India Financials 4Q12 Preview: What NOT to expect  HSBC Research

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India Financials
4Q12 Preview: What NOT to expect
 We do not expect an acceleration in loan growth (17-19% y/y)
or a margin pickup, particularly as rate rigidity sets in
 We do not expect an improvement in impaired loans or
credit costs; However, slippage ratios may plateau and
recovery ratios may start looking up; Overall, a single digit
q/q growth in earnings appears unexciting this quarter
 HFCs likely to be in favour as rate cycle tops out, teaser rate
loans reprice and new loan growth remains robust

India Strategy Budget: Oil prices may be key to fiscal consolidation 􀂄 :: BofA Merrill Lynch

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India Strategy
Budget: Oil prices may be key
to fiscal consolidation
􀂄 Fiscal deficit: Subsidy still holds the key
We think the budget is unlikely to have a major impact on the markets. The key
remains whether the Government can build political consensus to undertake
reforms. The Finance minister has expectedly targeted a fiscal deficit of 5.1% of
GDP with net borrowing of Rs4.8trn. We expect the fiscal deficit to eventually
climb to 5.6% resulting in higher net borrowing of Rs5.4trn. Macro thoughts:
1. Fiscal deficit more realistic but will likely overshoot: While more realistic
than the FY12, we think the fiscal risk arises from: (a) Subsidy will likely
overshoot, especially in oil. At an oil price of $112/brl, we estimate the
Government would require a 15% increase in diesel, LPG and kerosene
prices to ensure the subsidy remains a budgeted levels (b) Rs400 bn is
assumed from sale of spectrum and (c) Rs300 bn from disinvestment.
2. Inflation likely to increase: The increase in excise duty and service tax will
add to the inflation burden. We hike our average FY13 inflation forecast by
30bp to 7.4%. We still expect a RBI rate cut in April.
3. Retrospective amendment may receive negative press: The Government
has retrospectively clarified rules on income arising outside India on transfer
of assets situated in India. This follows the Supreme Court decision in the
Vodafone case.
4. EPS change marginal: EPS growth will reduce by 1% for FY13 (ONGC led).
Key sector/stock highlights
1. ITC- Negative: The excise proposed implies a higher than expected ~16%
increase. ITC will need a 6-7% price hike to neutralize this.
2. Sun/Cadila- Negative: Imposition of MAT for partnership firms to adversely
impact Sun and Cadila in terms of higher tax (EPS hit of 5-10%).
3. Steel- near term positive: Import duty on flat rolled steel has been increased
to 7.5% from 5% earlier could support prices near term. +ve for JSW, SAIL &
Tata while JSPL to be least impacted.
4. Utility sector- budget +ve but challenges remain: Import duty on thermal
coal removed in FY13/14. Positive for Adani Power but no impact on Tata
Power/NTPC.
5. Oil - Negative: The cess on crude oil has been increased from Rs2,500/t to
Rs4,500/t. This would hit EPS of ONGC, OIL and Cairn India by 10-15%.

PDF links: Q4 Results preview

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 Cement companies to post healthy growth in Q4: Emkay

http://www.moneycontrol.com/news/brokerage-results-estimates/cement-companies-to-post-healthy-growthq4-emkay_688774.html

Expects telcos revenue growth to be modest in Q4: Angel

http://www.moneycontrol.com/news/brokerage-results-estimates/expects-telcos-revenue-growth-to-be-modestq4-angel_689232.html

Auto ancillary cos to post growth of 56.1% YoY: PLilladher

http://www.moneycontrol.com/news/brokerage-results-estimates/auto-ancillary-cos-to-post-growth561-yoy-plilladher_689286.html

Automobile sector results preview for Q4FY12: Angel

http://www.moneycontrol.com/news/brokerage-results-estimates/automobile-sector-results-preview-for-q4fy12-angel_689325.html

Banking sector results preview for Q4FY12: Angel Broking

http://www.moneycontrol.com/news/brokerage-results-estimates/banking-sector-results-preview-for-q4fy12-angel-broking-_689346.html

Capital Goods' underperformance may continue: P Lilladher

http://www.moneycontrol.com/news/brokerage-results-estimates/capital-goods-underperformance-may-continue-p-lilladher_689345.html

See 15% rev growth in construction sector in Q4: PLilladher

http://www.moneycontrol.com/news/brokerage-results-estimates/see-15-rev-growthconstruction-sectorq4-plilladher_689365.html

Power sector results preview for Mar FY12: Angel Broking

http://www.moneycontrol.com/news/brokerage-results-estimates/power-sector-results-preview-for-mar-fy12-angel-broking_689810.html

Metals, mining sector results preview for Q4FY12:PLilladher

http://www.moneycontrol.com/news/brokerage-results-estimates/metals-mining-sector-results-preview-for-q4fy12plilladher_689843.html

Oil & Gas sector results preview for Q4FY12: PLilladher

http://www.moneycontrol.com/news/brokerage-results-estimates/oilgas-sector-results-preview-for-q4fy12-plilladher_689847.html

Real Estate sector results preview for Q4FY12: P Lilladher

http://www.moneycontrol.com/news/brokerage-results-estimates/real-estate-sector-results-preview-for-q4fy12-p-lilladher_689856.html

Equity Strategy - April: Chola Sec

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Clarification on P-Notes comes to the rescue
Markets snapped their winning streak to close in the red for March. Mixed sentiment prevailed in the run up to the budget,
however, with little coming by way of reforms the markets were left stranded. However, positive cues from global markets and
buying interest by FIIs augured well for rally at the fag end. The finance minister’s statement that P-note holders would be
kept out of the ambit of GAAR was a catalyst. The BSE Sensex closed lower by 2.0% while S&P CNX Nifty closed with a
gain of 186 points at 5,385. Midcap stocks continued to outperform their large cap peers with the BSE Midcap closing lower
by 0.6%. The BSE Smallcap index, which had been on a roll since December, cut short the rally to close with a loss of 3.4%.
Consumer oriented stocks hog the limelight
The sector-oriented indices on the BSE were a mixed bag; the BSE Realty and BSE Power (among the top gainers in the last
couple of months) declined by 9.1% and 8.3% respectively. Consumer oriented indices – BSE FMCG and BSE Healthcare
closed on a positive note. Keeping with the bellwether indices the S&P CNX 500 declined 1.3%. With the January effect on
the wane, the advances-declines ratio was skewed in favour of the losers at 2:3. This was particularly strong in telecom and
utilities. Driven by concerns on fuel subsidies, elevated oil prices and excise duty on crude oil; the energy pack closed on a
weak note. Stocks in the finance and IT spaces closed on a weak note.
Industrial metals slide on weak PMI from China
Major stock indices across the globe closed in the green; developed markets were amongst the top gainers. Coming on the
back of a sharp rally in the first couple of months Asian markets closed on a mixed note. The Hang Seng was amongst the
top losers declining by 5.2%. In the commodity space bullion prices lost steam and closed on a weak note; energy prices also
moved southwards. Driven by weak PMI numbers from China the non-ferrous metals pack ended on a weak note. European
debt markets closed on a mixed note with yields rising on most government bonds.
Downtick in core inflation; upside risks in fuel
Output figures of the eight core industries for the month of February were up; largely driven by higher coal and electricity
production. IIP for the month of January was up at 6.8% led by a surge in the consumer non-durables segment. An uptick
was noted in inflation after four months of downticks; much of it, however, is attributed to a swing in fruits & vegetables. Core
inflation, however, slipped below the 6% mark for the first time in 15 months. Upside risks to inflation persists in the form of
higher crude oil prices and a hike in petrol and diesel prices. Hike in excise duty and service tax, that has been proposed in
the budget is also expected to contribute to inflationary pressure.
Another CRR cut looks imminent
In the light of tight liquidity conditions the RBI cut the cash reserve ratio by 75 basis points, however, liquidity continues to
remain tight with the net reverse repo under LAF way beyond the RBI’s comfort zone. The RBI has also been infusing
liquidity by resorting to open market operations (~Rs 1.3tn). The issuance calendar pegs dated securities borrowing at Rs
3.7tn, indicating a market borrowing of more than 65% in the first half. This is expected to cause further strain on liquidity;
reflecting the concern bond yields inched up in the recent week. Although interest rates appear to be at the peak a rate cut is
unlikely in the upcoming RBI’s policy meet. With the union budgets inflationary pitch and persistence of upside risks to
inflation; the RBI is likely to tail inflation. However, a cut in the cash reserve ratio appears imminent.


Markets reasonably valued but face headwinds
With the Sensex trading at 13X times FY 13 earnings, markets from a valuation standpoint remain reasonable. Given a mix
of reasonable valuations, slowdown in industrial growth and uncertainty of the timing of a rate cut; we recommend investors
to stick to companies with low financial leverage, consumption driven growth and moderate valuations. The recent hikes in
electricity rates are expected to tone down concerns on asset quality of PFC and REC. Investors may consider investments
in PSU stocks with high dividend yield, cash rich position and high government stake. The headwinds that the markets face
include higher crude oil prices, hike in diesel prices and its impact on inflation combined with a slowdown in global industrial
growth. For now road infrastructure needs to be given a go-by.

IL&FS Transportation Networks Ltd Bumpy road ahead; downgrade to Neutral 􀂄 :: BofA Merrill Lynch

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IL&FS Transportation Networks Ltd
Bumpy road ahead; downgrade
to Neutral
􀂄 Cut EPS by 4/13%; revised PO of Rs220, Neutral
We downgrade ITNL from Buy to Neutral with a reduced PO of Rs220 (limited
upside potential of 16%) due to (a) estimate E&C margin at 10-12% (vs earlier 15%)
at parent level in FY13/14E on 3-9m execution delay; biz valued at parent (vs consol
level earlier) and (b) high-margin fee biz revenue to fall 70% YoY in FY13E on
project completion. In addition, we are concerned with intense competition for new
project wins which may potentially push ITNL to grow inorganically (like YuHe
acquisition) and bid aggressively compromising on IRRs (in KNR highway, ITNL’s
Rs1.35bn bid grant was 68% below L2 bid). Cut EPS by 4%/13% in FY13/14E.
Execution delays; value the parent level E&C
ITNL is witnessing 3-9 months delay in 29% (by lane-length) of projects under
execution owing to contractual delay and land acquisition/labor issues. Parent level
E&C margin is estimated at 10-12% on hard project costs. These expand to 21-24%
at consolidated level on a 10-13% mark-up over project cost and interest during
construction period for BOT asset (for annuity).
High-margin fee business contribution to decline
In our view, fee income business @ 3% of project cost is set to drop to Rs1.3bn
(down 70%yoy) in FY13E on completion of Jharkhand/RIDCOR project. Hence, its
contribution to revenue at 10% in FY12E will drop to 2% in FY13E. Likewise, the
EBITDA contribution will likely fall from 23% in FY12E to 5% in FY13E.
Not an U/PF on diversified portfolio, 1.5x jump by FY14E
(a) ITNL has a well-diversified portfolio of annuity + toll projects, spread over 14
states and has multiple sources to win projects. (b) Well poised for 1.5x growth
during FY13-14E. (c) Strong EPC o/bk at 2.1x FY12E sales offers good CF
visibility and drives 2/3rd of sales. (d) EPS growth is 14% over FY12-14E with RoE
of 19%/20% for FY12/13E, well above its peers. (e) YuHe road (operating)
acquisition is EBTIDA accretive by 6% in FY13E and contributes to 4% in SoTP.

NTPC : FY2013 – Will this elephant trot this year?: Nomura Research

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FY2013 – Will this elephant trot this year?
Still our preferred IPP amid
rising fuel security risk, but it is
time to deliver


Action: FY13F very likely to see a pick-up in execution; maintain BUY
Post a tepid FY12, we expect NTPC to finally deliver on capacity addition
targets and make visible progress towards the development of soon-to-berestored
captive coal blocks – thereby meaningfully addressing key
investor concerns of capacity growth and fuel security. In our view, this
would potentially be the elusive trigger for stock price performance.
Catalyst: 5.5GW addition in FY13; progress on captive coal blocks
Imminent FSAs with CIL and fairly advanced stage of readiness of ~5GW
capacity slated to begin commercial operations augurs well for earnings
growth; development activities at its captive coal blocks should pick up.
An effective RoE of ~20% on regulated assets seems sustainable
Factoring in the risk of potentially lower level of sustainable efficiencylinked
gains, we reduce our effective RoE forecast for NTPC’s operating
assets over our explicit forecast period to ~20% (from ~22%); we cut our
FY12F/13F/14F normalized EPS forecasts for NTPC by 4%/6%/9%.
Valuation: TP set at Rs205; target multiples below historical average
While we continue to peg our 12-mth TP based on our Residual Income
model, we raise our cost of equity assumption by 500bps to 13.0% in
order to reflect a higher risk to NTPC’s earnings growth prospects. At our
TP, the stock would trade at 2.0x FY14F P/B and 16x FY14 P/E.
We prefer PWGR over NTPC
In our view, NTPC’s multiples merit a discount to PWGR to reflect the
latter’s lower-risk business model and superior earnings growth outlook.

The Absolute Return Letter: April 2012

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The UK may not be facing the same set of challenges as many other European countries but that does not mean that the next few years will be plain sailing for the British. Households are overextended, banks are highly leveraged and the pension model is deeply flawed. Meanwhile, the British government, obsessed with keeping the coveted AAA rating, is pursuing a fiscal policy which is well intended but entirely inappropriate.

Enjoy the read and Happy Easter. 

http://www.arpllp.com/core_files/The_Absolute_Return_Letter_0412.pdf 

Divi's Lab Sustained revenue ramp-up in sight; Buy 􀂄 :: BofA Merrill Lynch

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Divi's Lab
Sustained revenue ramp-up in
sight; Buy
􀂄 Recent underperformance offers a particularly good entry
point; Buy
We believe Divis 14% YTD underperformance (vs market) is overdone noting high
revenue visibility (22%+), healthy Balance Sheet and strong earnings trajectory
(24% EPS CAGR). Our recent interaction with management reinforces our
optimistic view on Divis’ ability to capitalize on CRAMS recovery backed by strong
customer relationships (~70% sales from repeat business) & capex plan. Rate
Divis as our top mid-cap pharma pick and reiterate Buy with PO of Rs940.
Vizag SEZ, Carotenoids uptick to boost revenues
We expect Divis to sustain 22% sales CAGR over FY12-14E driven by (a)
increased volumes in key API products (~35% of sales, 60%+ mkt share) & new
launches from upcoming US patent expirations (like generic Seroquel-Mar’12,
Diovan-Sep’12) to help 20%+ growth; (b) New orderflow in high margin custom
synthesis business to sustain 25%+ growth & (c) Carotenoids business set to
double sales to Rs1.6bn by FY14E. New Vizag SEZ would support company’s
growth plan with 25% incremental capacity being added (peak sales of Rs5bn).
Carotenoids – opportunity to unfold strongly
We expect Divis carotenoid business to grow at fast pace over FY12-14E to clock
revenues of Rs1.6bn (from Rs840mn in FY12E). New customer additions through
distributor (like Omya Intl) would help capture mkt share of ~5% in US$1bn global
mkt over 3-5 years. With only two large players DSM & BASF in the market,
customized solutions would help Divis differentiate and gain market share.
Attractive valuations; PO implies 27% upside potential
Divis is currently trading at 15.8x FY13E & 13.4x our FY14E, at 15% discount to
its historic average and in line with the sector despite stronger return ratios
(~25%) & superior margin profile (37% EBITDA margin vs 20% avg). We expect
4Q PAT to improve 17% QoQ led by 22% sales growth, implying sustained
improvement in revenue run-rate and key to re-rating potential. Reiterate Buy.

Larsen & Toubro: Addressing concerns on subsidiary profits; standalone margin is the key risk : Kotak Securities PDF link

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http://www.kotaksecurities.com/pdf/indiadaily/indiadaily03042012.pdf


Larsen & Toubro: Addressing concerns on subsidiary profits; standalone
margin is the key risk
` Subsidiaries may contribute Rs13 to FY2013E consolidated EPS with limited
downside risk
` Keys risk to estimates lies in standalone margins; execution and inflow
estimates achievable
` Marginally revise estimates; retain REDUCE with an SOTP-based target price
of Rs1,380

Automobiles: Mixed bag ` : Kotak Securities PDF link

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http://www.kotaksecurities.com/pdf/indiadaily/indiadaily03042012.pdf



Automobiles: Mixed bag
` Hero Motocorp volumes grew by 2% yoy in March 2012
` Maruti surprises positively due to increase in diesel engine capacity
` M&M continues its strong performance in utility vehicles
` Tata Motors passenger car numbers surprise positively

Indian Telecom Sector : GSM Operators: FinQuest

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Key Highlights
􀁺 The GSM operators added 8.78 mn new subscribers in February 2012, taking the total GSM
user base to 656.86 mn in the country, according to the COAI data. During the previous month
the subscriber addition was 8.44 mn.
􀁺 Subscriber addition primarily came from the smaller operators during the month despite their
2G licenses getting cancelled following the Supreme Court verdict cancelling 122 2G licence
that were issued in 2008.
􀁺 Steeper improvement in subscriber addition by the new operators seems to suggest that the
reducing competitive intensity story bandied about, post the license cancellation by the Supreme
Court has not come in.
􀁺 Uninor added the most 2.34 mn subscribers in February 2012 taking its total subscriber base to
41.14 mn; on the other hand Idea Cellular added 2.58 mn new subscribers during the month to
take its total subscriber base to 110.71 mn.
􀁺 Bharti added 1.82 mn subscribers, taking its total subscriber base to 178.78 mn users. The GSM
subscriber market share of the company dropped marginally to 27.22% in February 2012
compared to 27.30% in January 2012.
􀁺 Vodafone Essar added 8.4 lakh users in February 2011 against 8.6 lakh addition in January
2012 to take the company's total subscriber base to 149.44 mn. The market share of the company
dropped to 22.75% in February 2012 from 22.93% in the previous month.
􀁺 Aircel added 7.9 lakh new customers during February 2012 compared to 8.2 lakh in January
2012 while Videocon added 3.5 lakh customers taking its subscriber base to 6.2 mn.
􀁺 However other operators like Etisalat and Stel did not add any new subscribers during the
month and they are already in the process of winding up their operations in India.
􀁺 The subscribers from the 'B' and 'C' category circles constituted 54% of the total GSM subscriber
base in India. Both these category circles put together witnessed 4.59 mn subscriber additions
during the month of February 2012 as compared to the previous month.
􀁺 The 'Metro' and 'A' circles added 4.19 mn subscribers during the month constituting 48% of
the total subscriber net addition.
􀁺 Smaller operators like Idea Cellular, Uninor and Videocon gained subscriber market share by
17 bps, 28 bps and 4 bps respectively during February 2012 to take their respective GSM
subscriber market share to 16.85%, 6.26% and 0.94% respectively.
􀁺 The regulatory uncertainty continues to be a major issue for the incumbent operators going
forward. We expect the final NTP to be ready by June and perhaps could revive the industry
fortunes.
􀁺 We remain bullish on mobile operators under our coverage (Bharti Airtel and Idea Cellular)
despite such extreme regulatory uncertainty and flip-flop. We maintain our 'Buy' rating on
both Bharti Airtel and Idea Cellular with a target price of Rs 495 and Rs 133 respectively.

Accumulate ULTRATECH CEMENTS; Buy GRASIM INDUSTRIES : Kotak Securities PDF link

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http://www.kotaksecurities.com/pdf/dmb/MorningInsight02042012.pdf




ULTRATECH CEMENTS
PRICE: RS.1507 RECOMMENDATION: ACCUMULATE
TARGET  PRICE: RS.1592 FY13E P/E:16.5X
GRASIM INDUSTRIES
PRICE: RS.2629 RECOMMENDATION: BUY
TARGET  PRICE: RS.3109 FY13E P/E: 9.5X
‰ We recently met with the management of Grasim and Ultratech Cements
to get insights about cement and VSF demand and pricing scenario.
‰ Cement demand continues to remain high due to spurt in infrastructure
activity primarily in western and northern region.
‰ VSF prices have stabilized and pulp prices are also softening. This can aid
margin improvement.
‰ With excellent ordering seen in the road segment and pre-election spending for infrastructure projects in Gujarat, we expect cement demand to
remain strong going forward. Cement prices are also expected to remain
strong for next two quarters till monsoons. We thus revise our estimates
for Ultratech Cements and Grasim Industries to factor in improved pricing and volumes for FY13 and continue to maintain our positive bias for
both the companies.
‰ We thus continue to maintain ACCUMULATE on Ultratech Cements and
would advise investors to use declines in the stock to buy (Price target Rs
1592) and BUY on Grasim Industries (Price target Rs 3109 )
Key highlights about the company
Cement demand and pricing
Cement demand has been witnessing an improvement since past few months with
improvement in the demand from infrastructure segment as well as residential real
estate segment. Cement prices have also remained strong after witnessing declines
in Dec, 2011 to Jan, 2012. Prices have moved up in line with improvement in cement demand as well as increase in cost pressures.  Company's domestic dispatches
stand at nearly 35.7MT for Apr,11-Feb,12 vis-a-vis 34.57MT for the full year in FY11.
Though prices have moved up but margins may remain at similar levels on sequential basis since cost pressures continue to remain high. Freight cost per tonne may
remain high going forward due to hike in railway freight rates as well as expected
increase in diesel prices. Power and fuel cost per tonne may also remain high due to
expected increase in domestic coal prices by Coal India. Imported coal prices have
come down in past few quarters but corresponding rupee depreciation has netted off
its impact to some extent

Jagran Prakashan: Buying scale and growth, but profits a long way away : Kotak Securities PDF link

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http://www.kotaksecurities.com/pdf/indiadaily/indiadaily03042012.pdf


Jagran Prakashan: Buying scale and growth, but profits a long way away
` Newsprint price the key near-term trigger; advertising likely to recover in
the medium term
` Details of Jagrans Nai Dunia acquisition
` Retain BUY with FY2013E fair value of Rs140 (Rs150 previously)

India Natural Gas Gas prices could levitate to USD7-10/mmbtu range  HSBC research

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India Natural Gas
Gas prices could levitate to USD7-10/mmbtu range
 Media reports USD10/mmbtu delivered price for gas from
Turkmenistan into India
 With domestic gas producers vying for higher gas price, the
Turkmenistan gas price could provide a benchmark
 Domestic gas fields are viable at USD7/mmbtu and is an
acceptable price for all consumers classes

Jagran Prakashan (JPL) has acquired Nai Dunia Media Ltd: Edelweiss

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Jagran Prakashan (JAGP IN, INR100, BUY)
Jagran Prakashan (JPL) has acquired Nai Dunia Media Ltd, through an all cash buyout of Suvi
Info Management Pvt. Ltd, of which Nai Dunia is a subsidiary. Nai Dunia is a leading Hindi daily
published from Madhya Pradesh (MP) and Chhattisgarh. We are positive on this new
development as Nai Dunia’s acquisition lays a formidable platform for JPL to be a strong player
in the important Hindi markets of MP and Chhattisgarh. Entry of JPL through Nai Dunia poses a
threat to Dainik Bhaskar, the numero uno player in MP and Chhattisgarh. At CMP of INR100, JPL
stock is trading at P/E of 13.4x and 11.2x FY13E and FY14E, respectively. We maintain ‘BUY’
recommendation on the stock and rate it ‘Sector Performer’.
Key takeaways from Jagran’s Nai Dunia Acquisition concall:
• About Nai Dunia: 9th largest Hindi newspaper. 2nd largest player in terms of readership and
business volumes in MP and Chhattisgarh. 7 printing facilities. Editions published from
Indore, Gwalior, Jabalpur, Bhopal, Raipur and Bilaspur. Circulation of 0.5mn copies a day. As
per latest IRS survey, Nai Dunia slipped to No.3 in MP, just behind Patrika.
• Nai Dunia revenues: Nai Dunia’s revenues have grown at a CAGR of 31% from INR240mn in
2007 to INR1bn in FY11 on the back of fourfold growth in Average Issue Readership (AIR)
over the past 3 years. INR700mn of ad revenues in FY11. 25% of ad revenues are from
national advertisers. In FY12, INR1.05bn revenues are expected.
• Nai Dunia EBITDA: EBITDA loss of INR250mn. National revenues will contribute to positive
EBITDA. However, increase in circulation will continue to lead to EBITDA loss.
• Transaction details: Complete buyout of Suvi, which completely owns Nai Dunia. EV (net of
tax benefit): INR1.5bn. Nai Dunia has debt of INR200‐250mn. All cash transaction. Funded
by treasury funds of JPL. Tax impact on accumulated losses: INR750‐800mn. Accumulated
carry forward losses: INR2.5bn. Gross block of INR850‐900mn of Nai Dunia. Tax benefit in
FY13. No tax benefit in FY12. Cash outflow due to the transaction will be less than INR1.5bn
for JPL. Web Dunia is not part of the transaction.
• JPL’s balance sheet: More than INR3bn in JPL’s treasury funds. Net cash balance of JPL is
INR1bn (WC limit excluded from cash).

BHEL Concerns to stay: Edelweiss

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BHEL’s provisional PAT for FY12 and Q4FY12 is ahead of ours and Street
expectations led by higher operating margins while revenue was below
our expectations. Importantly, order inflow for the year plunged 63% YoY
to INR220bn. Order book stands at INR1.35tn, down 18% YoY. We
maintain ‘HOLD’ with a target price of INR266.
Bottom line surpasses expectations
BHEL’s Q4FY12 PAT came above our estimate at INR32bn (up 15% YoY). Revenue grew
13% YoY to INR207bn.For the full year; revenue growth came in at 17% and profit
growth at 14%.
Order inflow weak; Management targets 15‐16GW in FY13
The company’s Q4FY12 order inflow declined 60% YoY to INR130bn. For the full year
also order inflow dipped 63% YoY to INR220bn. The fall is predominantly in the power
segment, which plunged more than 70% YoY to INR135bn. Industrial segment posted
flat growth YoY at INR87bn. BHEL’s order book declined 18% YoY to INR1.35tn—first dip
over the past 10 years. Management in FY13 is targeting order inflow of 15‐16GW while
of delivery of 22GW. We believe that it is unlikely to achieve the target since structural
concerns persist. We have build in 7.5GW of order intake for FY13. BHEL has
commissioned 5GW of additional capacity taking its total installed capacity to 20GW.
Stake sale plan put on hold
BHEL has withdrawn FPO papers filed with the capital market regulator for share sale.
The stake sale, which had been approved by the Cabinet in 2011, was expected to raise
about USD1bn.
Outlook and valuations: Weak momentum; maintain ‘HOLD’
We do not anticipate any revival in the sector over the near term given environment
clearance, land and coal linkage issues. The stock currently trades at P/E of 9.8x and
9.4x FY13E and FY14E earnings, respectively. We maintain ‘HOLD /Sector Performer’
recommendation/rating on the stock with a target price of INR266.

JAIPRAKASH ASSOCIATES Political uncertainty eases :Edelweiss

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Media reports indicate that the UP government is seeking MoEF nod for
Jaiprakash Associate’s (JPA) Ganga Expressway project. We believe this
news is a directional positive as it will allay concerns of political
uncertainty post regime change in UP. While we have ‘HOLD’ on JPA due
to leverage concerns, we have ‘BUY’ on JPIN on strong real estate
performance and visibility on commencement of Yamuna Expressway.
Event: Media reports indicate that the Samajwadi Party government has decided to go
ahead with the 1,047 km, eight lane Ganga Expressway project proposed by the earlier
BSP government. Further, the Uttar Pradesh Expressways Industrial Development
Authority (UPEIDA) will send the proposal to the Ministry of Environment and Forests
(MoEF) for necessary clearances, instead of the project developer.
Background: In March 2008, JPA had won the bid to develop the Ganga Expressway, for
which the cumulative cost was then estimated at INR400bn. Modeled on the lines of
the 165 km Yamuna Expressway, this project entailed development rights on 30,000
acres (3.3 bn sq ft built up area) along the expressway. However, in the absence of
approval from the MoEF, JPA had withdrawn the INR10bn bank guarantee recently with
a commitment that it would be furnished whenever asked by the government.
Analysis: Whilst renewed momentum in a dormant project is a directional positive for
the company (and for its 83.1% subsidiary JPIN), we believe given JPA’s leverage, the
project will be a burden in the near term, as funding / bank guarantees may have to be
tied up amid uncertainty of a massive land acquisition exercise, which could be as high
as ~60,000 acres of fertile land along the densely populated Indo‐Gangetic basin.
Impact: We do not foresee any immediate direct impact on JPA given the nascent stage
that the project is in. However, sentimentally, it will be a positive for stocks of the
Jaypee Group (JPA, JPIN, JPVL [Unrated]) as it allays political concerns dogging the
Jaypee Group. We have a ‘HOLD’ recommendation on JPA given the balance sheet
concerns, where we believe that deleveraging will be key to stock performance. More
importantly, this enhances visibility for commencement of the YEP (held in JPIN – our
top pick in real estate space), which is scheduled to open later this month.

GSK Consumer Healthcare :From strength to strength :Centrum

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From strength to strength
GSKCH’s undivided focus, positioning and investment on the
health platform are expected to offer benefits in near to long
term as these have contributed to the company’s re-rating in
the past couple of years. Entry into new high growth
categories along with maintaining volume growth in its core
HFD (health food drink) segment is expected to boost
profitability. Given the strong balance sheet, high free cash
flows along with increasing dividend payout & strong
earnings visibility GSKCH is one of our preferred bets in the
FMCG space. We initiate coverage with a BUY rating.
􀂁 Leadership in HFD category: GSK consumer is undisputed
leader in the Rs35bn Indian HFD category having ~70%
market share across its brands, Horlicks, Boost, Viva and
Maltova. This segment accounts for 94% of the company’s
revenues and has grown at a strong 18.5% CAGR over CY07-
11 on the back of double digit volume growth.
􀂁 Multiple drivers for volume growth: Over the last few years
the company has grown at a healthy volume growth above
9% coupled with 4-6% price increase. We expect the
company to achieve double digit volume growth on the back
of increase in penetration (currently only 22% pan India),
strong focus on variants (23% of sales in 2011 from 17% in
2007) and pricing (small SKUs contribute only ~4% of sales),
increase in distribution coupled with growing sales in North
and West India (10% of sales).
􀂁 Diversification into new categories to boost growth: In
order to reduce its dependence on HFD category, the
company is focussing aggressively on new launches in the
non-HFD portfolio which has now become 7% of sales from
3% four years ago. It has made Horlicks the mother brand and
ventured into new product categories such as biscuits,
instant noodles, health bars, sports drinks and breakfast oats.
Growth rates and opportunity in these products are very high.
􀂁 High earnings visibility: We expect the company to post
16.5% revenue CAGR over CY11-13E on the back of healthy
double digit volume growth. Despite challenges of increasing
A&P expenses and raw material cost inflation, it has been
able to maintain its margins in the ~15-17% range on the
back of constant price hikes coupled with operating leverage
in employee cost, manufacturing cost and selling &
distribution costs. Hence we expect profitability to grow at a
CAGR of 18.5% over CY11-13E.
􀂁 Strong balance sheet: With negative working capital along
with low capex requirement (Rs3.5bn) over next couple of
years, the company has over Rs10.8bn in cash in CY11 which
is expected to increase to Rs14.4bn by CY13E translating into
cash of Rs343/share. We expect the company to steadily
increase its dividend payout which has been the case in the
past couple of years and in CY11 it was 41%.
􀂁 Valuations: The stock is currently trading at 26.5x and 21.9x
CY12E and CY13E EPS of Rs98.2 and 118.5 respectively. We
value the stock at 25x FY13E EPS in-line with its 1- year
average multiple. We initiate coverage on the stock with a
BUY rating and target price of Rs2963 (14% upside).
􀂁 Risks: i) Increase in raw material cost; ii) Competition getting
aggressive in the HFD segment and iii) Not being able to
scale up new launches.

CAIRN INDIA Second discovery in KG‐ONN‐2003/1 block : Edelweiss

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Today, Cairn India (Cairn) announced second discovery (Nagayalanka‐SE‐1)
in the KG‐ONN‐2003/1 block. We believe this discovery is value accretive to
the tune of INR7/sh. and we henceforth increase our TP to INR326/sh.
Event: Cairn has announced an oil discovery in KG‐ONN‐2003/1 (KG basin onshore
block). It has 49% stake in the block, while ONGC holds the balance 51%. The discovery,
Nagayalanka‐SE‐1, is in addition to the earlier discovery Nagayalanka‐1Z. Nagayalanka‐
SE‐1 (spud on November 25, 2011) had a gross pay of 57m hydrocarbon column in
cretaceous sandstone between the depths of 4369.2‐4426m. At the testing intervals of
4385‐4387m and 4416‐4420m, MD flowed at an average of 70 bbl/day oil and 0.6
mmscf/day of gas. The company has indicated that it will need to drill appraisal wells to
establish the commerciality for production from the block. The extended second phase
of exploration for the block will end on August 07, 2012. Minimum Work Programme
(MWP) has already been achieved for the block.
Management comment: Cairn management has indicated the following:
• In‐place reserves for the two discoveries= 550 mn bbls (57 mn bbls for earlier
discovery and ~500 mn bbls for the recent one)
• Recoverable reserves are estimated at 10% or 55 mn bbls
• Recovery rates are low as the reservoir is tight and the company will have to do
fracking and stimulation for recovering oil
• However, the positive side was that the oil is light and low in viscosity, which
makes it easy to flow to surface.
• The Operating Committee (OC) was informed yesterday and DGH today about the
discoveries.
• The exploration team on KG‐ONN‐2003/1 block is the same as the team that
discovered hydrocarbons in Sri Lanka.
Our view: We believe while Cairn will operate the block during exploration, ONGC will
do so during production. Assuming USD10/bbl of value for reserves, net value accretion
for Cairn is USD270mn or INR13.5bn, implying value addition of INR7/share.
Consequently, our SOTP increases to INR326/share (INR319/share earlier). We have
assumed long‐term crude price at USD95/bbl while calculating this SOTP. We continue
to maintain ‘HOLD’ on the stock. Current stock price of INR357/share implies that the
stock has factored in long‐term crude at USD105/bbl.

Container traffic hits a speed breaker ::Centrum

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Container traffic hits a speed breaker
Volumes at India’s 12 major ports continued to decline in
FY12 mainly led by the fall in iron ore volumes. Overall,
volumes declined 5.8% YoY to 43.7mn tonnes. However,
the trend in sequential improvement witnessed for the
last 5 months was broken with a 10.6% MoM drop in
overall thru-put. This is a particular phenomenon
witnessed in the month of Feb for the last 3 years when
there is a sudden drop in volumes sequentially which
later recovers in March. Volumes for POL (Petroleum, Oil
& Lubricants), Coal and other cargoes increased YoY
while iron ore and containers were major laggards. Iron
ore traffic continued its decline, falling 55.8% YoY and
5.8% MoM to 4.1mn tonnes. Container traffic too
mirrored the overall traffic trend declining 7.7% YoY and
by a sharper - 18.0% MoM given that during January it
had recorded its highest volumes in the last two years.
􀂁 Container volumes falter: Containerised traffic declined
7.7% YoY and 18.0% MoM to 0.56mn TEUs – its usual
trend in last two years for the month of February.
Volumes decline in Feb and then recover in March as Q4
has traditionally been the strongest quarter. Volumes at
JNPT declined 5.7% YoY and 18.5% MoM to 0.32mn TEUs.
Chennai port’s container traffic however fell sharply by
14.7% YoY and 20.4% MoM to 0.11mn TEUs.
􀂁 Iron ore throughput continues to remain low: Iron ore
traffic continued to remain low with volumes declining
55.8% YoY to 4.1mn tonnes. The Baltic Dry Index (BDI)
(an indicator of global demand for dry bulk commodities
including iron-ore and coal) continued to remain low
post the sharp fall in January, led by the glut in global
dry-bulk supply and slower demand. BDI was down 40%
YoY and 34% MoM to close at 738 on 28-Feb-12.
􀂁 Traffic mixed across ports: Kandla and Mumbai ports
reported healthy traffic with a growth of 11.9% YoY to
6.8mn tonnes and 17.9% YoY to 5.1mn tonnes
respectively on the back of POL volumes. JNPT and
Paradip reported small declines in overall volumes. While
JNPT faltered on POL & containers, Paradip lost on iron
ore volumes. Traffic at Mormugao and Vizag were the
worst affected by the ban in iron ore mining leading to
lower iron ore port volumes.
􀂁 Container volumes likely to remain steady: We expect
container volumes to remain healthy in FY13 despite
adverse global economic environment and perform
better than in FY12. For FY12YTD container volume
growth (in TEU terms) was 3.3%. We prefer GDL in the
container logistics space.

Reliance Power :Not out of the woods yet…: Nomura Research

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Not out of the woods yet…
Big-ticket projects still subject
to policy diktats, but current
valuation reflects otherwise


Action: Execution risk has not subsided; maintain Reduce
The majority of RPWR’s long-term earnings and two-thirds of the FCFEbased
fair value remains concentrated in three projects (Chitrangi, Sasan-
II, Samalkot), whose operational timelines and profitability remain subject
to regulatory diktats and fuel supply risk. Besides, the Krishnapatnam
UMPP remains a trouble-spot, irrespective of its operational status.
Catalyst: CMP reflects an ‘all is well’ picture, which is not the case, in
our view
Ongoing lobbying by private IPPs with the government yielding favourable
outcomes (which may not materialise) on near-term gas supply for
Samalkot and Chhatrasal block clearance are reflected in the sharp 71%
YTD run-up in the stock price, we believe. Further, our earnings forecasts
are sharply below consensus, suggesting potential earning downgrades.
FY12F/13F EPS cut by 32%/60% as Samalkot likely to idle until FY16F
We assume: 1) the 2,400MW Samalkot facility will be idle up to March
2015 due to unavailability of gas; 2) RPWR will surrender the 3,960MW
Krishnapatnam UMPP; and 3) Indonesian coal mining operations will
begin in 4QCY12 and ramp-up to 7.5mtpa by FY15F.
Valuation: FCFE-based milestone risk-adjusted TP lowered to INR94
Our 12M TP is pegged to the milestone-adjusted FCFE value of RPWR’s
25.7GW generation capacity and coal mining operations in Indonesia
(Phase #1, 7.5mtpa); at FY14F P/E of 30x and P/BV of 1.7x, the stock
trades at a significant premium to its peers. Our unadjusted FCFE-based
value is INR134, indicating a fairly 'low-risk' scenario is largely priced in.

Punjab National Bank: Target Price: ` 1,205:: Dolat Capital

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Followings are the key takeaways of a meeting with Punjab National
Bank’s management.
􀁺 On CASA deposit front, the bank’s management faces difficulty in maintaining
high level of 35% CASA due to interest rate gaps in deposits and stiff
competition.
􀁺 On credit book expansion plan, PNB’s management indicated credit growth
of 100-200bps higher growth than the industry; the bank awaits clarity on
monetary policy and Union Budget before finalizing internal target for credit
growth in FY13.
􀁺 The bank’s management expects NIM of 3.75%-3.8% in FY12; in 9MFY12,
the bank recorded NIM of 3.85%. In FY13, margin is expected to moderate
slightly. We also factor in 11bps decline in margin in FY13 due to faster drift
in yield on assets in declining interest rate scenario. Though, cut in CRR
would aid margin slightly.
􀁺 On NPA front, PNB’s management expects GNPA ratio to inch up in next 2
quarters mainly due to high slippages and lesser credit growth. As on end-
December’11, the bank had GNPA ratio of 2.42%.
􀁺 On Air-India loan restructuring front, banking sector total working capital
loans of ` 225 bn is going for restructuring before end-March’12. Part of
loans (of ` 85bn) would be converted into bonds with non-SLR status but
with central government backing; the bond paper would carry coupon rate of
9.25% and with zero risk-weight. Of the total exposure, banks would take
NPV losses of 10-12% (of almost ` 23bn). PNB exposure to Air-India is Rs
21bn and the bank management expects to take NPV hit of ` 500-1000mn
in Q4FY12 itself. Banks would be better off with replacement of loans with
such bond paper. The NPV hit of 10-12% would not have any significant
impact on the banks’ profitability.
􀁺 In power sector, the bank’s management indicated that some of the newly
commissioned power generation companies might not be in a position to
fully pass-on their incremental higher cost of production in accordance with
agreements they have entered into with power purchasers. This would reflect
into adverse impact on their profitability.
On core operation front, the bank’s performance would remain robust and the
bank would accrue benefits of declining interest rate in form of capital gains and
MTM write-backs. We maintain our positive stance on the stock.

IPCA Laboratories– BUY ‘On a growth trajectory:: IIFL

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Ipca is all set to enter into a new growth trajectory with the long
awaited Indore SEZ approval now in sight. Management announced
that the new facility at Indore has gone through successful FDA
inspection and should receive formal approval shortly. The company
expects immediate FDA clearance of six ANDAs with approval of the
facility. We believe full utilization of new capacity at Indore can add
~Rs4bn incremental sales. Ipca has a strong franchise in the Indian
branded business coupled with high margin exports. Ipca had
consistently grown above the Indian pharmaceutical industry. While
last few quarter’s performance was lackluster, we expect robust
performance to set in at the domestic front. Export business, which
was restrained due to capacity constraint, will also flourish following
the Indore SEZ approval. We raise our FY12-14E estimates to factor in
Indore SEZ contribution & higher margins. We expect 20% CAGR in
revenues and 23% CAGR in earnings. We maintain our BUY rating on
Ipca and raise our 9-month target price from Rs332 to Rs382.
US FDA approval expected shortly; a near term trigger
Ipca has been facing capacity issues for the last few quarters. USFDA
approval for Indore SEZ is a key trigger for accelerating growth in the
US. Management announced that new facility at Indore has gone
through successful FDA inspection and should receive formal approval
shortly (no #483 observations during inspection). We believe this will
further enhance margins as company currently incurs fixed cost of
~Rs60mn every quarter.
Well capitalized on Anti-Malarial brand
Ipca is one of the few WHO approved companies for sourcing of drugs
like Amodiaquine, Artesunate, Artemether & Lumefantrine. Ipca has
very well capitalized on the opportunity (evident from past few
quarter’s sales from this business). The Company now aims for Rs4bn
revenue by participating in tender process (FY11 sales at Rs1.2bn and
opportunity worth ~US$250mn).
Valuation attractive; recommend BUY
We estimate revenue and PAT CAGR of 20% and 23% respectively
over FY11-14. Ipca has a strong franchise in Indian branded business
(55% of total business) coupled with high margin exports. We believe
the valuations are still attractive at 11x FY13E EPS as we expect
expansion in trading multiple. We maintain our BUY rating with a
revised 9-month target price at Rs382.

BUY Talwalkars Better Value Fitness Ltd: B P Equities

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Company Overview
Talwalkars Better Value Fitness Limited (TBVFL), is the largest chain of health centers in India having
115 health clubs spread across 56 cities and patronized by 113,000 members. Currently, it is promoted
by the Talwalkar and Gawande groups together. Out of the total number of health clubs, 79 are owned by
TBVFL, 10 are legacy gyms, 10 are part of subsidiary companies wherein TBVFL has a 51% holding, 6
are part of the JV with Pantaloon Retail and the remaining 10 are purely franchisee outlets operating under
the HI FI brand targeting the Tier II and III cities.
Investment Rationale
Introduction of HI FI Gyms results in accelerated expansion at zero capex cost
TBVFL is well positioned to increase its penetration into various parts of the country with launch of the HI
FI concept which is mainly targeting the middle income population in the Tier II and III cities. This has
helped the company to promote its brand and create an awareness in the smaller cities and also increase
the total number of health clubs at a faster rate. In case of the HI FI format, TBVFL does not require
capex though the royalty component is similar to the subsidiary model and additional upfront income of
Rs. 1mn resulting in higher revenue at zero capex and a faster roll out of health clubs.
Healthy sales growth supported by fast paced expansion and demographic mix
TBVFL is focused on increasing its total number of gyms particularly in HI-FI segment which is leading to
faster expansion on account of its attractive business model. TBVFL being benefitted from a surge in the
number of people aged 35-50 years who form a major portion of the population. We expect rising awareness
of the need to be healthy and maintain one’s physical appearance will be the major reason for increase
in membership. As per our projections, the sales are expected to grow at a CAGR of 19% from
FY11 to FY14.
Focus on franchisee Model to support RoCE going forward
TBVFL has a large gym base, in which the amount of capex varies depending on the level of ownership.
This optimal mix of owned, subsidiaries and franchisees on a pan Indian basis would support RoCE going
forward. As Franchisee model does not require capex, we believe the company’s focus is on expanding
its franchisee network to support RoCE.
Valuation and Outlook
The stock is currently trading at a P/E of 11.9x, P/BV of 2.1x and an EV/EBIDTA of 7.2x its FY13 estimates.
We have taken a discount of 30% to the average EV/EBITDA (8.9x) of its international peers as
TBVFL is in a growth phase and operates in an emerging market. Thus we have arrived at an EV/EBIDTA
multiple of 6.2x for valuing the company. Considering the strong business model and expansion plans
coupled with increasing awareness of health and fitness, TBVFL is well poised to deliver high growth rate
in the coming years and we expect it to grow by 30% and 29.7% for FY12E and FY13E respectively. We
initiate the company with a ‘BUY’ rating arriving at a target price of Rs. 205 (an upside of 37%.)

ACCUMULATE MindTree : Pinc

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We recently met the management of MindTree at corporate office
in Bangalore. Following are the key points of discussion.
Clients’ budgets are flat to marginally positive – Based on
feedback by top 30 clients, the indications are flat to marginally
positive growth in budgets for the next year.
IT services to lead, Prod. Engg. Services (PES) to be muted –
According to the management, IT services growth should maintain
the high growth trajectory and PES is likely to be muted.
Nevertheless overall growth rate is expected to be higher than
NASSCOM’s initial estimates of 11-14% for FY13.
Pricing is expected to be stable – There has been pricing increase
of~5% in FY12 due to increase in onsite pricing in Q1 and Q2 and
offshore pricing in Q2 and Q3. Even though current macro
environment is weak, the pricing is expected to be stable going
ahead.
Europe to be slower than US – Europe has grown significantly
~72%YoY in 9MFY12. However, the management expects a slower
growth in FY13 for Europe compared to US.
3,000 campus offers for FY13- The joining ratio is expected to be 75%
of the campus offers. The headcount at the end of Q3FY12 is 10,934.
Utilisation has dipped 300bpsQoQ to 68.3% but the highest level in
last 5-6 years was 72.5% in Q1FY12.
Employee pyramid is the primary margin lever – According to the
management, the main lever for improving the operating margin is
change in the employee age pyramid.
No client attrition to Happiest Minds – There has been no client
attrition to Ashok Soota’s venture Happiest Minds. However, a few
senior management have exited to join the rival firm in past but the
situation is stable now.
Outlook and Recommendation – MindTree has been able to deliver
good growth in IT services and even after weakness in Product Engg.
Services the overall growth rate is higher than the industry. Q3FY12
margin of 17.3% was at higher INR/USD of 50.1 and Q4 margin is
likely to dip significantly due to rupee appreciation. We have
concerns on improvement in the operating margin and sustainability
of the same. Maintain ‘ACCUMULATE’ recommendation on the stock
with a TP of Rs520 based on 10x PER multiple on 18-months forward
earnings.

Sasken :REDUCE:: PINC

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We recently met the management of Sasken at their corporate
office in Bangalore. Following are the key points of discussion.
Large account to stabilise in FY13– The shift of revenues from
Sasken to other vendor in case of a large account has happened in
recent quarter but still some part of the work is with Sasken. A stable
annual run rate might be in the range of USD14-15mn after the June
2012 quarter.
Semiconductor stable – TI is the largest client in this segment
where projects are coming in Android platform. In this platform, a
latest large deal is won in Q3 with TI. Also, due to changes in wireless
technologies there are some project wins with Intel and Qualcomm.
Emerging segments gaining traction – Consumer electronics,
healthcare, education, enterprise mobility and automotive (rear-seat
entertainment) are newer areas of interest for Sasken. These new
segments are likely to attain quarterly run-rate of USD3mn during
FY13.
Attrition declined but still very high – Most of the replenishment is
done in the form of freshers (~30 freshers are added every month).
There are efforts to retain employees and reduce attrition further.
With improved operations utilisation is also expected to increase.
Operating margin likely to remain muted– Operating margin is
likely to remain muted due to lack of growth which takes away
potential benefits of scale. Also, the recent currency movement will
reflect in lower margins in Q4 compared to Q3. Long term
sustainability of margin is threatened due to decline in revenue.
Open offer at maximum price of Rs180 per share – payable in cash
for an aggregate amount not exceeding Rs8,64.8mn. The offer size
represents 22% of the aggregate of the Company's paid up equity
capital and free reserves as on March 31, 2011. At the end of Q3,
Sasken has cash and equivalent of ~Rs1,800mn.
Outlook and Recommendation - There is further decline expected in
top account and margin sustainability is also a concern. The
fundamental problem is revenue growth which can be mitigated only
through some deal wins. The stock has recently run up with the news
of open offer. We downgrade the recommendation to ‘REDUCE’ with
a target price of Rs120 based on PER multiple of 6x 18-months
forward earnings.

Wipro: ‘REDUCE’: Pinc

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We recently met the management of Wipro at corporate office in
Bangalore. Following are the key points of discussion.
Clients’ budgets are flattish – Clients have largely finished their
budget exercise by January end and it is flattish on an average. The
decision cycle on discretionary projects is taking longer time and
actual spending of the budget will depend on macro environment.
BFSI and Energy & Utilities (E&U) have traction, hi-tech weak –
The management has not witnessed pressure in BFSI and deal wins
are pretty strong in manufacturing and E&U. However, telecom OEM
and hi-tech verticals are posing issues and likely to be weak.
Europe opening up but lacks momentum – Europe has performed
decently well in the last quarter but a large scale movement to
outsourcing something similar to what happened in US might not be
the case. This is due to current political backlash and complex labour
laws in European nations. US will continue to be a growth driver and
witness some early signs of recovery.
Operating margin expected to be better– Operating margin for IT
services is just better than HCL Tech but lower than Infosys and TCS.
The company expects the margin to improve with increase in growth
rates providing leverage in SG&A and employees expense through
improved pyramid.
Growth rate difference with peers expected to lower down- For the
last two years, the company has shown lower volume growth
compared to peers. The difference in revenue growth rates is likely to
narrow down in FY13 and Wipro’s revenue growth rate should be
closer to its peers. According to the management, Q4FY12 revenue
should be somewhere in middle of the guided range of 1-3%QoQ
growth in dollar terms.
Outlook and Recommendation – Wipro has shown some early
positive signs due to restructuring but the full benefit will reflect
when growth rates are higher which will also help increase its
margins. We believe this process is likely to take longer time to
materialise especially under current macro environment. The stock
has also run recently to factor in the early benefits of restructuring
exercise. Maintain ‘REDUCE’ recommendation on the stock with a TP
of Rs445 based on 16.5x PER multiple on 18-months forward
earnings.

Biocon: Termination of agreement with Pfizer :Centrum

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Termination of agreement with Pfizer
Biocon and Pfizer have terminated the $350mn (Rs17.5bn) agreement
for the supply of insulin and its analogues. Pfizer was to market
Biocon’s insulin products in various countries including the US. The
termination of agreement is negative for Biocon in the short term as it
has to find another partner to market its insulin products in the
developed and developing markets or alternatively to create its own
marketing set up. The exit of Pfizer is due to the change in business
priorities in Pfizer’s biosimilar programs. Biocon has already received
$100mn (Rs5.0bn) upfront payment and is likely to receive a major
portion of $100mn (Rs5.0bn) lying in escrow account. Moreover,
Biocon will also get undisclosed settlement fees on termination of the
agreement. We reiterate Buy with a revised target price of Rs350
(based on 16x FY14 EPS).
􀂁 Details of the Pfizer agreement: Biocon entered into an agreement
with Pfizer Inc., US for the supply of human recombinant insulin and
its three analogues in October’10. The four biosimilars have a
combined market size of $14bn (Rs700bn). The deal size was $350mn
(Rs17.5bn). Under the agreement, Biocon has already received
$100mn (Rs5.0bn) as upfront payment and $100mn (Rs5.0bn) is lying
in the Escrow account. Biocon is likely to get the major portion of this
amount. In addition, the company was to receive additional
development and regulatory milestone payments up to $150mn
(Rs7.5bn) but is unlikely to receive this amount. Biocon was also to
receive additional payments linked to Pfizer’s sales of four insulin
biosimilars across the global market.
􀂁 Bicon to retain intellectual property: As on 12th March’12, all rights
of insulin range of products licensed to Pfizer will revert to Biocon. All
insulin products distributed under the brand names Univia and
Glarvia will be available to Biocon only. Hence, all intellectual
property rights under the deal will revert to Biocon. Hence Biocon is
not a loser in terms of milestone payments and intellectual property
rights.
􀂁 Company to receive settlement fees: Biocon is likely to receive an
undisclosed settlement fees on the termination of the agreement
with Pfizer. This will be reflected in Q4FY12 results of Biocon.
􀂁 In search of another partner: Biocon and Pfizer have said that due
to the individual priorities for the biosimilar business it is in the best
interest to move forward independently. Biocon will have to find
another partner to market its insulin range of products in the
developed and developing markets. There are three major players in
the global insulin market namely: Novo Nordisk, Eli Lilly and Sanofi
Aventis. Currently, Biocon has 15 partners in various emerging
markets. Alternatively, Biocon will have to establish its own
marketing set-up. Both these are time consuming exercises.
􀂁 Divestment of Axicorp stake: After entering into the insulin
agreement with Pfizer, Biocon divested its majority stake in Axicorp,
Germany. Axicorp was a front of Biocon for marketing its products in
Europe. Hence, Biocon will have to establish its own marketing set-up
in Europe or find another marketing partner.
􀂁 Out-licensing of NCEs: Biocon has plans to out-license its IN-105
oral insulin molecule to a global pharma company. The molecule has
completed phase III trials in India. The company’s other molecule
Itolizumab for psoriasis has completed phase III clinical trials in India
and has exhibited an excellent safety and tolerability profile. Biocon
has plans to out-license this molecule also.
􀂁 Reiterate Buy: We have revised our EPS estimates downwards by
18% for FY13 and 23% for FY14 due to the termination of Pfizer deal.
At the CMP of Rs249, the stock trades at 12.5x FY13E EPS of Rs19.8
and 11.4x FY14E EPS of Rs21.9. We are positive on the long-term
prospects of the company in view of its strong growth in branded
formulations and CRAMS segments and the possibility of outlicensing
of two of its NCE molecules. We reiterate Buy with a target
price of Rs350 (based on 16x FY14E EPS).

Infosys: ‘ACCUMULATE’ ::Pinc

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We recently met the management of Infosys at their corporate
office in Bangalore. Following are the key points of discussion.
Clients’ budget are flat to marginally negative – Clients have
largely finished their budget exercise and at this moment it indicates
that budgets are flattish to negative. The momentum in project ramp
ups is expected to begin from Q1FY13.
Bid to outperform NASSCOM projections; guidance likely to be
conservative though – The company has not given indication for
next year but expects to beat NASSCOM projections of 11-14%
growth in FY13. According to the management, Q4FY12 guidance is
realistic. Q4 guidance was given at INR/USD rate of 52 and expected
30bpsQoQ decline in margin which could now be higher in the range
of 180-200bps due to rupee appreciation in the current quarter.
BFSI steady and emerging verticals are looking good – BFSI is
steady except capital markets which are showing some weakness.
Retail, Life Sciences and Energy & Utilities are showing traction.
Telecom will be weak due to shift in services from wireline to wireless
pulling down the growth but efforts in wireless will absorb some of
this. Focus on Products, platforms and Solutions (PPS) - Among
services lines, PPS will be the focus area along with steady efforts in
ADM. Acquisitions might be target to gain platforms which will also
help to increase non-linear revenues.
VISA rejection rates and the impending litigation – Due to political
backlash VISA rejections have increased but this will either result in
increased offshoring or hiring locals in the west. We believe the
solution lies in the mix of two and hence it should not significantly
dent the profitability. The litigation in US is continuing and all
support is provided by the firm.
23,000 campus offers, salary hike expected to be lower – The
campus offers are 23,000 for next year and the attrition is expected to
dip which will also result in lower salary increase (in the range of 9-
11%) compared to last two years.
Outlook and Recommendation – Infosys is likely to benefit from
improving situation in the west and expected financial stability. In
FY13, no significant pressure on operating margin due to lower
salary increment and stable currency compared to FY12 on an
average. Maintain ‘ACCUMULATE’ recommendation with a TP of
Rs3,200 based on 18x PER multiple on 18-months forward earnings.

Power Grid Corp of India : Firing on all cylinders; remains our top pick: Nomura Research

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Firing on all cylinders; remains our top pick
Robust earnings outlook, highly
execution-focused management
merit a premium valuation


Action: Firing on all cylinders; reiterate Buy
We are more upbeat on PWGR's earnings outlook post our recent meeting
with its charged-up top management. Robust growth visibility (FY12-14F
EPS CAGR at 20%, FY12-17F EPS CAGR at 16%) in the context of fuelrisk-
plagued IPPs, reasonable multiples (FY14F P/B at 1.7x, P/E at 11.3x)
and lacklustre relative YTD price performance add to our bullish
investment case; PWGR remains our top pick in the sector.
Catalyst: Potential earnings surprise driven largely by capitalization
We raise our FY12F-14F capitalization forecast by 24% (to INR108bn,
INR120bn and INR131bn for FY12F/13F/14F, respectively), and keep
capitalization rates at 30% beyond FY14F; yet we believe capitalization
can surprise positively.
Equity dilution overhang – probable, but not imminent
Flexibility in phasing the funding split in capex, debt covenants permitting
gearing to go up to 3:1 (implying gearing approaching the 2.33x normative
funding split for its transmission projects not being a trigger to raise fresh
equity), and the possibility of the FY15-19 regulatory regime (to be set by
the regulator in FY14) permitting higher normative gearing and/or RoIbased
returns (vs. RoE currently) may not necessitate the need to raise
equity.
Valuation: RI-model-based TP set at INR135, prefer PWGR over NTPC
FY14F implied target multiples at 2.2x P/B and 14.4x P/E are within their
long-term averages. We maintain PWGR should trade at a premium to
NTPC (no 'specific' fuel risk and superior earnings prospects) Our TP for
the two stocks peg PWGR at a 10% premium to NTPC on FY14F P/B.

IT: “Budgets frozen, waiting for spending :PINC

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“Budgets frozen, waiting for spending”
We recently met the management of Infosys, Wipro, MindTree
and Sasken at their corporate offices in Bangalore. Infosys and
Wipro pointed toward flattish budgets of clients in this year.
However, MindTree expected a marginal increase in budgets.
NASSCOM’s projection and Cognizant’s CY12 revenue guidance
indicated a better second half in terms of demand environment.
We revisit and tweak our earnings estimates. Our preference
among large caps is Infosys, TCS and HCL Tech in that order.
Among mid-caps, we prefer NIIT Tech, MindTree and Hexaware.
Clients’ budget frozen – Clients have broadly finished their budget
exercise and the global macro uncertainty is likely to delay
discretionary spending but thrust offshoring. The momentum in
project ramp-up is expected to begin from Q1FY13.
NASSCOM projection provides some direction – Companies have
not revealed their hiring plan for the next fiscal. But the large tier
firms have given a commentary to outperform the guidance.
Aggressive mid-tier IT firms confident to grow above industry
average.
Competitive pressures leading to innovation – Due to soft demand
environment, firms want to innovate through IP revenues and build
expertise in emerging technologies like cloud computing and
mobility. This will allow participation in complex and innovative deals
which are incrementally growing at faster pace.
Mid-cap IT firms’ growth and margins – A few mid-cap firms have
kept the revenue growth momentum to match the higher end of the
spectrum. Margin fluctuations in certain companies have been higher
leading to uncertainty. The possibility of pricing increase in FY13 is
low hence levers like offshoring, utilisation will come into play.
Companies with good revenue growth momentum can benefit from
change in employee mix.
Top picks - Infosys among large caps; NIIT Tech, MindTree and
Hexaware among mid-caps.

AUTO INDUSTRY VOLUME UPDATE - MARCH 2012 : Kotak Securities PDF link

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http://www.kotaksecurities.com/pdf/dmb/MorningInsight03042012.pdf


AUTO INDUSTRY VOLUME UPDATE - MARCH 2012
Most of OEM's ended FY12 on a high with strong dispatches in March 2012.
Maruti Suzuki, Tata Motors and Mahindra & Mahindra (automotive division)
reported their highest ever monthly figures in March 2012. On the other
hand 2W players (Hero MotoCorp and TVS Motors) reported subdued
dispatch growth numbers. In FY13, we expect auto industry volumes to
grow by 10-12%. Having said that, we expect demand to remain sluggish in
the near term and improve gradually. Factors that would be critical for
volume growth in FY13 include good monsoon, reduction in interest rate
and pick-up in domestic economic activities.

Buy Jagran Prakashan: Target : Rs 111 ::ICICI Sec PDF link

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http://content.icicidirect.com/mailimages/ICICIdirect_JagranPrakashan_%20EventUpdate.pdf


A c q u i r e s   ‘ N a i   D u n i a ’ ;   e n t e r s   M P C G
Jagran Prakashan has acquired Suvi Info Management (Indore), which
owns the brand “Nai Dunia”. Nai Dunia is the third largest Hindi daily in
the Madhya Pradesh and Chhattisgarh (MPCG) market with a revenue of
~ | 100 crore and EBITDA loss of | 25 crore in FY11. With an enterprise
value of | 225 crore including a | 22 crore debt, Jagran Prakashan would
witness a cash outgo of ~ | 200 crore. The deal would imply a tax benefit
of | 75 crore for Jagran on account of accumulated losses of Nai Dunia of
| 250 crore. The deal would imply EV/sales (FY11) at 2.2x for Nai Dunia.
Suvi Info will be merged with Jagran in FY13.

Automobile Sector | Census auto ownership data: Raising some questions ::MF Global

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The auto ownership data from the Census 2011 raised and partially
answered 3 questions (a) How fast did the rural car market really grow (b)
Is the urban two wheeler market saturating and (c) How strong is the link
between income/urbanisation levels and car penetration?
Rural car market penetration growth did not outpace urban centres: Data
from the census shows that over the past decade, the percentage of
households that own a car in urban and rural areas increased at the same rate.
The proportion of urban households that own a car increased from 5.6% to
9.7%, while in rural areas, it was up to 2.3% from 1.3%. Of all households that
own a car, the proportion of rural households fell from 37% to 33%.
This is surprising, given that in the past five years, automobile companies have
consistently highlighted the rural market growth. For instance, MSIL reported
that the proportion of its rural sales grew from ~3.5% in FY08 to ~20% in FY11.
In our view, the variance can be attributed to: (a) difference in the definition of a
”rural” area between the census committee and companies, (b) Previously,
rural customers purchased vehicles from urban outlets in the absence of a rural
dealership. These customers may have shifted to the fast-expanding rural
dealers. Hence, while sales from rural channels jumped manifold, the growth in
rural consumption may have been more sedate.
Urban two-wheeler market penetration grew moderately: While the number
of households that own a two-wheeler increased at roughly the same rate as
that of cars (rising ~1.8x over the decade) there was a vast difference in the
rate of increase between rural and urban markets. Rural household twowheeler
penetration increased by 2.1x during the decade (rising from 6.7% to
14.3%); while the comparative figure for urban markets was a mere 1.4x (up
from 24.7% to 35%). This would seem to signal that urban markets may be
closer to reaching saturation levels. Growth in these markets are likely to be
driven by replacement demand rather than new customer acquisitions.
Car penetration linked to income levels/urbanisation rates: Our state-wise
analysis of car ownership patterns suggests a close link between: (a) the
income level of a state, and (b) the proportion of urban population. The r2 with
both these factors is >0.7—indicating a fair degree of correlation. Delhi (high
income/urbanisation) has the highest car penetration level, while Bihar (with
low income/urbanisation levels) has the lowest penetration levels. With both
these factors likely to rise, cars can sustain strong growth in the future.
Overall data demonstrates strong growth potential: The census data
portrays a picture of a developing economy with low, but fast-increasing
penetration levels. While there are some segments that may grow slower than
others (urban two-wheeler market); the overall long-term growth potential
remains strong. We sign off with one statistic to highlight the available growth
headroom: a little less than half the households (~44%) do not own any means
of transport, not even a bicycle.