Maruti :: JP Morgan India Investor Tour

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Maruti
Demand environment remains sedate
Management continues to foresee sedate demand for the passenger car segment over
2H. Discounts remain at elevated levels while competition remains intense.
Margin outlook
The recent depreciation of the INR will raise the cost of imported components. To
offset the same, management is planning to increase localisation levels over the
medium term. The OEM currently has c. 26% direct and indirect imported content
(including royalty) - they plan to localise their indirect imports over the next few
years.
Diesel Cars
Maruti is increasing its diesel supplies by procuring engines from Fiat. However, the
management is awaiting policy clarity from the government relating to the potential
taxation on diesel cars.
New Utility Vehicle
Maruti is launching a new UV product in 2012 that will be positioned as a multi
purpose vehicle - it will compete with products such as the Toyota Innova.

Hero Motocorp :: JP Morgan India Investor Tour

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Hero Motocorp
Volume outlook
Management highlighted that growth rates would moderate over 2H, given a
demanding base effect. They expect FY12E sales to come in at 15%.
Capacity expansion
The OEM is ramping up capacity to 7M units by FY12. Their new Greenfield plant
would come up in FY13.
The management is ramping up its R&D headcount to c.200 engineers. They will
work with engine development companies such as AVL Austria for their
powertrains.
On exports
The management has identified Africa as its growth market, however they are yet
assessing the various markets and a ramp up in exports is yet a while away.

Thomas Cook India Ltd. Parent company concerns overdone… :: GEPL Capital

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Investment Rationale
Dominance in the forex business in India
Thomas Cook India Ltd (TCIL) is derives 60% of its revenues from the forex business (in CY10)
and is a market leader in forex-related services. TCIL also has the largest distribution network in
India among forex players, comprising 172 locations in 72 cities mainly driven by the acquisition
of LKP Forex in CY06. Leisure travelers, those traveling for migration, employment and medical
treatment, banks, non-bank retailers, and money-changers are its important customers.
We expect this segment to witness a 10% CAGR in CY10-13E and remain the major growth driver
for the company with a 55% share of consolidated revenues in CY13E.
Focus on outbound segment to drive travel business growth
TCIL is amongst the top five outbound-travel operators in India and has a strong presence in
Europe and USA, both of which constitute over 25% of India’s outbound travel. We thus expect it
to benefit from the growing T&T industry in India and find its outbound segment poised to
witness a 25.9% CAGR in CY10-13E. Moreover, a 12.9% CAGR in inbound travel and 8.2% CAGR in
corporate travel in the same period should help the travel segment to grow by 17.3% in CY10-
13E. Consequently, its share of travel-related business is expected to increase from 40% in CY10
to 45% in CY13E.
.Synergy potential from the parent company
TCIL is part of the UK based Thomas Cook Plc which creates a huge potential for synergies to
improve margins by increasing the cost competitiveness. a) Consolidated product sourcing, b)
Cross-selling of products leading to an improved product mix, c) Leveraging of its global
platform to reduce advertising and marketing spend, and d) Handling tours originating from its
parent company which in turn strengthens its inbound business are some of the benefits of a
strong parent company. To this end, TCIL’s management appointed an executive to the Board
from its parent company, in November 2008, whose sole responsibility is to integrate the Indian
business with the global one and derive synergy benefits in the process by using existing
resources.
Concerns over parent company debt overdone
Thomas Cook Group Plc (TCG) is currently facing a cash crunch and has an outstanding debt of
€1.6 bn. The cash crunch, slowdown in economy has impacted sales by 25% and has resulted in
the company taking serious measures like grounding part of its fleet. TCIL has performed much
better than TCG given the fact that India is the fastest growing outbound travel market in the
World. TCIL has managed to deliver strong profits despite TCG lowering its guidance thrice in
the last 18 months. Moreover, TCIL’s debt-equity ratio stood at 0.59x in CY10 and hence we
believe the parent company concerns are overdone.
Valuation
TCIL is currently trading at 15.2x CY12E EPS and 12.7x CY13E EPS, a 33% and 44% discount
respectively to its historical one-year forward P/E band of 22.7x. The stock has witnessed a 20%
drop over the last two months on concerns of the high debt position (€1.6 bn) of its parent
company, TCG. Given TCIL’s outperformance over TCG and its current debt-equity ratio of 0.59x
we believe the parent company concerns are overdone.
We initiate the coverage with a BUY rating and target price of `46.5 (15.2x CY13E EPS). We see
great value for the company even at its lowest one-year forward P/E since 2003 of 15.2x.

Cox & Kings Ltd. Pain in FY12E with plenty of gains in FY13E :: GEPL Capital

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Investment Rationale
Best placed to capture India’s growth in tourism
We believe Cox & Kings (C&K) is best bet in the growing T&T industry with a 9.2% CAGR in
India’s travel and tourism demand over the next decade (CY11E-21E), the second fastest in the
world. The a) pan-India presence with strong brand recall, b) integrated business model with a
diversified product offering (price and destinations), and c) strong overseas network with
presence in key outbound destinations offer it an edge over competitors to gain market share
and capture a higher pie of the industry growth.
Emergence of a Global Tour Operator
In a short span of four years, C&K has completed seven acquisitions (in the UK, Japan, Australia,
India and the USA) to emerge as a global tour operator. With a strong management bandwidth,
synergies from acquisitions led to an improvement in the consolidated EBIDTA margins. We
believe there is scope for further margin expansion following synergies emanating from: a)
consolidated product sourcing coupled with scale benefits, b) improved product mix (leveraging
the global platform to cross-sell existing products), and c) expansion of captive destination
management services for its various overseas subsidiaries.
HolidayBreak: an acquisition worth the wait
The recent acquisition of HolidayBreak Plc (HBR) offers a host of benefits to C&K which include
a) potential to double revenues in the next two years with margin improvement, b) entry into
the education and camping markets which should improve the market share and the mind space
of consumers and led to increasing volumes and value for C&K, and c) utilization of cash on
books which were earlier resulting in a net outflow of 3% for the company.
The HBR acquisition and timing of consolidation may result in lower profitability for the
company in FY12E as H1 is historically loss making for the company with no revenues from the
camping and adventure segment. However, we expect a sharp rise in revenue contribution in
FY13E with the full year numbers getting consolidated and resulting in an immense growth in
FY13E EPS.
Visa processing and Train tours: Future growth avenues
C&K has also branched out into a) visa processing, where C&K has signed up with six embassies
to process visa applications and expects more than a six-fold increase in volumes in the next
two years, and b) a foray into rail tourism through the Maharajas’ Express, a luxury train in JV
with IRCTC. Though these segments contribute less than 8% to the company’s revenues, we
expect the revenue contribution to increase and with higher margins the company should
benefit on the profit level as well.
Valuation
C&K is currently trading at 12.6x FY13E EPS of `14.5, a 48% discount to its historical one-year
forward P/E band of 24x. The stocks has been de-rated over the last two years due to a decline
in return ratios with huge cash on the books and the uncertainty of its acquisition integration.
However, in view of HBR acquisition and the successful history of integrations of C&K, we
expect the company to report a 23.7% PAT CAGR in the next two years. Consequently, we
believe there is good potential upside in the stock and value it at a 30% discount to its historical
PE due to concerns on its a) huge debt, b) high interest outflow, and c) acquisition integration.
We initiate the coverage with a BUY rating and target price of `243 (16.8x FY13E EPS).

Travels & Tourism Industry - Exotic package at an attractive price :: GEPL Capital

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India tourism demand expected to grow 9.2% CAGR, second fastest in the world
India’s Travel and Tourism (T&T) Industry demand is expected to grow by 9.2% CAGR from CY10-20E,
to reach US$432bn, the second fastest growth in the world, and emerge as one of the top 10 T&T
market globally. This growth is expected to be driven by a) 7.8% CAGR in foreign tourist arrivals
(FTAs) to 11.9 mn (inbound tourism), b) 14.1% CAGR in outbound traffic to 45.1 mn, and c) 7.7% CAGR
in leisure spending to $137.1 bn in domestic tourism. We expect India’s T&T industry to flourish led
by a) the favourable demographics of a burgeoning Indian middle class, b) rising purchasing power
with higher disposable income, and c) better connectivity (land, sea, air) with improvements in
infrastructure. We believe Cox & Kings (C&K) and Thomas Cook (TCIL), India’s two leading tour
operators, are best placed to capture this growth potential with their integrated business model and
the structural changes in the industry such as the rising market share of organised players.
Cox & Kings: Best bet in India’s tourism industry with strong global footprint
We believe Cox & Kings (C&K) is best placed to capture the 9.2% CAGR in India’s tourism industry with
its a) Pan-India presence and strong brand recall, b) Integrated business model with diversified
product offering (price and destinations), and c) Strong overseas network with presence in India’s key
outbound destinations such as Europe, UAE, and the Far East.
The company has quickly emerged as a global tour operator with a series of overseas acquisitions in
last four years (spread across USA, Europe, UAE and Australia), resulting in a strong set of synergies.
These includes a) opportunity to capture more travel spend of the customer, b) improve cost
competitiveness through consolidated product sourcing, c) build global distribution network and, d)
de-risked business model with reduction in seasonality impact and low event risk.
With the acquisition of HolidayBreak Plc (HBR), we expect the company to register a PAT CAGR of
23.7% in FY11-FY13E despite the higher interest outflow and lower profits in FY12E.
Thomas Cook: stable forex business and strong traction in travel business
Thomas Cook (TCIL) is the largest forex player and one of the top five tour operators, in India. Its
forex business, accounts for 60% of consolidated revenues, and is expected to remain one of the
major growth drivers with strong growth in outbound leisure travel, FTAs in India and global inward
remittances to India.
However, the travel business is expected to outperform with 15.7% CAGR in revenues, compared to a
10.3% CAGR in forex revenues in CY10-13E, owing to strong growth in India’s tourism industry.
Consequently, its PAT is expected to witness a steady growth of 11.1% CAGR in CY10-13E.
The stocks has corrected sharply in the recent past due to its parent company, Thomas Cook Plc
(TCG) being burdened with a huge debt and lowering its guidance thrice in the last 18 months. We
believe the concerns for TCIL are over done and expect the stocks to witness a strong recovery in the
coming months.
Valuation and views
Historically, C&K and TCIL have traded at 20-25x one year forward earnings multiple driven by strong
growth visibility. We initiate coverage on Cox and Kings with BUY rating and target price of
`243/share (16.8x FY13E EPS), a 30% discount to its average historical multiples due to a) huge debt,
b) high interest outflow, and c) acquisition integration concerns despite C&Ks strong track record. We
initiate coverage on Thomas Cook with BUY rating and target price of `46.5/share (15.2x CY13E EPS),
a 30% discount to its historical multiples. We believe the concerns of TCG’s debt position and its
impact on TCIL are overdone.

Telecom - Earnings traction strong but beat unlikely; regulatory visibility increases ::Motilal Oswal

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Telecom
Earnings traction strong but beat unlikely; regulatory visibility increases
Initial signs of weakening industry discipline; downgrading EBITDA by 2-5%; maintain Buy
While our recent industry interactions suggest strong 3Q business momentum, we downgrade EBITDA estimates
for Bharti/Idea by 2-5% and target prices by 7-10% led by 1) lower visibility on near-term margin expansion
despite the companies entering seasonally strong period, 2) poor 3G uptake which will likely lead to higher
marketing spends and data tariff cuts, and 3) likely higher competitive intensity within the top-3 operators as
manifested in divergent subscriber addition and market share trends. However post recent ~15% stock price
correction and expected resolution of near-term regulatory issues, we believe valuations for Bharti/Idea at
~6x FY13E EV/EBITDA are attractive. Maintain Buy on Bharti/Idea and Neutral on RCom.
 Our recent interactions with Bharti, Idea and other industry participants reconfirm strong traffic growth rebound in 3Q,
along with continued RPM increase, led by tariff hikes getting effective for subscribers coming up for renewals. Both
traffic growth and RPM trends appear broadly in-line; we do not see much room for positive surprise in the near-term.
 Our interactions also indicate that industry discipline might be getting weaker at the margin, with net subscriber
additions getting skewed in favor of a few operators and disparate revenue market share trends amongst the top-3
operators, with Bharti continuing to lose revenue market share while Vodafone and Idea have maintained their share.
 Idea has been posting the highest net subscriber additions among the incumbents post the tariff hikes in July, which
might be an indicator of relatively higher aggression v/s other players. Some part of this outperformance might also be
due to the fact that Idea has raised tariffs only in its leadership circles while operating at a discount in other circles.
 Margin commentary remains mixed. While operating leverage should kick in, the impact is being diluted by 3Grelated
costs as well as pressure on SG&A in case of some operators. During 2HFY12, we expect 80bp EBITDA
margin improvement for Idea (4QFY12 v/s 2QFY12) and 180bp improvement for Bharti. Higher margin improvement
assumption for Bharti is driven by tighter cost control post recent restructuring and lower SG&A.
 3G uptake remains weak, largely due to lower device penetration (estimated at early double-digits for Bharti and mid
single digits for other players) and high data tariffs (~INR0.5/MB on promotional basis for lower denominations of
monthly packs). While 3G is unlikely to be a significant revenue driver in 2HFY12, we expect significant cut in 3G
tariffs over the next few months and continued increase in 3G handset penetration to drive 3G revenue from FY13.
 Regulatory visibility has increased in the near term, with media reports indicating crystallization of final policy decision
on excess spectrum and M&A rules. We highlight that the liability/share for excess spectrum (INR4/share for Idea
and INR10/share for Bharti) is much lower than the potential liability for spectrum renewal; our target prices incorporate
50% of this. Uniform pan-India licence fee of 8% and similar licence fee on tower rentals are likely to have largely offsetting
impact on EBITDA for Bharti/Idea. Resolution of other issues like spectrum renewal and re-farming could also
happen with a lag, since first licence renewals would happen only in late 2014. Policy for providing exit to distressed
new entrants is also unlikely to be addressed, as TRAI is starting a fresh consultation process on the same.
 During the current quarter the INR has depreciated against the USD by ~9%. We have modelled 3QFY12 forex loss
of INR2.5b for Bharti and INR 0.2b for Idea. Assuming net forex exposure of USD10b we estimate net worth impact of
INR47b (INR12/sh) on Bharti.
 We are downgrading our FY12/13 EBITDA estimates for Bharti by 2/4% and Idea by 3/5%, largely on lower margin
assumptions. We are reducing our target price for Bharti from INR515 to INR465 and for Idea from INR135 to INR125.
 Post the recent ~15% correction in Bharti/Idea, we believe valuations at ~6x FY13E EV/EBITDA are attractive.
Maintain Buy on Bharti/Idea and Neutral on RCom.

Mahindra and Mahindra :: JP Morgan India Investor Tour

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Mahindra and Mahindra
Volume outlook
M&M expects volume growth (despite a slowing economy) to be driven by new
product launches. They are witnessing an encouraging response to the new XUV
500. Further, the Yuvraj has created a new segment within tractors. M&M has been
gaining market share in its core segments. Further, inventory levels are under check
as dealerships are carrying 21 days supplies.


Taxes on diesel vehicles
On the proposed issue of raising diesel taxes, management re-iterated its stance that
the government should raise fuel prices rather than levy additional taxes on vehicles.
At the same time, management is considering alternate power train options.
Capital expenditure
M&M has planned a capex of Rs50Bn in FY12 – FY14 for the standalone business
and Rs 20Bn as investments in subsidiaries over FY12-FY14.
Ssanyong
Management noted that the OEM has achieved cash breakeven. They are currently
focusing on rebuilding the brand in the domestic market and are expanding their
export footprint. The company will achieve sales of 120,000 units this year.

Tata Steel; Sterlite Industries :: JP Morgan India Investor Tour

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Tata Steel
Company remains cautiously optimistic on the India business profitability outlook.
Demand remains weak with the Auto and white goods segment seeing weaker

demand, however cost push in the domestic Indian steel market has supported prices
and hence TATA’s India profitability.
On Europe, TATA sees under lying demand as relatively steady, though volatility in
raw material prices and hence steel prices has led to deferment of steel purchases.
TATA does not see any major increase in net debt from current levels at least for the
next 1 year.


Sterlite Industries
Sterlite Industries (STLT) remains cautiously optimistic on commodity prices. Given
that the company’s key mining assets in zinc are among the lowest cost in the world,
STLT expects the zinc business to remain highly profitable.
Across the group, the aluminum expansion projects have been deferred for the time
being, and would be selling power in the market.
As of now there are no large capex projects being planned by the company.

Tata Power :: JP Morgan India Investor Tour

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Tata Power
As anticipated, investor concerns centered around the Mundra UMPP losses
and details of the upfront write-offs taken in Sep-q.
Management reiterated that the asset write-off of Rs8B, taken in Sep-q, was related
to impairment and would result in lower depreciation charge on Mundra, once
commissioned. The company is transferring 75% of the coal mine ownership to
Mundra SPV, and mgt explained that this would neutralize the project losses. The
management categorically ruled out any PPA renegotiation, but stated attempts to
reduce Mundra losses continue – specifically:
1. Advocating tweaking of the CERC index of fuel escalation to tune it with actual
escalations,
2. Attempts to blend lower grade coal, in consultation with the boiler supplier
Doosan, after a pilot attempt at Trombay – mgt thought this can potentially bring
down coal cost by as much as 30-35%, if successful, over years.
The commissioning timeline is Feb-end for the first unit, and 3-6 months for
subsequent units of 800MW. Target PLF is around 75%.
Besides this issue, management highlighted on-the-ground positive developments
on regulatory front – eg – an appellate tribunal order that state regulators should
clear up tariff receivables in 3 years time – this is a drastic and an important
milestone towards state distcom viability. In conjunction with takeaways from other
players, it was evident that most managements expect state distcom related reforms
to provide a big catalyst.
On land acquisition, which was the other important topic, TPWR highlighted efforts
to acquire land at Maharashtra for its upcoming coastal project over 3-4 years, but
uncertainty on land acquisition legislation, is delaying the process as owners are
expecting better compensation. The company also stated that if increased
compensation would expedite the process substantially, it would welcome the
legislation.

Lasrsen and Toubro :: JP Morgan India Investor Tour

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Lasrsen and Toubro
We visited the Heavy Engineering and Electrical Business plants at L&T's
flagship Powai facility.
A view from the shopfloor: At the shopfloor level we could see several overseas
orders under execution and in terms of sector exposure mostly fertilizer orders were
underway. The plant managers informed us that both the electrical and heavy
engineering units were running at >100% utilization level. An influx of new orders
would be executed at their Vadodara and Coimbatore plants where they have some
headroom. Hence we could infer that the sector would probably be running at 80-
85% utilization levels and corporates have not undertaken large capacity additions
given the high interest rates.
The shopfloor of the electrical unit was buzzing with activity which is a good
indicator of short lead demand. Also the plant manager told us that the level of
outsourcing has increased off late with the increase in demand, but pricing remains
an issue due to competitive intensity. The positive signal on demand is a good
indicator for Siemens India as well (JPM Rating OW).
According to management, over the next 5-7 years majority of the workforce at the
Powai plant will reach superannuation and work will be diverted to Hazira and
Coimbatore. Also the Powai plant being located in the congested city of Mumbai has
logistical bottlenecks as well. L&T now owns the land at the entire site.
Focus on order flow targets: We also met with management and the key areas of
concern focused on the ordering activity both at a macro level and for L&T.
According to L&T, $40B of ordering activity is expected in the 2HFY12 of which
L&T is targeting $10B to meet its guidance of a 5% yoy growth in FY12.
Road sector ordering is back, with less competition: Competitive intensity
although still very much prevalent has come off in the last couple of months and
numbers of bidders per project has been down to 19 odd vs 30+ earlier. Also about
47 road concessions are up for sale in the market, given traffic numbers have turned
out to be well below possibly over optimistic expectations. L&T continues to be
cautious in its selection, winning probably one out of every 10 projects.
Some positive comments were made on the $17B Dedicated Freight Corridor
project: Land acquisition is underway and financing milestones have been
completed. Japanese banks are funding the project at 20bps interest rate with a 20
years moratorium and 30 year repayment period. Also the World Bank is providing
some funding. According to management 3 consortiums have been shortlisted so far
(of 31 Indian and 6 Japanese bidders) including L&T. However the Govt could be
inviting more RFQs to stimulate more competition.
Metros to contribute, power to be weak: Also metros could see some decent
ordering, while challenges in power continue to remain. For the Hyderabad Metro
(~5% of OB), 45% of land acquisition is pending, meanwhile L&T will execute the
design portion of the order. While L&T lost out on the NTPC bulk tender, if BHEL
chooses not to match L1 then L&T would be in the fray for 4X800MW boilers and
3/2X800MW TG sets.


Working capital stress: Like 2Q where we saw some stress on working capital, the
issue could be prolonged for sometime since L&T is now paying its vendors earlier
which cannot bear the increased financing costs

NTPC :: JP Morgan India Investor Tour

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NTPC
We met the senior management team and also visited Dadri – which has NTPC’s
2X490MW new coal plant, 4X210MW old coal plant and the 817MW combined
cycle gas based plant and Powergrid’s HVDC transmission line.
Investor concern centered around execution slippages so far, and NTPC dissected
the same, attributing the slippage to gas unavailability, equipment supply delays by
Russian supplier Power Machines and subsequent land dispute at 2GW North
Karanpura. The company is hoping to commission 5GW in FY12 (on the current
base of 35GW), another 4.1GW in FY13 and take the capacity up to 66GW by FY17.
Of new capacities of 21GW over next 5.5 years, 6GW has been ordered and another
15GW is in the process of being ordered.
A key investor concern was on coal availability, and the immediate impact on
NTPC’s incentive-led RoE due to lower plant availability. The management stated

that it was advocating (to the regulator) a policy change in this regard, so that the
utility is not penalized for feedstock shortage. Besides that, the company highlighted
its efforts to begin production at its captive coal blocks, and targets 70-75mt of
captive production by 2025. On the overall coal equation, the company requires
165mt of coal, of which it gets 136mt via FSAs (125mt current), 23mt via imports
(14mt current) and the balance via e-auction. However, by 2017, it would require
270mt, of which 125mt via current FSAs, 50mt via captive, 50-60 via new domestic
coal supplies and 46 via imports.
At the Dadri plant, we got a closer perspective of the execution capability of the
company, but to us, it was very evident that the location can support more plants. The
management confirmed they have gas-based capacity of 1000MW in the prefeasibility
stage, as these require very less land per MW. Gas constraints seemed to
be constraining growth, but availability of gas could promote faster than expected
capacity growth.

Jaiprakash Associates :: JP Morgan India Investor Tour

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Jaiprakash Associates
We met the senior management team and also visited the newly constructed F1
circuit and under-construction Yamuna Expressway.
After the tremendous success of India’s maiden grand prix and general acclaim for
the way it was organized, JPA management was in a good mood. Investor concerns
on debt levels were acknowledged and JPA seemed determined to fix it.
Elaborating on the cement demerger plan, JPA said the Board had approved
transferring 9.8mtpa to a wholly owned sub, and hoped that the company will be able
to retire debt to the tune of US$800M-US$1B as a result of a partial strategic sale.
Our calculation suggested an implied EV/ton upward of US$150/ton, to which
management responded that the denominator should include another 10mt of
potential expansion, including 3mt that could potentially come in from the newly
announced Andhra Cement buyout by the promoter.
The company also pointed out that JPA’s stake in JPIN / JPVL would have to come
down, to comply with free float guidelines.
In response to investor concerns JPA said they would follow a more judicious mix
of cash flows and growth, going forward – while they wouldn’t want to lose
attractive growth opportunities, they would seek to keep leverage at more
manageable level and the debt should peak by Mar-12. They were confident that
cement capacities will be fully utilized in the next 2 years.
The company hopes to begin Yamuna expressway tolling by April 2012 and
launch land parcel #3 (close to Sports City, 116msft) soon. Continued optimism on
sales/ cash flows.
On power, the company is keeping its option on securitizing the receivables of newly
commissioned 1000MW Karcham Wangtoo, open, IF an US$250-300M of equity
raising does not materialize. Unless funding options open up, the company might go
slow on Bina-2 (1,000MW) and Karchana (1,980MW). For Bina-1 (500MW), which
the company is hoping to commission in FY13; the company said it has a back-up
coal block in Maharashtra, and is also hoping to receive coal supply from Coal India.

Pantaloon Retail :: JP Morgan India Investor Tour

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Pantaloon Retail
Demand Trends – Discretionary demand has moderated across categories in recent
months. SSS growth slowed down to 3.6%, 6.5%, and 1.3% for value, lifestyle, and
home retailing respectively in Sep’11 quarter. Management stated that there has been
substantial volatility and inconsistency in demand trends across regions. Mgmt noted
that while demand for Apparels continues to remain weak, Food and Home segments
are doing relatively well.
Balance Sheet Concerns - PRIL currently has cUS$1Bn in debt. PRIL is willing to
divest its stake in NBFC venture and insurance business to pare down debt. They are
also working on simplifying the business and consolidating some of the other support
businesses. With cabinet approval for FDI in multi-brand retail Pantaloon would be
open to partner with a foreign retailer and it would help ease its funding constraints.
Expansion plans - Despite rising debt and consumer demand slowdown,
management remains confident to continue with their expansion plans. Pantaloon
will be adding c2.2Mn sqft space this year. They also highlighted that given there is
no real estate development going on currently due to slowdown, we may see a
shortage of real estate for retail business three years from now.

Jubilant Foodworks :: JP Morgan India Investor Tour

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Jubilant Foodworks
Demand Trends, SSS growth and store expansion: Management highlighted that
demand trends for them remain fairly healthy. While early signs of downturn are
visible; management has not seen any significant impact on volume offtake yet at the
stores. Management remains confident to end year with 20%+ Same Store sales
growth in FY12. This fiscal extent of price increases has been higher than the past
and high single digit price growth contributed to SSS growth rates in 1HFY12.
Commitment of Dominos remains quite strong for expansion into India and they
believe there is opportunity to add 70-80 stores per year over medium term.
Margins: Milk led inflation (rising cheese prices) is a key concern for gross
margins. They intend to keep COGS at 25-26% of sales. Management guided that
they should be able to maintain atleast FY11 margins (17.7% EBITDA margins in
FY11). Over medium term operating margins will likely benefit from increasing ratio
of old store to new stores and SG&A leverage.
Dunkin Donuts: Management is quite optimistic about success of Dunkin Donuts
business in India. Consumer trials are underway and management expects to launch
their first store in 1HCY12. Pricing strategy for this format is being firmed up

HDFC Ltd  :: JP Morgan India Investor Tour

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HDFC Ltd
 Little impact of prepayment charges. HDFC repeated its confidence that the
abolition of prepayment charges would not significantly impact its model. The
new criteria of equalized rates for new and old borrowers is an impediment to
potential acquirers, and HDFC's own income from prepayment charges has been
minuscule. Management pointed out that the levy of prepayment charges had
significantly dwindled over time (with the rising share of floater loans) and the
abolition was not a major event.
 Loan demand remains robust. HDFC has seen very little weakness in demand, in
the customer segments that it operates in. There has been some softness in the
high-ticket segments (like south Mumbai) but HDFC's exposure is quite minimal
here. The key drivers of their demand - incomes and stable employment outlook -
remain in place. Rising property prices and high interest rates are a dampener, but
haven't acted as a serious demand destroyers. HDFC's loan growth target of
~20% remains in place.
 HDFC has again demonstrated one of its key competitive strengths in FY12-
funding flexibility. It has almost stopped borrowing from banks (the net outstanding has actually shrunk in 1h12) and switched to market borrowings and
retail deposits. This cushions HDFC's margins in a high rate environment, a
flexibility that other non-bank lenders in India rarely demonstrate.

Hindustan Unilever :: JP Morgan India Investor Tour

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Hindustan Unilever
Volume growth trends - While Sep’11 qtr registered strong volume growth of 10%,
mgmt noted that it did benefit to some extent from advancement of festive season
sales. They have started to notice some slowdown in volume growth rates in recent
months and even AC Nielsen data suggests moderation in volume offtake at industry
level both in rural and urban markets. Encouragingly unlike 2008 they have not seen
any downtrading yet on account of inflationary pressures.
Pricing - Mgmt noted that they had started to take price increases in Dec’10, hence
anniversarisation impact of pricing will start happening from Dec’11 onwards.
Incremental pricing decisions will depend on input cost inflation/competition.
Rupee depreciation is a significant concern - While impact of currency is
significant, the timing and extent would depend on kind of covers/hedges they are
holding. Mgmt noted that they are nearly fully hedged since last 2-3 years.
Competitive Intensity - Maintained that competitive intensity in FMCG space will
increase from hereon given the attractiveness of Indian market. However HUL will
benefit from its wide portfolio, global capabilities and distribution strength. Over
past five years they have noticed a strong trend towards premiumisation and they
believe their global portfolio is well placed to benefit from this trend in India.

GAIL :: JP Morgan India Investor Tour

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GAIL
We met GAIL’s senior management team recently. Key highlights:
Transmission volumes: GAIL remains confident that growth in gas availability will
drive transmission volumes in the next 3-4 years - GAIL expects volumes to rise
from current levels (118mmscmd) to 225-250mmscmd over the next 3-4 years.
Drivers for the increase, in the company’s view would be: (1) RIL ramping back up
to 60mmscmd (+15mmscmd over current levels), (2) 20-25 mmscmd from ONGC,
(3) Increasing LNG imports, particularly with the commissioning of the Kochi and
Dabhol terminals and (4) ~25mmscmd from other NELP blocks.
Capex/Expansion plans: The company has a capex plan of Rs450bn upto FY16 –
excluding the Rs150bn already spent on pipelines. The company plans to spend
c.Rs170bn on its pipeline network/CGD ventures; Rs80-90bn on the petrochemical
expansion at Pata; Rs100bn on new JVs, including the Dabhol terminal; Rs30bn on
its E&P initiatives, with the rest earmarked for M&A. The company expects to
maintain a 1:1 gearing ratio post these expansions.
Concern on returns: The company addressed investor concerns on incremental
returns from projects without the 12% ROCE assurance – the management continues
to target 12-14% returns from all new pipeline projects. The Surat-Paradip pipeline
was won through competitive bidding, though the company expects to earn ~15%
ROCE on the same. On the Brahmaputra Cracker project—53% (Rs88bn) is capital
subsidy from the GoI.
Execution delays: The management highlighted some of the delays/problems faced
in the execution of pipeline projects – while GAIL usually gets support from local
administration, delays are sometimes seen. GAIL is however exempt from the land
acquisition act as the pipeline projects are longitudinal and land is returned to
original owners. The Jagdishpur-Haldia pipeline, is on hold, due to lack of gas from
the KG-D6 field, but the company is mulling restarting the same now.
Subsidies: The management felt the upstream share of subsidies for this fiscal year
will remain at 33% , and that the final share for last year (38.7%) was an aberration.
However, with elevated crude levels, the overall subsidy bill is very high, and the
management feels changes to the mechanism is needed – with aid being given only to
those who are in need.
Inter-PSU investments: The management was of the view that inter-PSU
divestment is a real possibility – with oil PSUs having made gains in the last such
round. However, they did point out that with its large capex plans, and subsidy
payouts, GAIL does not have much spare cash to participate in such a divestment.

State Bank of India  :: JP Morgan India Investor Tour

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State Bank of India
 Asset quality pressures may ease going forward, but are definitely not over. The
positives are that some of the 1H provisions (countercyclical, new RBI standards)
are now over. On the other hand, however, delinquencies could remain elevated
for some more time – both from the restructured book and the general book.
 Management does not attribute its underperformance (vs peers) on NPLs purely
to weak underwriting. It is strengthening its monitoring capabilities, and also
believes that it will face some structurally higher NPLs given its size – SBI
struggles to bail out of potential problems, unlike smaller banks. Also, the
granular, small-ticket agri loans is a source of stress – management is closely
watching whether there is an element of moral hazard creeping in there.
 Infrastructure – SBI remains sanguine about the quality of its book. Their
exposure to weak power assets (weak feedstock arrangements, high merchant
power exposure) is minimal and they do not see a serious problem with projects
under implementation. Management logic is that some of these may see delayed
implementation (and hence restructuring), but losses are very unlikely once they
commence production. Importantly, it feels that the major problems for the power
sector can be resolved by regulators and policymakers – they are not underlying
economic problems.
 SBI have seen very little savings bank attrition so far, and thus are not planning
any moves on savings bank rates in the immediate term. On its 8.5% wholesale
deposit rate, the bank sees it more as a CD-substitution exercise – it’s unlikely to
cannibalize current accounts as wholesale rates have been elevated for a while.
The product is very short-term - management believes that makes it easy to tweak
going forward.
 Management sees no major alarms on capital. It needs Rs 80bn to cross 8% T1 by
March 2012, and will probably raise that as a combination from the government
and the market. If the government infusion does not come through, management
believes that there is enough headroom on perpetual bonds to take the T1 above
8% by March 2012.

HDFC Bank :: JP Morgan India Investor Tour

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HDFC Bank
 Asset quality is expected to deteriorate from here, but not alarmingly. The most
vulnerable segments are business banking and SME, which inevitably struggle
when the economy slows. Also, credit losses in the retail segment are expected to
normalize upwards at some stage in the cycle. Management is not unduly worried
about this, mainly because of the countercyclical buffer it has created in the last
three quarters, which should cushion the higher provisions.
 The savings bank deregulation is not expected to create any major long-term
issue for margins. Management made it clear that they will not be the first to raise
rates, but would be forced to follow if any large bank hiked rates. The larger
banks are not expected to move by more than 100bp.
 Even if that were to happen, the hike would be passed on in terms of rate hikes
and higher fees. Management pointed out that the effective cost of savings bank
deposits have risen by ~125bp in the past 6 quarters, without a meaningful impact
on NIMs or ROAs.
 HDFCB is confident of maintaining a growth rate of 400-600bp above system
loan growth. A big driver of that would be its expanded branch network, and the
management is very happy with the traction from its non-metro branches.

India Investor Tours: Glass half full...or half empty? JPMorgan

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The last quarter has been challenging for Indian equities, given the
macro uncertainties – both local and global. In this backdrop, we
hosted Investors in a series of Tours covering Senior Policy makers,
Opinion leaders and Managements of more than 30 companies from
the Financials, Investment and Consumption sectors over the last
week. In this note, we have summarized the takeaways from these
meetings. We believe these notes should serve as a useful guide to
the current mood in business circles. Key highlights:
 Policy environment – Slowdown, but no Paralysis. The pace of
economic reforms has not matched expectations. But that said, senior
bureaucrats opined that allegations of a ‘policy paralysis’ are over done
and largely a media creation. A sense of urgency appears to be coming
through. But execution will require consensus building and coordination.
We discerned a heightened commitment towards containing inflation and
fiscal consolidation. Progress on rural and social initiatives appear to be
solid and may not be well appreciated.
 Financials – A mixed bag. Interest rates have probably peaked, but the
easing cycle could be some time away. Recent regulatory changes –
abolition of prepayment charges, savings bank rate deregulation and
tougher priority sector norms – are not seen as disruptive to sector
dynamics. Loan growth remains healthy. But asset quality concerns
remain at the fore given a slowing economy and the collapse in the INR.
But balance sheet risk is expected to be episodic rather than systemic.
 Investment cycle – Advantage SoEs. A muddled macro is taking a toll
on investment cycle, particularly as it pertains to the private sector in the
infrastructure segment. Management focus appears to be on internal
measures to turn around viz. de-leveraging, working capital
rationalization, etc. State owned companies however appear to be
bucking the weak trend. A regulatory regime with assured returns and
conservative leverage have allowed them to push ahead with their
investment plans.
 Consumption cycle – Moderating. The slowdown in discretionary
spending appears to be gathering momentum. Demand for staples has
been holding out until recently. But early signs of a moderation are
beginning to manifest themselves. The bigger concern for managements
remains margin pressure. A weak currency is adding to their woes, even
as volumes moderate and competitive pressures remain intense.

Coal India - FY12 production target cut not surprising, but lack of clarity on critical issues remains a negative ::JPMorgan

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Coal India Underweight
COAL.BO, COAL IN
FY12 production target cut not surprising, but lack of
clarity on critical issues remains a negative


 Now production targeted at 440MT in FY12: COAL has un-officially (media
reports in Hindu, Bloomberg) revised down FY12 production target to 440MT
from the earlier 447MT (start of the year it stood at 452MT). We do not find
this surprising, given the delayed ramp up in Oct and Nov post rains. The latest
production estimate from COAL is still higher than JPM forecast of 427MT.
We see downside to COAL’s 440MT production target given it implies monthly
production run rate of 48MT, which is very high in our view. Offtake targets
have not been revised down, which we find surprising.
 Admittedly the above are factored in, however lack of clarity on 2 critical
issues negative: We are already in December, and there is still no official
communication on FY13 production and offtake targets. FY13 would be the
first year of the 12th Plan period. JPM estimate is 5.5% on production and
offtake for FY13E. The other critical area remains how the up-streaming of
cash from COAL to the Government takes place. The amount, as per various
public comments, appears to be Rs150bn (25% of JPME FY12E end net cash).
However, the mode is yet to be decided. The 3 options in our view are- a)
Dividend; b) Stock buyback and c) Cross Holdings.
 Price increases likely, but watch out for regulatory changes: A price hike is
likely some time over the next 3-6 months as wage negotiations get finalized.
Similar to last year, the non regulated sectors like aluminum, cement, could
likely face a larger price increase. While this could lead to short term
strength in the stock price, we believe potential regulatory changes in
India's coal sector need to be closely watched. Deficit is increasing sharply
and imports are not an optimum solution. Opening up of the coal sector, in terms
of allowing 3rd party coal sales is, in our view, a very direct risk to COAL’s
earnings stream, especially if it starts competing with e-auction coal sales. It
remains to be seen whether the decision makers in the Government see a
bigger/wider role for COAL in meeting India’s coal deficit (asking it to acquire
overseas assets, taking the role of importer). The final impact of the proposed
MMDR Bill would flow through (26% profit sharing) in terms of price increase
and cost absorption by COAL, also remains to be seen. None of the above are
near term events, but likely next year. However, how these events play out
would have implications on long term earnings trend for COAL and
subsequently valuation multiples.

Banking Industry Report - December 2011 ::ICICI Securities

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R o a d   t o   r e c o v e r y :  a n   e l o n g a t e d   o n e …
It has been over a year since banks have remained under pressure battling
out monetary tightening and subsequent credit slowdown, asset quality
deterioration and RBI endeavours like freeing up of savings rate. Credit
growth is sluggish at 7.5% YTD. We think it may fall below RBI’s targeted
18% to 16% for FY12E. The Bank Nifty has corrected by 25% YTD as
against a 17% slide in the Nifty. However, as valuation multiples have
already contracted for the sector, the correction may not be as steep as
has been witnessed over the past one year. In the absence of major
positive triggers, we believe the sector will remain in a consolidation phase
from here on. Also, banks with higher exposure to power (SEBs), iron &
steel and textile like SBI, PNB, IOB, OBC and Dena Bank would continue to
take a beating.
We have analysed the asset liability mismatch (ALM) in the system. Even
though the ALM mismatch has been present for long, financing of long
term assets by short-term liabilities has been aggravated due to increased
infrastructure lending in the last three years. According to RBI analysis
(Trend & Progress report 2011) almost  23% of short-term  liabilities were
used to finance almost 20% of long-term assets in the banking sector.
We  expect  slippages  to  remain  high  although  lower  compared  to  H1FY12
as the migration exercise stands completed. With stress already visible in
SME & agri portfolio, the next trigger may be from retail but the quantum
would be relatively smaller. Increase in restructured assets would defer the
near  term  material  impact  on  P&L.  According  to  our  analysis  of  coverage
stocks, we expect an impact of ~8.2% for PSB and 2% for private bank
PBT if slippages from restructured assets rise to 25% in FY12E.
We believe a pause in interest rate hike and subsequent reversal seen in
early H1FY13E will provide some relief to the sector. We prefer banks with
stable asset quality, resilient NIM and well diversified exposure. Hence, we
are positive on banks like HDFC Bank and Yes Bank in the private space
and Bank of Baroda among PSBs from a long-term perspective.

Crompton Greaves:: Buy Target 187; Anand Rathi

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Investment Arguments
~ Conservative Guidance
~ India's T&D infrastructure, a huge potential
~ Most of the negative priced in
~ Strong Performance over 10 Years…
~ Valuation

Venky’s (India) Ltd The golden egg laying chick ::GEPL

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Investment Rationale
India’s Poultry Industry - set to lay golden eggs in the years to come
We expect the Indian poultry industry to grow at +9.5% CAGR in FY11-13E considering a) we are
the 6th largest poultry populated nation, b) the cheapest Country in the World in terms of cost
of eggs sold, and c) amongst the cheapest Countries for day old chicks (Sri Lanka is the
cheapest). Moreover, the potential to grow remains intact with the Indian Egg industry having
achieved a mere 29% of its true potential (per capita consumption of 53 eggs vis-a-vis NIN’s
recommended 180 eggs). Similarly, the poultry meat segment has achieved a 32% of its
potential (per capita consumption of 3.5 kgs as compared to NIN’s recommendation of 11kgs).
With a low export share, low per capita consumption and lack of other alternatives like beef
and pork due to religious reason, we believe there is plenty of scope for the Poultry industry to
continue its growth trajectory.
The best bird amongst the flock in India’s Poultry Industry
Venky’s is amongst the best candidates to capture the growth in the Indian poultry industry in
FY11-13E (+9.5% CAGR) due to its healthy track record and a strong parent company backing.
Venky’s is part of the VH group and with a group turnover of `35 bn offering a whole host of
benefits like a) Pan-India presence (Venky’s has a strong presence in North and West India while
VH group has its presence in South and East India), and b) the large scale of operations result in
operating leverage with lower transportation, marketing storage cost per unit enabling higher
margins. The Pan-India presence has helped Venky’s to increase its presence across the value
chain as well diversified portfolio with AHP and solvent extraction insulating its risk at times of
flu’s and viruses and poultry products being non-impacted by global slowdown.
Venky’s XPRS – the future wings of growth
Venky’s has entered the hospitality industry with the launch of ‘VENKYS XPRS’ to serve their
customers with a range of healthy, hygienically cooked, and yet reasonably priced chicken
delicacies. The first store was rolled out in Jan, CY10 and currently five stores in India are
operational. The company plans to invest ~`2.5 bn for its research and development and set up
over 100 Venky’s XPRS outlets (including London) over the next three years. Though currently
the contribution from this segment is minimal, the scope for growth remains high given the
changing demographics in India with a rise in disposable income, higher working population
(both youth and women).
Strong Financials – Fine feathers
With a strong growth in the Indian poultry industry we expect Venky’s to grow at 20.6% CAGR in
FY11-13E to `12.4 bn driven by 23% CAGR in poultry and poultry products, 11.5% CAGR in animal
health products and a 16.4% CAGR in the solvent extraction division. We expect high raw
material prices to impact margins in FY12E with a strong bounce back in FY13E with retracing
feed prices. Consequently, we expect the EBITDA to witness 21.5% CAGR from FY11-13E to `1.68
bn. With a higher interest cost (higher capex and debt and higher interest rates), higher
depreciation rate and lower other income, we believe the PAT growth would be marginally
lower at 17.2% CAGR from FY11-13E to `1.0 bn.
Valuation
At CMP Venky’s is currently trading at 7.1x FY12E EPS and 4.1x FY13E EPS, a 34% discount to its
historical one-year forward P/E band of 6.2x and a 45% discount to its average one-year forward
P/E band over the last 12 months of 7.4x. We have valued the company on the four year
average of its historical P/E band (5.1x) to capture the cyclicality of the industry and its profits.
We believe there is good potential upside in the stock and initiate coverage with a Buy rating
and target price of `544 per share (5.1x FY13E).

Buy DLF: Non-core Assets Sale gaining momentum :Pinc

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Non-core Assets Sale gaining momentum
DLF is all set to reduce debt through sale of non -core assets and faster
cash generation through sale of plotted development. As per the media
reports, It is planning to sell its 100% hotel subsidiary (DLF Hotels and
Hospitality) to Kolkata based Square Four Housing & Infrastructure for
Rs5.5bn. We believe the deal has been strike out at the 1x of its book
value.
The sale of few non-core assets are in final stages and we expect the same
to conclude including the above one in between Q4FY12 and H1FY13 .This
is likely to help reduce the debt by Rs35-40bn(15-18%) from present net
debt level of Rs 225bn ( D/E at 0.87). We maintain 'BUY' with a target price
of Rs315 and believe that debt reduction will act positively for the stock.
Sale of 100% stake in DLF Hotel and Hospitality business : As per the media
reports, DLF is selling its hotel subsidiary to Kolkata based Square Four Housing
& Infrastructure for Rs5.5bn. Earlier, DLF had acquired the 26% stake held by
Hilton International's for Rs1.2 bn and presently owns100% (74% in FY11)stake in
DLF Hotels and Hospitality .It has signed a non-disclosure agreement with Square
Four and expects to conclude the deal by third week of Jan'12.The net worth of
DLF Hotel and Hospitality is Rs5.7bn (FY11) and we believe the deal works out at
0.9-1x of net worth.This deal is in line with the company’strategy to reduce debt.
Non-core assets sale is the key for debt reduction: The company is actively
looking for sale of its non core assets including Aman Resorts and have already
finalised deal with IDFC for Noida IT park. We believe all the deals (please see
Table-2) including the DLF Hotel & Hospitality will fetch DLF an amount of Rs35-
42bn and this will help the company to reduce its debt. (Presently D/E is -0.87x).
Moreover, plotted sale will help generate faster cash and plays an important role in
tackling the slowdown.
VALUATIONS AND RECOMMENDATION
We retain 'BUY' rating with a target price of Rs315. We believe that DLF is likely
to reduce debt and accelerate cash flows through plot sale and non- core assets
sale that will act positively for the stock.

Dec 2011: Cement Monthly ::ICICI Securities

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November dispatches jump on low base…
Cement majors report aggregate dispatch growth of ~22% YoY
Major cement players have reported a sharp rise of 22.2% YoY in cement
dispatches in November 2011, mainly due to the lower base of last year.
However, on an MoM basis, cement dispatches got slashed by 3.3% on
lower offtake due to a slow pick-up in construction activity across regions.
Jaypee outperformed other players with ~43% YoY growth in dispatches
followed by Shree Cement with ~41% YoY. Ambuja and UltraTech
reported YoY growth of 28.9% and  16.3%, respectively, in dispatches
while dispatches growth for ACC was a mere 4% YoY due to the higher
base last year. Other midcap cement players such as JK Lakshmi and
Heidelberg Cement reported growth of 23.4% YoY and 37% YoY,
respectively.
On an MoM basis, the aggregate dispatch remained lacklustre and dipped
~3.3% due to lower post festive season pick-up in demand. Except
Ambuja, all major cement players  reported a decline in dispatches
numbers. Shree Cement and ACC reported a 7.3% and 7.1% decline in
dispatches, respectively.
In October 2011, overall industry dispatches grew 0.6% YoY due to the
higher base last year. However, dispatches surged 13% on an MoM basis
on the back of a marginal pick-up in demand due to the post festive
season pick up in demand.
Cement prices up by | 20/bag MoM in November
All-India average cement prices surged by ~| 20/bag in November 2011
across all regions and stood at ~| 267/bag. This major hike was seen in
the eastern and western region where prices increased by ~| 30/bag and
| 25/bag, respectively.
Industry outlook
All-India  cement  demand  is  expected  to  grow  by  4.5%  in  FY12E  against
4.4% in FY11 as the consumption has been subdued during the year and
grew by 3.5% YoY in April-October 2011. For November 2011-March
2012, we expect demand to grow by 6% YoY as it is expected to pick up
post the festive season. However, the slowdown in construction activities
would remain a key concern. The utilisation rate is expected to decline
further to 75% in FY12E and would remain at the same level in FY13E on
account of high additions in effective capacity as against incremental
demand. However, utilisation is expected to start improving from FY14E
onwards as incremental demand is likely to keep pace with the additions
in effective capacities.

Shareholding Monitor: Dec 2011 ::ICICI Securities

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Promoters, public, FIIs and MFs are the major equity stakeholders in a listed
corporate entity. Of the stakeholders, FIIs have been major investors in Indian
corporates as is evident from the accompanying chart (Exhibit 1) with their
holding in BSE 500 companies moving up from 10.9% in September 2009 to
12.6% in September 2011. The optimism displayed by FIIs in the Indian
corporate growth story arises from the fact that the Indian economy remained
relatively insulated from the global economic meltdown mostly on account of
the strong domestic consumption, thrust on infrastructure development and a
strong banking system. The resilience of the Indian economy reaffirmed the
faith of FII investors who have increased their holding in Indian companies.
After pulling out | 53,052 crore in CY08 during the global economic
meltdown, FIIs have invested | 85,368 crore in CY09 and | 1,34,294 crore in
CY10.  In  CY11,  FII  investments  in  equity  have  been  volatile with  a  cumulative
net outflow of | 1709 crore till date.  Q1CY11 was characterised by a preBudget sell-off with FIIs being net sellers to the tune of | 3100 crore while
Q2CY11 had seen positive inflows to the tune of | 5171 crore and Q3CY11 has
seen an outflow of | 2961 crore. FII holding has increased by 1.1% in Q3CY11
with the BSE 500 index correcting by 12.1% to 6386 level in September 2011
from 7265 levels in June 2011.

Earnings Wrap 2Q FY 2012 ::ICICI Securities

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S l i d e   i n   E B I T D A   m a r g i n   c o n t i n u e s …
• The Q2FY12 performance of Sensex companies has been mixed.
On a QoQ basis, revenues rose by 4.5% but the decline in EBITDA
margin by 80 bps led to flattish EBITDA. Lower other income
(down by 35%) and higher interest expense (up by 9%) dented
the aggregate net profit, which declined by 9%. In spite of an
increase in the aggregate profitability of the oil & gas (up by 47%)
and capital goods sector (up by 41%), the overall net profit
declined owing to a decline in profitability of metals (down by
59%) and power sector (52%)
• The EBITDA margin has declined by 80 bps on a QoQ basis and
150 bps on a YoY basis. The QoQ decline in the EBITDA margin
was mainly on account of the increase in the other expense to
sales ratio by 120 bps. The metals and mining sector was the
major drag on the aggregate EBITDA margin as it reported a 690
bps decline on a QoQ basis.  This has negated the 410 bps
improvement in EBITDA margin of the oil & gas sector
• Of the sectors, the oil and gas sector recorded strong growth in
profitability owing to the low subsidy sharing burden on ONGC,
which enabled it to report robust growth in profitability. The
metals & mining and power sectors saw lower profitability owing
to lower EBITDA margin. Among other sectors, the capital goods
and IT sectors have delivered positive growth in profitability of
41% and 1%, respectively, while the auto sector delivered
negative growth of 5% in net profit

2012 Global Outlook : Piecing Together or Falling to Pieces? ::Credit Suisse

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• In 2011, the puzzle fell into European laps, and investors are contemplating the
possibility of a policy failure with monumental implications for the European
project and the stability of the global economic and financial system.
• We expect that Europe's politicians will accede to the pressures from markets
and their colleagues in the international community and take steps to restore
the coherence of the Continent's finances.
• Thereafter, we expect a continuation of what has already become an epic
struggle against credit stress as the world’s leading central banks – including
the ECB – deploy their unique powers to seek to preserve the option of
prosperity, employment, and progress.
• We present forecasts for fundamental economic performance and a variety of
financial opportunities, with specific trade suggestions to help our clients and
customers navigate the year ahead. We thank you for the business
relationships we have enjoyed in the year past and look forward to continued
productive interaction in 2012.

Buy Amara Raja Batteries; Target : Rs 234 :: ICICI Securities,

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The time for the challenger has come…
Amara Raja Batteries (ARBL) is the second largest battery maker in India
with strong credentials to challenge Exide industries’ dominance in the
lucrative auto-ancillary segment. ARBL commands a market share of
(~25%) in the OEM auto space and ~16% in the replacement segment.
In the industrial segments, it commands an overall market share of
~35% led by telecom and commercial UPS segment. We are firm
believers of the long term automotive story, which is expected to fuel a
CAGR sales growth of ~16% over FY11-14E. Even industrial demand is
expected to grow in the commercial power supply segment. On the
softer points, strong brand franchise and efficient two-tiered dealer
network provides a strong edge in terms of barriers to entry. We find
the battery business at the most attractive on a longer term among
other auto-ancillary businesses. Margins for ARBL are expected to
improve with higher aftermarket sales and operating leverage coupled
with stable lead prices. We estimate revenues and PAT will grow at
~22% CAGR over FY11-13E to ~| 2638 and ~| 222 crore, respectively.
We are initiating coverage on ARBL with a BUY rating.
Auto-replacement to be game changer
The domestic auto sector has entered a structural bull run on the back of
low penetration and growing income levels. We estimate the OEM
demand will reach ~26 million units in FY14E with a CAGR of ~13.5%.
Another key point is the shift of the total industry towards electric start
(two-wheelers the last entrant) variants leading to higher usage and lower
average battery life. Both these factors combined would help in ushering
in a new wave of the replacement cycle, which we estimate will grow at
~18.7% CAGR FY11-14E to ~37 million units.
Aggressive entry into OEMs along with unique distribution to bear fruit
ARBL has expanded capacities to set up dedicated channels for OEMs like
HMSI, Honda and Bajaj Auto, thereby providing strong dedicated lines of
revenue. This, coupled with the unique two-tiered franchised distribution
model will help in deeper penetration and improved after market service
coupled with more replacement sales opportunities for ARBL.
Valuation
At the CMP of | 203, Amara Raja is trading at 9.6x FY12E EPS of | 20.1
and 7.8x FY13E EPS of | 26.0. We have valued the company at 9x its
FY13 EPS of | 26.0 (~35% discount to Exide Industries’ core business
multiple) to arrive at a target price of | 234 with an upside potential of
15%. We are initiating coverage on the stock with a BUY rating.

Merry Christmas from IndiaER.blogspot.com

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Merry Christmas from IndiaER.blogspot.com

Kingfisher Loss: Beauties move to Air India!!! How things Change!!!

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36 Kingfisher air hostesses join Air India

He may be old and completely broke, but still has a heart of gold. Air India's Maharaja is now playing Santa to Kingfisher's unpaid crew. On Christmas eve, 36 airhostesses from Mallya's beleaguered airline joined AI. While timely payment of salaries has become a dream at both AI and Kingfisher, the crisis in Mallya's airline has suddenly made employees long for the safety of a sarkari job - even if it too happens to be a mostly unpaid one. Before airhostesses, Kingfisher had witnessed an exodus of pilots with nearly 140 leaving in past two to three months. "We are facing a severe crew shortage because of which our flights keep getting delayed. There are times when pilots are in cockpit but the plane can't operate due to crew shortage. We are looking out for airhostesses and have got many applications from those serving some other airlines. Some months back, we recruited people from other big airlines for our operation control room at Delhi's IGI Airport," said an AI official, adding the airline is not yet recruiting pilots though it's getting many applications from pilots working in other airlines. To cut costs, Kingfisher started shutting crew bases in some cities. The airline did not comment on this story. Employees at both companies have become extremely uncertain over salary payment.

Macro factors will decide 2012 market movement :Mr Anoop Bhaskar, Head of Equity, UTI Mutual Fund in: Business Line

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From our point of view, we will increase our weight in interest-rate-sensitive sectors rather than FMCG. Mr Anoop Bhaskar, Head of Equity, UTI Mutual Fund

Equity markets, over the last few years, have given sleepless nights not only to lay investors but to fund managers as well. Both bellwether indices, Sensex and Nifty, lost 15 per cent in 2011 even as fixed income instruments delivered far superior returns.

We spoke to Mr Anoop Bhaskar, Head of Equity, UTI Mutual Fund, for his view on equity markets in 2012 and the prospects for top performing sectors such as FMCG and pharma.

Excerpts:

Do you expect 2012 to be a better year for equity investors compared with the last few years?

There are four or five macro indicators to be taken into account, and how they have moved in the past decade, to answer this. You have to look at the numbers in 1990s, rupee-dollar rate, GDP growth, fiscal deficit in percentage terms, GDP growth, inflation rate and the 10-year government securities yield.

A decade-ago-data reveals that the 10-year G-sec was 9.5-10 per cent, inflation was more than 10 per cent, fiscal deficit was about 6 per cent and rupee depreciated from Rs 13 to Rs 45 (in January 2011). During the decade, rupee appreciated up to Rs 37 in 2007 and fiscal deficit fell from 7.5 per cent to 3.5 per cent before the global meltdown. Our G-sec fell from double digit to 4.5- 5 per cent.

So all this broad macro environment pushed up the market seven times from the low of the IT bubble in 2000 to the high in 2010. From 2010 till now, the dollar has depreciated from Rs 44 to Rs 52, fiscal deficit moved up from 3.5 per cent to 6.5 per cent, inflation was up from 6 to 9 per cent. The 10 year G-Sec yield moved from 6.5 per cent to 8.5 per cent.

So over the next two years, if we don't have clearly stabilising macro economic factors, what happened in 1994 and 2000 will be repeated. The market will be range-bound as in the past. In the 1990s, we had markets at the 2,800-4,200 band in Nifty. In a sideways market a buy and hold strategy will not work. So, investors should be bearish at the top of the market and bullish at the bottom of the market.

But this will require timing the markets?

I am not suggesting investors time the markets. I would advise them to build their portfolio when the media talks of doomsday. If we are close to trailing price-earnings ratio of 10 or price to forward earnings of nine times, that is the time to start building the portfolio. When the same becomes 13-14 times then one should look at reducing the portfolio.

In our interaction a few years ago, you stated that FMCG is a defensive sector and you would prefer to limit your exposure. But over the past three years FMCG continues to outpace the market. What is the outlook for the sector?

The growth rate for this sector is largely driven by significant government programmes, social spending and higher minimum support prices for agriculture produce, which leads to higher income in non-urban area. Besides, land price appreciation across India along with increase in prices of gold — Indians are accumulators of the yellow metal — led to higher consumption than what we would have estimated in 2008-09. We said that this sector was defensive vis-à-vis the market rather than based on the key attributes of its operating environment.

The stability in earnings and steady growth in FMCG companies has been lapped up by investors. This trend is not limited to India. We have seen this across all emerging markets. From now on, though, it is going to be difficult for FMCG because its valuations are far richer compared with 2008 and also compared with the broad market where it operates. Secondly, the incremental increase in MSP prices and increase in spending by the government will not be as high as in 2008-10.

Lastly, due to higher inflation, these companies will have a tough time in protecting their gross margin as is evident in the quarterly results of September 2011. Therefore, if an investor is building high expectation on growth he will be disappointed. On the other hand, if the market remains as volatile as it is now, then investors will prefer to overlook valuation for the short term and hold on to FMCG stocks to avoid negative surprises at the time of quarterly results.

But we would find very few portfolios adding their weight on FMCG. From our point of view, we will increase our weight in interest-rate-sensitive sectors rather than FMCG.

What are the reasons for decline in the growth rate of Indian pharma companies in the first half of 2011?

My main concern is on the new pricing estimate of the government. This could lead to some amount of reservation about the profitability of these companies. There is a clear trend in the last two years that domestic-focused multinational companies have seen very sharp increase in their valuation because of buoyant domestic market.

I think these companies could get spooked for a short period of time till the policy is out, after which we will know the actual operating profitability of these companies.

The Indian companies are more multinational in terms of business mix. Their Indian business is actually 30-50 per cent of the overall business and the rest is accounted by exports and sale to other markets. My feeling is that multinational companies will get de-rated to some extent over the next year-and-a-half, rather than Indian-owned companies.

What is your call on the sliding Indian rupee and its impact on sectors that depend on import of raw materials?

Almost every sector has got impacted by rupee depreciation. For some it could be direct and for others it could be indirect.

So the country, as a whole, cannot afford a depreciating rupee at this juncture. Currently we have higher fiscal deficit than budgeted, inflation is sticky and not coming down, and interest rates are fairly high.

Export sectors such as textile and IT may be the beneficiaries.

But currently CFOs of companies are far more active than the past. We don't know what call they would have taken on hedging the rupee. So, I don't want to make any generalised statement on this. It would all depend on the micro decision taken by companies regarding hedging of rupee or alternative sourcing of inputs.