India Emerging Companies Why Bother With Small Mid-Cap Stock Selection 24-06-13!19!44

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Equity Research l India I Emerging Companies I
25 June 2013
India emerging companies

Why bother with small/mid-cap stock selection?
Reason #1: Under-researched stocks = Higher returns. For similar improvement in RoEs, under-researched stocks
1
have generated better returns . The Indian small/mid-cap (SMID) space has also produced the maximum number of 10
2
baggers over the past decade in the region .
Reason #2: Its not just beta. Post GFC, correlations of the BSE mid-cap index vs the Nifty has been falling while RoE
3
dispersion within the SMID space has magnified , making stock selection more important.
Reason #3: Alpha generation. Macro-economic cycles can be played via sector rotation strategies, but stock selection
4
can be a dominant performance driver between cyclical turns .

Whats a winning strategy? Investing in small/mid-caps (1) with high RoEs or (2) where the stock is discounting a high
5
cost of equity (i.e., low PB/RoE) has proved to be the most rewarding strategy over the past five years .
Is there a method to the SMID madness? We have assessed the predictive capability of 10 financial parameters over
the past five years. We rank the SMID universe using the four factors that our backtests reflect as the statistically most
influential drivers of share price performance (RoE, PB/RoE, EPS growth, RoE momentum). Our backtests show that
selecting the top quartile stocks based on our four-factor merit order would have led to 20% CAGR over five years from
6
2008 to 2012 . Our findings largely align with our regional Emerging Company approach of identifying Value Creators
(Refer report Value Creators by Jeremy Sutch).
See Fig. 2-4;
See Fig. 37;
See Fig. 5-7;
See Fig. 8-10;
See Fig. 11;
See Fig. 69
Sumit Choudhary
Sumit.Choudhary@sc.com
+91 22 4205 5916
Important disclosures can be found in the Disclosures Appendix

All rights reserved. Standard Chartered Bank 2013
http://research.standardchartered.com
25 June 2013
Contents
Executive summary
Defining the universe
Under-researched stocks = higher returns
12
Its not just beta
15
Alpha generation
17
Our approach to SMID space
20
Detailed assessment of investment parameters
23
How do we screen SMID stocks?
33
Which companies from our screens do we like?
36
Companies
Aditya Birla Nuvo
37
Motherson Sumi Systems
39
Amara Raja Batteries
41
Mindtree
43
Indraprastha Gas
45
Gujarat State Petronet
47
IRB Infrastructure Developers
50
Appendix 1: Companies ranked by 3-year average RoE
52
Appendix 2: Companies ranked by PB/RoE
53
Appendix 3: Companies ranked by EPS growth
54
Appendix 4: Companies that have outperformed every year since 2008
55
Appendix 5: Companies that have outperformed 4 out of 5 years since 2008
56
Disclosures appendix
58
SCout is Standard Chartereds premium research

product that offers Strategic, Collaborative, Original
ideas on Universal and Thematic opportunities
Equity Research
25 June 2013
Executive summary
Emerging companies is
a sub-set of the SMID
space that can generate
higher returns and
higher sustainable
growth rates
How do we define the space? We define the Indian small/mid-cap (SMID) space as companies
with a market cap of USD 300mn-3bn excluding financial and real estate companies. Consistent
with our global approach to the space, our task in tackling the SMID space is to find that sub-set
of companies which we define as emerging companies that have the ability to generate
higher returns and faster growth rates for a sustainable period, be it via a differentiated business
model or superior management.
Fig 1: Indian listed market space Carving a niche
Target Segment
Market Cap
Not traded
<USD 100mn
USD 100mn - 300mn
USD 300mn - 3bn
> USD 3bn
# of
cos.
78
3,467
248
255
81
Mkt Cap
(USD bn)
NA
36
45
242
855
Source: Bloomberg
Lesser analyst focus

leads to higher returns
through discovery
Under-researched stocks deliver higher returns. We note that relatively less researched
stocks can generate higher returns for the same amount of improvement in fundamentals. For
example, within the universe of stocks with >20ppt increase in RoE over 2010-13, the least
covered stocks generated the highest returns.
Fig 2: >20ppt increase in RoE*

400
5 year return
3 year return
350
Fig 3: 10-20ppt increase in RoE*

250
5 year return
3 year return
Fig 4: 0-10ppt increase in RoE*

200
5 year return
3 year return
200
300
150
150
250
200
100
150
50
100
100
50
50
-50
0
0-5
5-10
10-20
No. of recos. per stock

Source: Bloomberg, * Over 2010-13
Post GFC, stock

selection has become
more critical
Equity Research
0-5
5-10
10-20

0
0-5
5-10
10-20

Its not just a beta play. The correlation between the BSE mid-cap index (our proxy for the
SMID space) and the Nifty has steadily declined since 2008 and currently sits at an all-time low.
This supports our view that stock selection is critical for driving investor returns, especially post
GFC. We also find that dispersion in fundamentals is more pronounced now the RoEs for the
top performing companies improved by c.300bps in 2008-12 while the RoEs for the worst
performing ones fell by c.2,500bps in the same period. This compares to 2003-07 when RoEs
improved for even the worst performing companies.
25 June 2013
Fig 5: Correlation between BSE

mid-cap index vs Nifty
Fig 6: RoE dispersion 2008-12
Fig 7: RoE dispersion 2003-07
100%
80%
60%
Top 25 cos
40%
Bottom 25 cos
20%
CAGR
Change in
RoE (bps)
38%
318
-30%
-2,469
68%
2,787
Differential
2007 2008 2009 2010 2011 2012 2013

Source: Bloomberg
CAGR
Change in
RoE (bps)
Top 25 cos
88%
1,697
Bottom 25 cos
18%
251
Differential
70%
1,446
Source: Bloomberg. CAGR and change in RoE refers to movements from 2008 to 2012
Source: Bloomberg. CAGR and change in RoE refers to movements from 2003 to 2007
Play macro through sectors, micro through stocks. We notice that merely having sector bias
in the portfolio can capture macro-economic themes (e.g., consumer stocks have outperformed
over the past five years while construction stocks have lagged owing to stimulus-induced
consumption strength coupled with policy related bottlenecks slowing investment activity).
However, within sectors, stocks with stronger fundamentals have generated better returns. Some
examples of high RoEs leading to better returns within sectors are given below.
Sector bias has to be

coupled with stock
selection in order to
maximize returns
Fig 8: Performance of SMID auto

stocks
Fig 9: Performance of SMID tech

stocks
AMTEK AUTO LTD (7%)
Fig 10: Performance of SMID utility

stocks
REDINGTON INDIA (17%)
LANCO INFRATECH (0%)
INFOTECH ENT (17%)
KSK ENERGY VENTU (1%)*
MINDTREE LTD (30%)
CESC LTD (10%)
HEXAWARE TECHNOL
(31%)
PTC INDIA LTD (6%)
ECLERX SERVICES (42%)
GUJARAT GAS CO (34%)
ASHOK LEYLAND (4%)

WABCO INDIA LTD (22%)*
BALKRISHNA INDS (28%)
MRF LTD (22%)
MOTHERSON SUMI (32%)
INDRAPRASTHA GAS (26%)
CMC LTD (26%)
EICHER MOTORS (25%)
%
-200
200 400 600 800 1,000 1,200
50
100 150 200 250 300
-100 -50
50
100 150 200
Source: Bloomberg. 5 year returns. Figures in brackets denote last reported RoEs. *1/3 year returns taken for these cos. given delayed listing.
Liquidity and
governance need due
consideration
But there are risks. Two key risks that investors need to be particularly cognizant of while
investing in the Indian SMID space are (1) liquidity risk - liquidity is correlated to stock prices and
dries up in times of distress and (2) corporate governance issues, which can rapidly erode multimonth gains.
What distinguishes performance of stocks? We have assessed 10 financial parameters on
how predictive they are of stock performance. Our analysis suggests that choosing companies (1)
with highest RoEs and (2) whose stock prices discount the highest cost of equity has proven to
be the most successful strategy. Other strategies that have been successful are EPS growth and
RoE momentum. Surprisingly, PBR and cash conversion ratio have not worked in the past.
High RoEs and low

PB/RoE have been
the best rewarded in
the past
Fig 11: CAGR generated by top quartile companies

20%
15%
10%
5%
0%
-5%
-10%
-15%
Fig 12: Excess CAGR (top quartile cos. - bottom

quartile cos)*
50%
Value parameters Growth parameters

Return/ cash flow
parameters
30%
20%
10%
0%
Equity Research
CFO/EPS
Net Debt/ EBITDA
RoE Momentum
RoE
Sales growth
EPS growth
P/ B
P/ CFO
PER
PB/ RoE
CFO/EPS
Net Debt/ EBITDA
RoE Momentum
RoE
Sales growth
EPS growth
P/ B
P/ CFO
PER
PB/ RoE
-10%
Source: Bloomberg. *Over 2008-12.Quartiles based on investment attractiveness with top

quartile being most attractive and bottom quartile least attractive
Value parameters Growth parameters

Return/ cash flow
parameters
40%
Source: Bloomberg. *Over 2008-12.Quartiles based on investment attractiveness with top

quartile being most attractive and bottom quartile least attractive
Our screening of the

SMID space
generates 7 ideas
covered by SC
research
25 June 2013
How do we screen small/mid-caps? We have screened the SMID space based on weighted
average of the four parameters that have been most well-rewarded in the past five years, viz.
RoE (35% weight), PB/RoE (35% weight), EPS growth (15% weight) and RoE momentum (15%
weight). We have assigned weights based on the predictive success rate of these parameters.
Our backtests show that selecting the top quartile stocks based on our four-factor merit order
would have led to 20% CAGR over five years from 2008 to 2012 (Fig. 69). The criteria we have
selected above are also largely in line with the key differentiators we look for when identifying
value creators globally (Refer report Value Creators by Jeremy Sutch). Of the names appearing
in the top quartile of our screen, seven are covered by SC research with a rating of O/P or I/L. We
also have U/P rating on one name featuring in top quartile. We have highlighted the seven stocks
backed by our fundamental research call in this report.
Fig 13: Arriving at core ideas Our approach
4,000+ listed companies in India
3,700+ less than USD 300mn mkt cap
255 cos (incl financials and real estate)

with mkt cap USD 300mn-USD 3bn
Our target SMID

space (screened
universe)
198 companies ex financials ex

real estate
62 companies - trade
more than USD 1mn/
day*
16 companies
in top quartile
based on our
ranking
methodology
High ROE +
Low PB/ ROE +
High EPS g +
7
companies
covered by
us
Strong ROE momentum
Up/(Dn)
PER
RoE
PT (INR)
side(%)
FY14E
FY14E
O/P
94
72.6%
5.7
17%
O/P
451
63.9%
9.5
25%
Motherson Sumi
O/P
270
34.8%
13.3
33%
Amara Raja
O/P
325
30.5%
11.8
30%
IRB Infrastructure
O/P
233
112.0%
6.2
17%
Mindtree
I/L
850
4.0%
9.3
25%
Aditya Birla Nuvo
O/P
1,465
35.1%
28.0
7%
Company
Rating

Indraprastha Gas
Source: Standard Chartered Research estimates. Prices as of 23 June 2013.

* We have excluded pharma names as well while arriving at the list of 62 companies owing to the possibility of RoE distortions with patent expiries
and out licensing arrangements. We have also excluded names where no reliable financial estimates are available.
Equity Research
25 June 2013
Defining the universe

We define the SMID space as companies between USD 300mn and USD 3bn in market cap.
Our target is to find such companies (emerging companies) within this universe that have
potential to deliver higher returns with higher growth.
The BSE mid-cap index (proxy for the SMID space) is no longer a levered play on the broader
market momentum and has been range-bound since 2008. We also do not find current
valuations on an aggregate level very compelling, especially given deteriorating overall
fundamentals. Stock picking is key.
The SMID space is attracting interest from both strategic and foreign institutional buyers. We
look for early warning signals in the space in this environment and find that significant
dislocations from mean PER provide important early warning signals for predicting a turn in
market momentum.
India has over 4,000
listed companies, but
there is a lot of noise
Definition of the Indian SMID space. India has one of the deepest markets in the region with
over 4,000 companies listed on the Bombay Stock Exchange. Incredibly, c.3,500 of these
companies are less than USD 100mn in market capitalisation. For practical reasons and to
remain relevant to our client base, of the balance c.500 companies, we will be focussing on
companies with market cap between USD 300mn and USD 3bn (255 companies). In line with our
global approach to the SMID space, we exclude financials and real estate from our universe
leaving us with 198 companies.
Fig 14: Indian listed market space Carving a niche
Target Segment
Market Cap
Not traded
<USD 100mn
USD 100mn - 300mn
USD 300mn - 3bn
> USD 3bn
# of
cos.
78
3,467
248
255
81
Mkt Cap
(USD bn)
NA
36
45
242
855
Source: Bloomberg
Some key attributes of the SMID space. We use the BSE mid-cap index as a proxy to the
SMID space given it most accurately represents our target universe. Besides, the BSE mid-cap
index has over 250 names, so we expect any data inconsistencies to be evened out given the
large sample size. A look at the relative performance of the BSE mid-cap index vs the Nifty for
the past five years is given in the figure below.
The BSE mid-cap

index has
underperformed the
Nifty since the GFC
Fig 15: BSE mid-cap index vs Nifty

180
BSE Mid-cap index
Nifty
160
140
120
100
80
60
40
20
0
Jun-08
Dec-08
Jun-09
Dec-09
Jun-10
Dec-10
Jun-11
Dec-11
Jun-12
Dec-12
Jun-13
Source: Bloomberg
Equity Research
Relative valuations
are above the longterm mean for the
BSE mid-cap index.
Fundamentals in the
SMID space are
deteriorating faster
25 June 2013
Valuations. While the BSE mid-cap index has underperformed the Nifty since the GFC, we note
that valuations are only now getting towards lows. This is reflective of the deteriorating
fundamentals of the Indian SMID space. RoE for the Indian mid-cap index/Nifty is at near lows
now. In addition, if we look at stressed loans in the SMID book for Indias largest lender (SBI), we
get a sense of challenging fundamentals of the Indian SMID space vis-a-vis the large cap space.
A look at the ratio of 3-year average RoEs and EPS growth of the SMIDs (exfinancials/real
estate) covered by us vs 3-year average RoEs and EPS growth of large caps covered by us (exfinancials/real estate) also points to faster deteriorating fundamentals for SMIDs vs large caps.
All of this leads us to the conclusion that while the Indian SMID space has been a laggard, a lot of
it is justified by fundamentals. Investors should target returns through stock picking and focus on
companies with strong fundamentals.
Fig 16: Ratio of BSE mid-cap PER/Nifty PER
BSE Midcap PER/ Nifty Fwd PER
110%
100%
Fig 17: Ratio of BSE mid-cap PBR/Nifty PBR

BSE Midcap PER/ Nifty Fwd PBR
80%
70%
90%
80%
60%
70%
50%
60%
40%
50%
40%
Jan-08 Feb-09 Mar-10 Apr-11 May-12 Jun-13
Source: Bloomberg. BEST forward PER used.
Fig 18: Ratio of BSE mid-cap fwd RoE/Nifty

fwd RoE
120%
30%
Source: Bloomberg. BEST forward PBR used
Fig 19: Break-up of SBIs corporate loan

book GNPA
BSE Midcap PER/ Nifty Fwd RoE
100%
80%
60%
40%
20%
0%
Source: Bloomberg.
Source: SBI.
Fig 20: Ratio of 3 yr avg RoEs of SMIDs vs

large caps covered by us
Fig 21: Ratio of 3 yr avg EPSg of SMIDs vs

large caps covered by us
90%
290%
85%
250%
80%
210%
75%
170%
70%
130%
65%
60%
2008 2009 2010 2011 2012 2013 2014
ROE avg
Source: Factset, Standard Chartered research. Universe exfinancials
and real estate.
Equity Research
90%
2008 2009 2010 2011 2012 2013 2014
EPS growth
Source: Factset, Standard Chartered research. Universe exfinancials
and real estate.
25 June 2013
M&A picking up. While overall valuations for the mid-cap index may not look very compelling,
a look at the acquisition activity in the mid-cap space shows that the Indian SMID space is
attracting interest from strategic investors again.
Fig 22: Acquisitions in BSE mid-cap index constituents (ex-financials ex- real estate)
1200
Value (USD mn)
18
No. of deals
16
1000
14
800
12
10
600
400
6
4
200
0
2005
2006
2007
2008
2009
2010
2011
2012
2013 YTD
Source: Bloomberg. Announced deals considered for the above.
There have been multiple instances of international parents attempting to increase stakes in
Indian subsidiaries over the past decade. One reason behind this could be the relatively higher
growth delivered by Indian subsidiaries vs international operations. Some of the notable
acquisitions are:
Fig 23: Notable M&A transactions in the Indian SMID space
Year
Target
Acquirer
2005
SKF Bearings
SKF AB
Alstom T&D India Ltd
Areva SA
Mphasis Ltd
HP Enterprise Services LLC
Blue Dart Express Ltd
Deutsche Post AG
2007
Linde India Ltd
Linde AG
2008
Fresenius Kabi Oncology Ltd
Fresenius SE & Co KGaA
Linde India Ltd
Linde AG
Fresenius Kabi Oncology Ltd
Fresenius SE & Co KGaA
Eicher Motors Ltd
Volvo AB
BASF India Ltd
BASF SE
Novartis India Ltd
Novartis AG
Pfizer Ltd/India
Pfizer Inc
2010
Alstom T&D India Ltd
Schneider Electric SA,Alstom SA
2012
Schneider Electric Infrastructure Ltd
Schneider Electric SA
2013
Jet Airways India Ltd
Etihad Airways PJSC
CRISIL Ltd
McGraw Hill Financial Inc
2006
2009
Source: Bloomberg
Obviously, most of the target companies are high-quality companies with strong corporate
governance records and investors would do well to be positioned in such names.
The SMID space is
attracting interest from
both strategic and
institutional foreign
investors
Shareholding trends. It seems that the Indian SMID space is not just attracting strategic
investors, but also foreign institutional investors with foreign shareholding in the space at all-time
highs. While overall institutional shareholding in the Indian SMID space (ex financials, ex real
estate) has remained stable at 24-26% since 2007, there has been a divergence between foreign
and domestic institutional shareholding. We attribute this to the following, among other factors:
Greater amount of global liquidity leading to foreign portfolio flows
Slowdown in Indian mutual fund/insurance flows owing to regulatory restrictions
Equity Research
25 June 2013
Fig 24: Trends in SMID institutional shareholding

19
FII
DII
17
15
13
11
9
7
5
Mar-07
Nov-07
Jul-08
Mar-09
Nov-09
Jul-10
Mar-11
Nov-11
Jul-12
Mar-13
Source: Capitaline, Standard Chartered Research
Dislocations in PE
multiple is an indicator
of impending turn
momentum
Early warning signals. With foreign institutional shareholding at all-time highs, we look for some
early warning signals that investors should be mindful of. It seems that while the BSE mid-cap
index has tracked EPS revisions well for the most part, instances where prices have deviated
significantly from the EPS trend (i.e., significant dislocations in PE multiples e.g., Dec-2007,
Jan-2009) can provide signals for impending turn in market momentum. This is evident from the
figure below. As can be seen below, significant deviations from mean PER can provide an early
warning signal for returns of the BSE mid-cap index over the next 12 months. Currently, the 12month forward PER is below mean but not significantly, indicating that investors need to rely on
stock selection for returns over the next 12 months.
Fig 25: Deviation from mean PER vs 12-month forward returns on BSE mid-cap index
40,000
Price (LHS)
12 mo fwd return
Deviation from mean 12mo blended fwd PER
35,000
200%
150%
30,000
100%
25,000
20,000
50%
15,000
0%
10,000
-50%
5,000
0
Mar-06
-100%
Mar-07
Mar-08
Mar-09
Mar-10
Mar-11
Mar-12
Mar-13
Source: Bloomberg, Standard Chartered research
Interestingly, it seems that a capital raising frenzy by Indian SMID companies often pre-dates
market declines. Clearly, Indian SMID companies are one-up on investors when it comes to
timing the markets!
Fig 26: Primary capital raising by BSE mid-cap constituents (ex financials, ex real estate)
4,500
Capital Raised (USD mn)
4,000
3,500
3,000
2008
BSEmidcap
2,500
2011
BSEmidcap
Index -34%
2,000
1,500
1,000
500
0
2005
2006
2007
2008
2009
2010
2011
2012
2013 YTD
Source: Bloomberg
Equity Research
25 June 2013
Liquidity. A comparison of free float as a percentage of total shares outstanding for the BSE
mid-cap index vs the Nifty is given below. SMIDs seem to have lower free float vs large caps,
which compounds the liquidity issues faced by the sector.
Lower free float

compounds liquidity
issues for Indian
SMIDs
Fig 27: BSE midcap index names free float vs Nifty 50 names free float
No. of shares (mn)
Wtd. avg. free float
Wtd. avg. no. of shares o/s
Free float/ shares o/s
Wtd. avg. 3 mo volumes
Volumes/ free float (bps)
BSE mid-cap index
Nifty
169
1,564
358
2,464
47%
63%
0.2
2.9
12.6
18.8
Source: Bloomberg
Note: Weighted avg. metrics based on index weights.
In addition, we would like to point out that liquidity in the SMID space tends to be correlated to
stock prices, exaggerating risks during ebbing markets (Fig 39).
A more diversified
portfolio can help
offset higher volatility
in SMID stocks
Volatility. Intuitively, lower liquidity should also mean higher volatility for Indian SMIDs. A
comparison of BSE mid-cap index volatility with Nifty volatility over the five years from 2008 to
2012 is given in the figure below. While at first glance, lower volatility for the BSE mid-cap index
looks surprising, we attribute this primarily to difference in sample size. While the Nifty comprises
50 companies, the BSE mid-cap index comprises closer to 250 companies and therefore lower
concentration.
Fig 28: BSE mid-cap index volatility vs Nifty volatility (CY2008- CY12)
Volatility
Year
Mid-caps
Nifty
2007
20.4%
24.4%
2008
37.8%
42.2%
2009
30.9%
33.4%
2010
15.7%
16.2%
2011
18.5%
20.6%
2012
14.6%
15.8%
Source: Bloomberg
Note: Simple average of 30D realized volatility has been used to represent volatility in any particular year
However, the weighted average 30-day volatility of the top 50 BSE mid-cap index constituents
stands currently at 32% vs 28% for Nifty constituents. We have used index weights to compute
the weighted averages here.
From the above, we deduce that while on a like to like basis, volatility is higher for SMID stocks,
constructing a portfolio with a larger number of names can help in offsetting this risk to a large
extent signifying that optimum portfolio size should be somewhat higher for a SMID portfolio vs
a large cap portfolio. A portfolio with a larger number of names would also help mitigate and
distribute liquidity risks.
Our regional approach to the SMID space. Consistent with our regional approach to the asset
class, our ultimate objective in analyzing the asset class is to identify SMID companies that have
the potential to be large caps of the future. Essentially, our task in tackling small/mid cap is to find
that sub-set of companies which we define as emerging companies that have the ability to
generate higher returns and faster growth rates for a sustainable period, be it via differentiated
business models or superior management.
With the above regional approach in mind, we have tried to assess the most relevant systematic
approach in the Indian SMID context in this report.
Equity Research
10
25 June 2013
What segments are we talking about exactly? A map of the SMID universe in India is as
follows.
Fig 29: Number of companies: 198
Fig 30: Total market cap: USD 183bn
Consumer, Cyclical (32)
Consumer, Cyclical (24bn)
Communications (11)
Communications (9bn)
Industrial (50)
Industrial (42bn)
Utilities (15)
Utilities (18bn)
Consumer, Non-cyclical (43)
Consumer, Non-cyclical (43bn)
Energy (5)
Energy (6bn)
Basic Materials (29)
Basic Materials (31bn)
Diversified (3)
Diversified (4bn)
Technology (10)
Technology (6bn)
Source: Bloomberg
Source: Bloomberg
As seen above, industrial and consumer companies dominate the mid-cap universe as we define
it. Some key metrics for various sectors in the SMID universe are given below.
Fig 31: Break-up of mid-cap universe
Ero!Ntavalidnk.
Mkt Cap
FY14E
Last
FY14E
Avg. recos.
90d
3m avg.
USD mn
PER
P/B
RoE
per stock
buys
Volatility
Volumes USD mn
Consumer, Non-cyclical
42,983
21.6x
6.5x
22%
14.9
69%
31
1.6
Industrial
41,648
17.9x
3.5x
15%
15.6
54%
34
1.3
Basic Materials
30,824
15.7x
4.7x
19%
13.0
59%
32
1.6
Consumer, Cyclical
24,156
25.1x
7.1x
16%
14.0
59%
37
3.0
Utilities
18,270
11.4x
2.6x
11%
21.5
60%
37
3.1
Communications
8,782
69.5x
4.1x
15%
17.1
74%
37
1.1
Energy
6,428
13.6x
1.2x
6%
23.8
62%
40
2.3
Technology
6,170
13.4x
3.1x
24%
26.4
63%
28
0.9
Diversified
3,633
34.2x
4.3x
14%
4.3
85%
36
1.3
21.2x
4.8x
17%
15.8
62%
34
1.8
Wtd. Average*
Note: The 90 day price volatility equals the annualized standard deviation of the relative price change for the 90 most recent trading days expressed as a percentage.
Source: Bloomberg; *Wtd. Average based on market capitalization weights.
Equity Research
11
25 June 2013
Under-researched stocks = higher returns

Going down the market cap curve can help in generating differentiated returns. Besides,
under-researched stocks can provide higher returns for the same quantum of improvement in
fundamentals.
The SMID space has the potential to deliver significantly better returns vs the large cap space
via stock picking. India has delivered the maximum number of 10 baggers over the past
decade among Asia emerging markets.
However, liquidity is highly correlated to stock prices and corporate governance related
landmines are aplenty in the space.

Small is beautiful, undiscovered even better. If we slice the SMID universe on the basis of
market cap, it is clear that the street focus materially reduces with market cap and valuations
become cheaper as well. While cheaper valuations are not entirely unexpected owing to higher
liquidity risk borne at the lower end of the market cap range, it does highlight the potential to
make differentiated returns by selecting stocks in the lower end of the market cap range.
Fig 32: Lower valuation and lower liquidity
Fig 33: Can also lead to differentiated returns

% chg 5 yr (RHS)
Avg no. of recs./ stock
30
25%
25
100%
20%
20
80%
15%
15
60%
10%
10
40%
5%
20%
30%
P-B/ RoE (LHS)

Avg volumes (USD mn)
0%
300mn-1bn
1bn-2bn
2-3bn
5 year return
3 year return
350
Fig 35: 1020ppt increase in RoE*

250
5 year return
3 year return
200
300
150
250
200
100
150
50
100
50
-50
0
0-5
5-10
10-20

2-3bn
We can also see the potential for differentiated returns that can be produced in the under-covered
space by looking at the rewards that similar improvement in returns can generate in relatively
under-covered names vs. well-covered names. From charts below it is quite clear that over a
medium term, there is value to be generated by investing in relatively undiscovered SMID stories
in India. For example, between all stocks that had an improvement of over 20ppt in their RoE
over 2010-13, stocks that had less than five analysts covering them delivered the best returns
over the past three and five years.
Fig 34: >20ppt increase in RoE*

%
1bn-2bn
Source: Bloomberg
There is value to be
generated by
investing in relatively
undiscovered SMID
names in India
400
0%
300mn-1bn
Source: Bloomberg
120%
Equity Research
0-5
5-10
10-20

Fig 36: 010ppt increase in RoE*

180
160
140
120
100
80
60
40
20
0
5 year return
3 year return
0-5
5-10
10-20

12
25 June 2013
SMID companies have delivered in the past. We note that the Indian SMID space has
generated the maximum number of multi-baggers in the region over the past decade. We define
multi-baggers as stocks that have gone up 10 times over the past decade. We have used a
universe of stocks that were between USD 100mn to USD 3bn 10 years ago in all the markets
below.
Fig 37: India has produced the maximum number of multi-baggers in the past decade
30
25
No of 10 baggers (LHS)
150%
% of cos. that were 10 baggers
130%
110%
20
90%
15
70%
50%
10
30%
5
10%
-10%
India
China
Indonesia
Phillipines
Thailand
Malaysia
Source: Bloomberg
Its more fun picking SMID stocks vs. large caps. To assess the difference that stock picking
can make in the SMID universe vis--vis the large cap universe, we compare two investment
portfolios:
a) A portfolio that invests in the top 25 SMID stocks that are best performers in their universe
over the next 12 months,

b) A portfolio that invests in the top 25 large cap stocks that are the best performers in their
universe over the next 12 months.

In both the cases, we assume that the portfolio is rebalanced at the beginning of every year to
pick the top 25 best performing stocks for the next 12 months.
On comparing the performance of the two portfolios in the period from 2008 to 2012 (see chart
below), we find that the rewards are significantly magnified by choosing SMID over large caps
(i.e. portfolio (a) over portfolio (b) above).
Portfolio (a) would have multiplied by c.22x (86% CAGR) in comparison to c.3.3x (27% CAGR)
for portfolio (b) in the period 2008-12.
Fig 38: Performance of the top 25 of SMID and large-cap stocks
25
Largecaps
SMID
20
15
10
5
0
Jan-08
Jan-09
Jan-10
Jan-11
Jan-12
Jan-13
Source: Bloomberg
Note : In order to have a dynamic universe, we have used BSE midcap index constituents in each of the years as proxy for SMID space and Nifty
constituents for each year as proxy for large cap space.
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13
Liquidity risk gets

exaggerated in times
of duress
25 June 2013
We recognize that there are obvious liquidity risks involved in picking SMID stocks vs large caps
and an SMID strategy may not be as scalable as a large cap strategy, but the simplistic analysis
above brings out an obviously differentiated and interesting return opportunity presented by the
asset class.
But there are risks
Liquidity risk can multiply in bad times. One risk that investors need to be cognizant of in the
context of SMID stocks in India is the fact that liquidity in the space tends to contract materially in
times of stress. Therefore, we would only recommend higher conviction bets in the space.
Fig 39: BSE mid-cap index price vs volume chart Highly correlated
20 day avg Vol
BSE midcap index
12,000
Correlation : 57%
10,000
8,000
6,000
4,000
2,000
Apr-13
Nov-12
Jun-12
Jan-12
Aug-11
Oct-10
Mar-11
Dec-09
May-10
Jul-09
Feb-09
Sep-08
Apr-08
Jun-07
Nov-07
Jan-07
Aug-06
Oct-05
Mar-06
May-05
Jul-04
Dec-04
Feb-04
Apr-03
0
Sep-03
2,000
1,800
1,600
1,400
1,200
1,000
800
600
400
200
0
Source: Bloomberg. We have used BSE mid-cap index as a proxy for the SMID space given it most effectively captures our target SMID universe.
Note: 20-day avg vol computed as total 20 day average volume for all mid-cap stocks
Corporate governance
has to be a
paramount focus
while investing in the
Indian SMID space
Corporate governance caveat emptor. We present below some cases where investors have
suffered at the hands of management teams with poor corporate governance track records.
Needless to say, corporate governance has to be a paramount focus while investing in Indian
SMID stocks.
Fig 40: Satyam Computers
Satyam was one of the top 4 IT companies in
India till 2009 when its CEO admitted to forgery
and misreporting accounts. Allegedly, the
company had falsified the amount of cash it
had with banks by presenting forged receipts.
The stock fell by 75% in a matter of three days
after admission of the fraud.
Source: Bloomberg
Fig 41: Money Matters Financial

Money Matters Financials is an investment
banker involved in raising capital for corporate
clients predominantly from PSU banks. Top
management was arrested in Nov 2010 on
charges of bribing some of the PSU bank
employees. The stock gave up the entire years
gains in less than a week.
Source: Bloomberg
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25 June 2013
Its not just beta

The SMID space has performed in line with macro variables in the past and has stopped
being a levered play on market momentum since 2008.

Dispersion in fundamentals (measured by change in RoEs) has magnified since the GFC,
making stock picking more important.

SMID stocks can behave rationally, too. While the overwhelming perception regarding the
behavior of the Indian SMID space is that the space is very noisy and moves in the sector tend
to be very erratic, we find that to a large extent, this space has tracked macroeconomic variables
well in the past. As can be seen below, the BSE mid-cap index performance has generally been
in line with GDP trends and interest rate trends over the past decade.
Fig 42: Mid-cap index vs GDP
12,000
Fig 43: Mid-cap index vs interest rates

12
12,000
10,000
10
10,000
8,000
8,000
6,000
6,000
4,000
4,000
2,000
2,000
Midcap
GDP
BSE Midcap Index

SBI 1yr deposit rate
11
10
9
8
7
Source: Bloomberg
Apr-13
Apr-12
Apr-11
Apr-10
Apr-09
Apr-08
Apr-07
Apr-03
Jun-05
Dec-05
Jun-06
Dec-06
Jun-07
Dec-07
Jun-08
Dec-08
Jun-09
Dec-09
Jun-10
Dec-10
Jun-11
Dec-11
Jun-12
Dec-12
5
Crisis/ Stimulus Slowdown
with inflation
4
Goldilocks/
Good inflation
Apr-06
Slowdown
Apr-05
Crisis/ Stimulus
Apr-04
Goldilocks
Source: Bloomberg
Stock picking is much

more important post
2008
Its not just beta anymore. We note that the BSE mid-cap index was highly correlated with the
Nifty until 2009, but the correlation has been rapidly declining since then. This indicates to us that
the right way to generate returns from the space is through stock selection rather than hoping to
benefit from narrow market momentum.
Fig 44: Correlation of BSE mid-cap index vs Nifty
110%
100%
90%
80%
70%
60%
50%
40%
30%
20%
2007
2008
2009
2010
2011
2012
2013
Source: Bloomberg
To underscore the importance of stock picking since the GFC and in the period preceding the
GFC, we would highlight the following tables.
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15
25 June 2013
Fig 45: Top and bottom company returns between 2003-07

Change in
CAGR
RoE (bps)
Top 25 cos
88%
1,697
Fig 46: Top and bottom company returns between 2008-12

Change in
CAGR
RoE (bps)
Top 25 cos
38%
318
Bottom 25 cos
18%
251
Bottom 25 cos
Differential
70%
1,446
Source: Standard Chartered Research. CAGR and change in RoE refers to movements
from 2003 to 2007
Differential
-30%
-2,469
68%
2,787
Source: Standard Chartered Research. CAGR and change in RoE refers to movements
from 2008 to 2012
As one can see, the best performing stocks demonstrated a stronger change in RoEs vs the
worst performing ones in both pre-GFC and post-GFC periods and consequently outperformed by
c.70%.
However, even if someone did a poor job at picking stocks and picked the worst 25 stocks in the
mid-cap universe at the beginning of 2003, he would have generated 18% CAGR in next the five
years and RoEs still expanded by 250bps in the bottom 25 companies in the period. In contrast,
the same poor selection would have lost 30% p.a. from 2008 onwards with 25 worst performing
companies losing c.2,500bps in RoE in the period.
It should also be noted that the dispersion in RoEs has increased significantly in the post-GFC
period with the top 25 companies delivering c.2,800bps higher improvement in RoEs vs the
bottom 25 companies in the 2008-12 period, whereas the comparable number was almost half at
c.1,450bps in the 2003-07 period.
We believe that if we apply certain filters, it is possible to identify companies that can
generate superior returns. We have detailed our approach for identifying such filters in a
subsequent section Our approach to SMID space.
Equity Research
16
25 June 2013
Alpha generation
High RoE companies have generally outperformed lower RoE companies across sectors,
highlighting the difference stock picking can make.

Stock picking drives performance. We look at the differentiation generated within various
sectors within the SMID space over the past five years and conclude generally that higher quality
companies with superior returns and better management profile have been well rewarded by the
market and companies with relatively poor return profiles have been ignored in the rally in past
five years post the GFC.
Macro-economic
themes can be played
through sector bias
but fundamentals
govern differentiation
within sectors
We also believe that significant macro trends (for instance, prolonged slowdown in GDP owing to
low capital formation but strong consumption owing to stimulus) should be reflected through
sector bias in ones portfolio. But then again, sector bias has to be coupled with stock selection in
order to maximize returns.
Fig 47: 5 year performers Autos

Eicher Motors and Motherson Sumi were the best
AMTEK AUTO LTD (7%)
performers with Amtek Auto the worst performer in the

sector. This was due to the change in RoE and enhanced
confidence in management post Volvos entry for Eicher,
while MSS management has demonstrated a strong
execution track record. Amtek, on the other hand, has
had trouble integrating its acquisitions, leading to
underperformance.
ASHOK LEYLAND (4%)

WABCO INDIA LTD (22%)*
BALKRISHNA INDS (28%)
MRF LTD (22%)
MOTHERSON SUMI (32%)
EICHER MOTORS (25%)
-200
200
400
600
800 1,000 1,200
%
Source: Bloomberg
* 1yr/ 3yr gains taken for these companies owing to late listing; Figures in brackets represent last reported RoE
Fig 48: 5 year performers Technology

Again, the theme of higher RoE and better managed
REDINGTON INDIA (17%)
companies like CMC and eClerx seems to be

dominating the outperformers in the sector with
companies where corporate governance/growth
concerns dominate lagging.
INFOTECH ENT (17%)

MINDTREE LTD (30%)
HEXAWARE TECHNOL (31%)
ECLERX SERVICES (42%)
CMC LTD (26%)
0
50 100 150 200 250 300

%
Source: Bloomberg
Figures in brackets represent last reported RoE
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17
25 June 2013
Fig 49: 5 year performers FMCG

Most of the FMCG companies have outperformed in
FUTURE RETAIL LT (9%)
the past five years owing to relatively defensive

characteristics and stimulus aided growth in
consumption. We note that companies with relatively
high RoEs like Zydus Wellness and Jubilant
Foodworks have generated significantly higher returns
over the past five years.
RUCHI SOYA INDUS (10%)

RADICO KHAITAN L (11%)
RAJESH EXPORTS (20%)
TATA GLOBAL BEVE (11%)
SHOPPERS STOP (6%)
GITANJALI GEMS L (10%)
TRENT LTD (4%)
BRITANNIA INDS (40%)
BAJAJ CORP LTD (37%)*
GILLETTE INDIA (12%)
GODFREY PHILLIPS (17%)
MCLEOD RUSSEL (13%)
MARICO LTD (25%)
PROCTER & GAMBLE (28%)
JYOTHY LABORATOR (6%)
JUBILANT FOODWOR (37%)*
VST INDS LTD (42%)
ZYDUS WELLNESS (44%)
-100 0 100 200 300 400 500 600
%
Source: Bloomberg
* 1yr/ 3yr gains taken for these companies owing to late listing; Figures in brackets represent last reported RoE
Fig 50: 5 year performers E&C

While the entire E&C space has been an
PUNJ LLOYD LTD (1%)
underperformer owing to a poor orderflow outlook, the

notable underperformer in this space has been Punj
Lloyd, which has struggled owing to falling margins
with poor order growth outlook. Havells, on the other
hand, has delivered high RoEs and has been the best
performer in the space.
VOLTAS LTD (12%)

IRB INFRASTRUCTU (12%)
ALSTOM INDIA LTD (25%)
SADBHAV ENGINEER (4%)
ERA INFRA LTD (10%)
HAVELLS INDIA (21%)
-200
200
400
%
Source: Bloomberg; Figures in brackets represent last reported RoE
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25 June 2013
Fig 51: 5 year performers Cement

A very clear correlation seems to exist between
INDIA CEMENTS (4%)
fundamentals and returns again. The only stock with

negative returns in the sector is India Cements.
PRISM CEMENT (-5%)

BIRLA CORP LTD (11%)
MADRAS CEMENTS (18%)
-50
50
100
%
Fig 52: 5 year performers Media

While the media sector is more of a growth play,
NETWORK 18 MED (-4%)
companies with stronger RoEs like Jagaran Prakashan

and DB Corp are notable outperformers.
TV18 BROADCAST L (0%)

HT MEDIA LTD (6%)
DB CORP LTD (23%)
DISH TV INDIA ('NA)
JAGRAN PRAKASHAN (27%)
HATHWAY CABLE (2%)*
-100
-50
50
%
Source: Bloomberg; Figures in brackets represent last reported RoE,
* 1yr/ 3yr gains taken for these companies owing to late listing
Fig 53: 5 year performers Utilities

Companies with a stronger RoE profile like
LANCO INFRATECH (0%)
Indraprastha Gas have outperformed companies like

Lanco, which are struggling to generate any
meaningful returns owing to complications in power
utility supply chain.
KSK ENERGY VENTU (1%)*

CESC LTD (10%)
PTC INDIA LTD (6%)
GUJARAT GAS CO (34%)
INDRAPRASTHA GAS (26%)
-100
100
200
%
* 1yr/ 3yr gains taken for these companies owing to late listing
Equity Research
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25 June 2013
Our approach to SMID space

We have tested 10 different financial parameters to come up with a list of the most predictive
fundamental drivers of stock performance.

High RoE and low PB/RoE seem to be the most well rewarded criteria.
High EPS growth and strong RoE momentum have also been successful differentiators for
generating positive returns.

High RoE companies
and stocks that discount
highest CoE are most
well rewarded by the
market in Indian SMID
space
And the answer is To answer the question What drives the performance of SMID stocks? we
have tried to assess the merits of investing based on various financial parameters in this section.
Based on our analysis detailed subsequently, we conclude that investing in companies
that are most efficient allocators of capital (measured by RoE) and
whose market prices discount the highest cost of equity (crudely measured by inverse of
PB/RoE)
has proven to be the most rewarding strategy in the past. In addition, choosing companies based
on EPS growth and RoE momentum has also delivered meaningful absolute returns.
It should be noted that the 5 year period we have analyzed to arrive at the most relevant
parameters is one which has seen some extreme swings.
Fig 54: BSE mid-cap index has witnessed some extreme swings during 2008-12
We have analysed
SMID sector
performance through
some of the most
volatile periods in
recent times.
12,000
10,000
2008 :
2009 :
BSE Mid cap -67% BSE Mid cap +108%
Nifty
-52% Nifty
+81%
2010 :
BSE Mid cap +16%
Nifty
+17%
2011 :
BSE Mid cap -34%
Nifty
-25%
2012 :
BSE Mid cap +39%
Nifty
+26%
8,000
6,000
4,000
2,000
Oct-12
Jul-12
Apr-12
Jan-12
Oct-11
Jul-11
Apr-11
Jan-11
Oct-10
Jul-10
Apr-10
Jan-10
Oct-09
Jul-09
Apr-09
Jan-09
Oct-08
Jul-08
Apr-08
Jan-08
Source: Bloomberg
How did we get there? We have analyzed historical performance of SMID stocks and assessed
the criticality of various factors in driving stock returns. Given the need for a dynamic universe,
we have used constituents of the BSE mid-cap index at the beginning of each year as a proxy for
the SMID universe.
We have split
companies on the
basis of their
investment
attractiveness into 4
quartiles and
measured their
performance over five
years
We have used the following methodology for the purpose of our analysis:
For each of the years from 2008 to 2012, we split the SMID universe (excluding financial
services and real estate) into four quartiles, with quartile 1 being the most attractive and
quartile 4 being the least attractive based on a certain investment criteria. For example, while
assessing the merits of investing based on PER, we slot 25% of companies with the lowest
PERs in quartile 1 and 25% of companies with the highest PERs in quartile 4 with the balance
50% companies evenly split between quartiles 2 and 3.
Thereafter, we assess the average 12-month stock market performance of companies in each
of these quartiles for each of the five years.
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20
We have split the

SMID universe based
on 10 different
financial parameters
and assessed the
predictive capability of
each of these
parameters
25 June 2013
We then measure the difference in performance of companies in quartile 1 over quartile 4 on a
five-year CAGR basis. We assume that the portfolio is rebalanced at the end of every year to
reflect the changes in composition of various quartiles.
The difference between the top and bottom quartiles helps us narrow down on the predictive
capability of each of the parameters, i.e., the higher the difference, the more important the
parameter is in terms of generating 1-year stock returns.
We have assessed the performance vs investment parameters under three broad categories:
a) Value investing parameters This includes P/B ratio (measured by price to current year book
value), PB/ 3-yr average RoE, PER (measured by price to current year EPS), Price/current
year cash flow from operations (P/CFO)
b) Growth investing parameters This includes one-year sales growth and one-year EPS growth
c) Return/cash flow parameters This includes 3-year average RoE (average of RoE for
previous year, current year and next year), RoE momentum (change in RoE over 2 years),
cash conversion rate (measured by CFO/EPS for the current year) and leverage (measured
by net debt/EBITDA for last reported year)
We do understand that the above analysis would have some obvious shortcomings, primarily
owing to potential data inconsistencies. We have tried to minimize data inconsistency issues by
using current year numbers in most cases given consensus estimates are thin beyond the top 5060 names. We also expect that owing to large sample size (between 150-250 companies in each
of the years) the data inconsistencies would largely be ironed out in the final outcome.
The five-year CAGR for companies in each of the four quartiles based on various parameters is
given in the figure below.
Fig 55: 5 year average performance of SMID universe segregated into quartiles
RoE and PB/ RoE

have proven to be the
best determinants of
stock performance
Quartiles --->
Avg out-performance of
Quartile 1 over 4
P/B
-8%
-3%
-9%
-1%
-7%
PB/ RoE
13%
4%
-10%
-23%
36%
Value Investing Parameters
2%
2%
-6%
-18%
20%
-2%
2%
-4%
-18%
16%
Sales Growth
1%
6%
-6%
-22%
23%
EPS Growth
9%
5%
-12%
-21%
30%
18%
-3%
-10%
-23%
41%
8%
-4%
-8%
-11%
19%
-13%
5%
-1%
-15%
2%
3%
5%
-8%
-20%
23%
PER
P/ CFO
Growth Investing Parameters
Financial Parameters
RoE
RoE Momentum
CFO/EPS
Net Debt/ EBITDA
Notes:
1. Quartiles are based on investment attractiveness, Quartile 1 being most attractive, Quartile 4 being least attractive
2. Universe sampled from BSE Midcap Index for each year ex financials& real estate
Source: Bloomberg, Standard Chartered Research
We note that RoE has been by far the most well rewarded investment criteria in the past with top
quartile companies outperforming bottom quartile companies by an average of 41% over the five
years from 2008 to 2012. We also are impressed by the fact that companies with RoEs falling in
the top quartile have outperformed companies with RoEs in the second quartile by at least 11%
every year and have generated a positive return of 18% p.a. over 2008-12 vs. BSE mid-cap index
returning -6% in this period.
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21
25 June 2013
Similarly, companies with the lowest PB/RoE ratio have generated an excess return of 36% p.a.
over companies with the highest PB/RoE ratios. Low PB/RoE companies have also generated a
return of 13% p.a. over 2008-12, which again is impressive in our opinion.
The only other selection criteria based on which top quartile companies have generated
meaningful absolute returns are RoE momentum (8%) and EPS growth (9%).
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25 June 2013
Detailed assessment of investment parameters

a) Assessment of value based parameters
We first test the merit of value investing in the context of Indian SMID stocks. In general, SMIDs
trade at lower valuation vs large caps which is to a large extent understandable owing to lower
liquidity, relatively lesser familiarity with management and with the company. This can offer
enormous potential for investors who could benefit from earnings multiple rerating along with
earnings growth in these names.
Fig 56: Ratio of BSE mid-cap PER/Nifty
PER
Fig 57: Ratio of BSE mid-cap PBR/ Nifty

PBR
BSE Midcap PER/ Nifty Fwd PER
110%
BSE Midcap PER/ Nifty Fwd PBR
80%
100%
70%
90%
80%
60%
70%
50%
60%
40%
50%
40%
Source: Bloomberg. BEST forward PER used.
30%
Source: Bloomberg. BEST forward PBR used
Based on our assessment, PB/RoE is the most significant value based differentiator for SMID
stocks. Our assessment of each of the four parameters analysed by us is given below.
P/B ratio:
Based on the figure below, it seems that P/B per se has not been a significant determinant of
performance of SMID stocks in India. We have used price to current year book value for the
purpose of this analysis. While in 2009 the strategy seemed to work with top quartile companies
outperforming the lowest quartile ones by 64%, portfolio selection based on cheapest companies
on P/B has not proved to be very rewarding for investors in other years. In fact, on an average,
the cheapest 25% companies on P/B basis have underperformed the most expensive 25%
companies on P/B basis by 7% in the five years from 2008-12.
PB ratio per se has

not proven to be a
good determinant of
stock performance
CY 2009
0%
-60%
160%
-2%
-62%
140%
-4%
-6%
-7%
-8%
-10%
-64%
-66%
-68%
CY 2010
CY 2012
-20%
45%
-25%
40%
2011 return %
10%
5%
0%
1
Quartiles ------->
80%
CY 2011
35%
30%
25%
20%
15%
100%
2
3
4
Quartiles ---------->
2012 return %
2
3
Quartiles ------->
120%
60%
-70%
1
2010 return %
2009 return %
CY 2008
2008 return %
5 yrs. CAGR
Fig 58: Stock Performance vs P/B

5 year CAGR
-30%
-35%
-40%
2
3
4
Quartiles ------------>
2
3
4
Quartiles -------->
35%
30%
25%
20%
15%
-45%
1
2
3
4
Quartiles ------->
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25 June 2013
Selecting companies
based on PB/RoE has
proven to be the most
credible value based
differentiator of stocks.
PB/RoE Ratio:
One obvious flaw with P/B based segregation of the SMID universe is that it does not take into
account the differences in RoEs generated by various companies. In order to account for
differential RoEs, we measure the performance of companies based on PB/RoE methodology.
We have used three-year (previous year, current year and next year) average RoEs to segregate
the companies to discount any aberrations arising due to cyclical swings.
Cheapest cos. by
PB/RoE have
produced 13% p.a.
returns since 2008 vs.
-6% for mid-cap index.
As shown in the figure below, PB/RoE has proved to be a fairly significant differentiator of stock
performance with top quartile companies (25% companies with lowest PB/RoE ratios)
outperforming the bottom quartile companies (25% companies with highest PB/RoE ratios) in
every single year since 2008 and by 36% p.a. over the five-year period. Furthermore, investing in
the cheapest 25% companies on PB/RoE basis would have generated a CAGR of 13% p.a. as
compared to -6% CAGR generated by the BSE midcap index in this period.
Fig 59: Stock performance vs PB/ RoE

5 year CAGR
CY2008
190%
-55%
15%
10%
170%
2008 return %
0%
-5%
-10%
-15%
2009 return %
-60%
5%
5 yr. CAGR
CY2009
-65%
-70%
-75%
-20%
-80%
1
2011 return %
25%
20%
15%
10%
5%
-5%
-20%
55%
-25%
50%
-30%
-35%
-40%
Quartiles ------>
45%
40%
35%
30%
25%
20%
-50%
4
CY2012
-45%
0%
Quartiles ----->
2012 return %
30%
2010 return %
CY2011
90%
Quartiles ----->
CY2010
110%
50%
1
Quartiles -------->
130%
70%
36%
-25%
150%
Quartiles ----->
Quartiles ----->
Equity Research
24
While cos. with lower

PER have
outperformed more
expensive ones, they
have not generated
meaningful absolute
returns
25 June 2013
PE Ratio:
While assessing the performance of companies based on PERs, we notice that in the five years
from 2008-12, while top quartile companies have outperformed the bottom quartile companies by
20% p.a., the absolute performance of a portfolio investing in the cheapest 25% would have been
a mere 2% CAGR in the five year period. Also, looking at the performance of companies in the
nd
rd
2 and 3 quartiles, it seems that PER alone has not been a strong differentiator of stocks. We
have used price to current year earnings for the purpose of this analysis.
Fig 60: Stock performance vs PE ratio

CY2008
5%
2008 return %
5 yr CAGR
0%
-5%
-10%
-15%
20%
-20%
1
CY2009
-55%
-57%
-59%
-61%
-63%
-65%
-67%
-69%
-71%
-73%
-75%
150%
140%
2009 return %
5 year CAGR
CY2011
-25%
20%
-30%
15%
10%
5%
0%
4
Quartiles ---->
2
3
Quartiles ----->
CY2012
43%
40%
-35%
-40%
-45%
2012 return %
25%
2011 return %
2010 return %
Quartiles ----->
CY2010
110%
90%
Quartiles ------->
120%
100%
1
130%
37%
34%
31%
28%
25%
-50%
1
Quartiels ---->
Quartiles ------>
Equity Research
25
Selecting companies
based on P/CFO
would have failed to
generate absolute
returns over the 5 yrs
from 2008-12
25 June 2013
Price/ CFO Ratio:

Based on our analysis, it seems that P/ CFO has not been a good differentiator either for
performance of stocks. While top quartile companies have generated 16% outperformance vs
bottom quartile companies ranked on the basis of P/ CFO, a strategy of investing in cheapest
companies based on P/ CFO would have generated a negative performance of 2% over the 5
year period from 2008 to 2012. We have used current year CFO for the purpose of this analysis.
Fig 61: Stock Performance vs Px/CFO

5 year CAGR
CY 2008
CY 2009
-50%
160%
5%
-55%
140%
-5%
-10%
-15%
16%
-60%
2009 return %
2008 return %
5 yr CAGR
0%
-65%
-70%
-75%
-80%
-20%
1
100%
80%
120%
Quartiles ----->
Quartiles ------>
-20%
50%
-25%
45%
-30%
-35%
-40%
-45%
-55%
4
Quartiles ---->
40%
35%
30%
25%
-50%
3
CY 2012
2012 return %
2011 return %
45%
40%
35%
30%
25%
20%
15%
10%
5%
0%
-5%
2010 return %
CY 2011
Quartiles ----->
CY 2010
20%
1
Quartiles ---->
2
3
Quartiles ---->
b) Assessment of growth-based parameters

Bottom line growth
has proven to be a
much better
determinant of
performance vs top
line growth
Generally, quality SMID stocks offer stronger revenue growth potential than their larger peers
owing to their ability to grow market share besides benefitting from industry growth rates. This,
coupled with operational and financial leverage, could translate into even stronger earnings
growth rates, which can form the foundation of a growth-based investment strategy.
Our analysis of the Indian SMID space shows that growth has usually been rewarded by the
markets with companies posting higher growth rates outperforming the slowest growing
companies by over 20% on an average over the past five years. However, mere top line growth
would not be sufficient for meaningful absolute performance and it is much more important to
focus on bottom line growth to achieve absolute performance.
Equity Research
26
25 June 2013
Sales growth
Based on the figure below, we notice that while sales growth has been a differentiator of
performance, with the fastest growing 25% companies outperforming the slowest 25% companies
by 23% p.a. over the past five years, absolute performance of the top quartile companies has
only been limited to 1% p.a. Besides, assessment of companies in the second and third quartiles
presents a somewhat mixed picture as to the reliability of sales growth. We have used current
year sales growth for the purpose of this analysis.
Higher sales growth

generated returns
relative to slower
growing ones but
negligible absolute
returns
Fig 62: Stock performance vs 1 yr sales growth

5 year CAGR
CY2008
10%
CY2009
-50%
-5%
-10%
-15%
-20%
-25%
2
-60%
-65%
-70%
23%
2009 return %
-55%
0%
2008 return %
5 yr CAGR
5%
-75%
Quartiles ------>
-20%
60%
-25%
50%
-30%
-35%
-40%
-45%
-50%
Quartiles ----->
40%
30%
20%
0%
-60%
3
10%
-55%
2
CY2012
2012 return %
2011 return %
35%
30%
25%
20%
15%
10%
5%
0%
-5%
-10%
Quartiles ---->
CY2011
Quartiles ----->
CY2010
2010 return %
150%
145%
140%
135%
130%
125%
120%
115%
110%
105%
100%
Quartiles ---->
Quartiles ---->
Equity Research
27
25 June 2013
EPS growth
EPS growth has proven to be a fairly significant differentiator of stocks in the past. As seen in the
figure below, on average the top quartile companies based on EPS growth have delivered an
absolute performance of 9% p.a. and have outperformed the slowest growing 25% companies by
30% p.a. over the five years from 2008 to 2012. We have used current year EPS growth for the
purpose of this analysis.
Higher EPS growth

has generated c.9%
p.a. absolute returns
and 30% relative
returns vs. cos. with
slowest EPS growth
Fig 63: Stock performance vs 1 yr EPS growth

5 year CAGR
CY2008
2008 return %
10%
5 yr CAGR
160%
-50%
5%
0%
-5%
-10%
150%
-55%
2009 return %
15%
CY2009
-60%
-65%
-70%
-15%
30%
-20%
-75%
-25%
2
70%
60%
2012 erturn %
-20%
-30%
-40%
-50%
50%
40%
30%
20%
10%
0%
-60%
Quartiles ---->
CY2012
-10%
Quartiles ---->
0%
2011 return %
2010 return %
CY2011
35%
30%
25%
20%
15%
10%
5%
0%
-5%
-10%
3
110%
Quartiles ---->
CY2010
120%
90%
1
Quartiles ---->
130%
100%
-80%
1
140%
Quartiles ----->
Quartiles ----->
c) Assessment of return/cash flow parameters

High RoEs have been
extremely well rewarded
by the market with the
top quartile companies
outperforming second
quartile companies by
at least 13% in any one
year
While assessing the merit of return/cash flow-based parameters to investing in SMID stocks, we
assess the performance of companies segregated by their RoEs, momentum of RoEs (change in
RoEs over a two-year period), cash conversion rate (CFO/EPS) and leverage (net debt to
EBITDA). As per our analysis, companies with strong, sustainable RoEs are very well rewarded
by the market on a consistent basis.
RoE
Based on the figure below, high RoE generating companies have outperformed their peers by
41% p.a. over the past five years.
Higher RoEs demonstrate the ability of management teams to optimize capital allocation in their
business and it is no surprise that investors would reward best allocators of capital the most. We
are, however, impressed by the consistency and scale of outperformance of high RoE
companies. Companies with top 25% RoEs have outperformed the companies in every other
quartile every single year since 2008 by at least 11%. Furthermore, investing in companies with
the best RoE profile would have generated a cumulative return of 18% pa over the five-year
periods from 2008 to 2012. This is the highest return generated by top quartile companies based
on various investing parameters. We have used three-year average RoEs over the previous year,
current year and next year for the purpose of this analysis.
Equity Research
28
25 June 2013
Fig 64: Stock performance vs 3 yr average RoE

CY2008
CY2009
150%
-50%
20%
15%
10%
5%
0%
-5%
-10%
-15%
-20%
-25%
140%
2009 return %
-55%
2008 return %
5 year CAGR
5 year CAGR
-60%
-65%
-70%
-75%
-10%
-15%
-20%
-25%
-30%
-35%
-40%
-45%
-50%
-55%
-60%
2008 return %
40%
30%
20%
10%
0%
-10%
4
Quartiles ---->
Quartiles ---->
CY2012
55%
50%
2012 return %
50%
2010 return %
CY2011
100%
Quartiles ---->
CY2010
110%
80%
1
Quartiles ---->
120%
90%
41%
130%
45%
40%
35%
30%
25%
20%
Quartiles ---->
Quartiles ---->
Equity Research
29
While RoE
momentum is
rewarded, we believe
it should be looked at
in conjunction with
RoEs
25 June 2013
RoE momentum
Based on the figure below, RoE momentum (change in RoE over two years) has been a
differentiator of stocks with 25% of companies with the fastest rate of change in RoEs
outperforming companies with the slowest rate of change in RoEs by 19% p.a. Top quartile
companies have delivered an absolute performance of 8% p.a. between 2008 and 2012. We
believe that RoE momentum should be used in conjunction with RoE to differentiate stocks.
Fig 65: Stock performance vs RoE momentum

5 year CAGR
CY2008
CY2009
-50%
150%
10%
-5%
-60%
-65%
-10%
-70%
-15%
-75%
2
2009 return %
0%
140%
-55%
19%
2008 return %
5 yr CAGR
5%
120%
110%
100%
90%
80%
Quartiles ----->
Quartiles ---->
CY2010
50%
45%
40%
35%
30%
25%
20%
15%
10%
5%
0%
CY2012
-10%
55%
Quartiles ---->
45%
2012 return %
-20%
-25%
-30%
-35%
50%
-15%
Quartiles ----->
CY2011
2011 return %
2010 return %
130%
40%
35%
30%
25%
20%
-40%
1
Quartiles ---->
Quartiles ---->
Equity Research
30
25 June 2013
Cash conversion rate (CFO/EPS)

High cash flow conversion, surprisingly, does not seem to be a big differentiator of stocks (figure
below). We do note, however, that there is a significant differentiation performance of companies
nd
rd
ranked in the 2 and 3 quartiles based on their cash conversion rates. We have used current
year data for the purpose of this analysis.
Cash conversion rate

has failed to be a
determinant of stock
performance
Fig 66: Stock performance vs cash conversion rate

5 year CAGR
CY2008
10%
2008 return %
0%
-5%
-10%
2%
-15%
2009 return %
-55%
5%
5 yr CAGR
CY2009
-50%
-60%
-65%
-70%
-75%
-20%
-80%
1
Quartiles ---->
2
3
Quartiles ---->
140%
135%
130%
125%
120%
115%
110%
105%
100%
95%
90%
1
CY2011
CY2012
30%
-10%
-15%
-20%
-25%
-30%
-35%
-40%
-45%
-50%
-55%
38%
36%
34%
32%
30%
28%
26%
24%
22%
20%
2011 return %
2010 return %
20%
15%
10%
5%
0%
-5%
-10%
1
Quartiles ---->
2012 return %
CY2010
25%
Quartiles ---->
Quartiles ----->
Quartiles ---->
Equity Research
31
Companies with
lowest 25% leverage
have outperformed
the most levered ones
by 23% p.a. from
2008 to 2012
25 June 2013
Leverage (net debt/EBITDA)

As seen in the figure below, the market does seem to reward companies that are relatively less
levered. Companies with the lowest 25% net debt to EBITDA ratio seem to have outperformed
the most levered 25% companies by 23% p.a. from 2008 to 2012. The absolute performance of
the least levered 25% of companies has been 3% p.a. in this period. We have used current year
leverage data for the purpose of this analysis.
Fig 67: Stock performance vs leverage (net debt/EBITDA)

CY2008
10%
2008 return %
5%
5 yr CAGR
0%
-5%
-10%
-15%
23%
-20%
-25%
1
CY2009
-55%
-57%
-59%
-61%
-63%
-65%
-67%
-69%
-71%
-73%
-75%
140%
135%
130%
2009 return %
5 year CAGR
120%
115%
110%
105%
100%
125%
Quartiles ---->
Quartiles ---->
40%
35%
30%
25%
20%
15%
10%
5%
0%
-5%
-20%
41%
-25%
39%
2012 return %
CY2012
2011 return %
CY2011
2010 return %
CY2010
-30%
-35%
-40%
-45%
-50%
Quartiles ---->
37%
35%
33%
31%
29%
27%
25%
-55%
1
Quartiles ---->
Quartiles ---->
Quartiles ----->
Equity Research
32
25 June 2013
How do we screen SMID stocks?

We rank the SMID space based on the four financial parameters that have been successful in
generating positive returns in the past.

Our backtests show that top quartile companies selected through this methodology have
generated an absolute return CAGR of 20% over 2008-12.

The top quartile of our screen comprises seven names covered by Standard Chartered
Research.
Weve chosen the
best performing
parameters from each
of value, growth and
financial parameters
and assigned weights
to each to arrive at a
multi-factor ranking
methodology
Based on the observations above, the SMID space has behaved in line with the merit order
based on fundamental parameters for most of the past five years despite the perception of high
volatility and irrational swings attached to this space. This lends credence to the approach of
splitting SMID stocks as per fundamental criteria while determining their investment
attractiveness.
We have tried to slice mid cap companies in India based on the following three criteria:
Return based criteria Given high RoEs have generated the maximum differential (38% p.a.)
vs other fundamental criteria like leverage and cash conversion rates, we rank the SMID
universe based on RoEs. While we have not screened companies based on RoE momentum
given RoE momentum alone may not be a good indicator of fundamentals, we have given
consideration to this criteria when looking at the multifactor screen discussed below.
Value criteria We also slice the SMID universe based on PB/RoE ratio. Historically,
attractive PB/RoEs have been well-rewarded by the market with the top companies
outperforming weaker ones by 36% p.a. in the past five years.
Growth criteria We use EPS growth as a filter to rank companies on growth criteria.
Historically, companies with the highest EPS growth have outperformed their slower growing
peers by 30% p.a. on an average.
Given the multiple criteria involved, we used a multifactor approach to arrive at the merit order of
stocks that warrant closer attention. We have assigned weights to each of the screening criteria
above, i.e. RoE, RoE momentum, EPS growth and PB/ RoE.
Given the significantly superior returns demonstrated by companies with stronger RoEs (38%)
and lower PB/RoE ratio (36%) in the past, we assign maximum weight (35%) to investment
attractiveness based on each of these two criteria.
We also assign 25% weight to EPS growth and 5% weight to RoE momentum. Based on the
weights, we arrive at a merit order for Indian stocks which we have detailed on subsequent page.
Fig 68: Weightage of various parameters used in our screens
Criteria
Top quartile cos. 5 yr CAGR
Weight (%)
RoE
18%
35%
PB/ RoE
13%
35%
RoE momentum
8%
15%
EPS growth
9%
15%
Source: Standard Chartered Research
Back-testing of returns based above shows that investing in companies ranked in the top quartile
generated a five-year CAGR of 20% p.a. with top quartile companies outperforming bottom
quartile companies by 43% p.a.
Equity Research
33
25 June 2013
Fig 69: Stock performance vs SC merit order ranking

5 year CAGR
CY2008
25%
20%
15%
10%
5%
0%
-5%
-10%
-15%
-20%
-25%
CY2009
-50%
170%
160%
-55%
150%
-60%
140%
-65%
130%
120%
-70%
110%
43%
-75%
100%
-80%
1
90%
1
CY2010
CY2011
CY2012
60%
-20%
50%
-25%
40%
-30%
30%
-35%
20%
-40%
10%
-45%
0%
-50%
75%
70%
65%
60%
55%
50%
45%
40%
35%
30%
25%
-10%
-55%
1
We also provide screens of companies based on 3 of the criteria above (RoEs, PB/ RoE, EPS
growth) in the appendices. It should be noted that while running these screens, we have relied on
fundamental data as provided by Bloomberg. We have limited our universe to companies that
trade more than USD 1mn/day and have market capitalization of USD 300mn to USD 3bn as on
20 June 2013. We have excluded financials and real-estate stocks from this screen. We have
also excluded pharmaceutical names at this stage given pharmaceutical sector returns and
profitability may vary significantly owing to patent/ exclusivity expiries and out licensing
arrangements. The SMID universe shrinks from 198 to 62 because of adding liquidity filter and
elimination of names where no credible financials are available.
Output from screens
has to be viewed in
conjunction with
fundamental analysis
to arrive at investment
decisions
Equity Research
We would like to stress that these screens merely provide a framework for shortlisting potentially
interesting stocks while ultimate selection of stocks would be a function of multiple fundamental
factors including quality of financials, strength of management, corporate governance, among
other things. We therefore, have excluded Jaiprakash Power Ventures (rated Underperform by
Standard Chartered research) from the final shortlist presented in this report.
34
25 June 2013
Fig 70: Ranks for Indian SMID

Mkt Cap 3m Volumes
Of the 16 companies
featuring in the top
quartile, Standard
Chartered Research
has O/P ratings on six
I/L rating on one and
U/P rating on one. The
remaining eight are not
covered
A lot of consumer
names with high RoEs
feature in 2nd and 3rd
quartiles, primarily
owing to high PB/RoE
levels
Most U/P rated and I/L

rated emerging
companies in Standard
Chartered research
coverage feature in the
last two quartiles
Ticker
Name
USD mn
USD mn
CHMB IN Equity
UNTP IN Equity
CHAMBAL FERTILIS
255
UNITED PHOSPHORU
983
MRF IN Equity
MRF LTD
MSS IN Equity
MOTHERSON SUMI
MTCL IN Equity
Price 3 yr avg
PER
PBR
PB/
RoE
FY14E
37
14.1
5.4x
0.8x
5%
35%
68
14
136
17.3
6.9x
1.1x
6%
29%
-33
27
915
12,933
23.7
7.4x
1.4x
6%
13%
-240
1,967
201
27.0
14.6x
4.1x
15%
77%
900
24
MINDTREE LTD
575
820
25.9
9.2x
2.1x
8%
28%
-709
47
HEXW IN Equity
HEXAWARE TECHNOL
403
79
25.0
7.3x
1.7x
7%
9%
-98
35
ESOIL IN Equity
ESSAR OIL LTD
1,400
63
41.1
10.9x
2.9x
7%
NM
-336
13
IRB IN Equity
IRB INFRASTRUCTU
610
110
16.0
6.9x
1.0x
6%
4%
-319
41
JSAW IN Equity
JINDAL SAW LTD
z in
60
6.5
5.8x
0.4x
6%
23%
1,131
12
JSW IN Equity
JSW ENERGY LTD
1,187
44
13.7
7.5x
1.0x
8%
101%
-353
30
10
GUJS IN Equity
GUJARAT STATE PE
483
53
16.4
6.4x
0.9x
5%
-6%
-574
41
11
AMRJ IN Equity
AMARA RAJA BATT
723
249
27.4
12.9x
3.2x
12%
24%
-543
25
12
BHUS IN Equity
BHUSHAN STEEL
1,757
462
12.5
7.5x
1.0x
8%
14%
317
14
13
IGL IN Equity
INDRAPRASTHA GAS
643
276
23.9
10.3x
2.2x
9%
10%
-508
35
14
JPVL IN Equity
JAIPRAKASH POWER
899
20
10.2
8.6x
0.8x
8%
24%
844
21
15
ABNL IN Equity
ADITYA BIRLA NUV
2,136
1,084
13.3
9.9x
1.2x
9%
18%
145
13
16
VOLT IN Equity
VOLTAS LTD
471
85
14.1
11.7x
1.6x
11%
26%
252
34
17
TCO IN Equity
TATA COFFEE LTD
303
984
20.5
12.2x
2.4x
12%
36%
-190
18
HMN IN Equity
EMAMI LTD
1,859
730
42.3
28.6x
11.1x
26%
22%
-83
18
19
JSTL IN Equity
JSW STEEL LTD
2,511
14
670
10.7
7.3x
0.7x
7%
12%
203
48
20
HPCL IN Equity
HINDUSTAN PETRO
1,396
249
7.2
7.2x
0.6x
8%
158%
565
49
21
PLNG IN Equity
PETRONET LNG LTD
1,518
123
23.3
8.9x
1.7x
8%
-1%
-879
61
22
SUNTV IN Equity
SUN TV NETWORK
2,418
367
27.7
17.4x
4.6x
17%
10%
204
32
23
ARVND IN Equity
ARVIND LTD
338
78
12.5
6.7x
0.8x
6%
-17%
138
24
MCLR IN Equity
MCLEOD RUSSEL
549
306
16.0
9.3x
1.6x
10%
12%
141
14
25
HAVL IN Equity
HAVELLS INDIA
1,505
727
36.2
17.8x
5.1x
14%
18%
-1,932
37
26
MC IN Equity
MADRAS CEMENTS
858
215
18.4
10.9x
1.8x
10%
10%
74
17
27
EXID IN Equity
EXIDE INDUS LTD
1,738
122
20.2
15.7x
3.0x
15%
22%
218
43
28
PIDI IN Equity
PIDILITE INDS
2,295
270
28.0
25.8x
6.6x
24%
26%
-247
18
29
SOBHA IN Equity
SOBHA DEVELOPERS
606
382
13.2
12.2x
1.6x
12%
22%
510
36
30
PTCIN IN Equity
PTC INDIA LTD
230
48
8.3
5.5x
0.5x
7%
13%
153
23
31
TTKPT IN Equity
TTK PRESTIGE LTD
589
3,078
34.6
21.7x
6.6x
19%
19%
-732
16
32
CESC IN Equity
CESC LTD
686
327
8.9
8.5x
0.7x
8%
40%
20
26
33
JUBI IN Equity
JUBILANT FOODWOR
1,093
994
34.1
37.5x
11.2x
33%
29%
-395
31
34
JPA IN Equity
JAIPRAKASH ASSOC
2,000
28
58
8.3
10.7x
0.9x
11%
34%
817
37
35
KKC IN Equity
CUMMINS INDIA
2,124
457
30.2
17.6x
4.7x
16%
10%
-638
41
36
TTCH IN Equity
TATA CHEMICALS
1,181
288
10.9
8.2x
1.0x
9%
3%
675
21
37
RELI IN Equity
RELIANCE INFRAST
1,446
22
332
7.8
5.2x
0.3x
5%
3%
-160
23
38
ICEM IN Equity
INDIA CEMENTS
310
61
6.6
6.6x
0.4x
7%
2%
328
41
39
BRGR IN Equity
BERGER PAINTS
1,426
245
23.6
32.3x
7.3x
31%
22%
86
18
40
CRG IN Equity
CROMPTON GREAVES
858
81
14.8
10.7x
1.5x
10%
-2%
-15
50
41
EIM IN Equity
EICHER MOTORS
1,595
3,562
23.4
31.4x
11.8x
50%
0%
1,341
28
42
GITG IN Equity
GITANJALI GEMS L
619
501
11.5
6.3x
1.0x
9%
19%
-1,719
43
CCRI IN Equity
CONTAINER CORP
2,283
1,055
15.2
13.6x
2.0x
13%
8%
-106
23
44
BATA IN Equity
BATA INDIA LTD
900
827
25.5
23.6x
6.2x
24%
-7%
10
12
45
JI IN Equity
JAIN IRRIGATION
404
54
8.4
9.6x
1.0x
12%
1%
1,336
13
46
DEN IN Equity
DEN NETWORKS LTD
427
186
9.6
29.8x
2.1x
22%
139%
386
11
47
BHFC IN Equity
BHARAT FORGE CO
857
218
13.2
16.6x
2.0x
15%
-14%
441
31
48
JETIN IN Equity
JET AIRWAYS IND
659
30
461
22.9
29.8x
24.6x
107%
NM
2,754
49
ABB IN Equity
ABB LTD
2,125
610
11.9
41.3x
4.5x
38%
30%
344
35
50
AL IN Equity
ASHOK LEYLAND
921
21
11.0
16.1x
1.4x
12%
-21%
389
50
51
IBPOW IN Equity
INDIABULLS POWER
317
3.5
60.8x
0.4x
10%
-46%
1,368
52
TGBL IN Equity
TATA GLOBAL BEVE
1,367
136
9.2
17.6x
1.6x
18%
16%
225
17
53
RW IN Equity
RAYMOND LTD
262
259
7.7
12.0x
1.1x
14%
-8%
988
11
54
EDA IN Equity
ESS DEE ALUMINIU
312
592
9.8
27.0x
2.2x
22%
8%
20
55
LANCI IN Equity
LANCO INFRATECH
271
-11.9
-5.7x
0.4x
NM
60%
2,456
15
56
FRL IN Equity
FUTURE RETAIL LT
371
15
99
3.1
21.9x
0.6x
19%
-17%
127
14
57
ADANI IN Equity
ADANI POWER LTD
1,946
41
-7.2
40.3x
1.8x
NM
NM
6,169
37
58
TCOM IN Equity
TATA COMMUNICATI
834
177
-14.4
-14.5x
3.1x
NM
-34%
1,300
13
59
SUEL IN Equity
SUZLON ENERGY
323
11
-58.8
-6.3x
0.7x
NM
-0.26
14,541
10
60
GMRI IN Equity
GMR INFRASTRUCTU
1,217
19
-0.5
-36.4x
0.8x
NM
-42%
-159
22
61
DITV IN Equity
DISH TV INDIA
1,076
62
-34.1 -1074.1x
-43.4x
127%
-78%
-7,816
41
62
Rated I/L by SC research
F14/F12 Momentum
# of RANK
RoE
Rated O/P by SC research
FY14E 3 yr RoE
EPS g
INR
reccos.
Rated U/P by SC research
Equity Research
35
25 June 2013
Which companies from our screens do we like?

Of the companies featuring in the top quartile of our screens, we currently cover Mindtree, Amara
Raja Batteries, Gujarat State Petronet, Motherson Sumi Systems, IRB Infrastructure and
Indraprastha Gas. We have attached a summary of investment views on each of these
companies in the following pages. We also cover Jaiprakash Power Ventures with and
underperform rating and have therefore excluded the name from our recommendations.
We also initiate coverage on Aditya Birla Nuvo (ABNL) with an Outperform rating (ABNL: From
asset aggregator to asset allocator). We also attach a summary investment view on ABNL in this
report.
Equity Research
36
25 June 2013
Aditya Birla Nuvo

From asset aggregator to asset allocator
We initiate coverage on Aditya Birla Nuvo (ABNL) with an
Outperform rating and price target of INR 1,465 based on a

20% discount to NAV.
We believe ABNL is transforming itself from an asset
aggregator to an asset allocator. Recent management
decisions suggest a focus on improving portfolio returns.
ABNL is in the top quartile of our SMID universe.
Its P/B valuation (ex-Idea) is near an all-time low, while
returns (ex Idea/financial services) are near all-time highs.
Multiple catalysts ahead: (1) new banking licenses, (2)
improvement in telecom tariff, (3) turnaround at Pantaloons
and (4) asset sales. We have not assumed upside from
these in our base case valuation.
Poised to improve portfolio returns. ABNL has a suite of
established businesses whose returns are poised to improve in
the next few years, in our view. We see significant improvement
at Madura Retail and Idea in particular (c.60% of SOTP). We
also think ABNL is poised to transform from an asset
aggregator to an asset allocator over the next few years.
Recent initiatives suggest management focus is on improving
RoEs incrementally. While the insurance business is likely to
see a decline in margins over the next few years, we estimate
that based on its appraisal value, ABNL has generated an IRR
of c.15% on the investments.
Catalysts ahead. We believe ABNL could benefit from multiple
catalysts over the medium term. Key among them would be (1)
issue of banking licenses, (2) improvement in telecom tariffs,
(3) turnaround at Pantaloons and (4) asset sales. We have not
assumed any upside from any of these catalysts in our
valuation and estimate that put together, these events could
add over 20% to our base case NAV.
Valuations not reflecting ABNLs evolution. ABNL (ex-Idea)

is trading near an all-time low P/B even as operating returns (ex
Idea and financial services) rebound. ABNL is currently trading
at over 40% discount to its SOTP-based NAV of INR 1,828/sh.
Risks. (1) Adverse regulatory developments for telecom and
insurance businesses; (2) Slower-than-expected tariff
rationalization for Idea; (3) Disappointments from Pantaloons;
and (4) Risks to NBFC book led by capital market shocks.
OUTPERFORM
(unchanged)
PRICE as of 21 Jun 2013
PRICE TARGET
INR 1,084.15
INR 1,465.00
Bloomberg code
Reuters code
ABNL IN
ABRL.NS
Market cap
12-month range
INR 141,276mn (USD 2,387mn)
INR 710.00 - 1,190.65
EPS adj est change
NA
Year-end: March
Sales (INR mn)
EBITDA (INR mn)
EBIT (INR mn)
Pre-tax profit (INR mn)
Net profit adj. (INR mn)
FCF (INR mn)
EPS adj. (INR)
DPS (INR)
Book value/share (INR)
EPS growth adj. (%)
DPS growth (%)
EBITDA margin (%)
EBIT margin (%)
Net margin adj. (%)
Div. payout (%)
Net gearing (%)
ROE (%)
ROCE (%)
EV/sales (x)
EV/EBITDA (x)
PBR (x)
PER adj. (x)
Dividend yield (%)
2013
97,545
10,795
8,603
5,368
4,230
(7,875)
36.18
6.50
569.66
19.0
-8.5
11.1
8.8
4.3
18.0
57.3
6.8
10.9
1.5
13.5
1.7
25.6
0.7
2014E
71,811
11,977
9,820
6,301
4,852
17,851
38.72
7.00
607.59
7.0
7.7
16.7
13.7
6.8
18.1
31.0
6.6
11.5
2.2
13.4
1.8
28.0
0.6
2015E
78,313
12,849
10,486
7,488
5,766
4,774
44.25
7.50
643.06
14.3
7.1
16.4
13.4
7.4
17.0
28.5
7.1
11.9
2.1
12.9
1.7
24.5
0.7
2016E
84,782
13,734
11,180
8,252
6,354
6,251
48.76
8.00
682.46
10.2
6.7
16.2
13.2
7.5
16.4
24.6
7.4
12.0
1.9
11.9
1.6
22.2
0.7
Note: Above financials are standalone and hence exclude important verticals like Idea,
financial services, ITES and Pantaloons, which contribute 75% of SOTP.
Source: Company, Standard Chartered Research estimates
Share price performance

1,200
950
700
Jun-12
Sep-12
Aditya Birla Nuvo
Share price (%)

Ordinary shares
Relative to index
Relative to sector
Major shareholder
Free float
Average turnover (USD)
Dec-12
Mar-13
Jun-13
BSE SENSEX 30 INDEX (rebased)
-1 mth
-3 mth -12 mth
-1
11
36
6
11
24
Aditya Birla Group (53.8%)
46%
3,631,818
Source: Company, FactSet
Sumit Choudhary
Mahrukh Adajania
Sumit.Choudhary@sc.com
+91 22 4205 5916
Mahrukh.Adajania@sc.com
+91 22 4205 5903
Equity Research
ABN L IN
INR 1,084.15
INR 1,465.00
37
25 June 2013
Income statement (INR mn)
Cash flow statement (INR mn)
Year-end: Mar
Sales
Gross profit
SG&A
Other income
Other expenses
EBIT
Net interest
Associates
Other non-operational
Exceptional items
Pre-tax profit
Taxation
Minority interests
Year-end: Mar
EBIT
Depreciation & amortisation
Net interest
Tax paid
Changes in working capital
Others
Cash flow from operations
2012
8,062
2,031
(2,720)
(849)
(7,451)
0
(928)
2013
8,603
2,192
(3,235)
(1,138)
(9,814)
0
(3,393)
2014E
9,820
2,158
(3,519)
(1,449)
17,012
0
24,021
2015E
10,486
2,363
(2,998)
(1,722)
1,205
0
9,334
2016E
11,180
2,554
(2,928)
(1,898)
(157)
0
8,751
Capex
Acquisitions
Disposals
Others
Cash flow from investing
(3,056)
(1,735)
(2,155)
(6,946)
(4,482) (6,170)
(2,587) (14,400)
1,242
5,500
(5,827) (15,070)
(4,560)
(3,000)
0
(7,560)
(2,500)
(3,000)
0
(5,500)
Dividends
Issue of shares
Change in debt
Other financing cash flow
Cash flow from financing
(943)
0
14,933
0
13,990
(915) (1,067)
8,145
6,854
(935) (10,000)
0
0
6,295 (4,213)
(1,143)
0
0
0
(1,143)
(1,220)
0
0
0
(1,220)
Change in cash
Exchange rate effect
Free cash flow
6,116
0
(3,984)
(2,925)
0
(7,875)
4,738
0
17,851
631
0
4,774
2,032
0
6,251
2012
2013
2014E
2015E
2016E
40.7
12.0
9.6
4.1
19.7
30.8
-9.0
-15.1
-13.1
18.3
40.7
11.1
8.8
4.3
21.2
15.7
22.5
18.9
19.0
-8.5
40.7
16.7
13.7
6.8
23.0
-26.4
14.7
7.0
7.0
7.7
40.7
16.4
13.4
7.4
23.0
9.1
18.8
14.3
14.3
7.1
40.7
16.2
13.2
7.5
23.0
8.3
10.2
10.2
10.2
6.7
Efficiency ratios
ROE (%)
ROCE (%)
Asset turnover (x)
Op. cash/EBIT (x)
Depreciation/capex (x)
Inventory days
Accounts receivable days
Accounts payable days
6.2
11.2
0.8
-0.1
0.7
92.2
60.6
79.3
6.8
10.9
0.8
-0.4
0.5
85.7
84.1
86.9
6.6
11.5
0.5
2.4
0.3
93.8
112.0
119.7
7.1
11.9
0.6
0.9
0.5
63.2
75.5
106.8
7.4
12.0
0.6
0.8
1.0
61.3
73.2
112.1
Leverage ratios
Net gearing (%)
Debt/capital (%)
Interest cover (x)
Debt/EBITDA (x)
Current ratio (x)
61.3
55.7
2.6
3.3
0.9
57.3
46.8
2.4
3.7
1.0
31.0
34.8
2.7
2.9
0.8
28.5
33.0
2.9
2.3
0.8
24.6
31.2
3.1
2.2
0.8
Valuation
EV/sales (x)
EV/EBITDA (x)
EV/EBIT (x)
PER (x)
PER adj. (x)
PBR (x)
Dividend yield (%)
1.5
12.9
16.1
28.8
28.9
1.9
0.8
1.5
13.5
16.9
25.6
25.6
1.7
0.7
2.2
13.4
16.3
28.0
28.0
1.8
0.6
2.1
12.9
15.8
24.5
24.5
1.7
0.7
1.9
11.9
14.6
22.2
22.2
1.6
0.7
2012
2013
2014E
2015E
2016E
84,335 97,545 71,811 78,313 84,782
34,362 39,745 29,260 31,909 34,545
(28,198) (33,093) (20,876) (22,989) (25,060)
1,897
1,951
1,436
1,566
1,696
8,062
8,603
9,820 10,486 11,180
(2,720) (3,235) (3,519) (2,998) (2,928)
(1,039)
0
0
0
0
4,303
5,368
6,301
7,488
8,252
(849) (1,138) (1,449) (1,722) (1,898)
-
Net profit
3,454
4,230
4,852
5,766
6,354
3,454
10,092
4,230
10,795
4,852
11,977
5,766
12,849
6,354
13,734
30.43
30.41
7.10
114
36.18
36.18
6.50
117
38.72
38.72
7.00
125
44.25
44.25
7.50
130
48.76
48.76
8.00
130
Year-end: Mar
Cash
Short-term investments
Accounts receivable
Inventory
Other current assets
Total current assets
2012
5,970
0
16,902
13,207
6,228
42,306
2013
555
2,780
28,073
13,933
3,605
48,946
2014E
5,293
2,780
15,998
7,940
2,054
34,066
2015E
5,924
2,780
16,394
8,137
2,105
35,339
2016E
7,955
2,780
17,620
8,745
2,263
39,363
PP&E
Intangible assets
Associates and JVs
Other long-term assets
Total long-term assets
17,118
62,457
79,575
19,408
63,802
83,210
17,921 20,117 20,063

78,202 81,202 84,202
96,123 101,319 104,265
Net profit adj.

EBITDA
EPS (INR)
EPS adj. (INR)
DPS (INR)
Avg fully diluted shares (mn)
Balance sheet (INR mn)
Total assets
Financial ratios and other
121,881 132,156 130,188 136,659 143,628
Short-term debt
Accounts payable
Other current liabilities
Total current liabilities
26,704
12,273
9,719
48,696
25,654
15,263
6,062
46,979
25,654
12,657
6,062
44,373
25,654
14,505
6,062
46,221
25,654
16,340
6,062
48,056
Long-term debt
Convertible bonds
Deferred tax
Other long-term liabilities
Total long-term liabilities
14,064
0
1,582
752
16,398
14,179
0
1,553
909
16,641
4,179
0
1,553
909
6,641
4,179
0
1,553
909
6,641
4,179
0
1,553
909
6,641
Total liabilities
65,095
63,620
51,014
52,862
54,697
Shareholders funds
Minority interests
56,786
0
68,536
0
79,174
0
83,797
0
88,931
0
Total equity
56,786
68,536
79,174
83,797
88,931
Total liabilities and equity

Net debt (cash)
Year-end shares (mn)
121,881 132,156 130,188 136,659 143,628

34,799
114
39,278
120
24,540
130
23,909
130
21,878
130
Year-end: Mar
Operating ratios
Gross margin (%)
EBITDA margin (%)
EBIT margin (%)
Net margin adj. (%)
Effective tax rate (%)
Sales growth (%)
Net income growth (%)
EPS growth (%)
EPS growth adj. (%)
DPS growth (%)
Equity Research
38
25 June 2013

Group synergies and capacity ramp-up up to drive returns
Motherson Sumi Systems (MSSL) is evolving into a
preferred full-system solutions provider for global OEMs.

With the bulk of its capex behind, we expect management
to focus on executing its robust combined order backlog of
EUR 3.8bn at SMP/SMR.
We expect FCF to improve while the debt burden is likely
to decline from here on.
Valuations at 10x FY15E earnings appear attractive, in our
view, given improving return ratios over FY13-15E.
We maintain Outperform with a price target of INR 270.
MSSL remains one of our top picks in the auto space.
Evolving into a full-system solutions provider for global

OEMs. Given its leadership in three business segments (wiring
harnesses, rear-view mirrors and plastic components), close
presence to customers (124 manufacturing facilities in 25
countries) and focus on increasing content per car, MSSL is
slowly evolving into a preferred full-system solutions provider
for global OEMs.
SMR/SMP to be the key growth drivers. We believe capacity
ramp-up at SMRs new facilities and execution of new orders
are likely to boost the consolidated performance order
backlog of EUR 1.35bn with SMR and EUR 2.4bn with SMP.
Furthermore, rising capacity utilisation and synergistic benefits
within group companies are likely to boost consolidated
earnings (we factor in 43% earnings CAGR over FY13-15E).
Bulk of capex behind, returns to improve. The company has
made substantial investments in capacity expansion across
businesses to execute the new orders received from global
OEMs. It invested INR 11bn in FY13. With the bulk of capex
behind (FY14E at INR 6.5-8bn), we expect management to
focus on capacity ramp-up at these facilities. Hence, return
ratios are likely to improve from here on, in our view.
Valuation. We expect MSSL to post 43% earnings CAGR over
FY13-15E driven by a robust order backlog and steady
performances in all segments. With the bulk of capex behind,
debt is likely to decline. Valuations at 10x FY15E earnings and
4.5x EV/EBITDA appear attractive given improving return
ratios. We maintain Outperform with a 12-month PT of INR 270
- we value the standalone business at one-year-forward
EV/EBITDA of 10x, SMR at 6x and SMP at 5x. MSSL remains
one of our top picks in the auto ancillary space.
Amit Kasat
Aniket Mhatre
Amit.Kasat@sc.com
+91 22 4205 5911
Aniket.Mhatre@sc.com
+91 22 4205 5912
l
MSS IN
INR 200.80
INR 270.00
Equity Research
OUTPERFORM
(unchanged)
PRICE TARGET
INR 200.80
INR 270.00
Bloomberg code
Reuters code
MSS IN
MOSS.BO
Market cap
12-month range
INR 118,050mn (USD 1,995mn)
INR 145.60 - 234.00
EPS adj. est. change
2014E
Year-end: March
Sales (INR mn)
EBITDA (INR mn)
EBIT (INR mn)
FCF (INR mn)
EPS adj. (INR)
DPS (INR)
EPS growth adj. (%)
DPS growth (%)
EBITDA margin (%)
EBIT margin (%)
Net margin adj. (%)
Div. payout (%)
Net gearing (%)
ROE (%)
ROCE (%)
EV/sales (x)
EV/EBITDA (x)
PBR (x)
PER adj. (x)
Dividend yield (%)
2015E
2012
149,076
10,744
6,948
4,118
3,519
(28,823)
5.99
1.48
31.83
-4.2
-29.9
7.2
4.7
2.4
33.6
180.6
14.9
13.1
0.9
13.0
5.9
31.8
0.8
2013
256,170
19,440
12,295
8,351
5,585
7,200
9.50
2.00
38.93
58.7
34.9
7.6
4.8
2.2
26.4
148.7
21.4
16.9
0.6
7.6
5.0
19.0
1.1
2014E
290,536
26,764
19,012
16,592
8,880
9,885
15.10
2.50
51.54
59.0
25.0
9.2
6.5
3.1
16.6
101.9
33.4
25.5
0.5
5.8
3.9
13.3
1.2
2015E
332,268
32,201
24,044
21,725
11,425
15,778
19.43
3.50
67.47
28.7
40.0
9.7
7.2
3.4
18.0
59.0
32.7
31.2
0.4
4.5
3.0
10.3
1.7

240
190
140
Jun-12
Sep-12
Dec-12
Share price (%)

Ordinary shares
Relative to index
Relative to sector
Major shareholder
Free float
Mar-13
Jun-13
-1 mth
-8
-1
-
-3 mth -12 mth

-4
24
-4
12
Promoters (65.2%)
35%
1,743,285
39
25 June 2013

Year-end: Mar
Sales
Gross profit
SG&A
Other income
Other expenses
EBIT
Net interest
Associates
Exceptional items
Pre-tax profit
Taxation
Minority interests
Exceptional items after tax
Net profit
Net profit adj.
EBITDA
2011
2012
2013
2014E
83,711 149,076 256,170 290,536
32,257 53,642 91,331 107,388
(2,224) (10,063) (14,858) (19,611)
0
0
0
0
(21,146) (32,835) (57,034) (61,013)
6,422
6,948 12,295 19,012
(446) (1,513) (2,325) (2,429)
2
2
9
9
0
0
0
0
337 (1,318) (1,628)
0
6,315
4,118
8,351 16,592
(1,883) (2,153) (3,835) (6,633)
(523)
631
(70) (1,078)
0
0
0
0
3,908
2,596
4,445
8,880
2015E
332,268
124,406
(22,428)
0
(69,776)
24,044
(2,328)
9
0
0
21,725
(8,687)
(1,614)
0
11,425
3,672
8,887
3,519
10,744
5,585
19,440
8,880
26,764
11,425
32,201
6.65
6.25
2.12
588
4.42
5.99
1.48
588
7.56
9.50
2.00
588
15.10
15.10
2.50
588
19.43
19.43
3.50
588
Year-end: Mar
Cash
Accounts receivable
Inventory
2011
3,565
0
9,557
10,376
4,433
27,930
2012
4,557
0
30,127
22,496
10,162
67,342
2013
5,944
0
29,400
26,036
8,668
70,048
2014E
2015E
3,600
4,088
0
0
36,857 42,175
36,857 42,175
10,834 13,543
88,147 101,981
PP&E
Intangible assets
Associates and JVs
22,258
0
0
453
22,711
51,379
0
0
938
52,317
56,629
0
0
717
57,345
52,481
0
0
788
53,269
Total assets
50,641 119,658 127,393 141,417 155,171
Short-term debt
Accounts payable
0
14,094
2,197
16,291
0
30,981
16,898
47,879
0
31,808
22,144
53,952
0
39,209
26,573
65,783
0
44,867
31,888
76,755
Long-term debt
Convertible bonds
Deferred tax
12,635
0
10
3,342
15,987
43,921
0
607
3,512
48,040
40,712
0
560
5,255
46,526
33,712
0
560
5,959
40,231
24,712
0
560
6,761
32,032
Total liabilities
32,278
95,919 100,479 106,013 108,787
Shareholders funds
Minority interests
16,087
2,276
18,712
5,027
22,890
4,025
30,300
5,103
39,667
6,717
Total equity
18,363
23,739
26,915
35,403
46,384
50,641 119,658 127,393 141,417 155,171
Net debt (cash)

12,412
588
EPS (INR)
EPS adj. (INR)
DPS (INR)
Year-end: Mar
EBIT
Net interest
Tax paid
Others
2011
6,422
2,465
50
(1,914)
(3,094)
586
4,516
2012
6,948
3,796
135
(1,556)
(6,663)
1,433
4,094
2013
12,295
7,145
170
(3,883)
6,498
(2,630)
19,595
2014E
19,012
7,753
190
(6,633)
(7,910)
1,078
13,490
2015E
24,044
8,157
220
(8,687)
(1,571)
1,614
23,778
Capex
Acquisitions
Disposals
Others
(8,367) (32,917) (12,395)

17
(484)
221
0
0
0
0
0
0
(8,349) (33,402) (12,174)
(3,605)
(72)
0
0
(3,677)
(8,000)
(79)
0
0
(8,079)
Dividends
Issue of shares
Change in debt
(1,244)
1,253
4,455
(497)
3,968
Change in cash
Free cash flow
134
992
0
0
(3,851) (28,823)
(872)
1,533
31,287
(1,649)
30,299
(1,176) (1,470) (2,058)

846 (1,070) (1,605)
(3,209) (7,000) (9,000)
(2,495) (2,619) (2,548)
(6,033) (12,158) (15,211)
1,388
0
7,200
(2,345)
0
9,885
488
0
15,778
42,876
588
40,023
588
36,072
588
52,324
0
0
867
53,191
27,385
588
Year-end: Mar
Operating ratios
Gross margin (%)
EBITDA margin (%)
EBIT margin (%)
Net margin adj. (%)
Sales growth (%)
EPS growth (%)
EPS growth adj. (%)
DPS growth (%)
2011
2012
2013
2014E
2015E
38.5
10.6
7.7
4.4
29.8
22.2
61.0
61.0
88.5
58.3
36.0
7.2
4.7
2.4
52.3
78.1
-33.6
-33.6
-4.2
-29.9
35.7
7.6
4.8
2.2
45.9
71.8
71.2
71.2
58.7
34.9
37.0
9.2
6.5
3.1
40.0
13.4
99.8
99.8
59.0
25.0
37.4
9.7
7.2
3.4
40.0
14.4
28.7
28.7
28.7
40.0
Efficiency ratios
ROE (%)
ROCE (%)
Asset turnover (x)
Op. cash/EBIT (x)
Inventory days
28.2
21.7
1.9
0.7
0.3
60.7
37.6
88.7
14.9
13.1
1.8
0.6
0.1
62.9
48.6
86.2
21.4
16.9
2.1
1.6
0.6
53.7
42.4
69.5
33.4
25.5
2.2
0.7
2.2
62.7
41.6
70.8
32.7
31.2
2.2
1.0
1.0
69.4
43.4
73.8
Leverage ratios
Net gearing (%)
Debt/capital (%)
Interest cover (x)
Debt/EBITDA (x)
Current ratio (x)
67.6
36.8
12.9
1.2
1.7
180.6
61.2
4.2
2.6
1.4
148.7
55.4
4.9
2.2
1.3
101.9
44.6
7.3
1.4
1.3
59.0
31.5
9.4
0.9
1.3
Valuation
EV/sales (x)
EV/EBITDA (x)
EV/EBIT (x)
PER (x)
PER adj. (x)
PBR (x)
Dividend yield (%)
1.3
12.5
17.3
25.9
27.5
7.8
1.2
0.9
13.0
20.1
43.1
31.8
5.9
0.8
0.6
7.6
12.0
23.9
19.0
5.0
1.1
0.5
5.8
8.1
13.3
13.3
3.9
1.2
0.4
4.5
6.0
10.3
10.3
3.0
1.7
Equity Research
40
25 June 2013

Charged up
Amara Raja is well-placed to capitalise on growth
opportunities, given leadership in the telecom/UPS

segments and strong No. 2 in autos.
Driven by sustained demand in both the auto and industrial
segments and improved pricing power, we expect Amara
Raja to post an 18% earnings CAGR over FY13-15E.
Valuations appear favourable post the recent correction,
given robust earnings growth, strong return ratios and
negligible leverage.
We maintain Outperform on attractive valuations (10x
FY15E earnings), with a 12-month PT of INR 325, implying
22% upside potential.
Another solid performance in FY13. Amara Raja posted
strong 42% earnings growth in FY13, driven by 26% revenue
growth and 80bps margin expansion after posting 45%
earnings growth in FY12. Amara Raja remained FCF positive
(INR 2bn in FY13E) despite an aggressive capex of INR 1.3bn
in FY13. RoCE also improved to 32%.
Investing for growth. To cater to rising demand for its

products, Amara Raja has earmarked capex of c.INR 7.6bn
over FY14-15E (to increase 4W battery capacity to 12mn from
6mn, 2W battery capacity to 8.4mn from 4.8mn, medium VRLA
batteries to 3.6mn from 1.8mn, and large VRLA to 1,000mn Ah
pa from 780mn Ah).
Outlook appears promising. Amara Raja sustained strong
volume growth in the auto segment in FY13 (20% in 4Ws and
37% in 2Ws). Furthermore, it is well on course to secure bulk
supplies from 2W OEMs, which is a key long-term positive. The
pan-India launch of Amaron/Powerzone tubular inverter
batteries and Home UPS is likely to drive revenue growth in the
coming years, in our view. Led by strong demand for its
products, improved pricing power and recent price hikes, we
expect Amara Raja to maintain its margins and post 18%
earnings CAGR over FY13-15E.
Reiterate Outperform. Following the recent stock price
correction (down 18% over the past three months), Amara Raja
is trading at 10x FY15E earnings and 6.3x EV/EBITDA, very
attractive given 18% earnings CAGR over FY13-15E. Even on
PBR versus RoE, it looks good at 2.5x FY15E book for a RoE
of 28%. Maintain Outperform with a 12-month PT of INR 325,
valued at 13x one-year-forward PER.
Amit Kasat
Aniket Mhatre
Amit.Kasat@sc.com
+91 22 4205 5911
Aniket.Mhatre@sc.com
+91 22 4205 5912
l
AMRJ IN
INR 249.45
INR 325.00
Equity Research
OUTPERFORM
(unchanged)
PRICE TARGET
INR 249.45
INR 325.00
Bloomberg code
Reuters code
AMRJ IN
AMAR.BO
Market cap
12-month range
INR 42,609mn (USD 720mn)
INR 142.58 - 327.75
EPS adj. est. change 2014E
Year-end: March
Sales (INR mn)
EBITDA (INR mn)
EBIT (INR mn)
FCF (INR mn)
EPS adj. (INR)
DPS (INR)
EPS growth adj. (%)
DPS growth (%)
EBITDA margin (%)
EBIT margin (%)
Net margin adj. (%)
Div. payout (%)
Net gearing (%)
ROE (%)
ROCE (%)
EV/sales (x)
EV/EBITDA (x)
PBR (x)
PER adj. (x)
Dividend yield (%)
2012
23,674
3,540
3,075
3,186
2,151
2,168
12.59
2.21
48.21
45.6
-17.8
15.0
13.0
9.1
17.6
9.2
29.3
29.8
0.9
5.8
3.0
8.9
2.0
2015E
2013
29,811
4,712
4,178
4,345
3,058
2,121
17.90
2.95
62.05
42.2
33.3
15.8
14.0
10.3
16.8
-3.5
31.8
32.1
1.2
7.7
4.4
11.8
1.4
2014E
35,925
5,676
4,902
5,155
3,609
(2,119)
21.13
3.51
80.17
18.0
19.0
15.8
13.6
10.0
16.6
18.1
29.7
30.1
1.3
7.9
3.1
11.8
1.4
2015E
43,807
6,922
5,816
6,092
4,265
1,981
24.97
4.09
101.64
18.2
16.7
15.8
13.3
9.7
16.4
7.4
27.5
28.9
1.0
6.3
2.5
10.0
1.6

340
240
140
Jun-12
Sep-12
Share price (%)

Ordinary shares
Relative to index
Relative to sector
Major shareholder
Free float
Dec-12
Mar-13
Jun-13
-1 mth
2
9
-
-3 mth -12 mth

-6
66
-6
51
Promoters (52.1%)
48%
1,629,248
41
25 June 2013

Year-end: Mar
Sales
Gross profit
SG&A
Other income
Other expenses
EBIT
Net interest
Associates
Exceptional items
Pre-tax profit
Taxation
Minority interests
Net profit
2011
17,611
6,013
(1,841)
0
(1,626)
2,129
77
0
0
5
2,210
(729)
0
0
1,481
2012
23,674
7,718
(2,182)
0
(1,997)
3,075
111
0
0
0
3,186
(1,036)
0
0
2,151
2013
29,811
9,860
(2,757)
0
(2,391)
4,178
259
0
0
(92)
4,345
(1,351)
0
0
2,994
2014E
35,925
11,891
(3,323)
0
(2,892)
4,902
253
0
0
0
5,155
(1,547)
0
0
3,609
2015E
43,807
14,500
(4,052)
0
(3,526)
5,816
276
0
0
0
6,092
(1,828)
0
0
4,265
1,478
2,546
2,151
3,540
3,058
4,712
3,609
5,676
4,265
6,922
8.67
8.65
2.69
171
12.59
12.59
2.21
171
17.53
17.90
2.95
171
21.13
21.13
3.51
171
24.97
24.97
4.09
171
Year-end: Mar
Cash
Accounts receivable
Inventory
2011
451
0
3,057
2,847
1,117
7,472
2012
2,292
0
3,197
2,666
1,338
9,493
2013
4,108
0
3,807
2,929
2,082
12,925
2014E
1,692
0
4,429
4,921
2,283
13,326
2015E
3,300
0
5,401
6,001
2,504
17,206
PP&E
Intangible assets
Associates and JVs
3,526
0
0
161
3,687
3,861
0
0
161
4,022
4,618
0
0
161
4,779
8,845
0
0
161
9,005
9,739
0
0
161
9,900
11,159
13,515
17,705
22,331
27,106
Short-term debt
Accounts payable
0
1,054
968
2,022
0
889
1,125
2,013
0
1,363
1,807
3,170
0
2,277
1,988
4,265
0
2,777
2,187
4,963
Long-term debt
Convertible bonds
Deferred tax
901
0
205
1,572
2,678
841
0
220
2,207
3,267
872
0
195
2,870
3,936
922
0
195
3,255
4,372
972
0
195
3,615
4,781
Total liabilities
4,700
5,280
7,107
8,637
9,745
Shareholders funds
Minority interests
6,459
0
8,235
0
10,598
0
13,694
0
17,361
0
Total equity
6,459
8,235
10,598
13,694
17,361
11,159
13,515
17,705
22,331
27,106
2,022
171
756
171
(367)
171
2,484
171
1,286
171
Net profit adj.

EBITDA
EPS (INR)
EPS adj. (INR)
DPS (INR)
Total assets

Net debt (cash)
Year-end: Mar
EBIT
Net interest
Tax paid
Others
2011
2,129
417
0
(741)
(931)
1
875
2012
3,075
465
0
(1,021)
446
2
2,967
2013
4,178
534
0
(1,376)
203
(127)
3,412
2014E
4,902
774
0
(1,547)
(1,336)
87
2,881
2015E
5,816
1,106
0
(1,828)
(1,215)
101
3,981
Capex
Acquisitions
Disposals
Others
(659)
(0)
0
0
(659)
(799)
0
0
0
(799)
(1,291)
0
0
0
(1,291)
(5,000)
0
0
0
(5,000)
(2,000)
0
0
0
(2,000)
Dividends
Issue of shares
Change in debt
(459)
0
(11)
82
(389)
(378)
0
(60)
111
(327)
(503)
0
31
167
(305)
(599)
0
50
253
(296)
(699)
0
50
276
(373)
Change in cash
Free cash flow
(173)
0
216
1,841
0
2,168
1,816
0
2,121
(2,416)
0
(2,119)
1,608
0
1,981
2011
2012
2013
2014E
2015E
34.1
14.5
12.1
8.4
33.0
20.2
-11.3
-11.3
-6.8
58.4
32.6
15.0
13.0
9.1
32.5
34.4
45.2
45.2
45.6
-17.8
33.1
15.8
14.0
10.3
31.1
25.9
39.2
39.2
42.2
33.3
33.1
15.8
13.6
10.0
30.0
20.5
20.5
20.5
18.0
19.0
33.1
15.8
13.3
9.7
30.0
21.9
18.2
18.2
18.2
16.7
24.9
24.7
1.7
0.4
0.6
79.0
56.8
38.2
29.3
29.8
1.9
1.0
0.6
63.1
48.2
22.2
31.8
32.1
1.9
0.8
0.4
51.2
42.9
20.6
29.7
30.1
1.8
0.6
0.2
59.6
41.8
27.6
27.5
28.9
1.8
0.7
0.6
68.0
41.0
31.5
Leverage ratios
Net gearing (%)
Debt/capital (%)
Interest cover (x)
Debt/EBITDA (x)
Current ratio (x)
31.3
9.9
146.6
0.4
3.7
9.2
7.3
75.8
0.2
4.7
-3.5
6.0
418.6
0.2
4.1
18.1
5.1
273.3
0.2
3.1
7.4
4.4
307.2
0.1
3.5
Valuation
EV/sales (x)
EV/EBITDA (x)
EV/EBIT (x)
PER (x)
PER adj. (x)
PBR (x)
Dividend yield (%)
1.0
6.9
8.3
10.6
10.6
2.5
2.9
0.9
5.8
6.7
8.9
8.9
3.0
2.0
1.2
7.7
8.7
12.0
11.8
4.4
1.4
1.3
7.9
9.2
11.8
11.8
3.1
1.4
1.0
6.3
7.5
10.0
10.0
2.5
1.6

Year-end: Mar
Operating ratios
Gross margin (%)
EBITDA margin (%)
EBIT margin (%)
Net margin adj. (%)
Sales growth (%)
EPS growth (%)
EPS growth adj. (%)
DPS growth (%)
Efficiency ratios
ROE (%)
ROCE (%)
Asset turnover (x)
Op. cash/EBIT (x)
Inventory days
Equity Research
42
25 June 2013
Mindtree
Good business but rich valuations
Mindtrees (MTCL) pedigreed promoter-management team,
strong clientele and a defined dividend policy differentiates

it from other mid-cap IT services players.
Its ROE grew 16ppt over FY11-13 after it exited the capex
intensive white label handset manufacturing + a strong
margin expansion in core services (+880 bps).
However, we believe the structural positives are priced-in
(PER at 17% premium to 5-year median); thus, we stay at
In-Line with INR 850 price target.
FY14 margin management is the key challenge; pick up in
Product Engineering Services demand (31% of revenue) +
new large deal wins are key upside risks, in our view.
Core focus + better margin = high ROE. MTCLs ROE has

improved by 16ppt over FY11-FY13 to 30% (versus mid-cap
average of 21%, source: Bloomberg). MTCLs decision to move
away from capex-intensive white label handset manufacturing
in FY11 coupled with 880bps EBITDA margin expansion in core
services over FY11-13 has aided the ROE improvement.
Pedigree promoter-management. MTCL, a mid-cap IT
services company, was incorporated in 1999 by 10 industry
professionals who came from Cambridge Technology Partners,
Lucent Technologies and Wipro. The company has two major
revenue segments IT services (ITS) and Product Engineering
Services (PES). It focuses on financial services, travel and
manufacturing industry verticals and counts KPN (Netherland),
Microsoft, P&G, Volvo and Morgan Stanley as key clients.
Strong tier-II play, but positives priced in. A strong clientele,
diversified services and vertical mix and a well-defined dividend
policy are key strengths that differentiate MTCL from other midcap peers. Near term, MTCL expects FY14 USD revenue
growth to be better than FY13 on the back of USD 165mn TCV
deal wins in 4QFY13. However, we believe at 9x FY14E EPS,
much of the positives are in the price. We therefore stay In-Line
(No surprises, 22 April 2013) with INR 850 price target.
PES, large deal participation key upside risk. Contrary to
managements view, we expect margins to be under pressure
in FY14 given visa and wage cost. Pick up in PES business and
new large deal wins will be key upside to our estimates. PES
has been a drag (-4% in FY13) while IT services (+5% CQGR
over 1QFY12- 4QFY13) has been driving growth. Further,
MTCL has had limited large deal participation thus far only
one USD 100mn+ deal in 4QFY11. Managements renewed
focus on large deal should help.
Pankaj Kapoor
Abhishek Kumar
Pankaj.Kapoor@sc.com
+91 22 4205 5917
Abhishek.Kumar@sc.com
+91 22 4205 5918
l
MTCL IN
INR 820.30
INR 850.00
Equity Research
IN-LINE
(unchanged)
PRICE TARGET
INR 820.30
INR 850.00
Bloomberg code
Reuters code
MTCL IN
MINT.BO
Market cap
12-month range
INR 592.25 - 929.50
2014E
Year-end: March
Sales (INR mn)
EBITDA (INR mn)
EBIT (INR mn)
FCF (INR mn)
EPS adj. (INR)
DPS (INR)
EPS growth adj. (%)
DPS growth (%)
EBITDA margin (%)
EBIT margin (%)
Net margin adj. (%)
Div. payout (%)
Net gearing (%)
ROE (%)
ROCE (%)
EV/sales (x)
EV/EBITDA (x)
PBR (x)
PER adj. (x)
Dividend yield (%)
2013
23,618
4,860
4,236
4,236
3,389
2,143
81.72
12.00
320.61
51.3
198.7
20.6
17.9
14.3
14.5
-9.2
29.8
37.0
1.2
5.6
2.9
8.4
1.8
2015E
2014E
26,649
5,124
4,398
4,718
3,633
2,493
86.98
13.00
394.07
6.4
8.3
19.2
16.5
13.6
14.8
-19.7
24.8
29.9
1.2
6.0
2.1
9.4
1.6
2015E
29,931
5,628
4,792
5,144
3,935
3,104
94.22
14.00
473.73
8.3
7.7
18.8
16.0
13.1
14.7
-19.3
22.1
26.8
1.0
5.4
1.7
8.7
1.7
2016E
33,786
6,190
5,273
5,721
4,348
3,506
104.10
15.00
562.30
10.5
7.1
18.3
15.6
12.9
14.3
-20.5
20.5
24.7
0.9
4.7
1.5
7.9
1.8

950
750
550
Jun-12
Sep-12
Mindtree
Share price (%)

Ordinary shares
Relative to index
Relative to sector
Major shareholder
Free float
Dec-12
Mar-13
Jun-13
-1 mth
1
8
-
-3 mth -12 mth

-8
35
-8
22
Promoters (19.8%)
80%
982,297
43
25 June 2013

Year-end: Mar
Operating revenue
Gross profit
Operating expenses
Other income
Other expenses
EBIT
Net interest
Associates
Exceptional items
Pre-tax profit
Taxation
Minority interests
Net profit
2012
19,152
6,891
(3,961)
0
(695)
2,235
183
0
200
0
2,618
(430)
0
0
2,188
2013
23,618
9,344
(4,484)
0
(624)
4,236
340
0
(340)
0
4,236
(847)
0
0
3,389
2014E
26,649
10,232
(5,108)
0
(725)
4,398
320
0
0
0
4,718
(1,085)
0
0
3,633
2015E
29,931
11,315
(5,687)
0
(836)
4,792
352
0
0
0
5,144
(1,209)
0
0
3,935
2016E
33,786
12,609
(6,419)
0
(917)
5,273
448
0
0
0
5,721
(1,373)
0
0
4,348
Net profit adj.

EBITDA
2,188
2,930
3,389
4,860
3,633
5,124
3,935
5,628
4,348
6,190
EPS (INR)
EPS adj. (INR)
DPS (INR)
54.75
54.03
4.02
40
82.71
81.72
12.00
41
87.68
86.98
13.00
42
94.98
94.22
14.00
42
104.94
104.10
15.00
42
Year-end: Mar
Cash
Accounts receivable
Inventory
2012
602
0
4,078
0
1,786
6,466
2013
1,238
0
4,508
0
1,710
7,456
2014E
3,221
0
5,087
0
1,910
10,217
2015E
3,779
0
5,713
0
2,148
11,640
2016E
4,747
0
6,449
0
2,422
13,618
PP&E
Intangible assets
Associates and JVs
2,676
0
0
4,204
6,880
3,132
28
0
6,294
9,454
3,308
28
0
6,505
9,840
3,389
28
0
8,736
12,152
3,322
28
0
11,007
14,356
13,346
16,910
20,057
23,792
27,974
0
2,979
724
3,703
0
2,572
1,112
3,684
0
2,898
924
3,822
0
3,255
1,037
4,292
0
3,674
1,171
4,845
37
0
0
34
71
32
0
0
57
89
32
0
0
57
89
32
0
0
57
89
32
0
0
57
89
Total liabilities
3,774
3,773
3,911
4,381
4,934
Shareholders funds
Minority interests
9,572
0
13,137
0
16,147
0
19,411
0
23,040
0
Total equity
9,572
13,137
16,147
19,411
23,040
13,346
16,910
20,057
23,792
27,974
(565)
40
(1,206)
41
(3,189)
41
(3,747)
41
(4,715)
41
Total assets
Short-term debt
Accounts payable
Long-term debt
Convertible bonds
Deferred tax

Net debt (cash)
Year-end: Mar
EBIT
Net interest
Tax paid
Others
2012
2,235
695
0
(535)
826
195
3,416
2013
4,236
624
0
(886)
(373)
(350)
3,251
2014E
4,398
725
0
(1,085)
(641)
(4)
3,394
2015E
4,792
836
0
(1,209)
(394)
(4)
4,022
2016E
5,273
917
0
(1,373)
(457)
(4)
4,356
Capex
Acquisitions
Disposals
Others
(337)
0
(2,771)
188
(2,920)
(1,108)
0
(2,051)
350
(2,809)
(901)
0
(211)
324
(788)
(917)
0
(2,231)
356
(2,792)
(850)
0
(2,271)
452
(2,669)
Dividends
Issue of shares
Change in debt
(188)
(190)
25
0
(353)
(580)
756
18
0
194
(623)
0
0
0
(623)
(671)
0
0
0
(671)
(719)
0
0
0
(719)
Change in cash
Free cash flow
143
0
3,079
636
0
2,143
1,983
0
2,493
558
0
3,104
968
0
3,506
2012
2013
2014E
2015E
2016E
36.0
15.3
11.7
11.4
16.4
26.9
115.2
113.5
114.9
60.2
39.6
20.6
17.9
14.3
20.0
23.3
54.9
51.1
51.3
198.7
38.4
19.2
16.5
13.6
23.0
12.8
7.2
6.0
6.4
8.3
37.8
18.8
16.0
13.1
23.5
12.3
8.3
8.3
8.3
7.7
37.3
18.3
15.6
12.9
24.0
12.9
10.5
10.5
10.5
7.1
25.2
25.6
1.6
1.5
2.1
0.0
65.8
71.3
29.8
37.0
1.6
0.8
0.6
0.0
66.3
71.0
24.8
29.9
1.4
0.8
0.8
0.0
65.7
60.8
22.1
26.8
1.4
0.8
0.9
0.0
65.8
60.3
20.5
24.7
1.3
0.8
1.1
0.0
65.7
59.7
-5.9
0.4
447.0
0.0
1.7
-9.2
0.2
423.6
0.0
2.0
-19.7
0.2
1,145.4
0.0
2.7
-19.3
0.2
1,248.0
0.0
2.7
-20.5
0.1
1,373.1
0.0
2.8
0.8
5.2
6.8
7.2
7.3
2.1
1.0
1.2
5.6
6.4
8.3
8.4
2.9
1.8
1.2
6.0
7.0
9.4
9.4
2.1
1.6
1.0
5.4
6.3
8.6
8.7
1.7
1.7
0.9
4.7
5.6
7.8
7.9
1.5
1.8

Year-end: Mar
Operating ratios
Gross margin (%)
EBITDA margin (%)
EBIT margin (%)
Net margin adj. (%)
Sales growth (%)
EPS growth (%)
EPS growth adj. (%)
DPS growth (%)
Efficiency ratios
ROE (%)
ROCE (%)
Asset turnover (x)
Op. cash/EBIT (x)
Inventory days
Leverage ratios
Net gearing (%)
Debt/capital (%)
Interest cover (x)
Debt/EBITDA (x)
Current ratio (x)
Valuation
EV/sales (x)
EV/EBITDA (x)
EV/EBIT (x)
PER (x)
PER adj. (x)
PBR (x)
Dividend yield (%)
Equity Research
44
25 June 2013
Indraprastha Gas
Strong fundamentals at attractive valuation
IGL, a monopoly gas distributor in the National Capital
Region, is our preferred play on rising traffic with stable

margins. Its sales volume trajectory is likely to pick up, led
by the introduction of 2,500 buses and 45,000 new autos.
The year-long suspense on the IGL-PNGRB case is to end
soon as the Supreme Court hearing nears completion. The
Supreme Court order will be a key trigger and we expect
the court to uphold the Delhi High Court (HC) order and
keep pricing to consumers outside regulatory control.
The PNGRB council, in its appeal to the Delhi HC, also
contended that there is no specific provision in the PNGRB
Act to regulate selling price to customers.
We expect the stock price to claw back to pre-tariff order
levels and also factor in improved fundamentals.
Sound operational performance to sustain healthy RoEs.
IGLs focus on profitable growth continues unabated.
EBITDA/scm has improved to INR 5.7 for FY13, the highest
ever, despite the rising price of spot LNG (accounts for 23% of
raw materials). We expect IGLs spreads to remain healthy,
supported by the rising price for competing fuel (diesel prices
up 20% since August 12).
We expect IGLs profitability to also be supported by volume

pickup led by the addition of 2,500 new buses by the state
government in FY14E and likely addition of 45,000 new autos
going forward. Margin management and volume pick up are
likely to help sustain profitability and support RoE at c.25%.
End game is near. Media reports (source: Economic Times)
suggest that the Supreme Court hearing on the IGL-PNGRB
case is nearing completion. The regulator is contesting the
Delhi HC judgment which prohibits regulation of (1) network
tariff, (2) compression charges and (3) final selling price.
OUTPERFORM
(unchanged)
PRICE TARGET
INR 275.50
INR 451.00
Bloomberg code
Reuters code
IGL IN
IGAS.BO
Market cap
12-month range
INR 210.00 - 328.80
2014E
Year-end: March
Sales (INR mn)
EBITDA (INR mn)
EBIT (INR mn)
FCF (INR mn)
EPS adj. (INR)
DPS (INR)
EPS growth adj. (%)
DPS growth (%)
EBITDA margin (%)
EBIT margin (%)
Net margin adj. (%)
Div. payout (%)
Net gearing (%)
ROE (%)
ROCE (%)
EV/sales (x)
EV/EBITDA (x)
PBR (x)
PER adj. (x)
Dividend yield (%)
2012
25,187
6,345
4,913
4,501
3,064
(2,911)
21.89
5.81
87.78
18.0
0.0
25.2
19.5
12.2
26.5
56.9
27.4
34.9
2.3
9.3
4.3
17.2
1.5
2015E
2013
33,670
7,581
5,715
5,282
3,541
398
25.30
6.60
106.64
15.6
13.6
22.5
17.0
10.5
26.1
32.2
26.0
35.2
1.2
5.4
2.6
9.9
2.6
2014E
43,434
8,349
6,139
6,028
4,039
2,481
28.85
7.34
128.15
14.0
11.2
19.2
14.1
9.3
25.4
13.9
24.6
33.6
0.9
4.9
2.1
9.6
2.7
2015E
55,648
9,155
6,646
7,253
4,861
4,411
34.72
8.83
154.03
20.4
20.3
16.5
11.9
8.7
25.4
-5.5
24.6
30.5
0.7
4.1
1.8
7.9
3.2

320
We also believe that selling prices will not be regulated as the

PNGRB council in its HC appeal also contends against any
specific provision in the PNGRB Act to regulate final selling
price. The Delhi HC judgment has categorically mentioned that
unless prescribed in the Act, as in the case of the Electricity
Act, price fixing is a clog in the freedom of trade.
All concerns built in, upside not. The Supreme Court order
will be a key trigger and we expect the stock price to claw back
to pre-tariff order levels of ~INR 400 and factor in improved
fundamentals over the past one year. Attractive valuation of 10x
FY14E PER and RoE of 26% provide downside support.
Reiterate OP.
275
230
Jun-12
Sep-12
Indraprastha Gas
Share price (%)

Ordinary shares
Relative to index
Relative to sector
Major shareholder
Free float
Rahul Singh
Saurav Anand
Avishek.Datta@sc.com
+91 22 4205 5909
Rahul.Singh@sc.com
+91 22 4205 5901
Saurav.Anand@sc.com
+91 22 4205 5910
IGL IN
INR 275.50
INR 451.00
Equity Research
Mar-13
Jun-13
-1 mth
-4
3
-
-3 mth -12 mth

2
12
2
1
Promoter (45.0%)
55%
3,621,858
Avishek Datta
Dec-12
45
25 June 2013

Year-end: Mar
Sales
Gross profit
SG&A
Other income
Other expenses
EBIT
Net interest
Associates
Exceptional items
Pre-tax profit
Taxation
Minority interests
Net profit
2011
17,461
7,626
(2,683)
0
(1,029)
3,914
(132)
0
74
0
3,857
(1,259)
0
0
2,598
2012
25,187
9,795
(3,450)
0
(1,432)
4,913
(479)
0
67
0
4,501
(1,437)
0
0
3,064
2013
33,670
11,700
(4,118)
0
(1,867)
5,715
(562)
0
129
0
5,282
(1,741)
0
0
3,541
2014E
43,434
13,197
(4,849)
0
(2,210)
6,139
(389)
0
278
0
6,028
(1,989)
0
0
4,039
2015E
55,648
14,802
(5,647)
1
(2,510)
6,646
(274)
0
880
1
7,253
(2,393)
1
0
4,861
Net profit adj.

EBITDA
2,598
4,943
3,064
6,345
3,541
7,581
4,039
8,349
4,861
9,155
EPS (INR)
EPS adj. (INR)
DPS (INR)
18.55
18.55
5.81
140
21.89
21.89
5.81
140
25.30
25.30
6.60
140
28.85
28.85
7.34
140
34.72
34.72
8.83
140
Year-end: Mar
Cash
Accounts receivable
Inventory
2011
173
0
745
359
1,523
2,800
2012
320
0
1,298
374
1,689
3,680
2013
510
0
1,789
397
2,199
4,894
2014E
2,316
0
2,325
517
2,588
7,746
2015E
5,869
1
2,982
663
2,917
12,431
PP&E
Intangible assets
Associates and JVs
14,867
0
0
0
14,867
19,547
0
0
0
19,547
21,386
0
0
0
21,386
22,763
0
0
0
22,763
23,753
0
0
0
23,753
Total assets
17,666
23,228
26,280
30,510
36,184
Short-term debt
Accounts payable
2,818
2,375
0
5,193
3,890
3,623
0
7,513
3,491
6,031
0
9,522
2,991
7,750
0
10,741
2,491
9,938
0
12,429
Long-term debt
Convertible bonds
Deferred tax
2,434
0
0
0
2,434
3,425
0
0
0
3,425
1,828
0
0
0
1,828
1,828
0
0
0
1,828
2,190
0
0
0
2,190
Total liabilities
7,628
10,938
11,350
12,569
14,620
Shareholders funds
Minority interests
10,039
0
12,289
0
14,930
0
17,941
0
21,564
1
Total equity
10,039
12,289
14,930
17,941
21,565
17,666
23,228
26,280
30,510
36,184
5,080
140
6,995
140
4,809
140
2,502
140
(1,188)
140
Net debt (cash)

Year-end: Mar
EBIT
Net interest
Tax paid
Others
2011
3,914
1,029
(132)
(881)
198
(1,910)
2,218
2012
4,913
1,432
(479)
(1,060)
(1,296)
(308)
3,202
2013
5,715
1,867
(562)
(1,090)
(1,056)
(771)
4,103
2014E
6,139
2,210
(389)
(1,217)
(368)
(307)
6,068
2015E
6,646
2,509
(274)
(1,477)
(1,195)
1,701
7,911
Capex
Acquisitions
Disposals
Others
(7,555)
0
0
(246)
(7,801)
(6,113)
0
0
(568)
(6,680)
(3,705)
0
0
(442)
(4,147)
(3,587)
0
0
0
(3,587)
(3,500)
0
0
0
(3,500)
Dividends
Issue of shares
Change in debt
(814)
0
3,604
1,754
4,544
(814)
0
2,051
2,388
3,625
(924)
0
(2,111)
3,269
234
(1,027)
0
(500)
853
(674)
(1,236)
0
(137)
515
(858)
(1,039)
0
(5,337)
147
0
(2,911)
190
0
398
1,807
0
2,481
3,553
1
4,411
2011
2012
2013
2014E
2015E
43.7
28.3
22.4
14.9
32.7
60.5
20.5
20.5
20.5
10.7
38.9
25.2
19.5
12.2
31.9
44.2
18.0
18.0
18.0
0.0
34.7
22.5
17.0
10.5
33.0
33.7
15.6
15.6
15.6
13.6
30.4
19.2
14.1
9.3
33.0
29.0
14.0
14.0
14.0
11.2
26.6
16.5
11.9
8.7
33.0
28.1
20.4
20.4
20.4
20.3
Efficiency ratios
ROE (%)
ROCE (%)
Asset turnover (x)
Op. cash/EBIT (x)
Inventory days
28.4
35.1
1.2
0.6
0.1
11.8
11.3
67.5
27.4
34.9
1.2
0.7
0.2
8.7
14.8
71.1
26.0
35.2
1.4
0.7
0.5
6.4
16.7
80.2
24.6
33.6
1.5
1.0
0.6
5.5
17.3
83.2
24.6
30.5
1.7
1.2
0.7
5.3
17.4
79.0
Leverage ratios
Net gearing (%)
Debt/capital (%)
Interest cover (x)
Debt/EBITDA (x)
Current ratio (x)
50.6
42.1
29.7
0.7
0.5
56.9
46.6
10.3
1.0
0.5
32.2
31.7
10.2
0.8
0.5
13.9
24.4
15.8
0.6
0.7
-5.5
19.7
24.2
0.5
1.0
Valuation
EV/sales (x)
EV/EBITDA (x)
EV/EBIT (x)
PER (x)
PER adj. (x)
PBR (x)
Dividend yield (%)
2.5
8.9
11.3
15.9
15.9
4.2
2.0
2.3
9.3
12.0
17.2
17.2
4.3
1.5
1.2
5.4
7.2
9.9
9.9
2.6
2.6
0.9
4.9
6.7
9.6
9.6
2.1
2.7
0.7
4.1
5.6
7.9
7.9
1.8
3.2
998
19.6
1,027.9
10.0
1,220
22.9
1,255.1
10.6
1,338
27.8
1,382.6
12.4
1,501
31.4
1,550.9
11.9
1,647
36.7
1,700.9
12.7
Change in cash
Free cash flow

Year-end: Mar
Operating ratios
Gross margin (%)
EBITDA margin (%)
EBIT margin (%)
Net margin adj. (%)
Sales growth (%)
EPS growth (%)
EPS growth adj. (%)
DPS growth (%)
Other
Total Sales Vol (m.scm)
Avg. Realn (Rs./scm)
Gas Purchase (m.scm)
Avg. Spread (Rs./scm)
Equity Research
46
25 June 2013

Excessive pessimism blurs core value
The current price factors in extreme pessimism of (1) c.22
mmscmd volumes (same as 4QFY13) over the next two

years, (2) conservative tariffs of INR 850/tcm to perpetuity
and (3) sub-par returns on cross country pipelines.
We believe GSPLs core Gujarat transmission network
value would largely be intact as take-or-pay aided tariff
uptick would largely compensate for weak transmission
volumes; to generate 12% post-tax adjusted RoCE.
We now factor in complete value destruction from crosscountry pipeline given the weak gas supply situation as
also the extremely back-ended nature of the project.
We moderate our volumes, but increase tariff assumptions.
Reiterate Outperformer with PT of INR 94 (from INR 101).
OUTPERFORM
(unchanged)
PRICE TARGET
INR 52.60
INR 94.00
Bloomberg code
GSPT.BO
Market cap
12-month range
INR 56.30 - 86.80
Extreme pessimism in the price. The current price factors in

extreme pessimism as it builds in (1) bear case transmission
volumes of c.22mmscmd, 4QFY13 volumes, for the next two
years, inching up to 31mmscmd by FY18E, (2) conservative
tariffs of INR 850/tcm (average over FY10-12 but much lower
than the INR 1,119 in FY13), to perpetuity given market
concerns about validity of take-or-pay applicability and (3) subpar returns for cross-country pipelines, in our view.
Core business value largely intact... Despite market
concerns on the value of the core Gujarat transmission network
(INR 115/sh), we believe take-or-pay led tariff uptick would
largely compensate for the soft volumes, thereby cushioning
earnings downside. GSPLs earnings over FY11-13 have
largely remained range bound at c.INR 5bn despite gas
transmission volumes coming off at c.28mmscmd in FY13 vs.
c36mmscmd in FY11. The implied tariff uptick was INR
1,119/tcm for FY13 vs. INR 777/tcm for FY11.
Reuters code
GUJS IN
2014E
Year-end: March
Sales (INR mn)
EBITDA (INR mn)
EBIT (INR mn)
FCF (INR mn)
EPS adj. (INR)
DPS (INR)
EPS growth adj. (%)
DPS growth (%)
EBITDA margin (%)
EBIT margin (%)
Net margin adj. (%)
Div. payout (%)
Net gearing (%)
ROE (%)
ROCE (%)
EV/sales (x)
EV/EBITDA (x)
PBR (x)
PER adj. (x)
Dividend yield (%)
-0.7%
2012
11,233
10,298
8,479
7,690
5,221
7,055
9.28
1.00
43.84
3.1
0.0
91.7
75.5
46.5
10.8
23.5
23.3
20.7
5.5
6.0
1.7
10.0
1.1
2015E
2013
11,732
10,720
8,859
8,257
5,382
1,361
9.56
1.00
52.26
3.1
0.0
91.4
75.5
45.9
10.5
17.1
19.9
20.3
3.9
4.3
1.3
7.5
1.4
1.0%
2014E
10,918
9,906
7,603
7,694
5,223
6,139
9.28
0.97
60.41
-2.9
-2.9
90.7
69.6
47.8
10.5
-1.9
16.5
14.9
2.7
2.9
0.9
5.7
1.8
2015E
11,713
10,609
8,101
8,369
5,681
4,699
10.10
1.06
69.27
8.8
8.8
90.6
69.2
48.5
10.5
-12.4
15.6
14.1
2.1
2.3
0.8
5.2
2.0
Cross country pipeline returns to be backended. We now

factor in complete value destruction on the cross-country
investment (INR 34/sh being the total equity contribution) given
the weak gas supply situation and the expected backended
improvement. This is against earlier RoE estimate of 6%.
We tweak our estimates and PT. We moderate our volumes
to 26/28/30mmscmd for FY14/15/16E against our earlier
estimate of 34/37/40mmscmd. However, we raise our tariffs to
an average of c. INR 1,160/tcm over FY14-16E against the
earlier estimate of INR 880/tcm. Our new PT factors in a
negative value of INR 26/sh vs. INR 16/sh earlier.
86
68
50
Jun-12
Sep-12
Share price (%)

Ordinary shares
Relative to index
Relative to sector
Major shareholder
Free float
Dec-12
Mar-13
Jun-13
-1 mth
-15
-9
-
-3 mth -12 mth

-16
-19
-16
-26
Promoter (37.7%)
62%
887,397
Avishek Datta
Rahul Singh
Saurav Anand
Avishek.Datta@sc.com
+91 22 4205 5909
Rahul.Singh@sc.com
+91 22 4205 5901
Saurav.Anand@sc.com
+91 22 4205 5910
l
GUJS IN
INR 52.60
INR 94.00
Equity Research
47
25 June 2013
Fig 71: Assumptions change

FY14E
Tariff (INR/tcm)
Transmission volume (mmscmd)
FY15E
New
Old
New
Old
1,156
901
1,160
872
25.9
34.0
27.7
36.7
Source: Standard Chartered Research estimates
Equity Research
48
25 June 2013

Year-end: Mar
Sales
Gross profit
SG&A
Other income
Other expenses
EBIT
Net interest
Associates
Exceptional items
Pre-tax profit
Taxation
Minority interests
Net profit
2011
10,391
9,881
(261)
0
(1,299)
8,320
(961)
0
291
0
7,650
(2,586)
0
0
5,064
2012
11,233
10,592
(294)
0
(1,819)
8,479
(1,302)
0
513
0
7,690
(2,470)
0
0
5,221
2013
11,732
10,971
(251)
0
(1,861)
8,859
(1,263)
0
660
0
8,257
(2,876)
0
0
5,382
2014E
10,918
10,183
(276)
0
(2,303)
7,603
(1,221)
0
1,311
0
7,694
(2,471)
0
0
5,223
2015E
11,713
10,913
(304)
0
(2,509)
8,101
(1,357)
0
1,625
0
8,369
(2,687)
0
0
5,681
5,064
9,620
5,221
10,298
5,382
10,720
5,223
9,906
5,681
10,609
9.00
9.00
1.00
563
9.28
9.28
1.00
563
9.56
9.56
1.00
563
9.28
9.28
0.97
563
10.10
10.10
1.06
563
Year-end: Mar
Cash
Accounts receivable
Inventory
2011
2,390
0
698
623
5,286
8,997
2012
5,148
0
814
662
1,314
7,938
2013
8,531
0
2,541
772
1,176
13,019
2014E
14,212
0
2,365
718
1,261
18,555
2015E
18,411
0
2,537
770
1,382
23,100
PP&E
Intangible assets
Associates and JVs
35,363
0
0
766
36,128
35,584
0
0
1,164
36,748
37,775
0
0
1,740
39,515
40,251
0
0
1,740
41,991
41,742
0
0
1,740
43,482
Total assets
45,125
44,685
52,534
60,546
66,582
0
2,894
0
2,894
0
5,136
0
5,136
0
4,983
0
4,983
0
5,996
0
5,996
0
6,592
0
6,592
Long-term debt
Convertible bonds
Deferred tax
14,835
0
2,641
4,690
22,165
10,951
0
3,244
690
14,885
13,567
0
3,867
713
18,147
13,567
0
4,043
2,949
20,559
13,567
0
4,234
3,209
21,010
Total liabilities
25,059
20,021
23,130
26,554
27,602
Shareholders funds
Minority interests
20,066
0
24,666
0
29,406
0
33,992
0
38,980
0
Total equity
20,066
24,666
29,406
33,992
38,980
45,125
44,686
52,536
60,546
66,582
Net debt (cash)

12,445
563
5,803
563
5,037
563
(645)
563
(4,844)
563
Net profit adj.

EBITDA
EPS (INR)
EPS adj. (INR)
DPS (INR)
Short-term debt
Accounts payable
Year-end: Mar
EBIT
Net interest
Tax paid
Others
2011
8,320
1,299
0
0
(1,547)
(3,256)
4,817
2012
8,479
1,819
0
0
2,055
(3,258)
9,095
2013
8,859
1,861
0
0
(1,829)
(3,478)
5,414
2014E
7,603
2,303
0
0
3,391
(2,380)
10,917
2015E
8,101
2,509
0
0
509
(2,419)
8,699
Capex
Acquisitions
Disposals
Others
(6,839)
(100)
0
0
(6,939)
(2,040)
(398)
0
0
(2,438)
(4,053)
(576)
0
0
(4,629)
(4,778)
0
0
0
(4,778)
(4,000)
0
0
0
(4,000)
Dividends
Issue of shares
Change in debt
(656)
0
2,239
1,188
2,771
(656)
0
(3,884)
641
(3,899)
(656)
0
2,616
638
2,598
(637)
0
0
179
(458)
(693)
0
0
193
(500)
648
0
(2,023)
2,758
0
7,055
3,383
0
1,361
5,681
0
6,139
4,199
0
4,699
2011
2012
2013
2014E
2015E
95.1
92.6
80.1
48.7
33.8
4.8
22.3
22.3
23.1
0.0
94.3
91.7
75.5
46.5
32.1
8.1
3.1
3.1
3.1
0.0
93.5
91.4
75.5
45.9
34.8
4.4
3.1
3.1
3.1
0.0
93.3
90.7
69.6
47.8
32.1
-6.9
-2.9
-2.9
-2.9
-2.9
93.2
90.6
69.2
48.5
32.1
7.3
8.8
8.8
8.8
8.8
28.4
22.1
0.3
0.6
0.2
697.4
25.5
2,770.1
23.3
20.7
0.3
1.1
0.9
365.6
24.6
2,285.9
19.9
20.3
0.2
0.6
0.5
343.9
52.2
2,427.7
16.5
14.9
0.2
1.4
0.5
369.5
82.0
2,723.6
15.6
14.1
0.2
1.1
0.6
339.5
76.4
2,871.1
Leverage ratios
Net gearing (%)
Debt/capital (%)
Interest cover (x)
Debt/EBITDA (x)
Current ratio (x)
62.0
35.1
8.7
1.4
3.1
23.5
27.7
6.5
1.3
1.5
17.1
28.5
7.0
1.1
2.6
-1.9
24.9
6.2
1.4
3.1
-12.4
22.6
6.0
1.3
3.5
Valuation
EV/sales (x)
EV/EBITDA (x)
EV/EBIT (x)
PER (x)
PER adj. (x)
PBR (x)
Dividend yield (%)
6.8
7.4
8.5
11.7
11.7
2.8
1.0
5.5
6.0
7.2
10.0
10.0
1.7
1.1
3.9
4.3
5.2
7.5
7.5
1.3
1.4
2.7
2.9
3.8
5.7
5.7
0.9
1.8
2.1
2.3
3.1
5.2
5.2
0.8
2.0
Other
Gas transported (mmscmd)
36.1
Avg. transportation charge (Rs/tcm)777
34.5
854
27.7
1,119
25.9
1,156
27.7
1,160
Change in cash
Free cash flow

Year-end: Mar
Operating ratios
Gross margin (%)
EBITDA margin (%)
EBIT margin (%)
Net margin adj. (%)
Sales growth (%)
EPS growth (%)
EPS growth adj. (%)
DPS growth (%)
Efficiency ratios
ROE (%)
ROCE (%)
Asset turnover (x)
Op. cash/EBIT (x)
Inventory days
Equity Research
49
25 June 2013

On the growth highway
IRB Infrastructure Developers (IRB) is the dominant toll
road operator in the high-density, high-growth corridors of

Gujarat-Mumbai and Mumbai-Pune. We expect its toll
collections to grow 2.5x over FY13-17E to INR 35bn.
Strong in-house EPC capabilities and a healthy balance
sheet place it in a leading position in the road space.
IRB has picked up pace in 4QFY13: (1) traffic grew 5-10%
across all key projects, (2) two new projects commenced
tolling and (3) it guided to three more ongoing projects
becoming operational in FY14.
IRB is attractive on both NAV- and earnings-based
methods: (1) the stock trades at FY14E P/E, P/B and
EV/EBITDA of 6.2x, 1x and 6.7x, respectively, and (2) our
PT of INR 233 is based on a 20% discount to NAV.
Playing the growth corridor. IRB operates most of the
Mumbai-Ahmedabad stretch (400km) on NH8 (the DelhiMumbai part of the golden quadrilateral) and another 400km in
the Mumbai-Pune corridor. These are high-traffic density and
high-growth corridors. Once its ongoing projects are completed
by FY16-17E, we expect IRB to have 7,000 lane kms under toll,
handling 1mn PCUs/day and collecting INR 35bn in toll revenue
with an INR 20bn toll EBITDA (2.5x over FY13-17E).
EPC catalyst for growth and execution. IRB has the

strongest EPC capability in the road sector, in our view. Its EPC
division comprises 2,500 staff and has a gross block of INR 5bn
with investments in equipment and quarries for crucial raw
materials. This helps speed up execution, generate 20%+
EBITDA margin in the EPC division and meet cash flows for
non-dilutive growth. IRB has a strong balance sheet: it has INR
12bn in cash and its DE of 2.4x is comfortable for the
infrastructure sector. It had a dividend yield of 3.2% in FY13.
Picking up execution pace. IRBs execution picked up
strongly in 4QFY13 on three counts: (1) All key projects showed
strong toll revenue growth with the Mumbai-Pune Expressway
growing 5% YoY, Surat-Dahisar 6% YoY and Bharuch-Surat
10% YoY. Overall, toll revenue grew 10-12%+ YoY. (2) Two
projects commenced tolling in 4QFY13 Ahmedabad-Vadodra
and Talegaon-Amravati. (3) Other ongoing projects are making
strong progress: Amritsar-Pathankot is 80% complete, TumkurChitradurga is 75% complete, while Jaipur-Deoli has been
completed and is awaiting toll notification. Thus, we expect all
current projects to be operational in FY14.
Attractive valuations. Despite its strong performance, IRB is
trading at very attractive valuations. On earnings based
valuations, it trades at FY14E P/E, P/B and EV/EBITDA of 6.2x,
1x and 6.7x, respectively. We value the company at a PT of
INR 233, a 20% discount to our NAV of INR 291.
Gaurav Pathak
Shashikiran Rao
Gaurav.Pathak@sc.com
+91 22 4205 5921
Shashikiran.Rao2@sc.com
+91 22 4205 5920
l
IRB IN
INR 109.95
INR 233.00
Equity Research
OUTPERFORM
(unchanged)
PRICE TARGET
INR 109.95
INR 233.00
Bloomberg code
Reuters code
IRB IN
IRB.NS
Market cap
12-month range
INR 104.25 - 161.35
EPS adj. est. change 2014E
Year-end: March
Sales (INR mn)
EBITDA (INR mn)
EBIT (INR mn)
FCF (INR mn)
EPS adj. (INR)
DPS (INR)
EPS growth adj. (%)
DPS growth (%)
EBITDA margin (%)
EBIT margin (%)
Net margin adj. (%)
Div. payout (%)
Net gearing (%)
ROE (%)
ROCE (%)
EV/sales (x)
EV/EBITDA (x)
PBR (x)
PER adj. (x)
Dividend yield (%)
2012
32,559
14,987
12,017
6,512
4,960
(19,985)
14.92
1.98
85.95
4.2
20.0
46.0
36.9
15.2
13.3
182.8
18.8
13.5
3.1
6.7
2.2
11.2
1.2
2015E
2013
36,872
16,333
11,918
7,066
5,567
(25,122)
16.75
4.40
98.51
12.2
122.2
44.3
32.3
15.1
26.3
238.3
18.2
10.0
3.0
6.8
1.2
7.8
3.4
2014E
45,139
19,785
15,214
8,204
5,907
(13,824)
17.77
4.40
112.28
6.1
0.0
43.8
33.7
13.1
24.8
249.3
16.9
10.4
2.9
6.7
1.0
6.2
4.0
2015E
49,637
22,324
16,913
10,385
7,725
(6,553)
23.24
4.40
131.53
30.8
0.0
45.0
34.1
15.6
18.9
231.4
19.1
10.1
2.8
6.3
0.8
4.7
4.0

165
135
105
Jun-12
Sep-12
Dec-12
Mar-13
Jun-13

Share price (%)

Ordinary shares
Relative to index
Relative to sector
Major shareholder
Free float
-1 mth
-15
-9
-
-3 mth -12 mth

-2
-13
-1
-21
Promoter (74.8%)
25%
4,497,876
50
25 June 2013
Year-end: Mar
Sales
Gross profit
SG&A
Other income
Other expenses
EBIT
Net interest
Associates
Exceptional items
Pre-tax profit
Taxation
Minority interests
Net profit
2011
24,381
10,315
(1,630)
0
0
8,686
(2,927)
0
0
0
5,758
(1,117)
117
0
4,758
2012
32,559
14,363
(2,346)
0
0
12,017
(5,505)
0
0
0
6,512
(1,552)
0
0
4,960
2013
36,872
11,918
0
0
0
11,918
(4,852)
0
0
0
7,066
(1,530)
31
0
5,567
2014E
45,139
15,214
0
0
0
15,214
(7,010)
0
0
0
8,204
(2,297)
0
0
5,907
2015E
49,637
16,913
0
0
0
16,913
(6,528)
0
0
0
10,385
(2,660)
0
0
7,725
Net profit adj.

EBITDA
4,758
10,939
4,960
14,987
5,567
16,333
5,907
19,785
7,725
22,324
14.32
14.32
1.65
332
14.92
14.92
1.98
332
16.75
16.75
4.40
332
17.77
17.77
4.40
332
23.24
23.24
4.40
332
Year-end: Mar
Cash
Accounts receivable
Inventory
2011
12,000
0
397
1,638
6,349
20,384
2012
18,208
0
141
1,624
8,474
28,446
2013
14,221
0
165
1,904
9,815
26,106
2014E
14,408
0
195
2,252
11,480
28,335
2015E
17,981
0
214
2,476
12,555
33,226
PP&E
Intangible assets
Associates and JVs
58,706
0
0
551
59,257
79,995 115,859 135,936 150,513

0
0
0
0
0
0
0
0
139
139
139
139
80,134 115,999 136,075 150,653
Total assets
79,641 108,580 142,104 164,410 183,879
EPS (INR)
EPS adj. (INR)
DPS (INR)
Short-term debt
Accounts payable
Year-end: Mar
EBIT
Net interest
Tax paid
Others
Capex
Acquisitions
Disposals
Others
2011
8,686
2,254
(2,927)
(1,117)
1,246
(131)
8,010
2012
12,017
2,970
(5,505)
(1,552)
(807)
(2,850)
4,273
2013
11,918
4,415
(4,852)
(1,530)
5,193
14
15,157
2014E
15,214
4,571
(7,010)
(2,297)
328
17
10,823
2015E
16,913
5,412
(6,528)
(2,660)
303
(3)
13,436
(17,414) (24,258) (40,280) (24,647) (19,990)

(100)
411
0
0
0
0
0
0
0
0
(69)
227
(31)
0
0
(17,583) (23,620) (40,311) (24,647) (19,990)
Dividends
Issue of shares
Change in debt
(548)
0
17,103
(84)
16,471
(658)
0
26,238
(25)
25,555
(1,462)
0
22,496
133
21,167
(1,462)
0
15,340
133
14,011
(1,462)
0
11,455
133
10,126
Change in cash
Free cash flow
6,897
6,208 (3,986)
187
0
0
0
0
(9,404) (19,985) (25,122) (13,824)
3,573
0
(6,553)
0
4,842
0
4,842
0
5,890
0
5,890
0
6,215
0
6,215
0
6,614
0
6,614
0
6,546
0
6,546
Long-term debt
Convertible bonds
Deferred tax
46,255
0
223
3,099
49,577
72,494 94,990 110,331 121,786

0
0
0
0
259
259
259
259
248
6,776
8,764 10,450
73,001 102,025 119,353 132,495
Total liabilities
54,419
78,891 108,240 125,967 139,041
Shareholders funds
Minority interests
24,326
896
28,566
1,123
32,742
1,154
37,319
1,154
43,715
1,154
Total equity
25,222
29,689
33,895
38,473
44,868
79,641 108,580 142,135 164,440 183,910
Net debt (cash)

34,256
332
54,286
332
80,769
332
95,923 103,805
332
332
Year-end: Mar
Operating ratios
Gross margin (%)
EBITDA margin (%)
EBIT margin (%)
Net margin adj. (%)
Sales growth (%)
EPS growth (%)
EPS growth adj. (%)
DPS growth (%)
2011
2012
2013
2014E
2015E
42.3
44.9
35.6
19.5
19.4
43.0
12.9
12.9
12.9
0.0
44.1
46.0
36.9
15.2
23.8
33.5
4.2
4.2
4.2
20.0
32.3
44.3
32.3
15.1
21.7
13.2
12.2
12.2
12.2
122.2
33.7
43.8
33.7
13.1
28.0
22.4
6.1
6.1
6.1
0.0
34.1
45.0
34.1
15.6
25.6
10.0
30.8
30.8
30.8
0.0
21.3
13.5
0.4
0.9
0.1
43.3
5.2
83.4
18.8
13.5
0.3
0.4
0.1
32.7
3.0
107.6
18.2
10.0
0.3
1.3
0.1
25.8
1.5
88.5
16.9
10.4
0.3
0.7
0.2
25.3
1.5
78.2
19.1
10.1
0.3
0.8
0.3
26.4
1.5
73.4
Leverage ratios
Net gearing (%)
Debt/capital (%)
Interest cover (x)
Debt/EBITDA (x)
Current ratio (x)
135.8
61.8
2.4
3.4
4.2
182.8
70.6
2.2
4.0
4.8
238.3
69.9
1.9
5.1
4.2
249.3
69.9
1.9
5.2
4.3
231.4
68.7
2.2
5.2
5.1
Valuation
EV/sales (x)
EV/EBITDA (x)
EV/EBIT (x)
PER (x)
PER adj. (x)
PBR (x)
Dividend yield (%)
4.6
10.2
12.8
17.2
17.2
2.9
0.7
3.1
6.7
8.3
11.2
11.2
2.2
1.2
3.0
6.8
9.3
7.8
7.8
1.2
3.4
2.9
6.7
8.7
6.2
6.2
1.0
4.0
2.8
6.3
8.3
4.7
4.7
0.8
4.0
Efficiency ratios
ROE (%)
ROCE (%)
Asset turnover (x)
Op. cash/EBIT (x)
Inventory days
Equity Research
51
25 June 2013
Appendix 1: Companies ranked by 3-year average RoE

Mkt Cap 3m Volumes
Price
3 yr avg
PER
USD mn
USD mn
INR
RoE
FY14E
EMAMI LTD
1,859
730
42.3
28.6x
11.1x
26%
22%
-83
18
ESSAR OIL LTD
1,400
63
41.1
10.9x
2.9x
7%
NM
-336
13
HAVL IN Equity
HAVELLS INDIA
1,505
727
36.2
17.8x
5.1x
14%
18%
-1,932
37
TTKPT IN Equity
TTK PRESTIGE LTD
589
3,078
34.6
21.7x
6.6x
19%
19%
-732
16
JUBI IN Equity
JUBILANT FOODWOR
1,093
994
34.1
37.5x
11.2x
33%
29%
-395
31
KKC IN Equity
CUMMINS INDIA
2,124
457
30.2
17.6x
4.7x
16%
10%
-638
41
PIDI IN Equity
PIDILITE INDS
2,295
270
28.0
25.8x
6.6x
24%
26%
-247
18
SUNTV IN Equity
SUN TV NETWORK
2,418
367
27.7
17.4x
4.6x
17%
10%
204
32
AMRJ IN Equity
AMARA RAJA BATT
723
249
27.4
12.9x
3.2x
12%
24%
-543
25
MSS IN Equity
MOTHERSON SUMI
1,967
201
27.0
14.6x
4.1x
15%
77%
900
24
10
MTCL IN Equity
MINDTREE LTD
575
820
25.9
9.2x
2.1x
8%
28%
-709
47
11
BATA IN Equity
BATA INDIA LTD
900
827
25.5
23.6x
6.2x
24%
-7%
10
12
12
HEXW IN Equity
HEXAWARE TECHNOL
403
79
25.0
7.3x
1.7x
7%
9%
-98
35
13
IGL IN Equity
INDRAPRASTHA GAS
643
276
23.9
10.3x
2.2x
9%
10%
-508
35
14
MRF IN Equity
MRF LTD
915
12,933
23.7
7.4x
1.4x
6%
13%
-240
15
BRGR IN Equity
BERGER PAINTS
1,426
245
23.6
32.3x
7.3x
31%
22%
86
18
16
EIM IN Equity
EICHER MOTORS
1,595
3,562
23.4
31.4x
11.8x
50%
0%
1,341
28
17
PLNG IN Equity
PETRONET LNG LTD
1,518
123
23.3
8.9x
1.7x
8%
-1%
-879
61
18
JETIN IN Equity
JET AIRWAYS IND
659
30
461
22.9
29.8x
24.6x
107%
NM
2,754
19
TCO IN Equity
TATA COFFEE LTD
303
984
20.5
12.2x
2.4x
12%
36%
-190
20
EXID IN Equity
EXIDE INDUS LTD
1,738
122
20.2
15.7x
3.0x
15%
22%
218
43
21
MC IN Equity
MADRAS CEMENTS
858
215
18.4
10.9x
1.8x
10%
10%
74
17
22
UNTP IN Equity
UNITED PHOSPHORU
983
136
17.3
6.9x
1.1x
6%
29%
-33
27
23
GUJS IN Equity
GUJARAT STATE PE
483
53
16.4
6.4x
0.9x
5%
-6%
-574
41
24
IRB IN Equity
IRB INFRASTRUCTU
610
110
16.0
6.9x
1.0x
6%
4%
-319
41
25
MCLR IN Equity
MCLEOD RUSSEL
549
306
16.0
9.3x
1.6x
10%
12%
141
14
26
CCRI IN Equity
CONTAINER CORP
2,283
1,055
15.2
13.6x
2.0x
13%
8%
-106
23
27
CRG IN Equity
CROMPTON GREAVES
858
81
14.8
10.7x
1.5x
10%
-2%
-15
50
28
CHMB IN Equity
CHAMBAL FERTILIS
255
37
14.1
5.4x
0.8x
5%
35%
68
14
29
VOLT IN Equity
VOLTAS LTD
471
85
14.1
11.7x
1.6x
11%
26%
252
34
30
JSW IN Equity
JSW ENERGY LTD
1,187
44
13.7
7.5x
1.0x
8%
101%
-353
30
31
ABNL IN Equity
ADITYA BIRLA NUV
2,136
1,084
13.3
9.9x
1.2x
9%
18%
145
13
32
BHFC IN Equity
BHARAT FORGE CO
857
218
13.2
16.6x
2.0x
15%
-14%
441
31
33
SOBHA IN Equity
SOBHA DEVELOPERS
606
382
13.2
12.2x
1.6x
12%
22%
510
36
34
BHUS IN Equity
BHUSHAN STEEL
1,757
462
12.5
7.5x
1.0x
8%
14%
317
14
35
ARVND IN Equity
ARVIND LTD
338
78
12.5
6.7x
0.8x
6%
-17%
138
36
ABB IN Equity
ABB LTD
2,125
610
11.9
41.3x
4.5x
38%
30%
344
35
37
GITG IN Equity
GITANJALI GEMS L
619
501
11.5
6.3x
1.0x
9%
19%
-1,719
38
AL IN Equity
ASHOK LEYLAND
921
21
11.0
16.1x
1.4x
12%
-21%
389
50
39
TTCH IN Equity
TATA CHEMICALS
1,181
288
10.9
8.2x
1.0x
9%
3%
675
21
40
JSTL IN Equity
JSW STEEL LTD
2,511
14
670
10.7
7.3x
0.7x
7%
12%
203
48
41
JPVL IN Equity
JAIPRAKASH POWER
899
20
10.2
8.6x
0.8x
8%
24%
844
21
42
EDA IN Equity
ESS DEE ALUMINIU
312
592
9.8
27.0x
2.2x
22%
8%
20
43
DEN IN Equity
DEN NETWORKS LTD
427
186
9.6
29.8x
2.1x
22%
139%
386
11
44
TGBL IN Equity
TATA GLOBAL BEVE
1,367
136
9.2
17.6x
1.6x
18%
16%
225
17
45
CESC IN Equity
CESC LTD
686
327
8.9
8.5x
0.7x
8%
40%
20
26
46
JI IN Equity
JAIN IRRIGATION
404
54
8.4
9.6x
1.0x
12%
1%
1,336
13
47
JPA IN Equity
JAIPRAKASH ASSOC
2,000
28
58
8.3
10.7x
0.9x
11%
34%
817
37
48
PTCIN IN Equity
PTC INDIA LTD
230
48
8.3
5.5x
0.5x
7%
13%
153
23
49
RELI IN Equity
RELIANCE INFRAST
1,446
22
332
7.8
5.2x
0.3x
5%
3%
-160
23
50
RW IN Equity
RAYMOND LTD
262
259
7.7
12.0x
1.1x
14%
-8%
988
11
51
HPCL IN Equity
HINDUSTAN PETRO
1,396
249
7.2
7.2x
0.6x
8%
158%
565
49
52
ICEM IN Equity
INDIA CEMENTS
310
61
6.6
6.6x
0.4x
7%
2%
328
41
53
JSAW IN Equity
JINDAL SAW LTD
60
6.5
5.8x
0.4x
6%
23%
1,131
12
54
IBPOW IN Equity
INDIABULLS POWER
317
3.5
60.8x
0.4x
10%
-46%
1,368
55
FRL IN Equity
FUTURE RETAIL LT
371
15
99
3.1
21.9x
0.6x
19%
-17%
127
14
56
GMRI IN Equity
GMR INFRASTRUCTU
1,217
19
-0.5
-36.4x
0.8x
NM
-42%
-159
22
57
ADANI IN Equity
ADANI POWER LTD
1,946
41
-7.2
40.3x
1.8x
NM
NM
6,169
37
58
LANCI IN Equity
LANCO INFRATECH
271
-11.9
-5.7x
0.4x
NM
60%
2,456
15
59
TCOM IN Equity
TATA COMMUNICATI
834
177
-14.4
-14.5x
3.1x
NM
-34%
1,300
13
60
DITV IN Equity
DISH TV INDIA
1,076
62
-34.1
-1074.1x
-43.4x
127%
-78%
-7,816
41
61
323
11
-58.8
-6.3x
0.7x
NM
-0.26
14,541
10
62
Ticker
Name
HMN IN Equity
ESOIL IN Equity
SUEL IN Equity
SUZLON ENERGY
z in
Equity Research
PBR
PB/
FY14E 3 yr RoE
EPS g
RoE
F14/F12 Momentum
# of RANK
reccos.
52
25 June 2013
Appendix 2: Companies ranked by PB/RoE

Mkt Cap 3m Volumes
Price
3 yr avg
PER
USD mn
USD mn
INR
RoE
FY14E
RELIANCE INFRAST
1,446
22
332
7.8
5.2x
0.3x
5%
3%
-160
23
CHAMBAL FERTILIS
255
37
14.1
5.4x
0.8x
5%
35%
68
14
GUJS IN Equity
GUJARAT STATE PE
483
53
16.4
6.4x
0.9x
5%
-6%
-574
41
MRF IN Equity
MRF LTD
915
12,933
23.7
7.4x
1.4x
6%
13%
-240
JSAW IN Equity
JINDAL SAW LTD
60
6.5
5.8x
0.4x
6%
23%
1,131
12
IRB IN Equity
IRB INFRASTRUCTU
610
110
16.0
6.9x
1.0x
6%
4%
-319
41
ARVND IN Equity
ARVIND LTD
338
78
12.5
6.7x
0.8x
6%
-17%
138
UNTP IN Equity
UNITED PHOSPHORU
983
136
17.3
6.9x
1.1x
6%
29%
-33
27
PTCIN IN Equity
PTC INDIA LTD
230
48
8.3
5.5x
0.5x
7%
13%
153
23
ICEM IN Equity
INDIA CEMENTS
310
61
6.6
6.6x
0.4x
7%
2%
328
41
10
JSTL IN Equity
JSW STEEL LTD
2,511
14
670
10.7
7.3x
0.7x
7%
12%
203
48
11
HEXW IN Equity
HEXAWARE TECHNOL
403
79
25.0
7.3x
1.7x
7%
9%
-98
35
12
ESOIL IN Equity
ESSAR OIL LTD
1,400
63
41.1
10.9x
2.9x
7%
NM
-336
13
13
PLNG IN Equity
PETRONET LNG LTD
1,518
123
23.3
8.9x
1.7x
8%
-1%
-879
61
14
JSW IN Equity
JSW ENERGY LTD
1,187
44
13.7
7.5x
1.0x
8%
101%
-353
30
15
BHUS IN Equity
BHUSHAN STEEL
1,757
462
12.5
7.5x
1.0x
8%
14%
317
14
16
JPVL IN Equity
JAIPRAKASH POWER
899
20
10.2
8.6x
0.8x
8%
24%
844
21
17
MTCL IN Equity
MINDTREE LTD
575
820
25.9
9.2x
2.1x
8%
28%
-709
47
18
HPCL IN Equity
HINDUSTAN PETRO
1,396
249
7.2
7.2x
0.6x
8%
158%
565
49
19
CESC IN Equity
CESC LTD
686
327
8.9
8.5x
0.7x
8%
40%
20
26
20
IGL IN Equity
INDRAPRASTHA GAS
643
276
23.9
10.3x
2.2x
9%
10%
-508
35
21
GITG IN Equity
GITANJALI GEMS L
619
501
11.5
6.3x
1.0x
9%
19%
-1,719
22
ABNL IN Equity
ADITYA BIRLA NUV
2,136
1,084
13.3
9.9x
1.2x
9%
18%
145
13
23
TTCH IN Equity
TATA CHEMICALS
1,181
288
10.9
8.2x
1.0x
9%
3%
675
21
24
MCLR IN Equity
MCLEOD RUSSEL
549
306
16.0
9.3x
1.6x
10%
12%
141
14
25
IBPOW IN Equity
INDIABULLS POWER
317
3.5
60.8x
0.4x
10%
-46%
1,368
26
MC IN Equity
MADRAS CEMENTS
858
215
18.4
10.9x
1.8x
10%
10%
74
17
27
CRG IN Equity
CROMPTON GREAVES
858
81
14.8
10.7x
1.5x
10%
-2%
-15
50
28
JPA IN Equity
JAIPRAKASH ASSOC
2,000
28
58
8.3
10.7x
0.9x
11%
34%
817
37
29
VOLT IN Equity
VOLTAS LTD
471
85
14.1
11.7x
1.6x
11%
26%
252
34
30
AMRJ IN Equity
AMARA RAJA BATT
723
249
27.4
12.9x
3.2x
12%
24%
-543
25
31
SOBHA IN Equity
SOBHA DEVELOPERS
606
382
13.2
12.2x
1.6x
12%
22%
510
36
32
TCO IN Equity
TATA COFFEE LTD
303
984
20.5
12.2x
2.4x
12%
36%
-190
33
JI IN Equity
JAIN IRRIGATION
404
54
8.4
9.6x
1.0x
12%
1%
1,336
13
34
AL IN Equity
ASHOK LEYLAND
921
21
11.0
16.1x
1.4x
12%
-21%
389
50
35
CCRI IN Equity
CONTAINER CORP
2,283
1,055
15.2
13.6x
2.0x
13%
8%
-106
23
36
RW IN Equity
RAYMOND LTD
262
259
7.7
12.0x
1.1x
14%
-8%
988
11
37
HAVL IN Equity
HAVELLS INDIA
1,505
727
36.2
17.8x
5.1x
14%
18%
-1,932
37
38
EXID IN Equity
EXIDE INDUS LTD
1,738
122
20.2
15.7x
3.0x
15%
22%
218
43
39
BHFC IN Equity
BHARAT FORGE CO
857
218
13.2
16.6x
2.0x
15%
-14%
441
31
40
MSS IN Equity
MOTHERSON SUMI
1,967
201
27.0
14.6x
4.1x
15%
77%
900
24
41
KKC IN Equity
CUMMINS INDIA
2,124
457
30.2
17.6x
4.7x
16%
10%
-638
41
42
SUNTV IN Equity
SUN TV NETWORK
2,418
367
27.7
17.4x
4.6x
17%
10%
204
32
43
TGBL IN Equity
TATA GLOBAL BEVE
1,367
136
9.2
17.6x
1.6x
18%
16%
225
17
44
FRL IN Equity
FUTURE RETAIL LT
371
15
99
3.1
21.9x
0.6x
19%
-17%
127
14
45
TTKPT IN Equity
TTK PRESTIGE LTD
589
3,078
34.6
21.7x
6.6x
19%
19%
-732
16
46
EDA IN Equity
ESS DEE ALUMINIU
312
592
9.8
27.0x
2.2x
22%
8%
20
47
DEN IN Equity
DEN NETWORKS LTD
427
186
9.6
29.8x
2.1x
22%
139%
386
11
48
PIDI IN Equity
PIDILITE INDS
2,295
270
28.0
25.8x
6.6x
24%
26%
-247
18
49
BATA IN Equity
BATA INDIA LTD
900
827
25.5
23.6x
6.2x
24%
-7%
10
12
50
HMN IN Equity
EMAMI LTD
1,859
730
42.3
28.6x
11.1x
26%
22%
-83
18
51
BRGR IN Equity
BERGER PAINTS
1,426
245
23.6
32.3x
7.3x
31%
22%
86
18
52
JUBI IN Equity
JUBILANT FOODWOR
1,093
994
34.1
37.5x
11.2x
33%
29%
-395
31
53
ABB IN Equity
ABB LTD
2,125
610
11.9
41.3x
4.5x
38%
30%
344
35
54
EIM IN Equity
EICHER MOTORS
1,595
3,562
23.4
31.4x
11.8x
50%
0%
1,341
28
55
JETIN IN Equity
JET AIRWAYS IND
659
30
461
22.9
29.8x
24.6x
107%
NM
2,754
56
DITV IN Equity
DISH TV INDIA
1,076
62
-34.1
-1074.1x
-43.4x
127%
-78%
-7,816
41
57
GMRI IN Equity
GMR INFRASTRUCTU
1,217
19
-0.5
-36.4x
0.8x
NM
-42%
-159
22
58
ADANI IN Equity
ADANI POWER LTD
1,946
41
-7.2
40.3x
1.8x
NM
NM
6,169
37
59
LANCI IN Equity
LANCO INFRATECH
271
-11.9
-5.7x
0.4x
NM
60%
2,456
15
60
TCOM IN Equity
TATA COMMUNICATI
834
177
-14.4
-14.5x
3.1x
NM
-34%
1,300
13
61
SUEL IN Equity
SUZLON ENERGY
323
11
-58.8
-6.3x
0.7x
NM
-0.26
14,541
10
62
Ticker
Name
RELI IN Equity
CHMB IN Equity
z in
Equity Research
PBR
PB/
FY14E 3 yr RoE
EPS g
RoE
F14/F12 Momentum
# of RANK
reccos.
53
25 June 2013
Appendix 3: Companies ranked by EPS growth

Mkt Cap 3m Volumes
Price
3 yr avg
PER
USD mn
USD mn
INR
RoE
FY14E
1,396
249
7.2
7.2x
0.6x
8%
158%
565
49
427
186
9.6
29.8x
2.1x
22%
139%
386
11
JSW ENERGY LTD
1,187
44
13.7
7.5x
1.0x
8%
101%
-353
30
MSS IN Equity
MOTHERSON SUMI
1,967
201
27.0
14.6x
4.1x
15%
77%
900
24
LANCI IN Equity
LANCO INFRATECH
271
-11.9
-5.7x
0.4x
NM
60%
2,456
15
CESC IN Equity
CESC LTD
686
327
8.9
8.5x
0.7x
8%
40%
20
26
TCO IN Equity
TATA COFFEE LTD
303
984
20.5
12.2x
2.4x
12%
36%
-190
CHMB IN Equity
CHAMBAL FERTILIS
255
37
14.1
5.4x
0.8x
5%
35%
68
14
JPA IN Equity
JAIPRAKASH ASSOC
2,000
28
58
8.3
10.7x
0.9x
11%
34%
817
37
ABB IN Equity
ABB LTD
2,125
610
11.9
41.3x
4.5x
38%
30%
344
35
10
JUBI IN Equity
JUBILANT FOODWOR
1,093
994
34.1
37.5x
11.2x
33%
29%
-395
31
11
UNTP IN Equity
UNITED PHOSPHORU
983
136
17.3
6.9x
1.1x
6%
29%
-33
27
12
MTCL IN Equity
MINDTREE LTD
575
820
25.9
9.2x
2.1x
8%
28%
-709
47
13
PIDI IN Equity
PIDILITE INDS
2,295
270
28.0
25.8x
6.6x
24%
26%
-247
18
14
VOLT IN Equity
VOLTAS LTD
471
85
14.1
11.7x
1.6x
11%
26%
252
34
15
JPVL IN Equity
JAIPRAKASH POWER
899
20
10.2
8.6x
0.8x
8%
24%
844
21
16
AMRJ IN Equity
AMARA RAJA BATT
723
249
27.4
12.9x
3.2x
12%
24%
-543
25
17
JSAW IN Equity
JINDAL SAW LTD
z in
60
6.5
5.8x
0.4x
6%
23%
1,131
12
18
HMN IN Equity
EMAMI LTD
1,859
730
42.3
28.6x
11.1x
26%
22%
-83
18
19
SOBHA IN Equity
SOBHA DEVELOPERS
606
382
13.2
12.2x
1.6x
12%
22%
510
36
20
BRGR IN Equity
BERGER PAINTS
1,426
245
23.6
32.3x
7.3x
31%
22%
86
18
21
EXID IN Equity
EXIDE INDUS LTD
1,738
122
20.2
15.7x
3.0x
15%
22%
218
43
22
GITG IN Equity
GITANJALI GEMS L
619
501
11.5
6.3x
1.0x
9%
19%
-1,719
23
TTKPT IN Equity
TTK PRESTIGE LTD
589
3,078
34.6
21.7x
6.6x
19%
19%
-732
16
24
ABNL IN Equity
ADITYA BIRLA NUV
2,136
1,084
13.3
9.9x
1.2x
9%
18%
145
13
25
HAVL IN Equity
HAVELLS INDIA
1,505
727
36.2
17.8x
5.1x
14%
18%
-1,932
37
26
TGBL IN Equity
TATA GLOBAL BEVE
1,367
136
9.2
17.6x
1.6x
18%
16%
225
17
27
BHUS IN Equity
BHUSHAN STEEL
1,757
462
12.5
7.5x
1.0x
8%
14%
317
14
28
MRF IN Equity
MRF LTD
915
12,933
23.7
7.4x
1.4x
6%
13%
-240
29
PTCIN IN Equity
PTC INDIA LTD
230
48
8.3
5.5x
0.5x
7%
13%
153
23
30
JSTL IN Equity
JSW STEEL LTD
2,511
14
670
10.7
7.3x
0.7x
7%
12%
203
48
31
MCLR IN Equity
MCLEOD RUSSEL
549
306
16.0
9.3x
1.6x
10%
12%
141
14
32
IGL IN Equity
INDRAPRASTHA GAS
643
276
23.9
10.3x
2.2x
9%
10%
-508
35
33
KKC IN Equity
CUMMINS INDIA
2,124
457
30.2
17.6x
4.7x
16%
10%
-638
41
34
MC IN Equity
MADRAS CEMENTS
858
215
18.4
10.9x
1.8x
10%
10%
74
17
35
SUNTV IN Equity
SUN TV NETWORK
2,418
367
27.7
17.4x
4.6x
17%
10%
204
32
36
HEXW IN Equity
HEXAWARE TECHNOL
403
79
25.0
7.3x
1.7x
7%
9%
-98
35
37
EDA IN Equity
ESS DEE ALUMINIU
312
592
9.8
27.0x
2.2x
22%
8%
20
38
CCRI IN Equity
CONTAINER CORP
2,283
1,055
15.2
13.6x
2.0x
13%
8%
-106
23
39
IRB IN Equity
IRB INFRASTRUCTU
610
110
16.0
6.9x
1.0x
6%
4%
-319
41
40
TTCH IN Equity
TATA CHEMICALS
1,181
288
10.9
8.2x
1.0x
9%
3%
675
21
41
RELI IN Equity
RELIANCE INFRAST
1,446
22
332
7.8
5.2x
0.3x
5%
3%
-160
23
42
ICEM IN Equity
INDIA CEMENTS
310
61
6.6
6.6x
0.4x
7%
2%
328
41
43
JI IN Equity
JAIN IRRIGATION
404
54
8.4
9.6x
1.0x
12%
1%
1,336
13
44
EIM IN Equity
EICHER MOTORS
1,595
3,562
23.4
31.4x
11.8x
50%
0%
1,341
28
45
PLNG IN Equity
PETRONET LNG LTD
1,518
123
23.3
8.9x
1.7x
8%
-1%
-879
61
46
CRG IN Equity
CROMPTON GREAVES
858
81
14.8
10.7x
1.5x
10%
-2%
-15
50
47
GUJS IN Equity
GUJARAT STATE PE
483
53
16.4
6.4x
0.9x
5%
-6%
-574
41
48
BATA IN Equity
BATA INDIA LTD
900
827
25.5
23.6x
6.2x
24%
-7%
10
12
49
RW IN Equity
RAYMOND LTD
262
259
7.7
12.0x
1.1x
14%
-8%
988
11
50
BHFC IN Equity
BHARAT FORGE CO
857
218
13.2
16.6x
2.0x
15%
-14%
441
31
51
ARVND IN Equity
ARVIND LTD
338
78
12.5
6.7x
0.8x
6%
-17%
138
52
FRL IN Equity
FUTURE RETAIL LT
371
15
99
3.1
21.9x
0.6x
19%
-17%
127
14
53
AL IN Equity
ASHOK LEYLAND
921
21
11.0
16.1x
1.4x
12%
-21%
389
50
54
SUEL IN Equity
SUZLON ENERGY
323
11
-58.8
-6.3x
0.7x
NM
-0.26
14,541
10
55
TCOM IN Equity
TATA COMMUNICATI
834
177
-14.4
-14.5x
3.1x
NM
-34%
1,300
13
56
GMRI IN Equity
GMR INFRASTRUCTU
1,217
19
-0.5
-36.4x
0.8x
NM
-42%
-159
22
57
IBPOW IN Equity
INDIABULLS POWER
317
3.5
60.8x
0.4x
10%
-46%
1,368
58
DITV IN Equity
DISH TV INDIA
1,076
62
-34.1
-1074.1x
-43.4x
127%
-78%
-7,816
41
59
ESOIL IN Equity
ESSAR OIL LTD
1,400
63
41.1
10.9x
2.9x
7%
NM
-336
13
60
JETIN IN Equity
JET AIRWAYS IND
659
30
461
22.9
29.8x
24.6x
107%
NM
2,754
61
1,946
41
-7.2
40.3x
1.8x
NM
NM
6,169
37
62
Ticker
Name
HPCL IN Equity
HINDUSTAN PETRO
DEN IN Equity
DEN NETWORKS LTD
JSW IN Equity
ADANI IN Equity
ADANI POWER LTD
Equity Research
PBR
PB/
FY14E 3 yr RoE
EPS g
RoE
F14/F12 Momentum
# of RANK
reccos.
54
25 June 2013
Appendix 4: Companies that have outperformed

every year since 2008
% change in price
# of years of
2008
2009
2010
2011
2012 5 yr CAGR
outperformance
APTY IN Equity
-63%
147%
36%
-11%
51%
11%
BYRCS IN Equity
-50%
140%
74%
-24%
84%
24%
EIM IN Equity
-42%
179%
89%
20%
95%
48%
IPCA IN Equity
-46%
181%
66%
-20%
88%
30%
SKB IN Equity
-23%
130%
80%
9%
50%
39%
Source: Bloomberg
Key attributes of companies that have outperformed every year since 2008
Fig 72: RoEs
Fig 73: PB/RoE

Index
30
5 yr operfs
45%
40%
35%
30%
25%
20%
15%
10%
5%
0%
25
20
15
10
5
0
2008
2009
2010
2011
Source: Bloomberg
Fig 74: PER
Fig 75: P/B

Index
5 yr operfs
50
40
30
20
10
1
1
Index
5 yr operfs
Source: Bloomberg
Source: Bloomberg
Fig 76: Sales growth
Fig 77: EPS growth
50
45
40
35
30
25
20
15
10
5
0
Index
350
5 yr operfs
Index
5 yr operfs
300
250
200
150
100
50
0
-50
1
Source: Bloomberg
5 yr operfs
Equity Research
2012
Source: Bloomberg
60
Index
Source: Bloomberg
55
25 June 2013
Appendix 5: Companies that have outperformed 4

out of 5 years since 2008
% change in price
# of years of
2008
2009
2010
2011
2012
ALBK IN Equity
-56%
140%
80%
-49%
48%
5 yr CAGR outperformance
7%
APHS IN Equity
-14%
45%
39%
24%
39%
25%
BAF IN Equity
-85%
415%
113%
-14%
123%
25%
BATA IN Equity
-63%
84%
84%
46%
64%
25%
BHUS IN Equity
-80%
361%
63%
-34%
54%
9%
BIL IN Equity
-76%
215%
17%
21%
92%
15%
BRGR IN Equity
-47%
76%
71%
-16%
85%
20%
CDH IN Equity
-8%
144%
79%
-9%
28%
36%
CRIN IN Equity
-25%
152%
166%
-12%
-5%
33%
CSTRL IN Equity
-7%
80%
52%
-9%
44%
27%
DBNK IN Equity
-61%
152%
40%
-58%
135%
6%
EID IN Equity
-12%
144%
50%
-32%
9%
19%
FAG IN Equity
-65%
155%
43%
19%
63%
20%
FB IN Equity
-52%
45%
69%
-15%
60%
10%
GCPL IN Equity
3%
90%
47%
0%
87%
40%
HAVL IN Equity
-82%
320%
54%
-3%
65%
13%
HMN IN Equity
-30%
120%
64%
-15%
76%
30%
HWA IN Equity
-64%
147%
10%
-27%
61%
2%
IIB IN Equity
-71%
282%
85%
-15%
85%
27%
JKBK IN Equity
-59%
64%
35%
-14%
92%
9%
KNPL IN Equity
-55%
170%
67%
-6%
31%
20%
LICHF IN Equity
-40%
248%
22%
13%
32%
31%
MMFS IN Equity
-22%
35%
116%
-18%
80%
28%
MRF IN Equity
-72%
202%
19%
-3%
84%
12%
MSS IN Equity
-47%
117%
38%
-25%
118%
21%
MTCL IN Equity
-53%
194%
-19%
-29%
72%
6%
PIDI IN Equity
-44%
81%
56%
-5%
51%
18%
SHTF IN Equity
-52%
150%
60%
-46%
80%
13%
SRF IN Equity
-60%
179%
73%
-32%
-16%
2%
STR IN Equity
-68%
168%
88%
-11%
173%
31%
TI IN Equity
-60%
92%
120%
-29%
85%
18%
TRENT IN Equity
-59%
179%
7%
-12%
54%
11%
TRP IN Equity
-32%
187%
47%
-7%
34%
29%
TTAN IN Equity
-41%
54%
153%
-5%
66%
29%
VYSB IN Equity
-52%
98%
24%
-21%
82%
11%
YES IN Equity
-70%
254%
18%
-24%
94%
13%
Source: Bloomberg
Equity Research
56
25 June 2013
Key attributes of companies that have outperformed 4 out of 5 years since 2008
Fig 78: RoEs
Fig 79: PB/RoE
30
Index
50%
4 yr operfs
25
Index
4 yr operfs
40%
20
30%
15
20%
10
10%
5
0
0%
2008
2009
2010
2011
2012
Source: Bloomberg
Fig 80: PER
Fig 81: P/B
60
Index
4 yr operfs
50
40
30
20
10
4 yr operfs
Source: Bloomberg
Fig 82: Sales growth
Fig 83: EPS growth
Index
140
120
100
80
60
40
20
0
-20
-40
4 yr operfs
40
30
20
10
0
1
Source: Bloomberg
Source: Bloomberg
50
Equity Research
Index
Source: Bloomberg
Index
4 yr operfs
Source: Bloomberg
57
25 June 2013
Disclosures appendix
The information and opinions in this report were prepared by Standard Chartered Bank (Hong Kong) Limited, Standard
Chartered Bank Singapore Branch, Standard Chartered Securities (India) Limited, Standard Chartered Securities Korea
Limited and/or one or more of its affiliates (together with its group of companies, SCB) and the research analyst(s) named in
this report. THIS RESEARCH HAS NOT BEEN PRODUCED IN THE UNITED STATES.
Analyst Certification Disclosure: The research analyst or analysts responsible for the content of this research report certify
that: (1) the views expressed and attributed to the research analyst or analysts in the research report accurately reflect their
personal opinion(s) about the subject securities and issuers and/or other subject matter as appropriate; and (2) no part of his
or her compensation was, is or will be directly or indirectly related to the specific recommendations or views contained in this
research report. On a general basis, the efficacy of recommendations is a factor in the performance appraisals of analysts.
Where disclosure date appears below, this means the day prior to the report date. All share prices quoted are the closing
price for the business day prior to the date of the report, unless otherwise stated.
Recommendation Distribution and Investment Banking Relationships
% of covered companies
currently assigned this rating
% of companies assigned this rating

with which SCB has provided investment
banking services over the past 12 months
OUTPERFORM
56.0%
13.6%
IN-LINE
33.2%
12.4%
UNDERPERFORM
As of 31 March 2013
10.7%
12.3%
Research Recommendation
Terminology
Definitions
The total return on the security is expected to outperform the relevant market index by 5% or more
over the next 12 months
The total return on the security is not expected to outperform or underperform the relevant market
IN-LINE (IL)
index by 5% or more over the next 12 months
The total return on the security is expected to underperform the relevant market index by 5% or
UNDERPERFORM (UP)
more over the next 12 months
OUTPERFORM (OP)
SCB uses an investment horizon of 12 months for its price targets.

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Equity Research
58
25 June 2013
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Equity Research
59

India Emerging Companies Why Bother With Small Mid-Cap Stock Selection 24-06-13!19!44

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Equity Research l India I Emerging Companies I

India emerging companies

can be a dominant performance driver between cyclical turns .

See Fig. 2-4;

See Fig. 37;

See Fig. 5-7;

See Fig. 8-10;

See Fig. 11;

Important disclosures can be found in the Disclosures Appendix

India emerging companies

Defining the universe

Under-researched stocks = higher returns

Its not just beta

Our approach to SMID space

Detailed assessment of investment parameters

How do we screen SMID stocks?

Which companies from our screens do we like?

Motherson Sumi Systems

Amara Raja Batteries

Gujarat State Petronet

IRB Infrastructure Developers

Appendix 1: Companies ranked by 3-year average RoE

Appendix 2: Companies ranked by PB/RoE

Appendix 3: Companies ranked by EPS growth

Appendix 4: Companies that have outperformed every year since 2008

Appendix 5: Companies that have outperformed 4 out of 5 years since 2008

SCout is Standard Chartereds premium research

India emerging companies

Lesser analyst focus

Fig 2: >20ppt increase in RoE*

Fig 3: 10-20ppt increase in RoE*

Fig 4: 0-10ppt increase in RoE*

No. of recos. per stock

Post GFC, stock

No. of recos. per stock

No. of recos. per stock

India emerging companies

Fig 5: Correlation between BSE

Fig 6: RoE dispersion 2008-12

Fig 7: RoE dispersion 2003-07

2007 2008 2009 2010 2011 2012 2013

Sector bias has to be

Fig 8: Performance of SMID auto

Fig 9: Performance of SMID tech

AMTEK AUTO LTD (7%)

Fig 10: Performance of SMID utility

REDINGTON INDIA (17%)

LANCO INFRATECH (0%)

INFOTECH ENT (17%)

KSK ENERGY VENTU (1%)*

MINDTREE LTD (30%)

CESC LTD (10%)

PTC INDIA LTD (6%)

ECLERX SERVICES (42%)

GUJARAT GAS CO (34%)

ASHOK LEYLAND (4%)

INDRAPRASTHA GAS (26%)

CMC LTD (26%)

EICHER MOTORS (25%)

200 400 600 800 1,000 1,200

100 150 200 250 300

100 150 200