ValueGuide Nov13

aIue
6uIde
November 2013
For Private CircuIation onIy
www.sharekhan.com
InteIIigent Investing
Market OutIook
Stock Updates
Sharekhan SpeciaI
Viewpoints
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
s it different
this time?
November 2013 Sharekhan ValueGuide 2
Sharekhan ValueGuide November 2013 3
Fireworks are on at Dalal
Street in Diwali this year.
The Sensex has hit the
all-time-high level after a
gap of five years and ten
months. Though many
other equity markets
globally achieved the feat
quite some time back, but the Indian market was lagging and has finally
pierced the glass ceiling.
REGULAR FEATURES
Report Card 4
Earnings Guide I
TECHNICALS
Sensex 30
Stock Updates 14
Sharekhan Special 28
Viewpoint 29
From Sharekhans Desk
EQUITY
06
Is it different this time?
FUNDAMENTALS
DERIVATIVES
View 31
TECHNICALS
Crude Oil 32
Gold 33
Silver 33
FUNDAMENTALS
Copper 33
Lead 33
Zinc 34
Gold 35
Silver 35
Crude Oil 35
Copper 36
Natural gas 36
Chana 36
TECHNICALS
FUNDAMENTALS
USD-INR 38
EUR-INR 38
GBP-INR 38
JPY-INR 38
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CONTENTS
REPORT CARD EQUITY FUNDAMENTALS
STOCK IDEAS STANDING (AS ON NOVEMBER 07, 2013)
COMPANY CURRENT PRICE AS ON PRICE 52 WEEK ABSOLUTE PERFORMANCE RELATIVE TO SENSEX
RECO 07-NOV-13 TARGET HIGH LOW 1M 3M 6M 12M 1M 3M 6M 12M
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AUTOMOBILES
Apollo Tyres Hold 73.1 77.0 101.6 54.6 4.8 21.2 -26.7 -12.6 0.0 8.3 -30.9 -21.9
Ashok Leyland Hold 16.8 18.0 29.0 11.8 6.3 34.9 -25.4 -30.1 1.5 20.6 -29.7 -37.5
Bajaj Auto Hold 2101.2 2342.0 2229.0 1656.0 -1.3 18.6 16.4 15.6 -5.8 6.0 9.7 3.2
M&M Buy 898.0 1010.0 1025.9 740.2 3.8 6.6 -5.0 -0.9 -0.9 -4.8 -10.5 -11.5
Maruti Suzuki Hold 1610.8 1618.0 1777.0 1215.0 14.2 21.7 -4.3 10.4 9.0 8.8 -9.8 -1.3
BSE Auto Index 12084.0 12384.8 9656.4 5.6 20.4 10.4 15.1 0.8 7.6 4.0 2.9
BANKS & FINANCE
Allahabad Bank Hold 90.7 109.0 191.1 64.8 11.2 29.0 -24.7 -33.4 6.1 15.3 -29.0 -40.5
Andhra Bank Reduce 63.8 55.0 130.0 47.2 17.1 8.9 -25.6 -36.3 11.7 -2.7 -29.9 -43.1
Axis (UTI) Bank Buy 1171.3 1450.0 1549.9 763.4 9.3 9.6 -21.0 -3.6 4.3 -2.1 -25.6 -13.9
Bajaj Finserv Hold 668.4 728.0 968.0 561.0 6.5 17.5 -10.9 -20.8 1.7 5.0 -16.0 -29.3
Bank of Baroda Buy 605.1 735.0 899.7 429.3 16.9 20.5 -11.2 -19.6 11.6 7.7 -16.3 -28.1
Bank of India Hold 220.8 230.0 393.0 126.5 25.2 28.2 -31.0 -20.5 19.5 14.5 -35.0 -29.0
CanFin Homes Buy 149.3 220.0 187.9 102.0 14.2 23.6 -2.0 18.7 9.0 10.4 -7.6 6.0
Capital First Hold 164.6 170.0 235.0 109.5 -0.3 38.3 -0.5 -2.4 -4.8 23.5 -6.2 -12.8
Corp Bank Hold 302.7 380.0 495.3 239.6 21.0 11.8 -15.7 -21.4 15.5 -0.1 -20.6 -29.7
Federal Bank Buy 78.9 87.0 110.2 44.3 35.4 18.3 -10.7 -16.2 29.2 5.7 -15.9 -25.1
HDFC Hold 841.8 865.0 931.4 632.2 5.5 15.4 0.1 6.8 0.7 3.1 -5.7 -4.5
HDFC Bank Hold 665.4 712.0 727.3 528.0 4.9 10.7 -2.5 4.8 0.1 -1.1 -8.1 -6.3
ICICI Bank Buy 1051.5 1195.0 1238.4 756.9 14.8 21.1 -8.1 -2.2 9.5 8.2 -13.4 -12.6
IDBI Bank Reduce 67.2 62.0 118.4 52.3 9.9 22.3 -18.9 -31.0 4.9 9.3 -23.6 -38.4
Punjab National Bank Buy 545.6 750.0 922.1 400.2 16.7 2.4 -24.3 -27.0 11.4 -8.5 -28.7 -34.8
SBI Hold 1752.6 1950.0 2551.7 1452.7 7.3 2.1 -20.8 -19.4 2.4 -8.8 -25.4 -28.0
Union Bank of India Hold 126.9 150.0 288.0 97.0 11.1 7.9 -45.5 -43.1 6.0 -3.6 -48.7 -49.2
Yes Bank Buy 360.8 422.0 547.7 216.1 14.3 22.9 -28.2 -13.1 9.1 9.8 -32.3 -22.4
BSE Bank Index 12619.3 15335.9 9535.8 10.0 13.3 -11.3 -4.4 5.0 1.2 -16.4 -14.6
CONSUMER GOODS
Bajaj Corp Hold 237.8 270.0 287.2 188.6 -11.4 -3.4 -9.8 28.4 -15.4 -13.6 -15.0 14.7
GSK Consumers Hold 4682.1 4886.0 6347.8 2976.3 9.4 17.1 16.5 55.2 4.4 4.6 9.8 38.7
Godrej Consumer Products Hold 825.7 875.0 978.0 660.5 -5.6 -3.6 -1.3 18.7 -9.9 -13.9 -7.0 6.0
Hindustan Unilever Reduce 590.0 540.0 725.0 432.2 -2.6 -1.3 3.8 12.5 -7.0 -11.8 -2.2 0.5
ITC Buy 320.5 369.0 380.0 272.1 -5.8 -0.5 -3.0 12.2 -10.1 -11.1 -8.6 0.3
Jyothy Laboratories Buy 187.2 260.0 211.3 138.8 4.8 16.9 5.2 6.6 0.1 4.5 -0.8 -4.8
Marico Buy 208.3 236.0 251.7 190.0 -1.9 3.7 -4.8 1.9 -6.3 -7.4 -10.3 -9.0
Mcleod Russel India Buy 266.9 330.0 387.0 237.7 5.8 0.2 -13.1 -12.5 1.0 -10.4 -18.1 -21.8
TGBL (Tata Tea) Buy 160.4 175.0 181.7 121.6 2.7 13.0 9.4 2.2 -2.0 1.0 3.1 -8.7
Zydus Wellness Hold 565.3 626.0 755.0 415.2 6.9 -7.1 26.1 22.7 2.1 -17.0 18.8 9.6
BSE FMCG Index 6561.5 7600.1 5570.0 -3.3 1.2 -0.2 15.0 -7.7 -9.6 -5.9 2.7
IT / IT SERVICES
CMC Hold 1370.0 1500.0 1523.0 1070.0 3.9 13.7 4.2 23.6 -0.9 1.6 -1.8 10.4
HCL Technologies Buy 1103.1 1350.0 1178.5 602.0 -1.3 21.9 46.7 80.4 -5.8 8.9 38.2 61.1
Infosys Buy 3357.6 3770.0 3400.0 2186.0 11.8 14.0 45.5 42.1 6.7 1.9 37.1 27.0
NIIT Technologies Hold 294.4 305.0 309.9 234.3 3.2 14.4 15.8 5.4 -1.5 2.2 9.2 -5.9
Persistent Systems Hold 804.4 ** 865.0 461.5 16.8 54.7 56.7 69.3 11.4 38.2 47.7 51.2
Tata Consultancy Services Buy 2122.0 2600.0 2258.9 1197.0 1.7 16.6 46.1 61.8 -2.9 4.2 37.6 44.6
Wipro Buy 482.0 580.0 519.8 263.1 0.0 6.9 39.4 49.8 -4.6 -4.5 31.3 33.8
BSE IT Index 8567.6 8812.1 5496.0 5.9 15.8 44.5 49.6 1.1 3.4 36.2 33.6
CAPITAL GOODS / POWER
Bharat Heavy Electricals Hold 134.6 150.0 247.8 100.2 -7.9 19.0 -30.0 -41.3 -12.1 6.4 -34.0 -47.6
CESC Hold 396.8 ** 404.5 252.5 15.9 24.5 34.3 46.9 10.6 11.2 26.5 31.3
Crompton Greaves Hold 107.1 ** 126.0 71.7 14.1 21.9 9.7 -5.3 8.9 8.9 3.4 -15.3
Greaves Cotton Buy 64.4 85.0 87.0 53.0 10.4 18.1 -11.9 -10.3 5.4 5.5 -17.0 -19.9
Kalpataru Power Transmission Buy 79.7 115.0 106.9 56.0 33.8 30.8 0.1 -2.3 27.7 16.9 -5.7 -12.8
PTC India Buy 57.6 65.0 81.3 33.2 13.3 44.0 -1.1 -13.9 8.1 28.7 -6.9 -23.0
Thermax Reduce 620.5 527.0 691.0 526.0 5.9 11.7 7.0 6.3 1.1 -0.2 0.8 -5.0
V-Guard Industries Hold 477.0 520.0 590.5 405.0 -6.8 -14.8 -8.5 8.0 -11.0 -23.9 -13.7 -3.5
BSE Power Index 1603.9 2046.1 1315.6 4.4 16.0 -8.7 -17.7 -0.4 3.6 -14.0 -26.5
BSE Capital Goods Index 9025.0 11385.1 6718.8 13.2 22.0 -8.9 -17.5 8.0 9.0 -14.2 -26.3
REPORT CARD EQUITY FUNDAMENTALS
STOCK IDEAS STANDING (AS ON NOVEMBER 07, 2013)
COMPANY CURRENT PRICE AS ON PRICE 52 WEEK ABSOLUTE PERFORMANCE RELATIVE TO SENSEX
RECO 07-NOV-13 TARGET HIGH LOW 1M 3M 6M 12M 1M 3M 6M 12M
In Top Picks basket ** Price target under review
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INFRASTRUCTURE / REAL ESTATE
Gayatri Projects Buy 54.3 202.0 130.6 46.0 -3.4 14.8 -25.6 -47.6 -7.8 2.5 -29.9 -53.1
ITNL Buy 125.4 242.0 228.9 97.1 17.4 15.2 -27.9 -31.7 12.1 2.9 -32.0 -39.0
IRB Infra Buy 86.8 160.0 147.0 51.9 11.9 28.0 -25.6 -28.1 6.8 14.4 -29.9 -35.7
Jaiprakash Associates Buy 46.7 63.0 106.8 28.4 23.2 50.5 -38.2 -49.6 17.6 34.5 -41.7 -55.0
Larsen & Toubro Buy 957.5 1030.0 1132.7 677.2 18.3 24.8 -7.6 -12.7 12.9 11.5 -12.9 -22.0
Pratibha Industries Buy 24.5 44.0 58.7 16.8 20.1 12.7 -39.4 -49.8 14.7 0.7 -42.9 -55.2
Punj Lloyd Hold 27.5 ** 64.1 20.1 10.0 14.6 -50.6 -48.8 5.0 2.4 -53.4 -54.2
Unity Infraprojects Buy 25.1 40.0 53.4 16.1 13.6 26.0 -19.2 -44.3 8.4 12.6 -23.9 -50.2
CNX Infra Index 2348.5 2684.7 1829.8 7.8 16.6 -5.2 -6.4 2.9 4.2 -10.6 -16.4
BSE Real Estate Index 1326.9 2326.8 1126.8 6.9 8.9 -30.6 -29.2 2.1 -2.7 -34.6 -36.8
OIL & GAS
Oil India Buy 465.2 650.0 629.9 415.0 0.2 4.9 -14.1 5.5 -4.4 -6.3 -19.0 -5.7
Reliance Ind Buy 885.9 1010.0 955.0 761.0 5.0 1.5 8.2 11.8 0.2 -9.3 1.9 -0.1
Selan Exploration Technology Buy 304.3 365.0 339.9 197.4 8.4 24.1 20.5 -4.1 3.5 10.9 13.6 -14.3
BSE Oil and Gas Index 8715.9 9890.9 7552.2 4.1 4.8 -0.1 6.8 -0.6 -6.4 -5.9 -4.6
PHARMACEUTICALS
Aurobindo Pharma Buy 238.5 267.0 264.7 127.2 14.1 50.9 23.0 36.9 8.9 34.8 15.9 22.3
Cipla Buy 421.6 490.0 450.4 354.0 -4.1 8.0 3.8 6.9 -8.5 -3.5 -2.1 -4.5
Cadila Healthcare Buy 719.7 886.0 975.0 629.0 5.9 -3.7 -6.3 -15.5 1.0 -14.0 -11.7 -24.5
Dishman Pharma Buy 83.0 130.0 124.5 37.1 29.5 87.6 13.2 -15.4 23.6 67.6 6.7 -24.4
Divi's Labs Buy 1000.2 1231.0 1234.4 905.0 -4.7 5.8 -7.8 -12.4 -9.0 -5.5 -13.1 -21.8
Glenmark Pharmaceuticals Hold 523.6 600.0 613.4 417.5 -8.2 -8.3 0.8 21.8 -12.4 -18.1 -5.0 8.8
Ipca Laboratories Hold 697.3 732.0 744.4 400.9 -0.5 7.3 23.3 52.6 -5.1 -4.1 16.1 36.4
Lupin Buy 876.5 978.0 946.4 557.1 -2.1 5.8 23.2 49.6 -6.6 -5.5 16.1 33.7
Sun Pharma Buy 605.8 613.0 651.9 328.0 0.2 16.6 22.8 73.8 -4.3 4.1 15.7 55.3
Torrent Pharma Hold 482.6 486.0 502.0 311.1 10.1 11.1 45.3 46.4 5.1 -0.8 36.9 30.8
BSE Health Care Index 9638.0 9979.8 7581.1 -0.2 9.3 9.3 23.6 -4.7 -2.3 3.0 10.4
AGRI-INPUTS
Tata Chemicals Buy 270.7 346.0 381.5 233.2 11.9 13.2 -14.9 -11.5 6.8 1.1 -19.8 -21.0
UPL Buy 167.8 180.0 175.5 101.6 8.3 32.5 15.7 43.5 3.4 18.3 9.0 28.2
BUILDING MATERIALS
Grasim Hold 2687.8 2818.0 3406.8 2105.7 0.2 12.1 -10.2 -20.3 -4.3 0.2 -15.4 -28.8
India Cements Hold 52.8 65.0 95.1 43.0 3.5 21.6 -37.9 -40.9 -1.2 8.6 -41.5 -47.2
The Ramco Cements Hold 178.8 ** 273.5 135.2 -1.4 15.8 -26.9 -16.7 -5.9 3.5 -31.1 -25.6
Shree Cement Hold 4452.9 4500.0 5384.4 3400.1 1.5 15.7 -3.6 1.6 -3.1 3.4 -9.2 -9.2
UltraTech Cement Hold 1935.6 2009.0 2154.2 1402.4 1.6 17.8 0.8 -3.9 -3.0 5.3 -5.0 -14.1
DISCRETIONARY CONSUMPTION
Eros International Media Buy 184.0 ** 235.1 106.5 27.8 58.1 9.2 9.8 22.0 41.2 2.9 -1.9
Indian Hotel Company Hold 52.1 61.0 68.2 37.5 6.8 30.7 -9.8 -16.8 1.9 16.8 -15.0 -25.7
KKCL Hold 998.7 ** 1050.0 645.1 25.3 37.8 38.7 47.3 19.6 23.2 30.7 31.6
Raymond Buy 270.1 387.0 488.9 175.5 7.5 41.3 -14.7 -32.4 2.6 26.3 -19.6 -39.6
Relaxo Footwear Hold 840.4 ** 924.3 470.0 0.8 16.2 43.1 3.1 -3.8 3.8 34.8 -7.9
Speciality Restaurants Buy 128.2 200.0 195.9 108.1 3.4 3.4 -29.8 -29.8 -1.3 -7.6 -33.8 -37.3
Zee Entertainment Buy 270.3 300.0 280.7 185.1 8.6 14.9 16.1 38.7 3.7 2.7 9.4 23.9
DIVERSIFIED / MISCELLANEOUS
Aditya Birla Nuvo Buy 1233.6 1254.0 1291.0 909.0 -2.0 11.0 17.4 33.6 -6.5 -0.8 10.6 19.4
Bajaj Holdings Buy 865.7 1464.0 1058.3 743.8 7.5 3.9 -0.1 2.4 2.6 -7.2 -5.9 -8.5
Bharti Airtel Hold 348.3 395.0 373.8 266.6 7.7 6.7 5.5 28.9 2.8 -4.6 -0.6 15.2
Bharat Electronics Buy 1069.9 1485.0 1380.0 1043.9 -0.9 -4.4 -9.5 -10.2 -5.4 -14.6 -14.8 -19.7
Gateway Distriparks Buy 124.3 149.0 143.9 98.1 21.6 21.2 5.0 -4.1 16.1 8.3 -1.1 -14.3
Max India Buy 193.2 296.0 273.0 150.2 4.5 5.8 -14.0 -15.8 -0.2 -5.5 -18.9 -24.8
Ratnamani Metals and Tubes Hold 130.0 170.0 162.1 116.1 5.1 3.9 7.5 1.9 0.3 -7.2 1.3 -9.0
BSE500 Index 7578.8 7792.7 6301.3 5.1 13.1 2.0 5.6 0.3 1.0 -3.9 -5.6
CNX500 Index 4752.0 4877.7 3937.7 5.2 13.2 1.7 5.9 0.4 1.1 -4.2 -5.4
CNXMCAP Index 7611.0 8859.4 6330.8 5.6 15.1 -4.0 -2.5 0.8 2.8 -9.5 -12.9
Is it different this time?
FROM SHAREKHANS DESK
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Fireworks are on at Dalal Street in Diwali this year. The Sensex has hit the all-time-high
level after a gap of five years and ten months. Though many other equity markets globally
achieved the feat quite some time back, but the Indian market was lagging and has finally
pierced the glass ceiling.
The big push for the Indian market has come from the flood of easy global liquidity after
the US Federal Reserves decision to defer the proposed tapering of the $85-billion monthly
quantitative easing. The successor to the current chairman of the US Federal Reserve also
has equally dovish credentials and the economic data (especially employment and housing
data) coming out of the USA has not been encouraging lately, thereby delaying the tapering
by at least three to four months, if not more. Consequently, the risk-on rally has attracted
foreign inflows to tune of $4.5 billion to the Indian equity market in the past two months
alone.
Liquidity alone cannot lead to a sustainable rally without fundamentals to back it. In terms
of domestic fundamentals, the two big positives that have emerged lately are: (1) an
improving trend in the trade balance (and its expected positive fallout on the current account
deficit and the local currency); (2) the easing of the short-term liquidity conditions with the
reversal of the unconventional measures taken by the Reserve Bank of India in response to
exchange fluctuation in July this year and the resultant signs of stability in the long end of
the yield curve. The policy makers now seem to be more prepared to deal with policy
changes to curtail the easing monetary policies in the developed economics. The incentives
offered at the swap window to attract foreign deposits (almost $12 billion), signs of export
pick-up and the possible setting up of a foreign exchange reserve to deal with the situation
provide the confidence that the policy reaction would be more effective in case of tapering
of the USAs quantitative easing programme in future.
However, the runaway inflation is the biggest cause for worry. The Wholesale Price Index
is inching up towards an uncomfortable level of 7% and the Consumer Price Index is still
ruling close to a double-digit level despite a good monsoon. The negative real interest rate
and high inflation do not provide the right macro-economic conditions to attract retail
savings to financial products (away from gold and real estate). The governments effort to
kick-start the investment cycle also lacks the push required to revive the animal spirits that
are dented by the policy uncertainties and the recent incidents of legal proceedings against
bureaucrats and reputed industrialists. Moreover, the banking system is also not in a position
to aggressively grow credit (advances book) in light of asset quality concerns and need for
re-capitalisation. While the revival of investment cycle is still questionable, the demand
environment is also showing signs of considerable moderation. The volume growth reported
by consumer companies and the management commentary indicate continuous deterioration
in discretionary spending (more pronounced in urban region but spreading to rural areas
also in spite of the good monsoon and a hike in minimum support prices for most agriculture
commodities).
A favourable outcome of the forthcoming state elections (indicating a change of guard at
the centre in the general election) would also boost the sentiments and provide more legs to
the current rally. Looking at the situation, the market bias could remain positive after the
psychologically important event of making a new high. But the break-through to a new
high does not essentially lead to a new multi-year secular bull run. The global situation
remains fluid and any meaningful improvement in the domestic situation would require
structural reforms and some tough policy decisions (for example, the implementation of
the Parikh Committees recommendation to curtail fuel subsidy) which usually result in
long-term gains but short-term pain. So the idea should be to use the rally to clean up the
portfolio. Exit questionable companies with stressed balance sheets and near-term issues,
and enter quality stocks in the large-cap and mid-cap space identified after careful analysis
by our fundamental research team.
On a high
MARKET OUTLOOK NOVEMBER 05, 2013
Return of risk on trade: The recent rally was driven
largely by the global liquidity push after the deferment
of tapering by the US Federal Reserve (Fed). The Indian
markets valuation had also turned attractive as India
was among the worst performing equity markets in the
aftermath of the tapering-led pressure on the emerging
markets. Consequently, the relative valuation of the
market had also turned attractive in absolute and relative
terms. More importantly, the Reserve Bank of India
(RBI) has taken measures to attract foreign capital
(through incentives offered on currency swaps for foreign
currency deposits; which had attracted close to $12
billion till October end) and is perceived to be better
prepared to deal with the reversal in the monetary
policies in the developed world.
Hopes pinned on macro-economic stability, and a
favourable and decisive general election verdict: In
addition to a supportive global scenario, there are some
positive domestic developments in terms of improving
economic data points (a reduction in trade balance
driven by a pick-up in exports and a slowdown in gold
imports), stability in the rupee against the dollar and
easing of short-term liquidity by the RBI. However, a
stubbornly high inflation rate continues to be a
concerning factor and could lead to a further hike in the
interest rates by the RBI. But on the positive side, a
possible change of guard at the centre in favour of a
more progressive new government post-2014 general
election is another important factor boosting sentiments,
given that the policy paralysis under the present
government has added to the prevailing weak economic
conditions in India.
Corporate earnings fared better on low expectations:
While expectations were muted, the Q2FY2014 earnings
have not disappointed so far and there have been, in
fact, positive surprises in some sectors. The export-
oriented sectors like information technology (IT),
pharmaceuticals (pharma) and auto ancillaries
performed ahead of expectations during the second
quarter of FY2014. The telecommunications (telecom)
sector is also showing signs of improvement in operating
MARKET OUTLOOK
EQUITY FUNDAMENTALS
SENSEX ONE-YEAR FORWARD P/E BAND
Source: Bloomberg, Sharekhan research
metrics driven by easing competition. On the flip side,
the demand in some of the consumer segments has
moderated considerably as was reflected in the low
single-digit volume growth reported in the Q2 results in
various consumer categories. Though it is too early to
expect an upgrade in the consensus earnings estimate,
but the intensity of downgrades should moderate from
hereon.
More legs to rally: The current risk-on liquidity-driven
rally could extend for another few weeks in anticipation
of a favourable outcome of the state elections (vote share
gain by the National Democratic Alliance under the
leadership of Narendra Modi) and a supportive global
environment (the Feds tapering expected to be delayed
by at least three to four months). Moreover, in spite of
the recent rally the premium of India over the other
comparable emerging markets has narrowed down to a
more reasonable level. On an absolute basis also, the
price-earnings or price-book multiple on a one-year
forward basis is ruling at close to the 10-year average
multiple in case of the benchmark index, the Sensex.
Having said this, in the past couple of years the Indian
equity market has witnessed a number of sharp rallies
that have not sustained for long but have turned out to
be opportunities to clean up ones portfolio taking
advantage of the sharp bounces in the stock price of the
low quality and stressed companies. We have a positive
stance on the IT services, telecom and rural consumption
driven segments (media, tractors etc).
8.0
13.0
18.0
23.0
Oct-01 Oct-03 Oct-05 Oct-07 Oct-09 Oct-11 Oct-13
PER +1 sd Avg PER -1 sd
TRADE DEFICIT NARROWS ($ BN)
Source: Bloomberg, Sharekhan Research
MARKET OUTLOOK
EQUITY FUNDAMENTALS
External concerns ease though slowdown in domestic
economy persists: The external threats have eased led by
the deferment of the tapering by the US Fed, action taken
by the RBI to boost inflows and a decline in gold imports.
All this has led to the resumption of liquidity flow to the
emerging economies including India which had dried up in
the wake of a rise in US yields and expectations of tapering
by the US Fed. The recent commentary by the US Fed has
been dovish which suggests tapering may be at least three
to four months away. Consequently, the current account
deficit (CAD) estimate has been revised downwards ($60-
65 billion for FY2014) giving support to the rupee.
Overall pessimism easing; rising inflation key to RBI action:
With the concerted efforts of the government and the RBI
the concerns relating to a high CAD (4.8% of the GDP in
FY2013) have abated to an extent. Therefore, deriving
comfort on the external front the RBI has rolled back the
exceptional measures (reduction in the marginal standing
facility [MSF] rate, partial lifting of curbs on repo
borrowings) which had led to the easing of liquidity and a
correction in the short-term rates. The stalled projects have
been a key concern with regard the investment cycle and
therefore the move of the Cabinet Committee of Investments
to facilitate the clearance of stalled projects is seen as a
positive step, though its impact could be felt only towards
the end of this fiscal.
However, given the persistent weakness in industrial
production (the Index of Industrial Production YTD 0.1%)
and falling fixed capital formation, the gross domestic
product (GDP) growth outlook remains weak for FY2014.
Several institutions including the RBI have pegged the GDP
growth under 5% for FY2014. Though some positives have
emerged, such as a recovery in the export segment and an
improved agriculture output, but it may not significantly
push the overall growth in the economy.
ECONOMY GROWTH REMAINS SLUGGISH
SHORT-TERM RATES DIP POST-REDUCTION IN MSF RATE
On the flip side, inflation, both at the wholesale level and
the consumer level, has increased and is showing an upward
bias which could force the RBI to raise the policy rates.
Any increase in the interest rate could potentially slow down
consumption and may affect the revival in the economic
growth.
RISING INFLATION COULD INVITE RBI ACTION
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MARKET OUTLOOK
EQUITY FUNDAMENTALS
SENSEX OUTPERFORMS OTHER EMS (SEPTEMBER 2013-TILL DATE)
Q2FY2014 earnings better than expected: Though
expectations were relatively muted, but the majority of
Indian companies (that have declared their results so far)
did not disappoint in the Q2FY2014 results season. In fact
there were positive surprises in some sectors. The cyclicals
especially the banks and automobiles delivered better than
expected numbers and therefore the valuations have
expanded in these sectors. However, since the fundamental
factors have not changed materially, its still early to expect
an upgrade in the consensus earnings estimate for the Indian
market. Nevertheless, the downgrade/upgrade ratio should
come down as pessimism has reduced.
SENSEX CONSENSUS EARNINGS ESTIMATE FOR FY2015
SENSEX CONSENSUS EARNINGS ESTIMATE FOR FY2014
upcoming elections in four key states (Delhi, Madhya
Pradesh, Rajasthan and Chattisgarh) where the two major
political parties are pitched against each other would be
important events. Several opinion polls have suggested a
massive win for the Bharatiya Janata Party in at least three
out of the four state elections which will set the tempo for
the general election. In addition, the market has been
enthused by a higher possibility of a Narendra Modi-led
government at the centre (post-general election) which could
resume the reform momentum.
Valuation expands on liquidity glut, receding pessimism:
The ongoing rally that began with the deferment of the
tapering by the US Fed has pushed the market to new highs
though volatility may also rise due to the absence of any
significant tail winds except liquidity itself. Consequently,
the Sensex has turned out to be among the best performing
markets and its valuation is at a premium compared with
its other emerging market counterparts. Among the many
legs driving the market the cyclicals have also participated
in view of the changing perception with regards the
economic growth and high expectation from the upcoming
elections. Therefore, the market may continue to ride on
the liquidity glut, though limited investor participation
(domestic) remains a concern. For investors, this is an
opportunity to exit the companies that have a stressed
balance sheet, to scout for stock-specific opportunities and
to focus on the export-oriented companies and rural
consumer-driven sectors.
Decisive verdict a key to reforms: Not many expectations
are built around the winter session of the Parliament due
to election related engagements and preparations. The
1,300
1,320
1,340
1,360
1,380
1,400
1,420
1,440
1,460
Apr-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13 Oct-13 Nov-13
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1500
1520
1540
1560
1580
1600
1620
1640
1660
1680
Apr-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13 Oct-13 Nov-13
13.2% 8.6% 4.2% 3.2% 2.2% 1.4%
0.0%
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6.0%
8.0%
10.0%
12.0%
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SENSEX Index JCI Index KOSPI Index
HSI Index TWSE Index SHCOMP Index
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.
Sharekhan Top Picks
SHAREKHAN TOP PICKS
Its fireworks for the equity market this Diwali. The benchmark
index has pierced through the all-time-high level after a gap of five
years and 10 months and the indices have gained by close to 9%
since our last issue of the ValueGuide. After performing well during
the correction in August this year, our balanced basket of Top Picks
faired better than the benchmark indices in the last month (9.4%
appreciation) even without any revision in the previous two months.
During the last month, a stellar performance was registered by ICICI
Bank (up 24%), Larsen and Toubro (up 22%), Zee Entertainment
# Please note the price target for some of the companies likely to get revised upwards along with post Q2 results update.
* CMP as on November 01, 2013
NAME CMP* PER ROE (%) PRICE UPSIDE
(RS) FY13 FY14E FY15E FY13 FY14E FY15E TARGET (RS) (%)
Bajaj Corp 248 21.9 20.5 16.5 36.7 34.5 37.5 270 9
Bharti Airtel 366 64.3 32.7 23.9 4.6 6.0 9.1 395 8
HCL Technologies 1,100 18.9 13.2 11.6 36.1 39.1 33.7 1,350 23
HDFC Bank 684 24.2 19.4 15.4 20.3 21.3 22.6 712 -
ICICI Bank 1,133 15.7 14.6 12.3 13.1 12.9 14.0 1,195 5
Larsen & Toubro 982 18.9 17.3 15.8 16.5 14.4 14.1 1,030 -
Reliance Industries 908 14.0 14.1 12.5 11.0 9.8 10.0 1,010 11
Selan Exploration 308 11.5 8.7 6.7 20.3 22.8 24.3 365 19
Sun Pharma 605 41.7 28.4 25.6 25.4 26.8 23.8 613 -
TCS 2,097 29.5 21.2 17.7 33.1 35.6 33.4 2,600 24
Zee Entertainment Enterprises 270 36.1 29.4 25.3 19.6 20.8 21.3 300 11
ABSOLUTE OUTPERFORMANCE CONSTANTLY BEATING NIFTY AND SENSEX (CUMULATIVE RETURNS IN %)
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Sharekhan Sensex Nif ty
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YTD
CY2013
CY2012 CY2011 CY2010 CY2009 Since
Inception
(Jan
2009) Sharekhan (Top Picks) Sensex Nif ty
Enterprises (up 16%) and Bharti Airtel (up 15%). The laggards
included Baja Corporation and Divis Laboratories.
In this month, we are suggesting a lone change in the Top Picks
basket. We are replacing Divis Laboratories with Selan Exploration
Technology. Though we maintain a positive stance on Divis
Laboratories, but the inclusion of Selan Exploration Technology is
triggered by the successful commissioning of the companys much-
awaited drilling programme that is expected to boost its crude oil
production volume and financial performance in future.
SHAREKHAN TOP PICKS
EQUITY FUNDAMENTALS
NAME CMP PER ROE (%) PRICE UPSIDE
BAJAJ CORP 248 21.9 20.5 16.5 36.7 34.5 37.5 270 9
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 steady volume growth momentum to continue in the coming quarters.
The operating margin is expected to remain stable in the range of 28-29% in the coming years.
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. 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.
At the current market price the stock is trading at 20.5x its FY2014E EPS of 12.1 and 16.5x its FY2015E EPS of Rs15.0.
BHARTI AIRTEL 366 64.3 32.7 23.9 4.6 6.0 9.1 395 8
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 Q2FY2014 results of the Indian business of Bharti Airtel exhibited a strong pricing power (+1% QoQ), with a robust data revenue
growth, aided by a 110-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 stick to our estimates and rating
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).
HCL TECHNOLOGIES 1,100 18.9 13.2 11.6 36.1 39.1 33.7 1,350 23
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.
In view of an improved operating environment coupled with decent earnings predictability driven by a $4-billion-plus order book, stable
margins and sustainable momentum in the IMS vertical, we continue to recommend a Buy on it with a price target of Rs1,350.
HDFC BANK 684 24.2 19.4 15.4 20.3 21.3 22.6 712 -
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. 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.
SHAREKHAN TOP PICKS
EQUITY FUNDAMENTALS
SHAREKHAN TOP PICKS
EQUITY FUNDAMENTALS
ICICI BANK 1,133 15.7 14.6 12.3 13.1 12.9 14.0 1,195 5
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 16.9% 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 14.0% by FY2015 while the
RoA is likely to improve to 1.6%. This would be driven by a 12.7 % growth (CAGR) in the profit over FY2013-15.
The stock trades at 1.6x 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 982 18.9 17.3 15.8 16.5 14.4 14.1 1,030 -
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 15.8x its FY2015E earnings.
RELIANCE INDUSTRIES 908 14.0 14.1 12.5 11.0 9.8 10.0 1,010 11
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 last two years. With the government approval for
additional capex, we believe production will improve going ahead.
Though there is uncertainty prevailing on gas production and pricing of gas from the KG-D6, the traction in volume from shell gas
assets is playing positively for the company. Moreover, the petrochemical and refinery businesses are on the driving seat and contributing
the lions share of the profitability. Hence, the uncertainty related to the domestic gas production and pricing are likely to limit the
impact.
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 current market price the stock is trading at a PE of 12.5x its FY2015E EPS.
SELAN EXPLORATION 308 11.5 8.7 6.7 20.3 22.8 24.3 365 19
Remarks: Selan Exploration (Selan), has rights to develop five small discovered (minimal exploration risk) oil fields (Bakrol, Lohar, Indrora,
Karjisan and Ognaj) in Cambay Basin (Gujarat) with proven oil & gas reserves.
Recently Selan received approvals from the Directorate General of Hydrocarbons (DGH) for developing two wells in Indrora, two wells
in Lohar field and one well in Karjisan. Further, there are seven more wells for which approvals are pending (six wells in Bakrol and one
well in Karjisan). Therefore, we expect production ramp-up to start soon which would percolate to the earnings. Moreover, the company
would benefit from the rupees depreciation.
We like its debt-free position, significant cash on books (which is 25% of the market capitalization) and ability to generate RoE of above
20%. At the current market price the stock is trading at 6.7x its FY2015E earnings and 3x its EBITDA.
SUN PHARMA 605 41.7 28.4 25.6 25.4 26.8 23.8 613 -
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 pricing pressure in some of the products of Taro may restrict the growth in the USA, but we expect a better performance from
Sun Pharma going forward mainly driven by (1) the contribution from the newly acquired Dusa Pharma and URL Pharma in the USA;
and (2) the launch of key products in the USA and the emerging markets including India. We expect 20% and 27% revenue and PAT
growth (CAGR) respectively over FY2013-15 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 28.4x and 25.6x FY2014E EPS and FY2015E EPS respectively. We maintain our Buy
recommendation on the stock, with a price target of Rs613 (post bonus shares).
TCS 2,097 29.5 21.2 17.7 33.1 35.6 33.4 2,600 24
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 Rs2,108, the stock is trading at 21.2x FY2014 EPS of Rs99.1 and 17.7x FY2015 EPS of Rs118.3. We
maintain our Buy recommendation on the stock with a price target of Rs2,600.
ZEE ENTERTAINMENT 270 36.1 29.4 25.3 19.6 20.8 21.3 300 11
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
STOCK UPDATE
EQUITY FUNDAMENTALS
Earnings ahead of estimate, asset quality
outlook weakens
COMPANY DETAILS
Price target: Rs1,450
Market cap: Rs51,373 cr
52 week high/low: Rs1,549/764
NSE volume (no. of shares): 30.7 lakh
BSE code: 532215
NSE code: AXISBANK
Sharekhan code: AXISBANK
Free float (no. of shares): 31.0 cr
(%) 1m 3m 6m 12m
Absolute 2.1 -17.4 -15.3 -2.0
Relative to Sensex -2.0 -19.7 -25.2 -12.2
PRICE PERFORMANCE
BUY CMP: RS1,095 OCTOBER 17, 2013
AXIS BANK
RESULT HIGHLIGHTS
Axis Banks Q2FY2014 net profit came in above our estimate as it grew by 21.3%
YoY to Rs1,362.3 crore. Apart from the healthy NII growth, the repatriation of
accumulated profit from the overseas operations aided the net profit growth.
Overall, the advances grew by 16.9% YoY, a tad lower than the industry rate. The
growth in the advances was driven by a growth of 37.4% YoY in the retail and a
growth of 28.7% YoY in the SME segments. The CASA ratio was largely stable at
43% levels.
The non-interest income grew by 10.9% YoY while the fee income grew by a modest
6.6% YoY (up 8.7% QoQ). During the quarter, the bank realised a gain of Rs281.6
crore on repatriating accumulated profits from its overseas operations.
The asset quality witnessed stress as impaired loans amounted to Rs1,649 crore. The
management has revised the loan impairment guidance upward by 15-20%.
Price target revised downward to Rs1,450: We expect the asset quality to deteriorate in the
coming quarters, though it may remain within the manageable limits. We have revised the
price target downward to Rs1,450. On the other hand, the improving liability profile,
asset diversification, higher PCR and capitalisation are comforting. The current valuation
seems reasonable, though the asset quality trend will be a key monitorable. We maintain
our Buy rating on the stock.
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 Rs2,342
COMPANY DETAILS
52 week high/low: Rs2,229/1,658
BSE code: 532977
NSE code: BAJAJ-AUTO
Sharekhan code: BAJAJ-AUTO
(%) 1m 3m 6m 12m
Absolute 6.1 11.8 26.2 24.2
Relative to Sensex 1.9 8.6 11.4 11.3
PRICE PERFORMANCE
HOLD CMP: RS2,165 OCTOBER 17, 2013
BAJAJ AUTO
KEY POINTS
Operating performance beats estimate; lower other income and higher tax negate benefit:
In Q2FY2014 Bajaj Auto Ltd (BAL)s results were boosted by a higher export realisation.
The operating profit margin (OPM) at 21.9% was 130 basis points ahead of our estimate.
However, a lower other income (Rs124.6 crore) and higher taxation significantly negated
the benefits of a strong operating performance. Consequently, the profit after tax (PAT)
at Rs837.1 crore was marginally better than our estimate of Rs824 crore.
Domestic motorcycles to witness low single-digit growth: After clocking a flat growth in
H1FY2014, the industry is expecting a recovery in H2FY2014 on account of the festive
season and higher crop realisations. In FY2014 the industry is expecting a growth of 2-4%.
Competition intensifies; BAL to focus on executive segment to regain market share:
Honda Motorcycles & Scooters India Private Ltd (Honda) has enhanced focus on the
domestic market by launching products in the entry-level space (Dream Yuga and Dream
Neo) leading to a market share loss for the incumbents. To regain market share, BAL
plans to launch an upgraded Discover series over the next two to three months.
Outlook and valuationNeutral view maintained with a revised price target: BALs
volumes are expected to remain flattish in FY2014. We have marginally raised our
revenue assumptions for FY2014 and FY2015, given the higher export realisation. We
are also slightly raising our margin assumptions in view of a favourable currency
environment. We have increased our FY2014 and FY2015 earnings estimates by 0.8%
and 4.4% respectively. Our revised earnings estimates stand at Rs132.5 and Rs164.3
per share for FY2014 and FY2015 respectively. We maintain our Hold recommendation
on the stock with a revised price target of Rs2,342.
Foreign
43%
Promoter
34%
MF & FI
5%
Public &
others
18%
Promoters
50%
Public & Others
16%
Non-promoter
corporate holding
8%
Institutions
8%
Foreign
18%
STOCK UPDATE
EQUITY FUNDAMENTALS
Earnings ahead of estimates; price target
revised to Rs735
COMPANY DETAILS
Price target: Rs735
52 week high/low: Rs900/429
BSE code: 532134
NSE code: BANKBARODA
Sharekhan code: BANKBARODA
(%) 1m 3m 6m 12m
Absolute 17.8 4.9 -14.0 -16.3
Relative to Sensex 8.4 -3.8 -21.3 -27.9
PRICE PERFORMANCE
BUY CMP: RS643 OCTOBER 31, 2013
BANK OF BARODA
RESULT HIGHLIGHTS
Bank of Barodas Q2FY2014 results were higher than our estimates. The growth in the
profit was mainly led by a healthy growth in the non-interest income and a lower tax rate.
The NII growth was flattish YoY mainly due to a decline in the NIM on a Y-o-Y basis.
While the domestic NIM sustained, the dip in the overseas NIM pulled down the overall
NIM on a Q-o-Q basis.
The advances growth improved in Q2FY2014 mainly led by the domestic advances.
The deposit growth continued to outpace the credit growth especially on the retail side.
As guided by the bank, the NPAs increased in Q2FY2014 led by slippages of
Rs2,017crore. However, the recoveries and upgradations also improved. The bank
restructured Rs1,637 crore of advances in Q2FY2014.
The bank reported a treasury profit of Rs118.2 crore and has shifted about Rs6,800
crore of investments from the AFS to the HTM portfolio resulting in a shifting loss of
about Rs18 crore.
Valuation and outlook: The bank continues to focus on qualitative improvement which is
likely to drive its performance in future. While the operating environment remains
challenging, the management expects relatively lower slippages in the coming quarters. We
value the bank at 1x FY2015 ABV leading to a price target of Rs735. We maintain our Buy
rating on the stock. Any negative surprise on the asset quality front is a risk to our call.
holding or having a postition in the companies mentioned in the article. For detailed report, please visit the Research section of our website, sharekhan.com.
COMPANY DETAILS
NSE volume (no. of shares): 20,982
BSE code: 500049
NSE code: BEL
Sharekhan code: BEL
(%) 1m 3m 6m 12m
Absolute -2.6 -8.9 -8.4 -16.1
PRICE PERFORMANCE
RESULT HIGHLIGHTS
Revenues largely in line with estimate; slow execution of order remains key concern: In
Q2FY2014, Bharat Electronics Ltd (BEL) posted a Y-o-Y decline in revenues in line
with our expectation. The PAT for the quarter stood at Rs59.3 crore, which is 26%
lower as compared with the same period of the last year. An increase in the requirement
of working capital affected the cash balance, which declined by 15% to Rs4,512 crore
as compared with Rs5,302 crore at the end of March 2013.
OPM improves; better cost management remains key focus: An improvement in the
OPM during the quarter was mainly on account of a lower input cost. During the
quarter under review, the OPM turned positive and stood at 0.2% as against -6.3% in
Q2FY2013. Generally, H1 is a soft quarter for the company in terms of execution and
margin which picks up in H2. Therefore, the margin performance in H1 doesnt represent
the full years performance of the company.
Valuation and view: Looking at the order book and the pipeline of deals on the anvil,
we maintain our preference for BEL as a proxy player on the defence spending. We
believe BEL would be the front runner in the defence capital expenditure to be done by
the government. The order book at 4.2x FY2013 sales gives BEL a strong revenue
visibility at least for the next three to four years. However, the timely delivery of orders
and the margin performance remain the key risks.
BHARAT ELECTRONICS
Promoter
55%
Foreign
16%
MF & FI
20%
Public &
others
9%
Government
76%
MFs, FIs,
Insurance
15%
FIIS
4%
Others
5%
Slow execution remains key concern
STOCK UPDATE
EQUITY FUNDAMENTALS
Good operational performance, Indian
performance ahead of estimate
COMPANY DETAILS
Price target: Rs395
BSE code: 532454
NSE code: BHARTIARTL
Sharekhan code: BHARTIARTL
(%) 1m 3m 6m 12m
Absolute 4.9 2.2 7.6 26.9
Relative to Sensex -1.2 -4.7 -1.6 11.1
PRICE PERFORMANCE
HOLD CMP: RS359 OCTOBER 30, 2013
BHARTI AIRTEL
RESULT HIGHLIGHTS
Good operational performance: Bharti Airtel (Bharti)s Q2FY2014 operational
performance was strong with a top line growth of 5.1% QoQ as against our expectation
of a 3.2% growth. The outperformance was also witnessed on the consolidated operating
profit front, wherein the operating profit grew by 4.4% QoQ (2.2% ahead of our
estimate). The OPM came at 32% (largely in line with our estimate of 31.8%). The
reported net profit for the quarter at Rs512 crore included a foreign exchange (forex)
loss of Rs342 crore coupled with other exceptional loss of Rs82 crore. Adjusting the
same, the net profit came at Rs809 crore.
Key management takeaways: The management sounded positive on the improving Indian
business environment and exhibited confidence over improving tariffs. It also sounded
positive on the data growth and the margin expansion momentum. On Africa, the
management guided for a higher single-digit revenue growth with room for margin
expansion.
Hold maintained; price target at Rs395: For the telecommunications operators, the
performance of Q2FY2014 vindicates our stance that the overall business environment
continues to improve, with data being the next leg of growth for revenues as well as the
margin. Thus, continuing with our stance, we largely maintain our estimates for Bharti.
Our earnings estimates for FY2014 and FY2015 are Rs11.2 and Rs15.3 respectively.
We maintain our Hold rating with a price target of Rs395 (valued at 7.5x FY2015 EV/
EBITDA).
Forex gains aid profit growth
COMPANY DETAILS
Price target: Rs886
BSE code: 532321
NSE code: CADILAHC
Sharekhan code: CADILAHC
(%) 1m 3m 6m 12m
Absolute -2.6 -9.6 -14.8 -22.2
PRICE PERFORMANCE
CADILA HEALTHCARE
RESULT HIGHLIGHTS
Q2FY2014 performance broadly in line with expectations: For Q2FY2014 Cadila
Healthcare (Cadila) reported a 13.6% Y-o-Y rise in net sales to Rs1,756 crore, which
is 5% higher than our expectation. However, the OPM slipped by 410 basis points
YoY to 14.9% due to a lower contribution of high-margin branded formulation business
in India and a fall in the revenues from the joint ventures. Nonetheless, the reported net
profit jumped by 92.7% YoY to Rs183 crore, mainly due to a foreign exchange (forex)
gain of Rs12 crore during the quarter as compared to a forex loss of Rs76 crore in
Q2FY2013. Excluding the forex loss or gain the adjusted net profit remained flat at
Rs171 crore, which is in line with our estimate of Rs173 crore.
Outlook remains strong; we maintain our price target and recommendation: The growth
of the company would be mainly driven by (1) new product launches in the US and
European markets including some of the niche products (a higher number of product
approvals are expected from the US market); (2) the Hospira joint venture is likely to
add one more product in FY2015; and (3) the domestic branded business, which is
likely to normalise towards the end of this year (including better traction in the newly
launched new chemical entity, Lipaglyn). We maintain our estimates for FY2014 and
FY2015, and our price target of Rs886, which implies 15x FY2015E earning per share.
We maintain our Buy recommendation on the stock.
Promoters
74%
Institutions
9%
Non-
promoter
corporate
5%
Foreign
6%
Public and
others
6%
Institutions
9%
Promoters
65%
Public & Others
1%
Foreign
21%
Non-promoter
corporate
4%
STOCK UPDATE
EQUITY FUNDAMENTALS
Operating performance improves
COMPANY DETAILS
Price target: Rs87
BSE code: 500469
NSE code: FEDERALBNK
Sharekhan code: FEDERALBNK
(%) 1m 3m 6m 12m
Absolute 20.6 -5.9 -19.3 -24.4
PRICE PERFORMANCE
FEDERAL BANK
RESULT HIGHLIGHTS
Federal Banks Q2FY2014 performance was ahead of our estimates as the net profit
grew by 5.0% YoY to Rs225.8 crore.
However, the NII growth was in line with our estimate as it grew by 8.4% YoY to
Rs548.4 crore. The NIM surged by 17 basis points QoQ to 3.30%.
During the quarter, the advances grew by 16.3% YoY, which is slightly lower than the
industry average. While the SME and retail advances continue to post a strong growth,
the bank has turned cautious on corporate loans.
The non-interest income grew by 2.9% YoY largely on account of a 31.8% Y-o-Y
growth in the fee income. Also, the bank reported an investment depreciation of Rs122
crore and opted to amortise by providing Rs17.46 crore in Q2FY2014.
The asset quality improved as the gross slippages were reduced to Rs151 crore largely
contributed by a decline in the slippages from the corporate segment. However, the
restructuring was higher at Rs176 crore.
ValuationNIMs recover though asset quality remains key monitorrable: Federal Banks
Q2FY2014 results were better than our estimates mainly due to a write-back of provisions.
Going forward, the asset quality especially in the corporate book remains a key monitorable
in the current scenario. We have maintained our earnings estimates and would like to see
some sustainability in the asset quality improvement to upgrade our estimates/valuation
multiples. Currently, the valuation of the stock seems reasonable. Hence, we maintain our
Buy rating on the stock.
Price target revised to Rs1,350; Buy maintained
COMPANY DETAILS
BSE code: 532281
NSE code: HCLTECH
Sharekhan code: HCLTECH
(%) 1m 3m 6m 12m
Absolute 11.0 32.7 52.2 102.0
PRICE PERFORMANCE
HCL TECHNOLOGIES
RESULT HIGHLIGHTS
Performance in line with expectations: For the quarter, the revenues were up by 3.5%
QoQ to $1,270 million (broadly in line with our estimate of $1,268 million).
Impressive margin performance led by weak rupee: The EBIT margin improved by 300
basis points QoQ to 23.8% (in line with our expectation of 23.3%). On the margin
outlook, the management indicated a currency re-investment strategy to strengthen the
sales engines while rationalising the G&A.
Net income up 18.7% QoQ: The net income for the quarter was up by 18.7% QoQ to
Rs1,416 crore (broadly in line with our estimate of Rs1,414.5 crore).
Valuation: We believe that given the currency weakness and momentum in the IMS
vertical, HCL Tech is well poised for a strong earnings growth (compounded annual
growth rate of 29% over FY2013-15E). The multiple re-rating could be restricted on
account of the single vertical-driven growth coupled with the lesser disclosure metrics.
Nevertheless, HCL Tech remains a better investment option in the IT space, given its
strong earnings momentum. We have reset our currency estimates to Rs62 each for
FY2014 and FY2015. Consequently, we have tweaked our earnings estimates. We
value HCL Tech at 35% discount to the target multiple of Tata Consultancy Services
and arrive at a price target of Rs1,350. We maintain our Buy rating on the stock.
Institutions
6%
Public & Others
3%
Promoters
62%
Non-promoter
corporate
3%
Foreign
26%
Foreign
44%
MF & FI
21%
Public &
others
35%
STOCK UPDATE
EQUITY FUNDAMENTALS
Earnings in line, NIM deteriorates
COMPANY DETAILS
Price target: Rs712
BSE code: 500180
NSE code: HDFCBANK
Sharekhan code: HDFCBANK
(%) 1m 3m 6m 12m
Absolute 6.1 -4.1 4.6 6.6
PRICE PERFORMANCE
HDFC BANK
RESULT HIGHLIGHTS
HDFC Banks Q2FY2014 net profit grew by 27.1% YoY to Rs1,982.3 crore, which
was in line with our estimate. The strong growth in the non-interest income and a
lower than expected growth in the provisions contributed to the growth in the profit
and helped to absorb the treasury losses.
The NII grew by 15.3% YoY to Rs4,476.5 crore, which was slightly lower than our
estimate. The NIM declined by 25 basis points sequentially to 4.30% due to a rise in
the deposit cost and MSF rate, and a lag in the re-pricing of assets which affected the
NII growth.
The bank intentionally lowered the credit expansion during the quarter due to the
lower incremental spreads. The deposits grew by 14.2% YoY while the CASA ratio
was stable at 45% level.
The non-interest income showed a healthy growth of 25.3% YoY driven by a strong
growth in the forex income. The bank reported treasury losses of Rs173 crore as it
decided to absorb the entire amount of investment depreciation in Q2FY2014.
Outlook: HDFC Banks Q2FY2013 results clearly reflect the pressure on the NIM and the
rising competition in the retail segment which could have some impact on the earnings.
Moreover, the bank trades at a premium valuation of 3.1x FY2015 P/BV and hence the
upside is limited. We maintain our Hold rating and the price target of Rs712 on the stock.
Margin surprise unsustainable; Reduce maintained
COMPANY DETAILS
Price target: Rs540
BSE code: 500696
NSE code: HINDUNILVR
Sharekhan code: HINDUNILVR
(%) 1m 3m 6m 12m
Absolute -6.3 -13.7 25.3 8.9
Relative to Sensex -10.1 -17.6 16.1 -2.9
PRICE PERFORMANCE
REDUCE CMP: RS589 OCTOBER 28, 2013
HINDUSTAN UNILEVER
RESULT HIGHLIGHTS
Q2 reported earnings boosted by unexpected firming of margin: HULs Q2FY2014
results surprised positively with a higher than expected OPM. The volume growth of
5% and revenues were largely in line with our expectations and were boosted by a
double-digit growth in the personal care segment. Despite the rupee depreciating by
10%, the GPM remained higher by above 169 basis points YoY due to an efficient
hedging mechanism and certain upholding of the low-cost inventory. In the personal
products segment the revenue growth returned to double digits due to the favourable
base effect and higher sales of winter products during the quarter.
Maintained Reduce rating on the stock: For the past four quarters, HULs volume
growth has been hovering around 5% and we expect the demand environment to remain
challenging due to sustained inflationary pressures hurting the discretionary spending
and intensifying competition in some of the key categories, such as soaps, detergents
and oral care. On the other hand, the impact of the rupees depreciation on the raw
material cost, and the need for higher advertisement and promotional spending would
put pressure on the margin in the coming quarters.
We have broadly maintained our earnings estimates for FY2014 and FY2015. Any
significant deceleration in the GPM or drop in the sales volume growth in the coming
quarters would act as a risk to our earning estimates. At the current market price, the
stock trades at 36.4x its FY2014E and 32.6x its FY2015E earnings. In view of the
near-term head winds and premium valuation, we maintain our Reduce rating on the
stock with a price target of Rs540.
Promoters
67%
Domestic
Institutions
3%
FIIs
16%
Others
14%
MF & FI
10%
FII
33%
Promoter
23%
Public &
others
34%
STOCK UPDATE
EQUITY FUNDAMENTALS
Strong operating performance
COMPANY DETAILS
BSE code: 532174
NSE code: ICICIBANK
Sharekhan code: ICICIBANK
(%) 1m 3m 6m 12m
Absolute 8.0 7.3 -10.6 -3.8
Relative to Sensex 3.8 3.6 -18.3 -14.6
PRICE PERFORMANCE
ICICI BANK
RESULT HIGHLIGHTS
ICICI Banks Q2FY2014 results came in higher than our and the Streets estimates as
the net profit increased by a robust 20.2% YoY to Rs2,352.1 crore. The strong growth
in the NII, a slower growth in the opex and a pick-up in the fee income growth aided
the growth in the profit.
The NIM expanded by 4 basis points QoQ to 3.31%. The banks deposit profile
improved significantly and it expects to maintain a 3.3% NIM in FY2014.
The advances growth picked up in Q2FY2014 mainly contributed by the retail segment.
The CASA ratio was stable at 43.3% whereas the average CASA ratio climbed to 40.3%.
While the relative gross NPA declined, the loan impairments were higher at Rs2,076
crore. The PCR declined to 73.1% vs 75.4%.
Valuations: ICICI Banks Q2FY2014 numbers suggest buoyancy in the operating
performance, which has been driving the earnings growth. In our view, the improvement
in the deposit profile is structurally positive for the NIMs outlook. We continue to believe
that the asset quality challenges for the bank will be within the manageable limits and the
recovery in the operating performance will help in dealing with the provisioning
requirements. In addition, a healthy provision coverage ratio and a higher tier-I capital
(11.3%) will increase comfort. Despite better Q2FY2014 numbers, we have maintained
our earnings estimates and expect the bank to maintain the RoA at 1.6%. We maintain
our Buy rating with an SOTP-based price target of Rs1,195.
Upgraded to Buy with a price target of Rs3,770
COMPANY DETAILS
BSE code: 500209
NSE code: INFY
Sharekhan code: INFY
(%) 1m 3m 6m 12m
Absolute -1.0 25.0 12.4 27.1
Relative to Sensex -2.4 18.6 0.8 14.9
PRICE PERFORMANCE
INFOSYS
RESULT HIGHLIGHTS
Back-to-back quarter of revenue outperformance: Infosys has yet again beat the Streets
estimate on the revenue front with a solid 3.8% sequential growth to $2,066 million (we
had estimated a growth of 3% QoQ) and a 4.2% growth on a constant-currency basis.
Salary hikes eat into margin and offset currency gains: The revenues in the rupee terms
are up by 15% QoQ to Rs12,965 crore. The adjusted EBIT margin has remained
stable on a sequential basis at 23.6% but below our expectation of 25.2%. For the
quarter, there was a provision related to visa expenses of Rs219 crore ($35 million).
The net income for the quarter adjusted for the one-time visa issue provision was up by
10.6% QoQ to Rs2,626 crore (our expectation was at Rs2,676 crore).
Valuationupgraded to Buy on revised estimates and higher target multiple: We have
reset our currency estimates for FY2014 and FY2015 to Rs62 each from Rs57 and
Rs56 respectively. Also, we have increased our revenue assumptions for both the fiscals
led by an improved demand environment and better than expected execution from
Infosys in the last two quarters. We expect the earnings to grow at a CAGR of 14%
over FY2013-15. Infosys performance in the last two quarters spoke more constructively
on the business visibility and the management commentary gives us confidence that the
growth momentum will be sustained in the coming quarters. We have upgraded our
rating from Hold to Buy and increased the price target to Rs3,770. At our price target,
the stock would be valued at 17.5x FY2015E earnings.
MF & FI
25%
Foreign
38%
Public &
others
37%
Foreign
56%
Public &
Others
11%
Promoters
16%
Institutions
16%
Non-
promoter
corporate
1%
STOCK UPDATE
EQUITY FUNDAMENTALS
Price target revised up to Rs732; Hold maintained
COMPANY DETAILS
Price target: Rs732
BSE code: 524494
NSE code: IPCALAB
Sharekhan code: IPCALAB
(%) 1m 3m 6m 12m
Absolute -3.0 7.6 32.6 47.6
Relative to Sensex -6.8 3.9 21.1 31.1
PRICE PERFORMANCE
IPCA LABORATORIES
RESULT HIGHLIGHTS
Impressive improvement in operating performance: Ipca Laboratories reported a 10.1%
Y-o-Y growth in the revenues to Rs834.3 crore in Q2FY2014 on account of an 11.5%
rise in the exports to Rs517.7 crore and an 8% rise in the domestic business to Rs316.7
crore. However, the company recorded a 484-basis-point Y-o-Y rise in the OPM to
26.6%. However, a marked-to-market (MTM) foreign exchange (forex) loss of Rs39.90
crore (against forex gains of Rs6.4 crore in Q2FY2013) affected the reported net profit.
The reported net profit grew moderately by 3.5% YoY to Rs129.5 crore during the
quarter. The adjusted net profit jumped by an impressive 48.5% YoY to Rs169 crore,
which is 24% better than our estimate.
Outlook remains strong; price target revised to Rs732; Hold maintained: The
management expects a better operating performance in H2FY2014 both in terms of
revenue growth and improvement in the margin if the currency stays at the current
level. The key growth drivers include (1) the ramp-up of its Indore special economic
zone facility (the US supplies to start from Q4FY2014); (2) a better traction in the
tender-based business (anti-malarial business); and (3) normalisation of the domestic
business after issues related to the new pricing policy gets settled. We have broadly
maintained our earnings estimates for FY2014 and FY2015 but have revised the price
target upward to Rs732 (15x FY2015E EPS) from Rs675 (14x FY2015E EPS).
Price target revised to Rs369
COMPANY DETAILS
Price target: Rs369
BSE code: 500875
NSE code: ITC
Sharekhan code: ITC
(%) 1m 3m 6m 12m
Absolute -1.4 -5.3 8.0 18.2
Relative to Sensex -5.4 -9.6 0.0 5.5
PRICE PERFORMANCE
ITC
RESULT HIGHLIGHTS
Revenue growth remains muted; margin expansion led to decent operating performance:
ITCs Q2FY2014 performance was disappointing in terms of revenue growth as some
of the key businesses, such as the cigarette business and non-cigarette FMCG business,
witnessed a moderation in the revenue growth, while the revenues of the agri business
declined in double digits during the quarter. However, the significant margin
improvement in the core cigarette business and commoditised agri business along with
the declining losses in the non-cigarette FMCG business aided the company to post a
decent operating performance with the OPM improving by above 100 basis points
during the quarter.
Cigarette business sales volume declined by 4%: In Q2FY2014, ITCs cigarette sales
volume declined by 4% on account of the significant price increases (of around 18%) in
its portfolio after the second consecutive year of an 18% hike in the excise duty and a
VAT hike in some of the key states. The brands under 65mm cigarette segment gained
good response and helped arrest the substantial drop in ITCs cigarette sales volume.
Maintained Buy: We have revised downward our price target to Rs369, which is in line
with the downward revision in our earnings estimates. After the announcement of
Q2FY2014 results, ITCs stock price has corrected by almost 5% and provides a decent
upside of 10% from the current levels to our price target. We maintain our Buy
recommendation on ITC and maintain it as our top pick in the large-cap FMCG space.
At the current market price, the stock trades at 29.7x its FY2014E EPS of Rs11.1 and
24.9x its FY2015E EPS of Rs13.2.
FIIs
51%
Others
15%
Domestic
Institutions
34%
Promoters
46%
Institutions
12%
Non-promoter
corporate
5% Public and
others
11%
Foreign
26%
STOCK UPDATE
EQUITY FUNDAMENTALS
COMPANY DETAILS
Price target: Rs260
52-week high/low: Rs211/140
BSE code: 532926
NSE code: JYOTHYLAB
Sharekhan code: JYOTHYLAB
(%) 1m 3m 6m 12m
Absolute 10.7 1.0 8.6 4.3
PRICE PERFORMANCE
JYOTHY LABORATORIES
RESULT HIGHLIGHTS
Revenue growth above 30%: Jyothy Labtoratories revenues grew by 33.0% YoY to
Rs306.1 crore (on a comparable basis) in Q2FY2014. The strong revenue growth can
be attributed to a 25% Y-o-Y volume growth and an 8% Y-o-Y price-led growth
during the quarter. Its flagship brand Ujala Fabric Whitener maintained its leadership
in the fabricare category and registered a strong value growth of around 77% YoY
while Maxo registered a growth of 33% YoY in the same quarter.
Profitability improved substantially: The GPM improved by 91 basis points YoY to
46.9%. However, the improvement in the GPM was lower compared with the previous
quarter due to a change in the sales mix and the impact of the rupees depreciation that
resulted in a higher input cost. The employee cost as a percentage of sales declined by
358 basis points YoY to 9.3%. Hence the OPM expanded by 466 basis points YoY to
13.9%. The operating profit doubled YoY and stood at Rs42.7 crore in the quarter. At
Rs22.2 crore the adjusted PAT was ahead of our expectation of a profit of Rs16.7
crore for the quarter.
Outlook and valuation: We have marginally revised our earning estimates for FY2014,
FY2015 and FY2016 by 3%, 1% and 4% respectively. In line with the revision in the
earning estimates, we have revised upwards our 18-month price target for the stock to
Rs260. At the current market price the stock trades at 23.2x its FY2015E EPS of Rs8.2
and 15.0x its FY2016E EPS of Rs12.6. We maintain the stock as our top pick in the
mid-cap FMCG space and retain our Buy rating on it.
Weathering slowdown; optimism sustained
COMPANY DETAILS
BSE code: 500510
NSE code: LT
Sharekhan code: LT
(%) 1m 3m 6m 12m
Absolute 1.9 -12.2 -10.5 -21.6
PRICE PERFORMANCE
LARSEN & TOUBRO
RESULT HIGHLIGHTS
Better margin score pushed net profit ahead of estimate: Larsen & Toubro (L&T)
reported a net profit of Rs977 crore in Q2FY2014 and the same is ahead of our estimate
(while the top line estimate was in line) due to a better than estimated OPM.
Strong order inflow continued; guidance retained: Led by strong order inflow from the
infrastructure segment, the overall order inflow momentum was maintained in
Q2FY2014 too (up 27% YoY). Till H1FY2014, L&T exhibited an order inflow growth
of around 27% YoY. Hence, we believe the company is all set to achieve its annual
order inflow growth guidance of 20% in FY2014. The management reiterated the
order inflow growth guidance of 20% and revenue growth guidance of 15% for FY2014.
Mixed performance of subsidiaries; funding target retained for the year: We believe
two of L&Ts subsidiaries (Infotech and Finance Holding) are likely to remain as cash-
generating assets while Infrastructure Development Projects Ltd (IDPL) will continue
to seek funding. In this context, the management shared that it is actively looking at
monetising assets and trying to rope in an equity investor in IDPL to improve the
return on equity over the next three to four years.
View and valuationretained as top pick; Buy maintained: While the macro-economic
environment remained challenging for the sector, L&T exhibited an impressive
performance in terms of winning orders. We expect the company to stand out on a
relative basis within the sector. Therefore, we maintain our Buy recommendation with
a price target of Rs1,030.
Promoters
64%
FIIs
16%
Domestic
institutions
10%
Others
10%
Foreign
15%
DIIs
37%
Others
48%
STOCK UPDATE
EQUITY FUNDAMENTALS
Price target revised to Rs978; Buy maintained
COMPANY DETAILS
Price target: Rs978
NSE volume (no. of shares): 11 lakh
BSE code: 500257
NSE code: LUPIN
Sharekhan code: LUPIN
(%) 1m 3m 6m 12m
Absolute 4.2 3.9 30.1 58.1
Relative to Sensex -1.8 -3.0 19.0 38.4
PRICE PERFORMANCE
LUPIN
RESULT HIGHLIGHTS
Q2 results better than expected: Lupin reported a 17.5% Y-o-Y growth in the net sales
to Rs2,631.50 crore on account of a strong revenue growth in the USA and the active
pharmaceutical ingredients (API) business. The OPM improved by 338 basis points
YoY to 23.7% on account of a better product mix and currency benefit. The net profit
jumped by 39.8% YoY to Rs406.2 crore during the quarter. The company had net
foreign exchange (forex) gains of Rs4 crore as compared with Rs30 crore in Q2FY2013.
The net profit got reduced by the exceptional expenses of Rs51.30 crore (tax on dividend
received from subsidiaries) in Q2FY2014. Excluding the exceptional tax payments, the
adjusted net profit grew by 57.5% YoY to Rs457 crore during the quarter.
Outlook remains strong; price target revised to Rs978: We expect a stronger performance
going forward on account of (1) new product launches in the USA; (2) a better
performance in the branded business in the USA; (3) impact of the new pricing policy
and sorting of trade issues in the subsequent quarters; (4) continued growth momentum
in the emerging markets; and (5) an improvement in the OPM. We have fine-tuned our
earnings estimates for FY2014 and FY2015 in light of the better earnings visibility. We
have revised our price target up by 8% to Rs978 (implies 21x FY2015E earnings) but
maintained our Buy recommendation on the stock.
COMPANY DETAILS
BSE code: 532500
NSE code: MARUTI
Sharekhan code: MARUTI
(%) 1m 3m 6m 12m
Absolute 8.3 7.3 -4.6 10.8
PRICE PERFORMANCE
MARUTI SUZUKI INDIA
Q2 results ahead of expectations due to increased localisation and forex gains
For Q2FY2014 Maruti Suzuki India reported revenues of Rs10,468.1 crore, which
were marginally ahead of our estimate. The realisation per vehicle at Rs370,550 was
ahead of our estimate by 2.3%.
The OPM at 12.6% was significantly ahead of our estimate of 11.6%. This was on
account of increased localisation and foreign exchange (forex) gains.
The net profit at Rs670.2 crore was significantly ahead of our estimate of Rs566.9 crore.
Guidance lowered on volume growth in H2FY2014: The company reduced the volume
outlook for H2FY2014 on account of the continued weakness in the domestic demand.
While Q3FY2014 would see a relatively better demand on account of the festive season,
the situation after the festive season would remain challenging. Given the challenging outlook
provided, we expect the company to post a 2% decline in FY2014 as against the flattish
volumes estimated earlier.
Q2FY2014 margin surprises positively but likely to moderate in H2: While the margin for
Q2FY2014 saw benefits from the currency, the margin is likely to moderate in H2FY2014
as the enhancement of vendor compensations due to the rupees depreciation would hit in
the second half.
Outlook and valuationNeutral view maintained with revised price target: We have reduced
our revenue assumptions on account of a lower volume guidance given by the company.
However, we have raised our margin assumptions given the strong performance in
Q2FY2014 and increased localisation efforts by the company. We have marginally raised
our FY2014 and FY2015 earnings estimates to Rs90.5/share and Rs107.9/share respectively.
Given the pressure on the demand, we maintain our Hold recommendation on the stock
with a revised price target of Rs1,618.
Promoters
57%
Institutions
15%
Bodies corporate
6%
Public & Others
2%
Foreign
20%
Non-promoter
corporate
1%
Foreign
32%
Promoters
47%
Public and
others
8%
Institutions
12%
STOCK UPDATE
EQUITY FUNDAMENTALS
COMPANY DETAILS
Price target: Rs330
BSE code: 532654
NSE code: MCLEODRUSS
Sharekhan code: MCLEODRUSS
(%) 1m 3m 6m 12m
Absolute 11.2 -2.9 -8.6 -3.6
PRICE PERFORMANCE
MCLEOD RUSSEL INDIA
RESULT HIGHLIGHTS
Volume growth momentum sustained: For Q2FY2014 Mcleod Russel India posted a
double-digit volume growth on account of better tea production in the backdrop of
favourable weather conditions in H1FY2014. Its domestic sales volume grew by 13.3%
YoY to 28.2 million kg in Q2FY2014 on the back of a 16.0% increase in tea production
during the quarter to 39.2 million kg.
Average sales realisation declined by about 2%: The strong improvement in production
of tea in Kenya and better tea production in India weakened tea prices in international
and domestic markets. However, the company fetched a good price for its production
in the domestic market and saw a drop of just Rs2.7 per kg in the average sales realisation
at about Rs173.7 per kg in Q2FY2014.
Operating profit grew in double digits: Its total revenues grew by 11.6% YoY to Rs501.5
crore. Most of the operating cost remained benign during the quarter. Excluding the
forex impact from the other expenses the OPM improved by almost 200 basis points
YoY to 55.6% during the quarter. The operating profit grew by 15.9% YoY to Rs272.8
crore and the adjusted PAT grew by 16.2% YoY to Rs257.6 crore.
Price target revised to Rs330, Buy maintained: At the current market price the stock
trades at 8.9x its FY2014E EPS of Rs30.7 and 7.4x its FY2015E EPS of Rs36.7 We
maintain our Buy recommendation on the stock with a revised price target of Rs330.
Good results; price target revised to Rs387
COMPANY DETAILS
Price target: Rs387
BSE code: 500330
NSE code: RAYMOND
Sharekhan code: RAYMOND
(%) 1m 3m 6m 12m
Absolute 19.8 14.3 -2.7 -27.2
PRICE PERFORMANCE
RAYMOND
RESULT HIGHLIGHTS
Q2FY2014 performance exceeds expectation: Raymonds Q2FY2014 performance
exceeded our expectation on all the three key variable fronts, viz revenues, operating
profit and net earnings. The top line, operating profit and net earnings grew by 10%,
19.2% and 83.5% YoY respectively.
Earnings upgraded: The management sounded confident and optimistic about sustaining
the growth and margin momentum witnessed in Q2FY2014. Going forward, with a
long wedding season awaiting (November-February 2014) coupled with Raymonds
structural changes paying off (supply chain initiatives, new distribution strategy etc),
we believe its performance is likely to remain good. Our revised EPS estimates for
FY2014 and FY2015 are Rs14.8 and Rs23.2 respectively.
Buy maintained with revised price target of Rs387: With the restructuring exercise
largely over, the benefits being visible and the inventory overhang out of the system,
we expect the branded apparel business to revive its profitability track record. Thus, in
the wake of improving business fundamentals, a cleaner balance sheet and exhibition
of a lean working capital execution, the managements enhanced focus on the
monetisation of its lucrative 120-acre land bank parcel (with its core team in place, the
master plan for the real estate business is expected soon) and the stocks ruling at an
attractive valuation at EV/EBITDA of less than 4x FY2015, we maintain our Buy rating
on the stock with a revised price target of Rs387 (core business valued at 5x EV/
EBITDA+ land valued at 50% market price).
Promoters
45%
FIIs
36%
Others
15%
Domestic
institutions
4%
Promoters
40%
Foreign
9%
Institutions
16%
Non-promoter
corporate
5%
Public & Others
28%
Petchem in drivers seat; Buy retained
COMPANY DETAILS
BSE code: 500325
NSE code: RELIANCE
Sharekhan code: RELIANCE
(%) 1m 3m 6m 12m
Absolute -0.3 -2.2 13.5 7.5
PRICE PERFORMANCE
RELIANCE INDUSTRIES
RESULT HIGHLIGHTS
Earnings in line with our expectations; petchem segment surprised positively: In
Q2FY2014, Reliance Industries Ltd (RIL) reported a net profit of Rs5,490 crore, which
was in line with our estimate (Rs5,480 crore) but ahead of the Streets expectations.
The improved margin and higher volume of the petrochemical (petchem) business were
the major drivers of the profit in Q2FY2014. The EBIT contribution of the petchem
segment improved significantly from 28% in Q2FY2013 to 41% in Q2FY2014. Though
the refining segment also exhibited a healthy sales growth, but the GRM declined to
$7.7 per barrel during this quarter, as expected. Hence, the profit of the segment declined.
The exploration segment continued to suffer with a declining output from the Krishna-
Godavari (KG)-D6 basin. Overall, the lower profitability in the refining and exploration
segments was largely compensated by the improved profit from the petchem business.
The profit after tax reported a growth of 2% YoY and 3% QoQ to Rs5,490 crore in
Q2FY2014, which is in line with our estimate.
View and valuationremains positive on improved outlook for downstream business:
We maintain our positive stance on the stock and believe the improved outlook for the
petchem and refining businesses led by the expansion of projects (petcoke gasification
project, polyester capacity expansion and refinery off-gas cracker) will lead to a better
earnings outlook. Moreover, the weak rupee would continue to be beneficial for the
company in the coming quarters. Hence, largely the continued weakness in the
exploration business would be more than compensated. We maintain our Buy rating
on the stock and retain the price target of Rs1,010.
Price target revised to Rs2,600; Buy maintained
COMPANY DETAILS
BSE code: 532540
NSE code: TCS
Sharekhan code: TCS
(%) 1m 3m 6m 12m
Absolute 13.3 37.8 48.0 73.1
PRICE PERFORMANCE
TATA CONSULTANCY SERVICES
RESULT HIGHLIGHTS
Another stellar quarter: Tata Consultancy Services (TCS) reported yet another stellar
quarter and met the heightened expectations of the Street with an impressive set of
numbers. This was a back-to-back quarter of a 6% volume growth for the company
(on an organic basis). TCS continued to demonstrate superior execution and the
management commentary gave us confidence on the growth outlook.
The blended volume for the quarter including Alti grew by 7.3% QoQ. The revenues
were up by 5.4% QoQ (our estimate was at $3,324 million). In rupee terms, the revenues
were reported at Rs20,977.2 crore.
The EBIT margin improved by 310 basis points to 30.2% (the highest ever), led by a
weak rupee coupled with an improvement in the operational efficiency (40 basis points).
The net income for the quarter was higher by 23.9% QoQ to Rs4,701.8 crore (ahead
of our estimate of Rs4,485.9 crore).
Valuation and view: On account of its superior execution coupled with an overall
improvement in the business environment and its broad-based revenue profile, we expect
TCS to continue to lead the IT pack among the Indian IT incumbents. We have marginally
tweaked our earnings estimates upward to incorporate the higher revenue estimates (17.7%
and 19.7% for FY2014 and FY2015 respectively). We estimate a 29% earnings CAGR
over FY2013-15. Also, given the strong earnings predictability and consistency in
performance delivery, we have now assigned a target multiple of 22x (earlier 20x) based
on the FY2015 earnings estimate. Consequently, we have increased our price target to
Rs2,600. We maintain our Buy rating on the stock.
STOCK UPDATE
EQUITY FUNDAMENTALS
Foreign
16%
Institutions
6%
Promoters
74%
Public &
Others
5%
Promoters
45%
DII
12%
FII
18%
Others
25%
COMPANY DETAILS
BSE code: 532538
NSE code: ULTRACEMCO
Sharekhan code: ULTRACEMCO
(%) 1m 3m 6m 12m
Absolute 14.4 2.1 2.4 -3.3
PRICE PERFORMANCE
ULTRATECH CEMENT
RESULT HIGHLIGHTS
Decline in realisation and cost pressures hamper profitability: In Q2FY2014 UltraTech
Cement (UltraTech) posted a revenue decline of 4.2% YoY to Rs4,502.1 crore on
account of a flat volume growth coupled with a decline in the average blended realisation
(down 4.3% YoY and 3.5% QoQ). An increase in the freight charges (up 8.5% YoY
on a per tonne basis), the other expense (up 6.6% YoY) and the employee cost (up
18.8% YoY) led to an overall rise in the per-tonne cost of production. Hence, the
EBITDA per tonne declined by 34.4% to Rs692. Further, the lower than expected
other income and higher interest cost led to a decline in the net profit by 52% YoY to
Rs264 crore (much below our as well as the Streets estimates).
Management outlook: As per the management, the demand environment in the domestic
market is sluggish. Hence, the growth in the cement demand is expected to be at 5%
for FY2014. From the long-term perspective, the cement demand is expected to grow
at 8%. However, the oversupply scenario is likely to continue for the next three years,
which could have an adverse impact on the cement prices. Further, the cost pressure is
expected to keep the margin range bound.
Downward revision in estimates; price target revised to Rs2,009: We have fine-tuned
the volume growth assumptions for FY2014 and FY2015, and also factored in the cost
pressure (freight cost and employee cost). We have accordingly revised our earnings
estimates downwards. However, UltraTech remains our most preferred stock in the
sector due to its strong balance sheet and pan-India presence. We maintain our Hold
recommendation on the stock with a revised price target of Rs2,009.
Results exceed expectation aided by
strong volume growth and forex gains
COMPANY DETAILS
Price target: Rs180
BSE code: 512070
NSE code: UNIPHOS
Sharekhan code: UNIPHOS
(%) 1m 3m 6m 12m
Absolute 11.0 6.8 21.4 32.3
PRICE PERFORMANCE
UNITED PHOSPHORUS
RESULT HIGHLIGHTS
Volume-driven growth aided by favourable exchange rate: During the quarter, the
consolidated revenues of United Phosphorus Ltd (UPL) grew by a robust 26% to Rs2,331.6
crore largely driven by a robust volume (12%) and a favourable exchange rate. In
Q2FY2014, the reported PAT grew by 29% to Rs155 crore. However, after adjusting
for the one-time items of net foreign exchange (forex) loss of Rs5 crore and a one-time
fee for prior-period items of Rs20 crore, the adjusted PAT stood at Rs180 crore, which
was way ahead of our and the consensus expectations. The OPM during Q2FY2014
improved marginally by 70 basis points YoY to 18.3%, thereby showing the companys
focus of maintaining the margin at the current level for the past three quarters.
Demand outlook positive across geographies; management maintains guidance: The
demand environment for agrochemicals remains positive across the world on account
of favourable weather conditions projected by the different meteorological departments.
The North American and the domestic markets are expected to play a key role in the
revival of demand for the agrochemicals as both the markets were witnessing an uneven
weather pattern. The management has maintained its guidance of 12-15% growth in
FY2014, which is largely in line with our estimate.
ValuationBuy retained: UPLs robust Q2 results, a positive commentary by the
management on the demand outlook this fiscal and an attractive valuation leave scope
for re-rating in the stock. Consequently, we maintain our positive stance on the company
and retain Buy recommendation with a price target of Rs180.
STOCK UPDATE
EQUITY FUNDAMENTALS
Promoter
62%
MF & FI
5%
Foreign
21%
Public &
others
12%
MF & FI
12% Foreign
40%
Promoter
29%
Public &
others
19%
Price target revised to Rs520; Hold retained
COMPANY DETAILS
Price target: Rs520
BSE code: 532953
NSE code: VGUARD
Sharekhan code: VGUARD
(%) 1m 3m 6m 12m
Absolute 5.8 -1.2 8.6 25.2
Relative to Sensex 2.7 -4.8 -1.5 11.0
PRICE PERFORMANCE
V-GUARD INDUSTRIES
RESULT HIGHLIGHTS
Disappointing sales dent performance: During Q2FY2014, V-Guard Industries reported
net sales 16% below our estimate as the electronics segment reported weak sales (a
decline of 18% YoY and 48% QoQ). The fall in the sales of the electronics segment
was mainly due to lower sales of digital uninterruptible power supply and uninterruptible
power supply systems. The net sales grew by 7% YoY but declined by 18% QoQ to
Rs334 crore. The operating profit declined by 10% YoY and 13% QoQ to Rs27 crore
in Q2FY2014 while the PAT declined by 19% YoY and 18% QoQ.
Earnings estimates revised downward: The weak sales trend and inventory build-up
indicate considerable moderation in the growth in the electronics segment. Moreover,
we believe that the general trend of lower load shedding in the run-up to the upcoming
elections would keep the demand for inverters muted in the second half of the fiscal.
Hence, we have revised down our revenue and margin assumptions. This has resulted
in a 6-7% downward revision in our earnings estimates for FY2014 and FY2015.
Hold rating retained with revised price target of Rs520: In line with the revision in the
earnings estimates, we have revised down our price target to Rs520. We see limited
upside from the current level but one should look at accumulating the stock on declines
as the company would manage a healthy CAGR of close to 20% in the tough business
environment with a return on equity of over 25%.
Upgraded to Buy with price target of Rs580
COMPANY DETAILS
Price target: Rs580
BSE code: 507685
NSE code: WIPRO
Sharekhan code: WIPRO
(%) 1m 3m 6m 12m
Absolute 6.5 29.3 39.1 67.9
PRICE PERFORMANCE
WIPRO
RESULT HIGHLIGHTS
Revenue growth in line with expectations, posts highest growth in seven quarters:
Wipros revenue growth for Q2FY2014 was a decent 2.7% QoQ to $1,631 million
and 3.2% on a constant-currency basis (in line with our expectation of $1,628 million).
In rupee terms, the revenues were up by 10.7% QoQ to Rs10,772.7 crore.
Margin ahead of expectations, net income beats estimates: For the quarter, led by the
currency tail winds, rationalisation of headcounts (a net reduction of 65 employees)
and operational efficiency (the utilisation ratio excluding trainees improved by 100
basis points to 74.3%), the EBIT margin of the information technology services business
improved by 250 basis points QoQ to 22.5%, ahead of our expectations of 19.7%.
The net income for the quarter was higher by 19% QoQ to Rs1,942 crore, ahead of
our estimate of Rs1,866.9 million.
Valuationimproving earnings predictability, upgraded to Buy: Confident management
commentary led by a conducive operating environment lends support to the earnings
predictability for the coming quarters. We have reset our currency estimates to Rs61
and Rs62 for FY2014 and FY2015 respectively and upgraded our earnings estimates.
At the current market price of Rs515, the stock trades at 16.4x and 14x FY2014 and
FY2015 earnings estimates. Given the improvement in the earnings predictability
(earnings CAGR of 20% over FY2013-15) and undemanding valuation of 14x FY2015E,
we have upgraded our rating on Wipro from Hold to Buy with a revised price target of
Rs580.
STOCK UPDATE
EQUITY FUNDAMENTALS
Foreign
12%
Institutions
5%
Non-promoter
corporate
4%
Promoters
73%
Public & Others
6%
Promoters
66%
DIIs
2%
FII
17%
Others
15%
COMPANY DETAILS
Price target: Rs422
BSE code: 532648
NSE code: YESBANK
Sharekhan code: YESBANK
(%) 1m 3m 6m 12m
Absolute 0.7 -15.5 -26.1 -5.3
PRICE PERFORMANCE
YES BANK
RESULT HIGHLIGHTS
Yes Bank reported a net profit of Rs371.1 crore in Q2FY2014, which was higher than
our estimate. During the quarter, the bank had a one-off MTM gain of Rs111.6 crore
incurred on interest rate swap, which helped it to absorb the MTM losses on the AFS/
HFT investments.
The NII growth was very much in line with our estimate as it grew by 28.2% YoY.
Despite a 25-basis-point rise in the base rate, the NIM declined by 10 basis points
QoQ to 2.9% largely contributed by a rise in the cost of funds.
The growth in the customer assets lagged the industry rate as it grew by 12.7% YoY.
However, the deposit growth remained strong as it grew by 29.2% YoY largely
contributed by the savings deposits, which grew by 80.8% YoY.
The non-interest income posted a robust growth of 61.2% YoY largely contributed by
the financial market segment.
The asset quality broadly remained stable as the NPAs and restructured loans remained
largely similar to the Q1FY2014 levels.
Valuation and outlook: We have fine-tuned our estimates to factor in a reduction in the
MSF rate and a relatively healthy growth in the fee income. We expect the earnings to
grow at a CAGR of 14.8% YoY. Consequently, we have revised our price target to Rs422.
Given the healthy asset quality and the RoA of 1.5%, the valuation seems reasonable. We
maintain our Buy rating on the stock.
Another stellar quarter
COMPANY DETAILS
Price target: Rs300
BSE code: 505537
NSE code: ZEEL
Sharekhan code: ZEEL
(%) 1m 3m 6m 12m
Absolute 11.5 2.3 20.9 31.8
Relative to Sensex 6.5 -1.7 8.6 16.7
PRICE PERFORMANCE
ZEE ENTERTAINMENT ENTERPRISES
RESULT HIGHLIGHTS
Revenues ahead of expectations: For Q2FY2014, the consolidated revenues of Zee
Entertainment Enterprises (ZEE) were up by 15.5% YoY to Rs1,101.3 crore (ahead of
our estimate). On the other hand, the advertisement revenues delivered a 10.5% Y-o-
Y growth to Rs583.3 crore. The subscription revenues were up by 16% YoY. The
revenues from other sales and services were up by 96% YoY to Rs59.9 crore led by a
higher contribution from sports sales syndication on account of the recent cricket series.
Margin surprises positively: The EBITDA margin for the quarter was ahead of our
expectation at 28.2% (our expectation was at 24.8%), which is an improvement of
540 basis points YoY.
Net profit beats estimate: Driven by a strong margin performance, a higher than expected
revenue performance and a higher than expected other income (up by 111% YoY), the
net income for the quarter was up by 26% YoY to Rs236.3 crore (ahead of our estimate
of Rs195.9 crore).
Valuation: We have tweaked our earnings estimates to incorporate a better than expected
margin performance. However, we also take into consideration the negative impact of
TRAI advertisement cap regime on the advertisement revenues in the near term, though
the management has taken a rate hike to negate the same. We expect the earnings to
grow at a CAGR of 14% over FY2013-15. We maintain our positive stance on ZEE.
Given its growth predictability, strong balance sheet and high return ratio, and the lack
of quality investment option in the broadcasting space, the company will continue to
command a premium valuation. We maintain our Buy rating on the stock with a price
target of Rs300.
STOCK UPDATE
EQUITY FUNDAMENTALS
Foreign
45%
Promoters
43%
Public & Others
2%
Institutions
6%
Non-promoter
corporate
4%
Foreign
35%
MF & FI
19%
Promoter
26%
Public &
others
20%
Q2FY2014 IT earnings review
SHAREKHAN SPECIAL OCTOBER 29, 2013
Impressive performance in a seasonally strong quarter: After a
decent June quarter, the numbers for the September 2013 quarter
of the top four Indian information technology (IT) companies
broadly met all the parameters of Q2 being a seasonally strong
quarter. While Tata Consultancy Services (TCS) and HCL
Technologies (HCL Tech) continued to deliver consistent good
results, Infosys positively surprised all with a solid top line
performance. On the other hand, Wipros improved revenue
growth trajectory and encouraging management outlook gave
further signs of a secular revival of demand. The aggregate
sequential revenue growth of the top four IT companies was at
4.2% (2.8% in the June quarter) and the highest in the last
seven preceding quarters. During the quarter, our preferred picks
in the top tier IT companies are TCS and HCL Tech which
continue to outperform the broader market indices and also
the CNX IT index with a return of 30% and 44% (49% and
89% return in the last one year) respectively. On the other hand,
our mid-cap pick Persistent Systems delivered a return of 26%
in the last three months (49% in the last one year).
Management maintains consensus on secular demand green
shoots: In continuation of the overall management commentary
witnessed in the June 2013 quarter, the Companies
managements in the September 2013 quarter too maintained a
consensus on improving green shoots in the demand
environment led by an overall improvement in the US regions
and some pockets of Euro zone. TCS continued to witness broad-
based growth opportunities in its traditional service lines as
well as in the discretionary portfolio, while Infosys management
having a clear departure from its earlier cautiously optimistic
view and gave a much more optimistic picture of the demand
environment (also reflected in the increase in guidance to 9-
10% from 6-10% earlier). HCL Tech too witnessed a growth
traction in its targeted re-bid segment and the infrastructure
managed services (IMS) line (33% of revenues), which continued
to remain a sweet spot. Moreover, the $4 billion deal pipeline
justifies the positive stance of the management. On the other
hand, Wipros guidance for Q3FY2014 (1.8% to 3.6% in dollar
Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a position in the companies mentioned in the article.
terms) remained almost at the same level as that of Q2FY2014
despite December being a seasonally weak quarter, which
reflected in the companys positive outlook.
US immigration reform bill a structural overhang on the sector,
though unlikely to get a clear passage soon: The immigration
bill agenda, which had taken a back seat in October 2013 due
to the US parliamentarians trying to strike a deal to end the
shutdown and to avoid a possible US default by raising the debt
ceiling, is back in focus now. The House of Representatives is
expected to meet during the first week of November 2013 to
discuss the immigration agenda. Though the absence of
consensus among the parties will restrict the blanket passage to
the comprehensive immigration bill for anytime soon. Further,
an increase in the lobbying efforts from the Indian IT incumbents
and also from some US IT companies (IBM) will help to dilute
the final version of the bill. Though the bill overhang could
exert some pressure on the stock performance in the near term,
the price correction if any in the due course could be best used
as a buying opportunity especially in the top four IT companies
for a decent return in the next 12 months.
Valuationpositive stance maintained: We have been
maintaining a positive stance on the IT sector since the last two
years with our preferred bets being TCS and HCL Tech in the
tier I IT companies and both have delivered exceptional returns
of 95% and 179% respectively. We continue to maintain our
positive stance on the sector driven by the improving business
visibility and also supported by the currency tail winds. All the
top four Indian IT companies (Infosys, TCS, HCL Tech and
Wipro) now stand with a Buy recommendation as they are well
placed to capture opportunities offered by the improving
operating environment in the key geographies like the USA and
Europe (expected to witness more secular recovery in FY2015E).
Though our preferred bets continue to remain TCS and HCL
Tech, we have added Infosys to the conviction list. In the mid-
cap space, we like Persistent Systems and CMC.
Particulars Revenues Var^ QoQ YoY EBITDA Var QoQ YoY Net Var QoQ YoY
% % % margin (%) % bps bps profit % % %
TCS 20,977.2 1.6 16.6 34.3 31.6 2.8 300 322 4,701.8 4.8 23.9 33.9
Infosys^ 12,965.0 1.7 15.1 31.5 26.1 -4.3 -33 -299 2,626.0 -1.9 10.6 10.8
Wipro# 10,067.9 0.5 12.7 20.2 25.1 6.1 249 153 1,932.1 3.5 19.0 28.4
HCL Tech* 7,961.0 0.7 14.1 31.2 26.3 3.9 315 444 1,416.0 0.1 18.8 64.1
CMC 560.8 4.6 15.2 22.3 15.8 -4.9 -6 -94 67.3 -2.9 26.7 36.2
NIIT Tech 587.3 -0.2 8.4 17.4 15.1 -3.2 66 -187 62.4 6.7 17.3 44.8
Persistent
Systems 432.4 5.1 21.0 32.3 25.9 13.8 420 -128 60.8 2.2 6.5 36.3
*June year ending #Wipro (IT services) ^Infosys: excluding extraordinary visa related provisions
SHAREKHAN IT UNIVERSE: Q2FY2014 RESULTS PERFORMANCE Rs cr
SHAREKHAN SPECIAL
EQUITY FUNDAMENTALS
EQUITY FUNDAMENTALS
Higher media spend affected bottom line
COLGATE PALMOLIVE INDIA
VIEWPOINT OCTOBER 28, 2013 CMP: RSRS1,228
Result highlights
Sustains strong double-digit volume growth despite intense
competition: Colgate-Palmolive India (Colgate)s net sales grew
by 15.8% to Rs895.7 crore in Q2FY2014, largely driven by a
steady volume growth of 10% in the quarter. The steady volume
growth sustained despite increased competition in the oral care
segment with the entrance of Proctor and Gambles (P&G) in
the toothpaste segment. Colgate reported a volume growth of
9% in the toothpaste segment and further consolidated its
leadership with a market share of 56% during the quarter. Its
toothbrush market share rose by 210 basis points to 41.4%
during the same period.
GPM improves but A&P spending dents OPM: The gross profit
margin (GPM) improved by 142 basis points YoY to 59.6%.
The improvement in the GPM can be attributed to a low input
cost and the price increases undertaken in the product portfolio.
However, the entry of P&G during the quarter saw the existing
players increasing their media spending in the oral care segment.
Colgates advertisement spending as a percentage of sales was
up by 185 basis points to 13.3% and the other expenses as a
percentage of sales was up by 516 basis points YoY to 24.5%.
This led to a 453-basis-point Y-o-Y decline in the operating
Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or
having a postition in the companies mentioned in the article.
Demand recovery in sight
HERO MOTOCORP
VIEWPOINT OCTOBER 23, 2013 CMP: RS2,088
Q2FY2014 result highlights
Hero MotoCorp Ltd (HMCL)s Q2FY2014 results were ahead
of our as well as the Streets estimates.
The realisation per vehicle at Rs40,431 was 2.6% above our
estimate on account of a better product mix and the price hikes
taken. The contribution per vehicle at Rs11,514 was 9% above
estimate due to a better mix and the subdued commodity prices
during the quarter.
HMCL reported an OPM of 14.5%, which is 90 basis points
higher than our estimate.
The lower depreciation further boosted the profit. HMCL
reported a profit of Rs481.4 crore, which is higher than our
estimate of Rs414.1 crore.
Conference call highlights
Demand to pick up in H2FY2014 on account of festive season and
higher rural income: After registering a flat growth in H1FY2014,
HMCL expects the demand to recover in H2FY2014. The festive season
is expected to lead to a recovery in the demand in the second half.
Further, the higher rural income due to a good monsoon is expected to
boost the demand. HMCL is launching 15 new products (including
refreshes) in H2FY2014 to tap the increased demand. Overall, HMCL
is targeting a mid-single-digit growth in the volumes for FY2014.
Cost-control initiatives to boost margin in long term: HMCL has
initiated a long-term cost control programme titled Wave. The
initiative aims at reducing costs in the form of consolidating raw
Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or
having a postition in the companies mentioned in the article.
material purchases, savings in logistics cost and e-bidding for certain
components. HMCL expects savings to the tune of Rs60-80 crore
in H2FY2014. The savings are expected to increase over the next
few years resulting in a margin improvement for HMCL.
Competitive intensity to rise: The two-wheeler industry is set to
witness increased competition with Honda Motorcycle & Scooter
India (HMSI) getting aggressive with new launches. Recently, it
introduced Dream Neo and Activa I (its cheapest scooter) with the
new HET engine. Similarly, Bajaj Auto has planned a slew of
launches in the motorcycle space (particularly in the commuter
segment). HMCL being the market leader is prone to market share
loss on new launches by competition.
Valuation: We maintain our volume assumptions for HMCL, given
the recovery in the festive season. However, we have increased the
margin assumption on account of an outperformance in Q2FY2014
and the companys continued cost-control initiatives. We expect
earnings estimates of Rs108.7 and Rs143.6 for FY2014 and FY2015
respectively. The stock is currently trading at close to its average
historical one-year forward P/E band and largely factors in the
demand recovery. We have a Neutral view on the stock.
profit margin (OPM, excluding the other operational income)
to 15.8%. Hence, the operating profit declined by 16.8% YoY
to Rs146.3 crore. This along with a lower other income resulted
in a 24.5% decline in the adjusted PAT to Rs109.5 crore during
the quarter.
Viewvolume growth ahead of peers; margin pressure to ease
off: Responding to the intensified competition (P&Gs entry in
the oral care segment) Colgate enhanced its advertisement and
promotional activities in Q2FY2014. In the past also, it had
adopted a similar strategy to counter competition from
Hindustan Unilever and GSK Consumer margin had got dented
in the short run. Thus, we believe that the advertisement
spending could taper off in the coming quarters and ease the
pressure on the margin. Moreover, the valuation of 27.5x its
FY2015E (Bloomberg consensus estimate) earnings is supportive
since Colgate trades at a steep discount to Hindustan Unilever
and some of the other multinational consumer companies listed
in India.
VIEWPOINT
All-time high
The Sensex has closed above the previous swings high and
also formed a new all-time high which is a very positive sign
for the Indian stock market.
The daily momentum indicator is trading in positive zone and
above the zero line.
The key support for the Sensex in the next one to five days
would be around 20493 and resistance would be around 23000.
In the short term, the index is expected to trend up till 21500
with reversal around 20490.
The Sensex is trading above the 20-weekly moving average
(WMA), ie 19672, and is expected to trend up for wave 3.
According to the Elliott Wave theory, the index has completed
waves 1 and 2, and wave 3 has already started for a minimum
target of 23000.
The leg on the upside as wave 3 has been confirmed as the
index has formed a new all-time high.
On the weekly charts, the momentum indicator has given a
positive crossover and is trading above the zero line.
As the index has broken out of a range, it is now expected to
continue the positive momentum. The strategy should be to
buy on declines with reversal around the 20-WMA, ie 19672.
The key support in the next one to three weeks would be around
20493 and resistance would be around 21500.
On the monthly chart the Sensex is trading above the 21207-
15135 range and has formed a new all-time high which confirms
a new cycle on the upside.
The Sensex is trading above the 20-monthly moving average,
ie18883, and is expected to form a positive close on the quarterly
and monthly charts.
The index has taken support at a long-term upward sloping
trend line which is a very bullish sign for the market.
The key support in the next one to three months would be
around 18883-17448 levels and resistance would be around
23000.
Sensex: daily view
Sensex: weekly view
Sensex: monthly view
Trend Trend reversal Support Resistance Target
Up 19250 19250 23000 23000
Medium term
Trend Trend reversal Support Resistance Target
Up 20490 20490 21500 21500
Short term

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EQUITY TECHNICALS
TREND & VIEW
Derivative view: Preparing for up move
For the past couple of months the movement in the equity market
has been driven more by news and events than fundamentals. Tracing
positive cues from the Federal Open Market Committee meet in the
USA followed by positive domestic developments (such as a cut in
the marginal standing facility [MSF] rate by the Reserve Bank of
India, improved car sales and narrowing of the trade deficit) triggered
a fresh rally from 5700 odd levels. The ongoing momentum got a
further boost and the index accelerated towards the 6300 mark on a
stabilising rupee, the second quarter results that were in line with
expectations and a partial shutdown of the government in the USA.
The news of tapering getting delayed and a further cut in the MSF
rate along with an increase in the repo rate as per the markets
expectation led the Nifty to register a gain of 9.83% for October
2013 as well for the last month of Samvat 2069.
MARKET WIDE VS NIFTY ROLL-OVER
EQUITY DERIVATIVES
On the Muhurat trading day the market welcomed Samvat 2070
on a cheerful note and greeted everyone with a new all-time high.
In the quarterly results season so far many front-line companies
have been able to deliver results as per the markets expectations
and in the coming days the remaining companies might do the same.
Also, during the second half of the month all eyes would be on
state elections (in Delhi, Rajasthan, Madhya Pradesh, Mizoram
and Chhattisgarh). Put option of strike 6100 stands with the highest
number of shares in OI. On the other hand, in the the current month
the straddle break-even point stands at 6062 on the lower side.
From all the above given arguments we feel that the market may
find support around the 6062-6100 level and resume its upward
journey. Hence, to play this view we recommend forming a Synthetic
Split Strike Long Future with a favourable risk: 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 570.78
INFY 459.32
TATAMOTORS 330.12
RELIANCE 308.67
ICICIBANK 294.96
A synthetic split strike long future is generally formed when an
index/a stock is expected to move in an upward direction. It is an
unlimited profit and unlimited loss strategy. A synthetic split strike
long future can be constructed by buying a call option and selling
a put option of the same index/stock and expiration.
Strategy for the month: Synthetic Split Strike Long Future
PAY-OFF DIAGRAM
STOCK FUTURES (SHAREKHAN SCRIP CODE) OPEN INTEREST (RS CR)
MCDOWELL-N 1695.29
SBIN 1120.13
TCS 1067.08
INFY 915.03
ICICIBANK 887.03
Top five stock futures with highest open interest in the current series
FORMATION
TYPE BUY/SELL STRIKE PREMIUM OUTFLOW
CE Buy 6300 70.00
10.00
PE Sell 6100 60.00
MONTHLY VIEW
Extending the gains of the previous month the index kicked off
October on a positive note. The market welcomed the Hindu New
Year, Samvat 2070, with a life-time high. The November series started
the month with Rs15,360 crore in Nifty futures vs Rs11,127 crore
in the previous month; Rs28,108 crore in stock futures vs Rs23,961
crore in the previous month; Rs58,583 crore in index options vs
Rs57,277 crore in the previous month; and Rs2,761 crore in stock
options vs Rs2,633 crore in the previous month. The roll-over in the
Nifty stood at 73.10%, which is significantly higher than the previous
months roll-over of 64.89% and also the three-month and six-month
average roll-overs of 64.23% and 60.61% respectively. The market-
wide roll-over stood at 80.45%, which is marginally higher than the
three-month and six-month average roll-overs of 78.26% and 78.76%
respectively. Though there was a significant rise in the market and
roll-over, but the roll-over cost decreased gradually which indicates
positions were rolled on the short side.
On the options front, the strike of call 6300 stands with the highest
number of shares in open interest (OI) followed by the strikes of
6400 and 6500. On the put side, the strikes of 6000 and 6100 have
a combined OI of 83 lakh shares with a put-to-call ratio (PCR) of
above 1. In the past few days we have seen the Volatility Index India
(VIX) has gradually risen by more than 20% and in the coming days
we may see a gradual decline in the VIX. From the above data we
conclude that the overall bias for the market is positive.
Strategy note
The strategy has an initial outflow of Rs10.00 in the Nifty, which is
Rs1,000 (10.00*100). The maximum profit potential in this strategy
is unlimited. If the Nifty expires in the range of 6100-6300, a maximum
loss of Rs1,000 (10.00*100) would be incurred. Any move below
6100 will increase the marked-to-market loss so we would recommend
exiting the strategy if the Nifty closes below the 6100 mark. The strategy
will start incurring the maximum profit above 6310, which is also the
break-even point.
Commodities: Sooner than expected Fed taper possibility can offset China impact
Key points
The US Fed hints at sooner than expected taper; dollar recovers a bit
Commodities were mixed in October on taper possibilities; crude oil
tumbles
The euro zone facing deflation risk amid worsening employment
scenario
Euro area inflation at four-year low as unemployment rises to a record
12.2%
Euro zone positive surprises dry up; calls for rate cut grow louder
Moodys: Portugals banking system outlook remains negative
UK growth to outpace Germanys for next two years; housing main
driver
Fourth-quarter US growth forecasts trimmed on shutdown
US car sales return to double-digit growth rate
ISM signals strength for US manufacturing (index rose to 56.4 in
October from 55)
Service industries in the USA grow at a faster pace than forecast;
55.40 vs 54 expected
US government shutdown may add to October jobless rate: Credit
Agricole
US debt crisis spurs Chinese calls for de-Americanized world
US durable goods orders trail the forecast; ex transportation, down
0.1% vs 0.5% expected
Companies in the USA add 130,000 workers, the fewest in six months,
ADP says
Consumer sentiment in the USA fell to 10-month low in October as
shutdown takes it toll
Trade gap in the USA little changed as exports and imports stall
IMF drops 2013-14 global growth forecast to 2.9% from July forecast
of 3.2%
IMF cites weakening conditions in India, Russia, China as the reason
China manufacturing rises to 51.4, an 18-month high, but
weakness remains
COMMODITY PRICES IN OCT 2013 (IN $)
Commodity High Low Close Mon chg %
Copper 7350.0 7087.0 7249.0 -0.7
Zinc 1980.0 1861.0 1952.0 1.8
Lead 2218.0 2042.0 2117.0 3.2
Gold 1361.9 1251.8 1323.1 -0.4
Silver 23.1 20.5 22.8 4.9
Crude oil 104.0 96.0 96.4 -5.4
MONTHLY CHANGE IN SHFE STOCKS (SEP-OCT 2013)
Copper Lead Zinc
Change (in tonne) 27399 60 -9422
27-September-13 150944 86256 253193
Change (in %) 18.15 0.07 -3.72
MONTHLY CHANGE IN DOE PETROLEUM STOCKS (SEP-OCT 2013)
Crude oil Dist. Gasoline
Change in M (000' bbls) 0.02 -0.006 -0.006
27-September-13 0.364 0.129 0.22
Change in (%) 5.49 -4.65 -2.73
Refinary utlisation rate was at 87.30% in the last week of October.
MONTHLY CHANGE IN LME STOCKS (SEP-OCT 2013)
Copper Lead Zinc
Change (in tonne) -61875 -7075 63575
30-September-13 538025 24000 966425
Change (in %) -11.50 -29.48 6.58
NoteLME: London Metal Exchange , SHFE: Shanghai Futures Exchange, DOE: Department of Energy (US)
Macro-economy
Crude oil: Vulnerable as geo-political risk comes down amid rising supplies
Key points
China is now the worlds largest importer of oil
OECD oil inventories remain near historical highs in June, though lower from May, above 10-year average
US crude oil inventories 2.9% above last year, 10.9% above five-year average
Japan crude imports rise 2.9% in September
CME lowers margins for Nymex crude oil futures
Oil rigs in the USA rise to two-month high on Permian basin drilling
US crude oil production climbed to a 24-year high
OPEC October crude production climbs on survey on Iraqi gain
Libyan oil output climbs 150,000bpd to 450,000bpd in October
Crude oil, the best performer of the commodities complex in last few months, had a rough time in October this year. It fared the worst as the
geo-political risk premium cooled down significantly due to easing of tensions in Syria and Egypt, sorting of the Israel-Iran issue and Iran
expressing intentions to curb its nuclear ambitions. The fact that the counter is now in a weak demand period until peak winter amid rising
US supplies also weighed on it. Syria averted a US attack by destroying nearly all of its declared chemical weapons production and mixing
facilities. As per the Organisation for the Prohibition of Chemical Weapons (OPCW), the next target date is November 15, 2013 by when the
OPCW and Syria must agree to a detailed plan of destruction of more than 1,000 metric tonne of toxic agents and munitions. In Libya
loadings at Hariga may resume soon, thus reducing supply concerns. Further downside pressure would build up should the US Federal
Reserve (Fed) go for sooner than expected tapering. The counter is likely to trade in $90-99 range with a downward bias in Q4.
WTI NYMEX crude oil CMP: $94.13
MONTHLY VIEW
COMMODITY FUNDAMENTALS
Gold CMP: $1,320 (SPOT)
Bullions: Still mainly about the US Fed, downside risk looms for gold
Silver CMP: $22 (SPOT)
CPM group sees demand for US mint silver coins rising to a record level this year. The improving economic scenario would help the metal.
German automakers are already using more silver due to soaring demand for vehicles in China. A car contains nearly 30 grams of silver.
Still, the US Fed policy would be the key driver. We look for a range of $20.50 to $24 in the near term.
Copper CMP: RS452 (November contract)
Base metals: Buy at the dips
Key points
Looser bank policy may increase Chinas copper imports: Barclays
Chinas bonded warehouse stockpile seen at 450,000 tonne
China refined lead market seen by Antaike in deficit in 2014
Copper crap supply running tight, to support prices
Copper moves into backwardation briefly
China copper imports hit the highest level of 2013 in September
China copper ore and concentrates imports reach an all-time high in September
Zinc could be rising star of metals markets, Wood Mackenzie says
Lead emerges as the top base metal pick after tin during LME week
Lead seen by ILZSG in shortage for 2014 for first time since 2009
Urbanisation to drive metals growth: Wood Mackenzies Barnes
The key takeaway from the London Metal Exchange (LME) week concluded in October was that commodities super-cycle has got a firm
floor and metals are likely to stay in good demand on account of population growth and urbanisation in the next decade as well. Copper
prices remained firm in the last two months as the LME inventories fell sharply. Chinas copper imports are expected to be strong on
account of financing deals. The metal briefly went into a backwardation due to a sharp rise in cancelled tonnage ratio and continuous
decline in the LME inventories. The level of Rs430 is a strong support; the upside could extend to Rs490.
Lead CMP: Rs135 (November contract)
During the LME week, lead emerged as a metal with quite appealing fundamentals as the metal is likely to be in deficit in 2014. Lead
production will lag behind demand by 23,000 metric tonne in 2014, the first shortage since 2009, the International Lead & Zinc Study
Group (ILZSG) said. Barring a sharp decline in the USD-INR pair, we look for a price range of Rs128-145 with an upward bias.
Gold finished the month steady as investors tried to gauge the degree of tapering by the US Fed. The risk appetite in the financial markets is
still strong despite the US Fed going back and forth on its probable tapering schedule. Rallying risk assets have reduced the safe-haven
demand for the metal. The US central bank has hinted at a possible December or January tapering, however we doubt that this could happen
this soon. In our opinion, the tapering is likely to start in March 2014. This means that a couple of bearish crucial macro-economic reports
like gross domestic product and employment out of the USA could help the metal rise a bit. BullionVault, the world's largest online market
for buying physical bullion, said its index, which measures the balance of customers adding to their gold holdings over those who reduce
them, rose to 54.3, a six-month high, in the last month from 53.0 in September. Chinas demand eased a bit in September as indicated by the
softening of the premium to take immediate delivery. Indias gold demand is somewhat subdued due to high premiums, high import duty,
and slowing economy. Fortune of gold is hinging mostly on the US Feds tapering decision. The lacklustre performance of the metal despite
the US shutdown indicates weakness. We look for a range of $1,245-1,355 with a downward bias.
Key points
Silver use in German autos boosted by China demand
Silver market seen in surplus next year by HSBC Securities
Gold premium in India jumps to $120-130/Oz due to supply constraints
Stocks top gold by most since 1997 on Fed delay
Gold demand in Indian festivals stays subdued
Chinas gold imports from Hong Kong fall on premium, slow demand
Turkeys gold imports jumped to three-month high in October
WGCs Feldman says gold supplies are constrained
US mint gold coin sales rise to 755,500Oz in 2013, topping 2012
Appetite for gold rises to six-month high as per BullionVault Index
US mint silver coin sales seen rising to annual record by CPM
SPDR Gold ETF holdings drop 33.97 metric tonne in October
MONTHLY VIEW COMMODITY FUNDAMENTALS
Zinc CMP: Rs120 (November contract)
Fortunes of zinc are about to change as the surplus is likely to disappear in a year or so on planned mine closures. Lower prices for gold
and silver, which are often mined together with zinc, would also force more closures. Zinc supplies will exceed demand by 120,000 tonne
this year and 115,000 tonne next year, the ILZSG said. We expect the metal to trade between Rs114 and Rs126 with an upward bias.
Major economic events in November 2013
CMP as on November 06, 2013
Date Region Event Survey Actual Prior Impact
01/11/2013 China Manufacturing PMI 50.7 50.9 50.2 China's manufacturing data is an upside surprise. The data is supportive for the base
metals as China is the world's largest metal consumer, however it is to be noted that
internals of the manufacturing report are not that strong, thus further improvement
needed to help the base metals extend rallied; more so as the data out of Europe and
the USA has been mostly disappointing
01/11/2013 UK PMI Manufacturing 56.1 56 56.3 UK data has been mostly better than expected, recent reports suggest that the UK
economy is on a path of sustainable recovery; this is supportive for the industrials
and the pound
01/11/2013 US ISM Manufacturing 55 56.4 56.2 Stronger than expected manufacturing report has helped the dollar recover from its post-
shutdown sell-off; the data has given rise to speculation of sooner than expected tapering
by the Fed, it is bearish for the bullions but supportive for the industrials to some extent
04/11/2013 Euro zone PMI Manufacturing 51.3 51.3 51.1 Positive surprises out of Europe drying up fast, inflation remains at four-year low
while unemployment has hit a record high; the data is in line with expectation, hence
neutral for commodities; the euro is likely to be under pressure due to a possibility of
easing by the ECB
04/11/2013 US Factory orders 1.70% 1.70% -0.10% No major impact as data in line with expectations
06/11/2013 UK Industrial production MoM 1.80% 2.20% -1.50% Suggests strength in the UK economy; it is supportive for industrial commodities and
the pound
07/11/2013 USA GDP annualised (Q3) P 2.00% -- 2.50% Weaker than expected data would support bullions as it could delay the tapering
further, the market is expecting tapering to begin in March 2014
07/11/2013 Euro zone ECB announces interest rates 0.50% 0.50% Focus would be on hints regarding easing in near future as Europe faces deflationary
scenario while unemployment soars, easing hint would weigh on the euro; bullions
can fall briefly with the euro in that case but eventually the easing decision would
support the bullions
07/11/2013 UK BoE asset purchase target 375B 375B No change expected as the economy recovering fast
08/11/2013 USA Change in non-farm payrolls 125K -- 148K ADP report suggests a possibility of lacklustre NFP data as the US shutdown and
debt ceiling impasse could have affected the economy, data trailing the forecast
would be dollar bearish and supportive for bullions; industrials might rise temporarily
on weaker dollar but rallies unlikely to sustain
08/11/2013 USA Unemployment rate 7.30% -- 7.20% It has lost its significance due to low participation rate and a possible tweaking by the
US Fed so far its threshold number for cut down in asset purchase is concerned
08/11/2013 China Trade balance $23.90B -- $15.2B The data would be crucial for commodities as it would reflect the health of both the
global economy and the Chinese economy; data trailing the forecast would be
bearish for the industrial commodities
09/11/2013 China Industrial production YoY 10.10% -- 10.20% The data would be positive for the industrials if it tops the estimate, however some
volatility could be expected as stronger than expected data would reduce the need for
further easing by China
09/11/2013 China Retail sales YTD YoY 13.40% -- 13.30% The data would be positive for the industrials if it tops the estimate
10/11/2013 Japan Trade balance--BOP basis (Sep) -- -885.9B Data crucial for the yen, a reduction in trade deficit would support the yen
13/11/2013 Euro zone Industrial production SA MoM -- -- 1.00% Data trailing the estimate would be bearish for the euro and the commodities
14/11/2013 China CPI YoY 3.20% -- 3.10% A higher than expected inflation figure would be bearish for industrial commodities as
China might tighten the policies to curb inflation
14/11/2013 Euro zone GDP s.a. (YoY) -0.50% Data important for the euro and the industrial commodities, bearish data would be
negative for the commodities in general
15/11/2013 Euro zone CPI MoM -- -- 0.50% A subdued inflation data would be bearish for the euro as the ECB might ease in that case
15/11/2013 USA Industrial production MoM -- -- 0.60% Data important for the dollar and industrial commodities, data topping the estimate
would be bearish for the bullions as it would increase the possibility of sooner than
expected tapering
20/11/2013 USA FOMC minutes -- -- -- The minutes would be scrutinised for hints to possible tapering by the US Fed, a
hawkish report would weigh on commodities and the dollar would rally
20/11/2013 USA Retail sales ex auto and gas -- -- 0.40% Stronger than expected data would support base metals and the dollar, bullions
would decline
22/11/2013 UK GDP QoQ 0.80% Stronger than expected data would support the pound
26/11/2013 USA Consumer Confidence Index -- -- 71.2 Consumer confidence took a hit due to political squabbling over debt ceiling and the
US shutdown, another bearish report would weigh on the dollar and be positive for
the bullions as tapering might get delayed
27/11/2013 USA New home sales -- -- 421K Home sales data of late has been mostly disappointing, data trailing the forecast
would support bullions and be bearish for the dollar
27/11/2013 USA Durables ex transportation -- -- -0.10% The last report was weak, another weaker report could weigh heavily on the dollar
and support the bullions
MONTHLY VIEW
COMMODITY FUNDAMENTALS
Gold has scope for bulls
Gold formed a channelised rally from $1,180 to $1,433 during
July and August. From there it entered the correction mode
since September.
The fall also unfolded in a channelised manner. The yellow
metal found support near the 61.8% retracement mark, ie
$1,276, in October.
From there it moved up and broke out from the falling channel
in October. It has since formed an impulse on the upside and
done a minor correction.
The short-term momentum indicators are in bullish mode. Thus,
the overall upside remains intact.
On the upside, gold can target the high of $1,433. The reversal
would be below the low of $1,251.
Silver set to shine
In the last couple of months silver has formed a three-wave
pull-back from the low of $18.19. The same got over at $25.08.
From there the white metal traveled towards south in a
channelised manner.
It reached near the 61.8% retracement mark ($20.80), which acted
as a key support. From there bulls have taken charge of the metal.
Consequently, silver has broken out from the falling channel.
The short-term as well as medium-term momentum indicators
are in bullish mode. The white metal is expected to march
towards the high of $25.08. The reversal can be placed below
the low of $20.48.
Trend Trend Supports Resistances Target
reversal
Up $20.48 $21.50/21.00 $23.06/24.00 $25.08
Crude oil had crossed the medium-term falling trend line in
July this year but couldnt build upon the gains.
It traded above it for a few months after that. Structurally, it
formed a distribution triangle there and broke down in
September.
It also broke a medium-term rising channel in September.
The daily as well as the weekly momentum indicators have
triggered a bearish crossover.
The fall is breaking up into waves of lower degree and unfolding
in a channelised manner. Crude oil has broken the key support
of $95.75, ie the 61.8% retracement mark. The subsequent
targets are $91.30 and $90. The reversal can be trailed to $98.82
on a closing basis.
reversal
Down $98.82 $93/91 $97 /98 $91.30/90
reversal
Up $1,251 $1,300/1,265 $1,361/1,400 $1,433
Crude oil remains on slippery road

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MACD (2.30146)

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22.5
23.0
23.5
24.0
24.5
25.0
25.5
26.0
26.5
27.0
27.5
0.0%
23.6%
38.2%
50.0%
61.8%
78.6%
100.0%
20.48
25.08
SILVER [CASH] (21.7900, 21.9700, 21.6600, 21.8100, -0.04000)
-1.5
-1.0
-0.5
0.0
0.5
1.0 MACD (0.05968)

April May June July August September October November D
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
110
111
112
113
114
0.0%
23.6%
38.2%
50.0%
61.8%
78.6%
100.0%
91.30
98.82
90
LIGHT CRUDE CONTINUOUS 1000 BARRELS [NYMEX] (96.3200, 96.6500, 94.3600, 94.6100, -1.77000)
-2
-1
0
1
2
MACD (-1.99483)
TREND & VIEW COMMODITY TECHNICALS
reversal
Down $3.388 $2.98/2.72 $3.35/3.388 $2.58
A bearish structure in natural gas
NYMEX natural gas has been trading in a long-term falling
channel since last few months. Within that it had formed a
channelised rise from the lower end to the upper end and from
there (since May) it has started falling once again.
The gas was tumbling down in a short-term falling channel.
Recently it moved out of the channel but couldnt surpass and
sustain above the key weekly moving averages.
Unless the recent high of $3.869 is crossed on a closing basis
the downside potential remains intact.
The gas has the potential to form a multi-month H&S pattern.
The Fibonacci targets on the downside are $3.17 and $2.88.
reversal
Down $3.869 $3.20/$3.00 $3.65/3.78 $3.17/2.88
Chana sees a bullish trend
NCDEX chana formed an impulse on the upside from the low
of Rs2,528 to Rs3,240 in September this year. From there (ie
since September) the commodity saw a sharp correction till the
beginning of October.
It formed a channelised correction and retraced 50% of the rise
in the month. From the key Fibonacci level the price has started
the next leg up now.
It is heading up along with a medium-term rising trend line.
The short-term as well as the medium-term momentum indica-
tors are in bullish mode. Thus, unless the swings low of Rs2,998
breaks on a closing basis the price is expected to target Rs3,240
(the previous high) and Rs3,655 (the equality target).
reversal
Up Rs2,998 Rs3,041/3,000 Rs3,300/3,500 Rs3,240
Rs3,655
Bears take charge of copper
Copper formed a multi-month triangle where the last leg made
a throw-over of the pattern. The triangle was formed in the
right shoulder of a larger head-and-shoulders (H&S) pattern.
Thereafter, copper broke the lower end of the triangular pat-
tern as well as the neckline of the H&S pattern in April.
However, the fall is breaking up into waves of lower degree.
The red metal has once again moved up to retest the pattern
neckline. Structurally, it has formed a multi-month bearish
triangle below the neckline. It seems the pattern is nearly
complete.
Thus overall, the downside remains intact. The target on the
downside will be the equality target, ie $2.58. The reversal can
be pegged at $3.388.

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 2014
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
3.388
2.58
HG COPPER CONTINUOUS 25000 LBS [COMEX] (3.27600, 3.32800, 3.24600, 3.29850, +0.02950)
-15
-10
-5
0
5
10
15 KST (1.11014)

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 D 2014
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%
3.869
2.88
3.17
NATURAL GAS CONTINUOUS 10000 MMBTU [NYMEX] (3.77900, 3.78800, 3.50800, 3.51300, -0.19400)
-20
-10
0
10
20
KST (0.93303)

July August September October November Dece
2500
2550
2600
2650
2700
2750
2800
2850
2900
2950
3000
3050
3100
3150
3200
3250
3300
3350
3400
3450
3500
3550
3600
3650
3700
0.0%
23.6%
38.2%
50.0%
61.8%
100.0%
2998
3240
3655
-100
-50
0
50
MACD (26.6919)
COMMODITY TECHNICALS TREND & VIEW
Currencies: Return of QE taper fears may weaken rupee
Key points
RBI increased repo rate to 7.75%
Assembly elections in key Indian states begin on November 11,
markets expect a BJP victory
US Fed sticks with QE as it waits for more robust recovery, appears
less dovish
Weak euro zone inflation outlook raises speculations of further
ECB easing
The UK set to be the fastest growing western economy
Bank of Japan raises GDP forecast, holds line on inflation
CURRENCY LEVELS IN OCTOBER 2013 (IN RS)
Currency High Low Close Monthly chg (%)
USD-INR 63.80 61.05 61.47 1.19
EUR-INR 86.00 82.88 84.77 -0.82
GBP-INR 102.79 97.72 99.03 0.91
JPY-INR 65.04 62.06 63.01 -0.35
INR-USD CMP: Rs62.40 (SPOT)
The rupee stabilised in the 61.00-62.00 range per dollar in October this year after the US government shutdown and fiscal showdown in the USA
convinced the markets that the US Federal Reserve (Fed)s quantitative easing (QE) taper will be delayed until March 2014. On the other hand,
the Reserve Bank of India (RBI) remained hawkish and increased the repo rate by 25 basis points in October while bridging the gap between the
repo rate and the marginal standing facility rate to 100 basis points. However, the gains in the rupee were capped after a less than expected
dovish tone of the Fed policy underpinned dollar demand. The rupee would remain vulnerable to the weakness in the EUR-USD pair and a
possible correction in the domestic equities in November. Strong US data after the government shutdown would revive QE taper fears. On the
other hand, weak crude prices, a shrinking current account deficit and a possible Bharatiya Janata Party (BJP) win in the state elections would
provide support to the rupee. A dip below 61.00 levels is likely to see the RBI tapering the dollar window for oil importers. We see the USD-INR
in a range of 61.50 to 64.00.
INR-GBP CMP: Rs100.47 (SPOT)
The pound hit a nine-month high against the dollar in October as dramatic budget disagreements led to a partial shutdown of the US
government and a possible delay of QE taper until March 2014. The pound also found support through strong services, manufacturing and
construction sector data that suggest that the economy had a good start to Q4. This makes Bank of England appear hawkish against its US
counterpart. Among the major economies of the world, the UK is perhaps the only one which is experiencing high inflation and real income
squeeze. Thus, it is unlikely that Bank of England would go for fresh stimulus measures now that the economy is improving amid high
inflation. Moreover, a strong pound will help in reducing the inflationary forces, thereby paving the way for a rapid recovery in future. Thus,
we believe that the GBP-USD will stay largely in a range of 1.58 to 1.62 in November. We see the GBP-INR in the 97.82-100.60 range.
INR-JPY CMP: Rs63.34 (SPOT)
The yen remained sideways against the dollar in October amid dovish policy expectations from the Fed and a slump in carry trades due
to policy tightening in China. A fall in US bond yields due to dovish expectations from the Fed helped the yen, though the Japanese
benchmark bond yields also fell below 0.6% for the first time since May 2013. The Bank of Japan (BoJ) revised up growth for FY2014
to 1.5% from 1.3% currently, reflecting the expected boost to the economy from a 5-trillion-yen ($51-billion) package planned by Abe
to cushion the impact of the tax hike. Any rise in the US yields on strong US data is likely to be countered by the weakening of the risk-
on sentiment. On the other hand, a fall in the Japanese equity index, Nikkei, and policy tightening in China would push the USD-JPY
towards 96.50 levels. We see the JPY-INR in the range of 61.50 to 64.10.
October 2013 contract price movement October 2013 contract price movement
CMP as on November 06, 2013
The euro rose to a two-year high against the dollar in October on concerns the US economy may have been hit hard by the 16-day
government shutdown leaving the US Fed reluctant to reduce monetary stimulus any time soon. The euro also gained on tight monetary
conditions due to a shrinking balance sheet of the European Central Bank (ECB). However, a fall in annual inflation to a four-year low
of 0.7% in October and a rise in the unemployment rate to a new record high raised concerns that the European Union (EU) may be
falling in a deflationary trap. The markets ditched the euro in anticipation of a rate cut by the ECB in November. Rate cut or not, we
believe that ECB would come out dovish. Thus, we hold a bearish view on the EUR-INR. However, if the central bank rejects the rate cut
calls the EUR-USD would soar to 1.4 levels. The EUR-INR can fall to 81.70 levels.
CURRENCY FUNDAMENTALS
INR-EUR CMP: Rs84.37 (SPOT)
83
85
87
89
2
6
-
S
e
p
-
1
3
2
8
-
S
e
p
-
1
3
3
0
-
S
e
p
-
1
3
2
-
O
c
t
-
1
3
4
-
O
c
t
-
1
3
6
-
O
c
t
-
1
3
8
-
O
c
t
-
1
3
1
0
-
O
c
t
-
1
3
1
2
-
O
c
t
-
1
3
1
4
-
O
c
t
-
1
3
1
6
-
O
c
t
-
1
3
1
8
-
O
c
t
-
1
3
2
0
-
O
c
t
-
1
3
2
2
-
O
c
t
-
1
3
2
4
-
O
c
t
-
1
3
96
98
100
102
104
EURINR GBPINR
60
61
62
63
64
2
6
-
S
e
p
-
1
3
2
8
-
S
e
p
-
1
3
3
0
-
S
e
p
-
1
3
2
-
O
c
t
-
1
3
4
-
O
c
t
-
1
3
6
-
O
c
t
-
1
3
8
-
O
c
t
-
1
3
1
0
-
O
c
t
-
1
3
1
2
-
O
c
t
-
1
3
1
4
-
O
c
t
-
1
3
1
6
-
O
c
t
-
1
3
1
8
-
O
c
t
-
1
3
2
0
-
O
c
t
-
1
3
2
2
-
O
c
t
-
1
3
2
4
-
O
c
t
-
1
3
2
6
-
O
c
t
-
1
3
2
8
-
O
c
t
-
1
3
62
63
64
65
66
USDINR JPYINR
MONTHLY VIEW
GBP-INR has scope for recovery
The GBP-INR on its way up had crossed multiple resistances in
the month of August.
It registered a new all-time high of 106.984 in the month of
August. From there the price has seen a decent correction.
However, the recent structure shows that a bounce is in the
offing which is sub-dividing into waves of lower degrees.
The price has crossed a short-term falling trend line and is
consolidating near the key daily moving average (MAs).
Thus, unless the recent low of 97 breaks on a closing basis, the
price can bounce till 102. On the other hand, below 97 the
bearish potential will open up.
Currency View Reversal Supports Resistances Target
USD-INR Up 60.50 61.07/60.93 63.03/63.50 63.90
GBP-INR Up 97.00 98/97.60 100.26/100.85 102.00
EUR-INR Up 82.41 83/82.5 85.36/86 86.10-87.25
JPY-INR Up 0.6160 0.6203/0.6170 0.6367/0.6400 0.6442
EUR-INR tests supports
In case of the EUR-INR the momentum on the way up was so
sharp that the price crossed the upper end of the long-term
rising channel.
The price also crossed the upper end of the medium-term rising
channel but faltered above the trend line. It turned out to be a
reversal from the medium-term perspective.
From there the price has fallen till the long-term channel line,
which is now acting as a key support.
Thus unless the low of 82.41 is broken on a closing basis, the
EUR-INR is set for a bounce. The short-term momentum
indicator is in line with the expected bounce. The short-term
targets will be 86.10 and 87.25.
JPY-INR on the verge of a bullish structure
As can be seen from the adjacent chart, the JPY-INR had broken
out from the ending diagonal pattern as well as the medium-
term falling channel in May this year.
From there the price had formed a three-wave rise and achieved
the equality as well as the channel targets on the upside. From
the high of 0.7081 the currency pair entered the correction mode.
It has formed an impulse on the downside and broken the lower
end of the channel. However, the recent structure has taken the
form of an ending diagonal, which is a bullish sign. Thus unless
the level of 0.6160 is broken on a closing basis, the short-term
target will be 0.6442.
USD-INR is poised for a bounce
From the high of 68.80 touched in the month of August the
USD-INR has fallen sharply.
However, in the last few weeks the angle of decline has
decreased. In terms of price pattern, it has formed an ending
diagonal pattern, which is a bullish sign in this particular case.
However, we are yet to see a significant follow-through of the
pattern. The daily momentum indicator is showing a positive
divergence.
Thus, unless the level of 60.50 is broken on a closing basis, the
USD-INR can bounce till 63.90.
CURRENCY TECHNICALS

June July August September October November December
57.0
57.5
58.0
58.5
59.0
59.5
60.0
60.5
61.0
61.5
62.0
62.5
63.0
63.5
64.0
64.5
65.0
65.5
66.0
66.5
67.0
67.5
68.0
68.5
69.0
69.5
70.0
70.5
0.0%
23.6%
38.2%
50.0%
61.8%
100.0%
68.80
60.50
63.90
USDINR - INDIAN RUPEE (61.5000, 62.0150, 61.5000, 61.7400, +0.12600)
0
5
KST (0.07928)

une July August September October November Decembe
91
92
93
94
95
96
97
98
99
100
101
102
103
104
105
106
107
108
109
110
0.0%
23.6%
38.2%
50.0%
61.8%
100.0%
97
102
GBPINR (98.8290, 99.3050, 98.2100, 98.3150, -0.51400)
0
5
KST (-0.39985)

une July August September October November December
78.0
78.5
79.0
79.5
80.0
80.5
81.0
81.5
82.0
82.5
83.0
83.5
84.0
84.5
85.0
85.5
86.0
86.5
87.0
87.5
88.0
88.5
89.0
89.5
90.0
90.5
91.0
91.5
92.0
92.5
93.0
93.5
94.0
0.0%
23.6%
38.2%
50.0%
61.8%
100.0%
82.41
86.10
87.25
EURINR (83.6840, 84.0600, 83.2130, 83.2560, -0.42800)
0
5
KST (-0.13282)

March April May June July August September November December
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
0.0%
23.6%
38.2%
50.0%
61.8%
100.0%
0.6160
0.6442
JPYINR (0.62630, 0.63240, 0.62440, 0.62550, -0.00090)
0
5
KST (-0.46181)
TREND & VIEW
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
Bharti Airtel
Colgate-Palmolive (I)
HDFC Bank
Larsen & Toubro
Mahindra & Mahindra
Oil India
Reliance Communication
Reliance Industries
State Bank of India
Product performance
as on October 31, 2013
(In %) Scheme Sensex Nifty
1 month 8.0 9.2 9.8
3 month 6.8 9.4 9.7
Since inception* -4.8 17.7 16.7
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
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 8.6 9.2 9.8
3 month 6.9 9.4 9.7
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* 33.4 25.7 24.5
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
October of 2013 was a good month for the market and the Nifty rose by about 9%
with participation from across sectors, indicating that this trend is likely to continue
with hurdles along the way and that 6100 will act as a strong demand zone in the
medium term.
The next series is going to be a little subdued especially in the early part of the series
as a lot of call writing has been seen in 6300 and 6400 call options. The implied
volatility (IV) has cooled significantly from 27% to 20% bringing IV close to its
long-term average. This indicates a halt for some time and consolidation at the current
levels with a positive bias. The market is likely to continue its uptrend until we are
trading above 6100. Its failure to hold 6100 may take the Nifty to around 5800, the
point from where the current rally started.
October was one of the best months for Diversified investors and the fund delivered
close 8.56% return, the highest since its inception, on a monthly closing basis. Since
inception the scheme has delivered close to 33.4% as against the market which has
risen by 24% in the same period. The scheme has seen tough times in the last two
quarters as the market was extremely choppy in this period and had led to a higher
number of whipsaw trades. We expect the scheme to deliver higher returns as the
Nifty is coming out of a trading range and that is good for trend-following products.
*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%
OVERVIEW
The ProTechSharekhan Managed Futures All Markets Beacon Fund 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 Nifty futures by predicting the market direction based on a
back-tested automated model.
Product performance
1 month 5.9 9.2 9.8
3 month 9.9 9.4 9.7
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* 184.2 109.1 108.5
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
Sharekhan Managed Futures All Markets Beacon Fund (AMBF) delivered a positive
return of 5.9% for October 2013. Clearly trending markets allowed us to give positive
returns for the entire three-month period, ie August-October 2013, as well at 9.86%.
Automated systems rely on trending markets for lower drawdowns and higher monthly
volatility for higher returns. Both of these had contracted after 2009 up to 2012 and
have been slowly expanding all through 2013. If the present trend continues then
things should keep getting better and we might witness a windfall at some point from
volatility expansion.
Our view remains that the market continues to be weak and is likely to turn more
bearish with increasing volatility. Once sector rotation is complete the trending nature
of the market will improve substantially in our favour from the returns perspective.
Being an automated model, AMBF would benefit from both bullish and bearish moves.
Investments in
Nifty Index
INVESTMENT STRATEGY
The strategy has the potential to generate profits irrespective of the market
direction by going long or short on Nifty futures.
An automated basic back-testing model is used to predict the market 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
If you were searching for "Nifty Thrifty" then you are in the right place,
the name of the fund has been changed to "Sharekhan Managed Futures All Markets Beacon fund",
to represent the product better; everything else remains the same.
PROTECH - SHAREKHAN MANAGED FUTURES ALL MARKETS BEACON FUND
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 -3.7 9.2 9.8
3 month -0.1 9.4 9.7
FY12-13 14.9 8.2 7.3
FY11-12 29.0 -6.1 -4.6
FY10-11 - - -
FY09-10 - - -
Since Inception* 51.9 14.2 13.5
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
Trailing Stops had a negative month and a wrong view is a risk that we live with.
After the Nifty hit 6142 we had not anticipated much upside in the market. Besides,
rotation in stocks had ensured that irrespective of long or short position we were
unable to generate a return from it. Thus, October of 2013 ended with a negative
return of 3.74. Risk management remains the focus of the fund and we dont expect
the drawdown to expand. The improvement in the markets trending behaviour should
eventually reward us handsomely with some big moves before the year end.
Our view remains that the market continues to be weak and is likely to turn more
bearish with increasing volatility. Once sector rotation is complete the trending nature
of the market will improve substantially in our favour from the returns perspective.
We would benefit from both bullish and bearish moves.
Investments in
Nifty Index
Stock futures
INVESTMENT STRATEGY
This strategy spots the winning trades based on technical analysis vs time frame-
based portfolios, basically the momentum calls.
A risk model has been developed for stock portfolio allocation that reduces 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 Oct 2013 YTD FY14
No. of calls 8 172
Profit and loss (Rs) -1,510 30,766
Returns (%) -0.50 10.26
ADVISORY DESK
N
E
W
MID performance#
Product MID Intraday MID Swing MID Delivery MID Delivery Series MID Option
Month Oct 2013 YTD FY14 Oct 2013 YTD FY14 Oct 2013 YTD FY14 Oct 2013 YTD FY14 Oct 2013 YTD FY14
No. of calls 67 494 19 93 19 157 - 21 18 145
Profit booked 42 315 12 52 15 92 - 12 13 90
Stop loss hit 25 179 7 41 4 65 - 9 5 55
Strike rate (%) 63 64 63 56 79 59 - 57 72 62
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) OCTOBER 10, 2013
MUTUAL FUNDS DESK
Data as on October 04, 2013
Scheme name Star NAV (Rs) Returns (%)
rating Absolute Compounded annualised
6 months 1 year 3 years 5 years Since inception
Large-cap funds
Canara Robeco Large Cap+ Fund 12.0 6.6 2.5 3.8 - 5.9
ICICI Prudential Focused Bluechip Equity Fund - Ret 18.8 9.0 6.1 3.0 17.0 12.5
Birla Sun Life Top 100 Fund 25.8 7.8 4.7 2.2 12.9 12.7
Birla Sun Life Frontline Equity Fund - Plan A 99.6 6.9 6.3 1.5 14.5 23.0
UTI Leadership Equity Fund 16.7 7.2 4.0 -0.9 9.1 6.9
Indices
BSE Sensex 19,916.0 7.6 4.5 -0.9 9.71 16.4
Mid-cap funds
Mirae Asset Emerging Bluechip Fund 12.8 1.5 -2.0 3.8 - 7.8
IDFC Premier Equity Fund - Reg 36.6 0.8 -0.8 1.2 17.3 17.6
Franklin India Prima Fund 310.7 1.8 3.8 0.5 14.5 18.9
IDFC Sterling Equity Fund - Reg 20.0 0.9 -2.7 -0.3 19.2 13.2
Principal Emerging Bluechip Fund 31.1 1.5 -1.3 -3.6 - 26.1
Indices
BSE MID CAP 5,731.0 -6.7 -14.9 -11.5 4.14 19.3
Multi-cap funds
BNP Paribas Equity Fund 40.8 9.2 9.1 3.4 10.6 16.8
ICICI Prudential Dynamic Plan 120.3 9.1 6.9 3.0 14.3 25.5
ICICI Prudential Top 100 Fund 156.1 7.9 6.1 2.8 12.5 19.7
UTI Equity Fund 62.3 6.9 3.0 2.4 13.9 10.8
Templeton India Equity Income Fund 22.1 2.1 5.2 0.4 13.1 11.3
Indices
BSE 500 7,210.2 3.1 -1.6 -4.1 8.60 14.4
Tax saving funds
Axis Long Term Equity Fund 15.2 8.1 5.0 5.3 -- 11.7
BNP Paribas Tax Advantage Plan 16.9 8.1 6.5 3.0 11.7 7.0
ICICI Prudential Taxplan 152.6 5.8 1.9 0.3 15.2 21.3
Religare Invesco Tax Plan 19.1 2.8 1.7 -0.1 14.2 10.1
HDFC Long Term Advantage Fund 144.5 2.5 0.5 -0.8 12.3 23.3
Indices
CNX500 4,516.2 3.1 -1.4 -3.6 8.63 8.2
Thematic funds
ICICI Prudential Exports and Other Services Fund 23.7 22.6 30.7 7.5 15.1 11.6
Birla Sun Life India GenNext Fund 31.6 8.2 9.0 6.1 16.1 15.1
UTI India Lifestyle Fund 13.8 5.2 2.2 2.8 13.7 5.4
L&T India Special Situations Fund 20.6 4.4 1.3 0.9 12.3 10.3
Canara Robeco Force Fund - Reg 14.8 0.2 -2.1 -0.2 -- 10.1
Indices
S&P Nifty (CNX Nifty) 5,907.3 6.0 2.1 -1.4 9.11 14.0
Balanced funds
ICICI Prudential Balanced 56.5 5.0 6.3 6.3 13.6 13.2
Birla Sun Life 95 342.3 3.9 2.6 1.9 14.9 20.8
FT India Balanced Fund 54.1 2.9 2.7 1.8 10.0 13.0
UTI Balanced Fund 85.1 1.9 1.5 -0.2 10.7 15.7
Reliance RSF - Balanced 23.8 0.2 -4.1 -0.7 14.9 11.0
Indices
Crisil Balanced Fund Index -- 4.0 3.0 1.6 9.2 12.5
MF PICKS
SHAREKHANS TOP SIP FUND PICKS OCTOBER 10, 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 October 04, 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
Birla Sun Life Frontline Equity Fund - Plan A 99.6 12,349.1 3.2 40,598.2 4.2 79,154.0 5.8
ICICI Prudential Focused Bluechip Equity Fund-Ret 18.8 12,475.7 4.4 40,440.6 4.1 82,204.4 6.6
Birla Sun Life Top 100 Fund 25.8 12,401.1 3.7 40,349.8 4.0 77,840.1 5.4
UTI Leadership Equity Fund 16.7 12,326.8 3.0 39,511.1 3.2 72,904.1 4.0
Reliance Equity Fund 14.7 12,225.8 2.1 39,232.6 3.0 67,202.7 2.3
BSE Sensex 19,916.0 12,403.7 3.69 39,192.6 2.9 73,336.5 4.2
Multi-cap funds
ICICI Prudential Top 100 Fund 156.1 12,528.9 4.8 40,638.2 4.2 78,239.8 5.5
UTI Equity Fund 62.3 12,267.5 2.4 39,901.6 3.6 79,360.5 5.9
Templeton India Equity Income Fund 22.1 11,905.4 -0.9 38,733.9 2.5 77,924.0 5.5
PineBridge India Equity Fund - Std 13.2 12,173.0 1.6 38,156.8 2.0 73,734.6 4.3
Reliance Equity Opportunities Fund 39.6 11,547.0 -4.1 38,074.1 1.9 82,380.9 6.7
BSE 500 7,210.2 11,952.3 -0.44 37,041.7 1.0 69,528.7 3.0
Mid-cap funds
Franklin India Prima Fund 310.7 11,992.6 -0.1 39,900.4 3.6 81,181.5 6.3
SBI Magnum Midcap Fund 25.2 11,959.9 -0.4 39,418.5 3.2 76,538.7 5.1
IDFC Sterling Equity Fund - Reg 20.0 11,861.2 -1.3 38,247.8 2.1 79,886.3 6.0
UTI Mid Cap Fund 32.4 11,844.7 -1.4 37,204.6 1.1 75,255.0 4.7
Sundaram Select Midcap - Reg 155.6 11,820.3 -1.6 37,143.4 1.1 75,908.5 4.9
BSE Midcap 5,731.0 11,017.3 -8.94 32,182.5 -3.8 59,973.3 0.0
Tax saving funds
BNP Paribas Tax Advantage Plan 16.9 12,431.8 4.0 41,207.5 4.7 79,745.0 6.0
DSP BlackRock Tax Saver Fund 18.3 12,168.3 1.5 39,418.5 3.2 76,498.5 5.1
ICICI Prudential Taxplan 152.6 12,251.9 2.3 39,126.7 2.9 80,278.0 6.1
Religare Invesco Tax Plan 19.1 12,072.0 0.7 38,684.2 2.5 77,373.4 5.3
L&T Tax Advantage Fund 23.1 12,199.9 1.8 38,217.3 2.1 76,281.8 5.0
CNX Nifty 5,907.3 12,226.3 2.1 38,594.8 2.4 72,220.3 3.8
Sharekhan ValueGuide
November 2013
47
Prices as on November 07, 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
AUTOMOBILES
Apollo Tyres 73.1 12,794.6 13,850.9 15,129.5 596.9 721.4 778.4 11.9 14.3 15.4 14% 6.1 5.1 4.7 18.4 17.7 17.7 16.2 0.5 0.7
Ashok Leyland 16.8 12,481.2 11,647.9 16,201.4 148.2 (201.0) 452.6 0.6 -0.8 1.7 68% 28.0 - 9.9 0.7 9.5 - 10.1 0.6 3.6
Bajaj Auto 2,101.2 19,997.3 22,994.4 27,986.2 3,043.6 3,832.3 4,750.2 105.2 132.5 164.3 25% 20.0 15.9 12.8 52.0 47.8 37.7 36.6 45.0 2.1
M&M 898.0 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% 15.6 15.6 14.6 25.0 22.8 18.2 16.3 13.0 1.4
Maruti Suzuki 1,610.8 43,076.7 44,160.2 52,183.8 2,300.0 2,733.4 3,258.1 79.6 90.5 107.9 16% 20.2 17.8 14.9 17.0 18.3 13.3 14.1 8.0 0.5
BANKS & FINANCE
Allahabad Bank 90.7 6,343.3 7,286.6 8,389.4 1,185.2 1,398.2 1,652.8 23.7 28.0 33.1 18% 3.8 3.2 2.7 - - 11.8 12.7 6.0 6.6
Andhra Bank 63.8 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% 2.8 2.8 2.7 - - 14.0 13.6 5.0 7.8
Axis (UTI) Bank 1,171.3 16,217.4 18,789.5 21,320.9 5,179.4 5,620.3 6,306.4 110.7 120.1 134.8 10% 10.6 9.8 8.7 - - 15.9 15.6 18.0 1.5
Bajaj Finserv 668.4 5,072.4 - - 1,573.6 - - 103.0 - - - 6.5 - - - - - - 1.5 0.2
Bank of Baroda 605.1 14,945.9 16,191.9 19,203.2 4,480.7 4,312.2 5,124.0 106.0 102.1 121.3 7% 5.7 5.9 5.0 - - 12.8 13.7 21.5 3.6
Bank of India 220.8 12,790.0 14,355.6 16,632.6 2,749.3 2,846.8 3,384.2 46.1 47.7 56.7 11% 4.8 4.6 3.9 - - 11.4 12.4 10.0 4.5
CanFin Homes 149.3 95.7 136.8 165.5 54.1 71.0 84.5 26.4 34.6 41.2 25% 5.6 4.3 3.6 - - 16.8 17.4 4.0 2.7
Capital First 164.6 245.0 305.0 405.6 63.1 53.2 96.3 9.0 7.6 13.7 24% 18.4 21.8 12.0 - - 5.4 9.2 1.8 1.1
Corp Bank 302.7 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% 3.2 3.1 2.6 - - 14.9 15.8 19.0 6.3
Federal Bank 78.9 2,639.1 2,943.5 3,450.2 842.8 762.1 942.9 9.9 8.9 11.0 6% 8.0 8.8 7.2 - - 11.4 12.9 1.8 2.3
HDFC 841.8 5,927.5 6,972.6 8,427.5 4,848.3 5,614.8 6,629.2 31.3 36.5 43.0 17% 26.9 23.1 19.6 - - 18.0 17.5 12.5 1.5
HDFC Bank 665.4 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% 23.5 18.8 15.0 - - 21.3 22.6 5.5 0.8
ICICI Bank 1,051.5 22,212.1 25,889.3 29,947.8 8,326.2 8,960.9 10,582.0 72.2 77.9 91.9 13% 14.6 13.5 11.4 - - 12.9 14.0 20.0 1.9
IDBI Bank 67.2 8,592.6 8,617.1 9,773.9 1,882.1 1,456.7 1,972.1 14.1 10.9 14.8 2% 4.8 6.1 4.5 - - 6.7 8.5 3.5 5.3
PNB 545.6 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% 4.1 4.5 4.4 - - 12.4 11.5 27.0 4.9
SBI 1,752.6 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% 8.5 9.7 8.2 - - 11.9 12.8 41.5 2.4
Union Bank of India 126.9 10,094.9 10,762.5 12,411.8 2,158.5 1,852.2 2,274.5 36.2 31.0 38.1 3% 3.5 4.1 3.3 - - 10.4 11.7 8.0 6.3
Yes Bank 360.8 3,476.2 4,188.6 5,098.2 1,300.7 1,489.8 1,713.8 36.3 41.5 43.5 10% 9.9 8.7 8.3 - - 23.2 20.2 6.0 1.7
CONSUMER GOODS
Bajaj Corp 237.8 606.7 723.7 875.1 167.4 179.1 220.9 11.3 12.1 15.0 15% 21.0 19.7 15.9 43.1 45.5 34.5 37.5 6.5 2.7
GSK Consumers* 4,682.1 3,079.4 4,697.8 4,331.7 436.8 682.2 642.1 103.9 162.2 152.7 21% 45.1 28.9# 30.7 52.5# 49.1 34.5# 32.2 45.0 1.0
GCPL 825.7 6,390.8 7,782.7 9,525.9 667.2 849.6 1,098.4 19.6 25.0 32.3 28% 42.1 33.1 25.6 20.6 24.4 25.5 27.4 5.0 0.6
Hindustan Unilever 590.0 26,317.2 29,514.8 33,463.5 3,233.7 3,503.0 3,917.8 15.0 16.2 18.1 10% 39.3 36.4 32.6 129.3 101.5 97.2 74.1 18.5 3.1
ITC 320.5 29,901.3 33,816.4 40,450.2 7,418.4 8,734.6 10,414.8 9.4 11.1 13.2 19% 34.1 28.9 24.3 46.3 46.5 36.1 36.0 5.3 1.6
Jyothy Laboratories 187.2 1,106.0 1,340.8 1,616.6 16.1 77.6 135.6 1.2 4.7 8.2 161% - 39.8 22.8 11.5 16.7 12.0 19.7 2.5 1.3
Marico^ 208.3 4,596.2 4,749.7 5,566.0 370.3 474.0 562.7 5.7 7.3 8.7 24% 36.5 28.5 23.9 23.9 26.2 21.7 21.3 1.0 0.5
Mcleod Russel India 266.9 1,629.5 1,876.7 2,113.6 274.2 335.9 401.6 25.1 30.7 36.7 21% 10.6 8.7 7.3 19.2 20.1 16.7 17.6 7.0 2.6
TGBL (Tata Tea) 160.4 7,351.0 8,075.8 8,979.1 391.5 475.3 540.2 6.3 7.7 8.7 18% 25.5 20.8 18.4 11.2 12.0 9.6 10.1 2.2 1.3
Zydus Wellness 565.3 388.0 439.7 520.5 99.0 105.0 128.8 25.3 26.9 33.0 14% 22.3 21.0 17.1 38.4 36.6 35.7 33.8 6.0 1.1
IT / IT SERVICES
CMC 1,370.0 1,927.6 2,235.8 2,673.3 230.2 251.9 312.6 76.0 83.1 103.2 17% 18.0 16.5 13.3 30.6 30.4 24.0 24.4 17.5 1.3
HCL Technologies** 1,103.1 25,733.7 33,735.3 37,965.5 4,098.7 5,898.2 6,684.7 58.2 83.5 94.7 28% 19.0 13.2 11.6 45.1 39.9 39.1 33.7 12.0 1.1
Infosys 3,357.6 40,352.0 51,363.5 58,609.1 9,421.0 10,627.2 12,313.3 164.7 185.8 215.3 14% 20.4 18.1 15.6 34.1 33.0 25.4 24.6 42.0 1.3
NIIT Technologies 294.4 2,021.4 2,375.6 2,716.6 213.2 245.0 270.3 35.4 40.7 44.9 13% 8.3 7.2 6.6 29.6 27.2 20.4 19.5 8.5 2.9
Persistent Systems 804.4 1,294.5 1,684.3 1,975.1 187.7 247.6 285.7 46.9 61.9 71.4 23% 17.2 13.0 11.3 31.6 30.1 22.7 21.8 9.0 1.1
TCS 2,122.0 62,989.5 84,515.9 101,060.3 13,941.4 19,389.3 23,153.7 71.2 99.1 118.3 29% 29.8 21.4 17.9 45.9 42.8 35.6 33.4 22.0 1.0
Wipro 482.0 37,425.6 43,966.9 50,217.3 6,136.2 7,723.5 8,851.6 24.9 31.4 35.9 20% 19.4 15.3 13.4 21.0 21.5 23.5 23.3 7.0 1.5
CAPITAL GOODS / POWER
BHEL 134.6 47,617.7 38,809.0 37,385.0 6,614.7 4,175.0 3,984.0 27.0 17.1 16.3 -22% 5.0 7.9 8.3 18.8 16.7 12.5 11.0 5.4 4.0
CESC 396.8 5,317.0 5,850.1 6,234.4 618.0 645.9 660.6 49.2 51.4 52.6 3% 8.1 7.7 7.5 8.5 8.2 9.6 9.2 7.0 1.8
Crompton Greaves 107.1 12,094.4 13,407.1 15,040.1 84.6 301.3 565.6 1.3 4.7 8.8 160% 82.3 22.8 12.2 10.0 16.1 8.0 13.5 0.4 0.4
Greaves Cotton 64.4 1,873.8 1,910.8 2,159.2 155.6 144.4 165.1 6.4 5.9 6.8 3% 10.1 10.9 9.5 24.9 25.4 17.4 17.6 1.6 2.5
Kalpataru Power 79.7 6,085.0 7,027.7 7,811.9 129.5 168.2 200.6 8.4 11.0 13.1 24% 9.4 7.3 6.1 10.9 10.9 8.3 9.1 1.5 1.9
PTC India 57.6 8,857.0 10,927.0 12,951.4 129.0 129.0 157.0 4.3 4.4 5.3 11% 13.4 13.1 10.9 7.5 8.8 5.4 6.3 1.6 2.8
Thermax 620.5 4,690.9 4,429.0 4,828.0 349.9 264.0 337.0 29.4 24.9 28.3 -2% 21.1 24.9 21.9 22.1 22.6 15.3 15.7 7.0 1.1
V-Guard Industries 477.0 1,360.2 1,625.3 1,946.1 62.9 78.9 96.8 21.1 26.4 32.4 24% 22.6 18.1 14.7 26.8 26.7 26.8 26.1 3.5 0.7
November 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
^Marico estimates excluding Kayas financials
*GSK Consumer FY2014 financial numbers are estimated for 15 months as the companyd change its accounting year end to March 2014, hence not comparable
#We have annualised these ratios to make them comparable
INFRASTRUCTURE / REAL ESTATE
Gayatri Projects 54.3 2,022.2 2,300.1 2,559.6 73.3 76.3 72.4 24.3 25.2 23.9 -1% 2.2 2.2 2.3 12.6 11.5 11.5 9.9 3.0 5.5
ITNL 125.4 6,644.9 6,561.2 7,347.0 520.3 464.2 494.2 26.8 23.9 25.4 -3% 4.7 5.2 4.9 10.1 10.2 11.9 11.3 4.0 3.2
IRB Infra 86.8 3,687.2 4,642.6 5,454.5 556.7 547.3 621.8 16.7 16.5 18.7 6% 5.2 5.3 4.6 12.2 12.3 15.9 16.0 4.0 4.6
Jaiprakash Associates 46.7 13,208.7 14,698.3 16,168.1 501.0 510.0 653.0 2.4 2.4 3.1 14% 19.4 19.4 15.0 10.0 9.8 5.0 6.8 1.8 3.9
Larsen & Toubro 957.5 74,498.0 85,537.9 94,752.4 4,797.3 5,220.4 5,752.7 52.0 56.6 62.3 9% 18.4 16.9 15.4 9.0 9.1 14.4 14.1 12.3 1.3
Pratibha Industries 24.5 2,157.5 2,554.3 2,757.1 82.7 79.8 88.0 8.2 7.0 7.7 -3% 3.0 3.5 3.2 14.8 14.9 11.6 11.2 0.6 2.5
Punj Lloyd 27.5 11,408.2 12,615.5 14,064.3 (284.7) 141.4 164.4 -8.6 4.3 5.0 - - 6.4 5.5 9.5 10.8 4.8 5.3 0.0 0.0
Unity Infraprojects 25.1 2,039.8 2,206.4 2,396.8 92.6 74.9 83.2 12.5 10.1 11.2 -5% 2.0 2.5 2.2 14.6 14.8 8.6 8.8 0.2 0.8
OIL & GAS
Oil India 465.2 9,948.0 10,357.1 11,919.1 3,588.0 3,769.8 4,385.4 59.7 62.7 73.0 11% 7.8 7.4 6.4 25.7 27.6 18.6 19.6 19.0 4.1
Reliance Ind 885.9 397,062.0 402,003.9 406,827.7 20,879.0 20,726.3 23,538.4 64.7 64.2 72.9 6% 13.7 13.8 12.2 9.9 10.3 9.8 10.0 9.0 1.0
Selan Exploration 304.3 97.1 128.6 166.5 45.8 60.0 77.2 27.2 35.7 45.9 30% 11.2 8.5 6.6 28.7 30.6 22.5 23.6 5.0 1.6
PHARMACEUTICALS
Aurobindo Pharma 238.5 5,855.3 7,123.3 8,133.6 457.3 606.5 774.4 15.7 20.8 26.6 30% 15.2 11.4 9.0 14.1 16.2 21.2 22.2 1.5 0.6
Cipla 421.6 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% 22.5 20.1 16.5 21.1 23.1 17.4 18.1 2.0 0.5
Cadila Healthcare 719.7 6,358.1 7,288.4 8,641.9 655.2 843.4 1,209.3 32.0 41.2 59.1 36% 22.5 17.5 12.2 19.0 23.5 22.4 24.9 7.5 1.0
Dishman Pharma 83.0 1,267.6 1,402.5 1,597.7 100.3 116.9 174.1 12.4 14.5 21.6 32% 6.7 5.7 3.8 11.5 14.6 10.4 13.5 1.2 1.4
Divi's Labs 1,000.2 2,139.9 2,515.2 3,133.8 590.6 679.7 859.8 44.5 51.2 64.8 21% 22.5 19.5 15.4 31.0 32.9 24.5 25.9 15.0 1.5
Glenmark Pharma 523.6 5,012.4 5,937.4 6,826.6 614.8 729.5 888.0 22.7 26.9 32.8 20% 23.1 19.4 16.0 21.4 24.0 21.3 21.0 2.0 0.4
Ipca Laboratories 697.3 2,738.8 3,172.2 3,717.0 394.7 514.3 616.0 31.3 40.8 48.8 25% 22.3 17.1 14.3 28.9 28.4 28.5 26.6 2.0 0.3
Lupin 876.5 9,461.6 11,385.5 13,534.0 1,314.2 1,698.6 2,084.5 29.4 38.0 46.6 26% 29.8 23.1 18.8 31.9 32.6 25.5 24.3 4.0 0.5
Sun Pharma 605.8 11,238.9 14,547.0 16,295.8 3,008.1 4,418.9 4,881.1 14.5 21.3 23.6 27% 41.7 28.4 25.7 35.5 33.6 26.8 23.8 5.0 0.8
Torrent Pharma 482.6 3,054.0 3,709.5 4,351.3 470.0 593.4 684.7 27.8 35.1 40.5 21% 17.4 13.8 11.9 34.9 32.8 34.7 29.7 23.0 4.8
AGRI-INPUTS
Tata Chemicals 270.7 14,718.6 15,288.1 16,329.9 652.5 778.3 852.6 25.6 30.5 33.5 14% 10.6 8.9 8.1 13.2 13.7 10.5 10.7 10.0 3.7
UPL 167.8 9,194.5 10,529.9 11,249.6 777.5 912.9 968.9 17.5 20.9 22.1 12% 9.6 8.0 7.6 17.0 16.4 17.1 15.7 2.5 1.5
BUILDING MATERIALS
Grasim 2,687.8 27,640.0 29,300.0 33,491.0 2,500.0 2,354.0 2,900.0 272.7 256.8 316.3 8% 9.9 10.5 8.5 14.7 16.1 10.5 11.2 22.5 0.8
India Cements 52.8 4,597.0 4,787.0 5,001.0 185.0 115.0 212.0 6.0 3.7 6.9 7% 8.8 14.3 7.6 5.0 7.0 3.0 5.0 2.0 3.8
The Ramco Cements 178.8 3,831.0 4,131.0 4,456.0 404.0 316.0 394.0 17.0 13.3 16.5 -1% 10.5 13.4 10.8 8.0 9.0 13.0 14.0 2.5 1.4
Shree Cement** 4,452.9 5,590.0 6,120.0 6,814.0 967.0 853.0 977.0 277.5 244.7 280.4 1% 16.0 18.2 15.9 20.0 19.0 21.0 21.0 8.0 0.2
UltraTech Cement 1,935.6 20,174.9 21,605.0 24,922.0 2,655.4 2,272.0 2,801.0 96.9 82.9 102.2 3% 20.0 23.3 18.9 16.8 18.6 13.2 14.1 8.0 0.4
DISCRETIONARY CONSUMPTION
Eros Intl. Media 184.0 1,067.9 1,082.5 1,207.0 154.4 179.3 198.4 16.8 19.5 21.6 13% 11.0 9.4 8.5 15.8 15.6 16.7 15.9 1.5 0.8
Indian Hotel Company 52.1 3,743.4 3,968.1 4,449.8 0.2 19.5 75.5 0.0 0.2 0.9 - - - 57.9 2.7 2.6 0.9 3.8 0.8 1.5
KKCL 998.7 303.0 368.1 435.1 53.0 65.2 78.7 43.0 52.9 63.8 22% 23.2 18.9 15.7 30.6 33.6 24.4 26.5 17.5 1.8
Raymond 270.1 4,069.0 4,477.0 5,044.0 40.7 90.7 142.3 6.6 14.8 23.2 87% 40.9 18.2 11.6 10.2 12.6 6.4 9.4 1.0 0.4
Relaxo Footwear 840.4 1,009.8 1,196.8 1,420.9 44.8 52.2 64.1 37.3 43.5 53.4 20% 22.5 19.3 15.7 23.7 25.2 17.8 19.7 2.0 0.2
Speciality Restaurants 128.2 226.9 288.2 366.1 23.4 34.6 48.6 5.0 7.4 10.4 44% 25.6 17.3 12.3 15.8 20.4 11.4 14.5 1.0 0.8
Zee Entertainment 270.3 3,699.6 4,186.1 4,918.0 719.6 879.1 1,030.2 7.5 9.2 10.7 19% 36.0 29.4 25.3 31.3 31.4 20.8 21.3 2.0 0.7
DIVERSIFIED / MISCELLANEOUS
Aditya Birla Nuvo 1,233.6 9,595.2 10,490.5 11,366.1 423.1 571.5 620.3 32.5 44.0 47.7 21% 38.0 28.0 25.9 9.7 9.5 7.9 7.9 6.5 0.5
Bajaj Holdings 865.7 336.9 - - 1,856.4 - - 166.8 - - - 5.2 - - - - - - 25.0 2.9
Bharti Airtel 348.3 80,311.0 85,514.0 95,519.0 2,266.0 4,494.0 6,102.0 5.7 11.2 15.3 64% 61.1 31.1 22.8 9.1 10.6 6.0 9.1 1.0 0.3
Bharat Electronics 1,069.9 6,103.9 6,240.5 6,657.9 889.9 857.6 991.8 111.2 107.2 124.0 6% 9.6 10.0 8.6 14.5 14.6 11.0 11.1 22.3 2.1
Gateway Distriparks 124.3 949.7 1,027.4 1,190.8 126.7 127.5 145.1 11.7 11.8 13.4 7% 10.6 10.5 9.3 13.7 15.6 15.8 17.2 6.0 4.8
Max India 193.2 10,624.0 - - 784.1 - - 29.5 - - - 6.6 - - - - - - 12.2 6.3
Ratnamani Metals 130.0 1,201.0 1,286.0 1,388.0 136.0 137.0 158.0 29.3 29.5 34.0 8% 4.4 4.4 3.8 23.4 22.2 19.5 19.2 4.0 3.1
November 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
November 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 70 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 71.3% 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.
November 2013
51
Remarks
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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 260.
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 21.0% 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 14% over FY2013-15 respectively.
November 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. Its robust performance in the September 2013 quarter
and the confident commentary of its management coupled with a much better operating environment in the USA and
Europe give us confidence that it will sustain the growth momentum in the coming quarters.
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. 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
for several quarters. Its September 2013 quarter performance, management outlook and better that expected
guidance of 1.8-3.6% for a seasonally weak December 2013 quarter give pertinent signs of a revival in the company.
Additionally, a conducive operating environment lends support to the earnings visibility for the coming quarters.
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 Rs102,300 crore stands at around 2.2x 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,
CESC acquired a majority stake in First Source, which is into outsourcing business. We recommend a Hold on
CESC 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 the key thing to watch out is the stabilisation
process.
November 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
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 Rs6,128 crore, which is 1.3x 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 maintain our Reduce rating.
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 20% 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. Recent measures
planned by the company to improve its returns ratio would augur well for the company. Hence, we remain positive
on the stock.
November 2013 54
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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 473 million barrels (mmbbls)
and 941mmbbls respectively as on June 2013. In addition to the huge oil reserves, the companys reserve-replacement
ratio is quite healthy at 1.6x, which implies a comfortable level of accretion of oil reserves through new discoveries.
Further, it has net cash of around Rs200 per share as on March 2013 and offers healthy dividend yield of around
6.5%, 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 18% and 30% 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.
November 2013
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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. Though H1FY2014 has been relatively
a weaker, but 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, branded franchise in the USA
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 (including generic Doxil)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.
November 2013 56
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Building materials
Grasim Grasim is better placed compared with the other large players in the cement space due to its strong balance sheet,
comfortable debt/equity ratio, attractive valuation and diversified business. The demand for VSF products 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.
The Ramco Cements The Ramco 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.
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.
November 2013
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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 Rs1,464.
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.

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