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The Front Page March 13, 2009

• What’s Inside: Pharmaceuticals, Strategy, RCOM (BUY), ABB (SELL), Events calendar, Pledged shares

Market Front Page Corporate Front Page

Index Movements Closing % Chg % YTD ADR/GDR (US$) Latest % Chg % Prem • Reliance Industries is likely to begin gas production from the KG basin
Sensex 8,344 2.2 (13.5) HDFC Bank 51.3 2.3 11.1 by mid-April, about a month after the previous deadline of mid-March.
Nifty 2,617 1.7 (11.5) Reliance 46.0 0.0 (0.8) (BS)
BSE Smallcap 2,877 0.4 (21.9) Infosys 25.4 3.7 7.3
• BHEL may team up with Bharat Forge and Areva, France, for its
CNX Midcap 2,966 1.0 (20.6) Satyam 1.8 0.6 (0.8) proposed nuclear forging business. (ET)
Nasdaq 1,426 4.0 (9.6) Wipro 6.1 4.8 48.5
• Power ministry backs NTPC to expedite the delivery of fuel. (ET)
DJIA 7,170 3.5 (18.3) ICICI Bank 11.8 4.3 7.2
IBOV 39,152 0.9 4.3 SBI 35.5 0.9 1.0 • Tata Communication has dropped its proposed rights issue of Rs10bn,
FTSE 3,712 0.5 (16.3) Sterlite 5.2 3.8 3.0 but plans US$400-500m capex in the next financial year. (FE)
CAC 2,694 0.7 (16.3) Tata Motors 3.9 10.6 37.4 • Tata Motors JLR will be getting about GBP27m from UK government for
Turnover US$m % Chg Commodities Latest %Chg %YTD production of a new ‘green car’ model. (ET)
BSE 516 23.9 Gold (US$/ounce) 925 (0.2) 4.8 • Sanjay Kapoor, president of Bharti Airtel’s mobile division, is now deputy
NSE 1,611 28.0 Crude (US$/bl) 47 11.1 5.5 CEO of the company. (ET)
Derivatives (NSE) 9,580 30.9 Aluminium (US$/MT) 1,340 0.1 (13.0)
• Wipro Infotech along with Middle East arm of Wipro bagged an IT
FII F&O (US$m) Index Stocks Copper (US$/MT) 3,580 (0.3) 16.6
outsourcing contract from ESIC worth Rs12bn. (ET)
Net buying 107 55 Forex Rates Closing % Chg %YTD
Open interest 5,412 2,672 Rs/US$ 51.7 (0.1) 6.7 • Allcargo Global Logistics has acquired 5.97% stake in Gateway
Chg in open int. 247 67 Rs/EUR 66.2 0.8 (3.0)
Distriparks Ltd. (FE)
Equity Flows (US$m) Latest MTD YTD Rs/GBP 71.6 (1.5) 2.3 • Tech Mahindra, L&T and Spice Group are in the final list of bidders for
FII (9/3) 3.0 (540) (2,260) Bond Markets Closing bps Chg Satyam. (ET)
DII (12/3) 44 440 1,754 10 yr bond 6.9 35.0 • Dish TV may break even before targeted date. (BS)
MF (9/3) (19) (150) (633) Interbank call 3.6 0.0
• ICICI Ventures hints at corporate governance lapses by Subhiksha MD.
Charts Front Page • National Environment Appellate Authority has dismissed an appeal against
the implementation of Reliance Power’s 4,000MW power project at
Shahpur. (ET)
Sensex price volume Sensex intraday
t d • Cochin Port Trust signed a concession agreement with Petronet LNG for
120 Volumes Sensex 22,000 8,450 transfer of 33.4hectares on a 30 years lease in port based SEZ for setting
(Rs bn)
100 19,500 up an LNG terminal and a re-gassification plant. (ET)
17,000 • Aircel plans to invest Rs10bn in Andhra Pradesh by December ’09. (FE)
14,500 • Wockhardt promoters plan to sell property and put company’s marketing
12,000 8,300 division on the block to repay loans. (Mint)
40 9,500 • TVS Motor targets 36% increase in sales with the launch of TVS Scooty
Streak. (BS)




20 7,000
Sep06 Jul07 May08 Mar09
Market Front Page Corporate Front Page

Top Movers BSE 200 • TVS Motor converted a Rs185m loan it gave to its wholly-owned
Price Chg YTD Price YTD subsidiary, Sundaram Auto Components Ltd, last year, into equity. (BL)
Top Gainers Top Losers Chg (%)
(Rs) (%) (%) (Rs) (%) • Nagarjuna Construction Company secured three new orders
Axis Bank 305 8.8 -39.7 Sun TV Network 138 -5.7 -23.7 aggregating Rs2.6bn. (BL)
Pantaloon Retail 115 8.1 -47.3 IDFC 45 -4.7 -32.9
• Piramal Healthcare Ltd plans to sell its pharma solutions division, and is
ICICI Bank 284 8.0 -36.6 IDBI 40 -4.4 -40.7
looking at acquiring brands in the female healthcare and osteoporosis area.
United Phosphorus 80 7.5 -26.0 Television 18 54 -4.3 -39.4
Tata Motors 146 6.6 -8.6 Jet Airways 116 -4.2 -42.9
• Reliance-ADAG is acquiring 51% stake in UK based currency exchange
and money transfer firm No1 Currency for ~Rs1bn. (ET)
Volume spurts
Vol. (in 10D A.Vol
Company CMP M.Cap % Chg
'000) (in '000)
Asian Paints 709 1,315 474 69 589
Orchid Chemicals 57 77 768 170 353
Economy Front Page
Kesoram Inds 112 99 216 50 331
CESC 192 464 534 127 321
• High base and correction in metal prices pull inflation to six year low of
2.43%. (ET)
IDFC 45 1,122 26,768 7,653 250
Indiabulls Finan 85 417 1,660 477 248 • IIP dipped by 0.5% yoy in January. Capital goods and consumer durables
Castrol India 298 712 88 27 221 were the better performers. (ET)
Bharti Airtel 548 20,137 17,323 5,488 216 • RBI increases bond underwriting fee by 100%. (ET)
Aditya Birla Nuvo 338 621 288 95 202
• RBI restarts special market operations enabling PSU refiners to convert
Tata Chemicals 100 457 2,330 819 185
their oil bonds into dollars. (ET)

FII - FII trades • FDI inflows up 90% in the first eight months of this fiscal. (ET)
9/3/2009 12/3/2009 • Average wages of workers in labour intensive sectors have come down by
Volume '000 Price Prem % Volume '000 Price Prem % 3.45%. (ET)
Pnb 327 310 2.0 140 316 1.3
• Public Sector Banks likely to offer cheaper tractor loans. (ET)
Union bank 195 118 1.2 686 119 -
Iob 35,363 37 - 29 40 1.0 • Domestic cement industry continued to perform well with demand for
Ing vysya bank 490 106 1.0 - - - building material being at over 8 per cent for the fourth successive month
since November ‘08. (BS)
Bank of baroda - - - 256 191 1.3
Grasim 32 1,440 2.5 24 1,430 2.0 • Domestic pharmaceutical market registered 14.4% growth in January ’09
Pantaloon - - - 847 113 0.5 and 9.9% for the 12 months ended January ‘09. (BS)
Insider Trading

Company Name of Acquirer / Seller Transaction Date Buy /Sale Quantity Price Deal Size Shares Transaction Holding after
(Rs) (Rs m) (%) Transaction (%)
Ahlcon Parenterals (India) Ltd Bikramjit Ahluwalia 02/03/2009 Buy 750,090 17.3 13 10.4 35.4
Bharti Airtel Ltd Mr Manoj Kumar Kohli 06/03/2009 Sell 53,000 602.0 32 0.0 0.0
Godrej Consumer Products Ltd Godrej Industries Ltd -- Buy 3,400,000 123.0 418 1.3 -
Micro Technologies (India) Ltd PR Vyapaar Pvt Ltd 07/02/2009 - 17/02/2009 Buy 150,000 67.0 10 1.4 6.3
OnMobile Global Ltd Amit Kumar Dey 06/03/2009 Sell 75,000 231.0 17 0.1 0.5
OnMobile Global Ltd Amit Kumar Dey 05/03/2009 Sell 30,500 230.0 7 0.1 0.7
OnMobile Global Ltd Sandeep Ganguly 02/03/2009 - 05/03/2009 Sell 26,389 230.0 6 0.0 0.0
Orissa Sponge Iron And Steel Ltd Bhushan Energy Ltd 03/03/2009 Buy 817,000 343.0 280 4.1 13.6
Praj Industries Ltd Mr Parth Chaudhari 02/03/2009 - 03/03/2009 Buy 256,637 49.0 13 0.1 1.0
Rolta India Ltd M/s Rolta Shares & Stocks Pvt Ltd 09/03/2009 Buy 500,000 43.0 22 0.3 3.1
Shree Ashtavinayak Cine Vision Ltd Dhilin H Mehta 26/02/2009 Buy 15,000 496.0 7 0.1 16.3

Deal size worth more than Rs5m considered. The exchange does not report transaction prices, so we have assumed them to be closing prices for the respective days. Hence, actual deal sizes may vary from the figures above.

BSE/ NSE - Bulk Deals

Company Name of Acquirer / Seller Transaction Date Buy /Sale Quantity Price Deal Size
(Rs) (Rs m)
Everonn Systems India Ltd Norges Bank 12/3/2009 Sell 80,000 85.0 7
Infra Devfin Goldman Sachs Investments Mauritius 12/3/2009 Sell 13,202,060 44.6 588
Infra Devfin Morgan Stanley Mauritius Company Ltd 12/3/2009 Buy 13,202,060 44.6 588
Iol Net Com Hsbc Bank Mauritius Ltd 12/3/2009 Sell 340,000 39.0 13
The world needs cheap pills! India can help 13 March 2009

Our new report on Indian Pharma - "The World needs cheap pills! - India can help" should reach your desk
shortly. It includes two booklets – one each on diabetes and coronary heart disease.
In it, we highlight the strong case to invest in the established Indian generic players, in the current
environment. These players will benefit from developed economies’ urgent need to rein in healthcare costs
and the rising prevalence of lifestyle diseases. Specific growth drivers include the new US Democrat
administration’s pro-generics stance, patent challenge exclusivities in the US, the opening up of the regulated
biosimilars markets, and the US President’s Emergency Plan for AIDS Relief.
Core generics remain defensive; alternative themes to suffer: The developed market generics business will be the
most resilient to global slowdown, as governments running large deficits will aggressively promote generics to rein in
healthcare costs. Other areas in the pharma industry are not as well-placed: the CRAMS business faces inventory
reductions by customers, falling prices of end-products and idle capacities; growth in the emerging markets will likely cool
off owing to financial pressures; and the drug discovery business continues to face tight credit conditions.
More growth drivers: The Democrat regime’s proposal to bring 47m more Americans under health insurance could increase
the size of the generics market by 15%. The recently expanded PEPFAR (President’s Emergency Plan for AIDS Relief) and
para IV patent challenge opportunities are other growth drivers. Opening up of the regulated biosimilars market represents
another medium to long term growth opportunity.
Top picks: Sun Pharma, Cipla and Dr Reddy’s are the best plays on the continuing growth in developed markets. We expect
all three to register 20%-plus revenue CAGR over FY08-11. Ranbaxy and Glenmark too will benefit in the long term, though
in the medium term, their prospects will likely be hampered by drug quality issues with US FDA and emerging market
pressures, respectively. Cipla will be the key beneficiary of the expanded PEPFAR programme. Biocon and Dr Reddy’s hold
promise in the regulated biosimilars market. Source of prices: Medscape, IIFL research

Growth in developed markets is not very low vis-à-vis Our top picks
emerging ones CMP Mcap Target Upside
(%) (Rs/share) (US$mn) price
Generics market value CAGR 2003-07
20 Sun Pharma 1028 4078 1238 20.4%
Cipla 204 3051 246 20.6%
Dr Reddy's 398 1291 511 28.4%
12 Biocon 101 389 154 52.5%
Opto Circuits 79 243 156 97.5%
Glaxo Smithkline Pharma 1169 1908 1265 8.2%
4 Prices as of close of business on 12 March 2009
Source: IIFL Research






Dr Bino Pathiparampil
(91 22) 6620 6648
Source: IMS, IIFL Research
Unhitch Ltd - BUY.

Core generics the way to go; give a break to researchers and medical devices players. The generics players themselves
have various levels of exposure to domestic market, other emerging
alternative themes markets and developed markets. We believe that CRAMS and emerging
markets—two key themes that were growth drivers over the last 2-3 years—
The global slowdown has had its effects on the listed pharma space too, will take a back seat owing to the economic slowdown. Developed market
though the sector has been more resilient than most others. This has generics and the domestic market will be the drivers of stable growth for the
changed the dynamics within the sector that includes generic players, Indian pharmaceutical industry in the near to medium term. These two
contract research and manufacturing players (CRAMS), new drug discovery businesses will remain the most defensive in the face of economic slowdown.

Figure 1: Business models in the listed healthcare space*


Pira LS
New drug discovery

Emerging market
generics Glenmark

Developed market
Dr Reddy’s



Domestic generics





Medical devices

Source: IIFL Research, *Size of shapes not indicative of size of companies 2
Unhitch Ltd - BUY.

Healthcare expenditure’s share of GDP is rising Figure 3: Prescription drugs form an increasing share of healthcare expenditure
Healthcare spending in developed countries is rising disproportionately National health expenditure (LHS) Prescription drug expeenditure (LHS)
fast. Aging populations, rapid increase in prevalence of lifestyle diseases Prescription drug as % of total (RHS)
and ever-improving standards in healthcare that come at significant 3,500
(US$ bn) (%)
cost have all contributed to this phenomenon. In the US, where data is 3,000 14
readily available, health expenditure as share of GDP has gone up from 2,500
5.2% in 1960 to 16% in 2006. The Centre for Medicare and Medicaid 10
Services estimates that if current trends persist, this share will rise to 2,000
20% in 2017 and further to 43% in 2080. This underscores developed 1,500
countries’ urgent need to accelerate penetration of generics. 1,000
500 2
Figure 2: Health expenditure forms a rapidly-rising share of USA’s GDP
0 0
(US$ bn) National health expenditure (LHS) (%)
1960 1970 1980 1990 2000 2006 2012e
25,000 GDP (LHS) 25
Health expenditure as % of GDP (RHS) Source: Centre for Medicare and Medicaid Services
20,000 20

15,000 15
Huge opportunity in developed markets
10,000 10 The developed markets are often perceived to be mature markets with
little growth and high barriers to penetration. However, our analysis
5,000 5 suggests that the generics market’s growth in developed economies has
not been much slower than that in emerging markets. One of the most
0 0 important growth drivers in the developed markets is the large number of
1960 1970 1980 1990 2000 2006 2012e 2017e patented drugs going off-patent. IMS estimates that US$116bn worth of
innovator sales are open to generics competition in US, Japan and the top
Source: Centre for Medicare and Medicaid Services five European markets over 2007-11.

Prescription drug spend: small but rising contribution Further, there are opportunities to participate in the accelerating
Although prescription drugs currently account for only about 10% of the penetration of generics in under-penetrated developed markets such as
total healthcare expenditure in the US, the most active focus is on Japan, France, Spain and Italy. The Japanese government has in principle
cutting that component. Three reasons for this are 1) they are growing decided to work towards increasing the volume penetration of generics
faster than total healthcare costs; 2) the government finds cost-cutting from the current 17% to 30% by 2012. The Teva-Kowa deal and the
easier in prescription products than in other areas; and 3) regulations Daiichi-Ranbaxy deal of 2008 stand testimony to the conviction of
that control hospitalisation/investigation decisions are politically Japanese companies in this transition.
sensitive and governments usually prefer to stay clear of these issues. 3
Unhitch Ltd - BUY.

US market: still the best bet for Indian generics firms aims to increase revenues at an annual rate of 13-17% vs the projected
market growth rate of about 10%, to further increase its share of the
The market is underestimating US generics opportunity market. Indian players have been growing faster than the broader US
The US continues to be a major growth opportunity for generics market for the last few years and we see no reason for this to change.
companies, but we believe the market is underestimating this
opportunity, preoccupied as it is with the branded generics opportunity Obama administration favours increasing usage of generics
in emerging markets. Penetration of generics is steadily increasing in The return of Democrats to power in the White House and US Congress
the US and the new Democrat regime’s policies will drive it further. should further improve the prospects of generics companies in the US
These policies may include the expansion of health insurance coverage, pharmaceuticals market. In all likelihood, the new Democrat regime in
promotion of generics through economic incentives and approval of the US will be pro-generics, given the significant cost benefits
biosimilars. Also, in our view, large Indian players are well-placed to associated with it. The new administration also aims to make quality
benefit from the ongoing consolidation of the fragmented US generics healthcare accessible to all Americans, by expanding state medical
industry, and garner an increasingly large share of the pie. benefit programmes such as Medicare and Medicaid.
Figure 4: Penetration of generics is improving steadily in the US market
(%) US generic penetration by value US generic penetration by prescription volume
Perhaps the most important stimulus to the generics market will come
from implementation of health insurance coverage for all Americans.
This would mean that about 47m Americans that are currently out of
60 any health insurance will come under coverage, expanding the market
50 for cost-effective therapeutics, including generics. Initial reports indicate
that President Obama has already begun to take steps in this direction.
In his first budget, he is expected to seek US$634 billion over 10 years
30 as a down payment on healthcare reforms—more than half of the
20 estimated total cost of bringing 47m Americans under coverage.
We expect the Democrats to go full-steam ahead with a law that will set
0 the process for approval of biosimilars. The Biologics Price Protection
2001 2002 2003 2004 2005 2006 2007 and Innovation Act is already under Congress review and could be
Source: Teva enacted in 2009 itself, setting the stage for the development of a
multibillion-dollar industry over the next decade.
Opportunity to consolidate US market share
The US generics market is fragmented, with the market leader, Teva,
Medicaid is the state-administered healthcare plan, as opposed to
having only about 20% market share (prescription volume) before the
Medicare, which is federally administered. The economic recession has
recent acquisition of Barr Labs. Ranbaxy, the largest Indian player in this
put a strain on several state budgets and hence Medicaid funds are
market in 2007, had only about 1.7% market share. We believe that the
under pressure. The federal government is likely to ease this through
low market share of Indian players in the US represents an opportunity to
generous increases in the Federal Medical Assistance Percentages
grow through consolidation of market position. Indian companies have
(FMAP)—the part funding of Medicaid by the Federal government. Such
the necessary skill sets, which they can further develop to improve their
increases could come in as part of the economic stimulus package.
share of the large market. Teva, which already has 20% market share, 4
Unhitch Ltd - BUY.

New themes hit a speed bump to ARV (anti-retroviral) drug companies over six years. Given the
accelerating penetration of generics, most of this would benefit generics
The economic slowdown and credit crunch could cause the listed CRAMS players. This growth would be especially significant to Aurobindo, whose
players to significantly under-perform growth expectations. Inventory PEPFAR revenues—which represent about 7% of the company’s FY08
reductions by customers, falling product prices, excess capacity in the revenue—could double over the next couple of years.
system, cut in discretionary expenses such as R&D budget and falling
overall demand are the key reasons for this. Furthermore, most listed The biologics wave and biosimilars opportunity
CRAMS companies derive significant proportions of their revenues from
manufacture of chemicals (related to pharmaceuticals or otherwise). Biologics form an increasingly important part of the global therapeutics
This part of the business could be more cyclical and more susceptible to market. Fierce Biotech, a consultancy, estimates global biologics sales in
the impact of a general economic slowdown than pure contract research 2007 at US$75bn, more than 10% of the global prescription drug
and manufacturing services for large pharma companies. market of US$712bn in the same year. Amgen and Genentech together
commanded 42% of the biologics market in 2007. The share of biologics
Emerging markets have been regarded as high growth drivers for in the pharmaceutical market is increasing rapidly; sales of biologics
generics companies, which have been facing competitive pressures and grew 12.5% in 2007, twice as fast as the total pharmaceutical market.
price erosion in the US market. In our view, however, emerging According to IMS Health, the number of biologics with annual sales
markets may well be less attractive than developed markets over the greater than a billion dollars has risen from 44 in 2000 to 105 in 2006,
next 2-3 years, due to lower than expected growth, low volumes and doubling their share of the growing blockbuster pharmaceutical market
credit default risk. Valuations for drug discovery researchers have to 20%. With more of the global pharma giants chasing biologics
collapsed and raising capital for high-risk long-gestation projects is well pipelines, we believe that the biologics market’s growth is likely to
nigh impossible. Even outsourcing deals are difficult to come; any those accelerate over the next 10 years. Schering Plough’s acquisition of
that do come through will likely have much lower upfront payments. Organon Biosciences, Astra Zeneca’s purchase of MedImmune and
Merck KGaA’s acquisition of Serono were the major ones among scores
PEPFAR: a large opportunity for generics cos of deals over the last couple of years in which the traditional small-
molecule pharma companies picked up biologics companies.
PEPFAR is the largest commitment ever by any sovereign government
for an international health initiative dedicated to a single disease. The The evolution of the biologics markets is likely to present a significant
programme started in 2003 with a US$15bn commitment over five opportunity for generics companies with biologics capabilities. However,
years by the US government. Though the programme’s primary focus is the exact size of the opportunity and timelines still remain vague, given
HIV, it also funds measures to combat tuberculosis and malaria. The the technological and regulatory risks involved. Biosimilars may not
main beneficiaries are the 15 PEPFAR focus countries in sub-Saharan present an explosive growth opportunity for generics companies in the
Africa, though many countries in Asia, Europe, Africa and Latin America near term, but we expect the segment to evolve into a high-growth
also receive support under the programme. multi-billion-dollar market in 5-10 years. From then on, rapid
penetration of the global pharmaceutical market by novel biologics and
The US Government recently made an additional five-year commitment gradual expiring of their patents will help the biosimilars market sustain
of US$30bn for the programme. We estimate that this commitment, its high growth rates for well over a decade.
along with prior-period allocations, represents a US$1.6bn opportunity 5
Unhitch Ltd - BUY.

Given the significantly higher technological complexity and capital

requirement compared to small-molecule generics, and longer learning
Our top picks
curves, companies who gear themselves up in advance will emerge as At current market prices, Sun Pharma, Cipla and Dr Reddy’s offer the
major players. Global generics leaders have already marked their entry biggest potential upsides from growth in the generics business, in our
through biosimilar approvals and launches in Europe. Indian companies view. These companies are well positioned to exploit the large
are fast catching up with emerging market launches and development opportunity in the US and other developed markets, and we do not see
work for regulated markets. Institution of the US regulatory mechanism any major risk to their businesses. Ranbaxy and Glenmark also stand to
for biosimilars would be a near-term fillip for the market. gain from increasing market share in these geographies, but are likely
to underperform in the near term. Cipla would be among the prime
Figure 5: Biosimilar market will evolve as a large high-growth market in 5-10 years
beneficiaries of the expanded PEPFAR programme: the company has
16,000 been one of the biggest suppliers to the programme over last five years
Biosimilars market sales (US$ m)
and has a large number of products specially approved by the US FDA
under the scheme. Dr Reddy’s and Biocon hold promise in the regulated
Follow on rltuxan & herceptin
biosimilars market, as both companies have multiple biologicals
achieve block buster status registered and sold in the semi-regulated markets and are on course to
8,000 developing them for the regulated markets.
US starts
First biosimilar
approving Sun Pharma
More biosimilars get launched in
approval in EU We rate Sun Pharma as one of the best plays on the Indian pharma
oncology, immunology and
2,000 other areas industry, as we expect its revenue growth to outpace that of the
domestic and international pharmaceutical markets over the next 2-3
years. Sun’s product portfolio, which is dominated by drugs to treat
2000 2005 2010 2015 2020 2025 2030 2035 2040
lifestyle diseases, should help it maintain higher growth rates than the
Source: IIFL Research overall market, while a tight control on costs keeps profitability robust.
A negotiated deal on the Taro acquisition could be a near-term catalyst
Indian companies have mostly concentrated on insulin, erythropoietin, for the stock. Sun has about US$500m cash in hand and a debt-free
filgrastim and interferons. An exception is Dr Reddy’s Labs, which is balance sheet. These attributes position it to be a prime beneficiary of
concentrating on high-molecular-weight cell-culture-based products like any consolidation drive in the US and other developed markets. We
monoclonal antibodies. It has already launched in India, the first generic believe there are also potential acquisition-led upsides in the near term,
version globally, of the multi-billion-dollar Rituxan for rheumatoid other than Taro. BUY.
arthritis and lymphoma. However, it will have to wait several years
before an advance into the regulated markets because of regulatory and Cipla
patent issues. We expect Cipla’s core earnings to register a CAGR of 36% over FY08-
11, significantly aided by rupee depreciation and consequent margin
expansion, apart from accelerated growth in volumes. Recent capacity
expansion through new plants in Indore and Sikkim will contribute to
volume growth. Industry reports indicate the return of growth
momentum in the domestic pharma market, where Cipla has one of the 6
Unhitch Ltd - BUY.

strongest franchises, especially in respiratory medicine. Cipla’s unique onwards, after hedges at higher rupee rates have expired. Additional
business model of registering products in other countries and partnering growth triggers in the near to medium term include the single AOK
with other companies to market them makes it the best counter-cyclical contract won by Axicorp in Germany, the pipeline of generic products
play in the Indian pharma space. We maintain our BUY rating. for the US market and the launch of insulin glargine in the domestic
market, biosimilar insulin in Europe and oral insulin in India. Buy with
Dr Reddy’s Labs target price of Rs154.
We believe that the market’s concerns over various businesses of Dr
Reddy’s are overdone, given the potential for sustained overall earnings Opto Circuits
growth at over 20% a year. The downside in the German market, from We believe India’s cost advantage and technical expertise can make the
the costly acquisition of Betapharm and subsequent changes in the country a global hub for medical devices over the next 10 years. Opto
market, have already been priced in the stock, in our view. The stock is Circuits, being the only large Indian medical-devices company, would be
trading at a P/E of 10xFY10ii core earnings, at a 20-35% discount to a key beneficiary of the industry’s growth. Excluding the effect of
peers; we expect the gap to close over the next 12 months. In the acquisitions, the company’s revenues registered 36% CAGR over FY04-
medium term, there could be more upside from the company’s 08ii, but in our view, it has barely scratched the surface; there’s a huge
biosimilars portfolio and acquisitions in the developed markets. BUY opportunity yet to be tapped. We expect organic annual growth above
with a target price of Rs511. 40% over FY08-11. Completion of the acquisition of Criticare presents
another platform to stabilise and expand the sales front-end in the US.
Biocon Other growth drivers are its subsidiaries Eurocor, Ormed and Devon.
The depreciated rupee and falling raw-material prices have put Biocon Buy with price target of Rs156.
back on the growth track, with gross margin expanding 900bps and
EBITDA margin expanding 770bps QoQ in 3QFY09. We believe that the
expanded margins will start accruing to bottomline from 1QFY10

Figure 6: Valuation matrix

Company CMP Mkt cap EV Target Reco FY08-11ii CAGR (%) FY10ii
(Rs) (US$ m) (US$ m) price (Rs) Revenue EBITDA PAT EPS RoE EV/EBIDTA P/E P/BV
(%) (x) (x) (x)
Biocon 101 389 369 154 BUY 25.6 17.3 16.7 16.7 15.4 4.0 7.0 1.1
Cipla 204 3,051 3,128 246 BUY 18.7 32.8 30.6 30.6 24.2 9.8 12.0 2.9
Dishman 91 141 261 114 ADD 17.4 22.0 7.1 6.9 16.3 5.7 5.7 0.9
Dr Reddy's 398 1,291 1,300 511 BUY 15.4 18.3 18.5 17.8 11.2 6.1 10.4 1.2
Glaxo 1,169 1,908 1,580 1,265 ADD 8.1 8.8 10.6 10.6 29.0 12.9 20.1 5.8
Glenmark 127 613 779 125 SELL 11.3 -6.0 -20.2 -20.6 11.7 7.8 12.5 1.5
Jubilant 86 243 546 108 REDUCE 19.7 14.6 -10.6 -11.1 19.0 7.7 6.0 1.1
Opto Circuits 79 243 250 156 BUY 41.4 43.6 31.7 31.4 37.8 4.8 5.2 2.0
Ranbaxy 135 1,091 1,455 155 REDUCE 15.9 43.2 14.2 5.1 9.1 12.1 14.4 1.3
Sun Pharma 1,028 4,078 3,612 1,238 BUY 7.4 -0.3 0.6 0.6 17.0 12.9 16.9 2.5
Prices as of close on business on 12 Mar 2009. Source: Bloomberg, IIFL Research. 7
India Strategy
Capex cycle: Downdraft ahead 13 March 2009
A disaggregation of the FY02-08 investment cycle, the key driver for growth acceleration then, leads us to Sectoral growth of gross capital
believe that there is significantly more bad news to come for the capital goods and investment-linked sectors. formation
Between FY02-08, one half of the incremental investments came from the private corporate sector, with its
share in GDP tripling during that period. The next largest contributor to growth was public sector with its Cagr over FY02-08
share jumping by nearly 50%, even as household investment share remained pretty static. The jump in
corporate and public sector capex was led by a sharp surge in underlying profitability, expectations of high 17% 11%
growth, improving public finances, buffeted by abundant availability of risk capital. With all these variables 8%
now in reverse gear, even as household capex continues to hold up, overall investments will undershoot 11% 7% 3% 31%
nominal GDP growth (which itself is slowing down) over the next 2-3 years, in contrast to the ~2x faster
growth recorded in FY02-08. From a macro perspective, all investment-linked sectors will continue to 24% 11%
underperform consumption-linked sectors by a big margin.
Share in
o The 2004-07 bull run saw the capital goods sector outperforming consumption-linked sectors by a staggering 34%
13% FY08 Capex 42%
CAGR, but since the market peaked in Jan-08, the sector has underperformed by an annualised 12%. Save a few
stocks in the cap goods space, our view is that the lag in performance will further accelerate in the coming quarters, as 3% 36%
outside the household sector, the drivers of growth in GCF have all turned into headwinds. Even assuming a decline in 4%
cost of capital and improved capital availability, growth is unlikely to turn around till such time as corporate
profitability and public finances start improving. Order books have peaked in most cases, in our view, and this will be a 29% 15%
valuation drag for most cap goods companies.
o The slowdown in capital formation growth comes in the backdrop of a period when India’s investments grew at Agriculture
probably the fastest rate of 23% annualised (even higher than that of China’s 19% between 2001-07), contributing to Mining
nearly 60% of incremental FY02-08 GDP. Notwithstanding the recent acceleration, it is a well-known fact that India Manufacturing
still remains a woefully underinvested economy, especially in infrastructure. Some segments in infrastructure spend Utilities, gas
will hold up (and can possibly accelerate, if policy environment changes for the better), partly mitigating the impact of Construction
the slowdown in the largest component of GCF, ie, manufacturing. Trade hotels
o From a portfolio standpoint, the only large-cap capital goods name that we like is BHEL, given the large unsatiated Transport, communication
demand potential for its products, a customer base with relatively strong balance sheets, and catering to an industry Finance, Real estate
where fuel availability (coal, gas, nuclear) is getting significantly better. Most others will see a repeat of the late 1990s. Social & personal svcs

Sharp spike in investment rate Breakdown of FY08 Gross capital formation Source: CSO, IIFL Research

45% Gross capital formation % Nominal GDP Household

35% (34%)
30% Private
5% (91 22) 6620 6630
0% Public
Ashutosh Datar

(91 22) 6620 6642
Source: CSO, CMIE Source: CSO, CMIE. Excludes valuables
Unhitch India
Ltd -Strategy

During the 2004-07 bull run, the Capital Goods sector was a star Figure 2: Over 50% of incremental growth (FY02-08)* came from the investment cycle
performer, beating the Sensex’s returns by 34ppt a year over the 120% 59% -12%
period. Since the market peaked on 8 January 2008, however, the 100%
sector has underperformed the Sensex by 12ppt annualised. A 100%
disaggregated analysis of the macro capital formation cycle and its
drivers is suggestive of continued pain in the sector; save a handful of
companies, most will likely see a decline in order book by FY11, if not in 60%
FY10 itself. This is common knowledge by now, what with the sharp rise 47%
in cost of capital, limited availability of risk capital, and anecdotal 40%
evidence of cuts in corporate capex, but we have tried to analyse the
macro cycle with as much granularity as possible. From a portfolio 20%
perspective, on a 12-24-month basis, consumption-linked stocks will 0%
remain large outperformers vs capex-linked stocks. Private Govt Gross capital Net Exports GDP
(In this note unless otherwise stated, all discussion is on Nominal terms) consumption consumption formation

FY02-08: Investment-driven growth Source: CSO, CMIE, IIFL Research. *Excluding discrepancies
It is well known that capital formation has been the key driver of India’s Figure 3: Sharp spike in the investment rate
economic growth over the past six years. The 16% CAGR in gross
capital formation was almost twice as much as the GDP CAGR of 8.1% Gross capital formation % Nominal GDP
over FY02-08 (in real terms). Consequently, almost 60% of the rise in 40%
GDP during that period came from capital formation. 35%

Figure 1: Investment-led growth 30%

YoY 23% Gross capital formation GDP 20%
15% 14% 5%




















10% 8% 8% 9% 9%

Source: CSO, CMIE, IIFL Research

5% 4%
Consequently, India’s investment rate (in nominal terms) jumped 60%
to touch 39% of GDP in FY08 (it will touch 40% in FY09 as per CSO’s
0% advance estimate) from 23% in FY02.
FY03 FY04 FY05 FY06 FY07 FY08

Source: CSO, CMIE, IIFL Research 2
Unhitch India
Ltd -Strategy

FY02-08 capex cycle: tough act to follow Capex surge: driven by both private sector investment
Before making any prognosis on the future of the investment cycle, it is and dramatic improvement in government finances
important to appreciate the magnitude of the investment cycle that
The private corporate sector accounted for half the incremental
appears to have ended last year. Annual investments more than
investments over FY02-08. Its share in overall capex almost tripled,
doubled in real terms over FY02-08; in nominal terms, they more than
from 5.4% of GDP in FY02 to 15.9% in FY08. The other major
tripled. In FY08, India recorded investments aggregating US$380bn.
contributor to investments was the public sector, whose share rose from
Figure 4: India’s investment rate is amongst the highest in the world, possibly next 6.9% of GDP in FY02 to 9.1% in FY08. In contrast, the share of the
only to that of China household sector remained unchanged over this period.
% GDP China India
New ly Industrialized Asian economies* Advanced economies Figure 5: Private corporate sector was the biggest driver of the investment cycle
Public sector Private corporate sector Household sector
40% % Nominal GDP
10% FY94 FY96 FY98 FY2000 FY02 FY04 FY06 FY08
1980 1983 1986 1989 1992 1995 1998 2001 2004 2007
Source: CSO, CMIE, IIFL Research
Source: Bloomberg, CSO, IMF, IIFL Research. *Includes Singapore, Hong Kong, Korea, Taiwan
Figure 6: Gross capital formation composition in FY08
India’s investment rate is now one of the highest in the world and has
almost caught up with that of China. Indeed, over the last six years Household sector
(FY02-08 for India, CY01-07 for China), nominal investments in India (34%)
have registered a CAGR of 23%, as against China’s 19%. India’s current
investment rate is even higher than the peak rates that Korea and corporate sector
Taiwan had reached in early to mid 1990s. (42%)

In spite of this massive investment cycle, India remains an

‘underinvested’ country—especially with respect to infrastructure—
because of the years of tepid investment before the cycle began. But
the scale of the current expansion has been such that just sustaining Public sector
the current investment rate of 40% would entail a doubling of annual (24%)
investment every six years. Consecutively, just maintaining this rate in Source: CSO, CMIE, IIFL Research. Excludes valuables (~3% of overall GCF) which is not
itself is a tough ask. broken down into institutions 3
Unhitch India
Ltd -Strategy

On the savings side, India’s investment cycle was rooted in two Indeed, the first three year phase of the current expansion India had
powerful factors. Corporate profitability was strong and government current account surplus and the deterioration that followed was largely
finances were improving (thanks to robust tax collections). This allowed due to the unprecedented surge in the price of oil. The 60% rise in
the domestic savings rate to match the investment rate—with the result investment rate was matched by a 61% rise in domestic savings rate;
that India had only modest current account deficits, in spite of the sharp incremental savings over the last six years aggregated 94% of the
spike in the price of oil. incremental capital formation.
Figure 7: India’s Savings rate kept pace with the rise in investment rate
Now, both these tailwinds are turning into headwinds. Both corporate
40% profitability and government finances are under pressure.
% Nominal GDP Gross capital formation
Gross domestic savings
36% Figure 9: Worsening of government finances would once again be a drag on public
sector and overall domestic savings—akin to the period FY98-02
32% Government administration Departmental enterprises Non-departmental enterprises

24% 2%

FY94 FY96 FY98 FY2000 FY02 FY04 FY06 FY08 -2%

Source: CSO, IIFL Research -4%

Figure 8: Current account deficits were modest due to high domestic savings -6%
3% -8%
Current account balance (% GDP) Average
FY94 FY96 FY98 FY2000 FY02 FY04 FY06 FY08 FY10e
Source: CSO, CMIE, IIFL Research. Note: excludes off-balance sheet items

0% Private corporate sector: profit cycle on a downturn

-1% Private corporate investments registered a CAGR of 35% over FY02-08,
with investments in FY08 being six times the level in FY02. This rate of
-2% growth is staggering, even after accounting for the low level of
investment in FY02.

-4% As figure 10 below shows, the private corporate sector’s investments

FY52 FY59 FY66 FY73 FY80 FY87 FY94 FY01 FY08 are cyclical, largely explained by changes in underlying corporate
Source: IIFL Research
profitability. While factors such as availability of capital (credit and 4
Unhitch India
Ltd -Strategy

equity) and low interest rates are necessary, they are not sufficient Consequently, the outlook for private corporate sector investments over
conditions for private sector capex: there is no case for a company to the next few quarters is bleak, with an outright decline most likely to be
invest unless it expects incremental ROE to exceed incremental cost of the base case. Even if corporate profits were to revive, there will be a
capital. time lag before the capex cycle recovers. So the question is, can other
sectors take up the slack? If so, by how much?
Figure 10: Profitability drives private corporate sector’s investments
100 120 Household sector
YoY% Savings Investments PAT* (rhs) YoY%
100 (In addition to households, the household sector includes unorganised
80 businesses like partnerships, sole proprietorships, etc).
60 Figure 11: Household sector investments – steady growth
40 40 40% Household sector investments YoY%
20 20
-40 25%
(40) -60
FY92 FY94 FY96 FY98 FY00 FY02 FY04 FY06 FY08
Source: CSO, CMIE, IIFL Research. *Pertains to private sector non-financial companies
The last six years witnessed a very strong profit cycle, with private
sector non-financial profits registering a CAGR of over 50% making 5%
private corporate sector the fastest growing source of domestic savings.
Its savings registered a CAGR of 33% (as against 22% of overall
FY99 FY2000 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08
savings) over FY02-FY08. The private sector’s savings rate tripled from
a mere 3% of GDP to 9% of GDP FY02-08, and its share of total savings Source: CSO, CMIE, IIFL Research
rose from 14% to 23%. Indian companies benefited from the rise in
commodity prices, bountiful availability of risk capital, and demand Though it was the second largest contributor to incremental investments
growth led by accelerating credit growth. over the past six years, it was the slowest growing. In nominal terms,
household investments grew at 15% annualised (just 2ppt above
These tailwinds have now turned into headwinds. The outlook on nominal GDP). Household investment rate has held relatively steady at
corporate profits over the next few quarters is bleak (see our strategy ~11-13% over the last eight years, after nearly doubling from 6% in
note, How bad can earnings get?, dated of 19 November 2008). It is the early 1990s. Almost 75% of households’ fixed investments are on
highly probable, in our view, that corporate profits will fall below FY08 ‘construction’ (as against the corporate sector, where machinery and
levels in FY10. Corporate cash flows will be strained and balance sheets equipment account for 75% of fixed investments).
will likely deteriorate over the next 3-4 quarters. The just-concluded The continued upsurge in Agriculture provides strong support to
earnings season for the December quarter (profits dropped by over household incomes in rural India. With household leverage low and
10%) was just the first quarter of weak earnings, in our view. 5
Unhitch India
Ltd -Strategy

property prices not witnessing the runaway appreciation seen in urban Figure 12: Composition of public sector capex
areas (especially in interior parts of the country), we expect household Composition of public sector investments (FY06)
investments in rural India to continue at their steady rates. In
urban/semi-urban India, household incomes have received a big boost Quasi govt bodies
due to Sixth Pay Commission. We estimate that around 2.7m (2%)
households will cumulatively receive US$45bn (~4% of GDP) of
additional income in six quarters, beginning 3QFY09. It is reasonable to
expect a part of this money to flow into real estate. However, this will
be at least partly offset by the job losses/pay cuts in labour-intensive
sectors such as textiles, IT services and financial services. In addition, Administrative
the high prices in most urban centres is a headwind, partly now departments
addressed by cuts in price of new launches by realty companies. (37%)
However, given the lower share of the household sector (~33% share enterprises
vs 41% of the private corporate sector) a continuation of the recent (12%)
growth (15%) they would just offset the likely decline (say, 10%) in Source: CSO, IFL Research
private corporate sector investments.
While, ideally, the government (source of almost half of public sector
Public sector investments) would like to materially step up its capital expenditure in a
slowing growth environment, it would be difficult this time around owing
With private corporate sector investments (the biggest slice of the pie) to the sharp deterioration in its finances post FY08 and the significantly
likely to decline and household sector investments just likely to offset its higher revenue expenditure commitments (Sixth Pay Commission, farm
decline, the near-term outlook for India’s investment cycle depends on debt-waiver, Rural employment guarantee Act etc). Already as per the
investments by the public sector (the smallest pie, at ~23% of the interim budget, total capital expenditure of Central government is
total). Almost half of public sector investments come from government budgeted to grow by 15% in FY10 with the bulk of it coming from
or departmental enterprises of the government (like railways); the other higher defense allocation.
half comes from PSUs. Public sector investments are currently on an
upturn, growing at above 20% in each of the years since FY04, with Assuming public sector investments continue their growth at
30% growth in FY08 (faster than corporate sector). Given the need for their current robust trajectory of 25% in FY10, in our base case,
the government to impart a stimulus to the economy, the public sector overall investments in FY10 in the economy are likely to grow at
is unlikely to cut back on its investments, notwithstanding the sharp ~7%—falling short of nominal GDP growth—in FY10.
deterioration in government finances. 6
Unhitch India
Ltd -Strategy

Figure 13: Public sector investments should maintain their upswing Figure 15: Sectoral growth of gross capital formation
35% Public sector investments YoY% Cagr over FY02-08 Agriculture
17% 11%
8% Mining
11% 7% 3% 31%
20% Manufacturing
15% 24% 11%
Utilities, gas
10% Share in FY08
Capex Construction
13% 42%
Trade hotels
-5% 36%
4% Transport, communication
FY99 FY2000 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08
Finance, Real estate
Source: CSO, CMIE, IIFL Research 29% 15%
Social & personal svcs
Figure 14: Investment outlook for FY10
Share (FY08) Base case growth Pessimistic case Optimistic case Source: CSO, IIFL Research
growth growth
Private corporate 41% -10% -20% 0% Hence, any sector that is to sustain the capex momentum in the years
sector ahead must satisfy two conditions: a) strong profit outlook; and b)
Household sector 33% 15% 10% 20% substantial government involvement, which can counteract the
Public sector 23% 25% 20% 30% slowdown from private sector investments.
Valuables 3% 5% 0% 10%
As the table below shows, sectors in which the public sector is a
Total Investments 100% 7% -1% 14%
predominant ‘investor’ (with government shareholding of over 50%)
Source: IIFL Research
account for just 22% of gross capital formation (as of FY06, the most
recent year for which this data is available). Manufacturing, the biggest
Sectoral composition of capex and fastest growing sector in terms of GCF, has just 6% of its
Another way to analyse the investment cycle is from a sectoral investments coming from the public sector and thus the economic
composition (end use of industry) perspective. Investment in the slowdown would sharply hurt that sector’s investments.
manufacturing sector was the fastest growing, registering a CAGR of
36%, followed by mining (31%), Construction (29%) and Transport &
Communication (24%). However, both Mining and Construction are
small in relation to overall investments, with their shares of 3% and 4%
respectively in FY08 investments. 7
Unhitch India
Ltd -Strategy

Figure 16: Sectoral composition and outlook for gross capital formation
Sector Share in Share of Share of Outlook for Overall
overall capex public private sector outlook
(FY08) sector sector
(FY06) (FY06)
Agriculture and allied activities 7% 24% 76% Positive Strong
Mining and quarrying 3% 66% 34% Negative Moderate
Manufacturing 42% 6% 94% Negative Weak
Electricity, gas and water supply 6% 73% 27% Positive Strong
Construction 4% 16% 84% Negative Moderate
Trade, hotels 3% -2% 102% Negative Weak
Railway transport 1% 98% 2% Positive Strong
Other transport 6% 9% 91% Negative Weak
Communication 6% 13% 87% Neutral Moderate
Banking and insurance 1% 53% 47% Neutral Moderate
Real estate, business services 10% 2% 98% Negative Weak
Community and personal services 11% 77% 23% Positive Strong
Source: CSO, IIFL Research. FY06 is the latest available data for breakdown of investments in
public sector and private sector

To conclude, even if private corporate sector investments recover from

FY11, the support from public sector would start waning given the need
to rein in government finances (else risk sharply pushing up interest
rates). Consequently, a fresh upturn in India’s investment cycle is
possible only when both corporate profitability and government finances
start looking up simultaneously—which looks unlikely in the next two-
three years.

Consequently, consumption will assume more importance from a growth

perspective over the next 2-3 years. Outlook for consumption is
reasonably bright, given the robust rural economy and the boost from
the VI Pay Commission. The trend of consumption’s share in the GDP
declining year after year will likely reverse. Investor portfolios need to
be aligned to this change in trend. 8
Quick Take

India Strategy 13 March 2009

IIP contracts; nascent signs of stabilisation Figure 1: India’s IIP – continued deceleration
India’s industrial production contracted 0.5% YoY—the second
IP - Overall (yoy%) IP - Overall (yoy%, 3mma)
successive month and third time in the previous four months—but this 16%
is better than consensus expectation of a 0.9% decline. The bigger
positive surprise was the sharp upward revision in December IIP to a
0.6% decline from the 2% decline originally reported. High base of
High base of Feb 2008
February last year (due to one additional day last year) will imply weak
IIP growth in February as well, but it will mask nascent signs of 8%
improvement in activity in a few sectors such as Autos.
• The biggest positive takeaway from yesterday’s IIP release was the sharp 4%
upward revision to provisional December IIP, almost entirely due to the 4.4%
upward revision to consumer-goods sector (10% upward revision to consumer 0%
durables and 3% upward revision to consumer non-durables). Consequently,
as against original 2% decline, December IIP contracted just 0.6%. -4%
Jan-06 Jun-06 Oct-06 Mar-07 Jul-07 Dec-07 Apr-08 Sep-08 Jan-09
• Manufacturing output contracted 0.8% YoY in January 2009, with 12 out of
17 industry groups contracting. Ytd, manufacturing output has grown just Source: CSO, IIFL Research
3% vs 9% in FY08, with seven out of 17 industry groups contracting Ytd.

• The last year’s high base will keep reported February IIP sluggish. IIP grew Figure 2: Auto sales saw a sharp improvement in February 2008
9.5% in February last year (2008 was a leap year, so February had an extra YoY Passenger cars Commercial vehicles Tw o-w heelers
day) 3-4ppt faster than the growth in January or March 2008. 60%

• However, nascent signs of improvement in activity, partly led by normalisation 40%

of inventories post the sharp curtailment of activity in October-December and
partly due to a revival in demand (Autos) are visible: 20%
o Domestic auto sales improved significantly in February, in spite of the
adverse base. Two-wheeler sales grew 16% YoY and passenger-car sales 0%
grew 22% YoY after four consecutive months of contraction. The pace of
decline in commercial vehicle sales has slowed, with 32% decline in -20%
February from ~50% each in the preceding three months.
o Cement production and despatches have grown ~8% in February, in
spite of the higher base. Growth in cement production/despatches -60%
accelerated to 9.5% YoY during the December-February period from Jun-03 Jun-04 May-05 Apr-06 Mar-07 Feb-08 Jan-09
8.3% in the preceding three months.
Source: Bloomberg
o After declining by 7% YoY in December 2008, Pantaloon’s same-store
sales grew 5% YoY in January (value terms).
India Strategy

Figure 3: Cement production growth held steady in February, despite high-base effect Figure 5: Electricity generation has been the biggest disappointment this year
20 12%
YoY% YoY% Electricity generation Electricity generation (3mma)
Cement production Cement production (3mma)
16 10%

High base of Feb'08


Jan-06 May-06 Oct-06 Feb-07 Jul-07 Dec-07 Apr-08 Sep-08 Jan-09 0%
Jan-06 Jun-06 Oct-06 Mar-07 Jul-07 Dec-07 Apr-08 Sep-08 Jan-09
Source: CMIE
Source: CSO, IIFL Research

Figure 4: Consumer goods sector steadily decelerated, notwithstanding the upward

revision in December Figure 6: IP summary
YoY% Weight Oct-08 Nov-08 Dec-08 Jan-09 Apr-Jan FY09 FY08
20% Industrial Production 100.0% 0.1% 1.7% -0.6% -0.5% 3.0% 8.5%
Consumer goods (yoy%) Consumer goods (yoy%, 3mma)
Sector classification
15% Mining 10.5% 3.2% 0.3% 1.8% -0.4% 2.7% 5.1%
Manufacturing sector 79.4% -0.6% 1.8% -1.0% -0.8% 3.0% 9.0%
10% Electricity 10.2% 4.4% 2.6% 3.8% 1.8% 2.8% 6.3%
Use based classification
Basic goods 35.6% 3.2% 2.1% 1.9% -1.0% 2.9% 7.0%
Intermediate goods 26.5% -4.4% -4.2% -9.4% -9.2% -2.5% 8.9%
Capital goods 9.3% 4.2% -0.1% 5.2% 15.4% 8.6% 18.0%
0% Consumer goods 28.7% -0.9% 7.3% 1.5% 1.1% 5.3% 6.1%
Consumer durables 5.4% -1.6% -4.2% -4.1% 2.5% 3.5% -1.0%
-5% Consumer non-durables 23.3% -0.6% 11.2% 3.0% 0.7% 5.9% 8.5%
Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Source: CSO, IIFL Research

Source: CSO, IIFL Research

Nemkumar Ashutosh Datar
(91 22) 6620 6630 (91 22) 6620 6642

n emku mar@iif 2

Quick Take

Reliance Communication - BUY Telecom 13 March 2009

Broadband wireless service launched CMP Rs138 Price performance (%)

RCOM has upgraded its CDMA network to 3G and launched wireless broadband 1M 3M 1Y
12-mth Target price (Rs) 220 (58%)
under the name Reliance Netconnect Broadband Plus. The product will be RCOM -19.3 -44.1 -74.2
Market cap (US$ m) 5,540 Rel. to Sensex -5.7 -30.5 -26.6
available in 35 top cities from 17 March in the form of data cards and modems.
BHARTI -15.7 -24.2 -32.5
The company has already placed a Rs3bn order with Huawei and ZTE for 1m Bloomberg RCOM IN IDEA -7.9 -16.6 -55.3
such USB modems, with 100,000 modems expected to be delivered this week. MTNL -13.8 -20.3 -43.9
We believe that this is a significant positive for RCOM and enables it first-mover
advantage (with 3G auctions postponed, no operator would be able to match 52Wk High/Low (Rs) 610/131 Stock movement
its offerings) and also take better advantage of mobile number portability Diluted o/s shares (m) 2064
Volume Price (Rs)
Daily volume (US$ m) 50.9
(MNP), expected later this year. BUY with a TP of Rs220. 60 Shares (m) 800
Dividend yield FY09ii (%) 1.1 50
• Wireless broadband services launched by RCOM in 35 cities: The Free float (%) 33.9 40
product will be available in 35 top cities of India, from 17 March, in the 30 400
form of data cards and USB devices and will enable download speeds of Shareholding pattern (%) 20
Promoters 66.1 10
up to 3.1 Mbps. Downlink speeds can reach 1.8Mbps (these are peak FIIs 8.0 0 0
rates under controlled conditions, and effective consumer user








Domestic MFs/Insurance cos 9.5
experience will be significantly lower, though enterprises should reach Others 16.4
close to the promised speeds). There will be seamless connectivity
between the 2G and 3G CDMA networks, for uninterrupted data Financial summary
experience. As per media reports, the company has already placed a Y/e 31 Mar FY07A FY08ii FY09ii FY10ii FY11ii
Rs3bn order for 1m modems with Huawei and ZTE, with the first
Revenues (Rs m) 144,050 188,274 223,812 301,602 370,437
100,000 modems expected to be delivered within a week’s time.

EBITDA margins (%) 39.3 42.3 39.6 41.0 40.4
Device priced at Rs3,500, with unlimited night plan of Rs499: The
Pre-exceptional PAT (Rs m) 31,638 54,023 55,293 45,369 47,587
regular plan is for a fixed rental of Rs299 per month plus usage based
charges. However the unlimited night-time plan priced at Rs499 per month Reported PAT (Rs m) 31,638 54,023 55,293 45,369 47,587
may see very high volume usage (movie downloads). EPS (Rs) 15.5 26.2 26.4 21.7 22.8
• First-mover advantage, as 3G GSM delay will be a handicap for Growth (%) 609.5 69.2 1.0 -17.9 4.9
others: RCOM's nationwide CDMA network has enabled it to economically PER (x) 8.9 5.3 5.2 6.4 6.1
launch this on a pan-India basis. With GSM 3G auctions indefinitely ROE (%) 18.2 20.8 17.1 12.1 11.4
postponed, major GSM operators will not have an opportunity for the present
Debt/Equity (x) 0.1 0.5 0.7 0.8 0.7
to match this offering. Broadband revenues account for 10-15% of aggregate
EV/EBITDA (x) 5.4 5.3 6.2 4.9 4.1
revenues for major telecom operators in India, with the target markets being
corporate as well as home broadband users. Price/Book (x) 1.2 1.0 0.81 0.7 0.7
We believe this is a significant positive for RCOM, as it gives the company first- Source: IIFL Research
mover advantage and a more compelling integrated offering to high-volume G.V. Giri Rahul Seth
users. It also better enables the company to take advantage of mobile number
portability (MNP), expected later this year. We rate RCOM a BUY with a TP of (91 22) 6620 6649 (91 22) 6620 6667
Rs220. Key risks include significant exposure to forex losses from US$
appreciation against the rupee.
gvgiri@iif lcap. com
ABB IN Rs364 Capital Goods 13 Mar 2009 Company Update

No respite yet 12-mth Target price (Rs) 349 (-4%)

In its annual analyst meet, ABB India outlined new growth initiatives in sectors such as water, wind power Market cap (US$ m) 1,487
generation, railways and energy-efficiency products. However, incremental revenues from these segments are
52Wk High/Low (Rs) 1248/343
unlikely to compensate for deceleration in orders from traditional sectors such as metals, cement and auto. While Diluted o/s shares (m) 212
management seemed positive on revival of industrial activity by 4QCY09, it remained concerned on pace of Daily volume (US$ m) 4.4
implementation of public sector power projects. Increasing competitive intensity would translate into margin Dividend yield CY09ii (%) 0.7
compression. Worse-than-expected deterioration in working capital would translate into higher interest costs. We Free float (%) 47.9
maintain SELL. Shareholding pattern (%)
Weak demand affecting industrial segment; execution issues bedevilling power segment: The management Promoters 52.1
indicated that a weak demand environment is delaying new projects in key sectors like steel. The company is hopeful of FIIs 12.4
Domestic MFs/Insurance cos 21.5
revival in industrial activity due to resilience of domestic, especially rural, consumption. However, in our view, new private
Others 14.0
players are unlikely to undertake new projects in an uncertain, capital-constrained environment. The company was
sanguine about order award activity from power utilities. However, it expressed concerns regarding the pace of execution Price performance (%)
in public sector projects. Execution rates in power projects are unlikely to inch up as the management indicated that 1M 3M 1Y
ABB -20.1 -16.0 -68.1
average age of the order book has increased as compared to last year.
Rel. to Sensex -6.6 -2.4 -20.5
Margins to remain under pressure: The company admitted to increasing competitive intensity. Management’s comment Crompton -12.8 -21.8 -57.0
that “pricing would be decided by what the market can afford”, best sums up the pressure on margins. Also, higher Siemens -12.5 -17.5 -71.1
proportion of revenues from power business would result in lower overall margins as automation segment enjoys higher Areva T&D -12.9 16.4 -50.1
margins. The company maintained that it would choose profitability over market share. However, in our view, this trade-off
would become increasingly difficult, given the capacity expansion undertaken in recent years. Stock movement
Deterioration in working capital worse than expected: Cash as at end-CY08 has decreased by Rs3.9bn to Rs2.5bn, Volume Price (Rs)
primarily owing to average working capital days increasing from 26 days in CY07 to 47 days in CY08. Net operating cash 4.0 Shares (m) 1600
turned negative for the first time since CY02. Deceleration in order intake resulting in lower customer advances and 3.0 1200
lengthening of payment cycles from private customers would further deteriorate working capital intensity. This would 2.0 800
translate into lower other income and higher interest expense. We cut our earnings estimates by 6-7% to factor in a
1.0 400
further cut in our margin assumptions and lower other income estimates.
0.0 0








Order inflows declined sharply in 4Q Financial summary
Order book O r d e r in f lo w Y/e 31 Dec CY06A CY07A CY08A CY09ii CY10ii
Re v e n u e B o o k- to - b ill
80 1 .2 Revenues (Rs m) 42,740 59,303 68,370 75,166 83,180
( Rs b n ) (x )
1 .0 EBITDA Margins (%) 11.2 12.2 11.3 10.8 10.3
60 3,403 4,917 5,474 5,482 6,021
0 .8
Reported PAT (Rs m)
EPS (Rs) 16.1 23.2 25.8 25.9 28.4
40 0 .6 Gopal Ritolia
Growth (%) 55.6 44.5 11.3 0.1 9.8
0 .4
PER (x) 22.7 15.7 14.1 14.1 12.8 (91 22) 6620 6651
0 .2
10 ROE (%) 28.5 30.2 25.8 21.0 19.1 Anupam Gupta
- - EV/EBITDA (x) 15.0 9.8 9.6 9.2 8.1
2Q07 3Q07 4Q07 1Q08 2Q08 3Q08 4Q08 (91 22) 6620 6651
Price/Book (x) 6.5 4.7 3.6 3.0 2.4
Source: Company, IIFL Research Price as at close of business on 12 March 2009

Figure 1: Order inflow declined 37% YoY and 33% QoQ in 4QCY08 Figure 4: High growth witnessed in automation segment should trend down
Order book Order inf low Revenue Book-to-bill CY07 CY08
80 1.2
(Rs bn) (x) YoY sales growth 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q
1.0 Power systems 61.8% 28.2% 26.1% 35.7% 5.2% 4.1% -0.5% 1.4%

0.8 Power products 83.6% 37.0% 11.7% 25.7% 12.1% 27.2% 36.0% 26.8%

40 0.6 Process automation 41.0% 101.7% 45.3% 3.8% 29.3% 3.1% -0.9% 62.0%
Automation products 50.6% 44.0% 41.5% 45.6% 37.2% 31.3% 27.0% 27.5%
20 Source: Company, IIFL Research
Figure 5: Margins under pressure due to slowing demand and higher competition
- -
2Q06 3Q06 4Q06 1Q07 2Q07 3Q07 4Q07 1Q08 2Q08 3Q08 4Q08 CY07 CY08

Source: Company, IIFL Research EBIT margins 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q

Figure 2: T&D equipment awards from PGCIL could pick up in the near term, given Power systems 8.7% 8.6% 9.6% 13.0% 8.9% 6.4% 10.1% 8.8%
recent transmission tower awards Power products 9.0% 13.4% 11.3% 17.0% 12.9% 12.1% 9.2% 15.6%
Company Scope Value (Rs m)
Process automation 8.8% 12.8% 13.2% 14.4% 14.3% 11.0% 12.2% 16.0%
KEC Rural electrification 670
Automation products 11.3% 12.1% 14.4% 14.9% 10.0% 14.8% 7.3% 18.5%
KEC Transmission - 765kV 1240
Source: Company, IIFL Research
KEC Transmission - 765kV 1030
KEC Transmission - 400kV 1850
KEC Transmission - 400kV 1550
Kalpataru Power Transmission - 765kV 3730
Source: IIFL Research

Figure 3: Execution rate has slowed down significantly

1Q 2Q 3Q 4Q




CY04 CY05 CY06 CY07 CY08

Source: Company, IIFL Research,

Execution rate – Quarterly revenues / opening order book for the quarter

gopal. rit olia@iif 2


Financial summary
Income statement summary (Rs m)
Y/e 31 Dec CY06A CY07A CY08A CY09ii CY10ii
Revenue growth would trend down as Revenue 42,740 59,303 68,370 75,166 83,180
visibility on order inflows decreases EBITDA 4,767 7,246 7,720 8,115 8,565
EBIT 4,502 6,922 7,354 7,699 8,108

Interest costs increased sharply in CY08, Interest expense 7 68 325 420 450
as the company borrowed to finance Others items 737 710 1,304 1,154 1,604
Profit before tax 5,232 7,565 8,332 8,433 9,262
Tax expense 1,829 2,648 2,858 2,952 3,242
Net profit 3,403 4,917 5,474 5,482 6,021

Cashflow summary (Rs m)

Y/e 31 Dec CY06A CY07A CY08ii CY09ii CY10ii
Profit before tax 5,232 7,565 8,332 8,433 9,262
Depreciation & Amortization 198 176 367 416 457
Tax paid -1,829 -2,648 -2,858 -2,952 -3,242
Working capital ∆ -962 -2,102 -6,552 -2,444 -212
Operating Cash-flow 2,639 2,991 -711 3,453 6,265
Capital expenditure -866 -1,437 -2,300 -685 -755
Free cash flow 1,774 1,554 -3,011 2,768 5,510
Equity raised 0 0 0 0 0
Investments 98 69 0 -2,295 0
Debt financing/disposal -12 -10 -6 0 0
Dividends paid -496 -545 -545 -545 -545
Other items 10 -103 0 0 0
Net change in Cash & cash equivalents 1,374 964 -3,563 -73 4,965
Source: Company data, IIFL Research

gopal. rit olia@iif 3


Balance sheet summary (Rs m)

Y/e 31 Dec CY06A CY07A CY08ii CY09ii CY10ii
Cash & cash equivalents 5,464 6,429 2,866 2,794 7,758
Sundry debtors 15,703 24,236 28,213 31,508 32,301
Trade Inventories 3,547 4,887 6,352 8,064 7,889
Other current assets 3,253 5,556 5,331 6,638 6,608
Fixed assets 3,318 4,579 6,512 6,781 7,079
Other assets 774 705 705 3,000 3,000
Total assets 32,058 46,390 49,979 58,784 64,635
Sundry creditors 10,706 15,693 15,401 15,489 16,416
Other current liabilities 9,213 14,300 13,258 17,039 16,488
Long-term debt/Convertibles 15 6 0 0 0
Other long-term liabilities 165 128 128 128 128
Networth 11,958 16,263 21,192 26,128 31,603
Total liabilities & equity 32,058 46,390 49,979 58,784 64,635

Ratio analysis
Y/e 31 Dec CY06A CY07A CY08ii CY09ii CY10ii
Sales growth (%) 44.2 38.8 15.3 9.9 10.7
Core EBITDA growth (%) 49.8 52.0 6.5 5.1 5.5
Core EBIT growth (%) 55.6 53.7 6.2 4.7 5.3
EBITDA margins would contract as Core EBITDA margin (%) 11.2 12.2 11.3 10.8 10.3
demand slows down Core EBIT margin (%) 10.5 11.7 10.8 10.2 9.7
Net profit margin (%) 8.0 8.3 8.0 7.3 7.2
Dividend payout ratio (%) 14.6 11.1 10.0 10.0 9.1
Tax rate (%) 35.0 35.0 34.3 35.0 35.0
Net Debt/Equity (%) -45.6 -39.5 -13.5 -10.7 -24.5
Return on Equity (%) 28.5 30.2 25.8 21.0 19.1
Return ratios remain high, though
Return on Assets (%) 10.6 10.6 11.0 9.3 9.3
Source: Company data, IIFL Research

gopal. rit olia@iif 4

Events calendar – March 2009
Monday Tuesday Wednesday Thursday Friday Saturday
2 3 4 5 6 7
Nestle (Dec 08)

Jan Exports È -16%

Jan Imports È -18% WPI for 21 Feb È 3.03%
9 10 11 12 13 14

Jan IIP data È 0.5%

WPI for 28 Feb È 2.43%

16 17 18 19 20 21

WPI for 7 Mar

23 24 25 26 27 28

WPI for 14 Mar

30 31

3QFY09 - BoP data

Black: Quarterly results, Blue: Economic data, Red: India Holiday
Jan-Mar 09 Apr-Jun 09 Jul-Sep 09 Oct-Dec 09 Jan-Mar 10
Economics / • RBI’s Monetary Policy • India’s national elections • Revised Budget for 2009- • RBI’s Monetary policy
Politics meeting (end Jan) • State elections in Andhra 10 (July) meeting (end October)
• Interim budget 2009-10 Pradesh, Orissa, Sikkim • RBI’s Monetary policy
meeting (end July)
• RBI’s Monetary policy
meeting (end April)
Auto • Tata Motors - Launch • Tata Motors – • Tata Motor’s Nano plant • M&M’s Chakan plant with a
of the eagerly awaited Repayment of the at Sanand to start capacity of 320,000
Nano. US$3bn bridge loan operations vehicles to start operations.
• Maruti – launch of the taken for the JLR
Splash acquisition (Jun-09)
Cement • Dalmia Cement’s • JK Cement 3.5 mtpa • Lafarge’s 1.3 mtpa • JP Associates 3.0 mtpa
2.3mtpa Cuddapah Karnataka plant to start Sonadih plant to start HP plant to start
plant to start production • Orient Cement 1.6 • Dalmia Cements 2.3 • NCL Industries 1.5 mtpa
• Kesoram 1.7 mtpa mtpa Devapur, AP plant mtpa Ariyalur plant to start AP plant to start
cement capacity to start • Zuari Cements 2.4 AP
• Raghuram Cement AP 2
expansion mtpa plant to start
• Grasim’s 4.4 mtpa mtpa plant to start
• India Cements 1.5 Kotputli expansion to • Ambuja Cement’s 1.5
• Andhra Cement 1 mtpa
mtpa Malkapur, AP plant commence prod. mtpa Dadri plant to start
AP plant to start
to start • OCL’s 2.0 mtpa Orissa • ACC’s 1.2 mtpa Bargarh
• Ambuja Cement 1.5 mtpa
• Deccan cements 1.1 plant to start plant to start
Panipat plant to start
mtpa AP plant to start • Chettinad Cement • Shree Cement 1.0 mtpa
• JK Lakshmi Cement 2mtpa plant at Ariyalur plant to start
0.5 mtpa plant to start to start • ACC 3 mtpa Wadi, Kar
• Madras Cements • Murli Industries plant to start
2mtpa plant at Ariyalur 2.5mtpa Chandrapur
to start plant to start
• JP Associates 1.2 mtpa
Gujarat plant to start
Infrastructure • BHEL Capacity goes up
from 10 GW to 15 GW
Jan-Mar 09 Apr-Jun 09 Jul-Sep 09 Oct-Dec 09 Jan-Mar 10
Metals • JSW: Capacity expansion to
6.8mtpa (Feb-09)
Oil & Gas • Commercial production from
RIL KG D-6 starts
• Commercialisation of RPL
Pharma • Sun Pharma: Israeli • Dr Reddy’s: Full impact of • Max Healthcare:
supreme court decision on the AOK contracts in the Opening of 270 bed Max
acquisition of Taro shares German generic market Balaji tertiary care centre,
• Glaxo Pharma: Launch of • Dr Reddy’s: ANDA filing for Pratapganj, New Delhi
Allermist in the domestic generic fondaparinux in US • Ranbaxy: Launch of
market • Jubilant: Generic sestamibi generic Valaciclovir under
approval by USFDA exclusivity in US
• Glenmark: Data from
phase II study of
melogliptin in diabetes
• Glaxo Pharma: Launch of
an in-licensed anti-fungal
product in the domestic
Real Estate • DLF – Buy back of shares-
upto Rs 11bn & cap price at
• DLF – Capital raising by DAL
• Unitech to raise funds via
stake sale in hotel & office
projects. Planning to raise
money by diluting stake at
parent level.
• Sobha – Right issue upto
• Puravankara Projects –
Capital raising by its
subsidiary Provident Housing
& Infrastructure Ltd to fund
its mass housing project
Jan-Mar 09 Apr-Jun 09 Jul-Sep 09 Oct-Dec 09 Jan-Mar 10
Telecom • Final order for spectrum fee • Licence fee reduction by • Indus Towers expected to
hike expected; if it doesn’t 200bps for non-metro receive towers from Bharti,
come in 4Q, will present a circles for operators with Vodafone and Idea and thus
definite upside. 95% coverage w.e.f merger of tower subsidiaries
• RCOM’s subscriber numbers 1/April 2009 into Indus completed
in first 3 months of free- • Idea Spice merger
minutes backed GSM launch expected to receive court
• GoM to decide on 3G approval, and get
auctions; reserve price and completed
number of blocks in focus • 3G auctions expected to
• BSNL, MTNL to launch 3G be held
services • RCOM expected to
• Onmobile to go live with explain retention plans for
AdRBT with Vodafone pan- subscribers gained in
India 4QFY09
Utilities • Lanco’s 300MW Amarkartak- • NTPC’s Kahalgaon-II Ph • CESC Budge Budge • NTPC’s Sipat-I Unit 1
I unit to start operations II Unit 7 (500MW) to (250MW) unit operational (660MW) to commission
• Tata Power’s 250MW unit at commission • Suzlon to start production
Trombay to begin operations from new facilities
• Bidding for 4000MW Tilaiya
Others • Arshiya International – • 200,000 billet pierced • EKC’s Kandla SEZ plant
Capital raising to fund its industrial cylinders to manufacture 300,000
FTWZ & Rail business capacity at Gandhidham steel plate cylinders for
• EKC cancels expansion plans comes on stream exports to Europe to start
in China (300,000 cylinders • 5,000 Jumbo cylinder operations.
each in FY10 and FY11) plant at Gandhidham to
start operations
Shares pledged by Promoters
• In all, more than 600 companies have reported the data, taking the total pledge amount at current market price to US$12.2bn.
% of Paid- % of % of Paid- % of
Mkt. Cap. Mkt. Cap.
Company Name up Share Promoter Company Name up Share Promoter
(US$ m) (US$ m)
Cap. Hldg Cap. Hldg
Tata Consultancy Serv. 9,009 11.14 14.62 Godrej Consumer Products 614 7.58 10.92
Reliance Communications 5,540 13.19 19.95 Torrent Power 610 11.07 20.97
Sun Pharmaceutical 4,082 0.42 0.66 JSW Steel 597 31.87 70.20
Jindal Steel & Power 3,038 1.65 2.81 India Cements Ltd 521 22.43 80.05
Tata Power 2,591 14.59 43.87 GVK Power & Infra. 491 4.37 7.17
GMR Infrastructure 2,429 14.21 19.18 Lanco Infratech 490 8.53 11.59
Mundra Port 2,302 4.52 5.57 Indian Hotels Company 482 3.46 11.72
Tata Communications 2,276 10.53 13.81 Jain Irrigation Systems 471 5.13 15.83
Tata Steel 2,196 13.53 39.84 Religare Enterprises 467 0.58 1.07
Reliance Infra 1,941 16.35 43.80 CESC 463 5.74 10.94
Mahindra & Mahindra 1,638 8.09 30.54 Tata Chemicals 456 20.02 68.56
Kotak Mahindra Bank 1,541 0.01 0.02 Great Eastern Shipping 450 0.01 0.02
Jaiprakash Associates 1,524 2.15 4.75 Max India Ltd. 435 24.95 72.13
Dabur India 1,499 9.24 13.06 Bajaj Holdings & Inv. 430 3.82 12.12
Bajaj Auto 1,443 2.71 5.39 Apollo Hospitals 429 18.18 57.35
Essar Oil 1,434 36.47 41.16 Ashok Leyland 426 17.82 46.15
Akruti City 1,383 61.62 60.34 Punj Lloyd 411 1.20 2.71
Reliance Capital 1,346 4.03 7.53 Dish TV India 410 7.17 12.37
Asian Paints 1,311 14.98 29.97 Bajaj Finserv 407 4.41 8.02
Dr Reddys Laboratories 1,292 7.01 26.55 Shree Renuka Sugars 399 8.45 20.21
Tata Motors 1,267 13.42 32.12 Gillette India 382 0.49 0.55
United Spirits 1,163 32.82 89.75 United Breweries Ltd. 373 9.97 13.30
Adani Enterprises 1,162 24.98 33.35 Videocon Industries 368 36.41 53.74
Sun Television 1,046 4.19 5.44 Aventis Pharma 358 10.27 17.00
Suzlon Energy 962 25.85 39.27 Pantaloon Retail 353 19.49 41.91
Lupin 947 12.60 24.88 Century Textiles & Ind. 316 0.21 0.52
Crompton Greaves 840 6.22 15.79 Fortis Healthcare 285 20.75 30.41
Unitech 783 49.48 73.35 Chambal Fert. & Chem. 281 7.72 15.60
UT Ltd. 783 1.81 2.68 Madras Cements 275 2.11 5.02
Zee Entertainment 757 11.53 27.78 Rei Agro 260 13.05 32.26
EIH 720 6.54 14.09 Bhushan Steel 249 17.18 25.98
Tata Teleservices Maha. 717 49.70 75.72 Jubilant Organosys 243 13.66 27.10
Sterling Biotech 696 13.32 36.20 Jaiprakash Hydro Power 235 60.08 94.85
United Phosphorus 677 5.64 20.16 Coromandel Fertilisers 227 0.07 0.11
Tata Tea 646 11.32 32.09 HCL Infosystems 227 0.77 1.41
Shares pledged by Promoters

% of % of
% of % of
Mkt. Cap. Paid-up Mkt. Cap. Paid-up
Company Name Promoter Company Name Promoter
(US$ m) Share (US$ m) Share
Hldg Hldg
Cap. Cap.
India Infoline Ltd. 226 0.05 0.15 Hotel Leelaventure 122 21.13 41.03
Emami 222 27.89 31.75 Kalpataru Power Trans. 119 20.92 32.85
Ispat Industries 216 29.98 72.89 Varun Shipping Co. 116 8.75 19.01
EID Parry India 214 6.35 13.83 Radico Khaitan 113 14.86 30.53
Essar Shipping Port 198 15.07 31.89 Nagarjuna Fertilizers 111 24.56 69.58
Era Infra Eng. 195 56.60 96.95 Parsvnath Developers 111 63.88 79.52
Sintex Industries 190 14.90 51.11 Sobha Developers 111 28.39 32.63
Nava Bharat Ventures 185 6.44 14.42 Asahi India Glass 110 7.09 12.84
Nagarjuna Construction 171 9.23 37.87 Jindal Drilling & Ind. 103 26.86 35.81
Cambridge Solutions 168 49.20 98.22 Simplex Infra 100 7.60 15.38
Aban Offshore 167 8.14 13.38 Shree Ashtavinayaka CV 100 11.24 23.01
Aurobindo Pharma 164 37.67 65.18
Bombay Rayon 160 17.22 35.56 Source: Bloomberg
Great Offshore 159 14.88 94.60 Note: Sorted on the basis of market capitalization.
Motilal Oswal Fin 159 12.38 17.59 This is not an exhaustive list; companies with market cap of more than US$100mn are
considered. Updated till 12 Mar 2009.
Tulip Telecom 158 22.57 32.73
Gujarat NRE Coke 154 14.71 32.29
Kirloskar Oil Engines 153 4.55 7.48
Ballarpur Industries 151 3.38 8.67
Ipca Laboratories 151 16.41 35.67
Apollo Tyres 148 10.62 26.99
Wockhardt 144 43.11 58.54
MindTree 144 0.27 0.78
Carborundum Universal 143 1.53 3.55
Phoenix Mills 143 0.35 0.53
Dishman Pharmaceuticals 141 6.44 10.60
Jindal Saw 138 7.32 16.73
Omaxe 136 21.95 24.59
Moser Baer India 134 1.56 9.58
Zee News 134 17.17 31.71
Rolta 128 2.58 6.41
Kingfisher Airlines 128 43.80 66.09
UTV Software 128 22.76 27.34
Television Eighteen 125 34.60 67.83
Shaw Wallace & Co. 123 62.50 83.33
Key to our recommendation structure

BUY - Absolute - Stock expected to give a positive return of over 20% over a 1-year horizon.
SELL - Absolute - Stock expected to fall by more than 10% over a 1-year horizon.

In addition, Add and Reduce recommendations are based on expected returns relative to a hurdle rate. Investment horizon for Add and Reduce recommendations is up to a year. We
assume the current hurdle rate at 10%, this being the average return on a debt instrument available for investment.

Add - Stock expected to give a return of 0-10% over the hurdle rate, ie a positive return of 10%+.
Reduce - Stock expected to return less than the hurdle rate, ie return of less than 10%.

Published in 2009. © India Infoline Ltd 2009

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