 -8.7 -8.6Firstsource Solution Buy 35.3 51.0 44.4 22.1 4.8 -14.5 -12.1 61.7 6.8 -18.7 -19.1 19.2HCL Technologies Buy 1,605.3 1,780.0 1,776.3 1,232.6 -2.2 -7.4 9.7 30.5 -0.3 -11.9 1.0 -3.8Infosys Buy 2,013.2 2,540.0 2,201.1 1,440.0 -5.3 5.5 26.2 18.3 -3.5 0.3 16.1 -12.8Persistent Systems Hold 1,874.4 ** 1,921.7 880.0 17.2 26.2 77.2 95.8 19.5 20.1 63.0 44.3Tata Consultancy Services � Buy 2,579.5 3,010.0 2,839.7 1,968.8 -2.9 -6.9 9.5 22.7 -1.0 -11.4 0.7 -9.5Wipro Buy 557.3 645.0 621.9 474.7 -5.7 -9.5 4.0 2.2 -3.9 -13.9 -4.3 -24.6BSE IT Index 10,721.1 11,326.2 8,155.2 -3.7 -1.2 17.5 21.7 -1.8 -6.0 8.1 -10.3CAPITAL GOODS / POWER

Bharat Heavy Electricals Hold 275.3 ** 291.5 145.6 1.4 38.0 6.9 64.7 3.4 31.3 -1.7 21.4CESC Buy 675.0 800.0 828.1 399.0 -5.0 -10.0 -6.3 52.2 -3.2 -14.3 -13.8 12.2Crompton Greaves Buy 186.6 260.0 231.0 101.5 -1.1 -6.5 -9.3 48.4 0.8 -11.1 -16.5 9.3Finolex Cable Buy 268.7 285.0 283.9 73.4 2.6 25.4 35.7 220.7 4.6 19.2 24.9 136.4Greaves Cotton Buy 145.0 155.0 155.9 56.5 5.0 10.8 19.3 128.7 7.1 5.4 9.8 68.6Kalpataru Power Transmission Buy 235.0 245.0 243.3 70.5 33.4 51.6 22.8 161.6 36.0 44.2 13.0 92.8PTC India Buy 96.0 126.0 104.9 52.1 -2.8 18.3 -0.4 59.4 -0.9 12.5 -8.3 17.5Thermax Hold 1,049.9 1,100.0 1,132.0 615.0 3.8 16.2 7.8 50.6 5.8 10.5 -0.8 11.0Va Tech Wabag � Buy 1,506.6 1,900.0 1,748.0 502.1 -4.8 -9.2 5.1 171.2 -2.9 -13.6 -3.3 99.9V-Guard Industries Buy 1,139.1 1,200.0 1,198.0 403.1 5.3 29.9 93.7 140.0 7.4 23.6 78.2 76.9

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REPORT CARDEQUITY FUNDAMENTALS

STOCK IDEAS STANDING (AS ON JANUARY 02, 2015)

COMPANY CURRENT PRICE AS ON PRICE 52 WEEK ABSOLUTE PERFORMANCE RELATIVE TO SENSEXRECO 02-JAN-15 TARGET HIGH LOW 1M 3M 6M 12M 1M 3M 6M 12M

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� In Top Picks basket ** Price target under review

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Triven Turbine Buy 116.2 128.0 126.0 52.0 5.4 24.7 22.1 117.7 7.5 18.7 12.3 60.4BSE Power Index 2,115.9 2,408.1 1,491.0 -0.2 7.6 -9.9 29.5 1.7 2.3 -17.1 -4.5BSE Capital Goods Index 15,760.4 16,809.8 9,274.1 -3.1 11.3 -4.8 59.5 -1.2 5.8 -12.4 17.6INFRASTRUCTURE / REAL ESTATE

Gayatri Projects Hold 166.8 180.0 192.0 49.5 11.4 -5.7 0.7 176.1 13.6 -10.3 -7.4 103.5ITNL Buy 193.4 284.0 257.5 98.7 2.9 11.3 -7.6 48.5 4.9 5.9 -15.0 9.5IRB Infra Buy 267.3 320.0 289.7 67.2 -1.3 17.3 8.7 192.1 0.6 11.6 0.0 115.3Jaiprakash Associates Hold 27.6 40.0 89.9 23.1 -7.1 3.0 -63.4 -48.0 -5.3 -2.0 -66.4 -61.7Larsen & Toubro Buy 1,534.7 1,840.0 1,776.6 951.5 -6.4 6.1 -11.6 49.6 -4.6 0.9 -18.7 10.2Pratibha Industries Buy 45.6 65.0 66.7 22.9 -11.1 -9.3 -26.5 59.9 -9.4 -13.7 -32.4 17.8Punj Lloyd Reduce 38.2 30.0 60.9 24.8 3.8 5.1 -27.0 26.3 5.8 0.0 -32.9 -6.9CNX Infra Index 3,107.1 3,524.1 2,195.9 -3.7 3.4 -9.4 29.9 -1.8 -1.6 -16.6 -4.2BSE Real Estate Index 1,571.9 2,272.7 1,160.5 -6.1 0.0 -24.9 10.8 -4.3 -4.8 -30.9 -18.3OIL & GAS

Oil India Buy 579.0 720.0 670.0 438.0 0.1 -2.2 -1.6 30.9 2.1 -7.0 -9.5 -3.5Reliance Ind � Buy 885.6 1,190.0 1,145.3 793.1 -8.0 -4.5 -13.0 2.1 -6.2 -9.1 -20.0 -24.8Selan Exploration Technology Buy 360.6 550.0 677.4 295.1 -4.7 -29.1 -40.9 20.2 -2.8 -32.5 -45.7 -11.4BSE Oil and Gas Index 9,917.1 12,132.0 8,248.2 -5.8 -5.8 -10.6 16.8 -4.0 -10.4 -17.7 -13.9PHARMACEUTICALS

Aurobindo Pharma Buy 1,132.5 1,272.0 1,172.0 375.0 -1.5 17.2 51.2 200.8 0.4 11.5 39.1 121.7Cipla Hold 630.2 658.0 673.0 366.5 -1.5 0.9 42.5 61.4 0.5 -4.0 31.1 18.9Cadila Healthcare Hold 1,627.7 1,640.0 1,760.2 730.3 2.2 24.3 53.2 108.6 4.2 18.2 41.0 53.8Divi's Labs Hold 1,752.9 1,860.0 1,888.1 1,210.0 1.2 -1.9 17.3 44.0 3.1 -6.7 8.0 6.1Glenmark Pharmaceuticals Buy 767.9 915.0 841.0 496.1 -5.9 9.2 33.9 47.1 -4.0 3.9 23.2 8.4JB Chemicals Hold 204.7 251.0 257.9 115.1 -5.4 -7.3 24.3 61.4 -3.6 -11.8 14.4 19.0Ipca Laboratories Hold 726.6 785.0 906.9 630.0 4.5 -7.3 -17.1 0.0 6.6 -11.8 -23.7 -26.3Lupin � Buy 1,432.3 1,512.0 1,500.0 855.0 -3.1 3.3 33.7 59.1 -1.2 -1.8 23.0 17.2Sun Pharmaceutical Industries Buy 826.3 1,018.0 932.5 552.5 -1.7 -4.0 19.4 44.2 0.2 -8.7 9.8 6.3Torrent Pharma Buy 1,192.5 ** 1,205.0 461.5 3.6 34.8 66.4 158.0 5.6 28.3 53.1 90.2BSE Health Care Index 14,720.2 15,238.6 9,881.4 -2.8 3.2 27.5 49.4 -0.9 -1.9 17.4 10.1BUILDING MATERIALS

Grasim Buy 3,495.7 4,020.0 3,789.0 2,426.4 -0.4 0.1 2.4 33.1 1.5 -4.8 -5.8 -1.9The Ramco Cements Buy 344.8 420.0 380.0 155.6 3.1 9.8 16.7 90.3 5.1 4.4 7.4 40.3Shree Cement Hold 9,325.9 9,500.0 9,500.0 4,100.1 4.7 11.7 29.7 114.3 6.8 6.3 19.4 57.9UltraTech Cement Buy 2,742.1 2,935.0 2,872.0 1,634.0 10.9 3.5 4.1 59.0 13.0 -1.5 -4.2 17.2DISCRETIONARY CONSUMPTION

Eros International Media Hold 379.5 ** 399.4 136.5 5.8 41.3 58.6 128.1 7.9 34.5 45.9 68.1Century Plyboards (India) Buy 162.1 200.0 176.7 21.9 -0.8 42.6 100.0 555.6 1.2 35.6 84.0 383.2Cox and Kings Buy 305.9 395.0 368.0 128.0 9.4 0.4 35.6 151.6 11.5 -4.5 24.8 85.4KDDL Buy 250.1 300.0 274.0 69.0 4.4 51.0 89.8 236.5 6.5 43.6 74.6 148.0KKCL Hold 1,950.0 ** 2,000.0 971.4 6.7 7.1 15.5 72.7 8.8 1.9 6.3 27.3Raymond Hold 516.0 ** 579.5 255.7 -2.6 19.8 24.2 81.3 -0.7 14.0 14.3 33.6Relaxo Footwear � Buy 599.8 ** 619.9 214.1 22.0 16.3 51.6 150.5 24.4 10.6 39.5 84.6Speciality Restaurants Hold 195.6 222.0 214.0 109.0 6.7 34.2 31.9 52.9 8.8 27.6 21.4 12.7Sun TV Network Hold 375.7 425.0 488.0 298.6 18.1 10.4 -17.5 5.1 20.4 5.0 -24.1 -22.5Zee Entertainment Enterprises Buy 381.0 ** 402.4 254.2 -0.2 21.5 28.7 37.1 1.7 15.6 18.5 1.0DIVERSIFIED / MISCELLANEOUS

Aditya Birla Nuvo Buy 1,730.1 2,000.0 1,916.2 1,030.0 -2.0 5.0 23.7 44.4 -0.1 -0.1 13.8 6.5Bajaj Holdings Buy 1,436.4 1,636.0 1,638.0 869.7 1.0 4.1 6.1 66.7 3.0 -1.0 -2.4 22.9Bharti Airtel Hold 365.1 450.0 420.0 281.9 -5.0 -9.5 9.0 12.1 -3.2 -13.9 0.2 -17.4Bharat Electronics Buy 2,924.7 3,500.0 3,140.8 893.0 16.3 42.4 35.1 190.6 18.6 35.4 24.3 114.2Gateway Distriparks � Buy 350.4 400.0 362.8 121.8 10.2 31.8 46.7 162.3 12.4 25.4 35.0 93.3Max India Buy 387.5 485.0 442.8 177.1 3.8 23.7 33.7 81.6 5.8 17.6 23.1 33.9Ratnamani Metals and Tubes Buy 690.9 815.0 717.0 120.2 20.2 62.2 75.4 422.2 22.6 54.3 61.4 284.9Supreme Industries Hold 597.4 620.0 688.5 392.9 -3.7 -7.6 8.3 45.2 -1.8 -12.1 -0.4 7.0Technocraft Industries Buy 184.9 270.0 218.3 75.2 3.2 5.4 -4.9 82.6 5.2 0.3 -12.5 34.6United Phosphorus Buy 352.3 430.0 388.7 176.6 2.2 4.0 5.8 81.1 4.2 -1.1 -2.7 33.5BSE500 Index 10,866.4 11,089.3 7,320.9 -0.5 7.2 10.0 42.9 1.4 2.0 1.2 5.3CNX500 INDEX 6,866.5 6,995.7 4,596.1 -0.4 7.4 10.2 43.7 1.5 2.2 1.4 5.9CNXMCAP INDEX 12,699.8 12,812.4 7,346.7 1.7 11.7 13.1 62.7 3.7 6.2 4.1 19.9

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From promise to performance

FROM SHAREKHAN’S DESK

from

sha

rekh

an’s

desk In the ongoing test series between India and Australia being played in the island continent,

the Indian cricket team has lost the first two matches while the third one has ended in a

draw. The point to note is that India has lost both the matches by a small margin and that

too despite having enjoyed the upper hand at some point of each game. At the dawn of the

new year we cannot help wondering if India would be able to effectively build on its economic

recovery cycle, given the strong base of 2014, and not fritter away its advantageous position

unlike Team India.

In 2014, the macro-economic situation improved considerably on the back of a stable

government, improving policy framework and easing of energy prices. No wonder, India’s

positioning changed dramatically from being part of the fragile economy pack in 2013 to

being one of the preferred emerging economies globally.

But to sustain the momentum, a lot would need to be done by the Narendra Modi government

in terms of reforms and delivering on expectations. Our Market Outlook report titled

“Action speak louder than words” on page 7 discusses in detail what India needs to do

right in 2015 to maintain its advantage and the momentum in its stock market. But that’s

for the full year and even a longer investment horizon.

In the immediate period, the stock market will take its cues from events like the forthcoming

Union Budget, India Inc’s third quarter results and the Reserve Bank of India (RBI)’s monetary

policy review in early February domestically and global factors like the snap elections in

Greece and the Russian economic crisis.

In terms of the Q3FY2015 results, the Street’s expectations have already been pruned after

the lacklustre Q2FY2015 performance. Moreover, the quarterly numbers are expected to

get affected by the sharp movement of the dollar against the other major currencies (cross-

currency movements) in case of the exporting companies, like those from the information

technology services sector, and a sharp correction in the commodity prices (which could

result in provisions for mark down in the value of inventories).

So the positive driver of sentiment would be the heightened expectations from the budget

and possible rate cuts by the RBI in the review meet in February 2015. Given the limited

time the government had before its first budget and the political logjam obstructing some

important policy initiatives in the Parliament, the Union Budget is seen as an opportunity

for the new government to push forth its policy and reformist agenda, and the hopes are

high. Similarly, the consensus is that the RBI would oblige with a rate cut sooner than later.

Thus, hope would continue to drive optimism in the initial phase of the second lap of the

multi-year rally in the Indian equity market. But eventually the government would have to

come good on promises of delivering on economic recovery and reforms to sustain the

momentum.

Here’s wishing you a happy and prosperous New Year! �


Actions speak louder than words

MARKET OUTLOOK DECEMBER 24, 2014

2014, reversal of fortunes: Calendar year 2014 turned out to be a

landmark year for India. After three decades, a single political party

gained absolute majority in the general election in this year. The

new government, though criticised for moving slow on many of its

electoral promises, has made significant progress on two fronts: (1)

It has taken steps to revitalise the bureaucracy to end policy logjam;

and (2) India’s foreign policy has turned pro-active under the

Narendra Modi regime and put India back on the global centre

stage. God has also been kind. The sharp correction in the prices of

commodities especially crude oil has dramatically improved the

macro situation and eased pressure on India’s fiscal health. The

country can today look forward to a credit rating upgrade instead

of the real threat of a potential rating downgrade to the “Junk”

status it faced about 15 months back.

2015, time to deliver on economic recovery and reforms: No doubt,

it is not an easy task for the government to undo the legacy of a

slumping economy with low business confidence and to get the

economy back on track. However, the time has come to take

aggressive and bold policy decisions rather than just looking at

improving the situation by focusing on execution and smooth

implementation of the existing policies. With little progress in the

winter session of the Parliament, the forthcoming Union Budget

would be an important event for the domestic businesses and foreign

investors. A lot of attention would also be paid to the timing of the

Reserve Bank of India (RBI)’s commencement of the interest rate

cut cycle in 2015.

Globally, situation might not be as benign anymore: In 2015, the

risk will emerge from the expected changes in the economic order

globally. Unlike the status quo of the past few years, the US economy

is recovering and the Federal Reserve (Fed) is scheduled to commence

interest rate hikes in 2015. On the other hand, the rest of the world

including Europe, Japan and China is still slowing down and would

maintain close to zero interest rates and could provide additional

doses of monetary stimulus to support growth. In such an

environment, the US dollar could strengthen and bond yields in the

USA could also firm up resulting in an outflow of some money

from the emerging equity markets (and the other risky assets like

commodities and bullions) back to the US government debt in 2015.

This could cause uncertainty and volatility in the global financial

markets.

MARKET OUTLOOKEQUITY FUNDAMENTALS

SENSEX’ ONE-YEAR FORWARD P/E BAND

Source: Bloomberg, Sharekhan Research

Valuation supportive; equities to sustain uptrend: Though 2015

could see a higher level of volatility (bouts of risk aversion globally),

we expect the overall uptrend in the Indian equity market to remain

intact. The benchmark indices are trading at ~12x FY2017E earnings

which is way below the average valuation multiple of 15x (and

closer to the bottoming out level of 10x) and leaves enough scope

for an upside in response to the improving trajectory of growth in

the corporate earnings driven by a supportive domestic macro

environment. The Nifty and the Sensex, the benchmark indices,

have not corrected by even 10% on any single occasion since the

last 15 months and the trend is likely to continue in spite of the

expectations of higher volatility in 2015. Thus, we retain our positive

stance on equities and continue to see corrections driven by global

risk aversion as accumulation opportunities.

We are positive on rate-sensitive sectors like bank & financial

services and auto & auto ancillaries in addition to our favourable

view on the urban consumer discretionary spending-driven

businesses and quality cyclical stocks.

Long-term view of multi-year rally: We retain our view that the

Indian equity market is in a multi-year rally and the Sensex is set to

appreciate to 70,000 to 90,000 levels over the next three to four

years.

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CRUDE OIL PRICES, INFLATION (WPI)


BOND YIELDS (%)


Macro environment turning favourable—low crude prices, rate cutsto be tailwinds: From the economy’s perspective, 2014 was quitean eventful year as economic growth started limping up and inflationdived to 4.3% from double digit in FY2013 (Consumer Price Index).Even as macro indicators like non-gold imports, non-oil imports,car sales, Purchasing Managers’ Index data are showing a gradualuptick, the sentiments have changed dramatically which shouldrevive investments and growth ahead. Consequently, many reputedinstitutions have scaled up their gross domestic product (GDP)growth forecast for India (6.0-6.5% for FY2016) and Standard &Poor’s has revised its outlook to “Stable” from “Negative”. Bankswhich suffered a jolt in 2014 are likely to witness stable trends.However, the biggest positive for India’s economy has been a sharpdrop in crude oil prices which has cushioned the fiscal position,the current account gap and the domestic inflation scenario.

in Bihar in December 2015), there is headroom for non-populistreforms (subsidy reduction, land and labour reforms, tariff hikesetc). In the forthcoming Union Budget and outside the budget, thegovernment may announce path-breaking measures to boost themanufacturing sector (especially the “Make in India” campaign),revive railways and consolidate the fiscal position.

Bond yields declined, RBI rate cut likely in early 2015: In view of asharp dip in inflation, expectations have built up of a rate cut bythe RBI which has led to a sharp moderation in the benchmarkyields. As per the RBI guidance, the rate cut cycle is likely to beginby early 2015 which should bring down the cost of capital andimprove the investment climate. The demand which suffered duringthe economic slowdown is likely to get a boost in a lower-interestrate environment. The credit growth of banks which sagged in 2014is likely to get a boost from rate cuts.

CONSENSUS ESTIMATES FOR FY2015, FY2016

Particulars FY15 FY16

CPI inflation (%) 7 6.20

Policy rate (repo) (%) 8 7.25

CA deficit ( as % of GDP) -1.80 -1.9

INR/USD 63 62.4

Fiscal deficit (as % of GDP) -4.2 -3.9

Real GDP growth (%) 5.50 6.50

Time for bigger policy moves: After the wash-out winter session ofthe Parliament, 2015 would test the government’s ability to pushforward the key reforms (related to land, labour, taxes, foreigndirect investment etc) to improve economic growth. However, thegovernment has re-energised the bureaucracy and is trying to removeprocedural bottlenecks as Mr Modi himself is taking charge of theProject Management Group to clear projects worth $300 billion.In case of the Goods and Services Tax, the government has beenswift to built a consensus. In the near term, coal allocation andsubsidy related reforms will be under focus. In addition,infrastructure and railways are the other sectors that could seepositive reforms as these sectors can propel the GDP growth.

Political and economic scenarios conducive to bold measures: Aftergetting a historic mandate in May 2014, the Modi government’spopularity remains largely intact, as suggested by the recent stateelection results. Given that the crude oil prices have crashed, inflationhas declined sharply and there are no major elections in 2015 (except

Earnings expansion remains healthy, global issues key monitorables:The FY2015 and FY2016 consensus earnings estimates (Sensex)have been upgraded by about 5% each since April 2014 and factorin an 18-20% growth. Even as the earnings growth expectation of~18% is fairly healthy (especially when compared with the ~8%growth seen over FY2008-14), it could have been much higher hadthe global economy not slowed down. Around 50% of the revenuesin the index companies are denominated in foreign exchange andthe revenues could fall short of expectations if the global slowdownextends. Going ahead, operating leverage and expansion in operatingprofit margins will play out in 2015 and may partly compensatefor a slower revenue growth (which is expected to revive with somelag). The pace of monetary easing by the RBI in 2015 will also be akey factor for earnings momentum.

SENSEX’ CONSENSUS EARNINGS ESTIMATES FOR FY2016


EQUITY FUNDAMENTALSMARKET OUTLOOK

0.01.02.03.04.05.06.07.0

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Global economies to contract though crisis ruled out: Given thedeepening of the slowdown in major global economies (especiallyChina, Japan, European Union and some emerging markets [EMs]),the global growth could suffer. The sharp fall in crude oil priceshas severely affected the crude exporting nations leading to anexodus of the foreign institutional investors and a sharp fall in thecurrencies of Brazil, Venezuela, Russia etc. The governments ofChina and Japan have undertaken massive stimulus programmesto boost growth and more steps are likely in 2015. However, theUS economy is growing as per the Fed’s expectations and a gradualhike in interest rates may happen some time in 2015. From India’sperspective, the deepening of the global slowdown could elongatethe recovery of its economy (especially of its exports) and therecould be some knee-jerk reaction to rate hikes in the USA.

SENSEX’ CONSENSUS EARNINGS ESTIMATES FOR FY2017


India uniquely positioned to ride growth path: With most of theglobal economies in tatters, the Indian economy has emergedstronger and is likely to improve its growth rate taking it closer tothe pre-crisis levels. Despite a ~30% run-up in the stock marketindices in 2014, the market’s valuations are attractive (15x FY2016Eearnings and 12x FY2017E earnings). On a relative basis too, thevaluations appear reasonable as the MSCI India trades at a nearly20% premium to the MSCI World which is below the long-termmean. In the near term, the market’s focus will be on developmentsrelated to global issues, the Union Budget, the RBI’s monetary policyand India Inc’s quarterly results. In the medium to long term, India’seconomic fundamentals remain firm which will drive a multi-yearrally in its equity market.

Key risk: The calendar year 2015 will be quite significant from theglobal perspective and any negative development (though a crisis isruled out at this stage) could have repercussions for the Indianeconomy and market sentiment.

Multi-year rally ahead: Over the long term, we believe that theIndian equity market is set for a multi-year rally on the back of aneconomy that is recovering and returning to its potential growthrate of 7.5-8.0%, a better policy environment and a recovery in theinvestment cycle. With the Indian economy moving from the viciousto the virtuous cycle, equities would far outpace the returns fromall the other asset classes and the increased allocation of domesticinvestors along with the already fair share of foreign inflows intoIndian equities will drive the market to newer heights. Consequently,we believe the market is set to appreciate to 70,000 to 90,000 levelsover the next three to four years.

KEY MONITORABLE EVENTS GLOBALLY

Events Timing/range Impact

Beginning of rate hikes by US Fed H1CY2015 Negative (pressure on currencies of EMs, slower economic recovery)

US bond yields rising 2.75-3.00% Negative (reversal of inflows from EMs, thereby weakening of currencies of the EMs)

ECB QE announcement Q1CY2015 Positive (will keep liquidity afloat amid likely tightening by the USA)

Elections in EU (Greece, Spain, 2015 Negative (political indecisiveness and deflation could hinder recovery)

Italy, the UK)

Japan election Q1CY2015 Positive (re-election of Shinzo Abe will drive another round of QE by Japan and BoJ)

China’s economic data 6.80-7.00% Negative (while weak data is sentimentally negative, it will force aggressive easing by government)

Commodity prices $70-75/bbl Positive (will support faster recovery in global economy while rising prices could affect India negatively; furtherdecline in prices negative for global economy)

Russia-Ukraine conflict Negative (escalation of conflict could raise geo-political risks and increase risk aversion)

SENSEX’ VALUATIONS (VS MSCI WORLD P/E)


SENSEX’ ONE-YEAR FORWARD P/E BAND


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

MARKET OUTLOOKEQUITY FUNDAMENTALS

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Global PE India PE


Sharekhan Top PicksSHAREKHAN TOP PICKS

Sharekhan’s Top Picks basket ended 2014 with a bang byhandsomely outperforming the benchmark indices, the Nifty andthe Sensex, once again in December. Since the last revision in earlyDecember, the Top Picks folio has appreciated by 2.2% as comparedwith a decline of 3.2% in the Nifty and that of 3.8% in the Sensexduring the same period.

During the last month, the performance of our select basket of stockswas boosted by a strong appreciation of close to 26.6% in the stockprice of PTC India Financial Services, which was added to the folioin the last month. The sustained buying interest in GatewayDistriparks and Relaxo Footwear also aided the Top Picks folio to

*CMP as on December 31, 2014 # Price target for next 6-12 months ** Under review

NAME CMP* PER ROE (%) PRICE UPSIDE(RS) FY14 FY15E FY16E FY14 FY15E FY16E TARGET (RS)# (%)

Ashok Leyland 52 -28.8 102.2 19.1 -10.7 2.9 13.6 58 13

Gabriel India 89 27.3 17.2 12.4 17.3 23.7 26.8 110 24

Gateway Distriparks 353 27.0 23.4 21.0 13.3 14.6 16.2 ** **

ICICI Bank 353 20.8 18.5 15.6 14.0 14.5 15.7 424 20

Idea Cellular 153 27.6 19.9 17.1 12.0 11.9 12.2 190 24

Lupin 1,427 34.8 25.1 22.0 26.5 27.7 24.4 1,512 6

PTC India Financials 70 13.8 12.8 9.0 16.1 15.5 19.7 90 29

Relaxo Footwears 565 38.4 29.6 21.7 21.3 21.2 25.4 ** **

Reliance Industries 893 12.8 12.1 10.8 11.3 10.9 11.0 1,190 33

SBI 313 21.4 16.6 12.7 10.0 11.4 13.5 378 21

TCS 2,557 26.2 23.4 20.0 31.6 30.0 27.8 3,010 18

VA Tech Wabag 1,474 36.0 31.2 24.9 14.0 14.1 15.8 1,900 29

ABSOLUTE RETURNS (TOP PICKS VS BENCHMARK INDICES) % CONSTANTLY BEATING NIFTY AND SENSEX (CUMULATIVE RETURNS) SINCEAPRIL 2009Sharekhan Sensex Nifty CNX

(Top Picks) MIDCAP

CY2014 63.6 29.9 30.9 55.1

CY2013 12.4 8.5 6.4 -5.6

CY2012 35.1 26.2 29.0 36.0

CY2011 -20.5 -21.2 -21.7 -25.0

CY2010 16.8 11.5 12.9 11.5

CY2009 116.1 76.1 72.0 114.0

Since Inception 359.2 174.1 171.6 247.4(Jan 2009)

CONSISTENT OUTPERFORMANCE (ABSOLUTE RETURNS; NOT ANNUALISED) (%)1 month 3 months 6 months 1 year 3 years 5 years

Top Picks 2.2 14.3 24.7 63.6 148.2 130.6Sensex -3.8 3.1 7.5 29.9 77.8 56.2Nifty -3.2 4.0 8.0 30.9 79.7 58.9CNX Mid-cap 1.8 10.2 12.7 55.1 99.2 66.6

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do better than the CNX Mid-cap Index as well as the Nifty and theSensex. Thus, the Top Picks folio not only outperformed in thetrending upmove in the market during the October-Novemberperiod but also sustained the momentum in December to build onthe gains of the previous months despite volatility in the month.

We are making a lone change in the folio this month. State Bank ofIndia (SBI) is replacing Axis Bank in which we are booking profitsto increase our exposure to the public sector banks. The softeningof the bond yield would boost the Q3FY2015 earnings of the publicsector banks including SBI, which is our preferred pick in the publicsector banking space. �

EQUITY FUNDAMENTALSSHAREKHAN TOP PICKS


NAME CMP PER ROE (%) PRICE UPSIDE(RS) FY14 FY15E FY16E FY14 FY15E FY16E TARGET (RS) (%)

ASHOK LEYLAND 52 -28.8 102.2 19.1 -10.7 2.9 13.6 58 13

Remarks: � Ashok Leyland Ltd (ALL) is the second largest CV manufacturer in India with a market share of 25% in the heavy truck segment andan even higher share of about 40% in the bus segment. Given the scale of economic slowdown, the segment had halved over FY2012-14. With a pick-up in the economy a sharp recovery in the segment is expected.

� ALL entered the LCV segment with the launch of the Dost in JV with Nissan. The JV has also launched the Partner LCV and the Stilevan. Going forward, we expect the company to gain a foothold in the LCV segment and expand its market share.

� The company is also concentrating on verticals other than CVs to de-risk its business model. It has a strong presence in the exportmarket and continues to expand in newer geographies. The diesel genset business is also showing signs of recovery after a tepidperformance in FY2013-14. Additionally, ALL’s defence business is expected to get a leg-up due to the government’s focus on indigenousmanufacture of defence products and FDI in the sector.

� ALL’s OPM has recovered from the lows on the back of a reduction in discounts and price hikes taken by the company. The marginsare expected to expand further given the operating leverage. The company has raised Rs660 crore via QIP and is in the process ofselling its non-core assets to pare its debts. With no significant capex planned we expect deleveraging of its balance sheet andimprovement in the return ratios.

GABRIEL INDIA 89 27.3 17.2 12.4 17.3 23.7 26.8 110 24

Remarks: � Gabriel India is expected to continue to rally led by a strong financial performance due to a strong growth momentum in the two-wheeler segment and its clients.

� We believe the company will continue to enjoy its growth pace in the upcoming years, given the strong growth of its clients, HondaMotorcycle and Scooter India (HMSI) and TVS Motor Company, and the expansion plans of HMSI. Additionally, an early sign ofrecovery in the passenger vehicle (PV) and commercial vehicle (CV) segments will give impetus to the overall financial performancewhich would reflect strongly in the FY2017 financials.

� A strong traction in the two-wheeler volume, improving CV and PV segments along with the de-leveraging of the balance sheet wouldexpand the margins and boost the earnings in the next couple of years. We remain positive on the demand outlook for the automobileindustry and maintain our Buy rating on the stock.

ICICI BANK 353 20.8 18.5 15.6 14.0 14.5 15.7 424 20

Remarks: � With an improvement in the liability profile, ICICI Bank is better positioned to expand its market share especially in the retail segment.We expect its advances to grow at ~19% compound annual growth rate (CAGR) over FY2014-16 leading to a CAGR of 17.0% in thenet interest income.

� ICICI Bank’s asset quality has stabilised and fresh non-performing asset (NPA) additions are within manageable limits. We believe thestrong operating profits should help the bank to absorb the stress which anyway is expected to recede due to an uptick in the economy.

� Led by a pick-up in the advance growth and a significant improvement in the margin, the RoE is likely to expand to ~16% by FY2016while the return on assets (RoA) is likely to improve to 1.8%. This would be driven by a 15.3% growth (CAGR) in the profit overFY2014-16.

� The stock trades at 2.3x FY2016E BV. Moreover, given the improvement in the profitability led by lower NPA provisions, a healthygrowth in the core income and improved operating metrics, we recommend a Buy with a price target of Rs424.

GATEWAY DISTRIPARKS 353 27.0 23.4 21.0 13.3 14.6 16.2 ** **

Remarks: � An improvement in exim trade along with a rise in port traffic at the major ports signals an improving business environment for thelogistic companies. Gateway Distriparks being a major player in the CFS and rail logistic segments is expected to witness an improvementin the volumes of its CFS and rail divisions going ahead.

� The improving trend in the rail freight and cold chain subsidiaries would sustain on account of the recent efforts to control costs andimprove utilisation.

� We continue to have faith in the company’s long-term growth story based on the expansion of each of its three business segments, ieCFS, rail transportation and cold storage infrastructure segments. The coming on stream of the Faridabad facility and the strongoperational performance will further enhance the performance of the rail operations. Also, the expected turnaround in the global tradeshould have a positive impact on the CFS operations. We maintain our Buy rating on the stock.

SHAREKHAN TOP PICKSEQUITY FUNDAMENTALS



IDEA CELLULAR 153 27.6 19.9 17.1 12.0 11.9 12.2 190 24

Remarks: � Idea Cellular is the fastest growing Indian telecom player with an aggregate market share of 16.7%. Its revenues have grown at aCAGR of 21% over FY2010-14, outperforming the industry, which has grown at a CAGR of 6.1% over the same period. Its marketshare over the same period has seen a substantial improvement from 11.5% in FY2010 to 16.7% in Q2FY2015. Growing revenues andgaining market share in a cut-throat competitive market with a dozen players is remarkable and displays the company’s strong executionand brand-building capabilities.

� With the cancellation of 2G licences by the Supreme Court and emergence of forced consolidation in the telecom market, the operatorshave turned rational. Over the last two to three quarters, we have witnessed a marked improvement (4-6%) in the voice pricingenvironment led by a reduction in the discounts and free minutes. The current average realised rate is still at a discount to the headlinetariff, presenting an opportunity to further reduce the discounts and freebies, thereby improving the realisation. We expect the voicerates to remain firm in the short term but grow at a CAGR of 6.8% in the medium term over FY2014-17.

� Despite competition in the market place, Idea Cellular has displayed strong execution, resilience, improvement in market share andstrength in balance sheet. We continue to believe that the Indian voice and data market is likely to improve and Idea Cellular with itsstrong brand equity and superior execution capabilities would gain disproportionately owing to its strong execution capabilities, solidasset base and stable balance sheet (its net debt/EBITDA ratio has improved from 2.4x in Q4FY2014 to 1.32x in Q2FY2015 via equityraising and robust cash generation). Hence, we hold a positive view on the stock and expect it to deliver a return of 15-18% from thecurrent levels.

LUPIN 1,427 34.8 25.1 22.0 26.5 27.7 24.4 1,512 6

Remarks: � A vast geographical presence, focus on niche segments like oral contraceptives, ophthalmic products, para-IV filings and brandedbusiness in the USA are the key elements of growth for Lupin. The company has remarkably improved its brand equity in the domesticand international generic markets to occupy a significant position in the branded formulation business. Its inorganic growth strategyhas seen a stupendous success in the past. The company is now debt-free and that enhances the scope for inorganic initiatives.

� The company has shown a sharp improvement in the base business’ margin in H1FY2015 on the back of cost rationalisation measuresand better product mix. The management has given a guidance to sustain the operating profit margin (OPM) at 27% to 28% in FY2015(vs 25% in FY2014), which especially impress us. Lupin has recently forged an alliance with Merck Serono to out-licence select drugsand an agreement with Salix Pharma to in-licence products for the Canadian market, which will support growth in the long term.

� The company is expected to see stronger traction in the US business on the back of the key generic launches in recent months and astrong pipeline in the US generic business (over 95 abbreviated new drug applications pending approvals including 86 first-to-files) toensure the future growth. The key products that are going to provide a lucrative generic opportunity for the company include Nexium(market size of $2.2 billion), Lunesta (market size of $800 million) and Namenda (market size of $1.75 billion) that will be going out ofpatent protection in CY2015. The company has recently got FIPB clearance to raise FII investment limits to 49% (from 32% currently).

PTC INDIA FINANCIALS 70 13.8 12.8 9.0 16.1 15.5 19.7 90 29

Remarks: � PTC India Financial Services (PFS) stands to benefit from the government’s strong thrust on the renewable energy sector (mainlysolar and wind) which should result in a robust growth in loan book (35% CAGR over FY2014-17). About 70% of the incrementaldisbursement will be from the renewable segments (loan sanction pipeline of Rs7,000 crore or 1.2x of the existing loan book) whichhas lesser quality issues due to low gestation period and fuel supply risk, thanks to fiscal support from the government.

� Given the favourable interest rate scenario, the interest spreads may sustain at healthy levels (~4.5%). Any likely downward movementin hedging cost will further reduce the funding cost. The company also has ~Rs240 crore of equity investments in power projects; thesehave appreciated significantly and will result in substantial gains going ahead.

� We expect PFS to register a strong growth in earnings (~40% CAGR over FY2014-17 excluding one-off gains in FY2014) withoutfactoring in gains on equity investments. The asset quality is likely to remain robust and the company is likely to deliver high RoAs(~3.5%) which leaves further scope for rerating.

RELAXO FOOTWEARS 565 38.4 29.6 21.7 21.3 21.2 25.4 ** **

Remarks: � Relaxo Footwear is a proxy play on the fast growing mid-priced branded footwear segment, which is expected to grow at high doubledigits over the next three to five years. The company has integrated operations from manufacturing to branding which enables it to reapthe brand benefits with control over quality.

� Over FY2010-14, the company’s revenues and earnings have grown at a CAGR of 20.6% and 34.9% respectively. Its balance sheet andreturn ratios have also been strong. Going forward, we believe that the company’s strategy to leverage its brand strength (its advertisingand brand promotional push via association with leading Bollywood stars as brand ambassadors) along with favourable demographicswould enable it to clock a strong 22.8% revenue growth and a 33.5% earnings growth over FY2014-17.

� Its strong presence in the lucrative mid-priced footwear segment (through its top-of-the-mind recall brands like Hawaii, Flite and Sparx)along with its integrated manufacturing set-up, lean working capital requirement and vigilant management puts it in a sweet spot to cashin on the strong growth opportunity unfolding in the footwear category due to a shift from unbranded to branded products. Thus, we remainpositive on the business, with a Buy rating on the stock.

EQUITY FUNDAMENTALSSHAREKHAN TOP PICKS



SBI 313 21.4 16.6 12.7 10.0 11.4 13.5 378 21

Remarks: � SBI is India's largest bank based on most comparable parameters, such as asset size, branch network (18,000 branches) and customerbase. With a revival in the investment cycle and pick-up in consumption, SBI being the largest bank is likely to benefit disproportionately.On the capitalisation front, SBI is better placed (tier-1 CAR at ~10%) compared with the other state-owned banks which should resultin lesser equity dilutions.

� SBI has a market share of ~18% and along with its associate banks it commands a market share of ~25% in the banking system.Going ahead, it will merge its associate banks which will give it an unmatched hold in the domestic banking sector and boost economiesof scale. In addition, the likely monetisation of the insurance and other subsidiaries will strengthen the capital position of the bank.

� SBI also stands to benefit from the pending reforms in government-owned banks (autonomy, holding company structure, reduction ingovernment stake, easing of investment norms). This builds a genuine case for expansion of its valuation multiples. Even as the assetquality has stabilised, the likely increase in treasury profits (due to a decline in bond yields) will take care of the provisioning requirementand hence cushion the profitability. We have a Buy rating on SBI with a price target of Rs378.

TCS 2,557 26.2 23.4 20.0 31.6 30.0 27.8 3,010 18

Remarks: � TCS pioneered the IT services outsourcing business from India and is the largest IT service firm in the country. It is a leader in mostservice offerings and has further consolidated its position as a full service provider by delivering a robust financial and operationalperformance consistently over the years.

� The consistency and predictability of the earnings performance has put the company on the top of its league. Moreover, the quality ofits performance has also been quite impressive, ie it has been able to report a broad-based growth in all its service lines, geographiesand verticals consistently.

� Though cross-currency head winds and softness in some verticals will affect the earnings in the near term, we believe the overallimprovement in the USA will drive the growth in the coming years. Also, the company’s increasing capabilities in the digital space,which is a high-growth area, consolidates its position among the top-tier global IT companies. We maintain TCS as our top pick in theIT sector and have a Buy rating on the stock.

RELIANCE INDUSTRIES 893 12.8 12.1 10.8 11.3 10.9 11.0 1,190 33

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

� Though there is uncertainty regarding gas production and pricing of gas from the KG-D6 field, but the traction in volume from shale gasassets is playing positively for the company. Moreover, the upcoming incremental capacities in the petrochemical and refinery businessesare going to drive the future earnings growth as the downstream businesses are on the driving seat and contributing the lion’s share ofthe profitability and cash flow. Hence, the uncertainty related to the domestic gas production and pricing is having a limited materialimpact.

� In recent past there have been signs of improvement in the benchmark GRM which suggests that there could be a healthy improvementin the GRM of RIL too. The stock is available at attractive valuation considering the size, strong balance sheet and cash flow generatingability of the company.

VA TECH WABAG 1,474 36.0 31.2 24.9 14.0 14.1 15.8 1,900 29

Remarks: � Va Tech Wabag (VTW) is a truly Indian MNC, having global presence in water treatment with superior technology, strong executioncapability and professional management. Globally, fresh water supplies are relatively static and the potential scarcity will drive significantinvestments in this area and a large chunk of this would be from the developing world, where VTW is favourably placed to capture largeopportunities ahead.

� While opportunities from new projects are huge, we see a jump in recurring business from the operations and maintenance (O&M)segment, which would be less working capital intensive and have stable margins. Moreover, the efforts by the management to rationalisethe cost structure of its overseas business would help the company to improve the overall margin in the coming years.

� We expect the earnings of VTW to grow at a CAGR of 20% in the next two to three years and the RoE to sustain at 15-17%. A presencein a sunrise industry, an asset-light business model and a strong balance sheet (virtually debt-free) are positives to vindicate the beliefthat VTW is one of the few quality engineering companies in India. We remain positive on the stock.

SHAREKHAN TOP PICKSEQUITY FUNDAMENTALS


Wealth Creator portfolioObjective: To build a balanced and actively managed portfolio ofquality companies that will help create meaningful wealth forinvestors in the multi-year rally expected in the Indian equity market.

In addition to some bottom-up picks, the portfolio contains stocksidentified based on three key themes:

� Policy push: Stocks from sectors benefiting from improvementin the policy environment

� Early gainers: Beneficiaries of an economic recovery (stocks fromauto, banking & financial, logistic sectors)

� Evergreen: Steady performers that provide stable and consistentreturns

WEALTH CREATOR PORTFOLIO DECEMBER 31, 2014

COMPARATIVE RETURNSParticulars Returns (on December 31, 2014)

Since Nov 17, 2014 Since inception (Aug 21, 2014)

Wealth Creator folio (weighted average returns) 2.7% 17.7%

- Large-cap (64%) 0.9% 13.9%

- Mid-cap (36%) 5.8% 24.5%

Sensex -1.9% 4.4%

Nifty -1.1% 5.0%

CNX Mid-cap 2.9% 12.3%

Portfolio performance review� The Wealth Creator folio has sustained its strong

outperformance and registered a weighted average return of2.7% since the last revision on November 17, 2014.Importantly, the gain of 0.9% in the large-cap stocks in thefolio is much better than the decline in the Nifty and the Sensexin the same period. Similarly, the mid-cap stocks in the foliohave gained by 5.8%, almost double the appreciation of 2.9%in the CNX Midcap Index in the same period.

� Since its inception (on August 21, 2014), the returns of theWealth Creator folio have far exceeded the gains in thebenchmark indices. �

WEALTH CREATOR PORTFOLIO EQUITY FUNDAMENTALS

UPDATE ON WEALTH CREATOR PORTFOLIOSr No Scrip Weights Reco price (Rs) Target price (Rs) Potential upside 31-Dec-14 Oct-17

Large-caps (64% weightage)

1 ICICI Bank 8% 353 770 118.1%

2 Larsen & Toubro 8% 1,495 3,800 154.2%

3 Hero MotoCorp 8% 3,106 6,350 104.4%

4 Cummins 8% 874 1,708 95.4%

5 State Bank of India 8% 313 580 85.3%

6 Sun Pharmaceutical 8% 827 1,650 99.5%

7 Tata Consultancy Services 8% 2,558 5,100 99.4%

8 Tata Motors DVR 8% 335 850 153.7%

Mid-caps (36% weightage; 4% each)

9 PTC India Financials 4% 70 144 105.7%

10 Finolex Cables 4% 262 650 148.1%

11 Gateway Distriparks 4% 353 745 111.0%

12 IRB Infra 4% 264 680 157.6%

13 Network 18 Media 4% 67 150 123.9%

14 Gabriel India 4% 89 200 124.7%

15 Selan Exploration 4% 355 1,340 277.5%

16 Triveni Turbine 4% 114 265 132.5%

17 Dhanuka Agri 4% 552 1260 128.3%

* Please note we see scope for upward revision in price target (three-year) of some of the stocks, the same would be done after the Q3 results and a detailed interaction with the management


Time to dial KDDLCOMPANY DETAILS

Price target: Rs300

Market cap: Rs195 cr

52-week high/low: Rs268/69

NSE volume (No of shares): 0.3 lakh

BSE code: 532054

Sharekhan code: KAMLADLS

Free float (No of shares): 0.4 cr

PRICE CHART

SHAREHOLDING PATTERN

(%) 1m 3m 6m 12m

Absolute -8.5 5.2 68.8 188.3

Relative -6.4 4.0 54.3 114.7to Sensex

PRICE PERFORMANCE

BUY CMP: RS216 DECEMBER 22, 2014

KEY POINTS� Steady growth in manufacturing business and free cash to support retail growth

ahead: KDDL (erstwhile Kamla Dials and Devices) is one of the largest manufacturers

of watch dials and hands, serving both international and domestic clients. With a

revival in growth, the demand for premium and luxury watches, and their components

is expected to grow in double digits. The management expects the dial and hand

vertical to grow at 10-15% over the next two to three years. The margins may be

maintained at the current levels or may improve slightly over the next two years led

by value addition and absorption of fixed costs while the capex may remain low at

Rs10-12 crore per annum, thereby generating free cash. The free cash could be used

to support the strong growth in the retail business.

� Ethos, luxury watch retailer, deploying both brick and click to drive sales: KDDL is

also present in luxury watch retailing in India via its 75% subsidiary, Ethos. Ethos

employs a very intelligent combination of brick and click models to serve its customers,

drive sales and enhance profitability. The company retails over 60 high-end luxury

watch brands through its 42 pan-India stores. It also generates leads through its

online retail portal which enables it to improve its asset turnover and reduce its

inventory cycle, thereby adding to the overall margin and profitability. We believe

that aided by the online platform Ethos is very well placed to cash in on the strong

growth opportunity in the high-growth luxury watch market.

� Unique business + strong growth potential available at undemanding valuation; initiate

Buy with a price target of Rs300: We like Ethos’ unique high-end watch retailing

business, which is expected to grow manifold by cashing in on the growth in the

luxury watch segment and the increasing trend towards online e-tailing. This unique

high-growth potential business along with a steady manufacturing business that

generates free cash is attractively priced at the current levels and offers significant

returns over the medium to long term. We put a Buy rating on the stock, valuing

KDDL using the SOTP method (the manufacturing vertical is valued at 6x its FY2016E

earnings + the high-end watch retailing subsidiary Ethos is valued at 1x its FY2016E

sales) to arrive at a price target of Rs300.

� Key risk: A lower than expected improvement in the overall discretionary demand

would pose a risk to our revenue and earnings estimates.�

KDDL

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

or having a postition in the companies mentioned in the article.

VALUATIONS (CONSOLIDATED)Particulars FY2013 FY2014 FY2015E FY2016E FY2017E

Net sales (Rs cr) 271.8 334.7 403.3 497.1 613.1

Growth (%) 17 23 20 23 23

Operating profit (Rs cr) 18.1 30.1 40.8 50.7 63.0

Growth (%) -36 66 35 24 24

Operating profit margin (%) 6.7 9.0 10.1 10.2 10.3

Net earnings post-minority int. (2.8) 8.5 9.8 13.4 17.9

Growth (%) NA 404 15 36 34

Adjusted EPS (Rs) NA 9.9 10.7 14.7 19.6

PER (x) NA 21.7 20.1 14.7 11.0

RoCE (%) 12.8 14.7 15.2 15.5 15.7

RoE (%) NA 18.6 18.1 19.5 20.1

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

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Public & Others28%

Promoters53%

Foreign5%

Non-promoter corporate

14%

STOCK IDEAEQUITY FUNDAMENTALS


Gallons of opportunity, take a sip of itCOMPANY DETAILS

Price target: Rs1,900

Market cap: Rs3,957 cr

52-week high/low: Rs1,748/504

NSE volume (No of shares): 51,665

BSE code: 533269

NSE code: WABAG

Sharekhan code: WABAG


PRICE CHART


(%) 1m 3m 6m 12m

Absolute -5.3 2.9 12.9 182.8

Relative -0.2 2.4 7.2 114.8to Sensex

PRICE PERFORMANCE

BUY CMP: RS1,488 DECEMBER 18, 2014

KEY POINTS� Increasing fresh water scarcity + Niche expertise = Gallons of opportunity: Globally,

fresh water supplies are relatively static and with a rising population and urbanisation,

the intensity of fresh water scarcity is on the rise. Therefore, investments in areas like

recycling and water treatment, water conditioning and desalination are likely to increase

in the coming days. The global water market is estimated at $425-500 billion and is

expected to grow at a 6% CAGR till 2030, and a large chunk is expected to be in the

developing world. Against this backdrop, VA Tech Wabag (VTW) is well placed with

niche technical expertise and an impressive track record as its strengths.

� Domestic demand outlook to improve significantly over the next two years: With rising

urbanisation and industrialisation in India, the demand for usable water, sewerage and

solid waste management is going to rise; consequently, we expect significant spending

in these spaces. In the last few years (2005-12), the government’s allocation to water

supply and sanitation has been about Rs45,000 crore cumulatively and under Jawaharlal

Nehru National Urban Renewal Mission (JNNURM), the government plans to spend

around Rs7-8 lakh crore in the next 20 years. Now, with the pro-reform BJP-led

government at the centre, the water segment is expected to get substantial focus and

budgetary allocation including the Clean Ganga project. Moreover, we expect

acceleration in project ordering and execution in FY2016 and FY2017.

� View—Buy niche growth story: Given the large opportunity ahead and inherent

strengths of VTW, like professional management, niche technical expertise and global

presence, the company will be one of the preferred investment opportunities in the

water segment. We expect the earnings to grow by 23% (CAGR) during FY2014-17,

backed by an 18% revenue growth and margin expansion with increasing share of

O&M business and cost rationalisation efforts of the management in international

subsidiaries. The company is poised to generate RoCE and RoE in the range of 22-

25% and 16-17% respectively in the coming few years and with healthy cash

generation from operations, the net cash is likely to remain positive. We initiate

coverage on VTW with a Buy recommendation and a price target of Rs1,900 (based

on 25x FY2017E earnings).

� Working capital intensive business, but well managed by VTW: Though the business

model of VTW is highly working capital intensive, the company managed the spread

of payable and receivable well. �

VA TECH WABAG

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

or having a postition in the companies mentioned in the article.

VALUATIONS (CONSOLIDATED)Particulars FY2013 FY2014 FY2015E FY2016E FY2017E

Net sales (Rs cr) 1,618.9 2,239.0 2,619.9 3,100.1 3,716.9

Growth (YoY) % 12.1 38.3 17.0 18.3 19.9

OPM (%) 9.6 8.7 8.6 8.8 9.2

Net profit (Rs cr) 90.3 108.7 125.5 157.3 202.3

Adjusted EPS (Rs) 34.0 40.9 47.3 59.2 76.2

EPS Growth (YoY) % 22.2 20.3 15.5 25.3 28.6

PER (x) 43.7 36.3 31.5 25.1 19.5

P/B (x) 5.5 4.7 4.2 3.7 3.3

EV/EBIDTA (x) 22.3 18.0 15.3 12.4 9.7

RoCE (%) 20.1 21.3 21.0 22.9 25.5

RoE (%) 13.3 14.0 14.1 15.8 17.8

RoIC (%) 33.6 34.3 34.9 39.2 45.1


400

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Promoters29%

FII29%

DIIs21%

Others21%

EQUITY FUNDAMENTALSSTOCK IDEA


Price target revised to Rs3,450,downgraded to Hold

COMPANY DETAILS



52-week high/low: Rs3,375/1,455


BSE code: 500034

NSE code: BAJFINANCE

Sharekhan code: BAJFINANCE


(%) 1m 3m 6m 12m

Absolute 12.9 26.3 52.7 120.2

Relative to Sensex 11.9 22.6 37.0 61.8

PRICE PERFORMANCE

HOLD CMP: RS3,250 DECEMBER 9, 2014BAJAJ FINANCE

KEY POINTS

� Bajaj Finance has appreciated by 83% since our initiation (on May 21, 2014) led by asustained earnings performance, improving visibility on interest rates (leading to adecline in the cost of funds) and regulatory framework. Consequently, the valuationshave inched up to 2.9x FY2016E BV compared with 1.6x FY2016E BV at the time ofour initiation.

� Going ahead, the company plans to reduce beta (high-risk but high-yielding loans) inits portfolio and increase the proportion of mortgage and SME loans. This shouldresult in some moderation in the net interest margins and RoAs (~3% from 3.5%level). On the asset quality front, the company is expected to sustain its healthy trendsand is well ahead of the other NBFCs in recognising NPAs on 90-day past due basis.

� While we like the business model of Bajaj Finance and expect a strong earnings growthof 24% CAGR, the valuations are factoring in the positives. Currently, the stock istrading at 2.4x FY2017E BV, which is a 5-10% premium to the other major NBFCsand leaves limited room for an upside. Therefore, we have downgraded ourrecommendation to Hold with a revised price target of Rs3,450 (2.5x FY2017E BV).�


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

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

Price target revised to Rs1,236COMPANY DETAILS



52 week high/low: Rs1,107/509

NSE volume (no. of shares): 12.3 lakh

BSE code: 532134

NSE code: BANKBARODA

Sharekhan code: BANKBARODA

Free float (no. of shares): 18.8 cr

(%) 1m 3m 6m 12m

Absolute 14.6 22.9 26.8 73.1


PRICE PERFORMANCE

BUY CMP: RS1,085 DECEMBER 4, 2014BANK OF BARODA

KEY POINTS

� Despite a tough macro environment, Bank of Baroda (BoB) reported a stable performanceat the operating level. The bank’s focus on reducing the bulk deposits (preferential ratedeposits and CDs) and a calibrated growth in advances have contributed to an increasein margins (domestic NIM at 3.02% in Q2FY2015). We expect its net interest incometo grow by 19.3% CAGR over FY2014-17.

� While the asset quality is a concern for the public sector banks, BoB is relatively betterplaced than its peers. As of Q2FY2015, the stressed loans (gross NPAs + restructuredloans) were at 9.1% compared with the sector average of 11.9%. The NPA provisioncoverage is also reasonable at 65.4% and is better provided on wage revision front.

� BoB’s capital position (tier-1 CAR of 9.3%) is relatively better compared with theother PSBs and hence the bank is suitably placed in the recovery cycle. We expect BoB’searnings to grow at a CAGR of 18.1% over FY2014-17 resulting in an RoA of 0.8%by FY2017. We have rolled over our valuations to FY2017 estimates resulting in arevision in the price target to Rs1,236 (1.04x FY2017E BV). We maintain our Buyrating on the stock.�



holding or having a postition in the companies mentioned in the article.


Promoter61%Foreign

13%

MF & FI7%

Public & others19%

Promoter56%

Foreign18%

MF & FI18%

Public & others

8%

STOCK UPDATEEQUITY FUNDAMENTALS


STOCK UPDATE EQUITY FUNDAMENTALS

Fuel uncertainty hangover emerges;price target revised down to Rs800

COMPANY DETAILS

Price target: Rs800




BSE code: 500084

NSE code: CESC

Sharekhan code: CESC


(%) 1m 3m 6m 12m

Absolute 1.4 -7.5 14.1 80.1

Relative to Sensex -0.5 -12.3 -0.4 30.5

PRICE PERFORMANCE

BUY CMP: RS665 DECEMBER 8, 2014CESC

KEY POINTS� The coal ministry has decided that when a power plant is sold its coal linkages will not

be automatically part of the sale; rather the new owners of the plant will have to makea fresh application for coal linkages. The ruling has been invoked for the acquisition ofthe 600-MW power plant at Chandrapur in Maharashtra by CESC from a consortiumled by the Dhariwals of the Manikchand Gutkha group. The plant had coal linkagesfrom South-Eastern Coalfields but as per the latest decision of the coal ministry CESCwill have to make a fresh application for coal linkages.

� The Chandrapur power plant of CESC was already suffering because of inadequatepower supply agreements, as only 100MW out of the 600MW of power it produceshas been tied up with the Tamil Nadu State Electricity Board. Now with thisdevelopment, it has hit another hurdle as fuel uncertainty will add to its woes. Therefore,we value the asset at an 80% discount to the equity invested in it in our sum-of-the-parts valuation.

� Recently, CESC raised Rs490 crore through a qualified institutional placement by issuing0.76 crore shares (ie 3.5% of the existing shares base). We believe almost half of thefunds will be earmarked for expanding its transmission & distribution network while theremaining half could be used to bid for coal mines the bidding for which is expected tocommence soon. After factoring in the latest development and its possible consequenceswe have revised down our price target for CESC by 9% to Rs800. However, we continueto recommend the stock as a Buy in view of the positive developments in the sector andthe continued improvement in the company’s subsidiaries.�




Growth on track, weakness in stock offersopportunity to Buy

COMPANY DETAILS

Price target: Rs51




BSE code: 532809

NSE code: FSL

Sharekhan code: FSL


(%) 1m 3m 6m 12m

Absolute -17.6 -18.8 -0.1 67.3

Relative to Sensex -17.5 -21.1 -8.9 25.8

PRICE PERFORMANCE

BUY CMP: RS35 DECEMBER 11, 2014FIRSTSOURCE SOLUTIONS

KEY POINTS

� We have interacted with the management of Firstsource Solutions Ltd (FSL) to get aninsight into the current state of business. We also touched upon the broad expectationsfor the Q3FY2015 earnings performance. The management expects the top line growthto accelerate in FY2016 by more than 8% and the margin to rise to more than 14%with exit margins of around 13.8-14% by Q4FY2015. It expects a comfortable earningsgrowth of 25% plus in FY2016. In Q3FY2015, owing to seasonal weakness, the earningsare expected to remain flattish, the top line growth is expected to be muted, the margins areexpected to be stable on a sequential basis and the bottom line is likely to remain flattish.

� In the last one month, FSL has corrected by about 18% owing to its lacklustre quarterlyperformance in Q2FY2015 and the anticipation of a further drop in the earningsmomentum in FY2015. However, FSL’s earnings are expected to grow at a 28% CAGRover FY2014-16. It is expected to improve its balance sheet (by deleveraging its booksthrough internal accruals) and improve its RoE profile. We, therefore, believe thecorrection in the stock price is overdone and the current weakness offers a goodopportunity to buy into the stock. Further, an impairment of goodwill in the books inQ4FY2015 and FY2016 would not really have any impact on the company’s business.The stock is trading at an attractive valuation of 7x PER and 5.4x EV/EBITDA basedon FY2016 earnings estimates. We maintain our Buy rating on the stock with anunchanged price target of Rs51.�





Promoters52%

Foreign24%

Institutions16%

Others8%

Promoters56%

Foreign8% Institutions

7%


5%

Public & Others24%



To benefit from falling dairy prices;price target revised to Rs6,005

COMPANY DETAILS




NSE volume (No of shares): 10,210 lakh

BSE code: 500676

NSE code: GSKCONS

Sharekhan code: GSKCONS


(%) 1m 3m 6m 12m

Absolute 1.3 10.6 24.1 25.5

Relative to Sensex 0.4 7.3 11.3 -7.8

PRICE PERFORMANCE

HOLD CMP: RS5,808 DECEMBER 10, 2014GLAXOSMITHKLINE CONSUMER HEALTHCARE

KEY POINTS� GlaxoSmithKline Consumer Healthcare (GSK Consumer), one of the largest health

food drink companies in India, would reap the benefits of the correcting prices of milkand skimmed milk powder in the domestic and international markets. The price ofmilk powder (which constitutes about 20% of the company’s raw material cost) hascorrected by almost 20% from its high in the recent past.

� We believe the benefit of falling milk and milk powder prices would start to flown infrom Q3FY2015. However, greater benefits of the softening input prices could be seenin Q4FY2015. The company also stands to benefit from an improvement in its revenuemix due to high sales of the premium products in the coming years. Accordingly, wehave increased our earnings estimates for FY2016 and FY2017 by 3% and 5%respectively to factor in the higher than expected gross profit margins.

� GSK Consumer is one of the leading players in the domestic health food drink segmentwith strong price power. With improving consumer sentiment in urban India, we expectthe company’s sales volume growth to come back on track (in the range of 6-8% fromthe current level of 2-3%) while falling dairy prices would boost the margin. In linewith the upward revision in the earnings estimates, our revised price target now standsat Rs6,005. We maintain our Hold recommendation on the stock.

� Key risk to earnings estimates: Any significant upsurge in the milk and milk powderprices and sustained slowdown in the health food drink segment would act as key risksto our earnings estimates.�




Price target revised up to Rs915; upgraded to BuyCOMPANY DETAILS

Price target: Rs915


52 week high/low: Rs840/496


BSE code: 532296

NSE code: GLENMARK

Sharekhan code: GLENMARK


(%) 1m 3m 6m 12m

Absolute -3.8 13.1 35.8 46.7


PRICE PERFORMANCE

BUY CMP: RS782 DECEMBER 29, 2014GLENMARK PHARMACEUTICALS

KEY POINTS� Gearing up: Glenmark Pharmaceuticals is stepping ahead to gain from its key novel molecule

and generic product pipeline built over the past few years in the US, European and LatinAmerican markets. While the Q2FY2015 results already reflected a bounce back in theLatin American business (up 139%) and the European business (up 25%), the US businessis likely to crack the stagnation with a fresh wave of approvals nearing and its first-to-file(FTF) opportunity on genetic Zetia (market size $1.3 billion) ticking in Q4FY2017.

� Near-term upside from GRC 17536: The company is said to be in an advanced stage oftalks with a few multinational players to out-licence its novel molecule GRC 17536,which has successfully completed phase-II clinical trials on 138 patients in Europe andIndia. GRC 17536 is expected to have a market potential worth $1 billion. A successfulout-licencing deal would earn the company a sizeable amount of upfront payment,developmental milestone based payments and royalties on sales. We expect the out-licencing deal to close in the next few months.

� We revise price target up to Rs915; upgraded to Buy: We anticipate an increased runrate of product approvals in the US market over FY2016-17 and a decent upside frommonetisation of novel molecule GRC 17536 (though not factored in our price target asthe out-licencing deals remain under negotiation stage). We revise our price target upby 13% to Rs915 which includes Rs860 for the base business (16x FY2017E coreEPS), Rs55 for its R&D pipeline and Rs10 for its exclusivity opportunity on genericZetia. We upgrade our recommendation to Buy on the stock.�





Others14%

FIIs12%

Domestic institutions

1%

Promoters73%


1%

Foreign36%

Promoters48%

Public and others

9%

Institutions6%



Price target revised to Rs424COMPANY DETAILS

Price target: Rs424




BSE code: 532174

NSE code: ICICIBANK

Sharekhan code: ICICIBANK


(%) 1m 3m 6m 12m

Absolute 9.0 13.5 25.0 67.9


PRICE PERFORMANCE

BUY CMP: RS362 DECEMBER 4, 2014ICICI BANK

KEY POINTS

� ICICI Bank continues to deliver a strong operating performance (with PPP growth of~25% over the past eight quarters) led by a healthy loan growth, an expansion in themargins and a check on the opex growth. We believe the sharp improvement in itsliability profile and the net interest margins will sustain at high levels. In addition, thelikely pick-up in the fee income (especially the corporate fees due to the recovery ineconomy) could improve the operating profits.

� Even as the asset quality has shown a marginal stress in recent times, it remainssignificantly better than that of the PSU banks. The management expects stressed loanformation to be lesser in FY2015 vs FY2014 and the credit cost to be contained to90BPS in FY2015. Any recovery in the economy or policy initiatives by the governmentwill result in an improvement in the asset quality by FY2016.

� ICICI Bank is a structural growth story and is likely to benefit from the recovery in theeconomy due to its improved liability base, increase in branch network and healthycapital position. We have revised our estimates and valuation multiple upwards (2.1xFY2017E BV for ICICI Bank [stand-alone]) on increasing visibility on the interest ratesand a likely pick-up in the economy. This results in a revision in our SOTP-based pricetarget to Rs424. We maintain our Buy rating.�




Foreign41%

MF & FI22%

Public & others37%

Growth and value unlocking ahead,price target revised to Rs245

COMPANY DETAILS

Price target: Rs245




BSE code: 522287

NSE code: KALPATPOWR

Sharekhan code: KALPATPOWR


(%) 1m 3m 6m 12m

Absolute 14.7 31.4 13.3 130.6


PRICE PERFORMANCE

BUY CMP:RS216 DECEMBER 26, 2014KALPATARU POWER TRANSMISSION

The key takeaways from our interaction with the management of Kalpataru PowerTransmission Ltd (KPTL) are as follows:

� KPTL’s stand-alone business of T&D remains healthy with improving outlook fordomestic order flow driven by significant investment in transmission projects fromPGCIL. The management also expects better demand from SEB and opportunities inthe proposed separate feeder lines for agri-based users (similar to Gujarat) and gridconnectivity across SAARC

� The agri-logistic subsidiary, Shree Shubham Logistics (SSL), is chalking out aggressiveexpansion plans and to fund that, we believe, the company may look out for externalresources, which could unlock substantial value.

� The construction subsidiary, JMC Projects (stand-alone), is on track to achieve marginexpansion which would be instrumental in improving its profitability and cash flow.However, on the consolidated basis it needs external funds to support the remainingfunding for its road BOOT projects and some losses from the operational BOOT projects.

� The management sounded positive about the growth outlook and margin in the T&Dbusiness. JMC Projects is on track to achieve margin expansion and we see potentialvalue unlocking from SSL. Hence, we retain our Buy rating on KPTL and revise ourprice target to Rs245 (based on SOTP method).�





Promoters, 59

Foreign, 9

Institutions, 22

Others, 9


Yen depreciation a positive, maintain Buy with arevised price target of Rs4,000

COMPANY DETAILS





BSE code: 532500

NSE code: MARUTI

Sharekhan code: MARUTI


(%) 1m 3m 6m 12m

Absolute 0.5 14.3 35.4 90.5


PRICE PERFORMANCE

BUY CMP: RS3,339 DECEMBER 11, 2014MARUTI SUZUKI INDIA

KEY POINTS

� The Japanese Yen (JPY) has witnessed a sharp depreciation against the US Dollar (USD)since mid October of this year. From the levels of 105 the JPY has depreciated by nearly12.5% and is currently trading near the 120 mark. Maruti Suzuki India (Maruti) has asignificant exposure to the JPY by way of imports (both direct as well as indirect) androyalty payments to its parent company, Suzuki Motor, Japan. The current trend of JPYdepreciation will have a favourable effect on the margins of the company going forward.

� Maruti has been a key beneficiary of the change in consumer sentiment after the generalelection and continues to report a double-digit volume growth, given its extensiveproduct portfolio especially in the entry car segment, strong sales and wide servicenetwork. The company reported a domestic volume growth of 14.7% in H1FY2015,thereby significantly outperforming the industry growth of 4.2% and expanding itsmarket share by 405BPS. Maruti has a robust product pipeline, including an entry-level model in the fast growing compact sports utility vehicle segment which will berolled out over the medium term and help it maintain its leadership position.

� The depreciation of the JPY will have a positive effect on Maruti’s profitability but with alag as the company hedges its near-term foreign exchange exposure. We have raised ourOPM estimates for FY2016 and FY2017 by 30BPS and 100BPS respectively. Consequently,our earnings estimates for FY2016 and FY2017 are higher by 3% and 8.8% respectively.We remain positive on the stock and reiterate a Buy recommendation with a revised pricetarget of Rs4,000 (earlier Rs3,600), discounting FY2017E EBITDA 10.5x.�




Growth outlook remains strong,price target revised to Rs90

COMPANY DETAILS

Price target: Rs90




BSE code: 533344

NSE code: PFS

Sharekhan code: PFS


(%) 1m 3m 6m 12m

Absolute 14.1 39.5 104.0 397.1


PRICE PERFORMANCE

BUY CMP: RS65 DECEMBER 30, 2014PTC INDIA FINANCIAL

KEY POINTS

� PTC India Financial Services (PFS) stands to benefit from the government’s thrust onthe renewable energy sector (mainly solar and wind) which should result in a robustgrowth in the loan book (35% CAGR over FY2014-17). About 70% of the incrementaldisbursement will be from the renewable segment (loan sanction pipeline of Rs7,000crore or 1.2x of the existing loan book), which has lesser quality issues due to a lowgestation period, lesser fuel supply risk and fiscal support from the government.

� Given the favourable interest rate scenario, the interest spreads may sustain at healthylevels (~4.5%). Any likely downward movement in the hedging cost will further reducethe funding cost. The company also has ~Rs240 crore of equity investments in powerprojects which have appreciated significantly and will result in substantial gains goingahead.

� We expect PFS to register a strong growth in earnings (~40% CAGR over FY2014-17)excluding the one-off gains in FY2014 and without factoring in the gains on equityinvestment. The asset quality is likely to remain robust and the company is likely todeliver high RoA (~3.5%) which leaves further scope for re-rating. We have revisedupwards our earnings estimates for FY2016 and FY2017, and valued the stock at Rs90(2.5x FY2017E BV). We maintain our Buy rating.�






Promoters55%

Institutions15%

Corporate Bodies

5%

Public & Others3%

Foreign22%

Promoter60%

Foreign8%

MF & FI3%

Public & others29%


Crude meltdown to dent earnings but growth storyintact; price target revised down to Rs550

COMPANY DETAILS

Price target: Rs550

Market cap: Rs623 cr


NSE volume (no. of shares): 55,352

BSE code: 530075

NSE code: SELAN

Sharekhan code: SELAN


(%) 1m 3m 6m 12m

Absolute -20.3 -32.8 -39.2 25.3

Relative to Sensex -21.9 -36.0 -47.4 -9.6

PRICE PERFORMANCE

BUY CMP: RS380 DECEMBER 4, 2014SELAN EXPLORATION TECHNOLOGY

KEY POINTS

� Q2 performance remained subdued, on expected lines: In Q2FY2015, the net revenues(which have been adjusted for the petroleum profit) of Selan Exploration Technology(Selan) remained negative as the realisation of crude oil prices turned weaker while theproduction volume was flat to negative during this period. The weaker realisationreflected on its profitability during this quarter as earnings declined by 19% YoY and8% QoQ to Rs9.6 crore. Globally, the average crude oil prices turned weaker andslipped from ~$110 to below $90 per barrel during Q2.

� Revising estimates; delay in ramp-up and correction in crude prices: We have fine-tuned our FY2015 and FY2016 estimates to factor in the revised production ramp-upschedule and the sharp decline in crude oil prices. We are factoring in the averagerealisation of $80-85 per barrel range over FY2016-17 which accounts for a certainamount of pull-back in the price from the recent plunge below $70 per barrel, which isunlikely to sustain. In this note, we have also done a sensitivity analysis to show thechanges in our price target with a change in the average crude oil prices globally.

� Valuation; negatives discounted, the risk-reward favourable: Selan’s exploration shareprice now discounts most of the negatives, with a sharp decline in the crude oil prices asone of the key external changes affecting its earnings and valuations. We retain ourbullish stance based on two reasons. First, we are confident about the management’sability to achieve its target of an exponential jump in the production volumes over thenext two to three years. Second, we feel that the recent plunge in crude oil prices is notsustainable and the crude oil prices would stabilise around $80-85 per barrel sooner thanlater. Consequently, we retain our Buy recommendation with a price target of Rs550.�




Price target revised to Rs378, Buy maintainedCOMPANY DETAILS

Price target: Rs378




BSE code: 500112

NSE code: SBIN

Sharekhan code: SBIN


(%) 1m 3m 6m 12m

Absolute 18.2 27.6 25.7 78.3


PRICE PERFORMANCE

BUY CMP: RS319 DECEMBER 2, 2014STATE BANK OF INDIA

KEY POINTS

� Given its market share of ~19% in advances (about 25% including the share of its associatebanks), within the public sector bank (PSB) space State Bank of India (SBI) is our preferredplay on the revival in economic growth. As several macro indicators (core sector growth,Purchasing Managers’ Index, trade data, etc) suggest a gradual pick-up in the economy,SBI stands to benefit due to its strong liability franchisee (current account and savingsaccount ratio of about 43%) and healthy capital adequacy ratio (tier-I capital adequacyratio of 10.1 %; which leaves scope for growth in the advances).

� While asset quality remains a concern in the current scenario, SBI has shown moderationin slippages and stable NPAs in the past two quarters. The stressed loans of the bank areat 6.1%, which is better compared with the other PSBs. Going ahead, as the RBI is likelyto extend the 5/25 scheme (as per the recent monetary policy announcement) to theexisting projects (in the infrastructure sector), it will help in containing fresh NPA additions.

� Though the stock has appreciated considerably in the past few weeks due to the bank’shealthy performance in Q2FY2015 and an improving outlook on the interest rate front,we retain our positive stance on SBI due to the expected improvement in its return ratios(especially return on assets) and a healthy compounded annual growth of 27% in itsearnings over FY2014-17. The stock currently trades at close to its mean valuation (1.5xFY2017E stand-alone book value). We revise our sum-of-the-parts price target to Rs378(on rolling forward the valuation to the FY2017 estimates) and maintain our Buy rating.�






Promoters43.0%

Others54.8%

Institutions2.0%

Foreign0.2%

Promoter59%

Foreign11%

MF & FI20%

Public & others10%


Rich valuation, downgraded to HoldCOMPANY DETAILS



52 week high/low: Rs1,147/403


BSE code: 532953

NSE code: VGUARD

Sharekhan code: VGUARD

Free float (no. of shares) : 1.0 cr

(%) 1m 3m 6m 12m

Absolute 3.0 25.5 87.8 131.2


PRICE PERFORMANCE

HOLD CMP:RS1,089 DECEMBER 26, 2014V-GUARD INDUSTRIES

KEY POINTS

� The management of V-Guard Industries (V-Guard) is confident of achieving a 20%revenue growth for the next two to three years. The recovery of the business from alow base in Andhra Pradesh (post-division of Andhra Pradesh into two states) andrevival of infrastructure related spending across the country in the next two to threeyears should drive the growth. But the performance could be softer in the near term asthe improved consumer confidence is yet to reflect at the store level.

� Crude prices have crashed in the last couple of months which could have a positiveeffect on its margin in two ways: (a) prices of some of its inputs could soften beingderivatives of crude oil; and (b) the transportation cost could come down. Consequently,lower crude prices could affect the overall OPM by 40-50BPS, subject to its competitors’pricing strategy.

� We have fine-tuned our estimates considering the above mentioned developments. Webelieve V-Guard is well on track to record a revenue growth of 18-20% and deliver anearnings growth of 20-24% over FY2014-17. Further, positives like high return ratiosand healthy balance sheet are in favour of the stock. But after appreciating substantiallyin the recent past, the valuation looks stretched now at 30x and 25x its FY2016E andFY2017E earnings. Though we continue to like the story due to its rich valuation, yetwe revise down our rating from Buy to Hold with a revised price target of Rs1,200(27.5x FY2016E EPS).�




Play on revival in urban consumer demand;price target revised to Rs875

COMPANY DETAILS

Price target: Rs875




BSE code: 531335

NSE code: ZYDUSWELL

Sharekhan code: ZYDUSWELL


(%) 1m 3m 6m 12m

Absolute 27.7 30.0 50.0 45.3


PRICE PERFORMANCE

HOLD CMP: RS791 DECEMBER 3, 2014ZYDUS WELLNESS

KEY POINTS

� Q2FY2015 marked a turnaround in Zydus Wellness’ performance with the companyreporting a positive growth in volumes (and growth in revenues) after a phase of decliningtrend or flattish growth for several quarters. The revival is driven by the change madein the distribution strategy along with improving sentiments towards its urban-centricproducts like Sugarfree and Nutralite. In some of its categories like Everyuth face wash,the company is trying to mitigate the competitive pressure by launching new variantsand introducing Re1 pack in the domestic market.

� In addition to expectations of a sustained recovery in volume sales driven by animprovement in the consumer sentiment, the company’s margins would get supportedby the softening of raw material prices (including palm oil) and a favourable revenuemix. Thus, we believe that Zydus Wellness will be one of the key beneficiaries ofimproving urban consumer sentiment, which could translate into a better performancein the next two to three years.

� We have revised upwards our earnings estimates for FY2016 and FY2017 by ~2% and~7% to factor in the better than expected revenue growth (especially in the Nutralitebrand) and higher than expected operating margins. We maintain our Holdrecommendation on the stock with a revised price target of Rs875 (valuing the stock24x its FY2017E earnings).�






Promoters72%

FIIs9%

Domestic institutions

7%

Others12%

Promoters,66

FII, 19

DIIs, 4

Others, 10


Q3FY2015 IT earnings preview

SECTOR UPTADE JANUARY 01, 2015

Key points� Seasonally soft quarter, further dampened by cross-currency

headwinds: Given the furlough and holidays, the Decemberquarter is usually a soft quarter for the sector and this time aroundit was further affected by cross-currency headwinds, as the euro,pound and the Australian Dollar depreciated close to 6%, 5%and 7.8% respectively against US dollar during the quarter. Weexpect the reported revenues growth of top four informationtechnology (IT) companies to be in the range of 0.3-1.1%, thoughthe constant currency growth should be in the range of 2.2-3.1%quarter on quarter (QoQ). Tata Consultancy Services (TCS) willcontinue to lead the pack with 3.1% quarter-on-quarter(Q-o-Q) growth (including the Mitsubishi joint venture), howeveron organic basis HCL Technologies will deliver the highest growthamong the top four to around 2.9% Q-o-Q growth, followed byInfosys with 2.7% and Wipro with 2.2% Q-o-Q growth. Amongthe mid-cap coverage, Persistent Systems is expected to report4.7% sequential growth, while Firstscource Solutions Ltd (FSL)to deliver a 0.9% Q-o-Q fall.

� Stable margin trend: For the quarter, despite the rupee tailwinds,we do not expect any material gain on the margin front. ForQ3FY2015, TCS is likely to report 14-basis-point (BPS)improvement in earnings before interest and tax (EBIT) marginsas compared with 52BPS for Infosys. For Wipro, the adjustedEBIT margin for IT services is expected to remain stable on a Q-o-Q basis at 21.5% against 21.4% in Q2FY2015, while HCLTechnologies’ staggered wage hike will affect the margins;

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


A colourful outlook; discounted valuation

AKZO NOBEL INDIAVIEW: POSITIVE DECEMBER 1, 2014CMP: RS1,385

Key points� Strong player in premium decorative paint segment: Akzo Nobel

India (Akzo) is one of the strong players in the premiumdecorative paint segment and the fourth largest player in theoverall domestic paint segment with a market share of 11%. ItsDulux brand is the recognised brand in the premium to mid-premium decorative paint segment in India. With a bettereconomic outlook and efforts to increase its presence in the massmarket segment, the launch of a new brand, Duwel, is expectedto drive a high double-digit revenue growth in Akzo’s decorativepaint business over the next few years.

� Soft raw material prices and operating leverage to supportmargins: Like most other paint companies, Akzo would benefitfrom the softness in the prices of some of the key raw materials.It would also get a boost from better utilisation of its Gwaliorfacility (whose current capacity utilisation is 35%) that providesscope for operating leverage benefits in the coming years. Hence,we expect the company’s OPM to improve to 10% from thecurrent level of 8% over the next two years.

� Strong balance sheet with buoyant dividend pay-out: Akzo hasone of the strongest balance sheets amongst the peers with nodebt and a cash kitty of close to Rs400 crore (after the recentcapex programme and strong dividend pay-out of two

VIEWPOINT



EQUITY FUNDAMENTALSVIEWPOINT

however, the operational efficiency and currency gain will keepthe margins broadly stable, we expect the margins to decline by31BPS QoQ. In our midcap coverage, Persistent Systems and FSLis expected to deliver margin improvement of 173BPS and 10BPSQoQ respectively.

� Key issues to watch out for would be: (1) Focus on themanagement’s commentary on the IT budget for CY2015 andthe overall demand commentary; (2) outlook on energy andutilities, and manufacturing verticals owing to a steep fall in crudeoil prices; (3) outlook on reinvesting currency gains into thebusiness, given the recent depreciation of rupee; and (4) hedgingpolicy, given the volatile movement in cross currencies.

� Valuation: In the last one month CNX IT has corrected close to6% owing to the fear of growth tapering off in FY2016 andnegative impact of cross-currency headwinds. We believe, FY2016will see an overall improvement in demand environment drivenby the improvement in the US geography, though it could fallshort of earlier expectations, but still will be better than FY2015.The recent underperformance of IT stocks has already priced inthe negatives and offers an opportunity to buy for a decent returnin the next 12 months. Our order of stock preference in tier I willbe Infosys, TCS, and Tech Mahindra (unrated) and in the midcapspace, we like Persistent Systems and FSL.�

consecutive years). With improving profitability, the free cashis expected to improve in the coming years. The return ratioshave remained strong with the RoE and RoCE remaining in theupwards of 15% and 20% respectively. The company has paidcumulatively a dividend of Rs155 per share in the last two years.With no major capex plan going ahead and cash flow expectedto improve, the dividend pay-out is expected to remain strongin the coming years as well.

� Available at a discount to peers; leaves scope for rating: Akzo isamong the key beneficiaries of improving consumer sentimentespecially in urban India and would achieve an earnings growthof over 20% CAGR in the next two to three years. However, ittrades at an unjustified discount to its peers (at 27x FY2016Eearnings it is at steep discount of 30-35% to Asian Paints andBerger Paints). Thus, we have a positive view on the stock andexpect about 20% returns of the stock from the current levels.

� Key risk: Any disruption in the improvement of the macroenvironment and rise in competition in the premium paintsegment remain the key risks to Akzo’s earnings estimates.�


Positives priced in; Book profits with 30% gains in seven weeks

CCL PRODUCTSBOOK PROFITS DECEMBER 15, 2014CMP: RS160

Key points� After our report on October 28, 2014, CCL Products’ stock

price has appreciated by almost 30% to about Rs162. Our key

investment arguments for CCL Products were: (1) it is the largest

instant coffee player with an enhanced base in Vietnam (the

second largest instant coffee producer in the world) and (2) it is

a commodity player with a strong balance sheet and healthy

return ratios.

� The company aims to enhance its production by over 25% and

exploit the opportunities in newer markets such as the USA and

Africa in the near term. The newly operational Vietnamese

VIEWPOINT



Too fast, too soon, book profits with ~45% gains

TOURISM FINANCE CORPORATION OF INDIABOOK PROFITS DECEMBER 8, 2014CMP: RS82

Key points

� Since our report dated November 25, 2014, the stock hasappreciated by ~45% and reached its all-time high of Rs85.Our thesis on Tourism Finance Corporation of India (TFCI)was largely based upon (a) improving prospects for the tourismsector which should lead to a strong growth in the loan book inthe coming years and (b) the stock’s inexpensive valuations onan absolute basis and relative to its peers. While the fundamentalsstill remain healthy, the valuations have gone up to 1.1xFY2016E BV (0.7x FY2016E BV as of the date our report waspublished) which largely factors in the near-term positives.

VIEWPOINT



EQUITY FUNDAMENTALS VIEWPOINT

facility would help the company to post improved operating

margins going ahead.

� Though the business fundamentals of the company are intact,

the valuation of the stock has gone up to 16x FY2016E earnings

in the recent run-up which, we believe, has largely priced in the

near-term positives and narrowed the valuation gap as

compared with its peers. Hence, we advise our investors to

Book profit with about 30% gains in a short time and wait for

a better entry point.�

� TFCI is likely to expand its advances book at a robust pace(~50% CAGR) over the next couple of years, resulting in a strongearnings growth and an improvement in the return ratios. Theasset quality which remains healthy (gross NPAs of 0.3%) islikely to sustain going ahead.

� However, a sharp appreciation in the stock price has resulted inthe narrowing of the valuation gap vis-à-vis the peers and hencethe stock price largely factors in the near-term positives. With again of ~45% in less than two weeks, we recommend ourinvestors to book profits from the stock.�


� The Nifty has taken off its previous swing high and is nowinching towards the upper end of the rising channel. The upperend of the rising channel comes at the 8455-8580 level, whichis also our short-term target.

� The Nifty has started its wave III/C of wave V up and now onthe lower side 8147 is a very crucial support in the immediateterm.

� Above 8360, the Nifty is likely to touch the above mentionedlevel, which is close to the 78.6% retracement mark.

� The momentum indicator, Know Sure Thing, is well in buymode, thereby confirming the up move.�

� On the weekly chart too it is clear that the Nifty has started itswave III/C up of wave 5 and now 8147 is a very good short-term reversal level. However, 8300 is also a very crucial support,so the support band for the Nifty in November is 8147 to 8300levels on the lower side whereas the upside targets come at 8590and 8627.

� The wave 1 equality target for wave 5 comes to 9705, which isan extremely bullish scenario. However, for that level to comethe Nifty has to surpass its hurdles at 8590 and 8627 levels.

� The daily indicators are well in buy mode but the weeklyindicators are in sell mode which is the only concern for bullsat the current juncture.�

� The Nifty finally posted a negative close last month whichindicates that the wave 4 down has either started or is complete.For it to be marked as complete the index has to take off itsprevious swing high of 8627. If it fails to do so there would bea downside risk of wave C down in wave 4. If it manages tosurpass the swing high of the previous month then the equalitytarget in wave 5 comes to the 9705-9900 level.

� On the lower side, 8147 is a very crucial support and till that isheld the probability of an upside will remain quite high.However, failing to do so will lead to another round of sellingwhich will then take the index to approximately 7800.

� So, all eyes should be on 8147 as that’s the decisive level on thelower side whereas 8627 is a decisive level on the higher side.�

Daily view on Nifty

Weekly view on Nifty

Monthly view on Nifty

Trend Trend reversal Support Resistance Target

Down 8627 7723 8627 7723

Medium term

EQUITY TECHNICALSTREND & VIEW

18 25 1 8September

15 22 29 7 13October

20 27 3 10November

17 24 1 8December

15 22 29 52015

12 1-4

-3

-2

-1

0

1

2

3

4KST (0.60707)

7450

7500

7550

7600

7650

7700

7750

7800

7850

7900

7950

8000

8050

8100

8150

82008250

83008350

840084508500855086008650870087508800

0.0%

23.6%

38.2%

50.0%

61.8%

78.6%

100.0%

May Jun Jul Aug Sep Oct Nov Dec 2014 Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2015 Feb Mar

-5

0

5

10

KST (2.75566)

6000

6500

7000

7500

8000

8500

9000

2010 2011 2012 2013 2014 2015

-10

-5

0

5

10

15

20

25

30KST (25.3307)

4000

4500

5000

5500

6000

6500

7000

7500

8000

8500

9000

9500

10000

1

2

3

4?

Bulls and bears at loggerheads


Derivative View: Market jitters to continue

In 2014 the Indian equity benchmark indices delivered an

exciting performance and recorded one of the best years in the

stock market’s history. Bulls had assumed control of the market

at the start of the year in anticipation of a new government.

However, after the new government came to power, the market

indices made further gains and touched life-time highs every

alternate day. The prime index, the Nifty, rallied by more than

2,000 points in one year, but in December the market looked a

little on the seller side on account of global uncertainty, fall in

commodity prices and slow measures taken by the new

government. All these factors caused the Nifty to slide from its

life-time high of 8668 to a low of 8000. The one-sided movement

in the Nifty on the downside was mainly backed by a build-up

of short positions by market participants. However, some short

covering was seen in the last few trading sessions, but Nifty

was unable to sustain at higher levels and finally ended the series

at 8174 with a significant loss of around 4%.

EQUITY DERIVATIVES MONTHLY VIEW

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

HDFCBANK 3843.83

RELIANCE 2979.71

SBIN 1777.87

ICICIBANK 1737.37

INFY 1651.79

Top 5 stock futures with highest OI in current series

Top 5 stock options with highest OI in current series

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

SBIN 495.68

RELIANCE 487.18

INFY 414.29

ICICIBANK 328.08

TATASTEEL 279.70

On the options front, in the January series, currently the 8600 call

option has the highest number of shares in open interest (OI)

followed by the 8400 strike price. On the put side, the build-up is

seen in the 8000 strike price, which has the highest number of shares

in OI, followed by the 8200 strike price. In the past couple of trading

sessions, we have seen that the India Vix has been continuously

rising and we feel that this trend could continue going forward.

The put/call ratio has also been continuously increasing since the

start of the series and currently stands at around 1.12. Looking at

the current situation in the market, it seems that fresh positive triggers

are on hold and we will have to keep an eye on crude, currency and

interest rates. However, it’s a sell-on-rise kind of market and we

continue to have a cautious view on the market.�

View

The Nifty kick-started the New Year series by opening up with

a gap of around 90 points. The new series started the month

with Rs17,632 crore in Nifty futures vs Rs18,759 crore in the

previous series; Rs59,713 crore in stock futures vs Rs60,791

crore in the previous series; Rs65,929 crore in index options vs

Rs78,021 crore in the previous series; and Rs4,448 crore in

stock options vs Rs5,352 crore in the previous series. The roll-

over in Nifty stood at 66.05%, which is significantly lower than

the previous month’s roll-over of 76.01%. It is also lower than

the three-month and six-month average roll-overs of 70.66%

and 70.73% respectively. The market-wide roll-over stood at

83.88%, which was marginally lower than the previous month’s

ROLL-OVER: MARKET-WIDE VS NIFTY

66.0

5%

76.0

1%

63.6

2%

72.3

5%

73.4

1%

67.6

1%

83.8

8%

86.9

1%

85.1

1%

83.4

3%

85.4

8%

83.0

1%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

90.0%

100.0%

Jan

Dec

Nov Oct

Sep

Aug

Nifty Market Wide

roll-over of 86.91%. It is also marginally lower than the three-

month and six-month average roll-overs of 85.15% and 84.65%

respectively. In this expiry we saw less roll-overs of around 66%

in Nifty compared with the three-month and the six-month

average. The roll-over cost had gone past Rs103 in the last

trading day of the series indicating that not many short positions

got carried forward to this series.


Commodities: Seen volatile on Greece elections, China slowdown and index rebalancing

Key points

� China: Industrial output slows as factory halt compounds slowdown

� The final China HSBC Manufacturing PMI confirms first contractionin seven months

� China: PPI fell for the 33rd straight month in November 2014� Russia's economic crisis just keeps on getting worse due to falling

oil prices� The ruble crashes by 40% against the dollar since the start of the year� Oil-led deflationary pressure weighing on commodities� US economy grew by 5% in third quarter, the most in a decade� Fed signals tightening by mid 2015; however, the markets still sceptical� Dollar Index rallies to nine-year high against basket of other currencies� Durable goods orders in the USA unexpectedly fell 0.7% in

November 2014� US home sales dropped sharply in November� US consumer sentiment rises to best since 2007� US services sector expanded in November at the second fastest pace

in more than 9 years� ECB expects the euro zone economy to grow by just 1.0% in 2015

and by 1.5% in 2016� ECB cuts its inflation forecast to 0.7% in 2015 from 1.1%� Euro zone flash PMI signals a slight gain in momentum at year-end� German ZEW Indicator of Economic Sentiment increases significantly� German Ifo Business Climate Index continues to rise� Draghi reinforces ECB stimulus; says ECB may buy government bonds� Greek parliament fails to elect president, expected date of election

January 25, 2015� Japan's GDP shrank an annualised 1.9% in July-September 2014

from the previous quarter� Japan’s inflation slips to 14-month low� BoJ said to reject adding stimulus to ease blow to CPI from oil� UK GDP (QoQ) below forecast of 0.8% in Q3, actual 0.7%� UK posts first real pay growth since 2009 as joblessness falls

Macro-economy

Crude oil: Record US production, price wars among OPEC cartel and weak global demand weighing on pricesKey points

� Libyan crude output seen at the lowest since May 2014 after port attacks� Libyan oil production has fallen below 300,000 barrels a day after ISIS attacks� Shale supplies boost US output to the highest level in almost 30 years� US production expanded to 9.13 million barrels a day� OPEC pumped 30.56 million barrels a day in November 2014� The number of rigs drilling for oil in the USA shrank to the lowest since April 2014� Saudi Arabia, Iraq and Kuwait have cut their export prices with deep discounts� President Barack Obama’s administration opened the door for expanded oil exports� China’s strategic oil reserves may boost its imports by as much as 700,000 barrels a day in 2015� The IEA cuts its 2015 global oil demand growth estimate by 230,000 barrels a day to 0.9 million barrels a day

Crude oil prices dropped by more than 19% in December 2014; the decline in the prices reflects strong US production and a weak globaldemand outlook. The decision of the Organization of Petroleum Exporting Countries (OPEC) to keep the output unchanged added to thedownside pressure on oil prices. OPEC supplies almost 40% of oil to the world markets and, therefore, its members, especially SaudiArabia, can control the supply to balance it with the demand when the prices are turbulent. Non-OPEC production has grown rampantlyand this growth is being led by the USA. Meanwhile, the US Energy Information Administration projected that global oil consumption in2015 will expand by 230,000 barrels a day, less than projected in November 2014. It also boosted estimates for the supply outside OPECby 200,000 barrels a day. The demand for OPEC’s crude will shrink next year by about 300,000 barrels a day to 28.9 million, the leastsince 2003, the group said. Prices declined further as President Barack Obama’s administration opened the door for expanded oil exportsby saying a lightly processed form of crude known as condensate can be sold outside the USA. The expected range in the near term is $49to $58 with an upward bias as winter can boost the demand for fuels.

WTI NYMEX crude oil CMP: $53.70

MONTHLY VIEW COMMODITY FUNDAMENTALS

COMMODITY PRICES IN DECEMBER 2014 (IN $)

Commodity High Low Close Mon chg %

Copper 6,532.0 6,230.0 6,300.0 -0.8

Zinc 2,257.0 2,107.0 2,178.0 -1.7

Lead 2,058.0 1,815.0 1,858.0 -8.4

Nickel 17,200.0 14,875.0 15,150.0 -6.9

Gold 1,239.0 1,141.7 1,184.1 0.8

Silver 17.4 14.2 15.6 0.8

Crude oil 69.5 52.4 53.3 -19.5

MONTHLY CHANGE IN SHFE STOCKS (NOV-DEC 2014)

Copper Lead Zinc

Change (in Tonne) 17244 -4371 -26592

26th Dec 2014 105522 64375 83757

Change (in %) 19.53 -6.36 -24.10

MONTHLY CHANGE IN DOE PETROLEUM STOCKS (NOV-DEC 2014)

Crude oil Dist. Gasoline

Change in (000' bbls) 6120 9547 20481

26th Dec 2014 385455 125721 229048

Change in (%) 1.61 8.22 9.82

Refinary utlization rate was at 94.4% in the last week of December

MONTHLY CHANGE IN LME STOCKS (NOV-DEC 2014)

Copper Lead Zinc Nickel

Change (in Tonne) 12725 4200 18600 8652

31st Dec 2014 177025 221975 691600 413148

Change (in %) 7.74 1.93 2.76 2.14

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


Gold CMP: $1,182 (spot)

Bullions: Firm dollar, rallying equities and declining oil continue to be negative themes

Silver CMP: $15.65 (spot)

It is believed that silver stands to benefit from the annual reweighting of both the S&P GSCI and the Bloomberg Commodity Index as themetal has fallen sharply and its prospects, going forward, look supportive as the global economy recovers. We expect the metal to tradebetween $14.70 and $17.70 with an upward bias.

Copper CMP: Rs399 (February contract)

Base metals: Seen sideways to lower; copper likely to outperformKey points

� China’s copper output rose by 14% in November 2014 from the previous year• China’s zinc output rose by 8% in November 2014 from the previous year• China’s lead output rose by 6.2% in November 2014 from the previous year• Nickel output in China declined 5% in November 2014 MoM• Copper production in top exporter Chile fell to 7.3% for the fifth straight month in November last• China's implied consumption of refined copper rose 8.9% MoM in November last• A sharp drop in the ruble could see Russian nickel producers stepping up production• China’s property home completions are set to fall by 1% to 3% annually from next year• China’s State Reserve Bureau will remain an active buyer of copper• Global zinc metal deficit narrows in January-October 2014

In January the reweighting of the commodity indices will have the biggest impact on nickel, aluminium, and zinc, which will need to be sold, whilecopper can benefit. The actively traded lead and zinc spread is likely to strengthen over this period due to the selling in zinc and the small degree ofbuying in lead. A rallying dollar, suffering major economies and falling oil prices are pressurising the metal pack. Meanwhile People’s Bank of Chinaalso estimated that China's economic growth could slow to 7.1% in 2015 from an expected 7.4% this year, held back by a sagging property sector.Copper ended 2014 near its lowest levels in four years. The copper market seems to be shifting to a supply surplus. London Metal Exchangeinventories have been falling with prices since their peak in mid-2013. China’s State Reserve Bureau purchased as much as 700,000 metric tonne ofthe metal in 2014 and will probably buy as much as 200,000 tonne more over the next two months. We expect the red metal to trade between Rs390and Rs410 in the near term.

Lead CMP: Rs118 (January contract)The prices of lead tend to rise in winter usually between November and February, as low temperature often causes car batteries to fail giving riseto replacement demand and fresh demand also. Meanwhile prices also got support from the reports by Shanghai Securities News that the smeltersin Henan province will trim production by as much as 30% in 2015. Improving growth in the global auto sector is also expected to support thelead demand in the coming months. The expected price range is Rs114-122.

Gold settled down only less than 1% in 2014, despite a stronger dollar and expectations of an interest rate rise in the USA. Still, the near-term outlookappears slightly weaker for bullions, with equities roaring at all-time highs, the dollar powering higher above 90 (at a multi-year high) and oil continuingits precipitous fall that has been the talk of the last quarter of 2014. This year also saw exchange traded fund (ETF) investors withdraw further from thegold market: outflows of 157 tonne have been registered since the start of the year, though this figure is much lower than the 869 tonne recorded lastyear. The US Dollar appreciated significantly as the US economy expanded by 5% in third quarter and there was speculation that the US Federal Reservewould bring forward the timing of raising interest rates in 2015. In Asia, especially in China gold demand has been strong and is growing rapidly since2008. For gold bulls, the Russian economic crisis and the upcoming election in Greece are supporting points. We expect the metal to trade between$1,130 and $1,245 in the near term, with a bearish bias.

Key points� Silver likely to benefit more than gold in commodity index rebalancing• Lower oil prices decreased gold's appeal as a hedge against oil-led inflation• The US mint sold a record number of silver coins in 2014• The US mint American Eagle gold coin sales are on track to fall nearly 40% in 2014• Global demand for gold has fallen by 6% in the three months ended in September 2014: WGC• Global jewellery demand declined by 4% while bar and coin demand slumped by 21% in the third quarter: WGC• Russia has tripled gold reserves since 2005 and is holding the most since at least 1993: IMF• China's gold imports from Hong Kong in November 2014 rose by 27% from October• Assets in the SPDR Gold Trust contracted to 710.81 metric tonne, the lowest in more than 6 years

MONTHLY VIEWCOMMODITY FUNDAMENTALS

Zinc CMP: Rs137.50 (January contract)

According to International Lead and Zinc Study Group, the real consumption of zinc is likely to be lagging the implied consumption and is morelikely to be expanding at a single-digit pace. China’s import growth slowed considerably in recent months to 9% year on year in the first tenmonths of 2014. In addition, exports have accelerated following the discovery of fraudulent finance activity in the port of Qingdao, with Chinabecoming a net exporter in October 2014 for the first time in more than seven years. However, zinc prices are expected to get support from theglobal auto sector. The latest figures from the European Automobile Manufacturers' Association indicate that passenger-car registrations postedtheir 14th monthly year-on-year increase in October 2014: sales rose by 6.1% in the first ten months of 2014. We look for a range of Rs131-142with a downward bias.


MONTHLY VIEW COMMODITY FUNDAMENTALS

Nickel CMP: Rs966 (January contract)

Nickel prices rallied in early and mid 2014 on Indonesia’s ore export curbs, which started in January 2014 and led to a mining boom inthe Philippines. However, larger than expected Philippine exports and slowing Chinese growth reversed the rally. Prices declined furtheras the ruble crashed by 40% from the start of the year to record lows and helped Russian metal-mining companies to win back investors’favour, avoiding a broader sell-off in equities as the weakening ruble helps boost their profits from exports. The alloying metal is likelyto trade between Rs920 and Rs1,010 in the near term.

Events watch: Major economic events in January 2015CMP as on December 31, 2014

Date Region Event Survey Actual Prior Impact01/01/2015 China Manufacturing PMI 50 50.1 50.3 Manufacturing data slipped slightly from prior release, so slightly bearish for the industrial

commodities as the nation is the biggest consumer of metals, but it also improves the possibilityof further stimulus from China in near term, hence losses are likely to be limited

01/02/2015 USA ISM Manufacturing PMI 57.6 58.7 Declining manufacturing activity in USA would be bearish for industrial commodities and bullishfor the bullions

01/05/2015 Euro zone German retail sales MoM 0.20% 1.90% Stronger than expected data would be supportive for the euro and industrial commodities

01/05/2015 USA Total vehicle sales 16.9M 17.2M It is the annualised number of cars and trucks sold domestically during the previous month;positive data will support industrial metals depending upon their uses in auto sector; strongerdata bullish for dollar too

01/06/2015 USA ISM Non-manufacturing PMI 58 59.3 The data is crucial as services constitute nearly 70% of the US economy; better than expecteddata bullish for the dollar and industrials, but bearish for precious metals

01/06/2015 USA Factory orders MoM -0.40% -0.70% Dropping factory orders would be bearish for the dollar and industrial commodities

01/07/2015 USA ADP non-farm employment change 226K 208K Decline in data would be bearish for industrials and the dollar, as job creation is an importantleading indicator of consumer spending, which accounts for a majority of overall economicactivity

01/08/2015 China Trade balance 54.5B Widening trade surplus is an indication of more exports in comparison to imports but we needto look at both imports and exports to gauge the health of both Chinese and other globaleconomies

01/09/2015 USA Change in non-farm payroll 243K 321K Going by the ADP figure the NFP data could be in the same line of release and would havesame impact as ADP

01/09/2015 China CPI YoY 1.50% 1.40% Falling inflation expectations around the world are stoking the fear of deflation; if the data trailthe forecast, it would lead to concerns that the economy is not able to move ahead in the desiredfashion; thus data lower than forecast would weigh on both industrial and bullion complexes,though expectations of further stimulus would keep the downside limited

14/1/2015 USA Core retail sales MoM 0.50% Indicator of consumer spending behaviour on retail basis is crucial for industrial metals; betterthan expected data would be bullish for industrial commodities and bearish for bullion; such adata would be dollar supportive

15/1/2015 USA PPI MoM -0.20% Higher than the estimated would be raising concerns about interest rates as it would force theFed to hike the rates sooner than later, which means that the dollar would rally and commoditieswould fall

15/1/2015 USA Philadelphia Fed Manufacturing Index 24.5 This is a crucial manufacturing indicator; a better than expected data would buoy the dollarwhile bullions would fall; industrial commodities would initially fall on a stronger dollar buteventually rise on increased demand prospects

16/1/2015 USA CPI MoM -0.30% A higher than expected reading would be bullish for the dollar and somewhat bearish forindustrial commodities as rate hike expectations would rise

19/1/2015 China GDP q/y 7.30% Key indicator of economic growth; rise in GDP will lead to bullishness in metals and energycounters

19/1/2015 China Industrial production MoM 7.20% Topping the estimates would be bullish for industrial commodities as it is a key indicator tojudge the demand for industrial commodities, however stronger data would dampen theexpectations of stimulus as well, thus upside could be limited; previous data trailed the forecast,thus continuing trend would be a worrisome factor

20/1/2015 Euro zone German Flash Manufacturing PMI German economy appears to be losing steam; the confirmation of the trend would weigh onthe euro and the industrial commodities

20/1/2015 Euro zone German ZEW Economic Sentiment 34.9 It's a leading indicator of economic health as it is an economic survey of Germany for the nextsix months; better than expected data would support the euro and commodities

23/1/2015 USA Existing home sales 4.93M Better than expected data would be supportive for the dollar and industrial commodities; thebullion complex would fall but the housing sector is sending mixed signals currently

25/1/2015 Euro zone Greek parliamentary election - Crucial for Greece’s economy as markets are concerned that the opposition Syriza Partymay win the election and disrupt Greece’s international bail-out

26/1/2015 Euro zone German Ifo Business Climate 105.5 This survey is highly respected due to its large sample size and historic correlation withGerman and wider euro zone economic conditions; better than expected data would besupportive for the euro and industrial commodities

27/1/2015 USA Core durable goods orders MoM -0.70% It's a leading indicator of production, higher orders will lead to higher prices of industrial metals

29/1/2015 USA FOMC statement - It's the primary tool the FOMC uses to communicate with investors about monetary policy; itcontains the outcome of their vote on interest rates and other policy measures; a hawkishstance is likely to send dollar higher and commodities lower

30/1/2015 USA Advance GDP QoQ 5% A key indicator of economic growth, a rise in GDP will lead to bullishness in metals andenergy counters but bullion would fall; the dollar would rally

30/1/2015 USA Chicago PMI 58.2 Stronger than expected data would bode well for dollar and industrial commodities


Gold: Retracement holds the key

� Gold had broken a medium-term trend line drawn from threecrucial swing lows.

� However, it had found support near the lower end of a medium-term falling channel.

� From there it has formed a leading diagonal on the upside andretraced the same till the 61.8% retracement mark.

� The daily and weekly momentum indicators are in bullish mode.

� On the upside, gold can test the recent high of $1,238 beyondwhich it can stretch till $1,270. The recent low of $1,131 willact as a major support.

Silver: Bullish potential

� After a break-down from a crucial trend line support silver hadtumbled down sharply. It had found support near the lowerend of a medium-term falling channel.

� To end the fall silver has formed an expanding ending diagonal.

� The low of $14.42 will act as a strong support over the shortterm as well as medium term.

� Currently, the white metal is trading near the 61.8% retracementof the recent rise.

� On the upside, silver is expected to test the recent high of $17.33.The subsequent level on the upside will be $18.

Trend Trend Supports Resistances Targetreversal

Up $14.42 $15.07/14.70 $16.45/17.16 $17.33/18

� NYMEX crude oil has been cracking down for the last severalmonths.

� For the last few sessions it has been trading in a sidewaysmanner.

� In terms of price pattern it has formed a triangular pattern andbroken out on the downside.

� As per the wave structure, the equality target for the current legcomes to $47.10.

� On the other hand, the swing high of $57.56 will act as a crucialresistance.


Down $57.56 $51/49.50 $55.74/57 $47.10


Up $1,131 $1,170/1,142 $1,210/1,231 $1,238/1,270

Crude oil: Tumbling down

TREND & VIEWCOMMODITY TECHNICALS

Dec 2014 Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2015 Feb

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KST (-0.81013)

une July August September October November December 2015 February

14.0

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38.2%

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SILVER [CASH] (15.6500, 15.7000, 15.6000, 15.6400, -0.02000)

-5

0

5KST (-1.88624)

25 2 8 15September

22 29 6 13October

20 27 3 10 17November

24 1 8 15December

22 29 52015

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105LIGHT CRUDE CONTINUOUS 1000 BARRELS [NYMEX] (53.8700, 54.0200, 52.4400, 53.2700, -0.85000)

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-10

-5

0KST (-9.08613)



Up $2.75 $2.8 /2.77 $2.87/2.90 $2.947

RM seed: Going for a dip� NCDEX RM seed has been rallying smartly for the last several

months.

� However, it has reached the upper end of a multi-month risingchannel.

� The agri-commodity formed a couple of bearish candles nearthe channel resistance.

� The daily momentum indicator has triggered a bearish cross-over from the overbought zone.

� Thus RM seed has entered a correction mode. The key levelson the downside will be Rs4,150 and Rs4,100.

� The recent high of Rs4,397 will act as a crucial hurdle.


Down Rs4,397 Rs4,225/ Rs4,300/ Rs4,150/Rs4,200 Rs4,338 Rs4,100

� The Dhaanya Index has broken out from a multi-monthdownward sloping channel.

� It has crossed the high of 2721, suggesting that the index has alarger upside potential.

� The daily and weekly momentum indicators are in sync withthe bullish potential.

� The index is expected to test the high of 2905. Once that iscrossed the index can head till 2975.

� The reversal for the bullish view can be placed below 2550.


Up 2550 2616/2560 2784/2900 2905/2975

Copper: Bullish development

� COMEX copper has taken support near a falling trend linefrom the previous lows.

� On the higher side it is facing resistance near the 20-day movingaverage.

� Structurally it has the potential to form an ending diagonalpattern before moving higher.

� The short-term momentum indicator is showing a positivedivergence which is in favour of bulls.

� The key level on the downside will be $2.75 on a closing basis.

� On the other hand, $2.947 will be the key level to watch outfor on the upside.

COMMODITY TECHNICALSTREND & VIEW

Dhaanya Index: Heading north

014 Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2015 Fe

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HG COPPER CONTINUOUS 25000 LBS [COMEX] (2.85300, 2.86100, 2.81550, 2.82550, -0.02850)

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KST (-1.73401)

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44504500RAPESEED 20KG- 1 MONTH (4,269.00, 4,293.00, 4,235.00, 4,248.00, -47.0000)

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80Relative Strength Index (65.8097)

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31003150320032503300* DHAANYA - NCDEX FUTURE INDEX (2,752.98, 2,784.82, 2,697.22, 2,698.86, -53.5999)

010203040KST (5.44529)


Currencies: Euro down on divergence in global monetary policyKey points

� In November 2014 India’s trade deficit widened to $16.9 billion,the largest since May 2013

� Greece’s Parliament failed to elect a president in the final vote

� UK CPI eased to 1.0% in November last, the lowest since September 2002

� Rating agency Moody’s downgraded Japan’s sovereign debt ratingby one notch

� US GDP grew at an annual rate of 5.0% in the third quarter, thefastest growth in 11 years

CURRENCY LEVELS IN DECEMBER 2014 (IN RS)

Currency High Low Close Monthly chg (%)

USD-INR 63.89 61.77 63.68 2.64

EUR-INR 79.81 75.79 77.65 0.52

GBP-INR 100.46 96.27 98.97 1.74

JPY-INR 54.66 50.93 52.86 0.72

USD-INR CMP: Rs 63.27 (SPOT)The Indian Rupee ended on a negative note in December 2014 and made a 13-month low of 63.88 on the back of a rise in the demand forthe dollar from importers and weakness in the emerging market currencies as the dollar gained against the other major currencies.Outflows from local shares ahead of the year end also weighed on the Indian Rupee. The dollar gained strength against the other majorcurrencies due to positive economic data and expectations that the US Federal Reserve may start increasing its benchmark interest ratessooner. The trade deficit widened to $16.9 billion in November last and was the largest since May 2013. The Index of IndustrialProduction contracted to 4.2% in October 2014. However, further fall was prevented as the Reserve Bank of India signalled that it mayease the monetary policy early next year and the government’s decision to hike excise tax on diesel and gasoline raised expectations thatthe fiscal deficit target would be met. The government’s decision to hike excise tax on diesel by Re1 per litre and on gasoline by Rs2.25per litre may help to raise Rs40 billion and thus help the government to meet its fiscal deficit target of 4.1%. The pair is likely to tradewith an upward bias with an upside target of Rs66.

GBP-INR CMP: Rs98.61 (SPOT)The pound fell by 0.8% vs the dollar in December 2014 touching a 15-month low of 1.5483 as Bank of England (BoE) kept its interestrates at record low amid signs that Britain’s economic recovery is receding. Further, UK property slowdown and sluggish economic datafrom the country stoked worries among the investors that the UK economic growth is losing momentum. The UK Consumer Price Index(CPI) eased to 1.0% in November from 1.3% in October in 2014. It was the lowest rate of inflation since September 2002. The UKcurrent account deficit widened to 27 billion pound. The rate of economic growth from a year ago was revised down to 2.6% from 3%.Market participants bet that the UK central bank may trail behind the Federal Reserve in raising interest rates. The GBP-INR pair is likelyto trade between Rs97 and Rs99.80 with an upward bias.

JPY-INR CMP: Rs52.86 (SPOT)The yen-dollar pair depreciated by 1.7% in December on the back of a divergence in monetary policies. Rating agency Moody’sdowngraded Japan’s sovereign debt rating by one notch. Weak economic data from Japan added to the downside pressure. Japan’sgross domestic product (GDP) contracted by 0.5% in the third quarter of 2014. However, a sharp fall was prevented on the back ofdemand for safe haven as political instability in Greece and falling oil prices led to some tentative safe-haven buying. The JPY-INR pairis likely to trade between Rs52.80 and Rs54.20 in the near term.

December 2014 contract price movement December 2014 contract price movement

CMP as on December 31, 2014

The euro fell by 2.4% against the dollar in December 2014. The euro remained under pressure as the European Central Bank (ECB)president Mario Draghi said the central bank is open to buying a wide variety of assets for further stimulus to revive the euro-areaeconomy. The single currency weakened despite stronger than expected German ZEW Economic sentiment. The euro fell below 1.2100as the European Consumer Price Index slowed to 0.2% and remained below the central bank’s target, thus triggering the expectationsamong the market participants that the ECB may add more stimulus next year. The outcome of the Targeted Long-Term RefinancingOperation proved negative too. In Greece the Parliament failed to elect a president in the final vote triggering an early parliamentaryelection. The markets are concerned that the opposition Syriza Party may win the election and disrupt Greece’s international bail-out. Theeuro-rupee pair is likely to trade between Rs76 and Rs78 with a downward bias in the near term.

CURRENCY FUNDAMENTALS

EUR-INR CMP: Rs76.54 (SPOT)

MONTHLY VIEW

75.5

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USDINR JPY INR


Currency View Reversal Supports Resistances Target

USD-INR Up 62.58 62.97/62.80 63.88/64.20 64.50/64.77

GBP-INR Up 95.20 96.25/96 98.35/99.22 99.80/100.46

EUR-INR Up 74.00 75.66/75 76.75/77.24 77.30/77.83

JPY-INR Up 0.5079 0.5200/0.5130 0.5336/0.5480 0.5507/0.5620

JPY-INR: Potential to pull back� As can be seen from the adjacent chart, the JPY-INR had tumbled

down sharply. It had reached near the lower end of the multi-month falling channel as well as near the extended Fibonaccitarget. Near those levels bulls had rushed in to provide support.

� Consequently, the currency pair had formed a bullish outsidebar on the weekly chart. Thus, the low of 0.5079 will act as acrucial support. From there the currency pair had entered thepull-back mode; however, the pull-back is breaking up intowaves of lower degrees. The weekly momentum indicator isalso recovering from the oversold territory. The key levels onthe upside will be 0.5507 and 0.5620.

USD-INR:A bullish stance� The USD-INR has been moving up along with its key daily

moving averages.

� For several sessions it traded between two converging trendlines.

� Structurally it formed a bullish triangle and the price broke outon the upside. The currency pair retraced 50% of the previousfall, ie 63.50, and is expected to head till the 61.8% retracementmark, ie 64.77.

� The upper end of the rising channel, ie 64.50, would be anintermediate level to watch out for. The reversal can be tightenedto 62.58 on a closing basis.

CURRENCY TECHNICALSTREND & VIEW

EUR-INR: A channelised play� The EUR-INR has been falling for the last several months. The

entire fall is unfolding in a channelised manner.

� Near the lower channel line it formed an ending diagonal patternand broke out on the upside.

� However, it couldn’t surpass the upper end of the channel. Fromthere it started tumbling down.

� The lower end of the channel, ie 75, will be the key area fromwhere the currency pair can attempt a bounce.

� The level of 74 will act as a crucial support on a closing basis.The key levels on the upside will be 77.30 and 77.83.

GBP-INR: Keep an eye

� The GBP-INR seems to be forming a multi-week wedge pattern.

� Recently it crossed the key daily and weekly moving averagesbut couldn’t sustain in the higher territory.

� Structurally it is moving down to form the last leg of the potentialwedge pattern. The level 96.25-96.15 would be a key supportzone.

� The lower end of the pattern is near 95.20, which will act as amajor support on a closing basis. On the higher side, the level99.80 and 100.46 will be the key levels to watch out for.

014 Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2015 Feb

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USDINR - INDIAN RUPEE (63.4300, 63.4875, 63.2400, 63.2700, -0.08000)

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83.083.584.084.585.085.586.086.587.0EURINR (76.6730, 76.7040, 75.9180, 75.9240, -0.74200)

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MACD (-0.17142)

N D 2013 A M J J A S O N D 2014 M A M J J A S O N D 2015 M A M J J A S O0.49

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100.0%

161.8%

JPYINR (0.52780, 0.53360, 0.52390, 0.52500, -0.00280)

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70Relative Strength Index (34.2010)


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every fiscal

PROPRIME - TOP EQUITY

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

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

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

Top 10 stocks

Axis Bank

Bharti Airtel

Gateway Distriparks

Hero MotoCorp

ICICI Bank

Larsen & Toubro

Reliance Industries

State Bank of India

Tata Motors

Wipro

Product performanceas on December 31, 2014

(In %) Scheme Sensex Nifty

1 month -1.1 -4.2 -3.6

3 month 8.3 6.2 7.3

6 month 6.0 8.2 8.8

1 year 39.6 29.9 31.4

Best month 12.9 11.2 12.4

Worst month -10.5 -8.9 -9.3

Best quarter 21.7 13.5 14.5

Worst quarter -13.0 -6.1 -10.4

*26-Sep-11

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

We have the following strategies on offer:

ProPrime (based on fundamental research)

� Top Equity � Diversified Equity

ProTech (based on technical analysis)

� Index Futures Fund � Trailing Stoploss

PMS FUNDSPMS DESK


PMS FUNDS PMS DESK

INVESTMENT STRATEGY

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

fundamental research.

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

that represents investment opportunities across sectors and market capitalisation.

� Invests in quality value and growth stocks with good earnings visibility and healthy

balance sheet.

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

identifies fundamentally sound companies to invest in.

� The fund manager strives to capture the short-term trading opportunities to

maximise the potential of the swings in specific stocks.

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


� Charges

� 2% per annum; AMC fee charged every quarter

� 0.5% brokerage

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

fiscal

PROPRIME - DIVERSIFIED EQUITY

OVERVIEWThe ProPrime—Diversified Equity PMS strategy is suitable for long-term investors

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

growth in the portfolio’s value with medium to high risk.

Top 10 stocks

Apollo Tyres

Ashok Leyland

Bank of Baroda

Bharti Airtel

Federal Bank

Hero MotoCorp

ICICI Bank

IL&FS Transport Networks

Lupin

Reliance Industries


(In %) Scheme S&P CNX 500

1 month -4.2 -2.1

3 month 1.5 9.4

6 month -1.3 9.7

1 year 45.7 37.8

Since inception* 319.2 400.5

Best month 50.9 34.4

Worst month -23.2 -27.2

Best quarter 71.1 51.2

Worst quarter -28.5 -28.6

*27-Aug-04



PMS FUNDSPMS DESK

Fund Manager: Rohit Srivastava

FUND OBJECTIVEAbsolute returns irrespective of market conditions.


� Charges

� AMC fees: 0%

� Brokerage: 0.05%

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

OVERVIEWThe ProTech–Index Futures Fund PMS strategy is suitable for long-term investorswho desire to profit from both bullish and bearish market conditions. The strategyinvolves going long (buying) or going short (selling without holding) on Nifty futuresby predicting the market direction based on a back-tested automated model.



1 month 2.9 -4.2 -3.6

3 months 12.0 3.3 4.0

FY13-14 8.8 18.9 18.0

FY12-13 3.7 8.2 7.3

FY11-12 13.1 -10.5 -9.2

FY10-11 9.2 10.9 11.1

FY09-10 14.7 80.5 73.8

Since inception* 180.4 171.6 174.1

Best month 28.9 -23.9 -26.4

Worst month -17.1 0.0 0.6

Best quarter 33.3 49.3 42.0

Worst quarter -11.7 17.3 22.3

*01-Feb-2006


FUND MANAGER’S VIEWBy the middle of the last month we had earned handsome gains on our short trades aswe were in early. But at the end the month a lot was given back too. Still a return of2.86% is better compared with the previous months. Overall, the Index FuturesFund has had a good quarter as the last three signals were all profitable. We are ableto see a more trending market, as I had been hoping for for quite some time. It hastaken years of waiting to see that change. When we are clearly out of the non-trendingphase we should see returns above normal or more than what were recorded after2009 on an annual basis. It has been a long wait.

The market is trading up and down in an expanding trading range of almost 5-8%but with higher tops and higher bottoms each time. So, it is hard to call it a trendreversal but the market is making bigger and bigger moves.

Investments in

Nifty Index

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

direction by going long or short on Nifty futures.

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

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

If you were searching for "Nifty Thrifty" then you are in the right place,the name of the fund has been changed to "Index Futures Fund",to represent the product better; everything else remains the same.

PROTECH - INDEX FUTURES FUND


Fund Manager: Rohit Srivastava

FUND OBJECTIVEAbsolute returns irrespective of market conditions.


� Charges

� AMC fees: 0%

� Brokerage: 0.05%

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

PROTECH - TRAILING STOPS



1 month -1.9 -4.2 -3.6

3 months -0.2 3.3 4.0

FY13-14 -1.1 18.9 18.0

FY12-13 14.9 8.2 7.3

FY11-12 29.0 -6.1 -4.6

FY10-11 - - -

FY09-10 - - -

Since inception* 44.5 48.4 49.2

Best month 9.1 11.3 12.4

Worst month -4.4 -2.0 -1.7

Best quarter 9.9 -12.7 -12.5

Worst quarter -8.2 9.2 9.9

*09th May 2011

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

Stocks are hard to spot as market movements are not aligning with stock movements.There are those stocks that are going down in a rising market and the others that aregoing up in a falling market, causing the stock-based approach to fail in the last fewmonths. A broad-based market is the one that expands in both directions with moststocks and is easy to capture. In other words, we are in a low probability game withstocks but this should change soon. When it does the Trailing Stops should see returnsevery month as it had till a year back. It has been a long wait and as we enter the lastquarter of the year, returns are turning marginally negative for the year. We don’texpect this trend to continue into the new financial year.

The market is trading up and down in an expanding trading range of almost 5-8%but with higher tops and higher bottoms each time. So it is hard to call it a trendreversal but the market is making bigger and bigger moves.

Investments in

Nifty Index

Stock futures

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

based portfolios, basically the momentum calls.

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

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

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

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

* Terms and conditions apply

PMS FUNDS PMS DESK


MONTHLY PERFORMANCEADVISORY DESK

Advisory Products and ServicesThe Advisory Desk is a central desk consisting of a Mumbai-basedexpert team that runs various sample model portfolios (for illustrativepurposes only) for clients of all profiles, be they traders or investors.

These products are different from Sharekhan’s research-basedtechnical and fundamental offerings as these essentially try to capturethe trading opportunities in stocks where momentum is expectedbefore or after some event including the announcement of results orwhere some news/event is probable.

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

For investors

PORTFOLIO DOCTORIt is a service under which the Portfolio Doctor reviews an existing portfolio based on various parameters and suggestschanges to improve its performance. To avail of this service please write to the Portfolio Doctor [email protected].

ALPHA DELIVERY PICKSThis is a long only, cash market delivery product where stock ideas are rolled out based on short-term triggers withproper fundamental rationales. The buying price range, stop loss and probable target are clearly defined at the time ofinitiation. These ideas are for a maximum period of one to two months for the medium-term investor and for one toseven trading sessions for swing traders. For more details of this product please write to us at [email protected].

For traders

SHAREKHAN’S PRE-MARKET ACTIONThese ideas are put out in Sharekhan’s Pre-market Action report along with stop loss and targets valid for a day. Thereis a market watch list of stocks with positive and negative bias for intra-day traders. For more details please write to usat [email protected].

MID DERIVATIVE CALLSThese calls are based on the analysis of open interest, implied volatility and put-call ratio in the derivative market. It isa leveraged product and ideal for aggressive traders. These calls have pre-defined stop loss, targets, time frame andquantity to execute. For details of the product please write to us at [email protected].

MID Derivative Calls performance*

Ticket size (Rs) 100,000

Month Dec 2014 YTD FY2015

No. of calls 28 274

Profit booked 15 177

Stop loss hit 13 97Strike rate (%) 54 65

MID performance*

Product Alpha Delivery PicksAlpha Swing Alpha Medium-term

Month Dec 2014 YTD FY2015 Dec 2014 YTD FY2015No. of calls 7 60 16 97Profit booked 1 36 9 72Stop loss hit 6 21 7 25Strike rate (%) 14 60 56 74

Report Card

Please note we have discontinued MID Intra-day Calls *Based on closed calls



MUTUAL FUNDS DESK

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

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

MF PICKS

SHAREKHAN’S TOP MUTUAL FUND PICKS (EQUITY) DECEMBER 10, 2014Data as on December 03, 2014

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

6 months 1 year 3 years 5 years Since inception

Large-cap fundsReliance Top 200 Fund �� 23.9 27.2 66.5 28.3 15.9 12.7

Birla Sun Life Top 100 Fund �� 43.0 20.3 56.1 27.7 16.2 17.3

SBI Magnum Bluechip Fund �� 26.6 24.8 53.1 27.2 13.9 11.8

Birla Sun Life Frontline Equity Fund - Plan A �� 160.2 19.9 51.5 26.4 15.2 25.4

Principal Large Cap Fund �� 46.4 17.1 50.7 22.9 13.1 18.5

IndicesBSE Sensex 28442.7 14.4 36.4 19.0 10.6 17.0

Mid-cap fundsPrincipal Emerging Bluechip Fund �� 64.4 35.4 89.2 38.5 18.8 36.0

SBI Magnum Midcap Fund �� 52.8 35.1 80.1 38.3 20.1 18.7

UTI Mid Cap Fund �� 75.1 43.8 102.0 38.1 22.8 21.9

Mirae Asset Emerging Bluechip Fund �� 27.6 36.3 92.5 37.9 - 25.9

Tata Mid Cap Growth Fund - Plan A �� 93.4 36.4 89.3 33.7 19.0 11.6

IndicesBSE MID CAP 10499.9 20.6 64.3 22.1 9.7 23.4

Multi-cap fundsBirla Sun Life Pure Value Fund �� 38.6 21.7 111.8 36.8 21.9 22.4

Franklin India High Growth Companies Fund �� 28.4 42.1 83.6 36.7 19.7 15.2

ICICI Prudential Value Discovery Fund �� 108.4 26.8 82.6 35.9 22.8 26.0

SBI Magnum Global Fund 94 �� 122.0 33.2 70.3 32.4 21.2 15.7

Kotak Select Focus Fund �� 22.4 28.8 64.0 28.1 16.1 16.7

IndicesBSE 500 10985.7 16.3 43.8 20.0 10.3 16.3

Tax saving fundsAxis Long Term Equity Fund �� 28.5 31.3 69.2 33.6 - 23.7

DSP BlackRock Tax Saver Fund �� 31.2 23.0 59.4 28.7 15.9 15.6

Religare Invesco Tax Plan �� 33.7 29.1 62.9 27.4 18.1 16.6

HSBC Tax Saver Equity Fund �� 26.7 21.9 59.3 27.0 14.7 13.2

HDFC Long Term Advantage Fund �� 244.1 19.8 53.9 25.4 16.5 25.8

IndicesCNX500 6935.6 16.4 44.6 20.5 10.3 10.0

Thematic fundsICICI Prudential Exports and Other Services Fund �� 42.2 43.7 62.9 39.6 22.1 17.3

Franklin Build India Fund �� 27.6 42.9 97.1 37.8 19.9 21.3

Birla Sun Life India GenNext Fund �� 50.1 31.5 51.7 28.2 20.8 18.8

L&T India Special Situations Fund �� 34.4 22.2 57.4 27.2 16.7 15.6

Canara Robeco FORCE Fund - Reg �� 24.7 29.0 60.2 26.2 18.2 18.9

IndicesS&P Nifty (CNX Nifty) 8537.7 15.1 37.7 19.1 10.7 15.0

Balanced funds

SBI Magnum Balanced Fund �� 89.6 22.7 45.9 25.9 13.8 17.1

Tata Balanced Fund - Plan A �� 158.4 24.2 54.6 25.7 16.4 17.4

ICICI Prudential Balanced �� 90.2 21.2 50.7 25.4 18.0 15.7

HDFC Balanced Fund �� 105.3 22.6 56.9 24.7 19.3 18.0

L&T India Prudence Fund �� 18.1 21.0 49.7 24.6 - 16.8

Indices

Crisil Balanced Fund Index -- 12.3 29.0 15.8 10.0 13.8


MUTUAL FUNDS DESK

SHAREKHAN’S TOP SIP FUND PICKS DECEMBER 10, 2014

MF PICKS

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

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

Data as on December 03, 2014

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

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

Large-cap funds

Reliance Top 200 Fund 23.9 15,818.2 35.2 59,765.5 19.0 106,173.6 12.3

Birla Sun Life Top 100 Fund 43.0 15,253.0 30.0 58,772.3 18.3 106,061.0 12.3

Birla Sun Life Frontline Equity Fund - Plan A 160.2 15,039.0 28.0 57,346.5 17.3 102,640.3 11.5

SBI Magnum Bluechip Fund 26.6 15,070.1 28.3 57,242.8 17.2 102,168.9 11.4

Principal Large Cap Fund 46.4 14,752.1 25.3 54,690.8 15.4 95,378.7 9.9

BSE Sensex 28,442.7 14,161.6 19.6 51,236.7 12.8 89,344.2 8.4

Multi-cap funds

Birla Sun Life Pure Value Fund 38.6 17311.2 49.3 73407.1 27.7 129915.6 17.0

Franklin India High Growth Companies Fund 28.4 17108.7 47.3 68955.7 25.0 123815.6 15.9

ICICI Prudential Value Discovery Fund 108.4 16300.9 39.8 66808.1 23.6 122968.4 15.7

SBI Magnum Global Fund 94 122.0 15977.8 36.7 63487.4 21.5 117281.9 14.6

PineBridge India Equity Fund - Std 23.0 16065.8 37.6 59556.9 18.8 104936.2 12.0

BSE 500 10,985.7 14,586.8 23.5 52,489.7 13.78 89,987.2 8.58

Mid-cap funds

UTI Mid Cap Fund 75.1 17,305.6 49.2 74,004.8 28.0 132,189.5 17.4

Sundaram SMILE Fund - Reg 65.8 18,682.1 61.5 74,008.0 28.0 124,627.2 16.0

SBI Magnum Midcap Fund 52.8 16,208.5 38.9 69,629.8 25.4 125,686.8 16.2

Tata Mid Cap Growth Fund - Plan A 93.4 16,937.4 45.7 68,008.5 24.4 120,965.2 15.3

Reliance Long Term Equity Fund 31.9 16,855.7 45.0 67,996.8 24.4 118,960.7 14.9

BSE Mid-cap 10,499.9 15,611.2 33.0 56,737.0 16.9 93,427.8 9.4

Tax saving funds

Axis Long Term Equity Fund 28.5 15,955.3 36.5 65,465.5 22.7 123,443.9 15.8

Religare Invesco Tax Plan 33.7 15,693.3 33.7 60,377.7 19.4 108,512.8 12.8

DSP BlackRock Tax Saver Fund 31.2 15,397.0 31.3 59,242.1 18.6 104,972.7 12.1

BNP Paribas Long Term Equity Fund 27.9 15,501.5 32.0 59,081.1 18.5 108,500.8 12.8

HSBC Tax Saver Equity Fund 26.7 15,161.7 29.1 57,926.0 17.7 103,056.6 11.6

CNX Nifty 8,537.7 14,245.1 20.4 51,167.8 12.8 89,303.8 8.4


Prices as on January 02, 2015

FY14 FY15E FY16E FY14 FY15E FY16E FY14 FY15E FY16E FY16/FY14 FY14 FY15E FY16E FY15E FY16E FY15E FY16E (Rs)

EQUITY FUNDAMENTALSEARNINGS GUIDE

Sharekhan Earnings Guide

Note: For Grasim and Apollo Tyres we have shifted our estimates to consolidated

AUTOMOBILES

Apollo Tyres 223.7 13310.3 13584.9 15428.9 1051.8 1163.1 1271.3 20.7 22.8 25.0 10% 10.8 9.8 9.0 24.0 21.6 22.6 20.1 0.8 0.3

Ashok Leyland 53.4 9735.7 12820.4 17033.6 -476.3 143.6 767.1 -1.8 0.5 2.7 - -29.8 105.8 19.8 6.5 14.2 2.9 13.6 0.0 0

Bajaj Auto 2451.8 20149.5 22820.8 25921.3 3297.1 3464.3 4054.7 113.9 119.7 140.1 9% 21.5 20.5 17.5 46.8 47.1 33.7 33.8 50.0 2

Gabriel Industries 97.1 1286.6 1540.5 1844.8 46.8 74.3 102.7 3.3 5.2 7.2 52% 29.8 18.8 13.6 25.9 31.4 23.7 26.8 0.9 0.9

M&M 1224.7 38817.1 43023.1 49752.4 3852.3 4015.6 4632.0 62.2 63.7 73.3 10% 19.7 19.2 16.7 20.1 20.6 21.3 21.0 14.0 1.1

Maruti Suzuki 3359.6 43700.6 49045.8 57835.0 2783.0 3530.5 4827.2 92.1 116.9 159.8 29% 36.5 28.7 21.0 19.2 22.2 15.7 18.0 12.0 0.4

Rico Auto Industries 46.2 1480.1 1236.8 1162.5 2.7 28.3 53.8 0.2 2.1 4.0 29% 231.5 22.1 11.6 9.9 10.5 5.5 7.7 0.1 0.2

TVS Motor 267.5 7857.7 10313.2 12231.0 260.4 379.4 503.0 5.5 8.0 10.6 29% 48.8 33.5 25.3 24.5 28.3 24.3 26.3 1.4 0.5

BANKS & FINANCE

Allahabad Bank 132.0 7477.1 8098.7 9021.6 1172.0 966.6 1381.9 21.5 17.7 25.4 9% 6.1 7.4 5.2 - - 7.9 10.6 2.5 1.9

Andhra Bank 96.3 5070.2 5615.0 6375.6 435.6 780.1 1057.3 7.4 13.2 17.9 56% 13.0 7.3 5.4 - - 8.6 10.9 1.1 1.1

Axis (UTI) Bank 514.3 19356.9 22461.9 26199.0 6217.7 7125.6 8525.7 26.5 30.3 36.3 17% 19.4 17.0 14.2 - - 17.3 17.9 4.0 0.8

Bajaj Finance 3443.8 2215.3 2727.8 3448.9 719.0 870.4 1098.0 144.5 174.9 220.7 24% 23.8 19.7 15.6 - - 20.0 21.1 16.0 0.5

Bajaj Finserv 1275.7 6021.0 - - 1544.1 - - 97.0 - - - 13.2 - - - - 0.0 0.0 1.8 0.1

Bank of Baroda 1096.3 16428.1 19211.9 22739.9 4541.1 5035.0 6218.0 105.4 116.9 144.4 17% 10.4 9.4 7.6 - - 13.3 14.6 21.5 2

Bank of India 307.8 15122.4 17264.3 20085.6 2729.3 3160.1 3691.2 42.4 49.1 57.4 16% 7.3 6.3 5.4 - - 10.2 11.0 5.0 1.6

Capital First 379.2 328.2 461.5 597.2 58.4 110.0 160.5 7.1 13.4 19.6 66% 53.3 28.3 19.4 - - 9.1 12.2 2.0 0.5

Corp Bank 338.2 5431.4 6120.2 7089.8 561.7 936.4 1147.3 33.5 55.9 68.5 43% 10.1 6.1 4.9 - - 9.0 10.2 6.8 2

Federal Bank 149.0 2922.5 3431.7 4042.9 838.9 974.8 1180.1 9.8 11.4 13.8 19% 15.2 13.1 10.8 - - 13.3 14.5 2.0 1.3

HDFC 1171.9 6803.0 8204.1 9733.6 5440.2 6350.9 7402.6 34.8 40.7 47.4 17% 33.6 28.8 24.7 - - 20.0 20.5 14.0 1.2

HDFC Bank 965.3 26402.3 31459.7 37627.4 8478.4 10520.9 13154.2 35.3 43.9 54.8 25% 27.3 22.0 17.6 - - 22.1 23.3 6.8 0.7

ICICI Bank 362.3 26903.4 30556.1 35687.7 9810.5 10997.8 13052.2 17.0 19.0 22.6 15% 21.3 19.0 16.0 - - 14.5 15.7 4.6 1.3

IDBI Bank 77.0 9000.2 8570.4 9992.8 1121.4 945.2 1495.2 7.0 5.9 9.3 15% 11.0 13.1 8.3 - - 3.9 6.0 1.0 1.3

LIC Housing Finance 466.8 1898.9 2243.1 2766.0 1317.2 1452.3 1797.9 26.1 28.8 35.6 17% 17.9 16.2 13.1 - - 18.0 19.3 4.5 1

PTC India Fin. Ser. 68.3 211.6 334.0 466.0 207.7 220.0 315.0 5.1 5.4 7.8 24% 13.5 12.6 8.8 - - 15.5 19.7 1.0 1.5

PNB 219.8 20722.7 23347.4 27027.1 3342.6 4256.9 5407.6 18.5 23.5 29.9 27% 11.9 9.3 7.4 11.3 13.0 2.0 0.9

SBI 315.3 67835.1 76173.7 88887.8 10891.5 14055.7 18316.6 14.6 18.8 24.5 30% 21.6 16.7 12.8 - - 11.4 13.5 3.0 1

Union Bank of India 240.3 10700.9 12237.8 13934.0 1696.2 1936.2 2224.3 26.9 30.7 35.3 15% 8.9 7.8 6.8 - - 10.1 10.7 4.0 1.7

Yes Bank 792.2 4437.8 5483.0 6737.7 1617.8 1938.0 2365.5 44.9 46.8 57.1 13% 17.7 16.9 13.9 - - 20.7 18.9 8.0 1

CONSUMER GOODS

GSK Consumers* 5900.3 4682.9 4135.2 4665.3 674.8 576.2 682.0 160.4 137.0 162.1 1% 36.8 43.1 36.4 44.1 44.0 29.1 29.0 45.0 0.8

Godrej Consumer 970.1 7582.6 8387.8 9942.1 753.7 871.1 1059.8 22.1 25.6 31.1 19% 43.9 37.9 31.2 19.7 21.9 22.8 23.4 5.3 0.5

Hindustan Unilever 756.0 28539.0 32646.5 36860.8 3717.0 3953.5 4428.1 17.2 18.3 20.5 9% 44.0 41.3 36.9 127.6 103.1 93.0 74.9 13.0 1.7

ITC 368.3 33238.6 38578.4 45595.1 8785.2 9972.3 11757.6 11.0 12.5 14.8 16% 33.5 29.5 24.9 43.8 43.8 35.0 34.8 6.0 1.6

Jyothy Laboratories 262.2 1323.9 1541.3 1882.4 85.2 155.1 214.6 4.7 8.5 11.6 57% 55.8 30.8 22.6 11.9 16.1 20.0 24.3 3.0 1.1

Marico^ 330.0 4686.5 5839.7 6748.8 485.4 593.8 742.6 7.5 9.2 11.5 24% 44.0 35.9 28.7 41.4 40.5 36.5 33.2 3.5 1.1

Zydus Wellness 800.7 403.6 422.1 482.7 98.3 97.3 116.6 25.2 24.9 29.8 9% 31.8 32.2 26.9 29.4 29.2 27.1 26.7 6.0 0.7

IT / IT SERVICES

CMC 1972.3 2212.6 2492.3 2877.4 266.0 306.8 353.6 87.8 101.2 116.7 15% 22.5 19.5 16.9 28.5 28.7 24.3 23.6 22.5 1.1

Firstsource Solution 35.3 3105.9 3236.9 3530.0 193.0 263.9 333.6 2.9 3.7 4.9 30% 12.2 9.5 7.2 11.6 13.6 11.9 13.2 0.0 0

HCL Technologies** 1605.3 32918.0 36289.2 40093.2 6370.1 7573.1 8363.9 90.3 107.3 118.5 15% 17.8 15.0 13.5 43.6 37.8 36.5 31.3 22.0 1.4

Infosys 2013.2 50133.0 54096.4 60876.8 10861.0 12624.1 14127.1 94.6 109.9 123.0 14% 21.3 18.3 16.4 35.8 34.4 26.2 25.4 31.5 1.6

Persistent Systems 1874.4 1669.2 1905.2 2196.8 249.3 312.4 361.2 62.3 78.1 90.3 20% 30.1 24.0 20.8 31.7 30.9 23.3 22.6 12.0 0.6

TCS 2579.5 81809.4 96332.0 113172.7 19116.9 21426.9 25195.3 97.7 109.5 127.9 14% 26.4 23.6 20.2 40.6 38.8 31.6 30.0 32.0 1.2

Wipro 557.3 43426.9 47237.1 52302.9 7796.7 8758.5 9987.5 31.8 35.8 40.8 13% 17.5 15.6 13.7 20.2 20.7 21.9 21.4 8.0 1.4

CAPITAL GOODS / POWER

BHEL 275.3 38388.8 33808.0 33143.0 3338.0 2864.6 3868.0 14.1 11.7 15.8 6% 19.5 23.5 17.4 12.1 15.1 8.2 10.3 2.8 1

CESC 675.0 5510.0 6232.9 6656.3 652.0 697.5 705.0 48.9 52.4 52.9 4% 13.8 12.9 12.8 8.0 7.7 9.2 8.4 7.0 1

Crompton Greaves 186.6 13480.6 14862.0 16543.0 244.3 540.0 709.0 3.9 8.6 11.3 70% 47.9 21.7 16.6 14.2 17.1 13.4 15.6 0.4 0.2

Finolex Cable 268.7 2359.0 2608.0 2965.0 189.9 223.0 249.0 12.9 14.6 16.3 12% 20.8 18.4 16.5 21.7 21.7 18.6 17.8 1.6 0.6

Greaves Cotton^ 145.0 1718.9 1804.9 2021.4 118.7 155.1 208.6 4.9 6.4 8.5 32% 29.8 22.6 21.5 23.1 14.5 16.9 19.9 0.6 0.4

Kalpataru Power 235.0 4055.0 4528.0 5241.0 146.0 177.0 229.0 9.5 11.6 14.9 25% 24.7 20.3 15.8 15.4 17.4 8.8 10.4 1.5 0.6

PTC India 96.0 11510.7 12756.9 14673.0 164.7 196.5 227.0 5.6 6.6 7.7 18% 17.2 14.5 12.4 11.2 12.3 15.6 15.9 2.0 2.1

Thermax 1049.9 4302.2 4721.9 5364.0 220.4 316.8 391.0 18.5 26.6 32.8 33% 56.8 39.5 32.0 20.9 23.2 14.9 16.4 6.0 0.6

Va Tech Wabag 1506.6 2239.0 2619.9 3100.1 108.7 125.5 157.3 40.9 47.3 59.2 20% 36.8 31.9 25.4 22.9 25.5 15.8 17.8 8.0 0.5

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

(%)


FY14 FY15E FY16E FY14 FY15E FY16E FY14 FY15E FY16E FY16/FY14 FY14 FY15E FY16E FY15E FY16E FY15E FY16E (Rs)

EQUITY FUNDAMENTALS EARNINGS GUIDE

^Marico estimates excluding Kaya’s financials

*GSK Consumer FY2014 financial numbers are estimated for 15 months as the company changed its accounting year end to March 2014, hence not comparable

#We have annualised these ratios to make them comparable

** June year ended

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

(%)

V-Guard Industries 1139.1 1517.6 1774.0 2077.0 70.1 87.3 107.2 23.5 29.3 35.9 24% 48.4 38.9 31.7 31.0 31.9 24.8 25.1 4.5 0.4

Triven Turbine 116.2 515.4 701.6 991.3 68.0 94.8 144.9 2.1 2.9 4.4 45% 55.3 40.1 26.4 59.2 51.7 42.4 35.9 0.8 0.7

INFRASTRUCTURE / REAL ESTATE

Gayatri Projects 166.8 1812.5 1619.5 2168.4 64.8 33.7 69.7 21.4 11.1 23.0 4% 7.8 15.0 7.2 8.9 10.3 5.0 9.6 2.0 1.2

ITNL 193.4 6587.0 7199.0 7933.1 391.7 495.4 620.9 15.9 20.1 25.2 26% 12.2 9.6 7.7 9.4 9.9 9.1 10.1 4.0 2.1

IRB Infra 267.3 3731.9 3879.6 4929.8 459.1 532.2 686.2 13.8 16.0 20.6 22% 19.3 16.7 12.9 10.7 13.0 14.2 16.3 4.0 1.5

Jaiprakash Asso 27.6 13327.0 13853.7 15854.8 455.5 -78.0 251.4 2.1 -0.4 1.2 -26% 12.9 -75.3 23.4 7.3 7.7 -0.6 1.8 0.0 0

Larsen & Toubro 1534.7 56598.9 64365.0 74986.0 4904.6 5575.0 6549.0 52.9 60.1 70.7 16% 29.0 25.5 21.7 16.7 18.7 15.6 16.3 14.3 0.9

Pratibha Industries 45.6 2283.6 2763.3 3128.4 39.0 50.1 95.1 3.9 5.0 9.4 56% 11.8 9.2 4.8 13.4 15.2 7.5 13.0 0.2 0.4

Punj Lloyd 38.2 10845.3 11208.3 NA -702.2 -298.9 NA -21.1 -9.0 NA 0% -1.8 -4.2 - 2.5 NA -15.1 NA 0.0 0

OIL & GAS

Oil India 579.0 9609.0 10820.7 13362.0 2977.0 3308.1 4294.0 49.6 55.0 71.4 20% 11.7 10.5 8.1 16.5 19.9 15.3 18.2 21.5 3.7

Reliance Ind 885.6 434460.0 438977.6 463342.1 22493.0 23854.5 26637.1 69.6 73.8 82.4 9% 12.7 12.0 10.7 9.0 9.1 10.9 11.0 9.5 1.1

Selan Exploration 360.6 101.3 89.0 121.0 44.5 35.6 48.2 27.2 21.7 29.4 4% 13.3 16.6 12.3 16.0 19.4 12.9 15.7 5.0 1.4

PHARMACEUTICALS

Aurobindo Pharma 1132.5 8099.8 11703.5 13061.7 1375.9 1651.1 1893.6 47.2 56.6 65.0 17% 24.0 20.0 17.4 28.6 28.5 36.5 30.4 3.0 0.3

Cipla 630.2 10100.4 12117.4 14948.0 1388.4 1536.3 2148.9 17.3 19.1 26.8 24% 36.4 32.9 23.5 17.6 21.4 14.3 17.3 2.0 0.3

Cadila Healthcare 1627.7 7224.0 8344.6 9981.9 803.5 1072.3 1594.8 39.2 52.4 77.9 41% 41.5 31.1 20.9 20.6 25.8 22.8 25.8 9.0 0.6

Divi's Labs 1752.9 2532.1 3051.6 3684.5 810.5 834.7 1031.9 61.1 62.9 77.7 13% 28.7 27.9 22.5 31.7 32.2 25.8 26.1 20.0 1.1

Glenmark Pharma 767.9 5983.9 7062.8 8361.9 759.8 883.1 1138.0 28.0 32.6 42.0 22% 27.4 23.6 18.3 18.8 20.7 23.3 23.4 4.0 0.5

JB Chemicals 204.7 1000.6 1096.6 1269.9 108.3 137.9 156.7 12.8 16.3 18.5 20% 16.0 12.6 12.5 15.4 10.5 12.5 12.8 3.0 1.5

Ipca Laboratories 726.6 3181.8 3336.5 4091.7 477.4 460.4 660.4 37.8 36.5 52.4 18% 19.2 19.9 27.3 21.6 26.9 21.0 24.3 2.5 0.3

Lupin 1432.3 11086.6 13555.9 16128.9 1836.3 2546.2 2904.0 41.0 56.8 64.8 26% 35.0 25.2 22.1 39.0 35.4 27.7 24.4 6.0 0.4

Sun Pharma 826.3 16004.4 18008.1 20598.7 5721.8 6367.6 7051.1 27.6 30.7 34.0 11% 29.9 26.9 24.3 31.5 28.1 27.6 24.1 0.0 0

Torrent Pharma 1192.5 4036.0 4807.1 5513.6 664.0 818.6 955.8 39.2 48.4 56.5 20% 30.4 24.6 21.1 29.8 24.9 35.5 30.5 5.0 0.4

BUILDING MATERIALS

Grasim 3495.7 29004.2 33632.0 37936.0 1946.8 1911.0 2131.0 212.0 208.2 232.0 5% 16.5 16.8 15.1 13.1 13.7 7.9 7.8 22.5 0.6

The Ramco Cements 344.8 3761.2 3999.9 5139.0 123.0 247.6 370.0 5.2 10.4 15.5 73% 66.7 33.1 22.2 9.6 13.1 6.1 7.6 1.0 0.3

Shree Cement** 9325.9 5887.0 7429.0 8366.0 809.0 946.0 1387.0 248.3 271.5 398.2 27% 37.6 34.3 23.4 18.0 21.0 18.0 22.0 22.0 0.2

UltraTech Cement 2742.1 20080.0 24925.7 28113.7 2048.9 2569.0 2840.0 74.8 93.8 103.7 18% 36.7 29.2 26.4 14.2 15.3 13.2 12.9 9.0 0.3

DISCRETIONARY CONSUMPTION

Eros Intl Media 379.5 1134.6 1321.9 1545.1 199.7 242.7 280.0 21.7 26.4 30.5 19% 17.5 14.4 12.4 19.6 20.7 18.2 17.6 0.0 0

Cox and Kings 305.9 2307.6 2603.3 2550.2 266.0 378.9 353.0 19.5 27.8 25.9 15% 15.7 11.0 11.8 11.5 10.7 23.9 18.8 1.0 0.3

Century Plyboards (I) 162.1 1348.0 1681.0 2033.0 77.0 129.0 179.0 3.5 5.8 8.1 52% 46.3 27.9 20.0 21.0 25.0 36.9 35.6 1.0 0.6

KDDL 250.1 334.7 403.3 497.1 8.5 9.8 13.4 9.9 10.7 14.7 22% 25.3 23.4 17.0 15.2 15.5 18.1 19.5 1.5 0.6

KKCL 1950.0 367.2 428.7 517.1 67.0 68.5 86.6 54.4 56.3 70.2 14% 35.8 34.6 27.8 30.5 31.1 22.5 24.7 15.5 0.8

Raymond 516.0 4558.0 5198.0 5785.0 130.2 111.5 134.5 21.2 18.2 21.9 2% 24.3 28.4 23.6 10.9 12.2 7.3 8.2 2.0 0.4

Relaxo Footwear 599.8 1205.8 1454.0 1767.4 65.6 84.5 109.6 10.9 14.1 18.3 30% 55.0 42.5 32.8 24.1 26.9 20.7 20.7 0.5 0.1

Speciality Restaurants 195.6 263.9 315.1 389.3 18.9 12.6 23.6 4.0 2.7 5.8 20% 48.9 72.4 33.7 5.5 10.0 4.1 7.5 1.0 0.5

Sun TV Network 375.7 2223.6 2406.8 2708.1 748.0 794.4 919.5 19.0 20.2 23.3 11% 19.8 18.6 16.1 34.2 35.3 24.2 25.0 9.5 2.5

Zee Entertainment 381.0 4421.7 4848.1 5627.4 893.1 953.4 1148.5 9.3 9.9 12.0 14% 41.0 38.5 31.7 28.3 30.5 19.1 20.6 2.0 0.5

DIVERSIFIED / MISCELLANEOUS

Aditya Birla Nuvo 1730.1 8338.4 9237.3 10260.1 484.7 538.3 584.2 37.3 41.4 44.9 10% 46.4 41.8 38.5 8.7 8.8 7.0 7.1 7.0 0.4

Bajaj Holdings 1436.4 385.2 1987.6 - - 178.6 - - - 3.0 - - - - - - 30.0 2.1

Bharti Airtel 365.1 85746.0 94372.0 104502.0 3935.0 5887.0 6595.0 9.8 14.7 16.5 30% 37.3 24.8 22.1 12.0 13.6 9.0 9.1 1.6 0.4

Bharat Electronics 2924.7 6275.5 7263.6 8202.6 931.6 1057.5 1204.9 116.5 132.2 150.6 14% 25.1 22.1 19.4 15.4 15.2 11.6 11.5 22.3 0.8

Gateway Distriparks 350.4 1008.1 1071.4 1079.6 142.0 163.9 182.2 13.1 15.1 16.8 13% 26.8 23.2 20.9 14.6 16.2 19.0 20.1 7.0 2

Max India 387.5 11683.0 - - 139.5 - - 5.2 - - - 74.4 - - - - - - 1.8 0.5

Ratnamani Metals 690.9 1326.1 1675.0 2001.0 142.8 183.9 228.9 30.6 39.4 49.0 27% 22.6 17.5 14.1 28.9 30.9 21.9 22.7 4.0 0.6

Supreme Industries** 597.4 3962.0 4456.0 5296.0 274.0 312.0 386.0 21.6 24.5 30.4 19% 27.7 24.4 19.7 28.7 30.7 24.7 25.2 8.0 1.3

Technocraft Industries 184.9 1045.0 1039.0 1225.0 104.0 89.0 110.0 32.9 28.3 34.9 3% 5.6 6.5 5.3 17.6 19.4 14.8 16.1 5.0 2.7

United Phosphorus 352.3 10770.9 11910.3 13377.2 1028.6 1098.7 1187.2 23.6 25.6 27.7 8% 14.9 13.8 12.7 15.0 15.8 17.0 17.5 2.5 0.7


Remarks

Automobiles

Apollo Tyres � Apollo Tyres is the market leader in truck and bus tyre segments with a 28% market share. The management isexpecting strong demand traction in the European operations (particularly the summer tyre segment) and isgaining market share in Europe. Further, the domestic operations would see a pick-up in demand in H2FY15. Themargins may sustain at higher levels due to subdued raw material prices. The company will be investing $560mnover the next three years to set up a greenfield facility in Hungary and Rs2,000 crore to expand capacity atChennai facility. We maintain our Buy recommendation on the stock with a price target of Rs265.

Ashok Leyland � Ashok Leyland, the second largest CV manufacturer in India, is a pure CV play. It has ventured into LCV spacewith the launch of Dost in collaboration with Nissan. The MHCV volumes have been under pressure over the pasttwo years due to a subdued economic environment. The discounts in the system have come down and the companyhas managed to take price hikes which propped up margins. A strong government at the centre is expected tofocus on growth led by manufacturing and infrastructure sectors which will improve CV segment’s volumes. Thecompany has raised Rs660 crore via QIP and is in the process of selling non-core assets to pare its debts. We havea Buy recommendation on the stock with a price target of Rs58.

Bajaj Auto � Bajaj Auto, a leading two-wheeler maker, is moving up the value chain by concentrating on the executive andpremium motorcycle segments. It has focused on its Pulsar and Discover brands to establish a strong presenceespecially in the premium segment. Additionally, it derives a third of its volumes from exports and has a strongpresence in the SAARC region and Africa. After a loss of market share in FY14, we expect it to claw back marketshare in FY15 with the launch of the new Discover’s. Exports will continue to drive its overall volumes. Profitabilityremains strong with industry leading EBITDA margin.

Gabriel India � Gabriel is one of India’s leading manufacturers of shock absorbers and front forks with a diversified customerbase. A pick-up in the volumes post-election in both the PV and CV segments as well as higher growth in the two-wheeler segment, increase in market share with HMSI and continued growth in the aftermarket sales are expectedto drive the revenue growth going forward. Moreover, with increasing utilisation levels and higher proportion ofrevenues from the profitable CV segment, the OPM is expected to expand from 6.6% in FY13 to 7.9% in FY16.Further, a reduction in debt level would lead to higher return ratios, going forward. Therefore, we recommend aBuy with a price target of Rs110.

M&M � M&M is a leading maker of tractors and UVs in India. Though the automotive demand is under pressure due todeclining demand for UVs and LCVs, but the demand for tractors remains strong. We expect demand for theautomobile segment to pick up with an improvement in customer sentiment. Additionally, new launches especiallyin the compact UV space will drive volume growth. Also the tractor segment is expected to grow at 8-10% overthe next few years which will benefit M&M. The value of its subsidiaries adds to its sum-of-the-parts valuation.Higher farm income, strong rural positioning and lower vulnerability to interest rates make it a proxy play onfood inflation.

Maruti Suzuki � Maruti Suzuki is India’s largest small car manufacturer. Though the demand for diesel cars is witnessing pressuredue to a hike in diesel prices, but the petrol segment is witnessing a recovery due to the narrowing differentialbetween petrol and diesel prices. The company plans to launch 14 new models over the next five years (includingsome in the high-value UV space) which would boost its volumes and realisation. The recent launch of Celerio andCiaz have been well received. The company has also launched the new Alto K10 with automatic transmissionwhich will be the cheapest automatic available in the country. We expect customer sentiment to improve on theback of a strong government at the centre. Additionally, the PV segment is expected to benefit from the pent-updemand over the past two years and will benefit Maruti Suzuki most due to its high market share in the entry levelsegment. We remain positive on the stock with a price target of Rs3,600.

Rico Auto Inds. � Rico is one of the largest producers of high-pressure non-ferrous die castings for the auto sector. It has recentlydivested its 50% stake in a joint venture with FCC Co., Japan for Rs495 crore. The significant cash flow (nearlyequivalent to current market cap) is expected to be a game changer for the company and enable it to deleverage itsbalance sheet and fund future capex. Additionally, a lower interest burden will result in an exponential growth inthe earnings and free cash flow. The company will be commissioning three new plants in the next 12 months andis poised to benefit from an auto demand revival. We have a Buy recommendation on the stock with a price targetof Rs55.

TVS Motor � TVS Motor is the fourth largest two-wheeler manufacturer in the country with a strong presence in the scootersegment. The scooter segment has grown at a CAGR of 25% over the past five years as opposed to 12% CAGRin motorcycles and currently contributes 25% of the total two-wheeler volumes. With the launch of the Jupiter inOctober 2013, the company has balanced its scooter portfolio and witnessed incremental volumes. Additionally,new launches such as Star City+, refreshed Wego and new Scooty Zest have helped maintain the growth momentum.The company will launch two new motorcycles in H2FY15. Exports, especially of three-wheelers, are doingextremely well. We expect a margin expansion of 40-50BPS over FY14-16. We have a Hold on the stock with aprice target of Rs250.

Banks & Finance

Allahabad Bank � With a wide network of over 2,800 branches spread across India, Allahabad Bank enjoys a stronghold in north and eastIndia. But it has reported a rise in slippages resulting in deterioration of its asset quality. Relatively higher proportionof stressed assets and low tier-I CAR remain concerns, though the low valuation partly factors the same.



Remarks


Andhra Bank � Andhra Bank, with a wide network of over 2,100 branches across the country, has a strong presence in southIndia especially in Andhra Pradesh. Though it is trading at an attractive valuation, but the concerns on assetquality front and the political situation within the state could affect its operations. Valuation factors the same.

Axis Bank � Axis Bank continues to grow faster than the industry and is diversifying its book in favour of retail segment. Thebank’s liability profile has improved significantly which would help to sustain margins at healthy levels. Weexpect the earnings growth to remain reasonably strong driven by a healthy operating performance while assetquality pressures will be manageable.

Bajaj Finance � Bajaj Finance, owned by Bajaj Finserv, is one of the most diversified NBFCs in the country and biggest bankassurance partner for Bajaj Allianz Insurance. It has assets spread across products, viz loans for consumer durables,two- and three-wheelers, loans to small and medium enterprises (SMEs), mortgage loans, commercial loans etc.The asset quality and provisioning remain among best in system.

Bajaj Finserv � Bajaj Finserv is a financial conglomerate having presence in financing business (vehicle finance, consumer financeand distribution) and is among the top players in life insurance and general insurance. Its consumer financebusiness (Bajaj Finance) and general insurance business report a robust performance. The life insurance businessis showing signs of a pick-up after being affected by a change in regulations.

Bank of Baroda � Bank of Baroda is among the top public sector banks (PSBs) having a sizeable overseas presence (102 offices in 24countries) and a strong network of over 4,800 branches across the country. It has a stronghold in western andeastern India. Its performance metrics remain superior to that of the other PSBs, though the asset quality trendswill be the key monitorable.

Bank of India � Bank of India has a network of over 4,600 branches, spread across the country and abroad, along with a diversifiedproduct and services portfolio, and steadily growing assets. The operating performance has weakened due tomargin deterioration. Further, the rising stress on the asset quality and relatively weaker capital position constrainbalance sheet growth.

Capital First � Capital First (erstwhile Future Capital Holdings) has been acquired by global private equity firm, Warburg Pincus(a 72% stake). The present management has taken several initiatives to tap the high-growth retail product segments,like gold loans, loan against property and loan against shares. It has a strong CAR and sound asset quality. Itsloan book is expected to sustain a 25-30% growth in the next three years. As a result of several initiatives taken,the operating leverage will play out and may lead to significant pick-up in profitability over medium term.

Corp Bank � Corporation Bank is a mid-sized PSB having a relatively higher presence in south India. It is predominantlyexposed to the corporate segment, which constitutes about 44% of its book. Due to a higher dependence on thewholesale business and a low CASA ratio, it lags its peers in terms of operational performance. Also, the rise inNPAs could keep provisioning high and weaken earnings performance.

Federal Bank � Federal Bank is among the better performing old private sector banks in India with a strong presence in southIndia, especially Kerala. Under the new management, the bank has taken several initiatives, which would improvethe quality of its earnings and asset book. The asset quality has consistently improved in the past several quartersand the operating performance is picking up gradually.

HDFC � HDFC is among the top mortgage lenders providing housing loans to individuals, corporates and developers. Ithas interests in banking, asset management and insurance through its key subsidiaries. As these subsidiaries aregrowing faster than HDFC, the value contributed by them would be significantly higher going forward. Due todominant market share and consistent return ratios, it trades at a premium to the other NBFCs.

HDFC Bank � HDFC Bank was established in 1994 as part of the liberalisation of the Indian banking industry by the RBI. Thebank continues to report a strong growth in advances with focus on the retail segment. Its relatively high margins(compared with its peers), strong branch network and better asset quality make HDFC Bank a safe bet. However,delay in FIPB approval for increase in foreign investment limit remains a near-term concern.

ICICI Bank � ICICI Bank is India’s largest private sector bank with a network of over 3,700 branches in India and a presence inaround 18 countries. The bank has once again entered an expansionary mode after making a conscious effort tocontract its advances book due to asset quality concerns. The operating profit improved significantly and is thekey driver of the earnings growth. The bank offers substantial value unlocking opportunities from the insuranceand securities businesses.

IDBI Bank � IDBI Bank is one of leading PSBs of India. It is gradually working towards improving its liability base and expandingthe retail book which is likely to reflect in the form of better margins and return ratios. However, due to risingasset quality risks, low tier-I CAR and slower business growth, the stock is likely to underperform in the near term.

LIC Housing � LICHFL is the third largest mortgage financier (including banks) in India with a market share of 11% and loanbook of over Rs90,000 crore. It is promoted by Life Insurance Corporation of India, which is the largest insuranceprovider in India. With over 200 branches, 1,241 direct sales agents, 6,535 home loan agents and 782 customerrelationship associates, the company has among the strongest distribution structures in India to support businessexpansion. Going ahead, a revival in the economy and moderation in the borrowing rates could be the key triggersfor the stock. Therefore, considering stable RoE of ~20%, sound asset quality and healthy growth outlook, thecompany’s fundamentals are strong.


Remarks


PNB � Punjab National Bank has one of the best liability mixes in the banking space, with low-cost deposits constitutingaround 40% of its total deposits. This helps it to maintain one of the highest margins among PSBs. A strongliability franchise and technology focus will help the bank to increase its core lending operations and fee incomerelated-businesses. In view of the weakness in the economy and relatively higher exposure to troubled sectors, theasset quality stress may remain in the near term.

PFS � PTC India Financial Services, owned by PTC India, is focused on providing financial solutions to projects in theenergy value chain. Given the robust lending opportunities in the renewable energy segment and likely reforms inthermal power segment, the company expects to double its loan book over next 12-15 months. With nil net NPAs,its asset quality remains among the best in the system.

SBI � State Bank of India is the largest bank of India with loan assets of over Rs12 lakh crore. The loan growth for FY14was in line with the industry average while the core operating performance was relatively strong. The successfulmerger of the associate banks and value unlocking from insurance business could provide further upside for thebank. While the bank is favourably placed in terms of liability base and the operating profit is also improving, theasset quality would remain a key monitorable in the near term.

Union Bank � Union Bank of India has a strong branch network and an all-India presence. The bank aspires to become thelargest retail bank. Hence, it has ramped up its manpower and infrastructure to ramp up retail, SME lending.However, rising stressed loans and weak capital ratios remain concerns with the bank.

Yes Bank � Yes Bank, a new generation private bank, started its operations in November 2004 and is the only greenfield bankapproved by the RBI in the last decade. The bank is promoted by Rana Kapoor and Ashok Kapur. It follows aunique business model based on knowledge banking, which offers product depth and a sustainable competitiveedge over established banking players. While the operating performance remains healthy, recent capital raisingwill increase the balance sheet growth over the next couple of years.

Consumer goods

GSK Consumers � GSK Consumer Healthcare is a leading player in the MFD segment with a close to 70% share in the domestic market.Judicious new launches and brand extensions, and the expansion of its distribution reach have helped it to stay aheadof the competition and maintain its pricing power over the years. In a bid to de-risk its business model, it has expandedits product portfolio by entering into new categories such as biscuits, noodles, energy bars, sports drinks and oats inthe recent years. With cash balance of close to Rs1,700 crore the company can invest in growth initiatives as well asreward its investors with a healthy dividend payment.

GCPL � Godrej Consumer Products is a major player in personal wash, hair colour and household insecticide marketsegments in India. The recent acquisitions of Darling Group, Tura, Megasari and Latin American companies havehelped the company to expand its geographic footprint. We believe the decent sales volume growth in the domesticbusiness coupled with a strong growth in the Indonesian, African and Argentine businesses would help it toachieve 18% CAGR top line growth and 20% bottom line growth over FY14-17.

HUL � Hindustan Unilever is India’s largest FMCG company. The subdued volume growth due to the uncertain andinflationary environment is likely to sustain the pressure on its profitability in the near term. Overall, we expect itsbottom line to grow at a CAGR of around 10% over FY14-16. The stock’s current premium valuation does notjustify the true business fundamentals of the company. Hence we recommend a Reduce rating on the stock. In thelong term, it will be one of the key beneficiaries of the Indian consumerism story.

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

Jyothy Labs � Jyothy Laboratories is the market leader in the fabric whitener segment in India. With the successful integration ofHenkel and the induction of a new management team led by S Raghunanadan, it is transforming itself from a one-brand wonder to an aggressive FMCG player. We expect its top line to grow at a CAGR of 20%. A stable OPMand lower interest cost would aid the PAT to grow strongly in the near term.

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

Zydus Wellness � Zydus Wellness is bearing the brunt of a limited product portfolio of three brands (Nutralite, Sugar Free andEveryuth) that cater to a niche category. The company would benefit from improving urban consumer sentimentand a new distribution system in FY2016. Thus, we expect a better operating performance from it in FY2016.

IT/IT services

CMC � As per the scheme of amalgamation, CMC as an entity will cease to exist in the next six months as it will get fullyintegrated into TCS. Thus, by the record date of the swap ratio, the stock price of CMC will eventually trade at adiscount of around 21% to that of TCS as per the swap ratio of 79 shares of TCS for every 100 shares of CMC. Weretain our Hold rating on the stock for the existing shareholders, in line with our positive view on TCS (for which wehave a price target of Rs3,010). But for fresh investment it would be more prudent to buy into TCS rather thanCMC, as the latter will cease to exist as an entity in the next few quarters.


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Firstsource � Firstsource Solutions is a specialized BPO service provider. It has scripted a remarkable turn-around from beingon the brink of a financial burn-out to being an operationally sound company with a large scope for furtherimprovement. The health of its balance sheet (which was one of the prime concerns) is improving gradually as thecompany is gradually reducing its debt burden through internal accruals. The revenue visibility remains strong asthe existing top clients continue to be in good shape while operational efficiencies and reduction in interest expensesdue to lower debt augur well for the earnings growth trajectory in FY15 and FY16.

HCL Tech � HCL Technologies is one of the leading Indian IT service vendors. It has reported consistent financial performancein the past several quarters on the back of a ramp-up in business from the large deals bagged earlier and strongmomentum in the IMS space. It continues to demonstrate a strong growth visibility with a robust backlog of dealsand successful execution with market share gain strategy through vendor churns/consolidation. We remain positiveon the company in view of its order wins and superior earnings visibility.

Infosys � Infosys is India's premier IT and IT-enabled services company. We believe that top level exits and lower predictabilityof growth (currently lagging peers) is weighing on the company’s performance. With the new CEO, Vishal Sikka, atthe helm, the investors will now keenly focus on the company’s roadmap for future under the completely newleadership bench. Nevertheless, the valuations seem reasonable at the moment and a much better operatingenvironment in the USA and Europe give us confidence of an improved growth momentum after the completion of

transition period.

Persistent � Persistent Systems has proven expertise and strong presence in newer technologies, strength to improve its IP baseand the best-in-the-class margin profile which sets it apart from the other mid-cap IT companies. We maintain ourconfidence due to an optimistic management outlook driven by acceleration in the product engineering servicesbusiness, new technologies and increased momentum in the IP space after consolidating the HP Client Automationrevenues.

TCS � Tata Consultancy Services pioneered the IT services outsourcing business in India and is the largest IT service firmin the country. It is a leader in most service offerings and has further consolidated its leadership through theinorganic route. With a strong base it is well placed to garner incremental deals across sectors. Its consistentquarterly performance (better than peers’) coupled with the higher predictability of its earnings would keep it theStreet’s favourite counter in the IT space.

Wipro � Wipro is one of the leading Indian IT service companies. It has lagged the other IT biggies in terms of performancefor several quarters. The leadership and organisational changes that the company had adopted a couple of yearsago have just started to show tangible results which is reflected in the positive management commentary.Additionally, the overall improvement in the demand environment bodes well for the company’s revenue visibility.

Capital goods/Power

BHEL � Bharat Heavy Electricals, India’s biggest power equipment manufacturer, has been the prime beneficiary of the multi-fold increase in the investments made in the domestic power sector over the last few years. However, the order inflowhas been showing signs of slowing down which would remain a major concern for the company. The key challengebefore the company now would be to maintain a robust order inflow and margin amid rising competition and lowerorder inflow. The current order book of Rs103,700 crore stands at around 2.7x FY14 sales.

CESC � CESC is the power distributor in Kolkata and Howrah (backed by 1,225MW of power generation capacity) whichis a strong cash generating business. Further, 600MW of regulated generation capacity (to serve Kolkata distribution)would come on stream next year in Haldia. However, another 600MW is ready in Chandrapur which is lookingfor coal and power purchase linkage. The losses in the retail business have reduced in the last two years and thecompany is expected to break even at the operating level in FY15. The newly acquired subsidiary, FirstSource, isperforming well in line with expectations. We retain our Buy recommendation on CESC.

Crompton Greaves � Crompton Greaves’ key businesses—industrial and power systems—hold high potential in view of the investmentopportunities in the power transmission and distribution sector. Its consumer products segment is expected towitness a high growth. Though the domestic operations remain relatively stable, but the international operationswent through a restructuring. While the European subsidiaries are on recovery path post-restructuring, thesubsidiaries in Canada and the USA are yet to turn positive. However, the management expects a turn-aroundsoon. Demerger of consumer business would unlock substantial value in the stock. Hence, we remain positive onthis stock.

Finolex Cables � Finolex Cables, a leading manufacturer of power and communications cables, is set to benefit from an improvingdemand environment in its core business of cables and leveraging its brand strength to build a high-margin consumerproduct business (of switchgears, lamps etc). However, due to its derivative exposure in the past, it suffered lossesfollowed by valuation de-rating. More importantly, there is no more exposure hence the overhang of the derivativeshould fade away. We see healthy earnings growth, return ratios in high teens and high cash flow boding well forthe stock; hence, we remain positive on the stock.


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Greaves Cotton � Greaves Cotton is a mid-sized and well-diversified engineering company. Its core competencies are in diesel/petrolengines, power gensets, agro engines, pump sets (engine segment) and construction equipment (infrastructureequipment segment). The foray in the mini tractor segment and international markets would open new growthavenues. The management has taken a strategic call to close and hive off the loss-making divisions. The stepstaken include (1) the closure of the legacy casting unit in Pune; (2) the hive-off of the engineering unit in Germany;and (3) the closure of operations at the infrastructure division. With the closure of the infrastructure business andan expected improvement in the engine business, we expect the company to return to its 15%-plus OPM level byFY16 and hence recommend a Buy with a price target of Rs155.

Kalpataru � Kalpataru Power Transmission is a leading EPC player in the transmission & distribution space in India.Opportunities in this space are likely to grow significantly, thereby providing healthy growth visibility (also currentconsol order book is 1.4x its FY14 sales). The OPM of the stand-alone business is likely to remain around 9-10%;however the OPM of JMC Projects (a subsidiary) is showing signs of improvement after a significant drop in thelast two years. Subham Logistic is also expected to contribute meaningfully to the bottom line and add value. Weretain our Buy rating.

PTC India � PTC India is a leading power trading company in India with a market share of 35-40% in the short-term tradingmarket. In the last few years, the company has made substantial investments in areas like power generationprojects and power project financing which will start contributing to its earnings. Long pending receivables wasone of the drags on the company’s balance sheet and return ratios; however, the concern has receded after receivingpayment from UPSEB. We retain Buy due to expectations of a healthy volume uptick with an increasing share oflong-term contract business.

Thermax � The energy and environment businesses of Thermax are direct beneficiaries of the continuous rise in India Inc’scapex. Thermax’ group book stands at Rs6,067 crore, which is around 1x its FY14 consolidated revenues. However,the company has shown its ability to maintain a double-digit margin in a tough environment. The managementsounded positive with a likely recovery in industrial capex cycle. We retain Hold on the stock due to its richvaluation.

Triveni Turbines � Triveni Turbines Ltd (TTL) is a market leader in the up to 30MW steam turbine segment. TTL is at an inflexionpoint with a strong ramp-up in the after-market segment and overseas business while the domestic market isshowing distinct signs of a pick-up. The company has also formed a JV with GE for steam turbines of 30-100MWrange which is likely to grow multifold in the next 4-5 years. TTL is virtually a debt-free company with a limitedcapex requirement and an efficient working capital cycle, reflected in very healthy return ratios. Further, boostedby the expected uptick in the domestic capex cycle, the company’s earnings are likely to grow by 25%+ per annumover the next 3-4 years.

V Guard Ind � V-Guard Industries is an established brand in the electrical and household goods space, particularly in southIndia. Over the years, it has successfully ramped up its operation and network to become a multi-product company.It has recently also forayed into regions other than the south and is particularly focusing on the tier-II and III citieswhere there is a lot of pent-up demand for its products. We expect a CAGR of 22% in its earnings over FY14-17and RoE of 25% during this period.

Infrastructure/Real estate

Gayatri Proj � Gayatri Projects is a Hyderabad-based infrastructure company with a very strong presence in irrigation, road andindustrial construction businesses. The order book stands at Rs7,206 crore, which is 3.6x its FY13 revenues. It isalso expanding its power and road BOT portfolio and plans to unlock value by offloading stake to private equity.The company has potential to transform itself into a bigger entity.

IL&FS Trans � IL&FS Transportation Networks is India’s largest player in the BOT road segment with a pan-India presence anda diverse project portfolio. The fair mix of annuity and toll projects, and state and NHAI projects along with thegeographical diversification across 12 states reduce the risk to a large extent and provide comfort. Further, astrong pedigree along with the outsourcing of civil construction activity helps it to scale up its portfolio faster.Thus, it is well equipped to capitalise on the huge and growing opportunity in the road infrastructure sector.

IRB Infra � IRB Infrastructure Developers is the largest toll road BOT player in India and the second largest BOT operator inthe country with all its projects being toll based. It has an integrated business model with an in-house constructionarm which provides a competitive advantage in bidding for the larger projects and captures the entire value fromthe BOT asset. Further, it has a profitable portfolio as majority of its operational projects have become debt-freeand it has presence in high-growth corridors which provides healthy cash flow. Thus, it is well poised to benefitfrom the huge opportunity in the road development projects on the back of its proven execution capability and thescale of its operations.

Jaiprakash Asso � Jaiprakash Associates, India’s leading cement and construction company, is all set to reap the benefits of India’sinfrastructure spending. The company has also monetised very well the real estate properties of Yamuna Expressway.The marked improvement in the macro environment has improved accessibility to capital and thus eased theconcerns of liquidity to some extent. However, higher leverage could act as drag on the valuation.

L&T � Larsen & Toubro, being the largest engineering and construction company in India, is a direct beneficiary of thedomestic infrastructure capex cycle. The strong potential of its international business, its sound execution track recordand bulging order book, and the strong performance of subsidiaries further reinforce our faith in it. Recent measuresplanned by the company to improve its return ratios augur well. Hence, we remain positive on the stock.


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Pratibha Ind � Pratibha Industries is a dominant player in water & irrigation and urban infrastructure segments. It has also diversifiedinto other high-margin areas like road BOT, power and oil & gas. The current order book stands at Rs8,000 crore,which is 3.7x its FY13 revenues. The company is facing margin pressure and higher interest expenditure on accountof the rising debt to finance working capital needs. We currently remain cautious and await positive developmentsin terms of debt and working capital requirements.

Punj Lloyd � Punj Lloyd is the second largest EPC player in the country with a global presence. However, since FY09 theprofitability has come under severe pressure due to cost overruns/liquidated damages in some of Simon Carves (asubsidiary) projects. Thus, it has put Simon Carves under administration. Further, Libyan projects will take anotherfew quarters to begin execution. Therefore, the successful execution of its projects along with debt reduction andworking capital management will drive its growth as it enjoys a robust order book.

Oil & gas

Oil India � Oil India has several hydrocarbon discoveries across reserves in Rajasthan and the north-eastern region of India.The total proven and proven and probable reserves of the company stand at 473 million barrels (mmbbls) and941mmbbls respectively. In addition to the huge oil reserves, the company’s reserve-replacement ratio is quitehealthy at 1.6x, which implies a comfortable level of accretion of oil reserves through new discoveries. Further, itoffers healthy dividend yield, which provides comfort to investors. The full benefit of the recent policy reformslike deregulation of diesel and gas price revision are expected to reflect in the FY16 numbers and augur well forthe company.

Reliance Ind � Reliance Industries holds a great promise in E&P business with gas production from the KG basin. Further, a likelyrevision in the natural gas prices will be a positive trigger. In the refining space, we expect its GRM to pick up witha likely improvement in the light-heavy crude oil price differential. The company is likely to fetch a premium overSingapore Complex’ GRM due to its superior refinery complexity and captive use of KG-D6 gas. We expect thepetrochem margins to be maintained in the medium term on an uptick in the domestic demand. Currently, the declinein gas output from the KG-D6 basin is weighing on the stock price; however, incremental capacity in the petchembusiness would be the earnings driver in the coming years.

Selan Exploration � Selan Exploration Technology is an oil E&P company with five oil fields in the oil-rich Cambay Basin of Gujarat.The initiatives taken to monetise the oil reserves in its Bakrol and Lohar oil fields are likely to improve production.Further, it intends to explore its next field, Indrora, which is the most prolific one with significant reserves. Basedon this, we expect it to ramp up production significantly, subject to approval for the new wells. We expectproduction ramp-up in FY16 and hence we expect the earnings to grow significantly in the next two to three years.

Pharmaceuticals

Aurobindo Pharma� Aurobindo Pharma is set to post a healthy growth on the back of a ramp-up in the USA and the European market,thanks to a strong product pipeline built over a period and focus on niche segments like injectibles, hormones,penems and sterile products. The expected increase in the export-led business and a favourable tilt in the revenuemix are likely to boost the margin, resulting in a faster growth in the earnings as compared with the revenues. Ithas recently acquired the commercial operations (revenue size EUR320mn) of Actavis Plc in seven western Europeancountries, which is a strategic fit. We expect the revenues and net profit to grow at a CAGR of 25% and 17% overFY14-16 respectively.

Cadila � Cadila Healthcare’s performance in the US generic vertical is likely to improve on the back of new productapprovals. Besides, its consumer business and exports to the emerging markets will help it to achieve its target ofgenerating revenues of $3 billion by FY16. It got DCGI approval for its first NCE called Lipaglyn to treat type-IIdiabetes; this will add value to its R&D pipeline. However, recently it received an adverse observation report(Form-483) on one of its products filed with the US regulator from its Moraiya plant which will be a key overhangon the stock.

Cipla � Cipla has brought about a paradigm shift in its business strategy. To revive growth, it has (1) enhanced focus ontechnology-intensive products in the inhalation and nasal spray segments; (2) established front-end presence in thekey markets like South Africa and Europe; (3) developed an appetite for inorganic expansions; and (4) invested infuture growth areas like biosimilars. Though consolidation of CiplaMedpro would hurt earnings in the shortterm, but the base business would continue to grow steadily, the growth would be fast-tracked in H2FY15 on theback of the launch of combination inhalers in Europe, ramp-up in generics in the USA and synergy fromconsolidation.

Divi’s Labs � The new DSN SEZ facility at Vishakhapatnam that started in June 2011 augurs well for Divi’s Laboratories. Thecompany is likely to see an improvement in economies of scale which will also lead to tax benefits after USFDAapprovals for three additional production blocks expected to come in Q2FY15. A near debt-free balance sheet andstrong cash flow are likely to help build a war chest for pursuing strategic investments (biosimilars) and exploitthe growth opportunities in niche segments, like oncology and steroids for contraceptives.


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Glenmark Pharma � Glenmark Pharmaceuticals exhibited an impressive operating performance during FY14 in the core business onkey generic launches, though, higher R&D expenses and tax payments restricted the profit growth. Throughsuccessful development and out-licencing of six molecules in a short span of eight years, it has become India’s bestplay on research-led innovation. It has built a pipeline of 14 molecules and clinched six out-licencing deals worth$1,672 million (active deals worth $938). It has received over $200 million as initial milestone payment. Its corebusiness has seen stupendous success due to its focus on niche specialties. It has recently announced a plan to setup a new facility in the USA to de-risk the business. We are confident of its long-term growth prospects.

Ipca Lab � Ipca Laboratories has successfully capitalised on its inherent strength of producing low-cost drugs to tap theexport markets. Its ongoing efforts in the branded formulations business in the emerging economies, the revival inthe UK operations, the pan-European initiatives, the likely approval of one additional product under institutionalbusiness and a significant scale-up in the US business will drive its formulation exports. It has received USFDA’sapproval for the Indore SEZ (US supplies started in Q1FY15). But it has recently got an adverse inspection report(Form-483) by USFDA on its Ratlam API facility which will hamper the US business for nearly six months.

J B Chemicals � Two years after selling the OTC business in Russia and CIS, JB Chemicals and Pharmaceuticals has reestablisheditself in the export market while retaining leadership in the domestic branded formulation market. A major chunkof the proceeds from the sale of the OTC business has stayed in its balance sheet while the operating performanceof the company has improved in recent quarters. We expect the company to fast forward growth rates on the backof focus on regulated markets like the USA. The utlisation of surplus cash of over Rs500 crore would provide thekey trigger to the stock.

Lupin � The expected ramp-up in the launch of oral contraceptives, ophthalmic products, branded franchise (with additionof in-licenced product-Alinia and Locoid lotion) in the USA and a robust pipeline of new launches in the domesticand overseas markets provide strong growth visibility for Lupin. Further, with an expanded field force and therapyfocused marketing division, its formulation business in the domestic market has been performing better than theindustry. The deal with Eli-Lilly to distribute human insulin would open an incremental revenue stream for Lupinin the Indian market.

Sun Pharma � The combination of Sun Pharmaceuticals, Taro, Dusa Pharma and the generic business of URL Pharma offers anexcellent business model, as has been reflected in the 42% Y-o-Y revenue growth and 59% profit growth in FY14.It has recently announced plans to acquire Ranbaxy Laboratories for $4 billion through a share swapping deal.The acquisition augurs well for the company as it will help establish a leadership position in key markets includingIndia, apart from leading to synergy of $250 million in next two years. With a strong cash balance, it is wellpositioned to capitalise on the growth opportunities and inorganic initiatives. The company has recently gotForm-483 from USFDA for its Halol facility, though the observations are not serious and we expect the resolutionto come in 3-4 months.

Torrent Pharma � A well-known name in the domestic formulation market, Torrent Pharmaceuticals has been investing in expandingits international presence. With the investment phase now over, it should start gaining from its internationaloperations in the USA, Russia and Brazil. The impending turnaround of its German acquisition, Heumann, willalso drive its profitability. Better field force productivity, focus on developed market and stronger balance sheetwould result in a sustainable earnings growth. It has recently acquired the 30 key brands of Elder Pharma forRs2,000 crore, which is a strategic fit in long run.

Building materials

Grasim � Grasim is better placed compared with the other large players in the cement space due to its strong balance sheet,comfortable debt/equity ratio, attractive valuation and diversified business. The demand for VSF products remainsstrong in the global market and Grasim being a leading domestic player is well placed to capture the incrementaldemand.

The Ramco Cements � The Ramco Cements, one of the most cost-efficient cement producers in India, will benefit from the capacityaddition carried out ahead of its peers in the southern region. The 3mtpa expansion will provide the much-neededvolume growth in the future. The regional demand remains lacklustre but on account of the improvement in therealisation due to supply discipline and a likely change in the market mix its profitability will improve (marginally)in FY15.

Shree Cement � Shree Cement’s cement grinding capacity has grown to 18.2mtpa which will support its volume growth in thecoming years. It has set up 300MW power plant entirely for merchant sale which is expected to support itsrevenue growth going ahead. Thus, a volume growth of the cement division and the additional revenue accruingfrom the sale of surplus power will drive the earnings of the company.

UltraTech Cement � UltraTech Cement is India’s largest cement company with approximately 52mtpa cement capacity. It has benefitedfrom an improvement in its market mix. Further, the ramping-up of the new capacity and savings accruing fromthe new captive power plants will improve its cost efficiency.


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Discretionary consumption

Cox & Kings: � Cox & Kings is an integrated player with a strong presence in the global leisure travel segment and the educationtourism segment in Europe. It has 30% market share in the global outbound tourism market and a market leaderin education tourism in the UK. An improving global macro environment (conducive to travel & tourism industry)and the company’s focus on de-leveraging its balance sheet will help it to achieve a double-digit earnings growthin the medium term. The stock is currently trading at a discount to some of its domestic and international peers.Hence, we recommend a Buy on it with a price target of Rs395.

Eros Intl Media � Eros International Media is one of the largest integrated film studios in India with multi-platform revenue streamsand a well-established distribution network across the globe. With its proven track record, an impressive movieslate and alliance with HBO coming into foray, it is well poised to gain from the rising discretionary spending onfilm entertainment driven by the country’s favourable demographics. Thus, it is a compelling value play on theIndian media and entertainment industry.

KKCL � Kewal Kiran Clothing is a branded apparel play with four brands in its kitty. Killer, its flagship denim brand, hascreated a niche space in the minds of consumers. With a gross market turnover of over Rs300 crore, Killer is aheadof its rival, Spykar. A strong brand profile, a disciplined management and a consistent track record coupled witha robust balance sheet put it in a sweet spot.

Raymond � Raymond is present in the fast-growing discretionary & lifestyle category of branded textiles and apparels. Withgrowing incomes, rise in aspirations to lead a luxurious life, greater discretionary spending and favourabledemographics, the segment of branded apparels & fabrics presents a good growth opportunity and Raymond withits brands and superior distribution set-up is very well geared to encash the same. Any development with regard tothe Thane land in the form of either joint development or disposal would lead to value unlocking and providesignificant cash to the company.

Relaxo Footwear � Relaxo Footwear is present in the fast-growing footwear category, wherein it caters to customers with its four top-of-the-mind-recall brands, viz, Hawaii, Sparx, Flite and Schoolmate. It has emerged as an attractive investmentopportunity due to its growing scale, strong brand positioning and healthy financial performance.

Speciality Rest. � Speciality Restaurants is a leading player in the fine-dining space with a portfolio of well-established brands suchas Mainland China and Sigree. It is a good proxy on the Indian consumption story as several factors such asdemographics, increasing disposable income and the trend of nuclear families are playing in its favour. Given thestrong brand franchisee, an improving outlook on the margin and a broadening of the valuation gap with comparablelisted peers, we maintain our Hold rating on the stock.

Sun TV Network � Sun TV is the undisputed leader in the south Indian TV entertainment market. The broadcasters are one of keybeneficiaries of the mandatory digitisation process initiated by the government as its implementation is expectedto lead to a six-fold increase in ARPU of cable subscribers from Rs4 currently to Rs15-20 post-DAS regime.However, on account of a delay in the implementation of DAS in phases 3 and 4 the revenue accretion is expectedto be delayed. Though it is a dominant player in the south Indian advertising market (where it enjoys a 30%market share), but its ad revenue growth has been soft in recent quarters. We believe that the delay DAS process,muted ad revenue growth and ongoing CBI enquiries will remain an overhang in the near term.

Zee Entertainment � Zee Entertainment Enterprises, part of the Essel group, is one of India's leading TV media and entertainmentcompanies. It has a bouquet of 34 channels across Hindi, regional, sports and lifestyle genres. It is best placed to benefitfrom the digital addressable system regime rolled out by the government. The company has consistently outgrownthe industry in terms of advertising growth and is a leader in terms of market share. Anticipating an overallimprovement in the domestic macro environment the management expects this trend to continue going ahead.

Diversified/Miscellaneous

Aditya Birla Nuvo � We like the strong positioning that Aditya Birla Nuvo’s businesses enjoy in their respective fields. It is amongst thetop five players in the insurance, asset management and telecom segments (Idea Cellular is the fastest growing telecomcompany, third in ranking). Madura Garments, with its marquee brands, and consistent and resilient growth, is aprofitable set-up. In an improving macro-economic environment the company would be well placed to grow.

Bajaj Holdings � Bajaj Holdings & Investment Ltd (BHIL, erstwhile Bajaj Auto) was demerged in December 2007, whereby itsmanufacturing business was transferred to the new Bajaj Auto Ltd (BAL) and its strategic business consisting of thewind farm and financial services businesses was vested with Bajaj FinServ (BFS). All the businesses and properties,assets, investments and liabilities of erstwhile Bajaj Auto, other than the manufacturing and strategic ones, now remainwith BHIL. BHIL is a primary investment company focused on new business opportunities. It holds more than 30%stake each in BAL and BFS. We have a Buy recommendation on the stock with a price target of Rs1,636.

Bharti Airtel � Bharti Airtel is the leader in the Indian mobile telephony space. With the regulatory overhang receding and the industryas well as the company focusing on the quality of revenues rather than volume, better times can be expected aheadfor the sector and hence the company. We remain optimistic about the company.


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BEL � Bharat Electronics, a PSU manufacturing electronic, communication and defence equipment, is benefiting from theenhanced budgetary outlay for strengthening and modernising the country’s security. The growth in revenues is alsoexpected to be aided by the civilian and export orders. The company’s current order book of around Rs23,500 croreprovides revenue visibility for the next three to four years. The huge cash reserve would also support the stock.

Century Plyboard � Century Plyboard is a leading player in the organised plywood industry with a market share of 25%. A strong growthin the sector, Century’s premium positioning and brand equity strength, and the impending GST roll-out would enableit to post a revenue growth (CAGR) of 22% over FY14-17. On the back of a revenue growth and better absorptionof fixed costs, the earnings are likely to grow at a much stronger rate of 47% CAGR over FY14-17. It is a qualityconsumer play in a niche growing segment. Its robust return ratios and strong growth potential make us positive onthe stock. We have a Buy rating on it with a price target of Rs200.

GDL � With its dominant presence in the container freight station segment and recent forays into the rail freight and coldchain businesses, Gateway Distriparks has evolved as an integrated logistic player. Its CFS business is a cash cowwhile its investments in the rail and cold storage businesses have started bearing fruits. It is one of the largestplayers in the CFS business and has also evolved as the largest player in the rail freight business as well as the coldstorage business. The proposed capex for all the three segments will strengthen its presence in each of the segmentsand increase its pan-India presence. We expect its revenues and net profit to grow at 20% and 16% CAGRrespectively over FY13-15.

Max India � Max India is a unique investment opportunity providing direct exposure to two sunrise industries of insuranceand healthcare services. Max New York Life, its life insurance subsidiary, is among the leading private sectorplayers, has gained the critical mass and enjoys some of the best operating parameters in the industry. As theinsurance sector is showing signs of stablisation, the company’s favourable product mix and a strong distributionchannel will result in a healthy growth in the annual premium equivalent. The company has turned profitable ona consolidated basis and has announced dividend in past couple of years.

Ratnamani Metals � Ratnamani Metals & Tubes is the largest stainless steel tube and pipe maker in India. In spite of the challengingbusiness environment due to increasing competition, the stock is attractively valued. The management has maintaineda strong outlook on the potential opportunities in the oil & gas sector and inter-connection of the rivers across thecountry.

Supreme Ind � Supreme Industries is a leading manufacturer of plastic products with a significant presence across piping, packaging,industrial and consumer segments. Despite a decline in volume growth, we expect double-digit volume growth inplastic business. The management sees signs of demand revival (low inventory with dealers) and has guided for arevenue growth of 18-20% and OPM of 13.5-14.0% for FY15.The company is witnessing traction in the compositecylinder and bathroom fitting businesses along with a gradual pick-up in pipes and other CPVC products. Wehave a Hold rating with a price target of Rs620 (valuation of 19X FY16E largely factors in most of the positivesincluding revival of plastic volumes).

Technocraft Ind � Technocraft Industries India Ltd (TIIL; a diversified player with interests in drum closures, scaffoldings, yarn andgarments) is the second largest player globally in the drum closure manufacturing space (market share of 35%).While drum closure business (the cash cow with high margin and return ratios) is expected to grow steadily, thescaffolding & formwork business is set to grow above 20% annually for the next couple of years. The financialhealth is expected to improve steadily with a leaner balance sheet, healthy return ratios and cash flow; however,the stock is attractively trading at 5x FY16E earnings and 2x FY16E EBITDA. We remain positive on the stock.

United Phos � A leading global producer of crop protection products, intermediates, specialty chemicals and other industrialchemicals, United Phosphorus has presence across value-added agricultural inputs ranging from seeds to cropprotection products and post-harvest activities. A diversified geography and the recent acquisition of DVA AgroBrazil will help the company to have a strong presence in the Brazilian market and aid in inorganic growth. Itsrevenues are likely to grow at 12-15% and EBIDTA margin is expected to remain at 18-20% in FY15. It has alsostarted to focus on premium products in agro-chemicals and will slowly stop selling commodities and low-marginproducts.











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ValueGuide_Jan15