MarketStrategy May2011 110511

Market Strategy
Table of Contents
Strategy
Angel Model Portfolio 2-7 8 9
Top Picks
Large cap Axis Bank Cipla ICICI Bank L&T Lupin Reliance Industries Tata Steel Mid cap CRISIL Finolex Cables Greenply IVRCL Infra. Jagran Prakashan Jyoti Structures Surya Roshni Tata Sponge Stock Watch
10 12 14 16 18 20 22
24 26 28 30 32 34 36 38 42-46
May 2011
Please refer to important disclosures at the end of this report.
Market Strategy
May 2011 Top Picks
Company
Large Cap Axis Bank Cipla ICICI Bank L&T Lupin RIL Tata Steel Mid Cap CRISIL Finolex Cables Greenply IVRCL Infra Jagran Prakashan Jyoti Structures Surya Roshni Tata Sponge 6,550 51 195 75 120 79 95 353 7,616 75 270 108 150 110 137 469 1,254 305 1,081 1,544 420 955 594 1,661 377 1,355 2,034 560 1,189 802
Reining inflation for steadfast growth

CMP (`) TP (`) Inflation is taking centre-stage for policymakers, prompting monetary policy rate hikes on one hand and focus on fiscal consolidation on the other, which is likely to cause a moderation in GDP growth (with 7.5-8% growth in FY2012-13E looking more realistic). Signs of this are already visible in the recent economic data. IIP growth dropped to 3.6% during February 2011 from 15.1% in February 2010, while GDP growth slowed down a bit to 8.2% in 3QFY2011 from 8.9% in the previous two quarters. With these signs of moderation emerging in the second half of FY2011, the RBI has projected real GDP growth for FY2012 to be at 7.4-8.5% (baseline projection of 8%). While growth is moderating, on the price front, apart from crude pass-through, most of the bad news appear to be already in the headline inflation numbers. Hence, we believe the RBI could pause after at most another 25-50bp hike on the repo front, considering that M3 growth is in any case well within the 16-17% comfort zone. This view is also supported by the fact that forex reserves have not shown a material increase in this cycle, unlike in the pre-Lehman period, which we believe could lead to peaking of interest rates at a lower level in this cycle as compared to 2007. Accordingly, we expect GDP growth of 7.5-8% in FY2012-13E and accompanying credit growth of 18-20%. In this backdrop, we estimate Sensex earnings to witness a 17.4% CAGR over FY2011-13E, which is still a reasonably healthy rate of growth. At the current juncture, the Sensex is looking reasonably valued in our view, trading at 14.4x one-year forward earnings. Further, the Sensex earnings yield is 165bp below bond yield, which is close to the long-term average discount. A multiple of 15x FY2013E EPS translates into a Sensex target of 22,326, giving an attractive ~20% upside from current levels. Hence, we remain positive on the Indian markets. Stocks
JK Tyres SBI, Axis Bank, ICICI Bank, HDFC Bank
Note: Investment period - 12 Months BSE Sensex (18,519) and Price as on May 6, 2011
Angel Portfolio
Sector
Auto & Ancillaries Banking 29.0
Weight (%)
3.0
IT sector strategy: Mixed bag results; HCL Tech relative top pick
IT index has underperformed over the past one month, as 4QFY2011 panned out to be a soft quarter because of clients freezing their budgeting cycles. However, the demand outlook for IT spending remains positive as clients look forward to spend on discretionary services to drive cost efficiency, prepare for growth as well as capture market share. Hence, we expect tier-I companies such as TCS and Infosys to record a 17.6% and 17.4% CAGR in earnings over FY2011-13E, respectively. However, in this arena, we believe HCL Tech remains a key beneficiary with strong
Cap Goods & Infra FMCG Hotels IT Media Metals Oil & Gas Pharma Others
11.0 7.0 3.0 9.0 3.0 8.0 12.0 6.0 9.0
IVRCL, L&T, LMW ITC, Britannia Inds. Taj GVK Infosys, HCL Tech, TCS Jagran Prakashan Tata Sponge, Tata Steel Reliance Industries Cipla, Lupin Surya Roshni, CRISIL, Greenply
domain capabilities in product engineering and package implementation along with levers to pull up operational performance. Thus, we expect HCL Tech to race ahead with a 32% CAGR in net profitability over FY2011-13E. The stock is trading at 11.6x FY2013E EPS with 50-60% discount to Infosys and TCS, which in our view is unwarranted considering the expected earnings momentum. Hence, we reiterate HCL Tech to be our top pick in the IT sector, valuing it at a 33% discount to Infosys. Also, given the recent price correction, we recommend a Buy rating on TCS and Infosys. That said, overall we are maintaining underweight on IT, mainly because valuations are still at a premium (Infosys at 42% premium to Sensex and TCS at 50%) and we find more value in other sectors such as Banking, Pharma and Infrastructure.
Market Strategy Reining inflation for steadfast growth

The RBI has forecasted inflation to remain elevated, close to March 2011 levels (9.0%), over the first half of FY2012, before moderating in the second half to 6.0%, as of March 2012. The RBI believes that global commodity prices, which have surged in the recent months, are at best likely to remain firm and may well increase further over the course of the year, indicating that higher inflation will persist and may indeed get worse. Hence, to contain inflation, the Central Bank has targeted at reducing overall demand by increasing lending rates. Through the policy action, the RBI expects to contain inflation by reigning in demand-side pressures and sustain growth in the medium term by containing inflation. Together with the focus on fiscal consolidation by the government, these policies are likely to cause a moderation in GDP growth (with 7.5-8% growth in FY2012-13E looking more realistic). Signs of this are already visible in the recent economic data. IIP growth has dropped to 3.6% during February 2011, from 15.1% in February 2010, while GDP growth has slowed down a bit to 8.2% in 3QFY2011 from 8.9% in the previous two quarters. With these signs of moderation emerging in the second half of FY2011, the RBI has projected real GDP growth for FY2012 to be at 7.4-8.5% (baseline projection of 8%). Exhibit 1: GDP growth slows down a bit
10.0
GDP Quarterly growth (%)
Infact, even as growth is already moderating, on the price front, apart from pass-on left on the crude oil front, much of the bad news such as high food inflation and reflation of commodity prices after the global crisis is already built into the inflation numbers. Moreover, incrementally as well, there seems to be increasing acceptance in policy circles that in a high-growth, supply-constrained economy like India, certain items such as food will exhibit structural 6-7% inflation, which will eventually pass through manufactured goods as well in the form of wage inflation. Hence, in the absence of any major new unanticipated negative development on the inflation front, we believe the RBI could pause after at most another 25-50bp hike on the repo front, considering that M3 growth is in any case well within the 16-17% comfort zone. This view is also supported by the fact that forex reserves have not shown a material increase in this cycle, unlike in the preLehman period, which we believe could lead to peaking of interest rates at a lower level in this cycle as compared to 2007. In the last cycle, huge foreign risk capital was able to sustain 8%+ GDP growth at higher levels of interest rates, but similar GDP growth at those high interest rates looks unlikely in this cycle in the absence of the corresponding forex inflows, i.e. we expect GDP growth of about 7.5-8% in FY2012-13E and accompanying credit growth of about 18-20%, but at lower levels of interest rates than in 2007. In the backdrop of 7.5-8% GDP growth, we estimate earnings
8.6 8.0 6.1 6.0 6.3 5.8 7.3
8.6
8.9
8.9 8.2
growth of 17.4% CAGR in Sensex over FY2011-13E, which is still a reasonably healthy rate of growth and in our view, a target multiple of 15x is justified on FY2013E EPS. At the current juncture, the Sensex is looking reasonably valued, trading at 14.4x its one-year forward earnings. Further, the Sensex earnings yield is 165bp below bond yield, which is close to the long-term average discount. A multiple of 15x FY2013E EPS translates into a Sensex target of 22,326, giving an attractive ~20% upside from current levels. Hence, we remain positive on the Indian markets. Exhibit 3: Sensex EPS estimates
1,600 1,500 1,488
4.0
Sep-09 Sep-10 Dec-08 Mar-09 Dec-09 Mar-10 Dec-10 Jun-09 Jun-10
Source: CSO, Angel Research
Exhibit 2: IIP growth has moderated considerably

18.0 16.0 14.0 12.0 10.0 8.0 6.0 4.0 2.0 0.0 15.5 16.6 15.1 12.2 12.1 7.2 7.3 4.9 3.6 3.9 2.5 3.6 IIP chg yoy (%)
1,400 1,300
EPS (`)
1,262 1,079
1,200 1,100 1,000 900 889
Aug-10
Mar-10
Sep-10
Dec -10
Apr-10
May-10
Jan-11
Nov-10
Feb -11
Jun-10
Jul-10
800 700 FY2010 FY2011E FY2012E FY2013E
Source: CSO, Angel Research
Oct-10
Source: Angel Research
May 2011
Market Strategy
Exhibit 4: One year forward Sensex P/E band
30.0 25.0
(%)
Exhibit 7: Trend in revenue growth (qoq)

14 10 6 2 (2)
20.0
(x)
15.0 10.0 5.0 0.0 Mar-04 Mar-05 Mar-06 Mar-07 Mar-08 Mar-09 Average P/E Mar-10 Mar-11
(6) (10)
3QFY09 4QFY09 1QFY10 2QFY10 3QFY10 4QFY10 1QFY11 2QFY11 3QFY11 4QFY11
Sensex 1-yr fwd P/E
Infosys
TCS
HCL Tech
Wipro
Source: BSE, Angel Research
Source: Company, Angel Research
Exhibit 5: Bond Yield v/s Earnings Yield

12.0 10.0 8.0
(%)
However, the appealing outcome from the quarter was the promising outlook highlighted by most IT companies in terms of 1) revenue guidance of 18-20% yoy for FY2012 by Infosys and of at least 29% yoy growth by Cognizant for CY2011, 2) gross employee hiring guidance of 45,000 and 60,000 for FY2012 by Infosys and TCS even on the back of strong hiring of 43,120 and 69,685 employees, respectively, in FY2011 3) a 3-4% yoy increase in clients' budgets with a higher component of offshore
6.0 4.0 2.0 0.0 Apr-04 Apr-05 Apr-06 Apr-07 Bond Yield Apr-08 Apr-09 Apr-10 Apr-11 Earnings Yield
work 4) positive pricing environment with some of the clients willing to compensate for cost of living index (COLI) and 5) Indian IT industry body, Nasscom, pegging FY2012 industry growth at 16-18% yoy vis--vis 15-16% yoy projected for FY2011 and tierI IT pack outperforming this estimate by a steep gap of 19-29% yoy growth.
Source: Bloomberg, Angel Research
IT sector strategy
Mixed 4QFY2011 results; outlook looks promising
The Indian IT pack reported a mixed performance for 4QFY2011, with Infosys disappointing by recording a 1.4% qoq volume decline, whereas others recording sluggish volume growth of 1.9-3.0% qoq. The quarter was lacklustre in terms of growth because of softness in spending by clients in the helm of finalisation of client budgets. Exhibit 6: Trend in volume growth (qoq)
12 10 8 6
(%)
Global majors corroborating the guidance set by Indian players

Not only Indian tier-I IT companies have provided an upbeat outlook but also global majors such as Accenture have envisaged on a strong year ahead. The company has upgraded its FY2011 (August 2011-end) revenue guidance from the earlier 8-11% yoy growth to 11-14% yoy growth. Also, the recent order book for the company surged by 7% yoy to US$6.98bn, which was the company's highest order booking in the past 10 quarters.
10.5 7.2 5.2 4.0 4.1 7.6 8.1 4.7
11.2 7.4
7.2
6.6 5.7 3.1
6.8 4.9 2.9 1.5 1.9
Also, enterprise solution majors like Oracle recorded new license sales of US$2.2bn, up 28.9% yoy, which was the fastest growth witnessed since November 2007. In addition, SAP software sales peaked at US$1.5bn in OND2010, which was the highest ever in a quarter. License sales typically result in a surge in demand for implementation work with a lag of two to three quarters for Indian IT vendors.
4 2 0 (2) (4) 4QFY10 1QFY11

Infosys TCS
(1.4) 2QFY11
HCL Tech
3QFY11
Wipro
4QFY11
May 2011
Market Strategy
Exhibit 8: Oracle license sales
4000 3500
In FY2011, the top tier-I companies collectively added ~US$5.9bn of incremental revenue, i.e., Infosys (US$1.23bn), TCS (US$1.85bn), Cognizant (US$1.31bn), Wipro (US$830mn) and HCL Tech (US$745mn). Also in 1QCY2011, Indian heritage players won 20% of TCV worth US$17.4bn, i.e., ~US$3.5bn with HCL at the eighth position and TCS at the thirteenth position.
(US $mn)
3000 2500 2000 1500 1000
SON 07
SON 08
SON 09
MAM 08
MAM 09
MAM 10
SON 10
JJA 07
JJA 08
JJA 09
DJF 08
DJF 09
DJF 10
JJA 10
DJF 11
Metamorphosis in demand drivers

The industry is witnessing emergence of various demand drivers, thereby inducing the clients to allocate higher budgets related to IT spending. During recession, the spend was polarised towards running the business, but the nature of the spend has diversified
New software licenses
Software license updates and product support
Exhibit 9: SAP license sales

1,800 120 100 1,400 80
( mn)
now with growth coming back in clients' business and the motive has turned towards changing the business. Key phenomenon
( mn)
1,000
60 40
driving the incremental spend are 1) developed economy companies looking to go global to tap new avenues 2) companies aiming to become cost-efficient by streamlining processes and consolidating infrastructure, leading to a surge in demand for consulting and enterprise solutions 3) new regulatory frameworks demanding these companies to brace themselves for being compliant to sustain and 4) acute need to go-to-market at the earliest to capture market share, which is driving demand for engineering and R&D (ERD) services.
600 20 200
OND 10 OND08 OND09 JFM 11 JAS08 JAS09 JFM08 JFM09 JFM10 JAS10 APJ08 APJ09 APJ10
Software
Support
Subscription and other related service (RHS)
Also, S&P earnings are expected to maintain their growth trajectory at a 12% CAGR over CY2010-12E, indicating that client budgets will remain positive going forward, thus auguring well for Indian IT vendors as ~60% of clients are based in the US for them. Exhibit 10: S&P 500 earnings growth
120 14.9 7.9 19.9 10.3 0.9
(US$)
Growth turning truly broad-based

Demand drivers for such robust growth span across various dimensions industry wise, service wise as well as geography wise. As per NASSCOM's strategic review in February 2011, worldwide IT spend is expected to grow by ~4% in CY2011. Industry trends: The nature of IT spend has changed from FY2010 to FY2011, with respect to industries as well as services that are
36.3 16.1 2.6 16.0
40
100
20 13.5
(%)
80
now driving volume growth. In FY2010, volume growth for IT companies was led by its anchor sector BFS (banking and financial services - ~40% to revenue). This is because post the implementation of various government bailout programmes as well as consolidation of banks, which took place by the way of merger and acquisition, the IT space was presented with a huge opportunity for rationalisation of systems and system integration, among others. BFS continues its strong growth momentum, as more and more spend towards risk management, fraud prevention, regulatory compliance and analytics is gaining momentum along with persistent spend in work related to M&As. This vertical registered a strong CQGR of 5-10% over 4QFY20103QFY2011. However, 4QFY2011 remained soft because of the delay in client spending on account of closure of budgets. The nature of services as well as industries driving growth was skewed primarily to BFS only; but in FY2011, it became broad-based
60
(28.5)
(20)
40 CY2002 CY2004 CY2006

EPS
(40) CY2008
growth (yoy)
CY2010
CY2012
TPI points to resurgence in renewal of large restructuring deals

According to TPI, in CY2010, out of the total IT-BPO contracts awarded worth US$79.4bn, TCV related to restructuring contracts surged by 39% yoy to US$26.3bn, whereas the new scope dropped by 25% yoy to US$53.1bn. Indian IT vendors have developed a strong capability in transformational projects and are building up capability in new scopes such as cloud computing.
May 2011
Market Strategy
with other anchor industries such as manufacturing, retail and CPG and energy and utilities beginning to spend on IT.
(% qoq)
Exhibit 13: Revenue growth trend for manufacturing

15 10
The manufacturing vertical (~15% to revenue) is also back with higher spend on IT, especially in industries such as hi-tech and semiconductor, which are looking at immediate go-to-market strategies and, thus, are spending on product engineering. Further, the manufacturing vertical is spending on IT for supplychain management and consulting to drive cost efficiencies and for achieving a global presence. This vertical recorded the strongest growth of 5-9% qoq in 4QFY2011 for all the companies. Retail and CPG have begun to spend on multi-channel integration to encash on the digital consumer behaviour. The energy and
5 0 (5) (10) (15)

4QFY09 1QFY10 2QFY10 3QFY10 4QFY10 1QFY11 2QFY11 3QFY11 4QFY11
4QFY11
Infosys
TCS
Wipro
HCL Tech
Source: Company, Angel Broking
Exhibit 14: Revenue growth trend for energy & utilities

15 10 5
(% qoq)
utilities vertical is gaining strong traction, especially for businesses relating to oil and gas, smart grid and safety, among others, mostly for cost-cutting measures. The telecom vertical is still a very soft spender and client budgets remain anemic. This vertical was heavily impacted for Infosys and TCS due to one of their top clients, British Telecom, cutting back heavily on capex and downsizing operations. Managements of both the companies maintain that the client-specific issue is behind, and they foresee a slow recovery in the sector. We believe the TSPs of matured markets will start spending to migrate to next-generation networks like 4G to support the heavy voice and burgeoning data traffic. Exhibit 11: Revenue growth trend for BFSI vertical
15 10
(% qoq)
0 (5) (10) (15) (20)

4QFY09 1QFY10 2QFY10 3QFY10 4QFY10 1QFY11 2QFY11 3QFY11
Infosys
TCS
Wipro
HCL Tech
Service-wise Service-wise trends: The changed business needs of various industries have led to a surge in demand for discretionary services like enterprise application services (EAS) and ERD services. Investments in EAS mostly focus on simplifying internal processes and harmonising business processes across the enterprise to make organisations smarter and leaner - primarily focusing on increasing efficiencies and reducing throughput. In addition, demand for ERD services is driven by increasing use of electronics, fuel efficiency norms, convergence of local markets and localised products. Exhibit 15: Trend in revenue for EAS
5 0 (5) (10)
20 15
(% qoq)
Infosys
TCS
Wipro
HCL Tech
10 5 0
2QFY10 3QFY10 4QFY10 1QFY11 2QFY11
Exhibit 12: Revenue growth trend for retail vertical

20 10
(% qoq)
(5)
Infosys
TCS
Wipro
HCL Tech
(10) (20)
Infosys
TCS
Wipro
HCL Tech
May 2011
3QFY11
Market Strategy
Exhibit 16: Trend in revenue for ERD
40 30 20
(%)
Exhibit 17: Trend in utilisation

85 80
(% qoq)
10 0
3QFY10 4QFY10 1QFY11 2QFY11 3QFY11
75 70
(10) (20) (30)
4QFY11
65
1QFY09 2QFY09 3QFY09 4QFY09 1QFY10 2QFY10 3QFY10 4QFY10 1QFY11 2QFY11 3QFY11
4QFY11
Infosys
TCS
Wipro
HCL Tech
Infosys
TCS
HCL Tech
Wipro
Promising outlook points towards sustained revenue growth of 20% plus CAGR for tier-I companies
In summary, the positive demand environment cited by most tier-I IT companies, including 1) positive client budgets for CY2011 across industries (expect telecom, which is expected to be flat) and with a higher component of offshoring, 2) like-tolike pricing increase in some of the deals as well as clients willing to compensate for COLI 3) upbeat gross hiring guidance for FY2012 by industry leaders 4) robust revenue guidance by Infosys and Cognizant, 5) strong outlook by global major like Accenture 6) uptick in new license sales by Oracle 7) resurgence of restructuring deals pointed by TPI and 8) positive trend expected in S&P earnings, envisages a strong demand scenario for IT spending. Thus, over FY2011-13E, we expect tier-I Indian IT companies to record a CAGR of 23-24%, except Wipro - which is slated to underperform at a 17% CAGR due to its internal challenges.
Exhibit 18: Trend in EBIT margin

35 30 25
(%)
30.3
31.1
30.1
30.2 28.3 27.1 20.0 18.2 12.9 28.0
30.2
29.0 28.0 17.8
26.3 19.1 18.0
27.3 19.4
27.5 19.1
28.1 18.3
20 15 10
16.6
16.2
4QFY10
15.3
1QFY11
13.1
2QFY11 3QFY11
14.4
2QFY10
3QFY10
Infosys
TCS
Wipro
HCL Tech
Earnings growth to occupy a large bandwidth

In addition to the headwinds haunting the operating margin of Indian IT companies, tax rates are expected to negatively affect net profit margins by 50-200bp yoy, thus dragging the net profitability. We expect the companies to record a 15-18% CAGR in earnings over FY2011-13E except HCL Tech, which is expected to race ahead with a 32% CAGR in net profitability because of its positive margin levers as well as nil forex losses resulting in a 200bp rebound in net profit margin by FY2013.
Margin headwinds like wage hike and currency to persist but will have limited impact due to various other levers
Indian IT companies have pegged the wage hike for FY2012 at 12-15% offshore and 3-5% onsite, which is expected to knock off 250-300bp of their operating margins. Also, appreciating rupee remains a challenge. Even with these headwinds confronting Indian IT companies, we expect tailwinds like 1) headroom to increase utilisation levels, 2) higher effort shift to offshore 3) rationalisation of SG&A 4) higher fresher hiring and 5) strong demand environment translating into compensating for COLI to offset the margin impact and limit the downside to 100-200bp yoy for tier-I companies except HCL Tech, which is expected to record a 120bp yoy expansion.
Outlook and valuation

At the CMPs, the stocks of Infosys, TCS, Wipro and HCL Tech are trading at 17.7x, 18.7x, 15.4x and 11.6x their FY2013E EPS of `163.6, `61.3, `28.8 and `43.0, respectively. We remain positive on the Indian IT sector as a whole, except Wipro, on the back of an upbeat demand environment, which is expected to translate into strong revenue and profitability growth. We have HCL Tech as our top pick with a target of `603 because of its strong growth momentum as well as operational turnaround translating into strong profitable growth. In addition, we recommend a Buy view on TCS as well as Infosys with a target price of `1,349 and `3,435, respectively. That said, overall we are maintaining underweight on IT, mainly because valuations are still at a premium (Infosys at 42% premium to Sensex and TCS at 50%) and we find more value in other sectors such as Banking, Pharma and Infrastructure.
May 2011
4QFY11
Market Strategy
Angel Model Portfolio

BSE 100 Sector
Auto & Ancillaries JK Tyres BFSI SBI Axis Bank ICICI Bank HDFC Bank Capital Goods & Infrastructure IVRCL Infra L&T LMW Cement FMCG ITC Britannia Industries Hotels Taj GVK IT Infosys HCL Tech TCS Media Jagran Prakashan Metals Tata Sponge Tata Steel Oil & Gas Reliance Industries Pharma Cipla Lupin Power Real Estate Telecom Others Surya Roshni CRISIL Greenply 95 6,550 195 137 7,616 270 305 420 377 560 955 1,189 353 594 469 802 120 150 2,887 498 1,145 3,435 603 1,349 102 140 183 370 205 458 75 1,544 2,278 111 2,034 2,947 2,643 1,254 1,081 2,299 3,199 1,661 1,355 2,582 93 133
Angel Weightage (%)

3.0 3.0 29.0 5.0 8.0 12.0 4.0 11.0 3.0 5.0 3.0 0.0 7.0 4.0 3.0 3.0 3.0 9.0 3.0 3.0 3.0 3.0 3.0 8.0 3.0 5.0 12.0 12.0 6.0 3.0 3.0 0.0 0.0 0.0 9.0 3.0 3.0 3.0
Company
CMP (`)
Target Price (`)
Weightage (%)
6.3 0.0 25.8 3.6 1.6 5.9 4.1 9.5 0.1 4.0 0.0 2.3 8.1 4.7 0.0 0.2 0.0 11.9 6.7 0.7 3.2 0.4 0.0 9.2 0.0 1.9 13.8 8.1 4.3 0.8 0.5 3.9 0.7 2.8 0.5 0.0 0.0 0.0
Stance
Underweight Overweight Overweight Overweight Overweight Overweight Equalweight Overweight Overweight Overweight Overweight Underweight Underweight Underweight Overweight Overweight Overweight Underweight Underweight Overweight Equalweight Overweight Overweight Underweight Overweight Overweight Underweight Overweight Overweight Overweight Overweight Underweight Underweight Underweight Overweight Overweight Overweight Overweight
May 2011
Market Strategy
Top Picks
May 2011
Market Strategy
Axis Bank
Strong CAR and branch expansion to support faster market share gains: We believe the bank's strong capital adequacy positions it for credit market share gains, with at least 500bp higher growth than industry over FY2010-12E. The bank has expanded its network at a 33.6% CAGR over FY2003-11, driving a four-fold increase in CASA market share to 4.0% by FY2010 (20bp yoy increase in FY2010). Going forward, we believe such CASA market share gains (30-50bp every year) will also continue, especially as network expansion (250+ additions, about 20-25% yoy) remains strong. Strong branch expansion leading to CASA market share gains
(Nos) 1,200 900 600 300 0 1.5 (%) 4.5
Price - `1,254 Target Price - `1,661

NPA NPA concerns receding: With an improving economic outlook and reducing corporate leverage, NPA concerns for the bank have been receding. Slippage rate for FY2011 has come down to 1.4% compared to 2.2% witnessed in FY2010. Slippage rate for 4QFY2011 was contained within 1.0%. Loan loss provisions to average assets dipped to 0.5% during FY2011 from 0.5% in FY2010; we expect further improvement to 0.3% during FY2012 and FY2013. Lower provisions to drive profitability
(%)
25.0 20.0 15.0 10.0 5.0 0.6 0.3
(%)
0.9
3.0
FY2012E
ROE
Provisions/Assets (RHS)
FY2003
FY2004
FY2005
FY2006
FY2007
FY2008
FY2009
FY2010
Branches (LHS)
CASA Mkt Share (RHS)
Valuations attractive: Keeping in mind the rising interest rate environment, Axis Banks high CASA ratios and CASA market share gains are expected to underpin relatively stronger earnings growth momentum. At the CMP the stock is trading at attractive , valuations of 2.0x FY2013E ABV - almost 36% discount to HDFC Bank, despite similar earnings quality, profitability and growth expectations over FY2011-13E. We value the stock at 2.7x FY2013E ABV (~20% discount to our target multiple for HDFC ABV Bank) to arrive at a target price of ` 1,661 with a Buy recommendation. P/ABV band
3,000 2,500 2,000 1,500 1,000 500 0
Fee income continues to drive higher profitability: Fee income contribution across a spectrum of services has been a meaningful 1.9% of assets (almost twice the level in PSBs) over FY2009-11. With corporate loan growth picking up and capital markets reviving, fee income growth is also expected to continue the momentum witnessed in FY2011 (we have built in a 30.6% CAGR over FY2011-13), taking the contribution to 2.0% of assets each for FY2012 and FY2013. Core non-interest growth at a 45% CAGR during FY2007-11
(` cr)
8,000 6,000 4,000 1.0 2,000 0 0.5 -
(%)
2.5 2.0 1.5
FY2013E
FY2006
FY2007
FY2008
FY2009
FY2010
FY2011
Jun-11
May-05
Mar-09
Nov-06
May-08
Aug-07
FY2005
FY2006
FY2007
FY2008
FY2009
FY2010
FY2011
FY2012E
FY2013E
Core Non-Interest Income (LHS)
As % of Assets (RHS)
Price (`) 2.4x
0.6x 3.3x
1.5x 4.2x
May 2011
Please refer to important disclosures at the end of this report. 10
Mar-12
Apr-02
Oct-03
Jan-03
Jul-04
Dec-09
Feb-06
Sep-10
Market Strategy
Income Statement
Y/E March (` cr) Net Interest Income - YoY Growth (%) Other Income - YoY Growth (%) Operating Income - YoY Growth (%) Operating Expenses - YoY Growth (%) Provision Profit Pre - Provision Profit - YoY Growth (%) FY2010 5,004 35.8 3,771 33.1 8,776 34.6 3,710 29.8 5,066 38.3 FY2011 6,563 31.1 4,632 22.8 11,195 27.6 4,779 28.8 6,416 26.6 1,280 5.4 5,136 33.3 1,747 34.0 3,388 34.8 FY2012E 7,748 18.1 5,807 25.4 13,555 21.1 6,046 26.5 7,509 17.0 1,169 (8.7) 6,340 23.4 2,138 33.7 4,202 24.0 FY2013E 9,594 23.8 7,300 25.7 16,894 24.6 7,636 26.3 9,258 23.3 1,396 19.4 7,862 24.0 2,551 32.4 5,311 26.4
Balance Sheet
Y/E March (` cr) Share Capital Reserve & Surplus Deposits - Growth (%) Borrowings Tier 2 Capital Other Liab. & Prov. Total Liabilities Cash balance FY2010 405 15,639 FY2011 411 18,588 FY2012E 424 22,090 234,655 24.0 20,397 12,012 10,424 300,003 15,253 9,298 91,839 175,162 23.0 2,725 5,725 300,003 23.6 FY2013E 424 26,168 290,972 24.0 25,292 14,895 14,251 372,003 18,913 11,530 113,982 217,200 24.0 3,278 7,100 372,003 24.0
141,300 189,238 20.4 10,014 7,156 6,133 33.9 16,502 9,766 8,209
180,648 242,713 9,474 13,886 7,522 71,992
Provision and Contingencies 1,215 - YoY Growth (%) Tax Profit Before Tax - YoY Growth (%) Taxation Provision for Taxation - as a % of PBT PAT - YoY Growth (%) 38.6 3,851 38.3 1,337 34.7 2,515 38.5
Bal.with banks & money at call 5,733 Investments Advances - Growth (%) Fixed Assets Other Assets Total Assets - Growth (%) 55,975
104,343 142,408 27.9 1,222 3,901 36.5 2,273 4,632
180,648 242,713 22.3 34.4
Key Ratios
Y/E March Profitability ratios (%) NIMs Cost to Income ratio ROA ROE B/S ratios (%) CASA ratio Credit/Deposit ratio CAR - Tier I Asset Quality (%) Gross NPAs Net NPAs Slippages Loan loss prov. /avg. assets Provision coverage (` Per Share Data (`) EPS ABVPS (75% cover for NPAs) DPS 62.1 393.8 12.0 82.5 462.5 14.0 99.0 530.6 20.0 125.2 626.7 25.0 1.3 0.4 2.2 0.8 68.2 1.1 0.3 1.4 0.5 74.3 0.9 0.2 1.0 0.3 78.0 0.8 0.2 1.0 0.3 77.4 46.7 73.8 14.7 10.4 41.1 75.3 13.3 8.9 40.6 74.6 13.0 8.5 40.2 74.6 12.6 8.1 3.1 42.3 1.5 19.2 3.2 42.7 1.6 19.3 2.9 44.6 1.5 20.2 2.9 45.2 1.6 21.6 FY2010 FY2011 FY2012E FY2013E
Key Ratios
Y/E March Valuation Ratios PER (x) P/ABVPS (x) Dividend Yield DuPont DuPont Analysis NII (-) Prov. Exp. Adj NII Treasury Int. Sens. Inc. Other Inc. Op. Inc. Opex PBT Taxes ROA ROA Leverage ROE 3.0 0.7 2.3 0.4 2.7 1.9 4.6 2.3 2.3 0.8 1.5 12.5 19.2 3.1 0.6 2.5 0.2 2.7 2.0 4.7 2.3 2.4 0.8 1.6 12.1 19.3 2.9 0.4 2.4 0.1 2.5 2.0 4.6 2.2 2.3 0.8 1.5 13.1 20.2 2.9 0.4 2.4 0.1 2.5 2.1 4.6 2.3 2.3 0.8 1.6 13.7 21.6 20.2 3.2 1.0 15.2 2.7 1.1 12.7 2.4 1.6 10.0 2.0 2.0 FY2010 FY2011 FY2012E FY2013E
May 2011
Market Strategy
Cipla
Export segment to be the growth driver: Exports contributed around 52% of the total turnover of FY2011, with Africa, US and Latin America constituting more than 60% of total exports. Cipla has launched Salbutamol inhalers in the UK and has received approvals for Budesonide inhalers in Germany and Portugal and Beclomethasone in Portugal. Cipla has developed eight CFC-free inhalers for the EU region, of which six have been submitted for regulatory approvals. Launch of CFC-free inhalers in Europe and US with a potential market size of more than US$3bn would be the long-term growth driver for the company. Management has also indicated that it is negotiating with MNCs for long-term supply agreements. Exports sales trend
5,250 4,500 3,750
(` cr)
Price - `305 Target Price - `377

Improvement in return ratios: Since FY2006, Cipla has incurred capex of `2,500cr (71% of GFA) for upgrading its existing manufacturing facilities at Kurkumbh, Patalganga, Bengaluru, Goa and Baddi, as well as setting up new facilities in Sikkim and Indore. While Cipla has already commenced the Sikkim plant, the Indore SEZ (incurred capex of `900cr) has also commenced operations and management expects it to contribute around 10% to the total revenue in FY2012. With significant capex been incurred and with most of the facilities commercialised, management expects Ciplas return ratio to improve as productivity level increases. Improvement in return ratios
24.8 24
CAG
R 21
.6%
(%)
22 20 18 16
20.1
19.2 17.2 15.4 16.1
18.5
3,000 2,250 1,500 750
.5 R 22 CAG
17.0 15.6 13.4 15.3
14 12 10 12.9
ROCE
ROE
Outlook and valuation: For FY2012, Cipla has guided for 1012% overall revenue growth. The company expects to maintain OPM of 18-20% (excluding the tech fees) in FY2012. We expect net sales to post a 16.6% CAGR to `8,322cr and EPS to record a 25.2% CAGR to `18.9 over FY201113E. The stock is currently trading at 20.0x FY2012E and 16.2x FY2013E earnings respectively. We recommend Buy on the stock with a target price of `377, valuing the company at 20x FY2013E earnings. PE chart
500
Increasing penetration in the domestic market: Cipla is one of the largest players in the domestic formulation market, with a market share of around 5%, contributing 46% of the total turnover in FY2011. The company is the market leader in key therapeutic areas such as respiratory care, anti-viral and urological. Cipla plans to focus on growing its market share and sales by increasing its penetration in the Indian market, especially in rural areas and plans to expand its product portfolio. Domestic sales trend
R1 CAG
3,750
3.0%
400 300
3,000
(` cr)
2,250 1,500 750 0 FY2005 FY2006
R1 CAG
4.5%
(`)
200 100 -
FY2007
FY2008
FY2009
FY2010
FY2011 FY2012E FY2013E
May 2011
Apr-05 Jul-05 Oct-05 Jan-06 Apr-06 Jul-06 Oct-06 Jan-07 Apr-07 Jul-07 Oct-07 Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11
Price 10x 15x 20x 25x
Market Strategy
Profit & Loss Statement
Y/E March (` cr) Net Sales % chg Total Expenditure EBIDTA EBIDTA (% of Net Sales) Other Income (incl of OOI) Depreciation& Amortisation Interest PBT (reported) (% of Net Sales) Extraordinary Expense/(Inc.) Tax (% of PBT) PAT (reported) % chg FY2010 5,358 8.0 4,292 1,066 19.9 354 167 23 1,325 24.7 243.5 18.4 1,081 40.2 FY2011 FY2012E FY2013E 6,124 14.3 4,981 1,143 18.7 274 254 5 1,158 18.9 (95.0) 191.0 16.5 967 (10.5) 7,138 16.6 5,708 1,431 20.0 326 254 11 1,493 20.9 268.7 18.0 1,224 26.6 8,322 16.6 6,554 1,768 21.2 376 287 9 1,848 22.2 332.6 18.0 1,514 23.8
Balance Sheet
Y/E March (` cr) SOURCES OF FUNDS Equity Share Capital Reserves& Surplus Funds Shareholders Funds Minority Interest Total Loans Deferred Tax Liability Total Liabilities APPLICATION APPLICATION OF FUNDS Gross Block Less: Acc. Depreciation Net Block Capital Work-in-Progress Investments Current Assets Current liabilities Net Current Assets Total Assets 2,897 886 2,011 684 246 4,367 1,214 3,153 6,095 3,595 1,099 2,496 584 246 5,349 1,451 3,898 7,225 4,245 1,353 2,892 434 246 6,270 1,652 4,618 8,191 4,795 1,640 3,155 284 246 7,533 1,945 5,587 9,274 161 5,750 5,911 5.1 179.2 6,095 161 6,493 6,653 354.7 217.6 7,225 161 7,430 7,591 354.7 245.2 8,191 161 8,590 8,751 254.7 267.8 9,274 FY2010 FY2011 FY2012E FY2013E
Cash Flow Statement

Y/E March (` cr) Profit before tax Depreciation FY2010 1,326 190 FY2011 FY2012E FY2013E 1,158 254 (523) 185 704 (598) (598) 311 (194) 117 223 62 285 1,493 254 (937) 283 526 (500) (500) (245) (245) (218) 285 67 1,848 287 (902) 361 871 (400) (400) (100) (303) (403) 68 67 135
Key Ratios
Y/E March (` Per share data (`) Diluted EPS DPS Book Value Operating Ratio (%) Raw Material / Sales (%) Inventory (days) Debtors (days) Debt / Equity (x) Returns (%) ROE ROCE Valuation Ratio (x) P/E P/E (Cash EPS) P/BV EV / Sales EV / EBITDA 22.7 19.6 4.1 4.6 22.9 25.3 20.1 3.7 4.0 21.5 20.0 16.6 3.2 3.5 17.3 16.2 13.6 2.8 3.0 13.9 19.2 15.6 15.4 13.4 17.2 15.3 18.5 17.0 45.8 94 111 (0.01) 47.6 97 102 0.0 45.4 100 108 0.0 45.3 102 110 0.0 13.5 2.0 73.6 12.0 2.4 82.9 15.2 3.0 94.5 18.9 3.8 109.0 FY2010 FY2011 FY2012E FY2013E
Change in Working Capital (174) Direct taxes paid 256
Cash Flow from Operations 1,086 Inc./ (Dec.) in Fixed Assets Cash Flow from Investing Inc./ (Dec.) in Investments Issue of Equity Inc./(Dec.) in loans Dividend Paid (Incl. Tax) Others Cash Flow from Financing Financing Inc./(Dec.) in Cash Opening Cash balances Closing Cash balances (526) (692) (166) 669 (935) (155) 36 (386) 9 53 62
May 2011
Market Strategy
ICICI Bank
Improved deposit mix to reflect in better NIMs: The bank is executing a credible strategy of consolidation that will drive a materially improved balance sheet and earnings quality over the next two years. The distinguishing feature of the bank's performance in FY2010 was the improvement in the CASA ratio to 42% (transformative considering that the ratio was as low as 22% in FY2007 and 29% even as recently as FY2009). The ratio further improved to 45.1% in 4QFY2011. In light of this change in the liability mix, we expect the bank's NIMs to improve to ~2.7% over FY2012 and FY2013. Strong CASA to support NIMs
50.0 40.0 30.0 20.0 10.0 0.0 FY2008 FY2009 FY2010 FY2011 FY2012E FY2013E % NIM (RHS) 2.8 2.7 2.6 2.5 2.4 2.3 2.2

assetWorst of asset-quality issues over: The bank's asset quality showed further improvement in 4QFY2011, with gross NPAs declining by 1.5% qoq and net NPAs declining from the peak of `4,608cr in 1QFY2010 to `2,407cr in 4QFY2011. NPA provisions to average assets declined to 0.6% in F Y2011 from 1.2% in FY2010. We expect NPA provisions to average assets to dip to 0.4% by FY2012 and 0.3% by FY2013 , driving an improvement in RoA to 1.5%. Lower provisions to drive traction in profitability
40.0 30.0 1.5 20.0 10.0 0.5 (10.0) (20.0) FY2009 FY2010 FY2011 FY2012E FY2013E 1.0 2.0
% Advances growth (LHS) % ROA (RHS)
% Earnings growth (LHS) % Provisions/Assets (RHS)
% CASA (LHS)
Valuations attractive: Keeping in mind the rising interest rate environment, ICICI Banks high CASA ratios and CASA market share gains are expected to underpin relatively stronger earnings growth momentum. We expect the bank to deliver strong earnings CAGR of 24.0% over FY2011-13 and an ROE of 15.6% by FY2013. At the CMP without adjusting value of subsidiaries, the , stock is trading at 2.0x FY2012E ABV (also 2.0x post-adjustment). We have valued subsidiaries at `201/share and the core bank at `1,154 (2.65x FY2013E ABV). We maintain our Buy recommendation on the stock with a target price of `1,355. Moreover, the bank's quarterly earnings progression is expected to be strong, which may drive further rerating of the stock. SOTP valuation
(`) Core Bank Home Finance and International subsidiaries Life Insurance Others SOTP Value SOTP Value Source: Angel Research Value per share 1,154 46 100 55 1,355
Well positioned to garner strong market share gains in CASA deposits: In our view, the bank's substantial branch expansion from 959 branches as of 3QFY2008 to 2,529 branches (including entire branch network of BoR) as well as strong capital adequacy at 19.5% (tier-I at 13.2%) have positioned it to gain market share in credit and CASA. In fact, the bank has once again started gaining market share in savings accounts; in FY2010, the bank improved its market share of savings deposits by 10bp over FY2009 levels, capturing a substantial 5.4% incremental market share. Well positioned in terms of CAR and branch expansion
May 2011
Market Strategy
Y/E March (` cr) Net Interest Income - YoY Growth (%) Other Income - YoY Growth (%) Operating Income - YoY Growth (%) Operating Expenses - YoY Growth (%) Provision Profit Pre - Provision Profit - YoY Growth (%) rov. Prov. and Contingencies - YoY Growth (%) Tax Profit Before Tax - YoY Growth (%) Taxation Provision for Taxation - as a % of PBT PAT - YoY Growth (%) FY2010 8,114 (10.8) 7,478 (3.9) 15,592 (7.6) 5,860 (16.8) 9,732 (1.0) 4,390 (13.0) 5,342 11.7 1,317 24.7 4,025 17.6 FY2011 9,017 11.1 6,648 (11.1) 15,665 0.5 6,617 12.9 9,048 (7.0) 2,287 (47.9) 6,761 26.6 1,609 23.8 5,151 28.0 FY2012E 10,764 19.4 8,296 24.8 19,060 21.7 8,396 26.9 10,664 17.9 1,676 (26.7) 8,988 32.9 2,409 26.8 6,579 27.7 FY2013E 13,101 21.7 10,213 23.1 23,314 22.3 10,331 23.0 12,983 21.7 1,858 10.8 11,125 23.8 3,204 28.8 7,921 20.4
Balance Sheet
Y/E March (` cr) Share Capital - Equity - Preference Reserve & Surplus Deposits - Growth (%) Borrowings Tier 2 Capital Other Liab. & Prov. Total Liabilities Cash balances FY2010 1,465 1,115 350 50,503 FY2011 FY2012E FY2013E 1,502 1,152 350 53,588 1,502 1,152 350 57,325 272,979 21.0 94,021 33,626 19,243 478,695 20,473 15,611 158,163 259,639 20.0 5,450 19,358 478,695 18.4 1,502 1,152 350 61,828 335,764 23.0 119,350 34,299 23,488 576,230 21,825 18,880 186,366 319,356 23.0 6,393 23,411 576,230 20.9
202,017 225,602 (7.5) 60,947 32,967 15,501 11.7 76,237 32,967 16,337
363,400 406,234 27,514 20,907 13,183
Bal. with banks & money at call 11,359 Investments Advances - Growth (%) Fixed Assets Other Assets Total Assets - Growth (%)
120,893 134,686 181,206 216,366 (17.0) 3,213 19,215 19.4 4,744 16,347
363,400 406,234 (4.4) 12.2
Key Ratios
Y/E March Profitability ratios (%) NIMs Cost to Income ratio ROA ROE B/S ratios (%) CASA ratio Credit/Deposit ratio CAR - Tier I Asset Quality (%) Gross NPAs Net NPAs Slippages Loan loss prov. /avg. assets Provision coverage (` Per Share Data (`) EPS 36.1 44.7 475.2 14.0 57.1 507.7 19.0 68.8 546.8 23.0 5.1 2.1 1.5 1.2 59.5 4.5 1.1 1.0 0.6 76.0 4.5 1.1 1.2 0.4 76.0 4.4 1.1 1.2 0.3 75.0 41.7 89.7 17.9 12.9 45.1 95.9 18.6 12.5 46.0 95.1 16.8 11.5 45.6 95.1 15.0 10.4 2.4 37.6 1.0 9.7 2.6 42.2 1.3 11.9 2.6 44.0 1.4 14.1 2.7 44.3 1.5 15.6 FY2010 FY2011 FY2012E FY2013E
Key Ratios
Y/E March Valuation Ratios PER (x) P/ABVPS (x) Dividend Yield DuPont DuPont Analysis NII (-) Prov. Exp. Adj NII Treasury Int. Sens. Inc. Other Inc. Op. Inc. Opex PBT Taxes ROA ROA Leverage ROE 2.3 1.2 1.0 0.2 1.2 1.8 3.0 1.6 1.4 0.4 1.0 9.5 9.7 2.4 0.6 1.8 (0.0) 1.8 1.7 3.5 1.8 1.7 0.4 1.3 9.2 11.9 2.5 0.4 2.1 0.0 2.1 1.8 4.0 2.0 2.0 0.6 1.4 9.8 14.1 2.5 0.4 2.2 0.0 2.2 1.9 4.1 2.0 2.1 0.6 1.5 10.7 15.6 30.0 2.4 1.1 24.2 2.3 1.3 18.9 2.1 1.8 15.7 2.0 2.1 FY2010 FY2011 FY2012E FY2013E
ABVPS (75% Coverage for NPAs) 449.8 DPS 12.0
May 2011
Market Strategy
Larsen and Toubro

Proxy to India's infra story: We believe L&T is in an enviable position, given the apparent shortage of good-quality constructors in India. It is in a position to choose its contracts and negotiate for price variation clauses. L&T's strong balance sheet, a sound execution engine, wide array of capabilities, integrated operations tailored to suit India's infrastructure growth story and multiple, recurring value unlocking triggers over the medium term lead us to place faith in this default infrastructure growth story of India. L&T has an order book of >`1.1trillon, lending revenue visibility. With signs of pick-up in execution, management has guided for an improving scenario, and we also believe that most of the pieces are falling into place for the company. Robust order book (`1,14,882cr)

ell-capitalised Well-capitalised balance sheet: L&T has a well-capitalised balance sheet, at a debt-equity ratio of 0.4x as of 9MFY2011, in spite of having a strong portfolio of assets and having invested in future growth areas. We believe the key factors for the same are 1) high margins and 2) better working capital management. Outlook and valuation - Negatives priced in : After a 30% fall from its peak, L&T stock is trading at attractive levels. While the absolute PE might look rich, it is well deserved in our opinion, with L&T being the largest and most diversified play in our India construction universe. At the CMP of `1,544, the stock is trading at 18.6x FY2013E earnings and 3.2x FY2013E P/BV, on a standalone basis. We have used the SOTP methodology to value the company to capture all its business initiatives and investments/stakes in the different businesses. Ascribing separate values to its parent business on a P/E basis and investments in subsidiaries on P/E, P/BV and Mcap basis, our fair value works out to `2,034, which provides 31.7% upside from current levels. Hence, we recommend Buy on the stock.
Derivation of SOTP-based target price for L&T (FY2013E) Business Segment L&T- Parent L&T- Parent Infrastructure Subsidiaries IDPL (stake - 97.5%) Key Subsidiaries - Services L&T Infotech L&T Finance L&T Infrastructure Finance Key Subsidiaries - Manufacturing Tractor Engineers Associate Companies L&T MHI Boilers and Turbines (stake - 51%) Other Subsidiaries Satyam Stake Other Investments Total
Methodology P/E P/BV
Remarks 19x FY2013E Earnings
` cr 96,775 5,728
`/share 1,577 93 93 216 78 73 66 111 3 36 72 37 2 35 2,034
% to TP 77.5 4.6 4.6 10.6 3.8 3.6 3.2 5.4 0.2 1.8 3.5 1.8 0.1 1.7 100
L&T acq. 2.36% stake of IDFC at `118cr in 1QFY11 5,728 13,265 4,757 4,477 4,032 6,802 210 2,200 4,392 2,290 123 2,167 124,860
P/E P/BV P/BV P/E P/E P/E Mcap P/BV
12x FY2013E Earnings 2.0x FY2013E Book value 2.0x FY2013E Book value 13x FY2013E Earnings 13x FY2013E Earnings 15x FY2013E Earnings 20% holding company discount 1x FY2013E Book Value, Mcap
May 2011
Market Strategy
Profit & Loss Statement (Standalone)
Y/E March (` cr) Net Sales % chg Total Expenditure EBIDTA EBIDTA (% of Net Sales) Other Income FY2010 FY2011E FY2012E FY2013E 37,035 9.2 32,295 4,739 12.8 768 44,973 21.4 39,560 5,413 12.0 1,321 506.2 825 5,402 12.0 1,783 33.0 3,619 (17.3) 8.0 3,441 19.0 7.7 54,785 21.8 48,285 6,499 11.9 1,699 624.9 1,040 6,534 11.9 2,120 32.4 4,414 22.0 8.1 4,192 21.8 7.7 67,811 23.8 59,778 8,033 11.8 1,829 778.4 1,132 7,951 11.7 2,580 32.4 5,371 21.7 7.9 5,093 21.5 7.5
Balance Sheet (Standalone)

Y/E March (` cr) SOURCES OF FUNDS Equity Share Capital Reserves& Surplus Funds Shareholders Funds Total Loans Deffered Tax Liability Total Liabilities APPLICATION APPLICATION OF FUNDS Gross Block Less: Acc. Depreciation Net Block Capital Work-in-Progress Investments Current Assets Current liabilities Net Current Assets Mis. Exp. not written off Total Assets 7,236 1,728 5,508 858 13,705 26,362 21,243 5,119 25,190 8,914 2,234 6,680 1,029 14,705 35,185 25,212 9,973 32,388 11,049 2,859 8,190 1,235 15,705 42,338 30,658 11,680 36,810 13,840 3,637 10,202 1,482 17,205 53,373 38,795 14,578 43,468 121 18,191 18,312 6,801 77 25,190 123 21,880 22,003 10,308 77 32,388 123 25,367 25,490 11,243 77 36,810 123 29,765 29,887 13,503 77 43,468 FY2010 FY2011E FY2012E FY2013E
Depreciation & Amortisation 379.7 Interest PBT (% of Net Sales) 505 4,623 12.5
Extraordinary Expense/(Inc.) (1,394) Tax (% of PBT) PA Reported PAT % chg (% of Net Sales) ADJ. PA ADJ. PAT % chg (% of Net Sales) 1,641 35.5 4,376 25.7 11.8 2,893 11.5 7.8
Cash Flow Statement (Standalone)

Y/E March (` cr) Profit before tax Depreciation FY2010 FY2011E FY2012E FY2013E 5,881 387 5,402 506 4,481 1,321 1,783 (1,676) (1,850) (1,000) 1,321 (1,530) 953 3,507 881 3,579 373 1,432 1,805 6,534 625 1,123 1,699 2,120 2,216 (2,340) (1,000) 1,699 (1,641) 935 925 (2) 8 584 1,805 2,389 7,951 778 4,207 1,829 2,580 114 (3,038) (1,500) 1,829 (2,709) 2,260 971 (2) 1,287 (1,308) 2,389 1,080
Key Ratios
Y/E March (` Per share data (`) Adj. EPS (fully diluted) Adj. Cash FDEPS DPS Book Value Operating Ratio Raw Material / Sales (%) Inventory (days) Debtors (days) Debt / Equity (x) Returns % RoAE RoACE Dividend yield Valuation Ratio (x) P/E P/E (Cash EPS) P/BV EV / Sales EV / EBITDA 32.8 29.0 5.2 2.7 26.2 27.5 24.0 4.3 2.3 21.1 22.6 19.7 3.7 1.9 19.1 18.6 16.1 3.2 1.6 15.9 18.8 19.7 0.7 17.1 17.0 0.8 17.7 17.0 0.8 18.4 18.1 0.8 47.2 35.6 104.6 0.3 48.9 12.8 100.3 0.4 49.6 13.4 100.1 0.3 49.5 14.8 104.4 0.4 47.1 53.3 10.2 298.4 56.1 64.3 12.3 358.5 68.3 78.5 12.3 415.3 83.0 95.7 12.9 487.0 FY2010 FY2011E FY2012E FY2013E
Change in Working Capital (1,143) Less: Other income Direct taxes paid Cash Flow from Operations (Inc.)/ Dec. in Fixed Assets 768 1,519 5,124 (1,481)
(Inc.)/ Dec. in Investments (5,442) Other income 768
Cash Flow from Investing (6,154) Issue of Equity Inc./(Dec.) in loans Dividend Paid (Incl. Tax) Others 2,133 168 863 249
Financing Cash Flow from Financing 1,687 Inc./(Dec.) in Cash Opening Cash balances Closing Cash balances 657 775 1,432
May 2011
Market Strategy
Lupin
US market The key growth driver: Lupin greatly benefits from the high-margin branded generic business, which differentiates it in the Indian pharma space. The company has further cemented its position in the segment by acquiring rights for Antara, which has led to higher sales and OPM. Lupin has an approximate sales force of 160 personnel in the US. On the generic front, Lupin is currently the fifth largest generic player in the US in terms of prescriptions, with 22 out of its 25 products ranking in the top three by market share. Lupin plans to launch six products in the US in FY2011 and another 80 products over the next three years. The company has 34 Para IV, of which 11 are FTFs ( the company is the exclusive holder in three of them Glumetza, Fortamet and Cipro DS), addressing a combined market size of US$8bn. Opportunity in the OC segment: In the oral contraceptive (OC) segment, Lupin has filed 22 ANDAs and expects to get approvals from 2HFY2012. As per the management, the OC segment is expected to contribute US$100mn to the companys top line over the next 23 years. irst-mover First-mover advantage in Japan: With Kyowas acquisition in FY2008, Lupin figures among the few Indian companies with a formidable presence in the worlds second largest pharma market. The Japanese government has introduced a new policy and regulatory reforms to increase the contribution of generic drugs from a relatively low 17% in CY2007 to 30% of prescriptions by CY2012. This is estimated to open a US$10bn opportunity for global generic players such as Lupin. Domestic formulation segment continues to be strong: Lupin continues to be a strong player on the domestic formulation front. It is one of the fastest growing companies amongst the top five companies in the domestic formulation space. The company has registered a strong CAGR of 20% in the last three years, with six of its products among the top 300 brands in the country. Lupin introduced 42 new products in the Indian market in FY2010 and has a strong field force of 3,800MRs. With respect to new growth avenues, Lupin has entered into the bio-similar space with five products approved so far. Going ahead, management plans to increase its focus on the same. Domestic formulations trend
21% 18% 15% 12% 9% 6% 3% 0%
FY05 FY06 FY07 FY08 FY09
16.1% 13.2% 10.6% 14.5%
17.2%
18.0%
18.9%
18.3%
18.3%
2,000 1,600 1,200 800 400 0
FY10
FY11E
FY12E
Domestic Formulations
OPM (%)
Outlook and valuation: We expect Lupins net sales to grow at a 24.1% CAGR to `8,699cr and earnings to grow at a 27.1% CAGR to `30.1/share over FY201113E. The stock is currently trading at 19.1x and 13.9x its FY2012E and FY2013E earnings, respectively. Maintaining our positive outlook on the company, based on the above-mentioned growth triggers, we recommend a Buy rating on the stock with a target price of `560. One-year forward P/E band
500 400 300 200 100 -
Apr-07
Oct-07
Jan-08
Apr-08
Oct-08
Jan-09
Apr-09
Oct-09
Jan-10
Apr-10
FY13E
Oct-10
Jan-11
5x
10x
15x
20x
May 2011
Apr-11
Jul-07
Jul-08
Jul-09
Jul-10
Market Strategy
Y/E March (` cr) Net Sales % chg Total Expenditure EBIDTA EBIDTA (% of Net Sales) FY2010 FY2011E FY2012E 4,741 25.6 3887 854 18.0 5,645 19.1 4578 1,067 18.9 123.7 141 46 1,004 17.8 176 17.5 829 21.5 6,696 18.6 5471 1,225 18.3 165.2 164 52 1,175 17.5 199 16.9 976 17.8 FY2013E 8,699 29.9 7107 1,592 18.3 207.9 188 63 1,549 17.8 210 13.5 1,339 37.2
Balance Sheet
Y/E March (` cr) SOURCES OF FUNDS Equity Share Capital Reserves& Surplus Funds Shareholders Funds Minority Interest Total Loans Deferred Tax Liability Total Liabilities APPLICATION OF FUNDS APPLICATION Gross Block Less: Acc. Depreciation Net Block Capital Work-in-Progress Investments Current Assets Current liabilities Net Current Assets Total Assets 2,456 736 1,720 224 22 2,814 1,619 1,195 3,478 2,956 876 2,079 224 22 3,460 1,912 1,548 4,190 3,455 1,041 2,415 224 22 4,162 1,946 2,216 5,194 3,955 1,229 2,727 224 22 5,753 2,536 3,217 6,506 89 2,198 2,287 14 1,003 174 3,478 89 2,832 2,921 14 1,040 214 4,190 89 3,580 3,669 14 1,257 254 5,194 89 4,606 4,695 14 1,542 255 6,506 FY2010 FY2011E FY2012E FY2013E
Other Income (incl of OOI) 144.5 Depreciation& Amortisation Interest PBT (reported) (% of Net Sales) Extraordinary Expense/(Inc.) Tax (% of PBT) PAT (reported) % chg 124 38 836 17.6 136 16.3 682 35.9
Cash Flow Statement

Y/E March (` cr) Profit before tax Depreciation Change in Working Capital Direct taxes paid Cash Flow from Operations Inc./ (Dec.) in Fixed Assets Cash Flow from Investing Inc./ (Dec.) in Investments Issue of Equity Inc./(Dec.) in loans Dividend Paid (Incl. Tax) Others Financing Cash Flow from Financing Inc./(Dec.) in Cash Opening Cash balances Closing Cash balances FY2010 FY2011E FY2012E 836 124 (145) (96) 718 (450) (450) 116 (164) (187) (234) 35 78 113 1,004 141 (238) (136) 771 (500) (500) 37 (194) (156) 114 113 227 1,175 164 (560) (159) 620 (500) (500) 216 (228) (12) 108 227 335 FY2013E 1,549 188 (524) (209) 1,004 (500) (500) 286 (313) (28) 477 335 812
Key Ratios
Y/E March (` Per Share Data (`) Diluted EPS DPS Book Value Operating Ratio (%) Raw Material / Sales (%) Inventory (days) Debtors (days) Debt / Equity (x) Returns (%) ROE ROCE Valuation Ratio (x) P/E P/E (Cash EPS) P/BV EV / Sales EV / EBITDA 27.4 23.2 8.2 4.1 22.9 22.5 19.3 6.4 3.4 18.2 19.1 16.4 5.1 2.9 16.0 13.9 12.2 4.0 2.2 12.2 36.7 23.3 31.8 24.2 29.6 22.6 32.0 24.0 41.5 79 85 0.4 41.6 81 85 0.3 42.7 82 86 0.3 42.7 79 82 0.2 15.3 3.1 51.4 18.6 3.7 65.7 21.9 4.4 82.5 30.1 6.0 105.6 FY2010 FY2011E FY2012E FY2013E
May 2011
Market Strategy
Reliance Industries
Core business margins to stabilise: RIL reported robust refining margins of US$9.2/bbl in 4QFY2011, albeit marginally below expectation. However, with the start of its FCCU, we expect the company to report higher refining margins in the coming quarters. Similarly, in the petchem side, we do not expect margins to fall below the current level consequent to higher demand from the emerging economies and recovery in the OECD economies. RIL vs. benchmark Singapore GRMs
18.0 16.0 14.0 12.0 10.0 8.0 6.0 4.0 2.0 -
Price - `955 Target Price - `1,189

rates (as it has low debt-equity ratio) or declines in GDP forecasts. Hence, we maintain Buy on RIL with an SOTP-based target price of `1,189, translating into an upside of 25% from current levels. Valuations based on SOTP
Business segment Refining (EV/EBITDA 7x) Petrochemical (EV/EBITDA 7x) KG-D6 Gas (DCF) KG-MA Oil (DCF) NEC-25 (EV/boe 5.5x) D3 (EV/boe 5.5x) D9 (EV/boe 5.5x) Shale Gas ventures (EV/boe 3.5x) Other prospective basins `/share 391 219 182 45 66 73 43 70 41 30 44 1,204 (15) 1,189
(US $/bbl)
1QFY09
2QFY09
3QFY09
4QFY09
1QFY10
2QFY10
3QFY10
4QFY10
1QFY11
2QFY11
3QFY11
4QFY11
Retail Investment/Others Total EV Net debt Value (` Equity Value (`) Source: Company, Angel Research
RIL GRMs
Singapore GRMs
KG D6; Just a beginning: The upstream segment still has a significant upside in store, considering huge untapped resources. Timely ramp-up in the producing fields would bring into picture other prospective basins also. Although RIL is producing natural gas below its potential 80mmscmd from confident that it will ramp up its production over the medium term with the help of BPs technical expertise. long-term Newer ventures could be a long-term catalyst: RIL has been eyeing inorganic routes for diversifying its asset portfolio by entering into newer ventures, on the back of significant cash pile and treasury stocks. Initiatives like shale gas acquisitions, with in-place reserves of ~12TCF could prove to be a potential trigger for the stock in the long term. Outlook and valuation: The stock is currently trading at FY2013E P/BV of 1.4x, which is 35-40% lower compared to Sensex P/BV. Timely ramp up in the producing fields could rerate the stock, as it will bring into picture other prospective basins also. The high potential exploratory fields would provide further visibility once the DGH approvals are in place. Valuations could receive further boost on any improvement in the refining and polymer margins consequent to recovery in global demand. Further, the financials of RIL are relatively immune to increases in interest KG-D6 due to constraints over reservoir pressure, we are
One-year forward P/E band

1,800 1,600 1,400 1,200 1,000 800 600 400 200 0
Share Price( `)
Jun-05
Apr-04
Nov-04
Aug-06
Jan-06
May-08
Mar-07
Dec-08
Oct-07
Feb-10
Share Price
7x
10x
13x
16x
Sep-10
19x
May 2011
Apr-11
Jul-09
Market Strategy
Profit & Loss Statement (Consolidated)
Y/E March (` cr) Total operating income % chg Total Expenditure EBITDA EBITDA (% of Net Sales) FY2010 203,740 34.7 172,846 30,894 15.2 FY2011 FY2012E FY2013E 265,811 30.5 226,850 38,961 14.7 14,121 2,411 2,543 10.2 24,972 24,972 4,783 23.7 20,189 22.0 20,211 20,211 27.1 275,171 3.5 232,739 42,431 15.4 14,022 2,078 2,834 9.7 29,165 29,165 5,666 24.1 23,499 34.0 23,533 23,533 16.4 275,661 0.2 230,070 45,591 16.5 14,316 1,823 3,289 10.0 32,741 32,741 7,530 29.9 25,211 41.0 25,252 25,252 7.3
Balance Sheet (Consolidated)

Y/E March (` cr) SOURCES OF FUNDS Equity Share Capital Reserves& Surplus Funds Shareholders Funds Total Loans Deferred Tax Liability Total Liabilities APPLICATION APPLICATION OF FUNDS Gross Block Less: Acc. Depreciation Net Block Capital Work-in-Progress Investments Current Assets Current lab and prov Net Current Assets Mis. Exp. not written off Total Assets 224,125 63,934 160,191 17,034 13,112 69,106 42,586 26,520 2 216,860 251,020 78,055 172,965 10,000 13,112 99,796 52,173 47,623 2 243,703 268,592 92,077 176,514 15,000 13,112 103,692 52,156 51,536 2 256,165 290,079 106,393 183,686 17,172 13,112 109,833 50,970 58,863 2 272,836 2,978 138,598 141,576 64,606 10,678 216,860 2,978 156,256 159,234 72,500 11,969 243,703 2,978 177,075 180,053 62,500 13,612 256,165 2,978 199,307 202,285 54,830 15,721 272,836 FY2010 FY2011 FY2012E FY2013E
Depreciation& Amortisation 10,946 Interest & other Charges Other Income (% of PBT) Recurring PBT Extraordinary Income/Exp PBT (reported) Tax (% of PBT) PAT (reported) Minority interest (MI) PAT after MI (reported) ADJ. PA ADJ. PAT(core) % chg 2,060 2,185 7.6 20,074 8,606 28,680 4,256 17.4 24,424 79.6 24,503 15,897 6.2
Cash Flow Statement (Consolidated)

Y/E March (` cr) Profit before tax Depreciation Change in Working Capital Less: Other income Direct taxes paid FY2010 28,680 14,001 (5,939) (1,786) (3,140) FY2011 FY2012E FY2013E 24,972 14,121 6,818 (132) (4,783) 40,996 (19,861) 2,543 (17,318) 7,894 (2,531) (1,120) 4,244 27,922 13,891 41,812 29,165 14,022 (3,191) (756) (5,666) 33,574 (22,571) 2,834 32,741 14,316 234 (1,466) (7,530) 38,295 (23,659) 3,289
Key Ratios
Y/E March Valuation Ratio (x) P/E (on FDEPS) P/CEPS P/BV EV/Sales EV/EBITDA (` Per Share Data (`) EPS (fully diluted) Cash EPS DPS Book Value Returns (%) ROCE (Pre-tax) Angel ROIC (Pre-tax) ROE Turnover ratios (x) Inventory / Sales (days) Receivables (days) Payables (days) 49 13 79 49 14 70 50 15 76 51 16 76 9.4 13.5 12.1 10.8 13.1 13.4 11.4 14.5 13.9 11.8 15.5 13.2 48.6 90.1 7.0 475 61.8 115.3 8.5 535 71.9 126.1 9.0 605 77.2 132.9 10.0 679 19.7 10.6 2.0 1.7 10.9 15.5 8.3 1.8 1.3 8.6 13.3 7.6 1.6 1.1 7.4 12.4 7.2 1.4 1.1 6.7 FY2010 FY2011 FY2012E FY2013E
Cash Flow from Operations 31,815 (Inc.)/ Dec. in Fixed Assets (23,017) (Inc.)/ Dec. in Investments (Inc.)/ Dec. in loans & adv. Other income 2,645 (19) 2,160
Cash Flow from Investing (18,231) Issue of Equity Inc./(Dec.) in loans Dividend Paid (Incl. Tax) Others 513 (5,822) (2,219) (14,907)
(19,737) (20,370) (10,000) (2,680) (435) (7,670) (2,978) 285
Financing Cash Flow from Financing (22,436) Inc./(Dec.) in Cash Opening Cash balances Closing Cash balances (8,851) 22,742 13,891
(13,116) (10,363) 721 41,812 42,534 7,562 42,534 50,096
May 2011
Market Strategy
Tata Steel
Brownfield expansion on track: Tata Steel's 2.9mn tonne brownfield expansion programme is on track and expected to be commissioned by 2HFY2012. The product mix constitutes 2.5mn tonne of HRC and 0.3mn tonne of slabs. We expect this expansion to contribute ~`4,600cr from FY2013. Standalone sales volume to grow 25% yoy in FY2013E
9 8 7
(mntonnes)
(x)

Leverage ratios to improve gradually
7 6 5 4 3 2 1 0 FY2010 FY2011E
Net debt to EBITDA
30 25 20 15 10 5 0 FY 10 FY11E
Sales Volume
(%)
FY2012E
FY2013E
6 5 4 3 2 1 0 FY12E
yoy %
Interest Coverage ratio
EV/EBITDA
1,800,000 1,600,000 1,400,000 1,200,000
(` mn)
FY13E
1,000,000 800,000 600,000 400,000 200,000 0
Higher integration levels for TSE to boost earnings: Tata Steel is in the process of developing a coking coal mine in Mozambique and an iron ore mine in Canada to enhance Tata Steel Europe's (TSE) raw-material integration levels. The projects are expected to be commissioned by October 2011 with lower offtake initially; the full benefit is expected to accrue in FY2013E. However, we have not factored the savings in our estimates, indicating an upside to our target price. EBITDA to grow at a 17.6% CAGR over FY2011-13E
25,000 20,000 15,000 10,000 5,000 0 FY2010 FY2011E
EBITDA
Outlook and valuation: Steel prices have increased by 15-20% since the beginning of January 2011 mainly on account of increased prices of key inputs. Given the high levels of backward integrations, we expect Tata Steel's India operations to benefit significantly on account of the steel price hikes; however, TSE
16 14 12 10 8 6 4 2 0 FY2012E
EBITDA margin
would continue to suffer on account of higher raw-material prices and subdued demand in Europe.
(%)
(` cr)
Nevertheless, we continue to maintain our positive stance on Tata Steel, owing to its buoyant business outlook, driven by a) higher sales volume in FY2013 on completion of its 2.9mn tonne brownfield expansion project in Jamshedpur, b) raw-material projects at Mozambique and Canada and c) cost-reduction initiatives at TSE. We maintain our Buy view on SOTP the stock with an SOTP target price of `802 SOTP valuation
FY2013E EBIDTA (` EBIDTA (` cr) 12,577 6,229 1,339 EV/EBIDTA EV/EBIDTA (x) 5.0 3.5 3.5 (` cr) 62,883 21,800 4,686 89,370 16,106 73,264 802
FY2013E
L everage ratios to improve: With higher contribution to profitability from integrated Indian operations, we expect a gradual decline in debt-equity ratio and increase in interest coverage ratio from FY2013E.
Tata Steel India TSE Asia Total EV Net Debt Market cap Price (` Target Price (`) Source: Angel Research
May 2011
Market Strategy
Y/E March (` cr) Net Sales % chg Total Expenditure EBITDA EBITDA % of Net Sales Other Income Depreciation Interest (Net) Exceptional Items PBT % of Net Sales Tax Effective Tax Rate (%) PA Reported PAT Minority Int/share of asso. PA Reported PAT % chg FDEPS
Balance Sheet
Y/E March (` cr) Equity Share Capital Reserves & Surplus Funds Shareholders' Funds Total Loans Deferred Tax Liability Provision for Employee sep Total Liabilities APPLICATION APPLICATION OF FUNDS Gross Block Less: Acc. Depreciation Net Block Capital Work-in-progress Investments Goodwill Current Assets Less: Current Liabilities Net Current Assets Total Assets 97,289 60,764 36,525 9,271 5,418 14,542 43,868 29,983 13,885 79,641 101,289 64,917 36,372 10,271 5,418 14,542 58,950 31,605 27,345 93,948 105,789 69,360 36,429 10,771 5,418 14,542 67,675 38,444 29,232 96,391 107,789 74,210 33,579 11,271 5,418 14,542 69,887 33,956 35,931 100,740
FY2010 FY2011E FY2012E FY2013E

102,393 (30.5) 94,350 8,043 7.9 1,186 4,492 3,022 (1,684) 31 0.0 2,152 125 (2,121) 112 (2,009) (140.6) (25) 116,406 13.7 100,923 15,483 13.3 873 4,153 2,948 9,256 8.0 3,054 33 6,201 109 6,310 (414.1) 66 131,025 12.6 114388 16636 12.7 655 4443 3258 0 9590 7.3 2877 30.0 6713 134.0 6847 8.5 71.4 143,194 9.3 123050 20144 14.1 286 4851 3592 0 11989 8.4 3597 30.0 8392 134.0 8526 24.5 88.9
FY2010 FY2011E FY2012E FY2013E

887 21,927 22,814 53,307 1,654 964 79,641 959 31,663 32,621 57,807 1,654 964 93,948 959 37,606 38,564 54,307 1,654 964 96,391 959 44,955 45,914 51,307 1,654 964 100,740
Cash Flow Statement

Y/E March (` cr) Profit before tax Depreciation
Key Ratios
Y/E March (` Per Share Data (`) EPS Cash EPS DPS Book value per share Operating Ratios (%) Sales growth EBITDA margins Net profit margins Return ratios (%) RoE RoCE Dividend payout Valuation ratios (x) P/E P/BV EV/Sales EV/EBITDA 2.3 1.0 12.3 9.0 1.7 0.8 6.1 8.3 1.5 0.4 5.3 6.7 1.2 0.4 4.0 5.5 22.8 14.1 13.8 19.2 13.5 13.2 20.2 15.8 13.8 2.9 7.9 (2.1) 13.8 13.3 5.3 13.4 12.7 5.1 15.2 14.1 5.9 (25.0) 28.0 257.3 65.8 109.1 9.1 340.3 71.4 117.8 9.4 402.2 88.9 139.5 12.3 478.9
FY2010 FY2011E FY2012E FY2013E

31 4,492 9,256 4,153 393 3,054 10,747 5,000 5,747 0 5,747 4,368 4,500 (871) 7,997 109 13,853 6,788 20,641 (3,500) (904) (4,404) 134 1,695 20,641 22,336 (3,000) (1,177) (4,177) 134 4,352 22,336 26,688 9,590 4,443 (191) 2,877 10,965 5,000 5,965 0 5,965 11,989 4,851 (2,348) 3,597 10,894 2,500 8,394 0 8,394
FY2010 FY2011E FY2012E FY2013E
Change in working capital 10,376 Income taxes paid Cash from operations Change in Fixed assets Free cash flows Change in Investments 2,152 12,747 (1,829) 14,576 (993)
Cash from investing activities 15,569 Change in Share capital Change in Debt 8,075 (6,593)
Divi. and dividend tax paid (909) Cash from financing activities 573 Other adjustments Net inc./(dec.) in cash Opening cash balance Closing cash balance (15,502) 639 6,148 6,788
May 2011
Market Strategy
CRISIL
Strong growth in the research segment to continue post the acquisition of Pipal: The synergy between CRISIL's Irevna and Pipal resulted in strong revenue growth of 45.2% yoy in CRISIL's research segment in 1QCY2011. The synergy will further help CRISIL to service its clients better and expand their client base, providing a strong growth platform in the coming years. With the combined strength of the two firms, we expect the research segment to register a 22% CAGR in revenue over CY2010-12. Pipal's acquisition to continue to strengthen research
450 400 350 300 250 200 150 100 50 CY09 CY10E
Research Revenue

Credit rating business growing on the back of credit growth
80 70 60 50 40 30 20 10 CY05 CY06 CY07 CY08
Crisil Ratings Growth
74
44 22 30 30 22
45 27 24 11 24 14 CY09 CY10 19 4.7 1QCY11
Indian Credit Growth
23.0 20.0
21.3
25.0 20.0
Infra and risk advisory services segment to benefit from huge infra spend: CRISIL is set to benefit from the estimated US$800bn spend on infrastructure from FY2010-14E (US$1tn in the XIIth Five-Year Plan), as it will provide a huge opportunity to the company to expand its infra and risk advisory services segment. Accordingly, CRISIL has undertaken aggressive hiring across hierarchy and will expand its customer base going ahead. Hence, we expect CRISIL's infra and risk advisory services segment to report a 22% CAGR over CY2010-12E. Outlook and valuation: We expect CRISIL to register a 21.5% CAGR in revenue over CY2010-12E and continue to maintain its leadership position, with robust growth across all its segments. The company benefits from its asset-light business model, which is high on intellectual assets (employee cost-to-sales is around 40%). Further, the company is debt free and has 40% plus RoE. Additionally, the company enjoys strong parentage (Standard and Poor's). Currently, the stock is available at 18.9x CY2012E earnings, which is at the lower end of its historical range of 16.4-29.9x one-year forward EPS. We maintain a Buy recommendation with a target price of `7,616, valuing it at its five-year five-year median of 22x CY2012E earnings. One-year forward P/E band
10,500 9,000 7,500 6,000 4,500 3,000 1,500 0
(` cr)
5.4
10.0 5.0 238 286 352 CY11E 427 CY12E

Growth (yoy)
Robust growth in credit ratings to continue on strong credit demand: We believe credit demand will continue to grow at a faster rate than India's nominal GDP as financial depth continues to increase. The need for large capital formation of 30-35% of GDP for sustaining 8%+ GDP growth in India is well acknowledged; hence, we expect credit demand to witness a 20% CAGR over CY2010-14, considering the actual and latent credit demand in India. CRISIL has been growing at ~2x India's credit growth since CY2005. Currently, CRISIL is the market leader in the bank loan rating (BLR) segment with 51% market share (CY2010) and is expected to futher benefit from Basel II norms, as the number of entities to be rated will increase. CRISIL, being the market leader with around 63% market share in credit rating, will continue to benefit greatly from India's strong credit growth. Thus, we conservatively expect it grow at ~1x India's credit growth, registering a 21% revenue CAGR in the ratings segment.
(%)
15.0
May-06
Nov-06
May-07
Nov-07
May-08
Nov-08
May-09
Nov-09
May-10
Nov-10
Price (`)
14x
18x
22x
26x
30x
May 2011
May-11
Market Strategy
Profit & Loss Statement (Consolidated)
Y/E Dec. (` cr) Net Sales % chg Total Expenditure EBITDA EBITDA (% of Net Sales) Depreciation& Amortisation Interest & other Charges Adj.Other Income PBT (reported) Tax (% of PBT) ADJ. PA ADJ. PAT (% of Net Sales) CY2009 537 4.4 338 199 37.1 15 23 207 47 22.5 161 29.9 CY2010 CY2011E CY2012E 631 17.5 413 218 34.5 21 68 264 59 22.2 160 25.4 766 21.3 499 266 34.8 24 20 262 59 22.5 203 26.5 926 20.9 602 324 35.0 26 27 325 80 24.5 246 26.5
Balance Sheet (Consolidated)

Y/E Dec. (` cr) Equity Share Capital Reserves& Surplus Funds Shareholders Funds Total Loans Deferred Tax Liability Total Total Liabilities APPLICATION APPLICATION OF FUNDS Gross Block Less: Acc. Depreciation Net Block Capital Work-in-Progress Investments Current Assets Current liabilities Net Current Assets DEFERRED TAX ASSETS (Net) Total Assets 192 72 120 64 118 323 200 122 10 434 300 93 207 14 118 239 196 43 10 391 324 117 207 118 355 220 135 10 469 330 143 187 118 493 260 234 10 549 CY2009 7.2 427 434 434 CY2010 CY2011E CY2012E 7.1 384 391 391 7.1 462 469 469 7.1 542 549 549
Cash Flow Statement (Consolidated)

Y/E Dec. (` cr) Profit before tax Depreciation Change in Working Capital Less: Other income Direct taxes paid Cash Flow from Operations (Inc.)/Dec. in Fixed Assets (Inc.)/Dec. in loans and adv. Other income Cash Flow from Investing Issue/(Buy Back) of Equity Dividend Paid (Incl. Tax) Financing Cash Flow from Financing Inc./(Dec.) in Cash Opening Cash balances Closing Cash balances CY2009 207 15 16 23 47 169 (62) (9) 23 (47) (85) (93) 28 129 158 CY2010 CY2011E CY2012E 267 21 (25) 70 59 134 (58) (6) 70 6 (79) (169) (251) (111) 158 47 262 24 (4) 20 59 203 (10) (7) 20 3 (125) (125) 81 47 128 325 26 9 27 80 254 (6) (7) 27 13 (166) (166) 101 128 228
Key Ratios
Y/E Dec. Valuation Ratio (x) P/E (on FDEPS) P/BV EV/Sales EV/EBITDA Per Per Share Data (Rs) EPS (fully diluted) Cash EPS DPS Book Value Returns (%) ROCE (Pre-tax) Angel ROIC (Pre-tax) ROE Turnover ratios (x) Inventory / Sales (days) Receivables (days) Payables (days) WC cycle (ex-cash) (days) 58 122 (21) 59 115 (11) 60 99 1 61 95 2 46.6 183.6 40.6 47.6 127.6 49.8 56.3 110.9 47.1 58.6 139.9 48.3 222.5 243.1 100.0 600.4 289.5 319.5 199.6 551.0 285.7 320.0 150.0 661.1 346.2 382.4 200.0 773.2 29.4 10.9 8.4 22.5 22.6 11.9 7.3 21.1 22.9 9.9 5.9 17.0 18.9 8.5 4.8 13.6 CY2009 CY2010 CY2011E CY2012E
May 2011
Market Strategy
Finolex Cables
top-line Poised for strong top-line growth: Finolex Cables is poised for strong growth over the next few years, owing to entry in the verticals of high tension (HT) and extra high voltage (EHV) cables and market share expansion in the existing low tension (LT) cables segment. In the LT cables segment, organised players are expected to structurally increase their market share as consumers shift their preference towards branded products. Entry into the HT cables segment gives accessibility to the generation and distribution segment, where the market opportunity is estimated
(` cr)

estimated to decline to `14cr from `34cr in FY2011. Besides, the company has already incurred capex that is sufficient for its growth over the next few years. As a consequence of these factors and strong top-line growth, we expect RoEs to improve from 12.8% in FY2011 to 18.2% in FY2013E. Derivative losses to taper off
120 100 80 60 40 20
at `37,000cr over the next 10 years. Strong sales growth expected over the next few years
3,000 2,500 2,000 50.0 40.0 30.0 20.0 10.0 0.0 (10.0) FY06 FY07 FY08 FY09 FY10 FY11 FY12E FY13E
0 FY06 FY07 FY08 FY09 FY10 FY11 FY12E FY13E
(` cr)
1,500 1,000 500 0
(%)
Stock is currently trading at attractive valuations: At the CMP , the stock is trading at attractive valuations of 4.8x FY2013E EPS and 0.8x FY2013E BV. We have valued the stock at P/E of 7.0x FY2013E EPS and have arrived at a target price of `75. We have a Buy rating on the stock. One-year forward P/BV band
160 140 120
Share Price (`)
Sales (LHS)
Sales growth (RHS)
Large benefits from the Roorkee plant: The rapid ramp up of production at the Roorkee plant has already started delivering results. The proximity to the growing North Indian markets and tax benefits from this plant are expected to boost the turnaround of the company. We expect profits to increase to `163cr in FY2013E from `87cr in FY2011. Profit estimated to post a 37.1% CAGR over FY2011-13E
200 150 100 2.0 50 0 (50) FY06 FY07 FY08 FY09 FY10 FY11 FY12E FY13E 0.0 (2.0) (4.0) 8.0 6.0 4.0
100 80 60 40 20 0 Apr-04 Apr-05 Price Apr-06 0.5x Apr-07 1.0x Apr-08 1.5x Apr-09 Apr-10 2.0x Apr-11 2.5x
(` cr)

(%)
PAT (LHS)
PAT Margin (RHS)
Derivative losses expected to taper off: The company's derivatives losses are expected to decline further going ahead. Finolex Cables has registered substantial derivatives losses over FY2009-11. However, the worst is behind us in this regard and losses are expected to taper going ahead. By FY2013, these losses are
May 2011
Market Strategy
Y/E March (` cr) Net Sales % chg Total Expenditure EBITDA EBITDA (% of Net Sales) Depreciation& Amortisation Interest & other Charges Other Income Recurring PBT Extraordinary Expense/(Inc.) PBT (reported) Tax (% of PBT) PAT (reported) ADJ. PA ADJ. PAT % chg (` Fully Diluted EPS (`)
Balance sheet
FY2011 FY2012E FY2013E
2,036 25.8 1,864 172 8.4 39 17 26 142 34 107 20 19.0 87 115 7.4 5.7 2,431 19.4 2,211 220 9.1 41 17 30 192 24 167 37 22.0 131 150 30.4 8.5 2,770 14.0 2,517 254 9.2 45 17 32 223 14 209 46 22.0 163 174 16.4 10.7 Y/E March (` cr) SOURCES OF FUNDS Equity Share Capital Reserves& Surplus Funds Shareholders Funds Total Loans Deferred Tax Liability Total Total Liabilities APPLICATION APPLICATION OF FUNDS Gross Block Less: Acc. Depreciation Net Block Capital Work-in-Progress Investments Current Assets Current liabilities Net Current Assets Mis. Exp. not written off Total Total Assets 802 384 419 29 280 415 193 222 950 839 422 417 17 245 536 207 329 1,009 900 464 436 18 245 666 244 422 1,121 972 509 463 19 245 815 283 531 1,259 31 613 643 275 32 950 31 687 717 260 31 1,009 31 800 830 260 31 1,121 31 938 968 260 31 1,259
FY2010
1,619 20.7 1,422 197 12.2 37 19 24 165 76 89 32 35.4 58 107 3.8
FY2010
FY2011 FY2012E FY2013E
Cash Flow Statement

Key Ratios
FY2011 FY2012E FY2013E
107 39 (106) 26 20 (7) (25) 35 (19) 26 18 (15) 13 1 (27) (16) 37 21 167 41 (48) 30 37 93 (62) (17) 30 (49) 18 7 (11) 34 21 55 209 45 (38) 32 46 139 (73) (17) 32 (59) 25 8 (17) 63 55 118 Y/E March Valuation Ratio (x) P/E (on FDEPS) P/BV Dividend yield (%) EV/Sales (` Per Share Data (`) EPS (fully diluted) DPS Book Value Returns (%) ROCE (Pre-tax) Angel ROIC ROE Turnover ratios (x) Asset Turnover (Gross Block) Inventory / Sales (days) Receivables (days) Payables (days) WC. cycle (ex-cash) (days) Solvency ratios (x) Net debt to equity 0.2 0.3 0.2 0.1 2.1 41 15 44 41 2.5 45 18 36 56 2.8 46 21 34 60 3.0 48 21 34 59 17.1 18.2 9.3 13.6 16.2 12.8 16.8 18.2 16.9 17.6 19.4 18.2 3.8 0.6 42.0 5.7 0.7 46.9 8.5 1.0 54.3 10.7 1.4 63.3 13.5 1.2 1.2 0.5 8.9 1.1 1.4 0.4 5.9 0.9 2.0 0.3 4.8 0.8 2.8 0.2
FY2010
89 37
FY2010
FY2011 FY2012E FY2013E
(Inc.)/ Dec. in Working Capital (81) Less: Other income Direct taxes paid 24 32
Cash Flow from Operations (10) (Inc.)/ Dec. in Fixed Assets (Inc.)/ Dec. in Investments (Inc.)/ Dec. in loans and adv. Other income Cash Flow from Investing Issue of Equity Inc./(Dec.) in loans Dividend Paid (Incl. Tax) Others Financing Cash Flow from Financing Inc./(Dec.) in Cash Opening Cash balances Closing Cash balances (29) 34 1 24 30 (21) 11 21 (11) 9 28 37
May 2011
Market Strategy
Greenply Industries
Strong brand, high ad spend: GIL has leading plywood and laminates brands, supported by ad spend as high as 4.0% of sales (around 10% of laminates revenue). The company also has the largest distribution network of over 15,000 dealers in this industry. Higher ad cost/sales leading to higher RoEs
3.5 3.0 2.5
(%)

Global MDF production and consumption data
Producers China Germany United States of America Turkey
25 22 20
(%)
Production 24,986,000 4,380,000 3,334,680 1,952,000 1,879,000 57,313,163 200,000
Consumption 22,469,775 5,040,448 6,087,006 1,621,000 1,763,000 53,701,697 618,400
Brazil World India*
2.0 4.0 1.5 1.0 0.5 Midcap Companies Ad Cost / Sales(LHS) Greenply Inds. RoE(RHS) 7
15 10 5 0.7 -
Source: FAO.org Company, Angel Research * (2010E)
New plywood license constraint: Going forward, strict control on the issue of new plywood licenses and a 5-7% CAGR in panel demand would result in MDF meeting this demand and registering a 25-30% CAGR over FY2011-14E. Moreover, currently 80% of the consumption is being met through imports, which we believe GIL can substitute given the high freight costs and 25% anti-dumping duty on imports. Further expansion of licensed capacity: GIL holds licenses for additional plywood capacity. In line with this, it has further expanded capacity by 3.75mn sq. ft. in 4QFY2011, which will augment its FY2012E revenue by nearly `45cr. Currently, the stock is trading at 4.7x FY2013E earnings, which is at the lower end of its historical of 4.3-17.0x one-year forward EPS. We maintain Buy on the stock with a target price of `270, valuing the stock at 7x FY2013E earnings. One-year forward P/E band
600 500
Increasing laminate capacity: GIL is continuing its strong expansion in laminates (88% capacity expansion), which is estimated to drive a 25% CAGR in sales over FY2010-12. GIL is witnessing very strong demand for its laminate products, with both its new production lines running at full capacity. Total revenue highest among peers
400 300
MDF: Banking on MDF: GIL forayed into the lucrative, high-growth MDF market in FY2011, with the largest MDF plant in India (1,80,000m3/yr capacity). The MDF opportunity is especially huge as it constitutes 20% of wood panel consumption in India, while plywood constitutes 80% - the reverse holds true globally. In 3QFY2011, the segment reported first-time revenue of around `14cr. In 4QFY2011, the segment is expected to achieve 45% capacity utilisation, which would futher bolster revenue and improve margins in the ensuing quarters. The segment is expected to achieve 55% capacity utilisation by FY2012.
200 100 0
May-08 May-09 May-10 May-07 May-06 May-11 Nov-06 Nov-07 Nov-08 Nov-09 Nov-10
Price (`)
1x
5x
9x
13x
17x
May 2011
Market Strategy
Y/E March (` cr) Net Sales % chg Total Expenditure EBITDA EBITDA (% of Net Sales) Depreciation& Amortisation Interest & other Charges Other Income PBT (reported) Tax (% of PBT) ADJ. PAT % chg FY2010 FY2011E FY2012E FY2013E 871 20.2 771 101 11.6 (22) (24) 2 57 7 13.0 50 32.9 1,127 29.4 1,003 124 11.0 (42) (41) 1 42 8 19.5 34 (31.4) 1,383 22.7 1,210 173 12.5 (43) (35) 2 96 19 20.0 77 125.3 1,498 8.3 1,303 195 13.0 (46) (25) 2 126 25 20.0 101 31.0
Balance Sheet
Y/E March (` cr) SOURCES OF FUNDS Equity Share Capital Reserves& Surplus Shareholders Funds Funds Total Loans Deferred Tax Liability Total Liabilities APPLICATION APPLICATION OF FUNDS Gross Block Less: Acc. Depreciation Net Block Capital Work-in-Progress Goodwill Investments Current Assets Net Current Assets Total Assets 632 92 539 13 3 4 426 137 699 673 135 539 3 4 532 211 757 690 178 512 3 4 631 257 776 724 224 500 4 4 669 264 772 11 261 272 407 19 699 12 319 331 407 19 757 12 391 403 354 19 776 12 487 500 254 19 772 FY2010 FY2011E FY2012E FY2013E
Cash Flow Statement

Y/E March (` cr) Profit before tax Depreciation Change in Working Capital Less: Other income Direct taxes paid Cash Flow from Operations Inc./ (Dec.) in Fixed Assets Inc./ (Dec.) in Investments FY2010 FY2011E FY2012E FY2013E 57 22 49 2 7 118 (324) (2) 42 42 (71) 1 8 4 (28) (0) 1 (28) 29 (0) (4) 5 29 6 19 25 96 43 (43) 2 19 75 (17) (3) 2 (18) (53) (4) 2 (55) 2 25 27 125 46 (15) 2 25 129 (35) 2 (33) (100) (4) 1 (103) (7) 27 20
Key Ratios
Y/E March Valuation Ratio (x) P/E (on FDEPS) P/BV EV/Sales EV/EBITDA (` Per Share Data (`) EPS (fully diluted) Cash EPS DPS Book Value Returns (%) ROCE (Pre-tax) Angel ROIC (Pre-tax) ROE Turnover ratios (x) Inventory Receivables (days) Payables (days) WC cycle (ex-cash) (days) 77 60 97 63 72 58 95 49 71 60 88 55 76 63 91 58 13.7 15.0 21.9 11.2 11.7 11.3 16.9 17.5 20.8 19.3 19.9 22.2 20.5 32.4 1.5 123.3 14.1 31.6 1.5 137.2 31.7 49.7 1.5 167.2 41.6 60.4 1.5 207.0 9.5 1.6 0.9 8.1 13.9 1.4 0.8 6.9 6.1 1.2 0.6 4.6 4.7 0.9 0.5 3.6 FY2010 FY2011E FY2012E FY2013E
Inc./ (Dec.) in loans and advances 13 Other income Cash Flow from Investing Issue of Equity Inc./(Dec.) in loans Dividend Paid (Incl. Tax) Others Financing Cash Flow from Financing Inc./(Dec.) in Cash Opening Cash balances Closing Cash balances 2 (311) 46 149 (4) 4 195 3 16 19
May 2011
Market Strategy
IVRCL Infra
Orderbook concerns overdone: IVRCL has an order book of ~`23,600cr (3.9x FY2011E revenue), of which ~37% (`5,300cr captive orders + `3,540cr AP orders) is considered slow moving and markets are concerned over the same. However, we believe that excluding these orders also IVRCL's order book position is decent (refer exhibit below) at `14,760cr (~2.4x FY2011E revenues). Hence, we believe these concerns are overdone and IVRCL is at par with peers on the revenue visibilty front. IVRCL fares in line with peers on OB to sales parameter
120,000 100,000 80,000 60,000 40,000 20,000 HCC IVRCL Infra L&T NCC Simplex Infra OB/Sales (x) 2.4 2.5 2.7 2.5 4.0 4.5 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 -

IVRCL trading lower to its historical P/B multiple averages
5.0 4.5 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 -
6-May-09
6-May-08
6-May-07
6-May-06
6-May-05
6-May-04
P/B
3YEAR AVG
5YEAR AVG
On the PE parameter as well, the stock is trading at very attractive multiples. At the CMP of `75 the stock is trading at 8.1x and 4.6x to its FY2103E earnings without and with adjusting for embedded value, respectively. IVRCL trading lower to its historical P/E multiple averages
40.0 35.0 30.0 25.0 20.0 15.0
Order Backlog (LHS, ` cr)
Source: Company, Angel Research; Note: Order book are adjusted with slow moving orders for all companies
Equity raising at subsidiary level: Given its equity commitment over the next 12-18 months, we believe IVRCL would dilute its stake in either IVRCL Assets (IVRAH) or Hindustan Dorr Oliver and infuse the money in IVRAH for mobilising its captive road projects. If IVRCL is able to achieve this, it would not only improve its working capital cycle given that it constitutes ~23% of its order book, it would also lend a fillip to execution. crisis-level Trading at crisis-level valuations; opportune to Buy: IVRCL Infra is trading at valuations of 0.8x on P/BV on one-year forward basis, which is very attractive considering that even post the Lehman crisis (October 2008) the stock has been trading at 0.8-1.2x. Further, the economy is also in a much better shape in comparison to those times. Hence, we believe such valuations are lucrative for long-term investors.
10.0 5.0 0.0
6-May-10
7YEAR AVG
6-Jan-05
6-Jan-06
6-Jan-07
6-Jan-08
6-Jan-09
6-Jan-10
6-Sep-10
6-Jan-11
6-May-04
P/E
6-May-05
6-May-06
3YEAR AVG
6-May-07
6-May-08
5YEAR AVG
6-May-09
To conclude, the stock appears attractive on the valuation screen given it is trading at a deep discount to intrinsic value, and we believe the downside from current levels is capped. Hence, we recommend Buy on the stock with a target price of `111. Further, it is should be noted that our SOTP target price factors in IVRCL Assets on mcap basis, which is trading at 0.5x PB basis, and further we have assigned 20% holding company discount. Therefore, we believe this limits the downside to our SOTP due to reduction in embedded values.
Derivation of SOTP-based target price for IVRCL (FY2013E) Business Segment Construction IVRAH Hindustan-Dorr-Oliver Total
Methodology P/E Mcap Mcap
Remarks 8x FY2013E earnings 20% holding company discount 20% holding company discount
` cr 2,008 742 247 2,996
6-May-10
7YEAR AVG
`/share 74 27 9 111
May 2011
6-May-11
6-Sep-04
6-Sep-05
6-Sep-06
6-Sep-07
6-Sep-08
6-Sep-09
6-May-11
6-Jan-10
6-Sep-04
6-Sep-05
6-Sep-06
6-Sep-07
6-Sep-08
6-Sep-09
6-Sep-10
6-Jan-05
6-Jan-06
6-Jan-07
6-Jan-08
6-Jan-09
6-Jan-11
Market Strategy
Profit & Loss Statement (standalone)
Y/E March (` cr) Net Sales Other operating income Total operating income % chg Total Expenditure EBITDA EBITDA (% of Net Sales) Depreciation& Amortisation Interest & other Charges Other Income Recurring PBT % chg PBT (reported) Tax (% of PBT) PAT (reported)
Balance Sheet (standalone)

Y/E March (` cr) SOURCES OF FUNDS Equity Share Capital Preference Capital Reserves& Surplus Funds Shareholder's Funds Total Loans Total Liabilities APPLICATION APPLICATION OF FUNDS Gross Block Less: Acc. Depreciation Net Block Capital Work-in-Progress Investments Current Assets Current liabilities Mobilisation Advance Net Current Assets Mis. Exp. not written off Total Assets 750 183.8 566 35.3 614 4,952 2,437 251 2,264 3,479 910 255.7 654 40.8 664 5,783 2,672 251 2,860 4,219 1,085 336.0 749 46.7 714 6,325 2,864 264 3,198 4,708 1,360 436.6 924 57.6 764 7,724 3,314 277 4,134 5,879 54.0 1,800 1,854 1,613 3,479 54.0 1,965 2,019 2,187 4,219 54.0 2,142 2,196 2,499 4,708 54.0 2,368 2,422 3,444 5,879
FY2010 FY2011E FY2012E FY2013E

5,492 5,492 10.3 4,961 531.3 9.7 54.3 212.0 63.9 328.8 20.1 328.8 117.5 35.7 211.3 6,031 6,031 9.8 5,467 564.2 9.4 71.9 282.0 73.4 283.7 (13.7) 283.7 93.6 33.0 190.1 6,775 6,775 12.3 6,139 636.7 9.4 80.3 339.8 83.0 299.6 5.6 299.6 97.2 32.4 202.4 8,244 8,244 21.7 7,454 790.3 9.6 100.7 401.2 83.0 371.5 24.0 371.5 120.5 32.4 251.0
FY2010 FY2011E FY2012E FY2013E
Cash Flow Statement (standalone)

Y/E March (` cr) Profit Before Tax Depreciation Change in Working Capital Less: Other income Direct taxes paid Cash Flow from Operations (Inc.)/ Dec. in Fixed Assets (Inc.)/ Dec. in Investments Other income Cash Flow from Investing Issue of Equity Inc./(Dec.) in loans Dividend Paid (Incl. Tax) Others Financing Cash Flow from Financing Inc./(Dec.) in Cash Opening Cash balances Closing Cash balances
Key Ratios
Y/E March (` cr) Valuation Ratio (x) P/E (on FDEPS) P/BV EV/Sales EV/EBITDA (` Per Share Data (`) EPS (fully diluted) Cash EPS DPS Book Value Returns (%) ROACE (Pre-tax) Angel ROIC (Pre-tax) ROE Turnover ratios (x) Asset Turnover (Gross Block) Inventory / Sales (days) Receivables (days) Payables (days) W.cap cycle (ex-cash) (days) 7.8 15.1 118 142 143 7.3 15.5 137 167 148 6.8 15.8 128 161 158 6.7 16 119 147 157 14.2 14.8 11.5 12.8 13.2 9.8 12.5 12.7 9.6 13.0 13.3 10.9 7.8 9.8 1.5 68.7 7.0 9.7 1.6 74.8 7.5 10.5 1.7 81.4 9.3 13.0 1.8 89.7 9.6 1.1 0.6 6.6 10.7 1.0 0.7 7.4 10.0 0.9 0.7 6.9 8.1 0.8 0.6 6.8
FY2010 FY2011E FY2012E FY2013E

329 54 248 64 129 (58) 121 (105) 64 79 220 (21) (156) 42 63 101 164 284 72 699 73 94 (510) (165) (50) 73 (142) 575 (25) 550 (103) 164 62 300 80 283 83 97 (83) (181) (50) 83 (148) 311 (25) 287 56 62 117 371 101 933 83 121 (665) (286) (50) 83 (253) 945 (25) 920 3 117 120
FY2010 FY2011E FY2012E FY2013E
May 2011
Market Strategy
Jagran Prakashan
Mid-Day numbers to be reflected in 4QFY2011 results, expect CAGR FY2011-13E: ~7% CAGR over FY2011-13E : Jagran Prakashan Ltd. (JPL) acquired the print business from Mid-Day Multimedia (MML), whose presence in markets like Mumbai, Delhi, Bangalore and Pune (recently launched) is likely to fill the gap in JPL's portfolio vs. its peers HT Media (HT and Hindustan) and DB Corp. (Dainik Bhaskar and DNA), which offer English and Hindi publications to its advertisers. Mid-Day's numbers for the full year will be consolidated in JPL's numbers in 4QFY2011. While we have factored a mere 5% yoy increase in its revenue for FY2011, we believe JPL's combined offerings are likely to boost MML's advertising revenue due to the bundling effect and, hence, have factored ~7% yoy growth in MML's revenue for FY2012-13E. We expect MML's revenue to register a 7% CAGR over FY2011-13E to `116cr in FY2013E. inventory, Strong ad revenue growth on account of higher colour inventory, CAGR: peg ~11% CAGR: We expect JPL to record strong ad revenue growth of 10-11% yoy over FY2011-13E on account of an increase in colour space inventory to ~45% (maintaining a conservative stance to management's guidance of ~50%) and blended inventory utilisation of 68-69%. For FY2011-13, we expect JPL's ad revenue to post a CAGR of ~11% (on higher proportion of colour ads, rate hike absorption of 8-9% and pickup in ad spend) aiding top-line CAGR of ~10% over the period. Margins to remain stable due to increasing synergies in its acquired business and new businesses: For FY2011, we expect OPM to dip by 279bp to ~27% on account of Mid-Days merger with itself (as MML's print business operates at 18% EBIT margin vis--vis JPL's 24%). We have also factored a 7-8% increase in newsprint costs per tonne for JPL, resulting in the cost of raw materials to register a CAGR of 11-12% over FY2011-13E. We expect JPL's margins to remain stable at 27-28% on account of increasing synergies in its acquired business and improving profitability in the nascent businesses of i-Next/City Plus and OOH/event management. Underperformance a good entry point, JPL attractive at 16x EPS: FY2013E EPS: With Blackstone's recent investment of `225cr and JPL's wider portfolio (including Mid-Day publications), we believe JPL is well poised to benefit from steady growth in print media. Underperformance of the stock and attractive valuations (at the CMP the stock trades at 16x FY2013E EPS) , provide a good entry point to investors.

Outlook and valuation: We have factored in the increase in circulation volume (3-4% yoy growth, according to 10-11% yoy growth in circulation reported in 3QFY2011 results) in our top-line estimates, which indicates renewed focus in the company's core markets (UP and Bihar-Jharkhand; volume growth was equally split between these two markets) and curtails fears of JPL losing its numero uno position on account of increased competitive intensity (HMVL penetrating in UP and DB Corp.s penetration in Jharkhand). The other businesses (OOH, event management and SMS services) are estimated to record a 16% CAGR during FY2011-13E on better traction. In terms of earnings, we expect JPL to report a modest CAGR of 13% over FY2011-13E, driven largely by top-line growth and sustained margins. We believe underperformance of the stock provides a good entry point and maintain Buy with a target price of `150, based on 20x FY2013E (in line with its historical valuations). Downside risks to our estimates include higher-than-anticipated increase in newsprint prices and increased competitive intensity. Key assumptions
(` cr) FY2010 FY2011E FY2012E FY2013E Advt Revenue 638 706 785 862 Dainik Jagran 600 652 715 781 I-Nxt 34 47 59 69 City plus 4 7 10 12 Circ. Revenue 214 215 226 236 Dainik Jagran 204 202 212 222 I-Nxt 6 6 7 8 Others 4 6 6 6 Revenue from Mid-Day 101 108 116 Revenue from others 90 106 123 142 Non-Publishing 73 90 106 124 Others 16 16 17 18 Total 942 1,127 1,241 1,355 YoY growth (%) Advt. Revenue 15.7 10.5 11.2 9.8 Dainik Jagran 14.0 8.6 9.8 9.2 I-Nxt 49.5 38.0 26.4 16.6 City plus 65.9 63.1 40.3 17.2 Circ. Revenue 9.4 0.3 5.2 4.5 Dainik Jagran 9.5 (1.1) 5.1 4.3 I-Nxt 8.0 10.0 10.0 15.0 Others 7.0 60.5 2.6 1.2 Revenue from Mid-Day 6.9 7.0 Revenue from others 15.4 18.4 16.0 15.6 Non-Publishing 25.6 22.0 18.0 17.8 Others (15.9) 2.2 5.3 2.2 Total % of Total Advt Revenue 67.8 62.6 63.2 63.6 Circ. Revenue 22.7 19.0 18.2 17.4 Revenue from others 9.5 9.4 9.9 10.5 Source: Company, Angel Research CAGR CAGR 10.5 9.5 21.4 28.2 4.9 4.7 12.5 1.9 7.0 15.8 17.9 3.7 9.7
May 2011
Market Strategy
Y/E March (` cr) Net Sales % chg Total Expenditure EBIDTA EBIDTA (% of Net Sales) Other Income Dept & Amortisation Interest PBT (Incl Ext) (% of Net Sales) Extraordinary Expense/(Inc.) Tax (% of PBT) PA Reported PAT % chg (% of Net Sales) PA Adjusted PAT % chg
Balance Sheet
Y/E March (` cr) SOURCES OF FUNDS Equity Share Capital Reserves& Surplus Funds Shareholders Funds Total Loans Deffered Tax Liability (net) Total Liabilities APPLICATION APPLICATION OF FUNDS Gross Block Less: Acc. Depreciation Net Block Capital Work-in-Progress Investments Current Assets Current liabilities Net Current Assets Misc Exp Total Assets 563.5 194.5 369.0 25.1 166.6 417.3 186.1 231.2 791.9 673.2 251.0 422.2 33.7 166.6 454.1 227.8 226.3 848.7 709.3 309.9 399.3 35.5 166.6 510.5 262.3 248.1 849.5 811.6 376.5 435.1 40.6 166.6 512.8 288.7 224.1 866.4 60.2 552.3 612.5 121.4 58.0 791.9 63.3 581.1 644.3 146.4 58.0 848.7 63.3 601.9 665.2 126.4 58.0 849.5 63.3 638.8 702.0 106.4 58.0 866.4
FY2010 FY2011E FY2012E FY2013E

941.9 14.4 659.6 282.3 30.0 34.3 50.7 6.6 259.2 27.5 83.3 32.1 175.9 92.0 18.7 175.9 92.0 1,127.6 19.7 821.2 306.5 27.2 33.1 56.6 8.0 275.0 24.4 90.7 33.0 184.2 4.7 16.3 184.2 4.7 1,241.2 10.1 902.0 339.2 27.3 33.8 58.9 6.9 307.2 24.8 101.4 33.0 205.8 11.7 16.6 205.8 11.7 1,355.3 9.2 980.9 374.4 27.6 36.1 66.5 5.8 338.1 24.9 101.4 30.0 236.7 15.0 17.5 236.7 15.0
FY2010 FY2011E FY2012E FY2013E
Cash Flow Statement

Y/E March (` cr) Profit before tax Depreciation (Inc)/Dec in Working Capital Interest / Dividend (Net) Direct taxes paid Others
Key Ratios
Y/E March (` cr) (` Per Share Data (`) EPS Cash EPS DPS Book Value Operating Ratio Inventory (days) Debtors (days) Creditors (days) Returns (%) RoE RoCE ROIC (Pre Tax) Dividend Payout Valuation Ratio (x) P/E P/E (Cash EPS) P/BV EV / Sales EV / EBITDA 21.6 16.0 5.9 4.1 13.8 20.6 15.8 5.9 3.5 12.7 18.5 14.3 5.7 3.1 11.5 16.1 12.5 5.4 2.9 10.4 28.7 29.2 43.9 70.1 28.6 29.4 42.7 84.4 31.4 33.0 45.0 89.9 34.6 35.5 47.7 84.4 20.7 70.2 50.2 22.8 68.9 50.6 24.3 67.6 51.5 26.1 66.4 51.5 5.6 7.5 3.5 20.3 5.8 7.6 4.2 20.4 6.5 8.4 5.0 21.0 7.5 9.6 5.4 22.2
FY2010 FY2011E FY2012E FY2013E

259.2 50.7 (11.6) (8.8) 83.3 (21.0) 275.0 56.6 (34.5) (2.0) 90.7 1.7 206.0 118.3 87.7 25.0 155.4 (10.0) (120.5) (32.7) 85.2 52.4 307.2 58.9 (18.6) (3.3) 101.4 2.2 244.9 37.8 207.1 (20.0) 185.0 (11.8) (193.2) 13.9 52.4 66.3 338.1 66.5 (22.7) (5.2) 101.4 (4.0) 271.4 107.4 164.0 (20.0) 199.8 (14.2) (205.7) (41.7) 66.3 24.6
FY2010 FY2011E FY2012E FY2013E
Cash Flow from Operations 185.2 Inc/(Dec) in Fixed Assets Free Cash Flow (Inc)/Dec in Investments Issue of Equity Inc./(Dec.) in loans Dividend Paid (Incl. Tax) Interest / Dividend (Net) 38.3 146.9 (9.8) (20.1) 123.3 (8.8)
Cash Flow from Financing (134.7) Financing Inc./(Dec.) in Cash Opening Cash balances Closing Cash balances 2.4 82.8 85.2
May 2011
Market Strategy
Jyoti Structures
Order book provides revenue visibility : As of 3QFY2011, JSL , had a robust order book of `4,100cr (1.7x FY2011E sales). Order backlog is spread across the transmission (80%), rural electrification (15%) and substation segments (5%). PGCILs orders constituted ~26% of the order backlog, while the private sector and various state utilities accounted for 16% and 58%, respectively. When compared with other EPC companies such as KEC International and Kalpataru Power Transmission, which have a substantial exposure to international projects, JSLs order backlog is largely skewed in favour of the fixed price domestic markets and is, therefore, insulated from the vagaries of fluctuating commodity prices.

Valuation: Transmission EPC companies are expected to register an increase in order inflow on the back of ongoing investments in the domestic power sector. Order inflows from PGCIL had been relatively lower during FY2011. Slowdown of orders is perceived as a concern, which weighs heavily on the stock. However, industry commentary indicates that ordering activity from PGCIL is likely to gather pace after 1HFY2012. Apart from the transmission projects, JSL is also expected to garner significant portion of orders from RAPDRP and RGGVY schemes. Historically, the stock has traded in the band of 4-33x with a mean P/E of 14x. At the current price, the stock is quoting at 5.8x and 4.7x FY2012E and FY2013E EPS, respectively, which is among the lowest in the industry. We factor in potential re-rating
4,030 4,250 4,150 3,959 4,106 4,100
Order book
3,560 3,616
4,500 3,600
(` cr)
3,510
3,606
3,869
of the stock amid increased ordering activity from PGCIL going ahead. We maintain Buy with a target price of `110. One-year forward PE (x) chart
2,700
843 681
1,800
551 570 484
665
408
543
700
350
418
900 -
322
280 210 140 70 0
1QFY09
3QFY09
4QFY09
1QFY10
2QFY10
1QFY11
3QFY11
2QFY09
3QFY10
4QFY10
2QFY11
Order backlog
Order inflow
(`)
Apr-05
Apr-06
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Apr-09
Apr-10
Aug-05
Aug-06
Aug-07
Aug-08
Aug-09
Aug-10
Dec-05
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Dec-09
Huge Opportunity for transmission EPC players: The government has envisaged an investment of `240,000cr in the transmission segment under the XIIth Five-Year Plan. With this, Jyoti Structures is expected to benefit from the capex plans of PGCIL and other state utilities. With increasing number of power projects likely to be commissioned over the next couple of years, we expect work orders for setting up transmission facilities to be released over the next 4-5 months, especially by PGCIL as the recent FPO proceeds are likely to be utilised for setting up transmission assets. Establishing overseas presence: JSL has been actively tapping the overseas markets by entering into JVs in South Africa and the Gulf. The formation of overseas JVs along with setting up a local manufacturing base would enable the company to hasten the penetration into newer geographies and build a strong client base.
Share Price (`)
5x
9x
13x
May 2011
Dec-10
17x
Apr-11
Market Strategy
Y/E March (` cr) Operating income % chg Total Expenditure EBITDA EBITDA (% of Net Sales) Depreciation& Amortisation Interest & other Charges Other Income (% of PBT) Recurring PBT Tax (% of PBT) PAT (reported) Minority interest PAT after MI (reported) ADJ. PA ADJ. PAT % chg FY2010 FY2011E FY2012E FY2013E 2,130 15.8 1,901 229 10.7 18 80 6 4.6 138 53 38.7 83 0 83 84 (0.9) 2,360 10.8 2,095 266 11.3 21 89 8 4.6 163 57 35.0 106 0 106 106 25.7 2,887 22.3 2,562 325 11.3 25 92 8 3.5 215 75 35.0 140 0 140 140 31.8 3,456 19.7 3,076 380 11.0 29 96 10 3.8 265 93 35.0 173 0 173 173 23.5
Balance Sheet
Y/E March (` cr) SOURCES OF FUNDS Equity Share Capital Reserves & Surplus Funds Shareholders Funds Total Loans Deferred Tax Liability Total Liabilities APPLICATION APPLICATION OF FUNDS Gross Block Less: Acc. Depreciation Net Block Capital Work-in-Progress Investments Current Assets Current Lia . And Prov Net Current Assets Mis. Exp. not written off Total Assets 244 69 175 2 17 1,350 665 684 0 878 279 90 189 5 17 1,547 749 799 0 1,009 334 115 219 3 17 1,940 918 1,022 0 1,260 389 144 245 3 17 2,232 1,101 1,132 0 1,396 16 475 491 369 18 878 16 571 588 404 18 1,009 21 941 961 281 18 1,260 21 1,102 1,122 256 18 1,396 FY2010 FY2011E FY2012E FY2013E
Cash Flow Statement

Y/E March (` cr) PAT Adjustments FY2010 FY2011E FY2012E FY2013E 83 147 106 121 227 (124) (57) 45 (38) 0 0 0 (38) 0 35 (10) (43) (17) (10) 54 44 140 138 278 (108) (71) 99 (53) 0 0 0 (53) 4 (123) (10) 204 76 122 44 166 173 152 324 (146) (88) 90 (55) 0 0 0 (55) 0 (25) (12) (30) (67) (32) 166 134
Key Ratios
Y/E March Valuation ratio (x) EPS (fully diluted) Cash EPS DPS Book Value Returns (%) RoCE (Pre-tax) Angel RoIC (Pre-tax) RoE Turnover ratios (x) Inventory / Sales (days) Receivables (days) Payables (days) Valuation Ratio (x) P/E (on FDEPS) P/CEPS P/BV EV/Sales EV/EBITDA 7.7 6.3 1.3 0.5 4.2 7.6 5.1 1.1 0.4 3.8 5.8 4.9 0.8 0.3 2.8 4.7 4.0 0.7 0.3 2.4 34 135 99 42 129 102 41 114 96 39 115 96 26.1 27.7 18.6 25.9 27.4 19.7 26.4 29.1 18.0 26.4 29.8 16.6 10.3 12.5 1.0 59.8 10.3 15.5 1.0 71.6 13.6 16.1 1.0 93.7 16.8 19.7 1.0 109.4 FY2010 FY2011E FY2012E FY2013E
Opr. Profits Before W/Cap Cng. 230 Changes in Working Capital Taxes Paid during the year Cash Flow from Operations (Inc.)/Dec in Fixed Assets (Inc.)/Dec in Investments (Inc.)/Dec in Loans/advances Other Income Cash Flow from Investing Issue of Equity Inc/(Dec) in Loans Dividend Paid (incl.Tax) Others Cash Flow from Financing Financing Cash generated/(utilised) Cash at start of the year Cash at end of the year (8) (49) 173 (53) (0) 0 (73) (127) 0 56 (9) (79) (31) 15 39 54
May 2011
Market Strategy
Surya Roshni
Strong capacity additions to drive sales growth: Surya Roshni has expanded its capacity across products in the lighting and steel divisions, including a capacity increase of 358% in compact fluorescent lamps (CFL) and 29% in steel pipes. This is expected to result in high sales growth at a 17.8% CAGR over FY2011-13E. Post the substantial capex, sales contribution from the high-RoIC lighting division is expected to increase, thereby increasing the company's RoCE from 10.7% to 12.7% over FY2011-13E. Sales to grow at a 17.8% CAGR over FY2011-13E
4,000 3,500 3,000
(` cr)

Promoters' shareholding to increase to 67%
Promoters' shareholding (%) Warrant allocation date Dec. 14, 2009 Jul. 12, 2010 Oct. 22, 2010 Conversion (` price (`/share) 59 83 111 Amount (` invested (` cr) 37.8 94.9 60.8 Before conv. conv. 24.1 39.1 62.3 After conv. conv. 39.1 62.3* 67.3
Source: Company, Angel Research; Note:* incl. change due to open offer
PAT growth boosted by lower interest, higher margins: Going

40.0 35.0 30.0 25.0 20.0 15.0 10.0 5.0 0.0
(%)
ahead, the company's net debt-to-equity is expected to reduce to 0.8x in FY2013E from 1.2x in FY2011, thereby saving on interest cost. Besides, margins would improve because of higher contribution from the high-margin lighting division. As a result, we expect PAT to increase at a 30.3% CAGR to `113cr by FY2013E. , Currently trading at attractive valuations: At the CMP the stock
2,500 2,000 1,500 1,000 500 0
Sales (LHS)
Sales growth rate (RHS)
is trading at attractive valuations of 4.1x FY2013E EPS and 0.5x FY2013E BV. We have valued the company using the SOTP method to arrive at a target price of `137. We have a Buy rating on the stock. One-year forward P/E band
250 200
Share Price (`)
Strong brand name: Surya Roshni has a strong brand name and substantial market share in the lighting industry. In the GLS and FTL segments, the company has a market share of around 25.0%. In the fast-growing CFL segment, we expect the company to increase its market share to 15.0% by FY2013 from 10.7% in FY2010. The company maintains an advertisement spend of ~2.0% of the lighting division's top line. The company has a strong distributor network as well, with presence in over 100,000 retail outlets. Promoters are hiking their stake substantially: Surya Roshni's promoters have subscribed to three rounds of warrant allocations, amounting to a total investment of `194cr. The three rounds of warrants were allocated at a price of `59/share, `83/ share and `111/share. The first two tranches have already been converted into equity, increasing the promoters' stake to 55.0% from 24.1%. In the consequent open offer, the promoters' shareholding increased further to 62.3%. We expect the remaining warrants to be converted by FY2012, which will increase the promoters' stake further.
150 100 50 0 Apr-04 Apr-05 Price Apr-06 2x Apr-07 4x Apr-08 6x Apr-09 8x Apr-10 10x Apr-11 12x
May 2011
Market Strategy
Profit & Loss Statement (Standalone)
Y/E March (` cr) Net Sales % chg Total Expenditure Net Raw Materials Other Mfg costs Personnel EBITDA EBITDA (% of Net Sales) Depreciation& Amortisation Interest & other Charges Other Income Recurring PBT % chg Tax (% of PBT) PAT (reported) % chg (` Fully Diluted EPS (`)
Balance sheet (Standalone)

Y/E March (` cr) SOURCES OF FUNDS Equity Share Capital Reserves& Surplus Funds Shareholders Funds Share Warrants Total Loans Deferred Tax Liability Total Total Liabilities APPLICATION APPLICATION OF FUNDS Gross Block Less: Acc. Depreciation Net Block Capital Work-in-Progress Investments Current Assets Current liabilities Net Current Assets Total Total Assets 829 369 460 48 50 498 80 418 976 1,177 420 757 50 50 696 107 589 1,446 1,237 474 762 40 50 710 91 618 1,471 1,297 535 762 30 50 867 96 771 1,613 28 220 248 9 664 56 976 44 573 616 15 761 54 1,446 49 705 754 2 661 54 1,471 49 807 856 2 701 54 1,613
FY2010
1,794 20.4 1,665 1,324 253 88 129 7.2 27 49 1 54 92.6 9 16.0 45 109.8 13.9
FY2011 FY2012E FY2013E

2,442 36.1 2,261 1,718 427 116 181 7.4 51 61 1 70 30.5 3 4.9 67 47.7 13.5 2,870 17.5 2,650 2,055 458 136 220 7.7 54 60 1 107 52.4 18 17.0 89 33.0 18.0 3,391 18.1 3,134 2,438 534 161 257 7.6 61 61 1 137 27.7 23 17.0 113 27.7 23.0
FY2010
FY2011 FY2012E FY2013E
Cash Flow Statement (Standalone)

Y/E March (` cr) Profit before tax Depreciation Change in Working Capital Direct taxes paid
Key Ratios
Y/E March Valuation Ratio (x) P/E (on FDEPS) P/BV EV/Sales EV/EBITDA Per Share Data ( `) EPS (fully diluted) Book Value Returns (%) RoCE (Pre-tax) Angel RoIC (Pre-tax) RoE Turnover ratios (x) Asset Turnover (Gross Block) Inventory / Sales (days) Receivables (days) Payables (days) WC. cycle (ex-cash) (days) Solvency ratios (x) Net debt to equity Interest Coverage 2.5 2.1 1.2 2.1 0.8 2.7 0.8 3.2 2.4 49 33 7 76 2.4 48 34 9 75 2.4 48 34 8 75 2.7 50 35 8 72 12.2 13.7 19.7 10.7 11.8 15.0 11.4 12.4 12.8 12.7 13.8 14.0 13.9 79.3 13.5 128.1 18.0 153.5 23.0 174.1 6.8 1.2 0.5 7.0 7.0 0.7 0.5 6.3 5.3 0.6 0.4 4.9 4.1 0.5 0.3 4.3
FY2010
54 27 (85) (10)
FY2011 FY2012E FY2013E

70 51 (141) (3) 183 (370) (20) (595) 128 97 (8) 206 423 10 10 20 107 54 (25) (18) 116 (50) (48) 48 (100) (12) (2) (66) 2 20 22 137 61 (145) (23) 29 (50) (50) 40 (12) 28 8 22 30
FY2010
FY2011 FY2012E FY2013E
Cash Flow from Operations (14) (Inc.)/ Dec. in Fixed Assets (Inc.)/Dec. in Investments (Inc.)/ Dec. in loans & adv. Cash Flow from Investing Issue of Equity Inc./(Dec.) in loans Dividend Paid (Incl. Tax) Others Financing Cash Flow from Financing Inc./(Dec.) in Cash Opening Cash balances Closing Cash balances (186) (34) (2) (222) 18 223 (4) (0) 237 1 9 10
May 2011
Market Strategy
Tata Sponge
TSIL, a manufacturer of sponge iron, has an installed capacity of 3,90,000MTPA and a 26MW captive power plant. The company plans to expand its captive power plant capacity by 25MW to 51MW over 2-3 years. TSIL gets 100% supplies of iron ore from Tata Steel at subsidised rates. TSIL is a cash-rich company with ROIC of ~65% for FY2012E. We recommend Buy on TSIL with a target price of `469, based on target P/B of 1.2x and implied P/E of 6.5x for FY2012E. These valuations do not include the 45% stake in Talcher coal block in Orissa (estimated reserves of 120mn tonnes for captive consumption), which may lead to further upsides. Tata Assured supply of iron ore through Tata Steel to give higher margins as compared to peers: TSIL has a long-term supply agreement with Tata Steel for assured supply of iron ore for uninterrupted production. Tata Steel supplies iron ore from its Khondbond mine in Orissa at a 20-25% discount from the market price, leading to at least 5% higher operating margin from other non-integrated sponge players. EBITDA margin trend
200 160 120
(%)

Stake in coal block can drive further upsides: TSIL has a 45% stake in Talcher coal block in Orissa, which has estimated reserves of 120mn tonnes for captive consumption, in which forest clearance is pending. The company sources ~60% of its raw material from Coal India and imports the remaining from Africa. TSIL has received environmental clearance for the coal block and, in FY2010, deposited `97cr with the Government of Orissa for acquisition of part of the land. Progress on forest clearance could be a potential trigger for the stock. Substantially high return ratios due to lower cost of iron ore: TSIL reported ROIC of ~65% for FY2011, exceptionally higher than other industry players, driven by lower iron ore cost. We expect the company's ROIC to be maintained at ~65% in FY2012E, driven by higher sponge iron prices. The company is forecasted to have net cash of ~`236cr by FY2012-end. ROIC (%)
70.0 60.0 50.0
40
40.0
(%)
30
30.0 20.0
(` cr)
20 80 40 0 FY2008 FY2009 EBITDA FY2010 FY2011 EBITDA margin FY2012E 10
10.0 0.0 FY2008

0
FY2009
FY2010
FY2011
FY2012E
Outlook and valuation: We maintain our Buy view on TSIL because of its low valuations, with a target price of `469, an upside of ~33% from current levels. At the CMP of `353, the stock is trading at P/E of 4.9x its FY2012E and P/B of 0.9 for FY2012E. These valuations do not include investment in the coal block, since it is expected to commence after FY2012; however, it could provide a potential upside to the stock. One-year forward PE band
700 600 500 400 300 200 100 0 3-Apr-06 3-Apr-07 Price (`) 3-Apr-08 2x 3-Apr-09 4x 6x 3-Apr-10 8x 3-Apr-11
Cost efficiency due to higher capacity utilisation compared to industry: TSIL operates at a capacity utilisation of ~88% compared to the industrys average of 66%, which makes it the most efficient in terms of maintaining costs, which also contributes to its EBITDA margins being higher compared to peers. Capacity utilisation
Contribution of sponge iron to total revenue (%) Tata sponge Bihar sponge Orissa sponge Monnet Ispat Lloyds Metals S.A.L steel Average
Source: Capital line
Installed capacity (MTPA) (MTPA) 390000 210000 250000 800000 240000 180000
Capacity utilisation (3-year avg) 88.4 68.5 42.5 74.9 74.0 48.3 66.1
96.2 100.0 68.6 47.6 65.5 43.8
May 2011
Market Strategy
Y/E March (` cr) Net Sales % chg Total Expenditure EBIDTA EBIDTA (% of Net Sales) Other Income Depreciation& Amortisation Interest PBT (% of Net Sales) Extraordinary Expense/(Inc.) Tax (% of PBT) PAT % chg PA Ad. PAT % chg
Balance sheet
FY2010
520.0 (14.7) 396.1 123.9 23.8 21.9 19.4 0.3 126.2 24.3 41.7 33.0 84.5 (30.0) 84.5 (30.0)
FY2009
609.3 33.8 425.4 184.0 30.2 20.1 18.3 4.6 181.2 29.7 60.5 33.4 120.7 26.3 120.7 30.5
FY2011 FY2012E
675.8 30.0 526.1 149.7 22.2 19.1 18.5 150.3 22.2 48.9 32.6 101.3 19.9 101.3 19.9 753.4 11.5 583.3 170.1 22.6 16.6 20.9 165.8 22.0 54.7 33.0 111.1 9.6 111.1 9.6
Y/E March (` cr) SOURCES OF FUNDS Equity Share Capital Reserves& Surplus Funds Shareholders Funds Total Loans
FY2009
FY2010
FY2011 FY2012E
15.4 334.3 349.7 0.1 50.3 400.2
15.4 404.7 420.1 0.2 45.9 466.1
15.4 491.7 507.1 39.3 546.4
15.4 586.7 602.1 39.3 641.4
Deffered Tax Liability (net) Total Liabilities APPLICATION APPLICATION OF FUNDS Gross Block Less: Acc. Depreciation Net Block et Capital Work-in-Progress Investments Current Assets Current liabilities Net Current Assets Total Assets
359.2 135.7 223.4 21.3 0.8 209.6 54.9 154.6 400.2
359.3 153.6 205.7 121.7 0.8 215.5 77.6 137.9 466.1
368.2 172.1 196.0 121.7 34.4 287.5 93.3 194.2 546.4
386.6 193.0 193.6 140.0 34.4 376.9 103.4 273.5 641.4
Cash Flow Statement

Key Ratios
FY2010
126.2 19.4 (4.6) (21.7) 41.7 7.2 84.8 (100.6) 185.4 6.9 0.0 12.3 0.3 (0.2) (12.4) (21.3) 114.6 93.3
FY2009
181.2 18.3
FY2011 FY2012E
150.3 18.5 40.9 (19.1) 48.9 141.7 (8.9) 150.6 (33.6) 10.0 (0.2) 14.3 (14.5) 94.8 93.3 188.1 165.8 20.9 (31.4) (16.6) 54.7 84.0 (36.7) 120.6 16.5 16.1 (16.1) 47.7 188.1 235.8
Y/E March (` Per Share Data (`) EPS Cash EPS DPS Book Value Operating Ratio (%) Inventory (days) Debtors (days) Creditors (days) Returns % RoE RoCE ROIC Valuation Ratio (x) P/E P/E (Cash EPS) P/BV EV / Sales EV / EBITDA
FY2009
FY2010
FY2011 FY2012E
78.4 90.2 8.0 227.1
54.9 67.5 8.0 272.8
65.8 77.8 9.3 329.3
72.1 85.7 9.0 391.0
(Inc)/Dec in Working Capital (22.7) Interest (Net) Direct taxes paid Other Current Assets (15.5) 60.5 14.7
Cash Flow from Operations 115.4 Inc./ (Dec.) in Fixed Assets Free Cash Flow (Inc)/Dec in Investments Others Issue of Equity Inc./(Dec.) in loans Dividend Paid (Incl. Tax) Interest Paid other financing 2.9 112.5 (1.3) (84.3) 12.3 4.6 (1.7)
30 12 47
48 26 72
34 12 65
38 20 65
34.5 41.1 62.2
20.1 22.2 41.1
20.0 24.0 64.9
18.5 23.3 64.5
4.5 3.9 1.6 0.7 2.3
6.4 5.2 1.3 0.9 3.6
5.4 4.5 1.1 0.5 2.1
4.9 4.1 0.9 0.4 1.6
Financing Cash Flow from Financing (99.6) Inc./(Dec.) in Cash Opening Cash balances Closing Cash balances 17.4 97.2 114.6
May 2011
Market Strategy
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May 2011
Market Strategy
Stock Watch
May 2011
Watch Stock Watch | May 2011

Sales (` cr) FY12E FY13E 2,451 4,754 1,342 6,495 2,097 9,788 12,376 834 19,564 5,434 7,925 4,188 1,016 5,387 1,242 21,914 6,427 27,158 42,568 9,234 1,263 141,689 7,227 5,865 13,555 12,855 11,328 11,470 4,700 2,555 2,506 18,348 19,060 7,319 5,761 6,337 1,944 6,405 16,894 14,618 12,675 12,800 5,142 2,799 2,813 22,954 23,314 8,474 6,296 6,810 2,100 2.8 2.9 2.6 2.3 2.4 2.2 2.6 3.5 4.4 2.6 1.9 3.5 2.6 3.2 2.6 2.9 2.5 2.2 2.2 2.0 2.4 3.3 4.3 2.7 2.0 3.3 2.3 3.0 32.9 99.0 117.6 56.7 90.7 100.8 19.3 43.4 108.1 57.1 19.0 43.7 21.8 133.1 34.7 125.2 131.2 65.5 89.8 108.3 20.7 49.9 141.5 68.8 21.9 46.7 25.4 135.8 6.2 12.7 7.4 7.4 6.4 5.7 5.1 9.3 21.3 18.9 7.2 5.4 7.1 5.9 5.8 10.0 6.6 6.4 6.5 5.3 4.8 8.1 16.2 15.7 6.2 5.1 6.1 5.8 1.1 2.4 1.4 1.3 1.2 1.0 0.8 1.2 3.7 2.1 1.0 1.1 1.1 1.0 1.0 2.0 1.2 1.1 1.1 0.9 0.7 1.1 3.1 2.0 0.9 1.0 1.0 0.8 2,396 10,737 13,815 933 22,155 6,249 9,043 4,817 1,138 6,218 1,396 24,368 7,134 30,300 48,618 10,358 1,416 160,042 8,114 14.3 9.5 9.4 12.0 18.5 16.1 17.6 3.3 5.8 18.8 17.5 14.1 5.0 14.5 8.5 10.3 7.8 12.4 5.8 14.2 10.5 9.2 11.6 18.0 16.1 17.5 4.3 7.3 18.7 17.0 14.1 5.9 14.2 8.5 10.3 7.7 12.0 5.8 20.7 7.4 4.7 32.0 96.8 19.1 305.6 14.3 11.4 8.3 84.2 103.9 16.1 49.1 90.2 11.7 4.4 153.2 4.4 23.4 10.0 5.3 34.8 107.3 23.4 344.1 29.9 18.5 9.5 91.8 116.9 29.6 53.2 100.4 13.5 5.0 166.6 5.2 9.2 9.5 10.5 13.4 13.6 17.7 21.6 6.9 6.0 18.4 12.7 17.0 5.8 14.5 14.1 18.9 7.5 7.8 12.5 8.2 7.0 9.4 12.3 12.3 14.4 19.2 3.3 3.7 16.1 11.6 15.1 3.1 13.4 12.6 16.3 6.6 7.2 10.6 1.9 1.3 2.2 2.8 7.4 3.3 4.3 0.5 0.8 4.0 2.5 9.5 0.4 3.6 2.2 5.5 0.8 2.7 2.4 1.6 1.1 1.9 2.2 5.5 2.8 3.7 0.5 0.7 3.4 2.1 8.5 0.4 3.0 1.9 4.4 0.7 2.0 2.1 23.3 12.9 15.0 22.0 63.2 20.5 19.9 7.4 13.6 23.5 21.9 62.4 7.1 27.3 16.9 31.0 10.8 39.2 20.7 19.0 20.2 20.3 18.2 20.6 19.4 17.3 13.7 18.4 14.1 14.0 22.2 15.5 17.3 21.5 16.2 15.2 19.9 51.4 21.1 19.2 15.2 19.1 22.5 19.8 59.5 12.0 24.4 15.8 30.1 11.4 31.4 21.0 17.4 21.6 19.4 18.2 17.6 18.0 16.1 14.1 20.7 15.6 14.5 20.2 16.0 15.6 2,752 5,423 1,570 6,940 12.3 16.5 18.4 19.7 12.3 16.5 17.9 19.8 45.7 6.2 83.4 15.4 50.2 7.2 97.7 17.2 19.2 29.9 16.6 10.1 17.5 25.7 14.1 9.0 4.1 4.7 4.1 1.7 3.4 4.1 3.3 1.4 23.5 16.7 27.3 17.6 21.3 17.0 25.9 17.1 1.4 2.1 1.9 1.2 0.8 0.6 0.7 0.8 1.7 1.6 2.0 0.3 0.2 2.1 1.2 1.3 0.3 1.3 0.7 1.0 0.3 0.6 0.4 OPM (%) FY12E FY13E EPS (`) FY12E FY13E PER (x) FY12E FY13E P/BV FY12E FY13E RoE (%) FY12E FY13E EV/Sales (x) FY12E FY13E 1.2 1.8 1.6 1.1 0.6 0.5 0.6 0.7 1.4 1.3 1.7 0.3 0.1 1.7 1.0 1.1 0.3 1.1 0.5 0.8 0.3 0.5 0.3 -
Company Name
Reco
CMP (`) 3,468 7,132 2,685 7,186 1,632 3,554 6,645 647 38,168 7,862 20,740 339 190 13,060 1,772 35,240 382 42,511 36,670 8,521 198 76,033 2,615 9,665 51,524 34,314 23,051 25,681 8,441 3,274 6,900 107,062 124,561 13,444 10,198 9,634 3,794
Target Price (`)
Mkt Cap (` cr)
Neutral Neutral Neutral Buy
878 185 1,381 156
207
Agri / Agri Chemical Bayer Jain Irrigation Rallis United Phosphorus Auto & Auto Ancillary Amara Raja Batteries Apollo Tyres Ashok Leyland Automotive Axle Bajaj Auto Bharat Forge Bosch India CEAT Denso Exide Industries FAG Bearings Hero Honda JK Tyre M&M Maruti Motherson Sumi Subros Tata Motors TVS Motor Banking Allahabad Bank Axis Bank Bank of Baroda Bank of India Canara Bank Corporation Bank Dena Bank Federal Bank HDFC Bank ICICI Bank IDBI Indian Bank IOB J & K Bank
Buy Buy Buy Accumulate Buy Buy Neutral Buy Buy Accumulate Neutral Neutral Buy Buy Buy Neutral Buy Buy Accumulate
191 71 50 428 1,319 338 6,605 99 68 154 1,066 1,765 93 713 1,269 220 33 1,201 55
234 81 64 488 1,610 421 135 93 164 133 881 1,506 40 1,456 62
Accumulate 203 Buy 1,254 Buy 870 Buy 422 Neutral 580 Buy 570 Buy 98 Accumulate 403 Accumulate 2,299 Buy 1,081 Neutral 137 Neutral 237 Accumulate 156 Accumulate 783
227 1,661 1,053 488 670 116 447 2,582 1,355 171 877
May 2011
42
Company Name
Reco
Buy Buy Accumulate Buy Neutral Accumulate Accumulate Reduce Accumulate 18,873 6,471 3,682 100,729 15,637 636 1,865 645 2,057 2,825 607 6,197 532 18,582 21,435 2,785 588 2,242 27,990 698 2,059 5,418 3,905 2,034 18,394 94,786 785 2,568 2,433 4,722 3,388 5,103 6,775 15,528 54,785 2,069 6,192 2,946 5,485 4,255 7,100 8,244 17,706 67,811 2,632 7,439 6.4 12.5 41.5 24.5 9.4 25.9 12.0 10.2 10.1 7.3 12.3 38.2 21.6 9.6 24.4 11.9 9.9 9.7 2.6 1.1 13.7 24.0 7.5 5.7 68.3 7.5 8.8 8,913 8,463 4,104 1,481 2,974 18,351 10,160 9,617 4,690 1,712 3,309 20,704 20.6 23.2 15.3 14.7 23.2 20.9 21.0 23.3 16.4 15.3 21.8 21.1 54.9 7.6 5.0 5.0 9.5 68.6 62.2 8.4 7.5 7.6 10.5 79.2 4.3 1.6 16.3 29.7 9.3 6.8 83.0 8.7 9.6 18.0 18.3 18.2 9.7 9.9 15.2 14.7 32.0 11.9 8.4 10.0 15.1 22.6 14.1 11.3 15.9 16.6 12.1 6.4 9.0 13.2 8.9 21.4 10.0 6.8 8.1 12.7 18.6 12.1 10.4 2.6 2.6 0.8 0.5 1.2 2.3 1.1 1.4 1.9 1.6 0.9 1.8 3.7 1.2 1.0 7,602 4,503 5,911 48,409 11,029 1,624 1,864 2,887 5,399 2,453 3,124 7,173 1,816 9,294 4,766 9,678 53,754 12,867 1,805 2,226 3,456 6,419 2,982 3,933 6,895 2,183 10.0 10.8 11.3 19.5 13.4 14.0 23.5 11.3 11.0 14.6 8.1 10.7 8.5 10.3 10.8 11.1 19.6 13.9 14.0 26.2 11.0 11.3 14.3 8.1 10.7 8.0 23.7 9.7 49.8 141.6 15.3 9.4 13.2 13.6 9.6 198.4 29.3 37.5 75.0 29.4 10.9 84.4 158.5 18.7 10.3 17.1 16.8 12.8 245.6 40.4 43.4 83.7 37.6 27.9 10.3 14.6 16.0 7.3 7.2 5.8 8.3 11.5 6.7 16.0 7.1 30.3 24.9 6.1 13.0 13.1 6.7 5.6 4.7 6.2 9.3 4.8 13.8 6.3 5.8 5.4 3.1 4.1 3.9 1.3 1.1 0.8 1.8 2.6 1.5 4.2 1.4 4.9 4.6 2.2 3.8 3.1 1.1 1.0 0.7 1.5 2.2 1.1 3.4 1.2 2.4 2.4 0.7 0.5 1.0 2.0 1.0 1.3 1.7 1.3 0.8 1.6 3.2 1.1 0.9 18.7 20.8 33.7 29.5 26.8 19.8 15.8 18.0 24.4 24.9 24.3 29.6 21.2 15.2 15.2 3.6 3.1 12.5 16.4 7.4 4.2 17.4 20.6 9.6 12.3 17.7 8.5 9.2 19.7 19.8 42.2 26.6 26.3 18.5 18.4 16.6 26.0 25.4 26.5 27.3 19.9 15.5 15.2 5.1 5.3 12.4 16.6 11.3 6.3 17.8 21.2 10.9 13.1 18.4 9.2 9.2
CMP (`) 337 1,100 23 2,643 100 320 100 77 300 2.1 1.5 0.8 1.8 1.3 0.8 1.1 0.3 0.6 0.6 0.3 0.9 0.3 1.8 2.2 1.1 0.6 1.3 1.6 0.5 1.3 3.2 2.2 0.7 2.4 1.9 0.9 0.9
Target Price (`) 402 1,326 25 3,199 356 111 71 334
Mkt Cap (` cr) 9,834 34,846 2,560 167,825 6,300 16,760 3,451 3,642 10,447
Sales (` cr) FY12E FY13E 5,375 5,799 17,046 19,318 1,097 1,202 56,859 66,948 4,893 5,111 8,959 9,844 3,007 3,340 2,541 2,802 2,356 2,846
OPM (%) FY12E FY13E 2.6 2.4 3.3 3.1 2.6 2.5 3.1 3.1 2.2 2.0 2.8 2.6 2.6 2.5 2.3 2.2 2.5 2.4
EPS (`) FY12E FY13E 59.5 63.7 152.3 174.1 3.1 3.2 226.4 289.7 18.3 15.4 43.2 48.1 15.5 17.0 9.3 10.3 25.4 28.2
PER (x) FY12E FY13E 5.7 5.3 7.2 6.3 7.3 7.0 11.7 9.1 5.5 6.5 7.4 6.6 6.4 5.9 8.3 7.5 11.8 10.7
P/BV (x) FY12E FY13E 0.9 0.8 1.5 1.2 1.3 1.2 2.0 1.7 1.2 1.0 1.3 1.2 0.9 0.8 1.1 1.0 2.3 1.9
RoE (%) FY12E FY13E 16.0 15.1 22.0 21.2 19.2 17.3 19.1 21.1 23.2 17.6 19.0 18.3 14.1 13.9 12.6 12.7 21.1 19.7
EV/Sales (x) FY12E FY13E 1.7 1.4 0.5 1.5 1.1 0.7 0.8 0.3 0.5 0.4 0.3 0.8 0.3 1.5 1.8 1.1 0.5 1.0 1.4 0.5 1.2 2.9 2.1 0.6 2.0 1.6 0.9 0.8
Sell Neutral Buy Neutral Buy Neutral Buy Buy Buy Buy Buy Neutral Buy
891 271 511 2,061 244 69 95 79 80 2,278 195 599 530
595 700 300 128 110 115 2,947 303 675
Oriental Bank Punjab Natl. Bank South Ind. Bank St Bk of India UCO Bank Union Bank (I) United Bank Vijaya Bank Yes Bank Capital Goods ABB* Areva* BGR Energy BHEL Crompton Greaves Elecon Engg Graphite India Jyoti Structures KEC International Lakshmi Machine Works McNally Bharat Engg Thermax TIL Cement ACC Ambuja Cements India Cements J K Lakshmi Cements Madras Cements UltraTech Cement Construction Consolidated Co Hind. Const. IRB Infra ITNL IVRCL Infra Jaiprakash Asso. Larsen & Toubro Madhucon Proj Nagarjuna Const.
Neutral Neutral Buy Buy Neutral Neutral
989 140 91 48 94 1,045
107 66 -
Neutral 38 Neutral 34 Buy 163 Buy 201 Buy 75 Buy 87 Buy 1,544 Accumulate 106 Buy 100
220 308 111 118 2,034 117 150
May 2011
43
Company Name
Reco
Neutral Neutral Buy Buy 25,900 4,418 12,119 17,769 9,496 12,688 59,942 141,956 7,870 38,794 1,553 631 876 4,202 1,108 34,621 165,131 1,770 1,340 9,152 881 224,011 8,735 107,526 1,843 2,147 14,818 1,333 4,353 4,453 1,342 1,475 2,555 3,109 4,246 701 3,055 3,689 3,584 4,812 800 3,325 23.0 11.6 27.5 27.2 40.2 31.6 22.3 12.7 27.0 27.4 41.5 31.4 47.7 16.6 71.4 9.7 42.2 13.7 76.0 21.7 79.5 11.2 49.3 15.3 2,776 1,612 480 19,627 33,354 1,446 1,296 5,974 1,400 46,001 5,130 35,688 3,102 1,802 650 23,565 40,458 1,669 1,491 6,748 1,559 54,711 5,753 41,345 19.9 43.1 33.6 18.3 30.6 15.0 15.5 19.5 14.9 28.9 19.1 20.1 19.9 46.7 33.5 18.7 30.0 16.3 16.9 18.2 15.4 28.9 18.6 21.1 13.6 42.1 30.5 34.2 138.6 12.9 12.8 44.6 6.5 51.2 56.8 24.2 16.3 51.8 42.3 43.0 163.6 16.2 16.7 48.8 7.8 61.3 56.7 28.8 3.3 10.5 19.1 14.6 20.8 12.4 12.8 9.8 8.2 22.4 11.8 18.3 7.8 9.9 16.0 11.8 6.8 17.9 798 310 879 360 37.7 40.4 37.8 40.6 2.3 9.5 2.5 11.7 17.9 10.7 16.1 8.7 2.8 8.5 13.8 11.6 17.7 9.8 9.9 8.9 6.8 18.7 11.8 15.4 4.9 7.6 14.3 10.3 5.8 16.1 1.0 1.7 0.6 2.0 3.1 3.8 5.0 1.5 1.9 1.8 1.4 7.3 2.0 3.9 1.7 1.5 2.7 1.9 0.7 4.5 0.9 1.5 0.5 1.4 2.8 3.1 4.1 1.3 1.6 1.6 1.3 5.9 1.8 3.3 1.3 1.2 2.4 1.6 0.6 3.8 9,124 4,763 2,526 5,268 2,723 4,196 19,345 24,357 3,431 7,277 10,663 5,415 2,818 6,033 3,174 4,681 21,922 27,509 3,926 8,435 17.2 5.6 21.3 18.6 16.4 19.5 12.2 35.2 13.7 20.1 17.4 7.0 21.8 18.7 16.9 19.9 13.0 35.3 14.1 20.7 104.9 14.3 34.0 4.1 82.7 17.8 11.3 7.6 4.9 101.0 125.8 20.8 38.0 4.8 98.3 20.3 13.2 8.6 6.1 120.1 25.8 25.9 26.2 24.6 27.3 22.0 24.2 24.2 25.9 39.8 21.5 17.8 23.4 21.3 23.0 19.3 20.8 21.4 21.0 33.5 9.2 8.7 23.4 11.1 8.1 5.5 19.7 7.1 6.9 30.3 7.2 7.3 18.1 8.8 6.7 4.7 17.2 6.1 5.5 20.5 39.9 35.7 100.1 51.0 32.6 35.1 75.9 31.9 30.8 91.1 7.0 17.3 18.6 15.1 17.4 26.3 23.8 12.1 16.1 18.9 17.2 32.6 17.3 21.3 23.9 17.2 18.0 14.3 10.2 28.3 37.6 44.5 87.2 46.1 31.8 26.3 77.9 30.6 29.0 72.9 5.9 18.3 18.6 17.0 16.7 27.1 23.0 13.3 17.4 17.4 18.5 31.5 14.9 21.7 29.6 18.9 17.7 14.9 11.0 26.1
CMP (`) 148 63 132 328 2.7 0.9 4.5 3.2 3.1 3.1 2.9 5.5 2.2 5.2 5.5 2.4 1.0 2.8 2.1 1.7 4.3 0.8 0.8 1.1 0.7 4.6 1.7 2.7 1.7 0.7 2.9 1.6 2.7 3.3
Target Price (`) 161 438
Mkt Cap (` cr) 1,035 2,094 1,980 1,627
Sales (` cr) FY12E FY13E 2,776 3,248 10,048 11,362 2,602 2,865 5,370 6,909
OPM (%) FY12E FY13E 15.0 14.6 8.4 8.4 9.8 10.4 9.7 9.8
EPS (`) FY12E FY13E 15.0 18.3 3.1 3.8 8.4 9.7 24.9 39.8
PER (x) FY12E FY13E 9.9 8.1 20.7 16.6 15.7 13.6 13.2 8.2
P/BV (x) FY12E FY13E 0.7 0.6 0.7 0.7 2.7 2.2 1.4 1.2
RoE (%) FY12E FY13E 7.0 8.1 3.4 4.1 18.4 17.9 10.8 15.3
EV/Sales (x) FY12E FY13E 1.4 1.3 0.7 0.6 1.0 0.9 0.6 0.5 2.2 0.8 4.0 2.7 2.6 2.8 2.5 4.7 1.9 4.4 5.2 2.0 0.7 2.6 1.5 1.3 3.4 0.6 0.6 0.8 0.6 3.7 1.4 2.2 1.1 0.6 2.4 1.6 2.5 2.9
Patel Engg. Punj Lloyd Sadbhav Engg. Simplex Infra FMCG Asian Paints Britannia Colgate Dabur India GlaxoSmith Con* Godrej Consumer HUL ITC Marico Nestle* Hotel
Neutral 2,700 Buy 370 Reduce 891 Accumulate 102 Neutral 2,258 Accumulate 392 Accumulate 275 Accumulate 183 Accumulate 128 Reduce 4,023
458 837 115 447 304 205 140 3,483
Hotel Leela Taj GVK Hotels IT
Neutral Buy
40 102
140
3i Infotech Educomp Everonn HCL Tech Infosys Infotech Enterprises KPIT Cummins Mphasis NIIT TCS Tech Mahindra Wipro Logistics and Shipping
Buy 46 Buy 442 Neutral 583 Buy 498 Buy 2,887 Neutral 160 Buy 164 Buy 437 Buy 54 Buy 1,145 Buy 670 Accumulate 442
55 522 603 3,435 200 537 69 1,349 796 489
ABG Shipyard Allcargo* Concor Gateway Distriparks GE Shipping Media
Neutral 369 Buy 164 Neutral 1,140 Accumulate 115 Buy 286
217 130 360
D B Corp
Buy
245
321
May 2011
44
Company Name
Reco
Buy Buy Buy Buy Buy 7,616 57,214 1,750 1,381 11,748 73,897 31,101 1,301 2,242 6,609 13,952 2,001 47,903 834 11,147 34,722 131,025 14,474 32,165 2,122 128,921 15,936 275,171 4,519 1,224 5,386 7,138 1,045 9,797 2,447 587 2,175 6,696 5,243 1,401 6,604 8,322 1,200 11,403 2,788 734 2,542 8,699 17.8 14.9 20.2 20.0 19.9 19.4 35.5 16.1 21.0 18.3 18.3 15.3 20.2 21.2 19.9 19.6 35.5 17.2 21.1 18.3 15.5 85.6 38.5 15.2 9.5 84.7 72.0 52.9 23.1 21.9 15,205 37,721 2,438 143,435 17,402 275,661 78.7 20.9 20.8 43.7 9.5 15.4 77.4 20.9 19.9 41.3 10.3 16.5 42.5 31.8 20.9 29.4 9.8 71.9 44.4 35.8 23.2 30.3 11.6 77.2 19.1 89.9 51.3 18.9 12.6 100.3 86.9 65.8 27.4 30.1 7.9 14.2 17.4 10.4 13.4 13.3 11.8 23.7 22.8 20.0 9.6 18.9 31.8 8.1 13.0 19.1 7.6 12.6 15.6 10.1 11.2 12.4 9.5 22.6 17.1 16.2 7.3 16.0 26.3 6.5 10.9 13.9 1.4 2.5 4.8 1.9 3.0 1.6 1.7 4.1 6.9 3.2 0.8 4.5 8.7 1.4 3.0 5.1 1.2 2.2 4.2 1.7 2.5 1.4 1.5 3.7 5.3 2.8 0.7 3.6 7.6 1.2 2.5 4.0 8,012 62,231 1,824 1,500 12,560 80,571 38,447 1,409 2,323 6,728 15,689 2,282 56,016 876 12,453 41,331 143,194 35.1 25.9 14.9 18.6 56.4 11.5 21.1 67.8 25.5 27.5 82.6 25.4 19.2 25.6 46.9 24.4 12.7 38.1 25.2 17.0 15.7 56.8 15.2 22.2 66.8 27.2 30.0 80.5 28.0 22.1 26.6 46.7 28.9 14.1 58.6 19.8 3.3 50.4 14.2 18.4 85.3 39.9 44.0 4.2 21.5 25.2 12.9 32.4 43.4 17.3 71.4 48.2 20.6 4.1 44.6 15.3 32.1 104.7 43.5 45.0 4.6 23.6 31.2 16.5 35.7 47.4 21.1 88.9 8.1 18.7 9.0 3.6 9.2 11.0 10.5 9.3 11.7 21.2 12.3 3.0 11.9 7.1 6.7 9.7 8.3 9.8 18.0 7.3 4.0 8.5 6.3 8.6 8.6 11.5 19.3 11.2 2.4 9.3 6.5 6.1 8.0 6.7 1.6 5.5 0.5 0.7 1.9 1.4 1.1 2.3 1.4 2.4 4.0 0.5 1.6 1.0 1.5 1.3 1.5 1.4 4.5 0.5 0.6 1.6 1.2 1.0 1.9 1.3 2.5 3.1 0.4 1.4 0.9 1.2 1.1 1.2 22.5 33.0 6.5 22.7 23.6 13.9 11.0 27.3 12.6 11.1 37.6 18.4 13.5 16.2 25.2 13.2 19.2 18.9 19.0 29.7 21.7 24.7 13.9 20.7 18.3 33.1 17.2 8.4 26.6 21.1 17.9 25.1 29.6 15.4 27.5 7.7 17.1 20.6 20.5 13.3 24.2 11.6 12.7 31.4 18.9 15.2 15.5 22.3 13.9 20.2 16.6 18.5 28.8 21.2 24.3 13.2 19.0 17.1 35.2 18.5 10.1 24.9 30.7 19.3 24.6 32.0
CMP (`) 78 150 120 103 427 3.0 3.1 1.1 0.5 2.9 0.8 1.2 3.0 2.7 3.3 5.9 0.8 1.6 1.2 1.2 1.9 0.4 4.4 1.7 1.9 2.0 0.8 1.1 1.5 3.3 3.4 3.5 1.4 2.7 7.1 1.0 1.9 2.9
Target Price (`) 108 193 150 125 580
Mkt Cap (` cr) 1,890 3,530 3,802 280 16,819
Sales (` cr) FY12E FY13E 936 961 2,009 2,245 1,241 1,355 527 612 2,216 2,503
OPM (%) FY12E FY13E 46.6 44.9 18.6 18.5 27.3 27.6 17.7 19.2 76.9 77.3
EPS (`) FY12E FY13E 10.0 9.9 8.6 9.7 6.5 7.5 4.9 8.4 21.1 24.2
PER (x) FY12E FY13E 7.8 7.9 17.5 15.5 18.5 16.1 20.9 12.3 20.2 17.7
P/BV (x) FY12E FY13E 1.3 1.2 2.7 2.3 5.7 5.4 0.8 0.8 5.6 4.6
RoE (%) FY12E FY13E 16.8 15.5 16.4 15.9 31.4 34.6 4.1 6.7 30.9 28.7
EV/Sales (x) FY12E FY13E 1.4 1.2 1.7 1.6 3.1 2.9 0.8 0.6 7.4 6.6 2.7 2.7 1.1 0.4 2.2 0.8 0.8 2.5 3.0 3.3 4.8 0.8 1.5 1.0 0.8 1.6 0.4 4.1 1.4 1.6 1.9 0.7 1.1 1.3 2.8 2.7 3.0 1.3 2.2 6.1 0.9 1.6 2.2
Neutral Neutral Buy Buy Buy Buy Buy Buy Neutral Sell Neutral Buy Buy Buy Buy Buy Buy
472 370 30 180 130 202 899 372 516 89 263 75 154 231 290 168 594
45 240 158 262 1,125 446 74 115 191 273 385 216 802
10,004 233,231 922 503 54,929 38,676 20,048 6,245 3,326 22,950 104,311 1,008 63,794 787 24,961 56,325 56,982
Deccan Chronicle HT Media Jagran Prakashan PVR Sun TV Network Metal Bhushan Steel Coal India Electrosteel Castings Godawari Power Hind. Zinc Hindalco JSW Steel MOIL Monnet Ispat NALCO NMDC Prakash Ind. SAIL Sarda Energy Sesa Goa Sterlite Inds Tata Steel Oil & Gas Cairn GAIL Gujarat Gas ONGC Petronet LNG RIL Pharmaceuticals Aurobindo Pharma# Aventis* Cadila Healthcare Cipla Dishman Pharma Dr Reddy's GSK Pharma* Indoco Remedies Ipca labs Lupin 5,153 4,670 17,928 24,492 745 27,076 19,379 525 3,752 18,657
Neutral Buy Buy Buy Accumulate Buy
337 451 362 306 131 955
539 418 356 139 1,189
64,028 57,195 4,647 261,755 9,791 312,721
Buy Neutral Buy Buy Buy Buy Neutral Buy Buy Buy
183 2,028 876 305 92 1,604 2,288 427 300 420
278 1,026 377 151 2,006 658 356 560
May 2011
45
Company Name
Reco
Orchid Chemicals Ranbaxy* Sun Pharmaceuticals Power 3,615 1,407 144,214 2,280 37,224 5,876 5,030 2,908 17,549 133,143 21,215 18,535 2,466 1,619 1,884 3,106 4,649 720 792 471 1,860 484 640 5,174 348 1,800 415 3,285 6,535 2,406 3,594 766 1,560 2,431 1,383 658 1,993 2,328 5,296 982 3,980 2,870 3,935 4,594 2,254 4,280 926 1,717 2,770 1,498 822 2,283 2,125 6,256 1,150 5,336 3,391 10.4 10.0 16.1 9.8 34.8 17.5 9.1 12.5 18.6 13.1 26.0 18.3 12.2 4.5 7.7 10.4 8.5 20.7 9.9 35.0 18.0 9.2 13.0 18.6 13.1 19.0 17.4 11.6 4.9 7.6 20.1 7.2 5.5 25.1 285.7 5.3 8.5 31.7 64.0 42.6 108.5 20.8 63.8 5.6 18.0 24.5 0.3 8.5 30.5 346.2 7.4 10.7 41.6 79.1 50.9 57.5 23.6 69.0 7.4 23.0 12.2 9.8 13.1 13.6 22.9 8.7 5.9 6.1 26.1 3.3 1.8 9.0 5.8 7.9 5.3 71,016 18,019 21,036 80,457 20,391 22,897 35.5 25.4 31.9 35.9 26.5 32.3 21.7 2.4 5.1 28.5 3.6 7.7 16.1 27.1 17.5 12.3 17.7 11.7 10.0 8.6 11.2 18.9 6.2 4.8 4.7 21.1 2.8 3.5 8.0 5.4 6.0 4.1 14,680 3,060 7,969 16,882 3,672 9,563 8.5 6.1 9.0 8.2 6.0 8.5 13.6 11.0 126.2 15.5 13.1 142.5 18.4 32.1 31.3 16.1 27.0 27.7 1.3 4.9 12.3 2.4 1.6 0.4 3.1 0.7 1.4 5.0 9.9 0.8 0.9 1.2 13.2 0.7 0.2 1.9 1.3 2.7 0.6 697 12,004 3,272 1,110 16,312 4,253 60.1 44.5 51.9 55.9 46.5 50.7 7.5 13.6 32.4 11.5 23.4 40.3 10.3 16.1 4.4 6.7 9.4 3.5 0.6 1.1 0.5 0.5 1.0 0.5 1.2 4.2 9.3 2.0 1.5 0.4 2.5 0.7 1.3 4.2 8.5 0.7 0.8 0.9 10.8 0.6 0.2 1.6 1.1 1.9 0.5 5.7 7.0 12.9 8.2 16.4 45.5 15.7 6.0 2.3 29.3 7.1 11.4 39.0 47.1 9.9 16.9 20.8 55.8 24.1 21.1 19.3 25.1 40.9 12.8 4,457 1,411 58,751 4,827 1,568 66,061 25.9 25.4 28.4 26.2 25.4 28.4 42.9 9.6 11.4 44.5 12.6 12.7 6.7 9.7 15.3 6.5 7.4 13.8 0.8 1.0 1.9 0.7 0.9 1.7 12.0 10.4 12.9 11.2 12.4 13.3 8.3 11.2 14.1 7.8 16.6 38.2 17.5 8.6 3.4 28.4 0.3 15.9 42.0 48.3 12.7 18.2 22.2 56.4 24.4 9.9 18.1 22.4 36.7 14.0
Buy Buy Buy
CMP (`) 309 431 441 1.6 1.6 2.9 3.8 4.8 2.4 0.6 1.0 2.1 2.7 1.9 2.1 0.7 0.5 1.1 0.9 5.9 0.8 0.3 0.6 3.0 0.4 0.1 1.3 0.6 0.2 0.4
Target Price (`) 369 593 530
Mkt Cap (` cr) 2,180 18,155 45,685
Sales (` cr) FY12E FY13E 2,143 2,508 10,196 12,023 7,627 9,550
OPM (%) FY12E FY13E 21.2 21.2 19.0 23.0 29.1 29.8
EPS (`) FY12E FY13E 27.7 36.9 29.1 44.8 19.6 24.1
PER (x) FY12E FY13E 11.2 8.4 14.8 9.6 22.5 18.3
P/BV (x) FY12E FY13E 2.2 2.2 2.8 2.3 4.2 3.5
RoE (%) FY12E FY13E 19.1 26.0 20.1 25.9 19.9 20.8
EV/Sales (x) FY12E FY13E 1.8 1.6 1.8 1.3 5.7 4.5 1.5 1.2 2.7 3.2 3.7 2.3 0.5 0.9 1.8 2.3 1.6 1.9 0.6 0.7 1.0 0.7 4.8 0.6 0.2 0.5 2.4 0.3 0.0 1.1 0.5 0.1 0.3
CESC GIPCL NTPC Real Estate
Buy Buy Buy
288 93 175
380 107 209
Anant Raj DLF HDIL Retail
Buy Accumulate Buy
77 219 142
114 238 242
Pantaloon Retail Shoppers Stop Titan Ind Telecom
Buy Neutral Neutral
250 354 3,953
332 -
Bharti Airtel Idea Cellular Rcom Others
Accumulate Accumulate Neutral
351 64 90
398 69 -
Bajaj Electricals Bajaj Hindusthan^ Balrampur Chini Mills^ Blue Star CRISIL Essel Propack Finolex Cables Greenply Page Industries Philips Carbon Black Polyplex Sintex Siyaram Silk Mills SpiceJet Surya Roshni
Neutral 246 Neutral 71 Neutral 73 Buy 341 Buy 6,550 Buy 46 Buy 51 Buy 195 Accumulate 1,668 Buy 142 Neutal 200 Accumulate 189 Accumulate 371 Neutral 44 Buy 95
519 7,616 58 75 270 1,898 202 212 414 137
Source: Company, Angel Research, Note: We have revised our target multiples downwards for several mid-cap stocks in light of sharp market de-rating in the mid-cap space. *estimates for CY11E and CY12E; ^ estimates for SY11E and SY12E; Price as on May 6, 2011; #EPS for Aurobindo Pharma is on recurring basis
May 2011
46
Market Strategy
Disclaimer
This document is solely for the personal information of the recipient, and must not be singularly used as the basis of any investment decision. Nothing in this document should be construed as investment or financial advice. Each recipient of this document should make such investigations as they deem necessary to arrive at an independent evaluation of an investment in the securities of the companies referred to in this document (including the merits and risks involved), and should consult their own advisors to determine the merits and risks of such an investment. Angel Broking Limited, its affiliates, directors, its proprietary trading and investment businesses may, from time to time, make investment decisions that are inconsistent with or contradictory to the recommendations expressed herein. The views contained in this document are those of the analyst, and the company may or may not subscribe to all the views expressed within. Reports based on technical and derivative analysis center on studying charts of a stock's price movement, outstanding positions and trading volume, as opposed to focusing on a company's fundamentals and, as such, may not match with a report on a company's fundamentals. The information in this document has been printed on the basis of publicly available information, internal data and other reliable sources believed to be true, but we do not represent that it is accurate or complete and it should not be relied on as such, as this document is for general guidance only. Angel Broking Limited or any of its affiliates/ group companies shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. Angel Broking Limited has not independently verified all the information contained within this document. Accordingly, we cannot testify, nor make any representation or warranty, express or implied, to the accuracy, contents or data contained within this document. While Angel Broking Limited endeavours to update on a reasonable basis the information discussed in this material, there may be regulatory, compliance, or other reasons that prevent us from doing so. This document is being supplied to you solely for your information, and its contents, information or data may not be reproduced, redistributed or passed on, directly or indirectly. Angel Broking Limited and its affiliates may seek to provide or have engaged in providing corporate finance, investment banking or other advisory services in a merger or specific transaction to the companies referred to in this report, as on the date of this report or in the past. Neither Angel Broking Limited, nor its directors, employees or affiliates shall be liable for any loss or damage that may arise from or in connection with the use of this information. Note: Please refer to the important Stock Holding Disclosure' report on the Angel website (Research Section). Also, please refer to the latest update on respective stocks for the disclosure status in respect of those stocks. Angel Broking Limited and its affiliates may have investment positions in the stocks recommended in this report.
Ratings (Returns) :
Buy (> 15%) Reduce (-5% to -15%)
Accumulate (5% to 15%) Sell (< -15%)
Neutral (-5 to 5%)
May 2011
Market Strategy
6th Floor, Ackruti Star, Central Road, MIDC, Andheri (E), Mumbai - 400 093. Tel: (022) 39357800
Research Team Fundamental: Sarabjit Kour Nangra Vaibhav Agrawal Shailesh Kanani Sageraj Bariya Srishti Anand Bhavesh Chauhan Jai Sharda Sharan Lillaney Chitrangda Kapur Amit Vora V Srinivasan Pooja Jain Yaresh Kothari Shrinivas Bhutda Sreekanth P .V.S Hemang Thaker Nitin Arora Ankita Somani Varun Varma Vasant Lohiya Poonam Sanghavi Technicals: Shardul Kulkarni Mileen Vasudeo Derivatives: Siddarth Bhamre Jaya Agarwal Institutional Sales Team: Mayuresh Joshi Abhimanyu Sofat Pranav Modi Jay Harsora Meenakshi Chavan Gaurang Tisani Production Team: Simran Kaur Bharat Patil Dilip Patel Research Editor Production Production simran.kaur@angelbroking.com bharat.patil@angelbroking.com dilipm.patel@angelbroking.com VP - Institutional Sales AVP - Institutional Sales Sr. Manager Manager Dealer Dealer mayuresh.joshi@angelbroking.com abhimanyu.sofat@angelbroking.com pranavs.modi@angelbroking.com jayr.harsora@angelbroking.com meenakshis.chavan@angelbroking.com gaurangp.tisani@angelbroking.com Head - Derivatives Derivative Analyst siddarth.bhamre@angelbroking.com jaya.agarwal@angelbroking.com Sr. Technical Analyst Technical Analyst shardul.kulkarni@angelbroking.com vasudeo.kamalakant@angelbroking.com VP-Research, Pharmaceutical VP-Research, Banking Infrastructure, Real Estate Fertiliser, Mid-cap IT Metals & Mining Mid-cap Mid-cap FMCG, Media Research Associate (Oil & Gas) Research Associate (Cement, Power) Research Associate (Metals & Mining) Research Associate (Automobile) Research Associate (Banking) Research Associate (FMCG, Media) Research Associate (Capital Goods) Research Associate (Infra, Real Estate) Research Associate (IT) Research Associate (Banking) Research Associate (Banking) Research Associate (Pharmaceutical) sarabjit@angelbroking.com vaibhav.agrawal@angelbroking.com shailesh.kanani@angelbroking.com sageraj.bariya@angelbroking.com srishti.anand@angelbroking.com bhaveshu.chauhan@angelbroking.com jai.sharda@angelbroking.com sharanb.lillaney@angelbroking.com chitrangdar.kapur@angelbroking.com amit.vora@angelbroking.com v.srinivasan@angelbroking.com pooja.j@angelbroking.com yareshb.kothari@angelbroking.com shrinivas.bhutda@angelbroking.com sreekanth.s@angelbroking.com hemang.thaker@angelbroking.com nitin.arora@angelbroking.com ankita.somani@angelbroking.com varun.varma@angelbroking.com vasant.lohiya@angelbroking.com poonam.sanghavi@angelbroking.com
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May 2011

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Please refer to important disclosures at the end of this report.

Reining inflation for steadfast growth

11.0 7.0 3.0 9.0 3.0 8.0 12.0 6.0 9.0

Please refer to important disclosures at the end of this report.

Market Strategy Reining inflation for steadfast growth

8.6 8.0 6.1 6.0 6.3 5.8 7.3

Source: CSO, Angel Research

Exhibit 2: IIP growth has moderated considerably

1,200 1,100 1,000 900 889

800 700 FY2010 FY2011E FY2012E FY2013E

Source: CSO, Angel Research

Source: Angel Research

Please refer to important disclosures at the end of this report.

Exhibit 7: Trend in revenue growth (qoq)

Sensex 1-yr fwd P/E

Source: BSE, Angel Research

Source: Company, Angel Research

Exhibit 5: Bond Yield v/s Earnings Yield

Source: Bloomberg, Angel Research

Global majors corroborating the guidance set by Indian players

10.5 7.2 5.2 4.0 4.1 7.6 8.1 4.7

6.6 5.7 3.1

6.8 4.9 2.9 1.5 1.9

4 2 0 (2) (4) 4QFY10 1QFY11

Source: Company, Angel Research

Please refer to important disclosures at the end of this report.

3000 2500 2000 1500 1000

Metamorphosis in demand drivers

New software licenses

Software license updates and product support

Source: Company, Angel Research

Exhibit 9: SAP license sales

Subscription and other related service (RHS)

Source: Company, Angel Research

Growth turning truly broad-based

36.3 16.1 2.6 16.0

40 CY2002 CY2004 CY2006

Source: Company, Angel Research

TPI points to resurgence in renewal of large restructuring deals

Please refer to important disclosures at the end of this report.

Exhibit 13: Revenue growth trend for manufacturing

5 0 (5) (10) (15)

Source: Company, Angel Broking

Exhibit 14: Revenue growth trend for energy & utilities

0 (5) (10) (15) (20)

Source: Company, Angel Broking

Source: Company, Angel Broking

Exhibit 12: Revenue growth trend for retail vertical

Source: Company, Angel Broking

Source: Company, Angel Broking

Please refer to important disclosures at the end of this report.

Exhibit 17: Trend in utilisation

(10) (20) (30)

Source: Company, Angel Broking

Source: Company, Angel Research

Exhibit 18: Trend in EBIT margin

30.2 28.3 27.1 20.0 18.2 12.9 28.0

29.0 28.0 17.8

26.3 19.1 18.0

Source: Company, Angel Research

Earnings growth to occupy a large bandwidth