ValueGuide Sep13 PDF

aIue
6uIde
September 2013
For Private CircuIation onIy
www.sharekhan.com
InteIIigent Investing
Market OutIook
Stock Updates
Sector Updates
Sharekhan SpeciaI
Viewpoint
ReguIar Features
Report Card
Earnings Guide
Products & Services
PMS
Top Equity Picks
MF Picks
Advisory
Trader's Edge
TechnicaI view
Commodities and Currencies
F&O Insights
aIue
6uIde
3 events to decIde
market's fate
September 2013 Sharekhan ValueGuide 2
Sharekhan ValueGuide September 2013 3
For the third consecutive
mont h t he rupee
domi nat ed market
sentiment, as continuing
with its depreciation
against the US Dollar the
local currency hit a new
low of Rs68.5 in August
this year. Even intervention by the Reserve Bank of India (RBI) could not
stem its fall and the currency lost a whopping 10% against the greenback
during the month and was among the worst performing currencies within
the emerging market pack.
REGULAR FEATURES
Report Card 4
Earnings Guide I
TECHNICALS
Sensex 29
Stock Updates 15
Sharekhan Special 26
Sector Updates 28
Viewpoint 28
From Sharekhans Desk
EQUITY
06
3 events to decide market's fate
FUNDAMENTALS
DERIVATIVES
View 30
TECHNICALS
Crude Oil 31
Gold 32
Silver 32
FUNDAMENTALS
Copper 32
Lead 32
Zinc 33
Gold 34
Silver 34
Crude Oil 34
Copper 35
Natural gas 35
Dhaanya Index 35
TECHNICALS
FUNDAMENTALS
USD-INR 37
EUR-INR 37
GBP-INR 37
JPY-INR 37
disclaimer
DISCLAIMER: This document has been prepared by Sharekhan Ltd.(SHAREKHAN) This Document is subject to changes without prior notice and is intended only for the person or entity to which it is addressed to and may
contain confidential and/or privileged material and is not for any type of circulation. Any review, retransmission, or any other use is prohibited. Kindly note that this document does not constitute an offer or solicitation for the
purchase or sale of any financial instrument or as an official confirmation of any transaction. Though disseminated to all the customers simultaneously, not all customers may receive this report at the same time. SHAREKHAN
will not treat recipients as customers by virtue of their receiving this report. The information contained herein is from publicly available data or other sources believed to be reliable. While we would endeavour to update the
information herein on reasonable basis, SHAREKHAN, its subsidiaries and associated companies, their directors and employees (SHAREKHAN and affiliates) are under no obligation to update or keep the information current.
Also, there may be regulatory, compliance, or other reasons that may prevent SHAREKHAN and affiliates from doing so. We do not represent that information contained herein is accurate or complete and it should not be relied
upon as such. This document is prepared for assistance only and is not intended to be and must not alone betaken as the basis for an investment decision. The user assumes the entire risk of any use made of this information.
Each recipient of this document should make such investigations as it deems necessary to arrive at an independent evaluation of an investment in the securities of companies referred to in this document (including the merits
and risks involved), and should consult its own advisors to determine the merits and risks of such an investment. The investment discussed or views expressed may not be suitable for all investors. We do not undertake to
advise you as to any change of our views. Affiliates of Sharekhan may have issued other reports that are inconsistent with and reach different conclusion from the information presented in this report. This report is not directed
or intended for distribution to, or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction, where such distribution, publication, availability or use would be contrary
to law, regulation or which would subject SHAREKHAN and affiliates to any registration or licensing requirement within such jurisdiction. The securities described herein may or may not be eligible for sale in all jurisdictions or
to certain category of investors. Persons in whose possession this document may come are required to inform themselves of and to observe such restriction. SHAREKHAN & affiliates may have used the information set forth
herein before publication and may have positions in, may from time to time purchase or sell or may be materially interested in any of the securities mentioned or related securities. SHAREKHAN may from time to time solicit from,
or perform investment banking, or other services for, any company mentioned herein. Without limiting any of the foregoing, in no event shall SHAREKHAN, any of its affiliates or any third party involved in, or related to,
computing or compiling the information have any liability for any damages of any kind. Any comments or statements made herein are those of the analyst and do not necessarily reflect those of SHAREKHAN.
COMMODITY
CURRENCY
PMS DESK
ProPrime - Top Equity 38
ProPrime - Diversified Equity 39
ProTech - Diversified 40
ProTech - Nifty Thrifty 41
ProTech - Trailing Stops 42
MUTUAL FUNDS DESK
Top MF Picks (equity) 45
Top SIP Fund Picks 46
RESEARCH BASED EQUITY PRODUCTS
Market Outlook 07
Top Picks basket 11
INR-GBP 36
INR-JPY 36
ADVISORY DESK
MID Trades 43
INR-USD 36
INR-EUR 36
Derivative Ideas 43
Sharekhan Ltd, Regd Add: 10th Floor, Beta Building, Lodha iThink Techno Campus, Off. JVLR, Opp. Kanjurmarg Railway Station, Kanjurmarg (East),
Mumbai 400042, Maharashtra. Tel: 022 - 61150000. Sharekhan Ltd.: SEBI Regn. Nos. BSE-Cash-INB011073351 ; F&O-INF011073351 ; NSE INB/
INF231073330; CD - INE231073330 ; MCX Stock Exchange: INB/INF-261073333 ; CD - INE261073330 ; United Stock Exchange: CD - INE271073350 ; DP-
NSDL-IN-DP-NSDL-233-2003 ; CDSL-IN-DP-CDSL-271-2004 ; PMS-INP000000662 ; Mutual Fund-ARN 20669 ; Commodity trading through Sharekhan
Commodities Pvt. Ltd.: MCX-10080 ; (MCX/TCM/CORP/0425) ; NCDEX -00132 ; (NCDEX/TCM/CORP/0142) ; NSEL-12790 ; For any complaints email at
igc@sharekhan.com ; Disclaimer: Client should read the Risk Disclosure Document issued by SEBI & relevant exchanges and Dos & Donts by MCX &
NCDEX and the T & C on www.sharekhan.com before investing.
CONTENTS
REPORT CARD EQUITY FUNDAMENTALS
STOCK IDEAS STANDING (AS ON SEPTEMBER 05, 2013)
COMPANY CURRENT PRICE AS ON PRICE 52 WEEK ABSOLUTE PERFORMANCE RELATIVE TO SENSEX
RECO 05-SEP-13 TARGET HIGH LOW 1M 3M 6M 12M 1M 3M 6M 12M
N
E
W
N
E
W
N
E
W
N
E
W
AUTOMOBILES
Apollo Tyres Hold 65.0 77.0 102.5 54.6 -1.5 -27.3 -23.1 -29.1 1.5 -23.9 -22.8 -34.4
Ashok Leyland Hold 13.0 18.0 29.0 11.8 -0.8 -44.5 -42.0 -37.8 2.3 -42.0 -41.7 -42.5
Bajaj Auto Hold 1901.0 2201.0 2229.0 1597.5 -1.1 9.4 -2.8 17.4 2.0 14.5 -2.4 8.5
M&M Buy 777.1 1010.0 1025.9 700.6 -8.7 -19.8 -10.6 4.0 -5.9 -16.1 -10.2 -3.9
Maruti Suzuki Hold 1299.6 1589.0 1777.0 1158.0 -4.0 -17.0 -8.2 9.3 -1.1 -13.1 -7.8 1.0
BSE Auto Index 10418.6 11868.6 9174.5 0.3 -5.0 -0.5 12.3 3.4 -0.6 -0.1 3.8
BANKS & FINANCE
Allahabad Bank Hold 71.4 85.0 191.1 64.8 -1.4 -43.6 -48.9 -42.4 1.6 -41.0 -48.7 -46.7
Andhra Bank Reduce 51.5 55.0 130.0 47.2 -16.4 -41.5 -44.6 -45.0 -13.8 -38.8 -44.4 -49.2
Axis (UTI) Bank Buy 927.5 1550.0 1549.9 763.4 -27.3 -41.8 -40.6 -16.9 -25.1 -39.1 -40.4 -23.2
Bajaj Finserv Hold 569.0 728.0 984.0 561.0 -1.1 -12.5 -27.3 -26.1 1.9 -8.5 -27.0 -31.7
Bank of Baroda Buy 502.6 626.0 899.7 429.3 -4.6 -27.1 -32.1 -23.5 -1.7 -23.7 -31.9 -29.3
Bank of India Hold 145.3 220.0 393.0 126.5 -19.5 -51.0 -54.1 -45.9 -17.0 -48.8 -53.9 -50.0
CanFin Homes Buy 117.9 220.0 187.9 100.1 -8.5 -17.3 -18.3 14.7 -5.6 -13.5 -17.9 6.1
Capital First Buy 155.1 ** 235.0 109.5 26.9 1.2 11.2 3.6 30.9 5.9 11.7 -4.3
Corp Bank Hold 249.9 380.0 495.3 239.6 -14.0 -37.6 -36.1 -32.5 -11.3 -34.6 -35.9 -37.6
Federal Bank Buy 274.6 500.0 571.0 221.3 -30.1 -45.4 -48.9 -38.6 -28.0 -42.9 -48.7 -43.3
HDFC Hold 750.4 865.0 931.4 631.3 -12.2 -15.7 -6.9 -0.3 -9.5 -11.8 -6.6 -7.9
HDFC Bank Hold 609.5 712.0 727.3 505.1 -10.6 -16.7 -9.4 -3.6 -7.9 -12.9 -9.0 -10.9
ICICI Bank Buy 893.7 1195.0 1238.4 756.9 -7.8 -28.2 -21.4 -8.9 -5.0 -24.8 -21.1 -15.8
IDBI Bank Hold 56.9 94.0 118.4 52.3 -4.0 -26.8 -34.6 -34.0 -1.1 -23.4 -34.3 -39.0
Punjab National Bank Buy 442.6 750.0 922.1 400.2 -21.2 -43.7 -45.2 -36.8 -18.8 -41.1 -45.0 -41.6
SBI Hold 1638.2 1950.0 2551.7 1452.7 -11.1 -26.3 -27.4 -18.8 -8.4 -22.9 -27.1 -24.9
Union Bank of India Hold 110.7 150.0 288.0 97.0 -11.9 -51.2 -50.1 -32.4 -9.2 -49.0 -49.9 -37.5
Yes Bank Buy 287.5 510.0 547.7 216.1 -23.5 -52.1 -49.7 -28.3 -21.2 -49.8 -49.5 -33.7
BSE Bank Index 11015.0 15335.9 9535.8 -11.8 -27.7 -23.0 -11.1 -9.0 -24.4 -22.7 -17.8
CONSUMER GOODS
Bajaj Corp Buy 244.6 303.0 284.0 164.3 -3.2 -14.0 6.8 31.7 -0.2 -10.0 7.2 21.8
GSK Consumers Hold 4303.8 4625.0 6347.8 2400.0 -6.0 -29.0 2.6 46.2 -3.1 -25.7 3.1 35.2
Godrej Consumer Products Hold 819.4 875.0 978.0 599.7 -6.7 -9.3 8.3 19.0 -3.8 -5.1 8.8 10.0
Hindustan Unilever Reduce 628.0 540.0 725.0 432.2 0.1 5.4 41.2 22.3 3.2 10.3 41.8 13.0
ITC Buy 312.2 379.0 380.0 220.3 -9.9 -11.1 4.1 14.3 -7.2 -7.0 4.5 5.6
Jyothy Laboratories Buy 147.0 254.0 211.3 138.8 -7.6 -25.7 -4.5 -0.4 -4.8 -22.2 -4.1 -8.0
Marico Buy 206.2 242.0 251.7 186.2 -1.4 -10.6 -3.1 1.2 1.6 -6.5 -2.7 -6.5
Mcleod Russel India Buy 265.5 343.0 387.0 237.7 -0.8 -9.6 -24.8 -14.8 2.3 -5.4 -24.5 -21.3
TGBL (Tata Tea) Buy 147.2 175.0 181.7 121.6 -1.7 -2.4 15.5 11.1 1.3 2.1 16.0 2.7
Zydus Wellness Buy 528.7 633.0 755.0 391.0 -13.2 -13.1 12.4 34.0 -10.5 -9.1 12.9 23.9
BSE FMCG Index 6468.9 7600.1 5182.3 -5.8 -6.8 12.7 19.4 -2.9 -2.4 13.2 10.4
IT / IT SERVICES
CMC Buy 1285.0 1500.0 1523.0 963.0 5.7 6.6 -2.2 31.3 8.9 11.6 -1.8 21.4
HCL Technologies Buy 1019.9 1187.0 1050.9 534.3 11.0 41.3 45.7 88.0 14.5 47.9 46.3 73.8
Infosys Hold 3004.8 3218.0 3139.9 2060.6 3.5 24.7 8.4 34.2 6.6 30.5 8.9 24.1
NIIT Technologies Hold 292.0 305.0 324.9 234.3 20.9 13.3 12.2 6.3 24.7 18.6 12.6 -1.7
Persistent Systems Buy 585.0 600.0 599.0 366.1 9.4 13.9 9.0 54.8 12.7 19.2 9.4 43.1
Tata Consultancy Services Buy 1990.8 ** 2078.8 1055.0 12.1 42.8 38.3 56.7 15.5 49.4 38.8 44.9
Wipro Hold 468.9 485.0 501.0 263.1 9.7 47.5 30.5 51.5 13.1 54.4 31.0 40.1
BSE IT Index 7857.4 8154.1 5496.0 7.7 33.4 21.1 43.6 11.0 39.6 21.6 32.7
CAPITAL GOODS / POWER
Bharat Heavy Electricals Hold 138.1 150.0 272.5 100.2 -14.9 -34.9 -36.4 -40.2 -12.3 -31.8 -36.2 -44.7
CESC Hold 309.6 385.0 368.0 252.5 -4.0 -4.0 13.8 4.4 -1.1 0.5 14.3 -3.5
Crompton Greaves Hold 84.0 105.0 143.6 71.7 1.3 -7.5 -10.7 -20.2 4.4 -3.2 -10.3 -26.3
Greaves Cotton Buy 57.1 85.0 87.6 53.0 -4.7 -13.6 -19.7 -12.2 -1.7 -9.6 -19.4 -18.8
Kalpataru Power Transmission Buy 60.6 115.0 106.9 56.0 -4.1 -17.3 -15.9 -9.3 -1.1 -13.4 -15.5 -16.2
PTC India Buy 46.1 58.0 81.3 33.2 18.8 -16.0 -23.6 -13.4 22.5 -12.1 -23.3 -19.9
Thermax Reduce 544.5 527.0 691.0 474.6 -7.5 -4.6 -5.3 13.2 -4.7 -0.1 -4.9 4.7
V-Guard Industries Hold 516.0 560.0 590.5 381.0 -6.2 8.3 10.9 26.6 -3.3 13.3 11.4 17.1
BSE Power Index 1411.2 2113.7 1315.6 -2.0 -19.9 -19.6 -25.0 1.0 -16.2 -19.3 -30.7
BSE Capital Goods Index 7242.6 11408.6 6718.8 -11.8 -24.6 -22.8 -25.7 -9.1 -21.1 -22.4 -31.3
REPORT CARD EQUITY FUNDAMENTALS
STOCK IDEAS STANDING (AS ON SEPTEMBER 05, 2013)
COMPANY CURRENT PRICE AS ON PRICE 52 WEEK ABSOLUTE PERFORMANCE RELATIVE TO SENSEX
RECO 05-SEP-13 TARGET HIGH LOW 1M 3M 6M 12M 1M 3M 6M 12M
In Top Picks basket ** Price target under review
N
E
W
N
E
W
N
E
W
N
E
W
N
E
W
INFRASTRUCTURE / REAL ESTATE
Gayatri Projects Buy 55.7 202.0 130.6 46.0 -2.4 -27.2 -33.6 -39.8 0.6 -23.8 -33.3 -44.3
ITNL Buy 115.0 242.0 228.9 108.0 -0.3 -33.1 -39.9 -29.2 2.8 -30.0 -39.7 -34.6
IRB Infra Buy 64.3 160.0 161.4 51.9 1.3 -46.2 -44.8 -49.6 4.4 -43.7 -44.6 -53.4
Jaiprakash Associates Buy 37.6 63.0 106.8 28.4 22.6 -44.5 -46.1 -43.5 26.3 -41.9 -45.9 -47.7
Larsen & Toubro Buy 727.8 1075.0 1146.7 677.2 -14.5 -24.5 -22.0 -22.1 -11.9 -21.0 -21.7 -27.9
Pratibha Industries Buy 19.0 44.0 59.0 16.8 -15.8 -48.5 -54.6 -64.1 -13.2 -46.1 -54.4 -66.8
Punj Lloyd Hold 22.3 ** 64.1 20.1 -4.2 -50.3 -44.9 -52.5 -1.2 -48.0 -44.6 -56.1
Unity Infraprojects Buy 18.0 40.0 53.4 16.1 -0.9 -39.4 -40.0 -55.4 2.2 -36.6 -39.7 -58.7
CNX Infra Index 1976.7 2684.7 1829.8 -6.9 -16.7 -14.2 -12.8 -4.0 -12.8 -13.8 -19.4
BSE Real Estate Index 1213.3 2326.8 1126.8 -4.9 -30.6 -38.3 -23.4 -2.0 -27.4 -38.1 -29.2
OIL & GAS
Oil India Buy 432.6 650.0 629.9 415.0 -11.5 -26.4 -17.3 -7.3 -8.8 -23.0 -17.0 -14.3
Reliance Industries Buy 862.6 1010.0 955.0 682.4 -0.9 8.9 5.7 10.2 2.1 13.9 6.1 1.8
Selan Exploration Technology Buy 262.9 365.0 351.0 197.4 8.0 1.4 -5.3 -6.4 11.3 6.1 -4.9 -13.5
BSE Oil and Gas Index 8388.2 9890.9 7552.2 -1.6 -2.7 -3.5 1.8 1.5 1.8 -3.1 -5.9
PHARMACEUTICALS
Aurobindo Pharma Buy 188.6 267.0 204.9 115.6 20.0 2.4 22.4 61.1 23.7 7.2 22.9 48.9
Cipla Buy 418.6 490.0 435.0 320.3 6.3 12.0 10.1 12.6 7.3 14.8 9.6 1.1
Cadila Healthcare Buy 643.6 886.0 975.0 629.0 -15.7 -20.6 -15.7 -28.4 -13.1 -16.9 -15.3 -33.8
Dishman Pharma Buy 43.3 130.0 124.5 37.1 8.3 -41.1 -34.0 -57.7 11.7 -38.3 -33.7 -60.9
Divi's Labs Buy 966.8 1231.0 1234.4 905.0 4.9 2.4 -4.8 -11.2 8.1 7.2 -4.5 -17.9
Glenmark Pharmaceuticals Hold 513.8 600.0 613.4 386.5 -9.2 -14.6 2.3 18.3 -6.4 -10.6 2.7 9.4
Ipca Laboratories Hold 709.9 675.0 730.0 400.9 3.8 14.9 44.9 59.7 7.0 20.2 45.5 47.7
Lupin Buy 854.6 907.0 908.0 496.4 -1.4 14.7 48.7 48.3 1.6 20.0 49.3 37.1
Sun Pharma Buy 518.6 595.0 581.4 290.0 -6.4 2.1 30.1 57.1 -3.5 6.8 30.6 45.2
Torrent Pharma Hold 427.6 445.0 466.4 303.7 -5.8 3.5 27.3 22.8 -2.9 8.3 27.8 13.6
BSE Health Care Index 9050.4 9509.5 7315.2 0.9 1.5 16.9 22.3 4.0 6.2 17.4 13.0
AGRI-INPUTS
Tata Chemicals Buy 242.6 346.0 381.5 233.2 -6.5 -18.6 -23.8 -19.3 -3.7 -14.8 -23.5 -25.4
United Phosphorus Buy 135.2 180.0 167.5 101.6 7.6 -16.2 18.7 14.1 10.9 -12.3 19.2 5.5
BUILDING MATERIALS
Grasim Hold 2301.8 2950.0 3511.0 2105.7 -14.0 -19.9 -24.7 -25.7 -11.4 -16.2 -24.3 -31.3
India Cements Hold 49.3 75.0 104.7 43.0 6.1 -28.0 -41.6 -41.6 9.3 -24.6 -41.3 -46.1
Madras Cements Hold 157.6 210.0 273.5 135.2 2.5 -30.3 -35.9 -13.5 5.6 -27.1 -35.6 -20.0
Shree Cement Hold 3765.0 4660.0 5384.4 3282.6 -13.3 -23.6 -12.8 9.5 -10.7 -20.1 -12.4 1.3
UltraTech Cement Hold 1539.4 2100.0 2154.2 1402.4 -16.4 -20.0 -19.1 -10.5 -13.8 -16.3 -18.8 -17.3
DISCRETIONARY CONSUMPTION
Eros International Media Buy 124.7 165.0 235.1 106.5 1.0 -25.3 -26.8 -26.8 4.2 -21.9 -26.4 -32.4
Indian Hotel Company Hold 46.5 61.0 71.8 37.5 10.9 -12.1 -17.5 -22.9 14.3 -8.1 -17.1 -28.8
KKCL Buy 724.0 913.0 903.2 525.0 0.6 -17.0 5.6 22.2 3.7 -13.1 6.0 13.0
Raymond Buy 187.6 350.0 488.9 175.5 -3.8 -33.9 -41.0 -46.7 -0.9 -30.8 -40.8 -50.8
Relaxo Footwear Hold 722.0 800.0 918.0 470.0 -1.9 8.6 20.7 15.1 1.1 13.6 21.2 6.4
Speciality Restaurants Buy 126.2 230.0 198.2 108.1 4.0 -24.1 -14.7 -18.2 7.2 -20.6 -14.4 -24.4
Zee Entertainment Buy 225.4 300.0 267.5 166.6 -9.9 -7.9 -0.1 30.2 -7.1 -3.6 0.3 20.4
DIVERSIFIED / MISCELLANEOUS
Aditya Birla Nuvo Buy 1124.9 1254.0 1274.0 743.6 -6.9 4.4 3.8 42.8 -4.0 9.2 4.2 32.0
Bajaj Holdings Buy 795.0 1334.0 1058.3 735.1 -6.3 -10.7 -13.0 9.7 -3.4 -6.6 -12.6 1.4
Bharti Airtel Hold 296.2 395.0 370.6 215.8 -13.9 -2.3 -5.7 19.4 -11.3 2.2 -5.3 10.4
Bharat Electronics Buy 1177.1 1485.0 1380.0 1073.1 6.1 -10.3 -3.7 -2.8 9.4 -6.2 -3.3 -10.2
Gateway Distriparks Buy 109.1 149.0 150.7 98.1 4.6 -12.7 -16.1 -19.7 7.8 -8.6 -15.8 -25.8
Max India Buy 153.2 296.0 273.0 150.2 -22.8 -27.0 -35.4 -12.0 -20.4 -23.7 -35.2 -18.7
Ratnamani Metals and Tubes Hold 125.4 170.0 162.1 101.0 0.2 -13.2 3.3 19.8 3.2 -9.2 3.7 10.8
BSE500 Index 6819.4 7792.7 6301.3 -3.0 -9.2 -5.5 1.9 0.0 -5.0 -5.1 -5.8
CNX500 Index 4264.1 4877.7 3937.7 -3.3 -9.8 -5.7 2.0 -0.4 -5.6 -5.3 -5.7
CNXMCAP Index 6724.5 8859.4 6330.8 -1.0 -14.7 -10.7 -5.7 2.0 -10.7 -10.3 -12.8
3 events to decide market's fate
FROM SHAREKHANS DESK
f
r
o
m

s
h
a
r
e
k
h
a
n
s

d
e
s
k
For the third consecutive month the rupee dominated market sentiment, as continuing
with its depreciation against the US Dollar the local currency hit a new low of Rs68.5 in
August this year. Even intervention by the Reserve Bank of India (RBI) could not stem its
fall and the currency lost a whopping 10% against the greenback during the month and
was among the worst performing currencies within the emerging market pack.
The new governor at the RBI has initiated some fresh thinking and announced steps to
prop up the rupee and sentiments. The initial reactions are positive but he has a tough task
ahead. Fundamentally, the situation remains unfavourable. The rupee would face pressure
from the deterioration in the economic growth (with consensus growth estimate for FY014
at close to 4.5%), firm crude oil prices and the populist legislative tilt of the government in
the run-up to the general election.
In the editorial column of the previous two issues, we had highlighted these contentious
issues that threaten to derail the economic revival story and their possible adverse impact
on the equity market. In the past two months, we have witnessed a 4-5% downward revision
in the consensus earnings estimates and the sentiments have turned distinctively weak. The
market is also adjusting to the emerging realties and threatening to break down from its
multi-month trading range. Our Market Outlook report, Hopes belied, back to square
one gives a detailed analysis of and outlook for the equity market on page 7 of this issue.
Having said this, it would not be surprising if the benchmark indices (more so in the mid-
cap space) bounce back to regain some lost ground after the steep correction of the last few
months. However, the extent of the bounce would depend on three important events ahead.
Two events are related to the policy decisions to be taken in the USA. First, the outcome of
the decision taken by the western countries (especially the USA) on possible limited military
strikes on Syria. A fresh outbreak of conflict in the Middle-East would further firm up
crude oil prices and adversely affect Indias trade balance and increase fiscal imbalance.
The under-recoveries in the oil and gas sector have already reached record levels and the
government is already looking at a one-time bulky hike in retail prices of fuels in addition
to the regular adjustments of Rs0.5/litre. The economic outlook for an energy-deficit Indian
economy would get dented further in such a scenario.
Second, the US Federal Reserves meet scheduled in the middle of the month is another
important event that would influence the global financial system, not just the Indian markets.
The US central bank is likely to provide more details related to the tapering of its prevailing
extremely loose fiscal policy and begin the end of the easy and cheap liquidity globally. The
proposed plan has already caused an upheaval in the foreign exchange, fixed-income and
equity markets across the world since it was announced in May this year.
Lastly, the RBIs new governor would announce his maiden monetary policy review in the
third week of September post-meet of the Federal Reserve. The governor has started his
term on a positive note and raised hopes among market participants. His response to the
tough domestic macro-economic conditions and the changing global financial landscape
would be watched closely and would significantly influence the financial markets in India.
To summarise, the bias is positive for the equity market this month. But there are three
important events ahead that can significantly influence the market in the near term. Under
the circumstances, we expect the market to remain volatile this month.
Hopes belied, back to square one
MARKET OUTLOOK AUGUST 30, 2013
Going nowhere; lost opportunity: The benchmark equity
indices had pushed out of a multi-month range (Nifty;
4700-5300) and moved into a new orbit (Nifty; 5400-
6000) after the change at the finance ministry last year.
Favourable global cues and the Reserve Bank of India
(RBI)s monetary easing stance around the same time
had helped the market to rise close to its previous high
(Nifty; over 6000). But the recent knee-jerk policy
announcements to tackle the run on the local currency,
populist push from the United Progressive Alliance
(UPA)-II government (with an eye on the forthcoming
general election) and spike in crude oil prices have
developed fault lines in the economic revival story.
Consequently, the benchmark indices are slipping back
into the lower range last seen in the era preceding P
Chidambarams return to the finance ministry. It is like
a novice lost in a jungle who keeps pushing ahead but
ends up moving in circles, going nowhere.
Paying the price for profligacy but no lessons learnt:
The proposed tapering of the quantitative easing
programme by the US Federal Reserve (Fed) has jolted
the global financial markets that had got addicted to
the ample dose of easy and cheap liquidity. The worst
affected are the markets of the emerging or developing
countries that have a relatively high dependence on
foreign inflows to fill the gap in their trade imbalances
and current account deficit. The official estimates peg
Indias current account deficit at around $70-80 billion
with additional requirement to roll over short-term
foreign debt of $80-90 billion. This means India
requires $180-190 billion of foreign capital in this
financial year alone. But that appears a difficult task
considering the facts that the expected liquidity squeeze
will affect the foreign fund inflows and foreign investors
are busy withdrawing funds from the Indian debt
market. Consequently, the Indian Rupee has been
among the worst performing currencies globally despite
Indias manageable level of external debt of around
20% of the gross domestic product (GDP; unlike in
1991 when the external debt of the country had risen
MARKET OUTLOOK
EQUITY FUNDAMENTALS
SENSEX ONE-YEAR FORWARD P/E BAND
Source: Bloomberg, Sharekhan research
to 40% of the GDP). But unfortunately, the policy
response to the crisis has not been well coordinated
and has failed to have the desired effect. Worst still,
the government has gone ahead with a populist scheme
like the Food Security Bill that would add to the
burgeoning subsidy burden. The subsidy burden has
already bloated by Rs50,000-60,000 crore due to a
spike in the crude oil prices and the rupees depreciation
(fuel subsidy estimated to cross the Rs2-trillion mark
in FY2014 as against expectations of Rs1.3-1.4 trillion
a couple of months back).
Corporate earnings performance belies growth
expectations; earnings estimate downgrades pick up:
The corporate earnings growth for Q1FY2014
disappointed even though the expectations were quite
muted. The slowdown in the economic growth has
percolated deeper since the revenue growth has turned
flattish (after remaining over 20% for many quarters)
while margins are sliding on account of a weak rupee,
thereby affecting corporate profitability. Consequently,
barring a few sectors (information technology [IT],
pharmaceuticals [pharma] etc), earnings estimate
downgrades have picked up again leading to much
lower consensus earnings estimates across sectors.
Given the macro-economic situation, we see the risk
of further downgrades in the earnings estimates.
8.0
10.0
12.0
14.0
16.0
18.0
20.0
22.0
24.0
Aug-01 Aug-03 Aug-05 Aug-07 Aug-09 Aug-11 Aug-13
PER +1 sd Avg PER -1 sd
MARKET OUTLOOK
EQUITY FUNDAMENTALS
Uncertainty and volatility to prevail; global events and
elections important: The Indian stock market is
plunging along with the other emerging markets like
Indonesia, Brazil, South Africa and Turkey, which have
serious fiscal imbalances. With global events likely to
remain unfavourable going ahead (amid the unwinding
of the unprecedented policy of massive liquidity
infusions in the aftermath of the 2008 debt crisis), and
a populist policy framework in the run-up to the general
election and muted corporate earnings growth at home,
the equity market would remain volatile in the near
future with a limited scope for hiding in the
traditionally safe-haven stocks (fast moving consumer
goods [FMCG] and private banks). The Sensex
valuation is also not cheap (post-downgrade of its
earnings estimates) at close to 14.0-14.5x one-year
forward earnings (close to the long-term average
valuation multiple) despite the difficult macro-
economic scene and weak Q1FY2014 corporate results.
It is advisable to be selective (export-oriented
companies that benefit from a weak rupee may be
considered) and look at only systematic and gradual
building of portfolio with a medium-term outlook.
Macro-economic concerns heighten with rupees deterioration
The rupee breached the 68-mark recently against the dollar
(down 19.5 % since May 2013) and is facing further
downward pressure due to expectations of tightening of
global liquidity. This could further aggravate the macro-
economic issues since a weak local currency will feed
inflation and raise the current account deficit. Despite the
measures taken by the RBI and the government it will be
challenging to meet the current account deficit target of
$70-80 billion ($88 billion in FY2013) since the structural
issues relating to Indias current account deficit crisis (high
imports, limited foreign exchange [forex] reserves etc)
remain. Consequently, several institutions have
downgraded the FY2014 GDP forecast for India to 5%
levels (from 6% levels in the beginning of FY2014)
whereas some rating agencies have threatened to
downgrade Indias sovereign rating.
Global environment remains volatile; commodity prices move up
The global environment has remained quite volatile in the
past couple of months led by the US Feds tapering
indications and the subsequent withdrawal of funds from
the emerging financial markets by investors. Several other
emerging markets like Brazil, South Africa, Turkey, and
Indonesia have witnessed increased outflows and sharp
depreciation in their respective currencies. Further, the
situation in the Middle-East remains fluid and the Syrian
DEPRECIATION OF EM CURRENCIES VS DOLLAR (%)
Source: Bloomberg, Sharekhan Research
crisis has pushed up crude oil prices which pose a key risk
to high-current account deficit nations like India. Going
ahead, the US Feds meeting on September 18, 2013 may
throw more light on the US central banks tapering plans.
FOREX RESERVE COVERAGE OF INDIA VS OTHER EMS (%)
*As of Q1FY2013 Source: RBI, Sharekhan Research
Note: reserves as a % of CAD plus short-term debt by residual maturity
94
97
100
103
106
109
112
115
118
121
124
127
Jan-13 Feb-13 Mar-13 Apr-13 May-13 Jun-13 Jul-13 Aug-13
Indian Rupee Malaysian Ringgit South African R
Brazlian Real Indonesian Rupiah Korean Won
0 200 400 600 800 1000
Turkey
South Af rica
Indonesia
Mexico
India*
Malaysia
Brazil
Thailand
Philippines
China
RBIs tightening stance to continue
In response to the crisis the RBI tightened liquidity in the
system, rationalised gold imports and even restricted the
flow of capital outside (selectively). As a result, short-term
rates shot up and the bond yields hardened to 9.4% levels;
but the same cooled down after some relief was announced
for banks (they have been allowed to transfer bond
SHORT-TERM RATES RISE SHARPLY (%)
8.0
8.5
9.0
9.5
10.0
10.5
11.0
11.5
12.0
12.5
13.0
3M CP 6M CP
MARKET OUTLOOK
EQUITY FUNDAMENTALS
holdings from the available for sale portfolio to the
held till maturity portfolio on July 15, 2013 prices and
to spread their marked-to-market losses in their bond
book). Recently, the RBI also opened the forex swap
window for oil companies to ease the pressure on the
rupee. Though a new governor will take charge of the
RBI (Dr Raghuram Rajan) next month, but he is unlikely
to wind up the liquidity tightening measures (at least in
the near term) and may even resort to further tightening,
if the crisis persists.
Fiscal slippages likely in view of rising subsidies, populist measures
Around twelve months back when Mr Chidambaram had
returned as the finance minister, the market was enthused
over the prospects of more reforms. The government did
take some firm measures to reduce its subsidy burden
(reduction in diesel, liquefied petroleum gas subsidies, hike
in gas prices etc) following signs of improvement in the
global environment, thereby pushing the market to +6000
levels (Nifty). However, as the global environment turned
adverse again, the governments actions seemed inadequate
and so far it has failed to lift the confidence of investors.
The recent spike in the crude oil prices and the rupees
depreciation would push the governments fuel subsidy to
Rs1.9-2 trillion in FY2014 as against the expectation of
Rs1.3-1.4 trillion a couple of months back. That is enough
to spoil the fiscal maths. Being oblivious of the past mistakes,
the government has resorted to spending again, pushing
populist measures such as the food security bill and the
land reform bill with an eye on the upcoming election.
Downgrades pick up in consensus earnings estimates
The earnings season gone by was lacklustre as the
corporate earnings growth for Q1FY2014 disappointed
even though the expectations were quite muted. The
revenue growth faltered severely (up 2% year on year vs
a growth of +20% a few quarters back) in response to the
slowdown in the economy. In addition, the earnings before
interest, tax, depreciation and amortisation margin, which
seemed to have recovered in Q4FY2013, declined again
in Q1FY2014 which affected the profits. Consequently,
barring a few sectors (IT, pharma etc) the downgrade of
earnings estimates has picked up again leading to much
lower consensus earnings growth estimates across sectors.
Since the fundamental triggers are lacking, the scope for
more downgrades persists.
FISCAL DEFICIT MAY BREACH BUDGETED LEVELS (%)
BRENT CRUDE PRICES SOAR ($/BBL)
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
9.0
Mar-90 Mar-94 Mar-98 Mar-02 Mar-06 Mar-10 Mar-14
95
100
105
110
115
120
SENSEX' CONSENSUS EARNINGS ESTIMATE FOR FY2014 (RS)
SENSEX' CONSENSUS EARNINGS ESTIMATE FOR FY2015 (RS)
1,420
1,430
1,440
1,450
1,460
1,470
1,480
1,490
1,500
Apr-13 May-13 Jun-13 Jul-13 Aug-13
1210
1220
1230
1240
1250
1260
1270
1280
Apr-13 May-13 Jun-13 Jul-13 Aug-13
INDIAS NET FOREIGN EQUITY AND DEBT INVESTMENTS ($ MN)
Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a position in the companies mentioned in the article.
For detailed report, please visit the Research section of our website, sharekhan.com.
SENSEX ONE-YEAR FORWARD P/E BAND
FII outflows remain high, Nifty to shift to lower end of trading band
Foreign fund outflows have increased significantly from
the emerging markets including India ($12.8 bn flown
out of the Indian debt and equity markets since June 2013)
due to risk-off trades. Consequently, several blue-chip
stocks (especially from the banking, capital goods and
infrastructure sectors) have reached their multi-year lows.
The slowdown is likely to persist for a longer period mainly
due to weak economic data releases, an inverted yield
curve, a slower investment rate and persistent policy
paralysis. The Nifty is likely to retract to its previous range
(ie 4700-5300) due to the heightened global uncertainty
and worsening local macro-economic environment.
Further, considering the downgrade in consensus earnings
estimates and the weak macro-economic scene, the Sensex
valuation is also not cheap at close to 14.5x one-year
forward earnings (close to the long-term average valuation
multiple).
-8000
-6000
-4000
-2000
0
2000
4000
6000
8.0
10.0
12.0
14.0
16.0
18.0
20.0
22.0
24.0
Aug-01 Aug-03 Aug-05 Aug-07 Aug-09 Aug-11 Aug-13
PER +1 sd Avg PER -1 sd
MARKET OUTLOOK
EQUITY FUNDAMENTALS
Sharekhan Top Picks
SHAREKHAN TOP PICKS
Our preferred picks in the information technology services space,
Tata Consultancy Services (TCS) and HCL Technologies (HCL
Tech), have vindicated our conviction and aided the overall
performance of the Top Picks basket. The two were among the
best performing stocks in the basket in August this year. TCS and
HCL Tech have appreciated by 10% and 12% respectively since
the last revision of the contents of the basket and minimised the
decline in the basket to 2% as compared with 2.8% in the Sensex
*CMP as on August 30, 2013 # Adjusted to bonus issue
NAME CMP* PER ROE (%) PRICE UPSIDE
(RS) FY13 FY14E FY15E FY13 FY14E FY15E TARGET (RS) (%)
Bajaj Corp 248 21.9 18.6 14.2 36.7 37.7 41.8 303 22%
Bharti Airtel 295 49.2 27.6 19.2 5.2 7.4 8.8 395 34%
Divi's Labs 987 22.2 19.3 15.2 23.6 24.5 25.9 1,231 25%
HCL Technologies 1,041 17.9 14.6 13.2 36.1 34.1 29.7 1,187 14%
HDFC Bank 591 20.9 16.7 13.3 20.3 21.3 22.6 712 20%
ICICI Bank 821 11.4 10.5 9.0 13.1 12.9 13.9 1,195 46%
Larsen & Toubro# 720 13.8 12.5 11.1 15.4 13.8 13.8 1,075 49%
Reliance Industries 846 13.1 13.1 11.5 10.7 9.7 9.9 1,010 19%
Sun Pharma# 520 17.9 24.9 22.7 25.4 26.4 23.4 595 14%
TCS 2,030 28.5 23.7 21 33.1 31.8 29.2 UR -
Zee Entertainment Enterprises 233 31.1 26.8 21.2 19.6 20.0 21.9 300 29%
ABSOLUTE OUTPERFORMANCE CONSTANTLY BEATING NIFTY AND SENSEX (CUMULATIVE RETURNS IN %)
SHAREKHAN TOP PICKS
EQUITY FUNDAMENTALS
and 3.5% in the Nifty in the same period. On the other hand,
banking stocks were among the worst performers last month and
our decision to replace State Bank of India with TCS has worked
out well.
This month we are not making any changes in the Top Picks basket.
We believe the current composition is well structured to perform
during corrections as well as bounce-backs.
-50%
0%
50%
100%
150%
200%
YTD
CY2013
CY2012 CY2011 CY2010 CY2009 Since
Inception
(Jan
2009)
Sharekhan (Top Picks) Sensex Nif ty
100.0%
120.0%
140.0%
160.0%
180.0%
200.0%
220.0%
240.0%
260.0%
280.0%
A
u
g
-
0
9
D
e
c
-
0
9
A
p
r
-
1
0
A
u
g
-
1
0
D
e
c
-
1
0
A
p
r
-
1
1
A
u
g
-
1
1
D
e
c
-
1
1
A
p
r
-
1
2
A
u
g
-
1
2
D
e
c
-
1
2
A
p
r
-
1
3
A
u
g
-
1
3
Sharekhan Sensex Nif ty
NAME CMP PER ROE (%) PRICE UPSIDE
BAJAJ CORP 248 21.9 18.6 14.2 36.7 37.7 41.8 303 22%
Remarks: Bajaj Corp is the third largest player in the hair oil segment and has emerged as the dominant player in the premium light hair oil (LHO)
category with its Almond Drops hair oil.
With consumers upgrading to the LHO category, we expect the strong volume growth momentum to continue in the coming quarters.
With the prices of the key inputs stabilising, we expect the GPM to improve in the coming quarters.
The companys thrust on enhancing the distribution reach in rural India and improving the market share every year has helped it clock
a good sales volume growth in the past few quarters. Any initiative to expand its limited product portfolio or strengthen its core business
would be a key upside trigger for the stock.
Currently the stock is trading at 18.6x FY2014E EPS of Rs13.3 and 14.2x FY2015E EPS of Rs17.5.
BHARTI AIRTEL 295 49.2 27.6 19.2 5.2 7.4 8.8 395 34%
Remarks: The Indian telecom environment is turning favourable with a drop in the competitive intensity and the benefits of consolidation flowing
to the incumbent players, as visible in the financial results of the players for the past two quarters.
The Q1FY2014 results of the Indian business of Bharti Airtel exhibited a strong pricing power (+4% QoQ), with a robust data revenue
growth, aided by a 190-basis-point sequential margin expansion in the India mobile business.
The strong performance indicators along with a positive management commentary on maintaining pricing discipline and headroom
ahead for price increases make us upgrade our India mobile revenue and margin expectations.
In the wake of the improving business fundamentals, relatively less harsh regulatory moves, and the impending mergers and acquisitions
in the sector, we maintain our positive stance on Bharti Airtel, with a revised price target of Rs395 (valued at 7.5x FY2015 EV/
EBITDA).
DIVI'S LABS 987 22.2 19.3 15.2 23.6 24.5 25.9 1,231 25%
Remarks: Despite a weaker performance in Q4FY2013, we are confident of Divis Laboratories growth potential. Its recent performance was
affected by the expansion process and the switching of production to new facilities which partly disrupted supplies. The growth will
bounce back on normalisation of supplies by the end of Q1FY2014.
It will benefit from the rupees depreciation against major other currencies, thanks to its debt-free balance sheet and the fact that nearly
90% of its revenues come from the export market (mainly the USA and Europe).
The new DSN SEZ facility at Vishakhapatnam that started in June 2011 augurs well for the company as it would improve the economies
of scale and lead to tax benefits. A near debt-free balance sheet and strong cash flow are likely to help build a war chest for pursuing
strategic investments and exploit the growth opportunities in niche segments, like oncology and steroids for contraceptives.
The stock is currently trading at 19.3x and 15.2x estimated earnings for FY2014 and FY2015 respectively. We have a Buy
recommendation on the stock with a price target of Rs1,231, which implies 19x FY2015E earnings.
HCL TECHNOLOGIES 1,041 17.9 14.6 13.2 36.1 34.1 29.7 1,187 14%
Remarks: HCL Technologies is an IT services company providing software-led IT solutions, remote infrastructure management services and
BPO services. The company has a leading position in remote infrastructure management services which has helped it win large IT
outsourcing contracts. Through the Axon PLC acquisition, the company has gained a strong SAP consulting footing.
In the current environment, we believe HCL Tech is well placed in terms of its business strategy of consciously targeting the re-bid
market. The results of the same are evident in its consistent outperformance in terms of volume and revenue growth. The company
has allayed the apprehensions on the margin front by consistently improving its margins despite head winds.
The management acknowledged the potential threat of the impending US immigration bill and expressed concern over the outplacement
clause in the current form (we, therefore, hope for some dilution in the final bill). Nevertheless, among the top four IT companies, HCL
Tech is relatively better placed, as around 50% of its total workforce in the USA holds the H1-L1 visa against a higher percentage of
such visa holders for TCS, Infosys and Wipro.
The management continues to see EBIT margin corridor of 19-20% for the coming quarter. However, the margin could improve further
if the rupee continues to stay weak against the dollar over the coming quarters. Among the top 4 IT companies, HCL Tech has shown
the highest sensitivity to the rupees depreciation in terms of margin improvement in the last seven quarters.
In view of its better earnings predictability compared with peers, stable margins and sustainable momentum in the IMS vertical, we
continue to recommend a Buy on it with a price target of Rs1,187.
SHAREKHAN TOP PICKS
EQUITY FUNDAMENTALS
HDFC BANK 591 20.9 16.7 13.3 20.3 21.3 22.6 712 20%
Remarks: HDFC Bank is expected to continue its strong growth in advances due to a strong presence in the retail segment. While the credit
demand has moderated in the corporate segment, it has a strong presence in the retail segment which will benefit the bank.
The bank has the highest current and savings account (CASA) ratio in the sector with a stable net interest margin (NIM; at 4.6%
levels). Given the higher proportion of CASA and retail deposits, it will be least affected by the Reserve Bank of Indias liquidity
tightening measures.
HDFC Banks asset quality is among the best in the sector and the bank is expected to maintain the same due to its strong credit
origination practices and marginal exposure to the troubled segments. Further, the higher provisions provide comfort on asset
quality front.
We expect HDFC Bank to deliver earnings CAGR of 25.2% over FY2013-15 leading to RoE and RoA of 22.6% and 1.9% respectively.
We believe the bank will continue to command a premium over its peers due to a strong and consistent growth. We have a price target
of Rs712 for the stock.
ICICI BANK 821 11.4 10.5 9.0 13.1 12.9 13.9 1,195 46%
Remarks: ICICI Bank continues to report a strong growth in earnings led by a growth in advances and expansion in margins (2.9% in FY2013).
We expect its advances to grow at 17.6% CAGR over FY2013-15. This should lead to a 17.1% CAGR growth in the net interest income
(NII) in the same period.
ICICI Banks asset quality remains stable as its non-performing assets (NPAs) have declined in the past several quarters led by a
contraction in slippages. This has led to a sharp reduction in the provisions and an increase in the profitability. Going forward, we
expect the asset quality pressures to be within the manageable limits leading to a healthy the profit growth.
Led by a pick-up in the business growth and an improvement in the margins, the RoE is likely to expand to 13.9% by FY2015 while the
RoA is likely to improve to 1.6%. This would be driven by a 12.4% growth (CAGR) in the profit over FY2013-15.
The stock trades at 1.2x FY2015E BV. Moreover, given the improvement in the profitability led by lower NPA provisions, a healthy
growth in the core income and improved operating metrics, we recommend Buy with a price target of Rs1,195.
LARSEN & TOUBRO 720 13.8 12.5 11.1 15.4 13.8 13.8 1,075 49%
Remarks: Larsen & Toubro (L&T), the largest engineering and construction company in India, is a direct beneficiary of the strong domestic
infrastructure development and industrial capex boom.
L&T continues to impress us with its good execution skills, reporting decent numbers throughout despite the slowdown in the industrial
capex cycle. Also, we have seen order inflow traction in recent quarters which enhances the revenue visibility.
Despite challenges like deferral of award decisions and stiff competition, the company has given a robust guidance of ~15% growth in
the future.
A sound execution track record, a healthy order book and a strong performance of its subsidiaries reinforce our faith in L&T.
At the CMP, the stock is trading at 11.1x its FY2015E earnings.
RELIANCE INDUSTRIES 846 13.1 13.1 11.5 10.7 9.7 9.9 1,010 19%
Remarks: Reliance Industries Ltd (RIL) has a strong presence in the refining, petrochemical and upstream exploration businesses. The refining
division of the company is the highest contributor to the companys 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 gas production from the Krishna-Godavari-D6 field has fallen significantly in the past one year. With the government approval for
additional capex, we believe production will improve going ahead.
In case of the upstream exploration business, RIL has got the nod for further investments in exploration at the Krishna-Godavari basin,
which augurs well for the company and could address the issue of falling gas output.
Further, the CCEA has approved a new gas pricing formula, which increases the price of gas to $8.4/mmbtu from $4.2/mmbtu and
augurs well for the company. This could provide further upside to the companys earnings.
The key concerns remain in terms of a lower than expected GRM, profitability of the petrochemical division and the companys inability
to address the issue of falling gas output in the near term.
At the CMP the stock is trading at a PE of 11.5x its FY2015E EPS.
SHAREKHAN TOP PICKS
EQUITY FUNDAMENTALS
SUN PHARMA 520 17.9 24.9 22.7 25.4 26.4 23.4 595 14%
Remarks: The combination of Sun Pharma, Taro Pharma, Dusa Pharma and the generic business of URL Pharma offers an excellent business
model for Sun Pharma, as has been reflected in the 40% Y-o-Y revenue growth and 39% Y-o-Y profit growth in FY2013.
Though a $550-million provision related to Protonix case would erode the cash balance by 55% in FY2014, but we believe Sun
Pharma is in a comfortable cash position. The rupees depreciation against the dollar is set to positively affect Sun Pharma.
Though Taro Pharma may not show a similar performance in the next quarter, but we expect a better performance from Sun Pharma
going forward mainly driven by (1) the resumption of sales from the US-based subsidiary, Caraco Pharma, post-USFDA clearance; (2)
the contribution from the newly acquired Dusa Pharma and URL Pharma in the USA; and (3) the launch of key products in the USA and
the emerging markets including India. We expect 18% and 21% revenue and PAT growth (CAGR) respectively over FY2012-15 on an
organic basis. With a strong cash balance, Sun Pharma is well positioned to capitalise on the growth opportunities and inorganic
initiatives. Its debt-free balance sheet insulates it from the negative impact of the volatility in the currency market.
At the CMP, Sun Pharma is trading at 24.9x and 22.7x FY2014E EPS and FY2015E EPS respectively. We maintain our Buy
recommendation on the stock, with a price target of Rs595 (post bonus shares), which implies 26x FY2015E EPS.
TCS 2,030 28.5 23.7 21 33.1 31.8 29.2 UR -
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 most
service offerings and has further consolidated its position as a full service player by delivering a robust financial and operational
performance consistently in the last two years.
The consistency and predictability of the earnings performance has put the company in the top of its league. Moreover, the quality of
its performance has also been quite impressive, ie it has been able to report a broad-based growth in all its service lines, geographies
and verticals consistently over the past two years, thereby justifying its position as a full service player in the IT industry.
Going ahead too, we believe the company is well positioned to capitalise on to the opportunities that the marketplace has to offer due
to its scale.
At the current market price of Rs2,030 the stock is trading at 23.7x FY2014 EPS of Rs85.6 and 21x FY2015 EPS of Rs96.5.
ZEE ENTERTAINMENT 233 31.1 26.8 21.2 19.6 20.0 21.9 300 29%
Remarks: Among the key stakeholders of the domestic TV industry, we expect the broadcasters to be the prime beneficiary of the mandatory
digitisation process initiated by the government. The broadcasters would benefit from higher subscription revenues at the least incremental
capex as the subscriber declaration improves in the cable industry.
On completion of 20 years of operations, ZEEL has issued redeemable preference shares (RPS) aggregating Rs2,000 crore (6%
preference dividend) for eight years. The RPS will be issued at a ratio of 21 RPSs for every equity share. The RPS will be redeemable
from the fourth year till the eighth year.
ZEELs management acknowledged that the recent TRAI recommendation of capping the advertisement time at 12 minutes per hour
would have an adverse impact on its advertisement volume. The company will take adequate hikes in the advertisement rates in order
to negate the impact of reduced volumes. Thus, we expect a very minimal impact on the blended advertisement growth in FY2014 and
FY2015.
We believe ZEEL will be the major beneficiary of the digitisation process in the years to come which coupled with a strong balance
sheet and high return ratios makes it a compelling long-term growth story. We maintain our Buy rating on ZEEL with a price target of
Rs300.
SHAREKHAN TOP PICKS
EQUITY FUNDAMENTALS
Price target revised to Rs55; downgraded to reduce
COMPANY DETAILS
Price target: Rs55
Market cap: Rs3,293 cr
52 week high/low: Rs130/55
NSE volume (no. of shares): 11.7 lakh
BSE code: 532418
NSE code: ANDHRABANK
Sharekhan code: ANDHRABANK
Free float (no. of shares): 23.5 cr
(%) 1m 3m 6m 12m
Absolute -27.8 -34.6 -44.9 -40.1
Relative to Sensex -26.9 -33.4 -43.8 -47.1
PRICE PERFORMANCE
REDUCE CMP: RS59 AUGUST 5, 2013
ANDHRA BANK
RESULT HIGHLIGHTS
Andhra Bank reported a disappointing set of numbers for Q1FY2014 as its net profit
declined by 36.1% YoY and was lower than our estimate. This was due to a decline in
the NII and a rise in the provisions. The NIM declined to 2.7%, which contributed to
the decline in the NII.
The advances grew by 16% YoY mainly led by the retail and SME segments. The
CASA ratio declined to 24%.
The slippages increased sharply to Rs1,182 crore while the recoveries and upgradation
were much lower which pushed the gross NPA to 4.73% levels. Also, the bank has
restructured Rs700 crore worth of loans and has about Rs3,300 crore of loans in the
pipeline for restructuring.
The bank reported a treasury profit of Rs286 crore while its fee income declined by
1% YoY.
Weak asset quality and Andhra Pradesh issue to affect performance; downgraded to
Reduce: Andhra Banks results were marred by a sharp dip in the NIMs and a rise in
the slippages. Therefore, we have raised our assumptions for slippages and credit costs,
and lowered the estimate for credit growth and NIM. Hence, we value the bank at 0.6x
FY2015E ABV, leading to a revised price target of Rs55. Though the stock is trading at
a fairly low valuation, but we believe the banks operating performance and asset quality
will weaken further. We have downgraded the rating on the bank to Reduce.
SHAREHOLDING PATTERN
Sharekhan Limited, its analyst or dependant(s) of the analyst might be
holding or having a postition in the companies mentioned in the article.
Price target revised to Rs626, upgraded to Buy
COMPANY DETAILS
Price target: Rs626
BSE code: 532134
NSE code: BANKBARODA
Sharekhan code: BANKBARODA
(%) 1m 3m 6m 12m
Absolute -2.2 -16.9 -33.1 -11.5
PRICE PERFORMANCE
BUY CMP: RS516 AUGUST 1, 2013
BANK OF BARODA
RESULT HIGHLIGHTS
Bank of Baroda reported a PAT of Rs1,167.9 crore, which was higher than our estimate.
This was due to a higher than expected growth in the non-interest income driven by
treasury gains.
The NII growth was in line with our estimate as it grew at a modest pace. The NIM
(global) declined by 10 basis points QoQ to 2.41%.
The advances grew by 12.4% YoY largely due to a slower growth in the corporate
advances. The CASA ratio expanded on a sequential basis to 31.2%.
The asset quality deteriorated led by gross slippages of Rs2,165 crore. In addition, the
bank restructured around Rs2,000 crore of advances.
Led by treasury profits of Rs409.3 crore, the non-interest income increased by 59.6%
YoY. The fee income grew by 9.1% YoY whereas the bank recovered Rs117.0 crore
on written-off accounts. The opex increased by 26.8% YoY.
Valuation: Bank of Barodas Q1FY2014 results reflect the pressure on its NIM and asset
quality. However, the management is confident the NIM will improve and slippages will
moderate in the coming quarters. Despite that, we have raised our assumptions for slippages
and lowered the NIM estimate. We now expect the earnings to grow at a CAGR of 8.2%
over FY2013-15. The stock has corrected sharply due to the asset quality concerns and is
trading at 0.7x FY2015E adjusted book value, which seems reasonable. We have upgraded
the rating on the stock to Buy from Hold and revised our price target to Rs626.
STOCK UPDATE
EQUITY FUNDAMENTALS
Promoter
59%
MF & FI
12%
Foreign
13%
Public &
others
16%
Promoter
56%
MF & FI
19%
Foreign
15%
Public &
others
10%
Negative operating leverage continues; price target
revised down to Rs150
COMPANY DETAILS
Price target: Rs150
BSE code: 500103
NSE code: BHEL
Sharekhan code: BHEL
(%) 1m 3m 6m 12m
Absolute -18.5 -21.8 -32.8 -31.1
PRICE PERFORMANCE
HOLD CMP: RS122 AUGUST 5, 2013
BHARAT HEAVY ELECTRICALS
RESULT HIGHLIGHTS
Profitability dented due to negative operating leverage on lower sales: During
Q1FY2014, the net sales of Bharat Heavy Electricals Ltd (BHEL) declined by 24% to
Rs6,353 crore, which is significantly lower than our and the Streets estimates. On
declining sales, the employee cost (up 6% YoY while the sales declined 24%) and other
expenses (down 2% YoY while the sales declined by 24%) weighed heavily on the
sales, eventually pressurising the OPM, which stood at 4.5% in Q1FY2014. In
Q1FY2014, the PAT was reported at Rs465 crore, which is a decline of 50% YoY.
This is significantly (42%) below our and the Streets estimates.
Order backlog declined YoY but inflow likely to improve in FY2014: At the end of
Q1FY2014, the order backlog of BHEL remained at Rs108,600 crore, which is a decline
of 18% YoY and 6% QoQ. However, the management expects the inflow to improve
after touching a low in FY2012.
Earnings estimates revised down; price target cut to Rs150: A slowdown in the order
inflow during FY2012 has had a percolating effect on slower sales conversion in the
current period. We believe the impact of the decline in the order inflow environment
will last longer than previously estimated. Hence, we have trimmed our sales estimates
by 1% and 4% for FY2014 and FY2015 respectively. Further, we have trimmed our
operating profit estimates by 2% in FY2014 and 14% in FY2015 and cut down our
earnings estimates by 3% for FY2014 and 15% for FY2015. We estimate BHELs
earnings would decline by 31% in FY2014 and 10% in FY2015, which would drag
down the return on equity to 11-13% in FY2014-15 from 22% in FY2013. Therefore,
we downgrade our price target multiple from 12x to 9x and our price target to Rs150
(9x FY2015E earnings and 1x FY2015 book value).
Maintain Hold; price target revised to at Rs395
COMPANY DETAILS
Price target: Rs395
BSE code: 532454
NSE code: BHARTIARTL
Sharekhan code: BHARTIARTL
(%) 1m 3m 6m 12m
Absolute 18.1 8.4 1.8 15.6
Relative to Sensex 18.1 8.2 3.5 1.4
PRICE PERFORMANCE
BHARTI AIRTEL
RESULT HIGHLIGHTS
Bharti Airtel (Bharti)s Q1FY2014 results reported a strong performance from the Indian
business, which was ahead of our expectations. The performance of its African business
remained subdued. Due to a decline in the African business revenues, the consolidated
revenues witnessed a weak performance and declined by 0.8% on a sequential basis.
The consolidated OPM stood at 32.2% (10 basis points higher than our estimate),
which is an improvement of 54 basis points QoQ.
The reported net profit for the quarter stood at Rs689 crore. The net profit included
various one-offs (gain on account of transfer of Bharti Televenture to Indus Towers
[Indus], loss on account of revaluing the network assets) along with a foreign exchange
(forex) loss of Rs534 crore on account of an adverse exchange movement. Adjusting
the same, the profit came in at Rs1,127 crore for the quarter.
In the wake of a strong performance from the Indian business, a positive management
commentary and visibility of pricing seen for the India mobile business, we have upgraded
our EBITDA estimates by 3.1% and 3.9% for FY2014 and FY2015 respectively (though
our EPS estimates are down as we consummate the equity dilution).
We have revised our EPS estimates to Rs10.7 and Rs15.4 for FY2014 and FY2015
respectively. Taking cognisance of the revised EBTIDA estimate, we have upgraded
our price target to Rs395 based on 7.5x FY2015E EV/EBITDA. We maintain our Hold
rating on the stock.
STOCK UPDATE
EQUITY FUNDAMENTALS
Promoters
68%
FII
15%
DII
12%
Others
5%
Promoters
66%
Institutions
8%
Foreign
21%
Public & Others
1%
Non-promoter
corporate
4%
Targets $5 billion by 2020
COMPANY DETAILS
Price target: Rs490
BSE code: 500087
NSE code: CIPLA
Sharekhan code: CIPLA
(%) 1m 3m 6m 12m
Absolute -2.0 -2.9 6.0 12.0
PRICE PERFORMANCE
CIPLA
KEY POINTS
Q1FY2014 results better than expected; milestone payment boosts bottom line: Cipla
reported a 19.2% Y-o-Y rise in the net sales to Rs2,284.6 crore in Q1FY2014, which
is nearly 7% higher than our estimate. The OPM declined by 431 basis points YoY to
21.7% from a high base (one-off supplies of Escitalopram in Q1FY2013). The company
received a milestone payment (amount not disclosed) from Meda AB (Meda) related to
the supply of technology for Dymista. This led the companys net profit to grow by
18.5% YoY to Rs474.9 crore. However, the adjusted net profit would decline by 14%
YoY to Rs345 crore (yet better than our estimate of Rs325 crore).
Ambitious growth plans; USA, South Africa would be thrust areas: Cipla aims to
achieve $5 billion revenues by the end of 2020 (from $1.3 billion in FY2013), including
$1 billion from the US market (from nearly $200 million in FY2013). Besides, it also
plans to achieve a sizeable growth in the South African market after the acquisition
of Cipla Medpro, which would be earnings accretive from FY2015. The long-term
revenue target of the company implies a compounded annual growth rate of 21%
over FY2013-20.
We marginally tweak estimate; price target kept intact: We have increased our earnings
estimate by 4.6% for FY2015 to factor in the acquisition of Cipla Medpro and a
stronger Q1FY2014. However, we prefer to maintain our price target at Rs490 (implies
19x FY2015E EPS). We maintain our Buy rating on the stock.
Crystallising recovery path; maintain Hold
COMPANY DETAILS
Price target: Rs105
52-week high/low: Rs142/72
BSE code: 500093
NSE code: CROMPGREAVE
Sharekhan code: CROMPGREAVE
(%) 1m 3m 6m 12m
Absolute -6.2 -13.5 -22.0 -29.8
PRICE PERFORMANCE
CROMPTON GREAVES
RESULT HIGHLIGHTS
Profit ahead of estimate; improvement in subsidiaries and consumer segment: In
Q1FY2014 Crompton Greaves Ltd (CGL) reported an operating profit ahead of our
estimate due to a lower than estimated loss in the subsidiaries coupled with a healthy
margin in the consumer segment, though the sales were reported in line with our estimate.
On a stand-alone basis, the profitability was driven by the consumer segment, supported
by a healthy margin of 12% and a sales growth of 21%. On a consolidated level, CGL
reported an operating profit of Rs145 crore, which is 13% lower YoY but grew by
85% QoQ. The net profit was at Rs60 crore, much ahead of our estimate.
Highlight of conference call
The management of CGL maintained its sales growth guidance of around 8-10% in
FY2014.
A better margin is a reflection of price hikes in the consumer segment.
The management shared that its Belgian unit was back in profit at the PBIT level in
Q1FY2014. However, some other international units including the one in Canada are
yet to be in profit.
View and valuation: We believe a better than expected rate of recovery in the international
business was a positive development; however, consistency of the same needs to be watched
out for. Moreover, in the current quarter, the profitability of the company was mainly
driven by the consumer segment. We are positive on this development but also remain
cautious on the companys ability to sustain its margin at this level, given the competitive
intensity. Hence we remain cautiously positive on the stock and retain our Hold rating
with a price target of Rs105.
STOCK UPDATE
EQUITY FUNDAMENTALS
Foreign
15%
Institutions
24%
Promoters
42%
Others
19%
Foreign
28%
Promoters
37%
Institutions
11%
Non-promoter
corporate
5%
Public and
others
19%
Price target reduced to Rs165
COMPANY DETAILS
Price target: Rs165
BSE code: 533261
NSE code: EROSMEDIA
Sharekhan code: EROSMEDIA
(%) 1m 3m 6m 12m
Absolute -7.3 -22.3 -32.5 -27.1
PRICE PERFORMANCE
EROS INTERNATIONAL MEDIA
RESULT HIGHLIGHTS
A soft quarter: Eros International Media Ltd (EIML)s performance continues to be lacklustre
in the absence of any big releases in the recent quarters, the postponement of the big-
budget movie Kochadaiyaan and lower monetisation of its movie catalogue on account
of the launch of premium advertising-free movie channels, HBO Defined and HBO Hits
(its joint ventures with HBO Asia).
The consolidated revenues were down by 27.5% YoY to Rs186.3 crore, which is below
our expectation of Rs210.8 crore.
For Q1FY2014, the EBITDA margin stood at 21.2%, up 110 basis points YoY but still
lower than our estimate of 26%. The other income for the quarter was up almost four
fold to Rs7.9 crore, which restricted the decline in the net income level to 7% YoY to
Rs29.4 crore.
Valuation: The fiscal gone by was soft for EIML in terms of its earnings performance;
however the company has made inroads into some long-term strategic initiatives, like
venturing into the HBO alliance and the launch of EROS Now (a digital platform) and
strategic alliances with Endemol India and Sony for movie production. Additionally, the
listing of the companys parent on the New York Stock Exchange could act as a medium-
term trigger for the stock. However, the lack of super A category movies and lower
monetisation of TV syndication (EIML has forgone some part of its revenues on account
of the launch of new TV channels in joint venture with HBO Asia) have dented the visibility
of the companys business. We have reduced our earnings estimates for FY2014 and FY2015
by 15% and 20% respectively. We have also reduced our target multiple to 9x from 10x
earlier based on the FY2015E earnings. Consequently, we have reduced our price target to
Rs165 and we maintain our Buy rating on the stock.
Price target revised to Rs149
COMPANY DETAILS
Price target: Rs149
BSE code: 532622
NSE code: GDL
Sharekhan code: GDL
(%) 1m 3m 6m 12m
Absolute -5.7 -16.5 -22.1 -22.9
PRICE PERFORMANCE
GATEWAY DISTRIPARKS
RESULT HIGHLIGHTS
Substantial drop in volumes and margin at JNPT CFS led to poor stand-alone results:
In Q1FY2014, Gateway Distriparks Ltd (GDL) reported a 40% decline in its stand-
alone net profit on account of a decline of 965 basis points in the EBITDA margin from
50.2% in Q1FY2013 to 40.6% in Q1FY2014. However, the revenues declined by
11% YoY to Rs48.4 crore on account of a 20% decline in the volumes at the Jawaharlal
Nehru Port Trust (JNPT).
Consolidated revenues lower than estimated due to muted performance of rail division
and other CFSs: The consolidated revenues stood at Rs245 crore, lower than our
estimate. The revenues grew by 6% YoY but declined by 8% QoQ. The cold chain
division witnessed a 58% growth in its revenues. The rail division saw a revenue growth
of just 4% YoY. The other container freight stations (CFSs), ie the Chennai,
Vishakhapatnam and Kochi CFSs, together saw a 3% Y-o-Y growth in the revenues.
Consolidated PAT lower than our estimate as well: The consolidated profit after tax
(PAT) was lower than our estimate on account of lower than expected revenues and
higher than expected interest expenses during the quarter. The consolidated EBITDA
margin was down by 333 basis points YoY. The profit for the quarter declined by 15%
YoY to Rs30.0 crore.
Estimates downgraded; price target revised to Rs149, Buy maintained: We have
downgraded our net profit estimates for FY2014 and FY2015 by 3% and 11%
respectively. We have revised our price target downwards to Rs149. We maintain our
Buy recommendation on GDL.
STOCK UPDATE
EQUITY FUNDAMENTALS
Promoters
75%
Institutions
3%
Foreign
12%
Non-promoter
corporate
3%
Public &
Others
7%
FII
26%
Promoters
41%
Public &
others
17%
Institutions
16%
Price target revised to Rs4,625
COMPANY DETAILS
Price target: Rs4,625
52 week high/low: Rs6,020/2,700
NSE volume (no. of shares): 29,504
BSE code: 500676
NSE code: GSKCONS
Sharekhan code: GSKCONS
(%) 1m 3m 6m 12m
Absolute -14.8 13.9 20.9 72.2
Relative to Sensex -13.9 13.8 22.4 51.4
PRICE PERFORMANCE
HOLD CMP: RS4,450 AUGUST 2, 2013
GLAXOSMITHKLINE CONSUMER HEALTHCARE
RESULT HIGHLIGHTS
Performance snapshot: GlaxoSmithKline Consumer Healthcare (GSK Consumer)s
Q2CY2013 net sales grew by 16.9%YoY to Rs852.9 crore. The growth was driven by
a mix of volume and value growth, with the volume growth standing at around 7%
YoY during the quarter. The core malted food drinks (MFD) segment grew by about
18% while the packaged food segment grew by about 19% YoY during the quarter.
The GPM improved by 203 basis points YoY to 65% in Q2CY2013. The OPM declined
by 126 basis points to 13.9% in Q2CY2013. The OPM largely declined on account of
a one-time wage settlement cost, one-time operational expenses towards the expanded
capacity and higher production from third-party manufacturers. Hence, the operating
profit grew by just 7.2% YoY to Rs118.7 crore. However, a strong growth in the
business auxiliary income (of around 30.2% YoY) and a high other income resulted in
a 12.5% Y-o-Y growth in the reported PAT to Rs120.0 crore.
Outlook: We have broadly maintained our earnings estimates for CY2013 and CY2014.
GSK Consumers management is confident of maintaining the sales volume growth in
the range of 7-8% in the current inflationary environment on account of distribution
enhancement and an improvement in the penetration. With the OPM likely to sustain
in the range of 15.0-15.5%, we believe GSK Consumers bottom line will grow at a
CAGR of 18% over CY2012-14.
Premium valuation provides limited upside; maintain Hold: At the current market price,
the stock is trading at 30.8x its CY2014E EPS of Rs144.5. We have revised our price
target to Rs4,625 (valuing the stock at 32x its CY2014E earnings). Despite strong
fundamentals, we dont see any significant upside from the current levels. Thus, we
maintain our Hold recommendation on the stock.
COMPANY DETAILS
BSE code: 500300
NSE code: GRASIM
Sharekhan code: GRASIM
(%) 1m 3m 6m 12m
Absolute -8.4 -13.1 -14.9 -11.6
PRICE PERFORMANCE
GRASIM INDUSTRIES
RESULT HIGHLIGHTS
Consolidated operating profit largely in line with estimate: For Q1FY2014, Grasim
Industries (Grasim) posted an operating profit (at consolidated level) of Rs1,270.5
crore (-20.2% YoY), which is largely in line with our estimate. However, on account
of a surge in the other income by 58.1% to Rs278.8 crore (due to maturity of certain
fixed maturity plan in UltraTech Cement) and a lower than expected effective tax rate
of 23.3% as against our estimate of 29%, the reported net profit stood at Rs610 crore
(-15% YoY), which is better than our estimate.
Expansion on track, balance sheet is strong to fund the capex: The ongoing expansion
projects in the VSF, chemical and cement divisions are progressing well and are expected
to come on stream as per schedule. With the commissioning of a 3.3mtpa clinkerisation
plant at Karnataka, the overall cement capacity has enhanced to around 60mtpa. The
VSF capacity is likely to increase by 156,000 tonne during H2FY2014 and the chemical
division has recently added 182,000 tonne of additional capacity. Grasim commissioned
a 182,000tpa of caustic soda plant at Vilayat during the quarter.
Maintain Hold with revised price target of Rs2,950: Though the company has a good
diversified business model with a strong balance sheet and a comfortable debt-to-equity
ratio (0.35x FY2013), but the near-term concerns in terms of correction in the price of
VSF and a poor demand environment for cement due to an economic slowdown will be
an overhang on the stock. Hence, on the valuation front, we are discounting our valuation
multiple for the VSF business and also increasing the holding company discount rate
for valuation of the cement business. We arrive at a fair value of Rs2,950 for Grasim.
Hence, we maintain our Hold recommendation on the stock with a revised price target
of Rs2,950.
STOCK UPDATE
EQUITY FUNDAMENTALS
Public &
others
36%
Promoters
26%
Institutions
15%
Foreign
23%
Promoters
72%
FIIs
12%
Others
15%
Domestic
institutions
1%
Price target revised to Rs242; Buy maintained
COMPANY DETAILS
Price target: Rs242
BSE code: 533177
NSE code: IL&FSTRANS
Sharekhan code: IL&FSTRANS
(%) 1m 3m 6m 12m
Absolute -12.0 -29.8 -35.8 -27.8
PRICE PERFORMANCE
IL&FS TRANSPORTATION NETWORKS
RESULT HIGHLIGHTS
Revenues lower than expected due to early monsoon: In Q1FY2014, the consolidated
revenues of IL&FS Transportation Networks Ltd (ITNL) declined by 8% YoY to
Rs1,451 crore led by lower than expected construction revenues, primarily due to an
early onset of the monsoon. The construction revenues declined by 15% YoY and the
company booked a high fee income during the quarter. However, the revenues from
the BOT assets grew at a robust rate of 21%.
Favourable revenue mix boosts margins: The OPM improved by 630 basis points YoY
to 24.4%, which was higher than our estimate. The expansion in the margin was
mainly on account a lower contribution of revenues from the low-margin construction
income vis-a-vis the BOT income.
Decline in PBT on account of surge in interest and depreciation charges, and a lower
other income: Though the company reported an increase in the OPM, a huge surge in
the interest charges (up 29% YoY) and depreciation (up 7% YoY) coupled with a
decrease in the other income (down 18% YoY) led to a decline in the PBT by 12% YoY
to Rs198 crore.
Estimates revised downwards for FY2014 and FY2015: We have downgraded our net
sales estimates for FY2014 and FY2015 by 11% and 6% respectively. Our net profit
estimates for FY2014 and FY2015 have also been downgraded by 15% and 16%
respectively.
Maintain Buy with a revised price target of Rs242: We have assigned 5x EV/EBITDA
multiple to ITNLs engineering, procurement and construction business, which lowers
our SOTP based price target to Rs242. We have maintained our Buy rating on the stock.
A robust operating performance
COMPANY DETAILS
Price target: Rs254
52-week high/low: Rs211/121
BSE code: 532926
NSE code: JYOTHYLAB
Sharekhan code: JYOTHYLAB
(%) 1m 3m 6m 12m
Absolute -12.7 -10.4 12.6 20.4
Relative to Sensex -10.3 -5.7 15.4 11.0
PRICE PERFORMANCE
JYOTHY LABORATORIES
RESULT HIGHLIGHTS
Strong operating performance: In Q1FY2014 Jyothi Laboratories Ltd (JLL)s net
revenues grew by 13.1% YoY to Rs318.2 crore driven by a strong growth of around
15% in the power brands. The volume growth stood at 5-6% during the quarter.
Several strategic initiatives including an improvement in the revenue mix and sales
realisation aided the GPM to improve by 679 basis points YoY to 47.2% in Q1FY2014.
The advertisement and promotional spending went up by 402 basis points YoY to
12.1%, as the company increased its spending on the power brands. Despite a sharp
increase in the advertisement and promotional spending the OPM was increased by
373 basis points YoY to 15.3%. The operating profit grew by about 50% YoY to
Rs48.6 crore in Q1FY2014. With the depreciation charge remaining almost flat on a
Y-o-Y basis, the adjusted PAT almost doubled to Rs29.6 crore.
Outlook and valuation: We are enthused by the strong improvement in the GPM and
OPM of the company in Q1FY2014. We have marginally increased our earnings estimate
for FY2014 to factor in the higher than expected profitability but broadly maintained
the FY2015 earnings estimate. The performance of the homecare segment has to be
keenly monitored in the coming quarters. At the current market price the stock is
trading at 20.9x its FY2015E EPS of Rs8.0. We like JLL in the mid-cap FMCG space
because of the strong visibility of its future earnings and its thrust on becoming a
strong consumer goods player in the domestic market. Hence, we maintain our Buy
recommendation on the stock with a price target of Rs254.
STOCK UPDATE
EQUITY FUNDAMENTALS
Promoters
64%
FIIs
17%
Domestic
institutions
9%
Others
10%
Promoters
73%
FII
4%
Public &
others
20%
Institutions
3%
COMPANY DETAILS
Price target: Rs907
BSE code: 500257
NSE code: LUPIN
Sharekhan code: LUPIN
(%) 1m 3m 6m 12m
Absolute -0.3 16.5 39.9 41.5
PRICE PERFORMANCE
LUPIN
RESULT HIGHLIGHTS
Q1FY2014 revenues weaker than expected; forex gains enrich bottom line: Lupin
reported a 9% Y-o-Y rise in the net sales to Rs2,420.7 crore mainly driven by the US
and European businesses, which grew by 29% YoY to Rs1,099.40 crore. However, a
5% Y-o-Y decline in the revenues from the Indian formulation business and a 12% Y-
o-Y decline in the Japanese business restricted the revenue growth during the quarter.
The company achieved an improvement of 300 basis points YoY in the OPM to 22.1%
during the quarter on account of a better product mix and currency benefits. This led
the profit before tax excluding the foreign exchange (forex) gains to increase by 29.8%
YoY to Rs527 crore. The company recorded a forex gain of Rs96 crore during the
quarter as compared with a forex loss of Rs13.3 crore in Q1FY2013. As a result, the
reported net profit jumped by 43% YoY to Rs401 crore.
We broadly maintain estimates, price target revised to Rs907 on roll-over: The weaker
performance during Q1FY2014 seems to be temporary and we believe the company
would bounce back in the subsequent quarters on normalisation of the Indian business
and the launch of key products in the USA, Europe and Japan The management is
confident of achieving a 15-30% growth in the top line in FY2014. We have rolled-
over our valuation to earnings estimate of FY2015. Our price target is revised upwards
by 12% to Rs907 (20x FY2015 earnings per share). We maintain Buy recommendation
on the stock.
COMPANY DETAILS
52 week high/low: Rs1,026/731
BSE code: 500520
NSE code: M&M
Sharekhan code: M&M
(%) 1m 3m 6m 12m
Absolute -3.7 -9.7 -1.2 18.2
Relative to Sensex 1.4 -5.1 0.8 7.8
PRICE PERFORMANCE
MAHINDRA & MAHINDRA
KEY POINTS
Q1FY2014 results: operating performance in line with estimate; higher other income
boosts profit: Mahindra and Mahindra (M&M)s results were in line with our estimate
on the operating front. The revenues at Rs10,022.5 crore were marginally below our
estimate. The operating profit at Rs1,287.4 crore was in line with our estimate. However,
the higher other income at Rs164.2 crore (which included Rs81-crore dividend from
the subsidiaries) boosted the profitability. M&M reported a profit of Rs937.9 crore,
which was ahead of our estimate of Rs817.4 crore.
Tractor growth strong; outlook raised: The tractor sales grew in strong double digits in
April-July 2013 on account of a normal monsoon and an increase in the farm realisations.
The management has raised the tractor volume forecast from 6-8% to 10-12% for FY2014.
Automotive demand to remain under pressure; to observe no production days to control
inventory: M&Ms key segments, utility vehicles and light commercial vehicles
(contributing about 85% of the overall volumes), have been facing pressure on account
of a subdued economic environment and an increase in diesel prices. To avoid the
excess inventory, M&M would be observing no production days across its automotive
plants for 0-6 days in August 2013.
Valuation: Given the pressure on the automotive segment, we have lowered our revenue
assumptions for FY2014 and FY2015. We have marginally raised our margin
assumptions given the improved tractor mix. Our revised earnings per share estimates
for FY2014 and FY2015 stand at Rs57.6 and Rs61.6. We have revised our price target
to Rs1,010. We maintain our Buy recommendation on the stock.
STOCK UPDATE
EQUITY FUNDAMENTALS
Non-promoter
corporate
1%
Foreign
31%
Public and others
9%
Promoters
47%
Institutions
12%
Institutions
15%
Foreign
40%
Bodies
corporate
6%
Public &
Others
14%
Promoters
25%
Upgraded to Buy
COMPANY DETAILS
Price target: Rs242
BSE code: 531642
NSE code: MARICO
Sharekhan code: MARICO
(%) 1m 3m 6m 12m
Absolute -5.0 -6.5 -8.5 8.3
PRICE PERFORMANCE
MARICO
RESULT HIGHLIGHTS
Consolidated results snapshot: In Q1FY2014 Maricos net sales grew by 8.8% YoY to
Rs1,382.4 crore, which is lower than our expectation of Rs1,427.6 crore. The revenue
growth was pre-dominantly driven by a volume growth of 10% YoY. The benign key
input prices aided the GPM to improve by 238 basis points YoY to 51.5% in Q1FY2014.
There was no major increase in the other operational cost. Hence, the OPM improved
by 190 basis points YoY to 16.6% during the quarter. The operating profit grew by
22.8% YoY to Rs229.7 crore. This along with a Y-o-Y decline in the interest expenses
led to a 25.4% Y-o-Y growth in the adjusted PAT to Rs155.3 crore.
Upgraded to Buy: We believe Marico is well placed to achieve around 20% bottom
line growth in the medium term. However, any significant drop in the sales volume of
the key brands or any significant drop in the OPM would act as a key risk to our
earnings estimate.
We broadly maintain our earnings estimates for FY2014 and FY2015. At the current
market price, the stock trades at 28.7x its FY2014E EPS of Rs7.0 and 23.9x its FY2015E
EPS of Rs8.5. In view of a decent earnings visibility and a decent upside of 19% from
the current level, we have upgraded our rating on the stock to Buy from Hold while
retaining the price target at Rs242.
Earnings below estimates
COMPANY DETAILS
Price target: Rs650
BSE code: 533106
NSE code: OIL
Sharekhan code: OIL
(%) 1m 3m 6m 12m
Absolute -11.4 -14.0 -10.3 4.4
PRICE PERFORMANCE
OIL INDIA
RESULT HIGHLIGHTS
In Q1FY2014, Oil India Ltd (OIL) posted a net profit of Rs609.1 crore (a decline of
34.5% YoY) on account of a lower than expected sales volume of crude oil and higher
than expected other expenses. The revenues of the company declined by 14% YoY due
to a decline in the sales volume of crude oil and a correction in the net realisation
($45.9/barrel in Q1FY2014 as against $53.9/barrel in Q1FY2013). However, the
production of natural gas was impressive and grew by 5% YoY.
The crude oil production for the quarter declined by 4.6% YoY due to an external
environmental issue. However, on the natural gas front, the company posted an
impressive production growth of 5% YoY. Going ahead in FY2013-15, we expect the
companys oil and gas production to grow at CAGR of 3% and 4% respectively.
With a correction in the crude oil price during Q1FY2014, the gross realisation of the
company declined by 7.2% YoY to $101.9/barrel. The subsidy burden on OIL has
been kept unchanged at $56/barrel despite a reduction in crude oil price which has led
to higher pressure on the net realisation of the company.
The oil ministry has accepted the formula recommended by the Rangarajan committee
for increasing the price of natural gas. Hence, the move will increase the profitability
and earnings of the company going ahead. However currently, we are not incorporating
the impact of these developments ino our earnings estimates.
We maintain our bullish stance on OIL because of its huge reserves and healthy reserve/
replacement ratio, which would provide a reasonably stable revenue growth outlook.
Hence, we maintain our Buy recommendation on OIL with a price target of Rs650.
STOCK UPDATE
EQUITY FUNDAMENTALS
Others
7%
Foreign &
Institutions
33%
Promoters
60%
Public & others
15%
Promoters
68%
Foreign
10%
Institutions
7%
Discontinuing coverage due to bleak outlook
COMPANY DETAILS
Market cap: Rs155 cr
BSE code: 532837
NSE code: ORBITCORP
Sharekhan code: ORBITCORP
(%) 1m 3m 6m 12m
Absolute -18.4 -32.7 -64.7 -68.9
PRICE PERFORMANCE
BOOK OUT CMP: RS14 AUGUST 14, 2013
ORBIT CORPORATION
RESULT HIGHLIGHTS
Another dismal performance; next couple of quarters to remain weak: Like in the
previous quarter, the financial performance of Orbit Corporation (Orbit) was dismal
in Q1FY2014 led by poor execution and surging interest cost. What worries us more is
the fact that the slowdown in approvals is creating an uncertainty about the revenue
pipeline in future. The management also indicated that the slow approvals would affect
the financial performance in the next couple of quarters. Consequently, the cash inflows
would remain weak and put further stress on the balance sheet.
Declining pre-sales adding to the pressure: The pre-sales volume continued its declining
trend as it dipped to Rs12.8 crore, which appears far lower compared with the
Q1FY2013 performance of Rs52.7 crore of pre-sales.
Asset sale; exit not materialising: We had persisted with the stock hoping that the
proposed exit from the Santacruz and Lalbaug projects would bring in some cash flows
that would ease the situation. Also, the progress on the Mandawa project, which is
other potential re-rating factor for the stock.
Better to exit on rallies: Though there is an inherent value in the stock, the positive
developments on the above mentioned events could lead to a sharp bounce in the
stock. We believe that would be an opportunity to exit the stock. Moreover, the heavily
beaten down stocks in the real estate sector tend to bounce back sharply. Hence, wait
for a sharp bounce to lighten your commitments. We are discontinuing our coverage
on the stock.
Price target revised to Rs1,950, downgraded to Hold
COMPANY DETAILS
52 week high/low: Rs2,550/1,575
BSE code: 500112
NSE code: SBIN
Sharekhan code: SBIN
(%) 1m 3m 6m 12m
Absolute -11.2 -24.8 -25.8 -17.7
PRICE PERFORMANCE
STATE BANK OF INDIA
RESULT HIGHLIGHTS
State Bank of India (SBI)s Q1FY2014 net profit declined by 13.6% YoY to Rs3,241
crore, which is in line with our estimate. A slower growth in the NII and a rise in the
opex affected the earnings, though a sharp rise in the slippages was a negative surprise.
The NIM continued to decline as it fell to 3.16% led by a contraction in the domestic
NIM and interest income reversal of Rs390 crore.
The advances growth was slightly higher than the industry rate at 15.7% YoY driven
by a strong growth in the mid corporate and large corporate segments. The CASA ratio
declined to 44.67%.
The asset quality deteriorated quite sharply led by a sharp uptick in the slippages. The
slippages mainly came from the agriculture and SME segments.
Valuation: SBIs Q1FY2014 results were disappointing especially on the asset quality front,
though the opex was also weaker. Going ahead, we expect the asset quality pressures to
sustain in view of the weak economic environment and exposure to sectors like textile,
engineering, metals, infrastructure etc, which are witnessing stress. We expect the earnings
growth to be muted (1.5% CAGR) leading to return on equity and return on asset of
12.8% and 0.7% respectively. Therefore, we value SBI (stand-alone) at 0.9x FY2015 book
value leading to a revision in the sum-of-the-parts based price target to Rs1,950. We have
downgraded the rating on SBI to Hold.
STOCK UPDATE
EQUITY FUNDAMENTALS
Promoter
62%
Foreign
10%
MF & FI
17%
Public &
others
11%
Institutions
1%
Public &
others
56%
Promoters
43%
Newly acquired US entities fuel growth
COMPANY DETAILS
Price target: Rs595
BSE code: 524715
NSE code: SUNPHARMA
Sharekhan code: SUNPHARMA
(%) 1m 3m 6m 12m
Absolute -3.0 2.6 35.6 51.1
Relative to Sensex -0.4 8.1 39.0 39.3
PRICE PERFORMANCE
SUN PHARMACEUTICAL INDUSTRIES
RESULT HIGHLIGHTS
Q1FY2014 results better than expected; one-time charge erodes bottom line: Sun
Pharmaceutical Industries (Sun Pharma) reported an impressive 31% Y-o-Y rise in the
net sales to Rs3,482.2 crore in Q1FY2014, mainly due to the consolidation of the
newly acquired entities like DUSA Pharmaceuticals (DUSA Pharma) and the generic
arm, URL Pharma, in the US market. The consolidation also helped maintain a healthy
OPM of 44% (down 182 basis points YoY from a high base) during the quarter. This
level of OPM was achieved despite its US subsidiary Taro Pharmaceutical Industries
(Taro Pharma) reporting a pricing pressure in key products and the consolidation of
the newly acquired entities leading to a rise in the employee cost. A turnaround in the
other income and a lower effective tax rate further boosted the profit line during the
quarter. However, a one-time charge of Rs2,517.4 crore related to a patent settlement
case on Protonix led to a decline in the bottom line with a net loss of Rs1,276.1 crore.
The adjusted net profit grew by 56% YoY to Rs1,241.3 crore (vs our estimate of
Rs923 crore for the quarter).
Outlook remains strong; we maintain our estimates, price target and recommendations:
We find most of the growth elements intact during the quarter. However, given the
uncertainty in currency movement and implications of the new pricing policy in India,
we prefer to maintain our estimates for FY2014 and FY2015. We have Buy
recommendation on the stock with a price target of Rs595 (adjusted for bonus shares),
which implies 26x estimated earnings for FY2015.
COMPANY DETAILS
Price target: Rs346
BSE code: 500770
NSE code: TATACHEM
Sharekhan code: TATACHEM
(%) 1m 3m 6m 12m
Absolute -6.9 -20.2 -27.1 -12.2
PRICE PERFORMANCE
TATA CHEMICALS
RESULT HIGHLIGHTS
Q1FY2014 consolidated revenues marginally lower than estimate: During Q1FY2014,
Tata Chemicals Ltd (TCL)s consolidated revenues grew by 7.7% to Rs3,311.6 crore,
which was marginally lower than our expectations. The reported PAT (after minority
interest and share of associate) for the quarter stood at Rs75.4 crore, which included a
foreign exchange loss of Rs43.4 crore. Adjusting for this, the PAT stood at Rs118.8
crore, which was much lower than our estimate of Rs168.2.
Pressure on soda ash realisation across geographies affected margin: The consolidated
OPM for Q1FY2014 stood at 12.4%, which is 367 basis points lower than the OPM
in the same period of the last quarter. The margin was lower mainly on account of a
decline in the realisation of soda ash due to softening of the demand from South-East
Asia. The total fertiliser subsidy pending with the government stood at Rs1,160 crore
at the end of Q1FY2014.
Valuation and outlook: The demand environment for the non-urea fertilisers improved
on account of a normal monsoon but a high level of inventory in the market is affecting
the margin of the fertiliser segment. On the chemical front, the business environment in
Europe remains the key challenge. We have already factored in the lower realisation of
soda ash and the high input cost in our estimate and considering that we maintain our
earnings estimates for FY2014 and FY2015. On the valuation front, we value TCL at
9x FY2015E EPS and investment value of Rs45 per share, and arrive at a fair price of
Rs346.
STOCK UPDATE
EQUITY FUNDAMENTALS
MF & FI
24%
Foreign
20%
Promoter
32%
Public &
others
24%
Promoters
64%
Non-promoter
corporate
5% Institutions
3%
Public and
others
5%
Foreign
23%
Upgraded to Buy with revised price target of Rs175
COMPANY DETAILS
Price target: Rs175
BSE code: 500800
NSE code: TATAGLOBAL
Sharekhan code: TATAGLOBAL
(%) 1m 3m 6m 12m
Absolute 3.9 1.5 1.8 19.6
PRICE PERFORMANCE
TATA GLOBAL BEVERAGES
RESULT HIGHLIGHTS
Performance snapshot: In Q1FY2014, TGBLs consolidated revenues grew by 5.1% YoY
to Rs1,813.5 crore. The mid single-digit growth was largely driven by an organic initiative
with no forex translation gain due to the rupees depreciation against the key international
currencies. The revenues of TGBLs stand-alone business grew by 19.2% YoY to Rs679.6
crore, while the revenues of Tata Coffees consolidated business stood flat on a Y-o-Y
basis during the quarter. The benign coffee prices and holding of product prices in the
key geographies aided the consolidated GPM and the OPM to expand by 127 basis
points YoY to 51.1% and by 94 basis points YoY to 11.4% respectively in Q1FY2014.
Hence, despite the mid single-digit revenue growth, the operating profit grew by 14.6%
YoY to Rs207.1 crore while the adjusted PAT before minority interest and profit from
share of associates grew by 18.8% YoY to Rs121.5 crore during the quarter.
Outlookdecent earnings visibility: We expect TGBLs top line and bottom line to
grow at a CAGR of 12% and 18% respectively over FY2013-15. Any significant increase
in the raw material prices or slowdown in the performance of the key geographies
would act as a key risk to our earnings estimates.
Upgraded to Buy: The stocks current valuations of 19.1x FY2014E EPS of Rs 7.7 and
16.8x FY2015E EPS of Rs8.7 are at a substantial discount to the current valuation of
the FMCG basket. In view of a decent earnings visibility and an upside, we have upgraded
our recommendation on the stock from Hold to Buy. In line with the upward revision
in our earnings estimates, our price target stands revised to Rs175 (valuing the stock
20x FY2015E earnings).
Price target revised to Rs150, downgraded to Hold
COMPANY DETAILS
Price target: Rs150
BSE code: 532477
NSE code: UNIONBANK
Sharekhan code: UNIONBANK
(%) 1m 3m 6m 12m
Absolute -28.6 -43.5 -45.7 -17.5
PRICE PERFORMANCE
UNION BANK OF INDIA
RESULT HIGHLIGHTS
Union Bank of Indias Q1FY2014 performance was disappointing as the earnings grew
by 9.5% YoY. However, apart from a lower tax rate, higher treasury gains cushioned
the impact of a subdued growth in the NII.
The NII growth was marginally short of our estimate, as it grew by 4.8% YoY to
Rs1,909.1 crore. The NIM dipped by 26 basis points sequentially to 2.63%.
The advances growth was a tad higher than the industry rate at 16.6% YoY. However,
the deposits grew by 22.3% YoY while the CASA ratio declined to 29.1%.
After holding the asset quality for the past three quarters, the slippages rose sharply. In
addition, the bank restructured Rs1,068 crore of advances and has another Rs5,000
crore worth of loans in the pipeline for restructuring.
Valuation: Union Bank of Indias Q1FY2014 results were below our estimates despite a
treasury profit and lower tax rates. We have downgraded our earnings estimates to factor
in the rise in slippages and the pressure on the NIM. The relatively weaker capital position
of the bank is likely to affect the business growth. We expect the banks return ratios to be
subdued (return on equity at 12.6% and return on asset at 0.6%) and asset quality concerns
to persist. Therefore, we value the stock at 0.6x FY2015E adjusted book value leading to
a revised price target of Rs150. We have downgraded our recommendation on the bank to
Hold.
STOCK UPDATE
EQUITY FUNDAMENTALS
Foreign
12%
Promoter
57%
MF & FI
18%
Public &
others
13%
Foreign &
Institutions
37%
Others
28%
Promoters
35%
Q1FY2014 earnings review
SHAREKHAN SPECIAL AUGUST 23, 2013
KEY POINTS
Aggregate growth turns negative; 11 Sensex constituents
reported a decline in their earnings: On an aggregate basis, the
Sensex companies reported a decline of 1.5% year on year (YoY)
in their earnings (a 6.5% growth excluding oil companies). The
performance was weaker compared with the expectations, which
were already muted. Whats more concerning is that more than
one-third of the companies (and six sectors) reported a decline
in earnings. The disappointment came from companies across
sectors, like Tata Motors, Bharat Heavy Electricals Ltd (BHEL),
GAIL, ONGC and Tata Power. Moreover, the deterioration in
the asset quality of the banking sector is another worrying factor
affecting the outlook for corporate earnings. On the positive
side, fast moving consumer goods (FMCG), pharmaceutical
(pharma) and information technology (IT) sectors, and Reliance
Industries Ltd (RIL) managed to post a double-digit growth in
earnings. Companies like Cipla, Sun Pharmaceutical Industries
(Sun Pharma) and Mahindra and Mahindra (M&M), and metal
counters surprised on the positive side.
Revenue growth falters: As expected, the revenue growth of the
Sensex companies was tepid (up 2% YoY) indicating significant
softening of the demand in the economy. One-third of the Sensex
companies reported a decline in revenues. These companies were
mainly from automobiles (auto), capital goods and metal sectors.
Out of the 30 companies in the Sensex 11 managed to post a
double-digit growth in revenues and these were mainly from
the banking, IT and pharma sectors. Even the FMCG sector
struggled to grow in double digits due to volume pressures which
indicates a broader slowdown in revenues.
Margin pressures re-emerge: The decline in the margins of the
Sensex companies (ex banks) was slightly higher than expected
as the margins contracted by 100 basis points quarter on quarter
(QoQ) to 18% levels (18.1% in Q1FY2013). The overall
EBITDA growth itself was around 1.5% YoY for the Sensex
companies. From a sectoral perspective, the capital goods
companies faced higher margin pressure (on a quarter-on-
quarter [Q-o-Q] basis) followed by the metal and power sectors.
However, IT, oil & gas and telecommunications (telecom)
sectors witnessed some margin expansion on a Q-o-Q basis.
Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or
having a position in the companies mentioned in the article.
Going ahead, due to a sharp depreciation in the local currency
(which has made imports expensive) and a drop in the pricing
power the margin pressures may continue.
Earnings downgrades picks up: Given the disappointment of
the Q1FY2014 results, weak macro-economic data releases and
the series of measures taken by the Reserve Bank of India (RBI)
to tighten liquidity, earnings downgrades have picked up.
Barring a few sectors (like IT, pharma) most sectors (especially
banking, capital goods) saw sharp downgrades in the consensus
earnings estimate during Q1FY2014. The consensus FY2014
earnings growth estimates for Sensex now stands at about 6%
compared with 15% expected at the beginning of FY2014. Given
the sharp volatility in the exchange rates, the rise in interest
rates and policy inertia, there is scope for further downgrades
in the consensus earnings estimate for sensex.
TREND IN SENSEX (EX OIL) EARNINGS GROWTHACTUAL VS ESTIMATE
0%
5%
10%
15%
20%
25%
30%
Q
1
F
Y
1
1
Q
1
F
Y
1
2
Q
1
F
Y
1
3
Q
1
F
Y
1
4
Estimated Actual
SECTOR-WISE EARNINGS GROWTH IN Q1FY2014
-30% -20% -10% 0% 10% 20% 30% 40%
Pharma
Diversif ied
FMCG
IT
Metal
Banking & Finance
Pow er
Auto
Telecom
Capital goods
Energy
SECTOR-WISE CONTRIBUTION TO SENSEX EARNINGS GROWTH
Sectors Performance %
Diversified 1.82
IT 1.57
Banking & Finance 1.13
Pharma 1.13
FMCG 0.64
Metal 0.45
Power -0.15
Telecom -0.15
Auto -0.66
Capital goods -0.83
Energy -6.47
Sensex -1.53
OUTPERFORMERS UNDERPERFORMERS
ICICI Bk, Axis Bk Andhra Bk, IDBI Bk, Federal Bk
HCL Technologies, TCS, Infosys BHEL, GAIL, PTC
Sun Pharma, Cipla Cadila Healthcare, Divis Labs
Jyothy Labs, Bajaj Corp HUL, Zydus Wellness
Marico, Mcleod Russel India Tata Chemicals
Punj Lloyd JP Associates, IRB Infrastructure
Maruti, M&M, Apollo Tyres Ashok Leyland
EQUITY FUNDAMENTALS
SHAREKHAN SPECIAL
EQUITY FUNDAMENTALS
SHAREKHAN SPECIAL
Monthly economy review
SHAREKHAN SPECIAL AUGUST 22, 2013
Economy: macro-economic issues aggravate as headline inflation
picks up and rupee depreciates sharply
In June 2013 the Index of Industrial Production (IIP) declined
by 2.2%. The growth was lower than expected largely because
of persistent weakness in the manufacturing, mining and capital
goods segments, and a decline in the electricity index to 157.0
(172.4 in May 2013). Moreover, the May IIP growth has been
revised downwards to (2.8%) from the provisional estimate of
(1.6%). Based on the three-monthly moving average, the IIP
growth for June 2013 stands at (1.0%) as against (0.3%) in
June 2012.
The Wholesale Price Index inflation number for July 2013
surprised negatively as it was higher than the Reserve Bank of
India (RBI)s comfort level of about 5%. While the core inflation
remains low, the rising pressure on food inflation and the
depreciation in the local currency cast a shadow on the inflation
outlook for the rest of the year. The Consumer Price Index (CPI)
inflation is already high (9.64% for July 2013) which along
with fuel price hikes could further affect the prices. However,
the RBI is concerned about the rising current account deficit
and has taken several measures (tightened liquidity, curbed gold
imports etc) to deal with it. Therefore, we do not expect any
respite from the RBI in the near term unless the macro-economic
situation improves significantly.
Indias trade deficit was stable at $12.3 billion in July 2013 as
compared with $12.2 billion in June 2013. However, it declined
by 29.8% year on year (YoY) as the countrys total imports
declined in July 2013. In July imports declined by 6.2% YoY
(down 0.4% YoY in June 2013) to $38.1 billion while exports
grew by 11.6 % YoY, for the first time in four months, to $25.8
billion due to the falling rupee.
After the announcement of stiff measures to curb volatility in
exchange rates since mid July this year, the markets were
expecting the RBI to maintain a status quo in its Q1FY2014
policy review and that is what eventually happened. Therefore,
the repo rate now stands at 7.25%, the cash reserve ratio at
4.0%, and the marginal standing facility and bank rates are at
10.25% each. Further, the central bank has trimmed the growth
forecast for FY2014 to factor in the evolving conditions in the
domestic economy as well as the global economy.
Banking: credit offtake remains sluggish, margin pressure
increases due to a rise in interest rates
The credit offtake has grown by 16.6% YoY (as of August 9,
2013), which is higher than the 14.9% year-on-year (Y-o-Y)
growth recorded in the previous month (on July 12, 2013). The
credit growth during the given fortnight could be a one-off
phenomenon (driven by the shifting of borrowings from
commercial papers [CPs] to bank credit as the rates at the shorter
end have increased significantly) and is unlikely to sustain due to
the weakening economic growth. However, the fortnights credit
growth is lower than the RBIs projection of 15.0% for FY2014.
The deposit growth has slowed down to 13.0% YoY (as of
August 9, 2013) as compared with the 13.7% Y-o-Y growth
recorded in the previous month (on July 12, 2013). The growth
in the deposits remains subdued due to the competitive returns
offered by the other instruments. The RBI has targeted the
FY2014 deposit growth at 14.0%.
A slower growth in the deposits compared with the advances
remains a concern for banks. The credit/deposit ratio for the
banks remains at an elevated level of 77.6% (as of August 9,
2013).
The yield on the government securities (G-Secs; of ten-year
maturity) stood at 8.41% on August 21, 2013 and was higher
than the average of 7.83% maintained in July 2013. Moreover,
the five-year and ten-year G-Sec yields grew by 47 and 33 basis
points respectively on a month-on-month (M-o-M) basis. Since
mid July 2013, the RBI has announced several liquidity measures
to stem the rupees fall. This has led to a sharp increase in the
short-term yields and has also had a spill-over effect on the
long-term bond yields. Further, the depreciation in the rupee
and the expectation of more stringent measures will maintain
the pressure on the bond prices.
Equity market: FIIs turn net sellers
During the month-to-date (MTD) period of August 2013 (August
1-20, 2013), the foreign institutional investors (FIIs) were net sellers
of equities while the domestic mutual funds were net buyers in the
equity market.
Banking stocks underperform in August 2013 due to weakening
asset quality and jump in bond yields
In the last one month, the BSE Bankex has declined by 15.8% as
compared with a decline of 11.0% in the Sensex. The banking stocks
underperformed due to rising asset quality pressures (evident in
their Q1FY2014 results) and a sharp rise in the bond yields after
the RBIs liquidity tightening measures. Though recently the RBI
has provided some relief from the rising bond yields (it has allowed
the transfer of bonds from the available for sale [AFS] portfolio
to the held to maturity [HTM] portfolio at July 15, 2013 prices;
the HTM limit has been raised to 24.5% of the net demand and
time liabilities [NDTL] from 23% proposed earlier), but the asset
quality remains the sectors dominant concern.
SECTOR UPDATE
Oil is not well
OIL & GAS AUGUST 29, 2013
KEY POINTS
Indias fuel subsidy bloats up owing to double whammy of spike in
crude oil prices and steep depreciation in the rupee: Indias fuel
subsidy bill is likely to shoot beyond Rs2 trillion in FY2014 as
against Rs1.3-1.4 trillion estimated at the beginning of the financial
year and Rs1.55 trillion in FY2013. In addition to the spike in the
crude oil prices (over $110 per barrel on an average), sharp
depreciation in the rupee has added worries. On the other hand,
the government has not shown the courage to pass on the burden
to consumers leading to record under-recoveries in diesel and the
possibility of a loss in even deregulated products like petrol.
According to rough estimates, the under-recoveries in diesel at the
prevailing crude oil prices, exchange rate and retail price would
cross Rs15 per litre which is clearly not sustainable.
Oil and gas stocks have reacted negatively to the situation: Given
the scenario, the oil and gas stocks have corrected sharply in line
with the emerging situation and market condition. The worst hit
are the oil marketing companies Indian Oil Corporation (IOC),
Hindustan Petroleum Corporation and Bharat Petroleum
Corporation as the under-recoveries would put further stress on
their balance sheet. In case of the upstream companies (ONGC
India, Oil India and GAIL India), the expectations of a higher
subsidy burden (and a lack of clarity on the subsidy sharing
arrangement) have led to the de-rating of their valuations.
Strong results; positive view maintained
ESCORTS
VIEWPOINT AUGUST 14, 2013 CMP: RS89
Q3FY2013 result highlights; farm and railway businesses show
strong performance
Escorts Ltd (EL)s Q3FY2013 revenues at Rs1,175.9 crore grew
strongly by 16% YoY. The growth was led by the tractor and
railway segments, which posted a healthy growth in double
digits. The construction equipment and automotive (auto)
ancillary segments declined in double digits.
The OPM at 7.9% improved by 260 basis points YoY and 250
basis points QoQ on account of an overall cost reduction and
benefit of operating leverage. The margin of the tractor and
railway segments improved both YoY and QoQ. The margin
of the construction and auto ancillary segments dipped both
YoY and QoQ.
The lower interest expenses and taxation further boosted the
profit. ELs net profit at Rs58.8 crore almost trebled YoY and
improved by 59% QoQ.
Tractor segments growth to remain in double digits
The tractor industry recorded a strong growth of 23% YoY in the
April-June 2013 quarter. The sales were boosted by a good
monsoon, which improved the overall sentiment. Also, the increase
in the minimum support price for crops led to better farm realisations
which boosted the demand for tractors. Going forward, the industry
expects a growth of about 10-12% in FY2014.
having a postition in the companies mentioned in the article.
EQUITY FUNDAMENTALS
Margin improvement to sustain
During Q3FY2013, EL reported a higher margin on account of a
strong margin improvement in the tractor business. The margin of
the tractor segment improved by 300 basis points YoY and QoQ.
ELs focus on cost reduction and higher HP range along with price
increases resulted in a higher margin for the segment. Though EL
also had the advantage of operating leverage during the quarter,
but we expect the margin to remain at higher levels on account of
the increased focus on the more profitable higher HP tractors.
Valuation: industry outperformer; retain positive view
We expect the companys revenues to grow by 11% in FY2014,
given the strong demand for tractors. The margin is expected to
improve by 40 basis points on account of a margin improvement in
the tractor business due to ELs focus on the higher HP range and
cost-control initiatives. The net profit is expected to grow by 29%
in FY2014 on account of an improved operating performance and
reduction in the interest expenses. The stock currently trades at 7x
and 5.5x its FY2013 and FY2014 estimated earnings. Given the
strong tractor demand and improved margin scenario, we have a
positive view on the company.
Syria crisis could further push up crude oil prices; government would
be unable to pass on the sudden increase in subsidy burden: The
rising threat of the involvement of the western countries in the Syrian
conflict has stirred concerns over the crude oil supplies from the
Middle-East. Syria may not have a direct impact on global crude
oil supply but it lies in close proximity to the pipelines and sea
routes that transport much of the worlds crude. Given the scenario,
an attack on Syria could not be ruled out which could further inflate
the crude oil prices from the current level for some time. Further
rise in crude price could widen under-recoveries.
Outlook for public sector oil stocks challenging; situation favourable
for RIL, Cairn India and Selan Exploration: Worst still, we feel
even a bulky hike in fuel prices will not make up for the sudden and
sharp increase in the under-recoveries that are likely to be much
higher than the budgeted figures for the year. Hence, despite the
recent correction in the stock price of the oil marketing companies
and upstream public sector companies, the near-term outlook for
the oil and gas companies remains challenging and we advise caution
to investors looking at them. However, the situation is favourable
for Reliance Industries Ltd, Cairn India and Selan Exploration
Technology due to their better blended realisations.
Z wave up
The Sensex has taken support at a downward sloping trend
line and also closed above the 20-daily moving average, ie
18554, which will be a very crucial support going forward.
The momentum indicator is trading in positive zone and around
the zero line.
The key support would be around 18554 and 18166 while
resistance would be faced at 19993.
In the short term, the index is expected to trend up till the
downward sloping trend line, which lies at 19600.
The Sensex is trading below the 20-weekly moving average, ie
19376. But it is expected to cross above the average and retest
the previous swings high, ie 20350, in the medium term.
According to the Elliott Wave theory the index has completed
a pull-back as W-X-Y-X and a new move on the upside as wave
Z is in process.
The leg on the upside as wave Z will be confirmed as soon as
the index forms a positive close on the quarterly chart.
On the weekly chart, the momentum indicator has given a
negative crossover, trading below the zero line, but is expected
to turn around.
As the index has bounced back, it is now expected to continue
the positive momentum and the strategy should be to buy on
declines with reversal around the 20-quarterly moving average,
ie 17200.
The key supports would be around 17448 and 17200 while
resistance would be around 19376.
On the monthly chart the Sensex is trading in a big range
between 21207 and 15135.
The index is expected to form a triple top around the all-time
high of 21207, which is a crucial resistance going forward.
The Sensex has been consolidating above the 20-monthly
moving average (MMA), ie 18500, which will act as a very
crucial support going forward. But if the index closes below
this level then the previous swings low can be retested, ie 15135.
The Sensex is trading above the 20-MMA levels, ie18500, and is
expected to form a positive close on the quarterly and monthly charts.
The Sensex has taken support at a long-term upward sloping
trend line which is a very bullish sign for the market.
Sensex: daily view
Sensex: weekly view
Sensex: monthly view
Trend Trend reversal Support Resistance Target
Up 17450 17450 21100 21100
Medium term
Trend Trend reversal Support Resistance Target
Up 18150 18150 19250 19250
Short term
TREND & VIEW
EQUITY TECHNICALS
15 22 29 6
May
13 20 27 3
June
10 17 24 1
July
8 15 22 29 5
August
12 19 26 2 9
September
16
-5
0
KST (0.62908)
17300
17400
17500
17600
17700
17800
17900
18000
18100
18200
18300
18400
18500
18600
18700
18800
18900
19000
19100
19200
19300
19400
19500
19600
19700
19800
19900
20000
20100
20200
20300
20400
20500
20600
20700
2009 2010 M A M J J A S O N D 2011 M A M J J A S O N D 2012 M A M J J A S O N D 2013 M A M J J A S O N
-10
-5
0
5
10
KST (-2.91012)
15000
15500
16000
16500
17000
17500
18000
18500
19000
19500
20000
20500
21000
21500
W
X
Y
X
Z
W
X
Y
X
Z?
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
-40
-30
-20
-10
0
10
20
30
40
50
60 KST (4.72869)
5000
10000
15000
20000
25000
-40
-20
0
20
40
60
80
4
8
0
0
4
9
0
0
5
0
0
0
5
1
0
0
5
2
0
0
5
3
0
0
5
4
0
0
5
5
0
0
5
6
0
0
5
7
0
0
5
8
0
0
5
9
0
0
6
0
0
0
6
1
0
0
6
2
0
0
6
3
0
0
P
R
O
F
I
T
/
L
O
S
S
Derivative view: Market to oscillate like a pendulum
It all started with the deprecation in the rupee to 68 and lower against
the dollar due to the news flow on tapering of the quantitative easing
measures from the American continent followed by domestic factors
such as discouraging economic data on gross domestic product, Index
of Industrial Production and inflation. The international prices of
not only crude oil but also the other commodities skyrocketed on
mounting tension between the USA and Syria which had a greater
impact on the Indian equity market compared with the other emerging
markets. The intensity of the pain left market participants in a grim
and clueless situation as the prime index, the Nifty, fell by 13.89%
in a single series to create a fresh 10-month low at 5118.85 from the
current series high of 5944.50. The market showed resilience at lower
levels and bounced back sharply from the recent low to wind up the
month with a loss of 4.71%.
MARKET WIDE VS NIFTY ROLL-OVER
MONTHLY VIEW
EQUITY DERIVATIVES
Being a shorter one and with the line-up of some key events (US
Federal Reserves meet and the RBIs monetary policy review meet)
in the second half of the month, the September series may see huge
whipsaws and volatility in the derivatives market. Due to the
domestic macro-economic concerns the activity on the option front
is widespread across strikes, indicating signs of indecisiveness. From
all the above data points we have learned that the market may
continue to oscillate in a broad range of 5300-5800. Hence, we are
forming a Condor Strategy in the Nifty with a favourable risk-to-
reward ratio.
Top five stock options with highest open interest in the current series
View
STOCK OPTIONS (SHAREKHAN SCRIP CODE) OPEN INTEREST (RS CR)
SBIN 568.13
TCS 516.09
MCDOWELL-N 404.25
RELIANCE 375.67
AXISBANK 349.41
A condor is market neutral strategy, which is a combination of buying
and selling of options. It is a limited risk and limited profit strategy
with a favourable risk-to-reward ratio. A condor is generally formed
when the market/a stock is expected to contract its range. A condor
can be constructed by selling a lower strike in-the-money call, buying
an even lower strike in-the-money call, selling a higher strike out-of-
the-money call and buying another even higher strike out-of-the-
money call of the same expiry and underlying.
Strategy for the month: Condor
PAY-OFF DIAGRAM
Expectations of positive steps from the Reserve Bank of India (RBI)s
new Governor Raghuram Rajan to curb the volatility in the currency
market helped the Nifty start the September series with gains. The
September series started the month with Rs8,719 crore in Nifty
futures vs Rs11,071 crore in the previous series; Rs24,396 crore in
stock futures vs Rs26,637 crore in the previous series; Rs57,934
crore in index options vs Rs55,035 crore in the previous series; and
Rs2,836 crore in stock options vs Rs3,172 crore in the previous
series. The roll-over in the Nifty stood at 51.87%, which is
significantly lower than the previous months roll-over of 75.92%
as well as the three-month and six-month average roll-overs of
60.03% and 59.10% respectively. The market-wide roll-over stood
at 73.84%, which was lower than the three-month and six-month
average roll-overs of 79.53% and 79.59% respectively. We have
learnt that the majority of the positions were rolled on the short
side as the roll-over cost decreased.
The current series expiry option activity data from the day of the
expiry till date suggests that there has been a very gradual increase
in the open interest (OI) in calls compared with puts. As a result,
the put/call ratio (PCR) has been hovering in the range of 1.16 to
1.28 for quite some time. On the option front, the call option (CE)
of strike 5700 stands with the highest number of shares in OI
followed by good activity witnessed in the strike of 5800. On the
put side, the put options on strikes of 5400 and 5300 have combined
OI of 1.16 crore shares. After such a sharp move, we feel that the
India Volatility Index would remain in a broad range of 26-36%
going forward. The above description indicates that the market
may remain in a broad range of 5300-5800 in the month ahead.
STOCK FUTURES (SHAREKHAN SCRIP CODE) OPEN INTEREST (RS CR)
TCS 1689.98
MCDOWELL-N 1507.40
ICICIBANK 1039.67
HDFCBANK 909.57
SBIN 905.21
Top five stock futures with highest open interest in the current series
FORMATION
TYPE BUY/SELL STRIKE PREMIUM OUTFLOW
CE Buy 5400 348
CE Sell 5500 269
-27.00
CE Sell 5700 137
CE Buy 5800 85
Strategy note
The strategy has an initial outflow of 27 points in the Nifty, which
amounts to Rs2,700 (27*100) and which is also the maximum loss
that can be incurred in the strategy if the Nifty expires below or above
the break-even points. The maximum profit potential in the strategy is
of 73 points, which amounts Rs7,300 and which could be incurred if
the Nifty expires in the 5500-5700 range. The higher break-even point
for the strategy is 5773 and the lower break-even point is 5427.
Commodities: Syria, QE taper related selling to provide buying opportunities as Europe and China recover
Key points
The US Senate Foreign Relations Committee voted to authorise
Obama to conduct a limited US military operation in Syria
Syria urges UN Security Council to block absurd use of force
Fed economists see QE offering as a moderate growth boost at best
Fed seen tapering QE this month, opine 65% of surveyed economists
Obama focuses on the risk of a new bubble undermining the broad
recovery
US manufacturing accelerates at the fastest pace in 26 months
US construction spending at a 4-year high in July
US trade deficit widened to $39.15 billion in July
US car sales beat estimates in August; outlook cautious for September
Retail sales in the USA increase for fourth consecutive month
US new home sales tumbled 13.4% in July
Economists in Jackson Hole say QE less potent than Fed believes
US home prices continued to climb in June
Hopes of euro zone recovery gather pace after strong private sector
data
German investor confidence rises as euro area resumes growth
German, French growth helps euro region recover from recession
EMU: PMI services returns to expansion in August
German unemployment holds steady at 6.8%
Euro area manufacturing expands on a surge in Italy, Spain
UK manufacturing index rises to the highest in 2 1/2 years
UK unemployment stays at 7.8%
Chinas manufacturing gains on stronger domestic demand
China HSBC China services PMI increases to 52.8 in August from
51.3
China trade rebounds, further sign that economy is stabilising
COMMODITY PRICES IN AUG 2013 (IN $)
Commodity High Low Close Mon chg %
Copper 7420.0 6671.0 7100.0 1.7
Zinc 2009.0 1839.0 1905.0 3.4
Lead 2256.0 2000.0 2152.0 4.0
Gold 1433.8 1273.0 1395.2 5.3
Silver 25.1 19.2 23.5 18.5
Crude oil 112.2 101.8 107.7 3.4
MONTHLY CHANGE IN SHFE STOCKS (JUL-AUG 2013)
Copper Lead Zinc
Change (in tonne) -4996 -11890 -9063
26-July-13 161564 111903 269310
Change (in %) -3.09 -10.63 -3.37
MONTHLY CHANGE IN DOE CRUDE STOCKS (JUL-AUG 2013)
Crude oil Dist. Gasoline
Change in M (000' bbls) -0.003 0.003 -0.005
26-July-13 0.365 0.126 0.223
Change in (%) -0.82 2.38 -2.24
Refinary utlisation rate was at 91.3% in the last week of August.
MONTHLY CHANGE IN LME STOCKS (JUL-AUG 2013)
Copper Lead Zinc
Change (in tonne) -24800 -14550 -44150
31-July-13 622800 200225 1049475
Change (in %) -4.0 -7.3 -4.2
NoteLME: London Metal Exchange , SHFE: Shanghai Futures Exchange, DOE: Department of Energy (US)
Macro-economy
Crude oil to be volatile on Syria, supply disruptions and end of the US driving season
Key points
Syria crisis seen as supportive for crude oil prices
Cushing supply drops to 17-month low
Libyan oil production slumps to less than half of 2011 level
China may further open up crude oil import market, Reuters says
China set to become the world's biggest net oil importer
US refinery utilisation can decline as the driving season gets over
US oil stocks 5.40% above 5-year average
US gasoline demand for last week of August at 8-year low
Chemical weapons claim pretext to attack Syria: an Iranian leader
US plants have slowed output in Q3 each year since 1999: EIA
Commodities in the Indian Rupee terms witnessed an extremely sharp rise in prices due to unprecedented weakness in the domestic currency.
Huge swings in the rupee means that traders need to hedge their currency risks for taking positions in commodities. Crude oil gained on the
month on declining US inventories, geo-political concerns, supply concerns out of Libya, and encouraging macro-indicators out of China
and Europe. Oil production in Iraq is likely to decline in September due to maintenance work on the Southern Export terminals. Libyan oil
production (down to 1mbpd in July from 1.42mbpd in April this year) is suffering because of unrest and strikes. The Syrian crisis is
supporting the counter on concerns that the oil producing region could get embroiled in the turbulence should the USA attack Syria. On the
bearish side, the decline in the US refinery utilisation as the driving season has ended would reduce the demand. We look for a range of
$104-112 with an upside risk in case of an attack on Syria.
WTI NYMEX crude oil CMP: $108.72
MONTHLY VIEW COMMODITY FUNDAMENTALS
MONTHLY VIEW
Gold CMP: $1,368 (SPOT)
Bullions face downside risk from Feds QE tapering
Silver CMP: $23.15 (SPOT)
Silver prices surged sharply in August as silver breached the crucial resistance of $22 on account of an improving global economic
scenario and a rally in gold. The gold-silver ratio moved in favour of silver. Silver is likely to be range-bound in the near term. We expect
the metal to trade between $22 and $26.
Copper CMP: Rs480 (November contract)
Base metals to be bought on dips
Key points
Chinas July refined copper imports rise to 291,846 tonne
Lead market shortage seen by Study Group at 40kt in January-June 2013
Zinc surplus 44kt in the same period
China's lead ore and concentrate imports up in July as domestic production falls
Copper had surplus of 338,000 tonne in the first half, WBMS says
Chinas power use signals more demand for copper
Chinas copper output seen lower by Antaike on tight scrap supply
Japans copper consumption likely to pick up
Chinas copper consumption likely to improve on rise in imports
Automobile and housing recovery to drive US zinc demand higher
Copper rallied in August on improving Chinese economy and decline in the London Metal Exchange (LME) inventories. Chinas copper
imports are likely to stay elevated as restocking ends and scrap market remains tight. Chinas copper demand is likely to rise by 5%
towards the end of the year from a contraction seen earlier in the year. Japans copper consumption is likely to rise on reflationary
policies. The recovery in the US housing and automobile sectors is supportive for the metal. The base metals complex could face downward
pressure on account of the Syria issue and the US Feds tapering of the quantitative easing (QE) measures. However, the decline should be
treated as a buying opportunity. The metal can rise to $7,600 on the LME. Copper is likely to trade in the range of Rs465-510.
Lead CMP: Rs140 (September contract)
We remain friendly towards lead on declining inventories at the Shanghai Futures Exchange and LME warehouses. Also, the Chinese e-
bike related demand continues to be healthy. A risk can come from a sharp jump in crude oil prices that could affect the demand for
automobiles. Lead is likely to trade in the range of $135-155.
Gold and silver rallied on the expectations that the US Federal Reserve (Fed) might delay tapering as reflected from the mixed signals from
the Fed officials and the Federal Open Market Committees minutes. Headlines related to Syria also helped the complex to some extent.
The imports in the first half of 2013 stood at 536 tonne, sharply down from 860 tonne in 2012 as a whole. The rising income in China
and a steady yuan are seen as supportive for the metal. The industrial demand for the metal is likely to grow at 1% in 2013 and 2014 on
lower prices in dollar terms. The mining companies are responding to the lower prices by cutting costs and deferring projects. If these
companies get back to hedging it would cap the advance in the prices. A recovering Europe increases the possibility of tapering by the US
Fed. The Indian demand could suffer due to wild swings in the domestic currency. However, the yellow metal can get some support from
India in the festival season. Golds price primarily depends on two factors: (1) the continuation of the stimulus from the US Fed, and (2)
geopolitical issues. Thus, we see a limited upside to the metal. The metal can decline to $1,280 level in the near term. The upside is likely
to be capped at $1,420.
Key points
The USA to hit its Congressionally mandated borrowing $16.7-trillion limit by the middle of October
Silver coin sales from the US mint were up 26% in August from a year earlier
Year-to-date silver sales equaled the total sales in 2012
September usually a strong month for gold
Deteriorating capital account balances in emerging markets to affect demand from central banks: Nomura
Russia, Kazakhstan boost gold reserves as Mexico sells: IMF
India has no proposal to lease gold bought from IMF: Mayaram
Gold bull Paulson cuts SPDR stake by half amid bear market
Gold tax increase, festival demand may spur smuggling in India
India increases gold tax for third time this year to cut deficit
COMMODITY FUNDAMENTALS
Zinc CMP: Rs123 (September contract)
The apparent demand for the metal in China is quite strong as it is up 8% year on year on demand for galvanising due to a year-on-year
increase of nearly 12% in steel production. Global consumption of the metal is likely to grow at 4% this year. We look for a range of
Rs120-135 with an upward bias.
Major economic events in September 2013
CMP as on September 06, 2013
MONTHLY VIEW COMMODITY FUNDAMENTALS
Date Region Event Survey Actual Prior Impact
9/2/2013 China Manufacturing PMI 50.2 50.1 47.7 The data was somewhat surprising as China's economy is seen to be struggling
Positive surprise is supportive for industrial commodities
9/2/2013 Euro zone PMI Manufacturing 51.3 51.4 51.3 The euro zone PMI data showed manufacturing expanded for the second straight
month, which is a positive sign for industrial commodities
9/2/2013 UK PMI Manufacturing 55 57.2 54.6 The recovering Europe theme is supportive for base metals; supportive for the GBP too
9/3/2013 USA ISM Manufacturing 54 55.7 55.4 Data quite bullish for dollar and industrials, however Syria issue and FOMC policy
decision to keep traders cautious in near term
9/4/2013 USA Trade Balance ($38.8B) ($39.1B) ($34.2B) Deficit widens on record auto imports
Somewhat bearish for dollar
9/5/2013 UK BoE asset purchase target 375B 375B 375B No change expected; focus would be BoE's assessment of economy
More important for GBP
9/5/2013 Euro zone ECB announces interest rates 0.50% -- 0.50% No change expected; ECB affirming the recovery can support euro and industrials to
some extent
9/5/2013 USA Factory orders -3.50% -- 1.50% Bearish data would support bullions especially gold
9/6/2013 UK Industrial production MoM 0.20% -- 1.10% Data likely to be upbeat, thus to support GBP
9/6/2013 USA Change in non-farm pay-rolls 180K -- 162K Data topping the forecast would increase the chances of QE tapering; hence would
support dollar and weigh on commodities especially gold
9/6/2013 USA Unemployment rate 7.40% -- 7.40% Focus would be on participation of the job seekers
9/8/2013 China Trade balance $18.85B -- $17.82B Positive surprise would support base metals and crude oil as the data reflects the
health of both the global economy and the Chinese economy
9/9/2013 Japan BoP current account balance -- Y336.3B Data important for yen, bearish data would be yen negative
9/9/2013 China CPI YoY 2.70% -- 2.70% Lower than expected inflation would be seen as positive for industrials as it would
give more room to adjust the monetary policy
9/10/2013 China Industrial production YoY 9.90% -- 9.70% Recent Chinese data topped the forecast; the continuation of the trend would be
positive for the industrials
9/10/2013 China Retail sales YTD YoY 12.90% -- 12.80% Better than expected data to support base metals and crude oil (industrial
commodities)
9/12/2013 Japan Machine orders YoY -- -- 4.90% Data important for yen; strong data would be positive for industrials
9/12/2013 Euro zone Industrial production SA MoM -- -- 0.70% The European recovery theme would need confirmation; better than expected data to
support euro and industrials
9/12/2013 USA Import Price Index MoM -- -- 1.00% Lower than expected inflation figure would be negative for gold as it reduces inflation
hedging demand
9/13/2013 USA Retail sales ex auto and gas -- -- 0.40% Data topping the forecast would be bullish for dollar and bearish for gold
9/16/2013 Euro zone CPI MoM -- -- -0.50% Inflation remains well below ECBs target
Subdued inflation could weigh on euro and gold
9/17/2013 Euro zone ZEW Survey Euro Zone expectations -- -- 44 Would have direct impact on industrials and euro
9/18/2013 USA Housing starts -- -- 896K Recovering US housing sector is a key point in the US recovery theme
Bearish data would weigh on dollar and boost gold prices but even with somewhat
disappointing data the US Fed is likely to start tapering which would be a major factor
for direction
9/18/2013 USA FOMC rate decision -- -- 0.25% No change expected in the rates; the markets expect QE3 tapering which would be
bullish for dollar and bearish for commodities; however, clues to the pace of tapering
would be crucial for medium-term direction
9/23/2013 UK GDP QoQ -- -- 0.60% UK economy has surprised positively; strong GDP data would support pound and
industrial commodities
9/24/2013 USA Consumer Confidence Index -- -- 81.5 Better than expected data would be positive for dollar and negative for bullions
9/25/2013 USA New home sales -- -- 394K Strong housing number would be bearish for gold and bullish for industrials
9/25/2013 USA Durables ex transportation -- -- -0.60% Better than expected data would be positive for dollar Industrials to rise once the
dollar related sell-off is over
9/26/2013 USA GDP annualised QoQ -- -- 2.50% Stronger than expected number to help dollar and industrials, but would be bearish
for gold
Gold is a channelised play
After the near vertical fall in April, gold had taken support
near the long-term rising trend line. It had consolidated there
for several weeks, taking the form of a triangular pattern. The
pattern broke out on the downside and the price tumbled
sharply.
Towards the end of June this year, it achieved the equality target
on the downside and started moving higher. The rally is
unfolding in a channelised manner. In the last few days gold
has fallen towards the lower channel line and the key daily
moving averages. From there the next leg up is likely to start.
In the short term the targets are $1,453 and $1,462. The bullish
potential remains intact as long as the level of $1,347 holds on
a closing basis
Silver favoured by bulls
Silver had been falling in a channelised manner for the last few
months. It had formed a channel within a channel.
On the downside, the white metal had cracked through multiple
previous lows and reached the lower end of both the channels.
It had achieved the medium-term equality target on the
downside. Since July this year, silver has been in a recovery
mode. It formed a leading diagonal on the upside at the
beginning of the rally. On the way up the white metal broke
out from a short-term falling channel.
The key level on the upside is $26.05. The reversal can be trailed
to $22.26.
Trend Trend Supports Resistances Target
reversal
Up $22.26 $22.98/22.50 $24.47/25.08 $26.05
Crude oil was oscillating about its crucial weekly moving
averages for the last few months.
In the last month it took off from there and leaped towards a
medium-term falling trend line. It has crossed the trend line
and is consolidating above it for the last couple of weeks.
Structurally, crude oil seems to have moved out of a triangular
pattern. The recent rise is taking place in a channelised manner.
The short-term momentum indicators are trading in favour of
bulls. Thus, unless the swings low of $102.22 is broken on a
closing basis, the oil is expected to move up till $114.83-127.00
levels.
reversal
Up $102.22 $108/104.20 $112.24/120 $114.83/
$127
reversal
Up $1347 $1359/1350 $1416/1433 $1453 /
$1462
TREND & VIEW COMMODITY TECHNICALS
Crude oil scaling higher

April May June July August September October N
1150
1200
1250
1300
1350
1400
1450
1500
1550
1600
1347
1462
1453
-50
0
MACD (17.2860)
February March April May June July August September October N
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
22.26
26.05
SILVER [CASH] (23.0800, 23.9100, 23.0100, 23.8200, +0.67000)
-1.0
-0.5
0.0
0.5
1.0 MACD (0.73244)

O N D 2011 A M J J A S O N D 2012 A M J J A S O N D 2013 A M J J A S O N D 201
70
75
80
85
90
95
100
105
110
115
120
125
114.83
127
102.22
LIGHT CRUDE CONTINUOUS 1000 BARRELS [NYMEX] (107.070, 110.700, 104.210, 110.530, +2.88000)
-15
-10
-5
0
5
10
15
20 KST (9.81831)
reversal
Down $3.42 $2.98/2.72 $3.35/3.388 $2.58
Natural gas still under pressure
NYMEX natural gas has been trading in a medium-term fall-
ing channel. Within that it has formed a channelised rise from
the lower end to the upper end and from there it has started to
fall since the beginning of May this year.
The gas was tumbling down in a short-term falling channel.
Recently, it moved out of the channel but couldnt surpass its
key weekly moving averages.
Unless the 20-weekly moving average ($3.725) is crossed on a
closing basis the downside potential remains intact.
The momentum indicators are in line with the fall.
The Fibonacci targets on the downside are $3.18 and $2.88.
reversal
Down $3.725 $3.35/3.12 $3.60/3.72 $3.18 /2.88
Dhaanya Index forms an Impulse
NCDEX Dhaanya Index has been in a correction mode for the
last one year. After the first leg of the fall the index had formed
a bearish triangular pattern.
It had broken out on the downside and almost achieved the
equality target, ie 2111, in July this year. Near that level bulls
had rushed in to provide support to the index.
The daily as well as the weekly momentum indicators were at-
tempting to recover from the oversold territory. As a result, the
index formed an Impulse from the low of 2119.
A minor-degree correction till 2300-2290 is an opportunity to
initiate fresh long position with reversal at 2255. The target on
the upside will be 2487.
reversal
Up Rs2,255 Rs2,300/2,290 Rs2,394/2,400 Rs2,487
Copper near multiple resistances
Copper has formed a multi-month triangle where the last leg
made a throw-over of the pattern. The triangle has been formed
in the right shoulder of a larger head-and-shoulders pattern.
Thus, the red metal is in for a significant decline. In April this
year copper broke the lower end of the triangular pattern as
well as the neckline of the head-and-shoulders pattern.
However, the fall is breaking up into waves of lower degrees.
The red metal once again moved up in the last few weeks to
retest the pattern neckline. From there it seemed to start the
next leg down in the last week.
The target on the downside will be the equality target, ie $2.58.
The reversal can be pegged at the weekly upper Bollinger Band,
ie $3.42.
TREND & VIEW COMMODITY TECHNICALS

O N 2010 A M J J A S O N 2011 A M J J A S O N 2012 A M J J A S O N D 2013 A M J J A S O D 201
2.4
2.5
2.6
2.7
2.8
2.9
3.0
3.1
3.2
3.3
3.4
3.5
3.6
3.7
3.8
3.9
4.0
4.1
4.2
4.3
4.4
4.5
4.6
4.7
4.8
3.42
2.58
HG COPPER CONTINUOUS 25000 LBS [COMEX] (3.25050, 3.32750, 3.22000, 3.26150, +0.02850)
-15
-10
-5
0
5
10
15 KST (2.24350)

J A S O N D 2012 M A M J J A S O N D 2013 M A M J J A S O N D
2.0
2.5
3.0
3.5
4.0
4.5
5.0
0.0%
23.6%
38.2%
50.0%
61.8%
100.0%
3.725
2.88
3.18
NATURAL GAS CONTINUOUS 10000 MMBTU [NYMEX] (3.60100, 3.71900, 3.51700, 3.53000, -0.05100)
-20
-10
0
10
20
KST (-6.97736)

er December 2013 February March April May June July August September
2100
2150
2200
2250
2300
2350
2400
2450
2500
2550
2600
0.0%
23.6%
38.2%
50.0%
61.8%
100.0%
2255
2487
* DHAANYA- NCDEXFUTURE INDEX(2,346.39, 2,354.70, 2,326.06, 2,333.91, -11.1101)
20
30
40
50
60
70
Relative Strength Index (54.7736)
78
80
82
84
86
88
90
2
9
-
J
u
l
-
1
3
3
1
-
J
u
l
-
1
3
2
-
A
u
g
-
1
3
4
-
A
u
g
-
1
3
6
-
A
u
g
-
1
3
8
-
A
u
g
-
1
3
1
0
-
A
u
g
-
1
3
1
2
-
A
u
g
-
1
3
1
4
-
A
u
g
-
1
3
1
6
-
A
u
g
-
1
3
1
8
-
A
u
g
-
1
3
2
0
-
A
u
g
-
1
3
2
2
-
A
u
g
-
1
3
2
4
-
A
u
g
-
1
3
2
6
-
A
u
g
-
1
3
90
92
94
96
98
100
102
104
EURINR GBPINR
`
Currencies: Sell INR crosses as INR may recover briefly
Key points
The Indian Rupee fell to a new lifetime low against the US Dollar
Indias Q2FY2013 GDP falls to 4.4%
The RBI opens dollar window for oil importers, curbs volatility in
exchange rate
Euro zone shows growth in second quarter, ends recession
In Q2 the USA GDP rises 2.8%, increases probability of tapering
of QE by US Fed
Emerging economies fate hangs in balance ahead of US Fed meet
CURRENCY LEVELS IN AUGUST 2013 (IN RS)
Currency High Low Close Monthly chg (%)
USD-INR 69.00 59.34 68.42 15.41
EUR-INR 92.42 78.94 91.48 16.23
GBP-INR 107.69 91.40 106.16 16.44
JPY-INR 71.58 60.56 70.12 15.78
INR-USD CMP: Rs67.09 (SPOT)
The rupee hit a new lifetime low of 69.22 against the dollar in August this year as panic gripped the currency market due to weak domestic
economy amid signs of life in the developed world. Market sentiment worsened after the Reserve Bank of India (RBI) and the Indian government
initiated a string of measures aimed mainly at curbing the dollar outflows rather than promoting the inflows. The rupee also came under intense
pressure after the government passed the food security bill, which is expected to add Rs25,000 crore annually to food subsidy and exacerbate
the governments fiscal woes. Meanwhile, Indias April-June 2013 gross domestic product (GDP) tanked while the US GDP growth rate was
revised upwards to 2.8%. Indias manufacturing activity contracted to a four-year low in August led by a fall in the export orders while the
Consumer Price Index and the Wholesale Price Index inflation rose in July. The rupee may appreciate to 63.50 levels per dollar if the US Federal
Reserve (Fed) keeps the quantitative easing (QE) programme unchanged in this month. The USD-INR may test 70.00 levels ahead of the Feds
meet scheduled on September 18, 2013.
INR-GBP CMP: Rs104.75 (SPOT)
The Pound Sterling surged to a new high of 107.03 against the rupee and rose by 1.9% against the dollar in August mainly on rising
optimism regarding economic recovery in the UK. The cable defied gravity despite Bank of England (BoE) pledging to hold interest rates
at low levels till the unemployment rate falls to 7%. However, the bank expressed readiness to tighten policy if inflation expectations
continue to rise. In Q2 the UK GDP growth rate was revised upwards to 0.7% while the PMI indices in August continued to highlight
economic recovery. We believe that BoE will remain dovish as the rising long-term rates risk derailing the economic recovery. The
possibility of the US Fed tapering its QE programme will also weigh on the pound. We see the GBP-INR in the 108.45-100.13 range.
INR-JPY CMP: Rs67.20 (SPOT)
The yen gained against the rupee while it stayed in the range of 95.00 to 100.00 per dollar in August this year. The gains in the yen were
capped after the Japanese Prime Minister Shinzo Abe came under intense pressure to increase the consumption tax in April to 8% from
the current 5%. The last time Japan had increased the sales tax from 3% to 5% in 1997, consumer spending had tumbled and the
economy had gone into recession. However, the urgency to increase the tax and boost government revenues is high at present after it was
reported last month that Japans debt has exceeded 1 quadrillion yens. Except for the temporary rise in the yen due to geo-political
uncertainty, we believe the yen is slated to fall against the dollar in the medium term. We see the USD-JPY in the range of 96.00 to 102.00.
We see the JPY-INR in the range of 64.88 to 72.
August 2013 contract price movement August 2013 contract price movement
CMP as on September 04, 2013
The single currency rose to a new high of 92.335 against the rupee and remained flat against the dollar in August as a rebound in
manufacturing and service sector activity across the euro zone was countered by fears of the US Fed reducing the size of its monthly bond
purchases. In the euro area the GDP increased by 0.3% quarter on quarter in Q2 ending a six-quarter-long recession. In particular, the
PMI data, which Mario Draghi watches closely, has increased quicker than expected with the euro area composite PMI up from 47.7 in
May to 51.7 in August this year. We do not expect the European Central Bank to rock the markets by announcing a rate hike in
September. However, the policy tone is expected to remain bearish keeping in mind the possibility of the US Fed tapering QE this month
which will result in a spike in bond yields across the European Union. We see the EUR-USD in the range of 1.33 to 1.2800. We see the
EUR-INR in the range of 89.73 to 84.20.
MONTHLY VIEW CURRENCY FUNDAMENTALS
INR-EUR CMP: Rs88.41 (SPOT)
58
60
62
64
66
68
70
72
2
9
-
J
u
l
-
1
3
3
1
-
J
u
l
-
1
3
2
-
A
u
g
-
1
3
4
-
A
u
g
-
1
3
6
-
A
u
g
-
1
3
8
-
A
u
g
-
1
3
1
0
-
A
u
g
-
1
3
1
2
-
A
u
g
-
1
3
1
4
-
A
u
g
-
1
3
1
6
-
A
u
g
-
1
3
1
8
-
A
u
g
-
1
3
2
0
-
A
u
g
-
1
3
2
2
-
A
u
g
-
1
3
2
4
-
A
u
g
-
1
3
2
6
-
A
u
g
-
1
3
2
8
-
A
u
g
-
1
3
58
60
62
64
66
68
70
72
USDINR JPYINR
GBP-INR IS FALLING BACK
The GBP-INR in its previous fall had taken support near a long-
term rising trend line (shown in blue in the chart). From there
bulls regained strength as a result of which we witnessed a strong
rally. The price on the way up crossed a crucial resistance level
where it had faced resistance several times.
The price has recently crossed the upper end of the medium-
term rising channel but is facing pressure in the higher territory.
The short-term momentum indicator has given a sell signal from
the overbought territory. Thus, the high of 106.98 will act as a
strong resistance. In the short term the targets on the downside
will be 98.20 and 96.50.
Currency View Reversal Supports Resistances Target
USD-INR Down 68.80 63.63/63.00 67.00/68.00 62.20
GBP-INR Down 106.98 100/98 104.8/106.76 98.20-96.50
EUR-INR Down 90.31 85/83.40 88.57/90 83.00-82.50
JPY-INR Down 0.6889 0.6500/0.6390 0.6726/0.6800 0.6300
EUR-INR hit by bears again
In case of the EUR-INR, a short-term correction had found
support near the medium-term rising trendline.
From there the price had taken off sharply. The momentum on
the way up had been so sharp that the price had crossed the
upper end of the long-term rising channel.
It had achieved the medium-term equality target (89.30).
Recently the price crossed the upper end of the medium-term
rising channel but faltered above the trendline and fell back
towards the lower end of the reverse channel (85). Once the
level of 85 is broken, 83 and 82.50 will be the targets.
A medium-term top looks in place at 92.00 whereas in the short
term resistance is at 90.31.
JPY-INR in a channelised play
As can be seen from the adjacent chart, the JPY-INR had fallen
significantly. It had achieved the equality target on the downside.
The JPY-INR had formed an ending diagonal, which had
marked the end of the fall. It had broken out from the bullish
pattern as well as from the medium-term falling channel.
From there the price formed a three-wave rise and achieved the
equality as well as the channel targets on the upside. Thus, the
currency pair is expected to undergo a decent correction now.
The high of 0.7081 will now act as a strong resistance from
medium-term perspective whereas the short-term resistance is
0.6889.
The key level on the downside would be 0.6300.
TREND & VIEW
USD-INR is overheated
After breaking out from an ending diagonal in May, the USD-
INR rallied smartly. On the way up it crossed multiple resis-
tances. It achieved the conservative as well as the aggressive
equality targets on the upside.
Channel study shows that it even overshot the long-term rising
channel. However, the price couldnt sustain in the higher ter-
ritory on a weekly closing basis and fell back into the channel.
Thus, the high of 68.80 will now act as a strong hurdle from
short-term as well as the medium-term perspective.
On the other hand, the price can fall till the medium-term ris-
ing trendline, ie 62.20.
CURRENCY TECHNICALS
11 A M J J A S O N D 2012 A M J J A S O N D 2013 A M J J A S O N D 2014 M A M
44
45
46
47
48
49
50
51
52
53
54
55
56
57
58
59
60
61
62
63
64
65
66
67
68
69
70
71
68.80
62.20
USDINR - INDIAN RUPEE (66.1000, 68.6000, 65.0000, 65.2400, -0.46000)
40
50
60
70
80

ary March April May June July August September October
80
81
82
83
84
85
86
87
88
89
90
91
92
93
94
95
96
97
98
99
100
101
102
103
104
105
106
107
108
109
106.98
98.20
96.50
GBPINR (102.903, 103.439, 101.273, 101.964, -0.93900)
30
40
50
60
70
80

March April May June July August September October
69
70
71
72
73
74
75
76
77
78
79
80
81
82
83
84
85
86
87
88
89
90
91
92
93
94
92.00
85.00
83.00
90.31
82.50
EURINR (86.5920, 87.0060, 85.2220, 85.9800, -0.61900)
40
50
60
70
80

December 2013 February March April May June July August September N
0.52
0.53
0.54
0.55
0.56
0.57
0.58
0.59
0.60
0.61
0.62
0.63
0.64
0.65
0.66
0.67
0.68
0.69
0.70
0.71
0.72
0.73
0.74
0.7081
0.6300
0.6889
JPYINR (0.65920, 0.66360, 0.65190, 0.65810, -0.00110)
30
40
50
60
70
80 Relative Strength Index (53.5134)
We are pleased to introduce you to Sharekhans Portfolio
Management Service (PMS) in which we completely manage
your investment portfolio so that you stop worrying about
the market volatility and focus your energy on things that
you like to do!
We have a wide range of strategies that you can choose from.
Our strategies are based on fundamental research and tech-
nical analysis.
Portfolio Management Service
INVESTMENT STRATEGY
Disciplined investment decisions are taken in specific stocks based on thorough
fundamental research.
Investments are made primarily in the Nifty Fifty or the BSE 100 scrips.
Attempts to have an exposure of minimum of 70% in the Nifty Fifty stocks and
that of minimum of 90% in the BSE 100 stocks.
Endeavours to create a core portfolio of blue-chip companies with a proven track
record and have partial exposure to quality companies in the mid-cap space.
Fund Manager: Gaurav Dua
FUND OBJECTIVE
A good return on money through long-term investing in quality companies
PRICING
Minimum investment of Rs25 lakh
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 - TOP EQUITY
OVERVIEW
The ProPrimeTop 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 portfolios value with low to medium risk.
Top 10 stocks
Bank of Baroda
BHEL
Cipla
Larsen & Toubro
Oil India
Reliance Industries
HDFC Bank
State Bank of India
Reliance Communications
Zee Entertainment Enterprises
Product performance
as on August 31, 2013
(In %) Scheme Sensex Nifty
1 month -5.9 -3.8 -4.7
3 month -12.7 -5.8 -8.6
Since inception* -16.1 3.5 1.4
Best month 11.8 11.2 12.4
Worst month -10.6 -8.9 -9.3
Best quarter 12.7 12.6 14.5
Worst quarter -12.9 -12.7 -12.5
*16-June-11
Disclaimer: Returns are based on a clients
returns since inception and may be different from
those 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)
Nifty Thrifty Diversified
Trailing Stoploss
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 OBJECTIVE
A good return on money through long-term investing regardless of short-term volatility
PRICING
Charges
2.5% per annum; AMC fee charged every quarter
0.5% brokerage
20% profit sharing after the 15% hurdle is crossed at the end of every fiscal
PROPRIME - DIVERSIFIED EQUITY
OVERVIEW
The ProPrimeDiversified 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 portfolios value with medium to high risk.
Top 10 stocks
Bank of Baroda
BHEL
Cipla
Federal Bank
ITNL
Power Finance Corporation
Reliance Industries
Reliance Infrastructure
Sesa Goa
Southern Petrochemicals Industries
Product performance
(In %) Scheme S&P CNX 500
1 month -3.3 -4.7
3 month -19.9 -10.8
Since inception* 121.4 208.5
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
FUND MANAGERS VIEW
The market recovered a bit by the end of August 20013 after touching a low towards
the middle of the month. Stock-specific action did not lead to any substantial recovery
in the net asset value of ProPrime Diversified Equity even though the funds constituents
rallied by 8-10% from their bottoms during the month. These stocks are now trading
10-15% lower than their August 2013 close. As of today the market is really adjusting
to the uncertainties over the tapering of the US central banks quantitative easing
measures, fluctuation in the currency market, the Syrian conflict and the last phase of
political uncertainty at home prior to the general election next year. Policy paralysis
and populist measures of the United Progressive Alliance-II government have severely
dented the India growth story which is reflected in the nations gross domestic product
performance (GDP; in Q1FY2014 Indias GDP grew by only 4.4%). Hence, the
stock prices reflect the lack of confidence and extent of pessimism in the market.
We really need a change in leadership and in the attitude of those who govern the
country. The good news is we expect both to happen after the next years general
election. Even though the task will not be easy for the new government but the new
government will at least restore the faith of investors and initiate policy making
which will provide a breather to the stock market. For now, we prefer to sit on the
sidelines. We shall stay invested and hold our positions till a firm trend appears
and pessimism reduces in the market. We do not see the need to book any capital
losses yet.
Fund Manager: Suhas Samant
PMS FUNDS PMS DESK
INVESTMENT STRATEGY
This strategy has the potential to generate profits irrespective of the market
direction by going long or short on specific indices and stocks.
It invests in the Nifty and the Bank Nifty indices (via futures) and 10 stock futures.
An automated basic back-testing model is used to predict the market direction
for each of the indices and stocks which then decides the strategy to be deployed
in terms of going long or short.
The portfolio is not leveraged, ie its exposure will never exceed its value.
Fund Manager: Abhinay Jain
FUND OBJECTIVE
Absolute returns irrespective of market conditions through a long-short strategy followed in multiple investments
PRICING
Charges
AMC fees: 0%
Brokerage: 0.05%
Profit sharing: Flat 20% charged on a quarterly basis
PROTECH - DIVERSIFIED
OVERVIEW
The ProTechDiversified PMS strategy is suitable for long-term investors who desire
to profit from both bullish and bearish market conditions. The strategy involves
going long (buying) or going short (selling without holding) on certain investment
classes by predicting the market direction based on a back-tested automated model.
Product performance
1 month -3.2 -3.8 -4.7
3 month -4.0 -5.8 -8.6
FY12-13 2.3 8.2 7.3
FY11-12 8.8 -10.5 -9.2
FY10-11 9.8 10.9 15.3
FY09-10 - - -
Since inception* 24.8 10.6 15.5
Best month 11.4 11.2 12.4
Worst month -8.1 -10.6 -10.3
Worst quarter -3.5 -12.7 -12.5
*16-May-2010
FUND MANAGERS VIEW
In August this year we witnessed a sharp sell-off in the stock market and the Nifty
plunged by over 4%. The month saw large swings and a significant increase in the
India Volatility Index (VIX) on account of a sharp fall in the rupee against the dollar.
Selling was more evident in the large-cap space especially in the banking stocks
compared with the mid-cap space.
September is also likely to be very volatile as India VIX is currently at a level which
is the high seen in several months, indicating fear among market participants. We
have seen significant writing in 5300 put option which forms the floor for the market.
On the other hand, the 5700-5800 level can be a hurdle area. The market is likely to
remain in a broad range of 5300-5800 in this month.
The net asset value (NAV) of ProTech Diversified decreased by 3.20% in August this
year. The month was not good for the scheme, as the product witnessed multiple
whipsaws in this period. The major part of the downward move came in the form of
opening gaps which led to the erosion of the NAV. August was one of the few volatile
months in many years when the product did not do well. We believe the schemes
NAV has corrected by 28% to 21% and now can be a good time to enter the scheme.
*Traded stocks
Investments in*
Apollo Tyres
Bank Nifty
Century Textiles
IDBI Bank
JP Associates
LIC Housing Finance
Nifty
Punj Loyd
Reliance Capital
Tata Motors
Tata Steel
Yes Bank
PMS FUNDS PMS DESK
Fund Manager: Rohit Srivastava
FUND OBJECTIVE
Absolute returns irrespective of market conditions.
PRICING
Charges
AMC fees: 0%
Brokerage: 0.05%
PROTECH - NIFTY THRIFTY
OVERVIEW
The ProTechNifty Thrifty PMS strategy is suitable for long-term investors who
desire to profit from both bullish and bearish market conditions. The strategy in-
volves going long (buying) or going short (selling without holding) on Nifty futures
by predicting the market direction based on a back-tested automated model.
Product performance
1 month 6.5 -3.8 -4.7
3 month 11.5 -5.8 -8.6
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* 175.4 83.9 81.1
Best month 28.9 -23.9 -26.4
Worst month -17.1 0.0 0.6
Worst quarter -11.7 17.3 22.3
*01-Feb-2006
FUND MANAGERS VIEW
ProTech Nifty Thrifty closed August of 2013 with a return of 6.45%, boasting of
such a monthly performance after a long time. With this the net asset value of the
scheme hit a new high. With a return of 175% we are far ahead of the Nifty, which
has given returns of 81% in the same period. The power of compounding is at work.
Even though the scheme reported lower returns in the last few years the same was
normal. The market has recently shown an increasingly trending behaviour on both
sides which should be good for boosting the returns of ProTech Nifty Thrifty going
ahead.
The market itself had been moving in a narrow trading range for a long time and
volatility had declined. This range has gradually started to expand and the trend
should continue. Consequently, the returns of the scheme will also expand to a higher
range than witnessed in recent years. While the broad market has been bearish for
quite some time, the Nifty has been holding up better. This deviation is undergoing a
test and the oversold readings seen at the end of the last month must be relieved. The
5100-6200 level is the broad range established by the Nifty which should eventually
be breached by a large margin.
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 direction
for the Nifty which then decides the strategy to be deployed in terms of going
long or short.
The portfolio is not leveraged, ie its exposure never exceeds its value.
PMS FUNDS PMS DESK
Fund Manager: Rohit Srivastava
FUND OBJECTIVE
Absolute returns irrespective of market conditions.
PRICING
Charges
AMC fees: 0%
Brokerage: 0.05%
PROTECH - TRAILING STOPS
Product performance
1 month 0.1 -3.8 -4.7
3 month 2.8 -5.8 -8.6
FY12-13 14.9 8.2 7.3
FY11-12 29.0 -6.1 -4.6
FY10-11 - - -
FY09-10 - - -
Since Inception* 52.3 0.5 -1.4
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 -1.2 3.0 2.8
*09th May 2011
FUND MANAGERS VIEW
After recording positive returns in July ProTech Trailing Stops ended August with
flat returns this year. This was because the broad market (which involves stocks as
against the Nifty and stock futures in case of ProTech Trailing Stops) moved in a
narrow range even as the Nifty sold off mostly on account of banking stocks. This
trend may make it look like the market was falling but the impact of this trend was
near zero on portfolios like ProTech Trailing Stops. So looking at the trend in stocks
the scheme maintained a capital protection strategy, thereby reporting near zero returns
for the month.
The market itself had been moving in a narrow trading range for a long time and
volatility had declined. This range has gradually started to expand and the trend
should continue. Consequently, the returns of the scheme will also expand to a higher
range than witnessed in recent years. While the broad market has been bearish for
quite some time, the Nifty has been holding up better. This deviation is undergoing a
test and the oversold readings at the end of the previous month must be relieved. The
5100-6200 level is the broad range established by the index and should eventually be
breached by a large margin.
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 the
risk and portfolio volatility through staggered building of positions.
It is non-leveragedthe exposure will never exceed the value of the portfolio.
OVERVIEW
Our ProTechTrailing Stops PMS strategy is ideal for Traders and Investors look-
ing for Regular Income from trading and desire to make profits in both bullish and
bearish 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 Income
or Deposits. This strategy involves going Long (buying) or Short (selling without
holding) on stock futures.
* Terms and conditions apply
PMS FUNDS PMS DESK
Advisory Products & Services
The Advisory Desk is a central desk consisting of a Mumbai-based expert team that
runs various sample model portfolios (for illustrative purposes only) for clients of all
profiles, be they traders or investors. For investors, it has the Portfolio Doctor service
under which it reviews an existing portfolio on various parameters and suggests changes
to improve its performance. For traders, it has five products in all: MID Intraday, MID
Swing, MID Option, MID Delivery and MID Delivery Series.
All MID products are different from Sharekhans research-based technical and
fundamental offerings as these essentially try to capture trading opportunities in liquid
stocks where momentum is expected before or after some event including the
announcement of results or where some news/event is probable. These calls are rolled
out by the Advisory Desk based on the market pulse and before generating an MID
call, all market news on the stock as well as its technical and derivative indicators are thoroughly checked.
Advisory products are ideal for those who do not have time to either monitor the market tick by tick or shift through pages of research for
data or pour over complex charts to catch a trend. However, all these products require perfect discipline and money management.
MONTHLY PERFORMANCE
MID TRADES
There are five different types of MID calls.
MID Swing: These are positional long/short ideas based on fun-
damental rationales/events/news as well as technical checks.
These ideas come with proper stop losses and probable targets.
MID Delivery: This is a long-only cash market delivery product
where ideas are generated based on the market pulse (and not
fundamental research). These ideas come with proper stop losses
and probable targets for a maximum period of one month.
MID Delivery Series: Basket of trading ideas based on the short-
term theme/flavour of the market. All ideas have a short-term
For more details on any of the Advisory Desk products write to us at info@sharekhan.com
READY FOR ROARING ADVICE
#Please note there may be some deviation in the actual performance reported in TradeTiger due to a difference in the method of closure of an idea in a particular month.
Portfolio Doctor evaluates an existing portfolio on various parameters and suggests recommendations on a
regular basis to improve its performance. It is targeted at long-term investors with a portfolio value of more
than Rs10 lakh. The Portfolio Doctor service involves three simple steps:
analysis of an existing portfolio, realignment of the portfolio with Sharekhans
creation of a Model Portfolio. recommendations
FOR INVESTORS
PORTFOLIO DOCTOR
FOR TRADERS
DERIVATIVE IDEA
Derivative Idea is generated by the Sharekhan Derivatives Research
Desk based on the analysis of open interest, implied volatility and
put-call ratio. It is a leveraged product and ideal for aggressive
traders. Calls in Derivative Idea are accompanied by proper stop
loss, targets, time frame and quantity to execute.
trigger, are accompanied by fundamental arguments and have
a maximum time frame of one month. The entry time is the
same for all ideas but the exit time could vary depending upon
the price movement. Ideally, the corpus should be spread across
the ideas with equal weightage.
MID Options: These are directional calls on options based on
the analysis of the open interest and put-call ratio in the market.
These come with proper stop losses and probable targets.
MID Intraday: These are long/short ideas based on fund flow
and technical levels. As is apparent from the name, these calls
are meant for intra-day trading. All MID Intraday calls are
accompanied by proper stop losses and probable targets.
Derivative Ideas performance#
Ticket size (Rs) 300,000
Month Aug 2013 YTD FY14
No. of calls 13 144
Profit and loss (Rs) 2,267 33,713
Returns (%) 0.76 11.24
ADVISORY DESK
N
E
W
MID performance#
Product MID Intraday MID Swing MID Delivery MID Delivery Series MID Option
Month Aug 2013 YTD FY14 Aug 2013 YTD FY14 Aug 2013 YTD FY14 Aug 2013 YTD FY14 Aug 2013 YTD FY14
No. of calls 92 362 28 61 23 124 - 21 17 121
Profit booked 67 232 16 33 17 69 - 12 11 74
Stop loss hit 25 130 12 28 6 55 - 9 6 47
Strike rate (%) 73 64 57 54 74 56 - 57 65 61
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 Sharekhan
first understand the individuals investment objectives and risk-taking capacity, and then recommend a suitable portfolio. So, we suggest
that you get in touch with our Mutual Fund Advisor before investing in the best funds.
MF PICKS
SHAREKHANS TOP MUTUAL FUND PICKS (EQUITY) AUGUST 13, 2013
MUTUAL FUNDS DESK
Data as on August 07, 2013
Scheme name Star NAV (Rs) Returns (%)
rating Absolute Compounded annualised
6 months 1 year 3 years 5 years Since inception
Large-cap funds
ICICI Prudential Focused Bluechip Equity Fund - Ret 17.4 -6.1 5.9 4.0 11.8 11.2
Birla Sun Life Top 100 Fund 23.4 -9.0 3.2 2.6 8.1 11.5
UTI Top 100 Fund 29.4 -4.6 2.8 2.3 4.7 11.1
Birla Sun Life Frontline Equity Fund - Plan A 91.7 -8.2 6.9 2.2 9.5 22.4
SBI Magnum Bluechip Fund 15.2 -8.6 6.0 1.5 6.0 5.8
Indices
BSE Sensex 18,664.9 -4.7 6.0 0.9 4.30 16.3
Mid-cap funds
SBI Emerg Buss Fund 48.9 -17.1 -0.8 6.6 11.7 19.5
Mirae Asset Emerging Bluechip Fund 11.8 -12.8 1.1 4.2 -- 5.5
IDFC Premier Equity Fund - Reg 34.7 -10.2 2.9 1.8 12.5 17.1
Franklin India Prima Fund 291.1 -9.3 6.4 1.4 9.2 18.7
SBI Magnum Midcap Fund 23.2 -11.6 5.6 -0.8 1.9 10.6
Indices
BSE MID CAP 5,337.5 -21.6 -12.9 -10.8 -1.92 18.8
Multi-cap funds
BNP Paribas Equity Fund 38.0 -3.8 8.9 5.3 6.0 16.2
Tata Ethical Fund - Plan A 73.0 -1.0 12.5 4.4 9.2 16.0
Axis Equity Fund 12.0 -1.6 12.0 2.9 -- 5.2
Mirae Asset India Opportunities Fund - Reg 16.9 -9.1 3.7 2.8 11.6 10.3
IDFC Equity Fund - Reg 16.3 -4.6 5.0 1.9 4.4 7.1
Indices
BSE 500 6,727.3 -10.7 -0.1 -2.7 2.90 14.0
Tax saving funds
Axis Long Term Equity Fund 14.1 -3.5 6.9 6.1 -- 10.1
BNP Paribas Tax Advantage Plan 15.6 -6.5 6.1 4.0 5.6 6.0
Franklin India Taxshield 220.0 -8.5 2.2 3.7 9.4 24.1
Tata Tax Saving Fund - Plan A 42.6 -6.4 3.0 2.2 6.7 18.8
IDFC Tax Advantage (ELSS) Fund - Reg 20.4 -7.8 5.3 1.5 -- 16.7
Indices
CNX500 4,213.9 -10.6 0.2 -2.4 3.05 7.9
Thematic funds
Birla Sun Life India GenNext Fund 29.5 -5.8 10.9 7.6 12.4 14.4
ICICI Prudential Service Industries Fund 21.5 12.2 30.3 7.1 7.9 10.5
UTI India Lifestyle Fund 13.1 -5.7 5.5 4.9 9.7 4.6
Reliance Media & Entet Fund 33.7 -12.5 14.3 3.6 7.6 14.7
L&T India Special Situations Fund 19.1 -10.7 1.1 1.4 7.6 9.3
Indices
S&P Nifty (CNX Nifty) 5,519.1 -7.1 3.4 0.5 4.05 13.8
Balanced funds
ICICI Prudential Balanced 53.0 -5.9 8.3 6.7 8.6 12.9
Tata Balanced Fund - Plan A 91.0 -6.0 2.3 4.2 10.3 15.2
Canara Robeco Balance 65.0 -7.8 -0.05 2.9 9.9 9.7
SBI Magnum Balanced Fund 54.2 -4.9 10.0 2.2 7.2 15.2
Reliance RSF - Balanced 22.3 -11.9 -2.1 0.1 10.4 10.3
Indices
Crisil Balanced Fund Index -- -4.2 4.5 3.0 6.0 12.2
MF PICKS
SHAREKHANS TOP SIP FUND PICKS AUGUST 13, 2013
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 Sharekhan
first understand the individuals investment objectives and risk-taking capacity, and then recommend a suitable portfolio. So, we suggest
that you get in touch with our Mutual Fund Advisor before investing in the best funds.
Data as on August 07, 2013
Investment period 1 year 3 years 5 years
Total amount invested (Rs) 12,000 36,000 60,000
Funds 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
ICICI Prudential Focused Bluechip Equity Fund-Ret 17.4 11,620.5 -3.5 37,475.9 1.4 77,918.5 5.5
SBI Magnum Bluechip Fund - Growth 15.2 11,349.2 -5.9 37,434.3 1.3 71,597.6 3.7
Birla Sun Life Frontline Equity Fund - Plan A 91.7 11,488.2 -4.7 37,417.4 1.3 74,617.9 4.5
Birla Sun Life Top 100 Fund - Growth 23.4 11,358.5 -5.8 36,775.4 0.7 72,280.3 3.9
UTI Top 100 Fund - Growth 29.4 11,558.1 -4.0 36,689.6 0.7 69,996.5 3.2
BSE Sensex 18,664.9 11,742.1 -2.35 36,728.8 0.69 69,944.8 3.17
Multi-cap funds
Tata Ethical Fund - Plan A - Growth 73.0 12,068.2 0.6 39,234.7 3.0 81,094.5 6.3
BNP Paribas Equity Fund - Growth 38.0 11,892.4 -1.0 38,878.6 2.7 74,382.0 4.5
UTI Opportunities Fund - Growth 29.9 11,590.7 -3.7 37,791.9 1.7 78,577.2 5.6
UTI Masterplus Unit Scheme 91 - Growth 85.8 11,586.5 -3.8 36,983.0 0.9 70,945.3 3.5
IDFC Equity Fund - Reg - Growth 16.3 11,657.0 -3.1 36,951.7 0.9 70,573.3 3.4
BSE 500 6,727.3 11,138.4 -7.82 34,340.1 -1.60 65,843.9 1.91
Mid-cap funds
SBI Emerg Buss Fund 48.9 10,662.4 -12.1 37,944.9 1.8 88,904.0 8.3
Franklin India Prima Fund 291.1 11,308.3 -6.3 37,380.2 1.3 77,864.5 5.4
IDFC Premier Equity Fund - Reg 34.7 11,137.1 -7.8 36,677.7 0.6 80,357.5 6.1
SBI Magnum Midcap Fund 23.2 11,055.6 -8.6 36,176.2 0.2 71,396.3 3.6
HDFC Mid-Cap Opportunities Fund 16.0 10,913.6 -9.9 35,414.2 -0.6 78,202.9 5.5
BSE Midcap 5,337.5 9,983.2 -18.22 29,348.1 -6.76 56,215.8 -1.32
Tax saving funds
BNP Paribas Tax Advantage Plan 15.6 11,623.8 -3.4 38,312.0 2.2 75,149.7 4.7
Franklin India Taxshield 220.0 11,409.0 -5.4 36,803.7 0.8 75,292.9 4.7
Tata Tax Saving Fund - Plan A 42.6 11,516.6 -4.4 36,666.4 0.6 72,472.5 3.9
DSP BlackRock Tax Saver Fund 16.9 11,295.9 -6.4 36,317.5 0.3 72,050.3 3.8
HDFC Long Term Advantage Fund 135.6 11,371.5 -5.7 35,738.3 -0.2 73,113.6 4.1
CNX Nifty 5,519.1 11,488.0 -4.7 36,013.8 0.01 68,524.0 2.7
Sharekhan ValueGuide
September 2013
47
Prices as on September 05, 2013
FY13 FY14E FY15E FY13 FY14E FY15E FY13 FY14E FY15E FY15/FY13 FY13 FY14E FY15E FY14E FY15E FY14E FY15E (Rs)
EQUITY FUNDAMENTALS
EARNINGS GUIDE
Sharekhan Earnings Guide
Company CMP Sales Net profit EPS (%) EPS PE (x) RoCE (%) RoNW (%) DPS Div
(Rs) growth yield
(%)
Note: For Grasim and Apollo Tyres we have shifted our estimates to consolidated **June ending company
AUTOMOBILES
Apollo Tyres 65.0 12,794.6 13,850.9 15,129.5 596.9 721.4 778.4 11.9 14.3 15.4 14% 5.5 4.5 4.2 18.4 17.7 17.7 16.2 0.5 0.8
Ashok Leyland 13.0 12,457.8 12,416.1 16,136.4 148.2 (57.9) 449.8 0.6 (0.2) 1.7 68% 21.6 -64.8 7.6 2.8 9.3 -1.3 9.7 0.6 4.6
Bajaj Auto 1,901.0 19,997.3 22,790.4 26,846.3 3,043.6 3,801.1 4,547.0 105.2 131.4 157.2 22% 18.1 14.5 12.1 51.5 46.2 37.5 35.4 45.0 2.4
M&M 777.1 38,356.6 39,437.8 45,761.3 3,543.8 3,547.1 3,791.3 57.7 57.6 61.6 3% 13.5 13.5 12.6 25.0 22.8 18.2 16.3 13.0 1.7
Maruti Suzuki 1,299.6 43,076.7 46,045.1 54,080.2 2,300.0 2,625.6 3,199.6 79.6 86.9 105.9 15% 16.3 15.0 12.3 16.5 18.1 12.8 13.9 7.5 0.6
BANKS & FINANCE
Allahabad Bank 71.4 6,343.3 7,033.0 8,334.4 1,185.2 1,252.6 1,578.0 23.7 25.1 31.6 15% 3.0 2.9 2.3 - - 10.6 12.2 6.0 8.4
Andhra Bank 51.5 4,804.4 5,353.8 6,113.0 1,289.1 1,250.7 1,343.6 23.0 22.4 24.0 2% 2.2 2.3 2.1 - - 14.0 13.6 5.0 9.7
Axis (UTI) Bank 927.5 16,217.4 19,390.2 22,756.3 5,179.4 6,018.5 7,097.0 110.7 128.6 151.7 17% 8.4 7.2 6.1 - - 16.9 17.3 18.0 1.9
Bajaj Finserv 569.0 5,072.4 - - 1,573.6 - - 103.0 - - - 5.5 - - - - - - 1.5 0.3
Bank of Baroda 502.6 14,945.9 16,633.3 19,611.6 4,480.7 4,436.2 5,245.1 106.0 105.0 124.1 8% 4.7 4.8 4.0 - - 13.2 14.0 21.5 4.3
Bank of India 145.3 12,790.0 14,088.0 16,138.9 2,749.3 2,507.2 2,903.8 46.1 42.0 48.7 3% 3.2 3.5 3.0 - - 10.1 10.8 10.0 6.9
CanFin Homes 117.9 95.7 129.0 158.3 54.1 64.8 80.4 26.4 31.6 39.2 22% 4.5 3.7 3.0 - - 15.5 16.8 4.0 3.4
Capital First 155.1 245.0 310.3 413.6 63.1 57.5 100.1 9.0 8.2 14.2 26% 17.3 19.0 10.9 - - 5.8 9.5 1.8 1.2
Corp Bank 249.9 5,033.8 5,610.4 6,450.7 1,434.8 1,511.7 1,806.0 93.8 98.9 118.1 12% 2.7 2.5 2.1 - - 14.9 15.8 19.0 7.6
Federal Bank 274.6 2,639.1 2,943.5 3,450.2 842.8 762.1 942.9 49.3 44.6 55.1 6% 5.6 6.2 5.0 - - 11.4 12.9 9.0 3.3
HDFC 750.4 5,927.5 7,063.1 8,593.3 4,848.3 5,731.2 6,752.4 31.3 37.2 43.8 18% 24.0 20.2 17.1 - - 18.4 17.8 12.5 1.7
HDFC Bank 609.5 22,663.7 27,430.3 33,067.5 6,726.2 8,413.0 10,546.6 28.3 35.4 44.3 25% 21.6 17.2 13.8 - - 21.3 22.6 5.5 0.9
ICICI Bank 893.7 22,212.1 25,864.0 30,001.6 8,326.2 8,983.4 10,520.5 72.2 78.0 91.4 13% 12.4 11.5 9.8 - - 12.9 13.9 20.0 2.2
IDBI Bank 56.9 8,592.6 8,990.8 10,006.2 1,882.1 2,123.5 2,403.2 14.1 15.9 18.0 13% 4.0 3.6 3.2 9.6 10.1 3.5 6.2
PNB 442.6 19,072.4 20,566.3 22,869.3 4,747.7 4,254.1 4,372.9 134.3 120.4 123.7 -4% 3.3 3.7 3.6 - - 12.4 11.5 27.0 6.1
SBI 1,638.2 60,366.1 65,548.3 74,480.5 14,105.0 12,296.2 14,545.6 206.2 179.8 212.6 2% 7.9 9.1 7.7 - - 11.9 12.8 41.5 2.5
Union Bank of India 110.7 10,094.9 11,076.4 12,689.7 2,158.5 2,151.9 2,486.6 36.2 36.1 41.7 7% 3.1 3.1 2.7 - - 11.9 12.6 8.0 7.2
Yes Bank 287.5 3,476.2 4,284.2 5,519.1 1,300.7 1,498.2 1,907.4 36.3 38.0 48.4 16% 7.9 7.6 5.9 - - 20.4 19.8 6.0 2.1
CONSUMER GOODS
Bajaj Corp 244.6 606.7 750.3 918.7 167.4 196.5 258.8 11.3 13.3 17.5 24% 21.6 18.4 14.0 47.3 52.4 37.7 41.8 6.5 2.7
GSK Consumers 4,303.8 3,079.4 3,638.4 4,244.8 436.8 524.8 607.9 103.9 124.8 144.5 18% 41.4 34.5 29.8 53.9 52.9 35.3 34.7 45.0 1.0
Godrej Consumer 819.4 6,390.8 7,783.5 9,526.0 667.2 853.5 1,103.1 19.6 25.1 32.4 29% 41.8 32.6 25.3 20.6 24.5 25.6 27.5 5.0 0.6
Hindustan Unilever 628.0 26,317.2 29,441.2 33,375.0 3,233.7 3,564.4 3,890.8 15.0 16.5 18.0 10% 41.9 38.1 34.9 131.4 100.6 98.1 72.9 18.5 2.9
ITC 312.2 29,901.3 34,733.7 41,512.9 7,418.4 8,824.3 10,697.5 9.4 11.2 13.5 20% 33.2 27.9 23.1 46.1 46.6 36.4 36.7 5.3 1.7
Jyothy Laboratories 147.0 1,106.0 1,333.0 1,611.5 19.6 75.3 133.6 1.2 4.5 8.0 158% 122.5 32.7 18.4 11.3 16.5 11.6 19.5 2.5 1.7
Marico 206.2 4,596.2 5,196.2 6,070.3 370.3 454.0 545.6 5.7 7.0 8.5 22% 36.2 29.5 24.3 22.3 24.2 20.8 20.8 1.0 0.5
Mcleod Russel India 265.5 1,629.5 1,869.5 2,109.7 274.2 352.6 416.8 25.1 32.2 38.1 23% 10.6 8.2 7.0 19.9 20.5 17.4 18.1 7.0 2.6
TGBL (Tata Tea) 147.2 7,351.0 8,075.8 8,979.1 391.5 475.3 540.2 6.3 7.7 8.7 18% 23.4 19.1 16.9 11.2 12.0 9.6 10.1 2.2 1.5
Zydus Wellness 528.7 388.0 448.7 525.1 99.0 108.7 130.3 25.3 27.8 33.3 15% 20.9 19.0 15.9 39.5 36.6 36.7 33.8 6.0 1.1
IT / IT SERVICES
CMC 1,285.0 1,927.6 2,192.6 2,672.8 230.2 261.8 325.1 76.0 86.4 107.3 19% 16.9 14.9 12.0 32.0 32.3 24.8 25.1 17.5 1.4
HCL Technologies** 1,019.9 25,733.7 30,308.1 33,302.2 4,098.7 5,031.8 5,577.5 58.2 71.4 79.1 17% 17.5 14.3 12.9 39.5 35.1 34.1 29.7 12.0 1.2
Infosys 3,004.8 40,352.0 46,576.5 49,974.8 9,421.0 9,867.5 10,829.2 164.7 172.5 189.3 7% 18.2 17.4 15.9 31.8 29.6 23.7 22.1 42.0 1.4
NIIT Technologies 292.0 2,021.4 2,344.3 2,691.2 213.2 255.3 282.7 35.4 42.4 47.0 15% 8.2 6.9 6.2 30.3 27.9 21.2 20.2 8.5 2.9
Persistent Systems 585.0 1,294.5 1,558.4 1,753.1 187.7 222.9 248.8 46.9 55.7 62.2 15% 12.5 10.5 9.4 28.8 27.2 20.5 19.4 9.0 1.5
TCS 1,990.8 62,989.5 77,209.5 87,063.7 13,941.4 16,754.7 18,896.4 71.2 85.6 96.5 16% 28.0 23.3 20.6 41.5 38.0 31.8 29.2 22.0 1.1
Wipro 468.9 37,425.6 41,468.0 44,431.4 6,136.2 7,079.2 7,464.5 24.9 28.7 30.3 10% 18.8 16.3 15.5 20.0 18.8 21.9 20.3 7.0 1.5
CAPITAL GOODS / POWER
BHEL 138.1 47,617.7 38,809.0 37,385.0 6,614.7 4,547.0 4,111.0 27.0 18.6 16.8 -21% 5.1 7.4 8.2 20.5 17.3 13.5 11.2 5.4 3.9
CESC 309.6 5,317.0 5,850.1 6,234.4 618.0 645.9 660.6 49.2 51.4 52.6 3% 6.3 6.0 5.9 8.5 8.2 9.6 9.2 7.0 2.3
Crompton Greaves 84.0 12,094.4 13,407.1 15,040.1 84.6 301.3 565.6 1.3 4.7 8.8 160% 64.6 17.9 9.5 10.0 16.1 8.0 13.5 0.4 0.5
Greaves Cotton 57.1 1,873.8 2,023.2 2,265.9 155.6 157.7 173.7 6.4 6.5 7.1 5% 8.9 8.8 8.0 26.5 25.8 18.7 18.1 1.6 2.8
Kalpataru Power 60.6 6,085.0 7,001.6 7,897.1 129.5 135.6 163.1 8.4 8.8 10.6 12% 7.2 6.9 5.7 10.3 11.0 6.8 7.6 1.5 2.5
PTC India 46.1 8,857.0 10,927.0 12,951.4 129.0 125.0 146.0 4.3 4.2 4.9 7% 10.7 11.0 9.4 7.3 8.2 5.2 5.8 1.6 3.5
Thermax 544.5 4,690.9 4,972.0 5,389.0 349.9 345.0 381.0 29.4 29.0 32.0 4% 18.5 18.8 17.0 25.2 24.5 17.4 17.0 7.0 1.3
V-Guard Industries 516.0 1,360.2 1,699.7 2,080.6 62.9 84.0 104.4 21.1 28.1 35.0 29% 24.5 18.4 14.7 28.3 28.1 28.3 27.5 3.5 0.7
September 2013 48
Company CMP Sales Net profit EPS (%) EPS PE (x) RoCE (%) RoNW (%) DPS Div
(Rs) growth yield
(%) FY13 FY14E FY15E FY13 FY14E FY15E FY13 FY14E FY15E FY15/FY13 FY13 FY14E FY15E FY14E FY15E FY14E FY15E (Rs)
EQUITY FUNDAMENTALS EARNINGS GUIDE
#UltraTech numbers are post -merger of Samruddhi Cement. *FY2012 is of 15 months, ending June 2012 as company has changed reporting year from FY to June end
INFRASTRUCTURE / REAL ESTATE
Gayatri Projects 55.7 2,022.2 2,300.1 2,559.6 73.3 76.3 72.4 24.3 25.2 23.9 -1% 2.3 2.2 2.3 12.6 11.5 11.5 9.9 3.0 5.4
ITNL 115.0 6,644.9 6,561.2 7,347.0 520.3 464.2 494.2 26.8 23.9 25.4 -3% 4.3 4.8 4.5 10.1 10.2 11.9 11.3 4.0 3.5
IRB Infra 64.3 3,687.2 4,642.6 5,454.5 556.7 547.3 621.8 16.7 16.5 18.7 6% 3.8 3.9 3.4 12.2 12.3 15.9 16.0 4.0 6.2
Jaiprakash Associates 37.6 13,208.7 14,698.3 16,168.1 501.0 510.0 653.0 2.4 2.4 3.1 14% 15.6 15.6 12.1 10.0 9.8 5.0 6.8 1.8 4.8
Larsen & Toubro 727.8 74,498.0 79,651.6 88,077.0 4,797.3 5,298.9 5,964.0 52.0 57.4 64.6 11% 14.0 12.7 11.3 8.9 9.2 13.8 13.8 12.3 1.7
Pratibha Industries 19.0 2,157.5 2,554.3 2,757.1 82.7 79.8 88.0 8.2 7.0 7.7 -3% 2.3 2.7 2.5 14.8 14.9 11.6 11.2 0.6 3.2
Punj Lloyd 22.3 11,408.2 12,615.5 14,064.3 (284.7) 141.4 164.4 (8.6) 4.3 5.0 - -2.6 5.2 4.5 9.5 10.8 4.8 5.3 0.0 0.0
Unity Infraprojects 18.0 2,039.8 2,206.4 2,396.8 92.6 74.9 83.2 12.5 10.1 11.2 -5% 1.4 1.8 1.6 14.6 14.8 8.6 8.8 0.2 1.1
OIL & GAS
Oil India 432.6 9,948.0 10,360.0 11,922.0 3,588.0 3,773.0 4,389.0 60.0 62.8 73.0 10% 7.2 6.9 5.9 25.5 26.8 18.5 19.0 19.0 4.4
Reliance Ind 862.6 397,062.0 402,003.9 406,827.7 20,879.0 20,894.9 23,741.1 64.7 64.7 73.5 7% 13.3 13.3 11.7 9.8 10.2 9.6 9.9 8.5 1.0
Selan Exploration 262.9 97.1 128.6 166.5 45.8 60.0 77.2 27.2 35.7 45.9 30% 9.7 7.4 5.7 28.7 30.6 22.5 23.6 5.0 1.9
PHARMACEUTICALS
Aurobindo Pharma 188.6 5,855.3 7,123.3 8,133.6 457.3 606.5 774.4 15.7 20.8 26.6 30% 12.0 9.1 7.1 14.1 16.2 21.2 22.2 1.5 0.8
Cipla 418.6 8,279.3 9,551.8 11,362.8 1,544.9 1,687.2 2,053.0 18.7 21.0 25.6 17% 22.3 19.9 16.4 21.1 23.1 17.4 18.1 2.0 0.5
Cadila Healthcare 643.6 6,358.1 7,288.4 8,641.9 655.2 843.4 1,209.3 32.0 41.2 59.1 36% 20.1 15.6 10.9 19.0 23.5 22.4 24.9 7.5 1.2
Dishman Pharma 43.3 1,267.6 1,392.2 1,576.7 100.3 116.6 172.9 12.4 14.5 21.4 31% 3.5 3.0 2.0 11.5 14.6 10.4 13.5 1.2 2.8
Divi's Labs 966.8 2,139.9 2,515.2 3,133.8 590.6 679.7 859.8 44.5 51.2 64.8 21% 21.7 18.9 14.9 31.0 32.9 24.5 25.9 15.0 1.6
Glenmark Pharma 513.8 5,012.4 6,014.6 6,999.6 614.8 752.2 922.5 22.7 27.8 34.1 22% 22.6 18.5 15.1 20.7 23.7 21.9 21.5 2.0 0.4
Ipca Laboratories 709.9 2,738.8 3,225.9 3,738.3 394.7 502.2 610.4 31.3 39.8 48.4 24% 22.7 17.8 14.7 28.7 27.9 27.9 26.5 2.0 0.3
Lupin 854.6 9,461.6 11,379.2 13,490.4 1,314.2 1,626.3 2,029.5 29.4 36.3 45.4 24% 29.1 23.5 18.8 30.9 32.2 24.6 24.0 4.0 0.5
Sun Pharma 518.6 11,238.9 14,481.7 16,349.3 3,008.1 4,102.7 4,740.4 14.5 20.9 22.9 26% 35.7 24.8 22.7 35.0 33.1 26.4 23.4 5.0 1.0
Torrent Pharma 427.6 3,054.0 3,709.5 4,351.3 470.0 593.4 684.7 27.8 35.1 40.5 21% 15.4 12.2 10.6 34.9 32.8 34.7 29.7 23.0 5.4
AGRI-INPUTS
Tata Chemicals 242.6 14,718.6 15,288.1 16,329.9 652.5 778.3 852.6 25.6 30.5 33.5 14% 9.5 8.0 7.2 13.2 13.7 10.5 10.7 10.0 4.1
United Phosphorus 135.2 9,194.5 10,416.3 11,126.8 777.5 906.7 962.4 17.5 20.7 22.0 12% 7.7 6.5 6.1 16.9 16.3 17.0 15.7 2.5 1.8
BUILDING MATERIALS
Grasim 2,301.8 27,640.0 31,127.0 34,535.0 2,500.0 3,040.0 3,353.0 272.7 331.6 365.7 16% 8.4 6.9 6.3 19.0 18.4 12.6 11.9 22.5 1.0
India Cements 49.3 4,597.0 4,710.0 4,990.0 185.0 200.0 246.0 6.0 6.5 8.0 15% 8.2 7.6 6.2 6.0 7.0 5.0 6.0 2.0 4.1
Madras Cements 157.6 3,789.0 4,114.0 4,450.0 404.0 409.0 481.0 17.0 17.2 20.2 9% 9.3 9.2 7.8 9.0 10.0 16.0 16.0 2.5 1.6
Shree Cement* 3,765.0 5,590.0 6,017.0 6,743.0 1,005.0 912.0 1,057.0 288.5 261.9 303.5 3% 13.1 14.4 12.4 21.0 21.0 22.0 21.0 8.0 0.2
UltraTech Cement 1,539.4 20,174.9 22,773.7 25,227.4 2,655.4 3,005.7 3,220.0 96.9 109.7 117.5 10% 15.9 14.0 13.1 22.5 21.4 16.6 15.3 8.0 0.5
DISCRETIONARY CONSUMPTION
Eros Intnl Media 124.7 1,067.9 1,024.3 1,133.4 154.4 153.0 169.4 16.8 16.6 18.4 5% 7.4 7.5 6.8 14.9 14.9 14.4 14.0 1.5 1.2
Indian Hotel Company 46.5 3,743.4 3,968.1 4,449.8 0.2 19.5 75.5 - 0.2 0.9 - - 232.5 51.7 2.7 2.6 0.9 3.8 0.8 1.7
KKCL 724.0 303.0 368.1 435.1 53.0 62.8 77.7 43.0 50.9 63.0 21% 16.8 14.2 11.5 30.7 32.9 24.4 26.1 17.5 2.4
Raymond 187.6 4,069.0 4,551.0 5,126.0 40.7 70.0 129.8 6.6 11.4 21.1 79% 28.4 16.5 8.9 9.8 12.1 5.0 8.6 1.0 0.5
Relaxo Footwear 722.0 1,009.8 1,196.8 1,420.9 44.8 52.2 64.1 37.3 43.5 53.4 20% 19.4 16.6 13.5 23.7 25.2 17.8 19.7 2.0 0.3
Speciality Restaurants 126.2 226.9 293.8 387.3 23.4 33.4 53.9 5.0 7.1 11.5 52% 25.2 17.8 11.0 15.4 22.3 11.0 15.7 1.0 0.8
Zee Entertainment 225.4 3,699.6 4,277.4 5,120.0 719.6 830.3 1,053.1 7.5 8.7 11.0 21% 30.1 25.9 20.5 29.6 32.3 20.0 21.9 2.0 0.9
DIVERSIFIED / MISCELLANEOUS
Aditya Birla Nuvo 1,124.9 9,595.2 10,490.5 11,366.1 423.1 571.5 620.3 32.5 44.0 47.7 21% 34.6 25.6 23.6 9.7 9.5 7.9 7.9 6.5 0.6
Bajaj Holdings 795.0 336.9 - - 1,856.4 - - 166.8 - - - 4.8 - - - - - - 25.0 3.1
Bharti Airtel 296.2 80,311.0 85,536.0 95,688.0 2,266.0 4,291.0 6,169.0 6.0 10.7 15.4 60% 49.4 27.7 19.2 9.2 10.4 7.4 8.8 1.0 0.3
Bharat Electronics 1,177.1 5,991.0 6,125.0 6,534.0 890.0 858.0 992.0 111.2 107.2 124.0 6% 10.6 11.0 9.5 14.5 14.6 11.0 11.1 22.3 1.9
Gateway Distriparks 109.1 949.7 1,144.0 1,376.7 126.7 143.9 172.0 11.7 13.3 15.8 16% 9.3 8.2 6.9 15.4 17.6 17.6 19.7 6.0 5.5
Max India 153.2 10,624.0 - - 784.1 - - 29.5 - - - 5.2 - - - - - - 12.2 8.0
Ratnamani Metals 125.4 1,201.0 1,286.0 1,388.0 136.0 137.0 158.0 29.3 29.5 34.0 8% 4.3 4.2 3.7 23.4 22.2 19.5 19.2 4.0 3.2
September 2013
49
Remarks
Automobiles
Apollo Tyres Apollo Tyres is the market leader in truck and bus tyre segments with a 28% market share. The demand is
expected to remain subdued in the near term, given the sluggishness in the domestic OEM and the European
operations. The margins may improve due to softening of raw material prices. The company is planning to acquire
100% stake in US-based Cooper Tyres, which is 2.5x its size. Since the acquisition is debt funded it would put
substantial stress on the balance sheet. Further, any adverse movement in raw material prices and slowdown in
the global economy would exert pressure on the cash flows. Given the uncertainty, we have reduced our target
multiple to 5x (a discount of 25% to the long-term multiple of 6.5x) to arrive at a price target of Rs77. We
maintain Hold recommendation on the stock.
Ashok Leyland Ashok Leyland, the second largest commercial vehicle (CV) manufacturer in India, is a pure CV play. The new
greenfield facility in Pantnagar in Uttaranchal has provided strategic cost and diversification benefits. The company
has ventured into LCV space with the launch of Dost together with Nissan and is witnessing significant ramp-up
in volumes. It has also entered into construction equipment space in JV with John Deere. The MHCV volumes are
currently under pressure due to a subdued economic environment and increased diesel prices. The heavy discounting
in the MHCV space may lead to a loss in FY2014. We have a Hold recommendation on the stock with a price
target of Rs18.
Bajaj Auto Bajaj Auto is a leading two-wheeler maker. It is moving up the value chain by concentrating on the executive and
premium motorcycle segments. The launch of the new Pulsar and the KTM range would help it maintain its
leadership in the premium bike segment as well as its domestic volume growth. Further, the company plans to
launch six new Discover models which would help increase its market share in the commuter segment. Exports
remain the key for the company to drive its overall volumes.
M&M M&M is a leading maker of tractors and utility vehicles in India. Though the automotive demand may moderate
due to moderation in the UV demand and increasing competition, but the tractor demand would recover on the
back of a normal monsoon and better crop realisation. Associating with world majors in passenger cars and CVs
has helped it diversify into various automobile segments. The value of its subsidiaries adds to its sum-of-the-parts
valuation. Higher farm incomes, strong rural positioning, lower vulnerability to interest rates make M&M a
proxy play on food inflation.
Maruti Suzuki Maruti Suzuki is Indias largest small carmaker. Though the demand for diesel cars is witnessing pressure due to
a hike in diesel prices, but the petrol segment is witnessing recovery due to narrowing differential between petrol
and diesel prices. Recently the company successfully diversified into the MPV segment with the launch of Ertiga.
Suzuki of Japan has also identified India as a manufacturing hub for small cars for its worldwide markets. With
the merger of SPIL, the diesel engine manufacturing arm of the Suzuki group, we expect synergistic benefits for
Maruti.
Banks & Finance
Allahabad Bank With a wide network of over 2,200 branches spread across India, Allahabad Bank enjoys a strong hold in north
and east India. However, the bank has been recently plagued with severe asset quality issues and has the highest
amount of stressed loans among its public peers.
Andhra Bank Andhra Bank, with a wide network of over 1,800 branches across the country, has a strong presence in south
India especially in Andhra Pradesh. Though it is trading at an attractive valuation, but the concerns on asset
quality front and political situation within the state could affect its operations.
Axis Bank Axis bank continues to grow faster than the industry rate and is diversifying its book in favour of retail. Notably,
the bank has maintained a delicate balance between balance sheet growth and profitability. Besides the core
banking business, the bank has forayed into the asset management business and acquired the securities and
investment banking business of Enam Securities. We expect the earnings growth to remain strong driven by a
healthy operating performance while asset quality pressures will be manageable.
Bajaj Finserv Bajaj Finserv is actively present in businesses such as vehicle finance, consumer finance, distribution etc, with
insurance being the dominant contributor to its revenues. It is one of the top players in the life insurance segment
and also has a sizeable presence in the general insurance segment. Its consumer finance business (Bajaj Finance)
has shown a robust performance and is likely to boost the earnings of Bajaj Finserv. However, an industry-wide
slowdown in the insurance sector could affect its profitability.
Bank of Baroda Bank of Baroda is among the top public sector undertaking (PSU) banks having a sizeable overseas presence (100
offices in 24 countries) and a strong network of over 4,200 branches across the country. It has a stronghold in the
western and eastern parts of India. The banks performance metrics remain superior to that of the other PSU
banks though the recent deterioration in asset quality raises concern.
Bank of India Bank of India has a network of over 4,000 branches, spread across the country and abroad, along with a diversified
product and services portfolio, and steadily growing assets. The operating performance has weakened due to
margin deterioration. Further, the rising stress on the asset quality and pressure on the margin could affect the
earnings growth.
EQUITY FUNDAMENTALS
EARNINGS GUIDE
September 2013 50
Remarks
CanFin Homes CanFin Homes is a housing finance company sponsored by Canara Bank. It was set up in 1987. It offers a range
of products on housing, such as loans for home purchase, home construction, home improvement/extension and
site purchase as well as non-housing finance. The company has 69 branches of which 65% are based in south
India. It has a loan book of over Rs4,000 crore. Its renewed focus on growth and the recent aggressive expansion
of its branch network have put it on a high growth path for the next few years. We believe the operational
performance and return ratios are improving which should lower the valuation discount to its peers.
Capital First Capital First (the erstwhile Future Capital Holdings) has been acquired by the global private equity firm Warburg
Pincus (a 70.3% 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 capital adequacy ratio and
a sound asset quality. Its loan book is expected to more than double to over Rs10,000 crore in the next three
years. The change in the ownership, the capital infusion and the ability to aggressively grow its loan book in the
retail and SME segments will drive its growth going ahead.
Corp Bank Corporation Bank is a mid-sized PSU bank having a relatively higher presence in south India. The bank is
predominantly exposed to the corporate segment constituting about 50% of its book. Due to a higher dependence
on the wholesale business and a low current and savings account ratio, it lags its peers in terms of operational
performance.
Federal Bank Federal Bank is the fifth largest private sector bank in India in terms of asset size and has traditionally been a
strong player in south India, especially Kerala. Under the new management, the bank has taken several initiatives,
which would improve the quality of its earnings and asset book. The near-term asset quality issues are manageable
while the operating performance is steady.
HDFC HDFC is among the top mortgage lenders providing housing loans to individuals, corporates and developers. It
has interests in banking, asset management and insurance through its key subsidiaries. As these subsidiaries are
growing faster than HDFC, the value contributed by them would be significantly higher going forward.
HDFC Bank HDFC Bank was established in 1994 as part of the liberalisation of the Indian banking industry by the RBI. It was
one of the first banks to receive an in-principle approval from the RBI to set up a private sector bank. Its
relatively high margins (compared with its peers), strong branch network and better asset quality make HDFC
Bank a safe bet.
ICICI Bank ICICI Bank is Indias largest private sector bank with a network of over 3,000 branches in India and a presence in
around 18 countries. The bank has once again entered an expansionary mode after making a conscious effort to
contract its advances book due to asset quality concerns. The bank offers substantial value unlocking opportunities
from the insurance and securities businesses.
IDBI Bank IDBI Bank is one of leading PSU banks of India. The bank is gradually working towards improving its liability
base and expanding the retail book, which is likely to reflect in the form of better margins and return ratios. Due
to rising asset quality risks and slower business growth, the stock is likely to underperform in the near term.
PNB Punjab National Bank has one of the best deposit mixes in the banking space, with low-cost deposits constituting
around 38% of its total deposits. This helps it to maintain one of the highest margins in the sector. A strong
liability franchise and technology focus will help the bank to increase its core lending operations and fee income
related-businesses. In view of the weakness in the economy and relatively higher exposure to troubled sectors, the
asset quality has come under stress.
SBI State Bank of India is the largest bank of India with loan assets of over Rs10 lakh crore. The loan growth for
FY2013 was above industry average while the core operating performance was largely stable. The successful
merger of the associate banks and value unlocking from insurance business could provide further upside for the
parent bank. While the bank is favourably placed in terms of liability base, the asset quality would remain a key
monitorable in the near term.
UBI Union Bank of India has a strong branch network and an all-India presence. The bank aspires to become the
largest retail bank. Hence, it has ramped up its manpower and infrastructure. Though the earnings growth has
come under pressure but the asset quality has shown some improvement in the recent quarters which is positive
for the bank.
Yes Bank Yes Bank, a new generation private bank, started its operations in November 2004 and is the only greenfield bank
approved by the RBI in the last decade. The bank is promoted by Rana Kapoor and Ashok Kapur. It follows a
unique business model based on knowledge banking, which offers product depth and a sustainable competitive
edge over established banking players. Though the operating performance remains strong, but liquidity tightening
by the RBI could affect the margins in the near term.
September 2013
51
Remarks
EQUITY FUNDAMENTALS
EARNINGS GUIDE
Consumer goods
Bajaj Corp Bajaj Corp is the third largest player in the hair oil segment and has emerged as the dominant player in the
premium light hair oil category with its Almond Drops hair oil. With its strong brand positioning, distribution
strength and healthy balance sheet, it is well poised to ride the strong consumer demand emerging due to the rising
disposable income and growing aspirations of the Indians. Bajaj Corp, which was scouting for a strategic acquisition,
recently acquired the Nomarks brand. The acquisition will add value to its product portfolio and help it upgrade
from a single-brand company to a multi-brand company, thereby improving its growth prospects.
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 ahead
of the competition and maintain its pricing power over the years. In a bid to de-risk its business model, it has expanded
its product portfolio by entering into new categories such as biscuits, noodles, energy bars, sports drinks and oats in
the recent years. With cash balance of close to Rs1,500 crore the company can invest in growth initiatives as well as
reward its investors with a healthy dividend payment. The recently concluded open offer by the promoter acted as
an additional trigger for the stock, which remained firm on the bourses. We maintain a Hold recommendation on the
stock.
GCPL Godrej Consumer Products is a major player in personal wash, hair colour and household insecticide market
segments in India. The recent acquisitions of Darling Group, Tura, Megasari and Latin American companies have
helped the company to expand its geographic footprint. We believe the decent sales volume growth in the domestic
business coupled with a strong growth in the Indonesian, African and Argentine businesses would help it to
achieve an above 20% CAGR top line and bottom line growth over FY2013-15.
HUL Hindustan Unilever is Indias largest FMCG company. The subdued volume growth due to the uncertain and
inflationary environment is likely to sustain the pressure on its profitability in the near term. Overall, we expect its
bottom line to grow at a CAGR of 10% over FY2013-15. The stocks current premium valuation does not justify
the true business fundamentals of the company. Hence we recommend a Reduce rating on the stock. In the long
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, to
strengthen and enhance its other non-cigarette businesses. This would nurture the growth of these businesses some
of 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 of
Henkel 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 21%. A strong
improvement in the OPM would help the company to achieve an exponential growth in bottom line over FY2013-
16. We have a Buy rating on the stock with a price target of Rs 254.
Marico Marico is among Indias leading FMCG companies. Its core brands, Parachute and Saffola, have a strong footing
in the market. It follows a three-pronged strategy which hinges on expansion of its existing brands, launch of new
product categories (especially in the beauty and wellness space) and growth through acquisitions. While the domestic
product portfolio is likely to achieve a steady growth in volumes, the international business is now gaining
momentum on the back of an increase in distribution and strong performance by the core brands.
Mcleod Russel Mcleod Russel is the worlds largest tea producer with an annual tea production of close to 100mn kg. With tea
estates in India and Africa, it is well poised to take advantage of the current favourable global demand-supply
scenario. With the expectation of a substantial improvement in its sales realisation and a volume growth in mid to
high single digits (in the domestic market and the international subsidiaries), the companys consolidated top line
and earnings are expected to grow at CAGR of 14.0% and over 20.0% respectively over FY2013-15.
TGBL Over the past few years, Tata Global Beverages (formerly Tata Tea) has transformed itself from a mere tea and
coffee company into a complete beverage maker. The recent addition of Mount Everest mineral water to its
product portfolio and its tie-up with Pepsico Inc to make a mark in the non-carbonated beverage space are likely
to be the new growth drivers in the long run. Also, its JV with Starbucks would help it to explore opportunities in
the coffee retailing space. Its intention to acquire companies in the USA, Europe and Russia also augurs well and
will enhance its geographical footprint.
Zydus Wellness Zydus Wellness owns three high-growth brands, Nutralite, Sugar Free and EverYuth, in the niche health and
wellness segment. It focuses on rampant growth by increasing the distribution of the existing products, scaling up
the existing product portfolio through variants and new product launches leveraging the three brands. We expect
Zydus Wellness top line and bottom line to grow at a CAGR of 16% and 15% over FY2013-15 respectively.
September 2013 52
Remarks
IT/IT services
CMC Over the years, CMC has gradually transformed itself from a low-margin equipment provider into a well-diversified
IT services and solutions provider. Its joint-go-to-market strategy with TCS is also playing a big role in the business
transformation, with CMC gaining a strong traction in the international markets. We believe CMC has already set
the stage for the next level of growth and is likely to witness a much stronger growth in the coming years.
HCL Tech HCL Technologies is one of the leading Indian IT service vendors. It has reported consistent financial performance
in the past several quarters on the back of a ramp-up in business from the large deals bagged earlier and strong
momentum in the IMS space. It continues to demonstrate a strong growth visibility with a robust backlog of deals
and successful execution with market share gain strategy through vendor churns/consolidation. We remain positive
on the company in view of its order wins and superior earnings visibility. The company remains the least affected
by the impending US immigration bill as compared with its large-cap peers.
Infosys Infosys is India's premier IT and IT-enabled services company. The quality of its margins and earnings has deteriorated
significantly in the last couple of years. We remain sceptical of a secular revival in its growth in the near term, given the
discretionary services-heavy business model. Furthermore, its inconsistent quarterly performance and the absence of a
broad-based growth raise questions about the sustainability of the recent good performance in the quarters to come.
NIIT Tech With its strong domain expertise in a few niche verticals and competitive advantage in terms of significant
contribution from its non-linear initiatives, NIIT Technologies is well placed to benefit from the overall improvement
in the demand environment. The two significant pain points for the company, the GIS business and the insurance
business, have shown some signs of revival in the past two quarters. The company has a robust deal pipeline led by
its government vertical which comforts us on the revenue visibility front. Improvement in the margin trajectory
remains the key to re-rating of the stock.
Persistent Persistent Systems has proven expertise in the OPD space, a strong presence in the newer technologies, strength to
improve its IP base and the best-in-the-class margin profile which set it apart from the other mid-cap IT companies.
We maintain our confidence due to an optimistic management outlook driven by acceleration in the product
engineering services business, new technologies and increased momentum in the IP space after consolidating the
HP client Automation revenues.
TCS Tata Consultancy Services pioneered the IT services outsourcing business in India and is the largest IT service firm
in the country. It is a leader in most service offerings and has further consolidated its leadership through the
inorganic route. With a strong base it is well placed to garner incremental deals across sectors. Its consistent
quarterly performance (better than peers) coupled with the higher predictability of its earnings would keep it the
Streets 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 performance.
In the June 2013 quarter, the management commentary on deal closures and discretionary spending indicated a
much better outlook which was reflected in its decent guidance for the September 2013 quarter. However, execution
now remains the key as the company has been unable to implement its plans in the past two years.
Capital goods/Power
BHEL Bharat Heavy Electricals, Indias 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 inflow
has been showing signs of slowing down which would remain a major concern for the company. The key challenge
before the company now would be to maintain a robust order inflow and maintain margin amid rising competition and
lower order inflow. The current order book of Rs108,600 crore stands at around 2.3x FY2013 sales.
CESC CESC is the power distributor in Kolkata and Howrah (backed by 1,225MW of power generation capacity) which
is a strong cash generating business. Further, it is adding 1,200MW of generation capacity which would be on
stream by FY2015. Moreover, CESC has a high degree of integrated status among peers. Despite that, the stock is
currently one of the cheapest in the Indian utility space, trading at a significant discount to its book value primarily
on account of the concerns related to the losses from its retail business, Spencers. However, the retail business has
started exhibiting a store-level profit since FY2011, which is a sign of revival as per the management. Again, the
acquisition of a majority stake in First Source by CESC is an unrelated diversification (also BPO is not a high-
growth area in our view) in a time when the company itself needs huge cash to fund projects in the core area
(power). Therefore, we recommend a Hold on it with a price target of Rs385.
Crompton Greaves Crompton Greaves key businessesindustrial and power systemshold a high potential in view of the investment
opportunities in the power transmission and distribution sector. Its consumer products segment is expected to
witness a high growth. Though the domestic operations remain relatively stable, but the international operations
went through a restructuring. This has been the major disappointment in the last few quarters adding to the woes
of investors. On a positive note, the restructuring in Belgium is over and no more cost is likely to be charged for
the same. Now, the key thing to watch out for is the stabilisation of its Hungarian operations. Nevertheless, the
stock should remain under pressure for some time.
September 2013
53
Remarks Remarks
EQUITY FUNDAMENTALS
EARNINGS GUIDE
Greaves Cotton Greaves Cotton is a mid-sized and well-diversified engineering company. Its core competencies are in diesel/petrol
engines, power gensets, agro engines and pumpsets (engine segment) and construction equipment (infrastructure
equipment segment). The engine business accounts for 85% of its revenues while the rest comes from infrastructure
equipment. The foray in the mini tractor segment and international markets would open new growth avenues.
While the subdued economic environment would put pressure on the revenues, the company is likely to outperform
the industry on the back of new product launches. We maintain our Buy recommendation on the stock with a
revised price target of Rs85.
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 current
order book is 2x its FY2013 sales). The OPM of the stand-alone business is likely to remain around 10%. JMC
Projects (a subsidiary) is experiencing margin pressure which would affect the overall margin and return ratios of
the company. However, on low valuation, we retain our Buy rating with a price target of Rs115.
PTC India PTC India is a leading power trading company in India with a market share of 39% in FY2013 in the short-term
trading market. In the last few years, the company has made substantial investments in areas like power generation
projects, power project financing, which will start contributing to its earnings. While the poor financial health of
the SEBs has elongated its working capital cycle, the recent policy push for the SEB debt restructuring programme
has eased the payment delay concerns to some extent. The company converted its high-risk high-margin tolling
business into a moderate-margin long-term arrangement. Nevertheless, its valuation continues to look attractive
on an SOTP basis.
Thermax The energy and environment businesses of Thermax are direct beneficiaries of the continuous rise in India Incs
capex. Thermax group book stands at Rs6,322 crore, which is 1.4x its FY2013 consolidated revenues. However,
the company has shown its ability to maintain a double-digit margin in a tough environment. The management
sounded cautious on the growth prospect and the companys ability to sustain margins in double digits, given the
current environment. Hence, we have revised our rating to Reduce.
V Guard Ind V-Guard Industries is an established brand in the electrical and household goods space, particularly in south
India. Over the years, it has successfully ramped up its operation and network to become a multi-product company.
It has recently also forayed into non-south India and is particularly focusing on the tier-II and III cities where there
is a lot of pent-up demand for its products. We expect a CAGR of 29% in its earnings over FY2013-15.
Infrastructure/Real estate
Gayatri Proj Gayatri Projects is a Hyderabad-based infrastructure company with a very strong presence in irrigation, road and
industrial construction businesses. The order book stands at Rs7,550 crore, which is 3.7x its FY2013 revenues. It
is also 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 player though we expect its net profit to remain
flat over FY2013-15.
IL&FS Trans IL&FS Transportation Networks is Indias largest player in the BOT road segment with a pan-India presence and
a diverse project portfolio. The fair mix of annuity and toll projects, and state and NHAI projects along with the
geographical diversification across 12 states reduce the risk to a large extent and provide comfort. Further, a
strong 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 in
the country with all its projects being toll based. It has an integrated business model with an in-house construction
arm which provides a competitive advantage in bidding for the larger projects and captures the entire value from
the BOT asset. Further, it has a profitable portfolio as majority of its operational projects have become debt-free
and it has presence in high-growth corridors which provides healthy cash flow. Thus, it is well poised to benefit
from the huge opportunity in the road development projects on the back of its proven execution capability and the
scale of its operations.
Jaiprakash Asso Jaiprakash Associates, Indias leading cement and construction company, is all set to reap the benefits of Indias
infrastructure 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 the
concerns 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 the
domestic infrastructure capex cycle. The strong potential of its international business, its sound execution track record
and bulging order book, and the strong performance of subsidiaries further reinforce our faith in it. There also lies
a great growth potential in some of its new initiatives.
September 2013 54
Remarks Remarks
Pratibha Ind Pratibha Industries is a dominant player in water & irrigation and urban infrastructure segments. It has also diversified
into other high-margin areas like road BOT, power and oil & gas. The current order book stands at Rs6,899 crore,
which is 3.2x its FY2013 revenues. We expect the net profit to grow at a CAGR of 3.2% over FY2013-15. The
company is looking at expanding into the structural manufacturing business instead of the HSAW pipe manufacturing
business (which has been an overhang for the past one year). This will improve the balance sheet and profitability.
Punj Lloyd Punj Lloyd is the second largest EPC player in the country (first being Larsen & Toubro) with a global presence.
However, since FY2009, the profitability has come under severe pressure due to cost overruns/ liquidated damages
in some of Simon Carves (a subsidiary) projects. Thus it has put Simon Carves under administration. Further
Libyan projects will take another few quarters to begin execution. Therefore, the successful execution of its
projects along with debt reduction and working capital management will drive its growth as it enjoys a robust
order book.
Unity Infra With a well-diversified order book, Unity Infrastructure is expected to be the key beneficiary of the governments
thrust on infrastructure spending. The order book remains strong at Rs3,910 crore, which is 1.9x its FY2013
revenues. We expect its net profit to post a CAGR of -5.2% due to higher interest expenses during FY2013-15.
Further, it has recently forayed into the road BOT segment and has three BOT projects under its kitty.
Oil & gas
Oil India Oil India has several hydrocarbon discoveries across reserves in Rajasthan and the north-eastern region of India.
The total 1P (proven) and 2P (proven and probable) reserves of the company stood at 442 million barrels (mmbbls)
and 941mmbbls respectively as on March 2013. In addition to the huge oil reserves, the companys reserve-
replacement ratio is quite healthy at 1.23x, which implies a comfortable level of accretion of oil reserves through
new discoveries. Further, it has net cash of around Rs184 per share as on March 2013 and offers healthy dividend
yield of around 7%, which provides comfort to investors. The recent policy reforms in terms of partial deregulation
of diesel prices and a likely revision in gas prices augurs well for the company.
Reliance Ind Reliance Industries holds a great promise in E&P business with gas production from the KG basin. Further, a likely
revision in the natural gas prices will be a positive trigger. In the refining space, we expect its GRM to pick up with
a likely improvement in the light-heavy crude oil price differential. The company is likely to fetch a premium over
Singapore Complex GRM due to its superior refinery complexity and captive use of KG-D6 gas. We expect the
petrochem margins to be maintained in the medium term on an uptick in the domestic demand. Currently, the decline
in gas output from the KG-D6 basin is weighing on the stock price.
Selan Exploration Selan Exploration Technology is an oil exploration & production 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. Based on this, we expect it to ramp up production significantly, subject to approval for
the new wells. We expect production ramp-up in FY2014 and hence we expect the earnings to grow by 23%
(CAGR over FY2013-15). Therefore, we retain our Buy rating on the stock with price target of Rs365.
Pharmaceuticals
Aurobindo Pharma Aurobindo Pharma is set to rebound with the USFDA clearing two of its manufacturing facilities (including one
greenfield facility) and removing import-alert on Unit-VI facility, which will help the company to ramp up its
product list in the USA, thanks to a strong product pipeline built over a period. With the expected increase in the
export-led business after resolution of the USFDA issues, the favourable tilt in the revenue mix is likely to boost
the margin, resulting in a relatively much better growth in earnings as compared with revenues. We expect the
revenues and net profit to grow at a CAGR of 17% and 26% over FY2013-15 respectively.
Cadila Cadila Healthcares performance in the US generic vertical is likely to improve on the back of new approvals
which was stagnant during FY2013. Besides, its consumer business and exports to the emerging markets will help
it to achieve its target of generating revenues of $3 billion by FY2016. It got USFDAs clearance for its Moraiya
plant in FY2013, which removes one of the vital concerns for the company. Recently, it got DCGI approval for its
first NCE called Lipaglyn to treat type-II diabetes; this will add value to its R&D pipeline.
Cipla Cipla has brought about a paradigm shift in its business strategy. To revive growth, it has (1) enhanced focus on
technology intensive products in the inhalation and nasal spray segments; (2) established front-end presence in the
key markets like South Africa and Europe; (3) developed an appetite for inorganic expansions; (4) decided to tap
the FTF opportunities through collaboration with major generic players in the regulated markets and (5) invested
in future growth areas like biosimilars. Besides, Ciplas base business growth would be fast-tracked in the quarters
ahead because of the optimisation of the Indore formulation plants and consolidation of Cipla Medpro in
Q2FY2014. We expect 13% and 12% revenue and profit CAGR respectively over FY2013-15. We have a Buy
rating on Cipla with a price target of Rs490.
September 2013
55
Remarks Remarks
EQUITY FUNDAMENTALS
EARNINGS GUIDE
Dishman Pharma Dishman Pharmaceuticals and Chemicals is a key player engaged in CRAMS and specialty chemical businesses. It
has invested heavily over the past four years (over Rs1,000 crore capex during FY2008-11) to establish a strong
foothold in the CRAMS, API and vitamin-D businesses. After witnessing four years of sluggish performance due
to a global slowdown (that affected the CRAMS business) and heavy capex (that resulted in a sharp rise in the
fixed costs), it is all set to record a strong operating performance on the back of enhanced capacities, the up cycle
in the CRAMS business and a substantial reduction in the debt/equity ratio due to stronger free cash flow.
Divis Labs Despite a weaker performance in Q1FY2014, we are confident of Divis Laboratories growth potential. The new
DSN SEZ facility at Vishakhapatnam that started in June 2011 augurs well for the company as it would improve
economies of scale and lead to tax benefits after USFDA approvals come in for thee additional production blocks
in H2FY2014. A near debt-free balance sheet and strong cash flow are likely to help build a war chest for pursuing
strategic investments (biosimilars) and exploit the growth opportunities in niche segments, like oncology and
steroids for contraceptives.
Glenmark Pharma Glenmark Pharmaceuticals exhibited an impressive operating performance during FY2013 in the core business on
key generic launches, but for higher R&D expenses and tax payments, which restricted the profit growth. Through
the successful development and out-licencing of six molecules in a short span of eight years, it has become Indias
best play 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 $200 million as initial milestone payment. Its core
business has seen stupendous success due to its focus on niche specialties. Q1FY2014 has been relatively a weaker
quarter and 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 the
export markets. Its ongoing efforts in the branded formulations business in the emerging economies, the revival in
the UK operations, the pan-European initiatives, the likely approval of one additional product under institutional
business and a significant scale-up in the US business will drive its formulation exports. It has received USFDAs
approval for the Indore SEZ (US supplies expected in H2FY2014) which would help ramp up the sales in the USA.
Lupin The expected ramp-up in the launch of oral contraceptives, ophthalmic products and a robust pipeline of new
launches in the domestic and overseas markets provide strong growth visibility for Lupin. Further, with an expanded
field force and therapy focused marketing division, its formulation business in the domestic market has been
performing better than the industry. The deal with Eli-Lilly to distribute human insulin would open an incremental
revenue stream for Lupin in the Indian market.
Sun Pharma The combination of Sun Pharmaceuticals, Taro, Dusa Pharma and the generic business of URL Pharma offers an
excellent business model, as has been reflected in the 40% Y-o-Y revenue growth and 39% profit growth in
FY2013. Though Taro may not show a similar performance in the next quarter, but we expect a better performance
from Sun Pharmaceuticals going forward mainly driven by (1) contribution from the newly acquired Dusa Pharma
and URL Pharma in the USA and (2) launch of key products in the USA and emerging markets including India. We
expect 18% and 22% revenue and PAT CAGR respectively over FY2012-15 on an organic basis. With a strong
cash balance, it is well positioned to capitalise on the growth opportunities and inorganic initiatives. Its debt-free
balance sheet insulates it from the negative impact of volatile currency.
Torrent Pharma A well-known name in the domestic formulation market, Torrent Pharmaceuticals has been investing in expanding
its international presence. With the investment phase now over, it should start gaining from its international
operations in the USA, Russia and Brazil. The impending turnaround of its German acquisition, Heumann, will
also drive its profitability. Better field force productivity, focus on developed market and stronger balance sheet
would result in a sustainable earnings growth.
Agri-Inputs
Tata Chemicals With a total capacity of 5.5mmtpa Tata Chemicals is the second largest soda ash producer in the world. It has
purchased 25% stake in a urea-ammonia greenfield project at Goban with investment of $290 million. Further
changes in urea policy are likely to benefit it further. Soda prices are likely to improve from the current levels
because lower cost Chinese players are also finding it tough to break even at current price. So it believes that the
price of soda may improve from here. Demand for soda ash in India and North America remains strong.
United Phos A leading global producer of crop protection products, intermediates, specialty chemicals and other industrial
chemicals, United Phosphorus has presence across value-added agricultural inputs ranging from seeds to crop
protection products and post-harvest activities. A diversified geography and the recent acquisition of DVA Agro
Brazil will help the company to have a strong presence in the Brazilian market and aid in inorganic growth. Its
revenues are likely to grow at 12-15% and EBIDTA margin is expected to remain at 18-20% in FY2014. It has
also started to focus on premium products in agro-chemicals and will slowly stop selling commodities and low-
margin products.
September 2013 56
Remarks Remarks
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 (0.33x FY2012), attractive valuation and diversified business. The demand for VSF
products remains strong in the global market and Grasim being a leading domestic player is well placed to capture
the incremental demand. It is in the process of adding another 120,000 tonne capacity in VSF by H2FY2014 at an
investment of Rs1,690 crore.
India Cements India Cements installed capacity has got enhanced to 16mtpa which will result in volume growth and drive its
earnings. It is also setting up a 100MW captive power plant, which is expected to come on stream by FY2013 and
benefit the company in terms of cost savings. We believe its average cement realisation in FY2014 will remain
higher as compared with FY2013.
Madras Cement Madras Cements, one of the most cost-efficient cement producers in India, will benefit from the capacity addition
carried out ahead of its peers in the southern region. The 3mtpa expansion will provide the much-needed volume
growth in the future. The regional demand remains lacklustre but on account of the improvement in the realisation
due to supply discipline and a likely change in the market mix its profitability will improve (marginally) in FY2014.
Shree Cement Shree Cements cement grinding capacity has grown to 13.5mtpa which will support its volume growth in the
coming years. It has set up 300MW power plant entirely for merchant sale which is expected to support its
revenue growth going ahead. Thus, a volume growth of the cement division and the additional revenue accruing
from the sale of surplus power will drive the earnings of the company.
UltraTech Cement UltraTech Cement is Indias largest cement company with approximately 52mtpa cement capacity. It has benefited
from an improvement in its market mix. Further, the ramping-up of the new capacity and savings accruing from
the new captive power plants will improve its cost efficiency.
Discretionary consumption
Eros Intl Media Eros International Media is one of the largest integrated film studios in India with multi-platform revenue streams
and a well-established distribution network across the globe. With its proven track record, an impressive movie
slate and alliance with HBO coming into foray, it is well poised to gain from the rising discretionary spending on
film entertainment driven by the countrys favourable demographics. Thus, it is a compelling value play on the
Indian media and entertainment industry.
Indian Hotels Co Indian Hotels is the largest hotelier in India with a vast portfolio of hotel properties around the globe. Over the long
term it would benefit from the increase in tourism and corporate travel in India. Also, a turnaround in profitability
of its overseas properties would boost its earnings.
KKCL Kewal Kiran Clothing is a branded apparel play with four brands in its kitty. Killer, its flagship denim brand, has
created a niche space in the minds of consumers. With a gross market turnover of over Rs300 crore, Killer is ahead
of its rival, Spykar. A strong brand profile, a disciplined management and a consistent track record coupled with
a robust balance sheet position put it in a sweet spot.
Raymond Raymond is present in the fast-growing discretionary & lifestyle category of branded textiles and apparels. With
growing incomes, rise in aspirations to lead a luxurious life, greater discretionary spending and favourable
demographics, the segment of branded apparels & fabrics presents a good growth opportunity and Raymond with
its brands and superior distribution set-up is very well geared to encash the same. Any development with regard to
the Thane land in the form of either joint development or disposal would lead to value unlocking and provide
significant 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 investment
opportunity due to its growing scale, strong brand positioning and healthy financial performance. Currently we
have a Hold with a price target of Rs800.
Speciality Rest. Speciality Restaurants is a leading player in the fine-dining space with a portfolio of well-established brands such
as Mainland China and Oh! Calcutta. It is a good proxy on the Indian consumption story as several factors such
as demographics, increasing disposable income and the trend of nuclear families are playing in its favour.
Zee Entertainment Zee Entertainment Enterprises, part of the Essel group, is one of India's leading TV media and entertainment
companies. It has a bouquet of 32 channels across Hindi, regional, sports and lifestyle genres. It is best placed to benefit
from the digital addressable system regime rolled out by the government. The recent regulatory change of capping the
advertising time on TV to 12 minutes per hour remains a neutral development for the company as it will be able to
increase its advertisement rates to negate the fall in advertisement volumes.
September 2013
57
Remarks Remarks
EQUITY FUNDAMENTALS
EARNINGS GUIDE
Remarks Remarks
Diversified/Miscellaneous
Aditya Birla Nuvo We like the strong positioning that Aditya Birla Nuvos businesses enjoy in their respective fields. It is amongst the
top five players in the insurance, asset management and telecom (Idea Cellular is the fastest growing telecom company,
third in ranking) segments. Madura Garments, with its marquee brands, and consistent and resilient growth, is a
profitable set-up. In an improving macro-economic environment the company would be well placed to grow.
Bajaj Holdings Bajaj Holdings & Investment Limited (BHIL, erstwhile Bajaj Auto) was demerged in December 2007, whereby its
manufacturing undertaking was transferred to the new Bajaj Auto Ltd (BAL) and its strategic business undertaking
consisting of the wind 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 undertaking
and the strategic business undertaking, now remain with 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 Rs1,396.
Bharti Airtel Bharti Airtel is the leader in the Indian mobile telephony space. With the regulatory overhang receding and the industry
as well as the company focusing on the quality of revenues rather than volume, better times can be expected ahead
for the sector and hence the company. The African business is facing head winds and thus its performance remains
a key monitorable. Overall, we remain optimistic on the company.
BEL Bharat Electronics, a PSU manufacturing electronic, communication and defence equipment, is benefiting from the
enhanced budgetary outlay for strengthening and modernising the countrys security. The growth in revenues is also
expected to be aided by the civilian and export orders. The companys current order book of around Rs25,000 crore
provides revenue visibility for the next three to four years. The huge cash reserve would also support the stock.
GDL With its dominant presence in the container freight station segment and recent forays into the rail freight and cold
chain businesses, Gateway Distriparks has evolved as an integrated logistic player. Its CFS business is a cash cow
while its investments in the rail and cold storage businesses have started bearing fruits. It is one of the largest
players in the CFS business and has also evolved as the largest player in the rail freight business as well as the cold
storage business. The proposed capex for all the three segments will strengthen its presence in each of the segments
and increase its pan-India presence. We expect its revenue and net profit to grow at 20% and 16% CAGR respectively
over FY2013-15.
Max India Max India is a unique investment opportunity providing direct exposure to two sunrise industries of insurance
and healthcare services. Max New York Life, its life insurance subsidiary, is among the leading private sector
players, has gained the critical mass and enjoys some of the best operating parameters in the industry. With
insurance penetration picking up in India and with the company entering into a tie-up with Axis Bank, we expect
to see a healthy growth in the companys annual premium equivalent going ahead. As the company has turned
profitable on a consolidated basis and has a treasury corpus of Rs409 crore, it has announced a dividend of 610%
in FY2013 and will continue to pay dividends in the future.
Ratnamani Metals Ratnamani Metals & Tubes is the largest stainless steel tube and pipe maker in India. In spite of the challenging
business environment due to increasing competition, the stock is attractively valued. The management has maintained
a strong outlook on the potential opportunities in the oil & gas sector. We expect a subdued revenue performance
in FY2013. However, we expect the EBITDA margin to inch up by close to 400 basis points which should result
in a healthy growth in profits in FY2013.

ValueGuide Sep13 PDF

Diunggah oleh

Informasi Dokumen

Judul Asli

Hak Cipta

Format Tersedia

Bagikan dokumen Ini

Bagikan atau Tanam Dokumen

Opsi Berbagi

Apakah menurut Anda dokumen ini bermanfaat?

Apakah konten ini tidak pantas?

Hak Cipta:

Format Tersedia

ValueGuide Sep13 PDF

Diunggah oleh

Hak Cipta:

Format Tersedia

aIue

Anda mungkin juga menyukai