Unicon Quarterly Earnings Preview - Q2FY12

QUARTERLY EARNINGS PREVIEW / Q2 -FY12 Saturday, October 01, 2011
QUARTERLY EARNINGS PREVIEW Q2 - FY12
Wealth Research, Unicon Financial Intermediaries Pvt. Ltd. Email: wealthresearch@unicon.in
Executive Summary
Indian market continued to face challenges and the markets fell by more than 12% in the quarter ended September 2011 which was one of the highest fall after October -December quarter 2008. This was contributed majorly by global headwinds in terms of downgrading of US sovereign debt and Euro crisis leading to large scale FII outflow. Lack of strong leadership in Europe and the politics in Washington are further denting the investor confidence in the region. Greece is on the verge of default and the steps taken by the Euro zone nations to bail it out have not worked. Greece has a debt of close to USD 400 bn and now has a debt greater than its GDP. In addition to this the domestic economy also registered a slower growth of 7.7% in Q1FY12 vs 9.3 in Q1FY11 & Industrial production fell by 3.3% in July 11. On the political front, last quarter saw major anti-corruption movement taking a front seat along with unfolding of major scams, which affected the political stability in the country. Lack of reforms in the country was also one of the main reasons for slower growth. Another major challenge for the economy has been the elevated levels of inflation. High inflation has been putting pressure on RBI to take anti inflationary measures (increasing the interest rates) at the cost of economic growth. Investments in industries and credit growth thus been hampered in this high interest rate regime. Going forward, we expect certain solutions by the world governments, international agencies to control global economic crisis. Debt reduction plans of the Obama administration & future plans of the FED could be decisive in engaging confidence of the global investors. Rebalancing of global currencies and EU' decision on Euro bonds along with other cooperative measures would lay the foundation for stable global fundamentals. The slower global growth will drag down the commodity prices going ahead. This will help the domestic inflation to taper down from current high levels. On domestic front we expect the government continue to take corrective actions on a) high inflation, b) high fiscal deficit, c) erratic FII flows d) changes in the FDI policy. Redressal of these issues will provide much needed stability to economic growth. We believe, the rural economy would continue to remain robust on the back of good monsoon in 2011 supporting the consumption led demand. Thus, we expect the Indian economy to register growth of 7.5% in 2011-12. We believe that cooling of commodity prices and strengthening of the US dollar could be the driving factors for Indian markets. The markets would continue to be range bound till the global concerns are addressed properly & domestic economy stabilizes. The last quarter of FY 12 would give a clearer picture wherein the corporate earnings should improve with lower raw material prices. Thereafter the rerating would lead to expansion of P/Es on selective basis. In the short term till uncertainty prevails sectors like FMCG, IT and Agri should outperform the index but for medium to long term one should start accumulating interest sensitive's like Banks, Infrastructure and automobiles.
Table of Content
Sr. No. I 1 2 3 4 II 1 2 III 1 2 3 4 5 6 IV 1 2 3 4 5 6 7 8 9 10 V 1 2 3 4 VI 1 2 3 4 5 6 7 8 9 Sector / Company Name Power BGR Energy Systems Ltd CESC Ltd KEC International Diamond Power Infrastructure Ltd Auto and Auto Ancillary Tata Motors Ltd Exide Industries Ltd Metal and Mining Tata Steel Ltd JSW Steel Ltd Adhunik Metaliks Ltd Visa Steel Ltd Hindalco Industries Ltd NMDC Ltd Banking & Finance Union Bank Of India Development Credit Bank HDFC Bank Ltd IDBI Bank Ltd Axis Bank Ltd Allahabad Bank Yes Bank Ltd Indusind Bank Ltd Corporation Bank Indian Bank Media Zee Entertainment Enterprises Ltd D.B. Corp Ltd Jagran Prakashan Ltd HT Media Ltd Pharmaceuticals Biocon Ltd Glenmark Ltd Lupin Ltd. (India) Divi's Laboratories Ltd (India) Dishman Pharmaceuticals & Chemicals Ltd (India) Apollo Hospitals Enterprise Ltd (India) Sun Pharmaceuticals Industries Ltd Ranbaxy Laboratories Ltd Opto Circuit (India) Ltd Buy Buy Hold Hold Buy Hold Hold Buy Buy 338 323 474 736 58 520 463 514 221 473 / 301 390 / 241 520 / 363 843 / 582 194 / 57 600 / 432 540 / 390 625 / 414 324 / 212 Accumulate Buy Buy Accumulate 118 205 109 148 155 / 106 310 / 200 157 / 96 186 / 125 Accumulate Buy Hold Buy Buy Buy Buy Accumulate Buy Buy 245 44 468 103 1019 158 273 262 422 214 427 / 224 77 / 39 520 / 396 202 / 101 1609 / 992 272 / 150 388 / 234 309 / 181 815 / 410 317 / 185 Buy Hold Buy Buy Buy Buy 415 592 47 59 131 227 737 / 414 1400 / 552 116 / 47 65 / 33 253 / 125 305 / 204 Buy Buy 156 130 276 / 138 188 / 110 Hold Buy Buy Buy 322 278 60 104 830 / 296 430 / 252 109 / 55 265 / 100 Rating CMP 52 Week H / L
Sr. No. VII 1 2 VIII 1 2 3 IX 1 2 3 X 1 2 3 4 5 6 7 XI 1
Sector / Company Name Food Processing Shree Renuka Sugars Ltd Rei Agro Ltd Fertiliser Chambal fertiliser & Chemicals Ltd Deepak Fertilizers & Petrochemicals Corp Ltd Coromandal International Ltd Agri Chem Rallis India Ltd Tata Chemicals United Phosphorus Ltd IT Tata Consultancy Services Ltd Infosys Ltd HCL Technologies Ltd Rolta India Ltd Persistent Systems Ltd KPIT Cummins Infosystems Ltd Hexaware Technologies Ltd Others Mundra Port & SEZ Ltd
Rating Buy Accumulate
CMP 55 25
52 Week H / L 108 / 51 30 / 21
Buy Buy Buy
94 166 305
119 / 66 213 / 133 376 / 215
Accumulate Buy Buy
173 316 138
183 / 117 447 / 302 220 / 125
Accumulate Accumulate Buy Buy Buy Accumulate Accumulate
1,037 2,533 409 83 305 151 84
1247 / 869 3499 / 2162 528 / 360 189 / 81 465 / 281 199 / 113 94 / 37
Accumulate
164
185 / 110
* Most of the stocks are rated on 12-18 months basis, though in the near term valuation remain rich.
Power
We are Neutral on the sector given the delays in setting up capacity. Shortage of fuel and environmental clearances remain a major concern for the sector. Imported coal blending in existing plants are facing limitations - technically and due to inflationary concerns and this may lead to lower PLFs despite capacity addition. The power ancillary companies are expected to post robust earnings on the back of strong order book. However new order inflows for these companies remains slow. Powergrid (PGCIL) is expected to come out with large tenders in CY11 as it goes in for capacity expansion. We expect transmission & distribution EPC companies to do well on the back of expected PGCIL & SEB contracts but competition will remain strong. The investment by the central transmission company is on track to achieve their 11th plan targets. Our top picks are CESC Ltd and KEC International.
BGR Energy Systems Ltd (BGR)

CMP: INR 326 Particulars Revenue from Operations Operating Expenses EBITDA EBITDA (%) Reported PAT PAT (%) EPS Q2FY12E 11,991 10,648 1,343 11.2 782 6.5 10.8 Q2FY11 11,337 10,014 1,323 11.7 778 6.9 10.8 Q1FY12 7,312 6,351 961 13.1 503 6.9 7.0 YoY(%) 5.8 6.3 1.5 -47 bps 0.5 -34 bps 0.7 QoQ(%) 64.0 67.7 39.8 -194 bps 55.6 -35 bps 55.9 Bloomberg* 12,423 10,969 1,454 11.7 848.0 6.8 11.8 HOLD (INR in Mn) Dev (%) -3.5 -2.9 -7.6 -50 bps -7.8 -31 bps -8.2
Market Cap: 23,400

* S ta nda lo ne F ina nc ia ls
P/E (FY13E): 6.2x
Valuation & Outlook BGR continues to face challenging times despite becoming a L1 in the 9 x 800MW NTPC bulk tender. Its current order book stands at INR 36bn which is lower than its greenfield capex of INR 44bn. Besides, aggressive bidding and import of supercritical technology would shrink margins for the company. Macro economic concerns like coal price hike and increase in funding cost would continue to impact the sector growth. Stock is trading at a PER of 6.2x its FY13E earnings. We downgrade BGR to HOLD with a reduced price target of INR 355.
CESC Ltd.
CMP: INR 277 Particulars Revenue from Operations Operating Expenses EBITDA EBITDA (%) Reported PAT PAT (%) EPS Q2FY12E 11,629 8,869 2,760 23.7 1,361 11.7 10.9 Q2FY11 10,900 7,720 3,180 29.2 1,550 14.2 12.4 Q1FY12 11,690 9,020 2,670 22.8 1,110 9.5 8.9 YoY(%) 6.7 14.9 -13.2 -544 bps -12.2 -251 bps -12.2 QoQ(%) -0.5 -1.7 3.4 89 bps 22.6 221 bps 22.3 Bloomberg* 11,620 8,782 2,838 24.4 1295.5 11.1 9.2 BUY (INR in Mn) Dev (%) 0.1 1.0 -2.7 -69 bps 5.1 56 bps 18.4
Market Cap: 34,200

P/E (FY13E): 6.4x
Valuation & Outlook Shortage in fuel availability would impact the PLF at CESC's Chandrapur project. Limited coal supply assurance, only 50%, by Coal India continues to be a major concern. Delay in break-even of retail business would further dent the margins. However, considering decent cash flows and revenue visibility till FY13 we believe the stock is trading at an attractive valuation of 6.4x its FY13E earnings. Hence, we maintain BUY on the stock with a reduced price target of INR 350.
KEC International Ltd

CMP: INR 57 Particulars Revenue from Operations Operating Expenses EBITDA EBITDA (%) Reported PAT PAT (%) EPS Q2FY12E 12,253 10,926 1,328 10.8 578 4.7 2.2 Q2FY11 10,001 8,992 1,009 10.1 427 4.3 1.7 Q1FY12 10,225 9,265 960 9.4 331 3.2 1.3 YoY(%) 22.5 21.5 31.7 75 bps 35.3 45 bps 35.3 QoQ(%) 19.8 17.9 38.3 145 bps 74.8 148 bps 74.3 Bloomberg* NA NA NA NA NA NA NA BUY (INR in Mn) Dev (%) NA NA NA NA NA NA NA
Market Cap: 14,650

* C o ns o lida te d F ina nc ia ls
P/E (FY13E): 4.6x
Valuation & Outlook KEC holds a healthy order book of INR 81bn, diversified across continents. Hence, macro economic concerns like reduced availability of coal and increase in interest rate would not severely impact the topline of the company. Margin for new segments like cable, railways & telecom are low and are expected to pick up only in FY13. Domestic order book is expected to pick in H2FY12. Any improvement in sector outlook could trigger this stock and hence we recommend BUY with a revised price target of INR 73, showing an upside potential of 28% from current valuation of 4.6x FY13E earnings.
Diamond Power Infrastructure Ltd (DPIL)

CMP: INR 104 Particulars Revenue from Operations Operating Expenses EBITDA EBITDA (%) Reported PAT PAT (%) EPS Q2FY12E 3,970 3,402 569 14.3 289 7.3 7.8 Q2FY11 3,501 3,005 496 14.2 278 7.9 7.5 Q1FY12 3,698 3,196 503 13.6 296 8.0 8.0 YoY(%) 13.4 13.2 14.6 15 bps 4.2 -65 bps 4.2 QoQ(%) 7.4 6.4 13.1 73 bps -2.4 -73 bps -2.4 Bloomberg* NA NA NA NA NA NA NA BUY (INR in Mn) Dev (%) NA NA NA NA NA NA NA
Market Cap: 3,600

P/E (FY13E): 3.3x
Valuation & Outlook Diamond Power (DP) holds an order book of INR 17bn or 1.2x its FY11 revenues. The company needs pick up in order activity from major players like Power Grid and State Electricity boards. Revenue from the transformer segment are expected to improve going forward. Stock is trading at 3.3x its FY13E earnings and we recommend a BUY rating on the stock with a price target of INR 130.
Auto & Auto Ancillaries

Tata Motors Ltd
CMP: INR 156 Particulars Revenue from Operations Operating Expenses EBITDA EBITDA (%) Reported PAT PAT (%) EPS Q2FY12E 372,453 322,810 49,643 13.3 26,532 7.1 49.3 Q2FY11 285,727 258,468 27,259 9.5 22,230 7.4 34.8 Q1FY12 333,818 291,557 42,261 12.7 19,996 7.4 41.4 YoY(%) 30.4 24.9 82.1 379 bps 19.4 -28 bps 41.6 QoQ(%) 11.6 10.7 17.5 5.3 32.7 -31 bps 19.2 Bloomberg* 333,401 292,995 44,221 13.9 21,657 6.3 39 BUY (INR in Mn) Dev (%) 11.7 10.2 12.3 (3.9) 22.5 12.4 26.4
Market Cap: 420,140

* C o n s o lid a t e d F in a n c ia ls
P/E (FY12E): 5.8x
Valuation & Outlook The overall growth story of TATA Motors remained intact as the company's JLR arm has shown robust growth. There are some concerns related to the increase in raw material costs which have adversely affected the EBITDA margin but we expect volume growth to offset the same. Company's domestic business in PV is expected to show some deceleration due to the higher inflation and high interest rate regime but CV segment is expected to show a steady growth. At consolidated level the over all business is expected to do well as the JLR which contribute 65% of the total revenue continues to grow at a rapid pace. The new launch, the Land Rover Evoque, should lead to volume growth going forward. At CMP the stock is trading at PE of 3.7x its FY13e earnings. We recommend BUY with a target price of INR 200.
Exide Industries Ltd

CMP: INR 130 Particulars Revenue from Operations Operating Expenses EBITDA EBITDA (%) Reported PAT PAT (%) EPS Q2FY12E 13,376 10,512 2,864 21.4 1,853 13.9 2.2 Q2FY11 11,267 8,812 2,455 21.8 2,129 18.9 2.5 Q1FY12 12,437 10,214 2,223 17.9 1,632 13.1 1.9 YoY(%) 18.7 19.3 16.7 -38 bps -13.0 -504 bps -12.8 QoQ(%) 7.6 2.9 28.9 354 bps 13.5 73 bps 13.0 Bloomberg* 14,609 11,929 2,678 19.3 1,730 12.6 2.0 BUY (INR in Mn) Dev (%) (8.4) (11.9) 7.0 10.7 7.1 9.9 6.9
Market Cap: 109,690

* S t a n d a lo n e F in a n c ia ls
P/E (FY12E): 14.9x
Valuation & Outlook During this quarter the company has entered to the price battle with price reduction of few of its product in the market. We expect that the top line of the company would be affected due lower realization. In addition to this the company has initiated steps to reduce inventory (cut down its production of most automobile products barring two wheeler, by 10%-15% in September, up from a 5% cut in August) considering slowing in demand for automobiles. Moreover replacement market for batteries is going strong and company having leadership will be on strong growth path going forward. The company's valuation seems to be attractive at this point of time considering the ongoing developments. At CMP the stock is trading at a PE multiple of 8x its FY13e earnings. We recommend a BUY on the stock with a price target of INR 165.
Metal
The Macro economic concerns and Global slowdown has subdued the demand for base metals, whereas supply side constraints have put the key raw material prices at the higher levels. Despite slowdown in the demand which resulted in the lower realization has squeezed the operating margin of the entire metal industry and mostly of the non integrated players. The players in the ferrous metal like steel are struggling due continued uncertainty regarding the demand for steel and the higher iron ore prices along with mining ban at the Bellary region at Karnataka. At the Non ferrous front, Aluminium, Copper & Zinc, which are basically Dollar denominated, have been adversely affected on the back of consumption concerns on the industrial front, continued rupee depreciation compared to Dollar along with liquidation of investor holding positions due to the price safety measure. We believe that the short term demand concerns along with higher raw material prices would dent the operating margins of the entire metal industry. Furthermore Q2 tends to be a slower quarter for the in industry; we do not expect an improved performance from the industry. However, prices are expected to pick up post Q3, and would provide some relief to the industry. Our top picks of the sectors are TATA Steel, Hindalco, and Adhunik Metaliks & NMDC.
TATA Steel
CMP: INR 415 Particulars Revenue from Operations Operating Expenses EBITDA EBITDA (%) Reported PAT PAT (%) EPS Q2FY12E 302,520 269,848 32,672 10.8 10,588 3.5 9.0 Q2FY11 280,909 244,186 36,723 13.1 19,788 7.0 22.0 Q1FY12 328,399 289,766 44,229 13.5 53,466 16.3 55.8 YoY(%) 7.7 10.5 -11.0 -227 bps -46.5 -354 bps -59.2 QoQ(%) -7.9 -6.9 -26.1 -267 bps -80.2 -1278 bps -83.9 Bloomberg* 317,634 220,274 37,397 11.8 11,790 3.7 10.0 BUY (INR in Mn) Dev (%) (4.8) 22.5 (12.6) (8.3) (10.2) (5.7) (10.2)
Market Cap: 398,074

P/E (FY12E): 5.7x
Valuation & Outlook During the Q2FY12 the entire metal industry suffered as the base metal prices have corrected by more than 15-20% on the expectation of sluggish demand. Tata steel being the global player would be most affected as major of its operations is located in UK which is not expected to do well. Company's domestic operation would be less affected compared to the other players from the ongoing raw material crunch due to company's significant backward integration. Though TATA steel's Q1FY12 performance was above expectation on the back of few divestment plan made by the company but the Q2FY12 results seems to be affected due to slow down in demand and seasonal factors. Company's initiation towards strategic investment and product line would help the company on a long term basis. At CMP the stock is trading at 4.6x of its FY13e EV/EBITDA. We remain positive on the stock but reduce our price target of INR 520.
JSW Steel Ltd (JSW)

CMP: INR 592 Particulars Revenue from Operations Operating Expenses EBITDA EBITDA (%) Reported PAT PAT (%) EPS Q2FY12E 70,450 61,200 9,250 13.1 2,925 4.2 16.2 Q2FY11 59,081 48,854 10,227 17.3 3,733 6.3 19.5 Q1FY12 74,324 289,766 14,348 19.3 4,852 6.5 21.4 YoY(%) 19.2 25.3 -9.6 -418 bps -21.6 -217 bps -16.9 QoQ(%) -5.2 -78.9 -35.5 -618 bps -39.7 -238 bps -24.2 Bloomberg* 79,659 220,274 10,828 13.6 3,395 4.3 18.8 HOLD (INR in Mn) Dev (%) (11.6) (72.2) (14.6) (3.4) (13.8) (2.6) (13.8)
Market Cap: 132,085

P/E (FY12E): 4.9x
Valuation & Outlook Though the company has successfully operationalized its brown field expansion at its Vijaynagar plant, the current iron ore mining ban in the Bellary region has urged JSW steel to cut down its production to 30% capacity. If Government of India would not be able to provide any immediate solution to the problem then JSW steel would be most affected, being not fully backward integrated. Considering the recent turmoil the company would miss the annual guidance of 9 mn tonnes of steel production which would ultimately affect company bottom line. In addition, due to seasonal effect the company is not expected to perform well in the Q2FY12. Material sourcing would be the major concern for the company going ahead where lot of uncertainty is there. At CMP of INR 590 the stock is trading at 5.2x of its FY13e EV/EBITDA. Considering the current uncertainty regarding the raw material sourcing and demand growth, we recommend hold on the stock with price target of INR 650.
Adhunik Metaliks Ltd

CMP: INR 47 Particulars Revenue from Operations Operating Expenses EBITDA EBITDA (%) Reported PAT PAT (%) EPS Q2FY12E 4,480 3,330 1,150 25.7 157 3.5 0.7 Q2FY11 3,786 2,720 1,066 28.2 365 9.6 3.0 Q1FY12 4,635 3,174 1,460 31.5 284 6.1 2.3 YoY(%) 18.3 22.4 7.9 -248 bps -56.9 -613 bps -77.2 QoQ(%) -3.3 4.9 -21.2 -584 bps -44.7 -262 bps -70.8 Bloomberg* 4,289 3,028 1,261 29.4 164 3.8 0.7 BUY (INR in Mn) Dev (%) 4.5 10.0 (8.8) (12.7) (4.0) (8.1) (4.0)
Market Cap: 5,804

P/E (FY12E): 2.8x
Valuation & Outlook Adhunik Metaliks has executed its captive iron ore mines during the quarter which would help the company lowering its raw material cost. Being located at the eastern region of the country it would not be majorly affected by the ongoing controversy of iron ore mining at the southern part of India. Company's continuous focus to shift its major concentration toward the mining segment would help it to resist major downside due to the global slowdown in demand. Again due to the seasonal problem coupled with global correction in the base metal prices would affect the mining business of the company to a certain extent in this quarter. Moreover the recent plan to divest its stake at Neepaz V Forge to strategic investor may help the company to deleverage the balance sheet. At CMP the stock is trading at 4x of its FY13e EV/EBITDA. Considering all these aspect we remain positive on the stock with a price target of INR 80.
10
VISA Steel
CMP: INR 59 Particulars Revenue from Operations Operating Expenses EBITDA EBITDA (%) Reported PAT PAT (%) EPS Q2FY12E 3,725 3,250 475 12.8 113 3.0 1.0 Q2FY11 3,248 2,815 433 13.3 103 3.2 0.9 Q1FY12 3,652 3,204 448 12.3 101 2.8 0.9 YoY(%) 14.7 15.5 9.7 -58 bps 9.6 -14 bps 9.3 QoQ(%) 2.0 1.4 5.9 47 bps 11.5 26 bps 11.7 Bloomberg* NA NA NA NA NA NA NA BUY (INR in Mn) Dev (%) NA NA NA NA NA NA NA
Market Cap: 6,490

P/E (FY12E): 5.4x
Valuation & Outlook Q2 being the slow moving quarter coupled with non availability of raw materials has adversely affected to the mid cap companies. During the quarter VISA steel was forced to shut down its plant on the back of non availability of iron ore. The company was dependent on Gandhamardan and Daitari Iron Ore Mines of Orissa Mining Corporation (OMC) for its iron ore sourcing which has stopped supplying iron ore to the entire industry. Considering this, we do not expect the company to deliver good sets of numbers though the company's recent commencement of the bar & wire rod mill is expected to boost the financials of the company as they are value added products. At CMP of INR 58 stock is trading at EV/EBITDA of 6x its FY13e. We remain positive on the stock with a price target of INR 75.
Hindalco Industries Ltd.

CMP: INR 131 Particulars Revenue from Operations Operating Expenses EBITDA EBITDA (%) Reported PAT PAT (%) EPS Q2FY12E 59,250 51,548 7,703 13.0 4,148 7.0 2.5 Q2FY11 58,028 51,044 6,984 12.0 4,338 7.5 2.3 Q1FY12 59,790 51,120 8,671 14.5 6,440 10.8 3.4 YoY(%) 2.1 1.0 10.3 97 bps -4.4 -48 bps 8.6 QoQ(%) -0.9 0.8 -11.2 -150 bps -35.6 -377 bps -26.6 Bloomberg* 99,598 91,006 8,592 8.6 6,642 6.7 3.9 BUY (INR in Mn) Dev (%) (40.5) (43.4) (10.4) 50.7 (37.6) 5.0 (37.6)
Market Cap: 250,789

P/E (FY12E): 9.3x
Valuation & Outlook The company's financials have been impacted in Q2 due to the global slowdown, correction in the prices of base metals and gradual rupee depreciation against the dollar. Further, company's competitive edge of low cost manufacturing has been offset due to increased cost and issues over the availability of coal and bauxite resulting from the policy impasse. Although we expect Novelis to perform well on the back of improved product mix, cost reduction initiatives, and increased conversion margins. All the negative news has already been factored in the current price and valuation seems to be attractive. At CMP of INR 131, the stock is trading at EV/EBITDA of 4.5x its FY13e. We recommend buy at a target price of INR 193.
11
NMDC
CMP: INR 227 Particulars Revenue from Operations Operating Expenses EBITDA EBITDA (%) Reported PAT PAT (%) EPS Q2FY12E 28,422 2,582 25,840 90.9 17,622 62.0 4.9 Q2FY11 25,180 4,669 20,511 81.5 15,040 59.7 3.8 Q1FY12 37,698 10,307 27,390 72.7 20,986 55.7 5.3 YoY(%) 12.9 -44.7 26.0 946 bps 17.2 227 bps 28.5 QoQ(%) -24.6 -75.0 -5.7 1826 bps -16.0 633 bps -7.9 Bloomberg* NA NA NA NA NA NA NA BUY (INR in Mn) Dev (%) NA NA NA NA NA NA NA
Market Cap: 899,991

P/E (FY12E): 11.7x
Valuation & Outlook NMDC is the major beneficiary (higher off-take with better realization) of the ongoing mining controversy at the Bellary region. Considering the demand supply gap along with government's directive to fulfill the demand, the company has initiated steps to increase its mining capacity from 1 mn tonnes/pm to 1.5 mn tonnes/pm. Though there is slowdown expected in demand for steel, the rush for iron ore in the market is expected to boost the top line as well as bottom-line of the company. We expect company's margin to be above average for the ongoing quarter due to higher realization. At CMP the stock is trading at 6.5x its FY13e. We recommend BUY on the stock with a price target of INR 260.
12
Banking
The credit growth of ~24% witnessed in FY11 is likely to slowdown in FY12 due to high interest rate regime. However, we believe that the interest rates are near its peak levels as most of the commodity prices have already started to correct which would lead to softer inflation. Thus banking industry is expected to register a credit growth of approx. 18%. This growth will be primarily led by non-infra & retail loan book which has higher risk to asset quality of banks & can lead to higher provisioning affecting the profitability. Public sector banks are more vulnerable given the asset quality concerns as compared to private sector banks. Growth in deposits which has been lagging till now will see a revival going forward, due to high deposit rates.This along with more focus on branch expansion will help the banks in garnering more CASA, and maintain its NIMs. The Bank Nifty Index has corrected by 22% since April 2011 till date pricing in the near term challenges and expected dip in earnings due to lower GDP forecast. However, the correction in public sector banks especially mid cap psus was more than the private sector banks. We remain positive on selective banks which have a) robust deposit franchise, b) diversified loan book & growth visibility, c) healthy capital adequacy and d) comfortable valuation. Our preferred picks are 1) Axis Bank 2) IDBI Bank 3) YES Bank 4) Indian Bank 5) DCB
Union Bank of India

CMP: 243 Particulars Interest Income Interest Expense Net Interest Income Operating Profit Operating Profit Margin Reported PAT PAT Margin EPS Market Cap: 127,413
* S ta nda lo ne F inanc ia ls
ACCUMULATE (INR in Mn) Q2FY12E 52,107 35,916 16,191 11,281 19.7 3,433 6.0 5.40 Q2FY11 39,522 24,164 15,358 11,306 25.4 3,034 6.8 6.00 Q1FY12 49,157 33,255 15,902 11,658 21.5 4,644 11.4 7.30 YoY(%) 31.8 48.6 5.4 -0.2 -22 bps 13.2 -80 bps -10.00 QoQ(%) Bloomberg* 6.0 8.0 1.8 -3.2 -8 bps -26.1 -540 bps -26.03 NA NA NA NA NA NA NA NA Dev (%) NA NA NA NA NA NA NA NA
P/BV (FY12E): 1.0x
Valuation & Outlook Union Bank of India is expected to grow deposits & credit ~20% & ~22% in FY12E respectively and fee-based income in line with the loan-book thus overall profitability should be up by 22% in FY12E. Going forward margins are likely to witness some pressure, largely in line with the industry trend. On the other hand, we expect slippages to remain elevated in the coming few quarters due to migration to system based NPL recognition method. We have BUY rating on stock for the price target of INR 270.
13
Development Credit Bank

BUY (INR in Mn) Q2FY12E 1,810 1,229 581 214 10.3 119 5.7 0.59 Q2FY11 1,279 815 464 208 12.4 48 3.0 0.24 Q1FY12 1,616 1,098 519 165 8.9 88 4.7 0.44 YoY(%) 41.5 50.8 25.2 2.9 -210 bps 147.9 270 bps 145.83 QoQ(%) Bloomberg* 12.0 11.9 11.9 29.7 140 bps 35.2 100 bps 34.09 NA NA NA NA NA NA NA NA Dev (%) NA NA NA NA NA NA NA NA
P/BV (FY12E): 1.2x
Valuation & Outlook DCB has revamped itself since FY09 and with change in management and business strategy we believe DCB to run on growth trajectory going forward. We believe that with thrust on improving NIMs, CASA ratio, better core operating income and return ratios, DCB would be one of the fastest growing Indian banks over next few years. We expect DCB to control its incremental slippages and maintain NIM in the range of ~3.3% levels by FY13E. At the CMP stock trades at 1.3x & 1.2x its FY12E & FY13 book value respectively. We expect return ratios to improve from hereon for the bank i.e. RoE to reach to 9.8% in FY13E from 3.5% in FY11. Thus, we value the bank's business at 1.7x FY13E P/BV, thereby evaluating it at INR 64.
HDFC Bank
HOLD (INR in Mn) Q2FY12E 64,562 35,056 29,506 21,177 27.6 10,966 14.3 23.49 Q2FY11 48,100 22,837 25,263 18,071 31.3 9,121 15.8 19.72 Q1FY12 59,780 31,300 28,480 20,334 28.6 10,850 15.2 23.24 YoY(%) 34.2 53.5 16.8 17.2 -370 bps 20.2 -150 bps 19.12 QoQ(%) Bloomberg* 8.0 12.0 3.6 4.1 -100 bps 1.1 -90 bps 1.08 NA NA NA NA NA NA NA NA Dev (%) NA NA NA NA NA NA NA NA
P/BV (FY12E): 3.7x
Outlook & Valuation HDFC Bank, going forward is expected to keep ~22% of credit growth & also expected to maintain the CASA ratio at ~50%. On back of continuous growth momentum, strong business & credit growth, maintaining asset quality & strong capital adequacy HDFC bank, due to this its commands a premeium in its valuations. We have HOLD rating on the stock for a target price of INR 513 next 12-18 months.
14
IDBI Bank
BUY (INR in Mn) Q2FY12E 64,733 50,137 14,596 13,578 19.4 4,436 6.3 4.51 Q2FY11 45,773 34,092 11,680 10,256 20.2 4,291 8.5 4.36 Q1FY12 56,289 44,765 11,524 10,308 17.0 3,352 5.5 3.40 YoY(%) 41.4 47.1 25.0 32.4 -80 bps 3.4 -216 bps 3.44 QoQ(%) Bloomberg* 15.0 12.0 26.7 31.7 239 bps 32.3 77 bps 32.65 NA NA NA NA NA NA NA NA Dev (%) NA NA NA NA NA NA NA NA
P/BV (FY12E): 0.6x
Valuation & Outlook The management has maintained its strategy of slower loan book growth, in favour of a higher CASA share and higher NIMs & indicated to take branch network to about 1100 by end of FY12. While the present 810 branches are predominantly urbanconcentrated (67%), the bank intends to increase its presence in semi-urban areas going forward. We believe this would continue to increase the contribution of retail deposits in the banks funding mix and drive strong CASA. In wake of lower NIMs, the bank has indicated a strategy of lower advances growth (~15% for FY12) than the system to concentrate on increasing the percentage of low-cost CASA deposits and consciously shifting focus from large corporate lending to retail and MSME lending to bring in higher-yielding loans. In our view, IDBI will return to growth trajectory over medium to long period as it has now strategically opted for low business growth and improving performance. This would enable the bank to bring its perormance in line with industry average. We value the stock at 1.2x and maintain BUY recommendation with a price target of INR 196.
Axis Bank
CMP: 1,030 Particulars Interest Income Interest Expense Net Interest Income Operating Profit Operating Profit Margin Reported PAT PAT Margin EPS Market Cap: 424,237
BUY (INR in Mn) Q2FY12E 53,695 36,309 17,386 15,430 23.5 8,653 13.1 21.01 Q2FY11 36,243 20,092 16,151 14,864 31.9 7,351 15.7 17.98 Q1FY12 48,814 31,573 17,241 15,585 25.7 9,424 15.5 22.88 YoY(%) 48.2 80.7 7.6 3.8 -840 bps 17.7 -260 bps 16.85 QoQ(%) Bloomberg* 10.0 15.0 0.8 -1.0 -220 bps -8.2 -240 bps -8.17 NA NA NA NA NA NA NA NA Dev (%) NA NA NA NA NA NA NA NA
P/BV (FY12E): 1.9x
Outlook & valuation Axis bank (Axis) is targeting a credit growth of ~30% in FY12, much higher than 20% system growth anticipated by RBI. On back of branch expansion (250 branches in FY12) the cost-income ratio is expected to gradually move up to 44-45%. In tighter monetary policy regime banks NIMs are cushioned with higher CASA ratio. We remain positive on the bank, owing to its attractive CASA franchise, rapid branch expansion, and multiple sources of sustainable fee income, strong growth outlook. We have BUY rating on the stock for a target price of INR 1349.
15
Allahabad Bank (ALBK)

BUY (INR in Mn) Q2FY12E 40,113 27,304 12,809 9,664 22.3 4,477 10.3 9.40 Q2FY11 26,367 16,677 9,690 7,813 26.2 4,025 13.5 9.01 Q1FY12 35,498 23,743 11,756 8,896 23.1 4,181 10.9 8.78 YoY(%) 52.1 63.7 32.2 23.7 -390 bps 11.2 -320 bps 4.33 QoQ(%) Bloomberg* 13.0 15.0 9.0 8.6 -80 bps 7.1 -60 bps 7.06 NA NA NA NA NA NA NA NA Dev (%) NA NA NA NA NA NA NA NA
P/BV (FY12E): 0.7x
Outook & Valuation Allahabad Bank is in a strong growth trajectory with strong distribution network and vast customer base in CASA-rich states. This provides significant business opportunities in the current rising interest rate scenario. This along with a balanced loan portfolio and high proportion of low-cost funds would help the bank earn better margins compared with other public sector banks. The stock trades at 0.7x of its FY12E BV. Maintaining asset quality would be a key challenge for the bank going ahead, but cheap valuations offer a good buying opportunity. We maintain BUY rating on the stock for target price of INR 304.
YES Bank
BUY (INR in Mn) Q2FY12E 15,395 11,812 3,582 3,403 19.6 2,176 12.5 6.25 Q2FY11 9,538 6,406 3,132 2,814 25.9 1,763 16.2 5.11 Q1FY12 13,995 10,454 3,542 3,251 20.7 2,161 13.8 6.21 YoY(%) 61.4 84.4 14.4 20.9 -630 bps 23.4 -370 bps 22.31 QoQ(%) Bloomberg* 10.0 13.0 1.1 4.7 -110 bps 0.7 -130 bps 0.64 NA NA NA NA NA NA NA NA Dev (%) NA NA NA NA NA NA NA NA
P/BV (FY12E): 2.0x
Valuation & Outlook YES Bank has been able to register strong business growth, profitability with stable margins & strong asset quality. Additionally the bank is expanding ~125 branches every year, which would help to improve its CASA ratio to 15% in FY12E. We remain positive on long term prospects of the bank. We maintain BUY rating on the stock for target price of INR 393.
16
Indusind Bank
ACCUMULATE (INR in Mn) Q2FY12E 12,461 8,520 3,941 3,226 21.7 1,823 12.2 3.91 Q2FY11 8,541 5,244 3,297 2,619 25.4 1,331 12.9 2.89 Q1FY12 11,646 7,746 3,900 3,117 22.5 1,802 13.1 3.86 YoY(%) 45.9 62.5 19.5 23.2 -370 bps 37.0 -70 bps 35.29 QoQ(%) Bloomberg* 7.0 10.0 1.1 3.5 -80 bps 1.2 -86 bps 1.30 NA NA NA NA NA NA NA NA Dev (%) NA NA NA NA NA NA NA NA
P/BV (FY12E): 2.7x
Valuation & Outlook Indusind Bank is planning to increase its branch network thereby aiding growth in CASA ratio ~28-30%, which will help the bank increase its NIMs ~3.5% further in FY12. Bank is expected to deliver healthy bottomline growth in FY12 and also to expand its product suite and services. We have ACCUMULATE rating on the stock with target price of INR 306.
Corporation Bank
BUY (INR in Mn) Q2FY12E 33,357 26,114 7,243 5,908 16.2 3,518 9.7 23.70 Q2FY11 21,581 14,429 7,152 5,735 24.1 3,517 14.8 24.50 Q1FY12 29,783 22,708 7,076 5,764 17.6 3,515 10.8 23.70 YoY(%) 54.6 81.0 1.3 3.0 -790 bps 0.0 -510 bps -3.27 QoQ(%) Bloomberg* 12.0 15.0 2.4 2.5 -140 bps 0.1 -110 bps 0.00 NA NA NA NA NA NA NA NA Dev (%) NA NA NA NA NA NA NA NA
P/BV (FY12E): 0.8x
Valuation & Outlook Corporation Bank is improving interms of its business. We expect credit growth of ~24% in FY12E. Margin improvement is going to be a challenge in increasing interest rate cycle; however, margins are likely to be cushioned with higher CASA ratio of ~27% in FY12E. We have BUY rating on the stock for a target of INR 522.
17
Indian Bank
BUY (INR in Mn) Q2FY12E 30,040 19,266 10,774 8,235 25.2 4,031 12.3 9.38 Q2FY11 22,756 12,924 9,832 7,389 30.7 4,158 16.2 9.67 Q1FY12 27,814 17,514 10,300 7,811 25.7 4,069 13.4 9.47 YoY(%) 32.0 49.1 9.6 11.4 -550 bps -3.1 -390 bps -3.00 QoQ(%) Bloomberg* 8.0 10.0 4.6 5.4 -50 bps -0.9 -110 bps -0.95 NA NA NA NA NA NA NA NA Dev (%) NA NA NA NA NA NA NA NA
P/BV (FY12E): 0.9x
Outook & Valuation Indian Banks loan book is skewed towards high yielding segments such as SME, retail and agriculture, which form about 43% of the banks advances. As a result, despite having a moderate CASA ratio of 32%, the banks NIMs are the highest amongst its peer set at around 3.7% as compared to ~3.1% for its peers. Best in class NIMs coupled with sound asset quality and cost efficiencies has led to superior ROAs for the bank ~1.7%. Managements strategy of moderating growth with focus on margins & asset quality would be positive for the bank from long term perspective. We have BUY rating on the stock for target price of INR 275.
18
Media and Entertainment

The overall sentiment continues to remain cautious in media and entertainment industry on account of the weaker growth outlook coupled with margin pressures witnessed by FMCG companies due to higher commodity prices which is holding back their advertisment spendings. Print media companies are expected to report lower double digit ad revenue growth and could witness pressure on the cost side due to firming up of newsprint prices, increasing competition and rupee depreciation. TV ad revenue growth is also expected to remain muted till the start of festive season. However, the subscription revenue is expected to drive the top line, backed by DTH and increasing digitization by the cable companies. As per FICCI-KPMG India, Media and Entertainment Industry is expected to grow at CAGR of 14% to reach INR 1275 bn in 2015 backed by growing media consumption, increasing penetration and growing digitization.
Zee Entertainment Enterprises Ltd

CMP: INR 117 Particulars Revenue Operating Expenses EBITDA EBITDA (%) Reported PAT PAT (%) EPS Q2FY12E 7,458 5,743 1,715 23 1,479 20 1.5 Q2FY11 7,116 5,230 1,885 26 1,257 18 2.5 Q1FY12 6,983 5,423 1,560 22 1,336 19 1.4 YoY(%) 4.8 9.8 -9.0 -349 bps 17.7 217 bps -39.5 QoQ(%) 6.8 5.9 9.9 65 bps 10.7 70 bps 10.4 ACCUMULATE (INR in Mn) Bloomberg* 7,553 5,518 2,035 27 1,553 21 1.52 Dev (%) -1.26 4.07 -15.71 -394 bps -4.76 -73 bps -0.52
Market Cap: 114,670

P/E (FY12E): 17.5x
Valuation & Outlook Zee Entertainment Enterprises Ltd (ZEEL) ad revenue growth is expected to remain flat in FY12, on account of reduction in ad spend by FMCG, Real Estate, Banking players. Zee TV the flagship channel of ZEEL has been affected by the non-fiction high cost shows in other channels and has moved to the No.4 slot behind Star, Colors and Sony. However, the subscription revenue is expected to grow largely, driven by DTH and increasing digitilization. The Star-Zee distribution JV is also expected to provide an edge to boost the subscription revenue. At the CMP stock trades at 17x and 15x for FY12E and FY13E respectively. We maintain ACCUMULATE on the stock with a target price of 140.
19
D.B.Corp Ltd.
CMP: INR 203 Particulars Revenue Operating Expenses EBITDA EBITDA (%) Reported PAT PAT (%) EPS Q2FY12E 3,596 2,589 1,007 28 650 18.1 3.5 Q2FY11 3,010 2,059 951 32 551 18 3.0 Q1FY12 3,537 2,534 1,003 28 611 17 3.3 YoY(%) 19.5 25.8 5.8 -361 bps 18.0 -22 bps 17.0 QoQ(%) 1.7 2.2 0.4 -35 bps 6.4 81 bps 6.5 Bloomberg* 3,417 2,453 964 28 568 17 3.12 BUY (INR in Mn) Dev (%) 5.24 5.55 4.45 -21 bps 14.44 145 bps 13.66
Market Cap: 37,280

P/E (FY12E): 14.x
Valuation & Outlook DB Corp's flagship Hindi daily Dainik Bhaskar (DB) demonstrated steady performance and maintained its second position with 14.17 mn Average Issue Readership in Q22011 registering 1.1% growth from Q12011 IRS survey. It maintained its dominant position in Chandigarh, Chattisgarh, and Haryana. With the launch of its Marathi news paper DB corp has become the most regionally diversified print media company. Moreover, Dainik Divya Marathi is gaining movement in terms of Average Issue Readership (AIR), which is expected to add to revenue going forward. But the margins can be affected by the higher newsprint prices and launch expenses. We have BUY rating on the stock with target price of INR 250.
Jagran Prakashan Ltd

CMP: INR 110 Particulars Revenue Operating Expenses EBITDA EBITDA (%) Reported PAT PAT (%) EPS Q2FY12E 3,128 2,252 876 28 518 17 1.6 Q2FY11 Q1FY12 3,047 2,227 820 27 497 16 1.6 YoY(%) 13.0 21.1 -3.6 -481 bps -6.7 -349 bps -11.0 QoQ(%) 2.7 1.1 6.8 109 bps 4.2 24 bps 4.3 Bloomberg* 3,218 2,294 924 29 545 17 1.86 BUY (INR in Mn) Dev (%) -2.80 -1.82 -5.21 -71 bps -4.90 -37 bps -11.94
2,769
1,860 908 33 555 20 1.8
Market Cap: 34,780
P/E (FY12E): 14.3x
Valuation & Outlook Dainik Jagran the flagship newspaper of Jagran Prakashan Ltd (JPL) registered a growth of ~3% in Q22011 IRS survey in terms of Average Issue Readership (AIR) from Q12011. JPL has maintained its leadership position in the UP market and has focused in developing its existing territories which is expected to add to the growth momentum. However, increase in news print prices and print order is expected to affect the earnings going forward. We believe that the company is well placed to capture the high growth story in the existing Hindi/Regional print markets. We maintain BUY on the stock with a target price of INR 150.
20
HT Media Ltd
CMP: INR 148 Particulars Revenue Operating Expenses EBITDA EBITDA (%) Reported PAT PAT (%) EPS Q2FY12E 4,950 4,038 912 18 428 9 1.8 Q2FY11 4,455 3,665 791 18 388 9 1.7 Q1FY12 4,970 4,066 903 18 515 10 2.2 YoY(%) 11.1 10.2 15.4 68 bps 10.3 -6 bps 10.4 QoQ(%) -0.4 -0.7 1.0 25 bps -16.9 -172 bps -16.8 ACCUMULATE (INR in Mn) Bloomberg* 4,960 4,046 914 18 492 10 2.12 Dev (%) -0.21 -0.20 -0.26 -1 bps -12.95 -127 bps -14.09
Market Cap: 34,780

P/E (FY12E): 19.2x
Valuation & Outlook HT Media continued with its strong performance in Hindi & English segments. According to IRS Q1 2011, HTMLs flagship English daily, Hindustan Times, grew its readership by 1.2% QoQ for Q22011. Hindustan, the third-largest Hindi daily in India published by HMVL, 77% subsidiary posted a growth of 1.5% QoQ. The companys expansion plans are intact however rising newsprint prices could hinder margin growth. We maintain ACCUMULATE on the stock with target price INR 170.
21
Pharma - Sector
Indian Pharma market has been growing at a CAGR of 15% (FY09-11). However a slowdown in the growth has been observed during past few quarters due to the slow economic growth and factors like high inflation & price competition. The companies that have a high domestic exposure are expected to be affected the most due to increasing competition in certain therapeutic segments. However companies with a strong R&D pipeline and significant FTF opportunities on their product list are expected to generate better growth numbers. Ranbaxy, Glenmark, Sun & Lupin are some of the companies that would benefit most from these opportunies. After a weak performance of CRAMS space in FY10-11, the segment seems to be recovering in terms of revenue generation and increasing number of orders from the innovators. Companies like Divi's & Dishman from the CRAMS space are expected to deliver healthy set of numbers. Top Picks in the Pharma space would be Biocon, Lupin, Glenmark, Sun, Divi's & Ranbaxy.
Biocon Ltd
CMP: INR 337 Particulars Revenue from Operations Operating Expenses EBITDA EBITDA (%) Reported PAT PAT (%) EPS Q2FY12E 4,866 3,441 1,426 29.3 808 16.6 4.1 Q2FY11 6,788 5,352 1,436 21.2 891 13.1 4.5 Q1FY12 4,420 3,210 1,210 27.4 700 15.8 3.5 YoY(%) -28.3 -35.7 -0.7 815 bps -9.3 347 bps -9.3 QoQ(%) 10.1 7.2 17.8 192 bps 15.4 76 bps 16.6 Bloomberg* NA NA NA NA NA NA NA BUY (INR in Mn) Dev (%) NA NA NA NA NA NA NA
Market Cap: 67,390

P/E (FY12E): 17.6x
Valuation & Outlook Biocon is expected to perform better in Q2FY12 with a strong growth in the revenue as it is expected to initiated the supply of Fidoxamicin API to its US partener Optimer. Also supply of Insulin to Pfizer will add to the revenue generation. We expect the company to continue its growth momentum. Currently the stock is trading at 14.4x its FY13E earnings. We recomment BUY with the target price of INR 480.
22
Glenmark Ltd
CMP: INR 322 Particulars Revenue from Operations Operating Expenses EBITDA EBITDA (%) Reported PAT PAT (%) EPS Q2FY12E 9,133 5,909 3,224 35.3 2,247 24.6 8.3 Q2FY11 7,414 5,544 1,870 25.2 1,116 15.1 4.1 Q1FY12 8,685 5,716 2,969 34.2 2,101 24.2 7.8 YoY(%) 23.2 6.6 72.4 1008 bps 101.3 954 bps 104.6 QoQ(%) 5.2 3.4 8.6 112 bps 6.9 41 bps 6.9 Bloomberg* 9,110 5,852 3,258 35.8 1,803 19.8 5.3 BUY (INR in Mn) Dev (%) 0.3 1.0 (1.0) 46.4 24.6 (481.4) 56.8
Market Cap: 86,990

P/E (FY12E): 14.5x
Valuation & Outlook With a consistent growth in its domestic formulation business and a strong performance expected from US generic business we rate Glenmark to be a potentially high value stock. Currently Glenmark is trading at 14.5x FY12E earnings. We recommend BUY with the target price of INR 385
Lupin Ltd
CMP: INR 473 Particulars Revenue from Operations Operating Expenses EBITDA EBITDA (%) Reported PAT PAT (%) EPS Q2FY12E 16,677 13,308 3,369 20.2 2,485 14.9 5.5 Q2FY11 14,340 11,353 2,987 20.8 2,150 15.0 4.8 Q1FY12 15,677 12,734 2,944 18.8 2,140 13.7 4.7 YoY(%) 16.3 17.2 12.8 -63 bps 15.6 -9 bps 13.2 QoQ(%) 6.4 4.5 14.4 142 bps 16.1 125 bps 16.1 Bloomberg* 16,639 13,124 3,515 21.1 2,569 15.4 5.5 HOLD (INR in Mn) Dev (%) 0.2 1.4 (4.2) 92.5 (3.3) 53.8 (0.6)
Market Cap: 211,080

P/E (FY12E): 21.4x
Valuation & Outlook Lupin expects to launch 10 products in US during FY12 of which a few are FTFs which shall add a boost to the companys earnings. Going ahead the company has a high potential in achieving its target sales of USD 3 bn by FY13-14. Currently the stock is trading at 21.4x FY12E earnings. We recomeend HOLD with the price target of INR 520.
23
Divi's Laboratories
CMP: INR 728 Particulars Revenue from Operations Operating Expenses EBITDA EBITDA (%) Reported PAT PAT (%) EPS Q2FY12E 3,237 2,133 1,104 34.1 913 28.2 6.9 Q2FY11 2,589 1,711 878 33.9 719 27.8 5.4 YoY(%) 25.0 24.7 25.6 17 bps 26.9 42 bps 26.9 Bloomberg* 3,593 2,361 1,232 34.3 1,050 29.2 8.6 HOLD (INR in Mn) Dev (%) -9.9 -9.6 -10.4 19.4 -13.1 102.8 -20.3
Market Cap: 96,600

P/E (FY12E): 19.4x
Valuation & Outlook Divi's laboratories has recently restructred its business mix which is expected to improve the operating margins of the company. It has also initiated the production at its new multi purpose plant at Vizag which is expected to add a significant amount to the revenue. Currently the stock is trading at 19.4x FY12E earnings. We recommend HOLD with the target price of INR 801.
Dishman Pharma
CMP: INR 57 Particulars Revenue from Operations Operating Expenses EBITDA EBITDA (%) Reported PAT PAT (%) EPS Q2FY12E 2,250 1,811 439 19.5 161 7.1 2.0 Q2FY11 2,128 1,759 369 17.4 283 13.3 3.7 Q1FY12 2,372 1,935 437 18 151 6.4 1.9 YoY(%) 5.7 3.0 18.8 214 bps -43.3 -616 bps -45.5 QoQ(%) -5.2 -6.4 0.4 108 bps 6.1 76 bps 6.1 Bloomberg* NA NA NA NA NA NA NA BUY (INR in Mn) Dev (%) NA NA NA NA NA NA NA
Market Cap: 4,610

P/E (FY12E): 5.3x
Valuation & Outlook Dishman Pharma is expected to see a marginal growth in its revenue lead by the growth in its Quats & vitamin D business. These two being a high margin segments, the EBITDA margin is expected to improve and come in at 19.5% levels. In the CRAMS segment we expect the Carbogen Amcis business to remain flattish, however expected commencement of a few contracts in Indian CRAMS business, will give a boost to the segment revenue. Currently the stock is trading at a very attractive valuation of 5.3x FY12E earnings. We recommend BUY with the price target of INR 69.
24
Apollo Hospitals
CMP: INR 519 Particulars Revenue from Operations Operating Expenses EBITDA EBITDA (%) Reported PAT PAT (%) EPS Q2FY12E 7,037 5,819 1,217 17.3 591 8.4 4.7 Q2FY11 5,864 4,868 996 17.0 496 8.4 4.0 Q1FY12 6,410 5,351 1,059 17 513 8.0 4.1 YoY(%) 20.0 19.5 22.2 32 bps 19.3 -5 bps 18.2 QoQ(%) 9.8 8.8 14.9 77 bps 15.3 40 bps 15.3 Bloomberg* NA NA NA NA NA NA NA HOLD (INR in Mn) Dev (%) NA NA NA NA NA NA NA
Market Cap: 68,130

P/E (FY12E): 31.5x
Valuation & Outlook Apollo Hospitals is expected to deliver a healthy growth in its Pharmacy segment in this quarter as well. However Pharmacy business being a low margin business shall lead to a slower margin growth. The company has steadily focussed on cost rationalisation of the pharmacy vertical and was able to reduce losses over a period of time. Similarly, the company has been able to lower its rental costs as a percentage of sales in Q1FY12. These factors shall help Apollo to improve its growth trend in coming quarter. Currently the stock is trading at an EV/EBITDA of 16.4x FY12E earnings. We recommend HOLD with the target price of INR 600.
Sun Pharmaceuticals Ltd

CMP: INR 462 Particulars Revenue from Operations Operating Expenses EBITDA EBITDA (%) Reported PAT PAT (%) EPS Q2FY12E 16,729 10,940 5,788 34.6 5,403 32.3 5.2 Q2FY11 13,701 9,030 4,670 34.1 5,037 36.8 24.3 Q1FY12 16,357 10,883 5,474 33.5 5,010 30.6 4.8 YoY(%) 22.1 21.2 23.9 51 bps 7.3 -446 bps -78.7 QoQ(%) 2.3 0.5 5.7 113 bps 7.9 167 bps 7.9 Bloomberg* 17,596 12,699 4,897 27.8 4,697 26.7 4.4 HOLD (INR in Mn) Dev (%) (4.9) (13.8) 18.2 (677.0) 15.0 (561.0) 17.7
Market Cap: 478,110

P/E (FY12E): 20.9x
Valuation & Outlook Sun Pharma has a leader position in the Chronic segment business. The company has significant FTF opportunities lined up which can generate a meaning contribution to the revenue. Resolutions of issues with Caraco would be an added advantage. Sun Pharma is increasing its concentration in emerging market which could lead to a healthy growth. Currently the stock is trading at 20.9x FY12E. We recommend HOLD with the target price of INR 520.
25
Ranbaxy Ltd
CMP: INR 514 Particulars Revenue from Operations Operating Expenses EBITDA EBITDA (%) Reported PAT PAT (%) EPS Q3FY11E 21,066 18,475 2,591 12.3 2,507 11.9 5.9 Q3FY10 19,452 16,863 2,589 13.3 3,079 15.8 7.3 Q2FY11 20,931 19,299 1,632 7.8 2,432 11.6 5.8 YoY(%) 8.3 9.6 0.1 -101 bps -18.6 -393 bps -18.8 QoQ(%) 0.6 -4.3 58.8 450 bps 3.1 28 bps 3.1 Bloomberg* 22,090 18,767 3,322 15.0 1,705 7.7 11.4 BUY (INR in Mn) Dev (%) (4.6) (1.6) (22.0) 274.0 47.0 (418.0) (47.8)
Market Cap: 216,610

P/E (FY12E): 22.7x
Valuation & Outlook Ranbaxy has been performing under stress in past 2 quarters. The domestic business is expected to have a healthy upside backed by revenue from project Viraat. Competition feom peers is expected to hamper certain therapeutic segments like Anti Infectives & Gastro. Currently the stock is trading at 22.7x FY12E earnings. We recommend BUY with the target price of INR 620.
Opto Circuits Ltd

CMP: INR 221 Particulars Revenue from Operations Operating Expenses EBITDA EBITDA (%) Reported PAT PAT (%) EPS Q2FY12E 4,639 3,234 1,406 30.3 1,095 23.6 5.9 Q2FY11 3,314 2,257 1,057 31.9 774 23.3 3.7 Q1FY12 5,208 3,776 1,432 27.5 1,164 22.3 6.2 YoY(%) 40.0 43.3 33.0 -160 bps 41.5 25 bps 60.8 QoQ(%) -10.9 -14.4 -1.8 280 bps -5.9 125 bps -5.9 Bloomberg* NA NA NA NA NA NA NA BUY (INR in Mn) Dev (%) NA NA NA NA NA NA NA
Market Cap: 41,200

EV/EBITDA FY12E :9.5x
Valuation & Outlook Opto Circuits is expected to perform a health set of numbers backed by the growth in Invasive segment. Also a large number of contracts earned by Opto in previous quarter are expected to boost the sales. After restructuring of its Cardiac Science business we see a significant jump in the revenue. Currently the stock is trading at 9.5x EV/Ebitda of FY12E. We recommend a BUY rating with the target price of INR 330.
26
Food Processing
Shree Renuka Sugars Ltd (SHRS)
CMP: INR 55 Particulars Revenue from Operations Operating Expenses EBITDA EBITDA (%) Reported PAT PAT (%) EPS Q4SY12E 21,291 17,312 3,979 18.7 1,563 7.3 2.3 Q4SY11 24,598 21,626 2,972 12.1 1,278 5.2 1.9 Q3SY12 22,401 18,077 4,324 19.3 1,860 8.3 2.8 YoY(%) -13.4 -19.9 33.9 660 bps 22.3 214 bps 21.9 QoQ(%) -5.0 -4.2 -8.0 -62 bps -16.0 -96 bps -16.9 Bloomberg* NA NA NA NA NA NA NA BUY (INR in Mn) Dev (%) NA NA NA NA NA NA NA
Market Cap: 36,720

* C o ns o lida te d F ina nc ia ls , S Y- S uga r Ye a r
P/E (SY12E): 5.6x
Valuation & Outlook Shree Renuka Sugars (SHRS) would benefit from stable sugar prices, around INR 28-30 per kg, in domestic markets. In global markets, higher realisation of sugar and ethanol would contribute to SHRS' topline growth. Brazilian & Indian operations are expected to show traction on the back of healthy volumes this season. Reduction in debt and company's vision towards further debt reduction would improve margins going forward. At CMP of INR 55, the stock is trading at 5.6x its SY12E earnings. We recommend BUY on the stock with a reduced price target of INR 68.
REI Agro
CMP: INR 25 Particulars Revenue from Operations Operating Expenses EBITDA EBITDA (%) Reported PAT PAT (%) EPS Q2FY12E 10,476 8,292 2,184 20.9 1,071 10.2 1.1 Q2FY11 8,377 6,738 1,639 19.6 717 8.6 0.8 Q1FY12 7,847 2,573 5,274 67.2 902 11.5 0.8 YoY(%) 25.1 23.1 33.3 128 bps 49.5 167 bps 49.1 QoQ(%) 33.5 222.2 -58.6 -4636 bps 18.8 -127 bps 34.7 ACCUMULATE (INR in Mn) Bloomberg* NA NA NA NA NA NA NA Dev (%) NA NA NA NA NA NA NA
Market Cap: 23,470

P/E (FY13E): 4.5x
Valuation & Outlook Basmati industry is set to post a strong growth trajectory on account of rapid increase in production, healthy demand in international markets and possibility of realisation improvement. REI Agro, the leader in Basmati processing, is positioning itself to capitalize the growth opportunity by increasing the utilisation rate, improving its head rice yield and better positioning of its brands. The impact of higher interest cost would be partially offset by reduction in working capital requirment. Stock is trading at 4.5x its FY13E earnings. We recommend ACCUMULATE on the stock with a reduced price target of INR 28.
27
Fertilizer
Healthy monsoon in the Indian subcontinent region (1% above 50 year average in June-September season) have lead to exorbitant sales of various fertilisers. Globally, this season has observed a dramatic rise in fertiliser prices, especially in P & K type of fertilisers. Volumes for DAP, MOP, SSP and other NPK fertilisers have reduced by 18% YoY in Apr-Aug 2011 period. This drop in volume was accustomed by reduction in fertiliser imports while the volume of manufactured P & K fertilisers increased by 3% YoY. Urea also registered a YoY increase of 11% in its sales thereby occupying 54% portion in the pie of fertiliser sales. We expect fertiliser companies to post an increase in margins due to their ability to pass on the rise in raw material prices to the farmers. However, increase in realisation is expected to hamper growth in sales volume. Our top picks are Coromandel International and Chambal Fertilisers.
Chambal Fertilizers Ltd

CMP: INR 92 Particulars Revenue from Operations Operating Expenses EBITDA EBITDA (%) Reported PAT PAT (%) EPS Q2FY12E 12,032 10,321 1,711 14.2 840 7.0 2.0 Q2FY11 15,351 13,220 2,131 13.9 861 5.6 2.1 Q1FY12 11,503 9,799 1,704 14.8 637 5.5 1.5 YoY(%) -21.6 -21.9 -19.7 34 bps -2.3 138 bps -2.4 QoQ(%) 4.6 5.3 0.4 -59 bps 32.0 145 bps 32.0 Bloomberg* NA NA NA NA NA NA NA BUY (INR in Mn) Dev (%) NA NA NA NA NA NA NA
Market Cap: 38,240

P/E (FY13E): 10.2x
Valuation & Outlook Chambal Fertilisers would continue to gain from strong growth in Urea consumption. Change in Urea investment policy provides further opportunity for expansion. Besides, possible decontrol of urea prices could trigger sector growth. Demerger of shipping business would further strengthen the financial position of the company. Stock is trading at 10.2x its FY13E earnings. We recommend BUY on the stock with a price target of INR 113.
28
Deepak Fertilisers & Petrochemicals Ltd.

CMP: INR 161 Particulars Revenue from Operations Operating Expenses EBITDA EBITDA (%) Reported PAT PAT (%) EPS Q2FY12E 5,285 4,152 1,133 21.4 612 11.6 6.9 Q2FY11 4,058 3,313 745 18.4 414 10.2 4.7 Q1FY12 4,720 3,611 1,109 23.5 689 14.6 7.3 YoY(%) 30.2 25.3 52.0 307 bps 47.6 136 bps 47.5 QoQ(%) 12.0 15.0 2.2 -206 bps -11.3 -304 bps -4.4 Bloomberg* NA NA NA NA NA NA NA BUY (INR in Mn) Dev (%) NA NA NA NA NA NA NA
Market Cap: 14,430

P/E (FY13E): 5.8x
Valuation & Outlook Lack of competition, switching of major mining & infrastructure players to technical grade AN (from fertiliser grade AN) and strong growth in infrastructure in Southeast Asia (especially India in 12th Five Year Plan) would support TAN growth. Better utilisation of ANP unit and healthy performance by chemical segment provide strong revenue visibility for the company. Contribution from bentonite sulphur is expected to rise stably till FY13. Stock is trading at 5.8x its FY13E earnings. We maintain BUY with a long term price target of INR 202.
Coromandel International Ltd.

CMP: INR 308 Particulars Revenue from Operations Operating Expenses EBITDA EBITDA (%) Reported PAT PAT (%) EPS Q2FY12E 25,149 21,433 3,717 14.8 2,119 8.4 7.5 Q2FY11 27,573 22,261 5,312 19.3 3,523 12.8 NA Q1FY12 17,901 15,406 2,496 13.9 1,589 8.9 5.6 YoY(%) -8.8 -3.7 -30.0 -449 bps -39.9 -435 bps NA QoQ(%) 40.5 39.1 48.9 84 bps 33.3 -45 bps 34.2 Bloomberg* NA NA NA NA NA NA NA BUY (INR in Mn) Dev (%) NA NA NA NA NA NA NA
Market Cap: 86,870

P/E (FY13E): 11.9x
Valuation & Outlook Coromandel's (CRIN) recent acquisition of Gujarat based agrochemical company Sabero Organics would strengthen its topline growth. Sabero has a wide portfolio of 8-9 products across various categories like insecticide, herbicide and fungicide. Strong synergy benefits are expected from this acquisition going forward. The company would also gain from strong consumption of agrochemical in CY11 on account of healthy monsoons. CRIN is also expected to increase its manufacturing capacity of P & K type fertilisers (through its subsidiaries) by FY13. Stock is trading at 11.9x its FY13E earnings. We maintain BUY on the stock with a reduced price target of INR 378.
29
Agrochemicals
Indian agrochemical industry is the fourth largest market in the world with a total estimated market size of USD 1.4bn, after the United States, Japan, and China. Of this, ~50% market share is held by MNCs and the rest by Indian companies who are largely into off-patent generic formulations. This industry (USD 1.4bn in size) is expected to grow at 12-15% compared to 3.6% expected from global market (USD 43bn) till 2014 (Domestic industry grew by 11% in 2009). 40 ingredients are going off-patent by 2013, which will throw up opportunities for existing established players. Indian agrochemical market is dominated by Insecticides with 58% market share, followed by herbicides and fungicides with 21% and 19% share respectively. Nearly 50% of the total pesticide produced is consumed by only two crops i.e. paddy and cotton. This sector would continue to outperform other sectors, despite uncertainties in global macro economic environment, hence agrochemical companies would continue to trade at a premium over market. Our top picks are Rallis India, Tata Chemicals and United Phosphorus.
Rallis India Ltd. (RALI)

CMP: INR 173 Particulars Revenue from Operations Operating Expenses EBITDA EBITDA (%) Reported PAT PAT (%) EPS Q2FY12E 3,849 3,095 754 19.6 478 12.4 2.5 Q2FY11 3,631 2,749 883 24.3 587 16.2 3.0 Q1FY12 2,327 2,015 312 13.4 166 7.1 0.9 YoY(%) 6.0 12.6 -14.6 -472 bps -18.5 -374 bps -18.5 QoQ(%) 65.4 53.6 141.4 617 bps 188.7 531 bps 188.7 ACCUMULATE (INR in Mn) Bloomberg* NA NA NA NA NA NA NA Dev (%) NA NA NA NA NA NA NA
Market Cap: 33,720

P/E (FY13E): 14.9x
Valuation & Outlook Rallis is expected to register 22% and 29% growth in topline and bottomline respectively in FY12. It has strengthened its grip on the seed business by acquisition of Metahelix Life Sciences a seed research company having 13 products in market and 17 products in pipeline. Rallis is poised for strong growth on account of strong product mix, ability to launch new products successfully, commissioning of Dahej facility, strong distribution channel and contract manufacturing alliance with several multinational agrochemical companies. Stock is trading at 14.9x its FY13E earnings. We recommend ACCUMULATE with a long term price target of INR 205.
30
Tata Chemicals
CMP: INR 317 Particulars Revenue from Operations Operating Expenses EBITDA EBITDA (%) Reported PAT PAT (%) EPS Q2FY12E 29,965 24,091 5,875 19.6 2,264 7.6 8.9 Q2FY11 29,347 25,166 4,182 14.2 1,271 4.3 5.1 Q1FY12 29,237 23,969 5,268 18.0 1,999 6.8 7.9 YoY(%) 2.1 -4.3 40.5 536 bps 78.2 323 bps 73.9 QoQ(%) 2.5 0.5 11.5 159 bps 13.3 72 bps 13.2 Bloomberg* 28,631 NA NA NA 2167.0 7.6 8.5 BUY (INR in Mn) Dev (%) 4.7 NA NA NA 4.5 -1 bps 4.6
Market Cap: 80,899

P/E (FY13E): 8.8x
Valuation & Outlook Tata Chemicals' fertiliser segment is expected to benefit on account of healthy monsoon in CY11. Revenue growth would be backed by healthy chemical sales in India and US. Healthy contribution from British Salt and Rallis India would strengthen the performance of the company. Margins are also expected to improve by 260bps in FY12. Stock is trading at 8.8x its FY13E earnings. We recommend BUY on the stock with a long term target of INR 387.
United Phosphorus Ltd. (UPL)

CMP: INR 139 Particulars Revenue from Operations Operating Expenses EBITDA EBITDA (%) Reported PAT PAT (%) EPS Q2FY12E 17,663 14,193 3,470 19.6 1,732 9.8 3.7 Q2FY11 12,247 9,921 2,326 19.0 1,147 9.4 2.5 Q1FY12 18,220 14,771 3,449 18.9 1,843 10.1 4.0 YoY(%) 44.2 43.1 49.2 65 bps 51.0 44 bps 51.2 QoQ(%) -3.1 -3.9 0.6 72 bps -6.0 -31 bps -6.0 Bloomberg* 16,286 13,053 3,234 19.9 1397.5 8.6 NA BUY (INR in Mn) Dev (%) 8.5 8.7 7.3 -21 bps 23.9 122 bps NA
Market Cap: 64,000

P/E (FY13E): 8.6x
Valuation & Outlook UPL's (United Phosphorus) is one of the largest generic players in the global agrochemical market and it is well positioned to capture the growth in Indian and Brazilian markets. UPL's recent acquisition of 50% stake in Sipcam Isagro Brazil provide immense opportunity to expand its international operations. The management expects 25-30% topline growth in FY12. Slowdown in global economy wouldn't affect the consumption of agrochemicals. UPL is currently trading at 8.6x its FY13E earnings. We recommend BUY on the stock with a reduced price target of INR 172.
31
Information Technology
The depreciation of the INR will have significant benefits to the top and bottom lines of export driven companies and particularly the IT services space. The INR has depreciated by ~5.6% over the last month and is currently close to 49.5 INR/USD levels. The revenue for IT companies in terms of INR will be close to 1% higher which translates to an increase in the operating margin by ~30-40 bps. For Q2FY12, IT companies will most likely see an increase in their margins by ~40-50 bps. The FY13 earnings estimate will be 7-11% higher if the INR remains at current levels close to the 49 mark. In the near term we expect cuts in discretionary spending by IT companies clients as they may cut corners in anticipation of a poor business environment in the next few quarters. We dont expect CY11 budgets to be reviewed as S&P 500 companies have reported good financial results in the recent past and banks are well capitalized as compared to the 2008 crisis. We expect CY12 budgets to reduce by around 10-15% in anticipation of economic slowdown. This would impact revenues and bottom lines of IT companies in Q4FY12 and FY13. Our top picks for the sector are HCL Technologies, Tata Consultancy Services Ltd, Rolta Ltd, and Persistent Systems Ltd.
Tata Consultancy Services (TCS)

CMP: INR 1037 Particulars Revenue from Operations Operating Expenses EBITDA EBITDA (%) Reported PAT PAT (%) EPS Market Cap: 2,030,595
ACCUMULATE (INR in Mn) Q2FY12E 117,356 82,149 35,207 30.0 25,232 21.5 12.9 Q2FY11 92,864 65,520 27,344 29.4 21,990 23.7 11.1 Q1FY12 107,970 77,641 30,328 28.1 24,405 22.6 12.3 YoY(%) 26.4 25.4 28.8 55 bps 14.7 -218 bps 16.3 QoQ(%) 8.7 5.8 16.1 191 bps 3.4 -110 bps 4.5 Bloomberg* 115,380 81,512 33,868 29.4 25,455 22.1 13 Dev (%) 1.7 0.8 3.8 2.2 (0.9) (2.6) (0.3)
P/E (FY12E): 19.8x
Valuation & Outlook TCS continued to give out stellar performance on the back of strong volume growth and should be in a position to maintain industry-leading growth. According to the management, there should not be any material impact expected from the ongoing macro weakness. On the back of sustained outperformance, TCS has been consistently performing over the last few quarters and is considered a safe bet within the IT space. We think investors should buy on decline. Hence we recommend ACCUMULATE with a price target of INR 1200.
32
Infosys Ltd
CMP: INR 2533 Particulars Revenue from Operations Operating Expenses EBITDA EBITDA (%) Reported PAT PAT (%) EPS Market Cap: 1,454,908
ACCUMULATE (INR in Mn) Q2FY12E 87,263 63,025 24,238 27.8 20,070 23.0 35.0 Q2FY11 69,470 48,490 20,980 30.2 17,370 25.0 30.4 Q1FY12 74,850 55,330 19,520 26.1 17,220 23.0 30.1 YoY(%) 25.6 30.0 15.5 -242 bps 15.5 -200 bps 15.1 QoQ(%) 16.6 13.9 24.2 170 bps 16.6 -1 bps 16.1 Bloomberg* 86,796 63,577 23,219 26.8 19,696 22.7 34.0 Dev (%) 0.5 (0.9) 4.2 3.7 1.9 1.3 2.6
P/E (FY12E): 18.4x
Valuation & Outlook Over the last year, Infosys corrected sharply due to larger global economic concers, as well as management concers. The stock fell ~30% from FY11 high. Those issues have now been calmed with a re-jig in the management and with a more stable organizational structure that has been put in place. The company can also potentially see an upside in its topline and bottom line by ~(6-10%) due to the depreciation in the INR v/s USD moving forward. We know believe the stock is well priced at current levels of INR 2533 and we do see a potential upside of ~14%. Hence we recommend ACCUMULATE with a price target of INR 2900.
HCL Technologies
CMP: INR 408 Particulars Revenue from Operations Operating Expenses EBITDA EBITDA (%) Reported PAT PAT (%) EPS Market Cap: 281,645
BUY (INR in Mn) Q1FY12E 45,623 37,834 7,789 17.1 5,247 11.5 7.6 Q1FY11 37,081 31,889 5,192 14.0 3,309 8.9 19.5 Q4FY11 42,995 35,221 7,774 18.1 5,108 11.9 7.4 YoY(%) 23.0 18.6 50.0 307 bps 58.6 258 bps -60.9 QoQ(%) 6.1 7.4 0.2 -101 bps 2.7 -38 bps 2.8 Bloomberg* 45,514 37,912 7,602 16.7 4,823 10.6 6.8 Dev (%) 0.2 (0.2) 2.4 2.2 8.1 7.9 11.3
P/E (FY12E): 12.8x
Valuation & Outlook Post the downturn in 2008, HCL has adopted a fairly aggressive strategy in increasing its market share and thus has been able to show greater volume growth as compared to its peer. This growth momentum may moderate to a certain extent moving forward but the company will still show strong revenues due to increased market share. They are in the best position to benefit from the depreciation of the INR v/s USD due to thier low forex hedged position(~ USD 390 mn) as compared to thier peers. At CMP of INR 408 the stock seems attractive with a potential upside of 21% We recommend a BUY with a price target of INR 495.
33
Rolta India Ltd.

BUY (INR in Mn) Q1FY12E 5,105 2,854 2,251 44.1 980 19.2 6.1 Q1FY11 4,276 2,579 1,697 39.7 747 17.5 4.6 Q4FY11 4,765 2,831 1,934 40.6 887 18.6 5.5 YoY(%) 19.4 10.7 32.6 441 bps 31.2 173 bps 30.9 QoQ(%) 7.1 0.8 16.4 351 bps 10.5 59 bps 10.6 Bloomberg* 4,841 NA NA NA NA NA NA Dev (%) 5.2 NA NA NA NA NA NA
P/E (FY12E): 3.6x
Valuation & Outlook Going forward, we expect wage hikes to increase pressure on margins in the near term. However, IP driven revenues could give margins the much needed boost as the industry encounters uncertain economic conditions in the coming future. In the coming 3 5 year period, revenue from IP business is expected to rise from the current 15% to nearly 25% - 30% range. With the companys strong order-book, dominant position in the geospatial imaging space and increasing IP driven business, we believe Rolta is available at cheap valuations relative to its peers. At the current market price, the stock is trading at 3.7x its FY12 earnings estimate. We maintain our BUY recommendation on this stock with a revised price target of INR 105.
Persistent Systems Ltd (PSL)

BUY (INR in Mn) Q2FY12E 2,410 2,020 390 16.2 337 14.0 8.4 Q2FY11 1,870 1,440 430 23.0 358 19.2 9.0 Q1FY12 2,238 77,641 389 17.4 276 12.3 6.9 YoY(%) 28.9 40.3 -9.3 -681 bps -5.8 -516 bps -5.9 QoQ(%) 7.7 -97.4 0.3 -120 bps 22.4 169 bps 22.4 Bloomberg* 2,430 2,042 389 16.0 259 10.7 6.7 Dev (%) (0.8) (1.1) 0.4 1.2 23.1 23.8 21.0
P/E (FY12E): 9.7x
Valuation & Outlook We believe PSL, given its niche offerings and higher than average operating margins, deserves a premium in comparison to its listed peers. The stock is currently trading at 9.8x and 8.5x its FY12 E and FY13 E earnings. Historically, the stock has traded at 11.3x its Trailing Twelve Months (TTM) earnings. We value the company at 10.5x its FY13 earnings estimate arriving at a price target of INR 381 per share.We recommend a BUY rating on PSL, indicating an upside of 25% from current levels.
34
KPIT Cummins Infosystems Ltd.

ACCUMULATE (INR in Mn) Q2FY12E 3,266 2,811 455 13.9 289 8.8 3.3 Q2FY11 2,349 2,000 349 14.9 237 10.1 3.0 Q1FY12 3,161 2,766 395 12.5 244 7.7 2.7 YoY(%) 39.0 40.6 30.4 -93 bps 21.7 -126 bps 9.4 QoQ(%) 3.3 1.6 15.1 143 bps 18.5 113 bps 19.8 Bloomberg* 3,254 NA NA NA 286 8.8 3.3 Dev (%) 0.4 NA NA NA 1.0 0.7 (0.5)
P/E (FY12E): 12.4x
Valuation & Outlook The company is expected to launch Revolo, which should help boost sentiment. At the current market price, the stock is trading at 12.4x its FY12 earnings estimate and moving forward we see a potential upside of ~18% from its current levels. We maintain our ACCUMULATE recommendation on this stock with a revised price target of INR 178.
Hexaware Technologies Ltd

ACCUMULATE (INR in Mn) Q3FY11E 3,510 2,965 545 15.5 621 17.7 2.1 Q3FY10 2,817 2,660 157 5.6 420 14.9 1.5 Q2FY11 3,340 2,837 504 15.1 602 18.0 2.1 YoY(%) 24.6 11.5 246.5 994 bps 47.8 278 bps 46.4 QoQ(%) 5.1 4.5 8.1 44 bps 3.2 -32 bps 3.1 Bloomberg* 3,526 NA NA NA NA NA NA Dev (%) (0.5) NA NA NA NA NA NA
P/E (FY12E): 10.6x
Valuation & Outlook The company's performance in Q2FY11 was above the industry average considering the recent headwinds faced by the IT industry in India. The company also expects to benefit from recovery owing to their discretionary spending. Marginal growth in revenues is expected from the US in upcoming quarters. At the current market price, the stock is trading at 11.1x its FY12 earnings estimate and we see a potential upside of ~19% from current levels. Hence we recommend ACCUMULATE on the stock with a price target of INR 95.
35
Other
Mundra Port
CMP: INR 160 Particulars Revenue from Operations Operating Expenses EBITDA EBITDA (%) Reported PAT PAT (%) EPS Q2FY12E 6,529 2,014 4,515 69.2 3,122 47.8 1.6 Q2FY11 4,135 1,196 2,939 71.1 2,117 51.2 1.1 Q1FY12 5,296 1,667 3,629 68.5 2,544 48.0 NA YoY(%) 57.9 68.4 53.6 -192 bps 47.5 -338 bps 47.0 QoQ(%) 23.3 20.8 24.4 63 bps 22.7 -22 bps NA ACCUMULATE (INR in Mn) Bloomberg* 5,321 1,547 3,775 70.9 2687.0 50.5 1.3 Dev (%) 22.7 30.2 19.6 -178 bps 16.2 NA 17.6
Market Cap: 320,140

* C o ns o lida te d F ina nc ia ls , S ta nda lo ne F ina nc ia ls
P/E (FY13E): 19.8x
Valuation & Outlook Mundra Port (MPL) is expected to post strong growth in bulk and crude cargo volumes due to increase in coal requirements by Ultra Mega Power Projects and rise in refining capacities of IOC & HPCL Mittal Energy Ltd. Cargo traffic is expected to fall unless long term contracts with leading domestic players are revised. The company has acquired Abbot Point Coal Terminal and hence its debt is expected to rise post completion of consolidation procedures. Stock is trading at 19.8x its FY13E earnings. We recommend ACCUMULATE on the stock with a price target of INR 178.
36
Research Recommendation
Date of Recommendation 24-S ep-11 15-S ep-11 30-Aug-11 2-Aug-11 18-Jul-11 12-Jul-11 30-Jun-11 16-May-11 4-May-11 28-Apr-11 1-Apr-11 31-Mar-11 29-Mar-11 7-Mar-11 28-Feb-11 3-Feb-11 31-Jan-11 12-Jan-11 31-Dec -10 31-Dec -10 31-Dec -10 22-Dec -10 30-Nov-10 30-Nov-10 18-Nov-10 16-Nov-10 3-Nov-10 27-Oc t-10 26-Oc t-10 29-S ep-10 16-S ep-10 15-S ep-10 14-S ep-10 31-Aug-10 27-Aug-10 30-Jul-10 26-Jul-10 14-Jul-10 9-Jul-10 26-Jun-10 23-Jun-10 19-Jun-10 18-Jun-10 17-Jun-10 12-Jun-10 5-Jun-10 10-May-10 30-Apr-10 16-Apr-10 16-Apr-10 16-Apr-10 7-Apr-10 6-Apr-10 5-Apr-10 Company Name Development Credit Bank Ltd. S upreme Infrastruc ture India Ltd. Persistent S y stems Ltd. Tamil Nadu News Print Ltd. KEC International Ltd. V isa S teel Ltd. Tec pro S ystems Ltd. Camson Bio tec hnolo gies Ltd. Ganesh Po lytex Ltd. CES C Ltd. Unity Infraprojec ts Ltd. Rolta India Ltd. West Co ast Paper Mills Ltd. Hindusthan National Glass & Industries Ltd. Deepak Fertilisers & Petroc hemic als Ltd. Ceat Ltd. MIC Elec tronic s Ltd. Diamond Power & Infrastruc ture Ltd. Hathway Cable & Datac om Ltd. Jindal Po ly Films Ltd. Allahabad Bank S asken Communic atio n Tec h. Ltd. Banc o Produc t Allc arg o Global Log istic s Jyoti S truc ture Pennar Industries HS IL Ltd. IDBI Bank MS P S teel and Power Nakoda Textiles Kajaria Ceramic s Gokul Refoils Aqua Lo gistic Lakshmi Prec ision S c rews BGR Energy S ystem Patel Engineering KPR Mills Ltd. IDBI Bank Opto Circ uit BGR Energy S ystem Ltd. Bioc on Ltd. Emmbi Polyarns Indian Bank Diamond Power & Infrastruc ture Ltd. Man Industries Usher Ag ro Greaves Co tton Indraprastha Gas Ltd. Heidelburg Cement KEC International Ltd. Piramal Glass Ltd. S etc o Automative Den Networks Arshiya Internatio nal Report Type Initiating Coverage Banking Investment Idea Construc tions Initiating Coverage Informatio n Tec hnology Initiating Coverage Paper & Paperboard Initiating Coverage Power Transmission Investment Idea Investment Idea Investment Idea Metal Material Handling Ag ri Biotec h Sector Recommendation Buy Buy Buy Buy Buy Buy Buy Buy Buy Buy Buy Buy Buy Buy Buy Buy Buy Buy Buy Ac c umulate Buy Buy Buy Buy Buy Buy Buy Buy Buy Buy Buy Ac c umulate Hold Ac c umulate Buy Buy Ac c umulate Ac c umulate Buy Ac c umulate Buy Buy Buy Ac c umulate Buy Buy Buy Buy Ac c umulate Ac c umulate Ac c umulate Buy Ac c umulate Buy Recommended P rice 46.0 230.0 309.0 117.0 79.0 59.0 250.0 116.0 62.0 311.0 69.0 139.0 77.0 212.0 152.0 109.0 31.6 193.0 164.0 525.0 225.0 168.0 93.0 155.0 137.0 49.0 141.0 171.0 72.0 15.0 70.0 97.3 59.1 79.8 786.0 416.0 156.0 125.0 243.0 697.0 321.0 15.6 221.0 196.0 85.0 79.0 67.0 233.0 59.0 570.0 97.0 90.0 197.0 204.0 Target 64.0 280.0 381.0 161.0 104.0 75.0 300.0 156.0 102.0 411.0 86.0 191.0 95.0 351.0 202.0 149.0 51.0 257.0 227.0 620.0 304.0 226.0 149.0 233.0 171.0 63.0 171.0 228.0 114.0 23.0 88.0 109.0 60.8 91.8 1020.0 480.0 181.0 142.0 293.0 820.0 387.0 26.0 276.0 226.0 102.0 110.0 82.0 290.0 60.0 655.5 111.6 135.0 226.6 291.0
Initiating Coverage Waste Rec yc ling Initiating Coverage Power Investment Idea Investment Idea Investment Idea Infrastruc ture IT / ITES Paper & Paperboard
Initiating Coverage Glass Initiating Coverage Fertilisers Investment Idea Auto Anc illaries Initiating Coverage Led Display & Lighting Initiating Coverage Power Initiating Coverage Media Investment Idea Investment Idea Investment Idea Investment Idea Investment Idea Investment Idea Pac kaging Banking IT / ITES S hipping & Logistic s Power S teel
Initiating Coverage Auto
Initiating Coverage Building Produc t Initiating Coverage Banking Initiating Coverage S teel Investment Idea Investment Idea Investment Idea Investment Idea Investment Idea Textiles Ceramic Tiles Food Proc essing Log istic Fastner
Initiating Coverage Power Initiating Coverage Infrastruc ture Investment Idea Investment Idea Investment Idea Investment Idea Investment Idea Investment Idea Investment Idea Investment Idea Investment Idea Investment Idea Investment Idea Investment Idea Investment Idea Investment Idea Investment Idea Investment Idea Textiles Banking Capital Goods Pharmac eutic als Pac kaging Banking Power Anc illary S teel Pipes Food Proc essing Construc tion Cement Power Transmission Pac kaging Auto Anc illaries Media Log istic
Initiating Coverage Healthc are
Initiating Coverage Gas Distribution
37
QUARTERLY EARNINGS PREVIEW / Q2 -FY12 Saturday, October 01, 2011 Unicon Investment Ranking Methodology
Rating Return Range Buy >= 20% Accumulate 10% to 20% Hold -10% to 10% Reduce -10% to -20% Sell <= -20%
Disclaimer
This document has been issued by Unicon Financial Intermediaries Pvt Ltd. (UNICON) for the information of its customers only. UNICON is governed by the Securities and Exchange Board of India. This document is not for public distribution and has been furnished to you solely for your information and must not be reproduced or redistributed to any other person. Persons into whose possession this document may come are required to observe these restrictions. The information and opinions contained herein have been compiled or arrived at based upon information obtained in good faith from public sources believed to be reliable. Such information has not been independently verified and no guarantee, representation or warranty, express or implied is made as to its accuracy, completeness or correctness. All such information and opinions are subject to change without notice. This document has been produced independently of any company or companies mentioned herein, and forward looking statements; opinions and expectations contained herein are subject to change without notice. This document is for information purposes only and is provided on an as is basis. Descriptions of any company or companies or their securities mentioned herein are not intended to be complete and this document is not, and should not be construed as an offer, or solicitation of an offer, to buy or sell or subscribe to any securities or other financial instruments. We are not soliciting any action based on this document. UNICON, its associate and group companies its directors or employees do not take any responsibility, financial or otherwise, of the losses or the damages sustained due to the investments made or any action taken on basis of this document, including but not restricted to, fluctuation in the prices of the shares and bonds, reduction in the dividend or income, etc. This document is not directed to or intended for display, downloading, printing, reproducing or for distribution to or use by any person or entity who is a citizen or resident or located in any locality, state, country or other jurisdiction where such distribution, publication, reproduction, availability or use would be contrary to law or regulation or would subject UNICON or its associates or group companies to any registration or licensing requirement within such jurisdiction. If this document is inadvertently sent or has reached any individual in such country, the same may be ignored and brought to the attention of the sender. This document may not be reproduced, distributed or published for any purpose without prior written approval of UNICON. This document is for the general information and does not take into account the particular investment objectives, financial situation or needs of any individual customer, and it does not constitute a personalized recommendation of any particular security or investment strategy. Before acting on any advice or recommendation in this document, a customer should consider whether it is suitable given the customers particular circumstances and, if necessary, seek professional advice. Certain transactions, including those involving futures, options, and high yield securities, give rise to substantial risk and are not suitable for all investors. UNICON, its associates or group companies do not represent or endorse the accuracy or reliability of any of the information or content of the document and reliance upon it is at your own risk. UNICON, its associates or group companies, expressly disclaims any and all warranties, express or implied, including without limitation warranties of merchantability and fitness for a particular purpose with respect to the document and any information in it. UNICON, its associates or group companies, shall not be liable for any direct, indirect, incidental, punitive or consequential damages of any kind with respect to the document. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, on any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of Unicon Financial Intermediaries Pvt Ltd.
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Unicon Quarterly Earnings Preview - Q2FY12

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Unicon Quarterly Earnings Preview - Q2FY12

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QUARTERLY EARNINGS PREVIEW / Q2 -FY12 Saturday, October 01, 2011

QUARTERLY EARNINGS PREVIEW Q2 - FY12

Wealth Research, Unicon Financial Intermediaries Pvt. Ltd. Email: wealthresearch@unicon.in

QUARTERLY EARNINGS PREVIEW / Q2 -FY12 Saturday, October 01, 2011

Wealth Research, Unicon Financial Intermediaries Pvt. Ltd. Email: wealthresearch@unicon.in

QUARTERLY EARNINGS PREVIEW / Q2 -FY12 Saturday, October 01, 2011

Wealth Research, Unicon Financial Intermediaries Pvt. Ltd. Email: wealthresearch@unicon.in

QUARTERLY EARNINGS PREVIEW / Q2 -FY12 Saturday, October 01, 2011

Sr. No. VII 1 2 VIII 1 2 3 IX 1 2 3 X 1 2 3 4 5 6 7 XI 1

Rating Buy Accumulate

Buy Buy Buy

119 / 66 213 / 133 376 / 215

Accumulate Buy Buy

173 316 138

183 / 117 447 / 302 220 / 125

Accumulate Accumulate Buy Buy Buy Accumulate Accumulate

1,037 2,533 409 83 305 151 84

Wealth Research, Unicon Financial Intermediaries Pvt. Ltd. Email: wealthresearch@unicon.in

QUARTERLY EARNINGS PREVIEW / Q2 -FY12 Saturday, October 01, 2011

BGR Energy Systems Ltd (BGR)

Market Cap: 23,400

P/E (FY13E): 6.2x

Wealth Research, Unicon Financial Intermediaries Pvt. Ltd. Email: wealthresearch@unicon.in

QUARTERLY EARNINGS PREVIEW / Q2 -FY12 Saturday, October 01, 2011

Market Cap: 34,200

P/E (FY13E): 6.4x

KEC International Ltd

Market Cap: 14,650

P/E (FY13E): 4.6x

Wealth Research, Unicon Financial Intermediaries Pvt. Ltd. Email: wealthresearch@unicon.in

QUARTERLY EARNINGS PREVIEW / Q2 -FY12 Saturday, October 01, 2011

Diamond Power Infrastructure Ltd (DPIL)

Market Cap: 3,600

P/E (FY13E): 3.3x

Wealth Research, Unicon Financial Intermediaries Pvt. Ltd. Email: wealthresearch@unicon.in

QUARTERLY EARNINGS PREVIEW / Q2 -FY12 Saturday, October 01, 2011

Auto & Auto Ancillaries

Market Cap: 420,140

P/E (FY12E): 5.8x

Exide Industries Ltd

Market Cap: 109,690

P/E (FY12E): 14.9x

Wealth Research, Unicon Financial Intermediaries Pvt. Ltd. Email: wealthresearch@unicon.in

QUARTERLY EARNINGS PREVIEW / Q2 -FY12 Saturday, October 01, 2011

Market Cap: 398,074

P/E (FY12E): 5.7x

Wealth Research, Unicon Financial Intermediaries Pvt. Ltd. Email: wealthresearch@unicon.in

QUARTERLY EARNINGS PREVIEW / Q2 -FY12 Saturday, October 01, 2011

JSW Steel Ltd (JSW)

Market Cap: 132,085

P/E (FY12E): 4.9x

Adhunik Metaliks Ltd

Market Cap: 5,804

P/E (FY12E): 2.8x

Wealth Research, Unicon Financial Intermediaries Pvt. Ltd. Email: wealthresearch@unicon.in

QUARTERLY EARNINGS PREVIEW / Q2 -FY12 Saturday, October 01, 2011

Market Cap: 6,490

P/E (FY12E): 5.4x

Hindalco Industries Ltd.

Market Cap: 250,789

P/E (FY12E): 9.3x

Wealth Research, Unicon Financial Intermediaries Pvt. Ltd. Email: wealthresearch@unicon.in

QUARTERLY EARNINGS PREVIEW / Q2 -FY12 Saturday, October 01, 2011

Market Cap: 899,991